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G.R. No. L-18841 January 27, 1969

REPUBLIC OF TE PILIPPINE!, plaintif-appellant,vs.PILIPPINE LONG "I!T#NCE TELEPONE CO$P#N%, deendant-appellant.

Ofce o the Solicitor General Arturo A. Alariz, Assistant Solicitor General Antonio A. Torres and SolicitorCamilo D. Quiason or plainti-appellant.once !nrile, Si"uion #e$na, %ontecillo and &elo or deendant-appellant.

RE%E!, J.B.L.,  J.:

  Direct appeals, upon a joint record on appeal, by both the plaintif and the deendant rom thedismissal, ater hearing, by the Court o First Instance o Manila, in its Civil Case o. !"#$", o theirrespective complaint and counterclaims, but ma%ing permanent a preliminary mandatory injunctiontheretoore issued against the deendant on the interconnection o telephone acilities o&ned and operatedby said parties.

  'he plaintif, (epublic o the )hilippines, is a political entity e*ercising governmental po&ersthrough its branches and instrumentalities, one o &hich is the +ureau o 'elecommunications. 'hat oce&as created on uly /01, under 2*ecutive 3rder o. /0, &ith the ollo&ing po&ers and duties, inaddition to certain po&ers and duties ormerly vested in the Director o )osts4 'a(phil.)*t 

  52C. 1/. 'he +ureau o 'elecommunications shall e*ercise the ollo&ing po&ers and duties4

6a7 'o operate and maintain e*isting &ire-telegraph and radio-telegraph oces, stations, andacilities, and those to be established to restore the pre-&ar telecommunication service under the+ureau o )osts, as &ell as such additional oces or stations as may hereater be established toprovide telecommunication service in places re8uiring such service9

6b7 'o investigate, consolidate, negotiate or, operate and maintain &ire-telephone or radiotelephone communication service throughout the )hilippines by utili:ing such e*isting acilities incities, to&ns, and provinces as may be ound easible and under such terms and conditions orarrangements &ith the present o&ners or operators thereo as may be agreed upon to the

satisaction o all concerned9

6c7 'o prescribe, subject to approval by the Department ;ead, e8uitable rates o charges ormessages handled by the system and<or or time calls and other services that may be rendered bysaid system9

6d7 'o establish and maintain coastal stations to serve ships at sea or aircrats and, &hen publicinterest so re8uires, to engage in the international telecommunication service in agreement &ithother countries desiring to establish such service &ith the (epublic o the )hilippines9 and

6e7 'o abide by all e*isting rules and regulations prescribed by the International 'elecommunicationConvention relative to the accounting, disposition and e*change o messages handled in theinternational service, and those that may hereater be promulgated by said convention and adheredto by the =overnment o the (epublic o the )hilippines.  

 'he deendant, )hilippine >ong Distance 'elephone Company 6)>D' or short7, is a public servicecorporation holding a legislative ranchise, ?ct !0@A, as amended by Common&ealth ?ct 0$1, to install,operate and maintain a telephone system throughout the )hilippines and to carry on the business oelectrical transmission o messages &ithin the )hilippines and bet&een the )hilippines and the telephonesystems o other countries. @ 'he (C? Communications, Inc., 6&hich is not a party to the present case buthas contractual relations &ith the parties7 is an ?merican corporation authori:ed to transact business inthe )hilippines and is the grantee, by assignment, o a legislative ranchise to operate a domestic stationor the reception and transmission o long distance &ireless messages 6?ct @1#7 and to operatebroadcasting and radio-telephone and radio-telegraphic communications services 6?ct !#$7. !

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  5ometime in /!!, the deendant, )>D', and the (C? Communications, Inc., entered into anagreement &hereby telephone messages, coming rom the Bnited 5tates and received by (C?s domesticstation, could automatically be transerred to the lines o )>D'9 and vice-versa, or calls collected by the)>D' or transmission rom the )hilippines to the Bnited 5tates. 'he contracting parties agreed to dividethe tolls, as ollo&s4 @" to )>D' and 1" to (C?. 'he sharing &as amended in /0 to !$ or )>D' and1$ or (C?, and again amended in /01 to a "$-"$ basis. 'he arrangement &as later e*tended to radio-telephone messages to and rom 2uropean and ?siatic countries. 'heir contract contained a stipulationthat either party could terminate it on a @0-month notice to the other.  0 3n @ February /"A, )>D' gavenotice to (C? to terminate their contract on @ February /"#. "

5oon ater its creation in /01, the +ureau o 'elecommunications set up its o&n =overnment 'elephone 5ystem by utili:ing its o&n appropriation and e8uipment and by renting trun% lines o the )>D'to enable government oces to call private parties. A Its application or the use o these trun% lines &as inthe usual orm o applications or telephone service, containing a statement, above the signature o theapplicant, that the latter &ill abide by the rules and regulations o the )>D' &hich are on Ele &ith the)ublic 5ervice Commission. 1 3ne o the many rules prohibits the public use o the service urnished thetelephone subscriber or his private use. # 'he +ureau has e*tended its services to the general public since/0#, / using the same trun% lines o&ned by, and rented rom, the )>D', and prescribing its 6the +ureaus7o&n schedule o rates. $ 'hrough these trun% lines, a =overnment 'elephone 5ystem 6='57 subscribercould ma%e a call to a )>D' subscriber in the same &ay that the latter could ma%e a call to the ormer.

3n " March /"#, the plaintif, through the Director o 'elecommunications, entered into an

agreement &ith (C? Communications, Inc., or a joint overseas telephone service &hereby the +ureau&ould convey radio-telephone overseas calls received by (C?s station to and rom local residents.

?ctually, they inaugurated this joint operation on @ February /"#, under a provisional agreement. @

3n 1 ?pril /"#, the deendant )hilippine >ong Distance 'elephone Company, complained to the+ureau o 'elecommunications that said bureau &as violating the conditions under &hich their )rivate+ranch 2*change 6)+G7 is inter-connected &ith the )>D's acilities, reerring to the rented trun% lines, orthe +ureau had used the trun% lines not only or the use o government oces but even to serve privatepersons or the general public, in competition &ith the business o the )>D'9 and gave notice that i saidviolations &ere not stopped by midnight o @ ?pril /"#, the )>D' &ould sever the telephoneconnections. ! Hhen the )>D' received no reply, it disconnected the trun% lines being rented by the+ureau at midnight on @ ?pril /"#. 0 'he result &as the isolation o the )hilippines, on telephoneservices, rom the rest o the &orld, e*cept the Bnited 5tates. "

?t that time, the +ureau &as maintaining ",$$$ telephones and had ",$$$ pending applications ortelephone connection. A 'he )>D' &as also maintaining A$,$$$ telephones and had also @$,$$$ pendingapplications. 1 'hrough the years, neither o them has been able to Ell up the demand or telephoneservice.

 'he +ureau o 'elecommunications had proposed to the )>D' on # anuary /"# that both enterinto an interconnecting agreement, &ith the government paying 6on a call basis7 or all calls passingthrough the interconnecting acilities rom the =overnment 'elephone 5ystem to the )>D'. # 'he )>D'replied that it &as &illing to enter into an agreement on overseas telephone service to 2urope and ?siancountries provided that the +ureau &ould submit to the jurisdiction and regulations o the )ublic 5erviceCommission and in consideration o !1 <@ o the gross revenues. / In its memorandum in lieu o oralargument in this Court dated / February /A0, on page #, the deendant reduced its ofer to !! <! 6<!7

as its share in the overseas telephone service. 'he proposals &ere not accepted by either party.

3n @ ?pril /"#, plaintif (epublic commenced suit against the deendant, )hilippine >ongDistance 'elephone Company, in the Court o First Instance o Manila 6Civil Case o. !"#$"7, praying in itscomplaint or judgment commanding the )>D' to e*ecute a contract &ith plaintif, through the +ureau, orthe use o the acilities o deendants telephone system throughout the )hilippines under such terms andconditions as the court might consider reasonable, and or a &rit o preliminary injunction against thedeendant company to restrain the severance o the e*isting telephone connections and<or restore thosesevered.

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  ?cting on the application o the plaintif, and on the ground that the severance o telephoneconnections by the deendant company &ould isolate the )hilippines rom other countries, the court a 8uo,on 0 ?pril /"#, issued an order or the deendant4

67 to orth&ith reconnect and restore the seventy-eight 61#7 trun% lines that it has disconnectedbet&een the acilities o the =overnment 'elephone 5ystem, including its overseas telephoneservices, and the acilities o deendant9 6@7 to rerain rom carrying into efect its threat to severthe e*isting telephone communication bet&een the +ureau o 'elecommunications and deendant,and not to ma%e connection over its telephone system o telephone calls coming to the )hilippines

rom oreign countries through the said +ureaus telephone acilities and the radio acilities o (C?Communications, Inc.9 and 6!7 to accept and connect through its telephone system all suchtelephone calls coming to the )hilippines rom oreign countries until urther order o this Court.

  3n @# ?pril /"#, the deendant company Eled its ans&er, &ith counterclaims.

It denied any obligation on its part to e*ecute a contrary o services &ith the +ureau o 'elecommunications9 contested the jurisdiction o the Court o First Instance to compel it to enter intointerconnecting agreements, and averred that it &as justiEed to disconnect the trun% lines heretooreleased to the +ureau o 'elecommunications under the e*isting agreement because its acilities &ere beingused in raud o its rights. )>D' urther claimed that the +ureau &as engaging in commercial telephoneoperations in e*cess o authority, in competition &ith, and to the prejudice o, the )>D', using deendantso&n telephone poles, &ithout proper accounting o revenues.

  ?ter trial, the lo&er court rendered judgment that it could not compel the )>D' to enter into anagreement &ith the +ureau because the parties &ere not in agreement9 that under 2*ecutive 3rder /0,establishing the +ureau o 'elecommunications, said +ureau &as not limited to servicing governmentoces alone, nor &as there any in the contract o lease o the trun% lines, since the )>D' %ne&, or ought tohave %no&n, at the time that their use by the +ureau &as to be public throughout the Islands, hence the+ureau &as neither guilty o raud, abuse, or misuse o the poles o the )>D'9 and, in vie& o serious publicprejudice that &ould result rom the disconnection o the trun% lines, declared the preliminary injunctionpermanent, although it dismissed both the complaint and the counterclaims.

  +oth parties appealed.

  'a%ing up Erst the appeal o the (epublic, the latter complains o the action o the trial court indismissing the part o its complaint see%ing to compel the deendant to enter into an interconnectingcontract &ith it, because the parties could not agree on the terms and conditions o the interconnection,and o its reusal to E* the terms and conditions thereor.

  He agree &ith the court belo& that parties can not be coerced to enter into a contract &here noagreement is had bet&een them as to the principal terms and conditions o the contract. Freedom tostipulate such terms and conditions is o the essence o our contractual system, and by e*press provisiono the statute, a contract may be annulled i tainted by violence, intimidation, or undue inJuence 6?rticles!$A, !!A, !!1, Civil Code o the )hilippines7. +ut the court a +uo has apparently overloo%ed that &hilethe (epublic may not compel the )>D' to celebrate a contract &ith it, the (epublic may, in the e*ercise othe sovereign po&er o eminent domain, re8uire the telephone company to permit interconnection o thegovernment telephone system and that o the )>D', as the needs o the government service may re8uire,

subject to the payment o just compensation to be determined by the court. ominally, o course, thepo&er o eminent domain results in the ta%ing or appropriation o title to, and possession o, thee*propriated property9 but no cogent reason appears &hy the said po&er may not be availed o to imposeonly a burden upon the o&ner o condemned property, &ithout loss o title and possession. It isun8uestionable that real property may, through e*propriation, be subjected to an easement o right o&ay. 'he use o the )>D's lines and services to allo& inter-service connection bet&een both telephonesystems is not much diferent. In either case private property is subjected to a burden or public use andbeneEt. I, under section A, ?rticle GIII, o the Constitution, the 5tate may, in the interest o national&elare, transer utilities to public o&nership upon payment o just compensation, there is no reason &hythe 5tate may not re8uire a public utility to render services in the general interest, provided justcompensation is paid thereor. Bltimately, the beneEciary o the interconnecting service &ould be the userso both telephone systems, so that the condemnation &ould be or public use.

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  'he +ureau o 'elecommunications, under section 1# 6b7 o 2*ecutive 3rder o. /0, may operateand maintain &ire telephone or radio telephone communications throughout the )hilippines by utili:inge*isting acilities in cities, to&ns, and provinces under such terms and conditions or arrangement &ithpresent o&ners or operators as may be agreed upon to the satisaction o all concerned9 but there isnothing in this section that &ould e*clude resort to condemnation proceedings &here unreasonable orunjust terms and conditions are e*acted, to the e*tent o crippling or seriously hampering the operationso said +ureau.

? perusal o the complaint sho&s that the (epublics cause o action is predicated upon the radio

telephonic isolation o the +ureaus acilities rom the outside &orld i the severance o interconnection&ere to be carried out by the )>D', thereby preventing the +ureau o 'elecommunications rom properlydischarging its unctions, to the prejudice o the general public. 5ave or the prayer to compel the )>D' toenter into a contract 6and the prayer is no essential part o the pleading7, the averments ma%e out a caseor compulsory rendering o inter-connecting services by the telephone company upon such terms andconditions as the court may determine to be just. ?nd since the lo&er court ound that both parties arepractically at one that deendant 6)>D'7 is entitled to reasonable compensation rom plaintif or thereasonable use o the ormers telephone acilities 6Decision, (ecord on ?ppeal, page @@07, the lo&er courtshould have proceeded to treat the case as one o condemnation o such services independently ocontract and proceeded to determine the just and reasonable compensation or the same, instead odismissing the petition.

 'his vie& &e have ta%en o the true nature o the (epublics petition necessarily results in

overruling the plea o deendant-appellant )>D' that the court o Erst instance had no jurisdiction toentertain the petition and that the proper orum or the action &as the )ublic 5ervice Commission. 'hatbody, under the la&, has no authority to pass upon actions or the ta%ing o private property under thesovereign right o eminent domain. Furthermore, &hile the deendant telephone company is a public utilitycorporation &hose ranchise, e8uipment and other properties are under the jurisdiction, supervision andcontrol o the )ublic 5ervice Commission 65ec. !, )ublic 5ervice ?ct7, yet the plaintifstelecommunications net&or% is a public service o&ned by the (epublic and operated by an instrumentalityo the ational =overnment, hence e*empt, under 5ection 0 o the )ublic 5ervice ?ct, rom such

 jurisdiction, supervision and control. 'he +ureau o 'elecommunications &as created in pursuance o astate policy reorgani:ing the government oces

  to meet the e*igencies attendant upon the establishment o the ree and independent=overnment o the (epublic o the )hilippines, and or the purpose o promoting simplicity,

economy and eciency in its operation 65ection , (epublic ?ct o. "7

and the determination o state policy is not vested in the Commission 6Btilities Com. vs. +artonville+us >ine, @/$ Ill. "109 @0 .2. !1!7.

Deendant )>D', as appellant, contends that the court belo& &as in error in not holding that the+ureau o 'elecommunications &as not empo&ered to engage in commercial telephone business, and inruling that said deendant &as not justiEed in disconnecting the telephone trun% lines it had previouslyleased to the +ureau. He End that the court a 8uo ruled correctly in rejecting both assertions.

2*ecutive 3rder o. /0, 5eries o /01, reorgani:ing the +ureau o 'elecommunications, e*presslyempo&ered the latter in its 5ection 1/, subsection 6b7, to negotiate or, operate and maintain &iretelephone or radio telephone communication service throughout the )hilippines, and, in subsection 6c7,to prescribe, subject to approval by the Department ;ead, e8uitable rates o charges or messageshandled by the system and<or or time calls and other services that may be rendered by the system.othing in these provisions limits the +ureau to non-commercial activities or prevents it rom serving thegeneral public. It may be that in its original prospectuses the +ureau ocials had stated that the service&ould be limited to government oces4 but such limitations could not bloc% uture e*pansion o thesystem, as authori:ed by the terms o the 2*ecutive 3rder, nor could the ocials o the +ureau bind the=overnment not to engage in services that are authori:ed by la&. It is a &ell-%no&n rule that erroneousapplication and enorcement o the la& by public ocers do not bloc% subse8uent correct application othe statute 6)>D' vs. Collector o Internal (evenue, /$ )hil. A1A7, and that the =overnment is neverestopped by mista%e or error on the part o its agents 6)ineda vs. Court o First Instance o 'ayabas, "@)hil. #$!, #$19 +enguet Consolidated Mining Co. vs. )ineda, /# )hil. 1, 1@07.

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  'he theses that the +ureaus commercial services constituted unair competition, and that the+ureau &as guilty o raud and abuse under its contract, are, li%e&ise, untenable.

First, the competition is merely hypothetical, the demand or telephone service being very muchmore than the supposed competitors can supply. ?s previously noted, the )>D' had @$,$$$ pendingapplications at the time, and the +ureau had another ",$$$. 'he telephone companys inability to meet thedemands or service are notorious even no&. 5econd, the charter o the deendant e*pressly provides4

52C. 0. 'he rights herein granted shall not be e*clusive, and the rights and po&er to grant

to any corporation, association or person other than the grantee ranchise or the telephone orelectrical transmission o message or signals shall not be impaired or afected by the granting othis ranchise4 6?ct !0!A7

  ?nd third, as the trial court correctly stated, &hen the +ureau o 'elecommunications subscribedto the trun% lines, deendant %ne& or should have %no&n that their use by the subscriber &as more or lesspublic and all embracing in nature, that is, throughout the )hilippines, i not abroad 6Decision, (ecord on?ppeal, page @A7.

 'he acceptance by the deendant o the payment o rentals, despite its %no&ledge that the plaintifhad e*tended the use o the trun% lines to commercial purposes, continuously since /0#, implies assentby the deendant to such e*tended use. 5ince this relationship has been maintained or a long time andthe public has patroni:ed both telephone systems, and their interconnection is to the public convenience,

it is too late or the deendant to claim misuse o its acilities, and it is not no& at liberty to unilaterallysever the physical connection o the trun% lines.

  ..., but there is high authority or the position that, &hen such physical connection has beenvoluntarily made, under a air and &or%able arrangement and guaranteed by contract and thecontinuous line has come to be patroni:ed and established as a great public convenience, suchconnection shall not in breach o the agreement be severed by one o the parties. In that case, thepublic is held to have such an interest in the arrangement that its rights must receive dueconsideration. 'his position Ends approval in 5tate e* rel. vs. Cad&aller, 1@ Ind. A/, A!A, #1 .2.A"$, and is stated in the elaborate and learned opinion o Chie ustice Myers as ollo&s4 5uchphysical connection cannot be re8uired as o right, but i such connection is voluntarily made bycontract, as is here alleged to be the case, so that the public ac8uires an interest in its continuance,the act o the parties in ma%ing such connection is e8uivalent to a declaration o a purpose to &aive

the primary right o independence, and it imposes upon the property such a public status that itmay not be disregarded citing Mahan v. Mich. 'el. Co., !@ Mich. @0@, /! .H. A@/, and thereasons upon &hich it is in part made to rest are reerred to in the same opinion, as ollo&s4 Hhereprivate property is by the consent o the o&ner invested &ith a public interest or privilege or thebeneEt o the public, the o&ner can no longer deal &ith it as private property only, but must hold itsubject to the right o the public in the e*ercise o that public interest or privilege conerred or theirbeneEt. ?llnut v. Inglis 6#$7 @ 2ast, "@1. 'he doctrine o this early case is the ac%no&ledgedla&. 6Clinton-Dunn 'el. Co. v. Carolina 'el. K 'el. Co., 10 5.2. A!A, A!#7.

It is clear that the main reason or the objection o the )>D' lies in the act that said appellant didnot e*pect that the +ureaus telephone system &ould e*pand &ith such rapidity as it has done9 but thise*pansion is no ground or the discontinuance o the service agreed upon.

 'he last issue urged by the )>D' as appellant is its right to compensation or the use o its poles obearing telephone &ires o the +ureau o 'elecommunications. ?dmitting that section / o the )>D'charter reserves to the =overnment

  the privilege &ithout compensation o using the poles o the grantee to attach one ten-pincross-arm, and to install, maintain and operate &ires o its telegraph system thereon9 roided,ho(eer , 'hat the +ureau o )osts shall have the right to place additional cross-arms and &ires onthe poles o the grantee by paying a compensation, the rate o &hich is to be agreed upon by theDirector o )osts and the grantee9

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  the deendant counterclaimed or )#,11@.$$ or the use o its poles by the plaintif, contending that&hat &as allo&ed ree use, under the aore8uoted provision, &as one ten-pin cross-arm attachment andonly or plaintifs telegraph system, not or its telephone system9 that said section could not reer to theplaintifs telephone system, because it did not have such telephone system &hen deendant ac8uired itsranchise. 'he implication o the argument is that plaintif has to pay or the use o deendants poles isuch use is or plaintifs telephone system and has to pay also i it attaches more than one 67 ten-pincross-arm or telegraphic purposes.

?s there is no proo that the telephone &ires strain the poles o the )>D' more than the telegraph

&ires, nor that they cause more damage than the &ires o the telegraph system, or that the =overnmenthas attached to the poles more than one ten-pin cross-arm as permitted by the )>D' charter, &e see nopoint in this assignment o error. 5o long as the burden to be borne by the )>D' poles is not increased, &esee no reason &hy the reservation in avor o the telegraph &ires o the government should not bee*tended to its telephone lines, any time that the government decided to engage also in this %ind ocommunication.

In the ultimate analysis, the true objection o the )>D' to continue the lin% bet&een its net&or%and that o the =overnment is that the latter competes parasitically 6sic7 &ith its o&n telephone servicesConsidering, ho&ever, that the )>D' ranchise is non-e*clusive9 that it is &ell-%no&n that deendant )>D'is unable to ade8uately cope &ith the current demands or telephone service, as sho&n by the number opending applications thereor9 and that the )>D's right to just compensation or the services rendered tothe =overnment telephone system and its users is herein recogni:ed and preserved, the objections o

deendant-appellant are &ithout merit. 'o uphold the )>D's contention is to subordinate the needs o thegeneral public to the right o the )>D' to derive proEt rom the uture e*pansion o its services under itsnon-e*clusive ranchise.

H;2(2F3(2, the decision o the Court o First Instance, no& under appeal, is armed, e*cept in soar as it dismisses the petition o the (epublic o the )hilippines to compel the )hilippine >ong Distance

 'elephone Company to continue servicing the =overnment telephone system upon such terms, and or acompensation, that the trial court may determine to be just, including the period elapsed rom the Eling othe original complaint or petition. ?nd or this purpose, the records are ordered returned to the court oorigin or urther hearings and other proceedings not inconsistent &ith this opinion. o costs.

Concepcion, C.., Dizon, %aalintal, /aldiar, Sanchez, Castro, 0ernando, Capistrano, Teehanee and&arredo, ., concur.