Luningning M. Eugenio, et al. vs. Edward T. Marcelo, et al.

[SEC-SICD * CASE NO. 3305. August 17, 1990.] LUNINGNING M. EUGENIO, ET AL. , petitioners , vs . EDWARD T. MARCELO, ET AL. , respondents . D E C I S I O N In their petition filed on March 3, 1988, petitioners sought for: 1. Accounting of corporate funds due to alleged misappropriation thereof; 2. Issuance of a writ of preliminary prohibitory injunction to enjoin the respondents and other persons acting on their behalf from performing their alleged acts of mismanagement and destruction of the books and records of Marcelo Tire and Rubber Corporation (MTRC, for brevity); 3. Issuance of a writ of preliminary mandatory injunction ordering the respondents to allow the petitioners to inspect the books and records of MTRC; 4. Appointment of a management committee to take over the business operations and possession of the books, records and assets of MTRC; and 5. Damages and attorney's fees. This case stemmed from the alleged manipulation by the late Jose P. Marcelo (brother of petitioners Luningning M. Eugenio and Mabini M. Eugenio and father of respondent Edward T. Marcelo) of alleged advances or transfers of MTRC's corporate funds to its affiliates sometime in 1982 to 1983; The chronology of this case, as culled from the records and the evidence presented, could easily be deduced even from the pleadings filed by the parties. MTRC was incorporated on February 8, 1951 with the late Jose P. Marcelo and petitioners Luningning M. Eugenio and Mabini M. Eugenio as among its incorporators/directors. The late Jose P. Marcelo was the President and Chairman of the Board of MTRC since its incorporation until his death in August, 1987 while petitioner Luningning M. Eugenio was the Treasurer at its inception. Petitioner Lilia S. Wells and Evelyn M. Eugenio, daughter of petitioner Luningning M. Eugenio, have always been a member of the Board of Directors of MTRC from 1981 to 1988. Petitioner Mabini M. Eugenio was Treasurer of MTRC from 1981 up to 1986. On the other hand, respondent Danilo O. Ibay first became an Officer of MTRC in 1984, when he was elected the Vice President for Finance. Respondent Edward T. Marcelo became a director of MTRC only on August 17, 1985 but had assumed the position of President of MTRC starting September, 1987. Respondents Edward T. Marcelo, Avelino Pascual, Danilo O. Ibay, Alfredo R. Ersando, Magdaleno Cortez and Daniel T. Pascual are being sued in their capacity as members of the Board of Directors of MTRC which respondents Isabel D. Reyes, Celia C. Caburnay and Teresita I. Raya are being sued in their capacity as Secretary, Assistant Secretary and Assistant Treasurer of MTRC, respectively. Petitioners claimed that since the incorporation of MTRC, the late Jose P. Marcelo, the then majority stockholder therein and recognized patriarch of the Marcelo family, had wielded absolute power and control over the management and affairs of MTRC; that petitioner had complete trust and confidence on the late Jose P. Marcelo so much so that they believed in the soundness and necessity of all his business judgment; that this belief continued until such time when the late Jose P. Marcelo allegedly manipulated the advances or transfers of MTRC's corporate funds to its affiliates; That all their demands for a full disclosure of the nature, propriety and soundness of these advances or transfers of corporate funds amounting to millions of pesos were disregarded by the late Jose P. Marcelo; that in just a period of about two (2) years, MTRC's corporate funds in the sum of P24,510,693.92 were all siphoned in the guise of advances to its affiliates; that respondent have full knowledge of these alleged transfers of corporate funds and that the records of these transactions are presently under the control of the respondents, particularly respondent Edward T. Marcelo; that respondents have refused to allow the petitioners to inspect the books and records of these transactions; that these fraudulent acts of respondents are tantamount to gross mismanagement of the corporate affairs of MTRC and had prejudiced the latter in the amount of at least P19,989,022.43; and, that respondents are destroying, threatening to destroy or about to destroy all the books and records pertaining to the transactions in question. Respondents, in their answer, denied all the material averments in the petition, and posited, among others, that at the time the alleged transactions complained of took place, none of the respondents were directors and officers of MTRC, except respondents Daniel T. Pascual and Magdaleno Cortez who were then both directors only; that respondent Edward T. Marcelo had no actual knowledge of said transactions; that on the contrary, petitioners Lilia S. Wells and Mabini M. Eugenio were then a director and treasurer of MTRC, respectively; that Emelinda E. Reyes, daughter of petitioner Mabini M. Eugenio, was then a member of the Board of Directors and Corporate Secretary of MTRC; that the daughter of petitioner Luningning M. Eugenio, Evelyn M. Eugenio, was also a member of the Board of Directors of MTRC in 1983; that from the time respondent Edward T. Marcelo assumed the presidency of MTRC in September, 1987, monthly production and sales of MTRC have increased; that while audited financial statements as "due from affiliated companies" have always been furnished to petitioner at the annual stockholders' meeting, none of them ever questioned the transactions complained of; that on the contrary, petitioners ratified all of the resolutions, acts and proceedings of the Board of Directors of MTRC for 1983. On July 6, 1989, the preliminary conference was terminated. As agreed upon by the parties and as gathered from the records, the issues to be resolved are: 1. Whether or not respondents are liable to account for any misappropriation of corporate funds; 2. Whether or not petitioners were denied of their right to inspect the books and records of MTRC; 3. Whether or not petitioners are entitled to their prayers for the issuance of a writ of preliminary, prohibitory and mandatory injunction and creation of a management committee; and, 4. Whether or not the petitioners or the respondents are entitled to claim for damages and attorney's fees. In order to determine whether the respondents are liable to account for alleged misappropriation of MTRC's corporate funds, it is but logical to define the terms "misappropriation" and "accounting". The Supreme Court, in a number of cases which were cited in Philippine Law Dictionary, by Moreno, Third Edition, p. 601, has defined misappropriation as: "The act of devoting another's property to a purpose or use different from that agreed upon." ( People v. Malgapo, 16816-CR, August 23, 1976 ) "Using or disposing of another's property without lawful authority to do so in a manner different from that with which a property is held by the trustee to whom the owner had entrusted the same. It is not necessary that the use for which the property is given be directly to the advantage of the person misappropriating or converting the property of another." - ( People v. Carballo, 17136-CR, November 17, 1976 ) 'The act of owing or taking something for one's own benefit." ( Quimson v. Progressive Commercial Bank, 55757-R, November 24, 1977 ) "The act of disposing of another's property as if it were one's own." ( People v. Jimenez, 04794-CR, March 10, 1972 ) 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 Philippine Law Dictionary, by Moreno, Third Edition, p. 18) Applying this definition of the terms "misappropriation", and "accounting" as the yardstick in resolving the first issue, this Hearing Officer could very well rule that respondents are not liable to account for any misappropriation of corporate funds. Firstly, there was no evidence to show that respondents have used corporate funds for their own benefit or for purposes other than for which the corporate funds are intended to be used. Otherwise stated, respondents have not misappropriated MTRC's corporate funds. Secondly, at the time the alleged manipulation by the late Jose P. Marcelo of advances or transfers of MTRC's corporate funds to its affiliates took place, none of the respondents were directors and officers of MTRC, except respondents Daniel T. Pascual and Magdaleno Cortez who were then both directors only. On the contrary, petitioner Lilia S. Wells was a member of the Board of Directors of MTRC while petitioner Mabini M. Eugenio was the Treasurer at the time the transactions in question happened. cdll By the very definition of the word "accounting", it is 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 or explained as to the results thereof by the person to whom the demand was made. Certainly, from the viewpoint of management, respondents, except for respondents Daniel T. Pascual and Magdaleno Cortez, could not have participated in the transactions complained of considering that they were not members of the Board of Directors or officers of MTRC at that time; hence, the demand for accounting of the alleged advances or transfers of MTRC's corporate funds to its affiliates should not have been addressed to them for they were not privy to said transactions. This is in accord with the principle of "Res inter alios acta", a rule which states that the rights of a party cannot be prejudiced by an act, declaration or omission of another, and proceedings against one cannot affect another, except as provided for by the Rules. (Sec. 28, Rule 130, Rules of Court; Santos vs. Vitug, 53034-R, May 11, 1977) Well settled is the rule in corporation law that the corporation can act only through its board of directors or trustees. Thus, the power to make contracts resides primarily in the company's board of directors. (Ramirez vs. The Orientalist Co., G.R. No. 11897, September 24, 1918, 38 Phil. 634) The law is specific and clear on this matter. Section 23 of the Corporation Code of the Philippines states: "Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees . . . . " From the evidence on hand, it appears that from the period 1981-82 to 1983-84, the members of the Board of Directors and officers of MTRC were as follows: 1981-82 Directors: Officers Jose P. Marcelo, Sr. Jose P. Marcelo, Sr. Chairman Juan R. Desamito Juan R. Desamito Vice-Chairman Emelinda E. Reyes Mabini M. Eugenio Board Secretary Evelyn M. Eugenio Juan R. Desamito Asst. Board Sec. Lita S. Wells Jose P. Marcelo, Sr. President Jose T. Marcelo, Jr. Juan R. Desamito Vice-President Jose A. Lazaro Mabini M. Eugenio Corp. Secretary Daniel T. Pascual Mabini M. Eugenio Treasurer Leon O. Ty Juan R. Desamito Asst. Corp. Secretary 1982-83 Directors: Officers Jose P. Marcelo, Sr. Jose P. Marcelo, Sr. Chairman Juan R. Desamito Juan R. Desamito Vice-Chairman Emelinda E. Reyes Emelinda E. Reyes Board Secretary Evelyn M. Eugenio Juan R. Desamito Asst. Board Sec. Lita S. Wells Jose P. Marcelo, Sr. President Jose T. Marcelo, Jr. Juan R. Desamito Vice-President Jose A. Lazaro Mabini M. Eugenio Treasurer Daniel T. Pascual Emelinda E. Reyes Corp. Secretary Magdaleno Cortez Juan R. Desamito Asst. Corp. Sec. 1983-84 Directors: Officers Jose P. Marcelo, Sr Jose P. Marcelo, Sr. Chairman Juan R. Desamito Juan R. Desamito Vice-Chairman Emelinda E. Reyes Emelinda E. Reyes Board Secretary Evelyn M. Eugenio Juan R. Desamito Asst. Board Sec. Lita S. Wells Jose P. Marcelo, Sr President Jose T. Marcelo, Jr. Juan R. Desamito Vice-President Jose A. Lazaro Mabini M. Eugenio Treasurer Daniel T. Pascual Emelinda E. Reyes Corp. Secretary Magdaleno Cortez Juan R. Desamito Asst. Corp. Sec. If at all, the above enumerated persons should be the ones to account for the alleged manipulation of the advances or transfer of MTRC's corporate funds to its affiliates, but not the respondents. Besides, there was no evidence to show that they have, indeed, participated in or took part in the alleged manipulation of the so-called advances or transfers of MTRC's corporate funds to its affiliates. Likewise, there was no showing that respondents have, in one way or another, took part in or conspired with the late Jose P. Marcelo in the alleged manipulation by the latter of the so-called advances or transfers of MTRC's corporate funds to its affiliates. Moreover, it is noteworthy that even from the allegations of the petition which are judicial admissions that could not be controverted or denied by the petitioners, it is very clear that the latter are pointing an accusing finger to .the late Jose P. Marcelo alone as the one who allegedly manipulated the advances or transfers of MTRC's corporate funds to its affiliates, not to respondents. The only participation therein, if any, by the respondents, as alleged in the petition, is that they have allegedly full knowledge of the alleged transfers of MTRC's corporate funds. But even assuming arguendo that respondents have knowledge of these alleged transfers of MTRC's corporate funds still they could not be held liable since mere knowledge of said transactions in question does not make one liable in the absence of any evidence to the contrary. In fact, as gleaned from the petitioners' allegation in their petition, they themselves have knowledge of these alleged manipulation by the late Jose P. Marcelo of the alleged advances or transfers of MTRC's corporate funds to its affiliates. As regards the second and third issues, considering that the petitioners' rebuttal evidence did not disprove the findings of this Hearing Officer in his Orders dated May 25, 1989 and July 5, 1989, which denied petitioners' prayers for the appointment of a management committee and issuance of a writ of preliminary prohibitory and mandatory injunction, said findings remain unrefuted. There is no need for the issuance of a writ of preliminary mandatory injunction ordering the respondents to allow the petitioners to inspect the books and records of MTRC considering that the evidence clearly shows that petitioners were never prevented from inspecting said books and records. LexLib Anent both parties' claim for damages, the same needs no further discussion since it could not be awarded in view of the recent ruling of the Court of Appeals in the case of Augusto Padilla, et al. vs. Securities and Exchange Commission, et al., CA-G.R. SP No. 18630, promulgated on February 1, 1990, wherein it was ruled: "We are aware of the fact that the Securities and Exchange Commission has adopted the practice of awarding actual and other kinds of damages without protest or objection on the part of litigants. However, as explained above, we believe such practice to be unauthorized and illegal." With respect to the claim for attorney's fee, respondent Danilo Ibay testified that in order to defend their position before the Commission, respondents hired and engaged the legal services of ACCRA lawyers and had made an initial deposit of P200,000.00 with said law firm. This Hearing Officer feels that a reasonable amount of attorney's fee paid by the respondents to their lawyers who had devoted time and effort in handling this case for the respondents should be recovered. WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Dismissing the instant case; and 2. Ordering the petitioners to pay the respondents the sum of P50,000.00 as attorney's fee. SO ORDERED. (SGD.) ROLANDO C. MALABONGA Hearing Officer