They Refused to Pay COA Audit Fees—The Supreme Court Responded
📘 COMMERCIAL LAW LECTURE
Local Water Districts and COA Audit Jurisdiction
I. INTRODUCTION
In Commercial Law and Constitutional Law, it is important to understand what kind of corporation an entity is, because this determines which laws apply and which government agencies have authority over it.
This lecture discusses a Supreme Court ruling involving the Commission on Audit (COA) and a Local Water District (LWD), specifically the Leyte Metropolitan Water District (LMWD).
II. FACTS OF THE CASE (SIMPLIFIED)
The Commission on Audit (COA) conducted a special audit of the accounts of the Leyte Metropolitan Water District (LMWD).
After the audit, COA requested payment of auditing fees from LMWD.
LMWD refused to pay, through its General Manager, Feliciano.
Feliciano cited Presidential Decree No. 198 and Republic Act No. 6758, claiming that:
LMWD is not required to pay auditing fees, and
LMWD is not a GOCC.
Feliciano even demanded a refund of all auditing fees previously paid by LMWD to COA.
The COA Chairman denied the request.
Feliciano argued that Local Water Districts are private corporations, not government-owned or controlled corporations, and therefore not subject to COA audit jurisdiction.
III. ISSUE
Are Local Water Districts private corporations, and therefore not subject to the audit jurisdiction of the Commission on Audit?
IV. RULING OF THE SUPREME COURT
NO.
Local Water Districts are government-owned or controlled corporations (GOCCs) and are subject to the audit jurisdiction of COA.
V. EXPLANATION OF THE RULING
A. COA’s Constitutional Authority
The 1987 Constitution grants COA the authority to:
Audit all government agencies, including:
Government offices
Instrumentalities
GOCCs with original charters
Since LWDs are GOCCs, COA has jurisdiction over them.
B. Two Kinds of Corporations Under the Constitution
The Constitution recognizes only two classes of corporations:
1. Private Corporations
Created under a general law
Example: Corporations organized under the Corporation Code
Congress cannot create a private corporation through a special law
2. Government-Owned or Controlled Corporations (GOCCs)
Created by special charters
Enacted directly by Congress
Intended to serve public purposes
C. Why Private Corporations Cannot Have Special Charters
The Constitution prohibits Congress from creating private corporations through special charters.
👉 If Congress passes a special law creating a corporation, that corporation must be government-owned or controlled.
Otherwise, the law would be unconstitutional.
D. Application to Local Water Districts
Local Water Districts are created by special laws, not under the Corporation Code.
Since private corporations can only exist under general laws, LWDs cannot be private corporations.
Therefore, LWDs are GOCCs.
As GOCCs with original charters, they are subject to COA audit jurisdiction.
VI. DOCTRINE / BAR EXAM TAKEAWAY
Corporations created by special charters are government-owned or controlled corporations.
Private corporations may exist only under a general law.
Therefore, Local Water Districts are GOCCs subject to COA audit.
VII. WHY THIS MATTERS FOR 1ST YEAR LAW STUDENTS
This case teaches you:
How to classify corporations
The constitutional limits on Congress
The scope of COA’s audit power
A frequently tested bar doctrine
📌 Tip:
If a problem mentions a special charter, always ask:
“Is this a GOCC?”
REX BOOKSTORE CODAL (POCKETSIZED)
VIII. SAMPLE BAR-STYLE ANSWER (SHORT FORM)
Local Water Districts are GOCCs created by special charters. Under the Constitution, COA has authority to audit all GOCCs with original charters. Since private corporations may exist only under general laws, and LWDs are not created under the Corporation Code, they cannot be private corporations. Hence, they are subject to COA audit jurisdiction.
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