ZOSIMO RIVAS AND NORDY P. DIPLOMA, PETITIONERS, VS. SECURITIES AND EXCHANGE COMMISSION, EZEKIEL F. TOEG, ORLANDO C. DULAY, MIGUEL S. ARAMBULO, JR., RODOLFO H. DULAY, RODRIGO C. …

Rivas versus Securities and Exchange Commission

The Case

This is a petition for certiorari filed by Zosimo Rivas and Nordy Diploma against the Securities and Exchange Commission, sitting en banc, and several private respondents led by Ezekiel Toeg. The petitioners ask the Supreme Court to annul and set aside the order of the Commission en banc dated 21 April 1980, which lifted the writ of preliminary injunction earlier issued by the Commission's hearing officer in a case for nullification of transfer of shares and of directors' election. The case matters because it teaches the metes and bounds of the law of the case, the proper office of a preliminary injunction, and the meaning of status quo — three concepts that examiners test again and again in remedial law and corporation law.

Procedural History

On 26 March 1979, the petitioners filed with the Securities and Exchange Commission a petition for nullification of transfer of shares and of directors' election, with a prayer for a writ of preliminary injunction. On 27 March 1979, the hearing officer issued a restraining order. On 31 May 1979, after hearing, the hearing officer issued an order granting the writ of preliminary injunction upon a bond of not less than 100,000 pesos. The private respondents moved for reconsideration, which the hearing officer denied on 23 July 1979. The private respondents then appealed to the Commission en banc on 20 August 1979.

While that appeal was pending, the private respondents went to the Supreme Court on a petition for certiorari and prohibition, asking that the two orders of the hearing officer be annulled. The Supreme Court dismissed that petition for lack of merit on 9 November 1979. The private respondents then filed with the Commission en banc a manifestation and motion, calling attention to a letter-directive of the Minister of Justice which reversed the finding of the City Fiscal of Manila and directed the dismissal of the theft case. On 21 April 1980, the Commission en banc reversed the appealed order, lifted and dissolved the writ of preliminary injunction, and remanded the records to the hearing officer for trial on the merits. Hence, this petition for certiorari before the Supreme Court.

Facts

Sometime in November 1976, the petitioner Nordy Diploma endorsed several Woodworks, Incorporated stock certificates, covering a total of 1,155 shares, and deposited them in a safety deposit box maintained jointly in his name and that of the private respondent Ezekiel Toeg. Diploma entrusted the duplicate key to Toeg, his close business associate and friend of ten years, with the instruction that Toeg could have access to the box should anything happen to him, since Diploma was frequently traveling here and abroad.

Sometime in November 1978, soon after returning from a two-month sojourn abroad, Diploma discovered that the stock certificates were in Toeg's possession. Upon inquiry with the depository bank, he learned that on 16 August 1978, Toeg had opened the safety deposit box. Diploma confronted Toeg and negotiated with him and the other respondents, who were either Toeg's transferees or nominees, but to no avail. On 13 February 1979, Diploma charged Toeg with theft before the Office of the City Fiscal of Manila. In his counter-affidavit, Toeg took the position that Diploma had sold the 1,155 shares to Toeg, Jacob Isaac and Teodoro Bundang way back in February 1978.

Sometime in the early part of February 1979, the petitioners received a secretary's certificate issued by the respondent Emigdio Tanjuatco, Junior, certifying to the election of directors and officers at a supposed stockholders' meeting. The petitioners claimed that the directors' meeting held on 22 January 1979 was illegal, null and void for absence of notice to stockholders of record. This led to the petition before the Commission, the injunction, and eventually to the present case.

Issues

• Whether or not the dismissal by the Supreme Court of the private respondents' earlier petition for certiorari constituted the law of the case, which precluded the Commission en banc from ruling again on the issue of whether the petitioners were entitled to a writ of preliminary injunction.
• Whether or not the Commission en banc pre-judged the case on the merits and disturbed the status quo when it issued the questioned order.

Applicable Provisions

The decision does not quote any statutory provision. It rests on the doctrine of the law of the case, which the Court defines in these words:

Law of the case has been defined as the opinion delivered on a former appeal. More specifically, it means that whatever is once irrevocably established, as the controlling legal rule or decision between the same parties in the same case continues to be the law of the case, whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be facts of the case before the court.

This definition bears on the first issue, because the petitioners invoke it to bar the Commission en banc from re-examining the injunction.

Ruling

On the first issue, the Court held that the contention is untenable. In the earlier case, the Supreme Court simply dismissed the petition for lack of merit in a minute resolution, without explaining the reasons on which it was predicated. In so doing, the Court merely resolved the point in issue, namely, the regularity of the issuance of the questioned orders, and held that they were issued with jurisdiction and without grave abuse of discretion. The Court emphasized that it did not make any ruling on the merits of the petition so as to establish a controlling legal rule which had to be subsequently followed by the parties in the same case. Hence, no law of the case was laid down. The Court reinforced this with its holding in Jarantilla versus Court of Appeals, where it ruled that the doctrine of the law of the case has no application when the Court, without rendering a specific opinion or explanation as to the legal and factual bases, simply dismissed the special civil action for lack of merit.

On the second issue, the Court likewise held that the contention is untenable. It was not the Commission en banc that pre-judged the case; it was the hearing officer who had pre-judged it when he issued the writ of preliminary injunction. In issuing the writ, the hearing officer assumed as true the allegations in the petition and, in effect, disposed of the main case without trial, thereby shifting the burden of proof to the private respondents. The Court quoted its ruling in Ortigas and Company Limited Partnership versus Court of Appeals:

In general, courts should avoid issuing a writ of preliminary injunction which in effect disposes of the main case without trial.

It also quoted Government Service Insurance System versus Florendo:

Equally pertinent is the rule that courts should avoid issuing a writ of preliminary injunction which, in effect, would dispose of the main case without trial or would result in a prejudgment of the main case and a reversal of the rule on the burden of proof since it would assume the proposition which the petitioner is inceptively duty bound to prove.

On the status quo, the Court held that the issuance of the questioned order did not disturb it. The status quo is the last actual peaceable uncontested status which preceded the controversy. Before the petition was filed, Toeg, Bundang and Isaac were in possession of the stock certificates endorsed in blank by Diploma; a stockholders' meeting had been held electing the directors; and a directors' meeting had been held electing the officers. The sole object of a preliminary injunction is to preserve the status quo until the merits of the main case can be heard. In issuing the writ, the hearing officer did not maintain the status quo but restored the corporate situation preceding it, that is, the situation before the stockholders' meeting held on 22 January 1979. The lifting of the writ by the Commission en banc merely restored the status quo. The Court added that the other issues raised by the petitioners are the main issues in the case before the Commission and should be resolved there.

Doctrine

A Bar candidate should retain these rules. First, the law of the case means that whatever is once irrevocably established as the controlling legal rule or decision between the same parties in the same case continues to be the law of the case, whether correct on general principles or not, so long as the facts on which the decision was predicated continue to be the facts of the case before the court. Second, no law of the case is laid down when the Supreme Court merely dismisses a petition for lack of merit in a minute resolution without explaining the legal and factual bases of the dismissal; such a dismissal resolves only the point in issue, not the merits. Third, courts should avoid issuing a writ of preliminary injunction which in effect disposes of the main case without trial, pre-judges the main case, or reverses the burden of proof. Fourth, the status quo is the last actual peaceable uncontested status which preceded the controversy, and the sole object of a preliminary injunction is to preserve it until the merits of the main case can be heard.

Disposition

The petition was dismissed, and the order of the Commission en banc lifting the writ of preliminary injunction stood.

Remember This

Memorize this line: a minute resolution dismissing a petition for lack of merit, without explanation, does not establish the law of the case. Examiners use this case to test the doctrine of the law of the case and the rule that a preliminary injunction must never dispose of the main case without trial.