BATANGAS LAGUNA TAYABAS BUS COMPANY, PETITIONER, VS. PUBLIC SERVICE COMMISSION, ACTING THROUGH JUDGE JOSUE L. CADIAO, ASSOCIATE COMMISSIONER, AND EASTERN TAYABAS BUS COMPANY, IN…

Batangas Laguna Tayabas Bus versus Public Service Commission

The Case

This is a petition for certiorari and prohibition with preliminary injunction filed by Batangas Laguna Tayabas Bus Company against the Public Service Commission, acting through Associate Commissioner Josue L. Cadiao, and Eastern Tayabas Bus Company. The petitioner asks the Supreme Court to stop the Commission from hearing an application that would transfer to the lessor, Eastern Tayabas Bus Company, the certificates of public convenience over lines and trips that the petitioner had acquired in the lessor's territory during a lease. The case matters because it draws the boundary between the administrative power of the Public Service Commission and the judicial power of the ordinary courts: the Commission may approve a lease of a public utility, but it may not interpret that lease or adjudicate the private claims of the parties once its approval has been given.

Procedural History

Eastern Tayabas Bus Company filed an application with the Public Service Commission, docketed as forty-four cases, praying that the certificates of public convenience issued in the name of Batangas Laguna Tayabas Bus Company over the lines and additional trips in its territory be modified or changed so as to be considered issued to Eastern Tayabas. Batangas Laguna Tayabas opposed the application and moved to dismiss it for lack of jurisdiction. The Public Service Commission, through Associate Commissioner Cadiao, denied the motion to dismiss. Batangas Laguna Tayabas then filed a suit in the Court of First Instance of Laguna, insisting on the arbitration clause of the lease, disputing the lessor's reading of the termination clause, seeking annulment of the clause ceding the new lines and trips, and seeking liquidation of the lessor's alleged indebtedness. It also moved before the Commission to stay the proceedings in view of the pending court case, but the Commission denied the motion and scheduled the reception of evidence. Batangas Laguna Tayabas thereupon filed this petition for certiorari and prohibition with preliminary injunction in the Supreme Court, which gave the petition due course and issued a temporary restraining order enjoining the Commission from continuing with its proceedings.

Facts

In 1953 Eastern Tayabas Bus Company leased to Laguna Tayabas Bus Company, for five years, its lines and equipment authorized for operation in the eastern portion of the Province of Quezon under certificates of public convenience granted to it. The Public Service Commission approved the lease. When it expired, the parties executed a new five-year lease on June 30, 1958, likewise approved by the Commission. On March 11, 1963, the parties executed a renewal contract for another five years under the same conditions, covering in addition some newly acquired lines of the lessor, and the Commission approved it.

On August 27, 1964, Laguna Tayabas Bus Company merged with Batangas Transportation Company, forming a new corporation named Batangas Laguna Tayabas Bus Company. A new lease contract was therefore executed on March 26, 1965 between Eastern Tayabas as lessor and the new corporation as lessee, on the same terms and conditions as the 1958 lease, for five years starting from March 11, 1963. On July 22, 1965, the Commission approved this lease, stating among its conditions that the lease agreement shall be valid for a period of five years beginning from March 11, 1963.

About eight months later, on March 11, 1966, Eastern Tayabas sent a letter invoking paragraph 7 of the lease and giving formal notice that it was terminating the agreement upon the expiration of sixty days from receipt. On March 15, 1966, without awaiting the end of the sixty-day period, Eastern Tayabas filed its application with the Commission, claiming that under the lease all lines and additional trips acquired by the lessee in its territory shall belong to it at the termination of the lease, and praying that the certificates be modified or changed in its favor. Batangas Laguna Tayabas replied on March 21, 1966, disputing the applicability of paragraph 7, asserting that the clause ceding the new lines and trips had been surreptitiously inserted and was without consideration, invoking the arbitration clause, and asking that the status quo be maintained.

Issues

• Whether or not the Public Service Commission has jurisdiction to hear and resolve the application of Eastern Tayabas Bus Company, which turns on the proper interpretation of the lease agreement and the private rights and claims of the parties thereunder.

Applicable Provisions

Paragraph 7 of the lease agreement, quoted by the Court, provides:

7. Each party to this contract shall have the option of terminating the lease at any time upon sixty (60) days notice given in writing to the other party.

This is the clause on which Eastern Tayabas rested its right to terminate the lease by notice, and whose applicability the petitioner disputed.

Paragraph 17 of the lease agreement, quoted by the Court, provides:

17. The LESSOR and the LESSEE agree to submit any controversy or dispute regarding the interpretation, enforcement, or any other issue connected with this contract to arbitration. For this purpose, within ten (10) days after being duly required to do so by the other party, the LESSOR and the LESSEE shall each nominate one arbitrator to constitute jointly a board of arbitration. The members of the board shall render their opinion within thirty (30) days after submission of the controversy to them, and the LESSOR and the LESSEE agree to be bound with finality by the said opinion If the arbitrators are In agreement, or to the extent that they are in agreement.

This is the arbitration clause the petitioner invoked, which the Commission would have had to pass upon in resolving the dispute.

Section 20, paragraph g, of the Public Service Act, quoted by the Court, provides:

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 – 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 after hearing the persons interested at a public hearing, if it be shown that there are just and reasonable grounds for making the mortgage 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.

This is the source of the Commission's power to approve a lease of a public utility, the power that had already been exercised when the lease in question was approved.

Ruling

The Court ruled that the Public Service Commission has no jurisdiction to proceed with the application. The Commission is not a judicial tribunal; its functions are limited and administrative in nature, and it has only such jurisdiction and power as are expressly or by necessary implication conferred upon it by statute. It cannot pass upon questions that are within the exclusive province of the ordinary courts of justice, such as the validity of a contract.

The Court observed that where the sale of a franchise has not yet been approved by the Commission, the parties asserting rights to the franchise by virtue of the alleged sale must go to the Commission and there thresh out their claims, for the Commission would then be exercising its power to approve the sale under Section 20, paragraph g, of the Public Service Act. The situation is different where, as here, the Commission had already granted its approval to the lease agreement, and during the effectivity of that lease a dispute arises between the parties as to its proper interpretation. Such a dispute no longer calls for the exercise of the Commission's power of approval, and the resolution of the dispute would no longer be a necessary incident in the exercise of that power. For the Commission to act upon the application and resolve the dispute as to the terms of the lease would amount to exercising the functions of a purely judicial tribunal, an act it cannot do.

The Court further held that the dispute, whether the lease could be terminated by sixty-day written notice, whether arbitration must first be resorted to, and whether there are standing claims of the lessee against the lessor that should first be liquidated, concerns the private aspect of the lease agreement and the private rights of the parties in their relation to each other as lessor and lessee. The Commission has no control over a public utility in its private aspect, and the dispute does not involve the public interest or the public aspect of the utility. It must therefore be threshed out in the ordinary courts.

Doctrine

The Public Service Commission is an administrative body of limited jurisdiction, possessing only such powers as are expressly or by necessary implication conferred upon it by statute; it cannot decide questions reserved to the ordinary courts, such as the validity or interpretation of a contract. Where a lease of a public utility has already been approved by the Commission under Section 20, paragraph g, of the Public Service Act, a subsequent dispute between the parties over the interpretation and enforcement of that lease, including the right to terminate it by notice, the duty to arbitrate, and the liquidation of claims, is a private controversy that must be resolved by the ordinary courts, not by the Commission. The Commission's power of approval does not carry with it the power to adjudicate the private rights of the parties once approval has been given.

Disposition

The Supreme Court declared the Public Service Commission without jurisdiction to continue with its cases until final judgment or order is rendered by the Court of First Instance of Laguna in the pending civil case, and kept the restraining order effective until then, without costs.

Remember This

The single line to memorize: the Public Service Commission may approve a lease of a public utility, but it cannot interpret that lease or adjudicate the private claims of the parties once approval has been given. Examiners use this case to test the limits of administrative jurisdiction and the divide between the Commission's power over the public aspect of a utility and the courts' power over its private aspect.