Langas Philippines Corp., et al. vs. Rudy N. Lantano, Et. Al

[SEC-SICD * CASE NO. 2522. May 19, 1987.] LANGAS PHILIPPINES CORPORATION, ET AL. , complainants , vs . RUDY N. LANTANO, ET AL. , respondents . D E C I S I O N This complaint is filed by Raymundo L. Verano, Pura A. Verano, Cheryl A. Verano and Langas Philippine Corporation against the respondents principally to seek redress on the fraudulent acts the latter allegedly committed, and for recovery of complainants' advances and damages. Complainants allege, among others, that Langas Philippine Corporation is a domestic corporation organized and registered under the laws of the Philippines with the primary purpose of operating and carrying on the business of manufacturing, buying and selling of alcohol, gas and etc.; that complainants Raymundo L. Verano, Pura A. Verano, Cheryl A. Verano and respondent Rudy N. Lantano are all stockholders of the Corporation; that on the organizational meeting of the Board of Directors held on July 24, 1982, respondent Rudy N. Lantano was elected Chairman, President and General Manager while complainants Raymundo L. Verano and Cheryl A. Verano were elected Vice-President and Asst. General Manager and Treasurer, respectively; that respondent Rudy Lantano's position as President and Chairman of the Board of Directors of the Corporation was pursuant to his professional skill as an inventor of Langas, a blend of 60 percent anhydrous alcohol, 38 percent gasoline and 2 percent additive and pursuant to existing laws on tax exemption, the inventor shall be entitled to fifty-one (51%) percent of the total paid-up capital stock of the corporation; that due to utmost trust and confidence reposed by the members of the Board of directors, more particularly from the Verano's, who are the financier of the corporation and thru the use of insidious words and machinations of respondent Rudy N. Lantano, the Verano's gave several cash advances to the corporation thru respondent Lantano in a total amount of Four Hundred Seventy Thousand Three Hundred Twenty Six Pesos and 22/100 (P470,325.22) for the expenses of organization, purchases of machineries, construction and working capital of Langas Philippine Corporation; that prior to the incorporation of Langas Philippine Corporation, respondent Lantano and his counsel, Atty, Manuel B. Tomacruz, who is also the corporate secretary of Langas Philippine Corp., assured complainants that Eulofil Corporation, a corporation likewise engaged in manufacturing and sale of Langas Oil has been inactive and inoperative for more than three (3) years due to financial and internal problem; that to further convince complainants to invest funds with Langas Philippine Corporation, respondent Lantano introduced complainants to respondent Teofista Payuran Tinitigan, the Vice-President and Treasurer of Eulofil Corporation, who likewise assured complainants that Eulofil Corporation has ceased operation; that while complainant Raymundo L. Verano was holding the position as Assistant General Manager, yet he never assumed that office, for respondent Lantano completely controls the affairs of the Corporation; that to further impress complainants of his sincerity, respondent Lantano operated Langas Philippine Corp. at Bacolod City for three (3) months most particularly from the month of September to November of 1982, but later on respondent Lantano has notoriously sabotaged the operation of Langas Philippine Corporation by producing substandard langas fuel which is not in accordance with the formula or specification approved by the Philippine Invention Development Institute and his approved patent, thus, customers in Bacolod and Negros Occidental who bought langas fuel at Philippine Langas Corporation have complained that such fuel caused damaged to their motor engines and have threatened to file suit against the corporation; that on December 1982, respondent Lantano has completely abandoned the operation of the Corporation in Bacolod City, leaving complainants with an empty bag, including the advance investment of Four Hundred Seventy Thousand Three Hundred Twenty Six Pesos and 22/100 (P470,326,22) and other miscellaneous expenses incurred; that respondent Lantano's alleged investments to the corporation in the form of personal properties was never formally transferred in the name of the Corporation; that after divesting complainants of the sum of P470,326.22, under the guise that said sum of money will be used and/or expended for the benefit of Langas Phil. Corporation respondent Lantano actually channelled said funds in favor of Eulofil Corporation wherein complainants have no interest at all; that the channelling of funds by respondent Lantano to the dormant Eulofil Corporation for reactivation at the expense of the complainants is a clear case of breach of trust and that the malicious and malevolent acts and with intent of personal gain and serious and blatant breach of trust committed by respondent Rudy Lantano as Officer and Director of Langas Philippine Corporation has prejudiced and damaged the rights and interest of the complainants. On October 14, 1983, the Commission granted the complainants' prayer for the issuance of an ex-parte writ of Preliminary Attachment; and upon complainants posting of a bond in the amount of Nine Hundred Thousand Pesos (P900,000.00) Philippine Currency, a writ of Preliminary Attachment against respondent Lantano was issued on October 17, 1983. Upon motion of the complainants, a hearing on the propriety for the issuance of a writ of preliminary attachment against respondent Teofista Payuran Tinitigan was conducted and on February 2, 1984, the Commission issued an Order denying the issuance of an Attachment against respondent Tinitigan. On the other hand, respondents filed a motion to dismiss but was likewise denied by the Commission in its Order dated December 23, 1983. Respondent filed their answer specifically denying the material allegations in the complaint and in their special and/or affirmative defenses they alleged that complainants have no cause of action against respondents, particularly respondent Teofista P. Tinitigan since she is not an incorporator, a stockholder nor officer of Langas Philippine Corporation; that since the amount stated in Annex "B" of the complaint represents advances to the corporation which is subject to reconciliation at the proper time thus is a corporate indebtedness, any cause of action arising from said Annex "B" should be treated as against the corporation and not as against respondents; that the alleged controversy in the above-entitled case does not involve an intra-corporate matter, but is in the nature of a collection suit and therefore jurisdiction belongs to the regular court; that respondent Tinitigan did not make any representations to complainant Verano regarding the status of Eulofil Producers, Inc. because the truth of the matter is that the latter corporation has long been in existence even before Langas Philippine Corporation was established or organized and further deny that respondent Teofista P. Tinitigan was privy to any arrangement entered into between complainants and respondent Rudy Lantano prior to, during and after the establishment of Langas Philippine Corporation; that respondent Lantano contributed to Langas Philippine Corporation not only his services and skill as an inventor but also the use of his equipment; that while it is true that complainant Verano made cash advances but said cash advances were made to the corporation and payable by the corporation only upon the availability of corporate funds and that the amount supposedly contributed by complainant Verano to the Corporation which he claims to be P470,326.22 is an exaggerated one; respondent Lantano did not abandon the project and/or corporation but it was the complainant Verano's failure to put additional cash for operation expenses and/or inability to support the operations of the corporations which compelled respondent Lantano to stop production; that all funds actually advanced by complainant Verano to Langas Philippine Corporation through respondent Lantano were disbursed properly and with the knowledge and/or participation of the former and not a single centavo was diverted or attempted to be diverted for the use, directly or indirectly, of Eulofil Producers, Inc.. Hearings were conducted and both parties presented documentary and testimonial evidence. From the evidence submitted by the parties both testimonial and documentary, the following undisputed facts were duly established: LibLex Petitioner Langas Philippine Corporation was organized and duly registered with the Securities and Exchange Commission on July 5, 1982, the primary purpose of which is to engage in, conduct, operate and carry on the business of manufacturing, purifying, buying, selling and/or otherwise dealing in chemicals, alcohol, kerosene, gas, minerals, synthetic or natural and etc. The officers of the corporation at the time the corporation was in operation are: Rudy N. Lantano Chairman/President and General Manager, Raymundo L. Verano Vice-President and Asst. General Manager, Manuel B. Tomacruz Corporate Secretary and Cheryl A. Verano Treasurer. The Corporation started operation on September 1982 and lasted to November 1982. Within this period of operation, the corporation was able to manufacture Langas Oil (a blend of 60% anhydrous alcohol, 38% gasoline and 2% additive) and sold to the general public more particularly in Bacolod City and in the province of Negros Occidental. The Corporation completely ceased to operate when respondent Rudy N. Lantano, the inventor, left Bacolod on December 1982. That the principal role of Respondent Rudy N. Lantano, the inventor, is to manufacture Langas Oil while complainant Raymundo L. Verano is the financier of the Corporation. Respondent Teofista Payuran Tinitigan is neither stockholder nor officer of Langas Philippine Corporation. Complainant Raymundo Verano made some advances to Langas Philippine Corporation, thru its President and General Manager Rudy N. Lantano in the amount of Four Hundred Seventy Thousand Three Hundred Twenty Six Pesos and 22/100 (P470,326.22), which the latter acknowledged on November 8, 1982. While respondent Lantano acknowledged the receipt of said amount of P470,326.22, it was likewise established that said amount was received by him in separate and/or different occasions. Respondent Rudy N. Lantano is likewise the President and General Manager of Eulofil Producers, Inc., a corporation engaged in the same line of business with Langas Philippine Corporation. On the other hand, machineries and equipment listed in Exh. 3 are owned by respondent Lantano but were being used by the corporation in the manufacture and/or production of Langas Oil. Based on the pleadings filed by the parties, the principal issue to be resolved by this Commission, is whether or not respondents, particularly respondent Rudy N. Lantano, committed fraudulent and/or unlawful acts which are injurious and prejudicial to the interest of the complainants. Upon careful perusal of the facts and the evidence so adduced, the Commission is of the belief that respondent Rudy Lantano is guilty of a breach of trust as officer and director of Langas Philippine Corporation wherein he fraudulently misapplied or converted complainants' advanced investments to the corporation for his own personal use and benefit. It must be recalled that before Langas Philippine Corporation was formally organized, prior meetings between the Veranos and respondents were had and assurances were made by the respondents to the complainants that Eulofil Products, Inc, a corporation engaged in the manufacture and/or production of Langas Oil (a mixture of 60% anhydrous alcohol, 38% gasoline and 2% additive), had already ceased to operate. It was on the assurance of the respondents, who are the top officers of Eulofil Products, Inc. that led to the legal formation of Langas Philippine Corporation on July 5, 1982. Undisputed facts indicated that complainant corporation, thru Raymundo Verano financed the business operation while respondent Lantano, as an inventor, would in return concentrate on the manufacture and/or production of the Langas Oil in accordance with the approved formula by the Bureau of Energy Utilization and the Philippine Invention Development Institute. After the equipment and machineries (Exh. "3") arrived in Bacolod City from Manila and all other preparations for operation were completed, the corporation started operating manufacturing and/or producing Langas Oil on September, 1982 and its product was sold to the public until November, 1982. Notwithstanding respondent Lantano's role in the corporation, he left Bacolod City for Manila on December, 1982, on the pretext that the financier has run out of funds, without any more returning back to Bacolod City thereby totally paralyzing the production of Langas Oil and/or the business operation of the Corporation. It could not be denied that at this point in time, complainants, through Raymundo Verano, had already advanced so much money to the corporation as indicated in Exh. "A" which respondent Lantano acknowledged on November 8, 1982. While it is true that the cash advances in the amount of P470,326.22 for expenses of organization, transportation, purchase of machineries, construction of plant building and gas station and working capital for Langas Philippine Corporation, is refundable to Verano only if corporate funds are available, nevertheless, the very act of respondent Lantano, who is the inventor and whose principal role in the corporation is to manufacture Langas Oil, in abandoning the corporation will in no way allow the Corporation to do business to be able to refund or pay the said advances. Thus, it would be impossible to believe that the subject corporation could still generate funds with out the person who is the soul and heart of the corporation. As stated above, respondent Lantano is the inventor of the product the corporation would produce and therefore, success of the business of the corporation is completely dependent upon the sole will of respondent Lantano. When respondent Lantano surreptitiously abandoned the operation of Langas Philippine Corporation in Bacolod City and returned to Manila to reactivate a dormant Eulofil Products, Inc., after receiving the cash advances for Langas Philippine Corp., the same is considered to be a serious breach of trust as Director and Officer of Langas Philippine Corporation. Evidence shows that after respondent Lantano left Bacolod City he directly went back to Eulofil Products, Inc. in Paraaque, Metro Manila to revive the operation of said corporation and later on manufacture and produce Langas Oil and sold it to the public. With these facts, the only logical conclusion after respondent Lantano acknowledged to have received the cash advances is that the former could have used it either for his own personal use and benefit and/or part of it was being used in the reactivation of the business operation of Eulofil Products, Inc., which has long been dormant as intimated to the complainants by the respondents. Nonetheless, even assuming that the cash advances were used for the Langas Philippine Corporation, still by abandoning it and rejoining the Eulofil Products, Inc., respondent Lantano has committed a serious breach of trust as a director and officer of the Langas Philippine Corporation. It is to be noted that the resumption of operation of Eulofil Products, Inc., was made evident when said operation was published in the newspaper of general circulation for three (3) days (Exhibits "E", "C" and "D") and later on confirmed by no less than complainant Raymundo Verano that Eulofil Products, Inc., was operating again when he was able to buy Langas Oil in the pumping station of Eulofil Products, Inc. located in Paraaque, Metro Manila. (Exhibits "E" and "F"). Another point which this Commission finds is that the machineries and equipment (Exh. "3") which were used by the Langas Philippine Corporation are yet owned by respondent Rudy Lantano and up to now, despite the agreement, ownership of said machineries was never transferred to the corporation. This fact only shows that even the amount allotted for the purchase of machineries which he likewise acknowledged to have received were diverted by the respondent Lantano to other purpose other than the purpose for which it was intended. While this Commission finds that there was breach of trust, as well as, diversion of corporate funds committed by respondent Lantano, no sufficient evidence was introduced by complainants to prove that conspiracy to commit fraud existed among respondents Lantano, Teofista Payuran Tinitigan and Eulofil Products, Inc. Neither complainants presented sufficient proofs during the hearing that respondent Lantano's fraudulent actions were sanctioned by Eulofil Products, Inc., and/or respondent Teofista Tinitigan. WHEREFORE, in consideration of all the foregoing, this Commission finds and so holds that respondent Rudy Lantano committed serious breach of trust as President, General Manager and Director of Langas Phil. Corporation to the damage and prejudice of the complainants by wantonly rejoining the Eulofil Products, Inc. and fraudulently misapplying and/or converting to his own personal use and benefit corporate funds and is hereby ordered: 1. To refund the Langas Philippine Corporation all the cash advances acknowledged to have been received by respondent Rudy Lantano in the amount of P470,326.22 pesos within thirty (30) days from finality of this Decision. As regards the case against respondent Teofista Payuran Tinitigan, the same is hereby DISMISSED. No pronouncement as to cost and attorney's fees. SO ORDERED. (SGD.) JAMES R. ABUGAN Hearing Officer