Interpleader (Rule 62) –

G.R. No. L-23851 March 26, 1976

WACK WACK GOLF & COUNTRY CLUB, INC., plaintiff-appellant, vs. LEE E. WON alias RAMON
LEE and BIENVENIDO A. TAN, defendants-appellees.

Leonardo Abola for appellant.

Alfonso V. Agcaoli & Ramon A. Barcelona for appellee Lee E. Won.
Bienvenido A. Tan in his own behalf.

CASTRO, C.J.:

Facts: Wack Wack Golf and Country Club filed a complaint for interpleader against Won and Tan
who both claim ownership over membership fee certificate 201. Won claims its ownership
stemming from a decision rendered in Civil Case 26044 entitled "Lee E. Won alias Ramon Lee
vs. Wack Wack Golf & Country Club, Inc." Meanwhile, Tan claims ownership from the
assignment made by the alleged true owner of the same certificate. The trial court dismissed
the complaint on the ground of res judicata by reason of the previous civil case that issued Won
the right to the certificate. Hence, the appeal.

Issue: WON Interpleader was proper and timely.

Held: There is no question that the subject matter of the present controversy, i.e., the
membership fee certificate 201, is proper for an interpleader suit. However, the Corporation
may not properly invoke the remedy of interpleader.

In fine, the instant interpleader suit cannot prosper because the Corporation had already been
made independently liable in civil case 26044 and, therefore, its present application for
interpleader would in effect be a collateral attack upon the final judgment in the said civil case;
the appellee Lee had already established his rights to membership fee certificate 201 in the
aforesaid civil case and, therefore, this interpleader suit would compel him to establish his
rights anew, and thereby increase instead of diminish litigations, which is one of the purposes
of an interpleader suit, with the possiblity that the benefits of the final judgment in the said civil
case might eventually be taken away from him; and because the Corporation allowed itself to
be sued to final judgment in the said case, its action of interpleader was filed inexcusably late,
for which reason it is barred by laches or unreasonable delay.

It is the general rule that before a person will be deemed to be in a position to ask for an order
of interpleader, he must be prepared to show, among other prerequisites, that he has not
become independently liable to any of the claimants. Indeed, if a stakeholder defends a suit
filed by one of the adverse claimants and allows said suit to proceed to final judgment against
him, he cannot later on have that part of the litigation repeated in an interpleader suit.

In the case at hand, the Corporation allowed civil case 26044 to proceed to final judgment. It
was aware of the conflicting claims of the appellees with respect to the membership fee
certificate 201 long before it filed the present interpleader suit. Yet it did not interplead Tan. It
preferred to proceed with the litigation and to defend itself therein. As a matter of fact, final
judgment was rendered against it and said judgment has already been executed. It is therefore
too late for it to invoke the remedy of interpleader

To now permit the Corporation to bring Won to court after the latter's successful establishment
of his rights in civil case 26044 to the membership fee certificate 201, is to increase instead of
to diminish the number of suits, which is one of the purposes of an action of interpleader, with
the possibility that the latter would lose the benefits of the favorable judgment. This cannot be
done because having elected to take its chances of success in said civil case 26044, with full
knowledge of all the fact, the Corporation must submit to the consequences of defeat.

Besides, a successful litigant cannot later be impleaded by his defeated adversary in an

interpleader suit and compelled to prove his claim anew against other adverse claimants, as
that would in effect be a collateral attack upon the judgment.

In fine, the instant interpleader suit cannot prosper because the Corporation had already been
made independently liable in civil case 26044 and, therefore, its present application for
interpleader would in effect be a collateral attack upon the final judgment in the said civil case;
the appellee Lee had already established his rights to membership fee certificate 201 in the
aforesaid civil case and, therefore, this interpleader suit would compel him to establish his
rights anew, and thereby increase instead of diminish litigations, which is one of the purposes
of an interpleader suit, with the possibility that the benefits of the final judgment in the said
civil case might eventually be taken away from him; and because the Corporation allowed itself
to be sued to final judgment in the said case, its action of interpleader was filed inexcusably
late, for which reason it is barred by laches or unreasonable delay. (Wack-Wack Golf and
Country Club vs. Won, G.R. No. L-23851, March 26, 1976)

The action of interpleader, under section 120 of the Code of Civil Procedure, 2 is a remedy
whereby a person who has personal property in his possession, or an obligation to render
wholly or partially, without claiming any right to either, comes to court and asks that the
persons who claim the said personal property or who consider themselves entitled to demand
compliance with the obligation, be required to litigate among themselves in order to determine
finally who is entitled to tone or the one thing. The remedy is afforded to protect a person not
against double liability but against double vexation in respect of one liability. 3 The procedure
under the Rules of Court 4 is the same as that under the Code of Civil Procedure, 5 except that
under the former the remedy of interpleader is available regardless of the nature of the subject-
matter of the controversy, whereas under the latter an interpleader suit is proper only if the
subject-matter of the controversy is personal property or relates to the performance of an
obligation.

There is no question that the subject matter of the present controversy, i.e., the membership
fee certificate 201, is proper for an interpleader suit. What is here disputed is the propriety and
timeliness of the remedy in the light of the facts and circumstances obtaining.
INTERPLEADER is a remedy whereby a person who has property whether personal or real, in
his possession, or an obligation to render wholly or partially, without claiming any right in both,
or claims an interest which in whole or in part is not disputed by the conflicting claimants,
comes to court and asks that the persons who claim the said property or who consider
themselves entitled to demand compliance with the obligation, be required to litigate among
themselves, in order to determine finally who is entitled to one or the other thing. The remedy
is afforded not to protect a person against a double liability but to protect him against a double
vexation in respect of one liability. [Ocampo v. Tirona, G.R. No. 147382, April 6, 2005]

Requisites for interpleader: It is indispensable that there be conflicting claims upon the same
subject matter are or may be made against the plaintiff-in-interpleader who claims no interest
whatever in the subject matter or an interest which in whole or in part is not disputed by the
claimants. [Rizal Commercial Banking Corporation v. Metro Container Corp., G.R. No. 127913,
September 13, 2001]

The requisites are:

a.) There must be two or more claimants with adverse or conflicting interests upon a subject
matter;
b.) The conflicting claims involve the same subject matter;
c.) The conflicting claims are made against the same person;
d.) The plaintiff has no claim upon the subject matter of the adverse claims or if he has an
interest at all, such interest is not disputed by the claimants. [Riano, supra]

When to file? Whenever conflicting claims upon the same subject matter are or may be made
against a person who claims no interest whatever in the subject matter, or an interest which in
whole or in part is not disputed by the claimants. [Rule 62, Sec. 1]

Instance when interpleader is proper: Interpleader is proper when the lessee does not know the
person who is entitled to the payment of the rentals due because of conflicting claims on the
property. The remedy passes the legal problem to the court which will have to adjudicate upon
the adverse claims. [Pasrischa v. Don Luis Dizon Realty, Inc., 548 SCRA 273, 292.

Limitations in the filing of interpleader: Diligence is required It must be noted, however, that a
stakeholder should use reasonable diligence, that is, by filing the interpleader suit within a
reasonable time after a dispute has arisen without waiting to be sued by either of the
contending claimants. Otherwise, he may be barred by laches or undue delay. [Wack-Wack Golf
v. Won, 70 SCRA 165]

Instance when interpleader is no longer necessary: When the decision of a case has become
final and executory, the party has no other alternative but to pay rentals. The move for
dismissal of interpleader was not an indication that it is no longer interested, rather there is no
more need for it. [Rizal Commercial Banking Corporation v. Metro Container Corp., supra]

Inchoate right not a basis for interpleader In a case where petitioner’s father, aunt and uncles
co-owned the land, and thereafter sold the land, petitioners aver that there is a conflict among
the heirs of the co-owner. Petitioners were not the registered owners of the land, but
represented merely an inchoate interest thereto as heirs, hence they have no personality to file
such case. [Ramos v. Ramos, 399 SCRA 43 (2005)]

Lim vs. Continental Development Corp. (G.R. No. L-41818, February 18, 1976)

Nature of the case: Petition for Review

MAKASIAR, J.

Facts: These two petitions seek a review of the order dated March 12, 1974 of the Judge
presiding Branch XXVI of the Manila Court of First Instance, dismissing petitioner Continental
Development Corporation's complaint. The COURT resolved to treat these petitions as special
civil actions, the petition to dismiss filed by the respondent Benito Gervasio Tan as answer and
the cases as submitted for decision. On November 26, 1973, herein petitioner Continental
Development Corporation filed a complaint for interpleader against the defendants Benito
Gervasio Tan and Zoila Co Lim, and praying that the defendants be directed to interplead and
litigate their respective claims over the aforementioned shares of stock and to determine their
respective rights thereto.

Since there is an active conflict of interests between the two defendants, now herein
respondent Benito Gervasio Tan and petitioner Zoila Co Lim, over the disputed shares of stock,
the trial court gravely abused its discretion in dismissing the complaint for interpleader, which
practically decided ownership of the shares of stock in favor of defendant Benito Gervasio Tan.
The two defendants, now respondents in G.R. No. L-41831, should be given full opportunity to
litigate their respective claims.

Issue: Whether or not there was an active conflict of interest from the defendants to make out
a complaint for interpleader. (Yes)

Held: Rule 63, Section 1 of the New Rules of Court tells us when a cause of action exists to
support a complaint in interpleader:

Whenever conflicting claims upon the same subject matter are or may be made against a
person, who claims no interest whatever in the subject matter, or an interest which in whole or
in part is not disputed by the complainants to compel them to interplead and litigate their
several claims among themselves (Italics supplied).

This provision only requires as an indispensable requisite:

that conflicting claims upon the same subject matter are or may be made against the plaintiff-
in-interpleader who claims no interest whatever in the subject matter or an interest which in
whole or in part is not disputed by the claimants (Beltran vs. People's Homesite and Housing
Corporation, No. L-25138,29 SCRA 145).
This ruling, penned by Mr. Justice Tee the principle in Alvarez vs. Commonwealth (65 Phil. 302),
that

The action of interpleader under section 120, is a remedy whereby a person who has personal
property in his possession, or an obligation to render wholly or partially, without claiming any
right in both comes to court and asks that the persons who claim the said personal property or
who consider themselves entitled to demand compliance with the obligation, be required to
litigate among themselves, in order to determine finally who is entitled to one or the other
thing. The remedy is afforded not to protect a person against a double liability but to protect
him against a double vexation in respect of one liability'

An interpleader merely demands as a sine qua non element

... that there be two or more claimants to the fund or thing in dispute through separate and
different interests. The claims must be adverse before relief can be granted and the parties
sought to be interpleaded must be in a position to make effective claims (33 C.J. 430).

Additionally, the fund, thing, or duty over which the parties assert adverse claims must be one
and the same and derived from the same source (33 C.J., 328; Martin, Rules of Court, 1969
ed., Vol. 3, 133-134; Moran, Rules of Court, 1970 ed., Vol. 3, 134136).

Indeed, petitioner-corporation is placed in the same situation as a lessee who does not know
the person to whom he will pay the rentals due to the conflicting claims over the property
leased, or a sheriff who finds himself puzzled by conflicting claims to a property seized by him.
In these examples, the lessee (Pangkalinawan vs. Rodas, 80 Phil. 28) and the sheriff Sy-Quia
vs. Sheriff, 46 Phil. 400) were each allowed to file a complaint in interpleader to determine the
respective rights of the claimants.

DISPOSITIVE PORTION: The Petitions Are Granted; The Order Dated March 12, 1974
Dismissing The Complaint And The Order Dated July 3, 1974 Denying The Motion For
Reconsideration Of The Petitioners In These Two Cases Are Hereby Set Aside. With Costs
Against Respondent Benito Gervasio Tan.
Declaratory reliefs and similar remedies

When declaratory relief is proper? Any person interested under a deed, will, contract or other
written instrument, or whose rights are affected by a statute, executive order or regulation,
ordinance, or any other governmental regulation may, before breach or violation thereof bring
an action in the appropriate Regional Trial Court to determine any question of construction or
validity arising, and for a declaration of his rights or duties, thereunder. [Rule 63, Sec. 1]

Requisites of action for declaratory relief - The requisites of an action for declaratory relief are:
1) The subject matter of the controversy must be a deed, will, contract or other written
instrument, statute, executive order or regulation, or ordinance;
2) The terms of said documents and the validity thereof are doubtful and require judicial
construction;
3) There must have been no breach of the documents in question;
4) There must be an actual justiciable controversy or the “ripening seeds” of one between
persons whose interests are adverse;
5) The issue must be ripe for judicial determination; and
6) Adequate relief is not available through other means or other forms of action or proceeding.
[Jumamil v. Café, G.R. No. 144570, September 21, 2005]

What is a justiciable question?

A justiciable controversy is a definite and concrete dispute touching on the legal relations of
parties having adverse legal interests, which may be resolved by a court of law through the
application of a law. Hence, a mere apprehension of an administrative sanction does not give
rise to a justiciable controversy. [Bayan Telecommunications v. Republic of the Philippines, 513
SCRA 560]

Office of the Ombudsman vs. Ibay (G.R. No. 137538, September 3, 2001)

Nature of the Case: This special civil action for certiorari seeks to annul the Orders of public
respondent dated August 19, 1998 and December 22, 1998, and to dismiss the proceedings in
Civil Case No. 98-1585.

QUISUMBING, J.

Facts: Sometime in 1998, petitioner conducted an investigation on the alleged "scam" on the
Public Estates Authority-Amari Coastal Bay Development Corporation. The case, entitled Fact-
Finding and Intelligence Bureau v. Amadeo Lagdameo, Et Al., was docketed as OMB-0-97-0411.
Initial result of the investigation revealed that the alleged anomaly was committed through the
issuance of checks which were subsequently deposited in several financial institutions. On April
29, 1998, petitioner issued an Order directing private respondent Lourdes Marquez, branch
manager of Union Bank of the Philippines branch at Julia Vargas Avenue, Pasig City, to produce
several bank documents for inspection relative to Account Nos. 011-37270-5, 240-020718, 245-
30317-3 and 245-30318-1, reportedly maintained in the said branch. The documents referred to
include bank account application forms, signature cards, transactions history, bank statements,
bank ledgers, debit and credit memos, deposit and withdrawal slips, application for purchase of
manager’s checks, used manager’s checks and check microfilms. The inspection would be done
"in camera" wherein the bank records would be examined without bringing the documents
outside the bank premises. Its purpose was to identify the specific bank records prior to the
issuance of the required information not in any manner needed in or relevant to the
investigation. Private respondent failed to comply with petitioner’s order. She explained that the
subject accounts pertain to International Corporate Bank (Interbank) which merged with Union
Bank in 1994. She added that despite diligent efforts, the bank could not identify these
accounts since the checks were issued in cash or bearer forms. She informed petitioner that she
had to first verify from the Interbank records in its archives the whereabouts of said accounts.

Petitioner found private respondent’s explanation unacceptable. Petitioner reminded private

respondent that her acts constitute disobedience or resistance to a lawful order and is
punishable as indirect contempt under Section 3 (b), Rule 71 of the Revised Rules of Court, in
relation to Section 15 (9) of R.A. 6770 (Ombudsman Act of 1989). The same might also
constitute willful obstruction of the lawful exercise of the functions of the Ombudsman, which is
punishable under Section 36 of R.A. 6770. On June 16, 1998, petitioner issued an order to
private respondent to produce the requested bank documents for "in camera" inspection. In the
event of her failure to comply as directed, private respondent was ordered to show cause why
she should not be cited for contempt and why she should not be charged for obstruction.
Instead of complying with the order of petitioner, private respondent filed a petition for
declaratory relief with an application for temporary restraining order and/or preliminary
injunction before the Regional Trial Court of Makati City, Branch 135, presided by respondent
Judge Francisco Ibay.

Petitioner contends that the RTC of Makati City lacks jurisdiction over the petition for
declaratory relief. It asserts that respondent judge should have dismissed the petition outright
in view of Section 14 of R.A. 6770.

Section 14 of R.A. 6770 provides: Restrictions. — No writ of injunction shall be issued by any
court to delay an investigation being conducted by the Ombudsman under this Act unless there
is a prima facie evidence that the subject matter of the investigation is outside the jurisdiction
of the Office of the Ombudsman.

No court shall hear any appeal or application for remedy against the decision or findings of the
Ombudsman, except the Supreme Court, on pure question of law.

Issue: Whether or not public respondent acted without jurisdiction and discretion in entertaining
the petition for declaratory relief. (No)

Held: The special civil action of declaratory relief falls under the exclusive jurisdiction of the
Regional Trial Courts. 5 It is not among the actions within the original jurisdiction of the
Supreme Court even if only questions of law are involved. 6 Similarly, the Rules of Court is
explicit that such action shall be brought before the appropriate Regional Trial Court. Section 1,
Rule 63 of the Rules of Court provides:
SECTION 1. Who may file petition. — Any person interested under a deed, will, contract or
other written instrument, whose rights are affected by a statute, executive order or regulation,
ordinance, or any other governmental regulation may, before breach or violation thereof, bring
an action in the appropriate Regional Trial Court to determine any question of construction or
validity arising, and for a declaration of his rights or duties, thereunder.

x           x           x

The requisites of an action for declaratory relief are: (1) there must be a justiciable controversy;
(2) the controversy must be between persons whose interests are adverse; (3) that the party
seeking the relief has a legal interest in the controversy; and (4) that the issue is ripe for
judicial determination. 7 In this case, the controversy concerns the extent of the power of
petitioner to examine bank accounts under Section 15 (8) of R.A. 6770 vis-a-vis the duty of
banks under Republic Act 1405 not to divulge any information relative to deposits of whatever
nature. The interests of the parties are adverse considering the antagonistic assertion of a legal
right on one hand, that is the power of Ombudsman to examine bank deposits, and on the
other, the denial thereof apparently by private respondent who refused to allow petitioner to
inspect in camera certain bank accounts. The party seeking relief, private respondent herein,
asserts a legal interest in the controversy. The issue invoked is ripe for judicial determination as
litigation is inevitable. Note that the petitioner has threatened private respondent with "indirect
contempt" and "obstruction" charges should the latter not comply with its order.

Circumstances considered, the Court holds that public respondent has jurisdiction to take
cognizance of the petition for declaratory relief. Nor can it be said that public respondent
gravely abused its discretion in doing so. We are thus constrained to dismiss the instant petition
for lack of merit.

In any event, the relief being sought by private respondent in her action for declaratory relief
before the RTC of Makati City has been squarely addressed by our decision in Marquez v.
Desierto 8 In that case, we ruled that before an in camera inspection of bank accounts may be
allowed, there must be a pending case before a court of competent jurisdiction. Further, the
account must be clearly identified, and the inspection limited to the subject matter of the
pending case before the court of competent jurisdiction. The bank personnel and the account
holder must be notified to be present during the inspection, and such inspection may cover only
the account identified in the pending case. In the present case, since there is no pending
litigation yet before a court of competent authority, but only an investigation by the
Ombudsman on the so-called "scam", any order for the opening of the bank account for
inspection is clearly premature and legally unjustified.

DISPOSITIVE PORTION: The instant petition is DISMISSED.

Spouses Mirasol vs. Court of Appeals ((G.R. No. 128448, February 1, 2001)

Nature of the case: Petition for Review on Certiorari

QUISUMBING, J.

Facts: This is a petition for review on certiorari of the decision of the Court of Appeals dated
July 22, 1996, in CA-G.R. CY No. 38607, as well as of its resolution of January 23, 1997,
denying petitioners' motion for reconsideration. The challenged decision reversed the judgment
of the Regional Trial Court of Bacolod City, Branch 42 in Civil Case No. 14725.

The factual background of this case, as gleaned from the records, is as follows: The Mirasols
are sugarland owners and planters. In 1973-1974, they produced 70,501.08 piculs1 of sugar,
25,662.36 of which were assigned for export. The following crop year, their acreage planted to
the same crop was lower, yielding 65,100 piculs of sugar, with 23,696.40 piculs marked for
export. Private respondent Philippine National Bank (PNB) financed the Mirasols' sugar
production venture for crop years, 1973-1974 and 1974-1975 under a crop loan financing
scheme. Under said scheme, the Mirasols signed Credit Agreements, a Chattel Mortgage on
Standing Crops, and a Real Estate Mortgage in favor of PNB. The Chattel Mortgage empowered
PNB as the petitioners' attorney-in-fact to negotiate and to sell the latter's sugar in both
domestic and export markets and to apply the proceeds to the payment of their obligations to
it.

Exercising his law-making powers under Martial Law, then President Ferdinand Marcos issued
Presidential Decree (P.D.) No. 5792 in November, 1974. The decree authorized private
respondent Philippine Exchange Co., Inc. (PHILEX) to purchase sugar allocated for export to the
United States and to other foreign markets. The price and quantity was determined by the
Sugar Quota Administration, PNB, the Department of Trade and Industry, and finally, by the
Office of the President. The decree further authorized PNB to finance PHILEX's purchases.
Finally, the decree directed that whatever profit PHILEX might realize from sales of sugar
abroad was to be remitted to a special fund of the national government, after commissions,
overhead expenses and liabilities had been deducted. The government offices and entities
tasked by existing laws and administrative regulations to oversee the sugar export pegged the
purchase price of export sugar in crop years 1973-1974 and 1974-1975 at P180.00 per picul.
PNB continued to finance the sugar production of the Mirasols for crop years 1975-1976 and
1976-1977. These crop loans and similar obligations were secured by real estate mortgages
over several properties of the Mirasols and chattel mortgages over standing crops. Believing
that the proceeds of their sugar sales to PNB, if properly accounted for, were more than enough
to pay their obligations, petitioners asked PNB for an accounting of the proceeds of the sale of
their export sugar. PNB ignored the request. Meanwhile, petitioners continued to avail of other
loans from PNB and to make unfunded withdrawals from their current accounts with said bank.
PNB then asked petitioners to settle their due and demandable accounts. As a result of these
demands for payment, petitioners on August 4, 1977, conveyed to PNB real properties valued at
P1,410,466.00 by way of dacion en pago, leaving an unpaid overdrawn account of
P1,513,347.78.
On August 10, 1982, the balance of outstanding sugar crop and other loans owed by petitioners
to PNB stood at P15,964,252.93. Despite demands, the Mirasols failed to settle said due anti
demandable accounts. PNB then proceeded to extrajudicially for close the mortgaged
properties. After applying the proceeds of the auction sale of the mortgaged realties, PNB still
had a deficiency claim of P12,551,252.93. Petitioners continued to ask PNB to account for the
proceeds of the sale of their export sugar for crop years 1973-1974 and 1974-1975, insisting
that said proceeds, if properly liquidated, could offset their outstanding obligations with the
batik. PNB remained adamant in its stance that under P.D. No. 579, there was nothing to
account since under said law, all earnings from the export sales of sugar pertained to the
National Government and were subject to the disposition of the President of the Philippines for
public purposes.

Issues:
"1. Whether the Trial Court has jurisdiction to declare a statute unconstitutional without notice
to the Solicitor General where the parties have agreed to submit such issue for the resolution of
the Trial Court.
"2. Whether PD 579 and subsequent issuances7 thereof are unconstitutional.
"3. Whether the Honorable Court of Appeals committed manifest error in not applying the
doctrine of piercing the corporate veil between respondents PNB and PHILEX.
"4. Whether the Honorable Court of Appeals committed manifest error in upholding the validity
of the foreclosure on petitioners property and in upholding the validity of the dacion en pago in
this case.
"5. Whether the Honorable Court of Appeals committed manifest error in not awarding damages
to petitioners grounds relied upon the allowance of the petition.

Held: On the first issue. It is settled that Regional Trial Courts have the authority and
jurisdiction to consider the constitutionality of a statute, presidential decree, or executive
order.9 The Constitution vests the power of judicial review or the power to declare a law,
treaty, international or executive agreement, presidential decree, order, instruction, ordinance,
or regulation not. only in this Court, but in all Regional Trial Courts.10 In J.M. Tuason and Co.
v. Court of Appeals, 3 SCRA 696 (1961) we held:

"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."11

Furthermore, B.P. BIg. 129 grants Regional Trial Courts the authority to rule on the conformity
of laws or treaties with the Constitution, thus:

"SECTION 19. Jurisdiction in civil cases. - Regional Trial Courts shall exercise exclusive original
jurisdiction:

(1) In all civil actions in which the subject of the litigations is incapable of pecuniary
estimation;"
The pivotal issue, which we must address, is whether it was proper for the trial court to have
exercised judicial review.

Petitioners argue that the Court of Appeals erred in finding that it was improper for the trial
court to have declared P.D. No. 57912 unconstitutional, since petitioners had not complied with
Rule 64, Section 3, of the Rules of Court. Petitioners contend that said Rule specifically refers
only to actions for declaratory relief and not to an ordinary action for accounting, specific
performance, and damages.

Petitioners' contentions are bereft of merit. Rule 64, Section 3 of the Rules of Court provides:

"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."

This should be read in relation to Section 1 [c] of P.D. No. 478,13 which states in part:

"SECTION 1. Functions and Organizations - (1) The Office of the Solicitor General shall...have
the following specific powers and functions:

xxx

"[c] Appear in any court in any action involving the validity of any treaty, law, executive order
or proclamation, rule or regulation when in his judgment his intervention is necessary or when
requested by the court."

It is basic legal construction that where words of command such as "shall," "must," or "ought"
are employed, they are generally and ordinarily regarded as mandatory.14 Thus, where, as in
Rule 64, Section 3 of the Rules of Court, the word "shall" is used, a mandatory duty is imposed,
which the courts ought to enforce.

The purpose of the mandatory Notice in Rule 64, Section 3 is to enable the Solicitor General to
decide whether or not his intervention in the action assailing the validity of a law or treaty is
necessary. To deny the Solicitor General such notice would be tantamount to depriving him of
his day in court. We must stress that, contrary to petitioners' stand, the mandatory notice
requirement is not limited to actions involving declaratory relief and similar remedies. The rule
itself provides that such notice is required in "any action" and not just actions involving
declaratory relief. Where there is no ambiguity in the words used in the true, there is no room
for constnlction.15 In all actions assailing the validity of a statute, treaty, presidential decree,
order, or proclamation, notice to the Solicitor General is mandatory.

In this case, the Solicitor General was never notified about Civil Case No. 14725. Nor did the
trial court ever require him to appear in person or by a representative or to file any pleading or
memorandum on the constitutionality of the assailed decree. Hence, the Court of Appeals did
not err in holding that lack of the required notice made it improper for the trial court to pass
upon the constitutional validity of the questioned presidential decrees.

As regards the second issue, petitioners contend that P.D. No. 579 and its implementing
issuances are void for violating the due process clause and the prohibition against the taking of
private property without just compensation. Petitioners now ask this Court to exercise its power
of judicial review.

Jurisprudence has laid down the following requisites for the exercise of this power: First, there
must be before the Court an actual case calling for the exercise of judicial review. Second, the
question before the Court must be ripe for adjudication. Third, the person challenging the
validity of the act must have standing to challenge. Fourth, the question of constitutionality
must have been raised at the earliest opportunity, and lastly, the issue of constitutionality must
be the very lis mota of the case.16

As a rule, the courts will not resolve the constitutionality of a law, if the controversy can be
settled on other grounds.17 The policy of the courts is to avoid ruling on constitutional
questions and to presume that the acts of the political departments are valid, absent a clear
and unmistakable showing to the contrary. To doubt is to sustain. This presumption is based on
the doctrine of separation of powers. This means that the measure had first been carefully
studied by the legislative and executive departments and found to be in accord with the
Constitution before it was finally enacted and approved.18

The present case was instituted primarily for accounting and specific performance. The Court of
Appeals correctly ruled that PNB's obligation to render an accounting is an issue, which can be
determined, without having to rule on the constitutionality of P.D. No. 579. In fact there is
nothing in P.D. No. 579, which is applicable to PNB's intransigence in refusing to give an
accounting. The governing law should be the law on agency, it being undisputed that PNB acted
as petitioners' agent. In other words, the requisite that the constitutionality of the law in
question be the very lis mota of the case is absent. Thus we cannot rule on the constitutionality
of P.D. No. 579.

Petitioners further contend that the passage of R.A. No. 720219 rendered P.D. No. 579
unconstitutional, since R.A. No. 7202 affirms that under P.D. 579, the due process clause of the
Constitution and the right of the sugar planters not to be deprived of their property without just
compensation were violated.

A perusal of the text of R.A. No. 7202 shows that the repealing clause of said law merely reads:

"SEC. 10. All laws, acts, executive orders and circulars in conflict herewith are hereby repealed
or modified accordingly."

The settled rule of statutory construction is that repeals by implication are not favored.20 R.A.
No. 7202 cannot be deemed to have repealed P.D. No. 579. In addition, the power to declare a
law unconstitutional does not lie with the legislature, but with the courts.21 Assuming arguendo
that R.A. No. 7202 did indeed repeal P.D. No. 579, said repeal is not a legislative declaration
finding the earlier law unconstitutional.

To resolve the third issue, petitioners ask us to apply the doctrine of piercing the veil of
corporate fiction with respect to PNB and PHILEX. Petitioners submit that PHILEX was a wholly-
owned subsidiary of PNB prior to the latter's privatization.

We note, however, that the appellate court made the following finding of fact:

"1. PNB and PHILEX are separate juridical persons and there is no reason to pierce the veil of
corporate personality. Both existed by virtue of separate organic acts. They had separate
operations and different purposes and powers."22

Findings of fact by the Court of Appeals are conclusive and binding upon this Court unless said
findings are not supported by the evidence.23 Our jurisdiction in a petition for review under
Rule 45 of the Rules of Court is limited only to reviewing questions of law and factual issues are
not within its province.24 In view of the aforequoted finding of fact, no manifest error is
chargeable to the respondent court for refusing to pierce the veil of corporate fiction.

On the fourth issue, the appellate court found that there were two sets of accounts between
petitioners and PNB, namely:

"1. The accounts relative to the loan financing scheme entered into by the Mirasols with PNB
(PNB's Brief, p. 16) On the question of haw much the PNB lent the Mirasols for crop years
1973-1974 and 1974-1975, the evidence recited by the lower court in its decision was deficient.
We are offered (sic) PNB the amount of FIFTEEN MILLION NINE HUNDRED SIXTY FOUR
THOUSAND TWO HUNDRED FIFTY TWO PESOS and NINETY THREE Centavos
(Ps15,964,252.93) but this is the alleged balance the Mirasols owe PNB covering the years 1975
to 1982.

"2. The account relative to the Mirasol's current account Numbers 5186 and 5177 involving the
amount of THREE MILLION FOUR HUNDRED THOUSAND Pesos (P3,400,000.00). PNB claims
against the Mirasols. (PNB's Brief, p. 17)

"In regard to the first set of accounts, besides the proceeds from PNB's sale of sugar (involving
the defendant PHILEX in relation to the export portion of tile stock), the PNB foreclosed the
Mirasols' mortgaged properties realizing therefrom in 1981 THREE MILLION FOUR HUNDRED
THIRTEEN THOUSAND pesos (P3,413,000.00), the PNB itself having acquired the properties as
the highest bidder.

"As to the second set of accounts, PNB proposed, and the Mirasols accepted, a dacion en pago
scheme by which the Mirasols conveyed to PNB pieces of property valued at ONE MILLION
FOUR HUNDRED TEN THOUSAND FOUR HUNDRED SIXTY-SIX Pesos (Ps1,410,466.00) (PNB's
Brief, pp. 16-17)."25
Petitioners now claim that the dacion en pago and the foreclosure of their mortgaged properties
were void for want of consideration. Petitioners insist that the loans granted them by PNB from
1975 to 1982 had been fully paid by virtue of legal compensation. Hence, the foreclosure was
invalid and of no effect, since the mortgages were already fully discharged. It is also averred
that they agreed to the dacion only by virtue of a martial law Arrest, Search, and Seizure Order
(ASSO).

We find petitioners' arguments unpersuasive. Both the lower court and the appellate court
found that the Mirasols admitted that they were indebted to PNB in the sum stated in the
latter's counterclaim.26 Petitioners nonetheless insist that the same can be offset by the
unliquidated amounts owed them by PNB for crop years 1973-74 and 1974-75. Petitioners'
argument has no basis in law. For legal compensation to take place, the requirements set forth
in Articles 1278 and 1279 of the Civil Code must be present. Said articles read as follows:

"Art. 1278. Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other.

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts are due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor."

In the present case, set-off or compensation cannot take place between the parties because:
First, neither of the parties are mutually creditors and debtors of each other. Under P.D. No.
579, neither PNB nor PHILEX could retain any difference claimed by the Mirasols in the price of
sugar sold by the two firms. P.D. No. 579 prescribed where the profits from the sales are to be
paid, to wit:

"SECTION 7. x x x After deducting its commission of two and one-half (2-1/2%) percent of
gross sales, the balance of the proceeds of sugar trading operations for every crop year shall be
set aside by the Philippine Exchange Company, Inc,. as profits which shall be paid to a special
fund of the National Government subject to the disposition of the President for public
purposes."
Thus, as correctly found by the Court of Appeals, "there was nothing with which PNB was
supposed to have off-set Mirasols' admitted indebtedness."27

Second, compensation cannot take place where one claim, as in the instant case, is still the
subject of litigation, as the same cannot be deemed liquidated.28

With respect to the duress allegedly employed by PNB, which impugned petitioners' consent to
the dacion en pago, both the trial court and the Court of Appeals found that there was no
evidence to support said claim. Factual findings of the trial court, affirmed by the appellate
court, are conclusive upon this Court.29

On the fifth issue, the trial court awarded petitioners P50,000.00 in moral damages and
P50,000.00 in attorney's fees. Petitioners now theorize that it was error for the Court of Appeals
to have deleted these awards, considering that the appellate court found PNB breached its duty
as an agent to render an accounting to petitioners.

An agent's failure to render an accounting to his principal is contrary to Article 1891 of the Civil
Code.30 The erring agent is liable for damages under Article 1170 of the Civil Code, which
states:

"Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages."

Article 1170 of the Civil Code, however, must be construed in relation to Article 2217 of said
Code which reads:

"Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury .Though
incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendant's wrongful act or omission."

Moral damages are explicitly authorized in breaches of contract where the defendant acted
fraudulently or in bad faith.31 Good faith, however, is always presumed and any person who
seeks to be awarded damages due to the acts of another has the burden of proving that the
latter acted in bad faith, with malice, or with ill motive. In the instant case, petitioners have
failed to show malice or bad faith32 on the part of PNB in failing to render an accounting.
Absent such showing, moral damages cannot be awarded.

Nor can we restore the award of attorney's fees and costs of suit in favor of petitioners. Under
Article 2208 (5) of the Civil Code, attorney's fees are allowed in the absence of stipulation only
if "the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff s plainly
valid, just, and demandable claim." As earlier stated, petitioners have not proven bad faith on
the part of PNB and PHILEX.
DISPOSITIVE PORTION: The instant petition is DENIED and the assailed decision of the
respondent court in CA-G.R. CY 38607 AFFIRMED. Costs against petitioners.
Martelino vs. National Home Mortgage Finance Corp. (G.R. No. 160208, June 30, 2008)

Nature of the case: Appeal

QUISUMBING, J.

Facts: On appeal is the Decision1 dated April 22, 2003 of the Court of Appeals in C.A.-G.R. CV
No. 70231, which had affirmed the March 12, 2001 Order2 of the Regional Trial Court (RTC),
Branch 120, Caloocan City, dismissing Civil Case No. C-551 for declaratory relief and prohibition.
Also assailed is the appellate court’s Resolution3 dated September 25, 2003, denying
petitioners’ motion for reconsideration. The case stemmed from the petition for declaratory
relief and prohibition with urgent prayer for the issuance of a temporary restraining order
and/or preliminary injunction4 filed before the RTC of Caloocan City, by petitioners against the
National Home Mortgage Finance Corporation (NHMFC) and the Home Development Mutual
Fund (HDMF), herein respondents, and Sheriff Alberto A. Castillo.5 Petitioners alleged that they
obtained housing loans from respondents who directly released the proceeds thereof to the
subdivision developer, Shelter Philippines, Inc. (Shelter).

However, Shelter failed to complete the subdivision according to its representations and the
subdivision plan. They were thus compelled to spend their own resources to improve the
subdivision roads and alleys, and to install individual water facilities. Respondents, on the other
hand, failed to ensure Shelter’s completion of the subdivision. Instead, respondents ignored
their right to suspend amortization payments for Shelter’s failure to complete the subdivision,
charged interests and penalties on their outstanding loans, threatened to foreclose their
mortgages and initiated foreclosure proceedings against petitioner Rafael Martelino. Hence,
they prayed that respondents be restrained from foreclosing their mortgages. Moreover,
petitioners specifically sought a declaration from the RTC (1) that their right as house and lot
buyers to suspend payment to Shelter for its failure to fully develop the subdivision also applied
to respondents who released their loans directly to Shelter; and (2) that during the suspension
of payment, respondents should not assess them accrued interests and penalties. Petitioners
further prayed that they be allowed to pay their housing loans without interest and penalties.

Issues: (1) whether or not the preliminary injunction order against the HDMF is valid;
and (2) whether or not dismissing the petition for declaratory relief and prohibition is proper.

Held: We affirm the RTC and Court of Appeals ruling that the preliminary injunction order is not
valid against the HDMF. Section 5, Rule 58 of the Rules of Court expressly states that "[n]o
preliminary injunction shall be granted without hearing and prior notice to the party or person
sought to be enjoined." Here, petitioners even admit that the HDMF was not notified of the
preliminary injunction hearing. In fact, petitioners do not contest the lower courts’ ruling that
the July 9, 1998 Order cannot apply to the HDMF. They merely contend and insist that the
HDMF voluntarily submitted to the RTC’s jurisdiction. Unfortunately, such contention is
immaterial. The issue involves the validity of the preliminary injunction order absent a notice of
hearing for its issuance to the HDMF, and not the HDMF’s voluntary submission to the RTC’s
jurisdiction.
Petitioners also argue that the Court of Appeals erred when it sustained the RTC’s dismissal of
the petition on a ground not relied upon by respondents. They contend that the RTC went
beyond the issue of jurisdiction raised by respondents by determining the sufficiency of the
petition and ruling that it was vague and improper. The basic issue petitioners raised is whether
their right under Section 2323 of Presidential Decree No. 957 24 to suspend amortization
payments to the subdivision developer is equally available against respondents.
In response, the NHMFC "reiterates and adheres" to the lower courts’ ruling that the petition for
declaratory relief is a case of forum shopping considering consolidated HLRB Cases Nos. REM-
111585-4240 and REM-022690-4355 (HLRB cases) which were decided allegedly in petitioners’
favor. The NHMFC also maintains that the RTC had no jurisdiction since petitioners’ complaint of
the developer’s failure to complete the subdivision is a case cognizable by the HLURB.
After a careful study of the case, we are in agreement to uphold the dismissal of the petition for
declaratory relief and prohibition.
I. Worthy of recall, the RTC held that respondents’ 25 act of initiating foreclosure proceedings
was in breach of Rep. Act No. 8501 and rendered the action of declaratory relief improper. The
RTC suggested that the proper remedy is an ordinary civil action. Incidentally, this point is also
related to petitioners’ contention that the Court of Appeals should have ordered the conversion
of their petition filed before the RTC to an ordinary civil action, under the provisions of Section
6,26 Rule 63 of the Rules of Court.
We agree with the RTC but hasten to point out that the RTC had not ruled on whether the
petition was also improper as a petition for prohibition. Indeed, under Section 1, 27 Rule 63, a
person must file a petition for declaratory relief before breach or violation of a deed, will,
contract, other written instrument, statute, executive order, regulation, ordinance or any other
governmental regulation. In this case, the petitioners had stated in their petition that
respondents assessed them interest and penalties on their outstanding loans, initiated
foreclosure proceedings against petitioner Rafael Martelino as evidenced by the notice of extra-
judicial sale28 and threatened to foreclose the mortgages of the other petitioners, all in
disregard of their right to suspend payment to Shelter for its failure to complete the subdivision.
Said statements clearly mean one thing: petitioners had already suspended paying their
amortization payments. Unfortunately, their actual suspension of payments defeated the
purpose of the action to secure an authoritative declaration of their supposed right to suspend
payment, for their guidance. Thus, the RTC could no longer assume jurisdiction over the action
for declaratory relief because its subject initially unspecified, now identified as P.D. No. 957 and
relied upon -- correctly or otherwise -- by petitioners, and assumed by the RTC to be Rep. Act
No. 8501, was breached before filing the action. As we said in Tambunting, Jr. v. Sumabat:29
. . . The purpose of the action [for declaratory relief] is to secure an authoritative statement of
the rights and obligations of the parties under a statute, deed, contract, etc. for their guidance
in its enforcement or compliance and not to settle issues arising from its alleged breach. It may
be entertained only before the breach or violation of the statute, deed, contract,  etc. to which it
refers. Where the law or contract has already been contravened prior to the filing of an action
for declaratory relief, the court can no longer assume jurisdiction over the action.… Under such
circumstances, inasmuch as a cause of action has already accrued in favor of one or the other
party, there is nothing more for the court to explain or clarify short of a judgment or final
order.30
Under the circumstances, may the Court nonetheless allow the conversion of the petition for
declaratory relief and prohibition into an ordinary action? We are constrained to say: no.
Although Section 6, Rule 63 might allow such course of action, the respondents did not argue
the point, and we note petitioners’ failure to specify the ordinary action they desired. We also
cannot reasonably assume that they now seek annulment of the mortgages. Further, the
records support the Court of Appeals’ finding that this issue was not raised before the
RTC.31 The Court of Appeals therefore properly refused to entertain the issue as it cannot be
raised for the first time on appeal.32
Relatedly, the Court had considered De La Llana, etc., et al. v. Alba, etc., et al .,33 where this
Court considered a petition erroneously entitled Petition for Declaratory Relief and/or for
Prohibition as an action for prohibition. That case involved the constitutionality of Batas
Pambansa Blg. 129 or the Judiciary Reorganization Act of 1980. Citing De La Llana, Justice
Florenz D. Regalado opined in his book 34 that if the petition has far-reaching implications and it
raises questions that should be resolved, it may be treated as one for prohibition.
Assuming the Court can also treat the Petition for Declaratory Relief and Prohibition as an
action for prohibition, we must still hold that prohibition is improper. Prohibition is a remedy
against proceedings that are without or in excess of jurisdiction, or with grave abuse of
discretion, there being no appeal or other plain, speedy adequate remedy in the ordinary course
of law.35 But here, the petition did not even impute lack of jurisdiction or grave abuse of
discretion committed by respondents and Sheriff Castillo regarding the foreclosure proceedings.
Foreclosure of mortgage is also the mortgagee’s right in case of non-payment of a debt secured
by mortgage. The mortgagee can sell the encumbered property to satisfy the outstanding
debt.36 Hence, the HDMF cannot be faulted for exercising its right to foreclose the
mortgages,37 under the provisions of Act No. 3135 38 as amended by Act No. 4118.39 We are not
saying, however, that the HDMF must exercise its right at all cost, considering that Rep. Act No.
8501 allows condonation of loan penalties when appropriate.
We note that Rep. Act No. 8501 not only allows condonation of loan penalties, 40 it also grants to
the HDMF Board of Trustees the power to condone penalties imposed on loans of HDMF
members-borrowers who for, justifiable reasons, failed to pay on time any obligation due to the
HDMF.41 Notably, the law applies to borrowers who failed or refused to pay their monthly
amortizations due to structurally defective or substandard housing units and/or subdivisions
lacking in basic amenities such as water, light, drainage, good roads and others as required by
law.42 And the rules promulgated by the HDMF provide that such refusal shall be considered as
a justifiable reason for failure to pay the required amortization. 43 Furthermore, the Board of
Trustees of the HDMF may also consider other causes similarly justifiable. 44
Petitioners wanted to avail of the benefits of Rep. Act No. 8501 and said that "the most that
[respondents] should have done under the circumstances was to advise [them] about the
effectivity of said law and encourage them to apply thereunder." 45 But instead of applying for
condonation of penalties and restructuring of their loans, they filed an erroneous petition before
the RTC. They need not wait for encouragement because the HDMF, the assignee of petitioners’
loans, had already issued and published its rules according to the NHMFC. 46 Petitioners need
only to apply with the HDMF and squarely raise before the HDMF not only their refusal to pay
amortizations because of the defective subdivision – a justifiable reason according to the rules –
but also their implied imputation of negligence against respondents who allegedly released the
proceeds of their loans directly to Shelter, despite its failure to complete the subdivision.
The HDMF could then determine if the latter ground is also a justifiable cause for non-payment
of amortization. Surely, respondents would not espouse a policy to go after petitioners if they
were found justified. Respondents could even enhance administrative controls for releasing
future loans to protect borrower-mortgagors against subdivision developers who renege on
their obligations.
II. We cannot agree, however, with the RTC’s ruling that the vagueness of the petition
furnished additional justification for its dismissal. If the petition for declaratory relief and
prohibition was vague, dismissal is not proper because the respondents may ask for more
particulars.47 Notably, the NHMFC never assailed the supposed vagueness of the petition in its
motion to dismiss nor did it ask for more particulars before filing its answer. When the RTC also
set the pre-trial conference and ordered the parties to submit their pre-trial briefs, it even noted
that the issues had already been joined. 48 Petitioners fairly stated also the necessary ultimate
facts, except that their action for declaratory relief was improper.
Moreover, the RTC made an assumption that Rep. Act No. 8501 was the subject matter of the
case. But while the petition mentioned the law, the declaration that petitioners sought was not
anchored on any of its provisions. The petition only stated that despite the effectivity of said
law, respondents still acted in bad faith and with undue haste in threatening petitioners with
foreclosures, instead of encouraging them to avail of its benefits.
III. On the matter of forum shopping, we find the claim unsubstantiated. The NHMFC has not
explained why there is forum shopping. 49 It failed to show the elements of forum shopping, i.e.,
(1) identity of parties in the HLRB cases and this case; (2) identity of rights asserted or relief
prayed for; and (3) identity of the two preceding particulars so that the judgment in the HLRB
cases will be res judicata in this case.50 In any event, the decision in the HLRB cases, as
affirmed with modification by the HLURB Board of Commissioners, 51 ordered Shelter to
complete the subdivision roads, sidewalks, water, electrical and drainage systems. Thus, there
is no forum shopping since the petition for declaratory relief and prohibition filed by petitioners
against respondents is entirely different from the HLRB cases. Involved were different parties,
rights asserted and reliefs sought. Obviously, the NHMFC invokes a ruling of the RTC and Court
of Appeals that petitioners committed forum shopping, when no such ruling exists.
IV. Respondents’ contention that the case should or could have been filed with the HLURB lacks
merit. The jurisdiction of the HLURB is defined under Section 1 of P.D. No. 1344, 52 to wit:
SECTION 1. In the exercise of its functions to regulate the real estate trade and business and in
addition to its powers provided for in Presidential Decree No. 957, the National Housing
Authority [now HLURB] shall have exclusive jurisdiction to hear and decide cases of the
following nature:
A. Unsound real estate business practices;
B. Claims involving refund and any other claims filed by subdivision lot or condominium unit
buyer against the project owner, developer, dealer, broker or salesman; and
C. Cases involving specific performance of contractual and statutory obligations filed by buyers
of subdivision lot or condominium unit against the owner, developer, dealer, broker or
salesman.
As we previously held, the jurisdiction of the HLURB to hear and decide cases is determined by
the nature of the cause of action, the subject matter or property involved and the parties. 53 In
this case, the petition for declaratory relief and prohibition did not involve an unsound real
estate business practice, or a refund filed by subdivision buyers against the developer, or a
specific performance case filed by buyers against the developer. Rather, the petition specifically
sought a judicial declaration that petitioners’ right to suspend payment to the developer for
failure to complete the subdivision also applies to respondents who provided them housing
loans and released the proceeds thereof to the developer although the subdivision was not
completed. Note also that the buyers (petitioners) are not suing the developer but their
creditor-mortgagees54 (respondents).

Held:

DISPOSITIVE PORTION: The petition is DENIED for lack of merit. The assailed Decision and
Resolution of the appellate court are AFFIRMED.