EN BANC

METROPOLITAN CEBU G.R. No. 168914

WATER DISTRICT (MCWD),
Petitioner, Present:

PUNO, C.J.,
QUISUMBING,*
YNARES-SANTIAGO,
- versus - SANDOVAL-GUTIERREZ,**
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
AZCUNA,
MARGARITA A. ADALA, TINGA,
Respondent. CHICO-NAZARIO,
GARCIA,
VELASCO, JR., and
NACHURA, JJ.
Promulgated:
July 4, 2007

x------------------------------------------------x

DECISION

CARPIO MORALES, J.:

The Decision of the Regional Trial Court (RTC) of Cebu dated February 10, 2005,
which affirmed in toto the Decision of the National Water Resources Board
(NWRB) dated September 22, 2003 in favor of Margarita A. Adala, respondent, is
being challenged in the present petition for review on certiorari.
Respondent filed on October 24, 2002 an application with the NWRB for the
issuance of a Certificate of Public Convenience (CPC) to operate and maintain
waterworks system in sitios San Vicente, Fatima, and
Sambag in Barangay Bulacao, Cebu City.

At the initial hearing of December 16, 2002 during which respondent submitted
proof of compliance with jurisdictional requirements of notice and publication,
herein petitioner Metropolitan Cebu Water District, a government-owned and
controlled corporation created pursuant to P.D. 198[1] which took effect upon its
issuance by then President Marcos on May 25, 1973, as amended, appeared
through its lawyers to oppose the application.

While petitioner filed a formal opposition by mail, a copy thereof had not,
on December 16, 2002, yet been received by the NWRB, the day of the
hearing. Counsel for respondent, who received a copy of petitioners Opposition
dated December 12, 2002 earlier that morning, volunteered to give a copy thereof
to the hearing officer.[2]

In its Opposition, petitioner prayed for the denial of respondents application on the
following grounds: (1) petitioners Board of Directors had not consented to the
issuance of the franchise applied for, such consent being a mandatory condition
pursuant to P.D. 198, (2) the proposed waterworks would interfere with petitioners
water supply which it has the right to protect, and (3) the water needs of the
residents in the subject area was already being well served by petitioner.

After hearing and an ocular inspection of the area, the NWRB, by Decision
dated September 22, 2003, dismissed petitioners Opposition for lack of merit
and/or failure to state the cause of action [3] and ruled in favor of respondent as
follows:
 PREMISES ALL CONSIDERED, and finding that Applicant is legally
and financially qualified to operate and maintain the subject waterworks
system, and that said operation shall redound to the benefit of the of the
[sic] consumers of Sitios San Vicente, Fatima and Sambag at Bulacao
Pardo, Cebu City, thereby promoting public service in a proper and
suitable manner, the instant application for a Certificate of Public
Convenience (CPC) is, hereby, GRANTED for a period of five (5) years
with authority to charge the proposed rates herein set effective upon
approval as follows:

Consumption Blocks Proposed Rates

0-10 cu. m. P125.00(min. charge)

11-20 cu. m. 13.50 per cu. m.
21-30 cu. m. 14.50 per cu. m.
31-40 cu. m. 35.00 per cu. m.
41-50 cu. m. 37.00 per cu. m.
51-60 cu. m. 38.00 per cu. m.
61-70 cu. m. 40.00 per cu. m.
71-100 cu. m. 45.00 per cu. m.
Over 100 cu. m. 50.00 per cu. m.

The Rules and Regulations, hereto, attached for the operation of the
waterworks system should be strictly complied with.

Since the average production is below average day demand, it is

recommended to construct another well or increase the well horsepower
from 1.5 - 3.00 Hp to satisfy the water requirement of the consumers.

Moreover, the rates herein approved should be posted by GRANTEE at

conspicuous places within the area serviced by it, within seven (7)
calendar days from notice of this Decision.

SO ORDERED.[4]

Its motion for reconsideration having been denied by the NWRB by Resolution
of May 17, 2004, petitioner appealed the case to the RTC of Cebu City. As
mentioned early on, the RTC denied the appeal and upheld the Decision of the
NWRB by Decision dated February 10, 2005. And the RTC denied too petitioners
motion for reconsideration by Order of May 13, 2005.

Hence, the present petition for review raising the following questions of law:

i. WHETHER OR NOT THE CONSENT OF THE BOARD OF

DIRECTORS OF THE WATER DISTRICT IS A CONDITION
SINE QUA NON TO THE GRANT OF CERTIFICATE OF
PUBLIC CONVENIENCE BY THE NATIONAL WATER
RESOURCES BOARD UPON OPERATORS OF WATERWORKS
WITHIN THE SERVICE AREA OF THE WATER DISTRICT?

ii. WHETHER THE TERM FRANCHISE AS USED IN SECTION 47

OF PRESIDENTIAL DECREE 198, AS AMENDED MEANS A
FRANCHISE GRANTED BY CONGRESS THROUGH
LEGISLATION ONLY OR DOES IT ALSO INCLUDE IN ITS
MEANING A CERTIFICATE OF PUBLIC CONVENIENCE
ISSUED BY THE NATIONAL WATER RESOURCES BOARD
FOR THE MAINTENANCE OF WATERWORKS SYSTEM OR
WATER SUPPLY SERVICE?[5]

Before discussing these substantive issues, a resolution of the procedural grounds

raised by respondent for the outright denial of the petition is in order.

By respondents claim, petitioners General Manager, Engineer Armando H.

Paredes, who filed the present petition and signed the accompanying verification
and certification of non-forum shopping, was not specifically authorized for that
purpose. Respondent cites Premium Marble Resources v. Court of Appeals[6] where
this Court held that, in the absence of a board resolution authorizing a person to act
for and in behalf of a corporation, the action filed in its behalf must fail since the
power of the corporation to sue and be sued in any court is lodged with the board
of directors that exercises its corporate powers.
Respondent likewise cites ABS-CBN Broadcasting Corporation v. Court of
Appeals[7] where this Court held that [f]or such officers to be deemed fully clothed
by the corporation to exercise a power of the Board, the latter
must specially authorize them to do so. (Emphasis supplied by respondent)

That there is a board resolution authorizing Engineer Paredes to file cases in behalf
of petitioner is not disputed. Attached to the petition is petitioners Board of
Directors Resolution No. 015-2004, the relevant portion of which states:

RESOLVE[D], AS IT IS HEREBY RESOLVED, to authorize the

General Manager, ENGR. ARMANDO H. PAREDES, to file in behalf
of the Metropolitan Cebu Water District expropriation and other
cases and to affirm and confirm above-stated authority with respect to
previous cases filed by MCWD.

x x x x[8] (Emphasis and underscoring supplied)

To respondent, however, the board resolution is invalid and ineffective for being a
roving authority and not a specific resolution pursuant to the ruling in ABS-CBN.

That the subject board resolution does not authorize Engineer Paredes to file the
instant petition in particular but expropriation and other cases does not, by itself,
render the authorization invalid or ineffective.

In BA Savings Bank v. Sia,[9] the therein board resolution, couched in words

similar to the questioned resolution, authorized persons to represent the
corporation, not for a specific case, but for a general class of cases. Significantly,
the Court upheld its validity:

In the present case, the corporation's board of directors issued a

Resolution specifically authorizing its lawyers "to act as their agents
in any action or proceeding before the Supreme Court, the Court of
 Appeals, or any other tribunal or agency[;] and to sign, execute and
deliver in connection therewith the necessary pleadings, motions,
verification, affidavit of merit, certificate of non-forum shopping and
other instruments necessary for such action and proceeding." The
Resolution was sufficient to vest such persons with the authority to
bind the corporation and was specific enough as to the acts they
were empowered to do. (Emphasis and underscoring supplied, italics in
the original)
Nonetheless, while the questioned resolution sufficiently identifies the kind of
cases which Engineer Paredes may file in petitioners behalf, the same does not
authorize him for the specific act of signing verifications and certifications against
forum shopping. For it merely authorizes Engineer Paredes to file cases in behalf
of the corporation. There is no mention of signing verifications and certifications
against forum shopping, or, for that matter, any document of whatever nature.

A board resolution purporting to authorize a person to sign documents in behalf of

the corporation must explicitly vest such authority. BPI Leasing Corporation v.
Court of Appeals[10] so instructs:

Corporations have no powers except those expressly conferred upon

them by the Corporation Code and those that are implied by or are
incidental to its existence. These powers are exercised through their
board of directors and/or duly authorized officers and
agents. Hence, physical acts, like the signing of documents, can be
performed only by natural persons duly authorized for the
purpose by corporate bylaws or by specific act of the board of
directors.

The records are bereft of the authority of BLC's [BPI Leasing

Corporation] counsel to institute the present petition and to sign the
certification of non-forum shopping. While said counsel may be the
counsel of record for BLC, the representation does not vest upon him the
authority to execute the certification on behalf of his client. There must
be a resolution issued by the board of directors
that specifically authorizes him to institute the petition and execute
 the certification, for it is only then that his actions can be legally
binding upon BLC. (Emphasis, italics and underscoring supplied)

It bears noting, moreover, that Rule 13 Section 2 of the Rules of Court merely
defines filing as the act of presenting the pleading or other paper to the clerk of
court. Since the signing of verifications and certifications against forum shopping
is not integral to the act of filing, this may not be deemed as necessarily included in
an authorization merely to file cases.

Engineer Paredes not having been specifically authorized to sign the verification
and certification against forum shopping in petitioners behalf, the instant petition
may be dismissed outright.

Technicality aside, the petition just the same merits dismissal.

In support of its contention that the consent of its Board of Directors is a

condition sine qua non for the grant of the CPC applied for by respondent,
petitioner cites Section 47 of P.D. 198[11] which states:

Sec. 47. Exclusive Franchise. No franchise shall be granted to

any other person or agency for domestic, industrial or commercial water
service within the district or any portion thereof unless and except to the
extent that the board of directors of said district consents thereto by
resolution duly adopted, such resolution, however, shall be subject to
review by the Administration. (Emphasis and underscoring supplied)

There being no such consent on the part of its board of directors, petitioner
concludes that respondents application for CPC should be denied.
Both parties arguments center, in the main, on the scope of the word franchise as
used in the above-quoted provision.

Petitioner contends that franchise should be broadly interpreted, such that

the prohibition against its grant to other entities without the consent of the districts
board of directors extends to the issuance of CPCs. A contrary reading,
petitioner adds, would result in absurd consequences, for it would mean that
Congress power to grant franchises for the operation of waterworks systems cannot
be exercised without the consent of water districts.

Respondent, on the other hand, proffers that the same prohibition only
applies to franchises in the strict sense those granted by Congress by means of
statute and does not extend to CPCs granted by agencies such as the NWRB.

Respondent quotes the NWRB Resolution dated May 17, 2004 which distinguished
a franchise from a CPC, thus:

A CPC is formal written authority issued by quasi-judicial bodies for the

operation and maintenance of a public utility for which a franchise is not
required by law and a CPC issued by this Board is an authority to
operate and maintain a waterworks system or water supply service. On
the other hand, a franchise is privilege or authority to operate appropriate
private property for public use vested by Congress through
legislation. Clearly, therefore, a CPC is different from a franchise
and Section 47 of Presidential Decree 198 refers only to
franchise. Accordingly, the possession of franchise by a water
district does not bar the issuance of a CPC for an area covered by
the water district. (Emphasis and underscoring supplied by respondent)

Petitioners position that an overly strict construction of the term franchise as used
in Section 47 of P.D. 198 would lead to an absurd result impresses. If franchises, in
this context, were strictly understood to mean an authorization issuing directly
from the legislature, it would follow that, while Congress cannot issue franchises
for operating waterworks systems without the water districts consent, the NWRB
may keep on issuing CPCs authorizing the very same act even without such
consent. In effect, not only would the NWRB be subject to less constraints than
Congress in issuing franchises. The exclusive character of the franchise provided
for by Section 47 would be illusory.

Moreover, this Court, in Philippine Airlines, Inc. v. Civil Aeronautics Board,[12] has
construed the term franchise broadly so as to include, not only authorizations
issuing directly from Congress in the form of statute, but also those granted by
administrative agencies to which the power to grant franchises has been delegated
by Congress, to wit:

Congress has granted certain administrative agencies the power to

grant licenses for, or to authorize the operation of certain public
utilities. With the growing complexity of modern life, the multiplication
of the subjects of governmental regulation, and the increased difficulty
of administering the laws, there is a constantly growing tendency
towards the delegation of greater powers by the legislature, and towards
the approval of the practice by the courts. It is generally recognized
that a franchise may be derived indirectly from the state through a
duly designated agency, and to this extent, the power to grant
franchises has frequently been delegated, even to agencies other than
those of a legislative nature. In pursuance of this, it has been held
that privileges conferred by grant by local authorities as agents for
the state constitute as much a legislative franchise as though the
grant had been made by an act of the Legislature.[13]

That the legislative authority in this instance, then President Marcos [14] intended to
delegate its power to issue franchises in the case of water districts is clear from the
fact that, pursuant to the procedure outlined in P.D. 198, it no longer plays a direct
role in authorizing the formation and maintenance of water districts, it having
vested the same to local legislative bodies and the Local Water Utilities
Administration (LWUA).
Sections 6 and 7 of P.D. 198, as amended, state:

SECTION 6. Formation of District. This Act is the source

of authorization and power to form and maintain a district. Once
formed, a district is subject to the provisions of this Act and not under
the jurisdiction of any political subdivision. For purposes of this Act, a
district shall be considered as a quasi-public corporation performing
public service and supplying public wants. As such, a district shall
exercise the powers, rights and privileges given to private corporations
under existing laws, in addition to the powers granted in, and subject to
such restrictions imposed, under this Act. To form a district, the
legislative body of any city, municipality or province shall enact a
resolution containing the following:

(a) The name of the local water district, which shall include the name of
the city, municipality, or province, or region thereof, served by said
system, followed by the words "Water District".

(b) A description of the boundary of the district. In the case of a city or

municipality, such boundary may include all lands within the city or
municipality. A district may include one or more municipalities, cities or
provinces, or portions thereof: Provided, That such municipalities, cities
or provinces, or portions thereof, cover a contiguous area.

(c) A statement completely transferring any and all waterworks and/or

sewerage facilities managed, operated by or under the control of such
city, municipality or province to such district upon the filing of
resolution forming the district.

(d) A statement identifying the purpose for which the district is

formed, which shall include those purposes outlined in Section 5 above.

(e) The names of the initial directors of the district with the date of
expiration of the term of office for each which shall be on the 31st of
December of first, second, or third even-numbered year after assuming
office, as set forth in Section 11 hereof.
 (f) A statement that the district may only be dissolved on the grounds
and under the conditions set forth in Section 45 of this Title.

(g) A statement acknowledging the powers, rights and obligations as set

forth in Section 25 of this Title.
Nothing in the resolution of formation shall state or infer that the local
legislative body has the power to dissolve, alter or affect the district
beyond that specifically provided for in this Act.

If two or more cities, municipalities or provinces, or any combination

thereof, desire to form a single district, a similar resolution shall be
adopted in each city, municipality and province; or the city, municipality
or province in which 75% of the total active service connections are
situated shall pass an initial resolution to be concurred in by the other
cities, municipalities or provinces.

SECTION 7. Filing of Resolution. A certified copy of the resolution or

resolutions forming a district shall be forwarded to the office of the
Secretary of Administration. If found by the Administration to
conform to the requirements of Section 6 and the policy objectives in
Section 2, the resolution shall be duly filed. The district shall be
deemed duly formed and existing upon the date of such filing. A
certified copy of said resolution showing the stamp of the Administration
shall be maintained in the office of the district. Upon such filing, the
local government or governments concerned shall lose ownership,
supervision and control or any right whatsoever over the district except
as provided herein. (Emphasis and underscoring supplied)

It bears noting that once a district is duly formed and existing after following the
above procedure, it acquires the exclusive franchise referred to in Section 47. Thus,
P.D. 198 itself, in harmony with Philippine Airlines, Inc. v. Civil Aeronautics
Board,[15] gives the name franchise to an authorization that does not proceed
directly from the legislature.

It would thus be incongruous to adopt in this instance the strict interpretation

proffered by respondent and exclude from the scope of the term franchise the CPCs
issued by the NWRB.[16]
 Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to
the issuance of CPCs for the reasons discussed above, the same provision must
be deemed void ab initio for being irreconcilable with Article XIV Section 5 of
the 1973 Constitution which was ratified on January 17, 1973 the constitution in
force when P.D. 198 was issued on May 25, 1973. Thus, Section 5 of Art. XIV of
the 1973 Constitution reads:

SECTION 5. No franchise, certificate, or any other form of authorization

for the operation of a public utility shall be granted except to citizens of
the Philippines or to corporations or associations organized under the
laws of the Philippines at least sixty per centum of the capital of which is
owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than
fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or
repeal by the Batasang Pambansa when the public interest so requires.
The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their
proportionate share in the capital thereof. (Emphasis and underscoring
supplied)

This provision has been substantially reproduced in Article XII Section 11 of

the 1987 Constitution, including the prohibition against exclusive franchises.[17]

In view of the purposes for which they are established, [18] water districts fall under
the term public utility as defined in the case of National Power Corporation v.
Court of Appeals:[19]

A public utility is a business or service engaged in regularly supplying the public

with some commodity or service of public consequence such as electricity,
gas, water, transportation, telephone or telegraph service. x x x (Emphasis and
underscoring supplied)
It bears noting, moreover, that as early as 1933, the Court held that a particular
water district the Metropolitan Water District is a public utility.[20]

The ruling in National Waterworks and Sewerage Authority v. NWSA Consolidated

Unions[21] is also instructive:

We agree with petitioner that the NAWASA is a public utility because its
primary function is to construct, maintain and operate water reservoirs and
waterworks for the purpose of supplying
water to the inhabitants, as well as consolidate and centralize all water supplies
and drainage systems in the Philippines. x x x (Emphasis supplied)

Since Section 47 of P.D. 198, which vests an exclusive franchise upon public
utilities, is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution,
[22]
it is unconstitutional and may not, therefore, be relied upon by petitioner in
support of its opposition against respondents application for CPC and the
subsequent grant thereof by the NWRB.

WHEREFORE, Section 47 of P.D. 198 is unconstitutional. The Petition is thus, in

light of the foregoing discussions, DISMISSED.

SO ORDERED.