August Quesada vs. Conrado Quesada, et al.

[SEC-SICD * CASE NO. 2901. November 7, 1988.] AUGUST QUESADA , petitioner , vs .CONRADO QUESADA, ET AL. , respondents . D E C I S I O N In a petition filed with this Commission, petitioner alleged, inter-alia that he, together with his father Eugenio C. Quesada (now deceased),mother Engracia A. Quesada, brothers Conrado A. Quesada, respondent in this case, Hector A. Quesada and sister Angelita Quesada-Ejercito are the incorporators and directors of Eugenio Quesada, Inc.,the other respondent; that in the July 7, 1985 board meeting, petitioner was duly elected Treasurer; that notwithstanding his election, respondent Conrado Quesada, in his capacity as General Manager, refused to recognize him as Treasurer, usurped his functions and refused to turn over to him all the books of accounts, financial records, bank accounts, checks and other financial records of the respondent corporation; respondent Conrado Quesada also refused petitioner of his right to inspect and/or photocopy any and all books of accounts and financial records of the corporation; that respondent Conrado Quesada has kept some of the corporate records in his residence and has used some of the corporate properties for his own personal use and has leased some of the corporate properties for dormitory use without the approval or consent of the stockholders and board of directors and the rentals collected were not reported and no accounting was ever made. Hence, petitioner prayed for an order to allow petitioner to exercise his duties as duly elected Treasurer; to allow petitioner to examine all books of accounts, financial statements/records. Petitioner likewise prayed for a writ of preliminary mandatory injunction to direct respondent to immediately turn over to petitioner all books of accounts, financial records, bank accounts, checks, passbooks and other corporate/financial records of the respondent corporation; to deposit any and all collections only in the official depository bank of the corporation; a writ of preliminary prohibitory injunction to enjoin the respondent Conrado Quesada from committing the acts complained of in the petition to create a Management Committee to supervise, administer and operate the business operations of the corporation and conduct an audit and inventory of all properties of the corporation. Petitioner finally prayed for damages and attorney's fees. LLjur In their Answer, respondents denied generally and specifically the allegations of the petition and set up special and affirmative defenses, synthesized as follows: 1. That stockholders' right of inspection is not absolute and should be denied, as in the instant case, if made in bad faith or when no good reasons were shown for such inspection; 2. That the duty to keep full and accurate account does not require the person in charge to render a bookkeeper's accounts of receipt and disbursement, for insofar as keeping books of accounts is concerned, respondent corporation merely complies with the minimum requirements of the BIR; 3. The herein respondent has already started presenting to the petitioner, through the corporate secretary, cash books, rental collections, receipts vouchers, expenses receipt checks representing rental payments and other documents; 4. That some other documents are no longer available particularly those that were kept at the residence of respondents because they were destroyed by termites; 5. That petitioner, who is a petroleum engineer, cannot effectively act as Treasurer and allowing him to act as Treasurer would be inimical to the interest of the corporation; and 6. That said petitioner is also estopped from conducting an audit of the corporation and not having any genuine purpose for such audit, his acts are hostile to the corporation as it merely divides-the family stockholders and directors and hampers the business of the corporation. During the hearing on the injunctive reliefs prayed for on December 6, 1985, the parties, through their respective counsel, agreed on the following: 1. That petitioner August Quesada and/or his authorized representative shall be permitted by the respondents to conduct an examination and/or inspection of all available records of all business transactions of the respondent corporation at reasonable hour on business day at its principal office; LexLib 2. That all payments made by clients/customers shall be made payable to the corporation, duly receipted in its name and to be deposited at the principal bank accounts of the corporation at the PCIB (Bangbang Branch); 3. That the two (2) Board Resolutions dated July 7 and 14, 1985 were both admitted by the respondents as to its due execution and genuineness; 4. That after the appropriate examination and/or inspection have been duly completed by the petitioner, the functions of the Office of the Treasurer shall be exercised/performed by whoever is duly appointed/elected therein. Subsequently, petitioner filed an Urgent Ex-Parte Motion to Compel Respondent Conrado A. Quesada to comply with SEC Order dated January 10, 1986 ,alleging, among others, that immediately after the approval by the Commission of the Agreement on January 10, 1986, petitioner retained the services of the accounting firm of Banaria, Banaria and Company for and in behalf of the corporation, for the purpose of conducting a physical inventory and initial survey of the existing books and records for the years 1985 and prior years pursuant to the aforesaid Order of the Commission, but because respondent presented only the General Ledgers for the years 1982 to 1984 and the cash receipts and disbursement books for the years 1982, 1983 and 1984, the accounting firm will not be able to conduct the necessary auditing examination. Respondents filed an Opposition thereto contending that the agreement and the Order required them to allow petitioner to have access to "available" records of the corporation and that while respondents would want to accede to said request, there is an impossibility to produce all the records of the corporation because most of the records were destroyed by termites at respondents' place of residence. Finding respondents' contention to be well taken, the Commission denied petitioner's motion in its Order dated April 1, 1986 and immediately set for hearing the incident on injunction. Prior to the scheduled date of hearing, petitioner filed the Urgent Motion for Appointment of a Management Committee alleging that it would appear that there was negligence on the part of respondent Conrado Quesada in the management of the affairs or business of the corporation and that he failed to undertake the due care required as such manager which now prevents the petitioner from conducting the appropriate auditing and/or accounting of the books of the corporation resulting in the unnecessary prejudice and damage to petitioner, as well as to the corporation. After a series of hearings on the injunctive reliefs prayed for, as well as the creation of a Management Committee, a joint motion was filed by both parties submitting not only the ancillary remedies but the case as well for decision. On the question or issue as to whether the petitioner is the duly elected Treasurer of the respondent corporation, Exh. "1",which is the resolution adopted and approved by the members of the board, to which respondent Conrado Quesada is among the signatories, unmistakably shows that petitioner was "duly nominated and unanimously elected by the Board as Treasurer". As to the right of the petitioners to examine and inspect the corporate records of the respondent corporation, the same has already been settled when the parties at the hearing on December 6, 1985, had agreed, among others, "That the petitioner August Quesada and/or his authorized representative shall be permitted by the respondents to conduct an examination and/or inspection of all available records of all business transactions of the respondent corporation at reasonable hour on business day at its principal office". On the petitioner's prayer for the appointment/creation of a Management Committee, this very issue revolves somehow on the alleged misuse of corporate funds and property by the respondent, imputation of serious negligence on the part of respondent Conrado A. Quesada in the management of the affairs or business of the corporation, and that the creation and/or appointment of a management committee has therefore become absolutely necessary for the preservation of the assets and protection of the interest of the corporation, its officers, stockholders, and its creditors. The appointment of a management committee is addressed to the sound discretion of the Commission (Presidential Decree No. 902-A, as amended by Presidential Decree No. 1758) and such discretion should be exercised with great caution and only when the necessity therefor is clear. (China Banking Corp. vs. M. Michelin & Cie, G.R. No. 36930, June 30, 1933, 58 Phil. 261). The Commission should appoint a management committee when necessary in order to protect the rights of minority stockholders especially when said stockholders are unable to obtain redress and protection of their rights within the corporation itself. (Financing Corporation of the Phil. vs. Teodoro, G.R. No. L-4900, August 3, 1953, 93 Phil. 678). From the great concern of damage and prejudice expressed by the parties on the remaining assets/properties of the corporation, specifically the alleged misuse of corporate funds and the prevention of the petitioner from conducting the appropriate auditing and/or accounting of the books of the corporation which evidently is attributable to the respondents, the Commission finds that under the facts and circumstances on record, it is but fair and just that appointment of a management committee be implemented forthwith. Petitioner advanced the following to justify its claim for appointment of corporate funds of P20,000.00 by respondent Conrado A. Quesada in favor of his wife, Mrs. Catalina V. Quesada (Exhibits "D-2" and "I");unaccounted or missing corporate funds in the amount of P184,265.87 or a short fall of collections from the Quesada Building from August 1985 to March, 1986 by respondent Conrado A. Quesada (Exhibits "F" to "F-8"),as shown also in the resume of the monthly rental collection from the Quesada Building and the monthly statement of accounts of the corporation with the Bangbang Branch (Exhibits "G" to "G-2",and "H" to "H-4");including Exhibits "K" to "K-1" and "L" to "L-1",respectively, which are the monthly rental payments in checks payable to the company but were deposited to respondent's personal account (No. 392-01807-5) and Exhibits "M" to "M-3".Substantiating the foregoing, petitioner introduced the listing of disbursement which have not been properly accounted for by the respondents (Exhibits "O" to "O-1");procurement by the respondent of a lease contract with respondent's son on the premise corporate properties; respondent acting as accountant and auditor by admitting that he kept and/or maintained the cash book, the ledger, journal and disbursement books of the corporation (TSN, December 7, 1986 p. 6);opening an account of the corporation (supra, p. 10);admission of procurement of cash replenishments for P5,000.00 (July, 1984, Exhibit 19-B, P1,000.00 (August, 1984),P5,000.00 (November, 1984, Exhibit 19-D).But, however, for failure of the Board to forestall such acts of the respondents in the exercise of the duties of his office as General Manager, intimation of incompetence, neglect or unwillingness of the Members of the Board is attributable as a basis to convince this Commission to place respondent corporation under a management committee to prevent further dissipation, loss, wastage or destruction of the assets or other properties of the respondent corporation for the protection of the rights/interest not only of the petitioner but also of the other stockholders as well. WHEREFORE, decision is hereby rendered as follows: 1. Petitioner August Quesada is hereby declared to be the duly elected Treasurer of Eugenio E. Quesada, Inc. and as such, shall immediately exercise/perform the duties and responsibilities of the office as clearly provided under Section 4, Article III of the Corporate By-laws. Accordingly, respondent Conrado Quesada is hereby enjoined from interfering in the exercise of such powers and duties of the Treasurer, and shall immediately, within five (5) days from receipt hereof, turn over to petitioner all books of accounts, financial records, bank accounts, checks, pass book and other corporate/financial records of respondent corporation to the herein petitioner; 2. Respondent corporation, thru its corporate Secretary and/or General Manager, is hereby directed to allow the petitioner to avail his right of inspection pursuant to the provisions of Section 74 of Batas Pambansa Blg. 68; and 3. A management committee of three (3) members is hereby created and constituted, to be composed of one (1) representative each from the petitioner and the respondent and the Chairman thereof to be chosen by the representative of both parties. Parties herein are hereby directed to submit to this Commission the name of their designated representative within ten (10) days from receipt of this Decision or face the forfeiture of such right in case of failure to comply herewith. The management committee shall exist only for a limited period of one (1) year from its formal organization or for a shorter period as may be determined by a majority vote of its members. The main function of the management committee shall be to supervise, administer and conduct the business operation of the respondent corporation principally for the purpose of conducting an audit and/or inventory of all the properties/assets of the corporation in order to determine all collections of fruits from its business operations, as well as to determine the stockholders' equity or company's networth. llcd SO ORDERED. (SGD.) ANTONIO M. ESTEVES Hearing Officer