DOJ Opinion No. 171, s. 1991

DOJ OPINION NO. 171 , s. 1991 December 13, 1991 The Secretary General The Philippine National Red Cross Bonifacio Drive, Port Area P.O. Box 280, Manila 2803 M a d a m : This is with reference to your request for approval of the proposed sale by the Philippine National Red Cross (PNRC) of its 53,520 Class "A" shares, constituting sixty (60%) percent interest, in Baesa Real Estate Corporation (BREC) in favor of Holland Pacific Paper, Inc. (HPPI), formerly Scott Paper Philippines, Inc. (Scott). From the within papers, it appears that as a consequence of the expiration of the Parity Agreement on July 3, 1974, Scott Paper Philippines, Inc. an American entity, adopted a land divestment scheme whereby Scott irrevocably donated in favor of PNRC on February 11, 1976, sixty (60%) percent of its undivided interest, right and title to two (2) parcels of land, registered under TCT No. 66387 and TCT No. 66388, retaining 40% percent interest in the said parcels of land and 100% ownership of the buildings, installations and improvements constructed, erected and found thereon. As a condition for the donation, and in order to enable Scott to continue utilizing, enjoying and using the aforementioned buildings, installations and other improvements on the said parcels of land, the parties agreed to execute on the same date a Deed of Transfer and Conveyance of said parcels of land in favor of BREC in consideration of shares of stocks to be issued by the latter to PNRC and Scott proportional to their respective undivided interest in the said parcels of land, and which parcels of land would in turn be leased back by BREC to Scott for an initial period of twenty-five (25) years. prcd The abovestated land divestment scheme of Scott was duly approved by the Cabinet Committee on Land Divestment, which was created under LOI No. 307 (August 12, 1975) to evaluate and approve divestment contracts or proposals submitted by U.S. citizens and entities (see Land Divestment of U.S. Entities Status Report as of December 21, 1977), subject to the following conditions: "1. If for any reason, the above donee loses its character as charitable or scientific organization or in any way loses its qualifications under Presidential Decree No. 697, the land donated shall revert or accrue to the government. 2. The property donated shall not be sold or mortgaged without the approval of the Department of Justice and an annual status report on the property shall be submitted to the said office. 3. The above conditions shall be duly annotated on the title/s over the property donated". (Emphasis supplied) We take it that the proposed sale of PNRC shares in BREC in favor of HPPI is being sought pursuant to the above-stated conditions imposed by the Cabinet Committee on Land Divestment. We find no constitutional impediment to the abovestated proposed sale by PNRC of its 53,520 Class "A" shares in BREC in favor of HPPI. A certification issued by the Securities and Exchange Commission shows that the Filipinos hold at least 73.2105% interest in HPPI (see S.E.C. Certification dated November 14, 1991). A further examination of the stock ownership structure of HPPI shows that it is substantially controlled by Metro Drug Inc., which is 73.954% Filipino-owned (see Secretary's Certificates dated August 9 and 15, 1991). Pursuant to Paragraph VIII of the Contract of Lease executed by and between BREC and Scott Paper Philippines, Inc. (now HPPI), which is an integral part (attached as "Annex A") of the Deed of Donation approved by the Cabinet Committee on Land Divestment, the Lessee (Scott, now HPPI) shall have an option to purchase the whole or any part of the leased land at any time during the term of the agreement or any renewal thereof "upon being qualified and allowed under the Constitution and laws of the Philippines to acquire and own land". Likewise, under the guidelines adopted by the Cabinet Committee on Land Divestment, the donor-lessee "may re-acquire the property if it is subsequently qualified to own land and provided donee-lessor is willing to sell the land when the eventuality occurs" (par. 4, Guidelines). prcd Premises considered, and upon the Certification of the Securities and Exchange Commission that HPPI is a corporation at least 60% of the capital stock of which is owned by Filipino citizens, the proposed sale of shares of stocks owned by PNRC in BREC in favor of HPPI is hereby conditionally approved, subject to the submission by the parties concerned of the duly executed Agreement or Contract covering the said transaction. Very truly yours, (SGD.) SILVESTRE H. BELLO III Acting Secretary