Opinion No. 19-26 Re: Right to Lease of a Non-Stock, Non-Profit Condominium Corporation.

Securities and Exchange Commission Republic of the Philippines Department of Finance

OFFICE OF THE GENERAL COUNSEL

July 22, 2019

SEC-OGC Opinion No. 19-26 Re: Right to Lease of a Non-Stock, Non-Profit Condominium Corporation

8TH Floor, PDCP Bank Center Building Salcedo Village, Makati City ATTY. IRENEO J. MARASIGAN V.A. Rufino corner Leviste Street

Atty. Marasigan:

This refers to your letter dated 22 October 2018 requesting an opinion on: (1) the lega

non-stock and non-profit corporation. foreclosed units in the future is deemed as doing business, in violation of its registration as a right of Kensington Place Condominium Corporation (Kensington) to lease its newly-owned unit pursuant to its objectives; and (2) whether the act of leasing the unit and other similarly

Mortgage against the unit owners of Unit 8-K due to delinquency in payment of association dues Kensington, which became final and executory on 17 May 2017. On 18 September 2017, Kensington filed a motion to sell Unit 8-K at public auction to the highest bidder, which was granted by the RTC on 09 November 2017. On 28 March 2018, during the public auction sale, Kensington, being the highest bidder, purchased and/or acquired Unit 8-K. For this reason, all the rights and interests over the said unit were vested to Kensington as its owner. incorporated on 20 June 2006 with SEC Registration No. CN200609494. On 03 July 2014 Kensington filed with the Regional Trial Court (RTC) an action for Judicial Foreclosure of and other defaulted assessments. On 23 June 2016, a decision was rendered in favor of You stated that Kensington is a non-stock, non-profit condominium corporation

condominium unit without violating its purpose clause. Thus, your query, simply stated, is whether Kensington, as owner, may lawfully lease its

Section 86 of the Revised Corporation Code (RCC)1 provides:

incidental to its operations shall, whenever necessary or proper, be its income is distributable as dividends to its members, trustees, or officers; Provided, That any profit which a nonstock corporation may obtain used for the furtherance of the purpose or purposes for which the corporation was organized, subject to the provisions of this Title. provisions on dissolution, a nonstock corporation is one where no part of (Emphasis supplied) "SEC. 86. Definition, - For purposes of this Code and subject to its

1 Republic Act No. 11232

Wx 7[23]|q

SEC-OGC Opinion No. Re: Right to Lease of a Non-Stock. Non-Profit Condominium Corporation I9 -24 Page 2 of 3

The law clearly allows nonstock corporations to raise funds so long as it is incidental to the corporation's operations, and that said funds shall be used for the furtherance of the purpose for which it was established. The fact that a non-profit corporation earns a profit as a legal entity, as distinguished from profit, gain or income to the incorporators or members, does

set forth in the articles on incorporation and is not distributed to its incorporators, members or not make it a profit-making corporation where such profit or income is used for the purposes officers, since mere intangible or pecuniary benefits to the members do not change the nature of the corporation2.

incorporation"4 powers are those which are enumerated in Section 36 of the Corporation Code, which is reproduced as Section 35 of the RCC, and those which are sanctioned by the State in the corporation's articles of incorporation. Implied or incidental powers, on the other hand, are the corporation's "powers, attributes and properties . . . incident to its existence"3, which may be "essential or necessary to carry out its purpose or purposes as stated in its articles of Relatedly, a corporation has both express and implied or incidental powers. Express

of the RcC enumerates the powers expressly given to every corporation created under the whether or not such powers are stated in the articles of incorporation or by-laws5. Section 35(g) general incorporation law, to wit: In this connection, there are general powers that may be exercised by every corporation

incorporated under this Code has the power and capacity: "Sec. 35. Corporate Powers and Capacity. - Every corporation

XXX XXX XXX

including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily pledge, mortgage, and otherwise deal with such real and personal property, require, subject to the limitations prescribed by law and the Constitution; (g) To purchase, receive, take, or grant, hold, convey, sell, lease,

XXX XXX XXX

Code6. Therefore whether or not such power is included in what the corporation could do scope of its corporate powers by express declaration of Section 367 of the Code."s and convey property as an incident to every corporation although such power is expressly conferred to corporations incorporated in accordance with Section 36 (7) of the Corporation and perform under its articles of incorporation, it is nevertheless, deemed to be within the The Commission has previously opined that: "Fletcher has regarded the power to acquire

3 SEC-OGC Opinion No. 20-09, citing Section 2 of the Corporation Code 5 De Leon, H. The Corporation Code of the Philippines, Annotated, 267 (1993) 6 Now Section 35(g) of the Republic Act No. 11232 8 Lopez, R. The Corporation Code of the Philippines, Vol. 2, 512 (1994), citing SEC Opinions dated 6 September 1982, 2 1A Fletcher Cyc. Corp., 1983 rev. vol., sec. 112, at 151 (cited in SEC Opinion dated 09 September 1988 addressed to 4 Paragraph (g) and (k) of section 35 of Republic Act No. 11232 1 Ibid. Marble Corporation of the Philippines 25 January 1991, and Philippine Library Materials Project Foundation, Inc. Technology and Livelihood Resource Center)

SEC-OGC Opinion No. Re: Right to Lease of a Non-Stock. Non-Profit Condominium Corporation 19-24 Page 3 of 3

to wit: Based on our records, Article II of Kensington's Articles of Incorporation provides in part,

is incorporated are: "SECOND: A. That the purpose or purposes for which such association

in the Master Deed with Declaration of Restrictions and/or approved and to sell and convey, transfer or mortgage, or otherwise dispose of real and personal properties such as may be_necessary to achieve the purposes and activities of the association; (Emphasis supplied) known an identified as 'Kensington Place Condominium Corporation penalties against the owners of the units in the project as are provided for authorized by the Board of Trustees; purchase, acquire, own, hold, enjoy, lease, operate and maintain and To own and hold title to common areas in the condominium project XXX XXX. To levy and collect such assessments and XXX XXX XXX. To XX

Section 35(g) of the RCC. Hence, it simply affirms the general power of every corporation allowed under the law. It should be noted that the above-highlighted purpose clause is substantially similar to

condominium unit will be used for the same purpose for which condominium dues and fees are collected, that is, to cover for the expenses in managing and administering the condominium owned condominium unit as long as it remains necessary in the pursuit of corporate purposes. project and the corporation. Thus, considering Kensington's representation, it can lease its As per Kensington, the income that may be derived from leasing the newly-acquired

it will be disclosed that the facts relied upon are different, this opinion shall be rendered void. circumstances disclosed and relevant solely to the particular issue raised therein. It shall not be courts whether of similar or dissimilar circumstances.10 If, upon further inquiry or investigation, used in the nature of a standing rule binding upon the Commission in other cases or upon the It shall be understood that the foregoing opinion is rendered based solely on the facts and

Please be guided accordingly

LAMILO'S. CORREA General Counsel A

9 Articles of Incorporation of Kensington Place Condominium Corporation dated 31 May 2006 10 SEC Memorandum Circular 2003-15, No.7