G.R. No. 165443 - Calatagan Golf Club, Inc. vs. Clemente, Jr.

Case Summary (G.R. No. 165443)

Share acquisition and membership particulars

Clemente applied for membership and purchased one share of Calatagan on 2 May 1990, paying P120,000.00 and receiving Certificate of Stock No. A-01295. His application included a mailing address (Phimco Industries, Inc. - P.O. Box 240, MCC), a residential address, office and residence telephone numbers, and identification of his employer (Phimco). Calatagan assesses monthly dues on members; the dues provision appears in the Articles of Incorporation, By-Laws, and on the back of each stock certificate.

By-law provision on monthly dues and lien on shares

The dorsal of Certificate No. A-01295 repeats the by-law provision that shareholders must pay monthly dues as determined by the board or by-laws. Calatagan’s Articles expressly state that dues and other member obligations constitute a first lien on shares, and that delinquent shares may be sold by the Board in the manner provided in the By-Laws.

Payment history and delinquency

When Clemente joined, the monthly dues were P400.00. He paid P3,000.00 on 21 March 1991 and P5,400.00 on 9 December 1991, after which he ceased payments. By the time of Calatagan’s collection efforts his unpaid balance was recorded as P5,600.00 as of 31 October 1992, later shown as P5,200.00 at the time of sale.

Notice attempts and returned correspondence

Calatagan sent demand letters dated 21 September 1992 and 22 October 1992 to the mailing address provided by Clemente; both were returned with the postal notation that the P.O. box had been closed. A third and final letter dated 7 December 1992, signed by Corporate Secretary Atty. Benjamin Tanedo, Jr., warned that the share would be sold at public auction on 15 January 1993 if dues were not settled; that letter too was sent to the same closed P.O. box and was returned.

Board resolution, auction notices, and sale

On 1 December 1992 the Board authorized foreclosure and public auction of shares of delinquent members, including Clemente’s. A notice of auction was posted on the club bulletin board and premises on 5 January 1993; the auction occurred on 15 January 1993. Clemente’s share sold for P64,000.00 and a Certificate of Sale reflects Nestor A. Virata as purchaser. A notice of foreclosure was published in Business World on 26 May 1993.

Clemente’s discovery and SEC complaint

Clemente discovered the sale only in November 1997 and filed a complaint with the SEC seeking restoration of his shareholding and damages. The SEC dismissed the complaint on 15 November 2000 as prescribed, citing Section 69 of the Corporation Code (six-month limitation to challenge sale of shares) and finding that Calatagan complied with notice requirements; the SEC also characterized Clemente’s conduct as bad faith for failing to inform the club of his address change.

Court of Appeals reversal and relief awarded

On review, the Court of Appeals reversed the SEC on 1 June 2004, restored Clemente’s one share (ordering Calatagan to issue a new certificate) and awarded total damages of P400,000.00 less unpaid dues of P5,200.00. The appellate court rejected Section 69’s applicability, relying on SEC precedent (Caram v. Valley Golf Country Club, Inc.) to conclude Section 69 pertains to unpaid subscriptions for capital stock (governed by Section 68) and not to unpaid membership dues in a non-stock context; it applied Article 1140 (eight-year prescription for recovery of movables) instead. The Court of Appeals also found Calatagan failed to comply with its by-laws’ notice requirements and acted in bad faith by sending the final notice to a P.O. box it knew was closed.

Issue presented on certiorari and petitioner’s principal contentions

Calatagan’s Supreme Court petition argued primarily that Clemente’s action was prescribed under Section 69 of the Corporation Code and that the club gave all required notices under law and its by-laws. It alternatively invoked Civil Code prescription rules (Articles 1146 and 1149) if Section 69 were inapplicable.

Supreme Court’s analysis on the applicability of Section 69

The Supreme Court affirmed the Court of Appeals’ distinction between foreclosure sales related to unpaid subscriptions (Section 68/69 context) and sales executed to collect member dues where the share had been fully paid. The Court emphasized the fundamental difference: Section 68/69 addresses unpaid subscription to capital stock (subscriber never fully paid for the share), whereas Clemente had paid in full for his share. Because the underlying obligation in this case was membership dues secured by a lien, not the subscription price for capital stock, Section 69’s six-month limitation was inapplicable.

Prescription analysis under the Civil Code provisions

Calatagan’s suggested alternatives—Article 1146 (four years for actions based on injury to rights as damages) and Article 1149 (five years for actions not otherwise fixed)—were rejected; the Supreme Court agreed with the appellate court that Article 1140 applies: actions to recover movables prescribe in eight years. The Court therefore accepted the Court of Appeals’ prescription analysis grounded in Article 1140.

Examination of Articles of Incorporation and By-Laws; duty to notify

The Court reviewed the Articles and By-Laws which create a lien on members’ shares and provide a detailed foreclosure and auction procedure (By-Laws Article XII, Sections 31–32). Section 32(a) requires the Secretary, within ten days after Board ordering the sale, to notify the owner and advise the Membership Committee; Section 31(b) and related provisions require posting and other steps. The Court found the by-laws, if followed, to afford due protection and substantial justice to a delinquent member by ensuring notice, opportunity to pay before sale, and return of proceeds (less indebtedness) after sale.

Findings on noncompliance with by-laws and corporate secretary’s conduct

Factually, the Court concurred with the Court of Appeals that Calatagan’s Corporate Secretary knew the first two demand letters were returned because the P.O. box was closed but nevertheless sent the decisive final notice to the same closed address. The Secretary had duties to keep and consult member addresses, to give notices required by law or by by-laws, and to notify the Membership Committee after the Board ordered sale. The Secretary’s failure to ver

Case Syllabus (G.R. No. 165443)

Procedural History

Petition for review under Rule 45 filed by Calatagan Golf Club, Inc. (Calatagan) seeking reversal of the Court of Appeals Decision dated 1 June 2004 in CA-G.R. SP No. 62331 and reinstatement of the Securities and Exchange Commission (SEC) Decision dated 15 November 2000 in SEC Case No. 04-98-5954.
SEC dismissed respondent Sixto Clemente, Jr.’s (Clemente) complaint on 15 November 2000, holding the action prescribed under Section 69 of the Corporation Code and finding Calatagan complied with sale requirements.
Court of Appeals reversed the SEC on 1 June 2004, restoring Clemente’s share and awarding damages (P400,000 less unpaid dues), finding Calatagan failed to comply with its by-laws and acted in bad faith.
Supreme Court resolved the present appeal and rendered the final decision on 16 April 2009 (G.R. No. 165443).

Parties and Roles

Petitioner: Calatagan Golf Club, Inc. — non-stock corporation that issued Certificate of Stock No. A-01295 and enforces membership dues through by-laws and articles of incorporation.
Respondent: Sixto Clemente, Jr. — purchaser of one share in Calatagan, alleged delinquent in monthly dues and subject of foreclosure auction sale.
Corporate Secretary referenced: Atty. Benjamin Tanedo, Jr. — signer of Calatagan’s third/final demand letter and custodian of corporate records for notice purposes.
Purchaser at auction: Nestor A. Virata — identified in the Certificate of Sale as buyer of Clemente’s share.
Bench: Decision authored by Justice Tinga; Justices Quisumbing (Chairperson), Ynares-Santiago, Carpio Morales, and Velasco, Jr. concur. Justice Consuelo Ynares-Santiago joined as additional member in lieu of Justice Antonio D. Brion.

Stipulated and Material Facts

Clemente applied to purchase one share and supplied his mailing address as "Phimco Industries, Inc. - P.O. Box 240, MCC," plus residential address and office/residence telephone numbers; he identified his employer as Phimco.
Calatagan issued Certificate of Stock No. A-01295 to Clemente on 2 May 1990 after payment of P120,000.00 for the share.
Calatagan’s Articles of Incorporation and By-Laws (and the dorsal of each certificate) provide for monthly dues, with a minimum of P50.00; when Clemente became a member the monthly dues were set at P400.00.
Clemente paid P3,000.00 for monthly dues on 21 March 1991 and P5,400.00 on 9 December 1991; thereafter he ceased paying dues, leaving a balance of P400.00 at that point.
Calatagan sent demand letters dated 21 September 1992 and 22 October 1992 to the P.O. Box address; both were returned with postal notation that the address had been closed.
Calatagan declared Clemente delinquent for nonpayment exceeding sixty (60) days, citing P5,600.00 as of 31 October 1992.
On 1 December 1992 the Board adopted a resolution authorizing foreclosure/sale of delinquent members’ shares; on 7 December 1992 Calatagan’s Corporate Secretary signed and sent a third and final demand letter to the same P.O. Box — that letter was returned as the P.O. Box was closed.
Notice of auction was posted on the Club bulletin board and premises on 5 January 1993; auction held 15 January 1993; Clemente’s share sold for P64,000.00 and Certificate of Sale names Nestor A. Virata as purchaser.
At the time of sale Clemente’s accrued monthly dues were noted as P5,200.00 (the record shows P5,600.00 as of 31 Oct. 1992 and P5,200.00 at time of sale).
Notice of foreclosure was published in the 26 May 1993 issue of the Business World.
Clemente learned of the sale in November 1997 and filed a claim with the SEC seeking restoration of his shareholding and damages.
SEC dismissed Clemente’s complaint as prescribed under Section 69 of the Corporation Code and for failure to properly notify; finding Clemente acted in bad faith by not notifying Calatagan of P.O. Box closure.
Court of Appeals reversed the SEC, restored Clemente’s share, ordered issuance of a new share certificate, and awarded P400,000.00 in damages less unpaid monthly dues of P5,200.00.
Supreme Court reviewed and ultimately denied Calatagan’s petition, affirming the Court of Appeals’ decision and awarding costs against the petitioner.

Legal Issues Presented

Whether Clemente’s action to recover his share and obtain damages was time-barred under Section 69 of the Corporation Code or any other statutory prescription period (Civil Code articles invoked).
Whether Calatagan complied with the notice and procedural requirements in its Articles of Incorporation and By-Laws before selling Clemente’s share at auction.
Whether the sale of a fully paid share for unpaid monthly dues is analogous to sales under Sections 68–69 of the Corporation Code (relating to unpaid subscriptions) and thus governed by the six‑month prescription under Section 69.
Whether Calatagan acted in bad faith or failed to exercise due diligence in giving notice as required by its By-Laws and by general principles of good faith under the Civil Code.
Entitlement to and quantum of damages for wrongful deprivation of property and other injuries caused by Calatagan’s actions.

Court’s Analysis — Prescription and Applicability of Section 69

Section 69 of the Corporation Code prescribes a six (6) month period to question the sale of shares at auction, a provision situated in Title VIII "Stocks and Stockholders" and tied to unpaid subscriptions to capital stock governed by Section 68.
The Supreme Court distinguished the sale in this case from the sale contemplated by Sections 68–69: the root of Section 68 sales is nonpayment of the subscription price for the share (i.e., the share not fully paid).
In contrast, Clemente had fully