The term ultra vires is one which is usually applicable to corporations and also commonly to Local Governments and other government entities. The concept is defined thus: “an ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the powers conferred upon it by law (19 C.J.S., Section 965, p. 419)” (Republic vs. Acoje, G.R. No. L-18062 February 28, 1963). The term is Latin which literally means “beyond the powers” since “ultra” means beyond and “vires” means power. Since corporations are creations of law, its powers are also defined and conferred by law. So are local government units. The powers of corporations are defined in the articles of incorporation which must conform to the provisions of the Corporation Code and other laws. The powers of Local Government Units are defined by the Local Government Code or its charter in certain cases. Since the powers of these entities are defined by law, all its actions should therefore be within the limits provided by law. Any act beyond is considered “ultra vires” and should not have any legal effect.
Meralco vs. Muntinlupa
Meralco operates under a franchise mainly to distribute electricity to its consumers in the areas of its operation. Muntinlupa was converted into a city in 1995 through the enactment of its charter in 01 march 1995. In 1994, the Sangguniang Bayan of Muntinlupa passed an ordinance imposing franchise tax. Sometime later, the City sent a letter to Meralco demanding that it pay its franchise tax obligations based on that ordinance enacted in 1994, for the period 1992-1999. Meralco opposed saying the Municipality of Muntinlupa then did not have any power under the Local Government Code to impose and collect franchise tax since this power is only vested on provinces and cities. When the ordinance was enacted, Muntinlupa was still a municipality therefore the ordinance is invalid for being ultra vires. The RTC favored Meralco but Muntinlupa appealed until the Supreme Court.
The Ordinance is Ultra Vires
The Supreme Court upheld the ruling of the trial court. Municipalities cannot impose and collect franchise tax. The ordinance imposing the franchise fee is invalid because it was enacted by the Sanggunian before Muntinlupa was converted into a city. It does not matter that the transitory provision of the charter provides that all ordinances enacted “shall all continue to take effect within the City of Muntinlupa unless its sangguniang panglungsod enacts an ordinance providing otherwise.” (G.R. No. 198529, February 09, 2021) This however, cannot apply in this instance because the ordinance was invalid because at the time of enactment it did not have the power to enact the same. Muntinlupa was not a city yet when its Sanggunian enacted the ordinance. “Legaspi v. City of Cebu explains the two tests in determining the validity of an ordinance, i.e., the Formal Test and the Substantive Test. The Formal Test requires the determination of whether the ordinance was enacted within the corporate powers of the LGU, and whether the same was passed pursuant to the procedure laid down by law.” The Supreme Court went on to say: “Applying the Formal Test, the passage of the subject ordinance was beyond the corporate powers of the then Municipality of Muntinlupa, hence, ultra vires.” Since the ordinance was invalid when enacted, the transitory provision of the Charter of Muntinlupa cannot save it. The ordinance did not have any legal effect so Meralco cannot be required to pay any franchise fee unless a new ordinance is enacted imposing the same by the Sangguniang Panlungsod of the Muntinlupa City.
