CASE NO. 1 G.R. No. 128690 January 21, 1999 ABS-CBN BROADCASTING CORPORATION, petitioner, vs.

HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents.

DAVIDE, JR., CJ.: In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and set aside the decision 1 of 31 October 1996 and the resolution 2 of 10 March 1997
of the Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the decision 3 of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996.

The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows: In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating that . 1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN from the actual offer in writing. Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film ''Maging Sino Ka Man." For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" Viva) is hereby quoted: 6 January 1992 Dear Vic, This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending the purchase of the three film packages you are offering ABS-CBN.

From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will understand my position. Most of the action pictures in the list do not have big action stars in the cast. They are not for primetime. In line with this I wish to mention that I have not scheduled for telecast several action pictures in out very first contract because of the cheap production value of these movies as well as the lack of big action stars. As a film producer, I am sure you understand what I am trying to say as Viva produces only big action pictures. In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in our non-primetime slots. We have to cover the amount that was paid for these movies because as you very well know that non-primetime advertising rates are very low. These are the unaired titles in the first contract. 1. Kontra Persa [sic]. 2. Raider Platoon. 3. Underground guerillas 4. Tiger Command 5. Boy de Sabog 6. Lady Commando 7. Batang Matadero 8. Rebelyon I hope you will consider this request of mine. The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes. As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies produced last year. I have quite an attractive offer to make. Thanking you and with my warmest regards. (Signe d) Charo Santos Concio On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list consisting of 52 original movie titles (i.e. not yet aired on television)

including the 14 titles subject of the present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. "4" to "4-C" Viva; "9" -Viva). On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva. What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CRN was granted exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez discussed at the lunch meeting was Viva's film package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the form of a proposal contract Annex "C" of the complaint (Exh. "1"- Viva; Exh. "C" - ABS-CBN). On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vicepresident for Finance discussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same package by ABS-CBN. On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms. Concio, (Exh. "5" - Viva), which reads: "Here's the draft of the contract. I hope you find everything in order," to which was attached a draft exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film was added by Ms. Concio, for a consideration of P35 million. Exhibit "C" provides that ABS-CBN is granted films right to 53 films and contains a right of first refusal to "1992 Viva Films." The said counter proposal was however rejected by Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less than the package of 104 films for P60 million pesos (Exh. "9" - Viva), and such rejection was relayed to Ms. Concio. On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992. granting RBS the exclusive right to air 104 Viva-produced and/or acquired films (Exh. "7-A" - RBS; Exh. "4" - RBS) including the fourteen (14) films subject of the present case. 4 On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting Corporation 5 (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente
Del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.

On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from
proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the

controversy, starting with the film Maging Sino Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said date.

On 17 June 1992, after appropriate proceedings, the RTC issued an order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million
bond. ABS-CBN moved for the reduction of the bond, 8 while private respondents moved for reconsideration of the order and offered to put up a counterbound. 9

In the meantime, private respondents filed separate answers with counterclaim. 10 RBS also set up a
cross-claim against VIVA..

On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the
posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioner's injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary injunction should private respondents be unable to post a counterbond.

At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the
possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million counterbond in the event that no settlement would be reached.

As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond, which the RTC approved in its Order of 15 October 1992. 13 On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 August and 15 October
1992 Orders, which RBS opposed. 15

On 29 October 1992, the RTC conducted a pre-trial. 16 Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17challenging the RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of
a writ of preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.

On 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to enjoin the
airing, broadcasting, and televising of any or all of the films involved in the controversy.

On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA G.R. No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993, which was docketed as G.R. No. 108363.

In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April 1993, it rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN
disposing as follows:

WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is rendered in favor of defendants and against the plaintiff. (1) The complaint is hereby dismissed; (2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:

a) P107,727.00, the amount of premium paid by RBS to the surety which issued defendant RBS's bond to lift the injunction; b) P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man" in various newspapers; c) Attorney's fees in the amount of P1 million; d) P5 million as and by way of moral damages; e) P5 million as and by way of exemplary damages; (3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorney's fees. (4) The cross-claim of defendant RBS against defendant VIVA is dismissed. (5) Plaintiff to pay the costs. According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concio's letter to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new contract. On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No. 108363, as no
reversible error was committed by the Court of Appeals in its challenged decision and the case had "become moot and academic in view of the dismissal of the main action by the court a quo in its decision" of 28 April 1993.

Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorney's fees. In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent, might have agreed with Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actually wrote down such an agreement on a "napkin," as the same was never produced in court. It likewise rejected ABS-CBN's insistence on its right of first refusal and ratiocinated as follows: As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that parag. 1.4 thereof provides:

1.4 ABS-CBN shall have the right of first refusal to the next twentyfour (24) VIVA films for TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in writing (Records, p. 14). [H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject to such terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual offer in writing. Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of the film right to the twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties. In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10) films, and the draft contract Exhibit "C" accepted only fourteen (14) films, while parag. 1.4 of Exhibit "A'' speaks of the next twenty-four (24) films. The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA.. As aptly observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABSCBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABSCBN shall exercise its right of first refusal has already expired. 22 Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had suffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages were correctly imposed by way of example or correction for the public good in view of the filing of the complaint despite petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2 million, exemplary damages to P2 million, and attorney's fees to P500, 000.00. On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN." Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of Appeals gravely erred in I

. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY. II . . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS. III . . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS. IV . . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS. ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already been effective, as the elements thereof, namely, consent, object, and consideration were established. It then concludes that the Court of Appeals' pronouncements were not supported by law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals, 23 which cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu
Asuncion v. Court of Appeals, 25 and Villonco Realty Company v. Bormaheco. Inc. 26

Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilated their respective positions during the hearings for the purpose. The filing of the counterbond was an option available to RBS, but it can hardly be argued that ABSCBN compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for the dissolution or the injunction; or if it was determined to put up a counterbond, it could have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also required to exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission. As regards the cost of print advertisements, RBS had not convincingly established that this was a loss attributable to the non showing "Maging Sino Ka Man"; on the contrary, it was brought out during trial that with or without the case or the injunction, RBS would have spent such an amount to generate interest in the film. ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint, An award of moral and exemplary damages is not warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. 27 In any case, free resort to courts for redress of wrongs is
a matter of public policy. The law recognizes the right of every one to sue for that which he honestly believes to be his right without fear of standing trial for damages where by lack of sufficient evidence,

legal technicalities, or a different interpretation of the laws on the matter, the case would lose ground. 28 One who makes use of his own legal right does no injury. 29 If damage results front the filing of the complaint, it is damnum absque injuria. 30 Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the offending party resulting in social humiliation. 31

As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid down in Buan v. Camaganacan 32 that the text of the decision should
state the reason why attorney's fees are being awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-CBN. It has been held that "where no sufficient showing of bad faith would be reflected in a party' s persistence in a case other than an erroneous conviction of the righteousness of his cause, attorney's fees shall not be recovered as cost." 33

On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's claim of a right of first refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbound due to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30 million came from its funds or was borrowed from banks. RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging Sino Ka Man" because the print advertisements were put out to announce the showing on a particular day and hour on Channel 7, i.e., in its entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement were good and relevant for the particular date showing, and since the film could not be shown on that particular date and hour because of the injunction, the expenses for the advertisements had gone to waste. As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino, 34 damages
may be awarded in cases of abuse of rights even if the act done is not illicit and there is abuse of rights were plaintiff institutes and action purely for the purpose of harassing or prejudicing the defendant.

In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents RBScited People v. Manero, 35 where it was stated that such entity may recover moral and
exemplary damages if it has a good reputation that is debased resulting in social humiliation. it then ratiocinates; thus:

There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case. When RBS was not able to fulfill its commitment to the viewing public to show the film "Maging Sino Ka Man" on the scheduled dates and times (and on two occasions that RBS advertised), it suffered serious embarrassment and social humiliation. When the showing was canceled, late viewers called up RBS' offices and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo naman ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was not something RBS brought upon itself. it was exactly what ABS-CBN had planned to happen.

The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of the award. The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an exaggeration to state, and it is a matter of judicial notice that almost every other person in the country watches television. The humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated the showing of the film "Maging Sino Ka Man" on May 28 and November 3, 1992 but did not see it owing to the cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and to whom RBS had a commitment in consideration of the placement to show the film in the dates and times specified. The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and injury are far greater in degree when caused by an entity whose ultimate business objective is to lure customers (viewers in this case) away from the competition. 36 For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do not support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer be disturbed in this petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages and attorneys fees, they adopted the arguments of RBS. The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of P212,000 in favor of VIVA is not assigned as another error. I. The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one binds himself to give something or to render some service to another 37 for a
consideration. there is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the obligation, which is established. 38 A contract undergoes three stages:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 39 Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the

original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer. 40 When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the package of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counterproposal in the form of a draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a counter-offer which substantially varied the terms of the offer. ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held
that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long as "it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not." This ruling was, however, reversed in the resolution of 29 March 1996, 43 which ruled that the acceptance of all offer must be unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so as to produce consent or meeting of the minds."

On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v.Franklin Life Insurance Co. 44 that "a vendor's change in a phrase of the offer to
purchase, which change does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer." 45However, when any of the elements of the contract is modified upon acceptance, such alteration amounts to a counter-offer.

In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract, VIVA through its Board of Directors, rejected such counter-offer, Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so. Under Corporation Code, 46 unless otherwise provided by said Code, corporate powers, such as the
power; to enter into contracts; are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific purposes, 47 Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of agency as to the bindings effects of their acts would apply. 48 For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was best evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event, there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are instructive:

A number of considerations militate against ABS-CBN's claim that a contract was perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill. FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of films, which he wrote on a napkin. However, Exhibit "C" contains numerous provisions which, were not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they have been physically written on a

napkin. There was even doubt as to whether it was a paper napkin or a cloth napkin. In short what were written in Exhibit "C'' were not discussed, and therefore could not have been agreed upon, by the parties. How then could this court compel the parties to sign Exhibit "C" when the provisions thereof were not previously agreed upon? SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53 films as its subject matter. Which is which If Exhibits "C" reflected the true intent of the parties, then ABS-CBN's claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then Exhibit "C" did not reflect what was agreed upon by the parties. This underscores the fact that there was no meeting of the minds as to the subject matter of the contracts, so as to preclude perfection thereof. For settled is the rule that there can be no contract where there is no object which is its subject matter (Art. 1318, NCC). THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states: We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We had already earmarked this P16, 050,000.00. which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals P36,000,000.00). On cross-examination Mr. Lopez testified: Q. What was written in this napkin? A. The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies because the price was broken down accordingly. The none [sic] Viva and the seven other Viva movies and the sharing between the cash portion and the concerned spot portion in the total amount of P35 million pesos. Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim. FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr. Del Rosario with a handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The said draft has a well defined meaning. Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva Exhibit "C'' could not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit "C" were prepared by ABS-CBN's lawyers and there was no discussion on said terms and conditions. . . .

As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and there was no evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The fact that Viva refused to sign Exhibit "C" reveals only two [sic] well that it did not agree on its terms and conditions, and this court has no authority to compel Viva to agree thereto. FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He testified: Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein you claimed that you have the meeting of the minds between you and Mr. Vic del Rosario, what happened? A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of Directors. Q. And you are referring to the so-called agreement which you wrote in [sic] a piece of paper? A. Yes, sir. Q. So, he was going to forward that to the board of Directors for approval? A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992) Q. Did Mr. Del Rosario tell you that he will submit it to his Board for approval? A. Yes, sir. (Tsn, p. 69, June 8, 1992). The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario "is the Executive Producer of defendant Viva" which "is a corporation." (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its Board of Directors. (Vicente vs. Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his inclusion as party defendant has no legal basis. (Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556). The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected

Exhibit "C" and insisted that the film package for 140 films be maintained (Exh. "7-1" - Viva ). 49 The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is untenable. As observed by the trial court, ABS-CBN right of first refusal had already been exercised when Ms. Concio wrote to VIVA ticking off ten films, Thus: [T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely different package. Ms. Concio herself admitted on crossexamination to having used or exercised the right of first refusal. She stated that the list was not acceptable and was indeed not accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of the first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost its rights of the first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11) 50 II However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. 51 The indemnification
shall comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to obtain. 52 In contracts and quasi-contracts the damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise, It case of good faith, the damages recoverable are those which are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. 53 In crimes and quasidelicts, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, whether or not such damages has been foreseen or could have reasonably been foreseen by the defendant. 54

Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury, or for injury to the plaintiff's business standing or commercial credit. 55 The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasidelict. It arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of RBS's Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges: 12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a result thereof, RBS suffered actual damages in the amount of P6,621,195.32. 56 Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for tile same. Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant may suffer by reason of the writ are recoverable from the injunctive bond. 57 In
this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the matter, Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond.

Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond. As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. 58 The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. 59 They are not to be awarded every
time a party wins a suit. The power of the court to award attorney's fees under Article 2208 demands factual, legal, and equitable justification. 60 Even when claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than erroneous conviction of the righteousness of his cause. 61

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are included in moral damages, while Article 2219 enumerates the cases where they may be recovered, Article 2220 provides that moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads: (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not to impose a penalty on the wrongdoer. 62 The award is not meant to enrich the
complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate then moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted. 63 Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. 64

The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental anguish, which call be experienced only by one having a nervous system. 65 The statement in People v. Manero 66 and Mambulao Lumber
Co. v. PNB 67 that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.

The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. 68 They are recoverable in criminal cases as part of
the civil liability when the crime was committed with one or more aggravating circumstances; 69 in quasicontracts, if the defendant acted with gross negligence;70 and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. 71

It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code. The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all other provisions of law which do not especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the following elements; (1) there is an act which is legal, (2) but which is contrary to morals, good custom, public order, or public policy, and (3) and it is done with intent to injure.72 Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. 73 Such must be substantiated by evidence. 74 There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could not have meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a right, it is damnum absque injuria. 75 WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No, 44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions, Inc.
1w phi 1.nt

No pronouncement as to costs. SO ORDERED.

CASE NO. 2

[G.R. No. 141994. January 17, 2005]

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents. DECISION
CARPIO, J.:

The Case This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision[3] of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees and costs of suit. The Antecedents Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre (Alegre).[5] Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities and other Bicol areas.[6] In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for damages[7] against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts: JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects including those they have passed already. Several students had approached me stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same? xxx Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. xxx Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for money on the part of AMECs administration. Take the subject Anatomy: students would pay for the subject upon enrolment because it is offered by the school. However there would be no instructor for such subject. Students would be informed that course would be moved to a later date because the school is still searching for the appropriate instructor. xxx It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC premises youll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its reason for being it is possible for these foreign foundations to lift or suspend their donations temporarily.[8] xxx On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to accept rejects. For example how many teachers in AMEC are former teachers of Aquinas University but were removed because of immorality? Does it mean that the present administration of AMEC have the total definite moral foundation from catholic

administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her. xxx MEL RIMA: xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral and physically misfits as teachers. May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an aviation, your case is zero visibility. Dont insist. xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean. xxx xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they become members of society outside of campus will be liabilities rather than assets. What do you expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do you expect from a student who aside from peculiar problems because not all students are rich in their struggle to improve their social status are even more burdened with false regulations. xxx[9] (Emphasis supplied) The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago)

reputation. AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre. On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer[10] alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the goings-on in AMEC, [which is] an institution imbued with public interest. Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to Dismiss[11] on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous and indecent language. Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP permit. On 14 December 1992, the trial court rendered a Decision[12] finding FBNI and Alegre liable for libel except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of straight reporting because it had no factual basis. The broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its employees. In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres expos. The trial court found Rimas statement within the bounds of freedom of speech, expression, and of the press. The dispositive portion of the decision reads: WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the controversial utterances, which are not found by this court to be really very serious and damaging, and there being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes Jun Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-

BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit. SO ORDERED. [13] (Emphasis supplied) Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals decision reads: WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre. SO ORDERED.[14] FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution. Hence, FBNI filed this petition.[15] The Ruling of the Court of Appeals The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegres claim that they were actuated by their moral and social duty to inform the public of the students gripes as insufficient to justify the utterance of the defamatory remarks. Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the broadcasts were made with reckless disregard as to whether they were true or false. The appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters claim that they were impelled by their moral and social duty to inform the public about the students gripes.

The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a dumping ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable imposition and false regulations.[16] The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees because the libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit. Issues FBNI raises the following issues for resolution: I. II. III. IV. WHETHER THE BROADCASTS ARE LIBELOUS; WHETHER AMEC IS ENTITLED TO MORAL DAMAGES; WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT. The Courts Ruling We deny the petition. This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC.[17] While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article 30[18] authorizes a separate civil action to recover civil liability arising from a criminal offense. On the other hand, Article 33[19] particularly provides that the injured party may bring a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also invokes Article 19[20] of the Civil Code to justify its claim for damages. AMEC cites Articles

2176[21] and 2180[22] of the Civil Code to hold FBNI solidarily liable with Rima and Alegre. I. Whether the broadcasts are libelous A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is dead.[24] There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as greed for money on the part of AMECs administrators; AMEC is a dumping ground, garbage of xxx moral and physical misfits; and AMEC students who graduate will be liabilities rather than assets of the society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where physically and morally unfit teachers abound. However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice, there is no libel. FBNIs contentions are untenable. Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed to show adequately their good intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre should have presented the public issues free from inaccurate and misleading information.[26] Hearing the students alleged complaints a month before the expos,[27] they had sufficient time to verify their sources and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did they inquire about nor confirm the purported irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC official who refused to disclose any information. Alegre simply relied on the words of the students because they were many and not because there is proof that what they are

saying is true.[28] This plainly shows Rima and Alegres reckless disregard of whether their report was true or not. Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some courts in the United States apply the privilege of neutral reportage in libel cases involving matters of public interest or public figures. Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements made against public figures is shielded from liability, regardless of the republishers subjective awareness of the truth or falsity of the accusation.[29] Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were made. The privilege of neutral reportage applies where the defamed person is a public figure who is involved in an existing controversy, and a party to that controversy makes the defamatory statement.[30] However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of Appeals,[31] FBNI contends that the broadcasts fall within the coverage of qualifiedly privileged communications for being commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel. FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment, thus: [F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.[32](Emphasis supplied) True, AMEC is a private learning institution whose business of educating students is genuinely imbued with public interest. The welfare of the youth in general and AMECs students in particular is a matter which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest. However, unlike

in Borjal, the questioned broadcasts are not based on established facts. The record supports the following findings of the trial court: xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who made the complaint to them, much less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous because it could easily give license to the media to malign people and establishments based on flimsy excuses that there were reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is inimical to public interests. Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith. Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful enough to verify. And yet, defendants were very categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they were offering. The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff school from the aforementioned McDonald Foundation which does not exist. Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove the bases for these claims, at least in order to give semblance of good faith.

As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to be still very sharp and effective. So is plaintiffs counsel. Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile. The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board examination easily and become prosperous and responsible professionals.[33] Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.[34] However, the comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se. The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio Code). Item I(B) of the Radio Code provides: B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES 1. 4. xxx Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and misleading information. x x x Furthermore, the station shall strive to present balanced discussion of issues. x x x.

xxx 7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they conform to the provisions and standards of this code.

8.

It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and good order in the presentation of public affairs and public issues.[36] (Emphasis supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and sanctions. The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession, just like other professionals. A professional code of conduct provides the standards for determining whether a person has acted justly, honestly and with good faith in the exercise of his rights and performance of his duties as required by Article 19[37] of the Civil Code. A professional code of conduct also provides the standards for determining whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals or good customs under Article 21[38] of the Civil Code. II. Whether AMEC is entitled to moral damages FBNI contends that AMEC is not entitled to moral damages because it is a corporation.[39] A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.[40] The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of moral damages. However, the Courts statement in Mambulaothat a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages is an obiter dictum.[42] Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219[43] of the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly

complain for libel or any other form of defamation and claim for moral damages.[44] Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages.[46] Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some damages.[47] In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages. However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000. III. Whether the award of attorneys fees is proper FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. FBNI adds that the instant case does not fall under the enumeration in Article 2208[48] of the Civil Code. The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the award of attorneys fees.[49] In Inter-Asia Investment Industries, Inc. v. Court of Appeals,[50] we held that: [I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the award of attorneys fees.[51] (Emphasis supplied) While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the court and depends upon the circumstances of each

case, the Court of Appeals failed to point out any circumstance to justify the award. IV. Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorneys fees and costs of suit FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a very regimented process before they are allowed to go on air. Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship program. FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out that the minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervising them. Rimas accreditation lapsed due to his nonpayment of the KBP annual fees while Alegres accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or government regulation. FBNIs arguments do not persuade us. The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit.[52] Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit.[53] Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code. As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous broadcasts. As stated by the Court of Appeals, recovery for defamatory statements published by radio or television may be had from the owner of the station, a licensee, the operator of the station, or a person who procures, or participates in, the making of the defamatory statements.[54] An employer and employee are solidarily liable for a defamatory statement by the employee within the course and scope of his or her employment, at least when the employer authorizes or ratifies the defamation.[55] In this case, Rima and

Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts. Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to observe truth, fairness and objectivity and to refrain from using libelous and indecent language is not enough to prove due diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and continuous evaluation of the broadcasters performance are but a few of the many ways of showing diligence in the supervision of broadcasters. FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their qualifications. However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs regimented process of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP accreditation,[56] which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong commitment to observe the broadcast industrys rules and regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre. WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against petitioner. SO ORDERED.

CASE NO. 3
G.R. No. 131723 December 13, 2007

MANILA ELECTRIC COMPANY, petitioner, vs. T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT PACIFIC CORPORATION; and ULTRA ELECTRONICS INSTRUMENTS, INC., respondents. DECISION NACHURA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision1of the Court of Appeals (CA) dated June 18, 1997 and its Resolution2 dated December 3, 1997 in CA-G.R. CV No. 40282 denying the appeal filed by petitioner Manila Electric Company. The facts of the case, as culled from the records, are as follows: Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc. before 1982 and National Semi-Conductors (Phils.) before 1988. TEC is wholly owned by respondent Technology Electronics Assembly and Management Pacific Corporation (TPC). On the other hand, petitioner Manila Electric Company (Meralco) is a utility company supplying electricity in the Metro Manila area. Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were parties to two separate contracts denominated as Agreements for the Sale of Electric Energy under the following account numbers: 09341-1322-163 and 09341-1812-13.4 Under the aforesaid agreements, petitioner undertook to supply TEC's building known as Dyna Craft International Manila (DCIM) located at Electronics Avenue, Food Terminal Complex, Taguig, Metro Manila, with electric power. Another contract was entered into for the supply of electric power to TEC's NS Building under Account No. 19389-0900-10. In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of Lease5 with respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the former's DCIM building for a period of five years or until September 1991. Ultra was, however, ejected from the premises on February 12, 1988 by virtue of a court order, for repeated violation of the terms and conditions of the lease contract. On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters installed at the DCIM building, witnessed by Ultra's6 representative, Mr. Willie Abangan. The two meters covered by account numbers 09341-1322-16 and 09341-1812-13, were found to be allegedly tampered with and did not register the actual power consumption in the building. The results of the inspection were reflected in the Service Inspection Reports7 prepared by the team. In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and demanded from the latter the payment of P7,040,401.01 representing its unregistered consumption from February 10, 1986 until September 28, 1987, as a result of the alleged tampering of the meters.8 TEC received the letters on January 7, 1988. Since Ultra was in possession of the subject

building during the covered period, TEC's Managing Director, Mr. Bobby Tan, referred the demand letter to Ultra9 which, in turn, informed TEC that its Executive Vice-President had met with petitioner's representative. Ultra further intimated that assuming that there was tampering of the meters, petitioner's assessment was excessive.10 For failure of TEC to pay the differential billing, petitioner disconnected the electricity supply to the DCIM building on April 29, 1988. TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the alleged tampering but the latter refused to heed the demand. Hence, TEC filed a complaint on May 27, 1988 before the Energy Regulatory Board (ERB) praying that electric power be restored to the DCIM building.11 The ERB immediately ordered the reconnection of the service but petitioner complied with it only on October 12, 1988 after TEC paid P1,000,000.00, under protest. The complaint before the ERB was later withdrawn as the parties deemed it best to have the issues threshed out in the regular courts. Prior to the reconnection, or on June 7, 1988, petitioner conducted a scheduled inspection of the questioned meters and found them to have been tampered anew.12 Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building. The inspection allegedly revealed that the electric meters were not registering the correct power consumption. Petitioner, thus, sent a letter dated June 18, 1988 demanding payment of P280,813.72 representing the differential billing.13 TEC denied petitioner's allegations and claim in a letter dated June 29, 1988.14 Petitioner, thus, sent TEC another letter demanding payment of the aforesaid amount, with a warning that the electric service would be disconnected in case of continued refusal to pay the differential billing.15 To avert the impending disconnection of electrical service, TEC paid the above amount, under protest.16 On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and Ultra17 before the Regional Trial Court (RTC) of Pasig. The case was raffled to Branch 162 and was docketed as Civil Case No. 56851.18 Upon the filing of the parties' answer to the complaint, pre-trial was scheduled. At the pre-trial, the parties agreed to limit the issues, as follows: 1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of electric service at DCIM Building. 2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the amount ofP7,040,401.01. 3. Whether or not the plaintiff is liable to defendant for exemplary damages.19 For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial court rendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner. The pertinent portion of the decision reads: WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the defendants as follows: (1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and severally reimburse plaintiff TEC actual damages in the amount of ONE MILLION PESOS with legal rate of interest from the date of the filing of this case on January 19, 1989 until the said amount shall have been fully paid;

(2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as actual damages with legal rate of interest also from January 19, 1989; (3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual damages with interest at legal rate from January 19, 1989; (4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount pfP500,000.00; (5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages in the amount of P200,000.00; (6) Ordering defendant Meralco to pay attorney's fees in the amount of P200,000.00 Costs against defendant Meralco. SO ORDERED.20 The trial court found the evidence of petitioner insufficient to prove that TEC was guilty of tampering the meter installations. The deformed condition of the meter seal and the existence of an opening in the wire duct leading to the transformer vault did not, in themselves, prove the alleged tampering, especially since access to the transformer was given only to petitioner's employees.21 The sudden drop in TEC's (or Ultra's) electric consumption did not, per se, show meter tampering. The delay in the sending of notice of the results of the inspection was likewise viewed by the court as evidence of inefficiency and arbitrariness on the part of petitioner. More importantly, petitioner's act of disconnecting the DCIM building's electric supply constituted bad faith and thus makes it liable for damages.22 The court further denied petitioner's claim of differential billing primarily on the ground of equitable negligence.23 Considering that TEC and TPC paid P1,000,000.00 to avert the disconnection of electric power; and because Ultra manifested to settle the claims of petitioner, the court imposed solidary liability on both Ultra and petitioner for the payment of the P1,000,000.00. Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a modification of the amount of actual damages and interest thereon. The dispositive portion of the CA decision dated June 18, 1997, states: WHEREFORE, this Court renders judgment affirming in toto the Decision rendered by the trial court with the slight modification that the interest at legal rate shall be computed from January 13, 1989 and that Meralco shall pay plaintiff T.E.A.M. Electronics Corporation and Technology Electronics Assembly and Management Pacific Corporation the sum of P150,000.00 per month for five (5) months for actual damages incurred when it was compelled to lease a generator set with interest at the legal rate from the above-stated date. SO ORDERED.24 The appellate court agreed with the RTC's conclusion. In addition, it considered petitioner negligent for failing to discover the alleged defects in the electric meters; in belatedly notifying TEC and TPC of the results of the inspection; and in disconnecting the electric power without prior notice. Petitioner now comes before this Court in this petition for review on certiorari contending that:

The Court of Appeals committed grievous errors and decided matters of substance contrary to law and the rulings of this Honorable Court: 1. In finding that the issue in the case is whether there was deliberate tampering of the metering installations at the building owned by TEC. 2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not petitioner is entitled to differential billing, and if so, how much. 3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing evidence that with respect to the tampered meters that TEC and/or TPC authored their tampering. 4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts of Ultra. 5. In finding that TEC should not be held liable for the tampering of this electric meter in its DCIM Building. 6. In finding that there was no notice of disconnection. 7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering. 8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected on June 7, 1988 the meter installations, they were found to be tampered. 9. In declaring that petitioner MERALCO estopped from claiming any tampering of the meters. 10. In finding that "the method employed by MERALCO to as certain (sic) the 'correct' amount of electricity consumed is questionable"; 11. In declaring that MERALCO all throughout its dealings with TEC took on an "attitude" which is oppressive, wanton and reckless. 12. In declaring that MERALCO acted arbitrarily in inspecting TEC's DCIM building and the NS building. 13. In declaring that respondents TEC and TPC are entitled to the damages which it awarded. 14. In not declaring that petitioner is entitled to the differential bill. 15. In not declaring that respondents are liable to petitioner for exemplary damages, attorney's fee and expenses for litigation.25 The petition must fail.

The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the electric meters installed at its DCIM and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed by petitioner; and 3) whether or not petitioner was justified in disconnecting the electric power supply in TEC's DCIM building. Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned by respondent TEC has been established by overwhelming evidence, as specifically shown by the shorting devices found during the inspection. Thus, says petitioner, tampering of the meter is no longer an issue. It is obvious that petitioner wants this Court to revisit the factual findings of the lower courts. Wellestablished is the doctrine that under Rule 45 of the Rules of Court, only questions of law, not of fact, may be raised before the Court. We would like to stress that this Court is not a trier of facts and may not re-examine and weigh anew the respective evidence of the parties. Factual findings of the trial court, especially those affirmed by the Court of Appeals, are binding on this Court.26 Looking at the record, we note that petitioner claims to have discovered three incidences of metertampering; twice in the DCIM building on September 28, 1987 and June 7, 1988; and once in the NS building on April 24, 1988. The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the presence of a short circuiting device and saw that the meter seal was deformed. In addition, petitioner, through the Supervising Engineer of its Special Billing Analysis Department,27 claimed that there was a sudden and unexplainable drop in TEC's electrical consumption starting February 10, 1986. On the basis of the foregoing, petitioner concluded that the electric meters were tampered with. However, contrary to petitioner's claim that there was a drastic and unexplainable drop in TEC's electric consumption during the affected period, the Pattern of TEC's Electrical Consumption28 shows that the sudden drop is not peculiar to the said period. Noteworthy is the observation of the RTC in this wise: In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced by Exhibits "35" and "35-A," there was likewise a sudden drop of electrical consumption from the year 1984 which recorded an average 141,300 kwh/month to 1985 which recorded an average kwh/month at 87,600 or a difference-drop of 53,700 kwh/month; from 1985's 87,600 recorded consumption, the same dropped to 18,600 kwh/month or a difference-drop of 69,000 kwh/month. Surely, a drop of 53,700 could be equally categorized as a sudden drop amounting to 69,000 which, incidentally, the Meralco claimed as "unexplainable. x x x.29 The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that tampering is committed by consumers to prevent the meter from registering the correct amount of electric consumption, and result in a reduced monthly electric bill, while continuing to enjoy the same power supply. Only the registration of actual electric energy consumption, not the supply of electricity, is affected when a meter is tampered with.30 The witnesses claimed that after the inspection, the tampered electric meters were corrected, so that they would register the correct consumption of TEC. Logically, then, after the correction of the allegedly tampered meters, the customer's registered consumption would go up. In this case, the period claimed to have been affected by the tampered electric meters is from February 1986 until September 1987. Based on petitioner's Billing Record31 (for the DCIM building),

TEC's monthly electric consumption on Account No. 9341-1322-16 was between 4,500 and 27,000 kwh.32 Account No. 9341-1812-13 showed a monthly consumption between 9,600 and 34,200 kwh.33 It is interesting to note that, after correction of the allegedly tampered meters, TEC's monthly electric consumption from October 1987 to February 1988 (the last month that Ultra occupied the DCIM building) was between 8,700 and 24,300 kwh in its first account, and 16,200 to 46,800 kwh on the second account. Even more revealing is the fact that TEC's meters registered 9,300 kwh and 19,200 kwh consumption on the first and second accounts, respectively, a month prior to the inspection. On the first month after the meters were corrected, TEC's electric consumption registered at 9,300 kwh and 22,200 kwh on the respective accounts. These figures clearly show that there was no palpably drastic difference between the consumption before and after the inspection, casting a cloud of doubt over petitioner's claim of meter-tampering. Indeed, Ultra's explanation that the corporation was losing; thus, it had lesser consumption of electric power appear to be the more plausible reason for the drop in electric consumption. Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they were found to have been tampered anew. The Court notes that prior to the inspection, TEC was informed about it; and months before the inspection, there was an unsettled controversy between TEC and petitioner, brought about by the disconnection of electric power and the non-payment of differential billing. We are more disposed to accept the trial court's conclusion that it is hard to believe that a customer previously apprehended for tampered meters and assessed P7 million would further jeopardize itself in the eyes of petitioner.34 If it is true that there was evidence of tampering found on September 28, 1987 and again on June 7, 1988, the better view would be that the defective meters were not actually corrected after the first inspection. If so, then Manila Electric Company v. Macro Textile Mills Corporation35 would apply, where we said that we cannot sanction a situation wherein the defects in the electric meter are allowed to continue indefinitely until suddenly, the public utilities demand payment for the unrecorded electricity utilized when they could have remedied the situation immediately. Petitioner's failure to do so may encourage neglect of public utilities to the detriment of the consuming public. Corollarily, it must be underscored that petitioner has the imperative duty to make a reasonable and proper inspection of its apparatus and equipment to ensure that they do not malfunction, and the due diligence to discover and repair defects therein. Failure to perform such duties constitutes negligence.36 By reason of said negligence, public utilities run the risk of forfeiting amounts originally due from their customers.37 As to the alleged tampering of the electric meter in TEC's NS building, suffice it to state that the allegation was not proven, considering that the meters therein were enclosed in a metal cabinet the metal seal of which was unbroken, with petitioner having sole access to the said meters.38 In view of the negative finding on the alleged tampering of electric meters on TEC's DCIM and NS buildings, petitioner's claim of differential billing was correctly denied by the trial and appellate courts. With greater reason, therefore, could petitioner not exercise the right of immediate disconnection. The law in force at the time material to this controversy was Presidential Decree (P.D.) No. 40139 issued on March 1, 1974.40 The decree penalized unauthorized installation of water, electrical or telephone connections and such acts as the use of tampered electrical meters. It was issued in answer to the urgent need to put an end to illegal activities that prejudice the economic well-being of both the companies concerned and the consuming public.41P.D. 401 granted the electric companies the right to conduct inspections of electric meters and the criminal prosecution42 of erring consumers who were found to have tampered with their electric meters. It did not expressly provide for more expedient remedies such as the charging of differential billing and immediate disconnection against

erring consumers. Thus, electric companies found a creative way of availing themselves of such remedies by inserting into their service contracts (or agreements for the sale of electric energy) a provision for differential billing with the option of disconnection upon non-payment by the erring consumer. The Court has recognized the validity of such stipulations.43 However, recourse to differential billing with disconnection was subject to the prior requirement of a 48-hour written notice of disconnection.44 Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that petitioner sent a demand letter to TEC for the payment of differential billing, it did not include any notice that the electric supply would be disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and Revised General Order No. 1 by outrightly depriving TEC of electrical services without first notifying it of the impending disconnection. Accordingly, the CA did not err in affirming the RTC decision. As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are compensation for an injury that will put the injured party in the position where it was before the injury. They pertain to such injuries or losses that are actually sustained and susceptible of measurement. Except as provided by law or by stipulation, a party is entitled to adequate compensation only for such pecuniary loss as is duly proven. Basic is the rule that to recover actual damages, not only must the amount of loss be capable of proof; it must also be actually proven with a reasonable degree of certainty, premised upon competent proof or the best evidence obtainable.45 Respondent TEC sufficiently established, and petitioner in fact admitted, that the former paid P1,000,000.00 andP280,813.72 under protest, the amounts representing a portion of the latter's claim of differential billing. With the finding that no tampering was committed and, thus, no differential billing due, the aforesaid amounts should be returned by petitioner, with interest, as ordered by the Court of Appeals and pursuant to the guidelines set forth by the Court.46 However, despite the appellate court's conclusion that no tampering was committed, it held Ultra solidarily liable with petitioner for P1,000,000.00, only because the former, as occupant of the building, promised to settle the claims of the latter. This ruling is erroneous. Ultra's promise was conditioned upon the finding of defect or tampering of the meters. It did not acknowledge any culpability and liability, and absent any tampered meter, it is absurd to make the lawful occupant liable. It was petitioner who received the P1 million; thus, it alone should be held liable for the return of the amount. TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals for the generator set it was constrained to rent by reason of the illegal disconnection of electrical service. The official receipts and purchase orders submitted by TEC as evidence sufficiently show that such rentals were indeed made. However, the amount of P150,000.00 per month for five months, awarded by the CA, is excessive. Instead, a total sum ofP150,000.00, as found by the RTC, is proper. As to the payment of exemplary damages and attorney's fees, we find no cogent reason to disturb the same. Exemplary damages are imposed by way of example or correction for the public good in addition to moral, temperate, liquidated, or compensatory damages.47 In this case, to serve as an example that before a disconnection of electrical supply can be effected by a public utility, the requisites of law must be complied with we affirm the award of P200,000.00 as exemplary damages. With the award of exemplary damages, the award of attorney's fees is likewise proper, pursuant to Article 220848 of the Civil Code. It is obvious that TEC needed the services of a lawyer to argue its cause through three levels of the judicial hierarchy. Thus, the award ofP200,000.00 is in order.49

We, however, deem it proper to delete the award of moral damages. TEC's claim was premised allegedly on the damage to its goodwill and reputation.50 As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a reputation that is debased, resulting in its humiliation in the business realm.51 But in such a case, it is imperative for the claimant to present proof to justify the award. It is essential to prove the existence of the factual basis of the damage and its causal relation to petitioner's acts.52 In the present case, the records are bereft of any evidence that the name or reputation of TEC/TPC has been debased as a result of petitioner's acts. Besides, the trial court simply awarded moral damages in the dispositive portion of its decision without stating the basis thereof. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 40282 dated June 18, 1997 and its Resolution dated December 3, 1997 are AFFIRMED with the following MODIFICATIONS: (1) the award of P150,000.00 per month for five months as reimbursement for the rentals of the generator set isREDUCED to P150,000.00; and (2) the award of P500,000.00 as moral damages is hereby DELETED. SO ORDERED.

CASE NO. 4

G.R. No. 172428

November 28, 2008

HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL, ANN GEORGIA C. SOLANTE, and DORIS C. MAGLASANG, as Heirs of Deceased SPOUSES RAYMUNDO I. CRYSTAL and DESAMPARADOS C. CRYSTAL, petitioners, vs. BANK OF THE PHILIPPINE ISLANDS, respondent. DECISION TINGA, J.: Before us is a Petition for Review1 of the Decision2 and Resolution3 of the Court of Appeals dated 24 October 2005 and 31 March 2006, respectively, in CA G.R. CV No. 72886, which affirmed the 8 June 2001 decision of the Regional Trial Court, Branch 5, of Cebu City.4 The facts, as culled from the records, follow. On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000.00 loan in behalf of the Cebu Contractors Consortium Co.

(CCCC) from the Bank of the Philippine Islands-Butuan branch (BPI-Butuan). The loan was secured by a chattel mortgage on heavy equipment and machinery of CCCC. On the same date, the spouses executed in favor of BPIButuan a Continuing Suretyship5 where they bound themselves as surety of CCCC in the aggregate principal sum of not exceedingP300,000.00. Thereafter, or on 29 March 1979, Raymundo Crystal executed a promissory note6 for the amount of P300,000.00, also in favor of BPI-Butuan. Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City branch (BPI-Cebu City). The renewal was evidenced by a promissory note7 dated 13 August 1979, signed by the spouses in their personal capacities and as managing partners of CCCC. The promissory note states that the spouses are jointly and severally liable with CCCC. It appears that before the original loan could be granted, BPI-Cebu City required CCCC to put up a security. However, CCCC had no real property to offer as security for the loan; hence, the spouses executed a real estate mortgage8 over their own real property on 22 September 1977.9 On 3 October 1977, they executed another real estate mortgage over the same lot in favor of BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC.10 CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became due. CCCC, as well as the spouses, failed to pay their obligations despite demands. Thus, BPI resorted to the foreclosure of the chattel mortgage and the real estate mortgage. The foreclosure sale on the chattel mortgage was initially stalled with the issuance of a restraining order against BPI.11 However, following BPIs compliance with the necessary requisites of extrajudicial foreclosure, the foreclosure sale on the chattel mortgage was consummated on 28 February 1988, with the proceeds amounting to P240,000.00 applied to the loan from BPI-Butuan which had then reached P707,393.90.12 Meanwhile, on 7 July 1981, Insular Bank of Asia and America (IBAA), through its Vice-President for Legal and Corporate Affairs, offered to buy the lot subject of the two (2) real estate mortgages and to pay directly the spouses indebtedness in exchange for the release of the mortgages. BPI rejected IBAAs offer to pay.13 BPI filed a complaint for sum of money against CCCC and the spouses before the Regional Trial Court of Butuan City (RTC Butuan), seeking to recover the deficiency of the loan of CCCC and the spouses with BPI-Butuan. The trial

court ruled in favor of BPI. Pursuant to the decision, BPI instituted extrajudicial foreclosure of the spouses mortgaged property.14 On 10 April 1985, the spouses filed an action for Injunction With Damages, With A Prayer For A Restraining Order and/ or Writ of Preliminary Injunction.15 The spouses claimed that the foreclosure of the real estate mortgages is illegal because BPI should have exhausted CCCCs properties first, stressing that they are mere guarantors of the renewed loans. They also prayed that they be awarded moral and exemplary damages, attorneys fees, litigation expenses and cost of suit. Subsequently, the spouses filed an amended complaint,16 additionally alleging that CCCC had opened and maintained a foreign currency savings account (FCSA-197) with bpi, Makati branch (BPI-Makati), and that said FCSA was used as security for a P450,000.00 loan also extended by BPI-Makati. The P450,000.00 loan was allegedly paid, and thereafter the spouses demanded the return of the FCSA passbook. BPI rejected the demand; thus, the spouses were unable to withdraw from the said account to pay for their other obligations to BPI. The trial court dismissed the spouses complaint and ordered them to pay moral and exemplary damages and attorneys fees to BPI.17 It ruled that since the spouses agreed to bind themselves jointly and severally, they are solidarily liable for the loans; hence, BPI can validly foreclose the two real estate mortgages. Moreover, being guarantors-mortgagors, the spouses are not entitled to the benefit of exhaustion. Anent the FCSA, the trial court found that CCCC originally had FCDU SA No. 197 with BPI, Dewey Boulevard branch, which was transferred to BPI-Makati as FCDU SA 76/0035, at the request of Desamparados Crystal. FCDU SA 76/0035 was thus closed, but Desamparados Crystal failed to surrender the passbook because it was lost. The transferred FCSA in BPI-Makati was the one used as security for CCCCs P450,000.00 loan from BPI-Makati. CCCC was no longer allowed to withdraw from FCDU SA No. 197 because it was already closed. The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal was dismissed.18 The spouses moved for the reconsideration of the decision, but the Court of Appeals also denied their motion for reconsideration.19 Hence, the present petition. Before the Court, petitioners who are the heirs of the spouses argue that the failure of the spouses to pay the BPI-Cebu City loan of P120,000.00 was due to BPIs illegal refusal to accept payment for the loan unless the P300,000.00 loan from BPI-Butuan would also be paid. Consequently, in view of BPIs

unjust refusal to accept payment of the BPI-Cebu City loan, the loan obligation of the spouses was extinguished, petitioners contend. The contention has no merit. Petitioners rely on IBAAs offer to purchase the mortgaged lot from them and to directly pay BPI out of the proceeds thereof to settle the loan.20 BPIs refusal to agree to such payment scheme cannot extinguish the spouses loan obligation. In the first place, IBAA is not privy to the loan agreement or the promissory note between the spouses and BPI. Contracts, after all, take effect only between the parties, their successors in interest, heirs and assigns.21 Besides, under Art. 1236 of the Civil Code, the creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. We see no stipulation in the promissory note which states that a third person may fulfill the spouses obligation. Thus, it is clear that the spouses alone bear responsibility for the same. In any event, the promissory note is the controlling repository of the obligation of the spouses. Under the promissory note, the spouses defined the parameters of their obligation as follows: On or before June 29, 1980 on demand, for value received, I/we promise to pay, jointly and severally, to the BANK OF THE PHILIPPINE ISLANDS, at its office in the city of Cebu Philippines, the sum of ONE HUNDRED TWENTY THOUSAND PESOS (P120,0000.00), Philippine Currency, subject to periodic installments on the principal as follows: P30,000.00 quarterly amortization starting September 28, 1979. x x x 22 A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. 23 A liability is solidary "only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires."24 Thus, when the obligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary,25 such as in this case. By stating "I/we promise to pay, jointly and severally, to the BANK OF THE PHILIPPINE ISLANDS," the spouses agreed to be sought out and be demanded payment from, by BPI. BPI did demand payment from them, but

they failed to comply with their obligation, prompting BPIs valid resort to the foreclosure of the chattel mortgage and the real estate mortgages. More importantly, the promissory note, wherein the spouses undertook to be solidarily liable for the principal loan, partakes the nature of a suretyship and therefore is an additional security for the loan. Thus we held in one case that if solidary liability was instituted to "guarantee" a principal obligation, the law deems the contract to be one of suretyship.26 And while a contract of a surety is in essence secondary only to a valid principal obligation, the suretys liability to the creditor or promisee of the principal is said to be direct, primary, and absolute; in other words, the surety is directly and equally bound with the principal. The surety therefore becomes liable for the debt or duty of another even if he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.27 Petitioners contend that the Court of Appeals erred in not granting their counterclaims, considering that they suffered moral damages in view of the unjust refusal of BPI to accept the payment scheme proposed by IBAA and the allegedly unjust and illegal foreclosure of the real estate mortgages on their property.28Conversely, they argue that the Court of Appeals erred in awarding moral damages to BPI, which is a corporation, as well as exemplary damages, attorneys fees and expenses of litigation.29 We do not agree. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly caused.30 Such damages, to be recoverable, must be the proximate result of a wrongful act or omission the factual basis for which is satisfactorily established by the aggrieved party.31 There being no wrongful or unjust act on the part of BPI in demanding payment from them and in seeking the foreclosure of the chattel and real estate mortgages, there is no lawful basis for award of damages in favor of the spouses. Neither is BPI entitled to moral damages. A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.32 The Court of Appeals found BPI as "being famous and having gained its familiarity and respect not only in the Philippines but also in the whole world because of its good will and good reputation must protect and defend the same against any unwarranted suit such as the case at bench."33 In holding that BPI is entitled to moral damages, the Court of Appeals relied on the case of People v. Manero,34 wherein the

Court ruled that "[i]t is only when a juridical person has a good reputation that is debased, resulting in social humiliation, that moral damages may be awarded."35 We do not agree with the Court of Appeals. A statement similar to that made by the Court in Manero can be found in the case of Mambulao Lumber Co. v. PNB, et al.,36 thus: x x x Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. A corporation may have good reputation which, if besmirched may also be a ground for the award of moral damages. x x x (Emphasis supplied) Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al.,37 and Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM),38 the Court held that the statements in Manero and Mambulao were mere obiter dicta, implying that the award of moral damages to corporations is not a hard and fast rule. Indeed, while the Court may allow the grant of moral damages to corporations, it is not automatically granted; there must still be proof of the existence of the factual basis of the damage and its causal relation to the defendants acts. This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.39 The spouses complaint against BPI proved to be unfounded, but it does not automatically entitle BPI to moral damages. Although the institution of a clearly unfounded civil suit can at times be a legal justification for an award of attorney's fees, such filing, however, has almost invariably been held not to be a ground for an award of moral damages. The rationale for the rule is that the law could not have meant to impose a penalty on the right to litigate. Otherwise, moral damages must every time be awarded in favor of the prevailing defendant against an unsuccessful plaintiff.40 BPI may have been inconvenienced by the suit, but we do not see how it could have possibly suffered besmirched reputation on account of the single suit alone. Hence, the award of moral damages should be deleted.

The awards of exemplary damages and attorneys fees, however, are proper. Exemplary damages, on the other hand, are imposed by way of example or correction for the public good, when the party to a contract acts in a wanton, fraudulent, oppressive or malevolent manner, while attorneys fees are allowed when exemplary damages are awarded and when the party to a suit is compelled to incur expenses to protect his interest.41 The spouses instituted their complaint against BPI notwithstanding the fact that they were the ones who failed to pay their obligations. Consequently, BPI was forced to litigate and defend its interest. For these reasons, BPI is entitled to the awards of exemplary damages and attorneys fees. WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated 24 October 2005 and 31 March 2006, respectively, are hereby AFFIRMED, with the MODIFICATION that the award of moral damages to Bank of the Philippine Islands is DELETED. Costs against the petitioners. SO ORDERED.

CASE NO. 5
G.R. No. L-56655 July 25, 1983 DATU TAGORANAO BENITO, petitioner, vs. SECURITIES AND EXCHANGE COMMISSION and JAMIATUL PHILIPPINE-AL ISLAMIA, INC., respondents. The Solicitor General for respondent. Tacod D. Macaraya for private respondent.

RELOVA, J.: On February 6, 1959, the Articles of Incorporation of respondent Jamiatul Philippine-Al Islamia, Inc. (originally Kamilol Islam Institute, Inc.) were filed with the Securities and Exchange Commission (SEC) and were approved on December 14, 1962. The corporation had an authorized capital stock of P200,000.00 divided into 20,000 shares at a par value of P10.00 each. Of the authorized capital stock, 8,058 shares worth P80,580.00 were subscribed and fully paid for. Herein petitioner Datu Tagoranao Benito subscribed to 460 shares worth P4,600.00.

On October 28, 1975, the respondent corporation filed a certificate of increase of its capital stock from P200,000.00 to P1,000,000.00. It was shown in said certificate that P191,560.00 worth of shares were represented in the stockholders' meeting held on November 25, 1975 at which time the increase was approved. Thus, P110,980.00 worth of shares were subsequently issued by the corporation from the unissued portion of the authorized capital stock of P200,000.00. Of the increased capital stock of P1,000,000.00, P160,000.00 worth of shares were subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto. On November 18, 1976, petitioner Datu Tagoranao filed with respondent Securities and Exchange Commission a petition alleging that the additional issue (worth P110,980.00) of previously subscribed shares of the corporation was made in violation of his pre-emptive right to said additional issue and that the increase in the authorized capital stock of the corporation from P200,000.00 to P1,000,000.00 was illegal considering that the stockholders of record were not notified of the meeting wherein the proposed increase was in the agenda. Petitioner prayed that the additional issue of shares of previously authorized capital stock as well as the shares issued from the increase in capital stock of respondent corporation be cancelled; that the secretary of respondent corporation be ordered to register the 2,540 shares acquired by him (petitioner) from Domocao Alonto and Mokiin Alonto; and that the corporation be ordered to render an accounting of funds to the stockholders. In their answer, respondents denied the material allegations of the petition and, by way of special defense, claimed that petitioner has no cause of action and that the stock certificates covering the shares alleged to have been sold to petitioner were only given to him as collateral for the loan of Domocao Alonto and Moki-in Alonto. On July 11, 1980, Hearing Officer Ledor E. Macalalag of the Securities and Exchange Commission, after due proceedings, rendered a decision which was affirmed by the Commission En Banc during its executive session held on March 9, 1981, as follows: RESOLVED, That the decision of the hearing Officer in SEC Case No. 1392, dated July 11, 1980, the dispositive portion of which reads as follows: WHEREFORE, in view of the foregoing considerations, this Commission hereby rules: (a) That the issuance by the corporation of its unissued shares was validly made and was not subject to the preemptive rights of stockholders, including the petitioner, herein; (b) That there is no sufficient legal basis to set aside the certificate issued by this Commission authorizing the increase in capital stock of respondent corporation from P200,000.00 to Pl,000,000.00. Considering, however, that petitioner has not waived his pre-emptive right to subscribe to the increased capitalization, respondent corporation is hereby directed to allow petitioner to subscribe thereto, at par value, proportionate to his present shareholdings, adding thereto the 2,540 shares transferred to him by Mr. Domocao Alonto and Mrs. Moki-in Alonto; (c) To direct as it hereby directs, the respondent corporation to immediately cancel Certificates of Stock Nos. 216, 223, 302, all in the name of Domocao Alonto, and Certificate of Stock No. 217, in the name of Moki-in Alonto, upon their presentation by the petitioner and to issue new certificates corresponding thereto in the name of petitioner herein; (d) To direct, as it hereby directs, respondent corporation to religiously comply with the requirement of filing annual financial statements under pain of a more drastic action; (e) To declare, as it hereby declares, as irregular,

the election of the nine (9) members of the Board of Trustees of respondent corporation on October 30, 1976, for which reason, respondent corporation is hereby ordered to call a stockholders' meeting to elect a new set of five (5) members of the Board of Trustees, unless in the meantime the said number is accordingly increased and the requirement of law to make such increase effective have been complied with. It is understood that the said stockholders' meeting be called within thirty (30) days from the time petitioner shall have subscribed to the increased capitalization.' be, as the same is hereby AFFIRMED, the same being in accordance with law and the facts of the case. (pp. 28-29, Reno) Hence, this petition for review by way of appeal from the aforementioned decision of the Securities and Exchange Commission, petitioner contending that (1) the issuance of the 11,098 shares without the consent of the stockholders or of the Board of Directors, and in the absence of consideration, is null and void; (2) the increase in the authorized capital stock from P200,000.00 to P1,000,000.00 without the consent or express waiver of the stockholders, is null and void; (3) he is entitled to attorneys' fees, damages and expenses of litigation in filing this suit against the directors of respondent corporation. We are not persuaded. As aptly stated by the Securities and Exchange Commission in its decision: xxx xxx xxx ... the questioned issuance of the unsubscribed portion of the capital stock worth P110,980.00 is ' not invalid even if assuming that it was made without notice to the stockholders as claimed by petitioner. The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders' meeting is necessary to consider it because additional issuance of shares of stocks does not need approval of the stockholders. The by-laws of the corporation itself states that 'the Board of Trustees shall, in accordance with law, provide for the issue and transfer of shares of stock of the Institute and shall prescribe the form of the certificate of stock of the Institute. (Art. V, Sec. 1). Petitioner bewails the fact that in view of the lack of notice to him of such subsequent issuance, he was not able to exercise his right of pre-emption over the unissued shares. However, the general rule is that pre-emptive right is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue. An original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares. When the shares left unsubscribed are later re-offered, he cannot therefore claim a dilution of interest. (Campos and Lopez-Campos Selected Notes and Cases on Corporation Law, p. 855, citing Yasik V. Wachtel 25 Del. Ch. 247,17A. 2d 308 (1941). (pp. 33-34, Rollo) With respect to the claim that the increase in the authorized capital stock was without the consent, expressed or implied, of the stockholders, it was the finding of the Securities and Exchange Commission that a stockholders' meeting was held on November 25,1975, presided over by Mr. Ahmad Domocao Alonto, Chairman of the Board of Trustees and, among the many items taken up

then were the change of name of the corporation from Kamilol Islam Institute Inc. to Jamiatul Philippine-Al Islamia, Inc., the increase of its capital stock from P200,000.00 to P1,000,000.00, and the increase of the number of its Board of Trustees from five to nine. "Despite the insistence of petitioner, this Commission is inclined to believe that there was a stockholders' meeting on November 25, 1975 which approved the increase. The petitioner had not sufficiently overcome the evidence of respondents that such meeting was in fact held. What petitioner successfully proved, however, was the fact that he was not notified of said meeting and that he never attended the same as he was out of the country at the time. The documentary evidence of petitioner conclusively proved that he was attending the Mecca pilgrimage when the meeting was held on November 25, 1975. (Exhs. 'Q', 'Q-14', 'R', 'S' and 'S-l'). While petitioner doubts the authenticity of the alleged minutes of the proceedings (Exh. '4'), the Commission notes with significance that said minutes contain numerous details of various items taken up therein that would negate any claim that it was not authentic. Another thing that petitioner was able to disprove was the allegation in the certificate of increase (Exh. 'E-l') that all stockholders who did not subscribe to the increase of capital stock have waived their pre-emptive right to do so. As far as the petitioner is concerned, he had not waived his pre-emptive right to subscribe as he could not have done so for the reason that he was not present at the meeting and had not executed a waiver, thereof. Not having waived such right and for reasons of equity, he may still be allowed to subscribe to the increased capital stock proportionate to his present shareholdings." (pp. 36-37, Rollo) Well-settled is the rule that the findings of facts of administrative bodies will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence. (Gokongwei, Jr. vs. SEC, 97 SCRA 78). In a long string of cases, the Supreme Court has consistently adhered to the rule that decisions of administrative officers are not to be disturbed by the courts except when the former have acted without or in excess of their jurisdiction or with grave abuse of discretion (Sichangco vs. Board of Commissioners of Immigration, 94 SCRA 61). Thus, in the case ofDeluao vs. Casteel ( L21906, Dec. 24, 1968, 26 SCRA 475, 496, citing Pajo vs. Ago, et al., L-15414, June 30, 1960) and Genitano vs. Secretary of Agriculture and Natural Resources, et al. (L-2ll67, March 31, 1966), the Supreme Court held that: ... Findings of fact by an administrative board or official, following a hearing, are binding upon the courts and win not be disturbed except where the board or official has gone beyond his statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of discretion. ... ACCORDINGLY, this petition is hereby dismissed for lack of merit. SO ORDERED.