DOJ Opinion No. 140, s. 1994

DOJ OPINION NO. 140 , s. 1994 September 26, 1994 Atty. Armando L. Suratos General Counsel Bangko Sentral ng Pilipinas Manila Sir : This has reference to your request for a legal opinion on whether the Philippine Veterans Bank (PVB) may be considered a public or private banking institution. prcd Specifically, you state that your Office is tasked to promulgate rules and regulations to implement R.A. No. 7202 which authorizes restitution of losses suffered by sugar producers; that under said law, government-owned and controlled corporations (GFIs), including banks under liquidation or receivership by the Bangko Sentral as mandated to condone excess interest as well as penalties and surcharges on loans for a period of thirteen (13) years; that sine R.A. No. 7202 encompasses GFIs only, private banks are excluded from its coverage; and inasmuch as the Supervision and Examination Sector of the Bangko Sentral lists PVB as among the commercial private banks under its jurisdiction, the BSP Ad Hoc Committee on Sugar Restitution Law, has accordingly decided not to include said bank from the coverage of R.A. No. 7202. In this regard, you also state that the Committee specifically based its action on Section 3(b) of R.A. No. 3518, otherwise known as the PVB Charter. However, during the Monetary Board deliberation thereon, a view has been expressed that the PVB should be classified as a public entity for the reasons that it is specially chartered by law and thereby covered by Section 16, Article XII of the Constitution that its capitalization comes from the government funds; and that it has been extended liberal financial terms by the Government under R.A. No. 7169 with respect to the rehabilitation program thereof. We sustain the action taken by the Committee. At the outset, it is noted that the Section 4 of R.A. No. 7169 ("An Act to Rehabilitate The Philippine Veterans Bank Created Under Republic Act No. 3518 Providing The Mechanisms Therefor, And For Other Purposes") has expressly repealed all the amendatory decrees to R.A. No. 3518 inconsistent therewith, and thus, as you stated, has restored the "full force and legal effect of the latter law. Section (b) of R.A. No. reads as follows: "SEC. 3. Authorized Capital stock Par Value . xxx xxx xxx (b) At least fifty-one per cent (51%) of the capital stock of the Veterans Bank shall be divided into common shares which shall be fully subscribed by the government of the Republic of the Philippines for and in behalf of the veterans, their widows, orphans or compulsory heirs as defined and determined under Section 4, subsection (c) of this Act, and shall be initially paid from the Veterans Trust fund provided for in Section 2, subsection (d) of the Republic Act Numbered Seventeen hundred and eighty-nine, as amended, and from or out of earnings, dividends, or profits from the operations of the Veterans Bank; and for the payment of said subscription, all the available deposits with the Philippine National Bank and or any other banks to the credit of the Veterans Trust Fund shall be transferred immediately to the Veterans Bank; Provided , That after the approval of this Act and notwithstanding the provisions of any existing law and/or executive orders, rules and regulations to the contrary, every and all additional cash payments on account of the said Veterans Trust Fund shall be remitted and paid directly and exclusively to the said Veterans Bank to be applied as additional paid-up payments of the aforesaid, common shares subscription: Provided , further , That nothing shall be transferred to, or received by, the said Veterans Bank representing any portion of the proceeds of the aforesaid Veterans Trust Fund except cash payments only of the peso equivalent thereof at the prevailing rate of exchange: And provided , finally , That within five years from the organization of the Bank all shares of the stock equivalent to fifty-one percent subscription of the capital stock held by the government of the Republic of the Philippines for and in behalf of the veterans, their widows, orphans or compulsory heirs shall be transferred to and in the name of the veterans who shall thereafter vote said common shares. The shares shall divided equally among the veterans at the rate of one share of one hundred pesos for each veteran or fraction thereof. The balance of about forty-nine (49%) per cent shall be divided into preferred shares which shall be opened for subscription, by any recognized veteran, widow, orphans or compulsory heirs of said veteran at the rate of one (1) preferred share per veteran: Provided , That in case of failure of any particular veteran to subscribe for any preferred share of stock so offered to him as herein provided, within thirty (30) days from the date of receipt of notice, said share of stock shall be available for subscription to other veterans in accordance with such rules or regulations as may be promulgated by the Board of Directors. Any share of stock corresponding to the capital stock subscribed and paid by the Republic of the Philippines in the manner aforementioned, shall be issued in the name of the Republic of the Philippines, in trust for the benefit of veterans, their widows, orphans or compulsory heirs as determined in this Act, and any share of stock subscribed and paid by individual veteran shall be issued in the name of the individual veteran, his widow, orphan or compulsory heir. The sale or transfer of a share of stock of a veteran widow, orphan or a compulsory heir of a veteran to a party not a veteran, widow, orphan or compulsory heir of any veteran shall not be allowed under any circumstances . Any share may be sold or transferred to the Bank which shall issue the same stockholders who are veterans, their widows, orphans or compulsory heirs: Provided , that no veteran, widow, orphan or compulsory heir shall be issued a total of more than twenty shares." The Court has had the occasion to pass upon the status of the PVB, citing the aforequoted provision of Section 3(b) and Section 28 of R.A. No. 3, in relation to Section 2(1), Article IX-B of the Constitution, in the case of Philippine Veterans Bank Employees Union-NUBE vs. Philippine Veterans Bank 189 SCRA 14 (August 24, 1990). Pertinently, the Court held: "Coming now to the ownership of the Bank, we find it is not a government bank, as claimed by the petitioners. The fact is that under Section 3(b) of its character, while 51% of the capital stock of the Bank was initially fully subscribed by the Republic of the Philippines for and in behalf of the veterans, their widows, orphans or compulsory heirs, the corresponding shares of stock were to be turned over within 5 years from the organization by the Bank to the said beneficiaries who would thereafter have the right to vote such common shares. The balance of about 49% was to be divided into preferred shares which would be opened which would be opened for subscription by any recognized veteran, widow, orphans or compulsory heirs of the said veteran at the rate of one preferred share per veteran, on the condition that in case of failure of any particular veteran to subscribe for any preferred share of stock so offered to him within thirty (30) days from the date of receipt of notice, said share of stock shall be available for subscription to other veterans in accordance with such rules and regulations as may be promulgated by the Board of Directors. Moreover, under Sec. 6(a), the affairs of the Bank are managed by the board of directors composed of eleven members, three of whom are ex officio members, with the other eight being elected annually by the stockholders in the manner prescribed by the Corporation Law." Significantly Sec. 28, [of R.A. No. ] also provides as follows: "SEC. 28. Articles of incorporation . This Act, upon its approval, shall be deemed and accepted to all legal intents and purposes as the statutory articles of the incorporations of Character of the Philippine Veterans' Bank; and that, notwithstanding the provisions of any existing law to the contrary, said Bank shall be deemed registered and duly authorized to do business and operate as a commercial bank as of the date of approval of this Act." This point is important because the Constitution provides in its Article IX-B, Section 2(1) that the 'Civil Service embraces all branches, subdivisions, instrumentalities and agencies of the Government including government-owned or controlled corporations with original charters. As the Bank is not owned of controlled by the government although it does have an original charter in the form of R.A. No. 3, it is clearly does not fall under the Civil Service and should be regarded as an ordinary commercial corporation. Section 28 of the said law so provides . . ." It appears that another provision of the Constitution Sec. 16, Art XII, was cited during the deliberations of the Monetary Board, The said Section reads: "SEC. 16. The Congress shall not, except by general law, provide for the formation, organization or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability." More accurately, the counterpart provision of the 1935 Constitution which was in force when R.A. No. 3 was enacted must be considered. Article XIV, Section 7 of the 1935 Constitution provides: "SEC. 7. The Congress of the Philippines shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government any subdivision or instrumentality thereof. Under Section 3(b) of R.A. 3, the PVB was initially established with 51% of the capital stock divided into common shares fully subscribed by the Government for and in behalf of the veterans, their widows, orphans or compulsory heirs and further, within five (5) years from the organization of the PVB all the aforesaid shares of stocks shall be transferred to the abovenamed beneficiaries who would thereafter vote said common shares. With the aforesaid arrangement, the PVB was initially "controlled" by the government through its interim voting rights thus, the enactment of the PVB Charter was consistent with the constitutional provision then in force and effect. There is nothing in the provision of the Constitution, quoted above, which prohibits the transfer of such "control", as in this case, where the transfer of shares and the corresponding voting rights to private persons are explicitly mandated by law. Further, Section of R.A. No. 7169 likewise provides that "(t)he operations and changes in the capital structure of the Veterans Bank, as well as other amendments to its articles of incorporation and bylaws as prescribed under R.A. No. 3, shall be in accordance with the Corporation Code, the General Banking Act, and other related laws". Thus, there is a clear intent to treat the PVB as a private or ordinary commercial bank, rather than as a government financing institution with its own Charter. Accordingly, notwithstanding the PVB, incorporation through a charter or special law, the said bank was found by the Supreme Court as an ordinary commercial bank, not a government bank which is part of the civil service. We find no cogent reason to make a contrary finding relative to the private character of the PVB's ownership in relation to Sec. 7, Art. XIV of the 1935 Constitution, not in relation to its counterpart provision, Sec. 16 Art., XII of the 1987 Constitution. In view of the foregoing, we reiterate our opinion that the PVB is not covered by R.A. No. 7202 which applies to GFIs. Very truly yours, (SGD.) FRANKLIN M. DRILON Secretary