LOYOLA GRAND VILLAS

HOMEOWNERS ASSOC.

SOUTH
VS.
C.A.
76 SCRA 681
FACTS

This is the issue raised in this petition for review on certiorari of the Decision1 of the Court of Appeals affirming the decision
of the Home Insurance and Guaranty Corporation (HIGC). This quasi-judicial body recognized Loyola Grand Villas
Homeowners Association (LGVHA) as the sole homeowners association in Loyola Grand Villas, a duly registered subdivision
in Quezon City and Marikina City that was owned and developed by Solid Homes, Inc. It revoked the certificates of
registration issued to Loyola Grand Villas Homeowners (North) Association Incorporated (the North Association for brevity)
and Loyola Grand Villas Homeowners (South) Association Incorporated (the South Association).

LGVHAI was organized on February 8, 1983 as the association of homeowners and residents of the Loyola Grand Villas. It was
registered with the Home Financing Corporation, the predecessor of herein respondent HIGC, as the sole homeowners
organization in the said subdivision under Certificate of Registration No. 04-197. It was organized by the developer of the
subdivision and its first president was Victorio V. Soliven, himself the owner of the developer. For unknown reasons, however,
LGVHAI did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so.2 To the officers

consternation, they discovered that there were two other organizations within the subdivision the North

Association and the South Association. According to private respondents, a non-resident and Soliven himself,

respectively headed these associations. They also discovered that these associations had five (5) registered

homeowners each who were also the incorporators, directors and officers thereof. None of the members of the

LGVHAI was listed as member of the North Association while three (3) members of LGVHAI were listed as

members of the South Association.3 The North Association was registered with the HIGC on February 13, 1989

under Certificate of Registration No. 04-1160 covering Phases West II, East III, West III and East IV. It submitted

its by-laws on December 20, 1988.

In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head of the legal

department 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 associations activities. Apparently, this

information resulted in the registration of the South Association with the HIGC on July 27, 1989 covering

Phases West I, East I and East 11. It filed its by-laws on July 26, 1989.
These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They questioned

the revocation of LGVHAIs certificate of registration without due notice and hearing and concomitantly prayed

for the cancellation of the certificates of registration of the North and South Associations by reason of the

earlier issuance of a certificate of registration in favor of LGVHAI.

On January 26, 1993, after due notice and hearing, private respondents obtained a favorable ruling from HIGC

Hearing Officer Danilo C. Javier who disposed of HIGC Case No. RRM-5-89 as follows:

In 1989, when Soliven inquired about the status of LGVHAI, he was informed by the

legal head of the Home Insurance and Guaranty Corporation that the association

was dissolved for (1) not filing its corporate by-laws within the period provided by

law and (2) non-use of charter since the HIGC were not informed of any activities

done by LGVHAI.

This statement by the H C led to petitioner South Association to successfully

registering as the valid homeowners association over various areas in the

subdivision.

Officers of LGVHAI corporation filed complaint with the HIGC questioning the

revocation of their certificate of registration without due notice or hearing as well

as praying for the cancellation of the registrations of the North and South

associations by reason of the earlier registration of LGVHAI

 Petitioner South brought the

matter to the Court of Appeals

questioning whether failure by

LGVHAI to file its by-laws

resulted in its automatic

dissolution Petitioner further appealed to

HGIC ruled in LGVHAI’s favor

and cancelled the certificate

the SC. They concede that the

The CA held that Sec. 46 of the

of registrations of North and

Corporation Code provides no

corporation code is silent on

petitioner South
sanctions for failing to file by-

the effects of failure by a

laws, however, they insist on

Associations corporation to file its by-laws.

sanctions being provided due

There is no provision that a

to the mandatory nature of

corporation is automatically

the provision and how

dissolved upon such failure.

essential by-laws are in the

corporate birth.
 ISSUE

May the failure of a corporation to file its by-laws within one month from the date of its

incorporation, as mandated by Section 46 of the Corporation Code, result in its automatic

dissolution?
No. 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. Non-filing of the by-laws will not result

in automatic dissolution of the corporation. 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.

CA DECISION SEC. 9, CORPORATION CODE

The court said that Section 46

The adoption and filing of by-laws

is a condition subsequent which

and 22, Corporation Code, or in

does not affect the corporate

any other provision of the

personality of a corporation like

Code and other laws which

the LGVHAI. This is so because

provide or at least imply that

Section 9 of the Corporation Code

failure to file the by-laws

provides that the corporate

results in an automatic
existence and juridical personality

dissolution of the corporation

of a corporation begins from the

thus, it must be construed with

date the SEC issues a certificate

P.D. 902-A. of incorporation under its official

seal. Consequently, even if the by-

laws have not yet been filed, a

corporation may be considered a

de facto corporation.
MUST = OUGHT
SEC. 19, CORPORATION CODE
Under Section 19 of the

The word "must" connotes an

Corporation Code, a Corporation

imperative act or operates to

commences its corporate

impose a duty which may be

existence and juridical personality

enforced. However, the is not

and is deemed incorporated from

always imperative in a statute. It

the date the Securities and

may be consistent with an

Exchange Commission issues

exercise of discretion. Thus, if the

certificate of incorporation under

languages of a statute considered

its official seal.

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.
 LEGAL MAXIM
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.
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
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