Vicente O. Reyes vs. Tito Rey Restaurants, Corp., et al.

[SEC-SICD * CASE NO. 11-97-5828. February 1, 2000.] VICENTE O. REYES , petitioner , vs . TITO REY RESTAURANTS, CORP., REYNALDO A. BAUTISTA AND PEARL CLUB CHAIN, INC. , respondents . D E C I S I O N This is an action for the Appointment of a Management Committee/Receiver, Reconveyance, Accounting and Damages initiated by petitioner Vicente O. Reyes against Tito Rey Restaurants, Reynaldo A. Bautista and Pearl Club Chain, Inc., the last respondent as a necessary party. Petitioner is a stockholder of respondent Tito Rey Restaurants Corporation to the extent of 33.33%, while Reynaldo A. Bautista is the majority stockholder of the Corporation and its President and General Manager. Respondent Pearl Club Chain is the lessee of five (5) condominium units at the Sunvar Plaza, which condominium units, are among the assets subject of the petition. aACEID Petitioner claims that he is a stockholder of Tito Rey Restaurants Corporation, (the Corporation) holding 33.33% of its capital stock. The Corporation was engaged in the restaurant business and had enjoyed profitable business until it ceased operations in the early 1990's. For the alleged refusal of respondent Bautista to allow petitioner to inspect the corporate records, petitioner filed a case for inspection of documents with this Commission. While the said case was pending, petitioner came to be aware of other acts of mismanagement necessitating the filing of the instant petition. Petitioner alleges that the Corporation purchased five (5) condominium units, namely, Units G-4, G-6, G-16 and G-17 all located at the Ground Floor of the Sunvar Plaza along Pasay Road cor. Amorsolo St., Makati City. That respondent Bautista caused the said condominium units to be registered in his name notwithstanding the fact that they are corporate assets, the purchase price having been paid for and came from the funds of the Corporation. That likewise, Bautista rented out the condominium units from April 1, 1993 up to April 1, 1994 to Pearl Club Chain, Inc. at the rate of P110,000.00 per month from April 1, 1993, with a seven (7%) percent annual escalation in rental rates. Instead of remitting the rental payments to the Corporation, petitioner alleges that respondent Bautista misappropriated said rentals for himself. In view of respondent Bautista's underhanded acts and in order to prevent further dissipation of the assets of Tito Rey Restaurants Corporation, petitioner prays for the appointment of a Management Committee or a Receiver for the Corporation. Petitioner also seeks the reconveyance of the five (5) condominium units in favor of the Corporation and for respondent Bautista to render an accounting of the rentals he collected for the lease of the units; an accounting of all the funds of the Corporation is also being sought by petitioner considering that respondent Bautista had almost absolute control of the affairs of the Corporation for the past fifteen (15) years or so. Petitioner also claims that he was deprived of cash dividends. Finally, petitioner seeks compensation by way of damages in the amount of P3 Million, attorney's fees of at least P500,000.00 and exemplary damages of P1 Million. In his Answer, respondent Bautista avers that he did not commit any acts of mismanagement. That while he managed and administered the day-to-day operations of the restaurant, pursuant to his position as General Manager thereof, the governance of the corporate affairs was still left to the Board of Directors. Respondent Bautista claims that it is not true that petitioner failed to receive dividends; in fact, petitioner received several cash dividends totaling at least P810,000.00. Likewise, respondent Bautista did not refuse to allow petitioner to inspect corporate records, but pleaded for time to produce said records. While respondent Bautista admits that the condominium units are leased and that he collects rentals therefrom, he is of the position that he is entitled to said rentals being the owner of the condominium units. Respondent Bautista insists that he owns the subject condominium units for the reason that: a 1. The down payment equivalent to 20% of the purchase price of the units came from his own money; 2. Subsequent amortization payments were chargeable to the salaries he would have rightfully received from the Corporation as General Manager. Respondent Bautista justifies his causing the registration of the five (5) condominium units in his name on the basis of the above. Respondent Bautista avers that by reason of the filing of the unfounded action, he must be indemnified in the sum of P500,000.00 as attorney's fees. For its part, respondent Pearl Club Chain, Inc. admits that it is renting the condominium units as early as February 1993 from respondent Bautista upon the representation of said respondent that he is the owner or authorized lessor of the said premises. That respondent Pearl Club Chain, Inc. has no knowledge of the alleged ownership of the condominium units prior to the filing of the instant petition, and that it is entitled to remain in the premises in accordance with the terms of the Lease Contract. Respondent Pearl Club Chain, Inc. is willing to consign the remainder of the lease payments to this Honorable Office to any other body so appointed and is willing to pay rentals due to the proper party as determined by this Commission. It has also presented a cross claim against respondent Bautista. ISSUES The issue in this case appears to be fairly simple and that is the determination of the ownership of the five (5) condominium units. The other issues for accounting and reconveyance basically arose out of, and can be settled with the determination of the ownership of the condominium units. FINDING OF FACTS From the evidence presented by the parties, the following facts can be gathered: 1. Units G-4, G-5, G-6, G-16 and G-17 of the Sunvar Plaza are registered in respondent Bautista's name (pp. 13-14, TSN of August 11, 1998) 2. The units are currently leased to respondent Pearl Club Chain, Inc. and respondent Bautista collects the rentals due therefrom. Said rentals are not remitted to Tito Rey Restaurants Corporation. A close scrutiny of the documentary evidence presented as well as the testimonies of the witnesses will reveal that while respondent Bautista paid for the 20% down payment in the total amount of P408,000.00 (Exhibits 4, 5, 6 & 7) the condominium units were really intended for the operation of the restaurant and eventually to be owned by the Corporation. Even respondent Bautista himself admits and testified that he was willing to turn-over everything to the Corporation (p. 83, TSN of October 6, 1998). The pre-incorporation minutes (Exh. 3) in no uncertain terms indicate that the condominium units were intended to be transferred to the Corporation. In fact, the said units were used as the site of the restaurant operations. The beneficial ownership by Tito Rey Restaurants Corporation of the condominium units is further bolstered by the fact that 80% of the purchase price were paid for by the Corporation. This fact is also admitted by respondent Bautista during his testimony, to wit: Q. (Atty. Cayanga) Alright. But the Corporation paid for the 80% of the acquisition cost of the units, am I right? A. (R. Bautista) Yes. (p. 74, TSN of October 6, 1998) Respondent Bautista's claim that the 80% representing the acquisition cost for the units represented his supposed salary as General Manager of the restaurant is not supported by proof. Aside from his own allegations, respondent Bautista failed to produce any corporate financial documents, or any board resolution fixing his compensation as General Manager; his income tax returns or other proof to the effect that the 80% payment was part of his salary. Even on the assumption that respondent Bautista paid for the 80% of the units via alleged salary set-offs, it does not follow that he owns the units, as all other documents, including minutes of meetings and his own reports, would indicate that the units legally belong to the Corporation. At most, respondent Bautista can only ask for reimbursement of his advances to the Corporation as reflected in the Financial Statements. It may be interesting to point out at this point that respondent Bautista's role is akin to that of a promoter of a corporation. In helping set up the corporation and in the acquisition of its assets, there was created a fiduciary relationship between respondent Bautista and the Corporation. He has an obligation to transfer title to the Corporation, subject to reimbursement of the 20% downpayment he advanced. He cannot be allowed to appropriate for himself property intended for the corporation at the expense of innocent investors. As the condominium units are considered corporate assets, respondent Bautista is therefore necessarily under obligation to account for the rentals he received from leasing out the units broken down as follows: Inclusive Rental Period Monthly Rental Annual Rental April 1, 1993 to April 1, 1994 P110,000.00 P1,320,000.00 April 1, 1994 to April 1, 1995 117,700.00 1,412,400.00 April 1, 1995 to April 1, 1996 125,933.00 1,511,268.00 April 1, 1996 to April 1, 1997 134,754.00 1,617,056.00 April 1, 1997 to April 1, 1998 159,000.00 1,908,000.00 April 1, 1998 to April 1, 1999 174,900.00 2,098,800.00 April 1, 1999 to Nov. 1, 1999 192,390.00 1,539,120.00 Total P11,406,644.00 (Exhibits"T" and"U") With respect to petitioner's prayer for the appointment of a Management Committee, this Hearing Officer believes that there is no ample ground to support such prayer considering that the Corporation has not been operational for the past seven or eight years and its remaining assets can be disposed of by the terms of this judgment. Necessarily, the prayer for injunction is deemed academic. There is ample basis for undersigned Hearing Officer to declare that fraud was committed by respondent Bautista in causing the registration of the condominium units in his name. Respondent Bautista himself testified that the restaurant experienced profitable operations in the early to mid-stages of its operations. In fact, he goes as far to state that petitioner received at least P810,000.00 in cash dividends, although nothing in the audited/unaudited financial statements indicated any cash dividend declaration at all. With so much alleged cash and liquidity that the Corporation had at the time, this Hearing Officer cannot but help impute bad faith on the part of respondent Bautista in not causing the reimbursement to himself the 20% purchase price he advanced especially so that the said amount is much less than the supposed cash dividend granted to one of the stockholders. As a director (who also happens to be a majority stockholder) who had almost absolute control over the affairs to the Corporation, respondent Bautista is liable for any loss or injury to the Corporation arising from his unauthorized acts or violation of duty ( see Steinberg vs. Velasco, G.R. No. 30460, March 12, 1929, 52 Phil. 953 ) Furthermore, when a director, trustee or officer attempts to acquire, in violation of his duty, any interest adverse to the Corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation. (Section 31, Corporation Code ) In view of the above, judgment is hereby rendered: 1. Ordering respondent Reynaldo A. Bautista to reconvey at his own expense Units G-4, G-5, G-6, G-16 and G-17 of the Sunvar Plaza to the Tito Rey Restaurants Corporation; 2. Tito Rey Restaurants Corporation is hereby directed to reimburse the amount equivalent to 20% of the purchase price of the units, without interest, to respondent Reynaldo A. Bautista, in the amount of P408,000.00; 3. Ordering respondent Bautista to remit to Tito Rey Restaurants all rental payments collected for Pearl Club Chain, Inc. from April 1, 1992 up to November 1, 1999, in the amount of P11,406,744, and all monthly rental payments collected thereafter; 4. Ordering respondent Bautista to render an accounting of all the assets of the Corporation; 5. Ordering respondent Pearl Club Chain, Inc. to desist from remitting rentals directly to respondent Bautista and to consign said rental payments to this Commission; 6. Ordering the liquidation of the Corporation and for all residual assets to be distributed to stockholders by way of liquidating dividends; 7. Ordering respondent Bautista to pay petitioner moral damages in the amount of P500,000.00 and attorney's fees of P300,000.00; and to serve as an example to the public, respondent Bautista is likewise ordered to pay exemplary damages in the amount of P100,000.00. SO ORDERED. (SGD.) MARCIANO S. BACALLA, JR. Hearing Officer