CASE # 12

Manila Electric Company v. Province of Laguna (G.R. No. 131359. May 5, 1999)
FACTS:
MERALCO was granted a franchise by several municipal councils and the National Electrification
Administration to operate an electric light and power service in the Laguna. Upon enactment of
Local Government Code, the provincial government issued ordinance imposing franchise tax.
MERALCO paid under protest and later claims for refund because of the duplicity with Section 1
of P.D. No. 551. This was denied by the governor (Joey Lina) relying on a more recent law (LGC).
MERALCO filed with the RTC a complaint for refund, but was dismissed. Hence, this petition.
ISSUE:
Whether or not the imposition of franchise tax under the provincial ordinance is violative of the
non-impairment clause of the Constitution and of P.D. 551.
HELD:
No. There is no violation of the non-impairment clause for the same must yield to the inherent
power of the state (taxation). The provincial ordinance is valid and constitutional.
RATIO:
The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions
of the now repealed Local Tax Code. The 1991 Code explicitly authorizes provincial governments,
notwithstanding any exemption granted by any law or other special law, . . . (to) impose a tax on
businesses enjoying a franchise. A franchise partakes the nature of a grant which is beyond the
purview of the non-impairment clause of the Constitution. Article XII, Section 11, of the 1987
Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that
no franchise for the operation of a public utility shall be granted except under the condition that
such privilege shall be subject to amendment, alteration or repeal by Congress as and when the
common good so requires.