Case Digest: Loyola Grand Villas Homeowners (South) Association v. CA

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner, vs. HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO AYCARDO, respondents.

G.R. No. 117188 August 7, 1997

ROMERO, J.:

Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was organized on 8 February 1983 as the homeoenwers' association for Loyola Grand Villas. It was also registered as the sole homeowners' association in the said village with the Home Financing Corporation (which eventually became Home Insurance Guarantee Corporation ["HIGC"]). However, the association was not able file its corporate by-laws.

The LGVHAI officers then tried to registered its By-Laws in 1988, but they failed to do so. They then discovered that there were two other homeowners' organizations within the subdivision - the Loyola Grand Villas Homeowners (North) Association, Inc. [North Association] and herein Petitioner Loyola Grand Villas Homeowners (South) Association, Inc.["South Association].

Upon inquiry by the LGVHAI to HIGC, it was discovered that LGVHAI was dissolved for its failure to submit its by-laws within the period required by the Corporation Code and for its non-user of corporate charter because HIGC had not received any report on the association's activities. These paved the way for the formation of the North and South Associations.

LGVHAI then lodged a complaint with HIGC Hearing Officer Danilo Javier, and questioned the revocation of its registration.  Hearing Officer Javier ruled in favor of LGVHAI, revoking the registration of the North and South Associations.

Petitioner South Association appealed the ruling, contending that LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code effectively automatically dissolved the corporation. The Appeals Board of the HIGC and the Court of Appeals both rejected the contention of the Petitioner affirmed the decision of Hearing Officer Javier.

Issue: W/N LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code had the effect of automatically dissolving the said corporation.

Ruling: No.

The pertinent provision of the Corporation Code that is the focal point of controversy in this case states:

Sec. 46. Adoption of by-laws. - Every corporation formed under this Code, must within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its government not inconsistent with this Code.

Ordinarily, the word "must" connotes an imposition of duty which must be enforced. However, the word "must" in a statute, like "shall," is not always imperative. It may be consistent with an ecercise of discretion. If the language of a statute, considered as a whole with due regard to its nature and object, reveals that the legislature intended to use the words "shall" and "must" to be directory, they should be given that meaning.

The legislative deliberations of the Corporation Code reveals that it was not the intention of Congress to automatically dissolve a corporation for failure to file the By-Laws on time.

Moreover, By-Laws may be necessary to govern the corporation, but By-Laws are still subordinate to the Articles of Incorporation and the Corporation Code. In fact, there are cases where By-Laws are unnecessary to the corporate existence and to the valid exercise of corporate powers.

The Corporation Code does not expressly provide for the effects of non-filing of By-Laws. However, these have been rectified by Section 6 of PD 902-A which provides that SEC shall possess the power to suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations upon failure to file By-Laws within the required period.

This shows that there must be notice and hearing before a corporation is dissolved for failure to file its By-Laws. Even assuming that the existence of a ground, the penalty is not necessarily revocation, but may only be suspension.

By-Laws are indispensable to corporations, since they are required by law for an orderly management of corporations. However, failure to file them within the period prescribed does not equate to the automatic dissolution of a corporation.