In the Matter of the Municipality of Aguilar vs. The Federation of Athletic Club of Aguilar, Inc.

[SEC-AC NO. 374. December 5, 1994.] IN THE MATTER OF THE MUNICIPALITY OF AGUILAR, PANGASINAN represented by its Municipal Mayor DOMINGO MADRID, complainant-appellant, vs .THE FEDERATION OF ATHLETIC CLUB OF AGUILAR, INC., respondent-appellee . O R D E R For consideration by this Commission en banc is an appeal filed by the Municipality of Aguilar seeking to set aside the January 17, 1992 Resolution of the Prosecution and Enforcement Department (PED) of this Commission in PED Case No. 91-0753 dismissing the complaint/petition filed against the respondent corporation. Records of the case show that a letter-complaint dated July 23, 1990 was filed by the Municipality of Aguilar, Pangasinan thru its municipal mayor against the Federation of Athletic Club of Aguilar, Inc. (Federation).The respondent, pursuant to the Order of the PED, submitted its comment dated September 6, 1990 on September 11 of that same year. On October 5, 1990, the hearing officer directed the complainant to submit a formal verified complaint pursuant to the PED Rules. Complaint complied with the order by filing, on November 14, 1990, the formal verified complaint. The complaint alleged that the Federation conducted a fund raising campaign through a popularity contest, the proceeds of which is to be used for the purchase of fertilizers and pesticides which the respondent is going to loan to the farmers of the same municipality. Complainant averred that the actuation of the federation is not within its express, inherent or incidental powers thereby constituting the same to be ultra vires. In an answer filed on March 18, 1991, the Federation questioned the legality of Resolution No. 90-110 of the Sangguniang Bayan of Aguilar, Pangasinan which authorized the mayor to institute the complaint alleging that the same is null and void. Respondent, accordingly filed a Motion to Dismiss or Suspend Proceedings pending resolution of Civil Case No. 16859 for the "Declaration of Nullity" of the aforesaid resolution. The motion was, however, denied since the act complained of falls within the purview of Section 45 of the Corporation Code and for which a motu proprio investigation could be conducted by the Commission pursuant to Presidential Decree No. 902-A, as amended. The contending parties failed to meet during the scheduled preliminary conference such that, for the expeditious disposition of the case, the hearing officer directed them to file their respective position papers. Neither of the parties complied with the said directive. In a resolution dated January 17, 1992, the PED dismissed the complaint for lack of merit. This is based on its finding that the ultimate purpose of the fund raising campaign conducted by the Federation was the purchase of sports paraphernalias, that is, although it will initially be used to purchase fertilizers and pesticides to be loaned to the farmers, the proceeds of such will be used to carry out the very purpose for which the Federation was organized. The questioned resolution also considered the doctrine that a stranger whose rights have not been infringed by an alleged ultra vires act cannot, as a rule, interpose a plea of ultra vires to prevent the corporation from acting beyond its powers. A notice of Appeal and Memorandum on Appeal was subsequently filed by the appellant seeking to set aside the January 17, 1992 resolution and praying for an order to revoke the Federation's certificate of registration. The appeal advances the arguments that the PED erred in not finding that the subject corporation has committed ultra vires act and that it was error for the PED to rule that the Municipality of Aguilar does not have the legal or equitable right to interpose a plea of ultra vires act to prevent the corporation from acting beyond its powers. The Federation of Athletic Club of Aguilar, Inc. is a sports association duly registered with this Commission. As such registered entity, it can exercise only those powers and authority granted to it by its enabling statute as stated and specified in its articles of incorporation. Said statements of the purposes in its articles results in defining the scope of the authorized corporate undertaking. It confers and also limits the authority granted to corporations under Section 36 of the Corporation Code. Records of the subject corporation show that it is authorized to pursue the following: "1. To encourage and promote sports activities in the Municipality with the support of all affiliate barangays. 2. To train athletes and form teams in basketball, volleyball, soft ball and other activities that may enhance physical fitness and sportsmanship among the members. 3. To develop attitude and harness the people's participation in every sports activity towards the development of a sports-minded community through self-help and self-reliance. 4. To encourage sports competition among affiliate barangays so as to achieve quality among the team members. 5. To acquire, purchase, own, hold, change sporting goods as may be necessary for the accomplishment of the objectives of the association. 6. To do and perform any other acts and things and to exercise any other power which may be necessary convenient and appropriate to accomplish the purposes for which the FACA is organized." Nowhere in the said purposes of the Federation do we find a grant of power or authority to conduct a "fund raising activity particularly to purchase fertilizer and pesticides" to be loaned to the farmers. Verily, therefore, the actuation of the Federation can be considered ultra-vires since the particular act is "not reasonably necessary" to the exercise of the corporation's express power or for the purpose of carrying out the same. It is not in direct and immediate furtherance of the corporation's business, fairly incident to the express power and reasonably necessary to its exercise. While the act complained of is ultra-vires, we find, however, no reason why revocation of the Federation's franchise should be warranted under the premises. The act complained of is not, in itself, illegal or void ab initio since it is merely not within the scope of corporate powers and authority as may have been granted by the State in its articles of incorporation. And, even if there is a violation of the law by the corporation, if such violation is not characterized by obduracy or pertinacity in contempt of law, dissolution is not warranted. (Government vs. El Hogar Filipino, 50 Phil. 399) In fact, to borrow the words of the Supreme Court in Government vs. Phil. Sugar Estates Co., G.R. no. 11789, April 12, 1918 (38 Phil. 15) "(i)t is to be observed in the outset that courts proceed with extreme caution in the proceedings which have for their object the forfeiture of corporate franchise, and a forfeiture will not be allowed, except under express limitation, or for plain abuse of power by which the corporation fails to fulfill the design and purpose of its organization". Likewise, in the El Hogar case, the Highest Court of the land laid down the following: "It is a general rule of law that a corporation possesses only such express powers as are actually conferred and such implied powers as are reasonably necessary to the exercise of the express power. The management and administration of the property of the shareholders of the corporation is not expressly authorized by law and we are unable to see that, upon any fair construction of the law, these activities are necessary to the exercise of any of the granted power." "The corporation, under the point of criticism, had clearly extended itself beyond the legitimate range of powers. But it does not result that the dissolution of the corporation is in order and it will merely be enjoined from further activities of this sort." In the same vein, the Federation has exceeded its powers when it conducted the fund raising campaign to purchase fertilizers and pesticides. "And, although the proceeds thereof will ultimately be used to purchase sports paraphernalia and materials, such act of buying fertilizer is not "reasonably necessary" nor is it in direct or immediate furtherance of its powers. Disenfranchisement, however, is uncalled for since, as earlier ruled, the act complained of is not illegal per se or void ab initio nor is it characterized by obduracy or pertinacity in contempt of law. WHEREFORE, premises considered, this Commission en banc hereby RESOLVES, as it is hereby RESOLVED, to DISMISS the appeal. The Federation of Athletic Club of Aguilar, Inc. is, however, and by this ORDER, DIRECTED to refrain, as it is hereby ENJOINED, from further pursuing and/or acting beyond the scope of its powers as granted to it by the Commission. Any violation of this same nature shall be dealt with more severely in the future. SO ORDERED. (SGD.) ROSARIO N. LOPEZ Chairman (SGD.) RODOLFO L. SAMARISTA (SGD.) MERLE O. MANUEL Associate Commissioner Associate Commissioner (SGD.) FE ELOISA C. GLORIA (SGD.) PERFECTO R. YASAY, JR. Associate Commissioner Associate Commissioner