When a Corporate Club Member Changes Nominees: Who Pays the Membership Fee?

The Supreme Court, in Forest Hills Golf and Country Club, Inc. v. Gardpro, Inc. (G.R. No. 164686, October 22, 2014), settled a common dispute in exclusive clubs: when a corporate member replaces its designated nominees, can the club charge new membership fees? The Court said no—only a transfer fee applies.

The Facts

Forest Hills Golf and Country Club, Inc. is a non-profit stock corporation that sells class "C" common shares. These shares entitle the corporate owner to designate two nominees for club membership. In 1996, Gardpro, Inc. bought class "C" shares and later designated two nominees. Both paid membership fees, despite assurances that no fees would be collected.

When Gardpro later tried to replace its nominees, Forest Hills demanded new membership fees for each replacement. Gardpro refused and filed a complaint with the Securities and Exchange Commission (SEC).

The Issue

The central question was whether Forest Hills could collect new membership fees every time a corporate shareholder replaced its designated nominees, or whether the by-laws only authorized a transfer fee for such changes.

The Ruling

The Supreme Court affirmed the Court of Appeals and the SEC, ruling that Forest Hills could not charge new membership fees for replacement nominees. The Court held that the by-laws authorized only a transfer fee for every change in a corporate member's designated nominee—not a new membership fee.

Key principles from the ruling:

The corporation, not the nominee, is the real member. Under the by-laws, the corporate shareholder owns the class "C" share and is the actual club member. The nominees are merely representatives who enjoy playing rights. Since Gardpro had already paid membership fees for its original nominees, charging again for replacements would amount to double payment.

The by-laws govern. The Court emphasized that a corporation's articles of incorporation and by-laws are "private statutes" that bind the corporation and its members. These documents must be strictly complied with and applied to the letter. Where the by-laws were clear, the Court applied the plain meaning rule on contract interpretation under the Civil Code.

Membership fees vs. transfer fees distinguished. The by-laws contained two different provisions: one for membership fees and another for transfer fees on nominee changes. The Court held that replacing nominees triggers only the transfer fee, not a new membership fee.

Courts may interpret by-laws. The Court rejected Forest Hills' argument that the CA encroached on the club's prerogative to interpret its own rules. Interpreting laws and contracts is a judicial function, and the courts have authority to construe by-laws that affect the rights and obligations of parties.

Practical Takeaways

• Corporate members should review their club's by-laws carefully before purchasing shares, particularly provisions on membership fees, nominee designations, and transfer fees.
• By-laws are binding contracts between the corporation and its members. Courts will enforce their literal terms when clear and unambiguous.
• Distinguish between one-time membership fees and recurring transfer fees. A club cannot impose new membership fees for nominee replacements if its by-laws only provide for transfer fees.
• Corporations buying club shares for executive perks should document all representations made by club agents, as verbal assurances may not override written by-laws.
• Courts will not defer to a club's self-serving interpretation of its own rules when those rules affect members' property rights.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.