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VOL. 419, JANUARY 14, 2004 363Feliciano vs. Commission on
Audit
G.R. No. 147402. January 14, 2004.*
ENGR. RANULFO C. FELICIANO, in his capacity asGeneral Manager of
the Leyte Metropolitan Water District(LMWD), Tacloban City,
petitioner, vs. COMMISSION ONAUDIT, Chairman CELSO D. GANGAN,
CommissionersRAUL C. FLORES and EMMANUEL M. DALMAN, andRegional
Director of COA Region VIII, respondents.
Commission on Audit Jurisdiction The COAs auditjurisdiction
extends not only to government agencies orinstrumentalities, but
also to governmentowned and controlledcorporations with original
charters as well as other governmentowned or controlled
corporations without original charters.TheConstitution and existing
laws mandate COA to audit allgovernment agencies, including
governmentowned and controlledcorporations (GOCCs) with original
charters. An LWD is aGOCC with an original charter. x x x The COAs
audit jurisdictionextends not only to government agencies or
instrumentalities,but also to governmentowned and controlled
corporations withoriginal charters as well as other governmentowned
orcontrolled corporations without original charters.
Same Same The determining factor of COAs auditjurisdiction is
government ownership or control of the corporation.The determining
factor of COAs audit jurisdiction isgovernmentownership or control
of the corporation. In PhilippineVeterans Bank Employees UnionNUBE
v. Philippine VeteransBank, the Court even ruled that the criterion
of ownership andcontrol is more important than the issue of
original charter.
_______________
* EN BANC.
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364
364 SUPREME COURT REPORTS ANNOTATED
Feliciano vs. Commission on Audit
Corporation Law Congress cannot enact a law creating aprivate
corporation with a special charter Since privatecorporations cannot
have special charters, it follows that Congresscan create
corporations with special charters only if suchcorporations are
governmentowned or controlled.In short,Congress cannot enact a law
creating a private corporation with aspecial charter. Such
legislation would be unconstitutional.Private corporations may
exist only under a general law. If thecorporation is private, it
must necessarily exist under a generallaw. Stated differently, only
corporations created under a generallaw can qualify as private
corporations. Under existing laws, thatgeneral law is the
Corporation Code, except that the CooperativeCode governs the
incorporation of cooperatives. The Constitutionauthorizes Congress
to create governmentowned or controlledcorporations through special
charters. Since private corporationscannot have special charters,
it follows that Congress can createcorporations with special
charters only if such corporations aregovernmentowned or
controlled.
Same Local Water Districts Local Water Districts (LWDs) arenot
private corporations because they are not created under
theCorporation Code.Obviously, LWDs are not private
corporationsbecause they are not created under the Corporation
Code. LWDsare not registered with the Securities and Exchange
Commission.Section 14 of the Corporation Code states that [A]ll
corporationsorganized under this code shall file with the
Securities andExchange Commission articles of incorporation x x x.
LWDs haveno articles of incorporation, no incorporators and no
stockholdersor members. There are no stockholders or members to
elect theboard directors of LWDs as in the case of all
corporationsregistered with the Securities and Exchange Commission.
Thelocal mayor or the provincial governor appoints the directors
ofLWDs for a fixed term of office.
Same Same LWDs can validly exist only if they aregovernmentowned
or controlled.LWDs exist by virtue of PD198, which constitutes
their special charter. Since under theConstitution only
governmentowned or controlled corporationsmay have special
charters, LWDs can validly exist only if they aregovernmentowned or
controlled. To claim that LWDs are private
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corporations with a special charter is to admit that their
existenceis constitutionally infirm.
Same Same LWDs derive their legal existence and powerfrom PD
198.Unlike private corporations, which derive theirlegal existence
and power from the Corporation Code, LWDsderive their legal
existence and power from PD 198.
Same Same The Sangguniang Bayan may establish awaterworks system
only in accordance with the provisions of PD198.The Sangguniang
Bayan may establish a waterworkssystem only in accordance with
365
VOL. 419, JANUARY 14, 2004 365
Feliciano vs. Commission on Audit
the provisions of PD 198. The Sangguniang Bayan has no powerto
create a corporate entity that will operate its waterworkssystem.
However, the Sangguniang Bayan may avail of existingenabling laws,
like PD 198, to form and incorporate a waterdistrict, Besides, even
assuming for the sake of argument that theSangguniang Bayan has the
power to create corporations, theLWDs would remain governmentowned
or controlledcorporations subject to COAs audit jurisdiction. The
resolution ofthe Sangguniang Bayan would constitute an LWDs
specialcharter, making the LWD a goyernmentowned and
controlledcorporation with an original charter.
Same Same The board directors and other personnel ofLWDs are
government employees subject to civil service laws andantigraft
laws.The government owns and controls LWDs. Thegovernment organizes
LWDs in accordance with a specific law,PD 198. There is no private
party involved as coowner in thecreation of an LWD. Just prior to
the creation of LWDs, thenational or local government owns and
controls all their assets.The government controls LWDs because
under PD 198 themunicipal or city mayor, or the provincial
governor, appoints allthe board directors of an LWD for a fixed
term of six years. Theboard directors of LWDs are not coowners of
the LWDs. LWDshave no private stockholders or members. The board
directors andother personnel of LWDs are government employees
subject tocivil service laws and antigraft laws.
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SPECIAL CIVIL ACTION in the Supreme Court.Certiorari.
The facts are stated in the opinion of the Court.Nathanille P.
Roa for petitioner.The Solicitor General for respondents.
CARPIO, J.:
The Case
This is a petition for certiorari1 to annul the Commission
on
Audits (COA) Resolution dated 3 January 2000 and theDecision
dated 30 January 2001 denying the Motion forReconsideration. The
COA denied petitioner Ranulfo C.Felicianos request for COA to cease
all audit services, andto stop charging auditing fees, to Leyte
Metropolitan WaterDistrict (LMWD). The COA also de
_______________
1 Under Rule 64 of the 1997 Revised Rules of Court.
366
366 SUPREME COURT REPORTS ANNOTATEDFeliciano vs. Commission on
Audit
nied petitioners request for COA to refund all auditing
feespreviously paid by LMWD.
Antecedent Facts
A Special Audit Team from COA Regional Office No. VIIIaudited
the accounts of LMWD. Subsequently, LMWDreceived a letter from COA
dated 19 July 1999 requestingpayment of auditing fees. As General
Manager of LMWD,petitioner sent a reply dated 12 October 1999
informingCOAs Regional Director that the water district could
notpay the auditing fees. Petitioner cited as basis for hisaction
Sections 6 and 20 of Presidential Decree 198 (PD198),
2 as well as Section 18 of Republic Act No. 6758 (RA
6758). The Regional Director referred petitioners reply tothe
COA Chairman on 18 October 1999.
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On 19 October 1999, petitioner wrote COA through theRegional
Director asking for refund of all auditing feesLMWD previously paid
to COA.
On 16 March 2000, petitioner received COA ChairmanCelso D.
Gangans Resolution dated 3 January 2000denying his requests.
Petitioner filed a motion forreconsideration on 31 March 2000,
which COA denied on30 January 2001.
On 13 March 2001, petitioner filed this instant
petition.Attached to the petition were resolutions of the
VisayasAssociation of Water Districts (VAWD) and the
PhilippineAssociation of Water Districts (PAWD) supporting
thepetition.
The Ruling of the Commission on Audit
The COA ruled that this Court has already settled COAsaudit
jurisdiction over local water districts in Davao CityWater District
v. Civil Service Commission and Commissionon Audit,
3 as follows:
The abovequoted provision [referring to Section 3(b) PD
198]definitely sets to naught petitioners contention that they
areprivate corporations. It is clear therefrom that the power
toappoint the members who will comprise the members of the Boardof
Directors belong to the local executives of the local
subdivisionunit where such districts are located. In contrast, the
members ofthe Board of Directors or the trustees of a private
_______________
2 As amended by Presidential Decrees Nos. 768 and 1479.3 G.R.
Nos. 9523738, 13 September 1991, 201 SCRA 593.
367
VOL. 419, JANUARY 14, 2004 367Feliciano vs. Commission on
Audit
corporation are elected from among members or
stockholdersthereof. It would not be amiss at this point to
emphasize that aprivate corporation is created for the private
purpose, benefit, aimand end of its members or stockholders.
Necessarily, saidmembers or stockholders should be given a free
hand to choosewho will compose the governing body of their
corporation. But this
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1.
2.
3.
is not the case here and this clearly indicates that petitioners
arenot private corporations.
The COA also denied petitioners request for COA to stopcharging
auditing fees as well as petitioners request forCOA to refund all
auditing fees already paid.
The Issues
Petitioner contends that COA committed grave abuse ofdiscretion
amounting to lack or excess of jurisdiction byauditing LMWD and
requiring it to pay auditing fees.Petitioner raises the following
issues for resolution:
Whether a Local Water District (LWD) createdunder PD 198, as
amended, is a governmentownedor controlled corporation subject to
the auditjurisdiction of COAWhether Section 20 of PD 198, as
amended,prohibits COAs certified public accountants fromauditing
local water districts andWhether Section 18 of RA 6758 prohibits
the COAfrom charging governmentowned and controlledcorporations
auditing fees.
The Ruling of the Court
The petition lacks merit.The Constitution and existing laws
4 mandate COA to
audit all government agencies, including governmentowned and
controlled corporations (GOCCs) with originalcharters. An LWD is a
GOCC with an original charter.Section 2(1), Article IXD of the
Constitution provides forCOAs audit jurisdiction, as follows:
SECTION 2. (1) The Commission on Audit shall have the
power,authority and duty to examine, audit, and settle all
accountspertaining to the revenue and receipts of, and expenditures
oruses of funds and property, owned or held in trust by,
orpertaining to, the Government, or any of its
subdivisions,agencies, or instrumentalities, including
government
_______________
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4 Section 26, Government Auditing Code of the Philippines.
368
368 SUPREME COURT REPORTS ANNOTATEDFeliciano vs. Commission on
Audit
owned and controlled corporations with original charters, and
ona postaudit basis: (a) constitutional bodies, commissions
andoffices that have been granted fiscal autonomy under
thisConstitution (b) autonomous state colleges and universities
(c)other governmentowned or controlled corporations and
theirsubsidiaries and (d) such nongovernmental entities
receivingsubsidy or equity, directly or indirectly, from or through
thegovernment, which are required by law or the granting
institutionto submit to such audit as a condition of subsidy or
equity.However, where the internal control system of the
auditedagencies is inadequate, the Commission may adopt
suchmeasures, including temporary or special preaudit, as
arenecessary and appropriate to correct the deficiencies. It shall
keepthe general accounts of the Government and, for such period
asmay be provided by law, preserve the vouchers and othersupporting
papers pertaining thereto. (Emphasis supplied)
The COAs audit jurisdiction extends not only togovernment
agencies or instrumentalities, but also togovernmentowned and
controlled corporations withoriginal charters as well as other
governmentowned orcontrolled corporations without original
charters.
Whether LWDs are Private or GovernmentOwned and Controlled
Corporations with Original ChartersPetitioner seeks to revive a
wellsettled issue. Petitionerasks for a reexamination of a doctrine
backed by a longline of cases culminating in Davao City Water
District v.Civil Service Commission
5 and just recently reiterated in
De Jesus v. Commission on Audit.6 Petitioner maintains
that LWDs are not governmentowned and controlledcorporations
with original charters. Petitioner even arguesthat LWDs are private
corporations. Petitioner asks theCourt to consider certain
interpretations of the applicablelaws, which would give a new
perspective to the issue ofthe true character of water
districts.
7
Petitioner theorizes that what PD 198 created was theLocal
Waters Utilities Administration (LWUA) and not
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the LWDs. Petitioner claims that LWDs are createdpursuant to and
not created directly by PD 198. Thus,petitioner concludes that PD
198 is not an originalcharter that would place LWDs within the
_______________
5Supranote 3.6 G.R. No. 149154, 10 June 2003, 403 SCRA 666.7
Rollo, p. 7.
369
VOL. 419, JANUARY 14, 2004 369Feliciano vs. Commission on
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audit jurisdiction of COA as defined in Section 2(1), ArticleIXD
of the Constitution. Petitioner elaborates that PD 198does not
create LWDs since it does not expressly direct thecreation of such
entities, but only provides for theirformation on an optional or
voluntary basis.
8Petitioner
adds that the operative act that creates an LWD is theapproval
of the Sanggunian Resolution as specified in PD198.
Petitioners contention deserves scant consideration.We begin by
explaining the general framework under
the fundamental law. The Constitution recognizes twoclasses of
corporations. The first refers to privatecorporations created under
a general law. The second refersto governmentowned or controlled
corporations created byspecial charters. Section 16, Article XII of
the Constitutionprovides:
Sec. 16. The Congress shall not, except by general law, provide
forthe formation, organization, or regulation of private
corporations.Governmentowned or controlled corporations may be
created orestablished by special charters in the interest of the
common goodand subject to the test of economic viability.
The Constitution emphatically prohibits the creation ofprivate
corporations except by a general law applicable toall citizens.
9 The purpose of this constitutional provision is
to ban private corporations created by special charters,which
historically gave certain individuals, families orgroups special
privileges denied to other citizens.
10
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In short, Congress cannot enact a law creating a
privatecorporation with a special charter. Such legislation wouldbe
unconstitutional. Private corporations may exist onlyunder a
general law. If the corporation is private, it mustnecessarily
exist under a general law. Stated differently,only corporations
created under a general law can qualifyas private corporations.
Under existing laws, that
_______________
8Ibid., p. 29.9 See National Development Company v. Philippine
Veterans Bank,
G.R. Nos. 8413233, 10 December 1990, 192 SCRA 257.10 BERNAS, THE
1987 CONSTITUTION OF THE REPUBLIC OF
THE PHILIPPINES: A COMMENTARY 1181 (2003).
370
370 SUPREME COURT REPORTS ANNOTATEDFeliciano vs. Commission on
Audit
general law is the Corporation Code,11 except that the
Cooperative Code governs the incorporation ofcooperatives.
12
The Constitution authorizes Congress to creategovernmentowned or
controlled corporations throughspecial charters. Since private
corporations cannot havespecial charters, it follows that Congress
can createcorporations with special charters only if such
corporationsare governmentowned or controlled.
Obviously, LWDs are not private corporations becausethey are not
created under the Corporation Code. LWDsare not registered with the
Securities and ExchangeCommission. Section 14 of the Corporation
Code states that[A]ll corporations organized under this code shall
file withthe Securities and Exchange Commission articles
ofincorporation x x x. LWDs have no articles ofincorporation, no
incorporators and no stockholders ormembers. There are no
stockholders or members to electthe board directors of LWDs as in
the case of allcorporations registered with the Securities and
ExchangeCommission. The local mayor or the provincial
governorappoints the directors of LWDs for a fixed term of
office.This Court has ruled that LWDs are not created under
theCorporation Code, thus:
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(a)
From the foregoing pronouncement, it is clear that what has
beenexcluded from the coverage of the CSC are those
corporationscreated pursuant to the Corporation Code.
Significantly,petitioners are not created under the said code, but
on the contrary,they were created pursuant to a special law and are
governedprimarily by its provision.
13
(Emphasis supplied)
LWDs exist by virtue of PD 198, which constitutes theirspecial
charter. Since under the Constitution onlygovernmentowned or
controlled corporations may havespecial charters, LWDs can validly
exist only if they aregovernmentowned or controlled. To claim that
LWDs areprivate corporations with a special charter is to admit
thattheir existence is constitutionally infirm.
Unlike private corporations, which derive their legalexistence
and power from the Corporation Code, LWDsderive their legal
_______________
11 Batas Pambansa Blg. 68.12 Republic Act. No. 6938. Seealso
Republic Act No. 6939 or the
Cooperative Development Authority Law.13Supranote 3.
371
VOL. 419, JANUARY 14, 2004 371Feliciano vs. Commission on
Audit
existence and power from PD 198. Sections 6 and 25 of PD198
14 provide:
Section 6. Formation of District.This Act is the source
ofauthorization and power to form and maintain a district.For
purposes of this Act, a district shall be considered as
aquasipublic corporation performing public service andsupplying
public wants. As such, a district shall exercisethe powers, rights
and privileges given to privatecorporations under existing laws, in
addition to thepowers granted in, and subject to such
restrictionsimposed, under this Act.
The name of the local water district, which shall includethe
name of the city, municipality, or province, or region
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(b)
(c)
(d)
(e)
(f)
(g)
thereof, served by said system, followed by the wordsWater
District.A description of the boundary of the district. In the case
ofa city or municipality, such boundary may include alllands within
the city or municipality. A district mayinclude one or more
municipalities, cities or provinces, orportions thereof.A statement
completely transferring any and allwaterworks and/or sewerage
facilities managed, operatedby or under the control of such city,
municipality orprovince to such district upon the filing of
resolutionforming the district.A statement identifying the purpose
for which the districtis formed, which shall include those purposes
outlined inSection 5 above.The names of the initial directors of
the district with thedate of expiration of term of office for
each.A statement that the district may only be dissolved on
thegrounds and under the conditions set forth in Section 44 ofthis
Title.A statement acknowledging the powers, rights andobligations
as set forth in Section 36 of this Title.
Nothing in the resolution of formation shall state or infer
thatthe local legislative body has the power to dissolve, alter or
affectthe district beyond that specifically provided for in this
Act.
If two or more cities, municipalities or provinces, or
anycombination thereof, desire to form a single district, a
similarresolution shall be adopted in each city, municipality
andprovince.
x x x
Sec. 25. Authorization.The district may exercise all thepowers
which are expressly granted by this Title or whichare necessarily
implied from or incidental to the powersand purposes
_______________
14 As amended by PD 1479.
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372 SUPREME COURT REPORTS ANNOTATEDFeliciano vs. Commission on
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herein stated. For the purpose of carrying out the objectives
ofthis Act, a district is hereby granted the power of
eminentdomain, the exercise thereof shall, however, be subject to
reviewby the Administration. (Emphasis supplied)
Clearly, LWDs exist as corporations only by virtue of PD198,
which expressly confers on LWDs corporate powers.Section 6 of PD
198 provides that LWDs shall exercise thepowers, rights and
privileges given to private corporationsunder existing laws.
Without PD 198, LWDs would haveno corporate powers. Thus, PD 198
constitutes the specialenabling charter of LWDs. The ineluctable
conclusion isthat LWDs are governmentowned and
controlledcorporations with a special charter.
The phrase governmentowned and controlledcorporations with
original charters means GOCCs createdunder special laws and not
under the general incorporationlaw. There is no difference between
the term originalcharters and special charters. The Court clarified
this inNational Service Corporation v. NLRC
15by citing the
deliberations in the Constitutional Commission, as follows:
THE PRESIDING OFFICER (Mr. Trenas). The session isresumed.
Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending myoriginal
proposed amendment to now read as follows:including governmentowned
or controlled corporationsWITH ORIGINAL CHARTERS. The purpose of
thisamendment is to indicate that government corporationssuch as
the GSIS and SSS, which have original charters,fall within the
ambit of the civil service. However,corporations which are
subsidiaries of these charteredagencies such as the Philippine
Airlines Manila Hoteland Hyatt are excluded from the coverage of
the civilservice.
THE PRESIDING OFFICER (Mr. Trenas). What does theCommittee
say?
MR FOZ. Just one question, Mr. Presiding Officer, By theterm
original charters, what exactly do we mean?
MR. ROMULO. We mean that they were created by law, byan act of
Congress, or by special law.
_______________
15 G.R. No. L69870, 29 November 1988, 168 SCRA 122.
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VOL. 419, JANUARY 14, 2004 373Feliciano vs. Commission on
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MR. FOZ. And not under the general corporation law.MR. ROMULO.
That is correct. Mr. Presiding Officer.MR. FOZ. With that
understanding and clarification, the
Committee accepts the amendment.MR. NATIVIDAD. Mr. Presiding
Officer, so those created
by the general corporation law are out.MR. ROMULO. That is
correct. (Emphasis supplied)
Again, in Davao City Water District v. Civil
ServiceCommission,
16 the Court reiterated the meaning of the
phrase governmentowned and controlled corporationswith original
charters in this wise:
By governmentowned or controlled corporation with
originalcharter, We mean government owned or controlled
corporationcreated by a special law and not under the Corporation
Code of thePhilippines. Thus, in the case of Lumanta v. NLRC (G.R.
No.82819, February 8, 1989, 170 SCRA 79, 82), We held:
The Court, in National Service Corporation (NASECO) v.National
Labor Relations Commission, G.R. No. 69870,promulgated on 29
November 1988, quoting extensively from thedeliberations of the
1986 Constitutional Commission in respect ofthe intent and meaning
of the new phrase with original charter,in effect held that
governmentowned and controlled corporationswith original charter
refer to corporations chartered by special lawas distinguished from
corporations organized under our generalincorporation statutethe
Corporation Code. In NASECO, thecompany involved had been organized
under the generalincorporation statute and was a subsidiary of the
NationalInvestment Development Corporation (NEDC) which in turn
wasa subsidiary of the Philippine National Bank, a bank chartered
bya special statute. Thus, governmentowned or
controlledcorporations like NASECO are effectively, excluded from
thescope of the Civil Service. (Emphasis supplied)
Petitioners contention that the Sangguniang Bayanresolution
creates the LWDs assumes that theSangguniang Bayan has the power to
create corporations.This is a patently baseless assumption. The
LocalGovernment Code
17 does not vest in the Sangguniang
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Bayan the power to create corporations.18 What the Local
Gov
_______________
16Supranote 3.17 Republic Act No. 7160.18 SeeSection 447 of the
Local Government Code on the powers of the
Sangguniang Bayan.
374
374 SUPREME COURT REPORTS ANNOTATEDFeliciano vs. Commission on
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ernment Code empowers the Sangguniang Bayan to do is toprovide
for the establishment of a waterworks systemsubject to existing
laws. Thus, Section 447(5)(vii) of theLocal Government Code
provides:
SECTION 447. Powers, Duties, Functions and Compensation.(a) The
sangguniang bayan, as the legislative body of themunicipality,
shall enact ordinances, approve resolutions andappropriate funds
for the general welfare of the municipality andits inhabitants
pursuant to Section 16 of this Code and in theproper exercise of
the corporate powers of the municipality asprovided for under
Section 22 of this Code, and shall:
x x x
(vii) Subject to existing laws, provide for the establishment,
operation,maintenance, and repair of an efficient waterworks system
to supplywater for the inhabitants regulate the construction,
maintenance, repairand use of hydrants, pumps, cisterns and
reservoirs protect the purityand quantity of the water supply of
the municipality and, for thispurpose, extend the coverage of
appropriate ordinances over all territorywithin the drainage area
of said water supply and within one hundred(100) meters of the
reservoir, conduit, canal, aqueduct pumping station,or watershed
used in connection with the water service and regulate
theconsumption, use or wastage of water
x x x. (Emphasis supplied)
The Sangguniang Bayan may establish a waterworkssystem only in
accordance with the provisions of PD 198.The Sangguniang Bayan has
no power to create a corporateentity that will operate its
waterworks system. However,
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the Sangguniang Bayan may avail of existing enablinglaws, like
PD 198, to form and incorporate a water district,Besides, even
assuming for the sake of argument that theSangguniang Bayan has the
power to create corporations,the LWDs would remain governmentowned
or controlledcorporations subject to COAs audit jurisdiction.
Theresolution of the Sangguniang Bayan would constitute anLWDs
special charter, making the LWD a goyernmentowned and controlled
corporation with an original charter.In any event, the Court has
already ruled in Baguio WaterDistrict v. Trajano
19that the Sangguniang Bayan
resolution is not the special charter of LWDs, thus:
_______________
19 212 Phil. 674 127 SCRA 730 (1984).
375
VOL. 419, JANUARY 14, 2004 375Feliciano vs. Commission on
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While it is true that a resolution of a local sanggunian is
stillnecessary for the final creation of a district, this Court is
of theopinion that said resolution cannot be considered as its
charter,the same being intended only to implement the provisions of
saiddecree.
Petitioner further contends that a law must create directlyand
explicitly a GOCC in order that it may have an originalcharter. In
short, petitioner argues that one special lawcannot serve as
enabling law for several GOCCs but onlyfor one GOCC. Section 16,
Article XII of the Constitutionmandates that Congress shall not,
except by generallaw,
20 provide for the creation, of private corporations.
Thus, the Constitution prohibits one special law to createone
private corporation, requiring instead a general lawto create
private corporations. In contrast, the sameSection 16 states that
Governmentowned or controlled,corporations may be created or
established by specialcharters. Thus, the Constitution permits
Congress tocreate a GOCC with a special charter. There is,
however,no prohibition on Congress to create several GOCCs of
thesame class under one special enabling charter.
The rationale behind the prohibition on private
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corporations having special charters does not apply toGOCCs.
There is no danger of creating special privileges tocertain
individuals, families or groups if there is onespecial law creating
each GOCC. Certainly, such dangerwill not exist whether one special
law creates one GOCC, orone special enabling law creates several
GOCCs. Thus,Congress may create GOCCs either by special
chartersspecific to each GOCC, or by one special enabling
charterapplicable to a class of GOCCs, like PD 198 which
appliesonly to LWDs.
Petitioner also contends that LWDs are privatecorporations
because Section 6 of PD 198
21 declares that
LWDs shall be considered quasipublic in nature.Petitioners
rationale is that only private corporations maybe deemed
quasipublic and not public corporations. Putdifferently, petitioner
rationalizes that a publiccorporationcannot be deemed quasipublic
because such corporationis already public. Petitioner concludes
that the term quasipublic can only apply to private corporations.
Petitionersargument is inconsequential.
_______________
20 Emphasis supplied.21 As amended by PD 1479.
376
376 SUPREME COURT REPORTS ANNOTATEDFeliciano vs. Commission on
Audit
Petitioner forgets that the constitutional criterion on
theexercise of COAs audit jurisdiction depends on thegovernments
ownership or control of a corporation. Thenature of the
corporation, whether it is private, quasipublic, or public is
immaterial.
The Constitution vests in the COA audit jurisdictionover
governmentowned and controlled corporations withoriginal charters,
as well as governmentowned orcontrolled corporations without
original charters. GOCCswith original charters are subject to COA
preaudit, whileGOCCs without original charters are subject to COA
postaudit. GOCCs without original charters refer tocorporations
created under the Corporation Code but areowned or controlled by
the government. The nature or
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purpose of the corporation is not material in determiningCOAs
audit jurisdiction. Neither is the manner of creationof a
corporation, whether under a general or special law.
The determining factor of COAs audit jurisdiction isgovernment
ownership or control of the corporation. InPhilippine Veterans Bank
Employees UnionNUBE v.Philippine Veterans Bank,
22 the Court even ruled that the
criterion of ownership and control is more important thanthe
issue of original charter, thus:
This point is important because the Constitution provides in
itsArticle IXB, Section 2(1) that the Civil Service embraces
allbranches, subdivisions, instrumentalities, and agencies of
theGovernment, including governmentowned or controlledcorporations
with original charters. As the Bank is not owned orcontrolled by
the Government although it does have an originalcharter in the form
of R.A. No. 3518,23 it clearly does not fall underthe Civil Service
and should be regarded as an ordinarycommercial corporation.
Section 28 of the said law so provides.The consequence is that the
relations of the Bank with itsemployees should be governed by the
labor laws, under which infact they have already been paid some of
their claims. (Emphasissupplied)
_______________
22 G.R. No. 67125, 24 August 1990, 189 SCRA 14.23 Under Section
3 of Republic Act No. 7169 which took effect on 2
January 1992, the operations and changes in the capital
structure of theVeterans Bank, as well as other amendments to its
articles ofincorporation and bylaws as prescribed under Republic
Act No. 3518,shall be in accordance with the Corporation Code, the
General BankingAct, and other related laws.
377
VOL. 419, JANUARY 14, 2004 377Feliciano vs. Commission on
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Certainly, the government owns and controls LWDs. Thegovernment
organizes LWDs in accordance with a specificlaw, PD 198. There is
no private party involved as coownerin the creation of an LWD. Just
prior to the creation ofLWDs, the national or local government owns
and controlsall their assets. The government controls LWDs
because
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under PD 198 the municipal or city mayor, or theprovincial
governor, appoints all the board directors of anLWD for a fixed
term of six years.
24 The board directors of
LWDs are not coowners of the LWDs. LWDs have noprivate
stockholders or members. The board directors andother personnel of
LWDs are government employeessubject to civil service laws
25 and antigraft laws.
26
While Section 8 of PD 198 states that [N]o publicofficial shall
serve as director of an LWD, it only meansthat the appointees to
the board of directors of LWDs shallcome from the private sector.
Once such private sectorrepresentatives assume office as directors,
they becomepublic officials governed by the civil service law and
antigraft laws. Otherwise, Section 8 of PD 198 would contra
_______________
24 Section 3 (b) of PD 198 provides:
(b) Appointing Authority.The person empowered to appoint the
members of theBoard of Directors of a local water district
depending upon the geographiccoverage and population makeup of the
particular district. In the event that morethan seventyfive percent
of the total active water service connections of localwater
districts are within the boundary of any city of municipality, the
appointingauthority shall be the mayor of the city or municipality,
as the case may beotherwise, the appointing authority shall be the
governor of the province withinwhich the district is located:
Provided, That if the existing waterworks system inthe city or
municipality established as a water district under this Decree
isoperated and managed by the province, initial appointment shall
be extended bythe governor of the province. Subsequent appointments
shall be as specified asherein.
If portions of more than one province are included within the
boundary of thedistrict, and the appointing authority isto be the
governor, then the power toappoint shall rotate between the
governors involved with the initial appointmentsmade by the
governor in whose province the greatest number of
serviceconnections exists.
25 Baguio Water District v. Trajano,supranote 20 Davao City
WaterDistrict v. Civil Service Commission,supranote 3.
26 Morales v. People, G.R. No. 144047, 26 July 2002, 385 SCRA
259.
378
378 SUPREME COURT REPORTS ANNOTATEDFeliciano vs. Commission on
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vene Section 2(1), Article IXB of the Constitution declaringthat
the civil service includes governmentowned orcontrolled
corporations with original charters.
If LWDs are neither GOCCs with original charters norGOCCs
without original charters, then they would fallunder the term
agencies or instrumentalities of thegovernment and thus still
subject to COAs auditjurisdiction. However, the stark and
undeniable fact is thatthe government owns LWDs. Section 45
27 of PD 198
recognizes government ownership of LWDs when Section45 states
that the board of directors may dissolve an LWDonly on the
condition that another public entity hasacquired the assets of the
district and has assumed allobligations and liabilities attached
thereto. Theimplication is clear that an LWD is a public and not
aprivate entity.
Petitioner does not allege that some entity other thanthe
government owns or controls LWDs. Instead, petitioneradvances the
theory that the Water Districts owner is theDistrict itself.
28 Assuming for the sake of argument that an
LWD is selfowned,29 as petitioner describes an LWD, the
government in any event controls all LWDs. First,government
officials appoint all LWD directors to a fixedterm of office.
Second, any per diem of LWD directors inexcess of P50 is subject to
the approval of the Local WaterUtilities Administration, and
directors can receive no othercompensation for their services to
the LWD.
30 Third, the
Local Water Utilities Administration can require LWDs tomerge or
consolidate their facilities or operations.
31 This
element of government control subjects LWDs to COAsaudit
jurisdiction.
Petitioner argues that upon the enactment of PD 198,LWDs became
private entities through the transfer ofownership of water
facilities from local government units totheir respective water
districts as mandated by PD 198.Petitioner is grasping at straws.
Privatization involves thetransfer of government assets to a
private entity. Petitionerconcedes that the owner of the assets
transferred underSection 6 (c) of PD 198 is no other than the
LWD
_______________
27 As amended by PD 768.28 Rollo, p. 16.29Ibid.
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30 Section 13, PD 198.31 Section 43, PD 198.
379
VOL. 419, JANUARY 14, 2004 379Feliciano vs. Commission on
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itself.32 The transfer of assets mandated by PD 198 is a
transfer of the water systems facilities managed, operatedby or
under the control of such city, municipality orprovince to such
(water) district.
33 In short, the transfer is
from one government entity to another government entity.PD 198
is bereft of any indication that the transfer is toprivatize the
operation and control of water systems.
Finally, petitioner claims that even on the assumptionthat the
government owns and controls LWDs,
34 Section 20
of PD 198 prevents COA from auditing LWDs.Section 20of PD 198
provides:
Sec. 20. System of Business Administration.The Board shall,
assoon as practicable, prescribe and define by resolution a system
ofbusiness administration and accounting for the district,
whichshall be patterned upon and conform to the standards
establishedby the Administration. Auditing shall be performed by a
certifiedpublic accountant not in the government service.
TheAdministration may, however, conduct annual audits of the
fiscaloperations of the district to be performed by an auditor
retainedby the Administration. Expenses incurred in connection
therewithshall be borne equally by the water district concerned and
theAdministration.
35
(Emphasis supplied)
Petitioner argues that PD 198 expressly prohibits COAauditors,
or any government auditor for that matter, fromauditing LWDs.
Petitioner asserts that this is the import ofthe second sentence of
Section 20 of PD 198 when it statesthat [A]uditing shall be
performed by a certified publicaccountant not in the government
service.
36
PD 198 cannot prevail over the Constitution. No amountof clever
legislation can exclude GOCCs like LWDs fromCOAs audit
jurisdiction. Section 3, Article IXC of theConstitution outlaws any
scheme or devise to escape COAsaudit jurisdiction, thus:
Sec. 3. No law shall be passed exempting any entity of the
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Government or its subsidiary in any guise whatever, or
anyinvestment of public funds, from the jurisdiction of
theCommission on Audit. (Emphasis supplied)
_______________
32 Rollo, p. 644.33 Section 6(c) of PD 198, as amended by PD
768.34Supra, note 2.35 Section 20 of PD 198, as amended by PD
768.36 Rollo, p. 9.
380
380 SUPREME COURT REPORTS ANNOTATEDFeliciano vs. Commission on
Audit
The framers of the Constitution added Section 3, ArticleIXD of
the Constitution precisely to annul provisions ofPresidential
Decrees, like that of Section 20 of PD 198, thatexempt GOCCs from
COA audit. The following exchange inthe deliberations of the
Constitutional Commissionelucidates this intent of the framers:
MR. OPLE: I propose to add a new section on line 9, page 2 of
theamended committee report which reads: NO LAW SHALL BEPASSED
EXEMPTING ANY ENTITY OF THE GOVERNMENTOR ITS SUBSIDIARY IN ANY
GUISE WHATEVER, OR ANYINVESTMENTS OF PUBLIC FUNDS, FROM
THEJURISDICTION, OF THE COMMISSION ON AUDIT.
May I explain my reasons on record.We know that a number of
entities of the government took
advantage of the absence of a legislature in the past to
obtainpresidential decrees exempting themselves from the
jurisdiction ofthe Commission on Audit, one notable example of
which is thePhilippine National Oil Company which is really an
empty shell.It is a holding corporation by itself, and strictly on
its ownaccount. Its funds were not very impressive in quantity
butunderneath that shell there were billions of pesos in a
multiplicityof companies. The PNOCthe empty shellunder a
presidentialdecree was covered by the jurisdiction of the
Commission onAudit, but the billions of pesos invested in different
corporationsunderneath it were exempted from the coverage of
theCommission on Audit.
Another example is the United Coconut Planters Bank. The
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Commission on Audit has determined that the coconut levy is
aform of taxation and that, therefore, these funds attributed to
theshares of 1,400,000 coconut farmers are, in effect, public
funds.And that was, I think, the basis of the PCGG in undertaking
thatlast major sequestration of up to 94 percent of all the shares
inthe United Coconut Planters Bank. The charter of the UCPB,through
a presidential decree, exempted it from the jurisdiction ofthe
Commission on Audit, it being a private organization.
So these are the fetuses of future abuse that we are
slayingright here with this additional section.
May I repeat the amendment, Madam President: NO LAWSHALL BE
PASSED EXEMPTING ANY ENTITY OF THEGOVERNMENT OR ITS SUBSIDIARY IN
ANY GUISEWHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS,FROM THE
JURISDICTION OF THE COMMISSION ONAUDIT.
THE PRESIDENT: May we know the position of theCommittee on the
proposed amendment of Commissioner Ople?MR. JAMIR: If the honorable
Commissioner will change thenumber of the section to 4, we will
accept the amendment.
381
VOL. 419, JANUARY 14, 2004 381Feliciano vs. Commission on
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MR. OPLE: Gladly, Madam President. Thank you.MR. DE CASTRO:
Madam President, point of inquiry on the
new amendment.THE PRESIDENT: Commissioner de Castro is
recognized.MR. DE CASTRO: Thank you. May I just ask a few
questions
of Commissioner Ople.Is that not included in Section 2 (1) where
it states: (c)
governmentowned or controlled corporations and
theirsubsidiaries? So that if these governmentowned and
controlledcorporations and their subsidiaries are subjected to the
audit ofthe COA, any law exempting certain government corporations
orsubsidiaries will be already unconstitutional.
So I believe, Madam President, that the proposed amendmentis
unnecessary.
MR. MONSOD: Madam President, since this has beenaccepted, we
would like to reply to the point raised byCommissioner de
Castro.
THE PRESIDENT: Commissioner Monsod will please proceed.MR.
MONSOD: I think the Commissioner is trying to avoid the
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situation that happened in the past, because the same
provisionwas in the 1973 Constitution and yet somehow a law or a
decreewas passed where certain institutions were exempted from
audit.We are just reaffirming, emphasizing, the role of the
Commissionon Audit so that this problem will never arise in the
future.
37
There is an irreconcilable conflict between the secondsentence
of Section 20 of PD 198 prohibiting COA auditorsfrom auditing LWDs
and Sections 2(1) and 3, Article IXDof the Constitution vesting in
COA the power to audit allGOCCs. We rule that the second sentence
of Section 20 ofPD 198 is unconstitutional since it violates
Sections 2(1)and 3, Article IXD of the Constitution.
On the Legality of COAs Practice of Charging Auditing
FeesPetitioner claims that the auditing fees COA chargesLWDs for
audit services violate the prohibition in Section18 of RA 6758,
38 which states:
Sec. 18. Additional Compensation of Commission on AuditPersonnel
and of other Agencies.In order to preserve theindependence and
_______________
37 Record of the Constitutional Commission, Vol. I, pp.
606607.38 Compensation and Position Classification Act of 1989.
382
382 SUPREME COURT REPORTS ANNOTATEDFeliciano vs. Commission on
Audit
integrity of the Commission on Audit (COA), its officials
andemployees are prohibited from receiving salaries,
honoraria,bonuses, allowances or other emoluments from any
governmententity, local government unit, governmentowned or
controlledcorporations, and government financial institutions,
except thosecompensation paid directly by COA out of its
appropriations andcontributions.
Government entities, including governmentowned orcontrolled
corporations including financial institutions and localgovernment
units are hereby prohibited from assessing or billingother
government entities, including governmentowned orcontrolled
corporations including financial institutions or local
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government units for services rendered by its officials
andemployees as part of their regular functions for purposes of
payingadditional compensation to said officials and
employees.(Emphasis supplied)
Claiming that Section 18 is absolute and leaves nodoubt,
39 petitioner asks COA to discontinue its practice of
charging auditing fees to LWDs since such practiceallegedly
violates the law.
Petitioners claim has no basis.Section 18 of RA 6758 prohibits
COA personnel from
receiving any kind of compensation from any governmententity
except compensation paid directly by COA out of itsappropriations
and contributions. Thus, RA 6758 itselfrecognizes an exception to
the statutory ban on COApersonnel receiving compensation from
GOCCs. In Tejadav. Domingo,
40 the Court declared:
There can be no question that Section 18 of Republic Act No.
6758is designed to strengthen further the policy x x x to preserve
theindependence and integrity of the COA, by explicitlyPROHIBITING:
(1) COA officials and employees from receivingsalaries, honoraria,
bonuses, allowances or other emolumentsfrom any government entity,
local government unit, GOCCs andgovernment financial institutions,
except such compensation paiddirectly by the COA out of its
appropriations and contributions,and (2) government entities,
including GOCCs, governmentfinancial institutions and local
government units from assessingor billing other government
entities, GOCCs, governmentfinancial institutions or local
government units for servicesrendered by the latters officials and
employees as part of theirregular functions for purposes of paying
additional compensationto said officials and employees.
x x x
_______________
39 Rollo, p. 11.40 G.R. No. 91860, 13 January 1992, 205 SCRA
138.
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The first aspect of the strategy is directed to the COA itself,
whilethe second aspect is addressed directly against the GOCCs
andgovernment financial institutions. Under the first, COA
personnelassigned to auditing units of GOCCs or government
financialinstitutions can receive only such salaries, allowances or
fringebenefits paid directly by the COA out of its appropriations
andcontributions. The contributions referred to are the cost of
auditservices earlier mentioned which cannot include the
extraemoluments or benefits now claimed by petitioners. The COA
isfurther barred from assessing or billing GOCCs and
governmentfinancial institutions for services rendered by its
personnel aspart of their regular audit functions for purposes of
payingadditional compensation to such personnel, x x x.
(Emphasissupplied)
InTejada,the Court explained the meaning of the
wordcontributions in Section 18 of RA 6758, which allows COAto
charge GOCCs the cost of its audit services:
x x x the contributions from the GOCCs are limited to the cost
ofaudit services which are based on the actual cost of the
auditfunction in the corporation concerned plus a reasonable rate
tocover overhead expenses. The actual audit cost shall
includepersonnel services, maintenance and other operating
expenses,depreciation on capital and equipment and
outofpocketexpenses. In respect to the allowances and fringe
benefits grantedby the GOCCs to the COA personnel assigned to the
formersauditing units, the same shall be directly defrayed by COA
fromits own appropriations x x x.
41
COA may charge GOCCs actual audit cost but GOCCsmust pay the
same directly to COA and not to COAauditors. Petitioner has not
alleged that COA chargesLWDs auditing fees in excess of COAs actual
audit cost.Neither has petitioner alleged that the auditing fees
arepaid by LWDs directly to individual COA auditors.
Thus,petitioners contention must fail.
WHEREFORE, the Resolution of the Commission onAudit dated 3
January 2000 and the Decision dated 30January 2001 denying
petitioners Motion forReconsideration are AFFIRMED. The second
sentence ofSection 20 of Presidential Decree No. 198 is declared
VOIDfor being inconsistent with Sections 2 (1) and 3, Article IXD
of the Constitution. No costs.
_______________
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41Ibid.
384
384 SUPREME COURT REPORTS ANNOTATEDZamora vs. Caballero
SO ORDERED.
Davide, Jr. (C.J.), Puno, Vitug, Panganiban,Quisumbing,
YnaresSantiago, SandovalGutierrez,AustriaMartinez, Corona,
CarpioMorales, Callejo, Sr.,Azcuna and Tinga, JJ., concur.
Judgment and resolution affirmed, second sentence ofSec. 20, PD
198 void for being inconsistent with Secs. 2(i)and 3, Art, IXD of
the Constitution.
Note.The exercise of the power of respondent Court ofAppeals, to
decide administrative cases invokingexpenditure of public funds
involves the quasijudicialaspect of government audit. (Uy vs.
Commission on Audit,328 SCRA 607 [2000])
o0o
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