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Lee Vs CA

Under the old Corporation Code, a director's eligibility could not be affected solely by being party to a voting trust agreement, as they still owned shares beneficially. However, the new Corporation Code omits the phrase "in his own right", allowing trustees without beneficial ownership to be directors. The petitioners in this case transferred all shares to DBP via a 1981 voting trust agreement, so they no longer owned shares as required and ceased management involvement. As such, the court ruled the petitioners ceased to be ALFA directors since the agreement created vacancies in their positions. A voting trust agreement simply allows stockholders to transfer shares to a trustee for up to 5 years to vest voting/other rights in the trustee.

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345 views

Lee Vs CA

Under the old Corporation Code, a director's eligibility could not be affected solely by being party to a voting trust agreement, as they still owned shares beneficially. However, the new Corporation Code omits the phrase "in his own right", allowing trustees without beneficial ownership to be directors. The petitioners in this case transferred all shares to DBP via a 1981 voting trust agreement, so they no longer owned shares as required and ceased management involvement. As such, the court ruled the petitioners ceased to be ALFA directors since the agreement created vacancies in their positions. A voting trust agreement simply allows stockholders to transfer shares to a trustee for up to 5 years to vest voting/other rights in the trustee.

Uploaded by

Jay
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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G.R. No.

93695 February 4, 1992


RAMON C. LEE and ANTONIO DM. LACDAO, vs. CA

Facts:

A complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private
respondents who, in turn, filed a third party complaint against ALFA and the petitioners. 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.

The petitioners filed a motion contenting that they were no longer officers of ALFA and that the private
respondents should have availed of another mode of service. The private respondents argued that the
voting trust agreement dated March 11, 1981 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.

A second motion for reconsideration was filed by the petitioners 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.

Issue: WON the voting trust agreement deprives the stockholder of his position as director of the
corporation.

Ruling:

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 (section 36 of the old Corporation Code). 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 the 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.
“The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders
of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights
pertaining to said shares for a period not exceeding five years”

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