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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 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
PETITIONER: CALATAGAN GOLF CLUB, INC solely through the member's mailing address. A simple telephone call and an
RESPONDENTS: SIXTO CLEMENTE, JR., ounce of good faith could have prevented this present controversy. SECOND
ISSUE: Clemente was not negligent. Knowing as he did that Calatagan was in
SUMMARY: Clemente applied to purchase one share of stock of Calatagan Golf possession of his home address as well as residence and office telephone
Club. He indicated in his application for membership his mailing address at numbers, he had every reason to assume that the club would not be at a loss should
"Phimco Industries, Inc. - P.O. Box 240, MCC," complete residential address, it need to contact him. Clemente was not even aware of the closure of the postal
office and residence telephone numbers, as well as the company (Phimco) with box, the maintenance of which was not his responsibility but his employer
which he was connected. Calatagan charges monthly dues on its members. He Phimco's.It would not be feasible to deliver Clemente's original Certificate of
ceased paying dues which resulted to a balance of 400. Calatagan tried to collect Stock because it had already been cancelled and a new one issued in its place in
Clemente's back accounts by sending a demand letters. Both letters were sent to the name of the purchases at the auction who was not impleaded in this case. The
Clemente's mailing address as indicated in his membership application.However, CA instead directed Calatagan to issue to Clemente a new certificate of stock.
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 DOCTRINE: Membership in a non-stock corporation "shall be terminated in the
monthly dues for more than 60 days. Calatagan's board adopted a resolution manner and for the causes provided in the articles or the by-laws."
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 FACTS:
had already been closed. This letter was sent to Clemente's mailing address that 1. Clemente applied to purchase one share of stock of Calatagan Golf Club.
had already been closed. The auction sale took place. Clemente's share was a. He indicated in his application for membership his mailing address
purchased by a Nestor A. Virata. Clemente, after 4 years filed a claim with the at "Phimco Industries, Inc. - P.O. Box 240, MCC," complete
SEC seeking the restoration of his shareholding in Calatagan with damages.The residential address, office and residence telephone numbers, as well
SEC rendered a decision dismissing Clemente's complaint. It concluded that as the company (Phimco) with which he was connected.
Clemente's claim, filed 4 years after the sale, had already prescribed. This is 2. Calatagan issued to him a certificate of stock on 2 May 1990 after paying
pursuant to Section 69 of the Corporation Code which provides that the sale of P120k for the share.
shares at an auction sale can only be questioned within 6 months from the date of 3. Calatagan charges monthly dues on its members to meet expenses for general
sale. It held that Calatagan had complied with all the requirements for a valid sale. operations, as well as costs for upkeep and improvement of the grounds and
Clemente filed a Petition for Review before the CA. The CA reversed the decision facilities.
of the SEC. Issues: (1) WoN the CA erred in reversing the decision of the SEC a. This is incorporated in Calatagan's Articles of Incorporation and By-
NO (2) WoN Clemente was negligent in not informing Calatagan of the postal Laws.
box’s closure NO RULING: At the root of the sale of delinquent stock is the non- b. It is also reproduced at the back of each certificate of stock.
payment of the subscription price for the share of stock itself. However, in this 4. When Clemente became a member, the monthly charge was P400.
case, Clemente had already fully paid for the share in Calatagan. He only had a. He paid P3,000.00 for his monthly dues on 21 March 1991 and
outstanding balance for MONTHLY DUES. Not outstanding balance for the another P5,400.00 on 9 December 1991.
SUBSCRIPTION PRICE. There is no purpose to apply Section 69 to the case at b. Then he ceased paying the dues.
bar. Calatagan has a clear and comprehensive procedure to govern the payment i. At that point, his balance amounted to P400.
of monthly dues, the declaration of a member as delinquent, and the constitution 5. Calatagan tried to collect Clemente's back accounts by sending a demand
of a lien on the shares and its eventual public sale to answer for the member's letter on 21 September 1992.
debts. However, Calatagan was not able to comply with its by laws. Sec. 32 (a) a. It was followed by a second letter the next day.
of the By-Laws further provides that "within 10 days after the Board has ordered 6. Both letters were sent to Clemente's mailing address as indicated in his
the sale at auction of a member's share of stock for indebtedness, the Sec shall membership application.
notify the owner thereof. The court presumed that the Corp Secr, as a lawyer is a. However, these were sent back to sender with the postal note that
knowledgeable on the law and on the standards of good faith and fairness that the the address had been closed.
law requires. he should also have known that the first two letters sent to Clemente 7. Calatagan declared Clemente delinquent for having failed to pay his monthly
were returned because the P.O. Box had been closed. COURT: Calatagan's act of dues for more than 60 days (provided in the by laws).
a. On 1 Dec 1992, Calatagan's board adopted a resolution authorizing Directors in the manner provided in the By-Laws to satisfy said dues
the foreclosure of shares of delinquent members and the public or other obligations of the shareholders."
auction of these shares. b. Calatagan concludes that the prescriptive period under Section 69
8. On 7 Dec 1992, Calatagan sent a third and final letter to Clemente (signed by should also apply to the sale of Clemente’s share as the lien that
its Corporate Secretary, Atty. Tanedo). Calatagan perceives to be a restriction is stated in the articles.
a. The letter contains a warning that unless Clemente settles his ISSUE:
outstanding dues, his share would be included among the delinquent 1. WoN the CA erred in reversing the decision of the SEC NO
shares to be sold at public auction on 15 Jan 1993. 2. WoN Clemente was negligent in not informing Calatagan of the postal box’s
b. This letter was sent to Clemente's mailing address that had already closure NO
been closed.
9. The auction sale took place as scheduled and Clemente's share sold for RULING: WHEREFORE, the petition is DENIED. The Decision of the Court of
P64,000. Appeals is AFFIRMED. Costs against petitioner.
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 RATIO:
May 1993 issue of the Business World. FIRST ISSUE
10. Clemente learned of the sale of his share only in November of 1997. 1. There are fundamental differences between the sale of delinquent stock and
a. He filed a claim with the SEC seeking the restoration of his the sale that occurred in this case.
shareholding in Calatagan with damages. 2. At the root of the sale of delinquent stock is the non-payment of the
11. The SEC rendered a decision dismissing Clemente's complaint. subscription price for the share of stock itself.
a. It concluded that Clemente's claim, filed 4 years after the sale, had a. However, in this case, Clemente had already fully paid for the share
already prescribed. in Calatagan and no longer had any outstanding obligation to
i. This is pursuant to Section 69 of the Corp Code which deprive him of full title to his share.
provides that the sale of shares at an auction sale can only i. He only had outstanding balance for MONTHLY DUES.
be questioned within 6 months from the date of sale. Not outstanding balance for the SUBSCRIPTION PRICE.
b. It held that Calatagan had complied with all the requirements for a b. There is no purpose to apply Section 69 to the case at bar.
valid sale, Clemente having failed to inform Calatagan that the 3. Calatagan argues that Clemente's suit is barred by Article 1146 of the Civ
address he had earlier supplied was no longer his address. Code which establishes 4 years as the prescriptive period for actions based
12. The CA reversed the decision of the SEC. upon injury to the rights of the plaintiff.
a. It restored Clemente's one share with a directive to Calatagan to a. As an alternative, Calatagan also argues that Clemente's action is
issue in his a new share. governed by Article 1149 of the Civ Code which sets 5 years as the
b. It cited SEC's own ruling in Caram v. Valley Golf Country Club, period of prescription for all other actions whose prescriptive
Inc., that Section 69 of the Corp Code specifically refers to unpaid periods are not fixed in any law.
subscriptions to capital stock, and not to any other debt of b. COURT: Neither article is applicable. Article 1140 is applicable
stockholders. which provides that that an action to recover movables shall
i. The proper provision of law that must be used is Article prescribe in eight (8) years. Calatagan's action is for the recovery of
1140 of the Civ Code w/c sets the prescription period of a share of stock, plus damages.
actions to recover movables at 8 years. 4. Calatagan has a clear and comprehensive procedure to govern the payment
c. It also pointed out that since that Calatagan's first two demand letters of monthly dues, the declaration of a member as delinquent, and the
had been returned to it as sender with the notation about the closure constitution of a lien on the shares and its eventual public sale to answer for
of the mailing address, it knew that its final demand letter also sent the member's debts. (There are provisions of the by laws provided in the case
to the same mailing address would not be received by Clemente. but it only states the procedure I cited the most relevant ones)
13. Calatagan stresses that its own Articles of Incorporation does provide that: a. Under Section 91 of the Corporation Code, membership in a non-
a. the monthly dues assessed on owners of shares of the corporation, stock corporation "shall be terminated in the manner and for the
along with all other obligations of the shareholders to the club, causes provided in the articles or the by-laws."
"shall constitute a first lien on the shares… and in the event of b. The Court is satisfied that the By-Laws affords due protection to the
delinquency such shares may be ordered sold by the Board of member by assuring that the member should be notified by the Sec
of the execution sale that would terminate membership. Calatagan's sale of the share.
c. The By-Laws also guarantees that after the execution sale, the ii. The bad faith on Calatagan's part is palpable.
proceeds of the sale would be returned to the former member after 1. Calatagan very well knew that Clemente's postal
deducting the outstanding obligations. box to which it sent its previous letters had already
5. However, Calatagan was not able to comply with its by laws. been closed, yet it persisted in sending that final
a. Under the By-Laws, the Corp Sec is tasked to "give or cause to be letter to the same postal box.
given, all notices required by law or by these By-Laws. .. and - keep 6. Nothing in Section 32 of Calatagan's By-Laws requires that the final
a record of the addresses of all stockholders. noticeprior to the sale be made solely through the member's mailing address.
b. Sec. 32 (a) of the By-Laws further provides that "within 10 days a. A simple telephone call and an ounce of good faith could have
after the Board has ordered the sale at auction of a member's share prevented this present controversy.
of stock for indebtedness, the Sec shall notify the owner thereof and b. Calatagan's bad faith and failure to observe its own By-Laws had
shall advise the Membership Committee of such fact.," resulted not merely in the loss of Clemente's privilege to play golf
i. The records do not disclose what report the Corporate at its golf course and avail of its amenities, but also in significant
Secretary transmitted to the Membership Committee to pecuniary damage to him.
comply with this. SECOND ISSUE
ii. The reason for this mandatory requirement is to give the 7. Clemente was not negligent.
Membership Committee the opportunity to find out if a. Knowing as he did that Calatagan was in possession of his home
proper notice has been made to the shareholder member. address as well as residence and office telephone numbers, he had
c. The court presumed that the Corp Secr, as a lawyer is every reason to assume that the club would not be at a loss should it
knowledgeable on the law and on the standards of good faith and need to contact him.
fairness that the law requires. b. According to Clemente, he was not even aware of the closure of the
i. As custodian of corporate records, he should also have postal box, the maintenance of which was not his responsibility but
known that the first two letters sent to Clemente were his employer Phimco's.
returned because the P.O. Box had been closed. DAMAGES (just in case he asks)
ii. It is surprising- given his knowledge of the law and of corp 8. A non-stock corporation like Calatagan is not exempt from that obligation in
records - that he would send the third and final letter to the its treatment of its members.
same P.O. Box that had been closed. 9. It would not be feasible to deliver Clemente's original Certificate of Stock
d. Calatagan argues that it "exercised due diligence before the because it had already been cancelled and a new one issued in its place in the
foreclosure sale". name of the purchases at the auction who was not impleaded in this case..
i. COURT: Calatagan's act of sending the Dec 7 letter to a. The CA instead directed Calatagan to issue to Clemente a new
Clemente's mailing address knowing fully well that the certificate of stock.That sufficiently redresses the actual damages
P.O. Box had been closed CANNOT be labeled as due sustained by Clemente.
diligence. b. The CA also awarded Clemente P200k as moral damages, P100k as
ii. One obvious purpose of giving the Corp Sec the duty to exemplary damages, and P100k as attorney's fees.
keep the addresses of members on file is specifically for a. Even without Article 32 of the Civil Code , Calatagan will still be
matters of this kind, when the member cannot be reached bound to pay moral and exemplary damages to Clemente.
through his or her mailing address. i. He was able to duly prove that he had sustained mental
iii. The Corp Sec does not have to do the actual verification anguish, serious anxiety and wounded feelings by reason
of other addresses on record. of Calatagan's acts, thereby entitling him to moral damages
1. a mere clerk can do the very simple task of under Article 2217 of the Civil Code.
checking the files **Take note:
e. The petition must fail because Calatagan had failed to duly observe - If delinquent, a member, immediate members of the family and his guests
both the spirit and letter of its own by-laws. may not avail of the facilities of the club.
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