Forest Hills Golf And Country Club, Inc.

v.
Gardpro, Inc.
G.R. No. 164686
October 22, 2014

Facts:

Forest Hills Golf and Country Club (Forest Hills) offered its shares of stocks for sale, with
the condition that buyers could nominate two persons for memberships in the club, depending
on the type of share bought. It was made clear that before members were admitted, they must
meet the qualifications required by the corporation. Gardpro, Inc. bought class “C” shares of
stock which entitle the registered owner to designate nominees for membership in the Club.
Gardpro designated Martin and Reyes to be its corporate nominees; hence, the two applied for
membership in the club and was charged with Php 50,000.00 each. Later, Gardpro decided to
change its designated nominees, to this Forest Hills charged Gardpro with new membership
fees of Php 75,000.00 per nominee, when Gardpro refused to pay, the replacement did not
take place. As a result of the refusal, Gadpro filed a case with SEC, which compelled Forest Hills
to accept the substitution. SEC en banc and CA affirmed the SEC decision ruling that the by-laws
of Forest Hills does not provide that payment of P75,000 is a requirement for admission to
membership. Hence, this petition.

Issue: Whether or not Forest Hills was authorized to charged transfer fees in its by-laws.

Ruling: Yes, but not new membership fees if a stockholder opts to replace its nominees.

The articles of incorporation and the by-laws of a corporation define and regulate the
relations between the corporation and the stockholders and constitute the fundamental
documents governing the conduct of a corporation’s affairs; they establish norms of procedure
for exercising rights, and reflect the purposes and intentions of the incorporators. The by-laws
are the self-imposed rules resulting from the agreement between a corporation and its
members to conduct the corporate business in a particular way. In that sense, by-laws are the
private “statutes” by which a corporation is regulated, and would function; a binding contract
as between the corporation and its members, and as between the members themselves. In this
case, the relevant provisions of the articles of incorporation and by-laws of Forest Hills, which
governed the relations of the parties as far as the issues between then were concerned,
recognized the right of the corporate member to replace the nominees, subject to the payment
of the transfer fee in such amount as the Board determined for every change and for the
reasons provided therein.