SECOND DIVISION
[G.R. No. 233172. July 14, 2021.]
JAMES R. TAN, petitioner,vs. TEDDY R. TAN, respondent.
NOTICE
Sirs/Mesdames :
Please take notice that the Court, Second Division, issued a Resolution dated 14 July 2021 which reads as follows:
"G.R. No. 233172 — (James R. Tan v. Teddy R. Tan). — Before this Court is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court seeking to annul and set aside the Court of Appeals' (CA) Decision 2 dated February 20, 2017 and Resolution 3 dated July 11, 2017 in CA-G.R. SP No. 147540, which affirmed the Regional Trial Court's (RTC) Resolutions dated February 22, 2016 4 and August 30, 2016 5 in SEC Case No. 02-16, that ordered James R. Tan (James) to pay Teddy R. Tan (Teddy) his share in the retained earnings of the corporation.
ANTECEDENTS
Pittsburgh Trade Center Co., Inc. is a close corporation incorporated on February 11, 1980. James was one of its incorporators. In 1982, Teddy became a stockholder and served as a director, secretary, treasurer, and production manager.
On November 29, 2002, Teddy filed a complaint seeking the inspection of corporate books and records, accounting, dissolution, and damages against Pittsburgh Trade, James, Lita Q. Tan, Jerry R. Tan, Peter R. Tan, and Ma. Paz R. Tan (defendants). He alleged that due to disagreements on management, he was stripped of his position and duties and deprived of the right to participate in the corporation as a stockholder. He was not provided with audited financial statements and could not inspect corporate records and books. He accused James and Lita of treating corporate funds as their funds. Teddy posited that if James were allowed to continue with his acts, the assets of the corporation would be dissipated, wasted, or lost, to the detriment of the shareholders. Teddy invoked Section 105 6 of the Corporation Code and asked the trial court that Pittsburgh Trade be compelled to purchase his shares or be dissolved.
On February 16, 2005, the RTC issued a Decision 7 finding in favor of Teddy and ordering the dissolution of the Pittsburgh Trade. The RTC found that James and Lita effectively controlled the corporation and treated it as a sole proprietorship to the detriment of the stockholders. Further, James co-mingled his funds with that of the corporation, and the corporation had not declared dividends for several years in violation of a stockholder's right to earn dividends. The RTC concluded that there is sufficient ground to dissolve Pittsburgh Trade under Section 105 of the Corporation Code and appointed a Liquidation Committee to distribute the corporation's assets. The dispositive portion of the Decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering the DISSOLUTION of Pittsburgh Trade Center Co., Inc. For this purpose, the accountancy firm of Sycip, Gorres & Velayo is hereby commissioned and appointed as the Liquidation Committee for purpose of auditing and evaluating the assets of the corporation, winding up its affairs, dissolving the corporation [,] distributing its assets in accordance with [the] law. The said accountancy firm is directed to inform the Court within ten (10) days from receipt of this Order the names of three (3) of its representatives who shall form part of the Liquidation Committee, to come to Court to receive instructions regarding the task and from time to time submit reports to the Court of the progress of the proceedings. The defendants are ordered to turn over custody and possession of all documents, assets and property of the corporations to the said Liquidation Committee to enable the latter to comply with all its responsibilities and tasks. Within a period of sixty (60) days from the appointment of its members, the Liquidation Committee shall submit a report of the state of affairs of the corporation and on other relevant matters. Thereafter it shall make a report every three (3) months on the status of the matter until it shall submit a final report on the ultimate effectuation of the dissolution of the corporation.
SO ORDERED. (Emphases in the original.)
On June 21, 2005, Teddy filed a Motion for Execution of the February 16, 2005 Decision, which the RTC granted on December 9, 2005. 8 Thereafter, a Writ of Execution was issued. 9
Meantime, the appointed Liquidation Committee never acted as such because the parties agreed to submit substitute nominees. Eventually, the RTC appointed Atty. Alberto II Lorbon Reyes as Liquidator who submitted a Liquidator's Report on March 16, 2010, and a Liquidator's Final Report 10 on May 13, 2010. The reports showed that Atty. Reyes identified properties and payables of the corporation and distributed to the parties their respective shares. Atty. Reyes, however, was not able to conduct a full audit of Pittsburgh Trade's books for the years 2000 to 2005 because the external auditor was not cooperative. As such, the RTC, with the agreement of the parties, formed a new Liquidation Committee, with each party submitting one nominee and the Branch Clerk of Court acting as the third member.
During the new Liquidation Committee's scheduled conferences, only Teddy and his counsel and accountant were present. The RTC then deemed the right of the defendants to participate in the conferences waived. On February 25, 2014, Teddy's nominee Jose Pineda submitted his Final Report-Pittsburgh Audit 11 (Pineda's Final Report) to the trial court without comment from the defendants.
On July 9, 2014, the RTC issued an Order noting Pineda's Final Report and declaring the case closed and terminated, viz.: 12
With the Court noting that Audit is the only matter that remains to be done in this case following the distribution of assets/properties, the Court NOTES the instant Final Report-Pittsburgh Audit and declares the instant case as CLOSED and TERMINATED.
SO ORDERED. (Emphases in the original.)
Teddy moved for partial reconsideration. 13 He pointed out that Pineda's Final Report showed that the corporation had retained earnings. Since the corporation had been dissolved, the retained earnings should be distributed to the stockholders. Teddy claimed that the bulk of the retained earnings is merchandise inventory that could not be located when the liquidator inventoried the corporation's assets. He supposed that the missing merchandise inventory is the same inventory reported in James's financial statement as James continued to operate Pittsburgh Trade despite the February 16, 2005 Decision. Teddy asked the trial court that James be made accountable for the merchandise and be ordered to pay Teddy his share of the retained earnings.
James opposed Teddy's motion. 14 He argued in the main that the RTC had no more jurisdiction to act on the motion because the five-year period to enforce by motion the February 16, 2005 Decision had already lapsed.
On February 22, 2016, the RTC issued a Resolution 15 setting aside the July 9, 2014 Order. The RTC held that it prematurely declared the case closed and terminated as the distribution of assets is yet to be fully effected. Pineda's Final Report showed that the corporation had retained earnings that must still be delivered to the stockholders. Further, Teddy promptly moved for a Writ of Execution on June 21, 2005. Lastly, the RTC ordered James to pay Teddy's share in the retained earnings of the corporation, to wit:
WHEREFORE, premises considered, plaintiff's Motion for Partial Reconsideration is hereby GRANTED. Let the 9 July 2014 Order of the Court declaring the instant case as Closed and Terminated be SET ASIDE.
Defendant James R. Tan is ordered to pay plaintiff [Teddy] the plaintiff's share in the retained earnings of the corporation as per the Audit conducted.
SO ORDERED. (Emphasis supplied.)
James filed a motion for reconsideration but was denied by the RTC in its Resolution dated August 30, 2016. 16
James appealed to the CA. 17 He contended that Pineda's Final Report is grossly inaccurate and without basis and insisted that the February 16, 2005 Decision may no longer be enforced. Further, Teddy's share in the retained earnings is a liability of Pittsburgh Trade, not his. There was no valid reason to pierce the corporate veil.
The CA denied James's appeal on February 20, 2017. The CA upheld Pineda's Final Report as the final determination of assets to be distributed to the stockholders considering that Atty. Reyes failed to conduct a full audit of the books of the corporation. The CA emphasized that a full audit is necessary to have a complete and proper distribution of assets. Besides, James agreed to a Liquidation Committee after Atty. Reyes's discharge as liquidator. Further, forming a new Liquidation Committee is a necessary consequence of the execution of the February 16, 2005 Decision ordering the dissolution of Pittsburgh Trade. Anent James's liability for Teddy's share, the CA held that assuming the RTC's findings that the corporation was functioning as a sole proprietorship and that there was a mingling of funds were not enough to pierce the corporate veil, James did not appeal to these factual findings. It is, therefore, too late for him to question these findings since final and executory judgments can no longer be attacked or modified, directly or indirectly. Thus:
WHEREFORE, in view of the foregoing, the instant Petition is hereby DENIED. The assailed Resolutions, both issued by the Pasig City RTC, Branch 158, dated February 22, 2016 and August 30, 2016, respectively, in SEC Case No. 02-16 are hereby AFFIRMED.
SO ORDERED. 18 (Emphases in the original.)
The CA denied James's motion for reconsideration in a Resolution dated July 11, 2017. 19 Hence, the present petition for review.
James argues that the CA erred in holding him personally liable to pay Teddy's share in the retained earnings of the corporation. James stresses that the February 16, 2005 Decision of the RTC did not include an order to that effect. James questions the audit report submitted by Jose Pineda as the basis of his supposed liability to Teddy.
Meanwhile, Teddy counters that James is essentially asking this Court to review facts that are not proper under a Rule 45 petition. The RTC found that James treated the corporation as his sole proprietorship and co-mingled his money with the corporation. James can no longer contest these factual findings since he did not appeal.
RULING
We find the petition partly meritorious.
Preliminarily, the RTC correctly took cognizance of Teddy's motion for partial reconsideration of the July 9, 2014 Order even though the February 16, 2005 Decision is already final and the Writ of Execution issued. In Vda. dePamanv. Señeris, 20 the Court held that:
[a] case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are proceedings in the suit. There is no question that the court which rendered the judgment has a general supervisory control over its process of execution, and this power carries with it the right to determine every question of fact and law which may be involved in the execution. (Emphasis supplied.)
Liquidation, in corporation law, is a necessary consequence of the dissolution of the corporation. 21 It is the process of settling or winding up the corporation's affairs — meaning the collection of all assets, the payment of all its creditors, and the distribution of the remaining assets, if any, among the stockholders. 22 In this case, Pineda's Final Report results from the audit of Pittsburgh Trade's books conducted during the liquidation process following the dissolution order in the February 16, 2005 Decision. Indeed, the RTC still had jurisdiction to rule on all matters arising from the liquidation of Pittsburgh Trade.
However, it must be emphasized that the court's jurisdiction is confined to the execution and enforcement of the order of dissolution in the February 16, 2005 Decision. It cannot alter, modify, or amend the Decision; otherwise, the court would be violating the principle of finality of judgment and its immutability. In Natalia Realty, Inc. v. Court of Appeals, 23 the Court clarified that:
There is a distinction between the jurisdiction of a court to modify its judgment and its jurisdiction to enforce its judgment. The jurisdiction of the court to amend, modify or alter its judgment terminates when the judgment becomes final. This is the principle of immutability of final judgment x x x. On the other hand, the jurisdiction of the court to execute its judgment continues even after the judgment has become final for the purpose of enforcement of judgment.
Did the RTC violate the doctrine of immutability of judgment when it ordered James to be liable to Teddy in its Resolution dated February 22, 2016? We rule in the affirmative.
Under the doctrine of finality of judgment or immutability of judgment, once a judgment becomes final, all the issues between the parties are deemed resolved and laid to rest. No other action can be taken on the decision except to order its execution. 24 The decision becomes immutable and unalterable and may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land. 25 While the doctrine is not without exceptions, such as (1) correction of any clerical error; (2) the so-called nunc pro tunc entries which cause no prejudice to any party; (3) void judgments; and (4) whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable, 26 none of the exceptions was alleged and proved here.
Furthermore, the settled rule is that judgments should be implemented according to the terms of their dispositive portion. 27 "[I]t is the dispositive part of the judgment that actually settles and declares the rights and obligations of the parties, finally, definitively, and authoritatively, notwithstanding the existence of inconsistent statements in the body that may tend to confuse." 28 Therefore, the execution of the judgment must conform to that ordained in the dispositive part of the decision. 29 Any attempt on the part of the responsible entities charged with implementing a final judgment to insert, change or add matters not contemplated in the dispositive portion violates the rule on the immutability of judgments. 30
In the February 16, 2005 Decision, the RTC found that spouses James and Lita treated the corporation as their own, and they co-mingled their funds with the funds of the corporation. These acts are detrimental to the interests of the stockholders, including Teddy. Thus, the RTC ordered Pittsburgh Trade to be dissolved and the liquidator to distribute the assets under Section 105 31 of the Corporation Code. Remarkably, the personal liability of the defendants, including James, in case corporate assets are not enough to pay off corporate liabilities and the shareholders' return of investments was not decreed in the fallo of the February 16, 2005 Decision. 32 In resolving Teddy's motion for partial reconsideration of the July 9, 2014 Order, however, the RTC appeared to have "pierced" the corporate veil and ordered James to pay Teddy his share in the retained earnings. This is patently erroneous.
In Guillermo v. Uson, 33 the Court held that the failure of the corporation to meet its obligations would not necessarily result in piercing the veil of corporate fiction and thus, make the responsible officers liable. 34 Indeed, any piercing of the veil must be done with caution. 35 Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. 36 The corporate personality will only be ignored after the wrongdoing is first clearly and convincingly established. 37 Further, to hold a director or officer personally liable for corporate obligations under Section 31 38 of the Corporation Code, the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation or that the officer was guilty of gross negligence or bad faith. The complainant must also clearly and convincingly prove such unlawful acts, negligence, or bad faith. 39
In this case, the RTC merely found the corporate mismanagement and co-mingling of funds complained of violative of the stockholders' rights that would justify the dissolution of Pittsburgh Trade under Section 105 of the Corporation Code. The RTC, however, did not equate these to bad faith, fraud, or malice that would justify the piercing of the veil of corporate fiction. Also, the records do not bear evidence that James was grossly negligent in directing the corporation's affairs to be personally liable for corporate debts.
Indeed, the trial court cannot modify or alter what was ordained in the February 16, 2005 Decision. To reiterate, the February 16, 2005 Decision merely ordered Pittsburgh Trade to be dissolved and the court-appointed liquidator to wind up the corporation and distribute the assets. Therefore, the RTC erroneously declared James to be personally liable for Teddy's share in the corporation's undistributed earnings, violating the doctrine of immutability.
Lastly, we hold that James can no longer question the validity and conclusiveness of Pineda's Final Report. In the first place, Pineda's audit was a continuation of Atty. Reyes's winding up of the corporation. As the CA aptly held, there would be no complete and proper distribution of the assets of the corporation without a full audit of the corporation's books. Secondly, James was given every opportunity to participate in the audit process. James appointed his nominee to be part of the new Liquidation Committee, yet his nominee was always absent during the scheduled audit conferences. Further, when Pineda submitted to the trial court Pineda's Final Report, James did not file any comment or objection to the report. It is too late in the day for James to make an issue of the validity and correctness of the report.
FOR THESE REASONS, the petition for review is PARTLY GRANTED. The Decision dated February 20, 2017, and Resolution dated July 11, 2017, of the Court of Appeals in CA-G.R. SP No. 147540 are AFFIRMED with MODIFICATION in that the order for James R. Tan to pay Teddy R. Tan his share in the retained earnings of Pittsburgh Trade Center Co., Inc. reported in the Final Report-Pittsburgh Audit submitted by Jose G. Pineda on February 25, 2014, is DELETED.
SO ORDERED. (Lopez, J.Y., J., designated additional member per Special Order No. 2822 dated April 7, 2021.)
By authority of the Court:
(SGD.) TERESITA AQUINO TUAZONDivision Clerk of Court
Footnotes
1.Rollo, pp. 3-25.
2.Id. at 30-47. Penned by Associate Justice Franchito N. Diamante, with the concurrence of Associate Justices Japar B. Dimaampao and Carmelita Salandanan Manahan.
3.Id. at 49-50.
4.Id. at 180-185. Penned by Presiding Judge Maria Rowena Modesto-San Pedro.
5.Id. at 214-216.
6. Sec. 105. Withdrawal of stockholder or dissolution of corporation. — In addition and without prejudice to other rights and remedies available to a stockholder under this Title, any stockholder of a close corporation may, for any reason, compel the said corporation to purchase his shares at their fair value, which shall not be less than their par or issued value, when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock: Provided, That any stockholder of a close corporation may, by written petition to the Securities and Exchange Commission, compel the dissolution of such corporation whenever any of acts of the directors, officers or those in control of the corporation is illegal, or fraudulent, or dishonest, or oppressive or unfairly prejudicial to the corporation or any stockholder, or whenever corporate assets are being misapplied or wasted. (Emphasis supplied.)
7.Id. at 92-102. Penned by Pairing Judge Rodolfo R. Bonifacio.
8.Id. at 43.
9.Id. at 44.
10.Id. at 110-116.
11.Id. at 138-142.
12.Id. at 75.
13.Id. at 155-156.
14.Id. at 171-179.
15.Id. at 180-185.
16.Id. at 214-216.
17.Id. at 217-259.
18.Id. at 46.
19.Id. at 49-50.
20. 201 Phil. 290, 296-297 (1982), cited in Sunfire Trading, Inc. v. Guy, G.R. No. 235279, March 2, 2020 and quoted in Diamond Drilling Corp. of the Philippines v. Crescent Mining and Development Corp., G.R. Nos. 201785 & 207360, April 10, 2019.
21.Spouses Yu v. Yukayguan, 607 Phil. 581, 607 (2009).
22.Supra note 21 at 608; Philippine Veterans Bank Employees Union v. Vega, 412 Phil. 449, 454 (2001).
23.440 Phil. 1, 22 (2002). See also Sunfire Trading, Inc. v. Guy, G.R. No. 235279, March 2, 2020.
24.Spouses Poblete v. Banco Filipino Savings and Mortgage Bank, G.R. No. 228620, June 15, 2020.
25.Peña v. Government Service Insurance System, 533 PHIL. 670, 689-690 (2006).
26.Uematsu v. Balinon, G.R. No. 234812, November 25, 2019.
27.Session Delights Ice Cream and Fast Foods v. Court of Appeals, 625 Phil. 612, 623 (2010).
28.Light Rail Transit Authority v. Court of Appeals, 486 Phil. 315-327 (2004), quoted in Florentino v. Rivera, G.R. No. 167968, 515 Phil. 494, 503 (2006).
29.Jose Clavano, Inc. v. Housing and Land Use Regulatory Board, 428 Phil. 208, 223 (2002), quoted in Florentino v. Rivera, supra.
30.Supra note 27 at 624.
31.Supra note 6.
32.The dispositive portion of the February 16, 2005 Decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering the DISSOLUTION of Pittsburgh Trade Center Co., Inc. For this purpose, the accountancy firm of Sycip, Gorres & Velayo is hereby commissioned and appointed as the Liquidation Committee for purpose of auditing and evaluating the assets of the corporation, winding up its affairs, dissolving the corporation [,] distributing its assets in accordance with [the] law. The said accountancy firm is directed to inform the Court within ten (10) days from receipt of this Order the names of three (3) of its representatives who shall form part of the Liquidation Committee, to come to Court to receive instructions regarding the task and from time to time submit reports to the Court of the progress of the proceedings. The defendants are ordered to turn over custody and possession of all documents, assets and property of the corporations to the said Liquidation Committee to enable the latter to comply with all its responsibilities and tasks. Within a period of sixty (60) days from the appointment of its members, the Liquidation Committee shall submit a report of the state of affairs of the corporation and on other relevant matters. Thereafter it shall make a report every three (3) months on the status of the matter until it shall submit a final report on the ultimate effectuation of the dissolution of the corporation.
SO ORDERED.
33.782 Phil. 215, 222 (2016).
34.The doctrine of piercing the veil of corporate fiction applies to close corporations. See Cease v. Court of Appeals, 182 Phil. 61, 74-75 (1979).
35.Zaragoza v. Tan, 822 Phil. 51, 67 (2017).
36.Pantranco Employees Association v. National Labor Relations Commission, 600 Phil. 645, 661 (2009).
37.Halley v. Printwell, Inc., 664 Phil. 361-380 (2011).
38.Section 31. Liability of directors, trustees or officers. — Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquire, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation.
39.Supra note 35 at 65.