Forest Hills Golf and Country Club, Inc. vs. Gardpro, Inc.

The articles of incorporation and by-laws of a corporation are private statutes that bind the corporation and its stockholders; their provisions, when clear and unambiguous, must be interpreted literally and as a whole, not in isolation. Consequently, a corporate member who has paid the prescribed membership fee may not be assessed additional membership fees upon replacing its designated nominees if the by-laws authorize only a transfer fee for such change and contain no provision imposing new membership fees for replacement nominees.

Petitioner Forest Hills Golf and Country Club, Inc. is a non-profit stock corporation organized to operate an exclusive private golf and country club. Its articles of incorporation provided that ownership of a share entitled the registered owner to use club facilities, subject to the by-laws and board policies. Respondent Gardpro, Inc., a corporation, purchased class “C” common shares in 1996. Under the by-laws, a juridical entity owning a class “C” share was entitled to designate two nominees for regular membership, with only one nominee per share authorized to vote. In 1995, Fil-Estate Marketing Associates Inc. (FEMAI) marketed the shares, informing prospective buyers that membership was a privilege requiring application and board approval. Gardpro thereafter designated Fernando R. Martin and Rolando N. Reyes as its nominees; both paid membership fees and were admitted. When Gardpro later sought to change its nominees, Forest Hills demanded new membership fees of ₱75,000 per replacement nominee. Gardpro refused, prompting the SEC complaint.

• Nature of the Club: Forest Hills was a non-profit stock corporation operating an exclusive golf and country club. Its articles of incorporation declared that ownership of a share entitled the registered owner to use all sports and other facilities, subject to the by-laws and board policies. The by-laws provided that a regular member was entitled to use all club facilities and privileges.

• Gardpro’s Shareholding and Nominees: Gardpro purchased class “C” common shares in 1996, which entitled the registered owner to designate two nominees for regular membership. In October 1997, upon the club’s call for membership applications, Gardpro designated Fernando R. Martin and Rolando N. Reyes as its nominees. The two applied and were admitted by the Board of Directors after paying membership fees of ₱50,000 each—amounts that reflected a ₱25,000 discount from the ₱75,000 fee then prescribed by a board resolution. Martin testified that he had been assured by the general manager, Ramon Albert, that the fees were temporary and would be refunded.

• Attempted Replacement and Demand for New Fees: Gardpro later decided to replace its designated nominees. Forest Hills insisted that the replacement nominees pay new membership fees of ₱75,000 each. Gardpro refused to pay, and the replacement was not effected.

• Relevant By-law Provisions:

  • Section 2.2.2: A juridical entity owning a class “C” share may designate two nominees for regular membership; a transfer fee, in an amount prescribed by the Board, shall be charged “for every change in the designated nominee.” Only one nominee may vote.
  • Section 2.2.6: Membership fees had to be paid by the applicant within 30 days from approval of the application before the share could be registered; non-payment was deemed a withdrawal.
  • Section 2.2.7: The application procedure required the juridical entity to submit its own application and the individual nominees to submit theirs; nominees automatically became ineligible if they ceased to be officers of the corporate member.
  • Section 13.7: A membership fee of ₱45,000 for corporate members was payable within 30 days from approval; the amount could be waived, increased, or decreased by the Board.

  • Section 13.6: A transfer fee of ₱60,000 was imposed on corporate members for each transfer of stock on the club’s books; a separate paragraph prescribed a ₱10,000 fee for the transfer of playing rights.

  • Gardpro’s Evidence on Marketing Representations: Martin and Reyes testified that at the time of purchase, a FEMAI agent told Martin that if a corporation bought class “C” shares, its nominees would automatically be entitled to membership, with only monthly dues to be paid thereafter. No mention of additional membership fees was made. The general manager’s assurances that the fees were temporary supported Gardpro’s claim that the corporation had already satisfied its membership fee obligation.

• Membership Fees for Replacement Nominees: Petitioner argued that every applicant for membership, including a replacement nominee, must apply and qualify and must pay the prescribed membership fee as a prerequisite for registration under Sections 2.2.6 and 13.7 of the by-laws. Section 2.2.2’s transfer fee provision applied only when the change occurred before the original nominees became members; once they had qualified and been accepted, the replacement nominees were new applicants liable for full membership fees.

• Prerogative to Interpret Governing Documents: Petitioner maintained that the Court of Appeals encroached upon the exclusive prerogative of its Board of Directors to determine rules governing membership and to decide all questions on the construction of its articles of incorporation and by-laws, as provided in Section 16.4 of the by-laws. The Board’s interpretation should be accorded deference absent grave abuse of discretion.

• Amicus Curiae Intervention: Petitioner contended that the CA should have allowed the Federation of Golf Clubs (Phil.), Inc. to intervene as amicus curiae because the issues affected the wider golf club industry and involved matters of public concern; the denial deprived the court of valuable industry insight.

• Corporate Member as Real Party: Respondent countered that Gardpro, as the corporate member, was the real member of the club; the nominees were mere representatives. Having already paid the one-time membership fees for the original nominees, Gardpro could not be required to pay again. The by-laws authorized only a transfer fee for every change in designated nominee under Section 2.2.2.

• Plain Meaning of the By-laws: Respondent argued that Section 2.2.2 made no distinction between original and replacement nominees; it plainly imposed a transfer fee, not new membership fees, for “every change.” The membership fee under Section 13.7 was a one-time levy on the corporate applicant, while Section 13.6’s transfer fee concerned stock transfers, not nominee changes.

• Unjust Enrichment: Respondent argued that requiring new membership fees for replacement nominees would unjustly enrich Forest Hills at Gardpro’s expense and would deprive the corporate member of the full enjoyment and control of its property rights, as the playing rights already attached to the shares.

• Membership Fees for Replacement Nominees: Whether the Court of Appeals erred in holding that Forest Hills was not authorized under its articles of incorporation and by-laws to collect new membership fees for the replacement nominees of Gardpro, and that only a transfer fee under Section 2.2.2 was chargeable.

• Corporate Prerogative: Whether the Court of Appeals encroached upon the prerogative of Forest Hills to determine its own rules and procedures concerning membership and upon the Board’s power to decide questions on the construction of its articles of incorporation and by-laws, as granted in Section 16.4.

• Amicus Curiae Intervention: Whether the Court of Appeals erred in denying the intervention of the Federation of Golf Clubs (Phil.), Inc. as amicus curiae.

• Membership Fees for Replacement Nominees: No error was committed. The by-laws and articles of incorporation, construed as a whole and according to the literal meaning of their clear terms, did not authorize the collection of new membership fees for replacement nominees. Gardpro, as the juridical entity owning the shares, was the real member; its nominees were merely representatives who held playing rights. The membership fee under Section 13.7 was payable by the corporate applicant within 30 days of approval of its application and was a one-time fee for the registration of its share. No provision required the re-payment of such fees upon a change of nominees. Section 2.2.2, which imposed a transfer fee “for every change in the designated nominee,” drew no distinction between original and replacement nominees and contained no requirement for new membership fees. Under Article 1370 of the Civil Code, the plain meaning rule governed: where the language of a contract is clear and unambiguous, its literal meaning controls. The inconsistency between the ₱45,000 corporate membership fee stated in Section 13.7 and the club’s demand for ₱75,000 per nominee was resolved by the by-laws themselves, which constituted the private statutes of the corporation and had to be strictly complied with and applied to the letter. The conclusion that only a transfer fee was due was reinforced by Section 13.6, which separately prescribed a transfer fee for stock transfers and a playing-rights transfer fee of ₱10,000.

• Corporate Prerogative: No encroachment occurred. The interpretation and application of laws, including private statutes like articles of incorporation and by-laws, is inherently a judicial function. While Section 16.4 vested the Board with authority to decide questions of construction, that authority did not oust the courts of jurisdiction to resolve justiciable controversies between the corporation and its members. The complaint stated a cause of action that required the application of contract principles, corporate law, and the civil law doctrines of unjust enrichment and property rights. Allowing Forest Hills to charge new membership fees for every replacement would unjustly enrich the club and deprive Gardpro of the full use and control of its property.

• Amicus Curiae Intervention: The CA properly exercised its discretion in denying the intervention. The appearance of an amicus curiae is a matter of favor or grace, not of right, and lies within the sound discretion of the court. Amicus intervention is typically withheld when the proposed amicus appears partisan. Because Forest Hills and similarly situated clubs were members of the Federation, the latter’s partiality was beyond question. Furthermore, the case involved a private contractual dispute between the parties, not a matter of broad public concern, and Forest Hills was adequately represented by competent counsel.

• Plain Meaning Rule in Corporate Documents — Articles of incorporation and by-laws constitute a binding contract between the corporation and its stockholders. Under Article 1370 of the Civil Code, if their terms are clear and leave no doubt as to intention, the literal meaning of the stipulations controls. Under Article 1374, the various stipulations are to be interpreted together, giving effect to the whole rather than treating any provision as superfluous. The by-laws are the private “statutes” of the corporation and must be strictly complied with and applied to the letter.

• Corporate Member as the Real Party-in-Interest — In a non-profit club organized for the benefit of its members, the juridical entity owning the qualifying shares is the real member. Its designated nominees are merely representatives who exercise the playing rights. The obligations, including the payment of membership fees, attach to the corporate member, not to the individual nominees. Replacement of nominees is a change of representative, not the creation of a new membership, and is governed by the specific transfer fee provision in the by-laws.

• Judicial Function over Corporate Document Interpretation — The power to interpret and apply laws, including the private statutes of a corporation, is vested in the Judiciary. A provision in the by-laws conferring interpretive authority on the board of directors does not deprive courts of jurisdiction over suits involving the rights and obligations of members under those documents.

• Amicus Curiae as a Discretionary Device — The admission of an amicus curiae, whether by invitation or by leave, rests entirely within the court’s discretion. Leave is generally withheld when the proposed amicus is partisan, when the parties are adequately represented by competent counsel, or when the case involves purely private interests rather than matters of broad public concern.

• “The articles of incorporation and the by-laws of a corporation define and regulate the relations between the corporation and the stockholders. In interpreting them, the literal meaning of their provisions shall control, and such provisions should be construed as a whole and not in isolation.”

• “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.”

• “The interpretation and application of laws have been assigned to the Judiciary under our system of constitutional government. Indeed, defining and interpreting the laws are truly a judicial function.”

• “In general, the courts desist from allowing the intervention as amicus curiae of anyone whose attitude appears to be partisan (such as a person in the service of those having private interests in the outcome of the litigation).”

• Norton Resources and Development Corporation v. All Asia Bank Corporation, G.R. No. 162523, 25 November 2009 — Applied for the detailed exposition of the plain meaning rule under Article 1370 and the principle that all contract stipulations must be read together under Article 1374. The Court quoted its discussion of Benguet Corporation v. Cabildo and Bautista v. Court of Appeals from this case.

• Valley Golf & Country Club, Inc. v. Vda. de Caram, G.R. No. 158805, 16 April 2009, 585 SCRA 218 — Cited for the rule that by-law provisions must be strictly complied with and applied to the letter.

• Lanuza v. Court of Appeals, G.R. No. 131394, 28 March 2005, 454 SCRA 54 — Cited for the proposition that the articles of incorporation define the charter of the corporation and the contractual relationships between the corporation and its stockholders, binding both.

• Flores v. Lindo, Jr., G.R. No. 183984, 13 April 2011, 648 SCRA 772 — Referenced for the definition and requisites of unjust enrichment: a person is benefited without valid basis at the expense of another.

• Endencia v. David, 93 Phil. 696 (1953) — Cited in support of the proposition that defining and interpreting laws is a judicial function.

• Article 1370, Civil Code — If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall control. Applied to interpret the by-laws’ silence on new membership fees for replacement nominees as excluding any such obligation.

• Article 1374, Civil Code — The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. Applied to harmonize Section 2.2.2 (transfer fee for change of nominee) with Section 13.7 (one-time membership fee) and Section 13.6 (stock transfer fee).

• Section 2.2.2, By-laws of Forest Hills — A juridical entity owning a class “C” share may designate two nominees; “a transfer fee in such amount as may be prescribed by the Board of Directors, shall be charged for every change in the designated nominee of juridical entity.” Construed as the exclusive charge for nominee replacement.

• Section 13.7, By-laws of Forest Hills — A membership fee of ₱45,000 for corporate members must be paid within 30 days from approval before the share can be registered; the amount may be waived, increased, or decreased by the Board. Determined to be a one-time fee paid by the corporate applicant.

Chief Justice Maria Lourdes P.A. Sereno, Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Jose Portugal Perez, and Associate Justice Estela M. Perlas-Bernabe.