G.R. No. 172023 - Heirs of Divinagracia vs. Ruiz

Case Summary (G.R. No. 172023)

Factual Background

Santiago alleged in the Regional Trial Court that he was then a stockholder of CBSDC, owning 3,000 shares, and that he received CBSDC certificates of stock for 750 shares. He opposed a corporate proposal authorizing respondent Rogelio Florete, then President of CBSDC, to mortgage all or substantially all of CBSDC’s real properties to secure a loan obtained by Newsounds Broadcasting Network, Inc. (NBN), Consolidated Broadcasting System (CBS), and People’s Broadcasting Services, Inc. (PBS).

Despite Santiago’s protest, more than two-thirds of CBSDC’s outstanding capital stock voted to approve the authority granted to the Board. As a dissenting stockholder, Santiago wrote a letter objecting to the mortgage and exercising his appraisal right under Section 81 of the Corporation Code. The corporate secretary initially informed him that a majority of CBSDC’s Board of Directors approved the exercise of his appraisal right.

Santiago then surrendered his stock certificates and demanded appraisal. The Board indefinitely postponed action, prompting Santiago’s protest. The corporate secretary denied the protest and informed Santiago that his CBSDC shares, including those covered by his certificates, were declared delinquent and would be sold on auction on 12 February 2002. On 6 February 2002, Santiago filed with the Regional Trial Court of Iloilo City a Petition for Mandamus and Nullification of Delinquency Call and Issuance of Unsubscribed Shares. On 12 February 2002, Santiago’s CBSDC shares were sold on auction to Diamel. Santiago thereafter filed an amended petition on 10 June 2002.

On 14 April 2004, Santiago died, and his heirs substituted him in the case.

Trial Court Proceedings and the Monetary Awards

On 12 August 2004, the Regional Trial Court rendered a decision dismissing the petition for utter lack of merit. The court gave due course and granted the corporate respondents’ compulsory counterclaims. It ordered the heirs of Santiago to pay CBSDC and Diamel, jointly and severally: P100,000.00 as exemplary damages and P100,000.00 as attorney’s fees, with no pronouncement as to costs.

Post-Decision Events: Appeal, Motion for Immediate Execution, and Writ of Execution

On 26 August 2004, petitioners filed a Notice of Appeal. Respondents, on 30 August 2004, filed a Motion for Immediate Execution of the Regional Trial Court decision, which petitioners opposed. On 13 October 2004, the trial judge issued a resolution granting the motion for immediate execution and ordered the issuance of a writ of execution. On 17 November 2004, the trial court issued the writ of execution.

Petitioners then filed on 18 October 2004 a Petition for Certiorari with prayer for a Temporary Restraining Order and Writ of Injunction before the Court of Appeals, assailing the 13 October 2004 resolution. Despite this, the writ of execution issued on 17 November 2004.

Court of Appeals Ruling on Certiorari

On 6 October 2005, the Court of Appeals rendered the assailed decision dismissing the petition and affirming the trial court’s resolution dated August 12, 2004 (noted as the resolution being challenged). On 22 February 2006, the Court of Appeals denied petitioners’ motion for reconsideration.

The Court of Appeals held that there was no grave abuse of discretion in granting immediate execution of the Regional Trial Court’s decision. It reasoned that the trial judge acted pursuant to Section 4, Rule 1 of the Interim Rules, which provided that all decisions rendered in intra-corporate controversies shall immediately be executory, unless restrained by an appellate court.

The Sole Issue Raised Before the Supreme Court

The Supreme Court considered the sole issue raised by petitioners: whether the award of exemplary damages and attorney’s fees in favor of private respondents could be immediately executed pending appeal of the intra-corporate case.

Legal Basis and Reasoning: The Amended Interim Rules and the Nature of the Awards

The Supreme Court granted the petition. It explained that the controlling rule on executory nature had changed during the pendency of the case.

From the filing of the intra-corporate dispute on 6 February 2002 until the promulgation of the Court of Appeals decision and resolution on 6 December 2005 and 22 February 2006, respectively, Section 4, Rule 1 of the Interim Rules provided that decisions and orders issued under the Interim Rules were immediately executory, and that no appeal or petition would stay enforcement unless restrained by an appellate court.

However, on 19 September 2006, while the case remained pending before the Supreme Court, the Court en banc issued a Resolution in A.M. No. 01-2-04-SC titled “Re: Amendment of Section 4, Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies by Clarifying that Decisions Issued Pursuant to Said Rule are Immediately Executory Except the Awards for Moral Damages, Exemplary Damages and Attorney’s Fees, if any.” Acting on that resolution, the Court amended Section 4, Rule 1, explicitly exempting from immediate executory effect the awards for moral damages, exemplary damages, and attorney’s fees, if any.

The Court treated the amendment as procedural in character. It reiterated the settled rule that procedural laws apply to pending actions and are deemed retroactive to that extent. It further reasoned that retroactive application of procedural laws does not violate vested rights because no vested right had yet attached or arisen from the procedural rule.

Applying the amended Section 4, Rule 1 retroactively, the Court held that the trial court’s award of exemplary damages and attorney’s fees was not immediately executory.

The Supreme Court also relied on the doctrinal foundation that, even before the amendment, awards for moral and exemplary damages could not be the subject of execution pending appeal. It cited International School, Inc. (Manila) v. Court of Appeals, which reiterated the ruling in Radio Communications of the Philippines, Inc. (RCPI) v. Lantin, and quoted the rationale: execution of awards for moral and exemplary damages depended on the outcome of the main case because the factual bases and causal relation to the petitioners’ act remained uncertain and

Case Syllabus (G.R. No. 172023)

Parties and Procedural Posture

Heirs of Santiago C. Divinagracia filed a petition for review seeking to reverse a Court of Appeals decision and resolution that dismissed their petition for certiorari.
Heirs of Santiago C. Divinagracia specifically challenged the trial court’s 13 October 2004 Resolution and the 17 November 2004 writ of execution arising from Corporate Case No. 02-27050.
Honorable J. Cedrick O. Ruiz, Presiding Judge, Branch 39, Regional Trial Court, Iloilo City, was impleaded as respondent for issuing the assailed rulings in the intra-corporate case.
Gerry D. Sumaculub, as Clerk of Court of the Regional Trial Court, Iloilo City, was likewise impleaded in the appellate proceedings.
CBS Development Corporation, Inc. (CBSDC) and Diamel, Inc. (Diamel) were private respondents and corporate entities that obtained execution based on the trial court’s decision.
The Court of Appeals dismissed the petition for certiorari and denied reconsideration, prompting the present petition before the Court.

Key Factual Allegations

The controversy originated in Corporate Case No. 02-27050 with a Petition for Mandamus and Nullification of Delinquency Call and Issuance of Unsubscribed Shares filed by Santiago C. Divinagracia (Santiago) before the Regional Trial Court of Iloilo City.
Santiago alleged he was then a stockholder of CBSDC, owning 3,000 shares, and that he received stock certificates for 750 shares.
Santiago asserted he opposed a proposal authorizing Rogelio Florete, as President of CBSDC, to mortgage all or substantially all of CBSDC’s real properties to secure loans obtained by Newsounds Broadcasting Network, Inc. (NBN), Consolidated Broadcasting System (CBS), and People’s Broadcasting Services, Inc. (PBS).
Santiago alleged that despite his and other stockholders’ protest, a majority representing more than two-thirds of the outstanding capital stock of CBSDC voted to approve the grant of authority to the Board.
Santiago, as a dissenting stockholder, wrote a letter objecting to the mortgage and exercising his appraisal right under Section 81 of the Corporation Code.
CBSDC’s corporate secretary informed Santiago that a majority of CBSDC’s Board of Directors approved the exercise of his appraisal right.
Santiago surrendered his stock certificates and demanded an appraisal of his shares, while the Board indefinitely postponed action, which Santiago protested.
The corporate secretary denied Santiago’s protest and informed him that his CBSDC shares, including those with issued certificates, were declared delinquent and would be sold on auction on 12 February 2002.
On 6 February 2002, Santiago filed the trial court petition for mandamus and related relief.
On 12 February 2002, Santiago’s CBSDC shares were sold on auction to Diamel.
Santiago filed an amended petition on 10 June 2002, and CBSDC and Diamel filed an answer with compulsory counterclaim.
Santiago died on 14 April 2004, and the heirs substituted him in the case.

Trial Court Proceedings

On 12 August 2004, the trial court rendered a decision dismissing Santiago’s petition and amended petition for utter lack of merit.
The trial court gave due course to and granted the corporate respondents’ compulsory counterclaims.
The trial court ordered the heirs to pay CBSDC and Diamel: P100,000.00 as exemplary damages and P100,000.00 as attorney’s fees, jointly and severally.
The trial court made no pronouncement as to costs.
After the adverse decision, petitioners filed a notice of appeal on 26 August 2004.
Private respondents filed a motion for immediate execution on 30 August 2004, which petitioners opposed.
On 13 October 2004, the trial judge granted the motion for immediate execution and ordered issuance of a writ of execution.
Petitioners filed a petition for certiorari under Rule 65 with prayer for a temporary restraining order and writ of injunction in the Court of Appeals-Cebu City to assail the 13 October 2004 Resolution.
On 17 November 2004, the trial court issued the writ of execution.

Court of Appeals Review

On 6 October 2005, the Court of Appeals dismissed the petition and affir