found in Magna Charta, and, in substance if not in form, in nearly or quite all the
Supreme Court Case: Munn v. Illinois 1877
Introduction
This case involved the right of the Illinois legislature to prescribe maximum charges for the
storage of grain. Its implications, however, were far more sweeping, because it directly affected
the constitutionality of state railroad regulation as well. The case arose because nine business
firms acting together were able to fix the prices of storage and handling in Chicago grain
elevators and warehouses, through which the produce of a vast middle-western farming area had
to pass on its way to market. The Illinois legislature passed a law regulating warehouse storage
charges. When the Illinois law was tested in the Supreme Court, the problem before the Court
was to find a legal basis for regulating such property as grain elevators and railroads without
setting a precedent for the regulation of all private property. For precedent, Chief Justice
Morrison R. Waite went back to Sir Matthew Hale, a seventeenth-castury English jurist, whe had
laid down the principle that property "affected with a public interest" ceases to be an object of
private law alone and becomes liable to public regulation. Having applied this doctrine to
elevators, Chief Justice Waite in other cases applied it to railroads as well. The Munn decision set
a legal foundation for regulation, but its value was whittled down by later decisions which took
their cue from Justice Field`s dissent in this case.
Mr. Chief Justice Waite delivered the opinion of the court.
The question to be determined in this case is whether the general assembly of Illinois can, under
the limitations upon the legislative powers of the States imposed by the Constitution of the
United States, fix by law the maximum of charges for the Storage of grain in warehouses at
Chicago and other places in the State having not less than one hundred thousand inhabitants,
"in which grain is stored in bulk, and in which the grain of different owners is mixed together, or
in which grain is stored in such a manner that the identity of different lots or parcels cannot be
accurately preserved."
It is claimed that such a law is repugnant-
1. To that part of sect. 8, art. I, of the Constitution of the United States which confers
upon Congress the power "to regulate commerce with foreign nations and among the
several States;"
2. To that part of sect. 9 of the same article which provides that "no preference shall be
given by any regulation of commerce or revenue to the ports of one State over those of
another;" and
3. 3. To that part of amendment 14 which ordains that no State shall "deprive any person
of life, liberty, or property, without due process of law, nor deny to any person within
its jurisdiction the equal protection of the laws."
We will consider the last of these objections first. .
The Constitution contains no definition of the word "deprive," as used in the Fourteenth
Amendment. To detenmine its signification, therefore, it is necessary to ascertain the effect
which usage has given it, when employed in the same or a like connection.
While this provision of the amendment is new in the Constitution of the United States, as a
limitation upon the powers of the States, it is old as a principle of civilized government. It is
constitutions that have been from time to time adopted by the several States of the Union.
By the Fifth Amendment, it was introduced into the Constitution of the United States as a
limitation upon the powers of the national government, and by the Fourteenth, as a
guarantee against any encroachment upon an acknowledged right of cilizenship by the
legislatures of the States. -
When one becomes a member of society, he encessarily parts with some rights or privileges
which, as an individual not affected by his relations to others, he might retain. "A body
politic," as aptly defined in the preamble of the Constitution of Massachusetts,
"is a social compact by which the whole people covenants with each citizen, and
each citizen with the whole people, that all shall be governed by certain laws for
the common good."
This does not confer power upon the whole people to control rights which are purely and
exclusively private - . - but it does authorize the establishment of laws requiring each citizen to so
conduct himself, and so use his own property, as not unnecessarily to injure another. - . - From
this source came the police powers, which, as was said by Mr. Chief Justice Taney in the License
Cases - . - are nothing more or less than the powers of government inherent in every sovereignty,
- . - that is to say, - . - the power to govern men and things." Under these powers the government
regulates the conduct of its citizens one towards another, and the manner in which each shall use
his own property, when such regulation becomes necessary for the public good.
From this it is apparent that, down to the time of the adoption of the Fourteenth Amendment, it
was not sub posed that statutes regulating the use, or even the price of the use, of private
property necessarily deprived an owner of his property without due process of law. Under some
circumstances they may, but not under all. The amendment does not change the law in this
particular: it simply prevents the States from doing that which will operate as such a deprivation.
This brings us to inquire as to the principles upon which this power of regulation rests, in ord~
that we may determine what is within and what without its operative effect. Looking, then, to the
common law, from whence came the right which the Constitution protects, we find that when
private property is "affected with `a public interest, it ceases to be juris privati only." This was
said by Lord Chief Justice Hale more than two hundred years ago, in his treatise De Port ib us
Maris . . . and has been accepted without objection as an essential element in the law of property
ever since. Property does become clothed with a public interest when used in a manner to make
it of public consequence, and affect the community at large. When, therefore, one devotes his
property to a use in which the public has an interest, he, in effect, grants to the public an interest
in that use, and must submit to be controlled by the public for the common good, to the extent of
the interest he has thus created. He may withdraw his grant by discontinuing the use; but, so
long as he maintains the use, he must submit to the control. .
From the same source comes the power to regulate the charges of common carriers, which was
done in England as long ago as the third year of the reign of William and Mary, and continued
until within a comparatively recent period. .
Common carriers exercise a sort of public office, and have duties to perform in which the public
is interested. . . . Their business is, therefore, "affected with a public interest," within the
meaning of the doctrine which Lord Hale has so forcibly stated.
But we need not go further. Enough has already been said to show that, when private property is
devoted to a public use, it is subject to public regulation. It remains only to ascertain whether the
warehouses of these plaintiffs in error, and the business which is carried on there, come within
the operation of this principle. .
Neither is it a matter of any moment that no precedent can be found for a statute precisely like
this. It is conceded that the business is one of recent origin, that its growth has been rapid, and
that it is already of great importance. And it must also be conceded that it is a business in which
the whole public has a direct and positive interest. It presents, therefore, a case for the
applicatior of a long-known and well-established principle in social science, and this statute
simply extends the law so as to meet this new development of commercial progress. There is no
attempt to compel these owners to grant the public an interest in their property, but to decline
their obligations, if they use it in this particular manner.
It is insisted, however, that the owner of property is entitled to a reasonable compensation for its
use, even though it be clothed with a public interest, and that what is reasonable is a judicial and
not a legislative question.
As has already been shown, the practice has been otherwise. In countries where the common law
prevails, it has been customary from time immemorial for the legislature to declare what shall be
a reasonable compensation under such circumstances, or perhaps more properly speaking, to fix
a maximum beyond which any charge made would be unreasonable. Undoubtedly in mere
private contracts, relating to matters in which the public has no interest, what is reasonable must
be ascertained judicially. But this is because the legislature has no control over such a contract.
So, too, in matters which do not affect the public interest, and as to which legislative control may
be exercised . . . the courts must determine what is reasonable. The controlling fact is the power
to regulate at all. If that exists, the right to establish the maximum of charge, as one of the means
of regulation, is implied.
We know that this is a power which may be abused; but that is no argument against its existence.
For protection against abuses by legislatures the people must resort to the polls, not to the
courts. .
We come now to consider the effect upon this statute of the power of Congress to regulate
commerce. .
The warehouses of these plaintiffs in error are situated and their business carried on exclusively
within the limits of the State of lllinois. They are used as instruments by those engaged in State
as well as those engaged in inter-state commerce. . . . Incidentally they may come connected with
inter-state commerce, but not necessarily so. Their regulation is a thing of domestic concern and,
certainly, until Congress acts in reference to their interstate relations, the State may exercise all
the powers of government over them, even though in so doing it may indirectly operate upon
commerce outside its immediate jurisdiction. .
Justice Stephen J. Field dissenting
This dissent became one of the most important in the history of the Supreme Court when it
began to influence subsequent decisions governing the regulatory power of the states. Justice
Field denounced the decision as "subversive of the rights of private property" and of "the
constitutional prohibition that no state shall deprive any person of his property except by due
process of law." In later years the Court receded from Chief Justice Waite`s position that for
protection against legislative abuse of the regulatory power "the people must resort to the polls,
not to the courts." In 1890, the Court dealt a vital blow to the doctrine of Munn v. Illinois; in
the Minnesota Rate Case (Chicago, Minneapolis and St. Paul Railroad Co. v. Minnesota) it
declared unconstitutional a Minnesota law providing that the ruling of a state regulatory
commission as to the reasonableness of rates should be final, and that no appeal could be made
to the courts. The Court found this provision a violation of due process of law, and said that the
question of the reasonableness of a rate "is eminently a question for fudicIal investigation."
In Reagan v. Farmers` Loan and Trust Co. (1894), the Court asserted its right not only to pass
on the reasonableness of a rate but, further, to award returns to shippers who it found had paid
excessive charges. Finally, in Smyth v. Ames (1898) it declared that courts could not only decide
on reasonableness but also on whether the designated rate gave the business firm a fair return on
a fair valuation of its investment. Thus by the end of the century, the Court had moved to a
position similar to Field`s in 1877; and many new developments had to take place before
railroads could be regulated effectively by the federal government.
The question presented, therefore, is one of the greatest importance,-whether it is within the
competency of a State to fix the compensation which an individual may receive for the use of his
own property in his private business, and for his services in connection with it.
The declaration of the Constitution [of the state of Illinois] of 1870, that private buildings used
for private purposes shall be deemed public institutions, does not make them so. The receipt and
storage of grain in a building erected by private means for that purpose does not constitute the
building a public warehouse. There is no magic in the language, though used by a constitutional
convention, which can change a private business into a public one, or alter the character of the
building in which the business is transacted. A tailor's or a shoemaker's shop would still retain its
private character, even though the assembled wisdom of the State should declare, by organic act
or legislative ordinance, that such a place was a public workshop, and that the workmen were
public tailors or public shoemakers. One might as well attempt to change the nature of colors, by
giving them a new designation. The defendants were no more public warehousemen, as justly
observed by counsel, than the merchant who sells his merchandise to the public is a public
merchant, or the blacksmith who shoes horses for the public is a public blacksmith; and it was a
strange notion that by calling them so they would be brought under legislative control.
The Supreme Court of the State-divided, it is true, by three to two of its members-has held that
this legislation was a legitimate exercise of State authority over private business; and the
Supreme Court of the United States, two only of its members dissenting, has decided that there is
nothing in the Constitution of the United States, or its recent amendments, which impugns its
validity. It is, therefore, with diffidence I presume to question the soundness of the decision.
The validity of the legislation was, among other grounds, assailed in the State court as being in
conflict with that provision of the State Constitution which declares that no person shall be
deprived of life, liberty, or property without due process of law, and with that provision of the
Fourteenth Amendment of the Federal Constitution which imposes a similar restriction upon the
action of the State. . . . In this court the legislation was also assailed on the same ground, our
jurisdiction arising upon the clause of the Fourteenth Amendment, ordaining that no State shall
deprive any person of life, liberty, or property without due process of law. But it would seem
from its opinion that the court holds that property loses something of its private character when
employed in such a way as to be generally useful. The doctrine declared is that property
"becomes clothed with a public interest when used in a manner to make it of public consequence,
and affect the community at large;"
and from such clothing the right of the legislative is deduced to control the use of the property,
and to determine the compensation which the owner may receive for it. When Sir Matthew Hale,
and the sages of the law in his day, spoke of property as affected by a public interest, and ceasing
from that cause to be juris privati solely, that is, ceasing to be held merely in private right, they
referred to property dedicated by the owner to public uses, or to property the use of which was
granted by the government, or in connection with which special privileges were conferred. provision has been supposed to secure to every individual the essential conditions for the pursuit
Unless the property was thus dedicated, or some right bestowed by the government was held of happiness; and for that reason has not been heretofore, and should never be, construed in any
with the property, either by specific grant or by prescription of so long a time as to imply a grant narrow or restricted sense.
originally, the property was not affected by any public interest so as to be taken out of the
category of property held in private right. But it is not in any such sense that the terms "clothing No State
property with a public interest" are used in this case. From the nature of the business under
consideration-the storage of grain-which, in any sense in which the words can be used, is a
"shall deprive any person of life, liberty, or property without due process of law,"
private business, in which the public are interested only as they are interested in the storage of
other products of the soil, or in articles of manufacture, it is clear that the court intended to says the Fourteenth Amendment to the Constitution. By the term "life," as here used, something
declare that, whenever one devotes his property to a business which is useful to the public,- more is meant than mere animal existence. The inhibition against its deprivation extends to all
"affects the community at large,"-the legislature can regulate the compensation which the owner those limbs and faculties by which life is enjoyed. The provision equally prohibits the mutilation
may receive for its use, and for his own services in connection with it. of the body by the amputation of an arm or leg, or the putting out of an eye, or the destruction of
any other organ of the body through which the soul communicates with the outer world. The
"When, therefore,"
deprivation not only of life, but of whatever God has given to every one with life, for its growth
says the court, and enjoyment, is prohibited by the provision in question, if its efficacy be not frittered away by
judicial decision.
"one devotes his property to a use in which the public has an interest, he, in effect, grants to the
public an interest in that use, and must submit to be controlled by the public for the common By the term "liberty," as used in the provision, something more is meant than mere freedom
good, to the exent of the interest he has thus created. He may withdraw his grant by from physical restraint or the bounds of a prison. It means freedom to go where one may choose,
discontinuing the use; but, so long as he maintains the use, he must submit to the control." and to act in such manner, not inconsistent with the equal rights of others, as his judgment may
dictate for the promotion of his happiness; that is, to pursue such callings and avocations as may
The building used by the defendants was for the storage of grain: in such storage, says the court, be most suitable to develop his capacities, and give to them their highest enjoyment.
the public has an interest; therefore the defendants, by devoting the building to that storage,
have granted the public an interest in that use, and must submit to have their compensation
regulated by the legislature. The same liberal construction which is required for the protection of life and liberty, in all
particulars in which life and liberty are of any value, should be applied to the protection of
private property. If the legislature of a State, under pretence of providing for the public good, or
If this be sound law, if there be no protection, either in the principles upon which our republican for any other reason, can determine, against the consent of the owner, the uses to which private
government is founded, or in the prohibitions of the Constitution against such invasion of property shall be devoted, or the prices which the owner shall receive for its uses, it can deprive
private rights, all property and all business in the State are held at the mercy of a majority of its him of the property as completely as by a special act for its confiscation or destruction.
legislature. The public has no greater interest in the use of buildings for the storage of grain than
it has in the use of buildings for the residences of families, nor, indeed, any thing like so great an
interest; and, according to the doctrine announced, the legislature may fix the rent of all
tenements used for residences, without reference to the cost of their erection. If the owner does
not like the rates prescribed, he may cease renting his houses. . Indeed, there is hardly an
enterprise or business engaging the attention and labor of any considerable portion of the
community, in which the public has not an interest in the sense in which that term is used by the
court in its opinion; and the doctrine which allows the legislature to interfere with and regulate
the charges which the owners of property thus employed shall make for its use, that is, the rates
at which all these different kinds of business shall be carried on, has never before been asserted,
so far as I am aware, by any judicial tribunal in the United States.

The doctrine of the State court, that no one is deprived of his property, within the meaning of the
constitutional inhibition, so long as he retains its title and possession, and the doctrine of this
court, that, whenever one s property is used in such a manner as to affect the community at
large, it becomes by that fact clothed with a public interest, and ceases to be juris privati only,
appear to me to destroy, for all useful purposes, the efficacy of the constitutional guarantee. All
that is beneficial in property arises from its use, and the fruits of that use; and whatever deprives
a person of them deprives him of all that is desirable or valuable in the title and possession. If the
constitutional guarantee extends no further than to prevent a deprivation of title and possession,
and allows a deprivation of use, and the fruits of that use, it does not merit the encomiums it has
received. Unless I have misread the history of the provision now incorporated into all our State
constitutions, and by the Fifth and Fourteenth Amendments into our Federal Constitution, and
have misunderstood the interpretation it has received, it is not thus limited in its scope, and thus
impotent for good. It has a much more extended operation than either court, State, or Federal
has given to it. The provision, it is to be observed, places property under the same protection as
life and liberty. Except by due process of law, no State can deprive any person of either. The
Luzon Stevedoring Co. Inc. and Visayan Stevedore Transportation Co. vs. Public
Service Commission
93 Phil. 735 | Tuason, J.

Facts: Petitioners are engaged in the stevedoring or lighterage and harbor towage business. They
are also engaged in interisland service which consist of hauling cargoes such as sugar, oil, fertilizer
and other commercial commodities. There is no fixed route in the transportation of these cargoes,
the same being left at the indication of the owner or shipper of the goods. Petitioners, in their
hauling business, serve only a limited portion of the public.

The Philippine Shipowners Association complained to the Public Service Commission that
petitioners were engaged in the transportation of cargo in the Philippines for hire or compensation
without authority or approval of the Commission. The rates petitioners charged resulted in
ruinous competition.
The Public Service Commission restrained petitioners from further operating their watercraft to
transport goods for hire or compensation between points in the Philippines until the commission
approves the rates they propose to charge.

Issue: Whether the petitioners fall under the definition in Section 13 (b) of the Public Service Law
(C.A. Act No. 146)?

Held: Yes. It is not necessary under said definition that one holds himself out as serving or willing
to serve the public in order to be considered public service. It is not necessary, in order to be a
public service, that an organization be dedicated to public use, i.e., ready and willing to serve the
public as a class. It is only necessary that it must in some way be impressed with a public interest;
and whether the operation of a business is a public utility depends upon whether or not the service
rendered by it is of a public character and of public consequence and concern.
It can scarcely be denied that the contracts between the owners of the barges and the owners of
the cargo at bar were ordinary contracts of transportation and not of lease. Petitioners watercraft
was manned entirely by crews in their employ and payroll, and the operation of the said craft was
under their direction and control, the customers assuming no responsibility for the goods handled
on the barges.

C.A. No. 146 clearly declares that an enterprise of any of the kinds therein enumerated is a public
service if conducted for hire or compensation even if the operator deals only with a portion of the
public or limited clientele. Public utility, even where the term is not defined by statute, is not
determined by the number of people actually served.
The Public Service Law was enacted not only to protect the public against unreasonable charges
and poor, inefficient service, but also to prevent ruinous competition.
Just as the legislature may not declare a company or enterprise to be a public utility when it is not
inherently such, a public utility may not evade control and supervision of its operation by the
government by selecting its customers under the guise of private transactions.

Doctrine: An enterprise of any of the kinds enumerated in the Public Service Law is a public
service if conducted for hire or compensation even if the operator deals only with a portion of the
public or with limited clientele.
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY REGULATORY
BOARD petitioner,
vs.
MANILA ELECTRIC COMPANY, respondent.
Facts:
The MERALCO filed with the energy Regulatory Body (ERB), an application for the revision of
its rate schedules. The application reflected an average increase of 21 centavos per kilowatthour
(kwh) in its distribution charge. The application also included a prayer for provisional approval
of the increase pursuant to Section 16(c) of the Public Service Act and Section 8 of Executive
Order No. 172.
On January 28, 1994, the ERB issued an Order granting a provisional increase of P0.184 per
kwh, subject to the following condition. 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 and to submit a copy thereof to the ERB immediately
upon completion.
In February 1997, COA submitted its "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. Subsequently, the ERB rendered its decision
adopting the above recommendations and authorized MERALCO to implement a rate
adjustment. 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.
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. Separate Motions for Reconsideration filed by the petitioners were denied by the Court of
Appeals.
Issues:
1. Whether 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
2. Whether in rejecting the net average investment method used by the COA and the ERB, it
should adopt the average investment method used by MERALCO.
Held:
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.
In regulating rates charged by public utilities, the State protects the public against arbitrary and
excessive rates while maintaining the efficiency and quality of services rendered. However, the
power to regulate rates does not give the State the right to prescribe rates which are so low as to
deprive the public utility of a reasonable return on investment. Thus, the rates prescribed by the
State must be one that yields a fair return on the public utility upon the value of the property
performing the service and one that is reasonable to the public for the services rendered. 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.
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.
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. 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. The ERB correctly ruled that
income tax should not be included in the computation of operating expenses of a public utility.
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. 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.
The petitions are granted but the decision of the Court of Appeals 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 kilowatt-hour 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.
Albano vs. Reyes
175 SCRA 264 | Paras, J.
Facts:
The Philippine Ports Authority (PPA) board directed the PPA management to prepare for the
public bidding of the development, management and operation of the Manila International
Container Terminal (MICT) at the Port of Manila. A Bidding Committee was formed by the DOTC
for the public bidding. After evaluation of several bids, the Bidding Committee recommended the
award of the contract to respondent International Container Terminal Services, Inc. (ICTSI).
Accordingly, Rainerio Reyes, then DOTC secretary, declared the ICTSI consortium as the winning
bidder.
On May 18, 1988, the President of the Philippines approved the same with directives that PPA
shall still have the responsibility for planning, detailed engineering, construction, expansion,
rehabilitation and capital dredging of the port, as well as the determination of how the revenues
of the port system shall be allocated for future works; and the contractor shall not collect taxes and
duties except that in the case of wharfage or tonnage dues.
Petitioner Albano, as taxpayer and Congressman, assailed the legality of the award and claimed
that since the MICT is a public utility, it needs a legislative franchise before it can legally operate
as a public utility.
ISSUE: Whether a franchise is needed for the operation of the MICT?
Held: No. While the PPA has been tasked under E.O. No. 30 with the management and operation
of the MICT and to undertake the provision of cargo handling and port related services thereat,
the law provides that such shall be in accordance with P.D. 857 and other applicable laws and
regulations. P.D. 857 expressly empowers the PPA to provide services within Port Districts
whether on its own, by contract, or otherwise.
Even if the MICT is considered a public utility, its operation would not necessarily need a franchise
from the legislature because the law has granted certain administrative agencies the power to grant
licenses for or to authorize the operation of public utilities. Reading E.O. 30 and P.D. 857 together,
it is clear that the lawmaker has empowered the PPA to undertake by itself the operation and
management of the MICP or to authorize its operation and management by another by contract or
other means, at its option.
Doctrine: The law granted certain administrative agencies the power to grant licenses for the
operation of public utilities. Theory that MICT is a wharf or a dock, as contemplated under the
Public Service Act, would not necessarily call for a franchise from the Legislative Branch.
KMU v. GARCIA
239 SCRA 386
FACTS:
The Department of Transportation and Communication (DOTC) and the Land Transportation
Franchising and Regulatory Board (LTFRB) released memoranda allowing provincial bus
operators to charge passengers rates within 15% above and below the official LTFRB rate for a
period of one year. Provincial Bus Operators Association of the Philippines applied for fare rate
increase. This was opposed by the Philippine Consumer Foundation, Inc. and Perla Bautista as
they were exorbitant and unreasonable.
ISSUE:
Whether or not the provincial bus operators have authority to reduce and increase fare rates
based on the order of the LTFRB
HELD:
The Legislature delegated to the defunct Public Service Commission the power of fixing rates of
public services and the LTFRB is likewise vested with the same. Such delegation is permitted in
order to adapt to the increasing complexity of modern life. The authority given by the LTFRB to
the provincial bus operators to set a fare range is illegal and invalid as it is tantamount to an
undue delegation of legislative authority. Potestas delegata non delegari protest. What has been
delegated cannot be delegated. A further delegation of power would constitute a negation of the
duty in violation of the trust reposed in the delegate mandated to discharge it directly. The policy
of allowing the provincial bus operators to change their fares would lead to a chaotic situation
and would leave the riding public at the mercy of transport operators.
KILUSANG MAYO UNO LABOR CENTER vs.HON. JESUS B. GARCIA, JR., the LAND
TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL BUS
OPERATORS ASSOCIATION OF THE PHILIPPINES G.R. No. 115381 December 23, 1994
FACTS :
Then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then
LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge
passengers rates within a range of 15% above and 15% below the LTFRB official rate for a period
of one (1) year.
This range was later increased by LTFRB thru a Memorandum Circular No. 92-009 providing,
among others, that "The existing authorized fare range system of plus or minus 15 per cent for
provincial buses and jeepneys shall be widened to 20% and -25% limit in 1994 with the
authorized fare to be replaced by an indicative or reference rate as the basis for the expanded
fare range."
Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of
the DOTC allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed
fare without first having filed a petition for the purpose and without the benefit of a public
hearing, announced a fare increase of twenty (20%) percent of the existing fares.
On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward
adjustment of bus fares, which the LTFRB dismissed for lack of merit.
ISSUE:
Whether or not the authority given by respondent LTFRB to provincial bus operators to set a fare
range of plus or minus fifteen (15%) percent, later increased to plus twenty (20%) and minus
twenty-five (-25%) percent, over and above the existing authorized fare without having to file a
petition for the purpose, is unconstitutional, invalid and illegal.
HELD:
Yes.
xxx
Under section 16(c) of the Public Service Act, the Legislature delegated to the defunct Public
Service Commission the power of fixing the rates of public services. Respondent LTFRB, the
existing regulatory body today, is likewise vested with the same under Executive Order No. 202
dated June 19, 1987. x x x However, nowhere under the aforesaid provisions of law are the
regulatory bodies, the PSC and LTFRB alike, authorized to delegate that power to a common
carrier, a transport operator, or other public service.
Francisco Tatad vs Jesus Garcia, Jr.

243 SCRA 436 Business Organization Corporation Law Corporate Nationality Public
Utility Nationality Requirement in Nationalized Areas of Activity

In 1989, the government planned to build a railway transit line along EDSA. No bidding was made
but certain corporations were invited to prequalify. The only corporation to qualify was the EDSA
LRT Consortium which was obviously formed for this particular undertaking. An agreement was
then made between the government, through the Department of Transportation and
Communication (DOTC), and EDSA LRT Consortium. The agreement was based on the Build-
Operate-Transfer scheme provided for by law (RA 6957, amended by RA 7718). Under the
agreement, EDSA LRT Consortium shall build the facilities, i.e., railways, and shall supply the
train cabs. Every phase that is completed shall be turned over to the DOTC and the latter shall pay
rent for the same for 25 years. By the end of 25 years, it was projected that the government shall
have fully paid EDSA LRT Consortium. Thereafter, EDSA LRT Consortium shall sell the facilities
to the government for $1.00.
However, Senators Francisco Tatad, John Osmea, and Rodolfo Biazon opposed the
implementation of said agreement as they averred that EDSA LRT Consortium is a foreign
corporation as it was organized under Hongkong laws; that as such, it cannot own a public utility
such as the EDSA railway transit because this falls under the nationalized areas of activities. The
petition was filed against Jesus Garcia, Jr. in his capacity as DOTC Secretary.
ISSUE: Whether or not the petition shall prosper.
HELD: No. The Supreme Court made a clarification. The SC ruled that EDSA LRT Consortium,
under the agreement, does not and will not become the owner of a public utility hence, the question
of its nationality is misplaced. It is true that a foreign corporation cannot own a public utility but
in this case what EDSA LRT Consortium will be owning are the facilities that it will be building for
the EDSA railway project. There is no prohibition against a foreign corporation to own facilities
used for a public utility. Further, it cannot be said that EDSA LRT Consortium will be the one
operating the public utility for it will be DOTC that will operate the railway transit. DOTC will be
the one exacting fees from the people for the use of the railway and from the proceeds, it shall be
paying the rent due to EDSA LRT Consortium. All that EDSA LRT Consortium has to do is to build
the facilities and receive rent from the use thereof by the government for 25 years it will not
operate the railway transit. Although EDSA LRT Consortium is a corporation formed for the
purpose of building a public utility it does not automatically mean that it is operating a public
utility. The moment for determining the requisite Filipino nationality is when the entity applies
for a franchise, certificate or any other form of authorization for that purpose.
JG Summit Holdings Inc. vs. CA where the ownership of immovable property such as trees, plants and growing fruit attached to
G.R. No. 124293, 2005 the land wouldbe limited to Filipinos and Filipino corporations only.Moreover, since PHILSECO
is not a public utility, it is not covered by theconstitutional proscription regarding ownership. No
law disqualifies a person frompurchasing shares in a landholding corporation even if the latter
FACTS: will exceed theallowed foreign equity, what the law disqualifies is the corporation from owning
The National Investment and Development Corporation (NIDC), agovernment corporation, land. A lease to an alien for a reasonable period is valid. So is an option giving an alien theright
entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the to buy real property on condition that he is granted Philippine citizenship.But if an alien is given
construction, operation and management of the not only a lease of, but also an option to buy, a piece of land,by virtue of which the Filipino owner
SubicNational Shipyard, Inc., later became the Philippine Shipyard andEngineering cannot sell or otherwise dispose of his property,this to last for 50 years, then it becomes clear
Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding that the arrangement is a virtualtransfer of ownership which is prohibited by law.
proportion of 60%-40% and that the parties have the right of first refusal in case of a sale.
Through a series of t ransfers, NIDC s rights, titl e and interest in PHILSECO The MOTION for RECONSIDERATION is DENIED WITH FINALITY. The 2003Supreme Court Resolution
eventually went to the National Government. In the interest of national economy, it was is AFFIRMED.
decided t hat PHILSECO sh ould be priva tized by selli ng 87.67% of its t otal
outstanding capital stock to private entities. After negotiations, it was agreed that Kawasakis right
of first refusal under the JVA be exchanged for the right to top by five percent the highest bid for
said shares. Kawasaki that Philyards Holdings,
Inc.( P H I ) , i n w h i c h i t w a s a s t o c k h o l d e r , w o u l d e x e r c i s e t h i s r i g h t i n
i t s s t e a d . During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because
of the right to top by 5% percent the highest bid, it was able to top JG Summits bid. JG Summit
protested, contending that PHILSECO, as a shipyard is a public utility and, hence, must observe
the 60%-40% Filipino-foreign capitalization. By buying 87.67%of PHILSECOs capital stock at
bidding, Kawasaki/PHI in effect now owns more than40% of the stock. In the year 2000 case, it
was settled by the Court that PHILSECO is a public utility and is therefo re required to
comply with the 60%-40% capitalization under the constitution. On the other hand,
Kawasaki could only exercise its right of first refusal to the extent that its total shares of stock
should not exceed 40% of the entire shares of stock due t o the constitutional and
contra ctual p roscriptions. NIDC being agovernment corporation may purchase even
beyond the 60% of the total shares. Separate motions for reconsideration were filed and the Court
held in a Resolution in2003 that:
1)PHILSECO is not a public utility because by nature, a shipyard is not apublic utility;
2) Nothing in the JVA prevents Kawasaki from owning more than 40 %of the total capitalization;
3) the right to top did not violate the principles in bidding. Petitioner now assails th e SC
decision through a motion fo r reconsideration and motion to elevate the case en banc.

ISSUE:
Whether or not PHILSECO continues to violate the Constitution by owning long-term
leaseho ld righ ts whi ch are real rights within the meaning of immovabl eproperty
under Art. 415 of the Civil Code

HELD:
Petitioner cit es A rticle 41 5 o f the Ci vil Co de all eges that PHILSECO continues to
violate the constitution by owning long-term leasehold rights. It states that in the definition of
immovable property, it includes: contracts for public works, and servitudes and other real rights
over immovable property. The Court ruled that whether or not owning long-term leasehold
rights are questions of fact, the veracity of which would require introduction of evidence and the
Court needs to validate these factual allegations based on competent and reliable evidence. As
such, the Court cannot resolve the questions th ey pose. Second, J.G. Summit
misreads the provisions of the Constitution cited in its own pleadings, to wit:Petitioner has
consistently pointed out in the past that private respondent isnot a 60%-40% corporation, and
this violates the Constitution x x x The violationcontinues to this day because under the law, it
continues to own real propertyTo review the constitutional provisions involved, Section 14,
Article XIV of the 1973Constitution (the JVA was signed in 1977), provided:Save in cases of
hereditary succession, no private lands shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain.This
provision is the same as Section 7, Article XII of the 1987 Constitution.It was correctly observed
by the public respondents that the prohibition in theConstitution applies only to ownership of
land. It does not extend to immovable or realproperty as defined under Article 415 of the Civil
Code which embraces real rights.Otherwise, we would be confronted with a strange situation