China Banking V CA

China Banking vs.
CA (270 SCRA 503)
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.
KAPUNAN, J.:
Facts: 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).
On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned

pledge agreement be recorded in its books.
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.
On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of

which was secured by the aforestated pledge 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 latter to conduct a public auction sale of the pledged stock.
Issues: Whether assailed pledge agreement executed by Calapatia in petitioner's

favor was valid.
HELD; YES. VGCCI's contention is unmeritorious
VGCCI contends 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.
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
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 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.
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.)
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)
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.

China Banking V CA

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China Banking vs.

CA (270 SCRA 503)

On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned

On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of

Issues: Whether assailed pledge agreement executed by Calapatia in petitioner's

HELD; YES. VGCCI's contention is unmeritorious

Private respondent's insistence comes to naught. It is significant to note that VGCCI

When no restriction is placed by public law on the transfer of corporate stock, a

WHEREFORE, premises considered, the assailed decision of the Court of

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