Heirs of Divinagracia vs. Ruiz

Awards for moral damages, exemplary damages, and attorney's fees in intra-corporate controversies are not immediately executory, pursuant to the amended Section 4, Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies, which applies retroactively to pending cases as a procedural law.

Santiago C. Divinagracia was a stockholder of respondent CBS Development Corporation, Inc. (CBSDC). He opposed a proposal to mortgage CBSDC's properties to secure a loan obtained by other entities and exercised his appraisal right under Section 81 of the Corporation Code. After surrendering his stock certificates and demanding an appraisal, CBSDC's Board indefinitely postponed action, declared his shares delinquent, and sold them at auction to respondent Diamel, Inc. Santiago filed a Petition for Mandamus and Nullification before the RTC of Iloilo City. Santiago died and was substituted by his heirs.

Santiago C. Divinagracia was a stockholder of respondent CBS Development Corporation, Inc. (CBSDC), owning 3,000 shares, for 750 of which he was issued certificates. He opposed a proposal to authorize respondent Rogelio Florete, as CBSDC President, 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). Despite Santiago's and other stockholders' protests, a majority representing more than two-thirds of the outstanding capital stock voted to approve the grant of such 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. The corporate secretary informed him that the Board approved the exercise of his appraisal right. Santiago surrendered his stock certificates and demanded an appraisal of his shares. The Board indefinitely postponed action on the appraisal right. Santiago protested, but the corporate secretary denied the protest and informed him that his shares were declared delinquent and would be sold at auction on 12 February 2002.

On 6 February 2002, Santiago filed a Petition for Mandamus and Nullification of Delinquency Call and Issuance of Unsubscribed Shares with the RTC of Iloilo City. On 12 February 2002, his shares were sold at auction to respondent Diamel, Inc., prompting Santiago to file an amended petition on 10 June 2002. Private respondents filed an Answer with Compulsory Counterclaim. Santiago died on 14 April 2004 and was substituted by his heirs. The RTC dismissed the petition and granted the counterclaim, ordering the heirs to pay ₱100,000 as exemplary damages and ₱100,000 as attorney's fees to each of the corporate respondents. The heirs appealed, but private respondents moved for immediate execution, which the RTC granted on 13 October 2004. The heirs filed a petition for certiorari with the Court of Appeals, which dismissed it, ruling that under the Interim Rules, all decisions in intra-corporate controversies are immediately executory. The heirs then elevated the case to the Supreme Court.

• Immediate Execution of Damages: Petitioners argued that the award of exemplary damages and attorney's fees in favor of private respondents cannot be immediately executed pending appeal of the corporate case.

• Immediate Execution: Whether the award of exemplary damages and attorney's fees in favor of private respondents can be immediately executed pending appeal of the corporate case.

• Immediate Execution: No. The award of exemplary damages and attorney's fees is not immediately executory, the amended Section 4, Rule 1 of the Interim Rules expressly exempting such awards from immediate execution.

• Immediate Execution: The governing rule at the time was Section 4, Rule 1 of the Interim Rules of Procedure for Intra-Corporate Controversies, which stated that all decisions are immediately executory. However, on 19 September 2006, while the present case was pending, the Court en banc amended this provision to expressly exempt awards for moral damages, exemplary damages, and attorney's fees from immediate execution. Because the amendment is procedural in character, it applies retroactively to actions pending and undetermined at the time of its passage, without violating any vested rights. Furthermore, even prior to the amendment, jurisprudence held that awards for moral and exemplary damages cannot be subject of execution pending appeal, as their existence and amounts remain uncertain pending resolution by the appellate court.

• Retroactive Application of Procedural Laws — Procedural laws are construed to be applicable to actions pending and undetermined at the time of their passage and are deemed retroactive to that extent. They do not violate personal rights because no vested right attaches to them. The Court applied this doctrine to enforce the 2006 amendment to the Interim Rules retroactively, thereby preventing the immediate execution of the damages awards in the pending case.
• Non-Executory Nature of Moral and Exemplary Damages Pending Appeal — The execution of any award for moral and exemplary damages is dependent on the outcome of the main case because liabilities and exact amounts remain uncertain pending appellate review. The Court relied on this principle to hold that the awards for exemplary damages and attorney's fees in the intra-corporate dispute could not be immediately executed.

• "Indisputably, the amendment of Section 4, Rule 1 of the Interim Rules is procedural in character. Well-settled is the rule that procedural laws are construed to be applicable to actions pending and undetermined at the time of their passage, and are deemed retroactive in that sense and to that extent." — This passage establishes the ratio decidendi for applying the amended Interim Rules retroactively to pending cases.
• "The execution of any award for moral and exemplary damages is dependent on the outcome of the main case. Unlike the actual damages for which the petitioners may clearly be held liable if they breach a specific contract and the amounts of which are fixed and certain, liabilities with respect to moral and exemplary damages as well as the exact amounts remain uncertain and indefinite pending resolution by the Intermediate Appellate Court and eventually the Supreme Court." — This quotation from International School, Inc. (Manila) vs. Court of Appeals, adopted by the Court, defines the controlling doctrine on why damages awards are not immediately executory.

• Republic of the Philippines vs. Court of Appeals, 447 Phil. 385 (2003) — Cited to support the rule that procedural laws are applicable to pending actions and are retroactive in that sense.
• Padua vs. Court of Appeals, G.R. No. 152150, 10 December 2008 — Cited for the proposition that retroactive application of procedural laws does not violate personal rights because no vested right has attached.
• International School, Inc. (Manila) vs. Court of Appeals, 368 Phil. 791 (1999) — Cited for the ruling that awards for moral and exemplary damages cannot be subject to execution pending appeal, quoting Radio Communications of the Philippines, Inc. (RCPI) vs. Lantin.

• Section 4, Rule 1, Interim Rules of Procedure Governing Intra-Corporate Controversies (as amended by A.M. No. 01-2-04-SC) — Amended to provide that all decisions and orders are immediately executory EXCEPT awards for moral damages, exemplary damages, and attorney's fees. Applied retroactively to hold that the damages awards in the case were not immediately executory.
• Section 81, Corporation Code — Governs the appraisal right of dissenting stockholders, which Santiago exercised to trigger the intra-corporate dispute.

Roberto A. Abad, Martin S. Villarama, Jr., Jose Portugal Perez, Jose C. Mendoza.