Corporate Membership Dues: Who Pays When Nominees Change
Supreme Court rules on whether golf clubs can charge new membership fees when corporate members replace their nominees.
The Supreme Court has settled a recurring question for private clubs and their corporate members: when a corporation that owns club shares replaces its designated nominees, can the club charge new membership fees? In Forest Hills Golf and Country Club, Inc. v. Gardpro, Inc. (G.R. No. 164686, October 22, 2014), the Court ruled that the club could only charge a transfer fee, not fresh membership fees, because the corporation—not its nominees—is the real member.
The Facts of the Case
Forest Hills Golf and Country Club is a non-profit stock corporation that sells class "C" common shares to corporations. These shares entitle the corporate owner to designate two nominees for club membership. In 1996, Gardpro, Inc. bought class "C" shares. When the club began accepting membership applications in 1997, Gardpro designated Fernando Martin and Rolando Reyes as its nominees. Both paid membership fees of P50,000 each and were admitted as members.
Later, Gardpro decided to change its nominees. The club demanded new membership fees of P75,000 per replacement nominee. Gardpro refused to pay, arguing that it had already paid membership fees for its original nominees. The dispute reached the Securities and Exchange Commission (SEC), which ruled in Gardpro's favor. The Court of Appeals affirmed, and the club appealed to the Supreme Court.
The Issue
The central question was whether the club's by-laws authorized it to collect new membership fees every time a corporate member replaced its designated nominees.
The Ruling
The Supreme Court affirmed the lower courts' decisions, holding that the club could not charge new membership fees for replacement nominees. The Court examined the club's by-laws and found no provision authorizing such fees. Instead, the by-laws provided for a "transfer fee" for every change in a corporate member's designated nominee.
The Court emphasized that the corporation is the real club member. The nominees are merely representatives who enjoy playing rights because only natural persons can physically use the club's facilities. When a corporation changes its nominees, the playing rights are simply transferred to the new nominees—the corporation's membership itself does not change.
Key Principles Established
The plain meaning rule applies to by-laws. The Court applied Article 1370 of the Civil Code, which states that when contract terms are clear, their literal meaning controls. The by-laws clearly distinguished between membership fees (paid once upon admission) and transfer fees (paid upon changing nominees).
By-laws are binding contracts. The Court reiterated that a corporation's by-laws are private statutes that bind the corporation and its members. They must be strictly complied with and applied to the letter.
Courts may interpret by-laws. The club argued that its board had exclusive authority to interpret its own by-laws. The Court rejected this, noting that interpreting laws and contracts is a judicial function. The board's authority could not deprive courts of their power to resolve disputes.
No unjust enrichment. The Court noted that allowing the club to collect membership fees repeatedly would unjustly deprive the corporate member of its property rights while enriching the club without basis.
Practical Takeaways
- For corporate members of clubs: Understand that the corporation—not the individual nominee—is typically the real member. When changing nominees, expect to pay only transfer fees, not new membership fees, unless the by-laws clearly state otherwise.
- For clubs and similar organizations: Review your by-laws carefully. If you intend to charge fees for nominee replacements, the authority must be clearly stated. Ambiguous provisions will be construed against the club.
- For contract drafting: The case underscores the importance of precise language in by-laws and articles of incorporation. Courts will apply the plain meaning of clear provisions and will not read into them powers that are not expressly granted.
- For dispute resolution: The SEC has jurisdiction over intra-corporate disputes involving membership and by-law interpretation. Courts will review board decisions on by-law construction to ensure they comply with the corporation's governing documents.
This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.
This article is general information and not legal advice. For your situation, ask ASG Legal AI or book a consultation.