G.R. No. L-12892; April 30, 1960
THE CITY OF CEBU, plaintiff-appellee, vs. THE NATIONAL WATERWORKS AND SEWERAGE AUTHORITY, defendant-appellant.

FACTS

The City of Cebu filed an action for declaratory relief against the National Waterworks and Sewerage Authority (NAWASA) to prevent NAWASA from taking over the Osmeña Waterworks System pursuant to Section 8 of Republic Act No. 1383 (NAWASA’s charter). The City sought a declaration that the law, insofar as it deprives the City of its property rights in the System without due process and just compensation, is unconstitutional. The System was originally constructed by the then Municipality of Cebu using proceeds from a bond issue authorized by Act No. 2009 of the Philippine Legislature in 1910, for which the municipality was solely obligated to reimburse. Upon its creation in 1936, the City of Cebu absorbed the municipality and, under its charter ( Commonwealth Act No. 58 ), assumed the power and duty to operate and maintain the waterworks. The City has since operated the System, governed its finances through its Municipal Board, and obtained a certificate of public convenience from the Public Service Commission. Republic Act No. 1383 created NAWASA and transferred to it all existing government-owned waterworks systems. The trial court declared R.A. No. 1383 unconstitutional insofar as it vests ownership of the System in NAWASA without just compensation, but upheld NAWASA’s right of control, supervision, and jurisdiction over it. NAWASA appealed.

ISSUE

Whether Republic Act No. 1383 is unconstitutional for vesting ownership of the Osmeña Waterworks System in NAWASA without providing for the payment of just compensation to the City of Cebu, thereby violating the constitutional guarantee.

RULING

The Supreme Court affirmed the trial court’s decision. The Court found no reason to depart from the established jurisprudence, specifically citing City of Baguio vs. National Waterworks & Sewerage Authority. The Osmeña Waterworks System, having been established and operated by the City using its own funds and bonds for which it was exclusively liable, is a patrimonial property of the City. While the state may regulate the use and service of such property under its police power, the outright transfer of ownership to another government entity constitutes an exercise of the power of eminent domain, which requires the payment of just compensation. Since Republic Act No. 1383 effected such a transfer without providing for effective payment of just compensation, it is unconstitutional for violating the constitutional mandate. The Court rejected NAWASA’s arguments that the System was always under national control or that it was public property subject to absolute congressional control, as well as its claim of a right to acquire the System by eminent domain without ensuring just compensation. The decision was affirmed without costs.