China Banking Corp vs. CA

4/8/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 270
VOL. 270, MARCH 26, 1997 503

China Banking Corporation vs. Court of Appeals
*
G.R. No. 117604. March 26, 1997.
CHINA BANKING CORPORATION, petitioner, vs.

COURT OF APPEALS, and VALLEY GOLF and
COUNTRY CLUB, INC., respondents.
Securities and Exchange Commission; Actions; Jurisdiction;

The better policy in determining which body has jurisdiction over
a case would be to consider not only the status of relationship of
the parties but also the nature of the question that is the subject of
their controversy.—The basic issue we must first hurdle is which
body has jurisdiction over the controversy, the regular courts or
the SEC. P.D. No. 902-A conferred upon the SEC the following
pertinent powers: * * * The aforecited law was expounded upon in
Viray v. CA and in
______________________
* FIRST DIVISION.
504
504 SUPREME COURT REPORTS ANNOTATED
the recent cases of Mainland Construction Co., Inc. v. Movilla and

Bernardo v. CA, thus: . . . . The better policy in determining which
body has jurisdiction over a case would be to consider not only the
status or relationship of the parties but also the nature of the
question that is the subject of their controversy.
Same; Same; Same; Corporation Law; The purchase of a
share or membership certificate at public auction by a party (and
the issuance to it of the corresponding Certificate of Sale) transfers
ownership of the same to the latter and thus entitle it to have the
http://www.central.com.ph/sfsreader/session/00000162a2bd412bcae8d2cf003600fb002c009e/t/?o=False 1/23
said share registered in its name as a member.—As to the first

query, there is no question that the purchase of the subject share
or membership certificate at public auction by petitioner (and the
issuance to it of the corresponding Certificate of Sale) transferred
ownership of the same to the latter and thus entitled petitioner to
have the said share registered in its name as a member of VGCCI.
It is readily observed that VGCCI did not assail the transfer
directly and has in fact, in its letter of 27 September 1974,
expressly recognized the pledge agreement executed by the
original owner, Calapatia, in favor of petitioner and has even
noted said agreement in its corporate books. In addition,
Calapatia, the original owner of the subject share, has not
contested the said transfer. By virtue of the afore-mentioned sale,
petitioner became a bona fide stockholder of VGCCI and,
therefore, the conflict that arose between petitioner and VGCCI
aptly exemplifies an intra-corporate controversy between a
corporation and its stockholder under Sec. 5(b) of P.D. 902-A.
Same; Same; Same; Same; By-Laws; The proper
interpretation and application of a corporation’s by-laws is a
subject which irrefutably calls for the special competence of the
SEC.—An important consideration, moreover, is the nature of the
controversy between petitioner and private respondent
corporation. VGCCI claims a prior right over the subject share
anchored mainly on Sec. 3, Art. VIII of its by-laws which provides
that “after a member shall have been posted as delinquent, the
Board may order his/her/its share sold to satisfy the claims of the
Club . . .” It is pursuant to this provision that VGCCI also sold the
subject share at public auction, of which it was the highest bidder.
VGCCI caps its argument by asserting that its corporate by-laws
should prevail. The bone of contention, thus, is the proper
interpretation and application of VGCCI’s aforequoted bylaws, a
subject which irrefutably calls for the special competence of the
SEC.
505
VOL. 270, MARCH 26, 1997 505
Same; Same; Same; Estoppel; The plaintiff who files a

complaint with one court which has no jurisdiction over it is not
estopped from filing the same complaint later with the competent
court.—In Zamora v. Court of Appeals, this Court, through Mr.
Justice Isagani A. Cruz, declared that: It follows that as a rule the
filing of a complaint with one court which has no jurisdiction over
it does not prevent the plaintiff from filing the same complaint
later with the competent court. The plaintiff is not estopped from
doing so simply because it made a mistake before in the choice of

the proper forum. . . .
Appeals; Procedural Rules; Remand of Cases; The remand of
the case or of an issue to the lower court for further reception of
evidence is not necessary where the Supreme Court is in position to
resolve the dispute based on the records before it and particularly
where the ends of justice would not be subserved by the remand
thereof.—Applicable to this case is the principle succinctly
enunciated in the case of Heirs of Crisanta Y. Gabriel-Almoradie
v. Court of Appeals, citing Escudero v. Dulay and The Roman
Catholic Archbishop of Manila v. Court of Appeals: In the interest
of the public and for the expeditious administration of justice the
issue on infringement shall be resolved by the court considering
that this case has dragged on for years and has gone from one
forum to another. It is a rule of procedure for the Supreme Court
to strive to settle the entire controversy in a single proceeding
leaving no root or branch to bear the seeds of future litigation. No
useful purpose will be served if a case or the determination of an
issue in a case is remanded to the trial court only to have its
decision raised again to the Court of Appeals and from there to
the Supreme Court. We have laid down the rule that the remand
of the case or of an issue to the lower court for further reception of
evidence is not necessary where the Court is in position to resolve
the dispute based on the records before it and particularly where
the ends of justice would not be subserved by the remand thereof.
Moreover, the Supreme Court is clothed with ample authority to
review matters, even those not raised on appeal if it finds that
their consideration is necessary in arriving at a just disposition of
the case.
Loans; Pledge; The contracting parties to a pledge agreement
may stipulate that the said pledge will also stand as security for
any future advancements (or renewals thereof) that the pledgor
may procure from the pledgee.—VGCCI assails the validity of the
pledge agreement executed by Calapatia in petitioner’s favor. It
contends
506
that the same was null and void for lack of consideration because
the pledge agreement was entered into on 21 August 1974 but the
loan or promissory note which it secured was obtained by
Calapatia much later or only on 3 August 1983. VGCCI’s
contention is unmeritorious. A careful perusal of the pledge

agreement will readily reveal that the contracting parties
explicitly stipulated therein that the said pledge will also stand as
security for any future advancements (or renewals thereof) that
Calapatia (the pledgor) may procure from petitioner.
Corporation Law; By-Laws; In order to be bound, a third
party must have acquired knowledge of the pertinent by-laws at
the time the transaction or agreement between said third person
and the shareholder was entered into.—In order to be bound, the
third party must have acquired knowledge of the pertinent by—
laws at the time the transaction or agreement between said third
party and the shareholder was entered into, in this case, at the
time the pledge agreement was executed. VGCCI could have
easily informed petitioner of its by-laws when it sent notice
formally recognizing petitioner as pledgee of one of its shares
registered in Calapatia’s name. Petitioner’s belated notice of said
by-laws at the time of foreclosure will not suffice.
Same; Words and Phrases; A membership share is quite
different in character from a pawn ticket.—Similarly, VGCCI’s
contention that petitioner is duty-bound to know its by-laws
because of Art. 2099 of the Civil Code which stipulates that the
creditor must take care of the thing pledged with the diligence of
a good father of a family, fails to convince. The case of Cruz &
Serrano v. Chua A. H. Lee, is clearly not applicable: In applying
this provision to the situation before us it must be borne in mind
that the ordinary pawn ticket is a document by virtue of which
the property in the thing pledged passes from hand to hand by
mere delivery of the ticket; and the contract of the pledge is,
therefore, absolvable to bearer. It results that one who takes a
pawn ticket in pledge acquires domination over the pledge; and it
is the holder who must renew the pledge, if it is to be kept alive. It
is quite obvious from the aforequoted case that a membership
share is quite different in character from a pawn ticket and to
reiterate, petitioner was never informed of Calapatia’s unpaid
accounts and the restrictive provisions in VGCCI’s by-laws.
Same; Same; The term “unpaid claim” in Sec. 63 of the
Corporation Code refers to “any unpaid claim arising from unpaid
sub-
507
VOL. 270, MARCH 26, 1997 507
scription, and not to any indebtedness which a subscriber or

stockholder may owe the corporation arising from any other
transaction,” such as monthly dues.—Finally, Sec. 63 of the
Corporation Code which provides that “no shares of stock against
which the corporation holds any unpaid claim shall be
transferable in the books of the corporation” cannot be utilized by
VGCCI. The term “unpaid claim” refers to “any unpaid claim
arising from unpaid subscription, and not to any indebtedness
which a subscriber or stockholder may owe the corporation arising
from any other transaction.” In the case at bar, the subscription
for the share in question has been fully paid as evidenced by the
issuance of Membership Certificate No. 1219. What Calapatia
owed the corporation were merely the monthly dues. Hence, the
aforequoted provision does not apply.
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.

Lim, Vigilia & Orencia for petitioner.
Jose F. Manacop for private respondent.
KAPUNAN, J.:
Through a petition for review on certiorari under Rule 45 of

the Revised Rules of Court, petitioner China Banking
Corporation seeks the reversal of the decision of the Court
of Appeals dated 15 August 1994 nullifying the Securities
and Exchange Commission’s order and resolution dated 4
June 1993 and 7 December 1993, respectively, for lack of
jurisdiction. Similarly impugned is the Court of Appeals’
resolution dated 4 September 1994 which denied
petitioner’s motion for reconsideration.
The case unfolds thus:
On 21 August 1974, Galicano Calapatia, Jr. (Calapatia,
for brevity) a stockholder of private respondent Valley Golf
& Country Club, Inc. (VGCCI, for brevity), pledged his
Stock Certificate No. 1219 to1 petitioner China Banking
Corporation (CBC, for brevity).
__________________
1 Original Records, pp. 34-35.
508

On 16 September 1974, petitioner wrote VGCCI requesting

that the aforementioned
2
pledge agreement be recorded in
its books.
In a letter dated 27 September 1974, VGCCI replied that
the deed of pledge executed by Calapatia3 in petitioner’s
favor was duly noted in its corporate books.
On 3 August 1983, Calapatia obtained a loan of
P20,000.00 from petitioner, payment of which was secured
by the aforestated pledge4 agreement still existing between
Calapatia and petitioner.
Due to Calapatia’s failure to pay his obligation,
petitioner, on 12 April 1985, filed a petition for
extrajudicial foreclosure before Notary Public Antonio T. de
Vera of Manila, requesting the 5latter to conduct a public
auction sale of the pledged stock.
On 14 May 1985, petitioner informed VGCCI of the
abovementioned foreclosure proceedings and requested
that the pledged stock be transferred to its (petitioner’s)
name and the same be recorded in the corporate books.
However, on 15 July 1985, VGCCI wrote petitioner
expressing its inability to accede to petitioner’s request
6
in
view of Calapatia’s unsettled accounts with the club.
Despite the foregoing, Notary Public de Vera held a
public auction on 17 September 1985 and petitioner
emerged as the highest bidder at P20,000.00 for the
pledged stock. Consequently, petitioner
7
was issued the
corresponding certificate of sale.
On 21 November 1985, VGCCI sent Calapatia a notice
demanding full payment of his overdue account in the
amount of
____________________
2 Id., at 36.
3 Id., at 37.
4 Id., at 38.
5 Id., at 39-40.
6 Id., at 41-42.
7 Id., at 43-44.
509
VOL. 270, MARCH 26, 1997 509

8
P18,783.24. Said notice was followed by a demand
9
letter
dated 12 December 1985 for the same amount 10and another
notice dated 22 November 1986 for P23,483.24.
On 4 December 1986, VGCCI caused to be published in

the newspaper Daily Express a notice of auction sale of a
number of its stock certificates, to be held on 10 December
1986 at 10:00 a.m. Included therein was Calapatia’s own
share of stock (Stock Certificate No. 1219).
Through a letter dated 15 December 1986, VGCCI
informed Calapatia of the termination of his membership
due to the sale11
of his share of stock in the 10 December
1986 auction.
On 5 May 1989, petitioner advised VGCCI that it is the
new owner of Calapatia’s Stock Certificate No. 1219 by
virtue of being the highest bidder in the 17 September 1985
auction and requested
12
that a new certificate of stock be
issued in its name.
On 2 March 1990, VGCCI replied that “for reason of
delinquency” Calapatia’s stock was sold at the 13
public
auction held on 10 December 1986 for P25,000.00.
On 9 March 1990, petitioner protested the sale by
VGCCI of the subject share of stock and thereafter filed a
case with the Regional Trial Court of Makati for the
nullification of the 10 December 1986 auction14 and for the
issuance of a new stock certificate in its name.
On 18 June 1990, the Regional Trial Court of Makati
dismissed the complaint for lack of jurisdiction over the
subject matter on the theory that it involves an intra-
corporate dispute and on 27 August 1990 denied
_____________________
8 Id., at 45.
9 Id., at 46.
10 Id., at 47.
11 Id., at 49.
12 Id., at 50.
13 Id., at 51.
14 Id., at 52-54.
510

On 20 September 1990, petitioner filed a complaint with

the Securities and Exchange Commission (SEC) for the
nullification of the sale of Calapatia’s stock by VGCCI; the
cancellation of any new stock certificate issued pursuant
thereto; for the issuance of a new certificate in petitioner’s
name; and for damages, attorney’s fees and costs of

litigation.
On 3 January 1992, SEC Hearing Officer Manuel P.
Perea rendered a decision in favor of VGCCI, stating in the
main that “(c)onsidering that the said share is delinquent,
(VGCCI) had valid reason not to transfer the share in the
name of the petitioner in 15 the books of (VGCCI) until
liquidation16 of delinquency.” Consequently, the case was
dismissed.
On 14 April 1992, Hearing Officer 17
Perea denied
Petitioner appealed to the SEC en banc and on 4 June
1993, the Commission issued an order reversing the
decision of its hearing officer. It declared thus:
The Commission en banc believes that appellant-petitioner has a

prior right over the pledged share and because of pledgor’s failure
to pay the principal debt upon maturity, appellant-petitioner can
proceed with the foreclosure of the pledged share.
WHEREFORE, premises considered, the Orders of January 3,
1992 and April 14, 1992 are hereby SET ASIDE. The auction sale
conducted by appellee-respondent Club on December 10, 1986 is
declared NULL and VOID. Finally, appellee-respondent Club is
ordered to issue another membership certificate in the name of
appellant-petitioner
18
bank.
SO ORDERED.
VGCCI sought reconsideration of the abovecited order.

However, the SEC
19
denied the same in its resolution dated 7
December 1993.
________________
15 Rollo, p. 48.
16 Id., at 51.
17 Id., at 52.
18 Id., at 38.
19 Id., at 43.
511
VOL. 270, MARCH 26, 1997 511

The sudden turn of events sent VGCCI to seek redress from

the Court of Appeals. On 15 August 1994, the Court of
Appeals rendered its decision nullifying and setting aside
the orders of the SEC and its hearing officer on ground of
lack of jurisdiction over the subject matter and,

consequently, dismissed petitioner’s original complaint.
The Court of Appeals declared that the controversy
between CBC and VGCCI is not intra-corporate. It ruled as
follows:
In order that the respondent Commission can take cognizance of a

case, the controversy must pertain to any of the following
relationships: (a) between the corporation, partnership or
association and the public; (b) between the corporation,
partnership or association and its stockholders, partners,
members, or officers; (c) between the corporation, partnership or
association and the state in so far as its franchise, permit or
license to operate is concerned, and (d) among the stockholders,
partners or associates themselves (Union Glass and Container
Corporation vs. SEC, November 28, 1983, 126 SCRA 31). The
establishment of any of the relationship mentioned will not
necessarily always confer jurisdiction over the dispute on the
Securities and Exchange Commission to the exclusion of the
regular courts. The statement made in Philex Mining Corp. vs.
Reyes, 118 SCRA 602, that the rule admits of no exceptions or
distinctions is not that absolute. The better policy in determining
which body has jurisdiction over a case would be to consider not
only the status or relationship of the parties but also the nature of
the question that is the subject of their controversy (Viray vs.
Court of Appeals, November 9, 1990, 191 SCRA 308, 322-323).
Indeed, the controversy between petitioner and respondent
bank which involves ownership of the stock that used to belong to
Calapatia, Jr. is not within the competence of respondent
Commission to decide. It is not any of those mentioned in the
aforecited case.
WHEREFORE, the decision dated June 4, 1993, and order
dated December 7, 1993 of respondent Securities and Exchange
Commission (Annexes Y and BB, petition) and of its hearing
officer dated January 3, 1992 and April 14, 1992 (Annexes S and
W, petition) are all nullified and set aside for lack of jurisdiction
over the subject matter of the case. Accordingly, the complaint of
respondent China Banking Corporation (Annex Q, petition) is
DISMISSED. No pronouncement as to costs in this instance.
512

20
SO ORDERED.
Petitioner moved for reconsideration but the same was

denied by the Court of Appeals in its resolution dated 5
21
21
October 1994.
Hence, this petition wherein the following issues were
raised:
II
ISSUES
WHETHER OR NOT RESPONDENT COURT OF APPEALS

(Former Eighth Division) GRAVELY ERRED WHEN:
1. IT NULLIFIED AND SET ASIDE THE DECISION

DATED JUNE 04, 1993 AND ORDER DATED
DECEMBER 07, 1993 OF THE SECURITIES AND
EXCHANGE COMMISSION EN BANC, AND WHEN IT
DISMISSED THE COMPLAINT OF PETITIONER
AGAINST RESPONDENT VALLEY GOLF ALL FOR
LACK OF JURISDICTION OVER THE SUBJECT
MATTER OF THE CASE;
2. IT FAILED TO AFFIRM THE DECISION OF THE
SECURITIES AND EXCHANGE COMMISSION EN
BANC DATED JUNE 04, 1993 DESPITE
PREPONDERANT EVIDENCE SHOWING THAT
PETITIONER IS THE LAWFUL OWNER OF
MEMBERSHIP CERTIFICATE NO. 1219 FOR ONE
SHARE OF RESPONDENT VALLEY GOLF.
The petition is granted.

The basic issue we must first hurdle is which body has
jurisdiction over the controversy, the regular courts or the
SEC.
P.D. No. 902-A conferred upon the SEC the following
pertinent powers:
SECTION 3. The Commission shall have absolute jurisdiction,

supervision and control over all corporations, partnerships
_____________________
20 Id., at 28-29.
21 Id., at 31.
513
VOL. 270, MARCH 26, 1997 513

or associations, who are the grantees of primary franchises and/or

a license or permit issued by the government to operate in the
Philippines, and in the exercise of its authority, it shall have the
power to enlist the aid and support of and to deputize any and all
enforcement agencies of the government, civil or military as well
as any private institution, corporation, firm, association or person.
x x x.
SECTION 5. In addition to the regulatory and adjudicative
functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to hear
and decide cases involving:
a) Devices or schemes employed by or any acts of the board of

directors, business associates, its officers or partners,
amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the
stockholders, partners, members of associations or
organizations registered with the Commission;
b) Controversies arising out of intra-corporate or partership
relations, between and among stockholders, members, or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders,
members or associates, respectively; and between such
corporation, partnership or association and the State
insofar as it concerns their individual franchise or right to
exist as such entity;
c) Controversies in the election or appointment of directors,
trustees, officers, or managers of such corporations,
partnerships or associations;
d) Petitions of corporations, partnerships or associations to
be declared in the state of suspension of payments in cases
where the corporation, partnership or association
possesses property to cover all of its debts but foresees the
impossibility of meeting them when they respectively fall
due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities,
but is under the Management Committee created
pursuant to this Decree.
514

22
The aforecited law was expounded upon in Viray v. CA
and in the23 recent cases of Mainland
24
Construction Co., Inc.
v. Movilla and Bernardo v. CA, thus:
. . . . The better policy in determining which body has jurisdiction

over a case would be to consider not only the status or
relationship of the parties but also the nature of the question that
is the subject of their controversy.
Applying the foregoing principles in the case at bar, to

ascertain which tribunal has jurisdiction we have to
determine therefore whether or not petitioner is a
stockholder of VGCCI and whether or not the nature of the
corporation is intra-corporate.
As to the first query, there is no question that the
purchase of the subject share or membership certificate at
public auction by petitioner (and the issuance to it of the
corresponding Certificate of Sale) transferred ownership of
the same to the latter and thus entitled petitioner to have
the said share registered in its name as a member of
VGCCI. It is readily observed that VGCCI did not assail
the transfer directly and has in fact, in its letter of 27
September 1974, expressly recognized the pledge
agreement executed by the original owner, Calapatia, in
favor of petitioner
25
and has even noted said agreement in its
corporate books. In addition, Calapatia, the original owner
of the subject share, has not contested the said transfer.
By virtue of the afore-mentioned sale, petitioner became
a bona fide stockholder of VGCCI and, therefore, the
conflict that arose between petitioner and VGCCI aptly
exemplifies an intra-corporate controversy between a
corporation and its stockholder under Sec. 5(b) of P.D. 902-
A.
_______________________
22 191 SCRA 308 (1990).

23 250 SCRA 290 (1995).
24 G.R. No. 120730, 28 October 1996.
25 Rollo, p. 88.
515
VOL. 270, MARCH 26, 1997 515

An important consideration, moreover, is the nature of the

corporation. VGCCI claims a prior right over the subject
share anchored mainly on Sec. 3, Art. VIII of its by-laws
which provides that “after a member shall have been
posted as delinquent, the Board may order 26

his/her/its share
sold to satisfy the claims of the Club . . .” It is pursuant to
this provision that VGCCI also sold the subject share at
public auction, of which it was the highest bidder. VGCCI
caps its argument by asserting that its corporate by-laws
should prevail. The bone of contention, thus, is the proper
interpretation and application of VGCCI’s aforequoted by-
laws, a subject which irrefutably calls for the special
competence of the SEC.
We reiterate herein the sound
27
policy enunciated by the
Court in Abejo v. De la Cruz:
6. In the fifties, the Court taking cognizance of the move to vest

jurisdiction in administrative commissions and boards the power
to resolve specialized disputes in the field of labor (as in
corporations, public transportation and public utilities) ruled that
Congress in requiring the Industrial Court’s intervention in the
resolution of labor-management controversies likely to cause
strikes or lockouts meant such jurisdiction to be exclusive,
although it did not so expressly state in the law. The Court held
that under the “sense-making and expeditious doctrine of primary
jurisdiction . . . the courts cannot or will not determine a
controversy involving a question which is within the jurisdiction
of an administrative tribunal, where the question demands the
exercise of sound administrative discretion requiring the special
knowledge, experience, and services of the administrative tribunal
to determine technical and intricate matters of fact, and a
uniformity of ruling is essential to comply with the purposes of the
regulatory statute administered.”
In this era of clogged court dockets, the need for specialized
administrative boards or commissions with the special knowledge,
experience and capability to hear and determine promptly
disputes on technical matters or essentially factual matters,
subject to
____________________
26 Id., at 34.
27 149 SCRA 654 (1987).
516

judicial review in case of grave abuse of discretion, has become

well nigh indispensable. Thus, in 1984, the Court noted that
“between the power lodged in an administrative body and a court,
the unmistakable trend has been to refer it to the former.
‘Increasingly, this Court has been committed to the view that

unless the law speaks clearly and unequivocably, the choice
should fall on [an administrative agency.]’ ” The Court in the
earlier case of Ebon v. De Guzman, noted that the lawmaking
authority, in restoring to the labor arbiters and the NLRC their
jurisdiction to award all kinds of damages in labor cases, as
against the previous P.D. amendment splitting their jurisdiction
with the regular courts, “evidently, . . . had second thoughts about
depriving the Labor Arbiters and the NLRC of the jurisdiction to
award damages in labor cases because that setup would mean
duplicity of suits, splitting the cause of action and possible
conflicting findings and conclusions by two tribunals on one and
the same claim.”
In this case, the need for the SEC’s technical expertise

cannot be overemphasized involving as it does the
meticulous analysis and correct interpretation of a
corporation’s by-laws as well as the applicable provisions of
the Corporation Code in order to determine the validity of
VGCCI’s claims. The SEC, therefore, took proper
cognizance of the instant case.
VGCCI further contends that petitioner is estopped from
denying its earlier position, in the first complaint it filed
with the RTC of Makati (Civil Case No. 901112) that there
is no intra-corporate relations between itself and VGCCI.
VGCCI’s contention lacks merit. 28
In Zamora v. Court of Appeals, this Court, through Mr.
Justice Isagani A. Cruz, declared that:
It follows that as a rule the filing of a complaint with one court

which has no jurisdiction over it does not prevent the plaintiff
from filing the same complaint later with the competent court.
The plaintiff is not estopped from doing so simply because it made
a mistake before in the choice of the proper forum . . . .
_____________________
28 183 SCRA 279 (1990).
517
VOL. 270, MARCH 26, 1997 517

We remind VGCCI that in the same proceedings before the

RTC of Makati, it categorically stated (in its motion to
dismiss) that the case between itself and petitioner is
intracorporate and insisted that it is the SEC and not the
regular courts which has jurisdiction. This is precisely the

reason why the said court dismissed petitioner’s complaint
and led to petitioner’s recourse to the SEC.
Having resolved the issue on jurisdiction, instead of
remanding the whole case to the Court of Appeals, this
Court likewise deems it procedurally sound to proceed and
rule on its merits in the same proceedings.
It must be underscored that petitioner did not confine
the instant petition for review on certiorari on the issue of
jurisdiction. In its assignment of errors, petitioner
specifically raised questions on the merits of the case. In
turn, in its responsive pleadings, private respondent duly
answered and countered all the issues raised by petitioner.
Applicable to this case is the principle succinctly
enunciated in the case of Heirs 29
of Crisanta Y. Gabriel-30
Almoradie v. Court of Appeals, citing Escudero v. Dulay
and The 31Roman Catholic Archbishop of Manila v. Court of
Appeals:
In the interest of the public and for the expeditious

administration of justice the issue on infringement shall be
resolved by the court considering that this case has dragged on for
years and has gone from one forum to another.
It is a rule of procedure for the Supreme Court to strive to
settle the entire controversy in a single proceeding leaving no root
or branch to bear the seeds of future litigation. No useful purpose
will be served if a case or the determination of an issue in a case
is remanded to the trial court only to have its decision raised
again to the Court of Appeals and from there to the Supreme
Court.
We have laid down the rule that the remand of the case or of
an issue to the lower court for further reception of evidence is not
necessary where the Court is in position to resolve the dispute
based
________________________
29 299 SCRA 15 (1994).

30 158 SCRA 69 (1988).
31 198 SCRA 300 (1991).
518

on the records before it and particularly where the ends of justice

would not be subserved by the remand thereof. Moreover, the
Supreme Court is clothed with ample authority to review matters,
even those not raised on appeal if it finds that their consideration

is necessary in arriving at a just disposition of the case.
In the recent case

32
of China Banking Corp., et al. v. Court of
Appeals, et al., this Court, through Mr. Justice Ricardo J.
Francisco, ruled in this wise:
At the outset, the Court’s attention is drawn to the fact that since
the filing of this suit before the trial court, none of the substantial
issues have been resolved. To avoid and gloss over the issues
raised by the parties, as what the trial court and respondent
Court of Appeals did, would unduly prolong this litigation
involving a rather simple case of foreclosure of mortgage.
Undoubtedly, this will run counter to the avowed purpose of the
rules, i.e., to assist the parties in obtaining just, speedy and
inexpensive determination of every action or proceeding. The
Court, therefore, feels that the central issues of the case, albeit
unresolved by the courts below, should now be settled specially as
they involved pure questions of law. Furthermore, the pleadings
of the respective parties on file have amply ventilated their
various positions and arguments on the matter necessitating
prompt adjudication.
In the case at bar, since we already have the records of the

case (from the proceedings before the SEC) sufficient to
enable us to render a sound judgment and since only
questions of law were raised (the proper jurisdiction for
Supreme Court review), we can, therefore, unerringly take
cognizance of and rule on the merits of the case.
The procedural niceties settled, we proceed to the
merits.
VGCCI assails the validity of the pledge agreement
executed by Calapatia in petitioner’s favor. It contends that
the same was null and void for lack of consideration
because the 33 pledge agreement was entered into on 21
August 1974
_____________________
32 G.R. No. 121158, 5 December 1996.

33 Rollo, pp. 84-85.
519
VOL. 270, MARCH 26, 1997 519

but the loan or promissory note which it secured was

obtained by Calapatia much later or only on 3 August
34
34
1983.
VGCCI’s contention is unmeritorious.
A careful perusal of the pledge agreement will readily
reveal that the contracting parties explicitly stipulated
therein that the said pledge will also stand as security for
any future advancements (or renewals thereof) that
Calapatia (the pledgor) may procure from petitioner:
x x x.
This pledge is given as security for the prompt payment when
due of all loans, overdrafts, promissory notes, drafts, bills of
exchange, discounts, and all other obligations of every kind which
have heretofore been contracted, or which may hereafter be
contracted, by the PLEDGOR(S) and/or DEBTOR(S) or any one of
them, in favor of the PLEDGEE, including discounts of Chinese
drafts, bills of exchange, promissory notes, etc., without any
further endorsement by the PLEDGOR(S) and/or Debtor(s) up to
the sum of TWENTY THOUSAND (P20,000.00) PESOS, together
with the accrued interest thereon, as hereinafter provided, plus
the costs, losses, damages and expenses (including attorney’s fees)
which PLEDGEE
35
may incur in connection with the collection
thereof. (Italics ours.)
The validity of the pledge agreement between petitioner

and Calapatia cannot thus be held suspect by VGCCI. As
candidly explained by petitioner, the promissory note of 3
____________________
34 Id., at 89.
35 Rollo, p. 84; For an analogous case see Ajax Marketing and
Development Corporation v. CA, 248 SCRA 222 (1995) where it was held
that:
An action to foreclose a mortgage is usually limited to the amount
mentioned in the mortgage, but where on the four corners of the mortgage
contracts, as in this case, the intent of the contracting parties is manifest
that the mortgaged property shall also answer for future loans or
advancements then the same is not improper as it is valid and binding
between the parties . . . See also Mojica v. CA, 201 SCRA 517 (1991).
520

August 1983 in the amount of P20,000.00 was but a

renewal of the first promissory note covered by the same
pledge agreement.
VGCCI likewise insists that due to Calapatia’s failure to

settle his delinquent accounts, it had the right to sell the
share in question in accordance with the express provision
found in its by-laws.
Private respondent’s insistence comes to naught. It is
significant to note that VGCCI began sending notices of
delinquency to Calapatia after it was informed by
petitioner (through its letter dated 14 May 1985) of the
foreclosure proceedings initiated against Calapatia’s
pledged share, although Calapatia has been delinquent in
paying his monthly dues to the club since 1975. Stranger
still, petitioner, whom VGCCI had officially recognized as
the pledgee of Calapatia’s share, was neither informed nor
furnished copies of these letters of overdue accounts until
VGCCI itself sold the pledged share at another public
auction. By doing so, VGCCI completely disregarded
petitioner’s rights as pledgee. It even failed to give
petitioner notice of said auction sale. Such actuations of
VGCCI thus belie its claim of good faith.
In defending its actions, VGCCI likewise maintains that
petitioner is bound by its by-laws. It argues in this wise:
The general rule really is that third persons are not bound by the
by-laws of a corporation since they are not privy thereto (Fleischer
v. Botica Nolasco, 47 Phil. 584). The exception to this is when
third persons have actual or constructive knowledge of the same.
In the case at bar, petitioner had actual knowledge of the bylaws
of private respondent when petitioner foreclosed the pledge made
by Calapatia and when petitioner purchased the share foreclosed
on September 17, 1985. This is proven by the fact that prior
thereto, i.e., on May 14, 1985 petitioner even quoted a portion of
private respondent’s by-laws which is material to the issue herein
in a letter it wrote to private respondent. Because of this actual
knowledge of such by-laws then the same bound the petioner as of
the time when petitioner purchased the share. Since the by-laws
was already binding upon petitioner when the latter purchased
the share of Calapatia on September 17, 1985 then the petitioner
purchased the said share subject to the right of the private
respondent to sell
521
VOL. 270, MARCH 26, 1997 521

the said share for reasons of delinquency and the right of private
respondent to have a first lien on said shares36
as these rights are
provided for in the by-laws very very clearly.
VGCCI misunderstood 37
the import of our ruling in Fleischer
v. Botica Nolasco Co.:
And moreover, the by-law now in question cannot have any effect
on the appellee. He had no knowledge of such by-law when the
shares were assigned to him. He obtained them in good faith and
for a valuable consideration. He was not a privy to the contract
created by said by-law between the shareholder Manuel Gonzales
and the Botica Nolasco, Inc. Said by-law cannot operate to defeat
his rights as a purchaser.
“An unauthorized by-law forbidding a shareholder to sell his
shares without first offering them to the corporation for a period
of thirty days is not binding upon an assignee of the stock as a
personal contract, although his assignor knew of the by-law and
took part in its adoption.” (10 Cyc., 579; Ireland vs. Globe Milling
Co., 21 R.I., 9.)
“When no restriction is placed by public law on the transfer of
corporate stock, a purchaser is not affected by any contractual
restriction of which he had no notice.” (Brinkerhoff-Farris Trust &
Savings Co. vs. Home Lumber Co., 118 Mo., 447.)
“The assignment of shares of stock in a corporation by one who
has assented to an unauthorized by-law has only the effect of a
contract by, and enforceable against, the assignor; the assignee is
not bound by such by-law by virtue of the assignment alone.”
(Ireland vs. Globe Milling Co., 21 R.I., 9.)
“A by-law of a corporation which provides that transfers of
stock shall not be valid unless approved by the board of directors,
while it may be enforced as a reasonable regulation for the
protection of the corporation against worthless stockholders,
cannot be made available to defeat the rights of third persons.”
(Farmers’and Merchants’ Bank of Lineville vs. Wasson, 48 Iowa,
336.) (Italics ours.)
______________________
36 Rollo, pp. 162-163.

37 47 Phil. 583 (1925).
522

In order to be bound, the third party must have acquired

knowledge of the pertinent by-laws at the time the
transaction or agreement between said third party and the
shareholder was entered into, in this case, at the time the
pledge agreement was executed. VGCCI could have easily
informed petitioner of its by-laws when it sent notice

formally recognizing petitioner as pledgee of one of its
shares registered in Calapatia’s name. Petitioner’s belated
notice of said by-laws at the time of foreclosure will not
suffice. The ruling of the SEC en banc is particularly
instructive:
By-laws signifies the rules and regulations or private laws

enacted by the corporation to regulate, govern and control its own
actions, affairs and concerns and its stockholders or members and
directors and officers with relation thereto and among themselves
in their relation to it. In other words, by-laws are the relatively
permanent and continuing rules of action adopted by the
corporation for its own government and that of the individuals
composing it and having the direction, management and control of
its affairs, in whole or in part, in the management and control of
its affairs and activities. (9 Fletcher 4166, 1982 Ed.)
The purpose of a by-law is to regulate the conduct and define
the duties of the members towards the corporation and among
themselves. They are self-imposed and, although adopted
pursuant to statutory authority, have no status as public law.
(Ibid.)
Therefore, it is the generally accepted rule that third persons
are not bound by by-laws, except when they have knowledge of
the provisions either actually or constructively. In the case of
Fleischer v. Botica Nolasco, 47 Phil. 584, the Supreme Court held
that the bylaw restricting the transfer of shares cannot have any
effect on the transferee of the shares in question as he “had no
knowledge of such by-law when the shares were assigned to him.
He obtained them in good faith and for a valuable consideration.
He was not a privy to the contract created by the by-law between
the shareholder x x x and the Botica Nolasco, Inc. Said by-law
cannot operate to defeat his right as a purchaser.” (Ialics
supplied.)
By analogy of the above-cited case, the Commission en banc is
of the opinion that said case is applicable to the present
controversy. Appellant-petitioner bank as a third party can not be
bound by appellee-respondent’s by-laws. It must be recalled that
when appellee-respondent communicated to appellant-petitioner
bank that
523
VOL. 270, MARCH 26, 1997 523

the pledge agreement was duly noted in the club’s books there
was no mention of the shareholder-pledgor’s unpaid accounts. The
transcript of stenographic notes of the June 25, 1991 Hearing

reveals that the pledgor became delinquent only in 1975. Thus,
appellantpetitioner was in good faith when the pledge agreement
was contracted.
The Commission en banc also believes that for the exception to
the generally accepted rule that third persons are not bound by
bylaws to be applicable and binding upon the pledgee, knowledge
of the provisions of the VGCCI By-laws must be acquired at the
time the pledge agreement was contracted. Knowledge of said
provisions, either actual or constructive, at the time of foreclosure
will not affect pledgee’s right over the pledged share. Art. 2087 of
the Civil Code provides that it is also of the essence of these
contracts that when the principal obligation becomes due, the
things in which the pledge or mortgage consists may be alienated
for the payment to the creditor.
In a letter dated March 10, 1976 addressed to Valley Golf Club,
Inc., the Commission issued an opinion to the effect that:
According to the weight of authority, the pledgee’s right is entitled to full

protection without surrender of the certificate, their cancellation, and the
issuance to him of new ones, and when done, the pledgee will be fully
protected against a subsequent purchaser who would be charged with
constructive notice that the certificate is covered by the pledge. (12-A
Fletcher 502)
The pledgee is entitled to retain possession of the stock until the
pledgor pays or tenders to him the amount due on the debt secured. In
other words, the pledgee has the right to resort to its collateral for the
payment of the debts. (Ibid., 502)
To cancel the pledged certificate outright and the issuance of new
certificate to a third person who purchased the same certificate covered
by the pledge, will certainly defeat the right of the pledgee to resort to its
collateral for the payment of the debt. The pledgor or his representative
or registered stockholders has no right to require a return of the pledged
stock until the debt for which it was given as security is paid and
satisfied, regardless of the length of time which have elapsed since debt
was created. (12-A Fletcher 409)
A bona fide pledgee takes free from any latent or secret

equities or liens in favor either of the corporation or of third
persons,
524

if he has no notice thereof, but not otherwise. He also takes it free

of liens or claims that may subsequently arise in favor of the
corporation if it has notice of the pledge, although no demand for
a transfer of the stock to the pledgee on the corporate books has

been made. (12-A Fletcher
38
5634, 1982 ed., citing Snyder v. Eagle
Fruit Co., 75 F2d 739)
Similarly, VGCCI’s contention that petitioner is duty-

bound to know its by-laws because of Art. 2099 of the Civil
Code which stipulates that the creditor must take care of
the thing pledged with the diligence of a good father of a
family, fails to39 convince. The case of Cruz & Serrano v.
Chua A.H. Lee, is clearly not applicable:
In applying this provision to the situation before us it must be

borne in mind that the ordinary pawn ticket is a document by
virtue of which the property in the thing pledged passes from
hand to hand by mere delivery of the ticket; and the contract of
the pledge is, therefore, absolvable to bearer. It results that one
who takes a pawn ticket in pledge acquires domination over the
pledge; and it is the holder who must renew the pledge, if it is to
be kept alive.
It is quite obvious from the aforequoted case that a

membership share is quite different in character from a
pawn ticket and to reiterate, petitioner was never informed
of Calapatia’s unpaid accounts and the restrictive
provisions in VGCCI’s by-laws.
Finally, Sec. 63 of the Corporation Code which provides
that “no shares of stock against which the corporation
holds any unpaid claim shall be transferable in the books of
the corporation” cannot be utilized by VGCCI. The term
“unpaid claim” refers to “any unpaid claim arising from
unpaid subcription, and not to any indebtedness which a
subscriber or stockholder may 40owe the corporation arising
from any other transaction.” In the case at bar, the
subscription for
_____________________
38 Rollo, pp. 36-37.

39 54 Phil. 10 (1929).
40 Agpalo, Ruben E., Comments on the Corporation Code of the
Philippines, First ed., 1993, p. 286; See also Lopez, Rosario N., The
525
VOL. 270, MARCH 26, 1997 525

the share in question has been fully paid as evidenced

41
by
the issuance of Membership Certificate No. 1219. What
Calapatia owed the corporation were merely the monthly

dues. Hence, the aforeqouted provision does not apply.
WHEREFORE, premises considered, the assailed
decision Court of Appeals is REVERSED and the order of
the SEC en banc dated 4 June 1993 is hereby AFFIRMED.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug and

Hermosisima, Jr., JJ., concur.
Judgment reversed, SEC order affirmed.
Notes.—A board resolution appointing an attorney-in-

fact to represent a corporation in the pre-trial is not
necessary where the by-laws authorizes an officer of the
corporation to make such appointment. (Citibank, N.A. vs.
Chua, 220 SCRA 75 [1993]).
While a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long as
these future debts are accurately described, a chattel
mortgage, however, can only cover obligations existing at
the time the mortgage is constituted. (Acme Shoe, Rubber
& Plastic Corporation vs. Court of Appeals, 260 SCRA 714
([1996])
——o0o——
______________________
Corporation Code of the Philippines Annotated, Vol. Two, 1994, p. 816.

41 Rollo, p. 86.
526
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4/8/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 270

VOL. 270, MARCH 26, 1997 503

CHINA BANKING CORPORATION, petitioner, vs.

Securities and Exchange Commission; Actions; Jurisdiction;

504 SUPREME COURT REPORTS ANNOTATED

China Banking Corporation vs. Court of Appeals

the recent cases of Mainland Construction Co., Inc. v. Movilla and

said share registered in its name as a member.—As to the first

VOL. 270, MARCH 26, 1997 505

China Banking Corporation vs. Court of Appeals

Same; Same; Same; Estoppel; The plaintiff who files a

doing so simply because it made a mistake before in the choice of

506 SUPREME COURT REPORTS ANNOTATED

China Banking Corporation vs. Court of Appeals

contention is unmeritorious. A careful perusal of the pledge

VOL. 270, MARCH 26, 1997 507

China Banking Corporation vs. Court of Appeals

scription, and not to any indebtedness which a subscriber or

PETITION for review on certiorari of a decision of the

The facts are stated in the opinion of the Court.

Through a petition for review on certiorari under Rule 45 of

1 Original Records, pp. 34-35.

508 SUPREME COURT REPORTS ANNOTATED

On 16 September 1974, petitioner wrote VGCCI requesting

VOL. 270, MARCH 26, 1997 509

On 4 December 1986, VGCCI caused to be published in

510 SUPREME COURT REPORTS ANNOTATED

On 20 September 1990, petitioner filed a complaint with

name; and for damages, attorney’s fees and costs of

The Commission en banc believes that appellant-petitioner has a

VGCCI sought reconsideration of the abovecited order.

VOL. 270, MARCH 26, 1997 511

The sudden turn of events sent VGCCI to seek redress from

lack of jurisdiction over the subject matter and,

In order that the respondent Commission can take cognizance of a

512 SUPREME COURT REPORTS ANNOTATED

Petitioner moved for reconsideration but the same was

WHETHER OR NOT RESPONDENT COURT OF APPEALS

1. IT NULLIFIED AND SET ASIDE THE DECISION

The petition is granted.

SECTION 3. The Commission shall have absolute jurisdiction,

VOL. 270, MARCH 26, 1997 513

or associations, who are the grantees of primary franchises and/or

a) Devices or schemes employed by or any acts of the board of

514 SUPREME COURT REPORTS ANNOTATED

. . . . The better policy in determining which body has jurisdiction

Applying the foregoing principles in the case at bar, to

22 191 SCRA 308 (1990).

VOL. 270, MARCH 26, 1997 515

An important consideration, moreover, is the nature of the

posted as delinquent, the Board may order 26

6. In the fifties, the Court taking cognizance of the move to vest

516 SUPREME COURT REPORTS ANNOTATED

judicial review in case of grave abuse of discretion, has become

‘Increasingly, this Court has been committed to the view that

In this case, the need for the SEC’s technical expertise

It follows that as a rule the filing of a complaint with one court

28 183 SCRA 279 (1990).