Municipality of Lucban v. National Waterworks and Sewerage Authority
REITERATIONFacts
The Antecedents: The Municipality of Lucban (plaintiff) established and operated its own waterworks system since 1921, funded through municipal funds, loans from the Insular Government, and various allotments. The municipality enacted ordinances to regulate the use and payment for its water services. Shortly before World War II, it obtained a loan for expansion, which was released after liberation and subsequently paid. It also received funds from pork barrel and other government acts, and secured a certificate of public convenience to operate its system. The municipality managed and controlled the operation and finances of its water system. Procedural History: After the enactment of Republic Act No. 1383, which provided for the transfer of municipal waterworks to NAWASA (defendant), the Municipality of Lucban passed a resolution refusing the transfer. Despite this, the Municipal Treasurer transferred the assets and loan of the water system to NAWASA. The municipality then passed another resolution disapproving the transfer, leading to the filing of a complaint seeking to declare RA 1383 unconstitutional and to enjoin NAWASA from taking over the waterworks. The Petition: The Municipality of Lucban prayed for a declaration of unconstitutionality of Sections 1, 8, and 9 of Republic Act No. 1383 and related executive orders and circulars, and for an injunction against NAWASA from assuming ownership and operation of its waterworks.
Issue(s)
Whether Republic Act No. 1383, and its implementing executive orders and circulars, are unconstitutional for providing for the transfer of municipal waterworks to NAWASA without just compensation. Whether the construction and maintenance of a waterworks system by a municipality is a purely corporate or business function, distinct from its governmental functions. Whether the State, through its police power or power of eminent domain, can acquire municipal property like a waterworks system without providing just compensation.
Ruling
The Supreme Court affirmed the decision of the lower court, declaring Republic Act No. 1383 unconstitutional insofar as it vests ownership of municipal waterworks systems in NAWASA without compensation. The Court ordered NAWASA to render an accounting of the revenues it received from the operation of the Lucban waterworks system.
Ratio Decidendi
On the constitutionality of Republic Act No. 1383 and the nature of municipal waterworks: The Court reiterated its rulings in City of Baguio v. NAWASA and City of Cebu v. NAWASA, holding that the construction and maintenance of a waterworks system is a proprietary or business function of a municipality, not purely governmental. While it is a public service open to all who pay charges, this characteristic does not divest it of its proprietary nature. Therefore, such property is not subject to the unrestricted authority of the Legislature without due process and just compensation. On the exercise of police power: The Court found the appellant's theory that the transfer of ownership was a valid exercise of police power untenable. While the State possesses inherent police power to promote public order, safety, health, morals, and general welfare, this power is not absolute and is limited by the constitutional prohibition against taking private property for public use without just compensation. The acquisition of property without compensation cannot be justified under the guise of police power, as the considerations for police power and eminent domain are distinct. On the exercise of eminent domain: The Court also rejected the proposition that NAWASA could acquire the waterworks system through eminent domain. It emphasized that a fundamental requisite for the lawful exercise of eminent domain is the payment of just compensation to the owner of the condemned property, ascertained according to law. The Court noted that Republic Act No. 1383 was declared violative of the Constitution in the City of Baguio case precisely because it lacked a provision for effective payment of just compensation.
Main Doctrine
The transfer of a municipal waterworks system to the National Waterworks and Sewerage Authority (NAWASA) without just compensation, whether under the guise of police power or eminent domain, is unconstitutional as it violates the property rights of municipalities.