CHAN CUAN AND CHIEN-YIN SHAO A.K.A. HENRY SHAO, PETITIONERS, VS. CHIANG KAI SHEK COLLEGE, INC. AND SANTIAGO CUA, RESPONDENTS.

Chan Cuan versus Chiang Kai Shek College

The Case

This is a petition for review on certiorari brought by Chan Cuan and Chien-Yin Shao, known as Henry Shao, against Chiang Kai Shek College, Incorporated and Santiago Cua. The respondents had filed a derivative suit in the Regional Trial Court of Manila, questioning the membership of Henry Shao in the corporation and seeking to stop him from sitting as a member and trustee. The trial court refused to issue a writ of preliminary injunction, but the Court of Appeals reversed and issued the writ. The Supreme Court now steps in to decide whether that injunction was properly issued. The case matters because it gathers in one place the rules on preliminary injunction in corporation disputes, the clean-hands maxim in equity, and the deference owed to the trial court's findings of fact.

Procedural History

Chiang Kai Shek College, Incorporated and Santiago Cua filed a derivative suit before the Regional Trial Court of Manila, Branch 46, which also sat as a commercial court. They asked for a writ of preliminary injunction to stop the scheduled election of the board of trustees and to prevent Henry Shao from participating. The trial court issued a seventy-two hour temporary restraining order, later extended to twenty days, and then a further order suspending the election of officers. After hearings, the trial court issued its order of July 27, 2006, denying the application for a preliminary mandatory injunction. It found that Santiago Cua was estopped to question Shao's membership and that the respondents had failed to show irreparable injury.

The respondents then went up to the Court of Appeals by petition for certiorari. The appellate court granted the petition in its decision of October 10, 2006, annulled the trial court's order, and directed the issuance of a writ of preliminary injunction upon the filing of a bond of 200,000 pesos. The petitioners' motion for reconsideration was denied in December 2006. The petitioners then came to the Supreme Court by petition for review on certiorari. The Supreme Court issued a status quo order and later gave due course to the petition.

Facts

Chiang Kai Shek College, Incorporated is a non-stock, non-profit educational institution. Santiago Cua was its honorary chairman of the board of trustees and a long-time member. Chan Cuan was the chairman of the board of trustees. Henry Shao had been a faculty member of the college from 1954 to 1956 and its president from 1989 to 1994. He was also appointed to the board of advisers of the alumni association and later made an honorary member.

In a joint special meeting of the board of trustees and members held on April 19, 2004, Henry Shao was nominated for membership in the corporation. Santiago Cua seconded the nomination. Shao was unanimously voted for and approved as a regular member. No one present, Cua included, objected.

In July 2006, the respondents filed a derivative suit, alleging that Chan Cuan and Henry Shao had conspired to violate the by-laws by conducting an election of the board of trustees on July 7, 2006 without first complying with the prerequisites for Shao's admission as a member. The trial court issued a temporary restraining order, and the meeting pushed through. Shao's name appeared on the list of admitted members used as the official ballot, and he voted and was voted for. The respondents filed a supplemental complaint, and the trial court suspended the election of officers. After hearings, the trial court denied the injunction, ruling that Cua was estopped and that no irreparable injury was shown. The Court of Appeals reversed, and the case reached the Supreme Court.

Issues

• Whether or not the Court of Appeals erred in disregarding the petitioners' argument that Santiago Cua should have filed a quo warranto proceeding instead of a derivative suit.
• Whether or not the Court of Appeals erred in disregarding the trial court's findings that Henry Shao is a legitimate member and trustee and that Santiago Cua is in estoppel.
• Whether or not the Court of Appeals erred in issuing the writ of preliminary injunction despite the failure of Santiago Cua to present evidence of irreparable or serious damage or injury.
• Whether or not the Court of Appeals erred in granting the petition and issuing the writ when the acts sought to be enjoined had already become fait accompli, or accomplished and consummated acts.

Applicable Provisions

Article II, Section 1 of the by-laws of Chiang Kai Shek College, Incorporated, on membership, provides:

Any member or an honorary member of Chiang Kai Shek College Alumni Association, Inc. who is of good moral character and reputation in the community; who supports and believes in the principles of democracy and liberty; who subscribes to the purposes of the Corporation; and who agrees to comply with and be bound by these By-Laws, is eligible for membership. An applicant shall first be recommended for admission by the Board of Trustees and then endorsed for approval at the members' regular annual meeting. Such recommendation for admission requires a 2/3 majority vote of the entire membership of the Board of Trustees and shall be further approved by a 2/3 majority vote of the entire membership of the Corporation. The Board of Trustees may prescribe additional qualifications for membership as the purposes for which the Corporation is organized may require.

This provision is the very basis of the respondents' claim that Shao was not duly admitted, because his admission was taken up in a joint special meeting rather than in a regular annual meeting.

Rule 58, Section 3 of the Rules of Civil Procedure, on the grounds for the issuance of a preliminary injunction, provides:

That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually; That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

These are the requisites the respondents had to establish, and the Court measures their evidence against them.

Ruling

On the first issue, the Court did not resolve the quo warranto argument as a separate ground. It noted that the respondents themselves conceded that the derivative suit was filed as a nominal party to redress violations of the by-laws in connection with the election of trustees. The resolution of the petition was therefore circumscribed by that cause of action.

On the second issue, the Court held that the Court of Appeals failed to make its own findings of fact and merely recited a chronology of events. The Supreme Court, not being a trier of facts, relied on the trial court's findings. The evidence showed that Shao became a regular member in 2004 when he was nominated and unanimously voted for, with Cua present and not objecting. Since Cua failed to object, he may not now question Shao's membership. The Court stressed that injunction is the strong arm of equity, and he who applies for it must come with clean hands.

On the third issue, the Court held that the respondents failed to show the requisites under the Rules. A preliminary injunction is a provisional remedy whose sole objective is to preserve the status quo until the trial court hears the merits. It is not meant to correct a wrong already consummated. The Court also held that the trial court's discretion in injunction matters is generally not interfered with save in cases of manifest abuse.

On the fourth issue, the Court found that the acts complained of had already been consummated. Cua himself had prayed that Chan Cuan be compelled to hold a meeting to elect a new board, and that meeting produced Shao's election. Cua cannot now annul the very election he sought. The Court also noted that by practice and tradition, the by-laws on annual meetings had not been followed for sixty years, and the corporation had been holding meetings at least six times a year.

Doctrine

A preliminary injunction is a provisional remedy, an adjunct to the main case, and its sole objective is to preserve the status quo until the trial court hears the merits. It is not designed to correct a wrong already consummated, to redress an injury already sustained, or to punish wrongful acts already committed. The applicant must establish the requisites under Rule 58, Section 3 of the Rules of Civil Procedure, and must come to court with clean hands, for he who seeks equity must do equity and he who comes into equity must come with clean hands. The matter of issuing a preliminary injunction is addressed to the sound discretion of the trial court, and that discretion is generally not interfered with save in cases of manifest abuse. The Court of Appeals must state its own findings of fact and cite the particular law to justify the grant of a preliminary injunction.

Disposition

The Supreme Court granted the petition, set aside the decision and resolution of the Court of Appeals, and upheld the order of the trial court denying the application for a writ of preliminary injunction.

Remember This

Memorize this line: a preliminary injunction preserves the status quo and cannot be used to correct a wrong already consummated, and the applicant must come with clean hands. Examiners like to use this case on the requisites of preliminary injunction, the clean-hands maxim, and the deference owed to the trial court's findings of fact in injunction proceedings.