That Congress legislate the constitutional coverage of “public services”
In its article XII relating to the national economy and heritage, the 1987 Constitution provides unequivocally that “No franchise, certiIfcate, or any other form of license for the operation of a public utility shall be granted only to citizens of the Philippines or to corporations or associations incorporated under the laws of the Philippines of which at least sixty percent of the capital is owned by these citizens nor this franchise, certiIfcate, or the authorization be of an exclusive nature or for a period greater than Iffifty years. (Sec. 11, Art. XII, 1987 Constitution).
Essentially, the constitutional provision on public services allows foreign participation to amount to a maximum of 40% of the share capital of a national company or association engaged in public service; it completely prohibits all foreigners from engaging in activities, businesses, business ventures or industries classified as “public services”.
Prof. Joaquin G. Bernas, SJ, observed that “[t]This filipinization provision is one of the products of the spirit of nationalism that took hold of the Constitutional Convention of 1935. It provides for the filipinization of public services by requiring that any form of authorization for the operation of public services granted only to “citizens of the Philippines or to corporations or associations organized under the laws of the Philippines of which at least sixty per cent of the capital is held by such citizens. This provision is a recognition of the sensitive and vital position of public services both in the national economy and for national security.
Our Supreme Court (SC) in Gamboa v. Teves, GR No. 176579, 28 June 2011, 652 SCRA 690 (2011), held that the question of the extent of foreign participation in public services under “Sec. 11, Art. XII of the Constitution has profound implications for the national economy. In fact, a resolution of this issue will determine whether Filipinos are masters or second-class citizens in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of the national economy. Indeed, if there is ever a legal issue that has profound implications for the entire nation and for future generations of Filipinos, it is the threshold legal issue presented in this case.
That Congress, through legislative enactment, i.e., RA No. 11659, delimit or declassify the coverage of the term “utilities” to exclude activities, businesses, commercial enterprises, or industries that have been declared by the SC to fall within the scope of Art. 11, Art. XII of the 1987 Constitution? This is the central question that is addressed in this article.
The long-standing tenet of Philippine constitutional law is that the constitution is what the SC says it is.
Prof. Bernas wrote that “constitutional law, as understood in both American and Philippine law, is not just the text of the constitution itself. It is “a set of rules resulting from the interpretation by a high court of cases in which the validity, in relation to the constitutional instrument, of an act of governmental power[…]has been disputed. This function, conveniently called “judicial review”, involves the power and duty on the part of the [Supreme] Court to pronounce the nullity of any such act which does not correspond to its own interpretation of the constitutional instrument…'”
The corollary principle of constitutional construction is that unless the constitution itself provides that certain matters are within the power of the legislature ofIfnot by law, the Constitution is what the SC considers it to be — the SC is the Iffinal arbiter of the meaning and scope of constitutional provisions.
When we dissect the text of Sec. 11, Art. XII of the 1987 Constitution, it leaves no latitude to Congress to determine the coverage of businesses that would fall under the coverage of “public services”.
This may mean that the IfThe final determination of whether an activity, firm, business enterprise or industry falls within the constitutional coverage of “public services” depends on how the SC has definedIfdefined the meaning and scope of the term in justiciable disputes within its jurisdiction as a constitutional court.
How did the SC interpret the meaning and coverage of the term “public services” in what is now Sec. 11, Art. XII of the 1987 Constitution?
In approaching the matter, it should be borne in mind that the statutory regulation of public utilities in general, which formally began under Act No. 2307 of December 19, 1913 – which created the Board of Public Utility Commission, more later changed to Public Service Commission under Law No. 3316 – predates the constitutional nationalization of public services, when it first appeared under s. 8, s. XIV of the 1935 Constitution.
Therefore, when the Civil Service Act was enacted as Commonwealth Act No. 1169 on November 7, 1936, to provide a more comprehensive code on the regulation of public services, it was interpreted as also implementing statutory work of Sec. 8, s. XIV of the 1935 Constitution.
In other words, our SC had already developed a doctrinal meaning and coverage of the term “public services” before the advent of the constitutional nationalization of public services under Sec. 8, Art. XIV of the 1935 Constitution.
In United States v. Tan Piaco, 40 Phil. 853, 856 (1920), the first decision made under Law No. 2307 to determine whether the defendants operated vehicles as common carriers without permission from the Public Utility Commission to hold them criminally liable in under the said law, the CS relied on the law definition of public services under art. 14 of Law No. 2307, which reads in part as follows: “…The term “public service” is hereby defined to include any individual, joint partnership, association, corporation or corporation,…. who may now or hereafter own, operate, manage or control any common carrier, railway, urban railway, … engaged in the transportation of passengers, goods, …. for public use. »
Tan Piaco’s SC used the listing under Sec. 14 of Law No. 2307 to determine what constitutes “public utility” and further required the demonstration of “public utility” by holding that “under the provisions of the said article, two things are necessary: (a) The individual, the co-association… must be a public service; and (b) the business in which that partnership[…]is engaged must be of public utility. As long as the individual or the joint venture[…]is engaged in a purely private business, without trying to render service to all who may request it, it can in no way be considered a public service for public use.
Indeed, Tan Piaco provided that under statutory utility law as subject to the jurisdiction of the utility commission, there are two essential elements: first, the activity, undertaking, commercial enterprise or industry must be Iffixed by law as a public service; and second, that activity, undertaking, business or industry is for public use.
The Court held that “if the use is merely optional for the owner, or if the public utility is merely accidental, it is not a public use, authorizing the exercise of the jurisdiction of the commission of ‘public utility. The real test for judging the character of the use is whether the public can enjoy it by right or only with permission.
In Iloilo Ice and Cold Storage Company v. Public Utility Board, 44 Phil. 551, 555-556 (1923), where the question was whether an ice and cold storage business which catered only to a limited clientele and withheld its services from others, could be classified as a “public utility” under the supervision of the Public Utility Board, the SC noted that “the original Utility Act, Act No. 2307, in its s. 14, in speaking of the jurisdiction of the Board of Public Utility Commissioners and defining the term “public utility”, did not include ice, refrigeration and cold storage plants… [which] this shortcoming, however, was corrected by Law No. 2694, enacted in 1917, which amended Art. 14 of Law No. 2307…”
The Court then concluded that because of such an amendment, “the term ‘public purpose’, in this jurisdiction, [covers] corporation or corporation which may now or hereafter own, operate, manage or control, in the Philippine Islands, any ice system, refrigeration, cold storage, plant or equipment for public use.
The Court then held that the respondent could not be subject to the jurisdiction of the Public Utilities Board because the second essential element of “public use” was not present.
In his concurring opinion in Iloilo Ice and Cold Storage Company, Judge Ostrand referred to a distinction between a “common law” (i.e. the result on the ground that an ice plant is not in the public interest under of the common law, but that it is constituted of it only by statute; that in this case the [ice] the factory pretty much existed in its current form and as a private enterprise in the legal sense of the time, before the law making these factories of public utility was enacted…”
The implication of the Tan Piaco and Iloilo Ice and Cold Storage Company decisions was that the classification of activities, businesses, commercial enterprises or industries as “public utilities” to be under the supervision and control of public utility commissions would essentially be an exercise of legislative prerogative, since regulators can only exercise these powers and functions within the parameters of the statutes that create them.
As one scholar observed: “The legislature is vested with police power so that it can pass laws that would make society well-ordered and promote general welfare. And in the area of commercial enterprises and utility companies, which generally affect the lives of many, the legislature has created franchise and regulatory bodies to limit, monitor and streamline their operations. …”
In other words, before the constitutional provisions for the nationalization of public services, the SC had determined the coverage of the term “public services” according to the way in which the legislator, in the exercise of his police power over the regulation of companies affected by the public interest, determined that they were covered.
We now turn to the following question: when the constitutional framers incorporated Sec. 8, s. XIV in the 1935 Constitution limiting the operation of utilities to Filipinos and national corporations with at least 60% Filipino equity, did they intend that the term “utilities” have the same coverage under the Dry. 14 of Law No. 2307, as approved by the CS?
This article reFquotes the personal opinion of the author and does not reflectIfsocial booth of the Management Association of the Philippines or MAP.
Atti. Cesar L. Villanueva is Co-Chair for Governance of MAP’s ESG Committee, Chair of the Institute of Corporate Directors, inaugural Chair of the GOCC Governance Commission, former Dean of Ateneo Law School, and founding partner of Villanueva. Law firms Gabionza & Dy.