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CALATAGAN GOLF CLUB v. SIXTO CLEMENTE

FACTS:

Respondent Sixto Clemente, Jr. owns a share of stock in the Calatagan Golf Club, Inc. After Clemente failed to pay his monthly dues, Calatagan decided to sell his share at a public auction. Despite the sale being confirmed and a certificate of sale issued in favor of Calatagan, Clemente continued to possess and use his share.

Calatagan argued that Clemente's action had already prescribed under Section 69 of the Corporation Code and that the required notices had been given to Clemente. They also relied on their Articles of Incorporation, which states that the dues and other obligations of the shareholders shall be a first lien on the shares, and in case of delinquency, the shares may be sold to satisfy said obligations.

Clemente learned of the sale several years later and filed a claim with the Securities and Exchange Commission (SEC), seeking the restoration of his shareholding. The SEC dismissed Clemente's complaint, citing prescription and finding that Calatagan had complied with all requirements for a valid sale. Clemente appealed to the Court of Appeals, which reversed the SEC's decision and ordered the restoration of Clemente's share with damages.

The Court of Appeals ruled in favor of Clemente, stating that Calatagan failed to provide sufficient notice to Clemente and that Section 69 of the Corporation Code is not applicable in this case.

ISSUES:

  1. Is Article 1149 or Article 1140 of the Civil Code applicable to determine the prescriptive period for Calatagan's action?

  2. Is Calatagan entitled to recover its share of stock and damages?

  3. Whether Calatagan Golf Club complied with the by-law provisions when it sold Clemente's share.

  4. Whether Calatagan Golf Club exercised due diligence in notifying Clemente of the impending sale of his share.

  5. Whether or not Calatagan Beach Club is obligated to treat its members honestly and in good faith.

  6. Whether or not the award of actual, moral, exemplary damages, and attorney's fees is warranted.

RULING:

  1. Neither Article 1149 nor Article 1140 of the Civil Code is applicable to determine the prescriptive period for Calatagan's action. Instead, Article 1140 of the Civil Code, which prescribes an action to recover movables in eight (8) years, is the applicable provision. Thus, Calatagan's action to recover its share of stock and damages is not barred by prescription.

  2. Calatagan is entitled to recover its share of stock and damages. The provisions in Calatagan's Articles of Incorporation and By-Laws establish a clear and comprehensive procedure for the payment of dues, delinquency of members, and the constitution and execution of a lien on the member's share. The court finds that the procedure outlined in the By-Laws affords due protection to the member by providing notice and the opportunity to pay overdue accounts before the execution sale. Furthermore, the By-Laws guarantee that the proceeds of the sale will be returned to the former member after deducting outstanding obligations. Therefore, if followed properly, the termination of membership under this procedure is considered to be in accordance with substantial justice.

  3. The Supreme Court held that Calatagan Golf Club failed to comply with the by-law provisions when it sold Clemente's share. The Court found that the Corporate Secretary of Calatagan Golf Club, Atty. Benjamin Tanedo, Jr., sent the final demand letter to Clemente's closed P.O. Box, despite knowing that the previous letters were returned due to the closure of the same P.O. Box. The Court emphasized that the Corporate Secretary, as the custodian of corporate records, should have known about Clemente's other addresses on file and should have made efforts to verify those addresses. The Court ruled that Calatagan Golf Club's failure to duly observe both the spirit and letter of its own by-laws amounted to bad faith.

  4. Calatagan Beach Club is obligated to treat its members honestly and in good faith, even if the members are contractually bound to perform certain obligations to the corporation.

  5. The award of actual, moral, exemplary damages, and attorney's fees is warranted. The Court of Appeals correctly applied Article 32 of the Civil Code, which allows recovery of damages from any private individual who directly or indirectly obstructs, defeats, violates, or impairs the right against deprivation of property without due process of laws. The award of moral damages is justified since the plaintiff duly proved mental anguish, serious anxiety, and wounded feelings. Furthermore, the bad faith exhibited by Calatagan justifies the award of exemplary damages.

PRINCIPLES:

  • The prescriptive period for an action to recover movables is eight (8) years under Article 1140 of the Civil Code.

  • Membership in a non-stock corporation may be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws, as stated in Section 91 of the Corporation Code.

  • The corporate secretary has the duty to give or cause to be given all notices required by law or by the by-laws of the corporation. (Sec. 32(a) of the By-Laws)

  • The corporate secretary also has the duty to keep a record of the addresses of all stockholders. (Sec. 32(a) of the By-Laws)

  • The purpose of requiring the corporate secretary to keep the addresses of members on file is to ensure that proper notice is given to the members. (Sec. 32(a) of the By-Laws)

  • The failure of a corporation to observe its own by-laws may be considered as bad faith. (Articles 19, 20, and 21 of the Civil Code)

  • A corporation has an obligation to treat every person honestly and in good faith, including its shareholders or members.

  • A certificate of stock is simply evidence of the share and its cancellation does not prevent the issuance of a new certificate to redress actual damages.

  • Article 32 of the Civil Code allows recovery of damages from any private individual who obstructs, defeats, violates, or impairs the right against deprivation of property without due process of laws.

  • Mental anguish, serious anxiety, and wounded feelings can justify the award of moral damages.

  • Bad faith exhibited by a corporation can justify the award of exemplary damages.