Case Summary (G.R. No. 224825)
Petitioner
City of Cagayan de Oro
Respondent
Cagayan Electric Power & Light Co., Inc. (CEPALCO)
Key Dates
• January 24, 2005 – Enactment of Ordinance No. 9527-2005 imposing a P500 annual fee per utility pole.
• February 8, 2008 – Regional Trial Court (RTC) dismisses CEPALCO’s petition for failure to exhaust administrative remedies.
• June 10, 2015 – Court of Appeals (CA) reverses the RTC and declares the ordinance void as unreasonable and exorbitant.
• October 17, 2018 – Supreme Court issues its decision on petition for review.
Applicable Law
• 1987 Philippine Constitution, Article X, Section 5 (Local Autonomy)
• Republic Act No. 7160 (Local Government Code), particularly Sections 130, 147, 151, 186, and 187
• Relevant jurisprudence on regulatory fees versus taxes (Smart Communications, Morcoin) and the presumption of validity (Balacuit, Laguio, Victorias Milling)
Factual Background
Ordinance No. 9527-2005 imposed a P500 per-post annual fee on electric and telecommunication poles within city streets. CEPALCO estimated an annual liability of P8.5 million. It filed a declaratory relief petition before the RTC, alleging that the fee was unjust, excessive, oppressive, and in conflict with its legislative franchise. The RTC dismissed the petition for non-exhaustion of administrative remedies under Section 187 of the Local Government Code. The CA reversed, declaring the ordinance void for lacking a disclosed basis for the P500 rate and for being confiscatory, and it excused CEPALCO from the exhaustion requirement.
Classification as a Regulatory Fee
Under the Local Government Code, a “fee” is charged for regulation or inspection, whereas a “tax” is imposed primarily to raise revenue. The Supreme Court examined the ordinance’s whereas clauses, which expressly cite hazard prevention and skyline regulation as the motivating purposes. It held that the primary objective is police power regulation, characterizing the exaction as a regulatory fee rather than a tax or revenue measure.
Exhaustion of Administrative Remedies
Section 187 requires prior appeal to the Secretary of Justice only for tax ordinances or revenue measures. Because the Mayor’s Permit Fee is regulatory in nature, the exhaustion doctrine does not apply. Direct recourse to the courts is permissible, and the RTC erred in dismissing the petition on exhaustion grounds.
Presumption of Validity and Burden of Proof
Ordinances enjoy a presumption of validity, owing deference to the legislative body’s judgment. A challenger must demonstrate, by clear and convincing evidence, that the ordinance is unconstitutional, contrary to law, or unreasonable. In the absence of facial invalidity, proof of substantive infirmity is required.
Substantive Reasonableness of the Fee
Sections 130(b)(3) and 186 of the Local Government Code prohibit fees that are unjust,
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Facts
- On January 24, 2005, the City of Cagayan de Oro enacted Ordinance No. 9527-2005 imposing an annual Mayor’s Permit Fee of ₱500.00 per electric or telecommunications pole in the city.
- The ordinance aimed to regulate the proliferation, maintenance, and safety of utility poles along public and private streets, roads, highways, and alleys.
- Cagayan Electric Power & Light Co., Inc. (CEPALCO), owner of approximately 17,000 poles in the city, faced an annual fee obligation of ₱8,500,000.00 under this ordinance.
- On September 30, 2005, CEPALCO filed a Petition for Declaratory Relief with Damages, including a Prayer for Temporary Restraining Order and Preliminary Injunction, before the Regional Trial Court (RTC), challenging the fee as unjust, excessive, and in conflict with its legislative franchise.
Ordinance No. 9527-2005
- Title: “An Ordinance Imposing a Mayor’s Permit Fee on Electric and/or Telecommunication Poles/Posts Owned by Public Utility Companies … at the Rate of Five Hundred Pesos (₱500.00) Per Post Per Year.”
- Whereas clauses cite the rapid proliferation of poles, hazards to traffic and public safety, nuisances to the city skyline, and statutory authority under the Local Government Code to impose regulatory fees.
- Key provisions:
- Section 1 imposes the ₱500.00 annual fee per post.
- Section 2 tasks the City Engineer with inventory and owner identification.
- Section 3 exempts poles owned by national government instrumentalities or other LGUs.
- Section 4 references the 2003 City Revenue Code’s rules on mayor’s permit fees.
Trial Court Proceedings
- CEPALCO argued the fee violated the principle against unjust, excessive, oppressive, or confiscatory impositions and conflicted with its franchise exemption from city fees.
- The City defended the ordinance as a valid exercise of police and taxing powers under the Constitution and the Local Government Code, and poi