Valley Golf & Country Club, Inc.

v.
Rosa Vda. De Caram
G.R. No. 158805
April 16, 2009

Facts:

The respondent’s deceased husband, Caram owned subscribed and fully paid for one
share in the capital stock of Valley Golf in 1961, and was correspondingly issued a Certificate of
Stock for the said purchase. Since 1980 Mr. Caram however stopped paying his monthly
membership dues to the Valley Golf, and had not paid the same despite continued demands for
payment. As a consequence, he was declared a delinquent, and his share was sold at public
auction to satisfy his membership dues in 1987, in line with Valley Golf’s by-laws. Unknown to
Valley Golf, Mr. Caram had died in October 1986, and his heirs only came to know about the sale
of his share in Valley Golf during the settlement of his estate, forcing them to file a case for
reconveyance with SEC. SEC, SEC en-banc, and CA ruled in favor of Mrs. Caram holding that the
By-Laws of the corporation does not justify the sale of the shares of its member for non-payment
of dues by virtue of Sec. 67 of the Corporation Code.

Issue: Whether or not a Corporation can dispose a fully-paid share of a member on account of its
unpaid debts to the Corporation when it is authorized to do so under the corporate by-laws.

Ruling: No.

The arrangement provided for in the afore-quoted by-laws of Valley Golf whereby a lien
is constituted on the membership share to answer for subsequent obligations to the corporation
finds applicable parallels under the Civil Code. Membership shares are considered as movable or
personal property, and they can be constituted as security to secure a principal obligation, such
as the dues and fees. There are at least two contractual modes under the Civil Code by which
personal property can be used to secure a principal obligation. The first is through a contract of
pledge, while the second is through a chattel mortgage. In this case, Caram had not signed any
document that manifests his agreement to constitute his Golf Share as security in favor of Valley
Golf to answer for his obligations to the club. There is no document we can assess that it is
substantially compliant with the form of chattel mortgages under Section 5 of Act No. 1508. The
by-laws could not suffice for that purpose since it is not designed as a bilateral contract between
Caram and Valley Golf, or a vehicle by which Caram expressed his consent to constitute his Golf
Share as security for his account with Valley Golf.