A.

Public Utility and Public Services

Definition of Public Utility

“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. Apart from statutes which
define the public utilities that are within the purview of such statutes, it would be difficult
to construct a definition of a public utility which would fit every conceivable place. As its
name indicates, however, the term public utility implies public use and service to the
public.

What is a public Service?

Every person that may own, operate, manage, control in the Philippines, for
hire/compensation, with general/limited clientele whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, steamboat, or steamship line, ferries and
watercraft, shipyard, ice-plant, electric light, heat and power or any other public utility.

CASES:

National Power Corporation vs. Honorable Court of Appeals

G.R. No. L-47379 (May 16, 1988)

FACTS:

Plaintiff Engineering Construction, Inc., being a successful bidder, executed a

contract in Manila with the National Waterworks and Sewerage Authority
(NAWASA), whereby the former undertook to furnish all tools, labor, equipment and
materials, and to construct the proposed 2nd Ipo-Bicti Tunnel, Intake and Outlet
Structures, and Appurtenant Structures, and Appurtenant Features at Norzagaray,
Bulacan and to complete said works within 800 calendar days.

The project involves two major phases: (1) tunnel work covering a distance of 7
kilometres and (2) the outworks at both ends of the tunnel. The ECI already had
completed the first major phase of the work, the Tunnel Excavation Work. Some portions
of the outworks were still under construction. As soon as the plaintiff corporation had
finished the tunnel excavation work at the Bicti site, all the equipment no longer
needed there were transferred to the Ipo site where some projects were yet to be
completed.

On November 4, 1967, Typhoon “Welming” hit Central Luzon, passing through

corporations’ Angat Hydro-electric Project and Dam. Due to the heavy downpour,
the water in the reservoir of the Angat Dam was rising perilously at the rate of 60
cm per hour. To prevent an overflow of water from the dam, the National Power
Corporation (NPC) caused the opening of the spillway gates. Extraordinary large
volume of water rushed out of the gates, and hit the installations and construction
works of ECI at Ipo site with terrific impact, as a result of which the latter’s stockpile
of materials supplies, camp facilities and permanent structures and accessories
whether washed away, lost or destroyed.

ISSUE:

Whether or not the destruction and loss of ECI’s equipment and facilities were due to
force majeure which will exempt NPC from liability.

RULING:

No. The NPC will not be exempted from liability. It is clear from the appellate court’s
decision that based on its findings of fact and that of the trial court’s, petitioner NPC was
undoubtedly negligent because it opened the spillway gates of the Angat Dam only
at the height of typhoon “Welming” when it knew very well that it was safer to have
opened the same gradually and earlier, as it was also undeniable that NPC knew of
the coming typhoon at least four days before it actually struck. And even though the
typhoon was an act of God or what we may call force majeure, NPC cannot escape liability
because its negligence was the proximate cause of the loss and damage.

As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals:

The principle embodied in the act of God doctrine strictly requires that the act must be
one occasioned exclusively by the violence of nature and human agencies are to
be excluded from creating or entering into the cause of the mischief. When the
effect, the cause of which is to be considered, is found to be in part the result of the
participation of man, whether it be from active intervention or neglect, or failure to act, the
whole occurrence is thereby HUMANIZED, as it were, and removed from the rules
applicable to the acts of God.

The Iloilo Ice and Cold Storage Company v. Public Utility Board (G.R. No. L-19857)

Facts:

Petitioner maintains and operates a plant for the manufacture and sale of ice in the
City of Iloilo. The business of petitioner has been carried on with selected customers
only. Sec of Public Utility Commission upon investigation reported that petitioner should
be considered a public utility. Petitioner alleges that it is and has always been operating
as a private enterprise.
Issue:

Whether or not petitioner is a public utility.

Ruling: NO.

The criterion by which to judge of the character of the use is whether the public may enjoy
it by right or only by permission. The essential feature of a public use is that it is not
confined to privileged individuals, but is open to the indefinite public. The use is public if
all persons have the right to the use under the same circumstances. If the company did
in truth sell ice to all persons seeking its service, it would be a public utility. But if on the
other hand, it was organized solely for particular persons under strictly private
contracts, and never was devoted by its owners to public use, it could not be held
to be a public utility without violating the due process of law clause of the Constitution.
And the apparent and continued purpose of the Iloilo Ice and Storage Company has
been, and is, to remain a private enterprise and to avoid submitting to the Public
Utility law.

“Public use” means the same as “use by the public.” The essential feature of the public
use is that it is not confined to privileged individuals, but is open to the indefinite public. It
is this indefinite or unrestricted quality that gives it its public character. In determining
whether a use is public, we must look not only to the character of the business to be done,
but also to the proposed mode of doing it. If the use is merely optional with the owners,
or the public benefit is merely incidental, it is not a public use, authorizing the
exercise of the jurisdiction of the public utility commission. There must be, in
general, a right which the law compels the owner to give to the general public. It is not
enough that the general prosperity of the public is promoted. Public use is not
synonymous with public interest. The true criterion by which to judge of the character
of the use is whether the public may enjoy it by right or only by permission.
 B. Constitutional Provisions on Public Utilities

CONSTITUTIONAL PROVISION
Section 11. No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens; nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years. Neither shall
any such franchise or right be granted except under the condition that it shall be subject
to amendment, alteration, or repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility enterprise shall
be limited to their proportionate share in its capital, and all the executive and managing
officers of such corporation or association must be citizens of the Philippines.

DIGEST:
Albano vs. Reyes
Facts:
The Philippine Ports Authority (PPA) board directed the PPA management to prepare
for the public bidding of the development, management and operation of the Manila
International Container Terminal (MICT) at the Port of Manila. A Bidding Committee
was formed by the DOTC for the public bidding. After evaluation of several bids, the
Bidding Committee recommended the award of the contract to respondent
International Container Terminal Services, Inc. (ICTSI). Accordingly, Rainerio Reyes,
then DOTC secretary, declared the ICTSI consortium as the winning bidder.

On May 18, 1988, the President of the Philippines approved the same with directives
that PPA shall still have the responsibility for planning, detailed engineering,
construction, expansion, rehabilitation and capital dredging of the port, as well as
the determination of how the revenues of the port system shall be allocated for future
works; and the contractor shall not collect taxes and duties except that in the case of
wharfage or tonnage dues.
Petitioner Albano, as taxpayer and Congressman, assailed the legality of the award
and claimed that since the MICT is a public utility, it needs a legislative franchise
before it can legally operate as a public utility.
ISSUE: Whether a franchise is needed for the operation of the MICT?

Held: No. While the PPA has been tasked under E.O. No. 30 with the management and
operation of the MICT and to undertake the provision of cargo handling and port
related services thereat, the law provides that such shall be “in accordance with
P.D. 857 and other applicable laws and regulations”. P.D. 857 expressly empowers
the PPA to provide services within Port Districts “whether on its own, by contract,
or otherwise”.

Even if the MICT is considered a public utility, its operation would not necessarily
need a franchise from the legislature because the law has granted certain
administrative agencies the power to grant licenses for or to authorize the
operation of public utilities. Reading E.O. 30 and P.D. 857 together, it is clear that the
lawmaker has empowered the PPA to undertake by itself the operation and management
of the MICP or to authorize its operation and management by another by contract or other
means, at its option.

Doctrine: The law granted certain administrative agencies the power to grant licenses for
the operation of public utilities. Theory that MICT is a “wharf” or a “dock”, as contemplated
under the Public Service Act, would not necessarily call for a franchise from the
Legislative Branch.

AGAN VS PIATCO EN BANC

FACTS:
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government
through the DOTC/MIAA for the development of NAIA International Passenger
Terminal III (NAIA IPT III).
DOTC constituted the Prequalification Bids and Awards Committee (PBAC) for the
implementation of the project and submitted with its endorsement proposal to the NEDA,
which approved the project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers
of an invitation for competitive or comparative proposals on AEDC’s unsolicited proposal,
in accordance with Sec. 4-A of RA 6957, as amended.
On September 20, 1996, the consortium composed of People’s Air Cargo and
Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and
Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium) submitted their
competitive proposal to the PBAC. PBAC awarded the project to Paircargo
Consortium. Because of that, it was incorporated into Philippine International
Airport Terminals Co., Inc.

AEDC subsequently protested the alleged undue preference given to PIATCO and
reiterated its objections as regards the prequalification of PIATCO.

On July 12, 1997, the Government and PIATCO signed the “Concession Agreement
for the Build-Operate-and-Transfer Arrangement of the NAIA Passenger Terminal
III” (1997 Concession Agreement). The Government granted PIATCO the franchise
to operate and maintain the said terminal during the concession period and to
collect the fees, rentals and other charges in accordance with the rates or schedules
stipulated in the 1997 Concession Agreement. The Agreement provided that the
concession period shall be for twenty-five (25) years commencing from the in-service
date, and may be renewed at the option of the Government for a period not exceeding
twenty-five (25) years. At the end of the concession period, PIATCO shall transfer
the development facility to MIAA.

Meanwhile, the MIAA which is charged with the maintenance and operation of the
NAIA Terminals I and II, had existing concession contracts with various service
providers to offer international airline airport services, such as in-flight catering,
passenger handling, ramp and ground support, aircraft maintenance and provisions,
cargo handling and warehousing, and other services, to several international airlines at
the NAIA.
On September 17, 2002, the workers of the international airline service providers,
claiming that they would lose their job upon the implementation of the questioned
agreements, filed a petition for prohibition. Several employees of MIAA likewise
filed a petition assailing the legality of the various agreements.
During the pendency of the cases, PGMA, on her speech, stated that she will not
“honor (PIATCO) contracts which the Executive Branch’s legal offices have
concluded (as) null and void.”

ISSUE:
Whether or not the State can temporarily take over a business affected with public
interest.
RULING:
Yes. PIATCO cannot, by mere contractual stipulation, contravene the
Constitutional provision on temporary government takeover and obligate the
government to pay “reasonable cost for the use of the Terminal and/or Terminal
Complex.”

Article XII, Section 17 of the 1987 Constitution provides:

Section 17. In times of national emergency, when the public interest so requires, the State
may, during the emergency and under reasonable terms prescribed by it, temporarily take
over or direct the operation of any privately owned public utility or business affected with
public interest.

The above provision pertains to the right of the State in times of national emergency, and
in the exercise of its police power, to temporarily take over the operation of any business
affected with public interest. The duration of the emergency itself is the determining factor
as to how long the temporary takeover by the government would last. The temporary
takeover by the government extends only to the operation of the business and not
to the ownership thereof. As such the government is not required to compensate
the private entity-owner of the said business as there is no transfer of ownership,
whether permanent or temporary. The private entity-owner affected by the temporary
takeover cannot, likewise, claim just compensation for the use of the said business and
its properties as the temporary takeover by the government is in exercise of its police
power and not of its power of eminent domain.

Article XII, section 17 of the 1987 Constitution envisions a situation wherein the
exigencies of the times necessitate the government to “temporarily take over or direct the
operation of any privately owned public utility or business affected with public interest.” It
is the welfare and interest of the public which is the paramount consideration in
determining whether or not to temporarily take over a particular business. Clearly, the
State in effecting the temporary takeover is exercising its police power. Police power is
the “most essential, insistent, and illimitable of powers.” Its exercise therefore must not
be unreasonably hampered nor its exercise be a source of obligation by the government
in the absence of damage due to arbitrariness of its exercise. Thus, requiring the
government to pay reasonable compensation for the reasonable use of the property
pursuant to the operation of the business contravenes the Constitution.
 C. Public Utility Ownership and Operation

C. Public Utility Ownership and Operation

Tatad vs. Garcia, Jr. G.R. No. 114222 (1995)

Facts:

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:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public
utility?

Ruling:
What private respondent owns are the rail tracks, rolling stocks like the coaches, rail stations,
terminals and the power plant, not a public utility. While a franchise is needed to operate these
facilities to serve the public, they do not by themselves constitute a public utility. What
constitutes a public utility is not their ownership but their use to serve the public.

In law, there is a clear distinction between the "operation" of a public utility and the ownership
of the facilities and equipment used to serve the public. The right to operate a public utility may
exist independently and separately from the ownership of the facilities thereof. One can own
said facilities without operating them as a public utility, or conversely, one may operate a
public utility without owning the facilities used to serve the public. The devotion of property to
serve the public may be done by the owner or by the person in control thereof who may not
necessarily be the owner thereof.
THE UNITED STATES, plaintiff-appellee, vs. TAN PIACO, VENTURA ESTUYA, PEDRO HOMERES,
MAXIMINO GALSA and EMILIO LEOPANDO, defendants. TAN PIACO, appellant.
G.R. No. L-15122 March 10, 1920

Facts:
Piaco rented two automobile trucks and was using them upon the highways of the Province of
Leyte for the purpose of carrying some passengers and freight. He carried passengers and freight
under a special contract in each case. He had not held himself out to carry all passengers and
all freight for all persons who might offer passengers and freight. Said defendants were charged
with a violation of the Public Utility Law (Act No. 2307 as amended by Acts Nos. 2362 and 2694),
in that they were operating a public utility without permission from the Public Utility
Commissioner.

Issue:
Whether the appellant was a public utility under the foregoing definitions, and was therefore
subject to the control and regulation of the Public Utility Commission.

Held:
No. In support of the conclusion of the Attorney-General, he cites the case of Terminal Taxicab
Co. vs. Kutz (241 U. S.. 252).

Section 14 of Act No. 2307, as amended by section 9 of Act No. 2694, provides that: "The Public
Utility Commission or Commissioners shall have general supervision and regulation of,
jurisdiction and control over, all public utilities. . . . The term 'public utility' is hereby defined to
include every individual, copartnership, association, corporation or joint stock company, etc.,
etc., that now or hereafter may own, operate, managed, or control any common carrier,
railroad, street railway, etc., etc., engaged in the transportation of passengers, cargo, etc., etc.,
for public use."

Under the provisions of said section, two things are necessary: (a) The individual, copartnership,
etc., etc., must be a public utility; and (b) the business in which such individual, copartnership,
etc. etc., is engaged must be for public use. So long as the individual or copartnership, etc., etc.,
is engaged in a purely private enterprise, without attempting to render service to all who may
apply, he can in no sense be considered a public utility, for public use.

"Public use" means the same as "use by the public." The essential feature of the public use is
that it is not confined to privilege individuals, but is open to the indefinite public. It is this
indefinite or unrestricted quality that gives it its public character. In determining whether a use
is public, we must look not only the character of the business to be done, but also to the proposed
mode of doing it. If the use is merely optional with the owners, or the public benefit is merely
incidental, it is not a public use, authorizing the exercise of the jurisdiction of the public utility
commission. There must be, in general, a right which the law compels the power to give to the
general public. It is not enough that the general prosperity of the public is promoted. Public use
is not synonymous with public interest. The true criterion by which to judge of the character of
the use is whether the public may enjoy it by right or only by permission.

For all of the foregoing reasons, the appellant was not operating a public utility, for public use,
and was not, therefore, subject to the jurisdiction of the Public Utility Commission.

LA PAZ ICE PLANT & COLD STORAGE Co., INC., plaintiff and appellee, vs. JOHN BORDMAN and
ILOILO COMMERCIAL & ICE Co., defendants and appellants.
TOPIC: Concept of Public Service

FACTS:

 The plaintiff [La Paz Ice Plant] commenced this action to enjoin the defendants from continuing to
exploit the ice factory which they have established in the City of Iloilo, Province of Iloilo because
they have not provided themselves with the certificate of public convenience required by Act No.
3108 and its amendments.
 The defendants appealed from the decision making permanent the writ of preliminary injunction
which was issued therein, prohibiting them from continuing to exploit the said ice factory, but
holding that the said injunction will be lifted as soon as the defendants obtain the corresponding
certificate of public convenience from the Public Service Commission.
Background:
 1908: Iloilo Ice & Cold Storage Co. established the ice plant in the City of Iloilo and sold its products
by means of tickets to a limited number of consumers.
 1923: Iloilo Ice & Cold Storage Co. changed its name and then became known as the Iloilo
Commercial & Ice Co. Since then it began to sell its products to the general public and, upon
agreement entered into with the manager of the plaintiff, it was selling the ice produced by its factory
at the same price as that of the latter entity.
 Having established its factory prior to the enforcement of Act No. 3108, which went into
effect on March 19, 1923, and believing that the business does not come under the
jurisdiction or authority of the Public Service Commission, the defendants did not provide
themselves with a certificate of public convenience.
 Plaintiff [La Paz Ice Plant] is the operator of another ice plant established in the municipality of La
Paz, provided with a certificate of public convenience No 11282, with authority to sell ice in the
municipalities of Iloilo, La Paz and Jaro.
 Plaintiff required the defendants to provide themselves with a certificate of public
convenience to avoid ruinous competition between both factories, but they refused to do
so and to submit to the jurisdiction and authority of the Public Service Commission.

 The defendants contend in their first assigned error that the court erred in not holding Act No.
3108, as amended, unconstitutional and void, in so far as it requires a certificate of public
convenience to engage in a lawful business or when a property is devoted to the public
service. Excerpt of the law is below:


“No public utility as herein defined shall operate in the Philippine Islands without having­ first secured from
the Commission a certificate, which shall be known as Certificate of Public Convenience, to the effect that
the operation of said public utility and the authorization to do business will promote the public interests in a
proper and suitable manner. Every public utility existing on the date of the approval of this Act shall pay the
fees herein prescribed for the issuance of the proper certificate of public convenience or public necessity
and convenience, as the case may be, in the same manner as said fees shall be payable by any new public
utility subject to the provisions of this Act, within sixty days from the date of the approval of this Act…”
ISSUE:
1. Whether said Act No. 3108, as amended, should be applied to the present case, notwithstanding
the enactment of Commonwealth Act No. 146 which took effect on November 7, 1936
2. WON Defendants are under a duty to provide themselves with a Certificate of Public Convenience
in order to continue operating the ice factory which they have in the City of Iloilo
HELD:

1. Yes

While section 46 of Commonwealth Act No. 146 expressly repeals Act No. 3108 and its amendments,
nowhere does it provide that it has retroactive effect. In the absence of any express provision to this effect,
the general rule should prevail that laws do not have retroactive effect, unless otherwise expressly provided.
And this rule is the more applicable to the present case because the defendants have acquired rights under
the former law which should be protected.
Commonwealth Act No. 146 is not applicable to the present case, and that the defendants' rights, in
connection with the certificate of public convenience for the ice factory operated by them, should be
governed by Act No. 3108, as amended.

2. Subsection (i) of section 15 of Act No. 3108 as amended by section 2 of Act No. 4033, contains an
exception providing that public services existing before its approval, instead of providing themselves
with a certificate of public convenience or with a certificate of public necessity and convenience,
as the case may be, shall only pay the fees fixed by law for the issuance of said certificates. The
factory operated by the defendants is within the purview of the proviso, and under the law, it is not under a
duty to provide itself with a certificate of public convenience, but only to pay the required fees for the
issuance of said certificate. We, therefore, hold that the defendants are not bound to provide
themselves with a certificate of public convenience to continue operating their ice plant, but they
should pay within a reasonable time the fees required for said certificate.
The foregoing should not be interpreted to mean that the defendants are not subject to the jurisdiction and
authority of the Public Service Commission. After paying the aforesaid fees the commission shall issue
to them the corresponding certificate of public convenience, which may be regulated, modified or
cancelled for just cause, and in its operation and exploitation the defendants' factory shall be
subject to the jurisdiction and authority of the commission, like any new enterprise, in accordance
with the provisions of Commonwealth Act No. 146.
For the foregoing reasons, the appealed decision is reversed, and it is ordered that the defendants, within
thirty days from notice of this decision, pay to the Public Service Commission the fees fixed by law for the
issuance of the certificate of public convenience for their factory, and that upon such payment the
commission issue to them the certificate of public convenience; provided, however, that the defendant Iloilo
Commercial & Ice Co., as operator of the public service which it exploits, is subject to the jurisdiction and
authority of the Public Service Commission. After the defendant corporation has obtained 'the certificate of
public convenience. the preliminary injunction which has been issued shall be cancelled as well as the bond
filed by the plaintiff; without special pronouncement as to the costs in thus instance.

North Negros Sugar Co. v. hidalgo, G.R. No. L-42334 (1936)

Facts: North Negros Sugar Co. (NNSC) is the owner of a site known as the “mill site.” It is where its
sugar central, with its factory building and residence for its employees and laborers are located. It also
owns the adjoining sugar plantation known as Hacienda “Begoña.” Across its properties NNSC
constructed a road connecting the “mill site” with the provincial highway. Through this road it
allowed vehicles to pass upon payment of a toll charge of P0.15 for each truck or automobile.
Pedestrians are allowed free passage through it.
Immediately adjoining the above-mentioned “mill site” of the NNSC is the hacienda of Luciano Aguirre,
known as Hacienda “Sañgay,” where the Hidalgo has a billiard hall and a tuba saloon. Like other
people in and about the place, Hidalgo used to pass through the said road of the NNSC because it
was his only means of access to the Hacienda “Sañgay”. Later on, by order of the NNSC , every time
that the Hidalgo passed driving his automobile with a cargo of tuba plaintiff ,the gatekeeper would
stop him and prevent him from passing through said road. Hidalgo in such cases merely deviated from
said road and continued on his way to Hacienda “Sañgay” across the fields of Hacienda “Begoña,” likewise
belonging to the NNSC.

Issue: Whether or not NNSC can enjoin Hidalgo from passing the property.

Ruling: NO.
We, therefore, have the case of an easement of way voluntarily constituted in favor of a community. Civil
Code articles 531 and 594 read:
ART. 531. Easements may also be established for the benefit of one or more persons or of a community to
whom the encumbered estate does not belong.
xxxxxxxxx
ART. 594. The owner of an estate may burden it with such easements as he may deem fit, and in such
manner and form as he may consider desirable, provided he does not violate the law or public order.

As may be seen from the language of article 594, in cases of voluntary easement, the owner is given ample
liberty to establish them: “as he may deem fit, and in such manner and form as he may consider desirable.”
The plaintiff “considered it desirable” to open this road to the public in general, without imposing any
condition save the payment of a fifteen-centavo toll by motor vehicles, and it may not now go back on this
and deny the existence of an easement. Voluntary easements under article 594 are not contractual in
nature; they constitute the act of the owner. If he exacts any condition, like the payment of a certain
indemnity for the use of the easement, any person who is willing to pay it may make use of the easement.
If the contention be made that a contract is necessary, it may be stated that a contract exits from the time
all those who desire to make use of the easement are disposed to pay the required indemnity.The plaintiff
contends that the easement of way is intermittent in nature and can only be acquired by virtue of a title
under article 539. The defendant, however, does not lay claim to it by prescription. The title in this case
consists in the fact that the plaintiff has offered the use of this road to the general public upon payment of
a certain sum as passage fee in case of motor vehicles.
The cases of Roman Catholic Archbishop of Manila vs. Roxas (22 Phil., 450), and Cuaycong vs. Benedicto
(37 Phil., 781), are not controlling, as there the attempt was to establish that the right to an easement of
way had been acquired by prescription. Here defendant’s contention is, that while the road in question
remains open to the public, he has a right to its use upon paying the passage fees required by the plaintiff.
Indeed the latter may close it at its pleasure, as no period has been fixed when the easement was voluntarily
constituted, but while the road is thrown open, the plaintiff may not capriciously exclude the defendant from
its use.
Furthermore, plaintiff’s evidence discloses the existence of a forcible right of way in favor of the owner and
occupants of the Hacienda “Sañgay” under the Civil Code, article 564, because, according to said evidence,
those living in Hacienda “Sañgay” have no access to the provincial road except thru the road in question.
 D. Power to Grant Licenses or Franchises to Operate Public Utilities

PANGASINAN TRANSPORTATION CO., INC. vs. THE PUBLIC SERVICE COMMISSION

G.R. No. 47065. June 26, 1940.

Facts:
The petitioner has been engaged for the past twenty years in the business of transporting
passengers in the Province of Pangasinan and Tarlac and, to a certain extent, in the
Province of Nueva Ecija and Zambales, by means of motor vehicles commonly known as
TPU buses, in accordance with the terms and conditions of the certificates of public convenience
issued in its favor by the former Public Utility Commission.

Petitioner filed with the Public Service Commission an application for authorization to operate
ten additional new Brockway trucks, on the ground that they were needed to comply with the
terms and conditions of its existing certificates and as a result of the application of the Eight Hour
Labor Law.

The Public Service Commission granted the petitioner's application for increase of
equipment.

Not being agreeable to the two new conditions thus incorporated in its existing certificates, the
petitioner filed a motion for reconsideration which was denied by the Public Service Commission.

The 2 conditions are : (1) that the Certificate of Public Convenience and Necessity (CPCN)
would be valid for only 25 years and (2) that the service can be acquired by the government
upon payment of cost price of its useful equipment less reasonable depreciation.

Pantranco challenged the constitutionality of Article 15, Commonwealth Act 146 as an undue
delegation of legislative powers.

Issue:
Whether or not the Public Service Commission may prescribe the 2 conditions as a prerequisite
to the issuance of the CPCN

Held:
Yes. Commonwealth Acts Nos. 146 and 454 are not only the organic acts of the Public Service
Commission but are "a part of the charter of every utility company operating or seeking to operate
a franchise" in the Philippines. The business of a common carrier holds such a peculiar relation
to the public interest that there is super induced upon it the right of public regulation. When private
property is "affected with a public interest it ceases to be juris privati only." When, therefore one
devotes his property to a use in which the public has an interest, he, in effect, grants to
the public an interest in that use, and must submit to be controlled by the public for the
common good, to the extent of the interest he has thus created. He may withdraw his grant
by discontinuing the use, but so long as he maintains the use he must submit to control. Indeed,
this right of regulation is so far beyond question that it is well settled that the power of the state to
exercise legislative control over public utilities may be exercised through boards of
commissioners.

This right of the state to regulate public utilities is founded upon the police power, and statutes for
the control and regulation of utilities are a legitimate exercise thereof, for the protection of the
public as well as of the utilities themselves. Such statutes are, therefore, not unconstitutional,
either as impairing the obligation of contracts, taking property without due process, or denying the
equal protection of the laws, especially inasmuch as the question whether or not private property
shall be devoted to a public use and the consequent burdens assumed is ordinarily for the owner
to decide; and if he voluntarily places his property in public service he cannot complain
that it becomes subject to the regulatory powers of the state. (51 C. J., sec. 21, pp. 9, 10.)
This is the more so in the light of authorities which hold that a certificate of public
convenience constitutes neither a franchise nor a contract, confers no property right, and
is a mere license or privilege.

Facts: Grand Air applied for a Certificate of Public Convenience and Necessity with the Civil
Aeronautics Board (CAB). The Chief Hearing Officer issued a notice of hearing directing Grand Air
to serve a copy of the application and notice to all scheduled Philippine Domestic operators. Grand
Air filed its compliance and requested for a Temporary Operating Permit (TOP). PAL filed an
opposition to the application on the ground that the CAB had no jurisdiction to hear the
application until Grand Air first obtains a franchise to operate from Congress. The Chief Hearing
Officer denied the opposition and the CAB approved the issuance of the TOP for a period of 3 months.
The opposition for the TOP was likewise denied. The CAB justified its assumption of jurisdiction
over Grand Air’s application on the basis of Republic Act 776 which gives it the specific power
to issue any TOP or Certificate of Public Convenience and Necessity.

Issue: Whether or not the CAB can issue a Certificate of Public Convenience and Necessity or
TOP even though the prospective operator does not have a legislative franchise?

Held: Yes, as mentioned by the CAB, it is duly authorized to do so under Republic Act 776 and a
legislative franchise is not necessary before it may do so, since Congress has delegated the
authority to authorize the operation of domestic air transport services to the CAB, an
administrative agency. The delegation of such authority is not without limits since Congress
had set specific standard and limitations on how such authority should be exercised.

Public convenience and necessity exists when the proposed facility will meet a reasonable want of the
public and supply a need which the existing facilities do not adequately afford.

Thus, the Board should be allowed to continue hearing the application, since it has jurisdiction over it
provided that the applicant meets all the requirements of the law.
 E. Certificate of Public Convenience or Certificate of Public Convenience and Necessity

Luque v Villegas

Facts:
Petitioners ( who are passengers from Cavite and Batangas who ride on buses to and from their
province and Manila) and some public service operators of buses and jeeps assail the validity of
Ordinance 4986 and Administrative Order 1.

Ordinance 4986 states that PUB and PUJs shall be allowed to enter Manila only from 6:30am
to 8:30pm every day except Sundays and holidays.

Petitioners contend that since they possess a valid CPC, they have already acquired a vested
right to operate.

Administrative Order 1 issued by Commissioner of Public Service states that all jeeps authorized
to operate from Manila to any point in Luzon, beyond the perimeter of Greater Manila, shall
carry the words "For Provincial Operation".

Issue:
1. Whether or not the said regulations are valid.
2. Whether or not Ordinance 4986 destroys vested rights to operate in Manila.

Held:
1. YES! Using the doctrine in Lagman vs. City of Manila, Petitioner's Certificate of Public
Convenience was issued subject to the condition that operators shall observe and comply with
all the rules and regulations of the PSC relative to PUB service.

The purpose of the ban is to minimize the problem in Manila and the traffic congestion, delays
and accidents resulting from the free entry into the streets of Manila and the operation around
said streets.

Both Ordinance 4986 and AO 1 fit into the concept of promotion and regulation of general
welfare.

2. NO! A vested right is some right or interest in the property which has become fixed and
established and is no longer open to doubt or controversy. As far as the State is concerned, a CPC
constitutes neither a franchise nor a contract, confers no property right, and is a mere license
or privilege.

The holder does not acquire a property right in the route covered, nor does it confer upon the
holder any proprietary right/interest/franchise in the public highways.
Neither do bus passengers have a vested right to be transported directly to Manila. The alleged
right is dependent upon the manner public services are allowed to operate within a given area.
It is no argument that the passengers enjoyed the privilege of having been continuously
transported even before outbreak of war. Times have changed and vehicles have increased.
Traffic congestion has moved from worse to critical. Hence, there is a need to regulate the
operation of public services.

Raymundo v Luneta Motor Co.

GR Nos. L-39902, L-39903
November 29, 1933

Facts:

Guzco Transit purchased trucks to Luneta Motor Co. and executed promissory notes as
payments thereof. Upon his failure to pay, a suit was filed against Guzco Transit for the
collection of amount outstanding and unpaid. A writ of attachment was obtained against the
properties of the Guzco Transit. The writ includes their certificates of public convenience
covering certain bus transportation lines. These certificates were sold to the Luneta Motor Co.
as the highest bidder. However, days after the writ of attachment was issued, Guzco Transit
sold the same certificates, including one certificate not subject to the writ, and several trucks to
Dominador Raymundo.

Issue:

Which of the two sales, the one at public auction by virtue of an attachment, or two voluntary
sale made after the property had been levied upon, should prevail?

Held:

The Code of Civil Procedure establishes the general rule that "property, both real and personal,
or any interest therein of the judgment debtor, not exempt by law, and all property and rights of
property seized and held under attachment in the action, shall be liable to execution." The
statutory exemptions do not include franchises or certificates of public convenience. The Public
Service Law also does not contain specific provisions on the right to attach certificates of public
convenience.

The test by which to determine whether or not property can be attached and sold upon execution
is whether the judgment debtor has such a beneficial interest therein that he can sell or
otherwise dispose of it for value. The Public Service Law permits the Public Service Commission
to approved the sale, alienation, mortgaging, encumbering, or leasing of property, franchises,
privileges, or rights or any part thereof (sec. 16 [h]), and in practice the purchase and sale of
certificates of public convenience has been permitted by the Public Service Commission. If the
holder of a certificate of public convenience can sell it voluntarily, there is no valid reason why
the same certificate cannot be taken and sold involuntarily pursuant to process. Certificates of
public convenience have come to have considerable material value. They are valuable assets
and are the cornerstones on which are build the business of bus transportation.

A practice has grown up in the Public Service Commission of permitting the alienation of
certificates of public convenience and in so doing approval has been given to the sale through
foreclosure proceedings of the certificates of public convenience to third parties.

Certificates of public convenience secured by public service operators are liable to execution,
and the Public Service Commission is authorized to approve the transfer of the certificates of
public convenience to the execution creditor.

What is a Certificate of Public Convenience (CPC)?

An authorization issued for the operation of public services for which no franchise, either municipal or
legislative, is required by law, such as a common carrier.

Under the Public Service Law, a certificate of public convenience can be sold by the holder thereof
because it has considerable material value and is considered a valuable asset (Raymundo v. Luneta
Motor Co., G.R. No. 39902, Nov. 29, 1933).

Does the CPC confer upon the holder any proprietary right or interest in the route covered thereby?

No. (Luque v. Villegas, G.R. No. L-22545, Nov. 28, 1969). However, with respect to other persons and
other public utilities, a certificate of public convenience as property, which represents the right and
authority to operate its facilities for public service, cannot be taken or interfered with without due
process of law. Appropriate actions may be maintained in courts by the holder of the certificate against
those who have not been authorized to operate in competition with the former and those who invade
the rights which the former has pursuant to the authority granted by the Public Service Commission (A.L.
Animen Transportation Co. v. Golingco, G.R. No. 17151, Apr. 6, 1922)

What are the requirements for the grant of certificate of public convenience?

1. Applicant must be a citizen of the Philippines. If the applicant is a Corporation, 60% of its capital must
be owned by Filipinos

2. Applicant must prove public necessity

3. Applicant must prove the operation of proposed public service will promote public interest in a
proper and suitable manner; and

4. Applicant must have sufficient financial capability to undertake proposed services and meeting
responsibilities incidental to its operation. (Kilusang Mayo Uno v. Garcia G.R. No. 108584, Dec. 22, 1994)
Cite instances where a certificate of public convenience is not necessary?

1. Warehouses

2. Animal-­­drawn vehicles or banca powered by oar or by sail; tug boats and lighters

3. Airships except as to fixing rates

4. Radio companies, except as to fixing of rates

5. Ice plants

6. Public market

7. Public utilities operated by the national government or political subdivision except as to rates.

What are the grounds that oppositors may raise to the application for a certificate of public
convenience?

1. The area has already a well-established operator – prior operator rule.

2. Interpose an objection stating that the grant of the application would result to a ruinous competition.

3. Attack the citizenship of the applicant (Sec. 11, Art. XII of the 1987 Constitution prohibits the granting
of franchise or certificate for the operation of public utility in favor of non-Filipino citizens); or

4. The applicant does not have the necessary financial capacity.

What are the guidelines to eliminate the sale and transfer of expired and/or dead Certificate of Public
Conveniences (CPCs)?

1. No approval of sale and transfer of a CPC shall be accepted where the validity of CPC being conveyed
is less than 6 months on the date of its filing with the LTFRB.

2. No application for approval of sale and transfer of a CPC shall be accepted unless the units authorized
therein are registered with the LTO for the current year.

3. Where the authorized units under the CPC conveyed have all not been registered with the LTO for the
current year, the application for the approval of sale and transfer will be accepted and processed only
for the actual number of registered units corresponding to the CPC conveyed.

4. No application for approval of sale and transfer of a CPC shall be accepted, unless all fees/dues have
been fully paid to the LTO and LTFRB, and taxes to the BIR
 F. Public Service Commission and its Functions

Luzon Stevedoring v. Public Service Commission (G.R. No. L-5458)

Facts:

Petitioners are corporations mainly engaged in the stevedoring or lighterage and harbor towage
business. At the same time, they are also engaged in interisland service which consists of hauling
cargoes such as sugar, oil, fertilizer and other commercial commodities which are loaded in
their barges and towed by their tugboats, for which service petitioners charge freightage, but
only serving a limited portion of the public. Respondent Philippine Shipowners Association
complains that petitioners were engaged in the transportation of cargo for hire or
compensation without authority or approval of the Commission, having adopted, filed and
collected freight charges which said rates resulted in ruinous competition. PSC restrained
petitioners “from further operating their watercraft to transport goods for hire or
compensation between points in the Philippines until the rates they propose to charge are
approved by this Commission.”

Issue:

Whether or not petitioners can be considered public service.

Ruling: YES.

It is not necessary, under this definition, that one holds himself out as serving or willing to serve
the public in order to be considered public service.

Commonwealth Act No. 146 declares in unequivocal language that an enterprise of any of the
kinds therein enumerated is a public service if conducted for hire or compensation even if the
operator deals only with a portion of the public or limited clientele.

It has been seen that public utility, even where the term is not defined by statute, is not
determined by the number of people actually served. Nor does the mere fact that service is
rendered only under contract prevent a company from being a public utility. On the other hand,
casual or incidental service devoid of public character and interest, it must be admitted, is not
brought within the category of public utility. The demarcation line is not susceptible of exact
description or definitions, each case being governed by its peculiar circumstances.

The transportation service which was the subject of complaint was not casual or incidental. It had
been carried on regularly for years at almost uniform rates of charges. Although the number of
the petitioners’ customers was limited, the value of goods transported was not inconsiderable.
Petitioners did not have the same customers all the time embraced in the complaint, and there
was no reason to believe that they would not accept, and there was nothing to prevent them
from accepting, new customers that might be willing to avail of their service to the extent of their
capacity.
JG Summit Holdings Inc. vs. CA
G.R. No. 124293, November 20, 2000

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 is a public utility

Whether or not Kawasaki/PHI can purchase beyond 40% of PHILSECO’s stocks

HELD:

* “When a lease contract contains a right of first refusal, the lessor is under a legal duty to the
lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a
certain price and the lessee has failed to accept it.

In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on sec. 13, CA No.
146. On the other hand, Kawasaki/PHI argued that PD No. 666 explicitly stated that a “shipyard”
was not a “public utility.” But the SC stated that sec. 1 of PD No. 666 was expressly repealed by
sec. 20, BP Blg. 391 and when BP Blg. 391 was subsequently repealed by EO 226, the latter law
did not revive sec. 1 of PD No. 666. Therefore, the law that states that a shipyard is a public
utility still stands.
A shipyard such as PHILSECO being a public utility as provided by law is therefore required to
comply with the 60%-40% capitalization under the Constitution. Likewise, the JVA between
NIDC and Kawasaki manifests an intention of the parties to abide by this constitutional mandate.
Thus, under the JVA, should the NIDC opt to sell its shares of stock to a third party, Kawasaki
could only exercise its right of first refusal to the extent that its total shares of stock would not
exceed 40% of the entire shares of stock. The NIDC, on the other hand, may purchase even
beyond 60% of the total shares. As a government corporation and necessarily a 100% Filipino-
owned corporation, there is nothing to prevent its purchase of stocks even beyond 60% of the
capitalization as the Constitution clearly limits only foreign capitalization.

Kawasaki was bound by its contractual obligation under the JVA that limits its right of first
refusal to 40% of the total capitalization of PHILSECO. Thus, Kawasaki cannot purchase beyond
40% of the capitalization of the joint venture on account of both constitutional and contractual
proscriptions.
 G. Prior Operator Rule or Old Operator Rule
• Halili v. Cruz, G.R. No. L-21061 (1968); • Yangco v. Esteban, G.R. No. 38586 (1933);

PRIOR OPERATING RULE

What is the prior operator rule?

Provides existing franchise operator preferential right within authorized territory as long as said
operator renders satisfactory and economical service. This rule subordinates the prior applicant rule
which gives first applicant priority only if things and circumstances are equal. A prior operator must be
given the opportunity to extend its transportation services before permitting a new operator to
operate in the territory of said prior operator.

Or old Operator Rule – which is to the effect that a public utility operator should be shielded from
ruinous competition by affording him the opportunity to improve his equipment and service before
allowing a new operator to serve in the same territory he covers.

What are the exceptions of prior operator rule?

1. Great demand for public utility – convenience of the public. The resulting competition will
undoubtedly benefit the public through improvement in the service and reduction in retail prices.

2. Better serve the public interest – what is important is whose operation would best subserve the
public interest.

3. Operator is not of good standing – it should be emphasized that the paramount consideration
should always be the public interest and public convenience. The duty of the commission to protect
investment of a public utility operator refers only to operators of good standing – those who comply with the
laws, rules and regulations – and not to operators who are unconcerned with the public interest and whose
investments have failed or deteriorated because of their own fault.

4. Failure to increase the service

An old operator on the line in question, never the less he has not applied for an increase in his service but
allowed another to do so; and according to the line of decisions, it has been ruled that the granting of
preference to an old operator applies only when said old operator has made the offer to meet the increase
in traffic and not when another operator even a new one, has made the offer to serve the new line or
increased the service on said line;

5. Certificate of public convenience granted is maiden franchise.

6. Reasonable and it is not harmful nor obnoxious to public service.
7. Free competition

What is the Prior Applicant Rule?

Applies to situations wherein two applicants are applying for a certificate of public convenience over a given
territory. Where both applicants are similarly situated, the prior applicant shall have the certificate over the
other.

What is the Third Operator Rule?

Where two operators are more than serving the public there is no reason to permit a third operator
to engage in competition with them. The fact that it is only one trip and of little consequence is not
sufficient reason to grant the application. (Yangco v. Esteban, G.R. No. 38586, Aug. 18, 1933)
Protection of Investment Rule

What is the Protection of Investment Rule?

The law contemplates that the first licensee will be protected in his investment and will not be
subjected to a ruinous competition. So long as an operator under a prior license complies with its
terms and conditions and the reasonable rules and regulations for its operation, and meets the
reasonable demands of the public, it will be protected rather than destroy its investment by the
granting of the second license to another person for the same thing over the same route of travel.
Note: The "prior operator" and "protection of investment" rules cannot take precedence over the
convenience of the public. (Martires Ereno Co. v. Public Service Commission, G.R. No. L-25962, Sept. 30,
1975)

Ruinous competition

Means that because of the competition, his income will be so reduced that it will not give him an adequate
return on his investment.