Case Summary (G.R. No. 120905)
Petitioner
China Banking Corporation
Respondents
Court of Appeals
Valley Golf & Country Club, Inc.
Key Dates
• August 21, 1974 – Calapatia pledges Stock Certificate No. 1219 to CBC
• September 16–27, 1974 – CBC requests and VGCCI records the pledge
• August 3, 1983 – Calapatia renews loan (P20,000) secured by the existing pledge
• April 12, 1985 – CBC files for extrajudicial foreclosure; May 17, 1985 auction notice
• September 17, 1985 – Public auction; CBC acquires the pledged share at P20,000
• December 10, 1986 – VGCCI auctions the same share for Calapatia’s delinquent dues
• September 9, 1990 – CBC files complaint with SEC for nullification of VGCCI’s sale
• January 3 & April 14, 1992 – SEC hearing officer dismisses CBC’s petition
• June 4 & December 7, 1993 – SEC en banc reverses and orders issuance of new certificate to CBC
• August 15 & October 5, 1994 – Court of Appeals nullifies SEC orders for lack of jurisdiction; denies reconsideration
• March 26, 1997 – Supreme Court decides on review
Applicable Law
• 1987 Philippine Constitution – governing judicial and quasi-judicial powers
• Presidential Decree No. 902-A, Sections 3 and 5(b) – grants SEC original and exclusive jurisdiction over intra-corporate controversies
• Corporation Code (B.P. Blg. 68), Art. 63 – restricts transfer of shares subject to unpaid subscriptions
• Civil Code, Arts. 2087, 2099 – governs pledge, foreclosure, and pledgee’s diligence
Summary of Facts
Calapatia, a VGCCI member, pledged one share (Cert. No. 1219) to CBC in 1974 to secure existing and future obligations (up to P20,000). After he renewed his indebtedness in 1983, CBC foreclosed extrajudicially and purchased the share in 1985. VGCCI, citing Calapatia’s unpaid club dues, conducted its own auction in December 1986, selling the same share and terminating his membership. CBC sought registration of the share under its name before the Regional Trial Court (RTC) of Makati (dismissed for intra-corporate nature), then before the SEC (hearing officer dismisses; en banc reverses), and finally appealed to the Court of Appeals (which nullified SEC orders for lack of jurisdiction). CBC elevated the matter to the Supreme Court.
Issue
Which tribunal—regular courts or the SEC—has jurisdiction over the dispute concerning ownership and transfer of a corporate share sold under a club’s by-law for delinquency, and did VGCCI validly defeat CBC’s rights as pledgee?
Jurisdiction under P.D. No. 902-A
P.D. 902-A vests the SEC with original and exclusive jurisdiction over “controversies arising out of intra-corporate relations” (Sec. 5[b]) and over all corporations licensed by government (Sec. 3). Disputes between a corporation and its stockholder concerning share ownership and by-law interpretation fall squarely within SEC competence.
Nature of the Controversy and Share Ownership
CBC acquired ownership by valid foreclosure and public auction (Art. 2087, Civil Code). VGCCI had previously recognized the pledge in its books and never contested the transfer. CBC is therefore a bona fide stockholder, making the conflict an intra-corporate controversy under Sec. 5(b) of P.D. 902-A.
Interpretation of Corporate By-laws
The dispute turns on VGCCI’s by-law authorizing sale of a delinquent member’s share. Interpretation and application of corporate by-laws demand specialized expertise, uniformity, and administrative discretion—factors favoring SEC primary jurisdiction under the doctrine of primary jurisdiction.
Validity of the Pledge Agreement
The 1974 pledge expressly secured future loans up to P20,000; the 1983 promissory note was a rene
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Facts
- On August 21, 1974, Galicano Calapatia, Jr. pledged Stock Certificate No. 1219 (one share of VGCCI) to China Banking Corporation (CBC) as security for present and future obligations up to ₱20,000.
- VGCCI noted the pledge in its books by letter dated September 27, 1974, upon CBC’s written request of September 16, 1974.
- On August 3, 1983, Calapatia executed a ₱20,000 promissory note in CBC’s favor, secured by the 1974 pledge agreement.
- Calapatia defaulted; on April 12, 1985, CBC petitioned for extrajudicial foreclosure of the pledged share.
- Notary de Vera conducted a public auction on September 17, 1985; CBC became highest bidder at ₱20,000 and obtained a certificate of sale.
- VGCCI, without notifying CBC, initiated collection notices against Calapatia (November 1985, December 1985, November 1986) and held a second auction on December 10, 1986, selling the same share at ₱25,000.
- VGCCI terminated Calapatia’s membership via letter of December 15, 1986.
- On May 5, 1989, CBC formally demanded issuance of a new certificate; VGCCI refused on grounds of delinquency and prior sale.
Procedural History
- March 9, 1990: CBC filed a case in the RTC of Makati to nullify the December 10, 1986 auction and to compel issuance of a certificate; on June 18, 1990, the RTC dismissed for lack of jurisdiction as an intra-corporate dispute; motion for reconsideration denied August 27, 1990.
- September 20, 1990: CBC filed with the SEC for nullification of the 1986 sale, cancellation of any new certificate, issuance of certificate to CBC, damages and attorney’s fees.
- January 3, 1992: SEC Hearing Officer dismissed CBC’s complaint, holding VGCCI’s refusal valid due to delinquency.
- April 14, 1992: Motion for reconsideration denied by the Hearing Officer.
- June 4, 1993: SEC en banc reversed the Hearing Officer, declared the December 10, 1986 auction null and void, and ordered issuance of a new membership certificate in CBC’s name.
- December 7, 1993: SEC denied VGCCI’s motion for reconsideration.
- August 15, 1994: Court of Appeals set aside the