NIDC vs. Aquino

A voting trust agreement transfers only voting and other rights pertaining to the shares subject of the agreement—not corporate assets, operations, or management—and the corporation itself, not being a party to such agreement, is not a real party in interest to enforce it; mandamus will not issue to enforce a doubtful right or to compel surrender of property already titled in another's name by virtue of valid foreclosure.

Batjak, Inc. (Basic Agricultural Traders Jointly Administered Kasamahan) was a Filipino-American corporation engaged in the manufacture of coconut oil and copra cake for export. By 1965, Batjak's financial condition had deteriorated to near-bankruptcy, with total indebtedness of ₱11,915,000.00 to several private banks and the Philippine National Bank (PNB). The National Investment and Development Corporation (NIDC) was a wholly-owned subsidiary of PNB. To rehabilitate Batjak, PNB and NIDC extended financial accommodation through a Financial Agreement dated 5 October 1965, which included equity investment, loan restructuring, mortgage arrangements, and a Voting Trust Agreement. The three oil mills at issue were located in Sasa, Davao City; Jimenez, Misamis Occidental; and Tanauan, Leyte.

Batjak, Inc. was a Filipino-American corporation primarily engaged in the manufacture of coconut oil and copra cake for export. By 1965, its financial condition had deteriorated to the point of bankruptcy, with total indebtedness of ₱11,915,000.00 spread across several private banks—Republic Bank (₱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 (₱555,000.00), and PNB's export advance line (₱5,000,000.00). As security, Batjak had mortgaged its three coco-processing oil mills in Sasa, Davao City; Jimenez, Misamis Occidental; and Tanauan, Leyte to Manila Bank, Republic Bank, and PCIB, respectively. In need of additional operating capital, Batjak applied to PNB for further financial assistance.

On 5 October 1965, PNB submitted a Financial Agreement to Batjak, which was duly accepted. Under the agreement, NIDC invested ₱6,722,500.00 in Batjak in the form of preferred shares of stock at 9% cumulative, participating, and convertible within five years at par into common stock, to liquidate Batjak's obligations to Republic Bank, MBTC, and PCIB, with the balance applied to Batjak's past due account of ₱5 million with PNB. Upon receiving payment, RB, PCIB, and MBTC released their mortgages on Batjak's properties in favor of PNB. PNB also granted Batjak an export-advance line of ₱3 million, later increased to ₱5 million, and a standby letter of credit facility of ₱5,850,000.00. As of 29 September 1966, total financial accommodation extended by PNB to Batjak amounted to ₱14,207,859.51. Batjak executed a first mortgage in favor of PNB on its properties in Jimenez and Tanauan. The Sasa, Davao City plant was mortgaged to Manila Bank, which in 1967 instituted foreclosure proceedings that were aborted when Batjak paid ₱2,400,000.00—advanced by NIDC—to Manila Bank. To secure that advance, Batjak mortgaged the Sasa plant to NIDC.

On 26 October 1965, a Voting Trust Agreement was executed by the stockholders representing 60% of Batjak's outstanding paid-up and subscribed shares in favor of NIDC as trustee, for a period of five years. The agreement vested in NIDC the power to vote the covered shares at all corporate meetings and to execute agreements or documents expressing the stockholders' consent on corporate matters. The agreement specified that upon its expiration it would be subject to renegotiation between the parties, and that upon termination, the stock certificates delivered to NIDC would be returned to the subscribing stockholders.

In July 1967, forced by Batjak's insolvency, PNB instituted extrajudicial foreclosure proceedings against the oil mills in Tanauan and Jimenez. The properties were sold to PNB as highest bidder. In September 1968, final Certificates of Sale were issued in favor of PNB after Batjak failed to redeem the foreclosed properties within the one-year redemption period. PNB subsequently transferred ownership of the two mills to NIDC. The Sasa, Davao City oil mill was similarly foreclosed by NIDC, sold to NIDC as highest bidder, and ownership consolidated after Batjak failed to redeem. All three oil mills became titled in NIDC's name. Neither Batjak nor its stockholders instituted any proceedings to annul the foreclosures.

Three years later, on 31 August 1970, Batjak, through counsel, wrote NIDC inquiring whether it was still interested in renewing the Voting Trust Agreement. On 22 September 1970, Batjak's counsel wrote again, stating that NIDC could be assumed no longer interested in renewal and demanding turnover of all Batjak assets, properties, management, and operations. A follow-up letter on 23 September 1970 requested a complete accounting. NIDC replied that it had no intention to comply with the demands. On 24 February 1971, Batjak filed before the CFI of Rizal a special civil action for mandamus with preliminary injunction, praying that NIDC and PNB be ordered to surrender, relinquish, and turn over the assets, management, and operations of Batjak, particularly the three oil mills. On 3 May 1971, Batjak filed a petition for receivership as an alternative to the writ of preliminary injunction. NIDC and PNB moved to dismiss on grounds of lack of jurisdiction, improper venue, and lack of legal capacity to sue. On 16 August 1971, the respondent judge denied the motion to dismiss and appointed three receivers; on 30 September 1971, he denied the motion for reconsideration.

• Lack of Jurisdiction: Petitioners argued that the CFI of Rizal had no jurisdiction over the subject of the action, because the three oil mills sought to be recovered were located in Davao City, Misamis Occidental, and Leyte—outside the territorial boundaries of the CFI of Rizal's authority to issue injunction over real property.
• Improper Venue: Petitioners contended that the complaint should have been filed in the provinces where the oil mills are located, pursuant to Rule 4, Section 2 of the Rules of Court governing actions affecting title to or possession of real property.
• No Legal Capacity to Sue: Petitioners maintained that Batjak was not a party to the Voting Trust Agreement, which was executed between NIDC and certain stockholders of Batjak; accordingly, Batjak was not the real party in interest and had no legal capacity to sue to enforce the agreement.
• No Cause of Action (PNB): PNB additionally argued that the complaint stated no cause of action, noting that PNB was not a party to the Voting Trust Agreement and that mandamus would not lie against it.
• No Clear Legal Right: Petitioners asserted that Batjak had no clear legal right to the writ of mandamus, because the three oil mills had been validly foreclosed and titled in NIDC's name, and Batjak had not impugned the foreclosure proceedings.
• No Basis for Receivership: Petitioners argued that Batjak had no present or existing interest in the three oil mills, having lost ownership through foreclosure, and that Batjak failed to present evidence that the properties were in danger of loss, removal, or material injury as required under Rule 59 of the Rules of Court.

• Jurisdiction: Whether the Court of First Instance of Rizal had jurisdiction over the subject matter of Batjak's action for mandamus seeking recovery of the three oil mills located outside Rizal.
• Real Party in Interest: Whether Batjak, which was not a signatory to the Voting Trust Agreement, had the legal capacity to sue to enforce the agreement.
• Clear Legal Right to Mandamus: Whether Batjak had a clear legal right to the writ of mandamus given that the three oil mills had been foreclosed and titled in NIDC's name.
• Scope of Voting Trust Agreement: Whether the Voting Trust Agreement transferred corporate assets, operations, and management to NIDC, or merely voting rights over the covered shares.
• Receivership: Whether the appointment of a receiver was proper given Batjak's lack of interest in the foreclosed properties and the absence of evidence of danger of loss or material injury.

• Jurisdiction: No. The CFI of Rizal's jurisdiction to issue injunction was confined within the boundaries of the province where the land in controversy was situated; the three oil mills were located in Davao City, Misamis Occidental, and Leyte.
• Real Party in Interest: No. Batjak was not a signatory to the Voting Trust Agreement and therefore was not the real party in interest; the action should have been filed by the stockholders who executed the agreement with NIDC.
• Clear Legal Right to Mandamus: No. Batjak had no clear legal right to the writ, because the oil mills had been validly foreclosed and titled in NIDC's name, and Batjak did not impugn the foreclosure proceedings.
• Scope of Voting Trust Agreement: No. The Voting Trust Agreement transferred only voting rights and related rights pertaining to the covered shares—not corporate assets, operations, or management; upon termination, only the stock certificates were to be returned to the subscribing stockholders.
• Receivership: No. Batjak had no present or existing interest in the three oil mills, having lost ownership through foreclosure, and failed to present evidence that the properties were in danger of loss, removal, or material injury.

• Jurisdiction: The well-settled rule is 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. Batjak's petition for mandamus prayed that NIDC and PNB be ordered to surrender the three oil mills located in Davao City, Misamis Occidental, and Leyte. The CFI of Rizal therefore was being asked to exercise authority outside its jurisdiction. Although an order denying a motion to dismiss is generally interlocutory and not subject to certiorari, the Court entertained the petition because the denial was attended by grave abuse of discretion, warranting recourse to the extraordinary remedies of certiorari and prohibition in the interest of substantial justice.

• Real Party in Interest: Under Section 2, Rule 3 of the Rules of Court, every action must be prosecuted and defended in the name of the real party in interest. The Voting Trust Agreement was executed between NIDC and certain stockholders of Batjak; Batjak itself was not a signatory. The action to enforce the agreement should have been filed by the stockholders who executed it, not by Batjak, which was not a party thereto and therefore not the real party in interest.

• Clear Legal Right to Mandamus: Mandamus is not a writ of right; it issues only where there is a clear legal right sought to be enforced and will not issue to enforce a doubtful right. Batjak sought recovery of title to or possession of the three oil mills, but the records showed that the mortgages had been foreclosed, the properties sold at public auction to PNB and NIDC as highest bidders, and certificates of title issued after the lapse of the one-year redemption period. Ownership was consolidated in NIDC. Batjak did not impugn the validity of the foreclosure proceedings. Since Batjak had no clear legal right to the properties, mandamus would not lie. The writ will not issue to give the applicant anything to which he is not entitled by law.

• Scope of Voting Trust Agreement: A careful reading of the Voting Trust Agreement revealed that what was assigned to NIDC was the power to vote the shares of stock of the subscribing stockholders, representing 60% of Batjak's outstanding shares, and the authority to execute agreements or documents expressing stockholder consent. Nowhere in the agreement was there any transfer or assignment of Batjak's assets, operations, or management. Paragraph 9 (Termination) confirmed that upon termination, only the stock certificates were to be returned to the subscribing stockholders—not corporate properties, which were never delivered to NIDC under the agreement. Section 59, Paragraph 1 of the Corporation Code (BP 68) provides that a voting trust confers upon a trustee the right to vote and other rights pertaining to the shares. The acquisition by PNB-NIDC of the oil mills was effected not as trustee but as a foreclosing creditor recovering on a valid obligation.

• Receivership: Under Section 1(b), Rule 59 of the Rules of Court, a receiver may be appointed when the party applying has an interest in the property and the property is in danger of loss, removal, or material injury. Batjak's interest in the three oil mills ceased upon the issuance of certificates of title to PNB and NIDC. Batjak did not impugn the foreclosure proceedings. Moreover, Batjak failed to present any evidence establishing that the properties were in danger of being lost, removed, or materially injured unless a receiver was appointed. Both requisites for receivership—interest in the property and danger of loss—were absent.

• Voting Trust Agreement — Scope and Effect — A voting trust transfers only voting or other rights pertaining to the shares subject of the agreement, not corporate assets, operations, or management. Under Section 59, Paragraph 1 of the Corporation Code (BP 68), a voting trust is created for the purpose of conferring upon a trustee the right to vote and other rights pertaining to the shares for a period not exceeding five years at any one time. Upon termination, the trustee's duty ceases and the stock certificates are returned to the subscribing stockholders. The corporation itself, not being a party to the voting trust agreement, is not a real party in interest to enforce it.

• Mandamus — Clear Legal Right Requirement — Mandamus is not a writ of right; its allowance is a matter of discretion exercised on equitable principles. The writ issues only where there is a clear legal right sought to be enforced, meaning a right clearly founded in or granted by law and enforceable as a matter of law. It will not issue to enforce a doubtful right or to give the applicant anything to which he is not entitled by law.

• Receivership — Requisites — A receiver may be appointed when the party applying has a present and existing interest in the property and when it appears that the property is in danger of loss, removal, or material injury unless a receiver is appointed to guard and preserve it. Both requisites must concur; the absence of either warrants denial of the petition for receivership.

• Certiorari — Interlocutory Orders — As a general rule, an order denying a motion to dismiss is interlocutory and cannot be the subject of certiorari; the remedy is to file an answer, proceed to trial, and appeal. However, where the denial is attended by patent grave abuse of discretion, certiorari may be entertained in the interest of more enlightened and substantial justice.

• "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." — This passage articulates the ratio decidendi on the scope of a voting trust agreement, distinguishing voting rights from corporate assets, and is the canonical formulation relied upon in the decision.

• "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." — This passage restates the fundamental doctrine governing the writ of mandamus, applied here to deny Batjak's petition because the foreclosed properties were already titled in NIDC's name.

• "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." — This passage clarifies the dual capacities of PNB-NIDC: as voting trustee under the Voting Trust Agreement and as foreclosing creditor under the mortgage arrangements, and explains why the Voting Trust Agreement did not govern the disposition of the foreclosed properties.

• Pineda and Ampil Manufacturing Co. vs. Bartolome, 95 Phil. 930 — Cited for the proposition that certiorari may be entertained against an order denying a motion to dismiss where there is grave abuse of discretion, in the interest of more enlightened and substantial justice.
• Mead vs. Argel, G.R. No. L-41958, July 20, 1982, 115 SCRA 256 — Cited (quoting Yap vs. Lutero, 105 Phil. 1307) for the principle that procedural flaws may be overlooked to avoid subjecting a party to trial where the proceedings would violate constitutional rights, in the interest of substantial justice.
• Acosta vs. Alvendia, G.R. No. L-14598, Oct. 31, 1960 — Cited for the rule that a Court of First Instance's jurisdiction to issue injunction is confined to the province where the land in controversy is situated.
• Central Bank of the Philippines vs. Cajigal, G.R. No. L-19278, Dec. 29, 1962, 6 SCRA 1072 — Cited alongside Acosta vs. Alvendia for the same jurisdictional rule regarding injunction over real property.
• Lamb vs. Philippines, 22 Phil. 456 — Cited (quoting Gonzales V. Salazar vs. The Board of Pharmacy, 20 Phil. 367) for the principle that mandamus will not issue to give the applicant anything to which he is not entitled by law.
• Marcelo Steel Corporation vs. Import Central Board, 87 Phil. 375 — Cited for the principle that mandamus is not a writ of right and should never be used to effectuate an injustice but only to prevent a failure of justice.

• Section 2, Rule 3, Rules of Court — Provides that every action must be prosecuted and defended in the name of the real party in interest. Applied to hold that Batjak, not being a signatory to the Voting Trust Agreement, was not the real party in interest and had no legal capacity to sue.
• Section 3, Rule 65, Rules of Court — Governs the writ of mandamus; applied to require that the petitioner must have a clear legal right enforceable as a matter of law, which Batjak lacked.
• Section 1(b), Rule 59, Rules of Court — Governs the appointment of receivers; applied to require that the party seeking receivership must have an interest in the property and that the property must be in danger of loss, removal, or material injury.
• Rule 4, Section 2, paragraph A, Rules of Court — Provides that actions affecting title to or for recovery of possession of real property shall be commenced and tried in the province where the property lies; applied to hold that venue was improperly laid in the CFI of Rizal.
• Section 59, Paragraph 1, Corporation Code (BP 68) — Provides that a voting trust confers upon a trustee the right to vote and other rights pertaining to the shares for a period not exceeding five years; applied to define the scope of the Voting Trust Agreement as limited to voting rights, not corporate assets.

Yap, C.J., Melencio-Herrera, Paras, and Sarmiento, JJ., concurred.