Avalon Condominium Corporation

June 22, 1998 Avalon Condominium Corporation 95 Xavier Street Corner Ortigas Avenue Greenhills, 1500 San Juan, Metro Manila Attention : Mr . Andres B . Soriano (Corporate Secretary) Gentlemen: This refers to your letter dated June 15, 1998, inquiring whether or not the Avalon Condominium Corporation, a non-stock corporation, can legally and validly amend its by-laws and Master Deed to authorize its management to disconnect utility services for condominium units whose owners/members fail to timely remit and pay association dues, assessments for insurance and other special assessments due from them. A corporation, pursuant to Section 36 of the Corporation Code, quoted hereunder, is empowered to amend its by-laws. "SECTION 36. Corporate powers and capacity . Every corporation incorporated under this Code has the power and capacity: xxx xxx xxx 5. To adopt by-laws ,not contrary to law, morals or public policy, and to amend or repeal the same in accordance with this Code;" (Emphasis supplied) Further, Section 47 (10) of the Corporation Code, quoted hereunder, vests upon a corporation much leeway and discretion in including provisions therein which it may deem necessary for the proper and convenient transaction of its corporate affairs. "SECTION 47. Contents of the by-laws . Subject to the provisions of the Constitution, this Code, other special laws, and the articles of incorporation, a private corporation may provide in its by-laws for: xxx xxx xxx 10. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs ." (Emphasis supplied) Thus, if the corporation feels that the above-mentioned authority is necessary or proper to ensure prompt payment by the members of their dues and assessments for the corporation to effectively run its corporate affairs, the same may be provided for in the corporate by-laws by complying with the following provisions of the Corporation Code. "SECTION 48. Amendments to by-laws . The board of directors or trustees, by a majority vote thereof, and the owners of at least a majority of the outstanding capital stock or at least a majority of the members of a non-stock corporation, at a regular or special meeting duly called for the purpose, may amend or repeal any by-laws or adopt new by-laws. The owners of two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members in a non-stock corporation may delegate to the board of directors or trustees the power to amend or repeal any by-laws or adopt new by-laws: Provided, that any power delegated to the board of directors or trustees to amend or repeal any by-laws or adopt new by-laws shall be considered as revoked whenever stockholders owning or representing a majority of the outstanding capital stock or a majority of the members in non-stock corporation, shall so vote at a regular or special meeting. Whenever any amendment or new by-laws are adopted, such amendment or new by-laws shall be attached to the original by-laws in the office of the corporation, and a copy thereof; duly certified under oath by the corporate secretary and a majority of the directors or trustees, shall be filed with the Securities and Exchange Commission, the same to be attached to the original articles of incorporation and original by-laws. The amended or new by-laws shall only be effective upon the issuance by the Securities and Exchange Commission of a certification that the same are not inconsistent with this Code." Regarding your second question of whether or not, in the absence of a specific authority in the by-laws ,the board of directors can enforce a board resolution authorizing the management to disconnect utility services for condominium units whose owners/members fail to timely remit dues and other assessments, we cannot make a categorical answer thereto. However, the following information is imparted. LLphil It is well-settled that the Board of Directors is the governing body of the corporation with whom the management of the corporate affairs is vested. (Sec. 23, Corporation Code) Thus, it is for the Board, by virtue of its management power, to determine whether or not the above-mentioned action of the Board can properly be regarded as an act of management of corporate affairs and whether or not the above form of imposition of sanction by mere Board resolution is reasonably necessary under the circumstances to keep and maintain the corporation. In the exercise of such prerogative, the Board should exercise best care and good judgment solely in the interest of the corporation . Acts of the Board done in good faith and in the exercise of an honest judgment are presumed to be regular and valid. It has to be emphasized however that any act of the Board is subject to review and scrutiny where the corporation and members interests are prejudiced, and any grievance or complaint of any irregularity committed by the Board in the exercise of its management functions may be filed with the Securities Investigation and Clearing Department of this Commission pursuant to the provisions of PD 902-A, as amended and Revised Rules of Procedure in the Securities and Exchange Commission . prLL Please be advised accordingly. Very truly yours, (SGD.) PERFECTO R. YASAY Chairman