TEFASCO vs. PPA

A government regulatory permit, issued in reliance upon substantial investments by the grantee, assumes the character of a binding contract that the issuing agency cannot unilaterally modify to impose additional onerous conditions not contemplated in the original authorization.

TEFASCO is a domestic corporation engaged in providing port and terminal facilities as well as arrastre, stevedoring, and other port-related services at its own private port at Barrio Ilang, Davao City. PPA is the government agency charged under P.D. No. 857 (the Revised Charter of the Philippine Ports Authority) with regulating, supervising, licensing, and operating ports throughout the Philippines, including private ports. In 1975, TEFASCO proposed constructing a specialized terminal complex with port facilities in Davao City to ease acute congestion at the government ports of Sasa and Sta. Ana. PPA organized an inter-agency committee that studied and recommended approval of the project, estimating TEFASCO's investment at ₱16,000,000.00 (1975/1976 price levels) and identifying the specialized cargo-handling facilities to be built.

On April 21, 1976, the PPA Board of Directors passed Resolution No. 7 accepting and approving TEFASCO's project proposal for the construction of specialized port facilities and provision of port services in Davao City, subject to the terms and conditions set forth in the inter-agency committee report. PPA relayed its acceptance through a letter dated May 7, 1976 from Acting General Manager Mariano Nicanor, which enumerated the approved facilities — docking facilities for ocean-going and interisland vessels, stevedoring and arrastre services, warehousing, container yards, bulk handling for various commodities, and bonded warehousing — and authorized TEFASCO to start work immediately. The enclosure to that letter stipulated eight specific terms and conditions, including requirements that all fees and permits be paid to or secured from proper authorities, that plans not be altered without prior approval, that TEFASCO assume responsibility for damages, that construction be completed within eighteen months, that the facility handle general cargoes loaded as filler on bulk/container ships, that TEFASCO build up banana export traffic, and that Bureau of Customs charges continue to apply.

In reliance upon these terms, TEFASCO contracted dollar loans from private commercial institutions abroad and poured millions worth of investments into constructing the specialized terminal complex, including a 400-meter concrete wharf, a 3.8-hectare reclaimed back-up area plus a 21-hectare inland industrial zone, two warehouses with 5,000 square meters of floor area, mechanized banana loading equipment, and a container yard. By 1987, TEFASCO's total investment was valued at ₱156,251,798.00.

Long after TEFASCO broke ground, the PPA Board on October 1, 1976 passed Resolution No. 50, compelling TEFASCO — without its request — to submit an application for a construction permit. Without TEFASCO's consent, the application imposed additional significant conditions not found in the original approval, including a fifteen-year operating period after which all improvements would automatically become PPA property, a requirement that no general cargo be handled unless specifically authorized, that all rates be approved by PPA, and an application fee of one percent of the total estimated cost. TEFASCO complied with this requirement, and PPA approved the application in a letter validating the original permit under Resolution No. 7.

Two years after completion of the port facilities and commencement of operations, or on June 10, 1978, PPA issued Special Permit No. CO/CO-1-067802, which for the first time introduced the contentious provisions for a ten percent government share out of arrastre and stevedoring gross income and one hundred percent wharfage and berthing charges on cargoes and vessels diverted to TEFASCO's wharf. Subsequent PPA issuances reinforced these exactions: Administrative Order 09-81 subjected all arrastre and stevedoring operators' special services income to a ten percent government share, and Memorandum Circular 36-82 mandated assessment of one hundred percent wharfage dues on commercial and third-party cargoes and one hundred percent berthing charges on foreign vessels docking at private wharves. TEFASCO repeatedly requested extensions and rate reductions, but PPA responded with final statements of arrears and threats of business closure.

On February 10, 1984, TEFASCO and PPA executed a Memorandum of Agreement under which TEFASCO acknowledged arrears of ₱3,807,563.75 in government share payable monthly, with default penalized by automatic withdrawal of its permits; the government share was reduced from ten percent to six percent of gross income; TEFASCO's pier facilities were opened to all commercial and third-party cargoes; and TEFASCO's permit to operate cargo handling was given a tenure of five years extendible by five more. TEFASCO complied with the MOA and paid the accrued and current government share. On August 30, 1988, TEFASCO sued PPA for refund of government share and damages from the alleged illegal exaction of one hundred percent berthing and wharfage fees, and sought to nullify the MOA and all PPA issuances modifying the terms of Resolution No. 7. The RTC ruled for TEFASCO, nullifying the MOA and PPA issuances and awarding reimbursement, damages, and attorney's fees. The Court of Appeals initially reversed in toto but, upon reconsideration, partially affirmed only the award of actual damages for foregone wharfage and berthing fees and attorney's fees. Both parties elevated the case to the Supreme Court.

• Contractual Character of Resolution No. 7: TEFASCO argued that PPA Resolution No. 7 and the terms and conditions thereunder constitute a contract that PPA could not change at will.
• Invalidity of the MOA: TEFASCO maintained that the MOA between PPA and TEFASCO, indicating the schedule of arrears and reducing the rate of government share, is void for absence of consideration.
• Unauthorized Government Share: TEFASCO argued that the government share is neither authorized by PPA Resolution No. 7 nor by any law, and in fact impairs the obligation of contracts.
• Statutory Authority for 100% Fees: PPA argued that its collection of one hundred percent wharfage and berthing fees is authorized by Secs. 6(b)(ix) and 39(a) of P.D. No. 857, under which the imposable rates for such fees are within the sole power and authority of PPA.
• Irrelevance of Later Issuances: PPA asserted the absence of evidentiary relevance of PPA issuances effective 1995 to 1997 reducing wharfage, berthing, and port usage fees in private ports.
• Lack of Standing: PPA contended that TEFASCO lacks standing to claim alleged overpayments of wharfage and berthing fees, since those fees were collected from vessel owners and cargo consignees, not from TEFASCO.
• No Legal Basis for Damages Award: PPA argued there is no legal basis for the award of fifty percent wharfage and thirty percent berthing fees as actual damages in favor of TEFASCO for the period from 1977 to 1991, nor for attorney's fees.

• Character of Obligations: Whether the arrangement between TEFASCO and PPA under PPA Resolution No. 7 and its accompanying terms constituted a binding contract or a mere privilege.
• Validity of 100% Wharfage and Berthing Fees: Whether PPA's imposition of one hundred percent wharfage fees and berthing charges on cargoes and vessels using TEFASCO's private port was valid.
• Award of Actual Damages: Whether the award of fifty percent wharfage fees and thirty percent berthing charges as actual damages in favor of TEFASCO for the period from 1977 to 1991 was proper.
• Legality of Government Share and MOA: Whether the imposed government share on TEFASCO's arrastre and stevedoring gross income and the MOA stipulating a schedule of arrears and a reduced rate of government share were valid.
• Attorney's Fees and Other Damages: Whether the award of attorney's fees, dredging expenses, and the rate of legal interest was proper.

• Character of Obligations: Yes. The authorization under PPA Resolution No. 7 and its accompanying terms constituted a binding contract, not a mere privilege, because TEFASCO accepted and performed definite obligations requiring substantial investments that furnished valuable consideration.
• Validity of 100% Wharfage and Berthing Fees: No. The imposition was void for failing to comply with Sec. 19, P.D. No. 857, which requires presidential approval for any increase or decrease of dues, and for contravening the Tariff and Customs Code as amended by P.D. No. 441, which fixes wharfage dues at fifty percent for private wharves and exempts vessels at private ports from berthing charges.
• Award of Actual Damages: Yes. The award of fifty percent wharfage fees and thirty percent berthing charges as actual damages was proper, TEFASCO having proved with clear and convincing evidence its loss of private port usage fees as a direct result of PPA's illegal collection of one hundred percent of such dues.
• Legality of Government Share and MOA: No. The government share exaction was void for having no basis in the original contract or in any law, and the MOA was invalid for want of consideration and consent, having been executed under threats of closure.
• Attorney's Fees and Other Damages: Attorney's fees were affirmed; the dredging expenses award was set aside for falling outside Sec. 37, P.D. No. 857; and the legal interest was reduced from twelve percent to six percent per annum computed from the date of the RTC decision.

• Character of Obligations: The arrangement was not a mere privilege bestowed out of government beneficence. TEFASCO accepted and performed definite obligations requiring massive investments — estimated at ₱16,000,000.00 in 1975/1976 price levels, covered by foreign loans of US$2,434,000.00 with interest of up to ₱10,965,465.00, and reaching ₱156,251,798.00 by 1987 — in reliance upon PPA's express representations under Resolution No. 7 and its accompanying terms. The inter-agency committee report identified the mutual benefits: business opportunities for TEFASCO and decongestion of government ports for PPA. This mutual consideration impressed the authorization with the character of a binding contract. Applying Ramos vs. Central Bank of the Philippines, where the Central Bank's commitments to support a distressed bank in exchange for a voting trust agreement and mortgage were deemed a perfected contract from which the Central Bank could not retreat, and Commissioner of Customs vs. Auyong Hian, where a license could not be arbitrarily revoked after the licensee incurred material expense in reliance upon it, the Court concluded that PPA was estopped from reneging on its commitments. Batchelder vs. Central Bank supplied the additional requirement that the administrative agency must have assumed an obligation upon itself for a regulatory permit to be impressed with contractual character — a requirement satisfied here by PPA's express representations and acceptance of TEFASCO's performance. Even assuming arguendo that only a privilege was granted, the right-privilege dichotomy was rejected in Kisner vs. Public Service Commission, where a certificate of convenience and necessity was deemed a property interest for due process purposes when the holder changed position in reliance upon it. Lowell vs. Archambault was cited as persuasive authority that a license should not be subjected to uncertainties from unauthorized limitations subsequently read into it. PPA was therefore estopped from unilaterally imposing conditions that found no basis in the inter-agency committee report, Resolution No. 7, and the May 7, 1976 letter and its enclosure.

• Validity of 100% Wharfage and Berthing Fees: P.D. No. 857, Sec. 19, provides that wharfage and berthing rates collectible by PPA upon the coming into operation of the Decree shall be those provided under Parts 1, 2, 3, and 6 of Title VII of Book II of the Tariff and Customs Code, until the President, upon recommendation of the Board, orders an adjusted schedule. PPA could not unilaterally peg rates but had to rely on either the Tariff and Customs Code or presidential issuances. P.D. No. 441, amending the Tariff and Customs Code, fixed wharfage dues at specified amounts for national ports and at fifty percent of those rates where articles are loaded or unloaded at private wharves where no loading or unloading facilities are owned and maintained by the government. Since the TEFASCO port was privately owned and maintained, the applicable wharfage rate was fifty percent, not one hundred percent. As for berthing charges, Commissioner of Customs vs. Court of Tax Appeals established that only vessels berthing at national ports are liable for berthing fees under Sec. 2901 of the Tariff and Customs Code as amended by P.D. No. 34, which inserted the word "national" before "port." No law created or converted the TEFASCO port into a national port. Additionally, the one hundred percent rates were void for failing to comply with Sec. 19, P.D. No. 857, requiring presidential approval of any increase or decrease of dues. Philippine Interisland Shipping Association of the Philippines vs. CA reinforced that PPA cannot override statutory rates without presidential authorization.

• Award of Actual Damages: PPA argued that TEFASCO had no cause of action because the fees were collected from vessel owners and cargo consignees, not from TEFASCO. This was rejected: TEFASCO's cause of action was the injury it suffered from the illegal imposition on its clientele of dues that should have gone to it as private port usage fee. PPA's practice of collecting one hundred percent of wharfage and berthing dues left nothing for TEFASCO to charge for use of its facilities. Under Arts. 2199 and 2200 of the Civil Code, actual or compensatory damages include not only the loss of what a person already possesses but also the failure to receive as a benefit that which would have pertained to him. Applying Producers Bank of the Philippines vs. CA, unrealized profits (lucrum cessans) need not be proven with absolute certainty but by reference to some reasonably definite standard. The courts a quo based the award on the actual summarized list of cargoes and vessels that went through TEFASCO's port, multiplied by the applicable tariff rates. TEFASCO proved with clear and convincing evidence that had PPA's imposition been limited to fifty percent wharfage and seventy percent berthing, TEFASCO could have received the remainder as port usage fees. Significantly, TEFASCO's cause of action and evidence on berthing charges were limited to thirty percent of such charges.

• Legality of Government Share and MOA: The government share of ten percent (later six percent) of arrastre and stevedoring gross income was never mentioned in the original contract and was not a binding prestation between the parties. The terms and conditions appended to Resolution No. 7 only required TEFASCO to pay fees and secure permits pertinent to construction and operation from proper authorities — the government share was not such a fee but an onerous contractual stipulation with no basis in the contract. The cause of the contract was TEFASCO's business operations and PPA's decongestion objective, not income generation for PPA. The sharing scheme was an afterthought conceived only after TEFASCO's port had begun operations, allowing PPA to piggyback unreasonably on TEFASCO's investment and labor. PPA had no authority to impose whatever amount it pleased as government share; license taxation must not be so unreasonable as to prohibit a business not itself injurious to public health or morals. PPA's own Administrative Order No. 06-95 scrapped government share in private port income and replaced it with a modest annual privilege fee, confirming the confiscatory character of the original exaction. The MOA was invalid for want of consideration and consent under Arts. 1330, 1337, and 1352 of the Civil Code: it gave TEFASCO no benefit not already part of the original agreement, and it was executed under threats of permanent closure that deprived TEFASCO of reasonable freedom of choice. As an invalid novation, the MOA could not alter the original contract.

• Attorney's Fees and Other Damages: Attorney's fees were warranted because TEFASCO was compelled to litigate to protect its interests by reason of PPA's unjustified exaction of exorbitant dues and threats of closure. The dredging and blasting expenses award was set aside because Sec. 37, P.D. No. 857, obliged PPA to fund construction and dredging works only in "public ports vested in the Authority" — the TEFASCO port was privately constructed and did not fall under that provision. The dredging was part of TEFASCO's contractual obligations. The twelve percent interest was erroneous under Crismina Garments, Inc. vs. CA, which held that interest on damages other than loan or forbearance of money is six percent annually computed from determination with reasonable certainty of the amount demanded — in this case, from the date of promulgation of the RTC decision on July 15, 1992.

• Regulatory Permit as Binding Contract — When a government agency issues a regulatory permit and the grantee, in reliance thereon, accepts and performs definite obligations requiring substantial investments, the permit assumes the character of a binding contract from which the agency cannot unilaterally retreat. The Court applied this by holding that PPA Resolution No. 7 and its accompanying terms constituted a contract, given TEFASCO's millions in investments made in reliance on PPA's express representations, and PPA was estopped from imposing additional onerous conditions not found in the original authorization.

• Estoppel Against the Government — An estoppel may arise from the making of a promise, even without consideration, if it was intended to be relied upon and was in fact relied upon, and if refusal to enforce it would sanction fraud or result in injustice. The Court applied this doctrine from Ramos vs. Central Bank of the Philippines to hold that PPA, having made express representations and accepted TEFASCO's performance, was estopped from reneging on its commitments.

• Demise of the Right-Privilege Dichotomy — Recipients of privileges or largesses from the government are not devoid of property rights; a benefit to which an individual has a legitimate claim of entitlement under existing rules and regulations constitutes a property interest for due process purposes. The Court cited Kisner vs. Public Service Commission to hold that even if PPA granted only a license, it could not unilaterally impose conditions beyond those in the original authorization.

• Actual Damages — Lucrum Cessans (Unrealized Profits) — Actual or compensatory damages include not only the loss of what a person already possesses but also the failure to receive as a benefit that which would have pertained to him. Unrealized profits need not be proven with absolute certainty but by reference to some reasonably definite standard such as market value, established experience, or direct inference from known circumstances. The Court applied this to uphold the award of foregone wharfage and berthing fees, which TEFASCO proved through actual summarized lists of cargoes and vessels multiplied by applicable tariff rates.

• "With such considerable amount of money spent in reliance upon the promises of PPA under Resolution No. 7 and the terms and conditions thereof, the authorization for TEFASCO to build and operate the specialized terminal complex with port facilities assumed the character of a truly binding contract between the grantor and the grantee." — This passage articulates the ratio decidendi on the contractual character of regulatory permits issued in reliance upon substantial investments.

• "PPA cannot unilaterally peg such rates but must rely on either The Tariff and Customs Code or the quasi-legislative issuances of the President in view of the legislative prerogative of rate-fixing." — This defines the limitation on PPA's rate-setting authority, requiring presidential approval for any deviation from statutory rates.

• "By doing what it was prohibited to do under an existing law, PPA cannot be allowed to enjoy the fruits of its own illegal act." — This passage, quoted from the Court of Appeals and approved by the Supreme Court, encapsulates the rationale for awarding actual damages against a government agency that illegally collected fees.

• "The MOA is invalid for want of consideration and consent. As such, it is an invalid novation of the original agreement between TEFASCO and PPA as embodied in the inter-agency committee report, PPA Resolution No. 7 and PPA letter dated May 7, 1976 and its enclosure." — This states the holding on the nullity of the MOA executed under economic duress and lacking new consideration.

• Ramos vs. Central Bank of the Philippines, 41 SCRA 565 (1971) — Controlling precedent followed for the proposition that a regulatory agency's commitments, accepted and performed in good faith by the regulated party, constitute a perfected contract from which the agency cannot retreat, and for the doctrine of estoppel arising from promises relied upon.
• Commissioner of Customs vs. Auyong Hian, 105 Phil. 561 (1959) — Followed for the principle that a license may not be arbitrarily revoked where the licensee has incurred material expense in reliance upon it, the license being regarded as an executed contract.
• Batchelder vs. Central Bank, 46 SCRA 102 (1972) — Followed for the requirement that the administrative agency must have assumed an obligation upon itself for a regulatory permit to be impressed with contractual character.
• Commissioner of Customs vs. Court of Tax Appeals, 224 SCRA 665 (1993) — Controlling precedent followed for the holding that only vessels berthing at national ports are liable for berthing fees under Sec. 2901 of the Tariff and Customs Code as amended by P.D. No. 34.
• Philippine Interisland Shipping Association of the Philippines vs. CA, 266 SCRA 489 (1997) — Followed for the principle that PPA cannot override statutory rates without presidential authorization.
• Producers Bank of the Philippines vs. CA, G.R. No. 111584, September 17, 2001 — Followed for the standard of proof for unrealized profits (lucrum cessans) as actual damages.
• Victorias Milling vs. CA, 153 SCRA 317 (1987) — Cited for the principle that a government share in arrastre and stevedoring earnings is in the nature of contractual compensation agreed to as a condition for the permit; distinguished in that the government share in TEFASCO's case was never part of the original contract.
• Crismina Garments, Inc. vs. CA, 304 SCRA 356 (1999) — Followed for the rule that interest on damages other than loan or forbearance of money is six percent annually.

• Sec. 19, P.D. No. 857 (Revised Charter of the PPA) — Provides that wharfage and berthing rates collectible by PPA shall be those under the Tariff and Customs Code until the President, upon recommendation of the Board, orders an adjusted schedule. Applied to hold that PPA's 100% wharfage and berthing fees were void for lack of presidential approval.
• Sec. 6, P.D. No. 857 — Enumerates PPA's corporate powers and duties, including prescribing rules and regulations for private ports and licensing structures within port districts. PPA invoked this as authority for its rate impositions; the Court held it did not authorize unilateral rate-setting without presidential approval.
• Sec. 37, P.D. No. 857 — Obliges PPA to fund construction and dredging works only in "public ports vested in the Authority." Applied to deny TEFASCO's claim for dredging expenses, the TEFASCO port being privately constructed.
• Sec. 39, P.D. No. 857 — Transfers Bureau of Customs powers over port operations to PPA. PPA invoked this as authority for its fees; the Court found it insufficient to authorize the contested exactions.
• P.D. No. 441 (1974) — Amends the Tariff and Customs Code, fixing wharfage dues at fifty percent of prescribed rates for private wharves where no government loading or unloading facilities are maintained. Applied to hold that the applicable wharfage rate for TEFASCO's private port was fifty percent, not one hundred percent.
• Sec. 2901, Tariff and Customs Code (as amended by P.D. No. 34) — Defines berthing charge as assessed against vessels at "any national port." Applied, per Commissioner of Customs vs. CTA, to hold that vessels at private ports are not subject to berthing charges.
• Arts. 1159 and 1315, Civil Code — Obligations arising from contracts have the force of law between contracting parties and must be complied with in good faith; contracts are perfected by mere consent. Applied via Ramos vs. Central Bank to hold PPA bound by its contractual commitments.
• Arts. 2199 and 2200, Civil Code — Define actual or compensatory damages as adequate compensation for pecuniary loss duly proved, including profits the obligee failed to obtain. Applied to uphold the award of foregone wharfage and berthing fees.
• Arts. 1330, 1337, and 1352, Civil Code — Govern vitiation of consent and contracts void for want of consideration. Applied to invalidate the MOA as executed under duress and lacking new consideration.

Bellosillo (Chairman), Mendoza, Quisumbing, and Buena, JJ., concurred.