Chemical Industries of the Philippines, Inc.

September 10, 1992 Chemical Industries of the Philippines, Inc. Chemphil Building, 851 Pasay Rd., Legaspi Village, Makati Metro Manila Attention : Mr . Rolando P . Navarro Asst . Corporate Secretary Gentlemen: This refers to your letter of September 1, 1992 requesting opinion on the query posed therein: LexLib As stated, Chemical Industries of the Philippines, Inc .is faced with a decision to invest in a corporation whose principal purpose is: "To engage in the production of light, heat and power and in furtherance thereof to acquire operate and maintain plants for the production of electric light, heat and power ." "To purchase, hold, sell, assign, transfer, mortgage, pledge, or otherwise dispose of the shares of capital stock of any corporation.".(Emphasis supplied) The Corporation's Articles of Incorporation provides for a primary purpose, which reads as follows: "To invest in, hold, own, purchase and otherwise acquire interest in corporations, associations and other entities engaged in the development and business of the chemical industry, its allied industry as well as in agricultural and commercial enterprises; and to provide management, corporate planning, marketing, research and development, technical support and other services necessary or convenient in and about the conduct and operation of the business of such industries and enterprises." (Emphasis supplied) Based on the foregoing, you are inquiring whether said investment decision requires only a board approval or approval by both the board and stockholders holding at least 2/3 of the outstanding capital stock as required under Section 42 of the Corporation Code. It appears from the above-quoted primary purpose that the Corporation's investments in other corporations are limited only to those entities engaged in " chemical " industry, " agricultural " and " commercial " enterprises. Thus, the question to be resolved is whether or not the business activity of " production of electric light, heat and power ",on which subject corporation intends to invest, is within the scope or coverage of "chemical","agricultural" or "commercial" enterprises so as to be considered an investment within its primary purpose. In order to determine for what purpose a corporation is organized, it is necessary to ascertain the meaning of the particular descriptive term, and then determine whether the purposes of the Corporation, as shown in its charter, bring it within such terms. Unless words used in a charter have acquired a different meaning by custom or usage, they should be given their ordinary meaning, that is the meaning which the language would most naturally convey to the ordinary person. They are to be constructed according to the common and approved usage of the language, and are not to be wrested from their usual sense to meet an exigency not foreseen when the instrument was drafted, unless the context clearly requires otherwise or unless legal phrases having a special meaning are used. (7A Fletcher, sec. 3649) The following pertinent terms in the primary purpose of the subject corporation are commonly defined as follows: " Chemical " Of or pertaining to chemistry or its phenomena, laws, operations, or results. " Chemistry is defined as that science which treats of the structure, composition, and properties of substances and of the transformations which they undergo; Chemical composition or process. (Webster Comprehensive Dictionary, International Edition) " Agriculture " The cultivation of the soil; the raising of food crops, breeding and raising of livestock, etc. (Webster Comprehensive Dictionary, International Edition) " Commercial " Of or belonging to trade or commerce. Commerce is defined as exchange of goods, products, or property (Webster Comprehensive Dictionary, International Edition).Thus, Corporations engaged in "trading" or "trade and commerce " include all corporations engaged in a business which properly falls within the definition of trading, and any corporation engaged in such a business is a trading Corporation, or corporation engaged in trade (1A Fletcher Sec. 72) Broadly speaking, all private corporations for profit engage in business or trading and the words mercantile and commercial are nearly synonymous with trading. Trading in this sense is the lawful buying and selling or bartering of articles of commerce. (1A Fletcher, Sec. 105) From the foregoing definitions, it would appear that production of electric light, heat and power is not confined to any of the above lines of business in which the corporation is authorized to invest under its primary purpose. The rules governing the construction of charters of corporations are, for the most part, the same as those which govern the construction and interpretation of statutes, contracts and other written instruments. (7A Fletcher, Sec. 3640) It is a general rule that when the charter of a corporation confers certain enumerated powers on the corporation, it is to be construed as including incidental powers reasonably necessary to the proper exercise of the enumerated powers and as excluding all other non-enumerated powers. Thus, if the powers are expressly enumerated in detail, " such specification by implication excludes all other powers or rights ,except such incidental or subordinate rights and powers as may be necessary to an exercise of the powers and rights expressly given. In other words, an enumeration of corporate powers implies the exclusion of all other powers except those essential to the corporate existence and to the enjoyment and exercise of powers expressly conferred. The specification of certain powers operates as a limitation on such objects as are embodied therein and is an implied prohibition of the exercise of other instinct powers. Furthermore, express powers cannot be enlarged by implication. (6 Fletcher Cyclopedia Corporations, sec. 2483, citing several authorities).Thus, it was held that the general language of a charter following a recitation of specific power is construed and confined within the limitation of the specific power named. (Williams v. United Most Worshipful St. John's Grand Lodge, 140 So 2d 206 (La App.,cited in 7A Fletcher, Sec. 3650) This conforms with the generally accepted principle of statutory construction: "Expressio Unius Est Exclusio Alterius" which means, the express mention of one thing will as a general rule, mean the exclusion of others not expressly mentioned. By a familiar rule, every public grant of property or of privileges or franchises, if ambiguous, is to be construed against the grantee and in favor of the public ,because an intention on the part of the government to grant to private persons, or to a particular corporation, property or rights in which the whole public is interested, cannot be presumed unless unquestionably expressed or necessarily to be implied in the terms of the grant ....(Central Transp. Co. v. Pullman's Car Co.,139 US 24, 35 L Ed 55, 11 S Ct 478.,cited in 6 Fletcher Sec. 2483) Thus, in determining a corporation's powers, if any ambiguity exists in the corporate charter, the charter must be strictly construed. In the light of the foregoing, we believe that the above-mentioned investment would not be for the purpose of accomplishing the primary purpose for which subject corporation was organized. Neither such investment is necessary or incidental in the exercise of its primary purpose Hence, it cannot, by mere board resolution, avail of its power to invest in another corporation granted under Section 36(7) of the Corporation Code. Such investment is subject to the approval of the stockholders pursuant to Section 42 of the same Code, quoted hereunder: "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 of. 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 supplied) Likewise, such corporate transaction is subject to the SEC Rules Requiring Statement of Reasons for Change in the Corporate Charter or Cessation of Business, and Filing of Corresponding Resolution Authorizing Same, dated November 4, 1971, which provide in part: "... 2. Corporations investing in any other corporation or business or for any purpose other than the main purpose for which the company was organized pursuant to Section 17 1/2 of the Corporation Law, as amended (now Section 42 of the Corporation Code), shall likewise file with the Commission, in duplicate, a copy of the resolution adopted by the affirmative vote of stockholders holding at least two-thirds of the voting power authorizing the board of directors to invest in another corporation or business .The copy of the resolution shall be signed and attested by the president and secretary of the Corporation, and submitted to the Commission not later than thirty (30) days after the investment is made." (Emphasis supplied) Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman