SEC En Banc Case No. 02-14-315 Ready Form, Inc. Appellant, - versus - EastLand Printink INC. Appellee.

PICC Secretariat Building, PICC Complex, Pasay City Securities and Exchange Commission Republic of the Philippines Department of Finance

READY FORM, INC., Appellant. SEC En Banc Case No. 02-14-315

- versus - Ultra Vires Act (Sec. 45 Corp Code)

EASTLAND PRINTINK, INC.. Appellee.

DECISION

Letter-Order dated 18 November 2013 of the ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT (EIPD), where the EIPD dismissed its Complaint-Affidavit against alleged EASTLAND PRINTINK, INC. (EASTLAND) for alleged Ultra Vires Acts in This is an Appeal filed by READY FORM, INC. (READY FORM), seeking to reVerse the

violation of Section 45 of the Corporation Code.

RELEVANT FACTS

EASTLAND is a corporation duly-registered1 with the Commission

"to engage in repair and general construction business" as a Secondary Purpose. On 10 December 2010, EASTLAND amended its Articles of Incorporation to include

On 14 December 2010, EASTLAND was awarded a contract for the "Check- up/Repair/Supply parts of Elevator II" by the National Printing Office (NPO)2 through emergency procurement.

referred to the EIPD, for alleged violation of Section 45 of the Corporation Code. On 22 July 2013, READY FORM's Complaint-Affidavit3 against EASTLAND was

READY FORM alleged that "construction" does not include elevator repair, viz.

of elevators; hence, it is not allowed to engage in such business.4 xxx EASTLAND's Articles of Incorporation does not include as its business the installation, repair, fabrication or maintenance

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include the service and repair of elevators which, because of xxx "repair and general construction business" still does not

3 Entitled "Supplemental Complaint-Affidavit" because it was originally filed before the Ombudsman in the related case. The Ombudsman then forwarded the Complaint-Affidavit to the EIPD. 4 Page 1 of Complaint-Affidavit filed on 22 July 2013. 1 SEC Registration No. A199908257 dated 26 May 1999. 2 NPO Notice of Award dated 14 December 2010.

READY FORM v. EASTLAND SEC EB CASE NO. 02-14-315 Page 2 of 6

a construction license.5 safety reasons, require a special permit or license separate from

essentially that "construction" may validly include the repair of elevators. On 18 November 2013, the EIPD issued the assailed Letter-0rder,6 which states

On 3 December 2013, READY FORM filed a Comment to the assailed Letter-Order.

Procedure. The EIPD added that the proper remedy is an Appeal to the En Banc. for Reconsideration which was prohibited by the then-prevailing 2006 SEC Rules of Comment as a prohibited pleading. Despite being entitled "Comment," it was akin to a Motion On 9 December 2013, the EIPD sent a Letter-Order dismissing READY FORM's

any final order of dismissal from EIPD, for purposes of filing an appeal. On 20 December 2013, READY FORM sent a Letter stating that it had not received

the final order of dismissal for purposes of appeal. Complaint-Affidavit via the Letter-0rder dated 18 November 2013, which is consequently On 10 January 2014, the EIPD sent a Letter stating that the it dismissed the

On 5 February 2014, READY FORM filed the instant Memorandum on Appeal.

Reply Memorandum. The EIPD was furnished a copy of this Order. On 6 February 2014, the En Banc issued an Order directing EASTLAND to file its

On 24 February 2014, EASTLAND filed its Reply Memorandum

Hence, this Appeal.

DISCUSSION

Absent serious errors of fact, the En Banc may adopt the fact-finding of the EIPD, viz.

Review Standard. Department shall not be disturbed by the Commission En Banc unless serious errors of fact have been committed.7 Findings of fact by the Operating

The EIPD stated in its assailed Letter-Order that:

reached a conclusion that there is no basis to hold the subject company liable for violation of ultra vires act. (Emphasis supplied) After careful evaluation of the facts gathered and evidence adduced by the parties during our investigation, we have

incidental powers of the corporation. It is an act which is "Ultra vires act is one not within the express, implied and

FORM alleges that it was not served a copy of the Letter-Order, and that it only received a copy of the same 7 SEC. 11-8, Ruie XI of the 2006 SEC Rules of Procedure, which governs this case. This review standard has been 6 The Letter-Order is addressed to the Ombudsman who referred to Complaint-Affidavit to the EIPD. READY 5 Pages 5-6 of Complaint-Affidavit filed on 22 July 2013 through the Ombudsman, where it had a related pending case.

eenacted as SEC. 3-11. Ruie I.Part V of the cu rent 2016 SEC Rules of Procedure.

READY FORM v. EASTLAND SEC EB CASE NO. 02-14-315 Page 3 of 6

impliedly forbidden, because it is not expressly or impliedly authorized or necessary or incidental in the exercise of the powers so conferred."8

its Articles of Incorporation to include in its secondary purpose "to engage in [repair and] general construction business." Its Amended Articles of Incorporation was approved by the SEC on December 10, 2010 or days prior to the questioned invitation to bid and award of contract issued by NPO. It is significant to note that the subject company had amended

infrastructure projects. laws being implemented to regulate public works and similar In order to have a better understanding of the meaning of definition of the term "construction" as set forth by our existing "general construction business," we searched for the legal

Under Section 1.3(d) of the Implementing Rules and Regulations of RA No. 6957, otherwise known as "An Act authorizing the financing, construction, operation and maintenance of infrastructure projects by the private sector and for other purposes, as amended by RA No. 7718,9 the term "construction" is explicitly defined by law, to wit:

rehabilitate an infrastructure_or development refers to new construction, rehabilitation, improvement, expansion, alteration, and related works and activities including the necessary services, and related items needed to build or supply of equipment, materials.. labor.. and facility.

Based on the foregoing definition, it can be reasonably inferred that the term "general construction business," as stated in the purposes of its Amended Articles of Incorporation dated 10 December 2010, therefore necessarily includes the "installation. repair, and maintenance of elevators."

against the subject company [EASTLAND] for lack of merit. Thus, we dismissed the complaint for violation of ultra vires act

For your information.

READY FORM argued in its Memorandum on Appeal that:

Amended Articles of Incorporation stating that it may engage in The issue in this case is whether the provision in EASTLAND's

service, and supply of parts for elevators.10 "general construction business" allows it to engage in the repair,

8 De Leon, The Law on Partnerships and Private Corporations (2013) at 403. 9 Also known as the Build-Operate-Transfer (BOT) Law. 10 Page 2 of Memorandum on Appeal filed on 5 February 2014.

READY FORM v. EASTLAND SEC EB CASE NO. 02-14-315 Page 4 of 6

READY FORM argues that the EIPD went beyond its jurisdiction when it equated the term "construction" which "infrastructure." It further argues that "infrastructure" refers only to "civil works" such as roads, bridges, railways, airports, seaports, etc., Elevators, being dissimilar to these civil works, are thus outside the corporate purpose of EASTLAND.

Meanwhile, EASTLAND argued in its Reply Memorandum that:

business" in its purpose clause; and (1) the EIPD has jurisdiction to interpret "general construction

(2) the EIPD was correct in dismissing the Complaint-Affidavit.

EASTLAND further argues that:

It is absurd and illogical to limit the term "construction" to mean only projects for buildings, roads, bridges, seaports, airports, etc.

everyday meaning.11 The term "construction" should be understood in its ordinary.

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covering not only the construction or erection of buildings, roads, seaports, etc.(or projects usually termed Thus, the term "construction" has a wide-ranging meaning as

supply.installation, testing and_.commissioning of eguipment systems. plants, materials, labor and services and related items with what is put into a building, road, seaport, etc. as emphasized by the phrase: "including the necessary design needed to. build or rehabilitatean infrastructure or development facility." (Emphasis supplied) "infrastructure") but [also] anything and everything to do

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equipment such as elevators and a contractor or person make the building useable.12 undertaking "general construction business" would also be contracted not only to erect the building but to do all works to One cannot argue that a building. infrastructure project---may need the installation -which can be called an of

performing an act that is beyond it express, implied, or incidental powers, viz. Under Section 45 of the Corporation Code, a corporation is prohibited from

this Code shall possess or exercise any corporate powers except those conferred by this Code or by its articles of incorporation Sec. 45. Ultra vires acts of corporations. - No corporation under

and except such as are necessary or incidental to the exercise of the powers so conferred.

12 Page 8 of Reply Memorandum filed on 24 February 2014. 11 Page 5 of Reply Memorandum filed on 24 February 2014.

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Here, one of the secondary purposes of EASTLAND is "to engage in repair and general construction business," while the act it seeks to perform is the repair of elevators.

by law to ascertain the lawfulness of a corporation's purpose. secondary purpose, including the term "construction," because the Commission is mandated It is within the EIPD's jurisdiction to interpret the terms used in EASTLAND's

RA 6957 as amended by RA 7718, a.k.a. the Build-Operate-Transfer (B0T) Law, viz. For this purpose, the EIPD adopted the statutory definition of "construction" in the

improvement, expansion, alteration and related works and activities including the necessary supply of equipment, materials, labor and services and related items.13 Construction. - Refers to new construction, rehabilitation,

The Implementing Rules of the BOT Law further clarify that:

or rehabilitate an infrastructure or development facility.14 Construction. -- Refers to new construction, rehabilitation, improvement, expansion, alteration and related works and activities including the necessary supply of equipment materials, labor and services and related items needed to build

includes necessary "equipment, materials, labor and services, and related items. According to these definitions, "construction" is not limited to infrastructure, but

includes necessary equipment in the definition of "Construction Contracting," viz. public and private construction. Section 3.08 of the Implementing Rules of the CIAP Law Construction Industry Authority of the Philippines (CIAP Law), the governing body for both There is a similar provision in P.D. 1746, as amended, the law which created the

improvement works, expansion works, and such other related services. materials, equipment and related items needed to services for new construction works, rehabilitation works works and activities including the necessary supply of labor and effect such works. Construction Contracting - Refers to the act of providing all

but ruled instead that it includes necessary equipment. An elevator, especially an existing equipment (e.g. elevators) are included in the term "construction." elevator in dire need of repair, is necessary equipment in relation to a building. Only the building is included in the term "infrastructure," but both the building and its necessary Thus, the EIPD did not equate "general construction business" with infrastructure,

buildings but all works to make buildings useable. EASTLAND added that the "general construction business" includes not only

considered by the EIPD. It insists that elevators are not akin to infrastructure, which refer to On the other hand, READY FORM merely rehashed arguments already duly-

"civil works" such as buildings, roads, bridges, railways, airports, seaports, etc.

14 Section 1.3(d) of the Implementing Ruies of the BOT Law (RA 6957 as amended by RA 7718). 13 Section 2(p) of RA 6957 as amended by RA 7718

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definition of "construction" includes necessary equipment. is equivalent to "infrastructure." As already discussed, the EIPD ruled that elevators are necessarily included in the infrastructure to which they are attached, and that the statutory However, nowhere in the assailed Letter-Order does the EIPD rule that "construction"

necessarily includes the "installation, repair, and maintenance of elevators." Therefore, the EIPD correctly ruled that the term "general construction business'

meaning of this term was not put in issue by parties, but it is relevant because the act claimed to be ultra vires is the repair of elevators. It bears mentioning that EASTLAND's purpose clause expressly states "repair." The

2013 is hereby AFFIRMED. WHEREFORE, premises considered, the Letter-Order of the EIPD dated 18 November

SO ORDERED.

Pasay City, Philippines; 8 November 2018.

EMILiO[B^AQUINO] Chairperson

MtHA Maa t AAS ANTONIETA F. IBE Commissioner EPHYRO LUIS B. AMATONG Commissioner JAVEY PAUL D. FRANCISCO* Commissioner

*On Official Business Leave