Title
Gonzales vs. National Housing Corporation
Case
G.R. No. 50092
Decision Date
Dec 18, 1979
A taxpayer's suit challenged the legality of NHC's formation and a contract with Hildebrand, alleging constitutional and legal violations. Courts ruled on jurisdiction, attorney's fees, and emphasized good faith in taxpayer suits.

Case Digest (G.R. No. 232094)
Expanded Legal Reasoning Model

Facts:

  • Formation and Capitalization of the National Housing Corporation (NHC)
    • On June 26, 1968, the respondent National Housing Corporation was organized with an authorized capital of P100,000.00.
      • Incorporators and subscribers included Benjamin del Rosario, Gregorio S. Licaros, Roberto S. Benedicto, Gilberto Teodoro, and Esteban Bernido, representing government institutions such as GSIS, DBP, PNB, SSS, and PHHC.
    • Shortly thereafter, on July 15, 1968, the capitalization of the NHC was increased to P100 million.
      • Institutions like the Social Security System (SSS), Government Service Insurance System (GSIS), Philippine National Bank (PNB), and Development Bank of the Philippines (DBP) subscribed shares amounting to P19,980,000.00.
    • Subsequent assignments of subscriptions were executed:
      • Teodoro assigned his shares or subscriptions to the SSS.
      • Benedicto and Bernido assigned theirs to the NIDC and PHHC respectively.
      • Del Rosario assigned his rights to the GSIS.
      • Licaros assigned his subscriptions to the DBP.
  • The Hildebrand Contract
    • On November 21, 1968, the NHC entered into a contract with respondent Hildebrand Maschinehandel, GMDH (a German corporation) for the supply of machinery and equipment intended for an integrated plant.
    • The contract was for the establishment of a plant to manufacture low-cost homes and school buildings at a total price of DM 64,000,000.00.
  • Initiation of the Taxpayer’s Suit by Petitioner Ramon A. Gonzales
    • On March 1, 1969, petitioner Ramon A. Gonzales filed a Complaint before the Court of First Instance of Manila (Civil Case No. 7587) for annulment of the Hildebrand contract.
    • Petitioner alleged:
      • He was suing as a taxpayer.
      • The Hildebrand contract was void because the NHC was illegally created under the general Corporation Law rather than by a special act of Congress as required by the Constitution.
      • The creation of the NHC violated the Anti-Graft Law and was contrary to public policy.
      • Investments by the DBP, SSS, and GSIS in NHC were ultra vires.
      • As a result, the contract was void and unenforceable.
      • Respondents (including del Rosario, Licaros, Benedicto, Teodoro, and Bernido) were jointly and severally liable for refunding payments made under the contract.
      • He was entitled to attorney’s fees due to his role in protecting taxpayer interests.
  • Prior Related Proceedings
    • Prior to the filing of the Complaint, petitioner had filed a Petition for Prohibition with Preliminary Injunction (G.R. No. L-30080) on January 24, 1969, seeking to have the creation of the NHC declared null and void ab initio.
      • This petition was dismissed on February 1, 1969, on the basis that the proper remedy was a quo warranto proceeding.
    • On February 24, 1969, the Solicitor General, acting on instructions from the President, filed a petition for quo warranto (Civil Case No. 11583) before the Court of First Instance of Rizal, Pasig Branch, directly questioning the legality of the NHC's creation.
    • Despite these filings, petitioner proceeded with the present suit on March 1, 1969.
  • Respondents’ Special and Affirmative Defenses and Counterclaims
    • Respondents maintained that:
      • The NHC was a private corporation and its funds were not public.
      • The Hildebrand contract did not involve the expenditure of public funds that could be enjoined in a taxpayer’s suit.
      • The suit for annulment was merely a reiteration of arguments previously advanced in the Petition for Prohibition.
      • The suit was barred by the pending quo warranto action.
    • As a counterclaim, respondents sought moral damages, attorney’s fees, and litigation expenses.
  • Trial Court and Appellate Proceedings
    • On June 23, 1970, the trial Court dismissed the petitioner’s Complaint primarily because:
      • The earlier Petition for Prohibition with Preliminary Injunction had become res judicata.
      • The pending quo warranto action posed a prejudicial question that needed resolution before the annulment of the Hildebrand contract.
    • The trial Court also dismissed the counterclaim for damages.
    • The Court of Appeals, upon review, modified the trial Court’s decision by awarding respondents attorney’s fees of P5,000.00, litigation expenses of P1,000.00, and costs.
      • It justified the award by finding that the petitioner’s case was “without any proper basis or foundation and therefore clearly unfounded.”
    • Petitioner’s Motion for Reconsideration of the Court of Appeals’ decision was denied on February 14, 1979.
    • A Petition for Review was subsequently filed by petitioner on April 7, 1979, later amended to also challenge the award of attorneys’ fees and litigation expenses.
    • On November 21, 1979, the Supreme Court limited its review exclusively to the issue of the attorney’s fees and litigation expenses, effectively leaving other matters unaltered.

Issues:

  • Jurisdiction and Proper Remedy
    • Whether the taxpayer’s suit, as initiated by petitioner, is the proper remedy under the circumstances given the existence of prior related actions (Petition for Prohibition and the quo warranto suit).
    • Whether the issue of the NHC’s corporate existence and creation should preclude the taxpayer’s suit for annulment of the Hildebrand contract.
  • Legality of the NHC’s Creation and Involvement of Government Institutions
    • Whether the creation of the National Housing Corporation under the general Corporation Law (as opposed to by special act of Congress) is illegal and violates the Constitution and the Anti-Graft Law.
    • Whether government entities like the DBP, SSS, and GSIS had the legal authority to invest in the NHC.
  • Validity of the Hildebrand Contract
    • Whether the Hildebrand contract is void and unenforceable on account of the alleged illegal creation of the NHC.
    • The implications of the corporate status of the NHC on its contractual powers.
  • Award of Attorney’s Fees and Litigation Expenses
    • Whether the award of attorney’s fees and litigation expenses to respondents by the Court of Appeals was proper.
    • Whether the petitioner’s suit, being filed in good faith without any indication of bad faith, should result in such an award.
    • Whether the questions involved (e.g., fraudulent intent, reasonableness of fees) are properly categorized as questions of fact versus questions of law.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
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