Case Citation: Forest Hills and Country Club, Inc. v. Kings Properties Corp., G.R. No.

212833

Date: 07 August 2019

Petitioners: Forest Hills

Respondents: KPC and Fil-Estate

Syllabus Topic: Shares of Stock/Membership Shares

Doctrine: Since Section 7 makes no distinction (and is found under General Provisions), then it must
mean that founders’ shares may be applied to both stock and nonstock corporations. Although
Sec. 89 [Section 88 of the Revised Corporation Code] allows in a nonstock corporation to
limit, broaden or deny the right of members of any class, the specific provision of Section 7 to
founders’ share must prevail, and that the nonstock corporation can lawfully suspend or define
the voting rights of its members, but with respect to founders’ share, the exclusive right to vote
and be voted for of the founders’ share should expire after five years from the approval of the
SEC.

Quick summary: • KPC and Fil-Estate entered into a joint project which led to the creation of petitioner
Forest Hills Golf and Development Corporation, a non-profit corporation. Forest Hills
Antecedent Facts: was incorporated on June 29, 1995 with the primary objective to construct and maintain
sports and recreational facilities.
• Forest Hills’ AOI and By-Laws provide that only holders of founders’ shares may vote
at any meeting of the members and be elected to Board of Directors for a period of five
years “from and after the formal turn-over of the project” to Forest Hills.
• KPC filed a complaint against Forest Hills and its Board of Directors because the project
remained unfinished and the Board of Directors continued to suspend the voting rights
of Forest Hills’ stockholders.
• 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.
• KPC pleaded the RTC to declare that the suspension of the voting rights of the
stockholders/members of Forest Hills already lapsed on June 30, 2000.

Lower court/s Ruling: Denied KPC’s complaint. Held that Sec. 7 of the CC applies only to a stock corporation and is
inapplicable to a non-stock corporation such as Forest Hills. The RTC relied on Sec. 89 and
upheld the validity of the provisions in Forest Hills’ AOI and By-Laws limiting the voting rights of
its regular members.

Appellate court CA reversed RTC’s decision. Sec. 7 of the CC applies to both stock or non-stock corporation.
Ruling: Sec. 87 explicitly states that provisions governing stock are also applicable to non-stock
corporation. CA held that the exclusive voting rights of the holders of Forest Hills’ founders’
shares expired on June 30, 2000 or 5 years after its incorporation.

Petitioner’s Forest Hills argues that Sec. 7 of the CC does not apply to a non-stock corporation. Rather, it
Contention: is Sec. 89 that determines the authority of the non-stock corporation to impose restriction upon
its members.

Respondent’s
Contention:

Issue: Whether Sec. 7 of the CC is limited only to stock corporation

SC Ruling: CA affirmed. Sec. 7 is silent whether its application is only limited to stock corporation; hence,
there is no reason for us to distinguish. Since Sec. 7 is found under the General Provisions, it
is applicable to both stock and non-stock corporation.

CORPORATION LAW
PLM JD 3-3 (2021-2022)
Please do not circulate.
 SEC. 89
Sec. 89 refers to all classes of members in a
non-stock corporation. Therefore, the
provision of Sec. 89 should be treated as a
general provision for non-stock corporations
in the absence of a specific provision in the
CC.
Sec. 89 authorizes a non-stock corporation to
limit, broaden or deny the right of the
members of any class.
SEC. 7
Sec. 7 refers particularly to founders’ shares.
In the case of founders’ shares, Sec. 7 of the
CC specifically provides for their rights,
privileges and limitations.
Sec. 7 allows a corporation, whether stock or
non-stock, to give certain rights and
privileges on founders’ shares.

These conflicting sections could be interpreted in light of the statutory construction principle that
a particular provision is paramount to the general provision in the CC on a particular subject
matter.

In this respect, 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 Sec.
7. As such, the exclusive right to vote and be voted for of the founders’ shares should expire
after five years from the approval of SEC. As the AOI and By-Laws were approved by SEC on
June 29, 1995, the founders’ shares exclusive rights had expired on June 30, 2000. Because
of this, the suspension of the voting rights of the other members to give way to the exclusive
rights of Forest Hill’s founders is deemed lifted.

Others/Notes:

CORPORATION LAW
PLM JD 3-3 (2021-2022)
Please do not circulate.