Mr. Jose Oscar M. Salazar

May 26, 2003 SEC OPINION NO. 31-03 Mr. Jose Oscar M. Salazar Bormaheco Condominium Metropolitan Avenue, 1205 Makati City Dear Mr. Salazar, This pertains to your letter dated May 19, 2003 requesting opinion on the following queries: "1. Whether an attorney-in-fact or representative of a unit owner in a condominium corporation qualifies as a director therein especially if such attorney-in-fact is unanimously elected as director of the corporation; 2. Whether the surviving spouse of a deceased member of a condominium corporation qualifies as a director therein where there were no judicial proceedings to settle the estate of the deceased and neither was there an extra-judicial partition awarding the unit to the surviving spouse; and, 3. What remedy/ies is/are available to prevent the aforementioned persons from acting as director if the aforementioned persons are not qualified if the Board of Directors/Officers of the condominium corporation continue to recognize said persons to perform the duties of a director?" Anent your first query, please take note that in this jurisdiction, the qualifications of directors/trustees, pursuant to the Corporation Code, are as follows. (1) He must own at least one (1) share of the capital stock of the corporation in his own name, and if he ceases to own at least one share in his own name, he automatically ceases to be a director. For non-stock corporations, only members of the corporation can be elected to sit in the board of trustees. (Section 23); (2) A majority of the directors/trustees must be residents of the Philippines. (Section 23); (3) He must not have been convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of the Corporation Code, committed within five (5) years prior to the date of his election. (Section 27); (4) He must not have substantial interest in a competing corporation. (Gokongwei vs. SEC, SCRA 336); (5) Only natural persons can be elected directors/trustees; and, (6) Other qualifications as may be prescribed in the by-laws of the corporation. (Section 47[5]). From the foregoing, it is unequivocally required that board members, whether as directors or trustees, must be elected from among the holders of stock or from the general membership of the corporation in cases of non-stock corporation. Ownership in a condominium corporation is conferred only upon full payment of the purchase price of the unit. We quote the pertinent portion of the decision of the Supreme Court, in the case entitled Sunset View Condominium vs. Campos, Jr., 1 which reads as follows: "The private respondents, therefore, who have not fully paid the purchase price of their units and consequently not owners of their units are not members or shareholders of the petitioner condominium corporation." TDEASC Similarly, Presidential Decree No. 957 (Regulating the Sale of Subdivision Lots and Condominiums, Providing Penalties For Violations Thereof), provides: "SECTION 25. Issuance of Title The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit ..."(emphasis supplied) Verily, membership in a condominium corporation is evidenced by the Certificate of Title issued upon full payment of the unit. Accordingly, only those persons under whose names the Condominium Certificate of Titles (CCTs) are issued are considered as members of the condominium corporation. The foregoing is even strengthened by Section 10 of Republic Act No. 4726, otherwise known as the Condominium Act, which provides that: "...Membership in a condominium corporation, regardless of whether it is a stock corporation or non-stock corporation, shall not be transferable separately from the condominium unit of which it is appurtenance ..." Therefore, as a general rule, members of a board of directors in a condominium corporation must be elected from the general stockholders of the said corporation, who are comprised of unit owners. In the same light, the by-laws cannot validly provide that even third parties or non-stockholder or non-members of the corporation can be elected to the board of directors/trustees. 2 By-laws cannot prevail over the express provision of law requiring members of the board to be stockholders or members of the corporation. Nevertheless, the aforementioned general rule admits of certain exceptions, as in the case of corporate unit owner/member of a condominium corporation. In one Opinion, 3 the Commission stated that, "in the case of a condominium corporation where all the members thereof are corporate members or juridical persons, an officer or duly authorized agent or trustee who has been designated by a corporate unit owner/member of a condominium corporation as its representative for the express purpose of qualifying him as director, may be eligible to be elected as director. While a corporation cannot act by itself, being a juridical person, it can act through its officers or authorized agent or representative who has been duly designated in a Board Resolution. 4 Relative to your second query, this Commission previously opined 5 that under Articles 74 and 75 of the Family Code, spouses are given the freedom to choose which property regime may govern them during the marriage. The Law provides: "Article 74. The property relations between husband and wife shall be governed in the following order: 1. By marriage settlements executed before the marriage; 2. By the provisions of this Code; and, 3. By the local customs. Article 75. The future spouse may, in the marriage settlements, agree upon the regime of absolute community, conjugal partnership of gains, complete separation of property, or any other regime. In the absence of marriage settlements, or when the regime agreed upon is void, the system of absolute community of property as established in this Code shall govern." Thus, unless the spouses agree upon a different system of property relations, the property relations between the husband and the wife shall be governed by the system of absolute community of property. Assuming therefore, that the husband and wife failed to agree on what property regime to adopt, the condominium unit may be deemed as a community property and shall be governed by the rules on "co-ownership" pursuant to Article 90 of the Family Code, which provides: "Section 90. The provisions on co-ownership shall apply to the absolute community property between the spouses in all matters not provided for in this Chapter." (emphasis supplied) Accordingly, the spouses, who are co-owners of a condominium unit, shall be recorded as one member. However, if the condominium unit is, among the excluded properties under Section 92 of the Family Code or where the spouses have chosen a different marriage settlement other than the system of absolute community property, the law on co-ownership shall not apply. Therefore, when doubtful and in order to determine true ownership of the condominium unit, the corporation may inquire into the property regime governing marriage. With regard your last query, it should be stressed that most modern statutes allow the removal of directors by the shareholders/members of a corporation, with or without cause and irrespective of tenure. Such is the mandate contained in Section 28 of the Corporation Code when it provides that "any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing two-thirds (2/3) of the outstanding capital stock, or if a corporation be a non-stock corporation, by a vote of two-thirds (2/3) of the members entitled to vote: . . ." Section 23 incorporates the so-called inherent power of " amotion " by a corporation. " Amotion " is the power to remove directors, officers and trustees prior to the expiration of their term. 6 The underlying reason for such provision is that the stockholders/members shall be the ultimate masters, not the directors to make the corporate government responsible to the owners. Moreover, the stockholders should feel free to remove directors at anytime that they have lost their trust and confidence in them, whether or not they can prove cause of such loss. Hence, the Corporation Code explicitly allows removal of directors/trustees without cause, except a removal that would effectively deprive minority stockholders/members of the right of representation to which they may be entitled by virtue of the rule on cumulative voting. However, please be advised that the foregoing cited authorities do not restrain or preclude judicial interpretation and application of the law on the actual facts, should the issue raised herein be litigated in the proper court. Please be guided accordingly. THCSAE Very truly yours, (SGD.) VERNETTE UMALI-PACO General Counsel Footnotes 1. GR Nos. 52361 and 52524, April 27, 1981. 2. SEC Opinion dated September 21, 1984 addressed to Atty. Alexander Amor. 3. SEC Opinion dated July 31, 1996 addressed to Mr. Jose Ma. B. Alikpala citing SEC Opinion dated April 16, 1991 addressed to Atty. Augusto B. Sunico, further citing 2 Fletcher Cyc. of Corps, 1982 rev. vol. Sec 300 at 93. 4. SEC Opinion dated May 12, 1995 addressed to Mr. Hans-Jachims Hanusch. 5. SEC Opinion dated January 10, 1994 addressed to Atty. Renato L. Liboro. 6. White vs. Brownell, 2 Daly 329, 357, 4 Abb. PrN.S. 162.