Tawang Multi-Purpose Cooperative vs. La Trinidad Water District

A statutory provision that conditions the grant of a public utility franchise within a water district on the consent of the district's board of directors constitutes an unconstitutional exclusive franchise, as it indirectly creates an exclusive franchise in violation of the constitutional prohibition that no franchise for the operation of a public utility shall be exclusive in character.

Tawang Multi-Purpose Cooperative (TMPC), a cooperative organized to provide domestic water services in Barangay Tawang, La Trinidad, Benguet, filed an application with the National Water Resources Board (NWRB) for a certificate of public convenience to operate a waterworks system. La Trinidad Water District (LTWD), a local water district created under Presidential Decree No. 198 authorized to supply water within the municipality, opposed the application. LTWD invoked Section 47 of PD 198, which provides that no franchise shall be granted to any other person or agency for water service within the district unless the board of directors of said district consents thereto.

• The Parties: TMPC is a cooperative registered with the Cooperative Development Authority to provide domestic water services in Barangay Tawang. LTWD is a local water district created under PD 198, authorized to supply water within the Municipality of La Trinidad.
• The Application: TMPC filed an application with the NWRB for a certificate of public convenience (CPC) to operate a waterworks system in Barangay Tawang. LTWD opposed the application, claiming that under Section 47 of PD 198, its franchise is exclusive.
• The NWRB Ruling: The NWRB approved TMPC's application, holding that LTWD's franchise cannot be exclusive because exclusive franchises are unconstitutional, and that TMPC was legally and financially qualified.
• The RTC Reversal: LTWD appealed to the RTC. The RTC set aside the NWRB decision and cancelled TMPC's CPC. The RTC held that Section 47 is valid, reasoning that the Constitution only prohibits franchises that preclude the State itself from granting a franchise when public interest requires, not a franchise that is exclusive against other private entities.

• Validity of Section 47: Petitioner argued that the RTC erred in holding that Section 47 of PD 198 is valid, contending that the provision unconstitutionally creates an exclusive franchise.

• Regulatory Nature of Consent Mechanism: Respondent countered that Section 47 does not grant an exclusive franchise but merely regulates the grant of subsequent franchises to protect government investment and prevent ruinous competition.
• Police Power: Respondent maintained that a government agency's refusal to consent to a franchise based on reasonable and legitimate grounds is a valid exercise of police power, not a violation of the constitutional mandate on non-exclusivity.
• Presumption of Regularity: Respondent argued that the refusal of the local water district or LWUA to consent to other franchises carries the legal presumption that public officers regularly perform their official functions.

• Constitutionality of Section 47: Whether Section 47 of PD 198, which requires the consent of a water district's board of directors for the grant of other franchises within the district, is unconstitutional for creating an exclusive franchise in violation of the Constitution.

• Constitutionality of Section 47: Section 47 of PD 198 was declared unconstitutional for indirectly creating an exclusive franchise. What cannot be legally done directly cannot be done indirectly. Since Congress cannot directly create an exclusive franchise, it cannot do so indirectly by delegating to a water district's board of directors and the LWUA the power to make franchises exclusive by withholding consent. The constitutional prohibition against exclusive franchises is absolute and accepts no exception. Police power does not include the power to violate the Constitution, and the unconstitutionality of a law is determined not only by its purpose but also by its effect.

• What cannot be done directly cannot be done indirectly — The legislature cannot circumvent a constitutional prohibition by delegating the power to achieve the prohibited result to an administrative body or board. If Congress cannot directly create an exclusive franchise, it cannot indirectly create one by allowing a water district's board of directors and the LWUA to create exclusive franchises by withholding consent to competitors.
• Constitutional Supremacy — If a law or administrative rule violates any norm of the Constitution, that issuance is null and void. The Constitution is the paramount law to which all other laws must conform; no act shall be valid if it conflicts with the Constitution.
• Absolute Prohibition on Exclusive Franchises — The 1935, 1973, and 1987 Constitutions expressly prohibit franchises for the operation of a public utility that are exclusive in character. This prohibition is absolute and accepts no exception.

• "What cannot be legally done directly cannot be done indirectly. This rule is basic and, to a reasonable mind, does not need explanation. Indeed, if acts that cannot be legally done directly can be done indirectly, then all laws would be illusory."
• "The President, Congress and the Court cannot create directly franchises that are exclusive in character. What the President, Congress and the Court cannot legally do directly they cannot do indirectly."
• "There is no 'reasonable and legitimate' ground to violate the Constitution. The Constitution should never be violated by anyone. Right or wrong, the President, Congress, the Court, the BOD and the LWUA have no choice but to follow the Constitution. Any act, however noble its intentions, is void if it violates the Constitution."

• Metropolitan Cebu Water District v. Adala — Followed. The Court reiterated its ruling that Section 47 of PD 198 is unconstitutional for vesting an exclusive franchise upon public utilities, repugnant to the constitutional mandate.
• Alvarez v. PICOP Resources, Inc. — Followed. Cited for the maxim that what one cannot do directly, he cannot do indirectly.
• Social Justice Society v. Dangerous Drugs Board — Followed. Cited for the doctrine of constitutional supremacy.
• Pilipino Telephone Corporation v. National Telecommunications Commission — Followed. Cited for the proposition that neither Congress nor the NTC can grant an exclusive franchise to operate a public utility.

• Section 11, Article XII, 1987 Constitution (and Section 5, Article XIV, 1973 Constitution; Section 8, Article XIII, 1935 Constitution) — Prohibits franchises for the operation of a public utility from being exclusive in character. Applied to invalidate Section 47 of PD 198, which effectively granted an exclusive franchise to water districts.
• Section 47, Presidential Decree No. 198 — Provided that no franchise shall be granted to any other person or agency for water service within the district without the consent of the board of directors. Declared unconstitutional for creating an exclusive franchise indirectly.

Corona, C.J., Morales, Velasco, Jr., Nachura, Leonardo-De Castro, Peralta, Bersamin, Del Castillo, Villarama, Jr., Perez, Mendoza, Sereno. Abad, J., concurred separately, arguing that the Court cannot rewrite a law it has previously declared unconstitutional and that stare decisis supports the earlier ruling in Metropolitan Cebu Water District v. Adala.

• Brion, J. — Asserted that Section 47 does not grant an exclusive franchise but merely regulates subsequent franchises to protect government investment and prevent ruinous competition. Argued that a government agency's refusal to consent to a franchise based on reasonable and legitimate grounds is a valid exercise of police power, not a violation of the Constitution. Contended that the Court should reverse Metropolitan Cebu Water District v. Adala, as the provision does not absolutely prohibit other franchises but merely subjects them to a consent mechanism subject to administrative review.