Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud." (section 59, 5th paragraph of the Corporation Code) Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such and made irrevocable for a limited duration may in practice become a legal device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust agreement.
The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the corporate shares of a stockholders, on the one hand, and the legal title thereto on the other hand.
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 petitioners filed a motion to dismiss the third party complaint which the RTC denied. 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.
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 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 Rule 14, section 13 of the Revised Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should have availed of another mode of service. They 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. Trial court reversed itself and declared that service upon the petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summons on ALFA. The trial court, not having been notified of the pending petition for certiorari with public respondent issued an Order declaring as final the Order of setting aside.
ISSUE:
WON 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 stockholders of his position as director of the corporation would be violative of section 23 of the Corporation Code.
HELD:
YES.
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 transfer of shares from the stockholder 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 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. 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, the petitioners 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 appears to be no dispute from the records that DBP has taken over full control and management of the firm.
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.
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