Spouses Mirasol v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioners, Spouses Mirasol, sugarland owners, obtained crop loan financing from Philippine National Bank (PNB) for crop years 1973-1974 and 1974-1975, secured by mortgages. Presidential Decree (P.D.) No. 579, issued in November 1974, authorized Philippine Exchange Co., Inc. (PHILEX) to purchase export sugar and directed PNB to finance PHILEX's purchases, with profits remitted to the national government. PNB continued financing the Mirasols for crop years 1975-1976 and 1976-1977. The Mirasols requested an accounting of their export sugar proceeds from PNB, which was ignored. PNB later demanded settlement of their accounts, leading the Mirasols to convey properties worth P1,410,466.00 via dacion en pago in August 1977, leaving an outstanding balance. By August 1982, their total outstanding loans reached P15,964,252.93. PNB foreclosed the mortgaged properties, resulting in a deficiency claim of P12,551,252.93. The Mirasols continued to demand an accounting, asserting that the proceeds from their export sugar could offset their obligations, while PNB maintained that under P.D. No. 579, all export sugar earnings belonged to the National Government. Procedural History: On August 9, 1979, the Mirasols filed a suit for accounting, specific performance, and damages against PNB. PHILEX was later impleaded. The Regional Trial Court (RTC) declared P.D. No. 579 unconstitutional, ordered PNB and PHILEX to pay the Mirasols for unliquidated export sugar proceeds, and awarded moral damages and attorney's fees. The RTC later modified its judgment to consider Republic Act (R.A.) No. 7202, the Sugar Restitution Law. On appeal, the Court of Appeals (CA) reversed the RTC's decision, declaring the dacion en pago and foreclosure valid, ordering PNB to render an accounting, and directing recomputation of the Mirasols' indebtedness in accordance with R.A. No. 7202. The CA denied the Mirasols' motion for reconsideration. The Petition: The Spouses Mirasol filed a petition for review on certiorari with the Supreme Court, raising issues on the RTC's jurisdiction to declare a statute unconstitutional without notice to the Solicitor General, the constitutionality of P.D. No. 579, the piercing of the corporate veil between PNB and PHILEX, the validity of the foreclosure and dacion en pago, and the denial of damages.
Issue(s)
Whether the Regional Trial Court has jurisdiction to declare a statute unconstitutional without notice to the Solicitor General. Whether Presidential Decree No. 579 and its subsequent issuances are unconstitutional. Whether the Court of Appeals committed manifest error in not applying the doctrine of piercing the corporate veil between respondents PNB and PHILEX. Whether the Court of Appeals committed manifest error in upholding the validity of the foreclosure on petitioners' property and the dacion en pago. Whether the Court of Appeals committed manifest error in not awarding damages to petitioners.
Ruling
The Supreme Court denied the petition and affirmed the decision of the Court of Appeals. The Court held that the RTC improperly declared P.D. No. 579 unconstitutional due to lack of notice to the Solicitor General. It also found the dacion en pago and foreclosure valid, and that legal compensation was not applicable. The claims for moral damages and attorney's fees were denied for failure to prove bad faith.
Ratio Decidendi
On the RTC's jurisdiction to declare a statute unconstitutional without notice to the Solicitor General: The Court reiterated that Regional Trial Courts possess the authority to pass upon the constitutionality of statutes. However, it emphasized that Rule 64, Section 3 of the Rules of Court, which mandates notice to the Solicitor General in actions involving the validity of a statute, is mandatory. The purpose of this notice is to allow the Solicitor General to intervene if deemed necessary. Since the Solicitor General was not notified in the present case, the RTC's declaration of unconstitutionality was improper. The Court clarified that this notice requirement applies to "any action" assailing the validity of a statute, not just declaratory relief actions. On the constitutionality of Presidential Decree No. 579: The Court declined to rule on the constitutionality of P.D. No. 579. It cited the requisites for judicial review, including that the question of constitutionality must be the very lis mota of the case. The primary cause of action was for accounting and specific performance, which could be resolved without passing on the decree's validity. The Court noted that PNB's refusal to provide an accounting was governed by the law on agency, not P.D. No. 579. Furthermore, the Court held that R.A. No. 7202, the Sugar Restitution Law, did not implicitly repeal P.D. No. 579, as repeals by implication are not favored, and the legislature cannot declare a law unconstitutional. On piercing the corporate veil between PNB and PHILEX: The Court upheld the Court of Appeals' finding that PNB and PHILEX are separate juridical persons with distinct operations and purposes. The appellate court's factual findings are generally binding on the Supreme Court. Since the appellate court found no reason to pierce the corporate veil, and there was no manifest error in this regard, the Supreme Court did not disturb this finding. The existence of separate organic acts and different operational purposes supported the conclusion that their corporate personalities should be maintained. On the validity of the foreclosure and dacion en pago: The Court found the petitioners' arguments against the validity of the dacion en pago and foreclosure unpersuasive. Both the RTC and the CA found that the Mirasols admitted their indebtedness to PNB. The Court explained that legal compensation under Articles 1278 and 1279 of the Civil Code could not take place because the debts were not between the same parties in their own right, and the claim for export sugar proceeds was still subject to litigation and thus not liquidated. Furthermore, the Court affirmed the findings of both lower courts that there was no evidence of duress or bad faith on the part of PNB in the dacion en pago. On the award of damages: The Court denied the restoration of moral damages and attorney's fees. While PNB breached its duty as an agent by failing to render an accounting, moral damages require proof of fraud or bad faith, which was not sufficiently established by the petitioners. Similarly, attorney's fees, which are allowed in cases of gross and evident bad faith in refusing to satisfy a plainly valid claim, were also denied for the same reason. The Court reiterated that good faith is presumed, and the burden of proving bad faith rests on the party claiming damages.
Main Doctrine
The Supreme Court affirmed the Court of Appeals' decision, holding that the Regional Trial Court improperly declared Presidential Decree No. 579 unconstitutional due to lack of notice to the Solicitor General. The Court also found that the dacion en pago and foreclosure of mortgaged properties were valid, and that legal compensation could not be applied due to the nature of the debts and the applicability of Presidential Decree No. 579. Moral damages and attorney's fees were denied for failure to prove bad faith.