G.R. No. L-15525




Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-15525 October 11, 1961 THE MUNICIPALITY OF LUCBAN, plaintiff-appellee, vs. NATIONAL WATERWORKS AND SEWERAGE AUTHORITY, defendant-appellant. Government Corporate Counsel Simeon M. Gopengco and Juan C. Jimenez for defendant-appellant Ruperto Abcede for plaintiff-appellee. BENGZON, C.J.: This case commenced with a complaint filed in the Court of First Instance of Quezon City by the Municipality of Lucban as party plaintiff, against the National Waterworks and Sewerage Authority (hereafter called NAWASA) as party defendant. It prayed among other things that: (1) the provisions of Sections 1, 8 and 9 of Republic Act No. 1383 and those executive orders and circulars providing for the transfer of the ownership and operation of the waterworks of municipalities to the NAWASA, be declared unconstitutional; and (2) the NAWASA, and its agents be enjoined from assuming the ownership and operation of the plaintiff's waterworks. The defendant on June 6, 1956, filed a motion to dismiss on the ground that the complaint stated no cause of action. The said motion as well as plaintiff's petition for preliminary injunction was denied by the court. Subsequently, answer was filed, and issues joined, trial was had. The following facts were established: In 1919, plaintiff municipality, conformably to Section 2317 of the Revised Administrative Code, approved muncipal resolution No. 27 providing for the construction of a waterworks system, for which purpose it requested a loan of P25,000.00 from the Insular Government. On July 28, 1919, the Provincial Board of Quezon favorably indorsed the resolution to the Governor-General. On December 29, 1919, the Insular Government Advanced to plaintiff the sum of P15,000.00 on account of the approved loan. Thereafter, insular aid was extended to plaintiff for its waterworks system. On August 9, 1920, it received an insular aid of P25,000.00 and another allotment of P5,000.00 on September 23, 1920. On October 21, 1920, plaintiff's municipal council appropriated out of its municipal funds the sum of P2,000.00 to be used in connection with the construction of its water system. As of December 31, 1920, it had spent the amount of P46,508.50 on the works, out of the total sum of P47,000.00 which has been raised for the purpose. Plaintiff commenced supplying water to its inhabitants upon completion of the system in 1921. That original loan of P15,000.00 has been fully paid the plaintiff On October 30, 1920, plaintiff's municipal council passed ordinance No. 5 regulating public as well as private uses of its water system. Other ordinances provided a penalty for delinquency in payment of water charges; fixed the fees for water services; required the reading of water meters in the presence of the customer; and required that applications for water connections be accomplished jointly by the owner of the house to be serviced and its occupants Shortly before the last World War in 1941, plaintiff obtained a loan of P10,000.00 from the National Market and Waterworks Fund of the National Government in order to expand its equipment. Because of the outbreak of the last war, the said amount was impounded in the office of the Provincial Treasurer of Quezon and was released to plaintiff only after liberation. The said obligation of P10,000.00 has been fully paid by partial payments to, and by condonation by, the Rehabilitation Finance Corporation. Plaintiff received the sum of P20,000.00 from the pork barrel funds of former Representative Fortunato Suarez. It was also granted an allotment of P3,000.00 under Republic Act No. 920, and another allotment of P12,000.00 under Republic Act No. 1200 In order to qualify as a recipient of FAO-PHILCUSA aid, plaintiff secured from the Public Service Commission on October 18, 1954, a certificate of public convenience to operate and maintain its water system. In the same year, it obtained a loan of P31,601.95 the repayment of which was secured by a mortgage of its certificate of public convenience and all its equipment. In 1954 after deducting partial payments, there remained an outstanding balance of P27,900.00. During the same year, plaintiff received from the FAO-PHILCUSA aid in the form of pipes, valves, fitting, etc. Plaintiff has always managed and controlled the operation of its water system, known as Apolinario de la Cruz Waterworks System since its creation in 1920. It has also controlled the appointment of its personnel. The operating income and expenses of its water system have always been regulated or disposed of by plaintiff's municipal council After the enactment of Republic Act No. 1383, plaintiff's municipal council passed Municipal Resolution No. 27 of January 31, 1956, indicating to defendant its refusal to transfer to the latter its municipal water system. However, in disregard of the aforesaid resolution, Gregorio V. Isana, for Municipal Treasurer of plaintiff, transferred to defendant all the assets and equipment of plaintiff's water system with a book value of P46,152.00 and the loan of P31,601.95 obtained by plaintiff from the Rehabilitation Finance Corporation in 1954. On February 15, 1956, plaintiff's municipal council passed Resolution No. 35 disapproving or rejecting the transfer of its water system to defendant by its former Municipal Treasurer. And as a consequence, this litigation began. There are no factual issues. On the legal issues, the lower court held that the construction and maintenance of a waterworks system is a purely corporate or business function of a municipal corporation, distinct and separate from its governmental functions; that such property like those owned by private individuals is not subject to the unrestricted authority of the Legislature, except by the exercise of eminent domain and upon full payment of just compensation; and that inasmuch as under the statutory provision (Sec. 8 of the controverted statute, Republic Act No. 1383), plaintiff will be credited by defendant on its book with an equivalent value merely in the form of book entry, payment not being in the form of money, the requirements for a valid exercise of the right of eminent domain were not complied with. It further opined that the State's police power is never intended as a substitute for just compensation in eminent domain proceedings, because liability to the exercise of police power rests entirely on different considerations, and the power does not extend so far as to include the acquisition of property without compensation. The lower court declared the said ACT (Republic Act No. 1383) unconstitutional in so far as it vests on the NAWASA ownership of the waterworks system of municipalities, chartered cities and provinces without compensation. In its dispositive order, the said court declared the plaintiff the owner of the Lucban waterworks system and ordered the NAWASA to render an accounting of the revenues it had received from the operation of the said waterworks system. The defendant authority (NAWASA) has appealed from the above decision; and its brief maintains the following propositions: (1) the waterworks is not a municipal patrimonial property; (2) the powers exercised by the appellee (plaintiff) over the system is purely governmental for public services, impressed with public interest and therefore, subject to legislative control; (3) Republic Act No. 1383 has merely provided for a centralization of all waterworks throughout the Philippines, which is a legitimate exercise of the state's police power; (4) even assuming that the Apolinario de la Cruz waterworks is not public property, still the State may legislate over it and if necessary, exercise the right of eminent domain. These are essentially the same as those propounded and resolved by this Court against the NAWASA in the cases of "City of Baguio versus NAWASA"¹, and "City of Cebu versus NAWASA"². We cannot but adopt the same ruling made therein, since the factual situations regarding establishment and prior control of the three systems are admittedly similar in all material respects. On the proposition that the waterworks is not a patrimonial property of the city or municipality but one for public use falling within the control of the Legislature, we repeat that it "overlooks the fact that only those of the general public who pay the required rental or charge authorized and collected by the System, do make use of the water. In other words, the System serves all who pay the charges. It is open to the public (in this sense, it is public service), but upon the payment of only of a certain rental (which makes it proprietary)."³ As to the contention that the transfer of ownership of the waterworks system to the NAWASA is a valid exercise of the police power of the State: Similarly, we cannot uphold appellant's theory that the transfer of ownership of the (Osmeña) waterworks system to another government agency is a valid exercise of the police power of the State because while the power to enact laws intended to promote public order, safety, health, morals and general welfare of society is inherent in every sovereign state, such power is not without limitations, notable among which is the constitutional prohibition against the taking of private property for public use without just compensation." [Art. III, Sec. 1, Constitution of the Philippines.]⁴ On the proposition that the NAWASA may acquire the waterworks system through eminent domain: This we find to be equally untenable, for one of the essential requisites to the lawful exercise of this right is the payment to the owner of the condemned property of just compensation to be ascertained according to law. (Western Union Tel. Co. v. Louisville, etc. RCO 270, Ill. 388). Needless to state in this respect, that it is precisely for this reason, that is, lack of provision regarding effective payment of just compensation that Republic Act No. 1383 was declared violative of the Constitution in the case of City of Baguio v. NAWASA." ⁵ For the above reasons, the decision appealed from is hereby affirmed. So ordered. Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes and De Leon, JJ., concur. Footnotes ¹ L-12032, promulgated August 31, 1959. ² L-12892, promulgated April 30, 1960. ³ L-12893, supra ⁴ See p. 8 of decision, L-12892. ⁵ See pp. 5, 6 and 7 of decision, L-12892. The Lawphil Project - Arellano Law Foundation