The Supreme Court (SC) has upheld the decision of the Court of Appeals that found two ranking officials of the University of Life Foundation, Inc. (ULFI) personally liable for damages in the amount of P22.55 million for gross negligence in managing the corporate affairs of ULFI.

In a decision written by Associate Justice Roberto A. Abad, the High Court’s Second Division denied the petition of ULFI Director and Chief Executive Officer Manuel Luis S. Sanchez to reverse the decision of the CA that affirmed the ruling of a Pasig court finding him and Henri Khan, ULFI’s President personally liable for ULFI’s corporate liability under Section 31 of the Corporate Code.

Section 31 of the Corporate Code make 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 corporation.

Records show that in January 31, 1991, the then Department of Education, Culture and Sports (DECS) and ULFI entered into a management agreement where DECS granted ULFI the authority to manage and operate the University of Life complex until the end of that year.

The agreement mandated ULFI to remit to the Bureau of Treasury, through the DECS all incomes derived from the complex net of allowable expenses. Sanchez and Khan failed to do this.

In a civil case for collection filed before a Pasig RTC, DECS said 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 “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.”

ULFI likewise did not submit financial statements detailing their transactions.

The lower court in its October 14, 2002 decision 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 assailed 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.

From January, 1992 to January 1996, the CA found that after ULFI’s authority to manage the Complex had expired and despite and 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 although they knew that these belonged to the DECS.