G.R. No. 135639 - Terminal Facilities and Services Corp. vs. Philippine Ports Authority

Terminal Facilities and Services Corporation (TEFASCO) is a domestic corporation engaged in providing port and terminal facilities, including arrastre and stevedoring, at its privately owned port in Barrio Ilang, Davao City.
The Philippine Ports Authority (PPA) is a government agency supervising, regulating, and controlling ports and port operations, including private ports.
TEFASCO proposed in 1975 to construct a specialized terminal complex in Davao City to ease congestion at government ports in Sasa and Sta. Ana, focusing on handling specialized cargo such as bananas, sugar, fertilizers, beer, lumber, plywood, and container cargo.
An inter-agency committee studied TEFASCO's proposal and recommended approval, highlighting the technical and economic viability of the specialized terminal to address existing congestion and improve cargo handling efficiency in the area.

On April 21, 1976, PPA Board of Directors passed Resolution No. 7, approving TEFASCO’s project subject to terms and conditions stated in the technical committee report and usual government rules.
PPA’s May 7, 1976 letter authorized TEFASCO to start work, specifying facilities to be constructed and terms and conditions appended thereto, including payment of all applicable fees to proper authorities, prescribed limits on cargo handled, and other procedural requirements.
TEFASCO borrowed millions in foreign and local loans and invested heavily, completing the terminal with significant infrastructure including a 400-meter concrete wharf, warehouses, mechanized equipment, and a container yard.
Without TEFASCO’s consent, PPA imposed additional onerous conditions by requiring a Permit to Construct application, incorporating new terms such as (a) fifteen-year operation permit with automatic transfer of improvements to PPA upon expiration, (b) no handling of general cargo unless specifically authorized, (c) all rates to be approved by PPA, and (d) an application fee based on estimated cost.

On June 10, 1978, PPA issued a Special Permit imposing for the first time a 10% government share of arrastre/stevedoring gross income, and 100% wharfage and berthing fees on cargo diverted to TEFASCO's wharf.
By Administrative Order No. 9-81 and Memorandum Circular 36-82, PPA notified arrastre operators of government share imposition and mandated collection of 100% wharfage and berthing fees on private wharves.
TEFASCO repeatedly requested extensions and reductions in these fees but conflicted with PPA’s ultimatum and threats of business closure.
On February 10, 1984, TEFASCO and PPA executed a Memorandum of Agreement (MOA) where TEFASCO acknowledged arrears and agreed to pay a reduced 6% government share, open its pier to all cargoes, and accepted a permit tenure of five years extendible by another five; PPA promised to issue necessary permits. TEFASCO complied and settled payments under protest.

On August 30, 1988, TEFASCO sued PPA for refund of government share payments and damages due to illegal exactions of 100% berthing and wharfage fees, also seeking nullification of the MOA and other PPA issuances that modified the original PPA Resolution No. 7.
The Regional Trial Court (RTC), Branch 17, Davao City, ruled in favor of TEFASCO on July 15, 1992, nullifying the MOA and subsequent PPA issuances, ordering PPA to pay TEFASCO: retroactive reimbursements of government share, 30% berthing charges, 50% wharfage fees for 1977-1991, dredging expenses, damages for PPA’s violations, and attorney’s fees with 12% interest.
PPA appealed to the Court of Appeals (CA), which reversed the RTC in the initial decision, upholding PPA’s impositions.
TEFASCO moved for reconsideration; the CA’s Amended Decision partially affirmed the RTC, ordering PPA to pay TEFASCO 50% wharfage fees, 30% berthing fees, and P500,000.00 as attorney’s fees, but denied other claims.

TEFASCO (G.R. No. 135639) petitioned to reinstate the RTC decision in full, challenging the validity of the government share and MOA.
PPA (G.R. No. 135826) sought to set aside CA’s award of damages and attorney’s fees.
The central issues pertain to the nature of the contract and obligations, the legality of PPA’s impositions (100% wharfage and berthing fees, government share), the propriety of damages awarded to TEFASCO, and the validity of the MOA.

Whether the arrangement between TEFASCO and PPA, particularly under PPA Resolution No. 7 and related communications, constituted a binding contract with enforceable terms.
Whether PPA’s imposition and collection of 100% wharfage fees and berthing charges on use of a privately owned port is valid under existing laws and regulations.
Whether TEFASCO is entitled to recover actual damages represented by 50% wharfage fees and 30% berthing charges lost as a result of PPA’s illegal imposition and collection for the period 1977 to 1991.
Whether the imposition of 10% (later 6%) government share on TEFASCO’s arrastre and stevedoring gross income and the MOA executed to pay government share and acknowledge arrears are valid and binding.
Whether the award of attorney’s fees and other damages (including dredging expenses) to TEFASCO was proper.