GERARDO O. LANUZA, JR., PETITIONER, VS. MA. VIVIAN YUCHENGCO, ADOLFO M. DUARTE, NORBERTO C. NAZARENO, ANTONIO A. LOPA, RAMON B. ARNAIZ, LUIS J. L. VIRATA AND ANTONIO GARCIA, JR.…

Lanuza versus Yuchengco

The Case

This is a petition for review brought by Gerardo Lanuza, Junior, a member of the Makati Stock Exchange, against Ma. Vivian Yuchengco and several other persons who were elected to the Exchange's Board of Governors in February 1993. Lanuza had protested their election, claiming they were disqualified because they were mere nominees of corporate members and did not themselves own seats in the Exchange. The case matters because it teaches the doctrine of mootness in a concrete setting: when the corporation whose board is in dispute ceases to exist through a merger, the courts will not decide the disqualification question, and the dismissal of the appeal on mootness grounds, once final, becomes the law of the case and bars relitigation. It also reminds us that a claim for attorney's fees must find a footing in Article 2208 of the New Civil Code.

Procedural History

Lanuza first filed a case before the Securities and Exchange Commission seeking to disqualify the respondents from serving on the Board of Governors of the Makati Stock Exchange. After the election, he filed an election protest before the Securities Investigations and Clearing Department. The two cases were consolidated and heard jointly. The Hearing Panel rendered a Partial Decision disqualifying the respondents and declaring their positions vacant. The respondents appealed to the Securities and Exchange Commission En Banc, which dismissed the appeal on the ground that the issue had become moot because of the merger of the Manila Stock Exchange and the Makati Stock Exchange into the Philippine Stock Exchange. Lanuza did not appeal that dismissal.

More than two years later, the respondents filed a motion to dismiss the original cases before the Securities Investigations and Clearing Department, which denied it. When the Securities Regulation Code took effect, jurisdiction over intra-corporate disputes was transferred to the regional trial courts, and the case landed in the Regional Trial Court of Makati, which likewise denied the respondents' motion for reconsideration, reasoning that the merger did not render the case moot because of Lanuza's counterclaim for damages.

The respondents then filed a petition for certiorari before the Court of Appeals, which ruled in their favor, set aside the orders of the Securities Investigations and Clearing Department and the trial court, and dismissed the election protest. Lanuza's motion for reconsideration was denied, so he came to the Supreme Court by petition for review.

Facts

On 26 February 1993, during the annual meeting of the members of the Makati Stock Exchange, fifteen members of the Board of Governors were elected for a one-year term. Nine of them, including the respondents, were nominees and stockholders of corporate members of the Exchange. Before that election, on 1 December 1992, Lanuza had already filed a case seeking their disqualification, arguing that under the Amended By-Laws, only a member in good standing at the time of election could serve on the Board, and that the respondents, being mere nominees of corporate members, were not themselves members owning seats.

The respondents answered that their election complied with the Amended Constitution and By-Laws, pointing to a provision allowing a corporate member to designate any of its stockholders of legal age as its nominee to act on its behalf, to attend meetings, to vote and be voted upon, and to be appointed to any position. After the respondents won the election, Lanuza filed an election protest. The two cases were consolidated, and the parties stipulated that the main issue was purely a question of law and was to be resolved first, with the issue of damages to be litigated later.

The Hearing Panel ruled for Lanuza and disqualified the respondents. On appeal, the Securities and Exchange Commission En Banc dismissed the appeal as moot because of the merger that created the Philippine Stock Exchange. Lanuza never appealed that dismissal. Years later, the respondents moved to dismiss the original cases as moot, and the dispute wound its way to the Court of Appeals and then to the Supreme Court.

Issues

• Whether or not the merger of the Makati Stock Exchange into the Philippine Stock Exchange rendered academic the issue of the respondents' disqualification to hold seats in the Board of Governors.
• Whether or not the issue of damages survived the mootness of the main issue of disqualification.

Applicable Provisions

Article 2208 of the New Civil Code provides:

In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except: (1) When exemplary damages are awarded; (2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmen's compensation and employer's liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered.

This provision governs Lanuza's claim for attorney's fees and litigation expenses, which the Court found to be without basis because none of the enumerated circumstances was alleged in his complaint.

Ruling

On the first issue, the Court held that the case had indeed become moot. With the folding up of the Makati Stock Exchange, there was no longer any practical purpose in enjoining the respondents from acting as Governors of an organization that no longer existed, or in disqualifying them from holding seats in an entity that was already functus oficio, meaning it had already discharged its function. The Court stressed that courts will not determine a moot question in a case in which no practical relief can be granted, and that it is unnecessary to indulge in an academic discussion of a case presenting a moot question, since a judgment thereon cannot have any practical legal effect or cannot be enforced.

The Court added a second and equally important ground. Lanuza did not appeal the order of the Securities and Exchange Commission En Banc dismissing the appeal on mootness grounds. The Court held that a resolution dismissing a petition for being moot and academic resolves the issues raised in the pleadings, and upon attaining finality, becomes the law of the case and constitutes a bar to any relitigation of the same issues under the principle of res judicata.

On the second issue, the Court held that the damages claim did not survive. The parties themselves had stipulated that the disqualification question was the main issue, and the damages issue derived its life from it. With the main issue rendered academic, the ancillary issue on damages had likewise become a fusty issue, with no leg to stand on. The Court also noted the unbending rule that what determines the nature of an action and the court's jurisdiction are the allegations in the complaint and the character of the relief sought. Lanuza's complaint prayed for attorney's fees and litigation expenses, but it failed to allege any of the circumstances under Article 2208 of the New Civil Code, and it did not allege that he had exerted all means to settle the dispute amicably before filing suit. Hence, the award of attorney's fees and litigation expenses was devoid of any vestige of legal rationalization.

Doctrine

A case is moot when it no longer presents a justiciable controversy because the issues involved have become academic, such that a judgment thereon cannot have any practical legal effect or cannot be enforced. Courts will not determine a moot question in a case in which no practical relief can be granted.

A resolution dismissing a petition for being moot and academic resolves the issues raised in the pleadings, and upon attaining finality, becomes the law of the case and constitutes a bar to any relitigation of the same issues in any other proceeding under the principle of res judicata.

Where the main issue is rendered academic, an ancillary claim for damages that derives its life from that main issue likewise becomes moot. And under Article 2208 of the New Civil Code, attorney's fees and expenses of litigation cannot be recovered in the absence of stipulation except in the enumerated instances, which must be alleged in the complaint.

Disposition

The petition was denied, and the Decision of the Court of Appeals dismissing the election protest, together with its Resolution denying reconsideration, was affirmed, with costs against Lanuza.

Remember This

Memorize this line: a resolution dismissing a petition for being moot and academic resolves the issues raised, and once final, becomes the law of the case and bars relitigation under res judicata. Examiners like to use this case on mootness, on the effect of a final dismissal on mootness grounds, and on the requirements for recovering attorney's fees under Article 2208 of the New Civil Code.