Reyes v. Reyes, Jr.

[SEC-SICD * CASE NO. 4332. July 26, 1994.] CARLOS H. REYES , complainant , vs . AURELIO H. REYES, JR., ET AL. , respondents . D E C I S I O N In his complaint dated October 27, 1992, complainant Carlos H. Reyes prayed for the following: (a) Upon filing of the complaint, for the issuance of a temporary restraining order restraining respondent from implementing the transactions which the Philippine Racing Club, Inc. (PRCI, for brevity) entered into with GCB International Mercantile, Inc. (GCHI for brevity) for the purchase of two (2) generators sets or acting in any way toward such implementation by conducting a load test of the equipment or similar acts; (b) After hearing, (1) converting such temporary restraining order into a writ of preliminary injunction; (2) to hold respondents Aurelio H. Reyes, Jr. and Mario Bartolome jointly and severally liable for all amounts paid to and for all damages suffered by PRCI relative to the transaction; and (3) to impose appropriate administrative and disciplinary sanctions against these two (2) respondents, including their disqualification from office. In support thereof, complainant, alleged among other things, that he is a minority stockholder of the PRCI, a corporation organized under Philippine laws, owning 135,000 shares out of outstanding 3,959,000 shares, the majority of which is owned by the Reyes family; that he is also a director and member of the Executive Committee; that respondents Aurelio S. Reyes, Jr., Dominador Aytona, Gregoria H. Reyes, Fernando Maramag III, Sofronio Ona, Mario Bartolome and Rodrigo L. Salud are all stockholders, directors and members of the Executive Committee of PRCI while respondent Mario Bartolome is the comptroller of PRCI; that on or about May 28, 1992, the Executive Committee of PRCI approved the acquisition of two (2) 300-kilowatt generator sets, either brand new or slightly used, for use in the PRCI race track; that on June 4, 1992, respondent Aurelio H. Reyes, Jr., signed with Mr. Gerardo C. Hernandez, President of GCHI, a contract (for the supply of two (2) caterpillar diesel-electric generating, rebuilt, 300 kw. for the price of P3,100,000.00; that despite the fact that the two (2) caterpillar generating sets are supposed yet to be shipped from the West Coast, U.S.A., in 65 to 75 days, respondent Aurelio H. Reyes, Jr. signed a cash voucher for the full price of P3,100,000.00 on June 4, 1992, poorly disguised in the contract as "100% deposit"; that further, despite the fact that what was approved by the Executive Committee was either brand new or slightly used generator sets, respondent Aurelio H. Reyes, Jr. did not indicate either of these in the contract he signed; that respondents Aurelio H. Reyes, Jr. and Mario Bartolome, as comptroller, raised no objection requiring full payment of P3,100,000.00 when delivery is yet be made in 75 days, and in fact, they authorized the full payment of P3,100,000.00 on the very day that the contract was signed; that respondents Aurelio H. Reyes, Jr. and Mario Bartolome as comptroller did not bother to canvass, for reasons only known to them, the price of the two (2) caterpillar generating sets offered by GCHI from the distributor of caterpillar generators in the Philippines, Monarch Equipment Corporation; that complainant obtained a quotation from Monarch Equipment Corporation for a brand new 300 kw (375 KVA) generating set for only U.S. $37,000 C & F Manila, for a brand new 400 kw (500 KVA) generating set for only U.S. $47,000.00 C & F Manila, which clearly show that the two (2) generator sets subject matter of the contract signed by respondent Aurelio H. Reyes, Jr. are categorically overpriced; that to make matter worse, when the two generating sets were delivered by GCHI at PRCI, it was discovered that one (1) set bore a steel plate stating "250 kw" which is not the contracted 300 kw; that the other generating set bear mark "Cummins Diesel Engine"; not the contracted caterpillar, aside from other deficiencies; that despite all the foregoing problems, respondent Aurelio H. Reyes, Jr. signed on August 10, 1992 a contract with the same G.C. Hernandez for the erection of shade houses for the two (2) generating sets of GCHI for P800,000.00; that despite knowledge of PRCI's accounting policies and procedures that disbursements in excess of P50,000.00 supplies should be approved by the Board, responents Aurelio H. Reyes, Jr. and Mario Bartolome disbursed in favor of GCHI, without Board approval the amount of P200,000.00 on August 10, 1992, P200,000.00 on August 20, 1992 and P300,000.00 on September 16, 1992; that these disbursements were made by these two (2) respondents despite the fact that GCHI instead of constructing four (4) walls per plans for the shade houses, constructed only three (3) walls and made use of PRCI's existing wall; that complainant brought these clearly detrimental and illegal transactions to the attention of the respondents-members of the Executive Committee, who instead of immediately rescinding the transactions indicated their preference to possibly continue with the onerous transactions by asking for a load test of the generating sets and thereby throw good money after bad, since the generator sets supplied are outrageously overpriced; that the aforementioned transaction are detrimental to the interest of the corporation, but respondents-members of the Executive Committee have not reasonably acted to protect the interests of PRCI, and hence said respondents Aurelio H. Reyes Jr. and Mario Bartolome have likewise acted in a manner prejudicial to the interests of PRCI and should be made personally liable for all damages suffered by PRCI relative to the transactions; that additionally, they should be subjected to the appropriate administrative and disciplinary sanctions by the SEC, including removal from their respective positions; that complainant is clearly entitled to the relief demanded in his complaint and this relief consists in prohibiting respondents from implementing the aforementioned transactions or otherwise acting towards said implementation by conducting a load test of the equipment and similar acts; that unless respondents are restrained from so doing, PRCI and its stockholders will suffer damages and irreparable injury in addition to what it has already suffered that complainant is ready and willing to post such reasonable bond as may be required by the SEC for the injunction prayed for; and that as a result of the actuation of respondents, complainant was compelled to litigate and incur attorney's fees of P50,000.00. Respondents, in their answer with special and affirmative defenses, alleged among other things, that Mario Bartolome, one of the respondents herein, was specifically tasked and did in fact conduct a canvass and submit a report on the canvass; that the interest of the corporation were in fact protected by the acts of the respondents and no damage whatsoever was caused the corporation; and that the granting of complainant's prayer will cause grave damage and losses to the corporation. Respondents, by way of special and affirmative defenses, averred that as early as February 1992, the Executive Committee of the PRCI approved a recommendation for the acquisition of a second hand electric generator as stand-by power source in case of brown-outs; that subsequently, Mario Bartolome, comptroller of PRCI was tasked by the Committee to conduct a canvass in order to secure the best deal for the corporation; that pursuant to said directive, Mario Bartolome conducted a canvass and submitted a report thereof to the Executive Committee dated May 12, 1992; that on May 29, 1992, at the regular meeting of the Board in which a quorum was present, the Board affirmed the act of the Executive Committee approving the acquisition of two (2) 300 kilowatt generator sets which may either be brand new or slightly used; that on June 4, 1992, the corporation received an offer from GCHI for two (2) sets caterpillar diesel-electric generating sets, Model 3408, Prime Power, Rebuilt, 0-hour condition, 300 kw; that the offer was accepted by PRCI pursuant to the Board authorization earlier referred to; that on June 5, 1992, a check for P3,100,000.00 was issued in favor of GCHI; that said payment represented the deposit which would be returned should GCHI fail to deliver the generators specified by PRCI; that said check was signed by the President and Chairman of the Board, Mrs. Antonia B. Reyes and the Vice President for Administration, Mr. Aurelio H. Reyes, Jr.; that the Board of Directors and Executive Committee were aware of the said transaction and the circumstances that demanded immediate action; that the situation was such that generator sets were in high demand but short in supply; that thus, when the GCHI offer was made together with an undertaking to take care of the duty free importation of the generators, the corporation using its best judgment through its officers accepted the offer; that on September 4, 1992, within the period agreed upon by GCHI and PRCI the two (2) generator sets were delivered to PRCI; that after delivery, Bartolome noted some discrepancies in the brand name of the generators and their capacity which are the name plates on the generators said "Cummins Diesel Engine" instead of "Caterpillar" and 250 kw instead of 300 kw; that on September 15, 1992, Bartolome wrote to GCHI to bring the discrepancies to their attention; that in response to the said letter, GCHI's principal HUB, International, sent a letter to PRCI subscribed and sworn to before a notary public stating that the nameplates, were accidentally switched and that the generators are in fact Caterpillar and 300 kw; that in addition to HUB, International's assurance that there were in fact no discrepancies, PRCI engaged the service of an independent engineer, Mr. Benigno Ocampo, to ascertain whether or not there were discrepancies; that Mr. Ocampo confirmed the claims of HUB International, Inc.; that this unanimity between HUB, International and Ocampo over the brand and capacity of the generators also extended to affirming the need of a load test to remove any traces of doubt as to the brand and capacity of the generators; that to further protect its interest, the respondents wrote to GCHI reiterating their right to reject the generator sets should it fail to meet with contracted stipulations; that this was accepted by GCHI together with the 60 racing meets warranty based on actual use; that the purchase of the generators in June was urgent and required by the corporation in view of the fact that it was in those months that long and extended brown-outs were occurring everyday and the corporation had and would suffer untold damages if races were cancelled again as had previously happened on May 13, 1992; that the losses were suffered not only by the corporation but likewise the government for which reason, the Games and Amusements Board (GAB) ordered PRCI in writing to install generator sets in their letter of October 30, 1992; that sometime in November, the corporation sought an extension of time from the Games and Amusements Board within which to install said generator sets, and the Games and Amusements Board gave the Corporation only up to December 15 within which to comply; that no damage whatsoever was suffered by the corporation; that on the contrary, the suspension of PRCI's franchise by the GAB was averted; that all quotations submitted before June 4, 1992 were considered by the corporation; that GCHI contained the most favorable offer; that Monark Equipment Corporation submitted a quotation only in September, two months after the generators had been purchased; that complainant was the sole dissentor in the purchase of the generators and construction of the shed; that the construction of the generator shed was brought before the Board of Directors; that the disbursement of funds of said construction was with their knowledge, consent and approval; that the shed housing the generators comprises four (4) independent walls which may be confirmed by mere ocular inspection; that on October 30, 1992, at the regular meeting of the board of directors, the transactions herein questioned were recognized, accepted and ratified by a majority vote of the Board of Directors; that the granting of complainant's prayer assuming there exists a ground to justify such award would only open the corporation to possible suit from the supplier of the generators which is clearly detrimental to the corporation. Respondents, by way of compulsory counterclaim, further alleged that as a result of complainant's plainly unjust and unfounded legal action, respondents suffered mental anguish, anxiety, sleepless nights, besmirched reputation, shock, wounded feelings for which complainant should be required to pay moral damages of at least P3,000,000.00 for each respondent; that by way of example, complainant should likewise be made to pay exemplary damages of at least P2,000,000.00; and that as a result of complainant's plainly unjust and unfounded legal action, respondents were compelled to incur expenses of not less than P20,000.00 and hire the services of counsel for which it has agreed to pay attorney's fees of not less than P50,000.00 On December 21, 1992, after services of summons and hearings were conducted, an Order was issued denying the complainant's application for a writ of preliminary injunction. On January 6, 1993, an Order was issued directing the parties to submit their respective preliminary conference briefs and setting the case for preliminary conferences, the same having been terminated on March 22, 1993 hearing. On May 4, 1993, respondents filed their Motion to Dismiss dated May 4, 1993 claiming that (1) Essentially, this case seeks to have the cancellation of the agreement by and between the PRCI and GCHI where the latter sold to the former two electric generating sets; (2) In the course of load-testing the generating sets, however, it was found out that the same generating sets are not in accordance with the agreed technical specifications and are not able to develop within a sustained period the required horsepower to generate 300 kilowatts per set; (3) Accordingly, the PRCI has elected to rescind the said agreement with GCHI for breach of contract and breach of warranty against hidden defects. A formal or written notice to rescind was sent to and received by GCHI; (4) Without just and valid causes, GCHI refused to comply with its legal obligations to the PRCI by virtue of the latter's valid exercise of the right to rescind the agreement subject of this case; (5) Eventually, on 23 February 1993, PRCI filed a complaint for rescission with damages against GCHI and the same is docketed as Civil Case No. 93-644 of the Regional Trial Court at Makati, Metro Manila; (6) In addition, complainant is on record of having ratified the corporate action which he has questioned in the present action. Thus, in the organizational meeting of the PRCI Board of Directors on 12 April 1993, where complainant was present and elected as members of the corporation's Board of Directors, the PRCI Board of Directors unanimously approved to confirm and ratify all the acts of management and of the Board of Directors as shown in the Minutes Book and other corporate records of the company for the administrative year just ended, which was 1992; (7) In the light of the filing of Civil Case No. 93-644 which PRCI will prosecute vigorously and the complainant's aforedescribed ratification, the instant case has become moot and academic. On May 19, 1993, an Order was issued deferring the resolution on the aforestated Motion to Dismiss until after trial on the merits shall have been conducted. After several hearings on the main complaint were conducted, an Order dated September 24, 1993 was issued directing the parties to submit simultaneously their respective memoranda within fifteen (15) days from their receipt of this Order. Respondents filed their Memorandum on November 10, 1993. Complainant Carlos H. Reyes, despite his receipt of the said Order on September 30, 1993, failed to do so up to the present. As culled from the evidence adduced by the parties, the following facts appear indubitable: In a letter dated 20 April 1992 (Exhibit "21"), the Acting Chairman of the Board of Stewards, Philippine Racing Commission, called the attention of the Philippine Racing Club to a power outage which occurred on 14 April 1992. According to the Board of Stewards, the power outage was serious enough to cause serious bodily harm or even death, because of the grave consequences of a power outage, and knowing very well that immediate remedial measures had to be taken in order to avert serious harm to life and limb, the Philippine Racing Club Inc. (PRCI) placed an advertisement with the Manila Bulletin, a daily newspaper of general circulation, on 01 May 1992 (Exhibit "22"), where the general public was invited to submit proposals for the supply to PRCI of two (2) units of electric generators. The power outages are not threats to life and limb only, they are also inimical to the interests of the betting public (Exhibit "1-Injunction"; Exhibit "14-Injunction") and the government as large amounts of revenues and/or taxes have been, are or will be lost-approximately P1,078,600.00 per race day (Exhibits "2-Injunction" and "3-Injunction"). On 28 May 1992, the Executive Committee of the PRCI resolved (Exhibit "24") to authorize the acquisition of two (2) generator sets, which may be brand new or slightly used. The resolution of the Executive Committee was reported to the PRCI Board of Directors on 29 May 1992 (Exhibits "4-Injunction" and "4-A-Injunction"), wherein complainant Carlos H. Reyes was present. As a consequence of the invitation to the public in general to supply electric generators to PRCI, GCH International Mercantile, Inc. (GCHI for brevity) on 04 June 1992, wrote to PRCI (Exhibit "5-Injunction") offering to sell as follows: TWO (2) SETS CATERPILLAR DIESEL-ELECTRIC GENERATING SET Model 3408, Prime Power, Rebuilt, 0-Hour condition, 300 kw, with the following specification: LLpr Diesel Engine CAT model 3408, 8 cylinder, Vee-type turbocharger, ( illegible portion in SEC files ) cooled, 440 hp @ 1800, skid mounted, complete with radiator and Generator KATO 300 w (375 kva) rated capacity, 220/440/3/60 complete with engine mounted control panel and gauges. PRICE: FOB Manila, Phil. Racing Club Compound P1,550,000.00 Total for two (2) sets P3,100,000.00 DELIVERY: 65-75 days from receipt of 100% deposit (unit are Ex-West Coast, USA), subject to prior sale. WARRANTY: 60 Racing meets or days after commissioning. MATERIALS & LABOR FOR BUYER'S ACCOUNT: Foundation and power house, ( illegible portion in SEC files ) tank and piping and electrical switch from generator to current system and non-standard exhaust if desired, which could all be determined and prepared prior to arrival of the sets. GCHI's offer was accepted on the same day. On 05 June 1992, PRCI paid to GCHI the sum of P3,100,000.00 by way of METROBANK Cheque No. 396450 dated 05 June 1992 (Exhibit "6-Injunction"). On 04 September 1992, GCHI delivered to the PRCI Compound, two (2) electric generators. Then on 15 September 1992, respondent Mario Bartolome, PRCI's Comptroller, called the attention of GCHI to certain discrepancies apparent on the generator sets (Exhibit "8-Injunction). In a letter dated 16 September 1992 (Exhibit "12"), GCHI explained that the ". . . units will be installed to your (PRCI's) satisfaction". Said letter was accompanied by notarized letter (Exhibit "9-Injunction") from HUB International (the principal source of the generators with offices at Portland, Oregon) containing the following explanation: "AT THIS MOMENT, I AM HAVING NEW NAMEPLATES MADE WHICH CORRECTLY DESCRIBE THE EQUIPMENT. THESE WILL BE SENT TO GCHI BY COURIER FOR THEM TO AFFIX TO THE EQUIPMENT. "WHILE I UNDERSTAND YOUR CONCERN THAT THE CAPACITIES OF BOTH GENERATORS SETS ARE ACCURATELY DESCRIBED ON THE NAMEPLATES, AND WE ARE TAKING STEPS TO ENSURE THAT THOSE NAMEPLATES ARE CORRECT, I WISH TO UNEQUIVOCALLY CONFIRM TO YOU THAT BOTH GENERATOR SETS WHICH WERE SHIPPED AND DELIVERED TO YOU ARE RATED FOR 300KW AND THEY WILL SUCCESSFULLY TEST TO THAT POWER OUTPUT RATING. "COPIES OF THE OPERATION AND MAINTENANCE MANUAL FOR THESE GENERATOR SETS ARE NOW EN ROUTE TO YOU BY COURIER AS I UNDERSTAND THAT THE COPIES WHICH WERE PACKED WITH THE EQUIPMENT WERE MISSING WHEN THE GENERATORS WERE RECEIVED. "I SINCERELY APOLOGIZE FOR THE ERRORS MADE DURING FINAL PREPARATION OF THESE GENERATOR SETS FOR SHIPMENT AT THE FACTORY. I HAVE BEEN ASSURED THAT FROM NOW ON, IN ADDITION TO NORMAL CHECKS OF PRODUCT ACCURACY AND PERFORMANCE, FACTORY QUALITY CONTROL SUPERVISORS WILL BE REQUIRED TO INSPECT AND SIGN OFF FOR THE CORRECTNESS OF THE NAMEPLATES ON ALL GENERATOR SETS BEFORE THEY CAN BE RELEASED TO SHIPPING DEPARTMENT. "I AM CERTAIN THAT THE GENERATORS WILL PERFORM TO THE CAPACITY AS SPECIFIED AND THAT YOU WILL BE PLEASED WITH THE PERFORMANCE WHEN INSTALLED. PLEASE FEEL WELCOME TO CONTACT ME THROUGH GCB INTERNATIONAL MERCANTILE IF THERE ARE ANY FURTHER QUESTIONS CONCERNING ANY ASPECT OF THE PERFORMANCE OF THE EQUIPMENT WHICH WE HAVE SHIPPED TO YOU. WE AT HUB INTERNATIONAL VALUE PHILIPPINE RACING CLUB AS A CUSTOMER AND WANT YOU TO BE COMPLETELY SATISFIED WITH THE EQUIPMENT WE HAVE SUPPLIED. On 24 September 1992, in a meeting of PRCI's Executive Committee, complainant aired his concerns about the acquisition of the generators. The relevant excerpts of the corresponding minutes of the meeting (Exhibits "14-B", "14-C") read as follows: "Mr. Carlos H. Reyes recommended to the Committee that the two second hand generator sets delivered by GCH International Mercantile, Inc. be rejected for their failure to conform with the specifications as quoted and accepted by PRCI, more particularly their kilowatt ratings and their brand names. He also mentioned that the sets appear to be overpriced. The Committee decided that a competent engineer in the person of Mr. Benigno Ocampo be engaged to inspect the delivered sets and to make a report on his findings thereon in relation to the specifications. LLjur Mr. Carlos H. Reyes also noted before the Committee that the construction of the housing for the generator sets costing P300,000 has not been submitted for prior approval by the Committee. Mr. Gregorio H. Reyes recalled that the project was mentioned in a previous meeting during a graphic explanation of the power supply needs of PRCI, but it may not have been recorded due to a brownout at the time." On the following day, 25 September 1992, the foregoing was reported in full before a meeting of PRCI's Board of Directors where complainant was in attendance (Exhibit "20-Injunction"). Engineer Benigno S. Ocampo, who was retained by the Executive Committee to evaluate and inspect the delivered electric generators, submitted his initial report (Exhibit "10-Injunction") dated 28 September 1992 to former senator Dominador Aytona, one of the Directors of PRCI, recommending, among others, that the generators be installed with the qualification that PRCI should reserve its right to refuse their acceptance after load tests prove they are not within the agreed specifications. In a subsequent and another report to Sen. Aytona on 09 October 1992 (Exhibit "11-Injunction"), Engineer B.S. Ocampo reiterated his advise to continue with the installation of the generators with PRCI reserving the right to reject the units if PRCI is not satisfied with the results of the load tests. On 06 October 1992, the Executive Committee of PRCI held a special meeting where complainant Carlos H. Reyes was present. A portion of the minutes of that special meeting (Exhibit "27") reveals that: "The meeting was called to order by the Chairman, Mr. Dominador R. Aytona. He announced that the purpose of the special meeting is to consider the report of Engr. Benigno Ocampo who was hired by the Committee as consultant to make an ocular inspection of the two (2) generating units delivered by GCH International Mercantile, Inc. (GCH), and also the two (2) letters received by the Chairman from Mr. Carlos H. Reyes dated October 2 and 5, 1992. "Before proceeding with the consideration of the report, the Chairman recounted the chronological events relative to the procurement and delivery of the generating units as follows: "1. On May 1, 1992, PRCI placed an ad in the Manila Bulletin for the supply of two (2) second hand generators as stand-by power source during brown-outs, in response to a letter from the Board of Judges calling attention to the brownout which engulfed the PRCI track in total darkness during one of the races that could have resulted in serious accidents. "2. On May 12, 1992, the Comptroller, Mr. Mario Bartolome, reported that the lowest bid received by PRCI in response to the ad was P3,773/KVA for second hand and P4,730/KVA for a brand new unit. "3. On May 28, 1992, the executive Committee approved the acquisition of two (2) 300 kilowatt generator sets which may either be brand new or slightly used, subject to the suggestion of Mr. Aurelio H. Reyes, Jr. that Engr. Calleja be consulted. "4. On May 29, 1992, the Board confirmed the action of the Executive Committee regarding the acquisition of the two (2) generating units. "5. On June 4, 1992, PRCI received a quotation from GCH for two (2) rebuilt Caterpillar diesel electric generating sets Model 3408, rated at 300 kilowatt and certain other specifications at P1,550,000 per unit, with a warranty of 60 racing days after commissioning. The Comptroller informed that 100% deposit was received by the supplier on the following days and the units were subsequently delivered on September 4, 1992. "6. On September 15, 1992, the Comptroller wrote the supplier calling attention to certain discrepancies found on the delivered units as against the specifications of the supplier, particularly the lower rating at 250 kilowatts and one unit bearing the "Cummins" nameplate instead of "Caterpillar". "7. In a faxed communication dated September 15, 1992 signed by the General Manager of Hub International, it was claimed that the brand nameplates were accidentally switched and that the unit are in fact rated at 300 kilowatts as can be confirmed by a load test. "8. On September 24, 1992, in view of the discrepancies noted and the suggestion of Mr. Carlos H. Reyes to reject the units, the Executive Committee agreed to hire the services of Mr. Benigno Ocampo as an independent consultant to inspect the units and to make his report thereon as against the supplier's specifications. Mr. Ocampo submitted a report on September 28, 1992 which is now under consideration by the Committee. LLjur "After the foregoing narration by the Chairman, Mr. Carlos B. Reyes explained his two letters and the reasons why he was recommending rejection of the delivered units, which he claims failed to comply with the specifications as accepted by PRCI. He reiterated that the units appear to be overpriced, mentioning in particular that a brand new Caterpillar unit model 3408 rated at 365 kilowatts on 500 KVA costs only $47,000. The Chairman, however, referred to the agreement during the last Executive Committee meeting that the basis for the rejection of the units be established first by hiring an expert in the person or Mr. Benigno Ocampo. "The Committee thereupon proceeded to discuss the report of Mr. Ocampo dated September 28, 1992. After some discussions, it was agreed that the Chairman will again contact Mr. Ocampo for him to identify more specifically whether the engine components of the generator sets are Caterpillar Model 3408, and the generators are either "Kato" or "Lima" brands. The Chairman stated he will also ask the consultant whether the units delivered on September 4, 1992 are incomplete and therefore might constitute a continuing delay on the part of the supplier, for which GCH may be held liable in damages. GCH will also be asked to clarify whether the ambiant temperature at which the radiator has been sized is 96 deg. F. PRCI will reserve the right to reject the units after load tests are conducted." After taking due consideration of the recommendations made by Engineer B.S. Ocampo, PRCI through respondents Aurelio H. Reyes, Jr., PRCI's Vice-President for Administration, and Mario V. Bartolome, Comptroller, wrote to the President of GCHI on 20 October 1992 (Exhibit "12-Injunction") insisting on certain conditions before the delivery of the generators are finally accepted, thus: "1. The delivery of the generating equipment on September 04, 1992 is late as a consequence of which GCH International Mercantile, Inc. should agree to pay PRC, Inc. penalties and damages. "2. PRC, Inc. reserves the right to reject the delivery until after the load tests have confirmed to its satisfaction that the equipment is in accordance with the agreed specifications and able to develop the horsepower to generate 300 kw per set and after submission of shipping and other documents showing that the units are "Ex-West Coast, USA". "3. GCH should clarify that the ambient temperature at which the radiator has been originally sized is to operate at 90 Deg. F, and that warranty covers repair or replacement of defective materials or components, including free parts and 60 Racing meets or days of actual use after commission." "4. GCH should clarify availability of engine parts, service technicians, emergency parts orders and tests to help detect abnormal wear on the internal components of the engine. "5. GCH should agree to provide free of charge; a) regular re-visit schedule every three months by their qualified service technicians during the warranty period who will conduct such test runs as may be necessary to assure that the generating sets are running smoothly and efficiently; and b) training of PRC maintenance personnel." In a subsequent letter dated 31 October 1992, as GCHI's reaction was not satisfactory to the respondents, PRCI wrote again to GCHI and further clarified that: "1. Our instruction that you now continue with the mounting of the two generating sets is not an acceptance of due delivery thereof in accordance with our contract, but it is in fact being done to ascertain whether the said generating sets conform with the agreed specifications and with the express reservation of the right to reject the delivery if the load tests should fail to generate the horsepower that you have represented the generating sets to be equipped with and/or otherwise fail to satisfy any other terms of the agreed specifications; "2. Your mounting of the generating sets in the powerhouse which you have constructed in our premises shall not be taken to mean as an acceptance by us of the delivery of the said powerhouse which we have found to have been defectively constructed as communicated to you separately in our letter dated October 29, 1992, acceptance or rejection of the delivery of the powerhouse shall depend on your due compliance with our demands in our aforesaid letter of October 29, 1992; "3. Our release of the amount of P3,100,000.00 to you on June 5, 1992 was not in the concept of full payment for two generating sets but was clearly specified in our contract, and which we hereby reiterate, to be 100% deposit; LLphil "4. We reiterate that your physical delivery of the two generating sets on September 4, 1992 was late for which you should pay us penalties and damages. Your reduction of P150,000.00 lot from your P1.4 M offer to handle the supply and installation of electrical works is not payment of penalties or damages. You have not been awarded the electrical contract and it is the height of gratuitousness to offer (as payment of penalties and damages something that you do not own. We reiterate our demand and we demand a responsive reply; "5. As stated in our October 20, 1992 letter, the warranty should be for 60 racing meets of actual use after commissioning, and not merely 60 racing meets regardless of use or non-use. (pages 6 to 7 of Exhibit "29"). Incidentally, the proceedings before the special meeting of the Executive Committee on 06 October 1992 (Exhibit "27") were reported in full to PRCI Board of Directors in a meeting held on 30 October 1992 (Exhibit "17-Injunction"). Complainant was also in attendance at the said meeting of the Board of Directors. Eventually, several and repeated load tests were conducted to gauge the true capabilities of the electric generators. Even as the load tests were conducted and supervised by the technical personnel of GCHI, it was revealed that the electric generators failed to meet the technical specifications required by PRCI. Consequently, PRCI notified GCHI of the former's election to rescind the agreement it had with GCHI, tendering back to GCHI the generators and demanding the return of the same it already paid to GCHI, plus damages. When GCHI failed to comply with its obligations to PRCI on account of the latter's election to rescind the subject agreement, plaintiff formally instituted a civil complaint with the Makati Regional Trial Courts against GCHI for rescission of contract with damages. The suit is docketed as Civil Case No. 93-644 (Exhibit "29"). Much later, or on 12 April 1993, at the annual meeting of the stockholders of PRCI (Exhibit "30"), the stockholders, including complainant Carlos H. Reyes, unanimously approve to confirm and ratify all the acts of Management and resolutions of the Board of Directors as shown in the Minutes Books and other corporate records of the company for the administrative year just ended, i.e., 1992 (Ref.: page 3 of Exhibit "30"). After a careful evaluation of the series of events and the figures involved under consideration, this Hearing Officer is convinced that there is nothing unlawful in the mode of the aborted acquisition by the PRCI of the two (2) electric generators and the construction of its shaded houses. These were all covered by duly passed resolutions of the Executive Committee and Board of Directors of the PRCI wherein the complainant, Carlos H. Reyes, as a member thereof, was always present during the proceedings. Complainant's stand on these transactions were always heard and discussed by the Board albeit the same were resolved not to his complete satisfaction. At any rate, the matter of restraining the respondents from implementing the transactions which PRCI entered into with the GCHI had already become moot and academic when, after complainant's application for a writ of preliminary injunction was denied and after load-testing the said generators, it was found out that the same are not in accordance with the agreed technical specifications and are not able to develop within a sustained period the required horsepower to generate 300 kilowatts per set, the PRCI elected to rescind the agreement and filed the Civil Case No. 93-644 against the GCHI. Anent the reliefs prayed for to hold respondents Aurelio H. Reyes, Jr. and Mario Bartolome jointly and severally liable for all amounts paid to GCHI and for all damages suffered by PRCI relative to the transactions and to impose appropriate administrative and disciplinary sanctions against these two (2) respondents, including their disqualification from office, this Hearing Officer finds the same unmeritorious. The complainant has miserably failed to establish any act committed by these respondents which were not within their authority. As such they are presumed to have regularly performed their respective duties. WHEREFORE, premises considered, the Motion to Dismiss should be, as it is hereby, GRANTED, and the instant case DISMISSED. No pronounce as to cost. llcd SO ORDERED. (SGD.) ELPIDIO S. SALGADO Hearing Officer