06 CALATAGAN GOLF CLUB INC. v. CLEMENTE JR.
(VELANDRES) sending the letter to Clemente's mailing address knowing fully well that the P.O.
April 16, 2009 | TINGA, J | topic
PETITIONER: CALATAGAN GOLF CLUB, INC
RESPONDENTS: SIXTO CLEMENTE, JR.,
SUMMARY: Clemente applied to purchase one share of stock of Calatagan Golf
Club. He indicated 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 charges monthly dues on its members. He
ceased paying dues which resulted to a balance of 400. Calatagan tried to collect
Clemente's back accounts by sending a demand letters. Both letters were sent to
Clemente's mailing address as indicated in his membership application.However,
these were sent back to sender with the postal note that the address had been
closed. Calatagan declared Clemente delinquent for having failed to pay his
monthly dues for more than 60 days. Calatagan's board adopted a resolution
authorizing the foreclosure of shares of delinquent members and the public
auction of these shares. This letter was sent to Clemente's mailing address that
had already been closed. This letter was sent to Clemente's mailing address that
had already been closed. The auction sale took place. Clemente's share was
purchased by a Nestor A. Virata. Clemente, after 4 years filed a claim with the
SEC seeking the restoration of his shareholding in Calatagan with damages.The
SEC rendered a decision dismissing Clemente's complaint. It concluded that
Clemente's claim, filed 4 years after the sale, had already prescribed. This is
pursuant to Section 69 of the Corporation Code which provides that the sale of
shares at an auction sale can only be questioned within 6 months from the date of
sale. It held that Calatagan had complied with all the requirements for a valid sale.
Clemente filed a Petition for Review before the CA. The CA reversed the decision
of the SEC. Issues: (1) WoN the CA erred in reversing the decision of the SEC
NO (2) WoN Clemente was negligent in not informing Calatagan of the postal
box’s closure NO RULING: At the root of the sale of delinquent stock is the non-
payment of the subscription price for the share of stock itself. However, in this
case, Clemente had already fully paid for the share in Calatagan. He only had
outstanding balance for MONTHLY DUES. Not outstanding balance for the
SUBSCRIPTION PRICE. There is no purpose to apply Section 69 to the case at
bar. Calatagan has 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. However, Calatagan was not able to comply with its by laws. Sec. 32 (a)
of the By-Laws further provides that "within 10 days after the Board has ordered
the sale at auction of a member's share of stock for indebtedness, the Sec shall
notify the owner thereof. The court presumed that the Corp Secr, as a lawyer is
knowledgeable on the law and on the standards of good faith and fairness that the
law requires. he should also have known that the first two letters sent to Clemente
were returned because the P.O. Box had been closed. COURT: Calatagan's act of
Box had been closed CANNOT be labeled as due diligence. Nothing in Section
32 of Calatagan's By-Laws requires that the final noticeprior to the sale be made
solely through the member's mailing address. A simple telephone call and an
ounce of good faith could have prevented this present controversy. SECOND
ISSUE: Clemente was not negligent. 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. Clemente was not even aware of the closure of the postal
box, the maintenance of which was not his responsibility but his employer
Phimco's.It would not be feasible to deliver Clemente's original Certificate of
Stock because it had already been cancelled and a new one issued in its place in
the name of the purchases at the auction who was not impleaded in this case. The
CA instead directed Calatagan to issue to Clemente a new certificate of stock.
DOCTRINE: Membership in a non-stock corporation "shall be terminated in the
manner and for the causes provided in the articles or the by-laws."
FACTS:
1. Clemente applied to purchase one share of stock of Calatagan Golf Club.
a. He indicated 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.
2. Calatagan issued to him a certificate of stock on 2 May 1990 after paying
P120k for the share.
3. 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.
a. This is incorporated in Calatagan's Articles of Incorporation and By-
Laws.
b. It is also reproduced at the back of each certificate of stock.
4. When Clemente became a member, the monthly charge was P400.
a. He paid P3,000.00 for his monthly dues on 21 March 1991 and
another P5,400.00 on 9 December 1991.
b. Then he ceased paying the dues.
i. At that point, his balance amounted to P400.
5. Calatagan tried to collect Clemente's back accounts by sending a demand
letter on 21 September 1992.
a. It was followed by a second letter the next day.
6. Both letters were sent to Clemente's mailing address as indicated in his
membership application.
a. However, these were sent back to sender with the postal note that
the address had been closed.
7. Calatagan declared Clemente delinquent for having failed to pay his monthly
dues for more than 60 days (provided in the by laws).
 a. On 1 Dec 1992, Calatagan's board adopted a resolution authorizing
the foreclosure of shares of delinquent members and the public
auction of these shares.
8. On 7 Dec 1992, Calatagan sent a third and final letter to Clemente (signed by
its Corporate Secretary, Atty. Tanedo).
a. The letter contains a warning that unless Clemente settles his
outstanding dues, his share would be included among the delinquent
shares to be sold at public auction on 15 Jan 1993.
b. This letter was sent to Clemente's mailing address that had already
been closed.
9. The auction sale took place as scheduled and Clemente's share sold for
P64,000.
a. Clemente's share was purchased by a Nestor A. Virata.
b. A notice of foreclosure of Clemente's share was published in the 26
May 1993 issue of the Business World.
10. Clemente learned of the sale of his share only in November of 1997.
a. He filed a claim with the SEC seeking the restoration of his
shareholding in Calatagan with damages.
11. The SEC rendered a decision dismissing Clemente's complaint.
a. It concluded that Clemente's claim, filed 4 years after the sale, had
already prescribed.
i. This is pursuant to Section 69 of the Corp Code which
provides that the sale of shares at an auction sale can only
be questioned within 6 months from the date of sale.
b. It held that Calatagan had complied with all the requirements for a
valid sale, Clemente having failed to inform Calatagan that the
address he had earlier supplied was no longer his address.
12. The CA reversed the decision of the SEC.
a. It restored Clemente's one share with a directive to Calatagan to
issue in his a new share.
b. It cited SEC's own ruling in Caram v. Valley Golf Country Club,
Inc., that Section 69 of the Corp Code specifically refers to unpaid
subscriptions to capital stock, and not to any other debt of
stockholders.
i. The proper provision of law that must be used is Article
1140 of the Civ Code w/c sets the prescription period of
actions to recover movables at 8 years.
c. It also pointed out that since that Calatagan's first two demand letters
had been returned to it as sender with the notation about the closure
of the mailing address, it knew that its final demand letter also sent
to the same mailing address would not be received by Clemente.
13. Calatagan stresses that its own Articles of Incorporation does provide that:
a. the monthly dues assessed on owners of shares of the corporation,
along with all other obligations of the shareholders to the club,
"shall constitute a first lien on the shares… 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 shareholders."
b. Calatagan concludes that the prescriptive period under Section 69
should also apply to the sale of Clemente’s share as the lien that
Calatagan perceives to be a restriction is stated in the articles.
ISSUE:
1. WoN the CA erred in reversing the decision of the SEC NO
2. WoN Clemente was negligent in not informing Calatagan of the postal box’s
closure NO
RULING: WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals is AFFIRMED. Costs against petitioner.
RATIO:
FIRST ISSUE
1. There are fundamental differences between the sale of delinquent stock and
the sale that occurred in this case.
2. At the root of the sale of delinquent stock is the non-payment of the
subscription price for the share of stock itself.
a. However, 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.
i. He only had outstanding balance for MONTHLY DUES.
Not outstanding balance for the SUBSCRIPTION PRICE.
b. There is no purpose to apply Section 69 to the case at bar.
3. Calatagan argues that Clemente's suit is barred by Article 1146 of the Civ
Code which establishes 4 years as the prescriptive period for actions based
upon injury to the rights of the plaintiff.
a. As an alternative, Calatagan also argues that Clemente's action is
governed by Article 1149 of the Civ Code which sets 5 years as the
period of prescription for all other actions whose prescriptive
periods are not fixed in any law.
b. COURT: Neither article is applicable. Article 1140 is applicable
which provides that that an action to recover movables shall
prescribe in eight (8) years. Calatagan's action is for the recovery of
a share of stock, plus damages.
4. Calatagan has 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. (There are provisions of the by laws provided in the case
but it only states the procedure I cited the most relevant ones)
a. 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 or the by-laws."
b. The Court is satisfied that the By-Laws affords due protection to the
member by assuring that the member should be notified by the Sec
 of the execution sale that would terminate membership.
c. The By-Laws also guarantees that after the execution sale, the
proceeds of the sale would be returned to the former member after
deducting the outstanding obligations.
5. However, Calatagan was not able to comply with its by laws.
a. Under the By-Laws, the Corp Sec 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.
b. Sec. 32 (a) of the By-Laws further provides that "within 10 days
after the Board has ordered the sale at auction of a member's share
of stock for indebtedness, the Sec shall notify the owner thereof and
shall advise the Membership Committee of such fact.,"
i. The records do not disclose what report the Corporate
Secretary transmitted to the Membership Committee to
comply with this.
ii. The reason for this mandatory requirement is to give the
Membership Committee the opportunity to find out if
proper notice has been made to the shareholder member.
c. The court presumed that the Corp Secr, as a lawyer is
knowledgeable on the law and on the standards of good faith and
fairness that the law requires.
i. As custodian of corporate records, he should also have
known that the first two letters sent to Clemente were
returned because the P.O. Box had been closed.
ii. It is surprising- given his knowledge of the law and of corp
records - that he would send the third and final letter to the
same P.O. Box that had been closed.
d. Calatagan argues that it "exercised due diligence before the
foreclosure sale".
i. COURT: Calatagan's act of sending the Dec 7 letter to
Clemente's mailing address knowing fully well that the
P.O. Box had been closed CANNOT be labeled as due
diligence.
ii. One obvious purpose of giving the Corp Sec the duty to
keep the addresses of members on file is specifically for
matters of this kind, when the member cannot be reached
through his or her mailing address.
iii. The Corp Sec does not have to do the actual verification
of other addresses on record.
1. a mere clerk can do the very simple task of
checking the files
e. The petition must fail because Calatagan had failed to duly observe
both the spirit and letter of its own by-laws.
i. The by-laws 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.
ii. The bad faith on Calatagan's part is palpable.
1. 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.
6. Nothing in Section 32 of Calatagan's By-Laws requires that the final
noticeprior to the sale be made solely through the member's mailing address.
a. A simple telephone call and an ounce of good faith could have
prevented this present controversy.
b. 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.
SECOND ISSUE
7. Clemente was not negligent.
a. 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.
b. 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.
DAMAGES (just in case he asks)
8. A non-stock corporation like Calatagan is not exempt from that obligation in
its treatment of its members.
9. It would not be feasible to deliver Clemente's original Certificate of Stock
because it had already been cancelled and a new one issued in its place in the
name of the purchases at the auction who was not impleaded in this case..
a. The CA instead directed Calatagan to issue to Clemente a new
certificate of stock.That sufficiently redresses the actual damages
sustained by Clemente.
b. The CA also awarded Clemente P200k as moral damages, P100k as
exemplary damages, and P100k as attorney's fees.
a. Even without Article 32 of the Civil Code , Calatagan will still be
bound to pay moral and exemplary damages to Clemente.
i. He was able to duly prove that he had sustained mental
anguish, serious anxiety and wounded feelings by reason
of Calatagan's acts, thereby entitling him to moral damages
under Article 2217 of the Civil Code.
**Take note:
- If delinquent, a member, immediate members of the family and his guests
may not avail of the facilities of the club.