The Manila Electric Railroad and Light Company vs. The Board of Public Utility Commissioners

The phrase "wearing official badges" in a street railway franchise, as a condition for free transportation of police and fire department members, means wearing the badges visibly during transportation; a long-standing practical construction of an ambiguous franchise clause by the contracting parties is entitled to great weight and will not be overturned.

The City of Manila in 1903, acting under Act No. 484, granted Charles M. Swift a franchise by Ordinance No. 44 for the construction and maintenance of a street railway system for carrying passengers for hire. The franchise was later transferred to the Manila Electric Railroad and Light Company, which operated an electric street railway in Manila and its suburbs. The franchise included a clause entitling members of the police and fire departments of Manila wearing official badges to ride free, subject to reasonable restrictions. The dispute turns on the meaning of that clause.

The City of Manila in 1903, by authority of Act No. 484 and for a valuable consideration, granted Charles M. Swift, through Ordinance No. 44, a franchise to construct and maintain a street railway system for carrying passengers for hire in Manila. The franchise was later transferred to the Manila Electric Railroad and Light Company, which by the time of the dispute had operated an electric street railway in Manila and its suburbs for more than nine years, having begun operations in April 1905. The franchise contained a provision: "Members of the police and fire departments of the city of Manila wearing official badges shall be entitled to ride free upon the cars of the grantee, subject to such reasonable and power restrictions as many be imposed."

At the outset, the company promulgated a rule that members of the police and fire departments wearing official badges could enjoy free transportation only if they wore their badges visibly, so that the fact of entitlement would be continuously apparent during transportation. For nine years, from the commencement of operations until the Board's order, this rule was enforced and acquiesced in by the City of Manila and its police and fire departments without objection. Policemen, whether uniformed or not, but wearing their badges exposed, were transported without charge; those who carried their badges in their pockets or concealed them about their persons paid fares. During that period, the City of Manila, through its secret service bureau, paid more than forty thousand pesos for the transportation of secret service members of the police force on the company's cars.

In May 1914, the chief of the secret service bureau sought to reverse this long-established practice and petitioned the Board of Public Utility Commissioners. He alleged that the company, by requiring the badges of secret service members to be worn visibly during transportation, was imposing an unreasonable and unlawful restriction on the transportation of members of the police department. Following a hearing, the Board issued the order objected to, ordering the company to furnish free transportation to members of the police department of the City of Manila belonging to the secret service bureau, wearing their official badges, whether openly or concealed about their clothing in such a way that the badges might be displayed to conductors or inspectors on the company's cars when required for identification. The order was to take effect on July 1, 1914.

The company then brought this proceeding in the Supreme Court under section 37 of Act No. 23307 to revoke the Board's order. The city of Manila, which was really the entity carrying on the litigation, contended that the company's rule, although not inherently unreasonable, violated the franchise provision. The company raised many questions relative to the jurisdiction, authority, and power of the Board, but the Court rested its decision on the merits—the construction of the franchise clause—and, finding in favor of the company, did not discuss the other questions.

• Jurisdiction, Authority, and Power of the Board: Petitioner raised many questions relative to the jurisdiction, authority, and power of the Board of Public Utility Commissioners, although the Court did not reach them because it decided the case on the merits.
• Construction of "Wearing Official Badges": Petitioner maintained that the franchise clause required police and fire department members to wear their official badges visibly during transportation in order to ride free, and that its rule to that effect was the correct construction of the clause.

• Violation of Franchise Clause: Respondent, through the City of Manila as the real entity carrying on the litigation, contended that the company's rule requiring visible badges, although not inherently unreasonable, violated the franchise provision entitling members of the police and fire departments wearing official badges to ride free.
• Scope of "Wearing Official Badges": The Board's order reflected the position that secret service members could wear their badges openly or concealed, so long as they could display them to conductors or inspectors on demand for identification.

• Construction of "Wearing Official Badges": Whether the franchise clause requiring free transportation for members of the police and fire departments "wearing official badges" means that the badges must be worn visibly during transportation, or may be carried concealed and displayed only upon demand.
• Effect of Practical Construction: Whether the parties' nine-year practice of construing the clause to require visible badges, acquiesced in by the City of Manila, controls the interpretation of the franchise clause.
• Validity of the Board's Order: Whether the Board of Public Utility Commissioners' order requiring free transportation for secret service members with concealed badges should be vacated.

• Construction of "Wearing Official Badges": Visibly. The phrase means that official badges must be worn visibly during transportation; the company's construction is adopted.
• Effect of Practical Construction: Controlling. The long-standing practical construction by the parties, acquiesced in for nine years, must be given great weight and cannot be overturned.
• Validity of the Board's Order: Vacated. The order is set aside, annulled, and vacated.

• Construction of "Wearing Official Badges": The Court adopted the company's construction on two grounds. First, the history of Ordinance No. 44 and the amendments to the original draft showed that the Legislature did not intend to require the company to carry all police free under any and all circumstances. Ordinance No. 44 copied Act No. 484. The minutes of the public sessions of the Commission from September 1, 1902, to September 1, 1903, showed that the original clause read: "Members of the police and fire department of the city of Manila shall be entitled to ride free upon the cars of the grantee, subject to such reasonable and proper restrictions as may imposed." An amendment, offered at the suggestion of the company and adopted, inserted after "Manila" the words "wearing official badges." The evident intent was to permit the company to exclude from free transportation some members of the department, namely those not wearing official badges. The remaining question was whether "wearing official badges" meant wearing them visibly or carrying them concealed; the Court concluded that the company's visible-wearing construction was correct.
• Effect of Practical Construction: The franchise was a contract between the City of Manila and the street-car company, under which an extremely valuable consideration passed from the company to the city. The construction placed on the clause by the parties to that contract must exert a powerful influence. For nine years, from the commencement of operations until the Board's order, the parties construed "wearing official badges" to mean wearing them visibly during transportation. The language being susceptible of construction, the Court held it was not at liberty to adopt a construction diametrically opposed to that which the parties had placed thereon for so long. It cited Jover vs. Insular Government, 221 U.S., 623, and article 1282 of the Civil Code. The intention of the Legislature as evidenced by the amendment, together with the practical construction adopted and acted on for a long period, constrained the Court to accept the practical construction and overrule the Board. The question was one of law, and authority to deal with the subject matter completely and definitely was clear.
• Validity of the Board's Order: Because the construction of the franchise clause was in favor of the company, the Court found it unnecessary to discuss the other questions raised. The order of the Board of Public Utility Commissioners was vacated, set aside, and annulled.

• Practical Construction of Contracts — Where contract language is susceptible of more than one meaning, the construction placed upon it by the parties and acted upon for a long period is entitled to great weight and will not be overturned. The Court applied this to the franchise clause, holding that the City of Manila and the company had for nine years construed "wearing official badges" to require visible wearing.
• Legislative Intent from Amendments — An amendment to a legislative draft may reveal the intent of the enacting body. The insertion of "wearing official badges" after "Manila" showed that the Legislature intended to allow the company to exclude from free transportation those not wearing official badges.
• Franchise as Contract — A franchise may be a contract between the grantor and the grantee, supported by valuable consideration. The parties' construction of its terms exerts a powerful influence on its interpretation. The Court treated the franchise as such a contract and relied on the parties' practical construction.
• Reasonable Utility Rule — A public utility may adopt reasonable rules to prevent fraud and to verify entitlement to free transportation. The company's rule requiring visible badges was reasonable, although the city did not contest its inherent reasonableness but only its alleged violation of the franchise clause.
• "Wearing Official Badges" — In the context of the franchise, the phrase means wearing the official badge visibly during transportation, not merely carrying it concealed and displaying it on demand.

• "Members of the police and fire departments of the city of Manila wearing official badges shall be entitled to ride free upon the cars of the grantee, subject to such reasonable and power restrictions as many be imposed." — This is the franchise clause whose interpretation controlled the case; the Court held that "wearing official badges" required visible wearing during transportation.
• "The franchise in question being a contract between the city of Manila and the street-car company, under which an extremely valuable consideration passed from the company to the city, the construction placed on the clause under consideration by the parties to that contract must exert a powerful influence in the determination of the question presented." — This passage states the Court's reliance on the franchise as a contract and on the parties' construction as a controlling interpretive aid.
• "The language of the clause being susceptible of construction, we do not believe that we are at liberty to adopt at this time a construction diametrically opposed to that which the parties have placed thereon for so long time." — This is the ratio for rejecting the Board's contrary construction after nine years of consistent practice.
• "The intention of the legislature as evidence by the amendment (and the legislature was simply trying to set down what the parties interested had agreed on), together with the practical construction adopted by the parties and acted on for a long period of time is sufficient to constrain us to accept the construction thus practically given and to overrule that adopted by the Board of Public Utility Commissioner." — This passage synthesizes the two grounds—legislative intent from the amendment and long-standing practical construction—that constrained the Court to rule for the company.

• Jover vs. Insular Government, 221 U.S., 623 — Cited by the Court, together with article 1282 of the Civil Code, to support reliance on the practical construction placed by the parties on the franchise clause; the Court used it to uphold the visible-badge interpretation.

• Section 37, Act No. 23307 — The proceeding was brought in the Supreme Court under this section to revoke an order of the Board of Public Utility Commissioners. It supplied the procedural basis for the Court's review and annulment of the Board's order.
• Act No. 484 and Ordinance No. 44 — Act No. 484 authorized the City of Manila to grant the franchise, and Ordinance No. 44 contained the free-transportation clause. The Court construed the clause "wearing official badges" to require visible wearing.
• Article 1282, Civil Code — Cited with Jover vs. Insular Government as authority for the rule that the parties' construction of a contract clause is entitled to weight. The Court applied it to uphold the nine-year practical construction requiring visible badges.

Arellano, C.J., Torres, Johnson, Trent, and Araullo, JJ., concurred.

• Carson, J. — Dissented and reserved, with the consent of the court, the right to file a separate opinion at a later day. The provided text does not state the grounds for the dissent.