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

[SEC-SICD * CASE NO. 07-99-6349. June 30, 2000.] GARDPRO, INC. , complainant , vs . FOREST HILLS GOLF AND COUNTRY CLUB, INC. , respondent . By-laws ; membership fees against replacement nominees . The aforequoted by-laws provisions read altogether show that no new membership fees against new replacement nominees shall be paid by a regular corporate member. If the intention of the club is to collect membership fees against new replacement nominees, it should have been specifically provided in the by-laws. Even the provision on membership fees is silent on the collection of membership fees against new replacement nominees. It is however clear that the by-laws only provided for transfer fees for every change in the designated nominee. THADEI D E C I S I O N Defendant Forest Hills Golf and Country Club, Inc. (hereinafter referred to as the Club) is a non-profit stock corporation incorporated on June 29, 1995 to promote the social, recreational and athletic activities among its members, the main objective and undertaking of which will be the construction and maintenance of a golf course, tennis courts, swimming pools, and other indoor and outdoor related sports and recreational facilities. Its authorized capital stock is divided into Class "A", Class "B", Class "C" and Class "D" common shares. AcSCaI Complainant Gardpro is an owner of a Class "C" (corporate) share of stock of defendant Club under account No. 02296-00. As stated in Article 7 of the Club(s) Articles of Incorporation, Class "C" common shares are special corporate shares which may be sold to a corporation irrespective of-nationality or citizenship and shall entitle the registered owner thereof to two (2) memberships in the Club and to the use of its facilities. Sometime in October, 1997, Ramon Albert, General Manager of defendant, sent notices to shareholders, including complainant Gardpro informing that the Club was already accepting application for membership and that a membership fee of P75,000 for each member should be paid subject to a P25,000 discount if paid before November 15, 1997. The fees collected will be set aside as a trust fund for the operations of the club and that they shall be refundable. Complainant paid membership fees at a discounted rate of P50,000 each for the nominees. Later, it sought to replace its two nominees with two other nominees. Upon receipt of the required documents advising the Club of the replacement, complainant was required to pay again P75,000 membership fee for each of the replacement. Complainant refused to pay the membership fee contending that defendant's officers assured the former that no new membership fee shall be paid. Complainant thus filed this suit praying that (1) defendant be restrained from collecting membership fees for the two (2) replacement members and to declare that the membership fees already paid be made to apply as membership fees for the two (2) replacement members, (2) to refund the complainant membership fees paid; and (3) to pay exemplary damages and attorneys fees. The sole issue to be resolved in this suit is whether or not under the By-laws of the Club it is authorized to collect new membership fees against new replacement nominees of Class "C" shareholders. The By-laws of the club classifies membership into four categories: (1) regular member; (2) assignee member; (3) honorary member and (4) founding members. (Art. II, Sec. 2.2, By-laws) Regular membership is open to a natural person who is a registered owner of a share of stock and the duly designated nominee(s) or representative of a juridical entity in whose name a stock certificate has been issued. (2.2.1, By-laws) Regular members, thus are of two types natural person and juridical person, consisting of its nominee. The applicable By-laws provisions of the Club in resolving the issue are herein reproduced as follows: "Art. II, Sec. 2.2.2 Subject to compliance with rules and regulations, a Regular Member is entitled to use all the facilities and privileges of the Club. Subject to the limitations and restrictions provided in the Articles of Incorporation, a Regular Member shall have the right to vote and to hold office. A Regular Member, in addition, has a right to the assets of the Club upon liquidation. A juridical entity owning a Founders Share of Class "A", Class "B" or Class "D" Common Share may designate by resolution of its board of directors or trustees only one person for regular membership to the Club for each share of stock registered in its name. A juridical entity owning a Class "C" Common Share may, by resolution of its board of trustees, designate two (2) nominees for regular membership to the Club for each Class "C" Share registered in its name; provided, however, that only one (1) nominee for each Class "C" Share as designated in the aforesaid resolution, may vote and hold office as such. The said nominee(s) or representative(s), may vote and hold office as such. The said nominee(s) or representative(s), upon approval of the Board of Directors, may be admitted as Regular Member(s). 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 a juridical entity . 2.2.4 A juridical entity seeking regular membership in the Club must possess the following qualifications: (a) it must be duly organized, validly existing and in good standing under the laws of the Republic of the Philippines, or under the laws of the place of its incorporation; (b) it must be engaged in lawful and lucrative trade or business; (c) it must not be engaged in any immoral or unlawful activity or such business which, in the sole opinion of the Board of Directors, may cause disrepute to the Club; (d) it must have a good business standing, including without limitation a good credit record; (e) it must have submitted in due form an application for membership to the Club. 2.2.7 Without prejudice to such rules, regulations and policies which the Board of Directors may, from time to time promulgate, the procedure for admission of juridical entities is the same as the procedure for admission individual members, except for the following: a) Application form for membership shall be accomplished by the chairman of the board, president, or chief executive officer of the applicant. Simultaneously, an application form for the designated nominee or representative for the share shall also be accomplished, likewise duly proposed and, seconded, and subject to the same qualifications imposed on individual membership. TIaEDC b) If no objection is raised during the period of posting, the chairman of the board, president, or chief executive officer of the applicant, together with the designated nominee or representative, and accompanied by the proposer and/or seconder, shall be invited to meet the Board of Directors at its next meeting. The formalities prescribed in Section 2.2.6(d) shall then proceed. c) An applicant may designate as its nominee or representative any of its officers whose office and functions are defined in its By-Laws; provided that the employment of the nominee or representative is certified by a responsible officer of the applicant. A nominee or representative automatically becomes ineligible for membership when he ceases to be a By-Laws officer of the member upon certification of such loss of tenure by a responsible officer of the juridical entity which he represents: d) The evaluation of the qualifications of a juridical entity for membership in the Club is separate and distinct from the evaluation of the qualifications of its nominee(s) or representative(s)." xxx xxx xxx "Art. XIII, Sec. 13.6 TRANSFER FEES. Unless otherwise determined by the Board of Directors, a transfer fee of Forty Thousand Pesos (P40,000.00) for individual and Sixty Thousand Pesos (P60,000.00) for corporate members shall be collected for each transfer of stock in the Club's books. These amounts may be waived, increased or decreased from time to time by a resolution of the Board of Directors. In the case of transfer of playing rights, there shall be collected a transfer fee of Ten Thousand Pesos (P10,000.00) for both individual and corporate memberships. The amount may be waived, increased or decreased from time to time by resolution of the Board of Directors. Sec. 13.7 MEMBERSHIP FEES. Unless otherwise determined by the Board of Directors, a membership of Thirty Thousand Pesos (P30,000.00) for individual and Forty Five Thousand Pesos (P45,000.00) for corporate members must be paid the applicant within the 30-days from approval of his application before his share can be registered in the Stock and Transfer Books of the Club as provided in Section 2.2.6 of these By-Laws. Non-payment of the membership fee within the 30-day period shall be deemed a withdrawal of the application. These amount may be waived, increased or decreased from time to time by a resolution of the Board of Directors." The aforequoted provisions read altogether show that no new membership fees against new replacement nominees shall be paid by a regular corporate member. If the intention of the club is to collect membership fees against new replacement nominees, it should have been specifically provided in the By-laws. Even the provision on membership fees (13.7) is silent on the collection of membership fees against new replacement nominees. It is however clear that the By-laws only provided for transfer fees for every change in the designated nominee. It must also be noted that the transfer fee indicated in Sec. 2.2.2 is different from that indicated in 13.6 for the following reasons: 1. The transfer fee under 2.2.2 specifically refers to fees for every change in the designated nominees of a juridical entity, while the transfer fee under Article 13.6 refers only in a case where there is a transfer of stock the Club's books. cDTaSH 2. The transfer fee under Sec. 2.2.2 shall have to be fixed yet by the Board while the transfer fee under Sec. 13.6 has already been fixed therein. To further resolve the issue, it is material to consider the following: 1. The corporation (Gardpro) owns the Class, "C" share and as the by-laws itself provides, the nominees are merely nominees or representatives of the corporation, the latter being the real member. (Sec. 2.2.2, Sec. 2.2.4) 2. A regular individual member is entitled to vote; however, in the case of a regular corporate member, only one of the nominees may vote for the corporation they represent. (Sec. 2.2.2;) 3. The corporation besides the nominees has to submit its application for membership and has to be screened vis-a-vis the nominees (Sec. 2.2.4, par (d) 2.2.7) 4. The corporation is primarily liable for the obligations of the nominees (Sec. 13.1, By-laws) 5. The nature of membership of nominees may be rightfully compared to that of an assignee-member. (Sec. 2.2.8, By-laws) The corporation, being the real Club member, its nominees being only its representative to the use of all the sports and other facilities of the Club, it should not be assessed membership fees every time it changes its nominees. It shall only be required to pay transfer fees as provided in Section 13.6, second paragraph of the Club's By-laws. WHEREFORE, judgment is hereby rendered (1) restraining defendant from collecting membership fees for the two (2) replacement members; (2) the membership fees already paid shall be applied as membership fees for the two (2) replacement members; and (3) to pay complainant attorneys fees in the amount of Fifty Thousand (P50,000) Pesos. SCaIcA SO ORDERED. City of Mandaluyong, June 30, 2000 (SGD.) NATIVIDAD P. QUERIJERO Hearing Officer