1. G.R. No.

93695 February 4, 1992

RAMON C. LEE and ANTONIO DM. LACDAO vs. COURT OF APPEALS

FACTS:

On November 15, 1985, 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 on March 17, 1986.

On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which
the RTC Makati denied in an Order dated June 27, 1988.

On July 18, 1988, the petitioners filed their answer to the third party complaint.

Meanwhile, on July 12, 1988, 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.

In a manifestation dated July 22, 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 August 16, 1988 as per adviced by the trial court, the private respondents filed a
Manifestation and Motion for the Declaration of Proper Service of Summons which the trial
court granted on August 17, 1988.

On September 12, 1988, 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 under
Rule 14, Section 16 of the said Rules, i.e., through publication to effect proper service upon
ALFA.

In their Comment to the Motion for Reconsideration dated September 27, 1988, 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.

On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA
through the petitioners, thus, denying the latter's motion for reconsideration and requiring ALFA
to file its answer through the petitioners as its corporate officers.

On January 19, 1989, 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. In support of their second motion for reconsideration, the petitioners attached thereto a
copy of the voting trust agreement between all the stockholders of ALFA (the petitioners
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 April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January
2, 1989 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.

On May 15, 1989, the private respondents moved for a reconsideration of the above Order which
was affirmed by the court in its Order dated August 14, 1989 denying the private respondent's
motion for reconsideration.

On September 18, 1989, a petition for certiorari was belatedly submitted by the private
respondent before the public respondent which, nonetheless, resolved to give due course thereto
on September 21, 1989.
On October 17, 1989, the trial court, not having been notified of the pending petition for
certiorari with public respondent issued an Order declaring as final the Order dated April 25,
1989. The private respondents 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 October 25, 1989 the private respondents
filed a motion for reconsideration on which the trial court took no further action.

In the meantime, the public respondent inadvertently made an entry of judgment on July 16,
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. In their memorandum, the
petitioners present the following arguments, to wit:

(1) that the execution of the voting trust agreement by a stockholders whereby all
his shares to the corporation have been transferred to the trustee deprives the
stockholders of his position as director of the corporation; to rule otherwise, as the
respondent Court of Appeals did, would be violative of section 23 of the
Corporation Code; and

(2) that the petitioners were no longer acting or holding any of the positions
provided under Rule 14, Section 13 of the Rules of Court authorized to receive
service of summons for and in behalf of the private domestic corporation so that
the service of summons on ALFA effected through the petitioners is not valid and
ineffective; to maintain the respondent Court of Appeals' position that ALFA was
properly served its summons through the petitioners would be contrary to the
general principle that a corporation can only be bound by such acts which are
within the scope of its officers' or agents' authority.

Sub-issues: (just in case itanong)

What is the nature of a voting trust agreement and the consequent effects upon its creation in the
light of the provisions of the Corporation Code.
By its very nature, a voting trust agreement results in the separation of the voting rights of a
stockholder from his other rights such as the right to receive dividends, the right to inspect the
books of the corporation, the right to sell certain interests in the assets of the corporation and
other rights to which a stockholder may be entitled until the liquidation of the corporation.
However, in order to distinguish a voting trust agreement from proxies and other voting pools
and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock
are separated from the other attributes of ownership; (2) that the voting rights granted are
intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the
grant of voting rights is to acquire voting control of the corporation.

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 upon the fulfillment of statutory conditions and such other terms and conditions specified
in the agreement. The five year-period may be extended in cases where the voting trust is
executed pursuant to a loan agreement whereby the period is made contingent upon full payment
of the loan.

WON 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. YES

Both under the old and the new Corporation Codes there is no dispute as to the most immediate
effect of a voting trust agreement on the status of a stockholder who is a party to its execution —
from legal titleholder or owner of the shares subject of the voting trust agreement, he becomes
the equitable or beneficial owner.

whether the change in his status deprives the stockholder of the right to qualify as a
director under section 23 of the present Corporation Code which deletes the phrase "in his
own right." Section 30 of the old Code

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. 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.

Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A.
Guevarra, Vice-President of its Special Accounts Department II, Remedial Management Group,
the petitioners were no longer included in the list of officers of ALFA "as of April 1982

Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have
transferred all 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
January 24, 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 APT's account
which included ALFA's assets pursuant to a management agreement by and between the DBP
and APT (CA Rollo, p. 142) Hence, 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.

In view of the foregoing, the ultimate issue of whether or not there was proper service of
summons on ALFA through the petitioners. 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 rationale of the aforecited 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.

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.
2. VALLE VERDE COUNTRY CLUB, G.R. No. 151969
INC. vs VICTOR AFRICA
September 4, 2009
x ---------------------------------------------------------------------------------------------- x

THE FACTUAL ANTECEDENTS

On February 27, 1996, during the Annual Stockholders Meeting of petitioner Valle Verde
Country Club, Inc. (VVCC), the following were elected as members of the VVCC Board of
Directors: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal),
Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and
Ray Gamboa. In the years 1997 to 2001, however, the requisite quorum for the holding of the
stockholders meeting could not be obtained. Consequently, the above-named directors continued
to serve in the VVCC Board in a hold-over capacity.

On September 1, 1998, Dinglasan resigned from his position as member of the VVCC
Board. In a meeting held on October 6, 1998, the remaining directors, still constituting a quorum
of VVCCs nine-member board, elected Eric Roxas (Roxas) to fill in the vacancy created by the
resignation of Dinglasan.

A year later, or on November 10, 1998, Makalintal also resigned as member of the
VVCC Board. He was replaced by Jose Ramirez (Ramirez), who was elected by the remaining
members of the VVCC Board on March 6, 2001.

Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and
Ramirez as members of the VVCC Board with the Securities and Exchange Commission (SEC)
and the Regional Trial Court (RTC), respectively.

In his nullification complaint before the RTC, Africa alleged that the election of Roxas
was contrary to Section 29, in relation to Section 23, of the Corporation Code of the Philippines
Africa claimed that a year after Makalintals election as member of the VVCC Board in 1996, his
[Makalintals] term as well as those of the other members of the VVCC Board should be
considered to have already expired. Thus, according to Africa, the resulting vacancy should have
been filled by the stockholders in a regular or special meeting

RTC ruled in favor of Africa and declared the election of Ramirez, as Makalintals
replacement, to the VVCC Board as null and void.

Incidentally, the SEC issued a similar ruling on June 3, 2003. While VVCC manifested
its intent to appeal from the SECs ruling, no petition was actually filed with the Court of
Appeals; thus, the appellate court considered the case closed and terminated and the SECs ruling
final and executory.

VVCC now appeals to the Court to assail the RTCs January 23, 2002 partial decision for
being contrary to law and jurisprudence. VVCC made a direct resort to the Court via a petition
for review on certiorari, claiming that the sole issue in the present case involves a purely legal
question.

Whether or not the remaining directors of the corporations Board still constituting a
quorum, can elect another director to fill in a vacancy caused by the resignation of a hold-over
director.

THE COURTS RULING

We are not persuaded by VVCCs arguments and, thus, find its petition
unmeritorious.

The holdover period is not part of the term of

office of a member of the board of directors
Jurisprudence defined term as the time during which the officer may claim to hold the
office as of right, and fixes the interval after which the several incumbents shall succeed one
another. The term of office is not affected by the holdover. The term is fixed by statute and it
does not change simply because the office may have become vacant, nor because the incumbent
holds over in office beyond the end of the term due to the fact that a successor has not been
elected and has failed to qualify.
Term is distinguished from tenure in that an officers tenure represents the term during
which the incumbent actually holds office. The tenure may be shorter (or, in case of holdover,
longer) than the term for reasons within or beyond the power of the incumbent.

Based on the above discussion, when Section 23 of the Corporation Code declares that
the board of directors shall hold office for one (1) year until their successors are elected and
qualified, we construe the provision to mean that the term of the members of the board of
directors shall be only for one year; their term expires one year after election to the office. The
holdover period that time from the lapse of one year from a member’s election to the Board and
until his successors’ election and qualification is not part of the directors’ original term of office,
nor is it a new term; the holdover period, however, constitutes part of his tenure. Corollary, when
an incumbent member of the board of directors continues to serve in a holdover capacity, it
implies that the office has a fixed term, which has expired, and the incumbent is holding the
succeeding term.

After the lapse of one year from his election as member of the VVCC Board in 1996,
Makalintals term of office is deemed to have already expired. That he continued to serve in the
VVCC Board in a holdover capacity cannot be considered as extending his term. To be precise,
Makalintals term of office began in 1996 and expired in 1997, but, by virtue of the holdover
doctrine in Section 23 of the Corporation Code, he continued to hold office until his resignation
on November 10, 1998. This holdover period, however, is not to be considered as part of his
term, which, as declared, had already expired.

With the expiration of Makalintals term of office, a vacancy resulted which, by the terms
of Section 29 of the Corporation Code, must be filled by the stockholders of VVCC in a regular
or special meeting called for the purpose. His resignation as a holdover director did not change
the nature of the vacancy; the vacancy due to the expiration of Makalintals term had been created
long before his resignation.
The powers of the corporations board of directors
emanate from its stockholders

VVCCs construction of Section 29 of the Corporation Code on the authority to fill up

vacancies in the board of directors, in relation to Section 23 thereof, effectively weakens the
stockholders power to participate in the corporate governance by electing their representatives to
the board of directors. The board of directors is the directing and controlling body of the
corporation. It is a creation of the stockholders and derives its power to control and direct the
affairs of the corporation from them. The board of directors, in drawing to themselves the powers
of the corporation, occupies a position of trusteeship in relation to the stockholders, in the sense
that the board should exercise not only care and diligence, but utmost good faith in the
management of corporate affairs.

The law has authorized the remaining members of the board to fill in a vacancy
only in specified instances, so as not to retard or impair the corporations operations; yet, in
recognition of the stockholders right to elect the members of the board, it limited the period
during which the successor shall serve only to the unexpired term of his predecessor in office.

It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy
occurring within the directors term of office. When a vacancy is created by the expiration of a
term, logically, there is no more unexpired term to speak of. Hence, Section 29 declares that it
shall be the corporations stockholders who shall possess the authority to fill in a vacancy caused
by the expiration of a members term.
As correctly pointed out by the RTC, when remaining members of the VVCC Board
elected Ramirez to replace Makalintal, there was no more unexpired term to speak of, as
Makalintals one-year term had already expired. Pursuant to law, the authority to fill in the
vacancy caused by Makalintals leaving lies with the VVCCs stockholders, not the remaining
members of its board of directors.
3. NECTARINA S. RANIEL AND MA. VICTORIA R. PAG-ONG VS PAUL JOCHICO
JOHN STEFFENS and SURYA VIRIYA, GR NO 153413 03.01.2007

FACTS:

The conflict started when petitioners questioned respondents' plan to enter into a joint venture
with the Butuan Doctors' Hospital and College, Inc. sometime in December 1997. Because of
this, petitioners claim that respondents tried to compel them to waive and assign their shares with
Nephro but they refused. Thereafter, Raniel sought an indefinite leave of absence due to stress,
but this was denied by Jochico, as Nephro President. Raniel, nevertheless, did not report for
work, causing Jochico to demand an explanation from her why she should not be removed as
Administrator and Corporate Secretary. Raniel replied, expressing her sentiments over the
disapproval of her request for leave and respondents' decision with regard to the Butuan venture.

On January 30, 1998, Jochico issued a Notice of Special Board Meeting on February 2, 1998.
Despite receipt of the notice, petitioners did not attend the board meeting. Otelio Jochico issued
the corresponding notices for the Special Stockholders' Meeting to be held on February 16, 1998
which were received by petitioners on February 2, 1998. Again, they did not attend the meeting.
The stockholders who were present removed the petitioners as directors of Nephro. Thus,
petitioners filed SEC Case No. 02-98-5902.

On October 27, 2000, the SEC rendered its Decision and held that complainants cannot be
awarded the reliefs prayed for in reinstating Nectarina S. Raniel as secretary and administrator.

Dissatisfied, petitioners filed a petition for review with the CA where the appealed decision of
the Securities and Exchange Commission is hereby AFFIRMED with the MODIFICATION that
the renewal of petitioners as directors of Nephro is declared valid.

Respondents filed a Manifestation and Motion to Correct Typographical Error, stating that the
term renewal as provided in the CA Decision should be removal. Petitioners, on the other hand,
filed the present petition for review on certiorari.
On November 20, 2002, the CA issued a Resolution resolving to refrain from acting on all
pending incidents before it in view of the filing of the petition with the Court.

In the present petition, petitioners raised basically the same argument they had before the SEC
and the CA, i.e., their removal from Nephro was not valid.

Both the SEC and the CA held that Pag-ong's removal as director and Raniel's removal as
director and officer of Nephro were valid. For its part, the SEC ruled that the Board of Directors
had sufficient ground to remove Raniel as officer due to loss of trust and confidence, as her
abrupt and unauthorized leave of absence exhibited her disregard of her responsibilities as an
officer of the corporation and disrupted the operations of Nephro. The SEC also held that the
Special Board Meeting held on February 2, 1998 was valid and the resolutions adopted therein
are binding on petitioners.

The CA upheld the SEC's conclusions, adding further that the special stockholders' meeting on
February 16, 1998 was likewise validly held. The CA also ruled that Pag-ong's removal as
director of Nephro was justified as it was due to her undenied delay in the release of Nephro's
medical supplies from the warehouse of the Fly-High Brokerage where she was an officer, on top
of her and her co-petitioner Raniel's absence from the aforementioned directors' and
stockholders' meetings of Nephro despite due notice.

ISSUE AND RULLING

WON respondents have sufficient grounds to cause the removal of Raniel from her
positions as Corporate Secretary, Treasurer and Administrator of the Dialysis Clinic?

YES. Raniel's letter of January 26, 1998 speaks for itself. Her request for an indefinite leave,
immediately effective yet without prior notice, reveals a disregard of the critical responsibilities
pertaining to the sensitive positions she held in the corporation. Prior to her hasty departure,
Raniel did not make a proper turn-over of her duties and had to be expressly requested to hand
over documents and records, including keys to the office and the cabinets
Since Raniel occupied all three positions in Nephro, it is not difficult to foresee the disruption
that her immediate and indefinite absence can inflict on the operations of the company. By
leaving abruptly, Raniel abandoned the positions she is now trying to reclaim. Raniel's actuation
has been sufficiently proven to warrant loss of the Board's confidence.

Based on its articles of incorporation, Nephro has five directors two of the positions were
occupied by complainants and the remaining three are held by respondents. This being the case,
the presence of all three respondents in the Special Meeting of the Board on February 2, 1998
established a quorum for the conduct of business. The unanimous resolutions carried by the
Board during such meeting are therefore valid and binding against complainants.

WON Petitioners Raniel and Pag-ong's removal as members of Nephro's Board of

Directors was likewise valid.

Only stockholders or members have the power to remove the directors or trustees elected by
them, as laid down in Section 28 of the Corporation Code, which provides in part:

SEC. 28. Removal of directors or trustees. -- Any director or trustee of a corporation may be
removed from office by a vote of the stockholders holding or representing at least two-
thirds (2/3) of the outstanding capital stock

Petitioners do not dispute that the stockholders' meeting was held in accordance with Nephro's
By-Laws. The ownership of Nephro's outstanding capital stock is distributed as follows: Jochico
- 200 shares; Steffens - 100 shares; Viriya - 100 shares; Raniel - 75 shares; and Pag-ong - 25
shares, or a total of 500 shares. A two-thirds vote of Nephro's outstanding capital stock would be
333.33 shares, and during the Stockholders' Special Meeting held on February 16, 1998, 400
shares voted for petitioners' removal. Said number of votes is more than enough to oust
petitioners from their respective positions as members of the board, with or without cause.