Crisis escolar y responsabilidad de los padres de familia

INC., petitioner,

vs.

HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO AYCARDO, respondents.

(GR No. 117188; Aug. 7, 1997)

FACTS: Petitioner Association was organized on Feb. 8, 1983, but for some reason failed to file its corporate by-laws. Victorio Soliven, himslef the owner and developer of the subdivision was the first president of the Association.

Later on, asking on the status of petitioner, Soliven discovered that the said association was already dissolved (according to the head of the legal department of HIGC), and accordingly caused the registration of HIGC as the association covering Phases West I, East I and East II of the subdivision.

ISSUE: WON the Association can be considered dissolved for non-adoption of by-laws?

HELD: Yes. As correctly postulated by the petitioner, interpretation of this provision of Sec. 46 begins with the determination of the meaning and import of the word "must" in this section. Ordinarily, the word "must" connotes an imperative act or operates to impose a duty which may be enforced. It is synonymous with "ought" which connotes compulsion or mandatoriness.

However, the word "must" in a statute, like "shall," is not always imperative.

It may be consistent with an exercise of discretion. In this jurisdiction, the tendency has been to interpret "shall" as the context or a reasonable construction of the statute in which it is used demands or requires. This is equally true as regards the word "must." Thus, if the languages of a statute considered as a whole and 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.

In this respect, the following portions of the deliberations of the Batasang Pambansa No. 68 are illuminating:

MR. FUENTEBELLA. Thank you, Mr. Speaker.

On page 34, referring to the adoption of by-laws, are we made to understand here, Mr. Speaker, that by-laws must immediately be filed within one month after the issuance? In other words, would this be mandatory or directory in character?

MR. MENDOZA. This is mandatory.

MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be the effect of the failure of the corporation to file these by-laws within one month?

MR. MENDOZA. There is a provision in the latter part of the Code which identifies and describes the consequences of violations of any provision of this Code. One such consequences is the dissolution of the corporation for its inability, or perhaps, incurring certain penalties.

MR. FUENTEBELLA. But it will not automatically amount to a dissolution of the corporation by merely failing to file the by-laws within one month.

Supposing the corporation was late, say, five days, what would be the mandatory penalty?

MR. MENDOZA. I do not think it will necessarily result in the automatic or ipso facto dissolution of the corporation. Perhaps, as in the case, as you suggested, in the case of El Hogar Filipino where a quo warranto action is brought, one takes into account the gravity of the violation committed. If the by-laws were late — the filing of the by-laws were late by, perhaps, a day or two, I would suppose that might be a tolerable delay, but if they are delayed over a period of months — as is happening now — because of the absence of a clear requirement that by-laws must be completed within a specified period of time, the corporation must suffer certain consequences.

This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Moreover, even without resorting to the records of

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THE CORPORATION CODE OF THE PHILIPPINES (Batas Pambansa Bilang 68, as amended) based on the book of Atty Ruben C. Ladia deliberations of the Batasang Pambansa, the law itself provides the answer to

the issue propounded by petitioner.

Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli interpretatix est ipsum statutum), Section 46 aforequoted reveals the legislative intent to attach a directory, and not mandatory, meaning for the word "must" in the first sentence thereof.

Note should be taken of the second paragraph of the law which allows the filing of the 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 one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission." It necessarily follows that failure to file the by-laws within that period does not imply the "demise" of the corporation.

By-laws may be necessary for the "government" of the corporation but these are subordinate to the articles of incorporation as well as to the Corporation Code and related statutes. There are in fact cases where by-laws are unnecessary to corporate existence or to the valid exercise of corporate powers, thus:

In the absence of charter or statutory provisions to the contrary, by-laws are not necessary either to the existence of a corporation or to the valid exercise of the powers conferred upon it, certainly in all cases where the charter sufficiently provides for the government of the body;

and even where the governing statute in express terms confers upon the corporation the power to adopt by-laws, the failure to exercise the power will be ascribed to mere nonaction which will not render void any acts of the corporation which would otherwise be valid. (Emphasis supplied.)

As Fletcher aptly puts it:

It has been said that the by-laws of a corporation are the rule of its life, and that until by-laws have been adopted the corporation may not be able to act for the purposes of its creation, and that the first and most important duty of the members is to adopt them. This would seem to follow as a matter of principle from the office and functions of by-laws.

Viewed in this light, the adoption of by-laws is a matter of practical, if not one of legal, necessity. Moreover, the peculiar circumstances attending the formation of a corporation may impose the obligation to adopt certain by-laws, as in the case of a close corporation organized for specific purposes. And the statute or general laws from which the corporation derives its corporate existence may expressly require it to make and adopt by-laws and specify to some extent what they shall contain and the manner of their adoption. The mere fact, however, of the existence of power in the corporation to adopt by-laws does not ordinarily and of necessity make the exercise of such power essential to its corporate life, or to the validity of any of its acts.

Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the non-filing of the same within the period provided for in Section 46. However, such omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the SEC of which state:

Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

xxx xxx xxx

(1) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following:

xxx xxx xxx

Failure to file by-laws within the required period.

Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright "demise" of corporate existence. Proper notice and hearing

are cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same.

That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment. P.D. No. 902-A, which took effect immediately after its promulgation on March 11, 1976, is very much apposite to the Code.

Accordingly, the provisions abovequoted supply the law governing the situation in the case at bar, inasmuch as the Corporation Code and P.D. No.

902-A are statutes in pari materia. Interpretare et concordare legibus est optimus interpretandi. Every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence.

As the "rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it," by-laws are indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an orderly governance and management of corporations. Nonetheless, failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation.

In this regard, private respondents are correct in relying on the pronouncements of this Court in Chung Ka Bio v. Intermediate Appellate Court, as follows:

“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.”

HENRY FLEISCHER, plaintiff-appellee,

vs. BOTICA NOLASCO CO., INC., defendant-appellant.

(GR No. L-23241; March 14 ,1925)

FACTS: Manuel Gonzales, the original owner of 5 shares of stock in question of Defendant Company, assigned and transferred to herein plaintiff Fleischer.

Two days after, Dr. Miciano, secretary-treasurer of the company, offered to buy from Fleischer the said shares in behalf of the corporation, contending that Art. 12 of the by-laws grants the company preferential right to buy Gonzales’ shares. Plaintiff refused and requested Dr. Miciano to register said shares in his name, and the latter refused to do so.

ISSUE: WON Fleischer is bound by the provisions of the corporation’s by-laws?

HELD: No. Section 13, paragraph 7 (of Act 1459), empowers a corporation to make by-laws, not inconsistent with any existing law, for the transferring of its stock. It follows from said provision, that a by-law adopted by a corporation relating to transfer of stock should be in harmony with the law on the subject of transfer of stock. The law on this subject is found in section 35 of Act No. 1459. Said section specifically provides that the shares of stock

"are personal property and may be transferred by delivery of the certificate indorsed by the owner, etc." Said section 35 defines the nature, character and transferability of shares of stock. Under said section they are personal property and may be transferred as therein provided. Said section contemplates no restriction as to whom they may be transferred or sold. It does not suggest that any discrimination may be created by the corporation in favor or against a certain purchaser. The holder of shares, as owner of

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THE CORPORATION CODE OF THE PHILIPPINES (Batas Pambansa Bilang 68, as amended) based on the book of Atty Ruben C. Ladia personal property, is at liberty, under said section, to dispose of

them in favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of law.

Therefore, a stock corporation in adopting a by-law governing transfer of shares of stock should take into consideration the specific provisions of section 35 of Act No. 1459, and said by-law should be made to harmonize with said provisions. It should not be inconsistent therewith.

As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the corporation, and are not contradictory to the general policy of the laws of the land.

(Supreme Commandery of the Knights of the Golden Rule vs. Ainsworth, 71 Ala., 436; 46 Am. Rep., 332.)

On the other hand, it is equally well settled that by-laws of a corporation must be reasonable and for a corporate purpose, and always within the charter limits. They must always be strictly subordinate to the constitution and the general laws of the land. They must not infringe the policy of the state, nor be hostile to public welfare. (46 Am. Rep., 332.) They must not disturb vested rights or impair the obligation of a contract, take away or abridge the substantial rights of stockholder or member, affect rights of property or create obligations unknown to the law. (People's Home Savings Bank vs. Superior Court, 104 Cal., 649; 43 Am. St. Rep., 147; Ireland vs.

Globe Milling Co., 79 Am. St. Rep., 769.)

The validity of the by-law of a corporation is purely a question of law. (South Florida Railroad Co. vs. Rhodes, 25 Fla., 40.)

“The power to enact by-laws restraining the sale and transfer of stock must be found in the governing statute or the charter. Restrictions upon the traffic in stock must have their source in legislative enactment, as the corporation itself cannot create such impediments. By-laws are intended merely for the protection of the corporation, and prescribe regulation and not restriction; they are always subject to the charter of the corporation.

The corporation, in the absence of such a power, cannot ordinarily inquire into or pass upon the legality of the transaction by which its stock passes from one person to another, nor can it question the consideration upon which a sale is based. A by-law cannot take away or abridge the substantial rights of stockholder. Under a statute authorizing by- laws for the transfer of stock, a corporation can do no more than prescribe a general mode of transfer on the corporate books and cannot justify an unreasonable restriction upon the right of sale. (4 Thompson on Corporations, sec. 4137, p. 674.

The jus disponendi, being an incident of the ownership of property, the general rule (subject to exceptions hereafter pointed out and discussed) is that every owner of corporate shares has the same uncontrollable right to alien them which attaches to the ownership of any other species of property. A shareholder is under no obligation to refrain from selling his shares at the sacrifice of his personal interest, in order to secure the welfare of the corporation, or to enable another shareholder to make gains and profits. (10 Cyc., p. 577.)

It follows from the foregoing that a corporation has no power to prevent or to restrain transfers of its shares, unless such power is expressly conferred in its charter or governing statute. This conclusion follows from the further consideration that by-laws or other regulations restraining such transfers, unless derived from authority expressly granted by the legislature, would be regarded as impositions in restraint of trade.

(10 Cyc., p. 578.)

The foregoing authorities go farther than the stand we are taking on this question. They hold that the power of a corporation to enact by-laws restraining the sale and transfer of shares, should not only be in harmony with the law or charter of the corporation, but such power should be expressly granted in said law or charter.

The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35 of Act No. 1459, quoted above, as follows: "No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number

of the certificate, and the number of shares transferred." This restriction is necessary in order that the officers of the corporation may know who are the stockholders, which is essential in conducting elections of officers, in calling meeting of stockholders, and for other purposes. but any restriction of the nature of that imposed in the by-law now in question, is ultra vires, violative of the property rights of shareholders, and in restraint of trade

And moreover, the by-laws now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by said by-law between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser.

GOVERNMENT VS. EL HOGAR (supra) - Fourth cause of action. — It appears that among the by-laws of the association there is an article (No. 10) which reads as follows:

“The board of directors of the association, by the vote of an absolute majority of its members, is empowered to cancel shares and to return to the owner thereof the balance resulting from the liquidation thereof whenever, by reason of their conduct, or for any other motive, the continuation as members of the owners of such shares is not desirable.”

ISSUE: WON the above provision is valid?

HELD: No. This by-law is of course a patent nullity, since it is in direct conflict with the latter part of section 187 of the Corporation Law, which expressly declares that the board of directors shall not have the power to force the surrender and withdrawal of unmatured stock except in case of liquidation of the corporation or of forfeiture of the stock for delinquency. It is agreed that this provision of the by-laws has never been enforced, and in fact no attempt has ever been made by the board of directors to make use of the power therein conferred. In November, 1923, the Acting Insular Treasurer addressed a letter to El Hogar Filipino, calling attention to article 10 of its by-laws and expressing the view that said article was invalid. It was therefore suggested that the article in question should be eliminated from the by-laws. At the next meeting of the

HELD: No. This by-law is of course a patent nullity, since it is in direct conflict with the latter part of section 187 of the Corporation Law, which expressly declares that the board of directors shall not have the power to force the surrender and withdrawal of unmatured stock except in case of liquidation of the corporation or of forfeiture of the stock for delinquency. It is agreed that this provision of the by-laws has never been enforced, and in fact no attempt has ever been made by the board of directors to make use of the power therein conferred. In November, 1923, the Acting Insular Treasurer addressed a letter to El Hogar Filipino, calling attention to article 10 of its by-laws and expressing the view that said article was invalid. It was therefore suggested that the article in question should be eliminated from the by-laws. At the next meeting of the