Feliciano V COa

Feliciano vs COA
GR No. 147402, 14 January 2004
CARPIO, J.:
Doctrine:
LWDs are not private corporations because they are not created under the Corporation Code.
LWDs are not registered with the Securities and Exchange Commission. Section 14 of the
Corporation Code states that "[A]ll corporations organized under this code shall file with the
Securities and Exchange Commission articles of incorporation. Petitioners (LWMD) 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.
Facts: A Special Audit Team from COA Regional Office No. VIII audited the accounts of Leyte
Metropolitan Water District (LMWD). Subsequently, LMWD received a letter from COA
requesting payment of auditing fees. As General Manager of LMWD, Feliciano sent a reply
informing COA’s Regional Director that the water district could not pay the auditing fees.
Petitioner cited as basis for his action Sections 6 and 20 of PD 198 as well as Section 18 of RA
6785.. Petitioner wrote COA through the Regional Director asking for refund of all auditing fees
LMWD previously paid to COA. Petitioner received COA Chairman Celso D. Gangan’s Resolution
dated 3 January 2000 denying his requests. Petitioner filed a motion for reconsideration on 31
March 2000, which COA denied on 30 January 2001.
The COA ruled that the Court has already settled COA’s audit jurisdiction over local water
districts.. in Davao City Water District v. Civil Service Commission and Commission on Audit,
where it was held that Section 3(b) of PD 198 gives the local executives of the local subdivision
unit where such water districts are located the power to appoint the members who will
comprise the Board of Directors. In contrast, the members of the Board of Directors or the
trustees of a private corporation are elected from among members or stockholders thereof.. It
would not be amiss at this point to emphasize 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 who will
compose the governing body of their corporation. But this is not the case here and this clearly
indicates that local water districts are not private corporations. Hence, Feliciano filed the
petition and to the petition were resolutions of the Visayas Association of Water Districts
(VAWD) and the Philippine Association of Water Districts (PAWD) supporting the petition.
Issue/s: Whether a Local Water District ("LWD") created under PD 198, as amended, is a
government-owned or controlled corporation.
Ruling:
(Optional)
The Constitution emphatically prohibits the creation of private corporations except by a general
law applicable to all citizens. The purpose of this constitutional provision is to ban private
corporations created by special charters, which historically gave certain individuals, families or
groups special privileges denied to other citizens.
In short, Congress cannot enact a law creating a private corporation with a special charter.
Such legislation would be unconstitutional. Private corporations may exist only under a general
law. If the corporation is private, it must necessarily exist under a general law. Stated
differently, only corporations created under a general law can qualify as private corporations.
Under existing laws, that general law is the Corporation Code, except that the Cooperative Code
governs the incorporation of cooperatives.
The Constitution authorizes Congress to create government-owned or controlled corporations

through special charters. Since private corporations cannot have special charters, it follows that
Congress can create corporations with special charters only if such corporations are
governmentowned or controlled.
(Mandatory)
Yes, the Supreme Court held that LWDs are not private corporations because they are not
created under the Corporation Code. LWDs are not registered with the Securities and Exchange
Commission. Section 14 of the Corporation Code states that "[A]ll corporations organized under
this code shall file with the Securities and Exchange Commission articles of incorporation x x x."
LWDs have no articles of incorporation, no incorporators and no stockholders or members.
There are no stockholders or members to elect the board directors of LWDs as in the case of all
corporations registered with the Securities and Exchange Commission. The local mayor or the
provincial governor appoints the directors of LWDs for a fixed term of office. This Court has
ruled that LWDs are not created under the Corporation Code
LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the
Constitution only government-owned or controlled corporations may have special charters,
LWDs can validly exist only if they are government-owned or controlled. To claim that LWDs are
private corporations with a special charter is to admit that their existence is constitutionally
infirm.
Note:
The Constitution recognizes two classes of corporations. The first refers to private corporations
created under a general law. The second refers to government-owned or controlled
corporations created by special charters. Section 16, Article XII of the 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.
The Constitution emphatically prohibits the creation of private corporations except by a general
law applicable to all citizens. The purpose of this constitutional provision is to ban private
corporations created by special charters, which historically gave certain individuals, families or
groups special privileges denied to other citizens

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Feliciano vs COA

GR No. 147402, 14 January 2004

The Constitution authorizes Congress to create government-owned or controlled corporations

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