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G.R. No.

95237-38 September 13, 1991

!CA#AYAN WATR DISTRICT, petitioners,
A#DIT, respondents.
Rodolfo S. De Jesus for petitioners.
Evalyn H. Itaas-Fetalino, Rogelio C. Limare and Daisy .
!ar"ia-#ing$on for CSC.

!DIA%DA, J.)p
Whether or not the Local Water Districts formed and created
pursuant to the provisions of Presidential Decree No. 198, as
amended, are government-owned or controlled corporations
with original charter falling under the ivil !ervice Law and"or
covered #$ the visitorial power of the ommission on %udit is
the issue which the petitioners entreat this ourt, en %an", to
shed light on.
Petitioners are among the more than five hundred &'(() water
districts e*isting throughout the countr$ formed pursuant to the
provisions of Presidential Decree No. 198, as amended #$
Presidential Decrees Nos. +,8 and 1-+9, otherwise .nown as
the /Provincial Water 0tilities %ct of 19+1./
Presidential Decree No. 198 was issued #$ the then President
2erdinand 3. 4arcos #$ virtue of his legislative power under
Proclamation No. 1(81. 5t authori6ed the different local
legislative #odies to form and create their respective water
districts through a resolution the$ will pass su#7ect to the
guidelines, rules and regulations therein laid down. 8he decree
further created and formed the /Local Water 0tilities
%dministration/ &LW0%), a national agenc$ attached to the
National 3conomic and Development %uthorit$ &N3D%), and
granted with regulator$ power necessar$ to optimi6e pu#lic
service from water utilities operations.
8he respondents, on the other hand, are the ivil !ervice
ommission &!) and the ommission on %udit &9%), #oth
government agencies and represented in this case #$ the
!olicitor :eneral.
9n %pril 1+, 1989, this ourt ruled in the case of #an&ay 'ater
Distri"t v. !a%aton, et al. &:.;. No. ,1+-<, 1+< !;% <'1)=
!ignificantl$, %rticle 5> &?), !ection <&1) of the 198+
onstitution provides that the ivil !ervice em#races
all #ranches, su#divisions, instrumentalities, and
agencies of the government, including government-
owned and controlled corporations with original
charters. 5nasmuch as PD No. 198, as amended, is the
original charter of the petitioner, 8an7a$ Water District,
and respondent 8arlac Water District and all water
districts in the countr$, the$ come under the coverage
of the ivil !ervice Law, rules and regulations. &!ec.
1', %rt. @555 and !ec. 1+, %rt. 5> of PD No. 8(+).
%s an offshoot of the immediatel$ cited ruling, the !. issued
;esolution No. 9(-'+', the dispositive portion of which reads=
N9W 8A3;329;3, in view of all the foregoing, the
ommission resolved, as it here#$ resolves to rule that
Local Water Districts, #eing Buasi-pu#lic corporations
created #$ law to perform pu#lic services and suppl$
pu#lic wants, the matter of hiring and firing of its officers
and emplo$ees should #e governed #$ the ivil !ervice
Law, rules and regulations. Aenceforth, all appointments
of personnel of the different local water districts in the
countr$ shall #e su#mitted to the ommission for
appropriate action. &Rollo. p. <<).
Aowever, on 4a$ 1,, 199(, in :.;. No. 8'+,(, entitled ()etro
Iloilo 'ater Distri"t v. *ational La%or Relations Commission, et
al.,( the 8hird Division of this ourt ruled in a minute resolution=
*** *** ***
onsidering that PD 198 is a general
legislation empowering and"or authori6ing
government agencies and entities to create
water districts, said PD 198 cannot #e
considered as the charter itself creating the
Water District. Pu#lic respondent NL; did
not commit an$ grave a#use of discretion in
holding that the operative act, that created
the 4etro 5loilo Water District was the
resolution of the !angguniang Panglunsod of
5loilo it$. Aence, the emplo$ees of Water
Districts are not covered #$ ivil !ervice
Laws as the latter do &sic) not have original
5n adherence to the 7ust cited ruling, the ! suspended the
implementation of ;esolution No. 9(-'+' #$ issuing ;esolution
No. 9(-++( which reads=
*** *** ***
N9W, 8A3;329;3, in view of all the foregoing, the
ommission resolved to rule, as it here#$ rules, that
the implementation of !. ;esolution No. '+' dated
Cune <+, 199( #e deferred in the meantime pending
clarification from the !upreme ourt are regards its
conflicting decisions in the cases of #an&ay 'ater
Distri"t v. !a%aton and )etro Iloilo 'ater Distri"t v.
*ational La%or Relations Commission. &p. <,, Rollo)
5n the meanwhile, there e*ists a divergence of opinions
#etween 9% on one hand, and the &LW0%), on the other
hand, with respect to the authorit$ of 9% to audit the different
water districts.
9% opined that the audit of the water districts is simpl$ an act
of discharging the visitorial power vested in them #$ law &letter
of 9% to LW0% dated %ugust 11, 198', pp. <9-1(, Rollo).
9n the other hand, LW0% maintained that onl$ those water
districts with su#sidies from the government fall within the
9%Ds 7urisdiction and onl$ to the e*tent of the amount of such
su#sidies, pursuant to the provision of the :overnment
%uditing ode of the Phils.
5t is to #e o#served that 7ust li.e the Buestion of whether the
emplo$ees of the water districts falls under the coverage of the
ivil !ervice Law, the conflict #etween the water districts and
the 9% is also dependent on the final determination of
whether or not water districts are government-owned or
controlled corporations with original charter. 8he reason #ehind
this is !ec. <&1), %rticle 5>-D of the 198+ constitution which
!ec. <&1) 8he ommission on %udit shall have the
power, authorit$, and dut$ to e*amine, audit, and settle
all accounts pertaining to the revenue and receipts of,
and e*penditures or uses of funds and propert$, owned
or held in trust #$, or pertaining to the :overnment, or
an$ of its su#divisions, agencies or instrumentalities,
in"luding government-o+ned or "ontrolled "orporations
+it, original ",arters, and on a post audit #asis.
&emphasis supplied)
PetitionersD main argument is that the$ are private corporations
without original charter, hence the$ are outside the 7urisdiction
of respondents ! and 9%. ;eliance is made on the 4etro
5loilo case which declared petitioners as Buasi-pu#lic
corporations created #$ virtue of PD 198, a general legislation
which cannot #e considered as the charter itself creating the
water districts. Aolding on to this ruling, petitioners contend
that the$ are private corporations which are onl$ regarded as
Buasi-pu#lic or semi-pu#lic #ecause the$ serve pu#lic interest
and convenience and that since PD 198 is a general
legislation, the operative act which created a water district is
not the said decree #ut the resolution of the sanggunian
%fter a fair consideration of the partiesD arguments coupled with
a careful stud$ of the applica#le laws as well as the
constitutional provisions involved, We rule against the
petitioners and reiterate 9ur ruling in 8an7a$ case declaring
water districts government-owned or controlled corporations
with original charter.
%s earl$ as aguio 'ater Distri"t v. #ra&ano, et al., &:.;. No.
,'-<8, 2e#ruar$ <(, 198-, 1<+ !;% +1(), We alread$ ruled
that a water district is a corporation created pursuant to a
special law E P.D. No. 198, as amended, and as such its
officers and emplo$ees are covered #$ the ivil !ervice Law.
5n another case &Aagono$ Water District v. NL;, :.;. No.
81-9(, %ugust 11, 1988, 1,' !;% <+<), We ruled once again
that local water districts are Buasi-pu#lic corporations whose
emplo$ees #elong to the ivil !ervice. 8he ourtDs
pronoucement in this case, as e*tensivel$ Buoted in the #an&ay
case, supra, partl$ reads=
/8he onl$ Buestion here is whether or not
local water districts are governm.ent owned
or controlled corporations whose emplo$ees
are su#7ect to the provisions of the ivil
!ervice Law. 8he La#or %r#iter asserted
7urisdiction over the alleged illegal dismissal
of private respondent @illanueva #$ rel$ing
on !ection <' of Presidential decree No.
198, .nown as the Provincial Water 0tilities
%ct of 19+1/ which went onto effect in <'
4a$ 19+1, and which provides as follows=
E-emption from Civil Servi"e. E 8he district
and its emplo$ees, #eing engaged in a
proprietar$ function, are here#$ e*empt from
the provisions of the ivil !ervice Law.
ollective ?argaining shall #e availa#le onl$ to
personnel #elow supervisor$ levels= .rovided,
,o+ever, 8hat the total of all salaries, wages
emoluments, #enefits or other compensation
paid to all emplo$ees in an$ month shall not
e*ceed fift$ percent &'(F) of average net
month$ revenue. !aid net revenue
representing income from water sales and
sewerage service charges, less pro-rata share
of de#t service and e*penses for fuel or energ$
for pumping during the preceding fiscal $ear.
8he La#or %r#iter failed to ta.e into accout the
provisions of Presidential Decree No. 1-+9, which went
into effect on 11 Cune 19+8, P.D. No. 1-+9, wiped awa$
!ection <' of PD 198 Buoted a#ove, and !ection <, of
PD 198 was renum#ered as !ection <' in the following
!ection <, of the same decree PD 198 is here#$
amended to read as !ection <' as follows=
!ection <'. /ut,ori$ation. E 8he district ma$ e*ercise
all the powers which are e*pressl$ granted #$ this 8itle
or which are necessaril$ implied from or incidental to
the powers and purposes herein stated. 2or the
purpose of carr$ing out the o#7ectives of this %ct, a
district is here#$ granted the power of eminent domain,
the e*ercise thereof shall, however, #e su#7ect to
review #$ the %dministration.
8hus, !ection <' of PD 198 e*empting the emplo$ees
of water districts from the application of the ivil
!ervice Law was removed from the statute #oo.s=
*** *** ***
We grant the petition for the following reasons=
1. !ection <' of PD No. 198 was repealed #$
!ection 1 of PD No. 1-+9G !ection <, of PD No.
198 was amended ro read as !ec. <' #$ !ec. - of
PD No. 1-+9. 8he amendator$ decree too. effect
on Cune 11, 19+8.
*** *** ***
1. 8he ?WD is a corporation created pursuant to a
special law E PD No. 198, as amended. %s such
its officers and emplo$ees are part of the ivil
!ervice &!ec. 1, %rt. >55-?, H19+1I onstitutionG PD
No. 8,8).
%scertained from a consideration of the whole statute, PD 198
is a special law applica#le onl$ to the different water districts
created pursuant thereto. 5n all its essential terms, it is o#vious
that it pertains to a special purpose which is intended to meet a
particular set of conditions and cirmcumstances. 8he fact that
said decree generall$ applies to all water districts throughout
the countr$ does not change the fact that PD 198 is a special
law. %ccordingl$, this ourtDs resolution in 4etro 5loilo case
declaring PD 198 as a general legislation is here#$
?$ /government-owned or controlled corporation with original
charter,/ We mean government owned or controlled
corporation created #$ a special law and not under the
orporation ode of the Philippines. 8hus, in the case of
Lumanta v. *LRC &:.;. No. 8<819, 2e#ruar$ 8, 1989, 1+(
!;% +9, 8<), We held=
8he ourt, in *ational Servi"e Corporation
0*/SEC12 v. *ational La%or Relations
Commission, :.;. No ,98+(, promulgated
on <9 Novem#er 1988, Buoting e*tensivel$
from the deli#erations of 198, onstitutional
ommission in respect of the intent and
meaning of the new phrase /with original
character,/ in effect held that government-
o+ned and "ontrolled "orporations +it,
original ",arter refer to "orporations
",artered %y spe"ial la+ as distinguis,ed
from "orporations organi$ed under our
general in"orporation statute 3 t,e
Corporations Code. 5n N%!39, the
compan$ involved had #een organi6ed under
the general incorporation statute and was a
s#usidiar$ of the National 5nvestment
Development orporation &N5D) which in
turn was a su#sidiar$ of the Philippine
National ?an., a #an. chartered #$ a special
statute. 8hus, government-owned or
controlled corporations li.e N%!39 are
effectivel$, e*cluded from the scope of the
ivil !ervice. &emphasis supplied)
2rom the foregoing pronouncement, it is clear that what has
#een e*cluded from the coverage of the ! are those
corporations created pursuant to the orporation ode.
!ignificantl$, petitioners are not created under the said code,
#ut on the contrar$, the$ were created pursuant to a special
law and are governed primaril$ #$ its provision.
No consideration ma$ thus #e given to petitionersD contention
that the operative act which created the water districts are the
resolutions of the respective local sanggunians and that
conseBuentl$, PD 198, as amended, cannot #e considered as
their charter.
5t is to #e noted that PD 198, as amended is the source of
authori6ation and power to form and maintain a district. !ection
, of said decree provides=
!ec. ,. Formation of Distri"t. E 8his %ct is
the source of authori6ation and power to
form and maintain a district. 9nce formed, a
district is su#7ect to the provisions of this %ct
and not under the 7urisdiction of an$ political
su#division, . . . .
4oreover, it must #e o#served that PD 198, contains all the
essential terms necessar$ to constitute a charter creating a
7uridical person. 2or e*ample, !ection ,&a) provides for the
name that will #e used #$ a water district, thus=
!ec. ,. . . . 8o form a district, the legislative
#od$ of an$ cit$, municipalit$ or province
shall enact a resolution containing the
a) 8he name of the local water district, which
shall include the name of the cit$,
municipalit$, or province, or region thereof,
served #$ said s$stem, followed #$ the
words /Water District./
5t also prescri#es for the num#ers and Bualifications of the
mem#ers of the ?oard of Directors=
!ec. 8. *um%er and 4ualifi"ation. E 8he ?oard of
Directors of a district shall #e composed of five
citi6ens of the Philippines who are of voting age and
residents within the district. 9ne mem#er shall #e a
representative of civic-oriented service clu#s, one
mem#er of representative of professional
associations, one mem#er a representative of
#usiness, commercial or financial organi6ations, one
mem#er a representative of educational institutions
and one mem#er a representative of womenDs
organi6ation. No pu#lic official shall serve as director.
.rovided, ,o+ever, that if the district has availed of
the financial assistance of the %dministration, the
%dministration ma$ appoint an$ of its personnel to sit
in the #oard of directors with all the rights and
privileges appertaining to a regular mem#er for such
period as the inde#tedness remains unpaid in which
case the #oard shall #e composed of si* mem#ersG
&as amended #$ PDs Nos. +,8 and 1-+9).
the manner of their appointment and nominationsG
!ec. 9. /ppointment. E ?oard mem#ers shall #e
appointed #$ the appointing authorit$. !aid
appointments shall #e made from a list of nominees, if
an$, su#mitted pursuant to !ection 1(. 5f no
nominations are su#mitted, the appointing authorit$
shall appoint an$ Bualified person of the categor$ to
the vacant positionG
!ec.1(. *ominations. E 9n or #efore 9cto#er 1 of
each even num#ered $ear, the secretar$ of the district
shall contact each .nown organi6ation, association, or
institution #eing represented #$ the director whose
term will e*pire on Decem#er 11 and solicit
nominations from these organi6ations to fill the
position for the ensuing term. 9ne nomination ma$ #e
su#mitted in writing #$ each such organi6ation to the
!ecretar$ of the district on or #efore Novem#er 1 of
such $ear= 8his list of nominees shall #e transmitted
#$ the !ecretar$ of the district to the office of the
appointing authorit$ on or #efore Novem#er 1' of
such $ear and he shall ma.e his appointment from
the list su#mitted on or #efore Decem#er 1'. 5n the
event the appointing authorit$ fails to ma.e his
appointments on or #efore Decem#er 1', selection
shall #e made from said list of nominees #$ ma7orit$
vote of the seated directors of the district constituting
a Buorum. 5nitial nominations for all five seats of the
#oard shall #e solicited #$ the legislative #od$ or
#odies at the time of adoption of the resolution
forming the district. 8hirt$ da$s thereafter, a list of
nominees shall #e su#mitted to the provincial
governor in the event the resolution forming the
district is #$ a provincial #oard, or the ma$or of the
cit$ or municipalit$ in the event the resolution forming
the adoption of the district is #$ the cit$ or municipal
#oard of councilors, who shall select the initial
directors therefrom within 1' da$s after receipt of
such nominationsG
their terms of office=
!ec. 11. #erm of 1ffi"e. E 9f the five initial directors
of each newl$ formed district, two shall #e appointed
for a ma*imum term of two $ears, two for a ma*imum
term of four $ears, and one for a ma*imum term of si*
$ears. 8erms of office of all directors in a given district
shall #e such that the term of at least one director, #ut
not more then two, shall e*pire on Decem#er 11 of
each even-num#ered $ear. ;egular terms of office
after the initial terms shall #e for si* $ears
commencing on Canuar$ 1 of odd-num#ered $ears.
Directors ma$ #e removed for cause onl$, su#7ect to
review and approval of the %dministrationG &as
amended #$ PD +,8).
the manner of filling up vacancies=
!ec. 1<. 5a"an"ies. E 5n the event of a vacanc$ in the
#oard of directors occurring more than si* months
#efore e*piration of an$ directorDs term, the remaining
directors shall within 1( da$s, serve notice to or
reBuest the secretar$ of the district for nominations and
within 1( da$s, thereafter a list of nominees shall #e
su#mitted to the appointing authorit$ for his
appointment of a replacement director from the list of
nominees. 5n the a#sence of such nominations, the
appointing authorit$ shall ma.e such appointment. 5f
within 1( da$s after su#mission to him of a list of
nominees the appointing authorit$ fails to ma.e an
appointment, the vacanc$ shall #e filled from such list
#$ a ma7orit$ vote of the remaining mem#ers of the
?oard of Directors constituting a Buorum. @acancies
occurring within the last si* months of an une*pired
term shall also #e filled #$ the ?oard in the a#ove
manner. 8he director thus appointed shall serve the
une*pired term onl$G &as amended #$ PD +,8).
and the compensation and personal lia#ilit$ of the mem#ers of
the ?oard of Directors=
!ec. 11. Compensation. E 3ach director shall receive
a per diem, to #e determined #$ the #oard, for each
meeting of the #oard actuall$ attended #$ him, #ut no
director shag receive per diems in an$ given month in
e*cess of the eBuivalent of the total per diems of four
meetings in an$ given month. No director shall
receive other compensation for services to the district.
%n$ per diem in e*cess of P'(.(( shall #e su#7ect to
approval of the %dministration &as amended #$ PD
!ec. 1-. .ersonal Lia%ility. E No director ma$ #e held
to #e personall$ lia#le for an$ action of the district.
Noteworth$, the a#ove Buoted provisions of PD 198, as
amended, are similar to those which are actuall$ contained in
other corporate charters. 8he conclusion is inescapa#le that
the said decree is in truth and in fact the charter of the different
water districts for it clearl$ defines the latterDs primar$ purpose
and its #asic organi6ational set-up. 5n other words, PD 198, as
amended, is the ver$ law which gives a water district 7uridical
personalit$. While it is true that a resolution of a local
sanggunian is still necessar$ for the final creation of a district,
this ourt is of the opinion that said resolution cannot #e
considered as its charter, the same #eing intended onl$ to
implement the provisions of said decree. 5n passing a
resolution forming a water district, the local sanggunian is
entrusted with no authorit$ or discretion to grant a charter for
the creation of a private corporation. 5t is merel$ given the
authorit$ for the formation of a water district, on a local option
#asis, to #e e*ercised under and in pursuance of PD 198.
4ore than the aforeBuoted provisions, what is of important
interest in the case at #ar is !ection 1, par. &#) of the same
decree which reads=
!ec. 1&#). /ppointing aut,ority. E 8he person
empowered to appoint the mem#ers of the ?oard of
Directors of a local water district, depending upon the
geographic coverage and population ma.e-up of the
particular district. 5n the event that more than sevent$-five
percent of the total active water service connections of a
local water districts are within the #oundar$ of an$ cit$ or
municipalit$, the appointing authorit$ shall #e the ma$or
of that cit$ or municipalit$, as the case ma$ #eG
otherwise, the appointing authorit$ shall #e the governor
of the province within which the district is located=
.rovided, 8hat if the e*isting waterwor.s s$stem in the
cit$ or municipalit$ esta#lished as a water district under
this Decree is operated and managed #$ the province,
initial appointment shall #e e*tended #$ the governor of
the province. !u#seBuent appointments shall #e as
specified herein.
5f portions of more than one province are included within
the #oundar$ of the district, and the appointing authorit$
is to #e the governors then the power to appoint shall
rotate #etween the governors involved with the initial
appointments made #$ the governor in whose province
the greatest num#er of service connections e*ists &as
amended #$ PD +,8).
8he a#ove-Buoted section definitel$ sets to naught petitionersD
contention that the$ are private corporations. 5t is clear
therefrom that the power to appoint the mem#ers who will
comprise the ?oard of Directors #elongs to the local e*ecutives
of the local su#division units where such districts are located.
5n contrast, the mem#ers of the ?oard of Directors or trustees
of a private corporation are elected from among the mem#ers
and stoc.holders thereof. 5t would not #e amiss to emphasi6e
at this point that a private corporation is created for the private
purpose, #enefit, aim and end of its mem#ers or stoc.holders.
Necessaril$, said mem#ers or stoc.holders should #e given a
free hand to choose those who will compose the governing
#od$ of their corporation. ?ut this is not the case here and this
clearl$ indicates that petitioners are definitel$ not private
8he foregoing disBuisition notwithstanding, We are, however,
not unaware of the serious repercussion this ma$ #ring to the
thousands of water districtsD emplo$ees throughout the countr$
who stand to #e affected #ecause the$ do not have the
necessar$ civil service eligi#ilities. %s these emplo$ees are
eBuall$ protected #$ the constitutional guarantee to securit$ of
tenure, We find it necessar$ to rule for the protection of such
right which cannot #e impaired #$ a su#seBuent ruling of this
ourt. 8hus, those emplo$ees who have alread$ acBuired their
permanent emplo$ment status at the time of the promulgation
of this decision cannot #e removed #$ the mere reason that
the$ lac. the necessar$ civil service eligi#ilities.
%9;D5N:LJ, the petition is here#$ D5!45!!3D. Petitioners
are declared /government-owned or controlled corporations
with original charter/ which fall under the 7urisdiction of the
pu#lic respondents ! and 9%.
!9 9;D3;3D.