Philippine Long Distance Telephone v. City of Davao
REITERATIONFacts
1. The Antecedents: The City of Davao, recognizing an urgent need for improved and expanded telephone services beyond the capacity of the existing provider, the Philippine Long Distance Telephone Company (PLDT), passed resolutions authorizing the establishment and operation of its own city-wide telephone system. Pursuant to these resolutions, Davao City entered into a contract with ITT Philippines, Inc. for the installation of the system. PLDT, which had been operating a telephone system in Davao City since 1931, contended that Davao City lacked the authority to establish such a system and that it had not secured the necessary certificate of public convenience and necessity from the Public Service Commission. PLDT also argued that the city's actions would unlawfully expend public funds and prejudice its own rights as the prior operator. 2. Procedural History: Following the passage of resolutions by the Davao City Council in August and December 1963, and the subsequent contract with ITT Philippines, Inc. in February 1964, PLDT initiated this suit for prohibition and mandamus on June 23, 1964. PLDT sought to prevent Davao City from proceeding with the telephone system installation and to compel the Public Service Commission to require the city to obtain a certificate of public convenience and necessity. The Public Service Commission and Davao City filed their respective answers, and ITT Philippines, Inc. was granted leave to intervene and filed its answer. PLDT's applications for preliminary injunction were denied. During the pendency of the case, Congress enacted Republic Act 4354, which amended the Revised Charter of Davao City to explicitly grant the city council the power to establish and maintain a telephone system. ITT Philippines, Inc. moved to dismiss the case based on this new legislation, but PLDT opposed the motion, arguing that the validity of the resolutions should be assessed based on the law in effect at the time of their passage. 3. The Petition: PLDT filed this petition for prohibition and mandamus, arguing that Davao City lacked the legal authority to establish and operate its own telephone system and that it failed to obtain a certificate of public convenience and necessity from the Public Service Commission, as required by law. PLDT contended that the city's actions were not a proper exercise of its general welfare powers and that its franchise rights as a prior operator were being violated. The petition also sought to prevent the expenditure of public funds and to protect its existing operational rights. The core of PLDT's argument rested on the interpretation of Davao City's charter and the Public Service Act, particularly concerning municipal powers and the necessity of certificates of public convenience and necessity for government entities.
Issue(s)
Whether Davao City has the power to establish and operate a telephone system under its charter. Whether Davao City needs to secure a certificate of public convenience and necessity from the Public Service Commission before establishing and operating a telephone system. Whether the establishment of a competing telephone system by Davao City violates PLDT's vested rights as a prior operator.
Ruling
The petition is denied. WHEREFORE, the petition is hereby denied, without costs. So ordered.
Ratio Decidendi
On the issue of Davao City's power to establish and operate a telephone system: The Court held that Davao City has the power to establish and operate a telephone system under Section 14 (ee) of its Charter, the general welfare clause. This clause empowers the City Council to enact ordinances for the furtherance of prosperity, comfort, convenience, and general welfare of the city and its inhabitants. The Court noted that the existing telephone system of PLDT only covered the poblacion and did not adequately address the growing demand for telephone lines, especially in the vast area of Davao City. The Court cited American jurisprudence recognizing the power of municipal corporations to establish public utilities under the general welfare clause when conducive to public benefit. The Court further stated that the profitability of the telephone system, as indicated in Resolution No. 664, was consistent with the general welfare clause's aim to promote prosperity. Moreover, adequate local telephone service was deemed indispensable for social life, business, law enforcement, and emergency response, thus falling within the scope of general welfare. The Court also pointed out that Republic Act 4354, the Revised Charter of Davao City, enacted during the pendency of the case, explicitly granted the City Council the power to provide for the establishment and maintenance of a telephone system, thereby affirming the city's authority. On the issue of requiring a certificate of public convenience and necessity: The Court ruled that Davao City, being a government entity, is exempt from the requirement of obtaining a certificate of public convenience and necessity from the Public Service Commission. Section 13(a) of the Public Service Act provides that while government-owned or controlled corporations are regulated by the PSC, certificates of public convenience or necessity are not required of such entities. Similarly, Section 14(e) exempts public services owned or operated by any instrumentality of the National Government or by government-owned or controlled corporations from certain provisions of the Act, except for rate fixing. The Court concluded that Davao City clearly falls under the definition of a government entity entitled to this exemption. On the issue of violation of PLDT's vested rights as a prior operator: The Court held that PLDT's franchise was not exclusive, as expressly provided in Section 14 of Act No. 3436. The law stated that the rights granted were not exclusive and that the power to grant franchises to others would not be impaired. The Court cited McQuillin on Municipal Corporations, stating that a municipal corporation is not prevented from constructing and operating a competing plant if the franchise granted to a private company is not exclusive. Furthermore, the Court clarified that the prior operator rule requires the old operator to offer to meet the increase in demand as it arises, not when another operator has already made an offer to serve the public needs. Since PLDT's franchise was not exclusive and it had not adequately met the growing demand, it could not invoke this rule to prevent Davao City from establishing its own system.
Main Doctrine
A municipal corporation may establish and operate a public utility, such as a telephone system, under its general welfare clause if it is conducive to the health, comfort, and convenience of its inhabitants, even without an express provision in its charter. Furthermore, a municipal corporation is not prevented from constructing and operating a competing public utility plant if the franchise granted to a private company is not exclusive.