United BF Homeowner's Associaton vs. BF Homes, Inc.

An administrative rule that expands the coverage of its enabling statute is void, and the HIGC's jurisdiction over homeowners' disputes is limited to the intra-corporate controversies enumerated in Presidential Decree No. 902-A.

UBFHAI is the umbrella organization and sole representative of all homeowners in the BF Homes Parañaque Subdivision, a 765-hectare subdivision south of Manila; BFHI is the owner-developer of the subdivision, which opened in 1968. Administrative supervision over homeowners' associations was originally vested in the Securities and Exchange Commission and was later delegated to the HIGC by Executive Order No. 535, which also gave the HIGC original and exclusive jurisdiction over intra-corporate controversies under Presidential Decree No. 902-A. BFHI had been placed under SEC receivership in 1988 for a ten-year rehabilitation program, and a committee of receivers later managed it.

UBFHAI is the umbrella organization and sole representative of all homeowners in the BF Homes Parañaque Subdivision, a 765-hectare subdivision located south of Manila. BFHI is the owner-developer of the subdivision, which first opened in 1968. In 1988, because of financial difficulties, the Securities and Exchange Commission placed BFHI under receivership for a ten-year rehabilitation program and appointed Atty. Florencio B. Orendain receiver. The program had two stages: payment of obligations to external creditors and payment of obligations to Banco Filipino.

When Orendain took over management of BFHI in 1988, several matters in the subdivision were not in order. There was no centralized security system for the whole village; there were sixty-five satellite homeowners' associations averaging 130 homeowners each, and two major associations, BFPHAI and CBFHAI. There were no zoning guidelines to regulate the construction and proliferation of business establishments inside the subdivision, nine of the eighteen water wells were not functioning, and water supply was becoming scarce. Preliminary to the rehabilitation, Orendain entered into an agreement with BFPHAI and CBFHAI for the creation of a single representative homeowners' association and the setting up of an integrated security program covering the eight entry and exit points to and from the subdivision. On December 20, 1988, the tripartite agreement was reduced into a memorandum of agreement, amended in March 1989. Pursuant to these agreements, on May 18, 1989, UBFHAI was created and registered with the HIGC and recognized as the sole representative of all homeowners' associations inside the subdivision. BFHI, through its receiver, turned over to UBFHAI the administration and operation of the subdivision's clubhouse at #37 Pilar Banzon Street on June 23, 1989, and a strip of open space in Concha Cruz Garden Row in May 1993.

On November 7, 1994, the first receiver was relieved and a new committee of receivers, composed of BFHI's eleven members of the board of directors, was appointed. On April 7, 1995, based on BFHI's title to the main roads, the newly appointed committee of receivers sent a letter to the different homeowners' associations informing them that, as a basic requirement for BFHI's rehabilitation, BFHI would be responsible for the security of the subdivision in order to centralize it and abate the continuing proliferation of squatters. On the same day, UBFHAI filed with the HIGC a petition for mandamus with preliminary injunction against BFHI. UBFHAI alleged that the committee of receivers illegally revoked its security agreement with the previous receiver. It complained that even prior to that date, the new committee had (1) deferred UBFHAI's purchase of additional pumps; (2) terminated the collection agreement for the community assessment forged by UBFHAI with the first receiver; (3) terminated the administration and maintenance of the Concha Cruz Garden Row; (4) sent a letter to UBFHAI stating that it recognized BFPHAI only and that the subdivision's clubhouse was to be administered by BFPHAI only; and (5) taken over the administration of security in the main avenues of the subdivision.

On April 11, 1995, the HIGC issued ex parte a temporary restraining order. BFHI was enjoined from taking over the clubhouse at 37 Pilar Banzon Street, taking over security in all entry and exit points and main avenues of the subdivision, impeding or preventing the execution and sale at auction of the properties of BFPHAI in HIGC HOA-90-138, and otherwise repudiating or invalidating any contract or agreement of UBFHAI with the former receiver/BFHI concerning funding or delivery of community services. On April 24, 1995, without filing an answer to UBFHAI's petition with the HIGC, BFHI filed with the Court of Appeals a petition for prohibition with preliminary injunction and temporary restraining order to enjoin HIGC from proceeding with the case. On May 2, 1995, the HIGC deferred resolution of UBFHAI's application for preliminary injunction until the Court of Appeals resolved BFHI's prohibition petition. When the twenty-day effectivity of the temporary restraining order lapsed, the HIGC ordered the parties to maintain the status quo.

The dispute reached the Court of Appeals when BFHI challenged the HIGC's jurisdiction. The appellate court granted BFHI's petition for prohibition and ordered the HIGC hearing officer to dismiss HIGC Case No. HOA-95-027 for lack of jurisdiction. UBFHAI's motion for reconsideration was denied, prompting the petition for review on certiorari before the Supreme Court.

• HIGC Jurisdiction Under Revised Rules: Petitioner UBFHAI maintained that the HIGC had original and exclusive jurisdiction over the dispute under Section 1(b), Rule II of the HIGC's Revised Rules, which includes controversies between the association and the "general public or other entity."
• HIGC's Position: Petitioner HIGC maintained in its comment before the Court of Appeals that it had original and exclusive jurisdiction over the dispute pursuant to the power and authority granted it in the revised rules of procedure.
• Attack on Corporate Existence: Petitioner raised whether the acts committed by BFHI constituted an attack on UBFHAI's corporate existence.
• Court of Appeals Jurisdiction: Petitioner questioned the appellate court's jurisdiction over the subject case.

• Invalid Implementing Rules: Respondent BFHI disputed the HIGC's jurisdiction, contending that the rules of procedure relied upon by petitioner are not a valid implementation of Executive Order No. 535, as amended, in relation to Presidential Decree No. 902-A.
• Lack of HIGC Jurisdiction: Respondent argued that the HIGC had no jurisdiction over the dispute, as it did not fall within the intra-corporate controversies covered by law.

• Validity of HIGC Rule: Whether Section 1(b), Rule II of the HIGC's "Rules of Procedure in the Settlement of Homeowners' Disputes" is valid, particularly its inclusion of "general public or other entity" in the third type of dispute.
• HIGC Jurisdiction: Whether the HIGC has original and exclusive jurisdiction over the dispute between UBFHAI and BFHI.
• Attack on Corporate Existence: Whether the acts committed by BFHI constitute an attack on UBFHAI's corporate existence.

• Validity of HIGC Rule: No. Section 1(b), Rule II is void because it added "general public or other entity" and thereby expanded Presidential Decree No. 902-A; an administrative rule cannot amend or expand its enabling statute.
• HIGC Jurisdiction: No. The dispute is not an intra-corporate controversy enumerated by law; it is between the homeowners' association and the owner-developer acting as committee of receivers, and HIGC's jurisdiction is limited to the three specified intra-corporate relations.
• Attack on Corporate Existence: Not reached. Because the HIGC lacks jurisdiction, the issue is immaterial.

• Validity of HIGC Rule: The HIGC's rule-making power is delegated legislative power and is limited to implementing the enabling statute. Section 2 of Executive Order No. 535 delegated to the HIGC the SEC's powers over homeowners' associations, including original and exclusive jurisdiction over intra-corporate controversies as defined in Section 5(b) of Presidential Decree No. 902-A. The third type of intra-corporate controversy under the law is between the association and the State insofar as the association's franchise or right to exist is concerned. Section 1(b), Rule II of the HIGC's Revised Rules, however, added "general public or other entity," thereby expanding the statutory text. Because an administrative agency cannot amend or expand its enabling law, and because a discrepancy between the basic law and an implementing rule is resolved in favor of the basic law, the added phrase is invalid. The Court declared Rule II, Section 1(b) void without ruling on the rest of the rules. It cited Teoxon vs. Members of the Board of Administrators (PVA), Land Bank of the Philippines vs. Court of Appeals, Nasipit Lumber Company, Inc. vs. National Wages and Productivity Commission, Conte vs. Commission on Audit, People vs. Maceren, and Lina, Jr. vs. Cariño.
• HIGC Jurisdiction: Even without the invalid phrase, the HIGC cannot claim jurisdiction under the other two types of intra-corporate disputes. The dispute is not between and among members of the homeowners' association, nor between members and the association. The parties are UBFHAI, a homeowners' association, and BFHI, the owner-developer acting as the corporation's committee of receivers. The HIGC's jurisdiction over homeowners' disputes is limited to the three intra-corporate relations enumerated in Presidential Decree No. 902-A. Jurisdiction over the subject matter is conferred by law and cannot be enlarged or diminished by the parties or by administrative rules. The Court also observed that BFHI's board, acting as committee of receivers, was attempting to rehabilitate the corporation and that the revocation of security agreements and removal of administration and maintenance of property still titled to BFHI were acts in pursuance of the rehabilitation program; the agreements were contractual and could be altered or modified by BFHI as successor receiver.
• Attack on Corporate Existence: The Court did not discuss this issue because the HIGC lacked jurisdiction. Whether BFHI's acts constituted an attack on UBFHAI's corporate existence was immaterial, and the HIGC had no jurisdiction to hear and resolve the dispute. Proceeding with the hearing would be an exercise in futility.

• Administrative Rule-Making Power Is Limited to Implementing the Enabling Statute — An administrative agency may promulgate rules only to carry into effect the law as enacted; it cannot amend, expand, or conflict with the statute. In this case, the HIGC's inclusion of "general public or other entity" in Section 1(b), Rule II expanded Presidential Decree No. 902-A and was therefore void.
• Invalid Administrative Rule Cannot Expand Jurisdiction — A rule or regulation that extends or conflicts with the authority-granting statute is not a valid exercise of rule-making power but an attempt to legislate. The HIGC could not use its Revised Rules to confer upon itself jurisdiction beyond that granted by law.
• HIGC's Limited Jurisdiction over Homeowners' Disputes — The HIGC's original and exclusive jurisdiction over homeowners' disputes is confined to controversies arising out of intra-corporate relations: (1) between and among members of the association; (2) between any or all of them and the association of which they are members or associates; and (3) between the association and the State insofar as it concerns the association's franchise or right to exist. The dispute between UBFHAI and BFHI did not fall under any of these.
• Jurisdiction over Subject Matter Is Conferred by Law — Jurisdiction over the subject matter is conferred by the Constitution or by law and cannot be changed by the parties or by administrative rules. The HIGC's lack of jurisdiction required dismissal of HIGC Case No. HOA-95-027.
• Rehabilitation Receiver's Contractual Modifications — Where a corporation is under rehabilitation, acts of the committee of receivers revoking or modifying contractual security agreements may be done in pursuance of the rehabilitation program. The Court noted that BFHI's committee of receivers was seeking to rehabilitate the corporation and that the security agreements were contractual and could be altered or modified.

• "The rule-making power must be confined to details for regulating the mode or proceedings to carry into effect the law as it has been enacted, and it cannot be extended to amend or expand the statutory requirements or to embrace matters not covered by the statute." — States the controlling limit on administrative rule-making and the basis for invalidating the HIGC's expanded rule.
• "If a discrepancy occurs between the basic law and an implementing rule or regulation, it is the former that prevails." — States the rule of precedence applied to resolve the conflict between Presidential Decree No. 902-A and the HIGC's Revised Rules.
• "Thus, we hold that Rule II, Section 1(b) of HIGC's “Revised Rules of Procedure in the Hearing of Homeowners' Disputes” is void, without ruling on the validity of the rest of the rules." — The Court's actual holding on the challenged rule.
• "The law confined this authority to controversies that arise out of the following intra-corporate relations: (1) between and among members of the association; (2) between any and/or all of them and the association of which they are members; and (3) insofar as it concerns its right to exist as a corporate entity, between the association and the state." — Defines the limited scope of the HIGC's jurisdiction and why the dispute was outside it.

• Teoxon vs. Members of the Board of Administrators (PVA), 33 SCRA 585, 588 [1970] — Cited for the rule that the power to promulgate rules in implementation of a statute is limited to what the legislative enactment provides and that an administrative agency cannot amend an Act of Congress.
• Land Bank of the Philippines vs. Court of Appeals, 285 SCRA 404, 407 [1996] — Cited for the principle that rule-making power cannot extend to amend or expand statutory requirements or embrace matters not covered by the statute.
• Nasipit Lumber Company, Inc. vs. National Wages and Productivity Commission, 289 SCRA 667, 681 [1998] — Cited for the rule that if a discrepancy occurs between the basic law and an implementing rule, the basic law prevails, and that a statutory grant of powers should not be extended by implication beyond what is necessary for just and reasonable execution.
• Conte vs. Commission on Audit, 264 SCRA 19, 30-31 [1996] — Cited for the rule that an administrative body may not use delegated rule-making power to abridge the authority given by Congress or to enlarge its power beyond the scope intended.
• People vs. Maceren, 79 SCRA 450, 462 [1977] — Cited for the rule that administrative rules extending or conflicting with the authority-granting statute are not a valid exercise of rule-making power but an attempt to legislate.
• Lina, Jr. vs. Cariño, 221 SCRA 515, 531 [1993] — Cited for the rule that a rule or regulation must bear upon and be consistent with the enabling statute to be valid.
• Zamora vs. Court of Appeals, 183 SCRA 279 [1990] — Cited for the rule that jurisdiction over the subject matter is conferred by the Constitution or by law and cannot be changed by the parties; the HIGC's jurisdiction is limited.

• Section 2, Executive Order No. 535 (May 3, 1979) — Delegated to the HIGC the SEC's powers over homeowners' associations, including the power to register articles of incorporation and exercise all powers, authorities, and responsibilities vested in the SEC with respect to homeowners' associations. The Court used this to establish the HIGC's regulatory and adjudicative authority.
• Section 5(b), Presidential Decree No. 902-A — Defines intra-corporate controversies over which the HIGC has original and exclusive jurisdiction: (1) between and among stockholders, members, or associates; (2) between any or all of them and the corporation, partnership, or association; and (3) between the corporation, partnership, or association and the State insofar as it concerns their individual franchise or right to exist. The Court held that the HIGC's rule could not expand the third type to include the "general public or other entity."
• Section 1(b), Rule II, HIGC Revised Rules of Procedure in the Settlement of Homeowners' Disputes (December 21, 1989) — Enumerated the types of disputes over which the HIGC has jurisdiction, including controversies between the association and the state/general public or other entity. The Court declared this provision void for expanding Presidential Decree No. 902-A.

Davide, Jr., C.J.; Melo, J.; Kapunan, J.; and Ynares-Santiago, J.