View full case

RAMON C. LEE v. CA

FACTS:

The court notes that the voting trust agreement in this case transferred the legal ownership of the petitioners' shares to the trustee, but they still retain their equitable or beneficial ownership. This means that while they no longer hold positions as officers of the corporation, they still have a beneficial interest in the shares and are entitled to the benefits and obligations attached to them.

The court also discusses the importance of proper service of summons in order to comply with due process requirements. They highlight that the primary purpose of summons is to inform a defendant that a legal action has been filed against them and to give them an opportunity to defend their rights in court. In this case, the issue centers around whether or not service of summons on the petitioners as president and vice-president of the corporation is valid, considering their changed status after the execution of the voting trust agreement.

The court ultimately determines that the service of summons on the petitioners as officers of the corporation was invalid, as they were no longer holding such positions at the time of service. They emphasize the importance of proper service of summons on the authorized representative of a corporation, and that failure to do so may result in the court lacking jurisdiction over the corporation.

Therefore, the court grants the petition for certiorari, setting aside the public respondent's decision and affirming the petitioners' argument that the service of summons through them was invalid and ineffective. They remand the case to the trial court for further proceedings consistent with their ruling.

ISSUES:

  1. Does the execution of a voting trust agreement affect the status of a stockholder as a director of the corporation?

  2. Is a stockholder who is a party to a voting trust agreement considered an equitable or beneficial owner of the shares subject to the voting trust agreement?

  3. Whether the petitioners retained their positions as directors of ALFA after entering into the voting trust agreement with the DBP.

  4. Whether the transfer of shares to the DBP created vacancies in the positions of the petitioners as directors of ALFA.

  5. Whether there was proper service of summons on ALFA through the petitioners.

  6. Whether the service of summons upon ALFA, through the petitioners, is valid under Section 13, Rule 14 of the Revised Rules of Court.

RULING:

  1. Yes, the execution of a voting trust agreement affects the status of a stockholder as a director of the corporation. Under section 23 of the Corporation Code, a director must own at least one share of the capital stock of the corporation in his name. If a director ceases to be the owner of at least one share, he will cease to be a director. Therefore, if a stockholder transfers his shares to a trustee through a voting trust agreement, he can no longer be considered a director of the corporation.

  2. Yes, a stockholder who is a party to a voting trust agreement is considered an equitable or beneficial owner of the shares subject to the voting trust agreement. This means that the stockholder still retains rights and privileges associated with being a stockholder, such as the right to sue as a stockholder. However, the change in status from legal title-holder or owner of the shares to equitable or beneficial owner does not qualify the stockholder as a director under the Corporation Code.

  3. The petitioners ceased to be directors of ALFA after entering into the voting trust agreement with the DBP. The agreement transferred legal ownership of the stocks covered by the agreement to the DBP as trustee, making the DBP the stockholder of record. The petitioners no longer retained their status as officers of ALFA, and there is no evidence showing that the DBP had transferred one share of stock in their names to qualify them as directors.

  4. The transfer of shares to the DBP created vacancies in the positions of the petitioners as directors of ALFA. The voting trust agreement explicitly stated that all directors of ALFA were stripped of their positions as directors due to the transfer of shares to the DBP.

  5. The ultimate issue of whether or not there was proper service of summons on ALFA through the petitioners is answered in the negative. The service of summons upon ALFA, through the petitioners, is not valid. The Court held that the petitioners do not fall under any of the enumerated officers in Section 13, Rule 14. Therefore, the service of summons is not in accordance with the law and cannot be considered valid.

PRINCIPLES:

  • A voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer their shares to a trustee in order to vest in the latter voting or other rights pertaining to the shares.

  • The execution of a voting trust agreement creates a dichotomy between the equitable or beneficial ownership of the shares and the legal title thereto.

  • The eligibility of a director is not adversely affected by the simple act of being a party to a voting trust agreement under the old Corporation Code, but under the present Corporation Code, a director must own at least one share of the corporation's capital stock in his own right.

  • In order to be eligible as a director, what is material is the legal title to the stock as appearing on the books of the corporation.

  • The transfer of shares to a trustee under a voting trust agreement can result in the removal of directors from their positions in the corporation.

  • A corporation has a separate and distinct personality from its officers or members.

  • Service of summons on a corporation must be made on a representative who is so integrated with the corporation sued that it can be assumed that he will realize his responsibilities and know what to do with any legal papers served on him.

  • A corporation can only be bound by acts within the scope of the officer's or agent's authority.