Primary Holding

The Supreme Court affirmed the Court of Appeals' decision, finding that the trial court improperly ruled on the constitutionality of P.D. No. 579 without proper notice to the Solicitor General, that the doctrine of piercing the corporate veil does not apply, and that the dacion en pago and foreclosure were valid.

Background

The Mirasols, as sugarland owners, had their sugar production financed by PNB. P.D. No. 579 authorized PHILEX to purchase export sugar, with PNB financing the purchases. Disputes arose regarding the accounting of sugar sale proceeds, leading to litigation.

Facts

• 1. The Mirasol spouses were sugarland owners engaged in sugar production.
• 2. From 1973 to 1977, the Philippine National Bank (PNB) financed the Mirasols' sugar production.
• 3. Presidential Decree (P.D.) No. 579 designated the Philippine Exchange Co., Inc. (PHILEX) as the sole agency to purchase and export sugar. PNB financed these purchases.
• 4. The Mirasols delivered sugar to PHILEX, with the proceeds intended to cover their loan obligations with PNB.
• 5. A dispute arose regarding the proper accounting of the sugar sale proceeds and the outstanding loan balance.
• 6. The Mirasols requested an accounting from PNB to ascertain how much of their obligations had been covered by the sugar sales, but PNB allegedly refused.
• 7. PNB subsequently foreclosed on the Mirasols' properties due to alleged unpaid loans.
• 8. The Mirasols claimed that the proceeds from the sugar sales should have fully covered their debts to PNB, making the foreclosure wrongful.
• 9. They asserted that PNB and PHILEX acted in concert to manipulate the accounting to their disadvantage.
• 10. The Mirasols filed a suit against PNB and PHILEX, seeking an accounting, specific performance, and damages.
• 11. The suit also challenged the constitutionality of P.D. No. 579, arguing that it deprived them of their right to dispose of their property.
• 12. The Mirasols contended that the foreclosure and dacion en pago were invalid due to the alleged misapplication of sugar sale proceeds.
• 13. They also alleged that PNB acted in bad faith in handling their account and foreclosing their properties.
• 14. The trial court initially ruled in favor of the Mirasols, declaring P.D. 579 unconstitutional.
• 15. The Court of Appeals reversed the trial court's decision, leading to the appeal to the Supreme Court.

Arguments of the Petitioners

• 1. The Trial Court had jurisdiction to declare a statute unconstitutional.
• 2. P.D. 579 and subsequent issuances are unconstitutional.
• 3. The Court of Appeals erred in not applying the doctrine of piercing the corporate veil between PNB and PHILEX.
• 4. The Court of Appeals erred in upholding the validity of the foreclosure and dacion en pago.
• 5. The Court of Appeals erred in not awarding damages to petitioners.

Arguments of the Respondents

• 1. N/A (The provided document focuses on the court's analysis and does not detail the respondent's arguments beyond the factual background.)

Issues

• 1. Whether the trial court had jurisdiction to declare a statute unconstitutional without notice to the Solicitor General.
• 2. Whether P.D. 579 and its implementing issuances are unconstitutional.
• 3. Whether the doctrine of piercing the corporate veil should apply to PNB and PHILEX.
• 4. Whether the foreclosure of the Mirasols' property and the dacion en pago were valid.
• 5. Whether the Court of Appeals erred in not awarding damages to the Mirasols.

Ruling

• 1. The trial court's declaration of P.D. No. 579's unconstitutionality was improper due to the lack of notice to the Solicitor General.
• 2. The Court declined to rule on the constitutionality of P.D. No. 579 because it was not the lis mota of the case.
• 3. The doctrine of piercing the corporate veil was not applicable because PNB and PHILEX are separate entities with separate operations.
• 4. The dacion en pago and foreclosure were valid because the Mirasols admitted their indebtedness to PNB, and legal compensation could not occur.
• 5. The award of damages was improper because the Mirasols failed to prove bad faith on the part of PNB.

Doctrines

• 1. Judicial Review: Courts can determine the constitutionality of laws.
• 2. *Lis Mota*: The issue of constitutionality must be the central point of the case.
• 3. Doctrine of Exhaustion of Administrative Remedies: N/A
• 4. Piercing the Corporate Veil: Disregarding the separate legal personality of a corporation when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime.
• 5. Legal Compensation: Set-off of mutual debts, requiring that both debts are due, liquidated, and demandable.
• 6. Repeal by Implication: Disfavored method of statutory repeal; requires a clear showing of legislative intent.

Key Excerpts

• 1. "Plainly, the Constitution contemplates that the inferior courts should have jurisdiction in cases involving constitutionality of any treaty or law, for it speaks of appellate review of final judgments of inferior courts in cases where such constitutionality happens to be in issue."
• 2. "Where there is no ambiguity in the words used in the true, there is no room for construction."

Precedents Cited

• 1. J.M. Tuason and Co. v. Court of Appeals: Affirmed the jurisdiction of inferior courts in cases involving the constitutionality of a law.
• 2. Drilon v. Lim: Reaffirmed the authority of Regional Trial Courts to consider the constitutionality of statutes.
• 3. Board of Optometry v. Colet: Enumerated the requisites for the exercise of judicial review.
• 4. Ty v. Trampe: Courts will not resolve the constitutionality of a law if the controversy can be settled on other grounds.
• 5. Manzano v. Valera and Garcia v. Burgos: Reiterated that repeals by implication are not favored.
• 6. Angara v. Electoral Commission: The power to declare a law unconstitutional lies with the courts.

Statutory and Constitutional Provisions

• 1. Presidential Decree No. 579: Law designating the Philippine Exchange Co., Inc. (PHILEX) as the sole agency to purchase and export sugar.
• 2. Republic Act No. 7202: N/A (The document mentions that the RTC modified its decision, adding a paragraph about the benefits accruing to the plaintiffs with the passage of R.A. 7202, but does not expound on it.)
• 3. Constitution, Art. VIII, Sec. 5 (2): Grants the Supreme Court jurisdiction to review decisions of lower courts on cases involving the constitutionality of a treaty or law.
• 4. B.P. Blg. 129, Section 19: Defines the jurisdiction of Regional Trial Courts.
• 5. Rule 64, Section 3 of the Rules of Court: N/A
• 6. P.D. No. 478, Section 1 [c]: N/A
• 7. Civil Code, Article 1170: Defines those who are liable for damages because of fraud, negligence, or delay in the fulfillment of their obligations.
• 8. Civil Code, Article 1278: Defines compensation.
• 9. Civil Code, Article 1279: States the requirements for compensation to take place.
• 10. Civil Code, Article 1891: States that an agent is responsible not only for fraud but also for negligence, which shall be judged with more or less rigor by the courts, according to whether the agency was or was not for compensation.
• 11. Civil Code, Article 2208(5): Provides for attorney's fees in the absence of stipulation when the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim.
• 12. Civil Code, Article 2217: States that moral damages include physical suffering, mental anguish, fright, serious anxiety, wounded feelings, moral shock, social humiliation, and similar injury.
• 13. Civil Code, Article 2220: States that moral damages may be awarded in cases of breach of contract where the defendant acted fraudulently or in bad faith.