DOJ Opinion No. 014, s. 1997

DOJ OPINION NO. 014 , s. 1997 February 5, 1997 Mr. Perfecto R. Yasay, Jr Chairman Securities and Exchange Commission SEC Building, EDSA, Greenhills City of Mandaluyong Sir : This refers to your request for opinion on whether Orchard Golf and Country Club, Inc. (ORCHARD), a Philippine corporation, can legally enter into a "Management Agreement" with Club Corporation of America (Singapore) PTE., Ltd. (CAA), a Singaporean entity, without violating the provisions of the Anti-Dummy Act (CA No. 108, as amended). It appears that Orchard and CCA have entered into a Management Agreement under which CCA will act as Orchards exclusive agent to supervise, manage, direct and operate Orchards private country club, the Orchard Golf and Country Club ("Club"), at Dasmarias, Cavite, and to render membership and marketing services for the Club; that the Agreement does not grant authority to CCA to sell, transfer or otherwise dispose, mortgage, pledge or otherwise encumber, alter the current or intended use, exploit, remove, destroy, or significantly alter the surface or mineral interests which constitute the real properties of Orchard; and that the business activity of Orchard, as stated in the primary purpose clause of said Corporation, is not included in the Negative List of the Foreign Investments Act. You state that while the business activity of Orchard is not included in the Foreign Investment Negative List, its ownership over several parcels of land in Dasmarias, Cavite, where the golf course of the Club is constructed, raises some issues involving the provisions of the Anti-Dummy Law considering that land ownership is a partially nationalized business activity. And since the issue raised involves the application/interpretation of the said Law, you deem it prudent to refer the matter to this Office for a definitive ruling on whether the transaction is not violative thereof. Section 2-A of the Anti-Dummy Law (C.A. No. 108, as amended) reads: "Section 2-A. Any person, corporation, or association which, having in its name or under its control, a right , franchise , privilege , property or business , the exercise or enjoyment of which is expressly reserved by the Constitution or the laws to citizens of the Philippines or of any other specific country, or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, permits or allows the use, exploitation or enjoyment thereof by a person, corporation or association not possessing the requisites prescribed by the Constitution or the laws of the Philippines ; or leases , or in any other way , transfers or conveys said right , franchise , privilege , property or business to a person, corporation or association not otherwise qualified under the Constitution, or the provisions of the existing laws; or in any manner permits or allows any person , not possessing the qualifications required by the Constitution , or existing laws to acquire, use, exploit or enjoy a right, franchise, privilege, property or business, the exercise and enjoyment of which are expressly reserved by the Constitution or existing laws to citizens of the Philippines or of any other specific country, to intervene in the management, operation, administration or control thereof, whether as an officer, employee or laborer therein with or without remuneration except technical personnel whose employment may be specifically authorized by the Secretary of Justice , and any person who knowingly aids, assists, or abets in the planning, consummation or perpetration of any of the acts herein above-enumerated shall be punished by imprisonment for not less than five nor more than fifteen years and by a fine of not less than the value of the right, franchise or privilege enjoyed or acquired in violation of the provisions hereof but in no case less than five thousand pesos; Provided , however , That the president, managers or persons in charge of corporations, associations or partnerships violating the provisions of this section shall be criminally liable in lieu thereof: and Provided , finally , That the election of aliens as members of the board of directors or governing body of corporations or associations engaging in partially nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of such entities." (emphasis supplied). Section 2-A basically prohibits an alien or alien-owned corporation from engaging in any activity (hereinafter referred to as "nationalized activity"), the exercise or enjoyment of which is expressly reserved by the Constitution or existing laws to citizens of the Philippines or to corporations or associations at least 60% of the capital of which is owned by such citizens. Specifically, Section 2-A prohibits any person having in its name or under its control, a right, franchise, privilege, property or business , the exercise or enjoyment of which is expressly reserved by the Constitution or the laws to citizens of the Philippines or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, to do any of the following acts: (1) permit or allow the use, exploitation or enjoyment of his right, franchise, privilege, property or business by any person, not possessing the qualifications required by the Constitution or the laws; (2) leases, transfers or conveys said right, franchise, privilege, property or business to any such unqualified person; (3) permits or allows any unqualified person to intervene in the management, operation, administration or control thereof, whether as an officer, employee or laborer therein with or without remuneration except technical personnel whose employment may be specifically authorized by the Secretary of Justice. The question to be resolved is whether or not the operation of the Orchard Golf and Country Club is a nationalized activity within the purview of Section 2-A of the Anti-Dummy Law. We do not think so. The Articles of Incorporation of Orchard states the purpose for which the corporation is formed, i.e., "To promote the social, educational and athletic activities among its stockholders, the main objective and undertaking of which will be the construction and maintenance of a golf course, tennis courts, squash courts, swimming pools, and other indoor and outdoor related sports and recreational facilities." We are not aware of any provision of law making the aforesaid business activity of Orchard a nationalized activity. In fact, we have examined the Second Regular Foreign Investment Negative List promulgated under Executive Order No. 362 (dated August 20, 1996) and such business activity is not included in the list of investment areas/activities which are reserved wholly or partially to Philippine Nationals. Furthermore, it is believed that the Management Agreement between Orchard and CCA does not come within the purview of Section 2-A of the Anti-Dummy Law since the same does not involve the management, operation, administration or control of Orchard as a corporation, but merely pertains to the management, direction and operation of its business, the Orchard Golf and Country Club which, as previously shown, is not a nationalized activity. It is true that Orchard owns the land on which the golf course, tennis courts, swimming pools and other indoor and outdoor related sports and recreational facilities are built or constructed. However, the Management Contract will not vest the use or enjoyment of the land, or the right to exploit it, or its ownership, in CCA. CCA will only be involved in the operation and management of the business of Orchard, acting for and on behalf of Orchard, which remains to be the owner of the land as well as of the business of the said corporation, which is the Orchard Golf and Country Club. Based on the foregoing, it is our view that the Orchard Golf and Country Club, Inc. can legally enter into a Management Agreement with Club Corporation of America (Singapore) PTE., Ltd., a Singaporean entity, for the supervision, management, direction and operation of the Orchard Golf and Country Club without violating the Anti-Dummy Law (C.A. No. 108, as amended). aisadc Please be guided accordingly. Very truly yours, (SGD.) TEOFISTO T. GUINGONA, JR. Secretary