Ching vs. Quezon City Sports Club, Inc.

A member’s suspension for nonpayment of a special assessment imposed by board resolution is governed by the by-law provision on suspension and expulsion requiring notice and hearing, not the by-law provision on ordinary unpaid accounts allowing automatic suspension after notice; violation of that process warrants nominal damages, but not moral or exemplary damages or attorney’s fees absent clear and convincing proof of bad faith.

Respondent Quezon City Sports Club, Inc. is a duly registered domestic corporation providing recreational activities, sports facilities, and exclusive privileges and services to its members. Petitioner Catherine Ching became a member and regular patron of the Club in 1989, and the Club’s policy extended her membership privileges to immediate family members, including petitioners Lorenzo, Laurence, and Christine Ching. The dispute concerns the Club’s by-laws, particularly Sections 33(a) and 35(a), which govern billing and suspension of accounts and suspension and expulsion of members, respectively.

Respondent Quezon City Sports Club, Inc. is a duly registered domestic corporation providing recreational activities, sports facilities, and exclusive privileges and services to its members. Petitioner Catherine Ching became a member and regular patron of the Club in 1989, and under Club policy her membership privileges were extended to immediate family members.

On June 15, 1999, the National Labor Relations Commission rendered a Decision in NLRC NCR Case No. 00-07-06219 ordering the Club to pay backwages, 13th and 14th month pay, and allowances to six illegally dismissed employees. The Club’s appeals to the Court of Appeals and this Court were unsuccessful, and the judgment became final and executory. An alias writ of execution was served on the Club on September 19, 2001 for the total amount of P4,433,550.00. Because the Club was not in a financial position to pay the monetary awards, its Board of Directors approved Board Resolution No. 7-2001 on September 20, 2001, imposing a special assessment of P2,500.00 on each member, payable in five equal monthly payments starting September 2001. Catherine was notified through a letter dated September 25, 2001 from the Club Treasurer. The amount of P500.00 was debited or charged to her account each month from September 2001 to January 2002, as reflected in the Statements of Account issued by the Club. Each Statement included a general notice that accounts past due for 60 days and over P20,000.00 would be automatically suspended, and accounts 75 days in arrears would be automatically suspended regardless of amount. Catherine believed the special assessment was unjust or illegal, but she took no action against it and simply avoided paying it by settling the amounts due in her Statements of Account from September 2001 to January 2002 short of P500.00.

The Board then passed Board Resolution No. 3-2002 on April 18, 2002, suspending the privileges of members who had not yet paid the special assessment. The resolution noted that 80% of assessed members had paid while 20% had not, and stated that to enforce Board Resolution No. 7-2001 and to be fair to those who had paid, the privileges of members who continued not to pay despite demand would be suspended. Catherine continued availing herself of the Club’s services and regularly paid the amounts due in her Statements of Account from February 2002 to May 2003, but always left a balance of more or less P2,500.00. She was not personally informed of Board Resolution No. 3-2002 nor advised that she was deemed delinquent in any other Statements of Account. On May 22, 2003, petitioner Laurence Ching went to the Club intending to use his mother’s account, but the Club refused to accommodate him because Catherine’s membership privileges had been suspended. The following day, May 23, 2003, Catherine went to the Club to verify the suspension. Respondent Lourdes Ruth M. Lopez, the Finance Manager, gave her copies of Board Resolution Nos. 7-2001 and 3-2002. Catherine also noticed that her name was included and highlighted in Lopez’s Memorandum dated May 22, 2003 addressed to “All Outlets” with the subject “Suspended Members Due to Non-Payment of P2,500.00 Special Assessment,” copies of which were posted at the workstations of Club employees and in other conspicuous places within the Club premises.

Catherine, through counsel, sent respondents a letter dated May 24, 2003 demanding the immediate recall of the suspension, an explanation why she should not file a damages case, and an apology for besmirching her name and reputation. Respondents, also through counsel, replied in a letter dated May 29, 2003, stating that the Club had never besmirched the reputation of any member in its 20 years of existence; that Catherine herself admitted she had failed to pay the P2,500.00 special assessment; and that the list of suspended members was never posted but was given to the members concerned. Meanwhile, so she could still avail herself of the Club’s services, Catherine registered as a guest of her husband, petitioner Lorenzo Ching, or her daughter Noelle Ching, and consequently paid more than double her customary fees. On July 7, 2003, petitioners instituted before the RTC a Complaint for damages against respondents based on Articles 19, 20, and 21 of the Civil Code. They prayed for reinstatement of Catherine’s membership, refund of P1,822.80, moral damages of P2,000,000.00, attorney’s fees of P200,000.00 and P2,500.00 per court appearance, exemplary damages of P50,000.00, and costs. Respondents filed separate Answers with Counterclaims seeking dismissal of the Complaint and payment of moral damages, exemplary damages, and attorney’s fees.

During trial, petitioners Catherine and Lorenzo Ching and Roland Dacut, a Club employee and Catherine’s regular tennis trainer for 10 years, testified. All documentary exhibits formally offered by petitioners were admitted by the RTC in its Order dated November 21, 2005. A few days after the filing of the Complaint, Catherine was refused access to the Club even as a mere guest of her daughter Noelle; respondents disapproved Noelle’s letter dated July 8, 2003 extending her membership privileges to her mother and other immediate family members. To lift the suspension, Catherine finally paid the P2,500.00 special assessment “under protest” on July 13, 2003. Even after payment, respondents allegedly continued harassing her: a security guard would monitor her movements and activities, and Dacut was directed by Club management to stop playing with Catherine or other members of her family. Petitioners also filed a Manifestation on January 22, 2007 informing the RTC that on September 21, 2006, the Board issued Board Resolution No. 10-2006 resolving to expel Catherine as a regular member due to her filing of the civil suit; Catherine received notice of expulsion on November 20, 2006, and the expulsion became the subject matter of another RTC case. Respondents presented the testimonies of Lopez, respondent Edgardo A. Ho, and Karen Layug, and the RTC admitted all documentary evidence formally offered by respondents in its Order dated July 10, 2007.

The RTC found no evidence of bad faith in adopting Board Resolution No. 7-2001, but found no demand for the special assessment before suspension and credited Dacut’s testimony. The Court of Appeals found no proof that respondents ordered the highlighting of Catherine’s name or the posting of the memorandum in conspicuous places.

• Applicable By-Law Provision: Petitioners maintained that Catherine’s nonpayment of the P2,500.00 special assessment was a violation of a resolution of the Board, to which Section 35(a) of the By-Laws requiring notice and hearing prior to suspension should have applied; the Court of Appeals thus erred in ruling that suspension could be made under Section 33(a) of the By-Laws.
• Due Process: Petitioners assailed the manner of suspension as done in violation of their right to due process and with ill motive and bad faith, causing damage.
• Bad Faith and Posting: Petitioners argued that the Court of Appeals erred in ruling that there was no bad faith or intent to injure or humiliate in the posting and highlighting of Catherine’s name in the memorandum containing the list of suspended members.
• Hearsay: Petitioners argued that the Court of Appeals erred in ruling that the testimony of Roland Dacut was hearsay.
• Damages: Petitioners sought reinstatement of Catherine’s membership, refund of P1,822.80, moral damages of P2,000,000.00, exemplary damages of P50,000.00, attorney’s fees of P200,000.00 and P2,500.00 per court appearance, and costs.

• Applicable By-Law Provision: Respondents invoked Section 33(a) of the By-Laws, which allows suspension of a member with unpaid bills after notice, and argued that Catherine’s suspension was in accordance with the By-Laws and policy of the Club.
• No Bad Faith: Respondents argued that there was no bad faith or intent to injure or humiliate; billing clerks and attendants were furnished copies of Lopez’s Memorandum for guidance, copies were posted in billing clerks’ cubicles, and there was no proof that copies were posted in conspicuous places or that respondents instructed or authorized the posting or highlighting of Catherine’s name.
• Hearsay: Respondents argued that Dacut’s testimony that trainers were instructed to avoid petitioners was hearsay because the instructions were merely relayed to him by Sonny Torres and he had no personal knowledge.
• Counterclaims: Respondents filed Answers with Counterclaims seeking dismissal of the Complaint and payment of moral damages, exemplary damages, and attorney’s fees.

• Applicable By-Law Provision: Whether the suspension of Catherine Ching’s membership privileges for nonpayment of the P2,500.00 special assessment is governed by Section 35(a) of the By-Laws, requiring notice and hearing, rather than Section 33(a), allowing automatic suspension after notice.
• Due Process: Whether the suspension violated Catherine Ching’s right to due process.
• Bad Faith and Damages: Whether respondents acted in bad faith in posting and highlighting Catherine Ching’s name in the memorandum of suspended members and in implementing the suspension, thereby entitling petitioners to moral and exemplary damages, attorney’s fees, and costs.
• Hearsay: Whether the testimony of Roland Dacut that trainers were ordered not to play with petitioners is hearsay and without probative value.
• Nominal Damages: Whether petitioners are entitled to nominal damages for violation of their right due to failure to observe due process.

• Applicable By-Law Provision: No. Section 33(a) did not govern; the P2,500.00 special assessment was not an ordinary account or bill. Nonpayment violated Board Resolution No. 7-2001 and fell under Section 35(a), which requires notice and hearing.
• Due Process: Yes. The suspension violated Catherine Ching’s right to due process because she did not receive the specific notice and hearing required by Section 35(a); the general notice in her Statements of Account was insufficient.
• Bad Faith and Damages: No. Bad faith was not established by clear and convincing evidence; without bad faith, moral damages, exemplary damages, and attorney’s fees were not warranted.
• Hearsay: Yes. Dacut’s testimony was hearsay because he had no personal knowledge of the alleged order and relied on what Torres relayed; it had no probative value.
• Nominal Damages: Yes. Nominal damages of P25,000.00 were proper under Article 2221 for the violation of Catherine Ching’s right, chargeable only to respondent Club.

• Applicable By-Law Provision: By-laws are binding private statutes and must be strictly complied with; Articles 1370 and 1374 of the Civil Code govern their interpretation. Section 33(a) covers regular dues and ordinary accounts incurred as members avail of Club services, where immediate payment is essential for day-to-day operations and automatic suspension after notice is allowed. The special assessment arose from an extraordinary circumstance—raising payment for the monetary judgment in the illegal dismissal case—and was imposed by Board Resolution No. 7-2001, merely charged in the Statements of Account. Catherine’s nonpayment was ultimately a violation of Board Resolution No. 7-2001, covered by Section 35(a). Board Resolution No. 3-2002 itself stated that it was issued to enforce Board Resolution No. 7-2001. Thus, Section 35(a) applied.
• Due Process: Section 35(a) requires notice and hearing prior to a member’s suspension. Catherine did not receive notice specifically advising her that she could be suspended for nonpayment of the special assessment imposed by Board Resolution No. 7-2001 and affording her a hearing prior to her suspension through Board Resolution No. 3-2002. Respondents relied only on the general notice in her Statements of Account warning of automatic suspension for accounts over P20,000.00 past due for 60 days and accounts 75 days in arrears. That general notice might have sufficed for Section 33(a), but it fell short of the stricter requirement under Section 35(a). Catherine’s right to due process was clearly violated. Nevertheless, she admitted violating Board Resolution No. 7-2001 by not paying the P2,500.00 special assessment; she knew of the assessment because the first installment was charged in her September 2001 Statement, and she willfully did not pay it. She took no step to oppose it until her May 24, 2003 letter. The Court was not determining the propriety of the special assessment. Consequently, there was ground for respondents to suspend her membership privileges.
• Bad Faith and Damages: Bad faith imports a dishonest purpose or moral obliquity and conscious doing of wrong; it means a breach of a known duty through motive, interest, or ill will partaking of the nature of fraud. It cannot be presumed and must be established by clear and convincing evidence. The Court found no bad faith in implementing Catherine’s suspension. Petitioners failed to show malice or ill will in the issuance and distribution of Lopez’s Memorandum. Respondents explained that the list was distributed in the ordinary course of business to implement Board Resolution Nos. 7-2001 and 3-2002; billing clerks and attendants needed the list because they dealt directly with members and would bear the penalty if they mistakenly allowed suspended members access. There was no proof that respondents ordered the highlighting of Catherine’s name or the posting of the list in the billing clerks’ work stations; these could have been done by the clerks themselves, and other names were also highlighted. Posting the list in conspicuous places did not necessarily connote bad faith because Section 33(a), which respondents misguidedly believed applied, authorized posting on the Clubhouse Bulletin Board. Dacut’s testimony was not given weight: he had no personal knowledge that respondent Antonio T. Chua ordered trainers not to play with petitioners; he relied on what Torres relayed, and Torres only said the order came “sa taas” without naming anyone. Dacut deduced that Torres referred to Chua, and it was unclear by what authority Torres spoke. The testimony was hearsay, admitted for lack of objection but without probative value. There was no evidence respondents singled out petitioners. Moral damages require injury, a culpable act or omission, proximate cause, and a case under Article 2219 of the Civil Code; the claimant must prove bad faith by clear and convincing evidence. Without bad faith, moral damages were not warranted. Without moral damages, exemplary damages and attorney’s fees had no basis. Attorney’s fees are the exception under Article 2208, and none of the enumerated grounds were present; there were also no findings of fact and law to justify the award.
• Hearsay: Section 36, Rule 130 of the Rules of Court requires a witness to testify only to facts of personal knowledge. Hearsay lacks the safeguards of oath and cross-examination. Dacut’s testimony that management ordered trainers not to play with petitioners was hearsay; he relied on what Torres relayed, and Torres did not name Chua. Although admitted for lack of objection, it had no probative value.
• Nominal Damages: Article 2221 of the Civil Code authorizes nominal damages to a plaintiff whose right has been violated or invaded, to vindicate or recognize that right, not to indemnify loss. The amount is addressed to the sound discretion of the court. For failure to observe due process under Section 35(a) in suspending Catherine’s privileges, respondent Club is liable for nominal damages of P25,000.00. Only respondent Club is liable because, absent malice and bad faith, officers of a corporation cannot be personally liable for corporate liabilities; the corporation has a personality separate and distinct from its officers, stockholders, and members.

• By-Laws as Binding Private Statutes — Articles of incorporation and by-laws of a country club are the fundamental documents governing corporate affairs; they establish norms of procedure and reflect the purposes and intentions of the incorporators. They constitute a binding contract between the club and its members and among the members themselves, and are self-imposed private laws binding on all members, directors, and officers. The prevailing rule is strict compliance. In this case, the Court treated the Club’s by-laws as binding and interpreted Sections 33(a) and 35(a) under Articles 1370 and 1374 of the Civil Code.
• Ordinary Accounts vs. Special Assessments — Section 33(a) of the By-Laws covers regular dues and ordinary accounts or bills incurred by members as they avail of Club services, for which immediate payment is essential to day-to-day operations and automatic suspension after notice is allowed. A special assessment imposed by board resolution to raise payment for an extraordinary liability, such as a monetary judgment in an illegal dismissal case, is not an ordinary account. Nonpayment of such special assessment is a violation of the board resolution and falls under Section 35(a), not Section 33(a).
• Due Process in Club Suspension — Section 35(a) of the By-Laws requires notice and hearing prior to a member’s suspension. A general notice in monthly Statements of Account warning of automatic suspension for unpaid accounts may suffice for Section 33(a), but it does not satisfy the stricter requirement of Section 35(a). Failure to give specific notice and hearing violates the member’s right to due process.
• Bad Faith — Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud. It cannot be presumed and must be established by clear and convincing evidence. The Court found no bad faith in the Club’s implementation of the suspension or in the distribution and posting of the list of suspended members.
• Moral Damages — Moral damages require (1) an injury clearly sustained by the claimant; (2) a culpable act or omission factually established; (3) a wrongful act or omission by the defendant as the proximate cause of the injury; and (4) the award predicated on a case under Article 2219 of the Civil Code. The claimant must prove bad faith by clear and convincing evidence. Without bad faith, moral damages cannot be awarded.
• Exemplary Damages — Under Article 2229 of the Civil Code, exemplary damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. Under Article 2234, the plaintiff must first show entitlement to moral, temperate, or compensatory damages before exemplary damages may be considered. Because petitioners failed to show entitlement to moral damages, exemplary damages could not be awarded.
• Attorney’s Fees — Attorney’s fees are the exception rather than the general rule and are awarded only in the instances specified in Article 2208 of the Civil Code. The court must make findings of fact and law bringing the case within an enumerated instance, and the amount must be reasonable. None of the grounds were present, and there was no sufficient showing of bad faith, so attorney’s fees were denied.
• Nominal Damages — Article 2221 of the Civil Code authorizes nominal damages to a plaintiff whose right has been violated or invaded, for the purpose of vindicating or recognizing that right, not for indemnifying loss. The amount is addressed to the sound discretion of the court. The Court awarded P25,000.00 nominal damages for the violation of Catherine’s right to due process.
• Corporate Separate Personality — In the absence of malice and bad faith, officers of a corporation cannot be made personally liable for the liabilities of the corporation, which by legal fiction has a personality separate and distinct from its officers, stockholders, and members. Thus, only respondent Club was held liable for the nominal damages.
• Hearsay — Under Section 36, Rule 130 of the Rules of Court, a witness can testify only to facts of personal knowledge. Hearsay evidence is excluded because it is not given under oath or solemn affirmation and is not subjected to cross-examination to test the perception, memory, veracity, and articulateness of the out-of-court declarant. Hearsay admitted for lack of objection remains without probative value. Dacut’s testimony was hearsay and had no probative value.

• "The by-laws constitute a binding contract as between the country club and its members, and as among the members themselves. The by-laws are self-imposed private laws binding on all members, directors, and officers of the country club. The prevailing rule is that the provisions of the articles of incorporation and the by-laws must be strictly complied with and applied to the letter." — This passage states the Court’s foundational rule for treating the Club’s by-laws as binding private statutes and for requiring strict compliance in resolving the applicable suspension provision.
• "Section 35(a) of the By-Laws requires notice and hearing prior to a member’s suspension. Definitely, in this case, petitioner Catherine did not receive notice specifically advising her that she could be suspended for nonpayment of the special assessment imposed by Board Resolution No. 7-2001 and affording her a hearing prior to her suspension through Board Resolution No. 3-2002." — This is the ratio decidendi on the due process violation: the general notice in the Statements of Account did not satisfy Section 35(a).
• "bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud." — This defines the standard for bad faith that the Court applied in denying moral and exemplary damages and attorney’s fees.
• "For its failure to observe due process, as provided under Section 35(a) of the By-Laws, in the suspension of petitioner Catherine’s privileges, respondent Club is liable to pay petitioners nominal damages in the amount of P25,000.00." — This states the specific relief awarded for the due process violation and limits liability to respondent Club.

• Forest Hills Golf and Country Club, Inc. vs. Gardpro, Inc., G.R. No. 164686, October 22, 2014, 739 SCRA 28, 42-43 — Controlling precedent on the nature of country club by-laws as binding contracts and self-imposed private statutes, and on strict compliance; also the basis for applying Articles 1370 and 1374 of the Civil Code to interpret the by-laws.
• Patula vs. People, 685 Phil. 376, 393-396 (2012) — Quoted for the rationale of the hearsay rule, including the requirement of personal knowledge and the importance of cross-examination; supports the holding that Dacut’s testimony had no probative value.
• Asian Terminals, Inc. vs. Allied Guarantee Insurance, Co., Inc., G.R. No. 182208, October 14, 2015 — Cited on attorney’s fees; no award where there is no sufficient showing of bad faith and no findings on the amount to be awarded.
• Cojuangco, Jr. vs. Court of Appeals, 369 Phil. 41, 60-61 (1999) — Cited on nominal damages; supports the award where a right has been violated or invaded, with the amount addressed to the sound discretion of the court.
• Nazareno vs. City of Dumaguete, 607 Phil. 768, 803-804 (2009) — Cited on moral damages; the claimant must prove bad faith by clear and convincing evidence because the law presumes good faith.
• Manay, Jr. vs. Cebu Air, Inc., G.R. No. 210621, April 4, 2016 — Cited for the rule that the absence of a basis for moral damages removes the basis for exemplary damages and attorney’s fees.
• Travel and Tours Advisers, Incorporated vs. Cruz, Sr., G.R. No. 199282, March 14, 2016 — Cited on attorney’s fees; the court must make findings of fact and law to justify the award.
• Philippine National Bank vs. Heirs of Estanislao Militar, 526 Phil. 788 (2006) — Cited on the exception to the rule that factual findings are not reviewed under Rule 45 when the findings of the Court of Appeals are contrary to those of the trial court.

• Section 35(a), By-Laws of Quezon City Sports Club, Inc. — Governs suspension and expulsion for violating by-laws, rules, regulations, resolutions, and orders duly promulgated, and requires proper notice and hearing. Applied because Catherine’s nonpayment of the special assessment violated Board Resolution No. 7-2001.
• Section 33(a), By-Laws of Quezon City Sports Club, Inc. — Governs billing of members and posting of suspended accounts, allowing automatic suspension after notice for unpaid bills. Held inapplicable because the special assessment was not an ordinary account or bill.
• Articles 19, 20, and 21, Civil Code — Basis of petitioners’ Complaint for damages. The Court found a due process violation but no bad faith sufficient to justify moral or exemplary damages.
• Articles 1370 and 1374, Civil Code — Rules on interpretation of contracts. Applied to the by-laws: if terms are clear, the literal meaning controls; various stipulations are interpreted together.
• Article 2219, Civil Code — Lists cases in which moral damages may be recovered. The elements and bad faith requirement were not satisfied.
• Article 2221, Civil Code — Authorizes nominal damages for violation or invasion of a right. Basis for the P25,000.00 award.
• Article 2229, Civil Code — Governs exemplary damages, which are imposed in addition to moral, temperate, liquidated, or compensatory damages. No moral damages were awarded, so exemplary damages were not proper.
• Article 2234, Civil Code — Requires the plaintiff to show entitlement to moral, temperate, or compensatory damages before exemplary damages may be considered. Petitioners failed to do so.
• Article 2208, Civil Code — Lists the exceptions allowing attorney’s fees. None of the grounds were present, so attorney’s fees were denied.
• Section 36, Rule 130, Rules of Court — Hearsay rule; a witness can testify only to facts of personal knowledge. Basis for rejecting Dacut’s testimony as without probative value.
• Section 1, Rule 132, Rules of Court — Requires examination of witnesses in open court and under oath or affirmation. Cited in the discussion of hearsay safeguards.
• Section 6, Rule 132, Rules of Court — Provides for cross-examination to test accuracy, truthfulness, and freedom from bias. Cited in the discussion of why hearsay is excluded.
• Section 14(2), Article III, 1987 Constitution — Guarantees the right to meet witnesses face to face in criminal prosecutions; the Court noted that the cross-examination principle applies equally to non-criminal proceedings.
• Rule 45, Rules of Court — Governs petitions for review on certiorari. The Court applied the exception allowing review of factual findings when the Court of Appeals’ findings are contrary to those of the trial court.

Sereno, C.J. (Chairperson), Bersamin, Perlas-Bernabe, and Caguioa, JJ., concur.