Lee v. Court of Appeals
NEW DOCTRINEFacts
The Antecedents: A complaint for a sum of money was filed, leading to a third-party complaint against Alfa Integrated Textile Mills (ALFA) and petitioners Ramon C. Lee and Antonio DM. Lacdao. Petitioners filed a motion to dismiss the third-party complaint, which was denied. They later filed an answer. The trial court ordered the issuance of an alias summons upon ALFA through the Development Bank of the Philippines (DBP) after petitioners informed the court that summons was erroneously served on them, as management had been transferred to DBP. DBP disclaimed authority to receive summons for ALFA, stating it had not taken over the company. Procedural History: The trial court initially ordered service of summons on ALFA through petitioners, then reversed itself, declaring service invalid as petitioners were no longer corporate officers. Private respondents moved for reconsideration, which was denied. Private respondents then filed a petition for certiorari with the Court of Appeals (CA). The CA reversed the trial court's orders, holding that service of summons on petitioners was proper and ordering ALFA to file an answer. Petitioners moved for reconsideration, which was denied. Petitioners then filed the instant petition for certiorari with the Supreme Court. The Petition: Petitioners impute grave abuse of discretion on the part of the CA in reversing the trial court's orders and holding that service of summons on ALFA through petitioners was proper, arguing that the voting trust agreement divested them of their positions as officers and directors.
Issue(s)
Whether the execution of a voting trust agreement divests a stockholder of their position as director. Whether service of summons on petitioners, who allegedly ceased to be officers and directors of ALFA due to a voting trust agreement, was valid. Whether the Court of Appeals committed grave abuse of discretion in reversing the trial court's orders regarding the validity of the service of summons, considering the duration of the voting trust agreement.
Ruling
The petition is GRANTED. The decision of the Court of Appeals dated March 19, 1990, and its resolution of May 10, 1990, are SET ASIDE, and the Orders dated April 25, 1989, and October 17, 1989, issued by the Regional Trial Court of Makati, Branch 58, are REINSTATED.
Ratio Decidendi
On the effect of a voting trust agreement on directorship: The Court held that a voting trust agreement results in the separation of voting rights from other attributes of ownership, and may lead to the transfer of legal title of shares to the trustee. Citing Section 23 of the Corporation Code, which requires every director to own at least one share of the capital stock standing in their name on the books of the corporation, the Court found that if a stockholder assigns all their shares to a trustee, they cease to own the required share and thus cease to be a director. The Court emphasized that the legal title to the stock, as appearing on the books of the corporation, is material for eligibility as a director, not beneficial ownership. In this case, the voting trust agreement explicitly stipulated the assignment and delivery of shares to the trustee (DBP), and the trustee's power to vote and possess legal title. The Court noted that the agreement also allowed the trustee to transfer one share to a person to qualify them as a director, indicating that the original stockholders were no longer intended to hold such qualifying shares. On the validity of service of summons: The Court reiterated the principle that a corporation has a personality separate and distinct from its officers. Rule 14, Section 13 of the Revised Rules of Court enumerates specific individuals who can receive summons on behalf of a private domestic corporation, including its president, manager, secretary, cashier, agent, or any of its directors. The rationale is that service must be made on a representative so integrated with the corporation as to ensure they realize their responsibilities. Since the petitioners, by virtue of the voting trust agreement, had ceased to own shares and consequently ceased to be directors of ALFA, they did not fall under any of the enumerated representatives authorized to receive summons for the corporation. Therefore, the service of summons upon ALFA through the petitioners was not valid. On the Court of Appeals' error and the duration of the voting trust agreement: The Court found that the CA committed a reversible error in ruling that petitioners were still directors at the time of service of summons. This ruling was inaccurate in light of the express terms of the voting trust agreement, which stripped the directors of their positions due to the transfer of shares. The CA's inference that the five-year period had lapsed and thus legal title reverted to the petitioners was also incorrect, as the agreement's duration was contingent on ALFA's outstanding obligations to DBP. The Court clarified that the duration of the voting trust agreement was not limited to the statutory five-year period but was contingent upon the fulfillment of ALFA's obligations to DBP. Evidence showed that DBP transferred its rights in ALFA to the Asset Privatization Trust (APT) effective June 30, 1986, and DBP continued to handle APT's account, including ALFA's assets, pursuant to a management agreement. This indicated that the voting trust agreement was still in effect at the time of the service of summons in August 1987, and legal title to the stocks still belonged to DBP.
Main Doctrine
A voting trust agreement, by transferring legal title of shares to the trustee, may divest a stockholder of their position as director if they no longer own at least one share standing in their name on the books of the corporation, thereby rendering service of summons upon them invalid.