Mariano v. Panorama Enterprises, Inc.

[PED * CASE NO. 91-0864. July 21, 1992.] VICTOR D. MARIANO , complainant , vs . PANORAMA ENTERPRISES, INC., PASIG TOURIST DEV. CORP., MALATE TOURIST DEV. CORP., GALACTIC SPACE DEV. CORP., and BARRIENTOS & CO., INC. KARL C. VELHAGEN and ARCHIE R. KING , respondents . R E S O L U T I O N Complainant VICTOR D. MARIANO, in his capacity as the Managing Director of VICTRONICS COMPUTERS, INC. ("VCI"), sought action of this Commission by charging the subject corporations and the two (2) named respondents of devices amounting to fraud, misrepresentation detrimental to the public, and serious misrepresentation as to what their corporations can do or are doing to the great prejudice of the public (cf. Sec. 5 (2) * and Sec. 6 (1) * , item 2, P.D. No. 902-A, as amended) and the individual respondents who have collaborated and conspired with the subject corporation for the same offenses. LLjur Complainant alleged that the company that he managed, VCI, recently discovered this when, after selling and delivering computers to the respondents Karl Velhagen and Archie King, they welshed on their contract, as follows: A) In April, 1991, respondents Velhagen and King requested through their purchasing supervisor, VCI to submit a quotation for office computers net-working requirements for branches of "Victoria Court" (which is popular in the motel business). VCI submitted one; B) Satisfied with it, Velhagen and King placed an order for computer systems, as reflected in Purchase Orders 7195, 7196 and 7197 which they both signed; dctai C) Before placing such orders, Velhagen and King never held out to VCI that they were buying the computers in the name of any one, or some, or all of the subject corporations; D) In fact, in the purchase orders they signed, Velhagen and King deliberately held out that "GMT CONSOLIDATED COMPANY" ordered the computer systems from VCI; E) Although Velhagen and King agreed in the purchase orders to pay 50% down and the remaining 50% cash on complete delivery, they only paid one-half or P383,500 and withheld the balance of P383,500 despite complete delivery; F) When VCI sent Velhagen and King a demand letter, respondents' lawyers represented in their letter reply of July 23, 1991 that their client with whom VCI transacted was, to VCI's surprise, "VICTORIA GROUP OF COMPANIES", no longer GMT Consolidated Company; G) Because of Velhagen and King's refusal to pay, VCI filed with the Makati Regional Trial Court an action for the sum of money and damages against Karl C. Velhagen and Archie R. King whom VCI impleaded as operating business under the names Victoria Court, GMT Consolidated Company and Victoria Group of Companies : H) Prior to that action's institution, VCI learned on inquiry and the SEC in fact certified, that GMT Consolidated Company and Victoria Group of Companies were not registered corporations. Hence, the suit against Velhagen and King who signed the purchase orders. I) Yet, in the several years in the computer business, VCI never actually dealt with the subject corporations; J) Velhagen and King did business with VCI. In transacting with VCI, however, Velhagen and King never once represented to VCI that they were acting on behalf of one, some, or all of the respondent companies. None of the purchase orders, vouchers and business correspondence that the petitioner exchanged with VCI made VCI aware of the existence of these companies; K) Truly, respondents fraudulently misled and deceived VCI into believing that GMT Consolidated Company and Victoria Group of Companies were legitimate corporate entities when they were not. The surprise of Panorama Enterprises, et al., confirms a fraudulent design and serious misrepresentation as to what those corporations can do or are doing; L) This greatly prejudices the public, including creditors like VCI, who are left unpaid, confused and deceived as to the legal personalities of the entities Velhagen and King now hold out as the companies they represent evidently to shield themselves from suits and liabilities for outstanding obligations; M) By the same token, this also greatly prejudices other regulating government agencies like the Bureau of Internal Revenue (BIR), the Bureau of Domestic Trade and the Board of Investments since respondent corporations can, in the use of such unregistered names as "Victoria Court", GMT Consolidated Company" and "Victoria Group of Companies", confuse and elude responsibility from government taxes and assessments and compliance with licensing regulations. The parties have filed their respective pleadings and counter-pleadings, including their respective Memoranda supporting their stand. Then came the following refutations from the respondents: The "Victoria Group of Companies" is a management organization of corporations engaged in the business of drive-in hotel operations. The Victoria Group was organized in 1986 and includes the six (6) respondent corporations. Although much of the day to day operations is handled by a common management team, known as the "GROUP MANAGEMENT TEAM" OR "GMT", each of the member corporation retains its own legal and corporate identities, including its own distinct set of stockholders and members of their respective Board of Directors, Members of the Victoria Group of Companies which carry the "Victoria Court" name and logo are duly registered with the Bureau of Domestic Trade. Sometime in May, 1991, the Victoria Group purchased from complainant six (6) sets of computer equipments for use in their operations. Respondents have dealt with complainant in the past, in fact in five (5) previous transactions, and was therefore under the impression that complainant knew of the set-up, or the fact that the Victoria Group of Companies was actually a group of six (6) corporations. A purchase order form (Annexes "A" to "C" of the Affidavit Complaint) was signed for the purchase of the computer equipment. On the heading of the purchase order form, in the blank space above the word "company", the words "GMT Consolidated" was typed to indicate the auditing and accounting that all six (6) corporations will share in their purchase. This is the standard procedure or internal established procedure of the group. On the basis of the purchase agreement, a 50% downpayment was made to the complainant. The 50% downpayment was made in the form of six (6) checks, each check belonging to each of the six (6) corporations in this transaction. The computers were eventually delivered. But in the process of paying the 50% balance of the purchase price, auditing became suspicious. Investigation will show that the computers supplied by complainant was not only overpriced but was also obsolete. It was also discovered that a certain Mr. Teodorico Kabigting, the MIS Manager who recommended the purchase of the computer of complainant, received a substantial kickback from the overpriced computers sold to respondents. As a result of the investigation, Mr. Kabigting was terminated from his employment in the company. The 50% payment of the balance was also held. Letters of demand were written to complainant demanding for the return of the 50% downpayment. In exchange, respondents offered to return the computer equipment bought from complainant. As synthesized from the foregoing, for consideration is the issue of missing line Whether or not respondents are guilty of fraud and misrepresentation as basis for suspension/revocation of the certificate of registration. It is apparent that complainant is invoking the provisions of Section 6(1) * of Presidential Decree No. 902-A, as amended, which is the authority of this Commission to suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporation, on grounds of fraud and misrepresentation. We have carefully weighed the various pleadings and evidences submitted by the parties, specifically the items being raised by the complainant in alleging misrepresentation and fraud committed by the respondents. In other words, not any violation if proved will warrant a suspension of franchise of a corporation, or the ultimate sanction of revocation or cancellation of the certificate of registration. No corporate enterprise of any moment can be conducted perpetually without some trivial misdemeanor against corporate law being committed by someone or other of its numerous employees, where the conduct of such corporation does not appear to have been characterized by obduracy or pertinacity in contempt of law. Complainant alleged that in all its contracts, whether involving purchase or sale of goods or services, respondents must represent its official name. It must furnish the other contracting party its exact legal identity so that if the other party resorts to litigation to enforce some right under the contract, the plaintiff can sue the corporation by its registered corporate name. Hence, respondents fraudulently misled and deceived complainant into believing that GMT Consolidated Company was the corporation it was selling computer systems to. At several times, respondents continued to befuddle complainant by calling themselves Victoria Group of Companies, knowing that these were not their legitimate corporate identities. Complainant then asked the question of what would prevent respondent corporations from using two (2) sets of books and ledgers, two sets of receipts, and two sets of names in contracts one referring to their SEC registered names and the other, to BDT registered names as "Victoria Court", "GMT Consolidated Company" and "Victoria Group of Companies". Because they reflected GMT Company and others as the company ordering the purchases, respondents thus avoided the possibility of being sued under their SEC registered names. dctai Respondents, on the other hand, argued that the use of "GMT Consolidated Company", "Victoria", "Victoria Group of Companies" is an internal auditing procedure, as "GMT" stands for "Group Management Team" and such words "GMT" in the purchase order forms indicates that the cost of the purchase will be shared by all six (6) corporations. Complainants cannot now claim that they were deceived or unaware of the true corporate identity of the people they were dealing with when they sold the computers; for one, this is not the first transaction between both parties, as it is in fact the sixth; that the very act of respondent corporations of registering the Victoria Court name and logo is already an indication of the intention of the respondents. Sec 6 of P.D. No. 902-A as amended, here being invoked, refers to dissolution or suspension of franchise of a corporation. Accordingly, the methods of effecting suspension/revocation of franchise as prescribed by statutes are exclusive, and a corporation cannot be dissolved except in the manner prescribed by law. Failure to follow the prescribed statutory method renders ineffectual any attempt to dissolve a corporation. Thus, in this case, the extreme penalty of forfeiture of its franchise or suspension of franchise will not be visited upon based on alleged impropriety in the use of such unregistered names as "GMT Consolidated Company", "Victoria", or "Victoria Group of Companies". The violations alleged may be merely to enjoin the further commission of the wrongful act or acts, which in this case, may be the unauthorized use of unregistered names. It is the name of the corporation which identifies and distinguishes it from other corporations, firms, or entities in the same manner as the name of an individual designates the person and distinguishes him from other persons. By its name, a corporation is authorized to transact business. Such being the case, in all the contracts, whether involving purchase or sale of goods or services, respondents must represent its official name, not "GMT" or "Victoria Group of Companies", so that if the other party resorts to suit to enforce some rights under the contract, the complainant shall sue the corporation by its registered corporate name. The Commission cannot equate "GMT Company" with any of the six (6) respondent corporations, specifically so that the documents on which "GMT Consolidated Company" is typed is a purchase contract, not an internal memorandum as alleged. Likewise, we have to rule out the allegation of forum shopping in the filing of the instant complaint, for clearly the item here invoked by the complainant is the alleged violation of Sec. 6(1) * of P.D. No. 902-A, as amended, which is different from other cases between the parties in other fori. With these substantial consideration in view, we find no just alternative in not giving due course to the relief prayed for by the complainant to warrant suspension, and/or revocation of respondent's certificate of registration. However, as to the use of the words "GMT Consolidated Company", respondents should be enjoined from further using it in their dealings to forestall confusion and/or deception in its corporate dealings. Records of the Commission do not show "GMT Consolidated Company" to be registered either as a corporation, partnership or association in the same manner as "Victoria" and "Victoria Group of Companies". On the use of "Victoria" and "Victoria Group of Companies", the same should be reflected in the charter of respondent corporation either by way of amendment in their articles of incorporation to reflect inclusion of the six(6) respondent companies in Victoria Group of Companies; or by a separate incorporation, to forestall further confusion as to their dealings with the public. WHEREFORE, premises considered, the herein complaint for violation of Section 5(a) and Section 6(1) * , item no. 2, of Presidential Decree No. 902-A as amended, is hereby DISMISSED for lack of merit. However, respondents are hereby directed to refrain from further using the unregistered name "GMT Consolidated Company" in all their dealings and corporate activities, immediately upon receipt hereof, until further orders from the Commission. Likewise, insofar as the use of "Victoria", "Victoria Court" or "Victoria Group of Companies", respondents should amend their articles of incorporation to reflect such business names/styles, or corporate names, within fifteen (15) days from receipt hereof. cdll SO ORDERED. (SGD) ROMMEL G. OLIVA Attorney III Recommending approval: (SGD.) VILLAMIN P. LAM Chief, Prosecution Division Approved: (SGD.) ELNORA E. ADVIENTO Director * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .