THE NATIONAL COAL COMPANY, PETITIONER, VS. THE PUBLIC UTILITY COMMISSION ET AL., RESPONDENTS.

In 1922 arrangements were made with the United States in and by which the Naval Collier Pompey,
which was then at Olongapo, was turned over to the Government of the
Philippine Islands for its use and benefit. This was done without
charge and upon the recommendation of the Governor-General, that the
collier was the type of ship which the Government of the Philippine
Islands required to market its coal from the mines of the National Coal
Company. It later appeared that in the marketing of this coal, the
collier was operated at a loss. The National Coal Company applied for
and was granted a permit by the Public Utility Commissioner to operate
the collier as a public carrier and public utility between Manila and
Malangas, with option to call at the ports of Cebu, Iloilo, Zamboanga,
Dumaguete and Tacloban. It further appears that under such license, the
collier was permitted to charge lower rates than commercial vessels
were authorized to charge over the same route. Under the conditions
then existing, no objection was filed to the granting of this license.
Under changed conditions, the continued operation of the steamship Pompey
seriously injured the Compañia Maritima and Fernandez Hermanos, the
first of which had been operating over the same, route since the
Spanish regime, and the Fernandez Hermanos for the last eighteen years.

On February 27, 1923, the National Coal Company applied for another
license to authorize it to include the port of Davao in its regular
schedule. To this application objections were made not only by the
Compañia Maritima and Fernandez Hermanos but also by the Philippine
Shipowners’ Association, upon the ground that the granting of such a
license to the steamship Pompey for the coastwise trade was prejudicial to the public interests, and that upon its last voyage, the Pompey
carried a large cargo and at lower rates than those which the
commercial carriers were authorized to charge, and they prayed that the
certificate of public convenience issued October 12, 1922, in case No.
2875, should be revoked on the following grounds:

“1. That the steamship Pompey was not ceded to the Government of the Philippine Islands for commercial purposes;

“2. That no capital has been invested in the operation of said steamer;

“3. That it is the policy of the Government not to compete with private individuals in commercial and industrial enterprises;

“4 That the competition is obviously ruinous;

“5.
That the utilization of this vessel on any route where commercial
vessels are being operated with the consent of the Commission, results
in a ruinous competition (case No. 3213, folio 1).”

April 3, 1923, the Utility Commission was notified that the route
between Manila and Mindanao was adequately served by commercial
vessels, and that no permit should be granted the National Coal Company
to call at Mindanao ports. Notwithstanding such objections, permits
were granted by the Commission to include Davao as a port of call
pending the final decision of the Commission.

In the course
of business and by mutual consent of all parties, the objections were
consolidated and the cases tried as one, and the Commission rendered
its decision denying both of the petitions of the National Coal
Company. From this decision the National Coal Company appeals to this
court, making the following assignment of errors:

“I.
The Public Utility Commissioner erred in not holding in his decision
that, it being optional on the part of the vessels of Fernandez
Hermanos to make port at Davao, the same offers less securities and
reciprocal rights to passengers, merchants and shippers than would the
making of said port a regular port of call, as applied for by the
vessel Pompey.

“II. The Public Utility
Commissioner erred in not holding in his decision that, it being
optional on the part of the vessels of Fernandez Hermanos to make port
at Davao, there is a period in the year when only two of the five
vessels making trips in the southern ports used to make port at Davao,
to the damage of the passengers, merchants and shippers of that port,
who became isolated without any communication with Manila for a
sufficiently long period of time.

“III. The Public
Utility Commissioner erred in holding in his decision that it would in
no manner promote the public interest of the residents of Davao to make
Davao a regular port of call of the vessel Pompey, but, on the contrary, it would be competing with the vessels of Fernandez Hermanos to the latter’s damage.

“IV. The Public Utility Commissioner finally erred in denying the application of the vessel Pompey for permission to make Davao its regular port of call.”

JOHNS, J.:

It appears that when the steamship Pompey
was owned by the United States, it was a naval collier, and that it was
obtained by this Government from that Government to market the coal
from the coal mines of the National Coal Company. In other words, that
the Pompey was obtained for a specific purpose and it is now
the property of this Government, and that in legal effect it is used by
the Government as a public utility in competition with other commercial
ships which are owned by and operated with private capital. When it
appeared that the Pompey was operated at a loss in the
marketing of coal, it was then sought to recoup those losses by the
operation of the ship as a public utility in connection with its
business of marketing coal. In other words, the ship would come to
Manila from the coal mines loaded with coal and over the proposed route
would return loaded with freight and passengers.

In the very
nature of things, the operation of a Government owned ship, as a public
utility, and in particular upon the facts shown in the instant case, is
unfair competition with vessels which are owned as private property and
operated as a public utility. A Government owned ship is owned and
operated at the sole expense of the Government, and it is exempt from
all kinds of license and taxation. In any event, when operated as a
public utility, a Government owned ship should not have any other or
greater rights or privileges than a ship which is owned and operated by
private capital.

If a Government owned ship is to be
operated as a public utility for one purpose, it should be operated as
a public utility for all purposes. In other words, it should not be
permitted to mingle its own personal operations with its operations as
a public utility. If it is to be a public utility for one purpose, it
should be a public utility for all purposes. If it is to be operated by
the Government for certain purposes, it should be confined and limited
to those purposes, and. should not at the same time, and as a part of
that business, be operated as a public utility. That would be unfair
competition. This would be especially true where the Government owned
ship is operated at a loss.

Legally speaking, there cannot
be a monopoly when a property is operated as a public utility. As such,
it is clothed with a public interest and devoted to a public use, so
that 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.

If it be a fact
that the public interests of Davao were not being properly served under
the licenses which were previously granted by the Public Utility
Commission for that port, the remedy is to file a petition before the
Commission alleging such facts and asking for a hearing. If upon that
hearing it should be found that the allegations are true, it would then
be the duty of the Commission to make the necessary orders requiring
the holders of existing licenses to improve the service or to revoke
their licenses.

It will be noted that, excluding the call to
Davao, the Public Utility Commission granted the National Coal Company
everything which it sought to obtain. In a well written and exhaustive
opinion, the Utility Commission found as a fact that the granting of a
license to the National Coal Company to make Davao a port of call,
under existing conditions, would be unjust and unfair to commercial
owned ships operating under existing licenses.

Under the
facts shown in the record, and under the provisions of section 37 of
Act No. 2306, that finding must be sustained. The relief, if any, to
which the public of Davao is entitled can be obtained upon proper
petition and showing before the Public Utility Commission.

The decision of the Commission is affirmed, without costs. So ordered.

Johnson, Street, Malcolm, Villamor, and Romualdez, JJ., concur.

DISSENTING

OSTRAND, J.:

I dissent.

The court apparently regards the case as primarily a question between
the National Coal Company and Fernandez Hermanos. Such is not the case.
It may be of some convenience to the Coal Company to maintain its Davao
service, but it also appears that the service is rendered in response
to a public demand. There is in the record a petition dated April 23,
1923, addressed to the Public Utilities Commission and signed by
twenty-two merchants, planters, and hemp dealers in Davao, asking that
in view of the increase in hemp production that the Pompey be
retained on the route and that at least one additional steamer be
allocated to the run. There is also the testimony and affidavits of
several witnesses to the same effect.

The firm of Fernandez
Hermanos, operating the ships of the Compañia Maritima as well as its
own, has for many years enjoyed a monopoly of transportation to and
from Davao. The place has in recent years become a port of importance
and the shipping from there is on an average steadily increasing. It
would therefore seem that in the absence of special reasons to the
contrary, the port is entitled to competitive transportation.

I am unable to find any real evidence in the record that such special
reasons exist. The finding of the Public Utilities Commission that the
competition of the Pompey is ruinous to Fernandez Hermanos
is, as far as I am able to see, entirely unsupported by proof. It is
true that Mr. Mateo, the manager of the shipping department of
Fernandez Hermanos, in answer to a question by the attorney for his
firm expressed the opinion that the competition of the Pompey
would be “ruinosa” but that can hardly be regarded as evidence; the
witness did not state the facts upon which his opinion was based and he
is, of course, not a disinterested witness. There is also some
statistics in the record tending to show that the ships of Fernandez
Hermanos carried more cargo during the first semester of 1922 than
during the corresponding period of 1923, but this may have been due to
other causes than the competition of the Pompey, and it is
not shown that the shipping business of the firm was unprofitable
during the latter period. Some of the ships were from time to time
removed from the Davao run and placed on other routes served by the
firm, but that appears also to have been the general practice in
previous years. The Fernandez Hermanos’ boats on the Davao route are
operated on an optional schedule and naturally the amount of the
traffic from the various ports will vary according to the season and
the conditions of the market. The shifting of boats from one route to
another may be due to increased traffic on the latter. Mr. Mateo
himself, in answer to the question as to what month brought the
greatest volume of traffic, stated:

“There
is nothing fixed; it all depends on the state of the market; when the
price of hemp is high in Manila, more hemp is shipped.”

It may be noted that several witnesses, giving specific instances, testified that even after the competition of the Pompey
began, cargo was frequently refused by the ships of Fernandez Hermanos
and had to lie over until the next boat. It also appears that none of
the ships have been laid up for lack of cargo.

I cannot
attach much weight to the statement in the decision of the court that
“legally speaking, there cannot be a monopoly when a property is
operated as a public utility.” There are many things in connection with
transportation service which cannot be conveniently reached and
remedied by the orders of a Public Utilities Commission and it is an
illusion to hope that a monopoly can be so regulated by decrees as to
eliminate all of its disadvantageous features. Competitive service is
always preferable whenever conditions are such that it can be
maintained.

In this connection, I may quote the testimony of
Mr. H. H. Boyle, an important exporter of hemp and apparently an
impartial witness:

“Q. As an exporter of
hemp, have you bought hemp in Davao?—A. I buy abaca and have considered
entering the Davao market, but on account of the conditions in regard
to freight, telegrams, labor and minor facilities, I have not been able
to see my way clear to enter that field of operations. One of the
principal reasons is the monopolistic tendencies of the shipping
companies which serve that port. Until competitive lines of commercial
coast shipping in Davao are established and proper facilities are
provided by the shipping companies, I do not see how money can be
invested there. What I desire principally is that there be competitive
lines in the service of this port and I believe it would benefit the
hemp planters in that district.”

The opinion of the court lays stress on the fact that the Pompey
is a Government owned ship, exempt from certain of the expenses with
which a privately owned vessel is necessarily burdened and that,
therefore, the operation of the vessel would be unfair competition. I
can see no force in this observation. The Pompey is operated
as a public utility; its rates are fixed by the Public Utilities
Commission and must be the same as those charged by privately owned
vessels. Under these circumstances, it is difficult to find anything
unfair in the competition if the situation otherwise justifies
competitive service. That the Government by reason of lesser expenses
may make greater profits from the operation of its vessel should not
injure the interests of private shipping if the rates fixed are fair
and reasonable. Neither is there anything reprehensible in the
Government using its vessels for commercial traffic when the public
interests so require. It is a fact of which we may well take judicial
notice that coastwise shipping facilities in the Philippines are not
very satisfactory and that it frequently has been found necessary to
utilize Government vessels in interisland traffic.

It is
stated in the opinion of the court that “If it be a fact that the
public interests of Davao were not being properly served under the
licenses which were previously granted by the Public Utility Commission
for that port, the remedy is to file a petition before the Commission
alleging such facts * * *.” That is exactly what twenty-two of the
principal shippers in Davao—probably the great majority of the directly
interested merchants—have done in this case, with the result that both
the Public Utilities Commission and this court, upon the testimony of
the shipping manager of the firm to which competition is inconvenient,
have in effect held that non-competitive shipping service on an
optional schedule is sufficient for the now important port of Davao and
that the shippers and merchants there do not know what is good for them.

It is interesting to note that before acquiring the Pompey
the National Coal Company tried to make arrangements for coal shipments
by privately owned vessels, but without success. At first, the various
firms approached declined to consider such shipments; later an offer
appears to have been received for the transportation of coal at the
prohibitive rate of P14 per ton from Malangas to Manila, a distance of
600 miles. Coal is carried from Japan to Manila, a distance of from
1,500 to 1,800 miles, for P5 per ton. (See testimony of Mr. C. Russell.)

The facts here stated are somewhat at variance with the statement of
facts in the majority opinion, but are amply sustained by the record
and practically uncontradicted. The competition of the Pompey
has naturally tended to reduce to some extent the volume of the
business of Fernandez Hermanos, but there is nothing to show that such
competition has been ruinous or that the shipping of the firm has been
unprofitable. Considering the desires of the Davao business men as
revealed by their petition and by the testimony, and cons further the
fact that the volume of the traffic of the port is in general
increasing from year to year, the decision of the Public Utilities
Commission should have been reversed and the petition for a certificate
of public convenience granted.