Mallare vs. A&E Industrial Corporation

A writ of preliminary injunction will not issue where the applicant has failed to establish a clear and unmistakable right to be protected, particularly when the claimed right is derived from a disputed voting authority that, by law, belongs exclusively to a court-appointed estate administrator, and where the grant of such writ would effectively dispose of the main case without trial.

A&E Industrial Corporation is a domestic corporation engaged in real estate management, incorporated in 1975 by Florencio T. Mallare, Jane Y. Mallare, Anthony Edmund Hwang, Evelyn Hwang, and Pacencia Mallare. Anthony is the son of Jane from a former partner and is married to Evelyn. Florencio and Jane had a son, Aristotle, who is married to Melody. Jane died on December 9, 2011, leaving her 120,000 shares in A&E unsettled. Following her death, the Mallare Group (Florencio, Aristotle, and Melody) and the Hwang Group (Anthony, Evelyn, and their transferees) disputed control of the corporation, each claiming valid election or holdover status as directors and officers.

• Corporate Structure and Shareholding: A&E had six stockholders holding a total of 625,000 outstanding shares: Florencio T. Mallare (117,500 shares); Jane Y. Mallare (120,000 shares); Anthony Edmund Hwang (118,750 shares); Evelyn L. Hwang (75,000 shares); Aristotle Y. Mallare (118,750 shares); and Melody Tracy Mallare (75,000 shares). Prior to Jane's death, the board consisted of Florencio (President), Jane (CFO/Corporate Secretary), Anthony (Vice President), and Aristotle (CEO).
• Death of Jane Mallare and Succession Proceedings: Jane died on December 9, 2011. Florencio and Aristotle filed a petition for judicial settlement of her intestate estate before the RTC of Quezon City, which included her 120,000 shares in A&E. Anthony also filed a separate petition for settlement, which was denied on the ground of litis pendencia. On July 11, 2016, the RTC of Quezon City, Branch 92, appointed Florencio as special administrator of Jane's estate.
• Conflicting Claims of Corporate Control: The Mallare Group claimed that no valid annual stockholders' meeting was held in 2012 or 2013 due to lack of quorum, and that they continued to serve as holdover directors and officers. They alleged that Aristotle was designated interim corporate secretary after Jane's death.
• The February 23, 2013 Stockholders' Meeting: The Hwang Group claimed that a valid annual stockholders' meeting was held on February 23, 2013, attended by stockholders representing 313,750 shares (50.2% of outstanding capital stock), comprising Anthony (118,747 shares), Evelyn (75,000 shares), Elizabeth Lim Tong (1 share), Stefan Hugo Hwang (1 share), and Sarah Patricia Hwang (1 share), plus Jane's 120,000 shares represented by Anthony via an Assignment of Voting Rights dated May 17, 2011. During this meeting, the Hwang Group was purportedly elected as the new board of directors and officers.
• Disputed Quorum and Voting Authority: The Mallare Group contested the meeting, asserting that only 49.8% of shares were represented (excluding Jane's shares) and that the Assignment of Voting Rights was defective or void. They argued that following Jane's death, only the estate administrator could vote her shares, not Anthony as assignee.
• Filing of the Main Action and Application for Injunctive Relief: On January 6, 2014, A&E (represented by the Hwang Group) filed the main action for injunction, quo warranto, and damages, seeking to enjoin the Mallare Group from usurping corporate offices and misrepresenting themselves as directors. The application for WPI was denied by the RTC but granted by the CA.

• Prejudgment of Main Case: Petitioners argued that the issuance of a WPI would effectively resolve the main case for quo warranto without trial, as it would require the court to determine who the legitimate directors and officers are—the very issue at the heart of the principal action.
• Lack of Clear Legal Right: Petitioners maintained that the Hwang Group failed to establish a clear and unmistakable right to the injunctive relief. They contended that the February 23, 2013 election was invalid due to lack of quorum and that Anthony had no authority to vote Jane's shares, as such right belonged exclusively to the estate administrator (Florencio) under Section 54 of the Revised Corporation Code.
• Status Quo: Petitioners posited that the proper status quo ante was reflected in the March 14, 2011 General Information Sheet (GIS), which showed the Mallare Group as the uncontested directors and officers prior to the controversy, not the situation created by the disputed February 23, 2013 election.
• Defective Assignment of Voting Rights: Petitioners challenged the validity of the Assignment of Voting Rights executed by Jane, alleging defects in notarization and claiming Anthony was not in the Philippines at the time of notarization.

• Presumptive Validity of Election: Respondent countered that the February 23, 2013 stockholders' meeting and the election of the Hwang Group as directors were entitled to presumptive validity until nullified in a proper proceeding. It argued that petitioners failed to assail the election within the 15-day prescriptive period under the Interim Rules of Procedure for Intra-Corporate Controversies.
• Preventive Nature of Injunction: Respondent maintained that the WPI was merely a preventive remedy to protect the corporation from the dissipation of funds and misappropriation of assets by unauthorized individuals, and did not constitute a prejudgment of the main case.
• Prima Facie Right: Respondent argued that it had established a prima facie right to protection by showing that notices were sent to all stockholders, a quorum was achieved, and the Hwang Group was duly elected, with Anthony having the right to vote 238,750 shares (his own plus Jane's via assignment).

• Propriety of Preliminary Injunction: Whether the Court of Appeals erred in finding grave abuse of discretion on the part of the Regional Trial Court when it denied the application for the issuance of a Writ of Preliminary Injunction.
• Prejudgment of Main Action: Whether the grant of a preliminary injunction would effectively dispose of the main case for quo warranto and injunction without trial.
• Existence of Clear Legal Right: Whether the Hwang Group possessed a clear and unmistakable right to be protected by injunction, particularly regarding the authority to vote shares of a deceased stockholder.

• Prejudgment of Main Action: The grant of the preliminary injunction was improper because it would effectively substantiate the validity of the Hwang Group's claim to corporate office, thereby preempting the merits of the main action for quo warranto and injunction. Courts must avoid issuing writs that assume the very proposition which the applicant is bound to prove in the principal case.
• Existence of Clear Legal Right: The Hwang Group failed to establish a clear and unmistakable right to protection. Under Section 54 of the Revised Corporation Code, executors or administrators duly appointed by the court are vested with the legal title to shares of a deceased stockholder and are entitled to vote them. At the time the Court of Appeals rendered its decision, Florencio had already been appointed special administrator of Jane's estate, rendering Anthony's claim to vote Jane's shares via assignment legally doubtful. The right to vote shares of a deceased stockholder does not pass to an assignee but remains with the estate administrator until division of the estate is effected.
• Presumptive Validity of Election: The Court of Appeals erred in giving presumptive validity to the February 23, 2013 election without considering that the quorum determination depended on the disputed voting of Jane's shares, which by law belonged to the estate administrator. The presumption of validity cannot override statutory requirements regarding share ownership and voting rights.
• Due Process in Injunction Proceedings: The Court of Appeals erred in brushing aside the Mallare Group's evidence refuting the Hwang Group's claim of a clear right. A preliminary injunction requires a due hearing where both parties are given the opportunity to present evidence, and courts cannot limit prima facie evidence merely to the evidence presented by the applicant.

• Requisites for Preliminary Injunction — The issuance of a writ of preliminary injunction requires the applicant to satisfactorily show: (1) a clear and unmistakable right to be protected; (2) a material and substantial invasion of such right; (3) an urgent need for the writ to prevent irreparable injury; and (4) the absence of any other ordinary, speedy, and adequate remedy. The existence of a right clearly founded on or granted by law is the most crucial element.
• Prima Facie Evidence in Injunction Proceedings — In an application for injunctive relief, the right sought to be protected should at least be shown to exist prima facie—such evidence as is sufficient to establish a given fact and which, if not rebutted or contradicted, will remain sufficient. Courts must consider evidence from both parties and cannot limit prima facie evidence merely to the applicant's presentation, especially when the other party's evidence considerably rebuts the allegations.
• Voting Rights of Estate Administrators — Under Section 54 of the Revised Corporation Code, executors, administrators, receivers, and other legal representatives duly appointed by the court may attend and vote on behalf of the stockholders or members without need of any written proxy. This right is exclusive and continues until the division of the estate is effected. An assignment of voting rights executed by a stockholder prior to death does not survive the stockholder's death to the prejudice of the estate administrator's statutory authority.
• Prejudgment via Preliminary Injunction — Courts should avoid issuing a writ of preliminary injunction that would in effect dispose of the main case without trial. Such issuance constitutes a prejudgment and a reversal of the rule on the burden of proof, as it assumes the proposition which the petitioner is inceptively bound to prove.

• "There is no power the exercise of which is more delicate, which requires greater caution, deliberation and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction." — Citing Olalia v. Hizon, emphasizing the gravity and caution required in granting injunctive relief.
• "Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not be granted lightly or precipitately. It should be granted only when the court is fully satisfied that the law permits it and the emergency demands it." — Reinforcing the stringent standards for injunctive relief.
• "The courts should avoid issuing a writ of preliminary injunction that would in effect dispose of the main case without trial. Otherwise, there would be a prejudgment of the main case and a reversal of the rule on the burden of proof since it would assume the proposition which petitioners are inceptively bound to prove." — Articulating the prohibition against prejudgment via preliminary injunction.

• Olalia v. Hizon, 274 Phil. 66 (1991) — Cited for the principle that the issuance of an injunction is a delicate power requiring great caution and that it should not be granted lightly or precipitately.
• Bicol Medical Center v. Bator, 819 Phil. 447 (2017) — Applied for the rule that preliminary injunction requires a due hearing where both parties present evidence, and courts cannot limit prima facie evidence to the applicant's presentation alone.
• Tan v. Sycip, 530 Phil. 609 (2006) — Followed for the doctrine that in case of death of a shareholder, the executor or administrator duly appointed by the court is vested with the legal title to the share and entitled to vote it.
• Philippine Ports Authority v. Pier 8 Arrastre, 512 Phil. 74 (2005) — Cited for the prohibition against issuing preliminary injunctions that would effectively dispose of the main case without trial, constituting prejudgment.

• Rule 45, Rules of Court — Governs the Petition for Review on Certiorari filed by petitioners seeking reversal of the Court of Appeals decision.
• Rule 58, Rules of Court — Provides for the grounds and requirements for the issuance of preliminary injunctions.
• Section 54, Revised Corporation Code — Vests the right to vote shares of a deceased stockholder in the executor or administrator duly appointed by the court.
• Section 51, Revised Corporation Code — Defines quorum as consisting of stockholders representing a majority of the outstanding capital stock.
• Section 23, Revised Corporation Code — Requires the presence of the owners of a majority of the outstanding capital stock for the election of directors.

Leonen, J. (Chairperson), Inting, J., and Lopez, J.