COMREV CASE DIGEST 4th Set

Atty. Busmente Non-Use of Corporate Charter - Sole Corporation

JAMES REBURIANO
vs.
COURT OF APPEALS
G.R. NO. 102965 JANUARY 21, 1999

FACTS: A certain judgment was rendered in favor of the private respondent which became final
and executor. It appears that prior to the promulgation of the decision of the trial court, private
respondent amended its articles of incorporation to shorten its term of existence to July 8, 1983.
The amended articles of incorporation was approved by the Securities and Exchange Commission
on March 2, 1984. The trial court was not notified of this fact. On February 13, 1991, petitioners
moved to quash the writ of execution alleging that the private respondent was no longer in
existence and had no more juridical personality and so, as such, it no longer had the capacity to
sue and be sued; That after the [private respondent], as a corporation, lost its existence and
juridical personality, Atty. Romualdo M. Jubay had no more client in this case and so his
appearance in this case was no longer possible and tenable; That in view of the foregoing
premises, therefore, the decision rendered by this Honorable Court and by the Honorable Court
of Appeals are patent nullity, for lack of jurisdiction and lack of capacity to sue and be sued on the
part of the [private respondent.]; That the above-stated change in the situation of parties,
whereby the [private respondent] ceased to exist since 8 July 1983, renders the execution of the
decision inequitable or impossible.

ISSUE: Whether or not a dissolved and non-existing corporation could be represented by a

lawyer as counsel.

RULING: YES.

It is to be noted that the time during which the corporation, through its own officers, may
conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years
from the time the period of dissolution commences: but there is no time limit within which the
trustees must complete a liquidation placed in their hands. It is provided only that the conveyance
to the trustees must be made within the three-year period. It may be found impossible to
complete the work of liquidation within the three-year period or to reduce disputed claims to
judgment.
The authorities are to the effect that suits by or against a corporation abate when it ceased
to be an entity capable of suing or being sued; but trustees to whom the corporate assets have
been conveyed pursuant to the authority may sue and be sued as such in all matters connected
with the liquidation.
There is, therefore, no reason why the suit filed by private respondent should not be
allowed to proceed to execution. It is conceded by petitioners that the judgment against them and
in favor of private respondent in C.A. G.R. No. 16070 had become final and executory. The only
reason for their refusal to execute the same is that there is no existing corporation to which they
are indebted.
Such argument is untenable. The law specifically allows a trustee to manage the affairs of
the corporation in liquidation. Consequently, any supervening fact, such as the dissolution of the
corporation, repeal of a law, or any other fact of similar nature would not serve as an effective bar
to the enforcement of such right.
COMREV CASE DIGEST 4th Set
Atty. Busmente Non-Use of Corporate Charter - Sole Corporation

VAN ZUIDEN BROS., LTD.

vs.
GTVL INDUSTRIES, INC.
G.R. NO. 147905 MAY 28, 2007

FACTS:

Petitioner Zuiden, is a corporation, incorporated under the laws of Hong Kong. Zuiden is
not engaged in business in the Philippines, but is suing before the Philippine Courts, for the
reasons hereinafter stated. It is engaged in the importation and exportation of several products,
including lace products. On several occasions, GTVL purchased lace products from petitioner.
The procedure for these purchases, as per the instructions of GTVL, was that Zuiden
delivers the products purchased by GTVL, to a certain Hong Kong corporation, known as Kenzar
Ltd. and the products are then considered as sold, upon receipt by Kenzar of the goods purchased
by GTVL. Kenzar had the obligation to deliver the products to the Philippines and/or to follow
whatever instructions GTVL had on the matter.
Insofar as Zuiden is concerned, upon delivery of the goods to KENZAR in Hong Kong, the
transaction is concluded; and GTVL became obligated to pay the agreed purchase price. However,
commencing October 31, 1994 up to the present, GTVL has failed and refused to pay the agreed
purchase price for several deliveries ordered by it and delivered by Zuiden.

ISSUE: Whether or not petitioner, an unlicensed foreign corporation, has legal capacity to sue
before Philippine courts.

RULING: YES.

An unlicensed foreign corporation not doing business in the Philippines can sue before
Philippine courts. In the present case, the series of transactions between petitioner and
respondent cannot be classified as "doing business" in the Philippines under Section 3(d) of RA
7042.
An essential condition to be considered as "doing business" in the Philippines is the actual
performance of specific commercial acts within the territory of the Philippines for the plain
reason that the Philippines has no jurisdiction over commercial acts performed in foreign
territories.
Here, there is no showing that petitioner performed within the Philippine territory the
specific acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open
an office here in the Philippines, appoint a representative or distributor, or manage, supervise or
control a local business. While petitioner and respondent entered into a series of transactions
implying a continuity of commercial dealings, the perfection and consummation of these
transactions were done outside the Philippines.
Further, the series of transactions between petitioner and respondent transpired and
were consummated in Hong Kong. There was no single activity which petitioner performed here
in the Philippines pursuant to its purpose and object as a business organization. Moreover,
petitioner’s desire to do business within the Philippines is not discernible from the allegations of
the complaint or from its attachments. Therefore, there is no basis for ruling that petitioner is
doing business in the Philippines.
Considering that petitioner is not doing business in the Philippines, it does not need a
license in order to initiate and maintain a collection suit against respondent for the unpaid
balance of respondent’s purchases.
COMREV CASE DIGEST 4th Set
Atty. Busmente Non-Use of Corporate Charter - Sole Corporation

CARGILL, INC.
vs.
INTRA STRATA ASSURANCE CORPORATION
G.R. No. 168266 March 15, 2010

FACTS: Cargill (foreign) is a corporation organized and existing under the laws of theState
of Delaware. Cargill executed a contract with Northern Mindanao Corporation (NMC)(domestic),
whereby NMC agreed to sell to petitioner 20,000 to 24,000 metrictons of molasses to be delivered
from Jan 1 to 30 1990 for $44 per metric ton. The contract provided that CARGILL was to open a
Letter of Credit with theBPI. NMC was permitted to draw up 500,000 representing the minimum
priceof the contract. The contract was amended 3 times (in relation to the amount and the
price).But the third amendment required NMC to put up a performance bond whichwas intended
to guarantee NMC’s performance to deliver the molasses duringthe prescribed shipment periods.
In compliance, INTRA STRATA issued a performance bond to guaranteeNMC’s delivery.
NMC was only able to deliver 219551 metric tons out of the agreed 10,500.Thus CARGILL sent
demand letters to INTRA claiming payment under theperformance and surety bonds. When
INTRA failed to pay, CARGILL filed acomplaint.
CARGILL NMC and INTRA entered into a compromise agreement approvedby the court,
such provided that NMC would pay CARGILL 3 million uponsigning and would deliver to CARGILL
6,991 metric tons of molasses. ButNMC still failed to comply.

ISSUE: Whether or not petitioner is doing or transacting business in the Philippines in

contemplation of the law and established jurisprudence.

RULING: NO.

The determination of whether a foreign corporation is doing business in the Philippines

must be based on the facts of each case. In the case at bar, the transactions entered into by the
respondent with the petitioners are not a series of commercial dealings which signify an intent
on the part of the respondent to do business in the Philippines but constitute an isolated one
which does not fall under the category of "doing business." The records show that the only reason
why the respondent entered into the second and third transactions with the petitioners was
because it wanted to recover the loss it sustained from the failure of the petitioners to deliver the
crude coconut oil under the first transaction and in order to give the latter a chance to make good
on their obligation.
In the present case, petitioner is a foreign company merely importing molasses from a
Philipine exporter. A foreign company that merely imports goods from a Philippine exporter,
without opening an office or appointing an agent in the Philippines, is not doing business in the
Philippines.
COMREV CASE DIGEST 4th Set
Atty. Busmente Non-Use of Corporate Charter - Sole Corporation

“Doing business” With or Without License: Suits By or Against Foreign Corporation

STEELCASE, INC.
vs.
DESIGN INTERNATIONAL SELECTIONS, INC.
G.R. No. 171995 April 18, 2012

FACTS:

Petitioner Steelcase, Inc. is a foreign corporation existing under the laws of Michigan,
United States of America (U.S.A.), and engaged in the manufacture of office furniture with dealers
worldwide. Respondent Design International Selections, Inc. ("DISI") is a corporation existing
under Philippine Laws and engaged in the furniture business, including the distribution of
furniture.
Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership agreement
whereby Steelcase granted DISI the right to market, sell, distribute, install, and service its
products to end-user customers within the Philippines. The business relationship continued
smoothly until it was terminated sometime in January 1999 after the agreement was breached
with neither party admitting any fault. Steelcase filed a complaint for sum of money against DISI
alleging, among others, that DISI had an unpaid account of US$600,000.00.

ISSUE:

Whether or not Steelcase is not doing business in the Philippines without license.

RULING:

YES.

Based on this list, the Supreme Court said that the appointment of a distributor in the
Philippines is not sufficient to constitute "doing business" unless it is under the full control of the
foreign corporation. If the distributor is an independent entity which buys and distributes
products, other than those of the foreign corporation, for its own name and its own account, the
latter cannot be considered to be doing business in the Philippines.
Applying these rules, the Supreme Court said that DISI was founded in 1979 and is
independently owned and managed. In addition to Steelcase products, DISI also distributed
products of other companies including carpet tiles, relocatable walls and theater settings. The
dealership agreement between Steelcase and DISI had been described by the owner himself as a
buy and sell arrangement. This clearly belies DISI’s assertion that it was a mere conduit through
which Steelcase conducted its business in the country. From the preceding facts, the only
reasonable conclusion that can be reached is that DISI was an independent contractor,
distributing various products of Steelcase and of other companies, acting in its own name and for
its own account. As a result, Steelcase cannot be considered to be doing business in the Philippines
by its act of appointing a distributor as it falls under one of the exceptions under R.A. No. 7042.
A foreign corporation doing business in the Philippines without a license may maintain
suit in the Philippines against a domestic corporation or person who is party to a contract as the
domestic corporation or person is deemed estopped from challenging the personality of the
foreign corporation.
COMREV CASE DIGEST 4th Set
Atty. Busmente Non-Use of Corporate Charter - Sole Corporation

Effect of Delinquency

VALLEY GOLF & COUNTRY CLUB, Inc., petitioner

vs.
VDA. DE CARAM, respondent
G.R. No. 158805 April 16, 2009

FACTS: Valley Golf & Country Club (Valley Golf) is a duly constituted non-stock, non-profit
corporation which operates a golf course. The members and their guests are entitled to play golf
on the said course and otherwise avail of the facilities and privileges provided by Valley Golf. The
shareholders are likewise assessed monthly membership dues.

In 1961, the late Congressman Fermin Z. Caram, Jr. (Caram), the husband of the present
respondent, subscribed to purchased and paid for in full one share (Golf Share) in the capital stock
of Valley Golf. He was issued Stock Certificate No. 389 dated 26 January 1961 for the Golf Share.
The Stock Certificate likewise indicates a par value of P9,000.00.

Valley Golf would subsequently allege that beginning 25 January 1980, Caram stopped
paying his monthly dues, which were continually assessed until 31 June 1987. Valley Golf claims
to have sent five (5) letters to Caram concerning his delinquent account within the period from
27 January 1986 until 3 May 1987, all forwarded to P.O. Box No. 1566, Makati Commercial Center
Post Office, the mailing address which Caram allegedly furnished Valley Golf.
The Golf Share was sold at public auction on 11 June 1987 for P25,000.00 after the Board
of Directors had authorized the sale in a meeting on 11 April 1987, and the Notice of Auction Sale
was published in the 6 June 1987 edition of the Philippine Daily Inquirer.

ISSUE: Whether or not a non-stock corporation seize and dispose of the membership share of a
fully-paid member on account of its unpaid debts to the corporation when it is authorized to do
so under the corporate by-laws but not by the Articles of Incorporation.

RULING: NO.

It may be conceded that the actions of Valley Golf were, technically speaking, in accord
with the provisions of its by-laws on termination of membership, vaguely defined as these are.
Yet especially since the termination of membership in Valley Golf is inextricably linked to the
deprivation of property rights over the Golf Share, the emergence of such adverse consequences
make legal and equitable standards come to fore.
The commentaries of Lopez advert to an SEC Opinion dated 29 September 1987 which we
can cite with approval. Lopez cites: In order that the action of a corporation in expelling a member
for cause may be valid, it is essential, in the absence of a waiver, that there shall be a hearing or
trial of the charge against him, with reasonable notice to him and a fair opportunity to be heard
in his defense. If the method of trial is not regulated by the by-laws of the association, it should at
least permit substantial justice. The hearing must be conducted fairly and openly and the body of
persons before whom it is heard or who are to decide the case must be unprejudiced.
It is unmistakably wise public policy to require that the termination of membership in a
non-stock corporation be done in accordance with substantial justice. No matter how one may
precisely define such term, it is evident in this case that the termination of Caram’s membership
betrayed the dictates of substantial justice.
COMREV CASE DIGEST 4th Set
Atty. Busmente Non-Use of Corporate Charter - Sole Corporation

CALATAGAN GOLF CLUB, INC., petitioner

vs.
CLEMENTE Jr., respondent
G.R. No. 165443 April 16, 2009

FACTS:

Clemente applied to purchase one share of stock of Calatagan, indicating in his application
for membership his mailing address at "Phimco Industries, Inc. – P.O. Box 240, MCC," complete
residential address, office and residence telephone numbers, as well as the company (Phimco)
with which he was connected, Calatagan issued to him Certificate of Stock No. A-01295 on 2 May
1990 after paying P120,000.00 for the share.
Calatagan charges monthly dues on its members to meet expenses for general operations,
as well as costs for upkeep and improvement of the grounds and facilities. The provision on
monthly dues is incorporated in Calatagan’s Articles of Incorporation and By-Laws. It is also
reproduced at the back of each certificate of stock.
Calatagan declared Clemente delinquent for having failed to pay his monthly dues for
more than sixty (60) days, specifically P5,600.00 as of 31 October 1992. Calatagan also included
Clemente’s name in the list of delinquent members posted on the club’s bulletin board. On 1
December 1992, Calatagan’s board of directors adopted a resolution authorizing the foreclosure
of shares of delinquent members, including Clemente’s; and the public auction of these shares.

ISSUE: Whether or not the action of Clemente had prescribed pursuant to Section 69 of the
Corporation Code, and that the requisite notices under both the law and the by-laws had been
rendered to Clemente.

RULING: YES.

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.
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.
COMREV CASE DIGEST 4th Set
Atty. Busmente Non-Use of Corporate Charter - Sole Corporation
VALLEY GOLF & CARAM Cases

Two recent decisions of the Supreme Court underscore the need for country clubs to strictly follow notice
requirements in connection with the sale of a delinquent member’s shares in a public auction.

In Valley Golf & Country Club, Inc. vs. Rosa O. Vda. Caram, G.R. No. 158805, April 16, 2009, the Supreme Court
invalidated the sale based on the finding that Valley Golf sent the notice of sale to the member (instead of sending
it to his estate), notwithstanding that Valley Golf knew that the member has died. In Calatagan Golf Club, Inc.
vs. Sixto Clemente, Jr., G.R. No. 165443, April 16, 2009, the Supreme Court invalidated the sale based on the
finding that Calatagan sent the notice of sale to the member’s P.O. box, notwithstanding that Calatagan knew that
the P.O. box has been closed.

Valley Golf
In Valley Golf, Valley Golf sold the golf membership share (the “Golf Share”) of Congressman Caram at a public
auction sometime June 1987 after Caram allegedly stop paying his monthly dues beginning January 1980 and
after Valley Golf allegedly sent 5 letters to Caram concerning his delinquent account during the period January
1986 to May 1987.

As it turned out, Caram died on 6 October 1986. His wife initiated intestate proceedings before the Regional Trial
Court (RTC) of Iloilo City, Branch 35, to settle her husband’s estate. Unaware of the pending controversy over the
Golf Share, the Caram family and the RTC included the Golf Share as part of Caram’s estate. The RTC approved a
project of partition of Caram’s estate on 29 August 1989. The Golf Share was adjudicated to the wife, who paid
the corresponding estate tax due, including that on the golf Share.

It was only through a letter dated 15 May 1990 that the heirs of Caram learned of the sale of the Golf Share
following their inquiry with Valley Golf about the Golf Share. After a series of correspondence, the Caram heirs
were subsequently informed, in a letter dated 15 October 1990, that they were entitled to the refund
ofP11,066.52 out of the proceeds of the sale of the Golf Share, which amount had been in the custody of Valley
Golf since 11 June 1987.

Caram’s wife filed an action for reconveyance of the Golf Share with damages before the Securities and Exchange
Commission (SEC) against Valley Golf. On 15 November 1996, SEC Hearing Officer Elpidio S. Salgado rendered a
decision in favor of the wife, ordering Valley Golf to convey ownership of the Golf Share, or in the alternative. to
issue one fully paid share of stock of Valley Golf of the same class as the Golf Share to the wife. Damages
totaling P90,000.00 were also awarded to the wife.
The SEC hearing officer ruled that under Section 67, paragraph 2 of the Corporation Code, a share stock could
only be deemed delinquent and sold in an extrajudicial sale at public auction only upon the failure of the
stockholder to pay the unpaid subscription or balance for the share. However, the section could not have applied
in Caram’s case since he had fully paid for the Golf Share and he had been assessed not for the share itself but for
his delinquent club dues. Proceeding from the foregoing premises, the SEC hearing officer concluded that the
auction sale had no basis in law and was thus a nullity. The SEC en banc and the Court of Appeals affirmed the
hearing officer’s decision.

On appeal to the Supreme Court, the central issue raised was: “May a country club seize and dispose of the
membership share of a fully-paid member on account of its unpaid membership to the country club when it is
authorized to do so under the corporate by-laws but not by the Articles of Incorporation?”

The Supreme Court ruled that there is a specific provision under Title XI on Non-Stock Corporations of the
Corporation Code dealing with the termination of membership in a non-stock corporation such Valley
Golf. Section 91 of the Corporation Code provides:

SEC. 91. Termination of membership.—Membership shall be terminated in the manner and for the causes
provided in the articles of incorporation or the by-laws. Termination of membership shall have the effect of
extinguishing all rights of a member in the corporation or in its property, unless otherwise provided in the
articles of incorporation or the by-laws. (Emphasis supplied)
COMREV CASE DIGEST 4th Set
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On the basis of Section 91, the Supreme Court ruled that the right of a non-stock corporation such as Valley Golf
to expel a member through the forfeiture of the Golf Share may be established in the by-laws alone, as is the
situation in this case. However, the Supreme Court proceed to declare the sale as invalid. The Supreme Court
found that Valley Golf acted in bad faith when it sent the final notice to Caram under the pretense they believed
him to be still alive, when in fact they had very well known that he had already died. The Court stated:

Whatever the reason Caram was unable to respond to the earlier notices, the fact remains that at the time of the
final notice, Valley Golf knew that Caram, having died and gone, would not be able to settle the obligation himself,
yet they persisted in sending him notice to provide a color of regularity to the resulting sale.

That reason alone, evocative as it is of the absence of substantial justice in the sale of the Golf Share, is sufficient
to nullify the sale and sustain the rulings of the SEC and the Court of Appeals.

Moreover, the utter and appalling bad faith exhibited by Valley Golf in sending out the final notice to Caram on
the deliberate pretense that he was still alive could bring into operation Articles 19, 20 and 21 under the Chapter
on Human Relations of the Civil Code. These provisions enunciate a general obligation under law for every person
to act fairly and in good faith towards one another. Non-stock corporations and its officers are not exempt from
that obligation.

Calatagan
A similar fate fell on Calatagan Golf Club, which sold the golf share of Clemente sometime January 1993 after
Clemente allegedly stop paying its membership dues. Clemente learned of the sale of his share only in
November of 1997. He filed a claim with the SEC seeking the restoration of his shareholding in Calatagan with
damages.

On 15 November 2000, the SEC rendered a decision dismissing Clemente’s complaint. Citing Section 69 of the
Corporation Code which provides that the sale of shares at an auction sale can only be questioned within six (6)
months from the date of sale, the SEC concluded that Clemente’s claim, filed four (4) years after the sale, had
already prescribed. The SEC further held that Calatagan had complied with all the requirements for a valid sale
of the subject share, Clemente having failed to inform Calatagan that the address he had earlier supplied was no
longer his address. Clemente, the SEC ruled, had acted in bad faith in assuming as he claimed that his non-
payment of monthly dues would merely render his share “inactive.”

The Supreme Court ruled that Clemente’s action for recovery of share has not prescribed, citing Article 1140 of
the Civil Code which provides that an action to recover movables shall prescribe in eight (8) years. The Supreme
Court also found the sale of the golf share was void:

Ultimately, the petition must fail because 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.

It is noteworthy that Clemente in his membership application had provided his residential address along with
his residence and office telephone numbers. Nothing in Section 32 of Calatagan’s By-Laws requires that the final
notice prior to the sale be made solely through the member’s mailing address. Clemente cites our aphorism-like
pronouncement in Rizal Commercial Banking Corporation v. Court of Appeals that “[a] simple telephone call and
an ounce of good faith x x x could have prevented this present controversy.” That memorable observation is quite
apt in this case.

Calatagan’s bad faith and failure to observe its own By-Laws had resulted not merely in the loss of Clemente’s
privilege to play golf at its golf course and avail of its amenities, but also in significant pecuniary damage to him.
For that loss, the only blame that could be thrown Clemente’s way was his failure to notify Calatagan of the
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closure of the P.O. Box. That lapse, if we uphold Calatagan would cost Clemente a lot. But, in the first place, does
he deserve answerability for failing to notify the club of the closure of the postal box? Indeed, knowing as he did
that Calatagan was in possession of his home address as well as residence and office telephone numbers, he had
every reason to assume that the club would not be at a loss should it need to contact him. In addition, according
to Clemente, he was not even aware of the closure of the postal box, the maintenance of which was not his
responsibility but his employer Phimco’s.

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.

Two things to note:

1. Unlike the by-laws of Valley Golf, the by-laws of Calatagan contained what the Supreme Court described as
“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.”

2. In Calatagan, the Supreme Court did not appear to have seen any issue with the by-laws provision that states
that “The club shall have a first lien on every share of stock to secure debts of the members to the Club.” On the
other hand, in Valley Golf, the Supreme Court appears to say (in an obiter) that a lien can be created only if there
was a pledge or chattel mortgage executed by the owner of the golf share. The Supreme Court stated: “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.”