MANILA, Philippines - The Supreme Court (SC) has affirmed a Court of Appeals (CA) decision ordering two top executives of the University of Life Foundation Inc. (ULFI) that operated Ultra Complex (now PhilSports Arena) in Pasig City to pay the government over P22.55 million in damages for mismanaging the sports complex.
In a ruling, the second division of the High Court said ULFI director and chief executive officer Manuel Luis Sanchez and president Henri Khan were liable under Section 31 of the Corporate Code for gross negligence “in directing the affairs of their corporation.”
The SC junked a petition for review filed by Sanchez seeking to reverse the CA decision that upheld the ruling of a Pasig City regional trial court (RTC) that found him and Khan personally liable for ULFI’s corporate liability.
“Under the circumstances, the indubitable conclusion is that petitioner Sanchez and Khan acted in bad faith, if not with gross negligence in failing to perform their duty to remit to (the then Department of Education, Culture and Sports or) DECS or keep in safe hands ULFI’s incomes from the leases,” stated the SC ruling penned by Associate Justice Roberto Abad.
Associate Justices Renato Corona, Conchita Carpio Morales, Minita Chico-Nazario and Arturo Brion concurred in the decision.
Records show that on Jan. 31, 1991, DECS – now the Department of Education – and ULFI entered into a management agreement where the foundation was given the authority to manage and operate the sports complex until the end of that year.
But Sanchez and Khan failed to abide by the agreement, which required ULFI to remit to the Bureau of Treasury, through the DECS, all incomes derived from the complex net of allowable expenses.
In a civil case for collection filed before a Pasig RTC, DECS had said that Khan and Sanchez as key ULFI officers “were remiss in safekeeping ULFI’s corporate incomes.”
The incomes derived from the complex were not deposited in ULFI’s account but deposited in the personal accounts of Sanchez and ULFI’s accountant, giving them the sole privilege to withdraw and spend the revenues.
DECS said “Khan 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.”
ULFI likewise did not submit financial statements detailing their transactions.
In its Oct. 14, 2002 decision, the RTC found Khan and Sanchez liable and ordered them to pay DECS “jointly and severally” P22.559.215 with legal interest from April 1 1996 until the amount is fully paid.
Aside from this, Khan and Sanchez were also ordered to pay DECS P500,000 in exemplary damages and P200,000 in attorney’s fees.
Sanchez assailed the lower court’s decision, claiming he cannot be made personally liable for ULFI’s corporate obligation.
He also alleged that there was nothing left from the rental collection of lessees at the complex as ULFI reportedly suffered operational losses from 1992 to 1996.
In its February 2006 decision affirming the lower court’s ruling, the CA said Sanchez and Khan were aware that as managers of the facilities at the complex, they had to submit a written account of the rents and remit the net earnings to the Bureau of Treasury, through the DECS at the end of the year.
The CA added that Sanchez and Khan acted in bad faith or with gross neglect when they did not turn over even one centavo of rent to the DECS nor render an accounting of the collections.
The appeals court also found that after ULFI’s authority to manage the complex had expired and despite an ejectment suit filed against it by DECS, Sanchez and Khan still continued to lease spaces in the complex to third persons and kept all the rent from January 1992 to January 1996 although they knew that these belonged to the DECS.