Mr. Santiago de los Reyes

June 23, 1981 Mr. Santiago de los Reyes Marinduque Mining & Industrial Corporation 2253 Pasong Tamo Extension Makati, Metro Manila Dear Mr. Santiago : This is in connection with your letter-query dated May 11, 1981, requesting clarification of the provisions of Section 38 of the Corporation Code of the Philippines, specifically the following: "Any increase or decrease in the capital stock of the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Securities and Exchange Commission. (3rd paragraph) "...From and after approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, the capital stock shall stand increased or decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing may declare: ..." (4th paragraph) prcd You wish to be clarified if, under the aforequoted provisions, before any step is taken for the increase in the authorized capital stock, "prior" approval from the Commission should be obtained; or that the third paragraph should be considered a surplusage in relation to the fourth paragraph as above-quoted. Please be informed that the third paragraph is new and appears to be inserted only to clarify the necessity of the approval or disapproval of this Commission (which will determine compliance with the law and the rules and regulations on the matter) before the increase or decrease of capital stock or the incurring, creating or increasing of any bonded indebtedness will be considered effective and/or legal. You will note that the said paragraph was inserted immediately after the conditions, procedure and/or requisites for a valid and effective increase or decrease of capital stock or the creation, incurring or increase of any bonded indebtedness were mentioned or enumerated. In other words, the third paragraph is merely a statement of one of the general requirements of the law for a valid and effective increase or decrease of capital stock, etc. To construe otherwise (such as to require prior approval of the Commission before any step on increase or decrease of capital stock, etc. is taken) would be to encroach upon the business prerogative of management by this Commission, which, definitely is not the intent of the law. Again, this new provision is only in consonance with, and an affirmation of the practice and the rules and regulations in this Commission prior to the enactment of the Corporation Code and with the cardinal rule on statutory construction that provisions of law should be construed as far as possible to give meaning to each. In a sense therefore, the third paragraph was inserted to show the necessity of the examination and approval of the Commission for the purpose of protecting the public and stockholders before the increase or decrease, etc. is considered effective. The fourth paragraph however speaks of the effectivity date of the corporate action involved. So much so that as to the increase in capital stock, such increase becomes effective only after the certificate of filing of certificate of increase of capital stock is issued by this Commission, which retroacts or relates back to the day of the approval of such increase by the stockholders. llcd Please be guided accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Director Corporate and Legal Department