Case Summary (G.R. No. 160273)
Factual Background
Respondent was initially a special non‑proprietary member designated by San Miguel Corporation in 1987. In 1996 he applied for proprietary membership in CCCI; his application was indorsed by two proprietary members and he acquired a Proprietary Ownership Certificate on September 6, 1996. CCCI’s Board deferred action in April and May 1997; on July 30, 1997 the Board voted by secret ballot ("black ball" system). Because one black ball appeared, unanimity among directors present was lacking and the application was disapproved. Respondent sent letters requesting reconsideration and inquiring about objections (August–November 1997); CCCI did not respond. Respondent then filed a complaint for damages in RTC Pasig (Civil Case No. 67190).
Procedural History and Awards Below
The RTC (February 14, 2001) found for respondent and awarded: P2,340,000.00 actual/compensatory damages; P5,000,000.00 moral damages; P1,000,000.00 exemplary damages; P1,000,000.00 attorney’s fees; P80,000.00 litigation expenses. The Court of Appeals (January 31, 2003) affirmed with modification and ordered: P2,000,000.00 moral damages; P1,000,000.00 exemplary damages; P500,000.00 attorney’s fees; P50,000.00 litigation expenses; costs of suit. Petitioners sought reconsideration, which was denied; the petition for review to the Supreme Court followed.
Issue Presented
Whether petitioners (the corporation and director respondents) are liable for damages for disapproving respondent’s proprietary membership application, and whether such liability should be joint and several.
Governing Corporate Rules and Voting Procedure
CCCI’s Articles and By‑Laws condition membership on ownership of a proprietary certificate and prescribe the admission procedure (nomination, 30‑day posting for objections, Board action). Section 3(c) of the Amended By‑Laws—as amended on March 1, 1978—required the unanimous vote of all directors present at a meeting to approve inclusion in the Eligible‑for‑Membership List. The Board used a secret balloting ("black ball") system in practice. The application form submitted by respondent, however, did not reflect the 1978 amendment requiring unanimity.
Legal Standard: Abuse of Rights and Civil Liability
The Court applied Article 19 (duty to act with justice, honesty and good faith) and Article 21 (liability for willful acts contrary to morals, good customs or public policy) of the Civil Code. Under established jurisprudence, Article 19 imposes limits on the exercise of rights; when a right is exercised in an arbitrary or bad‑faith manner resulting in damage, an action for damages under Article 21 is proper. The decision relied on precedent interpreting these Articles to condemn abusive exercise of corporate or fiduciary powers.
Supreme Court’s Findings on Petitioners’ Conduct
The Supreme Court agreed with the lower courts that the Board’s handling of respondent’s application manifested fraud and evident bad faith. The Court emphasized several concrete bases for this finding that are drawn from the record: (1) the operative By‑Laws amendment imposing unanimous approval had not been reflected on the membership application form provided to respondent, leaving him unaware that unanimity was required; (2) respondent received no explanation when his application was denied and his repeated requests for reconsideration and inquiry went unanswered; and (3) respondent, as a designated special member of a corporate sponsor (San Miguel Corporation), was owed at least courteous treatment and fair process. These circumstances, in the Court’s view, showed an arbitrary and unjust exercise of the Board’s discretionary authority, amounting to an abuse of rights under Article 19 and actionable under Article 21.
On the Doctrine of Damnum Absque Injuria
The Court rejected petitioners’ reliance on the doctrine of damnum absque injuria (damage without legal injury). Citing precedent (Amonoy v. Gutierrez), the Court reiterated that damnum absque injuria does not apply where the alleged damage arises from an abuse of a person’s legal right. Because the disapproval was found to be tainted by bad faith and abuse, petitioners could not avoid liability by asserting mere business or corporate discretion.
Assessment and Reduction of Damages
While affirming liability, the Supreme Court found some damage awards excessive and reduced them to amounts it deemed reasonable and not punitive beyond purpose:
- Moral damages: the Court accepted respondent’s testimony of mental anguish, humiliation and wounded feelings but reduced the award from P2,000,000.00 (as fixed by the Court of Appeals) to P50,000.00, explaining that moral damages should compensate but not penalize disproportionately.
- Exemplary damages: the Court recognized the justificatory purpose (deterrence and correction) but reduced the award from P1,000,000.00 to P25,000.00.
- Attorn
Case Syllabus (G.R. No. 160273)
Facts
- Cebu Country Club, Inc. (CCCI) is a domestic, non-stock, non-profit private membership club with principal place of business in Banilad, Cebu City; the petitioners are members of its Board of Directors.
- In 1987 San Miguel Corporation, a special company proprietary member of CCCI, designated Ricardo F. Elizagaque (respondent), Senior Vice President and Operations Manager for Visayas and Mindanao, as a special non-proprietary member; the CCCI Board approved that designation.
- In 1996 respondent applied for proprietary membership in CCCI; the application was indorsed by two proprietary members: Edmundo T. Misa and Silvano Ludo.
- The usual price of a proprietary share was around P5 million; Benito Unchuan, then president of CCCI, offered respondent a share for P3.5 million, but respondent purchased Dr. Butalid’s share for P3 million.
- On September 6, 1996 CCCI issued Proprietary Ownership Certificate No. 1446 to respondent.
- Board action on respondent’s application was deferred at meetings of April 4, 1997 and May 30, 1997; on July 30, 1997 the Board voted on respondent’s application.
- On August 1, 1997 Julius Z. Neri, CCCI corporate secretary, informed respondent by letter that the Board disapproved his application; the ballot on July 30 showed one black ball, producing a lack of unanimity under the Board’s voting rules.
- Respondent sent letters requesting reconsideration on August 6, October 7, and an inquiry on November 5, 1997; CCCI did not reply to these communications.
- On December 23, 1998 respondent filed a complaint for damages in RTC, Branch 71, Pasig City (Civil Case No. 67190).
Procedural History
- The RTC rendered judgment on February 14, 2001 in favor of respondent, ordering defendants to pay P2,340,000.00 as actual/compensatory 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; costs of suit; and dismissed counterclaims for lack of merit.
- Petitioners appealed to the Court of Appeals. The Court of Appeals issued its Decision on January 31, 2003 affirming the RTC decision with modification: awarding P2,000,000.00 as moral damages, P1,000,000.00 exemplary damages, P500,000.00 attorney’s fees and P50,000.00 litigation expenses, costs of the suit; counterclaims dismissed.
- Petitioners filed a motion for reconsideration and motion for leave to set the motion for oral arguments on March 3, 2003; the Court of Appeals denied the motions by Resolution dated October 2, 2003.
- Petitioners elevated the case to the Supreme Court via a Petition for Review on Certiorari under Rule 45. The Supreme Court delivered the present decision on January 18, 2008 (G.R. No. 160273).
Governing Corporate Documents and Admission Procedure
- CCCI’s Articles of Incorporation describe the corporation as non-stock, and membership and right of participation in assets are limited to qualified persons duly accredited owners of Proprietary Ownership Certificates (POC) issued by the corporation in accordance with its By-Laws (Seventh).
- Article 1, Section 3 of CCCI’s Amended By-Laws prescribes the admission procedure:
- A proprietary member, seconded by another voting proprietary member, submits a written proposal to the Secretary for inclusion in the “Eligible-for-Membership List.”
- The Secretary posts the proposal for 30 days on the club bulletin board to permit objections communicated to the Board.
- After 30 days, if no objections are filed or if objections are considered unmeritorious by the Board, the candidate qualifies for the Eligible-for-Membership List.
- Once on that List and after acquiring a valid POC recorded in the corporation’s books, the candidate becomes a Proprietary Member upon payment of a non-refundable admission fee of P1,000.00 (collected once).
- On March 1, 1978 Section 3(c) was amended to require that “the Board may, by unanimous vote of all directors present at a regular or special meeting, approve the inclusion of the candidate in the ‘Eligible-for-Membership List.’”
Voting System and Result of Application
- The Board adopted the “black ball system” of secret balloting: a white ball indicates approval, a black ball indicates disapproval.
- Under the amended Section 3(c), unanimous approval of all directors present is required to include a candidate.
- When respondent’s application was voted on July 30, 1997, one black ball appeared in the ballot box; because unanimity was absent, the application was disapproved.
Issue Presented
- Whether, in disapproving respondent’s application for proprietary membership in CCCI, petitioners (members of the Board of Directors) are liable to respondent for damages; and, if liable, whether their liability is joint and several.
Petitioners’ Arguments
- Petitioners contend the Court of Appeals erred in awarding damages absent evidence of bad faith.
- Petitioners assert the defense of damnum absque injuria (damage without injury), arguing that their exercise of corporate discretion did not constitute actionable wrong.
Respondent’s Position
- Respondent maintains the petition lacks merit and should be denied, supporting the trial court and Court of Appeals findings of bad faith and fraud in the disapproval and the awards of damages.
Legal Principles and Authorities Applied
- Civil Code Article 19: Ever