G.R. No. 160273 ; January 18, 2008
CEBU COUNTRY CLUB, INC., ET AL., petitioners, vs. RICARDO F. ELIZAGAQUE, respondent.

FACTS

Cebu Country Club, Inc. (CCCI), a non-stock private membership club, approved Ricardo Elizagaque as a special non-proprietary member in 1987 upon designation by San Miguel Corporation. In 1996, Elizagaque applied for proprietary membership, secured the required indorsements, and purchased a proprietary share, leading CCCI to issue him Proprietary Ownership Certificate No. 1446. However, the CCCI Board of Directors subsequently disapproved his application in a July 30, 1997 meeting. Despite Elizagaque’s repeated letters for reconsideration and inquiry, the Board maintained its disapproval without providing any explanation.
Elizagaque filed a complaint for damages against CCCI and its directors. The Regional Trial Court ruled in his favor, awarding substantial actual, moral, exemplary damages, attorney’s fees, and litigation expenses. The Court of Appeals affirmed the liability but modified the amounts, reducing the moral damages to P2,000,000 and attorney’s fees to P500,000, among other adjustments.

ISSUE

Whether petitioners are liable for damages for disapproving respondent’s application for proprietary membership, and if so, whether their liability is joint and several.

RULING

Yes, petitioners are jointly and severally liable for damages. The Supreme Court affirmed the findings of bad faith. The legal logic is anchored on the violation of CCCI’s own governing rules and the principle of abuse of right under Article 19 of the Civil Code. The Club’s By-Laws stipulated that a candidate, upon inclusion in the “Eligible-for-Membership List” and acquisition of a valid Proprietary Ownership Certificate, “shall become a Proprietary Member.” Elizagaque complied with all requirements; the issuance of the certificate created a legitimate expectation of membership. The Board’s unexplained, arbitrary disapproval, followed by a refusal to justify its action despite repeated inquiries, constituted a clear abuse of discretion and bad faith. This arbitrary exercise of a right caused undue injury, warranting damages.
Regarding the nature of liability, the Court applied Section 31 of the Corporation Code, which holds directors jointly and severally liable for damages resulting from bad faith in directing corporate affairs. The collective board action, through voting, resulted in the unlawful act, justifying solidary liability. However, the Supreme Court found the awarded amounts excessive and further reduced them to be more commensurate with the injury: moral damages to P50,000, exemplary damages to P25,000, attorney’s fees to P50,000, and litigation expenses to P25,000. The petition was denied with these modifications.