PFRDigest – Lee Vs. Court of Appeals, G.R. No.

118387, October 11, 2001

Facts:
On 15 November 1985, a complainant for sum of money was filed by the
International Corporate Bank, Inc. against Sacoba Manufacturing Corp., Pablo
Gonzales Jr., and Tomas Gonzales who, in turn, filed a third party complaint
against Alfa Integrated Textile Mills (ALFA), Ramon C. Lee (ALFA's president) and
Antonio DM. Lacdao (ALFA's vice president) on 17 March 1986. On 17 September
1987, Lee and Lacdao filed a motion to dismiss the third party complaint which
the Regional Trial Court of Makati, Branch 58 denied in an Order dated 27 June
1988. On 18 July 1988, Lee and Lacdao filed their answer to the third party
complaint. Meanwhile, on 12 July 1988, the trial issued an order requiring the
issuance of an alias summons upon ALFA through the DBP as a consequence of
Lee and Lacdao'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. In a manifestation dated 22 July 1988, 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. On 4 August 1988, the trial court issued an
order advising Sacoba Manufacturing, et. al. to take the appropriate steps to
serve the summons to ALFA. On 16 August 1988, Sacoba Manufacturing, et. al.
filed a Manifestation and Motion for the Declaration of Proper Service of
Summons which the trial court granted on 17 August 1988. 

On 12 September 1988, Lee and Lacdao filed a motion for reconsideration

submitting that the Rule 14, section 13 of the Revised Rules of Court is not
applicable since they were no longer officers of ALFA and Sacoba Manufacturing,
et. al. should have availed of another mode of service under Rule 14, Section 16 of
the said Rules, i.e., through publication to effect proper service upon ALFA. On 2
January 1989, the trial court upheld the validity of the service of summons on
ALFA through Lee and Lacdao, thus, denying the latter's motion for
reconsideration and requiring ALFA to file its answer through Lee and Lacdao as
its corporate officers. On 19 January 1989, a second motion for reconsideration
was filed by Lee and Lacdao 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.
In support of their second motion for reconsideration, Lee and Lacdao attached
thereto a copy of the voting trust agreement between all the stockholders of
ALFA (Lee and Lacdao included), on the one hand, and the DBP, on the other
hand, whereby the management and control of ALFA became vested upon the
DBP. On 25 April 1989, the trial court reversed itself by setting aside its previous
Order dated 2 January 1989 and declared that service upon Lee and Lacdao who
were no longer corporate officers of ALFA cannot be considered as proper service
of summons on ALFA. On 15 May 1989, Sacoba Manufacturing, et. al. moved for a
reconsideration of the Order which was affirmed by the court in is Order dated 14
August 1989 denying Sacoba Manufacturing, et. al.'s motion for reconsideration. 

On 18 September 1989, a petition for certiorari was belatedly submitted by

Sacoba Manufacturing, et. al. before the Court of Appeals which, nonetheless,
resolved to give due course thereto on 21 September 1989. On 17 October 1989,
the trial court, not having been notified of the pending petition for certiorari with
the appellate court issued an Order declaring as final the Order dated 25 April
1989. Sacoba Manufacturing, et. al. in the said Order were required to take
positive steps in prosecuting the third party complaint in order that the court
would not be constrained to dismiss the same for failure to prosecute.
Subsequently, on 25 October 1989 Sacoba Manufacturing, et. al. filed a motion
for reconsideration on which the trial court took no further action. On 19 March
1990, after Lee and Lacdao filed their answer to Sacoba Manufacturing, et. al.'s
petition for certiorari, the appellate court rendered its decision, setting aside the
orders of trial court judge dated 25 April 1989 and 14 August 1989. On 11 April
1990, Lee and Lacdao moved for a reconsideration of the decision of the appellate
court which resolved to deny the same on 10 May 1990. Lee and Lacdao filed the
petition for certiorari. In the meantime, the appellate court inadvertently made
an entry of judgment on 16 July 1990 erroneously applying the rule that the
period during which a motion for reconsideration has been pending must be
deducted from the 15-day period to appeal. However, in its Resolution dated 3
January 1991, the appellate court set aside the aforestated entry of judgment
after further considering that the rule it relied on applies to appeals from
decisions of the Regional Trial Courts to the Court of Appeals, not to appeals from
its decision to the Supreme Court pursuant to the Supreme Court's.
Issue:
A. Whether the execution of the voting trust agreement by Lee and Lacdao
whereby all their shares to the corporation have been transferred to the
trustee deprives the stockholder of their positions as directors of the
corporation. 

B. Whether 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 Lee and Lacdao as beneficial owners
pursuant to the 6th paragraph of section 59 of the new Corporation Code. 

C. Whether there was proper service of summons on ALFA through Lee and
Lacdao, to bind ALFA. 

Ruling:
Lee and Lacdao, 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, Lee and Lacdao 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. Lee and Lacdao ceased to be directors. Hence, the
transfer of their shares to the DBP created vacancies in their respective positions
as directors of ALFA. The transfer of shares from the stockholders of ALFA to the
DBP is the essence of the subject voting trust agreement. Considering that the
voting trust agreement between ALFA and the DBP transferred legal ownership of
the stocks covered by the agreement to the DBP as trustee, the latter because the
stockholder of record with respect to the said shares of stocks. In the absence of a
showing that the DBP had caused to be transferred in their names one share of
stock for the purpose of qualifying as directors of ALFA, Lee and Lacdao can no
longer be deemed to have retained their status as officers of ALFA which was the
case before the execution of the subject voting trust agreement. There is no
dispute from the records that DBP has taken over full control and management of
the firm. 
The 6th paragraph of section 59 of the new Corporation Code reads that "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
certificates 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." However, 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. Had the five-year period of the voting trust agreement expired in
1986, the DBP would not have transferred an its rights, titles and interests in ALFA
"effective June 30, 1986" to the national government through the Asset
Privatization Trust (APT) as attested to in a Certification dated 24 January 1989 of
the Vice President of the DBP's Special Accounts Department II. In the same
certification, it is stated that the DBP, from 1987 until 1989, had handled s
account which included ALFA's assets pursuant to a management agreement by
and between the DBP and APT. Hence, there is evidence on record that at the
time of the service of summons on ALFA through Lee and Lacdao on 21 August
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. 

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
role on service of processes on 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 rationale of the rule is
that service must be made on a representative so integrated with the corporation
sued as to make it a priori supposable that he will realize his responsibilities and
know what he should do with any legal papers served on him. Herein, Lee and
Lacdao do not fall under any of the enumerated officers. The service of summons
upon ALFA, through Lee and Lacdao, therefore, is not valid. To rule otherwise 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.