PHILIPPINE AIRLINES, INC., PETITIONER, VS. CIVIL AERONAUTICS BOARD AND GRAND INTERNATIONAL AIRWAYS, INC., RESPONDENTS.

Philippine Airlines versus Civil Aeronautics Board and Grand International Airways

The Case

This is a special civil action for certiorari and prohibition brought by Philippine Airlines against the Civil Aeronautics Board and Grand International Airways. Philippine Airlines asks the Supreme Court to prohibit the Board from hearing Grand International Airways' application for a Certificate of Public Convenience and Necessity, and to annul the temporary operating permit the Board issued in favor of Grand International Airways for scheduled domestic air transportation on the Manila to Cebu, Manila to Davao, and converse routes. The case matters because it settles a constitutional question of first impression in the review: whether a legislative franchise from Congress is an indispensable prerequisite before the Civil Aeronautics Board may issue a Certificate of Public Convenience and Necessity or a temporary operating permit to a domestic air transport operator.

Procedural History

The controversy began before the Civil Aeronautics Board itself. Grand International Airways filed its application for a Certificate of Public Convenience and Necessity, and the Chief Hearing Officer set it for initial hearing and directed service of notice on all scheduled Philippine domestic operators. Philippine Airlines filed an Opposition grounded principally on the Board's alleged lack of jurisdiction, and at the initial hearing it raised the same jurisdictional objection. The Chief Hearing Officer issued an Order denying the Opposition, holding that the Board has jurisdiction to hear and resolve the application. Philippine Airlines then opposed the application for a temporary permit on the grounds of lack of fitness and lack of urgent public need. The Board nonetheless issued a Temporary Operating Permit in favor of Grand International Airways, and later denied Philippine Airlines' motion for reconsideration. The permit was subsequently extended. Philippine Airlines then came directly to the Supreme Court by a special civil action for certiorari and prohibition under Rule 65, filed on April 3, 1995, so this is an original action in the Supreme Court rather than an appeal from the Court of Appeals.

Facts

On November 24, 1994, Grand International Airways applied to the Civil Aeronautics Board for a Certificate of Public Convenience and Necessity, docketed as CAB Case No. EP-12711. The Chief Hearing Officer issued a Notice of Hearing setting the application for initial hearing on December 16, 1994, and directing Grand International Airways to serve copies of the application and notice on all scheduled Philippine domestic operators. On December 14, 1994, Grand International Airways filed its Compliance and requested a Temporary Operating Permit.

Philippine Airlines, itself the holder of a legislative franchise to operate air transport services, filed an Opposition on December 16, 1994. It argued that the Board had no jurisdiction until Grand International Airways first obtained a franchise from Congress; that the application was deficient in form and substance; that approval would violate the equal protection clause; that there was no urgent need and demand; and that a grant would result in ruinous competition contrary to Section 4(d) of Republic Act 776. At the initial hearing, Philippine Airlines again raised the jurisdictional objection. On December 20, 1994, the Chief Hearing Officer denied the Opposition, relying on the Court of Appeals ruling in Avia Filipinas versus Civil Aeronautics Board that under Section 10(c)(1) of Republic Act 776 the Board possesses this specific power and duty.

On December 22, 1994, Philippine Airlines opposed the application for a temporary permit on the grounds that the applicant lacked fitness and capability and that no clear and urgent public need had been shown. On December 23, 1994, the Board approved a Temporary Operating Permit in favor of Grand International Airways for three months. Philippine Airlines moved for reconsideration, which the Board denied, justifying its assumption of jurisdiction under Section 10(c)(1) of Republic Act 776 and invoking the Court's ruling in Albano versus Reyes. The permit was later extended for six months. Hence the petition filed on April 3, 1995.

Issues

• Whether or not the Civil Aeronautics Board has jurisdiction to hear and resolve an application for a Certificate of Public Convenience and Necessity filed by a domestic air transport operator that does not possess a legislative franchise from Congress.
• Whether or not a legislative franchise is an indispensable prerequisite before the Civil Aeronautics Board may issue a Certificate of Public Convenience and Necessity or a Temporary Operating Permit to a domestic air transport operator.
• Whether or not Congress, in enacting Republic Act 776, validly delegated to the Civil Aeronautics Board the authority to authorize the operation of domestic air transport services.

Applicable Provisions

Section 11 of Article XII of the Constitution, as invoked by Philippine Airlines, provides:

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.

This is the provision on which Philippine Airlines rests its claim that only Congress may grant the authority to operate a public utility such as an air transport service.

Section 10 of Republic Act 776, as amended, provides:

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.

This general grant of supervisory power over air carriers, including their franchise, frames the Board's authority to regulate the economic aspect of air transportation.

The same Section 10 sets out the Board's specific powers:

(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.

This is the core delegation on which the Court relies, expressly empowering the Board to issue both a Temporary Operating Permit and a Certificate of Public Convenience and Necessity.

Section 4 of Republic Act 776, as amended, provides:

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.

These legislative policies are the restrictions that canalize the delegation and keep it from becoming an abdication of legislative authority.

Section 12 of Republic Act 776 provides:

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.

This fixes the citizenship qualification for a domestic operator.

Section 21 of Republic Act 776 provides:

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.

This enumerates the substantive requirements the Board must apply in place of a legislative franchise.

Ruling

On the first issue, the Court held that the Civil Aeronautics Board has jurisdiction to hear and resolve Grand International Airways' application. The Board is expressly authorized by Republic Act 776 to issue a temporary operating permit or a Certificate of Public Convenience and Necessity, and nothing in the law negates the power to issue such a permit before the completion of the applicant's evidence. The Court added that even assuming a legislative franchise were a prerequisite, its absence does not affect the Board's jurisdiction to hear the application, but tolls only upon the ultimate issuance of the requested permit.

On the second issue, the Court held that a legislative franchise is not an indispensable requirement. There is nothing in the law nor in the Constitution indicating that a legislative franchise is required 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. The Court rejected the argument that the very title "Certificate of Public Convenience and Necessity" implies that a franchise must first exist, holding that it is the law which determines the requisites for the issuance of the certification, and not the title indicating the certificate.

On the third issue, the Court held that Congress validly delegated the authority. The Court quoted its own formulation of the limits on delegation:

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.

The Court found that Congress set specific limitations: the declaration of policies in Section 4, the citizenship requirement in Section 12, the fitness and public convenience and necessity standards in Section 21, and the established procedure for processing applications. The delegation is therefore canalized and valid.

Doctrine

A legislative franchise is not required before each and every public utility may operate, where the law has granted an administrative agency the power to grant licenses for or to authorize the operation of certain public utilities. The grant of a franchise may be derived indirectly from the State through a duly designated agency, and privileges conferred by such an agency as agent for the State constitute as much a legislative franchise as though the grant had been made by the Legislature.

Section 11 of Article XII of the Constitution recognizes Congress' control over any franchise, certificate, or authority to operate a public utility, but it does not mean Congress has exclusive authority to issue the same. Congress may delegate this function to government agencies specialized in their respective areas of public service.

Under Section 10(c)(1) of Republic Act 776, the Civil Aeronautics Board may issue, deny, amend, revise, alter, modify, cancel, suspend, or revoke, upon petition or complaint or upon its own initiative, any Temporary Operating Permit or Certificate of Public Convenience and Necessity. The phrase "upon its own initiative" confirms that the Board may act even before the presentation of evidence has begun.

The delegation is valid because it is circumscribed by legislative restrictions: the policies in Section 4, the citizenship requirement in Section 12, and the standards in Section 21, namely that the applicant is fit, willing, and able to perform the service properly, and that the service is required by the public convenience and necessity. A delegation that is a roving commission, running riot and not canalized with banks that keep it from overflowing, is an abdication of legislative authority and is invalid.

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.

Disposition

The Supreme Court dismissed the petition for lack of merit, and directed the Civil Aeronautics Board to continue hearing Grand International Airways' application for a Certificate of Public Convenience and Necessity.

Remember This

The line worth memorizing is that a legislative franchise is not required before every public utility may operate, because Congress may delegate to an administrative agency the power to issue the authority to operate, and such a grant by the agency is as much a legislative franchise as one made by the Legislature itself. Examiners like to use this case on the limits of delegated legislative power, on the distinction between a franchise and a Certificate of Public Convenience and Necessity, and on the jurisdiction of the Civil Aeronautics Board under Section 10 of Republic Act 776.