FIRST DIVISION

[G.R. No. 117604. March 26, 1997.]

CHINA BANKING CORPORATION , petitioner, vs . COURT OF APPEALS,

and VALLEY GOLF and COUNTRY CLUB, INC. , respondents.

Lim Vigilia Cinco & Orencia for petitioner.

Jose F . Manacop for private respondent.

SYLLABUS

1. COMMERCIAL LAW; P.D. 902-A; JURISDICTION OF THE SECURITIES AND

EXCHANGE COMMISSION; CASE AT BAR; INTRA-CORPORATE CONTROVERSY
BETWEEN A CORPORATION AND ITS STOCKHOLDER. — There is no question that the
purchase of the subject share or membership certi cate at public auction by petitioner
(and the issuance to it of the corresponding Certi cate 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 de stockholder of
VGCCI and, therefore, the con ict that arose between petitioner and VGCCI aptly
exemplies an intra-corporate controversy between a corporation and its stockholder
under Sec. 5(b) of P.D. 902-A.
2. ID.; ID.; ID.; THE SECURITIES AND EXCHANGE COMMISSION TOOK
PROPER COGNIZANCE OF THE INSTANT CASE. — 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 by-laws, a subject which
irrefutably calls for the special competence of the SEC. We reiterate herein the sound
policy enunciated by the Court in Abejo v. De la Cruz: 6. In the fties, the Court taking
cognizance of the move to vest jurisdiction in administrative commissions and boards
the power to resolve specialized disputes in the eld 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
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 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 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 con icting ndings and conclusions
by two tribunals on one and the same claim." In this case, the need for the SEC's
technical expertise cannot be over-emphasized 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.
3. ID.; ID.; ID.; 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. — VGCCI further contends
that petitioner is estopped from denying its earlier position, in the rst complaint it led
with the RTC of Makati (Civil Case No. 90-1112) that there is no intra-corporate
relations between itself and VGCCI. VGCCI's contention lacks merit. In Zamora v. Court
of Appeals, this Court, through Mr. Justice Isagani A. Cruz, declared that: "It follows that
as a rule the ling of a complaint with one court which has no jurisdiction over it does
not prevent the plaintiff from ling 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 . . ." 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 intra-corporate 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.
4. ID.; CORPORATION CODE; BY-LAWS; THIRD PERSONS ARE NOT BOUND
BY THE BY-LAWS OF A CORPORATION SINCE THEY ARE NOT PRIVY THERETO. — 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.
5. ID.; ID.; SECTION 63 THEREOF; 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
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 CORPORATION FROM ANY OTHER TRANSACTION. — 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
Certi cate No. 1219. What Calapatia owed the corporation were merely the monthly
dues. Hence, the aforequoted provision does not apply.
6. CIVIL LAW; SPECIAL CONTRACTS; PLEDGE; RULE THAT THE CREDITOR
MUST TAKE CARE OF THE THING PLEDGED WITH THE DILIGENCE OF A GOOD FATHER
OF A FAMILY; DOES NOT APPLY TO A PLEDGEE OF A SHARE OF STOCK. — 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.

DECISION

KAPUNAN , J : p

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 to petitioner China Banking Corporation (CBC, for brevity). 1
On 16 September 1974, petitioner wrote VGCCI requesting that the
aforementioned pledge agreement be recorded in its books. 2

In a letter dated 27 September 1974, VGCCI replied that the deed of pledge
executed by Calapatia in petitioner's favor was duly noted in its corporate books. 3
On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner,
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 payment of which was secured by the aforestated pledge agreement still existing
between Calapatia and petitioner. 4
Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, led a
petition for extrajudicial foreclosure before Notary Public Antonio T. de Vera of Manila,
requesting the latter to conduct a public auction sale of the pledged stock. 5
On 14 May 1985, petitioner informed VGCCI of the above-mentioned 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 in view
of Calapatia's unsettled accounts with the club. 6
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 was issued the corresponding certi cate of
sale. 7
On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of
his overdue account in the amount of P18,783.24. 8 Said notice was followed by a
demand letter dated 12 December 1985 for the same amount 9 and another notice
dated 22 November 1986 for P23,483.24. 1 0
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 certi cates, 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 sale of his share of stock in the 10 December
1986 auction. 1 1
On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's
Stock Certi cate No. 1219 by virtue of being the highest bidder in the 17 September
1985 auction and requested that a new certificate of stock be issued in its name. 1 2
On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's
stock was sold at the public auction held on 10 December 1986 for P25,000.00. 1 3
On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of
stock and thereafter led a case with the Regional Trial Court of Makati for the
nulli cation of the 10 December 1986 auction and for the issuance of a new stock
certificate in its name. 1 4
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 petitioner's motion for
reconsideration.
On 20 September 1990, petitioner led a complaint with the Securities and
Exchange Commission (SEC) for the nulli cation of the sale of Calapatia's stock by
VGCCI; the cancellation of any new stock certi cate issued pursuant thereto; for the
issuance of a new certi cate in petitioner's name; and for damages, attorney's fees and
costs of litigation.
On 3 January 1992, SEC Hearing O cer 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 the
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 books of (VGCCI) until liquidation of delinquency." 15 Consequently, the case was
dismissed. 1 6
On 14 April 1992, Hearing O cer Perea denied petitioner's motion for
reconsideration. 1 7
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 certi cate in
the name of appellant-petitioner bank.

SO ORDERED. 1 8

VGCCI sought reconsideration of the abovecited order. However, the SEC denied
the same in its resolution dated 7 December 1993. 1 9
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 o cer 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 o cer dated January 3, 1992 and April 14, 1992
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 (Annexes S and W, petition) are all nulli ed 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.

SO ORDERED. 2 0

Petitioner moved for reconsideration but the same was denied by the Court of
Appeals in its resolution dated 5 October 1994. 2 1
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 rst 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:
SEC. 3. The Commission shall have absolute jurisdiction, supervision and
control over all corporations, partnerships 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.
xxx xxx xxx

SEC. 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 o cers 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
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 organizations registered with the Commission.

b) Controversies arising out of intra-corporate or partnership

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, o cers, 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 su cient assets to cover its liabilities, but is under the
Management Committee created pursuant to this Decree.

The aforecited law was expounded upon in Viray v. CA 2 2 and in the recent cases
of Mainland Construction Co., Inc. v. Movilla 2 3 and Bernardo v. CA, 2 4 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 controversy between
petitioner and private respondent corporation is intra-corporate.
As to the rst query, there is no question that the purchase of the subject share
or membership certi cate at public auction by petitioner (and the issuance to it of the
corresponding Certi cate 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. 2 5 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 de stockholder
of VGCCI and, therefore, the con ict that arose between petitioner and VGCCI aptly
exempli es an intra-corporate controversy between a corporation and its stockholder
under Sec. 5(b) of P.D. 902-A.
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 . . ." 26 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
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 aforequoted by-laws, a subject which irrefutably calls for the special competence of the
SEC. cdphil

We reiterate herein the sound policy enunciated by the Court in Abejo v. De la

Cruz : 27

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

jurisdiction in administrative commissions and boards the power to resolve
specialized disputes in the eld 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 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
con icting ndings and conclusions by two tribunals on one and the same
claim."

In this case, the need for the SEC's technical expertise cannot be over-
emphasized 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 rst complaint it led with the RTC of Makati (Civil Case No. 90-1112)
that there is no intra-corporate relations between itself and VGCCI.
VGCCI's contention lacks merit.
In Zamora v. Court of Appeals, 2 8 this Court, through Mr. Justice Isagani A. Cruz,
declared that:
It follows that as a rule the ling of a complaint with one court which has
no jurisdiction over it does not prevent the plaintiff from filing the same complaint
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 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 . . .

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 intra-corporate 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 con ne the instant petition for
review on certiorari on the issue of jurisdiction. In its assignment of errors, petitioner
speci cally 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
of Crisanta Gabriel-Almoradie v. Court of Appeals, 2 9 citing Escudero v. Dulay 3 0 and
The Roman Catholic Archbishop of Manila v. Court of Appeals: 3 1
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 nds that their consideration is necessary in
arriving at a just disposition of the case.

In the recent case of China Banking Corp ., et al. v. Court of Appeals, et al., 3 2 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 that since the
ling 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 le
have amply ventilated their various positions and arguments on the matter
necessitating prompt adjudication.
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 In the case at bar, since we already have the records of the case (from the
proceedings before the SEC) su cient 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 pledge agreement was entered into on 21 August 1974 3 3 but the loan or
promissory note which it secured was obtained by Calapatia much later or only on 3
August 1983. 3 4
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:
xxx xxx xxx
This pledge is given as security for the prompt payment when due of all
loans, overdrafts, promissory notes, drafts, bills or 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 may incur in connection with the collection thereof. 35
(Emphasis 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 August 1983 in the amount of P20,000.00 was but a renewal of the rst
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 signi cant 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 o cially 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
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 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
by-laws 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 petitioner 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 the said share for reasons of delinquency and the right
of private respondent to have a rst lien on said shares as these rights are
provided for in the by-laws very very clearly. 3 6

VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.:
37

"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

rst 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.) (Emphasis
ours.)

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
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 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 signi es 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 o cers 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 de ne 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 Fleisher v. Botica Nolasco, 47 Phil. 584, the Supreme
Court held that the by-law 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 . . . and the Botica Nolasco, Inc. Said by-law cannot
operate to defeat his right as a purchaser." (Emphasis 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 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, appellant-petitioner was in good
faith when the pledge agreement was contracted.

The Commission en banc also believes that for the exception to the
general accepted rule that third persons are not bound by by-laws 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 maybe
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 certi cate, 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
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 constructive notice that the certi cate 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 certi cate outright and the issuance of new
certi cate to a third person who purchased the same certi cate 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 satis ed,
regardless of the length of time which have elapsed since debt was
created. (12-A Fletcher 409)

A bona de pledgee takes free from any latent or secret equities or liens in
favor either of the corporation or of third persons, 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 5634, 1982 ed., citing Snyder v. Eagle Fruit Co., 75 F2d739) 3 8

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, 3 9 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 subscription, and not to any indebtedness which a
subscriber or stockholder may owe the corporation arising from any other transaction."
4 0 In the case at bar, the subscription for the share in question has been fully paid as
evidenced by the issuance of Membership Certi cate No. 1219. 4 1 What Calapatia
owed the corporation were merely the monthly dues. Hence, the aforequoted provision
does not apply.
WHEREFORE, premises considered, the assailed decision of the Court of Appeals
is REVERSED and the order of the SEC en banc dated 4 June 1993 is hereby AFFIRMED.
SO ORDERED.
Padilla, Bellosillo, Vitug and Hermosisima, Jr., JJ ., concur.
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 Footnotes

1. Original Records, pp. 34-35.

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.
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.
15. Rollo, p. 48.
16. Id., at 51.
17. Id., at 52.
18. Id., at 38.
19. Id., at 43.
20. Id., at 28-29.
21. Id., at 31.
22. 191 SCRA 308 (1990).

23. 250 SCRA 290 (1995).

24. G.R. No. 120730, 28 October 1996.

25. Rollo, p. 88.
26. Id., at 34.
27. 149 SCRA 654 (1987).

28. 183 SCRA 279 (1990).

29. 229 SCRA 15 (1994).

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

32. G.R. No. 121158, 5 December 1996.

33. Rollo, pp. 84-85.

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).

36. Rollo, pp. 162-163.

37. 47 Phil. 583 (1925).
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 Corporation Code of the Philippines Annotated,
Vol. Two, 1994, p. 816.

41. Rollo, p. 86.

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