The Supreme Court ruled that a corporation holding a golf club share is not required to pay new membership fees each time it replaces its designated nominees. Instead, the club can only charge a transfer fee for each change in nominee. This decision clarifies the rights and obligations of corporate shareholders in exclusive clubs and prevents unjust enrichment by ensuring that the corporation’s membership benefits are maintained despite changes in its representatives.

Teeing Off with Nominees: Who Really Pays the Green Fees?

This case revolves around Forest Hills Golf and Country Club, Inc. (Forest Hills), a non-profit stock corporation, and Gardpro, Inc. (Gardpro), a corporation that purchased class “C” common shares in Forest Hills. These shares entitled Gardpro to designate two nominees for membership in the Club. When Gardpro’s initial nominees applied for membership, Forest Hills charged them membership fees. Later, when Gardpro sought to replace its nominees, Forest Hills again demanded new membership fees. Gardpro refused to pay, arguing that it had already paid the fees for the original nominees. The central legal question is whether Forest Hills could charge new membership fees for replacement nominees under its articles of incorporation and by-laws.

The Securities and Exchange Commission (SEC) ruled in favor of Gardpro, stating that the club’s by-laws only authorized the collection of a “transfer fee” for each change in designated nominees, not a new membership fee. The Court of Appeals (CA) affirmed the SEC’s decision, emphasizing that Gardpro, as the corporate shareholder, was the actual member of the club, and its nominees were merely representatives. The CA found no provision in Forest Hills’ by-laws that authorized the collection of new membership fees for replacement nominees. Forest Hills appealed to the Supreme Court, arguing that the CA had erred in its interpretation of the club’s by-laws and encroached on its prerogative to determine its own membership rules.

The Supreme Court upheld the CA’s decision, finding that Forest Hills was not authorized to collect new membership fees for Gardpro’s replacement nominees. The Court emphasized that Gardpro, as the holder of class “C” common stocks, was entitled to two memberships in the Club. According to the Court, while the nominees could be admitted as regular members, only one nominee for each class “C” share could vote. The Court also noted that the Club’s articles of incorporation and by-laws recognized the right of the corporate member to replace the nominees, subject to the payment of a transfer fee.

The Supreme Court cited the Articles of Incorporation, stating:

That this Corporation is an exclusive club and is organized on a non-profit basis for the sole benefit of its member/members. Ownership of a share shall entitle the registered owner to the use of all the sports and other facilities of the club, but subject to the terms and conditions herein prescribed, to the By-laws of the corporation, and to the policies, rules and regulations as may from time to time be promulgated by the Board of Directors.

The Court also referred to Section 2.2.2 of Forest Hills’ by-laws:

Subject to compliance with rules and regulations, a Regular Member is entitled to use all the facilities and privileges of the Club.

The Supreme Court determined that the term “entitle” means to give a right, claim, or legal title to. The Court clarified that the use of recreational facilities is a playing right held by corporate members or their nominees. These playing rights can be transferred to new nominees when replacements are made, subject to a transfer fee. The Court found an inconsistency between the by-laws and the affidavit of the Club’s General Manager regarding membership fees for corporate members. The Court resolved this inconsistency by emphasizing that the by-laws, as the private statutes of the corporation, must prevail.

The Court emphasized that the articles of incorporation and by-laws of Forest Hills governed the relations of the parties. These documents defined the contractual relationships between the corporation, its stockholders, and the State. The Court applied the plain meaning rule, as embodied in Article 1370 of the Civil Code, which states that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.

If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.

The Court noted that the CA had not encroached on Forest Hills’ prerogative to determine its own rules and procedures. The Court stated that the interpretation and application of laws are functions assigned to the Judiciary. In this case, Gardpro’s complaint required the interpretation of contracts, corporate laws, and civil law principles, including unjust enrichment. The Court explained that allowing Forest Hills to charge membership fees for replacement nominees would unduly deprive Gardpro of its property rights while unjustly enriching the Club.

Moreover, the Court found that the intervention of the Federation of Golf Clubs of the Philippines, Inc. as amicus curiae was not necessary. The Court pointed out that the Federation’s membership included Forest Hills and other similarly situated golf clubs, raising concerns about its impartiality. The Court reasoned that the action involved a private contract between the parties, which the SEC and CA were competent to resolve. As such, the federation of golf clubs did not need to be heard as amicus curiae.

FAQs

What was the key issue in this case?	The key issue was whether Forest Hills could charge Gardpro new membership fees each time Gardpro replaced its designated nominees in the golf club.
What did the Supreme Court rule?	The Supreme Court ruled that Forest Hills could only charge a transfer fee for each change in nominee, not new membership fees.
Why did the Court rule that way?	The Court based its decision on the Club’s articles of incorporation and by-laws, finding no provision authorizing new membership fees for replacement nominees.
What is the significance of the “transfer fee”?	The transfer fee, as stipulated in the by-laws, covers administrative costs associated with changing the designated nominee and updating club records.
Who is considered the actual member of the Club in this case?	The Court clarified that Gardpro, as the corporate shareholder, is the actual member, while the nominees are merely representatives of the corporation.
What legal principles did the Court rely on?	The Court relied on the plain meaning rule in contract interpretation and principles of corporate law, emphasizing that by-laws must be strictly complied with.
What is the principle of unjust enrichment, and how does it apply here?	Unjust enrichment occurs when one party benefits unfairly at the expense of another. The Court reasoned that charging new membership fees for each nominee change would unjustly enrich Forest Hills.
Can a golf club member designate different corporate nominees to use the facilities?	The club member has the option to name different nominees, in accordance with rules and regulations, allowing flexibility in using the golf club’s facilities.

In conclusion, this case emphasizes the importance of adhering to the plain language of corporate by-laws and articles of incorporation, particularly in cases involving membership rights and fees. The ruling clarifies the obligations of corporate shareholders and prevents unjust enrichment by ensuring that corporations are not unduly charged for exercising their rights to designate and replace nominees in exclusive clubs.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: FOREST HILLS GOLF AND COUNTRY CLUB, INC. VS. GARDPRO, INC., G.R. No. 164686, October 22, 2014