DOJ Opinion No. 040, s. 1985

DOJ OPINION NO. 040 , s. 1985 2nd Endorsement March 20, 1985 Respectfully returned to the Commission on Audit (Attention: The General Counsel), Quezon City, the within request for "advisory opinion" as to the legality/validity of the creation of the Rural Energy Systems International Inc. (RESIN), a wholly-owned subsidiary of the National Electrification Administration (NEA)." It appears that by authority of Section 4(q) and (r) of P.D. No. 269, as amended by P.D. No. 1645 (the NEA charter) which empowers the NEA: "(q) To organize wholly or partly owned companies and subsidiaries for the purpose of operating power generating and distribution systems and other related activities; and (r) To organize wholly or partly owned subsidiaries for the purpose of manufacturing materials and equipment for power generating systems." NEA organized RESIN as a wholly-owned subsidiary corporation with certain NEA officials as incorporators. The purposes for which RESIN was organized are stated in its Articles of Incorporation, as follows: prcd "PRIMARY PURPOSE "To engage in and carry on a general business of consultancy, management and special services in rural development, rural electrification, rural energy systems and allied activities, either alone or jointly with or for other corporations, companies, associations, entities or person and in pursuance of the foregoing purpose, to hire or engage the services of engineers, professionals or workers under arrangements suitable to the needs of the corporation." "SECONDARY PURPOSE "1. To establish, conduct, operate, lease and/or own equipment and rural properties whether in the Philippines or elsewhere for carrying on the business of the corporation, and to acquire, purchase, lease, use, build, encumber, operate, alienate and otherwise deal in all kinds of property, real or personal, as well as such rights as may be necessary or convenient to have and/or use and dispose of in connection with the business of the corporation. "2. To exercise all rights, powers and privileges of corporation within the limits granted by laws to corporations." We have misgivings about the validity of NEA's action in organizing RESIN. The settled rule is that a corporation possesses only such powers as are expressly conferred upon it by statute, together with the implied power to do whatever is reasonably necessary to effectuate such expressly granted powers and to accomplish the purpose for which it was created. (Opns., Secretary of Justice, No. 66, s. 1974 & No. 72, s. 1979) Corporate powers may thus be classified as either express, implied or incidental and any act outside of these three is deemed ultra vires . (Guevarra, Corporation Law, 1978 Ed., p. 20; Sec. 45, Corporation Code) Undoubtedly, the creation of RESIN is not embraced within the express powers of NEA found in Section 4(q) and (r) of its charter, supra , which specifies the purposes for creating a subsidiary, namely (a) "operating power generating and distribution systems and other related activities" and (b) "manufacturing materials and equipment for power generating systems." Neither may the act of creating RESIN be implied from such express powers since the "business of consultancy, management and special services" encompasses the much broader fields of "rural development, rural electrification, rural energy systems and allied activities." It has been held that an incidental or implied power exists only for the purpose of enabling a corporation to carry out the powers expressly granted and in no cases may it be availed of to enlarge the express powers, and thereby warrant it to devote its efforts and capital to other purposes than such as its charter expressly authorizes, or to engage in collateral enterprises, not directly but only remotely connected with its specific corporate purposes. (19 C.J.S. 374) prcd It is true that Section 4(q) speaks of "other related activities" as a purpose for which the subsidiary may engage in. But it is difficult to see how engaging in the consultancy and management business is directly related to the operation of power generation and distribution system or the manufacture of materials and equipment, for such systems. The statement of purposes in the charter of a corporation serves not only as a grant of power but also a restriction of corporate authority. (Salonga, Private Corporations, 1968, p. 181; Agbayani, Commercial Laws, Vol. 3, 1980 Ed., p. 301) Moreover, it has been said that: "If the corporate charter, in defining the powers of the corporation, enumerates certain things which it may do by words or particular and specific meaning and such enumeration is followed by general words, the general words are not to be taken in their widest sense, but are to be restricted to the things of the same general kind as those enumerated unless a contrary intent appears." (Fletcher's supra, Sec. 2483, pp. 309-310) Please be advised accordingly. (SGD.) ESTELITO P. MENDOZA Minister of Justice