Title
Spouses Mirasol vs. Court of Appeals
Case
G.R. No. 128448
Decision Date
Feb 1, 2001
Sugarland owners dispute PNB over export sugar proceeds under P.D. 579; dacion en pago and foreclosure upheld, damages denied.
sugarland owners
bank
crop loan financing schemes

Case Summary (G.R. No. 96357)

Factual Background

The Mirasols were sugarland owners and planters who produced large quantities of sugar in crop years 1973-1974 and 1974-1975, portions of which were designated for export. Philippine National Bank (PNB) financed their sugar production under crop loan financing. The Mirasols executed Credit Agreements, chattel mortgages on standing crops, and real estate mortgages in favor of PNB. The chattel mortgage authorized PNB as attorney-in-fact to negotiate and sell export and domestic sugar and to apply proceeds against the Mirasols’ obligations. In November 1974, President Marcos issued Presidential Decree No. 579, which authorized Philippine Exchange Co., Inc. (PHILEX) to purchase export sugar and authorized PNB to finance such purchases, while directing profits to a special national fund subject to disposition by the President. Government agencies fixed the export purchase price at P180.00 per picul for the crop years in question.

Events Leading to Litigation

The Mirasols repeatedly requested that PNB account for proceeds of their export sugar sales, believing such proceeds would extinguish their indebtedness. PNB refused to provide an accounting, asserting that under P.D. No. 579 earnings belonged to the national government. The Mirasols continued borrowing and making withdrawals. They executed a dacion en pago to PNB on August 4, 1977, conveying real properties valued at P1,410,466.00 but still remained overdrawn. By August 10, 1982, PNB claimed an outstanding balance of P15,964,252.93. After extrajudicial foreclosure and application of auction proceeds, PNB asserted a deficiency of P12,551,252.93.

Trial Court Proceedings

On August 9, 1979, the Mirasols sued PNB for accounting, specific performance, and damages, and later amended the complaint to implead PHILEX. The parties agreed at pretrial to limit the issues to the constitutionality of P.D. Nos. 338, 579, and 1192 and the computation of amounts allegedly due the plaintiffs for unliquidated export-sugar proceeds for the two crop years. After trial, the Regional Trial Court declared P.D. No. 579 and implementing circulars unconstitutional and ordered PNB and PHILEX, jointly and severally, to pay the Mirasols specified sums for unliquidated export-sugar proceeds at specified average prices, plus legal interest, moral damages of P50,000.00, attorney’s fees of P50,000.00, and costs. The trial court later added a reservation that its decision should be interpreted without prejudice to any benefits under Republic Act No. 7202.

Court of Appeals Proceedings

The Mirasols appealed, contesting primarily the trial court’s failure to nullify the dacion en pago and mortgages and its alleged shortfall in money claims and damages. The Court of Appeals reversed the trial court on July 22, 1996. The appellate court declared the dacion en pago and foreclosures valid. It ordered PNB to render an accounting of the Mirasols’ sugar account, to recompute indebtedness in accordance with R.A. No. 7202 crediting payments and auction proceeds or dacion en pago values, and to apply the pertinent provisions of R.A. No. 7202 to any resulting balance or excess.

Issues Presented to the Supreme Court

The petition raised five issues: whether the trial court had jurisdiction to declare a statute unconstitutional without notice to the Solicitor General; whether P.D. No. 579 and subsequent issuances were unconstitutional; whether the Court of Appeals erred in not piercing the corporate veil between PNB and PHILEX; whether the Court of Appeals erred in upholding the validity of the foreclosure and dacion en pago; and whether the appellate court erred in not awarding damages to petitioners.

Jurisdiction to Pass on Constitutionality and Notice to Solicitor General

The Supreme Court affirmed that Regional Trial Courts have authority to consider constitutionality questions under Const., Art. VIII, Sec. 5(2) and B.P. Blg. 129. The Court then explained that Rule 64, Section 3, Rules of Court, requires mandatory notice to the Solicitor General in “any action” that involves the validity of a statute, executive order, or regulation. The Court construed the word “shall” as imposing a mandatory duty. The purpose of notice is to afford the Solicitor General the opportunity to decide whether to intervene. In the present case the Solicitor General was not notified, and the trial court never required his appearance. The Supreme Court therefore held that the Court of Appeals did not err in finding that lack of the required notice made it improper for the trial court to rule on the constitutionality of the presidential decrees.

Ripeness, Standing, and the Proper Scope of Judicial Review

The Supreme Court reiterated the requisites for judicial review: an actual case or controversy; ripeness; standing of the challenger; constitutionality raised at the earliest opportunity; and that the constitutional issue be the very lis mota of the case. The Court emphasized the policy of judicial restraint and the presumption of constitutionality of governmental acts absent a clear showing to the contrary. The Court observed that the action was primarily for accounting and specific performance, matters which could be resolved without adjudicating the constitutionality of P.D. No. 579. The Court therefore declined to rule on the constitutionality of P.D. No. 579 because that question was not the very lis mota of the case and because the accounting obligation of PNB could be determined under the law on agency.

Effect of Republic Act No. 7202 on P.D. No. 579

The Mirasols argued that R.A. No. 7202 rendered P.D. No. 579 unconstitutional. The Supreme Court examined R.A. No. 7202’s repealing clause, which provides that laws in conflict are “repealed or modified accordingly.” The Court applied the rule disfavoring repeals by implication and reiterated that the power to declare a law unconstitutional rests with the courts, not the legislature. Thus, R.A. No. 7202 could not be treated as a legislative declaration that P.D. No. 579 was unconstitutional.

Piercing the Corporate Veil

The petitioners urged application of the doctrine of piercing the corporate veil to treat PNB and PHILEX as a single entity. The Court noted the Court of Appeals’ factual finding that PNB and PHILEX were separate juridical persons with separate organic acts, separate operations, and different purposes and powers. The Supreme Court observed that appellate factual findings are binding unless unsupported by the evidence. The Court found no manifest error in the appellate court’s refusal to pierce the corporate veil.

Validity of Dacion en Pago and Foreclosure

The Court addressed the contention that the dacion en pago and foreclosure were void for want of consideration because the Mirasols’ loans had been fully paid by legal compensation. The Supreme Court applied Articles 1278 and 1279 of the Civil Code and held that compensation cannot take place because, under P.D. No. 579, neither PNB nor PHILEX could retain the claimed difference in sugar prices; proceeds were to be paid to a national fund. Consequently, there was nothing against which PNB could lawfully offset the Mirasols’ indebtedness. The Court also held that compensation cannot occur where one claim remains the subject of litigation and therefore is not liquidated. With respect to alleged duress in consenting to the dacion en pago, the Court accepted the lower courts’ factual findings that no evidence supported coercion. Those factual findings were binding.

Damages and Attorney’s Fees

The Supreme Court examined the trial court’s award of moral damages and attorney’s fees and the appellate court’s deletion of those awards. The Court noted that an agent’s failure to render an accounting contravenes Article 1891 of the Civil Code and t

...continue reading

Analyze Cases Smarter, Faster
Jur helps you analyze cases smarter to comprehend faster, building context before diving into full texts. AI-powered analysis, always verify critical details.

About Privacy Terms