G.R. No. 128464; June 20, 2006
REV. LUIS AO-AS, ET AL., Petitioners, vs. HON. COURT OF APPEALS, THOMAS P. BATONG, ET AL., Respondents.

FACTS

The Lutheran Church in the Philippines (LCP) is a registered religious non-stock corporation. Its original Articles of Incorporation provided for a seven-member Board of Directors. In 1976 and 1984, LCP national conventions passed resolutions creating new districts, which effectively increased the Board to eleven members, as per the By-Laws authorizing the creation of additional districts. For years, this eleven-member Board managed LCP without issue.
Controversy arose when the Board terminated the corporate treasurer, sparking intra-corporate disputes. In SEC Case No. 3857, the Ao-As group filed for accounting and damages, alleging fund mismanagement and other corporate wrongdoings by the incumbent Batong group. The SEC Hearing Officer, finding the Board’s actions damaging, created a management committee. The SEC en banc affirmed, ruling the eleven-member Board was illegally constituted because the increase in directors was not reflected in an amended Articles of Incorporation, making all its resolutions void.

ISSUE

Whether the Securities and Exchange Commission (SEC) correctly declared the eleven-member Board of Directors of LCP illegally constituted and its acts null and void.

RULING

No. The Supreme Court reversed the SEC and the Court of Appeals. The legal logic centers on the distinction between the Articles of Incorporation and the By-Laws, and the nature of a non-stock corporation. The Articles of Incorporation is the corporation’s charter, defining its structure. The By-Laws are the internal rules for its governance. For non-stock corporations, Section 92 of the Corporation Code explicitly provides that the number and qualifications of directors may be fixed in the By-Laws.
Here, the LCP’s Articles did not specify a fixed number of directors. Its By-Laws, however, provided a mechanism for the number to increase by creating additional districts in convention. The increase from seven to eleven members was done pursuant to these By-Laws. Therefore, the Board was legally constituted. The SEC erred in requiring an amendment to the Articles for the increase, as the Corporation Code for non-stock corporations allows this matter to be governed by the By-Laws. Consequently, the acts of the eleven-member Board were valid. The creation of the management committee, premised on an illegally constituted Board, had no legal basis.