Professional Documents
Culture Documents
Cases Feb 2, 2023
Cases Feb 2, 2023
L-22619 December 2, 1924
JOHNSON, J.:
This action was brought in the Court of First Instance of the City of Manila on the 17th day of July,
1923, for the purpose of recovering the sum of P12,044.68, alleged to have been paid under protest
by the plaintiff company to the defendant, as specific tax on 24,089.3 tons of coal. Said company is a
corporation created by Act No. 2705 of the Philippine Legislature for the purpose of developing the
coal industry in the Philippine Islands and is actually engaged in coal mining on reserved lands
belonging to the Government. It claimed exemption from taxes under the provision of sections 14
and 15 of Act No. 2719, and prayed for a judgment ordering the defendant to refund to the plaintiff
said sum of P12,044.68, with legal interest from the date of the presentation of the complaint, and
costs against the defendant.
The defendant answered denying generally and specifically all the material allegations of the
complaint, except the legal existence and personality of the plaintiff. As a special defense, the
defendant alleged (a) that the sum of P12,044.68 was paid by the plaintiff without protests, and (b)
that said sum was due and owing from the plaintiff to the Government of the Philippine Islands under
the provisions of section 1496 of the Administrative Code and prayed that the complaint be
dismissed, with costs against the plaintiff.
Upon the issue thus presented, the case was brought on for trial. After a consideration of the
evidence adduced by both parties, the Honorable Pedro Conception, judge, held that the words
"lands owned by any person, etc.," in section 15 of Act No. 2719 should be understood to mean
"lands held in lease or usufruct," in harmony with the other provision of said Act; that the coal lands
possessed by the plaintiff, belonging to the Government, fell within the provisions of section 15 of
Act No. 2719; and that a tax of P0.04 per ton of 1,016 kilos on each ton of coal extracted therefrom,
as provided in said section, was the only tax which should be collected from the plaintiff; and
sentenced the defendant to refund to the plaintiff the sum of P11,081.11 which is the difference
between the amount collected under section 1496 of the Administrative Code and the amount which
should have been collected under the provisions of said section 15 of Act No. 2719. From that
sentence the defendant appealed, and now makes the following assignments of error:
I. The court below erred in holding that section 15 of Act No. 2719 does not refer to coal lands
owned by persons and corporations.
II. The court below erred in holding that the plaintiff was not subject to the tax prescribed in section
1496 of the Administrative Code.
The question confronting us in this appeal is whether the plaintiff is subject to the taxes under
section 15 of Act No. 2719, or to the specific taxes under section 1496 of the Administrative Code.
The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705, for the
purpose of developing the coal industry in the Philippine Island, in harmony with the general plan of
the Government to encourage the development of the natural resources of the country, and to
provided facilities therefor. By said Act, the company was granted the general powers of a
corporation "and such other powers as may be necessary to enable it to prosecute the business of
developing coal deposits in the Philippine Island and of mining, extracting, transporting and selling
the coal contained in said deposits." (Sec. 2, Act No. 2705.) By the same law (Act No. 2705) the
Government of the Philippine Islands is made the majority stockholder, evidently in order to insure
proper government supervision and control, and thus to place the Government in a position to render
all possible encouragement, assistance and help in the prosecution and furtherance of the
company's business.
On May 14, 1917, two months after the passage of Act No. 2705, creating the National Coal
Company, the Philippine Legislature passed Act No. 2719 "to provide for the leasing and
development of coal lands in the Philippine Islands." On October 18, 1917, upon petition of the
National Coal Company, the Governor-General, by Proclamation No. 39, withdrew "from settlement,
entry, sale or other disposition, all coal-bearing public lands within the Province of Zamboanga,
Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." Almost
immediately after the issuance of said proclamation the National Coal Company took possession of
the coal lands within the said reservation, with an area of about 400 hectares, without any further
formality, contract or lease. Of the 30,000 shares of stock issued by the company, the Government
of the Philippine Islands is the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole
capital stock.
If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner of the land
from which it has mined the coal in question and is therefore subject to the provisions of section 15
of Act No. 2719 and not to the provisions of the section 1496 of the Administrative Code. That
contention of the plaintiff leads us to an examination of the evidence upon the question of the
ownership of the land from which the coal in question was mined. Was the plaintiff the owner of the
land from which the coal in question was mined? If the evidence shows the affirmative, then the
judgment should be affirmed. If the evidence shows that the land does not belong to the plaintiff,
then the judgment should be reversed, unless the plaintiff's rights fall under section 3 of said Act.
The only witness presented by the plaintiff upon the question of the ownership of the land in question
was Mr. Dalmacio Costas, who stated that he was a member of the board of directors of the plaintiff
corporation; that the plaintiff corporation took possession of the land in question by virtue of the
proclamation of the Governor-General, known as Proclamation No. 39 of the year 1917; that no
document had been issued in favor of the plaintiff corporation; that said corporation had received no
permission from the Secretary of Agriculture and Natural Resources; that it took possession of said
lands covering an area of about 400 hectares, from which the coal in question was mined, solely, by
virtue of said proclamation (Exhibit B, No. 39).
Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General, on the
18th day of October, 1917, and provided: "Pursuant to the provision of section 71 of Act No. 926, I
hereby withdraw from settlement, entry, sale, or other disposition, all coal-bearing public lands within
the Province of Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province of
Tayabas." It will be noted that said proclamation only provided that all coal-bearing public lands
within said province and island should be withdrawn from settlement, entry, sale, or other
disposition. There is nothing in said proclamation which authorizes the plaintiff or any other person to
enter upon said reversations and to mine coal, and no provision of law has been called to our
attention, by virtue of which the plaintiff was entitled to enter upon any of the lands so reserved by
said proclamation without first obtaining permission therefor.
The plaintiff is a private corporation. The mere fact that the Government happens to the majority
stockholder does not make it a public corporation. Act No. 2705, as amended by Act No. 2822,
makes it subject to all of the provisions of the Corporation Law, in so far as they are not inconsistent
with said Act (No. 2705). No provisions of Act No. 2705 are found to be inconsistent with the
provisions of the Corporation Law. As a private corporation, it has no greater rights, powers or
privileges than any other corporation which might be organized for the same purpose under the
Corporation Law, and certainly it was not the intention of the Legislature to give it a preference or
right or privilege over other legitimate private corporations in the mining of coal. While it is true that
said proclamation No. 39 withdrew "from settlement, entry, sale, or other disposition of coal-bearing
public lands within the Province of Zamboanga . . . and the Island of Polillo," it made no provision for
the occupation and operation by the plaintiff, to the exclusion of other persons or corporations who
might, under proper permission, enter upon the operate coal mines.
On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the
Philippine Island in "an Act for the leasing and development of coal lands in the Philippine Islands"
(Act No. 2719), made liberal provision. Section 1 of said Act provides: "Coal-bearing lands of the
public domain in the Philippine Island shall not be disposed of in any manner except as provided in
this Act," thereby giving a clear indication that no "coal-bearing lands of the public domain" had been
disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the
amendments thereof found in Act No. 2822, which authorizes the National Coal Company to enter
upon any of the reserved coal lands without first having obtained permission from the Secretary of
Agriculture and Natural Resources. lawphi1.net
The following propositions are fully sustained by the facts and the law:
(1) The National Coal Company is an ordinary private corporation organized under Act No. 2705,
and has no greater powers nor privileges than the ordinary private corporation, except those
mentioned, perhaps, in section 10 of Act No. 2719, and they do not change the situation here.
(2) It mined on public lands between the month of July, 1920, and the months of March, 1922,
24,089.3 tons of coal.
(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a ton, as taxes under the
provisions of article 1946 of the Administrative Code on the 15th day of December, 1922.
(4) It is admitted that it is neither the owner nor the lessee of the lands upon which said coal was
mined.
(5) The proclamation of Francis Burton Harrison, Governor-General, of the 18th day of October,
1917, by authority of section 1 of Act No. 926, withdrawing from settlement, entry, sale, or other
dispositon all coal-bearing public lands within the Province of Zamboanga and the Island of Polillo,
was not a reservation for the benefit of the National Coal Company, but for any person or
corporation of the Philippine Islands or of the United States.
(6) That the National Coal Company entered upon said land and mined said coal, so far as the
record shows, without any lease or other authority from either the Secretary of Agriculture and
Natural Resources or any person having the power to grant a leave or authority.
From all of the foregoing facts we find that the issue is well defined between the plaintiff and the
defendant. The plaintiff contends that it was liable only to pay the internal revenue and other fees
and taxes provided for under section 15 of Act No. 2719; while the defendant contends, under the
facts of record, the plaintiff is obliged to pay the internal revenue duty provided for in section 1496 of
the Administrative Code. That being the issue, an examination of the provisions of Act No. 2719
becomes necessary.
An examination of said Act (No. 2719) discloses the following facts important for consideration here:
First. All "coal-bearing lands of the public domain in the Philippine Islands shall not be disposed of in
any manner except as provided in this Act." Second. Provisions for leasing by the Secretary of
Agriculture and Natural Resources of "unreserved, unappropriated coal-bearing public lands," and
the obligation to the Government which shall be imposed by said Secretary upon the lessee. lawphi1.net
Third. The internal revenue duty and tax which must be paid upon coal-bearing lands owned by any
person, firm, association or corporation.
To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty and tax upon
unreserved, unappropriated coal-bearing public lands which may be leased by the Secretary of
Agriculture and Natural Resources; and, second, that said Act (No. 2719) provides an internal
revenue duty and tax imposed upon any person, firm, association or corporation, who may be the
owner of "coal-bearing lands." A reading of said Act clearly shows that the tax imposed thereby is
imposed upon two classes of persons only — lessees and owners.
The lower court had some trouble in determining what was the correct interpretation of section 15 of
said Act, by reason of what he believed to be some difference in the interpretation of the language
used in Spanish and English. While there is some ground for confusion in the use of the language in
Spanish and English, we are persuaded, considering all the provisions of said Act, that said section
15 has reference only to persons, firms, associations or corporations which had already, prior to the
existence of said Act, become the owners of coal lands. Section 15 cannot certainty refer to "holders
or lessees of coal lands' for the reason that practically all of the other provisions of said Act has
reference to lessees or holders. If section 15 means that the persons, firms, associations, or
corporation mentioned therein are holders or lessees of coal lands only, it is difficult to understand
why the internal revenue duty and tax in said section was made different from the obligations
mentioned in section 3 of said Act, imposed upon lessees or holders.
From all of the foregoing, it seems to be made plain that the plaintiff is neither a lessee nor an owner
of coal-bearing lands, and is, therefore, not subject to any other provisions of Act No. 2719. But, is
the plaintiff subject to the provisions of section 1496 of the Administrative Code?
Section 1496 of the Administrative Code provides that "on all coal and coke there shall be collected,
per metric ton, fifty centavos." Said section (1496) is a part of article, 6 which provides for specific
taxes. Said article provides for a specific internal revenue tax upon all things manufactured or
produced in the Philippine Islands for domestic sale or consumption, and upon things imported from
the United States or foreign countries. It having been demonstrated that the plaintiff has produced
coal in the Philippine Islands and is not a lessee or owner of the land from which the coal was
produced, we are clearly of the opinion, and so hold, that it is subject to pay the internal revenue tax
under the provisions of section 1496 of the Administrative Code, and is not subject to the payment of
the internal revenue tax under section 15 of Act No. 2719, nor to any other provisions of said Act.
Therefore, the judgment appealed from is hereby revoked, and the defendant is hereby relieved from
all responsibility under the complaint. And, without any finding as to costs, it is so ordered.
G.R. No. 169752 September 25, 2007
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a special civil action for Certiorari and Prohibition under Rule 65 of the Rules of
Court, in relation to Section 2 of Rule 64, filed by the petitioner assailing Office Order No. 2005-
0211 dated September 14, 2005 issued by the respondents which constituted the audit team, as well
as its September 23, 2005 Letter2 informing the petitioner that respondents’ audit team shall conduct
an audit survey on the petitioner for a detailed audit of its accounts, operations, and financial
transactions. No temporary restraining order was issued.
The petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No.
1285, enacted on January 19, 1905, by the Philippine Commission. The petitioner, at the time it was
created, was composed of animal aficionados and animal propagandists. The objects of the
petitioner, as stated in Section 2 of its charter, shall be to enforce laws relating to cruelty inflicted
upon animals or the protection of animals in the Philippine Islands, and generally, to do and perform
all things which may tend in any way to alleviate the suffering of animals and promote their welfare.3
At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not
yet in existence. Act No. 1285 antedated both the Corporation Law and the constitution of the
Securities and Exchange Commission. Important to note is that the nature of the petitioner as a
corporate entity is distinguished from the sociedad anonimas under the Spanish Code of Commerce.
For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for the
protection of animals, the petitioner was initially imbued under its charter with the power to
apprehend violators of animal welfare laws. In addition, the petitioner was to share one-half (1/2) of
the fines imposed and collected through its efforts for violations of the laws related thereto. As
originally worded, Sections 4 and 5 of Act No. 1285 provide:
SEC. 4. The said society is authorized to appoint not to exceed five agents in the City of Manila, and
not to exceed two in each of the provinces of the Philippine Islands who shall have all the power and
authority of a police officer to make arrests for violation of the laws enacted for the prevention of
cruelty to animals and the protection of animals, and to serve any process in connection with the
execution of such laws; and in addition thereto, all the police force of the Philippine Islands,
wherever organized, shall, as occasion requires, assist said society, its members or agents, in the
enforcement of all such laws.
SEC. 5. One-half of all the fines imposed and collected through the efforts of said society, its
members or its agents, for violations of the laws enacted for the prevention of cruelty to animals and
for their protection, shall belong to said society and shall be used to promote its objects.
(emphasis supplied)
Subsequently, however, the power to make arrests as well as the privilege to retain a portion of the
fines collected for violation of animal-related laws were recalled by virtue of Commonwealth Act
(C.A.) No. 148,4 which reads, in its entirety, thus:
Section 1. Section four of Act Numbered Twelve hundred and eighty-five as amended by Act
Numbered Thirty five hundred and forty-eight, is hereby further amended so as to read as follows:
Sec. 4. The said society is authorized to appoint not to exceed ten agents in the City of Manila, and
not to exceed one in each municipality of the Philippines who shall have the authority to denounce to
regular peace officers any violation of the laws enacted for the prevention of cruelty to animals and
the protection of animals and to cooperate with said peace officers in the prosecution of
transgressors of such laws.
Sec. 2. The full amount of the fines collected for violation of the laws against cruelty to animals and
for the protection of animals, shall accrue to the general fund of the Municipality where the offense
was committed.
Immediately thereafter, then President Manuel L. Quezon issued Executive Order (E.O.) No. 63
dated November 12, 1936, portions of which provide:
Whereas, during the first regular session of the National Assembly, Commonwealth Act Numbered
One Hundred Forty Eight was enacted depriving the agents of the Society for the Prevention of
Cruelty to Animals of their power to arrest persons who have violated the laws prohibiting cruelty to
animals thereby correcting a serious defect in one of the laws existing in our statute books.
xxxx
Whereas, the cruel treatment of animals is an offense against the State, penalized under our
statutes, which the Government is duty bound to enforce;
Now, therefore, I, Manuel L. Quezon, President of the Philippines, pursuant to the authority
conferred upon me by the Constitution, hereby decree, order, and direct the Commissioner of Public
Safety, the Provost Marshal General as head of the Constabulary Division of the Philippine Army,
every Mayor of a chartered city, and every municipal president to detail and organize special
members of the police force, local, national, and the Constabulary to watch, capture, and prosecute
offenders against the laws enacted to prevent cruelty to animals. (Emphasis supplied)
On December 1, 2003, an audit team from respondent Commission on Audit (COA) visited the office
of the petitioner to conduct an audit survey pursuant to COA Office Order No. 2003-051 dated
November 18, 20035 addressed to the petitioner. The petitioner demurred on the ground that it was a
private entity not under the jurisdiction of COA, citing Section 2(1) of Article IX of the Constitution
which specifies the general jurisdiction of the COA, viz:
Section 1. General Jurisdiction. The Commission on Audit shall have the power, authority, and
duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to the
Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned
and controlled corporations with original charters, and on a post-audit basis: (a) constitutional
bodies, commissions and officers that have been granted fiscal autonomy under the Constitution; (b)
autonomous state colleges and universities; (c) other government-owned or controlled corporations
and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or
indirectly, from or through the government, which are required by law or the granting institution to
submit to such audit as a condition of subsidy or equity. However, where the internal control system
of the audited agencies is inadequate, the Commission may adopt such measures, including
temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall
keep the general accounts of the Government, and for such period as may be provided by law,
preserve the vouchers and other supporting papers pertaining thereto. (Emphasis supplied)
a. Although the petitioner was created by special legislation, this necessarily came about
because in January 1905 there was as yet neither a Corporation Law or any other general
law under which it may be organized and incorporated, nor a Securities and Exchange
Commission which would have passed upon its organization and incorporation.
b. That Executive Order No. 63, issued during the Commonwealth period, effectively
deprived the petitioner of its power to make arrests, and that the petitioner lost its operational
funding, underscore the fact that it exercises no governmental function. In fine, the
government itself, by its overt acts, confirmed petitioner’s status as a private juridical entity.
The COA General Counsel issued a Memorandum6 dated May 6, 2004, asserting that the petitioner
was subject to its audit authority. In a letter dated May 17, 2004,7 respondent COA informed the
petitioner of the result of the evaluation, furnishing it with a copy of said Memorandum dated May 6,
2004 of the General Counsel.
Petitioner thereafter filed with the respondent COA a Request for Re-evaluation dated May 19,
2004,8 insisting that it was a private domestic corporation.
Acting on the said request, the General Counsel of respondent COA, in a Memorandum dated July
13, 2004,9 affirmed her earlier opinion that the petitioner was a government entity that was subject to
the audit jurisdiction of respondent COA. In a letter dated September 14, 2004, the respondent COA
informed the petitioner of the result of the re-evaluation, maintaining its position that the petitioner
was subject to its audit jurisdiction, and requested an initial conference with the respondents.
In a Memorandum dated September 16, 2004, Director Delfin Aguilar reported to COA Assistant
Commissioner Juanito Espino, Corporate Government Sector, that the audit survey was not
conducted due to the refusal of the petitioner because the latter maintained that it was a private
corporation.
Petitioner received on September 27, 2005 the subject COA Office Order 2005-021 dated
September 14, 2005 and the COA Letter dated September 23, 2005.
B.
The essential question before this Court is whether the petitioner qualifies as a government agency
that may be subject to audit by respondent COA.
Petitioner argues: first, even though it was created by special legislation in 1905 as there was no
general law then existing under which it may be organized or incorporated, it exercises no
governmental functions because these have been revoked by C.A. No. 148 and E.O. No.
63; second, nowhere in its charter is it indicated that it is a public corporation, unlike, for instance,
C.A. No. 111 which created the Boy Scouts of the Philippines, defined its powers and purposes, and
specifically stated that it was "An Act to Create a Public Corporation" in which, even as amended by
Presidential Decree No. 460, the law still adverted to the Boy Scouts of the Philippines as a "public
corporation," all of which are not obtaining in the charter of the petitioner; third, if it were a
government body, there would have been no need for the State to grant it tax exemptions under
Republic Act No. 1178, and the fact that it was so exempted strengthens its position that it is a
private institution; fourth, the employees of the petitioner are registered and covered by the Social
Security System at the latter’s initiative and not through the Government Service Insurance System,
which should have been the case had the employees been considered government employees; fifth,
the petitioner does not receive any form of financial assistance from the government, since C.A. No.
148, amending Section 5 of Act No. 1285, states that the "full amount of the fines, collected for
violation of the laws against cruelty to animals and for the protection of animals, shall accrue to the
general fund of the Municipality where the offense was committed"; sixth, C.A. No. 148 effectively
deprived the petitioner of its powers to make arrests and serve processes as these functions were
placed in the hands of the police force; seventh, no government appointee or representative sits on
the board of trustees of the petitioner; eighth, a reading of the provisions of its charter (Act No. 1285)
fails to show that any act or decision of the petitioner is subject to the approval of or control by any
government agency, except to the extent that it is governed by the law on private corporations in
general; and finally, ninth, the Committee on Animal Welfare, under the Animal Welfare Act of 1998,
includes members from both the private and the public sectors.
The respondents contend that since the petitioner is a "body politic" created by virtue of a special
legislation and endowed with a governmental purpose, then, indubitably, the COA may audit the
financial activities of the latter. Respondents in effect divide their contentions into six strains: first, the
test to determine whether an entity is a government corporation lies in the manner of its creation,
and, since the petitioner was created by virtue of a special charter, it is thus a government
corporation subject to respondents’ auditing power; second, the petitioner exercises "sovereign
powers," that is, it is tasked to enforce the laws for the protection and welfare of animals which
"ultimately redound to the public good and welfare," and, therefore, it is deemed to be a government
"instrumentality" as defined under the Administrative Code of 1987, the purpose of which is
connected with the administration of government, as purportedly affirmed by American
jurisprudence; third, by virtue of Section 23,11 Title II, Book III of the same Code, the Office of the
President exercises supervision or control over the petitioner; fourth, under the same Code, the
requirement under its special charter for the petitioner to render a report to the Civil Governor,
whose functions have been inherited by the Office of the President, clearly reflects the nature of the
petitioner as a government instrumentality; fifth, despite the passage of the Corporation Code, the
law creating the petitioner had not been abolished, nor had it been re-incorporated under any
general corporation law; and finally, sixth, Republic Act No. 8485, otherwise known as the "Animal
Welfare Act of 1998," designates the petitioner as a member of its Committee on Animal Welfare
which is attached to the Department of Agriculture.
In view of the phrase "One-half of all the fines imposed and collected through the efforts of said
society," the Court, in a Resolution dated January 30, 2007, required the Office of the Solicitor
General (OSG) and the parties to comment on: a) petitioner's authority to impose fines and the
validity of the provisions of Act No. 1285 and Commonwealth Act No. 148 considering that there are
no standard measures provided for in the aforecited laws as to the manner of implementation, the
specific violations of the law, the person/s authorized to impose fine and in what amount; and, b) the
effect of the 1935 and 1987 Constitutions on whether petitioner continues to exist or should organize
as a private corporation under the Corporation Code, B.P. Blg. 68 as amended.
Petitioner and the OSG filed their respective Comments. Respondents filed a Manifestation stating
that since they were being represented by the OSG which filed its Comment, they opted to dispense
with the filing of a separate one and adopt for the purpose that of the OSG.
The petitioner avers that it does not have the authority to impose fines for violation of animal welfare
laws; it only enjoyed the privilege of sharing in the fines imposed and collected from its efforts in the
enforcement of animal welfare laws; such privilege, however, was subsequently abolished by C.A.
No. 148; that it continues to exist as a private corporation since it was created by the Philippine
Commission before the effectivity of the Corporation law, Act No. 1459; and the 1935 and 1987
Constitutions.
The OSG submits that Act No. 1285 and its amendatory laws did not give petitioner the authority to
impose fines for violation of laws12 relating to the prevention of cruelty to animals and the protection
of animals; that even prior to the amendment of Act No. 1285, petitioner was only entitled to share in
the fines imposed; C.A. No. 148 abolished that privilege to share in the fines collected; that petitioner
is a public corporation and has continued to exist since Act No. 1285; petitioner was not repealed by
the 1935 and 1987 Constitutions which contain transitory provisions maintaining all laws issued not
inconsistent therewith until amended, modified or repealed.
The arguments of the parties, interlaced as they are, can be disposed of in five points.
First, the Court agrees with the petitioner that the "charter test" cannot be applied.
[T]he test to determine whether a corporation is government owned or controlled, or private in nature
is simple. Is it created by its own charter for the exercise of a public function, or by incorporation
under the general corporation law? Those with special charters are government corporations subject
to its provisions, and its employees are under the jurisdiction of the Civil Service Commission, and
are compulsory members of the Government Service Insurance System. xxx (Emphasis supplied)13
The petitioner is correct in stating that the charter test is predicated, at best, on the legal regime
established by the 1935 Constitution, Section 7, Article XIII, which states:
Sec. 7. The National Assembly shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are owned or controlled
by the Government or any subdivision or instrumentality thereof.14
The foregoing proscription has been carried over to the 1973 and the 1987 Constitutions. Section 16
of Article XII of the present Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of
economic viability.
Section 16 is essentially a re-enactment of Section 7 of Article XVI of the 1935 Constitution and
Section 4 of Article XIV of the 1973 Constitution.
During the formulation of the 1935 Constitution, the Committee on Franchises recommended the
foregoing proscription to prevent the pressure of special interests upon the lawmaking body in the
creation of corporations or in the regulation of the same. To permit the lawmaking body by special
law to provide for the organization, formation, or regulation of private corporations would be in effect
to offer to it the temptation in many cases to favor certain groups, to the prejudice of others or to the
prejudice of the interests of the country.15
And since the underpinnings of the charter test had been introduced by the 1935 Constitution and
not earlier, it follows that the test cannot apply to the petitioner, which was incorporated by virtue of
Act No. 1285, enacted on January 19, 1905. Settled is the rule that laws in general have no
retroactive effect, unless the contrary is provided.16 All statutes are to be construed as having only a
prospective operation, unless the purpose and intention of the legislature to give them a
retrospective effect is expressly declared or is necessarily implied from the language used. In case
of doubt, the doubt must be resolved against the retrospective effect.17
There are a few exceptions. Statutes can be given retroactive effect in the following cases: (1) when
the law itself so expressly provides; (2) in case of remedial statutes; (3) in case of curative statutes;
(4) in case of laws interpreting others; and (5) in case of laws creating new rights.18 None of the
exceptions is present in the instant case.
The general principle of prospectivity of the law likewise applies to Act No. 1459, otherwise known
as the Corporation Law, which had been enacted by virtue of the plenary powers of the Philippine
Commission on March 1, 1906, a little over a year after January 19, 1905, the time the petitioner
emerged as a juridical entity. Even the Corporation Law respects the rights and powers of juridical
entities organized beforehand, viz:
SEC. 75. Any corporation or sociedad anonima formed, organized, and existing under the laws of
the Philippine Islands and lawfully transacting business in the Philippine Islands on the date of the
passage of this Act, shall be subject to the provisions hereof so far as such provisions may be
applicable and shall be entitled at its option either to continue business as such corporation or to
reform and organize under and by virtue of the provisions of this Act, transferring all corporate
interests to the new corporation which, if a stock corporation, is authorized to issue its shares of
stock at par to the stockholders or members of the old corporation according to their interests.
(Emphasis supplied).
As pointed out by the OSG, both the 1935 and 1987 Constitutions contain transitory provisions
maintaining all laws issued not inconsistent therewith until amended, modified or repealed.19
In a legal regime where the charter test doctrine cannot be applied, the mere fact that a corporation
has been created by virtue of a special law does not necessarily qualify it as a public corporation.
What then is the nature of the petitioner as a corporate entity? What legal regime governs its rights,
powers, and duties?
As stated, at the time the petitioner was formed, the applicable law was the Philippine Bill of 1902,
and, emphatically, as also stated above, no proscription similar to the charter test can be found
therein.
The textual foundation of the charter test, which placed a limitation on the power of the legislature,
first appeared in the 1935 Constitution. However, the petitioner was incorporated in 1905 by virtue of
Act No. 1258, a law antedating the Corporation Law (Act No. 1459) by a year, and the 1935
Constitution, by thirty years. There being neither a general law on the formation and organization of
private corporations nor a restriction on the legislature to create private corporations by direct
legislation, the Philippine Commission at that moment in history was well within its powers in 1905 to
constitute the petitioner as a private juridical entity.
1âwphi1
Time and again the Court must caution even the most brilliant scholars of the law and all
constitutional historians on the danger of imposing legal concepts of a later date on facts of an
earlier date.20
The amendments introduced by C.A. No. 148 made it clear that the petitioner was a private
corporation and not an agency of the government. This was evident in Executive Order No. 63,
issued by then President of the Philippines Manuel L. Quezon, declaring that the revocation of the
powers of the petitioner to appoint agents with powers of arrest "corrected a serious defect" in one of
the laws existing in the statute books.
As a curative statute, and based on the doctrines so far discussed, C.A. No. 148 has to be given
retroactive effect, thereby freeing all doubt as to which class of corporations the petitioner belongs,
that is, it is a quasi-public corporation, a kind of private domestic corporation, which the Court will
further elaborate on under the fourth point.
Second, a reading of petitioner’s charter shows that it is not subject to control or supervision by any
agency of the State, unlike government-owned and -controlled corporations. No government
representative sits on the board of trustees of the petitioner. Like all private corporations, the
successors of its members are determined voluntarily and solely by the petitioner in accordance with
its by-laws, and may exercise those powers generally accorded to private corporations, such as the
powers to hold property, to sue and be sued, to use a common seal, and so forth. It may adopt by-
laws for its internal operations: the petitioner shall be managed or operated by its officers "in
accordance with its by-laws in force." The pertinent provisions of the charter provide:
Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William F. Tucker, Mary S. Fergusson,
Amasa S. Crossfield, Spencer Cosby, Sealy B. Rossiter, Richard P. Strong, Jose Robles Lahesa,
Josefina R. de Luzuriaga, and such other persons as may be associated with them in conformity
with this act, and their successors, are hereby constituted and created a body politic and corporate
at law, under the name and style of "The Philippines Society for the Prevention of Cruelty to
Animals."
As incorporated by this Act, said society shall have the power to add to its organization such and as
many members as it desires, to provide for and choose such officers as it may deem advisable, and
in such manner as it may wish, and to remove members as it shall provide.
It shall have the right to sue and be sued, to use a common seal, to receive legacies and donations,
to conduct social enterprises for the purpose of obtaining funds, to levy dues upon its members and
provide for their collection to hold real and personal estate such as may be necessary for the
accomplishment of the purposes of the society, and to adopt such by-laws for its government as may
not be inconsistent with law or this charter.
xxxx
Sec. 3. The said society shall be operated under the direction of its officers, in accordance with its
by-laws in force, and this charter.
xxxx
Sec. 6. The principal office of the society shall be kept in the city of Manila, and the society shall
have full power to locate and establish branch offices of the society wherever it may deem advisable
in the Philippine Islands, such branch offices to be under the supervision and control of the principal
office.
Third. The employees of the petitioner are registered and covered by the Social Security System at
the latter’s initiative, and not through the Government Service Insurance System, which should be
the case if the employees are considered government employees. This is another indication of
petitioner’s nature as a private entity. Section 1 of Republic Act No. 1161, as amended by Republic
Act No. 8282, otherwise known as the Social Security Act of 1997, defines the employer:
Employer – Any person, natural or juridical, domestic or foreign, who carries on in the Philippines
any trade, business, industry, undertaking or activity of any kind and uses the services of another
person who is under his orders as regards the employment, except the Government and any of its
political subdivisions, branches or instrumentalities, including corporations owned or controlled by
the Government: Provided, That a self-employed person shall be both employee and employer at
the same time. (Emphasis supplied)
Fourth. The respondents contend that the petitioner is a "body politic" because its primary purpose is
to secure the protection and welfare of animals which, in turn, redounds to the public good.
This argument, is, at best, specious. The fact that a certain juridical entity is impressed with public
interest does not, by that circumstance alone, make the entity a public corporation, inasmuch as a
corporation may be private although its charter contains provisions of a public character,
incorporated solely for the public good. This class of corporations may be considered quasi-public
corporations, which are private corporations that render public service, supply public wants,21 or
pursue other eleemosynary objectives. While purposely organized for the gain or benefit of its
members, they are required by law to discharge functions for the public benefit. Examples of these
corporations are utility,22 railroad, warehouse, telegraph, telephone, water supply corporations and
transportation companies.23 It must be stressed that a quasi-public corporation is a species of
private corporations, but the qualifying factor is the type of service the former renders to the public:
if it performs a public service, then it becomes a quasi-public corporation.24
1âwphi1
Authorities are of the view that the purpose alone of the corporation cannot be taken as a safe guide,
for the fact is that almost all corporations are nowadays created to promote the interest, good, or
convenience of the public. A bank, for example, is a private corporation; yet, it is created for a public
benefit. Private schools and universities are likewise private corporations; and yet, they are
rendering public service. Private hospitals and wards are charged with heavy social responsibilities.
More so with all common carriers. On the other hand, there may exist a public corporation even if it
is endowed with gifts or donations from private individuals.
The true criterion, therefore, to determine whether a corporation is public or private is found in the
totality of the relation of the corporation to the State. If the corporation is created by the State as the
latter’s own agency or instrumentality to help it in carrying out its governmental functions, then that
corporation is considered public; otherwise, it is private. Applying the above test, provinces,
chartered cities, and barangays can best exemplify public corporations. They are created by the
State as its own device and agency for the accomplishment of parts of its own public works.25
It is clear that the amendments introduced by C.A. No. 148 revoked the powers of the petitioner to
arrest offenders of animal welfare laws and the power to serve processes in connection therewith.
Fifth. The respondents argue that since the charter of the petitioner requires the latter to render
periodic reports to the Civil Governor, whose functions have been inherited by the President, the
petitioner is, therefore, a government instrumentality.
This contention is inconclusive. By virtue of the fiction that all corporations owe their very existence
and powers to the State, the reportorial requirement is applicable to all corporations of whatever
nature, whether they are public, quasi-public, or private corporations—as creatures of the State,
there is a reserved right in the legislature to investigate the activities of a corporation to determine
whether it acted within its powers. In other words, the reportorial requirement is the principal means
by which the State may see to it that its creature acted according to the powers and functions
conferred upon it. These principles were extensively discussed in Bataan Shipyard & Engineering
Co., Inc. v. Presidential Commission on Good Government.26 Here, the Court, in holding that the
subject corporation could not invoke the right against self-incrimination whenever the State
demanded the production of its corporate books and papers, extensively discussed the purpose of
reportorial requirements, viz:
x x x The corporation is a creature of the state. It is presumed to be incorporated for the benefit of
the public. It received certain special privileges and franchises, and holds them subject to the laws of
the state and the limitations of its charter. Its powers are limited by law. It can make no contract not
authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys
the laws of its creation. There is a reserve[d] right in the legislature to investigate its contracts and
find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state,
having chartered a corporation to make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been employed, and whether they had been abused,
and demand the production of the corporate books and papers for that purpose. The defense
amounts to this, that an officer of the corporation which is charged with a criminal violation of the
statute may plead the criminality of such corporation as a refusal to produce its books. To state this
proposition is to answer it. While an individual may lawfully refuse to answer incriminating questions
unless protected by an immunity statute, it does not follow that a corporation vested with special
privileges and franchises may refuse to show its hand when charged with an abuse of such
privileges. (Wilson v. United States, 55 Law Ed., 771, 780.)27
WHEREFORE, the petition is GRANTED. Petitioner is DECLARED a private domestic corporation
subject to the jurisdiction of the Securities and Exchange Commission. The respondents
are ENJOINED from investigating, examining and auditing the petitioner's fiscal and financial affairs.
SO ORDERED.
G.R. No. 95237-38 September 13, 1991
DAVAO CITY WATER DISTRICT, CAGAYAN DE ORO CITY WATER DISTRICT, METRO CEBU
WATER DISTRICT, ZAMBOANGA CITY WATER DISTRICT, LEYTE METRO WATER DISTRICT,
BUTUAN CITY WATER DISTRICT, CAMARINES NORTE WATER DISTRICT, LAGUNA WATER
DISTRICT, DUMAGUETE CITY WATER DISTRICT, LA UNION WATER DISTRICT, BAYBAY
WATER DISTRICT, METRO LINGAYEN WATER DISTRICT, URDANETA WATER DISTRICT,
COTABATO CITY WATER DISTRICT, MARAWI WATER DISTRICT, TAGUM WATER DISTRICT,
DIGOS WATER DISTRICT, BISLIG WATER DISTRICT, and MECAUAYAN WATER
DISTRICT, petitioners,
vs.
CIVIL SERVICE COMMISSION, and COMMISSION ON AUDIT, respondents.
MEDIALDEA, 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 Civil Service Law and/or covered by the visitorial power of the
Commission on Audit is the issue which the petitioners entreat this Court, en banc, to shed light on.
Petitioners are among the more than five hundred (500) water districts existing throughout the
country formed pursuant to the provisions of Presidential Decree No. 198, as amended by
Presidential Decrees Nos. 768 and 1479, otherwise known as the "Provincial Water Utilities Act of
1973."
Presidential Decree No. 198 was issued by the then President Ferdinand E. Marcos by virtue of his
legislative power under Proclamation No. 1081. It authorized the different local legislative bodies to
form and create their respective water districts through a resolution they will pass subject to the
guidelines, rules and regulations therein laid down. The decree further created and formed the
"Local Water Utilities Administration" (LWUA), a national agency attached to the National Economic
and Development Authority (NEDA), and granted with regulatory power necessary to optimize public
service from water utilities operations.
The respondents, on the other hand, are the Civil Service Commission (CSC) and the Commission
on Audit (COA), both government agencies and represented in this case by the Solicitor General.
On April 17, 1989, this Court ruled in the case of Tanjay Water District v. Gabaton, et al. (G.R. No.
63742, 172 SCRA 253):
Significantly, Article IX (B), Section 2(1) of the 1987 Constitution provides that the Civil
Service embraces all branches, subdivisions, instrumentalities, and agencies of the
government, including government-owned and controlled corporations with original charters.
Inasmuch as PD No. 198, as amended, is the original charter of the petitioner, Tanjay Water
District, and respondent Tarlac Water District and all water districts in the country, they come
under the coverage of the Civil Service Law, rules and regulations. (Sec. 35, Art. VIII and
Sec. 37, Art. IX of PD No. 807).
As an offshoot of the immediately cited ruling, the CSC. issued Resolution No. 90-575, the
dispositive portion of which reads:
NOW THEREFORE, in view of all the foregoing, the Commission resolved, as it hereby
resolves to rule that Local Water Districts, being quasi-public corporations created by law to
perform public services and supply public wants, the matter of hiring and firing of its officers
and employees should be governed by the Civil Service Law, rules and regulations.
Henceforth, all appointments of personnel of the different local water districts in the country
shall be submitted to the Commission for appropriate action. (Rollo. p. 22).
However, on May 16, 1990, in G.R. No. 85760, entitled "Metro Iloilo Water District v. National Labor
Relations Commission, et al.," the Third Division of this Court ruled in a minute resolution:
x x x x x x x x x
In adherence to the just cited ruling, the CSC suspended the implementation of Resolution No. 90-
575 by issuing Resolution No. 90-770 which reads:
x x x x x x x x x
NOW, THEREFORE, in view of all the foregoing, the Commission resolved to rule, as it
hereby rules, that the implementation of CSC. Resolution No. 575 dated June 27, 1990 be
deferred in the meantime pending clarification from the Supreme Court are regards its
conflicting decisions in the cases of Tanjay Water District v. Gabaton and Metro Iloilo Water
District v. National Labor Relations Commission. (p. 26, Rollo)
In the meanwhile, there exists a divergence of opinions between COA on one hand, and the
(LWUA), on the other hand, with respect to the authority of COA to audit the different water districts.
COA opined that the audit of the water districts is simply an act of discharging the visitorial power
vested in them by law (letter of COA to LWUA dated August 13, 1985, pp. 29-30, Rollo).
On the other hand, LWUA maintained that only those water districts with subsidies from the
government fall within the COA's jurisdiction and only to the extent of the amount of such subsidies,
pursuant to the provision of the Government Auditing Code of the Phils.
It is to be observed that just like the question of whether the employees of the water districts falls
under the coverage of the Civil Service Law, the conflict between the water districts and the COA is
also dependent on the final determination of whether or not water districts are government-owned or
controlled corporations with original charter. The reason behind this is Sec. 2(1), Article IX-D of the
1987 constitution which reads:
Sec. 2(1) The Commission on Audit shall have the power, authority, and duty to examine,
audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or
uses of funds and property, owned or held in trust by, or pertaining to the Government, or
any of its subdivisions, agencies or instrumentalities, including government-owned or
controlled corporations with original charters, and on a post audit basis. (emphasis supplied)
Petitioners' main argument is that they are private corporations without original charter, hence they
are outside the jurisdiction of respondents CSC and COA. Reliance is made on the Metro Iloilo case
which declared petitioners as quasi-public corporations created by virtue of PD 198, a general
legislation which cannot be considered as the charter itself creating the water districts. Holding on to
this ruling, petitioners contend that they are private corporations which are only regarded as quasi-
public or semi-public because they serve public 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 but the
resolution of the sanggunian concerned.
After a fair consideration of the parties' arguments coupled with a careful study of the applicable laws
as well as the constitutional provisions involved, We rule against the petitioners and reiterate Our
ruling in Tanjay case declaring water districts government-owned or controlled corporations with
original charter.
As early as Baguio Water District v. Trajano, et al., (G.R. No. 65428, February 20, 1984, 127 SCRA
730), We already ruled that a water district is a corporation created pursuant to a special law — P.D.
No. 198, as amended, and as such its officers and employees are covered by the Civil Service Law.
In another case (Hagonoy Water District v. NLRC, G.R. No. 81490, August 31, 1988, 165 SCRA
272), We ruled once again that local water districts are quasi-public corporations whose employees
belong to the Civil Service. The Court's pronoucement in this case, as extensively quoted in
the Tanjay case, supra, partly reads:
"The only question here is whether or not local water districts are governmkent owned or
controlled corporations whose employees are subject to the provisions of the Civil Service
Law. The Labor Arbiter asserted jurisdiction over the alleged illegal dismissal of private
respondent Villanueva by relying on Section 25 of Presidential decree No. 198, known as the
Provincial Water Utilities Act of 1973" which went onto effect in 25 May 1973, and which
provides as follows:
Exemption from Civil Service. — The district and its employees, being engaged in a
proprietary function, are hereby exempt from the provisions of the Civil Service Law.
Collective Bargaining shall be available only to personnel below supervisory
levels: Provided, however, That the total of all salaries, wages emoluments, benefits
or other compensation paid to all employees in any month shall not exceed fifty
percent (50%) of average net monthy revenue. Said net revenue representing
income from water sales and sewerage service charges, less pro-rata share of debt
service and expenses for fuel or energy for pumping during the preceding fiscal year.
The Labor Arbiter failed to take into accout the provisions of Presidential Decree No. 1479,
which went into effect on 11 June 1978, P.D. No. 1479, wiped away Section 25 of PD 198
quoted above, and Section 26 of PD 198 was renumbered as Section 25 in the following
manner:
Section 26 of the same decree PD 198 is hereby amended to read as Section 25 as follows:
Section 25. Authorization. — The district may exercise all the powers which are expressly
granted by this Title or which are necessarily implied from or incidental to the powers and
purposes herein stated. For the purpose of carrying out the objectives of this Act, a district is
hereby granted the power of eminent domain, the exercise thereof shall, however, be subject
to review by the Administration.
Thus, Section 25 of PD 198 exempting the employees of water districts from the application
of the Civil Service Law was removed from the statute books:
x x x x x x x x x
x x x x x x x x x
3. The BWD is a corporation created pursuant to a special law — PD No. 198, as amended.
As such its officers and employees are part of the Civil Service (Sec. 1, Art. XII-B, [1973]
Constitution; PD No. 868).
Ascertained from a consideration of the whole statute, PD 198 is a special law applicable only to the
different water districts created pursuant thereto. In all its essential terms, it is obvious that it pertains
to a special purpose which is intended to meet a particular set of conditions and cirmcumstances.
The fact that said decree generally applies to all water districts throughout the country does not
change the fact that PD 198 is a special law. Accordingly, this Court's resolution in Metro Iloilo case
declaring PD 198 as a general legislation is hereby abandoned.
From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the
CSC are those corporations created 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 governed primarily by its provision.
No consideration may thus be given to petitioners' contention that the operative act which created
the water districts are the resolutions of the respective local sanggunians and that consequently, PD
198, as amended, cannot be considered as their charter.
It is to be noted that PD 198, as amended is the source of authorization and power to form and
maintain a district. Section 6 of said decree provides:
Sec. 6. Formation of District. — This Act is the source of authorization and power to form and
maintain a district. Once formed, a district is subject to the provisions of this Act and not
under the jurisdiction of any political subdivision, . . . .
Moreover, it must be observed that PD 198, contains all the essential terms necessary to constitute
a charter creating a juridical person. For example, Section 6(a) provides for the name that will be
used by a water district, thus:
Sec. 6. . . . To form a district, the legislative body of any city, municipality or province shall
enact a resolution containing the following:
a) The name of the local water district, which shall include the name of the city, municipality,
or province, or region thereof, served by said system, followed by the words "Water District."
It also prescribes for the numbers and qualifications of the members of the Board of Directors:
Sec. 8. Number and Qualification. — The Board of Directors of a district shall be composed
of five citizens of the Philippines who are of voting age and residents within the district. One
member shall be a representative of civic-oriented service clubs, one member of
representative of professional associations, one member a representative of business,
commercial or financial organizations, one member a representative of educational
institutions and one member a representative of women's organization. No public official
shall serve as director. Provided, however, that if the district has availed of the financial
assistance of the Administration, the Administration may appoint any of its personnel to sit in
the board of directors with all the rights and privileges appertaining to a regular member for
such period as the indebtedness remains unpaid in which case the board shall be composed
of six members; (as amended by PDs Nos. 768 and 1479).
Sec. 9. Appointment. — Board members shall be appointed by the appointing authority. Said
appointments shall be made from a list of nominees, if any, submitted pursuant to Section
10. If no nominations are submitted, the appointing authority shall appoint any qualified
person of the category to the vacant position;
Sec. 11. Term of Office. — Of the five initial directors of each newly formed district, two shall
be appointed for a maximum term of two years, two for a maximum term of four years, and
one for a maximum term of six years. Terms of office of all directors in a given district shall
be such that the term of at least one director, but not more then two, shall expire on
December 31 of each even-numbered year. Regular terms of office after the initial terms
shall be for six years commencing on January 1 of odd-numbered years. Directors may be
removed for cause only, subject to review and approval of the Administration; (as amended
by PD 768).
Sec. 12. Vacancies. — In the event of a vacancy in the board of directors occurring more
than six months before expiration of any director's term, the remaining directors shall within
30 days, serve notice to or request the secretary of the district for nominations and within 30
days, thereafter a list of nominees shall be submitted to the appointing authority for his
appointment of a replacement director from the list of nominees. In the absence of such
nominations, the appointing authority shall make such appointment. If within 30 days after
submission to him of a list of nominees the appointing authority fails to make an
appointment, the vacancy shall be filled from such list by a majority vote of the remaining
members of the Board of Directors constituting a quorum. Vacancies occurring within the last
six months of an unexpired term shall also be filled by the Board in the above manner. The
director thus appointed shall serve the unexpired term only; (as amended by PD 768).
and the compensation and personal liability of the members of the Board of Directors:
Sec. 13. Compensation. — Each director shall receive a per diem, to be determined by the
board, for each meeting of the board actually attended by him, but no director shag receive
per diems in any given month in excess of the equivalent of the total per diems of four
meetings in any given month. No director shall receive other compensation for services to
the district.
Any per diem in excess of P50.00 shall be subject to approval of the Administration (as
amended by PD 768).
Sec. 14. Personal Liability. — No director may be held to be personally liable for any action
of the district.
Noteworthy, the above quoted provisions of PD 198, as amended, are similar to those which are
actually contained in other corporate charters. The conclusion is inescapable that the said decree is
in truth and in fact the charter of the different water districts for it clearly defines the latter's primary
purpose and its basic organizational set-up. In other words, PD 198, as amended, is the very law
which gives a water district juridical personality. While it is true that a resolution of a local
sanggunian is still necessary for the final creation of a district, this Court is of the opinion that said
resolution cannot be considered as its charter, the same being intended only to implement the
provisions of said decree. In passing a resolution forming a water district, the local sanggunian is
entrusted with no authority or discretion to grant a charter for the creation of a private corporation. It
is merely given the authority for the formation of a water district, on a local option basis, to be
exercised under and in pursuance of PD 198.
More than the aforequoted provisions, what is of important interest in the case at bar is Section 3,
par. (b) of the same decree which reads:
Sec. 3(b). Appointing authority. — The person empowered to appoint the members of the
Board of Directors of a local water district, depending upon the geographic coverage and
population make-up of the particular district. In the event that more than seventy-five percent
of the total active water service connections of a local water districts are within the boundary
of any city or municipality, the appointing authority shall be the mayor of that city or
municipality, as the case may be; otherwise, the appointing authority shall be the governor of
the province within which the district is located: Provided, That if the existing waterworks
system in the city or municipality established as a water district under this Decree is operated
and managed by the province, initial appointment shall be extended by the governor of the
province. Subsequent appointments shall be as specified herein.
If portions of more than one province are included within the boundary of the district, and the
appointing authority is to be the governors then the power to appoint shall rotate between the
governors involved with the initial appointments made by the governor in whose province the
greatest number of service connections exists (as amended by PD 768).
The above-quoted section definitely sets to naught petitioners' contention that they are private
corporations. It is clear therefrom that the power to appoint the members who will comprise the
Board of Directors belongs to the local executives of the local subdivision units where such districts
are located. In contrast, the members of the Board of Directors or trustees of a private corporation
are elected from among the members and stockholders thereof. It would not be amiss to emphasize
at this point that a private corporation is created for the private purpose, benefit, aim and end of its
members or stockholders. Necessarily, said members or stockholders should be given a free hand
to choose those who will compose the governing body of their corporation. But this is not the case
here and this clearly indicates that petitioners are definitely not private corporations.
The foregoing disquisition notwithstanding, We are, however, not unaware of the serious
repercussion this may bring to the thousands of water districts' employees throughout the country
who stand to be affected because they do not have the necessary civil service eligibilities. As these
employees are equally protected by the constitutional guarantee to security of tenure, We find it
necessary to rule for the protection of such right which cannot be impaired by a subsequent ruling of
this Court. Thus, those employees who have already acquired their permanent employment status at
the time of the promulgation of this decision cannot be removed by the mere reason that they lack
the necessary civil service eligibilities.
ACCORDINGLY, the petition is hereby DISMISSED. Petitioners are declared "government-owned or
controlled corporations with original charter" which fall under the jurisdiction of the public
respondents CSC and COA.
SO ORDERED.