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 2 denied 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

O
c
t
o
b
e
r
5
,
1
9
6
5

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.
SAMS
ON 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-
Presid
ent 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.

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. 331 citing 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 Lopez-Campos, 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.