DOJ Opinion No. 041, s. 1990

DOJ OPINION NO. 041 , s. 1990 2nd Indorsement March 7, 1990 Respectfully returned to the Chairman, Securities and Exchange Commission, Mandaluyong Metro Manila. The within paper relate to the question as to whether or not the Metro Manila Transit Corporation ("MMTC") may be considered a "public instrumentality" or "acting as an instrumentality of the government" as these phrases are used in the following provision of the Revised Securities Act (B.P. Blg. 178), which reads: "SEC. 5. Exempt Securities . (a) Except as expressly provided, the requirement of registration under subsection (a) of Section four of this Act shall not apply to any of the following classes of securities: (1) Any security, issued or guaranteed by the Government of the Philippines, or by any political subdivision or agency thereof or by any of its public instrumentalities or by any person controlled or supervised by, and acting as an instrumentality of said Government , or any certificate of deposit for any of the foregoing. . ." (Emphasis supplied.) prcd It appears that the MMTC has been granted authority by the Monetary Board of the Central Bank to float P600 million worth of bonds to finance the importation of buses and bus engines; that these bonds will be offered to government corporations without the guaranty of the National Government; that prospective investors of the bonds require a certification from that Commission that these instruments are exempt from its registration requirement pursuant to the above-quoted statutory provision; and that when the MMTC requested such certification, that Commission raised the abovestated question for the opinion of this Office. Existing laws and jurisprudence define an instrumentality of the government in the following manner: " Instrumentality . refers to any agency of the National Government, not integrated within the department framework vested with special functions or jurisdiction by law, endowed with some, if not all corporate powers, administering special funds and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations." (Sec. 2 [10], E.O. No. 292) " Government-owned or controlled corporation . refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stocks: . . ." (Sec. 2 [13], Id., See also Sec. 2 [c], P.D. No. 117, as amended, Section 2 [a]. A.O. No. 59). "[G]overnmental agency or instrumentality may be defined as a means by which a government acts, or by which a certain governmental act or function is performed." (Government of the Philippine Islands vs. Springer, 50 Phil. 334). "A government instrumentality refers to corporations owned or controlled by the government to promote certain aspects of economic life of our people." (Gonzales vs. Hechanova, 118 Phil. 1084). The MMTC was created by special law as a body corporate for the purpose of implementing the state policy of rationalizing and integrating public transportation services in Metropolitan Manila (Sec. 2 in relation to Sec. 1, P.D. No. 492). Two-thirds of its capital stock are subscribed and owned by the Philippine Government (Sec. 4, Id.) and is governed by a board of directors consisting of 5 cabinet officials and two other members appointed by the President of the Philippines (Sec. 5) thereby making it a government-owned corporation. Furthermore, this firm was set up s a means by which the Government can satisfy a basic economic need of the citizenry, namely, land transport services. On the basis of the abovequoted legal definitions, the MMTC is plainly a public instrumentality or an instrumentality of the Philippine Government. prcd The circumstances that the MMTC bonds are not guaranteed by the National Government does not affect its essential character as a public instrumentality. The withholding of the guaranty had nothing to do with its status as a public corporation, but, as pointed out in a recent opinion of this Department, the authority of the President of the Philippines to guaranty its indebtedness comprehends only those extended by foreign governments and institutions (Secretary of Justice Op. No. 114, s. 1989). Accordingly, our opinion is that the MMTC is a "public instrumentality" or is "acting as an instrumentality of the Government" within the contemplation of Section 5 (a)(1) of the Revised Securities Act. Very truly yours, (SGD.) FRANKLIN M. DRILON Secretary