Manila Electric Company v. Muntinlupa
REITERATIONFacts
The Antecedents: Petitioner Manila Electric Company (Meralco) assailed the Court of Appeals' decision ordering it to pay a franchise tax to the City of Muntinlupa based on Municipal Ordinance No. 93-35 (MO 93-35), effective January 1, 1994. Meralco argued that as a municipality, Muntinlupa lacked the authority to impose a franchise tax, which power is vested in provinces and cities under Sections 134, 137, and 151 of Republic Act No. 7160 (Local Government Code of 1991). The City of Muntinlupa, through its City Treasurer Nelia A. Barlis, demanded payment of franchise tax from 1992 to 1999. Meralco sought to declare MO 93-35 null and void for being contrary to law and sought an injunction against the tax demand. Procedural History: The Regional Trial Court (RTC) declared Section 25 of MO 93-35 null and void ab initio for being ultra vires, as Muntinlupa, then a municipality, had no power to levy a franchise tax. The RTC found that the ordinance was contrary to RA 7160 and that Section 56 of RA 7926 (Charter of Muntinlupa City) did not cure the infirmity. The Court of Appeals (CA) set aside the RTC decision, holding that while the ordinance was initially ultra vires, its defect was cured when Muntinlupa became a highly urbanized city in 1995, making the tax effective from March 1, 1995. The Petition: Meralco filed a Petition for Review on Certiorari with the Supreme Court, questioning whether Section 56 of RA 7926 cured the nullity of Section 25 of MO 93-35, which had been declared void ab initio by both the RTC and CA.
Issue(s)
Whether Section 25 of Municipal Ordinance No. 93-35 of the then Municipality of Muntinlupa imposing a franchise tax, which was declared null and void ab initio for being ultra vires and contrary to the Local Government Code of 1991, was cured by Section 56 of R.A. 7926 converting the Municipality of Muntinlupa into a highly urbanized city. Whether Muntinlupa City could legally collect a franchise tax from 1992 to 1999, considering the initial invalidity of MO 93-35 and the subsequent conversion of Muntinlupa into a city. Whether Muntinlupa City could legally require Meralco to submit certain documents for the determination of its franchise tax, and the applicability of Article 236(b) of AO 270 in this context. Whether MO 93-35 as incorporated in the Charter of Muntinlupa City is a valid ordinance, considering the presumption of validity and the 30-day period to assail ordinances. Whether Meralco is entitled to the issuance of a writ of preliminary and/or permanent injunction enjoining the City of Muntinlupa from collecting franchise tax, and whether Muntinlupa City is entitled to moral damages and attorney's fees. Whether the court's decision aligns with the principle that implementing rules and regulations cannot exceed the scope of the law they implement.
Ruling
The Supreme Court granted the petition, reversed and set aside the Court of Appeals' decision, and reinstated the Regional Trial Court's decision. Section 25 of Municipal Ordinance No. 93-35 was declared void.
Ratio Decidendi
On the validity of Section 25 of MO 93-35 and the curative effect of Section 56 of RA 7926: The Court held that Section 25 of MO 93-35 is null and void for being ultra vires. For an ordinance to be valid, it must not only be within the corporate powers of the Local Government Unit (LGU) and passed according to procedure, but also conform to the Constitution and statutes. Applying the Formal Test, the ordinance was enacted beyond the corporate powers of the then Municipality of Muntinlupa. Under the Substantive Test, it deviated from RA 7160, which vests the power to impose a franchise tax in provinces and cities, not municipalities. Sections 142, 134, 137, and 151 of RA 7160 clearly delineate these taxing powers, and since provinces are empowered to levy a franchise tax, municipalities, under Section 142, cannot. Therefore, the ordinance was invalid from its inception. Furthermore, Section 56 of the Charter of Muntinlupa City has no curative effect on the nullity of Section 25 of MO 93-35. Citing City of Pasig v. Manila Electric Company, the Court emphasized that a cityhood law cannot breathe life into an ordinance that is void ab initio. Section 56 contemplates ordinances that are valid and legal from their inception, and a void ordinance cannot legally exist or produce legal effects. Thus, the conversion of Muntinlupa into a city did not validate the previously void ordinance. On the legality of Muntinlupa City collecting franchise tax from 1992 to 1999: Given the initial invalidity of MO 93-35, Muntinlupa City could not legally collect a franchise tax from 1992 to 1999. The continued collection based on a void ordinance is unlawful, and the subsequent conversion to a city did not retroactively validate the collection. On the requirement for Meralco to submit documents and the applicability of Article 236(b) of AO 270: The Court rejected the City's reliance on Article 236(b) of the Implementing Rules and Regulations (IRR) of RA 7160. It reiterated the principle that implementing rules and regulations cannot go beyond the intent of the law they seek to implement, stating that "the spring cannot rise above its source." Since Section 142 of RA 7160 disenfranchised municipalities from levying a franchise tax, this provision must prevail over any conflicting provision in the IRR. Therefore, the requirement for Meralco to submit documents based on the void ordinance and the conflicting IRR provision is invalid. On the validity of MO 93-35 as incorporated in the Charter of Muntinlupa City: While ordinances enjoy a presumption of validity, they can be struck down if their invalidity is evident or established. The Court affirmed the RTC's finding that the 30-day period to assail an ordinance under Section 187 of RA 7160 is merely permissive, not mandatory, as indicated by the use of the word "may." This means an ordinance that is void ab initio can be assailed at any time. Therefore, MO 93-35, being void ab initio, is not a valid ordinance despite its incorporation in the Charter of Muntinlupa City. On the entitlement to damages, injunction, and attorney's fees: Given that Section 25 of MO 93-35 was declared void, Meralco's prayer for an injunction against the collection of franchise tax was granted. Consequently, the City of Muntinlupa's counterclaim for moral damages and attorney's fees was dismissed for lack of merit, as Meralco acted in good faith in seeking relief from a transgression of its rights. On the principle that implementing rules cannot exceed the scope of the law: The court's decision aligns with the fundamental principle that implementing rules and regulations cannot expand or contradict the provisions of the law they are intended to implement. The IRR cannot grant powers or impose obligations that are not authorized by the underlying statute.
Main Doctrine
A municipal ordinance imposing a franchise tax is ultra vires and void ab initio, as the power to impose such tax is vested only in provinces and cities under the Local Government Code of 1991. Such an ultra vires ordinance cannot be cured by subsequent conversion of the municipality into a city or by provisions in the city's charter adopting existing ordinances.