MWCD vs.

ADALA
G.R. NO. 168914, JULY 14, 2007

Facts:

Margarita Adala filed an applica

tion with the National Water Reso
urces Board (NWRB) for the issua
nce of a Certificate of Public Con
venience (CPC) to operate and ma
intain waterworks system in sitios
San Vicente, Fatima, and Sambag
in Barangay Bulacao, Cebu City.
Metropolitan Cebu Water District (MC
WD), a govemment-owned and controll
ed corporation created pursuant to P.D.
198 which took effect upon its issuanc
e by then President Marcos on May 25
,1973, as amended, appeared through i
ts lawyers to oppose the application.

 In its Opposition, MCWD prayed

for the denial of Adala's applicati
on on the following grounds: (1)
MCWD's Board of Directors had n
ot consented to the issuance of t
he franchise applied for, such cons
ent being a mandatory condition
pursuant to P.D. 198, (2) the prop
osed waterworks would interfere
with petitioner's water supply whic
h it has the right to protect, and
(3) the water needs of the reside
nts in the subject area was alread
y being well served by petitioner.

Issue

Whether or not Section 47 of

PD 198,which vest an "exclusiv
e franchise" upon public utiliti
es is constitutional and may be
relied upon by MCWD in its op
position of adala's application
for a CPC

Held
The Supreme Court ruled in favor of Adala
and dismissed MCWD's petition. It also decl
ared the law relied upon by MCWD, Sectio
n 47, PD 198 as unconstitutional.

MCWD's position that an overly strict construction o

f the term "franchise" as used in Section 47 of P.D.
198 would lead to an absurd result impresses. If fra
nchises, in this context, were strictly understood to
mean an authorization issuing directly from the legisl
ature, it would follow that, while Congress cannot i
ssue franchises for operating waterworks systems wit
hout the water district's consent, the NWRB may ke
ep on issuing CPCs authorizing the very same act ev
en without such consent. In effect, not only would
the NWRB be subject to less constraints than Congre
ss in issuing franchises. The exclusive character of th
e franchise provided for by Section 47 would be illu
sory.

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 f
or being irreconcilable with Article XIV Section 5 of t
he 1973 Constitution which was ratified on January 1
7, 1973 - the constitution in force when P.D. 198 w
as 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 aut
horization for the operation of a public utility shall be granted exc
ept to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centu
m of the capital of which is owned by such citizens, nor shall suc
h franchise, certificate or authorization be exclusive in character. ...

In view of the puposes for which they are

established, water districts fall under the ter
m "public utility" as defined in the case of
National Power Corporation v. Court of App
eals where it states: A "public utility" is a b
usiness or service engaged in regularly suppl
ying the public with some commodity or se
rvice of public consequence such as electricit
y, gas, water, transportation, telephone or t
elegraph service.