TATAD v. GARCIA, JR.

G.R. NO. 114222 APRIL 6, 1995

FACTS:
In 1989, the government planned to construct a railway transit line along EDSA (EDSA LRT III)
to provide a mass transit system and alleviate the congestion and growing transportation problem
in the metropolis.

To set the EDSA LRT III project underway, DOTC issued Department Orders Nos. 91-494 and
91-496, respectively creating the Prequalification Bids and Awards Committee (PBAC) and the
Technical Committee. After its constitution, the PBAC issued guidelines for the prequalification of
contractors for the financing and implementation of the project. Accordingly, prequalification and
bidding was made and EDSA LRT Consortium (a foreign corporation) appeared to be the only
one qualified.

An agreement was then made between the government, through the DOTC and EDSA LRT
Corporation, Ltd. The agreement was based on the Build-Operate-Transfer scheme provided for
by law (RA 6957, amended by RA 7718). Under the agreement, EDSA LRT Consortium shall
build the facilities, i.e., railways, and shall supply the train cabs. Every phase that is completed
shall be turned over to the DOTC and the latter shall pay rent for the same for 25 years. By the
end of 25 years, it was projected that the government shall have fully paid EDSA LRT Consortium.
Thereafter, EDSA LRT Corporation, Ltd. shall sell the facilities to the government for $1.00.

Senators Francisco Tatad, John Osmeña, and Rodolfo Biazon, petitionaers herein, opposed the
implementation of said agreement as they averred that EDSA LRT Corporation, Ltd. is a foreign
corporation organized under Hongkong laws; that as such, it cannot own a public utility such as
the EDSA railway transit because this falls under the nationalized areas of activities. The petition
was filed against Jesus Garcia, Jr. in his capacity as DOTC Secretary.

ISSUE:
1. Whether or not respondent EDSA LRT Corporation, Ltd., a foreign corporation, can own EDSA
LRT III, a public utility.

2. Whether or not EDSA LRT Corporation, Ltd., a foreign corporation, can own the facilities used
to construct a public utility.

HELD:
1. The phrasing of the question is erroneous. What private respondent owns are the rail tracks,
rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility.
While a franchise is needed to operate these facilities to serve the public, they do not by
themselves constitute a public utility. What constitutes a public utility is not their ownership but
their use to serve the public.

2. The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility.
However, it does not require a franchise before one can own the facilities needed to operate a
public utility so long as it does not operate them to serve the public.

Section 11 of Article XII of the Constitution provides:

 No franchise, certificate or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of whose
capital is owned by such citizens, nor shall such franchise, certificate or authorization be
exclusive character or for a longer period than fifty years . . .

In law, there is a clear distinction between the "operation" of a public utility and the
“ownership” of the facilities and equipment used to serve the public.

Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is
completely subjected to his will in everything not prohibited by law or the concurrence with the
rights of another. The exercise of the rights encompassed in ownership is limited by law so that a
property cannot be operated and used to serve the public as a public utility unless the operator
has a franchise. The operation of a rail system as a public utility includes the transportation of
passengers from one point to another point, their loading and unloading at designated places and
the movement of the trains at pre-scheduled times.

The right to operate a public utility may exist independently and separately from the
ownership of the facilities thereof. One can own said facilities without operating them as
a public utility, or conversely, one may operate a public utility without owning the facilities
used to serve the public. The devotion of property to serve the public may be done by the owner
or by the person in control thereof who may not necessarily be the owner thereof.

Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a
common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent
from any losses, damages, injuries or death which may be claimed in the operation or
implementation of the system, except losses, damages, injury or death due to defects in the EDSA
LRT III on account of the defective condition of equipment or facilities or the defective
maintenance of such equipment facilities.

In sum, private respondent EDSA LRT Corporation, Ltd. will not run the light rail vehicles and
collect fees from the riding public. It will have no dealings with the public and the public will have
no right to demand any services from it.

Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility
Even the mere formation of a public utility corporation does not ipso facto characterize the
corporation as one operating a public utility. The moment for determining the requisite Filipino
nationality is when the entity applies for a franchise, certificate or any other form of
authorization for that purpose