Case Digest (G.R. No. 125778)
Facts:
On September 1, 1978, Inter-Asia Investments Industries, Inc. sold all its shares in FARMACOR, INC. to Asia Industries, Inc. for P19,500,000 under a Stock Purchase Agreement that warranted, inter alia, that audited financial statements (to be prepared by SGV) would "fairly present" FARMACOR's financial position and that FARMACOR's Minimum Guaranteed Net Worth as of September 30, 1978 would be P12,000,000; petitioner received P12,000,000 (P5,000,000 on signing and P7,000,000 on November 2, 1978). SGV's audited report for the period to October 31, 1978 showed a net worth deficiency, resulting in a refund claim by private respondent reduced by petitioner in a January 24, 1980 letter-proposal which promised payment of certain NOCOSII costs but was later reneged on; private respondent sued April 5, 1983, the Regional Trial Court entered judgment for private respondent on November 27, 1991 for P4,853,503 plus interest and attorney's fees, the Court of Appeals affirmed on January 25, Case Digest (G.R. No. 125778)
Facts:
- Background of the stock purchase
- Inter-Asia Industries, Inc. (Petitioner) executed a Stock Purchase Agreement on September 1, 1978 to sell to Asia Industries, Inc. (Private Respondent) all outstanding shares of FARMACOR, INC. for P19,500,000.00.
- The Agreement was signed by Leonides P. Gonzales as president of Inter-Asia Industries, Inc. and Jesus J. Vergara as president of Asia Industries, Inc..
- Paragraph 7 of the Agreement contained seller warranties including that (iv) the audited financial statements of FARMACOR as at and for the year ended December 31, 1977 and as at September 30, 1978 being prepared by Sycip, Gorres, Velayo and Co. (SGV) “fairly present or will present the financial position of FARMACOR” and show all liabilities and commitments, and that (v) the Minimum Guaranteed Net Worth of FARMACOR as of September 30, 1978 shall be Twelve Million Pesos (P12,000,000.00).
- Amendments, payments and audit submission
- The Agreement was amended to change the Closing Date from September 30, 1978 to October 31, 1978 and to modify the mode of payment of the purchase price.
- The amended Agreement allowed Asia Industries, Inc. to retain P7,500,000.00 pending submission by SGV of FARMACOR’s audited financial statements as of October 31, 1978, and to deduct from the retained amount any shortfall against the P12,000,000.00 Minimum Guaranteed Net Worth; petitioner would pay any remaining deficiency within five days after receipt of the audited statements.
- Asia Industries, Inc. paid a total of P12,000,000.00 to Inter-Asia Industries, Inc.: P5,000,000.00 upon signing and P7,000,000.00 on November 2, 1978.
- SGV submitted a financial report dated November 28, 1978 containing a Statement of Income and Deficit showing, for the ten months ended October 31, 1978, a deficit of P11,244,225.00 and shareholder’s equity of P10,000,000.00.
- Computation of deficiency and parties’ adjustments
- The net worth deficiency as of October 31, 1978 was P1,244,225.00, producing a guaranteed net worth shortfall of P13,244,225.00 when added to the P12,000,000.00 guarantee.
- The adjusted contract price computed was P6,225,775.00 (P19,500,000.00 less P13,244,225.00), entitling Asia Industries, Inc. to a refund of P5,744,225.00 given prior payments of P12,000,000.00.
- By letter dated January 24, 1980 signed by petitioner’s president, Inter-Asia Industries, Inc. proposed to reduce the refund claim to P4,093,993.00 and promised to pay the cost of Northern Cotabato Industries, Inc. (NOCOSII) superstructures amounting to P759,570.00; Asia Industries, Inc. agreed to the proposal.
- Petitioner failed to perform the promise to pay P759,570.00, leaving total petitioner liab...(Subscriber-Only)
Issues:
- Corporate authority and binding nature of the president’s letter
- Whether the January 24, 1980 letter-proposal signed by petitioner’s president was ultra vires and thus not binding on Inter-Asia Industries, Inc.
- Whether the letter constituted an admission and waiver by Inter-Asia Industries, Inc.
- Breach of warranties and admissibility of SGV audit
- Whether Inter-Asia Industries, Inc. breached the warranties and representations in paragraph 7 of the Agreement, in particular the warranty that SGV financial statements “fairly present or will present” FARMACOR’s financial position and the guarantee of Minimum Net Worth.
- Whether the SGV audit/report was self-serving, biased, or otherwise inadmissible because SGV was allegedly hired solely by Asia Industries, Inc.
- Whether the alleged shortfall occurred after execution of the Agreement and therefore fell outside the warran...(Subscriber-Only)
Ruling:
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Ratio:
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Doctrine:
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