The Supreme Court ruled in favor of Terminal Facilities and Services Corporation (TEFASCO), affirming that the Philippine Ports Authority (PPA) cannot unilaterally impose fees and charges not originally agreed upon in their contract. This decision safeguards private sector investments in port facilities, ensuring that regulatory powers do not override contractual obligations. The Court emphasized that PPA’s actions, including imposing excessive wharfage and berthing fees and demanding a government share from TEFASCO’s gross income, were invalid because they lacked legal basis and impaired the original contract between the parties.

From Congestion Solution to Contractual Dispute: Can PPA Change the Rules Mid-Game?

In the mid-1970s, Davao City’s ports faced severe congestion, prompting TEFASCO to propose constructing a specialized terminal complex. The PPA welcomed this proposal, recognizing that government facilities were inadequate to handle specialized cargoes like bananas and containerized goods. The PPA Board approved TEFASCO’s project in 1976, outlining specific terms and conditions. TEFASCO then secured substantial dollar loans and made significant investments to build the port, relying on the agreed-upon terms.

However, after TEFASCO began operations, the PPA imposed additional conditions, including a 10% government share of arrastre and stevedoring gross income, and 100% wharfage and berthing charges. These impositions significantly increased TEFASCO’s costs and reduced its potential earnings. TEFASCO repeatedly protested these additional obligations, but the PPA insisted on compliance, threatening closure if payments were not made. This led to a legal battle, with TEFASCO seeking a refund of the imposed charges and damages for the illegal exactions.

The central legal question revolves around whether PPA, as a regulatory body, could unilaterally alter the terms of its agreement with TEFASCO after the latter had made substantial investments based on the original terms. The Supreme Court held that the initial agreement between TEFASCO and PPA constituted a binding contract. According to the court, PPA could not arbitrarily impose new burdens and uncertainties that were not part of the original agreement. The court emphasized that TEFASCO accepted and performed definite obligations that made up the valuable consideration of the project.

“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.”

The Court’s decision hinged on the principle that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. The Court cited Ramos v. Central Bank of the Philippines and Commissioner of Customs v. Auyong Hian as precedents. In Ramos, the Central Bank was estopped from retreating from its commitment to support Overseas Bank of Manila after the latter had performed its obligations in good faith. Similarly, in Auyong Hian, the cancellation of a license was deemed invalid because the importer had already incurred material expenses based on the license.

Building on this principle, the Court determined that the PPA’s subsequent impositions were arbitrary and unreasonable. The PPA argued that its collection of 100% wharfage and berthing fees was authorized by P.D. No. 857, which empowers the PPA to prescribe rules and regulations. However, the Court clarified that the rates for wharfage and berthing fees must be based on either the Tariff and Customs Code or quasi-legislative issuances of the President. The court found that PPA’s unilateral imposition of 100% fees was not in compliance with these requirements and was, therefore, invalid.

Furthermore, the Court addressed the issue of the government share imposed on TEFASCO’s gross income. The Court declared this imposition void, as it was not part of the original contract between TEFASCO and PPA. The Court emphasized that the original agreement only required TEFASCO to pay fees and permits pertinent to the construction and operation of the project. The government share, being an onerous contractual stipulation without basis in the original contract, was deemed an unauthorized exaction.

This approach contrasts with a situation where the government’s action is based on a valid exercise of its regulatory powers that do not impair contractual obligations. The court underscored that the sharing scheme only meant that PPA would piggy back unreasonably on the substantial investment and labor of TEFASCO. The imposition was an after-thought conceived by PPA only after the TEFASCO port had already begun its operations. Moreover, the Court invalidated the Memorandum of Agreement (MOA) that TEFASCO had signed with PPA, which stipulated the government share. The Court found that the MOA lacked consideration and consent, as TEFASCO had signed it under duress due to the threat of closure of its port.

In summary, the Court ruled that PPA was liable to TEFASCO for the illegally collected wharfage fees, berthing charges, and government share. The Court also affirmed the award of attorney’s fees to TEFASCO, recognizing that the latter was compelled to litigate to protect its interests due to PPA’s unjustified actions.

FAQs

What was the key issue in this case?	The central issue was whether the Philippine Ports Authority (PPA) could unilaterally impose fees and charges on Terminal Facilities and Services Corporation (TEFASCO) that were not part of their original agreement.
What was the Supreme Court’s ruling?	The Supreme Court ruled in favor of TEFASCO, holding that the PPA could not unilaterally impose new fees and charges after TEFASCO had already made substantial investments based on the original agreement. The court emphasized the binding nature of contracts and the need for good faith in their execution.
What were the fees and charges in dispute?	The fees and charges in dispute included 100% wharfage and berthing fees, as well as a 10% (later reduced to 6%) government share of arrastre and stevedoring gross income. TEFASCO argued that these impositions were not part of their original agreement with PPA.
What is wharfage fee?	Wharfage fee refers to the charge assessed on goods or cargo that passes through a wharf or port facility. It is typically calculated based on the weight or volume of the goods.
What is berthing fee?	Berthing fee is the charge assessed on a vessel for mooring or berthing at a pier, wharf, or other port facility. The charge is usually based on the vessel’s size and the duration of its stay.
What was the basis for the Supreme Court’s decision?	The Court based its decision on the principle that obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith. The Court found that the PPA’s actions impaired the original contract with TEFASCO.
What is the practical implication of this ruling?	The ruling protects private sector investments in port facilities, ensuring that regulatory powers do not override contractual obligations. It prevents government agencies from unilaterally changing the terms of agreements after private entities have made significant investments.
What was the effect of the MOA signed by TEFASCO?	The Court invalidated the Memorandum of Agreement (MOA) signed by TEFASCO, finding that it lacked consideration and consent. The MOA was deemed to have been signed under duress due to the threat of closure of TEFASCO’s port.

This case underscores the importance of upholding contractual obligations and protecting private sector investments in the Philippines. It serves as a reminder that regulatory powers must be exercised within legal bounds and cannot be used to unfairly burden private entities that have entered into agreements with government agencies.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Terminal Facilities and Services Corporation vs. Philippine Ports Authority, G.R. No. 135826, February 27, 2002