G.R. No.
L-16237             June 30, 1965 and
MARVIN O. ROSE, plaintiff-appellee,  made transfers to third persons and acquired new
vs.
LINGAYEN GULF ELECTRIC CO., INC.,
DOMINADOR, C. UNGSON, BRIGIDO G.
ESTRADA, MANTEL L. FERNANDEZ,
BENEDICTO C. YUSON and BERNARDO C.
ACENA, defendants-appellants.
-----------------------------
G.R. No. L-16238             June 30, 1965.
IRINEO S. BALTAZAR and MARVIN O.
ROSE, plaintiffs-appellees, 
vs.
BERNARDO ACENA, defendant-appellant.
Primicias and Del Castillo for plaintiffs-appellees.
Manuel L. Fernandez and Brigido G. Estrada for
and in their own behalf as defendants-appellants.
PAREDES, J.:
In Civil Case G.R. No. L-16236 (CFI No. 13211),
Irineo S. Baltazar, filed the complaint against
Lingayen Gulf Electric Power Co., Inc., Dominador
C. Ungson, Brigido G. Estrada, Manuel L.
Fernandez, Benedicto C. Yuson and Bernardo
Acena.
In Civil Case G.R. No. L-16237 (CFI No. 13212),
Marvin O. Rose filed the complaint against the
same defendants.
In Civil Case G.R. No. L-16238 (CFI No. 13340),
Baltazar and Rose filed their complaint against
Bernardo Acena alone.
The Lingayen Gulf Electric Power Co., Inc.,
hereinafter referred to as Corporation, was doing
business in the Philippines, with principal offices
at Lingayen, Pangasinan, and with an authorized
capital stock of P300.000.00 divided into 3,000
shares of voting stock at P100.00 par value, per
share. Plaintiffs Baltazar and Rose were among
the incorporators, having subscribed to 600 and
400 shares of the capital stock, or a total par
value of P60,000.00 and P40.000.00,
respectively. It is alleged that it has always been
the practice and procedure of the Corporation to
issue certificates of stock to its individual
subscribers for unpaid shares of stock. Of the 600
shares of capital stock subscribed by Baltazar, he
had fully paid 535 shares of stock, and the
Corporation issued to him several fully paid up
non-assessable certificates of stock,
corresponding to the 535 shares. After having
ones, Baltazar had to his credit, on the filing of
the complaint 341 shares fully paid and non-
assessable. He had also 65 shares with par value
of P6,500.00, for which no certificate was issued
to him. Of the 400 shares of stock subscribed by
Rose, he had 375 shares of fully paid stock, duly
covered by certificates of stock issued to him.
The respondents Ungson, Estrada, Fernandez and
Yuson were small stockholders of the
Corporation, all holding a total number of fully
paid-up shares of stock, of not more than 100
shares, with a par value of P10,000.00 and the
defendant Acena, was likewise an incorporator
and stockholder, holding 600 shares of stock, for
which certificate of stock were issued to him and
as such, was the largest individual stockholder
thereof.
Defendants Ungson, Estrada, Fernandez and
Yuzon, constituted the majority of the holdover
seven-member Board of Directors of the
Corporation, in 1955, two (2) of said defendants
having been elected as members of the Board in
the annual stockholders' meeting held in May
1954, largely on the vote of their co-defendant
Acena, while the other two (2) were elected
mainly on the vote of the plaintiffs and their
group of stockholders.
Let the first group be called the Ungson groupand
the second, the Baltazar group.
The date of the annual stockholders' meeting of
the Corporation had been fixed, under its by-
laws, on the first Tuesday of February of every
year, but for one reason or another, the meeting
was to be held on May 1, 1955, principally for the
purpose of electing new officers and Board of
Directors for the calendar year 1955.
In connection with said meeting since January 1,
1955, there was a realignment effected, and the
fight for control of the management and property
of the corporation was close and keen.
The total number of fully paid-up shares held by
stockholders of one group, was almost equal the
number of fully paid-up shares held by the other
group.
The Ungson group (specially defendant Acena),
which had been in complete control of the
management and property of the Corporation
since January 1, 1955, in order to continue
retaining such control, over the objection oil
three majority members of the Board, in the
regular meeting of the Board of Directors, held on
January 30, 1955, passed three (3) resolutions
(Exhs. A, B, C).
Resolution No. 2 (Exh. A), declared all
watered stocks issued to Acena, Baltazar,
Rose and Jubenville, "of no value and
consequently cancelled from the books of
the Corporation.
Resolution No. 3 (Exh. B) resolved that
"... all unpaid subscriptions should bear
interest annually from the year of
subscription on the basis of quarterly
payment, and any or all payments already
made on said unpaid subscriptions should
be credited to pay interest first, then the
capital debt after all interest is fully paid.
All shares of stock issued to and in favor
of any stockholder or stockholders of the
Lingayen Gulf Electric Power Co., Inc., on
account of payments on unpaid
subscriptions without the interest thereon
— accrued and collectible having been
fully paid from the date of subscription as
required by the Corporation Law, shall be
declared of no value and cancelled from
its books, and if the payments already
made exceeded the interest accrued and
collectible by virtue of the provision of law
and the previous resolution of its board of
directors, the excess should be applied to
the payment of the unpaid subscription.
For this purpose, the accountant of the
corporation is directed to make and report
the proper computation of the interest.
Resolution No. 4 (Exh. C) resolved that
"any and all shares of stock of the
Lingayen Gulf Electric Power Co., Inc.,
issued as fully paid-up to stockholders
whose subscription to a number of shares
have been declared delinquent with the
accrued interest on the unpaid thereof per
Resolution No. 42, S. 1954, of the Board
of Directors which has been duly published
in the "Manila Chronicle," are hereby
incapacitated to utilize or avail of the
voting power until such delinquency with
the accrued interest is fully paid up as
indicated in Resolution No. 3, S. 1955.
On the authority of these resolutions, the Ungson
group was threatening and procuring to expel
and oust the plaintiffs and their companion
stockholders, for the ultimate purpose of
depriving them of their right to vote in the said
annual stockholders' meeting scheduled for May
1, 1955.
In their complaint, Baltazar and Rose prayed that
a writ of preliminary injunction be issued against
the defendants, enjoining them to desist and
refrain from carrying out the objects and
purposes of the three resolutions aforestated,
and commanding them to allow plaintiffs and
companions to vote in the stockholders' meeting,
on May 1, 1955, their fully paid up shares of
stocks, as evidenced by stock certificates issued
to them and outstanding on the stock book of the
defendant Corporation, on or before January 30,
1955, to declare said three resolutions illegal and
invalid, and to pay plaintiffs the sum of
P10,000.00 each, as damages. On April 29, 1955,
the trial court, after due hearing, issued
Preliminary Injunction, as prayed for.
The defendants, in their answers, allege that
during the years that plaintiffs and their allies
were in control of the Corporation, no serious
effort was attempted to retrieve it from its
financial collapse, caused by accumulated
indebtedness and by poor and inefficient
management, resulting in losses of big sums of
money from vicious manipulation of funds,
nepotism, unconscionable grant of big salaries
and allowances, illegal payments, unaccounted
funds of Caltex business and sales department
store, etc.; that during the time the management
was in the hands of plaintiffs (Rose, as
manager); attempts were made to release
themselves from liability of their unpaid
subscriptions; that the three resolutions were
merely functional instruments to bolster the faith
in the assets of the defendant Corporation and
did not deprive the plaintiffs of their property
without due process of law; that the issuance of a
writ of injunction for the purpose of arresting the
holding of the election of the Board, was beyond
the jurisdiction of the court. They set up
counterclaims.
They prayed that the resolutions be declared
legal and valid, thus invalidating the "watered
stocks" of plaintiffs, if not paid, and disqualifying
the delinquent subscribers, among whom were
the plaintiffs, from voting totally or partially, their
subscriptions;
to order plaintiffs to pay the defendant
Corporation first, the interest due and payable
quarterly at 6% per annum from January 11,
1946 to December 31, 1954, on their liability
under their delinquent subscriptions, out of the
installment made therein;
to pay defendant entity damages under the
counterclaims and expenses for the enforcement
of the collection; and that after complete
payment of the interests and the balance of their
unpaid subscriptions, the defendant Corporation
should issue the shares of stock to plaintiffs for
their full subscription. Plaintiffs filed their answer
to defendants' counterclaims, with counterclaims
against defendants.
On August 8, 1955, the lower court issued an
order dismissing plaintiffs' counterclaims against
Acena, Ungson and Fernandez "without prejudice
to filing the proper separate actions therefor by
the parties." Consequently, and as heretofore
mentioned, Baltazar and Rose filed Case No.
13340 (supra).
The following tentative amicable settlement,
dated September 13, 1958, formulated and
entered into by some of the parties and their
respective attorneys, before presiding Judge
Jesus P. Morfe, in the three cases, was
submitted:
1. As to the so-called water stocks
P30,000.00 each of the holders of said
stock, namely, Irineo Baltazar, Marvin
Rose, and Bernardo Acena, will return to
the corporation P3,500 each of said
stocks, thereby retaining P6,500 worth of
stocks to be considered as valid for each
under this compromise;
2. With respect to Dr. Bernardo Acena, of
the certificates of stock allegedly
representing, his profit, he will return to
the corporation P3,500 of said share of
stock and retain P7,500 worth thereof ;
3. With respect to the interest on unpaid
balance of subscription it is agreed that
the subscribers with unpaid subscription
be given the opportunity to pay in two
installments, the first installment to cover
one-half of the unpaid balance to be paid
in three months, and the second
installment will be for the remaining
unpaid half payable in another three
months, from the time of the approval of
this agreements, with the understanding
that those who comply with this
arrangement will not pay interest on the
balance of their subscription, for the date
of incorporation up to the grant of
franchise on February 24, 1948, which
shall be deemed as condoned, and from
1948 they will pay only as interest 3%
compounded annually, it being understood
that failure of any subscriber to pay any of
the installment here provided will subject
the stockholders concerned to the
provision of the corporation law of the
payment of 6% interest compounded
quarterly.
4. All claims and counterclaims other than
those covered by the preceding paragraph
of stipulation will be deemed dismissed
without prejudice, in all these three cases;
5. All the resolutions of the Board and the
stockholders involved in these instant
cases will be deemed modified in
accordance with this agreement.
On February 20, 1959, the lower court rendered
a decision, approving the agreement and
requiring the parties to comply with the same,
and dissolved the writ of preliminary injunction,
with costs. The pertinent portions of the decision
are:
In view of the agreement of the parties
transcribed above, this Court is called
upon to decide whether or not any of the
agreements of the parties as above
transcribed is contrary to law or public
policy.
First, as regards pars. 1 and 2, of said
agreement, the legal capacity of the
parties to sue and be sued carries with it
the power to enter into an amicable
settlement of pending litigations and to
expressly or impliedly make admissions of
facts; and they could, therefore, agree
and recognize as fully paid for and valid
the shares of stocks mentioned in said
paragraphs of their agreement, which
agreement must be held valid and binding
among the parties, and even as against
their persons who have no proof that said
agreement was entered into in fraud of
creditors.
The next question for decision is whether
or not a corporation may validly condone
interest on unpaid subscriptions to its
 capital stock. The fact that our
Corporation Law authorizes provisions in
the by-laws of a corporation different from
that set out in Sec. 37 of said law, shows
that the provision of said law is to interest
of unpaid stock subscriptions is merely
directory, so that a corporation may fix a
different interest rate, or condone the
payment of interest altogether if such
condonation would, as in the instant
cases, serve as inducement for early
payment of stock subscriptions.
The condonation and reduction of interest
agreed upon in par. 3 of the aforequoted
agreement is, therefore, valid in the
absence of proof that said agreement was
entered into in fraud of creditors.
In connection with par. 5 of the
aforequoted agreement, in relation to par.
3 thereof, this, Court is of the opinion, and
so holds, that the periods of time allowed
for making payments under par. 3 of said
agreement, must be counted from date of
receipt of a copy of this decision by
counsel of the parties, this decision
constituting the final approval of said
agreement, and as to stockholders who
are not parties to these cases, from date
of notice of the said time extension. The
extension of time to pay, as granted in
par. 3 of the repealing previous
declaration of delinquency of the
corresponding shares of stock, and all
subscribed shares of stock, except those
ordered to be returned as provided in
pars. 1 and 2 of said agreement, will
therefore be entitled to vote until once
again declared delinquent after the
expiration of the periods of time set out in
par. 3 of said agreement.
Defendants on March 14, 1959 filed a motion for
reconsideration, alleging that the decision was
partly against the spirit and intention of the
parties to the agreement and portions of the
decision, carried "prejudicial eventualities," and
asking that the same be amended in the sense
that "the payment of obligations of delinquent
incorporators has been reduced by the
agreement as stated in paragraphs 3 and 5" of
said agreement; that delinquent stocks cannot be
voted until fully paid in accordance with the
agreement and that if the plaintiffs in the above
entitled cases could not pay in full their
obligations within the periods stated in the
agreement, the resolutions of delinquency would
automatically stand.
On March 18, 1959, plaintiffs, in cases Nos.
13211 and 13212, filed a petition for immediate
execution and for preliminary injunction
and/or mandamus, praying that a writ be issued,
ordering the defendants, as controlling majority
of hold-over board of directors, to hold
immediately the long delayed stockholders'
meeting, and to allow the plaintiffs and all the
stockholders, with still unpaid subscriptions, to
vote all their stocks and subscriptions at said
stockholders' meeting, as directed in the
decision.
On March 25, 1959, the Court issued
an amending decision, pertinent portions of which
are hereunder reproduced — 
... . After hearing the parties in extensive
oral argument, this Court agrees with the
defendants that par. 5 of the compromise
agreement of the parties, dated
September 13, 1958, contemplates a
modification and not a repeal of the
resolutions of the Board of Directors and
of the Stockholders referred to in said
agreement. The question is, therefore, to
what extent has said resolutions been
modified? Considering that the primary
intention of each of said resolutions was to
effect an early collection of unpaid balance
of stock subscriptions and interest
thereon, and the moving consideration for
a compromise settlement of the instant
cases is likewise the early collection of the
obligations of stockholders of the
defendant corporation, the extension of
time to pay, as granted in par. 3 of said
agreement, was clearly intended to cover
not only the accrued interest but also the
unpaid stock subscription of the
stockholders, for to hold otherwise would
be to defeat the primary purpose of early
collection of said obligations. Considering
the same paramount intention of said
resolution, and of the aforesaid
compromise agreement, it likewise follows
that the extension of time to pay and the
reduction of interest embodied in the said
agreement must apply to all stockholders
similarly situated.
Regarding the right to vote, this Court
likewise agrees with the defends its that
the facts considered during the
negotiations for settlement effected by the
 parties in the Chambers of the presiding
judge do not warrant repeal of the
declaration of delinquency and complete
restoration of voting rights until full
payment of the unpaid stock subscriptions
and interest within the time and to the
extent mentioned in par. 3 of the
aforesaid compromise agreement. To rule
otherwise would be to encourage non-
payment of the balance of stock
subscriptions and thus defeat the
paramount intention of the compromise
agreement. Stated differently, this Court
now holds that the extension of time to
pay, as granted in par. 3 of the aforesaid
compromise agreement, has the effect of
lifting the previous declaration of
delinquency effective as of full payment of
the balance of said stock subscriptions and
interest within the periods of time
mentioned in par. 3 of said compromise
agreement.
In view of the uncertainty brought about
by the motion for reconsideration and the
motion for execution aforementioned, it
would be unjust to count the periods of
time mentioned in the aforesaid
compromise agreement from the date of
receipt of the original decision of this
Court in these cases. The extension of
time to pay should, therefore, be counted
from receipt by counsel for the parties of a
copy of this amending decision, and from
receipt by the other stockholders of notice
of said extension of time; and the
injunction in the instant case should be
deemed in force for the duration of said
extension of time to pay.
WHEREFORE, the decision of this Court
rendered in these cases on February 20,
1959 is hereby modified in the manner set
out above, maintaining said decision in all
other respects.
On April 4, 1959 , plaintiffs filed a motion for
reconsideration and/or new trial, praying that the
amending decision dated March 25, 1959, be
reconsidered and/or further clarified. On July 16,
1959, the trial court reversed its amending
decision in an order, the relevant parts thereof
follow:
WHEREFORE, by way of amendment to
both the original and amending decisions
of this Court in the instant case, this Court
hereby expressly rules that all shares of
the capital stock of the defendant
corporation covered by fully paid capital
stock shares certificates are entitled to
vote in all meetings of the stockholders of
this corporation, and Resolutions Nos. 2, 3
and 4 (Exhs. C, C-1 and C-2) of
defendant's corporation's Board of
Directors are hereby nullified insofar as
they are inconsistent the this ruling.
The extensions of time to pay, referred to
in par. 3 of the settlement agreement of
the parties, will start to run from the date
of receipt by counsel for the parties of a
copy of this Order, and from receipt by
the other stockholders of notice of said
extension of time.
The injunction granted in the instant case
is hereby dissolved, and the injunction
bond filed by the plaintiffs is hereby
cancelled and released.
Defendants on August 14, 1959 perfected their
appeal against the above ruling, on purely
questions of law. Plaintiffs-appellees did not file
any brief, manifesting that they were relying on
their arguments contained in their motion for
reconsideration, dated April 4, 1959 filed with the
trial court. (pp. 213 to 218, rec. on appeal) and
on the reasons set forth in the trial court's order,
dated July 16, 1959, third decision (pp. 219 to
230 R.A.).
Pending decision, the parties were required to
show cause why the cases should not be
dismissed for having become moot or academic,
in view of the fact that the appellees, taking
advantage of the decision of the trial court, "had
paid all other delinquencies and interest
thereon," but the appellants manifested that
these cases should be decided on the issues
raised, to determine, once and for all, the voting
rights of the other delinquent subscribers, in the
election of the company's Board of Directors
which had been suspended since May 1, 1955,
because of the litigation.
The questions posted in the appeal, in view of the
above facts would, therefore, be:
1. If a stockholder, in a stock corporation,
subscribes to a certain number of shares
of stock, and he pays only partially, for
which he is issued certificates of stock, is
he entitled to vote the latter,
notwithstanding the fact that he has
not paid the balance of his
 subscription, which has been called for
payment or declared delinquent?
2. If a stockholder subscribes to a certain
number of shares of stock and makes
partial payment only and declared
delinquent as to the rest, with interest,
should previous payments on account of
the capital, be first applied to interest,
thus diminishing the voting power of the
shares of stock already paid? In other
words, if the entire subscribed shares of
stock are not paid, will the paid shares of
stock be deprived of the right to vote,
until the entire subscribed shares of stock
are fully paid, including interest?
3. Has estoppel or waiver, by virtue of the
settlement agreement, set in?
Defendants-appellants claim that resolution No. 4
(Exh. C-2), withdrawing or nullifying the voting
power of all the aforesaid shares of stock is valid,
notwithstanding the existence of partial
payments, evidenced by certificates duly issued
therefor. They invoke the ruling laid down by the
Court in the Fua Cun v. Summers case (44 Phil,
705, March 27, 1923) pertinent portion of which
states:
In the absence of special agreement to
the contrary, a subscriber for a certain
number of shares of stock does not, upon
payment of one-half of the subscription
price, become entitled to the issuance of
certificates for one-half of the number of
shares subscribed for; the subscriber's
right consists only in equity entitling him
to a certificate for the total number of
shares subscribed for by him upon
payment of the remaining portion of the
subscription price.
The cited case connotes the principle that a
partial payment of a subscription does not entitle
the stockholder to a certificate for the total
number of shares subscribed by him;
his right consists only in equity to a certificate of
the total number of shares subscribed for, upon
payment of the remaining portion of the
subscription price.
In other words, it is contended, as in the present
case, that if Baltazar subscribed to 600 shares of
stock in a single subscription, and he merely paid
for 300 shares, for which he was given fully paid
certificates for 300 shares, he cannot vote said
300 shares, in any meeting of the Corporation,
until he shall have paid the remaining 300 shares
of stock.
The saving clause in the quoted pronouncement,
"in the absence of special agreement to the
contrary," reveals that the doctrine is not
mandatory, but merely directory, which is not
violative of law, the rigor of the pronouncement
may be relaxed.
The plaintiffs-appellees seem to sustain an
adverse concept, postulating that once a
stockholder has subscribed to a certain number
of shares, although he has made partial
payments only, but is issued a certificate for the
paid-up shares of stock, he is entitled to vote the
whole number of shares subscribed by him, paid
or not, until the said unpaid shares shall have
been called for payment or declared delinquent.
The cases at bar do not come under the aegis of
the principle enunciated in the Fua Cun v.
Summers case, because it was the practice and
procedure, since the inception of the corporation,
to issue certificates of stock to its individual
subscribers for unpaid shares of stock and gave
voting power to shares of stock fully paid.
And even though no agreement existed, the
ruling in said case, does not now reflect the
correct view on the matter, for better than an
agreement or practice, there is the law, which
renders the said case of Fua Cun-Summers,
obsolescent.
Section 37 of the Corporation Law, as amended
by Act No. 3518, approved on March 1, 1929, six
(6) years after the promulgation of the Fua-
Summers case (decided in 1923), provides:
SEC. 37. ... . No certificate of stock shall
be issued to a subscriber as fully paid up
until the full par value thereof, or the full
subscription in the case of no par stock,
has been paid by him to the corporation.
Subscribed shares not fully paid up may
be voted provided no subscription is
unpaid and delinquent.
The law just quoted was originally section 36 of
the Corporation Law of 1906, which reads as
follows:
SEC. 36. ... . No certificate of stock shall
be issued to a subscriber as fully paid up
until the full par value thereof has been
paid by him to the corporation. Subscribed
 shares not fully paid up may be voted
provided no subscription is unpaid and
delinquent.
As may readily be seen, said Section 37 makes
payment of the "par value" as prerequisite for the
issuance of certificates of par value stocks, and
makes payment of the "full subscription" as
prerequisite for the issuance of certificates of no
par value stocks. No such distinction was
contained in section 36 of our Corporation Law of
1906, corresponding to section 37 now.
The present law could have simply provided
that no certificate of par value and no par value
stock shall be issued to a subscriber, as fully paid
up, until the full subscription has been paid by
him to the corporation, if full payment of
subscription were intended is the criterion in the
issuance of certificates, for both thepar value and
no par value stocks.
Stated in another way, the present law requires
as a condition before a share holder can vote his
shares, that his full subscription be paid in the
case of no par value stock; and in case of stock
corporation with par value, the stockholder can
vote the shares fully paid by him only,
irrespective of the unpaid delinquent shares.
As well-observed by the trial court, a corporation
may now, in the absence of provisions in their
by-laws to the contrary, apply payment made
by , subscribers-stockholders, either as:
"(a) full payment for the corresponding number
of shares of stock, the par value of each of which
is covered by such payment; or
(b) as payment pro-rata to each and all the
entire number of shares subscribed for"
(amended decision).
In the cases at bar, the defendant-corporation
had chosen to apply payments by its stockholders
to definite shares of the capital stock of the
corporation and had fully paid capital stock
shares certificates for said payments; its call for
payment of unpaid subscription and its
declaration of delinquency for non-payment of
said call affecting only the remaining number of
shares of its capital stock for which no fully paid
capital stock shares certificates have been issued,
"and only these have been legally shorn of their
voting rights by said declaration of delinquency"
(amended decision).
The third paragraph of the settlement agreement
relates to interest on the unpaid balance of
subscription to the capital stock. The second
paragraph of resolution No. 3 (Exh. C-1),
unilaterally declared as of no value and cancelled
all capital stock shares certificates issued as fully
paid up, upon payments made by stockholders,
when interests on unpaid subscription from date
of subscription were not previously and/or then
and there paid. Defendants-appellants, invoking
Art. 1253 NCC (Art. 1173 of the Old Civil Code)
which provides that "if the debt produces
interest, payment of the principal shall not be
deemed to have been made until the interests
have been covered," and relying on an opinion of
the Securities and Exchange Commission, claim
that said unilateral nullification and/or
cancellation of previously issued capital stock
shares certificates was valid. This provision of law
only applies in the absence of verbal or written
agreement, to the contrary (8 Manresa, p. 317);
it is likewise merely directory, and not
mandatory. (Art. 1252 NCC). In the present case,
the defendant-corporation had applied the
payments made by the stockholders to the full
par value of the shares of stock subscribed by
them, instead of the accepted interest, as shown
by the capital stock shares certificate issued for
the payments made, and the stockholders had
accepted such certificates issued for such
payments.
This being the case, the said application of
payments must be deemed to have been agreed
upon by the Corporation and the stockholders,
and the same cannot now be changed without
the consent of the stockholders concerned. The
Corporation Law and the by-laws of the
defendant Corporation do not contain any
provision, prohibiting the application of
stockholders' payments to the full par value of a
corporation's capital stock, ahead of the payment
of accrued interest for unpaid subscriptions. It
would, therefore, result that a corporation may,
upon request of an interested stockholder, as his
option, apply payment by them to the full par
value of shares of capital leaving its collection
later of the accrued interest on unpaid
subscriptions, and that once such option has
been exercised and the corresponding stock
certificates have been issued, the corporation
cannot, by a unilateral act, legally nullify and
cancel the capital stock certificates so issued.
It is finally argued by defendants-appellants that
the plaintiffs-appellees waived, under the
agreement heretofore quoted, the right to
enforce the voting power they were claiming to
exercise, and upon the principle of estoppel, they
are now prohibited from insisting on the
existence of such power, ending with the
exhortation, that "they should lie upon the bed
they helped built, for a lasting peace in the
interest of the corporation." It should, however,
be stated as heretofore exposed, that certain
clauses of the agreement are contrary to law and
public policy and would cause injury to plaintiffs-
appellees and other stockholders similarly
situated. Estoppel cannot be predicated on acts
which are prohibited by law or are against public
policy (Benguet Cons. Mining Co. v. Pineda, 52
Off. Gaz. 1961, L-7231, March 28, 1956; Eugenio
v. Perdido L-7083, May 19, 1955; III Rep. of the
Philippines Digest, p. 269-270).
WHEREFORE, the order of the trial court of July
16, 1959, (1) Expressly ruling "that all shares of
the capital stocks of the defendant corporation
covered by fully paid capital stock shares of
certificates are entitled to vote in all meetings of
the stockholders of this corporation and
resolutions Nos. 2, 3 and 4 (Exhs. C, C-1 and C-
2) of defendant corporation's Board of Directors
are hereby nullified insofar as they are
inconsistent with this ruling"; and (2) Dissolving
the injunction granted in the cases and releasing
the injunction bond filed by the plaintiffs-
appellees, is correct and the same should be, as
it is hereby affirmed. Costs taxed against the
defendants- appellants.
[G.R. No. L-57586. October 8, 1986.]
AQUILINO RIVERA, ISAMU AKASAKO and
FUJIYAMA HOTEL & RESTAURANT,
INC., Petitioners, v. THE HON. ALFREDO C.
FLORENDO, as Judge of the Court of First
Instance of Manila (Branch XXXVI),
LOURDES JUREIDINI and MILAGROS
TSUCHIYA, Respondents.
Bobby P. Yuseco, for Petitioners.
Arthur Canlas for Private Respondents.
This is a petition for certiorari and prohibition
with preliminary injunction seeking the
annulment of the following Orders of the then
Court of First Instance of Manila, Branch XXXVI:
(a) Order dated June 5, 1981 directing the
issuance of a writ of preliminary mandatory
injunction requiring petitioners Fujiyama Hotel &
Restaurant, Inc., Isamu Akasako and Aquilino
Rivera to allow respondents Lourdes Jureidini and
Milagros Tsuchiya to manage the corporate
property upon filing of a bond in the amount of
P30,000.00 (Rollo, pp. 43-57) and (b) Order
dated July 24, 1981 denying petitioners’ motion
for reconsideration and motion to dismiss for lack
of jurisdiction but increasing the bond to
P120,000.00 (Rollo, p. 81).
Petitioner corporation was organized and
registered under Philippine laws with a capital
stock of P1,000,000.00 divided into 10,000
shares of P100.00 par value each by the herein
petitioner Rivera and four (4) other incorporators.
Sometime thereafter petitioner Rivera increased
his subscription from the original 1,250 to a total
of 4899 shares (Rollo, p. 4).
Subsequently, Isamu Akasako, a Japanese
national and co-petitioner who is allegedly the
real owner of the shares of stock in the name of
petitioner Aquilino Rivera, sold 2550 shares of
the same to private respondent Milagros Tsuchiya
for a consideration of P440,000.00 with the
assurance that Milagros Tsuchiya will be made
the President and Lourdes Jureidini a director
after the purchase. Aquilino Rivera who was in
Japan also assured private respondents by
overseas call that he will sign the stock
certificates because Isamu Akasako is the real
owner. However, after the sale was
consummated and the consideration was paid
with a receipt of payment therefor shown,
Aquilino Rivera refused to make the indorsement
unless he is also paid. (Rollo, pp. 51-52).
It also appears that the other incorporators sold
their shares to both respondent Jureidini and
Tsuchiya such that both respondents became the
owners of a total of 3300 shares or the majority
out of 5,649 outstanding subscribed shares of the
corporation (Rollo, pp. 4-5), and that there was
no dispute as to the legality of the transfer of the
stock certificate Exhibits "B-1" to "B-4" to
Jureidini, all of which bear the signatures of the
president and the secretary as required by the
Corporation Law with the proper indorsements of
the respective owners appearing thereon.
Exhibits "B-1" to "B-4" are specifically indorsed to
her while Exhibits "B-2" and "B-3" are indorsed in
blank. Aquilino Rivera admitted the genuineness
of all the signatures of the officers of the
corporation and of all the indorsee therein.
(Order dated June 5, 1981, Civil Case No. 13273,
Rollo, pp. 51-53).chanrobles lawlibrary : rednad
Nonetheless, private respondents attempted
several times to register their stock certificates
with the corporation but the latter refused to
register the same. (Ibid., Rollo, pp. 54-55). Thus,
private respondents filed a special civil action for
mandamus and damages with preliminary
mandatory injunction and/or receivership naming
herein petitioners as respondents, docketed as
Special Civil Action No. 13273, "Lourdes Jureidini,
Et. Al. v. Fujiyama Hotel, Et. Al." of the Court of
First Instance of Manila, Branch XXXVI presided
by respondent Judge. Petitioners’ counsel Atty.
Marcelino A. Bueno, upon receipt of the summons
and a copy of the aforesaid petition, filed an
answer thereto with denials, special and
affirmative defenses and counterclaim.
Thereafter, a hearing was held on the application
for preliminary mandatory injunction and/or
receivership, after which respondent Judge issued
an order for a writ of preliminary mandatory
injunction authorizing respondent Jureidini and
Tsuchiya to manage the corporation’s hotel and
restaurant, upon the filing of a bond in the
amount of P30,000.00. Then through another
counsel Atty. Eriberto D. Ignacio in collaboration
with their counsel of record, Atty. Marcelino A.
Bueno, petitioners (respondents therein) filed a
motion to dismiss the petition on the ground that
respondent Judge has no jurisdiction to entertain
the case, while through Atty. Bueno, they filed a
motion for reconsideration of the Order granting
the issuance of a writ of mandatory preliminary
injunction. Private respondents filed their
opposition to both motions and on July 24, 1981,
respondent Judge issued an Order denying both
the motion for reconsideration and the motion to
dismiss the petition but increased the amount of
the bond from P30,000.00 to P120,000.00 to
sufficiently protect the interests of herein
petitioners. (Rollo, p. 81).
Hence, this petition.
After filing the petition, Atty. Eriberto D. Ignacio
withdrew as counsel for petitioners on August 6,
1981. Such withdrawal was confirmed by
petitioner Isamu Akasako (Rollo, p. 83). On
August 10, 1981 the appearance of Isaca &
Espiritu Law Offices as counsel in substitution of
former counsel Attys. Marcelino A. Bueno and
Eriberto D. Ignacio was received by this Court.
(Rollo, p. 84); all of which were noted in the
resolution of the First Division of this Court dated
August 17, 1981. (Rollo, p. 160).
The new counsel filed a Manifestation and Motion
praying that the therein attached Supplement
and certified copies of the questioned orders and
writs be admitted and considered as part of
petitioners’ original petition for Certiorari and
Prohibition with Preliminary injunction. (Rollo, pp.
85-131). On August 14, 1981 petitioners filed an
Urgent Motion for Restraining Order and Other
Provisional Injunctive Reliefs (Rollo, pp. 154-
159).
In the same resolution of August 17, 1981, after
deliberating on the petition and supplemental to
the petition, the Court Resolved:
(a) to require the respondents to comment
thereon (not to file a motion to dismiss within ten
(10) days from notice and
(b) upon petitioners’ filing of an injunction bond
in the amount of P30,000.00 to issue a Writ of
Preliminary Injunction enjoining respondents
from enforcing the writ of preliminary mandatory
injunction dated June 23, 1981 issued in Civil
Case No. 132673. (Rollo, p. 160).
Said bond was filed on August 20, 1981 (Rollo, p.
161) and accordingly, a writ of preliminary
injunction was issued by this Court on August 21,
1981 (Rollo, pp. 172-173).
Subsequently, petitioners filed a manifestation
and urgent motion on August 28, 1981 praying
that private respondent Lourdes Jureidini and her
counsel Atty. Arthur Canlas be declared in
contempt of court for the former’s alleged defiant
refusal: (a) to acknowledge receipt of the Writ of
Preliminary Injunction of August 21, 1981 and
(b) to comply with the said writ issued by this
Court. (Rollo, pp. 174-180).
Comment thereon was filed by private
respondents through counsel (Rollo, pp. 185-
199) in compliance with the resolution of the First
Division dated August 17, 1981 (Rollo, p. 160),
praying for the immediate lifting of the
preliminary injunction. Said comment of private
respondents was noted in the resolution of
October 5, 1981 (Rollo, p. 200) which also
required respondents to comment on the
supplement to the petition.chanrobles law
library : red
On October 2, 1981, comment on the
manifestation and urgent motion to declare
Jureidini and her counsel in contempt of court
was filed by counsel for private respondent
(Rollo, pp. 201-214) in compliance with the
resolution of September 14, 1981 (Rollo, p. 181).
In the resolution of October 26, 1981 (Rollo, p.
215) the Court Resolved to require petitioners to
file a reply to aforesaid comment. (Rollo, p. 215).

Meanwhile, supplemental comment on the
supplement to the petition was filed by private
respondents on October 14, 1981 (Rollo, pp.
216-222) reiterating their stand that it is the
ordinary court and not the Securities and
Exchange Commission (SEC) that has jurisdiction
to entertain the case as the controversies did not
arise from the intra-corporate relationship among
the parties.
On October 21, 1981, petitioner filed: (a) motion
for leave to file reply to comment of respondents
on the petition and supplemental petition
required in the resolution of August 17, 1981
(Rollo, pp. 223-224) and (b) the attached Reply
(Rollo, pp. 225-241). On November 25, 1981,
petitioners filed their Reply to respondents’
Comment on petitioners’ manifestation and
urgent motion to declare them in contempt.
(Rollo, pp. 246-257).
On December 7, 1981 Atty. Bobby P. Yuseco
entered his appearance as collaborating counsel
for petitioners (Rollo, p. 258) and filed an urgent
petition for early resolution of petitioners’ motion
to hold private respondents in contempt and for
issuance of Order clarifying Writ of Injunction
dated August 21, 1981. (Rollo, pp. 259-261).
In the resolution of January 18, 1982, this case
and all pending incidents were set for hearing on
February 3, 1982. (Rollo, p. 268).
On February 1, 1982, Lesaca and Espiritu Law
Offices filed a Manifestation and Motion for Leave
to withdraw as counsel for petitioners. (Rollo, pp.
274-275).
When this case was called for hearing on
February 3, 1982, counsel for both parties
appeared and argued their causes and both were
required by the Court within an unextendible
period of ten (10) days to file their respective
memoranda in support of their positions on all
pending incidents of the case at bar while the
hearing on the contempt proceedings was reset
for February 10, 1982 where the personal
appearance of private respondent Lourdes
Jureidini through her counsel was required.
(Rollo, p. 279).
On February 9, 1982, counsel for private
respondent Jureidini filed an Urgent Motion and
Manifestation that he was informed by his client
that she is physically exhausted and is beset with
hypertension and praying that she be excused
from appearing at the hearing set for February
10, 1982, that the hearing be cancelled and the
contempt incident be considered submitted for
decision on the basis of pleadings previously
filed. (Rollo, pp. 280-282).
On the same date, February 9, 1982, counsel for
petitioners filed his Memorandum in support of
his oral argument at the hearing of February 3,
1982, (Rollo, pp. 283-287) while a supplement
thereto was filed on February 12, 1982. (Rollo,
pp. 291-294).
At the hearing of February 10, 1982, private
respondent Lourdes Jureidini and her counsel
failed to appear.
Accordingly the Court Resolved: (a) to IMPOSE
on said counsel Atty. Canlas a fine of P200.00 or
to suffer imprisonment if said fine is not paid; (b)
to RESET the hearing on the contempt incidents
on March 3, 1982 and (c) to REQUIRE the
presence of Atty. Canlas and respondent Lourdes
Jureidini and of complainants Attys. Bibiano P.
Lasaca, Rodolfo A. Espiritu and Renato T. Paqui.
(Resolution of February 10, 1982, Rollo, p.
290).chanrobles lawlibrary : rednad
On February 15, 1982, private respondents file
their memorandum in compliance with the
resolution of this Court of February 3, 1982 while
petitioners on February 25, 1982 filed their reply
thereto.
At the hearing of March 3, 1982, both counsel as
well as private respondent Lourdes Jureidini,
Attys. Bibiano P. Lesaca, Rodolfo A. Espiritu and
Renato R. Paguio appeared. Atty. Canlas, Lourdes
Jureidini, Atty. Lesaca and a representative of the
petitioners were interpellated by the Court.
Thereafter, the incident was declared submitted
for resolution. (Resolution of March 3, 1982,
Rollo, p. 316).
On March 5, 1982, counsel for private
respondents filed his compliance with the
resolution of February 10, 1982 enclosing a check
payable to this Court in the amount of P200.00 in
payment of the fine imposed with motion for
reconsideration explaining why he should not be
declared in contempt and praying that the
aforesaid resolution of February 10, 1982 be set
aside, (Rollo, pp. 312-314). However, in the
resolution of March 10, 1982, (Rollo, p. 317) the
Court acting on the compliance of Atty. Arthur
Canlas with motion for reconsideration, denied
the motion and required the Chief of the Docket
Division to return to Atty. Canlas the check in the
amount of P200.00 it being an out of town check,
and Atty. Canlas to pay the fine in cash, and to
show cause why he should not be disciplinary
dealt with or held in contempt for wilful delay in
paying the fine by mail through an out of town
check contrary to his manifestation at the hearing
that he had promptly paid the fine, both within
forty eight hours from notice.
Meanwhile, counsel for petitioners filed on April
6, 1982 an Urgent Petition for Permission to
Implement Injunction Writ issued on August 21,
1981 (Rollo, pp. 323-325) which was granted in
the resolution of May 26, 1982 (Rollo, p. 313). In
the same resolution the Court ordered Lourdes
Jureidini and Milagros Tsuchiya to strictly and
immediately comply with the Court’s aforesaid
writ of preliminary injunction; indicated that it
would resolve the pending incident for contempt
against private respondent Lourdes Jureidini
when the Court decides the case on the merits;
and gave the parties thirty (30) days from notice
within which to submit simultaneously their
respective memoranda on the merits of the case.
1982, this case was transferred to the Second
Division. (Rollo, p. 336).chanrobles lawlibrary :
rednad
In their petition and supplemental petition,
petitioners raised the following issues:chanrob1es
virtual 1aw library
I.
THE RESPONDENT COURT OF FIRST INSTANCE
HAS NO JURISDICTION OVER THE PETITION FOR
MANDAMUS AND RECEIVERSHIP "AS WELL AS IN
PLACING THE CORPORATE ASSETS UNDER
PROVISIONAL RECEIVERSHIP IN THE GUISE OF A
WRIT OF PRELIMINARY MANDATORY
INJUNCTION."cralaw virtua1aw library
II.

On May 31, 1982, counsel for private respondent EVEN FALSELY ASSUMING THAT THE
Atty. Canlas filed in compliance with the RESPONDENT COURT HAD JURISDICTION, THE
resolution of March 10, 1982, his explanation and PRIVATE RESPONDENTS’ PRINCIPAL ACTION OF
manifestation why he should not be disciplinarily MANDAMUS IS AN IMPROPER COURSE OF
dealt with and held in contempt of Court (Rollo, ACTION.
pp. 316-318). In the resolution of June 2, 1982,
the Court Resolved to set aside and lift the Order III.
of Atty. Canlas’ arrest and commitment it had
issued on March 31, 1982 but found the
explanation and manifestation of Atty. Canlas ASSUMING ARGUENDO THAT WHAT THE
dated May 29, 1982 unsatisfactory. In view RESPONDENT COURT FOUND IS TRUE, NAMELY
thereof, he was reprimanded for negligence and THAT PRIVATE RESPONDENTS "ARE OUTSIDERS"
undue delay in complying with the Court’s AND "NOT YET STOCKHOLDERS," THUS, HAVING
resolution. (Rollo, p. 319). NO PERSONALLY AT ALL, THEN PROVISIONAL
RECEIVERSHIP, ALBEIT CLOTHED AS A "WRIT OF
On June 18, 1982, counsel for petitioners PRELIMINARY MANDATORY INJUNCTION" WAS
allegedly for purposes of clarification as to the ILLEGALLY ISSUED DE HORS ITS JURISDICTION.
laws involved in the matter of contempt of
Lourdes Jureidini, filed a pleading entitled "Re IV.
Incident of Contempt against Lourdes Jureidini."
(Rollo, pp. 320-326) which was noted by the
Court in the resolution of July 7, 1982. (Rollo, p. ASSUMING ARGUENDO THAT THE RESPONDENT
328). COURT HAD JURISDICTION OVER BOTH THE
PETITION FOR MANDAMUS AS WELL AS THE
Counsel for private respondents manifested PROVISIONAL RECEIVERSHIP STILL THE
(Rollo, p. 329), on July 12, 1982 that they are RESPONDENT COURT ACTED IN EXCESS OF ITS
adopting the memorandum submitted in the JURISDICTION OR IN GRAVE ABUSE OF ITS
preliminary injunction incident as their DISCRETION TO GRANT RECEIVERSHIP OVER
memorandum in the main case. Said THE MANAGEMENT OF THE CORPORATE
manifestation was noted in the resolution of July BUSINESS AND ASSETS WHICH NEVER WAS NOR
26, 1982. (Rollo, p. 331). Counsel for petitioners IS A SUBJECT MATTER OF LITIGATION.
manifested (Rollo, p. 333) that they are adopting
their memorandum in support of argument last V.
February 3, 1982 as their combined memoranda
on the merits of the case. Said manifestation was
noted in the resolution of September 15, 1982. EVEN GRANTING FOR THE SAKE OF ARGUMENT
(Rollo, p. 334). In the resolution of November 29, THAT THE RESPONDENT COURT HAD
JURISDICTION OVER THE SUBJECT MATTER OF
THE CASE; NONETHELESS IT WAS IN GRAVE
ABUSE OF ITS DISCRETION TO UNILATERALLY
GRANT TO A "PARTY-IN-LITIGATION," THE
PRIVATE RESPONDENTS HEREIN, THE
MANAGEMENT OF THE CORPORATE BUSINESS.
(Petition and Supplemental Petition; Rollo, pp. 2-
18; 88-131).
I.
The crucial issue in this case is whether it is the
regular court or the Securities and Exchange
Commission that has jurisdiction over the present
controversy.
Presidential Decree No. 902-A
provides:jgc:chanrobles.com.ph
"Sec. 5. In addition to the regulatory and
adjudicative functions of the Securities and
Exchange Commission over corporations,
partnerships and other forms of associations
registered with it as expressly granted under
existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide
cases involving:chanrob1es virtual 1aw library
(a) . . .
(b) Controversies arising out of intra-corporate or
partnership relations and among stockholders,
members, or associates; between any or all of
them and the corporation, partnership or
association of which they are stockholders,
members, or associates, respectively and
between such corporations, partnership or
association and the State insofar as it concerns
their individual franchise or right to exist as such
entity."cralaw virtua1aw library
It has already been settled that an intracorporate
controversy would call for the jurisdiction of the
Securities and Exchange Commission. (Philippine
School of Business Administration v. Lanao, 127
SCRA 781, February 24, 1984). On the other
hand, an intra-corporate controversy has been
defined as "one which arises between a
stockholder and the corporate. There is no
distinction, qualification, nor any exemption
whatsoever." (Philex Mining Corporation v.
Reyes, 118 SCRA 605, November 19, 1982). This
Court has also ruled that cases of private
respondents who are not shareholders of the
corporation, cannot be a "controversy arising out
of intracorporate or partnership relations between
and among stockholders, members or associates;
between any or all of them and the corporation,
partnership or association, of which they are
stockholders, members or associates,
respectively." (Sunset View Condominium
Corporation v. Campos, Jr., 104 SCRA 303, April
27, 1981).
Under Batas Pambansa Blg. 68 otherwise known
as "The Corporation Code of the Philippines,"
shares of stock are transferred as
follow:chanrobles virtual lawlibrary
"SEC. 63. Certificate of stock and transfer of
shares. — The capital stock of stock corporations
shall be divided into shares for which certificates
signed by the president or vice-president,
countersigned by the secretary or assistant
secretary, and sealed with the seal of the
corporation shall be issued in accordance with the
by-laws. Shares of stock so issued are personal
property and may be transferred by delivery of
the certificate or certificates indorsed by the
owner or his attorney-in-fact or other person
legally authorized to make the transfer. No
transfer, however, shall be valid, except as
between the parties, until the transfer is recorded
in the book of the corporation showing the names
of the parties to the transaction, the date of the
transfer, the number of the certificate or
certificates and the number of shares transferred.
x       x       x" 
As confirmed by this Court, "shares of stock may
be transferred by delivery to the transferee of the
certificate properly indorsed. `Title may be
vested in the transferee by delivery of the
certificate with a written assignment or
indorsement thereof’ (18 C.J.S. 928). There
should be compliance with the mode of transfer
prescribed by law (18 C.J.S 930)’" (Nava v. Peers
Marketing Corp. 74 SCRA 65, 69, Nov. 25, 1976).
As the bone of contention in this case, is the
refusal of petitioner Rivera to indorse the shares
of stock in question and the refusal of the
Corporation to register private respondents’
shares in its books, there is merit in the findings
of the lower court that the present controversy is
not an intracorporate controversy; private
respondents are not yet stockholders; they are
only seeking to be registered as stockholders
because of an alleged sale of shares of stock to
them. Therefore, as the petition is filed by
outsiders not yet members of the corporation,
jurisdiction properly belongs to the regular
courts.
II.

On the other hand, there is merit in petitioners’
contention that private respondents’ principal
action of mandamus is an improper course of
action.
It is evident that mandamus will not lie in the
instant case where the shares of stock in
question are not even indorsed by the registered
owner Rivera who is specifically resisting the
registration thereof in the books of the
corporation. Under the above ruling, even the
shares of stock which were purchased by private
respondents from the other incorporators cannot
also be the subject of mandamus on the strength
of mere indorsement of the supposed owners of
said shares in the absence of express instructions
from them. The rights of the parties will have to
be threshed out in an ordinary action.
III-V.
Petitioners insist that what was issued was a
provisional receivership, while private
respondents maintain that the trial court issued a
Writ of Preliminary Mandatory Injunction. Be that
as it may, it appears obvious that from the
above-mentioned rulings of this Court,
petitioners’ contention that respondent Judge in
the issuance thereof committed acts of grave
abuse of discretion, is well taken.
In the Order dated June 5, 1981, in Civil Case
No. 132673, the basis of aforesaid Writ was as
follows:jgc:chanrobles.com.ph
"Finally, the Court, after assessing the evidence,
finds that the issuance of a preliminary
mandatory injunction is proper. Respondents
Isamu Akasako and Aquilino Rivera, thru their
simulated relationship, have succeeded for two
years since 1979 to deprive the petitioners to
participate in the profit and management of the
corporation of which they are the majority
stockholders considering that the stocks
certificates appearing in the name of Aquilino
Rivera (Exh. "8") is 55% to 75% of the total
stocks of the corporation by Isamu Akasako
would only prolong the injustice committed
against the petitioners and the damages they
would suffer would be irreparable. The Court is
aware that preliminary mandatory injunction is
the exception rather than the rule, but according
to the Code Commission, in its report on page
98, ‘the writ of preliminary mandatory injunction
is called for by the fact that there are at present
prolonged litigation between owner and usurper
and the former is deprived of his possession even
when he has an immediate right thereto.’ In the
instant case, the right of the petitioners is clear
and unmistakable on the law and the facts and
there exists an urgent and paramount necessity
for the issuing of the writ in order to prevent
extreme or rather serious damage which ensues
from withholding it. (43 C.J.S. 413).
"WHEREFORE, in view of the foregoing
circumstances, let a writ of preliminary
mandatory injunction issue requiring respondents
to allow petitioners to manage the corporate
property known as the Fujiyama Hotel &
Restaurant, Inc. upon petitioners’ filing of a bond
in the amount of P30,000.00."cralaw virtua1aw
library
A mandatory injunction is granted only on a
showing (a) that the invasion of the right is
material and substantial; (b) the right of
complainant is clear and unmistakable; and (c)
there is an urgent and permanent necessity for
the writ to prevent serious damage. (Pelejo v.
Court of Appeals, 117 SCRA 668, Oct. 18,
1982).chanrobles virtual lawlibrary
A mandatory injunction which commands the
performance of some specific act is regarded as
of a more serious nature than a mere prohibitive
injunction, the latter being intended generally to
maintain the status quo only. While our courts,
being both of law and equity, have jurisdiction to
issue a mandatory writ, it has always been held
that its issuance would be justified only in clear
cases; that it is generally improper to issue it
before final hearing because it tends to do more
than maintain the status quo; that it should be
issued only where there is a willful and unlawful
invasion of plaintiff’s right and that the latter’s
case is one free from doubt and dispute.
(National Marketing v. Cloribel, 22 SCRA 1038,
March 13, 1968).
Respondent court in the instant case violated the
fundamental rule of injunctions that a mandatory
injunction will not issue in favor of a party whose
rights are not clear and free of doubt or as yet
undetermined. (Namarco v. Cloribel, 22 SCRA
1038-1039, March 13, 1968). It will be recalled
that the disputed shares of stock were purchased
not from the registered owner but from a
Japanese national who allegedly was the real
owner thereof. It was also alleged that the
registered owner was only a dummy of Akasako.
It is also true that the trial court has already
made findings to that effect at the hearing for the
issuance of the Order of June 5, 1981.
Nonetheless, these are contentious issues that
should properly be ventilated at the trial on the
merits. As correctly stated in petitioners’ motion
for reconsideration, the Order of the trial court is
in effect a judgment on the merits, declaring
expressly or impliedly that petitioners are
stockholders of the Corporation at the hearing of
only the incident for the issuance of a Writ of
Preliminary Injunction. On the other hand if the
Order amounts to a judgment on the merits, the
lower court should first rule on what private
respondents seek, the registration of their
shareholdings in the books of the corporation and
the issuance of new stock certificates. It is only
thereafter that the subsequent act of
management may be ordered and the period of
finality of such a judgment should be in
accordance with the Rules of Court, giving the
respondents the right to an appeal or review and
not be immediately executory as the Writ of
Preliminary Mandatory Injunction would infer.
(Rollo, p. 65).
Another fundamental rule which appears to have
been violated in the case at bar is that no
advantage may be given to one to the prejudice
of the other, a court should not by means of a
preliminary injunction transfer the property in
litigation from the possession of one party to
another where the legal title is in dispute and the
party having possession asserts ownership
thereto. (Rodulfo v. Alonso, 76 Phil. 225),
February 28, 1946), Similarly, the primary
purpose of an injunction is to preserve the status
quo, that is the last actual peaceable uncontested
status which preceded the controversy. In the
instant case, petitioner Rivera is the registered
majority and controlling stockholder of the
corporation before the ensuing events transpired.
By the issuance of the Writ in question he
appears to have been deprived of his rights as
stockholder thereof apart from his status as
Chairman of the Board and President of the
corporation, with Akasako as the Manager of the
two restaurants in this case; the same being the
last uncontested status which preceded the
controversy. (Rollo, p. 127).chanrobles.com :
virtual law library
On the contempt incident involving private
respondent Lourdes Jureidini, a Manifestation and
Urgent Motion was filed by petitioners to declare
her in contempt of Court for allegedly refusing to
acknowledge receipt of the Writ at Preliminary
Injunction issued by this Court and for allegedly
refusing to comply therewith. Attributed to her
were the following statements: "I will not obey
that . . . Yes, I am higher than the Supreme
Court . . . I will obey only what my lawyer tells
me."cralaw virtua1aw library
In her explanation however, filed through her
counsel, she denied having uttered the
statements alluded to her, the truth of the matter
being that she was alone in the restaurant when
this Court’s process server, accompanied by
petitioners’ lawyers, approached her and
demanded that she vacate the premises and
surrender the management of the Restaurant.
Fazed by the unusual display of lawyers she
requested that she be given time to confer with
her counsel. Said request allegedly precipitated
the remark from petitioners’ counsel that neither
respondent herself, nor her counsel, can be
higher than the Supreme Court and that any
conference seeking to clarify the effect of the
Writ of Preliminary Injunction would be futile.
(Rollo, pp. 174-175).
It was likewise explained that respondent
Jureidini did not sign and acknowledge receipt of
the Writ because it was not addressed to her but
to the lower court and to her counsel.
Respondent’s counsel says that the incident was
concocted and devised by the petitioners and
their counsel to serve no salutary purpose but to
scare and harass respondent Jureidini. He also
stated that "it is equally improper, at least in
practice, for lawyers to accompany officers of the
Court in serving or otherwise executing processes
of said court as to create a seeming suspicion to
the public that lawyers are not involved only
professionally in the case they handle but signify
their personal interests as well." (Rollo, pp. 208-
209).
When this contempt incident was heard on March
3, 1982, Atty. Arthur A. Canlas, counsel for
private respondent Lourdes Jureidini, Jureidini
herself, Atty. Bibiano P. Lesaca a representative
of the petitioners were interpellated by the Court.
Thereafter, the incident was declared submitted
for resolution. (Resolution of March 3, 1982;
Rollo, p. 316).
Thereafter, counsel for petitioner filed a pleading
"The Incident of Contempt of Lourdes Jureidini" in
the form of a summation of the incident and
reiteration of petitioners’ charges of contempt.
Counsel for petitioner invokes the provisions of:
Section 3, Rule 71 on Indirect Contempt and par.
(b) thereof, on Disobedience of or Resistance to a
Lawful Writ, Process, Order, Judgment or
Command of a Court; or Injunction granted by a
Court or Judge . . .; (2) Section 6, Rule 71
regarding punishment or penalty thereof and (3)
Section 5, Rule 135, par. (c) to compel obedience
to its judgments, orders and processes, and to
the lawful orders of a judge out of Court, in a
case pending therein.
On the incident itself, petitioners’ counsel
stressed that present when the writ was served
were attorneys for petitioners Bibiano P. Lesaca,
and Renato P. Paguio in the company of
petitioners Isamu Akasako, Akasako’s assistants
Furnio, Fujihara and Isamu Tajewakai and this
Court’s process server, before whose presence
the alleged contemptuous acts were committed.
Counsel for petitioners also reminded the Court
that the first summons of the Court were
answered only by counsel for private respondent
Jureidini while the latter feigned sickness without
a medical certificate. The hearing for the
contempt charge was reset but neither counsel
for private respondent nor the latter appeared for
which non-appearance Atty. Canlas was fined
P200.00 for contempt when finally both counsel
and client appeared on the third day, the hearing
was set.
At that hearing, counsel for petitioners narrated
that Attys. Lesaca and Paguio and two Japanese
nationals testified in unison that Lourdes Jureidini
not only disregarded the writ but distinctly
uttered the complained of statements.
Petitioners’ counsel laid emphasis on the fact that
Lourdes Jureidini is a graduate of nursing, who
speaks in straight polished English, capable of
understanding the Writ of Mandatory Injunction
of the Respondent Court served on petitioners by
herself and a Deputy Sheriff of Manila, but
incredibly unable to understand the Writ issued
by the Supreme Court. She was assessed as
"overbearing to the point of insolence" and
capable of uttering "I am higher than the
Supreme Court."cralaw virtua1aw library
There is no question that disobedience or
resistance to a lawful writ, process, order,
judgment or command of a court, or injunction
granted by a court or judge, more particularly in
this case, the Supreme Court, constitutes Indirect
Contempt punishable under Rule 71 of the Rules
of Court. (Rule 71, Section 3(b) and Section 6).
It has been held that contempt of court is a
defiance of the authority, justice or dignity of the
court, such conduct as tends to bring the
authority and administration of the law into
disrespect or to interfere with or prejudice parties
litigant or their witnesses during litigation. It is
defined as a disobedience to the court by setting
up an opposition to its authority, justice and
dignity. It signifies not only a willful disregard or
disobedience of the court’s orders but such
conduct as tends to bring the authority of the
court and the administration of law into disrepute
or in some manner to impede the due
administration of justice (Halili v. Court of
Industrial Relations, 136 SCRA 135, April 30,
1985).chanrobles virtual lawlibrary
However, it is also well settled that" the power to
punish for contempt of court should be exercised
on the preservative and not on the vindictive
principle. Only occasionally should the court
invoke its inherent power in order to retain that
respect without which the administration of
justice must falter or fail." (Villavicencio v.
Lukban, 39 Phil. 778 [1919]; Gamboa v.
Teodoro, Et Al., 91 Phil. 274 [1952]; Sulit v.
Tiangco, 115 SCRA 207 [1982]; Lipata v. Tutaan,
124 SCRA 880 [1983]. "Only in cases of clear and
contumacious refusal to obey should the power
be exercised. A bona fide misunderstanding of
the terms of the order or of the procedural rules
should not immediately cause the institution of
contempt proceedings." "Such power ‘being
drastic and extra-ordinary in its nature . . .
should not be resorted to . . . unless necessary in
the interest of justice.’" (Gamboa v. Teodoro, Et
Al., supra).
In the case at bar, although private respondent
Jureidini did not immediately comply with the
Writ of Injunction issued by this Court, it appears
reasonable on her part to request that she be
allowed to confer with her lawyer first before she
makes any move of her own. It is likewise
reasonable for counsel for private respondent to
request that he be given time to file a motion for
clarification with the Supreme Court.
It will also be noted that the testimonies
produced at the hearing to establish the fact that
she had uttered the alleged contemptuous
statements alluded to her were those of Attys.
Lesaca and Paguio and two Japanese nationals, a
one-sided version for the petitioners.
It appears to Us that the version of counsel for
private respondent is more in accord with human
experience: Jureidini who was alone in the
Restaurant was fazed by the unusual display of
might and by the presence of lawyers demanding
that she vacate premises and surrender the
management of the Restaurant (Rollo, p. 204),
this is more believable than the version of
counsel for petitioners who summed her up as a
person "overbearing to the point of insolence"
and capable of uttering" I am higher than the
Supreme Court." It would therefore be more
reasonable to believe that what she uttered in
that situation where she felt threatened, was
more in self-defense and not an open defiance of
the Supreme Court.

Jureidini cannot also be faulted for finding it

difficult to understand the writ issued against her
by the Supreme Court as she believed that not
only have she and her correspondent the legal
right to manage the restaurant but the equitable
right as well, having been placed in possession of
the corporate property only after posting a bond
of P120,000.00. (Rollo, pp. 197-198).

In connection with this incident, Jureidini through

her counsel filed her comment on October 2,
1981 (Rollo, p. 201) contrary to the allegation of
petitioners’ counsel that it was only Atty. Canlas
who filed his comment.

WHEREFORE, the assailed orders of respondent

Judge are SET ASIDE; the complaint (special civil
action for mandamus with damages, etc.) should
ordinarily be dismissed without prejudice to the
filing of the proper action; but as all parties are
already duly represented, We hereby consider the
case as an ordinary civil action for specific
performance, and the case is therefore remanded
to the lower court for trial on the merits; the
charge of contempt against respondent Jureidini
is DISMISSED but the order of Our Court
restraining respondent from taking over the
management of the restaurant remains until after
this case is decided.