REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY VALDERAMA LUMBER MANUFACTURERS CO.

,
INC., Petitioner, - versus - C.T.A. Case No. 3886 COMMISSIONER OF INTERNAL REVENUE, Respondent. X - - - - - - - - - - - - - - -
X DECISION This case is a claim for refund of the amount of P276, 507.06 representing 25% of the specific taxes paid on the oils
and fuels actually used by petitioner in its operations as a forest concessionaire. Petitioner is a domestic corporation duly licensed to
operate a forest concession. It is the holder of Timber License Agreement No. 96 covering an area located in the province of Davao
del Norte (Exhibit A, p. 91 C.T.A. records). During the period April 1981 through 9eptember . 1982, petitioner purchased from various
oil companies/stations refined and manufactured mineral oils, motor fuels and diesel fuel oils which petitioner . actually and
exclusively used in connection with the exploitation and operations of its forest concession. The said oil DECISION - C.T.A. Case No.
3886 - 2 - companies/stations paid and passed on to petitioner the specific taxes imposed under Sections 153 and 156 (formerly
Sections 142 and 145) of the National Internal Revenue Code of 1977 on refined and manufactured mineral oils, motor fuels and
diesel fuel oils that said oil companies sold to petitioner. Pursuant to Republic Act No _1435 (An Act To Provide Means For
Increasing The Highway Special Fund) and the decision of the Supreme Court in the case of Insular Lumber Co. vs. Court of Tax
Appeals, G.R. No L-31057 May 29 1981 (104 SCRA 710), petitioner invoked entitlement to the 25% partial refund on the specific
taxes paid on the refined and manufactured mineral oils, motor fuels, and diesel fuel oils that petitioner utilized in the operations of its
forest concession. On May 16 1983, petitioner filed with the BIR Appellate Division a written claim for refund of the amount of
P276,507.06, -computed as follows: VALDERAMA LUMBER MANUFACTURERS CO., INC. April 1981 - September 1982 Diesel
Regular Gasoline Oil and lubricants Grease TOTAL VOLUME (Liters) 3,372,630 572,000 1 '260 20 PRODUCT cosr p 9,973,063.00
2,809,924.00 11,369.00 170.40 P12, 794,526.40 p SPECIFIC TAX 590,210.25 514,800.00 1,008.00 10.00 P1,106 1028.25 m
REFUHD P147,552.56 128,700.00 252.00 2.50 P276,507.06 DECISION - C.T.A. Case No. 3886 - 3 - To support its claim for refund
petitioner submitted to respondent affidavits of its Vice-President for Corporate Planning and Management Services (Exhibit "C-1"),
Finance Manager (Exhibit C-2), Accountant (Exhibit C-3) and two other disinterested persons (Exhibits C-4 and C-5), all attesting that
for the period April 1981 to September 1982 petitioner actually used in its operations refined and manufactured mineral oils, motor
fuels and fuel oils valued at P12,794,526.40. On September 4, 1984 petitioner's counsel received respondent ' s letter dated July 30,
1984 denying the claim for refund of the whole amount of P276, 507.06. It is respondent's view that in order to avail of the benefits of
partial tax refund mentioned under Section 5 of Republic Act No. 1435, there must also be a municipal or city ordinance which
imposes an addi tiona! tax of not exceeding 25% of the regular specific tax levied under Sections 142 and 145 of the Tax Code. In
other words, refund will arise only after the enactment of the required ordinance levying the additional tax and subsequent payment
thereof. With the issuance however, of the Presidential Decree Nos. 231 (otherwise known as the Local Tax Code) and Presidential
Decree No. 426 (amending P.D. 231) and its implementing regulation specifically Local Tax Regulations No. 1-74, cities and
DECISION - C.T.A. Case No. 3886 - 4 - municipalities can no longer levy any additional tax on articles subject to specific tax.
Consequently, partial refund of specific tax payments on the petroleum products used in logging or mining can no longer be
authorized (Exhibit XXX). On January 14, 1985, the instant petition for review was filed with this Court. Petitioner prayed for an order
requiring respondent to pay 20% interest per annum, in addition to its claim for refund, for alleged arbitrary refusal to refund the said
claim. Petitioner likewise prayed for cost of suit. There are no disputes as to the material facts of the case and respondent interposed
no objection to the admission of petitioner's written offer of documentary evidence. The issue for this Court to re so 1 ve is whether or
not petitioner is entitled to claim a partial refund of the specific tax paid on oils and fuels used in the operation of its forest
concession. A suit for the recovery of tax erroneously or illegally collected must be filed in this Court within the periods prescribed by
Section 11 of Republic Act No. 1125 (An Act Creating The Court of Tax Appeals) and Section 306 (now Section 230) of the National
Internal Revenue Code (NIRC). DECISION - C.T.A. Case No. 3886 - 5 - The pertinent portions of the foregoing provisions of law are
quoted hereunder: "SEC. 11 (R.A. 1125). Who may appeal; effect of appeal. Any person, association or corporation adversely
affected by a decision or ruling of the Commissioner of Internal Revenue, xxxxxx may file an appeal in the Court of Tax Appeal within
thirty days after the receipt of such decision or ruling." (Underscoring supplied. XXX XXX XXX SEC. 306 (now SEC. 230) NIRC.
Recovery of tax erroneously or illegally collected. No suit or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereinafter alleged to have been erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained,
. whether or not such tax, penalty, or sum has been pa~d under protest or duress. In any case, no such suit or proceeding shall be
begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may
arise after payment: Provided, however, that the Commissioner may, even without a written claim therefor, refund or credit any tax,
where on the face of the return upon which payment was made such. payment appears clearly to have been erroneously paid." XXX
XXX XXX In the case of Commissioner of Internal Revenue vs. National Power Corporation, G.R. No. L-18874, January 30 1970 ( 31
SCRA 112), the Supreme Court took note of the DECISION - C.T.A. Case No. 3886 - 6 - case of Gibbs vs. Collector of Internal
Revenue, G.R. No. L-13453, February 29, 1969; (107 Phil. 232). This (Supreme) Court, construing the provisions of Section 306
(now section 230) of the National Internal Revenue Code together with Section 11 of Republic Act No. 1125 held: "In fine, a taxpayer
who has paid the tax, whether ~nder protest or not, and who is claiming a refund of the same, must comply with the requirements of
both sections, that is, he must file a claim for refund with the Collector of Internal Revenue within 2 y~ars from the date of his
payment of the tax, as required by said Section 306 (now 230) of the National Internal Revenue Code, and appeal to the Court of Tax
Appeals within 30 days from receipt of the collector's decision or ruling denying his claim for refund, as required by said Section 11 of
Republic Act No. 1125. If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the
suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of
the collector. This is so because of the positive requirement of Section 306 (now 230) and the doctrine that delay of the Collector in
rendering decision does not extend the peremptory period fixed by the statute." 1 Section 135 of the Tax Code insofar as pertinent
provided "that specific taxes on locally manufactured petroleum products levied under Sections 153, 155 and 156 1 See also: P.J.
Kiener and Co., Ltd. vs. David, 92 Phil. 94 5; Johnston Lumber Co. , Inc. vs. Court of Tax Appeals, 101 Phil. 654; College of Oral and
Dental Surgery vs. Court of Tax Appeals, 102 Phil. 912; Gonzales vs. Court of Tax Appeals, G.R. Nos. L-14532 and L-14533, May
26, 1965. r , r DECISION - C.T.A. Case No. 3886 - 7 - of this Title, except lubricating oil and grease, shall be paid within fifteen (15)
days from the date of removal thereof from the plac e of produc tion." It is therefore evident that the manufacturer of petroleum
products has up to 15 days from the date of its removal within which to pay the specific taxes on locally manufactured petroleum
produc ts. As an exception, manufacturers of lubricating oils and grease have to pay the specific tax collected from the purchaser on
the date of its removal from the place of production ( Aras-asan Timber Co. , Inc vs. Commissioner of Internal Revenue, C.T.A. Ca se
No. 3524, December 17, 1993). In the case at bar, petitioner purchased the oils and fuels during the period April 1981 to September
1982. Thus, the specific taxes thereon were deemed paid at the date of its removal or on the 15th day following the date of its
removal depending on whether it is lubricating oil and grease or manufactured petroleum products. The claim for refund was filed
with BIR on May 16, 1983 and respondent ' s denial thereof was received by petitioner on September 4, 1984. The instant petition for
review was filed with this Court only on January 14, 1985. From the date of receipt by petitioner of respondent ' s denial of the claim
for refund up to the filing of the petition for review, four ( 4) months have lapsed. This is way beyond DECISION - C.T.A. Case No.
3886 - 8 - the 30 days period pre scribed by Section 11 of R. A. No. 1125. From the date of payment of the specific taxes sought to
be refunded up to the date the petition for review was filed, a period of not less than three years have passed. This is again over the
two year period provided under Section 306 (now Section 230) of the Tax Code. Verily, respondent's right to claim a partial refund of
the specific taxes paid on purchases of oils and fuels for the period April 1981 to September 1982 had already prescribed.
WHEREFORE, the instant claim for refund is hereby denied for being filed beyond the reglementary period prescribed by Section
306 (section 230) of the National Internal Revenue Code and Section 11 of Republic Act No. 1125. SO ORDERED. Quezon City,
Metro Manila, January 31, 1994. Q~Q.~ ERNESTO D. ACOSTA Presiding Judge . . ' DECISION - C.T.A. Case No. 3886 - 9 -
GRUBA RAMON M-1 0. ~J_~ DE V RA Associate J ge C:E.R 7.-.IF c:A T :EON I hereby certify that the decision was reached after
due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.

SECOND DIVISION
[G.R. No. 128448. February 1, 2001]
SPOUSES ALEJANDRO MIRASOL and LILIA E. MIRASOL, petitioners, vs. THE COURT OF APPEALS, PHILIPPINE NATIONAL
BANK, and PHILIPPINE EXCHANGE CO., INC., respondents.
DECISION
QUISUMBING, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals dated July 22, 1996, in CA-G.R. CV 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 piculs[1] 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 latters 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.
579[2] 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 PHILEXs 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 and demandable accounts. PNB then proceeded to extrajudicially foreclose the
mortgaged properties. After applying the proceeds of the auction sale of the mortgaged realties, PNB still had a deficiency claim
ofP12,551,252.93.
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 bank. 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.
On August 9, 1979, the Mirasols filed a suit for accounting, specific performance, and damages against PNB with the Regional
Trial Court of Bacolod City, docketed as Civil Case No. 14725.
 On June 16, 1987, the complaint was amended to implead PHILEX as party-defendant.
The parties agreed at pre-trial to limit the issues to the following:
1. The constitutionality and/or legality of Presidential Decrees numbered 338, 579, and 1192;
2. The determination of the total amount allegedly due the plaintiffs from the defendants corresponding to the allege(d) unliquidated
cost price of export sugar during crop years 1973-1974 and 1974-1975.[3]
After trial on the merits, the trial court decided as follows:
WHEREFORE, the foregoing premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants
Philippine National Bank (PNB) and Philippine Exchange Co., Inc. (PHILEX):
(1)Declaring Presidential Decree 579 enacted on November 12, 1974 and all circulars, as well as policies, orders and other
issuances issued in furtherance thereof, unconstitutional and therefore, NULL and VOID being in gross violation of the
Bill of Rights;
(2) Ordering defendants PNB and PHILEX to pay, jointly and severally, plaintiffs the whole amount corresponding to the
residue of the unliquidated actual cost price of 25,662 piculs in export sugar for crop year 1973-1974 at an average price
of P300.00 per picul, deducting therefrom however, the amount of P180.00 already paid in advance plus the allowable
deductions in service fees and other charges;
(3) And also, for the same defendants to pay, jointly and severally, same plaintiffs the whole amount corresponding to the
unpaid actual price of 14,596 piculs of export sugar for crop year 1974-1975 at an average rate of P214.14 per picul minus
however, the sum of P180.00 per picul already paid by the defendants in advance and the allowable deducting (sic) in
service fees and other charges.
The unliquidated amount of money due the plaintiffs but withheld by the defendants, shall earn the legal rate of interest at 12% per
annum computed from the date this action was instituted until fully paid; and, finally
(4) Directing the defendants PNB and PHILEX to pay, jointly and severally, plaintiffs the sum of P50,000.00 in moral damages
and the amount of P50,000.00 as attorneys fees, plus the costs of this litigation.
SO ORDERED.[4]
The same was, however, modified by a Resolution of the trial court dated May 14, 1992, which added the following paragraph:
This decision should however, be interpreted without prejudice to whatever benefits that may have accrued in favor of the plaintiffs
with the passage and approval of Republic Act 7202 otherwise known as the Sugar Restitution Law, authorizing the restitution of
losses suffered by the plaintiffs from Crop year 1974-1975 to Crop year 1984-1985 occasioned by the actuations of government-
owned and controlled agencies. (Underscoring in the original).
SO ORDERED.[5]
The Mirasols then filed an appeal with the respondent court, docketed as CA-G.R. CV No. 38607, faulting the trial court for not
nullifying the dacion en pago and the mortgage contracts, as well as the foreclosure of their mortgaged properties. Also faulted was
the trial courts failure to award them the full money claims and damages sought from both PNB and PHILEX.
On July 22, 1996, the Court of Appeals reversed the trial court as follows:
WHEREFORE, this Court renders judgment REVERSING the appealed Decision and entering the following verdict:
1. Declaring the dacion en pago and the foreclosure of the mortgaged properties valid;
2. Ordering the PNB to render an accounting of the sugar account of the Mirasol[s] specifically stating the indebtedness of the latter
to the former and the proceeds of Mirasols 1973-1974 and 1974-1975 sugar production sold pursuant to and in accordance with P.D.
579 and the issuances therefrom;
3. Ordering the PNB to recompute in accordance with RA 7202 Mirasols indebtedness to it crediting to the latter payments already
made as well as the auction price of their foreclosed real estate and stipulated value of their properties ceded to PNB in
the dacon (sic) en pago;
4. Whatever the result of the recomputation of Mirasols account, the outstanding balance or the excess payment shall be governed
by the pertinent provisions of RA 7202.
SO ORDERED.[6]
On August 28, 1996, petitioners moved for reconsideration, which the appellate court denied on January 23, 1997.
Hence, the instant petition, with petitioners submitting the following issues for our resolution:
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 issuances[7] 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. (Underscored in the original)[8]
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. Blg. 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.
579[12] 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 shallhave 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 rule, there is no room for
construction.[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 cons titutional
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 PNBs
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 PNBs 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. 7202 [19] 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 latters 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 (PNBs Brief, p. 16) On the question of
how 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 Mirasols 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. (PNBs Brief, p. 17)
In regard to the first set of accounts, besides the proceeds from PNBs sale of sugar (involving the defendant PHILEX in relation to
the export portion of the stock), the PNB foreclosed the Mirasols mortgaged properties realizing therefrom in 1982 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) (PNBs 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 thedacion 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 latters 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 attorneys 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 agents 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 defendants 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
faith[32]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 attorneys fees and costs of suit in favor of petitioners. Under Article 2208 (5) of the Civil Code,
attorneys fees are allowed in the absence of stipulation only if the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiffs plainly valid, just, and demandable claim. As earlier stated, petitioners have not proven bad faith on the part of PNB and
PHILEX.
 WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent court in CA-G.R. CV 38607
AFFIRMED. Costs against petitioners.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
[1]
One picul is equivalent to 63.25 kilograms.
[2]
The decree was entitled Rationalizing and Stabilizing The Export of Sugar And For Other Purposes.
[3]
Rollo, p. 78.
[4]
Id. at 104-105.
[5]
Id. at 110.
[6]
Id. at 88-89.
[7]
These include Circular Letter No. 24 dated October 25, 1974 which designates PHILEX to undertake the liquidation, buying and disposition of B sugar quedans;
Circular Letter No. 13 s. 1974-1975 issued on May 5, 1975 which outlines the revision of the pricing policy for sugar for crop year 1974-1975; and Circular Letter No. 24
s. 1974-1975 which outlines the fixing of the price of sugar covering production starting May 5, 1975.
[8]
Supra Note 6, at 32-33.
[9]
Drilon v. Lim, 235 SCRA 135, 139 (1994).
[10]
Const, Art. VIII, Sec. 5 (2).
[11]
3 SCRA 696, 703-704 (1961).
[12]
Rationalizing and stabilizing the export of sugar and for other purposes.
[13]
Defining the powers and functions of the Office of the Solicitor General.
[14]
Brehm v. Republic, 9 SCRA 172, 176 (1963).
[15]
Republic v. Court of Appeals, 299 SCRA 199, 227 (1998).
[16]
Board of Optometry v. Colet, 260 SCRA 88, 103 (1996) citing Garcia vs. Executive Secretary, 204 SCRA 516, 522 (1991); Santos vs. Northwest Orient Airlines, 210
SCRA 256, 261 (1992).
[17]
Ty v. Trampe, 250 SCRA 500, 520 (1995).
[18]
Drilon v. Lim, supra.
[19]
An Act Authorizing the Restitution of Losses Suffered by Sugar Producers from Crop Year 1974-1975 to Crop Year 1984-1985 Due to the Actions of Government-
Owned and Controlled Agencies.
[20]
Manzano v. Valera, 292 SCRA 66, 76 (1998); Garcia v. Burgos, 291 SCRA 547, 575 (1998) citing Frivaldo vs. Commission on Elections, 257 SCRA 727, 743-744
(1996).
[21]
Angara v. Electoral Commission, 63 Phil. 139, 175 (1936).
[22]
Rollo, p. 78.
[23]
Guerrero v. Court of Appeals, 285 SCRA 670, 678 (1998).
[24]
Congregation of the Religious of the Virgin Mary v. Court of Appeals, 291 SCRA 385, 391-392 (1998).
[25]
Rollo, p. 85.
[26]
Id. at 86.
[27]
Id. at 87.
[28]
Silahis Marketing Corp. v. Intermediate Appellate Court, 180 SCRA 21, 25 (1989); Compania Maritima v. Court of Appeals, 135 SCRA 593 (1985).
[29]
Salao v. Court of Appeals, 284 SCRA 493, 498 (1998) citing Catapusan v. Court of Appeals, 264 SCRA 534 (1996); People vs. Flores, 243 SCRA 374 (1995);
Lufthansa German Airlines v. Court of Appeals, 243 SCRA 600 (1995).
[30]
Article 1891 of the Civil Code reads:
Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may
not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account shall be void.
[31]
Del Rosario v. Court of Appeals, 267 SCRA 158, 172 (1997) citing Civil code, Art. 2220.
[32]
BPI Express Card Corp. v. Court of Appeals, 296 SCRA 260, 272 (1998) citing Barons Marketing Corp. vs. Court of Appeals, 286 SCRA 96 (1998).