G.R. No. 93695, 4 February 1992

FACTS:

A complaint was filed and the trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a consequence of the petitioner’s letter informing the court that the summons for ALFA was erroneously served upon them considering that the management of ALFA had been transferred to the DBP. The DBP claimed that it was not authorized to receive summons on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and existence. Subsequently, the trial court issued an order advising the private respondents to take the appropriate steps to serve the summons to ALFA.

The petitioners filed a motion for reconsideration submitting that since they were no longer officers of ALFA, the private respondents should have availed of another mode of service which is through publication to effect proper service upon ALFA. The private respondents argued that the voting trust agreement did not divest the petitioners of their positions as president and executive vice-president of ALFA so that service of summons upon ALFA through the petitioners as corporate officers was proper. The trial court upheld the validity of the service of summons on ALFA through the petitioners.

A second motion for reconsideration was filed reiterating their stand that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any court processes for or on behalf of ALFA and in support thereof, they attached a copy of the voting trust agreement between all the stockholders of ALFA and the DBP whereby the management and control of ALFA became vested upon the DBP. The trial court then reversed itself and declared that service upon the petitioners cannot be considered as proper service of summons on ALFA. The case was elevated to the CA which reversed the Orders holding that there was proper service of summons on ALFA through the petitioners.

ISSUES:

1. Whether the execution of the voting trust agreement by a stockholder, whereby all his shares to the corporation have been transferred to the trustee, deprives the stockholder of his position as director of the corporation.
2. Whether the service of summons on ALFA, effected through the petitioners as president and vice-president of the subject corporation, after the execution of the voting trust agreement is valid and effective.

RULING:

1. Yes. Under Sec. 59 of the Corporation Code and by its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights. The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the corporate shares of stockholders, on the one hand, and the legal title thereto on the other hand. In the instant case, the petitioners maintain that with the execution of the voting trust agreement between them and the other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee and thus, they can no longer be considered directors of ALFA.

Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder’s shares in favor of the trustee is required. No disqualification arises by virtue of the phrase “in his own right” provided under the old Corporation Code. With the omission of the phrase “in his own right” the election of trustees and other persons who in fact are not beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized. Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation.

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners’ shares to the DBP created vacancies in their respective positions as directors of ALFA. Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stock covered by the agreement to the DBP as trustee, the latter became the stockholder of record with respect to the said shares of stocks. Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement that by virtue of the transfer of shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as such.

There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to the petitioners as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads:

“Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificate as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors.”

On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. There is evidence on record that at the time of the service of summons on ALFA through the petitioners on August 21, 1987, the voting trust agreement in question was not yet terminated so that the legal title to the stocks of ALFA, then, still belonged to the DBP.

2. No. Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:

“Sec. 13. Service upon private domestic corporation or partnership. — If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent or any of its directors.”

It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. Thus, the above rule on service of processes of a corporation enumerates the representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it. The petitioners in this case do not fall under any of the enumerated officers. The service of summons upon ALFA, through the petitioners, therefore, is not valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle that a corporation can only be bound by such acts which are within the scope of the officer’s or agent’s authority.

*Case Digest by Krishianne Louise C. Labiano, JD – 4, Andres Bonifacio College, SY 2019 – 2020