City of Cebu v. National Waterworks and Sewerage Authority
REITERATIONFacts
The Antecedents: The City of Cebu filed an action for declaratory relief against the National Waterworks and Sewerage Authority (NAWASA) to prevent NAWASA from taking over the Osmeña Waterworks System, pursuant to Section 8 of Republic Act No. 1383. The City prayed for an interpretation of the Act and a declaration that it is unconstitutional for depriving the City of its property rights without due process and just compensation. Procedural History: The lower court declared Republic Act No. 1383 unconstitutional in so far as it vested ownership of the Osmeña Waterworks System in NAWASA without just compensation, but upheld NAWASA's right of control, jurisdiction, and supervision. The question of what acts constitute ownership versus jurisdiction was left open. NAWASA appealed. The Petition: NAWASA contended that the System was under the control of the National Government, or was public property, or that just compensation was provided. The City of Cebu argued that the System was its patrimonial property, acquired through its own loan and operated for profit, and thus could not be taken without just compensation.
Issue(s)
Whether Republic Act No. 1383 is unconstitutional for depriving the City of Cebu of its property rights in the Osmeña Waterworks System without due process and just compensation. Whether the Osmeña Waterworks System constitutes patrimonial property of the City of Cebu or public property subject to legislative control. Whether the transfer of the Osmeña Waterworks System to NAWASA is a valid exercise of the State's police power. Whether the National Government has the right to acquire the Osmeña Waterworks System by eminent domain under Republic Act No. 1383.
Ruling
The Supreme Court affirmed the decision of the lower court, declaring Republic Act No. 1383 unconstitutional in so far as it transfers ownership of the Osmeña Waterworks System to NAWASA without providing for effective payment of just compensation. The Court upheld NAWASA's right of control, jurisdiction, and supervision over the System.
Ratio Decidendi
On the constitutionality of Republic Act No. 1383 regarding just compensation: The Court reiterated its ruling in City of Baguio vs. National Waterworks and Sewerage Authority. Section 8 of Republic Act No. 1383 provides for the transfer of government-owned waterworks systems to NAWASA in exchange for an equal value of NAWASA's assets. However, the nature and availability of these assets were not specified, rendering the compensation mechanism ineffective. The Constitution mandates that no person shall be deprived of property except for public use and upon payment of just compensation. Since Republic Act No. 1383 failed to provide for an effective payment of just compensation, it violates this constitutional guarantee. The Court emphasized that the law speaks of assets of NAWASA, but nothing concrete appears in the record to show what these assets are or how they would constitute just compensation for the Osmeña Waterworks System. Without clarification and effective payment, the City cannot be deprived of its property. On the nature of the Osmeña Waterworks System as patrimonial property: The Court found no merit in the contention that the Osmeña Waterworks System is public property. The System was established using funds from a loan obtained by the municipality of Cebu, which was fully paid by the municipality. The City of Cebu operated the System, obtained a certificate of public convenience from the Public Service Commission, and derived revenue from water rentals. While the Buhisan basin is on government reservation and the System serves the public, these facts do not transform its proprietary nature. The Court distinguished between property for public use, which is freely accessible to all, and property operated for profit, which is patrimonial. Citing Article 424 of the Civil Code and jurisprudence, the Court held that a water system designed to supply water to inhabitants for profit is a corporate function and patrimonial property, not public works for public service in the sense of free access. On the exercise of police power: The Court rejected the argument that the transfer of ownership was a valid exercise of police power. While the State has inherent police power to promote public welfare, this power is not without limitations. It cannot override constitutional guarantees, particularly the prohibition against taking private property for public use without just compensation. The Court stated that any statute purporting to be for public health, morals, or safety must have a real and substantial reason to these objects and cannot be a palpable invasion of rights secured by fundamental law. An exercise of police power that disregards constitutional guarantees is void. On the right of eminent domain: The Court also found the argument regarding the right of eminent domain untenable. A fundamental requisite for the lawful exercise of eminent domain is the payment of just compensation to the owner of the condemned property. Since Republic Act No. 1383 was declared unconstitutional precisely for its failure to provide for effective payment of just compensation, its provisions cannot be sustained as a valid exercise of eminent domain.
Main Doctrine
Republic Act No. 1383 is unconstitutional insofar as it deprives the City of Cebu of its patrimonial property, the Osmeña Waterworks System, without due process of law and just compensation. The transfer of such property to the National Waterworks and Sewerage Authority (NAWASA) without effective payment of just compensation violates the Constitution.