G.R. No. L-48304 - Philippine Ports Authority vs. Mendoza

Case Summary (G.R. No. L-48304)

Petition, Orders Challenged, and Procedural Setting

PPA filed a petition for certiorari and prohibition directed principally against respondent judge. PPA asserted that respondent judge committed a grave abuse of discretion amounting to lack of jurisdiction when he issued an injunction restraining PPA, pendente lite, from enforcing its integration policy in the port of Cebu City, and from allowing certain arrastre operators to operate individually and independently as arrastre and stevedoring contractors.

The challenged March 31, 1978 order directed, among others, that PPA be prohibited from enforcing the policy of integration or merger of arrastre operations, thereby in the meantime allowing the private respondents to operate individually and to facilitate the free flow of cargoes serviced by them. The same order also enjoined USDI from requiring the private respondents to remit one hundred percent (100%) of gross arrastre earnings or portions thereof, from collecting charges, and from withholding cargo releases, and further restrained USDI from appropriating or converting to its own use equipment belonging to the private respondents, conditioned on the posting of a bond in the amount of Fifty Thousand (P50,000.00) Pesos.

Respondent judge’s stated justification included findings that Section 26 of Presidential Decree No. 857 did not authorize compulsory merger as a condition for granting a permit, and that PPA’s power to provide services within port districts, whether on its own or by contract or otherwise, was not exclusionary.

PPA also assailed respondent judge’s April 17, 1978 order, which allowed, without notice and hearing, two named arrastre services—Aquino Arrastre Services and Watergate Arrastre Service—to intervene, adopt the petition, and extend the benefits of the injunction to them.

At first, only PPA questioned the subject orders. USDI initially allowed the injunction to remain effective for its own account as far as possible, but later filed a Motion to Intervene which the Supreme Court granted on October 24, 1978. USDI then withdrew its motion through a manifestation dated November 22, 1978, but the withdrawal was denied by resolution dated February 1, 1979. USDI later filed a Manifestation adopting in toto the petition of PPA.

Factual Antecedents Relating to Port Administration and Integration

The private respondents did not dispute the principal antecedent facts alleged in the petition. Before martial law, the operation of arrastre and stevedoring in various domestic ports allegedly suffered from widespread disorder associated with the so-called “cabo system,” with violence and thefts affecting both labor and cargo traffic. Under martial law, an Ad Hoc Committee on Waterfront Services was created in November 1972 to study port problems, chaired by the Deputy Commissioner of Customs and composed of representatives from labor, the shipping community, the Bureau of Customs, port end-users, and other sectors.

On April 23, 1973, the committee reported and recommended that each shipping company be serviced by only one arrastre and stevedoring contractor per port. The recommendation sought integration in each port so that, ultimately, only one authorized contractor would service that port’s needs.

The Bureau of Customs allegedly approved and implemented the committee’s initial integration recommendations on August 1, 1973 and September 1, 1974. Later, on May 8, 1975, the Bureau of Customs issued Memorandum Order No. 28-75, requiring the merger of all existing cargo handling contractors in each port. At that time, the port of Cebu had more than fifty contractors. To integrate in stages, the Bureau of Customs required a first stage merger into ten corporations, and then a further stage into one operator. The ten named corporations were listed in the record.

Those ten corporations received separate permits from the Bureau of Customs. An eleventh contractor, Bisaya Land Transportation Co., Inc., was also authorized. Except for those eleven organizations, none other was allegedly authorized to perform arrastre and stevedoring services in Cebu. The respondents in this case, including Pernito, were not issued separate permits; Pernito operated under the permit of Vismin Stevedores & Forwarders, Inc.

Statutory Framework for PPA and Its Integration Policy

Presidential Decree No. 505 created PPA on July 11, 1974, and the decree was amended by Presidential Decree No. 857 dated December 23, 1975. Under the decree, PPA was entrusted with carrying out an integrated program for planning, development, financing, construction, maintenance, and operation of ports and port districts. The powers, duties, and jurisdiction of the Bureau of Customs concerning arrastre operations were transferred to and vested in PPA.

Upon assuming functions, PPA conducted an investigation and study and found that in the Philippines stevedoring and arrastre services were separated and provided by separate contractors, with an excessive number of companies supplying stevedoring and/or arrastre services. PPA concluded that this proliferation was wasteful and inefficient, caused underpayment and irregularity of work, and undermined long-term port efficiency and increased shipping costs.

On May 4, 1976, PPA’s Board of Directors adopted Resolution No. 10, approving Policies on Port Administration, Management and Operation. The resolution allegedly adopted the Bureau of Customs policy of placing responsibility for arrastre and stevedoring in one organization in a port.

To implement integration, PPA issued Memorandum Order No. 21 on May 27, 1977, declaring as policy that only one arrastre-stevedors operator/contractor should engage in cargo handling services in a port, and requiring that two or more contractors operating in the same port premises who desired to continue or renew cargo handling services must merge into one organization within a prescribed period after due notice.

Pursuant to Memorandum Order No. 21, the eleven contractors began discussions for merger. In October 1977, the eleven port services contractors in Cebu City formed USDI, and PPA recognized USDI and granted a special permit on November 4, 1977 for USDI to handle exclusively the cargo handling requirements of the entire port in Cebu City pending eventual award of a management contract.

The Civil Case Below and the Genesis of the Injunction

On February 27, 1977, private respondents instituted in the Court of First Instance of Cebu (Branch VI), presided over by respondent judge, an action for declaratory relief and mandamus with preliminary preventive and mandatory injunction and damages, docketed as Civil Case No. R-16829.

In their pleadings, private respondents alleged that they were among more than fifty independent arrastre/stevedoring contractors prior to May 8, 1975 issuance of the Bureau of Customs Memorandum Order No. 28-75. They said they joined the merger into ten arrastre/stevedoring corporations, but that after PPA’s Memorandum Order No. 21 raised the issue of total merger, the small contractors—including themselves—refused assimilation with big contractors allegedly controlled by shipping companies. They claimed that, after assurances the interest of small operators would be protected, the eleven licensed corporations agreed to merge and formed USDI.

Private respondents further alleged that USDI’s controlling interests reneged on commitments to small stockholders. They said they then left USDI and applied with PPA for separate permits to operate their services, but their applications were denied. They also questioned PPA’s collection of a ten percent (10%) portion of gross receipts.

On March 31, 1978, respondent judge issued the injunction order that became central to PPA’s petition. On April 17, 1978, without notice and hearing, he allowed Aquino Arrastre Services and Watergate Arrastre Service to intervene and extend the injunction’s benefits to them.

The Supreme Court later intervened with temporary relief. On May 30, 1978, it issued a temporary restraining order enjoining the respondents from effecting the questioned March 31, 1978 and April 17, 1978 orders. That restraining order was confirmed in a subsequent order on June 6, 1978, which restrained respondent judge from giving effect to the March 31, 1978 injunction order and from hearing Civil Case No. R-16829, and also restrained Pernito Arrastre Services, Inc. from performing arrastre and stevedoring services in Cebu. On July 24, 1979, the Supreme Court modified its restraining order by lifting the portion that restrained respondent judge from proceeding with the hearing of Civil Case No. R-16829.

Issues Raised in the Supreme Court and the Court’s Framework

The Court identified the principal issues in the petition as: whether PPA had power to require integration of arrastre and stevedoring services; whether PPA’s integration policy through compulsory merger was unconstitutional and void under Section 2, Article XIV of the 1973 Constitution and Section 20 of Act No. 3518; whether the questioned orders restored the status quo prior to the controversy; and whether the injunction constituted a judicial interference in purely administrative functions.

The Court treated these issues as necessary to determine whether respondent judge committed grave abuse of discretion amounting to lack of jurisdiction when he issued the preliminary injunction.

PPA’s Power to Require Integration

On the first issue, the Court held that PPA had power to regulate and require integration. The Court anchored this holding on the objectives stated in Section 2 of Presidential Decree No. 857 and on the grant of regulatory power under Section 26 of Presidential Decree No. 857, which authorized PPA, after consultation with relevant government agencies, to make rules and regulations for planning, development, construction, maintenance, control, supervision, and management of ports and port districts and the services provided therein,

Case Syllabus (G.R. No. L-48304)

Parties and Procedural Posture

Philippine Ports Authority (PPA) filed a petition for certiorari and prohibition against Hon. Rafael L. Mendoza, in his capacity as presiding judge of the Court of First Instance of Cebu, Branch VI.
The petition named as private respondents Pernito Arrastre Services, Inc. and eighteen other arrastre groups operating under specified business styles.
The petition principally attacked the respondent judge’s issuance of a writ of preliminary injunction in Civil Case No. R-16289.
The questioned order dated March 31, 1978 restrained PPA from enforcing its policy of integration in the port of Cebu City and directed allowance of individual operation by the private respondents.
The petition also challenged an April 17, 1978 order that allowed specified parties to intervene without notice and hearing and extended to them the injunction benefits.
During the pendency of the petition, the Court issued a temporary restraining order on May 30, 1978 and confirmed it in a June 6, 1978 order.
The Court later lifted the portion restraining the respondent judge from proceeding with the hearing of Civil Case No. R-16829 via a July 24, 1979 modification.
United South Dockhandlers, Inc. (USDI) initially allowed the effects of the injunction to stay, later sought leave to intervene, and eventually adopted the petition in toto, subject to procedural rulings by the Court.
The Court resolved the petition by determining whether the respondent judge committed grave abuse of discretion amounting to lack of jurisdiction in issuing and implementing the injunction orders.
The Court granted the petition and reversed the injunction orders, making the restraining order permanent.

Key Factual Allegations

Prior to the declaration of martial law, the operation of arrastre and stevedoring services in Philippine ports was alleged to be in serious disarray under a “cabo system,” with violence and thefts allegedly rampant.
After martial law, an Ad Hoc Committee on Waterfront Services was created to study problems in arrastre and stevedoring operations.
The committee’s recommendation aimed at the integration of arrastre and stevedoring operations so that only one contractor would ultimately service each port.
The Bureau of Customs approved and implemented initial integration steps, and later issued Memorandum Order No. 28-75 requiring the merger of cargo handling contractors in each port.
At the time of the dispute, the port of Cebu City was served by more than fifty arrastre-stevedoring contractors, and the Bureau of Customs allegedly implemented a two-stage merger scheme into ten corporations and thereafter into one.
The private respondents alleged that they were among the many independent contractors operating before Memorandum Order No. 28-75, and that after the PPA’s integration policy, the smaller contractors refused assimilation with bigger contractors controlled by shipping companies.
The private respondents alleged that the big contractors in the eventual merged entity reneged on commitments to small stockholders, prompting the private respondents to apply to PPA for separate permits, which PPA denied based on integration policy.
The private respondents also alleged that they challenged the collection of ten percent (10%) of gross receipts by PPA from arrastre and stevedoring contractors.
In the court below, the private respondents instituted an action for declaratory relief and mandamus with preliminary preventive and mandatory injunction and damages against PPA and USDI, docketed as Civil Case No. R-16829.
On March 31, 1978, the respondent judge issued a preliminary injunction restraining PPA pendente lite from enforcing integration and directing allowance for individual operation by the private respondents.
On April 17, 1978, the respondent judge allowed certain parties to intervene without notice and hearing and extended the injunction’s benefits to them.
The Court found that the respondent judge’s stated basis for restoring the “last peaceable uncontested status” rested on an incorrect appreciation of the status quo.

Port Integration Policy History

Presidential Decree No. 505 created the Philippine Ports Authority (PPA), and Presidential Decree No. 857 amended it.
Under the decree framework, PPA was entrusted with an integrated program for planning, development, financing, construction, maintenance, and operation of ports and port districts nationwide.
The decree transferred to PPA the powers, duties, and jurisdiction previously exercised by the Bureau of Customs concerning arrastre operations.
PPA allegedly conducted thorough investigation and found that stevedoring services and arrastre services were separately provided by different contractors, and that excessive proliferation of service providers was wasteful and inefficient.
PPA’s investigation allegedly concluded that the proliferation of contractors resulted in underpayment of workers, lack of regularity of work, diminished long-term port efficiency, and increased shipping costs.
On May 4, 1976, PPA’s Board passed Resolution No. 10 adopting policies for port administration, management, and operation.
PPA adopted the Bureau of Customs policy that placed on only one organization the responsibility for operation of arrastre and stevedoring services within one port.
On May 27, 1977, PPA issued Memorandum Order No. 21, which stated the policy that only one arrastre-stevedors operator/contractor should engage in cargo handling services in a port, and required merging by multiple contractors after due notice.
In October 1977, eleven port service contractors formed USDI, and PPA allegedly recognized USDI and granted a special permit on November 4, 1977 to handle exclusively cargo handling requirements of the entire Cebu City port pending eventual award of a management contract.
The private respondents allegedly applied for separate permits only after alleging that the controlling interests in USDI reneged on commitments.

Statutory and Constitutional Framework

The Court treated PPA’s authority to regulate port services as grounded on Section 2 of P.D. No. 857 setting forth objectives for coordinated and optimized port administration and port district development.
The Court identified Section 26 of P.D. No. 857 as empowering PPA to make regulations for planning, development, construction, maintenance, control, supervision, management, and maintenance of good order in ports and port districts.
The Court cited Section 6, Subsection 2, par. V of P.D. No. 857 as specifically granting authority “to provide services” in port districts and approaches by PPA itself, by contract, or otherwise, including loading, discharging, and handling goods.
The private respondents invoked Section 2, Article XIV of the 1973 Constitution on private monopolies and combinations in restraint of trade.
The pri