VALLEY GOLF AND COUNTRY CLUB, INC., PETITIONER, VS. DR. VICTOR REYES (DECEASED), SUBSTITUTED BY EDNA H. REYES, MELISSA H.R. GERVACIO, NORMAN DAVID H. REYES, ELIZABETH VICTORIA H…

Valley Golf and Country Club versus Reyes

The Case

This is a petition for review on certiorari brought by Valley Golf and Country Club, a non-stock, non-profit corporation operating a golf course, against the heirs of the late Dr. Victor Reyes. Reyes had purchased one share in the club in 1960, a share that carried with it an exclusive membership and playing rights on the golf course. When his membership dues fell into arrears, the club sold his share at a public auction. Reyes sued for the reinstatement of his playing rights or the issuance of a new certificate of stock, claiming he was never notified of his delinquency or of the sale. The case matters because it fixes the standard for terminating membership in a non-stock corporation: membership is a property right, and it cannot be taken away without substantial justice and due process, which means proof of actual notice to the member.

Procedural History

Reyes first filed his complaint with the Securities and Exchange Commission, which then held jurisdiction over intra-corporate disputes. When the Securities Regulation Code took effect in August 2000, jurisdiction over such cases was transferred to the Regional Trial Court, and the case was transferred to the Regional Trial Court of Makati City, Branch 138. In July 2003, the trial court ruled in favor of Valley Golf and dismissed the complaint, finding no infirmity in the conduct of the sale of the share. Reyes appealed to the Court of Appeals, which reversed the trial court. The appellate court held that there was no factual or legal basis for the public auction, because the registry return receipt relied upon by the club was barely readable and did not bear the name of the recipient, so it was not sufficient proof that the demand letter was sent. The Court of Appeals denied the club's motion for reconsideration in November 2009. Valley Golf then came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

In 1960, Dr. Victor Reyes subscribed to and purchased one share in the capital stock of Valley Golf, evidenced by a stock certificate. The purchase entitled him to exclusive membership in the club, including playing rights on its golf course. From 1979 to 1986, his playing privileges were successively assigned to three individuals under the terms of the club's by-laws, and during that period each assignee paid the monthly membership fees on his behalf. When the last assignment ended in 1986, the payment of dues stopped and Reyes's account became delinquent.

In 1994, wishing to transfer his share to his son, Reyes inquired with the club about the status of his membership. He learned that his share had already been sold at a public auction conducted in December 1986 because of the unpaid monthly dues. He claimed he had never been notified of the delinquency or of the sale.

Valley Golf insisted that a notice of due account was sent to Reyes in June 1986 and received by him, as shown by a registry receipt. It further claimed that before the scheduled public sale, it caused the publication of a notice of auction sale in a newspaper of general circulation. Reyes died during the proceedings, and he was substituted by his children, the respondents in this case.

Issues

• Whether or not the Court of Appeals erred in invalidating the auction sale of the share for lack of notice to Reyes despite the evidence presented, and in not applying the presumption that a letter duly registered and mailed was received in the regular course of mail.
• Whether or not the Court of Appeals erred in applying the criminal standard of proof beyond reasonable doubt to the question of receipt of notice, instead of the preponderance of evidence standard applicable to a civil case.
• Whether or not the Court of Appeals erred in concluding that publication of the auction sale in a newspaper of general circulation was not sufficient notice to Reyes on the ground that the proceedings are in personam and not in rem.
• Whether or not the Court of Appeals erred in concluding that the late Reyes was not liable to pay monthly dues on the ground that during the billing period concerned, the playing rights of his share had been assigned to his playing guest.

Applicable Provisions

Section 5.2 of the Securities Regulation Code provides:

The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases.

This provision explains why the case, originally filed with the Securities and Exchange Commission, was transferred to and decided by the Regional Trial Court.

Ruling

The Court denied the petition, resolving the case on the threshold question of whether the demand letter of June 1986 was duly served on Reyes. On the first issue, the Court held that the registry return card presented by Valley Golf was unauthenticated and did not bear the name of the person who received it. Neither an affidavit of the person mailing nor a certified sworn copy of the notice given by the postmaster to the addressee was submitted. The Court refused to apply the presumption of regular receipt, because the very fact of receipt was the matter in dispute.

On the second issue, the Court held that it was erroneous for Valley Golf to suppose that authentication of the registry return card is confined to criminal cases. Even in civil cases, where the quantum of proof is lower, service by registered mail is proved by the registry receipt issued by the mailing office and an affidavit of the person mailing. Absent one or the other, or worse both, there is no proof of service. The Court quoted its earlier ruling:

Receipts for registered letters and return receipts do not prove themselves, they must be properly authenticated in order to serve as proof of receipt of the letters.

On the third issue, the Court held that publication in a newspaper is not the notice that the by-laws and due process require, because the proceedings are in personam and the member must personally be informed of his delinquency. On the fourth issue, the Court found no reason to disturb the finding that Reyes was not liable for the dues during the period when the playing rights had been assigned, since the assignee had assumed the obligation to pay.

The Court anchored its ruling on public policy. Membership in a non-stock corporation is a property right, and its termination must be done in accordance with substantial justice. A delinquent member must first be afforded the opportunity to settle his obligation by notifying him of the delinquency before the penalty of termination through public auction can be imposed. The Court stated the rule plainly:

In other words, no sale on public auction involving the share of unduly notified shareholder can be validly conducted.

Doctrine

Membership in a non-stock corporation is a property right, and its termination must comply with substantial justice and due process. A member may not be deprived of his share without being notified of his delinquency and given the opportunity to settle it. The burden of proving notice rests on the party asserting it. In civil cases, service by registered mail is proved by the registry receipt issued by the mailing office and an affidavit of the person mailing; a bare, unauthenticated registry return card does not prove receipt. A public auction of a member's share conducted without proof of notice to the member is invalid.

Disposition

The Supreme Court denied the petition and affirmed the Decision and Resolution of the Court of Appeals, holding the heirs of Reyes entitled to the reinstatement of his playing rights or the reissuance of a new share of stock.

Remember This

Memorize this line: membership in a non-stock corporation is a property right, and no public auction of a member's share may be validly conducted without proof of actual notice of delinquency. Examiners use this case to test the burden of proving service by registered mail in civil cases and the due process requirement before terminating corporate membership.