Whether the President Has Power to Convey or Assign Properties Previously Declared as Property Dividends in Favor of the National Government

DOJ OPINION NO. 020, s. 2016 April 11, 2016 Cesar V. Purisima Secretary of Finance Department of Finance Roxas Blvd. cor. Pablo Ocampo St., Manila Dear Secretary Purisima : This refers to your letter dated 05 October 2015, requesting for an opinion on whether the President has the power to convey or assign properties previously declared as property dividends in favor of the National Government, through the Department of Finance ("DOF"), pursuant to Republic Act No. 7656, otherwise known as "An Act Requiring Government-Owned or -Controlled Corporations ("GOCCs'') to Declare Dividends Under Certain Conditions to the National Government". We understand that the conveyance or assignment of properties previously declared as property dividends is the second in a two-part transaction structure proposed by the DOF, in consultation with the Commission on Audit and the Department of Budget and Management. The transaction structure is as follows: a. Transaction 1 In compliance with its obligations under R.A. No. 7656 to remit 50% of its net annual earnings to the National Government, a GOCC shall remit its property dividends to the National Government; and b. Transaction 2 In turn, the National Government shall convey/assign the properties covered by the property dividends to other agencies that may have use of the properties. In this particular case, Transaction 1 consists of the remittance of property dividends consisting of fourteen (14) properties of the Bangko Sentral ng Pilipinas ("BSP") ("Subject Properties") 1 to the National Government, represented by the DOF. In compliance with its obligations for calendar year 2009, the BSP, a GOCC, 2 declared cash and property dividends, in favor of the National Government, through the DOF, in the amount of PhP4,924,000,000.00. Out of said total amount, PhP4,475,000,000.00 was in the form of cash dividends; and to cover the deficiency, a Memorandum of Agreement ("2010 MOA") between BSP and DOF (representing the National Government) was executed on 17 June 2010, conveying the Subject Properties to the National Government. To further formalize Transaction 1, it has been proposed that the DOF and the BSP enter into a Deed of Conveyance over the Subject Properties. It is proposed that Transaction 2 shall involve transferring the Subject Properties to beneficiary institutions, namely: 1. the Supreme Court, 2. the Cooperative Development Authority, and 3. the National Historical Commission of the Philippines (Collectively, the "Beneficiary Institutions" ). Anent the foregoing background, the DOF generally seeks confirmation that there is legal basis to undertake both parts of the proposed transaction structure. In particular, the DOF asks whether the President has the specific power to authorize Transaction 2 on the conveyance/assignment of the Subject Properties to the Beneficiary Institutions. CAIHTE Discussion We shall discuss both parts of the proposed transaction structure in order: Transaction 1 Remittance of Property Dividends/Transfer of GOCC's Properties to the National Government It is our position that R.A. No. 7656 clearly and expressly authorizes Transaction 1. Section 3 of R.A. No. 7656 specifically authorizes GOCCs to comply with their obligations through the remittance of property dividends, viz. : SEC. 3. Dividends. All government-owned or -controlled corporations shall declare and remit at least fifty percent (50%) of their annual net earnings as cash, stock or property dividends to the National Government. This section shall also apply to those government-owned or -controlled corporations whose profit distribution is provided by their respective charters or by special law, but shall exclude those enumerated in Section 4 hereof: Provided, That such dividends accruing to the National Government shall be received by the National Treasury and recorded as income of the General Fund. (Underscoring and emphasis supplied.) The bone of contention stems from the above underscored proviso of Section 3 which requires that "such dividends" be recorded as "income" of the General Fund; thus implying that all dividends, i.e. , stock and property dividends, must first be liquidated as cash, before transmitting such to the National Government (through the National Treasury). Following this interpretation, there would then be no basis for Transaction 2, as the 1987 Constitution requires that, "[n]o money shall be paid out of the Treasury except in pursuance of an appropriation made by law." 3 It is fundamental that laws should be given a reasonable interpretation, not one which defeats the very purpose for which they were passed. 4 Had it been the intent of the Legislative that dividend remittances from GOCCs take only the form of cash, R.A. No. 7656 would not have permitted compliance by remittance of stock and property dividends. Instead, it is our position that a reasonable interpretation of the proviso would be that the phrase "such dividends" applies only to cash dividends, and that it was the Legislative's intent, as provided in Section 7 of R.A. No. 7656, that the DOF formulate the necessary rules and regulations to implement the transmittal of stock and property dividends. The Legislative's inability to anticipate all possible detailed situations in respect of any relatively complex subject matter makes subordinate delegated rule-making by administrative agencies so important and unavoidable. 5 It is equally well-settled that rules and regulations issued by executive or administrative officers, pursuant to and as authorized by law, have the force and effect of laws. 6 This interpretation is supported by House of Representatives and Senate deliberations on R.A. No. 7656 which contain copies of the bills passed on third reading by each chamber. Section 3 of House Bill No. 11024 and Section 3 of Senate Bill No. 1168 both provide that: Sec. 3. Cash Dividends . All government-owned or -controlled corporations shall declare and remit at least twenty five percent (25%) of their annual net profit as cash dividends to the National Government .This Section shall also apply to those government-owned or -controlled corporations whose profit distribution is provided for by their respective charter or by special law, but shall exclude those enumerated in Section 4 hereof: Provided, That cash dividends accruing to the National Government shall be received by the National Treasury and recorded as income of the General Fund : Provided further ,That in the interest of national economy and general welfare, the fraction of net profit that should be declared by a government-owned or -controlled corporation may be increased or deferred by the President of the Philippines subject to existing rules and regulations and upon recommendation by the Secretary of Finance. (Underscoring and emphasis supplied) 7 Sec. 3. Cash Dividends. (a) All government-owned or -controlled corporations shall declare twenty-five per centum (25%) of their annual net earnings as cash dividends to the Government except as otherwise herein provided. (b) Government-owned or -controlled corporations with private minority shareholders shall remit cash dividends to the Government as declared by their respective governing boards. (c) Cash dividends accruing to the Government shall be received by the National Treasury and recorded as income of the General Fund .(Underscoring and emphasis supplied) 8 The above provisions, underscore that the proviso now found in Section 3 only pertained to cash dividends as the HB and SB did not contemplate other forms of dividends such as stock or property dividends. In this regard, the Revised Implementing Rules and Regulations ("IRR") of R.A. No. 7656, provides that cash dividends shall be recorded as income to the General Fund, while property dividends shall be recorded as assets upon receipt of the property and, upon sale of the property, income to the General Fund . 9 In accordance with the IRR, therefore, the Subject Properties, representing the property dividends remitted by the BSP in favor of the National Government, will be recorded as assets upon their receipt. Thereafter, the National Government, in its discretion may either dispose of the subject Properties (in which case the proceeds thereof will be recorded as income to the General Fund) or retain ownership of the Subject Properties, specifically for the use of the Beneficiary Institutions (as in Transaction 2). DETACa Transaction 2 Transfer from the National Government to the Beneficiary Institutions Transaction 2 finds basis in the 1987 Administrative Code. Section 48, Chapter 12, Book I of the 1987 Administrative Code authorizes the President to execute, in behalf of the National Government, the deed of conveyance for properties belonging to the name of the Republic, unless the authority is expressly vested by law in another officer, viz. : Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following: (1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority therefor is expressly vested by law in another officer. (2) For property belonging to the Republic of the Philippines but titled in the name of any political subdivision or of any corporate agency or instrumentality, by the executive head of the agency or instrumentality. 10 Finally, the transfer of properties between government agencies, including GOCCs , (such as in Transaction 2 where the Subject Properties will be transferred from the National Government to the Beneficiary Institutions), is expressly sanctioned by law, particularly by Presidential Decree No. 1445 or the "Government Auditing Code of the Philippines". 11 Section 76 of P.D. No. 1445 allows the transfer of any government property no longer serviceable or needed by the agency to which it belongs ,to other government agencies. 12 This transfer of property shall be upon the authority of the respective national government agencies, or the governing bodies of GOCCs, other self-governing boards or commissions of the government, or the local legislative bodies for local government units concerned. 13 This authority to transfer government property between agencies of the government is reiterated in Paragraph 4, Part V of COA Circular No. 89-296 dated 27 January 1989. 14 In the case of Transaction 2, the fact that the BSP has remitted the Subject Properties to the National Government necessarily implies that the BSP no longer has need for such. In view of the foregoing legal provisions, the Subject Properties, representing the property dividends remitted by the BSP in favor of the National Government, will be recorded as assets upon their receipt, and to complete the transaction, the President or a duly authorized officer can execute a Deed of Conveyance from the National Government to each of the Beneficiary Institutions. We trust that this is useful. Very truly yours, (SGD.) EMMANUEL L. CAPARAS Secretary of Justice Footnotes 1. The Subject Properties include eight (8) condominium units and six (6) parcels of land. 2. Under R.A. No. 7656, the term GOCC shall also include financial institutions, owned and controlled by the National Government. The BSP is a government financial institution ("GFI") and is, therefore, considered a GOCC under R.A. No. 7656. 3. PHIL. CONST., art. VI, 29 (2). 4. See Municipality of Nueva Era, Ilocos Norte v. Municipality of Marcos, Ilocos Norte ,G.R. No. 169435, February 27, 2008; Secretary of Justice v. Koruga ,G.R. No. 166199, April 24, 2009. 5. Rabor v. CSC ,243 SCRA 614. 6. Victorias Milling Co., Inc. v. Social Security Commission ,114 Phil. 555; Warren Manufacturing Workers Union v. Bureau of Labor Relations ,159 SCRA 387. 7. H.B. No. 11024, 9th Cong.,1st Reg. Sess. (1993). 8. S.B. No. 1168, 9th Cong.,1st Reg. Sess. (1993). 9. Department of Finance, Revised Rules and Regulations Implementing Republic Act No. 7656, 8 (a) and (b) (2016). 10. Instituting the Administrative Code [ADMINISTRATIVE CODE OF 1987], Executive Order No. 292, 14 (1987), 48. 11. Ordaining and Instituting the Government Auditing Code of the Philippines [GOVERNMENT AUDITING CODE OF THE PHILIPPINES], Presidential Decree No. 1445 (1978). 12. Id. 76. 13. Id. 14. Commission on Audit Circular No. 89-296 [COA Circ. No. 89-296],par. 4, part V (Jan. 27, 1989). Where the property or assets involved are no longer serviceable or needed by the department, agency, corporation or local government unit concerned, they may be transferred to other government entities/agencies without cost or at an appraised value upon authority of the head or governing body of the said agency or corporation, and upon due accomplishment of an Invoice and Receipt of Property.