Atty. Rosario S. Bernaldo

December 22, 2003 SEC OPINION NO. 72-03 Atty. Rosario S. Bernaldo Managing Partner R.S. Bernaldo & Associates Unit 1810 Cityiand Condominium Tower 1 6815 Ayala Ave.,cor. H.V. Dela Costa St., Makati City Madam : This refers to your letter seeking confirmation whether trust accounts (Deutsche Bank Trust Account No. TR-043 and BPI Trust Account No. 11430656) can be considered as stockholders of record, respectively, in a corporation and if considered as stockholders, they are allowed to transact business or enter into a lawful contract as a juridical entity. The term "trust" is defined in the case of Vda. De Esconde vs. Court of Appeals ,G.R. No. 103635, February 1, 1996, to wit: "Trust is the legal relationship between one person having an equitable ownership in property and another person owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter. Trusts are either express or implied. An express trust is created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust, it being sufficient that a trust is clearly intended. On the other hand, implied trusts are those which, without being expressed are deductible from the nature of the transaction as matters if intent or which are superinduced on the transaction by operation of law as matters equity, independently of the particular intention of the parties." Further, trust accounts shall refer to those accounts with financial institutions authorized by the Central Bank to engage in trust functions, wherein there is a trustor-trustee relationship under a trust agreement (BSP Manual of Regulations for Banks and other Financial Intermediaries, dated 30 July 1982, Book IV) . As compared to corporation, a business trust, is simply a deed of trust which is easier and less expensive to constitute for it is not bound by any legal requirements like the former. It does not have a separate juridical personality, and is mainly governed by contractual doctrines and the common law principle on trust. Trust relationship is centered upon properties, and which places naked titled in the trustor, and beneficial title in the beneficiary (Cezar Lapuz Villanueva, Philippine Corporate Law, p. 31) . On the other hand, Republic Act No. 8791, otherwise known as the "General Banking Law of 2000," provides: Sec. 81. Registration of Articles of Incorporation and By-Laws of a Trust Entity The Securities and Exchange Commission shall not register the articles of incorporation and by-laws or any amendment thereto, of any trust entity, unless accompanied by a certificate of authority issued by the Bangko Sentral. In this connection, a trust account without a juridical personality and trust authority is merely represented by trustees that embody them. In return, the trustee acts for and in behalf of the trust account with fiduciary obligations for the trustor. The trustee of an unregistered trust account performs the functions of the board of directors of a corporation although in form they carry on the business in their own names. The question has frequently arisen whether an unincorporated association may be a trustee. Such a body is not recognized by law as a legal entity. 1 While under the orthodox view such an organization cannot receive the title to property and hence could not be a trustee, 2 there are some modern decisions recognizing the association as a de facto trustee, 3 and in all cases the incapacity of the association to take title does not prevent the trust from beginning but rather merely calls for the appointment of another trustee. 4 The correct view would seem to be that a trust ought not to fail because an unincorporated association was named as its trustee. 5 Such an association is not a legal entity in the absence of a statute. 6 It cannot be under a legal obligation. 7 The title to the trust property was not intended to vest in the members of the association. 8 But even if it be conceded that an unincorporated association is not competent to serve as trustee, the trust may be saved under the establishment principle that equity will not allow a trust to fail for want of a trustee. 9 The better method would be better for dealing with such attempts to create a trust would be to appoint a new trustee. 10 In the case before us, Deutsche Bank with Reg. No. 1228 is a branch office organized for the purpose of operating as an Offshore Banking Unit. Subject to the requirements imposed by the Bangko Sentral ng Pilipinas, it can invest and be a stockholder of a corporation since the Corporation Code did not provide for the qualification of a stockholder. It is a basic rule in statutory construction that when the law does not distinguish, we should not distinguish. Anent the trust account of BPI, it appears that the Bank of the Philippine Islands is a stock corporation with purposes, to wit: "That the purposes for which said corporation is formed are to operate under a commercial banking authority, as well as to engage in and carry on the business of trust company and to conduct such other businesses as is now or may hereafter be allowed by law; and by virtue thereof, to possess and exercise the powers, rights, priviliges, and attributes of a commercial bank with expanded commercial banking authority and trust company as provided by law." (Emphasis supplied) The 1993 Manual of Regulations for Banks, Bangko Sentral ng Pilipinas Section X412.1 provides: Banks With Trust Authority A bank authorized to engage in trust business under Section 57 of RA 337, as amended, which is also authorized to operate an FCDU or EFCDU under R.A. 6426, as amended shall include FCDU/EFCDU trust accounts among those managed or administered by its trust department under the responsibility of the board of directors, the trust committee and the trust officer. Thus, when the purposes are enumerated in the Articles of Incorporation, it is to be construed as including incidental purposes reasonably necessary to the proper exercise of the enumerated purposes and as excluding all other non-enumerated purposes. Thus, if the objects or purposes are expressly enumerated in detail, such specification by implication excludes all other objects and purposes, except such incidental or as may be necessary to an exercise of the objects or business expressly given. Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel Footnotes 1. Bogart, George T.,Trusts, 6th ed.,p. 96. 2. ibid. ,citing Lael v. Crook ,192 Artk. 1115, 97 S.W.2d (1936). 3. ibid. ,citing Schneider v. Kloepple ,270 Mo. 389, 193 S.W. 834. 4. ibid. 5. ibid. 6. ibid. 7. ibid. 8. ibid. 9. ibid. 10. ibid.