214 Republic vs PLDT (1990) [article 1306]

Plania, MS

Republic vs PLDT
G.R. No. L-18841
January 27, 1969

FACTS:
The plaintiff, Republic of the Philippines, is a political entity exercising governmental powers through its
branches and instrumentalities, one of which is the Bureau of Telecommunications. That office was
created on 1 July 1947, under Executive Order No. 94. Sometime in 1933, the defendant, PLDT, and the
RCA Communications, Inc., entered into an agreement whereby telephone messages, coming from the
United States and received by RCA's domestic station, could automatically be transferred to the lines of
PLDT; and vice-versa, for calls collected by the PLDT for transmission from the Philippines to the United
States. The contracting parties agreed to divide the tolls, as follows: 25% to PLDT and 75% to RCA. The
sharing was amended in 1941 to 30% for PLDT and 70% for RCA, and again amended in 1947 to a 50-50
basis. The arrangement was later extended to radio-telephone messages to and from European and
Asiatic countries. Their contract contained a stipulation that either party could terminate it on a 24-month
notice to the other. On 2 February 1956, PLDT gave notice to RCA to terminate their contract on 2
February 1958.

Soon after its creation in 1947, the Bureau of Telecommunications set up its own Government Telephone
System by utilizing its own appropriation and equipment and by renting trunk lines of the PLDT to enable
government offices to call private parties. Its application for the use of these trunk lines was in the usual
form of applications for telephone service, containing a statement, above the signature of the applicant,
that the latter will abide by the rules and regulations of the PLDT which are on file with the Public Service
Commission. One of the many rules prohibits the public use of the service furnished the telephone
subscriber for his private use. The Bureau has extended its services to the general public since 1948,
using the same trunk lines owned by, and rented from, the PLDT, and prescribing its (the Bureau's) own
schedule of rates. Through these trunk lines, a Government Telephone System (GTS) subscriber could
make a call to a PLDT subscriber in the same way that the latter could make a call to the former.

On 5 March 1958, the plaintiff, through the Director of Telecommunications, entered into an agreement
with RCA Communications, Inc., for a joint overseas telephone service whereby the Bureau would convey
radio-telephone overseas calls received by RCA's station to and from local residents. Actually, they
inaugurated this joint operation on 2 February 1958, under a "provisional" agreement.

On 7 April 1958, the defendant Philippine Long Distance Telephone Company, complained to the Bureau
of Telecommunications that said bureau was violating the conditions under which their Private Branch
Exchange (PBX) is inter-connected with the PLDT's facilities, referring to the rented trunk lines, for the
Bureau had used the trunk lines not only for the use of government offices but even to serve private
persons or the general public, in competition with the business of the PLDT; and gave notice that if said
violations were not stopped by midnight of 12 April 1958, the PLDT would sever the telephone
connections. When the PLDT received no reply, it disconnected the trunk lines being rented by the
Bureau at midnight on 12 April 1958. 14 The result was the isolation of the Philippines, on telephone
services, from the rest of the world, except the United States.

The Bureau of Telecommunications had proposed to the PLDT on 8 January 1958 that both enter into an
interconnecting agreement, with the government paying (on a call basis) for all calls passing through the
interconnecting facilities from the Government Telephone System to the PLDT. 18 The PLDT replied that
it was willing to enter into an agreement on overseas telephone service to Europe and Asian countries
provided that the Bureau would submit to the jurisdiction and regulations of the Public Service
Commission and in consideration of 37 1/2% of the gross revenues. In its memorandum in lieu of oral
argument in this Court dated 9 February 1964, on page 8, the defendant reduced its offer to 33 1/3 %
(1/3) as its share in the overseas telephone service. The proposals were not accepted by either party.

Issue: Won Bureau's commercial services constituted unfair competition, and that the Bureau was guilty
of fraud and abuse under its contract.

Ruling:
No.

We agree with the court below that parties cannot be coerced to enter into a contract where no
agreement is had between them as to the principal terms and conditions of the contract.

Freedom to stipulate such terms and conditions is of the essence of our contractual system, and by
express provision of the statute, a contract may be annulled if tainted by violence, intimidation, or undue
influence (Articles 1306, 1336, 1337, Civil Code of the Philippines). But the court a quo has apparently
overlooked that while the Republic may not compel the PLDT to celebrate a contract with it, the Republic
may, in the exercise of the sovereign power of eminent domain, require the telephone company to permit
interconnection of the government telephone system and that of the PLDT, as the needs of the
government service may require, subject to the payment of just compensation to be determined by the
court. Nominally, of course, the power of eminent domain results in the taking or appropriation of title to,
and possession of, the expropriated property; but no cogent reason appears why the said power may not
be availed of to impose only a burden upon the owner of condemned property, without loss of title and
possession. It is unquestionable that real property may, through expropriation, be subjected to an
easement of right of way. The use of the PLDT's lines and services to allow inter-service connection
between both telephone systems is not much different. In either case private property is subjected to a
burden for public use and benefit. If, under section 6, Article XIII, of the Constitution, the State may, in the
interest of national welfare, transfer utilities to public ownership upon payment of just compensation, there
is no reason why the State may not require a public utility to render services in the general interest,
provided just compensation is paid therefor. Ultimately, the beneficiary of the interconnecting service
would be the users of both telephone systems, so that the condemnation would be for public use.

In the ultimate analysis, the true objection of the PLDT to continue the link between its network and that of
the Government is that the latter competes "parasitically" (sic) with its own telephone services.
Considering, however, that the PLDT franchise is non-exclusive; that it is well-known that defendant
PLDT is unable to adequately cope with the current demands for telephone service, as shown by the
number of pending applications therefor; and that the PLDT's right to just compensation for the services
rendered to the Government telephone system and its users is herein recognized and preserved, the
objections of defendant-appellant are without merit. To uphold the PLDT's contention is to subordinate the
needs of the general public to the right of the PLDT to derive profit from the future expansion of its
services under its non-exclusive franchise.