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

Case Summary (G.R. No. 135639)

Background and Preliminary Agreements

TEFASCO proposed in 1975 to construct and operate a specialized terminal complex to ease congestion in Davao City’s government ports. This proposal was endorsed by an inter-agency committee citing technical and economic viability. The PPA Board adopted TEFASCO’s project under Resolution No. 7 (April 21, 1976), approving the construction and operation subject to specified terms and conditions, which did not include PPA’s later demands for one hundred percent (100%) government dues as wharfage and berthing fees, nor the controversial imposition of a “government share” on TEFASCO’s gross income.

Contractual Nature of the Agreement Between TEFASCO and PPA

The Court established that the arrangement between TEFASCO and PPA was not a mere privilege or regulatory permit but a binding contract. TEFASCO made substantial investments totaling over One Hundred Fifty-Six Million Pesos by 1987 in reliance on PPA’s authorization and assurances embodied in Resolution No. 7 and related communications. The contract aimed to mutually benefit both parties by alleviating port congestion and expanding business opportunities. The case law cited (Ramos v. Central Bank and Commissioner of Customs v. Auyong Hian) underscored that when a party acts in good faith based on government assurances involving considerable expense, the government is estopped from revoking or altering the terms unilaterally.

Illegality of PPA’s Additional Impositions on TEFASCO

Subsequent permits and orders issued by PPA after the initial contract introduced onerous and unauthorized conditions including:

Imposition of one hundred percent (100%) wharfage and berthing fees on TEFASCO's clients.
A “government share” equal to ten percent (later reduced to six percent) of TEFASCO's gross income from arrastre and stevedoring services.
Threats and ultimatums to collect arrears with penalties and orders to cease operations.

These imposed charges were not stipulated in the original contract or authorized by law and were enforced under coercive circumstances, with no voluntary consent from TEFASCO.

Legal Framework on Wharfage and Berthing Fees

The Court referenced P.D. No. 857 and the Tariff and Customs Code, explaining that rates for wharfage and berthing fees must conform to schedules fixed by law or adjusted by the President upon PPA’s recommendation. Specifically:

Wharfage dues on private ports should be fifty percent (50%) of rates applicable to government ports as fixed by P.D. No. 441.
Berthing charges apply only to vessels berthed at national ports, as defined by executive orders and applicable statutes; private ports like TEFASCO's do not qualify as national ports and hence are not subject to berthing charges.
PPA's collection of 100% wharfage and berthing fees without presidential approval was invalid and discriminatory.

Actual Damages Awarded to TEFASCO

TEFASCO successfully proved that it suffered quantifiable damages in the form of lost port usage fees between 1977 and 1991 due to PPA’s illegal collection of the additional fees from TEFASCO's clientele. The Court applied well-established principles of actual or compensatory damages, prescribing reasonable certainty standards for loss quantification and allowing recovery of “lost profits” based on documented cargo and vessel use. The trial court and appellate findings that fifty percent (50%) of wharfage fees and thirty percent (30%) of berthing charges would fairly represent TEFASCO’s lost earnings were affirmed.

Invalidity of the “Government Share” and Related Memorandum of Agreement (MOA)

The Court ruled that the imposed government share on arrastre and stevedoring income was not part of the original contractual terms and was thus unlawful. It was a burdensome exaction devoid of contractual or legal basis and functioned as an afterthought by PPA to exploit TEFASCO’s capital and labor. The MOA signed under duress, acknowledging arrears and reducing the government share rate, was held invalid for want of consideration and voluntariness, constituting an unenforceable novation. The prevailing law mandates that licenses and permits must not impose confiscatory license taxation or arbitrary burdens that would effectively prohibit lawful business activity.

Attorney’s Fees and Other Awards

The grant of attorney’s fees to TEFASCO was upheld as justified, considering that it was compelled to litigate to defend itself against unjust and coercive acts by PPA. However, the award of expenses for dredging and blasting was set aside, as such costs properly fell to TEFASCO under its contract and the law, especially given that dredging public ports is a government responsibility only when such ports are vested in the PPA.

Final Holdings and Orders

PPA was ordered to reimburse TEFASCO for:
- Fifty percent (50%) of wharfage fees amounting to approximately P15.81 million.
- Thirty percent (30%) of berthing charges amounting to approximately P3.96 million.
- The illegally collected government share totaling approximately P5.09 million.
These amounts shall earn interest at six percent (6%) per annum starting July 15, 1992 (date of the RTC decision).
PPA is also ordered to pay P500,000.00 as attorney’s fees to TEFASCO.
Going forward, PPA may collect only legally imposed rates pursuant to the Tariff and Customs Code and presidential decrees.
The government share imposition is declared void, and PPA has no authority to charge such percentage shares in TEFASCO's gro

Case Syllabus (G.R. No. 135639)

Parties and Procedural History

Two consolidated petitions for review were filed:
- G.R. No. 135639 by Terminal Facilities and Services Corporation (TEFASCO), the petitioner.
- G.R. No. 135826 by Philippine Ports Authority (PPA), the petitioner.
The petitions challenge the Amended Decision dated September 30, 1998, issued by the former Special Second Division of the Court of Appeals in CA-G.R. CV No. 47318.
The Court of Appeals had ordered PPA to pay TEFASCO substantial sums representing shares of wharfage dues, berthing fees, and attorney's fees.
TEFASCO seeks reinstatement of the trial court’s original decision declaring the validity of the government share invalid.
PPA contests the Court of Appeals’ ruling awarding damages and attorney's fees for alleged illegal charges.

Background and Factual Context

TEFASCO, a domestic corporation based in Barrio Ilang, Davao City, operates a private port providing terminal facilities, arrastre, and stevedoring services.
In 1975, TEFASCO proposed the construction of a specialized terminal complex to alleviate congestion in the government ports of Sasa and Sta. Ana.
This proposal was welcomed by PPA, which organized an inter-agency committee that recommended approval citing the lack of specialized cargo handling in government ports and technical and economic viability.
Specialized cargoes include bananas, sugar, fertilizers, pallets of beer, lumber, and plywood.
The project promised decongestion benefits, cost savings, productivity enhancement, and employment growth in Davao.

Approval and Contractual Terms

On April 21, 1976, PPA passed Resolution No. 7 which approved the TEFASCO project proposal subject to specified terms and usual government regulations.
The approval letter of May 7, 1976 from PPA formalized acceptance and authorized commencement of work under conditions enshrined in an enclosure entitled “Terms and Conditions of PPA Board Approval.”
These terms imposed duties such as paying applicable fees and permits, submitting plans for approval, responsibility for damages during construction, and a completion deadline within 18 months.
The project was to handle general cargo and build banana export traffic over the succeeding five years.
All rates and charges were to comply with government rules with ongoing PPA regulatory oversight, including customs regulations.

Subsequent Impositions and Enforcement Actions

Despite initial approval, PPA later imposed new onerous conditions via:
- Resolution No. 50 (Oct 1, 1976) requiring TEFASCO to apply for a construction permit with new restrictions including a fixed operation period, transfer of improvements upon expiration, and stricter regulatory compliance.
- Special Permit No. CO/CO-1-067802 (June 10, 1978) which introduced contentious provisions:
  - Mandatory remittance of 10% government share from gross arrastre and stevedoring income.
  - Imposition of 100% wharfage and berthing charges on cargo and vessels using TEFASCO’s private wharf.
  - Strict compliance with PPA's rules and non-competition clauses.
PPA also issued Administrative Order 09-81 and Memorandum Circular 36-82 imposing further financial obligations and fee assessments on TEFASCO.
TEFASCO repeatedly requested adjustments and extensions but faced final and non-negotiable demands with threats of port closure.

Memorandum of Agreement and Litigation

On February 10, 1984, TEFASCO and PPA executed a Memorandum of Agreement (MOA) acknowledging arrears, reducing government share from 10% to 6%, and opening TEFASCO’s pier to all commercial cargo.
The MOA imposed a 5-year tenure for cargo handling services with possibility of 5-year extension.
TEFASCO complied and paid the arrears under protest.
TEFASCO filed suit on August 30, 1988 seeking refund of illegally collected government shares and wharfage and berthing fees, and nullification of the MOA and PPA issuances modifying the original contract.

Trial and Appellate Decisions

The Regional Trial Court (RTC) ruled in favor of TEFASCO:
- Declared MOA and subsequent PPA impositions null and void.
- Awarded TEFASCO reimbursement of government share and partial wharfage and berthing fees as damages.
- Awarded damages for violation and attorney’s fees with 12% interest per annum.
The Court of Appeals initially reversed the trial court ruling, validating PPA’s impositions.
Upon reconsideration, the appellate court partially affirmed the trial court’s decision:
- Confirmed illegal imposition of 100% wharfage and berthing fees.
- Awarded TEFASCO 50% of wharfage fees and 30% of berthing fees as actual damages.
- Awarded attorney’s fees of P500,000.

Legal Issues Presented

Characterization of the relationship and obligations between TEFASCO and PPA: whether it constituted a binding contract.
Validity and legality of PPA’s collection of 100% wharfage and berthing fees from 1977 to 1991.
Propriety and basis for awarding 50% wharfage and 30% berthing fees as actual damages to TEFASCO.
Legality of the government share extracted by PPA and the validity of the MOA setting arrears and reduced rates.
Appropriateness of awarding attorney’s fees and damages for dredging expenses.

Contractual Nature of the TEFASCO-PPA Agreement

The TEFASCO port project represe