G.R. No. 184088

SECOND DIVISION

IGLESIA EVANGELICA METODISTA G.R. No. 184088

EN LAS ISLAS FILIPINAS (IEMELIF)

(Corporation Sole), INC., REV. NESTOR

PINEDA, REV. ROBERTO BACANI,

BENJAMIN BORLONGAN, JR.,

DANILO SAUR, RICHARD PONTI,

ALFREDO MATABANG and all the

other members of the IEMELIF

TONDO CONGREGATION of the

IEMELIF CORPORATION SOLE,

Petitioners, Present:

CARPIO, J., Chairperson,

- versus - NACHURA,

PERALTA,

ABAD, and

MENDOZA, JJ.

BISHOP NATHANAEL LAZARO,

REVERENDS HONORIO RIVERA,

DANIEL MADUCDOC, FERDINAND

MERCADO, ARCADIO CABILDO,

DOMINGO GONZALES, ARTURO

LAPUZ, ADORABLE MANGALINDAN,

DANIEL VICTORIA and DAKILA

CRUZ, and LAY LEADER LINGKOD

MADUCDOC and CESAR DOMINGO,

acting individually and as members of

the Supreme Consistory of Elders

and those claiming under the Promulgated:

Corporation Aggregate,

Respondents. July 6, 2010

x --------------------------------------------------------------------------------------- x

DECISION

ABAD, J.:

The present dispute resolves the issue of whether or not a corporation may change its character as a corporation sole into a corporation aggregate by mere amendment of its articles of incorporation without first going through the process of dissolution.

The Facts and the Case

In 1909, Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las Islas Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop Zamora acting as its “General Superintendent.” Thirty-nine years later in 1948, the IEMELIF enacted and registered a by-laws that established a Supreme Consistory of Elders (the Consistory), made up of church ministers, who were to serve for four years. The by-laws empowered the Consistory to elect a General Superintendent, a General Secretary, a General Evangelist, and a Treasurer General who would manage the affairs of the organization. For all intents and purposes, the Consistory served as the IEMELIF’s board of directors.

Apparently, although the IEMELIF remained a corporation sole on paper (with all corporate powers theoretically lodged in the hands of one member, the General Superintendent), it had always acted like a corporation aggregate. The Consistory exercised IEMELIF’s decision-making powers without ever being challenged. Subsequently, during its 1973 General Conference, the general membership voted to put things right by changing IEMELIF’s organizational structure from a corporation sole to a corporation aggregate. On May 7, 1973 the Securities and Exchange Commission (SEC) approved the vote. For some reasons, however, the corporate papers of the IEMELIF remained unaltered as a corporation sole.

Only in 2001, about 28 years later, did the issue reemerge. In answer to a query from the IEMELIF, the SEC replied on April 3, 2001 that, although the SEC Commissioner did not in 1948 object to the conversion of the IEMELIF into a corporation aggregate, that conversion was not properly carried out and documented. The SEC said that the IEMELIF needed to amend its articles of incorporation for that purpose.[1]

Acting on this advice, the Consistory resolved to convert the IEMELIF to a corporation aggregate. Respondent Bishop Nathanael Lazaro, its General Superintendent, instructed all their congregations to take up the matter with their respective members for resolution. Subsequently, the general membership approved the conversion, prompting the IEMELIF to file amended articles of incorporation with the SEC. Bishop Lazaro filed an affidavit-certification in support of the conversion.[2]

Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that did not support the conversion, filed a civil case for “Enforcement of Property Rights of Corporation Sole, Declaration of Nullity of Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate with Application for Preliminary Injunction and/or Temporary Restraining Order” in IEMELIF’s name against respondent members of its Consistory before the Regional Trial Court (RTC) of Manila.[3] Petitioners claim that a complete shift from IEMELIF’s status as a corporation sole to a corporation aggregate required, not just an amendment of the IEMELIF’s articles of incorporation, but a complete dissolution of the existing corporation sole followed by a re-incorporation.

Unimpressed, the RTC dismissed the action in its October 19, 2005 decision.[4] It held that, while the Corporation Code on Religious Corporations (Chapter II, Title XIII) has no provision governing the amendment of the articles of incorporation of a corporation sole, its Section 109 provides that religious corporations shall be governed additionally “by the provisions on non-stock corporations insofar as they may be applicable.” The RTC thus held that Section 16 of the Code[5] that governed amendments of the articles of incorporation of non-stock corporations applied to corporations sole as well. What IEMELIF needed to authorize the amendment was merely the vote or written assent of at least two-thirds of the IEMELIF membership.

Petitioners Pineda, et al. appealed the RTC decision to the Court of Appeals (CA).[6] On October 31, 2007 the CA rendered a decision,[7] affirming that of the RTC. Petitioners moved for reconsideration, but the CA denied it by its resolution of August 1, 2008,[8] hence, the present petition for review before this Court.

The Issue Presented

The only issue presented in this case is whether or not the CA erred in affirming the RTC ruling that a corporation sole may be converted into a corporation aggregate by mere amendment of its articles of incorporation.

The Court’s Ruling

Petitioners Pineda, et al. insist that, since the Corporation Code does not have any provision that allows a corporation sole to convert into a corporation aggregate by mere amendment of its articles of incorporation, the conversion can take place only by first dissolving IEMELIF, the corporation sole, and afterwards by creating a new corporation in its place.

Religious corporations are governed by Sections 109 through 116 of the Corporation Code. In a 2009 case involving IEMELIF, the Court distinguished a corporation sole from a corporation aggregate.[9] Citing Section 110 of the Corporation Code, the Court said that a corporation sole is “one formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a religious denomination, sect, or church, for the purpose of administering or managing, as trustee, the affairs, properties and temporalities of such religious denomination, sect or church.” A corporation aggregate formed for the same purpose, on the other hand, consists of two or more persons.

True, the Corporation Code provides no specific mechanism for amending the articles of incorporation of a corporation sole. But, as the RTC correctly held, Section 109 of the Corporation Code allows the application to religious corporations of the general provisions governing non-stock corporations.

For non-stock corporations, the power to amend its articles of incorporation lies in its members. The code requires two-thirds of their votes for the approval of such an amendment. So how will this requirement apply to a corporation sole that has technically but one member (the head of the religious organization) who holds in his hands its broad corporate powers over the properties, rights, and interests of his religious organization?

Although a non-stock corporation has a personality that is distinct from those of its members who established it, its articles of incorporation cannot be amended solely through the action of its board of trustees. The amendment needs the concurrence of at least two-thirds of its membership. If such approval mechanism is made to operate in a corporation sole, its one member in whom all the powers of the corporation technically belongs, needs to get the concurrence of two-thirds of its membership. The one member, here the General Superintendent, is but a trustee, according to Section 110 of the Corporation Code, of its membership.

There is no point to dissolving the corporation sole of one member to enable the corporation aggregate to emerge from it. Whether it is a non-stock corporation or a corporation sole, the corporate being remains distinct from its members, whatever be their number. The increase in the number of its corporate membership does not change the complexion of its corporate responsibility to third parties. The one member, with the concurrence of two-thirds of the membership of the organization for whom he acts as trustee, can self-will the amendment. He can, with membership concurrence, increase the technical number of the members of the corporation from “sole” or one to the greater number authorized by its amended articles.

Here, the evidence shows that the IEMELIF’s General Superintendent, respondent Bishop Lazaro, who embodied the corporation sole, had obtained, not only the approval of the Consistory that drew up corporate policies, but also that of the required two-thirds vote of its membership.

The amendment of the articles of incorporation, as correctly put by the CA, requires merely that a) the amendment is not contrary to any provision or requirement under the Corporation Code, and that b) it is for a legitimate purpose. Section 17 of the Corporation Code[10] provides that amendment shall be disapproved if, among others, the prescribed form of the articles of incorporation or amendment to it is not observed, or if the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations, or if the required percentage of ownership is not complied with. These impediments do not appear in the case of IEMELIF.

Besides, as the CA noted, the IEMELIF worked out the amendment of its articles of incorporation upon the initiative and advice of the SEC. The latter’s interpretation and application of the Corporation Code is entitled to respect and recognition, barring any divergence from applicable laws. Considering its experience and specialized capabilities in the area of corporation law, the SEC’s prior action on the IEMELIF issue should be accorded great weight.

WHEREFORE, the Court DENIES the petition and AFFIRMS the October 31, 2007 decision and August 1, 2008 resolution of the Court of Appeals in CA-G.R. SP 92640.

SO ORDERED.

ROBERTO A. ABAD

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

ANTONIO EDUARDO B. NACHURA DIOSDADO M. PERALTA

Associate Justice Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

[5] Sec. 16. Amendment of Articles of Incorporation. - Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation.

[7] Rollo, pp. 32-43; penned by Associate Justice Portia Aliño-Hormachuelos, with the concurrence of Associate Justices Lucas P. Bersamin (now an Associate Justice of this Court) and Estela M. Perlas-Bernabe.

[8] Id. at 45-46; penned by Associate Justice Portia Aliño-Hormachuelos, with the concurrence of Associate Justices Lucas P. Bersamin (now an Associate Justice of this Court) and Estela M. Perlas-Bernabe.

[9] Iglesia Evangelica Metodista en las Islas Filipinas, Inc. v. Juane, G.R. No. 172447, September 18, 2009, 600 SCRA 555.

[10] Sec. 17. Grounds when articles of incorporation or amendment may be rejected or disapproved. - The Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is not in compliance with the requirements of this Code: Provided, That the Commission shall give the incorporators a reasonable time within which to correct or modify the objectionable portions of the articles or amendment. The following are grounds for such rejection or disapproval:

1. That the articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein;

2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations;

3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if false;

4. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution.

No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institutions, building and loan associations, trust companies and other financial intermediaries, insurance companies, public utilities, educational institutions, and other corporations governed by special laws shall be accepted or approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law.