G.R. No. 26327 , April 1, 1927
ZAMBOANGA TRANSPORTATION CO., INC., petitioner, vs. THE PUBLIC UTILITY COMMISSION, respondent.

FACTS

The Zamboanga Transportation Co., Inc. (petitioner), a public utility, executed a chattel mortgage over its properties in favor of Bachrach Motor Co., Inc. to secure payment for trucks purchased on credit. The mortgage was later foreclosed, and the properties were sold to Bachrach. The petitioner did not seek prior approval from the Public Utility Commission (PUC) for the mortgage or the subsequent sale. Bachrach Motor Co., however, filed a petition with the PUC to secure approval for both the mortgage and the foreclosure sale. The Auxiliary Commissioner of Public Utilities approved the mortgage and the sale. The petitioner challenged this approval, arguing that the PUC had no authority to approve a mortgage executed without prior approval and that the approval was invalid.

ISSUE

Whether the Public Utility Commission had the power to approve the chattel mortgage executed by the petitioner and the subsequent sale of the mortgaged property through foreclosure.

RULING

YES. The Supreme Court affirmed the decision of the Auxiliary Commissioner, holding that the PUC had the authority to approve the mortgage and sale.

The Court based its ruling on Section 16(h) of Act No. 3108 , which prohibits a public utility from mortgaging or selling its property without prior approval from the PUC. Any mortgage or sale executed without such approval is null and void. The purpose of this requirement is to protect the public interest, as public utilities provide essential services, and encumbrances on their assets could jeopardize their operations.

The Court clarified that while the law requires prior approval, the PUC’s approval can be given either before or after the execution of the mortgage. Without approval, the mortgage is ineffective. Since the petitioner failed to seek approval, Bachrach Motor Co., as the mortgagee, had the right to petition for approval to protect its interests. The Court found that the mortgage was beneficial to the public interest, as it prevented the immediate foreclosure of an earlier mortgage and allowed the petitioner to continue its operations.

Regarding the approval of the foreclosure sale, the Court considered it superfluous but not prejudicial, as the validity of the sale depended on the validity of the underlying mortgage, which had been duly approved.

Thus, the PUC acted within its authority in approving the mortgage and sale, and its decision was affirmed.