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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-37281 November 10, 1933

W. S. PRICE and THE SULU DEVELOPMENT COMPANY, plaintiffs-appellants, vs. H. MARTIN, defendant-appellant.

THE AGUSAN COCONUT COMPANY, defendant-appellee. J.W. Ferrier for plaintiff-appellants. G.E. Campbell and W.A. Caldwell for defendant-appellant. DeWitt, Perkins and Brady for appellee.

HULL, J.: Plaintiffs brought suit in the Court of First Instance of Manila praying that a mortgage executed by the Sulu Development Company on its properties in favor of the Agusan Coconut Company be dissolved and declared null and void, the principal contentions being that at the stockholders' meeting in which the officers of the Sulu Development Company were elected and at which the proposed mortgage was approved of, 97 shares of stock of the Sulu Development Company were voted by the proxy of Mrs. Worcester, in whose name the stock at that time stood upon the books of the company, whereas defendant Martin claimed that he was the true owner and that he should have voted the stock. From the records of the Sulu Development Company it appears that at the meeting of November 12, 1925, Martin presented evidence to the effect that he, and not Mrs. Worcester, was the owner of the 97 shares of stock. Copies of the documents relied upon by Martin were made a part of the record, but apparently no action was taken by the stockholders or by the directors, and at the meetings of November 12, 17, and 19, Mrs. Worcester's proxy apparently voted the stock without protest on the part of Martin or any other stockholder. As far as the record shows, every formal action taken at those three meetings was unanimous, and Martin at the last two meetings was accompanied by two members of the Bar of the Philippine Islands as his counsel. The Sulu Development Company from its inception up to the time of executing the contract was virtually owned and controlled by Martin. Prince purchased one share of stock about a month before the called meeting but was not present at the meetings in question. Another ground relied upon by plaintiffs is a claim that the mortgage was without consideration. The evidence shows that for years the Agusan Coconut Company, through its general manager, had been advancing sums through Martin in order that the Sulu Development Company might secure good and sufficient title to a large tract of land situated near Siasi and thereon develop a coconut plantation. The amount of money so advanced was in dispute, but between the meeting on November 12 and the final action on November 19, the attorney of the Sulu Development Company, one of whom was also an accountant, and the attorneys of the Agusan Coconut Company went over the mutual accounts with care and arrived at the sum set forth in the mortgaged. Had there been no agreement, suit would have been instituted by the Agusan Company against the Sulu Development Company. There is also a claim that there was a parol agreement between Martin and Worcester, representing the two companies, that after the death of Mr. Worcester on May 2, 1924, the Agusan Coconut Company failed to comply with the terms and conditions of the so-called cultivation agreement, and Martin prayed in his special cross-complaint and counter-claim that the Defendant Agusan Coconut Company be required to make such further cash advances to "carry out the full scale development of the tract of land in the cultivation agreement and as contemplated therein." The trial court, on timely objection, refused to receive the parol evidence as to the cultivation agreement, and after trial and a

lengthy opinion, held that the mortgage in question was valid and refused to order its cancellation. From that decision plaintiff appeal and make the following assignments of error: The trial court erred: 1. In refusing appellants the right to introduce evidence as to the "cultivation agreement" extensively referred to by the parties herein. 2. In refusing to reopen the case on motion filed in due form and manner by the plaintiffs and appellants herein, on the ground of newly discovered evidence, such motion having been filed the rendition of the judgment herein. 3. In finding that the plaintiff, W.S. Price, did not appear here as a plaintiff to depend his own right but for the purpose of giving aid to the defendant, Harry Martin. 4. In ruling that although the 97 shares voted by Mrs. Nanon L. Worcester at the meetings in question thru her proxy belonged to Harry Martin and were only held in trust by her late husband, Dean C. Worcester, yet such trusteeship was for the benefit of the Agusan Coconut Company, and that such company is the actual cestui que trust thereunder, in violation of the express terms of the trust agreement. 5. In holding that Mrs. Nanon L. Worcester could legally vote the said 97 shares she actually voted at the meeting in question, notwithstanding the facts as found by said court, that said shares belonged to H. Martin and were merely held in trust by her deceased husband. 6. In finding that the 97 shares of stock in question had been adjudicated to Mrs. Nanon L. Worcester by the commissioners on claims against the estate of her deceased husband; that such adjudication had been approved by the Court of First Instance of the City of Manila, and that the said Nanon L. Worcester had inherited said shares by virtue of the will of her deceased husband. 7. In holding the effect that there was a quorum in the pretended meetings of the stockholders of the Sulu Development Company alleged to have taken place on November 12, 17 and 19, 1925, particularly that one asserted to have been held on November 19, 1925, when in law and in fact there was no such quorum. 8. In finding in effect that the meetings pretended to be held by Sulu Development on the dates aforementioned were validly and legally held and that the action taken and proceedings had thereat were valid and effective. 9. In finding that if the defendant H. Martin had had the 97 shares in question in his own name at the alleged meetings of the Sulu Development Company, he would have voted them in the same way and to the same effect as the said Nanon L. Worcester voted them. 10. In not finding that there was attendant fraud, misrepresentation and deceit in the execution and issuance of the mortgage contract, Exhibit U. 11. In not holding that said mortgage is null and void for want of legal consideration. 12. In finding that the plaintiffs and appellants herein are legally bound by the said mortgage contract Exhibit U. 13. In holding that the plaintiffs and appellants herein are legally estopped to contest the efficacy and validity of the mortgage

contract, Exhibit, U. 14. In dismissing plaintiffs' complaint herein. 15. In denying plaintiffs' motion for a new trial. While defendant Martin appeals and assigns the following errors: 1. The trial court erred in refusing to find that the one hundred shares of the capital stock of the appellant, the Sulu Development Company, delivered on November 23, 1922, by the appellant, H. Martin, to the late Dean C. Worcester, were so delivered in trust to be held and used for the benefit of the said H. Martin. 2. The trial court erred in finding that the voting by Mrs. Nanon L. Worcester, in the meeting held by the stockholders of the appellant, the Sulu Development Company, on November 12, 17, and 19, 1925, was legal. 3. The trial court erred in refusing to find that the mortgage involved in this litigation, purported to have been executed by the appellant, the Sulu Development Company, in favor of the appellee, the Agusan Coconut Company, is null and void. 4. The trial court erred in excluding, as being within the statute of frauds, testimony regarding a certain verbal agreement entered into by and between the appellee, the Agusan Coconut Company, and the appellant, H. Martin, which agreement had been fully performed by the latter. 5. The trial court erred in excluding as "Hearsay Evidence", testimony regarding statements made by certain officials of the appellee, the Agusan Company. 6. The trial court erred in excluding the testimony of the appellant, H. Martin, regarding matters of fact which occurred between him and certain officials of the appellee, the Agusan Coconut Company, who had died prior to the trial of this action. An examination of the assignments of error will show that although this case in its main aspects is a simple one and confined to the questions, first, as to whether the mortgage was duly executed by the Sulu Development Company and, second, whether it was given for a valuable consideration, many side issues of no moment were urged upon the trial court, which probably accounts for the voluminous record with which we are confronted and numerous assignments of error which we do not deem it necessary to discuss in detail. Plaintiffs contend that the transference on the books of the company of 97 shares of stock in the name of Mrs. Worcester was fraudulent and illegal. The evidence of record, however, under all the circumstances of the case, fails to demonstrate the allegation of fraud, and this court believes that she acted in good faith and in the honest belief that she had not only a legal right but a duty to participate in the stockholders meeting. As to whether the stock was rightfully the property of Martin, that is a question for the courts and for a stockholder's meeting. Until challenged in a proper proceeding, a stockholder according to the books of the company has a right to participate in that meeting, and in the absence of fraud the action of the stockholders' meeting cannot be collaterally attacked on account of such participation. "A person who has purchased stock, and who desires to be recognized as a stockholder, for the purpose of voting, must secure such a standing by having the transfer recorder upon the books. If the transfer is not duly made upon request, he has, as his remedy, to compel it to be made." (Morrill vs. Little Falls Mfg. Co., 53 Minn., 371; 21 L.R.A., 175-178, citing Cook, Stock & Stockholders, par. 611; People vs. Robinson, 64 Cal., 373; Downing vs. Potts, 23 N.J.L., 66; State vs. Ferris, 42 Conn., 560; New York &

N.H.R. Co. vs. Schuyler, 34 N.Y., 80; Bank of Commerce's App., 73 Pa., 59; Hoppin vs. Buffum, 9 R.I., 513; 11 Am. Rep., 219; Re St. Lawrence S.R. Co., 44 N. J. L., 529.) As to the question of lack of consideration for the mortgage, throughout the brief for appellants it appears by the constant reiteration of the phrase that all the advances were made "by the Agusan Coconut Company and/or its then General Manager, the late Dean C. Worcester, to H. Martin and/or the Sulu Development Company." It must be remembered that there is no dispute between the Worcester interests and the Agusan Coconut Company as to who advanced the money, namely, the Agusan Coconut Company, nor is there any difficulty in determining to whom the money was advanced. Although Martin was virtually the owner of all the capital stock of the Sulu Development Company, business was carried on in the name of the company, and the land and properties were secured in the name of the company, and up to the time of the execution of the mortgage and some time thereafter there was no claim from anybody the money had been advanced to Martin instead of the company. Even a repeated use of the questionable phrase "and/or" as to the grantor "and/or" as to the grantee, will not fabricate a life-raft on which a recalcitrant debtor can reach a safe harbor of repudiation.lawphil.net We are therefore convinced that the contention that the mortgage was made without consideration was a afterthought without foundation in fact and in a vain attempt to avoid a legal and binding obligation. We find no merit in the contention that the trial court should have concerned itself with an alleged parol contract between Martin and Dean C. Worcester, deceased. The alleged contract not being in writing or to be executed within a year, it is within the statute of frauds. The value of the rule is shown in this case as it was some time after Mr. Worcester's death before anything was heard of such an alleged agreement. Even if such an agreement had been made and it had been proper to receive proof thereof, it would not benefit plaintiffs as the mortgage was executed pursuant to a compromise agreement to settle the affairs between the two companies, and all the transactions between the two companies were merged and settle by that compromise. The contention that a new trial should have been granted in order that plaintiffs could present in evidence a letter from Mr. Worcester to the late Governor-General Wood, is likewise without merit. The letter, even if admitted, would not have changed the result of these proceedings, as a fair reading of the letter is not repugnant to a single contention of defendant-appellee. The judgment appealed from is therefore affirmed. Costs against appellants. So ordered. Malcolm, Villa-Real, Abad Santos, and Imperial, JJ., concur.

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Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 91925 April 16, 1991 EDUARDO M. COJUANGCO, JR., MANUEL M. COJUANGCO and RAFAEL G. ABELLO, petitioners, vs. ANTONIO J. ROXAS, JOSE L. CUISIA, JR., OSCAR HILADO, Presidential Commission on Good Government (PCGG), SAN MIGUEL CORPORATION (SMC) and SANDIGANBAYAN (First Division),respondents. G.R. No. 93005 April 16, 1991 EDUARDO M. COJUANGCO, JR., ENRIQUE M. COJUANGCO and MANUEL M. COJUANGCO, petitioners,

vs. ADOLFO AZCUNA, EDISON COSETENG, PATRICIO PINEDA, Presidential Commission on Good Government (PCGG), and SAN MIGUEL CORPORATION (SMC), respondents. Estelito P. Mendoza and Villareal Law Offices for petitioners.

GANCAYCO, J.:p The issue squarely presented by the petitioners is whether or not the Presidential Commission on Good Government (PCGG) may vote the sequestered shares of stock of San Miguel Corporation (SMC) and elect its members of the board of directors. In G.R. No. 91925 the facts alleged are undisputed. Petitioners are stockholders of record of SMC as follows Stockholders No. of Shares Eduardo M. Cojuangco, Jr. 13,225 Manuel M. Cojuangco 5,750 Rafael G. Abello 5,750 On April 18, 1989, the annual meeting of shareholders of SMC was held. Among the matters taken up was the election of fifteen (15) members of the board of directors for the ensuing year. Petitioners were among the twenty four (24) nominees to the board, namely 1 Mr. Rafael G. Abello 2 Mr. Eduardo M. Cojuangco, Jr. 3 Mr. Enrique M. Cojuangco 4 Mr. Manuel M. Cojuangco 5 Mr. Marcos O. Cojuangco 6 Mr. Jose C. Concepcion 7 Mr. Amado C. Mamuric 8 Mr. Rodolfo M. Tinsay 9 Mr. Danilo S. Ursua 10 Mr. Eduardo De Los Angeles 11 Mr. Feliciano Belmonte, Jr.

12 Mr. Teodoro L. Locsin 13 Mr. Domingo Lee 14 Mr. Philip Ella Juico 15 Mr. Patrick Pineda 16 Mr. Adolfo Azcuna 17 Mr. Edison Coseteng 18 Mr. Jose L. Cuisia, Jr. 19 Mr. Oscar Hilado 20 Mr. Andres Soriano III 21 Mr. Eduardo J. Soriano 22 Mr. Francisco C. Eizmendi, Jr. 23 Mr. Benigno P. Toda, Jr. 24 Mr. Antonio J. Roxas On the date of the annual meeting, there were 140,849,970 shares outstanding, of which 133,224,130 shares, or 94.58%, were present at the meeting, either in person or by proxy. Because of PCGG's claim that the shares of stock were under sequestration, PCGG was allowed to represent and vote the shares of stocks of the following shareholders. STOCKHOLDER NO. OF SHARES PRIMAVERA FARMS, INC. 5,381,543 BLACK STALLION RANCH, INC. 3,587,695 MISTY MOUNTAINS AGRI'L CORP. 3,587,695 PASTORAL FARMS, INC. 3,587,695 MEADOW LARK PLANTATION, INC. 2,690,771 SILVER LEAF PLANTATION, INC. 2,690,771 LUCENA OIL FACTORY, INC. 169,174 PCY OIL FACTORY, INC. 167,867 METROPLEX COMMODITIES, INC. 167,777

KAUNLARAN AGRICULTURAL CORP. 145,475 REDDEE DEVELOPERS, INC. 169,071 AGR'L CONSULTANCY SERV., INC. 167,907 FIRST UNITED TRANSPORT, INC. 168,963 VERDANT PLANTATIONS, INC. 145,475 CHRISTENSEN PLANTATIONS, INC. 168,920 NORTHERN CARRIERS CORPORATION 167,891 VESTA AGRICULTURAL CORP. 145,475 OCEAN SIDE MARITIME ENT., INC. 132,250 PURA ELECTRIC COMPANY, INC. 99,587 UNEXPLORED LAND DEVELOPERS, INC. 102,823 PUNONG-BAYAN HOUSING DEVT. CORP. 132,250 HABAGAT REALTY DEVELOPMENT, INC. 145,822 SPADE ONE RESORTS CORP. 147,040 WINGS RESORTS CORPORATION 104,885 KALAWAKAN RESORTS, INC. 132,250 LABAYUG AIR TERMINALS, INC. 159,106 LANDAIR INT'L MARKETING CORP. 168,965 SAN ESTEBAN DEVELOPMENT CORP. 167,679 PHILIPPINE TECHNOLOGIES, INC. 132,250 BALETE RANCH, INC. 166,395 DISCOVERY REALTY CORP. 169,203 ARCHIPELAGO REALTY CORP. 167,761 SOUTHERN SERVICE TRADERS, INC. 120,480 ORO VERDE SERVICES, INC. 132,250

NORTHEAST CONTRACT TRADERS, INC. 159,536 DREAM PASTURES, INC. 169,237 LHL CATTLE CORPORATION 169,216 RANCHO GRANDE, INC. 167,614 ECHO RANCH, INC. 167,897 FAR EAST RANCH, INC. 169,227 SOUTHERN STAR CATTLE CORP. 169,095 RADIO AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC 167,787 RADYO PILIPINO CORPORATION 167,777 EDUARDO M. COJUANGCO, JR. 13,225 TOTAL 27,211,770 The above shares are collectively referred to as "corporate shares" in the petition. Representatives of the corporate shares present at the meeting claimed that the shares are not under sequestration; or that if they are under sequestration, the PCGG had no right to vote the same. They were overruled. With PCGG voting the corporate shares, the following was the result of the election for members of the SMC board of directors: Stockholder No. of Votes 1. Mr. Eduardo De Los Angeles 135,115,521 2. Mr. Feliciano Belmonte, Jr. 135,312,254 3. Mr. Teodoro L. Locsin 132,309,520 4. Mr. Domingo lee 132,308,355 5. Mr. Philip Ella Juico 132,301,569 6. Mr. Patrick Pineda 132,284,365 7. Mr. Adolfo Azcuna 132,284,364 8. Mr. Edison Coseteng 132,284,364 9. Mr. Andres Soriano III 132,182,000

10. Mr. Eduardo Soriano 132,173,943 11. Mr. Francisco C. Eizmendi, Jr. 132,164,470 12. Mr. Benigno P. Toda, Jr. 132,147,319 13. Mr. Antonio J. Roxas 132,146,107 14. Mr. Jose L. Cuisia, Jr. 132,141,775 15. Mr. Oscar Hilado 132,110,402 16. Mr. Eduardo M. Cojuangco, Jr. 2,280,618 17. Mr. Enrique M. Cojuangco 2,279,729 18. Mr. Manuel M. Cojuangco 2,279,719 19. Mr. Rafael G. Abello 2,278,863 20. Mr. Jose C. Concepcion 1,596 21. Mr. Marcos O. Cojuangco 875 22. Mr. Danilo S. Ursua 650 23. Mr. Rodolfo M. Tinsay 23 24. Mr. Amado C. Mamuric 0 The fifteen individuals who received the highest number of votes were declared elected. The PCGG claimed it represented 85,756,279 shares at the meeting including the corporate shares which corresponded to 1,286,744,185 votes which in turn were distributed equally among the fifteen (15) candidates who were declared elected. Petitioners allege that the 27,211,770 shares or a total of 408,176,550 votes representing the corporate shares, were illegally cast by PCGG and should be counted in favor of petitioners so that the results of the election would be as follows Add: Votes 408,176,550 Originally divided by 3 Resulting Stockholder Credited (136,058,850) Votes 1. Mr. Eduardo M. Cojuangco, Jr. 2,280,618 136,058,850 138,339,468

2. Mr. Manuel M. Cojuangco 2,279,719 136,058,850 138,338,569 3. Mr. Rafael G. Abello 2,278,863 136,058,850 138,337,713 Less: Votes 408,176,550 Originally divided by 15 Resulting Stockholder Credited (27,211,770) Votes 4. Mr. Eduardo De Los Angeles 135,115,521 27,211,770 107,903,751 5. Mr. Feliciano Belmonte, Jr. 132,312,254 27,211,770 105,100,484 6. Mr. Teodoro L. Locsin 132,309,520 27,211,770 105,097,750 7. Mr. Domingo Lee 132,308,355 27,211,770 105,096,585 8. Mr. Philip Ella Juico 132,301,569 27,211,770 105,089,799 9. Mr. Patrick Pineda 132,284,365 27,211,770 105,072,595 10. Mr. Adolfo Azcuna 132,284,364 27,211,770 105,072,594 11. Mr. Edison Coseteng 132,284,364 27,211,770 105,072,594 12. Mr. Andres

Soriano III 132,182,000 27,211,770 104,970,230 13. Mr. Eduardo Soriano 132,173,943 27,211,770 104,962,173 14. Mr. Francisco C. Eizmendi, Jr. 132,164,470 27,211,770 104,952,700 15. Mr. Benigno P. Toda, Jr. 132,147,319 27,211,770 104,935,549 16. Mr. Antonio J. Roxas 132,146,107 27,211,770 104,934,337 17. Mr. Jose L. Cuisia, Jr. 132,141,775 27,211,770 104,930,005 18. Mr. Oscar Hilado 132,110,402 27,211,770 104,898,632 19. Mr. Enrique M. Cojuangco 2,279,729 20. Mr. Jose C. Concepcion 1,596 21. Mr. Marcos O. Cojuangco 875 22. Mr. Danilo S. Ursua 650 23. Mr. Rodolfo M. Tinsay 23 24. Mr. Amado C. Mamuric 0

The petitioners assert that is they were allowed to vote their corresponding shares accordingly, then they would obtain enough votes to be elected. On May 31, 1989, petitioners filed with the Sandiganbayan a petition for quo warranto impleading as respondents the fifteen (15) candidates who were declared elected members of the board of directors of SMC for the year 1989-1990. Summons was issued only as to respondents Antonio J. Roxas, Jose L. Cuisia, Jr. and Oscar T. Hilado whose election will be affected by the claim of petitioners if the same were upheld. In due course, a resolution was rendered by the Sandiganbayan on November 16, 1989, affirming its jurisdiction over the petition but dismissing it for lack of cause of action on the ground that the PCGG has the right to vote sequestered shares. Hence, this petition for certiorari, the main thrust of which is that the right to vote sequestered shares of stock is vested in the actual shareholders not in the PCGG. Respondents were required to comment on the petition while petitioners were required to comment on the motion to dismiss filed by respondent SMC. The required comments and consolidated reply thereto have all now been submitted. In G.R. No. 93005, the facts alleged are substantially similar in nature. Petitioners are stockholders of SMC as follows STOCKHOLDER NO. OF SHARES EDUARDO M. COJUANGCO, JR. 52,900 ENRIQUE M. COJUANGCO 23,000 MANUEL M. COJUANGCO 23,000 On April 17, 1990, the annual meeting of the SMC shareholders was held. Among the matters taken up was the election of the fifteen (15) members of the board of directors of SMC for the ensuing year. Petitioners were among the twenty (20) nominees to the board, namely 1. Mr. Andres Soriano III 2. Mr. Francisco C. Eizmendi, Jr. 3. Mr. Eduardo J. Soriano 4. Mr. Antonio J. Roxas 5. Mr. Benigno P. Toda, Jr. 6. Mr. Eduardo De Los Angeles 7. Mr. Feliciano Belmonte, Jr. 8. Mr. Renato Valencia 9. Mr. Domingo Lee

10. Mr. Teodoro L. Locsin 11. Mr. Oscar Hilado 12. Mr. Philip Ella Juico 13. Mr. Adolfo Azcuna 14. Mr. Edison Coseteng 15. Mr. Patricio Pineda 16. Mr. Eduardo M. Cojuangco, Jr. 17. Mr. Marcos O. Cojuangco 18. Mr. Rafael G. Abello 19. Mr. Enrique M. Cojuangco 20. Mr. Manuel M. Cojuangco On the date of the meeting, there were 565,916,550 shares outstanding, of which 531,598,051 shares, or 93.58%, were present at the meeting, either in person or by proxy. 1 The PCGG was allowed to represent and vote the following shares of stock under sequestration: STOCKHOLDER NO. OF SHARES NORTHEAST CONTRACT TRADERS, INC. 638,144 LABAYUG AIR TERMINALS, INC. 636,416 SPADE ONE RESORTS CORP. 588,280 HABAGAT REALTY DEVELOPMENT, INC. 583,280 PUNONG-BAYAN HOUSING DEV'T CORP. 529,000 OCEAN SIDE MARITIME ENT., INC. 529,000 PHILIPPINE TECHNOLOGIES, INC. 529,000 SOUTHERN SERVICE TRADERS, INC. 481,916 WINGS RESORTS CORPORATION 419,536 UNEXPLORED LAND DEVELOPERS, INC. 411,288 PURA ELECTRIC COMPANY, INC. 398,336

PRIMAVERA FARMS, INC. 21,526,164 BLACK STALLION RANCH, INC. 14,350,772 MISTY MOUNTAIN AGR'L. CORP. 14,350,772 PASTORAL FARMS, INC. 14,350,772 MEADOW LARK PLANTATION, INC. 10,763,080 SILVER LEAF PLANTATION, INC 10,763,080 PCY OIL MANUFACTURING CORP. 671,464 METROPLEX COMMODITIES, INC. 671,104 LUCENA OIL FACTORY, INC. 676,696 DISCOVERY REALTY CORP. 676,808 DREAM PASTURES, INC. 676,948 FAR EAST RANCH, INC. 676,908 LHL CATTLE CORPORATION 676,860 ARCHIPELAGO REALTY CORP. 671,040 SOUTHERN STAR CATTLE CORP. 676,376 REDDEE DEVELOPERS, INC. 676,280 LANDAIR INT'L. MARKETING CORP. 675,856 FIRST UNITED TRANSPORT, INC. 675,848 CHRISTENSEN PLANTATION COMPANY 675,680 AGR'L. CONSULTANCY SERV. INC. 671,624 ECHO RANCH, INC. 671,584 NORTHERN CARRIERS CORPORATION 671,560 RADIO AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC 671,148 RADYO PILIPINO CORPORATION 671,104

SAN ESTEBAN DEVELOPMENT CORP. 670,452 BALETE RANCH, INC. 665,576 VERDANT PLANTATIONS, INC. 581,900 KAUNLARAN AGRICULTURAL CORP. 581,900 VESTA AGRICULTURAL CORP. 581,900 ORO VERDE SERVICES, INC. 529,000 KALAWAKAN RESORTS, INC. 529,000 EDUARDO M. COJUANGCO, JR. 52,900 TOTAL 108,846,948 The above shares are once again referred to as "corporate shares" in the petition. At the meeting, a representative of the corporate share maintained that they are not under sequestration, or if they are under sequestration, the PCGG had no authority to vote them. Nevertheless, the PCGG was allowed to vote the corporate shares and the result of the election was as follows Stockholder No. of Votes 1. Andres Soriano III 549,648,661 2. Francisco C. Eizmendi,Jr. 549,105,318 3. Eduardo J. Soriano 548,864,733 4. Antonio J. Roxas 548,809,271 5. Benigno Toda, Jr. 548,751,713 6. Eduardo De Los Angeles 522,678,527 7. Feliciano Belmonte 517,170,373 8. Renato Valencia 517,048,521 9. Domingo Lee 517,014,895 10. Teodoro L. Locsin, Jr. 516,361,120 11. Oscar Hilado 516,197,450 12. Philip Ella Juico 516,118,723 13. Adolfo S. Azcuna 516,105,147

14. Edison Coseteng 516,047,825 15. Patricio Pineda 515,990,250 16. Eduardo M. Cojuangco, Jr. 37,335,365 17. Marcos O Cojuangco 73,404 18. Rafael G. Abello 40,404 19. Enrique M. Cojuangco 34,950 20. Manuel M. Cojuangco 30,955 Uncast votes 3,150,231 Invalid votes 381,865 TOTAL 7,956,960,120 The fifteen individuals who received the highest number of votes were declared elected. Representatives of the corporate shares manifested that if they were allowed to vote their shares, the votes corresponding to their shares, a total of 108,846,948 shares, amounting to 1,632,704,220 votes, would have been cast equally, or 544,234, 740 votes each for petitioners Eduardo Cojuangco, Jr., Enrique M. Cojuangco and Manuel M. Cojuangco, all of whom would have been among those who received 15 highest number of votes, and that respondents Adolfo S. Azcuna, Edison Coseteng and Patricio Pineda would not be included therein, and should thus be ousted from the board of directors. As the petition under G.R. No. 91925 which was decided adversely by the Sandiganbayan is now before this Court, and since time is of the essence as petitioners have been denied the right to vote since 1986, instead of seeking relief from the Sandiganbayan, the petitioners filed this petition for quo warranto (G.R. No. 93005), the issues in which are the same as those raised in G.R. No. 91925. The petitions are impressed with merit. Nothing is more settled than the ruling of this Court in BASECO VS. PCGG, 2 that the PCGG cannot exercise acts of dominion over property sequestered. It may not vote sequestered shares of stock or elect the members of the board of directors of the corporation concerned a. PCGG May Not Exercise Acts of Ownership One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over. As already earlier stressed with no little insistence, the act of sequestration, freezing or provisional takeover of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the performance of acts of dominion.

Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business operations or activities so that, in the event that the accusation of the business enterprise being "ill-gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration. b. PCGG Has Only Powers of Administration The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of the government. In the case of sequestered businesses generally, (i.e., going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer, it is not that of manager, or innovator, much less an owner. c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him, Limitations Thereon Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos," the PCGG is given power and authority, as already adverted to, to "provisionally take (it) over in the public interest or to prevent . . . (its) disposal or dissipation" and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials, or change of policies, particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of management officers may be called for, the greatest prudence, circumspection, care and attention should accompany that undertaking to the end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this area by rank amateurs, no matter how well meaning. The road to hell, it has been said, is paved with good intentions. The business is not to be experimented or played around with, not run into the ground, not driven to the bankruptcy, not fleeced not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control of business enterprises provisionally taken over may legitimately be exercised. d. Voting of Sequestered Stock; Conditions Therefor So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a memorandum dated June 26, 1986. That memorandum authorizes the PCGG "pending the outcome of proceedings to determine the ownership of . . . (sequestered) shares of stock," "to vote such shares of stock as it may have sequestered in corporations at all stockholders" meetings called for the election of directors, declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same

matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy, program of practice of the corporation except for demonstrably weighty and defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists. Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at all possible, and undertaken only when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as to assure that the replacements are truly possessed of competence, experience and probity In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; this Court declared that Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a stockholders meeting for the election of directors as authorized by the Memorandum of the President . . . (to the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly exercise control and management over what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation. It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to forget that they are conservators, not owners of the business; they are fiduciaries trustees, of whom the highest degree of diligence and rectitude is, in the premises, required. 3 In BASECO, Mr. Justice Padilla, in his concurring opinion 4 asserted that the removal and election of members of the board of directors are clear acts of ownership on the part of the shareholders of the corporation, a right that should be denied the PCGG under ordinary circumstances. Of course, in BASECO, wherein it appears that Mr. Marcos took possession and control of 95% of the total ownership thereof which he could not have acquired out of his lawfully gotten wealth, the PCGG was allowed by the Court to vote the sequestered shares. Madame Justice Melencio-Herrera in a concurring opinion which in turn was concurred in by Justice Feliciano, stated that she has no objection to according the right to vote sequestered stock in case of a take-over of business actually belonging to the government and whose capitalization comes from public funds but which, somehow, landed in the hands of private persons, as in the case of BASECO. She advised caution and prudence in the case of sequestered shares of an on-going private business enterprise, specially the sensitive ones, since the true and real ownership of said shares is yet to be determined and proved more conclusively before the courts. 5 Mr. Justice Gutierrez, in a concurring and dissenting opinion, reiterated that the election of the board of directors is distinctly and unqualifiedly an act of ownership. He would disallow the voting of shares by the PCGG on the ground that the same is authoritarian and ultra vires. 6 Mr. Justice Cruz also dissented, He asserted that the acts of voting the shares and reorganizing the board of directors are acts of ownership which clash with the implacable principles of a free society, foremost of which is due process. 7 The Solicitor General, however, contends in these two cases that if the purpose of sequestration is to "help prevent the dissipation of

the corporation's assets" or to "preserve" the said assets, the PCGG may resort to "acts of strict ownership," such as voting the sequestered shares. 8 There is no proof or indications showing that the petitioners seek to exercise their right as stockholders to dissipate, dispose, conceal, destroy, transfer or encumber their sequestered shares. On the other hand, there is no doubt that petitioners have the right to vote their shares at the shareholders meeting even if they are sequestered and that they as stockholders have a right to be voted for as members of the board of directors of SMC. 9 Besides, there are other means by which the said shares may be preserved and their dissipation prevented. The PCGG may restrain their sale, encumbrance, assignment or any other disposition during the period of sequestration. It may monitor the business operations of petitioners as to said shares. It need not vote the shares in order to accomplish its role as conservator. The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of sequestered property. It is a mere conservator. It may not vote the shares in a corporation and elect the members of the board of directors. The only conceivable exception is in a case of a takeover of a business belonging to the government or whose capitalization comes from public funds, but which landed in private hands as in BASECO. The constitutional right against deprivation of life, liberty and property without due process of law is so well-known and too precious so that the hand of the PCGG must be stayed in its indiscriminate takeover of and voting of shares allegedly ill-gotten in these cases. It is only after appropriate judicial proceedings when a clear determination is made that said shares are truly ill-gotten when such a takeover and exercise of acts of strict ownership by the PCGG are justified. It is true that in G.R. No. 91925 the term of office of the term of office of the assailed members of the board of directors, private respondents therein, for 1989-1990 had expired. To this extent said petition may be considered moot and academic. However, the issue of whether public respondent Sandiganbayan committed a grave abuse of discretion in rendering the resolution dated November 16, 1989, which affects all subsequent shareholders' meetings and elections of the members of the board of directors of SMC, is a justiciable controversy that must be resolved. As to G.R. No. 93005 the term of office of private respondents as members of the SMC board of directors will expire on or after another election is held in April 1991. Thus, the issue raised in G.R. No. 93005 relating to the election of the members of the board for 1990-1991 pursuant to sequestered shares of stock is a justiciable issue which should be determined once and for all. In the light of the foregoing discussion, the Court finds and so holds that the PCGG has no right to vote the sequestered shares of petitioners including the sequestered corporate shares. Only their owners, duly authorized representatives or proxies may vote the said shares. Consequently, the election of private respondents Adolfo Azcuna, Edison Coseteng and Patricio Pineda as members of the board of directors of SMC for 1990-1991 should be set aside. However, petitioners cannot be declared duly elected members of the board of directors thereby. An election for the purpose should be held where the questioned shares may be voted by their owners and/or their proxies. Such election may be held at the next shareholders' meeting in April 1991 or at such date as may be set under the by-laws of SMC. Private respondents in both cases are hereby declared to be de facto officers who in good faith assumed their duties and responsibilities as duly elected members of the board of directors of the SMC. They are thereby legally entitled to the emoluments of

the office including salary, fees and other compensation attached to the office until they vacate the same. 10 Nevertheless, the right of the Government, represented by the PCGG, as conservator of sequestered assets must be adequately protected. The important rights of stockholders are the following: a) the right to vote; b) the right to receive dividends; c) the right to receive distributions upon liquidation of the corporation; and d) the right to inspect the books of the corporation. It is through the right to vote that the stockholder participates in the management of the corporation. The right to vote, unlike the rights to receive dividends and liquidating distributions, is not a passive thing because management or administration is, under the Corporation Code, vested in the board of directors, with certain reserved powers residing in the stockholders directly. The board of directors and executive committee (or management committee) and the corporate officers selected by the board may make it very difficult if not impossible for the PCGG to carry out its duties as conservator if the Board or officers do not cooperate, are hostile or antagonistic to the conservator's objectives. Thus, it is necessary to achieve a balancing of or reconciliation between the stockholder's right to vote and the conservator's statutory duty to recover and in the process thereof, to conserve assets, thought to be ill-gotten wealth, until final judicial determination of the character of such assets or until a final compromise agreement between the parties is reached. There are, in the main, two (2) types of situations that need to be addressed. The first situation arises where the sequestered shares of stock constitute a distinct minority of the voting shares of the corporation involved, such that the registered owners of such sequestered shares would in any case be able to vote in only a minority of the Board of Directors of the corporation. The second situation arises where the sequestered shares of stock constitute a majority of the voting shares of the corporation concerned, such that the registered owners of such shares of stock would in any case be entitled to elect a majority of the Board of Directors of the corporation involved. Turning to the first situation, the Court considers and so holds that in order to enable the PCGG to perform its functions as conservator of the sequestered shares of stock pending final determination by the courts as to whether or not the same constitute illgotten wealth or a final compromise agreement between the parties, the PCGG must be represented in the Board of Directors of the corporation and of its majority-owned subsidiaries or affiliates and in the Executive Committee (or its equivalent) and the Audit Committee thereof, in at least an ex officio (i.e., non-voting) capacity. The PCGG representative must have a right of full access to and inspection of (including the right to obtain copies of) the books, records and all other papers of the corporation relating to its business, as well as a right to receive copies of reports to the Board of Directors, its Executive (or equivalent) and Audit Committees. By such representation and rights of full access, the PCGG must be able so to observe and monitor the carrying out of the business of the corporation as to discover in a timely manner any move or effort on the part of the registered owners of the sequestered stock, alone or in concert with other shareholders, to conceal, waste and dissipate the assets of the corporation, or the sequestered shares themselves, and seasonably to bring such move or effort to the attention of the Sandiganbayan for appropriate action.

In the second situation above referred to, the Court considers and so holds that the following minimum safeguards must be set in place and carefully maintained until final judicial resolution of the question of whether or not the sequestered shares of stock (or, in a proper case, the underlying assets of the corporation concerned) constitute ill-gotten wealth or until a final compromise agreement between the parties is reached: a. An independent comptroller must be appointed by the Board of Directors upon nomination of the PCGG as conservator. The comptroller shall not be removable (nor shall his position be abolished or his compensation changed) without the consent of the conservator. The comptroller shall, in addition to his other functions as Such, have charge of internal audit. b. The corporate secretary must be acceptable to the conservator. If the corporate secretary ceases to be acceptable to the conservator, a new one must be appointed by the Board of Directors upon nomination of the conservator. c. The external auditors of the corporation must be independent and must be acceptable to the conservator. The independent external auditors shall not be changed without the consent of the conservator. d. The conservator must be represented in the Board of Directors and in the Executive (or equivalent) and Audit Committees of the corporation involved and of its majority-owned subsidiaries or affiliates. The representative of the conservator must be a full director (not merely an honorary or ex oficiodirector) with the right to vote and all other rights and duties of a member of the Board of Directors under the Corporation Code. The conservator's representative shall not be removed from the Board of Directors (or the mentioned Committees) without the consent of the conservator. The conservator shall, however, have the right to remove and change its representative at any time, and the new representative shall be promptly elected to the Board and its mentioned Committees. e. All transactions involving the disbursement of corporate funds in excess of P5 million must have the prior approval of the director representing the conservator, in order to be valid and effective. f. The incurring of debt by the corporation, whether in the form of bonds, debentures commercial paper or any other form, in excess of P5 million, must have the prior approval of the director representing the conservator, in order to be valid and effective. g. The disposition of a substantial part of assets of the corporation (substantial meaning in excess of P5 million) shall require the prior approval of the director representing the conservator, in order to be valid and effective. h. The above safeguards must be written into the articles of incorporation and by-laws of the company involved. In other words, the articles of incorporation and by-laws of the company must be amended so as to incorporate the above safeguards. i. Any amendment of the articles of incorporation or by-laws of the company that will modify in any way any of the above safeguards, shall need the prior approval of the director representing the conservator. The amount of P5,000,000.00 referred to in paragraphs (e), (f) and (g) above is intended merely to be indicative. The precise amount may differ depending upon the size of the corporation involved and the reasonable operating requirements of its business. Whether a particular case falls within the first or the second type of situation described above, the following safeguards are indispensably necessary: 1. The sequestered shares and any stock dividends pertaining to such shares, may not be sold, transferred, alienated, mortgaged, or otherwise disposed of and no such sale, transfer or other disposition shall be registered in the books of the corporation, pending final

judicial resolution of the question of ill-gotten wealth or a final compromise agreement between the parties; and 2. Dividend and liquidating distributions shall not be delivered to the registered stockholders of the sequestered shares, including stock dividends pertaining to such shares, but shall instead be deposited in an escrow, interest-bearing, account in a first class bank or banks, acceptable to the Sandiganbayan, to be held by such banks for the benefit of whoever is held by final judicial decision or final compromise agreement, to be entitled to the shares involved. The Court is aware that implementation of some of the above safeguards may require agreement between the registered stockholders and the PCGG as well as action on the part of the Securities and Exchange Commission. The Court, therefore, directs petitioners and the PCGG to effect the implementation of this decision under the supervision and control of the Sandiganbayan so that the right to vote the sequestered shares and the installation and operation of the safeguards above-specified may be exercised and effected in a substantially contemporaneous manner and with all deliberate dispatch. WHEREFORE, the Petitions are GIVEN DUE COURSE and GRANTED. Private respondents Adolfo Azcuna, Edison Coseteng and Patricio Pineda are hereby DIRECTED to vacate their respective offices as members of the Board of Directors of the SMC as soon as this decision is implemented. Contemporaneously with the installation of the safeguards above-required to enable the PCGG to perform its statutory role as conservator of the sequestered shares of stock or assets, the respondent SMC is hereby ORDERED to allow the petitioners to vote their shares in person or by proxy and to be voted for as members of the Board of Directors of the SMC and otherwise to enjoy the rights and privileges of shareholders; and the PCGG is hereby ENJOINED from voting the sequestered shares of stock except as otherwise authorized in the safeguards above-required. The questioned order of the Sandiganbayan dated 16 November 1989 is hereby SET ASIDE; however, the implementation of this decision shall be carried out under the supervision and control of the Sandiganbayan. The Court makes no pronouncement as to costs. SO ORDERED. Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Bidin, Grio-Aquino, Regalado and Davide, Jr., JJ., concur. Sarmiento and Medialdea, JJ., took no part.

Separate Opinions

PADILLA, J., dissenting: In all cases (en banc and division) involving San Miguel Corporation (SMC), I take no part because of personal equity interest in said corporation. I am taking no part in this case for the same reason even if the real party-respondents in the case are the PCGG and its nominees to the SMC board of directors, and SMC itself appears to be only a nominal party in the case. At the same time, I will be less than candid if I did not state on this occasion that in earlier decisions of this Court, I have expressed my views on sequestration and its implicitness. I refer particularly to my concurring opinion inBASECO vs. PCGG, 150 SCRA 252 (cited on

page 14 of the present ponencia of Mr. Justice Gancayco) and to my dissenting opinion in Eduardo M. Cojuangco, Jr. vs. Republic of the Philippines, et. al., G.R. No. 93278, 4 March 1991.

Separate Opinions PADILLA, J., dissenting: In all cases (en banc and division) involving San Miguel Corporation (SMC), I take no part because of personal equity interest in said corporation. I am taking no part in this case for the same reason even if the real party-respondents in the case are the PCGG and its nominees to the SMC board of directors, and SMC itself appears to be only a nominal party in the case. At the same time, I will be less than candid if I did not state on this occasion that in earlier decisions of this Court, I have expressed my views on sequestration and its implicitness. I refer particularly to my concurring opinion inBASECO vs. PCGG, 150 SCRA 252 (cited on page 14 of the present ponencia of Mr. Justice Gancayco) and to my dissenting opinion in Eduardo M. Cojuangco, Jr. vs. Republic of the Philippines, et. al., G.R. No. 93278, 4 March 1991. Footnotes 1 Certification dated April 20, 1990 issued Mr. Jose Y. Feria, Corporate Secretary of SMC; attached as Annex A to Petition. 2 150 SCRA 181 (1987). 3 Ibid., pages 236 to 240; Emphasis supplied. 4 Ibid., page 252. 5 Ibid., pages 252 to 253. 6 Ibid., pages 254 to 258. 7 Ibid., pages 258 to 259. 8 Citing PCGG vs. SEC, G.R. No. 82188, June 30,1988. 9 Section 24 of the Corporation Code (Batas Pambansa Blg. 68) provides as follows: Sec. 24. Election of directors or trustees. At all elections of directors or trustees, there must be present, either in person or by representative authorized to act by written proxy, the owners of the majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. The election must be by ballot if requested by any voting stockholder or member. In stock corporations, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the stock books of the corporation, or where the by-laws are silent, at the time of the election; and said stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he

shall see fit. Provided, That the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected: Provided, however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of incorporation or in the by-laws, members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. Candidates receiving the highest number of votes shall be declared elected. Any meeting of the stockholders or members called for an election may adjourn from day to day or from time to time but not since die or indefinitely if, for any reason, no election is held, or if there are not present or represented by proxy, at the meeting, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. (Emphasis supplied.) 10 Civil Liberties Union vs. The Executive Secretary and Anti-Graft League of the Philippines vs. The Executive Secretary, G.R. Nos. 83896 and 83815, February 22, 1991.

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Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 93695 February 4, 1992 RAMON C. LEE and ANTONIO DM. LACDAO, petitioners, vs. THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES, respondents. Cayanga, Zuniga & Angel Law Offices for petitioners. Timbol & Associates for private respondents.

GUTIERREZ, JR., J.: What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective? Did a director of the corporation cease to be such upon the creation of the voting trust agreement? These are the questions the answers to which are necessary in resolving the principal issue in this petition for certiorari whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA, for short) through the petitioners as president and vice-president, allegedly, of the subject corporation after the execution of a voting trust agreement between ALFA and the Development Bank of the Philippines (DBP, for short). From the records of the instant case, the following antecedent facts appear: 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 Regional Trial Court of Makati, Branch 58 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 4, 1988, the trial court issued an order advising the private respondents to take the appropriate steps to serve the summons to ALFA. On August 16, 1988, 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 filed 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. On March 19, 1990, after the petitioners filed their answer to the private respondents' petition for certiorari, the public respondent

rendered its decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and August 14, 1989 are hereby SET ASIDE and respondent corporation is ordered to file its answer within the reglementary period. (CA Decision, p. 8; Rollo, p. 24) On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public respondent which resolved to deny the same on May 10, 1990. Hence, the petitioners filed this certiorari petition imputing grave abuse of discretion amounting to lack of jurisdiction on the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and August 14, 1989 of the court a quo, thus, holding that there was proper service of summons on ALFA through the petitioners. 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. However, in its Resolution dated January 3, 1991, the public respondent 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 us pursuant to our ruling in the case of Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989]. (CA Rollo, pp. 249-250) 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 ( Rollo, pp. 270-3273); 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 (Rollo, pp. 273-275) In resolving the issue of the propriety of the service of summons in the instant case, we dwell first on the nature of a voting trust agreement and the consequent effects upon its creation in the light of the provisions of the Corporation Code. A voting trust is defined in Ballentine's Law Dictionary as follows: (a) trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685). Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definitive meaning may be gathered. The said provision partly reads: Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights pertaining to the shares for a

period not exceeding five (5) years at any one time: Provided, that in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. 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. (5 Fletcher, Cyclopedia of the Law on Private Corporations, section 2075 [1976] p. 331citing Tankersly v. Albright, 374 F. Supp. 538) 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. 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. In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The petitioners maintain that 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. They argue that by virtue to of the voting trust agreement the petitioners can no longer be considered directors of ALFA. In support of their contention, the petitioners invoke section 23 of the Corporation Code which provides, in part, that: Every director must own at least one (1) share of the capital stock of the corporation of which he is a director which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be director . . . (Rollo, p. 270)

The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the DBP had all the more safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general object of voting trust is to insure permanency of the tenure of the directors of a corporation. They cited the commentaries by Prof. Aguedo Agbayani on the right and status of the transferring stockholders, to wit: The "transferring stockholder", also called the "depositing stockholder", is equitable owner for the stocks represented by the voting trust certificates and the stock reversible on termination of the trust by surrender. It is said that the voting trust agreement does not destroy the status of the transferring stockholders as such, and thus render them ineligible as directors. But a more accurate statement seems to be that for some purposes the depositing stockholder holding voting trust certificates in lieu of his stock and being the beneficial owner thereof, remains and is treated as a stockholder. It seems to be deducible from the case that he may sue as a stockholder if the suit is in equity or is of an equitable nature, such as, a technical stockholders' suit in right of the corporation. [Commercial Laws of the Philippines by Agbayani, Vol. 3 pp. 492-493, citing 5 Fletcher 326, 327] (Rollo, p. 291) We find the petitioners' position meritorious. 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. (Salonga,Philippine Law on Private Corporations, 1958 ed., p. 268; Pineda and Carlos, The Law on Private Corporations and Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The Corporation Code; Comments, Notes & Selected Cases, 1981, ed., p. 386; Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988 ed., p. 536). The penultimate question, therefore, is 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 states that: Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a director, which stock shall stand in his name on the books of the corporation. A director who ceases to be the owner of at least one share of the capital stock of a stock corporation of which is a director shall thereby cease to be a director . . . (Emphasis supplied) 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 beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized (see Campos and LopezCampos, supra, p. 296) 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 (2 Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92 [1969]citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051). 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 as evident from the following stipulations: 1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks owned by them respectively and shall do all things necessary for the transfer of their respective shares to the TRUSTEE on the books of ALFA. 2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares transferred, which shall be transferrable in the same manner and with the same effect as certificates of stock subject to the provisions of this agreement; 3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon any resolution, matter or business that may be submitted to any such meeting, and shall possess in that respect the same powers as owners of the equitable as well as the legal title to the stock; 4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying such person as director of ALFA, and cause a certificate of stock evidencing the share so transferred to be issued in the name of such person; xxx xxx xxx 9. Any stockholder not entering into this agreement may transfer his shares to the same trustees without the need of revising this agreement, and this agreement shall have the same force and effect upon that said stockholder. (CA Rollo, pp. 137-138; Emphasis supplied) 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." (CA Rollo, pp. 140-142) Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust agreement did not deprive the petitioners of their position as directors of ALFA, the public respondent committed a reversible error when it ruled that: . . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president and vice-president, respectively, of the corporation at the time of service of summons on them on August 21, 1987, they were at least up to that time, still directors . . . The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. 4 of the subject voting trust agreement. Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement that by virtue of the transfer of shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as such. There can be no reliance on the inference that 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 the petitioners as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads:

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 certificate 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. On the contrary, 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. This is shown by the following portions of the agreement. WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first mortgage on the manufacturing plant of said company; WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and because of the burden of these obligations is encountering very serious difficulties in continuing with its operations. WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had offered and the TRUSTEE has accepted participation in the management and control of the company and to assure the aforesaid participation by the TRUSTEE, the TRUSTORS have agreed to execute a voting trust covering their shareholding in ALFA in favor of the TRUSTEE; AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned. NOW, THEREFORE, it is hereby agreed as follows: xxx xxx xxx 6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the obligations of ALFA with DBP, or any portion thereof, remains outstanding; (CA Rollo, pp. 137-138) 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 is readily answered in the negative. 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. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et

al., G.R. Nos. 83257-58, December 21, 1990). 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. (Far Corporation v. Francisco, 146 SCRA 197 [1986] citing Villa Rey Transit, Inc. v. Far East Motor Corp. 81 SCRA 303 [1978]). 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. (see Vicente v. Geraldez, 52 SCRA 210 [1973]). WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision dated March 19, 1990 and the Court of Appeals' resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25, 1989 and October 17, 1989 issued by the Regional Trial Court of Makati, Branch 58 are REINSTATED. SO ORDERED. Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-34192 June 30, 1988 NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, EUSEBIO VILLATUYA MARIO Y. CONSING and ROBERTO S. BENEDICTO, petitioners, vs. HON. BENJAMIN AQUINO, in his official capacity as Presiding Judge of Branch VIII of the Court of First Instance of Rizal, BATJAK INC., GRACIANO A. GARCIA and MARCELINO CALINAWAN JR., respondents. G.R. No. L-34213 June 30, 1988 PHILIPPINE NATIONAL BANK, petitioner, vs. HON. BENJAMIN H. AQUINO, in his capacity as Presiding Judge of the Court of First Instance of Rizal, Branch VIII and BATJAK INCORPORATED, respondents. Cruz, Palafox, Alfonso and Associates for petitioner NIDC in G.R. No. 34192. The Chief Legal Counsel for petitioner PNB in G.R. No. 34213. Reyes and Sundiam Law Office for respondent Batjak, Inc. Duran, Chuanico Oebanda, Benemerito & Associates for private respondents in G.R. Nos. 34192 & 34213. Tolentino, Garcia, Cruz & Reyes for movant in G.R. No. L-34192.

PADILLA, J.: These two (2) separate petitions for certiorari and prohibition, with preliminary injunction, seek to annul and set aside the orders of respondent judge, dated 16 August 1971 and 30 September 1971, in Civil Case No. 14452 of the Court of First Instance of Rizal, entitled Batjak Inc. vs. NIDC et al." The order of 16 August 1971 1 granted the alternative petition of private respondent Batjak, Inc. Batjak for short) for the appointment of receiver and denied petitioners' motion to dismiss the complaint of said private respondent. The order dated 30 September 1971 2denied petitioners' motion for reconsideration of the order dated 16 August 1971. The herein petitions likewise seek to prohibit the respondent judge from hearing and/or conducting any further proceedings in Civil Case No. 14452 of said court. Batjak, (Basic Agricultural Traders Jointly Administered Kasamahan) is a Filipino-American corporation organized under the laws of the Philippines, primarily engaged in the manufacture of coconut oil and copra cake for export. In 1965, Batjak's financial condition deteriorated to the point of bankruptcy. As of that year, Batjak's indebtedness to some private banks and to the Philippine National Bank (PNB) amounted to P11,915,000.00, shown as follows: Republic Bank P 2,324,000.00 Philippine Commercial and Industrial Bank 1,346,000.00 Manila Banking Corporation 2,000,000.00 Manufacturers Bank 440,000.00 Hongkong and Shanghai Banking Corporation 250,000.00 Foreign Export Advances (against immediate shipment) 555,000.00 PNB export advance line (against immediate shipment) 5,000,000.00 TOTAL 11,915,000.00 As security for the payment of its obligations and advances against shipments, Batjak mortgaged its three (3) coco-processing oil mills in Sasa, Davao City, Jimenez, Misamis Occidental and Tanauan, Leyte to Manila Banking Corporation (Manila Bank), Republic Bank (RB), and Philippine Commercial and Industrial Bank (PCIB), respectively. In need for additional operating capital to place the three (3) coco-processing mills at their optimum capacity and maximum efficiency and to settle, pay or otherwise liquidate pending financial obligations with the different private banks, Batjak applied to PNB for additional financial assistance. On 5 October 1965, a Financial Agreement was submitted by PNB to Batjak for acceptance. The Financial Agreement reads:

PHILIPPINE NATIONAL BANK Manila, Philippines International Department October 5, 1965 BATJAK, INCORPORATED 3rd Floor, G. Puyat Bldg. Escolta, Manila Attn.: Mr. CIRIACO B. MENDOZA Vice-President & General Manager Gentlemen: We are pleased to advise that our Board of Directors approved for you the following: 1) That NIDC shall invest P6,722,500.00 in the form of preferred shares of stocks at 9% cumulative, participating and convertible within 5 years at par into common stocks to liquidate your accounts with the Republic Bank, Manufacturers Bank & Trust Company and the PCIB which, however, shall be applied to the latter three (3) banks accounts with the Loans & Discounts Dept. NIDC shall match your P 10 million subscription by an additional investment of P3,277,500 within a period of one to two years at NIDC's option; 2) That NIDC will guaranty for five (5) years your account with the Manila Banking Corporation; 3) That the above banks (Republic Bank, PCIB, MBTC and Manila Banking Corp.) shall release in favor of PNB the first and any mortgage they hold on your properties; 4) That you shall exercise (execute) a first mortgage on all your properties located at Sasa, Davao City; Jimenez, Misamis Occidental; and Tanauan, Leyte and assign leasehold rights on the property on which your plant at Sasa, Davao City is erected in favor of PNB; 5) That a voting trust agreement for five (5) years over 60% of the oustanding paid up and subscribed shares shall be executed by your stockholders in favor of NIDC; 6) That this accomodation shall be secured by the joint and several signatures of officers and directors; 7) That the number of the Board of Directors shall be increased to seven (7), three (3) from your firm and the other four (4) from the PNB-NIDC; 8) That a comptroller, at your expense, shall be appointed by PNB-NIDC to supervise the financial management of your firm; 9) That the past due accounts of P 5 million with the International Department of the PNB shall be transferred to the Loans & Discount Department and to be treated as a Demand Loan; 10) That any excess of NIDC investment as required in Condition 1 after payment of the obligations to three (3) Banks (RB, MBTC, &

PCIB) shall be applied to reduce the above Demand Loan of P 5 million; 11) That we shall grant you an export advance of P3 million to be used for copra purchases, subject to the following conditions: a) That the line shall expire on September 30, 1966 but revocable at the Bank(s) option; b) That drawings against the line shall be allowed only when an irrevocable export L/C for coconut products has been established or assigned in your favor and you shall assign to us all proceeds of negotiations to be received from your letters of credit; c) That drawings against the line be limited to 60% of the peso value of the export letters of credit computed at P3.50 per $1.00 but total drawings shall not in any event exceed P3,000,000.00; d) That release or releases against the line shall be covered by promissory note or notes for 90 days but not beyond the expiry dates of the coveting L/C and proceeds of said L/C shall first be applied to the correspondent drawings on the line; e) That drawings against the line shall be charged interest at the rate of 9% per annum and subject to 1/2% penalty charge on all drawings not paid or extended on maturity date; and f) That within 90 days from date of release against the line, you shall negotiate with us on equivalent amount in export bills, otherwise, the line shag be temporarily suspended until the outstanding export advance is fully liquidated. We are writing the National Investment & Development Corporation, the Republic Bank, the Philippine Commercial & Industrial Bank and the Manufacturers Bank & Trust Company and the Manila Banking Corporation regarding the above. In connection with the above, kindly submit to us two (2) copies of your board resolution certified to under oath by your corporate secretary accepting the conditions enumerated above authorizing the above transactions and the officer or officers to sign on behalf of the corporation. Thank you. Very truly yours, (SGD.) JOSE B. SAMSON 3 The terms and conditions of the Financial Agreement were duly accepted by Batjak. Under said Agreement, NIDC would, as it actually did, invest P6,722,500.00 in Batjak in the form of preferred shares of stock convertible within five (5) years at par into common stock, to liquidate Batjak's obligations to Republic Bank (RB), Manufacturers Bank and Trust Company (MBTC) and Philippine Commercial & Industrial Bank (PCIB), and the balance of the investment was to be applied to Batjak's past due account of P 5 million with the PNB. Upon receiving payment, RB, PCIB, and MBTC released in favor of PNB the first and any mortgages they held on the properties of Batjak. As agreed, PNB also granted Batjak an export-advance line of P 3 million, later increased to P 5million, and a standby letter of credit facility in the amount of P5,850,000.00. As of 29 September 1966, the financial accomodation that had been extended by PNB to Batjak amounted to a total of P 14,207,859.51. As likewise agreed, Batjak executed a first mortgage in favor of PNB on all its properties located at Jimenez, Misamis Occidental and

Tanauan, Leyte. Batjak's plant in Sasa, Davao City was mortgaged to the Manila Bank which, in 1967, instituted foreclosure proceedings against the same but which were aborted by the payment by Batjak of the sum of P2,400,000.00 to Manila Bank, and which amount was advanced to Batjak by NIDC, a wholly-owned subsidiary of PNB. To secure the advance, Batjak mortgaged the oil mill in Sasa, Davao City to NIDC. 4 Next, a Voting Trust Agreement was executed on 26 October 1965 in favor of NIDC by the stockholders representing 60% of the outstanding paid-up and subscribed shares of Batjak. This agreement was for a period of five (5) years and, upon its expiration, was to be subject to negotiation between the parties. The voting Trust Agreement reads: VOTING TRUST AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This AGREEMENT made and executed by the undersigned stockholders of BATJAK, INC., a corporation duly organized and existing under the laws of the Philippines, whose names are hereinbelow subscribed hereinafter caged the SUBSCRIBERS, and the NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, hereinafter referred to as the trustee. WITNESSETH: WHEREAS, the SUBSCRIBERS are owners respectively of the capital stock of the BATJAK, INC. (hereinafter called the CORPORATION) in the amounts represented by the number of shares set fort opposite their respective names hereunder; AND WHEREAS, with a view or establishing a safe and competent management to operate the corporation for the best interest of all the stockholders thereof, and as mutually agreed between the SUBSCRIBERS and the TRUSTEE, this Voting Trust Agreement has been executed under the following terms and conditions. NOW THEREFORE, the undersigned stockholders, in consideration of the premises and of the mutual covenants and agreements herein contained and to carry out the foregoing purposes in order to vest in the TRUSTEE the voting rights of the shares of stock held by the undersigned in the CORPORATION as hereinafter stated it is mutually agreed as follows: 1. PERIOD OF DESIGNATION For a period of five (5) years from and after date hereof, without power of revocation on the part of the SUBSCRIBERS, the TRUSTEE designated in the manner herein provided is hereby made, constituted and appointed as a VOTING TRUSTEE to act for and in the name of the SUBSCRIBERS, it being understood, however, that this Voting Trust Agreement shall, upon its expiration be subject to a re-negotiation between the parties, as may be warranted by the balance and attending circumstance of the loan investment of the TRUSTEE or otherwise in the CORPORATION. 2. ASSIGNMENT OF STOCK CERTIFICATES UPON ISSUANCE The undersigned stockholders hereby transfer and assign their common shares to the capital stock of the CORPORATION to the extent shown hereunder: JAMES A. KEISTER 21,500 shares JOHNNY LIEUSON 20,300 shares CBM FINANCE & INVESTMENT CORP. (C.B. Mendoza, Pres.) 5,000 shares

ALEJANDRO G. BELTRAN 4,000 shares ESPERANZA A. ZAMORA 3,000 shares CIRIACO B. MENDOZA 2,000 shares FIDELA DE GUZMAN 2,000 shares LLOYD D. COMBS 2,000 shares RENATO B. BEJAR 200 shares TOTAL 60,000 shares to the TRUSTEE by virtue of the provisions hereof and do hereby authorize the Secretary of the CORPORATION to issue the corresponding certificate directly in the name of the TRUSTEE and on which certificates it shall appear that they have been issued pursuant to this Voting Trust Agreement and the said TRUSTEE shall hold in escrow all such certificates during the term of the Agreement. In turn, the TRUSTEE shall deliver to the undersigned stockholders the corresponding Voting Trust certificates provided for in Sec. 36 of Act No. 1459. 3. VOTING POWER OF TRUSTEE The TRUSTEE and its successors in trust, if anym shall have the power and it shall be its duty to vote the shares of the undersigned subject hereof and covered by this Agreement at all annual, adjourned and special meetings of the CORPORATION on all questions, motions, resolutions and matters including the election of directors and such matters on which the stockholders, by virtue of the by-laws of the CORPORATION and of the existing legislations are entitled to vote, which may be voted upon at any and all said meetings and shall also have the power to execute and acknowledge any agreements or documents that may be necessary in its opinion to express the consent or assent of all or any of the stockholders of the CORPORATION with respect to any matter or thing to which any consent or assent of the stockholders may be necessary, proper or convenient. 4. FILING of AGREEMENT An executed copy of this Agreement shall be filed with the CORPORATION at its office in the City of Manila wherever it may be transfered therefrom and shall constitute irrevocable authority and absolute direction of the officers of the CORPORATION whose duty is to sign and deliver stock certificates to make delivery only to said voting trustee of the shares and certificates of stock subject to the provisions of this Agreement as aforesaid. Such copy of this Agreement shall at all times be open to inspection by any stockholder, as provided by law. 5. DIVIDEND the full and absolute beneficial interest in the shares subject of this Agreement shall remain with the stockholders executing the same and any all dividends which may be declared by the CORPORATION shall belong and be paid to them exclusively in accordance with their stockholdings after deducting therefrom or applying the same to whatever liabilities the stockholders may have in favor of the TRUSTEE by virtue of any Agreement or Contract that may have been or will be executed by and between the TRUSTEE and the CORPORATION or between the former and the undersigned stockholders. 6 COMPENSATION; IMMUNITY The TRUSTEE or its successor in trust shall not receive any compensation for its serviceexcept perhaps that which the CORPORATION may grant to the TRUSTEE's authorized representative, if any. Expenses costs, champs, and other liabilities incurred in the carrying out of the but herein established or by reason thereof, shall be paid for with the funds of the CORPORATION. The TRUSTEE or any of its duly authorized representative shall incur no liability by reason of any error of law or of any matter or thing done or omitted under this Agreement, except for his own individual malfeasance.

7. REPRESENTATION The TRUSTEE, being a corporation and a juridical person shall accomplish the foregoing objectives and perform its functions under this Agreement as well as enjoy and exercise the powers, privileges, rights and interests herein established through its duly authorized and accredited re resentatives . p with full authority under the specific appointment or designation or Proxy. 8. IRREVOCABILITY This Agreement shall during its 5-year term or any extension thereof be binding upon and inure to the benefit of the undersigned stockholders and their respective legal representatives, pledges, transferees, and/or assigns and shall be irrevocable during the said terms and/or its extension pursuant to the provisions of paragraph 1 hereof. It is hereby understood and the undersigned stockholders have bound as they hereby bind themselves to make a condition of every pledge, transfer of assignment of their interests in the CORPORATION that the interests and participation so pledged, transferred or assigned is evidenced by annotations in the certificates of stocks or in the books of the corporation, shall be subject to this Agreement and the same shall be binding upon the pledgees, transferees and assigns while the trust herein created still subsists. 9. TERMINATION Upon termination of this Agreement as heretofore provided, the certificates delivered to the TRUSTEE by virtue hereof shall be returned and delivered to the undersigned stockholders as the absolute owners thereof, upon surrender of their respective voting trust certificates, and the duties of the TRUSTEE shall cease and terminate. 10. ACCEPTANCE OF TRUST The TRUSTEE hereby accepts the trust created by this Agreement under the signature of its duly authorized representative affixed hereinbelow and agrees to perform the same in accordance with the term/s hereof. IN WITNTESS HEREOF, the undersigned stockholders and the TRUSTEE by its representatives, have hereunto affixed their signatures this 26 day of October, 1965 in the City of Manila, Philippines. (SGD) JAMES A. KEISER (SGD) JOHNNY LIEUSON Stockholder Stockholder CBM FINANCE & INVESTMENT CORPORATION By: (SGD) C.B. MENDOZA President ESPERANZA A. ZAMORA (SGD) ALEJANDRO G. BELTRAN By: (SGD) MARIANO ZAMORA Stockholder ESPERANZA A. ZAMORA (SGD) FIDELA DE GUZMAN (SGD) CIRIACO B. MENDOZA Stockholder Stockholder (SGD) RENATO B. BEJAR (SGD) LLOYD D. COMBS Stockholder Stockholder NATIONAL INVESTMENT AND

DEVELOPMENT CORPORATION By: (SGD) IGNACIO DEBUQUE JR. Vice-President 5 In July 1967, forced by the insolvency of Batjak, PNB instituted extrajudicial foreclosure proceedings against the oil mills of Batjak located in Tanauan, Leyte and Jimenez, Misamis Occidental. The properties were sold to PNB as the highest bidder. One year thereafter, or in September 1968, final Certificates of Sale were issued by the provincial sheriffs of Leyte 6 and Misamis Occidental 7 for the two (2) oil mills in Tanauan and Jimenez in favor of PNB, after Batjak failed to exercise its right to redeem the foreclosed properties within the allowable one year period of redemption. Subsequently, PNB transferred the ownership of the two (2) oil mills to NIDC which, as aforestated, was a wholly-owned PNB subsidiary. As regards the oil mill located at Sasa, Davao City, the same was similarly foreclosed extrajudicial by NIDC. It was sold to NIDC as the highest bidder. After Batjak failed to redeem the property, NIDC consolidated its ownership of the oil mill. 8 Three (3) years thereafter, or on 31 August 1970, Batjak represented by majority stockholders, through Atty. Amado Duran, legal counsel of private respondent Batjak, wrote a letter to NIDC inquiring if the latter was still interested in negotiating the renewal of the Voting Trust Agreement. 9 On 22 September 1970, legal counsel of Batjak wrote another letter to NIDC informing the latter that Batjak would now safely assume that NIDC was no longer interested in the renewal of said Voting Trust Agreement and, in view thereof, requested for the turn-over and transfer of all Batjak assets, properties, management and operations. 10 On 23 September 1970, legal counsel of Batjak sent stin another letter to NIDC, this time asking for a complete accounting of the assets, properties, management and operation of Batjak, preparatory to their turn-over and transfer to the stockholders of Batjak. 11 NIDC replied, confirming the fact that it had no intention whatsoever to comply with the demands of Batjak. 12 On 24 February 1971, Batjak filed before the Court of First Instance of Rizal a special civil action for mandamus with preliminary injunction against herein petitioners docketed as Civil Case No. 14452. 13 On 14 April 1971, in said Civil Case No. 14452, Batjak filed an urgent ex parte motion for the issuance of a writ of preliminary prohibitory and mandatory injunction. 14 On the same day, respondent judge issued a restraining order "prohibiting defendants (herein petitioners) from removing any record, books, commercial papers or cash, and leasing, renting out, disposing of or otherwise transferring any or all of the properties, machineries, raw materials and finished products and/or by-products thereof now in the factory sites of the three (3) modem coco milling plants situated in Jimenez, Misamis Occidental, Sasa, Davao City, and Tanauan, Leyte." 15 The order of 14 April 1971 was subsequently amended by respondent judge upon an ex parte motion of private respondent Batjak so as to include the premises of NIDC in Makati and those of PNB in Manila, as among the premises which private respondent Batjak was authorized to enter in order to conduct an inventory. On 24 April 1971, NIDC and PNB filed an opposition to the ex parte application for the issuance of a writ of preliminary prohibitory and mandatory injunction and a motion to set aside restraining order.

Before the court could act on the said motion, private respondent Batjak filed on 3 May 1971 a petition for receivership as alternative to writ of preliminary prohibitory and mandatory injunction. 16 This was opposed by PNB and NIDC . 17 On 8 May 1971., NIDC and PNB filed a motion to dismiss Batjak's complaints. 18 On 16 August 1971, respondent judge issued the now assailed order denying petitioners' motion to dismiss and appointing a set of three (3) receivers. 19 NIDC moved for reconsideration of the aforesaid order. 20 On 30 September 1971, respondent judge denied the motion for reconsideration. 21 Hence, these two (2) petitions, which have been consolidated, as they involve a resolution of the same issues. In their manifestation with motion for early decision, dated 25 August 1986, private respondent, Batjak contends that the NIDC has already been abolished or scrapped by its parent company, the PNB. After a careful study and examination of the records of the case, the Court finds and holds for the petitioners. 1. On the denial of petitioners' motion to dismiss. As a general rule, an order denying a motion to quash or to dismiss is interlocutory and cannot be the subject of a petition for certiorari. The remedy of the aggrieved party in a denied motion to dismiss is to file an answer and interpose, as defense or defenses, the objection or objections raised by him in said motion to dismiss, then proceed to trial and, in case of adverse decision, to elevate the entire case by appeal in due course. However, under certain situations, recourse to the extraordinary legal remedies of certiorari, prohibition and mandamus to question the denial of a motion to dismiss or quash is considered proper, in the interest of more enlightened and substantial justice. As the court said in Pineda and Ampil Manufacturing Co. vs. Bartolome, 95 Phil. 930,938 For analogous reasons it may be said that the petition for certiorari interposed by the accused against the order of the court a quo denying the motion to quash may be entertained, not only because it was rendered in a criminal case, but because it was rendered, as claimed, with grave abuse of discretion, as found by the Court of Appeals. .. and reiterated in Mead v. Argel 22 citing Yap v. Lutero (105 Phil. 1307): However, were we to require adherence to this pretense, the case at bar would have to be dismissed and petitioner required to go through the inconvenience, not to say the mental agony and torture, of submitting himself to trial on the merits in Case No. 166443, apart from the expenses incidental thereto, despite the fact that his trial and conviction therein would violate one of this [sic] constitutional rights, and that, an appeal to this Court, we would, therefore, have to set aside the judgment of conviction of the lower court. This would, obviously, be most unfair and unjust. Under the circumstances obtaining the present case, the flaw in the procedure followed by petitioner herein may be overlooked, in the interest of a more enlightened and substantial justice. Thus, where there is patent grave abuse of discretion, in denying the motion to dismiss, as in the present case, this Court may entertain the petition for certiorari interposed by the party against whom the said order is issued. In their motion to dismiss Batjaks complaint, in Civil Case No. 14452, NIDC and PNB raised common grounds for its allowance, to wit: 1. This Honorable Court (the trial court) has no jurisdiction over the subject of the action or suit; 2. The venue is improperly laid; and 3. Plaintiff has no legal capacity to sue.

In addition, PNB contended that the complaint states no cause of action (Rule 16, Sec. 1, Par. a, c, d & g, Rules of Court). Anent the first ground, it is a well-settled rule that the jurisdiction of a Court of First Instance to issue a writ of preliminary or permanent injunction is confined within the boundaries of the province where the land in controversy is situated. 23 The petition for mandamus of Batjak prayed that NIDC and PNB be ordered to surrender, relinquish and turnover to Batjak the assets, management and operation of Batjak particularly the three (3) oil mills located in Sasa, Davao City, Jimenez, Misamis Occidental and Tanauan, Leyte. Clearly, what Batjak asked of respondent court was the exercise of power or authority outside its jurisdiction. On the matter of proper venue, Batjak's complaint should have been filed in the provinces where said oil mills are located. Under Rule 4, Sec. 2, paragraph A of the Rules of Court, "actions affecting title to, or for recovery of possession, or for partition or condemnation of, or foreclosure of mortgage on, real property, shall be commenced and tried in the province where the property or any part thereof lies." In support of the third ground of their motion to dismiss, PNB and NIDC contend that Batjak's complaint for mandamus is based on its claim or right to recovery of possession of the three (3) oil mills, on the ground of an alleged breach of fiduciary relationship. Noteworthy is the fact that, in the Voting Trust Agreement, the parties thereto were NIDC and certain stockholders of Batjak. Batjak itself was not a signatory thereto. Under Sec. 2, Rule 3 of the Rules of Court, every action must be prosecuted and defended in the name of the real party in interest. Applying the rule in the present case, the action should have been filed by the stockholders of Batjak, who executed the Voting Trust Agreement with NIDC, and not by Batjak itself which is not a party to said agreement, and therefore, not the real party in interest in the suit to enforce the same. In addition, PNB claims that Batjak has no cause of action and prays that the petition for mandamus be dismissed. A careful reading of the Voting Trust Agreement shows that PNB was really not a party thereto. Hence, mandamus will not lie against PNB. Moreover, the action instituted by Batjak before the respondent court was a special civil action for mandamus with prayer for preliminary mandatory injunction. Generally, mandamus is not a writ of right and its allowance or refusal is a matter of discretion to be exercised on equitable principles and in accordance with well-settled rules of law, and that it should never be used to effectuate an injustice, but only to prevent a failure of justice. 24 The writ does not issue as a matter of course. It will issue only where there is a clear legal right sought to be enforced. It will not issue to enforce a doubtful right. A clear legal right within the meaning of Sec. 3, Rule 65 of the Rules of Court means a right clearly founded in or granted by law, a right which is enforceable as a matter of law. Applying the above-cited principles of law in the present case, the Court finds no clear right in Batjak to be entitled to the writ prayed for. It should be noted that the petition for mandamus filed by it prayed that NIDC and PNB be ordered to surrender, relinquish and turn-over to Batjak the assets, management, and operation of Batjak particularly the three (3) oil mills and to make the order permanent, after trial, and ordering NIDC and PNB to submit a complete accounting of the assets, management and operation of Batjak from 1965. In effect, what Batjak seeks to recover is title to, or possession of, real property (the three (3) oil mills which really made up the assets of Batjak) but which the records show already belong to NIDC. It is not disputed that the mortgages on the three (3) oil mills were foreclosed by PNB and NIDC and acquired by them as the highest bidder in the appropriate foreclosure sales. Ownership thereto was subsequently consolidated by PNB and NIDC, after Batjak failed to exercise its right of redemption. The three (3) oil mills are now titled in the name of NIDC. From the foregoing, it is evident that Batjak had no clear right to be entitled to the writ prayed for. In Lamb vs. Philippines (22 Phil. 456) citing the case of Gonzales V. Salazar vs. The Board of Pharmacy, 20 Phil. 367, the Court said that the writ of mandamus will not issue to give to the applicant anything to which he is not entitled by law.

2. On the appointment of receiver. A receiver of real or personal property, which is the subject of the action, may be appointed by the court when it appears from the pleadings that the party applying for the appointment of receiver has an interest in said property.25 The right, interest, or claim in property, to entitle one to a receiver over it, must be present and existing. As borne out by the records of the case, PNB acquired ownership of two (2) of the three (3) oil mills by virtue of mortgage foreclosure sales. NIDC acquired ownership of the third oil mill also under a mortgage foreclosure sale. Certificates of title were issued to PNB and NIDC after the lapse of the one (1) year redemption period. Subsequently, PNB transferred the ownership of the two (2) oil mills to NIDC. There can be no doubt, therefore, that NIDC not only has possession of, but also title to the three (3) oil mills formerly owned by Batjak. The interest of Batjak over the three (3) oil mills ceased upon the issuance of the certificates of title to PNB and NIDC confirming their ownership over the said properties. More so, where Batjak does not impugn the validity of the foreclosure proceedings. Neither Batjak nor its stockholders have instituted any legal proceedings to annul the mortgage foreclosure aforementioned. Batjak premises its right to the possession of the three (3) off mills on the Voting Trust Agreement, claiming that under said agreement, NIDC was constituted as trustee of the assets, management and operations of Batjak, that due to the expiration of the Voting Trust Agreement, on 26 October 1970, NIDC should tum over the assets of the three (3) oil mills to Batjak. The relevant provisions of the Voting Trust Agreement, particularly paragraph 4 & No. 1 thereof, are hereby reproduced: NOW THEREFORE, the undersigned stockholders, in consideration of the premises and of the mutual covenants and agreements herein contained and to carry out the foregoing purposes in order to vest in the TRUSTEE the voting right.8 of the shares of stock held by the undersigned in the CORPORATION as hereinafter stated it is mutually agreed as follows: 1. PERIOD OF DESIGNATION For a period of five (5) years from and after date hereof, without power of revocation on the part of the SUBSCRIBERS, the TRUSTEE designated in the manner herein provided is hereby made, constituted and appointed as a VOTING TRUSTEE to act for and in the name of the SUBSCRIBERS, it being understood, however, that this Voting Trust Agreement shall, upon its expiration be subject to a re-negotiation between the parties, as may be warranted by the balance and attending circumstance of the loan investment of the TRUSTEE or otherwise in the CORPORATION. and No. 3 thereof reads: 3. VOTING POWER OF TRUSTEE The TRUSTEE and its successors in trust, if any, shall have the power and it shall be its duty to vote the shares of the undersigned subject hereof and covered by this Agreement at all annual, adjourned and special meetings of the CORPORATION on all questions, motions, resolutions and matters including the election of directors and all such matters on which the stockholders, by virtue of the by-laws of the CORPORATION and of the existing legislations are entitled to vote, which may be voted upon at any and all said meetings and shall also have the power to execute and acknowledge any agreements or documents that may be necessary in its opinion to express the consent or assent of all or any of the stockholders of the CORPORATION with respect to any matter or thing to which any consent or assent of the stockholders may be necessary, proper or convenient. From the foregoing provisions, it is clear that what was assigned to NIDC was the power to vote the shares of stock of the stockholders of Batjak, representing 60% of Batjak's outstanding shares, and who are the signatories to the agreement. The power entrusted to NIDC also included the authority to execute any agreement or document that may be necessary to express the consent or assent to any matter, by the stockholders. Nowhere in the said provisions or in any other part of the Voting Trust Agreement is

mention made of any transfer or assignment to NIDC of Batjak's assets, operations, and management. NIDC was constituted as trustee only of the voting rights of 60% of the paid-up and outstanding shares of stock in Batjak. This is confirmed by paragraph No. 9 of the Voting Trust Agreement, thus: 9. TERMINATION Upon termination of this Agreement as heretofore provided, the certificates delivered to the TRUSTEE by virtue hereof shall be returned and delivered to the undersigned stockholders as the absolute owners thereof, upon surrender of their respective voting trust certificates, and the duties of the TRUSTEE shall cease and terminate.Under the aforecited provision, what was to be returned by NIDC as trustee to Batjak's stockholders, upon the termination of the agreement, are the certificates of shares of stock belonging to Batjak's stockholders, not the properties or assets of Batjak itself which were never delivered, in the first place to NIDC, under the terms of said Voting Trust Agreement. In any event, a voting trust transfers only voting or other rights pertaining to the shares subject of the agreement or control over the stock. The law on the matter is Section 59, Paragraph 1 of the Corporation Code (BP 68) which provides: Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the purpose of confering upon a trustee or trusties the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any one time: ... 26 The acquisition by PNB-NIDC of the properties in question was not made or effected under the capacity of a trustee but as a foreclosing creditor for the purpose of recovering on a just and valid obligation of Batjak. Moreover, the prevention of imminent danger to property is the guiding principle that governs courts in the matter of appointing receivers. Under Sec. 1 (b), Rule 59 of the Rules of Court, it is necessary in granting the relief of receivership that the property or fired be in danger of loss, removal or material injury. In the case at bar, Batjak in its petition for receivership, or in its amended petition therefor, failed to present any evidence, to establish the requisite condition that the property is in danger of being lost, removed or materially injured unless a receiver is appointed to guard and preserve it. WHEREFORE, the petitions are GRANTED. The orders of the respondent judge, dated 16 August 1971 and 30 September 1971, are hereby ANNULLED and SET ASIDE. The respondent judge and/or his successors are ordered to desist from hearing and/or conducting any further proceedings in Civil Case No. 14452, except to dismiss the same. With costs against private respondents. SO ORDERED. Yap, C.J., Melencio-Herrera, Paras and Sarmiento, JJ., concur.

Footnotes 1 Annex B, p. 114, Rollo of G.R. No. 34192. 2 Annex C, p. 136, Rollo of G.R. No. 34192. 3 Annex E, p. 152, Rollo of G.R. No. 34192.

4 Annex G, p. 155, Rollo of G.R. No. 34192. 5 Annex 2, p. 469, Rollo of G.R. No. 34213. 6 Annex M, p. 177, Rollo of G.R. No. 34192. 7 Annex N, p. 195, Rollo of G.R. No. 34192. 8 Annex O, p. 265, Rollo of G.R. No. 34192. 9 Annex Q, p. 226, Rollo of G.R. No. 34192. 10 Annex R, p. 228, Rollo of G.R. No. 34192. 11 Annex S, p. 230, Rollo of G.R. No. 34192. 12 Annex T, p. 232, Rollo of G.R. No. 34192. 13 Annex P, p. 206, Rollo of G.R. No. 34192. 14 Annex Z, p. 264, Rollo of G.R. No. 34192. 15 Annex AA, p. 273, Rollo of G.R. No. 34192. 16 Annex H, p. 138, Rollo of G.R. No. 34213. 17 Annex FF, p. 323, Rollo of G.R. No. 34192 for PNB. 18 Annex GG, p. 331, Rollo of G.R. No. 34192 for NIDC; Annex J, p 178, Rollo of G.R. No. 34213 for PNB. 19 Annex B, p. 114, Rollo of G.R. No. 34192 20 Annex LL, p. 416, Rollo of G.R. No. 34192. 21 Annex C, p. 136, Rollo of G.R. No. 34192. 22 G.R. No. L-41958, July 20, 1982, 115 SCRA 256,262. 23 Acosta vs. Alvendia, G.R. No. L-14598, Oct. 31, 1960; Central Bank of the Philippines vs. Cajigal G.R. No. L-19278, Dec. 29, 1962, 6 SCRA 1072, 1076. 23a (NOTE: Dagupan Electric vs. Pano, 95 SCRA 693, cannot be applied since the principal offices of PNB and NIDC are in Manila) 24 Marcelo Steel Corporation vs. Import Central Board, 87 Phil. 375. 25 Sec. 1(b), Rule 59 of the Rules of Court. 26 Formerly Sec. 36 of the Corporation Law or Act. No. 1459.

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