G.R. No. 165443 ; April 16, 2009
Calatagan Golf Club, Inc. vs. Sixto Clemente, Jr.

FACTS

Respondent Sixto Clemente, Jr. applied for and purchased one share of stock in petitioner Calatagan Golf Club, Inc., fully paying ₱120,000.00 and receiving Certificate of Stock No. A-01295 on May 2, 1990. The Articles of Incorporation and By-Laws, reproduced on the stock certificate, obligated shareholders to pay monthly dues. Clemente paid some dues but eventually stopped, accruing a balance. Calatagan sent demand letters to the mailing address Clemente provided (Phimco Industries, Inc. P.O. Box 240, MCC), but they were returned with a postal note that the address was closed. Calatagan declared Clemente delinquent, posted his name on the club bulletin board, and its Board of Directors resolved to foreclose his share. A final warning letter was sent to the same closed address. A notice of auction was posted on the club premises, and the share was sold at public auction on January 15, 1993. Clemente learned of the sale only in November 1997. He filed a complaint with the Securities and Exchange Commission (SEC) seeking restoration of his share and damages. The SEC dismissed the complaint, ruling it was barred by the 6-month prescriptive period under Section 69 of the Corporation Code and that Calatagan complied with notice requirements. The Court of Appeals reversed the SEC, restored Clemente’s share, and awarded him damages.

ISSUE

1. Whether Clemente’s action to recover his foreclosed share had prescribed.
2. Whether Calatagan complied with the requisite notices for the valid foreclosure and sale of the share.

RULING

1. No, the action had not prescribed. Section 69 of the Corporation Code, which prescribes a 6-month period to question a sale of shares, applies specifically to sales of delinquent stock for unpaid subscriptions to capital stock under Section 68. Clemente had fully paid for his share; the foreclosure was for unpaid monthly dues, not unpaid subscription. The proper prescriptive period is eight (8) years under Article 1140 of the Civil Code for actions to recover movables. Clemente filed his complaint within this period.
2. No, Calatagan did not comply with the notice requirements. Its By-Laws required the Corporate Secretary to notify the member within ten days after the Board ordered the sale. Calatagan knew the mailing address was closed as its first two demand letters were returned. Sending the final notice to the same known-closed address did not constitute effective notice. Due process requires that a person in danger of losing property be properly notified and given a chance to prevent the loss. The sale was therefore void.
The Court of Appeals decision was affirmed. Clemente’s share was ordered restored, and the award of damages (₱400,000.00 less unpaid dues of ₱5,200.00) was upheld, as Calatagan’s actions were in bad faith and constituted a violation of Clemente’s constitutional right against deprivation of property without due process, warranting moral and exemplary damages.