DOJ Opinion No. 018, s. 1993

DOJ OPINION NO. 018 , s. 1993 February 4, 1993 Chairman Rosario N. Lopez Securities and Exchange Commission SEC Bldg., Greenhills Mandaluyong, Metro Manila M a d a m : This refers to your request for a "ruling" on the specific issue of "whether or not an educational institution can be incorporated as a 'stock corporation'". It appears that the query arose from the inquiry of the Cebu Polytechnic College (CPC) on the legality of amending its Articles of Incorporation to convert the same from a non-stock corporation to a stock corporation. prcd CPC advances the position that Section 25 of the Education Act of 1982 (B.P. Blg. 232) which provides that "any private school to be established must incorporate as a non-stock corporation" does not apply to CPC because CPC "was founded in 1932, incorporated in 1960 and therefore not 'proposed to be established'". CPC also posits the view that said provision (Section 25) is "inconsistent" with Article XIV, Section 4(2) of the 1987 Constitution which provides that educational institutions "shall be owned solely by citizens of the Philippines or corporations or associations at least sixty per centum of the capital of which is owned by such citizens" and which implies "that the intent is to allow stock corporations which are 60% owned by Filipinos". You state, and has so informed CPC, that under the Corporation Code, and pursuant to established rulings of that Office, "a non-stock corporation cannot be converted into a stock corporation by mere amendment of the articles of incorporation", but that it "must be dissolved first under any of the methods specified in Title XIV of the Corporation Code" before the members may "organize a stock corporation directed to bring profits or pecuniary benefits to themselves". As to whether a non-profit educational institution, like CPC, after dissolution, can now be incorporated as a stock corporation is a question which you leave to this Department to resolve in the light of the arguments of CPC above set forth. At the outset, we would like to comment on CPC's view that Section 25 of the Education Act of 1982 is inconsistent with Article XIV, Section 4(2) of the 1987 Constitution which mandates that an educational institution "shall be owned solely by citizens of the Philippines or corporations or associations at leas sixty per cent of the capital of which is owned by such citizens". We believe that there is no inconsistency between the two provisions. Firstly, Article XIV, Section 4(2) prescribes a nationality requirement which is the same nationality requirement prescribed for corporations or associations to be established for the purpose of engaging in nationalized or partly nationalized businesses (see Art. XII, Secs. 2, 10 and 11; Art. XVI, Sec. 11). Secondly, a similar provision was already present in the 1973 Constitution (Art. XV. Sec. 8[7]) which was the Constitution in force when B.P. Blg. 232 became law. Thirdly, the reference to "capital" in the constitutional provisions does not necessarily mean "capital stock" which is an abstract thing but should be taken in its ordinary sense as referring to the "actual property or estate of the corporation, whether in money or property" (Fletcher. Vol. II, p. 17). Based on these premises, CPC's view that the new Constitution (Art. XIV, Sec 4[2], in particular) now allows an educational institution to be incorporated as a stock corporation is not quite accurate. The Constitutional provision does not refer to the form or class of a corporation (i.e., as stock or non-stock), but to its ownership (which means that it must be owned to the extent of at least 60% of its capital by Filipino citizens). In this light, we resolve the specific issue of whether or not an educational institution may be organized as a stock corporation in the negative . Our basis is Section 25 of B.P. Blg. 232 which is hereunder quoted in full as follows: "SEC. 23. Establishment of Schools . All schools shall be established in accordance with law. The establishment of new national schools and the conversion of existing schools from elementary to national secondary or tertiary schools shall be by law: Provided, That any private school proposed to be established must incorporate as a non-stock educational corporation in accordance with the Corporation Code of the Philippines . This requirement to incorporate may be waived in the case of family-administered pre-school institutions. Government assistance to such schools for educational programs shall be used exclusively for that purpose." (Emphasis supplied) Basic is the rule that when the language of the law is clear, explicit and unequivocal, interpretation does not lie, only application; and the law must be taken to mean exactly what it says (Cebu Portland Cement v. Mun. of Naga, Cebu, 24 SCRA 708; Marin v. Nacianceno. 19 Phil. 238). In the instant case, Batas Pambansa Blg. 232 which states in categorical manner that "any private school proposed to be established must incorporate as a non-stock educational corporation in accordance with Corporation Code of the Philippines," means exactly what it says: no private school may be established unless the same is incorporated as a non-stock corporation. It would be a most flagrant violation of the rules of statutory construction to give the law a meaning far different from its express mandate. The conclusion remains notwithstanding the constitutional provision requiring that "(E)ducational provision institutions other than those established by religious groups and mission boards, shall be owned solely by citizens of the Philippines or corporations or associations at least sixty per centum of the capital of which is owned by such citizens." (Sec. 4[2], Art. XIV, 1987 Constitution). As previously stated, apart from the fact that said constitutional mandate is not a new one but is basically the same as that found in Section 8[7], Article XV of the 1993 constitution, the requirement mentioned relates only to the ownership of said educational institutions and the equity participation of Philippine citizens in said institutions, but not to the nature of the corporation sought to be established. The phrase "at least sixty per centum of the capital of which is owned by such citizens" simply means that for a corporation to be established as an educational institution, at least 60% of the capital thereof must be owned by Filipino citizens. Capital, to repeat, refers to actual corporate property, and not merely to stocks. Pertinently, on the issue of conversion of educational institutions, Section 50 of the same law (B.P. Blg. 232) provides: "SEC. 50. Conversion to Educational Foundations. An educational institution may convert itself into a non-stock, non-profit educational foundation, in accordance with the implementing rules to be issued jointly by the Ministry of Education, Culture and Sports and the Ministry of Finance. In the case of stock corporations, if for any reason its corporate existence as an educational institution ceases and is not renewed, all its net assets after liquidation of the liabilities and other obligations may be conveyed and transferred to any non-profit educational institution or successor non-profit educational institution or to be distributed by a court to another organization to be used in such manner as in the judgment of said court will best accomplish the general purposes for which the dissolved organization was organized, or to the State." prcd The above provision governs the conversion of existing educational institutions, whether stock or non-stock. Note that under the second paragraph of Section 50, if the corporate existence of an existing stock educational corporation ceases, and is not renewed, all of its net assets may be conveyed and transferred to a non-profit educational institution, (meaning "non'-stock educational corporation") or may be ordered distributed by a court to another organization which can best accomplish the general purposes of the dissolved corporation, or to the State. No mention is made of a conveyance or transfer of the assets to another stock educational corporation, which clearly implies the intention of the law to "phase out" existing educational institutions organized as stock corporations. Please be guided accordingly. Very truly yours, (SGD.) FRANKLIN M. DRILON Secretary