TRANSPORTATION LAW Luzon Stevedoring Co., Inc. v. PSC, G.R.
No L-5458,
Atty. Daniel Gutierrez
PART ONE - PUBLIC UTILITIES
I. General Discussion
A. What is a public utility?
Munn v Illinois, 94 U.S. 113 (1876)
The Grain Act is not unconstitutional. When one
becomes a member of society, he necessarily parts
with some rights or privileges which, as an individual
not affected by his relations to others, he might retain.
This does not confer power upon the whole people to
control rights which are purely and exclusively
private; but it does authorize the establishment of laws
requiring each citizen to so conduct himself, and so use
his own property, as not unncessarilty to injure
another.
Under these powers, the government regulates the
conduct of its citizens one towards another, and the
manner in which each shall use his own property,
when such regulation becomes necessary for the
public good.
From this it is apparent that, down to the time of the
adoption of the Fourteenth Amendment, it was not
supposed that statutes regulating the use, or even the
price of the use, of private property necessarily
deprived an owner of his property without due process
of law. Under some
circumstances they may, but not under all. The
amendment does not change the law in this particular;
it simply prevents the States from doing that which
will operate as such a deprivation.
When private property is devoted to a public use, it is
subject to public regulation. The warehouses of Munn
& Scott in error are situated, and their business carried
on, exclusively within the limits of the State of Illinois.
They are used as instruments by those engaged in State
as well as those engaged in interstate commerce, but
they are no more necessarily a part of commerce itself
than the dray or the cart by which, but for them, grain
would be transferred from one railroad station to
another. Incidentally they may become connected with
interstate commerce, but not necessarily so. Their
regulation is a thing of domestic concern, and,
certainly, until Congress acts in reference to their
interstate relations, the State may exercise all the
powers of government over them even though in so
doing it may indirectly operate upon commerce
outside its immediate jurisdiction.
September 16, 1953
An enterprise of any of the kinds enumerated in the
Public Service Law is a public service if conducted for
hire or compensation even if the operator deals only
with a portion of the public or with limited clientele. It
is not necessary, under the definition of Public Service
that one holds himself out as serving or willing to serve
the public in order to be considered public service.
The Public Service Law was enacted not only to
protect the public against unreasonable charges and
poor, inefficient service, but also to prevent ruinous
competition. To the extent that such agreements may
tend to wreck or impair the financial stability and
efficiency of public utilities who do offer service to the
public in general, they are affected with public interest
and come within the police power of the state to
regulate.
A public utility may not evade control and supervision
of its operation by the government by selecting its
customers under the guise of private transactions.
Additional Readings:
Epstein, Richard A. The History of Public Utility Rate
Regulation in the United States Supreme Court: Of
Reasonable and Nondiscriminatory Rates, 38(3)
Journal of Supreme Court History 345-368 (2013)
B. What is a public service?
Commonwealth Act No. 146 or the Public Service
Act, as amended, Sec. 13(b)
Differentiate public utility from public service
C. Legal Basis and Rationale for Regulation
Republic of the Philippines v. Meralco, 391 SCRA
700 (G.R. No. 141314, November 15, 2002)
In the early case of Ynchausti S.S. Co. v. Public Utility
Commissioner, this Court held: "[t]here is a legal
presumption that the rates fixed by an administrative
agency are reasonable, and it must be conceded that
the fixing of rates by the Government, through its
authorized agents, involves the exercise of reasonable
discretion and, unless there is an abuse of that
discretion, the courts will not interfere.”
The regulation of rates to be charged by public utilities
is founded upon the police powers of the State and
statutes prescribing rules for the control and regulation
of public utilities are a valid exercise thereof. When
private property is used for a public purpose and is
affected with public interest, it ceases to be juris privati
only and becomes subject to regulation.
In regulating rates charged by public utilities, the State
protects the public against arbitrary and excessive
rates while maintaining the efficiency and quality of
services rendered. However, the power to regulate
rates does not give the State the right to prescribe rates
which are so low as to deprive the public utility of a
reasonable return on investment. Thus, the rates
prescribed by the State must be one that yields a fair
return on the public utility upon the value of the
property performing the service and one that is
reasonable to the public for the services rendered. The
fixing of just and reasonable rates involves a balancing
of the investor and the consumer interests.
The ERB was created under Executive Order No. 172
to regulate, among others, the distribution of energy
resources and to fix rates to be charged by public
utilities involved in the distribution of electricity. In
the fixing of rates, the only standard which the
legislature is required to prescribe for the guidance of
the administrative authority is that the rate be
reasonable and just. It has been held that even in the
absence of an express requirement as to
reasonableness, this standard may be implied.
Settled jurisprudence holds that factual findings of
administrative bodies on technical matters within their
area of expertise should be accorded not only respect
but even finality if they are supported by substantial
evidence even if not overwhelming or preponderant.
In one case, we cautioned that courts should "refrain
from substituting their discretion on the weight of the
evidence for the discretion of the Public Service
Commission on questions of fact and will only reverse
or modify such orders of the Public Service
Commission when it really appears that the evidence
is insufficient to support their conclusions."
Additional Readings:
Miller, Edythe S., Is the Public Utility Concept
Obsolete? Land Economics, Vol. 71, No. 3, Social
Control of Private Power: The Past and Future of
Public Utility Regulation (August 1995), pp. 273- 285
D. Where does the Power to Regulate Public
Utilities Reside?
Albano v. Reyes, 175 SCRA 264
The franchise by Congress is not necessary for the
operation of the MCIP. P.D. No. 857 expressly
empowers the PPA to provide services within Port
Districts "whether on its own, by contract, or
otherwise" herefore, under the terms of E.O. No. 30
and P.D. No. 857, the PPA may contract with the
International Container Terminal Services, Inc.
(ICTSI) for the management, operation and
development of the MICP.
Even if the MICP be considered a public utility, or a
public service on the theory that it is a "wharf' or a
"dock" as contemplated under the Public Service Act,
its operation would not necessarily call for a franchise
from the Legislative Branch. Franchises issued by
Congress are not required before each and every
public utility may operate. Thus, the law has granted
certain administrative agencies the power to grant
licenses for or to authorize the operation of certain
public utilities.
KMU Labor Center v. Garcia, 239 SCRA 386
Relate to Public Service Act 13(a)
The authority given by the LTFRB to the provincial
bus operators to set a fare range over and above the
authorized existing fare, is illegal and invalid as it is
tantamount to an undue delegation of legislative
authority.
What has been delegated cannot be delegated. This
doctrine is based on the ethical principle that such a
delegated power constitutes not only a right but a duty
to be performed by the delegate through the
instrumentality of his own judgment and not through
the intervening mind of another.
A further delegation of such power would indeed
constitute a negation of the duty in violation of the
trust reposed in the delegate mandated to discharge it
directly.
The policy of allowing the provincial bus operators to
change and increase their fares at will would result not
only to a chaotic situation but to an anarchic state of
affairs.
A rate which is too high becomes discriminatory. It is
contrary to public interest. A rate, therefore, must be
reasonable and fair and must be affordable to the end
user who will utilize the services.
E. What happened to the Public Service
Commission
See footnote #2 in KMU Labor Center v. Garcia, 239
SCRA 386
F. Not a Public Utility
Tatad v. Garcia, 243 SCRA 436
What EDSA LRT Corp. 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
The Constitution, in no uncertain terms, requires a
franchise for the operation of a public utility.
However, it does not require a franchise before one can
own the facilities needed to operate a public utility so
long as it does not operate them 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
. commodities or services traditionally regarded as
The exercise of the rights encompassed in ownership
is limited by law so that a property cannot be operated
and used to serve the public as a public utility unless
the operator has a franchise. The operation of a rail
system as a public utility includes the transportation of
passengers from one point to another point, their
loading and unloading at designated places and the
movement of the trains at pre-scheduled times.
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.
While EDSA LRT Corp. is the owner of the facilities
necessary to operate the EDSA. LRT III, it admits that
it is not enfranchised to operate a public utility. In view
of this incapacity, EDSA LRT Corp. and DOTC
agreed that on completion date, EDSA LRT Corp. will
immediately deliver possession of the LRT system by
way of lease for 25 years, during which period DOTC
shall operate the same as a common carrier and EDSA
LRT Corp. shall provide technical maintenance and
repair services to DOTC.
JG Summit Holdings, Inc. v. Court of Appeals, G.R.
No. 124293, September 24, 2003
See Public Service Act, Sec. 14 for enterprises not
covered by definition of public 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.
There can be no disagreement that the shipbuilding
and ship repair industry is imbued with public interest
as it involves the maintenance of the seaworthiness of
vessels dedicated to the transportation of either
persons or goods. Nevertheless, the fact that a business
is affected with public interest does not imply that it is
under a duty to serve the public.
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
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.
While the business may be regulated for public good,
the regulation cannot justify the classification of a
purely private enterprise as a public utility. 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.
(Commonwealth v. Lafferty)
In view of the foregoing, there can be no other
conclusion than to hold that a shipyard is not a public
utility. A shipyard has been considered a public utility
merely by legislative declaration. Absent this
declaration, there is no more reason why it should
continuously be regarded as such. The fact that the
legislature did not clearly and unambiguously express
its intention to include shipyards in the list of public
utilities indicates that that it did not intend to do so.
Thus, a shipyard reverts back to its status as non-public
utility prior to the enactment of the Public Service
Law.
II. Constitutional Provisions
A. See Article XII, Secs. 6, 11, 17, 18, 19, 1987
Constitution
B. Ownership
Gamboa v. Teves, G.R. No. 176579, June 28, 2011
There is no dispute that petitioner is a stockholder of
PLDT. As such, he has the right to question the subject
sale, which he claims to violate the nationality
requirement prescribed in Section 11, Article XII of
the Constitution. If the sale indeed violates the
Constitution, then there is a possibility that PLDT’s
franchise could be revoked, a dire consequence
directly affecting petitioner’s interest as a stockholder.
More importantly, there is no question that the instant
petition raises matters of transcendental importance to
the public. The fundamental and threshold legal issue
in this case, involving the national economy and the
economic welfare of the Filipino people, far outweighs
any perceived impediment in the legal personality of
the petitioner to bring this action. In Chavez v. PCGG,
299 SCRA 744 (1998), the Court upheld the right of a
citizen to bring a suit on matters of transcendental
importance to the public.
We agree with petitioner and petitioners-in-
intervention. The term “capital” in Section 11, Article
XII of the Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus in
the present case only to common shares, and not to the
total outstanding capital stock comprising both
common and non-voting preferred shares.
Considering that common shares have voting rights
which translate to control, as opposed to preferred
shares which usually have no voting rights, the term
“capital” in Section 11, Article XII of the Constitution
refers only to common shares. However, if the
preferred shares also have the right to vote in the
election of directors, then the term “capital” shall
include such preferred shares because the right to
participate in the control or management of the
corporation is exercised through the right to vote in the
election of directors. In short, the term “capital” in
Section 11, Article XII of the Constitution refers only
to shares of stock that can vote in the election of
directors.
Indisputably, construing the term “capital” in Section
11, Article XII of the Constitution to include both
voting and non-voting shares will result in the abject
surrender of our telecommunications industry to
foreigners, amounting to a clear abdication of the
State’s constitutional duty to limit control of public
utilities to Filipino citizens. Such an interpretation
certainly runs counter to the constitutional provision
reserving certain areas of investment to Filipino
citizens, such as the exploitation of natural resources
as well as the ownership of land, educational
institutions and advertising businesses. The Court
should never open to foreign control what the
Constitution has expressly reserved to Filipinos for
that would be a betrayal of the Constitution and of the
national interest. The Court must perform its solemn
duty to defend and uphold the intent and letter of the
Constitution to ensure, in the words of the
Constitution, “a self-reliant and independent national
economy effectively controlled by Filipinos.”
In the Matter of: The Corporate Rehabilitation of
Bayan Telecommunications, Inc., G.R. Nos. 175418-
20
Art. XII Section 11 of Constitution states “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.” This provision explicitly reserves to
Filipino citizens control over public utilities, pursuant
to an overriding economic goal of the 1987
Constitution: to "conserve and develop our patrimony"
and ensure "a selfreliant and independent national
economy effectively controlled by Filipinos
Two steps must be followed in order to determine
whether the conversion of debt to equity in excess of
40% of the outstanding capital stock violates the
constitutional limit on foreign ownership of a public
utility: First, identify into which class of shares the
debt shall be converted, whether common shares,
preferred shares that have the right to vote in the
election of directors or non-voting preferred shares;
Second, determine the number of shares with voting
right held by foreign entities prior to conversion. If
upon conversion, the total number of shares held by
foreign entities exceeds 40% of the capital stock with
voting rights, the constitutional limit on foreign
ownership is violated. Otherwise, the conversion shall
be respected.
Additional readings:
SEC MC No. 8-2013 (Guidelines on Compliance with
Filipino- Foreign Ownership Requirements) Relate to
Public Service Act, Sec. 16 (a) and Sec. 20 (i)
C. Exclusivity
Metro Cebu Water v. Adala, G.R. No. 168914, July 4,
2007
This Court, in Philippine Airlines, Inc. v. Civil
Aeronautics Board, 270 SCRA 538 (1997), has
construed the term “franchise” broadly so as to
include, not only authorizations issuing directly from
Congress in the form of statute, but also those granted
by administrative agencies to which the power to grant
franchises has been delegated by Congress, to wit:
Congress has granted certain administrative agencies
the power to grant licenses for, or to authorize the
operation of certain public utilities. With the growing
complexity of modern life, the multiplication of the
subjects of governmental regulation, and the increased
difficulty of administering the laws, there is a
constantly growing tendency towards the delegation of
greater powers by the legislature, and towards the
approval of the practice by the courts. It is generally
recognized that a franchise may be derived indirectly
from the state through a duly designated agency, and
to this extent, the power to grant franchises has
frequently been delegated, even to agencies other than
those of a legislative nature. In pursuance of this, it has
been held that privileges conferred by grant by local
authorities as agents for the state constitute as much a
legislative franchise as though the grant had been
made by an act of the Legislature.
It bears noting that once a district is “duly formed and
existing” after following the above procedure, it
acquires the “exclusive franchise” referred to in
Section 47. Thus, P.D. 198 itself, in harmony with
Philippine Airlines, Inc. v. Civil Aeronautics Board,
270 SCRA 538 (1997), gives the name “franchise” to
an authorization that does not proceed directly from
the legislature. It would thus be incongruous to adopt
in this instance the strict interpretation proffered by
respondent and exclude from the scope of the term
“franchise” the CPCs issued by the NWRB.
While the prohibition in Section 47 of P.D. 198
applies to the issuance of CPCs for the reasons
discussed above, the same provision must be deemed
void ab initio for being irreconcilable with Article
XIV, Section 5 of the 1973 Constitution which was
ratified on January 17, 1973—the constitution in force
when P.D. 198 was issued on May 25, 1973. Thus,
Section 5 of Art. XIV of the 1973 Constitution reads:
SECTION 5. 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 the capital of which 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 Batasang Pambansa when
the public interest 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 the
capital thereof. (Emphasis and italics supplied) This
provision has been substantially reproduced in Article
XII Section 11 of the 1987 Constitution, including the
prohibition against exclusive franchises.
In view of the purposes for which they are established,
water districts fall under the term “public utility” as
defined in the case of National Power Corporation v.
Court of Appeals: 279 SCRA 506 (1997), 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. x x x
(Emphasis and italics supplied) It bears noting,
moreover, that as early as 1933, the Court held that a
particular water district—the Metropolitan Water
District—is a public utility.
D. Subject to Amendment
RCPI v. NTC, 150 SCRA 450 (L-68729)
Pursuant to Presidential Decree No. 1 dated September
23, 1972, reorganizing the executive branch of the
National Government, the Public Service Commission
was abolished and its functions were transferred to
three specialized regulatory boards, as follows: the
Board of Transportation, the Board of
Communications and the Board of Power and
Waterworks. The functions so transferred were still
subject to the limitations provided in sections 14 and
15 of the Public Service Law, as amended. With the
enactment of Executive Order No. 546 on July 23,
1979 implementing P.D. No. 1, the Board of
Communications and the Telecommunications
Control Bureau were abolished and their functions
were transferred to the National Telecommunications
Commission (Sec. 19(d), Executive Order No. 546).
It is clear from the aforequoted provision that the
exemption enjoyed by radio companies from the
jurisdiction of the Public Service Commission and the
Board of Communications no longer exists because of
the changes effected by the Reorganization Law and
implementing executive orders. The petitioner's claim
that its franchise cannot be affected by Executive
Order No. 546 on the ground that it has long been in
operation since 1957 cannot be sustained.
 Executive Order No. 546, being an implementing
measure of P.D. No. 1 insofar as it amends the Public
Service Law (CA No. 146, as amended) is applicable
to the petitioner who must be bound by its provisions.
The petitioner cannot install and operate radio
telephone services on the basis of its legislative
franchise alone.
Thus, in the words of R.A. No. 2036 itself, approval
of the then Secretary of Public Works and
Communications was a precondition before the
petitioner could put up radio stations in areas where it
desires to operate. It has been repeated time and again
that where the statutory norm speaks unequivocally,
there is nothing for the courts to do except to apply it.
The law, leaving no doubt as to the scope of its
operation, must be obeyed. (Gonzaga v. Court of
Appeals, 51 SCRA 381).
The records of the case do not show any grant of
authority from the then Secretary of Public Works and
Communications before the petitioner installed the
questioned radio telephone services in San Jose,
Mindoro in 1971. The same is true as regards the radio
telephone services opened in Sorsogon, Sorsogon and
Catarman, Samar in 1983. No certificate of public
convenience and necessity appears to have been
secured by the petitioner from the public respondent
when such certificate was required by the applicable
public utility regulations. (See Executive Order No.
546, sec. 15, supra.; Philippine Long Distance
Telephone Co. v. City of Davao, 15 SCRA 75;
Olongapo Electric Light and Power Corp. v. National
Power Corporation, et al., G.R. No. L-24912,
promulgated April 9, 1987.)
It was well within the powers of the public respondent
to authorize the installation by the private respondent
network of radio communications systems in
Catarman, Samar and San Jose, Mindoro. Under the
circumstances of this case, the mere fact that the
petitioner possesses a franchise to put up and operate
a radio communications system in certain areas is not
an insuperable obstacle to the public respondent's
issuing the proper certificate to an applicant desiring
to extend the same services to those areas. The
Constitution mandates that a franchise cannot be
exclusive in nature nor can a franchise be granted
except that it must be subject to amendment,
alteration, or even repeal by the legislature when the
common good so requires. (Art. XII, sec. 11 of the
1986 Constitution). There is an express provision in
the petitioner's franchise which provides compliance
with the above mandate (RA 2036, sec. 15).
E. Fixed-Term
Francisco v. Toll Regulatory Board, G.R. No.
166910, October 19, 2010
To summarize, the fact that an administrative agency
is exercising its administrative or executive functions
(such as the granting of franchises or awarding of
contracts) and at the same time exercising its quasi-
legislative (e.g. rule-making) and/or quasi-judicial
functions (e.g. rate-fixing), does not support a finding
of a violation of due process or the Constitution. In
C.T. Torres Enterprises, Inc. v. Hibionada, 191 SCRA
268 (1990), We explained the rationale, thus: It is by
now commonplace learning that many administrative
agencies exercise and perform adjudicatory powers
and functions, though to a limited extent only. Limited
delegation of judicial or quasi-judicial authority to
administrative agencies (e.g. the Securities and
Exchange Commission and the National Labor
Relations Commission) is well recognized in our
jurisdiction, basically because the need for special
competence and experience has been recognized as
essential in the resolution of questions of complex or
specialized character and because of a companion
recognition that the dockets of our regular courts have
remained crowded and clogged. x x x x As a result of
the growing complexity of the modern society, it has
become necessary to create more and more
administrative bodies to help in the regulation of its
ramified activities. Specialized in the particular fields
assigned to them, they can deal with the problems
thereof with more expertise and dispatch than can be
expected from the legislature or the courts of justice.
This is the reason for the increasing vesture of quasi-
legislative and quasi-judicial powers in what is now
not unquestionably called the fourth department of the
government.
A clear distinction must be made between the statutory
prescription on the fixing of initial toll rates, on the one
hand, and of periodic/interim or subsequent toll rates,
on the other. First, the hearing required under the said
provisos refers to notice and hearing for the approval
or denial of petitions for toll rate adjustments—or the
subsequent toll rates, not to the fixing of initial toll
rates. By express legal provision, the TRB is
authorized to approve the initial toll rates without the
necessity of a hearing. It is only when a challenge on
the initial toll rates fixed ensues that public hearings
are required.
Similarly in Padua v. Ranada, 390 SCRA 663 (2002),
the fixing of provisional toll rates by the TRB without
a public hearing was held to be valid, such procedure
being expressly provided by law. To be very clear, it
is only the fixing of the initial and the provisional toll
rates where a public hearing is not a vitiating
requirement. Accordingly, subsequent toll rate
adjustments are mandated by law to undergo both the
requirements of public hearing and publication.
Francisco, Jr. vs. Toll Regulary Board, 633 SCRA
470, G.R. No. 166910 October 19, 2010
F. Take-over Power
David v. Macapagal-Arroyo, G.R. No. 171396, May
3, 2006
It may be pointed out that the second paragraph of the
above provision refers not only to war but also to
“other national emergency.” If the intention of the
Framers of our Constitution was to withhold from the
President the authority to declare a “state of national
emergency” pursuant to Section 18, Article VII
(calling-out power) and grant it to Congress (like the
declaration of the existence of a state of war), then the
Framers could have provided so. Clearly, they did not
intend that Congress should first authorize the
President before he can declare a “state of national
emergency.” The logical conclusion then is that
President Arroyo could validly declare the existence
of a state of national emergency even in the absence of
a Congressional enactment. But the exercise of
emergency powers, such as the taking over of privately
owned public utility or business affected with public
interest, is a different matter. This requires a
delegation from Congress.
Generally, Congress is the repository of emergency
powers. This is evident in the tenor of Section 23 (2),
Article VI authorizing it to delegate such powers to the
President. Certainly, a body cannot delegate a power
not reposed upon it. However, knowing that during
grave emergencies, it may not be possible or
practicable for Congress to meet and exercise its
powers, the Framers of our Constitution deemed it
wise to allow Congress to grant emergency powers to
the President, subject to certain conditions, thus: (1)
There must be a war or other emergency. (2) The
delegation must be for a limited period only. (3) The
delegation must be subject to such restrictions as the
Congress may prescribe. (4) The emergency powers
must be exercised to carry out a national policy
declared by Congress.
Sec. 17, Article XII must be understood as an aspect
of the emergency powers clause. The taking over of
private business affected with public interest is just
another facet of the emergency powers generally
reposed upon Congress. Thus, when Section 17 states
that the “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,” it refers to Congress, not the President. Now,
whether or not the President may exercise such power
is dependent on whether Congress may delegate it to
him pursuant to a law prescribing the reasonable terms
thereof.
Following our interpretation of Section 17, Article
XII, invoked by President Arroyo in issuing PP 1017,
this Court rules that such Proclamation does not
authorize her during the emergency to temporarily
take over or direct the operation of any privately
owned public utility or business affected with public
interest without authority from Congress. Let it be
emphasized that while the President alone can declare
a state of national emergency, however, without
legislation, he has no power to take over privately-
owned public utility or business affected with public
interest. The President cannot decide whether
exceptional circumstances exist warranting the take
over of privately-owned public utility or business
affected with public interest. Nor can he determine
when such exceptional circumstances have ceased.
Likewise, without legislation, the President has no
power to point out the types of businesses affected
with public interest that should be taken over. In short,
the President has no absolute authority to exercise all
the powers of the State under Section 17, Article VII
in the absence of an emergency powers act passed by
Congress.
The Court finds and so holds that PP 1017 is
constitutional insofar as it constitutes a call by the
President for the AFP to prevent or suppress lawless
violence. The proclamation is sustained by Section 18,
Article VII of the Constitution and the relevant
jurisprudence discussed earlier. However, PP 1017’s
extraneous provisions giving the President express or
implied power (1) to issue decrees; (2) to direct the
AFP to enforce obedience to all laws even those not
related to lawless violence as well as decrees
promulgated by the President; and (3) to impose
standards on media or any form of prior restraint on
the press, are ultra vires and unconstitutional. The
Court also rules that under Section 17, Article XII of
the Constitution, the President, in the absence of a
legislation, cannot take over privately-owned public
utility and private business affected with public
interest.
Agan v. Piatco, G.R. No. 155001, January 21, 2004
The State can temporarily take over a business
affected with public interest. 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.”
The said 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.
When the government temporarily takes over a
business affected with public interest pursuant to
Article XII, Section 17 of the Constitution, it is
exercising its police power and 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,
and requiring the government to pay reasonable
compensation for the reasonable use of the property
pursuant to the operation of the business contravenes
the Constitution.
G. Privatization of State-Operated Public
Utilities
Kuwait Airways v. Philippine Airlines, G.R. No.
156087, May 8, 2009
As with all regulatory subjects of the government,
infringement of property rights can only avail with due
process of law. Legislative regulation of public
utilities must not have the effect of depriving an owner
of his property without due process of law, nor of
confiscating or appropriating private property without
due process of law, nor of confiscating or
appropriating private property without just
compensation, nor of limiting or prescribing
irrevocably vested rights or privileges lawfully
acquired under a charter or franchise. The power to
regulate is subject to these constitutional limits.
Even granting that the "agreement" between the two
governments or their representatives creates a binding
obligation under international law, it remains
incumbent for each contracting party to adhere to its
own internal law in the process of complying with its
obligations.
Even granting that the police power of the State, as
given flesh in the various laws governing the
regulation of the airline industry in the Philippines,
may be exercised to impair the vested rights of
privately-owned airlines, the deprivation of property
still requires due process of law.
In order to validate petitioner’s position, we will have
to concede that the right to due process may be
extinguished by executive command. While the court
sympathizes with petitioner, who reasonably could
rely on the commitment made to it by the Philippine
government, we still have to respect the segregate
identity of the government and that of a private
corporation and give due meaning to that segregation,
vital as it is to the very notion of democracy.
III. Regulation of Public Utilities
A. Authority to Operate
Albano v. Reyes, supra
Public Service Act; Public Utilities; Franchise; A
legislative franchise is not necessary for the operation
of the Manila International Container Port (MICP);
Reasons; Case at bar.- A review of the applicable
provisions of law indicates that a franchise specially
granted by Congress is not necessary for the operation
of the Manila International Container Port (MICP) by
private entity, a contract entered into by the PPA and
such entity constituting substantial compliance with
the law.
Public Service Act; Public Utilities; Franchise; The
law granted certain administrative agencies the power
to grant licenses for the operation of public utilities;
Theory that MICP is a “wharf” or a “dock”, not
necessarily calls for a franchise from Legislative
Branch.- Even if the MICP be considered a public
utility, or a public service on the theory that it is a
“wharf” or a “dock” as contemplated under the Public
Service Act, its operation would not necessarily call
for a franchise from the Legislative Branch.
Franchises issued by Congress are not required before
each and every public utility may operate. Thus, the
law has granted certain administrative agencies the
power to grant licenses for or to authorize the
operation of certain public utilities. (See E.O. Nos. 172
and 202)
Public Service Act; Public Utilities; Franchise; The
lawmaker has empowered the PPA to undertake by
itself the operation of MICP or to authorize its
operation by another by contract or other means.- As
stated earlier, E.O. No. 30 has tasked the PPA with the
operation and management of the MICP, in
accordance with P.D. 857 and other applicable laws
and regulations. However, P.D. 857 itself authorizes
the PPA to perform the service by itself, by contracting
it out, or through other means. Reading E.O. No. 30
and P.D. No. 857 together, the inescapable conclusion
is 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. The latter power having been delegated to
the PPA, a franchise from Congress to authorize an
entity other than the PPA to operate and manage the
MICP becomes unnecessary.
Public Service Act; Public Utilities; Franchise;
Constitutional Law; he award of the MICP contract
approved by the Chief Executive of the Philippines is
constitutional; Legal presumption of validity and
regularity of official function.- The contract between
the PPA and ICTSI, coupled with the President’s
written approval, constitute the necessary
authorization for ICTSI’s operation and management
of the MICP. The award of the MICT contract
approved by no less than the President of the
Philippines herself enjoys the legal presumption of
validity and regularity of official action. In the case at
bar, there is no evidence which clearly shows the
constitutional infirmity of the questioned act of
government
Public Service Act; Public Utilities; Franchise;
Constitutional Law; Petitioner has sufficient standing
to institute an action where public right is sought to be
enforced.- That petitioner herein is suing as a citizen
and taxpayer and as a Member of the House of
Representatives, sufficiently clothes him with the
standing to institute the instant suit questioning the
validity of the assailed contract. While the expenditure
of public funds may not be involved under the
contract, public interest is definitely involved
considering the important role of the MICP in the
economic development of the country and the
magnitude of the financial consideration involved.
Consequently, the disclosure provision in the
Constitution would constitute sufficient authority for
upholding petitioner’s stand- ing. [Cf. Tañada v.
Tuvera, G.R. No. 63915, April 24, 1985, 136 SCRA
27, citing Severino v. Governor General, 16 Phil. 366
(1910), where the Court considered the petitioners
with sufficient standing to institute an action where a
public right is sought to be enforced.]
PLDT v. NTC, G.R. No. 88404, October 18, 1990
Administrative Law; National Telecommunications
Commission, Powers of; The NTC is the regulatory
agency of the national government with jurisdiction
over all telecommunications entities.- There can be no
question that the NTC is the regulatory agency of the
national government with jurisdiction over all
telecommunications entities. It is legally clothed with
authority and given ample discretion to grant a
provisional permit or authority. In fact, NTC may, on
its own initiative, grant such relief even in the absence
of a motion from an applicant.
Administrative Law; National Telecommunications
Commission, Powers of; Construction given by an
administrative agency possessed of the necessary
special knowledge, expertise and experience deserves
great weight and respect.- PLDT maintains that the
scope of the franchise is limited to "radio stations" and
excludes telephone services such as the establishment
of the proposed Cellular Mobile Telephone System
(CMTS). However, in its Order of 12 November 1987,
the NTC construed the technical term
"radiotelephony" liberally as to include the operation
of a cellular mobile telephone system. x x x The
foregoing is the construction given by an
administrative agency possessed of the necessary
special knowledge, expertise and experience and
deserves great weight and respect (Asturias Sugar
Central, Inc. v. Commissioner of Customs, et al., L-
19337, September 30, 1969, 29 SCRA 617). It can
only be set aside on proof of gross abuse of discretion,
fraud, or error of law (Tupas Local Chapter No. 979 v.
NLRC, et al., L-60532-33, November 5, 1985, 139
SCRA 478). We discern none of those considerations
sufficient to warrant judicial intervention.
Administrative Law; National Telecommunications
Commission, Powers of; Public Utilities;
Constitutional Law; Police Power; Republic Act 6849;
The interconnection which has been required of PLDT
is a form of "intervention" with property rights, as an
exercise of the plenary police power of the State,
dictated by the objective of govern-ment to promote
the rapid expansion of telecommunications services in
all areas of the Philippines.- PLDT cannot justifiably
refuse to interconnect. Rep. Act No. 6849, or the
Municipal Telephone Act of 1989, approved on 8
February 1990, mandates interconnection providing as
it does that "all domestic telecommunications carriers
or utilities x x x shall be interconnected to the public
switch telephone network." Such regulation of the use
and ownership of telecommunications systems is in
the exercise of the plenary police power of the State
for the promotion of the general welfare. x x x The
interconnection which has been required of PLDT is a
form of "intervention" with property rights dictated by
"the objective of government to promote the rapid
expansion of telecommunications services in all areas
of the Philippines, x x x to maximize the use of
telecommunications facilities available, x x x in
recognition of the vital role of communications in
nation building x x x and to ensure that all users of the
public telecommunications service have access to all
other users of the service wherever they may be within
the Philippines at an acceptable standard of service
and at reasonable cost" (DOTC Circular No. 90-248).
Undoubtedly, the encompassing objective is the
common good. The NTC, as the regulatory agency of
the State, merely exercised its delegated authority to
regulate the use of telecommunications networks
when it decreed interconnection.
Administrative Law; National Telecommunications
Commission, Powers of; Public Utilities;
Constitutional Law; Police Power; Neither PLDT nor
any other public utility has a constitutional right to a
monopoly position in view of the Constitutional
proscription that no franchise certifi-cate or
authorization shall be exclusive in character or shall
last longer than 50 years.- Free competition in the
industry may also provide the answer to a much-
desired improvement in the quality and delivery of this
type of public utility, to improved technology, fast and
handy mobile service, and reduced user
dissatisfaction. After all, neither PLDT nor any other
public utility has a constitutional right to a monopoly
position in view of the Constitutional proscription that
no franchise certificate or authorization shall be
exclusive in character or shall last longer than fifty
(50) years (ibid., Section 11; Article XIV, Section 5,
1973 Constitution; Article XIV, Section 8, 1935
Constitution). Additionally, the State is empowered to
decide whether public interest demands that
monopolies be regulated or prohibited (1987
Constitution, Article XII, Section 19).
Francisco v. Toll Regulatory Board, GR 166910, Oct.
19, 2010
Remedial Law; Courts; Actions; By express legal
provision, the Toll Regulatory Board (TRB) is
authorized to approve the initial toll rates without the
necessity of a hearing; it is only when a challenge on
the initial toll rates fixed ensues that public hearings
are required. —A clear distinction must be made
between the statutory prescription on the fixing of
initial toll rates, on the one hand, and of
periodic/interim or subsequent toll rates, on the other.
First, the hearing required under the said provisos
refers to notice and hearing for the approval or denial
of petitions for toll rate adjustments—or the
subsequent toll rates, not to the fixing of initial toll
rates. By express legal provision, the TRB is
authorized to approve the initial toll rates without the
necessity of a hearing. It is only when a challenge on
the initial toll rates fixed ensues that public hearings
are required.
Remedial Law; Courts; Actions; By express legal
provision, the Toll Regulatory Board (TRB) is
authorized to approve the initial toll rates without the
necessity of a hearing Clause 11.7 of the Manila North
Tollways Corporation Supplemental Toll Operation
Agreement (MNTC STOA), under which the Toll
Regulatory Board (TRB) warrants and undertakes to
compensate MNTC’s loss of revenue resulting from
the non-implementation of the periodic and interim
toll fee adjustments, is illegal, unconstitutional and
hence void. —In the instant case, the TRB, by
warranting to compensate MNTC with the loss of
revenue resulting from the non-implementation of the
periodic and interim toll fee adjustments, violates the
very constitutionally guaranteed power of the
Legislature, to exclusively appropriate money for
public purpose from the General Funds of the
Government. The TRB veritably accorded unto itself
the exclusive authority granted to Congress to
appropriate money that comes from the General
Funds, by making a warranty to compensate a revenue
loss under Clause 11.7 of the MNTC STOA. There is
not even a badge of indication that the aforementioned
requisites under the Constitution and P.D. 1445 in
respect of appropriation of money from the General
Funds of the Government have been properly
complied with. Worse, P.D. 1112 expressly prohibits
the guarantee of security of the financing of a toll
operator in connection with his undertaking under the
Toll Operation Certificate. Accordingly, Clause 11.7
of the MNTC STOA, under which the TRB warrants
and undertakes to compensate MNTC’s loss of
revenue resulting from the non-implementation of the
periodic and interim toll fee adjustments, is illegal,
unconstitutional and hence void.
Remedial Law; Courts; Actions; By express legal
provision, the Toll Regulatory Board (TRB) is
authorized to approve the initial toll rates without the
necessity of a hearing It must be noted, however, that
while the Toll Regulatory Board (TRB) is vested by
law with the power to extend the administrative
franchise or authority that it granted, nevertheless, it
cannot do so for an accumulated period exceeding fifty
years. —Under the applicable laws, the TRB may very
well amend, modify, alter or revoke the
authority/franchise “whenever the public interest so
requires.” In a word, the power to determine whether
or not to continue or extend the authority granted to a
concessionaire to operate and maintain a tollway is
vested to the TRB by the applicable laws. The
necessity of whether or not to extend the concession or
the authority to construct, operate and maintain a
tollway rests, by operation of law, with the TRB. As
such, the lenders cannot unilaterally extend the
concession period, or, with like effect, impose upon or
demand that the TRB agree to extend such concession.
Be that as it may, it must be noted, however, that while
the TRB is vested by law with the power to extend the
administrative franchise or authority that it granted,
nevertheless, it cannot do so for an accumulated period
exceeding fifty years. Otherwise, it would violate the
proscription under Article XII, Section 11 of the 1987
Constitution.
Remedial Law; Courts; Actions; By express legal
provision, the Toll Regulatory Board (TRB) is
authorized to approve the initial toll rates without the
necessity of a hearing The privileges conferred by
grant by local authorities as agents for the state
constitute as much a legislative franchise as though the
grant had been made by an act of the Legislature. —
Petitioners’ presupposition that only Congress has the
power to directly grant franchises is misplaced. Time
and again, We have held that administrative agencies
may be empowered by the Legislature by means of a
law to grant franchises or similar authorizations. And
this, We have sufficiently addressed in the present
case. To reiterate, We discussed in Albano that our
statute books are replete with laws granting
administrative agencies the power to issue
authorizations. This delegation of legislative power to
administrative agencies is allowed “in order to adapt
to the increasing complexity of modern life.”
Consequently, We have held that the “privileges
conferred by grant by local authorities as agents for the
state constitute as much a legislative franchise as
though the grant had been made by an act of the
Legislature.”
Remedial Law; Courts; Actions; By express legal
provision, the Toll Regulatory Board (TRB) is
authorized to approve the initial toll rates without the
necessity of a hearing The rights and privileges
conferred under a franchise may be assigned if
authorized by a statute, subject to such restrictions as
may be provided by law, such as the prior approval of
the grantor or a government agency. —The President’s
approving authority is of statutory origin. To us, there
is nothing illegal, let alone unconstitu-tional, with the
delegation to the President of the authority to approve
the assignment by PNCC of its rights and interest in its
franchise, the assignment and delegation being
circumscribed by restrictions in the delegating law
itself. As the Court stressed in Kilosbayan v.
Guingona, Jr., 232 SCRA 110 (1994), the rights and
privileges conferred under a franchise may be assigned
if authorized by a statute, subject to such restrictions
as may be provided by law, such as the prior approval
of the grantor or a government agency.
Remedial Law; Courts; Actions; By express legal
provision, the Toll Regulatory Board (TRB) is
authorized to approve the initial toll rates without the
necessity of a hearing; The fact that an administrative
agency is exercising its administrative or executive
functions (such as the granting of franchises or
awarding of contracts) and at the same time exercising
its quasi-legislative (e.g. rule-making) and/or quasi-
judicial functions (e.g. rate-fixing), does not support a
finding of a violation of due process or the
Constitution. —To summarize, the fact that an
administrative agency is exercising its administrative
or executive functions (such as the granting of
franchises or awarding of contracts) and at the same
time exercising its quasi-legislative (e.g. rule-making)
and/or quasi-judicial functions (e.g. rate-fixing), does
not support a finding of a violation of due process or
the Constitution. In C.T. Torres Enterprises, Inc. v.
Hibionada, 191 SCRA 268 (1990), We explained the
rationale, thus: It is by now commonplace learning that
many administrative agencies exercise and perform
adjudicatory powers and functions, though to a limited
extent only. Limited delegation of judicial or quasi-
judicial authority to administrative agencies (e.g. the
Securities and Exchange Commission and the
National Labor Relations Commission) is well
recognized in our jurisdiction, basically because the
need for special competence and experience has been
recognized as essential in the resolution of questions
of complex or specialized character and because of a
companion recognition that the dockets of our regular
courts have remained crowded and clogged. x x x x As
a result of the growing complexity of the modern
society, it has become necessary to create more and
more administrative bodies to help in the regulation of
its ramified activities. Specialized in the particular
fields assigned to them, they can deal with the
problems thereof with more expertise and dispatch
than can be expected from the legislature or the courts
of justice. This is the reason for the increasing vesture
of quasi-legislative and quasi-judicial powers in what
is now not unquestionably called the fourth
department of the government.
Remedial Law; Courts; Actions; By express legal
provision, the Toll Regulatory Board (TRB) is
authorized to approve the initial toll rates without the
necessity of a hearing; An administrative agency
vested by law with the power to grant franchises or
authority to operate can validly grant the same in the
interim when it is necessary, temporary and beneficial
to the public.—The PNCC was likewise granted
temporary or interim authority by the TRB to operate
the SLEX, to ensure the continued development,
operations and progress of the projects. We have ruled
in Oroport Cargohandling Services, Inc. v. Phividec
Industrial Authority, 560 SCRA 197 (2008), that an
administrative agency vested by law with the power to
grant franchises or authority to operate can validly
grant the same in the interim when it is necessary,
temporary and beneficial to the public. The grant by
the TRB to PNCC as interim operator of the SLEX was
certainly intended to guarantee the continued
operation of the said tollway facility, and to ensure the
want of any delay and inconvenience to the motoring
public.
Remedial Law; Courts; Actions; By express legal
provision, the Toll Regulatory Board (TRB) is
authorized to approve the initial toll rates without the
necessity of a hearing; Well-settled is the rule that a
legislative franchise cannot be modified or amended
by an administrative body with general delegated
powers to grant authorities or franchises. —Inasmuch
as its charter empowered the TRB to authorize the
PNCC and like entities to maintain and operate toll
facilities, it may be stated as a corollary that the TRB,
subject to certain qualifications, infra, can alter the
conditions of such authorization. Well-settled is the
rule that a legislative franchise cannot be modified or
amended by an administrative body with general
delegated powers to grant authorities or franchises.
However, in the instant case, the law granting a direct
franchise to PNCC evidently and specifically
conferred upon the TRB the power to impose
conditions in an appropriate contract. And to reiterate,
Section 3 of P.D. 1113 provides that “[t]his [PNCC]
franchise is granted subject to such conditions as may
be imposed by the [TRB] in an appropriate contract to
be executed for this purpose, and with the
understanding and upon the condition that it shall be
subject to amendment, alteration or repeal when public
interest so requires.”
Remedial Law; Courts; Actions; By express legal
provision, the Toll Regulatory Board (TRB) is
authorized to approve the initial toll rates without the
necessity of a hearing; A special franchise directly
emanating from Congress is not necessary if the law
already specifically authorizes an administrative body
to grant a franchise or to award a contract. —In such a
case, therefore, a special franchise directly emanating
from Congress is not necessary if the law already
specifically authorizes an administrative body to grant
a franchise or to award a contract. This is the same
view espoused by the Secretary of Justice in his
opinion dated January 9, 2006, when he stated: That
the administrative agencies may be vested with the
authority to grant administrative franchises or
concessions over the operation of public utilities under
their respective jurisdiction and regulation, without
need of the grant of a separate legislative franchise, has
been upheld by the Supreme Court.
Remedial Law; Courts; Actions; By express legal
provision, the Toll Regulatory Board (TRB) is
authorized to approve the initial toll rates without the
necessity of a hearing; The term, franchise, includes
not only authorizations issuing directly from Congress
in the form of statute, but also those granted by
administrative agencies to which the power to grant
franchise has been delegated by Congress. —A
franchise is basically a legislative grant of a special
privilege to a person. Particularly, the term, franchise,
“includes not only authorizations issuing directly from
Congress in the form of statute, but also those granted
by administrative agencies to which the power to grant
franchise has been delegated by Congress.” The power
to authorize and control a public utility is admittedly a
prerogative that stems from the Legislature. Any
suggestion, however, that only Congress has the
authority to grant a public utility franchise is less than
accurate.
13. Franchises; Toll Regulatory Board (TRB) invested
with sufficient power to grant a qualified person or
entity with authority to construct, maintain, and
operate a toll facility and to issue the corresponding
toll operating permit or Toll Operation Certificate
(TOC). —It is abundantly clear that Sections 3 (a) and
(e) of P.D. 1112 in relation to Section 4 of P.D. 1894
have invested the TRB with sufficient power to grant
a qualified person or entity with authority to construct,
maintain, and operate a toll facility and to issue the
corresponding toll operating permit or TOC.
Napocor v. Court of Appeals, 279 SCRA 506, G.R.
112702, Sept. 1997
The court elucidated that 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. The
term implies public use and service.
As such, being a public utility, PHIVIDEC
INDUSTRIAL AUTHORITY HAS THE
AUTHORITY TO DIRECTLY CONNECT FROM
THE NATIONAL POWER CORPORATION BUT
SUCH AUTHORITY MAY NOT BE EXERCISED
IN SUCH A MANNER AS TO PREJUDICE THE
RIGHTS OF EXISTING FRANCHISEES.
Petitioner PIA is a subsidiary of the PHIVIDEC with
"governmental and proprietary functions." The PIA is
authorized to render indirect service to the public by
its administration of the PHIVIDEC industrial areas
like the PIE-MO and may, therefore, be considered a
public utility.
As it is expressly authorized by law to perform the
functions of a public utility, a certificate of public
convenience, as suggested by the Court of Appeals, is
not necessary for it to avail of a direct power
connection from the NPC. However, such authority to
be a public utility may not be exercised in such a
manner as to prejudice the rights of existing
franchisees. In fact, by its actions, PIA recognized the
rights of the franchisees in the area.
Relate to Public Service Act, Section 16 (a), Sec. 18
1) General Qualifications
Vda. De Lat v. PSC, G.R. No. L-34978, Feb. 26, 1988
We are convinced that the private respondent deserves
to be awarded the Certificate of Public Convenience.
He was able to fully satisfy the requisites before such
a certificate may be granted, namely: (1) the applicant
must be a citizen of the Philippines, or a corporation
or co-partnership, association or joint-stock company
constituted and organized under the laws of the
Philippines, 60 per centum at least of the stock or paid-
up capital of which belong entirely to citizens of the
Philippines; (2) the applicant must be financially
capable of undertaking the proposed service and
meeting the responsibilities incident to its operations;
and (3) the applicant must prove that the operation of
the public service proposed and the authorization to do
business will promote the public interest in a proper
and suitable manner. There is no question that the
private respondent is a Filipino Citizen. Regarding his
financial capacity and public necessity for the ice
plant, the finding of the Public Service Commission on
these are relevant.
Nobody has the exclusive right to secure a franchise or
a Certificate of Public Convenience. The paramount
consideration should always be the public interest and
public convenience.
In order that the opposition based on ruinous
competition may prosper, it must be shown that the
opponent would be deprived of their profits on the
capital invested in its business. The mere possibility of
reduction in the earnings of a business is not sufficient
to prove ruinous competition. It must be shown that
the business would not have sufficient gains to pay a
fair rate of interest on its capital investments.
KMU Labor Center v. Garcia, 239 SCRA 386
WON certain memoranda, circulars and/or orders of
the DOTC and the LTFRB which (a) authorize
provincial bus and jeepney operators to increase or
decrease the prescribed transportation fares without
application therefor with the LTFRB and without
hearing and approval by said agency in violation of
Sec. 16(c) of Commonwealth Act No. 146, as
amended and (b) establish a presumption of public
need in favor of applicants for certificates of public
convenience (CPC) and place on the oppositor the
burden of proving that there is no need for the
proposed service, in patent violation not only of Sec.
16(c) of CA 146, as amended, but also of Sec. 20(a) of
the same Act mandating that fares should be "just and
reasonable.
A certificate of public convenience (CPC) is an
authorization granted by the LTFRB for the operation
of land transportation services for public use as
required by law. Pursuant to Section 16(a) of the
Public Service Act, as amended, the following
requirements must be met before a CPC may be
granted, to wit: (i) the applicant must be a citizen of
the Philippines, or a corporation or co-partnership,
association or joint-stock company constituted and
organized under the laws of the Philippines, at least 60
per centum of its stock or paid-up capital must belong
entirely to citizens of the Philippines; (ii) the applicant
must be financially capable of undertaking the
proposed service and meeting the responsibilities
incident to its operation; and (iii) the applicant must
prove that the operation of the public service proposed
and the authorization to do business will promote the
public interest in a proper and suitable manner. It is
understood that there must be proper notice and
hearing before the PSC can exercise its power to issue
a CPC.
While adopting in toto the foregoing requisites for the
issuance of a CPC, LTFRB Memorandum Circular
No. 92-009, Part IV, provides for yet incongruous and
contradictory policy guideline on the issuance of a
CPC. The guidelines states: The issuance of a
Certificate of Public Convenience is determined by
public need. The presumption of public need for a
service shall be deemed in favor of the applicant, while
the burden of proving that there is no need for the
proposed service shall be the oppositor's.
The above-quoted provision is entirely incompatible
and inconsistent with Section 16(c)(iii) of the Public
Service Act which requires that before a CPC will be
issued, the applicant must prove by proper notice and
hearing that the operation of the public service
proposed will promote public interest in a proper and
suitable manner. On the contrary, the policy guideline
states that the presumption of public need for a public
service shall be deemed in favor of the applicant. In
case of conflict between a statute and an
administrative order, the former must prevail.
By its terms, public convenience or necessity
generally means something fitting or suited to the
public need. As one of the basic requirements for the
grant of a CPC, public convenience and necessity
exists when the proposed facility or service meets a
reasonable want of the public and supply a need which
the existing facilities do not adequately supply. The
existence or non-existence of public convenience and
necessity is therefore a question of fact that must be
established by evidence, real and/or testimonial;
empirical data; statistics and such other means
necessary, in a public hearing conducted for that
purpose.
Verily, the power of a regulatory body to issue a CPC
is founded on the condition that after full-dress hearing
and investigation, it shall find, as a fact, that the
proposed operation is for the convenience of the
public. Basic convenience is the primary consideration
for which a CPC is issued, and that fact alone must be
consistently borne in mind. Also, existing operators in
subject routes must be given an opportunity to offer
proof and oppose the application. Therefore, an
applicant must, at all times, be required to prove his
capacity and capability to furnish the service which he
has undertaken to render. And all this will be possible
only if a public hearing were conducted for that
purpose.
2) Revocation or Cancellation
Divinagracia v. Consolidated Broadcasting System,
Inc. G.R. No. 162272, April 7, 2009
Issue: whether the NTC, with its retinue of regulatory
powers, is powerless to cancel Provisional Authorities
and Certificates of Public Convenience it issued to
legislative franchise-holders
The functions of the Board of Communications were
enumerated in Part X, Chapter I, Article III, Sec. 5 of
the Integrated Reorganization Plan. What is noticeably
missing from these enumerated functions of the Board
of Communications is the power to revoke or cancel
CPCs, even as the Board was vested the power to issue
the same. That same pattern held true in 1976, when
the Board of Communications was abolished by E.O.
No. 546. Said executive order, promulgated by then
President Marcos in the exercise of his legislative
powers, created the NTC but likewise withheld from it
the authority to cancel licenses and CPCs, even as it
was empowered to issue CPCs.
E.O. No. 546 provides no explicit basis to assert that
the NTC has the power to cancel the licenses or CPCs
it has duly issued, even as the government office
previously tasked with the regulation of radio stations,
the Secretary of Public Works and Communications,
previously possessed such power by express mandate
of law.
Allowing the NTC to countermand State policy by
revoking respondent’s vested legal right to operate
broadcast stations unduly gives to a mere
administrative agency veto power over the
implementation of the law and the enforcement of
especially vested legal rights. That concern would not
arise if Congress had similarly empowered the NTC
with the power to revoke a franchisee’s right to operate
broadcast stations. But as earlier stated, there is no
such expression in the law, and by presuming such
right the Court will be acting contrary to the stated
State interest as expressed in respondents’ legislative
franchises.
Relate to Public Service Act, Section 16(m)
3) CPC v. CPCN
See Public Service Act, Section 15
PAL v. CAB, 270 SCRA 538 (GR 119528)
(see also Republic Acts No. 9183 and 9517 in relation
to case)
SC found that the Civil Aeronautics Board has the
authority to issue a Certificate of Public Convenience
and Necessity, or Temporary Operating Permit to a
domestic air transport operator, who, though not
possessing a legislative franchise, meets all the other
requirements prescribed by the law.
Petitioner argues that that a “Certificate of Public
Convenience and Necessity” is issued to a public
service for which a franchise is required by law, as
distinguished from a "Certificate of Public
Convenience" which is an authorization issued for the
operation of public services for which no franchise,
either municipal or legislative, is required by law. We
do not agree with the petitioner.
Some statutes use the terms "convenience and
necessity" while others use only the words "public
convenience." The terms "convenience and necessity",
if used together in a statute, are usually held not to be
separable, but are construed together. Both words
modify each other and must be construed together. The
word 'necessity' is so connected, not as an additional
requirement but to modify and qualify what might
otherwise be taken as the strict significance of the
word necessity. 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. It does
not mean or require an actual physical necessity or an
indispensable thing.
The terms "convenience" and "necessity" are to be
construed together, although they are not synonymous,
and effect must be given both. The convenience of the
public must not be circumscribed according to the
word "necessity" its strict meaning or an essential
requisites.
The use of the word "necessity", in conjunction with
"public convenience" in a certificate of authorization
to a public service entity to operate, does not in any
way modify the nature of such certification, or the
requirements for the issuance of the same. It is the law
which determines the requisites for the issuance of
such certification, and not the title indicating the
certificate.
Congress, by giving the respondent Board the power
to issue permits for the operation of domestic transport
services, has delegated to the said body the authority
to determine the capability and competence of a
prospective domestic air transport operator to engage
in such venture. This is not an instance of transforming
the respondent Board into a mini-legislative body,
with unbridled authority to choose who should be
given authority to operate domestic air transport
services.
B. Rate-Fixing
See Public Service Act, Sections 16 (c) and 20 (a)
Philippine Communications Satellite Corporation v.
Alcuaz, G.R. No.. 84818, December 18, 1989
Fundamental is the rule that delegation of legislative
power may be sustained only upon the ground that
some standard for its exercise is provided and that the
legislature in making the delegation has prescribed the
manner of the exercise of the delegated power.
Therefore, when the administrative agency concerned,
respondent NTC in this case, establishes a rate, its act
must both be non- confiscatory and must have been
established in the manner prescribed by the legislature;
otherwise, in the absence of a fixed standard, the
delegation of power becomes unconstitutional. In case
of a delegation of rate-fixing power, the only standard
which the legislature is required to prescribe for the
guidance of the administrative authority is that the rate
be reasonable and just. However, it has been held that
even in the absence of an express requirement as to
reasonableness, this standard may be implied.
NTC, in the exercise of its rate-fixing power, is limited
by the requirements of public safety, public interest,
reasonable feasibility and reasonable rates, which
conjointly more than satisfy the requirements of a
valid delegation of legislative power.
While respondent NTC may fix a temporary rate
pending final determination of the application of
petitioner, such rate-fixing order, temporary though it
may be, is not exempt from the statutory procedural
requirements of notice and hearing, as well as the
requirement of reasonableness. Assuming that such
power is vested in NTC, it may not exercise the same
in an arbitrary and confiscatory manner. Categorizing
such an order as temporary in nature does not perforce
entail the applicability of a different rule of statutory
procedure than would otherwise be applied to any
other order on the same matter unless otherwise
provided by the applicable law. In the case at bar, the
applicable statutory provision is Section 16(c) of the
Public Service Act which provides:
Section 16. Proceedings of the Commission,
upon notice and hearing. - The Commission
shall have power, upon proper notice and
hearing in accordance with the rules and
provisions of this Act, subject to the
limitations and exceptions mentioned and
saving provisions to the contrary:
xxx xxx xxx
(c) To fix and determine individual or joint
rates, ... which shall be imposed, observed
and followed thereafter by any public
service; ...
Respondent has no authority to make such order
without first giving petitioner a hearing, whether the
order be temporary or permanent, and it is immaterial
whether the same is made upon a complaint, a
summary investigation, or upon the commission's own
motion as in the present case. While it may be true that
for purposes of rate-fixing respondents may have other
sources of information or data, still, since a hearing is
essential, respondent NTC should act solely on the
basis of the evidence before it and not on knowledge
or information otherwise acquired by it but which is
not offered in evidence or, even if so adduced,
petitioner was given no opportunity to controvert.
Republic of the Philippines v. Meralco, 39 (SCRA
700, Nov. 15, 2002)
The rates prescribed by the State must be one that
yields a fair return on the public utility upon the value
of the property performing the service and one that is
reasonable to the public for the services rendered.—In
regulating rates charged by public utilities, the State
protects the public against arbitrary and excessive
rates while maintaining the efficiency and quality of
services rendered. However, the power to regulate
rates does not give the State the right to prescribe rates
which are so low as to deprive the public utility of a
reasonable return on investment. Thus, the rates
prescribed by the State must be one that yields a fair
return on the public utility upon the value of the
property performing the service and one that is
reasonable to the public for the services rendered. The
fixing of just and reasonable rates involves a balancing
of the investor and the consumer interests.
The power to fix rates is a legislative function;
Determination of whether the rates so fixed are
reasonable and just is a purely judicial question and is
subject to the review of the courts.—While the power
to fix rates is a legislative function, whether exercised
by the legislature itself or delegated through an
administrative agency, a determination of whether the
rates so fixed are reasonable and just is a purely
judicial question and is subject to the review of the
courts.
What is a just and reasonable rate is a question of fact
calling for the exercise of discretion, good sense, and
a fair, enlightened and independent judgment.—In the
fixing of rates, the only standard which the legislature
is required to prescribe for the guidance of the
administrative authority is that the rate be reasonable
and just. It has been held that even in the absence of an
express requirement as to reasonableness, this
standard may be implied. What is a just and reasonable
rate is a question of fact calling for the exercise of
discretion, good sense, and a fair, enlightened and
independent judgment. The requirement of
reasonableness comprehends such rates which must
not be so low as to be confiscatory, or too high as to
be oppressive. In determining whether a rate is
confiscatory, it is essential also to consider the given
situation, requirements and opportunities of the utility.
Major factors in determining the just and reasonable
rates to be charged by a public utility.—In determining
the just and reasonable rates to be charged by a public
utility, three major factors are considered by the
regulating agency: a) rate of return; b) rate base and c)
the return itself or the computed revenue to be earned
by the public utility based on the rate of return and rate
base. The rate of return is a judgment percentage
which, if multiplied with the rate base, provides a fair
return on the public utility for the use of its property
for service to the public. The rate of return of a public
utility is not prescribed by statute but by
administrative and judicial pronouncements. This
Court has consistently adopted a 12% rate of return for
public utilities. The rate base, on the other hand, is an
evaluation of the property devoted by the utility to the
public service or the value of invested capital or
property which the utility is entitled to a return.
1) Undue Delegation
KMU Labor Center v. Garcia, 239 SCRA 386
Delegation of Powers; Power of Subordinate
Legislation; The Legislature has delegated to the
defunct Public Service Commission, and presently the
LTFRB, the power of fixing the rates of public
services.—Under the foregoing provision, the
Legislature delegated to the defunct Public Service
Commission the power of fixing the rates of public
services. Respondent LTFRB, the existing regulatory
body today, is likewise vested with the same under
Executive Order No. 202 dated June 19, 1987. Section
5(c) of the said executive order authorizes LTFRB “to
determine, prescribe, approve and periodically review
and adjust, reasonable fares, rates and other related
charges, relative to the operation of public land
transportation services provided by motorized
vehicles.”
The authority given by the LTFRB to the provincial
bus operators to set a fare range over and above the
authorized existing fare, is illegal and invalid as it is
tantamount to an undue delegation of legislative
authority; Potestas delegata non delegari potest.—In
the case at bench, the authority given by the LTFRB to
the provincial bus operators to set a fare range over
and above the authorized existing fare, is illegal and
invalid as it is tanta-mount to an undue delegation of
legislative authority. Potestas delegata non delegari
potest. What has been delegated cannot be delegated.
This doctrine is based on the ethical principle that such
a delegated power constitutes not only a right but a
duty to be performed by the delegate through the
instrumentality of his own judgment and not through
the intervening mind of another. A further delegation
of such power would indeed constitute a negation of
the duty in violation of the trust reposed in the delegate
mandated to discharge it directly.
 2) Provisional Rates
Padua v. Ranada, G.R. No. 141949, October 14, 2002
The TRB’s authority to grant provisional toll rate
adjustments does not require the conduct of a
hearing.—Be that as it may, we must stress that the
TRB’s authority to grant provisional toll rate
adjustments does not require the conduct of a hearing.
Pertinent laws and jurisprudence support this
conclusion.
An administrative agency may be empowered to
approve provisionally, when demanded by urgent
public need, rates of public utilities without a hearing,
the reason being that provisional rates are by their
nature temporary and subject to adjustment in
conformity with the definitive rates approved after
final hearing.—The practice is not something peculiar.
We have ruled in a number of cases that an
administrative agency may be empowered to approve
provisionally, when demanded by urgent public need,
rates of public utilities without a hearing. The reason
is easily discerned from the fact that provisional rates
are by their nature temporary and subject to
adjustment in conformity with the definitive rates
approved after final hearing. In Maceda vs. Energy
Regulatory Board, we ruled that while the ERB is not
precluded from conducting a hearing on the grant of
provisional authority—which is of course, the better
procedure—however, it can not be stigmatized if it
failed to conduct one.
3) Rate Refund
BF Homes v. Meralco, G.R. No. 171624, Dec. 6, 2010
Administrative Agencies; Energy Regulatory
Commission; Electric Power Industry Reform Act
(EPIRA) (R.A. No. 9136); The Energy Regulation
Commission (ERC) has original and exclusive
jurisdiction over all cases contesting rates, fees, fines,
and penalties imposed in the exercise of its powers,
functions and responsibilities.—The ERC has original
and exclusive jurisdiction under Rule 43(u) of the
EPIRA over all cases contesting rates, fees, fines, and
penalties imposed by the ERC in the exercise of its
powers, functions and responsibilities, and over all
cases involving disputes between and among
participants or players in the energy sector. Section
4(o) of the EPIRA Implementing Rules and
Regulation provides that the ERC “shall also be
empowered to issue such other rules that are essential
in the discharge of its functions as an independent
quasi-judicial body.”
Doctrine of Primary Jurisdiction; The court cannot
arrogate into itself the authority to resolve a
controversy, the jurisdiction of which is initially
lodged with the administrative body of special
competence.—Courts cannot and will not resolve a
controversy involving a question within the
jurisdiction of an administrative tribunal, especially
when the question demands the sound exercise of
administrative discretion requiring special knowledge,
experience and services of the administrative tribunal
to determine technical and intricate matters of fact.
The court cannot arrogate into itself the authority to
resolve a controversy, the jurisdiction of which is
initially lodged with the administrative body of special
competence.
When a court has no jurisdiction over the subject
matter, the only power it has is to dismiss the action.—
Jurisdiction over the subject matter cannot be acquired
through, or waived by, any act or omission of the
parties. Neither would the active participation of the
parties nor estoppel operate to confer jurisdiction on
the RTC where the latter has none over a cause of
action. Indeed, when a court has no jurisdiction over
the subject matter, the only power it has is to dismiss
the action.
4) Vis-à-vis Power to Grant Authority
Francisco v. Toll Regulatory Board, GR 166910, Oct.
19, 2010
Franchises; Toll Regulatory Board (TRB) invested
with sufficient power to grant a qualified person or
entity with authority to construct, maintain, and
operate a toll facility and to issue the corresponding
toll operating permit or Toll Operation Certificate
(TOC).—It is abundantly clear that Sections 3 (a) and
(e) of P.D. 1112 in relation to Section 4 of P.D. 1894
have invested the TRB with sufficient power to grant
a qualified person or entity with authority to construct,
maintain, and operate a toll facility and to issue the
corresponding toll operating permit or TOC.
The term, franchise, includes not only authorizations
issuing directly from Congress in the form of statute,
but also those granted by administrative agencies to
which the power to grant franchise has been delegated
by Congress.—A franchise is basically a legislative
grant of a special privilege to a person. Particularly,
the term, franchise, “includes not only authorizations
issuing directly from Congress in the form of statute,
but also those granted by administrative agencies to
which the power to grant franchise has been delegated
by Congress.” The power to authorize and control a
public utility is admittedly a prerogative that stems
from the Legislature. Any suggestion, however, that
only Congress has the authority to grant a public utility
franchise is less than accurate.
A special franchise directly emanating from Congress
is not necessary if the law already specifically
authorizes an administrative body to grant a franchise
or to award a contract.—In such a case, therefore, a
special franchise directly emanating from Congress is
not necessary if the law already specifically authorizes
an administrative body to grant a franchise or to award
a contract. This is the same view espoused by the
Secretary of Justice in his opinion dated January 9,
2006, when he stated: That the administrative agencies
may be vested with the authority to grant
administrative franchises or concessions over the
operation of public utilities under their respective
jurisdiction and regulation, without need of the grant
of a separate legislative franchise, has been upheld by
the Supreme Court x x x.
Well-settled is the rule that a legislative franchise
cannot be modified or amended by an administrative
body with general delegated powers to grant
authorities or franchises.—Inasmuch as its charter
empowered the TRB to authorize the PNCC and like
entities to maintain and operate toll facilities, it may
be stated as a corollary that the TRB, subject to certain
qualifications, infra, can alter the conditions of such
authorization. Well-settled is the rule that a legislative
franchise cannot be modified or amended by an
administrative body with general delegated powers to
grant authorities or franchises. However, in the instant
case, the law granting a direct franchise to PNCC
evidently and specifically conferred upon the TRB the
power to impose conditions in an appropriate contract.
And to reiterate, Section 3 of P.D. 1113 provides that
“[t]his [PNCC] franchise is granted subject to such
conditions as may be imposed by the [TRB] in an
appropriate contract to be executed for this purpose,
and with the understanding and upon the condition that
it shall be subject to amendment, alteration or repeal
when public interest so requires.”
An administrative agency vested by law with the
power to grant franchises or authority to operate can
validly grant the same in the interim when it is
necessary, temporary and beneficial to the public.—
The PNCC was likewise granted temporary or interim
authority by the TRB to operate the SLEX, to ensure
the continued development, operations and progress of
the projects. We have ruled in Oroport Cargohandling
Services, Inc. v. Phividec Industrial Authority, 560
SCRA 197 (2008), that an administrative agency
vested by law with the power to grant franchises or
authority to operate can validly grant the same in the
interim when it is necessary, temporary and beneficial
to the public. The grant by the TRB to PNCC as
interim operator of the SLEX was certainly intended
to guarantee the continued operation of the said
tollway facility, and to ensure the want of any delay
and inconvenience to the motoring public.
Same; The fact that an administrative agency is
exercising its administrative or executive functions
(such as the granting of franchises or awarding of
contracts) and at the same time exercising its quasi-
legislative (e.g. rule-making) and/or quasi-judicial
functions (e.g. rate-fixing), does not support a finding
of a violation of due process or the Constitution.—To
summarize, the fact that an administrative agency is
exercising its administrative or executive functions
(such as the granting of franchises or awarding of
contracts) and at the same time exercising its quasi-
legislative (e.g. rule-making) and/or quasi-judicial
functions (e.g. rate-fixing), does not support a finding
of a violation of due process or the Constitution. In
C.T. Torres Enterprises, Inc. v. Hibionada, 191 SCRA
268 (1990), We explained the rationale, thus: It is by
now commonplace learning that many administrative
agencies exercise and perform adjudicatory powers
and functions, though to a limited extent only. Limited
delegation of judicial or quasi-judicial authority to
administrative agencies (e.g. the Securities and
Exchange Commission and the National Labor
Relations Commission) is well recognized in our
jurisdiction, basically because the need for special
competence and experience has been recognized as
essential in the resolution of questions of complex or
specialized character and because of a companion
recognition that the dockets of our regular courts have
remained crowded and clogged. x x x x As a result of
the growing complexity of the modern society, it has
become necessary to create more and more
administrative bodies to help in the regulation of its
ramified activities. Specialized in the particular fields
assigned to them, they can deal with the problems
thereof with more expertise and dispatch than can be
expected from the legislature or the courts of justice.
This is the reason for the increasing vesture of quasi-
legislative and quasi-judicial powers in what is now
not unquestionably called the fourth department of the
government.
C. Area Operation
Napocor v. Court of Appeals, 279 SCRA 506
Administrative Law; Public Utilities; Words and
Phrases; “Public Utility,” Explained.—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. The
term implies public use and service.
Certificates of Public Convenience; As the Phividec
Industrial Authority is expressly authorized by law to
perform the functions of a public utility, a certificate
of public convenience is not necessary for it to avail of
a direct power connection from the National Power
Corporation.—Clearly then, the PIA is authorized to
render indirect service to the public by its
administration of the PHIVIDEC industrial areas like
the PIE-MO and may, therefore, be considered a
public utility. As it is expressly authorized by law to
perform the functions of a public utility, a certificate
of public convenience, as suggested by the Court of
Appeals, is not necessary for it to avail of a direct
power connection from the NPC. However, such
authority to be a public utility may not be exercised in
such a manner as to prejudice the rights of existing
franchisees. In fact, by its actions, PIA recognized the
rights of the franchisees in the area.
Rate-Fixing; Energy Regulatory Board; Department of
Energy; The determination of which of two public
utilities has the right to supply electric power to an area
which is within the coverage of both is certainly not a
rate-fixing function which should remain with the
ERB, a function which the Department of Energy took
over with the enactment of R.A. No. 7638.—The
determination of which of two public utilities has the
right to supply electric power to an area which is
within the coverage of both is certainly not a rate-
fixing function which should remain with the ERB. It
deals with the regulation of the distribution of energy
resources which, under Executive Order No. 172, was
expressly a function of ERB. However, with the
enactment of Republic Act No. 7638, the Department
of Energy took over such function. Hence, it is this
Department which shall then determine whether
CEPALCO or PIA should supply power to PIE-MO.
Franchises; Exclusivity of any public franchise has not
been favored by the Supreme Court such that in most,
if not all, grants by the government to private
corporations, the interpretation of rights, privileges or
franchises is taken against the grantee.—On the other
hand, ventilating the issue in a public hearing would
not unduly prejudice CEPALCO although it was
enfranchised by law earlier than the PIA. Exclusivity
of any public franchise has not been favored by this
Court such that in most, if not all, grants by the
government to private corporations, the interpretation
of rights, privileges or franchises is taken against the
grantee. Thus in Alger Electric, Inc. v. Court of
Appeals, the Court said: “x x x Exclusivity is given by
law with the understanding that the company enjoying
it is self-sufficient and capable of supplying the
needed service or product at moderate or reasonable
prices. It would be against public interest where the
firm granted a monopoly is merely an unnecessary
conduit of electric power, jacking up prices as a
superfluous middleman or an inefficient producer
which cannot supply cheap electricity to power
intensive industries. It is in the public interest when
industries dependent on heavy use of electricity are
given reliable and direct power at the lower costs thus
enabling the sale of nationally marketed products at
prices within the reach of the masses. x x x.”
D. Approval of Sale and Mortgages of Public
Utility Assets or Equity
Public Service Act, Section 20 (g), (h) and (i)
Subject to established limitations and exceptions and
saving provisions to the contrary, it shall be unlawful
for any public service or for the owner, lessee or
operator thereof, without approval and authorization
of the Commission previously had -
(g) to sell, alienate, mortgage encumber or lease its
property, franchises, certificates, privileges, or rights
or any part thereof; or merge or consolidate its
property, franchises privileges or rights, or any part
thereof, with those of any other public service. The
approval herein required shall be given, after notice to
the public and hearing the persons interested at a
public hearing, if it be shown that there are just and
reasonable grounds for making the mortgaged or
encumbrance, for liabilities of more than one year
maturity, or the sale, alienation, lease, merger, or
consolidation to be approved, and that the same are not
detrimental to the public interest, and in case of a sale,
the date on which the same is to be consummated shall
be fixed in the order of approval: Provided, however,
that nothing herein contained shall be construed to
prevent the transaction from being negotiated or
completed before its approval or to prevent the sale,
alienation, or lease by any public service of any of its
property in the ordinary course of its business.
(h) To sell or register in its books the transfer or sale
of shares of its capital stock, if the result of that sale in
itself or in connection with another previous sale, shall
be to vest in the transferee more than forty per centum
of the subscribed capital of said public service. Any
transfer made in violation of this provision shall be
void and of no effect and shall not be registered in the
books of the public service corporation. Nothing
herein contained shall be construed to prevent the
holding of shares lawfully acquired. (As amended by
Com. Act No. 454.)
(i) To sell, alienate or in any manner transfer shares of
its capital stock to any alien if the result of that sale,
alienation, or transfer in itself or in connection with
another previous sale shall be the reduction to less than
sixty per centum of the capital stock belonging to
Philippine citizens. Such sale, alienation or transfer
shall be void and of no effect and shall be sufficient
cause for ordering the cancellation of the certificate.
Montoya v. Ignacio, G.R. No. L-5868, December 29,
1953
The law requires the approval of the Public Service
Commission in order that a franchise, or any privileges
pertaining thereto, may be sold or leased without
infringing the certificate issued to the grantee. The
reason is obvious. Since a franchise is personal in
nature any transfer or lease thereof should be notified
to the Public Service Commission so that the latter
may take proper safeguards to protect the interest of
the public. In fact, the law requires that, before the
approval is granted, there should be a public hearing,
with notice to all interested parties, in order that the
Commission may determine if there are good and
reasonable grounds justifying the transfer or lease of
the property covered by the franchise, or if the sale or
lease is detrimental to public interest. If the property
covered by the franchise is transferred or leased to
another without obtaining the requisite approval, the
transfer is not binding against the Public Service
Commission and in contemplation of law the grantee
continues to be responsible under the franchise in
relation to the Commission and to the public.
In the case: Where the jeepney in question was leased
without such approval, the grantee still continues to be
its operator in contemplation of law, and as such is
responsible for the consequences incident to its
operation.
Y Transit Co., Inc. v. NLRC, 229 SCRA 508
The law really requires the approval of the Public
Service Commission in order that a franchise, or any
privilege pertaining thereto, may be sold or leased
without infringing the certificate issued to the grantee.
The reason is obvious. Since a franchise is personal in
nature any transfer or lease thereof should be notified
to the Public Service Commission so that the latter
may take proper safeguards to protect the interest of
the public. In fact, the law requires that, before the
approval is granted, there should be a public hearing
with notice to all interested parties in order that the
commission may determine if there are good and
reasonable grounds justifying the transfer or lease of
the property covered by the franchise, or if the sale or
lease is detrimental to public interest. Such being the
reason and philosophy behind this requirement, it
follows that if the property covered by the franchise is
transferred, or leased to another without obtaining the
requisite approval, the transfer is not binding against
the Public Service Commission and in contemplation
of law, the grantee continues to be responsible under
the franchise in relation to the Commission and to the
public.
There being no prior BOT approval in the transfer of
property, transferee only held the property as agents.
Transferee of vehicles cannot prevent levy by
asserting ownership because as far as the law is
concerned, the one in whose name the vehicle is
registered remains to be the owner and the transferee
merely holds the vehicles for the registered owner.
PLDT v NTC, GR 88404, Oct. 18, 1990
The sale of shares of stock of a public utility is
governed by another law, i.e., Section 20(h) of the
Public Service Act (Commonwealth Act No. 146).
Pursuant thereto, the Public Service Commission (now
the NTC) is the government agency vested with the
authority to approve the transfer of more than 40% of
the subscribed capital stock of a telecommunications
company to a single transferee. x x x In other words,
transfers of shares of a public utility corporation need
only NTC approval, not Congressional authorization.
What transpired in ETCI were a series of transfers of
shares starting in 1964 until 1987. The approval of the
NTC may be deemed to have been met when it
authorized the issuance of the provisional authority to
ETCI. There was full disclosure before the NTC of the
transfers. In fact, the NTC Order of 12 November 1987
required ETCI to submit its "present capital and
ownership structure." Further, ETCI even filed a
Motion before the NTC, dated 8 December 1987, or
more than a year prior to the grant of provisional
authority, seeking approval of the increase in its
capital stock from P360,000.00 to P40M, and the stock
transfers made by its stockholders.
E. Power to set fees and other charges
Republic v. International Communications
Corporation, G.R. No. 141667, July 17, 2006
Section 40(g) of the Public Service Act is not a tax
measure but a simple regulatory provision for the
collection of fees imposed pursuant to the exercise of
the State’s police power. A tax is imposed under the
taxing power of government principally for the
purpose of raising revenues. The law in question,
however, merely authorizes and requires the collection
of fees for the reimbursement of the Commission’s
expenses in the authorization, supervision and/or
regulation of public services. There can be no doubt
then that petitioner NTC is authorized to collect such
fees. However, the amount thereof must be reasonably
related to the cost of such supervision and/or
regulation.
 F. Other means of regulation
See Public Service Act, Section 16 and 20
PLDT v NTC, supra
There can be no question that the NTC is the
regulatory agency of the national government with
jurisdiction over all telecommunications entities. It is
legally clothed with authority and given ample
discretion to grant a provisional permit or authority. In
fact, NTC may, on its own initiative, grant such relief
even in the absence of a motion from an applicant.
BF Homes v. Meralco, GR 171624, Dec. 6, 2010
Energy Regulatory Commission; Electric Power
Industry Reform Act (EPIRA) (R.A. No. 9136); The
Energy Regulation Commission (ERC) has original
and exclusive jurisdiction over all cases contesting
rates, fees, fines, and penalties imposed in the exercise
of its powers, functions and responsibilities.—The
ERC has original and exclusive jurisdiction under
Rule 43(u) of the EPIRA over all cases contesting
rates, fees, fines, and penalties imposed by the ERC in
the exercise of its powers, functions and
responsibilities, and over all cases involving disputes
between and among participants or players in the
energy sector. Section 4(o) of the EPIRA
Implementing Rules and Regulation provides that the
ERC “shall also be empowered to issue such other
rules that are essential in the discharge of its functions
as in independent quasi-judicial body.”
A careful review of the material allegations of BF
Homes and PWCC in their Petition before the RTC
reveals that the very subject matter thereof is the off-
setting of the amount of refund they are supposed to
receive from MERALCO against the electric bills they
are to pay to the same company. This is squarely
within the primary jurisdiction of the ERC.
Indubitably, the ERC is the regulatory agency of the
government having the authority and supervision over
MERALCO. Thus, the task to approve the guidelines,
schedules, and details of the refund by MERALCO to
its consumers, to implement the judgment of this Court
in the MERALCO Refund cases, also falls upon the
ERC. By filing their Petition before the RTC, BF
Homes and PWCC intend to collect their refund
without submitting to the approved schedule of the
ERC, and in effect, enjoy preferential right over the
other equally situated MERALCO consumers. BF
Homes, Inc. vs. Manila Electric Company, 636 SCRA
495, G.R. No. 171624 December 6, 2010
Taxicab Operators of Metro Manila v. Board of
Transportation, G.R. No L-59234, September 30,
1982
Public Utility; Due process; The BOT need not first
summon taxicab operators to a conference on public
hearing before issuing circulars phasing-out more
than 6-year old taxicabs.—It is clear from the
provision aforequoted, however, that the leeway
accorded the Board gives it a wide range of choice in
gathering necessary information or data in the
formulation of any policy, plan or program. It is not
mandatory that it should first call a conference or
require the submission of position papers or other
documents from operators or persons who may be
affected, this being only one of the options open to the
Board, which is given wide discretionary authority.
Petitioners cannot justifiably claim, therefore, that
they were deprived of procedural due process. Neither
can they state with certainty that public respondents
had not availed of other sources of inquiry prior to
issuing the challenged Circulars. Operators of public
conveyances are not the only primary sources of the
data and information that may be desired by the BOT.
Dispensing with a public hearing prior to the issuance
of the Circulars is neither violative of procedural due
process.
Same; Same; Constitutional Law; Fixing by BOT of
the lifetime ceiling of six (6) years to taxicab is not
unreasonable or arbitrary.—Petitioners further take
the position that fixing the ceiling at six (6) years is
arbitrary and oppressive because the roadwor-thiness
of taxicabs depends upon their kind of maintenance
and the use to which they are subjected, and, therefore,
their actual physical condition should be taken into
consideration at the time of registration. As public
respondents contend, however, it is impractical to
subject every taxicab to constant and recurring
evaluation, not to speak of the fact that it can open the
door to the adoption of multiple standards, possible
collusion, and even graft and corruption. A reasonable
standard must be adopted to apply to all vehicles
affected uniformly, fairly, and justly. The span of six
years supplies that reasonable standard. The product of
experience shows that by that time taxis have fully
depreciated, their cost recovered, and a fair return on
investment obtained. They are also generally
dilapidated and no longer fit for safe and comfortable
service to the public specially considering that they are
in continuous operation practically 24 hours everyday
in three shifts of eight hours per shift. With that
standard of reasonableness and absence of
arbitrariness, the requirement of due process has been
met.
 G. Due process requirements
Pantranco v. PSC, 70 Phil. 221
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 prop-erty right, and is a mere
license or privilege.
KMU Labor Center v. Garcia, 239 SCRA 386
Due Process; The government must not relinquish the
important function of rate-fixing; The people deserve
to be given full opportunity to be heard in their
opposition to any fare increase.—Given the
complexity of the nature of the function of rate-fixing
and its far-reaching effects on millions of commuters,
government must not relinquish this important
function in favor of those who would benefit and profit
from the industry. Neither should the requisite notice
and hearing be done away with. The people,
represented by reputable oppositors, deserve to be
given full opportunity to be heard in their opposition
to any fare increase.
To do away with such a procedure (below) and allow
just one party, an interested party at that, to determine
what the rate should be, will undermine the right of the
other parties to due process. The purpose of a hearing
is precisely to determine what a just and reasonable
rate is. Discarding such procedural and constitutional
right is certainly inimical to our fundamental law and
to public interest.
Steps in the Filing of Petition for Rate Increase:
A Petition for Adjustment of Rate (either for increase
or reduction) may be filed only by a grantee of a CPC.
Therefore, when franchise/CPC grantees or existing
public utility operators foresee that the new oil price
increase, wage hikes or similar factors would threaten
the survival and viability of their operations, they may
then institute a petition for increase of rates. Thus in
the case of public utilities engaged in transportation,
telecommunications, energy supply (electricity) and
others, the following steps are usually undertaken in
seeking, particularly upwards adjustments of rates:
1.Filing of formal Petition for Rate Increase.—This
petition alleges therein among others, the present
schedule of rates, the reasons why the same is no
longer economically viable and the revised schedule
of rates it proposes to charge. Attached to said Petition
for financial statements, projections/studies showing
possible losses from oil price or wage hikes under the
old or existing rates and the possible margin of profit
(which should be within the 12% allowable limit)
under the new or revised rates;
2.After the petition is docketed, a date is set for hearing
for which a Notice of Hearing is issued, the same to be
published in a newspaper of general circulation in the
area;
3.The parties affected by the application are required
to be furnished copies of the petition and the Notice of
Hearing usually by registered mail with return card.
The Soliticor General is also separately notified since
he is the counsel for the Government;
4.The Technical Staff of the regulatory body
concerned evaluates the documentary evidence
attached to the petition to determine whether there is
warrant to the request for rate revision;
5.Then the Commission on Audit (COA) is requested
by the regulatory body to conduct an audit and
examination of the books of accounts and other
pertinent financial records of the public utility operator
seeking the rate revision; if the applicants/petitioners
are numerous, a representative number for
examination purposes would do; and the period of
operation covered usually ranges from six (6) months
to one (1) year;
COA audit report is compared with that of the
regulatory body. Copies of these audit reports are
furnished the petitioners and oppositors may submit
their exceptions or objections thereto. Kilusang Mayo
Uno Labor Center vs. Garcia, Jr., 239 SCRA 386, G.R.
No. 115381 December 23, 1994
PART TWO - TRANSPORTATION LAW
I. General Discussion
A. Definition
B. Relationship to a public utility
C. Nature of a Franchise
Raymundo v. Luneta Motor, 58 Phil. 889
The Public Service Law, Act No. 3108, as amended,
authorizes certificates of public convenience to be
secured by public service operators from the Public
Service Commission. (Sec. 15 [i].) A certificate of
public convenience granted to the owner or operator of
public service motor vehicles, it has been held, grants
a right in the nature of a limited franchise. (Public
Utilities Commission vs. Garviloch [1919], 54 Utah,
406.)
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.
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.
(Reyes vs. Grey [1911], 21 Phil., 73.)
Now, the Public Service Law permits the Public
Service Commission to approve 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 court process.
The United States Supreme Court considers a
franchise granted in consideration of the performance
of public service as constituting property within the
protection of the Fourteenth Amendment to the United
States Constitution. (Frost vs. Corporation
Commission of Oklahoma [1929], 278 U. S., 515.) If
the holder of the certificate of public convenience can
thus be protected in his constitutional rights, we see no
reason why the certificate of public convenience
should not assume corresponding responsibilities and
be susceptible as property or an interest therein of
being liable to execution.
Cogeo-Cubao Operator & Driver Association v. CA,
G.R. No. 100727, March 18, 1992
Public Service Law; Common Carriers; Certificate of
public convenience.—A certificate of public
convenience is included in the term “property” in the
broad sense of the term. 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., et al., 58 Phil. 889). Although there
is no doubt that it is private property, it is affected with
a public interest and must be submitted to the control
of the government for the common good (Pangasinan
Transportation Co. v. PSC, 70 Phil. 221). Hence,
insofar as the interest of the State is involved, a
certificate of public convenience does not confer upon
the holder any proprietary right or interest or franchise
in the route covered thereby and in the public
highways (Lugue v. Villegas, L-22545, Nov. 28, 1969,
30 SCRA 409). 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.
Ammen Transportation Co. v. Golingco, 43 Phil. 280).
D. Scope of a Franchise
San Pablo v. Pantranco, 153 SCRA 199
Considering the environmental circumstances of the
case, the conveyance of passengers, trucks and cargo
from Matnog to Allen is certainly not a ferryboat
service but a coastwise or interisland shipping service.
Under no circumstance can the sea between Matnog
and Allen be considered a continuation of the
highway. While a ferryboat service has been
considered as a continuation of the highway when
crossing rivers or even lakes, which are small body of
waters separating the land, however, when as in this
case the two terminals, Matnog and Allen are
separated by an open sea it can not be considered as a
continuation of the highway. Respondent
PANTRANCO should secure a separate CPC for the
operation of an interisland or coastwise shipping
service in accordance with the provisions of law. Its
CPC as a bus transportation cannot be merely
amended to include this water service under the guise
that it is a mere private ferry service.
The contention of private respondent PANTRANCO
that its ferry service operation is as a private carrier,
not as a common carrier for its exclusive use in the
ferrying of its passenger buses and cargo trucks is
absurd. PANTRANCO does not deny that it charges
its passengers separately from the charges for the bus
trips and issues separate tickets whenever they board
the M/V "Black Double" that crosses Matnog to Allen,
PANTRANCO cannot pretend that in issuing tickets
to its passengers it did so as a private carrier and not
as a common carrier.
E. Prior-operator rule
Batangas Transportation v. Orlanes, 52 Phil. 455
So long as the first licensee keeps and performs the
terms and conditions of its license and complies with
the reasonable rules and regulations of the commission
and meets the reasonable demands of the public, it has
more or less of a vested and preferential right over
another who seeks to acquire a later license to operate
over the same route.
F. Kabit System
Teja v. IAC, 148 SCRA 347
Kabit system, one of the root causes of the prevalence
of graft and corruption in government transportation
offices.
Unquestionably, the parties herein operated under an
arrangement, commonly known as the "kabit system"
whereby a person who has been granted a certificate
of public convenience allows another person who
owns motor vehicles to operate under such franchise
for a fee. A certificate of public convenience is a
special privilege conferred by the government. Abuse
of this privilege by the grantees thereof cannot be
countenanced. The "kabit system" has been identified
as one of the root causes of the prevalence of graf t and
corruption in the government transportation offices.
Kabit system, although not outrightly penalized as a
criminal offense, is contrary to public policy, and is
void and inexistent; Principle that the court will not aid
either party to enforce an illegal contract
Although not outrightly penalized as a criminal
offense, the kabit system is invariably recognized as
being contrary to public policy and, therefore, void
and inexistent under Article 1409 of the Civil Code. It
is a fundamental principle that the court will not aid
either party to enforce an illegal contract, but will
leave both where it finds them. Upon this premise it
would be error to accord the parties relief from their
predicament. Article 1412 of the Civil Code denies
them such aid.
The defect of inexistence of a contract is permanent
and cannot be cured by ratification or by prescription.
The mere lapse of time cannot give efficacy to
contracts that are null and void.
Lim v. CA, G.R. No. 125817, January 16, 2002
The kabit system is an arrangement whereby a person
who has been granted a certificate of public
convenience allows other persons who own motor
vehicles to operate them under his license, sometimes
for a fee or percentage of the earnings.9 Although the
parties to such an agreement are not outrightly
penalized by law, the kabit system is invariably
recognized as being contrary to public policy and
therefore void and inexistent under Art. 1409 of the
Civil Code.
In the early case of Dizon v. Octavio,10 the Court
explained that one of the primary factors considered in
the granting of a certificate of public convenience for
the business of public transportation is the financial
capacity of the holder of the license, so that liabilities
arising from accidents may be duly compensated. The
kabit system renders illusory such purpose and, worse,
may still be availed of by the grantee to escape civil
liability caused by a negligent use of a vehicle owned
by another and operated under his license. If a
registered owner is allowed to escape liability by
proving who the supposed owner of the vehicle is, it
would be easy for him to transfer the subject vehicle
to another who possesses no property with which to
respond financially for the damage done. Thus, for the
safety of passengers and the public who may have
been wronged and deceived through the baneful kabit
system, the registered owner of the vehicle is not
allowed to prove that another person has become the
owner so that he may be thereby relieved of
responsibility.
G. Private nature; rights and obligations of
parties inter se arising from transactions
relating to transportation
1) absent a transportation contract
Lara v. Valencia, 104 Phil 65
The law provides that "A passenger must observe the
diligence of a good father of afamily to avoid injury to
himself" (Article 1761, new Civil Code), which means
that if the injury to the passenger has been proximately
caused by his own negligence, the carrier cannot be
held liable.
The finding of the trial court that the pick-up was
running at more than 40 kilometers per hour is not
supported by the evidence. This is a mere surmise
made by the trial court considering the time the pick-
up left barrio Samoay and the time the accident
occured in relation to the distance covered by the pick-
up. And even if this is correct, still we say that such
speed is not unreasonable considering that they were
traveling on a national road and the traffic then was
not heavy. We may rather attribute the incident to lack
of care on the part of the deceased considering that the
pickup was open and he was then in a crouching
position.
2) liability of registered owner
PCI Leasing v UCPB General Insurance, 557 SCRA
141 (GR 162267)
Registered owner of a motor vehicle may be held
civilly liable with the negligent driver either
subsidiarily or solidarily.
For damage or injuries arising out of negligence in the
operation of a motor vehicle, the registered owner may
be held civilly liable with the negligent driver either 1)
subsidiarily, if the aggrieved party seeks relief based
on a delict or crime under Articles 100 and 103 of the
Revised Penal Code; or 2) solidarily, if the
complainant seeks relief based on a quasi-delict under
Articles 2176 and 2180 of the Civil Code. It is the
option of the plaintiff whether to waive completely the
filing of the civil action, or institute it with the criminal
action, or file it separately or independently of a
criminal action; his only limitation is that he cannot
recover damages twice for the same act or omission of
the defendant.
In case a separate civil action is filed, the long-
standing principle is that the registered owner of a
motor vehicle is primarily and directly responsible for
the consequences of its operation, including the
negligence of the driver, with respect to the public and
all third persons.
In contemplation of law, the registered owner of a
motor vehicle is the employer of its driver, with the
actual operator and employer, such as a lessee, being
considered as merely the owner’s agent.
This being the case, even if a sale has been executed
before a tortious incident, the sale, if unregistered, has
no effect as to the right of the public and third persons
to recover from the registered owner. The public has
the right to conclusively presume that the registered
owner is the real owner, and may sue accordingly.
The failure to register a lease, sale, transfer or
encumbrance, should not benefit the parties
responsible, to the prejudice of innocent victims.
The rule remains the same: a sale, lease, or financial
lease, for that matter, that is not registered with the
Land Transportation Office, still does not bind third
persons who are aggrieved in tortious incidents, for the
latter need only to rely on the public registration of a
motor vehicle as conclusive evidence of ownership. A
lease such as the one involved in the instant case is an
encumbrance in contemplation of law, which needs to
be registered in order for it to bind third parties. Under
this policy, the evil sought to be avoided is the
exacerbation of the suffering of victims of tragic
vehicular accidents in not being able to identify a
guilty party. A contrary ruling will not serve the ends
of justice. The failure to register a lease, sale, transfer
or encumbrance, should not benefit the parties
responsible, to the prejudice of innocent victims.
II. Regulation of the Transportation Industry
A. The Department of Transportation and
Communication, EO 292 Book IV, Title
XV
Mirasol v. DPWH, G.R. No. 158793, June 8, 2006
Under EO 546, the functions of the then Department
of Public Works and Communications were split, the
authority to regulate limited-access highways
devolved to the Department of Transportation and
Communications. The authority to administer and
enforce all laws, rules and regulations relative to
transportation went to the DOTC*, not to the DPWH.
Thus, DO 74 and DO 215 were void, because the
DPWH had no authority to declare certain
expressways as limited access facilities. And since it
had no authority to regulate activities relative to
transportation, the TRB could not derive from the
DPWH the power to issue regulations governing
limited-access facilities. Furthermore, since those
Orders were void, it followed that the rules
implementing them were likewise void.
Because administrative issuances had the force and
effect of law, AO 1 enjoyed the presumption of
validity and constitutionality. The burden to prove its
unconstitutionality rested on the party assailing it,
more so when police power was at issue and passed
the test of reasonableness. The Administrative Order
was not oppressive, as it did not impose unreasonable
restrictions or deprive petitioners of their right to use
the facilities. It merely set rules to ensure public safety
and the uninhibited flow of traffic within those
limited-access facilities.
The right to travel did not mean the right to choose any
vehicle in traversing a tollway. Petitioners were free to
access the tollway as much as the rest of the public.
However, the mode in which they wished to travel,
pertaining to their manner of using the tollway, was a
subject that could validly be limited by regulation.
There was no absolute right to drive; on the contrary,
this privilege was heavily regulated.
 1) Air
a) Civil Aviation Authority of the
Philippines, Republic Act No. 9497
(2008), Sec. 4, 21, 24, 25, 35
Additional readings:
Convention for International Civil Aviation (“Chicago
Convention”), Arts 6, 9, 37, 38, 43, 44 and 87
b) Civil Aeronautics Board, RA 776,
as amended, Secs. 5, 10 (A), (C);;
Secs. 11, 12
PAL v. CAB, 23 SCRA 992
CAB is empowered to grant any provisional authority
to operate. Section 10-C (1) of RA 776 provides that
the Board have the following specific powers and
duties: In accordance with the provisions of Chapter 4
of this Act, to issue, deny, amend, revise, alter, modify,
cancel, suspend, or revoke, in whole or in part, upon
petition or complaint, or upon its own initiative, any
temporary operating permit or Certificate of Public
Convenience and Necessity.
Here, it explicitly authorizes the CAB to issue a
temporary operating permit and nothing in the law
negates the power to issue said permit before the
completion of the applicant’s (Fairways) evidence and
that of the oppositor, PAL.
PAL v. CAB, supra
Kuwait Airways v. PAL, GR 156087 May 8, 2009
The Supreme Court does not doubt that the CAB, in
the exercise of its statutory mandate, has the power to
compel Philippine Airlines to immediately terminate
its Commercial Agreement with Kuwait Airways
pursuant to the CMU.
However, this is not a case where the CAB had duly
exercised its regulatory authority over a local airline in
order to implement or further government air policy.
Had Philippine Airlines remained a government‐
owned or controlled corporation, it would have been
bound, as part of the executive branch, to comply with
the dictates of the President or his alter egos since the
President has executive control and supervision over
the components of the executive branch.
Yet Philippine Airlines has become a private
corporation.The President or his alter egos do not have
the legal capacity to dictate insuperable commands to
private persons.
2) Land
a) Land Transportation Office, EO
125-A, Secs. 9, 11, 13(a);;
Administrative Code of 1987, Title
XV, Sec. 9(1)
b) Land Transportation Franchising
and Regulatory Board, EO 202,
Secs. 1, 2, 4, 5, 6, 7;; Administrative
Code of 1987, Title XV, Secs. 15-22
KMU Labor Center v. Garcia, 239 SCRA 386
The authority given by the LTFRB to the provincial
bus operators to set a fare range over and above the
authorized existing fare, is illegal and invalid as it is
tantamount to an undue delegation of legislative
authority.
What has been delegated cannot be delegated. This
doctrine is based on the ethical principle that such a
delegated power constitutes not only a right but a duty
to be performed by the delegate through the
instrumentality of his own judgment and not through
the intervening mind of another. A further delegation
of such power would indeed constitute a negation of
the duty in violation of the trust reposed in the delegate
mandated to discharge it directly.
The policy of allowing the provincial bus operators to
change and increase their fares at will would result not
only to a chaotic situation but to an anarchic state of
affairs. This would leave the riding public at the mercy
of transport operators who may increase fares every
hour, every day, every month or every year, whenever
it pleases them or whenever they deem it “necessary”
to do so.
3) Water
a) Maritime Industry Authority, EO
125, Sec. 14, as amended by EO-
125-A, Sec. 4, RA 9295, Sec. 9, 10
and 11, and RA 10635, Sec. 4.
Additional readings:
1978 International Convention on Standards of
Training, Certification and Watchkeeping for
Seafarers (with 2010 Manila Amendments)
III. Common Carriers
A. In general
1) Definitions, essential elements; Art. 1732
U.S. v. Tan Piaco, 40 Phil. 853
The term “public utility” is hereby defined to include
every individual, co-partnership, association,
corporation or joint stock company, that now or
hereafter may own, operate, manage, or control any
common carrier, railroad, street railway, etc., engaged
in the transportation of passengers, cargo, etc., for
public use.
The essential feature of 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.
The owner of an automobile truck who operates the
same under a special contract for carrying passengers
and freight, in each case, and has not held himself out
to carry all passengers and freight for all persons who
might offer, is not a public utility and is not criminally
liable for his failure to obtain a license from the Public
Utility Commissioner. If the use is merely optional
with the owner, or the public benefit is merely
accidental, it is not a public use, authorizing the
exercise of the jurisdiction of the public utility
commission.
The true criterion by which to judge the character of
the use is whether the public may enjoy it by right or
only by permission.
Home Insurance Co. v, American Steamship, 23
SCRA 24
The provisions of our Civil Code on common carriers
were taken from Anglo-American law. 7 Under
American jurisprudence, a common carrier
undertaking to carry a special cargo or chartered to a
special person only, becomes a private carrier. 8 As a
private carrier, a stipulation exempting the owner from
liability for the negligence of its agent is not against
public policy, 9 and is deemed valid.
Such doctrine We find reasonable. The Civil Code
provisions on common carriers should not be applied
where the carrier is not acting as such but as a private
carrier. The stipulation in the charter party absolving
the owner from liability for loss due to the negligence
of its agent would be void only if the strict public
policy governing common carriers is applied. Such
policy has no force where the public at large is not
involved, as in the case of a ship totally chartered for
the use of a single party.
De Guzman v. CA, 168 SCRA 612
It appears to the Court that private respondent is
properly characterized as a common carrier even
though he merely "back-hauled" goods for other
merchants from Manila to Pangasinan, although such
back-hauling was done on a periodic or occasional
rather than regular or scheduled manner, and even
though private respondent's principal occupation was
not the carriage of goods for others. There is no dispute
that private respondent charged his customers a fee for
hauling their goods; that fee frequently fell below
commercial freight rates is not relevant here.
The Civil Code defines "common carriers" in the
following terms:
Article 1732. Common carriers are persons,
corporations, firms or associations engaged in the
business of carrying or transporting passengers or
goods or both, by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one
whose principal business activity is the carrying of
persons or goods or both, and one who does such
carrying only as an ancillary activity (in local Idiom as
"a sideline"). Article 1732 also carefully avoids
making any distinction between a person or enterprise
offering transportation service on a regular or
scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier
offering its services to the "general public," i.e., the
general community or population, and one who offers
services or solicits business only from a narrow
segment of the general population. We think that
Article 1732 deliberately refrained from making such
distinctions.
Bascos v. CA, 221 SCRA 318
Petitioner is a common carrier. She presented no other
proof of the existence of the contract of lease. She
herself has made the admission that she was in the
trucking business, offering her trucks to those with
cargo to move. Judicial admissions are conclusive and
no evidence is required to prove the same.
Article 1732 of the Civil Code defines a common
carrier as (a) person, corporation or firm, or
association engaged in the business of carrying or
transporting passengers or goods or both, by land,
water or air, for compensation, offering their services
to the public. The test to determine a common carrier
is “whether the given undertaking is a part of the
business engaged in by the carrier which he has held
out to the general public as his occupation rather than
the quantity or extent of the business transacted.
Planters Products Inc. v. Court of Appeals, 226
SCRA 476
A "charter-party" is defined as a contract by which an
entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; 20
a contract of affreightment by which the owner of a
ship or other vessel lets the whole or a part of her to a
merchant or other person for the conveyance of goods,
on a particular voyage, in consideration of the payment
of freight; 21 Charter parties are of two types: (a)
contract of affreightment which involves the use of
shipping space on vessels leased by the owner in part
or as a whole, to carry goods for others; and, (b)
charter by demise or bareboat charter, by the terms of
which the whole vessel is let to the charterer with a
transfer to him of its entire command and possession
and consequent control over its navigation, including
the master and the crew, who are his servants. Contract
of affreightment may either be time charter, wherein
the vessel is leased to the charterer for a fixed period
of time, or voyage charter, wherein the ship is leased
for a single voyage. 22 In both cases, the charter-party
provides for the hire of the vessel only, either for a
determinate period of time or for a single or
consecutive voyage, the shipowner to supply the
ship’s stores, pay for the wages of the master and the
crew, and defray the expenses for the maintenance of
the ship.
Upon the other hand, the term "common or public
carrier" is defined in Art. 1732 of the Civil Code. 23
The definition extends to carriers either by land, air or
water which hold themselves out as ready to engage in
carrying goods or transporting passengers or both for
compensation as a public employment and not as a
casual occupation. The distinction between a
"common or public carrier" and a "private or special
carrier" lies in the character of the business, such that
if the undertaking is a single transaction, not a part of
the general business or occupation, although involving
the carriage of goods for a fee, the person or
corporation offering such service is a private carrier.
24
Article 1733 of the New Civil Code mandates that
common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the
vigilance over the goods they carry. 25 In the case of
private carriers, however, the exercise of ordinary
diligence in the carriage of goods will suffice.
Moreover, in case of loss, destruction or deterioration
of the goods, common carriers are presumed to have
been at fault or to have acted negligently, and the
burden of proving otherwise rests on them. 26 On the
contrary, no such presumption applies to private
carriers, for whosoever alleges damage to or
deterioration of the goods carried has the onus of
proving that the cause was the negligence of the
carrier.
It is not disputed that respondent carrier, in the
ordinary course of business, operates as a common
carrier, transporting goods indiscriminately for all
persons. When petitioner chartered the vessel M/V
"Sun Plum", the ship captain, its officers and
compliment were under the employ of the shipowner
and therefore continued to be under its direct
supervision and control. Hardly then can we charge the
charterer, a stranger to the crew and to the ship, with
the duty of caring for his cargo when the charterer did
not have any control of the means in doing so. This is
evident in the present case considering that the
steering of the ship, the manning of the decks, the
determination of the course of the voyage and other
technical incidents of maritime navigation were all
consigned to the officers and crew who were screened,
chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall
remain as such, notwithstanding the charter of the
whole or portion of a vessel by one or more persons,
provided the charter is limited to the ship only, as in
the case of a time-charter or voyage-charter. It is only
when the charter includes both the vessel and its crew,
as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular
voyage covering the charter-party is concerned.
Indubitably, a shipowner in a time or voyage charter
retains possession and control of the ship, although her
holds may, for the moment, be the property of the
charterer.
Fabre v. Court of Appeals, 259 SCRA 426
As common carriers, the Fabres were found to exercise
"extraordinary diligence" for the safe transportation of
the passengers to their destination. This duty of care is
not excused by proof that they exercise the diligence
of a good father of the family in the selection and
supervision of their employee. As Art. 1759 of the
Code provides:
Common carriers are liable for the death of or injuries
to passengers through the negligence or willful acts of
the former's employees although such employees may
have acted beyond the scope of their authority or in
violation of the orders of the common carriers.
This liability of the common carriers does not cease
upon proof that they exercised all the diligence of a
good father of a family in the selection and supervision
of their employees.
The same circumstances detailed above, supporting
the finding of the trial court and of the appellate court
that petitioners are liable under Arts. 2176 and 2180
for quasi delict, fully justify findings them guilty of
breach of contract of carriage under Arts. 1733, 1755
and 1759 of the Civil Code.
First Philippine Industrial Corporation v. Court of
Appeals, 300 SCRA 661, GR 125948, 12/29/98
A "common carrier" may be defined, broadly, as one
who holds himself out to the public as engaged in the
business of transporting persons or property from
place to place, for compensation, offering his services
to the public generally.
Art. 1732 of the Civil Code defines a "common
carrier" as "any person, corporation, firm or
association engaged in the business of carrying or
transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services
to the public."
The test for determining whether a party is a common
carrier of goods is:
1. He must be engaged in the business of carrying
goods for others as a public employment, and must
hold himself out as ready to engage in the
transportation of goods for person generally as a
business and not as a casual occupation;
2. He must undertake to carry goods of the kind to
which his business is confined;
3. He must undertake to carry by the method by which
his business is conducted and over his established
roads; and
4. The transportation must be for hire. 15
Based on the above definitions and requirements, there
is no doubt that petitioner is a common carrier. It is
engaged in the business of transporting or carrying
goods, i.e. petroleum products, for hire as a public
employment. It undertakes to carry for all persons
indifferently, that is, to all persons who choose to
employ its services, and transports the goods by land
and for compensation. The fact that petitioner has a
limited clientele does not exclude it from the definition
of a common carrier.
Loadstar Shipping Co., Inc. v. Court of Appeals, 315
SCRA 339 (GR 131621;; 9/28/99)
Contracts; Common Carriers; Damages; The law
imposes duties and liabilities upon common carriers
for the safety and protection of those who utilize their
services and the law cannot allow a common carrier to
render such duties and liabilities merely facultative by
simply failing to obtain the necessary permits and
authorizations.—The Court of Appeals referred to the
fact that private respondent held no certificate of
public convenience, and concluded he was not a
common carrier. This is a palpable error. A certificate
of public convenience is not a requisite for the
incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the
moment a person or firm acts as a common carrier,
without regard to whether or not such carrier has also
complied with the requirements of the applicable
regulatory statute and implementing regulations and
has been granted a certificate of public convenience or
other franchise.
To exempt private respondent from the liabilities of a
common carrier because he has not secured the
necessary certificate of public convenience, would be
offensive to sound public policy; that would be to
reward private respondent precisely for failing to
comply with applicable statutory requirements. The
business of a common carrier impinges directly and
intimately upon the safety and well-being and property
of those members of the general community who
happen to deal with such carrier. The law imposes
duties and liabilities upon common carriers for the
safety and protection of those who utilize their
services and the law cannot allow a common carrier to
render such duties and liabilities merely facultative by
simply failing to obtain the necessary permits and
authorizations.
Contracts; Common Carriers; Damages; Since it was
remiss in the performance of its duties, LOADSTAR
cannot hide behind the “limited liability” doctrine to
escape responsibility for the loss of the vessel and its
cargo.—Neither do we agree with LOADSTAR’s
argument that the “limited liability” theory should be
applied in this case. The doctrine of limited liability
does not apply where there was negligence on the part
of the vessel owner or agent. LOADSTAR was at fault
or negligent in not maintaining a seaworthy vessel and
in having allowed its vessel to sail despite knowledge
of an approaching typhoon. In any event, it did not sink
because of any storm that may be deemed as force
majeure, inasmuch as the wind condition in the area
where it sank was determined to be moderate. Since it
was remiss in the performance of its duties,
LOADSTAR cannot hide behind the “limited
liability” doctrine to escape responsibility for the loss
of the vessel and its cargo.
Crisostomo v. Court of Appeals, 409 SCRA 528 (GR
138334;; 8/25/03)
Respondent not being a common carrier but a travel
agency is not bound under the law to observe
extraordinary diligence in the performance of its
obligation. The nature of the contractual relation
between petitioner and respondent is determinative of
the degree of care required in the performance of the
latter’s obligation under the contract. For reasons of
public policy, a common carrier in a contract of
carriage is bound by law to carry passengers as far as
human care and foresight can provide using the utmost
diligence of very cautious persons and with due regard
for all the circumstances. As earlier stated, however,
respondent is not a common carrier but a travel
agency. It is thus not bound under the law to observe
extraordinary diligence in the performance of its
obligation, as petitioner claims.
Cruz v. Sun Holidays, G.R. No. 186312, June 29,
2010
Civil Law; Common Carriers; Definition of Common
Carriers. —As De Guzman instructs, Article 1732 of
the Civil Code defining “common carriers” has
deliberately refrained from making distinctions on
whether the carrying of persons or goods is the
carrier’s principal business, whether it is offered on a
regular basis, or whether it is offered to the general
public. The intent of the law is thus to not consider
such distinctions. Otherwise, there is no telling how
many other distinctions may be concocted by
unscrupulous businessmen engaged in the carrying of
persons or goods in order to avoid the legal obligations
and liabilities of common carriers.
Degree of Diligence Required; From the nature of
their business and for reasons of public policy,
common carriers are bound to observe extraordinary
diligence for the safety of the passengers transported
by them, according to all the circumstances of each
case.—Under the Civil Code, common carriers, from
the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence
for the safety of the passengers transported by them,
according to all the circumstances of each case. They
are bound to carry the passengers safely as far as
human care and foresight can provide, using the
utmost diligence of very cautious persons, with due
regard for all the circumstances.
Negligence; Presumption of Negligence; When a
passenger dies or is injured in the discharge of a
contract of carriage, it is presumed that the common
carrier is at fault or negligent.—When a passenger
dies or is injured in the discharge of a contract of
carriage, it is presumed that the common carrier is at
fault or negligent. In fact, there is even no need for the
court to make an express finding of fault or negligence
on the part of the common carrier. This statutory
presumption may only be overcome by evidence that
the carrier exercised extraordinary diligence.
Fortuitous Event; Element of a “Fortuitous Event.”—
The elements of a “fortuitous event” are: (a) the cause
of the unforeseen and unexpected occurrence, or the
failure of the debtors to comply with their obligations,
must have been independent of human will; (b) the
event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to
avoid; (c) the occurrence must have been such as to
render it impossible for the debtors to fulfill their
obligation in a normal manner; and (d) the obligor
must have been free from any participation in the
aggravation of the resulting injury to the creditor.
To fully free a common carrier from any liability, the
fortuitous event must have been the proximate and
only cause of the loss.—To fully free a common carrier
from any liability, the fortuitous event must have been
the proximate and only cause of the loss. And it should
have exercised due diligence to prevent or minimize
the loss before, during and after the occurrence of the
fortuitous event.
Damages; Liability of a common carrier in breach of
its contract of carriage resulting in the death of a
passenger.—Article 1764 vis-à-vis Article 2206 of the
Civil Code holds the common carrier in breach of its
contract of carriage that results in the death of a
passenger liable to pay the following: (1) indemnity
for death, (2) indemnity for loss of earning capacity
and (3) moral damages
2) Nature and Basis of Liability Art. 1733
Cangco v. MRR, 38 Phil. 767
Master And Servant; Contract; Negligence. -- Failure
to perform a contract cannot be excused upon the
ground that the breach was due to the negligence of a
servant of the obligor, and that the latter exercised due
diligence in the selection and control of the servant.
The foundation of defendant’s liability is its contract
of carriage with plaintiff, which carries by implication
the duty to carry him safely and provide safe means of
entering and leaving its trains. Thus, non-performance
of the contract could not be excused by proof that the
fault was imputable to Manila Railroad Co.’s
employees.
Art. 2180(1), (5), (8), CC. The obligation imposed by
article 2176 is demandable not only for one's own acts
or omissions, but also for those of persons for whom
one is responsible.
Employers shall be liable for the damages caused by
their employees and household helpers acting within
the scope of their assigned tasks, even though the
former are not engaged in any business or industry.
The responsibility treated of in this article shall cease
when the persons herein mentioned prove that they
observed all the diligence of a good father of a family
to prevent damage. (1903a)
Contract; Negligence; Culpa Aquiliana; Culpa
Contractual. -- The distinction between negligence as
the source of obligation (culpa aquiliana) and
negligence in the performance of a contract (culpa
contractual) pointed out.
Art. 2176, CC. Whoever by act or omission causes
damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict
and is governed by the provisions of this Chapter.
(1902a)
Carriers; Passengers; Negligence; Alighting From
Moving Train. -- It is not negligence per se for a
traveler to alight from a slowly moving train.
Thompson defines the test to determine whether a
passenger alighting from a moving train is guilty of
negligence as that of ordinary or reasonable care. In
the instant case, not only was the station dimly lit and
the train barely moving, but Cangcois a fit young man
for whom alighting a moving train would not be risky.
Isaac v. A.L. Ammen, 101 Phil. 1046
Public Utilities; Principles Governing Liability of
Common Carrier. — The following are the principles
governing the liability of a common carrier: (1) the
liability of a carrier is contractual and arises upon
breach of its obligation. There is a breach if it fails to
exert extraordinary diligence according to all the
circumstances of each case; (2) a carrier is obliged to
carry its passenger with the utmost diligence of a very
cautious person, having due regard for all
circumstances; (3) a carrier is presumed to be at fault
or to have acted negligently in case of death of, or
injury to, passengers, it being its duty to prove that it
exercised extraordinary diligence; and (4) the carrier
is not an insurer against all risks of travel.
Contributory Negligence of Passenger Militates
Against His Claim; Case at Bar. — A circumstance
which militates against the stand of appellant is the
fact borne out by the evidence that when he boarded
the bus in question, he seated himself on the left side
thereof resting his left arm on the window sill but with
his left elbow outside the window, this being his
position in the bus when the collision took place. It is
for this reason that the collision resulted in the
severance of said left arm from the body of appellant
thus doing him a great damage. It is therefore apparent
that appellant is guilty of contributory negligence.
Fores v. Miranda, 105 Phil. 266
Public Utilities; Sale of Public Service Vehicle;
Approval of Public Service Commission; Reason. —
Transfer of a Public Service Commission, is not
effective and binding in so far as the responsibility of
the grantee under the franchise in relation to the public
is concerned. The provisions of Section 20 of the
Public Service Act are clear and prohibit the sale,
alienation, lease, of an operator’s property, franchise,
certificates, privileges or rights, or any part thereof
without approval or authorization of the Public Service
Commission. The law was designed primarily for the
protection of the public interest; and until the approval
of the Public Service Commission is obtained, the
vehicle is in contemplation of law, still under the
service of the owner or operation standing in the
records of the Commission to which the public has a
right to rely upon.
Moral Damages Not Recoverable in Action on Breach
of Contract of Transportation. — Moral damages are
generally not recoverable in damage actions
predicated on a breach of contract of transportation in
view or the provisions of Articles 2218 and 2220 of
the new Civil Code.
Exception In Case of Death of Passenger. — The
exception to the basic rule of damages is a mishap
resulting in the death of a passenger, in which case
Article 1764 makes the common carrier expressly
subject to the rule of Art. 2206, of the Civil Code that
entitles the spouse, descendants and ascendants of the
deceased passenger to "demand moral damages for
mental anguish by reason of the death of the
deceased." (Necesito v. Paras G. R. No. L-10605,
Resolution on motion to reconsider, Sept. 11, 1958).
No Death; Proof of Malice or Bad Faith Required. —
Where the injured passenger does not die, moral
damages are not recoverable unless it is proved that
the carrier was guilty of malice or bad faith. The mere
carelessness of the carrier’s driver does not per se
constitute or justify an inference of malice or bad faith
on the part of the carrier.
Negligence; Not Carrier’s Bad Faith. — While it is
true that negligence may be occasionally so gross as to
amount to malice, that fact must be shown in evidence.
A carrier’s bad faith is not to be lightly inferred from
a mere finding that the contract was breached through
negligence of the carrier’s employees.
Failure to Transport Passengers Safely. — The theory
that carrier’s violation of its engagement to safely
transport the passenger involves a breach of the
passenger’s confidence, and therefore should be
regarded as a breach of contract in bad faith, justifying
recovery of moral damages, under Article 2220 of the
New Code is untenable, for under it the carrier would
always be deemed in bad faith in every case its
obligation to the passenger is infringed and it would
never be accountable for simple negligence while
under Article 1756 of the Civil Code the presumption
is that common carriers acted negligently and not
maliciously, and Article 1762 speaks of negligence of
the common carrier.
Carriers; Actions for Breach of Contract; When
Presumption or Carrier’s Liability Arises. — An
action for breach of contract imposes on the carrier a
presumption of liability upon mere proof of injury of
the passenger; the latter does not have to establish the
fault of the carrier, or of his employees, and the burden
is placed on the carrier to prove that it was due to an
unforeseen event or to force majeure (Congco v.
Manila Railroad Co. 38 Phil., 768, 777.) Morever, the
carrier, unlike in suits for quasi-delict may not escape
liability by proving that it has exercised due diligence
in the selection and supervision of its employees. (Art.
1759 New Civil Code, Cangco v. Manila Railroad Co.
Supra; Prado v. Manila Electric Co., 51 Phil., 900)
Phil. Rabbit v. IAC, 189 SCRA 159
Contracts; Torts and damages; Doctrine of last clear
chance applies in a suit between the owners and
drivers of two colliding vehicles, not where the
passenger demands responsibility from the carrier to
enforce contractual obligations.—We reiterate that
“[t]he principle about the ‘last clear chance’ would call
for application in a suit between the owners and
drivers of the two colliding vehicles. It does not arise
where a passenger demands responsibility from the
carrier to enforce its contractual obligations. For it
would be inequitable to exempt the negligent driver of
the jeepney and its owners on the ground that the other
driver was likewise guilty of negligence.” This was
Our ruling in Anuran, et al. v. Buño, et al., G.R. Nos.
L-21353 and L-21354, May 20, 1966, 17 SCRA 224.
Thus, the respondent court erred in applying said
doctrine.
Carrier, presumed at fault or negligent, the moment a
passenger dies or is injured.—In culpa contractual, the
moment a passenger dies or is injured, the carrier is
presumed to have been at fault or to have acted
negligently, and this disputable presumption may only
be overcome by evidence that he had observed extra-
ordinary diligence as prescribed in Articles 1733, 1755
and 1756 of the New Civil Code or that the death or
injury of the passenger was due to a forfuitous event.
Accident caused either by defects in the
automobile or negligence of driver, not a caso
fortuito.—In any event, “[i]n an action for damages
against the carrier for his failure to safely carry his
passenger to his destination, an accident caused either
by defects in the automobile or through the negligence
of its driver, is not a caso fortuito which would avoid
the carrier’s liability for damages.
Driver,not jointly and severally liable with carrier in
case of breach of contract of carriage.—The trial court
was therefore right in finding that Manalo and spouses
Mangune and Carreon were negligent. However, its
ruling that spouses Mangune and Carreon are jointly
and severally liable with Manalo is erroneous. The
driver cannot be held jointly and severally liable with
the carrier in case of breach of the contract of carriage.
The rationale behind this is readily discernible. Firstly,
the contract of carriage is between the carrier and the
passenger, and in the event of contractual liability, the
carrier is exclusively responsible therefor to the
passenger, even if such breach be due to the negligence
of his driver (see Viluan v. The Court of Appeals, et
al., G.R. Nos. L-21477-81, April 29, 1966, 16 SCRA
742). In other words, the carrier can neither shift his
liability on the contract to his driver nor share it with
him, for his driver’s negligence is his. Secondly, if We
make the driver jointly and severally liable with the
carrier, that would make the carrier’s liability personal
instead of merely vicarious and consequently, entitled
to recover only the share which corresponds to the
driver, contradictory to the explicit provision of
Article 2181 of the New Civil Code.
LRTA v. Navidad, 397 SCRA 75 (GR 145804; 2/6/03)
Contracts; Contract of Carriage; The law requires
common carriers to carry passengers safely using the
utmost diligence of very cautious persons with due
regard for all circumstances.—The law requires
common carriers to carry passengers safely using the
utmost diligence of very cautious persons with due
regard for all circumstances. Such duty of a common
carrier to provide safety to its passengers so obligates
it not only during the course of the trip but for so long
as the passengers are within its premises and where
they ought to be in pursuance to the contract of
carriage.
Instances when a common carrier becomes liable for
death of or injury to passengers.—The statutory
provisions render a common carrier liable for death of
or injury to passengers (a) through the negligence or
willful acts of its employees or b) on account of willful
acts or negligence of other passengers or of strangers
if the common carrier’s employees through the
exercise of due diligence could have prevented or
stopped the act or omission
Presumption of Negligence; In case of such death or
injury, a carrier is presumed to have been at fault or
been negligent.—In case of such death or injury, a
carrier is presumed to have been at fault or been
negligent, andby simple proof of injury, the passenger
is relieved of the duty to still establish the fault or
negligence of the carrier or of its employees and the
burden shifts upon the carrier to prove that the injury
is due to an unforeseen event or to force majeure.
Obligations; Tort; The premise, however, for the
employer’s liability is negligence or fault on the part
of the employee.—Should Prudent be made likewise
liable? If at all, that liability could only be for tort
under the provisions of Article 2176 and related
provisions, in conjunction with Article 2180, of the
Civil Code. The premise, however, for the employer’s
liability is negligence or fault on the part of the
employee. Once such fault is established, the employer
can then be made liable on the basis of the presumption
juris tantum that the employer failed to exercise
diligentissimi patris families in the selection and
supervision of its employees. The liability is primary
and can only be negated by showing due diligence in
the selection and supervision of the employee, a
factual matter that has not been shown.
In fine, a liability for tort may arise even under a
contract, where tort is that which breaches the
contract.—A contractual obligation can be breached
by tort and when the same act or omission causes the
injury, one resulting in culpa contractual and the other
in culpa aquiliana, Article 2194 of the Civil Code can
well apply. In fine, a liability for tort may arise even
under a contract, where tort is that which breaches the
contract. Stated differently, when an act which
constitutes a breach of contract would have itself
constituted the source of a quasi-delictual liability had
no contract existed between the parties, the contract
can be said to have been breached by tort, thereby
allowing the rules on tort to apply.
Damages; Nominal Damages; It is an established rule
that nominal damages cannot co-exist with
compensatory damages.—The award of nominal
damages in addition to actual damages is untenable.
Nominal damages are adjudicated in order that a right
of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for
any loss suffered by him. It is an established rule that
nominal damages cannot co-exist with compensatory
damages.
3) Classes of common carriers
Art. 1732, 1733, 1755
4) Law applicable
Arts. 1766, 1753
National Development Co. v. Court of Appeals, 164
SCRA 593 (GR L-49407;; 8/19/88)
Common carriers; Carriage of Goods by Sea Act;
Rule that for cargoes transported from Japan to the
Philippines, the liability of the carrier in case of loss,
destruction or deterioration of goods is governed
primarily by the Civil Code, but on all other matters,
the Code of Commerce and special laws shall apply;
The Carriage of Goods by Sea Act is suppletory to the
Civil Code.—This issue has already been laid to rest
by this Court in Eastern Shipping Lines Inc. v. IAC
(150 SCRA 469-470 [1987]) where it was held under
similar circumstances that “the law of the country to
which the goods are to be transported governs the
liability of the common carrier in case of their loss,
destruction or deterioration” (Article 1753, Civil
Code). Thus, the rule was specifically laid down that
for cargoes transported from Japan to the Philippines,
the liability of the carrier is governed primarily by the
Civil Code and in all matters not regulated by said
Code, the rights and obligations of common carrier
shall be governed by the Code of Commerce and by
special laws (Article 1766, Civil Code). Hence, the
Carriage of Goods by Sea Act, a special law, is merely
suppletory to the provisions of the Civil Code.
Additional readings:
Convention for International Civil Aviation (“Chicago
Convention”)
1978 International Convention on Standards of
Training, Certification and Watchkeeping for Seafarer
(with 2010 Manila Amendments)
1974 International Convention for the Safety of Life at
Sea (SOLAS)
1972 Convention on the International Regulations for
Preventing Collisions at Sea (COLREGs)
B. Common Carriage of Goods
1) Liability and presumption of negligence
Arts. 1733, 1734, 1735
Ynchausti Steamship Co. v. Dexter, 41 Phil. 289
1. COMMON CARRIER; TRANSPORTATION OF
GOVERNMENT PROPERTY; NOTATION OF
SHORTAGE BY CONSIGNEE.— When Government
property is transported by common carrier, it is the
duty of the consignee, under section 646 of the
Administrative Code, to make notation of any loss,
shortage, or damage upon the bill of lading, or receipt,
before accomplishing it; and where in obedience to
this precept a shortage is noted by the consignee upon
the bill of lading at the time of delivery, such notation
is competent evidence to show that the shortage in fact
existed.
2 LOSS OR DAMAGE TO GOODS IN TRANSIT;
LIABILITY OF CARRIER.—Proof of the delivery of
goods in good order to a carrier, and of their arrival at
the place of destination short or in bad order, makes
out a prima facie case; and it is incumbent on the
carrier, in order to exonerate itself, to prove that the
loss or injury was due to some circumstance
inconsistent with its liability
3. FREIGHT DUE TO CARRIER; SET-OFF FOR
LOSS OR DAMAGE IN TRANSIT—The Purchasing
Agent, under the direction of the Insular Auditor, may
properly deduct from the freight due to a common
carrier for the transportation of Government property
any sum for which the carrier is liable to the
Government for loss, shortage, or damage occurring in
course of the transportation of the same property.
4 MANDAMUS; COMMON CARRIER; CLAIM
AGAINST .GOVERNMENT; BURDEN OF
PROOF.—A common carrier cannot maintain an
action for the writ of mandamus to compel .the
Purchasing Agent to pay a bill for freight due to the
carrier, under the doctrine enunciated in Compañía
General de Tabacos vs. French and Unson (39 Phil,
34), without showing that the loss, shortage, or
damage suffered by the property while in the hands of
the carrier for transportation resulted from some other
cause than its own fault or negligence.
Mirasol v. Dollar, 53 Phil 125
1. WHEN SHIPPER IS NOT BOUND.—Where it
appears that a bill of lading was issued to a shipper
containing a clause limiting the carrier's liability,
printed in fine letters on the back of the bill of lading,
which he did not sign and of which he was not advised,
in an action for damages, the shipper is not bound by
the clause which limits the carrier's liability.
2. WHEN BURDEN OF PROOF IS SHIFTED.—
Shippers who are forced to ship goods on an ocean
liner, have some legal rights, and when goods are
delivered on board ship in good order and condition,
and the shipowner delivers them to the shipper in bad
order and condition, in an action for damages, the
burden of proof is then shifted, and it devolves upon
the shipowner to both allege and prove that the goods
were damaged by reason of some act which legally
exempts him from liability.
3. REASON FOR RULE.—As to when and how goods
were damaged in transit is a matter peculiarly within
the knowledge of the shipowner and his employees,
and to require the plaintiff to prove as to when and how
the damage was done would force him to rely upon the
employees of the defendant's ship which in legal effect
would be to say that he cannot recover damages for
any reason.
2) Exemption from liability
1. Natural Disaster
Arts. 1734 (1), 1739, 1740;; Art. 361, Code of
Commerce
Tan Chiong v. Inchausti, 22 Phil 153
1. COMMON CARRIERS; Loss OF SHIP AND
CARGO; FORCE MAJEURE.—Loss of a ship and of
its cargo, in a wreck due to accident or force majeure
must, as a general rule, fall upon their respective
owners, except in cases where the wrecking or
stranding of the vessel occurred through malice,
carelessness or lack of skill on the part of the captain
and in the remaining cases indicated in article 841 of
the Code of Commerce.
2. EXEMPTION FROM LIABILITY.—Under article
361 of the Code of Commerce transportation of
merchandise is for account, risk and hazard of the
shipper, unless the contrary has been expressly
stipulated. The carrier is exempt from liability if he
prove, as it is incumbent upon him to do, that the loss
or destruction of the merchandise was due to accident
and force majeure and not to fraud, fault, or negligence
on the part of the captain or owners of the ship.
Martini v. Macondray, 39 Phil. 934
SHIPPING; DECK CARGO; DAMAGE
RESULTING FROM ACTION OF ELEMENTS. —
Where cargo is, with the owner's consent,
transported on the deck of a sea-going vessel upon a
bill of lading exempting the ship's company from
liability for damage, the risk of any damage
resulting from carriage on deck, such as the damage
caused by rain or the splashing aboard of sea water,
must be borne by the owner.
Eastern Shipping v. IAC, 150 SCRA 463
Under the Civil Code, common carriers, from the
nature of their business and for reasons of public
policy, are bound to observe extraordinary
diligence in the vigilance over goods, according to all
the circumstances of each case. Common carriers are
responsible for the loss, destruction, or deterioration of
the goods unless the same is due to any of the causes
provided by law (flood, storm, earthquake,
lightning or other natural disaster or calamity)
As the peril of the fire is not comprehended within
the exception in Article 1734, Article 1735 of the
Civil Code provides that all cases than those mention
in Article 1734, the common carrier shall be presumed
to have been at fault or to have acted negligently,
unless it proves that it has observed the extraordinary
diligence required by law.
And even if fire were to be considered a "natural
disaster" within the meaning of Article 1734 of the
Civil Code, it is required under Article 1739 of the
same Code that the "natural disaster" must have
been the "proximate and only cause of the loss,"
and that the carrier has "exercised due diligence to
prevent or minimize the loss before, during or after
the occurrence of the disaster.”
Asia Lighterage v. Court of Appeals, 409 SCRA 340
REQUIRED TO OBSERVE EXTRAORDINARY
DILIGENCE; PRESUMPTION OF NEGLIGENCE
IN CASE OF LOSS, DESTRUCTION OR
DETERIORATION OF GOODS; EXCEPTIONS. —
Common carriers are bound to observe
extraordinary diligence in the vigilance over the
goods transported by them. They are presumed to
have been at fault or to have acted negligently if the
goods are lost, destroyed or deteriorated. To
overcome the presumption of negligence in the case of
loss, destruction or deterioration of the goods,
deterioration of the goods, the common carrier must
prove that it exercised extraordinary diligence. There
are, however, exceptions to this rule. Article 1734 of
the Civil Code enumerates the instances when the
presumption of negligence does not attach: Art. 1734.
Common carriers are responsible for the loss,
destruction, or deterioration of the goods, unless the
same is due to any of the following causes only: (1)
Flood, storm, earthquake, lightning, or other natural
disaster or calamity; (2) Act of the public enemy in
war, whether international or civil; (3) Act or omission
of the shipper or owner of the goods; (4) The character
of the goods or defects in the packing or in the
containers; (5) Order or act of competent public
authority.
TYPHOON; NOT APPRECIATED IN THE
ABSENCE OF PROOF THAT IT WAS THE
PROXIMATE AND ONLY CAUSE OF LOSS AND
DUE DILIGENCE EXERCISED BEFORE,
DURING AND AFTER THE TYPHOON. — In the
case at bar, the barge completely sank after its towing
bits broke, resulting in the total loss of its cargo.
Petitioner claims that this was caused by a typhoon,
hence, it should not be held liable for the loss of the
cargo. However, petitioner failed to prove that the
typhoon is the proximate and only cause of the loss of
the goods, and that it has exercised due diligence
before, during and after the occurrence of the typhoon
to prevent or minimize the loss. The evidence show
that, even before the towing bits of the barge broke, it
had already previously sustained damage when it hit a
sunken object while docked at the Engineering Island.
It even suffered a hole. Clearly, this could not be solely
attributed to the typhoon. The partly-submerged vessel
was refloated but its hole was patched with only clay
and cement. The patch work was merely a provisional
remedy, not enough for the barge to sail safely. Thus,
when petitioner persisted to proceed with the voyage,
it recklessly exposed the cargo to further damage.
2. Act of public enemy – Art.1734(2),1739
3. Act of omission of shipper –
Art.1734(3),1741
4. Character of Goods,etc
Arts. 1734(4), 1742
Art. 366, Code of Commerce
Government v. Ynchausti, 40 Phil 219
SHIPPERS AND SHIPPING; COMMON
CARRIERS, LIABILITY OF; BILL OF LADING;
NEGLIGENCE, PRESUMPTION OF; WHO MUST
PROVE NEGLIGENCE WHEN MERCHANDISE IS
DAMAGED. — A bill of lading is a contract and the
parties thereto are bound by its terms. Merchandise is
transported at the risk and venture of the shipper, if the
contrary does not appear in the bill of lading.
All damages and impairment suffered by merchandise
in transportation by reason of accident, force majeure,
or by virtue of the nature or defect of the articles, shall
be at the risk and account of the shipper.
The burden of proof that damages were caused by the
negligence of the carrier is upon the shipper. In this
jurisdiction there is no presumption of negligence on
the part of the common carrier in cases like the present.
Southern Lines v. CA, 4 SCRA 258
COMMON CARRIERS; LIABILITY FOR
DAMAGES TO GOODS; ARTICLES 361 AND 362
OF THE CODE OF COMMERCE. — Under Article
361 of the Code of Commerce, the defendant-carrier,
in order to free itself from liability, was only obliged
to prove that the damages suffered by the goods were
"by virtue of the nature or defect of the articles." Under
the provisions of Article 362, the plaintiff, in order to
hold the defendant liable, was obliged to prove that the
damages to the goods by virtue of their nature,
occurred on account of its negligence or because the
defendant did not take the precaution adopted by
careful persons. (Government vs. Ynchausti & Co., 40
Phil., 219, 223).
CARRIER NOT RELIEVED FROM LIABILITY IF
IMPROPER PACKING OF GOODS WAS
APPARENT. — If the fact of improper packing is
known to the carrier or his servants, or apparent upon
ordinary observation, but it accepts the goods
notwithstanding such condition, it is not relieved of
liability for loss or injury resulting therefrom. (9
am. Jur., 869).
5. Order Of Competent Authority
Arts. 1734(5), 1743
Ganzon v. Court of Appeals, 161 SCRA 646
Loss of the scraps not due to caso fortuito.—We
cannot sustain the theory of caso fortuito. In the courts
below, the petitioner’s defense was that the loss of the
scraps was due to an “order or act of competent public
authority,” and this contention was correctly passed
upon by the Court of Appeals.
Change of theory on appeal, not allowed; Intervention
of municipal officials, not of a character that would
render impossible the fulfillment by the carrier of its
obligations.—Now the petitioner is changing his
theory to caso fortuito. Such a change of theory on
appeal we cannot, however, allow. In any case, the
intervention of the municipal officials was not of a
character that would render impossible the fulfillment
by the carrier of its obligation. The petitioner was not
duty bound to obey the illegal order to dump into the
sea the scrap iron. Moreover, there is absence of
sufficient proof that the issuance of the same order was
attended with such force or intimidation as to
completely overpower the will of the petitioner’s
employees. The mere difficulty in the fulfillment of
the obligation is not considered force majeure. We
agree with the private respondent that the scraps could
have been properly unloaded at the shore or at the
NASSCO compound, so that after the dispute with the
local officials concerned was settled, the scraps could
then be delivered in accordance with the contract of
carriage.
3) Duration of Extraordinary Responsibility
Arts. 1736 to 1738
Compania Maritima v. Insurance Company, 12
SCRA 213
The receipt of goods by the carrier has been said to lie
at the foundation of the contract to carry and deliver,
and if actually no goods are received there can be no
such contract. The liability and responsibility of the
carrier under a contract for the carriage of goods
commence on their actual delivery to, or receipt by,
the carrier or an authorized agent. ... and delivery to a
lighter in charge of a vessel for shipment on the vessel,
where it is the custom to deliver in that way, is a good
delivery and binds the vessel receiving the freight, the
liability commencing at the time of delivery to the
lighter. ... and, similarly, where there is a contract to
carry goods from one port to another, and they cannot
be loaded directly on the vessel and lighters are sent
by the vessel to bring the goods to it, the lighters are
for the time its substitutes, so that the bill of landing is
applicable to the goods as soon as they are placed on
the lighters.
Lu Do v. Binamira, 101 Phil 120
A common carrier is responsible for the loss,
destruction or deterioration of the goods it assumes to
carry from one place to another unless the same is due
to any to any of the causes mentioned in Article 1734
on the new Civil Code, and that, if the goods are lost,
destroyed or deteriorated, for causes other that those
mentioned, the common carrier is presumed to have
been at fault or to have acted negligently, unless it
proves that it has observed extraordinary diligence in
their care (Article 1735, Idem.), and that this
extraordinary liability lasts from the time the goods are
placed in the possession of the carrier until they are
delivered to the consignee, or "to the person who has
the right to receive them" (Article 1736, Idem.), but
these provisions only apply when the loss, destruction
or deterioration takes place while the goods are in the
possession of the carrier, and not after it has lost
control of them. The reason is obvious. While the
goods are in its possession, it is but fair that it exercise
extraordinary diligence in protecting them from
damage, and if loss occurs, the law presumes that it
was due to its fault or negligence. This is necessary to
protect the interest the interest of the owner who is at
its mercy. The situation changes after the goods are
delivered to the consignee.
APL v. Klepper, 110 Phil 243
The responsibility of a common carrier is
extraordinary and lasts from the time the goods are
placed in its possession until they are delivered,
actually or constructively, to the consignee or to the
person who has a right to receive them. It can only be
exempt therefrom for causes enumerated in Article
1734 of the New Civil Code.
Where the bill of lading provides that a shipper or
consignee who accepts the bill becomes bound by all
the stipulations contained therein, the said shipper or
consignee cannot elude its provisions simply because
they prejudice him and take advantage of those that are
beneficial to him. In the case at bar, the fact that the
shipper and consignee paid the corresponding freight
on his goods, shows that he impliedly accepted the bill
of lading which was issued in connection with his
shipment. Hence, the same is binding upon him as if it
had been actually signed by him or by any person in
his behalf.
Samar Mining Co., Inc. v. Nordeutscher Lloyd, 132
SCRA 529 (GR L-28673;; 10/23/84)
The liability of the common carrier for the loss,
destruction or deterioration of goods transported from
a foreign country to the Philippines is governed
primarily by the New Civil Code. In all matters not
regulated by said Code, the rights and obligations of
common carriers shall be governed by the Code of
Commerce and by special laws. The moment when the
subject goods are discharged in Manila, its personality
changes from that of the carrier to that of agent of the
consignee. Thus, the character of NORDEUTSCHER
LLOYD’s possession also changes, from possession in
its own name as carrier, into possession in the name of
consignee (Samar Mining) as the latter's agent. Such
being the case, there was, in effect, actual delivery of
the goods from NORDEUTSCHER LLOYD’s as
carrier to the same NORDEUTSCHER LLOYD’s as
agent of the consignee. Upon such delivery, the
appellant, as erstwhile carrier, ceases to be responsible
for any loss or damage that may befall the goods from
that point onwards.
Eastern Shipping v. CA, 234 SCRA 79 (GR 97412;;
7/12/94)
The common carrier's duty to observe the requisite
diligence in the shipment of goods lasts from the time
the articles are surrendered to or unconditionally
placed in the possession of, and received by, the carrier
for transportation until delivered to, or until the lapse
of a reasonable time for their acceptance by, the person
entitled to receive them. Since it is the duty of the
ARRASTRE to take good care of the goods that are in
its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the
CARRIER. Both the ARRASTRE and the CARRIER
are therefore charged with the obligation to deliver the
goods in good condition to the consignee.
4) Agreement Limiting Liability
a) Astro Diligence Required
Arts. 1744, 1745, 1751
b) Astro Amount Of Liability
Arts 1749 and 1750
Heacock v. Macondray 42 Phil 205
A common carrier, by stipulations limit in its bill of
lading may limit its liability for the loss of or damage
to the cargo for so long as it falls within the third kind
of stipulation. Three kinds of stipulations have often
been made in a bill of lading. The first is one
exempting the carrier from any and all liability for loss
or damage occasioned by its own negligence. The
second is one providing for an unqualified limitation
of such liability to an agreed valuation. And the third
is one limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value
and pays a higher rate of freight. According to an
almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being
contrary to public policy, but the third is valid and
enforceable.
Shewaram v. PAL 17 SCRA 606
Common carriers; When limitation of carrier’s
liability clause printed at the back of the ticket stub is
not binding.—Under Article 1760 of the New Civil
Code, the pecuniary liability of a common carrier may
by contract be limited to a fixed amount provided that
the contract is reasonable and just under the
circumstances and has been fairly and freely agreed
upon. Where the conditions printed at the back of a
ticket stub are in letters so small that they are hard to
read, this would not warrant the presumption that the
passenger was aware of those conditions such that he
had “fairly and freely agreed” to them. He is not and
cannot, therefore, be bound, by the conditions of
carriage found at the back of the ticket stub.
Carrier cannot limit its liability for loss due to its
negligence.—Where the transistor radio and the
camera of the passenger was lost as a result of the
negligence of the common carrier, its liability is
clear—it must pay the passenger the value of those two
articles. The carrier cannot limit its liability for injury
to or loss of goods shipped where such injury or loss
was caused by its own negligence.
Ong Yiu v. CA, 91 SCRA 223
Transportation; Breach of contract of
transportation; Bad faith, Concept of; No bad faith
committed when airline company exerted due
diligence with its duty in locating a passenger’s lost
luggage; Case at bar.—From the facts of the case, we
agree with respondent Court that PAL had not acted in
bad faith. Bad faith means a breach of a known duty
through some motive of interest or ill will. It was the
duty of PAL to look for petitioner’s luggage which had
been miscarried. PAL exerted due diligence in
complying with such duty.
Moral Damages; No award of moral damages
when bad faith is absent.—In the absence of a
wrongful act or omission or of fraud or bad faith,
petitioner is not entitled to moral damages.
Exemplary Damages; Exemplary damages not
awarded when defendant had not acted fraudulently
or oppressively.—Petitioner is neither entitled to
exemplary damages. In contracts, as provided for in
Article 2232 of the Civil Code, exemplary damages
can be granted if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent
manner, which has not been proven in this case.
Contracts of adhesion; Philippine Air Lines’
limited carriage liability of P100.00 for loss or delay
of its passengers’ baggage held valid and binding
absent higher value declared for luggage and actual
value of goods lost.—While it may be true that
petitioner had not signed the plane ticket (Exh. “12”),
he is nevertheless bound by the provisions thereof.
“Such provisions have been held to be a part of the
contract of carriage, and valid and binding upon the
passenger regardless of the latter’s lack of knowledge
or assent to the regulation”. It is what is known as a
contract of “adhesion”, in regards which it has been
said that contracts of adhesion wherein one party
imposes a ready made form of contract on the other, as
the plane ticket in the case at bar, are contracts not
entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he
adheres, he gives his consent. “a contract limiting
liability upon an agreed valuation does not offend
against the policy of the law forbidding one from
contracting against his own negligence.”
Pan Am v. IAC, 164 SCRA 268
Common Carrier; Liability for lost of baggage; Ruling
in Ong Yiu vs. Court of Appeals sustaining the validity
of a printed stipulation at the back of an airline ticket
limiting liability of the carrier for lost baggage to a
specified amount and that the liability limited to said
amount since the passenger did not declare a higher
value much less pay additional charges squarely
applicable to the instant case.—
Fact that petitioner had not signed the plane ticket he
is nevertheless bound by the provisions thereof. “Such
provisions have been held to be a part of the contract
of carriage, and valid and binding upon the passenger
regardless of the latter’s lack of knowledge or assent
to the regulation.”
It is what is known as a contract of “adhesion,” in
regards which it has been said that contracts of
adhesion wherein one party imposes a ready made
form of contract on the other, as the plane ticket in the
case at bar, are contracts not entirely prohibited, the
one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent.
Under Art. 1107 of the Civil Code, a debtor in good
faith like the defendant herein, may be held liable only
for damages that were foreseen or might have been
foreseen at the time the contract of transportation was
entered into. The trial court correctly found that the
defendant company could not have foreseen the
damages that would be suffered by Mendoza upon
failure to deliver the can of film.
Cathay Pacific v. CA, 219 SCRA 520
Civil Law; Common Carriers; Contract of Carriage;
Failure of common carrier to deliver luggage of
passenger at designated place and time constitutes a
breach of contract of carriage.—Petitioner breached
its contract of carriage with private respondent When
it failed to deliver his luggage at the designated place
and time, it being the obligation of a common carrier
to carry its passengers and their luggage sefely to their
destination, which includes the duty not to delay their
transportation, and the evidence shows that petitioner
acted fraudulently or in bad faith.
Moral Damages; When recoverable.—Moral
damages predicated upon a breach of contract of
carriage may only be recoverable in instances where
the mishap results in death of a passenger, or where
the carrier is guilty of fraud or bad faith.
Discourteous and arbitrary conduct of common
carrier's personnel amounts to bad faith entitling
passenger's recovery for moral damages.—While the
mere failure of CATHAY to deliver respondent's
luggage at the agreed place and time did not ipso facto
amount to willful misconduct since the luggage was
eventually delivered to private respondent, albeit
belatedly, We are persuaded that the employees of
CATHAY acted in bad faith. xxx The language and
conduct of petitioner's representative towards
respondent Alcantara was discourteous or arbitrary to
justify the grant of moral damages. The CATHAY
representative was not only indifferent and impatient;
he was also rude and insulting.
In the absence of fraud or bad faith in breaching
contract of carriage, liability of common carrier
limited to natural and probable consequences of said
breach, otherwise, moral and exemplary damages are
recoverable.—Where in breaching the contract of
carriage the defendant airline is not shown to have
acted fraudulently or in bad faith, liability for damages
is limited to the natural and probable consequences of
the breach of obligation which the parties had foreseen
or could have reasonably foreseen. In that case, such
liability does not include moral and exemplary
damages. Conversely, if the defendant airline is shown
to have acted fraudulently or in bad faith, the award of
moral and exemplary damages is proper.
MIDTERM EXAMINATION
c) As to delay in delivery
Maersk Line v. Court of Appeals, 222 SCRA 108 (GR
94761;; 5/17/93)
Civil Law; Common Carriers; In the absence of an
undertaking by a common carrier to deliver at a given
date or time, delivery of shipment or cargo should at
least be made within a reasonable time.—While it is
true that common carriers are not obligated by law to
carry and to deliver merchandise, and persons are not
vested with the right to prompt delivery, unless such
common carriers previously assume the obligation to
deliver at a given date or time (Mendoza v. Philippine
Air Lines, Inc., 90 Phil. 836 [1952]), delivery of
shipment or cargo should at least be made within a
reasonable time.
In the case before us, we find that a delay in the
delivery of the goods spanning a period of two (2)
months and seven (7) days falls way beyond the realm
of reasonableness.
Damages; Failure of the petitioner to explain cause of
delay in the delivery of subject shipment makes it
liable for breach of contract of carriage through gross
negligence amounting to bad faith, entitling
respondent’s recovery of moral damages.—Petitioner
never even bothered to explain the cause for the delay,
i.e. more than two (2) months, in the delivery of the
subject shipment. Under the circumstances of the case,
we hold that petitioner is liable for breach of contract
of carriage through gross negligence amounting to bad
faith. Thus, the award of moral damages is therefore
proper in this case.
The unexplained mishipment of the subject goods
committed by the common carrier constitutes gross
carelessness or negligence amounting to wanton
misconduct which justifies an award of exemplary
damages to the aggrieved party.—In line with this
pronouncement, we hold that exemplary damages may
be awarded to the private respondent. In contracts,
exemplary damages may be awarded if the defendant
acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. There was gross negligence on the
part of the petitioner in mishipping the subject goods
destined for Manila but was inexplicably shipped to
Richmond, Virginia, U.S.A. Gross carelessness or
negligence constitutes wanton misconduct, hence,
exemplary damages may be awarded to the aggrieved
party
d) Factors Affecting Agreement
Arts. 1746, 1747, 1748, 1751, 1752
e) Applicable Law in Foreign Trade
Art. 1753
f) Rules on Passenger Baggage
Arts. 1754, 1998, 2000 to 2003
C. Common Carriage of Passengers
1) Nature and extent of responsibility
Arts. 1733, 1755
Isaac v. A.L. Amnen Trans Co., 101 Phil. 1046
PRINCIPLES GOVERNING LIABILITY OF
COMMON CARRIER.·
The Principles governing the liability of a common
carrier:
(1) the liability of a carrier is contractual and
arises upon breach of its obligation. There is
a breach if it fails to exert extraordinary
diligence according to all the circumstances
of each case;
(2) a carrier is obliged to carry its passenger
with the utmost diligence of a very cautious
person, having due regard for all
circumstances;
(3) a carrier is presumed to be at fault or to
have acted negligently in case of death of, or
injury to, passengers, it being its duty to
prove that it exercised extraordinary
diligence; and
(4) the carrier is not an insurer against all
risks of travel.
Landingin v. Pantranco, 33 SCRA 284
Common carrier; Duty of common carriers.—A
common carrier is duty bound to carry its passengers
"safely as far as human care and foresight can provide,
using the utmost diligence of very cautious .persons,
with a due regard for all the circumstances/' (Article
1755, Civil Code.)
Accident caused by defects of motor vehicle.—ln
Lasam vs. Smith, 45 Phil. 660, this Supreme Court
held that an accident caused by defects in the
automobile is not a caso fortuito. The rationale of the
carrier's liability is the fact that "the passenger has
neither the choice nor control over the carrier in the
selection and use of the equipment and appliances in
use by the carrier.
Presumption of negligence of common carrier;
How rebutted.—When a passenger dies or is injured,
the presumption is that the common carrier is at fault
or that it acted negligently, This presumption is only
rebutted by proof on the carrier's part that it observed
the "extraordinary diligence" required in Article 1733
and the "utmost diligence of very cautious persons"
required in Article 1755,
Landicho v. BTCo., 52 OG 7640
Nature and extent of liability
A common carrier is duty bound to safely transport its
passengers from point of origin to place of destination,
but the duty does not encompass all the risks of a
passenger in transit(common carrier is not an insurer
of all risks). A carrier cannot be charged with all the
diligence for each and every passenger. It is enough
that its employees see to it that the passenger places
himself safely in the vehicle, that it is operated
carefully, and that the vehicle is not defective, so as to
avoid mishaps. It would be unreasonable to expect
common carriers to foresee that a passenger will
become dizzy or sleepy in transit
Necesito v. Paras, 104 Phil 75
Nature and extent of liability.
The rationale of the carrier's liability is the fact that the
passenger has neither choice nor control over the
carrier in the selection and use of the equipment and
appliances in use by the carrier. Having no privity
whatsoever with the manufacturer or vendor of the
defective equipment, the passenger has no remedy
against him, while the carrier usually has. It is but
logical, therefore, that the carrier, while not an insurer
of the safety of his passengers, should nevertheless be
held to answer for the flaws of his equipment if such
flaws were at all discoverable.
PAL v. CA, 106 SCRA 391
The duty of a common carrier, like PAL, to exercise
the highest degree of diligence extends to passengers
and crew members.
The duty to exercise the utmost diligence on the part
of common carriers is for the safety of passengers as
well as for the members of the crew or the complement
operating the carrier, the airplane in the case at bar.
And this must be so for any omission, lapse or neglect
thereof will certainly result in the damage, prejudice,
nay injuries and even death to all aboard the plane,
passengers and crew members alike.
Sulpicio v. CA, 246 SCRA 229
A common carrier is liable as such to a stevedore who
was hired by a shipper to help load cargo, even if
such stevedore was not himself a passenger.
Where a common carrier fails to exercise due
diligence in the supervision of its employees, it could
be held liable for damages for the resulting harm to
others. It is not enough that appellant’s employees
have warned the laborers not to enter the barge after
the hatch was opened. Appellant’s employees should
have been sufficiently instructed to see to it that the
hatch of the barge is not opened by any unauthorized
person and that the hatch is not easily opened by
anyone. Failing to exercise due diligence in the
supervision of its employees, the lower court was
correct in holding appellant liable for damages.
Sulpicio Lines, Inc. failed to prove that its employees
were actually trained or given specific instructions to
see to it that the barge is fit and safe not only in
transporting goods but also for people who would be
loading the cargo into the bodega of the barge.
Japan Airlines v. Court of Appeals, 449 SCRA 544
When an airline issues a ticket to a passenger,
confirmed for a particular flight on a certain date, a
contract of carriage arises and the passenger has
every right to expect that he be transported on that
flight and on that date and it becomes the carrier’s
obligation to carry him and his luggage safely to the
agreed destination.
Under Article 1755 of the Civil Code, a common
carrier such as JAL is bound to carry its passengers
safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons,
with due regard for all the circumstances. When an
airline issues a ticket to a passenger, confirmed for a
particular flight on a certain date, a contract of carriage
arises. The passenger has every right to expect that he
will be transported on that flight and on that date and
it becomes the carrier’s obligation to carry him and his
luggage safely to the agreed destination. If the
passenger is not so transported or if in the process of
transporting he dies or is injured, the carrier may be
held liable for a breach of contract of carriage.
 2) Duration of responsibility
Art. 1736, Civil Code
Cangco v. MRR, 38 Phil. 767
The Court not only spoke of the duty of the carrier to
provide safe means of egress as being part of the
contractual undertaking assumed by common carriers,
but held that the failure of the carrier to maintain its
platform as it would afford "safe means of
approaching and leaving its trains" made it liable.
Therefore, the company is liable for damages against
Cangco which arises from the breach of that contract
by reason of Manila Railroad’s failure to exercise due
care in its performance
Del Prado v. Meralco, 52 Phil 900
The relation between a carrier of passengers for hire
and its patrons is of a contractual nature; and the
failure upon part of the carrier to use due care in
conveying its passengers safely is a breach of
obligation under provisions of the Civil Code.
Furthermore, the duty that the carrier of passengers
owes to its patrons extends to persons boarding the
cars as well as to those alighting therefrom.
La Mallorca v. Court of Appeals, 17 SCRA 739
The presence of passengers near the bus which was not
unreasonable are to be considered still as passengers
of the carrier, entitled to the protection under the
contract of carriage. The relation of carrier and
passenger does not cease at the moment the passenger
alights from the carrier's vehicle at a place selected by
the carrier at the point of destination, but continues
until the passenger has had a reasonable time or a
reasonable opportunity to leave the carrier's premises.
And, what is a reasonable time or a reasonable delay
within this rule is to be determined from all the
circumstances.
Bataclan v. Medina, 102 Phil 181
When a vehicle turned not only on its side but
completely on its back, the leaking of the gasoline
from the tank was not unnatural or unexpected; that
the coming of the men with the lighted torch was in
response to the call for help, made not only by the
passengers, but most probably by the driver and the
conductor themselves, and that because it was very
dark (about 2:30 in the morning), the rescuers had to
carry a light with them; and coming as they did from a
rural area where the lanterns and flashlights were not
available, they had to use a torch the most handy and
available; and what was more natural, that said
rescuers should innocently approached the overtuned
vehicle to extend the aid and effect the rescue
requested from them.
Held: That the proximate cause of the death of B was
overturning of the vehicle thru the negligence of
defendant and his agent.
The burning of the bus wherein some of the passengers
were trapped can also be attributed to the
negligence of the carrier, through the driver and
conductor who were on the road walking back and
forth. They should and must have known that in the
position in which the overtuned bus was, gasoline
could and must have leaked from the gasoline tank and
soaked the area in and around the bus, this aside from
the fact that gasoline when spilled, especially over a
large area, can be smelt and detected even from a
distance
Held: That the failure of the driver and the conductor
to have cautioned or taken steps to warn the rescuers
not to bring the lighted torch too near the bus,
constitute negligence on the part of the agents of the
carrier under the provisions of the Civil Code,
particularly, Article 1733, 1759 and 1763 thereof.
Aboitiz v. CA, 179 SCRA 95
The rule is that the relation of carrier and passenger
continues until the passenger has landed at the port of
destination and has left the vessel owner's dock or
premises. Once created, the relationship will not
ordinarily terminate until the passenger has, after
reaching his destination, safely alighted from the
carrier's conveyance or had a reasonable opportunity
to leave the carrier's premises. All persons who remain
on the premises a reasonable time after leaving the
conveyance are to be deemed passengers, and what is
a reasonable time or a reasonable delay within this rule
is to be determined from all the circumstances, and
includes a reasonable time to see after his baggage and
prepare for his departure.
When the accident occurred, the victim was in the act
of unloading his cargoes, which he had every right to
do, from petitioner's vessel. It is not definitely shown
that one (1) hour prior to the incident, the victim had
already disembarked from the vessel.
Presumption is established by law that in case of a
passenger's death or injury the operator of the vessel
was at fault or negligent, having failed to exercise
extraordinary diligence, and it is incumbent upon it to
rebut the same.
Philippine Airlines v. CA, 226 SCRA 423
Petitioner contends that under the Warsaw
Convention, its liability, if any, cannot exceed US
$20.00 based on weight as private respondent Co did
not declare the contents of his baggage nor pay
additional charges before the flight. We find no merit
in that contention.
In Samar Mining Company, Inc. vs. Nordeutscher
Lloyd, the SC ruled: "The liability of the common
carrier for the loss, destruction or deterioration of
goods transported from a foreign country to the
Philippines is governed primarily by the New Civil
Code. In all matters not regulated by said Code, the
rights and obligations of common carriers shall be
governed by the Code of Commerce and by Special
Laws."
Since the passenger's destination in this case was the
Philippines, Philippine law governs the liability of the
carrier for the loss of the passenger's luggage.
3) Presumption of negligence, Art. 1756
4) Force majeure
Bachelor Express v. CA, 188 SCRA 217
The running amuck of the passenger was the
proximate cause of the incident as it triggered
commotion and panic among the passengers who
started running to the sole exit. The passengers
shoving each other in a rush to get off the bus resulted
in Beter and Rautraut falling off the bus, causing them
fatal injuries. The sudden act of the passenger who
stabbed another passenger in the bus is within the
context of force majeure.
However, in order that a common carrier may be
absolved from liability in case of force majeure, it is
not enough that the accident was caused by force
majeure. The common carrier must still prove that it
was not negligent in causing the injuries resulting from
such accident.
Considering the factual findings of the Court of
Appeals, the bus driver did not immediately stop the
bus at the height of the commotion; the bus was
speeding from a full stop; the victims fell from the bus
door when it was opened or gave way while the bus
was still running; the conductor panicked and blew his
whistle after people had already fallen off the bus; and
the bus was not properly equipped with doors in
accordance with law. It is clear that the petitioners
have failed to overcome the presumption of fault
and negligence found in the law governing common
carriers.
Yobido v. CA, 281 SCRA 1 (GR 113003; 10/17/97)
Fortuitous Events:
(a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with
his obligations, must be independent of human will;
(b) it must be impossible to foresee the event
which constitutes the caso fortuito, or if it can be
foreseen, it must be impossible to avoid;
(c) the occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a
normal manner; and
(d) the obligor must be free from any
participation in the aggravation of the injury resulting
to the creditor.
As Article 1174 provides, no person shall be
responsible for a fortuitous event which could not be
foreseen, or which, though foreseen, was inevitable. In
other words, there must be an entire exclusion of
human agency from the cause of injury or loss.
A common carrier may not be absolved from
liability in case of force majeure or fortuitous event
alone. The common carrier must still prove that it was
not negligent in causing the death or injury resulting
from an accident.
The SC ruled that the blow out was not a fortuitous
event. There are human factors involved in the
situation. The fact that the tire was new did not imply
that it was entirely free from manufacturing defects or
that it was properly mounted on the vehicle. Neither
may the fact that the tire bought and used in the vehicle
is of a brand name noted for quality, resulting in the
conclusion that it could not explode within five days'
use.
An accident caused either by defects in the automobile
or through the negligence of its driver is not a caso
fortuito that would exempt the carrier from liability for
damages.