G.R. No. L-13662; May 30, 1960
CEFERINO ESTEBAN, ET AL., plaintiffs-appellants, vs. CITY OF CABANATUAN, defendant-appellee.

FACTS

The plaintiffs-appellants are holders of stalls or “plants” in the market site of the City of Cabanatuan. For several years prior to 1956, they had been occupying these stalls as lessees, paying rentals under previous ordinances (Ordinance No. 48, series of 1945, and Ordinance No. 22, series of 1949). On March 21, 1956, the Municipal Board of Cabanatuan City passed Ordinance No. 12, series of 1956, which raised the daily rental rates for market lots. Specifically, for lots fronting Melencio and Sanciangco Streets (occupied by the plaintiffs), the rate was increased from P0.01 per square meter per day to P0.03, then to P0.04 beginning June 1, 1956, and to P0.05 thereafter. The plaintiffs filed a petition seeking to enjoin the enforcement of the ordinance, to continue paying at the old rates, and to have the ordinance declared null and void for being ultra vires and unconstitutional, claiming the new rates were unreasonable and confiscatory. The lower court dismissed the complaint and dissolved a preliminary injunction it had issued.

ISSUE

Whether Ordinance No. 12, series of 1956, of the City of Cabanatuan, which increased the rental rates for market stalls, is invalid for being unreasonable, confiscatory, and unconstitutional.

RULING

The Supreme Court affirmed the lower court’s decision, upholding the validity of Ordinance No. 12. The Court ruled that when a municipal corporation, like the City of Cabanatuan, fixes fees for the use of its properties such as public markets, it is exercising a proprietary function, not police power or taxation. In such a proprietary capacity, and in the absence of any constitutional or statutory limitation (which the Charter of Cabanatuan City, Republic Act No. 526 , did not provide), the city is free to charge such rental rates as it deems fit. Prospective lessees are free to accept or reject the lease terms. The requirement of reasonableness, which applies to exactions under police power (like license fees), does not govern the setting of rental rates for patrimonial or proprietary property. Furthermore, the Court agreed with the lower court’s finding that the ordinance was not discriminatory; it merely equalized the rental rates charged to all stallholders in the market site, correcting an existing disparity where plaintiffs had been paying lower rates than other stallholders for over ten years. The Court also found no error in the lower court’s exclusion of testimonial evidence about business competition, as such conditions would actually justify the increase due to the growing importance and traffic of the area.