EN BANC

[G.R. No. L-12032. August 31, 1959.]

CITY OF BAGUIO, plaintiff-appellee, vs. THE NATIONAL

WATERWORKS AND SEWERAGE AUTHORITY, defendant-
appellant.

City Attorney Sixto A. Domondon for appellee.

Solicitor General Ambrosio Padilla, First Assistant Government
Corporate Counsel Simeon Gopengco and Solicitor Troadio T. Quiazon, Jr.
for appellant.

SYLLABUS

1. DECLARATORY RELEIF; TRANSFER OF WATERWORKS SYSTEMS

TO THE NATIONAL WATERWORKS AND SEWERAGE AUTHORITY; ACTION
APPLICABLE WHEN NO BREACH OF LAW HAS BEEN COMMITTED. — Republic
Act No. 1383, creating the NAWASA and authorizing the transfer to it all
government-owned waterworks and sewerage systems in cities,
municipalities and municipal districts, took effect upon its approval on June
18, 1955. Notwithstanding Executive order No. 127, outlining the procedure
to effect this transfer, no actual physical turn-over of the Baguio Waterworks
System has so far been made. Held: Since there has been no breach of the
law because no actual transfer of the waterworks system has been effected,
and since the other requisites necessary for the action are present, an
action for declaratory releif is proper.
2. CONSTITUTIONAL LAW; TRANSFER OF WATERWORKS SYSTEMS
TO THE NAWASA NOT A VALID EXERCISE OF THE POLICE POWER. — Republic
Act No. 1383 does not constitute a valid exercise of police power. The Act
does not confiscate, nor destroy, nor appropriate property belonging to
appellee. It merely directs that all waterworks belonging to cities,
municipalities and municipal districts in the Philippines be transferred to the
NAWASA for the purpose of placing them under the control and supervision
of one agency with a view to promoting their efficient management, but in
so doing it does not confiscate them because it directs that they be paid with
an equal value of the assets of the NAWASA.
3. ID.; WATERWORKS SYSTEMS PATRIMONIAL PROPERTY OF
MUNICIPAL CORPORATIONS; PAYMENT OF JUST COMPENSATION NECESSARY.
— The Baguio Waterworks System is not like any public road, park, street or
other public property held in trust by a municipal corporation for the benefit
of the public but it is a property owned by the city in its proprietary
character. Being patrimonial property of a municipal corporation, waterworks
cannot be taken away except for public use and upon payment of just
compensation.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

 DECISION

BAUTISTA ANGELO, J : p

Plaintiff, a municipal corporation, filed on April 25, 1956, in the

Court of First Instance of Baguio, a complaint for declaratory relief
against defendant, a public corporation created by Republic Act No.
1383, contending that said Act does not include within its purview the
Baguio Waterworks System; that assuming that it does, said Act is
unconstitutional because it has the effect of depriving plaintiff of the
ownership, control and operation of said waterworks system without
compensation and without due process of law, and that it is oppressive,
unreasonable and unjust to plaintiff and other cities, municipalities and
municipal districts similarly situated.
On May 22, 1956, defendant filed a motion to dismiss on the
ground that Republic Act No. 1383 is a proper exercise of the police
power of the State; that assuming that said Act contemplates an act of
expropriation, it is still a constitutional exercise of the power of eminent
domain; that at any rate the Baguio Waterworks System is not a private
property but "public works for public service" over which the Legislature
has control; and that the provisions of said Act being clear and
unambiguous, there is no necessity for construction.
On June 21, 1956, the Court, acting on the motion to dismiss as
well as on the answer and rejoinder filed by both parties, denied the
motion and ordered defendant to file its answer to the complaint. On July
6, 1956, defendant filed its answer reiterating and amplifying the
grounds already advanced in its motion to dismiss, adding thereto that
the action for declaratory relief is improper for the reason that the
Baguio Waterworks System has already been transferred to defendant
pursuant to Republic Act No. 1383 or, if such has not been done, there
has already been a breach of said Act.
On August 14, 1956, the parties submitted a written stipulation of
facts and filed written memoranda. And after allowing plaintiff to file a
supplementary complaint, the Court on November 5, 1956, rendered
decision the dispositive part of which reads: "This Court, *** holds that
the waterworks system of the City of Baguio falls within the category of
'private property', as contemplated by our Constitution and may not be
expropriated without just compensation - and that section 8 of Republic
Act No. 1383 provides for the exchange of the NAWASA assets for the
value of the waterworks system of Baguio is unconstitutional as this is
not 'just compensation.'" Defendant filed a motion for reconsideration,
and upon its denial, it took the present appeal.
The issues posed in this appeal are: (1) plaintiff's action for
declaratory relief is improper because there has already been a breach
by plaintiff of Republic Act No. 1383 (2) Republic Act No. 1383 does not
contemplate the exercise of the power of eminent domain but the
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 assertion of the police power of the State; and (3) assuming arguendo
that Republic Act No. 1383 involves the exercise of the power of
eminent domain the same does not violate our Constitution.
Before we proceed with the discussion of these issues, there is
need to state some facts necessary for their determination since the
proper application of the principles of law that may be pertinent would
greatly depend upon them.
Plaintiff is a municipal corporation organized under its Charter with
principal place of business in the City of Baguio, while defendant is a
public corporation created by Republic Act No. 1383 with principal place
of business in the City of Manila. Under section 2553 of its Charter,
plaintiff is maintaining the Baguio Waterworks System under a
certificate of public convenience, the same being financed by its own
funds, the Baguio general fund, and funds advanced by the National
Government. The assets of said system as of December 31, 1955 were
reported to be P1,408,795.98. The system supplies only the City of
Baguio, its inhabitants, and transient visitors, and, as provided for in an
ordinance, it grants to the employees of the City one fifth (1/5) of cubic
meter free for every one peso of their total salary per annum as part of
their compensation. The employees of the National Government are not
given this privilege but there is a proviso in plaintiff's Charter which
says: "In consideration of the exemption from taxation of the extensive
real stateholdings of the National Government within the limits of the
City, of the expenses of improvements which the Government of said
City is required to make by reason of the location therein of offices of
the National Government, and of free services in connection with said
offices, there is created an permanent and continuing appropriation
from any funds in the National Treasury not otherwise appropriated,
equal to fifty per centum of the expenses of the Government of the City
exclusive of those accounts which appear as expenses by reason of
inter- departmental charges and charges against the National
Government for services and supplies."
The purposes for which defendant was created are expressed in
section 1 of Republic Act No. 1383, which we quote:
"Creation of the National Waterworks and Sewerage
Authority; its general purposes; Zone and extent of jurisdiction
comprised by it; domicile and place of business of the corporation.
— For the purpose of consolidating and centralizing all
waterworks, sewerage and drainage systems in the Philippines
under one control, direction and general supervision, there is
hereby created a public corporation to be known as the National
Waterworks and Sewerage Authority, which shall be organized
within one month after the approval of this Act.
The National Waterworks and Sewerage Authority shall own
and/or have jurisdiction, supervision and control over all territory
now embraced by the Metropolitan Water Districts as well as all
areas now served by existing government-owned waterworks in
the boundaries of cities, municipalities and municipal districts in
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 the Philippines including those served by the waterworks and wells
and drills sections of the Bureau of Public Works; Provided, That
the Board of Director of the National Waterworks and Sewerage
Authority, may from time to time extend its territory by the
admission or inclusion of any areas served by such works located
in any other city, municipality or municipal districts in the
Philippines.
The jurisdiction of the National Waterworks and Sewerage
Authority shall extend to the construction, maintenance, operation
and control of non-self-supporting and/or non-revenue producing
water systems and sanitary works, whether undertaken at the
expense of the Authority or through subsidy of the National
Government as provided in Section ten of this act."
And to accomplish the above purposes, the following was provided
in section 8 of the same act:
"Dissolution of the Metropolitan Water District; transfer to
the Authority of its records, assets and liabilities; transfer to the
Authority of entities, waterworks and sewerage systems in the
cities, municipalities, municipal districts and other government
waterworks and sewerage systems. The present Metropolitan
Water District created under Act Number Two Thousand eight
hundred thirty-two, as amended, is hereby dissolved, and its
records, assets and liabilities are transferred to the Authority. All
existing government owned waterworks and sewerage systems in
cities, municipalities, and municipal districts, including springs and
other water sources, as well as the waterworks and sewerage
bonds, sinking funds, and all indebtedness in general of the said
Metropolitan Water District, and government-owned waterworks
and sewerage systems are transferred to the National Waterworks
and Sewerage Authority, and the Board is hereby authorized and
directed to receive and assume all such assets and liabilities on
behalf of the said Authority and in turn to pledge such assets as
security for the payment of the waterworks and sewerage bonded
debt.
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.
The references made to the Metropolitan Water District or to
any existing government-owned waterworks and sewerage system
in any city, municipality or municipal district and any waterworks
and sewerage system under the Bureau of Public Works, in any
Act or Executive Order or Proclamation of the President of the
Philippines or in any city or municipal ordinance which is still in
force, shall be deemed to be a reference to the National
Waterworks and Sewerage Authority created by this Act."
On September 19, 1955, the President of the Philippines issued
Executive Order No. 127 outlining the procedure for the transfer of
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 government-owned waterworks and sewerage systems in the provinces,
cities, and municipalities to defendant and provided for a time limit for
such transfer, which is "at the earliest time possible but not exceeding
90 days from the date of said order."
And on March 15, 1956, defendant, implementing said Executive
Order, issued Office Memorandum No. 7 providing, among other things,
the following:
"(1) Pending the establishment of the Waterworks district
offices of the Authority, District and City Engineers, shall continue
to be in charge of the operation and maintenance of all existing
waterworks systems, including the repair and improvement
thereof and the construction of new waterworks projects in their
respective districts in accordance with the Memorandum of the
Secretary of Public Works and Communications dated October 25,
1955, quoted in the Memorandum of the Director of Public Works
dated October 27, 1955. Likewise they shall continue approving
vouchers and payrolls for salaries and essential services
chargeable against waterworks funds as heretofore, provided that
said expenses do not exceed the appropriations in the approved
budget for the preceding fiscal year.
(2) Pending the establishment of the Waterworks district
offices of the Authority which shall ultimately include an auditing
force, Provincial and City Auditors shall, as heretofore, audit the
accounts of the different waterworks system in their respective
jurisdictions in accordance with Provincial Auditor's Memorandum
No. 151 to Provincial and City Auditor's dated December 7, 1955.
(3) Pending the establishment of the waterworks district
offices of the Authority, Provincial, City and Municipal Treasurers
shall continue to perform the work of handling the collections and
disbursements of funds of the waterworks systems and artesian
wells projects in their respective jurisdictions in accordance with
Provincial Circular (unnumbered) of the Secretary of Finance to all
Provincial and City Treasurers dated November 23, 1955.
(4) Provincial Waterworks Boards, Provincial Boards,
Municipal Boards, or City Councils of cities and municipal Councils
of Municipalities and municipal districts ipso facto ceased to have
control and supervision over waterworks system within their
respective territorial jurisdictions upon the formal organization of
the National Waterworks and Sewerage Authority in accordance
with the provisions of Republic Act No. 1383. All budgets and
plantillas of personnel of said waterworks personnel, including
collectors who were formerly directly under the Provincial, City or
Municipal Treasurers, whether permanent, temporary or
emergency, shall be effective only after their approval by the
Board of Directors of the Authority."
Let us now discuss the issues raised.
As regards the first issue, appellant contends that appellee's action
for declaratory relief is improper because there has already been a
breach of Republic Act No. 1383, invoking section 2 of Rule 66 which
provides: "A contract or statute may be construed before there has been
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 a breach thereof."
This contention is untenable. To begin with, the answer filed by
defendant through its counsel the Solicitor General contains an express
admission of the averment in appellee's complaint that "although
Republic Act No. 1383 took effect upon its approval on June 18, 1955,
and notwithstanding Executive Order No. 127 of the President, there has
been no breach of said law because no actual physical turn-over of the
Baguio Waterworks System has so far been made ." Because of such
admission, it has always been assumed in the trial court that the present
action is proper because there has not been such breach so much so
that appellant desisted from raising the point in the rest of the
proceedings in the trial court and in the long memorandum it has
submitted, for which reason the trial court made in its decision the
following comment: "In its memorandum, however, the NAWASA has
failed to argue this point. The omission is significant and this Court takes
it that any objection to the declaratory relief proceedings are waived."
That appellant would now take an inconsistent stand is strange. In any
event, we find that such is the situation obtaining here. Republic Act No.
1383 provides that government-owned waterworks system should be
transferred to appellant at the earliest time possible, and unless by
administrative action this provision is actually carried out, it cannot be
said that the transfer has been effected. The most that appellant did to
carry out such provision is to issue its Office Memorandum No. 7 which
prescribes the preparatory steps for such transfer pending the
establishment of the branch office of the NAWASA that would take over
the waterworks concerned, but before any definite step could be taken
to comply with said directive the present action was instituted. We
agree with the trial court that so far there has not been a breach of the
law and that the other requisites necessary for an action for declaratory
relief are present.
The contention that Republic Act No. 1383 constitutes a valid
exercise of police power rather than a directive to expropriate the
waterworks of the appellee by the exercise of the power of eminent
domain cannot also be entertained. This is far from the intent and
purpose of the law. The Act does not confiscate, nor destroy, nor
appropriate property belonging to appellee. It merely directs that all
waterworks belonging to cities, municipalities and municipal districts in
the Philippines be transferred to the NAWASA for the purpose of placing
them under the control and supervision of one agency with a view to
promoting their efficient management, but in so doing it does not
confiscate them because it directs that they be paid with an equal value
of the assets of the NAWASA. This is clearly inferred from the context of
the law. (section 8, Rep. Act No. 1383).
But appellant invites our attention to some authorities purporting
to show that Republic Act No. 1383 could at least be considered as a
legitimate exercise of police power such that Congress may in the
exercise of such power enact a law transferring Government property
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 from one agency to another, and laying stress on said authorities it
contends that although Congress cannot deprive the citizens of a
municipal corporation of the use of property held in trust for their benefit
it may however change the trustee with or without its consent or
compensation provided the citizens are not deprived of its enjoyment. In
other words, appellant invokes the principle that the transfer of property
and authority by an act of Congress from one class of public officer to
another where the property continues devoted to its original purpose
does not impair any vested right of the city owning the property.
But the authorities cited are not in point. They in substance point
out that the transfer, if any, of the property of a municipal corporation
from one agency to another is merely done for purposes of
administration, its ownership and benefits being retained by the
corporation. Such is not the clear intent of Republic Act No. 1383. Here,
as we have already shown, its purpose is to effect a real transfer of the
ownership of the waterworks to the new agency and does not merely
encompass a transfer of administration. At any rate, the authorities cited
do not bear out the proposition of appellant as clearly pointed out by
counsel for appellee in his brief.
But it is insisted that the waterworks system of Baguio City 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 subjected 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 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 corporations, is not a right of appropriation."
xxx xxx xxx
"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 Corporation, 2nd Ed., Vol. I, pp. 670-681).
"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 expenses it would be
financially impossible to supply except where the population is
reasonably dense, such as water or gas. . . . 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 enterprises 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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. (L), 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.
Wherefore, the decision appealed from is affirmed, without
pronouncement as to costs.
Paras, C.J., Bengzon, Padilla, Montemayor, Endencia and Barrera,
JJ., concur.
Concepcion, J., concurs in the result.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com