Acebedo Optical Company, Inc. vs. Court of Appeals

A local chief executive acts ultra vires in imposing conditions on a business permit that regulate the practice of a profession, which is within the exclusive domain of the appropriate administrative agency; a business permit is a special privilege and not a contract, and the doctrine of estoppel cannot operate to validate an ultra vires act. The Court held that the City Mayor exceeded his authority because the special conditions had no basis in law or ordinance and encroached upon the regulatory jurisdiction of the Board of Examiners in Optometry. Furthermore, because a permit is a mere privilege rather than a contractual obligation, petitioner's acquiescence to the ultra vires conditions did not estop it from challenging their validity.

Petitioner Acebedo Optical Company, Inc. applied with the Office of the City Mayor of Iligan for a business permit to operate an optical shop. Respondent City Mayor granted the permit but burdened it with special conditions restricting petitioner from operating an optical clinic, examining or prescribing optical glasses, and selling reading glasses without a prescription from an independent optometrist. Private respondent Samahang Optometrist sa Pilipinas—Iligan City Chapter (SOPI) filed a complaint alleging that Acebedo violated these conditions. Following an investigation by the City Legal Officer, the City Mayor cancelled the permit. Petitioner then sought judicial recourse, arguing that the Mayor lacked authority to impose the conditions and that the cancellation violated due process and equal protection.

• Business Permit Application and Conditions: Petitioner applied for a business permit with the Office of the City Mayor of Iligan. Respondent City Mayor issued Business Permit No. 5342 subject to five special conditions: (1) petitioner could not put up an optical clinic but only a commercial store; (2) petitioner could not examine or prescribe reading and similar optical glasses; (3) petitioner could not sell reading glasses without a prescription from an independent optometrist; (4) petitioner could not advertise optical lenses and eyeglasses; and (5) petitioner could grind lenses only upon the prescription of an independent optometrist.
• Complaint and Investigation: On December 5, 1988, private respondent SOPI lodged a complaint with the City Mayor, alleging that petitioner had violated the permit conditions. The City Mayor designated the City Legal Officer to investigate. On July 12, 1989, the City Legal Officer found petitioner guilty of violating all conditions and recommended disqualification from operating in Iligan City.
• Cancellation of Permit: On July 19, 1989, the City Mayor sent petitioner a Notice of Resolution and Cancellation of Business Permit, effective immediately, and granted petitioner three months to wind up its affairs.

• Petitioner maintained that the Court of Appeals erred in holding that the ultra vires conditions imposed by the City Mayor became binding upon petitioner as a private agreement or contract upon its acceptance. Petitioner argued that ultra vires acts are null and void and cannot be given effect, thereby precluding the application of estoppel.
• Petitioner argued that the Court of Appeals erred in classifying the business permit as a contract entered into by Iligan City in the performance of its proprietary functions.

• Public respondents and private respondent SOPI contended that the City Mayor acted within his authority in imposing the special conditions as a valid exercise of police power delegated to local government units under the general welfare clause.
• The Office of the Solicitor General argued that the power to license includes the power to impose reasonable terms and conditions, and that there is no positive prohibition preventing the City Mayor from restricting a license through such conditions.
• Respondents supported the Court of Appeals' ruling that the business permit constituted a contract entered into in the performance of proprietary functions, and that petitioner was estopped from questioning the conditions after accepting them.

• Procedural Issues:
  • Whether petitioner is estopped from challenging the validity of the conditions imposed on its business permit on the ground that it accepted such conditions.
• Substantive Issues:
  • Whether the City Mayor acted ultra vires in imposing the special conditions on petitioner's business permit.
  • Whether a corporation that hires licensed optometrists engages in the unauthorized practice of optometry.
  • Whether a business permit is a contract issued in the exercise of proprietary functions.

• Procedural: The Court ruled that estoppel does not apply. A business permit is not a contract but a special privilege. Because the conditions imposed by the City Mayor were ultra vires, they were null and void ab initio. The doctrine of estoppel cannot operate to give effect to an act that is otherwise null and void or beyond the scope of authority.
• Substantive: The Court held that the City Mayor acted ultra vires. While the Mayor possesses the power to grant licenses and impose reasonable conditions pursuant to police power, such regulations must have a basis in law or ordinance and must not be unreasonable, oppressive, or discriminatory. The conditions imposed effectively regulated the practice of optometry—a function that falls within the exclusive domain of the Professional Regulation Commission and the Board of Examiners in Optometry. Furthermore, the Court ruled that a corporation hiring licensed optometrists does not itself practice optometry; the objective of ensuring competent optometrical services can be attained by requiring the employed optometrists to hold valid certificates of registration. Finally, the Court held that the issuance of a business permit is an exercise of police power—a governmental function—not a proprietary function, and thus cannot be considered a contract.

• Doctrine of Ultra Vires Acts — Acts which are clearly beyond the scope of one's authority are null and void and cannot be given any effect. The Court applied this doctrine to strike down the conditions imposed by the City Mayor, holding that because the Mayor had no legal basis to regulate the practice of optometry through a business permit, the conditions were void and could not be validated by petitioner's acquiescence.
• Nature of Licenses or Permits — A license or permit is not a contract between the sovereignty and the licensee, nor is it property in the constitutional sense subject to the impairment clause; rather, it is a special privilege or permission to do what is within its terms, and it is not vested, permanent, or absolute. The Court relied on this doctrine to reverse the Court of Appeals' ruling that the permit became a binding private agreement upon acceptance.
• Corporate Practice of a Profession — The fact that a corporation hires professionals who practice their profession in the course of their employment does not translate into a practice of the profession by the corporation itself. The Court applied this principle to hold that petitioner's employment of licensed optometrists to examine eyes and prescribe lenses as an incident to its business of selling eyeglasses did not constitute the corporation practicing optometry.

• "A license or a permit is not a contract between the sovereignty and the licensee or permitee, and is not a property in the constitutional sense, as to which the constitutional proscription against impairment of the obligation of contracts may extend. A license is rather in the nature of a special privilege, of a permission or authority to do what is within its terms."
• "Ultra vires acts or acts which are clearly beyond the scope of one's authority are null and void and cannot be given any effect. The doctrine of estoppel cannot operate to give effect to an act which is otherwise null and void or ultra vires."
• "A business permit is issued primarily to regulate the conduct of business and the City Mayor cannot, through the issuance of such permit, regulate the practice of a profession, like that of optometry. Such a function is within the exclusive domain of the administrative agency specifically empowered by law to supervise the profession."

• Samahan ng Optometrists sa Pilipinas vs. Acebedo International Corporation, 270 SCRA 298 (1997) — Followed as controlling precedent. The Court reiterated its holding that a corporation hiring optometrists who practice their profession in the course of employment does not translate into a practice of optometry by the corporation itself.
• Austin-Hardware, Inc. vs. Court of Appeals, 69 SCRA 564 — Followed. The Court acknowledged the ruling that the power to license carries with it the authority to provide reasonable terms and conditions, but distinguished it on the ground that the conditions imposed in the present case were unreasonable and ultra vires.
• Gonzalo Sy Trading vs. Central Bank, 70 SCRA 570 — Followed. The Court cited this case to support the doctrine that a license or permit is a special privilege rather than a contract.
• Balacuit vs. CFI of Agusan del Norte, 163 SCRA 182 — Followed. Cited for the principle that while a business may be regulated, such regulation must be reasonable and cannot be oppressive or amount to arbitrary interference.

• Section 6, Republic Act No. 7160 (Local Government Code of 1991) — General Welfare Clause. Cited as the constitutional and statutory basis for the delegation of police power to local government units, allowing them to enact measures to promote health, safety, and general welfare.
• Section 171, paragraph 2(n), Batas Pambansa Blg. 337 (Local Government Code of 1983) — Enumerated the powers of the City Mayor, including the authority to grant or refuse city licenses or permits and revoke the same for violation of conditions. The Court interpreted this provision as requiring that the power to impose conditions must be exercised in accordance with law.
• Republic Act No. 8050 (Revised Optometry Law) — Regulates the practice of optometry. The Court noted the absence of any provision in this law prohibiting corporations from hiring licensed optometrists, reinforcing the holding that such employment does not constitute unauthorized practice by the corporation.

Bellosillo, Puno, Mendoza, Quisumbing, Buena, Gonzaga-Reyes, Ynares-Santiago, and De Leon, Jr. Kapunan — Concurred in the result but wrote a separate opinion emphasizing that the Mayor's imposition of conditions was premature, as there was no factual basis to conclude that corporate practice of optometry would occur. Kapunan further noted that the conditions failed the test of reasonableness under police power, as the purported ends were mere recitals of the general welfare clause without establishing how the goals would be reasonably achieved, and the means employed unduly deprived optometrists of the right to seek legitimate employment.

• Vitug — Argued that the courts below should be sustained because the conditions imposed by the City Mayor merely restated what the Optometry Law mandates. Vitug contended that the exercise of optometry is a regulated profession that can only be undertaken by individuals duly licensed therefor, and a corporation employing optometrists who perform optometry constitutes unauthorized practice by the corporation. Joined by Davide, Jr., Melo, Panganiban, and Pardo.