1. J. G. Summit vs CA GR No.

124293 September 24, 2003

Facts:

The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint
Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction, operation and management of
the Subic National Shipyard, Inc., later became the Philippine Shipyard and Engineering Corporation (PHILSECO).
Under the JVA, NIDC and Kawasaki would maintain a shareholding proportion of 60%-40% and that the parties have
the right of first refusal in case of a sale.

Through a series of transfers, NIDC’s rights, title and interest in PHILSECO eventually went to the National
Government. In the interest of national economy, it was decided that PHILSECO should be privatized by selling
87.67% of its total outstanding capital stock to private entities. After negotiations, it was agreed that Kawasaki’s right
of first refusal under the JVA be “exchanged” for the right to top by five percent the highest bid for said shares.
Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a stockholder, would exercise this right in its stead.

During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the right to top by 5% percent the
highest bid, it was able to top JG Summit’s bid. JG Summit protested, contending that PHILSECO, as a shipyard is a
public utility and, hence, must observe the 60%-40% Filipino-foreign capitalization. By buying 87.67% of PHILSECO’s
capital stock at bidding, Kawasaki/PHI in effect now owns more than 40% of the stock.

Issue: Whether or not PHILSECO (Shipyard) is a public utility, NO

Ruling:

1. By Nature, a Shipyard is not a Public Utility

A public utility is a business or service engaged in regularly supplying the public with some commodity or service of
public consequence such as electricity, gas, water, transportation, telephone or telegraph service.

To constitute a public utility, the facility must be necessary for the maintenance of life and occupation of the residents.
However, the fact that a business offers services or goods that promote public good and serve the interest of the
public does not automatically make it a public utility. Public use is not synonymous with public interest.

As its name indicates, the term public utility implies public use and service to the public.

The principal determinative characteristic of a public utility is that of service to, or readiness to serve, an indefinite
public or portion of the public as such which has a legal right to demand and receive its services or commodities.
Stated otherwise, the owner or person in control of a public utility must have devoted it to such use that the public
generally or that part of the public which has been served and has accepted the service, has the right to demand that
use or service so long as it is continued, with reasonable efficiency and under proper charges. Unlike a private
enterprise which independently determines whom it will serve, a public utility holds out generally and may not refuse
legitimate demand for service.

A shipyard is a place or enclosure where ships are built or repaired. Its nature dictates that it serves but a limited
clientele whom it may choose to serve at its discretion. While it offers its facilities to whoever may wish to avail of its
services, a shipyard is not legally obliged to render its services indiscriminately to the public. It has no legal
obligation to render the services sought by each and every client. The fact that it publicly offers its services does not
give the public a legal right to demand that such services be rendered.

The legislature cannot, by its mere declaration, make something a public utility which is not in fact such; and a
private business operated under private contracts with selected customers and not devoted to public use
cannot, by legislative fiat or by order of a public service commission, be declared a public utility, since that
would be taking private property for public use without just compensation, which cannot be done consistently with the
due process clause.

2. There is no law declaring a shipyard as a public utility.

History provides us hindsight and hindsight ought to give us a better view of the intent of any law. The succession
of laws affecting the status of shipyards ought not to obliterate, but rather, give us full picture of the intent of the
legislature. The totality of the circumstances, including the contemporaneous interpretation accorded by the
administrative bodies tasked with the enforcement of the law all lead to a singular conclusion: that shipyards are not
public utilities.

Note:
It is worthy to note that automobile and aircraft manufacturers, which are of similar nature to shipyards, are not
considered public utilities despite the fact that their operations greatly impact on land and air transportation. The
reason is simple. Unlike commodities or services traditionally regarded as public utilities such as electricity, gas,
water, transportation, telephone or telegraph service, automobile and aircraft manufacturing---and for that matter ship
building and ship repair--- serve the public only incidentally.