ROSITA PEÑA petitioner, vs. THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES, SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO A. ZABAT, respondents.
G.R. No. 91478 February 7, 1991
GANCAYCO, J.:
Antecedents facts:
PAMPANGA BUS CO., INC. (PAMBUSCO) is the owner of the three lots in dispute. PAMBUSCO mortgaged the lots to the Development Bank of the Philippines (DBP), which were later on foreclosed.
Rosita Peña was awarded the lots in a foreclosure sale for being the highest bidder. The certificate of sale was later issued to her and registered in her name.
Subsequently, the Board of Directors of PAMBUSCO, through three out of its five directors, issued a resolution to assign its right of redemption over the lots in favor of any interested party. The right of redemption was later on assigned to Marcelino Enriquez, who redeemed the property.
Enriquez then sold the lots to spouses Rising T. Yap and Catalina Lugue-Yap.
Meanwhile, a case involving the validity of the sale to the spouses Yap was pending, and despite the protestations of Peña as to validity of the PAMBUSCO's assignment of the right of redemption, the lots were somehow registered in the name of spouses Yap. Despite the registration of the lots to spouses Yap, Peña retained possession of the property.
Main Case:
Spouses Yap sought to recover the possession of the lots from Peña. The latter countered that she is now the legitimate owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by the DBP against PAMBUSCO and no valid redemption having been effected within the period provided by law.
The defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was void ab initio for being an ultra vires act of its board of directors and for being without any valuable consideration, it could not have had any legal effect.
(It should be noted that the by-laws of PAMBUSCO provide that four out of five directors must be present in a special meeting of the board to constitute a quorum, and that the corporation has already ceased to operate.)
CFI ruled in favor of Petitioner Peña, but the same was overturned by the CA.
Issue: W/N there Peña is entitled to the lots.
Ruling: Yes.
The by-laws of a corporation are its own private laws which substantially have the same effect as the laws of the corporation. They are in effect, written, into the charter. In this sense they become part of the fundamental law of the corporation with which the corporation and its directors and officers must comply.
Apparently, only three (3) out of five (5) members of the board of directors of respondent PAMBUSCO convened by virtue of a prior notice of a special meeting. There was no quorum to validly transact business since it is required under its by-laws that at least four (4) members must be present to constitute a quorum in a special meeting of the board of directors.
Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws of the corporation may fix a greater number than the majority of the number of board members to constitute the quorum necessary for the valid transaction of business. Any number less than the number provided in the articles or by-laws therein cannot constitute a quorum and any act therein would not bind the corporation; all that the attending directors could do is to adjourn.
Moreover, the records show that respondent PAMBUSCO ceased to operate for about 25 years prior to the board meeting. Being a dormant corporation for several years, it was highly irregular, for a group of three (3) individuals representing themselves to be the directors of respondent PAMBUSCO to pass a resolution disposing of the only remaining asset of the corporation in favor of a former corporate officer.
As a matter of fact, the three (3) alleged directors who attended the special meeting on November 19, 1974 were not listed as directors of respondent PAMBUSCO in the latest general information sheet. Similarly, the latest list of stockholders of respondent PAMBUSCO on file with the SEC does not show that the said alleged directors were among the stockholders of respondent PAMBUSCO, in contravention of the rule requiring a director to own one (1) share in their to qualify as director of a corporation.
Further, under the Corporation Law, the sale or disposition of any and/or substantially all properties of the corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. This was not complied with in the case at bar.
At the time of the passage of the questioned resolution, respondent PAMBUSCO was insolvent and its only remaining asset was its right of redemption over the subject properties. Since the disposition of said redemption right of respondent PAMBUSCO by virtue of the questioned resolution was not approved by the required number of stockholders, the said resolution, as well as the subsequent assignment and sale, were null and void.
Lastly, for lack of consideration, the assignment should be construed as a donation. Under Article 725 of the Civil Code, in order to be valid, such a donation must be made in a public document and the acceptance must be made in the same or in a separate instrument. In the latter case, the donor shall be notified of the acceptance in an authentic form and such step must be noted in both instruments. Since assignment to Enriquez shows that there was no acceptance of the donation in the same and in a separate document, the said deed of assignment is thus void ab initio.
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Showing posts with label By-Laws. Show all posts
Showing posts with label By-Laws. Show all posts
Friday, February 21, 2014
Thursday, February 20, 2014
Case Digest: Grace Christian High School v. CA
GRACE CHRISTIAN HIGH SCHOOL, petitioner,vs. THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents.
G.R. No. 108905 October 23, 1997
MENDOZA, J.:
Petitioner Grace Christian High School is an educational institution located at the Grace Village in Quezon City, while Private respondent Grace Village Association, Inc. ["Association'] is an organization of lot and/or building owners, lessees and residents at Grace Village.
The original 1968 by-laws provide that the Board of Directors, composed of eleven (11) members, shall serve for one (1) year until their successors are duly elected and have qualified.
On 20 December 1975, a committee of the board of directors prepared a draft of an amendment to the
by-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanent
Director of the ASSOCIATION."
However, this draft was never presented to the general membership for approval. Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the board of directors of the association.
On 13 February 1990, the association's committee on election sought to change the by-laws and informed the Petitioner's school principal "the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined."
Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed. Petitioner requested the chairman of the election committee to change the notice to honor the 1975 by-laws provision, but was denied.
The school then brought suit for mandamus in the Home Insurance and Guaranty Corporation (HIGC) to compel the board of directors to recognize its right to a permanent seat in the board.
Meanwhile, the opinion of the SEC was sought by the association, and SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to §92 of the Corporation Code (B.P. Blg. 68). This was adopted by the association in its Answer in the mandamus filed with the HIGC.
The HIGC hearing officer ruled in favor of the association, which decision was affirmed by the HIGC Appeals Board and the Court of Appeals.
Issue: W/N the 1975 provision giving the petitioner a permanent board seat was valid.
Ruling: No.
Section 23 of the Corporation Code (and its predecessor Section 28 and 29 of the Corporation Law) leaves no room for doubt that the Board of Directors of a Corporation must be elected from among the stockholders or members.
There may be corporations in which there are unelected members in the board but it is clear that in these instances, the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office (e.g. whoever is the Archbishop of Manila is considered a member of the board of Cardinal Santos Memorial Hospital, Inc.)
But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one.
Since the provision in question is contrary to law, the fact that it has gone unchallenged for fifteen years cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity.
It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered ratification.
Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law.
G.R. No. 108905 October 23, 1997
MENDOZA, J.:
Petitioner Grace Christian High School is an educational institution located at the Grace Village in Quezon City, while Private respondent Grace Village Association, Inc. ["Association'] is an organization of lot and/or building owners, lessees and residents at Grace Village.
The original 1968 by-laws provide that the Board of Directors, composed of eleven (11) members, shall serve for one (1) year until their successors are duly elected and have qualified.
On 20 December 1975, a committee of the board of directors prepared a draft of an amendment to the
by-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanent
Director of the ASSOCIATION."
However, this draft was never presented to the general membership for approval. Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the board of directors of the association.
On 13 February 1990, the association's committee on election sought to change the by-laws and informed the Petitioner's school principal "the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined."
Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed. Petitioner requested the chairman of the election committee to change the notice to honor the 1975 by-laws provision, but was denied.
The school then brought suit for mandamus in the Home Insurance and Guaranty Corporation (HIGC) to compel the board of directors to recognize its right to a permanent seat in the board.
Meanwhile, the opinion of the SEC was sought by the association, and SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to §92 of the Corporation Code (B.P. Blg. 68). This was adopted by the association in its Answer in the mandamus filed with the HIGC.
The HIGC hearing officer ruled in favor of the association, which decision was affirmed by the HIGC Appeals Board and the Court of Appeals.
Issue: W/N the 1975 provision giving the petitioner a permanent board seat was valid.
Ruling: No.
Section 23 of the Corporation Code (and its predecessor Section 28 and 29 of the Corporation Law) leaves no room for doubt that the Board of Directors of a Corporation must be elected from among the stockholders or members.
There may be corporations in which there are unelected members in the board but it is clear that in these instances, the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office (e.g. whoever is the Archbishop of Manila is considered a member of the board of Cardinal Santos Memorial Hospital, Inc.)
But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one.
Since the provision in question is contrary to law, the fact that it has gone unchallenged for fifteen years cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity.
It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered ratification.
Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law.
Wednesday, February 19, 2014
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:
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.
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.
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