Title
Calatagan Golf Club, Inc. vs. Clemente, Jr.
Case
G.R. No. 165443
Decision Date
Apr 16, 2009
Clemente's share was wrongfully auctioned due to unpaid dues; Calatagan failed proper notice. SC ruled in his favor, awarding damages for bad faith.
calatagan golf club
clemente jr
violation
A

Case Summary (G.R. No. 165443)

Factual Background

Respondent applied for membership and purchased one share of Calatagan Golf Club, Inc. paying P120,000 and receiving Certificate No. A-01295 on May 2, 1990. The dorsal side of the certificate incorporated by reference the club’s by-law provision imposing monthly dues, then fixed at P400. Respondent paid certain dues but ceased payments, leaving an accrued balance of P5,200 at the time of the auction. Calatagan sent three demand letters to the mailing address in respondent’s application; the first two were returned with the postal notation that the post office box had been closed.

Corporate Action and Auction Sale

Calatagan’s board declared respondent delinquent for failure to pay dues and adopted a resolution on December 1, 1992 authorizing foreclosure and public auction of delinquent shares. A third and final demand letter, dated December 7, 1992 and signed by the Corporate Secretary, was again sent to the closed mailing address. Notices of the auction were posted and the auction occurred on January 15, 1993; respondent’s share was sold for P64,000 to a purchaser identified as Nestor A. Virata. A notice of foreclosure was published on May 26, 1993.

Initial Administrative and Appellate Proceedings

Respondent filed a complaint with the Securities and Exchange Commission seeking restoration of his shareholding and damages. On November 15, 2000 the SEC dismissed the complaint as prescribed under Section 69, Corporation Code, holding that the action to question the sale was not timely filed, and finding Calatagan had complied with required notices and respondent had acted in bad faith in failing to update his mailing information. Respondent appealed to the Court of Appeals.

Court of Appeals Decision

On June 1, 2004 the Court of Appeals reversed the SEC. The appellate court ordered restoration of respondent’s one share and directed Calatagan to issue a new certificate in his name. It awarded respondent P400,000 in damages less the unpaid dues of P5,200. The Court of Appeals rejected application of Section 69 on the ground that that provision pertains to unpaid subscriptions to capital stock and is inapposite where the share had already been fully paid. The court applied Article 1140 (eight-year prescription for recovery of movables) and found Calatagan failed to give proper notice under its by-laws because the Corporate Secretary sent the decisive notice to a postal box that had been closed despite knowledge that earlier letters had been returned.

Issues Presented on Appeal

Calatagan principally urged that respondent’s action had prescribed under Section 69, Corporation Code, and alternatively invoked Article 1146 and Article 1149 of the Civil Code as bar to the claim. Calatagan also maintained that it had exercised due diligence by sending the required notices in accordance with its by-laws and that the by-laws and articles created a lien and authorized sale of delinquent shares.

Supreme Court’s Analysis on Prescription

The Court examined the text and context of Section 69, Corporation Code and declined Calatagan’s invitation to extend its prescriptive rule to the present circumstances. The Court distinguished sales under Section 68–69, which address unpaid subscriptions to capital stock, from the instant sale of a share that respondent had fully paid. The Court held that the six-month prescription of Section 69 was not applicable to a sale to satisfy a member’s unpaid dues after full payment of the share. The Court also found that neither Article 1146 nor Article 1149 governed the action; instead Article 1140 governing actions to recover movables supplied the more appropriate prescriptive framework.

Supreme Court’s Analysis on Notice and Good Faith

The Court scrutinized Calatagan’s by-laws, particularly Sections 31 and 32 governing billing, posting of delinquent members, constitution of a lien on shares, and the procedural steps before auction sale. The Court found that the by-laws required the Corporate Secretary to notify the owner within ten days after the board ordered sale and to advise the Membership Committee. The Court concluded that Calatagan did not comply in substance with these requirements because the Corporate Secretary, who had actual knowledge that earlier letters were returned, sent the decisive notice to the same closed post office box instead of utilizing other addresses and telephone numbers on file. The Court held that the Corporate Secretary’s failure to check other addresses or instruct a clerk to do so constituted deficient diligence and bad faith, given his custodian role over corporate records and his professional knowledge.

Application of Good Faith Doctrines and Liability

The Court invoked Articles 19, 20 and 21 of the Civil Code to impose the general duty of justice, honesty, and good faith on the corporation in its dealings with members. The Court found palpable bad faith in Calatagan’s conduct and concluded that respondent was entitled to relief for the wrongful de

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