The Supreme Court ruled in this case that while Regional Trial Courts have the power to declare a law unconstitutional, they must notify the Solicitor General in any action challenging the validity of a statute. The Court also found that it should avoid ruling on constitutional questions if a case can be decided on other grounds, maintaining the separation of powers between the judicial and political branches. This means the Court upheld the validity of a presidential decree because the main issue could be resolved through existing laws of agency.

Sugar, State, and Justice: Did a Presidential Decree Shortchange Sugar Planters?

This case involves a dispute between spouses Alejandro and Lilia Mirasol, sugarland owners, and the Philippine National Bank (PNB) and Philippine Exchange Co., Inc. (PHILEX) concerning sugar production financing and export sales during the Martial Law era. The Mirasols claimed that PNB, as their financier and agent, failed to properly account for the proceeds of their sugar exports, especially regarding Presidential Decree (P.D.) No. 579. P.D. No. 579 authorized PHILEX to purchase sugar allocated for export, with profits going to the national government. The Mirasols argued that this decree was unconstitutional and sought an accounting, specific performance, and damages from PNB and PHILEX.

The Regional Trial Court (RTC) initially sided with the Mirasols, declaring P.D. No. 579 unconstitutional. However, the Court of Appeals (CA) reversed this decision, prompting the Mirasols to elevate the matter to the Supreme Court. Building on this, a key issue was whether the trial court erred in declaring P.D. No. 579 unconstitutional without prior notice to the Solicitor General, a requirement under Rule 64, Section 3 of the Rules of Court.

The Supreme Court emphasized the mandatory nature of notifying the Solicitor General in any action challenging the validity of a statute. Citing Rule 64, Section 3, which states that “In any action which involves the validity of a statute, or executive order or regulation, the Solicitor General shall be notified,” the Court underscored that this requirement is not limited to actions for declaratory relief but applies to all actions questioning the constitutionality of a law.

SEC. 3. Notice to Solicitor General. – In any action which involves the validity of a statute, or executive order or regulation, the Solicitor General shall be notified by the party attacking the statute, executive order, or regulation, and shall be entitled to be heard upon such question.

In this particular case, the Solicitor General was not notified, making it improper for the trial court to rule on the constitutionality of P.D. No. 579. Further, the Supreme Court reiterated the requisites for exercising judicial review, emphasizing that the issue of constitutionality must be the very lis mota, or the primary issue, of the case. This approach contrasts with addressing constitutional questions only when necessary for resolving the matter.

The Supreme Court observed that the case primarily involved accounting and specific performance. PNB’s obligation to render an accounting could be determined without necessarily ruling on the constitutionality of P.D. No. 579. The governing law here is agency, as PNB acted as the Mirasols’ agent. The contention that R.A. No. 7202 rendered P.D. No. 579 unconstitutional was also dismissed because repeals by implication are disfavored, and the power to declare a law unconstitutional rests with the courts.

The Court also addressed the Mirasols’ request to pierce the corporate veil between PNB and PHILEX. However, given the Court of Appeals’ finding that PNB and PHILEX were separate juridical persons with distinct operations and purposes, the Supreme Court upheld the appellate court’s refusal to disregard their separate corporate personalities. In this connection, the Mirasols’ claim that the dacion en pago (payment in kind) and the foreclosure of their properties were void for want of consideration was dismissed.

Legal compensation, as defined by Articles 1278 and 1279 of the Civil Code, requires that both parties are mutually creditors and debtors, that the debts consist of sums of money or consumable things, and that the debts are liquidated and demandable. In this case, the Mirasols’ claim was still subject to litigation and therefore unliquidated, making compensation improper. Finally, the award of moral damages and attorney’s fees was deleted because the Mirasols failed to prove malice or bad faith on the part of PNB.

FAQs

What was the key issue in this case?	The central issue was whether the Regional Trial Court (RTC) could declare a presidential decree unconstitutional without notifying the Solicitor General, and whether the decree itself was unconstitutional.
What is the role of the Solicitor General in cases involving constitutionality?	The Solicitor General must be notified in any action involving the validity of a statute, executive order, or regulation to allow intervention and defense of the law if deemed necessary.
Why did the Supreme Court avoid ruling on the constitutionality of P.D. No. 579?	The Court followed the principle of judicial restraint, holding that constitutional questions should only be addressed if essential to resolving the case, and the matter could be decided on other grounds.
What is “lis mota” and why is it important?	“Lis mota” refers to the primary issue of a case. The constitutionality of a law must be the very lis mota for a court to exercise its power of judicial review.
What is the doctrine of piercing the corporate veil?	This doctrine allows courts to disregard the separate legal personality of a corporation to hold its owners or parent company liable. It typically applies when the corporate entity is used to perpetrate fraud or injustice.
What is a “dacion en pago“?	A “dacion en pago” is a payment in kind, where a debtor transfers ownership of property to the creditor to satisfy a debt.
What are the requirements for legal compensation or set-off?	Legal compensation requires that both parties are mutually creditors and debtors, that the debts consist of sums of money or consumable things, and that the debts are liquidated (determined) and demandable (due).
Why were moral damages and attorney’s fees not awarded in this case?	Moral damages and attorney’s fees require proof of bad faith or malice. Since the Mirasols did not sufficiently prove PNB’s bad faith, the awards were not justified.

The Supreme Court’s decision underscores the importance of procedural requirements in challenging the validity of laws and the principle of judicial restraint. This means ensuring that constitutional questions are addressed only when necessary and after proper notification to the Solicitor General.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Spouses Mirasol v. CA, G.R. No. 128448, February 01, 2001