CGB Condominium Owners Association, Inc. v. Welbilt Construction, Inc.

[SEC-SICD * CASE NO. 5450. July 13, 1999.] CGB CONDOMINIUM OWNERS ASSOCIATION, INC. , complainant , vs . WELBILT CONSTRUCTION, INC. , respondent . D E C I S I O N This is a complaint for collection of association dues and insurance premium filed by CGB Condominium Owners Association, Inc. against defendant Welbilt Construction Corporation. In its complaint plaintiff alleged, among others, that it is an association of condominium owners of Cacho Gonzales Bldg.; that defendant, being an owner and occupant of the second floor of the said building, is a member of the association, and therefore under obligation to pay association dues and insurance premium in accordance with the Master Deed With Declaration of Restrictions and the By-laws of the .association; that defendant refused to pay its association dues and insurance premium so that as of August 1996 the same accumulated to a total of P2,693,282.55; that despite repeated oral and written demands by the plaintiff, defendant refused and still fails and refuses to comply; that in order to enforce its claim plaintiff was constrained to engage the services of counsel for a fee of P30,000.00 plus contingent success fee of P15% of the amount being claimed and P1,200.00 per appearance before this Commission. dctai In its answer, defendant alleged that the complaint was prematurely filed as there is still a pending case before the Securities and Exchange Commission entitled: "CGB Condominium Owners Association Inc. et al. vs. Eduardo Roxas" docketed as SEC Case No. 07-93-4512 where some of the issues are as follows: (a) whether or not the members of the Board were legally constituted," and (b) whether or not the persons sitting as members of the Board have authority to impose unreasonable association dues and insurance premium; that since the resolution of the issue on the alleged unpaid liability is dependent on the validity of the imposition of plaintiff's claim, the latter issue must first be resolved before the instant case can be properly decided; that therefore the said SEC Case No. 4512 partakes of a pre-judicial question which must first be decided before plaintiff can file this case; that plaintiff has no right to demand payment from defendant for the alleged unpaid obligation in the amount of P2,693,282.55 as the said fees were imposed by a Board that is illegal" and therefore is bereft of any power or authority to impose the fees; that assuming arguendo that the Board was legally constituted, it cannot unilaterally and unreasonably increase the fees without the consent of the members of the association; that as a matter of fact defendant tendered to the plaintiff the payment of the required legal imposable fees but the latter refused to accept the same; that defendant was thus constrained to deposit the amount in the bank for the account of the plaintiff; that since plaintiff unjustifiably refused to accept the payment, defendant's obligation is extinguished when it deposited the amount in the bank for the account of the plaintiff. After the issues were joined the case was set for preliminary conference. However, the parties failed to reach an amicable settlement. thus, trial on the merits had to be conducted. From the pleadings submitted by the parties the issues to be resolved turn out to be as follows: (1) Whether or not the increase in the association dues and the imposition of insurance premium is valid; and (2) How much is the total unpaid obligation of the defendant to the complainant. Complainant presented Miss Myrna Montejo and Mr. Emiliano Sunga. Said witnesses testified on the alleged unpaid association dues and insurance premium. They also presented the statement of accounts, the Master Deed With Declaration of restrictions, the By-laws of CGB Condominium Owners Association, Inc.; the Minutes of the Board Resolution dated June 29, 1994, and the demand letter dated July 1, 1996. On the other hand the defendant presented Architect Eugenio Gonzalez and Mila Pulido. Architect Gonzalez alleged that the increase in the association dues and the imposition of the insurance premium did not comply with the procedures and By-laws; that Board of Directors which imposed the increase have no authority to do so since they failed to conduct an election for the years 1991, 1992 and 1993. He also claimed that he allowed the association to use the parking unit assigned to him and which is now being used by the association as its office. He further stated that he remitted One Hundred Thousand (P100,000.00) Pesos to the association twice as advance payments for the association dues. Another witness for the defendant, Mila Pulido, testified that the computation by the association of defendant's obligation to the complainant is erroneous. She then presented her own computation which shows that defendant's unpaid association dues is P846,091.69, while the latter has a claim against the complainant in the amount of P532,416.60. From the evidence presented by the parties, it has been shown that Architect Eugenio Gonzales (who is the president of the defendant corporation) was one of the developers of CGB (Cacho-Gonzalez Building) Condominium and himself used to be the president of the CGB Condominium Owners Association, Inc. During his incumbency as president of the complainant association, ,defendant had been regularly paying its association dues and parties have maintained good relationship. Subsequently, or on July 17, 1990, he was replaced by Mr. Eduardo Roxas as president of the association. Immediately after assuming the presidency, the latter immediately called a meeting and announced an increase in association dues from P11.27 per square meter to P25.00/square meter without the benefit of any report. The members of the association agreed to the increase on condition that it shall be only effective for three months. However, Eduardo Roxas and the other members of the Board continuously-increased the association dues and imposed insurance premium. Eduardo Roxas and the members of the Board moreover failed or refused to conduct an election for the years 1991, 1992 and 1993. This caused Architect Gonzalez to file a case against Eduardo Roxas, et al. ll It has likewise been shown that defendant paid P100,000.00 as advance association dues twice, subject to certain condition. When complainant failed to comply with those conditions, defendant stopped making further advance payments for its association dues. It also appears that on account of the present controversy, the complainant refused to accept the offer of the defendant to pay the association dues based on the original rate. The latter thus deposited the amount in the bank for the account of the complainant. As regards the validity of the composition of the Board, this Hearing Officer will not delve on it since the said issue is pending before this Commission in another case. We will confine our discussion on the main issues presented above. The By-laws of the association provides in its pertinent portion: "Regular assessments for operating expenses. The Board of Directors shall from time to time and at least annually prepare an estimate of the operating expenses of the corporation and assess against each member in proportion to such member's appurtenant proprietary interest or participation in the corporation as hereinafter provided, such amounts as shall be necessary to meet the operating expenses. . . ." From the above-quoted provision of the corporation's By-laws, it is clear that as a pre-condition for the assessment of dues to the members, the Board of Directors must first prepare. an estimate of the operating expenses of the corporation, at least annually. The purpose of imposing this requirement upon the Board is in order to show the justification for the amount of assessment, and to afford each member an opportunity to dispute the same before it is finally enforced. Unfortunately, the evidence shows that the Board failed to prepare an annual estimate as required by the By-laws. It just assessed the members the increased amount without giving the latter any chance to look into the details on how the rate of assessment was reached. To our mind this is rather whimsical and prejudicial to the rights of the members. We therefore rule that the increase in assessment. rate and the imposition of the insurance premium is not valid. It is precisely because of the complainant's failure to comply with the said requirement of its By-laws that it made an over-assessment resulting in what appears to be accumulated substantial savings. This can be gleaned from the financial statements of the association. Thus for the 1994 and 1955 the excess of revenue and association dues over expenses are shown as follows: 1995 1994 Total Revenue P 176,692.56 P 146,360.62 Association dues 6,954.672.00 4,294,302.08 Total P 7,131,364.56 P 4,440,662.70 Less Operating Expenses 4,927,584.16 3,546,298.82 Excess P 2,203,780.40 P894,363.88 ============= ============= It is clear from the above that the imposition of additional charges failed to comply with the By-laws and is not justified by the needs of the association. It would likewise violate the object and nature of the association as provided in Section 2 of its By-laws: "Object and Nature. the corporation is a non-stock, non-profit body formed exclusively for the purpose of holding title to the common area in Cacho-Gonzalez Building (Condominium Project), managing the said project and such other purpose as are necessary, incidental or convenient to the accomplishment of said purposes . . ." It is not the purpose of the association to hold and accumulate savings. Hence, the imposition of the additional charges where the corporation will have substantial accumulated savings is not in accordance with the By-laws. After the foregoing discussion, the next question to be asked is: How much is the unpaid obligation of the defendant? In computing the unpaid association dues, we are left with no alternative but to use the assessment based on the original amount defendant was assessed, thus: December 1990 P11,596.83 January 1991 to June 1999 (102 months @ P11,596.83 per month) P1,189,876.66 Total P1,194.473 49 Less payments 278,800.82 Total obligation of Defendant to P915,679.67 complainant ============ WHEREFORE, in consideration of the foregoing premises, this Commission finds the increase in the assessment rate and the imposition of insurance premium by the complaint to be tainted with invalidity for its failure to comply with one pre-condition set by the By-laws, i.e. for the Board of Directors to prepare from time to time or at least annually an estimate of the operating expenses of the association, on the basis of which the proportionate amount to be assessed each member shall be computed. The defendant is therefore liable to pay its dues to the complainant based on the old assessment rate of P11.27/sq. meter or P11,596.83 monthly. Accordingly, the defendant is hereby ordered to pay to the complainant the sum of NINE HUNDRED FIFTEEN THOUSAND SIX HUNDRED SEVENTY-TWO and 67/100 PESOS (P915,672.67) representing the accumulated assessment dues from December 1990 up to the present less the total amount it already paid to the association. EHSCcT No pronouncement as to cost. SO ORDERED. (SGD.) MALTHIE G. MILITAR Hearing Officer