Mr. Mariano U. Godinez

February 21, 1990 Mr. Mariano U. Godinez Ansaldo, Godinez & Co., Inc. 340 Nueva Street M a n i l a S i r : This refers to your letter dated October 25, 1989, questioning the joint resolution of Philippine Association of Securities Brokers and Dealers, Inc. (PASBDI) and the Securities Investors Protection Fund, Inc. (SIPFI), dated November 20, 1987, allocating 1/2 of the collection of SIPFI to the PASBDI, and the proposed amendment of the articles of incorporation of SIPFI allocating 25% of its earnings to the PASBDI. cdll Section 41 of the Revised Securities Act provides: "SECTION 41. Securities investors protection funds . The Commission may establish or facilitate the establishment of trust funds which shall be contributed by exchanges, brokers, dealers, underwriters, transfer agents, salesmen and other persons transacting in securities, as the Commission may require for the purpose of compensating investors for the extra ordinary losses or damage they may suffer due to business failure or fraud or mismanagement of the persons with whom they transact, under such rules and regulations as the Commission may from time to time prescribe or approve in the public interest. The Commission may, having due regard to the public interest or the protection of investors, regulate, supervise, examine, suspend, or otherwise, discontinue such and other similar funds under such rules and regulations which the Commission may promulgate, and which may include taking custody and management of the fund itself as well as investments in and disbursements from the fund under such forms of control and supervision by the Commission as it may from time to time require. The authority granted to the Commission under this Section shall also apply to all funds established for the protection of investors, whether established by the Commission or otherwise." (emphasis supplied) Under the aforementioned provision, the Commission is granted a discretionary power to establish a trust fund for the benefit of the investing public in case of business failure or mismanagement. Likewise, similar funds intended for the same purpose may be established not by the Commission but by the other groups in the industry. An examination of the corporate records of SIPFI disclosed that it is neither a government agency nor was established at the instance of the Commission for the exclusive protection of the investors. Subject corporation, however, may be treated as a similar fund over which the commission under Section 41 and 42 of the Revised Securities Act, has jurisdiction to regulate and supervise. SIPFI was registered with this Commission on October 2, 1979 as a non-stock, non-profit corporation organized to: "To create, maintain and administer a fund for the interest and promotion of the securities industry and to aid and protect investors in securities and the members of the Fund." (Articles 11(1)) (emphasis supplied) It appears therefore that the fund was organized not only to protect the investors but also for the interest and promotion of the securities industry. To carry out this particular purpose, Article 9 of articles of incorporation of SIPFI provides: "3) providing assistance to the Philippine Association of Securities Brokers and Dealers, Inc ., as may be required from time to time by way of supporting its objectives and projects related to the securities industry ." (emphasis supplied} It is clear therefore that SIPFI is authorized to provide assistance to the PASBDI to support projects related to the securities industry. A reading of the articles of incorporation of PASBDI to which part of the collection of SIPFI shall be allocated, disclosed the following objectives of the PASBDI, summarized as follows: to develop the securities business; standardize its principles and practices; help solve problems affecting investors, the public and securities business; gather and disseminate information and conduct training programs and seminars on the securities business. As to whether the assistance to the PASBDI would include allocation of funds, Articles 2 of the articles of incorporation of SIPFI provides: 6) To organize, conduct and carry any activity which may be necessary for or incidental to the purposes of the foundation and generally to do all such other acts or things and to perform all activities as may be directly or indirectly conducive to the attainment of the above said purposes or any of them ." (emphasis supplied) The exercise of implied or incidental powers is expressly recognized by law, particularly under paragraph 11 of Section 36 of the Corporation Code. Based on this statutory provision, implied powers may be defined as those that "may be essential or necessary to carry out its purpose or purposes as stated on its articles of incorporation." ( SEC Letter, dated June 18, 1986 , citing Agbayani Commercial Laws of the Philippines, vol. 3, 1984 ed., p. 305). The rule may thus be stated that the management of a corporation, in the absence of express restrictions, has discretionary authority to enter into contracts or transactions which may be deemed reasonably incidental to its business purposes . (Ibid, citing Agbayani, Supra., citing Ballantine 224) No uniform rule has been or can be laid down as to what is or is not incidental nor any test to determine whether a particular act is "reasonably necessary to the exercise of the corporation's express powers. Each case must depend upon its particular facts and circumstances and upon the nature of the powers granted. (Agbayani, Supra., citing 6 Fletcher, 195). The Court held, thus: "It is a question, therefore, in each case of the logical relation of the act to the corporate purpose expressed in the charter. If that act, one which is lawful in itself and not otherwise prohibited, is done for the purpose of serving corporate ends and is reasonably tributary to the promotion of those ends in a substantial and not in a remote and fanciful sense, it may fairly be considered within charter powers . The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation's business fairly incident to the express powers and reasonably necessary to their exercise . Also, the corporation has the power to do it. Otherwise, not" (Montelibano v. Bacolod Murcia Milling (Co., Inc. NR No. L-15092, May 18, 1962, citing 6 Fletcher, 1950 Rev. Ed. pp. 266-268, as quoted in Agbayani pp. 305-306). In the light of the foregoing, the allocation of 1/2 of the collection of SIPFI to PASBDI may be considered within the power of the SIPFI. Likewise, the proposed amendment to the articles of incorporation of SIPFI allocating 25% of its income to the PASBDI may also be given due course. The rule would be different had the SIPFI been established exclusively for the protection of the investing public, in which case the funds cannot be allocated to other purposes. In the present case, it is very clear under the articles of incorporation of SIPFI that the fund of the corporation shall be for the benefit of both the investing public and the members thereof and for the interest and promotion of the securities business . Regarding the alleged collection of additional assessment from the members of PASBDI based on their gross income notwithstanding the provisions of the by-laws which provides that assessment shall be equitably allocated from among the members, the rule is that when the manner of assessing dues is fixed in the by-laws, the same cannot be changed without amending the by-laws in accordance with Section 48 of the Corporation Code. It is well settled that the by-laws are the private laws of the corporation. They are in effect written into the charter and in this sense, they become part of the fundamental law of the corporation and the corporation, its directors, officers and members are bound by and must comply with the same. (SEC Opinion dated April 20, 1987, citing 8 Fletcher Cyc. Corp., 750-751) The by-laws of PASBDI provides, thus: "Every member shall pay, upon admission to the Association, an admission fee in the amount of Five Hundred Pesos (P500.00) and thereafter such annual dues as the Board of Governors may determine from time to time whenever necessary to defray additional expenses of administering the affairs of the Association, or to carry on a special project of the association, the Board of Directors may fix and levy such assessments and other charges against the members as the Board may in its discretion so decide from time to time provided that such assessments and other charges shall be equitably allocated among all the members ." (Sec. 4.04) (emphasis supplied) The board of directors, having been authorized under the by-laws, may prescribe when necessary additional assessments from the members to accomplish the purposes and objectives for which the corporation was organized, provided, however that such assessments shall be equitably assessed from all the members . Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman