On 8 March 2020, in response to the spread of the novel COVID-19 virus in the Philippines, the President of the Philippines declared a State of Public Health Emergency throughout the Philippines. Several days later, on 16 March 2020, the President declared a State of Calamity and imposed an Enhanced Community Quarantine for one month throughout Luzon, the largest island in the country which houses Manila, the heart of the economy. This was then extended for two (2) weeks. Subsequently, Republic Act No. 11469, otherwise known as the Bayanihan to Heal As One Act, was signed into law, which, among others, grants the President the authority to direct of the operation of any privately-owned hospital and medical and health facilities including passenger vessels and, other establishments, to house health workers, serve as quarantine areas, quarantine centers, medical relief and aid distribution locations, or other temporary medical facilities and public transportation to ferry health, emergency and frontline personnel and other persons.

After the passage of Republic Act No. 11469, the President directed various government agencies to create a list of establishments that will possibly be covered for takeover of operations. Currrently, the Philippine government has converted several convention centers and sports facilities into isolation sites as hospitals and health care centers to accommodate more COVID-19 patients. Governments in other countries have been more aggressive in exercising this power. In China, authorities requisitioned private hospitals, hotels and apartments, while in the center of the epidemic, Wuhan, the government seized offices, other hospitals and even student dormitories to create more beds for coronavirus patients. Spain has likewise placed its private health providers and their facilities under public control after a declaration of a state of emergency.

With such strong powers in play in the Philippines, it begs the question on its source, limits and effect on the subject of its exercise insofar as applied to the Philippine setting.

Source of the Power To Take Over Privately-Owned Businesses and its Limitations

Section 17, Article XII of the 1987 Constitution provides that “(i)n times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately-owned public utility or business affected with public interest.” This power to take over or direct operation of a business is subject to the limitations that: (a) it must be delegated by Congress through a law; (b) the privately-owned utility or business is affected with public interest; and (c) it must be temporary or for a limited period.

A business or private property of such business becomes clothed with public interest when it is used in a manner to make it of public consequence and affect the community at large [Fisher vs. Yangco Steamship Company, 31 Phil. 1 (1915)]. Business affected with public interest has also been interpreted to mean a “business that has a lot of repercussions on the public, whether it be public utility or other businesses which may partake of the characteristics of public utility but which is not yet considered public utility” [Volume 3, Records of the 1986 Constitutional Commission, No. 64]. Some examples of businesses clothed with public interest include those involved with generation of electric power [National Power Corporation vs. Provincial Government of Bataan, 819 SCRA 173 (2017) citing Section 6, Republic Act No. 9136], banks [Ford Philippines, Inc. vs. Citibank N.A., 350 SCRA 446 (2001)], private pay hospitals and medical clinics [Manila Doctors Hospital vs. So Un Chua, 497 SCRA 230 (2006)] and common carriers, such as public utility vehicles [Eastern Assurance & Surety Corp., vs. Land Transportation Franchising & Regulatory Board, 413 SCRA 75 (2003)]. As regards the pandemic, these businesses would pertain to those that could aid the government in fighting the virus, which include but are not limited to businesses involved in health and medicine, transportation and even food supply.

The delegating law made by Congress on the authority of the President to exercise emergency powers likewise has its own parameters and limitations. It can only be done in times of war or other national emergency [Section 17, Article XII of the 1987 Constitution], the takeover must be only for a limited period and can only last as may be necessary to respond to the emergency [Agan, et al., v. Philippine International Air Terminals Co., Inc., et al., 402 SCRA 612 (2003)], and it must prescribe restrictions to the exercise of such powers necessary and proper to carry out a declared national policy [See Section 23(2), Article VI of the 1987 Constitution of the Philippines].

Compensation to Business Owners Subject Of The Takeover Powers

The  power to take-over or direct the operation of privately-owned public utilities or businesses affected with public interest is an exercise of police power, defined as “state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare” [Agan, et al., v. Philippine International Air Terminals Co., Inc., et al., supra]. It is also, by its very nature and limitations, temporary in nature. Moreover, the temporary takeover by the government extends only to the operation of the public utility or business and not to its ownership. Hence, government is not required to compensate the private entity-owner of the said public utility or business [Agan, et al., v. Philippine International Air Terminals Co., Inc., et al., supra].

This temporary takeover power arising from police power should be distinguished from another inherent power to the state, eminent domain, which contemplates an appropriation of interest over private property permanent in character of property, where ownership transfers to the government, and such property is applied to some public purpose. In such a case, government is mandated to provide just compensation to the private owner affected [Manila Memorial Park, Inc., et al. v. Secretary of the DSWD, et al., 711 SCRA 302 (2013)].

Even if there is no requirement to compensate, there have been instances that the payment of just compensation to the owner of the enterprise or entity has been considered. In fact, Republic Act No. 11469 itself provides that owners of establishments subject of temporary takeover are entitled to appropriate compensation based on its full accounting [Section 4(b)].