Atty. Zenaida L. Salipsip

October 4, 2001 SEC OPINION Attys. Zenaida L. Salipsip Teodulo G. San Juan, Jr. Castillo Laman Tan Pantaleon & San Jose The Valero Tower, 122 Valero St., Salcedo Village, 1227 Makati City Dear Attys. Salipsip and San Juan, This refers to your letter dated July 25, 2001 on behalf of Sherwood Hills Golf Club Inc. requesting confirmation with respect to your opinions quoted hereunder: "1. That the club may assess monthly dues on shareholders who have not applied for membership in the Club pursuant to its articles of incorporation and by-laws; and 2. That the shareholders of the Club, a stock corporation, have the right of cumulative voting in the election of directors notwithstanding the absence of any express grant of such right in the Club's Articles of Incorporation or By-laws." The first statement is primarily anchored on Clause 6, Article VII of the Articles of Incorporation of the Club and Section 13.1 of its By-laws. Said provisions are quoted hereunder: "Article VII. (Articles of Incorporation) xxx xxx xxx The registered owner of any class of share shall be subject to the payment of monthly dues in such amount as may be prescribed by resolution of the Board of Directors to meet the expenses for the general operations of the Club, and the maintenance and improvement of its premises and facilities. Section. 13.1. (By-laws) MONTHLY DUES . In order to meet the expenses for the general operations of the Club and the maintenance and improvement of its premises and facilities, all Regular members shall pay monthly dues to the Club in such amount as may be fixed by resolution of the Board of Directors, provided, however, that a juridical entity which owns a Class "C" share shall be assessed double the amount of monthly dues whether or not two nominees or representatives have been named. The payment of the monthly dues shall be the principal responsibility of the registered owner of the share, regardless of whether or not the rights thereto have been assigned in accordance with these By-laws. Such membership dues shall be assessable upon resolution of the Board of Directors which shall not be earlier than the formal turn over of the project by the Developer to the Club." There is therefore an apparent conflict between article VII of the club's articles of incorporation which subjects all registered owners of shares to the payment of monthly dues, and section 13.1 of its by-laws which specifically subjects all its regular members to such dues. You opine that the conflict between the abovequoted provisions in the articles of incorporation and by-laws of the Club should be resolved in favor of the former. We agree. By-laws are subordinate to the charter of the corporation. To be valid, it must be consistent with the terms and spirit of the charter of the corporation-the word "charter" being here used in its broadest sense without regard to whether the statutory right to be a corporation is obtained by special act or under general statutes. Thus, where by-laws conflict with the articles of incorporation, the articles of incorporation control. . . (8 Fletcher Cyc Corp, p. 678) As in this case, Article VII, which expressly subject the registered owner of any class of share to the payment of monthly dues prevails over Section 13.1 of the By-laws which limits the imposition of the monthly dues to regular members . The by-laws of the club provides that membership therein is a privilege, and a holder of a share of stock of the Club is not ipso facto a member of the club. Rather, he must file an application subject to the approval of the board of directors. Regular membership is open to registered owners of shares of stock. Thus, it may be safely inferred that the club's shareholders are classified into ordinary shareholders (those not registered as members) and registered members. The query refers to the ordinary registered shareholders of the club. Undoubtedly, article VII abovequoted includes this class of shareholders who are subject to the payment of monthly dues. Said provision explicitly covers all shareholders when it states therein "registered owner of any class of share", regardless of whether the shareholder is a member or a plain shareholder. Certainly, all of them benefit from the proper maintenance and improvement of the club's facilities and premises, which is the rationale for the imposition of the monthly dues. As to the second statement, the pertinent provision of the Corporation Code is hereunder quoted: "Sec. 24. Election of directors or trustees . . . . In stock corporations, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation, or where the by-laws are silent, at the time of the election; and said stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit; Provided that the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected. . . " In stock corporations, cumulative voting in the election of directors is mandatory. ( Campos, Corporation C od e of the Philippines, p. 439 ) Cumulative voting being a statutory right, a corporation is without power to deprive the stockholders of its use or even restrict the right to vote to only one way or method. ( De leon, Corporation C od e of the Philippines, p. 209 ) In relation thereto, Section 47 of the Corporation Code provides: "Sec. 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 (7) the manner of election or appointment and the term of office of all officers other than directors or trustees; Thus, while the corporation is given wide latitude in incorporating provisions in its by-laws that may be necessary for the proper or convenient transaction of its corporate business and affairs, however, in matters already regulated by the Corporation Code and any law for that matter, the by-laws can not provide otherwise. (Lopez, Corporation C od e, p. 658) Simply stated, the corporation can not provide in its by-laws for the manner of election and term of office of directors or trustees which are inconsistent with the abovequoted provision in the Corporation Code. Accordingly, we affirm your opinion. Very truly yours, (SGD.) FE ELOISA C. GLORIA Commissioner