China Banking Corp. vs. CAG.R. No.

117604; March 26, 1997FACTS:

Galicano Calapatia, stockholder of Valley Golf andCountry Club Inc. (VGCCI),
pledged his stock certificate topetitioner as a security for the loan. Petitioner
requestedVGCCI that the pledge agreement be recorded in theirbooks. Due to
Calapatia failure to pay, petitioner filed
apetition for extrajudicial foreclosure of pledged stock;notified and ordered VGCCI to
transfer the pledged stock inits name and in the corporate books. VGCCI refused in
viewof Calapatias unsettled accounts with the
club.Despite the refusal, the foreclosure ensued andpetitioner emerged the highest
bidder and a certificate of sale was issued. Meanwhile, VGCCI sent a notice of
demandto Calapatia for the full payment of his overdue account.
Forfailure to pay, the delinquent stock was published andauctioned.Petitioner
advised VGCCI that it is the new owner
of Calapatias stock certificate and requested that a newcertificate of stock be
issued in its name. VGCCI replied
thatby reason of delinquency, Calapatias stock was sold atpublic auction. Petitioner
protested the sale and filed acomplaint for the nullification of auction made by
VGCCI inthe RTC of Makati. The trial court dismissed the complainton the ground of
intra-corporate controversy.
Thereafter, petitioner filed a complaint in SEC on thesame grounds. SEC
ruled in favor of VGCCI. Petitionerappealed to SEC en banc and the
latter reversed thedecision. VGCCI appealed to CA and the latter set aside theorders
of SEC on the ground of lack of jurisdiction because itdoes not involve intracorporate controversy.
ISSUE:WON the petitioner is bound by the VGCCIs by-laws.
HELD:NO. In order to be bound, the third party must haveacquired knowledge,
either actual or constructive, of thepertinent by-laws at the time the transaction or
agreementbetween said third party and the shareholder was enteredinto, in this
case, at the time the pledge agreement wasexecuted. VGCCI could have easily
informed petitioner of itsby-laws when it sent notice formally
recognizing petitioneras pledgee of one of its shares registered in
Calapatia'sname.By-laws signifies the rules and regulations or privatelaws enacted
by the corporation to regulate, govern
andcontrol its own actions, affairs and concerns and itsstockholders or members
and directors and officers withrelation thereto and among themselves in their
relation to it.In other words, by-laws are the relatively permanent andcontinuing
rules of action adopted by the corporation for itsown government and that of the
individuals composing itand having the direction, management and control of
itsaffairs, in whole or in part, in the management and controlof its affairs and
activities. The purpose of a by-law is toregulate the conduct and define the duties of

the memberstowards the corporation and among themselves. They areself-imposed

and, although adopted pursuant to statutoryauthority, have no status as public law.