Legislative Intent/Policy on Application of the "Most Favored Treatment" Clause In Laws Granting Franchises

DOJ OPINION NO. 020 , s. 2008 April 17, 2008 Hon. Danilo E. Suarez Chairman Oversight Committee House of Representatives Quezon City Sir : This refers to your request for confirmation of the validity of your position, as contained in your reply to the letter of the Securities and Exchange Commission (SEC), concerning the legislative intent/policy on the application of the ipso facto "most favored treatment" clause in laws granting franchises. Specifically, clarificatory opinion is requested on whether the "most favored treatment" clause granted to the Cebu Air, Inc. under Republic Act No. 7151, its franchise, applies not only to tax provisions but to all other favorable terms enjoyed by its competitors, such that the five percent (5%) ownership restriction found in its franchise should not apply to the subject airline firm. It appears that in your reply to the SEC inquiry on the applicability of the "most favored treatment" clause, you stated that, among others, ". . . the ipso facto most-favored treatment clause under Section 11 of R.A. 7151 may be used by Cebu Air, Inc. to exempt itself from the limitation on public equity participation, thereby allowing a single person entity from owning more than five percent (5%) of its stock offerings." Subject to the discussions provided hereunder, we agree with your position. HSaCcE The provisions of R.A. No. 7151 pertinent to your query are clear and categorical, to wit: SEC. 9. Public Equity Participation. In compliance with the constitutional mandate to democratize ownership of public utilities, the herein grantee shall make public offering through the stock exchanges of at least thirty percent (30%) of its common stocks within a period of ten (10) years from the date of effectivity of this Act: Provided, That no single person or entity shall be allowed to own more than five percent (5%) of the stock offerings . xxx xxx xxx SEC. 11. Tax Provisions. The grantee shall pay to the Philippine Government during the life of this franchise a franchise tax of five percent (5%) of the gross revenues derived by the grantee from transport operations. In the event that any competing individual, partnership or corporation receives and enjoys tax privileges and other favorable terms which tend to place the herein grantee at any disadvantage, then such provisions shall be deemed ipso facto part hereof and shall operate equally in favor of the grantee. The grantee shall, however, be subject to income tax levied under Title II of the National Internal Revenue Code, as amended, and tax on real property under existing laws on revenues earned from activities other than air transportation. (emphasis supplied) As rightfully stated, this Department has had occasions to pass upon the issue on the application of the "most favored treatment" clause. In fact, in one case involving the same Section 11 of R.A. No. 7151, this Department, citing an earlier opinion, was explicit, thus: DaTHAc Based on the foregoing, this Department confirms that the "most favored treatment" clause found in Section 11 of R.A. No. 7151 expressly provides that tax privileges or other favorable term/s received or enjoyed by any competing individual, partnership or corporation in this case, PAL, shall automatically be deemed incorporated in the franchise of Cebu Pacific (Cebu Air, Inc.) . The basic idea of the aforesaid clause is "fair play", such that a rival firm will not gain an undue or unfair advantage over the other in the pursuit of their respective competing business. In other words, the purpose of the said clause is to place the holder thereof on an equal footing with its rival enterprise by not giving such competitors undue advantage (Secretary of Justice Opinion No. 51, s. 1987). (Sec. of Justice Op. No. 55, s. 2005) (stress ours) Our above-quoted opinion applies notwithstanding the fact that the issue herein does not relate to tax privileges whereas the "most favored treatment" clause in R.A. No. 7151 appears under the section on "tax privileges". The rationale is because titles or headings of articles or sections in statutes, being nothing more than a convenient index to the contents of the articles, cannot, in any event, have the effect of modifying or limiting the unambiguous words of the text (People vs. Yabut , 58 Phil. 499). While secondary aids, such as titles, headings and marginal notes, may be resorted to in order to ascertain the legislative intent, they are not conclusive (50 Am. Jur. 306), and may not be consulted to create doubts. In the instant case, Section 11 is clear and categorical enough that the "most favored treatment" clause that may be applied to, and enjoyed by, Cebu Air, Inc. covers not only "tax privileges" the section heading, notwithstanding but includes "other favorable terms which tends to place (it) at any disadvantage". In statutory interpretation, nothing is more settled than the rule that when the words and phrases of the statute are clear and unequivocal, their meaning must be determined from the language employed and the statute must be taken to mean exactly what it says (Baranda vs. Gustilo , 165 SCRA 757, 770, citing cases). The reason is because when the law is clear, interpretation does not apply only application (Pascual vs. Pascual-Bautista , 207 SCRA 561, 568) (Secretary of Justice Op. No. 51, s. 2007), that is, the law must be given its literal meaning and applied without attempted interpretation. This doctrine is based on the valid presumption that the words employed by the legislature in a statute correctly express its intent or will and preclude a different construction (Ibid., No. 48, 45, 44, 18, 19, 25, s. 2007). TICAcD Our above-stated view is strengthened by the use in the statute of the words "and", "other" and "any" for the simple reason that "and" is a conjunction word meaning "together with or joined with" (PHILCONSA vs. Mathay, 18 SCRA 329) while "other" means "some thing or things in addition to, differing from, or both additional to and differing from the antecedent thing or things immediately in contemplation" (Mujer vs. Court of First Instance , 35 O.G. 1385). The word "any", on the other hand, has been frequently used in its enlarged and plural sense, as meaning "all, all or every, each, each one of all, every, without limitation" (Gatchalian vs. COMELEC, 35 SCRA 435, 442). Thus, the words "and other favorable terms" should not be construed as limited to tax privileges but applies to any and all favorable terms apart from tax privileges received or enjoyed by Cebu Air, Inc.'s competitors which would be to its disadvantage if said terms are not deemed automatically incorporated in its franchise. CAacTH Please be guided accordingly. Very truly yours, (SGD.) RAUL M. GONZALEZ Secretary