CORPORATION LAW CASE
SERGE CENIA
** BY-LAWS **
CASE 35
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION INC.
VS CA GR 117188
AUGUST 7, 1997
FACTS: Loyola Grand Villas Homeowners Association (LGVHAI) was
organized as the association of homeowners and residents of the
Loyola Grand Villas. It was registered with the Home Financing
Corporation, the predecessor Home Insurance and Guaranty
Corporation (HIGC), as the sole homeowners' organization in the
subdivision. It was organized by the developer and its first president
was Soliven, himself the owner of the developer. However, LGVHAI
did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-
laws but they failed to do so. To the officers consternation, they
discovered that there were two other organizations within the
subdivision, a LGVHAI North, and a LGVHAI South Association.
In July 1989, when Soliven inquired about the status of LGVHAI, the
head of the legal dept. of the HIGC, informed him that LGVHAI had
been automatically dissolved for two reasons: First, it did not submit
its by-laws within the period required by the Corporation Code and,
second, there was non-user of corporate charter because HIGC had
not received any report on the association's activities.
These developments prompted the officers of the LGVHAI to lodge a
complaint with the HIGC. They questioned the revocation of
LGVHAI's certificate of registration without due notice and hearing
and concomitantly prayed for the cancellation of the North and
South Associations by reason of the earlier issuance of a certificate
of registration in favor of LGVHAI.
COMMERCIAL LAW REVIEW ATTY.
After due notice and hearing, LGVHAI obtained a favorable ruling
from HIGC recognizing them as the duly registered and existing
homeowners association, and declared the North and South
Associations as revoked or cancelled, among others.
The South Association appealed to the Appeals Board which
dismissed the appeal for lack of merit. The South Association in turn
appealed to the Court of Appeals. However the Court of Appeals
affirmed the Resolution. The South Association filed the petition for
review on certiorari.
ISSUE: WON failure by LGVHAI 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. Section 46 reveals the legislative intent to attach a
directory, and not mandatory, meaning for the word ''must" in the
first sentence thereof. The second paragraph of the law which
allows the filing of by-laws even prior to incorporation. This
provision in the same section of the Code rules out mandatory
compliance with the requirement of filing the by-laws, within 1
month after receipt of official notice of the issuance of its certificate
of incorporation by the SEC." It necessarily follows that failure to file
the by-laws within that period does not imply the "demise" of the
corporation.
There can be no automatic corporate dissolution simply because the
incorporators failed to abide by the required filing of by-laws in sec.
46 of the Corporation Code. Proper notice and hearing are cardinal
components of due process. The incorporators must be given the
chance to explain their neglect or omission and remedy the same.
The case of Chung Ka Bio vs IAC states that:
CORPORATION LAW CASE
** BY-LAWS **
Non-filing of the by-laws will not result in automatic dissolution of
the corporation. Under Section 6(I) of PD 902-A, the SEC is
empowered to suspend or revoke, after proper notice and hearing,
the franchise or certificate of registration of a corporation on the
ground inter alia of failure to file by-laws within the required period.
It is clear from this provision that there must first of all be a hearing
to determine the existence of the ground, and secondly, assuming
such finding, the penalty is not necessarily revocation but may be
only suspension of the charter. In fact, under the rules and
regulations of the SEC, failure to file the by-laws on time may be
penalized merely with the imposition of an administrative fine
without affecting the corporate existence of the erring firm.
WHEREFORE, the instant petition for review on certiorari is hereby
DENIED and the questioned Decision of the Court of Appeals
AFFIRMED.
COMMERCIAL LAW REVIEW ATTY. SERGE CENIA
CASE 36
BARAYUGA V. ADVENTIST UNIVERSITY OF THE PHILIPPINES
G.R. NO. 168008, 17 AUGUST 2011
FACTS: AUP, a non-stock and non-profit domestic educational
institution is incorporated under Philippine laws. Petitioner being a
member of the board of trustees (BOT) of AUP was elected the
corporations secretary. Almost 2 months following such election, on
Januarty 23, 2001, the BOT appointed petitioner a president of AUP.
There was an audit which concluded that the president had
committed serious violation of fundamental rules and procedure in
the disbursement and use of funds. After investigation, notice and
hearing, the members by secret ballots voted for the removal of
petitioner as president on January 27, 2003.
On February 4, 2003, petitioner brought the suit of injunction and
damages before trial court alleging that the BOT had relieved him as
president without valid grounds despite five-year term as provided
by Section 108 of the Corporation Code. The trial court ruled in
favour of the petitioner which AUP forthwith filed a petition for
certiorari before the Court of Appeals, contending that petitioner, as
president has a term of office of only two years, not five years,
based on AUPs amended by-laws. CA reversed trial courts decision,
hence the petition.
ISSUE: Is the term of Barayuga is five years as per Corporation Code
or two years as provided by amended by-laws of AUP.
RULING: The Supreme Court ruled that petitoners assertion lacked
legal basis. The second paragraph of the provision, although setting
the term of the members of the Board of Trustees at five years,
contains a proviso expressly subjecting the duration to what is
CORPORATION LAW CASE
** BY-LAWS **
otherwise provided in the articles of incorporation or by-laws of the
educational corporation. That contrary provision controls on the
term of office.
As AUPs amended by-laws provides for the term of members of
BOT. each of whom shall hold his office for a term of two years, or
until his successor has been elected and qualified. The term of
office of only two years; the officers, including the President, were
to exercise the powers vested by Section 2 of the amended By-Laws
for a term of only two years, not five years. the petitioner, having
assumed as President of AUP on January 23, 2001, could serve for
only two years, or until January 22, 2003. By the time of his removal
for cause as President on January 27, 2003, he was already
occupying the office in a hold-over capacity, and could be removed
at any time, without cause, upon the election or appointment of his
successor. His insistence on holding on to the office was untenable,
therefore, and with more reason when one considers that his
removal was due to the loss of confidence on the part of the Board
of Trustees.
COMMERCIAL LAW REVIEW ATTY. SERGE CENIA
CASE 37
VALLEY GOLF AND COUNTRY CLUB INC., VS ROSA VDA DE CARAM
FACTS: Valley Golf & Country Club (Valley Golf) is a duly constituted
non-stock, non-profit corporation which operates a golf course. Its
shareholders are likewise assessed with monthly dues. The husband
of Rosa subscribed and paid in full one share in the Valley Golf. For a
period of 7 years, Caram failed to pay its monthly dues. Valley sent 5
letters to Caram informing him that his account is delinquent and all
his privileges were suspended pursuant to its Articles of
Incorporation. On the last letter he was informed that his share will
be sold to satisfy the claim of the petitioner. However, it was found
out that Caram already died before the 3 rd letter was sent to him
mail adresss.
After publication and approval of the board, the share was sold.
Unaware of the controversy in Valley Golf, respondent initiated an
intestate proceeding wherein the court awarded the Golf share to
the respondent.
It was only through a letter after 3 years from sale, that the heirs of
Caram, learned of the sale but they were entitled for refund out of
the proceeds of the sale. Respondent filed an action for
reconveyance of the share with damages before the Securities and
Exchange Commission (SEC) against Valley Golf claiming violation of
due process.
Valley in its defense alleged that the sale of shares by reason of
unpaid debts or monthly dues is permitted by its By-laws even
though it is not incorporated in the AOI and that the petitioner
informed Caram for the sale of his shares through 5 letters sent on
different dates.
CORPORATION LAW CASE
** BY-LAWS **
ISSUE: W/N the absence of any procedure regarding notice and
hearing for the sale of shares due to failure to pay the monthly
dues in AOI or by-laws render the sale valid.
RULING: NO. The by-laws of Valley Golf is discomfiting enough in
that it fails to provide any formal notice and hearing procedure
before a members share may be seized and sold. The Court would
have been satisfied had the by-laws or the articles of incorporation
established a procedure which assures that the member would in
reality be actually notified of the pending accounts and provide the
opportunity for such member to settle such accounts before the
membership share could be seized then sold to answer for the debt.
As we have emphasized, membership in Valley Golf and many other
like-situated non-stock corporations actually involves the purchase
of a membership share, which is a substantially expensive property.
As a result, termination of membership does not only lead to loss of
bragging rights, but the actual deprivation of property.
COMMERCIAL LAW REVIEW ATTY. SERGE CENIA
The arrangement provided for in the afore-quoted by-laws of Valley
Golf whereby a lien is constituted on the membership share to
answer for subsequent obligations to the corporation finds
applicable parallels under the Civil Code. Membership shares are
considered as movable or personal property, and they can be
constituted as security to secure a principal obligation, such as the
dues and fees such as pledge and chattel mortgage. In this case,
Caram had not signed any document that manifests his agreement
to constitute his Golf Share as security in favor of Valley Golf to
answer for his obligations to the club. There is no document we can
assess that it is substantially compliant with the form of chattel
mortgages under Section 5 of Act No. 1508. The by-laws could not
suffice for that purpose since it is not designed as a bilateral
contract between Caram and Valley Golf, or a vehicle by which
Caram expressed his consent to constitute his Golf Share as security
for his account with Valley Golf.

The Court has no intention to interfere with how non-stock

corporations should run their daily affairs. The Court also respects
the fact that membership is non-stock corporations is a voluntary
arrangement, and that the member who signs up is bound to adhere
to what the articles of incorporation or the by-laws provide, even if
provisions are detrimental to the interest of the member. At the
same time, in the absence of a satisfactory procedure under the
articles of incorporation or the by-laws that affords a member the
opportunity to defend against the deprivation of significant property
rights in accordance with substantial justice, the terms of the by-
laws or articles of incorporation will not suffice. There will be need
in such case to refer to substantive law. Such a flaw attends the
articles of incorporation and by-laws of Valley Golf. The Court deems
it judicious to refer to the protections afforded by the Civil Code,
with respect to the preservation, maintenance, and defense from
loss of property rights.