China Banking Corporation vs. Valley Golf and Country Club, Inc.

[SEC-SICD * CASE NO. 3880. January 3, 1992.] CHINA BANKING CORPORATION , petitioner , vs .VALLEY GOLF AND COUNTRY CLUB, INC. , respondent . D E C I S I O N This is a controversy between two (2) domestic corporations registered with this Commission where the petitioner, a banking corporation, is the pledgee of a membership share issued by the respondent corporation in the name of Galicano A. Calapatia, Jr. (Calapatia, for short) who pledged the said share in favor of the petitioner to secure the payment of a P20,000.00 loan evidenced by a promissory note dated October 3, 1983. llcd The loan has not been paid and so, on September 17, 1985, Calapatia's Membership Certificate No. 1219 has been sold at public auction where the petitioner was the highest bidder. Likewise, on December 10, 1986, respondent sold the same share at public auction for reason of delinquency. In protest, petitioner demanded the annulment of the auction sale of December 10, 1986, and the cancellation of any new certificate resulting from the sale but respondent refused. Hence, this amended petition praying that judgment be rendered: 1. Canceling and nullifying the delinquency sale of Valley Golf & Country Cub, Inc. (VGCI) Membership Certificate No. 1219; 2. Ordering the respondent to cancel any new Membership Certificate replacing Membership Certificate No. 1219 and issue a new certificate in the name of the petitioner. 3. Ordering the respondent to pay the petitioner damages, attorney's fees and expenses of litigation. Imputing malice and bad faith against the manner the delinquency sale of Membership Certificate No. 1219 was conducted by the respondent petitioner alleged, among others, that on October 13, 1983, Calapatia, a shareholder of the respondent corporation and the registered owner of Valley Golf Club, Inc. (VGCI) Membership Certificate No. 1219, obtained a P20,000.00 loan from the petitioner as evidenced by a promissory note (Annex "A" of the Amended Petition),the payment of which was secured by the Pledge Agreement over his membership certificate (Annex B of the Amended Petition);that on September 16, 1974, petitioner advised the respondent that the said share has been pledged to the petitioner who requested the respondent to register the lien in its books (Annex "C" of the Amended Petition);that on September 27, 1974, respondent duly noted in its books the Deed of Pledge executed in favor of the plaintiff (Annex "D" of the Amended Petition);that on September 17, 1985, Membership Certificate No. 1219 has been sold at public auction where the petitioner was the highest bidder after the respondent was notified by the petitioner of the petition for extra-judicial foreclosure of the share on May 14, 1985 (Annex "F" of the Amended Petition);that the respondent informed the petitioner on July 15, 1985 of its inability to transfer the share in its name without simultaneous liquidation of the unpaid account of Calapatia (Annex "G" of the Amended Petition);on December 10, 1986, respondent sold at public auction Membership Certificate No. 1219 for P25,000.00 for reason of delinquency and advised the plaintiff of the sale on March 2, 1990 (Annex "J" of the Amended Petition);and that the failure of the respondent to invalidate the auction sale conducted on December 10, 1986 deprived the plaintiff of its proprietary right as lawful owner of Membership Certificate No. 1219. In answer to the Amended Petition, respondent admitted certain allegations and denied generally and specifically material averments therein, contending, among others, that it is a wrong conclusion of law for petitioner to consider itself the legal owner of Membership Certificate No. 1219 under the guarantee law upon the issuance of a certificate of sale the said share in favor of the petitioner contending that under Section 63 of the Corporation Code, no transfer of share shall be valid, except as between the parties until it is recorded in the books of the corporation; that as far as the respondent is concerned the sale on December 10, 1986 was not arbitrarily conducted because the holder of membership certificate was still Calapatia and the sale made in favor of the petitioner was not recorded in the books of the corporation so that the notice of sale was sent to Calapatia; that there was no malicious concealment nor precipitate haste in the auction sale on December 10, 1986 because it was conducted after notice were sent to Calapatia and after notice about it was published in a newspaper of general circulation in the December 9, 1986 issue of the Daily Express and that Calapatia was notified of the sale; that respondent had every right to conduct the December 10, 1986 public auction sale and if ever petitioner suffered damages it had itself to blame and not the respondent. And by way of affirmative defense, respondent contended that the petitioner has no cause of action. Interposing a counter-claim, respondent alleged it was compelled to incur litigation expenses as a result of the filing of a totally baseless case. Preliminary conferences were conducted and terminated on January 22, 1991 after respondent admitted facts particularly Annexes "C","D" and "E" of the Amended Petition. Trial on the merits ensued where both parties presented documentary and testimonial evidence. As could be gleaned from the evidence adduced at the hearing, the principal consideration which impelled the petitioner to file the instant case is the refusal of the respondent to issue a new certificate in the name of the petitioner who claims to be the owner of Membership Certificate No. 1219 by virtue of the auction sale of the said certificate where the petitioner is the highest bidder. After a careful evaluation of the records of the case, the evidence presented and the arguments of the parties in their pleadings, it would appear that Calapatia has an outstanding account on his Membership Certificate No. 1219 which remained unliquidated despite demand for payment. This information was relayed to the petitioner as early as July 15, 1985 when the respondent refused to transfer the share in the name of the petitioner without simultaneous liquidation of Calapatias unpaid account. (Annex "G" of the Amended Petition as Exhibit "9"). Considering that the said share is delinquent, respondent has valid reason not to transfer the share in the name of the petitioner in the books of the respondent corporation until liquidation of delinquency. As clearly provided for in the by-laws of the respondent, it has the first lien on all the shares issued to its members. Petitioner cannot also claim good faith when it sold the share at public auction because it has been informed and therefore fully aware that it bought delinquent share which it cannot validly register in the respondent's books unless the same is fully liquidated. Hence, petitioner's claim of ownership does not bind the respondent. The alleged haste and bad faith attending the auction sale of the same share by the respondent on December 10, 1986 were not borne out by evidence, it appearing that the auction sale of the said share was published in a newspaper on December 9, 1991 together with other delinquent shares (Exh. "7"),and that Calapatia himself was likewise notified of the sale as the registered owner of the share. Arguing against the claim of ownership of Membership Certificate No. 1219, respondent invoked the Corporation Code provision of Section 63 thereof which says that, no transfer of share shall be valid, except as between the parties, until it is recorded in the books of the corporation. In other words, the sale is not binding upon the respondent as the sale has not been recorded in its books because the share sold has an unliquidated account and has been declared delinquent. Paragraph 2, Section 63 of the Corporation Code which expressly provides that "No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the Corporation", clearly supports the contention of the respondent. On the contention of the petitioner that the lien of the respondent on the membership certificate based on Section 3, Article VIII of its by-laws does not enjoy any preference under Article 2241 of the New Civil Code, suffice it to say that the subject of the pledge is a Membership Certificate issued by the respondent, the ownership of which, and transactions involving it, are governed by and subject to restrictions by the by-laws of the issuing corporation as well as the Corporation Code, particularly Section 63 as mentioned earlier. And as between the provisions of the by-laws of the respondent corporation and the New Civil Code, it is the considered view of this Hearing Officer and so maintains that the provisions of the by-laws and the Corporation Code enjoy preference over the Civil Code provision on pledge of a certificate of shares issued by the corporation. On the alleged precipitate haste and malicious concealment and suppression from the petitioner of the conduct of the public auction sale on December 10, 1986, there was no evidence adduced nor testimony to prove such allegations during the hearing. Besides, Calapatia, the registered owner of the share has been notified of its sale at public auction which was punished in a newspaper of general circulation on December 9, 1986. As regards the alleged deprivation of property right as lawful owner of the Membership Certificate No. 1219, the provision of Section 63 of the Corporation Code is clear enough to show that as far as respondent is concerned, the petitioner is not the owner of said share despite the auction sale it conducted where the petitioner was the highest bidder. The By-Laws of the respondent is likewise clear in so far as the transfer of delinquent share is concerned. Based on the documentary evidence adduced, and the testimony of witnesses as well as the arguments of the parties in their pleadings, the applicable laws and by-laws of the respondent corporation, this Hearing Officer is most inclined to support the view and contention of the respondent which was able to establish its right as the issuing corporation of Membership Certificate No. 1219. CONSEQUENTLY, the instant case is hereby DISMISSED. No pronouncement as to costs. SO ORDERED. (SGD.) MANUEL P. PEREA Hearing Officer