THE MUNICIPALITY OF COMPOSTELA, CEBU, PLAINTIFF-APPELLEE, VS. THE NATIONAL WATERWORKS AND SEWERAGE AUTHORITY, DEFENDANT-APPELLANT.

Municipality of Compostela versus National Waterworks and Sewerage Authority

The Case

This is a case in which the Municipality of Compostela, in the Province of Cebu, sued the National Waterworks and Sewerage Authority, commonly known as NAWASA, to recover the ownership, possession, operation, jurisdiction, supervision, and control of the waterworks system that the municipality had built with its own borrowed funds, but which the national authority had taken over and administered without the municipality's consent. The action is one for recovery of patrimonial property of a municipal corporation, and it matters because it fixes the constitutional boundary between the State and its local governments: the National Government may not appropriate the patrimonial property of a municipal corporation without just compensation and due process of law, and neither may it assume the administration of that property by mere operation of law.

Procedural History

The Municipality of Compostela filed the action in the Court of First Instance of Cebu. The trial court rendered judgment in favor of the municipality. It declared the municipality the true, lawful, and exclusive owner and possessor of the waterworks system, with all the legal attributes of ownership, such as possession, administration, jurisdiction, supervision, operation, and control. It ordered NAWASA to restore that ownership, supervision, jurisdiction, administration, possession, operation, and control to the municipality upon payment of eight thousand pesos, representing the value of the necessary and useful improvements that NAWASA had introduced in the system from the time it took possession and administration. It likewise ordered the municipality to pay NAWASA eight thousand pesos, representing the value of the necessary and useful improvements that the municipality had introduced in the system. NAWASA appealed directly to the Supreme Court, and the appeal was resolved by the Court en banc.

Facts

Sometime in 1940, the Municipality of Compostela secured a loan of thirty thousand pesos from the National Markets and Waterworks Fund for the construction of a waterworks system within the municipality, pursuant to Commonwealth Act Number 403. Construction was completed in December 1940, and the system began to operate in January 1941.

As of the year 1953, the municipality had paid on the pre-war loan the sum of eight thousand eight hundred eighty-nine pesos and twenty-nine centavos as interest, and one hundred ninety-two pesos and ten centavos as principal, leaving a balance of twenty-nine thousand six hundred seven pesos and ninety centavos. Payment of that balance was later assumed by the National Government, which in effect condoned the obligation.

In March 1956, NAWASA, purporting to act pursuant to Republic Act Number 1383, approved on June 18, 1955, assumed the administration, operation, and maintenance of the waterworks system without the consent of the municipality. On October 25, 1960, the municipality instituted the present action to recover ownership, possession, operation, jurisdiction, supervision, and control over the system.

Issues

• Whether or not the waterworks system belongs to the National Government because national funds were used in its construction.
• Whether or not Republic Act Number 1383 justified NAWASA in assuming the administration, operation, and maintenance of the waterworks system without the consent of the municipality.
• Whether or not the municipality has the authority to fix and collect fees for the water supplied by its waterworks system.

Applicable Provisions

Section 2317 of the Revised Administrative Code provides:

Municipal waterworks. A municipal council shall have authority to acquire, construct, and maintain waterworks for the purpose of supplying the inhabitants of the municipality with water; to regulate the supply and use of water therefrom; and to fix and collect rents for water thus supplied.

This provision supplies the municipality's authority to own, operate, and charge for its waterworks system, which the Court invokes against NAWASA's claim of administration.

Section 2308, paragraph f, of the Revised Administrative Code provides:

Miscellaneous Revenue. The following species of revenues shall accrue to the respective municipalities: x x x x f Proceeds on income from the sale, use, or management of any property lawfully held by the municipality.

This provision confirms that the income from the municipality's own patrimonial property accrues to the municipality, and not to the national authority that would administer it.

Section 2 of Republic Act Number 2264 provides:

SEC. 2. Taxation. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district, x x x.

This provision reinforces the municipality's power to collect fees and charges for services it renders, including the supply of water.

Ruling

On the first issue, the Court held that the waterworks system belongs to the Municipality of Compostela, not to the National Government. The national funds had been lent to the municipality, which thereby became the owner of the funds and, hence, of the system constructed with them, subject to the corresponding obligation to pay the National Government. The Court reasoned that no such obligation would have existed had the system belonged, at the time of its construction, to the National Government. Although the municipality was later relieved of the obligation, this was due to its condonation by the National Government, and that condonation necessarily implied that the National Government was the municipality's creditor, a legal relation which could not have existed had the system belonged to the National Government since its establishment in 1940.

On the second issue, the Court held that Republic Act Number 1383 did not justify NAWASA's action. The Court had already overruled that claim in the cases of the City of Baguio versus NAWASA, the City of Cebu versus NAWASA, Naguilian versus NAWASA, and La Carlota versus NAWASA, where it held that the National Government cannot appropriate the patrimonial property of municipal corporations without just compensation and due process of law. As a consequence, the National Government may not assume the power of administration of the patrimonial property of municipal corporations if that action is based upon the appropriation of the property by the State. In fact, it may not, by operation of law, assume such administration without appropriating the title to the property, if the property or the income derived from its operation will be commingled with other property, either of the National Government or of other municipal corporations, in such a way as to permit the use of the property or income belonging to one corporation for the benefit of another municipal corporation or of the State itself.

On the third issue, the Court held that the municipality's authority to fix and collect fees for the water supplied by its waterworks system is clearly deducible from Section 2317 and Section 2308, paragraph f, of the Revised Administrative Code, as well as from Section 2 of Republic Act Number 2264.

Doctrine

The National Government cannot appropriate the patrimonial property of a municipal corporation without just compensation and due process of law. Neither may it assume the power of administration of that patrimonial property if the assumption is based upon such appropriation, nor may it, by operation of law, assume that administration without appropriating the title to the property, where the property or its income would be commingled with other property in a way that permits its use for the benefit of another municipal corporation or of the State itself. Funds lent by the National Government to a municipality for the construction of a public work make the municipality the owner of the funds and of the work constructed with them, subject to the obligation to repay; a later condonation of that obligation presupposes a creditor-debtor relation and therefore confirms municipal ownership. A municipality's authority to acquire, construct, and maintain waterworks, and to fix and collect rents for water supplied, flows from Section 2317 of the Revised Administrative Code, and its authority to collect fees and charges for services rendered flows from Section 2 of Republic Act Number 2264.

Disposition

The Supreme Court affirmed the decision of the Court of First Instance of Cebu, with costs against NAWASA, thereby restoring the waterworks system to the Municipality of Compostela upon the payment of eight thousand pesos for NAWASA's necessary and useful improvements.

Remember This

The single line worth memorizing is that the National Government cannot appropriate the patrimonial property of a municipal corporation without just compensation and due process of law, and cannot assume its administration by mere operation of law. Examiners use this case to test the limits of Republic Act Number 1383 and the rule that a loan of national funds to a municipality makes the municipality the owner of the project built with them.