Celedonio M. Javier vs. Silahis International Hotel, Inc.

[SEC-SICD * CASE NO. 1949. May 4, 1987.] CELEDONIO M. JAVIER , petitioner , vs . SILAHIS INTERNATIONAL HOTEL, INC., (formerly, International Hotel Corporation) , respondent . D E C I S I O N The instant case is a petition for mandamus and damages filed by petitioner Celedonio M. Javier, thru counsel, alleging, among others, a) that he is the owner of 20,000 preferred shares of the capital stock of respondent Silahis International Hotel, Inc. (formerly International Hotel Corporation), his ownership being evidenced by Stock Certificate No. 006; b) that he had made assignments of portions of said shares but respondent corporation refused to recognize said assignments; c) that said shares are entitled to preferred dividends; d) that due to the refusal of respondent corporation to recognize his ownership of said shares, the petitioner suffered humiliation and embarrassment, his reputation was tarnished, and he was compelled to engage the services of counsel. Petitioner prays that judgment be rendered by the Commission ordering respondent Silahis International Hotel, Inc. a) to recognize petitioner's ownership of 20,000 preferred shares, b) to give due course to the assignments of portions of said shares made by petitioner to third parties; c) to pay petitioner the accumulated dividends due to him on the said 20,000 preferred shares; d) to pay petitioner attorneys' fees in the amount of P300,000.00 or 25% of the total value of the amount that will be awarded to the petitioner whichever is greater and to hold respondent corporation liable to the petitioner for actual and exemplary damages as well as for loss of income. LLjur Respondent, in its Answer, alleges as its defense; a) that the 20,000 shares of stock were issued to petitioner as incentive and as gesture of goodwill; b) that on account of petitioner's failure to render the services contracted for, there was total failure of consideration for the aforementioned issuance in favor of petitioner of the 20,000 shares of stock; c) that the issuance of said certificate is void, considering that no stock certificate may be issued for future services and more so when the contemplated future services were not rendered at all; d) that Stock Certificate 006 had already been cancelled; and e) that the compensation of petitioner is contingent on respondent acquiring the proceeds of the loan. Pre-trial conference was held, and thereafter, the Order, dated March 11, 1981, was issued stating therein, among others, that the respondent admitted the genuineness and due execution of the following documents: 1. Exh. "A" Xerox copy of Stock Certificate No. 006 for 20,000 preferred shares of International Hotel Corporation. 2. Exh. "B" Certification, dated December 22, 1970, by Mario B. Julian, Corporate Secretary. 3. Exh. "C" Xerox copy of Minutes of Meeting, dated February 23, 1971 of International Hotel Corporation. 4. Exh. "D" Xerox copy of letter, dated February 12, 1971 of Felix Angelo Bautista, President of International Hotel Corporation to SEC requesting for exemption from registration the proposed issuance of 50,000 common shares of the corporation. 5. Exh. "E" Xerox copy of Report and Recommendation on Foreign Loan Negotiations, dated February 12, 1971, consisting of pages 1, and 9-13 thereof. 6. Exh. "F" Letter, dated March 16, 1978 of Erlinda SE. Panlilio, Corporate Secretary-Treasurer of International Hotel Corporation addressed to Bienvenido E. Acosta. 7. Exh. "G" Letter, dated August 13, 1979 of Antonio T. Fontanilla, Director, Legal Affairs of Sulu Management Company, addressed to Atty. Mamerto R. Villaluz. Respondent, on its part, offered one (1) exhibit, which is a copy of a letter, dated April 17, 1975 of Felix Angelo Bautista, then president of respondent corporation, addressed to petitioner Javier, marked as its Exh. "I", the existence and receipt of which by the petitioner had also been admitted. This, however, was not formally offered in evidence by respondent. LibLex On the basis of the allegations in the petition and the defenses in the answer, the matters for determination in this case can be reduced to the following questions: (1) whether or not the petitioner has rendered the services he had been contracted by the respondent to perform; (2) whether or not the 20,000 shares in question were issued by the respondent in payment or compensation of the petitioner for the service he had rendered?; and (3) whether or not Stock Certificate No. 006 has been legally and validly cancelled? Respondent's defenses of (a) total failure of consideration; (b) stock certificate cannot be issued for future services; (c) no stock certificate can be issued unless fully paid and Stock Certificate 006 has been cancelled, can be disposed of by resolving the above-enumerated questions. As to questions (1) and (2), we find the Loan Agreement (Exhibit "H" for the petitioner and Exhibit "4" for the respondent) and the Memorandum Agreement (Exhibit "L" for the petitioner) very enlightening insofar as the petitioner's claim that he has rendered the service in the negotiation for the foreign loan on behalf of the respondent is concerned, as well as the respondent's alleged ignorance of the character of the foreign lender that, Barnes International is only a broker, not a financier, as represented by the petitioner. Said documents likewise settled the issues brought about by the aforesaid defenses of the respondent. The Loan Agreement was executed on October 14, 1970, by and among, Barnes International Trust, N.V., as foreign lender, International Hotel Corporation, as borrower, and the Development Bank of the Philippines (DBP for brevity), as guarantor. Signatories in said agreement were, on behalf of Barnes International Trust, N.V., Mr. Allan Sheppard, President, and Mr. G.R. Lanciult, Vice-President; on behalf of International Hotel Corporation, Mr. Felix Angelo Bautista, President, and Mr. Celedonio M. Javier, as witness; and on behalf of the Development Bank of the Philippines, Mr. Leonides C. Virata, Chairman, which government entity participated in because, as a condition for the loan, DBP was required to give "unconditional and irrevocable guarantee". The agreement also stipulates, among others, that the Lender, Barnes International Trust, N.V., "created a syndicate of some of its private clients to provide the requested funds and has agreed to make a loan to the Borrowers", that is, to International Hotel Corporation, herein respondent. Contrary, therefore, to respondent's allegation that petitioner misrepresented that the foreign lender "is only a broker, not a financier", the undertaking of Barnes International Trust, N.V. in executing the loan agreement has been fully disclosed, that it "created a syndicate of some of its clients to provide the requested funds", which means that the funds to be loaned to respondent were not its own money but it would come from a syndicate of its private clients. We take notice that, considering the magnitude of the loan US$8.15 million it is a normal practice in international finances, that the loan is not borne by one financial institution but funded by a pool of financiers. In any case, that fact was known to respondent. It cannot be accepted that respondent did not know the meaning of the stipulation in the Agreement considering that respondent's representative and signatory to the said agreement is Mr. Felix A. Bautista, a former Justice of the Supreme Court of the Philippines, whose legal brilliance should be conceded. We, therefore, find no misrepresentation and respondent's allegation that it did not know Barnes International was a broker because the loan to be granted would come from a syndicate of its clients, is found to be without merit. It is also observed that, as provided in said Agreement, the grant of the loan was subject to two basic conditions; i.e., (a) that Central Bank shall give its consent for the repayment of the principal of the loan and its interests, and (b) as a "condition sine qua non", the DBP shall unconditionally guarantee the payment of the principal and the interests. The said conditions must be complied with within fifteen (15) working days from the signing of the Agreement. These conditions have been obtained from said two government institutions. However, when the documents of compliance with said conditions had been submitted to Barnes International Trust, N.V., in London, the period provided for compliance had already lapsed, and the foreign lender declined to accept them. As it was indicated, it was no longer bound by their commitment in the Loan Agreement. According to Petitioner, the loan was renegotiated, which culminated in the execution of a new agreement, the "Memorandum Agreement" (Exhibit "L" petitioner), executed on October 23, 1971, by and between Barnes International Trust, N.V. and International Hotel Corporation. The signatories in this agreement were: on behalf of Barnes International Trust, N.V., Mr. G.R. Lanciult, Vice-President, and on behalf of International Hotel Corporation, Mr. Felix A. Bautista, President; likewise, it was witnessed by petitioner. This agreement embodied the basic conditions in the Loan Agreement (Exhibit "H for petitioner and Exhibit "4" for respondent). In addition, however, it provided, among others; that Barnes International Trust, N.V. shall deposit in escrow with Chartered Bank, Manila, the amount of US$10 million, subject to International Hotel Corporation paying in advance interest differential. As provided in the agreement, this is the "interest between 1 percent per month for 3 months" and the "interest earned on the deposit, if any, in the event the Escrow Agent released to the Lender the whole amount of Ten Million Dollars" (par. 2, page 2, Exhibit "L"). That is, if the loan did not materialize. Petitioner testified that this had to be so because, as the money had to be held in escrow, the same cannot be used by the Lender for any other purpose. If the loan would not materialize, necessarily during the period the money was held in escrow, it has to earn interest. Respondent appeared to have taken steps to comply with this required payment of "interest differential". It requested the DBP to guarantee the payment of said interest (letter, dated October 25, 1971, by International Hotel Corporation to DBP, Exhibit "Q" petitioner), but DBP, in its letter, dated November 15, 1971 to International Hotel Corporation (Exhibit "R" petitioner) declined respondent's request. Respondent thus failed to comply with said condition which failure resulted in the ultimate collapse of the loan negotiation. DBP, in its letter, dated December 6, 1971, to International Hotel Corporation (Exh. "T") advised that it had cancelled its "unconditional and irrevocable guarantee". This makes it clear that the failure of respondent to receive the proceeds of the loan was due to its own fault. It could not be gainsaid, therefore, that the two documents established with categorical certainty the fact that foreign loan had been negotiated and that, as aforesaid, respondent failed to receive the proceeds of the negotiated loan because of its own fault. It likewise became clear that compliance with the conditions in said loan agreement was the sole undertaking and responsibility of respondent The fact has been established that the foreign lender was ready to provide the funds for loan as it was ready to deposit in escrow the amount of US$ 10 million, but said amount was not so deposited because the condition for the deposit in escrow was not complied with by respondent. Whether, therefore, the foreign lender could have deposited the said amount, to earmark it for the loan agreed to be granted to respondent, is now academic. However, as the two government financial institutions gave full faith to said loan agreements, it had to be conceded that the foreign lender would have performed its commitment. Respondent interposed as one of its defenses the issue that petitioner was not entitled to compensation since respondent did not secure the loan, or perhaps, to state it more pointedly, because it did not receive the loan money. In its Answer, respondent alleged that petitioner's compensation was conditioned upon petitioner's success in securing the loan and that he was but promised 20,000 shares of stock of the International Hotel (par. 3, Answer). Whether this was the actual agreement between petitioner and respondent is a matter of evidence. However, at the outset, it is noted that these are inconsistent defenses; they are inconsistent with each other and with actual fact. The 20,000 shares had already been issued, as evidenced, among others, by Stock Certificate 006. Said shares could not, therefore, be just promised. And if petitioner's compensation was conditioned on respondent acquiring the loan, there appears no reason for respondent to issue said shares. It did not say it was obliged to do so, and it is illogical and contrary to common sense. Respondent's said defense is belied by its own act. The Commission noted that respondent pleaded the defense that the shares had been issued as incentive and as a gesture of goodwill, which, just by said allegation, renders the allegation of lack of consideration nugatory. It is basic that "goodwill or incentive" is value. Respondent's inconsistency in its defenses, although such inconsistency is permitted, does not, in this case, work in its favor. In any case, evidence had been meticulously reviewed, and there is not an iota of proof that supports, even vaguely, said condition in respect of petitioner's compensation. There are, however, two documents that brought to light, first, the purpose in issuing the 20,000 shares, second, the consideration for said shares, and third, the fact that said shares had been fully paid. These two documents are (1) the Report of the president of International Hotel Corporation to its Board of directors, dated February 22, 1971 (Exhibits "E" petitioner and "2" respondent), and (2) the Receipt, dated March 9, 1971, in which petitioner acknowledged Stock Certificate 006 and in which it was stated what the shares were for (Exhibits "V" petitioner and "7" respondent). The following excerpts from the President's Report reveal what the 20,000 shares were for and why they were issued, to wit: (1) "DBP shall require that IHC equity should be maintained to conform with Central Bank requirement of 25-75 equity-debt ratio"; (2) "to maintain the ratio, IHC has to come up with the projected P27.6 million equity" and this "was made possible by declaring subscription receivable from the capital stock of the corporation amounting to P5 million"; (3) "out of the P5-million subscription, "P2 million has been included in the projection and reported to DBP as paid to raise paid-up from P8 million to P10 million" which "subscription is reflected in the Financial Statement for 1970 prepared by E.A. Gabriel & Co. and submitted to DBP". (4) "meantime, the corresponding shares of stock covering P2 million should be issued to cover this increase in paid-up in order to meet the equity requirement; (page 10, Exhibits "E" and "2") (5) "the amount of subscription be offered to persons whom the corporation owes money for services rendered, provided these persons are willing to convert their payment for services rendered into capital stock of the corporation, thereby willing to accept common shares in lieu of cash payment". (page 13, Exhibits "e" and "2") The foregoing quoted excerpts from the President's Report show these crucial facts that the 20,000 shares worth P2 million, were fully paid shares, and that said shares had been issued for two purposes, i.e.; to raise the paid-up equity and thereby comply with the requirement of Central Bank to maintain its equity to debt ratio at 25-75, and to pay its obligation for services rendered. Due to respondent's compliance with these two conditions, said two government financial institutions DBP and the Central Bank acted accordingly. DBP, for its part, issued its "unconditional and irrevocable guarantee" for the payment of the foreign loan, as stipulated in the Loan Agreement, and the Central Bank, on its part gave its consent to the repayment of principal and interests of the foreign loan, which consent is evidenced by Resolution No. 2125 of its Monetary Board, dated December 29, 1970, as advised in Central Bank's letter to International Hotel Corporation, dated January 8, 1971 (Exh. "I"). What is, therefore, categorically clear in said excerpts is the fact that the paid-up capital of Respondent, as reported in its projections submitted to DBP, had been raised from P8 million to P10 million, as a result of the issuance of the P2 million worth of shares. As aforesaid, DBP and the Central Bank gave full faith to this report of the increase in respondent's paid-up capital. This Commission can, therefore, do no less it has to accept as fact that the 20,000 shares had been fully paid. To buttress its position that the 20,000 shares were not fully paid, respondent pointed to Section 1, Article V of its By-Laws, which provides that stock certificate shall be issued only when share of stock has been paid in full, and that being so, the issuance of Stock Certificate 006, covering the 20,000 shares, was void. However, the position of respondent is premised on a wrong proposition; firstly, what is dealt with in said provision of its By-Laws is the issuance of stock certificate, which must be issued only when shares had been paid in full, but not the issuance of shares of stock which should be distinguished from the issuance of stock certificate, the latter being but, a muniment of title, while the former is the recognition of the ownership of a stockholder of such number of shares; and secondly, as its President, Justice Felix A. Bautista, had testified, that if it was stated in his report that the shares were fully paid shares, then that must be true, and respondent did not challenge the truth of the testimony of its president. Any finding, therefore, averse to what is stated in the report will have no basis. On the other hand, the Receipt (Exhibits "V" for petitioner and "7" for respondent) establishes the fact that the 20,000 shares, covered by Stock Certificate 006, were part of the total subscription in the amount of P5,000,000.00 corresponding to his service fee on the loan negotiation of $8,150,000 with Barnes International Trust, N.V. This document makes it clear that the 20,000 shares were as partial service fee for the loan negotiation, out of petitioner's total compensation of P5 million, payable in form of subscription to the capital stock of respondent corporation. In other words, as observed, the payment of petitioner's compensation was by subscription, or grant of shares in its capital stock, instead of cash payment. The contents of said document, as it is also an evidence of respondent, have to bind respondents. Thus, it has to be considered as fact that the 20,000 shares had been issued to petitioner as service fee or his partial compensation. To overcome the stark actuality that the 20,000 shares had been issued and to establish the invalidity of its issuance, a tremendous degree of evidence is necessary and indispensable. For it is not enough that respondent justify its issuance of shares it alleges to be invalid or void, for total failure of consideration, but it has to show proof why it issued said shares in the face of the fact, if true, that petitioner had not rendered the service he was contracted for. Unfortunately, despite the meticulous search of the records, there is not one refutatory or supportive evidence that exists to sustain respondent's position. And worse, the actuation of respondent militates against its defenses that petitioner was not entitled to compensation because he had not rendered the service contracted for and, therefore, the issuance of the shares being without consideration, was void. If it were true that petitioner was not entitled to compensation, said shares would have not been issued to the petitioner by the respondent, conceding that the latter conducted its affairs in accordance with sound business practice and law, and, if true that petitioner's compensation was conditioned on respondent "securing the loan" (which should be interpreted to mean, receiving the loan proceeds or money), respondent would not have issued said shares. But the fact that respondent did issue said shares rendered inutile its said defenses. As to whether or not Stock Certificate No. 006 has been validly cancelled is the third question that arose from the respondent's defense that said stock certificate has been cancelled. Although a stock certificate is not the sole determinative evidence of ownership of shares, it being elementary that a stock certificate, as aforesaid, is only a muniment of title and ownership of shares is provable by other means of evidence, the question must be resolved because the cancellation of a stock certificate would be the operative act that divests a stockholder of his ownership of shares in a corporation, as such will be the effect, in this case, if Stock Certificate No. 006 had been legally and validly cancelled. Records do not show any evidence of cancellation of said certificate. Except for the allegation that "Justice Bautista wrote petitioner a letter, dated April 17, 1975 (which was previously marked as respondent's Exhibit "1", per Preliminary Conference Order, dated March 11, 1981 but which exhibit was not offered in evidence and said exhibit was substituted by another), there is no other evidence that cancellation of said stock certificate had been pursued by respondent. In any event, there are facts and circumstances that militate against the alleged cancellation of the stock certificate. Section 4 of respondent's By-Laws (Exhibit "9" respondent) provides that "no surrendered certificate shall be cancelled by the Secretary until a new certificate in lieu thereof is issued". This provision categorically states that respondent's certificate of stock should first be surrendered and even if surrendered, it shall not be cancelled until a new certificate has been issued by the Secretary. Surrender of the certificate, is therefore, a pre-requisite to cancellation. That Stock Certificate 006 has been in the continuous possession of petitioner is not a disputed fact. There was, therefore, no way, either physically or legally, that said certificate could have been cancelled. Besides, respondent's Corporate Secretary, Mr. Mario B. Julian, the officer who had the duty to effect cancellation of stock certificate, categorically testified that he had not been ordered to cancel the stock certificate of petitioner. Pertinent portions of his testimony are quoted hereunder, to wit: "Q What I am trying to ask you, Mr. Witness, is if you received any order to cancel this certificate? "A Well, I received orders, many orders with regard to common but not on Mr. Javier." "Q But personally, you have not been asked by Justice Bautista or by anybody to cancel that particular share? " "A No. I have no knowledge of that." (tsn. pp. 52-53; hearing April 26, 1982) Above-quoted testimony of the Secretary of respondent corporation coupled with the withdrawal by respondent as its evidence of the aforesaid letter, dated April 17, 1981 decisively settled the status of Stock Certificate 006 that it has not been cancelled. While respondent has given due importance to the cancellation of Stock Certificate 006, as it had to plead it as one of its defenses, it is observed that respondent did not resort to any coercive remedy to enforce its cancellation or recover its possession. If respondent had the intention to cancel said certificate and if it had basis for such action, it could have resorted to mandatory remedies which are available in our laws. But it did not. Such inaction is a score which cannot be credited to respondent's favor. The conclusion cannot, therefore, but be that Stock Certificate 006 has not been cancelled. Accordingly, the shares it represents have to be considered as issued and outstanding, and they have to be vested with corresponding rights accorded in corporate law. Perforce, in the light of the aforesaid facts and circumstances, with nothing to repel the force of their uncontested existence as evidence, the findings have to be that (a) the 20,000 shares had been issued as payment of compensation of petitioner, and therefore, with valid consideration, and (b) said shares were fully paid shares. It has also to be found that Stock Certificate 006 had not been cancelled, and therefore, its full force as evidence of the ownership of the shares it represents has to be recognized. With respect to petitioner's claim for accrued dividends in the 20,000 preferred shares this is a matter of contract. As provided in respondent's Articles of Incorporation (Exhibit "10-5" for the respondent) preferred shares shall be entitled to preferred dividends, in cash for one fiscal year in the amount not exceeding 9% of the par value thereof, when and if declared by the Board of Directors. Therefore, if preferred dividends had been declared, then petitioner must be entitled thereto and it should be paid to him. Considering the findings of this Commission as to the validity of the issuance of said 20,000 shares to the petitioner and his ownership thereof, his assignment of part of the same previously made in favor of Mamerto Villaluz and Enrique Gabriel should, necessarily be effected accordingly. dctai Anent his claim for attorney's fees and expenses of litigation, petitioner testified that he has undertaken to pay his lawyers P300,000.00 as attorney's fees plus P500.00 per appearance. The alleged written agreement regarding this particular testimony which the petitioner's counsel reserved to mark as exhibit and introduce later was, however, not so marked and introduced. Divergent postures are part of life itself. And in business, partners could not avoid differences in opinion/attitude about certain matters which if brought before a forum for judicial adjudication, such as a court of law or this Commission in the instant case, expenses therefore would, necessarily, be incurred by the contending parties. Despite these expenses, however, one should be encouraged, rather than discouraged, to fight for his honest stand about a certain matter in the proper forum with the consequential expenses, if and when necessary. But, this is probably hard to attain, if, in every judicially adjudicated dispute, the losing party will be made to reimburse/pay the prevailing party for the expenses incurred in connection with the case. Thus, in the absence of any proof that either of the parties was subjected to harassment or the claim/posture of either party is frivolous, both should bear their own attorney's fees, expenses of litigation and other losses/damages, as well, suffered. The Commission is not bound by the supposed agreement between a party and his lawyer re attorney's fees, especially when the alleged document to support the testimony thereon was not marked and presented as evidence. As to petitioner's testimony on the damages he allegedly suffered, we find the same self serving. WHEREFORE, the respondent in the instant case is hereby ordered: 1. To recognize petitioner's ownership of the 20,000 preferred shares of its capital stock conceded by Stock Certificate No. 006; 2. To pay petitioner the guaranteed dividends that had since accrued to said shares, if such dividends had been declared by the Board of Directors; and 3. To give due course to the assignments made by the petitioner of part of his shares. No pronouncement as to attorney's fees and expenses of litigation, damages, and costs. (SGD.) ERNESTO T. MENDIOLA Hearing Officer