Friday, January 29, 2016

Intra-corporate disputes among directors/officers; sample counter-demand letter.

(Law office letterhead)

August 12, 2015
(by registered mail with return card)

Atty. xxx.
xxx Street, xxx City 


Dear Atty. xxx:

This refers to your final demand letter of July 15, 2015, addressed to our Client Mr. xxx. (“xxx”), in re: your Clients, Mr. xxx (“xxx”), et. al.


You will note, of course, that the matters raised in your abovereferred final demand letter were the same matters that we have already raised in our reply to your previous demand letter, dated June 30, 2015, thus, showing that you had already received our previous reply when you wrote your subject final demand letter. 

For ready reference and for the record, we have attached hereto a copy each of your previous demand letter, dated June 30, 2015 and our previous reply thereto as Annexes “A” and “B” hereof.

In your subject final demand letter, you are asking for written explanations on all the concerns listed therein, however. The truth of the matter is that it is your clients who ought to do the written explanations to our client Mr. xxx on all the matters raised therein. 

Nevertheless, we hereby reply to all the concerns you raised in your final demand letter of July 15, 2015, thus:

1. With respect to the alleged personal loans that you mentioned [Sub-paragraph (a) of your letter], all loans obtained were for the account of xxx Inc. (“Corporation”), as shown by the fact that: (1) the loan proceeds were issued in checks payable to the corporation, and (2) the said loan proceeds were deposited in the bank accounts of the same corporation.

It is noteworthy, that most of the loans obtained for the Corporation, e. g., the loans from xxx for P550,000.00, xxx for P1,350,000.00, and xxx for P400,000.00 were solicited by your clients, xxx and xxx.

In fact, all of the adverted corporate loans were generated by your clients for the approval of the directors, including our client, done during directors’ meetings.

2. With respect to the proofs of approval by your clients and endorsement by our client Mr. xxx of the above corporate loans [Sub-paragraphs (b) and (c) of your letter], please note the following, viz:

2.1. All loans obtained were duly approved by the directors of the Corporation in their meetings;

2.2. The preparation of the minutes of directors’ meetings is the legal duty of your client, Mr. xxx, who was elected as the Corporate Secretary of the Corporation; and

2.3. All corporate records are under the custody and possession of your clients, access to which has been denied our client Mr. xxx.

3. With respect to the complete list of names of individuals or persons or entities from whom loans were obtained [Sub-paragraph (d) of your letter] , please note the following, viz:

3.1. You had already listed them in your demand letter of June 30, 2015 in the total amount of P5,800,000.00, hereunder again listed as follows:

xxx P1,450,000.00
xxx 400,000.00
xxx 1,350,000.00
xxx 550,000.00 
xxx 1,000,000.00
xxx 350,000.00
xxx 700,000.00

Total -------------P5,800,000.00

3.2. You will recall that your client xxx obtained a corporate loan in the amount of One Million Pesos (Php1,000,000.00) from his close friend xxx, which xxx prioritized for payment (with interest) at the expense of the other obligations and payables of the Corporation. 

3.3. It is a grave error, amounting to gross misrepresentation, to attribute to our client Mr. xxx the other corporate loans, which were actually obtained by your clients in their day-to-day management of the affairs of the Corporation.

The corporate records, which are under the custody and possession of your clients, should show all the loans and obligations they have entered into for and in behalf of the Corporation.

4. As to the reasons for the abovereferred corporate loans, payment scheme or terms of agreement and outstanding balances thereof [Sub-paragraph (e) of your letter], it is obvious that your clients ought to be familiar with the reasons for the said corporate loans, they having managed the day-to-day affairs of the Corporation and they having attended the directors’ meetings when the said corporate loans were discussed and approved.

5. With respect to your concerns under Sub-paragraphs (f) and (g) in your same letter (status of collectibles and reasons for non-payment of outstanding payables), please note the following, viz:

5.1. Your clients xxx and xxx were the ones who managed the day-to-day transactions of the Corporation. Hence, they are in the best position and they have the legal duty to make and submit the needed reports on the status of collectibles of the Corporation and to explain the reasons for the non-payment of the outstanding payables of the Corporation. 

5.2. We reiterate that the corporate records are under the custody and possession of your clients, access to which has been denied to our client Mr. xxx.

6. As to the “list of checks paid to the company” [Sub-paragraph (h) of your letter], it is reiterated that the checks paid to the Corporation were the loan proceeds of the corporate loans discussed hereinabove.

7. With respect to the check issued to Mr. xxx in the amount of P2,154,000.00 [Sub-paragraph (i) of your letter], there is no need for him to make a liquidation report thereon because the supporting documents of the said amount had already been submitted to the Corporation and had been previously approved by the directors. These records and now form part of the corporate records in the possession of your clients.

8. With respect to the two (2) checks at P500,000.00 each for a total amount of P1 Million [Sub-paragraph (j) of your letter], the said amounts were approved by the directors as payment for the advances of our client Mr. xxx. 

Please note the above two (2) checks were given to our client Mr. xxx as his security for the advances he was then making for the benefit of the Corporation when it was encashed. 

For the record, after the payment of the above P1 Million to our client Mr. xxx, his total advances to the Corporation still stands at about 1.8 Million, besides the P1 Million loan from his wife Mrs. xxx (acknowledged in your letter of June 30, 2015).

9. With respect to the proofs of ownership of the two (2) units of L-300 Van adverted to under Sub-paragraph (k) of your letter, the downpayments and the monthly amortizations for the said vehicles were fully paid by our client Mr. xxx , thru monthly deductions from his personal bank accounts. 

The requested proofs will be produced at the correct time.

10. As to the xxx project (status, collectible, and its outstanding balance) under [Sub-paragraph (l) of your letter], please note the following:

10.1. The downpayment of P750,000.00 from the said xxx Project was deposited to the bank account of the Corporation which was used for its operations;

10.2. The additional collections were received by your client xxx, for and in behalf of the Corporation, who supervised the construction of the said xx Project.

10.3. Ironically, while the collections were made by your client xxx, our client Mr. xxx had to advance the payment of construction materials for the said xx Project as well as the payments of salaries of workers thereat.

10.4. After the said xxx Project was completed, there was a net profit of P200,000.00, which was part of the total amounts collected by Mr. xxx for the said project.

11. With respect to the adverted “xxx”, whose surname is unknown to your clients and to our client Mr. xxx, the same having been hired by your clients, our client Mr. xxx knows of no corporate outstanding payables to him. 

An investigation should be conducted to determine:

11.1. Who actually has custody of the said two (2) trucks at present, and it could be that the adverted “xxx” does not have in his possession the two (2) trucks and he is just being used as “fall guy” to hide the said trucks from our client Mr. xxx.

11.2. Whether or not the said trucks were already sold by your clients.

Note: Our client Mr. xxx received unconfirmed information that one of the two (2) trucks was already sold. 

11.3. Actual location and custodian of the said trucks.

Having addressed your concerns in your final demand letter, FINAL NOTICE and COUNTER-DEMAND is hereby made to:

1. Render an accounting and conduct a joint audit on the financial condition and results of operations of the Corporation;

2. Render an accounting and conduct joint audit on the construction projects undertaken by the Corporation as to the gross receipts, gross expenses, and net profit from each of the said projects;

3. Produce the corporate records that now under the control and possession of your clients for the inspection and copying by our client Mr. xxx;

4. Cease and desist from continuing to do any business using the corporate name “xxx Inc.”;

5. Cease and desist from selling any corporate assets that are now under the custody and possession of your clients;

6. Explain the excessive materials purchases, excessive workers’ wages paid, and delays in project completion, which resulted in big losses to the Corporation, especially the xxx Project, xxx Project, and xxx Project, handled by xxx and xxx;

7. Explain the status, outstanding receivables, outstanding payables for the following construction projects, viz:

7.1. xxx Housing Project, handled by xxx and xxx;

7.2. xxx Project, handled by xxx;

7.3. xxx Project, handled by xxx;

7.4. xxx Project (Phase I), handled by xxx and xxx;

7.5. xxx Project (Phase II), handled by xxx and xxx (not presented to the directors, especially our client Mr. xxx, for approval)l;

7.6. xxx Project, handled by xxx;

8. Explain the sales by xxx of construction materials and demolition scrap from the xxx Project (enumerated above) owned by the Corporation, the proceeds of which were not turned over to the Corporation;

9. Produce an open storage for the benefit of all concerned, with the storage fees to be paid them, the following:

9.1. One (1) Unit of Isuzu Dump Truck;
9.2. One (1)Unit of Boom Truck;
9.3. One (1) Unit of L 300 Van (in the possession of

xxx, payments of which were made by the Corporation through checks made to xxx in the amounts equal to the down payment and monthly amortizations to fund his checks);

9.4. Various constructions equipment, tools, implements, and remaining materials (in the possession of xxx and xxx)

It would seem that our offer for amicable settlement fell on deaf ears. 

We thus reserve the right to commence the appropriate legal actions for the protection of our Client, Mr. xxx. 

Please give the instant FINAL NOTICE and DEMAND your most preferred attention. 

If we do not hear from you within ten (10) from receipt hereof, we shall be constrained to file the proper legal actions against your clients before the appropriate courts and quasi-judicial forums.

Thank you very much.

Very truly yours,



C O N F O R M E:

X x x x.

Copy Furnished:

Board of Directors