PERNITO ARRASTRE SERVICES, INC., APOLONIO BACALLA, DOING BUSINESS UNDER THE STYLE “BACALLA ARRASTRE SERVICES”, ARISTON AGUILAR, DOING BUSINESS UNDER THE STYLE “AGUILAR ARRASTRE …

Pernito Arrastre Services versus Philippine Ports Authority

The Case

These are consolidated petitions brought by arrastre and stevedoring operators in the Port of Tacloban, Leyte, against the Philippine Ports Authority, or PPA, and related private respondents. The operators ask the Supreme Court to permanently restrain the PPA from taking over the arrastre and stevedoring operations in that port, invoking their constitutional rights to due process of law and to the non-impairment of contracts. The case matters because it fixes the constitutional boundaries of the State's police power over port services: it tells us when a takeover, a permit revocation, a regulatory fee, and a regulated monopoly will survive the due process and contract clauses.

Procedural History

The litigation began in the Court of First Instance of Cebu, where Pernito Arrastre Services and other operators filed an action for declaratory relief and mandamus against the PPA, assailing the integration policy and the ten percent charge. The trial court issued a writ of injunction against enforcing integration in the Cebu port, but presumed the ten percent charge reasonable in the meantime. The PPA went to the Supreme Court on certiorari, and a temporary restraining order was issued; the Court later allowed the trial court to proceed. The trial court then denied the operators' supplemental application for injunction against the ten percent charge, and that denial gave rise to the first petition before the Supreme Court.

Separately, Eastern Leyte Arrastre Service sued in the Court of First Instance of Leyte for injunction, prohibition, and damages against the takeover. That court issued a preliminary injunction, then dissolved it on the ground that no showing was made that Presidential Decree No. 857 is unconstitutional, and denied reconsideration; Eastern Leyte then filed its own petition with the Supreme Court. A third petition came from Froilan Basio and other labor contractors, whose petition in the Leyte court was dismissed after the PPA submitted a compliance binding itself to absorb the labor contractors and workers; they challenged that dismissal as a denial of due process. A fourth petition came from Leyte Integrated Port Service, Incorporated, or LIPSI, questioning the validity and constitutionality of the provisions from which the PPA derives its takeover authority. The Supreme Court consolidated the four petitions and resolved them in one decision.

Facts

In November 1972 the Government created an Ad Hoc Committee on Waterfront Services to study the problems of arrastre and stevedoring, among them the oppressive cabo system and the rise of violence and thefts in the ports. The Committee recommended integrating arrastre and stevedoring operations in each port so that ultimately only one contractor would service each port, and the Bureau of Customs issued Memorandum Order No. 28-75 providing for the merger of all existing cargo-handling contractors in each port. In Tacloban, the thirty-six existing labor contractors were required to merge first into four organizations and then into one, and the four agreed to merge into LIPSI.

On December 23, 1975, Presidential Decree No. 857 took effect, transferring to the PPA the powers of the Bureau of Customs over arrastre and stevedoring and authorizing the PPA to regulate rates and to levy dues, rates, or charges for the use of government premises, works, facilities, and services. The PPA imposed a ten percent charge on the monthly gross earnings of operators. On January 31, 1978, the PPA issued LIPSI a temporary permit, expressly non-transferrable and revocable for violation of its conditions or for justifiable cause. The PPA later cited violations: failure to acquire needed cargo-handling equipment, inability to render night work, tolerance of unlicensed cabos, employment of child labor, and non-remittance of the government share. LIPSI's own general manager wrote the PPA admitting that integration existed only on paper and that labor contractors still clung to their position as lords of the pier workers.

On April 26, 1979, the PPA issued a special order creating its own Tacloban unit and directing a takeover of the entire arrastre and stevedoring services in the port, effective not later than June 1, 1979. The takeover took place on that date, using the same dock labor force, which was placed on regular payrolls and organized into a genuine labor union. The takeover spawned the suits below and the consolidated petitions before the Supreme Court.

Issues

• Whether or not the PPA's takeover of arrastre operations in the Port of Tacloban is a valid exercise of police power that does not violate the constitutional right to non-impairment of contracts.
• Whether or not the operators' temporary permits vested property rights, such that their revocation and the takeover deprived them of property without due process of law.
• Whether or not the ten percent charge imposed by the PPA on gross earnings is a valid regulatory charge and not an excessive revenue measure.
• Whether or not the takeover violates the constitutional prohibition against monopolies in restraint of trade.

Applicable Provisions

Section 20, paragraph b, of Presidential Decree No. 857, as quoted in the decision, provides:

To regulate the rates or charges for port services or port related services so that, taking one year with another, such rates or charges furnish adequate working capital and produce an adequate return on the assets of the Authority.

This is the source of the PPA's rate-setting power, which the Court upheld against the attack on the ten percent charge.

Section 6, paragraph b, subparagraph ix, of the same decree provides:

To levy dues, rates, or charges for the use of the premises, works, appliances, facilities, or for services provided by or belonging to the Authority or any other organization concerned with port operations.

This is the basis for treating the ten percent share as reasonable consideration for the use of government premises and services.

Condition 7 of LIPSI's temporary permit provides:

That this temporary permit is non-transferrable and shall remain valid until a special permit shall be issued by PPA Manila, provided, however, that the same may be revoked for violation of any of the conditions herein set or justifiable cause(s) at the discretion of this Authority.

Because the permit was temporary and revocable by its own terms, it conferred no vested right that due process would protect.

Ruling

On the first issue, the Court held that arrastre operations in the various ports are affected with public interest, and that the State, in the exercise of police power through the PPA, may revoke temporary permits and take over port operations whenever the public interest and welfare of the stevedoring industry and its workers justify it. Whatever right the petitioners acquired under temporary permits must yield to the State's valid exercise of police power, and the contract clause must be subservient to police power enacting public regulations for the general welfare.

On the second issue, the Court held that only LIPSI had a temporary permit, and the rest were merely allowed or tolerated to operate. Even assuming all held permits, no property right was vested, because what was given was a mere privilege, and the holders should have known their authority could be terminated at any time the public welfare required.

On the third issue, the Court held that it is within the sound discretion of the PPA to impose a reasonable charge, and found the ten percent share a reasonable consideration for the use of government premises, works, facilities, and services, including the supervision inherent in upgrading port operations.

On the fourth issue, the Court held that in industries affected with public interest, a regulated monopoly is not necessarily proscribed if deemed necessary to protect and promote public interest, and that exclusive franchises in public services are not violative of the law against monopolies.

Doctrine

• Arrastre and stevedoring operations in the ports are affected with public interest and are subject to regulation and control for the public good.
• Police power is the most essential, insistent, and least limitable of powers; where it clashes with a property right, it is accorded much leeway, and due process cannot validly be invoked against it.
• The contract clause yields to police power enacting public regulations intended for the general welfare of the community.
• A temporary or hold-over permit to operate a port service is a mere privilege, not a property right, and may be withdrawn anytime the public welfare deems it best.
• A regulatory charge such as the ten percent share on gross earnings is valid where it is reasonable consideration for the use of government premises and services.
• In industries affected with public interest, a regulated monopoly is not necessarily prohibited; the use of the word regulate in the Constitution indicates that some monopolies, properly regulated, are allowed.

Disposition

The petitions were dismissed and the takeover by the Philippine Ports Authority of the arrastre and stevedoring operations in the Port of Tacloban was upheld, with the restraining orders against the PPA lifted.

Remember This

Memorize the line that a temporary permit is a mere privilege, not a property right, and that the contract clause bows to police power in port services affected with public interest. Examiners use this case to test police power against due process and non-impairment, the validity of regulatory fees, and regulated monopolies in public utilities.