Davao City Water District vs. Civil Service Commission

Local water districts created under Presidential Decree No. 198, as amended, are government-owned or controlled corporations with original charter because PD 198 is a special law — not a general incorporation statute — that contains all essential terms necessary to constitute a charter creating a juridical person, and accordingly their employees fall under the Civil Service Law and their accounts are subject to COA's audit jurisdiction.

Petitioners are among more than five hundred water districts existing throughout the country, formed pursuant to Presidential Decree No. 198, as amended by Presidential Decrees Nos. 768 and 1479, collectively known as the "Provincial Water Utilities Act of 1973." PD 198 was issued by then President Ferdinand E. Marcos exercising legislative power under Proclamation No. 1081, authorizing local legislative bodies to create water districts through resolutions subject to the decree's guidelines. The same decree chartered the Local Water Utilities Administration (LWUA), a national agency attached to NEDA, vested with regulatory power over water utilities operations. Respondents are the Civil Service Commission and the Commission on Audit, both represented by the Solicitor General.

Petitioners are nineteen water districts — including Davao City, Cagayan de Oro City, Metro Cebu, Zamboanga City, Leyte Metro, Butuan City, and others — among more than five hundred water districts nationwide, all formed pursuant to Presidential Decree No. 198, as amended by PD Nos. 768 and 1479, known as the "Provincial Water Utilities Act of 1973." The decree was issued by then President Marcos under his legislative powers pursuant to Proclamation No. 1081, authorizing local legislative bodies to form water districts through resolutions subject to guidelines laid down in the decree. The same decree created the Local Water Utilities Administration, a government corporation attached to NEDA, vested with regulatory power over water utilities operations.

On April 17, 1989, the Court ruled in Tanjay Water District vs. Gabaton that PD 198, as amended, is the original charter of water districts, bringing them under the coverage of the Civil Service Law pursuant to Article IX(B), Section 2(1) of the 1987 Constitution. The CSC thereafter issued Resolution No. 90-575 declaring that hiring and firing of water district personnel should be governed by the Civil Service Law and requiring all appointments to be submitted to the Commission. However, on May 16, 1990, the Third Division of the Court issued a minute resolution in Metro Iloilo Water District vs. NLRC holding that PD 198 is a general legislation empowering government entities to create water districts, not the charter itself, and that the operative act creating a water district is the resolution of the sangguniang panglunsod. The CSC then suspended implementation of Resolution No. 575 through Resolution No. 90-770, pending clarification from the Supreme Court on the conflicting rulings.

A parallel dispute existed between COA and LWUA regarding COA's authority to audit water districts. COA asserted that auditing water districts was an exercise of its visitorial power vested by law, while LWUA maintained that only water districts receiving government subsidies fall within COA's jurisdiction, and only to the extent of the subsidy amount, pursuant to the Government Auditing Code of the Philippines. As with the CSC question, the COA dispute turned on whether water districts are government-owned or controlled corporations with original charter, since Article IX-D, Section 2(1) of the 1987 Constitution expressly includes such corporations within COA's audit power.

Petitioners filed the present petition en banc seeking resolution of the conflict, contending that they are private corporations without original charter and therefore outside the jurisdiction of both CSC and COA.

• Private Corporation Status: Petitioners maintained that they are private corporations without original charter, hence outside the jurisdiction of respondents CSC and COA. Reliance was placed on the Metro Iloilo ruling which declared water districts as quasi-public corporations created by virtue of PD 198, a general legislation that cannot be considered as the charter itself creating the water districts.
• General Legislation Characterization: Petitioners argued that PD 198 is a general legislation, and consequently the operative act which created each water district is not the decree but the resolution of the sanggunian concerned, making them private corporations that are only regarded as quasi-public or semi-public because they serve public interest and convenience.

• Character of PD 198: Whether Presidential Decree No. 198, as amended, is a special law constituting the original charter of local water districts, or a general legislation merely authorizing their formation.
• Status of Water Districts: Whether local water districts created pursuant to PD 198 are government-owned or controlled corporations with original charter falling under the Civil Service Law and the visitorial power of the Commission on Audit.
• Security of Tenure: Whether employees of water districts who have already acquired permanent employment status but lack civil service eligibilities may be removed by reason of this ruling.

• Character of PD 198: Yes. PD 198, as amended, is a special law applicable only to water districts created pursuant thereto, containing all essential terms necessary to constitute a charter creating a juridical person, and is not a general legislation akin to the Corporation Code.
• Status of Water Districts: Yes. Local water districts are government-owned or controlled corporations with original charter, falling under the jurisdiction of the CSC and COA pursuant to Article IX(B), Section 2(1) and Article IX-D, Section 2(1) of the 1987 Constitution, respectively.
• Security of Tenure: No. Employees who have already acquired permanent employment status at the time of promulgation cannot be removed solely for lack of civil service eligibility, their security of tenure being constitutionally protected and not impairable by a subsequent ruling.

• Character of PD 198: PD 198, as amended, was ascertained from a consideration of the whole statute to be a special law applicable only to the different water districts created pursuant thereto. In all its essential terms, it pertains to a special purpose intended to meet a particular set of conditions and circumstances. The fact that the decree generally applies to all water districts throughout the country does not change its character as a special law. The decree contains all essential terms necessary to constitute a charter creating a juridical person: Section 6(a) prescribes the name of the water district; Section 8 prescribes the number and qualifications of the Board of Directors; Section 9 prescribes the manner of appointment; Section 10 prescribes nominations; Section 11 prescribes terms of office; Section 12 prescribes the manner of filling vacancies; and Sections 13 and 14 prescribe compensation and personal liability of board members. These provisions are similar to those contained in other corporate charters. The Court concluded that PD 198 is in truth and in fact the charter of the different water districts, clearly defining their primary purpose and basic organizational set-up, and is the very law which gives a water district juridical personality. While a resolution of the local sanggunian is necessary for the final creation of a district, that resolution cannot be considered its charter, as it is intended only to implement the decree's provisions. 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 authority for the formation of a water district on a local option basis, to be exercised under and in pursuance of PD 198. Accordingly, the Court's resolution in the Metro Iloilo case declaring PD 198 as a general legislation was abandoned.

• Status of Water Districts: The Court reiterated its rulings in Baguio Water District vs. Trajano and Hagonoy Water District vs. NLRC, both of which held that water districts are corporations created pursuant to a special law whose employees are covered by the Civil Service Law. The earlier exemption from Civil Service Law under Section 25 of PD 198 had been repealed by Section 3 of PD 1479, which took effect on June 11, 1978. By "government-owned or controlled corporation with original charter," the Court referred to corporations created by a special law and not under the Corporation Code of the Philippines, citing Lumanta vs. NLRC and NASECO vs. NLRC. What has been excluded from CSC coverage are corporations created pursuant to the Corporation Code; petitioners are not created under that code but pursuant to a special law and are governed primarily by its provisions. Furthermore, Section 3(b) of PD 198 — which vests the power to appoint board members in local executives (mayors or governors) rather than in stockholders or members — definitively negates petitioners' claim to private corporation status, since in a private corporation the governing body is elected from among members and stockholders. Because water districts are GOCCs with original charter, they fall under both the Civil Service Law (Article IX-B, Section 2(1) of the 1987 Constitution) and COA's audit jurisdiction (Article IX-D, Section 2(1) of the 1987 Constitution).

• Security of Tenure: Recognizing the serious repercussion the ruling may bring to thousands of water district employees who lack civil service eligibilities, the Court found it necessary to protect their constitutional guarantee to security of tenure, which cannot be impaired by a subsequent ruling. Employees who had already acquired permanent employment status at the time of promulgation cannot be removed solely on the ground that they lack the necessary civil service eligibilities.

• Government-Owned or Controlled Corporation with Original Charter — A GOCC "with original charter" refers to a corporation created by a special law, as distinguished from a corporation organized under the general incorporation statute (the Corporation Code of the Philippines). Corporations created under the Corporation Code, even if government-owned, are excluded from Civil Service coverage. In this case, water districts were created pursuant to PD 198, a special law, and not under the Corporation Code, and were therefore declared GOCCs with original charter.

• Special Law vs. General Legislation — A law's character as a special law is not negated by the fact that it applies generally to all entities of a particular class throughout the country. PD 198 was held to be a special law because it pertains to a special purpose intended to meet a particular set of conditions and circumstances, applicable only to water districts, even though it applies to all water districts nationwide. The Court abandoned its earlier contrary characterization in Metro Iloilo.

• Charter Defined by Essential Corporate Terms — A statute constitutes the charter of a juridical person when it contains the essential terms necessary for corporate existence: the name of the corporation, the number and qualifications of the board of directors, the manner of appointment and nomination, terms of office, filling of vacancies, and compensation and liability of board members. PD 198 contained all these elements and was therefore the charter of water districts.

• Sanggunian Resolution as Implementing Act, Not Charter — A local sanggunian resolution forming a water district is not the charter of the corporation but merely an implementing act exercised under and in pursuance of the special law. The sanggunian is entrusted with no authority to grant a charter for a private corporation; it is given only the authority for formation on a local option basis.

• Security of Tenure Protection — Employees who have already acquired permanent employment status cannot be removed by the mere reason that they lack civil service eligibilities, as their constitutional guarantee to security of tenure cannot be impaired by a subsequent ruling of the Court.

• "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." — This passage states the ratio decidendi on the character of PD 198 as a special law and expressly abandons the conflicting Metro Iloilo ruling.

• "By 'government-owned or controlled corporation with original charter,' We mean government owned or controlled corporation created by a special law and not under the Corporation Code of the Philippines." — This is the canonical formulation of the constitutional phrase "with original charter" as used in Articles IX-B and IX-D of the 1987 Constitution, frequently cited in subsequent jurisprudence.

• "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." — This passage articulates the Court's reasoning that PD 198 constitutes the charter because it contains all essential corporate terms and confers juridical personality.

• "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." — This pronouncement protects the security of tenure of incumbent permanent employees, balancing the ruling's prospective application with constitutional guarantees.

• Tanjay Water District vs. Gabaton, G.R. No. 63742, 172 SCRA 253 (Apr. 17, 1989) — Controlling precedent followed and reiterated. Held that PD 198, as amended, is the original charter of water districts, bringing them under the Civil Service Law pursuant to Article IX(B), Section 2(1) of the 1987 Constitution.

• Metro Iloilo Water District vs. NLRC, G.R. No. 85760 (May 16, 1990) — Prior Third Division minute resolution expressly abandoned. Had declared PD 198 a general legislation and held that the operative act creating a water district is the sanggunian resolution, not the decree.

• Baguio Water District vs. Trajano, G.R. No. 65428, 127 SCRA 730 (Feb. 20, 1984) — Followed. Held that a water district is a corporation created pursuant to a special law — PD 198, as amended — and its officers and employees are covered by the Civil Service Law.

• Hagonoy Water District vs. NLRC, G.R. No. 81490, 165 SCRA 272 (Aug. 31, 1988) — Followed. Held that local water districts are quasi-public corporations whose employees belong to the Civil Service, noting that Section 25 of PD 198 exempting employees from Civil Service Law was repealed by PD 1479.

• Lumanta vs. NLRC, G.R. No. 82819, 170 SCRA 79 (Feb. 8, 1989) — Followed. Cited for the proposition that GOCCs with original charter refer to corporations chartered by special law as distinguished from corporations organized under the Corporation Code.

• National Service Corporation (NASECO) vs. National Labor Relations Commission, G.R. No. 69870 (Nov. 29, 1988) — Followed. Quoted extensively from the deliberations of the 1986 Constitutional Commission regarding the meaning of "with original charter," holding that GOCCs organized under the general incorporation statute are excluded from Civil Service coverage.

• Article IX(B), Section 2(1), 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. Applied to bring water district employees under the Civil Service Law.

• Article IX(D), Section 2(1), 1987 Constitution — Grants the Commission on Audit the power, authority, and duty to examine, audit, and settle all accounts pertaining to revenue and expenditures of the Government, including government-owned or controlled corporations with original charters. Applied to bring water districts under COA's audit jurisdiction.

• Presidential Decree No. 198, as amended by PD Nos. 768 and 1479 (Provincial Water Utilities Act of 1973) — The special law authorizing the formation of local water districts. Sections 6, 8, 9, 10, 11, 12, 13, and 14 were cited as containing essential corporate charter terms. Section 3(b) was cited for vesting appointing power in local executives. Section 25 (exemption from Civil Service) was noted as repealed by PD 1479.

• Presidential Decree No. 1479 — Repealed Section 25 of PD 198 which had exempted water district employees from the Civil Service Law, and renumbered Section 26 as Section 25. Took effect on June 11, 1978.

• Government Auditing Code of the Philippines — Referenced in the context of LWUA's position that only water districts receiving government subsidies fall within COA's jurisdiction, and only to the extent of the subsidy amount.

Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Paras, Padilla, Griño-Aquino, Regalado, and Davide, Jr., JJ., concurred. Gutierrez, Jr., Feliciano, and Sarmiento, JJ., were on leave.

• Bidin, J. — Agreed that PD 198 authorizes local legislative bodies to form water districts through resolutions, but maintained that PD 198 is a general legislation providing authority for formation on a local option basis, similar to the Corporation Code, rather than an original charter. Emphasized Section 2 of PD 198, which states that the decree "provides by general act the authority for the formation thereof, on a local option basis." Pointed to Section 7, which provides that a district is deemed formed upon filing of the sanggunian resolution with LWUA, and that the local government thereafter loses ownership, supervision, and control over the district. Noted that Section 49 of PD 198 expressly charters LWUA as a government corporation, contrasting with the language governing local water districts. Concluded that what gives water districts juridical personality is the sanggunian resolution filed with LWUA, not the decree itself, and voted to grant the petition and declare water districts as quasi-public corporations without original charters, not embraced by the Civil Service.