Manila Electric Company v. Province of Laguna acting on its private capacity in entering said contracts with other parties.

May 5, 1999 | Vitug, J. | Contract Clause

In the case provided, franchise tax exemptions are considered as different
PETITIONER: Manila Electric Company from contractual tax exemptions. The validity of said ruling is based on Sec.
RESPONDENT: Province of Laguna and Benito Balazo, in his capacity as 11, Art. XII of the Constitution, citing that franchises are subject to
Provincial Treasurer of Laguna amendments by the government, including the removal of franchise tax
exemptions.
SUMMARY: MERALCO was granted franchises to operate across different
municipalities in Laguna. However, the introduction of RA 7160 gave way for
the municipalities to levy franchise taxes from MERALCO for their source of
revenue.

The Court ruled that the levying of taxes does not constitute a violation of the
non-impairment clause as franchise tax exemptions are different from
contractual tax exemptions.

DOCTRINE: Contract Clause – Franchise tax exemptions are deemed to be

different from contractual tax exemptions; hence, they are not subject to the non-
impairment clause.

FACTS:
1. Franchise was granted for MERALCO to operate across certain
municipalities of Laguna. The National Electrification Administration has
also granted MERALCO with a franchise to operate in Calamba, Laguna.
2. Through RA 7160, LGUs were allowed to levy taxes as sources of revenue.
Hence, Laguna Provincial Ordinance No. 01-92 was implemented. Sec.
2.09 sought a Franchise Tax on businesses.
3. Demand letter was sent to MERALCO, but their response was that the said
payment for tax is already included in the fees incurred for obtaining the
franchise.
4. Claim for refund was denied by Governor of Laguna. RTC sided with said
decision.

ISSUE/s:
1. WoN the franchise tax imposed against MERALCO is violative of the non-
impairment clause - NO

RULING:
WHEREFORE, the instant petition is hereby DISMISSED. No costs. SO
ORDERED.

RATIO:
1. The Court ruled that the government has the authority to withdraw
privileges from businesses, such as tax exemptions. The Court also cited
that the non-impairment clause is only valid whenever the government is