Republic of the Philippines vs.

SUPREME COURT MANILA ELECTRIC COMPANY (MERALCO), respondent.

Manila
DECISION
THIRD DIVISION
PUNO, J.:
G.R. No. 141314 November 15, 2002
In third world countries like the Philippines, equal justice will have a
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY synthetic ring unless the economic rights of the people, especially the
REGULATORY BOARD petitioner, poor, are protected with the same resoluteness as their right to liberty. The
vs. cases at bar are of utmost significance for they concern the right of our
MANILA ELECTRIC COMPANY, respondent. people to electricity and to be reasonably charged for their consumption.
In configuring the contours of this economic right to a basic necessity of
----------------------------- life, the Court shall define the limits of the power of respondent
MERALCO, a giant public utility and a monopoly, to charge our people
G.R. No. 141369 November 15, 2002 for their electric consumption. The question is: should public interest
prevail over private profits?
LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP)
consisting of CEFERINO PADUA, Chairman, The facts are brief and undisputed. On December 23, 1993, MERALCO
G. FULTON ACOSTA, GALILEO BRION, ANATALIA filed with the ERB an application for the revision of its rate schedules. The
BUENAVENTURA, application reflected an average increase of 21 centavos per kilowatthour
PEDRO CASTILLO, NAPOLEON CORONADO, ROMEO (kwh) in its distribution charge. The application also included a prayer for
ECHAUZ, provisional approval of the increase pursuant to Section 16(c) of the Public
FERNANDO GAITE, ALFREDO DE GUZMAN, ROGELIO Service Act and Section 8 of Executive Order No. 172.
KARAGDAG, JR.,
MA. LUZ ARZAGA-MENDOZA, ANSBERTO PAREDES, On January 28, 1994, the ERB issued an Order granting a provisional
AQUILINO PIMENTEL III, increase of P0.184 per kwh, subject to the following condition.
MARIO REYES, EMMANUEL SANTOS, RUDEGELIO
TACORDA, members, "In the event, however, that the Board finds, after hearing and submission
and ROLANDO ARZAGA, Secretary-General, by the Commission on Audit of an audit report on the books and records of
JUSTICE ABRAHAM SARMIENTO, SENATOR AQUILINO the applicant that the latter is entitled to a lesser increase in rates, all
PIMENTEL, JR. and excess amounts collected from the applicant's customers as a result of this
COMMISSIONER BARTOLOME FERNANDEZ, JR., Board of Order shall either be refunded to them or correspondingly credited in their
Consultants, favor for application to electric bills covering future consumptions."1
and Lawyer GENARO LUALHATI, petitioners,
In the same Order, the ERB requested the Commission on Audit (COA) to
conduct an "audit and examination of the books and other records of
account of the applicant for such period of time, which in no case shall be
less than 12 consecutive months, as it may deem appropriate" and to
submit a copy thereof to the ERB immediately upon completion.2
On February 11, 1997, the COA submitted its Audit Report SAO No. 95-
07 (the "COA Report") which contained, among others, the
recommendation not to include income taxes paid by MERALCO as part
of its operating expenses for purposes of rate determination and the use of
the net average investment method for the computation of the
proportionate value of the properties used by MERALCO during the test
year for the determination of the rate base.3
Subsequently, the ERB rendered its decision adopting the above
recommendations and authorized MERALCO to implement a rate
adjustment in the average amount of P0.017 per kwh, effective with
respect to MERALCO's billing cycles beginning February 1994. The ERB
further ordered that "the provisional relief in the amount of P0.184 per
kilowatthour granted under the Board's Order dated January 28, 1994 is
hereby superseded and modified and the excess average amount of P0.167
per kilowatthour starting with [MERALCO's] billing cycles beginning
February 1994 until its billing cycles beginning February 1998, be
refunded to [MERALCO's] customers or correspondingly credited in their
favor for future consumption."4
The ERB held that income tax should not be treated as operating expense
as this should be "borne by the stockholders who are recipients of the
income or profits realized from the operation of their business" hence,
should not be passed on to the consumers.5 Further, in applying the net
average investment method, the ERB adopted the recommendation of
COA that in computing the rate base, only the proportionate value of the
property should be included, determined in accordance with the number of
months the same was actually used in service during the test year.6
On appeal, the Court of Appeals set aside the ERB decision insofar as
it directed the reduction of the MERALCO rates by an average
of P0.167 per kwh and the refund of such amount to MERALCO's
customers beginning February 1994 and until its billing cycle
beginning February 1998.7 Separate Motions for Reconsideration filed
by the petitioners were denied by the Court of Appeals.8
Petitioners are now before the Court seeking a reversal of the decision of
the Court of Appeals by arguing primarily that the Court of Appeals erred:
a) in ruling that income tax paid by MERALCO should be treated as part
of its operating expenses and thus considered in determining the amount of
increase in rates imposed by MERALCO and b) in rejecting the net
average investment method used by the COA and the ERB and instead
adopted the average investment method used by MERALCO.
We grant the petition.
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. The
regulation is to promote the common good. Submission to regulation may
be withdrawn by the owner by discontinuing use; but as long as use of the
property is continued, the same is subject to public regulation.9
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
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rendered.10 The fixing of just and reasonable rates involves a balancing of
the investor and the consumer interests.11
In his famous dissenting opinion in the 1923 case of Southwestern Bell
Tel. Co. v. Public Service Commission,12 Mr. Justice Brandeis wrote:
"The thing devoted by the investor to the public use is not specific
property, tangible and intangible, but capital embarked in an enterprise.
Upon the capital so invested, the Federal Constitution guarantees to the
utility the opportunity to earn a fair return… The Constitution does not
guarantee to the utility the opportunity to earn a return on the value of all
items of property used by the utility, or of any of them.
….
The investor agrees, by embarking capital in a utility, that its charges to
the public shall be reasonable. His company is the substitute for the
State in the performance of the public service, thus becoming a public
servant. The compensation which the Constitution guarantees an
opportunity to earn is the reasonable cost of conducting the business."
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.13
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.14 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.15
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.16 In one case, 17 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."18
In the cases at bar, findings and conclusions of the ERB on the rate that
can be charged by MERALCO to the public should be respected.19 The
function of the court, in exercising its power of judicial review, is to
determine whether under the facts and circumstances, the final order
entered by the administrative agency is unlawful or unreasonable.20 Thus,
to the extent that the administrative agency has not been arbitrary or
capricious in the exercise of its power, the time-honored principle is that
courts should not interfere. The principle of separation of powers dictates
that courts should hesitate to review the acts of administrative officers
except in clear cases of grave abuse of discretion.21
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.22 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.23 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
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utilities.24 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.25
In the cases at bar, the resolution of the issues involved hinges on the
determination of the kind and the amount of operating expenses that
should be allowed to a public utility to generate a fair return and the proper
valuation of the rate base or the value of the property entitled to a return.
I customers of a public utility for the taxes paid by such entity and no direct
Income Tax as Operating Expense Cannot be Allowed For Rate-
Determination Purposes
In determining whether or not a rate yields a fair return to the utility, the
operating expenses of the utility must be considered. The return allowed to
a public utility in accordance with the prescribed rate must be sufficient to
provide for the payment of such reasonable operating expenses incurred by
the public utility in the provision of its services to the public. Thus, the
public utility is allowed a return on capital over and above operating
expenses. However, only such expenses and in such amounts as are
reasonable for the efficient operation of the utility should be allowed for
determination of the rates to be charged by a public utility.
The ERB correctly ruled that income tax should not be included in the
computation of operating expenses of a public utility. Income tax paid
by a public utility is inconsistent with the nature of operating expenses. In
general, operating expenses are those which are reasonably incurred in
connection with business operations to yield revenue or income. They are
items of expenses which contribute or are attributable to the production of
income or revenue. As correctly put by the ERB, operating expenses
"should be a requisite of or necessary in the operation of a utility,
recurring, and that it redounds to the service or benefit of customers."26
Income tax, it should be stressed, is imposed on an individual or entity as a
form of excise tax or a tax on the privilege of earning income.27 In
exchange for the protection extended by the State to the taxpayer, the
government collects taxes as a source of revenue to finance its activities.
Clearly, by its nature, income tax payments of a public utility are not
expenses which contribute to or are incurred in connection with the
production of profit of a public utility. Income tax should be borne by the
taxpayer alone as they are payments made in exchange for benefits
received by the taxpayer from the State. No benefit is derived by the
contribution is made by the payment of income tax to the operation of a
public utility for purposes of generating revenue or profit. Accordingly,
the burden of paying income tax should be Meralco's alone and
should not be shifted to the consumers by including the same in the
computation of its operating expenses.
The principle behind the inclusion of operating expenses in the
determination of a just and reasonable rate is to allow the public utility to
recoup the reasonable amount of expenses it has incurred in connection
with the services it provides. It does not give the public utility the license
to indiscriminately charge any and all types of expenses incurred without
regard to the nature thereof, i.e., whether or not the expense is attributable
to the production of services by the public utility. To charge consumers for
expenses incurred by a public utility which are not related to the service or
benefit derived by the customers from the public utility is unjustified and
inequitable.
While the public utility is entitled to a reasonable return on the fair value
of the property being used for the service of the public, no less than the
Federal Supreme Court of the United States emphasized: "[t]he public
cannot properly be subjected to unreasonable rates in order simply that
stockholders may earn dividends… If a corporation cannot maintain such a
[facility] and earn dividends for stockholders, it is a misfortune for it and
them which the Constitution does not require to be remedied by imposing
unjust burdens on the public."28
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We are not impressed by the reliance by MERALCO on some American
case law allowing the treatment of income tax paid by a public utility as
operating expense for rate-making purposes. Suffice to state that with
regard to rate-determination, the government is not hidebound to apply any
particular method or formula.29 The question of what constitutes a
reasonable return for the public utility is necessarily determined and
controlled by its peculiar environmental milieu. Aside from the financial
condition of the public utility, there are other critical factors to consider for
purposes of rate regulation. Among others, they are: particular reasons
involved for the request of the rate increase, the quality of services
rendered by the public utility, the existence of competition, the element of
risk or hazard involved in the investment, the capacity of consumers,
etc.30 Rate regulation is the art of reaching a result that is good for the
public utility and is best for the public.
For these reasons, the Court cannot give in to the importunings of
MERALCO that we blindly apply the rulings of American courts on the
treatment of income tax as operating expenses in rate regulation cases. An
approach allowing the indiscriminate inclusion of income tax payments as
operating expenses may create an undesirable precedent and serve as a
blanket authority for public utilities to charge their income tax payments to
operating expenses and unjustly shift the tax burden to the customer. To be
sure, public utility taxation in the United States is going through the eye of
criticism. Some commentators are of the view that by allowing the public
utility to collect its income tax payment from its customers, a form of
"sales tax" is, in effect, imposed on the public for consumption of public
utility services. By charging their income tax payments to their customers,
public utilities virtually become "tax collectors" rather than taxpayers.31 In
the cases at bar, MERALCO has not justified why its income tax should be
treated as an operating expense to enable it to derive a fair return for its
services.
It is also noteworthy that under American laws, public utilities are taxed
differently from other types of corporations and thus carry a heavier tax
burden. Moreover, different types of taxes, charges, tolls or fees are
assessed on a public utility depending on the state or locality where it
operates. At a federal level, public utilities are subject to corporate income
taxes and Social Security taxes—in the same manner as other business
corporations. At the state and local levels, public utilities are subject to a
wide variety of taxes, not all of which are imposed on each state. Thus, it
is not unusual to find different taxes or combinations of taxes applicable to
respective utility industries within a particular state.32 A significant aspect
of state and local taxation of public utilities in the United States is that
they have been singled out for special taxation, i.e., they are required to
pay one or more taxes that are not levied upon other industries. In contrast,
in this jurisdiction, public utilities are subject to the same tax treatment as
any other corporation and local taxes paid by it to various local
government units are substantially the same. The reason for this is that the
power to tax resides in our legislature which may prescribe the limits of
both national and local taxation, unlike in the federal system of the United
States where state legislature may prescribe taxes to be levied in their
respective jurisdictions.
MERALCO likewise cites decisions of the ERB33 allowing the application
of a tax recovery clause for the imposition of an additional charge on
consumers for taxes paid by the public utility. A close look at these
decisions will show they are inappropos. In the said cases, the ERB
approved the adoption of a formula which will allow the public utility to
recover from its customers taxes already paid by it. However, in the cases
at bar, the income tax component added to the operating expenses of a
public utility is based on an estimate or approximate figure of income
tax to be paid by the public utility. It is this estimated amount of income
tax to be paid by MERALCO which is included in the amount of operating
expenses and used as basis in determining the reasonable rate to be
charged to the customers. Accordingly, the varying factual circumstances
in the said cases prohibit a square application of the rule under the
previous ERB decisions.
II
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 Use of "Net Average Investment Method" is Not Unreasonable
In the determination of the rate base, property used in the operation of the
public utility must be subject to appraisal and evaluation to determine the
fair value thereof entitled to a fair return. With respect to those properties
which have not been used by the public utility for the entire duration of the
test year, i.e., the year subject to audit examination for rate-making
purposes, a valuation method must be adopted to determine the
proportionate value of the property. Petitioners maintain that the net
average investment method (also known as "actual number of months
use method") recommended by COA and adopted by the ERB should be
used, while MERALCO argues that the average investment method (also
known as the "trending method") to determine the proportionate value of
properties should be applied.
Under the "net average investment method," properties and equipment
used in the operation of a public utility are entitled to a return only on the
actual number of months they are in service during the period.34 In
contrast, the "average investment method" computes the proportionate
value of the property by adding the value of the property at the beginning
and at the end of the test year with the resulting sum divided by two.35
The ERB did not abuse its discretion when it applied the net average
investment method. The reasonableness of net average investment method
is borne by the records of the case. In its report, the COA explained that
the computation of the proportionate value of the property and equipment
in accordance with the actual number of months such property or
equipment is in service for purposes of determining the rate base is
favored, as against the trending method employed by MERALCO, "to
reflect the real status of the property."36 By using the net average
investment method, the ERB and the COA considered for determination of
the rate base the value of properties and equipment used by MERALCO in
proportion to the period that the same were actually used during the period
in question. This treatment is consistent with the settled rule in rate
regulation that the determination of the rate base of a public utility entitled
to a return must be based on properties and equipment actually being used
or are useful to the operations of the public utility.37
MERALCO does not seriously contest this treatment of actual usage of
property but opposes the method of computation or valuation thereof
adopted by the ERB and the COA on the ground that the net average
investment method "assumes an ideal situation where a utility, like
MERALCO, is able to record in its books within any given month the
value of all the properties actually placed in service during that
month."38 MERALCO contends that immediate recordal in its books of the
property or equipment is not possible as MERALCO's franchise covers a
wide area and that due to the volume of properties and equipment put into
service and the amount of paper work required to be accomplished for
recording in the books of the company, "it takes three to six months (often
longer) before an asset placed in service is recorded in the books" of
MERALCO.39 Hence, MERALCO adopted the "average investment
method" or the "trending method" which computes the average value of
the property at the beginning and at the end of the test year to compensate
for the irregular recording in its books.
MERALCO'S stance is belied by the COA Report which states that the
"verification of the records, as confirmed by the Management Staff,
disclosed that properties are recorded in the books as these are actually
placed in service."40 Moreover, while the case was pending trial before
the ERB, the ERB conducted an ocular inspection to examine the assets in
service, records and books of accounts of MERALCO to ascertain the
physical existence, ownership, valuation and usefulness of the assets
contained in the COA Report.41 Thus, MERALCO's contention that the
date of recordal in the books does not reflect the date when the asset is
placed in service is baseless.
Further, computing the proportionate value of assets used in service in
accordance with the actual number of months the same is used during the
test year is a more accurate method of determining the value of the
properties of a public utility entitled to a return. If, as determined by COA,
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the date of recordal in the books of MERALCO reflects the actual date the
equipment or property is used in service, there is no reason for the ERB to
adopt the trending method applied by MERALCO if a more precise
method is available for determining the proportionate value of the assets
placed in service.
If we were to sustain the application of the "trending method," the public
utility may easily manipulate the valuation of its property entitled to a
return (rate base) by simply including a highly capitalized asset in the
computation of the rate base even if the same was used for a limited period
of time during the test year. With the inexactness of the trending method
and the possibility that the valuation of certain properties may be subject
to the control of and abuse by the public utility, the Court finds no
reasonable basis to overturn the recommendation of COA and the decision
of the ERB.
MERALCO further insists that the Court should sustain the "trending
method" in view of previous decisions by the Public Service Commission
and of this Court which "upheld" the use of this method. By refusing to
adopt the trending method, MERALCO argues that the ERB violated the
rule on stare decisis.
Again, we are not impressed. It is a settled rule that the goal of rate-
making is to arrive at a just and reasonable rate for both the public utility
and the public which avails of the former's products and
services.42 However, what is a just and reasonable rate cannot be fixed by
any immutable method or formula. Hence, it has been held that no public
utility has a vested right to any particular method of
valuation.43 Accordingly, with respect to a determination of the proper
method to be used in the valuation of property and equipment used by a
public utility for rate-making purposes, the administrative agency is not
bound to apply any one particular formula or method simply because the
same method has been previously used and applied. In fact, nowhere in the
previous decisions cited by MERALCO which applied the trending
method did the Court rule that the same should be the only method to be
applied in all instances.
At any rate, MERALCO has not adequately shown that the rates
prescribed by the ERB are unjust or confiscatory as to deprive its
stockholders a reasonable return on investment. 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."44 Thus, the burden is upon the oppositor,
MERALCO, to prove that the rates fixed by the ERB are unreasonable or
otherwise confiscatory as to merit the reversal of the ERB. In the instant
cases, MERALCO was unable to discharge this burden.
WHEREFORE, in view of the foregoing, the instant petitions are
GRANTED and the decision of the Court of Appeals in C.A. G.R. SP No.
46888 is REVERSED. Respondent MERALCO is authorized to adopt a
rate adjustment in the amount of P0.017 per kilowatthour, effective with
respect to MERALCO's billing cycles beginning February 1994. Further,
in accordance with the decision of the ERB dated February 16, 1998, the
excess average amount of P0.167 per kilwatthour starting with the
applicant's billing cycles beginning February 1998 is ordered to be
refunded to MERALCO's customers or correspondingly credited in their
favor for future consumption.
SO ORDERED.
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 Republic of the Philippines bidding of the development, management and operation of the MICT at
SUPREME COURT the Port of Manila, and authorizing the Board Chairman, Secretary
Manila Rainerio O. Reyes, to oversee the preparation of the technical and the
documentation requirements for the MICT leasing as well as to implement
EN BANC this project.

G.R. No. 83551 July 11, 1989 Accordingly, respondent Secretary Reyes, by DOTC Special Order 87-
346, created a seven (7) man "Special MICT Bidding Committee" charged
RODOLFO B. ALBANO, petitioner, with evaluating all bid proposals, recommending to the Board the best bid,
vs. and preparing the corresponding contract between the PPA and the
HON. RAINERIO O. REYES, PHILIPPINE PORTS AUTHORITY, winning bidder or contractor. The Bidding Committee consisted of three
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., E. (3) PPA representatives, two (2) Department of Transportation and
RAZON, INC., ANSCOR CONTAINER CORPORATION, and Communications (DOTC) representatives, one (1) Department of Trade
SEALAND SERVICES. LTD., respondents. and Industry (DTI) representative and one (1) private sector representative.
The PPA management prepared the terms of reference, bid documents and
Vicente Abad Santos for petitioner. draft contract which materials were approved by the PPA Board.

Bautista, Picazo, Buyco & Tan for private respondents. The PPA published the Invitation to Bid several times in a newspaper of
general circulation which publication included the reservation by the PPA
of "the right to reject any or all bids and to waive any informality in the
bids or to accept such bids which may be considered most advantageous to
the government."
PARAS, J.:
Seven (7) consortia of companies actually submitted bids, which bids were
This is a Petition for Prohibition with prayer for Preliminary Injunction or
opened on July 17, 1987 at the PPA Head Office. After evaluation of the
Restraining Order seeking to restrain the respondents Philippine Ports
several bids, the Bidding Committee recommended the award of the
Authority (PPA) and the Secretary of the Department of Transportation
contract to develop, manage and operate the MICT to respondent
and Communications Rainerio O. Reyes from awarding to the
International Container Terminal Services, Inc. (ICTSI) as having offered
International Container Terminal Services, Inc. (ICTSI) the contract for
the best Technical and Financial Proposal. Accordingly, respondent
the development, management and operation of the Manila International
Secretary declared the ICTSI consortium as the winning bidder.
Container Terminal (MICT).
Before the corresponding MICT contract could be signed, two successive
On April 20, 1987, the PPA Board adopted its Resolution No. 850
cases were filed against the respondents which assailed the legality or
directing PPA management to prepare the Invitation to Bid and all relevant
regularity of the MICT bidding. The first was Special Civil Action 55489
bidding documents and technical requirements necessary for the public
for "Prohibition with Preliminary Injunction" filed with the RTC of Pasig

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by Basilio H. Alo, an alleged "concerned taxpayer", and, the second was
Civil Case 88-43616 for "Prohibition with Prayer for Temporary
Restraining Order (TRO)" filed with the RTC of Manila by C.F. Sharp
Co., Inc., a member of the nine (9) firm consortium — "Manila Container
Terminals, Inc." which had actively participated in the MICT Bidding.
Restraining Orders were issued in Civil Case 88-43616 but these were
subsequently lifted by this Court in Resolutions dated March 17, 1988 (in
G.R. No. 82218 captioned "Hon. Rainerio O. Reyes etc., et al. vs. Hon.
Doroteo N. Caneba, etc., et al.) and April 14, 1988 (in G.R. No. 81947
captioned "Hon. Rainerio O. Reyes etc., et al. vs. Court of Appeals, et al.")
On May 18, 1988, the President of the Philippines approved the proposed
MICT Contract, with directives that "the responsibility for planning,
detailed engineering, construction, expansion, rehabilitation and capital
dredging of the port, as well as the determination of how the revenues of
the port system shall be allocated for future port works, shall remain with
the PPA; and the contractor shall not collect taxes and duties except that in
the case of wharfage or tonnage dues and harbor and berthing fees,
payment to the Government may be made through the contractor who shall
issue provisional receipts and turn over the payments to the Government
which will issue the official receipts." (Annex "I").
The next day, the PPA and the ICTSI perfected the MICT Contract (Annex
"3") incorporating therein by "clarificatory guidelines" the aforementioned
presidential directives. (Annex "4").
Meanwhile, the petitioner, Rodolfo A. Albano filed the present petition as
citizen and taxpayer and as a member of the House of Representatives,
assailing the award of the MICT contract to the ICTSI by the PPA. The
petitioner claims that since the MICT is a public utility, it needs a
legislative franchise before it can legally operate as a public utility,
pursuant to Article 12, Section 11 of the 1987 Constitution.
The petition is devoid of merit.
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 a private entity, a contract
entered into by the PPA and such entity constituting substantial
compliance with the law.
1. Executive Order No. 30, dated July 16, 1986, provides:
WHEREFORE, I, CORAZON C. AQUINO, President of
the Republic of the Philippines, by virtue of the powers
vested in me by the Constitution and the law, do hereby
order the immediate recall of the franchise granted to the
Manila International Port Terminals, Inc. (MIPTI) and
authorize the Philippine Ports Authority (PPA) to take
over, manage and operate the Manila International Port
Complex at North Harbor, Manila and undertake the
provision of cargo handling and port related services
thereat, in accordance with P.D. 857 and other applicable
laws and regulations.
Section 6 of Presidential Decree No. 857 (the Revised Charter of the
Philippine Ports Authority) states:
a) The corporate duties of the Authority
shall be:
xxx xxx xxx
(ii) To supervise, control, regulate,
construct, maintain, operate, and provide
such facilities or services as are necessary
in the ports vested in, or belonging to the
Authority.
9|Page
 xxx xxx xxx
(v) To provide services (whether on its
own, by contract, or otherwise) within the
Port Districts and the approaches thereof,
including but not limited to —
— berthing, towing, mooring, moving,
slipping, or docking of any vessel;
— loading or discharging any vessel;
— sorting, weighing, measuring, storing,
warehousing, or otherwise handling
goods.
xxx xxx xxx
b) The corporate powers of the Authority
shall be as follows:
xxx xxx xxx
(vi) To make or enter into contracts of any
kind or nature to enable it to discharge its
functions under this Decree.
xxx xxx xxx
[Emphasis supplied.]
Thus, while the PPA has been tasked, under E.O. No. 30, with the
management and operation of the Manila International Port Complex and
to undertake the providing of cargo handling and port related services
thereat, the law provides that such shall be "in accordance with P.D. 857
and other applicable laws and regulations." On the other hand, P.D. No.
857 expressly empowers the PPA to provide services within Port Districts
"whether on its own, by contract, or otherwise" [See. 6(a) (v)]. Therefore,
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.
2. Even if the MICP be considered a public utility, 1 or a public
service 2 on the theory that it is a "wharf' or a "dock" 3 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)
That the Constitution provides in Art. XII, Sec. 11 that the issuance of a
franchise, certificate or other form of authorization for the operation of a
public utility shall be subject to amendment, alteration or repeal by
Congress does not necessarily, imply, as petitioner posits that only
Congress has the power to grant such authorization. Our statute books are
replete with laws granting specified agencies in the Executive Branch the
power to issue such authorization for certain classes of public utilities. 4
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
10 | P a g e
from Congress to authorize an entity other than the PPA to operate and
manage the MICP becomes unnecessary.
In the instant case, the PPA, in the exercise of the option granted it by P.D.
No. 857, chose to contract out the operation and management of the MICP
to a private corporation. This is clearly within its power to do. Thus, PPA's
acts of privatizing the MICT and awarding the MICT contract to ICTSI are
wholly within the jurisdiction of the PPA under its Charter which
empowers the PPA to "supervise, control, regulate, construct, maintain,
operate and provide such facilities or services as are necessary in the ports
vested in, or belonging to the PPA." (Section 6(a) ii, P.D. 857)
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.
For these reasons the contention that the contract between the PPA and
ICTSI is illegal in the absence of a franchise from Congress appears bereft
of any legal basis.
3. On the peripheral issues raised by the party, the following observations
may be made:
A. 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 5 would constitute sufficient
authority for upholding petitioner's standing. [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.]
B. That certain committees in the Senate and the House of Representatives
have, in their respective reports, and the latter in a resolution as well,
declared their opinion that a franchise from Congress is necessary for the
operation of the MICP by a private individual or entity, does not
necessarily create a conflict between the Executive and the Legislative
Branches needing the intervention of the Judicial Branch. The court is not
faced with a situation where the Executive Branch has contravened an
enactment of Congress. As discussed earlier, neither is the Court
confronted with a case of one branch usurping a power pertaining to
another.
C. Petitioner's contention that what was bid out, i.e., the development,
management and operation of the MICP, was not what was subsequently
contracted, considering the conditions imposed by the President in her
letter of approval, thus rendering the bids and projections immaterial and
the procedure taken ineffectual, is not supported by the established facts.
The conditions imposed by the President did not materially alter the
substance of the contract, but merely dealt on the details of its
implementation.
D. The determination of whether or not the winning bidder is qualified to
undertake the contracted service should be left to the sound judgment of
the PPA. The PPA, having been tasked with the formulation of a plan for
the development of port facilities and its implementation [Sec. 6(a) (i)], is
the agency in the best position to evaluate the feasibility of the projections
of the bidders and to decide which bid is compatible with the development
plan. Neither the Court, nor Congress, has the time and the technical
expertise to look into this matter.
11 | P a g e
Thus, the Court in Manuel v. Villena (G.R. No. L-28218, February 27,
1971, 37 SCRA 745] stated:

[C]ourts, as a rule, refuse to interfere with proceedings

undertaken by administrative bodies or officials in the
exercise of administrative functions. This is so because
such bodies are generally better equipped technically to
decide administrative questions and that non-legal factors,
such as government policy on the matter, are usually
involved in the decisions. [at p. 750.]

In conclusion, it is evident that petitioner has failed to show a clear case of

grave abuse of discretion amounting to lack or excess of jurisdiction as to
warrant the issuance of the writ of prohibition.

WHEREFORE, the petition is hereby DISMISSED.

12 | P a g e
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 119528 March 26, 1997
PHILIPPINE AIRLINES, INC., petitioner,
vs.
CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL
AIRWAYS, INC., respondents.
TORRES, JR., J.:
This Special Civil Action for Certiorari and Prohibition under Rule 65 of
the Rules of Court seeks to prohibit respondent Civil Aeronautics Board
from exercising jurisdiction over private respondent's Application for the
issuance of a Certificate of Public Convenience and Necessity, and to
annul and set aside a temporary operating permit issued by the Civil
Aeronautics Board in favor of Grand International Airways (GrandAir, for
brevity) allowing the same to engage in scheduled domestic air
transportation services, particularly the Manila-Cebu, Manila-Davao, and
converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to
support its petition is the fact that GrandAir does not possess a legislative
franchise authorizing it to engage in air transportation service within the
Philippines or elsewhere. Such franchise is, allegedly, a requisite for the
issuance of a Certificate of Public Convenience or Necessity by the
respondent Board, as mandated under Section 11, Article XII of the
Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise
is no longer a requirement for the issuance of a Certificate of Public
Convenience and Necessity or a Temporary Operating Permit, following
the Court's pronouncements in the case of Albano vs. Reyes, 1 as restated
by the Court of Appeals in Avia Filipinas International vs. Civil
Aeronautics Board 2 and Silangan Airways, Inc. vs. Grand International
Airways, Inc., and the Hon. Civil Aeronautics Board. 3
On November 24, 1994, private respondent GrandAir applied for a
Certificate of Public Convenience and Necessity with the Board, which
application was docketed as CAB Case No. EP-12711. 4 Accordingly, the
Chief Hearing Officer of the CAB issued a Notice of Hearing setting the
application for initial hearing on December 16, 1994, and directing
GrandAir to serve a copy of the application and corresponding notice to all
scheduled Philippine Domestic operators. On December 14, 1994,
GrandAir filed its Compliance, and requested for the issuance of a
Temporary Operating Permit. Petitioner, itself the holder of a legislative
franchise to operate air transport services, filed an Opposition to the
application for a Certificate of Public Convenience and Necessity on
December 16, 1995 on the following grounds:
A. The CAB has no jurisdiction to hear the petitioner's
application until the latter has first obtained a franchise to
operate from Congress.
B. The petitioner's application is deficient in form and
substance in that:
1. The application does not indicate a
route structure including a computation of
trunkline, secondary and rural available
seat kilometers (ASK) which shall always
13 | P a g e
 be maintained at a monthly level at least
5% and 20% of the ASK offered into and
out of the proposed base of operations for
rural and secondary, respectively.
2. It does not contain a project/feasibility
study, projected profit and loss
statements, projected balance sheet,
insurance coverage, list of personnel, list
of spare parts inventory, tariff structure,
documents supportive of financial
capacity, route flight schedule, contracts
on facilities (hangars, maintenance, lot)
etc.
C. Approval of petitioner's application would violate the
equal protection clause of the constitution.
D. There is no urgent need and demand for the services
applied for.
E. To grant petitioner's application would only result in
ruinous competition contrary to Section 4(d) of R.A.
776. 5
At the initial hearing for the application, petitioner raised the issue of lack
of jurisdiction of the Board to hear the application because GrandAir did
not possess a legislative franchise.
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order
denying petitioner's Opposition. Pertinent portions of the Order read:
PAL alleges that the CAB has no jurisdiction to hear the
petitioner's application until the latter has first obtained a
franchise to operate from Congress.
The Civil Aeronautics Board has jurisdiction to hear and
resolve the application. In Avia Filipina vs. CAB, CA G.R.
No. 23365, it has been ruled that under Section 10 (c) (I)
of R.A. 776, the Board possesses this specific power and
duty.
In view thereof, the opposition of PAL on this ground is
hereby denied.
SO ORDERED.
Meantime, on December 22, 1994, petitioner this time, opposed private
respondent's application for a temporary permit maintaining that:
1. The applicant does not possess the required fitness and
capability of operating the services applied for under RA
776; and,
2. Applicant has failed to prove that there is clear and
urgent public need for the services applied for. 6
On December 23, 1994, the Board promulgated Resolution No. 119(92)
approving the issuance of a Temporary Operating Permit in favor of Grand
Air 7 for a period of three months, i.e., from December 22, 1994 to March
22, 1994. Petitioner moved for the reconsideration of the issuance of the
Temporary Operating Permit on January 11, 1995, but the same was
denied in CAB Resolution No. 02 (95) on February 2, 1995. 8 In the said
Resolution, the Board justified its assumption of jurisdiction over
GrandAir's application.
14 | P a g e
WHEREAS , the CAB is specifically authorized under
Section 10-C (1) of Republic Act No. 776 as follows:
(c) The Board shall have the following specific powers
and duties:
(1) In accordance with the provision of Chapter IV of this
Act, to issue, deny, amend revise, alter, modify, cancel,
suspend or revoke, in whole or in part, upon petitioner-
complaint, or upon its own initiative, any temporary
operating permit or Certificate of Public Convenience and
Necessity; Provided, however; that in the case of foreign
air carriers, the permit shall be issued with the approval of
the President of the Republic of the Philippines.
WHEREAS, such authority was affirmed in PAL vs. CAB,
(23 SCRA 992), wherein the Supreme Court held that the
CAB can even on its own initiative, grant a TOP even
before the presentation of evidence;
WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-
GR No. 23365), promulgated on October 30, 1991, held
that in accordance with its mandate, the CAB can issue
not only a TOP but also a Certificate of Public
Convenience and Necessity (CPCN) to a qualified
applicant therefor in the absence of a legislative franchise,
citing therein as basis the decision of Albano
vs. Reyes (175 SCRA 264) which provides (inter alia)
that:
a) Franchises by Congress are not required before each
and every public utility may operate when the law has
granted certain administrative agencies the power to grant
licenses for or to authorize the operation of certain public
utilities;
b) The Constitutional provision in Article XII, Section 11
that the issuance of a franchise, certificate or other form of
authorization for the operation of a public utility does not
necessarily imply that only Congress has the power to
grant such authorization since our statute books are replete
with laws granting specified agencies in the Executive
Branch the power to issue such authorization for certain
classes of public utilities.
WHEREAS, Executive Order No. 219 which took effect
on 22 January 1995, provides in Section 2.1 that a
minimum of two (2) operators in each route/link shall be
encouraged and that routes/links presently serviced by
only one (1) operator shall be open for entry to additional
operators.
RESOLVED, (T)HEREFORE, that the Motion for
Reconsideration filed by Philippine Airlines on January
05, 1995 on the Grant by this Board of a Temporary
Operating Permit (TOP) to Grand International Airways,
Inc. alleging among others that the CAB has no such
jurisdiction, is hereby DENIED, as it hereby denied, in
view of the foregoing and considering that the grounds
relied upon by the movant are not indubitable.
On March 21, 1995, upon motion by private respondent, the temporary
permit was extended for a period of six (6) months or up to September 22,
1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its powers and
jurisdiction in taking cognizance of GrandAir's application for the issuance
of a Certificate of Public Convenience and Necessity, and in issuing a
temporary operating permit in the meantime, since GrandAir has not been
15 | P a g e
granted and does not possess a legislative franchise to engage in scheduled
domestic air transportation. A legislative franchise is necessary before
anyone may engage in air transport services, and a franchise may only be
granted by Congress. This is the meaning given by the petitioner upon a
reading of Section 11, Article XII, 9 and Section 1, Article VI, 10 of the
Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of the
Department of Justice, which reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:
This has reference to your request for opinion on the
necessity of a legislative franchise before the Civil
Aeronautics Board ("CAB") may issue a Certificate of
Public Convenience and Necessity and/or permit to
engage in air commerce or air transportation to an
individual or entity.
You state that during the hearing on the application of
Cebu Air for a congressional franchise, the House
Committee on Corporations and Franchises contended
that under the present Constitution, the CAB may not
issue the abovestated certificate or permit, unless the
individual or entity concerned possesses a legislative
franchise. You believe otherwise, however, for the reason
that under R.A. No. 776, as amended, the CAB is
explicitly empowered to issue operating permits or
certificates of public convenience and necessity and that
this statutory provision is not inconsistent with the current
charter.
We concur with the view expressed by the House
Committee on Corporations and Franchises. In an opinion
rendered in favor of your predecessor-in-office, this
Department observed that, —
. . . it is useful to note the distinction between the
franchise to operate and a permit to commence operation.
The former is sovereign and legislative in nature; it can be
conferred only by the lawmaking authority (17 W and P,
pp. 691-697). The latter is administrative and regulatory in
character (In re Application of Fort Crook-Bellevue
Boulevard Line, 283 NW 223); it is granted by an
administrative agency, such as the Public Service
Commission [now Board of Transportation], in the case of
land transportation, and the Civil Aeronautics Board, in
case of air services. While a legislative franchise is a pre-
requisite to a grant of a certificate of public convenience
and necessity to an airline company, such franchise alone
cannot constitute the authority to commence operations,
inasmuch as there are still matters relevant to such
operations which are not determined in the franchise, like
rates, schedules and routes, and which matters are
resolved in the process of issuance of permit by the
administrative. (Secretary of Justice opn No. 45, s. 1981)
Indeed, authorities are agreed that a certificate of public
convenience and necessity is an authorization issued by
the appropriate governmental agency for the operation of
public services for which a franchise is required by law
(Almario, Transportation and Public Service Law, 1977
Ed., p. 293; Agbayani, Commercial Law of the Phil., Vol.
4, 1979 Ed., pp. 380-381).
16 | P a g e
 Based on the foregoing, it is clear that a franchise is the
legislative authorization to engage in a business activity or
enterprise of a public nature, whereas a certificate of
public convenience and necessity is a regulatory measure
which constitutes the franchise's authority to commence
operations. It is thus logical that the grant of the former
should precede the latter.
Please be guidn Airways, Inc. vs. Grand International
Airways (supra).
In both cases, the issue resolved was whether or not the Civil Aeronautics
Board can issue the Certificate of Public Convenience and Necessity or
Temporary Operating Permit to a prospective domestic air transport
operator who does not possess a legislative franchise to operate as such.
Relying on the Court's pronouncement in Albano vs. Reyes (supra), the
Court of Appeals upheld the authority of the Board to issue such authority,
even in the absence of a legislative franchise, which authority is derived
from Section 10 of Republic Act 776, as amended by P.D. 1462. 11
The Civil Aeronautics Board has jurisdiction over GrandAir's Application
for a Temporary Operating Permit. This rule has been established in the
case of Philippine Air Lines Inc., vs. Civil Aeronautics Board,
promulgated on June 13, 1968. 12 The Board is expressly authorized by
Republic Act 776 to issue a temporary operating permit or Certificate of
Public Convenience and Necessity, and nothing contained in the said law
negates the power to issue said permit before the completion of the
applicant's evidence and that of the oppositor thereto on the main petition.
Indeed, the CAB's authority to grant a temporary permit "upon its own
initiative" strongly suggests the power to exercise said authority, even
before the presentation of said evidence has begun.
Assuming arguendo that a legislative franchise is prerequisite to the
issuance of a permit, the absence of the same does not affect the
jurisdiction of the Board to hear the application, but tolls only upon the
ultimate issuance of the requested permit.
The power to authorize and control the operation of a public utility is
admittedly a prerogative of the legislature, since Congress is that branch of
government vested with plenary powers of legislation.
The franchise is a legislative grant, whether made directly
by the legislature itself, or by any one of its properly
constituted instrumentalities. The grant, when made, binds
the public, and is, directly or indirectly, the act of the
state. 13
The issue in this petition is whether or not Congress, in enacting Republic
Act 776, has delegated the authority to authorize the operation of domestic
air transport services to the respondent Board, such that Congressional
mandate for the approval of such authority is no longer necessary.
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. 14 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. 15 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. 16
The trend of modern legislation is to vest the Public Service Commissioner
with the power to regulate and control the operation of public services
under reasonable rules and regulations, and as a general rule, courts will
not interfere with the exercise of that discretion when it is just and
reasonable and founded upon a legal right. 17
17 | P a g e
It is this policy which was pursued by the Court in Albano vs. Reyes. Thus,
a reading of the pertinent issuances governing the Philippine Ports
Authority, 18 proves that the PPA is empowered to undertake by itself the
operation and management of the Manila International Container
Terminal, 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 to PPA, a franchise from Congress to authorize an entity
other than the PPA to operate and manage the MICP becomes
unnecessary.
Given the foregoing postulates, we find 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. Such requirements were
enumerated in Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a
legislative franchise is an indispensable requirement for an entity to
operate as a domestic air transport operator. Although Section 11 of
Article XII recognizes Congress' control over any franchise, certificate or
authority to operate a public utility, it does not mean Congress has
exclusive authority to issue the same. Franchises issued by Congress are
not required before each and every public utility may operate. 19 In many
instances, Congress has seen it fit to delegate this function to government
agencies, specialized particularly in their respective areas of public
service.
A reading of Section 10 of the same reveals the clear intent of Congress to
delegate the authority to regulate the issuance of a license to operate
domestic air transport services:
Sec. 10. Powers and Duties of the Board. (A) Except as
otherwise provided herein, the Board shall have the power
to regulate the economic aspect of air transportation, and
shall have general supervision and regulation of, the
jurisdiction and control over air carriers, general sales
agents, cargo sales agents, and air freight forwarders as
well as their property rights, equipment, facilities and
franchise, insofar as may be necessary for the purpose of
carrying out the provision of this Act.
In support of the Board's authority as stated above, it is given the
following specific powers and duties:
(C) The Board shall have the following specific powers
and duties:
(1) In accordance with the provisions of Chapter IV 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: Provided however, That in the case of foreign
air carriers, the permit shall be issued with the approval of
the President of the Republic of the Philippines.
Petitioner argues that since R.A. 776 gives the Board the authority to issue
"Certificates of Public Convenience and Necessity", this, according to
petitioner, means that a legislative franchise is an absolute requirement. It
cites a number of authorities supporting the view 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. 20
This submission relies on the premise that the authority to issue a
certificate of public convenience and necessity is a regulatory measure
separate and distinct from the authority to grant a franchise for the
18 | P a g e
operation of the public utility subject of this particular case, which is
exclusively lodged by petitioner in Congress.
We do not agree with the petitioner.
Many and varied are the definitions of certificates of public convenience
which courts and legal writers have drafted. 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. 21
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 by according to the
word "necessity" its strict meaning or an essential
requisites. 22
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.
To be valid, the delegation itself must be circumscribed by
legislative restrictions, not a "roving commission" that
will give the delegate unlimited legislative authority. It
must not be a delegation "running riot" and "not canalized
with banks that keep it from overflowing." Otherwise, the
delegation is in legal effect an abdication of legislative
authority, a total surrender by the legislature of its
prerogatives in favor of the delegate. 23
Congress, in this instance, has set specific limitations on how such
authority should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following
guidelines or policies:
Sec. 4. Declaration of policies. In the exercise and
performance of its powers and duties under this Act, the
Civil Aeronautics Board and the Civil Aeronautics
Administrator shall consider the following, among other
things, as being in the public interest, and in accordance
with the public convenience and necessity:
(a) The development and utilization of the air potential of
the Philippines;
(b) The encouragement and development of an air
transportation system properly adapted to the present and
future of foreign and domestic commerce of the
Philippines, of the Postal Service and of the National
Defense;
19 | P a g e
 (c) The regulation of air transportation in such manner as
to recognize and preserve the inherent advantages of,
assure the highest degree of safety in, and foster sound
economic condition in, such transportation, and to
improve the relations between, and coordinate
transportation by, air carriers;
(d) The promotion of adequate, economical and efficient
service by air carriers at reasonable charges, without
unjust discriminations, undue preferences or advantages,
or unfair or destructive competitive practices;
(e) Competition between air carriers to the extent
necessary to assure the sound development of an air
transportation system properly adapted to the need of the
foreign and domestic commerce of the Philippines, of the
Postal Service, and of the National Defense;
(f) To promote safety of flight in air commerce in the
Philippines; and,
(g) The encouragement and development of civil
aeronautics.
More importantly, the said law has enumerated the requirements to
determine the competency of a prospective operator to engage in the
public service of air transportation.
Sec. 12. Citizenship requirement. Except as otherwise
provided in the Constitution and existing treaty or treaties,
a permit authorizing a person to engage in domestic air
commerce and/or air transportation shall be issued only to
citizens of the Philippines 24
Sec. 21. Issuance of permit. The Board shall issue a permit
authorizing the whole or any part of the service covered
by the application, if it finds: (1) that the applicant is fit,
willing and able to perform such service properly in
conformity with the provisions of this Act and the rules,
regulations, and requirements issued thereunder; and (2)
that such service is required by the public convenience
and necessity; otherwise the application shall be denied.
Furthermore, the procedure for the processing of the application of a
Certificate of Public Convenience and Necessity had been established to
ensure the weeding out of those entities that are not deserving of public
service. 25
In sum, respondent Board should now be allowed to continue hearing the
application of GrandAir for the issuance of a Certificate of Public
Convenience and Necessity, there being no legal obstacle to the exercise
of its jurisdiction.
ACCORDINGLY, in view of the foregoing considerations, the Court
RESOLVED to DISMISS the instant petition for lack of merit. The
respondent Civil Aeronautics Board is hereby DIRECTED to CONTINUE
hearing the application of respondent Grand International Airways, Inc. for
the issuance of a Certificate of Public Convenience and Necessity.
20 | P a g e
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 88195-96 January 27, 1994
"Y" TRANSIT CO, INC., petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION AND
YUJUICO TRANSIT EMPLOYEES UNION (ASSOCIATED
LABOR UNION), MANUEL VILLARTA, respondents.
Cruz, Durian, Agabin, Atienza, Alday & Tuason for petitioner.
Evaristo S. Orosa for private respondents.
ROMERO, J.:
This is a special civil action for certiorari filed by "Y" Transit Co., Inc. for
the annulment of the decision of the National labor Relations Commission,
the dispositive portion of which reads as follows:
WHEREFORE, the appealed Order should be as it is
hereby REVERSED reinstating the levy made by the
Sheriff on July 13 and 16, 1982. Accordingly, the sale of
the levied properties may proceed pursuant to existing
laws.
SO ORDERED. 1
The antecedent facts of the case are as follows:
In March 1960 and sometime thereafter, Yujuico Transit Co., Inc.,
mortgaged ten (10) of its buses to the Development Bank of the
Philippines (DBP) to secure a loan in the amount of P2,795,129.36.
Thereafter, the Board of Directors of Yujuico Transit Co., Inc. passed a
resolution authorizing its President, Jesus Yujuico to enter into a dacion en
pago arrangement with the DBP, whereby Jesus Yujuico would transfer to
the DBP the Saint Martin Technical Institute in consideration of the full
settlement of the obligations of three companies, one of which was
Yujuico Transit Co, Inc. Accordingly, on or about October 24, 1978, the
transfer of the property was made and DBP released the mortgages
constituted on the buses of Yujuico Transit Co., Inc. Consequently, the
company transferred the ownership of its mortgaged properties, including
the buses, to Jesus Yujuico.
Meanwhile, sometime in June and July 1979, the Yujuico Transit
Employees Union (Associated labor Union) filed two (2) consolidated
complaints against Yujuico Transit Co., Inc. for Unfair Labor Practice and
violations of Presidential Decrees Nos. 525, 1123, 1614 and 851 (non-
payment of living allowances).
On May 21, 1980, Jesus Yujuico sold the subject buses to herein petitioner
"Y" Transit Co., Inc. for P3,485,400.00.
On July 23, 1981, the Labor Arbiter rendered a decision dismissing the
complaint for unfair labor practice but holding Yujuico Transit Co., Inc.
liable under the aforementioned Presidential Decrees in the amount of
P142,790.49. On February 9, 1982, a writ of execution for the said amount
was issued by the Labor Arbiter. On June 14, 1982, an alias writ of
execution was issued and levy was made upon the ten (10) buses.
Thereafter, "Y" Transit Co., Inc. filed Affidavits of Third Party Claim.
Private respondents herein opposed the Third party claim on the ground
that the transactions leading to the transfer of the buses to "Y" Transit Co.,
21 | P a g e
Inc. were void because they lacked the approval of the BOT as required by
the Public Service Act. They also argued that the buses were still
registered in the name of Yujuico Transit Co. which was, therefore, still
the lawful owner thereof.
The Labor Arbiter found that "Y" Transit Co., Inc. had valid title to the
buses and that the BOT, by its subsequent acts had approved the transfer.
The decision stated further, thus:
The fact that the registration certificates of most of the
vehicles in question are still in the name of Yujuico
Transit Co., Inc. at the time of the levy on execution does
not militate against the claimant. Registration of a motor
vehicle is not the operative act that transfers ownership,
unlike in land registration cases. Furthermore, the
evidence shows that the claimant cannot be faulted for its
failure to have the certificates of registration transferred in
its own name. Prior to the levy, claimant had already paid
for the transfer fee, the fee for the cancellation of
mortgage and other fees required by the BLT. Moreover,
the registration fees of the vehicles whose last digit of
their plate numbers made the vehicles due for registration
were already paid for by the claimant (Exhibits "N" to "N-
7"). Therefore, there was already a constructive
registration made by the claimant (Mariano B. Arroyo vs.
Maria Corazon Yu de Sane, et al., 54 Phil. 511, 518),
sufficient notice to affect the rights of third-parties. It is
now ministerial on the part of the BLT to issue the
Registration Certificates in the name of the claimant, but
the same was held in abeyance pending the
computerization of the records of BOT on public utility
vehicles. On all fours is the ruling of the Supreme Court
in Mariano B. Arroyo vs. Ma. Corazon Yu de Sane, 54
Phil. 511, which upheld the right of PNB as mortgagee
over motorized water vessels as superior over the rights of
a judgment creditor who had already secured a writ of
attachment and execution over the vessels, it appearing
that the delay was caused by the Collector of Custom's
uncertainty as to the necessity of the registration of the
vessels. 2
Accordingly, the Third-Party Claim was granted and the release of all the
buses levied for execution was ordered.
On appeal, the NLRC reversed the labor arbiter's decision on the ground
that the transfer of the buses lacked the BOT approval. It ordered the
reinstatement of the levy and the auction of properties.
"Y" Transit Co., Inc. thereafter filed this special civil action
for certiorari under Rule 65 of the Rules of Court praying for the issuance
of a Restraining Order and/or a Writ of Preliminary Injunction and for the
annulment of the NLRC decision as it was issued with grave abuse of
discretion amounting to lack of jurisdiction.
In this petition, "Y" Transit Co., Inc. raised the following issue, to writ:
I
The public respondent NLRC committed palpable legal
error and grave abuse of discretion amounting to lack of
jurisdiction when it held that there was no valid transfer of
ownership in favor of the petitioner, completely
disregarding the preponderance of evidence and existing
jurisprudence which support the validity of the transfer of
ownership to the petitioner. 3
On July 6, 1989, petitioner filed a motion to cite Labor Arbiter Benigno C.
Villarente, Jr. for contempt of court and for the issuance of an order for the
immediate release of the property. Petitioner argues that the Labor Arbiter
22 | P a g e
refused to release the vehicles levied on June 5, 1989 despite notice that a
TRO has been issued by the Supreme Court; that there was no reason to
hold on to the levy as petitioner had already posted a bond to answer for
the damages and award in the above-entitled case; that the labor arbiter
wrongly required the payment of storage charges and sheriff's fees before
releasing the levied buses.
Did public respondent commit grave abuse of discretion in reinstating the
levy on the buses which have been allegedly transferred to a third party,
herein petitioner "Y" Transit Co., Inc.?
We rule in the negative.
The following facts have been established before the NLRC: that the
transfer of ownership from Yujuico Transit Co., Inc. to Jesus Yujuico, and
from Jesus Yujuico to "Y" Transit Co., Inc. lacked the prior approval of
the BOT as required by Section 20 of the Public Service Act; 4 that the
buses were transferred to "Y" Transit Co., Inc. during the pendency of the
action; and that until the time of the execution, the buses were still
registered in the name of Yujuico Transit Co., Inc.
In Montoya v. Ignacio, 5 we held:
. . . 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 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 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. . . .
It may be argued that Section 16, paragraph (h) provides
in its last part that "nothing herein contained shall be
construed to prevent the sale, alienation, or lease by any
public utility of any of its property in the ordinary course
of business," which gives the impression that the approval
of Public Service Commission is but a mere formality
which does not affect the effectivity of the transfer or
lease of the property belonging to a public utility. But such
provision only means that even if the approval has not
been obtained the transfer or lease is valid and binding
between the parties although not effective against the
public and the Public Service Commission. The approval
is only necessary to protect public interest. (Emphasis
ours)
There being no prior BOT approval in the transfer of property from
Yujuico Transit Co., Inc. to Jesus Yujuico, it only follows that as far as the
BOT and third parties are concerned, Yujuico Transit Co., Inc. still owned
the properties. and Yujuico, and later, "Y" Transit Co., Inc. only held the
same as agents of the former. In Tamayo v. Aquino, 6 the Supreme Court
stated, thus:
. . . In operating the truck without transfer thereof having
been approved by the Public Service Commission, the
transferee acted merely as agent of the registered owner
23 | P a g e
 and should be responsible to him
(the registered owner) for any damages that he may cause
the latter by his negligence.
Conversely, where the registered owner is liable for obligations to third
parties and vehicles registered under his name are levied upon to satisfy
his obligations, the transferee of such vehicles cannot prevent the levy by
asserting his 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. Thus, "Y"
Transit Co., Inc. cannot now argue that the buses could not be levied upon
to satisfy the money judgment in favor of herein respondents. However,
this does not deprive the transferee of the right to recover from the
registered owner any damages which may have been incurred by the
former since the . . . transfer or lease is valid and binding between the
parties. . . . 7 Thus, had there been any real contract between "Y" Transit
Co., Inc. and Yujuico Transit Co., Inc. of "Y" Transit Co., Inc. and Jesus
Yujuico regarding the sale or transfer of the buses, the former may avail of
its remedies to recover damages.
Sec. 3. Storing of Levied Property. — To avoid pilferage
of or damage to levied property, the same shall be
inventoried and stored in a bonded warehouse, wherever
available, or in a secured place as may be determined by
the sheriff with notice to and conformity of the losing
party or third party claimant. In case of disagreement, the
same shall be referred to the Labor Arbiter or proper
officer who issued the writ of execution for proper
disposition. For this purpose, sheriffs should inform the
Labor Arbiter or proper officer issuing the writ of
corresponding storage fees, furnishing him as well as the
parties with a copy of the inventory. The storage fees shall
be shouldered by the losing party.
WHEREFORE, in view of the foregoing, this petition is hereby
DISMISSED.
The Motion to Cite Labor Arbiter Benigno Villarente, Jr. is DENIED and
petitioner is ordered to PAY storage costs and sheriff's fees.

Regarding the Motion for Contempt filed by petitioner, we are constrained This decision is immediately executory.
to deny the same since the Order to levy upon petitioner's alleged
properties was issued even before the issuance by the Court of a temporary
restraining order. From the records, it appeared that Labor Arbiter
Villarente ordered the public auction of the subject properties on May 12,
1989. The sheriff levied on the properties on June 5, 1989. The Supreme
Court issued the Temporary Restraining Order on June 19, 1989 and this
was received by the Labor Arbiter on June 22, 1989. On June 28, 1989, the
Labor Arbiter directed the sheriff to release the two buses already levied
upon by him.

Likewise, we find no error in requiring petitioner to pay the storage fees

prior to the release of the properties. Storage costs are imposed in
accordance with the provisions of Rule IX of the NLRC Manuel of
Instructions for Sheriffs, to wit:

24 | P a g e
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-28865 December 19, 1928
BATANGAS TRANSPORTATION CO., petitioner-appellant,
vs.
CAYETANO ORLANES, respondent-appellee.
L. D. Lockwood and C. de G. Alvear for appellant.
Paredes, Buencamino and Yulo and Menandro Quiogue for appellee.
STATEMENT
In his application for a permit, the appellee Orlanes alleges that he is the
holder of a certificate of public convenience issued by the Public Service
Commission in case No. 7306, to operate an autobus line from Taal to
Lucena, passing through Batangas, Bolbok and Bantilan, in the Province
of Batangas, and Candelaria and Sariaya, in the Province of Tayabas,
without any fixed schedule; that by reason of the requirements of public
convenience, he has applied for a fixed schedule from Bantilan to Lucena
and return; that in case No. 7306, he cannot accept passengers or cargo
from Taal to any point before Balbok, and vice versa; that the public
convenience requires that he be converted into what is known as a regular
operator on a fixed schedule between Taal and Bantilan and intermediate
points, and for that purpose, he has submitted to the Commission proposed
schedule for a license to make trips between those and intermediate points.
He then alleges that by reason of increase of traffic, the public
convenience also requires that he be permitted to accept passengers and
cargo at points between Taal and Bantilan, and he asked for authority to
establish that schedule, and to accept passengers at all points between Taal
and Bantilan.
To this petition the Batangas Transportation Company appeared and filed
an application for a permit, in which it alleged that it is operating a regular
service of auto trucks between the principal municipalities of the Province
of Batangas and some of those of the Province of Tayabas; that since
1918, it has been operating a regular service between Taal and Rosario,
and that in 1920, its service was extended to the municipality of San Juan
de Bolbok, with a certificate of public convenience issued by the Public
Servise Commission; that in the year 1925 Orlanes obtained from the
Commission a certificate of public convenience to operate an irregular
service of auto trucks between Taal, Province of Batangas, and Lucena,
Province of Tayabas, passing through the municipalities of Bauan,
Batangas, Ibaan, Rosario, and San Juan de Bolbok, with the express
limitation that he could not accept passengers from intermediate points
between Taal and Bolbok, except those which were going to points beyond
San Juan de Bolbok or to the Province of Tayabas; that he inaugurated this
irregular in March, 1926, but maintained it on that part of the line between
Taal and Bantilan only for about three months, when he abandoned that
portion of it in the month of June and did not renew it until five days
before the hearing of case No. 10301, which was set for November 24,
1926, in which hearing the Batangas Transportation Company asked for
additional hours for its line between Batangas and Bantilan; that in June,
1926, Orlanes sought to obtain a license as a regular operator on that
portion of the line between Bantilan and Lucena without having asked for
a permit for tat portion of the line between Bantilan and Taal; that from
June, 1926, Orlanes and the Batangas Transportation Company were
jointly operating a regular service between Bantilan and Lucena, with trips
every half an hour, and Orlanes not having asked for a regular service
between Bantilan and Taal, the Batangas Transportation Company
remedied this lack of service under the authority of the Commission, and
increased its trips between Bantilan and Tayabas to make due and timely
connections in Bantilan on a half-hour service between Bantilan and
Batangas with connections there for Taal and all other points in the
Province of Batangas. It is then alleged that the service maintained by the
company is sufficient to satisafy the convenience of the public, and that
the public convenience does not require the granting of the permit for the
25 | P a g e
service which Orlanes petitions, and that to do so would result in ruinous
competition and to the grave prejudice of the company and without any
benefit to the public, and it prayed that the petition of Orlanes to operate a
regular service be denied.
After the evidence was taken upon such issues, the Public Service
Commission granted the petition of Orlanes, as prayed for, and the
company then filed a motion for a rehearing, which was denied, and the
case is now before this court, in which the appellant assigns the following
errors:
The Commission erred in ordering that a certificate of public
convenience be issued in favor of Cayetano Orlanes to operate the
proposed service without finding and declaring that the public
interest will be prompted in a proper and suitable by the operation
of such service, or when the evidence does not show that the
public interests will be so prompted.
That the Commission erred in denying the motion for a rehearing.
JOHNS, J.:
The questions presented involve a legal construction of the powers and
duties of the Public Service Commission, and the purpose and intent for
which it was created, and the legal rights and privileges of a public utility
operating under a prior license.
It must be conceded that an autobus line is a public utility, and that in all
things and respects, it is what is legally known as a common carrier, and
that it is an important factor in the business conditions of the Islands,
which is daily branching out and growing very fast.
Before such a business can be operated, it must apply for, and obtain, a
license or permit from the Public Service Commission, and comply with
certain defined terms and conditions, and when license is once, granted,
the operator must conform to, and comply with all, reasonable rules and
regulations of the Public Service Commission. The object and purpose of
such a commission, among other things, is to look out for, and protect, the
interests of the public, and, in the instant case, to provide it with safe and
suitable means of travel over the highways in question, in like manner that
a railroad would be operated under like terms and conditions. To all intents
and purposes, the operation of an autobus line is very similar to that of a
railroad, and a license for its operation should be granted or refused on like
terms and conditions. For many and different reasons, it has never been the
policy of a public service commission to grant a license for the operation
of a new line of railroad which parallels and covers the same field and
territory of another old established line, for the simple reason that it would
result in ruinous competition between the two lines, and would not be of
any benefit or convenience to the public.
The Public Service Commission has ample power and authority to make
any and all reasonable rules and regulations for the operation of any public
utility and to enforce complience with them, and for failure of such utility
to comply with, or conform to, such reasonable rules and regulations, the
Commission has power to revoke the license for its operation. It also has
ample power to specify and define what is a reasonable compensation for
the services rendered to the traveling public.
That is to say, the Public Service Commission, as such has the power to
specify and define the terms and conditions upon which the public utility
shall be operated, and to make reasonable rules and regulations for its
operation and the compensation which the utility shall receive for its
services to the public, and for any failure to comply with such rules and
regulations or the violation of any of the terms and conditions for which
the license was granted the Commission has ample power to enforce the
provisions of the license or even to revoke it, for any failure or neglect to
comply with any of its terms and provisions.
26 | P a g e
Hence, and for such reasons, the fact that the Commission has previously
granted a license to any person to operate a bus line over a given highway
and refuses to grant a similar license to another person over the same
highway, does not in the least create a monopoly in the person of the
licensee, for the reason that at all times the Public Service Commission has
the power to say what is a reasonable compensation to the utility, and to
make reasonable rules and regulations for the convenience of the traveling
public and to enforce them.
In the instant case, Orlanes seek to have a certificate of public convenience
to operate a line of auto trucks with fixed times of departure between Taal
and Bantilan, in the municipality of Bolbok, Province of Batangas, with
the right to receive passengers and freight from intermediate points. The
evidence is conclusive that at the time of his application, Orlanes was what
is known as an irregular operator between Bantilan and Taal, and that the
Batangas operator between Batangas and Rosario. Orlanes now seeks to
have his irregular changed into a regular one, fixed hours of departure and
arrival between Bantilan and Taal, and to set aside and nullify the
prohibition against him in his certificate of public convenience, in
substance and to the effect that he shall not have or receive any passengers
or freight at any of the points served by the Batangas Transportation
Company for which that company holds a prior license from the
Commission. His petition to become such a regular operator over such
conflicting routes is largely based upon the fact that, to comply with the
growing demands of the public, the Batangas Transportation Company, in
case No. 10301, applied to the Commission for a permit to increase the
number of trip hours at and between the same places from Batangas to
Rosario, and or for an order that all irregular operators be prohibited from
operating their respective licenses, unless they should observe the interval
of two hours before, or one hour after, the regular hours of the Batangas
Transportation Company.
In his petition Orlanes sought to be releived from his prohibition to
become a regular operator, and for a license to become a regular operator
with a permission to make three trips daily between Bantilan and Taal, the
granting of which make him a regular operator between those points and
bring him in direct conflict and competition over the same points with the
Batangas Transportation Company under its prior license, and in legal
effect that was the order which the Commission made, of which the
Batangas Transportation Company now complains.
The appellant squarely plants its case on the proposition:
Is a certificate of public convenience going to be issued to a
second operator to operate a public utility in a field where, and in
competition with, a first operator who is already operating,
adequate and satisfactory service?
There is no claim or pretense that the Batangas Transportation Company
has violated any of the terms and conditions of its license. Neiher does the
Public Service Commission find as a fact that the grantring of a license to
Orlanes as a regular operator between the points in question is required or
necessary for the convenience of the traveling public, or that there is any
complaint or criticism by the public of the services rendered by the
Batangas Transportation Company over the route in question.
The law creating the Public service Commission of the Philippine Islands
is known as Act No. 3108, as amended by Act No. 3316, and under it the
supervision and control of public utilities is very broad and
comprehensive.
Section 15 of Act No. 3108 provides that the Commission shall have
power, after hearing, upon notice, by order in writing to require every
public utility:
(a) To comply with the laws of the Philippine Islands;
27 | P a g e
(b) To furnish safe, adequate, and proper service as regards the manner of
furnishing the same as well as the maintenance of the necessary material
equipment, etc;
(c) To establish, construct, maintain, and operate any reasonable extention
of its existing facilities, where such extension is reasonable and practicable
and will furnish sufficient business to justify the construction and
maintenance of the same;
(d) To keep a uniform system of books, records and accounts;
(e) To make specific answer with regard to any point on which the
Commission requires information, and to furnish annual reports of finance
and operations;
(f) To carry, whenever the Commission may require, a proper and
adequate depreciation account;
(g) To notify the Commission of all accidents;
(h) That when any public utility purposes to increase or reduce any
existing individual rates, it shall give the Commission written notice thirty
days prior to the proposed change; and
(i) "No public utility as herein defind shall operate in the Philippine
Islands without having first secured from the Commission a certificate,
which shall be known as Certificate of Public Convenience, to the effect
that the operation of said public utility and the authorization to do
busibness wikll promote the public interest in a proper and suitable
maner."
Section 16 specially prohibits any discrimination in the handling of freight
charges.
In construing a similar law of the State of Kansas, the United States
Supreme Court, in an opinion written by Chief Justice Taft, in Wichita
Railroad and Light Co. vs. Public Utilities Commission of Kansas (260 U.
S. 48; 67 Law. ed., 124), said:
The proceeding we are considering is governed by section 13.
That is the general section of the act comprehensively describing
the duty of the Commission, vesting it with power to fix and order
substituted new rates for existing rates. The power is expressly
made to depend on the condition that, after full hearing and
investigation, the Commission shall find existing rates to be
unjust, unreasonable, unjustly discriminatory, or unduly
preferential. We conclude that a valid order of the Commission
under the act must contain a finding of fact after hearing and
investigation, upon which the order is founded, and that, for lack
of such a finding, the order in this case was void.
This conclusion accords with the construction put upon similar
statutes in other states. (State Public Utilities Commission ex rel.
Springfield vs. Springfield Gas and E. Co., 291 Ill., 209; P. U. R.,
1920C, 640; 125 N. E. 891; State Public Utilities Co. vs.
Baltimore and O. S. W. R. Co., 281 Ill; 405; P. U. R., 1918B, 655;
118 N. E., 81.) Moreover, it accords with general principles of
constitutional government. The maxim that a legislature may not
delegate legislative power has some qualifications, as in the
creation of municipalities, and also in the creation of
administrative boards to apply to the myriad details of rate
schedule the regulatory police power of the state. The latter
qualification is made necessary in order that the legislative power
may be effectively exercised. In creating such an administrative
agency, the legislature, to prevent its being a pure delegation of
legislative power, must enjoin upon a certain course of procedure
and certain rules of decision in the perfomance of its function. It is
a wholesome and necessary principle that such an agency must
pursue the procedure and rules enjoined, and show a substantial
28 | P a g e
 compliance therewith, to give validity to its action. When,
therefore, such an administrative agency is required, as a condition
precedent to an order, to make a finding of facts, the validity of the
order rest upon the needed finding. It is lacking, the order is
ineffective.
It is pressed on us that the lack of an express finding may be
supplied by implication and by reference to the averments of the
petition invoking the action of the Commission. We cannot agree
to this point. It is doubtful whether the facts averred in the petition
were sufficient to justify a finding that the contract rates were
unreasonably low; but we do not find it necessay to answer this
question. We rest our decision on the principle that an express
finding of unreasonableness by the Commission was indispensable
under the statutes of the state.
That is to say, in legal effect, that the power of the Commission to issue a
certificate of public convenience depends on the condition precedent that,
after a full hearing and investigation, the Commission shall have found as
a fact that the operation of the proposed public service and its authority to
do business must be based upon the finding that it is for the convenience
of the public.
In the Philippine Islands the cetificate of public convenience is as folows:
CERTIFICATE OF PUBLIC CONVENIENCE
To whom it may concern:
THIS IS TO CERTIFY, That in pursuance of the power and
authority conferred upon it by subsection (i) of section 15 of Act
No. 3108 of the Philippine Legislature,
THE PUBLIC SERVICE COMMISSION OF THE PHILIPPINE
ISLANDS, after having duly considered the application of
................. for a certificate of public convenience the operation of
........................ in connection with the evidence submitted in
support thereof, has rendered its decision on................, 192...., in
case No. ............, declaring that the operation by the applicant
...................... of the business above described will promote the
public interests in a proper and suitable manner, and
granting................. to this effect the corresponding authority,
subject to the conditions prescribed in said decision.
Given at Manila Philippine Islands, this ......... day of
....................., 192 .....
PUBLIC SERVICE COMMISSION OF THE PHILIPPINE
ISLANDS
By..................................
Commissioner
Attested:
.....................................
Secretary
That is to say, that the certificate of public convenince granted to Orlanes
in the instant case expressly recites that it "will promote the public
interests in a proper and suitable manner." Yet no such finding of fact was
made by the Commission.
In the instant case, the evidence is conclusive that the Batangas
Transportation Company operated its line five years before Orlanes ever
turned a wheel, yet the legal effect of the decision of the Public Service
29 | P a g e
Commission is to give an irregular operator, who was the last in the field,
a preferential right over a regular operator, who was the first in the field.
That is not the law, and there is no legal principle upon which it can be
sustained.
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 should
have more or less of a vested and preferential right over a person who
seeks to acquire another and a later license over the same route. Otherwise,
the first license would not have protection on his investment, and would be
subject to ruinous competition and thus defeat the very purpose and intent
for which the Public Service Commission was created.
It does not appear that the public has ever made any complaint the
Batangas Transportation Company, yet on its own volition and to meet the
increase of its business, it has applied to the Public Service Commission
for authority to increase the number of daily trips to nineteen, thus
showing a spirit that ought to be commended.
Such is the rule laid down in the case of Re B. F. Davis Motor Lines, cited
by the Public Service Commission of Indiana (P. U. R., 1927-B, page
729), in which it was held:
A motor vehicle operator having received a certificate with a
voluntary stipulation not to make stops (that is not to carry
passengers) on a part of a route served by other carriers, and
having contracted with such carries not to make the stops, will not
subsequently are able to carry all passengers who present theselves
for transportation within the restricted district.
And in Re Mount Baker Development Co., the Public Service Commission
of Washington (P. U. R., 1925D, 705), held:
A cerificate authorizing through motor carrier service should not
authorize local service between points served by the holders of a
certificate, without first giving the certificate holders an
opportunity to render additional service desired.
In the National Coal Company case (47 Phil., 356), this court said:
When there is no monopoly. — There is no such thing as a
monopoly where a property is operated as a public utility under
the rules and regulations of the Public Utility Commission and the
terms and provision of the Public Utility Act.
Section 775 of Pond on Public Utilities, which is recognized as a standard
authority, states the rule thus:
The policy of regulation, upon which our present public utility
commission plan is based and which tends to do away with
competition among public utilities as they are natural monopolies,
is at once reason and the justification for the holding of our courts
that the regulation of an existing system of transportation, which is
properly serving a given field, or may be required to do so, is to be
preferred to competition among several independent systems.
While requiring a proper service from, a single system for a city or
territory in consideration for protecting it as a monopoly for all
service required and in conserving its resources, no economic
waste results and service may be furnished at the minimum cost.
The prime object and real purpose of commission control is to
secure adequate sustained service for the public at the least
possible cost, and to protect and conserve investments already
made for this purpose. Experience has demonstrated beyond any
question that competition among natural monopolies is wasteful
economically and results finally in insufficient and unsatisfactory
service and extravagant rates.
30 | P a g e
The rule has been laid down, without dissent in numerous decisions, that
where an operator is rendering good, sufficient and adequate service to the
public, that the convenince does not require and the public interests will
not be promoted in a proper and suitable manner by giving another
operator a certificate of public convenience to operate a competing line
over the same ruote.
In Re Haydis (Cal.), P. U. R., 1920A, 923:
A certificate of convenience and necessity for the operation of an
auto truck line in occupied territory will not be granted, where
there is no complaint as to existing rates and the present company
is rendering adequate service.
In Re Chester Auto Bus Line (Pa.), P. U. R., 1923E, 384:
A Commission should not approve an additional charter and grant
an additional certificate to a second bus company to operate in
territory covered by a certificate granted to another bus company
as a subsidiary of a railway company for operation in conjunction
with the trolley system where one bus service would be ample for
all requirements.
In Re Branham (Ariz.), P. U. R., 1924C, 500:
A showing must be clear and affirmative that an existing is unable
or has refused to maintain adequate and satisfactory service,
before a certificate of convenience and necessity will be granted
for the operation of an additional service.
In Re Lambert (N. H.), P. U. R., 1923D, 572:
Authority to operate a jitney bus should be refused when
permision has been given to other parties to operate and, from the
evidence, they are equipped adequately to accommodate the public
in this respect, no complaints having been received in regard to
service rendered.
In Re White (Md.), P. U. R., 1924E, 316:
A motor vehicle operator who has built up a business between
specified points after years of effort should not be deprived of the
fruits of his labor and of the capital he has invested in his
operation by a larger concern desiring to operate between the same
points.
In Re Kocin (Mont.), P. U. R., 1924C, 214:
A certificate authorizing the operation of passenger motor service
should be denied where the record shows that the admission of
another operator into the territory served by present licensees is
not necessary and would render their licensee oppressive and
confiscatory because of further division and depletion of revenues
and would defeat the purpose of the statue and disorganize the
public service.
In Re Nevada California Stage Co., P. U. R., 1924A, 460:
The Nevada Commission denied an application for a certificate of
convenience and necessity for the operation of an automobile
passenger service in view of the fact that the service within the
territory proposed to be served appeared to be adequate and it was
the policy of the Commission to protect the established line in the
enjoyment of business which it had built, and in view of the
further fact that it was very uncertain whether the applicant could
secure sufficient business to enable him to operate profitably.
In Re Idaho Light & P. Co. (Idaho), P. U. R., 1915A, 2:
31 | P a g e
 Unless it is shown that the utility desiring to enter a competitive
field can give such service as will be a positive advantage to the
public, a certificate of convenience will be denied by the Idaho
Commission, provided that the existing utility furnishing adequate
service at reasonable rates at the time of the threatened
competition.
In Scott, vs. Latham (N. Y. 2d Dist), P. U. R., 1921C, 714:
Competition between bus lines should be prohibited the same as
competition between common carriers.
In Re Portland Taxicab Co. (Me.), P. U. R., 1923E, 772:
Certificates permitting the operation of motor vehicles for carrying
passengers for hire over regular routes between points served by
steam and electric railways should not be granted when the
existing service is reasonable, safe, and adequate as required by
statue.
In Re Murphy (Minnesota), P.U.R., 1927C, 807:
Authority to operate an auto transportation service over a route
which is served by another auto transportation company should be
denied if no necessity is shown for additional service.
In Re Hall, editorial notes, P. U. R., 1927E:
A certificate of convenience and necessity for the operation of a
motor carrier service has been denied by the Colorado
Commission where the only ground adduced for the certificate
was that competition thereby afforded to an existing utility would
benefit the public by lowering rates. The Commission said: "Up to
the present time the Commission has never issued a certificate
authorizing a duplication of motor vehicle operation over a given
route unless it appeared that the service already rendered was not
adequate, that there was no ruinous competition or that the second
applicant could, while operating on a sound businesslike basis,
afford transportation at cheaper rates than those already in effect.
There has been no complaint to date as to the rates now being
charged on the routes over which the applicant desires to serve.
Moreover, the Commission stand ready, at any time the
unreasonable of the rates of any carrier are questioned, to
determine their reasonableness and to order them reduced if they
are shown to be unreasonable." In this case the Commission also
expressed its disappoval of the practice of an applicant securing a
certificate for the sole purpose of transferring it to another.
In Re Sumner (Utah), P. U. R., 1927D, 734:
The operation of an automobile stage line will not be authorized
over a route adequately served by a railroad and other bus line,
although the proposed service would be an added convenience to
the territory.
In Bartonville Bus Line vs. Eagle Motor Coach Line (Ill. Sup. Court), 157
N. E., 175; P. U. R., 1927E, 333:
The policy of the state is to compel an established public utility
occupying a given filed to provide adequate service and at the
same time protect it from ruinous competition, and to allow it an
apportunity to provide additional service when required instead of
permitting such service by a newly established competitor.
Upon the question of "Reason and Rule for Regulation," in section 775,
Pond says:
The policy of regulation, upon which our present public utility
commission plan is based and which tends to do away with
32 | P a g e
 competition among public utilities as they are natural monopolies,
is at once the reason and the justification for the holding of our
courts that the regulation of an existing system of transportation,
which is properly serving a given field or may be required to do
so, is to be preferred to competition among several independent
systems. While requiring a proper service from a single system for
a city or territory in consideration for protecting it as a monopoly
for all the service required and in conserving its resources, no
economic waste results and service may be furnished at the
minimum cost. The prime object and real purpose of commission
control is to secure adequate sustained service for the public at the
least possible cost, and to protect and conserve investments
already made for this purpose. Experience has demostrated beyond
any question that competition among natural monopolies is
wasteful economically and results finally in insufficient and
unsatisfactory service and extravagant rates. Neither the number of
the individuals demanding other service nor the question of the
fares constitutes the entire question, but rather what the proper
agency should be to furnish the best service to the public generally
and continuously at the least cost. Anything which tends to cripple
seriously or destroy an established system of transportation that is
necessary to a community is not a convenience and necessity for
the public and its introduction would be a handicap rather than a
help ultimately in such a field.
The question presented is very important and far-reaching and one of first
impression in this court, and for such reasons we have given this case the
careful consideration which its importance deserves. The Government
having taken over the control and supervision of all public utilities, so long
as an operator under a prior license complies with the terms and conditions
of his license and reasonable rules and regulation for its operation and
meets the reasonable demands of the public, it is the duty of the
Commission to protect rather than to destroy his investment by the
granting of a subsequent license to another for the same thing over the
same route of travel. The granting of such a license does not serve its
convenience or promote the interests of the public.
The decision of the Public Service Commission, granting to Orlanes the
license in question, is revoked and set aside, and the case is remanded to
the Commission for such other and further proceedings as are not
inconsistent with this opinion. Neither party to recover costs on this
appeal. So ordered.
Johnson, Street, Malcolm and Ostrand, JJ., concur.

That is the legal construction which should be placed on paragraph (e) of

section 14, and paragraph (b) and (c) of section 15 of the Public Service
Law.

We are clearly of the opinion that the order of the Commission granting
the petition of Orlanes in question, for the reason therein stated, is null and
void, and that it is in direct conflict with the underlying and fundamental
priciples for which the Commission was created.1awphi1.net

33 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-61461 August 21, 1987
EPITACIO SAN PABLO, (Substituted by Heirs of E. San
Pablo), petitioners,
vs.
PANTRANCO SOUTH EXPRESS, INC., respondent.
CARDINAL SHIPPING CORPORATION, petitioner,
vs.
HONORABLE BOARD OF TRANSPORTATION AND
PANTRANCO SOUTH EXPRESS, INC., respondents.
GANCAYCO, J.:
The question that is posed in these petitions for review is whether the sea
can be considered as a continuation of the highway. The corollary issue is
whether a land transportation company can be authorized to operate a ferry
service or coastwise or interisland shipping service along its authorized
route as an incident to its franchise without the need of filing a separate
application for the same.
The Pantranco South Express, Inc., hereinafter referred to as
PANTRANCO is a domestic corporation engaged in the land
transportation business with PUB service for passengers and freight and
various certificates for public conveniences CPC to operate passenger
buses from Metro Manila to Bicol Region and Eastern Samar. On March
27,1980 PANTRANCO through its counsel wrote to Maritime Industry
Authority (MARINA) requesting authority to lease/purchase a vessel
named M/V "Black Double" "to be used for its project to operate a
ferryboat service from Matnog, Sorsogon and Allen, Samar that will
provide service to company buses and freight trucks that have to cross San
Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was
informed by MARINA that it cannot give due course to the request on the
basis of the following observations:
1. The Matnog-Allen run is adequately serviced by
Cardinal Shipping Corp. and Epitacio San Pablo;
MARINA policies on interisland shipping restrict the
entry of new operators to Liner trade routes where these
are adequately serviced by existing/authorized operators.
2. Market conditions in the proposed route cannot support
the entry of additional tonnage; vessel acquisitions
intended for operations therein are necessarily limited to
those intended for replacement purposes only. 2
PANTRANCO nevertheless acquired the vessel MV "Black Double" on
May 27, 1981 for P3 Million pesos. It wrote the Chairman of the Board of
Transportation (BOT) through its counsel, that it proposes to operate a
ferry service to carry its passenger buses and freight trucks between Allen
and Matnog in connection with its trips to Tacloban City invoking the case
of Javellana vs. Public Service Commission. 3 PANTRANCO claims that
it can operate a ferry service in connection with its franchise for bus
operation in the highway from Pasay City to Tacloban City "for the
purpose of continuing the highway, which is interrupted by a small body
of water, the said proposed ferry operation is merely a necessary and
incidental service to its main service and obligation of transporting its
passengers from Pasay City to Tacloban City. Such being the case ... there
is no need ... to obtain a separate certificate for public convenience to
34 | P a g e
operate a ferry service between Allen and Matnog to cater exclusively to
its passenger buses and freight trucks. 4
Without awaiting action on its request PANTRANCO started to operate
said ferry service. Acting Chairman Jose C. Campos, Jr. of BOT ordered
PANTRANCO not to operate its vessel until the application for hearing on
Oct. 1, 1981 at 10:00 A.M. 5 In another order BOT enjoined
PANTRANCO from operating the MV "Black Double" otherwise it will
be cited to show cause why its CPC should not be suspended or the
pending application denied. 6
Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping
Corporation who are franchise holders of the ferry service in this area
interposed their opposition. They claim they adequately service the
PANTRANCO by ferrying its buses, trucks and passengers. BOT then
asked the legal opinion from the Minister of Justice whether or not a bus
company with an existing CPC between Pasay City and Tacloban City
may still be required to secure another certificate in order to operate a ferry
service between two terminals of a small body of water. On October 20,
1981 then Minister of Justice Ricardo Puno rendered an opinion to the
effect that there is no need for bus operators to secure a separate CPC to
operate a ferryboat service holding as follows:
Further, a common carrier which has been granted a
certificate of public convenience is expected to provide
efficient, convenient and adequate service to the riding
public. (Hocking Valley Railroad Co. vs. Public Utilities
Commission, 1 10 NE 521; Louiseville and NR Co. vs.
Railroad Commissioners, 58 SO 543) It is the right of the
public which has accepted the service of a public utility
operator to demand that the service should be conducted
with reasonable efficiency. (Almario, supra, citing 73
C.J.S. 990-991) Thus, when the bus company in the case
at bar proposes to add a ferry service to its Pasay Tacloban
route, it merely does so in the discharge of its duty under
its current certificate of public convenience to provide
adequate and convenient service to its riders. Requiring
said bus company to obtain another certificate to operate
such ferry service when it merely forms a part — and
constitutes an improvement — of its existing
transportation service would simply be duplicitous and
superfluous. 7
Thus on October 23, 1981 the BOT rendered its decision holding that the
ferry boat service is part of its CPC to operate from Pasay to Samar/Leyte
by amending PANTRANCO's CPC so as to reflect the same in this wise:
Let the original Certificate of public convenience granted
to Pantranco South Express Co., Inc. be amended to
embody the grant of authority to operate a private ferry
boat service as one of the conditions for the grant of the
certificate subject to the condition that the ferryboat shall
be for the exclusive use of Pantranco buses, its passengers
and freight trucks, and should it offer itself to the public
for hire other than its own passengers, it must apply for a
separate certificate of public convenience as a public ferry
boat service, separate and distinct from its land transport
systems. 8
Cardinal Shipping Corporation and the heirs of San Pablo filed separate
motions for reconsideration of said decision and San Pablo filed a
supplemental motion for reconsideration that were denied by the BOT on
July 21, 1981. 9
Hence, San Pablo filed the herein petition for review on certiorari with
prayer for preliminary injunction 10 seeking the revocation of said
decision, and pending consideration of the petition, the issuance of a
restraining order or preliminary injunction against the operation by
PANTRANCO of said ferry service. San Pablo raised the following issues:
35 | P a g e
A. DID THE RESPONDENT BOARD VIOLATE
PETITIONERS' RIGHT TO DUE PROCESS, THE
RULES OF PROCEDURE AND SECTION 16 (m) OF
THE PUBLIC SERVICE ACT, WHEN IT ISSUED IN A
COMPLAINT CASE THE DECISION DATED
OCTOBER 23, 1981 WHICH MOTU
PROPIO AMENDED RESPONDENT PANTRANCO'S
PUB CERTIFICATE TO INCLUDE AND AUTHORIZE
OPERATION OF A SHIPPING SERVICE ON THE
ROUTE MATNOG, SORSOGON — ALLEN, SAMAR
— EVEN AS THERE MUST BE A FORMAL
APPLICATION FOR AMENDMENT AND SEPARATE
PROCEEDINGS HELD THEREFORE, ASSUMING
AMENDMENT IS PROPER?
B. DID THE RESPONDENT BOARD ERR IN FINDING
IN ITS DECISION OF OCTOBER 23, 1981, THAT THE
SEA FROM THE PORT OF MATNOG, SORSOGON,
LUZON ISLAND TO THE PORT OF ALLEN, SAMAR
ISLAND, OR FROM LUZON ISLAND TO SAMAR
ISLAND IS A MERE FERRY OR CONTINUATION OF
THE HIGHWAY — IT BEING 23 KILOMETERS OF
ROUGH AND OPEN SEA AND ABOUT 2 HOURS
TRAVEL TIME REQUIRING BIG INTER-ISLAND
VESSELS, NOT MERE BARGES, RAFTS OR SMALL
BOATS UTILIZED IN FERRY SERVICE?
C. DID THE RESPONDENT BOARD ERR WHEN IT
RULED THAT RESPONDENT PANTRANCO'S
VESSEL M/V BLACK DOUBLE IS MERELY A
PRIVATE CARRIER, NOT A PUBLIC FERRY
OPERATING FOR PUBLIC SERVICE (ASSUMING
THAT THE MATNOG-ALLEN SEA ROUTE IS A
MERE FERRY OR CONTINUATION OF HIGHWAY)
EVEN IF SAID VESSEL IS FOR HIRE AND
COLLECTS SEPARATE FARES AND CATERS TO
THE PUBLIC EVEN FOR A LIMITED CLIENTELE?
D. DID THE RESPONDENT BOARD ERR WHEN IT
GRANTED RESPONDENT PANTRANCO
AUTHORITY TO OPERATE A SHIPPING SERVICE
IN THE FACE OF THE LATTER'S CONTENTION AS
AN AFTER THOUGH THAT IT NEED NOT APPLY
THEREFOR, AND IN SPITE OF ITS FAILURE TO
SECURE THE PRE-REQUISITE MARITIME
INDUSTRY AUTHORITY (MARINA) APPROVAL TO
ACQUIRE A VESSEL UNDER ITS MEMORANDUM
CIRCULAR NO. 8-A AS WELL AS ITS PRIOR
FAVORABLE ENDORSEMENT BEFORE ANY
SHIPPING AUTHORIZATION MAY BE GRANTED
UNDER BOT — MARINA AGREEMENT OF AUGUST
10, 1976 AND FEBRUARY 26, 1982?
E. DID RESPONDENT BOARD ERR WHEN IT
GRANTED RESPONDENT PANTRANCO
AUTHORITY TO OPERATE A SHIPPING SERVICE
ON A ROUTE ADEQUATELY SERVICED IF NOT
ALREADY "SATURATED" WITH THE SERVICES OF
TWO 12) EXISTING OPERATORS PETITIONERS
AND CARDINAL SHIPPING CORP.) IN VIOLATION
OF THE PRINCIPLE OF PRIOR OPERATOR
RULE'? 11
By the same token Cardinal Shipping Corporation filed a separate petition
raising similar issues, namely:
a. the decision did not conform to the procedures laid
down by law for an amendment of the original certificate
of public convenience, and the authority to operate a
private ferry boat service to PANTRANCO was issued
36 | P a g e
 without ascertaining the established essential requisites for
such grant, hence, violative of due process requirements;
b. the grant to PANTRANCO of authority to operate a
ferryboat service as a private carrier on said route
contravenes existing government policies relative to the
rationalization of operations of all water transport utilities;
c. it contravenes the memorandum of agreement between
MARINA and the Board of Transportation; d. the grant of
authority to operate a ferry service as a private carrier is
not feasible; it lessens PANTRANCO's liability to
passengers and cargo to a degree less than extraordinary
diligence?
e. PANTRANCO is not a private carrier when it operates
its ferry service;
f. it runs counter to the "old operator" doctrine; and
g. the operation by PANTRANCO of the ferry service
c•nstitutes undue competition.
The foregoing considerations constitutes the substantial
errors committed by the respondent Board which would
more than amply justify review of the questioned decision
by this Honorable Court.12
Both cases were consolidated and are now admitted for decision.
The resolution of all said issues raised revolves on the validity of the
questioned BOT decision.
The BOT resolved the issue of whether a ferry service is an extension of
the highway and thus is a part of the authority originally granted
PANTRANCO in the following manner:
A ferry service, in law, is treated as a continuation of the
highway from one side of the water over which passes to
the other side for transportation of passengers or of
travellers with their teams vehicles and such other
property as, they may carry or have with them. (U.S. vs.
Pudget Sound Nev. Co. DC Washington, 24 F. Supp.
431). It maybe said to be a necessary service of a specially
constructed boat to carry passengers and property across
rivers or bodies of water from a place in one shore to a
point conveniently opposite on the other shore and
continuation of the highway making a connection with the
thoroughfare at each terminal (U.S. vs. Canadian Pac.
N.Y. Co. 4 P. Supp, 85). It comprises not merely the
privilege of transportation but also the use for that purpose
of the respective landings with outlets therefrom. (Nole
vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry service
maybe a public ferry or a private ferry. A public ferry
service is one which all the public have the right to resort
to and for which a regular fare is established and the
ferryman is a common carrier be inbound to take an who
apply and bound to keep his ferry in operation and good
repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A ferry
(private) service is mainly for the use of the owner and
though he may take pay for ferriage, he does not follow it
as a business. His ferry is not open to the public at its
demand and he may or may not keep it in operation
(Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins.
696), Harrison, 140 Ark 158; 215 S.W. 698).
The ferry boat service of Pantranco is a continuation of
the highway traversed by its buses from Pasay City to
37 | P a g e
 Samar, Leyte passing through Matnog (Sorsogon) through
San Bernardino Strait to Alien (Samar). It is a private
carrier because it will be used exclusively to transport its
own buses, passengers and freight trucks traversing the
said route. It will cater exclusively to the needs of its own
clientele (passengers on board- Pantranco buses) and will
not offer itself indiscriminately for hire or for
compensation to the general public. Legally therefore,
Pantranco has the right to operate the ferry boat M/V
BLACK DOUBLE, along the route from Matnog
(Sorsogon) to Allen (Samar) and vice versa for the
exclusive use of its own buses, passengers and freight
trucks without the need of applying for a separate
certificate of public convenience or provisional authority.
Since its operation is an integral part of its land transport
system, its original certificate of public convenience
should be amended to include the operation of such
ferryboat for its own exclusive use
In Javellana 14 this Court recited the following definition of ferry :
The term "ferry" implied the continuation by means of
boats, barges, or rafts, of a highway or the connection of
highways located on the opposite banks of a stream or
other body of water. The term necessarily implies
transportation for a short distance, almost invariably
between two points, which is unrelated to other
transportation .(Emphasis supplied)
The term "ferry" is often employed to denote the right or
franchise granted by the state or its authorized
mandatories to continue by means of boats, an interrupted
land highway over the interrupting waters and to charge
toll for the use thereof by the public. In this sense it has
also been defined as a privilege, a liberty, to take tolls for
transporting passengers and goods across a lake or
stream or some other body of water, with no essential
difference from a bridge franchise except as to the mode
of transportation, 22 Am. Jur. 553.
A "ferry" has been defined by many courts as "a public
highway or thoroughfare across a stream of water or river
by boat instead of a bridge." (St. Clare Country v.
Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L.
ed. 518; etc.)
The term ferry is often employed to denote the right or
franchise granted by the state or its authorized
mandatories to continue by means of boats, an interrupted
land highway over the interrupting waters and to charge
toll for the use thereof by the public. (Vallejo Ferry Co.
vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864, Ann.
Cas. 1914C 1179; etc.) (Emphasis supplied)
"Ferry" is service necessity for common good to reach
point across a stream lagoon, lake, or bay. (U.S. vs.
Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)'
"Ferry" properly means a place of transit across a river or
arm of the sea, but in law it is treated as a franchise, and
defined as the exclusive right to carry passengers across a
river, or arm of the sea, from one vill to another, or to
connect a continuous line of road leading from township
or vill to another. (Canadian Pac. Ry. Co. vs. C.C. A.
Wash. 73 F. 2d. 831, 832)'
Includes various waters: (1) But an arm of the sea may
include various subordinate descriptions of waters, where
the tide ebbs and flows. It may be a river, harbor, creek,
basin, or bay; and it is sometimes used to designate very
38 | P a g e
 extensive reaches of waters within the projecting capes or
points or a country. (See Rex vs. Bruce, Deach C.C.
1093). (2) In an early case the court said: "The distinction
between rivers navigable and not navigable, that is, where
the sea does, or does not, ebb and flow, is very ancient.
Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The former
are called arms of the sea, while the latter pass under the
denomination of private or inland rivers" Adams vs. Pease
2 Conn. 481, 484. (Emphasis supplied)
In the cases of Cababa vs. Public Service Commission, 16 Cababa vs.
Remigio & Carillo and Municipality of Gattaran vs. Elizaga 17 this Court
considered as ferry service such water service that crosses rivers.
However, in Javellana We made clear distinction between a ferry service
and coastwise or interisland service by holding that:
We are not unmindful of the reasons adduced by the
Commission in considering the motorboat service between
Calapan and Batangas as ferry; but from our consideration
of the law as it stands, particularly Commonwealth Act
No. 146, known as the Public Service Act and the
provisions of the Revised Administrative Code regarding
municipal ferries and those regarding the jurisdiction of
the Bureau of Customs over documentation, registration,
licensing, inspection, etc. of steamboats, motorboats or
motor vessels, and the definition of ferry as above quoted
we have the impression and we are inclined to believe that
the Legislature intended ferry to mean the service either
by barges or rafts, even by motor or steam vessels,
between the banks of a river or stream to continue the
highway which is interrupted by the body of water, or in
some cases to connect two points on opposite shores of an
arm of the sea such as bay or lake which does not involve
too great a distance or too long a time to navigate But
where the line or service involves crossing the open sea
like the body of water between the province of Batangas
and the island of Mindoro which the oppositors describe
thus "the intervening waters between Calapan and
Batangas are wide and dangerous with big waves where
small boat barge, or raft are not adapted to the service,"
then it is more reasonable to regard said line or service as
more properly belonging to interisland or coastwise trade.
According to the finding of the Commission itself the
distance between Calapan is about 24 nautical miles or
about 44.5 kilometers. We do not believe that this is the
short distance contemplated by the Legislature in referring
to ferries whether within the jurisdiction of a single
municipality or ferries between two municipalities or
provinces. If we are to grant that water transportation
between Calapan and Batangas is ferry service, then there
would be no reason for not considering the same service
between the different islands of the Philippines, such as
Boac Marinduque and Batangas; Roxas City of Capiz and
Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian,
Samar and Surigao, Surigao; and Dumaguete, Negros
Oriental and Oroquieta or Cagayan de Oro.
The Commission makes the distinction between ferry
service and motorship in the coastwise trade, thus:
A ferry service is distinguished from a motorship or
motorboat service engaged in the coastwise trade in that
the latter is intended for the transportation of passengers
and/or freight for hire or compensation between ports or
places in the Philippines without definite routes or lines of
service.
We cannot agree. The definiteness of the route of a boat is
not the deciding factor. A boat of say the William Lines,
39 | P a g e
 Inc. goes from Manila to Davao City via Cebu,
Tagbilaran, Dumaguete, Zamboanga, every week. It has a
definite route, and yet it may not for that reason be
regarded as engaged in ferry service. Again, a vessel of
the Compania Maritima makes the trip from Manila to
Tacloban and back, twice a week. Certainly, it has a
definite route. But that service is not ferry service, but
rather interisland or coastwise trade.
We believe that it will be more in consonance with the
spirit of the law to consider steamboat or motorboat
service between the different islands, involving more or
less great distance and over more or less turbulent and
dangerous waters of the open sea, to be coastwise or
inter-island service. Anyway, whether said service
between the different islands is regarded as ferry service
or coastwise trade service, as long as the water craft used
are steamboats, motorboats or motor vessels, the result
will be the same as far as the Commission is concerned.
" 18 (Emphasis supplied)
This Court takes judicial notice of the fact, and as shown by an
examination of the map of the Philippines, that Matnog which is on the
southern tip of the island of Luzon and within the province of Sorsogon
and Allen which is on the northeastern tip of the island of Samar, is
traversed by the San Bernardino Strait which leads towards the Pacific
Ocean. The parties admit that the distance between Matnog and Allen is
about 23 kilometers which maybe negotiated by motorboat or vessel in
about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours
according to petitioners. As the San Bernardino Strait which separates
Matnog and Allen leads to the ocean it must at times be choppy and rough
so that it will not be safe to navigate the same by small boats or barges but
only by such steamboats or vessels as the MV "Black Double. 19
Considering the environmental circumstances of the case, the conveyance
of passengers, trucks and cargo from Matnog to Allen is certainly not a
ferry boat 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 ferry boat 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 MV "Black Double" that crosses Matnog to
Allen, 20 PANTRANCO cannot pretend that in issuing tickets to its
passengers it did so as a private carrier and not as a common carrier. The
Court does not see any reason why inspite of its amended franchise to
operate a private ferry boat service it cannot accept walk-in passengers just
for the purpose of crossing the sea between Matnog and Allen. Indeed
evidence to this effect has been submitted. 21 What is even more difficult
to comprehend is that while in one breath respondent PANTRANCO
claims that it is a private carrier insofar as the ferryboat service is
concerned, in another breath it states that it does not thereby abdicate from
its obligation as a common carrier to observe extraordinary diligence and
vigilance in the transportation of its passengers and goods. Nevertheless,
considering that the authority granted to PANTRANCO is to operate a
private ferry, it can still assert that it cannot be held to account as a
common carrier towards its passengers and cargo. Such an anomalous
40 | P a g e
situation that will jeopardize the safety and interests of its passengers and PANTRANCO is hereby permanently enjoined from operating the
the cargo owners cannot be allowed. ferryboat service and/or coastwise/interisland services between Matnog
and Allen until it shall have secured the appropriate Certificate of Public
What appears clear from the record is that at the beginning PANTRANCO Convenience (CPC) in accordance with the requirements of the law, with
planned to operate such ferry boat service between Matnog and Alien as a costs against respondent PANTRANCO.
common carrier so it requested authority from MARINA to purchase the
vessel M/V "Black Double 22 in accordance with the procedure provided
for by law for such application for a certificate of public
convenience. 23 However when its request was denied as the said routes
"are adequately serviced by existing/authorized operators, 24 it nevertheless
purchased the vessel and started operating the same. Obviously to go about
this obstacle to its operation, it then contrived a novel theory that what it
proposes to operate is a private ferryboat service across a small body of
water for the exclusive use of its buses, trucks and passengers as an
incident to its franchise to convey passengers and cargo on land from
Pasay City to Tacloban so that it believes it need not secure a separate
certificate of public convenience. 25 Based on this representation, no less
than the Secretary of Justice was led to render an affirmative opinion on
October 20, 1981, 26 followed a few days later by the questioned decision
of public respondent of October 23, 1981. 27 Certainly the Court cannot
give its imprimatur to such a situation.

Thus the Court holds that the water transport service between Matnog and
Allen is not a ferry boat service but a coastwise or interisland shipping
service. Before private respondent may be issued a franchise or CPC for
the operation of the said service as a common carrier, it must comply with
the usual requirements of filing an application, payment of the fees,
publication, adducing evidence at a hearing and affording the oppositors
the opportunity to be heard, among others, as provided by law. 28

WHEREFORE, the petitions are hereby GRANTED and the Decision of

the respondent Board of Transportation (BOT) of October 23, 1981 in
BOT Case No. 81-348-C and its Order of July 21, 1982 in the same case
denying the motions for reconsideration filed by petitioners are hereby
Reversed and set aside and declared null and void. Respondent

41 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-9907 June 30, 1958
LOURDES J. LARA, ET AL., plaintiffs-appellants,
vs.
BRIGIDO R. VALENCIA, defendant-appellant.
Castillo, Cervantes, Occeña, Lozano, Montana, Cunanan, Sison and
Castillo and Eligio G. Lagman for defendant-appellant.
Donato C. Endriga and Emigdio Dakanay for plaintiffs-appellants.
BAUTISTA ANGELO, J.:
This is an action for damages brought by plaintiffs against defendant in the
Court of First Instance of Davao for the death of one Demetrio Lara, Sr.
allegedly caused by the negligent act of defendant. Defendant denied the
charge of negligence and set up certain affirmative defenses and a
counterclaim.
The court after hearing rendered judgment ordering defendant to pay the
plaintiffs the following amount: (a) P10,000 as moral damages; (b) P3,000
as exemplary damages; and (c) P1,000 as attorney's fees, in addition to the
costs of action. Both parties appealed to this Court because the damages
claimed in the complaint exceed the sum of P50,000.
In their appeal, plaintiffs claim that the court a quo erred in disregarding
their claim of P41,400 as actual or compensatory damages and in awarding
as attorneys' fees only the sum of P1,000 instead of P3,000 as agreed upon
between plaintiffs and their counsel. Defendant, on the other hand,
disputes the finding of the court a quo that the oath of Demetrio Lara, Sr.
was due to the negligence of defendant and the portion of the judgment
which orders dependant to pay to plaintiffs moral and exemplary damages
as well as attorneys' fees, said defendant contending that the court should
have declared that the death of Lara was due to unavoidable accident.
The deceased was an inspector of the Bureau of Forestry stationed in
Davao with an annual salary of P1,800. The defendant is engaged in the
business of exporting logs from his lumber concession in Cotabato. Lara
went to said concession upon instructions of his chief to classify the logs
of defendant which were about to be loaded on a ship anchored in the port
of Parang. The work Lara of lasted for six days during which he contracted
malaria fever. In the morning of January 9, 1954, Lara who then in a hurry
to return to Davao asked defendant if he could take him in his pick-up as
there was then no other means of transportation, to which defendant
agreed, and in that same morning the pick-up left Parang bound for Davao
taking along six passengers, including Lara.
The pick-up has a front seat where the driver and two passengers can be
accommodated and the back has a steel flooring enclosed with a steel
walling of 16 to 17 inches tall on the sides and with a 19 inches tall
walling at the back. Before leaving Parang, the sitting arrangement was as
follows: defendant was at the wheel and seated with him in the front seat
were Mrs. Valencia and Nicanor Quinain; on the back of the pick-up were
two improvised benches placed on each side, and seated on the right bench
were Ricardo Alojipan and Antonio Lagahit, and on the left one Bernardo
and Pastor Geronimo. A person by the name of Leoning was seated on a
box located on the left side while in the middle Lara sat on a bag. Before
leaving Parang, defendant invited Lara to sit with him on the front seat but
Lara declined. It was their understanding that upon reaching barrio
Samoay, Cotabato, the passengers were to alight and take a bus bound for
42 | P a g e
Davao, but when they arrived at that place, only Bernardo alighted and the
other passengers requested defendant to allow them to ride with him up to
Davao because there was then no available bus that they could take in
going to that place. Defendant again accommodated the passengers.
When they continued their trip, the sitting arrangement of the passengers
remained the same, Lara being seated on a bag in the middle with his arms
on a suitcase and his head cove red by a jacket. Upon reaching Km. 96,
barrio Catidtuan, Lara accidentally fell from the pick-up and as a result he
suffered serious injuries. Valencia stopped the pick-up to see what
happened to Lara. He sought the help of the residents of that place and
applied water to Lara but to no avail. They brought Lara to the nearest
place where they could find a doctor and not having found any they took
him to St. Joseph's Clinic of Kidapawan. But when Lara arrived he was
already dead. From there they proceeded to Davao City and immediately
notified the local authorities. An investigation was made regarding the
circumstances surrounding the death of Lara but no criminal action was
taken against defendant.
It should be noted that the deceased went to the lumber concession of
defendant in Parang, Cotabato upon instructions of his chief in order to
classify the logs of defendant which were then ready to be exported and to
be loaded on a ship anchored in the port of Parang. It took Lara six days to
do his work during which he contracted malaria fever and for that reason
he evinced a desire to return immediately to Davao. At that time, there was
no available bus that could take him back to Davao and so he requested the
defendant if he could take him in his own pick-up. Defendant agreed and,
together with Lara, other passengers tagged along, most of them were
employees of the Government. Defendant merely accommodated them and
did not charge them any fee for the service. It was also their understanding
that upon reaching barrio Samoay, the passengers would alight and
transfer to a bus that regularly makes the trip to Davao but unfortunately
there was none available at the time and so the same passengers, including
Lara, again requested the defendant to drive them to Davao. Defendant
again accommodated them and upon reaching Km. 96, Lara accidentally
fell suffering fatal injuries.
It therefore appears that the deceased, as well his companions who rode in
the pick-up of defendant, were merely accommodation passengers who
paid nothing for the service and so they can be considered as invited guests
within the meaning of the law. As accommodation passengers or invited
guests, defendant as owner and driver of the pick-up owes to them merely
the duty to exercise reasonable care so that they may be transported safely
to their destination. Thus, "The rule is established by the weight of
authority that the owner or operator of an automobile owes the duty to
an invited guest to exercise reasonable care in its operation, and not
unreasonably to expose him to danger and injury by increasing the hazard
of travel. This rule, as frequently stated by the courts, is that an owner of
an automobile owes a guest the duty to exercise ordinary or reasonable
care to avoid injuring him. Since one riding in an automobile is no less a
guest because he asked for the privilege of doing so, the same obligation
of care is imposed upon the driver as in the case of one expressly invited to
ride" (5 Am. Jur., 626-627). Defendant, therefore, is only required to
observe ordinary care, and is not in duty bound to exercise extraordinary
diligence as required of a common carrier by our law (Articles 1755 and
1756, new Civil Code).
The question that now arises is: Is there enough evidence to show that
defendant failed to observe ordinary care or diligence in transporting the
deceased from Parang to Davao on the date in question?
The trial court answered the question in the affirmative but in so doing it
took into account only the following facts:
No debe perderse de vista el hecho, que los negocios de
exportacion de trozos del demandado tiene un volumen de P1,200.
Lara era empleado de la Oficina de Montes, asalariado por el
gobierno, no pagado por el demandado para classificar los trozos
exportados; debido a los trabajos de classificacion que duro 6 dias,
43 | P a g e
 en su ultimo dia Lara no durmio toda la noche, al dia siguiente,
Lara fue atacado de malaria, tenia inflamada la cara y cuerpo,
sufria dolores de cabeza con erupciones en la cara y cuerpo; que
en la manana, del dia 2 de enero de 1954, fecha en que Lara salio
de Davao para Parang, en aeroplano para clasificar los trozos del
demandado, el automobil de este condujo a aquel al aerodromo de
Davao.
xxx xxx xxx
El viaje de Cotabato a Davao no es menos de 8 horas, su carretera
esta en malas condiciones, desnivelada, con piedras salientes y
baches, que hacen del vehiculo no estable en su marcha. Lara
estaba enfermo de cierta gravedad, tenia el cuerpo y cara
inflamados, atacado de malaria, con dolores de cabeza y con
erupciones en la cara y cuerpo.
A la vista de estos hechos, el demandado debia de saber que era
sumamente peligroso llevar 5 pasajeros en la parte trasera del
pick-up; particularmente, para la salud de Lara; el permitirlo, el
demandado no ha tomado las precausiones, para evitar un posible
accidente fatal. La negative de Lara de ocupar el asiento delantero
del pick-up no constituye a juicio del Juzgado una defensa, pues el
demendado conociendo el estado delicado de salud de Lara, no
debio de haber permitido que aquel regrese a Davao en su pick-up;
si querria prestar a aquel un favor, debio de haver provisto a Lara
de un automobil para su regrese a Davao, ya que el demendado es
un millionario; si no podia prestar a aquel este favor, debio de
haver dejado a Lara en Samuay para coger aquel un camion de
pasajero de Cotabato a Davao.
Even if we admit as true the facts found by the trial court, still we find that
the same are not sufficient to show that defendant has failed to take the
precaution necessary to conduct his passengers safely to their place of
destination for there is nothing there to indicate that defendant has acted
with negligence or without taking the precaution that an ordinary prudent
man would have taken under similar circumstances. It should be noted that
Lara went to the lumber concession of defendant in answer to a call of
duty which he was bound to perform because of the requirement of his
office and he contracted the malaria fever in the course of the performance
of that duty. It should also be noted that defendant was not in duty bound
to take the deceased in his own pick-up to Davao because from Parang to
Cotabato there was a line of transportation that regularly makes trips for
the public, and if defendant agreed to take the deceased in his own car, it
was only to accommodate him considering his feverish condition and his
request that he be so accommodated. It should also be noted that the
passengers who rode in the pick-up of defendant took their respective seats
therein at their own choice and not upon indication of defendant with the
particularity that defendant invited the deceased to sit with him in the front
seat but which invitation the deceased declined. The reason for this can
only be attributed to his desire to be at the back so that he could sit on a
bag and travel in a reclining position because such was more convenient
for him due to his feverish condition. All the circumstances therefore
clearly indicate that defendant had done what a reasonable prudent man
would have done under the circumstances.
There is every reason to believe that the unfortunate happening was only
due to an unforeseen accident accused by the fact that at the time the
deceased was half asleep and must have fallen from the pick-up when it
ran into some stones causing it to jerk considering that the road was then
bumpy, rough and full of stones.
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
44 | P a g e
pick-up was open and he was then in a crouching position. Indeed, the law
provides that "A passenger must observe the diligence of a good father of
a family 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.

All things considered, we are persuaded to conclude that the accident

occurred not due to the negligence of defendant but to circumstances
beyond his control and so he should be exempt from liability.

Wherefore, the decision appealed from is reversed, without

pronouncement as to costs.

45 | P a g e
 passengers, mail, industrial flights and cargo by air in and between any
and all points and places throughout the Philippines and other countries",
on September 16, 1964, Fairways filed with CAB the corresponding
application for a "certificate of public convenience and necessity", which
Republic of the Philippines was Docketed as economic proceedings (EP) No. 625, and was objected to
SUPREME COURT by herein petitioner, Philippine Air Lines, Inc., hereinafter referred to as
Manila PAL. Subsequently, a CAB hearing officer began to receive evidence on
said application. After several hearings before said officer, or on
EN BANC December 14, 1964, Fairways filed an "urgent petition for provisional
authority to operate" under a detailed "program of implementation"
attached to said petition, and for the approval of its bond therefor, as well
G.R. No. L-24219 June 13, 1968
as the provisional approval of its "tariff regulations and the conditions of
carriage to be printed at the back of the passenger tickets." Despite PAL's
PHILIPPINE AIR LINES, INC., petitioner,
opposition thereto, in a resolution issued on January 5, 1965, CAB granted
vs.
said urgent petition of Fairways. The pertinent part of said resolution
CIVIL AERONAUTICS BOARD, and FILIPINAS ORIENT
provides:
AIRWAYS, INC., respondents.
Filipinas Orient Airways, Inc., (FAIRWAYS) having presented to
Crispin D. Baizas, Edgardo Diaz de Rivera and Cenon S. Cervantes, Jr.
the Board evidence showing prima facie its fitness, willingness
for petitioner.
and ability to operate the services applied for and the public need
Office of the Solicitor General for respondent Civil Aeronautics Board.
for more air transportation service, and to encourage and develop
Honorio Poblador and Ramon A. Pedrosa for respondent Filipinas Orient
commercial air transportation, RESOLVED, to grant, as the Board
Airways, Inc.
hereby grants, the said Filipinas Orient Airways, Inc., provisional
authority to operate scheduled and non-scheduled domestic air
CONCEPCION, C.J.: services with the use of DC-3 aircraft, subject to the following
conditions;
Original petition for certiorari, to set aside and annul a resolution of the
Civil Aeronautics Board — hereinafter referred to as CAB — granting 1. The term of the provisional authority herein granted shall be
respondent Filipinas Orient Airways Inc. — hereinafter referred to as until such time as the main application for a certificate of public
Fairways — "provisional authority to operate scheduled and non- convenience and necessity is finally decided or for such period as
scheduled domestic air services with the use of DC-3 aircrafts", subject to the Board may at any time determine;
specified conditions.
xxx xxx xxx
Pursuant to Republic Act No. 4147, granting thereto "a franchise to
establish, operate and maintain transport services for the carriage of

46 | P a g e
A reconsideration of this resolution having been denied, PAL filed the
present civil action alleging that, in issuing said resolution, CAB had acted
illegally and in excess of its jurisdiction or with grave abuse of discretion,
because:
(1) CAB is not empowered to grant any provisional authority to
operate, prior to the submission for decision of the main
application for a certificate of public convenience and necessity;
(2) CAB had no evidence before it that could have justified the
granting of the provisional authority complained of;
(3) PAL was denied due process when CAB granted said authority
before the presentation of its evidence on Fairway's main
application; and
(4) In granting said provisional authority, the CAB had prejudged
the merits of said application.
The first ground is devoid of merit. Section 10-C(1) of Republic Act No.
776, reading:
(C) The Board shall have the following specific powers and
duties:
(1) In accordance with the provisions of Chapter IV of this Act, to
issue, deny, amend, revise, alter, modify, cancel suspend or
revoke, in whole or in part, upon petitioner complaint, or upon its
own initiative, any temporary operating permit or Certificate of
Public Convenience and Necessity; Provided, however, That in the
case of foreign air carriers, the permit shall be issued with the
approval of the President of the Republic of the Philippines....
explicitly authorizes CAB to issue a "temporary operating permit," and
nothing contained, either in said section, or in Chapter IV of Republic Act
No. 776, negates the power to issue said "permit", before the completion
of the applicant's evidence and that of the oppositor thereto on the main
petition. Indeed, the CAB's authority to grant a temporary permit "upon its
own initiative," strongly suggests the power to exercise said authority,
even before the presentation of said evidence has begun.
Moreover, we perceive no cogent reason to depart, in connection with the
commercial air transport service, from the policy of our public service law,
which sanctions the issuance of temporary or provisional permits or
certificates of public convenience and necessity, before the submission of
a case for decision on the merits.1 The overriding considerations in both
instances are the same, namely, that the service be required by public
convenience and necessity, and, that the applicant is fit, as well as willing
and able to render such service properly, in conformity with law and the
pertinent rules, regulations and requirements.2
As regards PAL's second contention, we have no more than PAL's
assertion and conclusion regarding the absence of substantial evidence in
support of the finding, in the order complained of, to the effect that
Fairways' evidence had established " prima facie its fitness, willingness
and ability to operate the services applied for and the public need for more
transportation service ...". Apart from PAL's assertion being contradicted
by the tenor of said order, there is the legal presumption that official duty
has been duly performed.
Such presumption is particularly strong as regards administrative agencies,
like the CAB, vested with powers said to be quasi-judicial in nature, in
connection with the enforcement of laws affecting particular fields of
activity, the proper regulation and/or promotion of which requires a
technical or special training, aside from a good knowledge and grasp of the
overall conditions, relevant to said field, obtaining in the nation.3 The
consequent policy and practice underlying our Administrative Law is that
courts of justice should respect the findings of fact of said administrative
47 | P a g e
agencies, unless there is absolutely no evidence in support thereof or such
evidence is clearly, manifestly and patently insubstantial.4 This, in turn, is
but a recognition of the necessity of permitting the executive department to
adjust law enforcement to changing conditions, without being unduly
hampered by the rigidity and the delays often attending ordinary court
proceedings or the enactment of new or amendatory legislations. In the
case at bar, petitioner has not satisfactorily shown that the aforementioned
findings of the CAB are lacking in the necessary evidentiary support.

Needless to say, the case of Ang Tibay vs. C.I.R.5 on which petitioner
relies, is not in point. Said case refers to the conditions essential to a
valid decision on the merits, from the viewpoint of due process, whereas,
in the case at bar, we are concerned with an interlocutory order prior to the
rendition of said decision. In fact, interlocutory orders may sometimes be
issued ex parte, particularly, in administrative proceedings, without
previous notice and hearing, consistently with due process.6 Again, the
constitutional provision to the effect that "no decision shall be rendered by
any court of record without expressing therein clearly and distinctly the
facts and the law on which it is based",7 applies, not to such interlocutory
orders, but to the determination of the case on the merits.8

Lastly, the provisional nature of the permit granted to Fairways refutes the
assertion that it prejudges the merits of Fairways' application and PAL's
opposition thereto. As stated in the questioned order, CAB's findings
therein made reflect its view merely on the prima facie effect of the
evidence so far introduced and do not connote a pronouncement or an
advanced expression of opinion on the merits of the case.

WHEREFORE, the petition herein should be, as it is hereby, dismissed,

and the writ prayed for, denied, with costs against petitioner Philippine Air
Lines, Inc. It is so ordered.

48 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15122 March 10, 1920
THE UNITED STATES, plaintiff-appellee,
vs.
TAN PIACO, VENTURA ESTUYA, PEDRO HOMERES,
MAXIMINO GALSA and EMILIO LEOPANDO, defendants.
TAN PIACO, appellant.
Recaredo Ma. Calvo for appellant.
Attorney-General Paredes for appellee.
JOHNSON, J.:
Said defendants were charged with a violation of the Public Utility Law
(Act No. 2307 as amended by Acts Nos. 2362 and 2694), in that they were
operating a public utility without permission from the Public Utility
Commissioner.
Upon the complain presented each of said defendants were arrested and
brought to trial. After hearing the evidence the Honorable Cayetano
Lukban, judge, found that the evidence was insufficient to support the
charges against Ventura Estuya, Pedro Homeres, Maximino Galsa and
Emilio Leopando, and absolved them from all liability under the complaint
and discharged them from all liability under the complaint and discharged
them from the custody of the law. The lower court found the defendant
Tan Piaco guilty of the crime charged in the complaint and sentence him to
pay a fine of P100, and, in case of insolvency, to suffer subsidiary
imprisonment, and to pay one-fifth part of the costs. From that sentence
Tan Piaco appealed to this court.
The facts proved during the trial of the cause may be stated as follows:
The appellant rented two automobile trucks and was using them upon the
highways of the Province of Leyte for the purpose of carrying some
passengers and freight; that he carried passengers and freight under a
special contract in each case; that he had not held himself out to carry all
passengers and all freight for all persons who might offer passengers and
freight.
The Attorney-General, in a carefully prepared brief, says: "The question is
whether the appellant, under the above facts, was a public utility under the
foregoing definitions," and was therefore subject to the control and
regulation of the Public Utility Commission. "We have not found anything
in the evidence showing that the appellant operated the trucks in question
for public use. These trucks, so far as indicated by the evidence and as far
as the appellant is concerned, furnished service under special agreements
to carry particular persons and property. . . . For all that we can deduce
from the evidence, these passengers, or the owners of the freight, may
have controlled the whole vehicles 'both as to content, direction, and time
of use,' which facts, under all the circumstances of the case, would, in our
opinion, take away the defendant's business from the provisions of the
Public Utility Act."
In support of the conclusion of the Attorney-General, he cites the case
of Terminal Taxicab Co. vs. Kutz (241 U. S.. 252). In that case the
Terminal Taxicab Co. furnished automobiles from its central garage on
special orders and did not hold itself out to accommodate any and all
persons. The plaintiff reserve to itself the right to refuse service. The
Supreme Court of the United States, speaking through Mr. Justice Holmes,
said: "The bargains made by the plaintiff are individual, and however
much they may tend towards uniformity in price, probably have not the
49 | P a g e
mechanical fixity of charges that attend the use of taxicabs from the
stations to the hotels. The court is of the opinion that that part of the
business is not to be regarded as a public utility. It is true that all business,
and for the matter of that, every life in all its details, has a public aspect,
some bearing upon the welfare of the country in which it is passed." The
court held that by virtue of the fact that said company did not hold itself
out to serve any and all persons, it was not a public utility and was not
subject to the jurisdiction of the public utility commission.
Upon the facts adduced during the trial of the cause, and for the foregoing
reasons, the Attorney-General recommends that the sentence of the lower
court be revoked and that the appellant be absolved from all liability under
the complaint.
must look not only the character of the business to be done, but also to the
proposed mode of doing it. If the use is merely optional with the owners,
or the public benefit is merely incidental, it is not a public use, authorizing
the exercise of the jurisdiction of the public utility commission. There
must be, in general, a right which the law compels the power to give to the
general public. It is not enough that the general prosperity of the public is
promoted. Public use is not synonymous with public interest. The true
criterion by which to judge of the character of the use is whether the public
may enjoy it by right or only by permission.
For all of the foregoing reasons, we agree with the Attorney-General that
the appellant was not operating a public utility, for public use, and was
not, therefore, subject to the jurisdiction of the Public Utility Commission.

Section 14 of Act No. 2307, as amended by section 9 of Act No. 2694,
provides that: "The Public Utility Commission or Commissioners shall
have general supervision and regulation of, jurisdiction and control over,
all public utilities. . . . The term 'public utility' is hereby defined to include
every individual, copartnership, association, corporation or joint stock
company, etc., etc., that now or hereafter may own, operate, managed, or
control any common carrier, railroad, street railway, etc., etc., engaged in
the transportation of passengers, cargo, etc., etc., for public use."
Therefore, the sentence of the lower court is hereby revoked, and it is
hereby ordered and decreed that the complaint be dismissed and that the
defendant be absolved from all liability under the same, and that he be
discharged from the custody of the law, without any finding as to costs. So
ordered.

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

"Public use" means the same as "use by the public." The essential feature
of the public use is that it is not confined to privilege individuals, but is
open to the indefinite public. It is this indefinite or unrestricted quality that
gives it its public character. In determining whether a use is public, we

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 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-25599 April 4, 1968
HOME INSURANCE COMPANY, plaintiff-appellee,
vs.
AMERICAN STEAMSHIP AGENCIES, INC. and LUZON
STEVEDORING CORPORATION, defendants,
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.
William H. Quasha and Associates for plaintiff-appellee.
Ross, Selph, Salcedo and Associates for defendant-appellant.
BENGZON, J.P., J.:
"Consorcio Pesquero del Peru of South America" shipped freight pre-paid
at Chimbate, Peru, 21,740 jute bags of Peruvian fish meal through SS
Crowborough, covered by clean bills of lading Numbers 1 and 2, both
dated January 17, 1963. The cargo, consigned to San Miguel Brewery,
Inc., now San Miguel Corporation, and insured by Home Insurance
Company for $202,505, arrived in Manila on March 7, 1963 and was
discharged into the lighters of Luzon Stevedoring Company. When the
cargo was delivered to consignee San Miguel Brewery Inc., there were
shortages amounting to P12,033.85, causing the latter to lay claims against
Luzon Stevedoring Corporation, Home Insurance Company and the
American Steamship Agencies, owner and operator of SS Crowborough.
Because the others denied liability, Home Insurance Company paid the
consignee P14,870.71 — the insurance value of the loss, as full settlement
of the claim. Having been refused reimbursement by both the Luzon
Stevedoring Corporation and American Steamship Agencies, Home
Insurance Company, as subrogee to the consignee, filed against them on
March 6, 1964 before the Court of First Instance of Manila a complaint for
recovery of P14,870.71 with legal interest, plus attorney's fees.
In answer, Luzon Stevedoring Corporation alleged that it delivered with
due diligence the goods in the same quantity and quality that it had
received the same from the carrier. It also claimed that plaintiff's claim had
prescribed under Article 366 of the Code of Commerce stating that the
claim must be made within 24 hours from receipt of the cargo.
American Steamship Agencies denied liability by alleging that under the
provisions of the Charter party referred to in the bills of lading, the
charterer, not the shipowner, was responsible for any loss or damage of the
cargo. Furthermore, it claimed to have exercised due diligence in stowing
the goods and that as a mere forwarding agent, it was not responsible for
losses or damages to the cargo.
On November 17, 1965, the Court of First Instance, after trial, absolved
Luzon Stevedoring Corporation, having found the latter to have merely
delivered what it received from the carrier in the same condition and
quality, and ordered American Steamship Agencies to pay plaintiff
P14,870.71 with legal interest plus P1,000 attorney's fees. Said court cited
the following grounds:
(a) The non-liability claim of American Steamship Agencies under
the charter party contract is not tenable because Article 587 of the
Code of Commerce makes the ship agent also civilly liable for
damages in favor of third persons due to the conduct of the captain
of the carrier;
(b) The stipulation in the charter party contract exempting the
owner from liability is against public policy under Article 1744 of
the Civil Code;
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 (c) In case of loss, destruction or deterioration of goods, common
carriers are presumed at fault or negligent under Article 1735 of
the Civil Code unless they prove extraordinary diligence, and they
cannot by contract exempt themselves from liability resulting from
their negligence or that of their servants; and
(d) When goods are delivered to the carrier in good order and the
same are in bad order at the place of destination, the carrier
is prima facie liable.
Disagreeing with such judgment, American Steamship Agencies appealed
directly to Us. The appeal brings forth for determination this legal issue: Is
the stipulation in the charter party of the owner's non-liability valid so as
to absolve the American Steamship Agencies from liability for loss?
The bills of lading,1 covering the shipment of Peruvian fish meal provide
at the back thereof that the bills of lading shall be governed by and subject
to the terms and conditions of the charter party, if any, otherwise, the bills
of lading prevail over all the agreements.2 On the of the bills are stamped
"Freight prepaid as per charter party. Subject to all terms, conditions and
exceptions of charter party dated London, Dec. 13, 1962."
A perusal of the charter party3 referred to shows that while the possession
and control of the ship were not entirely transferred to the charterer,4 the
vessel was chartered to its full and complete capacity (Exh. 3).
Furthermore, the, charter had the option to go north or south or vice-
versa,5 loading, stowing and discharging at its risk and
expense.6 Accordingly, the charter party contract is one of affreightment
over the whole vessel rather than a demise. As such, the liability of the
shipowner for acts or negligence of its captain and crew, would remain in
the absence of stipulation.
Section 2, paragraph 2 of the charter party, provides that the owner is
liable for loss or damage to the goods caused by personal want of due
diligence on its part or its manager to make the vessel in all respects
seaworthy and to secure that she be properly manned, equipped and
supplied or by the personal act or default of the owner or its manager. Said
paragraph, however, exempts the owner of the vessel from any loss or
damage or delay arising from any other source, even from the neglect or
fault of the captain or crew or some other person employed by the owner
on board, for whose acts the owner would ordinarily be liable except for
said paragraph..
Regarding the stipulation, the Court of First Instance declared the contract
as contrary to Article 587 of the Code of Commerce making the ship agent
civilly liable for indemnities suffered by third persons arising from acts or
omissions of the captain in the care of the goods and Article 1744 of the
Civil Code under which a stipulation between the common carrier and the
shipper or owner limiting the liability of the former for loss or destruction
of the goods to a degree less than extraordinary diligence is valid provided
it be reasonable, just and not contrary to public policy. The release from
liability in this case was held unreasonable and contrary to the public
policy on common carriers.
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.
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And furthermore, in a charter of the entire vessel, the bill of lading issued
by the master to the charterer, as shipper, is in fact and legal contemplation
merely a receipt and a document of title not a contract, for the contract is
the charter party.10 The consignee may not claim ignorance of said charter
party because the bills of lading expressly referred to the same.
Accordingly, the consignees under the bills of lading must likewise abide
by the terms of the charter party. And as stated, recovery cannot be had
thereunder, for loss or damage to the cargo, against the shipowners, unless
the same is due to personal acts or negligence of said owner or its
manager, as distinguished from its other agents or employees. In this case,
no such personal act or negligence has been proved.

WHEREFORE, the judgment appealed from is hereby reversed and

appellant is absolved from liability to plaintiff. No costs. So ordered.

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