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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
A franchise is defined as “a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of public welfare, security, and safety.” (Section 131, par. m of the Local Government Code)
A franchise is defined to be a special privilege to do certain things conferred by government on an individual or corporation, and which does not belong to citizens generally of common right.
A franchise is basically a legislative grant of a special privilege to a person. (New Vision Satellite Network, Inc. v. The Provincial Government of Cagayan, G.R. No. 248840, July 5, 2021)
A franchise is defined under Section 131, par. m of the Local Government Code as “a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of public welfare, security, and safety.”
The 1987 Philippine Constitution grants Filipino citizens, domestic corporations and associations a franchise to operate a public service including public utility. Section 11, Article XII of the 1987 Constitution provides that:
“No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.”
Under the Commonwealth Act No. 146 or the Public Service Act (as amended by R.A. No. 11659), the Congress has the authority to grant franchises to public service. Any franchise or certificate necessary for the operation of a public service shall be granted by Congress. (Section 13, Public Service Act, as amended by Section 4, R.A. No. 11659)
The law says:
“It shall be unlawful for any individual, partnership, association, corporation or joint-stock company, their lessees, trustees, or receivers appointed by any court whatsoever, or any municipality, province, or other department of the Government of the Philippines, to engage in any public service business without having first secured from the Commission a certificate as provided for in this Act, except grantees of legislative franchises expressly exempting such grantee from the requirement of securing a certificate from this Commission, as well as concerned at present existing expressly exempted from the jurisdiction of the Commission, either totally or in part, by the provisions of section thirteen of this Act.”
Further, no franchise shall be exclusive in character and for a period longer than fifty (50) years. R.A. No. 11659 provides that:
No franchise, certificate, concession, or authorization granted by the appropriate Administrative Agencies pursuant to this Act shall be: (a) exclusive in character; (b) for a longer period than fifty (50) years: Provided, That if a public service has maintained an exemplary record in the delivery of services, and has made substantial investments on infrastructure, technology or equipment for its operations, such performance and size of investment shall be taken into consideration, and the application for renewal of the franchise, certificate, concession or authorization of the public service shall be given priority by the appropriate Administrative Agencies; and (c) granted except under the condition that it shall be subject to amendment, alteration, or repeal by Congress when the public interest so requires.
Given the foregoing, is a franchise a right or a privilege?
Jurisprudence tells us that a franchise is a privilege. In the case of New Vision Satellite Network, Inc. v. The Provincial Government of Cagayan (G.R. No. 248840, July 5, 2021), citing the case of ABS-CBN v. National Telecommunications Commission (G.R. No. 252119, August 25, 2020), the Supreme Court decided that:
Broadly speaking, “a franchise is defined to be a special privilege to do certain things conferred by government on an individual or corporation, and which does not belong to citizens generally of common right.” Insofar as the great powers of government are concerned, “[a] franchise is basically a legislative grant of a special privilege to a person.”
Further, it is ruled that franchise is a privilege granted by the State through its legislative body subject to regulation by the State itself by virtue of its police power through its administrative agencies.
A franchise, being merely a privilege emanating from the sovereign power of the state and owing its existence to a grant, is subject to regulation by the state itself by virtue of its police power through its administrative agencies.
In sum, the elements of a franchise are: (i) it is a special privilege belonging to an individual or corporation to do certain acts; (ii) the said privilege does not belong to citizens generally as a matter of common right; (iii) it is issued by the government; (iv) it is a grant or privilege from the sovereign power; (v) it is legislative in nature; and (vi) it is subject to regulation by the State by virtue of its police power through its administrative agencies. (New Vision Satellite Network, Inc. v. The Provincial Government of Cagayan, supra.)
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