Trend Developers, Inc., et al. vs. C-R Agro-Industrial Corporation, et al

[SEC-SICD * CASE NO. 2320. March 6, 1991.] TREND DEVELOPERS, INC. AND WILLIAM V. COSCOLLUELA , petitioners , vs .C-R AGRO-INDUSTRIAL CORP.,ET AL. , respondents . [SEC-SICD * CASE NO. 2321. March 6, 1991.] ASUNCION CAGUIOA AND BERNADETTE CAGUIOA , petitioners , vs .C-R AGRO-INDUSTRIAL CORP.,ET AL. , respondents . [SEC-SICD * CASE NO. 2324. March 6, 1991.] NELIA COSCOLLUELA , petitioner , vs .C-R AGRO-INDUSTRIAL CORP.,ET AL. , respondents . [SEC-SICD * CASE NO. 2325. March 6, 1991.] MARA L. COSCOLLUELA represented by her father and guardian ad litem, WILLIAM V. COSCOLLUELA , petitioner , vs .C-R AGRO-INDUSTRIAL CORP.,ET AL. , respondents . [SEC-SICD * CASE NO. 2345. March 6, 1991.] SPOUSES DANILO AND NILDA TAGLE , petitioners , vs .C-R AGRO-INDUSTRIAL CORP.,ET AL. , respondents . D E C I S I O N These are five cases all for recovery of money market placements and damages predicated upon the theory that the same involved devices or schemes employed by the board of directors, business associates, or its officers amounting to fraud and misrepresentation which may be detrimental to the interest of the public pursuant to Sec. 5(a) of Presidential Decree No. 902-A as amended. Respondents Luis Tirso Rivilla, Lourdes C. Rivilla and Rosalina C. Vidal are sought to be held jointly and severally liable with respondent C-R Agro-Industrial Corporation with whom the money market placements were made by petitioners, on the ground that individual respondents were guilty of culpable violation of P.D. 678 as amended, amounting to fraud and misrepresentation detrimental to the interest of the public. Petitioners invoke the doctrine of piercing the veil of corporate fiction and assert that individual respondents were board chairman, president, directors and controlling stockholders of respondent corporation during the times material to these actions. The placements in question, including the terms and conditions thereof under which the same were issued and their being unpaid and outstanding are not disputed. At any rate, the liability of respondent corporation for these placements is firmly established. The subject placements are evidenced by promissory notes, all payable to bearer, issued by respondent corporation to the petitioners herein, where the promissory notes are involved, and with particulars as follows: a) In SEC Case No. 2320. i) P/N No. : 5152 (Exh. "Q") Issue Date : May 7, 1981 Maturity Date : June 11, 1981 Principal : P1,329,466.67 Maturity Value : P1,361,780.09 Interest Rate : 25% per annum ii) P/N No. : 5190 (Exh. "R") Issue Date : May 15, 1981 Maturity Date : June 19, 1981 Principal : P200,000.00 Maturity Value : P204,569.45 Interest Rate : 23-1/2% per annum b) In SEC Case No. 2321. P/N No. : 4888 (Exh. "R") Issue Date : March 23, 1981 Maturity Date : June 22, 1981 Principal : P100,000.00 Maturity Value : P106,066.67 Interest Rate : 24% per annum c) In SEC Case No. 2324. i) P/N No. : 5225 (Exh. "Q") Issue Date : May 19, 1981 Maturity Date : June 23, 1981 Principal : P50,000.00 Maturity Value : P51,166.67 Interest Rate : 24% per annum ii) P/N No. : 5418 (Exh. "S") Issue Date : June 23, 1981 Maturity Date : Upon Demand Principal : P50,000.00 Maturity Value : Demand Interest Rate : 24% per annum d) In SEC Case No. 2325 i) P/N No. : 5166 (Exh. "Q") Issue Date : May 8, 1981 Maturity Date : June 22, 1981 Principal : P47,802.32 Maturity Value : P49,296.14 Interest Rate : 25% per annum ii) P/N No. : 5214 (Exh. "R") Issue Date : May 22, 1981 Maturity Date : July 21, 1981 Principal : P70,593.87 Maturity Value : P73,535.28 Interest Rate : 25% per annum e) In SEC Case No. 2345. i) P/N No. : 4952 (Exh. "R") Issue Date : March 31, 1981 Maturity Date : June 29, 1981 Principal : P200,000.00 Maturity Value : P212,000.00 Interest Rate : 25% per annum ii) P/N No. : 5445 (Exh. "S") Issue Date : June 29, 1981 Maturity Date : September 29, 1981 Principal : P200,000.00 Maturity Value : P212,266.66 Interest Rate : 24% per annum While not expressed on the face of the promissory note, "the interest rate is indicated in the corresponding official receipt where the interest rate can be computed (Exh. "Q-1" in SEC Case No. 2320; Exh. "Q-1" in SEC Case No. 2321, and Exh. "Q-1" in SEC Case No. 2325). Pursuant to the Order dated February 16, 1983, respondent corporation was declared in default for failure to answer the petitions within the reglementary period. Respondents Luis Tirso Rivilla and Lourdes C. Rivilla, who are husband and wife, raised these special and affirmative defenses, namely: (i) that there is no privity of contract between them and petitioners; (ii) that they did not act as fiduciary of respondent corporation; (iii) that respondent husband is not a stockholder and, therefore, cannot be a director, much less board chairman, of respondent corporation, while respondent wife was not the president of respondent corporation during the time material to the actions; (iv) that all transactions of respondent corporation were duly recorded and accounted for and, if loans were extended to them, they were actual and legitimate loans, and (v) that there is absolutely no basis for piercing the corporate veil of respondent corporation as no fraud vitiated petitioners. On the other hand, respondent Rosalina C. Vidal pleaded the defenses that: (i) she acted not in her personal capacity but as president of respondent corporation; (ii) all transactions for which she was responsible were recorded in the books of respondent corporation and properly accounted for; (iii) loans made to respondent Rivillas and their affiliated companies were actual and legitimate loans made in good faith; (iv) she and the immediate members of her family had made advances of almost P1 million to respondent corporation which have remained unpaid; (v) she ceased to be president of respondent corporation and therefore has no access, much less control, over its records and books; (vi) the corporate funds and records, while in her possession, had been duly accounted for and were subjected to audit; (vii) she did not conspire with any party to defraud petitioners and the general public; (viii) the petitions do not state a cause of action against her; (ix) the obligations sued upon are corporate obligation, for which she is not responsible; and (x) the Commission has no jurisdiction over her person and the subject matter of the actions in the petitions. The issues concerning the Commission's jurisdiction over the subject matter of the actions and the sufficiency of the allegations in the petitions on personal liability of individual respondents was resolved affirmatively pursuant to our Order dated November 4, 1982. We see no reason for reversing such conclusion. On the other hand, the principal bases of the actions had been sufficiently established thru the evidence adduced in support of the applications for preliminary attachment. In our Order dated January 27, 1983, we said: "From the evidence adduced, it appears that latest authority of the respondent corporation to issue commercial papers was for the period of April 30, 1980 to April 29, 1981 with the debt ceiling of P8,000,000.00. However, there are documents which show that respondent corporation had exceeded its debt ceiling and that commercial papers were issued after April 29, 1981, in violation of its authority. Evidence further show that respondent Luis Tirso Rivilla and his business affiliates drew advances from the respondent corporation without any board resolution; that from the proceeds of respondents' borrowings from the public, respondent Luis Tirso Rivilla received more or less P32,000,000.00 including therein his personal loans and that of his other interests; that the other members of the Board never actively participated in the operation of respondent corporation since practically all the meetings of the Board were convened informally; that respondent Lourdes C. Rivilla was always present in all the meetings of the Board together with respondent Rosalina Vidal, Erlinda Gonzales and sometimes Mrs. Lydia McKenzie and respondent Luis Tirso Rivilla; that respondents Luis Tirso Rivilla and Lourdes Rivilla were informed of the day-to-day transactions of the respondent corporation through the daily cash position report given by the officers of the respondent corporation; that respondent corporation had already a liquidity problem between February 25 to March 19, 1981, however, it continued to accept investments from the public without advising its investors of its true financial positions; that the advances given to respondents Luis Tirso Rivilla and his affiliates were transactions between respondent Luis Tirso Rivilla and Rosalina Vidal alone; that the other directors never questioned respondent Rosalina Vidal regarding the money market activities of the respondent corporation; that although respondent corporation applied the regular money market rates of interest, but whenever respondent Luis Tirso Rivilla needed money very badly, the respondent corporation increased its interest rates in order to attract investors; and that the personal obligations of respondent Luis Tirso Rivilla were paid by the respondent corporation upon his instruction and respondent Lourdes Rivilla." (pp. 3-5) prcd No substantial evidence was presented by the respondent to controvert as would constrain us to disturb the abovequoted findings. Additionally, we adopt the findings of Attys. Fe Eloisa C. Gloria and Francia T. Manlapaz in their separate investigation as our own, being fully supported by the evidence on record. For ready reference, those findings pertinently read; 1. That Mr. Luis Tirso Rivilla is not a stockholder nor a Director of the corporation but appeared on record and claimed to be the Chairman of the Board of Directors; 2. That from the proceeds of the borrowings of C-R Corporation from the public Mr. Luis Tirso Rivilla received more or less P32 Million including therein his personal loans and that of his other interest; 3. That Lourdes Cojuangco-Rivilla is the majority stockholder of the corporation; 4. That the subscription of the other stockholders have all been paid for by the Rivillas; 5. That the other members of the Board never actively participated in the operations of the corporation since practically all the meetings of the board were convened informally; 6. That if the loans granted to Mr. Rivilla and to the affiliates would be paid, C-R Corporation would have sufficient money to pay off its overdue obligations. (Memo of Atty. Francia T. Manlapaz dated May 31, 1982 for Director Fe Eloisa C. Gloria; Exh. "N") 7. That from the proceeds of the borrowings from the public Mr. Luis Tirso Rivilla received more or less P32 Million which would include his personal loans and that of his other interests including that of his sons; 8. That the Rivillas were informed of the day-to-day transactions of the corporation through a daily cash position report given them by officers of the corporation; 9. That there were board meetings held although informal in nature wherein those in attendance were: Mrs. Rivilla, Miss Vidal, and Mrs. Gonzales and sometimes Mrs. Lydia Mckenzie; 10. That Mr. Luis Tirso Rivilla is not a stockholder, nor a director but appears on record including in its Application for Authority to Issue Commercial Papers that he is the Chairman of the Board of Directors his holdings in C-R Agro-Industrial Corporation should have been previously established in their market application; 11. The allegation that these acts are not money market transactions cannot be sustained because it has been established that the investors are not related with the officers of C-R and even if they were relatives or close family members of the officers, the same is not a ground for exemption under the rules. Likewise, it has been established that from the proceeds of its borrowing the corporation turned around then lent it to Mr. Rivilla and the affiliate corporations with interest and therefore profited from the transaction. Such activity, therefore, falls within the ambit of quasi-banking functions; 12. That the other officers like Miss Vidal, Mr. Leuterio, Mrs. Evangelista are equally responsible for the violations made as they were the principal officers of the corporation and they continued collecting and campaigning for investments despite knowledge that the corporation was already illiquid; 13. That if only the advances of Mr. Luis Tirso Rivilla and the other affiliates are paid, there would be no need of selling the Hilongos Development Corporation or other properties of the Rivillas for settlement of the accounts of its investors; 14. In the initial hearing where Mr. & Mrs. Luis Tirso Rivilla were called to testify, Mr. Rivilla promised to pay the investors within 2 to 4 weeks from date of hearing which was October 22, 1981. (Memorandum of Atty. Fe Eloisa C. Gloria dated December 09, 1981 for the Honorable Chairman; Exh. "O") Be that as it may, the evidence presented at the hearing on the merits reinforced the case for petitioners. It conclusively shows that: 1. Petitioners made the placements in question upon inducement of respondents by offering very high interest, at the same time misrepresenting that respondent corporation was in sound and liquid condition. And knowing that respondent corporation's authority to issue commercial papers had lapsed and its borrowing ceiling exceeded, respondents did not disclose but, on the contrary, concealed such material information to petitioners and other creditors, in violation of P.D. No. 678 as amended by P.D. No. 1798. More so, the respondents continued to issue unregistered promissory notes after respondent corporation's authority to issue commercial papers lapsed, in the aggregate amount of more than P1 million at any one time and borrowed from more than 20 lenders/investors, thus performing a quasi-banking function without the necessary authority/permit from the proper governmental agency. 2. Once in possession of the placements, respondents diverted and misapplied the same to respondent husband's personal use and benefit, his family and affiliate companies (Rivilco, LTR Farm, LTR Macuda, LTR Poultry, LTR Aviation, Aggregate Mining Exponents, Transport Exponent, Ormoc Sugar Co.,Hilongos Development Corp.,X-Ray Electro Medical Exponents, Commercial Exponents and Travel Exponents).(Exhs. "I","I-1" to "I-4") 3. The giving of the advances was part of an illegal scheme to defraud the general public. Its property greatly dissipated, respondent corporation could no longer pay its obligation to more than 100 lenders/investors, including petitioners, aggregating P48,026,140.54 as of June 30, 1981 (Exhs. "H","H-1" to "H-7"). 4. At the time, and even before respondent corporation received the placements, it was already incapable of repaying the same because of its distressed financial condition and/or liquidity problem. Despite this, respondents continued to accept placements from the public and to give advances to respondent husband and his family and affiliates out of respondent corporation's funds. We shall now proceed to the issue concerning personal liability of individual respondents. While respondent husband does not appear to be a stockholder of record of respondent corporation, nevertheless, he acted, and misrepresented himself to the public, as Chairman of the Board of the corporation. Upon his instance, respondent Vidal was prevailed upon by PLDT's Ramon Cojuangco to postpone her joining that company and to work, in the meantime, at respondent corporation as Executive Vice President, and later, as president in order that she could help him in his money problems. And it was in pursuance of this objective that respondent Vidal broached the money desk idea to the directors of respondent corporation who approved the same in one of its informal board meetings. From 1978 to early 1981, respondent husband and his son, sister and affiliate companies borrowed from respondent corporation, by way of advances, without giving collaterals therefore. (This is very significant. For when it was the turn of respondent corporation to borrow from lending institutions, it invariably had to put up collaterals).And because the advances were unsecured, petitioners were left holding empty bags. Their only recourse was to run after individual respondents who made their (petitioners) losses possible. With respect to respondent wife, she was the controlling, if not the sole (as she paid for the subscriptions of the other incorporators) stockholder, director and president of respondent corporation. It was during her incumbency as president that the money desk was launched. And as president, she was admittedly active in the operation of the business of respondent corporation. Respondent wife may not feign ignorance of the money desk operation because, as admitted by her, she approved respondent Vidal's proposal to put up the money desk, even knowing that the scheme was to generate money from the public who would be enticed to entrust their hard earned money by offering relatively high interest rates. And during the years 1976 to 1981, respondent Rivillas were living together under the same roof. The matter of the advances of her husband and her son and the affiliate companies could not have, therefore, escaped respondent wife's attention. Even supposing that respondent wife was not aware of the money desk operation of respondent corporation, that will not excuse her from liability. If she placed everything in the hands of respondent Vidal, then she is guilty, at the very least, of gross negligence. For, according to her, in her capacity either as controlling stockholder, director or president of respondent corporation, she never inquired from respondent Vidal or any officers of the corporation what was being done with the money it was receiving thru the money desk, what was the financial status of respondent corporation whether the money was being lent to others, whether her husband was getting advances from the money desk operation and whether respondent corporation was complying with the law and SEC regulations. At any rate, the advances were contracted by her husband for the benefit of the conjugal partnership and, therefore, the partnership is liable. (Art. 161, Civil Code) Finally, it has become evident that the action of respondent Luis Tirso Rivilla in securing advances from the money market operation of the respondent corporation for his personal use and benefit, his family and affiliate corporations without putting up any collateral warrants the conclusion that respondent Rivillas and corporation are one and the same. On the other hand, respondent Vidal was the brain behind the money desk. In operating the money desk, she was telling the public that respondent husband was the board chairman of respondent corporation. She admitted that notwithstanding the fact that respondent corporation was already suffering from liquidity problem, it still continued accepting placements from the public without disclosing its actual financial condition. And the unlawful money market transactions of respondent corporation, earlier alluded to, were inflicted on the public under her direction and supervision. The fact that respondent's wife and Vidal have outstanding placements with respondent corporation cannot extricate them from liability. If at all, those placements were made to gain the trust of the public on the reliability of respondent corporation. Apart from the unpaid placements and interests, petitioners incurred attorney's fees. The individual respondents' personal liability for the placements in question and the damages suffered by petitioners can hardly be disputed. Considerations of law and public policy so demand. Thus: 1. Petitioners may exercise all the rights and bring all the actions of respondent corporation against its debtors for the purpose of securing satisfaction of their (petitioners) claims against respondent corporation. (Art. 1177, Civil Code); 2. Responsibility for the unlawful money market transaction of respondent corporation lies at one doorstep of individual respondents, making them not only criminally but also civilly liable. (Art. 100 Revised Penal Code) The civil liability includes restitution, reparation for the damage caused and indemnification for consequential damages. (Art. 104, id.); 3. Being guilty of fraud and/or negligence in the performance of their duties, individual respondents as well as respondent corporation are liable for damages. (Art. 1170 Civil Code); 4. For willfully and knowingly voting for or assenting to patently unlawful acts of respondent corporation and/or being guilty of gross negligence or bad faith in directing the affairs of the corporation, individual respondents are jointly and severally liable for the damages suffered by petitioners. (Sec. 3, New Corporation Code) Directors are personally liable for any wrongful disposition of corporate assets and for any loss or injury to the corporation arising from their gross negligence or unauthorized acts or violation of their duties. Consequently, whether anchored on delict or quasi-delict, the liability of individual respondents is solidary. (Art. 110, Revised Penal Code, Art. 2194, Civil Code) In sum, petitioners have conclusively established their case against respondents. WHEREFORE, judgment is rendered in favor of petitioners and against respondents, as follows: a) In SEC Case No. 2320 Ordering respondents to pay to petitioners, jointly and severally, the following: 1) The amount of P1,361,780.09 plus interest thereon at the rate of 25% per annum from June 12, 1981 until fully paid; 2) The amount of P204,569.45 plus interest thereon at the rate of 23-1/2% per annum from June 20, 1981 until fully paid; 3) The amount of ten thousand pesos as attorney's fees; and 4) The costs of suit. cdll b) In SEC Case No. 2321 Ordering respondents to pay petitioners, jointly and severally, the following: 1) The amount of P106,066.67 plus interest thereon at the rate of 24% per annum from June 23, 1981 until fully paid; 2) The amount of ten thousand pesos as attorney's fees; and 3) The costs of suit. c) In SEC Case No. 2324 Ordering respondents to pay to petitioners, jointly and severally, the following: 1) The amount of P51,161.67 plus interest thereon at the rate of 24% per annum from June 24, 1981 until fully paid; 2) The amount of ten thousand pesos as attorney's fees; and 3) The costs of suit. d) In SEC Case No. 2325 Ordering respondents to pay to petitioners, jointly and severally, the following: 1) The amount of P49,296.14 plus interest thereon at the rate of 25% per annum from June 23, 1981 until fully paid; 2) The amount of P73,535.28 plus interest thereon at the rate of 25% per annum from July 22, 1981 until fully paid; 3) The amount of ten thousand pesos as attorney's fees; and 4) The costs of suit. e) In SEC Case No. 2345 Ordering respondents to pay to petitioners, jointly and severally, the following: 1) The amount of P212,266.66 plus interest thereon at the rate of 24% per annum from September 30, 1981 until fully paid; 2) The amount of ten thousand pesos as attorney's fees; and 3) The costs of suit. SO ORDERED. (SGD.) JOSEFINA L. PASAY-PAZ Hearing Officer (SGD.) ANTONIO M. ESTEVES (SGD.) JAMES K. ABUGAN Hearing Officer Hearing Officer