Case Summary (G.R. No. 164686)
Procedural Posture
Gardpro filed a complaint with the SEC (July 7, 1999). The SEC Hearing Officer issued a decision (June 30, 2000) restraining Forest Hills from collecting membership fees from replacement nominees and directing that already paid fees be applied to replacements; the SEC En Banc (June 28, 2001) affirmed the hearing officer except for attorney’s fees. Forest Hills appealed to the CA; the CA denied the petition for review (September 26, 2003) and denied reconsideration. Forest Hills elevated the case to the Supreme Court.
Core Facts
Forest Hills sold Class aCa shares that entitled the registered corporate owner to designate two nominees for regular membership. Gardpro purchased such shares in 1996 and designated Martin and Reyes as nominees, who paid membership fees (Martin and Reyes testified they were not told membership fees would be charged at sale). Board resolutions in 1997 changed the amounts and discounts for membership fees, and Forest Hills later charged replacement nominees P75,000 each; Gardpro refused to pay new membership fees for replacements and sought relief from the SEC. There were conflicting statements as to the correct membership fee amounts in the by‑laws and in the General Manager’s affidavit.
Legal Issues Presented
- Whether replacement nominees of a corporate shareholder must pay membership fees under the Club’s articles of incorporation and by‑laws. 2) Whether the CA encroached on the Club’s prerogative to determine internal rules and the Board’s authority to construe its own charter and by‑laws. 3) Whether the Federation of Golf Clubs of the Philippines, Inc. should have been allowed to intervene as amicus curiae.
SEC and Court of Appeals Reasoning
The SEC and the CA focused on the by‑laws’ distinction between a membership fee and a transfer fee. Section 2.2.2 authorized a “transfer fee” for every change in a juridical entity’s designated nominees, while Section 13.6 referred to a transfer fee for transfers of stock recorded in the Club’s books. Section 13.7 required payment of membership fees within 30 days from approval of an application to register the share in the Stock and Transfer Books. The SEC and CA held that the corporate member (Gardpro) — not its individual nominees — is the real member; replacing nominees thus triggers (at most) the transfer‑fee mechanism in Section 2.2.2 rather than a new membership fee for each replacement. The CA therefore denied Forest Hills’ attempt to collect full new membership fees upon nominee replacement.
Supreme Court’s Holding on Membership and Transfer Fees
The Supreme Court affirmed the CA. It held that under the articles and by‑laws the corporate shareholder is the real member entitled to use the Club’s facilities and to designate nominees; the by‑laws expressly authorize replacement of nominees subject to a transfer fee as determined by the Board. The Court applied the plain‑meaning rule (Civil Code Art. 1370) and the rule to interpret contractual stipulations together (Art. 1374) to conclude that the by‑laws do not permit charging full new membership fees every time a corporate member replaces a nominee. The Court also resolved the internal inconsistency between the General Manager’s affidavit and the by‑laws by deferring to the by‑laws as the corporation’s private statutes.
Relief Ordered and Financial Implications
Consistent with the SEC and CA rulings, the Court affirmed that Forest Hills could not collect new membership fees from Gardpro’s replacement nominees and that amounts previously paid should be applied to membership. At the same time, the Court recognized that the by‑laws provided for a transfer fee in respect of replacements (and noted a P10,000 transfer fee mentioned in Section 13.6 for transfer of playing rights), concluding Gardpro should pay the applicable transfer fee for changing its nominees. The Supreme Court affirmed the CA decision and ordered the petitioner to pay the costs of suit.
Authority, Doctrines and Policy Considerations Applied
The Court treated the articles of incorporation and by‑laws as binding private statutes that govern relations between a corporation and its shareholders and must be strictly applied. It relied on Civil Code principles that unambiguous contractual language controls (Art. 1370) and that con
...continue readingCase Syllabus (G.R. No. 164686)
Case Caption, Citation and Procedural Posture
- Supreme Court, First Division; G.R. No. 164686; Decision promulgated October 22, 2014; reported at 746 Phil. 23.
- Appeal from the Court of Appeals' September 26, 2003 decision (CA denied petition for review), which affirmed the Securities and Exchange Commission (SEC) ruling regarding the refund/collection of membership fees.
- Parties: Forest Hills Golf and Country Club, Inc. (petitioner; a non-profit stock corporation and private club) versus Gardpro, Inc. (respondent; corporate shareholder owning Class aCa common shares).
- Relief sought by petitioner: overturn CA ruling and SEC decision to permit collection of membership fees from replacement nominees and to vindicate petitioner's authority over its by-laws, rules and procedures. Court ordered petitioner to pay costs of suit.
Factual Background / Antecedents
- Forest Hills Golf and Country Club, Inc. is an exclusive private, non‑profit stock corporation organized to promote social, recreational and athletic activities; it constructed and maintained golf, tennis, swimming and other facilities for members.
- In March 1993 Fil‑Estate Properties, Inc. (FEPI) marketed Forest Hills shares under a Project Agreement; in July 1995 FEPI assigned rights to Fil‑Estate Golf and Development, Inc. (FEGDI).
- In 1995 FEPI and FEGDI engaged Fil‑Estate Marketing Associates Inc. (FEMAI) to market Forest Hills shares. FEMAI's president, Leandro de Mesa, instructed sales staff that membership was a privilege: purchasers of shares would not automatically become members but had to apply and qualify subject to Board approval.
Gardpro’s Purchase, Nominees and Membership Applications
- In 1996 Gardpro, Inc. purchased Class aCa common shares, which entitled the registered corporate owner to designate two nominees/representatives for membership in the Club.
- October 1997: Forest Hills began accepting applications for membership. Gardpro designated Fernando R. Martin and Rolando N. Reyes as its corporate nominees; both applied for membership and were charged membership fees of P50,000 each.
- Martin immediately complained to General Manager Ramon Albert that they were charged despite prior assurances that no such fees would be collected; Albert allegedly assured that the fees were temporary.
- Board resolution of August 26, 1997 increased corporate membership fees from P45,000 to P75,000 per nominee; a P25,000 discount applied to nominees paying within a specified period.
- Martin and Reyes paid the fees and were admitted as members upon Board approval.
- When Gardpro later sought to change its nominees, Forest Hills charged P75,000 per new nominee; Gardpro refused to pay and the replacements were not effected.
Testimony and Evidence Presented
- Martin and Reyes testified that:
- Sales marketing did not explain payment of membership fees.
- An FEMAI agent (Ms. Cacho) told Martin that corporate shareholders’ nominees would be automatically entitled to membership and that only monthly dues would be required thereafter.
- Albert allegedly assured Martin that the membership fees he paid would be refunded.
- Martin was not furnished copies of Forest Hills’ by-laws.
- Albert filed an affidavit with alleged figures for membership fees; inconsistency existed between Albert’s affidavit (each nominee shall pay P75,000) and the by‑laws (Section 13.7 stating P45,000 for corporate members).
SEC Hearing Officer Decision (June 30, 2000)
- Hearing Officer Natividad T. Querijero rendered judgment:
- (1) Defendant (Forest Hills) restrained from collecting membership fees for the two replacement members;
- (2) Membership fees already paid shall be applied as membership fees for the two replacement members;
- (3) Pay complainant attorney’s fees of P50,000.00.
- SEC En Banc (June 28, 2001) affirmed Hearing Officer’s findings but did not grant attorney’s fees to Gardpro.
SEC En Banc Rationale (as recited)
- Central issue: whether by‑laws authorize collection of membership fees each time a corporate member replaces a nominee.
- By‑laws contain a provision (Art. II, Sec. 2.2, Subsection 2.2.2) authorizing collection of a “transfer fee, in such amount as may be prescribed by the Board” for every change in designated nominees of a juridical entity — distinct from Art. III, Sec. 13.6 which authorizes a “transfer fee” of P60,000 for corporate members for each transfer of stock in the club’s books.
- SEC En Banc concluded:
- The corporation (Gardpro) is the real club member; nominees are representatives. Therefore, membership fees should not be assessed every time the corporate member changes nominees; only transfer fees for changes in designated nominees are authorized by the by‑laws.
- Replacement nominees still must apply and qualify for membership, but the by‑laws do not require another membership fee payment for replacements.
Court of Appeals Decision (September 26, 2003)
- CA denied Forest Hills’ petition for review and affirmed the SEC decision in toto.
- CA findings and reasoning:
- Membership acquisition procedure culminates in Board approval; payment of membership fee is not part of the approval procedure but is governed by Section 13.7 of the by‑laws.
- Section 13.7 requires payment of membership fees (P30,000 for individuals; P45,000 for corporate members) within 30 days from approval before registration of the share in the Stock and Transfer Books; non‑payment deemed withdrawal of application. Board may waive, increase or decrease