Case Summary (G.R. No. 72807)
Key Dates
Resolution creating Marilao Water District: September 18, 1982 (filed with LWUA October 4, 1982).
Petition for dissolution filed with the Regional Trial Court: December 12, 1983.
Trial Court dismissal for lack of jurisdiction: June 8, 1984 (denied reconsideration September 20, 1984).
Intermediate Appellate Court decision affirming dismissal: September 10, 1985 (reconsideration denied November 4, 1985).
Supreme Court decision reversing IAC: September 9, 1991.
Applicable Law and Constitutional Basis
Constitutional framework applied: 1987 Philippine Constitution.
Statutory and administrative instruments central to the decision: Presidential Decree No. 198 (Provincial Water Utilities Act of 1973), as amended (including PD Nos. 768 and 1479); provisions of PD 902-A (Corporation Code) as referenced; Presidential Decree No. 1067 (Water Code) as to National Water Resources Council jurisdiction; Rules of Court (Rule 65, Rule 41, Rule 45) as to proper remedies and appellate review; and the enabling provisions establishing the Local Water Utilities Administration (LWUA).
Background Facts and Petitioner's Allegations
The Marilao Water Consumers Association, a non-stock, non-profit corporation organized by consumers, filed a petition in the Regional Trial Court seeking dissolution of the Marilao Water District. The petition alleged (1) defective formation due to a perfunctory public hearing; (2) unlawful turnover of the municipal waterworks system without compensation and an illegal subsidy; (3) negligent and mismanaged operation resulting in inadequate service while full billing and disconnections were enforced; and (4) that consumers were compelled to organize to demand adequate service.
Procedural History in the Trial Court
The Trial Court issued a temporary restraining order and set a preliminary hearing, restraining respondents from billing, disconnecting service, transferring property, or disbursing funds, with a limited modification to allow payment of certain obligations. The Water District answered, asserting lack of jurisdiction and contending that dissolution proceedings fall under the SEC’s exclusive original jurisdiction; it also raised LWUA and National Water Resources Council competence over rates and administrative matters. The Trial Court dismissed the petition for lack of jurisdiction, concluding that the SEC had original and exclusive jurisdiction. The dismissal was affirmed by the Intermediate Appellate Court, which also held that the petitioner used the wrong remedy (certiorari) and that the SEC was the proper forum under PD 902-A.
Procedural Remedy Issue: Appeal vs. Certiorari
The Supreme Court analyzed whether the special civil action of certiorari was the correct remedy against the Trial Court’s final order. It reiterated that an order leaving nothing more to be done on the merits is a final order and ordinarily subject to appeal (Rule 41 or Rule 45 as applicable), not Rule 65 certiorari. However, the Court acknowledged that the petitioner had pursued review under the appropriate appellate procedure (petition for review on certiorari under Rule 45 per the Court’s interim rules), and given that the case had been referred to the Intermediate Appellate Court for factual development, the Supreme Court declined to dispose of the case solely on procedural grounds.
Nature and Legal Character of Water Districts under PD 198
Under PD 198 water districts are created and organized pursuant to the decree’s specific terms and are described as quasi‑public corporations performing public services. The decree prescribes the content of the enabling resolution (including district name and board composition), the manner of board selection and terms, duties and powers (including eminent domain subject to LWUA review), and numerous operational features. The enabling resolutions are filed with the LWUA, and the regulatory framework governing these entities is primarily PD 198 rather than the Corporation Code.
LWUA’s Functions and Relationship to Water Districts
The Local Water Utilities Administration was created to promote, develop, finance, and prescribe minimum standards for local water utilities. LWUA’s powers include technical assistance, personnel training, monitoring, evaluation, systems integration, joint operations, and oversight in annexation/deannexation. LWUA also has specific quasi‑judicial functions related to review of rates imposed by water districts to ensure compliance with PD 198, subject to appeal to the National Water Resources Council and ultimately to the Office of the President.
SEC Jurisdiction: Limitations Regarding Water Districts
The Court emphasized that although PD 198 grants water districts powers comparable to private corporations, they are not corporations under the Corporation Code. The Corporation Code and the SEC’s supervisory powers apply to entities organized under that Code. Water district charters are filed with LWUA, not the SEC, and PD 198 explicitly governs formation, organization, and dissolution. Consequently, the SEC lacks supervisory authority over matters intrinsic to water districts under PD 198 — including formation, sale of water, rate‑setting, management and operation of watersheds, supervision of structures within service areas, and prohibitions on private sale of water where district facilities exist.
Distinction Between Water Districts and Private Corporations
The decision stresses the structural distinction: water districts have no incorporators, stockholders, or members with voting rights; their governance and corporate attributes are set out by statute rather than by articles of incorporation under the Corporation Code. The relationship between a water district and its consumers is one of service provider and user, not corporation and stockholder. Accordingly, controversies characterized as intra‑corporate disputes under PD 902-A (the basis for the SEC’s exclusive original jurisdiction as to intra‑corporate matters) do not encompass disputes involving water districts that lack stockholder/member structures.
Jurisdiction of LWUA and National Water Resources Council on Related Matters
The Court observed that LWUA does not possess general adjudicatory powers akin to a court but does exercise regulatory and limited quasi‑judicial authority concerning rates and standards. The National Water Resources Council has original jurisdiction over disputes relating to appropriation and use of waters under PD 1067 and may review annexation/deannexation questions; its decisions on water rights controversies are appealable to a court of first instance. However, the core dispute here — dissolution of a water district for illegality in formation, mismanagement, and turnover of assets — is not adequately characterized as exclusively within LWUA or NWRC competence.
Statutory Procedure for Dissolution u
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Procedural History
- Petition originally filed by Marilao Water Consumers Association, Inc. (the Consumers Association) on December 12, 1983 with the Regional Trial Court (RTC), Malolos, Bulacan, seeking dissolution of Marilao Water District and reliefs including temporary restraining order and preliminary injunction.
- Trial Court issued an Order on December 22, 1983 setting preliminary hearing, requiring answers, and restraining respondents from collecting water bills, disconnecting service, transferring property, or disbursing funds; later modified January 6, 1984 to permit payment of outstanding obligations to Meralco.
- Marilao Water District answered on January 13, 1984 with an Answer with Compulsory Counterclaim and raised affirmative defenses of lack of jurisdiction and failure to state a cause of action; also filed a third-party complaint against officers and directors of the petitioner.
- Other respondents (Municipality of Marilao, its Sangguniang Bayan and Mayor) filed answers asserting lack of jurisdiction and failure to state a cause of action.
- RTC dismissed the petition, third-party complaint, and counterclaim for lack of jurisdiction by Order of June 8, 1984.
- Motion for reconsideration denied by RTC on September 20, 1984.
- Consumers Association filed a petition for review on certiorari with the Supreme Court (docketed G.R. No. 68742), which referred the case to the Intermediate Appellate Court (IAC) by Resolution dated November 19, 1984; IAC docketed as AC-G.R. SP. No. 04852.
- IAC, by Decision dated September 10, 1985, ruled petitioner used wrong remedy (Rule 65 certiorari instead of appeal under Rule 41) and that controversy fell within competence of Securities and Exchange Commission (SEC) under PD 902-A; IAC denied motion for reconsideration by Resolution dated November 4, 1985.
- Petition for review on certiorari was brought to the Supreme Court in the present case (G.R. No. 72807), raising the question of which tribunal has jurisdiction over dissolution of a water district organized under Presidential Decree No. 198 (PD 198).
Factual Background
- Marilao Water District was created by Resolution of the Sangguniang Bayan of the Municipality of Marilao dated September 18, 1982; said resolution was forwarded to and duly filed by the Local Water Utilities Administration (LWUA) on October 4, 1982 after LWUA ascertained conformity with the law.
- Consumers Association alleged defects and illegality in the formation and operation of the Water District, grounding its petition on: alleged farcical public hearing prior to creation; transfer of waterworks system without compensation and authorization of an illegal subsidy; alleged negligence, apathy, indifference, mismanagement and inadequate service while consumers were billed and some disconnected; and organization of the Consumers Association on October 3, 1983 to demand adequate supply and efficient management.
- Consumers Association sought dissolution of the Water District and related reliefs; characterized its suit as including an application for temporary restraining order and preliminary injunction.
- Respondents maintained the Water District’s formation was pursuant to PD 198, and advanced defenses including lack of jurisdiction of the RTC and that dissolution proceedings are within SEC’s original and exclusive jurisdiction (per PD 902-A) or within administrative jurisdiction of LWUA and quasi-judicial jurisdiction of the National Water Resources Council (NWRC).
Legal and Statutory Framework (as presented)
- PD 198 (the "Provincial Water Utilities Act of 1973," as amended by PD 768 and PD 1479) authorizes formation, lays down powers and functions, and governs operation of water districts; it is described as "the source of authorization and power to form and maintain a (water) district."
- Under PD 198, water districts may be created by local legislative bodies by resolution subject to PD 198 requirements; primary function is to sell water within territory and determine rates and charges.
- PD 198 prescribes formation and operational terms, including the district name format, number and qualifications of board members, manner of selection and initial appointment, staggered terms (two, four and six years), filling vacancies, compensation and liabilities of board members, and requirement that formation resolution state dissolution may occur only under grounds and conditions set forth in Section 44 (text as provided).
- Water districts are described as juridical entities considered quasi-public corporations performing public services, endowed with powers expressly granted by PD 198 and those necessarily implied or incidental; they may exercise power of eminent domain (subject to review by LWUA) and may exercise powers, rights and privileges given to private corporations under existing laws.
- PD 198 established the Local Water Utilities Administration (LWUA), attached to the Office of the President, as a government corporation "primarily a specialized lending institution for the promotion, development and financing of local water utilities."
- LWUA’s powers and duties include prescribing minimum standards and regulations (construction, maintenance, operation, training, accounting and fiscal practices), providing technical assistance and personnel training, monitoring and evaluating standards, and effecting systems integration, joint investment and operations, annexation and deannexation when economically warranted.
- PD 198 provides that a district is deemed duly formed and existing upon filing of the enabling resolution with LWUA, whereupon local governments lose ownership, supervision and control except as provided.
- The Corporation Code (PD 902-A) governs corporations formed under it; SEC is charged with enforcement of the Corporation Code and has original/exclusive jurisdiction as provided under Section 5 of PD 902-A for controversies arising out of intra-corporate or partnership relations and disputes concerning the corporation’s franchise or right to exist.
- National Water Resources Council (NWRC) under PD 1067 has original jurisdiction over disputes relating to appropriation, utilization, exploitation, development, control, conservation and protection of waters; decisions on water rights controversies may be appealed to the Court of First Instance of the province where the controversy is situated; NWRC may review annexation/deannexation questions.
- Section 45 of PD 198 (as amended) governs dissolution: dissolution may be by resolution of the board filed in manner of filing the resolution forming the district, but prior to adoption the following must occur: (1) another public entity has acquired the assets and assumed obligations and liabilities; (2) all bondholders and other creditors notified and they consent to transfer and dissolution; and (3) a court of competent jurisdiction has found that transfer and dissolution are in the best interest of the public.
Parties’ Contentions
- Consumers Association:
- Asserts Water District was not organized under the Corporation Code and therefore SEC lacks jurisdiction over dissolution proceedings.
- Relies on Section 45 of PD 198 for the proposition that the proceeding to determine dissolution is within competence of a regular court of justice (i.e., RTC).
- Argues neither LWUA nor NWRC is competent to take cognizanc