Rosa O. Vda De Caram vs. Valley Golf And Country Club, Inc.

[SEC-SICD * CASE NO. 4160. November 15, 1996.] ROSA O. VDA DE CARAM , plaintiff, vs . VALLEY GOLF AND COUNTRY CLUB, INC. , defendant . D E C I S I O N On January 28, 1992, plaintiff filed a verified complaint for reconveyance of ownership of Valley Golf Share to herein plaintiff the latter being the widow and legal beneficiary thereof of the registered owner, the late Congressman Fermin Caram, Jr. or, in the alternative, that Valley Golf issue one fully paid share of stock of Valley Golf and Country Club of the same class as the Golf Share to herein plaintiff. Plaintiff also asked for damages, attorney's fee and cost of suit. Plaintiff alleges that sometime January 1961, that late Congressman Fermin Z. Caram, Jr. subscribed, purchased and paid in full one share of stock of Valley Golf and Country Club (hereinafter referred to as Valley Golf). Accordingly, Valley Golf issued to the late Congressman one share of its capital stock under Stock Certificate No. 389 (said share of stock hereinafter referred to as the Golf Share). LibLex That aside from those that may be provided by law, no other rights, privileges, restrictions or obligations are imposed on the Golf Share by Valley Golf's Articles of Incorporation, or annotated on the certificate of the Golf Share, except that condition appearing in Article 7 of the Articles of Incorporation which provides: "The share represented by this certificate shall be owned by and the interest thereof accrue only to the registered owner thereof who, aside from his rights as share holder, may, in addition, and subject to such rules and regulations as may be promulgated by, and to screening and approval of the Board of Directors, be issued a regular membership card that would entitle him to all the rights and privileges that are extended to all holders of regular membership cards for the use and enjoyment of the facilities and premises of the Club." That since 1961 up to the time of his death on October 6, 1986, the late Congressman Fermin Caram had been the registered owner in good standing of said Golf Share. That immediately upon the death of Congressman Caram, his heirs, including herein plaintiff, initiated intestate estate proceedings before the Regional Trial Court of Iloilo City, Branch 35, for the purpose of settling, among the heirs and all other claimants and creditors thereto, the properties left by the late Congressman, including the Golf Share. That on March 23, 1990, pending the final settlement of the estate, the heirs of the late Congressman, through Mr. Francisco Javier O. Caram, inquired from Valley Golf about the Golf Share. That in reply to the letter-inquiry of the said Mr. Caram and much to plaintiff's surprise and disbelief, Valley Golf, by the letter dated May 15, 1990, informed the heirs of the late Congressman that the Golf Share was sold by Valley Golf at public auction on June 11, 1987, due to alleged "delinquency". That considering that the aforesaid reply of Valley Golf failed to state the particulars regarding the alleged delinquency and the sale by public auction of the Golf Share, Mr. Francisco Caram, acting for and in behalf of the heirs of the late Congressman Caram, again wrote Valley Golf requesting for a detailed information regarding the aforementioned matters with a follow-up letter sent by Atty. Jaime Padios, legal counsel for the estate of the late Congressman Caram, to Valley Golf, reiterating the earlier request by Mr. Francisco Caram. LLpr That in reply to the repeated queries, Valley Golf in a letter to Atty. Padios dated October 15, 1990, merely informed the latter that the Golf Share was sold at the price of P25,000.00 in connection with the late Congressman's outstanding account with Valley Golf in the sum of P11,619.84. That Valley Golf, for the first time, notified the heirs of the late Congressman that they were entitled to a refund of P11,066.52 from the sale of the Golf Share, which refund, Valley Golf, in clear bad faith, kept in its possession since 11 June 1987. That no details or explanation whatsoever regarding the nature of the so-called outstanding account or delinquency, as repeatedly demanded by the heirs, were ever given by Valley Golf. That no notice whatsoever of the so-called "delinquency" or outstanding account of the late Congressman Fermin Caram, including any demand to settle the same, or of any notice of Valley Golf's intention to sell the Golf Share at public auction as a result of the alleged ''delinquency", was ever received by the late Congressman, while the latter was still living, nor at any time thereafter by the latter's heirs, including plaintiff herein. That the act of Valley Golf in selling the Golf Share at public auction is devoid of legal or factual basis and that the same was done without due process and is contrary to law. Plaintiff, as the sole beneficiary of the late Congressman with respect to the Golf Share, demanded from Valley Golf the immediate reconveyance to her of the ownership of the Golf Share. That Valley Golf act of selling extra judicially the Golf Share at public auction deprived plaintiff of due process considering that no notice whatsoever of the so-called "delinquency", including any demand to settle the same, or of Valley Golf's decision to sell was received by the late Congressman, while the latter was still living, or any time thereafter by the heirs, including herein plaintiff. That Golf Share cannot legally be considered "delinquent" and subsequently sold at public auction sale since the subscription of the Golf Share has long been fully paid as evidenced by the issuance of a certificate of stock by Valley Golf. That assuming that what Valley Golf claims as delinquency arose from unpaid club/association dues, Valley Golf cannot, for the purpose of satisfying such delinquency, unilaterally and extrajudicially proceed against the Golf Share by selling the same at public auction. That such a claim does not constitute a valid lien or restriction on the Golf Share as the same is not reflected and/or stated as such in the Article of Incorporation or in the certificate of share of stock of the Golf Share. That, if at all, the claims for unpaid club/association dues are merely ordinary claims which, by law, should have been filed in the estate proceedings of the late Congressman, then pending in court. LexLib That despite demands made by the plaintiff, Valley Golf, without justifiable reason refused and continues to refuse to comply with plaintiff's demands. That Valley Golf acted wantonly, maliciously, oppressively, and in great abuse of its corporate powers in selling the Golf Share at public auction. That on account of the said sale at public auction, Valley Golf has considerably besmirched the reputation and good credit standing of the Carams, including herein plaintiff, in the community. That consequently, Valley Golf should be made to pay plaintiff moral damages in the amount of P50,000.00. That Valley Golf acted in a wanton, oppressive and malevolent manner when, exceeding its corporate powers and in total disregard of its stockholders' rights, it illegally disposed of the Golf Share. That Valley Golf should be deterred from repeating similar acts in the future to protect the interest of its stockholders, including plaintiff That by way of example or correction for the public good, Valley Golf should be made to pay plaintiff exemplary damages in the amount of P50,000.00. Plaintiff also prayed that defendant be made liable to pay the sum of P30,000.00 representing litigation expenses including attorney's fees. Defendant, in its answer, alleges that the rights, privileges, restrictions or obligations of stockholders of the defendant are governed not only what appears in its articles of incorporation or in the certificate of stocks but also those appearing in the corporation code and the by-laws of the corporation. That the late Congressman Fermin Caram, Jr. had been the registered owner in good standing of his share in defendant only up to January 25, 1987 when he was posted as delinquent and his club membership privileges were suspended. That defendant had dutifully informed the late Congressman Fermin Caram, Jr. during his lifetime about the unpaid accounts with defendant and that the estate of the late Fermin Caram, Jr. was likewise informed that the share of the deceased had been posted delinquent and he was given all the chances to settle the unpaid account before Stock Certificate No. 389 was finally sold at public auction. That after the Stock Certificate No. 389 as sold at public auction on June 11, 1987 notice was sent to Mr. Fermin Z. Caram, Jr. at c/o FAR Corporation at 2256 Pasong Tamo, Makati, Metro Manila informing him that said certificate of stock was sold at public auction on June 11, 1987. That the sale made by defendant of the subject Golf Share at public auction is based upon the corporation code and the by-laws which is the law between the parties. That the grounds on the basis on which the demand was made by plaintiff have no legal and factual basis and that the defendant has all the justifiable reason to refuse to comply with plaintiff's demand. That defendant acted in accordance with the corporation code in relation to its by-laws so that whatever damages plaintiff allegedly suffered as a consequence of defendant's refusal to comply with its demands should be shouldered solely by plaintiff. prcd By way of counterclaim, defendant claimed moral and exemplary damages in the amount of P50,000.00 and P10,000.00 respectively, as well as attorney's fees in the sum of P30,000.00. In the preliminary conference, the following issues were defined: a) Whether or not plaintiff's share is delinquent. b) Whether or not the so-called delinquency arising from unpaid association dues can be considered a lien on said share; c) Whether or not the appropriate notification was sent by defendant regarding the so-called delinquency and the intention to sell the share at public auction to the defendant; d) Which of the parties is entitled for damages, attorney's fee and cost of suit; Evidence presented disclosed that defendant is a corporation duly organized under Philippine laws the business of which is to operate of course where its members or stockholders and their guests can play golf (Exh. "N" and "N-1"). One of its stockholders/members was the late Congressman Fermin Z. Caram, Jr., the plaintiff's deceased husband, who purchased and paid in full one share of stock of Valley Golf and Country Club sometime on January, 1961 which is covered by a Stock Certificate issued by the defendant (hereinafter referred to as Golf Share for brevity) (Exhibit "A") On October 6, 1986, Fermin Caram, Jr. passed away (Exhibit "H') and immediately upon the death of Fermin Caram, the latter's heirs, including plaintiff herein, initiated intestate proceedings before the Regional Trial Court of Iloilo City, Branch 35 for the purpose of settling, among the heirs and all other claimants and creditors thereto, the properties left by the late Fermin Caram, including the Golf Share (Exhibits "I" to "1-3") In the said intestate estate proceedings, the Golf Share was adjudicated exclusively to herein plaintiff by virtue of a Project of Partition filed by the heirs and duly approved by the Court on August 29, 1989 (Exhibits "I-1" & "I-4") Plaintiff paid all the corresponding estate taxes and duties in respect of the transfer of all the real and personal properties of the deceased Fermin Caram, Jr. including the Golf Share (Exhibits "J" & "J-1", "J-2", "J-4" & "J-5") not aware that defendant's Board of Directors in a meeting held on April 11, 1987 had authorized the sale of the share of Fermin Caram (Exhibit "10"), that a Notice of Auction Sale was published on Saturday, June 6, 1987 issue of Philippine Daily Inquirer for the sale, of the late Congressman's Golf Share (Exhibit "7") and that on June 11, 1987, defendant had already sold Golf Share at public auction allegedly due to delinquency of outstanding accounts in the sum of P11,619.84 (Exhibits "5" to "5-222") which consequently resulted in the cessation of his membership. It was only when one of the late Congressman's heirs inquired from the defendant about the Golf Share on March 23, 1990 when the defendant replied in a letter dated May 15, 1990 (Exhibit "C") that the Golf Share was already sold by Valley Golf on June 11, 1987 due to alleged delinquencies. Said reply failed to state any particulars regarding the delinquency and sale of the Golf Share such that Mr. Francisco Caram, one of the heirs requested for a detailed information regarding the matter; (Exhibit "D"). A follow-up letter dated 7th July, 1990 was sent by the legal counsel for the estate of the Congressman to defendant reiterating the earlier request by Mr. Francisco Caram for details on the alleged delinquency and sale of the Golf Share. (Exhibit "E"). In reply to the repeated queries made by the heirs of the late Congressman, defendant, in a letter to Atty. Padios dated 15 October, 1990, merely informed the latter that the Golf Share was sold at the price of P25,000.00. Likewise, defendant, for the first time, notified the heirs of the late Congressman that they were entitled to a refund of P11,066.52 from the sale of the Golf Share, which refund, had been in defendant's possession since June 11, 1987. (Exhibit "F"). While the Certificate of Stock itself does not show any restrictions or obligations annotated therein (Exhibit "A-1"), defendant's By-laws provides that the defendant has the right to sell a member's Golf Share to satisfy the claims of the defendant after he had been posted as delinquent. (Exhibits "9", "9-a","9-b","9-b-1", and "9-b-2"). Defendant maintains that appropriate notices were sent to Fermin Caram, Jr. to P.O. Box 1566, Makati Commercial Center Post Office, Makati, Rizal, to pay his delinquent accounts and presented the letters dated January 27, 1987 (Exhibit "6"); August 26, 1986 (Exhibit "6-A"); January 25, 1987 (Exhibit "6-B") and March 7, 1987 (Exhibit "6-C'). That the aforestated address was the address given by the late Congressman himself in a handwritten letter dated January 10, 1974. Since no payment was made, defendant was justified to sell Golf Share at public auction. We find defendant's contention without merit. Section 67, paragraph 2 of the Corporation Code, provides that a stock can only be deemed delinquent, and therefore subject to extra judicial sale at public auction by the corporation, upon the failure of the stockholder to pay the unpaid subscription or balance for said share within the reglementary period under the contract of subscription or by law. But such law cannot be applied to the Golf Share of the late Fermin Caram, Jr. because admittedly, the Golf Share was fully paid. Yet, although he was a non-delinquent member, his Golf Share was sold by the defendant at a public auction for non-payment of defendant's club dues. Accordingly, the sale by the defendant of the Golf Share at the public auction held on June 11, 1987 on account of "delinquency" had no basis, hence, a nullity. Assuming in arguendo that the so-called delinquency arose from unpaid association was considered a lien on said share pursuant to the provisions of Section 3, Article VIII of defendant's By-laws. (Exhibits "9-a" "9-b", "9-b-1" and "9-b-2"). Section 6 of the Corporation Code states that "the shares of stock in corporations may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the article of incorporation . . . ." On the basis of the foregoing, it has been held that "a provision creating a lien upon shares of stock for unpaid debts, liabilities, or assessments of stockholders to the corporation, should be embodied in the Articles of Incorporation, and not merely in the by-laws, because Section 6 (par. 1) prescribes that the shares of stock of a corporation may have such rights, privileges or restrictions as may be stated in the articles of incorporation" (De Leon, The Corporation C od e of the Philippines, p. 464, 1989, citing SEC Opinion, April 13, 1981 ). However, the Articles of Incorporation (Exhibits "N-1" to "N-7") does not impose any lien, liability or restriction on the Golf Share. Nor does it appear that the Golf Share shall be subject to the assessment by defendant of the monthly dues nor a lien over the Golf Share for non-payment of said club dues. dctai Besides, if Section 98 of the Corporate Code provides that restrictions on transfer of shares must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock to be valid, otherwise, the same shall not be binding on any purchaser thereof in good faith, with more reason should said rule apply to club delinquencies to constitute a lien on Golf Shares, as in the case at bar. Just like in any title to property to be enforceable, this rule was intended to inform stockholders the restrictions or limitations on the share certificates as well as declare them their rights and privileges as stockholder and consequently, protect them from misrepresentations and hidden restrictions. Hence, such lien on the Golf Share being invalid and against public policy, is unenforceable. Consequently the issue whether or not defendant was properly notified of defendant's intention to sell the share at public auction held on June 11, 1987 being devoid of any legal basis, is null and void and of no force and effect. Even if the late Congressman Fermin Caram was delinquent in his monthly club dues, the same, if at all, is merely an ordinary debt enforceable by judicial action in a civil case. As has been held in the case of Bank of P.I. vs. Caridad Estates, C.A.-G.R. No. 16, August 22, 1939 , it was ruled that "The power or right of the corporations to sell shares for the payment of stockholders' 'debts should be considered subject to the procedure laid down in Section 67 to 69, or enforceable by judicial action as provided in Section 70. This being so, such power or right is limited to delinquent subscription and does not extend to any other debt of stockholders to corporations. To hold that under said sections, corporations may sell shares of stockholders for the satisfaction of the latter's debt to the former, would in effect make corporations the sole judges of the merits of their claims against stockholders and would deprive the latter of the opportunity to pay the debt before the sale of stock and of the right to defend themselves and be heard, and to have the sale of stock made to the highest bidder, substantial and fundamental proprietary rights that cannot be ignored and set aside for the advantage and benefits of corporations. A lien upon stock in favor of corporations for debt or liability of stockholders other than unpaid subscription due and payable would be an obstacle to the trading of shares. . ." A perusal of the evidence and testimony shows that the late Congressman Fermin Caram, Jr. was a member of good standing from January, 1961 until his death on October 6, 1986. Plaintiff testified that she was never informed or made aware of any restrictions and/or conditions imposed on the Golf Share. If at all, the only restrictions or conditions which she and her husband had any knowledge of were those stated in the Articles of Incorporation and in the Certificate of Stock at the time they purchased the same in 1961. Neither was the plaintiff nor her husband informed or notified by the defendant that their share of stock shall be made answerable or subject to any specific lien. During the trial, the defendant failed to adduce any evidence to prove that the late Congressman Caram, his estate or plaintiff herein was properly notified of the alleged delinquencies and of the intention to conduct a delinquency sale of the Golf Share. While defendant allegedly sent demand letters to the late Congressman Caram, defendant failed to present any evidence that would show that said demand letters or notices were in fact received by the late Congressman, his estate or by herein plaintiff. This, despite the fact that, as testified to by defendant's sole witness during trial, defendant keeps a complete record of all documents dating back to 1974. (TSN dated 3 October 1995) Plaintiff testified that defendant would normally send their billings to their residence at No. 57 Tamarind St., Forbes Park, Makati and that all statements of accounts sent to them by the defendant were settled immediately. dctai In his letter to defendant dated 7 July 1978 (Exhibit "K"), the late Congressman Caram informed defendant of his change in his mailing address. However, all the notices allegedly sent by the defendant were not received by the late Congressman Caram, nor his estate or the plaintiff because they were sent to an address different from that designated by the late Congressman for sending letters by the defendant. It is significant to note that most of the purported letters of demand and/or notices were sent by the defendant to the late Congressman at a time when the latter had already passed away. Neither is there any evidence to prove that any of the heirs of the late Congressman Caram, including plaintiff herein, were properly notified of the so-called delinquencies of the Golf Share. Evidence on record would even show that the heirs of the late Congressman, in good faith and for want of knowledge of the delinquency sale, have included the Golf Share in the estate left by the late Congressman and paid the corresponding estate tax on the Golf Share (Exhibits "I" to "J-5"). Were it not because of the letters-inquiry sent by the plaintiff to the defendant, plaintiff would not have known about the auction sale of the Golf Share and the existence of a refundable amount. To make matters worse, it had to take several letters from the plaintiff to extract information from the defendant and defendant's bad faith. Indeed, had any of the heirs of the late Congressman Caram known of the delinquency sale, they should not have included the Golf Share in the estate proceedings and paid the estate taxes due thereon. When the plaintiff was not properly notified of the delinquency and the consequent public auction for the sale of the Golf Share, plaintiff was effectively deprived of their property without due process of law. From the aforestated acts and omissions of the defendant, defendant acted wantonly, maliciously, oppressively, and in great abuse of its corporate powers in selling the Golf Share at public auction. On account of the said sale at public auction, defendant has considerably besmirched the reputation and good credit standing of the plaintiff and her family. Consequently, defendant should be made to pay plaintiff moral damages in the amount of P50,000.00. To deter defendant from repeating similar acts in the future and to protect the interest of its stockholders, including plaintiff herein, and by way of example or correction for the public good, defendant should be made to pay plaintiff exemplary damages in the amount of P50,000.00. WHEREFORE, judgment is hereby rendered, as follows: 1. Defendant is hereby ordered to convey ownership of the Golf Share to herein plaintiff or, in the alternative, to issue one fully paid share of stock of Valley Golf and Country Club, Inc. of the same class as to Golf Share, to herein plaintiff; 2. Defendant is hereby ordered to pay the plaintiff the a. Moral damages in the sum of P50,000.00; b. Exemplary damages in the sum of P10,000.00; c. Litigation expenses and Attorney's fee in the sum of P30,000.00. SO ORDERED. (SGD.) ELPIDIO S. SALGADO Hearing Officer