DOJ Opinion No. 077, s. 1989

DOJ OPINION NO. 077 , s. 1989 April 10, 1989 Undersecretary Diosdado Macapagal, Jr. Department of Finance Manila Sir : This refers to the request of former Undersecretary Edgardo M. del Fonso for opinion on the following queries: "1. Is the Philippine National Science Society (PNSS), formerly the National Research Council of the Philippines created under Act No. 4120 of the Philippine Legislature on December 8, 1933, a government-owned and controlled corporation? "2. If so, does the fact that the PNSS has been attached to the Department of Science and Technology under E.O. No. 128 dated January 30, 1987 as an agency and that the former has been receiving regular budgetary appropriations like other line agencies contradict its status as a GOCC?" The first query is answered in the affirmative. Presidential Decree No. 2029 defines a government-owned or controlled corporation (GOCC) as "a stock or non-stock corporation, whether performing government or proprietary functions, which is directly chartered by special law or if organized under the corporation law is owned or controlled by the government . . . to the extent of at least a majority of its outstanding voting capital stock" (Sec. 2). In a similar vein, Administrative Order No. 59 dated February 16, 1988 defines a GOCC as one "created by special law or organized under the Corporation Code in which the Government, directly or indirectly, has ownership of the majority of the capital or has voting control" (Sec. 2[a]). Moreover, under the so-called "charter test", if a governmental entity (a) is created by special law, (b) acquires a juridical personality solely on the basis of such special law, and (c) is endowed under that special law with the corporate form of organization, then such entity may automatically be considered a government corporation (Opn., Secretary of Justice, No. 79, s. 1985). It is noted that the National Research Council of the Philippines (which is the PNSS' former name) was created by Act No. 4120 "as a body corporate" (Sec. 1). It did not lose its corporate character notwithstanding its conversion into the Philippine National Science Society, as hereinafter shown in our discussion of the second query. prcd The second query is resolved in the negative. PNSS remains to be A GOCC although it is receiving regular budgetary appropriations from the National Treasury. The attachment of the PNSS to the Department of Science and Technology is provided by law (see Sec. 33, E.O. 128; see also Sec. 9 [b], E.O. 784) and this legal provisions does not create a legal contradiction for the reason that the attachment of a government corporate entity to a department or its equivalent body is a well-recognized principle in administrative law (Sec. 38 [3], E.O. 292 [Administrative Code of 1987] soon to take effect; Art. III, Chap. IV. Part II, Integrated Reorganization Plan and Art. II, A.O. 59). By law, an "attachment" is defined as "the lateral relationship between the department or its equivalent and the attached agency or corporation for purposes of policy and program coordination ( ibid .). While it is true that the PNSS is included among the "attached agencies" listed in Section 33 of E.O. No. 128, this provision, by itself, would be insufficient to divest the PNSS of its corporate character. It is noted that Section 33[a] of E.O. No. 128 merely renamed the National Research Council of the Philippines as the PNSS and that what was abolished in Section 35 was "the Council created under Executive Order No. 784, which apparently refers to the "Science and Technology Council System". Expressed differently, there is nothing in E.O. No. 128 which may reasonably be interpreted as abolishing the National Research Council of the Philippines and creating in lieu thereof the PNSS as an administrative agency. As for the subsidy in the form of regular budgetary appropriations to the PNSS, we believe this should be taken in the light of its unique character as a government-owned or controlled corporation. The PNSS was organized and chartered by law as a scientific organization; as such, it is not called upon to engage itself in activities associated with economic gain. The criterion of "financial viability" therefore, that is normally associated with corporations vested with proprietary functions, should not apply to the PNSS which is a purely service-oriented agency and should thus enjoy the special privileges of being regularly provided with funding support by the National Government. In this wise, P.D. No. 2029 explicitly provides: prcd "Sec. 5. Criteria for using the corporate form . . . . " The financial viability criterion shall not apply to those corporate operations involving direct and explicit subsidy programs as authorized by law, and where the subsidies involved are adequately funded by appropriate external sources such as the General Fund . " The test of financial viability shall , when circumstances warrant, not be applicable to civic, cultural, educational, scientific , and other similar government corporations which do not engage in activities usually associate with economic gain , and which do not complete by and large with the private sector". (Emphasis supplied) Please be guided accordingly. Very truly yours, (SGD.) SEDFREY A. ORDOEZ Secretary of Justice