Edgardo P. Sagaidoro, et al. vs. Moises C. Canayon, et al.

[SEC-SICD * CASE NO. 3911. August 14, 1992.] EDGARDO P. SAGAIDORO, ET AL. , plaintiffs , vs . MOISES C. CANAYON, ET AL. , defendants . D E C I S I O N This is a second Amended Complaint which seeks (1) for the issuance of the Writ of Preliminary Injunction enjoining defendants to stop hiring, recruitment activities and deployment operations and to desist from making further collections from contract workers for deployment, from acting as officers and directors of the corporation, and from using their void shares in all meetings of the board and stockholders; (2) that defendants render an accounting of all cash collections from deployment and other sources as well as expenditures, and to turn over all papers and documents, supporting receipts, vouchers and other pertinent papers relative thereto, in order to have a fair and accurate determination of the cash and assets of the corporation between the period January 1, 1990 up to the present; (3) to create a management committee to oversee and run the affairs of the Corporation in order to protect the interest of the stockholders, particularly the plaintiffs, who are adversely affected by the mismanagement of the defendants; (4) to order defendants to render full accounting of all cash collections from deployment and other sources, as well as all expenditures, turning over all papers and documents, supporting receipts and other papers and documents, pertinent thereto for the period from January 1, 1990 up to the present to a management committee; (5) ordering the defendants, jointly and severally to turn over or pay back to the corporation the amount of P1,470,000.00 representing collections (balance of P3,500.00 per deployment) which were not turned over to the corporation; (6) to declare null and void, for lack of consideration, the acquisition of shares by the defendants, and cancelling their shares of stock in the Manila Manpower Services Corporation, to wit: Moises C. Canayon 125 shares worth P12,500.00; Norma G. Canayon 250 shares worth P25,000.00; Elisa B. Vinson 250 shares worth P25,000.00; Teo Chong Beng 142.5 shares worth P14,250.00; Tan Bon Kiat 1,145 shares worth P114,500.00; and Vangie del Rosario - 257.5 shares worth P25,750.00; and restoring ownership of said shares to plaintiffs; and (7) to order defendants to pay exemplary and moral damages and to pay P50,000.00 as attorney's fees. As antecedents, after defendants filed their answer to the Second Amended Complaint, hearings were conducted for the injunctive reliefs applied for, and the application for the creation of a Management Committee. Hearings on these aforementioned incidents were conducted ex-parte by the plaintiffs because of the non-appearance of the defendants and their counsel, despite due notices to the said hearings. aEAIDH Records show that even after the successive withdrawals of the appearance of the defendants' counsels, the defendants were duly served with the notices of the scheduled hearings on their last known address, but to no avail. Defendants repeatedly failed to appear. However, before plaintiffs could finish their presentation of evidence to the said incidents, three(3) of the defendants, namely: Moises C. Canayon, Norma G. Canayon and Elisa B. Visnon entered into a Compromise Agreement with the plaintiffs that settled their case and for which a Partial Judgment By Compromise Agreement dated February 4, 1992 was rendered by the Commission. The hearings of the above incidents with the three(3) remaining defendants, Vangie del Rosario, Teo Chong Beng and Tan Bon Kiat continued ex-parte considering the repeated failure of the said remaining defendants to appear despite due notices. During the course of the presentation of their evidence ex-parte, the plaintiffs manifested that they are willing to proceed to the merits of the case and that their evidence on the above-incidents be adopted as their evidence in chief and thereafter submit the whole case for resolution. Hence, this Decision. Based on the admission of the defendants in their answer and the unrefuted evidence adduced by the plaintiffs, the undisputed facts are as follows Plaintiffs are spouses and stockholders of Manila Manpower Services Corporation, a corporation duly registered under the laws of the Republic of the Philippines, and primarily engaged in the business of manpower recruitment and development for overseas employment. Plaintiffs became majority stockholders of said corporation in 1984 by virtue of purchase of shareholdings from the original incorporators of said corporation, having acquired a total of 3,170 shares at par value of P100.00 per share, all worth P317,000.00 out of the said subscribed and paid shares of the corporation of P1,150.00 shares worth P515,000.00. It appears that as of March 15, 1987, the stockholders with their respective shareholdings of subject corporation are the following: Name No. Shares Subscribed Paid-up 1. Edgardo P. Sagaidoro 1,585 P158,500.00 2. Letitica C. Sagaidoro 1,845 184,500.00 3. Magdalena D. Sarmiento 612 .5 61,250.00 4 Erinelo S. Vasquez 400 40,000.00 5. Efigenia A.Sagaidoro 252 .5 25,250.00 6. Angelita C. Cirillo 250 25,000.00 7. Rogelio P. Sagaidoro 205 20,500.00 Total 5,150 P515,000.00 That sometime in September 1987, the Corporation suffered financial problems due to payments of penalties, fines and refunds on accounts of complaints of deployed overseas contract workers. To save the corporation from eventual stoppage of its operation, the spouses Sagaidoro had to dispose 2,170 shares worth P217,000.00 from their shareholdings and assigned to defendants as follows: Moises C. Canayon 125 shares worth P12,500.00 Norma G. Canayon 250 shares worth 25,000.00 Teo Cheng Beng 142.5 shares worth 14,250.00 Tan Bon Kiat 1,145 share worth 114,500.00 Vangie del Rosario 257.5 shares worth 25,750.00 Elisa B. Vinson 250 shares worth 25,000.00 Total 2,170 shares worth P217,000.00 Thereafter, the above-defendants became stockholders of the corporation. The money consideration of said shares was not paid to plaintiffs but was used directly to pay off the money claim against the corporation. Plaintiff Leticia C. Sagaidoro was compelled by circumstances to dispose of her shares and her spouse shareholdings to expedite the raising of money because as aforestated, funds had to be raised immediately to meet the corporate immediate obligations as imposed by the POEA and if the corporation were to sell its stocks it would take sometime in securing the approval from the Securities and Exchange Commission. However, since the money consideration for the shares was not received by the plaintiff spouses, but was used directly to pay off the corporation's obligations, it was the condition of the sale of said shares that proper application be made thereafter with the corporation that the amount used to pay off the corporate obligations shall be considered as payment by the plaintiffs for the equivalent shares of stocks from the unissued and unsubscribed shares of the corporation, and that the corresponding shares shall be issued to plaintiffs, thus returning to them the 2,170 shares of stocks. The assignment of 2,170 shares worth P217,000.00 to the defendants taken from plaintiffs' shareholdings caused the plaintiffs to be relegated to the minority position in the corporation. Defendants, having acquired majority holdings in the corporation instead of complying with the agreement to have the corresponding shares issued to plaintiffs from the unsubscribed portion of the corporation's capital stock, took advantage and had themselves elected directors and officers of the corporation during the annual stockholders meeting held on December 8, 1989, and thereafter, starting January 1, 1990, took over the control of management of the corporation from the plaintiffs, with defendants holding the following positions: ScTaEA Moises C. Canayon Chairman of the Board Elisa Vinson Secretary Teo Chong Ben Director Tan Bon Kiat Vice President/Director As consolation, defendants elected plaintiff Leticia C. Sagaidoro, as Vice President and Treasurer, but she was not given actual power to function as such. During the management and operation of the corporation by the defendants starting January 1990 up to October 1990, the corporation deployed around 420 workers to various countries abroad, for which only the amount of P1,500.00 processing fee per person deployed was recorded by the defendants as collected and turned over to the corporation, despite the fact that POEA has allowed a maximum authorized/legal fee of P5,000.00 per deployed worker, to cover medical, passporting and other miscellaneous fees, as well as to allow a margin of profit for the corporation of only P1,500.00 per deployed person, the plaintiffs and the stockholders were deprived of P3,500.00 per deployed person or a total of P1,470.00 for the 420 workers deployed from January 1, 1990 up to October 1990. It appears that the scheme followed by the defendants to charge each applicant a total fee of P10,000.00, P12,000.00 or P15,000.00, depending upon the agreement with the applicant, and if they cannot pay the full amount, the applicant is asked to sign a promissory note for the balance. Despite the fact that they could well afford to turn over to the corporation the amount of P5,000.00 per worker as authorized by the POEA, defendants, taking advantage of their full control of the corporation, turned over only P1,500.00 per deployment. Although plaintiff Leticia C. Sagaidoro was elected Vice President and Treasurer, she had no opportunity to handle the corporate fund and know the exact cash and financial position of the corporation, because the money collections were not deposited with the authorized depository banks of the corporation, but were utilized by the defendants as cash transactions, much more many corporate transactions were treated as personal transactions of the defendants and were not recorded in the corporate books, and worse most of these transactions were deliberately hidden from the knowledge of the plaintiffs but fortunately these transactions were discovered when plaintiff Edgardo P. Sagaidoro came back from his stint abroad in late October 1990 and demanded from the Accountant/Bookkeeper that he be furnished with a record of deployment and amounts paid to the corporation (Exhs. 'J" to "J-1"). The said overt acts of the defendants, evidently done in bad faith, while taking advantage of their positions as directors and officers of the corporation and enriching themselves at the expense of the plaintiffs and other stockholders of the corporation, have caused damage and injury to said plaintiffs and other stockholders. The defendants continued to refuse despite repeated demands by plaintiffs to: (1) comply with the agreement to return to plaintiffs the equivalent amount of shares totalling 2,170 worth P217,000.00 from the unsubscribed capital stock of the corporation, in order to return plaintiffs to their previous shareholdings; and (2) to turn over or pay back to the corporation the amount of P1,470,000.00 representing the P3,500.00 per deployment which were not turned over to the corporation, but withheld by the defendants for their own personal benefit, having turned over only P1,500.00 per person deployed. The issues to be resolved in this case are the following: 1. Whether or not the 2,170 shares worth P217,000.00 assigned to plaintiffs to defendants, the proceeds of which were used to pay off corporate obligation should be returned by defendants to plaintiffs. 2. Whether or not defendant, defrauded the plaintiffs and the other stockholders of the corporation and therefore, are liable to pay and/or return, jointly and severally, to the corporation the amount of P1,470,000.00 for the period of January 1990 to October 1990; 3. Whether or not defendants are liable to pay plaintiffs, damages and attorney's fees. On the first issue, it should be noted that because of the Partial Judgment by Compromise Agreement dated February 4, 1992 entered into by and between the plaintiffs and defendants Moises C. Canayon, Norma C. Canayon and Eliza B. Vinzon, wherein the said defendants, among others, returned to the plaintiffs all their respective shares of stocks (totalling 625 shares) , subject of the controversial sale, the shares of stocks that remain to be the subject in issue will be the 142.5 shares of defendant Teo Chong Beng, 1,145 shares of defendant Tan Bon Kiat and the 257.5 shares of defendant Vangie del Rosario, totalling 1,545 shares. It appears that when the corporation suffered financial setbacks due to payments of penalties, fines and refunds to complaining deployed overseas workers, in order to raise the needed funds, plaintiffs spouses Sagaidoro had to dispose about 2,170 shares worth P217,000.00 from their shareholdings, which shares were acquired by the defendants. However, the money consideration for said shares was used directly to pay off the money claims against the corporation, as it was the condition of the sale that proper application was to be made with the corporation that equivalent number of shares shall be issued to the plaintiffs to be taken from the unissued and unsubscribed portion of the capital stock of the corporation. Considering that plaintiffs never received the money consideration for the 2,170 shares assigned to defendants, but the same were used to pay off the corporate obligations, equity demands that the shares of stocks assigned defendants be cancelled and returned to plaintiffs. This argument is supported by the provision of the Civil Code which states: "ARTICLE 19. Every person must in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." Thus, the Supreme Court ruled: "In the exercise of its equity jurisdiction, the Court may adjust the rights of the parties in accordance with the circumstances obtaining at the time of rendition of judgment, when there significantly different from those existing at the time of generation of those rights." (Agcaoili vs. GSIS, G.R. No. L-30056, August 30, 1988) On the second issue of whether or not the defendants defrauded the plaintiffs and the other stockholders of the corporation, and therefore, are liable to return the amount of P1,470,000.00, we regret to say that the answer is positive. DaEcTC The unrebutted evidence will disclose that defendants took over the management of the corporation starting January 1, 1990, after the elections in the annual stockholder's meeting held on December 8, 1989, wherein they were elected officers and directors of the corporation. (Par. III of the Amended Complaint and admitted in Apr. 2 of the Answer). During the period starting January 1, 1990 up to October, 1990, defendants deployed around 420 overseas workers to various countries abroad. (Exhs. "A" to "A-24"). As processing fee for said deployment, defendants, turned over to the corporation only P1,500.00 per persons deployed, as shown by the receipts issued by the Manila Manpower Services Corporation (Exhs. "B" to "B-21") the amount of P1,500.00 per deployment is also admitted in the answer. The POEA, however, has fixed the fee to be charged per deployments as PPH/5,000.00 per head/per worker deployed as indicated in the POEA MEMORANDUM (Exhs. "C" to "C-3") Defendants were collecting from the applicants for deployment, around P12,000.00 to P15,000.00 each, depending on the agreement with each applicant. This is borne out by the Deed of Undertaking (Promissory Notes) which the deployed workers were made to sign. (Exhs. "E") Based on the foregoing documentary exhibits, clearly defendants made tremendous profits from the 420 deployed overseas workers, but despite the fact that they have to remit P5,000.00 per deployment as fixed by the POEA, they have remitted only P1,500.00 per person deployed, thus withholding for their own personal benefit the amount of P1,470,000.00 for the period covered between January 1, 1990 up to October, 1990. Being officers and directors of the corporation, defendants should have in mind the best interests of the stockholders and the corporation paramount in all their actuations as such officials of the corporation. However, they have used and abused their authority as such directors-officers of the corporation for their own personal interests to the damage and prejudice of the plaintiffs and the other stockholders, thus defrauding the latter of what is rightfully and legally theirs in this instance, the P1,470,000.00 which is reduced to only P735,000.00 by virtue of the Compromise Agreement entered into by the other respondents, which amount defendants Ted Chong Beng, Tan Bon Kiat and Vangie del Rosario, must remit or return to the corporation. Anent the issue on whether or not defendants are liable to pay plaintiffs damages and attorney's fees the unrebutted evidence of the plaintiffs will disclose that said claims are meritorious. In the determination of whether or not defendants are liable to pay plaintiffs damages and attorney's fees primary concern should be fixed at whether or not there was malice and bad faith on the part of defendants (Phil. National Bank vs. Court of Appeals, G.R. Nos. L-30831 & L-31176, November 21, 1979) The term "malice" implies an intention to do ulterior and unjustifiable harm (U.S. vs. Caete, G.R. No. 11612, June 21, 1918, 38 Phil. 264). the ordinary use of the word "malice" connoted that the action complained of must be the result of a deliberate evil intent. (People vs. Malabanan, G.R. No. 43430, January 7, 1936, 62 Phil. 788) Defendants, when they took advantage of their being in the majority, knowing fully well that the money consideration for their shares of stocks were not paid, to plaintiffs but were used to pay off corporate obligations, and also knowing fully well that it was the condition of the transfer of their shares that equivalent amount of shares from the unissued and unsubscribed portion of the corporation's capital stock shall be issued to the plaintiffs in exchange for the shares so assigned to defendants, thus putting plaintiffs in their previous position of being in the majority, instead of having themselves elected officers and directors of the corporation and refused to issue the 2,170 shares from the unissued shares of the corporate capital stock equivalent to the shares assigned to defendants, definitely these show malice and bad faith on their part. The notice and bad faith was confirmed later on, starting January 1, 1990, when they were in full control of the operation of the corporation being already officers and directors they withheld collections and did not turn over to the corporation the full amount needed for processing and miscellaneous feed of the deployed applicants for employment abroad, thus enriching themselves at the expense of the plaintiffs and other stockholders. As a consequence of defendants' failure and refusal to comply with the agreement to return to plaintiffs equivalent amount of shares of stocks from the unsubscribed portion of the corporation capital stocks, plaintiffs were relegated to the minority, and taking advantage of this, defendants took management of the corporation, thus causing mental anguish, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury which entitles plaintiffs to the award of P20,000.00 moral damages. Likewise, because of the wanton disregard by the defendants in not complying with the condition of the sale of plaintiff's shares to them, defendants should be made to pay exemplary damages which may be reasonably fixed at P20,000.00 For all the reasons aforecited, defendants should be likewise made to pay plaintiffs' attorney's fees of P50,000.00 In this particular case, defendants have not submitted controverting evidence to the award of actual and exemplary damages, and as decided in the case of Ganzon vs. Court of Appeals, G.R. No. L-48757, May 30, 1988, "Award of actual and exemplary damages is proper as they were not sufficiently controverted." WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Declaring the Assignment of Shares to defendants Teo Chong Beng, Tan Bon Kiat and Vangie del Rosario, totalling, 1,545 shares null and void, and consequently, order or direct the aforesaid defendants to return the said shares to the plaintiffs; SCDaET 2. Ordering the aforesaid defendants, jointly and severally: a) to return to the corporation the amount of P735,000.00; b) to pay P20,000.00, as moral damages; c) to pay P20,000.00, as exemplary damages; and d) to pay the amount of P50,000.00 as attorney's fees. SO ORDERED. (SGD.) JUANITO B. ALMOSA, JR. Hearing Officer * Copied verbatim from the document obtained directly from the Securities and Exchange Commission .