Nishino Leather Industries, Inc. v. Nishino Leather Co., Ltd.

[SEC-SICD * CASE NO. 4148. June 5, 1996.] NISHINO LEATHER INDUSTRIES, INC., (Formerly WAKO ENTERPRISES MANILA, INC.) and RYUICHI YAMAMOTO , complainants , vs . NISHINO LEATHER CO., LTD., ET AL. , respondents . D E C I S I O N This is an action filed by complainants, alleging inter alia, that petitioner Yamamoto is married to a Filipino; that in 1982, he decided to reside and do business in the Philippines owing to the prohibitive labor costs in Japan; that he organized a Philippine corporation Wako Enterprises Manila, Inc. ("Wako") to engage in tanning. Wako was registered with the Board of Investments ("BOI"). In 1987, similarly faced with prohibitive labor costs in Japan, respondents came to the Philippines to explore the possibility of doing business here. Respondent Ikuo met Yamamoto and offered to be a joint venture partner in WAKO. Thereafter, respondents through Ikuo, induced Yamamoto to accept their offer by representing that: a. Respondents would make an equity investment in the form of cash and equipment, of at least US$600,000; b. They would not change the corporate name of WAKO; c. The President, Treasurer and Secretary of WAKO would be nominees of WAKO (Yamamoto); d. Respondents would be limited to only two nominees in the five-man Board of Directors; e. Respondents would be limited to 70% equity participation of WAKO. Upon the representations and inducements of Ikuo, Yamamoto agreed that respondents become his joint venture partner in WAKO. Nishino-Japan was used as vehicle for respondents' investment in WAKO. The agreement between the parties was formalized in a Memorandum of Agreement ("MOA"). Complainants further allege that respondents representations and inducements turned out to be false and fraudulent, to wit: 1. Respondents did not deliver all of the machinery and equipment which they committed to be their equity contribution in WAKO; 2. Being the owner of 79% of WAKO's outstanding capital stock, respondents caused the change of WAKO's name to Nishino Leather Industries, Inc. 3. They caused the election of their nominee, Emmanuel G. Doco, as corporate secretary-treasurer; 4. Having benefited from WAKO, and realized the bright prospects of the business that Yamamoto initiated, respondents sought to ease Yamamoto out of the company. Respondents Ikuo (as chairman) and Yoshinobu (as Vice-Chairman) directed the operations of WAKO/NLII; that they ceased Yamamoto as President of the company, but his position was more titular than substantive; that he was left out in the management of WAKO/NLII; that taking advantage of and abusing their positions and powers, respondents took over WAKO's business, its assets, goods, merchandise, chattels, machinery, money and other assets; that in gross bad faith, they used WAKO/NLII's resources for their own benefit and to the detriment of WAKO/NLII; that the operations of WAKO/NLII were so arranged by the respondents; that the company would receive only so much income as to cover operating costs. LLphil Defendants filed their answer with counterclaim and allege as special and affirmative defenses, that the MOA which complainants seeks to enforce show that the same saw entered into by WAKO and Nishino Leathers Ltd. and respondents Ikuo and Yoshinobu Nishino are not parties to the same and therefore under the principle of relativity of contracts, cannot be enforced against the latter; that even assuming that the MOA is binding as against said respondents, the same was never violated, but was merely modified, if not novated in accordance with law, more particularly by the Articles of Incorporation of WAKO and later on NLII; that it is admitted by Yamamoto that the investment at the outset by respondent Ikuo Nishino is 70% of WAKO's capital stock was valid as a consequence of the SEC approval of the amended articles of incorporation increasing its authorized capital stock; that the amendment to change the name of the company from, WAKO to NLII as approved by SEC and the election of the members of the board of directors which are powers granted to and not withheld from the corporation, were merely the proper result and logical consequence of Ikuo Nishino's ownership of 70% of the company's capital stock; that the prayer for accounting and return of company's income and property based on the alleged acts of mismanagement and disloyalty by respondent is improper under the circumstances. This case was originally assigned to Hearing Officer James K. Abugan. Upon his transfer to another department of this Commission, this case was re-assigned to Hearing Officer Macario Mallari. Thereafter, this case was again re-assigned to this Hearing Officer in view of the demise of Hearing Officer Macario Mallari. From the facts narrated in the petition and the evidence adduced, it appears that in 1982, complainant Ryuichi Yamamoto, a Japanese national with a Filipino wife, came to the Philippines to do business here in view of the prohibitive labor costs in Japan. Subsequently, he organized a domestic corporation. Wako Enterprises Manila, Inc. ("WAKO") to engage in the Yamamoto's family business in Japan which is leather tanning. The tanned leather was to be exported and WAKO was granted BOI registration. In 1957, Ikuo Nishino, a Japanese national, was driven to the Philippines for the same reasons. As he was in the business of tanning leather, he inevitably met complainant and he came up with a joint venture proposal with WAKO as a joint venture company. To induce complainant Ryuichi Yamamoto to agree, respondent Ikuo Nishino agreed to the following in the Memorandum of Agreement (Exh. "B"). 1. Respondents will make an equity infusion of at least US$600,000; 2. The corporate name of WAKO will not be changed; 3. Wako will nominate the President, Treasurer and Secretary, respondent will nominate the Chairman and Vice-President; 4. Respondent will be limited to only two (2) nominees in the five (5) man board; and 5. Respondents will be limited to 70% equity participation in WAKO. As to the issue whether or not Exhibit "B" has been novated with the consent of Yamamoto, the answer is in the affirmative. The agreements to the Articles of Incorporation carried Yamamoto's consent. He agreed to modify the Memorandum of Agreement which accordingly was novated. As regards the local sales, we believe that complainants hurdled the burden of proof required to show that complainant Nishino Leather Industries, Inc. was engaged in local sales. (Exhibits "H", "I", "J" and "K"). The cancellation of the re-export bonds by the Bureau of Customs was sufficiently explained by Yamamoto. Conformably, the respondents should rightfully account for the proceeds of these sales. Further, no sufficient evidence having been presented on damages and attorney's fees by the parties, the same are hereby denied. Besides, awards of attorney's fees and damages are left to the sound discretion of the court . . .(PAL vs. CA, G.R. No. 50504-05, August 13, 1990). WHEREFORE, considering the foregoing, judgment is hereby rendered directing the respondents to render an accounting to complainants of all the local sales from 1988 to 1995 within thirty (30) days from receipt of this decision. prcd NO COSTS. SO ORDERED. (SGD.) ENRIQUE L. FLORES, JR. Hearing Officer