Pruto Kabigting, et al. vs. Emilio A. Santos, et al.

[SEC-SICD * CASE NO. 2431. June 19, 1990.] PRUTO KABIGTING, ET AL. , petitioners , vs . EMILIO A. SANTOS, ET AL. , respondents . D E C I S I O N In the petition filed before this Commission, petitioners, who denominated themselves as minority stockholders, alleged that in 1932 a group of civic spirited residents of Arayat Pampanga, led by School Superintendent Canuto Santos, Emilio A. Santos, Vicente Pascual, Francisco Pongco and Jose Tino organized the Arayat Institute, Inc., a non-stock and non-profit corporation, for the purpose of putting up a high school; that Emilio A. Santos donated a parcel of land composed of two (2) lots owned by him as the site of the school building while the other members donated cash and materials in kind for the construction of the school building, that on February 20, 1955, Arayat Institute, Inc. was recognized by our government; that at the outbreak of the World War II, the school suspended its classes and was only allowed to re-open after the termination of the war; that on or about December 16, 1950, a group representing the members of the corporation composed of Atty. Amelito R. Mutuc, Dr. Magdalena A. Vda. de Rivera, Maximo Lapuz and Captain Jose M. Tinio filed with the Commission a petition for reconstruction for the sole purpose of reconstituting the Articles of Incorporation of the Arayat Institute as a non-stock and non-profit corporation, which petition was opposed by the Arayat Institute, Inc., claiming that it was a stock corporation duly registered since July 27, 1950; that the group made a thorough background study of the papers on file, with the Honorable Commission regarding Arayat Institute, Inc. and was shocked to find gross deception and misrepresentation made by Emilio A. Santos; that records reveal that only seven (7) out of One Hundred Twenty One (121) alleged stockholders signed the Articles of Incorporation filed with the Commission; that out of the authorized capital stock of the Arayat Institute, Inc. in the amount of P30,720.00 divided into 3,072 shares at P 10.00 per share, Emilio Santos had 2,913 shares in consideration of the land he assigned to the corporation; that records further showed that only one lot was assigned to the corporation; that Emilio A. Santos disclaimed knowledge of the incriminating incidents and blamed his lawyer for what happened; that Emilio A. Santos made a solemn commitment that he would abide by the overriding principle and consideration behind the organization of the Arayat Institute, Inc. and to preserve peace and harmony among them, an agreement led to the withdrawal of the petition for reconstruction and the Arayat Institute, Inc. was recognized as a stock corporation; that on May 4, 1954 up to June 9, 1962, respondent Emilio Santos, as majority stockholder and in violation of the terms of agreement, received from the corporation various amounts as dividends in the total sum of P21,136.00; various demands for the return of the amount were made but to no avail, and so a civil suit was filed for the recovery of the amount where a decision was promulgated requiring the defendants to return the amount to the corporation; that in violation of the agreement, the late Felicidad Santos Vda. de Baluyot and the rest of the respondents, acting as heir and successor-in-interest of the late Emilio A. Santos, drew and collected on several occasions from Arayat Institute, Inc. the amount of P131,500.00 which they refused to account for and return the same notwithstanding repeated demands; that on June 16, 1973, the late Felicidad Santos Vda. de Baluyot acting in her own capacity and as heir of the late Emilio A. Santos, sold and transferred in favor of Arayat Institute Parents and Teachers Association, Inc. two parcels of land, one parcel with an area of 367 square meters more or less covered by TCT No. 541 37-R and the other with an area of 1,316 square meters covered by TCT No. 8434, together with the school building for an initial amount of P240,000.00 (Exh. "G") which was subsequently increased to P360,000.00 in an Amendatory Supplement (Exh. "H"); and that the amount collected in the sum of P360,000.00 properly belongs to the Arayat Institute, Inc. which respondents have not properly accounted for. Hence, the instant petition. In answer thereto, respondents alleged that it could not be ascertained as of this date if petitioners are indeed stockholders on record or such shareholding have been transferred; that if indeed there were such donations of the lots, construction materials, and other, petitioners should state the donors, donees or at least show copies of the alleged donation papers or official documents in relation thereto; that they deny the allegation that Arayat Institute, Inc. was formerly a non-stock corporation; that they admit that the controversy was amicably settled and an agreement was executed on May 15, 1951; that they deny the truth of the alleged withdrawal by the late Emilio S. Santos of the amount of P21,136.00 from the corporation; that the late Felicidad Santos Vda. de Baluyot owned and possessed in her own right one of the lots where the school building was erected; that the respondents did not take the place of the late Emilio A. Santos as majority stockholders in matters concerning the Arayat Institute, Inc. since they acquired shares of stock in their own right; that to put an end to all litigation, respondents agreed to the sale of the parcels of land and of the school facilities to Arayat Institute Parents and Teachers Association, Inc.; that the increase in the purchase price of the parcels of land was upon agreement with the Arayat Institute Parents and Teachers Association, Inc. and primarily caused by the failure of the latter to faithfully comply with the Deeds of Sale and Real Estate mortgage; and that it should be petitioners who should be the one to pay respondents actual, moral and exemplary damages and attorney's fees in such amount as the Commission may determine. Proof adduced by petitioners consists of the testimony of petitioner Amelito Mutuc and witness Venancio Kabigting. Evidence for the petitioners show that in 1932, a group of civic spirited residents of Arayat, Pampanga led by the School Superintendent Canuto Santos, Vicente Pascual, Emilio A. Santos, Francisco Pongco, Dr. Esteban Medina, Jose Tinio and others organized the Arayat Institute, a non-stock, non-profit corporation for the purpose of putting up a high school in the town of Arayat, Pampanga, which corporation was duly registered with the Securities and Exchange Commission; that the parcel of land composed of two (2) lots owned by Emilio A. Santos was donated by the latter as the site of the school building; that the plans for the school was drafted by Vicente Pascual, an engineer, which was later known as the Emilio A. Santos Hall with all the construction materials donated by most of the towns people of Arayat together with the labor and after a year of construction, the Arayat Institute came into being; that in February 20, 1935, the government recognition was given to the Arayat Institute to operate and run a high school and its enrollment grow by leaps and bounds; that in December, 1941, the school suspended its classes because of the outbreak of the World War II but reopened after the end of the war; that subsequently thereafter, petitioner Amelito Mutuc together with Doa Magdalena Vda. de Rivera, Don Maximo Lapuz and Jose Tinio filed a petition for the reconstruction of the records of Old Arayat Institute with the Securities and Exchange Commission; that the petition was opposed by Emilio Santos saying that there was already a corporation that was reconstructed known as the Arayat Institute, Inc. which was filed on July 27, 1950 as evidenced by the copy of the Articles of Incorporation (Exh. "A"); that because of the opposition, petitioner Amelito Mutuc went to this Commission and scanned over the files of the Arayat Institute, Inc. and discovered the following defects in the papers, namely a) That only seven (7) out of the One Hundred Twenty One (121) who signed the original Articles of Incorporation signed said articles; b) that many of the 121 who signed the original articles did not know that they were not included as stockholders of the corporation and that there were many of those who donated more than P10.00 to the original non-stock, non-profit corporation that were not mentioned in the articles; (c) that out of the authorized capital stock of the Arayat Institute, Inc. in the amount of P30,720.00 divided into 3,072 shares of P10.00 per share, Emilio A. Santos allotted to himself 2,913 shares which were more than 95% of the total authorized capital stock of the corporation when the contribution of Emilio Santos to the latter was only the land where the school was located; that this was made possible because the Deed of Assignment of the land (Exh, "C") included therein the school building which was constructed through donations of construction materials by the townspeople of Arayat; that through fraud and misrepresentation, it was made to appear that building and the lots where it was erected was worth P23,000.00 justifying the assignment to him of the 2,913 shares out of the 3,072 shares; that when these facts were made known to Emilio A. Santos, the latter disclaimed knowledge of what appeared in the records and pleaded that the same be not spread because he wanted to run for Mayor of Arayat and that the case be settled amicably; that Emilio A. Santos made a solemn commitment that he would abide by the overriding principle behind the organization of the non-stock, non-profit corporation; that to preserve peace and harmony, a Memorandum of Agreement (Exh. "B") was executed and signed by Emilio Santos and his group and Amelito Mutuc and his group wherein the overriding principle behind the erection of the school was contained; that it was also stipulated clearly that Don Emilio Santos should not draw any profit nor dividend for his own benefit out of the school fund; that due to the Memorandum of Agreement, the petition for reconstruction with the Securities and Exchange Commission was withdrawn; that during the period from May 4, 1954 up to and including June 9, 1962, Emilio Santos, as majority stockholder and in violation of his commitment embodied in the agreement, received from the corporation various amounts of money as dividends and as salaries in the total sum of P21,136.00; that demand was made upon him to return to the corporation the said amount but he refused; that as a result of said refusal, a derivative suit was filed by the minority stockholders against Emilio Santos on July 23, 1963 with the former Court of First Instance of Pampanga but which complaint was dismissed; that an appeal was made to the Court of Appeals and judgment was rendered therein reversing and setting aside the dismissal of the former Court of First Instance of Pampanga wherein the Memorandum of Agreement (Exh. "B") was upheld and directing the appellee to return to the corporation the amount of P21,136.00 with interest with the further directive for defendant appellee not to commit any act contrary to the terms and conditions set forth in the agreement; that when Emilio Santos died, daughter Felicidad Santos Vda. De Baluyot as heir inherited the properties, rights and obligation of the deceased Emilio Santos; that on March 14, 1979, Felicidad Santos Vda. de Baluyot also died, leaving her children, all respondents herein, as heirs and successors-in-interest to the share in the Arayat Institute, Inc.; that demand was also made upon Felicidad Santos Vda. de Baluyot and the other respondents for the return of the sum of P21,136.00 with interest but to no avail; that again in violation of the afore-mentioned agreement, the respondents drew money from the Arayat Institute, Inc. every month and vouchers were signed by Milagros S. Baluyot (Exh. "E-1") and continuously for a total sum of P131,500.00 (Exh. "E") representing salaries from July 1963 to July 1973; that a formal demand was also made upon the respondents for the return to the corporation of the amount but the same was also refused; that on or about June 16, 1973, the late respondent Felicidad Santos vda. de Baluyot sold and transferred in favor of the Arayat Institute Parents and Teachers Association, Inc. two (2) parcels of land, one parcel with an area of 367 sq. meters more or less covered by TCT No. 34137 R of the Register of Deeds of Pampanga in her name which land was supposed to have been assigned to Arayat Institute on May 26, 1950 by Emilio A. Santos but was omitted and was not transferred and the other parcel of land with an area of 1,316 sq. m. more or less under TCT No. 8434 in the name of Arayat Institute, Inc. together with the school building erected therein initially for the sum of P240,000.00; and that the stipulated price was increased to P350,000.00 in an amendatory supplement executed on August 10, 1977 and on the basis of these transaction, respondents managed to collect from the Arayat Institute Parents and Teachers Association, Inc. an aggregate sum of P295,600.00 which should belong to the Arayat Institute, Inc. but not a single sum has been accounted for by the respondents. Venancio Kabigting, a former Assistant Treasurer of Arayat Institute, Inc. testified that he was formerly connected with the latter as Assistant Treasurer until his retirement in August 23, 1985; that his duties as such were to collect tuition fees from the students and whatever legitimate income due to the school and to disburse funds as approved by the Treasurer; that he was the custodian of the funds of the school; that he is working with Milagros S. Baluyot, the Treasurer and who is the daughter of respondent Felicidad; that during the time that he was still working as Assistant Treasurer of the corporation, Milagros S. Baluyot, as Treasurer and other relatives of her who were acting as officers of the corporation drew sums of money as salaries and other benefits; that the withdrawals were all evidenced by documents or papers such as the trial balance and the corresponding vouchers; that he was the one who prepared all these documents and that the documents containing the amount represents the salaries which respondents took from the school from 1963 to 1973. On July 5, 1988, the scheduled hearing for the reception of the respondents' evidence, the latter and their counsel failed to appear, and upon motion of the counsel for the petitioners, the case was considered submitted for decision thirty (30) days after submission of the memorandum. It appears clearly from the evidence adduced, both oral and documentary, in the absence of controverting evidence, that Emilio Santos drew a large sum of money from the corporate funds allegedly as salaries or dividends from his shares, all in gross violation of the Memorandum of Agreement. As Emilio A. Santos was able to collect from the school sums of money in the guise of salaries and other benefits, so were other respondents able to collect and withdrew from the coffers of the school huge amounts representing salaries, by virtue of the fact that they are successors-in-interest of the late Emilio Santos, and all in flagrant violation of the terms and conditions of the Memorandum of Agreement (Exh. "B"). The respondents, whether acting in concert with each other or independently, could have no other purpose or design than to defraud the school and frustrate the overriding consideration behind the establishment of the school. Though apparently, the Memorandum of Agreement has no general applicability, being circumscribed only to parties who are signatories to it, yet it is to be noted that under its terms and conditions the other respondents are included being the successors-in-interest of Emilio A. Santos. Such being the case, the other respondents are covered by the mandatory provisions of the agreement to the effect that they shall not receive from the school any salaries or dividend. The legality and validity of the Memorandum of Agreement was upheld by no less than the Court of Appeals in CA. G.R. No. 34616-R, when it ruled that resolution passed by the Board of Directors could not validly render the agreement nugatory and ineffective. That Emilio A. Santos and the other respondents had collected salaries from the school in violation of the agreement is well borne out of the records . As appearing on record, Emilio A. Santos had withdrawn from the school various amounts of money as dividends and salaries in the sum total of P21,136.00 covering the period from May 4, 1954 up to and including June 9, 1962. Likewise, respondent Felicidad Santos Vda. de Baluyot and the other respondents also drew money from the school in the sum total of P131,500.00 as salaries every month and continuously from July, 1963 to July 1973. And while respondents' name do not appear on the copy of the vouchers, their designation were reflected therein, showing clearly that the amounts were really intended for them. The testimony of witness Venancio Kabigting on this point remained uncontroverted. Anent the charge that not a single sum has been accounted for by the respondents regarding the proceeds of the sale of two (2) parcels of land in favor of the Arayat Institute Parents and Teachers, Inc. which amounted to P295,600.00, these facts were indubitably established during the hearing. Evidence on record shows that the two (2) parcels (Exhibits "A-2", A-3" and "C") of land belong to the Arayat Institute, Inc. by virtue of the donations made by Emilio A. Santos respecting the same. When the respondent Felicidad Santos Vda. de Baluyot sold the two (2) parcels of land, knowing fully well that the aforesaid properties are assets of the corporation, she is mandated to remit to the corporation the proceeds of the sale. Her bounden duty as President, is to promote the interest of the school and certainly not to undermine the same. In the light of these uncontroverted facts, the conclusion becomes inevitable that respondents are liable as charged. WHEREFORE, judgment is hereby rendered directing the respondents to return to the corporation the amount of Twenty One Thousand One Hundred and Thirty Six (P21,136.00) Pesos and One Hundred Thirty One Thousand and Five Hundred (P131,500.00) Pesos with interest from the time the petition was filed. Respondents are further directed to account for the proceeds of the sale of two (2) parcels of land and deliver the said amount to the corporation. LLpr No pronouncement as to cost. SO ORDERED. (SGD.) ALBERTO P. ATAS Hearing Officer