PHILIPPINE LONG DISTANCE TELEPHONE” COMPANY, PETITIONER, VS. CITY OF DAVAO AND THE PUBLIC SERVICE COMMISSION, RESPONDENTS, ITT PHILIPPINES, INC. INTERVENOR.

Philippine Long Distance Telephone versus City of Davao

The Case

This is a petition for prohibition and mandamus filed by the Philippine Long Distance Telephone Company against the City of Davao and the Public Service Commission, with ITT Philippines, Incorporated intervening. The telephone company asks the Court to stop Davao City from carrying out its contract for the installation of a city telephone system, and to compel the Public Service Commission to require the City to first obtain a certificate of public convenience and necessity. The case matters because it fixes the reach of the general welfare clause in a city charter: it tells us when a local government may enter a public utility on its own, and when a prior operator's franchise bars it. It is a staple in questions on municipal corporations, police power, and the prior operator rule.

Procedural History

The telephone company filed its suit for prohibition and mandamus directly in the Supreme Court in 1964. The Public Service Commission answered, Davao City answered, and ITT Philippines, Incorporated was allowed to intervene and filed its answer in intervention. The telephone company twice applied for a preliminary injunction, and both applications were denied. After the case was submitted for decision, Congress enacted the Revised Charter of Davao City, and the intervenor moved to dismiss on the ground that the case had become moot. The Court decided the case on the merits and later resolved a motion for reconsideration.

Facts

On August 7, 1963 and December 27, 1963, the Davao City Council passed two resolutions authorizing the establishment and maintenance of a city-wide telephone system, owned, maintained, and operated by the City itself. The resolutions recited an urgent necessity: the existing service was inadequate, the demand for connections kept rising, and the National Government had already contracted for a nationwide telephone network that included a one thousand line automatic system for Davao City. The City wanted to own and operate that system so it could expand it to at least three thousand lines and extend service to ten outlying districts.

Pursuant to the resolutions, Davao City entered into a contract with ITT Philippines, Incorporated on February 26, 1964, under which the latter agreed to install and deliver the telephone system for three million five hundred eighty-seven thousand pesos. A down payment of seven hundred seventeen thousand pesos was paid on May 29, 1964, and ITT was given eighteen months, or until November 29, 1966, to deliver. By the time of the suit, practically all the materials had arrived and construction was well advanced.

The telephone company had operated a city-wide telephone system in Davao since 1931. Its existing system covered only the poblacion, and its expansion plans did not appear to include the ten nearby districts. It did not question the immediate need for three thousand additional lines in Davao City, but it had not supplied that need and had no immediate plan to do so. The Court took judicial notice that Davao City, with an area of nine hundred forty-two square miles, is one of the biggest cities in the world, and is the main port and commercial center of Southern Mindanao.

Issues

• Whether or not Davao City has the power to establish and operate a telephone system under the general welfare clause of its charter.
• Whether or not Davao City must first secure a certificate of public convenience and necessity from the Public Service Commission.
• Whether or not the entry of Davao City as a new telephone operator violates the telephone company's vested rights as prior operator.

Applicable Provisions

Section 14, paragraph ee, of the Charter of Davao City, Commonwealth Act 51, provides:

To enact all ordinances it may deem necessary and proper for the sanitation and safety, the furtherance of the prosperity, and the promotion of the morality, peace, good order, comfort, convenience and general welfare of the city and its inhabitants, and such others as may be necessary to carry into effect and discharge the powers and duties conferred by this charter; and to fix penalties for the violation of ordinances which shall not exceed a two hundred-peso fine or six months imprisonment, or both such fine and imprisonment, for a single offense.

This is the clause the Court reads as authorizing the City to build and run its own telephone system.

Section 14 of Act Number 3436, the telephone company's franchise, provides:

The rights herein granted shall not be exclusive, and the rights and power to grant any corporation, association, or person other than the grantee franchise for the telephone or electrical transmission of messages or signals shall not be impaired or affected by the granting of this franchise.

Because the franchise is expressly non-exclusive, the City's competing system does not violate any vested right.

Section 13, paragraph a, of the Public Service Act provides:

The Commission shall have jurisdiction, supervision, and control over all public services and their franchises, equipment, and their properties, and in the exercise of its authority, it shall have the necessary powers and the aid of the public force: Provided, That public service 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.

This exempts a government-operated public service from the certificate requirement.

Section 14, paragraph e, of the same Act provides:

The following are exempted from the provisions of the preceding section: Public service owned or operated by any instrumentality of the National Government or by any government-owned or controlled corporations, except with respect to the fixing of rates.

This confirms that Davao City, a government entity, need not secure the certificate.

Ruling

On the first issue, the Court held that Davao City acted within its power. The resolutions were a lawful exercise of the City's authority under the general welfare clause, adopted in response to a pressing necessity. The Court noted that the power of a municipal corporation to establish and maintain a public utility under the general welfare clause, where conducive to the health, comfort, and convenience of the inhabitants, has long been recognized. It rejected the argument that the system is commercial in nature: the clause itself speaks of the furtherance of prosperity, and an adequate local telephone service is no longer a mere convenience but is indispensable to social life, business, law enforcement, and fire alarms. The Court also declined to pass on whether the new Revised Charter had a curative effect, because the City already had the power when the resolutions were passed.

On the second issue, the Court held that no certificate was required. The Public Service Act expressly exempts government entities from the certificate requirement, and it cannot be seriously denied that Davao City is a government entity.

On the third issue, the Court held that no vested right was violated. The franchise law itself provided that the rights granted are not exclusive, and a municipal corporation is not prevented from operating a competing plant where the franchise is not exclusive. The prior operator rule did not apply, because it requires that the old operator offer to meet the increase in demand the moment it arises, and not only after another operator has offered to serve the public need.

Doctrine

A municipal corporation may establish and maintain a public utility under the general welfare clause of its charter, even without a specific express grant, where the utility is conducive to the health, comfort, and convenience of its inhabitants. The general welfare clause is to be liberally interpreted, and police power is elastic and responsive to changing social conditions. A franchise that is expressly non-exclusive does not bar the government from putting up a competing utility. The prior operator rule applies only where the old operator offers to meet the demand the moment it arises. Finally, public services owned or operated by government entities are exempt from the certificate of public convenience and necessity requirement.

Disposition

The petition was denied, without costs; Davao City prevailed and was allowed to proceed with its telephone system.

Remember This

Memorize this line: the general welfare clause, liberally construed, authorizes a city to establish and operate its own telephone system, and no certificate of public convenience and necessity is required of a government entity. Examiners use this case on municipal corporations and police power, on the non-exclusive franchise and prior operator rule, and on the exemption of government-operated public services from the certificate requirement.