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Monthly Archives: February 2015

Valle Verde Country Club, Inc. v. Africa, G.R. No.151969, September 4, 2009.

[BRION, J.]

FACTS

On February 27, 1996, during the Annual Stockholders’ Meeting of  petitioner Valle Verde Country Club, Inc. (VVCC), the VVCC Board of Directors were elected including Eduardo Makalintal (Makalintal) among others.  In the years 1997, 1998, 1999, 2000, and 2001, however, the requisite quorum for the holding of the stockholders’ meeting could not be obtained.  Consequently, the directors continued to serve in the VVCC Board in a hold-over capacity. Later, Makalintal resigned as member of the VVCC Board.  He was replaced by Jose Ramirez (Ramirez), who was elected by the remaining members of the VVCC Board on March 6, 2001. Respondent Africa (Africa), a member of VVCC, questioned the election of Ramirez as members of the VVCC Board with the Regional Trial Court (RTC), respectively.  Africa claimed that a year after Makalintal’s election as member of the VVCC Board in 1996, his [Makalintal’s] term – as well as those of the other members of the VVCC Board – should be considered to have already expired.  Thus, according to Africa, the resulting vacancy should have been filled by the stockholders in a regular or special meeting called for that purpose, and not by the remaining members of the VVCC Board, as was done in this case.   The RTC sustained Africa’s complaint.

ISSUE

Whether the remaining directors of the corporation’s Board, still constituting a quorum, can elect another director to fill in a vacancy caused by the resignation of a hold-over director.

RULING

NO.

When Section 23 of the Corporation Code declares that “the board of directors…shall hold office for one (1) year until their successors are elected and qualified,” we construe the provision to mean that the term of the members of the board of directors shall be only for one year; their term expires one year after election to the office.  The holdover period – that time from the lapse of one year from a member’s election to the Board and until his successor’s election and qualification – is not part of the director’s original term of office, nor is it a new term; the holdover period, however, constitutes part of his tenure.  Corollary, when an incumbent member of the board of directors continues to serve in a holdover capacity, it implies that the office has a fixed termwhich has expired, and the incumbent is holding the succeeding term.

[Here], when remaining members of the VVCC Board elected Ramirez to replace Makalintal, there was no more unexpired term to speak of, as Makalintal’s one-year term had already expired.  Pursuant to law, the authority to fill in the vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining members of its board of directors. To assume – as VVCC does – that the vacancy is caused by Makalintal’s resignation in 1998, not by the expiration of his term in 1997, is both illogical and unreasonable.  His resignation as a holdover director did not change the nature of the vacancy; the vacancy due to the expiration of Makalintal’s term had been created long before his resignation.

 
 

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Pacific Rehouse Corporation v. Court of Appeals, G.R. No. 199687, March 24, 2014.

[REYES, J.]

FACTS

A complaint was instituted with the Makati City Regional Trial Court (RTC), Branch 66, against EIB Securities Inc. (E–Securities) for unauthorized sale of 32,180,000 DMCI shares of Pacific Rehouse Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation, and East Asia Oil Company, Inc. In its October 18, 2005 Resolution, the RTC rendered judgment on the pleadings, directing the E–Securities to return to the petitioners 32,180,000 DMCI shares, as of judicial demand. On the other hand, petitioners are directed to reimburse the defendant the amount of [P]10,942,200.00, representing the buy back price of the 60,790,000 KPP shares of stocks at [P]0.18 per share. The Resolution was ultimately affirmed by the Supreme Court and attained finality.

When the Writ of Execution was returned unsatisfied, petitioners moved for the issuance of an alias writ of execution to hold Export and Industry Bank, Inc. liable for the judgment obligation as E–Securities is “a wholly–owned controlled and dominated subsidiary of Export and Industry Bank, Inc., and is[,] thus[,] a mere alter ego and business conduit of the latter. E–Securities opposed the motion[,] arguing that it has a corporate personality that is separate and distinct from the respondent.

The RTC eventually concluded that E–Securities is a mere business conduit or alter ego of petitioner, the dominant parent corporation, which justifies piercing of the veil of corporate fiction, and issued an alias writ of summons directing defendant EIB Securities, Inc., and/or Export and Industry Bank, Inc., to fully comply therewith. It ratiocinated that being one and the same entity in the eyes of the law, the service of summons upon EIB Securities, Inc. (E–Securities) has bestowed jurisdiction over both the parent and wholly–owned subsidiary.

Export and Industry Bank, Inc. (Export Bank) filed before the Court of Appeals a petition for certiorari with prayer for the issuance of a temporary restraining order (TRO) seeking the nullification of the RTC Order. The Court of Appeals reversed the RTC Order and explained that the alter ego theory cannot be sustained because ownership of a subsidiary by the parent company is not enough justification to pierce the veil of corporate fiction. There must be proof, apart from mere ownership, that Export Bank exploited or misused the corporate fiction of E–Securities. The existence of interlocking incorporators, directors and officers between the two corporations is not a conclusive indication that they are one and the same. The records also do not show that Export Bank has complete control over the business policies, affairs and/or transactions of E–Securities. It was solely E–Securities that contracted the obligation in furtherance of its legitimate corporate purpose; thus, any fall out must be confined within its limited liability.

ISSUE

Whether or not E-Securities is merely an alter ego of Export Bank so that “piercing the veil of corporate fiction” is proper.

RULING

NO. An alter ego exists where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other. The control necessary to invoke the alter ego doctrine is not majority or even complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal.

The Court has laid down a three–pronged control test to establish when the alter ego doctrine should be operative:

  • Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
  • Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right; and
  • The aforesaid control and breach of duty must [have] proximately caused the injury or unjust loss complained of.

The absence of any one of these elements prevents ‘piercing the corporate veil’ in applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation. Hence, all three elements should concur for the alter ego doctrine to be applicable.

In this case, the alleged control exercised by Export Bank upon its subsidiary E–Securities, by itself, does not mean that the controlled corporation is a mere instrumentality or a business conduit of the mother company. Even control over the financial and operational concerns of a subsidiary company does not by itself call for disregarding its corporate fiction. There must be a perpetuation of fraud behind the control or at least a fraudulent or illegal purpose behind the control in order to justify piercing the veil of corporate fiction. Such fraudulent intent is lacking in this case.

While the courts have been granted the colossal authority to wield the sword which pierces through the veil of corporate fiction, concomitant to the exercise of this power, is the responsibility to uphold the doctrine of separate entity, when rightly so; as it has for so long encouraged businessmen to enter into economic endeavors fraught with risks and where only a few dared to venture.

The decision of the Court of Appeals in favor of Export Bank (reversing the RTC Order) is affirmed.

 
 

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Heart of a Valentine

for Rhea

for Rhea

It is not a heart that seeks, but the heart that finds;

Not a heart that expects, but the heart that shows;

It is not a heart that speaks, but the heart that hears;

Not a heart that explains, but the heart that express;

Each year on February 14th, many people exchange cards, candy, gifts or flowers with their special “valentine.” The day of romance we call Valentine’s Day is named for a Christian martyr and dates back to the 5th century, but has origins in the Roman holiday Lupercalia. (http://www.history.com/topics/valentines-day)

Some people overdo things during this day to the point that it seems like it is the only day to express love. Some never really do anything extraordinary for simple reasons that they are already into relationship 24/7, that there is no other extraordinary with the day. Whatever the views of the celebrants, Valentines Day is a well celebrated occasion in the Philippines.

Couples of all ages are practically anywhere (not really everywhere) doing their stuffs. Restaurants, even on hotels, are more likely to be full on this day: flowers on every corner, despite the price surges; proposals pop for engagement or marriage; renewal of wedding vows on some occasions; cards and/or love letters being delivered; cherishing with kisses and intimacies; memories after memories. At least, the bright side of life is highlighted on this day.

Today, Rhea will be surprised of these unusual flowers and the usual card. This may not be the most expensive gift (although this is also not a cheap one) but it is the expression of my best effort and capacity.Despite my busiest of busy schedule, I had to crack some time with Rhea – even if it means taking off my precious study time for my hard core law subjects.

They say the heart bears the three: faith, hope and love, but the greatest among the three is love.

If one has FAITH the size of a mustard seed, he can move mountains.

If one has a string of HOPE, he can endure the worst and see the light at the end of the tunnel.

Imagine if one has LOVE. Imagine the wonders it can do and the burdens it can conquer.

The heart of a valentine is such a mystery.

HAPPY VALENTINES, RHEA!

I love you. 1-4-3. And as the three red roses represent faith, hope and love, it is also a reminder that you are my GIRL, my WOMAN and my FRIEND. That was before, today, and forever with you. mwah!

 

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Posted by on February 14, 2015 in Love and Relationships, Personal

 

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