DOJ Opinion No. 017, s. 1985

DOJ OPINION NO. 017 , s. 1985 2nd Endorsement January 29, 1985 Respectfully returned to the Chairman, Commission on Audit, (Attn.: B.C. Fernandez, Jr., General Counsel), Quezon city, the within papers relative to the letter dated August 29, 1984 of the Auditor-in-Charge Gloria S. Cornejo of Farm Systems Development Corporation (FSDC), which were transmitted to this Office for opinion. The enclosed papers show that the FSDC in its Resolution No. 99-83 dated December 15, 1983 approved an initial investment of P40,000.00 in Fisheries and Agricultural Resources Management and Services, Inc. (FARMS), now Development Experience, Inc., (DEXI). After a perusal of the Articles of Incorporation and By-Laws of DEXI, the Auditor-in-Charge noted that the nature of business/services rendered by DEXI is similar to those of FSDC, and that its Board of Directors and Incorporators are all FSDC officials. In view of this, the Auditor-in-Charge is requesting opinion on the "conflict of interests" as regards the (a) powers and functions of the Farm Systems Development Corporation (FSDC) and Development Experience, Inc. (DEXI), and (b) the services rendered by the officials of FSDC to both FSDC and DEXI. She stated that "[S]ince all the Board of Directors, Incorporators and individual stockholders of DEXI are all officials of FSDC, they are serving the government and a private entity at the same time which in effect "constitute double compensation." She further states that "since DEXI services are for a fee and with the ultimate goal of profit generation, the general tendency would be to provide more time to DEXI." prcd An examination of the Articles of Incorporation of DEXI shows that it is a private corporation established by the officials of FSDC, either as incorporators or as stockholders; that the authorized capital stock of DEXI is two million pesos (P2,000,000.00) divided into 20,000 shares with a par value of P100.00 per share; that FSDC subscribed to 1,600 shares with a total value of P160,000.00 of which amount P40,000.00 was paid upon subscription. The rest of the shares (18,400 shares) were subscribed to by officials of FSDC (16,740 shares) and by KCCI [Kaisahan ng Consumers' Cooperative, Inc.] (1,660 shares). It does not appear from its charter (P.D. No. 681, as amended by P.D. No. 1595) that FSDC is authorized to form a subsidiary corporation. However, there is an express authority in the charter to "invest its funds or other assets in such undertakings as it may deem wise or necessary to carry out its purposes and objectives" (see Sec. 4[u], id.). Considering the minority stockholding of FSDC, it would appear that the majority of the stocks of DEXI was subscribed by the officials of FSDC in their private and personal capacity. As we see it, the instant query was posed in view of the provisions of R.A. No. 3019, otherwise known as the "Anti-Graft and Corrupt Practices Act" which penalizes a public official from, inter alia : "(h) Directly or indirectly having financial or pecuniary interest in any business, contract or transaction in connection with which he intervenes or takes part in his official capacity, or in which he is prohibited by the Constitution or by any law from having any interest; [or] "(i) Directly or indirectly becoming interested, for personal gain, or having a material interest in any transaction or act requiring the approval of a board, panel or group of which he is a member and which exercises discretion in such approval, even if he votes against the same or does not participate in the action of the board, committee, panel or group." The philosophy underlying the provisions of paragraphs (h) and (i) of Section 3 of R.A. No. 3019, is that no public officer ought to be permitted in respect of a matter confided to his official care, to entertain two conflicting loyalties one, public or official, and the other, private and personal. For experience has amply shown that where private interest clashes with the requirements of public duty, man is disposed to succumb to the imperatives of self-interest (Op. dated August 19, 1968). This Ministry has consistently held that when R.A. No. 3019 speaks of "financial or pecuniary interest" or of "becoming interested, for personal gain, or having a material interest" in any transaction in connection with which a public officer intervenes or is called upon to intervene (Section 3[h] and [i]) the provision should be taken to refer to interest of a personal or private character ; and the legal injunction, though apparently comprehensive and unqualified, should be confined to cases which exhibit conflict between private and public interests (see Op. No. 157, s. 1960). In a recent opinion (Op. No. 115, s. 1984), this Office accordingly ruled that a contract entered into by and between the Central Luzon State University (CLSU) and the Central Luzon State University Foundation, Inc. (CLSUFI) whereby the incorporators and trustees of the Foundation are all officers of the Heads of Colleges of the CLSU does not constitute a violation of the provisions of Section 3(h) and (i) of R.A. No. 3019, it appearing that the trustees of the Foundation do not receive salary for the services; that upon dissolution of the Foundation, its remaining assets shall be disposed of and turned over to the CLSU; and that no part of the Foundation's earnings or income shall inure to the benefit of any individual, contributor or member. prcd The Anti-Graft and Corrupt Practices Act does not preclude a public officer from intervening in the management of a private enterprise which does not have any transaction with the office held by him (Op. No. 1, s. 1974; Op. No. 53, s. 1977). More financial and material interest on the part of a government official or employee in a business enterprise which might, at some future time, transact business with said entity is not prohibited. What is outlawed is interest in an act or transaction actually and as a matter of fact, requiring the approval of the officer (Op. No. 218, s.1962; No. 155, s. 1960; No. 93, s.1961; No. 103, s.1962). The FSDC is by law mandated to assist the organization of rural-based entities, like DEXI, willing to pursue the objectives of the Act in increasing food production and boostering rural development (Sec. 2, P.D. 1595). FSDC may grant loans to DEXI (Sec. 4(f) and (i), P.D. No. 681, as amended). The within papers do not show whether the officials of FSDC who approved the investment of FSDC in DEXI are themselves the incorporators and subscribers of the majority of the stocks of DEXI in their private capacity. If this were established, the investment of FSDC funds might have given rise to a conflict of interest within the meaning of the Anti-Graft Law because the investment redounded to the material benefit of the private incorporators and subscribers of DEXI. Absent such a situation, the mere acceptance by said FSDC officials of directorships and other executive positions in DEXI is not in and by itself prescribed by the Anti-Graft Law. There should be an actual transaction requiring action by the FSDC, e.g., for assistance to DEXI by FSDC pursuant to Section 2 of the FSDC Charter, to constitute a "conflict of interest" on the part of the FSDC official concerned. Please be advised accordingly. (SGD.) ESTELITO P. MENDOZA Minister of Justice