MANILA ELECTRIC COMPANY vs CITY OF MUNTINLUPA and NELIA A.

BARLIS
G.R. No. 198529, February 9, 2021

Facts:
● Manila Electric Company (Meralco) is a public utility corporation organized under
Philippine laws with a franchise to construct, operate and maintain a distribution
system for electricity in the National Capital Region, among others
● The City of Muntinlupa, a local government unit, was converted from a municipality to
a highly urbanized city by virtue of Republic Act No. 7926 in 1995
● On January 01, 1994, the Revenue Code of the Municipality of Muntinlupa (MO
93-35) took effect and (Sec. 25) imposed a franchise tax on private persons or
corporations operating public utilities within its territorial jurisdiction
● On June 28, 1999, Nelia Barlis, the City Treasurer of Muntinlupa, sent a letter to
Meralco demanding payment of the franchise tax it owed to Muntinlupa from 1992 to
1999 pursuant to Section 25 of MO 93-35 and paragraph 7 of the Bureau of Local
Government Finance Circular No. 20-98
● Meralco ignored the demand and filed a petition with prayer for writ of preliminary
injunction before the Regional Trial Court to declare Section 25 of MO 93-35 as null
and void for being contrary to law, unjust and confiscatory.
● Meralco argued that municipalities do not have the authority to impose a franchise
tax –a power exclusively belonging to provinces and cities as per RA 7160
● The City of Muntinlupa argues that Section 137 of R.A. No.7160 and Articles 227 and
237 of its Implementing Rules and Regulations allow the imposition of a franchise tax
by a local government unit
● The RTC ruled in favor of Meralco, but the Court of Appeals modified the decision
and held that while municipalities have no authority to levy and collect a franchise tax
due to the ultra vires nature of Section 25 of MO 93-35, such was cured of its legal
infirmitie when the Municipality of Muntinlupa was converted into a highly urbanized
city by virtue of its Charter in 1995. However, it held that the curative effect applies
prospectively, hence the obligation to pay franchise tax begins only from March 01,
1995, the date when the Charter of Muntinlupa City was enacted.

Issue/s:
● Whether or not Section 25 of MO 93-35 is valid
● Whether the conversion of the Municipality of Muntinlupa to a highly urbanized city
cured the infirmity of Section 25 of MO 93-35

Ruling/s:
● No. Section 25 of MO 93-35 is null and void.

The two tests used in determining the validity of an ordinance are the Formal Test
and the Substantive Test. The Formal Test checks if the ordinance was enacted
within the corporate powers of the local government unit and if it was passed
according to the procedure laid down by law. The Substantive Test evaluates the
reasonableness and fairness of the ordinance, its compliance with the Constitution
and existing statutes.
 The Court held that MO 93-35 failed both tests. The Formal Test was failed as the
passage of the subject ordinance was beyond the corporate powers of the then
Municipality of Muntinlupa. The Substantive Test was failed as the subject section
deviated from the provisions of R.A. No. 7160, which only allows provinces and cities
to impose a franchise tax. The Municipality of Muntinlupa had no power to enact the
franchise tax ordinance.
● No. The curative effect of Section 56 of the Charter of Muntinlupa City cannot cure
the infirmity of Section 25 of MO 93-35.

The CA’s ruling that the curative effect of the conversion of Muntinlupa into a highly
urbanized city cured the infirmity of Section 25 of MO 93-35 is incorrect. A legal
infirmity cannot be cured by a mere change of status from a municipality to a highly
urbanized city.

In this case, Section 25 of MO 93-35, being ultra vires and in violation of R.A. No.
7160, remains null and void. The conversion of Muntinlupa into a highly urbanized
city cannot give it the power to impose a franchise tax, which power is exclusively
vested in provinces and cities under R.A. No. 7160.

Hence, the RTC’s ruling in favor of Meralco was correct, and the CA’s ruling
modifying the same was erroneous.