Ng v. Andes Realty, Inc.

THIRD DIVISION

[G.R. No. 231693. September 20, 2017.]

ERIC DAVIS NG, petitioner,vs. ANDES REALTY, INC., ANWES REALTY, INC., CAREER [PHILS.], INC., ET AL., respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, Third Division, issued a Resolution datedSeptember 20, 2017, which reads as follows: ITAaHc

"G.R. No. 231693 (Eric Davis Ng vs. Andes Realty, Inc., Anwes Realty, Inc., Career [Phils.], Inc., et al.). — For the consideration of the Court is a Petition for Review on Certiorari dated June 19, 2017 1 filed under Rule 45 of the Rules of Court assailing the Court of Appeals (CA) Decision dated October 5, 2016 2 and Resolution dated May 9, 2017. 3 The CA affirmed with modification the ruling of the Regional Trial Court of Quezon City, Branch 90 (RTC), in its Decision dated July 31, 2015, dismissing petitioner's complaint against herein respondents who are members of the family of Andrew Ng as well as the corporations organized by him for inspection of corporate records and accounting.

The Facts

The facts as found by the CA are as follows:

Under the helm of its patriarch, Andrew Ng, the Ng Family acquired various properties and placed them under several corporations, namely: (1) Andes Realty, Inc., (2) Anwes Realty, Inc., (3) Career (Phils.), Inc., (4) Chromograph, Inc., (5) Digi-Ads, Inc., (6) Gains, Inc., (7) Hercules Realty Corporation, (8) Mae Farms, Inc., (9) Pine Country Farms, Inc., (10) Star House, Inc., and (11) Graphic Sales Center, Inc. (collectively, Ng corporations) Eventually, when Andrew was no longer able to oversee the family's business affairs, he took steps to ensure the smooth continuance of the operations by assigning his shares and transferring the management and control of the Ng corporations to his interested heirs. 4

Thus, in 2002, the Ng Family granted petitioner Eric Davis H. Ng a free hand over the management and control of Graphic Sales Center with minimal supervision by designating him as the corporation's Vice-President for Operations. 5

During the early part of 2010, Eric's siblings, Roderic H. Ng, Jocelyn H. Ng, Ann Kathleen H. Ng-Villalon, as well as his mother Esther H. Ng, found out that Graphic Sales Center was in dire financial state as demands from creditors to pay due obligations became frequent. They observed that even loan sharks, with whom Graphic Sales Center does not regularly transact, were already making demands for the payment of loans incurred by the company through Eric. 6

Thus, Roderic, Jocelyn and Ann reached out to Eric to help with his problem and help him find a way to extinguish Graphic Sales Center's piling debt. Eric paid no heed to the Ng siblings' efforts and ignored even their simple requests for information regarding the nature and purpose of the loans that he incurred for Graphic Sales Center. Eric even demanded to be compensated by his family as reprisal to the request for information regarding the nature and purpose of Graphic Sales Center's loans. 7

On April 7, 2010, Eric resigned from Graphic Sales Center's Board of Directors due to "personal circumstances." 8

With such resignation, the petitioner's siblings started to investigate the problems besetting Graphic Sales Center and discovered the following anomalies: (1) checks payable to "cash," the amounts of which ranged from hundreds of thousands to over ten million pesos in a day, were regularly issued by Graphic Sales Center and encashed by its employees from 2007 to early 2010, 9 (2) Eric had been regularly obtaining loans from various financial institutions, (3) Graphic Sales Center had entered into multiple leasing agreements with different banks and leasing companies for its various pieces of machinery, (4) Eric made unauthorized re-discounting of checks obtained from client payments, and (5) Graphic Sales Center virtually failed to dispose of its inventory through sales. To make matters worse, Eric even mortgaged some properties of the other corporations in order to secure Graphic Sales Center's debts. 10

Thereafter, Eric filed a Complaint dated May 16, 2012 11 against the other members of the Ng Family as well as the Ng corporations before the RTC for Inspection of Corporate Records and Accounting. The case was docketed as Case No. Q-12-272 and raffled to Branch 90. In the complaint, Eric sought the following: (1) that he be allowed to examine the corporate books and documents of the defendant corporations; (2) that all the defendant corporations render a full and complete accounting of all their assets, properties, funds and receivables; and (3) that he be paid: a) exemplary damages in the amount of PhP100,000.00; b) attorney's fees in the amount of PhP100,000.00; and c) costs of the suit. Eric alleged in the complaint that the Ng Family were going to sell off the corporations' properties to settle their personal obligations leading to a dissipation of corporate assets. He also alleged that in a Board Meeting, Roderick and Ann promised to furnish him with copies of the deeds covering the sale of such properties, but that such promise was not fulfilled. He further alleged that the other Ng family members were misappropriating the proceeds of the sales for their own personal use. These were the reasons why Eric sought to inspect the records of the Ng family corporations. 12

Notably, Eric did not include Graphic Sales Center as one of the defendants. 13

The herein respondents filed an Answer with Compulsory Counterclaims 14 praying for the dismissal of Eric's complaint and that they be awarded damages. CHTAIc

Ruling of the Trial Court

After trial, the RTC rendered a Decision dated July 31, 2015, 15 the dispositive portion of which provides:

IN VIEW OF THE FOREGOING, judgment is rendered dismissing the plaintiff's Complaint in this case. Moreover, the plaintiff Eric Ng is ordered to pay the defendants Roderick Ng, Ann Kathleen Ng Villalon and Jocelyn Ng, based on the latter's compulsory counterclaims, the following sums of money, to wit:

(1) Moral damages in the amount of One Million Pesos (PhP1,000,000.00) with interest at the rate of 6% per annum computed from the date of this Decision until the same is fully paid;

(2) Temperate or Moderate damages in the amount of Three Million Pesos (PhP3,000,000.00) with interest at the rate of 6% per annum computed from the date of this Decision until the same is fully paid;

(3) Exemplary damages in the amount of One Million Pesos (PhP1,000,000.00) with interest at the rate of 6% per annum computed from the date of this Decision until the same is fully paid; and

(4) Attorney's fees and litigation expenses of Eight Hundred Thousand Pesos (PhP800,000.00), plus costs of suit. Other claims are dismissed for lack of factual and/or legal basis.

SO ORDERED. 16

Ruling of the CA

Aggrieved, petitioner elevated the case to the CA. In its Decision dated October 5, 2016, the appellate court affirmed with modification the Decision of the RTC. The dispositive portion of the Decision reads:

WHEREFORE, in view of the foregoing findings, the Court DENIES Eric Davis Ng's Petition for Review and AFFIRMS the RTC's July 31, 2015 Decision with modifications. Accordingly, the Court hereby DELETES the award of moral, temperate or moderate and exemplary damages consistent with established jurisprudence.

Cost against the petitioner.

SO ORDERED. 17

In support of its ruling, the CA found that petitioner's recourse to the courts for inspection of corporate records was premature. The CA reasoned that petitioner had failed to adduce evidence to establish that he was, in fact, denied his right to inspect the corporate books of the Ng corporations. Further, petitioner also failed to substantiate his claim that the other members of the Ng family were misappropriating corporate funds. The CA also ruled that petitioner's complaint was "a nuisance suit intended to harass the remaining members of the Ng Family and distract their attention in ascertaining the root cause of their businesses' problems so that they might undertake remedial courses of action." 18 This, according to the CA, is a limitation on the right to inspect corporate books that should be demanded in good faith and for a legitimate purpose. Finally, in deleting the awards of moral, temperate or moderate, and exemplary damages, the CA pointed out that the remaining members of the Ng Family also failed to prove such damages.

Petitioner moved for a reconsideration of this Decision but was denied in the assailed Resolution dated May 9, 2017.

The Issues

Hence, the instant petition, anchored on the following grounds:

[A]

The Court of Appeals palpably [erred] in sustaining the dismissal of the complaint considering that respondents failed to discharge the burden of proving during the proceedings a quo that petitioner is not entitled to exercise his inherent right to inspect the corporate books and records, be furnished with financial records, and demand accounting of respondent corporations' assets, properties, funds and receivables.

[B]

The Court of Appeals seriously erred when it sustained the finding that petitioner's complaint is a nuisance suit.

[C]

The Court of Appeals' grant of Attorney's Fees in favor of respondents in the amount of PhP1,666,251.00 has no factual and legal basis.

The Court's Ruling

Petitioner's complaint was

The petition is bereft of merit.

In sum, petitioner asserted that his cause of action consists in the respondents' refusal of his request to inspect the books of the Ng corporations.

Sections 1 and 2 of Rule 2 of the Rules of Court state that every ordinary civil action must be based on a cause of action, that is, an act or omission by which a party violates a right of another. The sections provide:

Section 1. Ordinary civil actions, basis of. — Every ordinary civil action must be based on a cause of action.

Section 2. Cause of action, defined. — A cause of action is the act or omission by which a party violates a right of another. EATCcI

In filing his complaint with the RTC, the petitioner anchored his claim on the rights provided under the second paragraph of Sections 74 and 75 of Batas Pambansa Bilang 68, or the Corporation Code of the Philippines, which state:

Section 74. x x x. —

The records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense.

Section 75. Right to financial statements. — Within ten (10) days from receipt of a written request of any stockholder or member, the corporation shall furnish to him its most recent financial statement, which shall include a balance sheet as of the end of the last taxable year and a profit or loss statement for said taxable year, showing in reasonable detail its assets and liabilities and the result of its operations.

At the regular meeting of stockholders or members, the board of directors or trustees shall present to such stockholders or members a financial report of the operations of the corporation for the preceding year, which shall include financial statements, duly signed and certified by an independent certified public accountant.

However, there is a dearth of evidence to support such claim.

It is a basic principle in law that one who alleges must prove the same. In Noblejas v. Italian Maritime Academy Phils., Inc., the Court stated: "It is an age-old rule that the one who alleges a fact has the burden of proving it and the proof should be clear, positive and convincing." 19

In the instant case, petitioner failed to discharge this burden of proof. The CA made the following factual findings:

In this case, Eric cried foul just because the Ng Siblings allegedly failed to furnish him with copies of corporate records upon his demand for his inspection. This hardly makes out a violation of Section 74 of the Corporation Code because there is no concrete evidence appearing in the records showing that the rest of the Ng Family denied Eric his right to visit the defendant corporations' offices and inspect corporate records at reasonable hours on business days. Even if it were true that the Ng Siblings failed to furnish him with copies of the deeds of sale or transfer regarding the defendant corporations' properties intended to be disposed, Eric could always visit the corporate offices during reasonable hours on business days and inspect by himself the necessary corporate records to satisfy his curiosity as to the Ng Family's judgment to dispose these properties. Hence, the failure to exhaust intra-corporate remedies by not personally inspecting the records of the defendant corporations makes Eric's recourse to the courts premature.

Given the circumstances, this Court is of the observation that Eric's right to inspect the defendant corporations' records was not yet violated by the rest of the Ng Family as he has yet to be prevented from conducting an actual inspection of the records. This clearly shows that the third element of a cause of action (act or omission that breached Eric's right to inspect corporate records) is missing. Therefore, since Eric's right to inspect corporate records was not yet violated by the rest of the Ng Family, his recourse to the courts was also premature and should be dismissed. 20 (Emphasis supplied)

Solely on the ground of petitioner's failure to prove that he was actually denied the right to inspect the corporation records, the instant petitioner deserves an outright denial, as his complaint evidently lacked a cause of action.

Petitioner's complaint was a

Nevertheless, even if petitioner was refused his right to inspect the corporate books of the Ng corporations, the instant recourse still fails to convince.

The 3rd paragraph of Section 74 of the Corporation Code states:

Any officer or agent of the corporation who shall refuse to allow any director, trustee, stockholder or member of the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code, shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: and Provided, further, That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the corporation's records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand. (Emphasis and underscoring supplied)

Concurrently, Section 1 (b) of A.M. No. 01-2-04-SC, or the Interim Rules of Procedure for Intra-Corporate Controversies, provides:

(b) prohibition against nuisance and harassment suits. — Nuisance and harassment suits are prohibited. In determining whether a suit is a nuisance or harassment suit, the court shall consider, among others, the following:

1. The extent of the shareholding or interest of the initiating stockholder or member;

2. Subject matter of the suit;

3. Legal and factual basis of the complaint;

4. Availability of appraisal rights for the act or acts complained of; and

5. Prejudice or damage to the corporation, partnership, or association in relation to the relief sought.

In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith dismiss the case. (Emphasis supplied)

As already found by the CA, there is no factual basis for petitioner's claim that he was denied his right to inspect the books of the Ng Family corporations. Similarly, the RTC also found that:

74. The inconsistent and evasive responses of plaintiff as illustrated in the foregoing simply strengthen defendants' position that the instant Complaint is simply a prohibited nuisance suit, commenced to harass defendants. The same is further proof that plaintiff's Complaint has no factual basis, as plaintiff himself is untruthful and ambiguous as to the relevant and material circumstances surrounding the sale of the properties of defendant corporations. 21 (Emphasis supplied)

Moreover, the CA also ruled that petitioner's allegation that the other Ng Family members were misappropriating the corporations' money to answer for their personal indebtedness was not supported by evidence. The CA found: DHITCc

Here, Eric's imagined fear that corporate assets are in grave danger of being dissipated allegedly because the rest of the Ng Family would appropriate these proceeds to pay off their personal obligations is unfounded and unsupported by any evidence on records. Corporate devices or schemes that amount to fraud or misrepresentation detrimental to the public and/or to the stockholders should be averred with particularity. 22

The Court will not review these factual findings of the lower tribunals. It has been consistently held that findings of fact of a trial court when affirmed by the CA will be binding upon this Court. 23 And while there are exceptions to this general rule, 24 the instant case does not fall under any of them.

Plainly, petitioner has no factual basis for the allegations in his complaint. There is, therefore, no legitimate purpose for inspecting the Ng Family corporations' books. Thus, the CA correctly considered the instant complaint as a harassment suit.

Respondents are entitled to

Finally, petitioner questions the grant of attorney's fees in favor of respondents claiming that it is not based on facts or law.

Paragraph 2 of Article 2208 of the Civil Code relevantly provides:

Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

xxx xxx xxx

(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

The CA was well-aware of the fact that an award of attorney's fees requires factual, legal and equitable justification, holding thus:

Finally, the power of the court to award attorney's fees under Article 2208 of the Civil Code demands factual, legal and equitable justification; hence, its basis cannot be left to speculation or conjecture. The award of attorneys [sic] fees is the exception rather than the rule and the court must state explicitly the legal reason for such award. Still, the award of attorney's fees to the winning party lies within the jurisdiction of the court, taking into account the circumstances of each case.

Here, the RTC found that the rest of the Ng Siblings incurred legal expenses of P1,666,251.00 as reflected in the Summary of Statement of Accounts that they had submitted. Therefore, the Court deems it just and equitable to have the same amount reimbursed by Eric for spawning the instant dispute in the first place. 25

Unperturbed by such explanation, petitioner, citing the case of ABS-CBN Broadcasting Corporation v. Court of Appeals, 26 claims that respondents should have proved that he filed the complaint in bad faith in order to be entitled to Attorney's Fees.

Notably, the Court defined bad faith in the same case of ABS-CBN as follows:

Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. Such must be substantiated by evidence. 27 (Emphasis supplied)

Here, the lower courts, as stated, found that petitioner instituted the instant complaint to harass respondents. To recapitulate, petitioner had no legitimate purpose for investigating the Ng Family corporations' books. The alleged reasons for inspection that he propounded were not supported by any evidence. His bare allegations and conjectures of denial of his right to inspect the corporate books, of alleged misappropriation and dissipation of corporate properties and of other evil deeds of the rest of the Ng Family, cannot support such a request. Evidently, the instant Complaint was intended to harass the other Ng family members. By doing so, petitioner acted in bad faith. Thus, respondents are entitled to attorney's fees.

WHEREFORE, finding no reversible error in the assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 141895, the Court resolves to DENY the petition and, thus, AFFIRM said Decision and Resolution.

SO ORDERED."

Very truly yours,

 

(SGD.) WILFREDO V. LAPITANDivision Clerk of Court

 

Footnotes

1.Rollo, pp. 8-45.

2.Id. at 47-64. Penned by Associate Justice Renato C. Francisco and concurred in by Associate Justices Apolinario D. Bruselas, Jr. and Danton Q. Bueser.

3.Id. at 66-69.

4.Id. at 48.

5.Id.

6.Id.

7.Id. at 49.

8.Id.

9. a) As much as ten (10) checks payable to "cash" were issued all on April 20, 2009 alone amounting to PhP634,682.16; b) checks payable to "cash" which bore significant amounts ranging from PhP2,000,000.00 to PhP5,000,000.00 and all amounting to PhP13,000,000.00 have been issued all on August 26, 2008 alone; c) checks payable to "cash" totaling PhP3,480,000.00 were all issued on October 28, 2008; d) checks payable to "cash" totaling $3,000,000.00 were all issued on November 21, 2008; e) a check payable to "cash" worth PhP3,000,000.00 was issued on January 5, 2009.

10.Id. at 49-50.

11.Rollo, pp. 144-157.

12.Id. at 50-51.

13.Id. at 51.

14.Id. at 312-342.

15.Id. at 97-134.

16.Id. at 133-134.

17.Id. at 63-64.

18.Id. at 57-58.

19. G.R. No. 207888, June 9, 2014, 725 SCRA 570, 579.

20. Rollo, pp. 56-57.

21. Id. at 124.

22. Id. at 57.

23. Domingo v. Molina, G.R. No. 200274, April 20, 2016, 791 SCRA 47, 55.

24. Protective Maximum Security Agency, Inc. v. Fuentes, G.R. No. 169303, February 11, 2015, 750 SCRA 302, 325.

25. Rollo, p. 63.

26. G.R. No. 128690, January 21, 1999, 301 SCRA 572.

27. Id. at 604.