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43 Calatagan Golf Club, Inc. vs. Sixto Clemente, JR.

AUTHOR: Arthur Archie Tiu

G.R. No. 16544; April 16, 2009 NOTES: Corp Code Sec. 69:
TOPIC: Corporation law; Sale of Delinquent Stocks When sale may be questioned. - No action to recover delinquent
PONENTE: Tinga, J. stock sold can be sustained upon the ground of irregularity or
defect in the notice of sale, or in the sale itself of the delinquent
stock, unless the party seeking to maintain such action first pays
or tenders to the party holding the stock the sum for which the
same was sold, with interest from the date of sale at the legal
rate; and no such action shall be maintained unless it is
commenced by the filing of a complaint within six (6) months
from the date of sale.
CASE LAW/ DOCTRINE:Sec. 69 of the Corporation Code refers specifically to unpaid subscriptions to capital stock. The sale of
delinquent stock is the non-payment of the subscription price for the share of stock itself and the stockholder has yet to fully pay
for the value of the shares subscribed. Clemente had already fully paid forthe share and Calatagan no longer had any outstanding
obligation to deprive him of full title to his share. Sec. 69 will only be applicable if Clemente still has not fully paid for the share and
the non-stock corporation decided to sell such share as a consequence which is not the case at bar. Sec. 91 of the Corp.Code
provides that termination of membership in non-stock corporations are governed by its articles of incorporation or by-laws.

Emergency Recit:
Clemente failed to pay his monthly dues for his membership (1 share of stock) in Calatagan Golf. Calatagan subsequently sold
Clemente’s share after notifying him by mail that his share would be sold at a public auction. However, Calatagan was sending the
notices to a closed addressed and therefor failed to notify Clemente. Clemente only know of such sale 7 years after. SEC dismissed
Clemente’s complaint citing sec. 69 which gives him 4 months to question such sale. CA reversed. SC ruled in favor of Clemente
stating the Sec. 91 should be applied in this case and not sec. 69. That the by-laws of Calatagan should govern, however, Calatagan
was in bad faith when it sent a 3rd and final demand to a closed addressed knowing fully that no one was there to receive the notices

 Clemente purchased one share of stock from Calatagan for Php 120,000, indicating in his application for membership his mailing
address at “Phimco Industries Inc., PO box 240, MCC”. Calatagan then issued to him his Certificate of Stock.
 Calatagan charges monthly dues in the amount of 400 pesos at the time Clemente became a member. Clemente paid Php 3,000
and Php 5,400 on March 21, 1991 and Dec. 9 1991 for his monthly dues. Then he ceased paying the amount with a balance of
Php 400.
 10 months after, Calatagan demanded payment from Clemente for the monthly dues and a second letter was subsequently
sent to Clemente’s mailing address indicated in the application. The letters were sent back to the sender with a postal note
that the address had been clised.
 Calatagan declared Clemente as delinquent and posted it in the club’s bulletin.
 On Dec. 1, 1992, Calatagan’s board of directors adopted a resolution for the foreclosure of the shares of its delinquent members
and a public auction of such shares
 Calatagan, on Dec. 7, 1992, Sent a final letter to Clemente, signed by the Corp Sec, to settle his account or else his share would
be sold at a public auction, sent to the same mailing address.
 On Jan. 5, 1993, a notice of auction was posted in the club’s bulletin and premises and an auction took place 10 days after.
Clemente’s share sold for Php 64k and a certificate of sale was issued to the winning bidder. At this time, his monthly due was
at Php 5,200. The notice of foreclosure was published in Business World on May 26, 1993
 Clemente knew of the sale onl in 1997 and filed for restoration of his shares at the SEC
 SEC, on Nov 15,2000, dismissed Clemente’s complaint citing that the corp code provides that sale of shares at an auction can
only be questioned within 6 months from the date of sale.
 CA reversed the SEC decision and ordered the restoration of Clemente’s share (issue new one) with damages worth Php 400k
claiming sec. 69 of the Corp Code refers only to unpaid subscriptions of capital stock and not any other debt of stockholders.
They cite Art 1140 of the Civil Code which sets the prescription at 8 years. ( the return of the demand letter was also pointed
out by the CA that the by-law requirement that within 10 days of the auction sale, it shall notify the owner thereof and that a
person who is in danger of imminent loss of a property has the right to be notified and given a chance to prevent the loss)
ISSUE(S): Has the sale of the delinquent stock prescribed?

“WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals is AFFIRMED. Costs against petitioner”

- There are fundamental differences that defy equivalence or even analogy between the sale of delinquent stock under
Section 68 and the sale that occurred in this case. At the root of the sale of delinquent stock is the non-payment of the
subscription price for the share of stock itself. The stockholder or subscriber has yet to fully pay for the value of the share
or shares subscribed. In this case, Clemente had already fully paid for the share in Calatagan and no longer had any
outstanding obligation to deprive him of full title to his share. Perhaps the analogy could have been made if Clemente had
not yet fully paid for his share and the non-stock corporation, pursuant to an article or by-law provision designed to address
that situation, decided to sell such share as a consequence. But that is not the case here, and there is no purpose for us to
apply Section 69 to the case at bar.
- Calatagan’s Articles of Incorporation states that the "dues, together with all other obligations of members to the club, shall
constitute a first lien on the shares, second only to any lien in favor of the national or local government, and in the event
of delinquency such shares may be ordered sold by the Board of Directors in the manner provided in the By-Laws to satisfy
said dues or other obligations of the stockholders." In turn, there are several provisions in the By-laws that govern the
payment of dues, the lapse into delinquency of the member, and the constitution and execution on the lien.
- It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to govern the payment of monthly
dues, the declaration of a member as delinquent, and the constitution of a lien on the shares and its eventual public sale
to answer for the member’s debts. Under Section 91 of the Corporation Code, membership in a non-stock corporation
"shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws." The By-law
provisions are elaborate in explaining the manner and the causes for the termination of membership in Calatagan, through
the execution on the lien of the share. The Court is satisfied that the By-Laws, as written, affords due protection to the
member by assuring that the member should be notified by the Secretary of the looming execution sale that would
terminate membership in the club. In addition, the By-Laws guarantees that after the execution sale, the proceeds of the
sale would be returned to the former member after deducting the outstanding obligations. If followed to the letter, the
termination of membership under this procedure outlined in the By-Laws would accord with substantial justice. (By laws
provided that within 10 days after the Board has ordered the sale, sec. shall notify the owner thereof. That the membership
committee shall notify all applicants on the waiting list and all registered stockholders of the availability of such share for
sale at least 10 days prior to the auction)
- In accordance with this provision, Calatagan sent the third and final demand letter to Clemente on December 7, 1992. The
letter states that if the amount of delinquency is not paid, the share will be included among the delinquent shares to be
sold at public auction. This letter was signed by Atty. Benjamin Tanedo, Jr., Calatagan Golf’s Corporate Secretary. It was
again sent to Clemente’s mailing address – Phimco Industries Inc., P.O. Box 240, MCC Makati. As expected, it was returned
because the post office box had been closed.
- Under the By-Laws, the Corporate Secretary is tasked to "give or cause to be given, all notices required by law or by these
By-Laws. .. and … keep a record of the addresses of all stockholders. As quoted above, Sec. 32 (a) of the By-Laws further
provides that "within ten (10) days after the Board has ordered the sale at auction of a member’s share of stock for
indebtedness under Section 31 (b) hereof, the Secretary shall notify the owner thereof and shall advise the Membership
Committee of such fact.," The records do not disclose what report the Corporate Secretary transmitted to the Membership
Committee to comply with Section 32(a). Obviously, the reason for this mandatory requirement is to give the Membership
Committee the opportunity to find out, before the share is sold, if proper notice has been made to the shareholder
- Calatagan had failed to duly observe both the spirit and letter of its own by-laws. The by-law provisions was clearly
conceived to afford due notice to the delinquent member of the impending sale, and not just to provide an intricate façade
that would facilitate Calatagan’s sale of the share. But then, the bad faith on Calatagan’s part is palpable. As found by the
Court of Appeals, Calatagan very well knew that Clemente’s postal box to which it sent its previous letters had already
been closed, yet it persisted in sending that final letter to the same postal box. What for? Just for the exercise, it appears,
as it had known very well that the letter would never actually reach Clemente.
- The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of the Civil Code, under the Chapter
on Human Relations. These provisions, which the Court of Appeals did apply, enunciate a general obligation under law for
every person to act fairly and in good faith towards one another. A non-stock corporation like Calatagan is not exempt
from that obligation in its treatment of its members. The obligation of a corporation to treat every person honestly and in
good faith extends even to its shareholders or members, even if the latter find themselves contractually bound to perform
certain obligations to the corporation. A certificate of stock cannot be a charter of dehumanization.