Limsico v. Bautista

TEEHANKEE, J.:

The Court sets aside the order dated March 20, 1968 of the Court of First Instance of Manila authorizing the piecemeal and separate sale of choice corporate properties as well as the order dated May 7, 1968 denying reconsideration and approving and confirming the sale executed in favor of third parties by the reciever of the main bulk of the corporate assets consisting of two choice commercial properties, the said orders having been issued arbitrarily and with grave abuse of discretion, since what the parties had agreed upon for the purpose of putting an early end to litigation was to sell all the shares of the corporation or the corporation as a whole to the highest public bidder, with the buyer to assume all the assets and liabilities of the corporation. The Court accordingly sets aside as void the two contracts of sale executed by the receiver pursuant to the vacated orders. The judicial discretion residing in the courts in the appreciation and determination of the most competent and advantageous offer among those submitted by offerors in the receivership sale of corporate shares or properties must not be exercised arbitrarily or capriciously, but reasonably, impartially and in accordance with the demands of justice and the terms agreed by the contending stockholders as parties in interest.

The conflict at bar is between the majority stockholders of the corporation Hap Hong Hardware Co., Inc. headed by petitioners (defendants below) Manuel L. Limsico and Maximo Limsico, who are full blood brothers born of their father, founder of the business, Lim Sico and his first wife and the minority stockholders above-named private respondents (plaintiffs below) headed by respondent Alfredo Limsico who are children born of the late Lim Sico and his second wife, respondent Sy Sing. In December 1966, Alfredo Limsico, Felix Limsico Lim Lian Khoan, Lim Lian Sing, Lim Lian Huy, Agnes Yuson, Leonardo Limsico and Sy Sing (hereinafter referred to as the Alfredo Limsico or minority faction), claiming themselves as the minority stockholders of Hap Hong Hardware Co., Inc. (hereinafter referred to as HAP HONG) filed a minority stockholders' complaint with the Court of First Instance of Manila (Branch VI), presided by Judge Gaudencio Cloribel, containing allegations of mismanagement of the business of HAP HONG by the majority stockholders headed by Manuel L. Limsico, president of the corporation, and co-petitioners Maximo Limsico, Gaw Kang, Lim Lian Hong and Leon Limsico (hereinafter referred to as the Manuel L. Limsico or majority group).

The minority faction sought "a full and complete accounting of the entire business, income, property and other assets of the corporation from 1958 up to the present " and applied for the issuance of the writ of preliminary injunction to restrain the Manuel L.

Limsico group and its representatives "from withdrawing and/or disbursing funds of [HAP HONG]." either deposited in its name or as the result of overdraft lines opened in its behalf in any bank or banking institution and from disposing, selling or offering for sale or mortgaging or offering to mortgage any of the assets or properties of [HAP HONG] Thereafter, respondent court through Judge Cloribel, in an order dated December 22, 1966, required the majority group to show cause why the application for preliminary injunction should not be granted, but, at the same time, restrained them, ad interim, from committing the acts sought to be enjoined. The majority group specifically denied, in their answer, the allegations of mismanagement and claimed in defense that the minority faction brought the action with the end in view of destroying HAP HONG "for motives of their own,"

and sought, in a subsequent motion, the dissolution of the restraining order, which motion was opposed by the minority faction. In the first quarter of 1967, the majority group manifested to the court a quo their offer to purchase the shares of the members of the minority faction at par value plus 20%. The majority group later imposed certain terms and conditions on the offer and amended the rate to the higher amount between P135 per share and the appraisement to be fixed by an independent certified public accountant as the actual value of each share.

The minority faction counter-offered to buy the majority's shares at par value plus 20%, likewise subject to certain terms and conditions. On April 29, 1967, Judge Cloribel issued an order directing that "the restraining order should be maintained and no party should attempt to disturb the status quo." Upon a motion of the minority faction setting forth "the necessity of having [HAP HONG] put back into operating basis"

and praying for the appointment of a "receiver pendente lite," followed up by another motion for the same purpose, Judge Cloribel, notwithstanding the repeated opposition of the majority, appointed Rafael Contreras as receiver upon a P10,000.00 bond in an order dated May 23, 1967. The petitioners' motion to set aside the hasty appointment of the receiver was denied by Judge Cloribel in an order dated July 19, 1967.

Respondent Rafael Contreras (hereinafter referred to as the receiver) entered upon his duties as receiver and, the following July, he submitted to the court a quo a number of reports as to his activities-the inventory and appraisal of the assets of HAP HONG, the audit of its books, and the verification of its vouchers and invoices and the results thereof. In an order dated August 9, 1967, Judge Cloribel in turn required the receiver to submit his recommendation "on what to do with the corporation, whether to sell the same or to divide its assets as well as liabilities among the shareholders. "

The receiver was quick to propose in his final recommendation dated August 31, 1967, "the immediate liquidation of the company and subsequent sale of its assets and liabilities." On September 23, 1967, Judge Cloribel, by order, required the receiver "to proceed with the liquidation of the affairs" of HAP HONG and "to devise ways and means to obtain the most advantageous offer to buy the corporation as a whole on cash basis thru public bidding to be conducted within sixty (60) days from [date], the buyer to assume all the assets and liabilities of the corporation.

" (Emphasis supplied) The minority faction, taking exception to that portion of the court directive to the receiver to sell HAP HONG, sought the modification of the order.

On October 3, 1967, Judge Cloribel, notwithstanding petitioners' opposition to the modification, decreed the "dissolution" of HAP HONG and required the receiver "to proceed with the liquidation of the affairs of the corporation, especially pertaining to the settlement of its indebtedness and payment of necessary expenses in order to determine the assets that will remain to be divided among the stockholders of the corporation in proportion to their respective shares." In November 1967, the receiver advertised the sale of the following properties of HAP HONG: "A. Property consisting of land, building and other improvements thereon located at Dasmarinas corner Rosario Street, District of Binondo, Manila; "B. Property consisting of land, building and other improvements thereon located at Nos. 520-534 Solana corner San Francisco and Legaspi Street, Intramuros, Manila; "C. The entire stock of Hardware Merchandise, including three (3) delivery trucks; and "D. Office equipment and supplies, including all fixtures.

The notice of sale also stated that "(A)ny single offer to buy the whole property consisting of the four (4) items above enumerated will be considered." On December 20, 1967, the receiver, by motion, apprised the court a quo of the results of the sale notice. The receiver observed that the three (3) offers submitted should not be accorded consideration: Manuel L. Limsico's offer of P l,100,000 for all the four (4) items for being "much too low,"

F.M. Raya and Co.'s offer for being "fictitious," and Mariano C. Reyes' offer for, among others, not being in accordance with the terms of the notice of sale and being "low". The receiver also sought authority from the court a quo (1) to negotiate the sale of HAP HONG's properties, separately or as a whole, to offerors with cash offers in amounts not below the upset prices set in the motion; and (2) to arrange with the mortgagee banks for the release of their liens on the mortgaged properties with the court a quo's assurance that these prior liens would be recognized and that these claims would be satisfied from the proceeds of the sale.

He likewise asked the court a quo to authorize the upset prices of P775,000 for the Binondo realty, P575,000 for the Intramuros realty, P236,000 for the stock and merchandise, P7,000 for the transportation equipment, and P9,000 for the office and store equipment. (Emphasis supplied) Judge Cloribel in an order dated December 23, 1967 forthwith empowered the receiver (1) "to make further negotiations with any interested party, including those who have already submitted offers to him, for the sale in whole or in part of the corporate properties" in cash in amounts not lower than the prescribed upset prices, with the buyer either (a) assuming the obligations secured by the properties for sale and paying the respective balances in cash to the receiver, or (b) paying the respective purchase prices agreed upon to the receiver; and (2) "to make suitable arrangements with the China Banking Corporation and the Philippine Bank of Communications to release their respective liens over the real properties mortgaged to them without loss of their preference as creditors and immediate satisfaction of their claims from the proceeds of the sale that may be consummated."

Judge Cloribel also authorized the upset prices set forth in the receiver's motion and required him to submit his report on the offers submitted as well as his recommendations on or before January 15, 1968. On January 15, 1968, the receiver submitted to the court a quo his report on the offers proposed, mentioning therein that, among others, the minority faction Alfredo Limsico, et al. offered to buy, separately, the Binondo realty for P750,000 and the Intramuros realty for P540,000 while the majority group Manuel L. Limsico, et al.

sought to purchase, collectively, all the properties of HAP HONG as provided in Judge Cloribel's above-cited basic orders the Binondo and Intramuros realties, the stock and merchandise, and the transportation, office and store equipment-inclusive of the acquisition of all accounts receivable and the assumption of all accounts payable, for the net sum of Pl,261,150. (Italics supplied) The receiver, however, asked for court authority (1) to accept the separate offer of Continental Bank in the amount of P800,000 for the Binondo realty, that of GAB Investment Corporation in the amount of P590,000 for the Intramuros realty, and that of Homer V. Dillera in the amount of P230,000 for the stock and merchandise as well as the transportation, office and store equipment; (2) to make final arrangements with the mortgagee banks to effect the settlement of the mortgage obligations; and (3) to execute the necessary documents of sale.

This was promptly opposed by petitioners in their Opposition of January 19, 1968 who pointed out that their offer to purchase collectively all the properties and assets with full assumption of all accounts payable would terminate the proceedings once and for all as well as the receivership which would not have anything to do with the collection of the receivables and payment of accounts due. The receiver later amended twice his recommendation. In his first supplemental recommendation, he averred that after January 15, 1968, Leocadio de Asis offered the amount of P850,000 for the Binondo realty and that Continental Bank "upped"

its offer for the same property to P850,000. He thus recommended to the court a quo the sale of the Binondo realty to Continental Bank for the amount of P850,000, considering that the said bank "made the most advantageous offer within the time limit fixed by the (c)ourt. "

In his second supplemental recommendation, the receiver stated that likewise after January 15, 1968, Saint Rico Investment Corporation offered the amount of P610,000 for the Intramuros realty, a bid higher than that of GAB Investment Corporation in the sum of P590,000. He then recommended to the court a quo the sale of the Intramuros realty either (1) to GAB Investment Corporation for the raised amount of P610,000 should the said corporation be ready and willing to pay the increased price; or (2) to Saint Rico Investment Corporation for the amount of P610,000 should the said GAB Investment Corporation be unwilling to increase its P590,000 original offer. Petitioners opposed the receiver's above recommendations, impugning the latter's basis in prompting respondent court to accept the respective separate offers of Continental Bank, GAB Investment Corporation and Dillera, and pressed for acceptance of its offer dated January 9, 1968 in the amount of P1,261,150 for all the properties of HAP HONG, including accounts receivable and payable.

Respondents Alfredo Limsico, Felix Limsico and their mother Sy Sing, on the other hand, submitted two (2) alternatives to the court a quo for consideration: (1) an offer to buy the Binondo and Intramuros realties, the stock and merchandise, and the transportation, store and office equipment for the total amount of P1,610,000; or (2) an offer to buy the same above-enumerated properties including all accounts receivable, with the assumption of all liabilities of HAP HONG; viz, loans secured by the Binondo and Intramuros realties, accounts payable, and real estate taxes, for the total amount of P1,311,150. Meanwhile, the majority through petitioner Manuel L. Limsico modified their previous offer to purchase collectively all the corporate properties of HAP HONG including all accounts receivable and payable by increasing their bid to the total amount of P1,318,475. The minority faction in the same vein modified its second alternative by increasing its bid to the total amount of P1,328,475.

On February 14, 1968, the receiver submitted to the court a quo his final recommendation wherein he reiterated his previous recommendation regarding the sale of the Binondo realty to Continental Bank for the amount of P850,000 and of the Intramuros realty to Saint Rico Investment Corporation for the sum of P610,000. On March 7, 1968, the court a quo required the two groups, petitioner Manuel L. Limsico and respondents Alfredo Limsico, et al. to submit detailed statements of their respective offers for the properties of HAP HONG. Petitioner Manuel L. Limsico, in his Manifestation dated March 8, 1968, offered a total gross bid in the amount of P2,634,124 for all the properties of HAP HONG, the said amount broken down as follows: Binondo realty...........................................

P 1,000,000