Ching v. Quezon City Sports Club, Inc.

G.R. No. 200150, 7 November 2016

FACTS:

Respondent Club is a duly registered domestic corporation providing recreational activities, sports facilities, and exclusive privileges and services to its members.

Petitioner Catherine became a member and regular patron of respondent Club in 1989. Per policy of respondent Club, petitioner Catherine’s membership privileges were extended to immediate family members.

Respondent BOD approved a special assessment of P2,500.00 payable in 5 equal monthly payments to seek the assistance of its members to pay the monetary awards ordered by NLRC.

Petitioner Catherine believed that the imposition of the special assessment was unjust and/or illegal, however, she took no action against the same. Petitioner Catherine simply avoided paying the special assessment by settling the amounts due in her Statements of Account from September 2001 to January 2002 short of P500.00.

Respondent BOD then passed Board Resolution which suspended the privileges of the members of respondent Club who had not yet paid the special assessment.

Petitioners then instituted before the RTC a Complaint for damages against respondents. During the pendency of the case, respondent BOD issued Board Resolution in which they resolved to expel petitioner Catherine as a regular member of respondent Club due to her filing of the civil suit against respondents.

The RTC, based on the “Business Judgment Rule”, held that questions of policy and management are left to the honest decision of the officers and directors of a corporation; and the courts are without authority to substitute their judgment for that of the BOD unless said judgment had been attended with bad faith. The RTC though ruled that respondents failed to comply with the By-Laws of respondent Club when they suspended petitioner Catherine’s privileges and that respondents acted in bad faith or with malice in continuing to deprive petitioner Catherine her membership privileges even after she had already paid the special assessment. The Court of Appeals ruled in favor of respondents.

ISSUE:

Whether or not respondents are liable to pay petitioners moral and exemplary damages, attorney’s fees, and costs of suit for (a) suspending petitioner Catherine’s membership privileges without prior notice as required by the By-Laws of respondent Club.

RULING:

The Petition is partly meritorious.

The Court had previously recognized in Forest Hills Golf and Country Club, Inc. v. Gardpro, Inc.,[38] that articles of incorporation and by-laws of a country club are the fundamental documents governing the conduct of the corporate affairs of said club; they establish the norms of procedure for exercising rights, and reflected the purposes and intentions of the incorporators. The by-laws are the self-imposed rules resulting from the agreement between the country club and its members to conduct the corporate business in a particular way.

In that sense, the by-laws are the private “statutes” by which the country club is regulated, and will function. Until repealed, the by-laws are the continuing rules for the government of the country club and its officers, the proper function being to regulate the transaction of the incidental business of the country club.

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.

At cursory glance, it would seem that the suspension of petitioner Catherine’s privileges was due to the P2,500.00 special assessment charged in her Statements of Account from September 2001 to January 2002, which remained unpaid when the resolutions were passed. However, tracing back, the P2,500.00 special assessment was not an ordinary account or bill incurred by petitioners in respondent Club, as contemplated in Section 33(a) of the By-Laws.

Section 33(a) of the By-Laws refers to the regular dues and ordinary accounts or bills incurred by members as they avail of the services at respondent Club, and for which the members are charged in their monthly Statement of Account. The immediate payment or collection of the amount charged in the member’s monthly Statement of Account is essential so respondent Club can carry-on its day-to-day operations, which is why Section 33(a) allows for the automatic suspension of a nonpaying member after a specified period and notification.

The special assessment in the instant case arose from an extraordinary circumstance, i.e., the necessity of raising payment for the monetary judgment against respondent Club in an illegal dismissal case. The special assessment of P2,500.00 was imposed upon the members by respondent BOD through Board Resolution No. 7-2001 dated September 20, 2001; it only so happened that said Board Resolution was implemented by directly charging the special assessment, in P500.00 installments, in the members’ Statements of Account for five months.

Thus, petitioner Catherine’s nonpayment of the special assessment was, ultimately, a violation of Board Resolution No. 7-2001, covered by Section 35(a) of the By-Laws. This much was acknowledged by respondent BOD itself when it mentioned in Board Resolution No. 3-2002 that “[t]o enforce Board Resolution No. 7-2001,” it was suspending the members who did not pay the special assessment.

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.

Respondents merely relied on the general notice printed in petitioner Catherine’s Statements of Account from September 2001 to April 2002 warning of automatic suspension for accounts of over P20,000.00 which are past due for 60 days, and accounts regardless of amount which are 75 days in arrears. While said general notice in the Statements of Account might have been sufficient for purposes of Section 33(a) of the By-Laws, it fell short of the stricter requirement under Section 35(a) of the same By-Laws. Petitioner Catherine’s right to due process was clearly violated.

Nevertheless, it is not lost upon this Court that petitioner Catherine herself admitted violating Board Resolution No. 7-2001 by not paying the P2,500.00 special assessment. Petitioner Catherine cannot deny knowledge of the special assessment because the first installment of P500.00 was already charged in her Statement of Account for September 2001 and she willfully did not pay said amount.

Despite being aware of the special assessment, petitioner Catherine simply chose not to pay the same, without taking any other step to let respondents know of her opposition to said special assessment, until she complained in her letter dated May 24, 2003 about the suspension of her membership privileges. Again, the Court is not called upon to determine the propriety of the imposition of the special assessment upon the members of the respondent Club.

Whatever reasons petitioner Catherine might have against the special assessment would not change the fact of her nonpayment of the same in violation of Board Resolution No. 7-2001. Consequently, there was ground for respondents to suspend petitioner Catherine’s membership privileges.

*Case Digest by Legine S. Ramayla, JD-IV, Andres Bonifacio College, SY: 2019-2020

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