FIRST DIVISION
[G.R. No. 212833. August 7, 2019.]
FOREST HILLS GOLF AND COUNTRY CLUB, INC., FERDINAND T. SANTOS, ROBERT JOHN L. SOBREPEÑA, AND ROMEO G. CARLOS, petitioners, vs.KINGS PROPERTIES CORPORATION, respondent.
NOTICE
Sirs/Mesdames :
Please take notice that the Court, First Division, issued a Resolution datedAugust 7, 2019which reads as follows:
"G.R. No. 212833 (Forest Hills Golf and Country Club, Inc., Ferdinand T. Santos, Robert John L. Sobrepeña, and Romeo G. Carlos v. Kings Properties Corporation). — This is a petition for review on certiorari1 assailing the Decision 2 dated January 23, 2014 and Resolution 3 dated June 5, 2014 of the Court of Appeals (CA) in CA-G.R. SP No. 129780. Here, We rule that a provision in the Corporation Code on founders' shares prevails over the provision on the right of a non-stock corporation to define the voting rights of its members.
Respondent Kings Properties Corporation (KPC) and Fil-Estate Golf and Development Corporation (Fil-Estate) entered into a joint project which led to the creation of petitioner Forest Hills Golf and Country Club, Inc. (Forest Hills), a non-profit corporation. Forest Hills was incorporated on June 29, 1995 4 and its primary objective is to construct and maintain sports and recreational facilities (project). 5
Forest Hills' Articles of Incorporation and By-Laws provide that only holders of founders' shares may vote at any meeting of the members and be elected to the Board of Directors for a period of five years "from and after the formal turn-over of the project" to Forest Hills. 6
In 2008, KPC filed a complaint 7 against Forest Hills and the members of its Board of Directors (collectively, petitioners) because the project remained unfinished and the Board of Directors continued to suspend the voting rights of Forest Hills' stockholders. KPC pleaded the Regional Trial Court (RTC) to:
1) Declare that the suspension of the voting rights of the stockholders/members of Forest Hills already lapsed on June 30, 2000;
2) Declare certain provisions of Forest Hills' Articles of Incorporation and By-Laws (i.e., 2nd paragraph of the Seventh Article 8 and 10th paragraph (1) 9 of the Seventh Article of the Articles of Incorporation, Sections 2.2.13 10 and 2.2.14 11 Article II, and Sections 6.2 12 and 6.7 13 of Article VI of the By-Laws) null and void; and
3) Direct petitioners to hold an annual members' meeting and an election of the members of the Board of Directors and corporate officers in accordance with the Securities and Exchange Commission (SEC) ruling.
KPC argued that the suspension of the voting rights should have ended five years after the SEC approved the incorporation of Forest Hills, or on June 30, 2000, pursuant to Section 7 of the Corporation Code. 14
The RTC denied KPC's complaint in its April 4, 2013 Decision. 15 The RTC held that Section 7 of the Corporation Code applies only to a stock corporation, and is inapplicable to a non-stock corporation such as Forest Hills. The RTC, relying on Section 89 of the Corporation Code, upheld the validity of the provisions in Forest Hills' Articles of Incorporation and By-Laws limiting the voting rights of its regular members.
KPC appealed to the Court of Appeals (CA) and secured a favorable ruling. The January 23, 2014 Decision 16 of the CA provides:
WHEREFORE, the Petition is hereby GRANTED. The assailed April 4, 2013 Decision of the Binangonan, Rizal Regional Trial Court, Branch 70, in SCC Case No. 08-004 is REVERSED and SET ASIDE and, consequently, declaring and ordering as follows:
1) The suspension of the voting rights of the stockholders and members of Forest Hills Golf & Country Club, Inc. is hereby lifted and deemed to have lapsed and expired as of June 30, 2000;
2) The particular portions of the provisions of the Articles of Incorporation and By-Laws of Forest Hills Golf & Country Club, Inc. and such other stipulations thereof which suspended the voting rights of the stockholders and members of Forest Hills Golf & Country Club, Inc., are null and void, as reflected in the following, to wit:
a) Second (2nd) paragraph of the Seventh Article of the Articles of Incorporation;
b) Tenth (10th) paragraph (1) of the Seventh Article of the Articles of Incorporation;
c) Section 2.2.14 of Article II of the By-Laws;
d) Section 6.7 of Article VI of the By-Laws; and
3) Directing respondents to hold an annual members' meeting and an election of the Members of the Board and Corporate Officers of Forest Hills Golf & Country Club, Inc.
No pronouncement as to costs.
SO ORDERED.17
The CA disagreed with the RTC that Section 7 of the Corporation Code only applies to stock corporations for there is nothing in said provision which limits its application. 18 In addition, Section 87 of the same law explicitly states that provisions governing stock corporations are applicable to non-stock corporations. 19 With respect to Section 89, the CA stated:
It did not escape Our attention the RTC's reliance upon Section 89 of the same Code in disregarding the pleas of Kings. Withal non-stock corporation are allowed to limit, broaden or deny to the extent specified in the articles of incorporation or by-laws the right to vote of any class or classes of shares, however, the SEC fairly opined on July 5, 2006 that, "(a) lifetime term of office absolutely deprives other members of the corporation of the opportunity to become officers of the corporation." 20
Thus, the CA held that the exclusive voting rights of the holders of Forest Hills' founders' shares expired on June 30, 2000, or five years after its incorporation. 21 According to the CA:
We are convinced that to allow respondents [petitioners herein] to impose upon themselves incessant right to be directors and corporate officers of respondent Forest Hills will seriously impair the rights of its other stockholders and members and consequently give rise to abuse of rights. We do not allow any intent to injure or a purposive motive to perpetrate damage. 22
Petitioners filed a motion for reconsideration, which the CA denied. 23 Hence, this petition wherein the sole issue to be resolved is whether Section 7 of the Corporation Code may be applied in the case of Forest Hills to invalidate provisions in its Articles of Incorporation and By-Laws granting its founders' shares exclusive rights to vote and be voted for in the election of directors for a period of five years after the formal turn-over of the project by the developer of the corporation.
Forest Hills argues that Section 7 of the Corporation Code does not apply to a non-stock corporation. Rather, it is Section 89 that determines the authority of the non-stock corporation to impose restrictions upon its members.
We do not agree.
As the CA correctly ruled, Section 7 is silent as to whether its application is only limited to stock corporation; hence, there is no reason for us to distinguish. In fact, Section 7 is found under the General Provisions which apply to both stock and non-stock corporations.
We thus have apparently conflicting provisions under the Corporation Code governing the voting rights of a member in a non-stock corporation. On one hand is Section 89 which authorizes a non-stock corporation to limit, broaden or deny the right of the members of any class, to wit:
Sec. 89. Right to Vote. — The right of the members of any class or classes to vote may be limited, broadened or denied to the extent specified in the articles of incorporation or the by-laws. Unless so limited, broadened or denied, each member, regardless of class, shall be entitled to one vote.
Unless otherwise provided in the articles of incorporation or the by-laws, a member may vote by proxy in accordance with the provisions of this Code.
xxx xxx xxx (Emphasis supplied.)
And, on the other hand is Section 7, which allows a corporation, whether stock or non-stock, to give certain rights and privileges on founders' shares. Section 7 of the Corporation Code states:
Sec. 7. Founders' Shares. — Founders' shares classified as such in the articles of incorporation may be given certain rights and privileges not enjoyed by the owners of other stocks, provided that where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years subject to the approval of the Securities and Exchange Commission. The five-year period shall commence from the date of the aforesaid approval by the Securities and Exchange Commission. (Emphasis supplied.)
These conflicting Sections could be interpreted in the light of the statutory construction principle that a particular provision is paramount to the general provision. 24
Section 7 refers particularly to founders' shares, while Section 89 refers to all classes of members in a non-stock corporation. The provision of Section 89 therefore should be treated as a general provision for non-stock corporations applicable only in the absence of a specific provision in the Corporation Code on a particular subject matter. In the case of founders' shares, Section 7 of the Corporation Code specifically provides for their rights, privileges and limitations.
To this extent, Forest Hills can lawfully suspend or define the voting rights of its members. But with respect to founders' shares, Forest Hills must observe the limitations imposed under Section 7. In other words, the exclusive right to vote and be voted for of the founders' shares should expire after five years from the approval of the SEC.
As the CA correctly ruled, since Forest Hills' Articles of Incorporation and By-Laws were approved by the SEC on June 29, 1995, the founders' shares exclusive rights had expired on June 30, 2000. As a necessary consequence, the suspension of the voting rights of the other members to give way to the exclusive rights of Forest Hills' founders is deemed lifted.
WHEREFORE, premises considered, the petition is DENIED. The January 23, 2014 Decision and June 5, 2014 Resolution of the Court of Appeals in CA-G.R. SP No. 129780 are hereby AFFIRMED.
SO ORDERED."
Very truly yours,
(SGD.) LIBRADA C. BUENADivision Clerk of Court
Footnotes
1.Rollo, pp. 10-35.
2.Id. at 48-63, penned by Associate Justice Franchito N. Diamante, with the concurrence of Associate Justices Celia C. Librea-Leagogo and Zenaida T. Galapate-Laguilles.
3.Id. at 65-66.
4.Id. at 49.
5.Id. at 84.
6.Id. at 87.
7.Id. at 67-80.
8. SEVENTH x x x The Founders Shares shall have all the features of a Class "B" Common Share. In addition, only holders of Founders Shares may vote at any meeting of the members and be elected to the Board of Directors of the Corporation for a period of five (5) years from and after the formal turn[-]over of the project by the developer to the Corporation. (Emphasis supplied.)
9. That the ownership of all shares of stock of this Club is subject to the following restrictive conditions:
1. Except for the eight (8) Founders Shares, voting rights of all the other classes ofshares are suspended. The Founders Shares shall have the exclusive right to vote and be voted for in the election of directors for a period of five (5) years from and after the formal turn[-]overof the project by the developer to the Corporation. Thereafter, thevoting rights of the rest of the common shares shall automatically be revived, thus putting them on an equal footing in all respects with the Founders Shares. (Emphasis supplied.)
10. 2.2.13. Founding Members shall be limited to (a) the original eight (8) individual subscribers of Forest Hills Golf and Country Club, Inc. who shall serve as its Directors during the entire period of suspension of the voting rights of all of the Regular Members, and (b) to the successor-in-interest of such Founding Members during the same period. A Founding Member shall be the registered owner of a Founder Share. (Emphasis supplied.)
11. 2.2.14. Founding Members shall have the sole and exclusive right to vote and hold office as Directors within a period of five (5) years counted from the time the project is formally turned over by the developer to Forest Hills Golf and Country Club, Inc. The five-year period may not be extended or renewed. Thus, after the lapse of the said period, all Regular Members shall have equal rights to vote, to hold office, and rights to the assets of the Club upon liquidation. (Emphasis supplied.)
12. Sec. 6.2. SPECIAL MEETINGS. — A special members meeting may be called at any time and from time to time by the President, or by the majority of the incumbent directors, or by a written request of at least twenty percent (20%) of all Regular Members entitled to vote. The special meeting shall be held at such time and in such place as may be fixed in the appropriate resolution of the Board of Directors. Only matters specified in the notice and call will be taken up at a special meeting. During the period of suspension of the voting rights of Regular Members (other than the Founding Members), a special meeting may be called only by the President or by a majority of the members of the Board of Directors.
13. Sec. 6.7. ELIGIBILITY TO VOTE. — Subject to the suspension of voting rights during the first five (5) years from the formal turn over of the project by the developer to Forest Hills Golf and Country Club, Inc., only bona fide individual Regular Members and the duly designated and accepted nominees of juridical entities, all of whom shall be in good standing, shall have the right to vote at any meeting of the members.
14. Rollo, p. 57.
15. Id. at 779-790.
16. Id. at 48-63.
17. Id. at 61-62.
18. Id. at 57.
19. Id. at 58.
20. Id.
21. Rollo, p. 60.
22. Id.
23. Rollo, pp. 65-66.
24. Laxamana v. Baltazar, G.R. No. L-5955, September 19, 1952; Remo v. Secretary of Foreign Affairs, G.R. No. 169202, March 5, 2010, 614 SCRA 281.