Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 92481 November 9, 1990

MANUEL G. VIRAY and JOSE EDUARDO J. ALARILLA, petitioners,

vs.
COURT OF APPEALS (Tenth Division), HON. DEMETRIO BATARIO JR., Presiding Judge of
RTC-Manila Branch 48, LUISITO MAGPAYO, ENRIQUE C. ARANETA, LORENZO M. HOCSON,
JOSE GERARDO M. MANALO, JR. and JOSE S. FERNANDEZ, respondents.

Cuevas, Dela Cuesta & De las Alas for petitioners.

Rogelio R. Udarbe for Intervenors.

Sysip, Salazar, Hernandez & Gatmaitan for private respondents.

Feria, Feria, Lugtu & La'O co-councel for private respondents.

CRUZ, J.:

The parties have been importuning this court for the early disposition of this case, which they
themselves have cluttered with ponderous pleadings. From the very start, we have been urged to act
precipitately. One motion bordering on disrespect asked for the immediate resolution of this
controversy as if it were the only matter in our docket. Some averments are marked with near
hysteria and sonorous predictions of violence and bloodshed. One gathers the impression that we
are being stampeded into a rash decision, without the careful reflection and exhaustive deliberation
that should characterize a judicial proceeding.

This is not a simple ejectment case. It involves millions of pesos and affects the livelihood of more
than two thousand persons employed by the corporation that is the subject of the disputed contract.
The basis of the conflicting contentions of the parties is a Memorandum of Agreement which, by
hindsight, could probably have been more clearly worded. They differ now as to its nature, one
claiming it is a contract of sale and the other that it is merely a contract to sell. This in turn has
triggered a conflict of jurisdiction, which lies at the heart of all this controversy.

The MOA was concluded by Luisito C. Magpayo and Manuel G. Viray in March 1989, on behalf of
their respective groups, and called for the transfer from the former to the latter of 99.91% of the
shares of stock in the Ocean Terminal Services, Inc. for the stipulated consideration of P68 million to
be paid according to a prescribed schedule. Viray then became chairman of the board of OTSI and
Jose J. Alarilla its president. Later, alleging non-compliance with the agreement, Magpayo
unilaterally rescinded it and demanded from the petitioners the return to him of the control,
management and assets of the company. These acts were resisted by Viray, who maintained that he
had not defaulted on the prescribed payments or violated any of the conditions of the MOA.
Magpayo then sued for judicial confirmation of the rescission and the enforcement of his demands
upon Viray for the surrender of OTSI. Viray denied that the contract was subject to rescission and
questioned the jurisdiction of the trial court.

Upon the filing of the complaint against Viray and Alarilla on March 9, 1990, Presiding Judge Corona
Somera of the Regional Trial Court of Manila issued a temporary restraining order effective only for
five days or until the case could be raffled to a regular branch of the court. The TRO restrained the
petitioners from "negotiating and/or selling the corporation to third parties and/or representing
themselves as directors and officers of OTSI; and continuing to exercise any of the powers or
functions pertaining to a director and officer of OTSI."

The petitioners filed a motion to dismiss on the ground of lack of jurisdiction and a motion for partial
lifting of the temporary restraining order insofar as it restrained them from representing themselves
and acting as officers and directors of OTSI. On the same date, consistently with their position in the
regional trial court, they filed with the Securities and Exchange Commission a complaint,
subsequently docketed as SEC Case No. 03735, seeking to prevent Magpayo and his group from
interfering with the management and control of OTSI. They also prayed for a temporary restraining
order.

On March 13, 1990, Judge Demetrio Batario, Jr., to whom Civil Case No. 90-52338 was raffled,
renewed the TRO issued by Judge Somera. The following day, this was challenged on certiorari and
prohibition in the Court of Appeals, where the petitioners sought as ancillary relief the issuance of a
temporary restraining order to restrain the TRO of the regional trial court. This order was granted the
same day by the respondent court.

On March 15, 1990, the private respondents filed a motion to dismiss the SEC case for lack of
jurisdiction and at the same time prayed to lift the TRO of the respondent court on the same ground.
Both motions were opposed by the petitioners.

After conducting a hearing on the petition filed by Viray, the respondent court lifted its TRO on March
22, 1990, holding that Judge Batario had lawfully issued his TRO, but at the same time declaring
that "this has no bearing on the application for preliminary injunction scheduled for hearing before
the respondent judge on March 29, 1990."

The petitioners came to this Court the following day and, alleging grave abuse of discretion, urged
us to reverse the respondent court. However, in view of the complexity of the issues raised, let alone
the voluminous documents they had annexed to their petition, we decided to look into the matter
more carefully.

The hearing on the application for preliminary injunction was held as scheduled before Judge Batario
and lasted for all of three hours. After considering the arguments of the parties, he granted the
application and issued the writ, which is now the object of the challenge in the supplemental petition
for certiorari and mandamus filed on April 2, 1990. The validity of the TRO earlier issued by him is no
longer in issue. What we deal with now is the propriety and lawfulness of the writ of preliminary
injunction which replaced the TRO on March 29, 1990.

It must also be stated that on March 30, 1990, Viray filed a petition for consignation against the
private respondents, together with Citibank, which was docketed as Civil Case No. 90-909 in the
Regional Trial Court of Makati.

To complete the picture, we also note that two motions for leave to intervene were separately filed
by Mila Perez, et al. and the KAMADA, only to be withdrawn later.
 II

As we see it, the basic issue before us is which as between the Regional Trial Court of Quezon City
and the Securities and Exchange Commission has primary jurisdiction over the complaint for
rescission.

The trouble with some pleadings is that they are tiresomely verbose and unnecessarily prolix, as if
they were intended more to impress the client than to convince this Court. The parties seem to have
some difficulty in identifying the basic questions and confining the narration of facts and the
discussion of their argument within the relevant limits. Counsel obviously do not realize that clarity
and simplicity can help considerably in the early decision of the case. In many litigations, and this is
one of them, much of the task of the judge is devoted to separating the chaff from the grain, which is
essentially yeoman's work and should not waste the time of the court.

As simply as we can deduce it, the petitioners' position is as follows:

In the MOA, the private respondents sold practically all the shares of stock in OTSI to the Viray
group for a specified consideration payable in installments. The transaction was a contract of sale
that immediately transferred ownership of the OTSI to them notwithstanding that the contract price
had not yet been fully paid. Upon their acquisition of the said shares, Viray and Alarilla became
stockholders of OTSI and so qualified to be directors and officers thereof. The MOA carried no
provision for automatic rescission and in any case there was no ground therefore because they had
not defaulted in the installment payments agreed upon. Moreover, and most important, the Regional
Trial Court of Manila has no jurisdiction over the matter because it is an intra-corporate dispute that
can be settled only by the SEC under PD No. 902-A. The complaint does not ask only for judicial
rescission but pleads other issues requiring the expertise of the SEC to decide. The question of
ownership of the shares of stock cannot be resolved without applying corporation law principles, with
which the SEC is more familiar. Furthermore, the private respondents are estopped from assailing
the title of the petitioners after having consistently acknowledged it for more than one year. The
respondent judge should therefore have dismissed the complaint filed by the private respondents
and declined to issue the writ of preliminary injunction.

For their part, the private respondents argue as follows:

The MOA is not a contract of sale but merely a contract to sell. Title to the shares of stock was not
immediately transferred to the petitioners and could be acquired by them only upon full payment of
the stipulated consideration. Automatic rescission of the contract for breach of any of its conditions
can be deduced from the terms thereof, and upon such rescission the petitioners lost their right to
remain as officers and directors of OTSI. They were designated to these positions only as agents of
the private respondents, who are the real owners of the shares of stock. This agency could be
terminated at will by the principals. The petitioners could not have been elected to their present
positions because not being stockholders of OTSI, their election would have been violative of the
Corporation Code. The private respondents are not estopped from raising this objection because it is
based on law and public policy. Significantly, the petitioners had recognized the jurisdiction of the
civil court over the dispute when they filed the consignation suit in the Regional Trial Court of Makati.
This is a clear admission that the dispute between the parties is clearly not an intra- corporate
dispute falling under the jurisdiction of the SEC under PD No. 902-A. It is an ordinary civil action for
rescission of a contract that can be resolved by the Regional Trial Court of Manila as a court of
general jurisdiction.

III
It would seem that the petitioners are begging the question. They are assuming at the outset that
they are stockholders of OTSI when that is the very question that has yet to be resolved.

The fact is that as far as the private respondents are concerned, the petitioners are neither officers
nor stockholders of OTSI. The rescission of the MOA has reduced them to outsiders and it is as
such that they have sued in the Regional Trial Court of Manila. Their defense is that they continue to
be officers and stockholders of OTSI, but this has yet to be proved. Already, however, they would
have the case dismissed immediately and transferred to the SEC.

The provision they invoke is Section 5 of PD No. 902-A, which vests in the SEC original and
exclusive jurisdiction to hear and decide cases involving:

(a) Devices or schemes employed by, or any acts of, the Board of Directors,
business associations, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, members of associations or
organizations registered with the Commission.

(b) Controversies arising out of intra- corporate or partnership relations,

between and among stockholders, members, or associates; between any
and/or all of them and the corporation, partnership or association of which
they are stockholders, members or associates, respectively; and between
such corporation, partnership or association and the state insofar as it
concerns their individual franchise or right to exist as such entity.

(c) Controversies in the election or appointments of directors, trustees,

officers or managers of such corporations, partnerships, or associations.

(d) Petitions of corporations, partnerships or associations to be declared in

the state of suspension of payments in cases where the corporation,
partnership or association possesses sufficient property to cover all its debts
but foresees the impossibility of meeting them when they respectively fall due
or in cases where the corporation, partnership or association has no
sufficient assets to cover its liabilities but is under the management of a
rehabilitation receiver or management committee created pursuant to this
Decree.

In support of their position, the petitioners invoke DBP v. Ilustre, 1 where it was held that a case
instituted in the guise of a complaint for the rescission of a contract was actually an action for
recovery of the control and management of a corporation and so came under the jurisdiction not of
the courts but of the SEC.

Attention is also called to Boman Environmental Development Corporation v. Court of Appeals, 2

where the Regional Trial Court of Makati was sustained by the respondent court for assuming
jurisdiction over a case involving the balance of the payment for shares of stock due from the
corporation to the seller. The decision was reversed by this Court, which held that the claim was an
intra-corporate dispute coming under the original and exclusive jurisdiction of the SEC.

The petitioners especially cite Saavedra v. SEC, 3 also involving a complaint for rescission, this time
filed with the SEC, which was challenged on the ground that the case came under the jurisdiction of
the ordinary civil courts. In sustaining the denial of the motion to dismiss, this Court observed as
follows:
 As aptly held by the SEC, the dispute at bar is an intra-corporate that has
arisen between and among the principal stockholders of the corporation due
to the refusal of the defendants (now petitioners) to fully comply with what
has been covenanted by the parties. Such dispute involves a controversy
"between and among stockholders" specifically as to plaintiffs right as
stockholder over unpaid assignment of shares and the validity of defendant's
acquisition of the same. In other words, the present case involves an intra-
corporate dispute as to who has the right to remain and act as owners-
stockholders of the corporation.

Viray's reliance on this case is understandable, as the facts are strikingly similar to those in the case
at bar. However, a closer examination of the records 4 of the case reveals that the Amended
Complaint filed with the SEC was for "Delivery of Shares of Stocks, Specific Performance Damages,
With Prayer for Preliminary Restraining Order, Preliminary Injunction, Permanent Injunction,
Attachment with Preliminary Attachment," with the following pertinent allegations:

xxx xxx xxx

9. As clearly stated above, in case of violation of the subject MOA,

specifically the payment of the consideration of the sale, the same shall
automatically rescind the subject agreement including the two other
documents, Contract of Lease and Deed of Assignment executed in
consideration thereof;

10. In view of the breach and non-compliance with the provisions of the
subject contract, the herein plaintiff rescinded the subject MOA, the Contract
of Lease, and the Deed of Assignment all dated 2 July 1987 through a
notarial rescission entitled "Rescission of Memorandum of Agreement" dated
16 September 1987 (xerox copy thereof is hereto attached as Annex "D" and
made an integral part hereof).

11. The subject rescission of MOA together with the two other documents,
was preceded by a formal request upon Mr. Honorio Saavedra, Jr., to
peacefully vacate, pack-up and leave the company premises prior to the
expiration of the grace period within which to comply therewith in a letter
dated September 14, 1987 (xerox copy of which is hereto attached as Annex
"E" and made an integral part hereof).

12. After the execution of the Rescission of Memorandum of Agreement, the

corresponding notice together with copies thereof was delivered and sent to
the defendants through Mr. Honorio Saavedra, Jr., in a letter dated 11
September 1987 and served on October 16, 1987 (xerox copy of which is
hereto attached as Annex "F" and made an integral part hereof).

13. Despite the Rescission of the MOA and despite the full knowledge by
defendants that their failure to observe and comply with the subject MOA has
resulted in the rescission of their rights and authority over the subject
corporation, they refused to acknowledge the same and still continued to hold
on to the company properties and premises to the great damage and
prejudice of the corporation.
 14. Not contented with that, the herein defendant, Honorio Saavedra, Jr.,
knowingly, willfully and unlawfully gave malicious representations before the
various government entities, thereby, preventing the herein plaintiffs from
peacefully taking over the full and complete control of the management of the
corporation.

15. Likewise, despite such knowledge and awareness of the fact that they
have no more rights and authority over the subject corporation, the herein
defendants refused to deliver and turn over the subject shares of stocks to
the herein plaintiffs again to the great damage and prejudice of the
corporation. (Emphasis supplied.)

16. As of the present, the operations and activities of the corporation has
been grounded in view of the malicious and unwarranted refusal by the
herein defendants in preventing complainants from entering the company
offices and taking control of the company books, properties and equipments
therein.

17n The corresponding demands, requests and pleas were made, done and
resorted to by the herein plaintiffs, but to no avail; defendants still unlawfully,
and unjustifiably refused to turn- over the company premises, properties,
machineries, equipment, and other paraphernalia to the herein plaintiffs who
are now the lawful owners and stockholders of the subject corporation.

It is clear from these allegations that the complaint was not merely for rescission of the MOA.
Petitioners pleaded the issue of control over the corporation which was clearly a matter falling under
PD No. 902-A. There was therefore a need to enlist SEC's expertise and technical know-how for a
proper determination of the same.

It will also be noted that the MOA upon which the complaint with the SEC was based was precisely
worded. Par. 7 thereof provided as follows:

That the second party in turn shall faithfully comply with his obligations under
the Agreement, particularly the payment of the consideration of the transfer
and sale of the company, and which failure shall be a violation of the
agreement including all other documents purporting to assign and transfer
the equity interests of the First Party to the corporation including the contract
of lease over the property of Mr. Gregorio M. Ramos where the plant and
equipment of the company are housed and located, all payments so far made
by the Second Party to the First Party at the time of the violation shall be
automatically forfeited in favor of the First Party to compensate for whatever
damages the latter may have suffered by reason of the non- payment of the
consideration of the sale. ... (Emphasis supplied.)

The intention of the parties was easily discernible, leaving no room for conflicting interpretations. The
stipulation left no doubt that the buyer's non-compliance with his obligations under the MOA,
particularly the payment of the consideration, was to be considered a violati•n of the agreement and
would automatically cancel it.

By contrast, the provisions of the MOA in the case at bar admit of different interpretations of the
intention of the parties as expressed in the following provisions:
 2. Delivery of Stock Certificate to Buyer.

Upon the execution of this Agreement, the SELLER shall deliver to the
Escrow Agent the certificates of stocks endorsed in blank, covering all the
Shares. The Escrow Agent shall hold on to the certificates of stocks and shall
deliver or release the same to the BUYER only in accordance with the
following schedules:

a) TWENTY FOUR THOUSAND TWO HUNDRED SIXTY FIVE (P 24,265)

shares covered by certificates duly endorsed in blank, upon payment by the
BUYER of the P 15 million downpaymentp;

b) TWENTY NINE THOUSAND ONE HUNDRED EIGHTEEN (P 29,118)

shares covered by certificates duly endorsed in blank, upon payment by the
BUYER of the amount of P 18 million on 6 May 1989; and

c) FIFTY SIX THOUSAND ONE HUNDRED SEVENTEEN (P 56,117) shares

covered by certificates duly endorsed in blank, when all the amortizations on
the loans referred to in Section 1 (c) hereof are fully paid or when the
collaterals presently securing the same have been released.

8. Transfer of Ownership.

When full payment is made by the BUYER in accordance with the provision
of par. (1) hereof, the SELLER shall execute and deliver a final Deed of Sale
of Shares and such •ther documents that may be necessary or required to
effect the cancellation of the existing certificates of stock covering the Shares
and new ones be issued in the name of the BUYER or his assigns. It is
further agreed that all transfer and documentary taxes with respect to the
sale of the shares covered by this Agreement shall be paid by the SELLER.

The petitioners assert that Par. 2 entitles Viray to ownership over such number of shares as may be
covered by the installment payments as they are made, because the MOA actually provides for three
(3) separate sales of shares of stock. The private respondents say otherwise, contending that the
MOA is a mere contract to sell where ownership of the shares is reserved with the seller to be
transferred only upon full payment of the purchase price. In the disposition of these differences in
interpretation, there is no need to enlist SEC's expertise or technical know-how.

The difference between Saavedra and the case before us is that in the former, the status of the
defendants as stockholders of the corporation was not in issue and was in fact admitted by both
parties. The MOA on that matter was clear enough, unlike in the case at bar. The herein private
respondents have gone to the regular court and not the SEC precisely because they do not
recognize the petitioners as stockholders of OTSI under the provisions of the MOA. In the present
case, the only concern of the private respondents is the judicial confirmation of their rescission of the
MOA, which would not need the expertise of SEC to resolve. It is a purely civil matter resoluble by
civil law principles.

As in Saavedra, it was not claimed that the complainant in the Ilustre case and the private
respondents in the Boman case were not stockholders. The status of the parties was not an issue in
those cases. It is so in the case at bar.
The petitioners argue that it is impossible for the RTC to resolve the issue of ownership of the OTSI
controlling shares without resolving the applicable corporation law principles like the effect of
endorsement of the shares of stocks, of registration on the stocks and transfer, which are matters
which the law precisely reserve for SEC jurisdiction. This is an untenable contention.

In DMRC Enterprises v. Este del Sol Mountain Reserve, Inc., 5 the Court said:

The purpose and the wording of the law escapes the respondent. Nowhere in
said decree do we find even so much an intimidation that absolute jurisdiction
and control is vested in the SEC in all matters affecting corporations. To
uphold the respondents' arguments would remove without legal imprimatur
from the regular courts all conflicts over matters involving or affecting
corporations, regardless of the nature of the transactions which give rise to
such dispute. The Courts would then be divested of jurisdiction not by reason
of the nature of the dispute submitted to them for adjudication, but solely for
the reason that the dispute involves a corporation. This cannot be done. To
do so would not only be to encroach on the legislative prerogative to grant
and revoke jurisdiction of the courts but such a sweeping interpretation may
suffer constitutional infirmity. Neither can we reduce jurisdiction of the courts
by judicial fiat (Art. X, Sec. 1, 1973 Constitution; emphasis supplied.)

Curiously, the petitioners aver that jurisdiction cannot be made to depend on the exclusive
characterization of the case by one of the parties and contend that the allegations in the complaint
cannot be the basis of the Court's assumption of jurisdiction over the subject matter of the case. In
the same case, the Court declared:

Jurisdiction of a court is conferred by the Constitution and by the laws in

force at the time of the commencement of the action. (People v. Maisno, 71
SCRA 600; Villamayor v. Luciano, 88 SCRA 156.) However, whether or not a
court has jurisdiction over the subject matter of a case is determined from the
allegations of the complaint. (Magay v. Estiandan, 69 SCRA 456; Republic v.
Sebastian, 72 SCRA 222.) Therefore, to resolve the issue raised to us, an
interpretation of the law on jurisdiction, must be made vis-a- vis the
averments of the petitioner's complaint. (Emphasis supplied.)

In Republic v. Sebastian, 6 the Court had occasion to restate the settled rule that "the subject matter
of a given case is determined not by the nature of the action that a party is entitled under the facts
and the law to bring but by the nature and character of the pleadings and issues submitted by the
parties to the court for trial and judgment. To ascertain the jurisdiction of the trial court over the
subject matter, We have to rely on the allegations, the truth of which is to be theoretically admitted in
considering the motion to dismiss." (Emphasis supplied.)

In fact, the herein private respondents deny the claimed status of the petitioners as stockholders of
OTSI on the ground alone of their interpretation of the provisions of the MOA. As previously noted, it
is the private respondents' contention that title to the shares covered by the agreement would pass
to the petitioners only upon their payment in full of the stipulated consideration, and not before.
Pending such payment, they cannot be regarded as stockholders of the corporation and so are also
not qualified to be directors and officers thereof. When Viray and Alarilla became chairman of the
board of directors and president of OTSI, respectively, it was only by virtue of their designation as
such by the private respondents, who remained the controlling stockholders. The petitioners were
mere agents of the private respondents. That was the reason the private respondents sued the
petitioners before the Regional Trial Court of Manila and not the SEC.
According to Union Glass and Container Corporation v. SEC: 7

... in order that the SEC can take cognizance of a case, the controversy must
pertain to any of the following relationships: (a) between the corporation,
partnership or association and the public; (b) between the corporation,
partnership or association and its stockholders, partners, members, or
officers; (c) between the corporation, partnership or association and the state
insofar as its franchise, permit or license to operate is concerned; and (d)
among the stockholders, partners and associates themselves.

It would not necessarily follow from the above criteria that the complaint for rescission filed by the
private respondents should come automatically under the jurisdiction of the SEC. It is not clear at
this point that the petitioners are stockholders of OTSI. That status has yet to be clarified at the trial
of the said complaint. That status cannot be assumed without a hearing. The petitioners cannot
divest the regional trial court of jurisdiction by simply asserting that they are stockholders of OTSI
and their dispute with the private respondents is intra-corporate in nature.

The establishment of any of the relationships mentioned in Union will not necessarily always confer
jurisdiction over the dispute on the SEC to the exclusion of the regular courts. The statement made
in one case 8 that the rule admits of no exceptions or distinctions is not that absolute. The better
policy in determining which body has jurisdiction over a case would be to consider not only the
status or relationship of the parties but also the nature of the question that is the subject of their
controversy.

It should be obvious that not every conflict between a corporation and its stockholders involves
corporate matters that only the SEC can resolve in the exercise of its adjudicatory or quasi-judicial
powers. If, for example, a person leases an apartment owned by a corporation of which he is a
stockholder, there should be no question that a complaint for his ejectment for non-payment of
rentals would still come under the jurisdiction of the regular courts and not of the SEC. By the same
token, if one person injures another in a vehicular accident, the complaint for damages filed by the
victim will not come under the jurisdiction of the SEC simply because of the happenstance that both
parties are stockholders of the same corporation. A contrary interpretation would dissipate the
powers of the regular courts and distort the meaning and intent of PD No. 902-A.

It is true that the trend is toward vesting administrative bodies like the SEC with the power to
adjudicate matters coming under their particular specialization, to insure a more knowledgeable
solution of the problems submitted to them. This would also relieve the regular courts of a
substantial number of cases that would otherwise swell their already clogged dockets. But as
expedient as this policy may be, it should not deprive the courts of justice of their power to decide
ordinary cases in accordance with the general laws that do not require any particular expertise or
training to interpret and apply. Otherwise, the creeping take-over by the administrative agencies of
the judicial power vested in the courts would render the Judiciary virtually impotent in the discharge
of the duties assigned to it by the Constitution.

In the case before us, we see no need for any special preparation or skill in the interpretation of the
MOA. The controversy is an ordinary civil litigation. To resolve it, the court simply has to apply the
rules of civil law and the canons of construction usually employed to discover the intent of the parties
who executed the contract. The fact that the subject matter of the MOA is shares of stock is not the
controlling consideration as no complicated question of corporation law is involved. If the subject
matter of the MOA had been a house and lot instead, any conflict arising therefrom would not
necessarily be cognizable only by the Housing and Land Use Regulatory Board. The suggestion in
the case at bar that the interpretation of the MOA should be left to the SEC because it has more
expertise on the matter is not only erroneous; it disparages the regular court and belittles their
competence to render justice according to the general laws and the applicable jurisprudence.

We do not find that the regional trial courts lack the necessary ability to interpret an ordinary contract
such as the MOA in the case at bar. There is nothing complicated about the document that requires
any special aptitude or expertise and justifies its referral to another entity like the SEC for a more
definitive interpretation. In the first instance, the complaint for rescission should be heard by the
Regional Trial Court of Manila, primarily to determine if the petitioners are stockholders and directors
of OTSI and if their differences with the private respondents are in the nature of an intra- corporate
dispute cognizable only by the SEC. Whatever its decision may be is, of course, subject to review by
this Court.

It bears stressing that the findings of the trial court in its order granting the writ of preliminary
injunction are merely tentative pending a closer examination of the issues at the trial of the complaint
for judicial rescission of the MOA. As the order clearly stated, it was based on prima facie evidence,
which may be rebutted at the trial.

We turn now to the preliminary injunction, which the petitioners argue was issued with grave abuse
of discretion, besides lack of jurisdiction. Their contention is that the basic function of a preliminary
injunction is to preserve the status quo and not, as in the case at bar, to restrain the petitioners from
acting as directors and officers of OTSI and to transfer its ownership to the private respondents. The
petitioners also fault the respondent judge for issuing the writ despite the petition now pending
before us, unlike the SEC, which suspended all proceedings out of deference for this Court.

These arguments are unacceptable.

Rule 58, Section 3, of the Rules of Court clearly provides:

SEC. 3. Grounds for issuance of preliminary injunction. — A preliminary

injunction may be granted at any time after the commencement of the action
and before judgment, when it is established:

(a) That the plaintiff is entitled to the relief demanded, and the whole or part
of such relief consists in restraining the commission or continuance of the
acts complained of, or in the performance of an act or acts, either for a
limited period or perpetually;

(b) That the commission or continuance of some act complained of during the
litigation or the non-performance thereof would probably work injustice to the
plaintiff; or

(c) That the defendant is doing, threatens, or is about to do, or is procuring or

suffering to be done, some act probably in violation of the plaintiff's rights
respecting the subject of the action, and tending to render the judgment
ineffectual.

Interpreting this Rule, this Court said in Ortigas & Co., Court clearly provides: 9

Two requisites are necessary if a preliminary injunction is for issue, namely,

the existence of the right to be protected, and the facts against which the
injunction is to be directed, are violative of said right. In particular, for a writ of
 preliminary injunction to issue, the existence of the right and the violation
must appear in the allegation of the complaint and a preliminary injunction is
proper only when the plaintiff appears to be entitled to the relief demanded in
his complaint. ...

A review of the records of this case shows that the respondent court has not acted precipitately or
arbitrarily in issuing the writ of preliminary injunction. The hearing on the application for the writ took
three hours and was participated in by the parties, who actively argued in favor of their respective
positions and submitted evidence in support thereof. There was no lack of basis for its
pronouncement after the hearing that:

Considering all the foregoing, the Court holds that it has been established
prima facie that the plaintiffs, led by plaintiff Araneta, are entitled to the relief
demanded; that the actuations of defendants, if not restrained, would
probably work injustice to the plaintiffs, especially plaintiff Araneta; and that if
the writ of preliminary injunction prayed for is not granted, the plaintiffs' rights
as to the subject of the action would be rendered ineffectual.

Among the acts which the trial court felt the petitioners should be restrained from committing were
the disposition of the assets of OTSI, the withdrawal of its funds, the transfer or destruction of its
records, the cut-off of its power and communication lines, and the removal of its forklifts, furniture
and other equipment, all to the prejudice of the private respondents. As we held in Madrigal v.
Rodas, 10 injunction is the remedy to prevent one party from taking advantage of his favored position
to the damage of the other party. The petitioners were in a favored position because they were
actually in physical control of OTSI at the time the TRO was issued by Judge Bataria.

We find that the lower court committed no disrespect for this Court in issuing the writ of preliminary
injunction after determining the urgent need therefor on the basis of the evidence submitted to it at
the hearing. Significantly, we issued no temporary restraining order against the issuance of such
writ. But we must make it clear that, after the order granting the writ of preliminary injunction was
questioned before this Court in the supplemental petition dated April 2, 1990, the lower court had no
more jurisdiction to act on the motion to dissolve the writ of preliminary injunction filed by the
petitioners on May 7, 1990. As we held in Corpuz v. Court of Appeals: 11

We also find that the questioned orders of respondent Judge Leviste were
issued without jurisdiction, notwithstanding the fact that the writ of possession
was not in order. It was presumptuous on this part to grant the motion for
reconsideration when he knew very well that the subject matter of said
motion was still pending with this Court in a petition for certiorari. The act of
issuing the orders constituted disrespect and disregard of the authority and
jurisdiction of this Court.

In filing that motion, the petitioners were in effect arguing against their position that the lower court
had no more right to act on the complaint with the filing of the petition with this Court. Moreover, they
were pleading the same proposition on two fronts, the Regional Trial Court of Manila and this Court.
In other words, they were forum-shopping and so were no less disrespectful to this Court than the
trial judge in the aforecited Corpuz case. For such an attitude, we pronounced the following sanction
in Buan v. Lopez: 12

Indeed, the petitioners in both actions, ... have incurred not only the sanction
of dismissal of their case before this Court in accordance with Rule 16 of the
Rules of Court, but also the punitive measure of dismissal of both their
 actions, that in this Court and that in the Regional Trial Court as well. Quite
recently, upon substantially identical factual premises, the Court en banc had
occasion to condemn and penalize the act of litigants of filing the same suit in
different courts, aptly described as "forum-shopping," viz:

xxx xxx xxx

... That same identity puts into operation the sanction of twin dismissals just
mentioned. . . .

In our discretion, however, we shall not impose a similar sanction on the herein petitioners, to permit
the resolution on the merits of the important issues presented in this case.

It is not the function of this Court to determine at this time the merits of the complaint for rescission
now pending before the Regional Court of Manila. Decision of that case will depend not only on the
legal considerations involved but also on the factual evidence that has yet to be adduced by the
parties on the trial proper. In this petition, we simply rule on the question of jurisdiction and the
lawfulness of the writ of preliminary injunction. We sustain the court on both counts.

WHEREFORE, the petition and the supplemental petition are DISMISSED, with costs against the
petitioners. The Petition Regional Trial Court of Manila is directed to proceed with the trial of Civil
Case No. 90-52338 and to decide it with deliberate dispatch. It is so ordered.

Narvasa (Chairman), Gancayco, Griño-Aquino and Medialdea, JJ., concur.

Footnotes

1 138 SCRA 111.

2 167 SCRA 541.

3 159 SCRA 57.

4 Rollo, pp. 25, 27-28.

5 132 SCRA 293.

6 72 SCRA 222.

7 126 SCRA 31.

8 Philex Mining Corp. v. Reyes, 118 SCRA 602.

9 148 SCRA 326.

10 80 Phil 252.

11 90 SCRA 424.