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Manila Electric Company v. Province of Laguna (G.R. No. 131359.

May 5, 1999)
18AUG
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The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions of the now repealed Local Tax Code.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 nonimpairment 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.

City Government of San Pablo, Laguna vs Reyes


305 SCRA 353 [GR No. 127708 March 25, 1999]

Ruling:
No, private respondent's invocation of the non-impairment clause of the
Constitution is accordingly unavailing. The LGC was enacted in pursuance of the
constitutional policy to ensure autonomy to local governments and to enable them
to attain fullest development as selfreliant communities. There is further basis for
the conclusion that the non-impairment of contract clause cannot be invoked to
uphold Meralco's exemption from the local tax. Escudero Electric Co. was originally
given the legislative franchise under Act 3648 to operate an electric light and power
system in the City of San Pablo and nearby municipalities. The term of the franchise
under Act No. 3648 is a period of fifty years from the Act's approval in 1929. The
said law provided that the franchise is granted upon the condition that it shall be
subject to amendment, or repeal by the Congress of the United States. Under the
1935, the 1973 and the 1987 Constitutions, no franchise or right shall be granted
except under the condition that it shall be subject to amendment, alteration or
repeal by the National Assembly when the public interest so requires. With or
without the reservation clause, franchises are subject to alterations through a
reasonable exercise of the police power; they are also subject to alteration by the
power to tax, which like police power cannot be contracted away.