Alan C. Harris vs. Stephen J.E. Bastian, et al.

[SEC-SICD * CASE NO. 3580. March 18, 1993.] ALAN C. HARRIS , complainant , vs .STEPHEN J.E. BASTIAN, ET AL. , respondents . D E C I S I O N This is a complaint for annulment of fraudulent board resolutions and other fraudulent acts of directors/stockholders with application for preliminary injunction filed by the above-named complainant, Alan C. Harris, which prayed: 1. That immediately upon filing of this complaint, this Honorable Commission issue an order ex-parte restraining the respondent BASTIAN, MIGUEL, NOEL, SIVI and BPI from making or allowing funds at present deposited under Bank Account No. 0173-1082-57 and from effecting or allowing any transfers of funds from said account into any other account now existing or hereafter to be opened in said respondent BPI or in any other bank or banking institution, or otherwise stated, restraining said respondents from disturbing in any manner the status quo as to said BPI Account No. 0173-1082-57; and likewise enjoining respondents BASTIAN, MIGUEL, NOEL and SIVI from disposing of any equipments and machineries listed and described in Annex "A" of this Complaint, in both instances pending final judgment in this action or until further orders from this Commission; 2. That upon complainant's filing a bond in the suggested amount of P300,000.00 or such amount as the Honorable Commission shall fix, a writ of preliminary injunction in the same terms as the restraining order above prayed for issue, effective until final judgment in this action or until further orders from the Commission, and after trial, making the aforementioned injunction permanent; LLpr 3. Annulling the Board Resolution for the withdrawal of complainant's remittance from BPI and the transfer thereof to another account, as well as the withdrawal thereof in respondent's favor, and declaring said resolution to be null and void for all intents and purposes; 4. That after trial, judgment be rendered in favor of complainant ordering BASTIAN, MIGUEL, NOEL, and SIVI jointly and severally, in the alternative or otherwise, to pay to complainant the amount of P1,300,000.00, representing the difference between the money remitted by complainant to BASTIAN and the value of the equipment, vehicles and machineries for the corporation as well as reasonable business expenses; 5. Ordering BPI to deliver to the complainant the amount of P704,000.00 representing the Philippine Peso equivalent of complainant's remittance of additional AUS $42,000.00 to the Philippines in favor of Sebastian Integrated Ventures, Inc.,fraudulently made to appear by respondent BASTIAN as necessary for the business of SIVI, but which in reality was intended to be siphoned from corporate coffers by respondents BASTIAN, MIGUEL, and NOEL; 6. Ordering BASTIAN, MIGUEL, NOEL and SIVI to pay complainant the amount of P 100,000.00 as and for attorney's fees with interest on the above mentioned amounts from the date of filing of this complaint and with cost on all of the defendants except BPI. In the complaint, it is alleged among others, that the complainant is a citizen of Australia temporarily sojourning at 644 Remedios St.,Malate, Manila; that respondent Stephen J. Bastian, is likewise a citizen of Australia and residing at APT. No. 1615 Midland Plaza Condominium, M. Adriatico St.,Malate, Manila; that Miguel and Noel Reyes, are citizens of the Philippines, residing at Jose Panganiban, Camarines Norte and Daet, Camarines Norte, respectively; that respondent Bank of the Philippine Islands (BPI) is a duly constituted Commercial Bank with branch office at Mabini St.,Malate, Manila. The complainant further alleged that on or about November, 1988, complainant and respondent Bastian entered into a verbal agreement whereby both of them would enter into a joint venture to engage in mining in the Philippines where both agreed to contribute equal amounts of money; that it was also agreed that Bastian shall assume the responsibility of setting up a corporation as a vehicle for the conduct of said business; that pursuant to the said agreement, complainant delivered to Bastian the following amounts, to wit: November 12, 1988 Aus $8,000.00 December 8, 1988 10,000.00 December 19, 1988 10,200.00 December 29, 1988 10,200.00 February 20, 1989 80,000.00 that respondent Bastian received all the said amounts of money as complainant's share in the common fund which Bastian was to utilize only for the specific purpose of buying the necessary equipment and machines, setting up a corporation in the Philippine for mining and whatever was necessary for the establishment and operation of said business; that on April 4, 1989, Bastian organized and registered Sebastian Integrated Ventures, Inc. (SIVI) where its entire capitalization was taken from the funds entrusted by the complainant to Bastian, Bastian contributing nothing in violation of his agreement and undertaking to put a share equal to the complainant; that the incorporators with their alleged participation/capital contribution, are the following: Name Subscription Paid-Up Miguel Reyes 50,000 shares P50,000.00 P12,500.00 Noel Reyes 50,000 shares 50,000.00 12,500.00 Carmencita Houghton 50,000 shares 50,000.00 12,500.00 Allan Cuthbert Harris 50,000 shares 50,000.00 12,500.00 Stephen John Edward Bastian 50,000 shares 50,000.00 12,500.00 that on April 1989, complainant asked about the financial condition of SIVI and the complainant was informed that there were no more funds for the mining venture; that the equipment and machineries contained in a list (Annex "A" of the complaint) were found to be overvalued; that on or about April 27, 1989, respondent Bastian prevailed upon the complainant to remit the sum of AUS $42,000.00 (equivalent to P704,000.00) allegedly to finance further operations of SIVI; that respondent Bastian misled the complainant into depositing said sum to his personal account contrary to the complainant's real intention of having it deposited to the account of the corporation (fax message of instruction as Annex "B" of the complaint);that the sum of AUS $42,000.00 was remitted by the National Australian Bank to respondent BPI "favor of" SIVI; that upon misrepresentation by respondent Bastian that he was the owner of SIVI, respondent BPI allowed Bastian to withdraw approximately P200,000.00 out of the total remittance of P704,000.00; that in an attempt to get hold of the balance of complainant's remittance, respondent Bastian convened a special meeting of the Board of Directors of SIVI and railroaded the passage of a resolution authorizing the transfer of the whole balance of P500,000.00 deposited in BPI Malate Branch, under Account No. 0173-1082-57 to a corporate account to be opened for the purpose and whose designated signatories include respondent Bastian and Miguel Reyes; that demands by complainant to respondents Bastian, Miguel and Noel Reyes not to transfer the remaining funds to the proposed corporate account of SIVI have proved futile; that similar demands to BPI not to release any further amounts from complainant's remittance remained unanswered; that complainant is entitled to recover all the funds advanced by him, less reasonable value of the equipment, machines and vehicles purchased by Bastian for the corporation and that BPI should be ordered to return to the complainant the amount of P704,000.00 representing the peso equivalent of AUS $42,000.00 remitted by the complainant and which is presently in the possession of respondent BPI; and that because of the wrongful acts of respondents Bastian, Miguel and Noel Reyes, complainant was constrained to litigate and hire the services of a counsel at an agreed fee of P100,000.00 for which said respondents should be held jointly and severally liable. prLL On May 29, 1989 a Temporary Restraining Order was issued enjoining and restraining all the respondents, including BPI, from effecting or allowing any transfer of funds deposited under Account No. 0173-1082-57. The said order also enjoined and restrained respondents Bastian, Miguel and Noel Reyes and SIVI from disposing of any of the equipment and machineries listed and described in Annex "A" of the complaint. On June 22, 1989, complainant's application for a writ of preliminary injunction was granted and, upon posting of the required bond, the corresponding writ was issued on June 28, 1989 enjoining the respondents from effecting or allowing the transfer or withdrawal of the amount of P4,787.85 from BPI Account No. 0173-1082-57 and the amount of P13,505.80 from BPI Account No. 071-0200, the corporate account of SIVI, the amounts left after several withdrawals were effected by the respondents prior to the issuance of the Temporary Restraining Order dated May 29, 1989. Respondent BPI filed its answer dated June 13, 1989 admitting certain allegations in the complaint. The answer also denies generally and specifically material averments in the complaint and by way of special and affirmative defenses, BPI alleged among others, that the complainant's claim is barred by estoppel as the complainant himself identified the account number to which remittance should be credited; that on May 3, 1989, Steve Bastian, the owner of Account No. 0173-1082-57 withdrew the amount of P100,000.00 and another P100,000.00 on May 4, 1989, that on May 22, 1989, Account No. 0171-0200 was established in the name of SIVI with the respondent BPI's Malate Branch, with an initial deposit of P500,000.00, and the amount of P486,494.20 was withdrawn on the same date by respondents Bastian and Miguel Reyes signing jointly as authorized signatories of SIVI; that the recovery of the sum of P200,000.00 withdrawn by Bastian on May 3 and 4, 1989 from Account No. 0173-1082-57 is beyond the jurisdiction of this Commission as the same is a simple case of recovery of a sum of money which belongs to the regular courts; that the withdrawal of the remaining P500,000.00 from Account No. 0173-1082-57 and the establishment of an account in the name of SIVI were in pursuance of the instruction of SIVI itself through its authorized officers; and that the withdrawal from the account of SIVI was allowed after all the necessary documents were presented by respondents Bastian and SIVI. Interposing a counterclaim, respondent BPI claims that it was forced to litigate and incur attorney's fees and other litigation expenses in the amount of not less than P5,000.00 as a result of the filing of the instant complaint despite complainant's knowledge that he has no cause of action against BPI. Filing a separate answer on June 23, 1989, respondent J.E. Bastian admitted certain allegations in the complaint. He also made a general and specific denial of material averments in the complaint and by way of special and affirmative defenses, respondent Bastian alleged that complainant has no cause of action against answering respondent and the acts complained of are valid and legal corporate acts of respondent SIVI through its Board of Directors; that complainant as a member of the Board of Directors of SIVI is estopped from assailing the resolutions duly passed and approved by it; and that this Honorable Commission has no jurisdiction over the nature of the action, it being a simple money claim by complainant against answering respondent. Respondent Bastian also interposed a counterclaim, alleging that he was forced to litigate in a clearly unfounded case, engaging the service of a counsel for P50,000.00. He also asked for moral damages in the amount of P500,000.00. Respondents Miguel and Noel Reyes filed a separate answer adopting all the admission, denials, counter allegations of facts and the special and affirmative defenses. In their counterclaim, Miguel and Noel alleged engaging the services of a counsel to defend them in a baseless and unfounded suit for and in consideration of P50,000.00 attorney's fees. Said respondents also asked for P500,000.00 moral damages for each of them. On October 12, 1989, respondents Bastian, Miguel and Noel Reyes were all declared in default for failure to appear at the preliminary conference held on September 27, 1989 despite due notice. On November 14, 1989, their counsel, the law firm Enriquez, Taguines and Associates, filed a notice of withdrawal of appearance on the ground of alleged lack of trust and confidence of the said respondents in the law firm's professional ability and as per the records of the case, the said respondents made no effort to have the order of default reconsidered. Hence, the default order became final. Meantime, the machineries and equipments (Annex "A" of the complaint) were left unattended and exposed to elements and in danger of getting lost or materially injured. Mrs. Carmencita L. Houghton filed a petition for her appointment as a receiver and an order was issued dated February 26, 1990, placing the properties of SIVI particularly items, 1, 2, 4, 5, 6, 9, 10, 13, and 14 listed in Annex "A" of the complaint under receivership for their preservation. On January 3, 1990, the motion to dismiss filed by BPI on the ground of lack of jurisdiction of this Commission over the said respondent for lack of intra-corporate relationship between the BPI and the complainant was denied and hearings on the case proceeded. BPI's motion for reconsideration was also denied on March 15, 1991. Preliminary conference was held on March 19, 1992 and terminated on the same date after the parties failed to reach an amicable settlement and the issues to be resolved determined naming their witnesses and setting trial dates. Trial on the merits ensued where the complainant and respondent BPI presented both testimonial and documentary evidence. As could be gleaned from the evidence adduced by the parties, as well as the allegations of the parties in their pleadings, respondents Bastian, Miguel and Noel Reyes never made serious effort to dispute or controvert the arguments and accusations of the complainant against them. Neither did they present any evidence to support their denials of the charges hurled against them by the complainant until they were declared in default for their absence at the preliminary conference despite due notice. It turned out later that respondent Bastian was found guilty of violating Sec. 37 (a) (7) of the Immigration Act and for being an undesirable alien under Sec. 69 of the Administrative Code in a decision handed down by the Commission on Immigration and Deportation (CID) dated April 19, 1990. In the same decision, the CID also ordered Bastian's re-arrest and detention pending his deportation to Australia. His name was also placed on the "Blacklist" who, after deportation, has been barred from entering the country. Hearing on the merits proceeded with the active participation of the complainant and respondent BPI only considering the fact that the other respondents were declared in default. Respondents Bastian, Miguel and Noel did not participate during the trial whose counsel has withdrawn from the case and no replacement of counsel had been made by the said respondents. During the hearing on April 2, 1992, Mr. Richard M. Houghton, an Australian who claims to know the complainant Allan Harris, and married to Carmencita Houghton, a stockholder of SIVI, testified that for the last twenty five (25) years, he has helped the complainant on many occasions particularly in the incorporation of SIVI, a mining corporation, under a joint venture with respondent Bastian. Mr. Houghton also testified that Mr. Harris, the complainant, issued him a power of attorney "to look after any of his (Allan C. Harris) affairs concerned in the Philippines".(TSN, p. 12, 4-2-92) which power of attorney has been marked as Exh. "B". Continuing with the testimony, Mr. Houghton explained clearly and in simple terms the circumstances which attended the remittance of money from the complainant's account in the National Australian Bank to the Malate, not Ermita, Branch of respondent BPI. As regards the preparation of the FAX, requesting for the remittance of a certain sum of money (Exh.) "D" and Exh "I") Mr. Houghton testified that the printing of the FAX was made by Bastian and signed by the complainant himself. When the complainant was informed and the information was confirmed that the account number of SIVI as appearing in the FAX was not the correct account number because it is the personal account number of respondent Bastian which is 0173-1082-57 in BPI Malate Branch, the complainant with Mr. Houghton and his wife tried hard communicating with the remitting bank to further confirm the errors in the remittance of the sum of money (Aus. $42,000.00) to the account of Bastian under Account No. 0173-1082-57. When the Malate Branch Manager, Mr. Javier was confronted by the complainant about the error in the remittance of said amount and when he told Mr. Javier that he could not release the account unless the error is corrected, the latter said the best thing is to contact the National Bank of Australia and let them correct the account number. Despite this advise, Mr. Eduardo C. Javier allowed the release of the entire amount to Bastian on different occasions and under different circumstances and conditions leaving a balance of only P4,787.85. Noteworthy under the circumstances is the release of the funds from Account No. 0173-1082-57, the personal account of respondent Bastian, despite the fact that there was an instruction from the complainant to hold the release of said funds and after Mr. Javier has suggested that the account where the funds of SIVI is deposited be changed. It would appear that Mr. Javier of the BPI, Malate Branch, disobeyed the instruction of the complainant, and proceeded to release the funds in question before the error in the SIVI account number has been corrected. On top of this, Mr. Javier has agreed to freeze the release of the funds under Account No. 0173-1082-57 but just the same, he allowed to release the funds. It was the contention of BPI that the money remitted by the National Australian Bank to BPI was properly and regularly disposed of and that BPI is not liable on the claim of the plaintiff (T.S.N. p. 4, 5-6-92). While Mr. Javier maintained that it was the instruction of Mr. Harris, the complainant, that the money (Aus. $42,000.00) should be transferred to Account No. 0173-1082-57, the fact remains that Mr. Javier has suggested to the complainant to clear the matter with the remitting bank. But before the matter could be cleared, withdrawals were allowed by him. In his testimony, Mr. Javier confirmed the withdrawal of the amount of P100,000.00 by Steve Bastian on May 3, 1989, another P100,000.00 on May 4, 1989 and P500,000 on May 22, 1989. It would appear that the withdrawal of the amount of P500,000.00 was effected for purposes of depositing the same in the account of SIVI pursuant to the resolution approved by respondents Bastian, Miguel and Noel Reyes, in the alleged special Board Meeting of SIVI and after which, withdrawal from the transferred funds were again made by Bastian and his co-signer, Mr. Reyes. In the cross-examination on June 17, 1990, Mr. Javier made the following admission on the witness stand: xxx xxx xxx Q. Will you agree with me that on the face of Exhibit "C" it expressly indicated that the name of the beneficiary or customer for the remittance of $42,000.00 (Australian) is Sebastian Integrated Ventures, Inc.? A. Yes, but it states also the account number of 0173-1082-57. Q. Insofar as the account number indicated by you as well as the name of the beneficiary or customer are concerned, it is not a fact that the account name for the account number 0173-1082-57 is not Sebastian Integrated Ventures, Inc.? LibLex A. Yes, Sir. (TSN, p. 6) Q. You said that you first saw this Exhibit "D" on May 2, 1989? A. Yes, Sir. (TSN, p. 14) Likewise, Mr. Javier denied having followed the instruction of the BPI Head Office insofar as crediting the account of SIVI with the remittance of $42,000.00 (Australian) (TSN p. 15, 6-17-92),but he admitted that the remittance from the National Bank of Australia of the amount of the AUS. $42,000.00 that the beneficiary of said amount is SIVI as indicated in Exh. "K" (TSN p. 15, 6-17-92).It also appears that he did not credit the said amount to the account of SIVI and instead credited it to Account No. 0173-1082-57 which is the personal account of Bastian. In fact, Mr. Javier had been advised by counsel of the complainant in a letter dated May 15, 1989 (Exh. "H") which was marked received May 16, 1989 that the correspondent bank gave instruction to change the name of the beneficiary of the remittance of AUS $42,000.00 to read: "Please be advised that our correspondent bank is amending name of beneficiary to read "Carmencita L. Houghton Treasurer in trust for Sebastian Integrated Ventures, Inc." A copy of the inter office correspondence was furnished Mr. Javier on May 12, 1989 as stated in the said letter. Furthermore, the incoming swift message (Exh. "E") confirms the proposed changes insofar as the beneficiary of the remittance and the account number to be credited with such remittance are concerned. Despite all these, however, Mr. Eduardo C. Javier, the Malate Branch Manager of BPI failed and ignored to heed the desire and valid request of the complainant under the lame and worn out excuse that the remittance was credited to the account of Bastian and there is nothing irregular if the funds were withdrawn by him. Based on the evidence adduced, this Hearing Officer firmly believes that Mr. Eduardo C. Javier acted in bad faith when he did not comply with the instruction of the BPI Head Office (Exh. "G" and "G-I") as well as the valid request of the complainant to effect the change in beneficiary, and the account number to which the amount of AUS $42,000.00 has been originally credited and proceeded to allow the withdrawals of said funds in utter disregard of legitimate and valid requests and instruction from the complainant, as well as the BPI Head Office. As regards the total sum of AUS $118,000 allegedly delivered by the complainant to Bastian on different dates from November 12, 1988 to February 20, 1989 which the complainant claimed as his contribution to their joint venture in forming a mining corporation, it would appear that the said amount were spent in procuring the necessary and needed machineries and equipment, contained in Annex "A" of the complaint valued at P1,981,000.00. While the purchase of machineries and equipment listed in Annex "A" of the complaint is allegedly overpriced, no evidence, documentary or testimonial, were presented by the complainant to substantiate his accusation against respondents Bastian, Miguel and Noel Reyes, that the said machineries and equipment were indeed overpriced. Besides, those equipment and machineries were placed under receivership as earlier stated. Complainant did not also bother to prove the alleged nullity of the Board Resolution of SIVI for the withdrawal of complainants remittance from BPI and the transfer thereof to another account. Hence, there appears to be no valid legal or factual basis to grant complainant's prayer for respondents Bastian, Miguel and Noel to pay to the complainant the amount of P1,360,000.00, representing the alleged difference between the money remitted to Bastian and the value of equipment and machineries purchased by said respondents allegedly at overprice. While it is true that there is a board resolution approved by respondents Bastian, Miguel and Noel Reyes, which authorized the transfer of funds from Bastian's personal Account No. 0173-1082-57 to SIVI's account with BPI, complainant Harris and Carmencita L. Houghton did not participate in the deliberation. In fact, the complainant questioned the board resolution's validity on the ground that its passage was railroaded by Bastian, Miguel and Noel Reyes which authorized Bastian and Miguel Reyes as signatories of SIVI which thus, facilitated the withdrawal from the initial deposit of P500,000.00 in the name of SIVI's Account No. 0171-0200 the amount of P486,494.20 on May 22, 1989, the date the new account of SIVI was established. On the contention that the case is for recovery of sum of money which should have been filed with the regular courts, the issue has already been ruled upon by the Hearing Officer in his order dated January 3, 1991 when BPI's motion to dismiss has been denied based on the ruling of the Supreme Court which frowns upon splitting of causes of action, the prevailing theory in this jurisdiction. In the light of the foregoing, this Hearing Officer holds respondent BPI through its Malate Branch Manager, Eduardo C. Javier, liable for allowing withdrawals of Two Hundred Thousand (P200,000.00) Pesos on May 3 and 4, 1989, and the withdrawal of Five Hundred Thousand (P500,000.00) Pesos on May 22, 1989 despite the swift message (Ex. "E") and the instruction from the BPI Head Office inter office correspondence (Exh "G") and the letters of complainants counsel to Mr. Eduardo C. Javier dated May 15, 1989 (Exh. "H") and May 22, 1989 (Exh. "I").All these exhibits, which tended to seek amendment of beneficiary were ignored by Mr. Javier and instead, allowed or authorized the above withdrawals. WHEREFORE, judgment is hereby rendered, ordering BPI to deliver to the complainant the amount of P704,000.00 representing the amount withdrawn from the complainant's remittance of AUS $42,000.00 within a period of thirty (30) days from receipt hereof. No pronouncement as to costs. SO ORDERED. (SGD.) MANUEL P. PEREA Hearing Officer