Title
Manila International Ports Terminal, Inc. vs. Philippine Ports Authority
Case
G.R. No. 196199
Decision Date
Dec 7, 2021
PPA revoked MIPTI's franchise without due process, seized its properties, and unlawfully took over operations. Courts ruled the actions unconstitutional, awarding MIPTI damages.

Case Summary (G.R. No. 196199)

Core Facts

MIPTI received a franchise under PD No. 634 (Jan. 7, 1975) as amended by PD No. 1284 (Jan. 16, 1978). MIPTI began operations under a MOA with PPA on April 1, 1980. MIPTI was sequestered by PCGG on April 2, 1986 but continued operating under monitoring. In June–July 1986 PPA sent notices alleging deteriorating performance and specified violations; on July 19, 1986 Executive Order No. 30 (EO 30) was issued revoking MIPTI’s franchise and authorizing PPA to take over; PPA implemented the takeover and seized equipment on July 21, 1986, placing Metrostar and later ICTSI in operational control. MIPTI sued for nullity of EO 30, recovery of properties and damages.

Procedural History

MIPTI filed civil action (RTC Manila, Branch 15). The trial court (Apr. 30, 2003) declared EO 30 unconstitutional, found PPA’s takeover illegal, and awarded large replacement cost, lost profits, rentals, exemplary damages and attorney’s fees. The Court of Appeals (CA) affirmed with modification (Sept. 22, 2010): it upheld denial of due process and illegality of seizure but reduced property valuation to P19,049,710 (depreciated book value) and adjusted lost profits to P250,000/month, deleting the rentals award. Both parties sought review; the Supreme Court resolved consolidated petitions.

Issues for Resolution

  • Whether EO 30 was constitutional and whether the revocation of MIPTI’s franchise and PPA’s seizure of MIPTI’s properties complied with procedural due process and governing law (PDs and MOA).
  • Whether the operative fact doctrine legitimizes the acts taken under EO 30 prior to judicial invalidation.
  • Proper measurement and allocation of damages (replacement/market value, depreciation, rentals, lost profits, nominal/exemplary damages, attorney’s fees, interest).

Supreme Court Holding — Overview

The Court (applying the 1987 Constitution) (1) declared Executive Order No. 30 unconstitutional insofar as it was used to effect a revocation and takeover that violated MIPTI’s procedural due process rights; (2) declared PPA’s takeover of MIPTI’s properties illegal; and (3) modified the monetary relief: awarded nominal damages (P1,000,000), exemplary damages (P200,000), attorney’s fees (P500,000), costs; ordered MIPTI to return excess rentals (P15,646,933.27) and imposed legal interest of 6% per annum from finality on amounts due. The Court also struck down the award for unrealized profits and deleted the CA’s award of P19,049,710 because prior rentals exceeded that amount.

Characterization of EO 30 and Publication Question

The Court accepted that EO 30 was a legislative act (an exercise of the legislative power then vested in the President under the 1986 Freedom Constitution) and therefore subject to the publication requirement. The CA had found EO 30 unconstitutional for lack of publication; the Supreme Court found EO 30 was in fact published (Official Gazette, July 21, 1986), so lack of publication was not a valid ground. Nonetheless, the Court held EO 30’s practical effect (the immediate revocation and takeover) violated due process for reasons explained below.

Legal Framework on Franchise and Due Process

The Court reaffirmed that a franchise, though traditionally described as a special privilege, has evolved to be protected as property requiring due process before revocation. The grant and repeal of franchises are subject to constitutional limits (public interest/common good) and cannot be exercised arbitrarily. Due process has two components: procedural (adequate notice and opportunity to be heard) and substantive (justification for deprivation). The constitutionally required standard is fairness and freedom from arbitrariness, adapted to the circumstances.

Procedural Due Process Analysis — Failure of Fair Play and Investigation

Even though EO 30 was published, the Court found the revocation unconstitutional because the manner of revocation and takeover violated MIPTI’s procedural due process rights. PD 1284 (Section 4(c)) and the MOA (Section 14.01) required PPA to conduct periodic inspections and, upon a proper investigation or showing of violations, recommend suspension or revocation. The Court found, on the record, that PPA did not conduct a meaningful investigation before recommending revocation: MIPTI was given an extremely short time to reply (notice at 5:30 p.m. on July 18, 1986 with a 9:00 a.m. deadline the next day), submitted a reply on July 19, 1986, and the franchise was revoked the same day and practically taken over within days. The sequence and haste evidenced lack of reasonable opportunity to be heard and arbitrary action inconsistent with due process and fair play. The Court emphasized that even where urgency exists, due process protections cannot be dispensed with.

Operative Fact Doctrine — Inapplicability to Validate Unconstitutional Acts

The Court rejected PPA’s contention that the operative fact doctrine should validate the takeover and subsequent acts that followed under EO 30. The doctrine may, in exceptional circumstances, preserve certain effects of an act later declared unconstitutional to prevent undue prejudice to those who relied on it, but it does not constitutionalize the invalid act. The Court concluded extraordinary circumstances did not exist to apply the doctrine to excuse PPA’s failure to follow PD 1284 and the MOA; moreover, there was no showing that third parties were unduly prejudiced by nullifying EO 30, and PPA’s unlawful takeover warranted remedies for MIPTI.

Valuation of Seized Properties — Depreciation and Evidence

On compensation for seized equipment and properties the RTC had computed a replacement cost (P180,000,000) based on contemporaneous market prices; the CA reduced valuation to P19,049,710 based on MIPTI’s financial statements reflecting depreciation. The Supreme Court agreed that depreciation must be considered (depreciated replacement cost is appropriate for assets not traded in an open market) and therefore upheld the CA’s reliance on the depreciated net book value as the better evidence of fair value.

Rentals Previously Received Must Offset Replacement Award

The Court applied an equitable adjustment: making a replacement-cost award as of date of taking creates the legal fiction that ownership passed as of that date and therefore negates an entitlement to interim rentals. Consequently any rentals previously paid or collected by MIPTI for use of its equipment while others used them must offset the replacement award. The record showed MIPTI received rentals totaling P34,696,643.27 (from various sources and admissions). Because that sum exceeded the depreciated value P19,049,710, the Court deleted the CA award and ordered MIPTI to return the excess rentals of P15,646,933.27 to PPA.

Lost Profits / Unrealized Profits — Rejected

The Court struck down awards for unrealized/lost profits. The reasons: (a) lost profits premised on continued enjoyment of a franchise are speculative because a franchise is subject to repeal and no vested right to future profits can be predicated on continued possession of a franchise; (b) causation was insufficient because the source of MIPTI’s profits was its franchise operations (not merely ownership of equipment); (c) MIPTI did not establish with reasonable certainty that it would have continued earning profits for the remaining franchise term; and (d) PPA’s initial enforcement of EO 30 (then presumed valid) complicates attributing liability for lost profits to PPA. Accordingly the award for unrealized profits was not sustained.

Nominal, Exemplary Damages and Attorney’s Fees — Awarded

The Court awarded nominal damages of P1,000,000 under Article 2221 as vindication of MIPTI’s property right invaded by PPA’s failure to comply with PD 1284 and the MOA. Exemplary damages of P200,000 were awarded because the Court found PPA’s conduct was arbitrary, hasty and oppressive (manifestations of bad faith) warranting corrective/ exemplary damages. Attorney’s fees of P500,000 and costs were also awarded under Article 2208, justified by the need to litigate and the demonstrated bad-faith conduct.

Interest — Rate and Computation

Applying Nacar v. Gallery Frames principles, the Court ordered legal interest at 6% per annum from finality of the decision until full payment and reduced any higher post-finality interest previously imposed. The Court clarified that interest on liquidated claims accrues as of judicial demand or default, while interest on unliquidated claims begins to run from the date the judgment establishes the amount with reasonable certainty (i.e., finality).

Reinstatement of Franchise — Denied as Moot/Expired

The Court declined to reinstate MIPTI’s franchise, observing the franchise had expired (January 16, 2003) by the time of the RTC decision and it is not the court’s role to fashion or re-create a

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