G.R. No. 160273 - Cebu Country Club, Inc. vs. Elizagaque

Case Summary (G.R. No. 160273)

Factual Background

The Court recorded that Cebu Country Club, Inc. operated as a non-profit, non-stock private membership club with membership limited to accredited owners of Proprietary Ownership Certificates pursuant to its Articles of Incorporation and By-Laws. In 1987 San Miguel Corporation designated Ricardo F. Elizagaque as a special non-proprietary member, and the Board later approved that designation. In 1996 respondent applied for proprietary membership, supported by two proprietary members. Although market price for a proprietary share approximated P5,000,000, respondent purchased a share from Dr. Butalid for P3,000,000 and received Proprietary Ownership Certificate No. 1446 on September 6, 1996. The Club’s amended By-Laws provided the procedure for admission and, as amended in 1978, required a unanimous vote of all directors present under Section 3(c) for inclusion in the Eligible-for-Membership List. The Board adopted a secret “black ball” voting system; when respondent’s application was voted on July 30, 1997 the ballot box contained one black ball and, for lack of unanimity, the Board disapproved the application. Respondent requested reconsideration and inquiry by letters dated August 6, October 7 and November 5, 1997, but the Board did not reply, prompting respondent to file suit for damages.

Trial Court Proceedings

Respondent filed Civil Case No. 67190 before the Regional Trial Court, Branch 71, Pasig City. After trial the RTC rendered judgment on February 14, 2001 in favor of respondent and ordered joint and several liability of the defendants for P2,340,000.00 as actual damages, P5,000,000.00 as moral damages, P1,000,000.00 as exemplary damages, P1,000,000.00 as attorney’s fees and P80,000.00 as litigation expenses, and dismissed the counterclaims for lack of merit.

Court of Appeals Disposition

On appeal the Court of Appeals, in its Decision dated January 31, 2003, affirmed the RTC Decision with modifications. The appellate court reduced the award of moral damages to P2,000,000.00, maintained exemplary damages at P1,000,000.00, and reduced attorneys’ fees and litigation expenses to P500,000.00 and P50,000.00, respectively. The Court of Appeals denied petitioners’ motion for reconsideration by Resolution dated October 2, 2003.

Issue Presented

The principal legal question presented to the Supreme Court was whether petitioners, in disapproving respondent’s application for proprietary membership, acted with such arbitrariness, bad faith or fraud as to incur civil liability to respondent and whether such liability attached jointly and severally to all directors.

Parties’ Contentions

Petitioners argued that they acted within the corporate authority vested in the Board to approve or disapprove membership and that they lacked bad faith; they asserted the defense of damnum absque injuria. Respondent maintained that the petition lacked merit and that the disapproval was tainted by fraud and evident bad faith, causing mental anguish and other injuries warranting damages.

Legal Basis and Reasoning

The Court recognized that the Board had the corporate right to approve or disapprove applications but held that such power was not unfettered and must be exercised in accordance with Article 19 and Article 21 of the Civil Code, which temper the exercise of rights by proscribing acts contrary to justice, honesty and good faith and by imposing liability for willful acts contrary to morals, good customs or public policy. The Court applied the principle of abuse of rights as expounded in GF Equity, Inc. v. Valenzona, and reiterated that arbitrary or unjust exercise of legal rights that causes damage constitutes a legal wrong. The Court found that petitioners acted in bad faith and committed fraud in the disapproval of respondent’s application. The Court stressed that the 1978 amendment to Section 3(c) of the By-Laws, which required a unanimous vote, was not reflected on the application form supplied to respondent. The Club’s proffered explanation that the omission was due to economic reasons was deemed unconvincing. The Court held that respondent was left without notice of the unanimity requirement and that petitioners’ failure to inform or to respond to reconsideration requests evidenced discourtesy and a lack of good faith.

Application of Precedent and Doctrines

In rejecting petitioners’ reliance on the defense of damnum absque injuria the Court cited Amonoy v. Gutierrez for the proposition that the defense is inapplicable where there is an abuse of a person’s right. The Court invoked Article 2219 to support recovery of moral damages for acts falling within Article 21 and Article 2229 to sustain exemplary damages as a corrective or deterrent measure for socially deleterious conduct. The recovery of attorney’s fees and litigation expenses was tied to Article 2208, which permits such recovery when exemplary damages are awarded and when the court deems it just and equitable.

Damages and Their Adjustment

The Court accepted that respondent suffered mental anguish, social humiliation and wounded feelings as a consequence of the arbitrary denial and that moral and exemplary damages were therefore appropriate. Nevertheless, the Court deemed the amounts previously awarded manifestly excessive. Applying the principle that moral damages must be fair a

Case Syllabus (G.R. No. 160273)

Parties and Posture

Cebu Country Club, Inc. was the petitioner and a non-stock private membership corporation whose Board members named in the petition were co-petitioners.
Ricardo F. Elizagaque was the respondent and an applicant for proprietary membership who had been previously designated as a special non-proprietary member by San Miguel Corporation.
The respondent filed a complaint for damages in the Regional Trial Court, Branch 71, Pasig City, docketed as Civil Case No. 67190, after the Board disapproved his application for proprietary membership.
The RTC rendered judgment in favor of the respondent on February 14, 2001, and the Court of Appeals affirmed with modification on January 31, 2003 in CA-G.R. CV No. 71506.
The petitioners filed a Petition for Review on Certiorari under Rule 45, Rules of Civil Procedure to assail the Court of Appeals Decision, and the Court of Appeals denied the motions for reconsideration on October 2, 2003.
The Supreme Court resolved the petition by decision that denied the petition and affirmed the Court of Appeals decision with further modification.

Facts

The respondent applied for proprietary membership in 1996 after having been a special non-proprietary member since his designation in 1987.
The respondent acquired a Proprietary Ownership Certificate No. 1446 on September 6, 1996 after purchasing a proprietary share for P3,000,000.00.
The Board deferred action on the application during April 4 and May 30, 1997 meetings and later voted on the application on July 30, 1997.
The Board used a secret balloting or black ball system where a white ball signified approval and a black ball signified disapproval, and one black ball appeared in the ballot box during the July 30, 1997 vote.
The respondent received a letter on August 1, 1997 informing him of the Board's disapproval and thereafter sent letters of reconsideration and inquiry on August 6, October 7 and November 5, 1997 to which the corporation did not reply.
The respondent filed suit on December 23, 1998, alleging bad faith and seeking damages for the alleged wrongful disapproval.

By-Laws and Procedure

CCCI's Articles of Incorporation provided that membership was limited to qualified proprietors holding Proprietary Ownership Certificates as set forth in its By-Laws.
Section 3, Article 1 of the Amended By-Laws prescribed the procedure for admission including nomination, posting for thirty days, opportunity to object, inclusion in the Eligible-for-Membership List, and payment of a non-refundable admission fee.
The 1978 amendment to Section 3(c) required approval by unanimous vote of all directors present at a regular or special meeting to admit a candidate, and the Board employed the black ball system to effectuate secret balloting.
The application form submitted by the respondent did not reflect the 1978 amendment requiring unanimity, and the Board explained the omission on economic grounds, which the courts found unconvincing.
The lack of notice to the respondent that unanimity was required contributed to his uncertainty about the grounds for disapproval.

Issues

The primary issue was whether the petitioners were liable f