Cebu Country Club v. Elizagaque
REITERATIONFacts
The Antecedents: Respondent Ricardo F. Elizagaque, a Senior Vice President of San Miguel Corporation, was initially designated as a special non-proprietary member of Cebu Country Club, Inc. (CCCI). Subsequently, he applied for proprietary membership. Although he purchased a proprietary share for P3 million, his application for membership was repeatedly deferred and ultimately disapproved by the CCCI Board of Directors. This disapproval led respondent to file a complaint for damages against the CCCI Board members. Procedural History: The Regional Trial Court (RTC), Branch 71, Pasig City, ruled in favor of the respondent, awarding him substantial actual, moral, and exemplary damages, as well as attorney's fees and litigation expenses. The petitioners appealed this decision to the Court of Appeals (CA). The CA affirmed the RTC's decision with modifications, reducing some of the awarded damages but still holding the petitioners liable. The petitioners' subsequent motion for reconsideration was denied by the CA, prompting the filing of the present petition. The Petition: Petitioners seek review of the CA's decision and resolution under Rule 45 of the Rules of Civil Procedure. They argue that the CA erred in awarding damages, contending that they did not act in bad faith when disapproving the respondent's application and that the principle of damnum absque injuria should apply. The petitioners also challenge the joint and several liability imposed upon them. The Supreme Court, however, found that the petitioners abused their right by acting arbitrarily and in bad faith, violating Articles 19 and 21 of the Civil Code, and thus affirmed their liability, albeit with significant reductions in the awarded damages.
Issue(s)
Whether petitioners are liable to respondent for damages in disapproving his application for proprietary membership. Whether the liability of petitioners is joint and several. Whether the damages awarded by the Court of Appeals are excessive.
Ruling
The petition is denied. The Court of Appeals' decision is affirmed with modification, reducing the awards for moral damages, exemplary damages, attorney's fees, and litigation expenses. Petitioners are held jointly and severally liable.
Ratio Decidendi
On the liability for damages: The Court held that while CCCI's Articles of Incorporation and By-Laws grant its Board of Directors the right to approve or disapprove membership applications, this right must be exercised in accordance with Articles 19 and 21 of the Civil Code, which prohibit the abuse of rights and require actions to be done with justice, honesty, and good faith. The Court found that petitioners committed fraud and evident bad faith in disapproving respondent's application, as they failed to inform him of the requirement for a unanimous vote (amended Section 3(c) of the By-Laws) and ignored his subsequent inquiries. This arbitrary exercise of a right, resulting in damage, constitutes an abuse of rights, making petitioners liable under Article 19 in relation to Article 21 of the Civil Code. The defense of damnum absque injuria was deemed misplaced because there was an abuse of right. On the joint and several liability: The Court affirmed the joint and several liability of the directors based on Section 31 of the Corporation Code. This provision states that directors who willfully and knowingly vote for or assent to patently unlawful acts or are guilty of gross negligence or bad faith in directing the affairs of the corporation shall be liable jointly and severally for all damages resulting therefrom. The Court found that the directors' actions in disapproving the application, characterized by bad faith, fall within the purview of this section, irrespective of whether only one director cast a black ball. On the award of damages: The Court found the initial awards for moral and exemplary damages, as well as attorney's fees and litigation expenses, to be excessive. Applying the principle that moral damages are not meant to enrich the claimant but to compensate for suffering, the Court reduced moral damages from P2,000,000.00 to P50,000.00. Similarly, exemplary damages were reduced from P1,000,000.00 to P25,000.00, as they serve as a deterrent. Attorney's fees and litigation expenses were also reduced to P50,000.00 and P25,000.00, respectively, to be just and equitable.
Main Doctrine
A corporation's right to approve or disapprove membership applications, though legal, must be exercised in accordance with the norms of justice, honesty, and good faith. Arbitrary or unjust exercise of this right, resulting in damage to another, constitutes an abuse of rights and makes the corporation and its directors liable for damages.