MUNICIPALITY OF PAETE, PLAINTIFF AND APPELLEE, VS. NATIONAL WATERWORKS AND SEWERAGE AUTHORITY, DEFENDANT AND APPELLANT.

Appeal taken by the National Waterworks and Sewerage Authority – hereinafter
referred to as NWSA – from the de­cision of the Court of First Instance of
Laguna in Civil Case No. SC-283 dated April 24, 1962, the dispositive part of
which reads as follows:

“In view of all the foregoing, the Court renders judgment by:

1.      
Declaring the Municipality of Paete as owner of
the Paete Waterworks System formerly known as the Quesada Waterworks System;

2.       Ordering
the NWSA to turn over the Municipality of Paete the possession, control,
administration and supervision of the Paete Waterworks System;

3.       Ordering
the dissolution of the preliminary injunction issued by this Court on February
15, 1961, in Civil Case No. SC-282 and therefore dismisses said case;

4.       Ordering
the NWSA to render an accounting of all the income of the Paete Waterworks
System from December, 1956, up to the time the said waterworks system is turned
over to the Municipality of Paete, and, after said accounting, to turn over to
the Municipality of Paete all monies in the hands of the NWSA; and

5.      
Ordering the NWSA to pay the costs in these two
cases.

SO ORDERED.”

It appears that in the month of December 1956, relying upon the
provisions of Republic Act No. 1383, Executive Order No. 127 and Provincial
Circular No. 106 of the Pro­vincial Governor of Laguna, NWSA took possession
of, and assumed the administration, control and supervision of the Paete
Waterworks System, over the protest of the Municipality of Paete (Resolutions
No. 131 and 190 of the Municipal Council of Paete, Laguna attached as Annexes B
and C and made part of the Stipulation of Facts submitted by the parties).  Subsequently, however, the municipality
acquiesced thereto because, as stated at page 2 of its brief as appellee, there
was “a legal and moral duty on the part of the municipality of Paete to
turn over their waterworks system to the National Waterworks and Sewerage
Authority”.

It appears that notwithstanding the ruling of this Court in City
of Baguio vs. NAWASA, G. R. L-12032, August 31, 1959 and City of Cebu vs.
NAWASA, G. R. L-12892, April 30, 1960, the NWSA failed to pay to the
municipality of Paete any just compensation for the value of its waterworks
system.  In view of our ruling and NWSA’s
failure aforesaid, the water consumers of the municipality of Paete started paying
for their water consumption to said municipality.  This prompted NWSA to institute Civil Case
No. SC-282 on January 20, 1961 in the Court of First Instance of Laguna against
the Municipal Mayor and Muni­cipal Treasurer of Paete, to enjoin them from
intervening in the administration, control and supervision of the Paete
Waterworks System and from collecting from the water consumers any amount due
from them to the afore­said System.  Two
days later, the municipality of Paete, in turn, commenced Civil Case No. SC-283
in the same court for the recovery of the control, possession and
administration of its waterworks system from NWSA.

On February 15, 1961 the lower court issued a writ of preliminary
injunction prayed for by NWSA in the first case, enjoining the municipal mayor
and municipal treasurer from interfering with the administra­tion and control
of the Paete Waterworks System and from collecting dues from the water
consumers.

NWSA’s answer filed in Civil Case No. SC-283 alleged that the
plaintiff therein was not the owner of the Paete Waterworks System and that
under the pro­visions of Republic Act No. 1383, otherwise known as the NAWASA
Charter, it had the right to administer, possess and control all water systems
in the Philippines.

Both cases were tried and decided jointly, but as NWSA failed to
perfect an appeal in Civil Case No. SC-282 this appeal concerns Civil Case No.
SC-283 alone.  The appealed decision was
rendered on the basis of the follow­ing stipulation of facts:

“x x x                         x x x                             x x x

(1)    
That the Nawasa admits the ownership by the Municipality
of Paete of the Paete Waterworks System, formerly known as the Quesada
Waterworks System;

(2)     That
the Municipality of Paete, respondent and plaintiff, respectively, in the two
above-entitled cases, admits the decision of the Supreme Court in G. R. No. L-15525, entitled, Municipality of Lucban
versus Nawasa, attaching hereto as part of this stipulation a copy of said
decision of the Supreme Court, together with the decision of the Court of First
Instance of Quezon Province; (Annex “A”)

(3)     That
the Nawasa came over the possession, control and supervision of the Paete
Waterworks System, pursuant to Republic Act 1383 and Executive Order No. 127
and further implemented by Provincial Circular No. 106 of the Provincial
Governor of Laguna;

(4)    
That since December, 1956 to the present all the
incomes derived from the system were collected and received by the Nawasa,
except for the periods of July 20, 1960 to February 20, 1961;

(5)     That
before the Nawasa came into the possession of the system of the Paete
Waterworks System, the Municipal Council of Paete Laguna, in its Resolution No.
131, as well as by Resolution No. 190, protested the transfer as contemplated
in Republic Act No. 1383; and for which said resolutions are here­by marked as
Annexes B and C, and made an in­tegral part of this stipulation;

(6)    
That from December, 1956 up to July 25, 1960,
and from February 15, 1961, when the writ of injunction was issued and served
on February 20, 1961, and up to the present the Nawasa has not rendered an
accounting of the income of the said system; and

(7)    
That the parties admit that the question raised
in these two cases does not concern ‘ownership’ but only as to who is entitled
to administer, control and super­vise the Quesada Waterworks System.  x x x”

The lone assignment of error made in appellant’s brief reads as
follows:

“THAT THE COURT ERRED IN HOLDING THAT THE PLAINTIFFS-APPELLEES
AS OWNERS IS EN­TITLED TO THE POSSESSION, ADMINISTRATION OF THE PAETE
WATERWORKS SYSTEM COMPLETELY DISREGARDING THE LIMITATIONS ON THE RIGHT OF
OWNERSHIP UNDER THE PROVISIONS OF CIVIL CODE; AND UNDER REPUBLIC ACT NO. 1383
AS AMENDED.”

The ownership of the Paete Waterworks System is not now in
question, it appearing from the stipulation of facts that NWSA admitted Paete’s
ownership thereof.  The only issue to be
resolved is whether the NWSA is entitled to continue in the possession,
administration, supervision and control of the aforesaid waterworks system in
view of our ruling in the City of Baguio and City of Cebu cases mentioned
heretofore, and in spite of the stipulated fact (paragraph 6 of the
stipulation) that since December 1956 until February 1961 and up to the time
when said stipulation of facts was submitted to the trial court, “the
NAWASA has not rendered an accounting of the said System”.

Upon the above issue we consider the following portion of our
decision in the case of City of Baguio vs. The National Waterworks and Sewerage
Authority (G. R. No. L-12032, August 31, 1959) to be relevant:

“But it is insisted that the waterworks system of Baguio does
not have the character of patrimonial property but comes under the phrase
‘public works for public service’ men­tioned in Article 424 of the New Civil
Code and as such is subject to the
control of Congress.  This contention is
also untenable.  The Baguio Waterworks
System is not like any public road, park, street or other public property held
in trust by a municipal council corporation for the benefit of the public but
it is rather a property owned by appellee in its proprietary character.  While the cases may differ as to the public
or private char­acter of waterworks, the weight of authority as far as the
legislature is concerned classes them as private affairs.  (sec. 239, Vol. I, Revised, McQuillin
Municipal Corporations, p. 239; Shrik vs. City of Lancaster, 313 Pa. 158, 169
Atl. 557).  And in this jurisdiction,
this Court has already expressed the view that a waterworks system is
patrimonial property of the city that has established it.  (Mendoza vs. De Leon, 33 Phil. 509).  And being owned by a municipal corporation in
a proprietary char­acter, waterworks cannot be taken away without observing the
safeguards set by our Constitu­tion for the protection of private property.

‘While the judicial opinions on this subject are more or less
uncertain in expression, and court judgments apparently conflicting, perhaps it
is correct to affirm that a majority of decisions recognize the private rights
of the municipal corporation, and hence support the view that all its property
of a distinctly private character is fully protected by the constitutional
provisions protecting private property of the individual or the private
corporation.  Accord­ingly the right of
the state as to the private property of the municipal corporation is a right of
regulation to be exercised in harmony with the general policy of the state, and
though broader than exists in the case of individuals, or private cor­porations,
is not a right of appro­priation.’

x x x x x x x x x

   ‘The decisions maintain
that the property held by a municipal corpora­tion in its private capacity is
not subject to the unrestricted control of the legislature, and the
municipality cannot be deprived of such property against its will, except by
the exer­cise of eminent domain with payment of full compensation.’ (McQuillin
Municipal Corporations, 2nd Ed., Vol. I, pp. 679­-681)

‘In its private capacity a municipal corporation is wholly
different.  The people of a compact
community usually require certain conveniences which can­not be furnished
without a franchise from the state and which are either unnecessary in the
rural districts, such as a system of sewers, or parks and open spaces, or which
on account of the expense it would be financially impossible to supply except
where the population is reasonably dense, such as water or gas.  x x x But in so far as the municipality is
thus authorized to exercise the
functions of a private corporation, it is clothed with the capacities of a
private corporation and may claim its rights and immunities, even as against
the sovereign, and is subject to the liabilities of such a corporation, even as
against third parties.  (19 R.C.L. p.
698).

“The attempt of appellant in having waterworks considered as
public property subject to the control of Congress or one which can be regulated
by the exercise of police power having failed, the question that now arises
is:  Does Republic Act No. 1383 provide
for the automatic expropriation of the waterworks in question in the light of
Our Constitution?  In other words, does
said law comply with the requirements of section 6, Article XIII, in relation
to section 1 (2), Article III, of our Constitution?

“Section 6, Article XIII of our Constitu­tion provides:

‘Sec. 6. The State may, in the interest of national welfare and de­fense,
establish and operate industries and means of transportation and communication,
and, upon payment of just compensation, transfer to public owner­ship utilities
and other private enterprise to be operated by the Government.’

“Section 1(2), Article III, of our Consti­tution provides:

‘(2) Private property shall not be taken for public use without
just compensation.’

“It is clear that the State may, in the interest of national
welfare, transfer to public ownership any private enterprise, upon payment of
just compensation.  At the same time, one
has to bear in mind that no person can be deprived of his property except for
public use and upon payment of just compensation.  There is an attempt to observe this
requirement in Republic Act No. 1383 when in providing for the transfer of
appellee’s waterworks system to a na­tional agency it was directed that the
transfer be made upon payment of an equiv­alent value of the property.  Has this been implemented?  Has appellant actually trans­ferred to
appellee any asset of the NAWASA that may be considered just compensation for
the property expropriated?  There is
nothing in the record to show that such was done.  Neither is there anything to this effect in Office
Memorandum No. 7 issued by the NAWASA in implementation of the provision of
Republic Act No. 1383.  The law speaks of
assets of the NAWASA but they are not specified.  While the Act empowers the NAWASA to contract
in­debtedness and issue bonds subject to the approval of the Secretary of
Finance when necessary for the transaction of its business (sec. 2, par. (1),
sec. 5, Act No. 1383), no such action has been taken to comply with appellant’s
commitment in so far as payment of compensation of appellee is concerned.  As to when such action should be taken no one
knows.  And unless this aspect of the law
is clarified and appellee is given its due compensation, appellee cannot be
deprived of its property even if appellant desires to take over its
administration in line with the spirit of the law.  We are therefore persuaded to conclude that
the law, insofar as it expropriates the waterworks in question without
providing for an effective payment of just compensation, violates our Constitu­tion.  In this respect, the decision of the trial
court is correct.”

The City of Baguio ruling was subsequently reiterated in City of
Cebu vs. NAWASA (G. R. No. L-12892, April 30, 1960 where, among other things,
We said:

“To prevent the National Waterworks and Sewerage Authority
(NAWASA), created under Republic Act No. 1383, from taking over the ownership,
control, supervision, and jurisdiction over the Osmeña Water­works System,
pursuant to the provisions of Section 8
of the said Act, the City of Cebu filed an action for declaratory re­lief in
the Court of First Instance of Cebu, naming the NAWASA as defendant, praying
for a clear interpretation of the provisions of said R. A. No. 1383; a
declaration of the rights and obligations of the parties thereunder; and a
declaration that the sta­tute or any part thereof, in so far as it deprives the
plaintiff of its property rights in the Osmeña Waterworks System without due
process of law and just compensation, is unconstitutional.

“In its answer, NAWASA contended that as the System had always
been under the con­trol and operation of the National Govern­ment, its transfer
to the defendant NAWASA was within the competence of Congress to do; that even
assuming that the said System be­longed to plaintiff, it was public property
and therefore, within the absolute control of Congress; and that granting that
it was patrimonial property, there was proper and just compensation provided
for in Republic Act No. 1383 for its transfer to NAWASA.

“After due trial, the lower court ren­dered judgment which was
later amended, declar­ing Republic Act No. 1383 unconstitutional ‘in so far as
it vests in defendant Authority (NAWASA) ownership over the Osmeña Waterworks
System without just compensation as required by the Constitution, without
prejudice to granting positive coercive relief upon proper showing that
defendant insists upon taking ownership of the Osmeña Waterworks System, at the
same time upholding the defendant’s right of control, jurisdiction and supervi­sion
over the said System.  The question as to
what acts of the NAWASA would constitute acts of ownership or dominion and what
would be considered as an exercise of jurisdiction, su­pervision and control
was left open for future determination.”

x x x              x x x                 x
x x

“The issues presented above are basically the same as those
raised and determined by this Court in the recent case of the City of Baguio v.
The National Waterworks and Sewerage Authority, G. R. No. L-12032, promulgated
August 31, 1959.  In the aforesaid case,
passing upon the question of whether Republic Act No. 1383 provides for the
automatic expropriation of the waterworks mentioned therein, we held, citing
Section 6, Article XIII and Section 1-(2), Article-III of our Constitution,
this wise:

‘It is clear that the State may, in the interest of national
welfare, transfer to public owner­ship any private enterprise upon payment of
just compensation.  At the same time, one
has to bear in mind that no person can be depriv­ed of his property except for
public use and upon payment of just compen­sation.  There is an attempt to observe this
requirement in Republic Act No. 1383
when in providing for the transfer of appellee’s water­works system to a
national agency it was directed that the transfer be made upon payment of an
equivalent value of the property.  Has
this been implemented?  Has appellant
actually transferred to appel­lee any asset of the NAWASA that may be
considered just compensation for the property expropriated?  There is nothing in the record to show that
such was done.  Neither is there any­thing
to this effect in Office Memo­randum No. 7 issued by the NAWASA in
implementation of the provision of Republic Act No. 1383.  The law speaks of assets of the NAWASA but
they are not specified.  While the Act
empowers the NAWASA to contract indebtedness and issue bonds subject to the
approval of the Secretary of Finance when neces­sary for the transaction of its
business (sec. 2, par. (1), sec. 5, Act No. 1383), no such action has been
taken to comply with appellant’s commitment in so far as payment of
compensation of appellee is concerned.  As
to when such action should be taken no one knows.  And unless this aspect of the law is cla­rified
and appellee is given its due compensation, appellee cannot be deprived of its
property even if appel­lant desires to take over its adminis­tration in line
with the spirit of the law.  We are
therefore persuaded to conclude that the law, insofar as it expropriates the
waterworks in question without providing for an effective payment of just
compensation, violates our Constitution.’

“Exactly the same situation obtains in the present case.
Section 8 of Republic Act No 1383 (supra.) provides that ‘the net book
value of the properties and assets of the Metropolitan Water District and of
government-owned waterworks and sewerage systems in cities, municipalities, or
municipal districts, and other government-owned waterworks and sewerage systems
shall be received by the Authority in payment for an equal value of the assets
of the National Waterworks and Sewerage Authority’.  In other words, all the properties and assets
of the Osmeña Waterworks System are transferred to the defendant NAWASA in
exchange for an equal value of the latter’s assets.  But what these assets consist of, nothing
concrete presently appears.  All that is
provided in Section 8 is that NAWASA acquires all the assets and liabilities of
all government-owned waterworks and sewerage systems in the country.  It is an equal value of these unliquidated assets and liabilities that is
supposed to be given to plaintiff-appellee as payment of its System.  Such, certainly, is not a compensation that
satisfies the Constitutional provisions.”

From the foregoing decisions it seems clear that while the
National Government may expropriate the waterworks system involved in this case,
it may validly do so only by providing for and paying the municipality of Paete
the just compensation due to it. 
Consequently said municipality continues to be the owner of the Water
System involved in this case and is entitled to have it in its possession and
under its administration and control, no lawful and effective expropriation
thereof by the State having been made to this date.

PREMISES CONSIDERED, the decision appealed from is hereby
affirmed.  With costs.

Concepcion, C.J, Reyes, Makalintal, Zaldivar, Fernando,
Teehankee, Barredo, and Villamor, JJ., concur.

Castro, J., on official leave.