Nunga v. Nunga
REITERATIONFacts
The Antecedents: Petitioners Francisco R. Nunga, Jr. (Francisco Jr.) and Victor D. Nunga (Victor) sought to register the transfer of ownership of shares of stock in the Rural Bank of Apalit, Inc. (RBA) in favor of Francisco Jr. Jesus J. Gonzalez (Gonzalez), a stockholder of RBA, initially executed a Contract to Sell for his shares to Francisco Jr. on February 19, 1996. Victor paid the initial P50,000.00 and received some stock certificates. However, on February 27, 1996, Gonzalez executed a Deed of Assignment for the same shares in favor of respondent Francisco N. Nunga III (Francisco III), who paid P300,000.00. On February 28, 1996, Francisco Jr. paid the balance of P150,000.00 to Gonzalez, who then executed a Deed of Absolute Sale in favor of Francisco Jr. and endorsed the stock certificates. Francisco III presented his Deed of Assignment to the RBA Corporate Secretary, who refused to register the transfer to Francisco Jr. due to Francisco III's prior claim. Procedural History: Two cases were filed with the Securities and Exchange Commission (SEC): SEC Case No. 03-96-5288 filed by Victor against Francisco III and the Corporate Secretary, seeking to nullify the stockholders' meeting and register the transfer to Francisco Jr.; and SEC Case No. 03-96-5292 filed by Francisco III against Gonzalez, Francisco Jr., and Victor, seeking to oust Francisco III and register the transfer to him. The cases were consolidated and later transferred to the Regional Trial Court (RTC), docketed as Commercial Cases No. 001 and No. 018. The RTC ruled in favor of Francisco Jr. in Commercial Case No. 018, ordering the registration of the transfer and awarding damages. The RTC dismissed Victor's petition in Commercial Case No. 001. Francisco III appealed to the Court of Appeals (CA). The CA reversed the RTC decision, ruling that Francisco Jr., being a naturalized American citizen at the time of the transaction, was disqualified from owning shares in RBA under Republic Act No. 7353. The CA held that the sale to Francisco Jr. was void ab initio and that Francisco III had a vested right under the Deed of Assignment, which could not be impaired by the retroactive application of Republic Act No. 8179. The CA awarded attorney's fees and costs to Francisco III. Petitioners Francisco Jr. and Victor appealed to the Supreme Court. The Petition: Petitioners contend that the CA erred in declaring the sale to Francisco Jr. void ab initio based on his alleged disqualification, in holding that Francisco III had a vested right that would be impaired by the retroactive application of Republic Act No. 8179, and in awarding damages to Francisco III while withdrawing the award of nominal damages to petitioners.
Issue(s)
Whether the sale of RBA shares to Francisco Jr. was null and void ab initio due to his disqualification as a naturalized American citizen under Republic Act No. 7353. Whether Republic Act No. 8179, which grants former natural-born Filipinos investment rights, can be applied retroactively to the case and cure the alleged defect in Francisco Jr.'s acquisition of shares; and whether Francisco III acquired a vested right to the shares that would be prejudiced by the retroactive application of Republic Act No. 8179. Whether the Court of Appeals erred in awarding damages to Francisco III and withdrawing the award of nominal damages to the petitioners.
Ruling
The Petition is denied. The Decision of the Court of Appeals is affirmed in toto. The sale of RBA shares to Francisco Jr. is declared void ab initio. Francisco III is entitled to the registration of the assignment of shares in his favor, with an award of attorney's fees and costs of suit.
Ratio Decidendi
On the disqualification of Francisco Jr. under Republic Act No. 7353: The Court affirmed the Court of Appeals' ruling that Francisco Jr. was disqualified from acquiring the RBA shares. Section 4 of Republic Act No. 7353 explicitly mandates that the capital stock of any rural bank shall be fully owned and held by citizens of the Philippines. At the time of the transaction, Francisco Jr. was a naturalized citizen of the United States. Therefore, his acquisition of the shares was a direct violation of this clear and mandatory provision of law. The Court reiterated its stance in Bulos, Jr. v. Yasuma that only Filipino citizens can own capital stock in a rural bank. A contract that violates a mandatory provision of law is void ab initio, producing no legal effect whatsoever. The Court emphasized that even if the Contract to Sell and Deed of Absolute Sale were fully performed, a void agreement cannot be rendered operative by such performance. On the retroactive application of Republic Act No. 8179 and the vested rights of Francisco III: The Court held that Republic Act No. 8179, which liberalized foreign investment and granted former natural-born Filipinos investment rights, could not be applied retroactively to benefit Francisco Jr. While laws creating new rights may be given retroactive effect, this is only permissible if it does not prejudice or impair any vested right. In this case, applying Republic Act No. 8179 retroactively would prejudice the vested rights of Francisco III, a Filipino citizen, who had acquired his rights through the Deed of Assignment executed prior to the effectivity of Republic Act No. 8179. The Court found that Republic Act No. 8179 took effect on April 15, 1996, after the transactions in question, and its application would impair Francisco III's vested right, which was secured by a valid Deed of Assignment. The Court upheld the Court of Appeals' finding that Francisco III had acquired vested rights to the disputed RBA shares by virtue of the Deed of Assignment executed in his favor by Gonzalez. Francisco III, being a Filipino citizen, was fully qualified to own shares in a Philippine rural bank. His right was vested when the Deed of Assignment was executed on February 27, 1996. This vested right could not be impaired by the subsequent, and in this case void, transaction between Gonzalez and Francisco Jr., nor by the retroactive application of Republic Act No. 8179. The Court reiterated that the prior Contract to Sell to Francisco Jr. was void ab initio due to the violation of Republic Act No. 7353, and thus, it vested no rights upon Francisco Jr. On the award of damages: The Court agreed with the Court of Appeals that Francisco III failed to establish his entitlement to moral and exemplary damages. There was no proof of mental anguish, serious anxiety, or other emotional suffering. Exemplary damages were also denied as Francisco III did not prove entitlement to moral, temperate, or compensatory damages. However, the Court sustained the award of P20,000.00 as attorney's fees and costs of suit, finding that Francisco III was compelled to litigate to protect his interests due to the double sale. The Court also clarified that the RTC had not awarded nominal damages to the petitioners, contrary to their assertion.
Main Doctrine
A contract that violates a mandatory provision of law, such as the prohibition against foreign ownership of shares in a rural bank under Republic Act No. 7353, is void ab initio and vests no rights. Subsequent curative laws, like Republic Act No. 8179, cannot be applied retroactively if they prejudice vested rights acquired prior to their effectivity.