DOJ Opinion No. 185, s. 1982

DOJ OPINION NO. 185 , s. 1982 3rd Indorsement August 23, 1982 Respectfully returned to the General Counsel, Commission on Audit (Central Office), Don Mariano Marcos Avenue, Quezon City. This is with references to your request for opinion as to "whether or into the Technology Resource Center [TRC] may validly create subsidiaries and enter into joint ventures with private entities in the pursuit of its objectives under its Charter (PD) 1097)". I On the power to create subsidiaries: Subject to the extended discussion hereunder, we are of the opinion that the TRC may validly create subsidiaries. The purposes of the three (3) subsidiary corporations involved herein, namely, the Technology Management Development Corporation, the Peoples. Livelihood Enterprises, Inc., and the People's Technology Terminal Corporation, according to their respective Articles of Incorporation, are in pursuit or implementation of the objectives for which the TRC was created under P.D. No. 1097. Furthermore, the Corporate Auditor of the TRC has expressed the view that these corporations have "related or similar objectives" as the TRC; and the COA Regional Auditor, in his preceding 1st Endorsement, is also of the view," that TRC formed these corporations for the purpose of carrying out its objectives and thus acted within the purview of Section 2(e) of P.D. 1097." LexLib Section 2 of P.D. No. 1097 insofar as pertinent, provides as follows: "Sec. 2. Corporate Powers . To fulfill and accomplish its purposes the Center shall have the following powers: xxx xxx xxx (b) to take and hold by bequest, devise, gift, purchase or lease, either absolutely or in trust for any of its purposes, any property, real or personal, without limitations as to amount or value; to convey such property and to invest and reinvest any principal, and deal with and expand the income and principal of the said Center in such manner as will promote its objectives; xxx xxx xxx (e) generally, to carry on any activity and to have and exercise all of the powers conferred upon private or government-owned or controlled corporations; to exercise such power and authority as may be directly or indirectly necessary, incidental or expedient to carry out the purposes and objectives hereinbefore specified; and to do any and all of the acts and things herein set forth to the same extent as juridical persons could do, and in any part of the world as principal, factor, agent or otherwise, alone or in syndicate or otherwise in conjunction with any person, entity, partnership, association or corporation, domestic or foreign." This Ministry has had occasion to pass upon the similar cases of the Development Bank of the Philippines (DBP), the Government Service Insurance System (GSIS) and the Social Security System (SSS), as regards their creation of subsidiary corporations, and to rule that the general power of corporations under the Corporation Law "to acquire, hold, mortgage, pledge or dispose of share , bonds, securities and other evidence of indebtedness of any domestic or foreign corporation" (which, pursuant to the Uniform Charter for Government Corporations, was made applicable to government-owned and controlled corporations), necessarily includes the power to create subsidiary corporations in order to accomplish its purposes . This is so, this Ministry opined, because: ". . . After all, a subsidiary is simply one in which another corporation owns the majority of shares, and thus has control (Words & Phrases, Perm. Ed., Vol. 40, p. 496). Nowhere in the DBP charter is it prohibited or disabled from purchasing or owning shares of stock to the extent of its having absolute control or complete ownership of the corporation. Accordingly, the quantity of stock that it may acquire in any corporation is left to the discretion of the governing body of the DBP. The proposition that the general grant of power to purchase stock of another corporation implies or also authorizes the purchase or acquisition of shares for purposes of control of that corporation, and not merely for investment purposes is supported by the following authorities: Bigelow v. Calumat & Recia Min. Co., 167 Fed. 704; Renton Potteries Co. v. Olyphant, 43 A. 723. In the Bigelow case aforecited, the Court stated: "It is further urged that the statute should be construed as authorizing stock purchases for investment only , and not for control . Except so far as this proposition involves the question of conflict with anti-trust and anti-monopoly fawns, it is without apparent force . Not only does the statute contain no express limitation to purchases for investment, but the object of the provision which is apparently to further the active and profitable prosecution of the business of the purchasing corporation by way of holding interests in other corporations carrying the same or a directly allied business, seems more consistent with the right of active participation in the affairs of the corporation whose stock is purchased than with a more right of investment without such active participation." (Emphasis supplied; See Memorandum of the Secretary of Justice for the President dated January 31, 1969) LexLib The TRC Charter contains the express provision that the TRC may or can "exercise all of the powers conferred upon private or government-owned or controlled corporations" [Section 2(e), supra ]. In view thereof, and applying the aforequoted previous ruling of this Ministry, we reiterate our reply to the query as aforestated. II On the power of the TRC to enter into joint ventures with private entities. If TRC has the power to invest its funds in shares of stock of other corporations or even create subsidiaries in the pursuit of its corporate objectives, it follows that it also has the power to enter into joint ventures for the same corporate purposes. However, it is important to stress that the joint ventures must be entered into by the TRC "in the pursuit of its objectives under its charter" or be "directly or indirectly necessary, incidental or expedient to carry out the purposes and objectives" specified therein. [Sec. 2(e), P.D. No. 1097]. Section 2 of P.D. No. 1097, supra , is quite explicit in requiring that the powers therein granted must be exercised "to fulfill and accomplish its purposes. "Section 2(b), supra , also states that the TRC may "invest and reinvest any principal, and deal with and expand the income and principal of the said Center in such manner as will promote its objectives ". Section 2(e) contains the similar limitation that the TRC shall exercises its powers "to carry out the purposes and objectives hereinbefore specified." In fine, the TRC must not engage or embark upon ultra vires transactions, in other words, any act beyond the scope of its corporate purposes as stated in its Charter or as such term is legally understood. We emphasize the above limitation because the within request of the TRC Corporate Auditor is for a ruling "on whether or not the Center may enter into joint ventures with private parties/corporations in the pursuit of their objectives ", which could mean the objectives of said private entities. LexLib Inasmuch as the nature of the "joint ventures with private entities" which the TRC has supposedly entered, or will enter, into is not described herein, there is no basis for a ruling as to whether such transactions are ultra vires or not. This will have to be resolved on a case-to-case basis, if and when specific transactions with specific persons or entities are questioned on this ground ( ultra vires ). Please be guided accordingly. (SGD.) RICARDO C. PUNO Ministry of Justice