Case Summary (G.R. No. 163607)
Procedural History
– RTC (2008): Held Board Resolution No. 7-2001 valid under the Business Judgment Rule; found respondents violated By-Laws Section 35(a) by suspending Catherine without notice and hearing, acted in bad faith, and awarded moral (₱200,000.00), exemplary (₱50,000.00), attorney’s fees (₱50,000.00), and costs.
– CA (2011): Reversed RTC, ruling that suspension fell under By-Laws Section 33(a) (automatic suspension for unpaid bills), that statements sufficed as notice, and that there was no bad faith or humiliatory intent; dismissed petitioners’ claim and denied respondents’ counterclaims.
– Supreme Court Petition: Assailed CA’s application of corporate by-laws, bad faith finding, and admissibility of hearsay testimony.
Applicable Law
– 1987 Constitution (due process)
– Civil Code: Articles 19, 20, 21 (liability for wrongful acts); Article 2208 (attorney’s fees); Articles 2221, 2229, 2234 (moral and exemplary damages); Articles 1370, 1374 (contract interpretation)
– Corporate By-Laws:
• Section 33(a): Automatic suspension for unpaid ordinary monthly bills after notice.
• Section 35(a): Suspension or expulsion for violating Board resolutions, requiring proper notice and hearing.
Issues
- Whether suspension for non-payment of the special assessment falls under By-Laws Section 33(a) or Section 35(a).
- Whether respondents acted in bad faith or with malice in suspending and publicly listing Catherine.
- Admissibility and probative value of Roland Dacut’s testimony as hearsay.
Supreme Court’s Analysis and Rationale
By-Laws Interpretation
– The special assessment arose from a Board resolution to satisfy an extraordinary corporate obligation, not ordinary monthly dues.
– Section 33(a) applies only to regular monthly charges; Section 35(a) governs violation of Board resolutions, mandating notice and hearing.
– Respondents failed to give Catherine specific notice and a hearing before suspension, breaching due process under Section 35(a).Bad Faith and Public Listing
– Bad faith requires conscious wrongdoing and must be proved by clear and convincing evidence.
– Respondents legitimately implemented corporate resolutions; no evidence of malicious intent in
Case Syllabus (G.R. No. 163607)
Facts
- Catherine Ching became a regular member of Quezon City Sports Club, Inc. (“QCSI”) in 1989; membership privileges extend to immediate family.
- QCSI was ordered by the National Labor Relations Commission to pay P4,433,550.00 for illegal dismissals; judgment became final and executory.
- On September 20, 2001, QCSI’s Board of Directors approved Board Resolution No. 7-2001 imposing a special assessment of P2,500.00 per member, payable in five monthly installments of P500.00, to satisfy the NLRC judgment.
- Catherine was notified of the assessment by letter dated September 25, 2001; her account was debited P500.00 each month from September 2001 to January 2002.
- Monthly Statements of Account contained a general notice that any account past due 60 days (if over P20,000.00) or 75 days (regardless of amount) would be automatically suspended.
- Catherine knowingly underpaid each installment by P500.00 and thereafter continued incurring five‐month balances (February 2002 to May 2003).
- On April 18, 2002, QCSI’s Board passed Resolution No. 3-2002 suspending privileges of members who had not paid the special assessment.
- Catherine received no separate notice or hearing under Section 35(a) of the Club’s By-Laws before her privileges were suspended on May 22, 2003.
- Petitioner Laurence was refused service on May 22, 2003; Catherine learned of her suspension the next day when the Finance Manager showed her Board Resolutions 7-2001 and 3-2002 and a May 22, 2003 memorandum listing suspended members.
- Catherine’s counsel demanded recall of the suspension, explanation, and apology on May 24, 2003; respondents refused in a May 29, 2003 letter.
- Catherine thereafter registered as a guest of family members to use Club facilities, incurring higher fees.
Procedural History
- July 7, 2003: Petitioners filed a Complaint for Damages under Articles 19, 20, and 21 of the Civil Code before the Regional Trial Court (RTC), seeking reinstatement, refund of P1,822.80, moral damages (P2,000,000.00), attorney’s fees (P200,000.00 plus P2,500.00 per appearance), exemplary damages (P50,000.00), and costs.
- May 23, 2008 (RTC