Surigao Electric Co., Inc. vs. Municipality of Surigao

A municipal corporation is a "government entity" within the meaning of Republic Act No. 2677 and is therefore exempt from the certificate of public convenience and necessity requirement when operating a public service, subject only to the Public Service Commission's power to fix rates. A legislative franchise granted to a private corporation cannot be invoked to defeat the exercise of police power, and Congress may impliedly alter or amend such franchise through a later act of general applicability.

Petitioner Surigao Electric Co., Inc. held a legislative franchise (Act No. 3419, enacted in 1927) to operate an electric service in Surigao. On February 16, 1962, its rights, privileges, plant, and facilities were transferred to petitioner Arturo Lumanlan, Sr. The Municipality of Surigao, the other respondent, sought to operate its own electric plant and submitted a tentative schedule of rates to the Public Service Commission. The legal backdrop includes Republic Act No. 2677, approved June 18, 1960, which amended the Public Service Act by exempting public services owned or operated by government entities or government-owned or controlled corporations from the certificate of public convenience and necessity requirement, while retaining the PSC's power to fix rates. Republic Act No. 2264, the Local Autonomy Act, approved a year earlier, had enlarged the scope of municipal power.

Petitioner Surigao Electric Co., Inc. was a legislative franchise holder under Act No. 3419, enacted in 1927, authorized to operate an electric service in Surigao. On February 16, 1962, the rights and privileges of the company, together with its plant and facilities, were transferred to petitioner Arturo Lumanlan, Sr.

On June 18, 1960, Congress approved Republic Act No. 2677, which amended the Public Service Act. Among the changes introduced was the elimination of the requirement for a certificate of public convenience and necessity from the Public Service Commission for public services owned or operated by government entities or government-owned or controlled corporations, while affirming the Commission's power of regulation, particularly the fixing of rates. Section 13(a) as amended provided that certificates of public convenience would not be required of such entities or corporations. Section 14(e) as amended exempted public services owned or operated by any instrumentality of the National Government or any government-owned or controlled corporation from the Commission's supervision, jurisdiction, and control, except with respect to the fixing of rates.

The Municipality of Surigao, intending to operate its own electric plant, submitted a tentative schedule of rates to the Public Service Commission. On July 11, 1963, the Commission issued an order approving the schedule. The Commission framed the issue as whether a municipal government could directly maintain and operate an electric plant without obtaining a specific franchise and without a certificate of public convenience and necessity. Relying on the amendments introduced by Republic Act No. 2677, the Commission concluded that a municipal government is a government entity and an instrumentality of the national government, and is therefore exempt from its jurisdiction except as to the fixing of rates. Petitioners moved for reconsideration, which was denied by the Commission on February 7, 1964.

Petitioners then elevated the matter to the Supreme Court by petition for review, challenging the validity of the Commission's order. They invoked their legislative franchise and cited Commonwealth Act No. 358, which provides the procedure for the government or any political subdivision thereof to acquire and operate a public utility owned by a private individual or corporation.

• Statutory Construction of "Government Entities": Petitioners contended that the term "government entities" in Republic Act No. 2677 should not be construed to include municipal corporations, arguing that the amendatory language should be read restrictively.
• Franchise Rights: Petitioners sought refuge in the legislative franchise granted under Act No. 3419, claiming that their franchise rights could not be overridden by the Municipality's operation of a competing electric service.
• Eminent Domain Procedure: Petitioners cited Commonwealth Act No. 358, which provides the procedure for the taking over and operation by the government of public utilities, arguing that this statute should apply and further strengthen their contention that the Municipality's action was improper.

• Municipality as Government Entity: Respondent Public Service Commission argued that a municipal government such as the Municipality of Surigao is a government entity recognized, supported, and utilized by the National Government as part of its government machinery and functions, and is therefore an instrumentality of the latter, expressly exempted under Section 14(e) of Republic Act No. 2677 from the Commission's jurisdiction except with respect to the fixing of rates.

• Statutory Interpretation: Whether a municipality is a "government entity" within the meaning of Republic Act No. 2677, such that it is exempt from the requirement of obtaining a certificate of public convenience and necessity before operating a public service.
• Franchise vs. Police Power: Whether a private franchise holder's rights under a legislative franchise can override the operation of Republic Act No. 2677 and the Municipality's exercise of governmental prerogative.
• Applicability of Eminent Domain: Whether Commonwealth Act No. 358, governing the procedure for government takeover and operation of public utilities, applies to the Municipality's operation of its own electric plant.

• Statutory Interpretation: Yes. A municipality is a "government entity" within the meaning of Republic Act No. 2677 and is exempt from the certificate of public convenience and necessity requirement, subject only to the PSC's power to fix rates.
• Franchise vs. Police Power: No. The franchise rights of petitioners cannot override the constitutional reservation that franchises are subject to amendment, alteration, or repeal by Congress, which may be implied from a later act of general applicability; nor can they defeat the proper exercise of police power.
• Applicability of Eminent Domain: No. Commonwealth Act No. 358 is inapplicable because there is no taking or appropriation of private property; the Municipality is simply engaging in a competing governmental activity, which falls within the scope of police power.

• Statutory Interpretation: The Court traced the dual character of municipal corporations — governmental and quasi-private — back to Mendoza vs. de Leon (33 Phil. 508, 1916), which recognized that governmental affairs do not lose their governmental character by being delegated to municipal governments. A municipality functions as an extension of the national government and is an instrumentality of the latter. To exclude municipal corporations from the term "government entities" would erode the term of its meaning. The Court noted that while the term "municipal corporations" would have removed all ambiguity, the judicial task is to put meaning to legislative words, not to denude them of their contents. The construction was further reinforced by the Local Autonomy Act (Republic Act No. 2264), approved a year earlier, which enlarged the scope of municipal power; to construe the amendatory act restrictively would impute to Congress a desire to cut short what it had just expanded. The conclusion gives significance to every word of the statute and makes the entire scheme harmonious.

• Franchise vs. Police Power: Whatever privilege petitioners claimed under their franchise could not override the specific constitutional restriction in Article XIV, Section 8 of the Constitution that no franchise or right shall be granted except under the condition that it shall be subject to amendment, alteration, or repeal by Congress. Such amendment or alteration need not be express; it may be implied from a later act of general applicability, such as Republic Act No. 2677. Moreover, under a well-settled principle adopted in the Philippines, no franchise or right can be availed of to defeat the proper exercise of police power. The Court cited Charles River Bridge vs. Warren Bridge (11 Pet. 420, 1837), where Chief Justice Taney wrote that while the rights of private property are sacredly guarded, the community also has rights. The amendatory act lends encouragement and support to the municipal corporation undertaking an activity that may adversely affect the profits of a competing private firm — a valid exercise of police power.

• Applicability of Eminent Domain: Commonwealth Act No. 358 regulates the exercise of eminent domain — the taking of private property for public use upon payment of just compensation. Here, there was no taking and no appropriation; what was owned by petitioners continued to remain theirs, with no transfer of ownership. The Municipality, by virtue of Republic Act No. 2677, may promote community welfare by itself supplying public services without a certificate of public convenience. This governmental prerogative falls within the broad scope of police power, not eminent domain. Petitioners' reference to the statute therefore did not strengthen but rather weakened their position.

• Dual Character of Municipal Corporations — A municipal corporation possesses a dual character: one governmental, as a branch of the general administration of the state, and the other quasi-private and corporate. Governmental affairs do not lose their governmental character by being delegated to municipal governments. A municipality functions as an extension of the national government and is an instrumentality of the latter. The Court applied this doctrine to hold that a municipality falls within the term "government entities" under Republic Act No. 2677.

• Franchise Subject to Amendment, Alteration, or Repeal — Under Article XIV, Section 8 of the Constitution, no franchise or right shall be granted to any individual or corporation except under the condition that it shall be subject to amendment, alteration, or repeal by Congress. Such amendment or alteration need not be express; it may be implied from a later act of general applicability. The Court applied this to hold that petitioners' franchise under Act No. 3419 could not shield them from the effects of Republic Act No. 2677.

• Police Power as Limitation on Franchise Rights — No franchise or right can be availed of to defeat the proper exercise of police power. The continued existence of government would be of no great value if it were disarmed of the powers necessary to accomplish the ends of its creation. While the rights of private property are sacredly guarded, the community also has rights. The Court applied this principle to sustain the Municipality's operation of a competing electric service.

• Distinction Between Police Power and Eminent Domain — Eminent domain involves a taking of private property for public use upon payment of just compensation. Where there is no taking, no appropriation, and no transfer of ownership, but rather a governmental entity engaging in a competing public service, the activity falls within the scope of police power, not eminent domain. The Court applied this to hold Commonwealth Act No. 358 inapplicable.

• "It would, therefore, be to erode the term 'government entities' of its meaning if we are to reverse the Public Service Commission and to hold that a municipality is to be considered outside its scope." — This passage articulates the core ratio decidendi: the Court's refusal to construe "government entities" so narrowly as to exclude municipalities, which would strip the statutory term of its natural meaning.

• "Such amendment or alteration need not be express; it may be implied from a latter act of general applicability, such as the one now under consideration." — This defines the doctrine that a franchise's constitutional reservation of congressional power to amend, alter, or repeal may be exercised impliedly through a later statute of general applicability, not only through express repeal.

• "There is here no taking. There is here no appropriation. What was owned before by petitioners continue to remain theirs. There is to be no transfer of ownership." — This passage distinguishes police power from eminent domain and explains why Commonwealth Act No. 358 does not apply, since the Municipality's operation of a competing service does not constitute a taking of petitioners' property.

• Mendoza vs. de Leon, 33 Phil. 508 (1916) — Controlling precedent on the dual character of municipal corporations. The Court relied on this case to establish that a municipality is a governmental entity and an instrumentality of the national government, and that governmental affairs do not lose their character by being delegated to municipal governments. Cited with approval in subsequent cases including Carreon vs. Province of Pampanga, Zulueta vs. Nicolas, City of Baguio vs. Nawasa, and PLDT vs. City of Davao.

• Charles River Bridge vs. Warren Bridge, 11 Pet. 420 (1837) — American precedent cited for the principle that franchise rights cannot defeat the exercise of police power. The Court quoted Chief Justice Taney's formulation that while private property rights are sacredly guarded, the community also has rights, and the government cannot be disarmed of powers necessary to accomplish the ends of its creation.

• Section 13(a), Republic Act No. 2677 (amending the Public Service Act) — Provides that the Public Service Commission shall have jurisdiction, supervision, and control over all public services, but that certificates of public convenience shall not be required of government entities or government-owned or controlled corporations. Applied to exempt the Municipality of Surigao from the certificate requirement.

• Section 14(e), Republic Act No. 2677 (amending the Public Service Act) — Exempts public services owned or operated by any instrumentality of the National Government or any government-owned or controlled corporation from the Commission's supervision, jurisdiction, and control, except with respect to the fixing of rates. Applied to hold that the Municipality's electric service is exempt from PSC jurisdiction except for rate-fixing.

• Article XIV, Section 8, Constitution — Provides that no franchise or right shall be granted to any individual or corporation except under the condition that it shall be subject to amendment, alteration, or repeal by Congress. Applied to hold that petitioners' franchise under Act No. 3419 is subject to implied amendment by Republic Act No. 2677.

• Republic Act No. 2264 (Local Autonomy Act) — Enacted a year before Republic Act No. 2677, enlarged the scope of municipal power. Cited as contemporaneous legislative policy reinforcing the construction that municipal corporations should not be excluded from the operation of the amendatory act.

• Commonwealth Act No. 358 — Provides the procedure for the taking over and operation by the government of public utilities owned by private individuals or corporations. Held inapplicable because no taking or appropriation of private property was involved.

• Act No. 3419 (1927) — The legislative franchise granted to Surigao Electric Co., Inc. Held subordinate to the constitutional reservation of congressional power to amend, alter, or repeal.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, and Angeles, JJ., concurred.