Calatagan Golf Club, Inc. vs. Sixto Clemente, Jr.

Section 69 of the Corporation Code applies exclusively to the sale of delinquent stock for unpaid subscriptions under Section 68, and not to the sale of fully-paid shares to satisfy ancillary obligations such as membership dues; furthermore, a corporation and its officers must exercise good faith and due diligence in complying with notice requirements regarding the place, time, and manner of foreclosure sales, and failure to do so—by ignoring known alternative contact information—constitutes bad faith warranting damages under Articles 19, 20, 21, and 32 of the Civil Code.

Calatagan Golf Club, Inc. is a non-stock corporation operating a golf club. Its Articles of Incorporation and By-Laws provide that monthly dues assessed on members constitute a first lien on their shares of stock, and that delinquent shares may be ordered sold by the Board of Directors at public auction to satisfy such debts.

• Clemente applied for membership in Calatagan Golf Club, Inc. in 1990, purchasing one share for P120,000.00 and providing his mailing address at Phimco Industries, Inc., P.O. Box 240, MCC, Makati, along with his complete residential address and telephone numbers.
• The Articles of Incorporation and By-Laws required payment of monthly dues (P400.00 at the time), which constituted a first lien on the shares, and provided that delinquent shares may be sold at auction to satisfy the member's obligations.
• Clemente paid monthly dues initially but ceased payment, accumulating arrears of P5,600.00 as of October 1992.
• Calatagan sent demand letters to Clemente's mailing address in September and October 1992, but both were returned with postal notation that the address had been closed.
• On 1 December 1992, the Board of Directors authorized foreclosure and public auction of delinquent shares.
• On 7 December 1992, the Corporate Secretary sent a third and final notice to the same closed mailing address, warning that the share would be sold at public auction on 15 January 1993 if dues remained unpaid.
• On 5 January 1993, notice of the auction specifying the date, time, and place was posted on the Club's bulletin board and premises.
• The auction proceeded on 15 January 1993 as scheduled, and Clemente's share was sold to Nestor A. Virata for P64,000.00.
• Clemente learned of the sale only in November 1997 and immediately filed a claim with the SEC.

• Calatagan argued that Clemente's action had prescribed under Section 69 of the Corporation Code, which requires actions questioning the sale of delinquent stock to be filed within six months from the date of sale.
• It contended that unlike in Caram v. Valley Golf, its Articles of Incorporation explicitly provided that monthly dues constitute a lien on shares, thus bringing the sale under Section 69.
• It maintained that it exercised due diligence by sending notices to Clemente's specified mailing address as stated in his membership application, and that the By-Laws did not require notice to other addresses.
• Alternatively, Calatagan argued that if Section 69 did not apply, the action was barred by Article 1146 (four years) or Article 1149 (five years) of the Civil Code, not Article 1140 (eight years).

• Clemente argued that Section 69 applies only to unpaid subscriptions to capital stock under Section 68, not to unpaid membership dues in non-stock corporations, citing Caram v. Valley Golf.
• He contended that Calatagan failed to comply with its own By-Laws requiring the Corporate Secretary to notify the owner of the share before sale, and that the auction sale was invalid for lack of proper notice regarding the time, place, and manner of sale.
• He asserted that Calatagan acted in bad faith by sending the final notice to an address it knew was closed, despite having his residential address and telephone numbers on file, and that a simple telephone call could have prevented the controversy.

• Procedural Issues: Whether the action to recover the share had prescribed under Section 69 of the Corporation Code or under the Civil Code.
• Substantive Issues: Whether Section 69 of the Corporation Code applies to the sale of shares to satisfy unpaid membership dues in non-stock corporations; whether Calatagan complied with the notice requirements under its By-Laws regarding the place, time, and manner of the auction sale and notification to the member; and whether Calatagan acted in bad faith and is liable for damages.

• Procedural: The Court held that the action had not prescribed. Section 69 of the Corporation Code applies only to sales of delinquent stock for unpaid subscriptions under Section 68, not to sales to satisfy unpaid membership dues. The proper prescriptive period is eight years under Article 1140 of the Civil Code, as the action is for recovery of a movable (share of stock).
• Substantive: The Court ruled that Section 69 is inapplicable because Clemente had fully paid for his share; the delinquency related to monthly dues, not subscription payments. The Court found that Calatagan failed to comply with the spirit and letter of its By-Laws. Section 32(a) requires the Corporate Secretary to notify the owner within ten days after the Board orders the sale. By sending the final notice to the P.O. Box address known to be closed (as evidenced by two returned letters), despite having Clemente's residential address and telephone numbers on file, the Corporate Secretary failed to exercise due diligence and good faith required under Article 19 of the Civil Code. The Court held that Calatagan's actions constituted bad faith, bringing into operation Articles 19, 20, and 21 of the Civil Code. The deprivation of property without due process also warranted damages under Article 32. The Court affirmed the award of actual damages (restoration of share via new certificate), moral damages (P200,000), exemplary damages (P100,000), and attorney's fees (P100,000).

• Sale of Delinquent Stock vs. Sale for Debts — Distinguishes between Section 68-69 of the Corporation Code (governing sale of delinquent stock for unpaid subscriptions) and the enforcement of liens for unpaid dues or other obligations. The former involves the subscriber's failure to pay for the stock itself, while the latter involves fully-paid stock subject to liens for ancillary obligations. Only the former is subject to the six-month prescriptive period under Section 69.
• Place and Time of Meetings (Auction Sale Notice) — Under Section 32(b) of the By-Laws, the Membership Committee must notify applicants and stockholders of the availability of shares for auction at a "specified date, time and place" and post notice for at least ten days. However, the prerequisite under Section 32(a)—notification to the owner by the Corporate Secretary—is fundamental and requires reasonable effort to actually inform the member, not merely formalistic compliance by sending letters to addresses known to be ineffective.
• Good Faith and Due Diligence in Corporate Actions — Corporations must act with justice, give everyone their due, and observe honesty and good faith (Article 19, Civil Code) when dealing with members. This includes exercising due diligence to ensure notices of foreclosure are actually received, such as checking alternative addresses on file or making telephone calls when the mailing address is known to be closed.

• "A simple telephone call and an ounce of good faith x x x could have prevented this present controversy." — Citing Rizal Commercial Banking Corporation v. Court of Appeals to emphasize the lack of due diligence by Calatagan's Corporate Secretary in failing to use available contact information.
• "A certificate of stock cannot be a charter of dehumanization." — Emphasizing that corporations must treat members with fairness and good faith despite contractual obligations.
• "The by-law provisions 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 Calatagan's sale of the share." — Highlighting that procedural requirements must serve substantive justice, not mere formalistic compliance.

• Caram v. Valley Golf Country Club, Inc., SEC Case No. 4160 — Cited as controlling precedent that Section 69 of the Corporation Code applies only to unpaid subscriptions to capital stock, not to other debts of stockholders such as membership dues.
• Rizal Commercial Banking Corporation v. Court of Appeals — Cited for the principle that simple acts of good faith and due diligence (like a telephone call) can prevent unnecessary litigation and controversy.

• Section 69 of the Corporation Code — Provides that actions to question sale of delinquent stock must be filed within six months from date of sale; held inapplicable to sales for unpaid dues.
• Section 68 of the Corporation Code — Governs sale of delinquent stock for unpaid subscriptions; distinguished from enforcement of liens for dues.
• Section 91 of the Corporation Code — Provides that membership in non-stock corporations is terminated in the manner and for causes provided in articles or by-laws.
• Article 1140 of the Civil Code — Establishes eight-year prescriptive period for actions to recover movables; applied to the recovery of the share of stock.
• Articles 19, 20, and 21 of the Civil Code — General provisions on human relations requiring good faith and fairness; basis for moral and exemplary damages.
• Article 32 of the Civil Code — Allows recovery of damages for deprivation of property without due process of law.
• Article 2217 of the Civil Code — Basis for moral damages for mental anguish and wounded feelings.
• Article 2229 of the Civil Code — Basis for exemplary damages to correct bad faith for public good.