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

No. L-22766 August 30, 1968

On June 18,1960, Congress amended the Public Service Act and introduced doing away with the requirement of a certificate of public convenience and necessity from the Public Service Commission for “public services owned or operated by government entities or government-owned and controlled corporations (GOCC),” but at the same time affecting its power of regulation which while exempting public services owned or operated by any instrumentality of the government or any GOCC from its supervision, jurisdiction and control stops short of including “the fixing of rates”.
Surigao Electric Co., and Arturo Lumanlan filed a petition for review challenging the validity of the order of respondent Public Service Commission, dated July 11, 1963, wherein it held that it had “no alternative but to approve the tentative schedule of rates submitted by the applicant”, the Municipality of Surigao.

Whether or not a municipal government can directly maintain & operate an electric plant without obtaining a specific franchise for the purpose and without a certificate of public convenience and necessity duly issued by the PSC.

The Municipality of Surigao is not a GOCC. However, it cannot be said that it is not a government entity.
As early as 1916, in Mendoza v. de Leon (33 Phil. 508), the dual character of a municipal corporation has long been recognized: (1) as Governmental, being a branch of the general administration of the State, and (2) as Quasi-Private and Corporate.

It is an undeniable fact that “legislative and government powers” are “conferred upon a municipality…to enable it to aid a state in properly governing that portion of the people residing within its municipality, such powers (being) in their nature public, xxx (1 Dilon, Commentaries on the Law of Municipal Corporations, 5th ed., p.68 [1911]).

“Governmental affairs do not lose their governmental character by being delegated to the municipal governments…to preserve the peace, protect the morals and health of the community and so on is to administer government, whether it be done by the central government itself or is shifted to a local organization.” (Mendoza v. de Leon).

A municipal corporation is a government entity and functions as an extension of the national government, and, therefore, it is an instrumentality of the latter. By express provisions of Sec.14(e) of RA 2677, an instrumentality of the national government is exempted from the jurisdiction of the PSC except with respect to the fixing of rates.

A legislative franchise cannot override the specific constitutional restriction that no franchise or right shall be granted to any individual or corporation except under a condition that it shall be subject to amendment, alteration or repeal by Congress (Art.XIV, Sec.8, Constitution). Such amendment/alteration may be implied from a latter act of general applicability.

A legislative franchise cannot be availed of to defeat the proper exercise of police power. In the American case of Charles River Bridge v. Warren Bridge (1837): “the continued existence of a government would be of no great value if…it was disarmed of the powers necessary to accomplish the ends of its creation; and the functions it was designed to perform, transferred to the hands of privileged corporations. xxx while the rights of private property are sacredly guarded…the community also have rights, and that the happiness and well-being of every citizen depends on their faithful preservation.”


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