Not every franchise violation a crime

Every time I am in a discussion of the Public Service Act, a recurring question often asked by students is whether violation of a legislative franchise, say to operate a public utility, gives rise to criminal liability.

At first glance, the answer appears simple. After all, a legislative franchise is granted by Congress and carries with it specific conditions, limitations and obligations. One may, therefore, instinctively assume that violating such conditions automatically exposes the franchise holder to criminal prosecution. The law, however, is more nuanced than that.

A legislative franchise is essentially a privilege granted by the State allowing a corporation or entity to engage in activities imbued with public interest. Broadcasting networks, power distributors, water concessionaires, transport operators and similar enterprises derive their authority from such franchises. Because these businesses directly affect the public, the State retains broad powers of supervision and regulation over them.

But the violation of a franchise condition does not necessarily amount to a crime.

In Philippine law, criminal liability exists only when the act complained of is expressly defined and penalized by law. This is anchored on the fundamental principle of nullum crimen nulla poena sine lege — there is no crime where there is no law punishing it. 

Courts cannot simply infer criminal liability from a regulatory or contractual breach.

Thus, if a franchise holder fails to comply with reporting requirements, service obligations, ownership limitations or operational standards, the consequences are often administrative or regulatory rather than criminal. The penalties may include suspension or revocation of permits, cancellation of licenses, imposition of fines, or even the eventual forfeiture of the franchise itself.

For example, regulatory agencies such as the National Telecommunications Commission, Energy Regulatory Commission, Land Transportation Franchising and Regulatory Board, and Civil Aeronautics Board are vested with disciplinary and supervisory powers over entities operating under legislative franchises. These agencies may issue cease-and-desist orders, impose sanctions, or suspend operations for noncompliance with applicable rules.

Criminal liability arises only when there is a specific law imposing a penal sanction.

There are instances when the franchise law itself contains a penal provision. Some franchises expressly provide that certain prohibited acts shall be punishable by fine or imprisonment. In such cases, criminal prosecution may validly arise from the violation.

There are likewise situations where the conduct constituting the franchise violation also violates another penal statute. A public utility operator may, for instance, incur criminal liability for tax evasion under the National Internal Revenue Code, falsification under the Revised Penal Code, corruption under anti-graft laws, or violations of the Anti-Dummy Law, Securities Regulation Code, or Data Privacy Act.

In other words, criminal liability does not arise merely because the franchise was violated, but because a separate law specifically characterizes the act as a criminal offense.

Equally important is the distinction between corporate liability and personal liability. As a rule, a legislative franchise is granted to the corporation itself, not to its officers or directors in their personal capacities. 

Consequently, any administrative sanction, fine, or penalty is ordinarily imposed upon the corporation.

Corporate officers do not automatically become criminally liable for every corporate violation. Personal liability arises only when the law itself expressly makes responsible officers answerable, or when there are sufficient grounds to pierce the corporate veil. The latter assumes misuse or abuse of the corporation’s separate juridical personality — an exception rather than the rule.

This distinction is important because not every wrongful act should immediately be treated as a crime. Regulatory laws are intended not merely to punish but also to ensure compliance, maintain order and protect public interest. Administrative remedies often provide the government sufficient tools to discipline erring franchise holders without resorting to criminal prosecution.

Ultimately, the better view is that violation of a legislative franchise does not automatically give rise to criminal liability. The decisive question is whether there exists a law clearly and expressly punishing the act complained of. In criminal law, assumptions and implications are never enough. Liberty can only be curtailed by a law that unequivocally says so.