Mr. Ariel D. Zafe

November 9, 1994 Mr. Ariel D. Zafe Disuanco Accounting Office 12 Everlasting St., Naga School Subd.,Naga City S i r : This refers to your letter of October 17, 1994 inquiring on the legality of the following corporate transaction. As stated, the corporation has acquired real properties for the use of its trading business as defined in its primary purpose. However, it is not yet ready to engage in said business. In the meantime, the corporation would like to lease its properties to interested parties. Your query is, whether the corporate act is legally allowable. It has been held that "if the business of a corporation is such as to render it necessary for it to own a certain kind of property, and at times such property is not necessary to its business, it may employ the property in a business or for a purpose which is not strictly within the objects of its creation, in order to prevent the same from remaining idle and unprofitable, provided it does not engage continually in such collateral enterprise. A corporation may utilize its surplus property or power by appropriate lease or by contract to sell or furnish the surplus product, or by grant of right or easements." (6 Fletcher Sec. 2535, citing several U.S. jurisprudence) Thus, corporate property may be temporarily leased, provided the following conditions are observed: 1. That the property is not presently used by the company and the leasing thereof is not made on a regular basis; 2. That by leasing the property, it will make it productive instead of allowing them to remain idle; 3. That there is no express restrictions in the articles of incorporation or by-laws; 4. That the leasing of the property is not used as a scheme to prejudice corporate creditors or result in the infringement of the Trust Fund Doctrine; and 5. That Section 42 of the Corporation Code, quoted hereunder, should be complied with, as the term "funds" in the provision include any corporate property to be used in the furtherance of the business. "SECTION 42. Power to invest corporate funds in another corporation or business or for any other purpose . Subject to the provisions of this Code, a private corporation may invest its funds in any other corporation or business or for any purpose other than the primary purpose for which it was organized when approved by a majority of the board of directors or trustees and ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock , or by at least two-thirds (2/3) of the members in the case of non-stock corporations, at a stockholders' or members' meeting duly called for the purpose. Written notice of the proposed investment and the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder shall have appraisal right as provided in this Code; provided, however; That where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of incorporation, the approval of the stockholders or members shall not be necessary." (Emphasis ours.) LexLib Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner