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SPS. ALEJANDRO MIRASOL v. CA

FACTS:

The Mirasol family, who are sugarland owners and planters, availed of a crop loan financing scheme from the Philippine National Bank (PNB) and produced a significant amount of sugar in crop years 1973-1974 and 1974-1975. PNB had the authority to negotiate and sell the Mirasols' sugar in both domestic and export markets. President Ferdinand Marcos then issued Presidential Decree (P.D.) No. 579 in 1974, which authorized Philippine Exchange Co., Inc. (PHILEX) to buy sugar allocated for export and authorized PNB to finance PHILEX's purchases. The government set the purchase price of export sugar at P180.00 per picul. The Mirasols requested an accounting of the proceeds of their sugar sales to PNB but were not given a satisfactory response. The Mirasols conveyed real properties to PNB to settle their debts but still had an unpaid overdrawn account. PNB foreclosed the mortgaged properties but still had a deficiency claim. The Mirasols filed a suit for accounting, specific performance, and damages against PNB, and later included PHILEX as a party-defendant. The trial court declared P.D. No. 579 unconstitutional and ordered PNB and PHILEX to pay the Mirasols the unliquidated cost of their export sugar for crop years 1973-1974 and 1974-1975.

The Court of Appeals reversed the trial court's decision and declared the dacion en pago and foreclosure of the mortgaged properties valid. The court ordered PNB to render an accounting of the Mirasols' sugar account and to recompute the Mirasols' indebtedness in accordance with RA 7202. The court also stated that the outstanding balance or excess payment shall be governed by the provisions of RA 7202.

The petitioners filed a petition with the Supreme Court, challenging the jurisdiction of the trial court to declare a statute unconstitutional without notice to the Solicitor General, the validity of PD 579, and the application of the doctrine of piercing the corporate veil. They also raised issues regarding the validity of the foreclosure and dacion en pago and the failure of the Court of Appeals to award damages.

The main issue to be addressed is whether it was proper for the trial court to exercise judicial review in declaring PD 579 unconstitutional.

ISSUES:

  1. Whether it was proper for the trial court to have exercised judicial review in declaring P.D. No. 579 unconstitutional without notifying the Solicitor General.

  2. Whether the Court can exercise its power of judicial review on the constitutionality of P.D. No. 579 and its implementing issuances.

  3. Whether P.D. No. 579 is constitutional

  4. Whether R.A. No. 7202 repealed P.D. No. 579

  5. Whether the doctrine of piercing the veil of corporate fiction should be applied to PNB and PHILEX

  6. Whether the dacion en pago and the foreclosure of the mortgaged properties were valid

  7. Whether or not there was an offsetting of a debtor's account with the credit or remittance

  8. Whether or not compensation can take place when one claim is still the subject of litigation

  9. Whether or not the consent to the dacion en pago was valid

  10. Whether or not the award of moral damages and attorney's fees is warranted

RULING:

  1. The trial court should not have exercised judicial review in declaring P.D. No. 579 unconstitutional without notifying the Solicitor General. The mandatory notice requirement in Rule 64, Section 3 of the Rules of Court is applicable to "any action" assailing the validity of a statute, treaty, presidential decree, order, or proclamation. Lack of such notice makes it improper for the trial court to pass upon the constitutional validity of the questioned presidential decrees.

  2. The Court cannot exercise its power of judicial review on the constitutionality of P.D. No. 579 and its implementing issuances. The present case was primarily for accounting and specific performance, and PNB's obligation to render an accounting can be determined without ruling on the constitutionality of P.D. No. 579. The constitutionality of the law in question is not the very lis mota of the case, and therefore the court cannot rule on it.

  3. The issue of the constitutionality of P.D. No. 579 cannot be ruled upon due to the absence of the text of the case.

  4. R.A. No. 7202 did not repeal P.D. No. 579. Repeals by implication are not favored and the power to declare a law unconstitutional lies with the courts and not the legislature.

  5. The doctrine of piercing the veil of corporate fiction should not be applied to PNB and PHILEX as they are separate juridical persons with separate operations and different purposes and powers.

  6. The dacion en pago and foreclosure of the mortgaged properties were valid as the Mirasols were found to be indebted to PNB and the conditions for legal compensation were not met.

  7. The Court of Appeals found that there was no offsetting of the debtor's account with the credit or remittance.

  8. Compensation cannot take place when one claim is still the subject of litigation.

  9. The trial court and the Court of Appeals found that there was no evidence to support the claim of duress. Factual findings of the trial court, affirmed by the appellate court, are conclusive.

  10. The award of moral damages and attorney's fees is not warranted since the petitioners failed to show malice or bad faith on the part of the defendant.

PRINCIPLES:

  • Inferior courts, including the Regional Trial Courts, have jurisdiction to rule on the constitutionality of any treaty or law.

  • The mandatory notice requirement in Rule 64, Section 3 of the Rules of Court applies to "any action" assailing the validity of a statute, treaty, presidential decree, order, or proclamation, and the Solicitor General must be notified to decide whether his intervention is necessary.

  • The courts will not resolve the constitutionality of a law if the controversy can be settled on other grounds, and there is a presumption of validity for the acts of the political departments.

  • Repeals by implication are not favored in statutory construction.

  • The power to declare a law unconstitutional lies with the courts.

  • The doctrine of piercing the veil of corporate fiction applies when there is unity of interest and ownership, and when the corporate entity is used to evade legal obligations.

  • Legal compensation requires that each party be both a creditor and debtor of each other, that the debts be due and liquidated, and that there are no retentions or controversies.

  • Compensation cannot take place when one claim is still the subject of litigation.

  • Factual findings of the trial court, affirmed by the appellate court, are conclusive.

  • An agent's failure to render an accounting to his principal is contrary to Article 1891 of the Civil Code.

  • Moral damages are explicitly authorized in breaches of contract where the defendant acted fraudulently or in bad faith. Good faith is always presumed, and the burden of proving bad faith lies on the person seeking damages.