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course of execution proceedings prejudicial to the rights of a party. These instances, rare though they
HONORABLE COURT OF APPEALS and PEPSI COLA BOTTLING COMPANY OF THE PHILIPPINES, may be, do call for correction by a superior court, as where — 1) the writ of execution varies the
INC., respondents. judgment; 2) there has been a change in the situation of the parties making execution inequitable or
unjust; 3) execution is sought to be enforced against property exempt from execution; 4) it appears
that the controversy has never been submitted to the judgment of the court; 5) the terms of the
SYNOPSIS judgment are not clear enough and there remains room for interpretation thereof; or, 6) it appears
that the writ of execution has been improvidently issued, or that it is defective in substance, or is
issued against the wrong party, or that the judgment debt has been paid or otherwise satisfied, or the
During the pendency of its civil case against petitioners, private respondent shortened its writ was issued without authority. In these exceptional circumstances, considerations of justice and
term of existence to July 8, 1983. The Regional Trial Court was not informed of this fact and of the equity dictate that there be some mode available to the party aggrieved of elevating the question to a
SEC's approval of private respondent's Amended Articles of Incorporation. On June 1, 1987, the RTC higher court. That mode of elevation may be either by appeal (writ of error or certiorari) or by a
rendered a decision in favor of private respondent. Private respondent appealed to the Court of special civil action of certiorari, prohibition, or mandamus.
Appeals seeking a modification of a portion of the trial court's decision and subsequently obtained a 2. ID.; ID.; ID.; ID.; GROUND RELIED UPON BY PETITIONER DOES NOT FALL UNDER ANY OF THE
favorable decision. On February 5, 1991, the trial court issued a writ of execution. Petitioners filed a EXCEPTIONS FOR THE GRANT THEREOF; WRIT OF EXECUTION WILL NOT BE RECALLED BY REASON OF
Motion to Quash Writ of Execution claiming that there was a change in the situation of the parties. ANY DEFENSE WHICH COULD HAVE BEEN MADE AT THE TIME OF THE TRIAL. — In this case, petitioners
Petitioners raised the question of capacity of private respondent to sue and be sued. They opined that anchored their Motion to Quash on the claim that there was a change in the situation of the parties.
the change in the situation of the parties renders the execution of the decision inequitable or However, a perusal of the cases which have recognized such a ground as an exception to the general
impossible. According to petitioners, they refused to execute the judgment since there is no existing rule shows that the change contemplated by such exception is one which occurred subsequent to the
corporation to which they are indebted. The trial court denied petitioners' motion to quash. Petitioners judgment of the trial court. Here, the change in the status of private respondent took place in 1983,
appealed but private respondent moved to dismiss the appeal on the ground that the trial court's order when it was dissolved, during the pendency of its case in the trial court. The change occurred prior to
denying petitioners' motion to quash writ of execution was not appealable. The trial court, however, the rendition of judgment by the trial court. It is true that private respondent did not inform the trial
denied private respondent's motion. The Court of Appeals, in its Resolution, dismissed petitioners' court of the approval of the amended articles of incorporation which shortened its term of existence.
appeal. Petitioners moved for reconsideration, but the same was denied. Hence, this petition. However, it is incredible that petitioners did not know about the dissolution of private respondent
As a general rule, no appeal lie from the order of the trial court denying petitioners' Motion considering the time it took the trial court to decide the case and the fact that petitioner Urbano
to Quash Writ of Execution. There are exceptions, but the instant case does not fall within any of such Reburiano was a former employee of private respondent. As private respondent says, since petitioner
exceptions. The change contemplated by the exception is one which occurred subsequent to the Reburiano was a former sales manager of the company, it could be reasonably presumed that
judgment of the trial court. Here the change in the status of private respondent occurred prior to the petitioners knew of the changes occurring in respondent company. Clearly, the present case does not
rendition of judgment by the trial court. The appellate court likewise correctly denied due course to fall under the exception relied upon by petitioners and the Court of Appeals correctly denied due
the appeal. Parties cannot raise for the first time on appeal from a denial of a Motion to Quash a Writ course to the appeal. As has been noted, there are in fact cases which hold that while parties are given
of Execution issues which they could have raised but never did during the trial and even on appeal from a remedy from a denial of a motion to quash or recall writ of execution, it is equally settled that the
the decision of the trial court. writ will not be recalled by reason of any defense which could have been made at the time of the trial
of the case.
If the question of private respondent's capacity to sue can be raised for the first time in this
case, the Court held that there is no reason why the suit filed by private respondent should not be 3. ID.; ID.; ID.; ID.; PARTY NOT ALLOWED TO RAISE FOR THE FIRST TIME ON APPEAL FROM
allowed to proceed to execution. The law specifically allows a trustee to manage the affairs of the DENIAL THEREOF, ISSUES WHICH IT COULD HAVE RAISED BUT NEVER DID DURING THE TRIAL. — The
corporation in liquidation. In addition, Section 145 of the Corporation Law safeguards the rights of a Court of Appeals also held that in any event petitioners cannot raise the question of capacity of a
corporation which is dissolved pending litigation. Consequently, any supervening fact, such as the dissolved corporation to maintain or defend actions previously filed by or against it because the matter
dissolution of the corporation, repeal of a law, or any other fact of similar nature would not serve as had not been raised by petitioners before the trial court nor in their appeal from the decision of the
an effective bar to the enforcement of such right. Thus, the Court affirmed the decision of the Court of said court. We agree with this ruling. Rules of fair play, justice, and due process dictate that parties
Appeals. cannot raise for the first time on appeal from a denial of a Motion to Quash a Writ of Execution issues
which they could have raised but never did during the trial and even on appeal from the decision of the
trial court. aDcHIS
Private respondent opposed petitioners' motion. It argued that the jurisdiction of the
MENDOZA, J p: court as well as the respective parties' capacity to sue had already been established during the
initial stages of the case; and that when the complaint was filed in 1982, private respondent was
In Civil Case No. Q-35598, entitled "Pepsi Cola Bottling Company of the Philippines, Inc. still an existing corporation so that the mere fact that it was dissolved at the time the case was
v. Urbano (Ben) Reburiano and James Reburiano," the Regional Trial Court, Branch 103 rendered yet to be resolved did not warrant the dismissal of the case or oust the trial court of its
on June 1, 1987 a decision, the dispositive portion of which reads: prcd jurisdiction. Private respondent further claimed that its dissolution was effected in order to
transfer its assets to a new firm of almost the same name and was thus only for convenience.2
ACCORDINGLY, judgment is hereby rendered in favor of plaintiff Pepsi
Cola Bottling Co. of the Philippines, Inc. On February 28, 1991, the trial court issued an order 3 denying petitioners' motion to
quash. Petitioners then filed a notice of appeal, but private respondent moved to dismiss the
1. Ordering the defendants Urbano (Ben) Reburiano and James appeal on the ground that the trial court's order of February 28, 1991 denying petitioners' motion
Reburiano to pay jointly and severally the plaintiff the sum of P55,000.00, less to quash writ of execution was not appealable. 4 The trial court, however, denied private
whatever empties (cases and bottles) may be returned by said defendants valued respondent's motion and allowed petitioners to pursue their appeal.
at the rate of P55.00 per empty case with bottles.
In its resolution 5 of September 3, 1991, the appellate court dismissed petitioners'
2. Costs against the defendants in case of execution. appeal. Petitioners moved for a reconsideration, but their motion was denied by the appellate
court in its resolution, dated November 26, 1991.
SO ORDERED.
Hence, this petition for review on certiorari. Petitioners pray that the resolutions,
Private respondent Pepsi Cola Bottling Company of the Philippines, Inc. appealed to the dated September 3, 1991 and November 26, 1991, of the Court of Appeals be set aside and that a
Court of Appeals seeking the modification of the portion of the decision, which stated the value of new decision be rendered declaring the order of the trial court denying the motion to quash to be
the cases with empty bottles as P55.00 per case, and obtained a favorable decision. On June 26, appealable and ordering the Court of Appeals to give due course to the appeal. 6
1990, judgment was rendered as follows: On the other hand, private respondent argues that petitioners knew that it had ceased
WHEREFORE, the decision appealed from is SET ASIDE and another one to exist during the course of the trial of the case but did not act upon this information until the
is rendered, ordering the defendant-appellees to pay jointly and severally the judgment was about to be enforced against them; hence, the filing of a Motion to Quash and the
plaintiff-appellant the sum of P55,000.00 with interest at the local rate from present petition are mere dilatory tactics resorted to by petitioners. Private respondent likewise
January 1982. With costs against defendants-appellees. cites the ruling of this Court in Gelano v. Court of Appeals 7 that the counsel of a dissolved
corporation is deemed a trustee of the same for purposes of continuing such action or actions as
may be pending at the time of the dissolution to counter petitioners' contention that private
In the Gelano case, the counsel of the dissolved corporation was considered a trustee. In
The Case
the later case of Clemente v. Court of Appeals, 21 we held that the board of directors may be
permitted to complete the corporate liquidation by continuing as "trustees" by legal implication. Before the Court is a petition for review 1 of the 18 April 2001 Decision 2 of the Court of
For, indeed, as early as 1939, in the case of Sumera v. Valencia, 22 this Court held: Appeals in CA-G.R. CV No. 66236. The Court of Appeals affirmed the Order 3 of the Regional Trial
Court, Branch 258, Parañaque City (trial court) dismissing the complaint for sum of money filed by
It is to be noted that the time during which the corporation, through
B. Van Zuiden Bros., Ltd. (petitioner) against GTVL Manufacturing Industries, Inc. (respondent).
its own officers, may conduct the liquidation of its assets and sue and be sued as
This definition is supplemented by its Implementing Rules and Regulations, Rule I, . . . basically a buy and sell arrangement whereby we would inform
Section 1 (f) which elaborates on the meaning of the same phrase: Steelcase of the volume of the products needed for a particular project and
Steelcase would, in turn, give 'special quotations' or discounts after considering
f." Doing business" shall include soliciting orders, service contracts, the value of the entire package. In making the bid of the project, we would then
opening offices, whether liaison offices or branches; appointing representatives add out profit margin over Steelcase's prices. After the approval of the bid by
or distributors, operating under full control of the foreign corporation, domiciled the client, we would thereafter place the orders to Steelcase. The latter, upon
in the Philippines or who in any calendar year stay in the country for a period our payment, would then ship the goods to the Philippines, with us shouldering
totalling one hundred eighty [180] days or more; participating in the the freight charges and taxes. 18 [Emphasis supplied]
management, supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that imply a continuity This clearly belies DISI's assertion that it was a mere conduit through which Steelcase
of commercial dealings or arrangements, and contemplate to that extent the conducted its business in the country. From the preceding facts, the only reasonable conclusion
performance of acts or works, or the exercise of some of the functions normally that can be reached is that DISI was an independent contractor, distributing various products of
incident to and in progressive prosecution of commercial gain or of the purpose Steelcase and of other companies, acting in its own name and for its own account. SHTEaA
and object of the business organization.
The CA, in finding Steelcase to be unlawfully engaged in business in the Philippines,
The following acts shall not be deemed "doing business" in the Philippines: took into consideration the delivery by Steelcase of a letter to Phinma informing the latter that
the distribution rights for its products would be established in the near future, and also its
1. Mere investment as a shareholder by a foreign entity in domestic cancellation of orders placed by Visteon. The foregoing acts were apparently misinterpreted by
corporations duly registered to do business, and/or the exercise of rights as such the CA. Instead of supporting the claim that Steelcase was doing business in the country, the said
investor; acts prove otherwise. It should be pointed out that no sale was concluded as a result of these
communications. Had Steelcase indeed been doing business in the Philippines, it would have
2. Having a nominee director or officer to represent its interest in such readily accepted and serviced the orders from the abovementioned Philippine companies. Its
corporation; decision to voluntarily cease to sell its products in the absence of a local distributor indicates its
3. Appointing a representative or distributor domiciled in the refusal to engage in activities which might be construed as "doing business."
Philippines which transacts business in the representative's or distributor's Another point being raised by DISI is the delivery and sale of Steelcase products to a
own name and account; Philippine client by Modernform allegedly an agent of Steelcase. Basic is the rule in corporation
law that a corporation has a separate and distinct personality from its stockholders and from other
4. The publication of a general advertisement through any print or corporations with which it may be connected. 19 Thus, despite the admission by Steelcase that it
broadcast media; owns 25% of Modernform, with the remaining 75% being owned and controlled by Thai
5. Maintaining a stock of goods in the Philippines solely for the purpose stockholders, 20it is grossly insufficient to justify piercing the veil of corporate fiction and declare
of having the same processed by another entity in the Philippines; that Modernform acted as the alter ego of Steelcase to enable it to improperly conduct business in
the Philippines. The records are bereft of any evidence which might lend even a hint of credence
6. Consignment by a foreign entity of equipment with a local company to DISI's assertions. As such, Steelcase cannot be deemed to have been doing business in the
to be used in the processing of products for export; cEISAD Philippines through Modernform.
7. Collecting information in the Philippines; and Finally, both the CA and DISI rely heavily on the Dealer Performance Expectation
required by Steelcase of its distributors to prove that DISI was not functioning independently from
8. Performing services auxiliary to an existing isolated contract of sale Steelcase because the same imposed certain conditions pertaining to business planning,
which are not on a continuing basis, such as installing in the Philippines organizational structure, operational effectiveness and efficiency, and financial stability. It is
machinery it has manufactured or exported to the Philippines, servicing the actually logical to expect that Steelcase, being one of the major manufacturers of office systems
same, training domestic workers to operate it, and similar incidental services. furniture, would require its dealers to meet several conditions for the grant and continuation of a
(Emphases supplied) distributorship agreement. The imposition of minimum standards concerning sales, marketing,
finance and operations is nothing more than an exercise of sound business practice to increase
From the preceding citations, the appointment of a distributor in the Philippines is not sales and maximize profits for the benefit of both Steelcase and its distributors. For as long as
sufficient to constitute "doing business" unless it is under the full control of the foreign these requirements do not impinge on a distributor's independence, then there is nothing wrong
corporation. On the other hand, if the distributor is an independent entity which buys and with placing reasonable expectations on them. STcDIE
distributes products, other than those of the foreign corporation, for its own name and its own
account, the latter cannot be considered to be doing business in the Philippines. 14 It should be All things considered, it has been sufficiently demonstrated that DISI was an
kept in mind that the determination of whether a foreign corporation is doing business in the independent contractor which sold Steelcase products in its own name and for its own account. As
Philippines must be judged in light of the attendant circumstances. 15 a result, Steelcase cannot be considered to be doing business in the Philippines by its act of
appointing a distributor as it falls under one of the exceptions under R.A. No. 7042.
In the case at bench, it is undisputed that DISI was founded in 1979 and is independently
owned and managed by the spouses Leandro and Josephine Bantug.16 In addition to Steelcase
products, DISI also distributed products of other companies including carpet tiles, relocatable
By acknowledging the corporate entity of Steelcase and entering into a dealership The rule is that a party is estopped to challenge the
agreement with it and even benefiting from it, DISI is estopped from questioning Steelcase's personality of a corporation after having acknowledged the same by
existence and capacity to sue. This is consistent with the Court's ruling in Communication entering into a contract with it. And the 'doctrine of estoppel to
Materials and Design, Inc. v. Court of Appeals 22where it was written: deny corporate existence applies to foreign as well as to domestic
corporations;' "one who has dealt with a corporation of foreign
Notwithstanding such finding that ITEC is doing business in the origin as a corporate entity is estopped to deny its existence and
country, petitioner is nonetheless estopped from raising this fact to bar ITEC capacity." The principle "will be applied to prevent a person
from instituting this injunction case against it. contracting with a foreign corporation from later taking advantage
of its noncompliance with the statutes, chiefly in cases where such
A foreign corporation doing business in the Philippines may sue in
person has received the benefits of the contract . . ."
Philippine Courts although not authorized to do business here against a
Philippine citizen or entity who had contracted with and benefited by said All things considered, respondent can no longer invoke petitioner's lack
corporation. To put it in another way, a party is estopped to challenge the of capacity to sue in this jurisdiction. Considerations of fair play dictate that
personality of a corporation after having acknowledged the same by entering
Section 3. The account of any member shall be presented to such Former SEC Chairperson, Rosario Lopez, in her commentaries on the Corporation Code,
member every month. If any statement of accounts remains unpaid for a period explains the import of Section 91 in a manner relevant to this case:
forty-five (45) days after cut-off date, said member maybe (sic) posted as The prevailing rule is that the provisions of the articles of
deliqnuent (sic). No delinquent member shall be entitled to enjoy the privileges incorporation or by-laws of termination of membership must be strictly complied
of such membership for the duration of the deliquency (sic). After the member with and applied to the letter. Thus, an association whose member fails to pay
shall have been posted as delinquent, the Board may order his/her/its share sold his membership due and annual due as required in the by-laws, and which
to satisfy the claims of the club; after which the member loses his/her/its rights provides for the termination or suspension of erring members as well as prohibits
and privileges permanently. No member can be indebted to the Club at any time the latter from intervening in any manner in the operational activities of the
any amount in excess of the credit limit set by the Board of Directors from time association, must be observed because by-laws are self-imposed private laws
to time. The unpaid account referred to here includes non-payment of dues, binding on all members, directors and officers of the corporation. 35
charges and other assessments and non-payment for subscriptions. 32 ADCEcI
Examining closely the relevant by-law provisions of Valley Golf, 36 it appears that
To bolster its cause, Valley Golf proffers the proposition that by virtue of the by-law termination of membership may occur when the following successive conditions are met: (1)
provisions a lien is created on the shares of its members to ensure payment of dues, charges and presentation of the account of the member; (2) failure of the member to settle the account
other assessments on the members. Both the SEC and the Court of Appeals debunked the within forty-five days after the cut-off date; (3) posting of the member as delinquent; and (4)
tenability or applicability of the proposition through two common thrusts. issuance of an order by the board of directors that the share of the delinquent member be sold to
Firstly, they correctly noted that the procedure under Section 67 of the Corporation satisfy the claims of Valley Golf. These conditions found in by-laws duly approved by the SEC
Code for the stock corporation's recourse on unpaid subscriptions is inapt to a non-stock warrant due respect and we are disinclined to rule against the validity of the by-law
corporation vis-à-vis a member's outstanding dues. The basic factual backdrops in the two provisions. aEHASI
situations are disperate. * In the latter, the member has fully paid for his membership share, At the same time, two points warrant special attention.
while in the former, the stockholder has not yet fully paid for the share or shares of stock he
subscribed to, thereby authorizing the stock corporation to call on the unpaid subscription, A.
declare the shares delinquent and subject the delinquent shares to a sale at public auction. 33
Valley Golf has sought to accomplish the termination of Caram's membership through
Secondly, the two bodies below concluded that following Section 6 of the Corporation the sale of the Golf Share, justifying the sale through the constitution of a lien on the Golf Share
Code, which provides: under Section 1, Article VIII of its by-laws. Generally in theory, a non-stock corporation has the
power to effect the termination of a member without having to constitute a lien on the
The shares of stock of stock corporation may be divided into classes or membership share or to undertake the elaborate process of selling the same at public auction.
series of shares, or both, any of which classes or series of shares may have such The articles of incorporation or the by-laws can very well simply provide that the failure of a
rights, privileges or restrictions as may be stated in the articles of member to pay the dues on time is cause for the board of directors to terminate membership. Yet
incorporation . . . 34 Valley Golf was organized in such a way that membership is adjunct to ownership of a share in the
club; hence the necessity to dispose of the share to terminate membership.
the lien on the Golf Share in favor of Valley Golf is not valid, as the power to constitute such a
lien should be provided in the articles of incorporation, and not merely in the by-laws. Share ownership introduces another dimension to the case — the reality that
termination of membership may also lead to the infringement of property rights. Even though
However, there is a specific provision under the Title XI, on Non-Stock Corporations of
Valley Golf is a non-stock corporation, as evinced by the fact that it is not authorized to distribute
the Corporation Code dealing with termination of membership. Section 91 of the Corporation Code
to the holder of its shares dividends or allotments of the surplus profits on the basis of shares
provides:
held, 37 the Golf Share has an assigned value reflected on the certificate of membership
SEC. 91. Termination of membership. — Membership shall be itself. 38 Termination of membership in Valley Golf does not merely lead to the withdrawal of the
terminated in the manner and for the causes provided in the articles of rights and privileges of the member to club properties and facilities but also to the loss of the Golf
incorporation or the by-laws. Termination of membership shall have the effect Share itself for which the member had fully paid.
of extinguishing all rights of a member in the corporation or in its property,
The claim of Valley Golf is limited to the amount of unpaid dues plus incremental costs.
unless otherwise provided in the articles of incorporation or the by-laws.
On the other hand, Caram's loss may encompass not only the amount he had paid for the share but
(Emphasis supplied) aCHDST
also the price it would have fetched in the market at the time his membership was terminated.
Clearly, the right of a non-stock corporation such as Valley Golf to expel a member There is an easy way to remedy what is obviously an unfair situation. Taking the same
through the forfeiture of the Golf Share may be established in the by-laws alone, as is the example, Valley Golf seizes the share, sells it to itself or a third person for P100,000.00, then
The by-laws does not provide for a mode of notice to the member before the board of [I]n order that the action of a corporation in expelling a member for
directors puts up the Golf Share for sale, yet the sale marks the termination of membership. cause may be valid, it is essential, in the absence of a waiver, that there shall
Whatever semblance of a notice that is afforded is bare at best, ambiguous at most. The member be a hearing or trial of the charge against him, with reasonable notice to him
is entitled to receive a statement of account every month; however, the mode by which the and a fair opportunity to be heard in his defense. (Fletcher Cyc. Corp., supra) If
member is to receive such notice is not elaborated upon. If the member fails to pay within 45 days the method of trial is not regulated by the by-laws of the association, it
from the due date, Valley Golf is immediately entitled to have the member "posted as should at least permit substantial justice. The hearing must be conducted fairly
delinquent". While the assignation of "delinquent status" is evident enough, it is not as clear what and openly and the body of persons before whom it is heard or who are to decide
the word "posted" entails. Connotatively, the word could imply the physical posting of the notice the case must be unprejudiced. (SEC Opinion dated September 29, 1987,
of delinquency within the club premises, such as a bulletin board, which we recognize is often the Baclaran-Sucat Drivers Association)
case. Still, the actual posting modality is uncertain from the language of the by-laws.
It is unmistakably wise public policy to require that the termination of membership in a
The moment the member is "posted as delinquent", Valley Golf is immediately enabled non-stock corporation be done in accordance with substantial justice. No matter how one may
to seize the share and sell the same, thereby terminating membership in the club. The by-laws precisely define such term, it is evident in this case that the termination of Caram's membership
does not require any notice to the member from the time delinquency is posted to the day the betrayed the dictates of substantial justice.
sale of the share is actually held. The setup is to the extreme detriment to the member, who
Valley Golf alleges in its present petition that it was notified of the death of Caram only
upon being notified that the lien on his share is due for execution would be duly motivated to
in March of 1990, 43 a claim which is reiterated in its Reply to respondent's Comment. 44 Yet this
settle his accounts to foreclose such possibility.
claim is belied by the very demand letters sent by Valley Golf to Caram's mailing address. The
Does the Corporation Code permit the termination of membership without due notice to letters dated 25 January 1987 and 7 March 1987, both of which were sent within a few months
the member? The Code itself is silent on that matter, and the argument can be made that if no after Caram's death are both addressed to "Est. of Fermin Z. Caram, Jr.;" and the abbreviation
notice is provided for in the articles of incorporation or in the by-laws, then termination may be "[e]st." can only be taken to refer to "estate". This is to be distinguished from the two earlier
effected without any notice at all. Support for such an argument can be drawn from our ruling letters, both sent prior to Caram's death on 6 October 1986, which were addressed to Caram
in Long v. Basa, 39 which pertains to a religious corporation that is also a non-stock himself. Inexplicably, the final letter dated 3 May 1987 was again addressed to Caram himself,
corporation. 40Therein, the Court upheld the expulsion of church members despite the absence of although the fact that the two previous letters were directed at the estate of Caram stands as
any provision on prior notice in the by-laws, stating that the members had "waived such notice by incontrovertible proof that Valley Golf had known of Caram's death even prior to the auction sale.
adhering to those by-laws[,] became members of the church voluntarily[,] entered into its
Interestingly, Valley Golf did not claim before the Court of Appeals that they had
covenant and subscribed to its rules [and by] doing so, they are bound by their
learned of Caram's death only after the auction sale. It also appears that Valley Golf had conceded
consent." 41 cEAHSC
before the SEC that some of the notices it had sent were addressed to the estate of Caram, and
However, a distinction should be made between membership in a religious corporation, not the decedent himself. 45 aDSTIC
which ordinarily does not involve the purchase of ownership shares, and membership in a non-
What do these facts reveal? Valley Golf acted in clear bad faith when it sent the final
stock corporation such as Valley Golf, where the purchase of an ownership share is a
notice to Caram under the pretense they believed him to be still alive, when in fact they had very
condition sine qua non. Membership in Valley Golf entails the acquisition of a property right. In
well known that he had already died. That it was in the final notice that Valley Golf had
turn, the loss of such property right could also involve the application of aspects of civil law, in
perpetrated the duplicity is especially blameworthy, since it was that notice that carried the final
addition to the provisions of the Corporation Code. To put it simply, when the loss of membership
threat that his Golf Share would be sold at public auction should he fail to settle his account on or
in a non-stock corporation also entails the loss of property rights, the manner of deprivation of
before 31 May 1987.
such property right should also be in accordance with the provisions of the Civil Code.
Valley Golf could have very well addressed that notice to the estate of Caram, as it had
It has been held that a by-law providing that if a member fails to pay dues for a year, he
done with the third and fourth notices. That it did not do so signifies that Valley Golf was bent on
shall be deemed to have relinquished his membership and may be excluded from the rooms of the
selling the Golf Share, impervious to potential complications that would impede its intentions,
association and his certificate of membership shall be sold at auction, and any surplus of the
such as the need to pursue the claim before the estate proceedings of Caram. By pretending to
proceeds be paid over him, does notipso facto terminate the membership of one whose dues are a
[G.R. No. 165443. April 16, 2009.] CALATAGAN GOLF CLUB, INC., petitioner, vs. SIXTO CLEMENTE,
The Court has no intention to interfere with how non-stock corporations should run their JR., respondent.
daily affairs. The Court also respects the fact that membership is * non-stock corporations is a
voluntary arrangement, and that the member who signs up is bound to adhere to what the articles TINGA, J p:
of incorporation or the by-laws provide, even if provisions are detrimental to the interest of the
member. At the same time, in the absence of a satisfactory procedure under the articles of Seeking the reversal of the Decision 1 dated 1 June 2004 of the Court of Appeals in CA-
incorporation or the by-laws that affords a member the opportunity to defend against the G.R. SP No. 62331 and the reinstatement of the Decision dated 15 November 2000 of the
deprivation of significant property rights in accordance with substantial justice, the terms of the Securities and Exchange Commission (SEC) in SEC Case No. 04-98-5954, petitioner Calatagan Golf
by-laws or articles of incorporation will not suffice. There will be need in such case to refer to Club, Inc. (Calatagan) filed this Rule 45 petition against respondent Sixto Clemente, Jr.
substantive law. Such a flaw attends the articles of incorporation and by-laws of Valley Golf. The (Clemente).
Court deems it judicious to refer to the protections afforded by the Civil Code, with respect to
the preservation, maintenance, and defense from loss of property rights. The key facts are undisputed.
The arrangement provided for in the afore-quoted by-laws of Valley Golf whereby a lien Clemente applied to purchase one share of stock of Calatagan, indicating in his
is constituted on the membership share to answer for subsequent obligations to the corporation application for membership his mailing address at "Phimco Industries, Inc. — P.O. Box 240, MCC",
finds applicable parallels under the Civil Code. Membership shares are considered as movable or complete residential address, office and residence telephone numbers, as well as the company
personal property, 47 and they can be constituted as security to secure a principal obligation, (Phimco) with which he was connected, Calatagan issued to him Certificate of Stock No. A-01295
such as the dues and fees. There are at least two contractual modes under the Civil Code by on 2 May 1990 after paying P120,000.00 for the share. 2
which personal property can be used to secure a principal obligation. The first is through a Calatagan charges monthly dues on its members to meet expenses for general
contract of pledge, 48 while the second is through a chattel mortgage. 49 A pledge would require operations, as well as costs for upkeep and improvement of the grounds and facilities. The
the pledgor to surrender possession of the thing pledged, i.e., the membership share, to the provision on monthly dues is incorporated in Calatagan's Articles of Incorporation and By-Laws. It
pledge in order that the contract of pledge may be constituted.50 is also reproduced at the back of each certificate of stock. 3 As reproduced in the dorsal side of
Is * delivery of the share cannot be effected, the suitable security transaction is the chattel Certificate of Stock No. A-01295, the provision reads: IaHAcT
mortgage. Under Article 2124 of the Civil Code, movables may be the object of a chattel 5. The owners of shares of stock shall be subject to the payment of
mortgage. The Chattel mortgage is governed by Act No. 1508, otherwise known The Chattel monthly dues in an amount as may be prescribed in the by-laws or by the Board
Mortgage Law, 51 and the Civil Code. HDTcEI of Directors which shall in no case be less that [sic] P50.00 to meet the expenses
Calatagan's bad faith and failure to observe its own By-Laws had resulted not merely in
the loss of Clemente's privilege to play golf at its golf course and avail of its amenities, but also in
significant pecuniary damage to him. For that loss, the only blame that could be thrown
Clemente's way was his failure to notify Calatagan of the closure of the P.O. Box. That lapse, if
we uphold Calatagan would cost Clemente a lot. But, in the first place, does he deserve
answerability for failing to notify the club of the closure of the postal box? Indeed, knowing as he
did that Calatagan was in possession of his home address as well as residence and office telephone
numbers, he had every reason to assume that the club would not be at a loss should it need to
contact him. In addition, according to Clemente, he was not even aware of the closure of the
postal box, the maintenance of which was not his responsibility but his employer Phimco's.
The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21
of the Civil Code, 16 under the Chapter on Human Relations. These provisions, which the Court of
Appeals did apply, enunciate a general obligation under law for every person to act fairly and in
good faith towards one another. A non-stock corporation like Calatagan is not exempt from that
obligation in its treatment of its members. The obligation of a corporation to treat every person
honestly and in good faith extends even to its shareholders or members, even if the latter find
themselves contractually bound to perform certain obligations to the corporation. A certificate of
stock cannot be a charter of dehumanization.