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I. GENERAL CONSIDERATIONS
A. PUBLIC UTILITIES
1. ART XII, CONSTITUTION
1987 Constitution, Art. XII, Sec. 11. No franchise, certificate, or any other
form of authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens; nor shall such franchise, certificate,
or authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The participation
of foreign investors in the governing body of any public utility enterprise
shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association must be
citizens of the Philippines.
1987 Constitution, Art. XII, Sec. 17. In times of national emergency, when
the public interest so requires, the State may, during the emergency and
under reasonable terms prescribed by it, temporarily take over or direct the
operation of any privately-owned public utility or business affected with
public interest.
1987 Constituion, Art. XII, Sec. 18. The State may, in the interest of national
welfare or defense, establish and operate vital industries and, upon payment
of just compensation, transfer to public ownership utilities and other private
enterprises to be operated by the Government.
1987 Constitution, Art. XII, Sec. 19. The State shall regulate or prohibit
monopolies when the public interest so requires. No combinations in
restraint of trade or unfair competition shall be allowed.
REPUBLIC V. MERALCO
- In 1993, MERALCO filed with the Energy Regulatory Board (ERB) an
application for revision of rate schedules indicating an average
increase of P0.21/kwh in its distribution charge
- the ERB issued an Order granting a provisional increase of P0.184/kwh
subject to the condition that should the ERB, using COA audits, find
that MERALCO is entitled to a lesser increase, all excess amounts
charged shall either be refunded or credited to customers
- COA submitted a report with the recommendation that:
o income taxes paid by MERALCO should not be held as part of
its operating expenses for the purposes of rate
determination; and
o the net average investment method should be used for the
computation of the proportionate value of the properties
used by MERALCO during the test year for the determination
of the rate base
- adopting the above recommendations, the ERB superseded the
provisional rates with the new rate adjustment of P0.017 starting Feb
1994 and ordered MERALCO to refund or credit to its customers the
excess average amounts of P0.167/kwh charged from Feb 1994 to Feb
1998
- CA set aside the ERB decision insofar as the reduction of the rates and
the refund of the supposed excess amount are concerned
Issue:
w/n the income tax paid by MERALCO should be treated as part of its operating
expenses for the purposes of rate determination
w/n the net average investment method should be used for computation of
base rate
Held:
1. No, operating expenses are those expense items which contribute or are
attributable to the production of income or revenue; a recurring requisite for
operation which redounds to the benefit of customers. Income tax is imposed
on a person as a tax on the privilege of earning income in exchange for State

benefits and/or services. It should be borne by the taxpayer alone, and should
not be passed on to consumers.
The public utility cannot indiscriminately charge any and all types of expenses
incurred without regard to the nature thereof. Likewise, with regard to rate-
determination, the government is not bound to apply any particular method or
formula. What constitutes a reasonable return is determined by its peculiar
environmental milieu. Moreover, American law and jurisprudence is unavailing
here due to notable differences such as a different taxation system for public
utilities.
2. Yes, the net average investment method, as recommended by COA and used
by the ERB, accurately reflects the real status of the property. This is consistent
with the rule in rate regulation that the determination of the base rate 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.
Furthermore, MERALCO’s claim that immediate recordings of the property and
equipment put into service are not possible is refuted by the COA report.
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;
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
Another, the second method can be easily manipulated since MERALCO may
simply include a highly capitalized asset even though it was used for a very
short period. This inexactitude is subject to abuse by the public utility.
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On police power and public utilities:
The regulation of rates charged by public utilities is part and parcel of the police
powers of the State. When private property is used for a public purpose and is
affected with public interest, it ceases to be juris privati only and becomes
subject to regulation. In regulating rates charged by public utilities, the State
protects the public against arbitrary and excessive rates while maintaining the
efficiency and quality of services rendered. However, the power to regulate
rates does not give the State the right to prescribe rates which are so low as to
deprive the public utility of a reasonable return on investment. The fixing of
just and reasonable rates involves a balancing of the investor and the consumer
interests.
The power to fix rates is a legislative function, whether exercised by the
legislature itself or delegated through an administrative agency, while the
determination of whether the rates are reasonable and just is a purely judicial
question and is subject to the review of the courts.
The ERB was created to regulate distribution of energy resources and fix rates
with the standard that the rate be reasonable and just, that is, calling for the
exercise of discretion, good sense, and a fair, enlightened and independent
judgment. It must not be so low as confiscatory or so high as to be oppressive.
On factual findings of specialized governmental agencies:
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
On just and reasonable rates:

Three major factors are considered: (a) rate of return; (b) rate base; and (c)
computed returns. The Court has consistently adopted a 12% rate of return for
public utilities.
2. CA 146
C.A .146, Sec. 13 (b). The term "public service" includes every person that
now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, sub-way motor
vehicle, either for freight or passenger, or both with or without fixed route
and whether may be its classification, freight or carrier service of any class,
express service, steamboat or steamship line, pontines, ferries, and water
craft, engaged in the transportation of passengers or freight or both,
shipyard, marine railways, marine repair shop, [warehouse] wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light,
heat and power water supply and power, petroleum, sewerage system, wire
or wireless communications system, wire or wireless broadcasting stations
and other similar public services: Provided, however, That a person engaged
in agriculture, not otherwise a public service, who owns a motor vehicle and
uses it personally and/or enters into a special contract whereby said motor
vehicle is offered for hire or compensation to a third party or third parties
engaged in agriculture, not itself or themselves a public service, for operation
by the latter for a limited time and for a specific purpose directly connected
with the cultivation of his or their farm, the transportation, processing, and
marketing of agricultural products of such
ALBANO V. REYES / GR 83551 / 11 JUL 1989 / J. PARAS -
ABDON
FACTS
Petitioner Cong. Rodolfo Albano seeks to restrain the Phil. Ports Authority
from awarding to International Container Terminal Services, Inc. (ICTSI) the
contract for development, management and operation of the Manila
International Container Terminal(MICT)
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ICTSI won the bids on July 1987. but before the contract could be signed, two
cases were filed to restrain it, one by a "concerned taxpayer" and the other
by a member of another failed bid, which were subsequently lifted by the
Court. On May 1988, President Cory signed the MICT contract, and the next
day the PPA and ICTSI perfected it incorporating "clarificatory guidelines".
Cong. Albano then filed this petition as a citizen and member of the House
alleging that since MICT is a public utility, it needs a legislative franchise
before it can legally operate, pursuant to Art. 12 §11 of the 1987 Constitution.
ISSUE
WON the development, management and operation of the MICT needs a
franchise specially granted by Congress.
HELD
No.
1. The PPA, created by PD 857 (Revised Charter of the PPA) and given
the authority to take over the management of the MICT via EO 30 is
already expressly empowered by its charter in §6(v) "to provide
services (whether on its own, by contract, or otherwise)" to undertake
the providing of cargo handling and port related services. Therefore
under the terms of these laws it may contract with ICTSI.
2. Even if the MICT be considered a public utility or public service on the
theory is is a "wharf" or "dock" contemplated under the Public Service
Act §13(b), it does not need a specific franchise from Congress.
Reading EO 30 and PD 857 together, the conclusion is that the
lawmaker has authorized the PPA to undertake by itself the
management and operation of the MICT or authorize the same via
contract, at its option. The power has been delegated to the PPA, thus
a Congressional franchise is unnecessary.
3. The determination of WON the winning bidder is qualified to
undertake the service is best left to the judgment of the PPA. As an
administrative agency, it is in the best position to evaluate each of the
bids, and neither the Court or Congress has the technical expertise
over the matter.

TATAD V. GARCIA - ADORNA
Francisco Tatad, John Osmeña, and Rodolfo Biazon v. Jesus B. Garcia
(DOTC Secretary) and EDSA LRT Corp. (1995)
Quiason, J.
FACTS
This case challenges (Rule 65) the validity of the Build-Lease-Transfer
contract signed by the government and ESDA LRT Consortium (a foreign
company) to build the EDSA LRT III. The primary law in effect was RA 6957
which detailed the manner in which the private sector could participate in
public infrastructure projects through Build-Operate-Transfer (BOT) and
Build-Transfer (BT) contracts.
Sequence of events in negotiation and perfection of the Build Lease Contract
1. July 1990 – RA 6957 passed
2. Jan 1991 – DOTC establishes Prequalification Bids and Awards
Committee (PBAC) which then solicited prequalification bidders
through public notice.
3. Mar-Apr 1991 – 5 groups expressed interest and submitted pre-
qualification documents (one of which was EDSA LRT Consortium)
4. May 1991 – Only EDSA LRT Consortium passed the prequalification
stage and all other bids were declared ineligible.
5. DOTC negotiated and presented for presidential approval
Agreement to Build, Lease, and Transfer LRT System for EDSA.
6. The contract was initially rejected by then executive secretary
Drilon because (a) no actual bidding took place (b) law authorizes
bidding as the exclusive mode of awarding contracts (c) IRR of BOT
Law was unconstitutional (d) congressional approval had not been
given for LRT projects.
7. The contract was amended and eventually submitted by respondent
DOTC Secretary Garcia for approval which was approved by
President Ramos.
Terms of the contract
1. EDSA LRT Consortium will finance, construct, and provide
equipment to carry 450,000 passengers per day along 17.8km of
EDSA. Construction within 3 years.
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2. After construction – DOTC will lease and operate the assets for a
period of 25 years. After 25 years, the assets will transfer for a
nominal fee of $1.00.
ISSUES
1. WON EDSA LRT Consortium, a foreign company, can own EDSA LRT
III a public utility. (YES)
2. WON the Build-Lease-Transfer is allowed under the BOT Law. (YES)
3. WON Congressional approval is required prior to awarding rail
infrastructure contracts (YES, but lack of approval does not
invalidate contract).
4. WON the rules on public bidding were violated (NO)
5. WON terms are gross disadvantageous to the government (NO)
Can a foreign company own a public utility?
1. Sec 11, Article XII of 1987 Constitution restricts the “operation of
public utility” not necessarily the ownership of such to domestic
companies with minimum 60% Filipino ownership.
2. Ownership is separate from the right to operate. A franchise to
operate a rail system is awarded to an entity to transport passengers
from one point to another point. It is a service to the public.
3. In this case, DOTC is the operator and franchise owner of the public
utility, not EDSA LRT Corp.
a. EDSA LRT Corp. “will not run the light rail vehicles and
collect fees from the riding public. It will have no dealings
with the public and the public will have no right to demand
any services from it.
4. Even the mere formation of a public utility corporation does not ipso
facto characterize the corporation as one operating a public utility.
The moment for determining the requisite Filipino nationality
is when the entity applies for a franchise, certificate, or any
other form for authorization for that purpose.
Was Build-Lease-Transfer allowed under the BOT Law?
1. The BOT Law only describes BOT and BT transactions, but is not
limited to such and does not contemplate to list of all possible
permutations.

2. Build-Lease-Transfer is a variation of BT. Also known as a lease-
purchase transaction.
Was Congressional approval necessary?
1. Yes but lack thereof does not suffice to invalidate the award.
Besides, the inclusion subsequently of rail based projects in List of
National Projects by Congress ratified the prior EDSA LRT III
contract.
Was public bidding requirement violated?
1. Petitioners and Executive Sec. Drilon contend that a public bidding
was not conducted as required by Section 5 of BOT Law.
2. SC ruled that:
a. Pre-qualification bidding ineligibilities left only one bidder.
Absurd to still conduct public bidding.
b. Must read RA 6957 with PD 1594 (Rules for Government
Infrastructure Contracts).  the latter allows for bidding
exceptions if, inter alia, there is a lack of qualified bidders.
c. Furthermore, Congress later passed RA 7718 which (a)
defines BLT schemes (b) allows for direct negotiation of
contracts if only one bidder remains. The passage of RA
7718 rendered moot any issues with the BLT scheme or lack
of bidding.
d. Finally, if there was foul play in the prequalification bidding
process, how come none of the other bidders filed a
complaint?
Was the transaction disadvantageous to the government?
1. NO. Presumption of regularity. DOTC is the expert agency and it
arrived at the terms after painstaking study.
DISSENT (Davide Jr.)
1. Contract was void because entered into without public bidding
which is a condition precedent to award of infrastructure project
under BOT contract. At least two bidders required. DOTC should
have reopened prequalification to give prior bidders a second
chance or accept new bidders.
2. BLT was not a scheme allowed under the BOT law which only
recognizes BOT and BT schemes.
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3. RA 7718 cannot be applied retroactively to pre-existing contracts
because no such provision was expressly included in the law.
Additional DISSENT (Feliciano)
1. Cannot read RA 6957 with PD 1594 because the latter is a general
law. The former is specific to BOT and BT type agreements and it
contains unqualified requirement of public bidding.
PAL V. CAB [270 SCRA 538] - BRILLO
FACTS
 GrandAir applied for a Certificate of Public Convenience and Necessity
and Temporary permit from CAB.
 PAL opposed the application since GrandAir has yet to obtain a
legislative franchise which according to PAL was mandated by the
Constitution.
ISSUE:
WON 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.
RULING
CAB has authority to issue CPCN even if the applicant has no legislative
franchise. There is nothing in the law or Constitution which indicates that a
legislative franchise is an indispensable requirement for an entity to operate
as a domestic air transport operator. Although Congress has control over any
franchise, certificate or authority to operate a public utility, it has however
validly delegated such power to CAB over domestic air transport in RA 776.
Congress has granted certain administrative agencies the power to
grant licenses for, or to authorize the operation of certain public utilities.
With the growing complexity of modern life, the multiplication of the subjects
of governmental regulation, and the increased difficulty of administering the
laws, there is a constantly growing tendency towards the delegation of
greater powers by the legislature, and towards the approval of the practice
by the courts. It is generally recognized that a franchise may be derived
indirectly from the state through a duly designated agency, and to this extent,
the power to grant franchises has frequently been delegated, even to

agencies other than those of a legislative nature. In pursuance of this, it has
been held that privileges conferred by grant by local authorities as agents for
the state constitute as much a legislative franchise as though the grant had
been made by an act of the Legislature.
B. TRANSPORTATION
PUBLIC SERVICE ACT
Section 13. (a) The Commission shall have jurisdiction, supervision, and
control over all public services and their franchises, equipment, and other
properties, and in the exercise of its authority, it shall have the necessary
powers and the aid of the public force: Provided, That public services owned
or operated by government entities or government-owned or controlled
corporations shall be regulated by the Commission in the same way as
privately-owned public services, but certificates of public convenience or
certificates of public convenience and necessity shall not be required of such
entities or corporations: And provided, further, That it shall have no
authority to require steamboats, motor ships and steamship lines, whether
privately-owned, or owned or operated by any Government controlled
corporation or instrumentality to obtain certificate of public convenience or
to prescribe their definite routes or lines of service.
(b) The term "public service" includes every person that now or hereafter
may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, sub-way motor
vehicle, either for freight or passenger, or both with or without fixed route
and whether may be its classification, freight or carrier service of any class,
express service, steamboat or steamship line, pontines, ferries, and water
craft, engaged in the transportation of passengers or freight or both,
shipyard, marine railways, marine repair shop, [warehouse] wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light,
heat and power water supply and power, petroleum, sewerage system, wire
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or wireless communications system, wire or wireless broadcasting stations
and other similar public services: Provided, however, That a person engaged
in agriculture, not otherwise a public service, who owns a motor vehicle and
uses it personally and/or enters into a special contract whereby said motor
vehicle is offered for hire or compensation to a third party or third parties
engaged in agriculture, not itself or themselves a public service, for operation
by the latter for a limited time and for a specific purpose directly connected
with the cultivation of his or their farm, the transportation, processing, and
marketing of agricultural products of such third party or third parties shall
not be considered as operating a public service for the purposes of this Act.
(c) The word "person" includes every individual, co-partnership, joint-stock
company or corporation, whether domestic or foreign, their lessees, trustees,
or receivers, as well as any municipality, province, city, government-owned
or controlled corporation, or agency of the Government of the Philippines,
and whatever other persons or entities that may own or possess or operate
public services. (As amended by Com. Act 454 and RA No. 2677)
Section 14. The following are exempted from the provisions of the preceding
section:
(a) Warehouses;
(b) Vehicles drawn by animals and bancas moved by oar or sail, and tugboats
and lighters;
(c) Airships within the Philippines except as regards the fixing of their
maximum rates on freight and passengers;
(d) Radio companies except with respect to the fixing of rates;
(e) Public services owned or operated by any instrumentality of the National
Government or by any government-owned or controlled corporation, except
with respect to the fixing of rates. (As amended by Com. Act 454, RA No. 2031,
and RA No. 2677 )

Section 15. With the exception of those enumerated in the preceding section,
no public service shall operate in the Philippines without possessing a valid
and subsisting certificate from the Public Service Commission known as
"certificate of public convenience," or "certificate of public convenience and
necessity," as the case may be, to the effect that the operation of said service
and the authorization to do business will promote the public interests in a
proper and suitable manner.
The Commission may prescribe as a condition for the issuance of the
certificate provided in the preceding paragraph that the service can be
acquired by the Republic of the Philippines or any instrumentality thereof
upon payment of the cost price of its useful equipment, less reasonable
depreciation; and likewise, that the certificate shall be valid only for a
definite period of time; and that the violation of any of these conditions shall
produce the immediate cancellation of the certificate without the necessity
of any express action on the part of the Commission.
In estimating the depreciation, the effect of the use of the equipment, its
actual condition, the age of the model, or other circumstances affecting its
value in the market shall be taken into consideration.
The foregoing is likewise applicable to any extension or amendment of
certificates actually in force and to those which may hereafter be issued, to
permit to modify itineraries and time schedules of public services, and to
authorizations to renew and increase equipment and properties.
Section 16. Proceedings of the Commission, upon notice and hearing. - The
Commission shall have power, upon proper notice and hearing in accordance
with the rules and provisions of this Act, subject to the limitations and
exceptions mentioned and saving provisions to the contrary :
(a) To issue certificates which shall be known as certificates of public
convenience, authorizing the operation of public service within the
Philippines whenever the Commission finds 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. Provided, That thereafter,
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certificates of public convenience and certificates of public convenience and
necessity will be granted only to citizens of the Philippines or of the United
States or to corporations, co-partnerships, associations or joint-stock
companies constituted and organized under the laws of the Philippines;
Provided, That sixty per centum of the stock or paid-up capital of any such
corporations, co-partnership, association or joint-stock company must
belong entirely to citizens of the Philippines or of the United States: Provided,
further, That no such certificates shall be issued for a period of more than
fifty years.
(b) To approve, subject to constitutional limitations any franchise or
privilege granted under the provisions of Act No. Six Hundred and Sixty-
seven, as amended by Act No. One Thousand and twenty-two, 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
franchise.
(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.

(d) To fix just and reasonable standards, classifications, regulations,
practices, measurement, or service to be furnished, imposed, observed, and
followed thereafter by any public service.
(e) To ascertain and fix adequate and serviceable standards for the
measurement of quantity, quality, pressure, initial voltage, or other condition
pertaining to the supply of the product or service rendered by any public
service, and to prescribe reasonable regulations for the examination and test
of such product or service and for the measurement thereof.
(f) To establish reasonable rules, regulations, instructions, specifications,
and standards, to secure the accuracy of all meters and appliances for
measurements.
(g) To compel any public service to furnish safe, adequate, and proper service
as regards the manner of furnishing the same as well as the maintenance of
the necessary material and equipment.
(h) To require any public service to establish, construct, maintain, and
operate any reasonable extension of its existing facilities, where in the
judgment of said Commission, such extension is reasonable and practicable
and will furnish sufficient business to justify the construction and
maintenance of the same and when the financial condition of the said public
service reasonably warrants the original expenditure required in making and
operating such extension.
(i) To direct any railroad, street railway or traction company to establish and
maintain at any junction or point of connection or intersection with any other
line of said road or track, or with any other line of any other railroad, street
railway or traction to promote, such just and reasonable connection as shall
be necessary to promote the convenience of shippers of property, or of
passengers, and in like manner direct any railroad, street railway, or traction
company engaged in carrying merchandise, to construct, maintain and
operate, upon reasonable terms, a switch connection with any private
sidetrack which may be constructed by any shipper to connect with the
railroad, street railway or traction company line where, in the judgment of
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the Commission, such connection is reasonable and practicable and can be
out in with safety and will furnish sufficient business to justify the
construction and maintenance of the same.
(j) To authorize, in its discretion, any railroad, street railway or traction
company to lay its tracks across the tracks of any other railroad, street
railway or traction company or across any public highway.
(k) To direct any railroad or street railway company to install such safety
devices or about such other reasonable measures as may in the judgment of
the Commission be necessary for the protection of the public are passing
grade crossing of (1) public highways and railroads, (2) public highways and
streets railway, or (3) railways and street railways.
(l) To fix and determine proper and adequate rates of depreciation of the
property of any public service which will be observed in a proper and
adequate depreciation account to be carried for the protection of
stockholders, bondholders or creditors in accordance with such rules,
regulations, and form of account as the Commission may prescribe. Said rates
shall be sufficient to provide the amounts required over and above the
expense of maintenance to keep such property in a state of efficiency
corresponding to the progress of the industry. Each public service shall
conform its depreciation accounts to the rates so determined and fixed, and
shall set aside the moneys so provided for out of its earnings and carry the
same in a depreciation fund. The income from investments of money in such
fund shall likewise be carried in such fund. This fund shall not be expended
otherwise than for depreciation, improvements, new construction,
extensions or conditions to the properly of such public service.
(m) To amend, modify or revoke at any time certificate issued under the
provisions of this Act, whenever the facts and circumstances on the strength
of which said certificate was issued have been misrepresented or materially
changed.
(n) To suspend or revoke any certificate issued under the provisions of this
Act whenever the holder thereof has violated or willfully and contumaciously

refused to comply with any order rule or regulation of the Commission or
any provision of this Act: Provided, That the Commission, for good cause,
may prior to the hearing suspend for a period not to exceed thirty days any
certificate or the exercise of any right or authority issued or granted under
this Act by order of the Commission, whenever such step shall in the
judgment of the Commission be necessary to avoid serious and irreparable
damage or inconvenience to the public or to private interests.
(o) To fix, determine, and regulate, as the convenience of the state may
require, a special type for auto-busses, trucks, and motor trucks to be
hereafter constructed, purchased, and operated by operators after the
approval of this Act; to fix and determine a special registration fee for auto-
buses, trucks, and motor trucks so constructed, purchased and operated:
Provided, That said fees shall be smaller than more those charged for auto-
busses, trucks, and motor trucks of types not made regulation under the
subsection.
CHAPTER III
OPERATORS OF PUBLIC SERVICES REGULATIONS AND PROHIBITIONS
Section 18. It shall be unlawful for any individual, co-partnership,
association, corporation or joint-stock company, their lessees, trustees or
receivers appointed by any court whatsoever, or any municipality, province,
or other department of the Government of the Philippines to engage in any
public service business without having first secured from the Commission a
certificate of public convenience or certificate of public convenience and
necessity as provided for in this Act, except grantees of legislative franchises
expressly exempting such grantees from the requirement of securing a
certificate from this Commission as well as concerns at present existing
expressly exempted from the jurisdiction of the Commission, either totally or
in part, by the provisions of section thirteen of this Act.
Section 19. Unlawful Acts. - It shall be unlawful for any public service:
(a) To provide or maintain any service that is unsafe, improper, or
inadequate or withhold or refuse any service which can reasonably be
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demanded and furnished, as found and determined by the Commission in a
final order which shall be conclusive and shall take effect in accordance with
this Act, upon appeal of otherwise.
(b) To make or give, directly or indirectly, by itself or through its agents,
attorneys or brokers, or any of them, discounts or rebates on authorized
rates, or grant credit for the payment of freight charges, or any undue or
unreasonable preference or advantage to any person of corporation or to any
locality or to any particular description of traffic or service, or subject any
particular person or corporation or locality or any particular description of
traffic to any prejudice or disadvantage in any respect whatsoever; to adopt,
maintain, or enforce any regulation, practice or measurement which shall be
found or determined by the Commission to be unjust, unreasonable, unduly
preferential or unjustly discriminatory in a final order which shall be
conclusive and shall take effect in accordance with the provisions of this Act,
upon repeal or otherwise.
(c) To refuse or neglect, when requested by the Director of Posts or his
authorized representative, to carry public mail on the regular trips of any
public land transportation service maintained or operated by any such public
service; upon such terms and conditions and for a consideration in such
amount as may be agreed upon between the Director of Posts and the public
service carrier of fixed by the Commission in the absence of an agreement
between the Director of Posts and the carrier. In case the Director of Posts
and public service carrier are unable to agree on the amount of the
compensation to be paid for the carriage of the mail, the Director of Posts
shall forthwith request the Commission to fix a just and reasonable
compensation for such carriage and the same shall be promptly fixed by the
Commission in accordance with Section sixteen of this Act.
Section 20. Acts requiring the approval of the Commission. - Subject to
established limitations and exceptions and saving provisions to the contrary,
it shall be unlawful for any public service or for the owner, lessee or operator
thereof, without the approval and authorization of the Commission
previously had -

(a) To adopt, establish, fix, impose, maintain, collect or carry into effect any
individual or joint rates, commutation, mileage or other special rate, toll, fare,
charge, classification or itinerary. The Commission shall approve only those
that are just and reasonable and not any that are unjustly discriminatory or
unduly preferential, only upon reasonable notice to the public services and
other parties concerned, giving them a reasonable opportunity to be heard
and the burden of the proof to show that the proposed rates or regulations
are just and reasonable shall be upon the public service proposing the same.
(b) To establish, construct, maintain, or operate new units or extend existing
facilities or make any other addition to or general extension of the service.
(e) Hereafter to issue any stock or stock certificates representing an increase
of capital; or issue any share of stock without par value; or issue any bonds
or other evidence of indebtedness payable in more than one year from the
issuance thereof, provided that it shall be the duty of the Commission, after
hearing, to approve any such issue maturing in more than one year from the
date thereof, when satisfied that the same is to be made in accordance with
law, and the purpose of such issue be approved by the Commission. (f) To
capitalize any franchise in excess of the amount, inclusive of any tax or annual
charge, actually paid to the Government of the Philippines or any political
subdivision thereof as the consideration of said franchise; capitalize any
contract for consolidation, merger or lease, or issue any bonds or other
evidence of indebtedness against or as a lien upon any contract for
consolidation, merger, or lease: Provided, however, that the provisions of
this section shall not prevent the issuance of stock, bonds, or other evidence
of indebtedness subject to the approval of the Commission by any lawfully
merged or consolidated public services not in contravention of the
provisions of this section.
(g) To sell, alienate, mortgage, encumber or lease its property, franchises,
certificates, privileges, or rights or any part thereof; or merge or consolidate
its property, franchises privileges or rights, or any part thereof, with those of
any other public service. The approval herein required shall be given, after
notice to the public and hearing the persons interested at a public hearing, if
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it be shown that there are just and reasonable grounds for making the
mortgaged or encumbrance, for liabilities of more than one year maturity, or
the sale, alienation, lease, merger, or consolidation to be approved, and that
the same are not detrimental to the public interest, and in case of a sale, the
date on which the same is to be consummated shall be fixed in the order of
approval: Provided, however, that nothing herein contained shall be
construed to prevent the transaction from being negotiated or completed
before its approval or to prevent the sale, alienation, or lease by any public
service of any of its property in the ordinary course of its business.
(h) To sell or register in its books the transfer or sale of shares of its capital
stock, if the result of that sale in itself or in connection with another previous
sale, shall be to vest in the transferee more than forty per centum of the
subscribed capital of said public service. Any transfer made in violation of
this provision shall be void and of no effect and shall not be registered in the
books of the public service corporation. Nothing herein contained shall be
construed to prevent the holding of shares lawfully acquired. (As amended
by Com. Act No. 454.)
(i) To sell, alienate or in any manner transfer shares of its capital stock to any
alien if the result of that sale, alienation, or transfer in itself or in connection
with another previous sale shall be the reduction to less than sixty per
centum of the capital stock belonging to Philippine citizens. Such sale,
alienation or transfer shall be void and of no effect and shall be sufficient
cause for ordering the cancellation of the certificate.
Y TRANSIT V. NLRC / ROMERO / 1994 - BUENAVENTURA
FACTS
1. On 24 October 1978, Yujuico Transit Co., Inc. (Yujuico) transferred
ownership of ten buses to Jesus Yujuico (Jesus) as a consequence of the
latter’s transfer of property to DBP to satisfy the former’s obligations.
2. Sometime in June and July 1979, respondent Yujuico Transit
Employees Union (Union) filed two consolidated complaints against Yujuico
for unfair labor practice and for non-payment of living allowances.

3. Meanwhile, on 21 May 1980, Jesus sold the buses to petitioner Y
Transit Co., Inc. .
4. On 21 July 1981, the LA dismissed the complaint for unfair labor
practice but held Yujuico liable for non-payment of living allowances and
the buses were levied upon to satisfy the writ of execution.
5. Y filed Affidavits of Third Party Claim, which Union opposed on the
grounds that: (1) the transactions leading to the transfer of the buses to Y
were void because they lacked the approval of the BOT as required by the
Public Service Act; and (2) the buses were still registered in the name of
Yujuico which means it is still the lawful owner.
6. The LA found that Y had valid title to the buses and that the BOT, by
its subsequent acts, had approved the transfer; he further ruled that
registration is not the operative act that transfers ownership and that, in
addition, Y had already constructively registered the vehicles.
7. On appeal the NLRC reversed the decision on the ground that the
transfer of the buses lacked the BOT approval.
ISSUES/HELD
Were the transfer of the buses, without BOT approval, valid insofar as the
respondents are concerned? – NO.
RATIONALE
• The law really requires the approval of the Public Service
Commission in order that a franchise, or any privilege pertaining thereto,
may be sold or leased without infringing the certificate issued to the
grantee.
o Since a franchise is personal in nature, any transfer or lease thereof
should be notified to the PSC so that the latter may take proper safeguards
to protect the interest of the public.
o In fact, the law requires that, before the approval is granted, there
should be a public hearing with notice to all interested parties in order that
the commission may determine if there are good and reasonable ground
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justifying the transfer or lease of the property covered by the franchise, or
is the sale or lease is detrimental to public interest.
• If the property covered by the franchise is transferred, or leased to
another without obtaining the requisite approval, the transfer is not
binding against the PSC and, in contemplation of law, the grantee continues
to be responsible under the franchise.
• The last part of Section 16 (h) (which states that “nothing herein
contained shall be construed to prevent the sale, alienation, or lease by any
public utility of any of its property in the ordinary course of business”) does
not mean that the approval of the PSC is a mere formality and that the
transfer or lease is still binding; said provision only means that, even if the
approval has not been obtained, the transfer or lease is valid and binding
between the parties although not effective against the public and the PSC as
the approval is only necessary to protect public interest.
• There being no prior BOT approval in the transfer of the property
from Yujuico to Jesus, it only follows that, as far as the BOT and third parties
are concerned, Yujuico still owned the properties and Jesus, and later Y,
only held the same as agents of the former.
• Conversely, where the registered owner is liable for obligations to
third parties and vehicles registered under his name are levied upon to
satisfy his obligations, the transferee of such vehicles cannot prevent the
levy by asserting his ownership because, as far as the law is concerned, the
one in whose name the vehicle is registered remains to be the owner and
the transferee merely holds the vehicles for the registered owner.
o However, this does not deprive the transferee of the right to
recover from the registered owner any damages which may have been
incurred by the former since the transfer or lease is valid and binding
between the parties.