Magiora Enterprises, Inc., et al. vs. Flora Potenciano Caviles, et al.

[SEC-SICD * CASE NO. 10-99-5790. June 7, 2000.] MAGIORA ENTERPRISES, INC. ET AL. , petitioners , vs . FLORA POTENCIANO CAVILES and ALLENDRY CAVILES , respondents . Corporation Code ; dissolution ; case at bar . There is no dispute that from the time of its incorporation and to date, Magiora has failed to formally organize and commence its business operations. Applying the governing law to the prevailing circumstances, the Commission is left with no alternative but to decree the dissolution of Magiora. There being no corporate affairs to wind up, the only task at hand is the determination and distribution of the remaining assets of the corporation, and the appointment of a liquidation receiver for this purpose. TCacIE D E C I S I O N Before the Commission is a petition for accounting of corporate funds and properties, corporate dissolution and appointment of a liquidation receiver filed by petitioners Magiora Enterprises Incorporated (Magiora for brevity), the Estate of Pelagio G. Potenciano, the Estate of Maxima B. Potenciano and he Estate of the late Max B. Potenciano which is represented by Max Joseph A. Potenciano, Henry John A. Potenciano, Michael A. Potenciano and Candido A. Potenciano and Dolores A. Potenciano. In the Petition, petitioners Max Joseph Potenciano, Henry John Potenciano, Michael Potenciano and Candido Potenciano allege that they instituted the instant action in behalf of their father, the late Max Potenciano to the extent of his shareholdings of 12,000 shares, as well as his intestate share in the shareholdings of the late Pelagio G. Potenciano of 4,000 shares, and the late Maxima B. Potenciano of 4,000 shares, in Magiora. Petitioner Dolores A. Potenciano alleges that she instituted the instant action in her personal capacity as incorporator, stockholder (4,000 shares) and director of Magiora, and as the surviving spouse of the late Max B. Potenciano. Petitioners further allege that the late Pelagio Potenciano, the late Maxima Potenciano, the late Max B. Potenciano, respondent Flora Caviles and petitioner Dolores Potenciano were the incorporators, stockholders and directors of Magiora when it was incorporated on March 16, 1965; that during the existence of Magiora, it acquired in its name a parcel of land identified as Cadastral Lot No. 117 situated along J. Gonzales Street, Poblacion, Bian, Laguna, more particularly embraced by Tax Declaration Nos. 00088 (now 00117), 00350 (now 00428) and 00351 (now 00429) [Exhibits, J and K], and covering an area of 1,461 square meters; that petitioners learned sometime on January 18, 1997 that respondent Flora Caviles had taken possession of Cadastral Lot No. 117 and developed/converted the same into a market place under the name and style "Bian Traders Market"; that respondent Flora Caviles had been leasing out at least 82 tables and 7 stalls located thereat, and the foremost portion thereof to Pilipinas Bank and different persons; that respondent Flora Caviles collected and continues to collect and receive rental income from such leases without prior authority and without accounting for the income due Magiora as owner of said Cadastral Lot No. 117, that respondent Flora Caviles had erected additional structures without prior authority from Magiora; that petitioner's legal counsel wrote a letter (Exhibit "'O") to respondent Flora Caviles demanding for an accounting of all incomes she derived from the subject property and to desist from making any further constructions or improvements on Cadastral Lot No. 117; that respondent Flora Caviles has not rendered the accounting demanded and has not desisted from making such additional constructions; that respondent Flora Caviles is a builder in bad faith; that Magiora has no known debts or creditors, and has no other directors or officers to operate its business, manage its property and conduct its affairs; that the only known assets of Magiora are unlawfully and exclusively controlled, used and enjoyed by respondent Flora Caviles; that the appointment of a liquidation receiver is necessary because such receiver will receive the accounting and corporate records, collate and inventory corporate assets, pay corporate debts (if any) and distribute the net assets to the remaining stockholders, the estate and/or the heirs of the deceased stockholders; and that petitioners were impelled to incur expenses and exemplary damages. In the Answer, respondents-spouses allege that the corporate charter of Magiora is already deemed legally dissolved, due to its non-operation; that Magiora's acquisition of Cadastral Lot No. 117 is invalid, there being no written contract to prove such acquisition; that Cadastral 117 is unregistered land belonging to the late Pelagio Potenciano and that respondent Flora Caviles merely took over the administration of said property after Pelagio Potenciano's death; that respondent Flora Caviles advanced the money for the construction of the market; that respondent Flora Caviles has not introduced any additional improvements on said Cadastral Lot No. 117; that respondent Flora Caviles is not a builder in bad faith since she is a stockholder of record of Magiora and a bonafide heir of the late Pelagio and Maxima Potenciano; that respondent Flora Caviles advanced the money to defray expenses to preserve the same, that there is no need for the appointment of a liquidation receiver for Magiora since the latter is considered legally dissolved and all that is left is the accounting of the proceeds of the lease and the reimbursement of advances made by respondent Flora Caviles; that petitioners' main cause of action is barred by prescription and/or laches; that petitioners Max Joseph, Henry John, Michael and Candido (all surnamed Potenciano) have no cause of action against respondents since they are not stockholders of record of Magiora; that it was Pelagio Potenciano who solely administered and managed Cadastral Lot No. 117 before his death in 1991; that respondent Flora Caviles proposed to the late Max B. Potenciano the conversion of Cadastral Lot No. 117 to make it more productive but he never made any reply to such proposal; that respondent Flora Caviles thereafter acted on her own and incurred expenses in the amount of P1,500,000.00 to preserve the property; that prior to an accounting it is necessary to determine who are the actual stockholders of Magiora; and that they have set up counterclaims against the petitioners in the form of damages and litigation expenses. ACcTDS On February 9, 1998, this Commission conducted the preliminary conference wherein the parties made the following admissions: By Petitioners : 1. That Magiora never formally organized and commenced business operations after its incorporation; 2. That petitioners Max Joseph Potenciano, Henry John Potenciano, Michael Potenciano and Candido Potenciano are not stockholders of record of Magiora; By Respondents : 1. That petitioners Dolores A. Potenciano, Max Joseph A. Potenciano, Henry John A. Potenciano, Michael A. Potenciano and Candido A. Potenciano are the legitimate heirs of the late Max B. Potenciano; 2. That Magiora is the declared owner of Cadastral Lot No. 117 per Tax Declaration Nos. 00088 (now 00117), 00350 (now 00428) and 00351 (now 00429) issued by the Municipal Assessor's Office of Bian, Laguna; 3. That Pelagio, Maxima and Max B. Potenciano, former incorporators, stockholders and directors of Magiora, are already dead; 4. That petitioner Dolores Potenciano and respondent Flora Caviles are the surviving incorporators, stockholders and directors of record of Magiora when the instant action was filed; 5. That respondent Flora Caviles organized the Bian Traders Market; 6. That respondents failed to account for the rental income of Cadastral Lot No. 117 despite written demand upon them to do so; Upon agreement of the parties, the instant case was limited to the following issues: 1. Whether or not the material allegation's of the petition, if proved, would warrant the corporate dissolution and liquidation of Magiora and its assets; 2. Whether or not there is a necessity to appoint a liquidation receiver; and; 3. Whether or not the parties are entitled to their respective claims and counterclaims. Thereafter, the parties proceeded to present their respective evidence-in-chief. For the petitioners, Atty. Noel Mingoa, Engr. Hermie Tuastumban and Feliza M. Carag of the Bian Branch of Pilipinas Bank testified. For the respondents, Dra. Flora Caviles, Cesar F. Revalo Jr., and Carmela Caviles-Gozon testified for the respondents. After a thorough evaluation of the evidence adduced by the parties; this Commission resolves to rule as follows: There is no dispute that from the time of its incorporation and to date, Magiora has failed to formally organize and commence its business operations. Applying the governing law to the prevailing circumstances, the Commission is left with no alternative but to decree the dissolution of Magiora. Their being no corporate affairs to wind up, the only task at hand is the determination and distribution of the remaining assets of the corporation, and the appointment of a liquidation receiver for this purpose. ScEaAD Considering the death of incorporators Pelagio Potenciano, Maxima Potenciano, and Max B. Potenciano, their respective shareholdings automatically accrued to their respective estates, who shall each receive their proportionate share in the distribution of assets of the corporation. As admitted by the parties, Magiora had Cadastral Lot No. 117, which has a total lot area of 1,461 square meters. Thus, Cadastral Lot No. 117 forms part of the assets of Magiora. There is likewise no dispute that part of the Cadastral lot, approximately 1,000 square meters, more or less, is occupied by Bian Traders Market, a single proprietorship owned by respondent Flora Caviles engaged in the leasing out of market tables and stalls to vendors; add another part thereof consisting of 253 square meters is occupied by Pilipinas Bank, by virtue of a contract of lease executed with Magiora, as represented by Pelagio Potenciano, on January 21, 1982 (Exhibit "1"). The term of the lease was from November 1, 1982 to December 31, 1999, for P2,600.00 a month with an escalation clause of 15% every three years. In view of the express admission of the parties that Magiora never organized nor did it commence the business for which it was incorporated, this Commission is convinced that the affairs of the corporation, particularly the administration for Cadastral Lot 117, were solely managed and performed by the late Pelagio Potenciano, without any objection or opposition from any of the parties herein. The records of the case are bereft of any mention that any party hereto, during the lifetime of the late Pelagio Potenciano, complained regarding the total lack or absence of any corporate act, such as the distribution of dividends. In fact, petitioners failed to adduce any evidence to show that they demanded for an accounting of the income of the corporation during the lifetime of the late Pelagio Potenciano, considering that petitioner Dolores Potenciano was the Corporate Secretary of Magiora, and as such, was supposed to have in her custody and possession all corporate books and records of Magiora. Moreover, it is clear from the documentary evidence presented by the parties, particularly the contracts of lease with Pilipinas Bank, that it was the late Pelagio Potenciano who executed the same for and on behalf of Magiora. On the same account, this Commission notes the undisputed allegations of the parties that the proceeds of the lease were deposited straightforward into the personal account of the late Pelagio Potenciano, without any kind of objection or opposition from the stockholders of Magiora. This Commission, thus, concludes that it was the intention of the late Pelagio Potenciano, with the knowledge and consent of the other stockholders to treat Cadastral Lot No. 117 as his sole and personal property. At any rate, the failure of any party to assert his or her rights to the corporation for a period of more than thirty (30) years is tantamount to laches. Be that as it may, Cadastral Lot No. 117 remains as an asset of the corporation thus in the process of dissolving and liquidating the same, it must be distributed to the stockholders of Magiora, in proportion to their respective shareholdings. DHEcCT In addition, all income derived by Magiora from the lease of 253 square meters of Cadastral Lot No. 117 to Pilipinas Bank, which proceeds were directly deposited in Pilipinas Bank Savings Account No. 10288, the personal account of Pelagio Potenciano, from his death in November 1991 to date shall form part of the assets of Magiora, considering that prior to his death, the late Pelagio Potenciano was the sole administrator of Cadastral Lot No. 117. Since it is likewise admitted that Bian Traders Market occupies approximately one thousand square meters of Cadastral Lot No. 117, and in view of the testimony of respondent Flora Caviles that she kept an accounting of possible rent due Magiora for the use of the aforesaid portion of Cadastral Lot No. 117 for the operation of Bian Traders Market, this Commission rules that Bian Traders Market shall pay Magiora reasonable rent from August 1, 1993 to the present, which rent shall form part of the assets of Magiora. The Commission notes the amount of rent being paid by Pilipinas Bank to Magiora, which was undisputed and not contradicted, and hereby adopts the same rates to be applied to the rent to be paid by Bian Traders Market to Magiora. This Commission, therefore, adopts the computation made by the accountant of respondents, Cesar F. Ravalo that Magiora received from Pilipinas Bank lease rentals in the aggregate amount of P735,677.23 computed from November 1, 1982 up to June 30, 1999 (Exhibit "18"), and that based on the lease rentals of Pilipinas Bank, Bian Traders Market is liable to pay Magiora the sum of P1,295,330.00 as rental income (Exhibit "19"); from August 1, 1993 to the present, since business operations thereof commenced only then. This Commission finds no merit in the contention of petitioners that they are entitled to any part of the income of Bian Traders Market's business operations. It is clear from the records that the personality of Bian Traders Market is separate and distinct from that of Magiora's. In addition, this Commission notes that the business which Bian Traders Market is engaged in is not in conflict with the primary purpose for which Magiora was organized and incorporated. Furthermore, taking into consideration the fact that Magiora was and continues to be dormant ever since its incorporation in 1965, as was in fact admitted by both parties, no business opportunity was lost on the part of Magiora. Respondents could not have been expected to secure the permission or consent of the board of directors of the corporation, as this Commission stated above, there was no organization to speak of. Thus, this Commission rules that Bian Traders Market is under obligation to pay reasonable rent to Magiora, which rent shall form part of the assets of the corporation, to be distributed to the stockholders of Magiora, in proportion to their shareholdings. Respondent Flora Caviles is hereby directed to make an accounting of the rent, received by Magiora from Pilipinas Bank from November 1991 to the present, and the rent due from Bian Traders Market from August 1, 1993 to the present, and to turn over the same to Magiora, through its liquidation receiver. Accordingly, this Commission hereby appoints Juan M. Lamson, Jr. as the sole liquidator of Magiora Enterprises, Inc. Subject to the supervision and control of this Commission, the Liquidator shall exercise the following powers and responsibilities: 1. To immediately take possession of all property, real or personal of the corporation and all books, vouchers, evidence of indebtedness and securities belonging to the corporation; 2. To sue and recover all the properties, assets, debts and claims, belonging to or due to the corporation; 3. To receive rents and payments; and 4. To do all acts authorized by the Commission or necessary to ensure the winding-up of the affairs of the corporation and the distribution of its remaining assets and properties. With prior approval of the Commission, the Liquidator shall likewise have the following powers and responsibilities; IHaSED 1. From time to time, sell at public auction, after the requisite publication, of any of the properties real and personal, of the corporation which has come into his possession and on such sales to execute the necessary conveyances and bills of sale for and on behalf of the corporation. 2. To pay the outstanding debts of the corporation, if any; 3. To segregate and distribute properties and other assets which are held in trust by the corporation to persons legally entitled thereto; and 4. To divide, and distribute the money and other properties of the corporation, that shall remain, among the stockholders in proportion to their stockholdings in the corporation, in accordance with the terms of this Order. The Liquidator shall, within five (5) days from receipt of this Order, signify his acceptance of this appointment in writing furnishing all parties copies thereof. He shall, within five (5) days thereafter enter into his office as liquidator by submitting his oath of office to this Commission, furnishing copies thereof to all parties. The Liquidator shall immediately take possession of all the properties of the corporation and submit all inventory thereof within thirty (30) days from his assumption of office as Liquidator, furnishing the parties with a copy of the inventory. The Liquidator shall, as speedily as possible and as far as practicable, convert the properties, real and personal, and other convertible assets of the corporation into money. He shall submit to the Commission every 3rd Tuesday of the month an accounting of all money received by him as Liquidator as of the end of the previous month, to which every stockholder, or other persons interested therein, may, at all reasonable time during business days, have access. Considering the fact that the principal asset of the corporation consists of real estate, he is not required to file a bond. Effective on the date of the Liquidator's take-over of the assets and records of the corporation, the Liquidator shall be allowed all necessary expenses, chargeable to the account of the corporation under liquidation, incurred in the accomplishment of his functions. The fee for the Liquidator is hereby fixed at five percent (05%) of the net value of the assets of the corporation to be distributed among the stockholders. The Liquidator shall cause to be published a notice of the fact that the corporation is under liquidation and a request/advice to all creditors and other persons with claims against the corporation and/or its assets to file their respective claims to the Liquidator within sixty (60) days from the date of the notice to be published in two (2) newspapers of general circulation and thereafter submit proof of such notice to this Commission. All further proceedings in this case shall continue under the Hearing Officer assigned to the case. WHEREFORE, judgment is hereby rendered as follows: 1. Ordering the immediate corporate dissolution of Magiora Enterprises, Inc. and distribution of all its assets, after payment of debts to creditors (if any), among the stockholders of record of the corporation, to the extent of their equity in the corporation; cIaHDA 2. Ordering the appointment of JUAN M. LAMSON, JR., C.P.A. as the sole liquidator of Magiora Enterprises, Inc., who shall proceed to exercise his duties and responsibilities in accordance with the tenor of this Order; 3. Ordering respondents to forthwith render an accounting of the rental income due Magiora from Pilipinas Bank from December 1, 1991, to date, and turn over the same to the appointed Liquidator; and 4. Ordering respondents to forthwith render an accounting of the rent due Magiora from Bian Traders Market from August 1, 1993 until fully paid, based on the lease contract price of Pilipinas Bank, and turn over the same to the appointed Liquidator. SO ORDERED. City of Mandaluyong, Philippines. June 7, 2000 (SGD.) MALTHIE G. MILITAR Hearing Officer