Facts:

The present controversy, known as Corporate Case No. 02-27050, originated from a petition filed by Santiago C. Divinagracia (Santiago) before the Regional Trial Court of Iloilo City. Santiago, a stockholder of CBS Development Corporation, alleged that he opposed a proposal to mortgage the company’s real properties. Despite his protest, a majority of the outstanding capital stock approved the proposal.

Santiago exercised his appraisal right under the Corporation Code by objecting to the mortgage and surrendering his stock certificates. However, the Board indefinitely postponed action on his appraisal right, and his shares were declared delinquent and sold on auction to Diamel, Inc.

Santiago filed a petition for mandamus and nullification of the delinquency call and issuance of unsubscribed shares. After Santiago’s death, his heirs were substituted in the case. The court dismissed the petition and granted the compulsory counterclaims of CBS Development Corporation and Diamel, Inc. The court ordered Santiago’s heirs to pay exemplary damages and attorney’s fees to the corporations.

Petitioners filed a notice of appeal, while private respondents filed a motion for immediate execution of the court’s decision. The court granted the motion and ordered the issuance of a writ of execution. Petitioners then filed a petition for certiorari with the Court of Appeals, challenging the trial court’s resolution. The Court of Appeals dismissed the petition and affirmed the trial court’s resolution.

The Court of Appeals found that the respondent judge did not commit grave abuse of discretion in granting the motion for immediate execution, as the Interim Rules of Procedure for Intra-Corporate Controversies state that decisions in such cases are immediately executory.

Issue

Whether the award of exemplary damages and attorney’s fees in favor of private respondents can be immediately executed pending appeal of the corporate case. (NO)

Ruling

From the filing of the intra-corporate dispute on 6 February 2002 until the promulgation of the challenged Court of Appeals’ decision and resolution on 6 December 2005 and 22 February 2006, respectively, the governing rule, specifically Section 4, Rule 1 of the Interim Rules, provided that:

All decisions and orders issued under these Rules shall immediately be executory. No appeal or petition taken therefrom shall stay the enforcement or implementation of the decision or order, unless restrained by an appellate court. Interlocutory orders shall not be subject to appeal.

On 19 September 2006, while the present case remained pending before this Court, the Court en banc issued a Resolution in A.M. No. 01-2-04-SC titled “Re: Amendment of Section 4, Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies by Clarifying that Decisions Issued Pursuant to Said Rule are Immediately Executory Except the Awards for Moral Damages, Exemplary Damages and Attorney’s Fees, if any.” The Court resolved to amend specifically Section 4, Rule 1 of the Interim Rules, to wit:

Acting on the Resolution dated September 5, 2006 of the Committee on the Revision of Rules of Court, the Court Resolved to AMEND Section 4, Rule 1 of The Interim Rules of Procedure Governing Intra-Corporate Controversies as follows:

x x x

SEC. 4. Executory nature of decisions and orders.- All decisions and orders issued under these Rules shall immediately be executory EXCEPT THE AWARDS FOR MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY’S FEES, IF ANY. No appeal or petition taken therefrom shall stay the enforcement or implementation of the decision or order, unless restrained by an appellate court. Interlocutory orders shall not be subject to appeal.

The amended provision expressly exempts awards for moral damages, exemplary damages, and attorney’s fees from the rule that decisions and orders in cases covered by the Interim Rules are immediately executory. As can be gleaned from the title of A.M. No. 01-2-04-SC, the amendment of Section 4, Rule 1 of the Interim Rules was crafted precisely to clarify the previous rule that decisions on intra-corporate disputes are immediately executory, by specifically providing for an exception. Thus, the prevailing rule now categorically provides that awards for moral damages, exemplary damages, and attorney’s fees in intra-corporate controversies are not immediately executory.

Leave a Reply Cancel reply