MANUEL LUIS S. SANCHEZ, G.R. No.
172885
Petitioner,
Present:
- versus - Carpio Morales,**
Acting Chairperson,
Chico-Nazario,***
Brion, and
Abad, JJ.
REPUBLIC OF THE PHILIPPINES,
Represented by the Department of Promulgated:
Education, Culture and Sports,
Respondent. October
9, 2009
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ABAD,
J.:
This
petition for review on certiorari assails
the February 21, 2006 Decision[1] of the Court of Appeals in CA-G.R. CV
83648 and its Resolution[2] of
May 29, 2006, which dismissed the petitioner’s appeal from the decision of
Branch 71 of the Regional Trial Court (RTC) of Pasig City in Civil Case 66852.
The Facts and the Case
In 1980,
during the regime of President Ferdinand E. Marcos, the government-owned Human
Settlements Development Corporation (HSDC) built with public funds and on
government land the St. Martin Technical Institute Complex at Barangay Ugong,
In July 1980,
First Lady Imelda R. Marcos and others organized the
After the fall
of the Marcos regime in 1986, the new government reorganized HSDC into the
Strategic Investment Development Corporation (SIDCOR) under the supervision of
the Office of the President. Realizing that
ULFI never paid the 14 percent annual fee due to HSDC, now totaling about P316
million, on July 25, 1989 SIDCOR rescinded the HSDC-ULFI agreement. Ironically, in its place, SIDCOR entered into an
Interim Management Agreement with ULFI, allowing it to continue managing and
operating the Complex.
Meantime,
in October 1989, the government transferred the ownership of ULFI’s properties
to the Department of Education, Culture and Sports (DECS). Later in January 1990, Republic Act 6847
transferred full control and management of the Complex to DECS with effect two
years from the law’s enactment. The DECS
transferred its offices to the Complex in December 1990. On
On
On appeal
of the DECS to the Court of Appeals by petition for review,[4]
however, the latter rendered judgment on
On P22,559,215.14
(due from February 1992 to January 1996) plus P6,325.00 per month until
it shall have vacated the premises.[6] The DECS succeeded in ejecting ULFI but the
latter did not pay the amounts due from it.
On June
15, 1998 the DECS filed a complaint[7] before
the RTC of Pasig City in Civil Case 66852 for collection of the P22,559,215.14
in unremitted rents and damages against Henri Kahn, ULFI’s President, and
petitioner Manuel Luis S. Sanchez, its Executive Vice-President, based on their
personal liability under Section 31 of the Corporation Code. The latter two were Managing Director and Finance
Director, respectively, of the corporation.[8]
The
complaint alleged that Kahn and petitioner Sanchez, as key ULFI officers, were
remiss in safekeeping ULFI’s corporate incomes and in accounting for them.[9] They neither placed the incomes derived from
the Complex in ULFI’s deposit account nor submitted the required financial
statements detailing their transactions. The underlying theory of the case is that Kahn
and Sanchez “operated ULFI as if it were their own property, handled the
collections and spent the money as if it were their personal belonging.”[10] The DECS asked the RTC to order Kahn and
Sanchez personally to pay it the P22,559,215.14 in rents due from ULFI with
legal interest, exemplary damages of P1,000,000.00,
attorney’s fees of P500,000.00, and costs.
In his
answer, petitioner Sanchez alleged that, being a mere officer of ULFI, he cannot
be made personally liable for its adjudged corporate liability. He took exception to the complaint,
characterizing it as an attempt to pierce the corporate veil that cloaked ULFI.
Satisfied
that the DECS fully established its case, on October 14, 2002, the RTC rendered
judgment, ordering Kahn and petitioner Sanchez to pay the DECS, jointly and
severally, P22,559,215.14 with legal interest from April 1, 1996 until they
shall have fully paid the same, P500,000.00 in exemplary damages, and P200,000.00
in attorney’s fees, plus costs.[11]
Both Kahn
and petitioner Sanchez appealed to the Court of Appeals. The latter court gave due course to Sanchez’s
appeal but denied that of Kahn since it was filed out of time. On
In a
nutshell, Sanchez argues that he cannot be made personally liable for ULFI’s
corporate obligations absent specific allegations in the complaint and evidence
adduced during trial that would warrant a piercing of the corporate veil. He further argues that the DECS is barred by res
judicata and forum shopping from collecting from him what it could not get by
execution from ULFI under the judgment in the ejectment case. Finally, he claims that because ULFI suffered
losses in operations during the period 1992 up to 1996, there could have been
nothing left of the rentals it collected from the lessees of the Complex.
The DECS
points out, on the other hand, that since Kahn and petitioner Sanchez were guilty
of fraud and bad faith in managing the funds of ULFI, they can be made to personally
answer for those funds and to pay its corporate obligations pursuant to Section
31 of the Corporation Code. They
collected money from rents but did not, as was their duty, remit this to the
DECS pursuant to the DECS-ULFI agreement.
The Issues
The case
before this Court presents the following issues:
1. Whether or not petitioner Sanchez, a
director and chief executive officer of ULFI, can be held liable in damages
under Section 31 of the Corporation Code for gross neglect or bad faith in
directing the corporation’s affairs; and
2. Whether or not the action in Civil Case
66852 is barred by res judicata and
constitutes forum shopping by the DECS.
Rulings of the Court
Petitioner
Sanchez points out that the Court of Appeals’ decision arbitrarily changed the DECS’s
theory of the case from one based on his and Kahn’s alleged failure to deposit
for the account of ULFI whatever rentals they have collected to another based
on their alleged failure to remit to the DECS the incomes of the facilities they
managed. But Sanchez is drawing
insignificant distinctions from what the DECS claims and what the court below
finds. Both essentially rest on Kahn and
Sanchez’s failure to account for the rent incomes that they collected from lease
of spaces in the facilities of the Complex beyond the one-year management
authority that the DECS granted ULFI in 1991.
Petitioner
Sanchez claims that there is no ground for the courts below to pierce the veil
of corporate identity and hold him and Kahn, who were mere corporate officers,
personally liable for ULFI’s obligations to the DECS. But this is not a case of piercing the veil
of corporate fiction. The DECS brought
its action against Sanchez and Kahn under Section 31 of the Corporation Code,
which should not be confused with actions intended to pierce the corporate
fiction.
Section 31
of the Corporation Code makes directors-officers of corporations jointly and
severally liable even to third parties for their gross negligence or bad faith
in directing the affairs of their corporations.
Thus:
Sec. 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. (Emphasis supplied)
x x x x
The DECS
does not have to invoke the doctrine of piercing the veil of corporate
fiction. Section 31 above expressly lays
down petitioner Sanchez and Kahn’s liability for damages arising from their
gross negligence or bad faith in directing corporate affairs. The doctrine mentioned, on the other hand, is
an equitable remedy resorted to only when the corporate fiction is used, among
others, to defeat public convenience, justify wrong, protect fraud or defend a crime.[13]
Moreover,
in a piercing case, the test is complete control or domination, not only of
finances, but of policy and business practice in respect of the transaction
attacked.[14] This is not the case here. Section 31, under which this case was
brought, makes a corporate director–who may or may not even be a stockholder or
member–accountable for his management of the affairs of the corporation.
Bad faith
implies breach of faith and willful
failure to respond to plain and well understood obligation.[15] It does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty through some motive
or interest or ill will.[16]
It partakes of the nature of fraud.[17]
Gross
negligence, on the other hand, is the want of even slight care, acting or omitting to act in a situation
where there is duty to act, not inadvertently but willfully and
intentionally, with a conscious indifference to consequences insofar as other
persons may be affected.[18] It evinces a thoughtless disregard of consequences without exerting any effort to
avoid them;[19]
the want or absence of or failure to exercise slight care or diligence, or the
entire absence of care.[20]
In
resolving the issue of whether or not petitioner Sanchez, a director and chief
executive officer of ULFI, can be held liable in damages under Section 31 of
the Corporation Code for bad faith or gross neglect in directing the
corporation’s affairs, the Court will consider only the Court of Appeals’
findings of facts. This Court’s
jurisdiction in a petition for review on certiorari
under Rule 45 is limited to reviewing only errors of law. It is bound by the findings of fact of the
Court of Appeals.
The Court
of Appeals found that from January 1992 to January 1996, after ULFI’s authority
to manage the Complex expired and despite the ejectment suit that the DECS
filed against it, petitioner Sanchez and Kahn still continued to lease spaces
in those facilities to third persons.
And they collected and kept all the rents although they knew that these
primarily belonged to the DECS. ULFI had
merely managed the facilities and collected earnings from them for the DECS. What is more, Sanchez and Kahn were aware that
they had to submit written accounts of those rents and remit the net earnings
from them to the Bureau of Treasury, through the DECS, at the end of the
year. Yet, Sanchez and Kahn, acting in
bad faith or with gross neglect did not turn over even one centavo of rent to
the DECS nor render an accounting of their collections. Nor did they account for the money they collected
by submitting to the Securities and Exchange Commission the required financial
statements covering such collections.
Parenthetically,
a witness for the defense, Evangeline Naniong, ULFI’s bookkeeper, testified
that the revenues from the rents were deposited in the bank in the names of
Sanchez and ULFI’s accountant. And so
only they could withdraw and spend those revenues.[21]
Petitioner
Sanchez of course claims that the funds they had collected proved inadequate
even to meet expenses. But, as the
appellate court held, he had been unable to substantiate such claims. As the officer charged with approving and
implementing corporate disbursements, Sanchez had the duty to present documents
showing how the incomes of the foundation were spent. But he failed to do so even after the DECS,
which took custody of the records, asked Kahn to submit a list of the documents
they needed for establishing their defenses so these may be made available to
them.[22] Under the circumstances, the indubitable
conclusion is that petitioner Sanchez and Kahn acted with bad faith, if not
with gross negligence, in failing to perform their duty to remit to DECS or keep
in safe hands ULFI’s incomes from the leases.
Section 31
lays down the “doctrine of corporate opportunity” and holds personally liable corporate
directors found guilty of gross negligence or bad faith in directing the
affairs of the corporation, which results in damage or injury to the
corporation, its stockholders or members, and other persons. The ejectment suit that held only ULFI liable
to the DECS for unpaid rents does not constitute res judicata to the issue of personal liabilities of Kahn and petitioner
Sanchez under the circumstances to pay such obligations, given that the
unaccounted funds would have settled the same.
Petitioner’s
allegations of forum shopping must fail as well. The essence of forum shopping is the filing of
multiple suits involving the same parties for the same cause of action,
either simultaneously or successively, for the purpose of obtaining a favorable
judgment.[23] This is not the case with respect to the
ejectment suit vis-à-vis the action
for damages.
WHEREFORE, the Court DENIES the petition and AFFIRMS
the
SO ORDERED.
ROBERTO A. ABAD
Associate Justice
WE
CONCUR:
RENATO C. CORONA
Associate Justice
CONCHITA CARPIO MORALES MINITA V. CHICO-NAZARIO
Associate Justice Associate
Justice
ARTURO D. BRION
Associate Justice
ATTESTATION
I
attest that the conclusions in the above decision were reached in consultation
before the case was assigned to the writer of the opinion of the Court’s
Division.
CONCHITA CARPIO MORALES
Associate
Justice
Acting
Chairperson, Second Division
CERTIFICATION
Pursuant
to Section 13, Article VIII of the Constitution and the Acting Division
Chairperson’s Attestation, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
ANTONIO T. CARPIO
Acting Chief Justice
* Designated as additional member in lieu of Associate Justice Leonardo A. Quisumbing, per Special Order No. 718 dated October 2, 2009.
** In lieu of Associate Justice Leonardo A. Quisumbing, per Special Order No. 690 dated September 4, 2009.
*** Designated as additional member in lieu of Associate Justice Mariano C. Del Castillo, per Special Order No. 737 dated October 12, 2009.
[1] Rollo, pp. 35-55; penned by Associate Justice Renato C. Dacudao, and concurred in by Associate Justices Hakim S. Abdulwahid and Celia C. Librea-Leagogo.
[2]
[3]
[4] Docketed as CA-G.R. SP 35141.
[5] Via
Resolution of
[6] Rollo, pp. 57-58.
[7]
[8] Defense witness Evangeline Naniong testified that the staff of ULFI were hired by Managing Director Kahn and Finance Director Sanchez.
[9] Rollo, p. 62.
[10] Records, p. 146; Opposition to Motion to Dismiss in Civil Case 66852, p. 6.
[11] Rollo, pp. 84-100.
[12]
[13] Manila Hotel Corporation v. National Labor Relations Commission, 397 Phil. 1, 18 (2000).
[14] Light Rail Transit Authority v. Venus, Jr.,
G.R. No. 163782,
[15] 5 Words and Phrases 14, citing Nelson v.
Board of Trade, 58
[16] Board of Liquidators v. Heirs of M. Kalaw, 127 Phil. 399, 421 (1967).
[17] Fonacier v. Sandiganbayan, G.R. No. 50691, December 5, 1994, 238 SCRA 655, 687; Spiegel v. Beacon Participations, 8 NE 2nd Series, 895, 1007.
[18] Fernando v. Sandiganbayan, G.R. No. 96182, August 19, 1992, 212 SCRA 680, 691, citing Ballentine’s Law Dictionary, 3rd ed., p. 537.
[19] Citibank, N.A. v. Gatchalian, 310 Phil. 211, 218 (1995).
[20] National Bookstore, Inc. v. Court of Appeals, 428 Phil. 235, 245 (2002).
[21] RTC Decision, rollo, p. 91.
[22] In the court a quo, Kahn filed a motion to compel the DECS to release ULFI
documents left in the
[23] Lim v. Montano, A.C. No. 5653,