Transpo finaLS Cases

G.R. No.
83551 July 11, 1989
RODOLFO B. ALBANO, petitioner,  

vs. 
HON. RAINERIO O. REYES, PHILIPPINE PORTS AUTHORITY, INTERNATIONAL CONTAINER TERMINAL
SERVICES, INC., E. RAZON, INC., ANSCOR CONTAINER CORPORATION, and SEALAND SERVICES.
LTD., respondents.
This is a Petition for Prohibition with prayer for Preliminary Injunction or Restraining Order seeking to restrain the respondents
Philippine Ports Authority (PPA) and the Secretary of the Department of Transportation and Communications Rainerio O. Reyes from
awarding to the International Container Terminal Services, Inc. (ICTSI) the contract for the development, management and operation
of the Manila International Container Terminal (MICT).
On April 20, 1987, the PPA Board adopted its Resolution No. 850 directing PPA management to prepare the Invitation to Bid and all
relevant bidding documents and technical requirements necessary for the public bidding of the development, management and
operation of the MICT at the Port of Manila, and authorizing the Board Chairman, Secretary Rainerio O. Reyes, to oversee the
preparation of the technical and the documentation requirements for the MICT leasing as well as to implement this project.
Accordingly, respondent Secretary Reyes, by DOTC Special Order 87-346, created a seven (7) man "Special MICT Bidding
Committee" charged with evaluating all bid proposals, recommending to the Board the best bid, and preparing the corresponding
contract between the PPA and the winning bidder or contractor. The Bidding Committee consisted of three (3) PPA representatives,
two (2) Department of Transportation and Communications (DOTC) representatives, one (1) Department of Trade and Industry (DTI)
representative and one (1) private sector representative. The PPA management prepared the terms of reference, bid documents and
draft contract which materials were approved by the PPA Board.
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."
Seven (7) consortia of companies actually submitted bids, which bids were opened on July 17, 1987 at the PPA Head Office. After
evaluation of the several bids, the Bidding Committee recommended the award of the contract to develop, manage and operate the
MICT to respondent International Container Terminal Services, Inc. (ICTSI) as having offered the best Technical and Financial
Proposal. Accordingly, respondent Secretary declared the ICTSI consortium as the winning bidder.
Before the corresponding MICT contract could be signed, two successive cases were filed against the respondents which assailed the
legality or regularity of the MICT bidding. The first was Special Civil Action 55489 for "Prohibition with Preliminary Injunction"
filed with the RTC of Pasig 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").
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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.
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
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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" 3as 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 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.
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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.
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.
SO ORDERED.
____________________________________________________________________________________________________________
G.R. No. 115381 December 23, 1994
KILUSANG MAYO UNO LABOR CENTER, petitioner,  

vs. 
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and the
PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES, respondents.
Public utilities are privately owned and operated businesses whose service are essential to the general public. They are enterprises
which specially cater to the needs of the public and conduce to their comfort and convenience. As such, public utility services are
impressed with public interest and concern. The same is true with respect to the business of common carrier which holds such a
peculiar relation to the public interest that there is superinduced upon it the right of public regulation when private properties are
affected with public interest, hence, they cease to be juris privati only. When, therefore, one devotes his property to a use in which the
public has an interest, he, in effect grants to the public an interest in that use, and must submit to the control by the public for the
common good, to the extent of the interest he has thus created.1
An abdication of the licensing and regulatory government agencies of their functions as the instant petition seeks to show, is indeed
lamentable. Not only is it an unsound administrative policy but it is inimical to public trust and public interest as well.
The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars and/or orders of the
Department of Transportation and Communications (DOTC) and the Land Transportation Franchising and Regulatory Board
LTFRB)2 which, among others, (a) authorize provincial bus and jeepney operators to increase or decrease the prescribed transportation
fares without application therefor with the LTFRB and without hearing and approval thereof by said agency in violation of Sec. 16(c)
of Commonwealth Act No. 146, as amended, otherwise known as the Public Service Act, and in derogation of LTFRB's duty to fix and
determine just and reasonable fares by delegating that function to bus operators, and (b) establish a presumption of public need in
favor of applicants for certificates of public convenience (CPC) and place on the oppositor the burden of proving that there is no need
for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act
mandating that fares should be "just and reasonable." It is, likewise, violative of the Rules of Court which places upon each party the
burden to prove his own affirmative allegations.3 The offending provisions contained in the questioned issuances pointed out by
petitioner, have resulted in the introduction into our highways and thoroughfares thousands of old and smoke-belching buses, many of
which are right-hand driven, and have exposed our consumers to the burden of spiraling costs of public transportation without hearing
and due process.
The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz: (a) DOTC Memorandum
Order 90-395, dated June 26, 1990 relative to the implementation of a fare range scheme for provincial bus services in the country; (b)
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DOTC Department Order No. 
92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services; (c) DOTC Memorandum dated
October 8, 1992, laying down rules and procedures to implement Department Order No. 92-587; (d) LTFRB Memorandum Circular
No. 92-009, providing implementing guidelines on the DOTC Department Order No. 92-587; and (e) LTFRB Order dated March 24,
1994 in Case No. 94-3112.
The relevant antecedents are as follows:
On June 26, 1990; 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. The text of the memorandum order reads in full:
One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the Medium-Term Philippine
Development Plan (MTPDP) 1987 — 1992) is the liberalization of regulations in the transport sector. Along this line, the Government
intends to move away gradually from regulatory policies and make progress towards greater reliance on free market forces.
Based on several surveys and observations, bus companies are already charging passenger rates above and below the official fare
declared by LTFRB on many provincial routes. It is in this context that some form of liberalization on public transport fares is to be
tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all provincial bus routes in country
(except those operating within Metro Manila). Transport Operators shall be allowed to charge passengers within a range of fifteen
percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one year.
Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the DOTC Planning Service.
The implementation of the said fare range scheme shall start on 6 August 1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando submitted the following
memorandum to Oscar M. Orbos on July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB received on 19 July 1990, directing
the Board "to immediately publicize a fare range scheme for all provincial bus routes in the country (except those operating within
Metro Manila)" that will allow operators "to charge passengers within a range of fifteen percent (15%) above and fifteen percent
(15%) below the LTFRB official rate for a period of one year" the undersigned is respectfully adverting the Secretary's attention to the
following for his consideration:
1. Section 16(c) of the Public Service Act prescribes the following for the fixing and determination of rates — (a) the rates to be
approved should be proposed by public service operators; (b) there should be a publication and notice to concerned or affected parties
in the territory affected; (c) a public hearing should be held for the fixing of the rates; hence, implementation of the proposed fare
range scheme on August 6 without complying with the requirements of the Public Service Act may not be legally feasible.
2. To allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB fares in the wake of the devastation,
death and suffering caused by the July 16 earthquake will not be socially warranted and will be politically unsound; most likely public
criticism against the DOTC and the LTFRB will be triggered by the untimely motu propioimplementation of the proposal by the mere
expedient of publicizing the fare range scheme without calling a public hearing, which scheme many as early as during the Secretary's
predecessor know through newspaper reports and columnists' comments to be Asian Development Bank and World Bank inspired.
3. More than inducing a reduction in bus fares by fifteen percent (15%) the implementation of the proposal will instead trigger an
upward adjustment in bus fares by fifteen percent (15%) at a time when hundreds of thousands of people in Central and Northern
Luzon, particularly in Central Pangasinan, La Union, Baguio City, Nueva Ecija, and the Cagayan Valley are suffering from the
devastation and havoc caused by the recent earthquake.
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4. In lieu of the said proposal, the DOTC with its agencies involved in public transportation can consider measures and reforms in the
industry that will be socially uplifting, especially for the people in the areas devastated by the recent earthquake.
In view of the foregoing considerations, the undersigned respectfully suggests that the implementation of the proposed fare range
scheme this year be further studied and evaluated.
On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc. (PBOAP) filed an application
for fare rate increase. An across-the-board increase of eight and a half centavos (P0.085) per kilometer for all types of provincial buses
with a minimum-maximum fare range of fifteen (15%) percent over and below the proposed basic per kilometer fare rate, with the
said minimum-maximum fare range applying only to ordinary, first class and premium class buses and a fifty-centavo (P0.50)
minimum per kilometer fare for aircon buses, was sought.
On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board increase of six and a half
(P0.065) centavos per kilometer for ordinary buses. The decrease was due to the drop in the expected price of diesel.
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging that the proposed rates were
exorbitant and unreasonable and that the application contained no allegation on the rate of return of the proposed increase in rates.
On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in accordance with the following
schedule of fares on a straight computation method, viz:
AUTHORIZED FARES
LUZON 
MIN. OF 5 KMS. SUCCEEDING KM.
REGULAR P1.50 P0.37 

STUDENT P1.15 P0.28
VISAYAS/MINDANAO
REGULAR P1.60 P0.375 

STUDENT P1.20 P0.285 
FIRST CLASS (PER KM.) 
LUZON P0.385 
VISAYAS/ 
MINDANAO P0.395 
PREMIERE CLASS (PER KM.) 
LUZON P0.395 
VISAYAS/ 
MINDANAO P0.405
AIRCON (PER KM.) P0.415.4
On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes Prado issued
Department Order No. 
92-587 defining the policy framework on the regulation of transport services. The full text of the said order is reproduced below in
view of the importance of the provisions contained therein:
WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation and Communications (DOTC) as the
primary policy, planning, regulating and implementing agency on transportation;
WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, the transportation regulatory
agencies under or attached to the DOTC have to harmonize their decisions and adopt a common philosophy and direction;
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WHEREAS, the government proposes to build on the successful liberalization measures pursued over the last five years and bring the
transport sector nearer to a balanced longer term regulatory framework;
NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies and principles in the economic
regulation of land, air, and water transportation services are hereby adopted:
1. Entry into and exit out of the industry. Following the Constitutional dictum against monopoly, no franchise holder shall be
permitted to maintain a monopoly on any route. A minimum of two franchise holders shall be permitted to operate on any route.
The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof of Filipino citizenship, financial
capability, public need, and sufficient insurance cover to protect the riding public.
In determining public need, the presumption of need for a service shall be deemed in favor of the applicant. The burden of proving that
there is no need for a proposed service shall be with the oppositor(s).
In the interest of providing efficient public transport services, the use of the "prior operator" and the "priority of filing" rules shall be
discontinued. The route measured capacity test or other similar tests of demand for vehicle/vessel fleet on any route shall be used only
as a guide in weighing the merits of each franchise application and not as a limit to the services offered.
Where there are limitations in facilities, such as congested road space in urban areas, or at airports and ports, the use of demand
management measures in conformity with market principles may be considered.
The right of an operator to leave the industry is recognized as a business decision, subject only to the filing of appropriate notice and
following a phase-out period, to inform the public and to minimize disruption of services.
2. Rate and Fare Setting. Freight rates shall be freed gradually from government controls. Passenger fares shall also be deregulated,
except for the lowest class of passenger service (normally third class passenger transport) for which the government will fix indicative
or reference fares. Operators of particular services may fix their own fares within a range 15% above and below the indicative or
reference rate.
Where there is lack of effective competition for services, or on specific routes, or for the transport of particular commodities,
maximum mandatory freight rates or passenger fares shall be set temporarily by the government pending actions to increase the level
of competition.
For unserved or single operator routes, the government shall contract such services in the most advantageous terms to the public and
the government, following public bids for the services. The advisability of bidding out the services or using other kinds of incentives
on such routes shall be studied by the government.
3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government shall not engage in special financing
and incentive programs, including direct subsidies for fleet acquisition and expansion. Only when the market situation warrants
government intervention shall programs of this type be considered. Existing programs shall be phased out gradually.
The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the Maritime Industry Authority are hereby
directed to submit to the Office of the Secretary, within forty-five (45) days of this Order, the detailed rules and procedures for the
Implementation of the policies herein set forth. In the formulation of such rules, the concerned agencies shall be guided by the most
recent studies on the subjects, such as the Provincial Road Passenger Transport Study, the Civil Aviation Master Plan, the Presidential
Task Force on the Inter-island Shipping Industry, and the Inter-island Liner Shipping Rate Rationalization Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications Jesus B. Garcia, Jr. issued
a memorandum to the Acting Chairman of the LTFRB suggesting swift action on the adoption of rules and procedures to implement
above-quoted Department Order No. 92-587 that laid down deregulation and other liberalization policies for the transport sector.
Attached to the said memorandum was a revised draft of the required rules and procedures covering (i) Entry Into and Exit Out of the
Industry and (ii) Rate and Fare Setting, with comments and suggestions from the World Bank incorporated therein. Likewise,
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resplendent from the said memorandum is the statement of the DOTC Secretary that the adoption of the rules and procedures is a pre-
requisite to the approval of the Economic Integration Loan from the World Bank.5
On February 17, 1993, the LTFRB issued Memorandum Circular 

No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-587. The Circular provides,
among others, the following challenged portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.
The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall
be deemed in favor of the applicant, while burden of proving that there is no need for the proposed service shall be the oppositor'(s).
xxx xxx xxx
V. Rate and Fare Setting
The control in pricing shall be liberalized to introduce price competition complementary with the quality of service, subject to prior
notice and public hearing. Fares shall not be provisionally authorized without public hearing.
A. On the General Structure of Rates
1. 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.
2. Fare systems for aircon buses are liberalized to cover first class and premier services.
xxx xxx xxx
(Emphasis ours).
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. Said increased fares were to be
made effective on March 16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit. The dispositive portion
reads:
PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES FOR LACK OF MERIT
the petition filed in the above-entitled case. This petition in this case was resolved with dispatch at the request of petitioner to enable it
to immediately avail of the legal remedies or options it is entitled under existing laws.
SO ORDERED.6
Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order.
The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing respondents from
implementing the bus fare rate increase as well as the questioned orders and memorandum circulars. This meant that provincial bus
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fares were rolled back to the levels duly authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced on
the issuance of franchises for the operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, 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.
Second, the establishment of a presumption of public need in favor of an applicant for a proposed transport service without having to
prove public necessity, is illegal for being violative of the Public Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the petitioner, questions the wisdom
and the manner by which the instant petition was filed. It asserts that the petitioner has no legal standing to sue or has no real interest
in the case at bench and in obtaining the reliefs prayed for.
In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B. Garcia, Jr. and the LTFRB
asseverate that the petitioner does not have the standing to maintain the instant suit. They further claim that it is within DOTC and
LTFRB's authority to set a fare range scheme and establish a presumption of public need in applications for certificates of public
convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to sue.
The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the Constitution provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable
and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the Government.
In Lamb v. Phipps,7 we ruled that judicial power is the power to hear and decide causes pending between parties who have the right to
sue in the courts of law and equity. Corollary to this provision is the principle of locus standi of a party litigant. One who is directly
affected by and whose interest is immediate and substantial in the controversy has the standing to sue. The rule therefore requires that
a party must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision so
as to warrant an invocation of the court's jurisdiction and to justify the exercise of the court's remedial powers in his behalf.8
In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable injury and damage from the
implementation of the questioned memoranda, circulars and/or orders, has shown that it has a clear legal right that was violated and
continues to be violated with the enforcement of the challenged memoranda, circulars and/or orders. KMU members, who avail of the
use of buses, trains and jeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in passenger fares. They
are part of the millions of commuters who comprise the riding public. Certainly, their rights must be protected, not neglected nor
ignored.
Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside this barren procedural
infirmity and recognize the legal standing of the petitioner in view of the transcendental importance of the issues raised. And this act
of liberality is not without judicial precedent. As early as the Emergency Powers Cases, this Court had exercised its discretion and
waived the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al.,9 we ruled in the
same lines and enumerated some of the cases where the same policy was adopted, viz:
. . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its discretion, set aside in view of
the importance of the issues raised. In the landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No.
L-2756 (Araneta 
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of Customs); and
G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this technicality because "the
transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we
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must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers' suits are concerned, this Court had
declared that it "is not devoid of discretion as to whether or not it should be entertained," (Tan v. Macapagal, 43 SCRA 677, 680
[1972]) or that it "enjoys an open discretion to entertain the same or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].
xxx xxx xxx
In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters,
and 
non-profit civic organizations were allowed to initiate and prosecute actions before this court to question the constitutionality or
validity of laws, acts, decisions, rulings, or orders of various government agencies or instrumentalities. Among such cases were those
assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of vacation and sick leave
to Senators and Representatives and to elective officials of both Houses of Congress (Philippine Constitution Association, Inc. v.
Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, which
allowed members of the cabinet, their undersecretaries, and assistant secretaries to hold other government offices or positions (Civil
Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the General
Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056 on the holding of desynchronized elections
(Osmeña v. Commission on Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine Amusement and
Gaming Corporation) on the ground that it is contrary to morals, public policy, and order (Basco v. Philippine Amusement and Gaming
Corp., 197 SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National Police. (Carpio v. Executive Secretary, 206
SCRA 290 [1992]).
Other cases where we have followed a liberal policy regarding locus standi include those attacking the validity or legality of (a) an
order allowing the importation of rice in the light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay and Corn Planters
Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed amendments to the
Constitution and P.D. No. 1031 insofar as it directed the COMELEC to supervise, control, hold, and conduct the referendum-plebiscite
on 16 October 1976 (Sanidad v. Commission on Elections, supra); (c) the bidding for the sale of the 3,179 square meters of land at
Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the approval without hearing by the Board of
Investments of the amended application of the Bataan Petrochemical Corporation to transfer the site of its plant from Bataan to
Batangas and the validity of such transfer and the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas
(Garcia v. Board of Investments, 177 SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e) the decisions,
orders, rulings, and resolutions of the Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of
Customs, and the Fiscal Incentives Review Board exempting the National Power Corporation from indirect tax and duties (Maceda v.
Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the
hearings conducted on the second provisional increase in oil prices did not allow the petitioner substantial cross-examination; (Maceda
v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g) Executive Order No. 478 which levied a special duty of P0.95 per liter of
imported oil products (Garcia v. Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of the Commission on Elections
concerning the apportionment, by district, of the number of elective members of Sanggunians (De Guia vs. Commission on Elections,
208 SCRA 420 [1992]); and (i) memorandum orders issued by a Mayor affecting the Chief of Police of Pasay City (Pasay Law and
Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court, despite its unequivocal ruling that the
petitioners therein had no personality to file the petition, resolved nevertheless to pass upon the issues raised because of the far-
reaching implications of the petition. We did no less in De Guia v. COMELEC (Supra) where, although we declared that De Guia
"does not appear to have locus standi, a standing in law, a personal or substantial interest," we brushed aside the procedural infirmity
"considering the importance of the issue involved, concerning as it does the political exercise of qualified voters affected by the
apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and hearing. — The Commission shall have power, upon proper notice and
hearing in accordance with the rules and provisions of this Act, subject to the limitations and exceptions mentioned and saving
provisions to the contrary:
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xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof, as well as commutation, mileage
kilometrage, and other special rates which shall be imposed, observed, and followed thereafter by any public service: Provided, That
the Commission may, in its discretion, approve rates proposed by public services provisionally and without necessity of any hearing;
but it shall call a hearing thereon within thirty days thereafter, upon publication and notice to the concerns operating in the territory
affected: Provided, further, That in case the public service equipment of an operator is used principally or secondarily for the
promotion of a private business, the net profits of said private business shall be considered in relation with the public service of such
operator for the purpose of fixing the rates. (Emphasis ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the power of fixing the rates of
public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same under Executive Order No.
202 dated June 19, 1987. Section 5(c) of the said executive order authorizes LTFRB "to determine, prescribe, approve and periodically
review and adjust, reasonable fares, rates and other related charges, relative to the operation of public land transportation services
provided by motorized vehicles."
Such delegation of legislative power to an administrative agency is permitted in order to adapt to the increasing complexity of modern
life. As subjects for governmental regulation multiply, so does the difficulty of administering the laws. Hence, specialization even in
legislation has become necessary. Given the task of determining sensitive and delicate matters as 
route-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with the power of subordinate
legislation. With this authority, an administrative body and in this case, the LTFRB, may implement broad policies laid down in a
statute by "filling in" the details which the Legislature may neither have time or competence to provide. 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.
In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over and above the
authorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of legislative authority. Potestas delegata non
delegari potest. What has been delegated cannot be delegated. This doctrine is based on the ethical principle that such a delegated
power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another.10 A further delegation of such power would indeed constitute a negation of the duty in
violation of the trust reposed in the delegate mandated to discharge it directly.11 The policy of allowing the provincial bus operators to
change and increase their fares at will would result not only to a chaotic situation but to an anarchic state of affairs. This would leave
the riding public at the mercy of transport operators who may increase fares every hour, every day, every month or every year,
whenever it pleases them or whenever they deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co.,12 where
respondent Philippine Railway Co. was granted by the Public Service Commission the authority to change its freight rates at will, this
Court categorically declared that:
In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine Railway Co. the power of
altering its freight rates whenever it should find it necessary to do so in order to meet the competition of road trucks and autobuses, or
to change its freight rates at will, or to regard its present rates as maximum rates, and to fix lower rates whenever in the opinion of the
Philippine Railway Co. it would be to its advantage to do so.
The mere recital of the language of the application of the Philippine Railway Co. is enough to show that it is untenable. The
Legislature has delegated to the Public Service Commission the power of fixing the rates of public services, but it has not authorized
the Public Service Commission to delegate that power to a common carrier or other public service. The rates of public services like
the Philippine Railway Co. have been approved or fixed by the Public Service Commission, and any change in such rates must be
authorized or approved by the Public Service Commission after they have been shown to be just and reasonable. The public service
may, of course, propose new rates, as the Philippine Railway Co. did in case No. 31827, but it cannot lawfully make said new rates
effective without the approval of the Public Service Commission, and the Public Service Commission itself cannot authorize a public
service to enforce new rates without the prior approval of said rates by the commission. The commission must approve new rates
when they are submitted to it, if the evidence shows them to be just and reasonable, otherwise it must disapprove them. Clearly, the
commission cannot determine in advance whether or not the new rates of the Philippine Railway Co. will be just and reasonable,
because it does not know what those rates will be.
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In the present case the Philippine Railway Co. in effect asked for permission to change its freight rates at will. It may change them
every day or every hour, whenever it deems it necessary to do so in order to meet competition or whenever in its opinion it would be
to its advantage. Such a procedure would create a most unsatisfactory state of affairs and largely defeat the purposes of the public
service law.13(Emphasis ours).
One veritable consequence of the deregulation of transport fares is a compounded fare. If transport operators will be authorized to
impose and collect an additional amount equivalent to 20% over and above the authorized fare over a period of time, this will unduly
prejudice a commuter who will be made to pay a fare that has been computed in a manner similar to those of compounded bank
interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a thirty-seven (P0.37) centavo
per kilometer fare for ordinary buses. At the same time, they were allowed to impose and collect a fare range of plus or minus 15%
over the authorized rate. Thus P0.37 centavo per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos) is
equivalent to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another five (P0.05) centavo increase per
kilometer in 1994, then, the base or reference for computation would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If
bus operators will exercise their authority to impose an additional 20% over and above the authorized fare, then the fare to be
collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be
continuously subjected, not only to a double fare adjustment but to a compounding fare as well. On their part, transport operators shall
enjoy a bigger chunk of the pie. Aside from fare increase applied for, they can still collect an additional amount by virtue of the
authorized fare range. Mathematically, the situation translates into the following:
Year** LTFRB authorized Fare Range Fare to be 

rate*** collected per 
kilometer
1990 P0.37 15% (P0.05) P0.42 

1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56 
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73 
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94
Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function that requires dexterity of
judgment and sound discretion with the settled goal of arriving at a just and reasonable rate acceptable to both the public utility and
the public. Several factors, in fact, have to be taken into consideration before a balance could be achieved. A rate should not be
confiscatory as would place an operator in a situation where he will continue to operate at a loss. Hence, the rate should enable public
utilities to generate revenues sufficient to cover operational costs and provide reasonable return on the investments. On the other hand,
a rate which is too high becomes discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and fair and
must be affordable to the end user who will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions of commuters, government
must not relinquish this important function in favor of those who would benefit and profit from the industry. Neither should the
requisite notice and hearing be done away with. The people, represented by reputable oppositors, deserve to be given full opportunity
to be heard in their opposition to any fare increase.
The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory arrangement for all parties involved.
To do away with such a procedure and allow just one party, an interested party at that, to determine what the rate should be, will
undermine the right of the other parties to due process. The purpose of a hearing is precisely to determine what a just and reasonable
rate is.15 Discarding such procedural and constitutional right is certainly inimical to our fundamental law and to public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land transportation services
for public use as required by law. Pursuant to Section 16(a) of the Public Service Act, as amended, the following requirements must be
met before a CPC may be granted, to wit: (i) the applicant must be a citizen of the Philippines, or a corporation or co-partnership,
association or joint-stock company constituted and organized under the laws of the Philippines, at least 60 per centum of its stock or
paid-up capital must belong entirely to citizens of the Philippines; (ii) the applicant must be financially capable of undertaking the
proposed service and meeting the responsibilities incident to its operation; and (iii) the applicant must prove that the operation of the
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public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner. It is
understood that there must be proper notice and hearing before the PSC can exercise its power to issue a CPC.
While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No. 92-009, Part IV,
provides for yet incongruous and contradictory policy guideline on the issuance of a CPC. The guidelines states:
The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall
be deemed in favor of the applicant, while the burden of proving that there is no need for the proposed service shall be the
oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public Service Act which requires
that before a CPC will be issued, the applicant must prove by proper notice and hearing that the operation of the public service
proposed will promote public interest in a proper and suitable manner. On the contrary, the policy guideline states that the presumption
of public need for a public service shall be deemed in favor of the applicant. In case of conflict between a statute and an administrative
order, the former must prevail.
By its terms, public convenience or necessity generally means something fitting or suited to the public need.16 As one of the basic
requirements for the grant of a CPC, public convenience and necessity exists when the proposed facility or service meets a reasonable
want of the public and supply a need which the existing facilities do not adequately supply. The existence or 
non-existence of public convenience and necessity is therefore a question of fact that must be established by evidence, real and/or
testimonial; empirical data; statistics and such other means necessary, in a public hearing conducted for that purpose. The object and
purpose of such procedure, among other things, is to look out for, and protect, the interests of both the public and the existing transport
operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing and investigation, it shall
find, as a fact, that the proposed operation is for the convenience of the public.17 Basic convenience is the primary consideration for
which a CPC is issued, and that fact alone must be consistently borne in mind. Also, existing operators in subject routes must be given
an opportunity to offer proof and oppose the application. Therefore, an applicant must, at all times, be required to prove his capacity
and capability to furnish the service which he has undertaken to 
render. 18 And all this will be possible only if a public hearing were conducted for that purpose.
Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and institutionalized judicial, quasi-
judicial and administrative procedures. It allows the party who initiates the proceedings to prove, by mere application, his affirmative
allegations. Moreover, the offending provisions of the LTFRB memorandum circular in question would in effect amend the Rules of
Court by adding another disputable presumption in the enumeration of 37 presumptions under Rule 131, Section 5 of the Rules of
Court. Such usurpation of this Court's authority cannot be countenanced as only this Court is mandated by law to promulgate rules
concerning pleading, practice and procedure. 19
Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the present circumstances.
Advocacy of liberalized franchising and regulatory process is tantamount to an abdication by the government of its inherent right to
exercise police power, that is, the right of government to regulate public utilities for protection of the public and the utilities
themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate the transport sector, we find
that they committed grave abuse of discretion in issuing DOTC Department Order 
No. 92-587 defining the policy framework on the regulation of transport services and LTFRB Memorandum Circular No. 92-009
promulgating the implementing guidelines on DOTC Department Order No. 92-587, the said administrative issuances being
amendatory and violative of the Public Service Act and the Rules of Court. Consequently, we rule that the twenty (20%) per
centum fare increase imposed by respondent PBOAP on March 16, 1994 without the benefit of a petition and a public hearing is null
and void and of no force and effect. No grave abuse of discretion however was committed in the issuance of DOTC Memorandum
Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the same being merely internal communications between
administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged administrative issuances and
orders, namely: DOTC Department Order No. 92-587, LTFRB Memorandum Circular 
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby DECLARED contrary to law and invalid
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insofar as they affect provisions therein (a) delegating to provincial bus and jeepney operators the authority to increase or decrease the
duly prescribed transportation fares; and (b) creating a presumption of public need for a service in favor of the applicant for a
certificate of public convenience and placing the burden of proving that there is no need for the proposed service to the oppositor.
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it enjoined the bus fare rate
increase granted under the provisions of the aforementioned administrative circulars, memoranda and/or orders declared invalid.
No pronouncement as to costs.
SO ORDERED.
____________________________________________________________________________________________________________
[G.R. No. 119528. March 26, 1997] PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD and
GRAND INTERNATIONAL AIRWAYS, INC., respondents.
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 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.
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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.
"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.
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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 GrandAirs
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 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,-
xxx 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).
! of 93
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 franchises
authority to commence operations. It is thus logical that the grant of the former should precede the latter.
Please be guided accordingly.
(SGD.) SEDFREY A. ORDOEZ
Secretary of Justice"
Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of Republic Act 776, which follows the
pronouncements of the Court of Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board, and Silangan 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]
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 PPA, a franchise from Congress to authorize an entity other than the PPA to operate and
manage the MICP becomes unnecessary.
! of 93
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:
SECTION 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 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
! of 93
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:
"SECTION 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;
(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.
SECTION 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]
SECTION 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.
SO ORDERED.
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____________________________________________________________________________________________________________
G.R. No. L-24701 December 16, 1970
INTESTATE TESTATE OF TEOFILO M. TIONGSON, Petitioner, vs. THE PUBLIC SERVICE COMMISSION and MARIO
Z. LANUZA, Respondents.
On May 11, 1965 the Public Service Commission decided its Case No. 124626, approving the application of Mario Z. Lanuza for a
certificate of public convenience to install and operate a 20-ton daily capacity ice-plant in Pagsanjan, Laguna, and to sell the ice to be
produced in said municipality as well as in the municipalities of Longos, Paete, Pakil, Pangil, Siniloan, Famy, Sta. Maria, Cavinti,
Magdalena, Majayjay, Nagcarlan, Rizal, Lilio, Sta. Cruz, Lumban, Pila and Victoria, all in the province of
Laguna.chanroblesvirtualawlibrarychanrobles virtual law library
Three existing operators had opposed the application. One of them, Victorino de Peña, who has an ice-plant in Mauban, Quezon,
withdrew his opposition after the applicant excluded the municipality of Luisiana from the territory originally applied for. Another
oppositor, Emilio Gomez, did not appeal from the decision of the Public Service Commission. The petitioner here, the Estate of
Teofilo M. Tiongson, remains the only oppositor in the present appeal.chanroblesvirtualawlibrarychanrobles virtual law library
The petitioner is the grantee of a certificate of public convenience to maintain and operate a 30-ton (increased to 40 tons in 1960 and
then to 70 tons in 1964) ice plant in San Pablo City, with authority to sell ice therein as well as in the municipalities of Sta. Cruz,
R i z a l , N a g c a r l a n , C a l a u a n , Vi c t o r i a , P i l a , L u m b a n , P a e t e , P a k i l , P a n g i l , C a v i n t i , S i n i l o a n a n d
Alaminos.chanroblesvirtualawlibrarychanrobles virtual law library
There is no question as to the applicant's financial capacity. The principal issue is whether there is sufficient need for ice in the places
stated in the decision to justify the establishment of a plant in Pagsanjan with the daily capacity authorized by the Commission. This
issue is essentially one of fact on which, as a rule, the findings of the Commission are binding on this Court unless it clearly appears
that there is no evidence to reasonably support them. 1Such findings in this case, and the conclusion derived therefrom, are as follows:
At one of the hearings of this case, applicant, a businessman and Filipino citizen, manifested that at present there is no ice plant in
Pagsanjan, Laguna; that there was formerly one in that municipality but it was transferred to San Pablo City; that the nearest ice plant
is located in Kalayaan (Longos, Laguna) which is about 10 kilometers from Pagsanjan, Laguna; that there is a demand for ice by the
people of Pagsanjan and of the towns proposed to be served by the applicant because the present supply of ice coming from ice plant
operators and distributed by ice dealers is inadequate; that in the territory proposed to be served by applicant, ice is needed for "halo-
halo," for cooling soft drinks and drinking water, and for the preservation of the fish caught by fishermen; that aside from these
refreshment parlors, there are "sari-sari" stores selling soft drinks; that along Laguna de Bay from Lumban to Sta. Maria, Laguna,
from 30% to 50% of the people are engaged in fishing throughout the year; that fishes caught consist of "dalag," "hito," "carpa",
"banak," and "shrimps" and to preserve these fishes from the time they are caught until they are sold or disposed of, ice is needed; that
ice is also needed in movie houses where soft drinks are sold, in homes, clinics and hospitals that in a small town where there are
about 20 stores, about 6 blocks of ice of 300 lbs. each are consumed during the day, and in a big town like Sta. Cruz, the consumption
is about 20 blocks of ice of 300 lbs. each during the rainy season and the consumption is about double during the dry season; and that
due to the inadequacy of ice supply in the towns proposed to be served by applicant, an ice block of ice of 300 lbs. costs from P5.00 to
P8.00.chanroblesvirtualawlibrarychanrobles virtual law library
xxx xxx xxxchanrobles virtual law library
Applicant presented the following witnesses: Manuel Zaide, a fish dealer of Paete, Laguna; Willie Limlengco, a businessman and sari-
sari store owner of Pagsanjan Laguna; Conrado Almario, a refreshment parlor and sari-sari store owner of Lumban, Laguna; Alfonso
Rebong, Municipal Mayor of Victoria, Laguna; and Ernesto Marina, business (sic) and sari-sari store owner of Pila,
Laguna.chanroblesvirtualawlibrarychanrobles virtual law library
All witnesses presented at the hearings of this case manifest that there is shortage of ice supply in the territory proposed to be served
by the applicant, especially during summer months; that the fish dealers do not get their ice requirements so that most often fish are
not preserved in ice when sent to other places to be sold like Sta. Maria, San Pablo City, or Manila; and that when the ice supply is
inadequate, shrimps which are shipped to Manila are often cooked to minimize spoilage.chanroblesvirtualawlibrarychanrobles virtual
law library
! of 93
The oppositors to this application have not established to the satisfaction of the Commission the adequacy of the service rendered by
them in the eighteen (18) municipalities proposed to be served by the applicant, considering that most of these municipalities are far
from the locations of their ice plants.chanroblesvirtualawlibrarychanrobles virtual law library
After a thorough examination of the evidence submitted by the parties and after a careful consideration of our records on existing
service in the territory applied for, and considering that an ice plant which manufactures its ice in the locality where it sells that
commodity is more advantageous and convenient to the general public in that locality than ice plant located some kilometers away,
and that applicant is financially capable of undertaking the installation, and maintaining the operation of the proposed service, the
Commission believes that the oppositions filed by Emilio Gomez, operator of an ice plant in San Juan, Longos, Laguna, and Teofilo
Tiongson, operator of an ice plant in San Pablo City, in this case should be, as these are hereby overruled and that the application
herein filed may be, as it is hereby, APPROVED.
The foregoing findings are assailed on two grounds: (1) that only eight witnesses were presented by the applicant, who individually
testified as to the need for ice in each of only seven of the municipalities included in the application; and (2) that their testimony even
as to those referred to by them is deficient. We have gone over the record in this regard and found enough support therein for the
decision appealed from. Manuel Zaide is a fish dealer in Paete, Willie Limlengco is a sari-sari and refreshment store-owner in
Pagsanjan; Conrado Almario has a similar business in Lumban; Alfonso Rebong was the municipal mayor of Victoria since 1960;
Ernesto Marina is a businessman in Pila; Jose Acuiza is a businessman and fisherman in Pakil; Jose Maceda was the municipal
secretary of Pagsanjan; and Eligio Lorenzo is a grocery merchant in Sta. Cruz. They all affirmed the inadequacy and frequent lack of
ice supply in their respective localities not only for home consumption but also for restaurants and refreshment parlors as well as for
the fishing industry or occupation of the inhabitants, particularly in the regions bordering Laguna Bay. It is true their combined
testimony did not cover all the municipalities applied for, but the applicant himself, respondent here, demonstrated sufficient
familiarity with the entire area to be able to give evidence, as he did, on the ice-supply situation in everyone of them. He did a lot of
traveling as owner of three movie houses in Pagsanjan, Sta. Cruz and Pila, and in connection with his application in this case
personally conducted a thorough investigation of the local demands for ice in the municipalities covered by said application. That he is
the applicant does not necessarily affect his credibility; on the contrary, such an investigation was necessary and called for by sound
business policy, for no one would invest capital in the production and sale of any commodity without first ascertaining the needs of the
prospective market.
One significant fact may be noted insofar as the petitioner's existing ice plant in San Pablo is concerned. The petitioner formerly
operated another plant in Pagsanjan, and in each of them it had one delivery truck to service the customers in different municipalities.
The Pagsanjan plant, however, was closed in 1952 and transferred to San Pablo, and since then the petitioner has been maintaining
only one delivery-truck service, with a single dealer-employee in charge. Under the circumstances the Public Service Commission
correctly remarked that "the oppositors have not established ... the adequacy of the service rendered by them in the eighteen (18)
municipalities proposed to be served by the applicant, considering that most of these municipalities are far from the locations of their
ice-plants.
The "prior operator" and "protection of investment" rules cited by petitioner cannot take precedence over the convenience of the
public. There is no ice plant at present in Pagsanjan; and from the testimony of the witnesses for the applicant there exists a great
demand for ice not only there but also in certain neighboring municipalities. There is nothing in the record to show that the petitioner
had exerted efforts to meet this demand before the respondent made his offer to service the areas where ice was needed. 2Moreover the
respondent is authorized to produce only 20 tons of ice daily, whereas the petitioner has been allowed to increase its daily capacity
from 30 to 40 tons in 1960, and recently, in 1964, to 70 tons. This only proves that there is indeed a great demand for ice in the area
applied for by the respondent, and negates the probability of ruinous competition. On the contrary the resulting competition will
undoubtedly benefit the public through improvement in the service and reduction in retail prices.
On the whole, we find no reason to deviate from the rule heretofore consistently applied that findings and conclusions of fact made by
the Public Service Commission, when supported by evidence, are binding upon this Court.
WHEREFORE, the decision appealed is affirmed, with costs against the petitioner.
____________________________________________________________________________________________________________
! of 93
G.R. No. L-9769 August 30, 1957
RAMON J. GUICO, petitioner,  

vs. 
ESTATE OF FLORENCIO P. BUAN, oppositor-respondent.
On December 6, 1954, Ramon J. Guico applied for a certificate of public convenience for the operation of a bus service on the
following lines:
Bangued (Abra) — Manila and vice versa; 

Laoag (Ilocos Norte) — Manila and vice versa; 
Vigan (Ilocos Sur) — Manila and vice versa; 
Aparri (Cagayan) — Manila via Claveria and vice versa.
At the hearing, however, the last, is., the Aparri-Manila line was dropped from the application.
On the 17 of the same month, the Estate of Florencio P. Buan, which was already operating on the lines applied for, on its part asked
for authority to run additional trips on those lines and later filed its opposition to Guico's application.
Equally opposed by the other transportation companies affected — among them the Manila Railroad Company and the Pangasinan
Transportation Company — the two applications were, by agreement of the parties, heard in joint trial. And the Commission having
found after hearing that there really was need for more trips on the lines covered by the applications, albeit the need was not such as to
warrant the operation of all the trips proposed by the two applicants, it authorized an additional 11 round trips a day, being of the
opinion after going over the evidence and its own records that those 11 trips, distributed as follows: 4 on the line Laoag-Manila, 5 on
the line Vigan-Manila and 2 on the line Bangued-Manila, would provide the additional service needed by the public.
In choosing, however the operator that was to run the additional trips, the Commission expressed preference for the Estate of Buan as
the one with the means and the requisite capacity and experience to maintain the same and also because, as the authorized operator on
the lines, it should under the doctrine of protection, be given opportunity to provide the additional service that had been found to be
needed. All of the additional trips authorized were therefore, adjudged to the said Estate.
Not satisfied with the decision, the applicant Guico brought the case here for review.
As stated, the Commission recognizes the need for more service on the lines in question but after going over the evidence and its own
records concludes that 11 round trips a day should suffice. Petitioner disputes this conclusion and claims that, on the basis of the
evidence presented, more trips should have been authorized. We consider the question thus raised factual and find no justification for
revising the Commission's estimate, the same not being without support in evidence. In this connection we have to give recognition to
the fact that the number of trips that would be required to endow a bus line with adequate service is something that can not be
determined or estimated with precision. It is subject to many variables and, too often, parties base their estimates on the observation
and testimony of more or less interested witnesses. On the other hand, the Commission, which exercises supervision over these public
utilities and has, besides, ready access to information contained in its own records, of which it may take judicial notice, is peculiarly in
a position to appraise the needs of any given line and from a fair estimate as to the number of trips necessary to meet those needs. In
the circumstances, we should do well to defer to the judgment of the Commission in that regard and refrain from interfering with the
exercise of its discretion except where it clearly appears that such discretion has been gravely abuse. After going over the record we do
not feel that the present case calls for such interference.
It is contended, however, that it was not right for the Commission to adjudge all of the authorized additional trips to respondent, it
being claimed that the latter has no certificate of public convenience for the line Vigan-Manila; that petitioner should have been given
the preference because his application was filed ahead of that of the respondent; and that it was petitioner's evidence rather than
respondent's that proved the need for additional service.
It may be true, as claimed, that respondent has no certificate of public convenience exclusively for the line Vigan-Manila alone.
However, there is no disputing the fact that respondent has a certificate for the line Aparri-Manila via Claveria and Vigan, and
protection of this should extend to all of its parts, including the portion Vigan-Manila on which, according to the Commission,
! of 93
respondent is authorized (presumably under the same certificate) to run three round trips daily, an arrangement which virtually makes
Vigan an intermediate station or terminal for the authorized line Aparri-Manila.
Respondent's right to protection as an established operator on the lines applied for is not to be defeated by mere priority in the filing of
the application of the newcomer. Note must especially be taken of the fact that the lines — Laoag-Manila, Vigan-Manila and
Bangued-Manila are hundreds of kilometers long and, according to the Commission, require new and well-built trucks and an operator
with ample means, such as the respondent, if a regular and continous service is to be maintained. The Commission has also observed
that the small operators on these lines have not been operating regularly so that their services have been unreliable. On the other hand,
the Commission has found that the respondent has been operating since 1952 and has maintained service regularly and in accordance
with the terms of its certificate. It says:
. . . It appears that applicant Estate of Buan has been operating on these lines since 1952 and that it has maintained its service regularly
and in accordance with the terms of its certificate, and such being the case it should be given the opportunity to provide the necessary
additional service in preference to another who has no authority or certificate to operate on the lines involved. Furthermore, applicant
Estate of Buan, according to the evidence, has the experience, trained personnel and capital necessary to undertake a bus service
regularly, to replace worn-out equipment and to answer for obligations to the public.
The charge that respondent has abandoned its trips on parts of the line Vigan-Aparri does not necessarily speak ill of respondent's
service considering the explanation given that the abandonment was due to the bad condition of the road to Aparri, and moreover, the
alleged abandonment is on the line excluded by applicant from his application.
Petitioner is not necessarily entitled to preference just because, as he alleges, it was his evidence, rather than respondent's, that
established the fact that there was still need for additional service. Whose evidence it was that proved such need is not important.
What is important is whose operation would best subserve the public interests. On that score we find no sufficient justification for not
respecting the opinion of the Commission that the additional service in this case could best be operated by the respondent.
In view of the foregoing, the decision under review is affirmed, with costs against the petitioner.
____________________________________________________________________________________________________________
G.R. No. L-20993 September 28, 1968
RIZAL LIGHT & ICE CO., INC., petitioner,  

vs. 
THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE COMMISSION, respondents.
----------------------------
G.R. No. L-21221 September 28, 1968
RIZAL LIGHT & ICE CO., INC., petitioner,  

vs. 
THE PUBLIC SERVICE COMMISSION and MORONG ELECTRIC CO., INC., respondents.
These two cases, being interrelated, are decided together.
Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co., Inc. to review and set aside the orders of respondent Public Service
Commission, 1 dated August 20, 1962, and February 15, 1963, in PSC Case No. 39716, cancelling and revoking the certificate of
public convenience and necessity and forfeiting the franchise of said petitioner. In the same petition, the petitioner prayed for the
issuance of a writ of preliminary injunction ex partesuspending the effectivity of said orders and/or enjoining respondents Commission
and/or Municipality of Morong, Rizal, from enforcing in any way the cancellation and revocation of petitioner's franchise and
certificate of public convenience during the pendency of this appeal. By resolution of March 12, 1963, this Court denied the petition
for injunction, for lack of merit.
! of 93
Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc. to review and set aside the decision of the Commission
dated March 13, 1963 in PSC Case No. 62-5143 granting a certificate of public convenience and necessity to respondent Morong
Electric Co., Inc. 2 to operate an electric light, heat and power service in the municipality of Morong, Rizal. In the petition Rizal Light
& Ice Co., Inc. also prayed for the issuance of a writ of preliminary injunction ex parte suspending the effectivity of said decision. Per
resolution of this Court, dated May 6, 1963, said petition for injunction was denied.
The facts, as they appear in the records of both cases, are as follows:
Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at Morong, Rizal. On August 15, 1949, it was
granted by the Commission a certificate of public convenience and necessity for the installation, operation and maintenance of an
electric light, heat and power service in the municipality of Morong, Rizal.
In an order dated December 19, 1956, the Commission required the petitioner to appear before it on February 18, 1957 to show cause
why it should not be penalized for violation of the conditions of its certificate of public convenience and the regulations of the
Commission, and for failure to comply with the directives to raise its service voltage and maintain them within the limits prescribed in
the Revised Order No. 1 of the Commission, and to acquire and install a kilowattmeter to indcate the load in kilowatts at any particular
time of the generating unit. 3
For failure of the petitioner to appear at the hearing on February 18, 1957, the Commission ordered the cancellation and revocation of
petitioner's certificate of public convenience and necessity and the forfeiture of its franchise. Petitioner moved for reconsideration of
said order on the ground that its manager, Juan D. Francisco, was not aware of said hearing. Respondent municipality opposed the
motion alleging that petitioner has not rendered efficient and satisfactory service and has not complied with the requirements of the
Commission for the improvement of its service. The motion was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial Division
of the Commission, was authorized to conduct the hearing for the reception of the evidence of the parties. 4
Finding that the failure of the petitioner to appear at the hearing set for February 18, 1957 — the sole basis of the revocation of
petitioner's certificate — was really due to the illness of its manager, Juan D. Francisco, the Commission set aside its order of
revocation. Respondent municipality moved for reconsideration of this order of reinstatement of the certificate, but the motion was
denied.
In a petition dated June 25, 1958, filed in the same case, respondent municipality formally asked the Commission to revoke
petitioner's certificate of public convenience and to forfeit its franchise on the ground, among other things, that it failed to comply with
the conditions of said certificate and franchise. Said petition was set for hearing jointly with the order to show cause. The hearings had
been postponed several times.
Meanwhile, inspections had been made of petitioner's electric plant and installations by the engineers of the Commission, as follows:
April 15, 1958 by Engineer Antonio M. Alli; September 18, 1959, July 12-13, 1960, and June 21-24, 1961, by Engineer Meliton S.
Martinez. The inspection on June 21-24, 1961 was made upon the request of the petitioner who manifested during the hearing on
December 15, 1960 that improvements have been made on its service since the inspection on July 12-13, 1960, and that, on the basis
of the inspection report to be submitted, it would agree to the submission of the case for decision without further hearing.
When the case was called for hearing on July 5, 1961, petitioner failed to appear. Respondent municipality was then allowed to present
its documentary evidence, and thereafter the case was submitted for decision.
On July 7, 1961, petitioner filed a motion to reopen the case upon the ground that it had not been furnished with a copy of the report of
the June 21-24, 1961 inspection for it to reply as previously agreed. In an order dated August 25, 1961, petitioner was granted a period
of ten (10) days within which to submit its written reply to said inspection report, on condition that should it fail to do so within the
said period the case would be considered submitted for decision. Petitioner failed to file the reply. In consonance with the order of
August 25, 1961, therefore, the Commission proceeded to decide the case. On July 29, 1962 petitioner's electric plant was burned.
In its decision, dated August 20, 1962, the Commission, on the basis of the inspection reports of its aforenamed engineers, found that
the petitioner had failed to comply with the directives contained in its letters dated May 21, 1954 and September 4, 1954, and had
violated the conditions of its certificate of public convenience as well as the rules and regulations of the Commission. The
Commission concluded that the petitioner "cannot render the efficient, adequate and satisfactory electric service required by its
certificate and that it is against public interest to allow it to continue its operation." Accordingly, it ordered the cancellation and
revocation of petitioner's certificate of public convenience and the forfeiture of its franchise.
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On September 18, 1962, petitioner moved for reconsideration of the decision, alleging that before its electric plant was burned on July
29, 1962, its service was greatly improved and that it had still existing investment which the Commission should protect. But eight
days before said motion for reconsideration was filed, or on September 10, 1962, Morong Electric, having been granted a municipal
franchise on May 6, 1962 by respondent municipality to install, operate and maintain an electric heat, light and power service in said
municipality — approved by the Provincial Board of Rizal on August 31, 1962 — filed with the Commission an application for a
certificate of public convenience and necessity for said service. Said application was entitled "Morong Electric Co., Inc., Applicant",
and docketed as Case No. 62-5143.
Petitioner opposed in writing the application of Morong Electric, alleging among other things, that it is a holder of a certificate of
public convenience to operate an electric light, heat and power service in the same municipality of Morong, Rizal, and that the
approval of said application would not promote public convenience, but would only cause ruinous and wasteful competition. Although
the opposition is dated October 6, 1962, it was actually received by the Commission on November 8, 1962, or twenty four days after
the order of general default was issued in open court when the application was first called for hearing on October 15, 1962. On
November 12, 1962, however, the petitioner filed a motion to lift said order of default. But before said motion could be resolved,
petitioner filed another motion, dated January 4, 1963, this time asking for the dismissal of the application upon the ground that
applicant Morong Electric had no legal personality when it filed its application on September 10, 1962, because its certificate of
incorporation was issued by the Securities and Exchange Commission only on October 17, 1962. This motion to dismiss was denied
by the Commission in a formal order issued on January 17, 1963 on the premise that applicant Morong Electric was a de
facto corporation. Consequently, the case was heard on the merits and both parties presented their respective evidence. On the basis of
the evidence adduced, the Commission, in its decision dated March 13, 1963, found that there was an absence of electric service in the
municipality of Morong and that applicant Morong Electric, a Filipino-owned corporation duly organized and existing under the laws
of the Philippines, has the financial capacity to maintain said service. These circumstances, considered together with the denial of the
motion for reconsideration filed by petitioner in Case No. 39715 on February, 15, 1963, such that as far as the Commission was
concerned the certificate of the petitioner was already declared revoked and cancelled, the Commission approved the application of
Morong Electric and ordered the issuance in its favor of the corresponding certificate of public convenience and necessity.1awphîl.nèt
On March 8, 1963, petitioner filed with this Court a petition to review the decision in Case No. 39715 (now G. R. No. L-20993). Then
on April 26, 1963, petitioner also filed a petition to review the decision in Case No. 62-5143 (now G. R. No. L-21221).
In questioning the decision of the Commission in Case No. 39715, petitioner contends: (1) that the Commission acted without or in
excess of its jurisdiction when it delegated the hearing of the case and the reception of evidence to Mr. Pedro S. Talavera who is not
allowed by law to hear the same; (2) that the cancellation of petitioner's certificate of public convenience was unwarranted because no
sufficient evidence was adduced against the petitioner and that petitioner was not able to present evidence in its defense; (3) that the
Commission failed to give protection to petitioner's investment; and (4) that the Commission erred in imposing the extreme penalty of
revocation of the certificate.
In questioning the decision in Case No. 62-5143, petitioner contends: (1) that the Commission erred in denying petitioner's motion to
dismiss and proceeding with the hearing of the application of the Morong Electric; (2) that the Commission erred in granting Morong
Electric a certificate of public convenience and necessity since it is not financially capable to render the service; (3) that the
Commission erred when it made findings of facts that are not supported by the evidence adduced by the parties at the trial; and (4) that
the Commission erred when it did not give to petitioner protection to its investment — a reiteration of the third assignment of error in
the other case.1awphîl.nèt
We shall now discuss the appeals in these two cases separately.
G.R. No. L-20993
1. Under the first assignment of error, petitioner contends that while Mr. Pedro S. Talavera, who conducted the hearings of the case
below, is a division chief, he is not a lawyer. As such, under Section 32 of Commonwealth Act No. 146, as amended, the Commission
should not have delegated to him the authority to conduct the hearings for the reception of evidence of the parties.
We find that, really, Mr. Talavera is not a lawyer. 5 Under the second paragraph of Section 32 of Commonwealth Act No. 146, as
amended, 6 the Commission can only authorize a division chief to hear and investigate a case filed before it if he is a lawyer. However,
the petitioner is raising this question for the first time in this appeal. The record discloses that petitioner never made any objection to
the authority of Mr. Talavera to hear the case and to receive the evidence of the parties. On the contrary, we find that petitioner had
appeared and submitted evidence at the hearings conducted by Mr. Talavera, particularly the hearings relative to the motion for
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reconsideration of the order of February 18, 1957 cancelling and revoking its certificate. We also find that, through counsel, petitioner
had entered into agreements with Mr. Talavera, as hearing officer, and the counsel for respondent municipality, regarding procedure in
order to abbreviate the proceedings. 7 It is only after the decision in the case turned out to be adverse to it that petitioner questioned the
proceedings held before Mr. Talavera.
This Court in several cases has ruled that objection to the delegation of authority to hear a case filed before the Commission and to
receive the evidence in connection therewith is a procedural, not a jurisdictional point, and is waived by failure to interpose timely the
objection and the case had been decided by the Commission. 8 Since petitioner has never raised any objection to the authority of Mr.
Talavera before the Commission, it should be deemed to have waived such procedural defect, and consonant with the precedents on
the matter, petitioner's claim that the Commission acted without or in excess of jurisdiction in so authorizing Mr. Talavera should be
dismissed. 9
2. Anent the second assigned error, the gist of petitioner's contention is that the evidence — consisting of inspection reports — upon
which the Commission based its decision is insufficient and untrustworthy in that (1) the authors of said reports had not been put to
test by way of cross-examination; (2) the reports constitute only one side of the picture as petitioner was not able to present evidence
in its defense; (3) judicial notice was not taken of the testimony of Mr. Harry B. Bernardino, former mayor of respondent municipality,
in PSC Case No. 625143 (the other case, G. R. No. L-21221) to the effect that the petitioner had improved its service before its electric
power plant was burned on July 29, 1962 — which testimony contradicts the inspection reports; and (4) the Commission acted both as
prosecutor and judge — passing judgment over the very same evidence presented by it as prosecutor — a situation "not conducive to
the arrival at just and equitable decisions."
Settled is the rule that in reviewing the decision of the Public Service Commission this Court is not required to examine the proof de
novo and determine for itself whether or not the preponderance of evidence really justifies the decision. The only function of this
Court is to determine whether or not there is evidence before the Commission upon which its decision might reasonably be based. This
Court will not substitute its discretion for that of the Commission on questions of fact and will not interfere in the latter's decision
unless it clearly appears that there is no evidence to support it. 10 Inasmuch as the only function of this Court in reviewing the decision
of the Commission is to determine whether there is sufficient evidence before the Commission upon which its decision can reasonably
be based, as it is not required to examine the proof de novo, the evidence that should be made the basis of this Court's determination
should be only those presented in this case before the Commission. What then was the evidence presented before the Commission and
made the basis of its decision subject of the present appeal? As stated earlier, the Commission based its decision on the inspection
reports submitted by its engineers who conducted the inspection of petitioner's electric service upon orders of the Commission. 11 Said
inspection reports specify in detail the deficiencies incurred, and violations committed, by the petitioner resulting in the inadequacy of
its service. We consider that said reports are sufficient to serve reasonably as bases of the decision in question. It should be
emphasized, in this connection that said reports, are not mere documentary proofs presented for the consideration of the Commission,
but are the results of the Commission's own observations and investigations which it can rightfully take into
consideration, 12 particularly in this case where the petitioner had not presented any evidence in its defense, and speaking of
petitioner's failure to present evidence, as well as its failure to cross-examine the authors of the inspection reports, petitioner should
not complain because it had waived not only its right to cross-examine but also its right to present evidence. Quoted hereunder are the
pertinent portions of the transcripts of the proceedings where the petitioner, through counsel, manifested in clear language said waiver
and its decision to abide by the last inspection report of Engineer Martinez:
Proceedings of December 15, 1960
COMMISSION:
It appears at the last hearing of this case on September 23, 1960, that an engineer of this Commission has been ordered to make an
inspection of all electric services in the province of Rizal and on that date the engineer of this Commission is still undertaking that
inspection and it appears that the said engineer had actually made that inspection on July 12 and 13, 1960. The engineer has submitted
his report on November 18, 1960 which is attached to the records of this case.
ATTY. LUQUE (Councel for Petitioner):
... (W)e respectfully state that while the report is, as I see it attached to the records, clear and very thorough, it was made sometime
July of this year and I understand from the respondent that there is some improvement since this report was made ... we respectfully
request that an up-to-date inspection be made ... . An inspector of this Commission can be sent to the plant and considering that the
engineer of this Commission, Engineer Meliton Martinez, is very acquainted to the points involved we pray that his report will be used
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by us for the reason that he is a technical man and he knows well as he has done a good job and I think our proposition would expedite
the matter. We sincerely believe that the inspection report will be the best evidence to decide this matter.
xxx xxx xxx
ATTY. LUQUE:
... This is a very important matter and to show the good faith of respondent in this case we will not even cross-examine the engineer
when he makes a new report. We will agree to the findings and, your honor please, considering as we have manifested before that
Engineer Martinez is an experienced engineer of this Commission and the points reported by Engineer Martinez on the situation of the
plant now will prevent the necessity of having a hearing, of us bringing new evidence and complainant bringing new evidence. ... .
xxx xxx xxx
COMMISSION (to Atty. Luque):
Q Does the Commission understand from the counsel for applicant that if the motion is granted he will submit this order to show
cause for decision without any further hearing and the decision will be based on the report of the engineer of this Commission?
A We respectfully reply in this manner that we be allowed or be given an opportunity just to read the report and 99%, we will
agree that the report will be the basis of that decision. We just want to find out the contents of the report, however, we request that we
be furnished with a copy of the report before the hearing so that we will just make a manifestation that we will agree.
COMMISSION (to Atty. Luque):
Q In order to prevent the delay of the disposition of this case the Commission will allow counsel for the applicant to submit his
written reply to the report that the engineer of this Commission. Will he submit this case without further hearing upon the receipt of
that written reply?
A Yes, your honor.
Proceedings of August 25, 1961
ATTY. LUQUE (Counsel for petitioner):
In order to avoid any delay in the consideration of this case we are respectfully move (sic) that instead of our witnesses testifying
under oath that we will submit a written reply under oath together with the memorandum within fifteen (15) days and we will furnish a
copy and upon our submission of said written reply under oath and memorandum we consider this case submitted. This suggestion is
to abbreviate the necessity of presenting witnesses here which may prolong the resolution of this case.
ATTY. OLIVAS (Counsel for respondent municipality):
I object on the ground that there is no resolution by this Commission on the action to reopen the case and second this case has been
closed.
ATTY. LUQUE:
With regard to the testimony on the ground for opposition we respectfully submit to this Commission our motion to submit a written
reply together with a memorandum. Also as stated to expedite the case and to avoid further hearing we will just submit our written
reply. According to our records we are furnished with a copy of the report of July 17, 1961. We submit your honor.
xxx xxx xxx
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COMMISSION:
To give applicant a chance to have a day in court the Commission grants the request of applicant that it be given 10 days within which
to submit a written reply on the report of the engineer of the Commission who inspected the electric service, in the municipality of
Morong, Rizal, and after the submission of the said written reply within 10 days from today this case will be considered submitted for
decision.
The above-quoted manifestation of counsel for the petitioner, specifically the statement referring to the inspection report of Engineer
Martinez as the "best evidence to decide this matter," can serve as an argument against petitioner's claim that the Commision should
have taken into consideration the testimony of Mr. Bernardino. But the primary reasons why the Commission could not have taken
judicial cognizance of said testimony are: first, it is not a proper subject of judicial notice, as it is not a "known" fact — that is, well
established and authoritatively settled, without qualification and contention; 13 second, it was given in a subsequent and distinct case
after the petitioner's motion for reconsideration was heard by the Commission en banc and submitted for decision, 14 and third, it was
not brought to the attention of the Commission in this case through an appropriate pleading. 15
Regarding the contention of petitioner that the Commission had acted both as prosecutor and judge, it should be considered that there
are two matters that had to be decided in this case, namely, the order to show cause dated December 19, 1956, and the petition or
complaint by respondent municipality dated June 25, 1958. Both matters were heard jointly, and the record shows that respondent
municipality had been allowed to present its evidence to substantiate its complaint. It can not be said, therefore, that in this case the
Commission had acted as prosecutor and judge. But even assuming, for the sake of argument, that there was a commingling of the
prosecuting and investigating functions, this exercise of dual function is authorized by Section 17(a) of Commonwealth Act No. 146,
as amended, under which the Commission has power "to investigate, upon its own initiative or upon complaint in writing, any matter
concerning any public service as regards matters under its jurisdiction; to, require any public service to furnish safe, adequate, and
proper service as the public interest may require and warrant; to enforce compliance with any standard, rule, regulation, order or other
requirement of this Act or of the Commission ... ." Thus, in the case of Collector of Internal Revenue vs. Estate of F. P. Buan, L-11438,
July 31, 1958, this Court held that the power of the Commission to cancel and revoke a certificate of public convenience and necessity
may be exercised by it even without a formal charge filed by any interested party, with the only limitation that the holder of the
certificate should be given his day in court.
It may not be amiss to add that when prosecuting and investigating duties are delegated by statute to an administrative body, as in the
case of the Public Service Commission, said body may take steps it believes appropriate for the proper exercise of said duties,
particularly in the manner of informing itself whether there is probable violation of the law and/or its rules and regulations. It may
initiate an investigation, file a complaint, and then try the charge as preferred. So long as the respondent is given a day in court, there
can be no denial of due process, and objections to said procedure cannot be sustained.
3. In its third assignment of error, petitioner invokes the "protection-of-investment rule" enunciated by this Court in Batangas
Transportation Co. vs. Orlanes 16 in this wise:
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 regulations 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 the second
license to another person 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 above-quoted rule, however, is not absolute, for nobody has exclusive right to secure a franchise or a certificate of public
convenience. 17 Where, as in the present case, it has been shown by ample evidence that the petitioner, despite ample time and
opportunity given to it by the Commission, had failed to render adequate, sufficient and satisfactory service and had violated the
important conditions of its certificate as well as the directives and the rules and regulations of the Commission, the rule cannot apply.
To apply that rule unqualifiedly is to encourage violation or disregard of the terms and conditions of the certificate and the
Commission's directives and regulations, and would close the door to other applicants who could establish, operate and provide
adequate, efficient and satisfactory service for the benefit and convenience of the inhabitants. It should be emphasized that the
paramount consideration should always be the public interest and public convenience. The duty of the Commission to protect
investment of a public utility operator refers only to operators of good standing — those who comply with the laws, rules and
regulations — and not to operators who are unconcerned with the public interest and whose investments have failed or deteriorated
because of their own fault. 18
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4. The last assignment of error assails the propriety of the penalty imposed by the Commission on the petitioner — that is, the
revocation of the certificate and the forfeiture of the franchise. Petitioner contends that the imposition of a fine would have been
sufficient, as had been done by the Commission in cases of a similar nature.
It should be observed that Section 16(n) of Commonwealth Act No. 146, as amended, confers upon the Commission ample power and
discretion to order the cancellation and revocation of any certificate of public convenience issued to an operator who has violated, or
has willfully and contumaciously refused to comply with, any order, rule or regulation of the Commission or any provision of law.
What matters is that there is evidence to support the action of the Commission. In the instant case, as shown by the evidence, the
contumacious refusal of the petitioner since 1954 to comply with the directives, rules and regulations of the Commission, its violation
of the conditions of its certificate and its incapability to comply with its commitment as shown by its inadequate service, were the
circumstances that warranted the action of the Commission in not merely imposing a fine but in revoking altogether petitioner's
certificate. To allow petitioner to continue its operation would be to sacrifice public interest and convenience in favor of private
interest.
A grant of a certificate of public convenience confers no property rights but is a mere license or privilege, and such privilege is
forfeited when the grantee fails to comply with his commitments behind which lies the paramount interest of the public, for public
necessity cannot be made to wait, nor sacrificed for private convenience. (Collector of Internal Revenue v. Estate of F. P. Buan, et al.,
L-11438 and Santiago Sambrano, et al. v. PSC, et al., L-11439 & L-11542-46, July 31, 1958)
(T)he Public Service Commission, ... 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. (Batangas Trans. Co. v. Orlanes, 52 Phil. 455, 460; emphasis
supplied)
Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. 146, as amended, which provides that a public utility
operator violating or failing to comply with the terms and conditions of any certificate, or any orders, decisions or regulations of the
Commission, shall be subject to a fine and that the Commission is authorized and empowered to impose such fine, after due notice and
hearing. It should be noted, however, that the last sentence of said section states that the remedy provided therein "shall not be a bar to,
or affect any other remedy provided in this Act but shall be cumulative and additional to such remedy or remedies." In other words,
the imposition of a fine may only be one of the remedies which the Commission may resort to, in its discretion. But that remedy is not
exclusive of, or has preference over, the other remedies. And this Court will not substitute its discretion for that of the Commission, as
long as there is evidence to support the exercise of that discretion by the Commission.
G. R. No. L-21221
Coming now to the other case, let it be stated at the outset that before any certificate may be granted, authorizing the operation of a
public service, three requisites must be complied with, namely: (1) the applicant must be a citizen of the Philippines or of the United
States, or a corporation or co-partnership, association or joint-stock company constituted and organized under the laws of the
Philippines, sixty per centum at least of the stock or paid-up capital of which belongs entirely to citizens of the Philippines or of the
United States; 19 (2) the applicant must be financially capable of undertaking the proposed service and meeting the responsibilities
incident to its operation; 20 and (3) the applicant must prove that the operation of the public service proposed and the authorization to
do business will promote the public interest in a proper and suitable manner. 21
As stated earlier, in the decision appealed from, the Commission found that Morong Electric is a corporation duly organized and
existing under the laws of the Philippines, the stockholders of which are Filipino citizens, that it is financially capable of operating an
electric light, heat and power service, and that at the time the decision was rendered there was absence of electric service in Morong,
Rizal. While the petitioner does not dispute the need of an electric service in Morong, Rizal, 22 it claims, in effect, that Morong Electric
should not have been granted the certificate of public convenience and necessity because (1) it did not have a corporate personality at
the time it was granted a franchise and when it applied for said certificate; (2) it is not financially capable of undertaking an electric
service, and (3) petitioner was rendering efficient service before its electric plant was burned, and therefore, being a prior operator its
investment should be protected and no new party should be granted a franchise and certificate of public convenience and necessity to
operate an electric service in the same locality.
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1. The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the proposition that since a franchise is a
contract, 23 at least two competent parties are necessary to the execution thereof, and parties are not competent except when they are in
being. Hence, it is contended that until a corporation has come into being, in this jurisdiction, by the issuance of a certificate of
incorporation by the Securities and Exchange Commission (SEC) it cannot enter into any contract as a corporation. The certificate of
incorporation of the Morong Electric was issued by the SEC on October 17, 1962, so only from that date, not before, did it acquire
juridical personality and legal existence. Petitioner concludes that the franchise granted to Morong Electric on May 6, 1962 when it
was not yet in esse is null and void and cannot be the subject of the Commission's consideration. On the other hand, Morong Electric
argues, and to which argument the Commission agrees, that it was a de facto corporation at the time the franchise was granted and, as
such, it was not incapacitated to enter into any contract or to apply for and accept a franchise. Not having been incapacitated, Morong
Electric maintains that the franchise granted to it is valid and the approval or disapproval thereof can be properly determined by the
Commission.
Petitioner's contention that Morong Electric did not yet have a legal personality on May 6, 1962 when a municipal franchise was
granted to it is correct. The juridical personality and legal existence of Morong Electric began only on October 17, 1962 when its
certificate of incorporation was issued by the SEC. 24 Before that date, or pending the issuance of said certificate of incorporation, the
incorporators cannot be considered as de facto corporation. 25 But the fact that Morong Electric had no corporate existence on the day
the franchise was granted in its name does not render the franchise invalid, because later Morong Electric obtained its certificate of
incorporation and then accepted the franchise in accordance with the terms and conditions thereof. This view is sustained by eminent
American authorities. Thus, McQuiuin says:
The fact that a company is not completely incorporated at the time the grant is made to it by a municipality to use the streets does not,
in most jurisdictions, affect the validity of the grant. But such grant cannot take effect until the corporation is organized. And in
Illinois it has been decided that the ordinance granting the franchise may be presented before the corporation grantee is fully
organized, where the organization is completed before the passage and acceptance. (McQuillin, Municipal Corporations, 3rd Ed., Vol.
12, Chap. 34, Sec. 34.21)
Fletcher says:
While a franchise cannot take effect until the grantee corporation is organized, the franchise may, nevertheless, be applied for before
the company is fully organized.
A grant of a street franchise is valid although the corporation is not created until afterwards. (Fletcher, Cyclopedia Corp. Permanent
Edition, Rev. Vol. 6-A, Sec. 2881)
And Thompson gives the reason for the rule:
(I)n the matter of the secondary franchise the authorities are numerous in support of the proposition that an ordinance granting a
privilege to a corporation is not void because the beneficiary of the ordinance is not fully organized at the time of the introduction of
the ordinance. It is enough that organization is complete prior to the passage and acceptance of the ordinance. The reason is that a
privilege of this character is a mere license to the corporation until it accepts the grant and complies with its terms and conditions.
(Thompson on Corporations, Vol. 4, 3rd Ed., Sec. 2929) 26
The incorporation of Morong Electric on October 17, 1962 and its acceptance of the franchise as shown by its action in prosecuting
the application filed with the Commission for the approval of said franchise, not only perfected a contract between the respondent
municipality and Morong Electric but also cured the deficiency pointed out by the petitioner in the application of Morong EIectric.
Thus, the Commission did not err in denying petitioner's motion to dismiss said application and in proceeding to hear the same. The
efficacy of the franchise, however, arose only upon its approval by the Commission on March 13, 1963. The reason is that —
Under Act No. 667, as amended by Act No. 1022, a municipal council has the power to grant electric franchises, subject to the
approval of the provincial board and the President. However, under Section 16(b) of Commonwealth Act No. 146, as amended, the
Public Service Commission is empowered "to approve, subject to constitutional limitations any franchise or privilege granted under
the provisions of Act No. 667, as amended by Act No. 1022, by any political subdivision of the Philippines when, in the judgment of
the Commission, such franchise or privilege will properly conserve the public interests and the Commission shall in so approving
impose such conditions as to construction, equipment, maintenance, service, or operation as the public interests and convenience may
reasonably require, and to issue certificates of public convenience and necessity when such is required or provided by any law or
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franchise." Thus, the efficacy of a municipal electric franchise arises, therefore, only after the approval of the Public Service
Commission. (Almendras vs. Ramos, 90 Phil. 231) .
The conclusion herein reached regarding the validity of the franchise granted to Morong Electric is not incompatible with the holding
of this Court in Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko 27 upon which the petitioner leans heavily in support of
its position. In said case this Court held that a corporation should have a full and complete organization and existence as an entity
before it can enter into any kind of a contract or transact any business. It should be pointed out, however, that this Court did not say in
that case that the rule is absolute or that under no circumstances may the acts of promoters of a corporation be ratified or accepted by
the corporation if and when subsequently organized. Of course, there are exceptions. It will be noted that American courts generally
hold that a contract made by the promoters of a corporation on its behalf may be adopted, accepted or ratified by the corporation when
organized. 28
2. The validity of the franchise and the corporate personality of Morong Electric to accept the same having been shown, the next
question to be resolved is whether said company has the financial qualification to operate an electric light, heat and power service.
Petitioner challenges the financial capability of Morong Electric, by pointing out the inconsistencies in the testimony of Mr. Jose P.
Ingal, president of said company, regarding its assets and the amount of its initial investment for the electric plant. In this connection it
should be stated that on the basis of the evidence presented on the matter, the Commission has found the Morong Electric to be
"financially qualified to install, maintain and operate the proposed electric light, heat and power service." This is essentially a factual
determination which, in a number of cases, this Court has said it will not disturb unless patently unsupported by evidence. An
examination of the record of this case readily shows that the testimony of Mr. Ingal and the documents he presented to establish the
financial capability of Morong Electric provide reasonable grounds for the above finding of the Commission.
It is now a very well-settled rule in this jurisdiction that the findings and conclusions of fact made by the Public Service Commission,
after weighing the evidence adduced by the parties in a public service case, will not be disturbed by the Supreme Court unless those
findings and conclusions appear not to be reasonably supported by evidence. (La Mallorca and Pampanga Bus Co. vs. Mercado,
L-19120, November 29, 1965)
For purposes of appeal, what is decisive is that said testimonial evidence provides reasonable support for the Public Service
Commission's findings of financial capacity on the part of applicants, rendering such findings beyond our power to disturb. (Del Pilar
Transit vs. Silva, L-21547, July 15, 1966)
It may be worthwhile to mention in this connection that per inspection report dated January 20, 1964 29 of Mr. Meliton Martinez of the
Commission, who inspected the electric service of Morong on January 15-16, 1964, Morong Electric "is serving electric service to the
entire area covered by its approved plan and has constructed its line in accordance with the plans and specifications approved by the
Commission." By reason thereof, it was recommended that the requests of Morong Electric (1) for the withdrawal of its deposit in the
amount of P1,000.00 with the Treasurer of the Philippines, and (2) for the approval of Resolution No. 160 of the Municipal Council of
Morong, Rizal, exempting the operator from making the additional P9,000.00 deposit mentioned in its petition, dated September 16,
1963, be granted. This report removes any doubt as to the financial capability of Morong Electric to operate and maintain an electric
light, heat and power service.
3. With the financial qualification of Morong Electric beyond doubt, the remaining question to be resolved is whether, or not, the
findings of fact of the Commission regarding petitioner's service are supported by evidence. It is the contention of the petitioner that
the Commission made some findings of fact prejudicial to its position but which do not find support from the evidence presented in
this case. Specifically, petitioner refers to the statements or findings that its service had "turned from bad to worse," that it miserably
failed to comply with the oft-repeated promises to bring about the needed improvement, that its equipment is unserviceable, and that it
has no longer any plant site and, therefore, has discredited itself. Petitioner further states that such statements are not only devoid of
evidentiary support but contrary to the testimony of its witness, Mr. Harry Bernardino, who testified that petitioner was rendering
efficient and satisfactory service before its electric plant was burned on July 29, 1962.
On the face of the decision appealed from, it is obvious that the Commission in describing the kind of service petitioner was rendering
before its certificate was ordered revoked and cancelled, took judicial notice of the records of the previous case (PSC Case No. 39715)
where the quality of petitioner's service had been squarely put in issue. It will be noted that the findings of the Commission were made
notwithstanding the fact that the aforementioned testimony of Mr. Bernardino had been emphasized and pointed out in petitioner's
Memorandum to the Commission. 30 The implication is simple: that as between the testimony of Mr. Bernardino and the inspection
reports of the engineers of the Commission, which served as the basis of the revocation order, the Commission gave credence to the
latter. Naturally, whatever conclusion or finding of fact that the Commission arrived at regarding the quality of petitioner's service are
not borne out by the evidence presented in this case but by evidence in the previous case. 31In this connection, we repeat, the
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conclusion, arrived at by the Commission after weighing the conflicting evidence in the two related cases, is a conclusion of fact
which this Court will not disturb.
And it has been held time and again that where the Commission has reached a conclusion of fact after weighing the conflicting
evidence, that conclusion must be respected, and the Supreme Court will not interfere unless it clearly appears that there is no
evidence to support the decision of the Commission. (La Mallorca and Pampanga Bus Co., Inc. vs. Mercado, L-19120, November 29,
1965 citing Pangasinan Trans. Co., Inc. vs. Dela Cruz, 96 Phil. 278)
For that matter, petitioner's pretension that it has a prior right to the operation of an electric service in Morong, Rizal, is not tenable;
and its plea for protection of its investment, as in the previous case, cannot be entertained.
WHEREFORE, the two decisions of the Public Service Commission, appealed from, should be, as they are hereby affirmed, with
costs in the two cases against petitioner Rizal Light & Ice Co., Inc. It is so ordered.
____________________________________________________________________________________________________________
G.R. No. L-13910 May 30, 1960
MANILA YELLOW TAXI-CAB, INC., Petitioner, vs. EDMUNDO L. CASTELO, Respondent.
On March 7, 1957, Edmundo L. Castelo filed an application with the Public Service Commission for a certificate of public
convenience to operate ten (10) units of taxicab service in the City of Cabanatuan, and to all points, barrios and municipalities in the
Island of Luzon. The Manila Yellow Taxi-Cab Co., Inc., a grantee of a certificate of public convenience operating ten taxicab units in
the same territory, opposed the application alleging, among others, that the taxicab service now rendered by it is more than sufficient
to meet the needs of the riding public so that to approve the application would only create a ruinuous competition, and that, in the
event the Commission finds that there is need for the proposed service, preferential right should be given to said oppositor it being an
old operator.
After trial, the Commission, by a two to one vote, found for Castelo and rendered decision granting him a certificate to operate six (6)
units of taxicab service in said territory. Not satisfied with the decision, the oppositor elevated this case to this Court contending that
the Commission "ERRED IN HOLDING THAT THERE IS NEED FOR MORE TAXICAB FACILITIES IN THE CITY OF
CABANATUAN AND THAT THE SERVICE NOW EXISTING IS NOT SUFFICIENT FOR THE NEEDS OF THE PUBLIC."
To support its claim, oppositor submitted testimonial as well as documentary evidence consisting in the testimonies of six witnesses,
namely: Pedro C. Ladignon, Arturo Pineda, Vicenta de Jesus, Mario Santos, Romeo A. Punzal, and Pedrito C. Arguelles. The
documentary evidence consists of Exhibits 1, 2 and 3, which show that oppositor is operating its taxicab business in Cabanatuan City
at a loss.
Pedro C. Ladignon, a lawyer of Sta. Rosa, Nueva Ecija, testified that he goes to Cabanatuan City three to four times a week; that the
means of transportation in the city are calesas, jitneys, big buses and the ten taxicabs of oppositor; that he frequently sees empty
taxicabs of oppositor; that the riding public patronizes calesas, jitneys, auto-calesas and big buses because the fare is cheaper than the
taxicabs. On cross-examination, he stated that he was a former classmate of Mr. Punzal, the branch manager of oppositor; that he does
not know of any jitney or calesa which carries passengers from one point of the poblacion to another within the City of Cabanatuan,
and that the jitneys and big buses carry passengers from the city to places outside of its limits.
Arturo Pineda, Vicente de Jesus and Mario Santos corroborated the testimony of Ladignon, while Romeo A. Punzal, branch manager
of oppositor, testified that he is operating ten units in the city the latest models being Studebaker 1952; that during daytime the
available passengers are mostly emergency cases from hospitals and merchants; that there are about 900 to 1,000 calesas and about
500 to 500 jitneys in Cabanatuan City which are used as means of transportation there and other towns; that the taxicab business of
oppositor in the city is losing because the average earning during the lean months is from P6.00 to P7.00 per day per cab and it is only
during carnival season in Cabanatuan City that the taxicab averaged from P20.00 to P25.00 a day. However, on cross-examination, he
stated that of the 10 units operated by oppositor, actually 7 are in operation, for the other three are undergoing repairs for around one
month already; that there are flag-up cases involving drivers for which some had been discharged, and that some of those discharged
reported daily earnings of P6.00 to P7.00.
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Applicant, on the other hand, also presented testimonial and documentary evidence, the latter consisting of resolutions of Cabanatuan
Jaycees and of Cabanatuan City Council endorsing the move of applicant to operate additional taxi units for the benefit and
convenience of the public. Testifying in his own behalf, he stated that there are seven colleges in Cabanatuan City with an average
enrollment of 2,000 students each, most of whom attend night schools; that there are many government offices in the city such as the
PC Headquarters, Provincial Jail, Nursery, SEATO Camp, FACOMA, etc.; that the students as well as the government employees are
forced to use calesas because of lack of available taxis; that oppositor operates old units of 1952 model; that plenty of dust get into the
cars because the floors have holes; that patients of hospitals cannot use the same because of this inconvenience, and there is only one
ambulance service offered by the provincial hospital whose charge is higher than that of taxicabs; that there are many organizations
which have their offices in Cabanatuan City such as the Rotary, Jaycee Club and the Lions Club; that the units of oppositor are
inadequate especially during rainy season when most of the cocheros devote their time to planting palay; and that the resolutions of
the Jaycees and the City Council of Cabanatuan were passed without his intervention.
Enrique Ortiz, a member of Cabanatuan City Council, corroborated applicant's testimony as to the inadequacy of the service rendered
by oppositor. He stated that the passengers are rendered uncomfortable due to the dust coming from holes of the floors of its cars, and
that at the regular meeting of the city council composed of five Nacionalistas and three Liberals, the councilors unanimously agreed to
seek approval of oppositor's application. On cross-examination, he stated that it is hard to get transportation in going to the barrios at
night; that during daytime the cocheros first ask the passenger how far he was going and if the place is about three kilometers away
they refuse to render service. He further stated that there are five theaters in the city and the people who go out at 11:00 o'clock at
night have to walk for lack of transportation facilities.
Another witness of applicant, Francisco San Vicente, testified as follows: that he is an executive officer of the Philippine Stateman
College and as such he had occasion to study the existing conditions regarding the transportation need of his students; that during
dismissal hours large number of students mill around the waiting shed and the entrance of the school premises waiting for
buses, calesas and jeeps up to 10 o'clock at night; that in May of 1957, at a meeting held by the Rotary Club, of which he is the
Secretary, the board of directors petitioned the Public Service Commission to grant more taxicab units in Cabanatuan City, a copy of
which was furnished the Mayor of Cabanatuan; and that many passengers from Manila walk home when they arrive in Cabanatuan at
11:00 o'clock at night because there are no calesas, jitneys, or taxis available.
Upon the foregoing evidence submitted by both parties, the Public Service Commission made the following comment:
After a careful examination of the entire record, we find merit in the claim of the applicant that there is a need for more taxicab
facilities in that City of Cabanatuan and that the service now existing is not sufficient for the needs of the public. It appears that
Cabanatuan is a large city that is well populated with many business and commercial establishments located in different places as well
as schools and colleges, both public and private, and that the people travel from their homes to those places continuously. There is a
showing that there are many horse-drawn vehicles and auto-calesas operating within the City, but it is a fact that the service of those
vehicles is totally different from that of a taxicab. There are circumstances under which an auto-calesa or a horse-drawn vehicle would
not serve the purpose of a passenger who needs a conveyance for his own use up to the place where he desires to go, to await for him
there, and bring him to anther place, which service can only be furnished by a taxicab. ... We find from the evidence that this is the
situation in Cabanatuan City where although there are auto-calesas plying within the city there is a class of passengers who need
taxicab facilities for their business or social trips. We are inclined to believe the evidence of the applicant that although the oppositor is
authorized to operate 10 units in Cabanatuan City, most of the time less than 10 units are in operation because frequently units break
down due to their defective condition and this is also a reason why the vehicles are not patronized even by those who need taxicabs.
Oppositor's claim that it has not made any profit in the operation of its taxicabs cannot be attributed to the fact that there is no demand
for taxicab service but probably to the circumstance that because of the physical condition of its vehicles, the taxicab-using public
does not patronize them. We are satisfied from the evidence that the authorization to the applicant of six (6) taxicab units to
supplement the service now rendered by oppositor, will promote public interests and convenience in a proper and suitable manner.
We are inclined the uphold the above finding of the Commission. As we have held in one case, whether public necessity and
convenience warrant the putting up of additional service is a question of fact and the finding of the Public Service Commission being
"supported by sufficient evidence ... the same should be left undisturbed" (Raymundo Transportation Co. vs. Cervo, 91 Phil., 313).
And we even went to the extent of holding that this Court "will not substitute its discretion for that of the Commission on question of
fact and will not interfere in the later's decision unless it clearly appears that there is no evidence to support it" (Santiago Ice Plant
Co. vs. Lahoz, 87 Phil., 221; 47 Off. Gaz. [12] 403). Here, a cursory examination of the record will show that the finding of the
Commission is supported by ample evidence for, as found by it, Cabanatuan is a large and well populated city where many schools,
colleges, business and commercial establishments are operating, and where people travel from their homes continuously, so that even
if the 10 units of oppositor are actually put in operation they cannot cope with the demand of the travelling public.
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Oppositor claims, however, that even if it be found that there is still need for additional taxi service the authority to fill it should be
given to oppositor by virtue of its preferential right as an old operator. To meet this contention, suffice it to quote hereunder what we
said in the case of Isidro vs. Ocampo, 105 Phil., 911; 56 Off. Gaz. (41) 6341:
. . . Moreover, even assuming for a moment that petitioner were an old operator on the line in question, nevertheless he has not applied
for an increase in his service but allowed another to do so; and according to a line of decisions, it has been ruled that the granting of
preference to an old operator applies only when said old operator has made an offer to meet the increase in traffic and not when
another operator even a new one, like respondent ..., has made the offer to serve the new line or increased the service on said line. (See
also cases cited therein)
Wherefore, the decision of the Public Service Commission is affirmed, with costs against oppositor.
____________________________________________________________________________________________________________
G.R. No. L-23688 April 30, 1970
MANDBUSCO, INC., MANDALUYONG BUS CO., INC., PRESCILO CAMAGANACAN, BLAS REYES and ANASTACIO
ESMAO, petitioners,  
vs. 
PABLO FRANSCISCO, respondent.
The respondent Pablo Francisco applied for a certificate of public convenience covering the operation of five (5) PUJ jitneys from
barrio Pinagbuhatan, Pasig, Rizal to the intersection of Highway 54 and Shaw Boulevard, Mandaluyong, Rizal (otherwise known as
the "Crossing") and vice-versa. Hearing was conducted, after due notice and publication, enabling both the respondent applicant and
the oppositors Mandbusco, Inc., et al., to adduce their respective evidence. On June 15, 1964 a decision was rendered by the Public
Service Commission granting the respondent's application, it appearing to a division of three commissioners that:
After [a] careful study of the evidence presented by the parties, the Commission finds that the proposed service will benefit the people
of Bo. Pinagbuhatan considering that there is no direct service from that place to the crossing of Highway 54 and Shaw Blvd. It can be
noted also that the provincial capitol, provincial hospital and other big establishments are located past the Poblacion of Pasig and
nearer to the other proposed terminal at Highway 54 and Shaw Blvd. and that residents from Pinagbuhatan have to take 2 rides to
reach these places.
The dispositive portion of the decision reads:
Finding further from the evidence adduced by the applicant that he is [a] Filipino citizen, legally and financially capable [of operating
and maintaining] the same, the oppositions filed in this case are hereby overruled and the certificate of public convenience applied for,
may be, as it is hereby GRANTED to the applicant ....
It is mainly at the findings above-quoted that the petitioners, all bus operators, have aimed their present petition for review, following
the rejection of their motion for reconsideration by the Commission en banc.
The petitioners want to make capital of the declarations of their two witnesses, Federico Dantayana and Arturo Clemente. Let us
appraise these declarations.
Dantayana, an official inspector of the Commission, testified that he posted himself somewhere along the route covered by the
respondent's application, and conducted a survey of the number of passenger vehicles availing themselves of the use of the Shaw
Boulevard in going to and coming from Pasig, Rizal. The inspection sheets offered in evidence show that buses with a usual loading
capacity of from 65 to 75 passengers each were barely half-filled on the whole, while "jitneys" with a usual loading capacity of 13
passengers each actually carried an average of only 6 passengers each for every trip. These facts, the petitioners argue, illustrate an
excess of available passenger vehicles over the actual needs of the riding public. They negate the advisability of allowing the
applicant's "jitneys" to serve the route between barrio Pinagbuhatan and the crossing of Highway 54 and Shaw Boulevard in
Mandaluyong.
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Closely scrutinizing Dantayana's testimony, we cannot acquiesce in the petitioners' conclusions. The length of the route which the
respondent applied for is divided into two parts. The first starts at barrio Pinagbuhatan and ends at the poblacion of the town of Pasig.
The second begins at the poblacion and winds up at the crossing of Highway 54 and Shaw Boulevard in Mandaluyong. Dantayana's
survey covered passenger vehicles passing through the second part of the route applied for. It appears, however, that the second part is
actually only a converging point for passenger vehicles coming from towns east of Pasig, not to mention other passenger vehicles,
equally numerous, destined for Manila coming from their terminals located in the Pasig poblacion itself. In short, Dantayana's survey
does not at all indicate the volume of the traffic of passenger vehicles corning all the way from barrio Pinagbuhatan. After all, the
primary objective of the grant of the certificate of public convenience in question was the welfare of the inhabitants of barrio
Pinagbuhatan and other inhabitants along the first part of the route applied for.
The petitioners' only other witness, Arturo Clemente, the president of both the Mandbusco, Inc. and of the Pasig-Manila Bus Operators
Association, testified that a total of 125 buses are operating between Pasig, Rizal and Quiapo, Manila, all taking the Shaw Boulevard,
which thoroughfare is part of the route applied for by the respondent. Likewise, a total of 51 "jitneys" serve that same portion of Shaw
Boulevard to and from the various points in Pasig. In addition, a total of 171 buses coming from towns east of Pasig pass daily through
the latter town, proceed to Shaw Boulevard, and then to Manila. All these public conveyances, the witness pointed out, are more than
adequate to meet the transportation needs of the riding public in the areas served. The petitioners, the witness added, have made
substantial investments in their business and, therefore, the allowance of additional public transportation vehicles, clearly unneeded,
would result in ruinous competition and threaten the stability of their financial positions.
This argument suffers, however, from the same basic oversight afflicting the testimony of Dantayana. All the vehicles mentioned by
Clemente, except possibly for two buses — a matter which we will shortly discuss — do not run the full course of the route applied
for by the respondent. The overlapping of service exists only with regard to the second part of that route, and this is clearly
unavoidable since the stretch of road from the Pasig poblacion to the crossing serves as a common access to Highway 54 whence
passengers embark for separate destinations.
In the course of the hearing the petitioners presented a certificate of public convenience allowing the Mandaluyong Bus Co., Inc. to
utilize two of their buses, and a third as reserve, for the line from Pinagbuhatan (Pasig, Rizal) to Plaza Miranda (Quiapo, Manila) via
Mandaluyong, Rizal. This, according to petitioners, should completely negate the finding of the Commission that there exists no direct
service from barrio Pinagbuhatan to the crossing of Highway 54 and Shaw Boulevard. We disagree. The certificate of public
convenience adverted to merely proves that authority has been given to the grantee to operate public utility vehicles in the designated
territory. It cannot serve as proof that the grantee has made actual use of such authority. Lacking any positive proof that the petitioners
(or any of them) adequately serve the transportation requirements of the inhabitants of barrio Pinagbuhatan and the adjacent places, we
are not inclined to overturn the finding of fact of the Commission, realizing as we do, after the reading of the record, that the same is
reasonably supported by evidence.1
The petitioners invoke the "old operator rule," which is to the effect that a public utility operator should be shielded from ruinous
competition by affording him the opportunity to improve his equipment and service before allowing a new operator to serve in the
same territory he covers.2 This rule has no application in this case because the certificate of public convenience granted to the
respondent is a maiden franchise covering the particular line connecting barrio Pinagbuhatan and the crossing of Highway 54 and
Shaw Boulevard. The certificate of public convenience authorizing the Mandaluyong Bus Co., Inc. to operate two buses, with one
reserve, on the line extending from barrio Pinagbuhatan to Plaza Miranda in Quiapo, Manila, while in a sense overlapping with the
authority given to the respondent, was essentially intended to cover the great distance run between barrio Pinagbuhatan and Quiapo,
Manila, via Pasig Boulevard, P. Sanchez, V. Mapa, Valenzuela, Old Sta. Mesa, Sta. Mesa Boulevard, Legarda, Tanduay, P. Casal, Ayala
Bridge, Concepcion, Arroceros, Quezon Bridge and Quezon Boulevard. Upon the other hand, the grant in favor of the respondent
covers only a brief shuttle run of 8 kilometers linking barrio Pinagbuhatan directly with the Pasig poblacion and the crossing of
Highway 54 and Shaw Boulevard. The Commission favored the respondent with the certificate of public convenience in question; we
are not prepared to substitute our discretion with that of the Public Service Commission in the determination of what can best meet the
requirements of public convenience.
The ability of the respondent to finance the maintenance and operation of the service he applied for is likewise questioned by the
petitioners. This issue is now academic for the reason that the respondent has, since his receipt of the franchise, actually registered the
five units covered by the authority. He has, moreover, registered one reserve unit for the same line, with the approval of the
Commission. These units, plus the assets he proved he owns, are sufficient guaranty that the respondent can sustain the service he
applied for.3
The petitioners, in their brief, invoke the Public Service Commission Memorandum of May 15, 1963 and its Supplemental
Memorandum of July 22, 1963, with a view to establishing that the certificate of public convenience in favor of respondent was issued
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in violation of these memoranda. The first memorandum comes as a suggestion to all Commissioners that action on all pending
applications, for certificates of public convenience for the operation of passenger service in Manila, Quezon City, Pasay City,
Caloocan, Mandaluyong, Parañaque, San Juan and Makati, be suspended until further studies could be made. The supplemental
memorandum contains an order addressed to the Secretary of the Commission enjoining him from calendaring for hearing or for
continuation of hearing any application for passenger service in Manila and suburbs; and any decision purporting to have been
rendered prior to May 15, 1963 but had not been turned over to the Secretary and recorded prior to the date of the order, should be
withheld until further orders. It is not difficult to see that the territory applied for is not among the one enumerated in the
Memorandum of May 15, 1963. The respondent's service stretches mainly across the town of Pasig in Rizal, and if it abuts into a tiny
fraction of Mandaluyong, one of the areas covered by the enumeration, the incursion is incidental and does not necessarily render
Mandaluyong the mainstream of the respondent's service. Moreover, even if the memorandum in question comprehend the present
application, still public welfare and convenience, where positively found by the Commission to be subserved, should prevail.4
ACCORDINGLY, the decision appealed from is hereby affirmed. No pronouncement as to costs.
____________________________________________________________________________________________________________
G.R. No. L-23893 October 29, 1968
VILLA REY TRANSIT, INC., plaintiff-appellant,  

vs. 
EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC. and PUBLIC SERVICE COMMISSION,defendants.  
EUSEBIO E. FERRER and PANGASINAN TRANSPORTATION CO., INC., defendants-appellants.
PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant,  

vs. 
JOSE M. VILLARAMA, third-party defendant-appellee.
This is a tri-party appeal from the decision of the Court of First Instance of Manila, Civil Case No. 41845, declaring null and void the
sheriff's sale of two certificates of public convenience in favor of defendant Eusebio E. Ferrer and the subsequent sale thereof by the
latter to defendant Pangasinan Transportation Co., Inc.; declaring the plaintiff Villa Rey Transit, Inc., to be the lawful owner of the
said certificates of public convenience; and ordering the private defendants, jointly and severally, to pay to the plaintiff, the sum of
P5,000.00 as and for attorney's fees. The case against the PSC was dismissed.
The rather ramified circumstances of the instant case can best be understood by a chronological narration of the essential facts, to wit:
Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant to
certificates of public convenience granted him by the Public Service Commission (PSC, for short) in Cases Nos. 44213 and 104651,
which authorized him to operate a total of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and vice-versa.
On January 8, 1959, he sold the aforementioned two certificates of public convenience to the Pangasinan Transportation Company,
Inc. (otherwise known as Pantranco), for P350,000.00 with the condition, among others, that the seller (Villarama) "shall not for a
period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer."
Barely three months thereafter, or on March 6, 1959: a corporation called Villa Rey Transit, Inc. (which shall be referred to hereafter
as the Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each;
P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators, and she
subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and sister-in-law of Jose M. Villarama; of the
subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation, who was Natividad R. Villarama.
In less than a month after its registration with the Securities and Exchange Commission (March 10, 1959), the Corporation, on April 7,
1959, bought five certificates of public convenience, forty-nine buses, tools and equipment from one Valentin Fernando, for the sum of
P249,000.00, of which P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final approval of the
sale by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by the BUYER
to the different suppliers of the SELLER."
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The very same day that the aforementioned contract of sale was executed, the parties thereto immediately applied with the PSC for its
approval, with a prayer for the issuance of a provisional authority in favor of the vendee Corporation to operate the service therein
involved.1 On May 19, 1959, the PSC granted the provisional permit prayed for, upon the condition that "it may be modified or
revoked by the Commission at any time, shall be subject to whatever action that may be taken on the basic application and shall be
valid only during the pendency of said application." Before the PSC could take final action on said application for approval of sale,
however, the Sheriff of Manila, on July 7, 1959, levied on two of the five certificates of public convenience involved therein, namely,
those issued under PSC cases Nos. 59494 and 63780, pursuant to a writ of execution issued by the Court of First Instance of
Pangasinan in Civil Case No. 13798, in favor of Eusebio Ferrer, plaintiff, judgment creditor, against Valentin Fernando, defendant,
judgment debtor. The Sheriff made and entered the levy in the records of the PSC. On July 16, 1959, a public sale was conducted by
the Sheriff of the said two certificates of public convenience. Ferrer was the highest bidder, and a certificate of sale was issued in his
name.
Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval their corresponding
contract of sale to the PSC.2 Pantranco therein prayed that it be authorized provisionally to operate the service involved in the
said two certificates.
The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case No. 124057, and that of Ferrer and
Pantranco, Case No. 126278, were scheduled for a joint hearing. In the meantime, to wit, on July 22, 1959, the PSC issued an order
disposing that during the pendency of the cases and before a final resolution on the aforesaid applications, the Pantranco shall be the
one to operate provisionally the service under the twocertificates embraced in the contract between Ferrer and Pantranco. The
Corporation took issue with this particular ruling of the PSC and elevated the matter to the Supreme Court,3 which decreed, after
deliberation, that until the issue on the ownership of the disputed certificates shall have been finally settled by the proper court, the
Corporation should be the one to operate the lines provisionally.
On November 4, 1959, the Corporation filed in the Court of First Instance of Manila, a complaint for the annulment of the sheriff's
sale of the aforesaid two certificates of public convenience (PSC Cases Nos. 59494 and 63780) in favor of the defendant Ferrer, and
the subsequent sale thereof by the latter to Pantranco, against Ferrer, Pantranco and the PSC. The plaintiff Corporation prayed therein
that all the orders of the PSC relative to the parties' dispute over the said certificates be annulled.
In separate answers, the defendants Ferrer and Pantranco averred that the plaintiff Corporation had no valid title to the certificates in
question because the contract pursuant to which it acquired them from Fernando was subject to a suspensive condition — the approval
of the PSC — which has not yet been fulfilled, and, therefore, the Sheriff's levy and the consequent sale at public auction of the
certificates referred to, as well as the sale of the same by Ferrer to Pantranco, were valid and regular, and vested unto Pantranco, a
superior right thereto.
Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that Villarama and the Corporation, are one and
the same; that Villarama and/or the Corporation was disqualified from operating the two certificates in question by virtue of the
aforementioned agreement between said Villarama and Pantranco, which stipulated that Villarama "shall not for a period of 10 years
from the date of this sale, apply for any TPU service identical or competing with the buyer."
Upon the joinder of the issues in both the complaint and third-party complaint, the case was tried, and thereafter decision was rendered
in the terms, as above stated.
As stated at the beginning, all the parties involved have appealed from the decision. They submitted a joint record on appeal.
Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit, Inc. (Corporation) is a distinct and separate
entity from Jose M. Villarama; that the restriction clause in the contract of January 8, 1959 between Pantranco and Villarama is null
and void; that the Sheriff's sale of July 16, 1959, is likewise null and void; and the failure to award damages in its favor and against
Villarama.
Ferrer, for his part, challenges the decision insofar as it holds that the sheriff's sale is null and void; and the sale of the two certificates
in question by Valentin Fernando to the Corporation, is valid. He also assails the award of P5,000.00 as attorney's fees in favor of the
Corporation, and the failure to award moral damages to him as prayed for in his counterclaim.
The Corporation, on the other hand, prays for a review of that portion of the decision awarding only P5,000.00 as attorney's fees, and
insisting that it is entitled to an award of P100,000.00 by way of exemplary damages.
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After a careful study of the facts obtaining in the case, the vital issues to be resolved are: (1) Does the stipulation between Villarama
and Pantranco, as contained in the deed of sale, that the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE
OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER," apply to new lines only
or does it include existing lines?; (2) Assuming that said stipulation covers all kinds of lines, is such stipulation valid and enforceable?;
(3) In the affirmative, that said stipulation is valid, did it bind the Corporation?
For convenience, We propose to discuss the foregoing issues by starting with the last proposition.
The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the Corporation, alleging that he did not
become such, because he did not have sufficient funds to invest, his wife, however, was an incorporator with the least subscribed
number of shares, and was elected treasurer of the Corporation. The finances of the Corporation which, under all concepts in the law,
are supposed to be under the control and administration of the treasurer keeping them as trust fund for the Corporation, were,
nonetheless, manipulated and disbursed as if they were the private funds of Villarama, in such a way and extent that Villarama
appeared to be the actual owner-treasurer of the business without regard to the rights of the stockholders. The following testimony of
Villarama,4together with the other evidence on record, attests to that effect:
Q. Doctor, I want to go back again to the incorporation of the Villa Rey Transit, Inc. You heard the testimony presented here by the
bank regarding the initial opening deposit of ONE HUNDRED FIVE THOUSAND PESOS, of which amount Eighty-Five Thousand
Pesos was a check drawn by yourself personally. In the direct examination you told the Court that the reason you drew a check for
Eighty-Five Thousand Pesos was because you and your wife, or your wife, had spent the money of the stockholders given to her for
incorporation. Will you please tell the Honorable Court if you knew at the time your wife was spending the money to pay debts, you
personally knew she was spending the money of the incorporators?
A. You know my money and my wife's money are one. We never talk about those things.
Q. Doctor, your answer then is that since your money and your wife's money are one money and you did not know when your wife
was paying debts with the incorporator's money?
A. Because sometimes she uses my money, and sometimes the money given to her she gives to me and I deposit the money.
Q. Actually, aside from your wife, you were also the custodian of some of the incorporators here, in the beginning?
A. Not necessarily, they give to my wife and when my wife hands to me I did not know it belonged to the incorporators.
Q. It supposes then your wife gives you some of the money received by her in her capacity as treasurer of the corporation?
A. Maybe.
Q. What did you do with the money, deposit in a regular account?
A. Deposit in my account.
Q. Of all the money given to your wife, she did not receive any check?
A. I do not remember.
Q. Is it usual for you, Doctor, to be given Fifty Thousand Pesos without even asking what is this?
xxx xxx xxx
JUDGE: Reform the question.
Q. The subscription of your brother-in-law, Mr. Reyes, is Fifty-Two Thousand Pesos, did your wife give you Fifty-two Thousand
Pesos?
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A. I have testified before that sometimes my wife gives me money and I do not know exactly for what.
The evidence further shows that the initial cash capitalization of the corporation of P105,000.00 was mostly financed by Villarama. Of
the P105,000.00 deposited in the First National City Bank of New York, representing the initial paid-up capital of the Corporation,
P85,000.00 was covered by Villarama's personal check. The deposit slip for the said amount of P105,000.00 was admitted in evidence
as Exh. 23, which shows on its face that P20,000.00 was paid in cash and P85,000.00 thereof was covered by Check No. F-50271 of
the First National City Bank of New York. The testimonies of Alfonso Sancho5 and Joaquin Amansec,6 both employees of said bank,
have proved that the drawer of the check was Jose Villarama himself.
Another witness, Celso Rivera, accountant of the Corporation, testified that while in the books of the corporation there appears an
entry that the treasurer received P95,000.00 as second installment of the paid-in subscriptions, and, subsequently, also P100,000.00 as
the first installment of the offer for second subscriptions worth P200,000.00 from the original subscribers, yet Villarama directed him
(Rivera) to make vouchers liquidating the sums.7 Thus, it was made to appear that the P95,000.00 was delivered to Villarama in
payment for equipment purchased from him, and the P100,000.00 was loaned as advances to the stockholders. The said accountant,
however, testified that he was not aware of any amount of money that had actually passed hands among the parties involved,8 and
actually the only money of the corporation was the P105,000.00 covered by the deposit slip Exh. 23, of which as mentioned above,
P85,000.00 was paid by Villarama's personal check.
Further, the evidence shows that when the Corporation was in its initial months of operation, Villarama purchased and paid with his
personal checks Ford trucks for the Corporation. Exhibits 20 and 21 disclose that the said purchases were paid by Philippine Bank of
Commerce Checks Nos. 992618-B and 993621-B, respectively. These checks have been sufficiently established by Fausto Abad,
Assistant Accountant of Manila Trading & Supply Co., from which the trucks were purchased9 and Aristedes Solano, an employee of
the Philippine Bank of Commerce,10as having been drawn by Villarama.
Exhibits 6 to 19 and Exh. 22, which are photostatic copies of ledger entries and vouchers showing that Villarama had co-mingled his
personal funds and transactions with those made in the name of the Corporation, are very illuminating evidence. Villarama has
assailed the admissibility of these exhibits, contending that no evidentiary value whatsoever should be given to them since "they were
merely photostatic copies of the originals, the best evidence being the originals themselves." According to him, at the time Pantranco
offered the said exhibits, it was the most likely possessor of the originals thereof because they were stolen from the files of the
Corporation and only Pantranco was able to produce the alleged photostat copies thereof.
Section 5 of Rule 130 of the Rules of Court provides for the requisites for the admissibility of secondary evidence when the original is
in the custody of the adverse party, thus: (1) opponent's possession of the original; (2) reasonable notice to opponent to produce the
original; (3) satisfactory proof of its existence; and (4) failure or refusal of opponent to produce the original in court.11 Villarama has
practically admitted the second and fourth requisites.12As to the third, he admitted their previous existence in the files of the
Corporation and also that he had seen some of them.13 Regarding the first element, Villarama's theory is that since even at the time of
the issuance of the subpoena duces tecum, the originals were already missing, therefore, the Corporation was no longer in possession
of the same. However, it is not necessary for a party seeking to introduce secondary evidence to show that the original is in the actual
possession of his adversary. It is enough that the circumstances are such as to indicate that the writing is in his possession or under his
control. Neither is it required that the party entitled to the custody of the instrument should, on being notified to produce it, admit
having it in his possession.14 Hence, secondary evidence is admissible where he denies having it in his possession. The party calling
for such evidence may introduce a copy thereof as in the case of loss. For, among the exceptions to the best evidence rule is "when the
original has been lost, destroyed, or cannot be produced in court."15 The originals of the vouchers in question must be deemed to have
been lost, as even the Corporation admits such loss. Viewed upon this light, there can be no doubt as to the admissibility in evidence of
Exhibits 6 to 19 and 22.
Taking account of the foregoing evidence, together with Celso Rivera's testimony,16 it would appear that: Villarama supplied the
organization expenses and the assets of the Corporation, such as trucks and equipment;17 there was no actual payment by the original
subscribers of the amounts of P95,000.00 and P100,000.00 as appearing in the books;18 Villarama made use of the money of the
Corporation and deposited them to his private accounts;19 and the Corporation paid his personal accounts.20
Villarama himself admitted that he mingled the corporate funds with his own money.21 He also admitted that gasoline purchases of the
Corporation were made in his name22 because "he had existing account with Stanvac which was properly secured and he wanted the
Corporation to benefit from the rebates that he received."23
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The foregoing circumstances are strong persuasive evidence showing that Villarama has been too much involved in the affairs of the
Corporation to altogether negative the claim that he was only a part-time general manager. They show beyond doubt that the
Corporation is his alter ego.
It is significant that not a single one of the acts enumerated above as proof of Villarama's oneness with the Corporation has been
denied by him. On the contrary, he has admitted them with offered excuses.
Villarama has admitted, for instance, having paid P85,000.00 of the initial capital of the Corporation with the lame excuse that "his
wife had requested him to reimburse the amount entrusted to her by the incorporators and which she had used to pay the obligations of
Dr. Villarama (her husband) incurred while he was still the owner of Villa Rey Transit, a single proprietorship." But with his admission
that he had received P350,000.00 from Pantranco for the sale of the two certificates and one unit,24 it becomes difficult to accept
Villarama's explanation that he and his wife, after consultation,25 spent the money of their relatives (the stockholders) when they were
supposed to have their own money. Even if Pantranco paid the P350,000.00 in check to him, as claimed, it could have been easy for
Villarama to have deposited said check in his account and issued his own check to pay his obligations. And there is no evidence
adduced that the said amount of P350,000.00 was all spent or was insufficient to settle his prior obligations in his business, and in the
light of the stipulation in the deed of sale between Villarama and Pantranco that P50,000.00 of the selling price was earmarked for the
payments of accounts due to his creditors, the excuse appears unbelievable.
On his having paid for purchases by the Corporation of trucks from the Manila Trading & Supply Co. with his personal checks, his
reason was that he was only sharing with the Corporation his credit with some companies. And his main reason for mingling his funds
with that of the Corporation and for the latter's paying his private bills is that it would be more convenient that he kept the money to be
used in paying the registration fees on time, and since he had loaned money to the Corporation, this would be set off by the latter's
paying his bills. Villarama admitted, however, that the corporate funds in his possession were not only for registration fees but for
other important obligations which were not specified.26
Indeed, while Villarama was not the Treasurer of the Corporation but was, allegedly, only a part-time manager,27 he admitted not only
having held the corporate money but that he advanced and lent funds for the Corporation, and yet there was no Board Resolution
allowing it.28
Villarama's explanation on the matter of his involvement with the corporate affairs of the Corporation only renders more credible
Pantranco's claim that his control over the corporation, especially in the management and disposition of its funds, was so extensive
and intimate that it is impossible to segregate and identify which money belonged to whom. The interference of Villarama in the
complex affairs of the corporation, and particularly its finances, are much too inconsistent with the ends and purposes of the
Corporation law, which, precisely, seeks to separate personal responsibilities from corporate undertakings. It is the very essence of
incorporation that the acts and conduct of the corporation be carried out in its own corporate name because it has its own personality.
The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized
and respected in all cases which are within reason and the law.29 When the fiction is urged as a means of perpetrating a fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime,30 the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals.
Upon the foregoing considerations, We are of the opinion, and so hold, that the preponderance of evidence have shown that the Villa
Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract entered into by the latter and
Pantranco is also enforceable and binding against the said Corporation. For the rule is that a seller or promisor may not make use of a
corporate entity as a means of evading the obligation of his covenant.31 Where the Corporation is substantially the alter ego of the
covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee.32
The Corporation contends that even on the supposition that Villa Rey Transit, Inc. and Villarama are one and the same, the restrictive
clause in the contract between Villarama and Pantranco does not include the purchase of existing lines but it only applies to
application for the new lines. The clause in dispute reads thus:
(4) The SELLER shall not, for a period of ten (10) years from the date of this sale apply for any TPU service identical or competing
with the BUYER. (Emphasis supplied)
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As We read the disputed clause, it is evident from the context thereof that the intention of the parties was to eliminate the seller as a
competitor of the buyer for ten years along the lines of operation covered by the certificates of public convenience subject of their
transaction. The word "apply" as broadly used has for frame of reference, a service by the seller on lines or routes that would compete
with the buyer along the routes acquired by the latter. In this jurisdiction, prior authorization is needed before anyone can operate a
TPU service,33whether the service consists in a new line or an old one acquired from a previous operator. The clear intention of the
parties was to prevent the seller from conducting any competitive line for 10 years since, anyway, he has bound himself not to apply
for authorization to operate along such lines for the duration of such period.34
If the prohibition is to be applied only to the acquisition of new certificates of public convenience thru an application with the Public
Service Commission, this would, in effect, allow the seller just the same to compete with the buyer as long as his authority to operate
is only acquired thru transfer or sale from a previous operator, thus defeating the intention of the parties. For what would prevent the
seller, under the circumstances, from having a representative or dummy apply in the latter's name and then later on transferring the
same by sale to the seller? Since stipulations in a contract is the law between the contracting parties,
Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith. (Art. 19, New Civil Code.)
We are not impressed of Villarama's contention that the re-wording of the two previous drafts of the contract of sale between
Villarama and Pantranco is significant in that as it now appears, the parties intended to effect the least restriction. We are persuaded,
after an examination of the supposed drafts, that the scope of the final stipulation, while not as long and prolix as those in the drafts, is
just as broad and comprehensive. At most, it can be said that the re-wording was done merely for brevity and simplicity.
The evident intention behind the restriction was to eliminate the sellers as a competitor, and this must be, considering such factors as
the good will35 that the seller had already gained from the riding public and his adeptness and proficiency in the trade. On this matter,
Corbin, an authority on Contracts has this to say.36
When one buys the business of another as a going concern, he usually wishes to keep it going; he wishes to get the location, the
building, the stock in trade, and the customers. He wishes to step into the seller's shoes and to enjoy the same business relations with
other men. He is willing to pay much more if he can get the "good will" of the business, meaning by this the good will of the
customers, that they may continue to tread the old footpath to his door and maintain with him the business relations enjoyed by the
seller.
... In order to be well assured of this, he obtains and pays for the seller's promise not to reopen business in competition with the
business sold.
As to whether or not such a stipulation in restraint of trade is valid, our jurisprudence on the matter37says:
The law concerning contracts which tend to restrain business or trade has gone through a long series of changes from time to time with
the changing condition of trade and commerce. With trifling exceptions, said changes have been a continuous development of a
general rule. The early cases show plainly a disposition to avoid and annul all contract which prohibited or restrained any one from
using a lawful trade "at any time or at any place," as being against the benefit of the state. Later, however, the rule became well
established that if the restraint was limited to "a certain time" and within "a certain place," such contracts were valid and not "against
the benefit of the state." Later cases, and we think the rule is now well established, have held that a contract in restraint of trade is
valid providing there is a limitation upon either time or place. A contract, however, which restrains a man from entering into business
or trade without either a limitation as to time or place, will be held invalid.
The public welfare of course must always be considered and if it be not involved and the restraint upon one party is not greater than
protection to the other requires, contracts like the one we are discussing will be sustained. The general tendency, we believe, of
modern authority, is to make the test whether the restraint is reasonably necessary for the protection of the contracting parties. If the
contract is reasonably necessary to protect the interest of the parties, it will be upheld. (Emphasis supplied.)
Analyzing the characteristics of the questioned stipulation, We find that although it is in the nature of an agreement suppressing
competition, it is, however, merely ancillary or incidental to the main agreement which is that of sale. The suppression or restraint is
only partial or limited: first, in scope, it refers only to application for TPU by the seller in competition with the lines sold to the buyer;
second, in duration, it is only for ten (10) years; and third, with respect to situs or territory, the restraint is only along the lines covered
by the certificates sold. In view of these limitations, coupled with the consideration of P350,000.00 for just two certificates of public
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convenience, and considering, furthermore, that the disputed stipulation is only incidental to a main agreement, the same is reasonable
and it is not harmful nor obnoxious to public service.38 It does not appear that the ultimate result of the clause or stipulation would be
to leave solely to Pantranco the right to operate along the lines in question, thereby establishing monopoly or predominance
approximating thereto. We believe the main purpose of the restraint was to protect for a limited time the business of the buyer.
Indeed, the evils of monopoly are farfetched here. There can be no danger of price controls or deterioration of the service because of
the close supervision of the Public Service Commission.39 This Court had stated long ago,40that "when one devotes his property to a
use in which the public has an interest, he virtually grants to the public an interest in that use and submits it to such public use under
reasonable rules and regulations to be fixed by the Public Utility Commission."
Regarding that aspect of the clause that it is merely ancillary or incidental to a lawful agreement, the underlying reason sustaining its
validity is well explained in 36 Am. Jur. 537-539, to wit:
... Numerous authorities hold that a covenant which is incidental to the sale and transfer of a trade or business, and which purports to
bind the seller not to engage in the same business in competition with the purchaser, is lawful and enforceable. While such covenants
are designed to prevent competition on the part of the seller, it is ordinarily neither their purpose nor effect to stifle competition
generally in the locality, nor to prevent it at all in a way or to an extent injurious to the public. The business in the hands of the
purchaser is carried on just as it was in the hands of the seller; the former merely takes the place of the latter; the commodities of the
trade are as open to the public as they were before; the same competition exists as existed before; there is the same employment
furnished to others after as before; the profits of the business go as they did before to swell the sum of public wealth; the public has the
same opportunities of purchasing, if it is a mercantile business; and production is not lessened if it is a manufacturing plant.
The reliance by the lower court on tile case of Red Line Transportation Co. v. Bachrach41 and finding that the stipulation is illegal and
void seems misplaced. In the said Red Line case, the agreement therein sought to be enforced was virtually a division of territory
between two operators, each company imposing upon itself an obligation not to operate in any territory covered by the routes of the
other. Restraints of this type, among common carriers have always been covered by the general rule invalidating agreements in
restraint of trade. 42
Neither are the other cases relied upon by the plaintiff-appellee applicable to the instant case. In Pampanga Bus Co., Inc. v. Enriquez,
43the undertaking of the applicant therein not to apply for the lifting of restrictions imposed on his certificates of public convenience
was not an ancillary or incidental agreement. The restraint was the principal objective. On the other hand, in Red Line Transportation
Co., Inc. v. Gonzaga,44 the restraint there in question not to ask for extension of the line, or trips, or increase of equipment — was not
an agreement between the parties but a condition imposed in the certificate of public convenience itself.
Upon the foregoing considerations, Our conclusion is that the stipulation prohibiting Villarama for a period of 10 years to "apply" for
TPU service along the lines covered by the certificates of public convenience sold by him to Pantranco is valid and reasonable. Having
arrived at this conclusion, and considering that the preponderance of the evidence have shown that Villa Rey Transit, Inc. is itself
the alter ego of Villarama, We hold, as prayed for in Pantranco's third party complaint, that the said Corporation should, until the
expiration of the 1-year period abovementioned, be enjoined from operating the line subject of the prohibition.
To avoid any misunderstanding, it is here to be emphasized that the 10-year prohibition upon Villarama is not against his application
for, or purchase of, certificates of public convenience, but merely the operation of TPU along the lines covered by the certificates sold
by him to Pantranco. Consequently, the sale between Fernando and the Corporation is valid, such that the rightful ownership of the
disputed certificates still belongs to the plaintiff being the prior purchaser in good faith and for value thereof. In view of the ancient
rule of caveat emptor prevailing in this jurisdiction, what was acquired by Ferrer in the sheriff's sale was only the right which
Fernando, judgment debtor, had in the certificates of public convenience on the day of the sale.45
Accordingly, by the "Notice of Levy Upon Personalty" the Commissioner of Public Service was notified that "by virtue of an Order of
Execution issued by the Court of First Instance of Pangasinan, the rights, interests, or participation which the defendant, VALENTIN
A. FERNANDO — in the above entitled case may have in the following realty/personalty is attached or levied upon, to wit: The
rights, interests and participation on the Certificates of Public Convenience issued to Valentin A. Fernando, in Cases Nos. 59494,
etc. ... Lines — Manila to Lingayen, Dagupan, etc. vice versa." Such notice of levy only shows that Ferrer, the vendee at auction of
said certificates, merely stepped into the shoes of the judgment debtor. Of the same principle is the provision of Article 1544 of the
Civil Code, that "If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who
may have first taken possession thereof in good faith, if it should be movable property."
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There is no merit in Pantranco and Ferrer's theory that the sale of the certificates of public convenience in question, between the
Corporation and Fernando, was not consummated, it being only a conditional sale subject to the suspensive condition of its approval
by the Public Service Commission. While section 20(g) of the Public Service Act provides that "subject to established limitation and
exceptions and saving provisions to the contrary, it shall be unlawful for any public service or for the owner, lessee or operator thereof,
without the approval and authorization of the Commission previously had ... to sell, alienate, mortgage, encumber or lease its property,
franchise, certificates, privileges, or rights or any part thereof, ...," the same section also provides:
... Provided, however, That nothing herein contained shall be construed to prevent the transaction from being negotiated or completed
before its approval or to prevent the sale, alienation, or lease by any public service of any of its property in the ordinary course of its
business.
It is clear, therefore, that the requisite approval of the PSC is not a condition precedent for the validity and consummation of the sale.
Anent the question of damages allegedly suffered by the parties, each of the appellants has its or his own version to allege.
Villa Rey Transit, Inc. claims that by virtue of the "tortious acts" of defendants (Pantranco and Ferrer) in acquiring the certificates of
public convenience in question, despite constructive and actual knowledge on their part of a prior sale executed by Fernando in favor
of the said corporation, which necessitated the latter to file the action to annul the sheriff's sale to Ferrer and the subsequent transfer to
Pantranco, it is entitled to collect actual and compensatory damages, and attorney's fees in the amount of P25,000.00. The evidence on
record, however, does not clearly show that said defendants acted in bad faith in their acquisition of the certificates in question. They
believed that because the bill of sale has yet to be approved by the Public Service Commission, the transaction was not a
consummated sale, and, therefore, the title to or ownership of the certificates was still with the seller. The award by the lower court of
attorney's fees of P5,000.00 in favor of Villa Rey Transit, Inc. is, therefore, without basis and should be set aside.
Eusebio Ferrer's charge that by reason of the filing of the action to annul the sheriff's sale, he had suffered and should be awarded
moral, exemplary damages and attorney's fees, cannot be entertained, in view of the conclusion herein reached that the sale by
Fernando to the Corporation was valid.
Pantranco, on the other hand, justifies its claim for damages with the allegation that when it purchased ViIlarama's business for
P350,000.00, it intended to build up the traffic along the lines covered by the certificates but it was rot afforded an opportunity to do
so since barely three months had elapsed when the contract was violated by Villarama operating along the same lines in the name of
Villa Rey Transit, Inc. It is further claimed by Pantranco that the underhanded manner in which Villarama violated the contract is
pertinent in establishing punitive or moral damages. Its contention as to the proper measure of damages is that it should be the
purchase price of P350,000.00 that it paid to Villarama. While We are fully in accord with Pantranco's claim of entitlement to damages
it suffered as a result of Villarama's breach of his contract with it, the record does not sufficiently supply the necessary evidentiary
materials upon which to base the award and there is need for further proceedings in the lower court to ascertain the proper amount.
PREMISES CONSIDERED, the judgment appealed from is hereby modified as follows:
1. The sale of the two certificates of public convenience in question by Valentin Fernando to Villa Rey Transit, Inc. is declared
preferred over that made by the Sheriff at public auction of the aforesaid certificate of public convenience in favor of Eusebio Ferrer;
2. Reversed, insofar as it dismisses the third-party complaint filed by Pangasinan Transportation Co. against Jose M. Villarama,
holding that Villa Rey Transit, Inc. is an entity distinct and separate from the personality of Jose M. Villarama, and insofar as it awards
the sum of P5,000.00 as attorney's fees in favor of Villa Rey Transit, Inc.;
3. The case is remanded to the trial court for the reception of evidence in consonance with the above findings as regards the amount of
damages suffered by Pantranco; and
4. On equitable considerations, without costs. So ordered.
____________________________________________________________________________________________________________
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G.R. No. 88404 October 18, 1990
PHILIPPINE LONG DISTANCE TELEPHONE CO. [PLDT], petitioner,  

vs. 
T H E N AT I O N A L T E L E C O M M U N I C AT I O N S C O M M I S S I O N A N D C E L L C O M , I N C . , ( E X P R E S S
TELECOMMUNICATIONS CO., INC. [ETCI]), respondents.
Petitioner Philippine Long Distance Telephone Company (PLDT) assails, by way of certiorari and Prohibition under Rule 65, two (2)
Orders of public respondent National Telecommunications Commission (NTC), namely, the Order of 12 December 1988 granting
private respondent Express Telecommunications Co., Inc. (ETCI) provisional authority to install, operate and maintain a Cellular
Mobile Telephone System in Metro-Manila (Phase A) in accordance with specified conditions, and the Order, dated 8 May 1988,
denying reconsideration.
On 22 June 1958, Rep. Act No. 2090, was enacted, otherwise known as "An Act Granting Felix Alberto and Company, Incorporated, a
Franchise to Establish Radio Stations for Domestic and Transoceanic Telecommunications." Felix Alberto & Co., Inc. (FACI) was the
original corporate name, which was changed to ETCI with the amendment of the Articles of Incorporation in 1964. Much later,
"CELLCOM, Inc." was the name sought to be adopted before the Securities and Exchange Commission, but this was withdrawn and
abandoned.
On 13 May 1987, alleging urgent public need, ETCI filed an application with public respondent NTC (docketed as NTC Case No.
87-89) for the issuance of a Certificate of Public Convenience and Necessity (CPCN) to construct, install, establish, operate and
maintain a Cellular Mobile Telephone System and an Alpha Numeric Paging System in Metro Manila and in the Southern Luzon
regions, with a prayer for provisional authority to operate Phase A of its proposal within Metro Manila.
PLDT filed an Opposition with a Motion to Dismiss, based primarily on the following grounds: (1) ETCI is not capacitated or
qualified under its legislative franchise to operate a systemwide telephone or network of telephone service such as the one proposed in
its application; (2) ETCI lacks the facilities needed and indispensable to the successful operation of the proposed cellular mobile
telephone system; (3) PLDT has itself a pending application with NTC, Case No. 86-86, to install and operate a Cellular Mobile
Telephone System for domestic and international service not only in Manila but also in the provinces and that under the "prior
operator" or "protection of investment" doctrine, PLDT has the priority or preference in the operation of such service; and (4) the
provisional authority, if granted, will result in needless, uneconomical and harmful duplication, among others.
In an Order, dated 12 November 1987, NTC overruled PLDT's Opposition and declared that Rep. Act No. 2090 (1958) should be
liberally construed as to include among the services under said franchise the operation of a cellular mobile telephone service.
In the same Order, ETCI was required to submit the certificate of registration of its Articles of Incorporation with the Securities and
Exchange Commission, the present capital and ownership structure of the company and such other evidence, oral or documentary, as
may be necessary to prove its legal, financial and technical capabilities as well as the economic justifications to warrant the setting up
of cellular mobile telephone and paging systems. The continuance of the hearings was also directed.
After evaluating the reconsideration sought by PLDT, the NTC, in October 1988, maintained its ruling that liberally construed,
applicant's franchise carries with it the privilege to operate and maintain a cellular mobile telephone service.
On 12 December 1988, NTC issued the first challenged Order. Opining that "public interest, convenience and necessity further
demand a second cellular mobile telephone service provider and finds PRIMA FACIE evidence showing applicant's legal, financial
and technical capabilities to provide a cellular mobile service using the AMPS system," NTC granted ETCI provisional authority to
install, operate and maintain a cellular mobile telephone system initially in Metro Manila, Phase A only, subject to the terms and
conditions set forth in the same Order. One of the conditions prescribed (Condition No. 5) was that, within ninety (90) days from date
of the acceptance by ETCI of the terms and conditions of the provisional authority, ETCI and PLDT "shall enter into an
interconnection agreement for the provision of adequate interconnection facilities between applicant's cellular mobile telephone switch
and the public switched telephone network and shall jointly submit such interconnection agreement to the Commission for approval."
In a "Motion to Set Aside the Order" granting provisional authority, PLDT alleged essentially that the interconnection ordered was in
violation of due process and that the grant of provisional authority was jurisdictionally and procedurally infirm. On 8 May 1989, NTC
denied reconsideration and set the date for continuation of the hearings on the main proceedings. This is the second questioned Order.
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PLDT urges us now to annul the NTC Orders of 12 December 1988 and 8 May 1989 and to order ETCI to desist from, suspend, and/or
discontinue any and all acts intended for its implementation.
On 15 June 1989, we resolved to dismiss the petition for its failure to comply fully with the requirements of Circular No. 1-88. Upon
satisfactory showing, however, that there was, in fact, such compliance, we reconsidered the order, reinstated the Petition, and required
the respondents NTC and ETCI to submit their respective Comments.
On 27 February 1990, we issued a Temporary Restraining Order enjoining NTC to "Cease and Desist from all or any of its on-going
proceedings and ETCI from continuing any and all acts intended or related to or which will amount to the implementation/execution
of its provisional authority." This was upon PLDT's urgent manifestation that it had been served an NTC Order, dated 14 February
1990, directing immediate compliance with its Order of 12 December 1988, "otherwise the Commission shall be constrained to take
the necessary measures and bring to bear upon PLDT the full sanctions provided by law."
We required PLDT to post a bond of P 5M. It has complied, with the statement that it was "post(ing) the same on its agreement and/or
consent to have the same forfeited in favor of Private Respondent ETCI/CELLCOM should the instant Petition be dismissed for lack
of merit." ETCI took exception to the sufficiency of the bond considering its initial investment of approximately P 225M, but accepted
the forfeiture proferred.
ETCI moved to have the TRO lifted, which we denied on 6 March 1990. We stated, however, that the inaugural ceremony ETCI had
scheduled for that day could proceed, as the same was not covered by the TRO.
PLDT relies on the following grounds for the issuance of the Writs prayed for:
1. Respondent NTC's subject order effectively licensed and/or authorized a corporate entity without any franchise to operate a public
utility, legislative or otherwise, to establish and operate a telecommunications system.
2. The same order validated stock transactions of a public service enterprise contrary to and/or in direct violation of Section 20(h) of
the Public Service Act.
3. Respondent NTC adjudicated in the same order a controverted matter that was not heard at all in the proceedings under which it was
promulgated.
As correctly pointed out by respondents, this being a special civil action for certiorari and Prohibition, we only need determine if NTC
acted without jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction in granting provisional
authority to ETCI under the NTC questioned Orders of 12 December 1988 and 8 May 1989.
The case was set for oral argument on 21 August 1990 with the parties directed to address, but not limited to, the following issues: (1)
the status and coverage of Rep. Act No. 2090 as a franchise; (2) the transfer of shares of stock of a corporation holding a CPCN; and
(3) the principle and procedure of interconnection. The parties were thereafter required to submit their respective Memoranda, with
which they have complied.
We find no grave abuse of discretion on the part of NTC, upon the following considerations:
1. NTC Jurisdiction
There can be no question that the NTC is the regulatory agency of the national government with jurisdiction over all
telecommunications entities. It is legally clothed with authority and given ample discretion to grant a provisional permit or authority.
In fact, NTC may, on its own initiative, grant such relief even in the absence of a motion from an applicant.
Sec. 3. Provisional Relief. — Upon the filing of an application, complaint or petition or at any stage thereafter, the Board may grant on
motion of the pleaders or on its own initiative, the relief prayed for, based on the pleading, together with the affidavits and supporting
documents attached thereto, without prejudice to a final decision after completion of the hearing which shall be called within thirty
(30) days from grant of authority asked for. (Rule 15, Rules of Practice and Procedure Before the Board of Communications (now
NTC).
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What the NTC granted was such a provisional authority, with a definite expiry period of eighteen (18) months unless sooner renewed,
and which may be revoked, amended or revised by the NTC. It is also limited to Metro Manila only. What is more, the main
proceedings are clearly to continue as stated in the NTC Order of 8 May 1989.
The provisional authority was issued after due hearing, reception of evidence and evaluation thereof, with the hearings attended by
various oppositors, including PLDT. It was granted only after a prima facie showing that ETCI has the necessary legal, financial and
technical capabilities and that public interest, convenience and necessity so demanded.
PLDT argues, however, that a provisional authority is nothing short of a Certificate of Public Convenience and Necessity (CPCN) and
that it is merely a "distinction without a difference." That is not so. Basic differences do exist, which need not be elaborated on. What
should be borne in mind is that provisional authority would be meaningless if the grantee were not allowed to operate. Moreover, it is
clear from the very Order of 12 December 1988 itself that its scope is limited only to the first phase, out of four, of the proposed
nationwide telephone system. The installation and operation of an alpha numeric paging system was not authorized. The provisional
authority is not exclusive. Its lifetime is limited and may be revoked by the NTC at any time in accordance with law. The initial
expenditure of P130M more or less, is rendered necessary even under a provisional authority to enable ETCI to prove its capability.
And as pointed out by the Solicitor General, on behalf of the NTC, if what had been granted were a CPCN, it would constitute a final
order or award reviewable only by ordinary appeal to the Court of Appeals pursuant to Section 9(3) of BP Blg. 129, and not by
certiorari before this Court.
The final outcome of the application rests within the exclusive prerogative of the NTC. Whether or not a CPCN would eventually
issue would depend on the evidence to be presented during the hearings still to be conducted, and only after a full evaluation of the
proof thus presented.
2. The Coverage of ETCI's Franchise
Rep. Act No. 2090 grants ETCI (formerly FACI) "the right and privilege of constructing, installing, establishing and operating in the
entire Philippines radio stations for reception and transmission of messages on radio stations in the foreign and domestic public fixed
point-to-point and public base, aeronautical and land mobile stations, ... with the corresponding relay stations for the reception and
transmission of wireless messages on radiotelegraphy and/or radiotelephony ...." PLDT maintains that the scope of the franchise is
limited to "radio stations" and excludes telephone services such as the establishment of the proposed Cellular Mobile Telephone
System (CMTS). However, in its Order of 12 November 1987, the NTC construed the technical term "radiotelephony" liberally as to
include the operation of a cellular mobile telephone system. It said:
In resolving the said issue, the Commission takes into consideration the different definitions of the term "radiotelephony." As defined
by the New International Webster Dictionary the term "radiotelephony" is defined as a telephone carried on by aid of radiowaves
without connecting wires. The International Telecommunications Union (ITU) defines a "radiotelephone call" as a "telephone call,
originating in or intended on all or part of its route over the radio communications channels of the mobile service or of the mobile
satellite service." From the above definitions, while under Republic Act 2090 a system-wide telephone or network of telephone service
by means of connecting wires may not have been contemplated, it can be construed liberally that the operation of a cellular mobile
telephone service which carries messages, either voice or record, with the aid of radiowaves or a part of its route carried over radio
communication channels, is one included among the services under said franchise for which a certificate of public convenience and
necessity may be applied for.
The foregoing is the construction given by an administrative agency possessed of the necessary special knowledge, expertise and
experience and deserves great weight and respect (Asturias Sugar Central, Inc. v. Commissioner of Customs, et al., L-19337,
September 30, 1969, 29 SCRA 617). It can only be set aside on proof of gross abuse of discretion, fraud, or error of law (Tupas Local
Chapter No. 979 v. NLRC, et al., L-60532-33, November 5, 1985, 139 SCRA 478). We discern none of those considerations sufficient
to warrant judicial intervention.
3. The Status of ETCI Franchise
PLDT alleges that the ETCI franchise had lapsed into nonexistence for failure of the franchise holder to begin and complete
construction of the radio system authorized under the franchise as explicitly required in Section 4 of its franchise, Rep. Act No.
2090. 1 PLDT also invokes Pres. Decree No. 36, enacted on 2 November 1972, which legislates the mandatory cancellation or
invalidation of all franchises for the operation of communications services, which have not been availed of or used by the party or
parties in whose name they were issued.
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However, whether or not ETCI, and before it FACI, in contravention of its franchise, started the first of its radio telecommunication
stations within (2) years from the grant of its franchise and completed the construction within ten (10) years from said date; and
whether or not its franchise had remained unused from the time of its issuance, are questions of fact beyond the province of this Court,
besides the well-settled procedural consideration that factual issues are not subjects of a special civil action for certiorari (Central
Bank of the Philippines vs. Court of Appeals, G.R. No. 41859, 8 March 1989, 171 SCRA 49; Ygay vs. Escareal, G.R. No. 44189, 8
February 1985, 135 SCRA 78; Filipino Merchant's Insurance Co., Inc. vs. Intermediate Appellate Court, G.R. No. 71640, 27 June
1988, 162 SCRA 669). Moreover, neither Section 4, Rep. Act No. 2090 nor Pres. Decree No. 36 should be construed as self-executing
in working a forfeiture. Franchise holders should be given an opportunity to be heard, particularly so, where, as in this case, ETCI
does not admit any breach, in consonance with the rudiments of fair play. Thus, the factual situation of this case differs from that
in Angeles Ry Co. vs. City of Los Angeles (92 Pacific Reporter 490) cited by PLDT, where the grantee therein admitted its failure to
complete the conditions of its franchise and yet insisted on a decree of forfeiture.
More importantly, PLDT's allegation partakes of a Collateral attack on a franchise Rep. Act No. 2090), which is not allowed. A
franchise is a property right and cannot be revoked or forfeited without due process of law. The determination of the right to the
exercise of a franchise, or whether the right to enjoy such privilege has been forfeited by non-user, is more properly the subject of the
prerogative writ of quo warranto, the right to assert which, as a rule, belongs to the State "upon complaint or otherwise" (Sections 1, 2
and 3, Rule 66, Rules of Court), 2 the reason being that the abuse of a franchise is a public wrong and not a private injury. A forfeiture
of a franchise will have to be declared in a direct proceeding for the purpose brought by the State because a franchise is granted by law
and its unlawful exercise is primarily a concern of Government.
A ... franchise is ... granted by law, and its ... unlawful exercise is the concern primarily of the Government. Hence, the latter as a rule
is the party called upon to bring the action for such ... unlawful exercise of franchise. (IV-B V. FRANCISCO, 298 [1963 ed.], citing
Cruz vs. Ramos, 84 Phil. 226).
4. ETCI's Stock Transactions
ETCI admits that in 1964, the Albertos, as original owners of more than 40% of the outstanding capital stock sold their holdings to the
Orbes. In 1968, the Albertos re-acquired the shares they had sold to the Orbes. In 1987, the Albertos sold more than 40% of their
shares to Horacio Yalung. Thereafter, the present stockholders acquired their ETCI shares. Moreover, in 1964, ETCI had increased its
capital stock from P40,000.00 to P360,000.00; and in 1987, from P360,000.00 to P40M.
PLDT contends that the transfers in 1987 of the shares of stock to the new stockholders amount to a transfer of ETCI's franchise,
which needs Congressional approval pursuant to Rep. Act No. 2090, and since such approval had not been obtained, ETCI's franchise
had been invalidated. The provision relied on reads, in part, as follows:
SECTION 10. The grantee shall not lease, transfer, grant the usufruct of, sell or assign this franchise nor the rights and privileges
acquired thereunder to any person, firm, company, corporation or other commercial or legal entity nor merge with any other person,
company or corporation organized for the same purpose, without the approval of the Congress of the Philippines first had. ...
It should be noted, however, that the foregoing provision is, directed to the "grantee" of the franchise, which is the corporation itself
and refers to a sale, lease, or assignment of that franchise. It does not include the transfer or sale of shares of stock of a corporation by
the latter's stockholders.
The sale of shares of stock of a public utility is governed by another law, i.e., Section 20(h) of the Public Service Act (Commonwealth
Act No. 146). Pursuant thereto, the Public Service Commission (now the NTC) is the government agency vested with the authority to
approve the transfer of more than 40% of the subscribed capital stock of a telecommunications company to a single transferee, thus:
SEC. 20. Acts requiring the approval of the Commission. Subject to established stations and exceptions and saving provisions to the
contrary, it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and authorization
of the Commission previously had
xxx xxx xxx
(h) To sell or register in its books the transfer or sale of shares of its capital stock, if the result of that sale in itself or in connection
with another previous sale, shall be to vest in the transferee more than forty per centum of the subscribed capital of said public service.
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Any transfer made in violation of this provision shall be void and of no effect and shall not be registered in the books of the public
service corporation. Nothing herein contained shall be construed to prevent the holding of shares lawfully acquired. (As amended by
Com. Act No. 454).
In other words, transfers of shares of a public utility corporation need only NTC approval, not Congressional authorization. What
transpired in ETCI were a series of transfers of shares starting in 1964 until 1987. The approval of the NTC may be deemed to have
been met when it authorized the issuance of the provisional authority to ETCI. There was full disclosure before the NTC of the
transfers. In fact, the NTC Order of 12 November 1987 required ETCI to submit its "present capital and ownership structure." Further,
ETCI even filed a Motion before the NTC, dated 8 December 1987, or more than a year prior to the grant of provisional authority,
seeking approval of the increase in its capital stock from P360,000.00 to P40M, and the stock transfers made by its stockholders.
A distinction should be made between shares of stock, which are owned by stockholders, the sale of which requires only NTC
approval, and the franchise itself which is owned by the corporation as the grantee thereof, the sale or transfer of which requires
Congressional sanction. Since stockholders own the shares of stock, they may dispose of the same as they see fit. They may not,
however, transfer or assign the property of a corporation, like its franchise. In other words, even if the original stockholders had
transferred their shares to another group of shareholders, the franchise granted to the corporation subsists as long as the corporation, as
an entity, continues to exist The franchise is not thereby invalidated by the transfer of the shares. A corporation has a personality
separate and distinct from that of each stockholder. It has the right of continuity or perpetual succession (Corporation Code, Sec. 2).
To all appearances, the stock transfers were not just for the purpose of acquiring the ETCI franchise, considering that, as heretofore
stated, a series of transfers was involved from 1964 to 1987. And, contrary to PLDT's assertion, the franchise was not the only
property of ETCI of meaningful value. The "zero" book value of ETCI assets, as reflected in its balance sheet, was plausibly explained
as due to the accumulated depreciation over the years entered for accounting purposes and was not reflective of the actual value that
those assets would command in the market.
But again, whether ETCI has offended against a provision of its franchise, or has subjected it to misuse or abuse, may more properly
be inquired into in quo warranto proceedings instituted by the State. It is the condition of every franchise that it is subject to
amendment, alteration, or repeal when the common good so requires (1987 Constitution, Article XII, Section 11).
5. The NTC Interconnection Order
In the provisional authority granted by NTC to ETCI, one of the conditions imposed was that the latter and PLDT were to enter into an
interconnection agreement to be jointly submitted to NTC for approval.
PLDT vehemently opposes interconnection with its own public switched telephone network. It contends: that while PLDT welcomes
interconnections in the furtherance of public interest, only parties who can establish that they have valid and subsisting legislative
franchises are entitled to apply for a CPCN or provisional authority, absent which, NTC has no jurisdiction to grant them the CPCN or
interconnection with PLDT; that the 73 telephone systems operating all over the Philippines have a viability and feasibility
independent of any interconnection with PLDT; that "the NTC is not empowered to compel such a private raid on PLDT's legitimate
income arising out of its gigantic investment;" that "it is not public interest, but purely a private and selfish interest which will be
served by an interconnection under ETCI's terms;" and that "to compel PLDT to interconnect merely to give viability to a prospective
competitor, which cannot stand on its own feet, cannot be justified in the name of a non-existent public need" (PLDT Memorandum,
pp. 48 and 50).
PLDT cannot justifiably refuse to interconnect.
Rep. Act No. 6849, or the Municipal Telephone Act of 1989, approved on 8 February 1990, mandates interconnection providing as it
does that "all domestic telecommunications carriers or utilities ... shall be interconnected to the public switch telephone network."
Such regulation of the use and ownership of telecommunications systems is in the exercise of the plenary police power of the State for
the promotion of the general welfare. The 1987 Constitution recognizes the existence of that power when it provides.
SEC. 6. The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and
private groups, including corporations, cooperatives, and similar collective organizations, shall have the right to own, establish, and
operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good
so demands (Article XII).
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The interconnection which has been required of PLDT is a form of "intervention" with property rights dictated by "the objective of
government to promote the rapid expansion of telecommunications services in all areas of the Philippines, ... to maximize the use of
telecommunications facilities available, ... in recognition of the vital role of communications in nation building ... and to ensure that
all users of the public telecommunications service have access to all other users of the service wherever they may be within the
Philippines at an acceptable standard of service and at reasonable cost" (DOTC Circular No. 90-248). Undoubtedly, the
encompassing objective is the common good. The NTC, as the regulatory agency of the State, merely exercised its delegated authority
to regulate the use of telecommunications networks when it decreed interconnection.
The importance and emphasis given to interconnection dates back to Ministry Circular No. 82-81, dated 6 December 1982, providing:
Sec. 1. That the government encourages the provision and operation of public mobile telephone service within local sub-base stations,
particularly, in the highly commercialized areas;
Sec. 5. That, in the event the authority to operate said service be granted to other applicants, other than the franchise holder, the
franchise operator shall be under obligation to enter into an agreement with the domestic telephone network, under an interconnection
agreement;
Department of Transportation and Communication (DOTC) Circular No. 87-188, issued in 1987, also decrees:
12. All public communications carriers shall interconnect their facilities pursuant to comparatively efficient interconnection (CEI) as
defined by the NTC in the interest of economic efficiency.
The sharing of revenue was an additional feature considered in DOTC Circular No. 90-248, dated 14 June 1990, laying down the
"Policy on Interconnection and Revenue Sharing by Public Communications Carriers," thus:
WHEREAS, it is the objective of government to promote the rapid expansion of telecommunications services in all areas of the
Philippines;
WHEREAS, there is a need to maximize the use of telecommunications facilities available and encourage investment in
telecommunications infrastructure by suitably qualified service providers;
WHEREAS, in recognition of the vital role of communications in nation building, there is a need to ensure that all users of the public
telecommunications service have access to all other users of the service wherever they may be within the Philippines at an acceptable
standard of service and at reasonable cost.
WHEREFORE, ... the following Department policies on interconnection and revenue sharing are hereby promulgated:
1. All facilities offering public telecommunication services shall be interconnected into the nationwide telecommunications network/s.
xxx xxx xxx
4. The interconnection of networks shall be effected in a fair and non-discriminatory manner and within the shortest time-frame
practicable.
5. The precise points of interface between service operators shall be as defined by the NTC; and the apportionment of costs and
division of revenues resulting from interconnection of telecommunications networks shall be as approved and/or prescribed by the
NTC.
xxx xxx xxx
Since then, the NTC, on 12 July 1990, issued Memorandum Circular No. 7-13-90 prescribing the "Rules and Regulations Governing
the Interconnection of Local Telephone Exchanges and Public Calling Offices with the Nationwide Telecommunications Network/s,
the Sharing of Revenue Derived Therefrom, and for Other Purposes."
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The NTC order to interconnect allows the parties themselves to discuss and agree upon the specific terms and conditions of the
interconnection agreement instead of the NTC itself laying down the standards of interconnection which it can very well impose. Thus
it is that PLDT cannot justifiably claim denial of clue process. It has been heard. It will continue to be heard in the main proceedings.
It will surely heard in the negotiations concerning the interconnection agreement.
As disclosed during the hearing, the interconnection sought by ETCI is by no means a "parasitic dependence" on PLDT. The ETCI
system can operate on its own even without interconnection, but it will be limited to its own subscribers. What interconnection seeks
to accomplish is to enable the system to reach out to the greatest number of people possible in line with governmental policies laid
down. Cellular phones can access PLDT units and vice versa in as wide an area as attainable. With the broader reach, public interest
and convenience will be better served. To be sure, ETCI could provide no mean competition (although PLDT maintains that it has
nothing to fear from the "innocuous interconnection"), and eat into PLDT's own toll revenue cream PLDT revenue," in its own words),
but all for the eventual benefit of all that the system can reach.
6. Ultimate Considerations
The decisive consideration are public need, public interest, and the common good. Those were the overriding factors which motivated
NTC in granting provisional authority to ETCI. Article II, Section 24 of the 1987 Constitution, recognizes the vital role of
communication and information in nation building. It is likewise a State policy to provide the environment for the emergence of
communications structures suitable to the balanced flow of information into, out of, and across the country (Article XVI, Section
10, Ibid.). A modern and dependable communications network rendering efficient and reasonably priced services is also indispensable
for accelerated economic recovery and development. To these public and national interests, public utility companies must bow and
yield.
Despite the fact that there is a virtual monopoly of the telephone system in the country at present. service is sadly inadequate.
Customer demands are hardly met, whether fixed or mobile. There is a unanimous cry to hasten the development of a modern,
efficient, satisfactory and continuous telecommunications service not only in Metro Manila but throughout the archipelago. The need
therefor was dramatically emphasized by the destructive earthquake of 16 July 1990. It may be that users of the cellular mobile
telephone would initially be limited to a few and to highly commercialized areas. However, it is a step in the right direction towards
the enhancement of the telecommunications infrastructure, the expansion of telecommunications services in, hopefully, all areas of the
country, with chances of complete disruption of communications minimized. It will thus impact on, the total development of the
country's telecommunications systems and redound to the benefit of even those who may not be able to subscribe to ETCI.
Free competition in the industry may also provide the answer to a much-desired improvement in the quality and delivery of this type
of public utility, to improved technology, fast and handy mobile service, and reduced user dissatisfaction. After all, neither PLDT nor
any other public utility has a constitutional right to a monopoly position in view of the Constitutional proscription that no franchise
certificate or authorization shall be exclusive in character or shall last longer than fifty (50) years (ibid., Section 11; Article XIV
Section 5, 1973 Constitution; Article XIV, Section 8, 1935 Constitution). Additionally, the State is empowered to decide whether
public interest demands that monopolies be regulated or prohibited (1987 Constitution. Article XII, Section 19).
WHEREFORE, finding no grave abuse of discretion, tantamount to lack of or excess of jurisdiction, on the part of the National
Telecommunications Commission in issuing its challenged Orders of 12 December 1988 and 8 May 1989 in NTC Case No. 87-39, this
Petition is DISMISSED for lack of merit. The Temporary Restraining Order heretofore issued is LIFTED. The bond issued as a
condition for the issuance of said restraining Order is declared forfeited in favor of private respondent Express Telecommunications
Co., Inc. Costs against petitioner.
SO ORDERED.
____________________________________________________________________________________________________________
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G.R. No. L-28865 December 19, 1928
BATANGAS TRANSPORTATION CO., petitioner-appellant,  

vs. 
CAYETANO ORLANES, respondent-appellee.
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 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.
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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.
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.
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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;
(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 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.
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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 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.
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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.
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.
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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:
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:
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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 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.
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
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.
____________________________________________________________________________________________________________
G.R. No. L-3899 May 21, 1952
RAYMUNDO TRANSPORTATION CO., INC., petitioner,  

vs. 
VICTORINO CERVO, respondent.
Immediately after the liberation of the Philippines, Victorino Cervo secured an emergency certificate of public convenience to operate
one-auto truck from Pililla to Manila from the Public Service Commission. This emergency certificate having expired on December
31, 1948, it was extended for an indefinite period in line with the policy of the Commission. In the meantime, he filed a petition for
the conversion of his emergency certificate into a permanent one. The application was first heard on March 24, 1949, before chief
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attorney Antonio H. Aspillera who was authorized by the Commission to receive the evidence. Of the several operators affected on the
line applied for by Cervo, only petitioner herein has filed its opposition to the application.
Among the grounds stated by petitioner in its opposition are: that in the line applied for by Victorino Cervo, now respondent, there is
no need for any additional service or operator; that if there is need for additional service, petitioner is willing to put up such additional
service; and that the proposed service will be but a duplicate of the service being rendered by petitioner and will only lead to a ruinous
competition.
After Attorney Aspellira has submitted his report to the Public Service Commission., the latter rendered its decision granting the
permanent certificate applied for by respondent. Its motion for reconsideration having been denied, petitioner filed the present petition
for review. The first error assigned by petitioner appellant refers to the delagation made by the Public Service Commission to Chief
Attorney Antonio H. Aspillera of its authority to receive the evidence in connection with the application of respondent, which, it is
claimed, cannot be legally done because this is contested case.
This claim is well taken, as it is in line with a recent decision of this Court (G.R. No. L-2639). However, we find that petitioner is
raising this question for the first time in this instance for it has never made any objection to the resignation of Attorney Aspillera as a
commissioner to receive the evidence in this case either before him or before the Public Service Commission. Instead it submitted
itself to trial and presented its evidence before him. As provide for in Rule 43, section 2 of the Rules of the Court, an appellant can
only raise in a petition for review questions that at the end raise by him before the Public Service Commission, and has petitioner has
never raised this qua before the Commission, the same cannot now be raised in this petition for review.
The other errors assigned petitioner-appellant maybe boiled down as follows.(1) that appellee should not have being allowed to invade
Pililla-Manila line because appellant has been operating on it even before the war; (2) to allow appelle to operate on the same line
would result in a ruinous competition with appellant; (3) that public necessity does not require the service proposed by appellee; and if
it so requires, appellant should had been given the preference to put up such additional service; and (4) it is unwise to grant a
permanent certificate of public convenience to appelle after appellant had completed its pre-war equipment of 51 units pursuant to
their requirement of the Commission.
The first issue has no merit. The fact that appellant has been operating on the Pililla-Manila line for a long time does not preclude the
Public Service Commission from granting an additional permit to operate on the same line if public necessity so demands. This is a
matter for the Commission to determine. In it many factors are involved, and as long as they are met by the applicant the granting of a
new permit is justified. Public necessity and convenience are of paramount importance.
The claim to allow the appelle to operate on the same line would only result in a ruinous competition is a question which depends
upon the requirements of the travelling public. When public necessity requires that a new operator may be allowed to put up an
additional service, that cannot be considered a ruinous competition, for it is to be presumed that the demand of the passengers in that
line is such as to justify the requirements of all those who are in the service. Competition if wholesome a constructive should be
allows because it tend to promote satisfaction and efficiency in the management and operation of the public service. This is what the
Public Service Commission did: to allow wholesome completion. There is no showing that the competition is ruinous or preludicial to
the appellant.
Whether public necessity a convinience warrant the putting up of additional service on the part of the appellee, is a question of fact
which the Public Service Commission has found in the affirmative. This finding, being supported by sufficient evidence should not be
disturbed (Manila Yellow Taxicab Co. Inc. & Arco Taxicab Co. Inc. vs. Danun, 58 Phil. 75). The plea that if public necessity requires
the putting up of additional service such privilege should be given to the appellant which is old in the service is tenable, but there are
cases where this cannot be done without causing injustice to emergency operators who were forced to enter the field due to the
inability of old operators to rehabilitate and resume their former service in keeping with the demand of the travelling public. And one
of this operators is the appellant which only recently acquired the needed equipment to put its service on a pre-war level. To deprive
the appellee a of the privilege already enjoyed by him after investing money and effort for the sole purpose of giving preference to the
appellant would be most unfair and unjust and cannot in equity be sanctioned by this Court. Such a ruling would lead to a monopoly
and this should be avoided.
In a view of the foregoing, find no error in the decision of the Public Service Commission.
Wherefore, the decision appealed from is hereby affirmed, with costs against the appellants.
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____________________________________________________________________________________________________________
[G.R. No. 141314. November 15, 2002] REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY REGULATORY
BOARD petitioner, vs. MANILA ELECTRIC COMPANY, respondent.
[G.R. No. 141369. November 15, 2002] LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consisting of
CEFERINO PADUA, Chairman, G. FULTON ACOSTA,GALILEO BRION, ANATALIA BUENAVENTURA, PEDRO
CASTILLO, NAPOLEON CORONADO, ROMEO ECHAUZ, FERNANDO GAITE, ALFREDO DE GUZMAN, ROGELIO
KARAGDAG, JR., MA. LUZ ARZAGA-MENDOZA, ANSBERTO PAREDES, AQUILINO PIMENTEL III, MARIO REYES,
EMMANUEL SANTOS, RUDEGELIO TACORDA, members, and ROLANDO ARZAGA, Secretary-General, JUSTICE
ABRAHAM SARMIENTO, SENATOR AQUILINO PIMENTEL, JR. and COMMISSIONER BARTOLOME FERNANDEZ,
JR., Board of Consultants, and Lawyer GENARO LUALHATI, petitioners, vs. MANILA ELECTRIC COMPANY
(MERALCO), respondent.
In third world countries like the Philippines, equal justice will have a synthetic ring unless the economic rights of the people,
especially the poor, are protected with the same resoluteness as their right to liberty. The cases at bar are of utmost significance for
they concern the right of our 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 for their electric consumption. The question is: should public interest prevail over private
profits?
The facts are brief and undisputed. On December 23, 1993, MERALCO filed with the 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 event, however, that the Board finds, after hearing and submission by the Commission on Audit of an audit report on the books
and records of the applicant that the latter is entitled to a lesser increase in rates, all excess amounts collected from the applicants
customers as a result of this Order shall either be refunded to them or correspondingly credited in their favor for application to electric
bills covering future consumptions.[1]
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 MERALCOs billing cycles beginning February
1994. The ERB further ordered that the provisional relief in the amount of P0.184 per kilowatthour granted under the Boards Order
dated January 28, 1994 is hereby superseded and modified and the excess average amount of P0.167 per kilowatthour starting with
[MERALCOs] billing cycles beginning February 1994 until its billing cycles beginning February 1998, be refunded to [MERALCOs]
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.
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Further, in applying the net average investment method, the ERB adopted the recommendation of COA that in computing the rate
[5]
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 MERALCOs 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 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
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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 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
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 customers of a
public utility for the taxes paid by such entity and no direct 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 Meralcos 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 taxesin
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 ERB[33] 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
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]
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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
MERALCOs 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.
MERALCOS 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, MERALCOs 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, 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 formers 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.
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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 MERALCOs 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 applicants billing cycles
beginning February 1998 is ordered to be refunded to MERALCOs customers or correspondingly credited in their favor for future
consumption.
SO ORDERED.
____________________________________________________________________________________________________________
195 Phil. 325

This is a verified letter-complaint dated August 7, 1975 addressed to the President of the Philippines (by 1st Indorsement, dated
August 25, 1975, this case was referred by the Office of the President to this Court, pursuant to Section 7, Article X of the
Constitution), by jeepneydrivers Martin Lantaco, Sr., Esteban del Barrio, Rosalito Alamag and Borromeo Vitaliano, all residents
of Pasay City, against City Judge Francisco R. Llamas of the Pasay City Court for "Backsliding and Grave Abuse of Discretion."
On January 8, 1975, an investigating special counsel of the City Fiscal's Office of Pasay City, filed Criminal Cases Nos. 95647, 95648,
95649 and 95650, all for estafa against Ricardo Paredes, an officer of the PASCAMASCON, an association of jeepney operators, for
"nonremittance of SSS contribution premiums." These cases were assigned to respondent. After the prosecution had rested its case,
the defense moved to dismiss all the criminal cases on the ground that the evidence presented by the prosecution is insufficient to
convict the accused beyond reasonable doubt. The prosecution opposed the motion. According to the complainants, the respondent
set the promulgation of his decision on July 22, 1975, postponed to July 30, 1975 and again to July 31, 1975, when at about 9:45 in the
morning, upon respondent's instruction, his clerk of court read the dispositive portion thereof acquitting the accused of all
four estafa cases on the ground of reasonable doubt.
According to the herein complainants:
"After the reading of (the) Decision a recess was made by Judge Llamas and we requested Judge Llamas to furnish us a copy of said
Decision. Judge Llamas told us that there are no more copy and we told Judge Llamas if there is no more copy we would like
to xeroxthe original and Judge Llamas told us that xerox copy are not permitted and Judge Llamas instructed one of the employees in
his office a steno- typist to type another copy for us and that the typist told us to come back on Monday, August 4, which we did, but,
the steno-typist failed to furnish us the copy as agreed by us and told us again to come back next day, August 5. The next morning we
went back to the office of Judge Llamas, same we failed to get copy of the Decision.
"On August 6, 1975 at 11:00 A.M. one of the complainants, Esteban del Barrio and Ceferino F. Ginete, the President of our labor
union went to Judge Llamas to secure copy of said decision to (sic) the same person - the steno-typist. The steno-typist went inside
the room of Judge Llamas and a few minutes the typist went back to us and informed us that he could not type the Decision because
the folder is at the house of Judge Llamas and when Mr. Ginete inquire why the said folder of the complainants are at the house of
Judge Llamas, the typist reply the Judge making 'CORRECTION.' Mr. Ginete wonder why a correction is being made when the
decision has already been rendered and why the delay in furnishing us copy, WHY?"
This Court required the respondent to comment on the complaint by 2nd Indorsement dated September 16, 1975. This Court also sent
by registered mails a follow-up letter dated October 23, 1975 and a tracer letter dated November 25, 1975. The Bureau of Posts in a
certification dated November 26, 1975 certified that these follow-up letters were delivered to and received by the office of the
respondent.
Finally, on March 8, 1976 this Court received respondent's comment dated December 3, 1975. His brief comment:
"The four related criminal accusations against Mr. Ricardo Paredes, were validly and properly decided by this Court. The motion to
dismiss after the prosecution's case was rested, was resolved and said resolution of acquittal is the very decision in this case which was
validly promulgated in the presence of the accused, the prosecuting fiscal and Mr. Severino Ginete and all the complaining
parties. The records of the decision show that the accused assisted by counsel signed the same on said date and copies thereafter
furnished counsel for the accused and the prosecuting fiscal."
Respondent also averred:
"It is respectfully submitted that on the details of the proceedings and the evidence presented, no better answer could be made by the
undersigned except by submitting a copy of said decision pormulgated July 31, 1975 and marked as Annex 'A' of this comment. In the
same breath, the matter of the advisability as suggested that this finding by this Court be reviewed by the Military may best be
answered by a thorough reading of the decision."
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After a careful examination of the records before this Court, We found that respondent committed grave abuse of authority in refusing
to give the complainants a copy of his decision in Criminal Cases Nos. 95647-95650. The complainants were understandably
interested in securing a copy of the decision as they were the complaining witnesses in these four criminal cases. The request was
made during office hours. It was relayed personally to the respondent. The decision in question was already promulgated. Copies
were already furnished the counsel for the prosecution and the defense. It was already part of the public record which the citizen has a
right to scrutinize. And if there was "no more copy," the complainants were amenable to have a xerox copy of the original on file,
copies of which, as part of court records, are allowed to be given to interested parties upon request, duly certified as a true copy of the
original on file. What aggravates the situation, as seen from the sequence of events narrated by the complainants which were never
denied or rebutted by the respondent, is that respondent, without just cause, denied complainants access to public records and gave the
complainants the run-around, which is oppressive as it is arbitrary. In Baldoza vs. Honorable Judge Rodolfo B. Dimaano (A.M. No.
112-MJ, May 5, 1976), WE emphasized the importance of access to public records, predicated as it is on the right of the people to
acquire information on matters of public concern in which the public has a legitimate interest. While the public officers in custody or
control of public records have the discretion to regulate the manner in which such records may be inspected, examined or copied by
interested persons, such discretion does not carry with it the authority to prohibit such access, inspection, examination or copying.
Continuing, said this Court:
"The New Constitution now expressly recognizes that the people are entitled to information on matters of public concern and thus are
expressly granted access to official records, as well as documents of official acts, or transactions, or decisions, subject to such
limitations imposed by law (Article IV, Section 6, New Constitution). The incorporation of this right in the Constitution is a
recognition of the fundamental role of free exchange of information in a democracy. There can be no realistic perception by the public
of the nation's problems, nor a meaningful democratic decision-making if they are denied access to information of general
interest. Information is needed to enable the members of society to cope with the exigencies of the times. As has been aptly
observed: 'Maintaining the flow of such information depends on protection for both its acquisition and its dissemination since, if
either process is interrupted, the flow inevitably ceases.' (87 Harvard Law Review 1505)" [Baldoza vs. Hon. Judge Rodolfo
B. Dimaano, A.M. No. 112-MJ, May 5, 1976].
The herein complainants prayed that respondent's decision be reviewed "to obviate any miscarriage of justice considering the adverse
effects to the thousands of jeepney drivers and to prevent the other jeepney operators in using (sic) the Decision x x x for their own
benefits." The respondent commented that "no better answer could be made x x except by submitting a copy of the decision" and the
complaint "may best be answered by a thorough reading of the decision."
OUR "review" in administrative cases of this nature as defined in Vda. de Zabala vs. Pamaran (A.C. No. 200-J, June 10, 1971,
39 SCRA430, 433), is limited to the text of the decision and respondent's articulations on the law and the evidence submitted. WE do
not review the decision to reverse it or to set it aside as if it were brought to this Court on regular appeal; for this is beyond the
objective of an administrative proceedings to protect the public service, to secure the faithful and efficient performance of official
functions, and to rid the public service of incompetent, corrupt and unworthy public servants.
WE have carefully read, examined and analyzed the decision submitted by the respondent. WE found that in sustaining the motion to
dismiss on the ground of insufficiency of evidence after the prosecution rested its case, respondent committed several errors bordering
on gross ignorance of the law.
I. Respondent erred in concluding that the prosecution failed to prove that the accused, despite repeated demands, refused and still
refuses to remit the alleged collected premium contributions and that "if no demand was ever made x x, then a criminal prosecution
for estafa x x x could not prosper."
The uniform allegation in all the four informations for estafa that "the accused, despite repeated demands, refused and still refuses to
remit x x x," need not anymore be proved by the prosecution; because the Social Security Act of 1954 (R.A. No. 1161, as amended
by R.A. No. 1792, No. 2658 and No. 3839, and further amended by Presidential Decrees Nos. 24, 65 and 177), makes it the duty of
the employer to remit the contributions without need of any demand therefor by the employee. Section 22(a), (b), (c) and (d) of said
Act, governing "Remittance of Contributions" requires as a legal obligation of every employer to remit within the first seven (7) days
of the month the contributions of the employee and the employer to the Social Security System, failing which invites the imposition of
a penalty of three percent (3%). With this mandate of the law, demand on the part of the employee before the employer remits these
contributions to the SSS is not a condition precedent for such remittance. The Social Security System can collect such contributions in
the same manner as taxes are made collectible under the National Internal Revenue Code (Sec. 22 [b], Social Security Act). Thus:
"SEC. 22. Remittance of contributions. - (a) The contributions imposed in the proceeding sections shall be remitted to the SSS within
the first seven days of each calendar month following the month for which they are applicable or within such time as the Commission
may prescribe. Every employer required to deduct and to remit such contributions shall be liable for their payment, and if any
contribution is not paid to the SSS, as herein prescribed, he shall pay besides the contribution a penalty thereon of three per cent per
! of 93
month from the date the contribution falls due until paid. If deemed expedient and advisable by the Commission, the collection and
remittance of contributions shall be made quarterly or semiannually in advance, the contributions payable by the employees to be
advanced by their respective employers: Provided, That upon separation of an employee, any contributions so paid in advance but not
due shall be credited or refunded to his employer.
"(b) The contributions payable under this Act in cases where an employer refuses or neglects to pay the same shall be collected by the
System in the same manner as taxes are made collectible under the National Internal Revenue Code, as amended. Failure or refusal of
the employer to pay or remit the contributions herein prescribed shall not prejudice the right of the covered employee to the benefits of
the coverage.
xx xx xx xx
"(e) For purposes of this section, any employer who is delinquent or has not remitted all the monthly contributions due and payable
may within six (6) months from approval of this amendatory act remit said contributions to the SSS and submit the corresponding
collection lists therefor without incurring the prescribed three per cent penalty. In case the employer fails to remit to the SSS the said
contributions within the six months grace period, the penalty of three per cent shall be imposed from the time the contributions first
became due as provided in paragraph (a) of this section: Provided, however, That the Administrator, may in meritorious cases, allow
employers who have submitted a payment plan, on or before April 19, 1973, to pay their contributions due and payable up to
December 31, 1973 without incurring the prescribed three per cent penalty." (As amended by Rep. Act No. 2658, and by Pres. Decrees
Nos. 24 and 177).
To prove remittance, the employer can submit his records thereon or a certification from the SSS as to the fact of remittance of the
contributions.
II. Respondent likewise erred in concluding that, in connection with the daily deductions of P0.50 as SSS premium contributions,
"this Court is not convinced and could not reasonably believe that there was a forced daily deductions or exaction of P0.50."
Section 18 of the Social Security Act governing employees' contribution, provides that "x x the employer shall deduct and withhold
from such employee's monthly salary, wage, compensation or earnings the employee's contribution in an amount corresponding to his
salary, wage, compensation or earnings during the month in accordance with the following schedule effective on January 1, 1973 x x."
With this legal obligation placed on the employer's shoulder, respondent's reasonable belief that "there was or could be no forced daily
deductions or exaction of P0.50" would have no legal basis and support.
III. Respondent again erred in finding "that from the existing relationship between the accused as owner of the utility jeepneys and all
the complainants, there is categorically demonstrated no employer-employee relationship in contemplation of the Social Security Act
of 1954, as amended by Presidential Decrees Nos. 24, 65 and 177. In other words, if by law there exists no such relationship, then the
herein accused truly is not even obligated to collect such amounts; neither is he under obligation to make remittance payments."
For, as early as March 23, 1956, in National Labor Union vs. Benedicto Dinglasan (L-7945), this Court already ruled that there is
employer-employee relation between jeepney owners/operators and jeepney drivers under the boundary system arrangement, and
enunciated:
"The main question to determine is whether there exists a relationship of employer-employee between the drivers of the jeeps and the
owner thereof. The findings contained in the first order are not disputed by both parties except the last to which the respondent took
exception. But in the resolution setting aside the order of 16 February 1954 the Court of Industrial Relations in banc did not state that
such finding is not supported by evidence. It merely 'declares that there is no employer-employee relation between
respondent, Benedicto Dinglasan, and the driver-complainants in this case.' If the findings to which the respondent took
exception is unsupported by the evidence, a pronouncement to that effect would have been made by the Court in banc. In the absence
of such pronouncement we are not at liberty to ignore or disregard said finding. The findings of the Court of Industrial Relations with
respect to question of fact, if supported by substantial evidence on the record shall be conclusive. Taking into consideration the
findings of fact made by the Court of Industrial Relations we find it difficult to uphold the conclusion of the Court set forth in its
resolution of 23 June 1954. The drivers did not invest a single centavo in the business and the respondent is the exclusive owner of
the jeeps. The management of the business is in the respondent's hands. For even if the drivers of the jeeps take material possession
of the jeeps, still the respondent as owner thereof and holder of a certificate of public convenience is entitled to exercise, as he does
and under the law he must, supervision over the drivers by seeing to it that they follow the route prescribed by the Public Service
Commission and the rules and regulations promulgated by it as regards their operation. And when they pass by the gasoline station of
the respondent checking by his employees on the water tank, oil and tire pressure is done. The only features that would make the
relationship of lessor and lessee between the respondent and the drivers, members of the union, as contended by the respondent, are
the fact that he does not pay them any fixed wage but their compensation is the excess of the total amount of P7.50 which they agreed
to pay to the respondent, the owner of the jeeps, and the fact that the gasoline burned by the jeeps is for the account of the
drivers. These two features are not, however, sufficient to withdraw the relationship between them from that of employer-employee,
because the estimated earnings for fares must be over and above the amount they agreed to pay to the respondent for a ten-hour shift
or ten-hour a day operation of the jeeps. Not having any interest in the business because they did not invest anything in the acquisition
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of the jeeps and did not participate in the management thereof, their service as drivers of the jeeps being their only contribution to the
business, the relationship of lessor and lessee cannot be sustained [In the matter of the Park Floral Company, etc., 19 NLRB
403; Radley et al. vs. Commonwealth, 161 SW (2d) 417; Jones vs. Goodson et al., 121 Fed. Rep. (2d) 176; Mitchel vs. Gibbson et al.,
172 Fed. Rep. (2d) 970]. In the lease of chattels the lessor loses complete control over the chattel leased although the lessee cannot
make bad use thereof, for he would be responsible for damages to the lessor should he do so. In this case there is a supervision and a
sort of control that the owner of the jeeps exercises over the drivers. It is an attempt by ingenious scheme to withdraw the relationship
between the owner of the jeeps and the drivers thereof from the operation of the labor laws enacted to promote industrial peace." (98
Phil. 650, 651-53).
On April 30, 1963, this Court reiterated this doctrine in Magboo, et al. vs. Bernardo (L-16790, 7 SCRA 952) and stated:
"Appellant assails said decision, assigning three errors which boil down to the question of whether or not an employer-employee
relationship exists between a jeepney-owner and a driver under a 'boundary system' arrangement. Appellant contends that the relation-
ship is essentially that of lessor and lessee.
"A similar contention has been rejected by this Court in several cases. In National Labor Union v. Dinglasan, 52 O.B., No. 4, 1933, it
was held that the features which characterize the 'boundary system' - namely, the fact that the driver does not receive a fixed wage but
gets only the excess of the receipt of fares collected by him over the amount he pays to the jeep-owner and that the gasoline consumed
by the jeep is for the account of the driver -- are not sufficient to withdraw the relationship between them from that of employer and
employee. The ruling was subsequently cited and applied in Doce v. Workmen's Compensation Commission, L-9417, December 22,
1958, which involved the liability of a bus owner for injury compensation to a conductor working under the 'boundary
system.' " (7 SCRA 953-54).
Indeed, considering that about nineteen (19) years before July 31, 1975, when respondent rendered his decision in the
four estafa cases, it was a settled doctrine that an employer-employee relationship exists between jeepney owners/operators
and jeepney drivers under the boundary system arrangement, of which rule respondent was obviously ignorant (Section 1, Rule 129,
Rules of Court, and in line with Municipal Board of Manila vs. Agustin, 65 Phil. 144).
Respondent mistakenly relied on the cases of Social Security System vs. Court of Appeals and Shriro (37 SCRA 579) and Social
Security System vs. Court of Appeals and Manila Jockey Club (30 SCRA 210), which have no bearing on or relevance to the issue
posed in the estafacases filed by the complainants and heard by him. The Shriro and the Manila jockey Club cases did not involve or
resolve the relationship between jeepney owners/operators and jeepney drivers in any manner whatsoever. The Shriro case concerned
the relationship of "commission sales agents" and Shriro (Philippines) Inc., the exclusive distributor of "Regal" sewing machine. The
Manila Jockey Club, Inc. case concerned jockeys who are connected with the Manila Jockey Club, Inc. and the Philippine Racing
Club, Inc.
Since an employer-employee relationship subsists between the jeepney owners/operators and jeepney drivers under the boundary
system arrangement, SSS coverage "shall be compulsory" (Sec. 9, Social Security Act), the SSS's deduction would follow as a
matter of law (Sec.18, supra), and the accused in the four estafa cases, without previous demand by the jeepney drivers, is under legal
obligation to remit the driver's contribution to the SSS.
Decisions of the Supreme Court need not be proved as they are matters of judicial notice (Sec. 1, Rule 129, Rev. Rules of Court; V
Moran, Rules of Court, 1970 ed., pp. 38-39). Ignorance of the law excuses no one (Art. 3, New Civil Code) and judicial decisions
applying or interpreting the law or the Constitution are part of the legal system (Art. 8, New Civil Code).
In the light of the above discussion, respondent gravely erred in sustaining the motion to dismiss the estafa cases by conveniently
relying on the accepted axiom that the prosecution cannot rely on the weakness of the defense to gain conviction, for conviction can
only rest upon the strength of the prosecution evidence (Duran vs. Court of Appeals, L-39758, May 7, 1976, citing People vs. Barrera,
82 Phil. 391), and, as a consequence, material and moral damages had been inflicted on the numerous complaining drivers whose
rights to refile the criminal cases for estafa against the accused are now foreclosed by the rule on double jeopardy.
In recapitulation, We find that respondent exhibited gross ignorance of the Social Security Act of 1954, as amended, particularly the
sections governing SSS compulsory coverage, employer-employee contributions, deduction of SSS's contributions, and remittance
of SSScontributions; and of the settled jurisprudence that the relationship between jeepney owners/operators and jeepney drivers under
the boundary system arrangement is that of employer and employee. Or, if respondent was aware of them, he deliberately refrained
from applying them, which can never be excused (Quizon, et al. vs. Judge Jose G. Baltazar, Jr., A.C. No. 532-MJ, July 25, 1975) and
"is hardly to be condoned" (Fernando, J., concurring opinion, Quizon, et al. vs. Judge Baltazar, Jr., supra).
WE, moreover, find that respondent repeatedly ignored this Court's directive to file his comment on the instant complaint within ten
(10) days from receipt of our 2nd Indorsement of September 16, 1975, necessitating the sending of two tracer letters dated October 23,
1975and November 25, 1975. His comment came only on March 8, 1976. His failure to submit the required comment within the
period fixed isdisrespect to the Court as well as aggravated the delay in the speedy and orderly disposition of this administrative
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complaint (cf. Medina, etc., et al. vs. Hon. Valdellon, etc., et al., L-38810, March 25, 1975; Atienza vs. Perez, etc., A.M. No.
P-216, July 9, 1974).
WHEREFORE, RESPONDENT FRANCISCO R. LLAMAS IS HEREBY DISMISSED AS CITY JUDGE OF PASAY CITY WITH
FORFEITURE OF ALL RETIREMENT PRIVILEGES AND WITH PREJUDICE TO REINSTATEMENT TO ANY POSITION IN
THE NATIONAL OR LOCAL GOVERNMENT, INCLUDING GOVERNMENT-OWNED OR -CONTROLLED CORPORATIONS,
AGENCIES OR INSTRUMENTALITIES.
SO ORDERED.
____________________________________________________________________________________________________________
G.R. No. L-64693 April 27, 1984
LITA ENTERPRISES, INC., petitioner,  

vs. 
SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P.
GARCIA, respondents.
"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim that must be applied to the
parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the
consequences of his acts.
The factual background of this case is undisputed.
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installment from
the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate
taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's
certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit.
To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc, Possession, however,
remained with tile spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade name.
About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle
whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against the
driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against
Lita Enterprises, Inc., as registered owner of the taxicab in the latter case, Civil Case No. 72067 of the Court of First Instance of
Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of P25,000.00 and P7,000.00 for attorney's
fees.
This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with Engine No.
2R-914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car with
Engine No. 2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to a certain Mr. Lopez.
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of
petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wife filed
a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila
for reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on
the merits ensued and on July 22, 1975, the said court rendered a decision, the dispositive portion of which reads: têñ.£îhqwâ£
WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance
Company and the Sheriff of Manila are concerned.
Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota cars not levied upon with Engine
Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in favor of the plaintiff.
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Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of convenience from March 1973 up
to May 1973 at the rate of P200 a month per unit for the three cars. (Annex A, Record on Appeal, p. 102-103, Rollo)
Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo on October 27,
1975. (p. 121, Ibid.)
On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by including as
part of its dispositive portion another paragraph, to wit: têñ.£îhqwâ£
In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of conveyance because of their
deterioration, or because they are no longer serviceable, or because they are no longer available, then Lita Enterprises, Inc. is ordered
to pay the plaintiffs their fair market value as of July 22, 1975. (Annex "D", p. 167, Rollo.)
Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that: têñ.£îhqwâ£
1. ...
2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or amending the decision of public
respondent so that:
(a) the additional paragraph added by the public respondent to the DECISION of the lower court (CFI) be deleted;
(b) that private respondents be declared liable to petitioner for whatever amount the latter has paid or was declared liable (in Civil
Case No. 72067) of the Court of First Instance of Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim Florante Galvez,
who died as a result ot the gross negligence of private respondents' driver while driving one private respondents' taxicabs. (p. 39,
Rollo.)
Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a person who has
been granted a certificate of convenience allows another person who owns motors vehicles to operate under such franchise for a fee. A
certificate of public convenience is a special privilege conferred by the government . Abuse of this privilege by the grantees thereof
cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and corruption in
the government transportation offices. In the words of Chief Justice Makalintal, 1 "this is a pernicious system that cannot be too
severely condemned. It constitutes an imposition upon the goo faith of the government.
Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to public policy
and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either
party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant error on the part of
both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil Code denies
them such aid. It provides:têñ.£îhqwâ£
ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall
be observed;
(1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or
demand the performance of the other's undertaking.
The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As this Court
said in Eugenio v. Perdido, 2 "the mere lapse of time cannot give efficacy to contracts that are null void."
The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails.
Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in equity or at law, from an
illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or
damages for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down as though
it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the
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other." 3 Although certain exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule should not
be applied in the instant case.
WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia, Plaintiffs, versus
Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio
Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc., Defendant-Appellant," of the Intermediate
Appellate Court, as well as the decisions rendered therein are hereby annuleled and set aside. No costs.
SO ORDERED.
____________________________________________________________________________________________________________
G.R. No. 98275 November 13, 1992
BA FINANCE CORPORATION, petitioner,  

vs. 
HON. COURT OF APPEALS, REGIONAL TRIAL COURT OF ANGELES CITY, BRANCH LVI, CARLOS OCAMPO,
INOCENCIO TURLA, SPOUSES MOISES AGAPITO and SOCORRO M. AGAPITO and NICOLAS CRUZ, respondents.
The question of petitioner's responsibility for damages when on March 6, 1983, an accident occurred involving petitioner's Isuzu ten-
wheeler truck then driven by an employee of Lino Castro is the thrust of the petition for review on certiorari now before Us
considering that neither the driver nor Lino Castro appears to be connected with petitioner.
On October 13, 1988, the disputed decision in the suit below was rendered by the court of origin in this manner:
1. Ordering Rock B.A. and Rogelio Villar y Amare jointly and severally to pay the plaintiffs as follows:
a) To the plaintiff Carlos Ocampo — P121,650.00;
b) To the plaintiff Moises Ocampo — P298,500.00
c) To the plaintiff Nicolas Cruz — P154,740.00
d) To the plaintiff Inocencio Turla, Sr. — 48,000.00
2. Dismissing the case against Lino Castro
3. Dismissing the third-party complaint against STRONGHOLD
4. Dismissing all the counterclaim of the defendants and third-party defendants.
5. Ordering ROCK to reimburse B.A. the total amount of P622,890.00 which the latter is adjudged to pay to the plaintiffs. (p.
46, Rollo)
Respondent Court of Appeals affirmed the appealed disposition in toto through Justice Rasul, with Justices De Pano, Jr. and Imperial
concurring, on practically the same grounds arrived at by the court a quo (p. 28, Rollo). Efforts exerted towards re-evaluation of the
adverse were futile (p. 37, Rollo). Hence, the instant petition.
The lower court ascertained after due trial that Rogelio Villar y Amare, the driver of the Isuzu truck, was at fault when the mishap
occurred in as much as he was found guilty beyond reasonable doubt of reckless imprudence resulting in triple homicide with multiple
physical injuries with damage to property in a decision rendered on February 16, 1984 by the Presiding Judge of Branch 6 of the
Regional Trial Court stationed at Malolos, Bulacan. Petitioner was adjudged liable for damages in as much as the truck was registered
in its name during the incident in question, following the doctrine laid down by this Court in Perez vs. Gutierrez (53 SCRA 149
! of 93
[1973]) and Erezo, et al. vs. Jepte (102 Phil. 103 [1957]). In the same breadth, Rock Component Philippines, Inc. was ordered to
reimburse petitioner for any amount that the latter may be adjudged liable to pay herein private respondents as expressly stipulated in
the contract of lease between petitioner and Rock Component Philippines, Inc. Moreover, the trial court applied Article 2194 of the
new Civil Code on solidary accountability of join tortfeasors insofar as the liability of the driver, herein petitioner and Rock
Component Philippines was concerned (pp. 6-7, Decision; pp. 44-45, Rollo).
To the question of whether petitioner can be held responsible to the victim albeit the truck was leased to Rock Component Philippines
when the incident occurred, the appellate court answered in the affirmative on the basis of the jurisprudential dogmas which, as
aforesaid, were relied upon by the trial court although respondent court was quick to add the caveat embodied in the lease covenant
between petitioner and Rock Component Philippines relative to the latter's duty to reimburse any amount which may be adjudged
against petitioner (pp. 32-33, Rollo).
Petitioner asseverates that it should not have been haled to court and ordered to respond for the damage in the manner arrived at by
both the trial and appellate courts since paragraph 5 of the complaint lodged by the plaintiffs below would indicate that petitioner was
not the employer of the negligent driver who was under the control an supervision of Lino Castro at the time of the accident, apart
from the fact that the Isuzu truck was in the physical possession of Rock Component Philippines by virtue of the lease agreement.
Aside from casting clouds of doubt on the propriety of invoking the Perez and Erezo doctrines, petitioner continue to persist with the
idea that the pronouncements of this Court in Duavit vs. Court of Appeals (173 SCRA 490 [1989]) and Duquillo vs. Bayot (67 Phil 131
[1939]) dovetail with the factual and legal scenario of the case at hand. Furthermore, petitioner assumes, given the so-called hiatus on
the basis for the award of damages as decreed by the lower and appellate courts, that Article 2180 of the new Civil Code on vicarious
liability will divest petitioner of any responsibility absent as there is any employer-employee relationship between petitioner and the
driver.
Contrary to petitioner's expectations, the recourse instituted from the rebuffs it encountered may not constitute a sufficient foundation
for reversal of the impugned judgment of respondent court. Petitioner is of the impression that the Perez and Erezo cases are
inapplicable due to the variance of the generative facts in said cases as against those obtaining in the controversy at bar. A contrario,
the lesson imparted by Justice Labrador in Erezo is still good law, thus:
. . . In previous decisions, We already have held that the registered owner of a certificate of public convenience is liable to the public
for the injuries or damages suffered by passengers or third persons caused by the operation of said vehicle, even though the same had
been transferred to a third person. (Montoya vs. Ignacio, 94 Phil., 182 50 Off. Gaz., 108; Roque vs. Malibay Transit, Inc., G.R. No.
L-8561, November 18, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506, 52 Off. Gaz., [10], 4606.) The principle upon which this
doctrine is based is that in dealing with vehicles registered under the Public Service Law, the public has the right to assume or
presumed that the registered owner is the actual owner thereof, for it would be difficult with the public to enforce the actions that they
may have for injuries caused to them by the vehicles being negligently operated if the public should be required to prove who actual
the owner is. How would the public or third persons know against whom to enforce their rights in case of subsequent transfer of the
vehicles? We do not imply by this doctrine, however, that the registered owner may not recover whatever amount he had paid by
virtue of his liability to third persons from the person to whom he had actually sold, assigned or conveyed the vehicle.
Under the same principle the registered owner of any vehicle, even if not used for a public service, should primarily responsible to the
public or to the third persons for injuries caused the latter while the vehicle is being driven on the highways or streets. The members
of the Court are in agreement that the defendant-appellant should be held liable to plaintiff-appellee for the injuries occasioned to the
latter because of the negligence of the driver, even if the defendant-appellant was no longer an owner of the vehicle at the time of the
damage because he had previously sold it to another. What is the legal basis for his (defendants-appellant's) liability?
There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the registered owner in the Motor
Vehicle Office. Should he not be allowed to prove the truth, that he had sold it to another and thus shift the responsibility for the injury
to the real and the actual owner? The defendants hold the affirmative of this proposition; the trial court hold the negative.
The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that the vehicle may be used or operated upon any public
highway unless the same is properly registered. It has been stated that the system of licensing and the requirement that each machine
must carry a registration number, conspicuously displayed, is one of the precautions taken to reduce the danger of injury of pedestrians
and other travelers from the careless management of automobiles, and to furnish a means of ascertaining the identity of persons
violating the laws and ordinances, regulating the speed and operation of machines upon the highways (2 R. C. L. 1176). Not only are
vehicles to be registered and that no motor vehicles are to be used or operated without being properly registered from the current year,
! of 93
furnish the Motor Vehicle Office a report showing the name and address of each purchaser of motor vehicle during the previous month
and the manufacturer's serial number and motor number. (Section 5[c], Act No. 3992, as amended.)
Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land
registration cases, because the administrative proceeding of registration does not bear any essential relation to the contract of sale
between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any
public highway (section 5[a], Act No. 3992, as amended). the main aim of motor vehicle registration is to identify the owner so that if
any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be
fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused
accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means
of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is
primarily obtained, in the interest of the determinations of persons responsible for damages or injuries caused on public highways.
One of the principle purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident; and
another is that the knowledge that means of detection are always available my act as a deterrent from lax observance of the law and of
the rules of conservative and safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the
primary purpose of rendering it certain that the violator of the law or of the rules of safety shall not escape because of lack of means to
discover him. The purpose of the statute is thwarted, and the displayed number becomes a "share and delusion," if courts would
entertain such defenses as that put forward by appellee in this case. No responsible person or corporation could be held liable for the
most outrageous acts of negligence, if they should be allowed to pace a "middleman" between them and the public, and escape liability
by the manner in which they recompense their servants. (King vs. Breham Automobile Co., Inc. 145 S. W. 278, 279.)
With the above policy in mind, the question that defendant-appellant poses is: should not the registered owner be allowed at the trial to
prove who the actual and real owner is, and in accordance with such proof escape or evade responsibility and lay the same on the
person actually owning the vehicle? We hold with the trial court that the law does not allow him to do so; the law, with its aim and
policy in mind, does not relieve him directly of the responsibility that the law fixes and places upon him as an incident or consequence
of registration. Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would
be easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to
one who possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public
highways is usually without means to discover or Identify the person actually causing the injury or damage. He has no means other
then by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to
extend to him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership.
If the policy of the law is to be enforced and carried out, the registered owner should not be allowed to prove the contrary to the
prejudice of the person injured, that is, to prove that a third person or another has become the owner, so that he may thereby be
relieved of the responsibility to the injured person.
The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We do not think
it is so. A registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action
brought against him to recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the
suit is no justification for relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration
that the law demands and requires.
In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the
vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual owner of the amount
that he may be required to pay as damage for the injury caused to the plaintiff-appellant.
If the foregoing words of wisdom were applied in solving the circumstance whereof the vehicle had been alienated or sold to another,
there certainly can be no serious exception against utilizing the same rationale to the antecedents of this case where the subject vehicle
was merely leased by petitioner to Rock Component Philippines, Inc., with petitioner retaining ownership over the vehicle.
Petitioner's reliance on the ruling of this Court in Duavit vs. Court of Appeals and in Duquillo vs. Bayot (supra) is legally unpalatable
for the purpose of the present discourse. The vehicles adverted to in the two cases shared a common thread, so to speak, in that the
jeep and the truck were driven in reckless fashion without the consent or knowledge of the respective owners. Cognizant of the
inculpatory testimony spewed by defendant Sabiniano when he admitted that he took the jeep from the garage of defendant Dauvit
without the consent or authority of the latter, Justice Gutierrez, Jr. in Duavit remarked;
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. . . Herein petitioner does not deny ownership of the vehicle involved in the mishap but completely denies having employed the driver
Sabiniano or even having authorized the latter to drive his jeep. The jeep was virtually stolen from the petitioner's garage. To hold,
therefore, the petitioner liable for the accident caused by the negligence of Sabiniano who was neither his driver nor employee would
be absurd as it would be like holding liable the owner of a stolen vehicle for an accident caused by the person who stole such vehicle.
In this regard, we cannot ignore the many cases of vehicles forcibly taken from their owners at gunpoint or stolen from garages and
parking areas and the instances of service station attendants or mechanics of auto repair shops using, without the owner's consent,
vehicles entrusted to them for servicing or repair.(at p. 496.)
In the Duquillo case, the defendant therein cannot, according to Justice Diaz, be held liable for anything because of circumstances
which indicated that the truck was driven without the consent or knowledge of the owner thereof.
Consequently, there is no need for Us to discuss the matter of imputed negligence because petitioner merely presumed, erroneously,
however, that judgment was rendered against it on the basis of such doctrine embodied under Article 2180 of the new Civil Code.
WHEREFORE, the petition is hereby DISMISSED and decision under review AFFIRMED without special pronouncement as to costs.
SO ORDERED.
____________________________________________________________________________________________________________
[G.R. No. 125817. January 16, 2002]
ABELARDO LIM and ESMADITO GUNNABAN, petitioners, vs. COURT OF APPEALS and DONATO H.
GONZALES, respondents
When a passenger jeepney covered by a certificate of public convenience is sold to another who continues to operate it under
the same certificate of public convenience under the so-called kabit system, and in the course thereof the vehicle meets an accident
through the fault of another vehicle, may the new owner sue for damages against the erring vehicle? Otherwise stated, does the new
owner have any legal personality to bring the action, or is he the real party in interest in the suit, despite the fact that he is not the
registered owner under the certificate of public convenience?
Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu passenger jeepney from Gomercino Vallarta, holder
of a certificate of public convenience for the operation of public utility vehicles plying the Monumento-Bulacan route. While private
respondent Gonzales continued offering the jeepney for public transport services he did not have the registration of the vehicle
transferred in his name nor did he secure for himself a certificate of public convenience for its operation. Thus Vallarta remained on
record as its registered owner and operator.
On 22 July 1990, while the jeepney was running northbound along the North Diversion Road somewhere in Meycauayan,
Bulacan, it collided with a ten-wheeler-truck owned by petitioner Abelardo Lim and driven by his co-petitioner Esmadito
Gunnaban. Gunnaban owned responsibility for the accident, explaining that while he was traveling towards Manila the truck suddenly
lost its brakes. To avoid colliding with another vehicle, he swerved to the left until he reached the center island.However, as the center
island eventually came to an end, he veered farther to the left until he smashed into a Ferroza automobile, and later, into private
respondent's passenger jeepney driven by one Virgilio Gonzales. The impact caused severe damage to both the Ferroza and the
passenger jeepney and left one (1) passenger dead and many others wounded.
Petitioner Lim shouldered the costs for hospitalization of the wounded, compensated the heirs of the deceased passenger, and
had the Ferroza restored to good condition. He also negotiated with private respondent and offered to have the passenger jeepney
repaired at his shop. Private respondent however did not accept the offer so Lim offered him P20,000.00, the assessment of the
damage as estimated by his chief mechanic. Again, petitioner Lim's proposition was rejected; instead, private respondent demanded a
brand-new jeep or the amount of P236,000.00. Lim increased his bid to P40,000.00 but private respondent was unyielding. Under the
circumstances, negotiations had to be abandoned; hence, the filing of the complaint for damages by private respondent against
petitioners.
In his answer Lim denied liability by contending that he exercised due diligence in the selection and supervision of his
employees. He further asserted that as the jeepney was registered in Vallartas name, it was Vallarta and not private respondent who
was the real party in interest.[1] For his part, petitioner Gunnaban averred that the accident was a fortuitous event which was beyond
his control.[2]
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Meanwhile, the damaged passenger jeepney was left by the roadside to corrode and decay. Private respondent explained that
although he wanted to take his jeepney home he had no capability, financial or otherwise, to tow the damaged vehicle.[3]
The main point of contention between the parties related to the amount of damages due private respondent. Private respondent
Gonzales averred that per estimate made by an automobile repair shop he would have to spend P236,000.00 to restore his jeepney to
its original condition.[4] On the other hand, petitioners insisted that they could have the vehicle repaired for P20,000.00.[5]
On 1 October 1993 the trial court upheld private respondent's claim and awarded him P236,000.00 with legal interest from 22
July 1990 as compensatory damages and P30,000.00 as attorney's fees. In support of its decision, the trial court ratiocinated that as
vendee and current owner of the passenger jeepney private respondent stood for all intents and purposes as the real party in
interest. Even Vallarta himself supported private respondent's assertion of interest over the jeepney for, when he was called to testify,
he dispossessed himself of any claim or pretension on the property. Gunnaban was found by the trial court to have caused the accident
since he panicked in the face of an emergency which was rather palpable from his act of directing his vehicle to a perilous streak down
the fast lane of the superhighway then across the island and ultimately to the opposite lane where it collided with the jeepney.
On the other hand, petitioner Lim's liability for Gunnaban's negligence was premised on his want of diligence in supervising
his employees. It was admitted during trial that Gunnaban doubled as mechanic of the ill-fated truck despite the fact that he was
neither tutored nor trained to handle such task.[6]
Forthwith, petitioners appealed to the Court of Appeals which, on 17 July 1996, affirmed the decision of the trial court. In
upholding the decision of the court a quothe appeals court concluded that while an operator under the kabit system could not sue
without joining the registered owner of the vehicle as his principal, equity demanded that the present case be made an exception.
[7] Hence this petition.
It is petitioners' contention that the Court of Appeals erred in sustaining the decision of the trial court despite their opposition to
the well-established doctrine that an operator of a vehicle continues to be its operator as long as he remains the operator of
record. According to petitioners, to recognize an operator under the kabitsystem as the real party in interest and to countenance his
claim for damages is utterly subversive of public policy. Petitioners further contend that inasmuch as the passenger jeepney was
purchased by private respondent for only P30,000.00, an award of P236,000.00 is inconceivably large and would amount to unjust
enrichment.[8]
Petitioners' attempt to illustrate that an affirmance of the appealed decision could be supportive of the pernicious kabit system
does not persuade. Their labored efforts to demonstrate how the questioned rulings of the courts a quo are diametrically opposed to the
policy of the law requiring operators of public utility vehicles to secure a certificate of public convenience for their operation is quite
unavailing.
The kabit system is an arrangement whereby a person who has been granted a certificate of public convenience allows other
persons who own motor vehicles to operate them under his license, sometimes for a fee or percentage of the earnings.[9] Although the
parties to such an agreement are not outrightly penalized by law, the kabit system is invariably recognized as being contrary to public
policy and therefore void and inexistent under Art. 1409 of the Civil Code.
In the early case of Dizon v. Octavio[10] the Court explained that one of the primary factors considered in the granting of a
certificate of public convenience for the business of public transportation is the financial capacity of the holder of the license, so that
liabilities arising from accidents may be duly compensated. The kabit system renders illusory such purpose and, worse, may still be
availed of by the grantee to escape civil liability caused by a negligent use of a vehicle owned by another and operated under his
license. If a registered owner is allowed to escape liability by proving who the supposed owner of the vehicle is, it would be easy for
him to transfer the subject vehicle to another who possesses no property with which to respond financially for the damage done. Thus,
for the safety of passengers and the public who may have been wronged and deceived through the baneful kabit system, the registered
owner of the vehicle is not allowed to prove that another person has become the owner so that he may be thereby relieved of
responsibility. Subsequent cases affirm such basic doctrine.[11]
It would seem then that the thrust of the law in enjoining the kabit system is not so much as to penalize the parties but to
identify the person upon whom responsibility may be fixed in case of an accident with the end view of protecting the riding
public. The policy therefore loses its force if the public at large is not deceived, much less involved.
In the present case it is at once apparent that the evil sought to be prevented in enjoining the kabit system does not exist. First,
neither of the parties to the pernicious kabit system is being held liable for damages. Second, the case arose from the negligence of
another vehicle in using the public road to whom no representation, or misrepresentation, as regards the ownership and operation of
the passenger jeepney was made and to whom no such representation, or misrepresentation, was necessary. Thus it cannot be said that
private respondent Gonzales and the registered owner of the jeepney were in estoppel for leading the public to believe that the jeepney
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belonged to the registered owner. Third, the riding public was not bothered nor inconvenienced at the very least by the illegal
arrangement. On the contrary, it was private respondent himself who had been wronged and was seeking compensation for the damage
done to him. Certainly, it would be the height of inequity to deny him his right.
In light of the foregoing, it is evident that private respondent has the right to proceed against petitioners for the damage caused
on his passenger jeepney as well as on his business. Any effort then to frustrate his claim of damages by the ingenuity with which
petitioners framed the issue should be discouraged, if not repelled.
In awarding damages for tortuous injury, it becomes the sole design of the courts to provide for adequate compensation by
putting the plaintiff in the same financial position he was in prior to the tort. It is a fundamental principle in the law on damages that a
defendant cannot be held liable in damages for more than the actual loss which he has inflicted and that a plaintiff is entitled to no
more than the just and adequate compensation for the injury suffered. His recovery is, in the absence of circumstances giving rise to an
allowance of punitive damages, limited to a fair compensation for the harm done. The law will not put him in a position better than
where he should be in had not the wrong happened.[12]
In the present case, petitioners insist that as the passenger jeepney was purchased in 1982 for only P30,000.00 to award
damages considerably greater than this amount would be improper and unjustified. Petitioners are at best reminded that
indemnification for damages comprehends not only the value of the loss suffered but also that of the profits which the obligee failed to
obtain. In other words, indemnification for damages is not limited to damnum emergens or actual loss but extends to lucrum cessans or
the amount of profit lost.[13]
Had private respondent's jeepney not met an accident it could reasonably be expected that it would have continued earning
from the business in which it was engaged. Private respondent avers that he derives an average income of P300.00 per day from his
passenger jeepney and this earning was included in the award of damages made by the trial court and upheld by the appeals court. The
award therefore of P236,000.00 as compensatory damages is not beyond reason nor speculative as it is based on a reasonable estimate
of the total damage suffered by private respondent, i.e. damage wrought upon his jeepney and the income lost from his transportation
business. Petitioners for their part did not offer any substantive evidence to refute the estimate made by the courts a quo.
However, we are constrained to depart from the conclusion of the lower courts that upon the award of compensatory damages
legal interest should be imposed beginning 22 July 1990, i.e. the date of the accident. Upon the provisions of Art. 2213 of the Civil
Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable
certainty." It is axiomatic that if the suit were for damages, unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof, interest at the rate of six percent (6%) per annum should be from the date the judgment of the
court is made (at which time the quantification of damages may be deemed to be reasonably ascertained).[14]
In this case, the matter was not a liquidated obligation as the assessment of the damage on the vehicle was heavily debated
upon by the parties with private respondent's demand for P236,000.00 being refuted by petitioners who argue that they could have the
vehicle repaired easily for P20,000.00. In fine, the amount due private respondent was not a liquidated account that was already
demandable and payable.
One last word. We have observed that private respondent left his passenger jeepney by the roadside at the mercy of the
elements. Article 2203 of the Civil Code exhorts parties suffering from loss or injury to exercise the diligence of a good father of a
family to minimize the damages resulting from the act or omission in question.One who is injured then by the wrongful or negligent
act of another should exercise reasonable care and diligence to minimize the resulting damage. Anyway, he can recover from the
wrongdoer money lost in reasonable efforts to preserve the property injured and for injuries incurred in attempting to prevent damage
to it.[15]
However we sadly note that in the present case petitioners failed to offer in evidence the estimated amount of the damage
caused by private respondent's unconcern towards the damaged vehicle. It is the burden of petitioners to show satisfactorily not only
that the injured party could have mitigated his damages but also the amount thereof; failing in this regard, the amount of damages
awarded cannot be proportionately reduced.
WHEREFORE, the questioned Decision awarding private respondent Donato Gonzales P236,000.00 with legal interest from
22 July 1990 as compensatory damages and P30,000.00 as attorney's fees is MODIFIED. Interest at the rate of six percent (6%) per
annum shall be computed from the time the judgment of the lower court is made until the finality of this Decision. If the adjudged
principal and interest remain unpaid thereafter, the interest shall be twelve percent (12%) per annum computed from the time judgment
becomes final and executory until it is fully satisfied.
Costs against petitioners.
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SO ORDERED.
____________________________________________________________________________________________________________
G.R. Nos. 66102-04 August 30, 1990
PHILIPPINE RABBIT BUS LINES, INC., petitioner,  

vs. 
THE HONORABLE INTERMEDIATE APPELLATE COURT AND CASIANO PASCUA, ET AL., respondents.
This is a petition for review on certiorari of the decision of the Intermediate Appellate Court (now Court of Appeals) dated July 29,
1983 in AC-G.R. Nos. CV-65885, CV-65886 and CV-65887 which reversed the decision of the Court of First Instance (now Regional
Trial Court) of Pangasinan dated December 27, 1978; and its resolution dated November 28, 1983 denying the motion for
reconsideration.
It is an established principle that the factual findings of the Court of Appeals are final and may not be reviewed by this Court on
appeal. However, this principle is subject to certain exceptions. One of these is when the findings of the appellate court are contrary to
those of the trial court (see Sabinosa v. The Honorable Court of Appeals, et al., G.R. No. L-47981, July 24, 1989) in which case, a re-
examination of the facts and evidence may be undertaken. This is Our task now.
The antecedent facts are as follows:
About 11:00 o'clock in the morning on December 24, 1966, Catalina Pascua, Caridad Pascua, Adelaida Estomo, Erlinda Meriales,
Mercedes Lorenzo, Alejandro Morales and Zenaida Parejas boarded the jeepney owned by spouses Isidro Mangune and Guillerma
Carreon and driven by Tranquilino Manalo at Dau, Mabalacat, Pampanga bound for Carmen, Rosales, Pangasinan to spend Christmas
at their respective homes. Although they usually ride in buses, they had to ride in a jeepney that day because the buses were full. Their
contract with Manalo was for them to pay P24.00 for the trip. The private respondents' testimonial evidence on this contractual
relationship was not controverted by Mangune, Carreon and Manalo, nor by Filriters Guaranty Assurance Corporation, Inc., the
insurer of the jeepney, with contrary evidence. Purportedly riding on the front seat with Manalo was Mercedes Lorenzo. On the left
rear passenger seat were Caridad Pascua, Alejandro Morales and Zenaida Parejas. On the right rear passenger seat were Catalina
Pascua, Adelaida Estomo, and Erlinda Meriales. After a brief stopover at Moncada, Tarlac for refreshment, the jeepney proceeded
towards Carmen, Rosales, Pangasinan.
Upon reaching barrio Sinayoan, San Manuel, Tarlac, the right rear wheel of the jeepney was detached, so it was running in an
unbalanced position. Manalo stepped on the brake, as a result of which, the jeepney which was then running on the eastern lane (its
right of way) made a U-turn, invading and eventually stopping on the western lane of the road in such a manner that the jeepney's
front faced the south (from where it came) and its rear faced the north (towards where it was going). The jeepney practically occupied
and blocked the greater portion of the western lane, which is the right of way of vehicles coming from the north, among which was
Bus No. 753 of petitioner Philippine Rabbit Bus Lines, Inc. (Rabbit) driven by Tomas delos Reyes. Almost at the time when the
jeepney made a sudden U-turn and encroached on the western lane of the highway as claimed by Rabbit and delos Reyes, or after
stopping for a couple of minutes as claimed by Mangune, Carreon and Manalo, the bus bumped from behind the right rear portion of
the jeepney. As a result of the collision, three passengers of the jeepney (Catalina Pascua, Erlinda Meriales and Adelaida Estomo) died
while the other jeepney passengers sustained physical injuries. What could have been a festive Christmas turned out to be tragic.
The causes of the death of the three jeepney passengers were as follows (p. 101, Record on Appeal):
The deceased Catalina Pascua suffered the following injuries, to wit: fracture of the left parietal and temporal regions of the skull;
fracture of the left mandible; fracture of the right humenous; compound fracture of the left radious and ullma middle third and lower
third; fracture of the upper third of the right tibia and fillnea; avulsion of the head, left internal; and multiple abrasions. The cause of
her death was shock, secondary to fracture and multiple hemorrhage. The fractures were produced as a result of the hitting of the
victim by a strong force. The abrasions could be produced when a person falls from a moving vehicles (sic) and rubs parts of her body
against a cement road pavement. . . .
Erlinda Mariles (sic) sustained external lesions such as contusion on the left parietal region of the skull; hematoma on the right upper
lid; and abrasions (sic) on the left knee. Her internal lesions were: hematoma on the left thorax; multiple lacerations of the left lower
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lobe of the lungs; contusions on the left lower lobe of the lungs; and simple fractures of the 2nd, 3rd, 4th, 5th, 6th, 7th, and 8th ribs,
left. The forcible impact of the jeep caused the above injuries which resulted in her death. . . .
The cause of death of Erlinda or Florida Estomo (also called as per autopsy of Dr. Panlasiqui was due to shock due to internal
hemorrhage, ruptured spleen and trauma. . . .
Caridad Pascua suffered physical injuries as follows (p. 101, Record on Appeal):
. . . lacerated wound on the forehead and occipital region, hematoma on the forehead, multiple abrasions on the forearm, right upper
arm, back and right leg. . . .
The police investigators of Tacpal and policemen of San Manuel, Tarlac, Tarlac, upon arrival at the scene of the mishap, prepared a
sketch (common exhibit "K" for private respondents "19" for Rabbit) showing the relative positions of the two vehicles as well as the
alleged point of impact (p. 100, Record on Appeal):
. . . The point of collision was a cement pave-portion of the Highway, about six (6) meters wide, with narrow shoulders with grasses
beyond which are canals on both sides. The road was straight and points 200 meters north and south of the point of collision are
visible and unobstructed. Purportedly, the point of impact or collision (Exh. "K-4", Pascua on the sketch Exh. "K"-Pascua) was on the
western lane of the highway about 3 feet (or one yard) from the center line as shown by the bedris (sic), dirt and soil (obviously from
the undercarriage of both vehicles) as well as paint, marron (sic) from the Rabbit bus and greenish from the jeepney. The point of
impact encircled and marked with the letter "X" in Exh. "K"-4 Pascua, had a diameter of two meters, the center of which was about
two meters from the western edge of cement pavement of the roadway. Pictures taken by witness Bisquera in the course of the
investigation showed the relative positions of the point of impact and center line (Exh. "P"-Pascua) the back of the Rabbit bus (Exh.
"P"-1-Pascua"), the lifeless body of Catalina Pascua (Exh. "P-2 Pascua"), and the damaged front part of the Rabbit bus (Exh. "P-3
Pascua"). No skid marks of the Rabbit bus was found in the vicinity of the collision, before or after the point of impact. On the other
hand, there was a skid mark about 45 meters long purportedly of the jeepney from the eastern shoulder of the road south of, and
extending up to the point of impact.
At the time and in the vicinity of the accident, there were no vehicles following the jeepney, neither were there oncoming vehicles
except the bus. The weather condition of that day was fair.
After conducting the investigation, the police filed with the Municipal Court of San Manuel, Tarlac, a criminal complaint against the
two drivers for Multiple Homicide. At the preliminary investigation, a probable cause was found with respect to the case of Manalo,
thus, his case was elevated to the Court of First Instance. However, finding no sufficiency of evidence as regards the case of delos
Reyes, the Court dismissed it. Manalo was convicted and sentenced to suffer imprisonment. Not having appealed, he served his
sentence.
Complaints for recovery of damages were then filed before the Court of First Instance of Pangasinan. In Civil Case No. 1136, spouses
Casiano Pascua and Juana Valdez sued as heirs of Catalina Pascua while Caridad Pascua sued in her behalf. In Civil Case No. 1139,
spouses Manuel Millares and Fidencia Arcica sued as heirs of Erlinda Meriales. In Civil Case No. 1140, spouses Mariano Estomo and
Dionisia Sarmiento also sued as heirs of Adelaida Estomo.
In all three cases, spouses Mangune and Carreon, Manalo, Rabbit and delos Reyes were all impleaded as defendants. Plaintiffs
anchored their suits against spouses Mangune and Carreon and Manalo on their contractual liability. As against Rabbit and delos
Reyes, plaintiffs based their suits on their culpability for a quasi-delict. Filriters Guaranty Assurance Corporation, Inc. was also
impleaded as additional defendant in Civil Case No. 1136 only.
For the death of Catalina Pascua, plaintiffs in Civil Case No. 1136 sought to collect the aggregate amount of P70,060.00 in damages,
itemized as follows: P500.00 for burial expenses; P12,000.00 for loss of wages for 24 years; P10,000.00 for exemplary damages;
P10,000.00 for moral damages; and P3,000.00 for attorney's fees. In the same case, plaintiff Caridad Pascua claimed P550.00 for
medical expenses; P240.00 for loss of wages for two months; P2,000.00 for disfigurement of her face; P3,000.00 for physical pain and
suffering; P2,500.00 as exemplary damages and P2,000.00 for attorney's fees and expenses of litigation.
In Civil Case No. 1139, plaintiffs demanded P500.00 for burial expenses; P6,000.00 for the death of Erlinda, P63,000.00 for loss of
income; P10,000.00 for moral damages and P3,000.00 for attorney's fees or total of P80,000.00.
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In Civil Case No. 1140, plaintiffs claimed P500.00 for burial expenses; P6,000.00 for the death of Adelaide, P56,160.00 for loss of her
income or earning capacity; P10,000.00 for moral damages; and P3,000.00 for attorney's fees.
Rabbit filed a cross-claim in the amount of P15,000.00 for attorney's fees and expenses of litigation. On the other hand, spouses
Mangune and Carreon filed a cross-claim in the amount of P6,168.00 for the repair of the jeepney and P3,000.00 for its non-use during
the period of repairs.
On December 27, 1978, the trial court rendered its decision finding Manalo negligent, the dispositive portion of which reads (pp.
113-114, Record on Appeal):
PREMISES CONSIDERED, this Court is of the opinion and so holds:
1) That defendants Isidro Mangune, Guillerma Carreon and Tranquilino Manalo thru their negligence, breached contract of carriage
with their passengers the plaintiffs' and/or their heirs, and this Court renders judgment ordering said defendants, jointly and severally,
to pay the plaintiffs —
a) In Civil Case No. 1136, for the death of Catalina Pascua, to pay her heirs the amounts of P12,000.00 for indemnity for loss of her
life; P41,760.00 for loss of earnings; P324.40 for actual expenses and P2,000.00 for moral damages;
b) In the same Civil Case No.1136 for the injuries of Caridad Pascua, to pay her the amounts of P240.00 for loss of wages, P328.20
for actual expenses and P500.00 for moral damages;
c) In Civil Case No.1139 for the death of Erlinda Meriales, to pay her heirs (the plaintiffs) the amount of P12,000.00 — for indemnity
for loss of her life; P622.00 for actual expenses, P60,480.00 for loss of wages or income and P2,000.00 for moral damages;
d) In Civil Case No. 1140, for the death of Erlinda (also called Florida or Adelaida Estomo), to pay her heirs (the plaintiff the amount
of P12,000.00 for indemnity for the loss of her life; P580.00 for actual expenses; P53,160.00 for loss of wages or income and
P2,000.00 for moral damages.
2) The defendant Filriters Guaranty Insurance Co., having contracted to ensure and answer for the obligations of defendants Mangune
and Carreon for damages due their passengers, this Court renders judgment against the said defendants Filriters Guaranty Insurance
Co., jointly and severally with said defendants (Mangune and Carreon) to pay the plaintiffs the amount herein above adjudicated in
their favor in Civil Case No. 1136 only. All the amounts awarded said plaintiff, as set forth in paragraph one (1) hereinabove;
3) On the cross claim of Phil. Rabbit Bus Lines, Inc. ordering the defendant, Isidro Mangune, Guillerma Carreon and Tranquilino
Manalo, to pay jointly and severally, cross-claimant Phil. Rabbit Bus Lines, Inc., the amounts of P216.27 as actual damages to its Bus
No. 753 and P2,173.60 for loss of its earning.
All of the above amount, shall bear legal interest from the filing of the complaints.
Costs are adjudged against defendants Mangune, Carreon and Manalo and Filriters Guaranty.
SO ORDERED
On appeal, the Intermediate Appellate Court reversed the above-quoted decision by finding delos Reyes negligent, the dispositive
portion of which reads (pp. 55-57, Rollo):
WHEREFORE, PREMISES CONSIDERED, the lower court's decision is hereby REVERSED as to item No. 3 of the decision which
reads:
3) On the cross claim of Philippine Rabbit Bus Lines, Inc. ordering the defendants Isidro Mangune, Guillerma Carreon and
Tranquilino Manalo, to pay jointly and severally, the amounts of P216.27 as actual damages to its Bus No. 753 and P2,173.60 for loss
of its earnings.
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and another judgment is hereby rendered in favor of plaintiffs-appellants Casiana Pascua, Juan Valdez and Caridad Pascua, ordering
the Philippine Rabbit Bus Lines, Inc. and its driver Tomas delos Reyes to pay the former jointly and severally damages in amounts
awarded as follows:
For the death of Catalina Pascua, the parents and/or heirs are awarded
Civil Case No. 1136 —
a) Indemnity for the loss of life — P12,000.00
b) Loss of Salaries or earning capacity — 14,000.00
c) Actual damages (burial expenses) — 800.00
d) For moral damages — 10,000.00
e) Exemplary damages — 3,000.00
f) For attorney's fees — 3,000.00
—————
Total — P38,200.00 (sic)
For the physical injuries suffered by Caridad Pascua:
Civil Case No. 1136
a) Actual damages (hospitalization expenses) — P550.00
b) Moral damages (disfigurement of the
face and physical suffering — 8,000.00
c) Exemplary damages — 2,000.00
—————
Total — P10,550.00
For the death of Erlinda Arcega Meriales. the parents and/or heirs:
Civil Case No. 1139
a) Indemnity for loss of life — P12,000.00
b) Loss of Salary or Earning Capacity — 20,000.00
d) Moral damages — 15,000.00
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f) Attorney's fees — 3,000.00
—————
Total — P65,500.00
For the death of Florida Sarmiento Estomo:
Civil Case No. 1140
a) Indemnity for loss of life — P12,000.00
b) Loss of Salary or Earning capacity — 20,000.00
d) Moral damages — 3,000.00
f) Attorney's fees — 3,000.00
—————
Total — P41,500.00
With costs against the Philippine Rabbit Bus Lines, Inc.
SO ORDERED.
The motion for reconsideration was denied. Hence, the present petition.
The issue is who is liable for the death and physical injuries suffered by the passengers of the jeepney?
The trial court, in declaring that Manalo was negligent, considered the following (p. 106, Record on Appeal):
(1) That the unrebutted testimony of his passenger plaintiff Caridad Pascua that a long ways (sic) before reaching the point of
collision, the Mangune jeepney was "running fast" that his passengers cautioned driver Manalo to slow down but did not heed the
warning: that the right rear wheel was detached causing the jeepney to run to the eastern shoulder of the road then back to the concrete
pavement; that driver Manalo applied the brakes after which the jeepney made a U-turn (half-turn) in such a manner that it inverted its
direction making it face South instead of north; that the jeepney stopped on the western lane of the road on the right of way of the
oncoming Phil. Rabbit Bus where it was bumped by the latter;
(2) The likewise unrebutted testimony of Police Investigator Tacpal of the San Manuel (Tarlac) Police who, upon responding to the
reported collission, found the real evidence thereat indicate in his sketch (Exh. K, Pascua ), the tracks of the jeepney of defendant
Mangune and Carreon running on the Eastern shoulder (outside the concrete paved road) until it returned to the concrete road at a
sharp angle, crossing the Eastern lane and the (imaginary) center line and encroaching fully into the western lane where the collision
took place as evidenced by the point of impact;
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(3) The observation of witness Police Corporal Cacalda also of the San Manuel Police that the path of the jeepney they found on the
road and indicated in the sketch (Exh. K-Pascua) was shown by skid marks which he described as "scratches on the road caused by the
iron of the jeep, after its wheel was removed;"
(4) His conviction for the crime of Multiple Homicide and Multiple Serious Physical Injuries with Damage to Property thru Reckless
Imprudence by the Court of First Instance of Tarlac (Exh. 24-Rabbit) upon the criminal Information by the Provincial Fiscal of Tarlac
(Exh. 23-Rabbit), as a result of the collision, and his commitment to prison and service of his sentence (Exh. 25-Rabbit) upon the
finality of the decision and his failure to appeal therefrom; and
(5) The application of the doctrine of res-ipsa loquitar (sic) attesting to the circumstance that the collision occured (sic) on the right of
way of the Phil. Rabbit Bus.
The respondent court had a contrary opinion. Applying primarily (1) the doctrine of last clear chance, (2) the presumption that drivers
who bump the rear of another vehicle guilty and the cause of the accident unless contradicted by other evidence, and (3) the
substantial factor test. concluded that delos Reyes was negligent.
The misappreciation of the facts and evidence and the misapplication of the laws by the respondent court warrant a reversal of its
questioned decision and resolution.
We reiterate that "[t]he principle about "the last clear" chance, would call for application in a suit between the owners and drivers of
the two colliding vehicles. It does not arise where a passenger demands responsibility from the carrier to enforce its contractual
obligations. For it would be inequitable to exempt the negligent driver of the jeepney and its owners on the ground that the other driver
was likewise guilty of negligence." This was Our ruling in Anuran, et al. v. Buño et al., G.R. Nos. L-21353 and L-21354, May 20,
1966, 17 SCRA 224. 1 Thus, the respondent court erred in applying said doctrine.
On the presumption that drivers who bump the rear of another vehicle guilty and the cause of the accident, unless contradicted by
other evidence, the respondent court said (p. 49, Rollo):
. . . the jeepney had already executed a complete turnabout and at the time of impact was already facing the western side of the road.
Thus the jeepney assumed a new frontal position vis a vis, the bus, and the bus assumed a new role of defensive driving. The spirit
behind the presumption of guilt on one who bumps the rear end of another vehicle is for the driver following a vehicle to be at all
times prepared of a pending accident should the driver in front suddenly come to a full stop, or change its course either through change
of mind of the front driver, mechanical trouble, or to avoid an accident. The rear vehicle is given the responsibility of avoiding a
collision with the front vehicle for it is the rear vehicle who has full control of the situation as it is in a position to observe the vehicle
in front of it.
The above discussion would have been correct were it not for the undisputed fact that the U-turn made by the jeepney was abrupt
(Exhibit "K," Pascua). The jeepney, which was then traveling on the eastern shoulder, making a straight, skid mark of approximately
35 meters, crossed the eastern lane at a sharp angle, making a skid mark of approximately 15 meters from the eastern shoulder to the
point of impact (Exhibit "K" Pascua). Hence, delos Reyes could not have anticipated the sudden U-turn executed by Manalo. The
respondent court did not realize that the presumption was rebutted by this piece of evidence.
With regard to the substantial factor test, it was the opinion of the respondent court that (p. 52, Rollo):
. . . It is the rule under the substantial factor test that if the actor's conduct is a substantial factor in bringing about harm to another, the
fact that the actor neither foresaw nor should have foreseen the extent of the harm or the manner in which it occurred does not prevent
him from being liable (Restatement, Torts, 2d). Here, We find defendant bus running at a fast speed when the accident occurred and
did not even make the slightest effort to avoid the accident, . . . . The bus driver's conduct is thus a substantial factor in bringing about
harm to the passengers of the jeepney, not only because he was driving fast and did not even attempt to avoid the mishap but also
because it was the bus which was the physical force which brought about the injury and death to the passengers of the jeepney.
The speed of the bus was calculated by respondent court as follows (pp. 54-55, Rollo):
According to the record of the case, the bus departed from Laoag, Ilocos Norte, at 4:00 o'clock A.M. and the accident took place at
approximately around 12:30 P.M., after travelling roughly for 8 hours and 30 minutes. Deduct from this the actual stopover time of
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two Hours (computed from the testimony of the driver that he made three 40-minute stop-overs), We will have an actual travelling
time of 6 hours and 30 minutes.
Under the circumstances, We calculate that the Laoag-Tarlac route (365 kms.) driving at an average of 56 km. per hour would take 6
hours and 30 minutes. Therefore, the average speed of the bus, give and take 10 minutes, from the point of impact on the highway
with excellent visibility factor would be 80 to 90 kms. per hour, as this is the place where buses would make up for lost time in
traversing busy city streets.
Still, We are not convinced. It cannot be said that the bus was travelling at a fast speed when the accident occurred because the speed
of 80 to 90 kilometers per hour, assuming such calculation to be correct, is yet within the speed limit allowed in highways. We cannot
even fault delos Reyes for not having avoided the collision. As aforestated, the jeepney left a skid mark of about 45 meters, measured
from the time its right rear wheel was detached up to the point of collision. Delos Reyes must have noticed the perilous condition of
the jeepney from the time its right rear wheel was detached or some 90 meters away, considering that the road was straight and points
200 meters north and south of the point of collision, visible and unobstructed. Delos Reyes admitted that he was running more or less
50 kilometers per hour at the time of the accident. Using this speed, delos Reyes covered the distance of 45 meters in 3.24 seconds. If
We adopt the speed of 80 kilometers per hour, delos Reyes would have covered that distance in only 2.025 seconds. Verily, he had
little time to react to the situation. To require delos Reyes to avoid the collision is to ask too much from him. Aside from the time
element involved, there were no options available to him. As the trial court remarked (pp. 107-108, Record on Appeal):
. . . They (plaintiffs) tried to impress this Court that defendant de los Reyes, could have taken either of two options: (1) to swerve to its
right (western shoulder) or (2) to swerve to its left (eastern lane), and thus steer clear of the Mangune jeepney. This Court does not so
believe, considering the existing exigencies of space and time.
As to the first option, Phil. Rabbit's evidence is convincing and unrebutted that the Western shoulder of the road was narrow and had
tall grasses which would indicate that it was not passable. Even plaintiffs own evidence, the pictures (Exhs. P and P-2, Pascua) are
mute confirmation of such fact. Indeed, it can be noticed in the picture (Exh. P-2, Pascua) after the Rabbit bus came to a full stop, it
was tilted to right front side, its front wheels resting most probably on a canal on a much lower elevation that of the shoulder or paved
road. It too shows that all of the wheels of the Rabbit bus were clear of the roadway except the outer left rear wheel. These observation
appearing in said picture (Exh P-2, Pascua) clearly shows coupled with the finding the Rabbit bus came to a full stop only five meters
from the point of impact (see sketch, Exh. K-Pascua) clearly show that driver de los Reyes veered his Rabbit bus to the right attempt
to avoid hitting the Mangune's jeepney. That it was not successful in fully clearing the Mangune jeepney as its (Rabbit's) left front hit
said jeepney (see picture Exh. 10-A-Rabbit) must have been due to limitations of space and time.
Plaintiffs alternatively claim that defendant delos Reyes of the Rabbit bus could also have swerved to its left (eastern lane) to avoid
bumping the Mangune jeepney which was then on the western lane. Such a claim is premised on the hypothesis (sic) that the eastern
lane was then empty. This claim would appear to be good copy of it were based alone on the sketch made after the collision.
Nonetheless, it loses force it one were to consider the time element involved, for moments before that, the Mangune jeepney was
crossing that very eastern lane at a sharp angle. Under such a situation then, for driver delos Reyes to swerve to the eastern lane, he
would run the greater risk of running smack in the Mangune jeepney either head on or broadside.
After a minute scrutiny of the factual matters and duly proven evidence, We find that the proximate cause of the accident was the
negligence of Manalo and spouses Mangune and Carreon. They all failed to exercise the precautions that are needed precisely pro hac
vice.
In culpa contractual, the moment a passenger dies or is injured, the carrier is presumed to have been at fault or to have acted
negligently, and this disputable presumption may only be overcome by evidence that he had observed extra-ordinary diligence as
prescribed in Articles 1733, 1755 and 1756 of the New Civil Code 2 or that the death or injury of the passenger was due to a fortuitous
event 3 (Lasam v. Smith, Jr., 45 Phil. 657).
The negligence of Manalo was proven during the trial by the unrebutted testimonies of Caridad Pascua, Police Investigator Tacpal,
Police Corporal Cacalda, his (Manalo's) conviction for the crime of Multiple Homicide and Multiple Serious Injuries with Damage to
Property thru Reckless Imprudence, and the application of the doctrine ofres ipsa loquitur supra. The negligence of spouses Mangune
and Carreon was likewise proven during the trial (p. 110, Record on Appeal):
To escape liability, defendants Mangune and Carreon offered to show thru their witness Natalio Navarro, an alleged mechanic, that he
periodically checks and maintains the jeepney of said defendants, the last on Dec. 23, the day before the collision, which included the
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tightening of the bolts. This notwithstanding the right rear wheel of the vehicle was detached while in transit. As to the cause thereof
no evidence was offered. Said defendant did not even attempt to explain, much less establish, it to be one caused by a caso
fortuito. . . .
In any event, "[i]n an action for damages against the carrier for his failure to safely carry his passenger to his destination, an accident
caused either by defects in the automobile or through the negligence of its driver, is not a caso fortuito which would avoid the carriers
liability for damages (Son v. Cebu Autobus Company, 94 Phil. 892 citing Lasam, et al. v. Smith, Jr., 45 Phil. 657; Necesito, etc. v.
Paras, et al., 104 Phil. 75).
The trial court was therefore right in finding that Manalo and spouses Mangune and Carreon were negligent. However, its ruling that
spouses Mangune and Carreon are jointly and severally liable with Manalo is erroneous The driver cannot be held jointly and
severally liable with the carrier in case of breach of the contract of carriage. The rationale behind this is readily discernible. Firstly, the
contract of carriage is between the carrier and the passenger, and in the event of contractual liability, the carrier is exclusively
responsible therefore to the passenger, even if such breach be due to the negligence of his driver (see Viluan v. The Court of Appeals,
et al., G.R. Nos. L-21477-81, April 29, 1966, 16 SCRA 742). In other words, the carrier can neither shift his liability on the contract to
his driver nor share it with him, for his driver's negligence is his. 4 Secondly, if We make the driver jointly and severally liable with the
carrier, that would make the carrier's liability personal instead of merely vicarious and consequently, entitled to recover only the share
which corresponds to the driver, 5 contradictory to the explicit provision of Article 2181 of the New Civil Code. 6
We affirm the amount of damages adjudged by the trial court, except with respect to the indemnity for loss of life. Under Article 1764
in relation to Article 2206 of the New Civil Code, the amount of damages for the death of a passenger is at least three thousand pesos
(P3,000.00). The prevailing jurisprudence has increased the amount of P3,000.00 to P30,000.00 (see Heirs of Amparo delos Santos, et
al. v. Honorable Court of Appeals, et al., G.R. No. 51165, June 21, 1990 citing De Lima v. Laguna Tayabas Co., G.R. Nos.
L-35697-99, April 15, 1988, 160 SCRA 70).
ACCORDINGLY, the petition is hereby GRANTED. The decision of the Intermediate Appellate Court dated July 29, 1983 and its
resolution dated November 28, 1983 are SET ASIDE. The decision of the Court of First Instance dated December 27, 1978 is
REINSTATED MODIFICATION that only Isidro Mangune, Guillerma Carreon and Filriters Guaranty Assurance Corporation, Inc. are
liable to the victims or their heirs and that the amount of indemnity for loss of life is increased to thirty thousand pesos (P30,000.00).
SO ORDERED.
____________________________________________________________________________________________________________
[G.R. No. 150843. March 14, 2003]
CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs. SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL
VAZQUEZ, respondents.
Is an involuntary upgrading of an airline passengers accommodation from one class to a more superior class at no extra cost a
breach of contract of carriage that would entitle the passenger to an award of damages? This is a novel question that has to be resolved
in this case.
The facts in this case, as found by the Court of Appeals and adopted by petitioner Cathay Pacific Airways, Ltd., (hereinafter
Cathay) are as follows:
Cathay is a common carrier engaged in the business of transporting passengers and goods by air. Among the many routes it
services is the Manila-Hongkong-Manila course. As part of its marketing strategy, Cathay accords its frequent flyers membership in its
Marco Polo Club. The members enjoy several privileges, such as priority for upgrading of booking without any extra charge whenever
an opportunity arises. Thus, a frequent flyer booked in the Business Class has priority for upgrading to First Class if the Business
Class Section is fully booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are frequent flyers of Cathay and are
Gold Card members of its Marco Polo Club. On 24 September 1996, the Vazquezes, together with their maid and two friends Pacita
Cruz and Josefina Vergel de Dios, went to Hongkong for pleasure and business.
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For their return flight to Manila on 28 September 1996, they were booked on Cathays Flight CX-905, with departure time at
9:20 p.m. Two hours before their time of departure, the Vazquezes and their companions checked in their luggage at Cathays check-in
counter at Kai Tak Airport and were given their respective boarding passes, to wit, Business Class boarding passes for the Vazquezes
and their two friends, and Economy Class for their maid. They then proceeded to the Business Class passenger lounge.
When boarding time was announced, the Vazquezes and their two friends went to Departure Gate No. 28, which was
designated for Business Class passengers.Dr. Vazquez presented his boarding pass to the ground stewardess, who in turn inserted it
into an electronic machine reader or computer at the gate. The ground stewardess was assisted by a ground attendant by the name of
Clara Lai Han Chiu. When Ms. Chiu glanced at the computer monitor, she saw a message that there was a seat change from Business
Class to First Class for the Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes accommodations were upgraded to First Class. Dr. Vazquez
refused the upgrade, reasoning that it would not look nice for them as hosts to travel in First Class and their guests, in the Business
Class; and moreover, they were going to discuss business matters during the flight. He also told Ms. Chiu that she could have other
passengers instead transferred to the First Class Section. Taken aback by the refusal for upgrading, Ms. Chiu consulted her supervisor,
who told her to handle the situation and convince the Vazquezes to accept the upgrading. Ms. Chiu informed the latter that the
Business Class was fully booked, and that since they were Marco Polo Club members they had the priority to be upgraded to the First
Class. Dr. Vazquez continued to refuse, so Ms. Chiu told them that if they would not avail themselves of the privilege, they would not
be allowed to take the flight. Eventually, after talking to his two friends, Dr. Vazquez gave in. He and Mrs. Vazquez then proceeded to
the First Class Cabin.
Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996 addressed to Cathays Country Manager, demanded
that they be indemnified in the amount of P1million for the humiliation and embarrassment caused by its employees. They also
demanded a written apology from the management of Cathay, preferably a responsible person with a rank of no less than the Country
Manager, as well as the apology from Ms. Chiu within fifteen days from receipt of the letter.
In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathays Country Manager Argus Guy Robson, informed the
Vazquezes that Cathay would investigate the incident and get back to them within a weeks time.
On 8 November 1996, after Cathays failure to give them any feedback within its self-imposed deadline, the Vazquezes
instituted before the Regional Trial Court of Makati City an action for damages against Cathay, praying for the payment to each of
them the amounts of P250,000 as temperate damages; P500,000 as moral damages; P500,000 as exemplary or corrective damages;
and P250,000 as attorneys fees.
In their complaint, the Vazquezes alleged that when they informed Ms. Chiu that they preferred to stay in Business Class, Ms.
Chiu obstinately, uncompromisingly and in a loud, discourteous and harsh voice threatened that they could not board and leave with
the flight unless they go to First Class, since the Business Class was overbooked. Ms. Chius loud and stringent shouting annoyed,
embarrassed, and humiliated them because the incident was witnessed by all the other passengers waiting for boarding. They also
claimed that they were unjustifiably delayed to board the plane, and when they were finally permitted to get into the aircraft, the
forward storage compartment was already full. A flight stewardess instructed Dr. Vazquez to put his roll-on luggage in the overhead
storage compartment. Because he was not assisted by any of the crew in putting up his luggage, his bilateral carpal tunnel syndrome
was aggravated, causing him extreme pain on his arm and wrist. The Vazquezes also averred that they belong to the uppermost and
absolutely top elite of both Philippine Society and the Philippine financial community, [and that] they were among the wealthiest
persons in the Philippine[s].
In its answer, Cathay alleged that it is a practice among commercial airlines to upgrade passengers to the next better class of
accommodation, whenever an opportunity arises, such as when a certain section is fully booked. Priority in upgrading is given to its
frequent flyers, who are considered favored passengers like the Vazquezes. Thus, when the Business Class Section of Flight CX-905
was fully booked, Cathays computer sorted out the names of favored passengers for involuntary upgrading to First Class. When Ms.
Chiu informed the Vazquezes that they were upgraded to First Class, Dr. Vazquez refused. He then stood at the entrance of the
boarding apron, blocking the queue of passengers from boarding the plane, which inconvenienced other passengers. He shouted that it
was impossible for him and his wife to be upgraded without his two friends who were traveling with them. Because of Dr. Vazquezs
outburst, Ms. Chiu thought of upgrading the traveling companions of the Vazquezes. But when she checked the computer, she learned
that the Vazquezes companions did not have priority for upgrading. She then tried to book the Vazquezes again to their original seats.
However, since the Business Class Section was already fully booked, she politely informed Dr. Vazquez of such fact and explained
that the upgrading was in recognition of their status as Cathays valued passengers. Finally, after talking to their guests, the Vazquezes
eventually decided to take the First Class accommodation.
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Cathay also asserted that its employees at the Hong Kong airport acted in good faith in dealing with the Vazquezes; none of
them shouted, humiliated, embarrassed, or committed any act of disrespect against them (the Vazquezes). Assuming that there was
indeed a breach of contractual obligation, Cathay acted in good faith, which negates any basis for their claim for temperate, moral, and
exemplary damages and attorneys fees. Hence, it prayed for the dismissal of the complaint and for payment of P100,000 for
exemplary damages and P300,000 as attorneys fees and litigation expenses.
During the trial, Dr. Vazquez testified to support the allegations in the complaint. His testimony was corroborated by his two
friends who were with him at the time of the incident, namely, Pacita G. Cruz and Josefina Vergel de Dios.
For its part, Cathay presented documentary evidence and the testimonies of Mr. Yuen; Ms. Chiu; Norma Barrientos,
Comptroller of its retained counsel; and Mr. Robson. Yuen and Robson testified on Cathays policy of upgrading the seat
accommodation of its Marco Polo Club members when an opportunity arises. The upgrading of the Vazquezes to First Class was done
in good faith; in fact, the First Class Section is definitely much better than the Business Class in terms of comfort, quality of food, and
service from the cabin crew. They also testified that overbooking is a widely accepted practice in the airline industry and is in
accordance with the International Air Transport Association (IATA) regulations. Airlines overbook because a lot of passengers do not
show up for their flight. With respect to Flight CX-905, there was no overall overbooking to a degree that a passenger was bumped off
or downgraded. Yuen and Robson also stated that the demand letter of the Vazquezes was immediately acted upon. Reports were
gathered from their office in Hong Kong and immediately forwarded to their counsel Atty. Remollo for legal advice. However, Atty.
Remollo begged off because his services were likewise retained by the Vazquezes; nonetheless, he undertook to solve the problem in
behalf of Cathay. But nothing happened until Cathay received a copy of the complaint in this case. For her part, Ms. Chiu denied that
she shouted or used foul or impolite language against the Vazquezes. Ms. Barrientos testified on the amount of attorneys fees and other
litigation expenses, such as those for the taking of the depositions of Yuen and Chiu.
In its decision[1] of 19 October 1998, the trial court found for the Vazquezes and decreed as follows:
WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of plaintiffs
Vazquez spouses and against defendant Cathay Pacific Airways, Ltd., ordering the latter to pay each plaintiff the following:
a) Nominal damages in the amount of P100,000.00 for each plaintiff;
b) Moral damages in the amount of P2,000,000.00 for each plaintiff;
c) Exemplary damages in the amount of P5,000,000.00 for each plaintiff;
d) Attorneys fees and expenses of litigation in the amount of P1,000,000.00 for each plaintiff; and
e) Costs of suit.
SO ORDERED.
According to the trial court, Cathay offers various classes of seats from which passengers are allowed to choose regardless of
their reasons or motives, whether it be due to budgetary constraints or whim. The choice imposes a clear obligation on Cathay to
transport the passengers in the class chosen by them. The carrier cannot, without exposing itself to liability, force a passenger to
involuntarily change his choice. The upgrading of the Vazquezes accommodation over and above their vehement objections was due to
the overbooking of the Business Class. It was a pretext to pack as many passengers as possible into the plane to maximize Cathays
revenues.Cathays actuations in this case displayed deceit, gross negligence, and bad faith, which entitled the Vazquezes to awards for
damages.
On appeal by the petitioners, the Court of Appeals, in its decision of 24 July 2001,[2] deleted the award for exemplary damages;
and it reduced the awards for moral and nominal damages for each of the Vazquezes to P250,000 and P50,000, respectively, and the
attorneys fees and litigation expenses to P50,000 for both of them.
The Court of Appeals ratiocinated that by upgrading the Vazquezes to First Class, Cathay novated the contract of carriage
without the formers consent. There was a breach of contract not because Cathay overbooked the Business Class Section of Flight
CX-905 but because the latter pushed through with the upgrading despite the objections of the Vazquezes.
However, the Court of Appeals was not convinced that Ms. Chiu shouted at, or meant to be discourteous to, Dr. Vazquez,
although it might seemed that way to the latter, who was a member of the elite in Philippine society and was not therefore used to
being harangued by anybody. Ms. Chiu was a Hong Kong Chinese whose fractured Chinese was difficult to understand and whose
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manner of speaking might sound harsh or shrill to Filipinos because of cultural differences. But the Court of Appeals did not find her
to have acted with deliberate malice, deceit, gross negligence, or bad faith. If at all, she was negligent in not offering the First Class
accommodations to other passengers. Neither can the flight stewardess in the First Class Cabin be said to have been in bad faith when
she failed to assist Dr. Vazquez in lifting his baggage into the overhead storage bin. There is no proof that he asked for help and was
refused even after saying that he was suffering from bilateral carpal tunnel syndrome. Anent the delay of Yuen in responding to the
demand letter of the Vazquezes, the Court of Appeals found it to have been sufficiently explained.
The Vazquezes and Cathay separately filed motions for a reconsideration of the decision, both of which were denied by the
Court of Appeals.
Cathay seasonably filed with us this petition in this case. Cathay maintains that the award for moral damages has no basis,
since the Court of Appeals found that there was no wanton, fraudulent, reckless and oppressive display of manners on the part of its
personnel; and that the breach of contract was not attended by fraud, malice, or bad faith. If any damage had been suffered by the
Vazquezes, it was damnum absque injuria, which is damage without injury, damage or injury inflicted without injustice, loss or
damage without violation of a legal right, or a wrong done to a man for which the law provides no remedy. Cathay also invokes our
decision in United Airlines, Inc. v. Court of Appeals[3] where we recognized that, in accordance with the Civil Aeronautics Boards
Economic Regulation No. 7, as amended, an overbooking that does not exceed ten percent cannot be considered deliberate and done in
bad faith. We thus deleted in that case the awards for moral and exemplary damages, as well as attorneys fees, for lack of proof of
overbooking exceeding ten percent or of bad faith on the part of the airline carrier.
On the other hand, the Vazquezes assert that the Court of Appeals was correct in granting awards for moral and nominal
damages and attorneys fees in view of the breach of contract committed by Cathay for transferring them from the Business Class to
First Class Section without prior notice or consent and over their vigorous objection. They likewise argue that the issuance of
passenger tickets more than the seating capacity of each section of the plane is in itself fraudulent, malicious and tainted with bad
faith.
The key issues for our consideration are whether (1) by upgrading the seat accommodation of the Vazquezes from Business
Class to First Class Cathay breached its contract of carriage with the Vazquezes; (2) the upgrading was tainted with fraud or bad faith;
and (3) the Vazquezes are entitled to damages.
We resolve the first issue in the affirmative.
A contract is a meeting of minds between two persons whereby one agrees to give something or render some service to another
for a consideration. There is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) an object
certain which is the subject of the contract; and (3) the cause of the obligation which is established.[4] Undoubtedly, a contract of
carriage existed between Cathay and the Vazquezes. They voluntarily and freely gave their consent to an agreement whose object was
the transportation of the Vazquezes from Manila to Hong Kong and back to Manila, with seats in the Business Class Section of the
aircraft, and whose cause or consideration was the fare paid by the Vazquezes to Cathay.
The only problem is the legal effect of the upgrading of the seat accommodation of the Vazquezes. Did it constitute a breach of
contract?
Breach of contract is defined as the failure without legal reason to comply with the terms of a contract.[5] It is also defined as
the [f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract.[6]
In previous cases, the breach of contract of carriage consisted in either the bumping off of a passenger with confirmed
reservation or the downgrading of a passengers seat accommodation from one class to a lower class. In this case, what happened was
the reverse. The contract between the parties was for Cathay to transport the Vazquezes to Manila on a Business Class accommodation
in Flight CX-905. After checking-in their luggage at the Kai Tak Airport in Hong Kong, the Vazquezes were given boarding cards
indicating their seat assignments in the Business Class Section. However, during the boarding time, when the Vazquezes presented
their boarding passes, they were informed that they had a seat change from Business Class to First Class. It turned out that the
Business Class was overbooked in that there were more passengers than the number of seats. Thus, the seat assignments of the
Vazquezes were given to waitlisted passengers, and the Vazquezes, being members of the Marco Polo Club, were upgraded from
Business Class to First Class.
We note that in all their pleadings, the Vazquezes never denied that they were members of Cathays Marco Polo Club. They
knew that as members of the Club, they had priority for upgrading of their seat accommodation at no extra cost when an opportunity
arises. But, just like other privileges, such priority could be waived.The Vazquezes should have been consulted first whether they
wanted to avail themselves of the privilege or would consent to a change of seat accommodation before their seat assignments were
given to other passengers. Normally, one would appreciate and accept an upgrading, for it would mean a better accommodation. But,
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whatever their reason was and however odd it might be, the Vazquezes had every right to decline the upgrade and insist on the
Business Class accommodation they had booked for and which was designated in their boarding passes. They clearly waived their
priority or preference when they asked that other passengers be given the upgrade. It should not have been imposed on them over their
vehement objection. By insisting on the upgrade, Cathay breached its contract of carriage with the Vazquezes.
We are not, however, convinced that the upgrading or the breach of contract was attended by fraud or bad faith. Thus, we
resolve the second issue in the negative.
Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious accusations that can be so
conveniently and casually invoked, and that is why they are never presumed. They amount to mere slogans or mudslinging unless
convincingly substantiated by whoever is alleging them.
Fraud has been defined to include an inducement through insidious machination. Insidious machination refers to a deceitful
scheme or plot with an evil or devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits to state
material facts and, by reason of such omission or concealment, the other party was induced to give consent that would not otherwise
have been given.[7]
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud.[8]
We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree to the upgrading
through insidious words or deceitful machination or through willful concealment of material facts. Upon boarding, Ms. Chiu told the
Vazquezes that their accommodations were upgraded to First Class in view of their being Gold Card members of Cathays Marco Polo
Club. She was honest in telling them that their seats were already given to other passengers and the Business Class Section was fully
booked. Ms. Chiu might have failed to consider the remedy of offering the First Class seats to other passengers. But, we find no bad
faith in her failure to do so, even if that amounted to an exercise of poor judgment.
Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by Mr. Robson, the First
Class Section is better than the Business Class Section in terms of comfort, quality of food, and service from the cabin crew; thus, the
difference in fare between the First Class and Business Class at that time was $250.[9] Needless to state, an upgrading is for the better
condition and, definitely, for the benefit of the passenger.
We are not persuaded by the Vazquezes argument that the overbooking of the Business Class Section constituted bad faith on
the part of Cathay. Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics Board, as amended, provides:
Sec 3. Scope. This regulation shall apply to every Philippine and foreign air carrier with respect to its operation of flights or portions
of flights originating from or terminating at, or serving a point within the territory of the Republic of the Philippines insofar as it
denies boarding to a passenger on a flight, or portion of a flight inside or outside the Philippines, for which he holds confirmed
reserved space. Furthermore, this Regulation is designed to cover only honest mistakes on the part of the carriers and excludes
deliberate and willful acts of non-accommodation. Provided, however, that overbooking not exceeding 10% of the seating capacity of
the aircraft shall not be considered as a deliberate and willful act of non-accommodation.
It is clear from this section that an overbooking that does not exceed ten percent is not considered deliberate and therefore does
not amount to bad faith.[10] Here, while there was admittedly an overbooking of the Business Class, there was no evidence of
overbooking of the plane beyond ten percent, and no passenger was ever bumped off or was refused to board the aircraft.
Now we come to the third issue on damages.
The Court of Appeals awarded each of the Vazquezes moral damages in the amount of P250,000. Article 2220 of the Civil
Code provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in
bad faith.
Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury. Although incapable of pecuniary computation, moral damages may be recovered if
they are the proximate result of the defendants wrongful act or omission.[11] Thus, case law establishes the following requisites for the
award of moral damages: (1) there must be an injury clearly sustained by the claimant, whether physical, mental or psychological; (2)
there must be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause
! of 93
of the injury sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the
Civil Code.[12]
Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the carrier is
guilty of fraud or bad faith or where the mishap resulted in the death of a passenger.[13] Where in breaching the contract of carriage the
airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences
of the breach of the obligation which the parties had foreseen or could have reasonably foreseen. In such a case the liability does not
include moral and exemplary damages.[14]
In this case, we have ruled that the breach of contract of carriage, which consisted in the involuntary upgrading of the
Vazquezes seat accommodation, was not attended by fraud or bad faith. The Court of Appeals award of moral damages has, therefore,
no leg to stand on.
The deletion of the award for exemplary damages by the Court of Appeals is correct. It is a requisite in the grant of exemplary
damages that the act of the offender must be accompanied by bad faith or done in wanton, fraudulent or malevolent manner.[15] Such
requisite is absent in this case. Moreover, to be entitled thereto the claimant must first establish his right to moral, temperate, or
compensatory damages.[16] Since the Vazquezes are not entitled to any of these damages, the award for exemplary damages has no
legal basis. And where the awards for moral and exemplary damages are eliminated, so must the award for attorneys fees.[17]
The most that can be adjudged in favor of the Vazquezes for Cathays breach of contract is an award for nominal damages under
Article 2221 of the Civil Code, which reads as follows:
Article 2221 of the Civil Code provides:
Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.
Worth noting is the fact that in Cathays Memorandum filed with this Court, it prayed only for the deletion of the award for
moral damages. It deferred to the Court of Appeals discretion in awarding nominal damages; thus:
As far as the award of nominal damages is concerned, petitioner respectfully defers to the Honorable Court of Appeals
discretion. Aware as it is that somehow, due to the resistance of respondents-spouses to the normally-appreciated gesture of petitioner
to upgrade their accommodations, petitioner may have disturbed the respondents-spouses wish to be with their companions (who
traveled to Hong Kong with them) at the Business Class on their flight to Manila. Petitioner regrets that in its desire to provide the
respondents-spouses with additional amenities for the one and one-half (1 1/2) hour flight to Manila, unintended tension ensued.[18]
Nonetheless, considering that the breach was intended to give more benefit and advantage to the Vazquezes by upgrading their
Business Class accommodation to First Class because of their valued status as Marco Polo members, we reduce the award for nominal
damages to P5,000.
Before writing finis to this decision, we find it well-worth to quote the apt observation of the Court of Appeals regarding the
awards adjudged by the trial court:
We are not amused but alarmed at the lower courts unbelievable alacrity, bordering on the scandalous, to award excessive amounts
as damages. In their complaint, appellees asked for P1 million as moral damages but the lower court awarded P4 million; they asked
for P500,000.00 as exemplary damages but the lower court cavalierly awarded a whooping P10 million; they asked for P250,000.00 as
attorneys fees but were awarded P2 million; they did not ask for nominal damages but were awarded P200,000.00. It is as if the lower
court went on a rampage, and why it acted that way is beyond all tests of reason. In fact the excessiveness of the total award invites the
suspicion that it was the result of prejudice or corruption on the part of the trial court.
The presiding judge of the lower court is enjoined to hearken to the Supreme Courts admonition in Singson vs. CA (282 SCRA 149
[1997]), where it said:
The well-entrenched principle is that the grant of moral damages depends upon the discretion of the court based on the circumstances
of each case. This discretion is limited by the principle that the amount awarded should not be palpably and scandalously excessive as
to indicate that it was the result of prejudice or corruption on the part of the trial court.
and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:
! of 93
Nonetheless, we agree with the injunction expressed by the Court of Appeals that passengers must not prey on international airlines
for damage awards, like trophies in a safari. After all neither the social standing nor prestige of the passenger should determine the
extent to which he would suffer because of a wrong done, since the dignity affronted in the individual is a quality inherent in him and
not conferred by these social indicators. [19]
We adopt as our own this observation of the Court of Appeals.
WHEREFORE, the instant petition is hereby partly GRANTED. The Decision of the Court of Appeals of 24 July 2001 in CA-
G.R. CV No. 63339 is hereby MODIFIED, and as modified, the awards for moral damages and attorneys fees are set aside and
deleted, and the award for nominal damages is reduced to P5,000.
No pronouncement on costs. SO ORDERED.
____________________________________________________________________________________________________________
[G.R. No. 124110. April 20, 2001]
UNITED AIRLINES, INC., petitioner, vs. COURT OF APPEALS, ANICETO FONTANILLA, in his personal capacity and in
behalf of his minor son MYCHAL ANDREW FONTANILLA respondents.
On March 1, 1989, private respondent Aniceto Fontanilla purchased from petitioner United Airlines, through the Philippine
Travel Bureau in Manila, three (3) Visit the U.S.A. tickets for himself, his wife and his minor son Mychal for the following routes:
(a) San Francisco to Washington (15 April 1989);
(b) Washington to Chicago (25 April 1989);
(c) Chicago to Los Angeles (29 April 1989);
(d) Los Angeles to San Francisco (01 May 1989 for petitioners wife and 05 May 1989 for petitioner and his son).[1]
All flights had been confirmed previously by United Airlines.[2]
The Fontanillas proceeded to the United States as planned, where they used the first coupon from San Francisco to
Washington. On April 24, 1989, Aniceto Fontanilla bought two (2) additional coupons each for himself, his wife and his son from
petitioner at its office in Washington Dulles Airport. After paying the penalty for rewriting their tickets, the Fontanillas were issued
tickets with corresponding boarding passes with the words CHECK-IN REQUIRED, for United Airlines Flight No. 1108, set to leave
from Los Angeles to San Francisco at 10:30 a.m. on May 5, 1989.[3]
The cause of the non-boarding of the Fontanillas on United Airlines Flight No. 1108 makes up the bone of contention of this
controversy.
Private respondents' version is as follows:
Aniceto Fontanilla and his son Mychal claim that on May 5, 1989, upon their arrival at the Los Angeles Airport for their flight,
they proceeded to United Airlines counter where they were attended by an employee wearing a nameplate bearing the name LINDA.
Linda examined their tickets, punched something into her computer and then told them that boarding would be in fifteen minutes.[4]
When the flight was called, the Fontanillas proceeded to the plane. To their surprise, the stewardess at the gate did not allow
them to board the plane, as they had no assigned seat numbers. They were then directed to go back to the check-in counter where
Linda subsequently informed them that the flight had been overbooked and asked them to wait.[5]
The Fontanillas tried to explain to Linda the special circumstances of their visit. However, Linda told them in arrogant
manner, So what, I can not do anything about it.[6]
Subsequently, three other passengers with Caucasian features were graciously allowed to board, after the Fontanillas were told
that the flight had been overbooked.[7]
! of 93
The plane then took off with the Fontanillas baggage in tow, leaving them behind.[8]
The Fontanillas then complained to Linda, who in turn gave them an ugly stare and rudely uttered, Its not my fault. Its the fault
of the company. Just sit down and wait.[9] When Mr. Fontanilla reminded Linda of the inconvenience being caused to them, she bluntly
retorted, Who do you think you are? You lousy Flips are good for nothing beggars. You always ask for American aid. After which she
remarked Dont worry about your baggage. Anyway there is nothing in there. What are you doing here anyway? I will report you to
immigration. You Filipinos should go home.[10] Such rude statements were made in front of other people in the airport causing the
Fontanillas to suffer shame, humiliation and embarrassment. The chastening situation even caused the younger Fontanilla to break into
tears.[11]
After some time, Linda, without any explanation, offered the Fontanillas $50.00 each. She simply said Take it or leave it. This,
the Fontanillas declined.[12]
The Fontanillas then proceeded to the United Airlines customer service counter to plead their case. The male employee at the
counter reacted by shouting that he was ready for it and left without saying anything.[13]
The Fontanillas were not booked on the next flight, which departed for San Francisco at 11:00 a.m. It was only at 12:00 noon
that they were able to leave Los Angeles on United Airlines Flight No. 803.
Petitioner United Airlines has a different version of what occurred at the Los Angeles Airport on May 5, 1989.
According to United Airlines, the Fontanillas did not initially go to the check-in counter to get their seat assignments for UA
Flight 1108. They instead proceeded to join the queue boarding the aircraft without first securing their seat assignments as required in
their ticket and boarding passes. Having no seat assignments, the stewardess at the door of the plane instructed them to go to the
check-in counter. When the Fontanillas proceeded to the check-in counter, Linda Allen, the United Airlines Customer Representative
at the counter informed them that the flight was overbooked. She booked them on the next available flight and offered them denied
boarding compensation. Allen vehemently denies uttering the derogatory and racist words attributed to her by the Fontanillas.[14]
The incident prompted the Fontanillas to file Civil Case No. 89-4268 for damages before the Regional Trial Court of
Makati. After trial on the merits, the trial court rendered a decision, the dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered dismissing the complaint. The counterclaim is likewise dismissed as it appears that plaintiffs
were not actuated by legal malice when they filed the instant complaint.[15]
On appeal, the Court of Appeals ruled in favor of the Fontanillas. The appellate court found that there was an admission on the
part of United Airlines that the Fontanillas did in fact observe the check-in requirement. It ruled further that even assuming there was a
failure to observe the check-in requirement, United Airlines failed to comply with the procedure laid down in cases where a passenger
is denied boarding. The appellate court likewise gave credence to the claim of Aniceto Fontanilla that the employees of United
Airlines were discourteous and arbitrary and, worse, discriminatory. In light of such treatment, the Fontanillas were entitled to moral
damages. The dispositive portion of the decision of the respondent Court of Appeals dated 29 September 1995, states as follows:
WHEREFORE, in view of the foregoing, judgment appealed herefrom is hereby REVERSED and SET ASIDE, and a new judgment is
entered ordering defendant-appellee to pay plaintiff-appellant the following:
a) P200,000.00 as moral damages;
b) P200,000.00 as exemplary damages;
c) P50, 000.00 as attorneys fees.
No pronouncement as to costs.
SO ORDERED.[16]
Petitioner United Airlines now comes to this Court raising the following assignment of errors:
! of 93
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE TRIAL COURT WAS WRONG IN
FAILING TO CONSIDER THE ALLEGED ADMISSION THAT PRIVATE RESPONDENT OBSERVED THE CHECK-IN
REQUIREMENT.
II
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE RESPONDENTS FAILURE TO
CHECK-IN WILL NOT DEFEAT HIS CLAIMS BECAUSE THE DENIED BOARDING RULES WERE NOT COMPLIED
WITH.
III
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE RESPONDENT IS ENTITLED
TO MORAL DAMAGES OF P200, 000.
IV
TO EXEMPLARY DAMAGES OF P200,000.
TO ATTORNEYS FEES OF P50, 000.[17]
On the first issue raised by the petitioner, the respondent Court of Appeals ruled that when Rule 9, Section 1 of the Rules of
Court,[18] there was an implied admission in petitioner's answer in the allegations in the complaint that private respondent and his son
observed the check-in requirement at the Los Angeles Airport. Thus:
A perusal of the above pleadings filed before the trial court disclosed that there exists a blatant admission on the part of the
defendant-appellee that the plaintiffs-appellants indeed observed the check-in requirement at the Los Angeles Airport on May 5,
1989. In view of defendant-appellees admission of plaintiffs-appellants material averment in the complaint, We find no reason why the
trial court should rule against such admission.[19]
We disagree with the above conclusion reached by respondent Court of Appeals. Paragraph 7 of private respondents' complaint
states:
7. On May 5, 1989 at 9:45 a.m., plaintiff and his son checked in at defendants designated counter at the airport in Los Angeles for their
scheduled flight to San Francisco on defendants Flight No. 1108.[20]
Responding to the above allegations, petitioner averred in paragraph 4 of its answer, thus:
4. Admits the allegation set forth in paragraph 7 of the complaint except to deny that plaintiff and his son checked in at 9:45 a.m., for
lack of knowledge or information at this point in time as to the truth thereof.[21]
The rule authorizing an answer that the defendant has no knowledge or information sufficient to form a belief as to the truth of
an averment and giving such answer the effect of a denial, does not apply where the fact as to which want of knowledge is asserted is
so plainly and necessarily within the defendant's knowledge that his averment of ignorance must be palpably untrue.[22] Whether or not
private respondents checked in at petitioner's designated counter at the airport at 9:45 a.m. on May 5, 1989 must necessarily be within
petitioner's knowledge.
While there was no specific denial as to the fact of compliance with the check-in requirement by private respondents, petitioner
presented evidence to support its contention that there indeed was no compliance.
Private respondents then are said to have waived the rule on admission. It not only presented evidence to support its contention
that there was compliance with the check-in requirement, it even allowed petitioner to present rebuttal evidence. In the case of Yu
Chuck vs. "Kong Li Po," we ruled that:
! of 93
The object of the rule is to relieve a party of the trouble and expense in proving in the first instance an alleged fact, the existence or
non-existence of which is necessarily within the knowledge of the adverse party, and of the necessity (to his opponents case) of
establishing which such adverse party is notified by his opponents pleadings.
The plaintiff may, of course, waive the rule and that is what must be considered to have done (sic) by introducing evidence as to the
execution of the document and failing to object to the defendants evidence in refutation; all this evidence is now competent and the
case must be decided thereupon.[23]
The determination of the other issues raised is dependent on whether or not there was a breach of contract in bad faith on the
part of the petitioner in not allowing the Fontanillas to board United Airlines Flight 1108.
It must be remembered that the general rule in civil cases is that the party having the burden of proof of an essential fact must
produce a preponderance of evidence thereon.[24]Although the evidence adduced by the plaintiff is stronger than that presented by the
defendant, a judgment cannot be entered in favor of the former, if his evidence is not sufficient to sustain his cause of action. The
plaintiff must rely on the strength of his own evidence and not upon the weakness of the defendants.[25] Proceeding from this, and
considering the contradictory findings of facts by the Regional Trial Court and the Court of Appeals, the question before this Court is
whether or not private respondents were able to prove with adequate evidence his allegations of breach of contract in bad faith.
We rule in the negative.
Time and again, the Court has pronounced that appellate courts should not, unless for strong and cogent reasons, reverse the
findings of facts of trial courts. This is so because trial judges are in a better position to examine real evidence and at a vantage point
to observe the actuation and the demeanor of the witnesses.[26] While not the sole indicator of the credibility of a witness, it is of such
weight that it has been said to be the touchstone of credibility.[27]
Aniceto Fontanillas assertion that upon arrival at the airport at 9:45 a.m., he immediately proceeded to the check-in counter,
and that Linda Allen punched in something into the computer is specious and not supported by the evidence on record. In support of
their allegations, private respondents submitted a copy of the boarding pass. Explicitly printed on the boarding pass are the
words Check-In Required. Curiously, the said pass did not indicate any seat number. If indeed the Fontanillas checked in at the
designated time as they claimed, why then were they not assigned seat numbers? Absent any showing that Linda was so motivated, we
do not buy into private respondents' claim that Linda intentionally deceived him, and made him the laughing stock among the
passengers.[28] Hence, as correctly observed by the trial court:
Plaintiffs fail to realize that their failure to check in, as expressly required in their boarding passes, is the very reason why they were
not given their respective seat numbers, which resulted in their being denied boarding.[29]
Neither do we agree with the conclusion reached by the appellate court that private respondents' failure to comply with the
check-in requirement will not defeat his claim as the denied boarding rules were not complied with. Notably, the appellate court relied
on the Code of Federal Regulation Part on Oversales, which states:
250.6 Exceptions to eligibility for denied boarding compensation.
A passenger denied board involuntarily from an oversold flight shall not be eligible for denied board compensation if:
(a) The passenger does not comply with the carriers contract of carriage or tariff provisions regarding ticketing, reconfirmation, check-
in, and acceptability for transformation.
The appellate court, however, erred in applying the laws of the United States as, in the case at bar, Philippine law is the
applicable law. Although, the contract of carriage was to be performed in the United States, the tickets were purchased through
petitioners agent in Manila. It is true that the tickets were rewritten in Washington, D.C. However, such fact did not change the nature
of the original contract of carriage entered into by the parties in Manila.
In the case of Zalamea vs. Court of Appeals,[30] this Court applied the doctrine of lex loci contractus. According to the doctrine,
as a general rule, the law of the place where a contract is made or entered into governs with respect to its nature and validity,
obligation and interpretation. This has been said to be the rule even though the place where the contract was made is different from the
place where it is to be performed, and particularly so, if the place of the making and the place of performance are the same. Hence, the
court should apply the law of the place where the airline ticket was issued, when the passengers are residents and nationals of the
forum and the ticket is issued in such State by the defendant airline.
! of 93
The law of the forum on the subject matter is Economic Regulations No. 7 as amended by Boarding Priority and Denied
Boarding Compensation of the Civil Aeronautics Board, which provides that the check-in requirement be complied with before a
passenger may claim against a carrier for being denied boarding:
SEC. 5. Amount of Denied Boarding Compensation Subject to the exceptions provided hereinafter under Section 6, carriers shall pay
to passengers holding confirmed reserved space and who have presented themselves at the proper place and time and fully
complied with the carriers check-in and reconfirmation procedures and who are acceptable for carriage under the Carriers tariffs
but who have been denied boarding for lack of space, a compensation at the rate of: xx
Private respondents' narration that they were subjected to harsh and derogatory remarks seems incredulous. However, this
Court will not attempt to surmise what really happened.Suffice to say, private respondent was not able to prove his cause of action, for
as the trial court correctly observed:
xxx plaintiffs claim to have been discriminated against and insulted in the presence of several people. Unfortunately, plaintiffs limited
their evidence to the testimony [of] Aniceto Fontanilla, without any corroboration by the people who saw or heard the discriminatory
remarks and insults; while such limited testimony could possibly be true, it does not enable the Court to reach the conclusion that
plaintiffs have, by a preponderance of evidence, proven that they are entitled to P1,650,000.00 damages from defendant.[31]
As to the award of moral and exemplary damages, we find error in the award of such by the Court of Appeals. For the plaintiff
to be entitled to an award of moral damages arising from a breach of contract of carriage, the carrier must have acted with fraud or bad
faith. The appellate court predicated its award on our pronouncement in the case of Zalamea vs. Court of Appeals, supra, where we
stated:
Existing jurisprudence explicitly states that overbooking amounts to bad faith, entitling passengers concerned to an award of moral
damages. In Alitalia Airways v. Court of Appeals, where passengers with confirmed booking were refused carriage on the last minute,
this Court held that when an airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract of
carriage arises, and the passenger has every right to expect that he would fly on that flight and on that date. If he does not, then the
carrier opens itself to a suit for breach of contract of carriage. Where an airline had deliberately overbooked, it took the risk of
having to deprive some passengers of their seats in case all of them would show up for check in. For the indignity and inconvenience
of being refused a confirmed seat on the last minute, said passenger is entitled to moral damages. (Emphasis supplied.)
However, the Courts ruling in said case should be read in consonance with existing laws, particularly, Economic Regulations
No. 7, as amended, of the Civil Aeronautics Board:
Sec 3. Scope. This regulation shall apply to every Philippine and foreign air carrier with respect to its operation of flights or portions
of flights originating from or terminating at, or serving a point within the territory of the Republic of the Philippines insofar as it
denies boarding to a passenger on a flight, or portion of a flight inside or outside the Philippines, for which he holds confirmed
reserved space. Furthermore, this Regulation is designed to cover only honest mistakes on the part of the carriers and excludes
deliberate and willful acts of non-accommodation. Provided, however, that overbooking not exceeding 10% of the seating
capacity of the aircraft shall not be considered as a deliberate and willful act of non-accommodation.
What this Court considers as bad faith is the willful and deliberate overbooking on the part of the airline carrier. The above-
mentioned law clearly states that when the overbooking does not exceed ten percent (10%), it is not considered as deliberate and
therefore does not amount to bad faith. While there may have been overbooking in this case, private respondents were not able to
prove that the overbooking on United Airlines Flight 1108 exceeded ten percent.
As earlier stated, the Court is of the opinion that the private respondents were not able to prove that they were subjected to
coarse and harsh treatment by the ground crew of United Airlines. Neither were they able to show that there was bad faith on part of
the carrier airline. Hence, the award of moral and exemplary damages by the Court of Appeals is improper.Corollarily, the award of
attorney's fees is, likewise, denied for lack of any legal and factual basis.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 37044 is hereby
REVERSED and SET ASIDE. The decision of the Regional Trial Court of Makati City in Civil Case No. 89-4268 dated April 8, 1991
is hereby REINSTATED.
SO ORDERED.
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G.R. No.

83551 July 11, 1989

RODOLFO B. ALBANO, petitioner,

The petition is devoid of merit.

1. Executive Order No. 30, dated July 16, 1986, provides:

a) The corporate duties of the Authority shall be:

xxx xxx xxx

xxx xxx xxx

— 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

xxx xxx xxx

WHEREFORE, the petition is hereby DISMISSED.

G.R. No. 115381 December 23, 1994

KILUSANG MAYO UNO LABOR CENTER, petitioner,

The relevant antecedents are as follows:

For compliance. (Emphasis ours.)

REGULAR P1.50 P0.37

REGULAR P1.60 P0.375

AIRCON (PER KM.) P0.415.4

For the compliance of all concerned. (Emphasis ours)

On February 17, 1993, the LTFRB issued Memorandum Circular

xxx xxx xxx

IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.

xxx xxx xxx

V. Rate and Fare Setting

A. On the General Structure of Rates

xxx xxx xxx

We find the instant petition impressed with merit.

xxx xxx xxx

xxx xxx xxx

Now on the merits of the case.

On the fare range scheme.

Section 16(c) of the Public Service Act, as amended, reads:

xxx xxx xxx

Year** LTFRB authorized Fare Range Fare to be

1990 P0.37 15% (P0.05) P0.42

On the presumption of public need.

B. The petitioner's application is deficient in form and substance in that:

In view thereof, the opposition of PAL on this ground is hereby denied.

Hence this petition, filed on April 3, 1995.

Dr. Arturo C. Corona

Please be guided accordingly.

(SGD.) SEDFREY A. ORDOEZ

We do not agree with the petitioner.

(f) To promote safety of flight in air commerce in the Philippines; and,

(g) The encouragement and development of civil aeronautics.

G.R. No. L-24701 December 16, 1970

xxx xxx xxxchanrobles virtual law library

RAMON J. GUICO, petitioner,

Bangued (Abra) — Manila and vice versa;

G.R. No. L-20993 September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner,

G.R. No. L-21221 September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner,

These two cases, being interrelated, are decided together.

We shall now discuss the appeals in these two cases separately.

G.R. No. L-20993

Proceedings of December 15, 1960

ATTY. LUQUE (Councel for Petitioner):

RODOLFO B. ALBANO, petitioner,  

KILUSANG MAYO UNO LABOR CENTER, petitioner,  

REGULAR P1.50 P0.37 

REGULAR P1.60 P0.375 

On February 17, 1993, the LTFRB issued Memorandum Circular 

Year** LTFRB authorized Fare Range Fare to be 

1990 P0.37 15% (P0.05) P0.42 

RAMON J. GUICO, petitioner,  

Bangued (Abra) — Manila and vice versa; 

RIZAL LIGHT & ICE CO., INC., petitioner,  

RIZAL LIGHT & ICE CO., INC., petitioner,  

VILLA REY TRANSIT, INC., plaintiff-appellant,  

PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant,  

PHILIPPINE LONG DISTANCE TELEPHONE CO. [PLDT], petitioner,  

BATANGAS TRANSPORTATION CO., petitioner-appellant,  

RAYMUNDO TRANSPORTATION CO., INC., petitioner,  

LITA ENTERPRISES, INC., petitioner,  

BA FINANCE CORPORATION, petitioner,  