Francisco Tatad vs Jesus Garcia,

Jr.
243 SCRA 436 – Business Organization – Corporation Law – Corporate Nationality – Public
Utility – Nationality Requirement in Nationalized Areas of Activity
In 1989, the government planned to build a railway transit line along EDSA. No bidding was
made but certain corporations were invited to prequalify. The only corporation to qualify was
the EDSA LRT Consortium which was obviously formed for this particular undertaking. An
agreement was then made between the government, through the Department of
Transportation and Communication (DOTC), and EDSA LRT Consortium. 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 Consortium shall sell the facilities to the government for $1.00.
However, Senators Francisco Tatad, John Osmeña, and Rodolfo Biazon opposed the
implementation of said agreement as they averred that EDSA LRT Consortium is a foreign
corporation as it was 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: Whether or not the petition shall prosper.
HELD: No. The Supreme Court made a clarification. The SC ruled that EDSA LRT
Consortium, under the agreement, does not and will not become the owner of a public utility
hence, the question of its nationality is misplaced. It is true that a foreign corporation cannot
own a public utility but in this case what EDSA LRT Consortium will be owning are the
facilities that it will be building for the EDSA railway project. There is no prohibition against a
foreign corporation to own facilities used for a public utility. Further, it cannot be said that
EDSA LRT Consortium will be the one operating the public utility for it will be DOTC that will
operate the railway transit. DOTC will be the one exacting fees from the people for the use
of the railway and from the proceeds, it shall be paying the rent due to EDSA LRT
Consortium. All that EDSA LRT Consortium has to do is to build the facilities and receive
rent from the use thereof by the government for 25 years – it will not operate the railway
transit. Although EDSA LRT Consortium is a corporation formed for the purpose of building
a public utility it does not automatically mean that it is 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.