DOJ Opinion No. 197, s. 1990

DOJ OPINION NO. 197 , s. 1990 November 20, 1990 Secretary Jesus P. Estanislao Department of Finance Manila Sir : This refers to your request for opinion "on whether or not the Development Bank of the Philippines (DBP) has the authority to underwrite securities." You state that under Section 3(e) of its 1986 Revised Charter (E.O. No. 81), DBP is empowered "to acquire, assign or otherwise dispose of marketable securities and other debt instruments which are essential to the effective conduct of its general banking activities"; that under Section 2(f) of its old charter (R.A. No. 85, as amended), DBP is authorized "to underwrite, purchase, own, sell, mortgage or otherwise dispose of stocks, bonds, debentures, securities and other evidences of indebtedness"; that since Section 2(f) of R.A. No. 85 is merely "made plain and simple" by Section 3(e) of E.O. No. 81, the latter cannot be interpreted as having supplanted or limited the former; that under Section 2 of E.O. No. 81, DBP is authorized to perform all other functions of a thrift bank, one of which is "to act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities; that the phrase "to acquire, assign, or otherwise dispose of marketable securities", "has the same meaning as the phrase to purchase, to own, sell and mortgage under the old DBP chapter, which is inherent in underwriting securities". (Emphasis ours) Hence, you conclude that DBP is still empowered to underwrite securities, notwithstanding the deletion of the word "underwrite" from Section 3(e) of E.O. No. 81. prcd We gather, however, that the Monetary Board of the Central Bank and the Securities and Exchange Commission are inclined towards the opposite view. The reasons for their position are that although in its original charter, DBP was expressly empowered to underwrite securities, there is no mention of any underwriting authority under its revised charter, that a public corporation can exercise only such powers as are explicitly stated in its charter and that the Secretary of the Monetary Board, who was involved in the drafting of DBP's new enabling law, has revealed that the deletion of the term "underwrite" therefrom was made deliberately. Under its former charter (R.A. No. 85, as amended), DBP is empowered, inter alia , "To underwrite, purchase, own, sell mortgage or otherwise dispose of stocks, bonds, debentures, securities and other evidence of indebtedness issued for or in connection with any project or enterprise referred to in the preceding paragraphs"; In its present charter (E.O. No. 81), however the abovequoted provision now reads as follows: "To acquire, assign or otherwise dispose of marketable securities and other debt instruments which are essential to the effective conduct of its general banking activities;" (Sec. 3[e]). You argue that the deletion only made the provision of the new Charter "plain and simple". In other words, you contend that the use of the term "underwrite" is a superfluity because it is synonymous with the power of the DBP "to acquire, assign or otherwise dispose of marketable securities". It appears that "underwriting" has different meanings depending upon the object or purpose of the statute under which it is employed. Thus, "underwriting" is defined by the Investment Houses Law (Section 3[a],) P.D. No. 129, as amended as the act of process of guaranteeing the distribution and sale of securities issued by another corporation. It involves the taking of bonds for sale to the public with the understanding that the taker shall purchase those which are not sold to the public (Fraser vs. Home Telephone and Telegraph Co., 157 p. 692; In re Hackett, Half & Thierman, 70 F2d 815). On the other hand, an underwriter is defined by The Revised Securities Act (Batas Pambansa Blg. 178) as follows: "(q) Underwriter means any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors or sellers commission . . ." In addition to the powers of the DBP under its new charter which are "to acquire, assign or otherwise dispose of marketable securities (Sec. 3[e]), also relevant to the issue is the DBP's function, quoted hereunder: ". . . unless otherwise provided herein, the Bank may perform all other functions of a thrift bank." (Sec. 2, E.O. 81) Pertinently, the General Banking Act (R.A. No. 337, as amended) provides: "Sec. 72. In addition to the operation specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services: xxx xxx xxx b) Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidence of indebtedness and all types of securities." There is no provision in the new DBP charter (E.O. No. 81) disallowing or prohibiting, expressly or impliedly, the DBP from exercising the function of a thrift bank to act as financial agent, or to buy and sell securities as contemplated by the General Banking Act. Thus, under its new Charter the DBP has the powers, among others: (1) to buy and sell securities by order of and for the account of its customers (Sec. 72[b], R.A 337 in relation to Sec. 2 of E.O. 81) and (2) to acquire, assign or otherwise dispose of marketable securities and other debt instruments which are essential to the conduct of its banking activities (Sec. 3[e], E.O. 81). The exercise by the DBP of these two express powers cannot be denied the said bank, by an inference of a legislative intention to withhold from the DBP the power to "underwrite". prcd In sum, if the transaction, involves the exercise of the aforesaid two powers, whether or not it is termed underwriting which in any case had been given varying definitions, the DBP's being a party thereto is legally tenable. Very truly yours, (SGD.) FRANKLIN M. DRILON Secretary