Lee Hiong Wee vs. Dee Ping Wee

Directors and officers of a corporation serve at the pleasure of stockholders and cannot claim their offices in perpetuity; they must submit themselves to yearly elections as mandated by law and the corporate by-laws. Consequently, change in corporate management through regular elections does not constitute irreparable injury warranting preliminary mandatory injunction, and election contests should be resolved under Rule 6 of the Interim Rules Governing Intra-Corporate Controversies rather than through injunctive relief that disrupts the democratic process of corporate governance and corporate operations.

The case arises from a feud between two warring groups of stockholders vying for control and management of Rico Philippines Industrial Corporation (RPIC), a domestic corporation engaged in the seaweeds export business. The corporate by-laws mandate the holding of regular annual stockholders' meetings on the first Friday of May each year for the election of directors who serve one-year terms. From the time RPIC started business operations following its incorporation on November 15, 1990, the family of Lee Hiong Wee had been managing and exercising control of the firm, with Lee Hiong Wee serving as president and chairman of the board.

• Rico Philippines Industrial Corporation (RPIC) is a domestic corporation engaged in seaweeds export business incorporated on November 15, 1990.
• The corporate by-laws provide for the holding of regular annual stockholders' meetings on the first Friday of May each year for the election of directors.
• From incorporation until 2003, the Lee Hiong Wee family (Lee Hiong group) managed and controlled the corporation, with Lee Hiong Wee serving as president and chairman of the board, and his wife Rosalinda as a board member.
• In July 2003, the Dee Ping group (led by Mario T. Tan, husband of respondent Marina Tan, and Dee Ping Wee) filed a petition with the SEC praying for the holding of a stockholders' meeting as no annual meeting had been held as mandated by the by-laws.
• On September 29, 2003, the SEC granted the petition and directed that a stockholders' meeting be called not later than October 30, 2003.
• On October 9, 2003, a stockholders' meeting was held with 68.22% of shares represented, resulting in the election of a new board of directors majority of which belonged to the Dee Ping group. Lee Hiong Wee was replaced as president and board chairman, though he and his wife retained their seats as directors.
• The new board passed a resolution designating an officer-in-charge for RPIC's plant.
• On October 14, 2003, the Lee Hiong group filed a complaint in the RTC of Imus, Cavite (SEC Case No. 029-03) seeking to nullify the October 9, 2003 stockholders' meeting and the election of the new board. Judge Quisumbing issued a 20-day TRO enjoining the Dee Ping group from assuming board functions and maintaining the status quo prior to October 9, 2003.
• On March 3, 2004, Judge Mangrobang (RTC Branch 22) issued a Writ of Preliminary Mandatory Injunction ordering the Dee Ping group to cease and desist from discharging functions as directors/officers, revert to status quo prior to October 9, 2003, deliver physical possession of the plant premises to the Lee Hiong group, and directing PNP assistance for enforcement.
• On May 7, 2004, RPIC held its regular annual stockholders' meeting as mandated by the by-laws, followed by the election of a new set of directors which excluded Lee Hiong Wee and Rosalinda.
• The Court of Appeals (Second Division) nullified the writ of preliminary mandatory injunction issued by Judge Mangrobang on May 14, 2004, prompting the present petition for review.

• The CA's Second Division acted with undue haste in granting the TRO on March 15, 2004, as it was issued only ten days after the filing of the petition, and the sheriff immediately proceeded to implement it at 8:35 p.m. on the same day.
• The TRO was issued on a moot and academic matter because the writ of preliminary mandatory injunction had already been fully satisfied on March 5, 2004, making the issuance of the TRO a "fait accompli."
• The CA's Second Division lacked jurisdiction because of litis pendentia, as the same issues were already pending before the CA's Fifteenth Division in CA-G.R. SP No. 79988.
• The respondents committed forum shopping by failing to declare in their petition the pendency of CA-G.R. SP No. 79988 before the Fifteenth Division and the fact that the decision thereunder was not yet final.
• The CA's Second Division acted without jurisdiction and with manifest partiality by taking cognizance of a case already pending in another division and ignoring legitimate orders of the lower court that found respondents had acquired possession through violence.

• Procedural Issues:
  • Whether the CA's Second Division acted with undue haste in issuing the TRO.
  • Whether the issuance of the TRO was moot and academic.
  • Whether there was forum shopping or litis pendentia between CA-G.R. SP No. 79988 (Fifteenth Division) and CA-G.R. SP No. 82569 (Second Division).
  • Whether the CA's Second Division had jurisdiction to hear the case despite the pendency of related proceedings in the Fifteenth Division.
• Substantive Issues:
  • Whether the Court of Appeals correctly nullified the writ of preliminary mandatory injunction issued by the RTC.
  • Whether change in corporate management constitutes irreparable injury warranting preliminary mandatory injunction.
  • Whether the proper remedy in election contests is a writ of preliminary mandatory injunction or proceedings under Rule 6 of the Interim Rules Governing Intra-Corporate Controversies.
  • Whether the petition had become moot due to the holding of the subsequent annual stockholders' meeting on May 7, 2004.

• Procedural:
  • The Court found no undue haste in the issuance of the TRO by the CA's Second Division, noting that it was issued ten days after filing, compared to Judge Quisumbing's TRO which was issued on the same day the complaint was filed.
  • The Court ruled that the matter was not moot because the Sheriff's Report indicated that the writ was only "partially satisfied," not fully executed, as equipment, machineries, and goods were still missing.
  • The Court held that there was no forum shopping or litis pendentia because the two cases involved different orders (TRO vs. preliminary mandatory injunction), different judges, and different reliefs sought; a judgment in CA-G.R. SP No. 79988 would not amount to res judicata in CA-G.R. SP No. 82569 as there was no identity of reliefs sought.
  • The Court ruled that the Second Division had jurisdiction to hear the case as the issues presented were significantly different from those in the Fifteenth Division, and under the 2002 Internal Rules of the CA, cases where due course has been given or preliminary injunction granted shall remain with the division that initially acted on them.
• Substantive:
  • The Court affirmed the CA's decision nullifying the writ of preliminary mandatory injunction.
  • The Court held that change of management of a corporation hardly results in irreparable injury; any predicted injury is speculative and only occurs when the take-over is done by incoming officers with malice aforethought with the idea of raiding the corporate coffers.
  • The Court emphasized that directors and officers cannot claim their offices in perpetuity but must submit to yearly elections, and it is reasonably presumed that directors and officers will perform their duties in accordance with the Corporation Law.
  • The Court ruled that the proper remedy for election contests is under Rule 6 of the Interim Rules Governing Intra-Corporate Controversies (A.M. No. 01-2-04-SC), which requires cases to be heard and decided with deliberate dispatch, not through preliminary mandatory injunction which disrupts corporate operations.
  • The Court held that the petition had become moot due to the holding of the regular annual stockholders' meeting on May 7, 2004, which elected a new board excluding the petitioners, rendering the dispute over the October 2003 election academic.

• Term of Office of Directors — Directors and officers of a corporation serve at the pleasure of stockholders and cannot claim their offices in perpetuity; they must submit themselves to yearly elections if they wish to continue serving the corporation. The Court applied this doctrine to emphasize that ouster from office through regular elections is not an irreparable injury warranting injunctive relief, as the corporate by-laws and law mandate annual elections.
• Forum Shopping and Litis Pendentia — Forum shopping exists where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in another, requiring identity of parties, rights asserted, and reliefs sought. The Court applied this to distinguish between the two CA cases involving different orders (prohibitory vs. mandatory injunction) and different reliefs.
• Mootness — An issue becomes moot when it ceases to present a justifiable controversy so that a determination thereof would be without practical value. The Court applied this doctrine to dismiss the petition in light of the subsequent May 2004 stockholders' meeting that elected a new board.
• Preliminary Mandatory Injunction vs. Prohibitory Injunction — A prohibitory injunction commands a party to refrain from doing a particular act, while a mandatory injunction commands the performance of some positive act to correct a wrong in the past. The Court distinguished between the TRO issued by Judge Quisumbing (prohibitory) and the writ issued by Judge Mangrobang (mandatory).
• Irreparable Injury in Corporate Control Disputes — Change of management of a corporation hardly results in irreparable injury; any predicted injury is speculative. It is presumed that directors and officers will perform their duties in accordance with law, and raiding corporate coffers is not included in their functions.

• "No director or officer of the corporation can claim his office in perpetuity. He has to submit himself to a yearly election if he wants to continue in the service of the corporation."
• "Change of management of a corporation hardly results in irreparable injury. Any predicted injury is speculative, and only occurs when the take-over is done by incoming officers with malice aforethought with the idea of raiding the corporate coffers."
• "A private corporation is primarily organized for profit and no director or officer in his right mind would perform any act detrimental to this purpose."
• "The parties may continue with their legal battle for control of the management without need of ousting each other in a precipitate manner, which may be disruptive of the operations of the corporation."
• "The RTC should have tried the case of annulment of election with dispatch in accordance with the provisions of A.M. No. 01-2-04-SC and decided the case accordingly. After receiving evidence, the RTC can annul the election, and oust the usurper or the one illegally elected. But due process must be observed."

• Melo v. Court of Appeals, G.R. No. 123686, November 16, 1999 — Cited for the definition of forum shopping and the requirement of identity of parties, rights asserted, and reliefs sought for litis pendentia to exist.
• International School, Inc. v. CA, G.R. No. 131109, June 29, 1999 — Cited for the elements of forum shopping and litis pendentia.
• Levi Straus v. Clinton Apparelle, G.R. No. 138900, September 20, 2005 — Cited for the distinction between prohibitory and mandatory injunctions.
• Vda. De Davao v. Court of Appeals, G.R. No. 116526, March 23, 2004 — Cited for the doctrine of mootness.

• Section 1, Rule 45 of the Rules of Court — Limits petitions for review on certiorari to questions of law which must be distinctly set forth.
• Section 1, Rule 58 of the Rules of Court — Defines preliminary injunction and distinguishes between prohibitory injunctions (restraining a party from doing an act) and mandatory injunctions (requiring performance of a positive act).
• Rule 6 of the Interim Rules of Procedure Governing Intra-Corporate Controversies (A.M. No. 01-2-04-SC) — Provides the proper procedure for election contests, requiring cases to be heard and decided with dispatch (hearing completed within 15 days from first hearing, decision within 15 days from last pleading/hearing).
• Section 2(d) in relation to Section 1 of Rule VI of the 2002 Internal Rules of the Court of Appeals — Provides that cases where due course has been given or preliminary injunction granted shall remain with the Justice to whom the case is assigned for study and report and the Justices who participated therein, regardless of their transfer to other Divisions.