Soledad Papa, et al. vs. Rafaela Talusan-Papa

[SEC-SICD * CASE NO. 2789. October 10, 1989.] SOLEDAD PAPA, ET AL. , complainants , vs . RAFAELA TALUSAN-PAPA , respondent . D E C I S I O N This is an action for: (1) accounting of corporate funds due to alleged mismanagement by respondent; (2) appointment of a receiver and/or creation of a management committee; and, (3) damages. prcd The undisputed facts are as follows: The original complaint was amended because of the death of complainants Bertin Papa and Angel Papa, brothers-in-law of respondent, and were substituted herein by their respective heirs. Individual complainants and respondent are close relatives, the latter being the sister-in-law of four (4) of the individual complainants and aunt of the other two (2) individual complainants. Long before the incorporation of complainant Radio City Telephone Company, Inc. (RCTCI, for short) in 1980, the telephone systems in the municipalities of Meycauayan, Sta. Maria, Marilao and Bocaue, all in the province of Bulacan, were then owned and/or controlled by the late Ernesto Papa (husband of respondent). The franchises of the telephone services in Meycauayan and Marilao were issued by the Public Service Commission to the late Ernesto Papa. The franchise for Sta. Maria was issued to Meycauayan Telephone System Co., a single proprietorship. In its undated Decision granting the franchise to Meycauayan Telephone System Co., the Public Service Commission found that "the telephone system operated by the applicant is the property of Ernesto A. Papa." The franchise for Bocaue was issued to Radio City Telephone Company, a then registered partnership of which the late Ernesto Papa was the managing partner owning 76.4% interest therein. This partnership, however, was dissolved on August 23, 1971. Thereafter, the telephone system thereat continued to be operated by Radio City Telephone Company (now a single proprietorship) owned and controlled by the late Ernesto Papa. On February 14, 1980, complainant RCTCI was duly registered with this Commission as a telephone company for a term of fifty (50) years and its primary purpose as appearing in its Articles of Incorporation reads as follows: "To establish, install, operate and maintain telephone system in the municipality of Meycauayan, Bocaue, Marilao, Sta. Maria and in the municipalities of the province of Bulacan and/or any municipality, city or province in the Philippines to be used by the general public as a means of communication in those places and/or with the other municipalities, cities or provinces in the Philippines." "To apply for issuance of permits, licenses and certificates of public convenience and necessity or in any manner acquire, purchase, sell, lease the same in accordance with the law." The following persons appear as incorporators/directors of complainant RCTCI, namely: 1. Ernesto A. Papa (deceased husband of respondent); 2. Bertin A. Papa (now deceased and substituted in this case by his surviving heir, complainant Soledad Papa); 3. Angel A. Papa (now deceased and substituted in this case by his surviving heir, complainant Selena Papa); 4. Amando A. Papa (one of the complainants); 5. Aurora P. Bragais (one of the complainants); 6. Julia A. Papa (one of the complainants); 7. Delfin A. Papa, Jr. (one of the complainants) and the respondent as Treasurer thereof. The authorized capital stock of complainant RCTCI is TWO MILLION PESOS (P2,000,000.00) divided into Twenty Thousand (20,000) shares with a par value of ONE HUNDRED PESOS (P100.00) each. Out of this authorized capital stock, FOUR HUNDRED THOUSAND PESOS (P400,000.00) had been actually subscribed in the ratio of 60% for the late Ernest Papa and 40% for the individual complainant's group. On December 6, 1984, respondent's husband, Ernesto Papa, died and thereafter a controversy arose between the individual complainants and the respondent which culminated in the filing of the instant case. cdlex Complainants, in their amended complaint, alleged, inter alia, that subsequent to the issuance by this Commission of Certificate of Registration for Complainant RCTCI, individual complainants were made to sign the By-laws of complainant RCTCI wherein Ernesto Papa was named President and Manager thereof; that complainant RCTCI had acquired several assets and had been operating the telephone business in Marilao, Meycauayan, Bocaue and Sta. Maria, Bulacan deriving therefrom sufficient earnings and income; that through the representation of the late Ernesto Papa, the individual complainants have entrusted to the former and his wife, the respondent herein, the control, supervision and management of complainant RCTCI; that prior to the death of Ernesto Papa, individual complainants have demanded for the appraisal and evaluation of all the assets of complainant RCTCI but they failed due to the moral ascendancy of the late Ernesto Papa; that respondent had utilized the complainant RCTCI to perpetrate fraud and commit acts detrimental to individual complainants; that respondent was guilty of mismanagement as shown by the following: 1. Non-filing of By-laws; 2. Non-filing of Financial Statements from 1980 up to the present; 3. Non-filing of statement of sources and application of funds; 4. Non-filing of directors' certificate and/or reports; 5. No calling of stockholders' meeting; 6. No election of directors; 7. No appointment of officers; 8. Non-issuance of certificates of shares of stocks; 9. No declaration of dividends; and 10. Non-filing of other required reports, papers or documents with the Commission. That after the death of her husband, respondent continued to commit such acts, devices and schemes amounting to fraud and misrepresentation which are detrimental to the interest of the individual complainants and the public, that respondent continued to operate the complainant RCTCI and dispose of its properties without authority of law or consent of the individual complainants; that the properties of complainant RCTCI are in danger of being lost, removed or materially injured; and, that it would be for the best interest of the complainants that a receiver be appointed or a management committee be created to preserve such properties, as well as the rights and interests of stockholders. Respondent, in her answer, denied all the material allegations in the amended complaint, and alleged, among others, that complainant RCTCI did not formally organize and commence the transaction of its business, hence, not existing; that the telephone business in the municipalities of Marilao, Meycauayan, Bocaue and Sta. Maria, Bulacan was the business solely of the conjugal partnership of the late Ernesto Papa and the respondent which business was conducted by them even long before the formation of the complainant RCTCI in 1980; that complainant RCTCI was only a "paper corporation" and was constituted merely to enable the telephone firm, owned and managed solely by the conjugal partnership of the late Ernesto Papa and the respondent, to borrow money from banking institutions for its expansion project; that individual complainants' group were included as incorporators/ directors therein only to satisfy the requirements of the Corporation Law (Act No. 1459) which was the law then in force; that no amount, however, was ever borrowed for the expansion of the telephone firm of the conjugal partnership of the late Ernesto Papa and the respondent due to the refusal of the individual complainants to co-sign the loan application with respondent's husband; that individual complainants did not pay a single centavo for their subscription, the amount appearing in the Articles of Incorporation of complainant RCTCI having been put up or paid by the conjugal partnership of the late Ernesto Papa and the respondent: that there was really no calling of stockholders' meeting, no election of Directors and no appointment of officers because complainant RCTCI has neither been organized nor at anytime been in operation; that the Certificates of Public Convenience and Necessity of the telephone firm are solely in the name of the late Ernesto Papa and/or entities controlled by him; that as a consequence of the filing of the instant Amended Complaint, respondent has suffered moral damages and has incurred expenses and attorney's fees to protect her interest. From the pleadings filed by the parties it becomes clear that the issues to be resolved are: 1. Whether or not complainant RCTCI had formally organized and commenced the transaction of its business within two (2) years from the time of its incorporation on February 14, 1980; 2. Whether or not the telephone business is owned by complainant RCTCI; 3. Whether or not complainants are entitled to their prayer for accounting, appointment of a receiver and/or creation of a management committee for complainant RCTCI; and, 4. Who should be entitled to claim for damages and attorney's fees. Complainant RCTCI started to have juridical personality and legal existence on February 14, 1980 when its incorporators were issued a certificate of incorporation under the seal of the Commission. [(Section 11 of The Corporation Law, Act 1459, now Sec. 19 of The Corporation Code of the Philippines (Corporation Code, for short)]. Section 19 of the Corporation Law which was the law in force when complainant RCTCI was incorporated provides: "If a corporation does not formally organize and commence the transaction of its business or the construction of its works within two years from date of its incorporation, its corporate powers cease. . . . ." while Section 22 of the Corporation Code reads: "If a corporation does not formally organize and commence the transaction of its business or the construction of its works within two (2) years from the date of its incorporation, its corporate powers cease and the corporation shall be deemed dissolved. However, if a corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of at least five (5) years, the same shall be a ground for the suspension or revocation of its corporate franchise or certificate of incorporation. . . . ." The above-quoted provisions of law speaks of the consequences if a corporation fails to formally organize and commence the transaction of its business. Formal organization of a corporation refers to the process of structuring the corporation in order that it can carry out the purposes for which it has been incorporated. It includes the adoption of by-laws, the filing of the same with the Commission, the election of the board of directors, the election or appointment of officers pursuant to the by-laws, establishment of the principal office, providing for the subscription and payment of the capital stock, and such other steps necessary to enable it to transact the legitimate business for which it was created. Thus, it was held that: "'Organize' or 'organization' as used in reference to corporations, has a well understood meaning, which is the election of officers, providing for the subscription and payment of the capital stock, the adoption of by-laws, and such other steps as are necessary to endow the legal entity with the capacity to transact the legitimate business for which it was created." (Benguet Consolidated Mining Co. vs. Pineda, G.R. No. L-7231, March 28, 1956, 98 Phil. 711). From the evidence presented, both documentary and testimonial, as well as the admissions made by the parties in their respective pleadings, it appears that since the inception or incorporation of complainant RCTCI, the latter has not filed any by-laws, financial statement, statement of sources and application of funds. Neither has there been any stockholders' meeting, election of directors, election or appointment of officers nor compliance by complainant RCTCI of filing the other reportorial requirements of the Commission. Evidently, therefore, complainant had failed to formally organize. As to whether complainant RCTCI had commenced the transaction of its business or the construction of its works within two (2) years from the date of its incorporation is likewise doubtful. It cannot be gainsaid that prior to the incorporation of complainant RCTCI, the telephone systems in the municipalities of Meycauayan, Sta. Maria, Marilao and Bocaue have already been existing. The franchises covering the telephone services in said four (4) towns of Bulacan are in the names of the late Ernesto Papa and other companies controlled by him. Likewise, the telephone facilities in Sta. Maria, Bulacan consisting of a building, telephone switchboard, long distance tools station, outside plant installation and office furnitures and equipment, as well as the properties located in Meycauayan, Bulacan consisting of telephone switchboard, cables and accessories, office furnitures and equipments and transportation vehicles belong to Radio City Telephone Company, a single proprietorship, owned and controlled by the late Ernesto Papa. Notwithstanding the fact that complainant RCTCI was organized on February 14, 1980 to operate the telephone systems in the towns of Meycauayan, Bocaue, Marilao and Sta. Maria, as provided for in complainant RCTCI's primary purpose, the complainants failed to present any evidence to prove that complainant RCTCI has, in fact, established, installed, operated and maintained telephone systems in said four (4) towns of Bulacan. Complainants likewise failed to establish by any evidence that complainant RCTCI has, in fact, applied for issuance of permits, licenses and certificates of public convenience. Neither has it acquired, purchased or leased the same in accordance with law. In short, complainant RCTCI has no franchise, no certificate of public convenience and necessity, no telephone service equipment and facilities and, except for the P100,000.00 paid-in-capital, it has no assets and no revenues. Besides, the individual complainants have never participated in the management of the telephone business. Verily, the foregoing facts would readily show that complainant RCTCI could not have commenced the transactions of its business. On the other hand, it has been shown that as early as March 31, 1980 or barely a month after the incorporation of complainant RCTCI, the late husband of the respondent had already a pending loan application for the purpose of expanding and improving the telephone facilities. On March 10, 1982 and March 9, 1984, the late husband of the respondent had again taken steps to secure a loan from the Private Development Corporation and Liberty Savings & Loan Association, Inc., respectively, to acquire an automatic exchange for the telephone facilities in the four (4) towns of Bocaue, Meycauayan, Marilao and Sta. Maria, Bulacan. By and large, it is the well considered opinion of this Hearing Officer that complainant RCTCI is a "paper corporation" and was constituted merely to enable the telephone firm, owned and managed solely by the conjugal partnership of the late Ernesto Papa and the respondent, to borrow money from banking institutions for its expansion project and that the individual complainants' group were included therein as incorporators/ directors only to satisfy the requirements of the Corporation Law. The second issue which is whether or not the telephone business is owned by complainant RCTCI needs no further discussion in the light of the earlier conclusion that except for the P100,000.00 paid-up capital, complainant has no assets and no revenues. Suffice it to say that after the death of the late Ernesto Papa, the aforesaid telephone systems in the four (4) towns of Bulacan became part of the estate of the latter and have since then been managed by the respondent and her children. With respect to the prayer for accounting, the same should be denied for lack of merit. It must be noted that in the field of accountancy, as well as in the legal circle, accounting has been defined as: "The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof." (People vs. Orbiso, 18193-CR, July 28, 1980, Cited in The Philippine Law Dictionary, by Federico B. Moreno, Third Edition, p. 18). llcd It is, therefore, clear that if one demands for an accounting of corporate funds, it presupposes that there were some transactions or events in terms of money which have to be recorded, classified and summarized, and thereafter interpreted as to the results thereof by the person to whom the demand was made. Hence, if there is no transaction, there is nothing to account. In the instant case, no evidence was presented to show that respondent had entered into some kind of transaction for or against complainant RCTCI. Moreover, considering that complainant RCTCI had failed to formally organize and commence the transaction of its business or the construction of its works within two (2) years from the date of its incorporation, there could not be a single transaction entered into by the complainant itself for or against it. Consequently, there is nothing to account for and in behalf of complainants. On the prayer for the appointment of a management committee, the same should likewise be denied for being unmeritorious. Section 6, (d) of P.D. 902-A provides: "SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx xxx xxx "(d) To create and appoint a management committee, board or body upon petition or motu proprio to undertake the management of corporations, partnerships . . . in appropriate cases when there is imminent danger of dissipation, loss, wastage or destruction of assets of other properties or paralyzation of business operations of such corporation or entities which may be prejudicial to the interest of minority stockholders, parties-litigants or the general public." In the light of the foregoing provisions of law, and considering the above-findings of this Hearing Officer that complainant RCTCI has no assets except for the P100,000.00 paid-up capital, the alleged dissipation, loss, wastage or destruction of assets of complainant RCTCI by the respondent has no basis in fact and in law. Hence, there is no need for the creation of a management committee. The same holds true with respect to the appointment of a receiver. Anent the matter of damages, both parties failed to show proof which would entitle any of them to claim for it. Respondent, however, was able to show proof of her claim for attorney's fees consisting of statements of account, cash vouchers and checks paid to her counsel and upon consideration thereof, this Hearing Officer deems it just and equitable that the attorney's fees paid by the respondent to her lawyer, who had devoted his time and efforts in handling the case for the respondent, should be recovered. WHEREFORE, judgment is hereby rendered: 1. Dismissing the instant case; 2. Dissolving Radio City Telephone Company, Inc.; and, 3. Ordering the complainants to pay attorney's fees to respondent in the amount of TWENTY NINE THOUSAND EIGHT HUNDRED PESOS (P29,800.00). Let copies of this DECISION be furnished the Corporate and Legal Department for its information and guidance and the Records Division to be attached to and shall form part of the records of the corporation concerned. SO ORDERED. (SGD.) ROLANDO C. MALABONGA Hearing Officer