Antonio M. Garcia vs. Ramon Garcia, et al.

[SEC-AC NO. 427. January 10, 1994.] ANTONIO M. GARCIA , plaintiff-appellant , vs . RAMON GARCIA, ET AL. , defendants-appellees . O R D E R Plaintiff in SEC Case No. 4303 entitled "Antonio M. Garcia vs. Ramon M. Garcia, Chemical Export and Import Corporation and Ferro Chemicals, Inc." appeals from the order of the hearing officer dated November 10, 1992 dismissing his complaint and the order dated May 19, 1993 denying his motion for reconsideration. Herein appellant (plaintiff below) prays, among others, that the abovementioned case be remanded below for hearing on the merits. As gleaned from the pleadings of the parties, it appears that plaintiff-appellant Antonio Garcia (Antonio) and defendant-appellee Ramon Garcia (Ramon) together with two other brothers and a sister own Chemical Industries of the Philippines (Chemphil, for short), each of them owning 20% of the corporate shares. Sometime in 1989, Security Bank & Trust Co. obtained judgment against plaintiff Antonio for a guaranty he had executed. To enforce collection, said bank levied his 20% Chemphil shares. In his desire to save his Chemphil shares, he sought financial help from his brother, defendant Ramon, who committed to lend him SEVENTY NINE MILLION TWO HUNDRED SEVEN THOUSAND THREE HUNDRED THIRTY-ONE PESOS AND 28 CENTAVOS (P79,207,331.28) against his ONE MILLION SEVEN HUNDRED SEVENTEEN THOUSAND EIGHT HUNDRED SEVENTY-EIGHT (1,717,878) shares in Chemphil, THREE HUNDRED SEVENTY-ONE THOUSAND SIX HUNDRED SEVENTY-SEVEN (371,677) shares in Vision Insurance Consultants, Inc. and one (I) Class "A" share in the Alabang Country Club, Inc. and one (I) proprietary membership in the Manila Polo Club, Inc. (collectively referred to as the "subject shares", for short). Sometime later, within the period agreed upon, Antonio then approached Ramon for the redemption of his Chemphil shares. Payment was tendered by Antonio for the full amount of the loan plus interest thereon. however Ramon rejected the tender even as said payment was being offered within the 180-day period agreed upon. Ramon's refusal led to the filing of a series of legal suits including the instant case. On August 21, 1989. Antonio filed against Ramon et al. with the Makati RTC Civil Case No. 89-4837 for specific performance to compel the defendants to allow the redemption of Antonio's shares. Defendants moved to dismiss the case on the ground that the case involves an intra-corporate dispute within the exclusive jurisdiction of the SEC. The trial court refused to dismiss the case. hence the defendants filed separate appeals with Court of Appeals docketed as C.A.-G.R. No. SP No. 19905 (Ferro Chemicals, Inc. vs. Hon. Teofilo Guadiz. Jr.) and C.A. G.R. No. SP No. 19904 (CEIC vs. Teofilo (Guadiz, Jr.). In both appeals, the Court of Appeals upheld defendants' contention that the SEC has exclusive jurisdiction over the case. Said decision has long become final, hence, the dismissal of the RTC civil case. By virtue of the final decision of the CA. plaintiff had no choice but seek remedy at the SEC. Thus, on August 26, 1992, Antonio filed SEC Case No. 4303 for specific performance and/or rescission with damages against defendants Ramon Garcia and his companies Chemical Export and Import Corporation (CEIC, for short) and Ferro Chemicals, Inc. (Ferro, for short). Records therein show that: Sometime in 1989, Antonio approached Ramon for financial assistance to enable him to settle his obligations with certain creditor banks. As collateral, Antonio offered his Chemphil shares, among others. Ramon agreed to extend a loan to Antonio thru Ferro and for the purpose of documenting the loan and the collateral arrangement Ramon proposed that two unnotarized documents be executed one purporting to convey the subject shares to Ferro by way of sale to be dated as of July 15, 1988 and another document granting to Antonio the right to repurchase the same. Accordingly, Antonio executed the "Deed of Absolute Sale and Purchase of Shares of Stock (the "Sale Agreement") dated as of July 15, 1988 whereby Antonio "ostensibly" sold his subject shares to Ferro at the price of P79,207,331.28 the amount of loan that Ramon agreed to grant to Antonio and the "Deed of Right of Repurchase" (the "Repurchase Agreement") covering the same subject shares dated as of March 3, 1989. Under the Repurchase Agreement, Antonio was given up to August 30, 1989 or within 180 days from March 3, 1989 to repurchase the shares by paying back the loaned amount plus all charges incurred by Ferro such as interest, bank charges, brokers's commission, transfer taxes and documentary stamp tax minus the cash dividends that Ferro would collect on the subject shares. Of the total committed loan, defendant released only P35,462,869.62 to plaintiff. Within the repurchase period or on June 8, 1989, cash dividends in the amount of P5,153,032.50 were declared on the Chemphil shares and in accordance with the repurchase agreement, were paid to Ferro. Likewise, on July 3, 1989, pursuant to a billing dated June 30, 1989 made by Ferro, Antonio paid the sum of P578,049.29 to Ferro representing interest on the loan as of July 3, 1989 and documentary stamp taxes. On July 12, 1989 (before the August 30, 1989 repurchase deadline), Antonio notified Ramon that he would exercise his right of repurchase. This was reiterated on July 31, 1989 whereby Antonio tendered full payment of the repurchase price inclusive of interest up to July 31, 1989. Ramon and Ferro rejected the tender on grounds extraneous to the repurchase agreement at the same time pointing out that the payment being tendered was short by one day interest plus broker's commission. Antonio offered to pay the one-day interest but not the brokers's commission which was not due because the transfer of the shares to Ferro was not effected through the stock exchange. Notwithstanding Antonio's offer, Ramon/Ferro refused to honor Antonio's exercise of his repurchase right. Again on August 2, 1989, Antonio tendered payment of the repurchase price to no avail. Apart from violating Antonio's repurchase right, Ramon breached the agreement between them that the shares would be kept in Ferro's name when Ramon caused Ferro to transfer the shares to CEIC, another company of Ramon. LLphil On October 1, 1992, defendants Ramon and Ferro filed a Motion for Summary Judgment and/or Motion to Dismiss while defendant CEIC filed a Motion to Dismiss. Antonio opposed said motions. Thereafter, the hearing officer issued his order of November 10, 1992 dismissing the complaint. Thus, Antonio filed a Motion for Reconsideration of the dismissal order on November 23, 1992 but said motion was denied in an order dated May 19, 1993 wherein the hearing officer stated his reasons. to wit: "The sale agreement and the repurchase agreement were separate transactions from each other. Thus, what defendant Ferro granted to plaintiff in the repurchase agreement cannot be a right of repurchase but some other right like the option to buy. . . . It is evident in the repurchase agreement that any option to buy the subject shares granted therein is not supported by a consideration distinct from the price for the subject shares in the sale agreement. . . . If plaintiff believes that Ferro did not honor his option to buy the subject shares, he can very well sue Ferro for breach of contract of option before the civil court. In any event, any right of repurchase or option to buy granted to plaintiff had lapsed because of his failure to fulfill the condition for its exercise to wit, payment in cash or certified check of the full consideration of the sale less repayments or credits. It is a matter of record that what plaintiff tendered to Ferro was a personal check. . . . There can be no serious dispute that plaintiff failed to comply with the condition for the exercise of his right to repurchase or option to buy the subject shares. The Repurchase Agreement is fictitious based on plaintiffs allegation that it was executed, together with the sale agreement for the purpose of documenting the loan and collateral arrangement between plaintiff and defendant Ramon. Thus, the repurchase agreement is a simulated contract. (Arts. 1345 and 1346 of the Civil Code) Plaintiffs claim that the sale agreement would, by the same token be deemed to be fictitious will not make valid the repurchase agreement. Defendants Ramon and Ferro correctly stated that the validity of the sale agreement is not an issue in this case and that the sale agreement is valid as confirmed by plaintiff in his complaint in the RTC case. It cannot be disputed that CEIC is a stranger to the repurchase agreement as well as the sale agreement. Hence, plaintiff has no cause of action to enforce the Repurchase Agreement against CEIC. Plaintiff disagrees on the ground that CEIC is a controlled corporation of defendant Ferro and that CEIC only stepped into the shoes of defendant Ferro with respect to the subject shares. But these are not enough bases for a cause of action of plaintiff against CEIC to enforce the repurchase agreement since a) the separate corporate personalities of Ferro and CEIC must be respected even if controlled by the other and b) that CEIC as a transferee of the subject shares from Ferro does not alone make CEIC by the repurchase agreement. CEIC is not an assignee of Ferro of the rights and obligations arising from the repurchase agreement. It is worthy to note that in par. 15 of the repurchase agreement, plaintiff expressly consented to the transfer of the Chemphil and Vision shares to Chemphil Management and Export Company Inc. (CMEC) by way of stock swap and that in the event of such transfer, the corresponding shares in said corporation issued to Ferro pursuant to the stock swap stand in lieu of the Chemphil and Vision shares and be subject to the repurchase agreement. Plaintiff therefore is estopped from questioning the transfer by Ferro of the Chemphil shares to CEIC in exchange for CEIC shares. Plaintiff' is now barred from demanding to repurchase the Chemphil shares; what he can now demand is the sale to him of the CEIC shares." Hence, on June 7, 1993, Antonio filed this instant appeal raising the following issues, to wit: 1) Whether or not the repurchase agreement is separate and independent from the sale agreement? 2) Whether or not the plaintiffs right to repurchase had already lapsed. 3) Whether or not the repurchase agreement is fictitious? 4) Whether or not plaintiff violated the rule against multiplicity of suits? 5) Whether or not the sale agreement can be rescinded? 6) Whether or not CEIC is a proper party in this case? Firstly, appellant argues that the grounds cited for dismissal are not clear and indubitable and that there are genuine issues of facts which must be tried on the merits therefore, summary procedure is not proper. Appellant's argument appears meritorious. Appellees' position, adopted by the hearing officer, is that the sale agreement and the repurchase agreement are separate and independent of each other and the right to repurchase provided therein is an option and said right had already lapsed. On the other hand, appellant alleges that the sale agreement and the repurchase agreement are inseparable and were executed simultaneously to evidence the loan and collateral arrangement between Antonio and Ramon. Considering the conflicting allegations between appellant and appellees it is clear that there is a basic clash of factual allegations which can only be fairly resolved by a full blown trial. LibLex It is an established jurisprudence that summary judgment would be proper only if there is no genuine dispute as to the basic facts or that the facts are clear and undisputed. The grounds alleged in appellees' motion to dismiss are in the nature of an affirmative defense and should therefore be litigated. A summary judgment should not be granted unless the facts are clear and undisputed and if there is a controversy upon any question of fact, there should be trial of the action upon its merits. (citing Kissick Construction Co. vs. First National Bank of Wahoo, Nebraska, 6 Fed. Rules Service, 56 c. 41, Dec. 31, 1940, Moran's Comments on the Rules of Court, Vol. I, p. 600, 2nd Ed.) "Authority of court to enter summary judgment (Rule 36, Sec. 3) does not vest in the court jurisdiction summarily to try the issues on depositions and affidavits, but gives the court limited authority to enter summary judgment only if it clearly appears that there is no genuine issue of material fact." (Moran, supra, p. 603) Secondly, appellant avers that granting that the factual issues involving the merits of the case may be properly resolved even before trial, these issues, namely: (1) Whether the repurchase agreement is separate and independent from the sale agreement, and (2) Whether appellant's right to repurchase had already lapsed, should be resolved in appellant's favor. Appellant's second averment is likewise meritorious. (1) The sale agreement and the repurchase agreement are evidence of a loan and collateral transaction, a single transaction. The repurchase right is an integral part of the loan and collateral transaction therefore there is no need to search for any separate consideration for the right to repurchase or redeem the subject shares. To repay the loan and redeem the collateral is an inherent element in a loan secured by a collateral as evidenced by the declarations of both the appellees and the appellant in the Whereas clauses of the repurchase agreement to wit: "WHEREAS, on July 13, 1989, Seller and Buyer entered into an agreement to Sell and Purchase Stock, copy of which is hereto attached as Annex "A"; WHEREAS, part of the consideration of said agreement is that the Buyer shall grant the Seller the right to repurchase the properties subject matter of the said agreement; WHEREAS, herein parties desire to sit down in writing the terms and conditions of the right to repurchase granted by the buyer to the seller. The prestations of the parties in the Sale Agreement and the Repurchase Agreement are reciprocal obligations and the prestations of one party stand as the consideration of the prestation of the other. (Article 1350 NCC) In any case, even if the cause or consideration in not stated or not apparent in the contract, it is presumed that it exists and is lawful. (Art. 1354, NCC) The burden is on the appellees herein to prove that there was no consideration for the repurchase or the "option", but this they have not done. "Unless the contrary is proved. a contract is presumed to have a good and sufficient consideration." (Tolentino, Vol. IV, 1991 Ed. Commentaries and Jurisprudence on the CC of the Phil., pp. 538-539 citing Penaco vs. Ruaya, G.R. No. L-28102, December 14, 1981; Castro v. Escutin, G.R. No. L-27406, May 31, 1979) (2) Appellant maintains that his right to repurchase has not lapsed because he has substantially complied with the condition of the repurchase agreement by tendering a personal check, the certification of which was embodied in a separate document but nevertheless it is a certification that the check will be honored when presented for payment and for that matter the hearing officer should not have dismissed the complaint as the question of whether or not appellant has complied with the condition of the repurchase agreement goes into the very central issue affecting the merit of the case. It can be inferred from the letter dated August 1, 1989 of Ferro Chemicals, Inc. thru Zenaida Faller that the president refused to accept the check dated July 31, 1989 paid by Antonio in the amount of P31,764,820.04 on the ground that Antonio has not fully complied with his agreement with Ferro without stating what conditions. It is likewise evident from the sworn statement of Mercedes Manosca, executive secretary of appellant Antonio that on August 2, 1989, she and a certain Bobby Senerez proceeded to the office of Ferro to deliver the letter notifying Ramon of Antonios availment of his right to repurchase the subject shares but Zenaida Faller of Ferro refused to receive Antonio's tender: "I talked to Zenaida Faller that [ sic , Failure Ferro Chemicals, Inc. and asked her to receive the letter and the attachments and the checks. She refused to receive them. Left without any recourse, Bobby Senerez and I left the place. As we were leaving, she called me back to her office, took a look and went over the documents, and told me that she should be allowed to check with Ramon M. Garcia, the president of her company, to find out if he would allow her to receive the letter and the attachments and the checks. After talking to Mr. Ramon Garcia, Zenaida Fallar [ sic ] told us that the latter instructed her to inform us to proceed at his office in Chemphil. Bobby Senerez and went to see Ramon Garcia at his office in the 6th floor of Chemphil Bldg. I asked Mrs. Lizardo, the secretary of Ramon Garcia to be allowed to see her boss because I was to deliver documents coming from Antonio Garcia. I added that Zenaida Fallar [ sic ] had discussed the matter with him. She asked us to wait as she needed clearance from Ramon Garcia. After she talked to him, Mrs. Lizardo informed us that Ramon Garcia did not wish to see us and that he was definitely refusing to accept delivery of the letter, the attached documents and the certified checks. Thereafter, we returned to Mr. Antonio Garcia's office." (Annex "G", Affidavit of Ms. Manosca dated August 18, 1989) Thirdly, appellant contends that the repurchase agreement is not fictitious nor can it be held fictitious and at the same time hold that sale agreement is genuine. Appellant's contention is tenable. A fictitious or simulated contract means that there was no contract at all. What purports to be a contract is just a scrap of paper meant to convey that a contract was executed when in fact there was none. This is not the case here. That there was an agreement entered into by the parties granting appellant the right (or "option" as the hearing officer puts it) to repurchase, is not being denied. Indeed, there is no question that the repurchase agreement exists. What is being questioned is the compliance by appellant with the condition for the exercise of his repurchase right. The fact that the parties are debating the issue of compliance goes to show that the contract exists. If the contract were simulated or fictitious, it would be senseless to debate that issue. Fourthly, appellant argues that appellant did not violate the rule against multiplicity of suits or forum shopping. This argument appears meritorious. The term "forum shopping" denotes a deliberate action on the part of appellant in filing and refiling the same action in different fora until he finds a forum sympathetic to his cause. What happened here, however, is exactly the reverse. It was the appellees who deliberately forced appellant into refiling this case with the SEC. Appellant initially went to the civil court for redress. But appellees moved for the dismissal of said case on the ground that the SEC has exclusive jurisdiction over the case. The CA upheld appellees' contention and that decision has already become final and binding on both parties. Appellant was left with no choice but to refile his complaint with the SEC. He cannot go to court nor can appellees now say that the proper forum is the civil court. The hearing officer therefore clearly erred when he ruled in his order of May 19, 1993, that: "If plaintiff believes that Ferro did not honor his option to buy the subject shares, he can very well sue Ferro for breach of contract of option before the civil court." Regarding the filing by appellant of his answer in the interpleader suit filed with the SEC by Chemphil, suffice it to say that the suit was not instituted by appellant and that he was merely impleaded as a defendant there. It is also worthwhile to note that this case and the interpleader suit have the same forum. And since they have the same forum whatever, objection appellees have against multiple sits can be avoided by simply consolidating the two cases. It is a fact that the interpleader suit is different from this case as that suit deals only with the issue of who is entitled to receive the cash dividends from Chemphil, while this case involves the recovery of the subject shares (in Chemphil, Vision, Alabang Golf and Country Club and Manila Polo Club) themselvesnot only the cash dividends. If appellant were to rely only on the interpleader suit for redress, he would be left without remedy in enforcing his rights to the properties other than the cash dividends on the Chemphil shares. Fifthly, appellant contends that appellee CEIC is a proper party in this case, appellant having a cause of action against it. This fifth contention also appears meritorious. .While appellee CEIC is not a party to the sale agreement and repurchase agreement, CEIC is a controlled corporation of appellee Ferro, as in fact CEIC in its Motion to Dismiss admitted that its initial capitalization consisted of the subject shares. Moreover, CEIC only stepped into the shoes of appellee Ferro with respect to the subject shares. Likewise, for a full and final determination of the rights of the parties to the subject shares it is necessary to implead CEIC, the current registered shareholder of the subject shares. The complaint clearly lays down the basis for the cause of action against appellee CEIC. Paragraph 17 thereof states: SO ORDERED. "17. It was also agreed between the parties to the repurchase agreement that while plaintiffs right to repurchase subsisted, the Chemphil shares would be kept in the name of defendant Ferro as owner. In violation of this agreement, defendant Ferro transferred the Chemphil shares in favor of CEIC which is another company controlled by defendant Garcia." (Par. 5 of repurchase agreement) Sixthly, appellant argues that appellant's allegations in the complaint are sufficient to support its alternative cause of action for re- scission of the sale agreement. Contrary to the statement of the hearing officer in his order that this cause of action is "nowhere to be found in the complaint." Par. 12 of the complaint explicitly alleges that appellees Ramon/Ferro had not fully paid the appellant the full purchase price for the subject shares. Of the total purchase price of P79,297,331.28. appellee Ferro only delivered to the appellant the sum of P35,462,869.62. Even assuming that the transaction was a "sale" of the subject shares. the full consideration thereof was never paid by Ferro and therefore the sale was never consummated. This is not a case of insufficient consideration, but failure to pay the agreed consideration. The sale was never therefore consummated because the consideration for the same was not satisfied or delivered, and therefore the "seller" retained ownership of the subject matter thereof. Appellant has prayed that in the alternative, an order be issued rescinding the sale agreement and vesting title over said subject shares in favor of appellant. Again, this is a substantial issue that should at least be litigated. WHEREFORE, premises considered, this appeal is hereby granted. The hearing officer's decisions are hereby set aside and the case is hereby remanded for hearing on the merits. SO ORDERED. (SGD.) ROSARIO N. LOPEZ Chairman (SGD.) RODOLFO I. SAMARISIA (SGD.) MERLE O. MANUEL Associate Commissioner Associate Commissioner (SGD.) FE ELOISA C. GLORIA (SGD.) PERFECTO R. YASAY, JR. Associate Commissioner Associate Commissioner