When a Club Can’t Sell Your Share: Valley Golf and Membership Termination

The Supreme Court’s 2009 decision in Valley Golf & Country Club, Inc. v. Rosa O. Vda. de Caram (G.R. No. 158805) clarifies the limits on a non-stock corporation’s power to terminate membership and dispose of a member’s share. The case is a reminder that even where by-laws authorize forfeiture, the corporation must still observe substantial justice—especially when property rights are at stake.

The Facts

Valley Golf & Country Club is a non-stock, non-profit corporation operating a golf course. In 1961, Congressman Fermin Caram purchased and fully paid for one golf share, which carried a par value of P9,000.00. Beginning in 1980, Caram stopped paying his monthly club dues.

Valley Golf sent several demand letters to Caram’s mailing address. When the account remained unpaid, the club’s Board authorized the sale of the share at public auction. The share was sold in June 1987 for P25,000.00.

Unknown to the club—or so it claimed—Caram had died on 6 October 1986. His widow, Rosa Caram, later discovered the sale and filed a complaint with the Securities and Exchange Commission (SEC) for reconveyance of the share.

The Issue

The central question was whether a non-stock corporation may seize and dispose of a fully-paid member’s share for unpaid club dues when the authority appears only in the by-laws, not in the Articles of Incorporation.

The Ruling

The Supreme Court denied Valley Golf’s petition, affirming the rulings of the SEC and the Court of Appeals that the sale was invalid.

First, the Court clarified that Section 67 of the Corporation Code—which allows a stock corporation to declare shares delinquent and sell them for unpaid subscriptions—does not apply to a non-stock corporation like Valley Golf. Caram had fully paid for his share; the unpaid amounts were club dues, not subscription balances.

Second, the Court rejected the argument that the lien on the share was invalid merely because it was not stated in the Articles of Incorporation. Under Section 91 of the Corporation Code, membership in a non-stock corporation may be terminated for causes provided in the articles or the by-laws. The by-laws alone can authorize forfeiture of a membership share.

However, the Court found that Valley Golf’s actions still failed the test of substantial justice. The by-laws did not provide a clear procedure for notice and hearing before a member’s share could be seized and sold. More importantly, the club acted in bad faith: two demand letters were addressed to the “Estate of Fermin Z. Caram, Jr.,” proving the club knew Caram had died, yet the final notice was sent to Caram himself, as if he were still alive. This was done to create a semblance of regularity for the sale.

The Court also noted that a member’s share is property. When termination of membership results in loss of property, the corporation must comply with the Civil Code’s requirements on human relations (Articles 19, 20, and 21). The by-laws could not substitute for a valid security agreement, such as a chattel mortgage, that would have allowed the club to treat the share as collateral.

Practical Takeaways

• By-laws can authorize termination of membership in a non-stock corporation, even without a provision in the Articles of Incorporation.
• Section 67 of the Corporation Code applies only to unpaid subscriptions in stock corporations, not to unpaid dues in non-stock corporations.
• Termination of membership that deprives a member of property rights must be done with notice and an opportunity to be heard.
• Bad faith in sending notices—such as addressing a demand letter to a deceased member—will invalidate the sale and may give rise to damages.
• Corporations cannot rely on by-laws alone to create a lien on a member’s share; a proper security agreement, like a chattel mortgage, is required.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.