VIVA Young Club, Inc., et al. vs. Jose Lee, et al.

[SEC-SICD * CASE NO. 2375. November 9, 1990.] VIVA YOUNG CLUB, INC., ET AL. , petitioners , vs . JOSE LEE, ET AL. , respondents . D E C I S I O N This is a derivative suit initiated for and in behalf of Viva Young Club Theatre & Restaurant, Inc. (Viva Young for brevity) against respondents Jose Lee, Rosita Santillan, Reynaldo Lim, Lim Soa Pin, David Sagun and John Doe, alleging among others, that herein relator, Alberto Lim and the respondents are stockholders and directors of Viva Young; Alberto Lim having invested herein the amount of P50,000.00 as his initial subscription; that respondents, by conspiring, confederating and mutually helping one another, raided the treasury of the corporation and appropriated and applied to their own personal use and benefit its funds in the amount of P1,000,000.00 representing profits as of December 31, 1981; that respondents also converted and appropriated for their own personal gain and advantages, the assets of Viva Young, including its leasehold right on the club premises, its goodwill, sound systems and other equipment by disposing of them either by sale or assignment to a dummy of respondent Jose Lee; that respondents, through illegal and nefarious machinations designed to cover-up the aforesaid irregularities, manufactured and falsified a so-called directors certificate by making it appear therein that a special stockholders and directors meeting were held on May 10, 1982, wherein the corporate life of the corporation was shortened, when in truth and in fact, no such meetings were held; that in furtherance of their illegal activities, respondents falsely sworn to an undertaking that Viva Young operated only until December 31, 1980, when records show that up to the present, the corporation still continues to operate; that despite repeated demands, respondents failed not only to present complainant the monthly balance sheet but also refused to call or conduct the monthly directors meeting as provided for under the by-laws; that respondents failed to issue, as promised, the corresponding shares of stock in favor of the complainant covering the amount of P500,000.00 which the latter has advanced to the corporation; and that herein action was filed without any further demand on the board of directors of Viva Young for the reason that such formal demand to institute the present action would be a useless formality since all the other members of the board were chosen by respondent Jose Lee. DcICEa In answer, respondents averred that complainant corporation never authorized the relator to sue in its behalf; that relator has not even paid the full amount of his subscription as he has paid only the amount of P25,000.00; that the whole capital stock of the corporation only amounted to P80,000.00 and that it is impossible for relator to advance P500,000.00 on the premise that the same will be credited as his additional subscription because his actual subscription was only P50,000.00; that Viva Young, for lack of capital, never made any profit in its operation from January 1980 to December 1981 as a matter of fact, during the first three months of operation, the corporation incurred losses and relator abandoned the business, hid himself on the allegation that he went abroad and refused to pay his complete subscription; that complainant went into hiding and never got in touch with any of the respondents, hence it cannot be true that he has asked for the balance sheet, the holding of the monthly meeting of the board; that Viva Young, in its initial operation incurred losses and later on with the financial help from respondent Lee only broke even; that as the business continue losing because of poor management and big overhead, respondents decided to stop operation and dissolve the corporation; that the decision to stop operation and dissolve the corporation was made by majority of the directors and stockholders and the fact that it was stated in the directors certificate that relator was abroad, said information was given to the directors by a person living in the address of the relator; that there was only clerical error when it was stated in the undertaking that Viva Young operated only until December 31, 1980 because 1980 should be 1981; and this can be already proven by taxes paid-up by Viva Young until December 31, 1981; and that the complainant does not state clearly how the amount of P1,000,000.00 was fraudulently applied or converted for the personal use and benefit of the respondents. Proof adduced by complainant consisting of his testimony purported to establish that the assets of Viva Young, when it started in January of 1980 stood at P1,600,000.00, itemized as follows: P850,000.00 for the leased premises renovation; 125,000.00 for the leasehold agreement (P90,000 for rentals, and P35,000.00 as commission paid to a cousin of the lessor); 200,000.00 for the purchase of the sound system equipment, wall paper and airfare; 409,000.00 for expenses for government permits, repair and materials for the flooring, purchase of utensils, furnishing and fixtures; that in support thereof, complainant submitted a copy of lease agreement wherein the amount of P850,000.00 was reflected as cost for renovation; that complainant relator advanced the amount of P409,000.00, which latter amount were backed-up by corresponding receipts; that from the start, management of the club was undertaken by respondent Jose Lee as its Treasurer, who had control of the funds of the corporation, hired and paid employees and took charge of all the disbursements; that all obligations of the corporation were incurred under the authority of respondent Jose Lee, who also authorized all purchases; that complainant, on several occasions, attended what should have been a by-laws prescribed meeting but none of the incorporators were present; that from complainant's observation and per statement of respondent Jose Lee, the estimated revenue of the club for the initial month of operations was P500,000.00; that when complainant requested for monthly statement of income, respondent Lee repeatedly deferred submission of the same on the ground that it is still being prepared, thus making it appear that the paid-up capital was P100,000.00 and the assets of the corporation at the time of the dissolution remained at P100,000.00, inviting the impression that the Balance Sheet prepared for purposes of the application for dissolution is a falsity; that he (complainant) was never notified of the May 10, 1982 meeting about the proposal to dissolve Viva Young; that he has been always in his office at Binondo and had not gone abroad as claimed; that he is challenging the correctness of the statement in the Director's Certificate and the Balance Sheet that the corporation (club) operated only up to May 31, 1982; showing a receipt for foods and drinks dated November 29, 1982; and that he discovered that the other incorporators had not invested any money on the business but that they were actually dummies of respondent Jose Lee. Respondent Jose Lee and David Sagun were presented as adverse witnesses for the plaintiff. Respondent Jose Lee, as an adverse witness, admitted that the contract of lease had been signed by him together with complainant Alberto Lim; that he was the Treasurer of the corporation but ceased to be one at the time of his presentation as witness; that he paid the initial deposits and rentals and presented two checks to prove his allegation; that as Treasurer, he delegated his work to co-respondent Lim Soa Pin and he became involved in the operations of the club only in 1981; that a financial statement had been prepared by the accountant in 1981; that frequent meetings were held with notices of those meetings relayed by respondent Sagun by telephone or by long distance call; that written notices were sent only to incorporators/directors who were far situated; that he had no knowledge of the operation of the club because the management thereof had been undertaken by complainant and Lim Soa Pin; that in 1981, the club started losing money and advances had to be made and because of these losses, the club stopped operations in 1981; that when they were unable to pay rent in December 1981, the lessor asked them to close operations for which reason they vacated the premises, leaving thereat tables and chairs; that he admitted signing the Directors' Certificate shortening the life of the corporation to May 31, 1982 but denied knowledge as to whether the balance sheet was filed together with the Directors' Certificate as the directors had a meeting relative to the preparation by the accountant of the Balance Sheet; and that he likewise denied knowledge as to whether the sound systems, fixtures and furnitures were added to the premises. For his part, respondent David Sagun testified that while it is true that he was the Corporate Secretary, he ceased to be such when the application for dissolution was filed; that he was the one who prepared the Directors' Certificate concerning the meeting of May 10, 1982 upon instruction of the President of the corporation; that he sent notices of the director's meeting which he claimed was either verbally or by telephone or in writing; that as regard complainant Alberto Lim, he had telephoned the latter to inform him of the meeting but was told that he was not at the office; that a written notice was then sent to the Abad Santos address of Mr. Lim but the messenger returned with the information that he was abroad, thus the notation in the Director's Certificate; that he tried to fulfill his duties as faithfully as possible but he cannot present any copy of the minutes of the meetings, saying that the minutes including all the records, were left at the office of Viva Young which he later on discovered were taken by Lim Soa Pin whose residence in Olongapo had been gutted by fire; that on the matter of dissolution, he had registered his opposition to it but despite such he abided with the desire of the majority; and that he does not remember having issued any certificate of stock, not even to himself although he recalls that their accountant did obtain a stock and transfer book. aTcIEH Respondents Jose Lee, David Sagun, Rosita Santillan and their witness, Reynaldo Lim, testified during the hearing and sought to establish that due to the fact that Lim Soa Pin was the knowledgeable person in the night club business, he and Alberto Lim were tasked with the management of the club and the renovation of the premises; that rental for the club for six months in the amount of P90,000.00 together with the commission of P30,000.00 was paid to the lessor by Alberto Lim but respondent Lee reimbursed both amounts to the former as evidenced by two (2) canceled checks payable to Leonila Lim and which check bore the signature of Alberto Lim on the dorsal portion; that for the cleaning, repairs and renovation, the estimated cost range between P300,000.00 and P400,000.00 and whatever additional cost and expenses that they may incur would be shared by Messr. Lee and Lim on a fifty fifty basis; that as the operations of the corporation continued disagreement between Lim Soa Pin and complainant Lim led to the latter expressing his desire to withdraw his investment and participation in the business; that to finalize the withdrawal of complainant Lim, the latter was required by respondent Lee to prepare a statement on his investment and advances; that this was done and complainant Lim claimed a total of P734,000.00 as his total advances; that respondents, particularly respondent Lee disputed the amount saying that among the invoices given by complainant Lim in support of his claim, were not all advances by Lim but a number of those represent some of the payments respondent Lee had made and paid for, using actually the receipt of his own store; that complainant, in the implementation of his withdrawal, had been partially reimbursed in the amount of P60,000.00; that respondents also disputes the claim that a sound system had been purchased for the club saying that the sound system was a rented one at P50.00 daily; that pending satisfaction of the claims relative to complainant Lim's withdrawal, the corporation continued its operation up to the end of December, 1981 and existence of the corporation up to May 31, 1982 but because the business continued to lose money, the decision to close operations was made; that after May 31, 1982 respondents alleged that a Mariano Santillan and his group took over the operation of the business on a trial basis; that the operations lasted till December, 1982; and that because of the threat of suit from the lessor and Meralco owing to unpaid rentals and electric bills, the premises of the corporation was closed. From the evidence adduced, both oral and documentary, the following facts appeared to have been conclusively established; that complainant Alberto Lim had been authorized to advance the expenses for the repair and renovation of the club prior to its opening in January, 1980; that it has been agreed upon that for expenses incurred beyond the initial investments by the incorporators, the same shall be shared by complainant Lim and respondent Lee on a fifty fifty basis; that beyond their initial investments, respondents Reynaldo Lim, Rosita Santillan and David Sagun never added any amount to the corporation; that it is beyond question that before the club started its operation, expenses ran beyond the capitalization of the corporation; that the expenses have been advanced by complainant Alberto Lim as the receipt presented by Lim confirms this (Exh "M", "M-77"); that respondent Santillan was more often in Urdaneta, Pangasinan attending to her hardware business; that respondent Reynaldo Lim had always been at Olongapo City for his grocery business; that respondents David Sagun and Jose Lee also testified that more often than not, they were in Olongapo City for their own respective business activities and they could not attend to the required daily attention and supervision of the club, particularly the demands for money, labor and materials; and that Lim Soa Pin appears to be similarly situated as his participation appears more due to his knowledge of the business than his ability to financially contribute to the business. Noteworthy is the fact that while the respondents, particularly respondent Jose Lee disputes the evidence presented by complainant Alberto Lim to justify the latter's computation of his advances amounting to P734,000.00, the former failed to substantiate the same. Respondent Jose Lee's allegation that since most of the receipt, especially those reflecting bigger amount were that of his own company, those reflected payments he himself made cannot be given serious consideration. An examination of the dates on the receipt and respondent Jose Lee's own testimony that he was more often in Olongapo City belies the claim. Evidently, it can successfully be maintained that before Viva Young Club started its operation, the receipts of Jose Lee's company, Triangle Lumber, have been temporarily used considering the proximity to the date of the lease contract and the payments were made at the job site, it was complainant Alberto Lim who used them to provide control over his advances. The fact proven during the hearing that complainant Alberto Lim did not only possess the originals but also the duplicates of the receipt buttress the above-conclusion. As disclosed in the minutes of the proceedings, respondent Jose Lee, when cross-examined on matters relating to his testimony during the direct examination, merely fell back on an elusive, stereotyped pattern of answering like "I do not remember," "I cannot recall" or "I do not know". This failure to explain or relate matters collateral to his testimony cast doubt and suspicion upon the veracity of his statements. Bolstering complainant Alberto Lim's stand is the failure of respondents to present Leonila Lim to testify on the truth of the reimbursements of the rental advance and the commission given by Alberto Lim. We also found improbable respondent Jose Lee's declaration during his testimony that a sound system had not been purchased but hired, considering that it is of common knowledge that a club of Viva Young's stature or class could not have relied on hired sound system which, as; part of a good management, must be integrated into the structural interior of the club. In the light of the above-findings, sufficiently and clearly establishing the investment advances made by complainant Alberto Lim, we find the latter to be entitled fully for the return of his whole investment. Anent complainant's prayer for the creation of a management committee, I find no need for its creation considering that Viva Young Club, Inc. has ceased its operations. As regard complainant Alberto Lim's allegation that the May 10, 1982 Board Resolution shortening the term of the corporation was a manufactured and a falsified one, evidence are wanting to prove such an allegation. Corporate records of the corporation even showed that pursuant to the aforesaid resolution, an amended articles of incorporation shortening the Term of the Corporation was filed before the Corporate and Legal Department of this Commission. There was already a recommendation to give due course to said Amended Articles of Incorporation but consideration of the same was held in abeyance because of the letter protest dated December 1, 1982 submitted by the counsel for the complainant. WHEREFORE, judgment is hereby rendered directing respondents to refund to herein complainant Alberto Lim the amount of P734,000.00 representing the latter's investment and advances to the corporation. Complainants' prayers for the creation of a management committee and nullification of Board Resolution dated May 10, 1982 should be, as both are hereby DENIED. EHCaDS SO ORDERED. NO PRONOUNCEMENT AS TO COST. (SGD.) ALBERTO P. ATAS Hearing Officer