Strategic Alliance Development Corporation vs. Star Infrastructure Development Corporation

A preliminary injunction duly issued to restrain an unauthorized or illegal act may not be dissolved by the mere posting of a counterbond by the enjoined party, and a prejudicial question cannot be appreciated where all subject actions are civil in nature, the doctrine being limited to situations where both a civil action and a criminal action are pending.

Strategic Alliance Development Corporation (STRADEC) is a corporation holding shares in Star Infrastructure Development Corporation (SIDC), a public utility company holding the concession for the construction, operation, and maintenance of the STAR toll road. A factional dispute divided STRADEC's corporators into two groups: one headed by Cezar T. Quiambao, STRADEC's Corporate President, and another by respondents Aderito Z. Yujuico and Bonifacio C. Sumbilla. The dispute centered on the legitimacy of each group's claim to STRADEC's Board of Directors and, consequently, the authority to dispose of STRADEC's shareholdings in SIDC. This Court had previously rendered a 29 January 2007 decision in G.R. No. 168639 restoring a Board of Directors to office, though the scope of that ruling became a point of contention between the factions.

Strategic Alliance Development Corporation (STRADEC) is a corporate stockholder of Star Infrastructure Development Corporation (SIDC), a public utility company holding the concession for the construction, operation, and maintenance of the STAR toll road. Internal dissension fractured STRADEC into two factions: one led by Cezar T. Quiambao, who claimed to be the duly elected Corporate President, and another by respondents Aderito Z. Yujuico and Bonifacio C. Sumbilla, who asserted that their group constituted STRADEC's legitimate Board of Directors. The Court had previously rendered a 29 January 2007 decision in G.R. No. 168639 restoring a Board of Directors to office, though the parties disputed whether that ruling pertained only to the 2004–2005 term or had continuing effect.

On 8 October 2004, respondents Yujuico and Sumbilla, purporting to act on behalf of STRADEC, executed a loan and pledge over STRADEC's SIDC shareholdings. STRADEC alleged that this transaction was attended by fraud and lacked consideration. Thereafter, the pledged shares were transferred to respondent Robert L. Wong and respondent Cypress Tree Capital Investment, Inc. (CTCII), and the transfers were recorded in SIDC's corporate books. SIDC's corporate structure was consequently altered, including changes effected through resolutions passed during a 20 July 2006 stockholders' special meeting and an increase in authorized capital stock.

STRADEC, through Quiambao, filed an amended petition on 31 July 2006 before Branch 2 of the RTC of Batangas City, sitting as a Special Commercial Court, seeking nullification of the loan and pledge, avoidance of the notarial sale conducted by respondent Raymond M. Caraos, cancellation of the transfer of its shares in SIDC's books, invalidation of the 30 July 2005 and 20 July 2006 SIDC stockholders' meetings, and recovery of attorney's fees and costs. The RTC issued a 30 August 2006 order withholding action on the first and second causes of action for improper venue and suspending proceedings on the third and fourth causes of action pending resolution of G.R. No. 168639. The Court of Appeals subsequently rendered a 22 December 2008 decision in CA-G.R. SP No. 96945, prompting STRADEC to elevate the matter to the Supreme Court via petition for review on certiorari.

On 17 November 2010, the Supreme Court granted STRADEC's application for a writ of preliminary injunction, enjoining CTCII from further exercising proprietary rights over the subject shares, SIDC and its officers from recognizing the transfers, the implementation of the 20 July 2006 stockholders' resolutions, and the SEC from acting on related reports. Respondents moved for reconsideration, raising among other grounds the alleged prejudicial character of Quiambao's authority to represent STRADEC, misjoinder of causes of action, the consummated nature of the enjoined acts, and the insufficiency of the injunction bond. CTCII additionally offered to post a counterbond in the sum of ₱20,000,000.00, arguing that the ₱10,000,000.00 injunction bond posted by STRADEC was grossly insufficient to cover the grave and irreparable damage the writ would inflict on SIDC's toll road operations.

• Authority of Quiambao: STRADEC maintained that as its duly elected Corporate President, Quiambao was duly authorized to file the 31 July 2006 amended petition and to obtain the requisite surety bond, citing a 21 May 2009 Directors' Certification expressly granting him such authority.
• Continuing Violations: STRADEC argued that CTCII's continuing violations of its rights over its SIDC shares justified the issuance of the writ of preliminary injunction, and that the grave and irreparable damage pleaded by CTCII was attributable to its own illegal acquisition of the subject shares.
• Prior Adjudication: STRADEC contended that the arguments raised by respondents had already been squarely passed upon in the 17 November 2010 decision and that the suspension of proceedings on its third and fourth causes of action was not justified by the pendency of other intra-corporate disputes.
• Scope of G.R. No. 168639: STRADEC asserted that the decision in G.R. No. 168639 had reference only to the election of its Board of Directors for the term 2004–2005, and that subsequent annual stockholders' meetings had consistently re-elected Quiambao as Corporate President, a result recognized by the Pasig City RTC in SCA No. 3034 and effectively affirmed by the Supreme Court in G.R. No. 188864.

• Prejudicial Question: Respondents argued that the issue of Quiambao's authority to represent STRADEC was a prejudicial question to the resolution of the dispute before the court a quo, given pending cases in Pasig City and Urdaneta City involving the ownership of STRADEC's controlling shares and the legitimacy of the Board headed by Quiambao.
• Validation of Pledge: Respondents maintained that a declaration that Yujuico and Sumbilla's group constituted STRADEC's legitimate Board of Directors would discount Quiambao's authority and validate their authority to execute the 8 October 2004 pledge of STRADEC's SIDC shares.
• Lack of Legitimate Succession: Respondents asserted that the record was bereft of any showing that the Board of Directors authorizing Quiambao to file the amended petition was the legitimate successor of the Board restored to office by the 29 January 2007 decision in G.R. No. 168639.
• Misjoinder of Causes of Action: Respondents contended that there was misjoinder of causes of action in the amended complaint, which incorporated claims both civil and intra-corporate in nature.
• No Clear Right to Injunction: Respondents argued that STRADEC had no clear and unmistakable right entitling it to a writ of preliminary injunction, which at any rate could not be directed against acts already accomplished or consummated.
• Prejudgment: Respondents asserted that the preliminary injunction issued amounted to a prejudgment of the case.
• Insufficiency of Bond and Counterbond Offer: CTCII argued that the ₱10,000,000.00 injunction bond was grossly insufficient to cover the grave and irreparable damage resulting from the writ, and offered to post a counterbond of ₱20,000,000.00, contending that the writ would prevent SIDC from implementing its capital stock increase and from infusing equity participation required for bank loans for its ₱2,000,000,000.00 toll road expansion.

• Prejudicial Question: Whether the issue of Quiambao's authority to represent STRADEC constitutes a prejudicial question that must be resolved before the proceedings before the RTC of Batangas City may proceed.
• Jurisdiction and Nature of Action: Whether STRADEC's causes of action in its amended complaint are intra-corporate disputes cognizable by the RTC sitting as a Special Commercial Court, and whether there was misjoinder of causes of action.
• Authority to Represent: Whether Quiambao was duly authorized to file the amended petition and the motion to admit and approve the preliminary injunction bond on behalf of STRADEC.
• Entitlement to Preliminary Injunction: Whether STRADEC is entitled to the writ of preliminary injunction, including whether the writ may issue against acts already consummated.
• Dissolution via Counterbond: Whether CTCII's offer to post a counterbond warrants the dissolution of the writ of preliminary injunction.

• Prejudicial Question: No. A prejudicial question cannot be appreciated where all subject actions are civil in nature; the doctrine applies only when both a civil action and a criminal action are pending, with the civil issue determinative of the criminal case.
• Jurisdiction and Nature of Action: Yes, the causes of action are intra-corporate disputes. The nature of the action is determined by the allegations in the complaint, and applying the relationship test and the nature of the controversy test, the nullification of the loan, pledge, and notarial sale over STRADEC's SIDC shares qualifies as intra-corporate; no misjoinder exists.
• Authority to Represent: Yes. The 21 May 2009 Directors' Certification attached to STRADEC's petition expressly authorized Quiambao to file the petition, verify pleadings, and execute affidavits in support thereof, including the authority to appear on the corporation's behalf.
• Entitlement to Preliminary Injunction: Yes. The concurrence of the essential requisites is evident from STRADEC's deprivation of its rights to its shareholdings and participation in SIDC's corporate affairs; consummated acts of a continuing nature may still be enjoined.
• Dissolution via Counterbond: No. The mere offer of a counterbond does not suffice to warrant dissolution of a preliminary injunction issued to stop an unauthorized act; doing so would permit the counterbond to serve as a vehicle for the commission or continuance of an unauthorized or illegal act.

• Prejudicial Question: A prejudicial question is defined as one that arises in a case, the resolution of which is a logical antecedent of the issue involved therein, and the cognizance of which pertains to another tribunal. It comes into play when a civil action and a criminal action are both pending, and the resolution of the civil issue is determinative juris et de jure of the guilt or innocence of the accused. Two essential requisites must concur: (a) the civil action involves an issue similar or intimately related to the issue raised in the criminal action; and (b) the resolution of such issue determines whether or not the criminal action may proceed. Because all actions in this case are civil in nature, the doctrine is inapplicable. Moreover, even assuming that a declaration from the Pasig City and Urdaneta City courts validating respondents' group as STRADEC's legitimate Board would equate to due authorization for the loan and pledge, it would not dispose of the issues of lack of consideration and fraud attending the execution of those transactions.

• Jurisdiction and Nature of Action: The nature of an action and the court with jurisdiction over it are determined based on the allegations in the complaint, irrespective of whether the plaintiff is entitled to recover. Only ultimate facts, not legal conclusions or evidentiary facts, are considered. Applying the relationship test and the nature of the controversy test from the 17 November 2010 decision, STRADEC's causes of action for nullification of the loan and pledge over its SIDC shareholdings and avoidance of the notarial sale both qualify as intra-corporate disputes. The Court found no misjoinder, as all causes of action — including cancellation of the transfer of shares in SIDC's books, invalidation of the 30 July 2005 and 20 July 2006 SIDC stockholders' meetings, attorney's fees, and costs — were properly cognizable as intra-corporate disputes.

• Authority to Represent: The Court examined the 29 January 2007 decision in G.R. No. 168639 and found no pronouncement barring the filing of the 31 July 2006 amended petition. As a corporation with a personality separate and distinct from its corporators, STRADEC has a right to protect its rights and interests over the subject SIDC shares. The 21 May 2009 Directors' Certification, signed by Demetrio G. Demetria (Chairman), Anthony K. Quiambao (Vice Chairman), Cezar T. Quiambao, Julius K. Quiambao, and Giovanni T. Casanova, expressly authorized Quiambao to file the petition for review on certiorari, verify pleadings, execute affidavits, and appear on the corporation's behalf. The matter of Quiambao's authority was better threshed out before the court a quo, as responsive pleadings squarely questioning his authority had yet to be filed by respondents at the time the RTC issued its 30 August 2006 order.

• Entitlement to Preliminary Injunction: A writ of preliminary injunction requires the concurrence of three essential requisites: (1) the invasion of the right is material and substantial; (2) the right of the complainant is clear and unmistakable; and (3) there is an urgent and paramount necessity for the writ to prevent serious damage. All three are evident from STRADEC's deprivation of its rights to its shareholdings and to participate in SIDC's corporate affairs as a consequence of the impugned loan, pledge, and transfers. The writ was thus properly issued to restrain CTCII from exercising proprietary rights over the shares, SIDC from recognizing the transfers, the implementation of the 20 July 2006 stockholders' resolutions, and the SEC from acting on related reports. The restraint did not amount to prejudgment but merely served the office of a writ of preliminary injunction — restoration of the status quo ante and preservation of the litigant's rights during the pendency of the case. Although the general rule is that a writ cannot issue against acts already fait accompli, consummated acts that are continuing in nature may still be enjoined.

• Dissolution via Counterbond: Under Section 6, Rule 58 of the 1997 Rules of Civil Procedure, a preliminary injunction may be dissolved if, after hearing, it appears that although the applicant is entitled to the injunction, its continuance would cause irreparable damage to the enjoined party while the applicant can be fully compensated, and the enjoined party files a counterbond. Two conditions must concur: first, the court finds that continuance of the injunction would cause great damage to the defendant while the plaintiff can be fully compensated; and second, the defendant files a counterbond. The Court found CTCII's projected damage to SIDC's toll road operations speculative, and noted that the damage STRADEC suffered — divestiture of ownership over its shares and denial of its rights as a major stockholder — was clearly beyond monetary recompense. The amount of the injunction bond (₱10,000,000.00) was equivalent to the supposed loan for which the shares were pledged. Critically, the mere offer of a counterbond does not suffice to warrant dissolution of an injunction issued to stop an unauthorized act; a contrary holding would open the gates to the use of the counterbond as a vehicle for the commission or continuance of an unauthorized or illegal act.

• Prejudicial Question — A prejudicial question arises in a case the resolution of which is a logical antecedent of the issue involved therein, and the cognizance of which pertains to another tribunal. It requires the concurrence of two essential requisites: (a) the civil action involves an issue similar or intimately related to the issue raised in the criminal action; and (b) the resolution of such issue determines whether or not the criminal action may proceed. The doctrine applies only when both a civil action and a criminal action are pending; it cannot be appreciated where all subject actions are civil in nature.

• Determination of Jurisdiction by Allegations in the Complaint — The nature of the action and the court or body which has jurisdiction over it are determined based on the allegations contained in the complaint, irrespective of whether the plaintiff is entitled to recover upon all or some of the claims asserted. Only ultimate facts, not legal conclusions or evidentiary facts, are considered for purposes of applying the test.

• Intra-Corporate Dispute Tests — Under the relationship test and the nature of the controversy test, causes of action involving the nullification of loans, pledges, and sales of a corporation's shareholdings in another corporation, when arising from acts of the corporation's officers or directors, qualify as intra-corporate disputes cognizable by Special Commercial Courts.

• Requisites for Preliminary Injunction — A writ of preliminary injunction may be issued upon concurrence of three essential requisites: (1) the invasion of the right is material and substantial; (2) the right of the complainant is clear and unmistakable; and (3) there is an urgent and paramount necessity for the writ to prevent serious damage.

• Injunction Against Continuing Consummated Acts — While the general rule is that a writ of preliminary injunction cannot be issued against acts already fait accompli, consummated acts which are continuing in nature may still be enjoined by the courts.

• Dissolution of Injunction by Counterbond — Under Section 6, Rule 58 of the 1997 Rules of Civil Procedure, a preliminary injunction may be dissolved upon two concurrent conditions: (a) the court finds that continuance of the injunction would cause great damage to the defendant while the plaintiff can be fully compensated; and (b) the defendant files a counterbond. However, the mere offer of a counterbond does not suffice to warrant dissolution of an injunction issued to stop an unauthorized or illegal act, as this would permit the counterbond to serve as a vehicle for the commission or continuance of such act.

• Corporate Personality Separate from Corporators — A corporation has a personality separate and distinct from its corporators and has a right to protect its rights and interests, including over its shareholdings in other corporations.

• "From the foregoing disquisition, it is evident that a prejudicial question cannot be appreciated where, as in the case at bench, the subject actions are all civil in nature." — This passage states the ratio decidendi on the inapplicability of the prejudicial question doctrine to purely civil proceedings, a point central to the resolution of respondents' primary challenge.

• "the mere offer of a counterbond does not suffice to warrant the dissolution of the preliminary writ of injunction issued to stop an unauthorized act. A contrary holding would open the gates to the use of the counterbond as a vehicle of the commission or continuance of an unauthorized or illegal act which the injunction precisely is intended to prevent." — This is the canonical formulation of the rule limiting the counterbond doctrine, frequently cited in subsequent injunction jurisprudence.

• "Although the general rule is to the effect that a writ of preliminary injunction cannot be issued against acts already fait accompli, it has been held, however, that consummated acts which are continuing in nature may still be enjoined by the courts." — This passage articulates the exception to the fait accompli bar, the key doctrinal basis for sustaining the injunction despite the transfers having been recorded.

• "Fundamental is the rule that nature of the action, as well as the court or body which has jurisdiction over it, is determined based on the allegations contained in the complaint, irrespective of whether or not plaintiff is entitled to recover upon all or some of the claims asserted therein." — This is the standard formulation of the complaint-allegations rule for determining jurisdiction and nature of action, a foundational principle in Philippine remedial law.

• Metro Properties, Inc. vs. Magallanes Village Association, Inc., 510 Phil. 101 (2005) — Cited for the rule that the nature of the action and jurisdiction are determined by the allegations in the complaint.
• Abacan, Jr. vs. Northwestern University, 495 Phil. 123 (2005) — Cited for the principle that only ultimate facts, not legal conclusions or evidentiary facts, are considered in determining the nature of the action; also cited for the proposition that a court may hold an action in abeyance to abide by the outcome of another case, especially where parties and issues are the same.
• People of the Philippines vs. Cosing, Jr., 443 Phil. 454 (2003) — Cited for the definition of a prejudicial question.
• Ching vs. Court of Appeals, 387 Phil. 28 (2000) — Cited for the two essential requisites of a prejudicial question.
• Carlos vs. Court of Appeals, 335 Phil. 490 (1997) — Cited for the proposition that a prejudicial question cannot be appreciated where all subject actions are civil in nature.
• Reyes-Tabujara vs. Court of Appeals, G.R. No. 172813, 20 July 2006 — Cited for the exception that consummated acts continuing in nature may still be enjoined.
• Yap vs. International Exchange Bank, G.R. No. 175145, 28 March 2008 — Cited for the two conditions required for dissolution of a preliminary injunction by counterbond under Section 6, Rule 58.
• Director of the Bureau of Telecommunications vs. Hon. Jose A. Aligaen, G.R. No. L-31135, 29 May 1970 — Cited for the rule that a counterbond cannot dissolve an injunction issued to stop an unauthorized act.

• Section 6, Rule 58, 1997 Rules of Civil Procedure — Governs the grounds for objection to or dissolution of an injunction or restraining order, including the conditions under which a counterbond may warrant dissolution. The Court applied this provision to evaluate CTCII's offer to post a counterbond, holding that the two conditions (great damage to the enjoined party and full compensability of the applicant's damages) were not satisfied and that the mere offer of a counterbond cannot dissolve an injunction against an unauthorized act.

Corona, C.J. (Chairperson), Velasco, Jr., Leonardo-De Castro, and Peralta, JJ., concurred. Peralta, J. sat as additional member in lieu of Associate Justice Mariano C. Del Castillo per Special Order No. 913 dated 02 November 2010.