DOJ Opinion No. 082, s. 1981

DOJ OPINION NO. 082 , s. 1981 May 28, 1981 Ms. Carlota Valenzuela Deputy Governor Central Bank of the Philippines Manila Madam : This has reference to your request for opinion on whether or not the preferred shares of rural banks held by the Government fall within the scope of application of the provisions of the sixth paragraph of Section 6 of the new Corporation Code. (BP Blg. 68), which state: "Section 6. Classification of Shares . xxx xxx xxx "Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters: 1. Amendment of the articles of incorporation; 2. Adoption and amendment of by-laws; 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property; 4. Incurring, creating or increasing bonded indebtedness; 5. Increase or decrease of capital stock; 6. Merger or consolidation of the corporation with another corporation or other corporations; 7. Investment of corporate funds in another corporation or business in accordance with this Code; and 8. Dissolution of the corporation. prcd Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights." You state that it can be safely assumed that the non-voting shares referred to above pertain to preferred shares and you allude to an apparent conflict between the above-quoted provision and the provisions of the second paragraph of Section 7 of the Rural Banks Act (R.A. No. 720, as amended), which states: " Stock held by the Development Bank of the Philippines , under the terms this section, shall be made preferred only as to assets upon liquidation and without the power to vote and shall share in dividend distributions not exceeding two per cent thereof without preference: Provided , however , That if such stock of the Development Bank of the Philippines is sold to private shareholders, the same shall be converted into common stock of the class provided for in Section nine." (Emphasis supplied.) Otherwise stated, therefore, your query is whether or not the aforequoted provision of the Rural Banks Act has been modified or superseded, insofar as pertinent, by the aforequoted provisions of the Corporation Code; or more specifically, whether or not the preferred shares of the Development Bank of the Philippines (DBP) in rural banks, which under the Rural Banks Act have no voting rights, have acquired voting rights insofar as the cases enumerated in Section 6 of the Corporation Code are concerned. We answer your query in the negative in view of the extended discussion which follows hereunder. The new Corporation Code is a law of general application, intended to govern corporations in general, whereas the Rural Banks Act is a special law, designed to govern only rural banking corporations. And the answer to the question as to which shall prevail between a general law and a special law, in cases of conflict between them has been settled, to wit: "The enactment of a general law broad enough in its scope and application to cover the field of operation of a special statute will not repeal a statute which limits its operation to a particular phase of the subject covered by the general law and where the latter general law does conflict with the prior special statute, the prior special statute will be sustained as remaining in effect as a qualification of, or exception to, the general law." (Op. No. 58, s. 1971, of the Secretary of Justice, and the cases cited therein) "In case of a conflict between a statute which deals with a subject in general terms and another which deals with the same subject in a more specific manner, the latter shall prevail regardless of their respective dates of enactment." (Op. No. 127, s. 1978, ibid ; See also Op. No. 48, s. 1981) Moreover, it has been said that the power to classify shares in any manner as provided for in the articles of incorporation is one of the causes of abuse in the control and management of corporations. Through this power, the incorporators who may not even own the majority of the corporate stocks may classify such stocks, and exclusively subscribe to them, so that they shall be the only shares with voting rights (Guevara, Corporation Law, 1978 ed:, p. 50). We believe that it was to forestall the abovesaid abusive act/s that the new provision expressed in the sixth paragraph of Section 6 of the Corporation Code, supra , has been introduced. prcd However, the possibility of the incidence of such abusive act cannot be said to exist with respect to the preferred shares of the DBP in the capital stock of rural banks. DBP investment is made to supplement the initial capitalization of rural banks with insufficient capital and it is invested upon the legal condition that the shares corresponding to such investment may at any time be paid off at par and retired in whole or in part, if, in the opinion of the Monetary Board, the Rural Bank has to accumulated enough capital strength to permit retirement of such shares; or if an offer is received from private sources, to replace the equity investments of the Development Bank of the Philippines with an equivalent investment or more in the common stock of such Bank." (See 1st par., RA 720, as amended.) Hence, such investment is only temporary and made solely to tide over rural banks during their formative years. Wherefore, we are of the opinion that the sixth paragraph of Section 6 of the Corporation Code is not applicable to the preferred shares of rural banks held by the Government. Incidentally, we could not help but observe that the legal issue herein had not been referred to the General Counsel of the Central Bank before referral to this Ministry. Otherwise, he could have raided the question himself on behalf of the said Bank, pursuant to standard procedures. We feel that your General Counsel could have competently studied the problem in this case since it involves the interpretation of the legislative intention behind the provisions of the law on rural banks over the Central Bank has direct supervision We suggest, therefore, that in the future, questions of this nature be first referred to the office of the Central Bank General Counsel. Very truly yours, (SGD.) RICARDO C. PUNO Minister of Justice