G.R. No. 200740; October 2, 2013
LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD, ET AL., PETITIONERS, vs. STRONGHOLD INSURANCE COMPANY, INC., RESPONDENT.

FACTS

Petitioner Land Transportation Franchising and Regulatory Board (LTFRB) regulates franchises for land-based public utility vehicles and administers the Passenger Personal Accident Insurance Program (Program). The Program accredits, through open bidding, groups of insurance providers to supply required accident insurance policies to operators. Following a 2005 bidding, LTFRB accredited Universal Transport Solutions, Inc. (UNITRANS), with respondent Stronghold Insurance Company, Inc. as its lead insurer. Their five-year contract, a Memorandum of Agreement dated 15 September 2005 (First MOA), contained a “Matching Clause” granting the accredited groups the right to match the best bid at the end of the agreement’s term.
Before the First MOA expired and after its term was extended, LTFRB conducted three rounds of bidding for new accreditation. The first two were cancelled. The Third Terms of Reference (Third Reference) for bidding required a minimum paid-up capital of ₱250 million for the lead insurer and ₱125 million for each member insurer, computed on a “per insurer” basis (not by aggregate group capital). It also required a minimum of ten member insurers. Stronghold participated in all biddings but failed to qualify in the third because its group had only six members and its lead insurer capital was only ₱140 million. LTFRB excluded Stronghold’s group from the qualified bidders.
Before LTFRB could select winners, Stronghold filed a petition for prohibition with the Court of Appeals to enjoin the opening of bid documents and nullify the bidding. Stronghold argued the “per insurer” capital requirement in the Third Reference violated its right of first refusal under the First MOA’s Matching Clause and its constitutional right to equal protection. The Court of Appeals did not issue an injunction, and LTFRB proceeded to award contracts to two new groups under a Memorandum of Agreement dated 17 November 2011 (Second MOA).

ISSUE

Whether the Court of Appeals erred in nullifying the third round of bidding and enjoining the enforcement of the Second MOA on the ground that LTFRB committed grave abuse of discretion in issuing the Third Reference, which allegedly violated Stronghold’s right under the Matching Clause of the First MOA.

RULING

Yes. The Supreme Court REVERSED the Decision of the Court of Appeals.
The Court held that the right under the Matching Clause in the First MOA was a mere privilege or opportunity, not a vested property right. A right of first refusal is not absolute and can be rendered inoperative by a valid change in government policy or regulation. The LTFRB, in prescribing the qualifications for bidders through the Third Reference, was exercising its regulatory and policy-making powers to ensure the financial stability of insurers in the Program. This exercise of police power prevails over private contractual stipulations. The change from an aggregate to a “per insurer” capital requirement was a valid policy determination to ensure each insurer in the group was sufficiently capitalized, not an act targeting Stronghold. There was no grave abuse of discretion by LTFRB, as its actions were within its legal authority and pursued a legitimate state objective. The Court of Appeals therefore erred in nullifying the bidding and the resulting Second MOA.