Title
Chan vs. Chan
Case
G.R. No. 150746
Decision Date
Oct 15, 2008
Stockholders dispute over special board meetings, election of new officers, and validity of shares; procedural and substantive issues resolved in favor of respondents.
stockholders
special meeting
validity of shares

Case Summary (G.R. No. 150746)

Formation of the Disputed Board Actions (March and April 1998)

In a letter dated March 2, 1998, Yolanda and Rosalina requested the Hotel’s President and General Manager, Simeon Chan, to call a special meeting of the Hotel’s Board of Directors. Simeon Chan refused, taking the position that a meeting was not necessary. Respondents then themselves called a special board members’ meeting held on March 14, 1998. At that meeting, respondents, acting as board members, approved resolutions intended to save the Hotel’s financial image and goodwill and to safeguard its funds and assets in light of alleged mismanagement by petitioners. A second board meeting followed on April 25, 1998, where respondents attended and approved the election of new officers: Yolanda as President replacing Simeon Chan; Rosalina as Chairman of the Board, also replacing Simeon Chan; and Alvin as Treasurer and Head of the Finance Department. Respondents likewise approved the designation of new bank signatories.

Refusal to Recognize the Meetings and Resort to the SEC

Simeon Chan refused to honor the results of the March 14 and April 25, 1998 board meetings. He asserted that, under the Hotel’s By-Laws, only he, as President, could call a special meeting. Petitioners then filed with the SEC a Petition for Declaration of Nullity of Special Meetings and the Matters Taken Up Therein, docketed as SEC Case No. 05-985958. They also sought injunctive relief by applying for a writ of preliminary injunction to restrain respondents from implementing the resolutions adopted in the challenged meetings. The SEC issued a Temporary Restraining Order (TRO) valid for seventy-two (72) hours, but denied the prayer for a writ of preliminary injunction.

Supplemental Petition and Denial of Preliminary Injunctive Relief

Petitioners later filed a motion to admit a supplemental petition asking for, among others, a declaration that respondents’ shares were invalid and ineffectual, and that Rosalina Rivera’s shares should be limited to those stated in the Articles of Incorporation. The SEC admitted the supplemental petition. Petitioners then renewed their request for a writ of preliminary injunction. Respondents, in turn, moved for the creation of a management committee. On March 20, 2000, the SEC issued an Omnibus Order denying both the writ of preliminary injunction and the management committee. The SEC also directed the Hotel to call and hold a stockholder’s meeting and ruled that the disputed shares should not be allowed to vote or be voted for pending the resolution of who actually owned the shares.

Aggrieved, Yolanda elevated the matter to the SEC en banc, but the SEC en banc dismissed the appeal for non-payment of the appeal fee. Petitioners sought review with the CA, which directed the SEC en banc to take cognizance of the appeal. The CA decision became final and executory.

Continued Motions Before the RTC After Transfer of Jurisdiction

After the transfer of jurisdiction over intra-corporate controversies from the SEC to the regular courts designated as special (commercial) courts, the case was transferred to the RTC of Manila, Branch 46, where it was docketed as Civil Case No. 01-99677. On April 5, 2000, petitioners moved to deem conclusive the basis of the shares entitled to vote as those listed in the original Articles of Incorporation and those in the 1985 increase in subscription of shares. On May 8, 2000 and June 30, 2000, petitioners filed separate motions to declare respondents Riveras and Yolanda Chan in default. On May 29, 2000, Yolanda filed a motion for a writ of preliminary mandatory injunction. Petitioners then moved to cite respondents’ counsel in contempt and to expunge Yolanda’s motion for preliminary mandatory injunction.

In an order dated April 2, 2001, the RTC denied the motions. It denied the motion to deem conclusive the basis of shares entitled to vote, stating that the question was not an issue in that case and noting that Simeon Chan had allegedly assigned shares to Union Builders, Inc. and later transferred and donated shares to Rosalina and Yolanda, respectively. It denied the motions to declare respondents in default because respondents had already filed their answers. It also denied the contempt motion, finding nothing in the mandatory injunction motion that was contemptuous or offensive to the dignity of the court. It explained that contempt power is to be exercised on a preservative rather than a vindictive principle.

CA Proceedings and Petition for Certiorari Under Rule 65

Unsatisfied, petitioners filed a Rule 65 special civil action for certiorari with the CA, assailing the RTC’s April 2, 2001 order. In its Decision dated July 5, 2001, the CA dismissed the petition on the ground that there was no clear showing of grave abuse of discretion.

In the Supreme Court, petitioners assigned, in substance, that the CA departed from the accepted course of judicial proceedings by adopting the RTC’s statement of facts, which they alleged misrepresented and mischaracterized the case; that the CA failed to decide in accordance with law by ruling that there was no justification for their failure to file a motion for reconsideration; and that the CA erred in affirming the RTC despite alleged grave abuse of discretion in denying their motions to deem conclusive the basis of shares entitled to vote, to declare respondents in default, and to cite respondents’ counsel in contempt of court. Petitioners also argued that the denial by the lower courts improperly curtailed their injunctive relief.

Issues Framed by the Supreme Court

The Supreme Court treated the issues as: (one) whether petitioners should have filed a motion for reconsideration before resorting to certiorari with the CA; (two) whether the CA erred in affirming the RTC’s findings of fact; and (three) whether the CA committed grave abuse of discretion in denying petitioners’ motions to deem conclusive the basis of shares entitled to vote, to declare respondents in default, and to cite respondents’ counsel in contempt.

Whether a Motion for Reconsideration Was Required Before Certiorari

On the procedural issue, the CA had faulted petitioners for going directly to it without first filing a motion for reconsideration. Petitioners countered that filing a motion for reconsideration was expressly prohibited by Section 8, Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799, and that direct resort to the appellate court was warranted because the RTC expressly stated that its order was immediately executory.

The Supreme Court agreed with petitioners. It held that while Rule 65 ordinarily requires a motion for reconsideration as a prerequisite to certiorari, that requirement did not apply because the case was intra-corporate in nature and was primarily governed by the Interim Rules. The Court relied on Sections 4 and 8, Rule 1 of those Interim Rules, which provided that decisions and orders issued under the rules were immediately executory and that motions for reconsideration were among the pleadings prohibited. It reasoned that had petitioners filed a prohibited motion, it would have been considered pro forma and would not have tolled the reglementary period for filing certiorari. Further, because the RTC’s order was immediately executory and because there was no appeal or plain, speedy, and adequate remedy in the ordinary course of law, petitioners’ direct filing of certiorari before the CA was proper.

Weight Given to Trial Courts’ Findings of Fact

Petitioners also claimed that the CA erred by adopting the RTC’s factual narration, allegedly based on respondents’ facts rather than petitioners’ supplemental petition. The Supreme Court rejected this contention. It reiterated that findings of fact of the trial courts deserve great weight and are not disturbed except for strong and valid reasons, because trial courts are in a better position to observe witness demeanor. For that reason, the Court held that the appellate court could not be faulted for adopting the trial court’s affirmed findings where petitioners failed to show a compelling basis to substitute the trial court’s factual narration with petitioners’ own supplemental allegations. The Court further explained that petitioners’ statement of facts only supplemented and did not supersede the courts’ findings.

Denial of Motions to Deem Conclusive Shares, to Declare Default, and for Contempt

The Supreme Court then addressed the substantive challenges to the RTC’s denial of petitioners’ motions.

On the motion to declare respondents in default, petitioners anchored default on respondents’ alleged failure to file an answer to petitioners’ supplemental petition. The Supreme Court acknowledged that the Interim Rules provide for default where a defendant fails to file an answer to the complaint. However, it found no provision under the Interim Rules governing default as regards supplemental pleadings. Because the Interim Rules were silent on that point, it applied the Rules of Court suppletorily.

Under Section 6, Rule 10 and Section 7, Rule 11 of the Rules of Court, the Court held that answering a supplemental pleading is not mandatory because the rule uses the permissive word “may.” It also noted that the answer to the original pleading would serve as the answer to the supplemental pleading if no new supplemental answer was filed. Thus, the Court ruled that respondents could not be declared in default solely because they opted not to file an answer to the supplemental petition.

On the contempt issue, petitioners alleged repeated filings of motions for preliminary injunction by respondent Yolanda and her counsel. The Supreme Court observed that the parties had consistently invoked remedies and filed pleadings they believed necessary to protect their positions before the RTC, the CA, and even the Supreme Court. It held that resort to remedies authorized by law and the rules is not contumacious. It also emphasize

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