Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 165443               April 16, 2009

CALATAGAN GOLF CLUB, INC. Petitioner,
vs.
SIXTO CLEMENTE, JR., Respondent.

D E C I S I O N

TINGA, J.:

Seeking the reversal of the Decision1 dated 1 June 2004 of the Court of Appeals in CA-G.R. SP No. 62331 and the reinstatement of the Decision dated 15 November 2000 of the Securities and Exchange Commission (SEC) in SEC Case No. 04-98-5954, petitioner Calatagan Golf Club, Inc. (Calatagan) filed this Rule 45 petition against respondent Sixto Clemente, Jr. (Clemente).

The key facts are undisputed.

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 ₱120,000.00 for the share.2

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.3 As reproduced in the dorsal side of Certificate of Stock No. A-01295, the provision reads:

5. The owners of shares of stock shall be subject to the payment of monthly dues in an amount as may be prescribed in the by-laws or by the Board of Directors which shall in no case be less that [sic] ₱50.00 to meet the expenses for the general operations of the club, and the maintenance and improvement of its premises and facilities, in addition to such fees as may be charged for the actual use of the facilities x x x

When Clemente became a member the monthly charge stood at ₱400.00. He paid ₱3,000.00 for his monthly dues on 21 March 1991 and another ₱5,400.00 on 9 December 1991. Then he ceased paying the dues. At that point, his balance amounted to ₱400.00.4

Ten (10) months later, Calatagan made the initial step to collect Clemente’s back accounts by sending a demand letter dated 21 September 1992. It was followed by a second letter dated 22 October 1992. Both letters were sent to Clemente’s mailing address as indicated in his membership application but were sent back to sender with the postal note that the address had been closed.5

Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more than sixty (60) days, specifically ₱5,600.00 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.

On 7 December 1992, Calatagan sent a third and final letter to Clemente, this time signed by its Corporate Secretary, Atty. Benjamin Tanedo, Jr. 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 January 1993. Again, this letter was sent to Clemente’s mailing address that had already been closed.6

On 5 January 1993, a notice of auction sale was posted on the Club’s bulletin board, as well as on the club’s premises. The auction sale took place as scheduled on 15 January 1993, and Clemente’s share sold for ₱64,000.7 According to the Certificate of Sale issued by Calatagan after the sale, Clemente’s share was purchased by a Nestor A. Virata.8 At the time of the sale, Clemente’s accrued monthly dues amounted to ₱5,200.00.9 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 1997.11 He filed a claim with the Securities and Exchange Commission (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."

Clemente filed a petition for review with the Court of Appeals. On 1 June 2004, the Court of Appeals promulgated a decision reversing the SEC. The appellate court restored Clemente’s one share with a directive to Calatagan to issue in his a new share, and awarded to Clemente a total of ₱400,000.00 in damages, less the unpaid monthly dues of ₱5,200.00.

In rejecting the SEC’s finding that the action had prescribed, the Court of Appeals cited the SEC’s own ruling in SEC Case No. 4160, Caram v. Valley Golf Country Club, Inc., that Section 69 of the Corporation Code specifically refers to unpaid subscriptions to capital stock, and not to any other debt of stockholders. With the insinuation that Section 69 does not apply to unpaid membership dues in non-stock corporations, the appellate court employed Article 1140 of the Civil Code as the proper rule of prescription. The provision sets the prescription period of actions to recover movables at eight (8) years.

The Court of Appeals 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 very well knew that its third and final demand letter also sent to the same mailing address would not be received by Clemente. It noted the by-law requirement that within ten (10) days after the Board has ordered the sale at auction of a member’s share of stock for indebtedness, the Corporate Secretary shall notify the owner thereof and advise the Membership Committee of such fact. Finally, the Court of Appeals ratiocinated that "a person who is in danger of the imminent loss of his property has the right to be notified and be given the chance to prevent the loss."12

Hence, the present appeal.

Calatagan maintains that 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.

Section 69 of the Code provides that an action to recover delinquent stock sold must be commenced by the filing of a complaint within six (6) months from the date of sale. As correctly pointed out by the Court of Appeals, Section 69 is part of Title VIII of the Code entitled "Stocks and Stockholders" and refers specifically to unpaid subscriptions to capital stock, the sale of which is governed by the immediately preceding Section 68.

The Court of Appeals debunked both Calatagan’s and the SEC’s reliance on Section 69 by citing another SEC ruling in the case of Caram v. Valley Golf. In connection with Section 69, Calatagan raises a peripheral point made in the SEC’s Caram ruling. In Caram, the SEC, using as take-off Section 6 of the Corporation Code which refers to "such rights, privileges or restrictions as may be stated in the articles of incorporation," pointed out that the Articles of Incorporation of Valley Golf does not "impose any lien, liability or restriction on the Golf Share [of Caram]," but only its (Valley Golf’s) By-Laws does. Here, Calatagan stresses that its own Articles of Incorporation does provide that 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."13 With its illative but incomprehensible logic, 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 of incorporation and not only in the by-laws.

We remain unconvinced.

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 argues in the alternative that Clemente’s suit is barred by Article 1146 of the Civil Code which establishes four (4) years as the prescriptive period for actions based upon injury to the rights of the plaintiff on the hypothesis that the suit is purely for damages. As a second alternative still, Calatagan posits that Clemente’s action is governed by Article 1149 of the Civil Code which sets five (5) years as the period of prescription for all other actions whose prescriptive periods are not fixed in the Civil Code or in any other law. Neither article is applicable but Article 1140 of the Civil Code which provides 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.

Calatagan’s advertence to the fact that the constitution of a lien on the member’s share by virtue of the explicit provisions in its Articles of Incorporation and By-Laws is relevant but ultimately of no help to its cause. 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."14 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. We quote these provisions:

ARTICLE XII – MEMBER’S ACCOUNT

SEC. 31. (a) Billing Members, Posting of Delinquent Members – The Treasurer shall bill al members monthly. As soon as possible after the end of every month, a statement showing the account of bill of a member for said month will be prepared and sent to him. If the bill of any member remains unpaid by the 20th of the month following that in which the bill was incurred, the Treasurer shall notify him that if his bill is not paid in full by the end of the succeeding month his name will be posted as delinquent the following day at the Clubhouse bulletin board. While posted, a member, the immediate members of his family, and his guests, may not avail of the facilities of the Club.

(b) Members on the delinquent list for more than 60 days shall be reported to the Board and their shares or the shares of the juridical entities they represent shall thereafter be ordered sold by the Board at auction to satisfy the claims of the Club as provided for in Section 32 hereon. A member may pay his overdue account at any time before the auction sale.

Sec. 32. Lien on Shares; Sale of Share at Auction- The club shall have a first lien on every share of stock to secure debts of the members to the Club. This lien shall be annotated on the certificates of stock and may be enforced by the Club in the following manner:

(a) 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.

(b) The Membership Committee shall then notify all applicants on the Waiting List and all registered stockholders of the availability of a share of stock for sale at auction at a specified date, time and place, and shall post a notice to that effect in the Club bulletin board for at least ten (10) days prior to the auction sale.

(c) On the date and hour fixed, the Membership Committee shall proceed with the auction by viva voce bidding and award the sale of the share of stock to the highest bidder.

(d) The purchase price shall be paid by the winning bidder to the Club within twenty-four (24) hours after the bidding. The winning bidder or the representative in the case of a juridical entity shall become a Regular Member upon payment of the purchase price and issuance of a new stock certificate in his name or in the name of the juridical entity he represents. The proceeds of the sale shall be paid by the Club to the selling stockholder after deducting his obligations to the Club.

(e) If no bids be received or if the winning bidder fails to pay the amount of this bid within twenty-four (24) hours after the bidding, the auction procedures may be repeated from time to time at the discretion of the Membership Committee until the share of stock be sold.

(f) If the proceeds from the sale of the share of stock are not sufficient to pay in full the indebtedness of the member, the member shall continue to be obligated to the Club for the unpaid balance. If the member whose share of stock is sold fails or refuse to surrender the stock certificate for cancellation, cancellation shall be effected in the books of the Club based on a record of the proceedings. Such cancellation shall render the unsurrendered stock certificate null and void and notice to this effect shall be duly published.

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.

Yet, did Calatagan actually comply with the by-law provisions when it sold Clemente’s share? The appellate court’s finding on this point warrants our approving citation, thus:

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 member.

We presume that the Corporate Secretary, as a lawyer is knowledgeable on the law and on the standards of good faith and fairness that the law requires. 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. Thus, we are surprised – given his knowledge of the law and of corporate records – that he would send the third and final letter – Clemente’s last chance before his share is sold and his membership lost – to the same P.O. Box that had been closed.

Calatagan argues that it "exercised due diligence before the foreclosure sale" and "sent several notices to Clemente’s specified mailing address." We do not agree; we cannot label as due diligence Calatagan’s act of sending the December 7, 1992 letter to Clemente’s mailing address knowing fully well that the P.O. Box had been closed. Due diligence or good faith imposes upon the Corporate Secretary – the chief repository of all corporate records – the obligation to check Clemente’s other address which, under the By-Laws, have to be kept on file and are in fact on file. One obvious purpose of giving the Corporate Secretary 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. Significantly, the Corporate Secretary does not have to do the actual verification of other addressees on record; a mere clerk can do the very simple task of checking the files as in fact clerks actually undertake these tasks. In fact, one telephone call to Clemente’s phone numbers on file would have alerted him of his impending loss.

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.1avvphi1

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 Appeals15 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 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,16 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.

We turn to the matter of damages. The award of actual damages is of course warranted since Clemente has sustained pecuniary injury by reason of Calatagan’s wrongful violation of its own By-Laws. 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. However, the Court of Appeals instead directed that Calatagan to issue to Clemente a new certificate of stock. That sufficiently redresses the actual damages sustained by Clemente. After all, the certificate of stock is simply the evidence of the share.

The Court of Appeals also awarded Clemente ₱200,000.00 as moral damages, ₱100,000.00 as exemplary damages, and ₱100,000.00 as attorney’s fees. We agree that the award of such damages is warranted.

The Court of Appeals cited Calatagan for violation of Article 32 of the Civil Code, which allows recovery of damages from any private individual "who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs" the right "against deprivation of property without due process of laws." The plain letter of the provision squarely entitles Clemente to damages from Calatagan. Even without Article 32 itself, Calatagan will still be bound to pay moral and exemplary damages to Clemente. The latter 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. Moreover, it is evident that Calatagan’s bad faith as exhibited in the

course of its corporate actions warrants correction for the public good, thereby justifying exemplary damages under Article 2229 of the Civil Code.

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

SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CONSUELO YNARES-SANTIAGO
Associate Justice		 CONCHITA CARPIO MORALES
Associate Justice

PRESBITERO J. VELASCO, JR.*
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson, Second Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice


Footnotes

*Justice Consuelo Ynares-Santiago as Raffle dated April 13, 2009 as additional member in lieu of Justice Antonio D. Brion who inhibited himself in this case.

1 Rollo, pp. 47-64; Penned by Associate Justice Arturo D. Brion (now a member of this Court, with Associate Justices Ruben T. Reyes (later appointed to and retired from this Court) and Eliezer de los Santos, concurring.

2 Rollo, pp. 47-48, 145.

3 Id at 48, 145.

4 Id. at 48, 145-146.

5 Id. at 48, 146.

6 Id. at 48-49, 146-147.

7 Rollo, p. 49.

8 Records, p. 250.

9 Id.

10 Records, p. 250.

11 Rollo, pp. 49, 147.

12 Id. at 13.

13 Rollo, p. 20.

14 See rollo, pp. 79-80.

15 G.R. No. 133107, 25 March 1999, 305 SCRA 449.

16 Art. 19. Every person must in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

Art. 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.

Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.


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