SECOND DIVISION
CLARA REYES
PASTOR
AND OTHER
STOCKHOLDERS OF
C & C COMMERCIAL CORPORATION
AND C & C
COMMERCIAL
CORPORATION,
Petitioners,
G.R.
No.
141316
November 20, 2003
-versus-
PHILIPPINE
NATIONAL
BANK AND NATIONAL INVESTMENT
AND DEVELOPMENT
CORPORATION,
Respondents.
D E C I S I O N
TINGA,
J.:
This is the third
time that a controversy arising from Civil Case No. RQ-18176 has
reached
this Court. The first was C & C Commercial Corporation, et. al. v.
Philippine National Bank, et. al, docketed as G.R. No. 42449,[1]
while the second was Philippine National Bank and National Investment
Development
Corporation v. Court of Appeals, et. al., docketed as G.R. No. 108870.[2]
Both cases form part of the factual backdrop of the present petition
which
is summarized below.chanrobles virtuallaw libraryred
On various dates between
the period February 27, 1957 and December 20, 1960, petitioner C&C
Commercial Corporation[3]
(hereafter, C & C) opened seven (7) letters of credit with the
respondent
Philippine National Bank (hereafter, PNB) to import machines and
equipment
for its plants. Since C & C's obligations under the letters of
credit
totaling P5,451,851.83 as of January 31, 1968 were not paid, PNB
instituted
on March 13, 1968 a case for collection with a prayer for preliminary
attachment
before the then Court of First Instance of Manila against C & C,
impleading
petitioner Clara Pastor, the controlling stockholder of C & C, as
joint
and solidary debtor.[4]chanrobles virtuallaw libraryred
However, instead of
proceeding with the collection case, the PNB and its subsidiary, the
National
Investment Development Corporation (hereafter, NIDC) as Trustees, and
Clara
Pastor as Trustor, entered into a Voting Trust Agreement[5]
(hereafter, VTA) dated March 5, 1969. The VTA gave PNB and NIDC full
authority
"to manage the affairs and the accounts and properties of the C & C
Commercial Corporation, Inc.; to choose its directors and key officers;
to safeguard its interest and those of its creditors; and, in general,
to exercise all such powers and discharge such functions as inherently
pertain to the ownership and/or management of the corporation"[6]
for a period of five (5) years, renewable for another five (5) years in
case an unpaid balance remains at the end of the original period.[7]
Also included in the VTA was an immunity clause in favor of PNB and
NIDC.[8]chanrobles virtuallaw libraryred
The PNB and NIDC immediately
took over the management of C & C pursuant to the agreement. On
September
6, 1971, C & C executed a chattel mortgage over its personal
properties
in favor of NIDC as a security for the loan of Seven Hundred Thousand
Pesos
(P700,000.00) intended to finance the production of asbestos cement
products
and their exportation to Brunei and to repair/rehabilitate its plant
building
which had been damaged by typhoon "Yoling."[9]chanrobles virtuallaw libraryred
Meanwhile, the accounting
firm of Sycip, Gorres and Velayo (hereafter, SGV) examined the
management
and operations of C & C for the first three (3) years under the
Voting
Trust Agreement. On August 27, 1973, SGV submitted a report[10]
finding that the C & C was in a serious financial position. The SGV
made the following observations relative to the company's financial
difficulty:chanrobles virtuallaw libraryred
• Even in
1969,
it would appear that the Company had required inflow of funds to
support
its operations since at that time it had already incurred a 3.4 million
capital deficiency. This figure eventually reached P11.5 million by
1972.
Exhibit IX shows an analysis of capital deficiency from 1969 to 1972.
• Total assets
decreased
by 15% from P5.1 million in 1969 to P4.3 million in 1972 mainly due to
decreases in current assets amounting to P6 million; although
additional
investments were made in fixed assets, depreciation more than offset
this
resulting in a P2 million decrease in the net book values of fixed
assets.
• Total current
liabilities
increased by P6.3 million in 1972 due mainly to the increase in
accounts
payable amounting to P1.1 million and new liabilities due to banks of
P5.2
million which include interests accrued as follows:chanrobles virtuallaw libraryred
Additional
Liabilities Due to Banks
Incurred in
1970–1972
PNB
NIDC
DBP Total
Principal
P1.3M
P1.0M
_____ P2.3M
Interest
and
other
charges
1.6
.1
P1.2M 2.9
______
______
______ ______
Total
P2.9M
P1.1M
P1.2M P5.2M
=====
=====
===== =====
• Collections from
sales
generated from 1969 to 1972 have gone into operations resulting in the
non-movement on the Company's liabilities to banks. As a result,
interest
expense amounted to P.7 million in 1972 compared to P.07 million in
1969.
Accrued interest alone increased by 113% from P2.4 million in 1969 to
P5.1
million in 1972. (Please refer to Exhibit X for the Funds Flow
Analysis
for the three (3) years ended December 31, 1972.) chanrobles virtuallaw libraryred
The level of sales that
the Company achieved in 1972 after three years of operation accounted
only
for about 5% utilization of plant capacity. This is traceable to the
fact
that operations are off and on due not only to lack of raw materials
but
also to natural calamities like floods and typhoons which have affected
sales and operations.
Over the three-year
period 1970–1972, the Company generated funds of about P6.3 million
from
bank loans and other current liabilities. Of this, P2.9 million
represented
interest. Assuming the 1969 base figures are correct and that no major
investment in fixed assets remain unrecorded (as the Company keeps no
fixed
asset records), the balance could be attributed to cash operating
losses,
averaging P1.13 million per year. Using 1972 figures which reflect a
cash
operating deficit of P1.41 million, this conclusion appears to be
reasonable.chanrobles virtuallaw libraryred
Reacting to the foregoing
report, the petitioners filed on October 16, 1973 before the then Court
of First Instance of Rizal, Quezon City Branch, a Complaint[11]
for Termination of Voting Trust Agreement, Accounting, and Damages With
Injunction and Receivership. The Complaint recited the following
alleged
causes of action:chanrobles virtuallaw libraryred
(1) breach
of VTA by mismanagement, negligent management, and/or incompetence;
(2) failure to render
accounting of management, submit annual financial statements and follow
generally accepted accounting procedures;
(3) compensatory
damages
for losses and unrealized profits, and;chanrobles virtuallaw libraryred
(4) litigation
expenses
and attorney's fees.chanrobles virtuallaw libraryred
In their Answer,[12]
PNB and NIDC denied the charge of mismanagement and argued that:
(1) their
competence
to manage the corporation could not be questioned as they stood to
benefit
from normalization of operations;
(2) the plaintiffs
were not entitled to accounting as the VTA had not yet been terminated
but they nevertheless submitted annual financial statements to the
plaintiffs
and religiously followed accepted accounting procedures in recording
transactions;chanrobles virtuallaw libraryred
(3) the plaintiffs'
claim for damages had no basis; andchanrobles virtuallaw libraryred
(4) the damages
suffered
by the plaintiffs were due to their own making.
They further alleged
that
C & C's indebtedness to PNB had reached the amount of
P11,538,029.63
as of August 31, 1973, excluding daily interest, and to NIDC,
P1,219,982.00
as of April 15, 1973, excluding daily interest.chanrobles virtuallaw libraryred
On January 22, 1974,
the lower court issued an Order[13]
granting C & C's application for receivership, appointing Bayani
Barzaga
as receiver. This one-man receivership was subsequently converted into
a joint receivership composed of three (3) members, pursuant to an
agreement
reached between C & C, PNB and NIDC to provide a mutually
acceptable
mechanism for the management of C & C pending the settlement
negotiations
between them.[14]chanrobles virtuallaw libraryred
In the meantime, during
the pendency of the case or on December 19, 1973, the Development Bank
of the Philippines (DBP) executed a Deed of Assignment[15]
in favor of PNB, assigning to the latter Promissory Notes[16]
and Real Estate Mortgage[17]
executed by C & C on May 16, 1960 and May 8, 1961, in the principal
amounts of P490,000.00 and P796,000.00, respectively.chanrobles virtuallaw libraryred
On March 11, 1974, PNB
filed a Petition for Sale Under Act 3133 as Amended[18]
before the Provincial Sheriff of Pasig to foreclose the land covered by
OCT No. 2224 together with the improvements, buildings, machinery and
equipment
thereon, on account of the assigned loans of C & C from DBP. The
PNB
pegged the total amount of the loans at P2,693,325.18 as of January 18,
1974. It also included the amount of P11,878,411.69 on the account of
seven
Letters of Credit plaintiffs had opened with it, computed as of January
31, 1974, which brought the total mortgage debt to P14,571,736.87.chanrobles virtuallaw libraryred
On September 22, 1975,
C & C filed a Complaint[19]
docketed as Civil Case No. 22047, for nullification of the
extrajudicial
foreclosure proceedings with prayer for a writ of injunction against
PNB
and the Provincial Sheriff of Rizal, contesting PNB's foreclosure of
the
mortgage and the scheduled auction sale. On September 30, 1975, an Order[20]
was issued by the then Court of First Instance (CFI) of Pasig ordering
the maintenance of the status quo and restraining the scheduled
foreclosure
sale.chanrobles virtuallaw libraryred
On the other hand, NIDC
filed on September 25, 1975, a Petition[21]
for the auction sale of the chattels covered by a Deed of Chattel
Mortgage,
this time with the Sheriff of the City of Manila. This was pursued on
the
basis of the P700,000.00 loan under the loan agreement dated September
10, 1971, the balance of which stood at P658,493.15, inclusive of 10%
attorney's
fees, as of August 31, 1975. Since the chattel mortgage deed contains
an
all-embracing mortgage clause,[22]
NIDC also sought to collect through the foreclosure sale other accounts
which as of August 31, 1975 amounted as follows:chanrobles virtuallaw libraryred
(1)
accounts
receivables pegged at P1,159,272.80;chanrobles virtuallaw libraryred
(2) additional
advances
of P23,943.63; andchanrobles virtuallaw libraryred
(3) guaranty
accommodation
charges of P3,399.64, leading to a total of P1,845,109.22.
Subsequently, or on
October
3, 1975, petitioners filed before the then CFI of Pasig another
Complaint[23]
for Nullification of the Extrajudicial Foreclosure Proceedings against
NIDC. The Complaint was docketed as Civil Case No. 22133. The court
issued
a similar Order dated October 15, 1975, restraining the scheduled sale
and directing the maintenance of the status quo.chanrobles virtuallaw libraryred
On September 17, 1975,
on separate Motions to Dismiss filed by PNB and NIDC as defendants in
Civil
Case Nos. 22047 and 22133, respectively, the CFI of Pasig dismissed
both
cases in separate decisions for violation of the rule against splitting
cause of action and for lack of capacity of C & C to sue, it being
under receivership.cralaw:red
On January 5, 1976,
the petitioners moved for leave to file a Supplemental Complaint,[24]
with an application for the issuance of a writ of preliminary
injunction
to restrain the threatened foreclosure sale of their properties.chanrobles virtuallaw libraryred
In an Order[25]
dated January 15, 1976, the lower court admitted the Supplemental
Complaint
but denied the application for injunction on account of Presidential
Decree
No. 385 which prohibited the issuance of restraining orders or
injunctions
against government financial institutions in any foreclosure action
taken
by such institutions, in compliance with the mandatory foreclosure
provided
in said Decree.[26]chanrobles virtuallaw libraryred
Undaunted, the petitioners
filed before this Court a Petition for Certiorari docketed as G.R. No.
42449,[27]
contesting the denial of their application for injunction. In its
decision
of July 5, 1989, the Court granted the petition, ruling that petition
for
the foreclosure sale was "materially defective in that it included in
the
amount of the total indebtedness to be satisfied by the sale previously
incurred unsecured obligations." The decision was "without prejudice
however
to the right of PNB to petition for an extrajudicial foreclosure sale
to
satisfy the obligations specifically secured by the DBP-assigned
mortgage,"
so the Court stated.chanrobles virtuallaw libraryred
Accordingly, on January
25, 1990, the defendant PNB once more instituted extrajudicial
foreclosure
proceedings against the petitioners before the Pasig Sheriff, this time
for the reduced mortgage debt of P7,789,193.20, including interest,
penalty
charges and attorney's fees. On February 15, 1990, petitioners filed a
Motion for Issuance of Injunction,[28]
arguing that the mortgage debt of P7,789,193.20 stated in the Notice of
Foreclosure was beyond the amount of P1,286,000.00 approved for
foreclosure
by the Supreme Court as a secured obligation.chanrobles virtuallaw libraryred
On February 19, 1990,
the trial court issued an Order[29]
temporarily restraining the foreclosure sale to make way for the
reception
of evidence on the disputed amount of the mortgage debt. Subsequently,
on March 9, 1990, it ordered the issuance, upon the filing of an
injunction
bond, of a writ of preliminary injunction enjoining PNB and the Pasig
Sheriff
from foreclosing the petitioner's properties. In the same Order, the
trial
court directed PNB to seek clarification from this Court whether the
obligation
approved for satisfaction through the foreclosure sale shall include
interest
and other charges. The record reveals that no such clarification was
sought
from this Court.chanrobles virtuallaw libraryred
Trial on the merits
ensued. Finally, on January 20, 1992, the lower court rendered its
Decision[30]
finding PNB & NIDC responsible for the serious financial
difficulties
of C & C, allegedly on account of their mismanagement,
characterized
by extravagance, dishonesty, bad faith and incompetence. The trial
court
drew this conclusion from the massive operational losses, capital
deficiency
and reduction of corporate assets suffered by C & C during the PNB
and NIDC's management under the VTA, as presented in the SGV report. It
likewise considered the testimony of Pastor specifying acts of
dishonesty
and recklessness as follows:chanrobles virtuallaw libraryred
"payroll
padding
to accommodate ghost workers; x x x
theft of spare parts which were later sold to NIDC Managers of (C &
C); x x x no board meetings in 1972
and 1973; x x x no infusion of
capital
by PNB and NIDC in 1972 and 1973; x x
x
no audited financial statements to record ACPPI operations for the
years
1970, 1971, and 1972; purchase of raw materials and supplies for
maintenance
of the machinery and equipment were slow and niggardly;
x
x x misdelivery of pipes purchased by customers,
heavy
automatic losses to (C & C); and the supposed samples of asbestos
sheets
worth of P30,000.00 were actually appropriated for the personal use of
PNB Vice President."chanrobles virtuallaw libraryred
The trial court
concluded
that since PNB and NIDC violated the trust as ordained in the VTA,
rescission
of the VTA is proper. Corollarilly, it granted damages and attorney's
fees
in factor of C & C in the total amount of P21,485,848.00. It
likewise
ruled that aside from the DBP-assigned secured obligation of C & C,
all the unsecured obligations of C & C to PNB and NIDC were not
sufficiently
established. The dispositive portion of the RTC decision reads:chanrobles virtuallaw libraryred
ACCORDINGLY,
judgment is hereby rendered as follows:
1.
Rescinding
the Voting Trust Agreement executed on March 5, 1969, by plaintiff
Clara
Reyes Pastor, a majority stockholder of C & C Commercial
Corporation,
as Trustor, in favor of the defendants, Philippine National Bank and
National
Investment Development Corporation, as Trustees;chanrobles virtuallaw libraryred
2. Declaring
that the
secured loan of P490,000.00 and P796,000.00 of the plaintiffs from the
Development Bank of the Philippines (DBP), under the promissory notes
dated
May 16, 1960 and May 8, 1961, secured by real estate mortgages on the
same
dates, executed by plaintiffs C & C Commercial Corporation and
plaintiff
Clara Reyes Pastor for herself and as attorney-in-fact of her husband,
Antonio Pastor, in favor of DBP, which were assigned by the DBP to
defendant
PNB are already considered fully paid by the plaintiffs by reason of
set
off/compensation with the damages and attorney's fees awarded to
plaintiffs
in this judgment, and, the secured loans are, therefore, no longer
payable
to defendant PNB from the plaintiffs;chanrobles virtuallaw libraryred
3. Canceling
thereby
the aforesaid real estate mortgages covering the mortgaged twenty (20)
parcels of land described therein, together with all the buildings and
other improvements existing or which may hereafter be created or
constructed
thereon, situated at Barrio Napindan, Municipality of Taguig, Province
of Rizal (now of Metro Manila), under Original Certificate of Title No.
2224 of the Registry of Deeds of the Province of Rizal (now of Pasig,
Metro
Manila);chanrobles virtuallaw libraryred
4. Making
permanent
the writ of preliminary injunction issued on March 23, 1990;
5. Ordering, as
consequence,
the Register of Deeds of the Province of Rizal (now of Pasig, Metro
Manila)
to cancel the mortgage annotations, pertaining to the said real estate
mortgages, made at the back of Original Certificate of Title No. 2224
of
the Registry of Deeds of the Province of Rizal (now of Pasig, Metro
Manila);chanrobles virtuallaw libraryred
6. Ordering, as
well,
the Register of Deeds of the Province of Rizal (now of Pasig, metro
Manila)
to return and deliver to the plaintiffs the owner's duplicate copy of
Original
Certificate of Title No. 2224 of the Registry of Deeds of the Province
of Rizal (now of Pasig, Metro Manila);
7. Ordering the
defendants
to pay to plaintiffs C & C Commercial Corporation, jointly and
severally,
actual damages in the amounts of: (a) P4,520,000.00, as business
losses;
(b) P6,599,224.00, as unrealized profits; (c) P8,084,631.00, as capital
deficiency; and (d) P781,993.00, representing decrease in assets,
including
the sum of P1,000,000.00 as exemplary damages as well as P500,000.00,
in
reasonable attorney's fees, or for the total net amount of
P20,199,848.00,
in damages and attorney's fees, after deducting from the gross total of
the aforesaid awarded damages and attorney's fees, the total secured
loans
of P1,286,000.00 by way of set off/compensation;chanrobles virtuallaw libraryred
8. Ordering the
defendants
to pay to plaintiff C & C Commercial Corporation, also jointly and
severally, interests on the total actual damages of P19,985,848.00, at
the rate of 8% per annum from the date of this judgment until fully
paid;chanrobles virtuallaw libraryred
9. Dismissing
the counterclaim
of the defendants of lack of merit; and
10. With costs
against
the defendants.
SO ORDERED.
PNB's and NIDC's Notice
of Appeal was denied due course for having been filed out of time. On
June
11, 1992, they filed a Petition for Certiorari before the Court of
Appeals
to nullify the order denying the notice of appeal. But the Court of
Appeals
denied the petition. That prompted the elevation of the case to this
Court
via a Petition for Review on Certiorari, docketed as G.R. No. L-08870.
This Court at first denied the petition on March 3, 1994.[31]
However, on a Motion for Reconsideration, the Court ordered the lower
court
to give due course to the appeal.[32]chanrobles virtuallaw libraryred
After the appeal was
reinstated, on February 26, 1999, the Court of Appeals rendered the
assailed
Decision[33]
reversing the decision of the trial court and dismissing Civil Case No.
Q-18176. According to the appellate court, the trial court failed to
recognize
the unsecured obligations of C & C to PNB and NIDC, which were in
fact
acknowledged in the SGV report and by this Court in C & C
Commercial
Corporation, v. PNB,[34]
as well as the interests due thereon. As to the issue of mismanagement,
it ruled that the SGV report presenting the disastrous financial
position
of C & C does not automatically equate to a finding of
mismanagement
on the part of PNB and NIDC. This, according to the appellate court,
requires
deep and thorough business management analysis, none of which was
presented
before the trial court. The summarized findings and the dispositive
portion
of the Court of Appeals' decision read:chanrobles virtuallaw libraryred
In sum, We
find the causes of action raised by appellees in their Complaint as not
having been sufficiently established. The party having the burden of
proof
must show a preponderance of evidence thereon, with plaintiff having to
rely on the strength of his own evidence and not upon the weakness of
the
defendant's (Francisco v. Tizon, G.R. No. 124853, February 24, 1998).
The
appellees not having established their case with a preponderance of
evidence
as is required in civil cases (New Testament Church of God v. Court of
Appeals, 246 SCRA 266). We have no other recourse but to order
dismissal
of appellee's Complaint.chanrobles virtuallaw libraryred
"WHEREFORE,
finding error in the Decision appealed from, the same is hereby
REVERSED
and SET ASIDE. A new judgment is hereby rendered DISMISSING Civil Case
No. Q-18176 for lack of merit. No pronouncement as to costs.chanrobles virtuallaw libraryred
SO ORDERED."
Finding the
petitioner's
Motion for Reconsideration[35]
to be without merit, the appellate court denied it in its Resolution[36]
dated November 24, 1999.
Petitioners now impugn
the Decision and Resolution of the Court of Appeals in this Petition
for
Review on Certiorari.cralaw:red
The petitioners contend
in the main that the Court of Appeals erred in reversing the trial
court's
findings of fact, specifically on the following points:
(1) the
amount
of C & C's indebtedness to PNB and NIDC as proven by evidence on
record;chanrobles virtuallaw libraryred
(2) the presence of
"substantial" evidence on PNB's and NIDC's mismanagement of C & C;
andchanrobles virtuallaw libraryred
(3) PNB's and NIDC's
liability for damages as a consequence of their mismanagement.chanrobles virtuallaw libraryred
The issues raised in
this
petition are factual. It has been the consistent policy of this Court
to
review only errors of law from decisions elevated to it from the Court
of Appeals in a petition for certiorari under Rule 45 of the Rules of
Court.[37]
There are however exceptional circumstances that may compel the Court
to
review the findings of fact of the Court of Appeals, which as
summarized
in a line of cases[38]
are as follows:chanrobles virtuallaw libraryred
(1) when
the
inference made is manifestly mistaken, absurd or impossible;chanrobles virtuallaw libraryred
(2) when there is
grave
abuse of discretion;chanrobles virtuallaw libraryred
(3) when the finding
is grounded entirely on speculations, surmises or conjectures;chanrobles virtuallaw libraryred
(4) when the judgment
of the Court of Appeals are based on misapprehension of facts;chanrobles virtuallaw libraryred
(5) when the findings
of fact are conflicting;chanrobles virtuallaw libraryred
(6) when the Court
of Appeals in making its findings went beyond the issues of the case
and
the same is contrary to the admissions of both appellant and appellee;chanrobles virtuallaw libraryred
(7) when the findings
of the Court of Appeals are contrary to those of the trial court;chanrobles virtuallaw libraryred
(8) when the findings
of facts are conclusions without citations of specific evidence on
which
they are based;chanrobles virtuallaw libraryred
(9) when the Court
of Appeals manifestly overlooked certain relevant facts not disputed by
the parties and which if properly considered would justify a different
conclusion; andchanrobles virtuallaw libraryred
(10) when the
findings
of fact by the Court of Appeals are premised on the absence of evidence
and are contradicted by the evidence on record.
Clearly, this case
falls
within the purview of the seventh exception since the appellate court's
findings and conclusions are contrary to those of the trial court.
However,
upon a painstaking review of the records of this case, we are disposed
to uphold the findings of fact and conclusions of the Court of Appeals.chanrobles virtuallaw libraryred
On the amount of petitioner's
indebtedness to the respondents, the petitioners claim that the trial
court
was correct in holding:
(1) that
the
DBP-assigned Promissory Notes amounting to P1,286,000.00 was already
paid
by setting off the amounts awarded as damages;
(2) that the
respondents'
capital infusion to C & C during their management under the VTA
should
not be considered as loan actually received under the rule enunciated
in
the case of Filipinas Marble Corporation v. Intermediate Appellate
Court;[39]
andchanrobles virtuallaw libraryred
(3) that the
petitioners'
obligations under the 1957 to 1960 Letters of Credit were not valid and
demandable for want of competent and convincing evidence.
On the other hand, the
respondents asserted before the Court of Appeals that the petitioners'
indebtedness (a) for unpaid obligations under the 1957 and 1960 Letters
of Credit stood at P5,451,851.83 as of January 1968; (b) the SGV
Management
Report reflects that the capital infused by PNB and NIDC under the VTA
was in the amount of P3,800,578.00 as of July 3, 1972; and (c) for the
DBP-assigned Promissory was in the aggregate amount of P1,286,000.00.chanrobles virtuallaw libraryred
In settling the conflicting
claims of the parties, the Court of Appeals relied in the SGV report
reflecting
the following amount of indebtedness on account of loan accommodations,
which as of December 31, 1972 amounted to:chanrobles virtuallaw libraryred
11. DUE TO
BANKS
AND FINANCING INSTITUTION[40]
Summarized below
are
the details of liabilities due to banks and financing institution.
Due to
Banks
and Financing Institution
As of December
31,
1972
PNB
DBP
NIDC
PBTC
TOTAL
Loans
Payable
P4,232,585.83
P
1,254,635.32
P405,479.35
P___
P5,892,700.50
Capitalized
interest
2,398,107.192
___
___
___
398,107.19
Fast due
acceptances
1,500,640.30
___
___
5,181.72
1,505,822.02
Short term
advances
___
27,698.56
665,392.32
___
693,090.88
Expenses in
litigation
___
229,942.01
___
___
229,942.01
Accrued
interest
1,595,895.26
1,002,527.21
107,117.78
___
2,705,540.25
----------------------
---------------------
--------------------
---------------
---------------------------
Total:
P9,727,228.58
P2,514,803.10
P1,177,989.45
P5,181.72
P13,425,202.85
=============
===========
===========
=========
=============
The above figures
were
directly confirmed to us by the banks and financial institution. The
differences
between amounts as confirmed and per Company's records are as follows:chanrobles virtuallaw libraryred
PNB
Per Books
Dec. 31,
1972
Accounts
payable
P61,789.21
P
___
P61,789.21
Marginal
fee
327,055.48
___
327,055.48
Various slight
drafts
3,432,585.83
3,432,585.83
___
Loans
payable
800,000.00
800,000.00
___
Acceptances
payable
1,789,748.55
1,500,640.30
289,108.25
Capitalized
interest
2,071,501.71
2,398,107.19
(327,055.48)
Accrued
interest
137,303.44
1,595,895.26
(1,458,591.82)
--------------------
--------------------
---------------------
8,619,534.22
9,727,228.58
(1,107,694.36)
===========
===========
============ NIDC
Short
term
advances
203,477.74
665,392.32
(361,914.58)
Long-term
advances
679,008.61
405,479.35
273,529.26
Accrued
interest
___
407,117.78
(107,117.78)
Acceptances
payable
38,661.52
___
38,661.52
-------------------
-------------------
-------------------
1,021,147.87
1,177,989.45
(156,841.58)
==========
==========
==========
The petitioners
maintain
that the trial court was correct in ruling that these loans were not
proven.
We disagree. Contrary to what the trial court claimed, the petitioners'
liabilities have been proven by the very evidence presented by the
petitioners,
i.e., the SGV Report. A party who presents a document in evidence is
estopped
from questioning the contents thereof. Based on the SGV Report,
petitioners'
liability to PNB, per corporate books, amounts to P6,022,334.38,
exclusive
of interest.chanrobles virtuallaw libraryred
As to the petitioner's
liability to NIDC, the Court of Appeals pegged the amount at
P405,579.35,
per the amount acknowledged by the NIDC as reflected above,
notwithstanding
that the SGV Report enumerated another type of liability, termed as
"short-term
advances." Nonetheless, we have to follow the appellate court's finding
on this matter since the NIDC opted not to appeal the finding.chanrobles virtuallaw libraryred
Thus, together, with
the DBP assigned Promissory Notes, the petitioners' indebtedness to the
respondents, exclusive of interests, stands as follows:
PNB
Various
sight
drafts
3,432,585.83
Loans
payable
800,000.00
Acceptances
payable
1,789,748.55
DBP-assigned
PNs
1,286,000.00
---------------------
P7,308,334.38
---------------------
NIDC
Demand
Loan
P405,479.35
(entered as
long-term
advances)
------------------------
Total
P7,713,813.73[41]
The rates of interests
applicable on these loans were exhaustively discussed and computed by
the
appellate court,[42]
which we hereunder reproduce as follows:
I. Various
sight drafts in the amount of P3,432,585.83
Having no
stipulated
rate of interest, we shall apply the standard 12% per annum interest
rate.
Thus, computed from April 1, 1970, the date of the latest of these
drafts,
the amount of interest would be P11,533,488.39 as of the year 1998.chanrobles virtuallaw libraryred
II. Loans payable in
the
amount of P800,000.00
These
loans
are coveted by six Promissory Notes, (Exhs. "115–120"), all with a
stipulated
interest rate of 13½% per annum from maturity until paid. The
first
five (5) Promissory Notes all matured one hundred twenty days after
date,
to wit —chanrobles virtuallaw libraryred
Promissory
Note for P100,000.00, dated 2-24-70, matured 6-24-70;
Promissory Note
for
P100,000.00, dated 2-26-70, matured 6-26-70;
Promissory Note
for
P100,000.00, dated 3-2-70, matured 6-30-70;
Promissory Note
for
P100,000.00, dated 3-13-70, matured 7-11-70;
Promissory Note
for
P100,000.00, dated 3-30-70, matured 7-28-70;
While the last
Promissory
Note, dated April 1, 1970, for P300,000.00, matured thirty days after
date,
or on 1 May 1970.chanrobles virtuallaw libraryred
The interests
due on
the said Promissory Notes as of the year 1998 would, therefore, appear
to be as follows —chanrobles virtuallaw libraryred
P100,000.00
13½% 6-24-70 to 6-24-98 P378,000.00
P100,000.00
13½%
6-26-70 to 6-28-98 P378,000.00
P100,000.00
13½%
6-30-70 to 6-30-98 P378,000.00
P100,000.00
13½%
7-11-70 to 7-11-98 P378,000.00
P100,000.00
13½%
7-28-70 to 7-28-98 P378,000.00
P100,000.00
13½%
5-01-70 to 5-01-98 P1,134,000.00
---------------------
P3,024,000.00
============
III. Acceptances
payable
in the amount of P1,789,748.55
Again,
with
no specified rate of interest clearly presented, We apply the 12% per
annum
interest rate. Thus, considering that the accrued interest thereon as
of
August 31, 1973 was P539,851.60, the total interest due on this
liability
would be P5,909,097.25, adding the amount of P5,369,245.65 as interest
from August 31, 1973 to August 31, 1998 at 12% per annum interest rate.
IV. Demand Loan from
appellee
NIDC in the amount of P405,479.35
Applying
the
stipulated 13½% interest rate, the interest on this amount,
incurred
on September 10, 1971, would be P1,479,927.23 as of the year 1998.
V. DBP Assigned
Promissory
Note in the amount of P1,286,000.00
This
obligation
is covered by two Promissory Notes. The first, dated May 16, 1960, for
the amount of P490,000.00, sets the interest rate at 6% per annum.
Thus,
computing from its maturity date of June 6, 1970, the interest due
thereon
would be P823,200.00. The second Promissory Note, May 8, 1961, for the
amount of P796,000.00, sets the interest rate at 8% per annum. Thus,
computing
from its maturity date of May 6, 1971, the interest due thereon would
be
P1,719,360.00. Added together, the total interest due on these
Promissory
Notes would be P2,542,560.00.chanrobles virtuallaw libraryred
In sum,
therefore, the
total interests due on the obligations of appellees in favor of
appellants
would be as follows —
Principal
Interest
Various sight
drafts
P3,432,585.83
P11,533,488.39
Loans
payable
800,000.00
3,024,000.00
Acceptances
payable
1,789,748.55
5,909,097.25
Demand Loan from
appellee
NIDC
405,479.35
1,479,972.23
DBP-Assigned
Promissory
Notes
1,286,000.00
2,542,560.00
---------------------
-----------------------
P7,713,813.73
P24,489,117.87
===========
============
It must be pointed out
at this juncture that the trial court ruled that the respondents'
capital
infusion to C & C during their management should not be considered
as a loan, allegedly following the ruling of C & C enunciated in
Filipinas
Marble Corporation v. Intermediate Appellate Court.[43]
A reading of the case however, shows that no such ruling was laid down
in the case. In fact, we precisely remanded the case to the court a quo
for hearing to determine whether or not the loan was wisely spent or
not.
In this case, it appears that the loan accommodations granted by the
respondents
to the petitioners were not misappropriated but spent on its day-to-day
operations.chanrobles virtuallaw libraryred
Having settled the actual
amount of the petitioners' indebtedness to the respondents, we now
proceed
to the issue of whether the respondents were guilty of mismanaging C
&
C.chanrobles virtuallaw libraryred
In finding mismanagement
on the part of the respondents and justifying the award of damages in
the
amount of P21,485,848.00, the trial court relied heavily on the
devastating
amount of losses stated in the SGV report. The appellate court rejected
this inference. According to the appellate court, "merely because the
SGV
Management Report, on its face, shows how appellee Corporation is
financially
distraught does not automatically equate to a finding of mismanagement
on the part of the appellants."
We are inclined to agree
with the Court of Appeals. To prove the issue of mismanagement, the
petitioners
need to establish a causal connection between the fault or negligence
of
the respondents and the damage incurred by them. They need to show that
the steps which the management had taken resulted in the company's
distraught
position, requiring an evaluation of the merits of the management's
business
policies, and quantifying what the company had lost as a result of
management's
ineptitude. These petitioners miserably failed to do.chanrobles virtuallaw libraryred
Concededly, the respondents
are trustees in the full equitable sense, obliged as they were to
administer
the trust as fiduciaries. However, we find no evidence to indicate that
the respondents had committed any act which constitutes breach of their
fiduciary duties. During their management under the VTA, the
respondents
had sought to rehabilitate the corporation by giving it life-prolonging
assistance through the infusion of capital.chanrobles virtuallaw libraryred
It is important to take
into consideration the undisputed fact that at the inception of the
VTA,
the corporation was in a very sorry state such that the respondents
were
able to put it in operation only after six months following the signing
of the VTA. It is not inconceivable therefore that even three years
after
the signing of the VTA, the corporation could not yet be put back on
its
feet. Even the SGV Report recognized that "operations are off and on
due
not only to lack of raw materials but also to natural calamities like
floods
and typhoons which have affected sales and operations."chanrobles virtuallaw libraryred
The increase in the
company's liability is likewise understandable. As the corporation had
no funds to finance its operations, all bank loans were channeled into
it, resulting in the non-payment of the company's liability. The SGV
Report
acknowledged that "(E)ven in 1969 (at the start of the Voting Trust
Agreement),
it would appear that the company had required inflow of funds to
support
its operations since at that time it has already a P3.4 Million capital
deficiency."chanrobles virtuallaw libraryred
Basic is the rule in
civil cases that the party having the burden of proof must establish
his
case by a preponderance of evidence.[44]
In the present case, the petitioners as plaintiffs had the burden of
proving
the fact of mismanagement committed by the respondents as defendants to
justify a judgment in their favor. As stated earlier, the evidence
adduced
by the petitioners, which is mainly the SGV report was insufficient to
prove mismanagement on the part of the respondents.chanrobles virtuallaw libraryred
Petitioner Pastor charges
the respondents with anomalies. However, as pointed out by the
appellate
court, the respondents satisfactorily refuted these charges one by one.[45]
The petitioners likewise
argue that its sole competitor, Eternit Corporation, generated earnings
during the years when C & C was experiencing losses. This
apparently
persuaded the trial court that there was mismanagement on the part of
the
respondents. However, the trial court failed to consider that Eternit's
financial condition was so far removed from that of C & C.
Moreover,
the success of an entity's competitor does not equate to its
mismanagement.chanrobles virtuallaw libraryred
Petitioner Pastor cites
the weakness of the company's accounting system and procedure during
the
respondents' management as an indication of mismanagement. We are not
persuaded.
Again, even the SGV report has this to say. "It should be understood
that
the foregoing deal exclusively with operational, accounting and
record-keeping
systems and procedures and should not be regarded as reflecting upon
the
integrity or capabilities of anyone in the organization."chanrobles virtuallaw libraryred
Moreover, the immunity
clause embodied in the VTA holds the respondents "harmless from any and
all liabilities to third persons, x x
x
for any action, decision, or exercise of discretion, powers and
functions
or the discharge, of any duties or responsibilities, inherent in, or
pertaining
to this trusteeship agreement as well as the applicable provisions of
law"
and binds petitioners "not to file or bring administrative action or
suit
in court on (matters) pertaining to or relate to this voting trust
agreement,
to assail or attack or question any act or decision or exercise of
discretion
made by the trustees, with regards (sic) to the trust." This is a
binding
contractual commitment which the parties are expected to absence in
good
faith. A contract has the force of law between the parties, and each is
bound to fulfill what has been expressly stipulated therein.[46]chanrobles virtuallaw libraryred
In sum, we cannot find
any ground to rescind the VTA which the parties themselves agreed to
recognize
and follow until such time that the petitioners' obligations shall have
been fully paid. Necessarily, the trial court's exorbitant award of
damages
becomes groundless.chanrobles virtuallaw libraryred
The facts of this case
indicate that the petitioners voluntarily entered into a VTA and
accepted
the bank's dual role as a trustee of the voting trust and as a creditor
of the corporation. There being nothing wrong in the contractual
arrangement,
the petitioners should not be allowed to obtain judicial relief and
prevent
the other party from exercising its right under the contract just
because
they believe they got the shorter end of the bargain. We echo once more
what was said in Vales v. Villa,[47]
which up to now is a sound doctrine still, thus:chanrobles virtuallaw libraryred
"Men may do
foolish things, make ridiculous contracts, use miserable judgment, and
lose money by them — indeed all they have in the world; but not for
that
alone can the law intervene and restore. There must be, in addition; a
violation of law, a commission of what the law knows as actionable
wrong,
before the courts are authorized to lay hold of the situation and
remedy
it."chanrobles virtuallaw libraryred
WHEREFORE, the petition
is DENIED. The assailed decision of the Court of Appeals is AFFIRMED.chanrobles virtuallaw libraryred
SO ORDERED. chanrobles virtuallaw libraryred
Puno, Quisumbing,
Austria-Martinez
and Callejo, Sr., JJ., concur.chanrobles virtuallaw libraryred
____________________________
Endnotes:
[1]
G.R. No. 42449, July 5, 1989, 175 SCRA 1.chanrobles virtuallaw libraryred
[2]
316 Phil. 371 (1995).chanrobles virtuallaw libraryred
[3]
Now known as Asbestos Cement Products Philippines, Inc. (ACPPI).chanrobles virtuallaw libraryred
[4]
See C & C Commercial Corporation, et.al. v. Philippine National
Bank,
et.al., supra.chanrobles virtuallaw libraryred
[5]
Reconstitution Records, pp. 181–189.chanrobles virtuallaw libraryred
[6]
Paragraph 9, p. 6A of the VTA, supra.chanrobles virtuallaw libraryred
[7]
Paragraph 5, p. 5A of the VTA, supra.chanrobles virtuallaw libraryred
[8]
Paragraph 11 of the VTA reads: "11. And in further consideration of
this
voting trust agreement, the TRUSTOR binds herself to. hold the
TRUSTEES,
as well as their officers, employees, agents and contractee experts and
specialists harmless from any and all liabilities to third persons,
including
but not confined to, the stockholders, whether of the majority or
minority
group of the C & C Commercial Corporation, Inc. no parties herein,
for any action, decision, or exercise of discretion, powers and
functions
or the discharge of any duties or responsibilities, inherent in, or
pertaining
to, this trusteeship agreement as well as the applicable provisions of
law; the TRUSTOR further binds herself, her successors and assigns,
during
and beyond the life of this agreement not to file or bring
administrative
action or suit in court on (matters) pertaining to or relate to this
voting
trust agreement, to assail or attack or question any act or decision or
exercise of discretion made by the TRUSTEES with regards (sic) to the
trust."chanrobles virtuallaw libraryred
[9]
See Petition for Extra Judicial Foreclosure of Chattel Mortgage,
Reconstitution
Records, pp. 74-84.chanrobles virtuallaw libraryred
[10]
Reconstitution Records, pp. 142–189.chanrobles virtuallaw libraryred
[11]
Reconstitution Records, pp. 8–21.chanrobles virtuallaw libraryred
[12]
Id., at pp. 22–56.chanrobles virtuallaw libraryred
[13]
Reconstitution Records, pp. 57–68.chanrobles virtuallaw libraryred
[14]
See C & C Commercial Corporation v. PNB, supra.chanrobles virtuallaw libraryred
[15]
Records, Vol. II, pp. 81–83.chanrobles virtuallaw libraryred
[16]
Id., at pp. 78–79.chanrobles virtuallaw libraryred
[17]
Id., at pp. 92, 102.chanrobles virtuallaw libraryred
[18]
Reconstitution Records, pp. 69–73.chanrobles virtuallaw libraryred
[19]
See C & C Commercial Corporation v. PNB, supra.chanrobles virtuallaw libraryred
[20]
Ibid.chanrobles virtuallaw libraryred
[21]
Reconstitution Records, pp. 74–84.chanrobles virtuallaw libraryred
[22]
The Deed of Chattel Mortgage provides: "In case of MORTGAGOR
(ACPPI)
x x x is given any other kind of
accommodations,
etc., this mortgage shall also stand as security for the payment of
said
x x x accommodations without the necessity of
executing
a new contract and this mortgage shall have the same force and effect
as
if x x x accommodations were
existing
on the date thereof. This mortgage shall also stand as security for the
said obligation and any and all other obligations of the MORTGAGOR
(ACPPI)
to the MORTGAGEE (NIDC) of whatever kind and nature, whether such
obligations
have been contracted before, during or after the constitution of this
mortgage."
[23]
See C & C Commercial Corporation v. PNB, supra.chanrobles virtuallaw libraryred
[24]
Reconstitution Records, pp. 88–106.chanrobles virtuallaw libraryred
[25]
See C & C Commercial Corporation v. PNB, supra.chanrobles virtuallaw libraryred
[26]
The pertinent provisions of Presidential Decree 385 reads:chanroblesvirtuallawlibrarychanrobles virtuallaw libraryred
Sec. 1. It shall be mandatory for government financial institutions,
after
the lapse of sixty (60) days from the issuance of this Decree, to
foreclose
the collaterals and/or securities for any loan, credit, accommodation,
and/or guarantees granted by them whenever the arrearages on such
account,
including accrued interest and other charges, amount to at least twenty
percent (20%) of the total outstanding obligations, including interest
and other charges, as appearing in the books of account and/or related
records of the financial institution concerned. This shall be without
prejudice
to the exercise by the government financial institutions of such rights
and/or remedies available to them under their respective contracts with
their debtors, including the right to foreclose on loans, credits,
accommodations
and/or guarantees on which the arrearages are less than twenty per cent
(20%).chanrobles virtuallaw libraryred
Sec. 2. No restraining order, temporary or permanent injunction shall
be
issued by the court against any government financial institution in any
action taken by such institution in compliance with the mandatory
foreclosure
provided in Section 1 hereof, whether such restraining order, temporary
or permanent injunction is sought by the borrower(s) or any third party
or parties, except after due hearing in which it is established by the
borrower and admitted by the government financial institution concerned
that twenty percent (20%) of the outstanding arrearages has been paid
after
the filing of foreclosure proceedings.chanrobles virtuallaw libraryred
[27]
C & C Commercial Corporation v. PNB, supra.chanrobles virtuallaw libraryred
[28]
See RTC Decision, p. 21.chanrobles virtuallaw libraryred
[29]
Ibid.chanrobles virtuallaw libraryred
[30]
Records, Vol. II, pp. 333–371.chanrobles virtuallaw libraryred
[31]
G.R. No. 108870, March 3, 1994, 230 SCRA 674.chanrobles virtuallaw libraryred
[32]
Supra.chanrobles virtuallaw libraryred
[33]
Penned by Associate Justice Consuelo Ynares-Santiago (now Supreme Court
Associate Justice), with Justices B.A. Adefuin-dela Cruz and Presbitero
J. Velasco, Jr., concurring.
[34]
Supra.chanrobles virtuallaw libraryred
[35]
CA Rollo, pp. 189–224.chanrobles virtuallaw libraryred
[36]
Rollo, p. 217.chanrobles virtuallaw libraryred
[37]
Laza v. Court of Appeals, 336 Phil. 631 (1997).chanrobles virtuallaw libraryred
[38]
Medina v. Asistio, Jr., G.R. No. 75450, Nov. 8, 1990, 191 SCRA 218; BPI
Credit Corporation v. Court of Appeals, G.R. No. 96755, Dec. 4, 1991,
204
SCRA 601; Geronimo v. Court of Appeals, 327 Phil. 255 (1996 ); Floro v.
Llenado, 314 Phil. 715 (1995).chanrobles virtuallaw libraryred
[39]
226 Phil. 109 (1986).chanrobles virtuallaw libraryred
[40]
SGV report, supra, pp. 45A–46A.chanrobles virtuallaw libraryred
[41]
See Court of Appeals Decision; Rollo, p. 167.chanrobles virtuallaw libraryred
[42]
Id., at pp. 168–170.chanrobles virtuallaw libraryred
[43]
Supra.chanrobles virtuallaw libraryred
[44]
Section 1, Rule 133, Rules of Court.chanrobles virtuallaw libraryred
[45]
See Appellant's Brief, pp. 48–49, Rollo, pp. 60–61.chanrobles virtuallaw libraryred
[46]
Barons Marketing Corporation v. Court of Appeals, 349 Phil. 769 (1998).
[47]
35 Phil. 769 (1916).chanrobles virtuallaw libraryred |
