Chan vs. Chan

In intra-corporate controversies governed by the Interim Rules of Procedure Governing Intra-Corporate Controversies, a motion for reconsideration is a prohibited pleading; a party may thus directly file a petition for certiorari under Rule 65 without first moving for reconsideration. Certiorari is confined to errors of jurisdiction or grave abuse of discretion and does not extend to correction of errors of judgment or re-evaluation of evidence.

Petitioners Simeon Nicolas Chan, Leroy Chan, and Melanie Mae C. Torres, and respondents Yolanda Chan, Rosalina Rivera, Alvin Rivera, and Kathleen Rivera, were stockholders of Ambassador Hotel, Inc. The dispute concerned corporate governance and share ownership within the Hotel. Jurisdiction over intra-corporate controversies was transferred from the Securities and Exchange Commission to the regular courts designated as special commercial courts, and such controversies are primarily governed by the Interim Rules of Procedure Governing Intra-Corporate Controversies. The Rules of Court apply suppletorily where not inconsistent.

Petitioners Simeon Nicolas Chan, Leroy Chan, and Melanie Mae C. Torres, and respondents Yolanda Chan, Rosalina Rivera, Alvin Rivera, and Kathleen Rivera, were stockholders of Ambassador Hotel, Inc. Simeon Chan was the Hotel's President and General Manager. The dispute centered on control of the Hotel and the shares entitled to vote.

On March 2, 1998, Yolanda and Rosalina requested Simeon Chan, as the Hotel's President and General Manager, for a special meeting of the Hotel's Board of Directors. Simeon Chan refused to call a meeting, arguing that it was not necessary. Respondents themselves then called the special board members' meeting, which was held on March 14, 1998. In that meeting, respondents, as members of the Board, approved various resolutions intended to save the Hotel's financial image and goodwill and to safeguard its funds and assets as a result of alleged mismanagement by petitioners.

On April 25, 1998, another board meeting was held, also attended by respondents, where a new set of officers were elected: Yolanda as President replacing Simeon Chan; Rosalina as Chairman of the Board, also replacing Simeon Chan; and Alvin as Treasurer and Head of the Finance Department. Respondents likewise approved the designation of new bank signatories. Simeon Chan refused to honor the results of these two board meetings, alleging that he alone, as the Hotel's President, could call a special meeting in accordance with its By-Laws.

Petitioners filed a Petition for Declaration of Nullity of Special Meetings and the Matters Taken Up Therein before the Securities and Exchange Commission, docketed as SEC Case No. 05-985958, and applied for a writ of preliminary injunction. The SEC issued a Temporary Restraining Order valid for seventy-two hours but denied the prayer for a writ of preliminary injunction. Petitioners subsequently filed a Motion to Admit a Supplemental Petition for the declaration of respondents' shares as invalid and ineffectual and for the declaration that Rosalina Rivera's shares be limited only to those stated in the Articles of Incorporation. The SEC admitted the supplemental petition. Petitioners again asked for the issuance of a writ of preliminary injunction, while respondents moved for the creation of a management committee. On March 20, 2000, the SEC issued an Omnibus Order denying both the issuance of a writ of preliminary injunction and the creation of a management committee, and directed the Hotel to call and hold a stockholder's meeting; it concluded that the disputed shares should not be allowed to vote and be voted for pending the resolution on the merits as to who actually owns the shares.

The case was later transferred to the Regional Trial Court of Manila, Branch 46, and docketed as Civil Case No. 01-99677. On April 2, 2001, the RTC issued an Order denying petitioners' and respondents' motions. As to the motion to deem conclusive the basis of shares entitled to vote, the RTC ruled that the question of what shares are entitled to vote was not an issue in the case and should be resolved in another proceeding. The RTC noted that on January 19, 1972, Simeon Nicolas Chan assigned 6,000 of his shares to Union Builders, Inc., which later sold the shares to respondent Rosalina Rivera, and that on December 24, 1975, he donated 2,000 of his shares to respondent Yolanda Chan. The RTC denied the motions to declare respondents in default because the defendants had already filed their answers, and denied the motion to cite respondents' counsel in contempt and to expunge the motion for the issuance of a writ of preliminary mandatory injunction because it found nothing contemptuous or offensive in the motion.

• Motion for Reconsideration: Petitioners argued that they could not file a motion for reconsideration because of the express prohibition in Section 8, Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies under Republic Act No. 8799, and that direct resort to the appellate court was warranted because the RTC expressly declared that its Order was immediately executory.
• Findings of Fact: Petitioners maintained that the CA departed from the accepted course of judicial proceedings and sanctioned the lower court's departure when it adopted the RTC's statement of facts, which allegedly misrepresented and mischaracterized the case, and that the CA should have based its statement of facts on petitioners' supplemental petition.
• Motion to Deem Conclusive Basis of Shares: Petitioners argued that the RTC gravely abused its discretion in denying their motion to deem conclusive the basis of shares entitled to vote, insisting that the invalidity of respondents' shares had already been established by the evidence and that the corporation's Articles of Incorporation should determine the shares entitled to vote.
• Default: Petitioners argued that the RTC gravely abused its discretion in denying their motion to declare respondents in default for failure to file an answer to the supplemental petition.
• Contempt: Petitioners argued that respondent Yolanda Chan and her counsel should be declared in contempt of court for repeatedly filing motions for preliminary injunction, and that the RTC wrongly denied their motion for contempt and motion to expunge.
• Injunctive Reliefs and Grave Abuse: Petitioners argued that the CA improperly denied their injunctive reliefs, ignored the clear showing of grave abuse of discretion committed by the lower court, and rendered erroneous conclusions.

• Motion for Reconsideration: Whether a motion for reconsideration should have been filed by petitioners before filing the petition for certiorari with the Court of Appeals.
• Findings of Fact: Whether the Court of Appeals erred in affirming the findings of fact of the Regional Trial Court.
• Motion to Deem Conclusive Basis of Shares: Whether the Court of Appeals committed grave abuse of discretion in denying petitioners' motion to deem conclusive the basis of shares of stocks entitled to vote.
• Default: Whether the Court of Appeals committed grave abuse of discretion in denying petitioners' motion to declare respondents in default.
• Contempt: Whether the Court of Appeals committed grave abuse of discretion in denying petitioners' motion to cite respondents' counsel in contempt of court.

• Motion for Reconsideration: No. The Interim Rules prohibit a motion for reconsideration and make decisions and orders immediately executory; direct certiorari was the proper remedy.
• Findings of Fact: No. Findings of fact of trial courts are entitled to great weight and should not be disturbed absent strong and valid reasons.
• Motion to Deem Conclusive Basis of Shares: No. Certiorari does not correct errors of judgment or permit re-evaluation of evidence; the validity of the shares should be resolved in the main action after evidence.
• Default: No. An answer to a supplemental pleading is not mandatory; the answer to the original complaint serves as the answer if no new answer is filed.
• Contempt: No. Availing of remedies provided by law is not contumacious; the contempt power is preservative, not vindictive.

• Motion for Reconsideration: Rule 65 of the Rules of Court generally requires a motion for reconsideration as a precondition for a petition for certiorari, but this requirement is inapplicable to intra-corporate controversies primarily governed by the Interim Rules. Sections 4 and 8, Rule 1 of the Interim Rules provide that all decisions and orders issued under the Rules are immediately executory, that no appeal or petition taken therefrom stays enforcement unless restrained by an appellate court, that interlocutory orders are not subject to appeal, and that motions for new trial, reconsideration of judgment or order, or reopening of trial are prohibited. Petitioners were thus proscribed from filing a motion for reconsideration; had they filed one, it would have been considered pro forma and would not have tolled the reglementary period to file a petition for certiorari. Because the RTC expressly declared its Order immediately executory, direct resort to the appellate court was the most, if not the only, remedy available, there being no appeal or any plain, speedy, and adequate remedy in the ordinary course of law.

• Findings of Fact: Findings of fact of trial courts are entitled to great weight and should not be disturbed except for strong and valid reasons because the trial court is in a better position to examine the demeanor of witnesses while testifying. Trial court judges enjoy the unique opportunity of observing the deportment of witnesses on the stand, a vantage point denied appellate tribunals. Petitioners failed to offer any compelling reason why the RTC's narration of facts, as affirmed by the CA, should be substituted by their own allegations in their supplemental petition. The CA therefore did not err in adopting the findings of the trial court, and the Supreme Court only supplemented, but did not supersede, the appellate and trial courts' findings of fact.

• Motion to Deem Conclusive Basis of Shares: Certiorari may be issued only for the correction of errors of jurisdiction or grave abuse of discretion amounting to lack or excess of jurisdiction, not errors of judgment. It does not include correction of the trial court's evaluation of evidence and factual findings thereon, and it does not go as far as to examine and assess the evidence of the parties and to weigh the probative value thereof. The RTC validly exercised jurisdiction over the case, and any error committed by it in the exercise thereof amounted to nothing more than an error of judgment. Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, and the abuse must be so patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law as where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility. No such abuse attended the RTC's denial of the motion. Petitioners had initially filed a similar motion on which they based their supplemental petition; with the admission of the supplemental petition, the validity or invalidity of respondents' shares was put in issue in the main action, and its resolution should be embodied in a decision rendered by the RTC after the presentation of the parties' respective evidence. A final declaration that respondent Yolanda's shares are null and void was premature because both parties' evidence had yet to be assessed and weighed, and the validity or invalidity of said shares had already been the subject of a separate petition in SEC Case No. 05-98-5984. The Articles of Incorporation could not be used as the sole basis in determining which shares are entitled to vote, because that would imply that other corporate documents are invalid and would entail a comprehensive evaluation and analysis of the parties' documentary and testimonial evidence.

• Default: The Interim Rules specifically provide that the defendant or respondent shall be considered in default if he fails to file an answer to the complaint. The Interim Rules, however, have no provision governing the filing and admission of supplemental pleadings, as well as the filing of an answer thereto, so the provisions of the Rules of Court apply suppletorily. Section 6, Rule 10 of the Rules of Court provides that the adverse party may plead to a supplemental pleading within ten days from notice of the order admitting the supplemental pleading, while Section 7, Rule 11 provides that a supplemental complaint may be answered within ten days from notice of the order admitting the same, unless a different period is fixed by the court, and that the answer to the complaint shall serve as the answer to the supplemental complaint if no new or supplemental answer is filed. The filing of an answer to the supplemental pleading is not mandatory because of the use of the word "may," and the answer to the original pleading serves as the answer to the supplemental pleading if no new answer is filed. A supplemental pleading only serves to supplement or add something to the primary pleading; it does not replace that which it supplements, and it assumes that the original pleading is to stand and that the issues joined with the original pleading remained as issues to be tried. The RTC therefore could not declare respondents in default simply because they opted not to file an answer to the supplemental petition.

• Contempt: The parties had been employing all means and availing of various remedies that they deemed best to protect their respective interests. Petitioners filed multiple pleadings and motions before the RTC, the CA, and the Supreme Court, while respondents filed their own pleadings in answer to those of petitioners. If petitioners could file their own motions and pleadings for their own protection, there was no reason to deny the same right to respondents. Availing of the remedies set forth by law or the Rules is not contumacious. The power to punish for contempt must be exercised on the preservative, not vindictive principle, and on the corrective and not retaliatory idea of punishment; it is intended as a safeguard not for the judges as persons but for the functions that they exercise. The CA thus correctly affirmed the denial of petitioners' motion to cite respondent Yolanda and her counsel in contempt of court.

• Prohibition on Motion for Reconsideration in Intra-Corporate Controversies — Under the Interim Rules of Procedure Governing Intra-Corporate Controversies, all decisions and orders are immediately executory, interlocutory orders are not appealable, and motions for reconsideration of judgment or order are prohibited. A party may directly file a petition for certiorari under Rule 65 because a motion for reconsideration would be pro forma and would not toll the reglementary period. The Court applied this doctrine to hold that petitioners were not required to file a motion for reconsideration before going to the CA.

• Certiorari Under Rule 65 — Certiorari lies only to correct errors of jurisdiction or grave abuse of discretion amounting to lack or excess of jurisdiction, not errors of judgment. It does not include correction of the trial court's evaluation of evidence and factual findings, and it does not go as far as examining and assessing the evidence of the parties. The Court applied this doctrine to dismiss petitioners' attempt to use certiorari to challenge the RTC's denial of their motions.

• Grave Abuse of Discretion — Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. The abuse must be so patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law as where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility. The Court found no such abuse in the RTC's denial of the motions.

• Findings of Fact of Trial Courts — Findings of fact of trial courts are entitled to great weight and should not be disturbed except for strong and valid reasons because the trial court is in a better position to examine the demeanor of witnesses while testifying. The Court applied this doctrine to uphold the CA's adoption of the RTC's findings of fact.

• Supplemental Pleadings — A supplemental pleading only serves to supplement or add something to the primary pleading; it does not replace that which it supplements. It assumes that the original pleading is to stand and that the issues joined with the original pleading remained as issues to be tried. The adverse party may, but is not required to, answer a supplemental pleading; the answer to the original complaint serves as the answer to the supplemental complaint if no new or supplemental answer is filed. The Court applied this doctrine to hold that respondents could not be declared in default for failure to answer the supplemental petition.

• Default Under the Interim Rules — The Interim Rules provide that the defendant or respondent shall be considered in default if he fails to file an answer to the complaint. No default lies for failure to answer a supplemental petition because such an answer is not mandatory. The Court applied this doctrine to affirm the RTC's denial of petitioners' motions to declare respondents in default.

• Contempt Power — The power to punish for contempt must be exercised on the preservative, not vindictive principle, and on the corrective and not retaliatory idea of punishment. It is intended as a safeguard not for the judges as persons but for the functions that they exercise. The Court applied this doctrine to hold that filing motions and availing of legal remedies is not contumacious.

• Suppletory Application of the Rules of Court — Under Section 2, Rule 1 of the Interim Rules, the Rules of Court, insofar as they may be applicable and are not inconsistent with the Interim Rules, are adopted to form an integral part thereof. The Court applied this doctrine to allow the Rules of Court on supplemental pleadings and answers to govern the supplemental petition.

• "Notwithstanding the strict requirement under the Rules of Court of a motion for reconsideration before the institution of a special civil action, petitioners were proscribed from filing the same by the express provision of the Interim Rules." — This passage states the ratio for allowing direct resort to certiorari despite the general requirement of a prior motion for reconsideration.
• "Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. The abuse of discretion must be so patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law as where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility." — This is the Court's canonical formulation of grave abuse of discretion, applied to reject petitioners' certiorari challenge.
• "As can be gleaned from the above provisions, the filing of an answer to the supplemental pleading is not mandatory because of the use of the word "may." This is bolstered by the express provision of the Rules that the answer to the original pleading shall serve as the answer to the supplemental pleading if no new or supplemental answer is filed." — This passage supplies the ratio for denying the motion to declare respondents in default.
• "It bears stressing at this point that the power to punish for contempt must be exercised on the preservative, not vindictive principle, and on the corrective and not retaliatory idea of punishment." — This passage states the controlling principle on contempt, applied to uphold the denial of petitioners' contempt motion.

• Land Bank of the Philippines vs. Ascot Holdings and Equities, Inc., G.R. No. 175163, October 19, 2007, 537 SCRA 396, 404-405 — Cited in support of the ruling that a motion for reconsideration filed despite the Interim Rules' prohibition would be pro forma and would not toll the reglementary period for certiorari.
• Ong vs. Ong, G.R. No. 153206, October 23, 2006, 505 SCRA 76, 87 — Cited for the doctrine that findings of fact of trial courts are entitled to great weight and should not be disturbed absent strong and valid reasons.
• Local Superior of the Servants of Charity (Guanellians), Inc. vs. Jody King Construction & Development Corporation, G.R. No. 141715, October 12, 2005, 472 SCRA 445, 451 — Cited to the same effect on the weight accorded to trial court factual findings.
• Young vs. Sy, G.R. No. 157745, September 26, 2006, 503 SCRA 151, 162 — Cited for the rule that a supplemental pleading assumes the original pleading stands and that issues joined in the original pleading remain for trial.
• Planters Development Bank vs. LZK Holdings and Development Corporation, G.R. No. 153777, April 15, 2005, 456 SCRA 366, 379 — Cited to the same effect on supplemental pleadings.
• Deutsche Bank Manila vs. Chua Yok See, G.R. No. 165606, February 6, 2006, 481 SCRA 672, 692 — Cited for the rule that certiorari is confined to errors of jurisdiction or grave abuse of discretion and for the definition of grave abuse.
• Microsoft Corp. vs. Best Deal Computer Center Corp., 438 Phil. 408, 413 (2002) — Cited for the rule that certiorari does not include correction of the trial court's evaluation of evidence and factual findings, and that errors committed by a court with jurisdiction are errors of judgment.
• Macawiag vs. Balindong, G.R. No. 159210, September 20, 2006, 502 SCRA 454, 468 — Cited for the rule that certiorari does not go as far as examining and assessing the evidence of the parties.
• The Senate Blue Ribbon Committee vs. Hon. Majaducon, 455 Phil. 61, 75-76 (2003) — Cited for the preservative and corrective, not vindictive and retaliatory, nature of the contempt power.
• Oclarit vs. Paderanga, 403 Phil. 146, 153-154 (2001) — Cited to the same effect on contempt.
• Land Bank of the Philippines vs. Court of Appeals, 409 SCRA 455, 481 (2003) and Bacelonia vs. Court of Appeals, 445 Phil. 300, 307-308 (2003) — Cited for the definition of grave abuse of discretion.

• Section 4, Rule 1, Interim Rules of Procedure Governing Intra-Corporate Controversies (A.M. No. 01-2-04-SC) — All decisions and orders issued under the Rules are immediately executory; no appeal or petition taken therefrom stays enforcement or implementation unless restrained by an appellate court; interlocutory orders are not subject to appeal. Applied to justify direct resort to certiorari and to show that no plain, speedy, and adequate remedy existed.
• Section 8, Rule 1, Interim Rules — Prohibited pleadings include a motion for new trial, or for reconsideration of judgment or order, or for reopening of trial. Applied to hold that petitioners were proscribed from filing a motion for reconsideration.
• Section 2, Rule 1, Interim Rules — The Rules of Court, insofar as they may be applicable and are not inconsistent with the Interim Rules, are adopted to form an integral part thereof. Applied to allow suppletory application of the Rules of Court on supplemental pleadings.
• Section 7, Rule 2, Interim Rules — If the defendant fails to answer within the period provided, he shall be considered in default. Applied to hold that default was not proper because the failure was to answer a supplemental petition, not the complaint.
• Section 6, Rule 10, Rules of Court — Supplemental pleadings may be served upon motion, and the adverse party may plead thereto within ten days from notice of the order admitting the supplemental pleading. Applied to show that an answer to a supplemental pleading is permissive.
• Section 7, Rule 11, Rules of Court — A supplemental complaint may be answered within ten days from notice of the order admitting the same; the answer to the complaint shall serve as the answer to the supplemental complaint if no new or supplemental answer is filed. Applied to deny default.
• Rule 65, Rules of Court — Certiorari generally requires a prior motion for reconsideration and lies only for errors of jurisdiction or grave abuse of discretion. Applied: the motion-for-reconsideration requirement was inapplicable due to the Interim Rules, and certiorari did not lie to correct errors of judgment.
• Republic Act No. 8799 — Cited as the law under which the Interim Rules of Procedure Governing Intra-Corporate Controversies were issued; jurisdiction over intra-corporate controversies was transferred from the SEC to regular courts designated as special commercial courts. Applied to establish the governing procedural framework.

Reynato S. Puno (Chief Justice), Consuelo Ynares-Santiago, Minita V. Chico-Nazario, and Ruben T. Reyes concurred. The decision was penned by Justice Antonio Eduardo B. Nachura.