La Sagrada Orden de Predicadores vs. The Metropolitan Water District

A gratuitous concession of water made by a municipal council acting as trustee of charitable funds, in remuneration for land donated for a public waterworks system, is a valid and enforceable obligation that binds successor administrators and is not violative of constitutional prohibitions against public support of religion. The grant is not a mere gratuitous donation of public property but a remuneratory exchange, and the absence of a fixed duration does not render it prescriptible where it has created a definite state of things and the beneficiary's consideration remains in the grantor's possession.

The Carriedo water supply system for the City of Manila was funded by a legacy under clause 15 of the testament of General Francisco Carriedo y Peredo, who appointed the Marquis de Montecastro y Llanahermosa as testamentary executor. On March 28, 1748, the Marquis assigned the sum of ₱8,000 Spanish dollars (to be increased to ₱36,000) to the board known as "Mesa de la Sta. Misericordia," which administered the funds for the purpose of furnishing water to the inhabitants of Manila. The powers of that board over the Carriedo funds passed to the city council of Manila, which assumed administration not as custodian of municipal funds but as trustee of the Carriedo charitable trust, designated in its proceedings as "Fideicomisaria de las Obras de Carriedo." The plaintiff, La Sagrada Orden de Predicadores de la Provincia del Santisimo Rosario de Filipinas, is the religious corporation that owns the convent of Sto. Domingo in Manila and was the owner of lands in San Juan del Monte through which the Carriedo water pipes were laid. The defendant, the Metropolitan Water District, is a public corporation created by Act No. 2832 of the Philippine Legislature, charged with administering the waterworks and sewerage system of the City of Manila.

Upon the construction of the Carriedo water supply system for the City of Manila, the plaintiff, La Sagrada Orden de Predicadores, donated to the municipality of Manila certain lands of its ownership situated in San Juan del Monte that were required for bringing the water to the city. In return for this act of liberality, the old city council of Manila, by a resolution dated October 20, 1886, decided to furnish free of charge all the water from the Carriedo waterworks that might be consumed in the convent of Sto. Domingo. The resolution recited that the Dominican Fathers had already defrayed the costs of installing the waterworks in their convent, and that the municipality desired to render the convent a tribute of gratitude and a just return for the gratuitous grant of land necessary for the waterworks.

From 1886 the convent of Sto. Domingo enjoyed the free use of the Carriedo waters without interruption. This continued until July 1, 1920, when the defendant, the Metropolitan Water District, in its capacity as administrator and trustee of the present water supply system, required the plaintiff to pay for the water consumed during the months of July to September 1920. The plaintiff paid the sum of ₱52.24 under protest, and thereafter commenced the present action, praying that the defendant be ordered to fulfill its obligation to furnish free water, to refrain from collecting charges, and to refund the amounts paid.

The defendant, in its answer, set up several special defenses: that it was a mere trustee of the water supply system; that no concession of gratuitous water service had been made; that the plaintiff had revoked its own donation by registering the strip of land in its name under the Torrens system and selling it to third parties; that the Jones Law of August 29, 1916 prohibited the use of public funds for the benefit of any religious institution; and that the water now supplied came from a new system constructed at Montalban with government bond funds, not from the old Carriedo system. By way of counterclaim, the defendant sought to recover ₱1,404.44 for water consumed from September 1, 1916, to the third quarter of 1920.

The lower court admitted the validity of the gratuitous concession but held that, because no time was fixed for its duration, it could not be considered perpetual, and that the successors of the old city government were not obligated to respect it. The court further held that the obligation had been extinguished by section 3 of the Jones Law, which prohibits the use of public property or funds for the support of any church or religious institution. Judgment was rendered absolving the defendant and ordering the plaintiff to pay the counterclaim of ₱1,404.44 with interest and costs.

• Prescription of the Concession: Petitioner argued that the lower court erred in finding that the right to free water consumption had prescribed merely because no time was specified in the concession, since the absence of a fixed duration did not render the grant prescriptible where it had created a definite state of things.
• Extinguishment by the Jones Law: Petitioner maintained that the lower court erred in holding that the obligation to furnish free water was extinguished by the Jones Law, because the concession was remuneratory — made in return for the donation of land — and not a religious subsidy.
• Change of Water Source: Petitioner contended that the lower court erred in finding that the right was extinguished because the water now supplied comes from the new Montalban system, since the defendant remained in possession of the same lands donated by the plaintiff, which formed the basis for the grant.
• Counterclaim: Petitioner argued that the lower court erred in sentencing it to pay the sum claimed in the counterclaim, because no obligation to pay for the water had ever existed.

• Trustee Status: Respondent countered that it, like its predecessors, was a mere trustee of the water supply system constructed with the Carriedo funds, and that as such trustee neither it nor its predecessors had made any "concession of gratuitous water service" as alleged.
• Revocation by Plaintiff: Respondent argued that the plaintiff had revoked its own donation by inscribing the strip of land in its name under the Torrens system and selling it to other persons, thereby defeating the reciprocity that formed the basis of the water concession.
• Jones Law Prohibition: Respondent maintained that section 3 of the Jones Law, which took effect on August 29, 1916, prohibited the use of any public fund or property for the use, benefit, or support of any sect, church, or religious institution, and that the free water supply to a religious convent fell within this prohibition.
• New Water System: Respondent argued that the water now supplied to the plaintiff did not come from the old Carriedo system but from a new one constructed at Montalban with funds obtained through government bond issues, which was separate and distinct from the Carriedo waterworks.

• Authority of the City Council: Whether the old city council of Manila had the authority to make the gratuitous concession of water to the convent of Sto. Domingo.
• Prescription: Whether the right to free water consumption had prescribed because no time was specified in the concession.
• Jones Law: Whether the obligation to furnish free water was extinguished by section 3 of the Jones Law.
• Change of Water Source: Whether the plaintiff's right was extinguished by the fact that water is now supplied from the new Montalban system rather than the old Carriedo system.
• Counterclaim: Whether the plaintiff should be sentenced to pay the sum of ₱1,404.44 claimed in the counterclaim.

• Authority of the City Council: Yes. The city council, acting as fiduciary of the Carriedo charitable trust, had all necessary powers to accomplish the object of furnishing water to Manila, including the authority to acquire lands by purchase or exchange — and the gratuitous water concession was in the nature of an exchange for land donated by the plaintiff.
• Prescription: No. The concession did not prescribe; the resolution had been in force since its adoption, had created a definite state of things, and could not be revoked without injuring the rights of the plaintiff under the old ordinances governing the Manila city council.
• Jones Law: No. Section 3 of the Jones Law did not extinguish the obligation because the free supply of water was not made on account of religious considerations but as remuneratory compensation for the plaintiff's donation of land, constituting in final analysis an exchange or barter.
• Change of Water Source: No. The fact that water now comes from the Montalban reservoir does not affect the rights and obligations arising from the 1886 resolution, because the defendant remains in possession of the same lands donated by the plaintiff, which was the basis for the grant.
• Counterclaim: No. The plaintiff was not obligated to pay for the water, and the counterclaim was therefore without basis.

• Authority of the City Council: The funds and the charitable idea for the water supply system came from the testament of General Francisco Carriedo y Peredo, whose testamentary executor, the Marquis de Montecastro, assigned the legacy to the board known as "Mesa de la Sta. Misericordia." The powers of that board passed to the city council of Manila, which administered the funds not as municipal funds but as trustee of the Carriedo charitable trust, designated in its proceedings as "Fideicomisaria de las Obras de Carriedo." Under Spanish law governing fideicommissary substitutions, the council was the fiduciary charged with executing the testator's will, and the inhabitants of Manila were the fideicommissary. As fiduciary, the council had all necessary powers to accomplish the bringing of water to the city, including the power to buy or acquire by condemnation the lands needed for the water pipes. The authority to buy carried with it the authority to exchange, and the resolution of October 20, 1886, was precisely such an exchange: the convent of Sto. Domingo had defrayed the installation costs and donated the necessary land, and the council, in return, granted the free use of water. The testator's own testament contemplated that convents desiring water service should contribute to the expenses, and the council's resolution was consistent with that framework.

• Prescription: The old ordinances governing the City of Manila, approved by Royal Cedula on September 12, 1686, provided that no resolution voted at one meeting could be revoked at another except for just and urgent reasons and without impairing any right of a third person arising from contract or quasi-contract. The resolution of October 20, 1886, had been in force ever since its adoption and had created a definite state of things. It could not be revoked without injuring the right of the plaintiff, which had furnished the consideration — the donation of land — and had relied on the concession for over thirty-four years.

• Jones Law: The lower court applied section 3 of the Act of Congress of August 29, 1916 (the Jones Law), which prohibits the use of public property or funds for the use, benefit, or maintenance of any church or religious institution. This application was erroneous for two reasons. First, the free supply of water was not made on account of any religious consideration but in return for the plaintiff's act of liberality in donating land for the waterworks. Second, the donation was remuneratory: the free consumption of water was compensation for the value of more than ten thousand square meters of land donated by the plaintiff. If the city council could validly purchase lands for the waterworks, it could equally, instead of paying the price, furnish free water to the donor. The reciprocal donations constituted an exchange or barter, and it could not be held that the free supply of water was made without compensation.

• Change of Water Source: Although the water supply of the City of Manila now comes almost the whole year from the Montalban reservoir, this did not affect the rights and obligations growing out of the 1886 resolution, because the defendant remained in possession of the same lands donated by the plaintiff — the very basis for the grant of free water. The obligation was tied to the continued possession and use of the donated land, not to the particular source from which the water was drawn.

• Counterclaim: Since the plaintiff's right to free water was valid and subsisting, no obligation to pay for the water consumed had ever existed. The counterclaim for ₱1,404.44 was therefore without legal basis. The defendant, as successor to the old city council's obligations under Act No. 2832, was duty-bound to respect the concession and to supply water gratuitously.

• Fiduciary Authority of the Manila City Council over the Carriedo Trust — The city council of Manila administered the Carriedo charitable funds not as municipal funds but as trustee (fiduciary) charged with carrying out the testator's will to furnish water to the inhabitants of Manila. As fiduciary, the council possessed all necessary powers to accomplish that object, including the authority to acquire lands by purchase, condemnation, or exchange. The authority to buy carried with it the authority to exchange, and the gratuitous water concession to the convent of Sto. Domingo was in the nature of an exchange for land donated by the plaintiff.

• Remuneratory Donation Distinguished from Gratuitous Religious Subsidy — A gratuitous concession made in return for a prior act of liberality — here, the donation of land for a public waterworks system — is a remuneratory donation, not a religious subsidy. The reciprocal donations of land and free water constituted an exchange or barter. Such a concession does not fall within the prohibition of section 3 of the Jones Law against the use of public property or funds for the support of any church or religious institution, because it is supported by adequate consideration and is not made on account of religious considerations.

• Irrevocability of Municipal Resolutions Creating Vested Rights — Under the old ordinances governing the City of Manila (approved by Royal Cedula of September 12, 1686), a resolution voted at one meeting could not be revoked at another except for just and urgent reasons and without impairing any right of a third person arising from contract or quasi-contract. A resolution that has been in force since its adoption and has created a definite state of things cannot be revoked without injuring the rights of the party who furnished the consideration.

• Transmission of Municipal Obligations to Successor Entities — Obligations contracted by the former municipal council of the City of Manila were transmitted to the present City of Manila upon the change of sovereignty, as held in Vasquez Villas vs. City of Manila (42 Phil., 953). The Metropolitan Water District, created by Act No. 2832, was empowered and directed by section 8 of that law to receive and take charge of all assets and obligations pertaining to the waterworks and sewerage system of the City of Manila, and was therefore bound to respect the obligations of its predecessor.

• "Considering the case at bar in the most favorable light for both parties, it is evident that these donations, made reciprocally by the plaintiff corporation and the old city council of Manila, the predecessor of the defendant, constitute in the final analysis an exchange or barter whereby one gives its lands and the other the supply of water." — This passage articulates the ratio decidendi for the Jones Law issue, defining the transaction as a remuneratory exchange rather than a religious subsidy.

• "The said resolution has been in force ever since it was adopted and having created a definite state of things, it cannot now be revoked without injuring the right of the party plaintiff." — This states the doctrine of irrevocability of municipal resolutions that have created vested rights, grounded in the old ordinances of the City of Manila.

• "In its capacity as fiduciary of the Carriedo charitable fund, the old city council of Manila had under the law all the necessary powers to accomplish the bringing of the water to the city, with which it was charged." — This defines the scope of the council's authority as trustee and establishes the legal basis for its power to make the gratuitous concession.

• Vasquez Villas vs. City of Manila, 42 Phil., 953 — Controlling precedent. The Supreme Court of the United States held that the City of Manila holds the Carriedo fund as trustee and that the present City of Manila, chartered by the Philippine Commission with almost the same municipal attributes as the old municipality of Manila under the Spanish regime, is liable for municipal obligations contracted before the cession of the Philippine Islands to the United States by the Treaty of Paris of December 10, 1898. This case was relied upon to establish both the trustee status of the city council and the transmission of obligations to successor entities.

• Section 3, Act of Congress of August 29, 1916 (Jones Law) — Prohibits the use of any public property or fund for the use, benefit, or maintenance of any church, religious institution, or denomination. The Court held this provision inapplicable because the free water concession was remuneratory compensation for donated land, not a religious subsidy.
• Section 8, Act No. 2832 (Philippine Legislature, creating the Metropolitan Water District) — Empowers and directs the governing body of the Metropolitan Water District to receive and take charge of all assets and obligations pertaining to the waterworks and sewerage system of the City of Manila. This provision was applied to establish the defendant's duty to respect the obligations of its predecessor.
• Clause 15, Testament of General Francisco Carriedo y Peredo — The testamentary legacy that funded the Carriedo waterworks. The clause provided for the construction of public fountains and water conduits to certain convents at the expense of the fund, and stipulated that any other convent desiring water service must contribute to the expenses proportionately. This provision was cited to show that the council's resolution was consistent with the testator's intent.
• Old Ordinances of the City of Manila, approved by Royal Cedula of September 12, 1686 — Provided that no resolution voted at one meeting could be revoked at another except for just and urgent reasons and without impairing the rights of third persons. This was applied to establish the irrevocability of the 1886 resolution.
• Article 624, Civil Code — Cited by the defendant in its demurrer for the proposition that a mere administrator cannot dispose of property administered. The majority did not directly address this article but effectively overcame the argument by establishing that the council acted as fiduciary with full powers, not as a mere administrator.

Araullo, C.J., Johnson, Avanceña, and Romualdez, JJ., concurred in the majority opinion.

• Street, J. — Concurred insofar as the majority held that the plaintiff could not be made to pay the ₱1,404.44 counterclaim, because the water had been voluntarily supplied and no obligation to pay had ever existed, and because the Jones Law could not be construed as creating a civil liability on the part of the Order to pay for past water. Dissented as to the effect of the 1886 grant, characterizing it as an administrative regulation conferring a mere privilege rather than a permanent donation or irrevocable grant. In Street's view, the present administrators of the water system were not bound to continue supplying free water if minded to revoke the privilege.

• Johns, J. — Vigorously dissented, arguing that there was no contract or agreement between the plaintiff and the city, either oral or written, and that no written instrument conveying a right of way had ever been executed. The donation of the right of way was voluntary and complete in itself, and the city council's grant of free water was a separate, voluntary act of gratitude not founded on any covenant running with the land. Without a written instrument under seal, no covenants running with the land were created. Furthermore, Johns emphasized that the water now supplied came almost entirely from the Montalban system, separate and distinct from the Carriedo canal, which was used no more than two weeks per year. The grant, if valid at all, should be confined to Carriedo canal waters and limited to the period those waters are actually used. Johns contended that no law authorized a city council to make a perpetual gift of public property, and that the plaintiff's claim of a perpetual right to free water from the new system was untenable. Malcolm and Ostrand, JJ., concurred with Johns's dissent.