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G.R. No.

88013 March 19, 1990

SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,


vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

Don P. Porcuincula for petitioner.

San Juan, Gonzalez, San Agustin & Sinense for private respondent.

CRUZ, J.:

We are concerned in this case with the question of damages, specifically moral and exemplary
damages. The negligence of the private respondent has already been established. All we have to
ascertain is whether the petitioner is entitled to the said damages and, if so, in what amounts.

The parties agree on the basic facts. The petitioner is a private corporation engaged in the
exportation of food products. It buys these products from various local suppliers and then sells them
abroad, particularly in the United States, Canada and the Middle East. Most of its exports are
purchased by the petitioner on credit.

The petitioner was a depositor of the respondent bank and maintained a checking account in its
branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its
account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to
P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was
suprised to learn later that they had been dishonored for insufficient funds.

The dishonored checks are the following:

1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing
Company, Inc. for P16,480.00:

2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue
in the amount of P3,386.73:

3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreño in the
amount of P7,080.00;

4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading
Corporation in the amount of P42,906.00:

5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading
Corporation in the amount of P12,953.00:

6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the
amount of P27,024.45:

7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club
Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount
of P6,275.00. 2

As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of


demand to the petitioner, threatening prosecution if the dishonored check issued to it was not made
good. It also withheld delivery of the order made by the petitioner. Similar letters were sent to the
petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on
June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future
payments be made by it in cash or certified check. Meantime, action on the pending orders of the
petitioner with the other suppliers whose checks were dishonored was also deferred.

The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that
the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it.
The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-
deposited. 4

In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its
"gross and wanton negligence." This demand was not met. The petitioner then filed a complaint in
the then Court of First Instance of Rizal claiming from the private respondent moral damages in the
sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's
fees, and costs.

After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary
damages were not called for under the circumstances. However, observing that the plaintiff's right
had been violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00
plus P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the respondent
court. 6

The respondent court found with the trial court that the private respondent was guilty of negligence
but agreed that the petitioner was nevertheless not entitled to moral damages. It said:

The essential ingredient of moral damages is proof of bad faith (De Aparicio vs.
Parogurga, 150 SCRA 280). Indeed, there was the omission by the defendant-
appellee bank to credit appellant's deposit of P100,000.00 on May 25, 1981. But the
bank rectified its records. It credited the said amount in favor of plaintiff-appellant in
less than a month. The dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation of malicious, fraudulent, wanton
and gross bad faith and negligence on the part of the defendant-appellant.

It is this ruling that is faulted in the petition now before us.

This Court has carefully examined the facts of this case and finds that it cannot share some of the
conclusions of the lower courts. It seems to us that the negligence of the private respondent had
been brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the
wrist. We feel it is not enough to say that the private respondent rectified its records and credited the
deposit in less than a month as if this were sufficient repentance. The error should not have been
committed in the first place. The respondent bank has not even explained why it was committed at
all. It is true that the dishonored checks were, as the Court of Appeals put it, "eventually" paid.
However, this took almost a month when, properly, the checks should have been paid immediately
upon presentment.
As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical
attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith,
that the respondent court said had not been established by the petitioner.

We also note that while stressing the rectification made by the respondent bank, the decision
practically ignored the prejudice suffered by the petitioner. This was simply glossed over if not,
indeed, disbelieved. The fact is that the petitioner's credit line was canceled and its orders were not
acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation
was tarnished. Its standing was reduced in the business community. All this was due to the fault of
the respondent bank which was undeniably remiss in its duty to the petitioner.

Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2)
for injury to the plaintiff s business standing or commercial credit." There is no question that the
petitioner did sustain actual injury as a result of the dishonored checks and that the existence of the
loss having been established "absolute certainty as to its amount is not required." 7 Such injury
should bolster all the more the demand of the petitioner for moral damages and justifies the
examination by this Court of the validity and reasonableness of the said claim.

We agree that moral damages are not awarded to penalize the defendant but to compensate the
plaintiff for the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such
damages for the prejudice sustained by it as a result of the private respondent's fault. The
respondent court said that the claimed losses are purely speculative and are not supported by
substantial evidence, but if failed to consider that the amount of such losses need not be established
with exactitude precisely because of their nature. Moral damages are not susceptible of pecuniary
estimation. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is
necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be
adjudicated." That is why the determination of the amount to be awarded (except liquidated
damages) is left to the sound discretion of the court, according to "the circumstances of each case."

From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of
P1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that
prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule
entitled to moral damages because, not being a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock.
The only exception to this rule is where the corporation has a good reputation that is debased,
resulting in its social humiliation. 9

We shall recognize that the petitioner did suffer injury because of the private respondent's
negligence that caused the dishonor of the checks issued by it. The immediate consequence was
that its prestige was impaired because of the bouncing checks and confidence in it as a reliable
debtor was diminished. The private respondent makes much of the one instance when the petitioner
was sued in a collection case, but that did not prove that it did not have a good reputation that could
not be marred, more so since that case was ultimately settled. 10 It does not appear that, as the
private respondent would portray it, the petitioner is an unsavory and disreputable entity that has no
good name to protect.

Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not
the proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal
damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff
for any loss suffered by him." As we have found that the petitioner has indeed incurred loss through
the fault of the private respondent, the proper remedy is the award to it of moral damages, which we
impose, in our discretion, in the same amount of P20,000.00.

Now for the exemplary damages.

The pertinent provisions of the Civil Code are the following:

Art. 2229. Exemplary or corrective damages are imposed, by way of example or


correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.

Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages
if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.

The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to
entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and
will even earn some interest for him. The ordinary person, with equal faith, usually maintains a
modest checking account for security and convenience in the settling of his monthly bills and the
payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and
active associate that can help in the running of their affairs, not only in the form of loans when
needed but more often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if
the account is to reflect at any given time the amount of money the depositor can dispose of as he
sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of
the bank, such as the dishonor of a check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. In the case at bar, it is obvious that
the respondent bank was remiss in that duty and violated that relationship. What is especially
deplorable is that, having been informed of its error in not crediting the deposit in question to the
petitioner, the respondent bank did not immediately correct it but did so only one week later or
twenty-three days after the deposit was made. It bears repeating that the record does not contain
any satisfactory explanation of why the error was made in the first place and why it was not
corrected immediately after its discovery. Such ineptness comes under the concept of the wanton
manner contemplated in the Civil Code that calls for the imposition of exemplary damages.

After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes
upon the respondent bank exemplary damages in the amount of P50,000.00, "by way of example or
correction for the public good," in the words of the law. It is expected that this ruling will serve as a
warning and deterrent against the repetition of the ineptness and indefference that has been
displayed here, lest the confidence of the public in the banking system be further impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered
to pay the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and
exemplary damages in the amount of P50,000.00 plus the original award of attorney's fees in the
amount of P5,000.00, and costs.

SO ORDERED.

G.R. No. L-46877 January 22, 1988

LOURDES CYNTHIA MAKABALI and GEORGINA MAKABALI, petitioners,


vs.
COURT OF APPEALS and BARON TRAVEL CORPORATION, respondents.

FERNAN, J.:

The sole issue in this petition for review is whether or not petitioners are entitled to more than the P5,000.00 moral and exemplary damages,
P1,000.00 attorney's fees and costs awarded to them by the Court of Appeals in the light of the circumstances of the case.

Petitioner Georgina Makabali had just graduated from the College of Medicine, University of the
Philippines, and as a graduation gift from her father, was given a trip to Hongkong. Since she had
never been abroad, her parents insisted that she be accompanied by her sister and co-petitioner
Lourdes Cynthia Makabali, a schoolteacher at the Colegio de San Agustin, Dasmariñas Village.

An advertisement of private respondent Baron Travel Corporation in the March 30, 1969 issue of the
newspaper The Sunday Times' offering a package tour to Hongkong caught the attention of
petitioner Georgina Makabali. In response to her inquiry, private respondent sent her the literature
pertaining to its Hongkong package tour together with the time schedule, description of the tour, tour
conditions and brochure.

At private respondent's office, petitioners were assured that they would be going with a group of
thirteen [13] other travelers to be led by a tour guide, a certain Mr. Arsenio Rosal, and that a
representative of private respondent would see them off at the Manila International Airport to give
them final instructions. Petitioners were also that they would be lodged at the President Hotel in
Hongkong. These promises and representations convinced the petitioners to purchase the
Hongkong package tour offered by private respondent.

On the departure date, May 10, 1969, petitioners searched for the tour group they were supposed to
meet at the Manila International Airport. They likewise searched for private respondent's
representative who would give them final instructions on their trip to Hongkong. They met neither
private respondent's tour group nor its representative.

When they were paged through the public address system to board their plane for Hongkong, they
had no choice but to do so without receiving any instructions from private respondent's
representative.

Inside the plane, petitioners did not meet anyone from the Baron Tour Group. They looked for and
found a certain Mr. Arsenio Rosal who, to their embarrassment, protested that he was not a tour
guide but a business executive working with International Harvester Macleod, Inc. and who was
going to Hongkong as a paying passenger. In fact, he knew no one from private respondent Baron
Travel Corporation and had nothing to do with it.
In Hongkong, nobody met petitioners at the airport. W. Rosal who was a member of the Abaya Tour
Group, requested their tour leader to accommodate petitioners provided they pay all their expenses
in Hongkong.

Thereafter, petitioners called up the President Hotel in Hongkong where private respondent
promised to book them but it had no accommodations for them. Petitioners lost no time in sending a
cable to private respondent informing it that they had no hotel accommodations.

Left with no alternative, petitioners tagged along with the Abaya Tour Group. Petitioners claimed
public humiliation due to the fact that they had to pay for their lunch while the rest of the group had
prepaid meals. They could not go shopping with the Abaya group for fear that their limited funds
would not be sufficient to pay for their hotel bills. There were times when breakfast consisted of hot
dogs bought along the sidewalk while lunch and supper consisted of apples and oranges.

On the third night, they tried to place a long-distance call to their home but could not get through.
The next morning, petitioners sent a cable to their parents.

According to petitioners, they had to scrimp on their limited budget for fear that their meager pocket
money would not be enough to pay for their hotel bills. All these caused them sleepless nights
because of great worry, mental anguish and public humiliation.

It was only at 9:00 in the morning of May 13, 1969 or on the fourth day of the supposed five-day tour
that petitioners were notified that private respondent had finally made arrangements for the payment
of their bills. By that time, the supposed tour was practically over.

Upon their return, petitioners complained to private respondent who according to petitioners did not
even bother to apologize but simply ignored their complaint and gave them the run around.

An action for moral and exemplary damages, attorney's fees and costs was filed by the petitioners in
the then Court of First Instance of Manila, Branch XVI and docketed as Civil Case No. 76912.
Petitioners in their complaint prayed for an award of P100 as actual and compensatory damages,
P30,000.00 as moral damages, P6,000.00 as exemplary damages plus attorney's fees and costs the
Court rendered judgment in petitioner's favor but awarded them only P500.00 as moral and
exemplary damages, P100.00 as attorney's fees and costs, stating the following as its justification for
the award:

Plaintiffs claim P35,000 for damages aside from attorney's fees. These are too much
and too high. Travel agents are only paid 10% commissions for the trips they sell.
Besides, Baron rectified on time its oversight and made it possible for the plaintiff to
enjoy the rest of their trip. 1

Unsatisfied, petitioners appeared to the Court of appeals. Private respondent likewise appealed. The
Court of Appeals made the following findings and ruling:

It is a fact that the plaintiff had to shift for themselves upon arriving in Hongkong and
that defendant arranged for the hotel bills of plaintiffs only after said plaintiffs had
cabled it for confirmation. There is no doubt that the plaintiffs suffered humiliation and
anxiety during the first days of their stay in Hongkong. The defendant was remiss in
the performance of its obligation to the plaintiffs. It acted in wanton disregard of the
rights of the plaintiffs.
The trial court correctly stated that the amount of damages claimed by the plaintiffs
are too high. However, the amounts awarded as damages and attorney's fees by the
trial court are inadequate. Under the established facts and equity of the case, the
plaintiffs are entitled to the sum of P5,000.00 as moral and exemplary damages and
the amount of P1,000.00 as attorney's fees.

WHEREFORE, the decision appealed from is hereby modified in that the defendant
is ordered to pay the plaintiff the sum of P5,000.00 as moral and exemplary damages
and the sum of P1,000.00 as attorney's fees and the costs.

SO ORDERED. 2

Still unsatisfied, petitioners elevated this case to Us on a petition for review on a lone assignment of
error, to wit:

THE COURT OF APPEALS ERRED IN AWARDING PETITIONERS THE PITIFUL


SUMS OF P5,000.00 AS MORAL AND EXEMPLARY DAMAGES AND P1,000.00
AS ATTORNEY'S FEES IN THE LIGHT OF THE SOCIAL STANDING OF
PETITIONER GEORGINA MAKABALI, WHO IS A DOCTOR OF MEDICINE, AND
OF PETITIONER LOURDES CYNTHIA MAKABALI, WHO IS A TEACHER; IN THE
LIGHT OF THE SLEEPLESS NIGHTS AND PUBLIC HUMILIATION THEY
SUFFERED FOR THREE DAYS AND THREE NIGHTS; IN THE LIGHT OF THE
CALLOUS FAILURE OF PRIVATE RESPONDENT TO HAVE ANYONE ATTEND
TO PETITIONER IN SPITE OF THE FACT THAT IT RAKES IN MORE THAN HALF
A MILLION PESOS A MONTH FROM AIR FREIGHT ALONE. 3

To begin with, there is no hard and fast rule in the determination of what would be a fair amount of
moral damages, since each case must be governed by its own peculiar circumstances. 4

Article 2217 of the Civil Code recognizes that moral damages which include physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation and similar injury, are incapable of pecuniary estimation.

As to exemplary damages, Article 2229 of the Civil Code provides that such damages may be
imposed by way of example or correction for the public good. While exemplary damages cannot be
recovered as a matter of right, 5they need not be proved, although plaintiff must show that he is
entitled to moral, temperate or compensatory damages before the court may consider the question
of whether or not exemplary damages should be awarded. 6

A review of related jurisprudence shows that We had awarded moral damages in more or less
similar cases ranging from P20,060.00 [Northwest Airlines, Inc. v. Cuenca] 7 P25,000.00 [Yutuk v.
Manila Electric Company, Air France v. Carrascoso], 8 P50,000.00 [KLM Royal Dutch Airlines v.
Court of Appeals], 9 P150,000.00 [Ortigas v. Lufthansa German Airlines], 10 and P200,000.00 [Lopez
v. Pan American World Airways], 11 to P500,000.00 [Zulueta v. Pan American World Airways], 12 As to
exemplary damages, We awarded in Yutuk and Air France P10,000.00, in Lopez P75,000.00, in
Ortigas P100,000.00 and in Zulueta P200,000.00.

It will thus be noted that We have awarded moral and exemplary damages depending upon the facts
attendant to each case. It will also be noted that We gave separate awards for moral and exemplary
damages. This is as it should be because the nature and purposes of said damages are different.
While moral damages have to do with injury personal to the awardee, such as physical suffering and
the like, exemplary damages are imposed by way of example or correction for the public good.
It is essential however, in the award of damages that the claimant must have satisfactorily proven
during the trial the existence of the factual basis of the damages and its causal connection to
defendant's 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, 13 and are allowable only when specifically prayed for in the
complaint.14

As reflected in the records of the case, the Court of appeals was in agreement with the findings of
the trial court that petitioners suffered anguish, embarrassment and mental sufferings due to failure
of private respondent to perform its obligation to the petitioners. According to the Court of Appeals,
private respondent acted in wanton disregard of the rights of petitioners. These pronouncements lay
the basis and justification for this Court to award petitioners moral and exemplary damages.

In the light of the circumstances obtaining in the case at bar, especially the social standing of
petitioners and the embarrassment and humiliation suffered by them, the anxiety they must have felt
in their first journey to a foreign land under uncertain circumstances and with meager funds which
could run out any time, We are inclined to award damages to the petitioner more than what was
awarded by the Court of Appeals.

It must be emphasized that moral damages are not intended to enrich the complainant at the
expense of a defendant. They are awarded only to enable the injured parties to obtain means,
diversions or amusements that will serve to alleviate the moral sufferings the injured parties have
undergone by reason of defendant's culpable action. In other words, the award of moral damages is
aimed at a restoration within the limits of the possible, of the spiritual status quo ante; and therefore
it must be proportionate to the suffering inflicted. 15 The amount of P5,000.00 is minimal compared to
the sufferings and embarrassment of petitioners who left Manila with high spirits and excitement
hoping to enjoy their first trip to a foreign land only to be met with uncertainties and humiliations.

We note however that petitioners limited their claim for moral and exemplary damages in their
complaint filed with the Court of First Instance to a total of P35,000.00 plus attorney's fees and costs.
We feel that Our award should not exceed the said amount.

WHEREFORE, the decision of the Court of Appeals subject of the petition for review is hereby
modified, increasing the award to petitioners of moral and exemplary damages to P35,000.00 and
attorney's fees to P5,000.00 with costs. This decision is immediately executory.

SO ORDERED.

G.R. No. L-45770 March 30, 1988

PHILIPPINE NATIONAL BANK, petitioner,


vs.
THE HONORABLE COURT OF APPEALS, NAPOLEON C. NAVARRO, PATRICIA CRUZ,
VICENTE B. MEDINA and LETICIA LOPEZ, respondents.

FERNAN, J.:

This is a petition for review on certiorari of the decision rendered by respondent Court of Appeals dated December 27, 1976 in CA-G.R. No.
48720-R dismissing the complaint of petitioner Philippine National Bank in Civil Case No. 4507 and on the counterclaim modifying the
decision of the trial court by reducing the award of moral and exemplary damages from P100,000.00 to P10,000,00 with legal interest from
the date of filing of the counterclaim and ordering petitioner bank to pay the amount of P5,000.00 as attorney's fees, without pronouncement
as to costs; as well as from the Resolution denying petitioner's motion for reconsideration.

Private respondent Napoleon Navarro was an employee of petitioner Philippine National Bank
stationed at Cabanatuan City as Branch Accountant. On various dates from 1962 to 1965, Id private
respondent Napoleon Navarro prepared fifty-one [51] manager's checks and their corresponding
debit tickets purportedly representing refund of deposits of petitioner's clients although he knew that
there were no deposits necessitating such refund. He later caused to be falsified and Identified the
signatures of the alleged clients as payees and indorsers, encashed the checks, and appropriated
unto himself the proceeds in the aggregate amount of P28,683.77. After the discovery of this
anomaly, respondent Navarro was dismissed from the service of Philippine National Bank.

On February 25, 1965, petitioner bank filed before the then Court of First Instance of Nueva Ecija
Civil Case No. 4506 against Napoleon Navarro to recover the sum defalcated in the amount of P
13,906.81 with a prayer for a writ of preliminary attachment against the properties of Napoleon
Navarro. While the writ of preliminary attachment was in the process of issuance, a Deed of Sale of
Real Property and Dwelling House dated February 22, 1965 executed by respondents Napoleon
Navarro and Patricia Cruz in favor of the other respondents spouses Vicente Medina and Leticia
Lopez over the former's properties situated in Cabanatuan City was registered in the Office of the
Register of Deeds of Cabanatuan City at 11:50 o'clock in the morning of February 25, 1965.
Subsequently, a new transfer certificate of title beating No. T-9424 was issued by the Register of
Deeds of Cabanatuan City in the names of spouses Vicente Medina and Leticia Lopez.

On February 26, 1966, petitioner Philippine National Bank filed Civil Case No. 4507 against
respondents Napoleon C. Navarro and his wife Patricia Cruz and the spouses Vicente Medina and
Leticia Lopez for the annulment of the aforesaid Deed of Sale and the cancellation of the Transfer
Certificate of Title No. T-9424 issued as a consequence of said sale. Subsequently, an amended
complaint was filed, the only difference with the original complaint being the amount defalcated by
defendant Napoleon Navarro which was finally placed at P28,683.77 after further reconstruction and
verification of the records of plaintiffs Cabanatuan Branch.

An answer with counterclaim was filed by the defendants Vicente Medina and Leticia Lopez alleging
good faith in the acquisition of the property in question and seeking payment of damages, claiming
that the filing of the complaint was without legal factual basis and that it besmirched their reputation
causing them damages of P50,000.00 and lawyer's fees in the amount of P1,000.00.

On motion of petitioner, the trial court ordered the consolidation of Civil Cases Nos. 4506 and 4507.

On June 22, 1970, private respondents and defendants Vicente Medina and Leticia Lopez filed a
Motion to Admit Answer with Amended Counterclaim in Civil Case No. 4507 whereby the amount
claimed for damages was increased to P100,000.00 and lawyer's fees increased to P5,000.00. This
motion was allowed by the lower court in an Order dated June 24, 1970. Prior thereto, petitioner filed
an opposition to the motion to admit answer with amended counterclaim contending that petitioner
was not given an opportunity to be heard and to oppose the admission of the aforementioned
pleading, and that the supposed evidence presented to show that said defendants suffered moral
damages in the amount of P100,000.00 and the increase of their lawyer's fees from P1,000.00 to
P5,000.00 was insufficient in fact and in law, hence it should be disregarded. 1

On August 26, 1970, the lower court rendered judgment the dispositive portion reading as follows:

WHEREFORE, judgment is rendered finding Napoleon Navarro, defendant in Civil


Case No. 4506 liable to the plaintiff in the amount of P13,906.81.
The complaint of the plaintiff in Civil Case No. 4507 against the defendants is
dismissed for lack of evidence, with costs against the plaintiff.

On the counterclaim by defendants Vicente Medina and Leticia Lopez, this Court
finds the plaintiff Philippine National Bank liable to said defendants for moral and
exemplary damages of P100,000.00 which the plaintiffs must pay to the said
defendants with interest at the legal rate from the filing of the counterclaim, and for
lawyer's fees of P5,000.00 and the costs of this suit. 2

From this decision of the lower court, petitioner Philippine National Bank appealed to respondent
Court of Appeals where the case was docketed as CA-G.R. No. 48719-20-R, assailing the lower
court's finding [a] on defendant Navarro's liability to the plaintiff in the amount of P13,906.81 and not
P28,683.77 as borne out by the evidence; [b] on the plaintiff- appellant's liability to the defendant-
appellees Vicente Medina and Leticia Lopez for moral and exemplary damages in the amount of
P100,000.00 on the counterclaim; [c] in ordering plaintiff-appellant to pay defendants- appellees
Vicente Medina and Leticia Lopez the sum of P5,000.00 as attorney's fees; [d] in admitting the
motion to admit Answer with amended counterclaim dated June 19, 1970 together with the answer
with amended counterclaim flied by defendants-appellees Vicente Medina and Leticia Lopez for the
reason that said motion does not conform with Section 3, Rule 1 0 in conjunction with Sections 4, 5,
and 6 of Rule 15 of the Revised Rules of Court; and [e] in not declaring the Deed of Sale of Real
Property and Dwelling House dated February 22, 1965 executed between defendants-appellees as
rescissible and in not cancelling TCT No. 9424 under the names of spouses Vicente Medina and
Leticia Lopez issued by virtue thereof.

On December 27, 1976, respondent appellate court promulgated its assailed decision based on
these findings:

The plaintiff has presented indubitable evidence consisting of manager's checks as


well as the corresponding debit tickets, Exhibits F, F-l to DDD-l inclusive showing that
the total amount defalcated by defendant Napoleon C. Navarro was in the amount of
P 28,683.77 evidenced by fifty- one [511 manager's checks all fraudulently encashed
by the said defendant. In view of the foregoing, the lower court erred when it held
that defendant Napoleon Navarro was liable to the plaintiff only in the amount of
P13,906.81.

There is no complete evidence to show that the sale of the real property and dwelling
house dated February 22, 1965 executed by defendants Napoleon Navarro and
Patricia Cruz in favor of the defendants Vicente B. Medina, and Leticia Lopez was
undertaken in fraud of creditors. There is evidence that the plaintiff was aware of the
negotiations between defendant Napoleon C. Navarro and defendants Vicente B.
Medina and Leticia Lopez. It seems that the purpose of the sale was to enable
defendant Napoleon C. Navarro to pay the plaintiff the amount that said Navarro
defalcated

There is no showing that the plaintiff acted maliciously and in a wanton manner in
filing Civil Case No. 4507 against the spouses Vicente B. Medina and Leticia Lopez.
There is no doubt that the Id spouses suffered mental anguish for having been made
defendants in Civil Case No. 4507. However, under the established facts and
circumstances the amount of P100,000.00 awarded to said spouses as moral
damages is excessive. The moral and exemplary damages awarded to spouses
Vicente Medina and Leticia Lopez should be reduced to P10,000.00.
The defendants Vicente B. Medina and Leticia Lopez had to engage counsel to resist
the action instituted against them by the Philippine National Bank. Hence, the trial
court did not err in awarding to said spouses the amount of P 5,000.00 as attorney's
fees.

WHEREFORE, the decision appealed from is hereby modified in that in Civil Case
No. 4506, the defendant Napoleon C. Navarro is ordered to pay the plaintiff the
amount of P28,683.77 with legal interest from February 25, 1965, the date of the
filing of the complaint and in Civil Case No. 4507, the complaint is dismissed and the
plaintiff Philippine National Bank is ordered to pay defendants Vicente Medina and
Leticia Lopez the amount of P10,000.00 as moral and exemplary damages with legal
interest from the date of the filing of the counterclaim and the amount of P5,000.00
as attorney's fees, without pronouncement as to costs.

SO ORDERED. 3

Both petitioner and private respondents Vicente E. Medina and Leticia Lopez moved for a
reconsideration of said decision. While both motions were denied, only petitioner PNB came to this
Court through the instant petition for review and only in so far as the decision of the Appellate Court
in Civil Case No. 4507 is concerned. Petitioner contends that:

PNB's COMPLAINT IN CIVIL CASE NO. 4507 WAS NOT FILED MALICIOUSLY AND IN BAD
FAITH, HENCE NO BASIS FOR THE AWARD OF MORAL AND EXEMPLARY DAMAGES.

II

THE CONCLUSION OF THE RESPONDENT COURT THAT THE FILING OF CML CASE NO. 4507
WAS NOT MADE MALICIOUSLY AND IN A WANTON MANNER IS INCONSISTENT WITH ITS
AWARD OF MORAL AND EXEMPLARY DAMAGES IN THE REDUCED AMOUNT OF P10,000.00.

III

THE AWARD OF P5,000.00 AS ATTORNEY'S FEES HAS NO BASIS IN FACT AND IN LAW.

IV

RESPONDENTS SPOUSES MEDINA AND LOPEZ' MOTION TO ADMIT ANSWER WITH


AMENDED COUNTERCLAIM CONTRAVENES SECTION 3, RULE 10 IN CONJUNCTION WITH
SECTIONS 4,5, & 6, RULE 15 OF THE REVISED RULES OF COURT.

THE DISMISSAL OF CIVIL CASE NO. 4507 IS WITHOUT BASIS IN LAW AND IN FACT.

Civil Case No. 4507 Was the action brought by petitioner against private respondents seeking the
annulment of the Deed of Sale of Real Property and Dwelling House executed by private respondent
spouses Napoleon C. Navarro and Patricia Cruz in favor of private respondents spouses Vicente E.
Medina and Leticia Lopez and covered by Transfer Certificate of Title No. T-9424. According to
petitioner, the sale was fraudulently entered into between aforesaid parties to defeat petitioner's
recovery of the amount defalcated by private respondent Napoleon C. Navarro during the time that
the latter was employed by the former as accountant in its Cabanatuan Branch, and which amount
was the subject of Civil Case No. 4506.

The controversy revolves on the issue of consistency. Is respondent appellate court's finding on the
non-existence of malice and bad faith on petitioner's part when it filed Civil Case No. 4507 consistent
with the lower court's order awarding moral and exemplary damages originally in the amount of
P100,000.00 but reduced to P10,000.00 by respondent appellate court and attorney's fees in the
amount of P5,000.00 both in favor of private respondents spouses Medina and Lopez?

As mentioned earlier, respondent appellate court ruled that there is no showing that the plaintiff
acted maliciously and in a wanton manner in filing Civil Case No. 4507. It was however further ruled
that there is no doubt that said spouses suffered mental anguish for having been made defendants
in Civil Case No. 4507. This Court is tasked to resolve this inconsistency.

Article 2217 of the Civil Code recognizes that moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation and similar injury. Though incapable of pecuniary computation, moral damages may be
recovered if they are the proximate result of the defendant's wrongful act or omission.

As to exemplary damages, Article 2229 of the Civil Code provides that such damages may be
imposed by way of example or correction for the public good. While exemplary damages cannot be
recovered as a matter of right, 4they need not be proved, although plaintiff must show that he is
entitled to moral, temperate or compensatory damages before the Court may consider the question
of whether or not exemplary damages should be awarded.5

While no proof of pecuniary loss is necessary in order that moral damages may be awarded, the
amount of indemnity being left to the discretion of the court, 6 it is nevertheless essential that the
claimant satisfactorily proves the existence of the factual basis of the damages and its causal
relation to defendant's 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. Moral damages, in other words, are not
corrective or exemplary damages. 7

For moral damages to be awarded, the law requires a wrongful act or omission attributable to
petitioner as the proximate cause of the mental anguish suffered by private respondents spouses
Vicente E. Medina and Leticia Lopez. Respondent appellate court categorically ruled in the negative
yet awarded moral and exemplary damages in the reduced amount of P10,000.00 in favor of
aforesaid respondent spouses. This brings to light Our ruling in Boysaw v. Interphil Promotions,
Inc. 8 which enunciates that:

In order that a person may be made liable to the payment of moral damages, the law
requires that his act be wrongful. The adverse result of an action does not per se
make the act wrongful and subject the actor to the payment of moral damages. The
law could not have meant to impose a penalty on the right to litigate such right is so
precious that moral damages may not be charged on those who may exercise it
erroneously, For these the law taxes costs. 9

Conformably with settled jurisprudence and in agreement with petitioner's contention, We find the
conclusion of respondent appellate court that the filing of Civil Case No. 4507 was not made
maliciously and in a wanton manner inconsistent with its award of moral and exemplary damages in
the reduced amount of P10,000.00.
In the absence of malice and bad faith, the mental anguish suffered by respondents spouses Medina
and Lopez for having been made defendants in Civil Case No. 4507 is not that kind of anxiety which
would warrant the award of moral damages. The worries and anxieties suffered by respondents
spouses Medina and Lopez were only such as are usually, caused to a party haled into court as a
defendant in a litigation. 10 Therefore, there is no sufficient justification for the award of moral
damages, more so, exemplary damages.

In the same manner that We find no basis for the award of moral damages to respondents spouses
Medina and Lopez, We find petitioner neither liable for attorney's fees.

It is not sound public policy to place a penalty on the right to litigate. To compel the defeated party to
pay the fees of counsel for his successful opponent would throw wide open the door of temptation to
the opposing party and his counsel to swell the fees to undue proportions. To sentence litigant to
pay his adversary's lawyer's fees would be imposing a penalty on his right to litigate. Even under the
New Civil Code 11 a litigant would not be entitled to recover the fees paid to his attorney as damages
where no bad faith on the part of his adversary was shown. 12 Needless to say, award of attorney's
fees is the exception rather than the general rule.

In the fourth assignment of error, petitioner assigns a procedural flaw to the Motion to Admit Answer
with Amended Counterclaim filed on June 22, 1970 by private respondents spouses Medina and
Lopez, the assailed portion pertaining to the Notice addressed to the Clerk of Court which reads:

THE CLERK OF COURT

May you please include the foregoing motion in the Court's calendar for hearing on
June 24, 1970 at 9:00 o'clock in the morning or as soon thereafter as counsel may be
heard, at which date and hour the undersigned will submit the same for the
consideration of the Honorable Court. 13

Petitioner asserts that the foregoing notice contravenes Section 3, Rule 10 in conjunction with
Sections 4,5 and 6 of Rule 15 of the Revised Rules of Court.

The motion was filed on June 22,1970. The hearing was requested to be set on June 24, 1970. This
is one day short of the three [31 day notice rule provided under Section 4, Rule 15 of the Revised
Rules of Court which provides that notice of a motion shall be served by the applicant to all parties
concerned, at least three [3] days before the hearing thereof, together with a copy of the motion, and
of any affidavits and other papers accompanying it. The court, however, for good cause may hear a
motion on shorter notice, specially on matters which the court may dispose of on its own motion.

Records show that petitioner received a copy of the motion on June 26,1970 while the motion was
set for hearing and heard on June 24, 1970. To this motion, petitioner filed an opposition on July 7,
1970 and a motion for reconsideration upon its denial.

In resolving this error, We consider the judicial policy on rules of procedure.

Amendments to pleadings are generally favored and should be liberally allowed in furtherance of
justice in order that every case may so far as possible be determined on its real facts and in order to
speed the trial of causes or prevent the circuity of action and unnecessary expense, unless there are
circumstances such as inexcusable delay or the taking of the adverse party by surprise or the like,
which might justify a refusal of permission to amend. 14 These circumstances do not obtain in the
case at bar.
As aforementioned, petitioner filed an opposition to the assailed motion stating petitioner's legal
grounds therefor and subsequently a motion for reconsideration of the denial of aforesaid opposition.
This eliminates the element of surprise and denial of due process sought to be avoided in instances
where amendments to pleadings are snowed.

In E.L. Mercantile, Inc. et al. v. Intermediate Appellate Court 15 We ruled:

Procedural due process is not based solely on a mechanistic and literal application of
a rule such that any deviation is inexorably fatal. Rules of procedure, and this
includes the three-day notice requirement, are liberally construed to promote their
object and to assist the parties in obtaining just, speedy and inexpensive
determination of every action and proceeding [Section 2, Rule 1, Rules of Court]. ...
Lapses in the literal observance of a rule of procedure may be overlooked when they
have not prejudiced the adverse party and have not deprived the court of its
authority. 16

Thus, in line with the liberal judicial policy on rules of procedure, We find no reversible error
committed by the trial court in admitting private respondents spouses Medina and Lopez' Motion to
Admit Answer with Amended Counterclaim.

Finally, petitioner questions the dismissal of Civil Case No. 4507 by the lower court as affirmed by
the respondent appellate court contending that the same was done without basis in law and in fact.

Respondent appellate court ruled there is no complete evidence to show that the sale of real
property and dwelling house was executed to defraud petitioner bank but there is evidence that the
latter knew of the impending sale between private respondents themselves. It was shown that the
purpose of the sale was to enable private respondent Napoleon C. Navarro to pay the petitioner the
amount that private respondent Navarro defalcated

These pronouncements in the assailed decision of respondent appellate court for the dismissal of
Civil Case No. 4507 hinges on a determination of pertinent facts the resultant findings of which when
supported by substantial evidence are beyond Our power of review. Absent the recognized
exceptions, finding of facts of the Court of Appeals are conclusive on the parties and the Supreme
Court 17 on the tenet that this Court decides appeals which only involve questions of law and that it is
not the function of the Supreme Court to analyze and to weigh such evidence all over again, its
jurisdiction being limited to reviewing errors of law that might have been committed by the lower
court. 18

WHEREFORE, except for the deletion of the award of moral and exemplary damages as well as
attorney's fees to private respondents spouses Vicente E. Medina and Leticia Lopez, the decision of
the Court of Appeals in CA- G.R. No. 48720 is hereby affirmed in all other respects.

No costs.

SO ORDERED.

G.R. No. L-20081 February 27, 1968

MELQUIADES RAAGAS and ADELA LAUDIANO RAAGAS, plaintiffs-appellees,


vs.
OCTAVIO TRAYA, MRS. OCTAVIO TRAYA and BIENVENIDO CANCILLER, defendants-
appellants.

Miguel V. Tiausas for plaintiff-appellee.


Victoriano M. Realino for defendants-appellants.

CASTRO, J.:

The complaint filed on April 1, 1960 with the Court of First Instance of Leyte (civil case 2749)
by the spouses Melquiades Raagas and Adela Laudiano Raagas against Octavio Traya, his wife,
and Bienvenido Canciller, alleges in essence that on or about April 9, 1958, while the latter was
"recklessly" driving a truck owned by his co-defendants, along the public highway in MacArthur,
Leyte, the said vehicle ran over the plaintiffs' three-year old son Regino causing his instantaneous
death. The plaintiffs ask for actual damages in the sum of P10,000, moral, nominal and corrective
damages in a sum to be determined by the court, P1,000 as attorney's fees, P1,000 for expenses of
litigation, plus costs.

In their answer with counterclaim for moral and actual damages and attorney's fees, filed on
April 22, the defendants specifically deny that Canciller was "driving recklessly" at the time of the
mishap, and assert that the truck "was fully loaded and was running at a very low speed and on the
right side of the road"; that it was the child who "rushed from an unseen position and bumped the
truck so that he was hit by the left rear tire of the said truck and died", and consequently the
defendants are not to blame for the accident which was "entirely attributable to an unforeseen event"
or due to the fault of the child and negligence of his parents; that the defendant-spouses have
exercised due diligence in the selection and supervision of their driver Canciller, whom they hired in
1946 only after a thorough study of his background as a truck driver; and that each time they allowed
him to drive it was only after a check of his physical condition and the mechanical fitness of the truck
assigned to him.

On May 4 the plaintiffs' moved for a judgment on the pleadings, upon the claim that the
defendants' answer not only "failed to tender an issue" but as well "admitted material allegations" of
the complaint. This motion was set for hearing on June 18. On the previous day, however, the clerk
of court received a telegram from the defendants' counsel requesting for postponement of the
hearing to July 2 on the ground that he was sick of influenza. The lower court denied the request for
lack of "proper notice to the adverse party", and considered the case submitted for decision upon the
filing of the plaintiffs' memorandum.

On June 24 it rendered a judgment on the pleadings, condemning the defendants, jointly and
severally, to pay "to the plaintiffs the sum of P10,000 for the death of their child Regino Laudiano
Raagas, P2,000 for moral damages, P1,000 actual damages, P1,000 for attorney's fees, and the
costs."

The court reasoned that the denial in the answer of the charge of reckless driving "did not
affect the plaintiffs' positive allegation in their complaint that the truck . . . did not have a current year
registration plate . . . for the year 1958 when the accident occurred that "this failure . . . has the effect
of admitting hypothetically that they operated ... the said truck without proper license . . . when the
accident occurred," and that "unless there is proof to the contrary, it is presumed that a person
driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic
regulation (article 2185, new Civil Code)." The court went on to conclude that under the
circumstances a judgment on the pleadings was "irremediably proper and fitting."
The defendants appealed to the Court of Appeals, which certified the case to this Court
because the issues raised are purely of law.

Section 10 of Rule 35 of the old Rules of Court 1 authorized a judgment on the pleadings
"where an answer fails to tender an issue, or otherwise admits the material allegations of the
adverse party's pleading."

The vital issue, therefore, to which the other issues are subsidiary or intestinal, is whether the
court a quoacted correctly when it rendered judgment on the pleadings. It is our view that the court
erred.

The plaintiffs' claim for actual, moral, nominal and corrective damages, was controverted by
the averment in the answer to the effect that the defendants "have no knowledge or information
sufficient to form a belief as to the truth of the allegations" as to such damages, "the truth of the
matter being that the death of Regino Raagas was occasioned by an unforeseen event and/or by the
fault of the small boy Regino Raagas or his parents." Such averment has the effect of tendering a
valid issue. We so held in Philippine National Bank vs. Lacson, L-9419, May 29, 1957 and
in Benavides vs. Alabastro, L-19762, Dec. 23, 1964. In Abubakar Tan vs. Tian Ho, L-18820,
December 29, 1962 and Lim Giok vs. Bataan Cigar and Cigarette Factory, L-15861, April 16, 1960,
we held that even if the allegations regarding the amount of damages in the complaint are not
specifically denied in the answer, such damages are not deemed admitted. In Tomassi vs. Villa-
Abrille, L-7047, August 21, 1968, Suntay Tanjangco vs. Jovellanos, et al., L-12332, June 30, 1960,
and Delfin vs. Court of Agrarian Relations, et al., L-23348, March 14, 1967, 1967 A PHILD 453, we
declared in no uncertain terms that actual damages must be proved, and that a court cannot rely on
"speculation, conjecture or guesswork" as to the fact and amount of damages, but must depend on
actual proof that damage had been suffered and on evidence of the actual amount. Finally,
in Malonzo vs. Galang et. al., L-13851, July 27, 1960, we reaffirmed the rule that although an
allegation is not necessary in order that moral damages may be awarded, "it is, nevertheless,
essential that the claimant satisfactorily prove the existence of the factual basis of the damage and
its causal relation to defendant's acts."

The preceding disquisition points up the inescapable need of a full-blown trial on the merits at
which the parties will be afforded every opportunity to present evidence in support of their respective
contentions and defenses.

ACCORDINGLY, the judgment on the pleadings of June 24, 1960 is set aside, and this case is
hereby remanded to the court of origin for trial on the merits. No pronouncement as to costs.

G.R. No. L-21879 September 29, 1967

SAN MIGUEL BREWERY, INC., plaintiff-appellant,


vs.
FRANCISCO MAGNO, defendant-appellee.

Lichauco, Picazo and Agcaoili for plaintiff-appellant.


Jose V. Rosales and Jose R. Villanueva for defendant-appellee.

ANGELES, J.:
An appeal from a decision of the Court of First Instance of Manila, in civil case No. 46039,
dismissing the complaint filed by the San Miguel Brewery, Inc., and ordering it to pay to the
defendant P2,000.00 in damages, P1,000.00 as attorney's fees, and costs.

The appeal was originally lodged with the Court of Appeals which certified the case to this Court, the
issue involved being purely one of law. From the stipulation of facts submitted by the parties in the
lower court and the various annexes referred to therein, the facts of the case that gave rise to the
controversy are as follows:

On December 14, 1950, the Municipal Board of Butuan City passed Ordinance No. 11 amending
Ordinance No. 7 of said City, imposing a tax of two per cent (2%) on the gross sales or receipts of
those engaged in the sale, trading in, or disposal of all alcoholic or malt beverages, wines and mixed
or fermented liquors, including tuba, basi and tapuy. (Sec. 1 [e], Annex A.) On June 6, 1960, the
same Municipal Board passed Ordinance No. 110 amending Ordinance No. 11, fixing instead a tax
on the sale of beer at the rate of P.25 per case of twenty-four bottles, and on the sales of soft drinks
at the rate of P.10 per case of twenty-four bottles of Coca-Cola, Pepsi-Cola, Tru-Orange, Seven-Up,
Bireley, Soda Water, and any other kind of soft drinks or carbonated drinks. (Sec. 2 [e] and Sec. 3,
respectively, Annex B.)

The San Miguel Brewery, Inc., a corporation organized and existing under the laws of the Philippines
with principal offices at Manila, maintains a warehouse or branch office in the City of Butuan and is
engaged in the sale of beer and soft drinks in said City. Although it appears to have paid the
required taxes under Ordinance No. 11 promptly and religiously upon the effectivity of the ordinance,
the company stopped paying the taxes thereafter (Annex D), and thereby incurred in back taxes.
Verbal demands were made by the City Treasurer of Butuan on the representative of the San Miguel
Brewery, Inc. at Butuan City with warnings that a warrant of distraint and levy will be issued against
its properties unless it settles its tax liability under the ordinance aforesaid. On September 23, 1960,
counsel for the company wrote a letter to the City Treasurer of Butuan questioning the power of the
city government of Butuan to levy upon its properties pointing out, "that the power of distraint and
levy as embodied in your Charter (Republic Act No. 523, as amended), can only be exercised by
your goodselves in respect to delinquencies in the payment of real estate taxes". To this, the City
Treasurer of Butuan, in a letter dated September 29, 1960, promptly answered and explained that he
may issue warrants of distraint and levy upon properties of delinquent taxpayers under Ordinance
No. 26 of the City of Butuan. Thereafter, the San Miguel Brewery, Inc. received a formal letter of
demand for payment of its tax liability from the City Treasurer of Butuan, to which the Branch
Manager of the company at Cagayan de Oro City who has supervision of the company's warehouse
at Butuan City, answered on October 10, 1960, requesting more time "within which to act on said
demand and in order to refer the matter to its Manila Office". Several other written demands were
thereafter made by the City Treasurer of Butuan to officials of plaintiff's branch office in said city, but
failed to yield any concrete result. Accordingly, on January 6, 1961, the city treasurer, with the
approval of the Mayor of Butuan City issued a warrant of distraint and levy against the properties of
the San Miguel Brewery, Inc. at its branch office in that city to enforce the collection of the taxes
assessed against it, i.e., under Ordinance Nos. 11 and 110, amounting to P9,129.42, including
penalties corresponding to the period from May, 1957 to August 15, 1960, and under Ordinance No.
110, the amount of P15,618.96, including penalty, for the period corresponding to June 6 up to
October 30, 1960, or a total of P24,747.32. On January 9, 1961, at about 9 o'clock in the morning, a
notice of seizure by virtue of the warrant of distraint and levy was served on the company's Branch
Manager at Butuan City who, upon previous arrangement with the representative of the City
Treasurer of Butuan, voluntarily surrendered the two (2) delivery trucks of the company seized under
the warrant to the said City Treasurer at about 5 o'clock in the afternoon of the same day.

On January 12, 1961, the San Miguel Brewery, Inc. instituted the present action in the Court of First
Instance of Manila, praying for an order directing the defendant Francisco Magno to release the
delivery trucks seized and impounded by the City Government of Butuan allegedly "without authority
and for reasons unknown to the company", and to order the defendant to pay to the plaintiff
damages in the amount of P6,000.00 corresponding to the period from January 9, 1961 to January
10, 1961, and P3,000.00 for each day thereafter that the trucks remain impounded and unused by
the plaintiff, plus the costs of the suit. Parenthetically, the action was brought against the defendant
Francisco Magno in his individual capacity, as disclosed in the allegations in the complaint, and as
expressly admitted in the appellant's brief, thus — "As a matter of fact, plaintiff filed this action
against Francisco Magno, not in his official capacity, but in his individual capacity, . . . ." (p. 13).

In his answer, defendant Francisco Marco interposed, among others, the defense that in seizing the
delivery trucks of the San Miguel Brewery, Inc., he was acting, and was in the performance of his
official duty, as Treasurer of Butuan City, and, can not be hold liable to pay to the company any
damages. He set up a counterclaim of P40,000.00 and P10,000.00 as moral and exemplary
damages, respectively, allegedly sustained by him and the members of his family on account of the
shock, fright, wounded feelings, mental anguish, besmirched reputation, and social humiliation they
suffered by reason of the filing of the case against him by the plaintiff, plus attorney's fees in the
amount of P2,000.00.

During the pendency of the action, the San Miguel Brewery, Inc. paid under protest the taxes
assessed against it by the City Treasurer of Butuan, and forthwith the impounded trucks were
released.

The parties submitted no testimonial evidence. Instead, they submitted a stipulation of facts along
with documentary evidence on the basis of which the court a quo, on April 2, 1962, rendered the
decision appealed from. A motion for reconsideration of the decision having been denied, the plaintiff
interposed the instant appeal.

Under the first assignment of error, appellant assails the conclusion of the court that "the allegation
in the complaint (par. 5) that the seizure of plaintiff's trucks was made for reasons unknown to the
plaintiff, is false", because it is not sustained by the evidence; said appellant claiming that it was only
at the time that the stipulation of facts was being prepared that the defendant-appellee made
mention for the first time of his alleged authority to issue a warrant of distraint and levy against
properties of tax delinquents under Ordinance No. 26 of the City of Butuan. The contention is
untenable. In paragraph 8 of the stipulation of facts, it is admitted that on September 29, 1960, in a
letter of the City Treasurer of Butuan to Attys. Ponce Enrile, Siguion Reyna, Montecillo & Belo,
counsel for the plaintiff, said counsel was informed that the city government was exercising its power
of levy and distraint against properties of taxpayers under Ordinance No. 26 of the city. Appellant,
therefore, may not now feign ignorance of such notice which appears in the records.

To the charge that Ordinance No. 26 of the City of Butuan is ultra vires, suffice it to say that the
same may not be considered in this appeal. An examination of the complaint filed in this case,
reveals that except for the general averment therein that its delivery trucks were seized and
impounded by order of the defendant Francisco Magno "without authority of law and for reasons
unknown to the plaintiff", which is without factual basis as pointed out above, no mention was made
in the stipulation of facts nor any evidence ever introduced during the trial of the case in the lower
court, to show that it was the intention of the appellant to place in issue the validity of the ordinance
aforesaid.

In cases where the constitutionality of statutes are directly put in issue, the general rule is, that the
question of constitutionality must be raised at the earliest opportunity, so that if not raised by the
pleadings, ordinarily it may not be raised at the trial, and if not raised in the trial court, it will not be
considered on appeal (People and Hongkong & Shanghai Banking Corporation vs. Vera and Cu
Unjieng. 37 O.G., 164 citing 12 C. J. p. 786). (See also Cadwallader-Gibson Lumber Co. vs. Del
Rosario, 26 Phil. 192; Robb and Hilscher vs. People of the Philippines, 68 Phil., 320; Macondray &
Co. vs. Benito and Ocampo, 62 Phil., 137; Sofronio L. Quimson vs. P. L. de Guzman, L-18240,
January 31, 1963.) The exceptions are, as stated in Hongkong etc. vs. Cu Unjieng, supra, in criminal
cases, where the question may be raised at any stage of the proceedings, either in the trial court or
on appeal; in civil cases, it has been held that it is the duty of the court to pass on the constitutional
question, though raised for the first time on appeal, if it appears that a determination of the question
is necessary to a decision of the case; and it has been held that a constitutional question will be
considered by an appellate court at any time, where it involves the jurisdiction of the court below.
The same rule should apply where the validity of a municipal ordinance is questioned. We do not
find any of the exceptions aforementioned applicable to this case to justify a conclusion that the
validity of Ordinance No. 26 of the City of Butuan may be properly passed upon in this appeal. 1aw phîl.nèt

Moreover, Francisco Magno is sued in this case not in his capacity as City Treasurer of Butuan but
in his individual capacity. He is not the proper party against whom the alleged invalidity of the
ordinance in question should be pleaded, nor is this the proper proceeding wherein the alleged
infirmity of the said ordinance may be raised. A municipal ordinance is not subject to collateral
attack. Public policy forbids collateral impeachment of legislative acts (43 C. J., 555-556).

Under the second assignment of error, it is contended that the trial court fell into error in not ordering
the defendant-appellee to pay to the appellant in damages the amount of P2,160.00, notwithstanding
the admission of the defendant in the stipulation of facts that the San Miguel Brewery, Inc. incurred
damages in that amount, representing the hire of two (2) trucks at the rate of P80.00 per day which
the plaintiff was compelled to secure and use for the period from January 9, 1961 to February 8,
1961, during which time the two delivery trucks of the plaintiff were impounded by the appellee. The
argument is based on a wrong premise. It erroneously assumes that the defendant is personally
liable for damages to the appellant, disregarding the established fact that the defendant had issued
the warrant of distraint and levy against plaintiff's properties in his capacity as City Treasurer of
Butuan who, under the law, is empowered to issue the warrant. Ordinance No. 26 of the City of
Butuan provides, among others, as follows:

Sec. 1. — Upon the failure of any person owing any delinquent tax or delinquent revenue to
pay the same, at the time required under existing ordinance, the City Treasurer, his deputy,
or any of his clerks duly authorized in writing by the City Treasurer may seize or distraint any
goods, chattels or effects, and other personal property, including stocks and other securities,
debts, credits, bank accounts and any interest in and rights to personal property, of such
person in sufficient quantity to satisfy the tax, or charge, together with any increment thereto
incident to delinquency, and the expenses of the distraint.

Since there is no dispute that the appellee issued the warrant of distraint and levy against the
delivery trucks of the appellant on January 9, 1961, in his capacity as City Treasurer of Butuan, and
as there is no disagreement that defendant-appellee issued said warrant by virtue of Ordinance No.
26 of the City of Butuan above-quoted (Par. 15, Stipulation of Facts), and not having been shown
that the defendant, either as a private citizen or as City Treasurer of Butuan, had acted in bad faith,
there can be no question that appellee Francisco Magno, who was merely performing a duty
enjoined by law to be performed when he issued the warrant of distraint and levy, cannot be made to
answer personally for damages to the appellant.

Finally, under the third assignment of error, appellant maintains that the trial court should not have
awarded damages in favor of the appellee under the counterclaim of the latter, for the reason that no
evidence was introduced by the appellee in support of the moral and exemplary damages he and his
family allegedly suffered. It argues further that attorney's fees should not have been assessed
against it.

In respect of the appellee's counterclaim for moral and exemplary damages, the trial court said:

With respect to the counterclaim of defendant, it appears that defendant introduced no


evidence to support his claim for P40,000.00 moral damages, P10,000 exemplary damages
and P2,000.00 attorney's fees.

Nevertheless, the trial court sentenced the plaintiff to pay to the defendant, damages in the sum of
P2,000.00, and costs.

In order that moral damages may be awarded, there must be pleading and proof of moral suffering,
mental anguish, fright and the like (Darang vs. Belizar, L-19487, January 31, 1967). While no proof
of pecuniary loss is necessary in order that moral damages may be awarded, the amount of
indemnity being left to the discretion of the court (Article 2216), it is, nevertheless, essential that the
claimant should satisfactorily prove the existence of the factual basis of the damages (Article 2217)
and its causal connection to defendant's 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 wrong-doer (Algarra vs. Sandejas, 27 Phil.
284; Malonzo vs. Galang, L-13851, July 27, 1960). Neither may we consider the award as
exemplary damages, because the mere findings that certain allegations in the complaint are not true,
and the plaintiff committed a mistake in instituting the action against the wrong party, do not justify
the award of this kind of damages. It infringes upon the right of a citizen to have access to the
courts. The portals of the courts of justice should not be closed to litigants who ask for the protection
of their rights. Penalty in the concept of damages should not be imposed simply because a
complaint is found unmeritorious by the courts.

The amount of attorney's fees, on the other hand, is addressed to the sound discretion of the court. It
may be awarded along with expenses of litigation, other than judicial costs, in cases where the court
deems it just and equitable under the circumstances of the case. And when as in this case, the
defendant public officer was sued in his private capacity for acts done in the performance of official
duty required by law, and was forced to employ the services of private counsel to defend his rights, it
is but proper that attorney's fees be charged against the plaintiff. Nominal damages may also be
adjudicated. We believe the award of P2,000.00 attorney's fees and P100.00 nominal damages, is
just and equitable in the premises.

WHEREFORE, the decision appealed from is modified, setting aside the award of P2,000.00 to the
defendant in concept of damages, but increasing the attorney's fees to P2,000.00, and ordering the
plaintiff to pay to the defendant P100.00 as nominal damages. Judgment is affirmed in all other
respects. Costs against plaintiff-appellant.

G.R. No. 61516 March 21, 1989

FLORENTINA A. GUILATCO, petitioner,


vs.
CITY OF DAGUPAN, and the HONORABLE COURT OF APPEALS, respondents.

Nolan R. Evangelista for petitioner.

The City Legal Officer for respondents.


SARMIENTO, J.:

In a civil action 1 for recovery of damages filed by the petitioner Florentina A. Guilatco, the following judgment was rendered against
the respondent City of Dagupan:

xxx

(1) Ordering defendant City of Dagupan to pay plaintiff actual damages in the amount
of P 15,924 (namely P8,054.00 as hospital, medical and other expenses [Exhs. H to
H-60], P 7,420.00 as lost income for one (1) year [Exh. F] and P 450.00 as bonus). P
150,000.00 as moral damages, P 50,000.00 as exemplary damages, and P 3,000.00
as attorney's fees, and litigation expenses, plus costs and to appropriate through its
Sangguniang Panglunsod (City Council) said amounts for said purpose;

(2) Dismissing plaintiffs complaint as against defendant City Engr. Alfredo G.


Tangco; and

(3) Dismissing the counterclaims of defendant City of Dagupan and defendant City
Engr. Alfredo G. Tangco, for lack of merit. 2

The facts found by the trial court are as follows: 3

It would appear from the evidences that on July 25, 1978, herein plaintiff, a Court
Interpreter of Branch III, CFI--Dagupan City, while she was about to board a
motorized tricycle at a sidewalk located at Perez Blvd. (a National Road, under the
control and supervision of the City of Dagupan) accidentally fell into a manhole
located on said sidewalk, thereby causing her right leg to be fractured. As a result
thereof, she had to be hospitalized, operated on, confined, at first at the Pangasinan
Provincial Hospital, from July 25 to August 3, 1978 (or for a period of 16 days). She
also incurred hospitalization, medication and other expenses to the tune of P
8,053.65 (Exh. H to H-60) or a total of P 10,000.00 in all, as other receipts were
either lost or misplaced; during the period of her confinement in said two hospitals,
plaintiff suffered severe or excruciating pain not only on her right leg which was
fractured but also on all parts of her body; the pain has persisted even after her
discharge from the Medical City General Hospital on October 9, 1978, to the present.
Despite her discharge from the Hospital plaintiff is presently still wearing crutches
and the Court has actually observed that she has difficulty in locomotion. From the
time of the mishap on July 25, 1978 up to the present, plaintiff has not yet reported
for duty as court interpreter, as she has difficulty of locomotion in going up the stairs
of her office, located near the city hall in Dagupan City. She earns at least P 720.00 a
month consisting of her monthly salary and other means of income, but since July
25, 1978 up to the present she has been deprived of said income as she has already
consumed her accrued leaves in the government service. She has lost several
pounds as a result of the accident and she is no longer her former jovial self, she has
been unable to perform her religious, social, and other activities which she used to
do prior to the incident.

Dr. Norberto Felix and Dr. Dominado Manzano of the Provincial Hospital, as well as
Dr. Antonio Sison of the Medical City General Hospital in Mandaluyong Rizal (Exh. I;
see also Exhs. F, G, G-1 to G-19) have confirmed beyond shadow of any doubt the
extent of the fracture and injuries sustained by the plaintiff as a result of the mishap.
On the other hand, Patrolman Claveria, De Asis and Cerezo corroborated the
testimony of the plaintiff regarding the mishap and they have confirmed the existence
of the manhole (Exhs. A, B, C and sub-exhibits) on the sidewalk along Perez Blvd.,
at the time of the incident on July 25, 1978 which was partially covered by a concrete
flower pot by leaving gaping hole about 2 ft. long by 1 1/2 feet wide or 42 cms. wide
by 75 cms. long by 150 cms. deep (see Exhs. D and D-1).

Defendant Alfredo Tangco, City Engineer of Dagupan City and admittedly ex-officio
Highway Engineer, City Engineer of the Public Works and Building Official for
Dagupan City, admitted the existence of said manhole along the sidewalk in Perez
Blvd., admittedly a National Road in front of the Luzon Colleges. He also admitted
that said manhole (there are at least 11 in all in Perez Blvd.) is owned by the National
Government and the sidewalk on which they are found along Perez Blvd. are also
owned by the National Government. But as City Engineer of Dagupan City, he
supervises the maintenance of said manholes or drainage system and sees to it that
they are properly covered, and the job is specifically done by his subordinates, Mr.
Santiago de Vera (Maintenance Foreman) and Engr. Ernesto Solermo also a
maintenance Engineer. In his answer defendant Tangco expressly admitted in par. 7-
1 thereof, that in his capacity as ex-officio Highway Engineer for Dagupan City he
exercises supervision and control over National roads, including the Perez Blvd.
where the incident happened.

On appeal by the respondent City of Dagupan, the appellate court 4 reversed the lower court findings on the
ground that no evidence was presented by the plaintiff- appellee to prove that the City of Dagupan had "control or supervision" over Perez
Boulevard. 5

The city contends that Perez Boulevard, where the fatal drainage hole is located, is a national road that is not under the control or
supervision of the City of Dagupan. Hence, no liability should attach to the city. It submits that it is actually the Ministry of Public Highways
that has control or supervision through the Highway Engineer which, by mere coincidence, is held concurrently by the same person who is
also the City Engineer of Dagupan.

After examination of the findings and conclusions of the trial court and those of the appellate court,
as well as the arguments presented by the parties, we agree with those of the trial court and of the
petitioner. Hence, we grant the petition.

In this review on certiorari, we have simplified the errors assigned by the petitioner to a single issue:
whether or not control or supervision over a national road by the City of Dagupan exists, in effect
binding the city to answer for damages in accordance with article 2189 of the Civil Code.

The liability of public corporations for damages arising from injuries suffered by pedestrians from the
defective condition of roads is expressed in the Civil Code as follows:

Article 2189. Provinces, cities and municipalities shall be liable for damages for the
death of, or injuries suffered by, any person by reason of the defective condition of
roads, streets, bridges, public buildings, and other public works under their control or
supervision.

It is not even necessary for the defective road or street to belong to the province, city or municipality
for liability to attach. The article only requires that either control or supervision is exercised over the
defective road or street. 6
In the case at bar, this control or supervision is provided for in the charter of Dagupan and is
exercised through the City Engineer who has the following duties:

Sec. 22. The City Engineer--His powers, duties and compensation-There shall be a
city engineer, who shall be in charge of the department of Engineering and Public
Works. He shall receive a salary of not exceeding three thousand pesos per annum.
He shall have the following duties:

xxx

(j) He shall have the care and custody of the public system of waterworks and
sewers, and all sources of water supply, and shall control, maintain and regulate the
use of the same, in accordance with the ordinance relating thereto; shall inspect and
regulate the use of all private systems for supplying water to the city and its
inhabitants, and all private sewers, and their connection with the public sewer
system.

xxx

The same charter of Dagupan also provides that the laying out, construction and improvement of
streets, avenues and alleys and sidewalks, and regulation of the use thereof, may be legislated by
the Municipal Board . 7 Thus the charter clearly indicates that the city indeed has supervision and control over the sidewalk where
the open drainage hole is located.

The express provision in the charter holding the city not liable for damages or injuries sustained by
persons or property due to the failure of any city officer to enforce the provisions of the charter, can
not be used to exempt the city, as in the case at bar.8

The charter only lays down general rules regulating the liability of the city. On the other hand article 2189 applies in particular to the liability
arising from "defective streets, public buildings and other public works." 9

The City Engineer, Mr. Alfredo G. Tangco, admits that he exercises control or supervision over the said road. But the city can not be excused
from liability by the argument that the duty of the City Engineer to supervise or control the said provincial road belongs more to his functions
as an ex-officio Highway Engineer of the Ministry of Public Highway than as a city officer. This is because while he is entitled to an
honorarium from the Ministry of Public Highways, his salary from the city government substantially exceeds the honorarium.

We do not agree.

Alfredo G. Tangco "(i)n his official capacity as City Engineer of Dagupan, as Ex- Officio Highway
Engineer, as Ex-Officio City Engineer of the Bureau of Public Works, and, last but not the least, as
Building Official for Dagupan City, receives the following monthly compensation: P 1,810.66 from
Dagupan City; P 200.00 from the Ministry of Public Highways; P 100.00 from the Bureau of Public
Works and P 500.00 by virtue of P.D. 1096, respectively." 10 This function of supervision over streets, public
buildings, and other public works pertaining to the City Engineer is coursed through a Maintenance Foreman and a Maintenance
Engineer.11 Although these last two officials are employees of the National Government, they are detailed with the City of Dagupan and
hence receive instruction and supervision from the city through the City Engineer.

There is, therefore, no doubt that the City Engineer exercises control or supervision over the public
works in question. Hence, the liability of the city to the petitioner under article 2198 of the Civil Code
is clear.

Be all that as it may, the actual damages awarded to the petitioner in the amount of P 10,000.00
should be reduced to the proven expenses of P 8,053.65 only. The trial court should not have
rounded off the amount. In determining actual damages, the court can not rely on "speculation,
conjecture or guess work" as to the amount. Without the actual proof of loss, the award of actual
damages becomes erroneous. 12

On the other hand, moral damages may be awarded even without proof of pecuniary loss, inasmuch as the determination of the amount is
discretionary on the court.13 Though incapable of pecuniary estimation, moral damages are in the nature of an award to compensate the
claimant for actual injury suffered but which for some reason can not be proven. However, in awarding moral damages, the following should
be taken into consideration:

(1) First, the proximate cause of the injury must be the claimee's acts.14

(2) Second, there must be compensatory or actual damages as satisfactory proof of the factual basis for damages.15

(3) Third, the award of moral damages must be predicated on any of the cases enumerated in the Civil Code. 16

In the case at bar, the physical suffering and mental anguish suffered by the petitioner were proven. Witnesses from the petitioner's place of
work testified to the degeneration in her disposition-from being jovial to depressed. She refrained from attending social and civic activities.17

Nevertheless the award of moral damages at P 150,000.00 is excessive. Her handicap was not
permanent and disabled her only during her treatment which lasted for one year. Though evidence
of moral loss and anguish existed to warrant the award of damages,18 the moderating hand of the law is called
for. The Court has time and again called attention to the reprehensible propensity of trial judges to award damages without basis,19 resulting
in exhorbitant amounts.20

Although the assessment of the amount is better left to the discretion of the trial court 21 under preceding jurisprudence, the amount of moral
damages should be reduced to P 20,000.00.

As for the award of exemplary damages, the trial court correctly pointed out the basis:

To serve as an example for the public good, it is high time that the Court, through this
case, should serve warning to the city or cities concerned to be more conscious of
their duty and responsibility to their constituents, especially when they are engaged
in construction work or when there are manholes on their sidewalks or streets which
are uncovered, to immediately cover the same, in order to minimize or prevent
accidents to the poor pedestrians.22

Too often in the zeal to put up "public impact" projects such as beautification drives, the end is more important than the manner in which the
work is carried out. Because of this obsession for showing off, such trivial details as misplaced flower pots betray the careless execution of
the projects, causing public inconvenience and inviting accidents.

Pending appeal by the respondent City of Dagupan from the trial court to the appellate court, the
petitioner was able to secure an order for garnishment of the funds of the City deposited with the
Philippine National Bank, from the then presiding judge, Hon. Willelmo Fortun. This order for
garnishment was revoked subsequently by the succeeding presiding judge, Hon. Romeo D. Magat,
and became the basis for the petitioner's motion for reconsideration which was also denied. 23

We rule that the execution of the judgment of the trial court pending appeal was premature. We do
not find any good reason to justify the issuance of an order of execution even before the expiration
of the time to appeal .24

WHEREFORE, the petition is GRANTED. The assailed decision and resolution of the respondent
Court of Appeals are hereby REVERSED and SET ASIDE and the decision of the trial court, dated
March 12, 1979 and amended on March 13, 1979, is hereby REINSTATED with the indicated
modifications as regards the amounts awarded:
(1) Ordering the defendant City of Dagupan to pay the plaintiff actual damages in the
amount of P 15,924 (namely P 8,054.00 as hospital, medical and other expenses; P
7,420.00 as lost income for one (1) year and P 450.00 as bonus); P 20,000.00 as
moral damages and P 10,000.00 as exemplary damages.

The attorney's fees of P 3,000.00 remain the same.

SO ORDERED.

G.R. No. L-66419 July 31, 1987

FILINVEST CREDIT CORPORATION, petitioner,


vs.
IVAN MENDEZ, respondent.

GUTIERREZ, JR., J.:

This is a petition to review on certiorari the decision of the Intermediate Appellate Court, now Court
of Appeals, rendered in AC-G.R. CV No. 63673 affirming in toto the decision of the Court of First
Instance of Davao, Branch 6, 16th Judicial District.

The factual background of this case, as summarized in the trial court's decision and adopted by the
appellate court, is as follows:

On August 6, 1974, Ivan Mendez purchased a Ford Cortina from the Davao Motor Sales
Company and to secure balance of P49,428.40 plaintiff executed and delivered a promissory
note and chattel mortgage in favor of Davao Motor Sales Company.

On August 11, 1974, Davao Motor Sales Company assigned to Filinvest Credit Corp., its
rights, title and interest in the promissory note and chattel mortgage. According to the terms
of the promissory note, the monthly installments of Pl,373.00 would begin on September 13,
1974, and on or before the 13th day of the month thereafter until August 13, 1977, with
interest and such other charges customarily imposed by defendant on transactions of the
same nature.

It appears that Ivan Mendez failed to pay the February 13, March 13, and April 13, 1976
installments due on the promissory note, Thus, defendant financing company sent written
demands to Ivan Mendez to update his account.

On May 3, 1976, Ivan Mendez paid the financing company P2,000.00 through Philippine
Veteran's Bank Check No. 58166 which was credited to payments for the following months:

Month Amount
Feb. 1976 P200.49 (full payment)
Mar. 1976 1,373.00 (full payment )
Apr. 1976 415.05 (partial)

Sub-total 1,988.54
Interest 11.46

Total P2,000.00

On May 6, 1976, the check was returned to the financing corporation on the ground of
insufficient funds by the Philippine Veterans Bank.

On May 10, 1976, defendant financing company filed an action for recovery of personal
property and/or sum of money docketed as Civil Case No. 9468 in the Court of First Instance
against Ivan Mendez, et al.

On May 13, 1976 (or May 26, 1976), the check was finally cleared and considered payment
for the February, March and April, 1976, installments.

On May 24, 1976, this Court issued Order of Seizure which states, among others:

WHEREAS, it is further alleged in the complaint that in violation of their undertakings


the defendants defaulted in complying with the terms and conditions of the said
promissory note and chattel mortgage (Annexes "A" and "B"), by failing to pay part of
the installment which fell due on February 13, 1976, as well as the subsequent two
(2) consecutive installments which fell due on March 12 — April 13, 1976; (Exh. "B ").

Early in the morning of June 8, 1976, Ivan Mendez used the car to fetch a certain Col.
Coronel at the airport who came to the city to speak at a gathering of reserve officers. Ivan
Mendez, a Captain in the reserve force, brought Col. Coronel to a hotel thence to an eatery
downtown where the conference was being held. After which, Mendez instructed his driver to
take the car home to the Central Park Subdivision, Davao City. Shortly before noon,
personnel of the financing company and a deputy sheriff arrived at the house of Mendez and
seized the car pursuant to the Order dated May 24, 1976. The car was driven back to the
eatery where Ivan Mendez was called and he pleaded with the FILINVEST people to release
his car in the meantime. Refused, Mendez then went to the office of the financing company
and reiterated his plea. He was told by Benjamin Bontia, collection and credit manager of the
financing company that he had to pay the whole amount due in order to get back the car.
After further negotiations, Bontia relented and permitted Mendez to pay his April, May and
June installments plus repossession expenses as a condition to the release of the car.

On June 11, 1976, Mendez paid P3,000.00, which was credited to the following months: April
— P957.95; May — Pl,373.00; and, June — P643.67 plus interest of P25.38 (Exh. "6-B"). On
June 18, 1976, Mendez paid Pl,894.00 as and for repossession expenses (Exh. "C "). After
payments of these amounts, the financing company finally released the car to Ivan Mendez.

On June 21, 1976. the financing company filed a motion in court seeking the dismissal of
Civil Case No. 9468 "on the ground that defendants have updated their obligation to the
plaintiff", and which was granted by virtue of the Order of this Court dated June 24, 1976.
(pp. 105-106, Rollo)

On July 14, 1976, respondent Mendez filed a complaint for Solution Indebiti and damages against
the petitioner before the Court of First Instance of Davao, Branch 6, 16th Judicial District. His
amended complaint dated July 28, 1976, alleged, among others, "that the seizure order was illegal,
as the unpaid installments for the months of February, March, April, 1976 subject of Civil Case No.
9468 had previously been updated by the clearing of the PVB check, and that petitioner was
therefore without any right to claim from him the repossession expenses and, that due to the alleged
unjustified repossession of the car and the factual circumstances attendant thereto, he is entitled to
moral damages." (p. 24, Rollo)

In its answer to the complaint, the petitioner countered: "that since the PVB check was only cleared
subsequent to May 10, 1976, respondent was in default of the February, March and April
installments at the time it filed its complaint for the repossession of the car on the aforesaid dated;
and, that the subsequent updating of respondent's account did not invalidate the seizure order, as
the basis therefor was the failure of respondent to pay the installments when they fell due, and not
the failure to pay the February, March and April installments in particular." (pp. 24-25, Rollo)

On December 10, 1977, the trial court rendered its judgment, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered infavor of plaintiff Ivan
Mendez, and against the defendant Filinvest Credit Corporation:

1. Ordering the defendant Filinvest Credit Corporation, to return to plaintiff the sum of
P1,894.80 representing the repossession expenses paid by Ivan Mendez to the financing
company with legal rate of interest from June 17, 1976, the date of payment up to the time
the full amount is returned;

2. Ordering the defendant to pay to plaintiff the sum of P80,000.00, as and for moral
damages; and

3. Ordering the defendant to pay to plaintiff the amount of P80,000.00 as and for attorney's
fees.

The defendant Filinvest Credit Corporation shall pay the costs of suit. (pp, 101-102, Rollo)

The petitioner appealed to the Intermediate Appellate Court which affirmed in toto the decision of the
trial court. Its motion for reconsideration having been denied, the petitioner filed the present petition.

The petitioner now comes before this Court with the following assignments of errors:

THE TRIAL COURT ERRED IN HOLDING THAT THE SEIZURE OF THE CAR WAS TOTALLY
UNJUSTIFIED AND IN ORDERING PETITIONER TO REIMBURSE RESPONDENT THE SUM OF
ONE THOUSAND EIGHT HUNDRED NINETY FOUR PESOS & 80/100 (P1,894.80)
REPRESENTING THE REPOSSESSION EXPENSES.

II

THE TRIAL COURT ERRED IN AWARDING RESPONDENT MORAL DAMAGES IN THE AMOUNT
OF EIGHTY THOUSAND PESOS (P80,000.00)

III
THE TRIAL COURT ERRED IN ORDERING PETITIONER TO PAY RESPONDENT THE SUM OF
EIGHT THOUSAND PESOS (P8,000.00) AS AND FOR ATTORNEY'S FEES.

IV

THE TRIAL COURT ERRED IN NOT DISMISSING CIVIL CASE NO, 9621 AND IN NOT
AWARDING PETITIONER ITS LEGITIMATE COUNTERCLAIM FOR DAMAGES. (p. 28, Rollo)

The arguments of the petitioner are centered on its having a clear cause of action and a right to the
corresponding remedy at the time the complaint was filed on May 10, 1976. The respondent had not
paid the February, March, and April 1976 installments or more than two installments due on the
promissory note.

On the other hand, the respondent claims that the acceleration clause stipulated in the promissory
note and in the chattel mortgage cannot justify the action taken by the petitioner because it
contravenes the letter and the avowed public policy of the installment sales law, and, therefore, is
illegal and unenforceable.

The respondent states that since the petitioner was exacting fulfillment of the obligation it should
have desisted from repossessing the car. It cannot exercise its remedies cumulatively. It cannot
pretend that it was recovering the car preparatory to cancellation of the sale or foreclosure of the
chattel mortgage because it had elected to exact fulfillment of the obligation when it filed Civil Case
No. 9468.

The respondent stresses that the PVB check bounced on May 6, 1976, but the petitioner re-
deposited it and in due course of business it cleared on May 13, 1976. Thus, as of May 13, 1976, the
remaining unpaid installment was only part of the April, 1976 installment, in the amount of P957.95.
Having redeposited the check before May 13, 1976, the petitioner should have waited until the check
bounced before filing the complaint.

According to the private respondent, the complaint in Civil Case No. 9468 not only alleged a cause
of action for specific performance but also alternatively asked for the issuance of a writ of replevin.
The petitioner, therefore, acted cumulatively in pursuing its various remedies which is against the
intent and spirit of the installment sales law.

We agree with the petitioner.

The remittance of the PVB check on May 3, 1976 could not have cured the defaults in payment
because the check bounced when it was presented for payment. The respondent's account had no
funds at the time to back up the check he used as payment.

Article 1249 of the Civil Code provides:

xxx xxx xxx

The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.

xxx xxx xxx


The petitioner stresses that the seizure order was anchored on the respondent's failure to pay
installments on time and not on the mere unqualified failure to pay the February, March, and April
installments. It states that the making of timely payments was an absolute undertaking in the
promissory note and the deed of chattel mortgage. The grievance sought to be vindicated by the
replevin suit was the non-compliance with this undertaking.

The records sustain the petitioner's arguments that it had a valid cause of action when the complaint
was filed. It filed suit for the total balance of P25,597.56 in accordance with the stipulated
acceleration clause in case of default. The consideration for the seizure order prayed for by the
petitioner included the non-payment of the remaining total obligation.

With respect to the trial court's ordering the petitioner to reimburse Pl,894.80 representing the
expenses incurred because of the seizure of the car and as a condition for its release, the petitioner
maintains that it had sufficient justification to proceed with Civil Case No. 9468 and to repossess the
car. It disclaims any obligation to withdraw the replevin suit upon the clearing of the PVB check,
because the fact that it was cleared did not wipe out the bases of the proceedings.

Insofar as the P1,894.80 are concerned, the petitioner is correct that the repossession expenses
must be for the account of the respondents whose duty was to immediately surrender the car upon
valid demand and thereby prevent the necessity of the petitioner's having to spend in order to
repossess it.

The petitioner also questions the award of attorney's fees. It asserts that according to decisions of
this Court, an award of attorney's fees is improper on the sole basis of an adverse decision (Ramos
v. Ramos, 61 SCRA 284), or if one considers the good faith of parties in prosecuting a cause of
action though declared to be unfounded (Salao v. Salao, 70 SCRA 65), or in the absence of clear
proof that an action was intended merely to prejudice the other party (Mercader v. Manila Polo Club,
L-8373, September 28, 1956). The records sustain the contention that there is no basis for
entitlement to attorney's fees.

Concerning the award of moral damages in the amount of P80,000.00, the petitioner argues that
moral damages may be recovered if they are the proximate result of a wrongful act or omission. The
petitioner points out that it repossessed the car as a matter of right and upon faithful compliance with
all the legal requirements. As the exercise of a right within legal bounds is not wrongful, the basic
requirement for an award of moral damages is absent. It was the respondent and not the petitioner,
who was guilty of a wrongful act. The failure to abide by one's express financial obligations is
deplorable. To hold otherwise is to reward contractual breach and penalize one who avails of
contractual and legal remedies to correct the prejudice resulting from any such breach. The
petitioner argues that the respondent alone must bear the consequences of his wrongful omission.

On the other hand, the private respondent bases his claim to moral damages on the alleged failure
of the petitioner, to act with caution and to observe honesty and good faith with due regard to the
respondent's rights under the installment sales law as wen as on the act of the petitioner in
deliberately repossessing the car in violation of law.

The award for moral damages has no factual and legal basis.

The respondent claims that it was while he was attending a seminar for home defense in Davao City
that the car was repossessed by the petitioner. When he pleaded with the petitioner not to seize the
car at that very moment because he was using it for his visitor from Manila, the petitioner chose to
brandish the seizure order as its weapon to enforce collection of his whole account. The respondent
claims that he was humiliated and embarrassed most especially before his visitor and among those
attending the seminar as well as among his friends and business associates. The shock and
humiliation he suffered resulted to his hospitalization immediately, thereafter, for about a week.

The testimony, however, of the driver of the respondent shows that the car was seized at the
residence of the respondent while the said driver was cleaning the same. It is, therefore, not true that
the respondent was humiliated and embarrassed before his visitor and among those attending the
seminar,

The rule is settled that moral damages cannot be awarded in the absence of a wrongful act or
omission or fraud or bad faith. (R & B Surety & Insurance Co., v. Intermediate Appellate Court, 129
SCRA 736; and Siasat v. Intermediate Appellate Court, 139 SCRA 238). When the action is filed in
good faith there should be no penalty on the right to litigate. (Expiritu v. Court of Appeals, 137 SCRA
50). The petitioner may have erred but error alone is not a ground for moral damages. 1avvphi1

The petitioner filed an action for recovery of personal property and/or sum of money against the
respondent (Civil Case No. 9468) when the latter's PVB check intended for the February, March, and
April installments bounced due to insufficiency of funds. By virtue of an order of seizure issued by
the court, the car was repossessed. The check was later redeposited and credited for the months
mentioned. When the respondent negotiated with the petitioner for the release of the car, the latter
demanded payment of the total outstanding balance on the promissory note. Due to the persistent
pleas of t he respondent, the petitioner released the car to him upon payment of the installment
remaining unpaid for the months of April, May, and June, 1976, in addition to the costs incurred in
repossessing the car amounting to P1,897.80. On June 21, 1976, Civil Case No. 9468 was
dismissed upon motion of the petitioner. The willingness of the petitioner to allow the respondent to
pay only the unpaid installments for April, May, and June instead of the total outstanding balance
and to release the car as well as its voluntary motion to dismiss the case indicates lack of fraud or
bad faith on the part of the petitioner. The private respondent was not without fault. He was three
months behind in his payments and he issued a bouncing check. The dismissal of Civil Case No.
9468 rendered moot and academic the issues of whether or not the acceleration clause in the
promissory note is illegal and unenforceable as well as the other issue of whether or not the
petitioner acted cumulatively in pursuing its various remedies to effect collection.

WHEREFORE, the petition is hereby GRANTED. The decisions of the trial court and the
Intermediate Appellate Court are REVERSED and SET ASIDE. The complaint of the respondent is
DISMISSED.

SO ORDERED.

G.R. No. L-22415 March 30, 1966

FERNANDO LOPEZ, ET AL., plaintiffs-appellants,


vs.
PAN AMERICAN WORLD AIRWAYS, defendant-appellant.

Ross, Selph and Carrascoso for the defendant-appellant.


Vicente J. Francisco for the plaintiffs-appellants.

BENGZON, J.P., J.:

Plaintiffs and defendant appeal from a decision of the Court of First Instance of Rizal. Since the
value in controversy exceeds P200,000 the appeals were taken directly to this Court upon all
questions involved (Sec. 17, par. 3[5], Judiciary Act).
Stated briefly the facts not in dispute are as follows: Reservations for first class accommodations in
Flight No. 2 of Pan American World Airways — hereinafter otherwise called PAN-AM — from Tokyo
to San Francisco on May 24, 1960 were made with
PAN-AM on March 29, 1960, by "Your Travel Guide" agency, specifically, by Delfin Faustino, for
then Senator Fernando Lopez, his wife Maria J. Lopez, his son-in-law Alfredo Montelibano, Jr., and
his daughter, Mrs. Alfredo Montelibano, Jr., (Milagros Lopez Montelibano). PAN-AM's San Francisco
head office confirmed the reservations on March 31, 1960.

First class tickets for the abovementioned flight were subsequently issued by
PAN-AM on May 21 and 23, 1960, in favor of Senator Lopez and his party. The total fare of P9,444
for all of them was fully paid before the tickets were issued.

As scheduled Senator Lopez and party left Manila by Northwest Airlines on May 24, 1960, arriving in
Tokyo at 5:30 P.M. of that day. As soon as they arrived Senator Lopez requested Minister Busuego
of the Philippine Embassy to contact PAN-AM's Tokyo office regarding their first class
accommodations for that evening's flight. For the given reason that the first class seats therein were
all booked up, however, PAN-AM's Tokyo office informed Minister Busuego that PAN-AM could not
accommodate Senator Lopez and party in that trip as first class passengers. Senator Lopez
thereupon gave their first class tickets to Minister Busuego for him to show the same to PAN-AM's
Tokyo office, but the latter firmly reiterated that there was no accommodation for them in the first
class, stating that they could not go in that flight unless they took the tourist class therein.

Due to pressing engagements awaiting Senator Lopez and his wife, in the United States — he had
to attend a business conference in San Francisco the next day and she had to undergo a medical
check-up in Mayo Clinic, Rochester, Minnesota, on May 28, 1960 and needed three days rest before
that in San Francisco — Senator Lopez and party were constrained to take PAN-AM's flight from
Tokyo to San Francisco as tourist passengers. Senator Lopez however made it clear, as indicated in
his letter to PAN-AM's Tokyo office on that date (Exh. A), that they did so "under protest" and without
prejudice to further action against the airline.
1äwphï1.ñët

Suit for damages was thereafter filed by Senator Lopez and party against PAN-AM on June 2, 1960
in the Court of First Instance of Rizal. Alleging breach of contracts in bad faith by defendant, plaintiffs
asked for P500,000 actual and moral damages, P100,000 exemplary damages, P25,000 attorney's
fees plus costs. PAN-AM filed its answer on June 22, 1960, asserting that its failure to provide first
class accommodations to plaintiffs was due to honest error of its employees. It also interposed a
counterclaim for attorney's fees of P25,000.

Subsequently, further pleadings were filed, thus: plaintiffs' answer to the counterclaim, on July 25,
1960; plaintiffs' reply attached to motion for its admittance, on December 2, 1961; defendant's
supplemental answer, on March 8, 1962; plaintiffs' reply to supplemental answer, on March 10,
1962; and defendant's amended supplemental answer, on July 10, 1962.

After trial — which took twenty-two (22) days ranging from November 25, 1960 to January 5, 1963
— the Court of First Instance rendered its decision on November 13, 1963, the dispositive portion
stating:

In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs
and against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a)
P100,000.00 as moral damages; (b) P20,000.00 as exemplary damages; (c) P25,000.00 as
attorney's fees, and the costs of this action.

So ordered.
Plaintiffs, however, on November 21, 1963, moved for reconsideration of said judgment, asking that
moral damages be increased to P400,000 and that six per cent (6%) interest per annum on the
amount of the award be granted. And defendant opposed the same. Acting thereon the trial court
issued an order on December 14, 1963, reconsidering the dispositive part of its decision to read as
follows:

In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs
and against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a)
P150,000.00 as moral damages; (b) P25,000.00 as exemplary damages; with legal interest
on both from the date of the filing of the complaint until paid; and (c) P25,000.00 as
attorney's fees; and the costs of this action.

So ordered.

It is from said judgment, as thus reconsidered, that both parties have appealed.

Defendant, as stated, has from the start admitted that it breached its contracts with plaintiffs to
provide them with first class accommodations in its Tokyo-San Francisco flight of May 24, 1960. In
its appeal, however, it takes issue with the finding of the court a quo that it acted in bad faith in the
branch of said contracts. Plaintiffs, on the other hand, raise questions on the amount of damages
awarded in their favor, seeking that the same be increased to a total of P650,000.

Anent the issue of bad faith the records show the respective contentions of the parties as follows.

According to plaintiffs, defendant acted in bad faith because it deliberately refused to comply with its
contract to provide first class accommodations to plaintiffs, out of racial prejudice against Orientals.
And in support of its contention that what was done to plaintiffs is an oftrepeated practice of
defendant, evidence was adduced relating to two previous instances of alleged racial discrimination
by defendant against Filipinos in favor of "white" passengers. Said previous occasions are what
allegedly happened to (1) Benito Jalbuena and (2) Cenon S. Cervantes and his wife.

And from plaintiffs' evidence this is what allegedly happened; Jalbuena bought a first class ticket
from PAN-AM on April 13, 1960; he confirmed it on April 15, 1960 as to the Tokyo-Hongkong flight of
April 20, 1960; PAN-AM similarly confirmed it on April 20, 1960. At the airport he and another
Oriental — Mr. Tung — were asked to step aside while other passengers - including "white"
passengers — boarded PAN-AM's plane. Then PAN-AM officials told them that one of them had to
stay behind. Since Mr. Tung was going all the way to London, Jalbuena was chosen to be left
behind. PAN-AM's officials could only explain by saying there was "some mistake". Jalbuena
thereafter wrote PAN-AM to protest the incident (Exh. B).

As to Cenon S. Cervantes it would appear that in Flight No. 6 of PAN-AM on September 29, 1958
from Bangkok to Hongkong, he and his wife had to take tourist class, although they had first class
tickets, which they had previously confirmed, because their seats in first class were given to
"passengers from London."

Against the foregoing, however, defendant's evidence would seek to establish its theory of honest
mistake, thus:

The first class reservations of Senator Lopez and party were made on March 29, 1960 together with
those of four members of the Rufino family, for a total of eight (8) seats, as shown in their joint
reservation card (Exh. 1). Subsequently on March 30, 1960, two other Rufinos secured reservations
and were given a separate reservation card (Exh. 2). A new reservation card consisting of two pages
(Exhs. 3 and 4) was then made for the original of eight passengers, namely, Senator Lopez and
party and four members of the Rufino family, the first page (Exh. 3) referring to 2 Lopezes, 2
Montelibanos and 1 Rufino and the second page (Exh. 4) referring to 3 Rufinos. On April 18, 1960
"Your Travel Guide" agency cancelled the reservations of the Rufinos. A telex message was
thereupon sent on that date to PAN-AM's head office at San Francisco by Mariano Herranz, PAN-
AM's reservations employee at its office in Escolta, Manila. (Annex A-Acker's to Exh. 6.) In said
message, however, Herranz mistakenly cancelled all the seats that had been reserved, that is,
including those of Senator Lopez and party.

The next day — April 1960 — Herranz discovered his mistake, upon seeing the reservation card
newly prepared by his co-employee Pedro Asensi for Sen. Lopez and party to the exclusion of the
Rufinos (Exh. 5). It was then that Herranz sent another telex wire to the San Francisco head office,
stating his error and asking for the reinstatement of the four (4) first class seats reserved for Senator
Lopez and party (Annex A-Velasco's to Exh. 6). San Francisco head office replied on April 22, 1960
that Senator Lopez and party are waitlisted and that said office is unable to reinstate them (Annex B-
Velasco's to Exh. 6).

Since the flight involved was still more than a month away and confident that reinstatement would be
made, Herranz forgot the matter and told no one about it except his co-employee, either Armando
Davila or Pedro Asensi or both of them (Tsn., 123-124, 127, Nov. 17, 1961).

Subsequently, on April 27, 1960, Armando Davila, PAN-AM's reservations employee working in the
same Escolta office as Herranz, phoned PAN-AM's ticket sellers at its other office in the Manila
Hotel, and confirmed the reservations of Senator Lopez and party.

PAN-AM's reservations supervisor Alberto Jose, discovered Herranz's mistake after "Your Travel
Guide" phone on May 18, 1960 to state that Senator Lopez and party were going to depart as
scheduled. Accordingly, Jose sent a telex wire on that date to PAN-AM's head office at San
Francisco to report the error and asked said office to continue holding the reservations of Senator
Lopez and party (Annex B-Acker's to Exh. 6). Said message was reiterated by Jose in his telex wire
of May 19, 1960 (Annex C-Acker's to Exh. 6). San Francisco head office replied on May 19, 1960
that it regrets being unable to confirm Senator Lopez and party for the reason that the flight was
solidly booked (Exh. 7). Jose sent a third telex wire on May 20, 1960 addressed to PAN-AM's offices
at San Francisco, New York (Idlewild Airport), Tokyo and Hongkong, asking all-out assistance
towards restoring the cancelled spaces and for report of cancellations at their end (Annex D-Acker's
to Exh. 6). San Francisco head office reiterated on May 20, 1960 that it could not reinstate the
spaces and referred Jose to the Tokyo and Hongkong offices (Exh. 8). Also on May 20, the Tokyo
office of PAN-AM wired Jose stating it will do everything possible (Exh. 9).

Expecting that some cancellations of bookings would be made before the flight time, Jose decided to
withhold from Senator Lopez and party, or their agent, the information that their reservations had
been cancelled.

Armando Davila having previously confirmed Senator Lopez and party's first class reservations to
PAN-AM's ticket sellers at its Manila Hotel office, the latter sold and issued in their favor the
corresponding first class tickets on the 21st and 23rd of May, 1960.

From the foregoing evidence of defendant it is in effect admitted that defendant — through its agents
— first cancelled plaintiffs, reservations by mistake and thereafter deliberately and
intentionally withheld from plaintiffs or their travel agent the fact of said cancellation, letting them go
on believing that their first class reservations stood valid and confirmed. In so misleading plaintiffs
into purchasing first class tickets in the conviction that they had confirmed reservations for the same,
when in fact they had none, defendant wilfully and knowingly placed itself into the position of having
to breach its a foresaid contracts with plaintiffs should there be no last-minute cancellation by other
passengers before flight time, as it turned out in this case. Such actuation of defendant may indeed
have been prompted by nothing more than the promotion of its self-interest in holding on to Senator
Lopez and party as passengers in its flight and foreclosing on their chances to seek the services of
other airlines that may have been able to afford them first class accommodations. All the time, in
legal contemplation such conduct already amounts to action in bad faith. For bad faith means a
breach of a known duty through some motive of interest or ill-will (Spiegel vs. Beacon Participations,
8 NE 2d 895, 907). As stated in Kamm v. Flink, 113 N.J.L. 582, 175 A. 62, 99 A.L.R. 1, 7: "Self-
enrichment or fraternal interest, and not personal ill-will, may well have been the motive; but it is
malice nevertheless."

As of May 18, 1960 defendant's reservations supervisor, Alberto Jose knew that plaintiffs'
reservations had been cancelled. As of May 20 he knew that the San Francisco head office stated
with finality that it could not reinstate plaintiffs' cancelled reservations. And yet said reservations
supervisor made the "decision" — to use his own, word — to withhold the information from the
plaintiffs. Said Alberto Jose in his testimony:

Q Why did you not notify them?

A Well, you see, sir, in my fifteen (15) years of service with the air lines business my
experience is that even if the flights are solidly booked months in advance, usually the flight
departs with plenty of empty seats both on the first class and tourist class. This is due to late
cancellation of passengers, or because passengers do not show up in the airport, and it was
our hope others come in from another flight and, therefore, are delayed and, therefore,
missed their connections. This experience of mine, coupled with that wire from Tokyo that
they would do everything possible prompted me to withhold the information, but
unfortunately, instead of the first class seat that I was hoping for and which I anticipated only
the tourists class was open on which Senator and Mrs. Lopez, Mr. and Mrs. Montelibano
were accommodated. Well, I fully realize now the gravity of my decision in not advising
Senator and Mrs. Lopez, Mr. and Mrs. Montelibano nor their agents about the erroneous
cancellation and for which I would like them to know that I am very sorry.

xxx xxx xxx

Q So it was not your duty to notify Sen. Lopez and parties that their reservations had been
cancelled since May 18, 1960?

A As I said before it was my duty. It was my duty but as I said again with respect to that duty
I have the power to make a decision or use my discretion and judgment whether I should go
ahead and tell the passenger about the cancellation. (Tsn., pp. 17-19, 28-29, March 15,
1962.)

At the time plaintiffs bought their tickets, defendant, therefore, in breach of its known duty, made
plaintiffs believe that their reservation had not been cancelled. An additional indication of this is the
fact that upon the face of the two tickets of record, namely, the ticket issued to Alfredo Montelibano,
Jr. on May 21, 1960 (Exh. 22) and that issued to Mrs. Alfredo Montelibano, Jr., on May 23, 1960
(Exh. 23), the reservation status is stated as "OK". Such willful-non-disclosure of the cancellation or
pretense that the reservations for plaintiffs stood — and not simply the erroneous cancellation itself
— is the factor to which is attributable the breach of the resulting contracts. And, as above-stated, in
this respect defendant clearly acted in bad faith.
As if to further emphasize its bad faith on the matter, defendant subsequently promoted the
employee who cancelled plaintiffs' reservations and told them nothing about it. The record shows
that said employee — Mariano Herranz — was not subjected to investigation and suspension by
defendant but instead was given a reward in the form of an increase of salary in June of the
following year (Tsn., 86-88, Nov. 20, 1961).

At any rate, granting all the mistakes advanced by the defendant, there would at least be negligence
so gross and reckless as to amount to malice or bad faith (Fores vs. Miranda, L-12163, March 4,
1959; Necesito v. Paras, L-10605-06, June 30, 1958). Firstly, notwithstanding the entries in the
reservation cards (Exhs. 1 & 3) that the reservations cancelled are those of the Rufinos only,
Herranz made the mistake, after reading said entries, of sending a wire cancelling all the
reservations, including those of Senator Lopez and party (Tsn., pp. 108-109, Nov. 17, 1961).
Secondly, after sending a wire to San Francisco head office on April 19, 1960 stating his error and
asking for reinstatement, Herranz simply forgot about the matter. Notwithstanding the reply of San
Francisco head Office on April 22, 1960 that it cannot reinstate Senator Lopez and party (Annex B-
Velasco's to Exh. 6), it was assumed and taken for granted that reinstatement would be made.
Thirdly, Armando Davila confirmed plaintiff's reservations in a phone call on April 27, 1960 to
defendant's ticket sellers, when at the time it appeared in plaintiffs' reservation card (Exh. 5) that
they were only waitlisted passengers. Fourthly, defendant's ticket sellers issued plaintiffs' tickets on
May 21 and 23, 1960, without first checking their reservations just before issuing said tickets. And,
finally, no one among defendant's agents notified Senator Lopez and party that their reservations
had been cancelled, a precaution that could have averted their entering with defendant into contracts
that the latter had already placed beyond its power to perform.

Accordingly, there being a clear admission in defendant's evidence of facts amounting to a bad faith
on its part in regard to the breach of its contracts with plaintiffs, it becomes unnecessary to further
discuss the evidence adduced by plaintiffs to establish defendant's bad faith. For what is admitted in
the course of the trial does not need to be proved (Sec. 2, Rule 129, Rules of Court).

Addressing ourselves now to the question of damages, it is well to state at the outset those rules and
principles. First, moral damages are recoverable in breach of contracts where the defendant acted
fraudulently or in bad faith (Art. 2220, New Civil Code). Second, in addition to moral damages,
exemplary or corrective damages may be imposed by way of example or correction for the public
good, in breach of contract where the defendant acted in a wanton, fraudulent, reckless, oppressive
or malevolent manner (Articles 2229, 2232, New Civil Code). And, third, a written contract for an
attorney's services shall control the amount to be paid therefor unless found by the court to be
unconscionable or unreasonable (Sec. 24, Rule 138, Rules of Court).

First, then, as to moral damages. As a proximate result of defendant's breach in bad faith of its
contracts with plaintiffs, the latter suffered social humiliation, wounded feelings, serious anxiety and
mental anguish. For plaintiffs were travelling with first class tickets issued by defendant and yet they
were given only the tourist class. At stop-overs, they were expected to be among the first-class
passengers by those awaiting to welcome them, only to be found among the tourist passengers. It
may not be humiliating to travel as tourist passengers; it is humiliating to be compelled to travel as
such, contrary to what is rightfully to be expected from the contractual undertaking.

Senator Lopez was then Senate President Pro Tempore. International carriers like defendant know
the prestige of such an office. For the Senate is not only the Upper Chamber of the Philippine
Congress, but the nation's treaty-ratifying body. It may also be mentioned that in his aforesaid office
Senator Lopez was in a position to preside in impeachment cases should the Senate sit as
Impeachment Tribunal. And he was former Vice-President of the Philippines. Senator Lopez was
going to the United States to attend a private business conference of the Binalbagan-Isabela Sugar
Company; but his aforesaid rank and position were by no means left behind, and in fact he had a
second engagement awaiting him in the United States: a banquet tendered by Filipino friends in his
honor as Senate President Pro Tempore (Tsn., pp. 14-15, Nov. 25, 1960). For the moral damages
sustained by him, therefore, an award of P100,000.00 is appropriate.

Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and therefore his humiliation. In
addition she suffered physical discomfort during the 13-hour trip,(5 hours from Tokyo to Honolulu
and 8 hours from Honolulu to San Francisco). Although Senator Lopez stated that "she was quite
well" (Tsn., p. 22, Nov. 25, 1960) — he obviously meant relatively well, since the rest of his
statement is that two months before, she was attackedby severe flu and lost 10 pounds of weight
and that she was advised by Dr. Sison to go to the United States as soon as possible for medical
check-up and relaxation, (Ibid). In fact, Senator Lopez stated, as shown a few pages after in the
transcript of his testimony, that Mrs. Lopez was sick when she left the Philippines:

A. Well, my wife really felt very bad during the entire trip from Tokyo to San Francisco. In the
first place, she was sick when we left the Philippines, and then with that discomfort which
she [experienced] or suffered during that evening, it was her worst experience. I myself, who
was not sick, could not sleep because of the discomfort. (Tsn., pp. 27-28, Nov. 25, 1960).

It is not hard to see that in her condition then a physical discomfort sustained for thirteen hours may
well be considered a physical suffering. And even without regard to the noise and trepidation inside
the plane — which defendant contends, upon the strengh of expert testimony, to be practically the
same in first class and tourist class — the fact that the seating spaces in the tourist class are quite
narrower than in first class, there beingsix seats to a row in the former as against four to a row in the
latter, and that in tourist class there is very little space for reclining in view of the closer distance
between rows (Tsn., p. 24, Nov. 25, 1960), will suffice to show that the aforesaid passenger indeed
experienced physical suffering during the trip. Added to this, of course, was the painfull thought that
she was deprived by defendant — after having paid for and expected the same — of the most
suitable, place for her, the first class, where evidently the best of everything would have been given
her, the best seat, service, food and treatment. Such difference in comfort between first class and
tourist class is too obvious to be recounted, is in fact the reason for the former's existence, and is
recognized by the airline in charging a higher fare for it and by the passengers in paying said higher
rate Accordingly, considering the totality of her suffering and humiliation, an award to Mrs. Maria J.
Lopez of P50,000.00 for moral damages will be reasonable.

Mr. and Mrs. Alfredo Montelibano, Jr., were travelling as immediate members of the family of
Senator Lopez. They formed part of the Senator's party as shown also by the reservation cards of
PAN-AM. As such they likewise shared his prestige and humiliation. Although defendant contends
that a few weeks before the flight they had asked their reservations to be charged from first class to
tourist class — which did not materialize due to alleged full booking in the tourist class — the same
does not mean they suffered no shared in having to take tourist class during the flight. For by that
time they had already been made to pay for first class seats and therefore to expect first class
accommodations. As stated, it is one thing to take the tourist class by free choice; a far different
thing to be compelled to take it notwithstanding having paid for first class seats. Plaintiffs-appellants
now ask P37,500.00 each for the two but we note that in their motion for reconsideration filed in the
court a quo, they were satisfied with P25,000.00 each for said persons. (Record on Appeal, p. 102).
For their social humiliation, therefore, the award to them of P25,000.00 each is reasonable.

The rationale behind exemplary or corrective damages is, as the name implies, to provide an
example or correction for public good. Defendant having breached its contracts in bad faith, the
court, as stated earlier, may award exemplary damages in addition to moral damages (Articles 2229,
2232, New Civil Code).
In view of its nature, it should be imposed in such an amount as to sufficiently and effectively deter
similar breach of contracts in the future by defendant or other airlines. In this light, we find it just to
award P75,000.00 as exemplary or corrective damages.

Now, as to attorney's fees, the record shows a written contract of services executed on June 1, 1960
(Exh. F) whereunder plaintiffs-appellants engaged the services of their counsel — Atty. Vicente J.
Francisco — and agreedto pay the sum of P25,000.00 as attorney's fees upon the termination of the
case in the Court of First Instance, and an additional sum of P25,000.00 in the event the case is
appealed to the Supreme Court. As said earlier, a written contract for attorney's services shall
control the amount to be paid therefor unless found by the court to be unconscionable or
unreasonable. A consideration of the subject matter of the present controversy, of the professional
standing of the attorney for plaintiffs-appellants, and of the extent of the service rendered by him,
shows that said amount provided for in the written agreement is reasonable. Said lawyer — whose
prominence in the legal profession is well known — studied the case, prepared and filed the
complaint, conferred with witnesses, analyzed documentary evidence, personally appeared at the
trial of the case in twenty-two days, during a period of three years, prepared four sets of cross-
interrogatories for deposition taking, prepared several memoranda and the motion for
reconsideration, filed a joint record on appeal with defendant, filed a brief for plaintiffs as appellants
consisting of 45 printed pages and a brief for plaintiffs as appellees consisting of 265 printed pages.
And we are further convinced of its reasonableness because defendant's counsel likewise valued at
P50,000.00 the proper compensation for his services rendered to defendant in the trial court and on
appeal.

In concluding, let it be stressed that the amount of damages awarded in this appeal has been
determined by adequately considering the official, political, social, and financial standing of the
offended parties on one hand, and the business and financial position of the offender on the other
(Domingding v. Ng, 55 O.G. 10). And further considering the present rate of exchange and the terms
at which the amount of damages awarded would approximately be in U.S. dollars, this Court is all
the more of the view that said award is proper and reasonable.

Wherefore, the judgment appealed from is hereby modified so as to award in favor of plaintiffs and
against defendant, the following: (1) P200,000.00 as moral damages, divided among plaintiffs, thus:
P100,000.00 for Senate President Pro Tempore Fernando Lopez; P50,000.00 for his wife Maria J.
Lopez; P25,000.00 for his son-in-law Alfredo Montelibano, Jr.; and P25,000.00 for his daughter Mrs.
Alfredo Montelibano, Jr.; (2) P75,000.00 as exemplary or corrective damages; (3) interest at the
legal rate of 6% per annum on the moral and exemplary damages aforestated, from December 14,
1963, the date of the amended decision of the court a quo, until said damages are fully paid; (4)
P50,000.00 as attorney's fees; and (5) the costs. Counterclaim dismissed.So ordered.

G.R. No. 82808 July 11, 1991

DENNIS L. LAO, petitioner,


vs.
HON. COURT OF APPEALS, JUDGE FLORENTINO FLOR, Regional Trial Court, Branch 89 of
Morong, Rizal, BENJAMIN L. ESPIRITU, MANUEL QUERUBIN and CHAN TONG, respondents.

F. Sumulong & Associates Law Offices for petitioner.


Manuel LL. Querubin for and in his own behalf.
Enrique M. Basa for private respondent.
GRIÑO-AQUINO, J.:

For being a witness in an unsuccessful estafa case which his employer filed against a debtor who
had defaulted in paying his just obligation, the petitioner was sued, together with his employer, for
damages for malicious prosecution. The issue in this case is whether the damages awarded to the
defaulting debtor may be satisfied by execution against the employee's property since his employer's
business has already folded up.

Petitioner Dennis Lao was an employee of the New St. Joseph Lumber & Hardware Supply,
hereinafter called St. Joseph Lumber, owned by the private respondent, Chan Tong. In January
1981, St. Joseph Lumber filed a collection suit against a customer, the private respondent, Benjamin
Espiritu, for unpaid purchases of construction materials from St. Joseph Lumber.

In November 1981, upon the advice of its lawyer, St. Joseph Lumber filed a criminal complaint for
estafa against Espiritu, based on the same transaction. Since the petitioner was the employee who
transacted business with Espiritu, he was directed by his employer, the firm's owner, Chan Tong, to
sign the affidavit or complaint prepared by the firm's, lawyer, Attorney Manuel Querubin.

Finding probable cause after conducting a preliminary investigation of the charge, the investigating
fiscal filed an information for estafa in the Court of First Instance of Quezon City against Espiritu.
The case was however later dismissed because the court believed that Espiritu's liability was only
civil, not criminal.

On April 12, 1984, Espiritu filed a complaint for malicious prosecution against the petitioner and St.
Joseph Lumber, praying that the defendants be ordered to pay him P500,000 as moral damages,
P10,000 as actual damages, and P100,000 as attorney's fees.

In his answer to the complaint, the petitioner alleged that he acted only as agent or employee of St.
Joseph Lumber when he executed the affidavit which his employer submitted to the investigating
fiscal who conducted the preliminary investigation of his employer's estafa charge against Espiritu.

The pre-trial of the case was set on October 30, 1984. Since the defendants and their counsel failed
to appear in court, they were declared in default.

On November 11, 1984, the defendants filed a motion for reconsideration of the order of default.

On November 13, 1984, the motion was granted, and the order of default was set aside.

On January 16, 1985, the defendants, including herein petition petitioner Lao, and their counsel,
again failed to attend the pretrial despite due notice to the latter who, however, failed to notify Lao.
They were once more declared in default. The private respondent was allowed to present his
evidence ex parte.

On January 22, 1985, a decision was rendered by the trial court in favor of Espiritu ordering the
defendants Lao and St. Joseph Lumber to pay jointly and severally to Espiritu the sums of P100,000
as moral damages, P5,000 as attorney's fees, and costs.

Petitioner's motion for reconsideration of the decision was denied by the trial court.

On February 25, 1985, Lao filed a motion for new trial on the ground of accident and insufficiency of
evidence, but it was denied by the trial court.
He appealed to the Court of Appeals (CA-G.R. CV No. 06796, "Benjamin L. Espiritu, plaintiff-
appellee vs. Dennis Lao and New St. Joseph Lumber and Hardware Supply, defendants-appellant").
The appellate court dismissed his appeal on May 21, 1987. He filed this special civil action
of certiorari and prohibition to partially annul the appellate court's decision and to enjoin the
execution of said decision against him. The petitioner avers that the Court of Appeals erred:

1. in not holding that he (petitioner Lao) has a valid defense to the action for malicious
prosecution in Civil Case No. 84-M;

2. in not holding that he was deprived of a day in court due to the gross ignorance,
negligence and dereliction of duty of the lawyer whom his employer hired as his and the
company's counsel, but who failed to protect his interest and even acted in a manner inimical
to him; and

3. in not partially annulling the decision of the trial court dated January 22, 1985 insofar as he
is concerned.

The petition is meritorious.

Lao had a valid defense to the action for malicious prosecution (Civil Case No. 84-M) because it was
his employer, St. Joseph Lumber, not himself, that was the complainant in the estafa case against
Espiritu. It was Chan Tong, the owner of the St. Joseph Lumber, who, upon advice of his counsel,
filed the criminal complaint against Espiritu. Lao was only a witness in the case. He had no personal
interest in the prosecution of Espiritu for he was not the party defrauded by Espiritu. He executed the
affidavit which was used as basis of the criminal charge against Espiritu because he was the
salesman who sold the construction materials to Espiritu. He was only an agent of St. Joseph
Lumber, hence, not personally liable to the party with whom he contracted (Art. 1897, Civil Code;
Philippine Products Co. vs. Primateria Societe Anonyme, 122 Phil. 698).

To maintain an action for damages based on malicious prosecution, three elements must be
present: First, the fact of the prosecution and the further fact that the defendant was himself the
prosecutor, and that the action was finally terminated with an acquittal; second, that in bringing the
action, the prosecutor acted without probable cause; and third, the prosecutor was actuated or
impelled by legal malice (Ferrer vs. Vergara, 52 O.G. 291).

Lao was only a witness, not the prosecutor in the estafa case. The prosecutor was his employer,
Chan Tong or the St. Joseph Lumber.

There was probable cause for the charge of estafa against Espiritu, as found and certified by the
investigating fiscal himself. 1âwphi1

Lao was not motivated by malice in making the affidavit upon which the fiscal based the filing of the
information against Espiritu. He executed it as an employee, a salesman of the St. Joseph Lumber
from whom Espiritu made his purchases of construction materials and who, therefore, had personal
knowledge of the transaction. Although the prosecution of Espiritu for estafa did not prosper, the
unsuccessful prosecution may not be labelled as malicious. "Sound principles of justice and public
policy dictate that persons shall have free resort to the courts for redress of wrongs and vindication
of their rights without later having to stand trial for instituting prosecutions in good faith"
(Buenaventura vs. Sto. Domingo, 103 Phil. 239).

There is merit in petitioner's contention that he was deprived of his day in court in the damage suit
filed by Espiritu, due to the gross ignorance, negligence, and dereliction of duty of Attorney Manuel
Querubin whom his employer had hired to act as counsel for him and the St. Joseph Lumber.
However, Attorney Querubin neglected to defend Lao. He concentrated on the defense of the
company and completely forgot his duty to defend Lao as well. He never informed Lao about the
pre-trial conferences. In fact, he (Attorney Querubin) neglected to attend other pre-trial conferences
set by the court.

When adverse judgment was entered by the court against Lao and the lumber company, Attorney
Querubin did not file a motion for reconsideration of the decision. He allowed it to become final,
because anyway Espiritu would not be able to satisfy his judgment against Chan Tong who had
informed his lawyer that the St. Joseph Lumber was insolvent, had gone out of business, and did not
have any leviable assets. As a result, Espiritu levied on the petitioner's car to satisfy the judgment in
his favor since the company itself had no more assets that he could seize.

In view of the foregoing circumstances, the judgment against Lao was a nullity and should be set
aside. Its execution against the petitioner cannot be allowed to proceed.

WHEREFORE, judgment is hereby rendered partially setting aside the decision of the Court of
Appeals dated May 21, 1987, insofar as it declared the petitioner, Dennis Lao, solidarily liable with
St. Joseph Lumber to pay the damages awarded to the private respondent Benjamin Espiritu. Said
petitioner is hereby absolved from any liability to the private respondent arising from the
unsuccessful prosecution of Criminal Case No. Q-20086 for estafa against said private respondent.
Costs against the private respondent.

SO ORDERED.

G.R. No. L-17117 July 31, 1963

ADELA SANTOS GUTIERREZ, plaintiff-appellant,


vs.
JOSE D. VILLEGAS and RIZALINA SANTOS RIVERA, defendants-appellants.

Ponce Enrile, Siguion Reyna, Montecillo and Belo for plaintiff-appellant.


Delgado, Flores, Macapagal and Dizon for defendants-appellants.

REYES, J.B.L., J.:

Direct appeal by both the plaintiff and the defendants from a decision of the Court of First Instance of
Rizal, Pasig, Rizal, in its Civil Case No. 3726.

The facts, about which the parties are not in controversy, are as follows: That the plaintiff and the
defendants are the only legal heirs of the late Irene Santos of Malabon, Rizal, who died intestate on
11 November 1954. The defendant, Jose D. Villegas, is the surviving spouse, while the plaintiff,
Adela Santos Gutierrez, and the other defendant, Rizalina Santos Rivera, are the nieces of the said
decedent. A few days after the death of Irene Santos, a petition for the administration of her estate
was filed with the Court of First Instance of Rizal, Pasay City Branch, and docketed therein as
Special Proceeding No. 2100. The probate court granted the petition on 5 January 1955, and
thereafter Jose D. Villegas qualified as the administrator of the estate. On 12 January 1955, Adela
Santos Gutierrez signed a four-page document (Exhibit "A"), written in Tagalog, entitled "Kasulatan
Ng Bilihan At Salinan", purporting to be a sale of her share and participation in the estate in favor of
Rizalina Santos Rivera, in consideration of P50,000.00, payable in installments: the first in the sum
of P10,000.00 upon signing, and the balance of P40,000.00 in one (1) year, and with the plaintiff
assuming to pay her share in the estate and inheritance taxes. This deed was notarized by Severo
Jovellanos on 13 January 1955. On this day also, the plaintiff signed a "Manifestation" (Exhibit "B")
purporting to inform the probate court that the plaintiff had sold all her rights, interests, and
participation in the estate to Rizalina Santos Rivera, and that she, the plaintiff, is no longer entitled to
the service of any pleading, motion, order, or decision filed or promulgated in the probate court.

On 27 July 1955, the plaintiff filed the present case to annul the aforesaid deed of sale on grounds of
fraud and mistake. The defendants answered denying the charges, and counterclaimed for
P200,000.00 moral and exemplary damages and P50,000.00 attorneys' fees, because of the
allegedly malicious charges and filing of the suit.

The plaintiff, alone and in her own behalf, testified that on 7 December 1954 she asked Jose D.
Villegas for a loan of P2,000.00 by way of advance payment on her share in the estate of her
deceased aunt, but Villegas, answered her that as his lawyer advised him that he had no authority to
give such an advance he would ask Rizalina Santos Rivera if she could lend him the money, which,
in turn, he would give to the plaintiff; that at about Christmas time, Villegas counter-offered to give
the plaintiff a loan of P10,000,00, to be evidenced in writing, instead of the P2,000.00 originally
asked, to which proposition the plaintiff agreed because she was planning a business venture; that
in the afternoon of 12 January 1955, the defendants invited the plaintiff to go with them to Manila
without informing her of the purpose of the trip; to her surprise, they went to the law office of Attorney
Modesto Flores; that while they were waiting for the lawyer, who had not yet arrived, they were told
to sit in the reception room, and the plaintiff and Rizalina were given copies of a document which the
former was not able to read on account of her poor eyesight and her failure to bring her eyeglasses
with her; that when Attorney Flores arrived, the plaintiff asked both the said lawyer and Villegas what
the document was all about, but neither of them answered her; that when she was asked to sign the
document on the space indicated to her, she simply obeyed; that she had no residence certificate at
the time and she was asked to secure one; that she did secure one the following day, 13 January
1955, in Malabon, Rizal, and brought it to the said law office; that while there she, was again asked
to sign another document, a manifestation, which she did sign, after which Attorney Flores translated
to her in Tagalog this second document, which turned out to be a manifestation for the court, and
what she signed the day before was a sale of her share in the inheritance; that she upbraided
Villegas but she did not inform Flores of the deception; that Villegas pacified her by telling her that
they would talk it over in the house; that on their way home, Villegas admitted that he and Rizalina
wanted the document to be a sale instead of a loan; that on 14 January 1955, Villegas gave the
plaintiff the sum of P4,800.00, with the explanation that the plaintiff's son-in-law's debt of P2,000.00
would be deducted from the amount of P10,000.00, while the balance would be paid by check that
same evening; that that same evening, the plaintiff called on Attorney Alfonso Ponce Enrile, who
advised her to deposit in court the amount that she waived, which she did.

The plaintiff claims, furthermore, that in signing the deed of sale, her consent was vitiated by gross
mistake because the defendants misled and deceived her as to the actual and real value of the
estate of Irene Santos because the inventory, which was filed in Special Proceeding 2100 of the
probate court, failed to include certain properties, or which, if at all listed, were either undervalued or
stated to be conjugal when, in fact, they are paraphernal properties of the deceased. Plaintiff also
asked that certain withdrawals made by Rizalina Santos Rivera from the bank overdraft account of
the deceased should be brought to collation. 1äwphï1.ñët

The foregoing facts are disputed by the defendants. Their evidence varies from that of the plaintiff's
in the following particulars: That the plaintiff did not ask for a loan but offered to sell her share in the
inheritance to Villegas for the purpose of investing the proceeds in business, but Villegas, after
consulting, and being advised by his lawyer that he could not buy property under his administration
suggested to the plaintiff to ask Rizalina instead; that when the plaintiff mentioned her proposition to
Rizalina, the latter was at first reluctant to agree to the price of P50,000.00, but later on they agreed
on said price, with the stipulation that it be paid in two installments, the first, in the sum of
P10,000.00, upon signing of the contract, and the balance, within one year therefrom, provided the
plaintiff paid her share in the estate and inheritance taxes; that the latter read and signed the deed,
Exhibit "A", with her eyeglasses on; that she was an avid reader of Tagalog literature; that the
plaintiff's daughter, Jovita, was with her during the signing of the deed of sale on 12 January 1955,
and also during the notarization of the same and the signing again of the "Manifestation" on 13
January 1955; that said pleading was first translated and explained to the plaintiff before she signed
it; that a year thereafter, or more particularly on 5 January 1956, Rizalina Santos Rivera, through her
lawyer, forwarded to the plaintiff a cashier's check drawn on the Prudential Bank and Trust Company
payable to the plaintiff in the sum of P40,000.00 in full payment of the purchase price, which was,
however, refuse acceptance by the plaintiff.

The trial court rejected the pretensions of both parties, dismissing the complaint as well on the
counterclaim. Whereupon, plaintiffs and defendants regularly appealed to this Court directly, the
amounts involved being in excess of P200,000.00.

The plaintiffs assignments of error recite:

1. The lower court erred in rejecting plaintiff-appellant's claim that on account of the fraud
practiced upon her by the defendants-appellants, she consented to the execution of Exhibits
"A" and "B" under the mistaken notion that those documents related to the loan agreement
she and the defendants-appellants had previously agreed upon.

2. The lower court erred in refusing to find the price of P50,000.00 as a grossly inadequate
consideration for the alleged sale and assignment of plaintiff-appellant's share in the estate
of the late Irene Santos.

3. The lower court erred in relying upon the appraisal made by the Bureau of Internal
Revenue Examiner Bernardo Tamese for the purpose of determining the true and fair market
value of the estate of Irene Santos and the share of the plaintiff-appellant in such estate.

4. The lower court erred in disregarding plaintiff-appellant's contention that under Article
1082 of the Civil Code of the Philippines, Exhibit "A" should be deemed as a partition and as
such it is rescindible on account of lesion since the amount to be received by the plaintiff-
appellant under that instrument is less by more than one-fourth (1/4) of the true value of the
share of which she is entitled.

5. The lower court erred in dismissing plaintiff-appellant's complaint.

The plaintiff depicts herself as an unschooled simpleton that attained only the third grade, while
picturing the defendants as intelligent and clever persons; that she has poor eye-sight, low degree of
intelligence, and that there was no impelling need for her to sell the property. These circumstances,
the plaintiff reasons out, coupled with the inadequacy of consideration, are badges of fraud that
contributed to her being an easy victim of her opponents' deceit. Moreover, continues the plaintiff, in
view of the relationship of trust and confidence between the parties, the presumption of fraud arises.

The facts, as shown by the record, do not support the plaintiff's conclusions. The alleged indicia of
fraud upon which she rests her case are backed only by her own uncorroborated testimony, which is
contradicted by that of defendants and their witnesses. Plaintiff's lack of formal education was no
handicap to her ability to read and write the Tagalog dialect, in which Exhibit "A" was couched, and,
as the lower court stated, "she is a woman of average intelligence capable of understanding the
consequences of a signature affixed to a document". Her alleged poor eye-sight has not been shown
with convincing evidence, but, on the contrary, during the trial, she readily identified a letter from the
Bureau of Internal Revenue, even without eyeglasses. Plaintiff has herself testified that she needed
money to engage in business in Mindoro. The defendants, on the other hand, proved in convincing
detail the circumstances surrounding the execution of the questioned deed through their own
testimony, that of the instrumental witnesses, and the notary public. The lawyer, who dictated the
draft of the deed, first in English, and then finalized it in Tagalog, fully acquitted himself on the
witness stand of the possible stigma of being a party to the alleged fraud.

The alleged existence of a relationship of trust and confidence which was supposedly taken
advantage of by the defendants is belied by the plaintiffs own assertion that her defendant uncle-in-
law and her deceased aunt had treated her as the underdog since childhood, and her sister,
Rizalina, as the favorite; yet the plaintiff allegedly came to live with the defendants only to provide
company to her uncle-in-law during his bereavement on the death o her aunt. With the unfavorable
treatment that the plaintiff claims to have received at the hands of the defendant Villegas since
childhood, it cannot be expected that the plaintiff would be unwary of whatever he would ask her to
do, let along her signing a four-page document. Under the present situation, the careful preparation
of the document cannot be taken against the defendants as an indication of fraud, in the absence of
other evidence manifesting a scheme to commit it and which would link the lawyer who caused its
preparation.

All the foregoing circumstances pointed to by the plaintiff as badges of fraud do not stand
unexplained, while, on the other hand, there are certain questions which have not been satisfactorily
explained by the plaintiff. What motive had Villegas, a man 80 years of age, for committing the
alleged fraud against the plaintiff? Why did not the plaintiff present her daughter, Lolita, to at least
corroborate her testimony? She was present during the signing of Exhibits "A" and "C". How could
the plaintiff have simply obeyed and signed the deed, Exhibit "A", without having noted the word
"LIMAMPUNG LIBONG PISO" written in bold capital letters in the four-page deed of sale? How
could she claim ignorance of the contents and import of the deed which she signed on 12 January
1955 when she even secured a residence certificate and turned to the same law office with it on the
following day, 13 January 1955? Why did she accept the first installment payment on 14 January
1955 when, according to her, she had already learned of the fraud when Atty. Flores explained to
her the "manifestation", Exhibit "B", on 13 January 1955? Why is it that during the trial she readily
identified Exhibit "Q" (a letter from the Bureau of Internal Revenue) without wearing eyeglasses but
could not identify Exhibit "A" without wearing them, when a comparison of the type of print between
these exhibits shows no appreciable difference at all? The lack of a satisfactory explanation to these
questions impels affirmance of the lower court's finding that no fraud or mistake vitiated the consent
of the plaintiff in affixing her signature to the deed.

One striking feature of plaintiff's story is that the success of defendants' alleged machinations wholly
rested on the most fortuitous circumstance of plaintiff's not bringing her eyeglasses when she signed
the deed conveying her interest to her sister. It is undeniable that had she been able to read the
deed, according to her version of what transpired, plaintiff would have flatly refused to sign; yet it is
not shown that the defendants took any steps to prevent her from bringing her eyeglasses. If fraud
there was, it must be admitted that there was no preparation to insure its success, and such
carelessness renders the whole charge of deceit absurd and incredible. .

The claim of grossly inadequate consideration for the sale is predicted by the plaintiff upon a double
theme:(a) that the inventory of the estate of Irene Santos did not include certain properties in Rizal (a
one-sixth undivided interest in an estate in Montalban, Rizal, of 1010.9999 has.), and (b) an alleged
gross under valuation of the estate properties. As to the first, the court below rejected the plaintiff-
appellant's evidence consisting in a simple copy of a purported decision of the pre-war Court of
Appeals, in case CA-G.R. No. 654, "San Pedro, et al. vs. Director of Forestry" (Exhibit G-2). We are
not prepared to declare the rejection of this exhibit to be erroneous, since it bears no signatures or
certification by the Clerk of the Court of Appeals that purportedly rendered it, nor any signature
attesting its authenticity. The destruction of the pre-war records of that Court should undoubtedly
impose caution before accepting at face value this sort of copies, not supported by reliable evidence
of genuineness and authenticity. As to the averred undervaluation, we note that the trial court
preferred to adopt the appraisal of the examiner of the Bureau of Internal Revenue, Bernardo
Tamese, made in assessing the inheritance taxes due on the estate of Irene Santos, and approved
by the superior officers of the Bureau, over that of witness Santiago presented by the appellant. In
this respect, the trial court made the following cogent observations in its decision:

It is a fact that Irene Santos owned real properties situated in the City of Manila, and in the
provinces of Laguna, Rizal, Bulacan, and Pampanga, some of which are paraphernal
(Exhibits "H" to "H-3") and the rest are conjugal. These real properties were appraised by the
Bureau of Internal Revenue for purposes of fixing the amount of estate and inheritance taxes
to be paid, and their fair market value was determined by the examiner, Bernardo Tamese,
after an ocular inspection of the properties and investigation of the deeds of title and tax
declarations covering the same. The findings of Mr. Tamese as noted down by him in his
worksheet, Exhibit "7" and which is reproduced in page 15 hereof, were submitted to his
superior officers (Exhibit "B") and the same were approved by the Superintendent and Senior
Revenue Examiners and confirmed by the Commissioner of Internal Revenue, the latter
acting through Deputy Commissioner Misael P. Vera (Exhs. "27" to "28-A"), and this Court
sees no ground for disturbing the findings of these public officials in the absence of proof of
any irregularity in their actuations. It is to be observed that in his report Mr. Tamese valued
the property in Famy, Laguna, at P2,502.00 although in the inventory of defendant Villegas
each parcel was valued only at P1.00. It is also to be noted that in said Report the
paraphernal properties of Irene Santos were included, appraised and considered in
determining the total value of the estate of the old woman. These facts belie the claim of
plaintiff that there was undervaluation of the properties of the deceased. Moreover the official
appraisal made by the Government deserves more credit than the testimony of the witness
Bernardo Santiago who pretended to be in a position to pay P3,000.00 for every hectare of
fishpond of Irene Santos and yet was found to have no properties to his name in the
provinces of Bulacan and Pampanga, (Exhibits "22" and "22-A") and was worth only
P15,000.00 after his death (Exhibits "23" to "23-B"). The deeds of sale, Exhibit "L" to "L-4"
which were also submitted by the plaintiff to prove the market value of the properties in
Bulacan and Pampanga are worthless as evidence in that matter, in the absence of proof
that the properties covered by said documents are of the same kind and class and are
similarly situated as those of the deceased.

We find no reversible error in these conclusion of the court a quo, which had ample opportunity to
estimate the credibility of the contrasting witnesses and evidence.

Hence, the claim of gross inadequacy of the price must be rejected as unproved.

To sustain the claim of deliberate undervaluation would necessarily imply that the Internal Revenue
examiner Tamese and his superiors deliberately betrayed their official duty, and there is no evidence
to justify such conclusion.

Neither do we find merit in the charge that plaintiff's sister, Rizalina Santos Rivera, had siphoned off
money and properties from her aunt's overdraft account. The checks (Exhibits 3 to 3-F) and deposit
slips (Exhibits 4 to 4-F) evidence that the amounts drawn were duly returned.

The trial court found the fair value of the conjugal estate to be P147,194.00, from which the
expenses and claims amounting to P138,931.00 should be deducted, having a net conjugal estate of
P8,263.00, of which one-half (P4,131.50) pertained to the deceased. Adding to that half the net
paraphernal estate, valued at P212.513.00, gives a partible estate of P216,664.50 to be divided (in
the absence of ascendants and descendants) half to the surviving spouse and half to the two nieces,
as nearest collateral relatives (Civil Code, Art. 1001). The one-fourth share of the plaintiff-appellant,
as niece of the deceased, amounts to P54,161.00, for which the P50,000,00 payable under Exhibit
"A" is certainly not an inadequate price, considering that appellant was to obtain it free from the
troubles, delays, and vicissitudes attendant to the judicial liquidation and settlement of the estate.

While fraud may be proved entirely by circumstantial evidence, it is not to be lightly inferred. Our
review of the evidence discloses that the evidence for appellant does not suffice to overcome the
presumption of good faith and regularity in human affairs.

The next question is whether the contract of sale and assignment, Exhibit "A", being valid and
binding, is, nonetheless, rescissible on the ground of lesion.

The theory of the plaintiff is that the contract should be deemed a partition, on the strength of Article
1082 of the Civil Code, which provides:

ART. 1082. Every act which is intended to put an end to indivision among co-heirs and
legatees or devisees is deemed to be a partition, although it should purport to be a sale, an
exchange, a compromise, or any other transaction.";

and she contends that inasmuch as the net hereditary estate of the deceased is, according to the
plaintiff, over one million pesos, to which she is entitled to an aliquot one-fourth (1/4) as an heir, and,
having received only P50,000.00 under the contract, suffering, therefore, a lesion of more than one-
fourth (1/4), she is entitled to a rescission thereof, under Article 1098. This article reads:

ART. 1098. A partition, judicial or extrajudicial, may also be rescinded on account of lesion,
when any one of the co-heirs received things whose value is less, by at least one-fourth,
than the share to which he is entitled, considering the value of the things at the time they
were adjudicated.

The evidenced values of the properties in the estate of Irene Santos, and of plaintiff's share therein,
render unnecessary any extended discussion of her alternative claim that the contract, Exhibit "A",
should be regarded as a partition, rescindible on account of lesion of one fourth. Granting, arguendo,
that the assignment of her hereditary share in favor of her sister, Rizalina, should be deemed a
partition under Article 1082 of the Civil Code of the Philippines (notwithstanding the fact that it did
not totally terminate the indivision among the co-heirs of Irene Santos, since the undivided share of
the widower Villegas remained unchanged), still the lesion, if any, suffered by plaintiff from her sale
of P50,000.00 of an individed heredity interest worth P54,000.00 is certainly less than the one-fourth
(1/4) required by Article 1098 of the Code.

Turning now to the defendant's appeal, we are not disposed to vary the lower court's refusal to
award them damages and attorney's fees. Such awards are primarily in the discretion of the trial
court, and it has found no facts upon which such award can be made. Not only were the allegations
of fraud in plaintiff's complaint privileged in character, but her failure to seek an amicable settlement
before filing suit, as required of relatives by Article 222 of the Civil Code, has not been pleaded
either by answer or motion to dismiss. As to moral damages, the record shows no proof of mental
suffering on the part of defendants upon which the award can be based. In addition, the absence of
actual damages, moral, temperate, or compensatory, blocks the grant of exemplary damages (Civil
Code, Article 2234).
We find no reason for disturbing the decision appealed from, and, therefore, the same is hereby
affirmed. No costs in this instance.

G.R. Nos. L-13328-29 September 29, 1961

GONZALO MERCADO, ET AL., petitioners,


vs.
RAMON LIRA and JUANA C. DE LIRA, respondents.

------------------------------

G.R. No. L-13358 September 29, 1961

NITA LIRA, petitioner,


vs.
GONZALO MERCADO, ET AL., respondents.

Juan Nabong for petitioners.


Mariano H. de Joya And Maximo A. Savellano, Jr. for respondents.

PAREDES, J.:

Gonzalo Mercado and others were the owners and operators of the Laguna Transportation
Company. In the afternoon of April 21, 1951, while its passenger bus No. 39 was making the trip
from Batangas to Manila on the concrete highway at barrio Tulo, Calamba, Laguna, the left front tire
of the bus blew out and sent it swerving gradually toward the left side of the road, over the shoulder
and into a ravine some 270 meters away. From the wreckage, the bodies of the passengers, several
dead, others injured, were recovered, and among the fatalities was Ramon Lira, Jr. (24), son of Mr.
and Mrs. Ramon Lira, Sr. and injured Nita Lira. Two cases for recovery of damages were
commenced against the owners and operators in the Court of First Instance of Batangas: No. 104
(now G.R. Nos. L-13326-29, in this Court) by the parents of deceased Ramon Lira, Jr. and No. 107
(now G.R. No. L-13358, in this Court) by Nita Lira. After a joint-trial, defendants, Mercado and others
were sentenced to pay the following sums: In Civil Case No. 104:

For the death of Ramon Lira, Jr. P10,000.00


including funeral and church
expenses
For loss of earning capacity of 18,000.00
Ramon Lira, Jr. for ten (10) years
at P1,800.00 per annum
Moral damages for mental anguish 4,000.00
For expenses of litigation and 4,000.00
attorney's fees
TOTAL
P36,000.00

In Civil Case No. 107:


For hospitalization and medical 970.20
treatment of Nita Lira
For the impairment of earning 1,000.00
capacity
Moral damages for her physical and 2,000.00
mental suffering
For expenses of litigation and 1,000.00
attorney's fees
TOTAL
P4,970.20

Defendants appealed in both cases and plaintiff Nita Lira appealed in No. 107 (being cases CA-G.R.
No. 15422 and CA-G.R. No. 15423-R). The Court of Appeals render judgment as follows:

As far as the other items are concerned, we find them to be reasonable and fully supported by the
evidence.

Wherefore, the judgment appealed from is hereby modified by reducing the amount awarded
for the death of Ramon Lira, Jr. including funeral and church services from P10,000.00 to
P5,062.50; reducing the amount awarded for loss of earning capacity from P18,000.00 to
P2,000.00 and increasing the amount awarded to plaintiff-appellant Nita Lira for moral
damages from P2,000.00 to P5,000.00. In Civil Case No. 104 (CA-G.R. No. 15422-R),
therefore, defendant should pay a total of P25,032.56; and in civil case No. 107 (CA-G.R.
No. 15422-R), they should pay a total of P7,970.20. In all other respects the said judgment is
affirmed, without pronouncement as to costs this instance.

On December 19, 1957, and in pursuance of a motion for reconsideration, the Court of Appeals
issued the following resolution:

In view of the foregoing considerations, the judgment heretofore rendered is hereby modified
by eliminating therefrom the award of P5,000.00 by way of moral damages to plaintiff Nita
Lira in case CA-G.R. No. 15422-R, maintaining said judgment in all other respects.

In other words, in the case CA-G.R. No. 15422-R, involving the death of Ramon Lira, Jr., the Court
of Appeals granted moral damages, and in the case of CA-G.R. No. 15422-R, involving physical
injuries caused upon Nita Lira, moral damages of P5,000.00 awarded her, were eliminated.

Hence, a petition for certiorari to review the decision of the Court of Appeals was filed by Gonzalo
Mercado, et al., petitioners, against Ramon Lira, et al., (G.R. No. L-13328-29), and another similar
petition was filed by Nita Lira, petitioner vs. Gonzalo Mercado, et al., respondents (G.R. No. L-
13358).

Counsel for the Mercados, defined their position as follows:

Article 2206 of the Civil Code fixes the amount of damages for death at only P3,000.00. The
heirs of the deceased may also claim for moral damages, although awarding it is not
obligatory like the damages for loss of earning capacity. Paragraph 3 of Art. 2206 states that
the heirs may demand for moral damages for mental anguish by reason of the death of the
deceased. The amount of moral damages, therefore, should be made only nominal if the
heirs have already been compensated very substantially for the death of the deceased,
which in this case has been set by the Court of Appeals at P5,052.50 and loss of earning at
P12,000.00 and the attorney's fees at P4,000.00 which already amount to P21,052.50. We
respectfully submit, therefore, that, even if granting that the respondents are entitled to moral
damages, yet the same should not be fixed in such an amount as to kill the entire business
of the respondents who are public service operators, by the enormous amounts they have to
pay on account of the negligence of one driver. In this case, we respectfully submit that the
amount of P500.00 is a reasonable moral damage considering that the other damages
already awarded are excessive. In the same way that the attorney's fees should also be
reduced to only P1,500.00.

and ended with a prayer that "the decision of the Court of Appeals be modified so that the
respondents should pay only the sum of P500.00 as moral damages and P1,500.00 for attorney's
fees.

The pertinent provisions of the new Civil Code state: —

Art. 1764. — Damages in cases comprised in this Section shall be awarded in accordance
with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death
of a passenger caused by the breach of contract by a common carrier.

Art. 2206. — The amount of damages for death caused by a crime or quasi delict shall be at
least three thousand pesos, even though there may have been mitigating circumstances. In
addition: . . .

(3) The spouses, legitimate and illegitimate descendants and ascendants of the deceased
may demand moral damages for mental anguish by reason of the death of the deceased.

It is thus seen that Article 2206 of the new Civil Code, expressly provides that the amount of
damages for death shall be "at least three thousand pesos, even though there may have been
mitigating circumstances." In other words, the amount of damages to be awarded for the death of a
passenger may be more than P3,000.00. It is argued that the award for moral damages for mental
anguish caused by the death of a passenger is not obligatory, and that the amount should only be
nominal if the heirs have already been compensated substantially for the death of the deceased.
Article 2206 states further that "In addition" to the amount of at least P3,000.00 to be awarded for the
death of a passenger, the spouse, legitimate and illegitimate descendants and ascendants of the
deceased may demand moral damages as a consequence of the death of their deceased kin, which
simply means that once the above-mentioned heirs of the deceased claim compensation for moral
damages and are able to prove that they are entitled to such award, it becomes the duty of the court
to award moral damages to the claimant in an amount commensurate with the mental anguish
suffered by them. In the Civil Code, nominal damages are treated separately from moral damages.
Any amount that should be awarded as nominal damages, should not be confused or interlinked with
moral damages which, by itself, is a distinct class of damages. Of course, the amount of moral
damages to be awarded, should be such as may be reasonable and just under the circumstances in
a given case. Petitioners' claim that as the other damages awarded to said respondents are already
excessive, the award for moral damages should be reduced to P500.00. But the Court of Appeals
found the other damages not to be excessive, and as far as this factual finding is concerned, we are
not authorized to rule otherwise. Moreover, petitioners never assailed in their motion for
reconsideration of the decision of the Court of Appeals, dated July 11, 1957, as well as in their
instant petition for certiorari, the reasonableness of the amount of the other damages awarded to
herein respondents. In fact, the petition limits the issues only to the reasonableness of the P4,000.00
awarded by the Court of Appeals as moral damages and the other amount of P4,000.00 as
attorney's fees. Considering the mental anguish and sorrow that must accompany and overwhelm
the parents upon the tragic death of a son, and considering the nature and extent of the services
rendered by counsel for respondents and other circumstances of the case, we believe the awards
given by the Court of Appeals to respondents in the sum of P4,000.00 as moral damages for the
death of Ramon Lira, Jr. and the amount of P4,000.00 for attorney's fees and other expenses of
litigation, fair and reasonable (par. 11, Art. 2208, N.C.C.).1awphîl .nèt

With respect to G.R. No. L-13358, it is alleged that the respondent Court of Appeals erred in its
resolution dated December 19, 1957, in not awarding moral damages to petitioner Nita Lira for
physical injuries and mental suffering sustained by her, resulting from breach of the special contract
of carriage caused by the negligence of the respondents, contending that her case is analogous to
cases of "quasi delicts causing physical injuries" for which the new Civil Code authorizes
indemnification for moral damages in favor of the injured party (par. 2, Art. 2219 N.C.C.).

Petitioner contends that in the case of Cachero v. Manila Yellow Taxicab Co., G.R. No. L-5721, May
23, 1957; (54 Off. Gaz. No. 26, p. 6599), this Court had not expressly declared or impliedly stated
that the award of moral damages to a passenger who has sustained physical injuries is not an
"analogous case". And Cachero in said case, did not invoke the analogous applicability of said
provision of law, (par. 2, Art. 2219) to his case. Much space was allotted by petitioner in her brief, in
support of her theme, stating that the issue raised by her was of first impression. Since the
submission of her brief on February 21, 1958, however, several cases have reached this Court
raising the same question, among them is the case of Paz Fores v. Irene Miranda, G.R. No. L-
12163, March 4, 1959 — the facts of which are identical to those of the present one. This Court,
speaking thru Mr. Justice J.B.L. Reyes, said —

. . . .. Anent the moral damages ordered to be paid to the respondent, the same must be discarded.
We have repeatedly ruled (Cachero v. Manila Yellow Taxicab Co. Inc., G.R. No. L-8721, May 23,
1957; Necesito, et al. v. Paras, G.R. Nos. L-10605-10606, June 30, 1958), that moral damages are
not recoverable in damage actions predicated on a breach of the contract of transportation, in view
of Articles 2219 and 2220 of the new Civil Code, which provide as follows:

"Art. 2219. Moral damages may be recovered in the following and analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

xxx xxx xxx

"Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith."

By contrasting the provisions of these two articles it immediately becomes apparent that:

(a) In cases of breach of contract (including one transportation) proof of bad faith or
fraud (dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an
award of moral damages; and

(b) That a breach of contract can not be considered included in the descriptive term
'analogous cases used in Art. 2219; not only because Art. 2220 specifically provides
for the damages that are caused by contractual breach, but because the definition
of quasi-delict in Art. 2176 of the Code expresslyexcludes the cases where there is a
'preexisting contractual relation between the parties.'

Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
preexisting contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.'

The exception to the basic rule of damages now under consideration is a mishap resulting in
the death of a passenger, in which case Art. 1764 makes the common carrier expressly
subject to the rule of Art. 2206, that entitles the spouse, descendants and ascendants of the
deceased passenger to 'demand moral damages for mental anguish by reason of the death
of the deceased' (Necesito v. Paras, G.R. No. L-10605, Resolution on motion to reconsider,
Sept. 11, 1958). But the exceptional rule of Art. 1764 makes it all the more evident that
where the injured passenger does not die, moral damages are not recoverable unless it is
proved that the carrier was guilty of malice or bad faith. We think it is clear that the mere
carelessness of the carrier's driver does not per se constitute or justify an inference of malice
or bad faith on the part of the carrier; and in the case at bar there is no other evidence of
such malice to support the award of moral damages by the Court of Appeals. To award
moral damages for breach of contract, therefore, without proof of bad faith or malice on the
part of the defendant, as required by Art. 2220 would be to violate the clear provisions of the
law, and constitute unwarranted judicial legislation.

The Court of Appeals has invoked our rulings in Castro v. Acro Taxicab Co., G.R. No. L-
49155, Dec. 14, 1948 and Layda v. Court of Appeals, G.R. No. L-4487, Jan. 29, 1952, but
these doctrines were predicated upon our former law of damages, before judicial discretion
in fixing them became limited by the express provisions of the new Civil Code (previously
quoted). Hence, the aforesaid rulings are now inapplicable.

Upon the other hand, the advantageous position of a party suing a carrier for breach of the
contract of transportation explains, to some extent, the limitations imposed by the new Code
on the amount of the recovery. The action for the breach of contract imposes on the
defendant carrier a presumption of liability upon mere proof of injury to the passenger; the
latter is relieved from the duty to establish the fault of the carrier or of his employees; and the
burden is placed on the carrier to prove that it was due to an unforeseen event or to force
majeure (Cangco v. Manila Railroad Co., 38 Phil. 768, 777). Moreover, the carrier, unlike in
suits for quasi-delict, may not escape liability by proving that it has exercised due diligence in
the selection and supervision of its employees (Art. 1759, new Civ. Code; Cangco v. Manila
Railroad Co., supra; Prado v. Manila Elec. Co., 51 Phil. 900).

The difference in conditions, defenses and proof, as well as the codal concept of quasi-
delict as essentiallyextra-contractual negligence, compel us to differentiate between
actions excontractu, and actions quasi ex delicto, and, prevent us from viewing the action for
breach of contract as simultaneously embodying an action on tort. Neither can this action be
taken as one to enforce on employer's liability under Art. 103 of the Rev. Penal Code, since
the responsibility is not alleged to be subsidiary, nor is there on record any averment or proof
that the driver of appellant was insolvent. In fact, he is not even made a party to the suit.

It is also suggested that a carrier's violation of its engagement to safely transport the
passenger involves a breach of the passenger's confidence, and therefore should be
regarded as a breach of contract in bad faith, justifying recovery of moral damages under Art.
2220. This theory is untenable, for under it the carrier would always be deemed in bad faith,
in every case its obligation to the passenger is infringed, and it would never be accountable
for simple negligence; while under the law (Art. 1756), the presumption is that common
carriers acted negligently (and not maliciously), and Art. 1762 speaks of negligence of the
common carrier.

xxx xxx xxx

"Art. 1756. In case of death of or injuries to passengers common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755."

"Art. 1762. The contributory negligence of the passenger does not bar recovery of damages
for his death or injuries, if the proximate cause thereof is the negligence of the common
carrier, but the amount of damages shall be equitably reduced."

The distinction between fraud, bad faith or malice (in the sense of deliberate or wanton
wrongdoing) and negligence (as mere carelessness) is too fundamental in our law to be
ignored (Arts. 1170-1172); their consequences being clearly differentiated by the Code.

"Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in
good faith is liable shall be those that 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 the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation."

It is to be presumed, in the absence of statutory provision to the contrary, that this difference
was in the mind of the lawmakers when in Art. 2220 they limited recovery of moral damages
to breaches of contract in bad faith. It is true that negligence may be occasionally so gross
as to amount to malice; but that fact must be shown in evidence, and a carrier's bad faith is
not to be lightly inferred from a mere finding that the contract was breached through
negligence of the carrier's employees.

(See also Tamayo v. Aquino, L-12634 & L-12720, May 29, 1959; (56 O.G. #36, p. 5617);
Cariaga v. L.T. Bus, L-11037, Dec. 29, 1960; Versoza v. Baytan L-14092, Apr. 29, 1960; Rex
Taxicab Inc. v. Bautista, L-15392, Sept. 30, 1960).

We gleaned, therefore, from the above mentioned decisions, (1) that the case of a passenger of a
carrier who suffered physical injuries "because of the carrier's negligence (culpa contractual), cannot
be considered in the descriptive expression 'analogous cases', used in Art. 2219"; and (2) that in
cases of breach of contract (including one of transportation) proof of bad faith or fraud (dolus) i.e.,
wanton or deliberate injurious conduct is essential to justify an award of moral damages. There
being no evidence of fraud, malice or bad faith, contemplated by law, on the part of the respondents,
because the cause of the accident was merely the bursting of a tire while the bus was overspeeding,
the cause of petitioner Nita Lira should fail, as far as moral damages is concerned. Moral damages
was, therefore, correctly eliminated by the Court of Appeals.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision of the Court of Appeals in G.R.
Nos. L-13328-29 and L-13358 (Court of Appeals resolution dated December 19, 1957), hereby is
affirmed, without costs in this instance.
[G.R. No. 125031. January 24, 2000]

PERMEX INC. and/or JANE (JEAN) PUNZALAN, PERSONNEL MANAGER


and EDGAR LIM, MANAGER, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION and EMMANUEL FILOTEO, respondents.

DECISION

QUISUMBING, J.:

This special civil action for certiorari impugns the Resolution of the National Labor
Relations Commission, Fifth Division, dated March 14, 1996, which reversed the
decision of the Labor Arbiter in NLRC Case No. RAB-09-09-00259-94, as well as its
Resolution, dated April 17, 1996, denying the motion for reconsideration.

Petitioner, Permex Producer and Exporter Corporation (hereinafter Permex), is a


company engaged in the business of canning tuna and sardines, both for export and
domestic consumption. Its office and factory are both located in Zamboanga City. 

Co-petitioners Edgar Lim and Jean Punzalan are its Manager and Personnel
[1]

Manager, respectively.

Private respondent Emmanuel Filoteo, an employee of Permex, was terminated by


petitioners allegedly for flagrantly and deliberately violating company rules and
regulations. More specifically, he was dismissed allegedly for falsifying his daily time
record.

The pertinent facts, as found by both the NLRC and the Labor Arbiter, are as follows:

Permex initially hired Emmanuel Filoteo on October 1, 1990, as a mechanic.


Eventually, Filoteo was promoted to water treatment operator, a position he held until
his termination on August 29, 1994. As water treatment operator, Filoteo did not have
a fixed working schedule. His hours of work were dependent upon the company's
shifting production schedules.

On July 31, 1994, Filoteo was scheduled for the night shift from 7:00 p.m. to 7:00
a.m. the following day. That night he reported for work together with his co-workers,
Felix Pelayo and Manuel Manzan. They logged in at the main gate and guardhouse of
the petitioner's factory. Filoteo entered his time-in at 8:45 p.m. and since he was
scheduled to work until 7:00 a.m. the next day, he wrote 7:00 a.m. in his scheduled
time-out. This practice of indicating the time out at the moment they time in, was
customarily done by most workers for convenience and practicality since at the end of
their work shift, they were often tired and in a hurry to catch the available service
vehicle for their trip home, so they often forgot to log out. There were times also when
the Log Book was brought to the Office of the Personnel Manager and they could not
enter their time out. The company had tolerated the practice.

On the evening of July 31,1994, at around 9:20 p.m., Filoteo, together with Pelayo,
went to see the Assistant Production Manager to inquire if "butchering" of fish would
be done that evening so they could start operating the boiler. They were advised to
wait from 9:30 p.m. to 10:00 p.m. for confirmation.

At or about 10:00 p.m., Filoteo and Pelayo went back to the Assistant Production
Manager's office. There they were informed that there would be no "butchering" of
tuna that night. Filoteo then sought permission to go home, which was granted.
Filoteo then hurriedly got his things and dashed off to the exit gate to catch the service
jeep provided by Permex.

The next day, August 1, 1994, Filoteo reported for work as usual. He then
remembered that he had to make a re-entry in his daily time record for the previous
day. He proceeded to the Office of the Personnel Manager to retime his DTR entry.
Later, he received a memorandum from the Assistant Personnel Officer asking him to
explain, in writing, the entry he made in his DTR. Filoteo complied and submitted his
written explanation that same evening.

On August 8, 1994, Filoteo was suspended indefinitely. His explanation was found
unsatisfactory. He was dismissed from employment on August 23, 1994.

The dismissal arose from Filoteo's alleged violation of Article 2 of the company rules
and regulations. The offense charged was entering in his DTR that he had worked
from 8:45 p.m. of July 31, 1994 to 7:00 a.m. of August 1,1994, when in fact he had
worked only up to 10:00 p.m.

On September 5, 1994, Filoteo filed a complaint for illegal dismissal with claims for
separation pay, damages, and attorney's fees with the Labor Arbiter. His complaint
was docketed as NLRC Case No. RAB 09-09-00259-94.

On June 9, 1995, the Labor Arbiter dismissed the complaint for lack of merit. The
decretal portion of the decision reads:

"WHEREFORE, in view of the foregoing considerations, judgment is


hereby rendered dismissing the complaint for lack of merit. However, for
violation of compliance of (sic) procedural due process, the respondent
is hereby ordered thru its Authorized Officer to pay complainant
P1,000.00 by way of indemnity pay. Furthermore, complainant's claims
for damages and attorney's fees be dismissed for lack of merit.

"SO ORDERED." [2]

Filoteo appealed to the NLRC. Finding merit therein, the Commission's Fifth Division
promulgated its resolution, reversing and setting aside the Labor Arbiter's decision, by
disposing as follows:

"WHEREFORE, the decision appealed from, is Vacated and Set Aside


and a new one entered declaring the complainant to have been illegally
dismissed by respondent company. Accordingly, respondent Permex,
Inc., through its corporate officers, is hereby ordered and directed to pay
complainant, Emmanuel Filoteo, separation pay at the rate of one (1)
month salary for every year of service or in the equivalent of four (4)
months separation pay and backwages effective August 23, 1994 up to
the promulgation of this decision, inclusive of fringe benefits, if any.
Further, respondent company is ordered to pay complainant moral and
exemplary damages in the sum of P10,000.00 and P5,000.00,
respectively, as well as attorney's fees equivalent to ten (10%) percent of
the total monetary award after computation thereof at the execution
stage.

"SO ORDERED." [3]

On April 3, 1996, petitioners filed a motion for reconsideration. It was denied for lack
of merit by the NLRC in a resolution dated April 17, 1996.

Hence, the present petition, assigning the following errors: 


I

PUBLIC RESPONDENT'S RESOLUTIONS ARE CONTRARY TO


THE EVIDENCE ON RECORD AND ADMITTED FACTS.
II

PUBLIC RESPONDENT ERRED WHEN IT RULED THAT PRIVATE


RESPONDENT WAS ILLEGALLY DISMISSED.
III
PUBLIC RESPONDENT ERRED WHEN IT AWARDED PRIVATE
RESPONDENT SEPARATION PAY, BACKWAGES, DAMAGES
AND ATTORNEY'S FEES SANS FACTUAL AND LEGAL BASIS.

We will now consider these assigned errors to resolve the principal issue of whether
or not private respondent was illegally terminated from his employment.

Note that, firstly, petitioners seek a reversal of the public respondent's findings of the
facts. But as the Court has repeatedly ruled the findings of facts of the NLRC,
particularly where the NLRC and the Labor Arbiter are in agreement, are deemed
binding and conclusive upon the Court. For the Court is not a trier of facts. Second,
[4] [5]

resort to judicial review of the decisions of the NLRC in a special civil action
for certiorari under Rule 65 of the Rules of Court, is limited only to the question
generally of grave abuse of discretion amounting to lack or excess of
jurisdiction. Thirdly, in this case, the NLRC's factual findings are supported by the
[6]

evidence on record. We are therefore constrained not to disturb said findings of fact.

Whether private respondent was illegally dismissed or not is governed by Article 282
of the Labor Code. To constitute a valid dismissal from employment, two requisites
[7]

must concur: (a) the dismissal must be for any of the causes provided for in Article
282 of the Labor Code; and (b) the employee must be afforded an opportunity to be
heard and defend himself. This means that an employer can terminate the services of
[8]

an employee for just and valid causes, which must be supported by clear and
convincing evidence. It also means that, procedurally, the employee must be given
[9]

notice, with adequate opportunity to be heard, before he is notified of his actual


[10]

dismissal for cause.

In the present case, the NLRC found that the two-fold requirements for a valid
dismissal were not satisfied by the petitioners.

First, petitioner's charge of serious misconduct of falsification or deliberate


misrepresentation was not supported by the evidence on the record contrary to Art.
277 of the Labor Code which provides that:

"Art. 277. Miscellaneous provisions. -

xxx

(b) Subject to the constitutional right of workers to security of tenure and


their right to be protected against dismissal except for a just and
authorized cause...The burden of proving that the termination was for a
valid or authorized cause shall rest on the employer..."
Second, the private respondent was not afforded an opportunity to be heard. As found
by the NLRC:

"... Aside from the fact that there was no valid and justifiable cause for
his outright dismissal from the service, complainant's dismissal as
correctly held by the Labor Arbiter was tainted with arbitrariness for
failure of respondent company (petitioner herein) to observe procedural
due process in effecting his dismissal. Admittedly, complainant was
suspended indefinitely on August 8, 1994 and subsequently dismissed on
August 23, 1994 without any formal investigation to enable complainant
to defend himself."[11]

Such dismissal, in our view, was too harsh a penalty for an unintentional infraction,
not to mention that it was his first offense committed without malice, and committed
also by others who were not equally penalized. 
[12]

It is clear that the alleged false entry in private respondent's DTR was actually the
result of having logged his scheduled time-out in advance on July 31, 1994. But it
appears that when he timed in, he had no idea that his work schedule (night shift)
would be cancelled. When it was confirmed at 10:00 p.m. that there was no
"butchering" of tuna to be done, those who reported for work were allowed to go
home, including private respondent. In fact, Filoteo even obtained permission to leave
from the Assistant Production Manager.

Considering the factory practice which management tolerated, we are persuaded that
Filoteo, in his rush to catch the service vehicle, merely forgot to correct his initial
time-out entry. Nothing is shown to prove he deliberately falsified his daily time
record to deceive the company. The NLRC found that even management's own
evidence reflected that a certain Felix Pelayo, a co-worker of private respondent, was
also allowed to go home that night and like private respondent logged in advance 7:00
a.m. as his time-out. This supports Filoteo's claim that it was common practice among
night-shift workers to log in their usual time-out in advance in the daily time
record.

Moreover, as early as Tide Water Associated Oil Co. v. Victory Employees and
Laborers Association, 85 Phil. 166 (1949), we ruled that, where a violation of
company policy or breach of company rules and regulations was found to have been
tolerated by management, then the same could not serve as a basis for termination.

All told we see no reason to find that the NLRC gravely abused its discretion when it
ruled that private respondent was illegally dismissed. Hence we concur in that ruling.
Nonetheless, we find that the award of moral and exemplary damages by the public
respondent is not in order and must be deleted. Moral damages are recoverable only
where the dismissal of the employee was tainted by bad faith or fraud, or where it
constituted an act oppressive to labor, and done in a manner contrary to morals, good
customs, or public policy. Exemplary damages may be awarded only if the dismissal
[13]

was done in a wanton, oppressive, or malevolent manner. None of these


[14]

circumstances exist in the present case.

WHEREFORE, the petition is DENIED. The assailed resolutions of the National


Labor Relations Commission dated March 14, 1996 and April 17, 1996 in NLRC CA
No. M-002808-95 are AFFIRMEDwith MODIFICATION. Petitioner Permex,
through its corporate officers, is ORDERED to pay jointly and solidarily the private
respondent separation pay at the rate of one (1) month salary for every year of service
as well as backwages effective August 23, 1994, inclusive of fringe benefits if any,
with legal interest until fully paid, and attorney's fees equivalent to ten (10%) percent
of the total monetary award computed at the execution stage hereof. The award of
moral and exemplary damages, however, is DELETED. Costs against petitioners.

SO ORDERED.

G.R. No. 156339. October 6, 2004]

MS. VIOLETA YASOA, personally and as heir of deceased sister


defendant PELAGIA YASOA and as attorneyinfact of her
brothers ALEJANDRO and EUSTAQUIO, both YASOA and
sisters: TERESITA YASOA BALLESTERO and ERLINDA YASOA
TUGADI, and mother AUREA VDA. DE
YASOA, petitioners, vs. RODENCIO and JOVENCIO, both
surnamed DE RAMOS, respondents.

DECISION
CORONA, J.:

Before this Court is a petition for review on certiorari seeking the reversal
of the decision of the Court of Appeals dated June 14, 2002 and its resolution
[1]

dated December 12, 2002 in CA-G.R. SP No. 69300.


The records disclose that in November 1971, Aurea Yasoa and her son,
Saturnino, went to the house of Jovencio de Ramos to ask for financial
assistance in paying their loans to Philippine National Bank (PNB), otherwise
their residential house and lot, covered by TCT No. T-32810, would be
foreclosed. Inasmuch as Aurea was his aunt, Jovencio acceded to the
request. They agreed that, upon payment by Jovencio of the loan to PNB, half
of Yasoas subject property would be sold to him.
On December 29, 1971, Jovencio paid Aureas bank loan. As agreed upon,
Aurea executed a deed of absolute sale in favor of Jovencio over half of the
lot consisting of 123 square meters. Thereafter, the lot was surveyed and
separate titles were issued by the Register of Deeds of Sta. Cruz, Laguna in
the names of Aurea (TCT No. 73252) and Jovencio (TCT No. 73251).
Twenty-two years later, in August 1993, Aurea filed an estafa complaint
against brothers Jovencio and Rodencio de Ramos on the ground that she
was deceived by them when she asked for their assistance in 1971
concerning her mortgaged property. In her complaint, Aurea alleged that
Rodencio asked her to sign a blank paper on the pretext that it would be used
in the redemption of the mortgaged property. Aurea signed the blank paper
without further inquiry because she trusted her nephew, Rodencio. Thereafter,
they heard nothing from Rodencio and this prompted Nimpha Yasoa Bondoc
to confront Rodencio but she was told that the title was still with the Register
of Deeds. However, when Nimpha inquired from the Register of Deeds, she
was shocked to find out that the lot had been divided into two, pursuant to a
deed of sale apparently executed by Aurea in favor of Jovencio. Aurea
averred that she never sold any portion of her property to Jovencio and never
executed a deed of sale. Aurea was thus forced to seek the advice of Judge
Enrique Almario, another relative, who suggested filing a complaint for estafa.
On February 21, 1994, Assistant Provincial Prosecutor Rodrigo B. Zayenis
dismissed the criminal complaint for estafa for lack of evidence. On account of
this dismissal, Jovencio and Rodencio filed a complaint for damages on the
ground of malicious prosecution with the Regional Trial Court of Sta. Cruz,
Laguna, Branch 91, which was docketed as Civil Case No. SC-3230. They
[2]

alleged that the filing of the estafa complaint against them was done with
malice and it caused irreparable injury to their reputation, as Aurea knew fully
well that she had already sold half of the property to Jovencio.
On October 5, 2000, the trial court rendered a decision in favor of
Jovencio and Rodencio. The dispositive portion stated:

WHEREFORE, premises considered, finding that plaintiffs have established their case
by preponderance of evidence, judgment is hereby rendered in their favor and against
the defendants ordering the latter to pay the former as follows:

A) P150,000.00 by way of moral damages;


B) P30,000.00 as exemplary damages;

C) P10,000.00 as attorneys fees incurred in defending themselves from the criminal


complaint for estafa;

D) P10,000.00 as attorneys fees and cost of litigation, and to pay the costs.

There being no sufficient evidence established to prove the claim for actual damages
the same is hereby dismissed.

SO ORDERED. [3]

Petitioner Violeta Yasoa, personally and on behalf of her brothers and


sisters and mother Aurea, filed a petition for certiorari under Rule 65 with the
Court of Appeals which dismissed the same on June 14, 2002 on the ground
that petitioners availed of the wrong remedy. Their subsequent motion for
reconsideration was likewise denied on December 12, 2000.
Hence, the instant petition.
We agree with the appellate court that the remedy availed of by petitioners
was inappropriate as Rule 65 of the Rules of Court cannot be a substitute for
a lost appeal, and that, in any event, petitioners are liable for malicious
[4]

prosecution.
The principal question to be resolved is whether the filing of the criminal
complaint for estafa by petitioners against respondents constituted malicious
prosecution.
In this jurisdiction, the term malicious prosecution has been defined as an
action for damages brought by one against whom a criminal prosecution, civil
suit, or other legal proceeding has been instituted maliciously and without
probable cause, after the termination of such prosecution, suit, or other
proceeding in favor of the defendant therein. To constitute malicious
prosecution, there must be proof that the prosecution was prompted by a
sinister design to vex or humiliate a person, and that it was initiated
deliberately by the defendant knowing that his charges were false and
groundless. Concededly, the mere act of submitting a case to the authorities
[5]

for prosecution does not make one liable for malicious prosecution. [6]

In this case, however, there is reason to believe that a malicious intent


was behind the filing of the complaint for estafa against respondents. The
records show that the sale of the property was evidenced by a deed of sale
duly notarized and registered with the local Register of Deeds. After the
execution of the deed of sale, the property was surveyed and divided into two
portions. Separate titles were then issued in the names of Aurea Yasoa (TCT
No. 73252) and Jovencio de Ramos (TCT No. 73251). Since 1973, Jovencio
had been paying the realty taxes of the portion registered in his name. In
1974, Aurea even requested Jovencio to use his portion as bond for the
temporary release of her son who was charged with malicious mischief. Also,
when Aurea borrowed money from the Rural Bank of Lumban in 1973 and the
PNB in 1979, only her portion covered by TCT No. 73252 was mortgaged.
All these pieces of evidence indicate that Aurea had long acknowledged
Jovencios ownership of half of the property. Furthermore, it was only in 1993
when petitioners decided to file the estafa complaint against respondents. If
petitioners had honestly believed that they still owned the entire property, it
would not have taken them 22 years to question Jovencios ownership of half
of the property. The only conclusion that can be drawn from the
circumstances is that Aurea knew all along that she was no longer the owner
of Jovencios portion after having sold it to him way back in 1971. Likewise,
other than petitioners bare allegations, no other evidence was presented by
them to substantiate their claim.
Malicious prosecution, both in criminal and civil cases, requires the
elements of (1) malice and (2) absence of probable cause. These two[7]

elements are present in the present controversy. Petitioners were completely


aware that Jovencio was the rightful owner of the lot covered by TCT No.
73251, clearly signifying that they were impelled by malice and avarice in
bringing the unfounded action. That there was no probable cause at all for the
filing of the estafa case against respondents led to the dismissal of the
charges filed by petitioners with the Provincial Prosecutors Office in Siniloan,
Laguna.
Petitioners reliance on Drilon vs. Court of Appeals is misplaced. It must
[8]

be noted that in Drilon, the investigating panel found that there was probable
cause to hold private respondent Homobono Adaza for trial for the crime of
rebellion with murder and frustrated murder. Thus, petitioner (now Senate
President) Franklin Drilon could not be held liable for malicious prosecution as
there existed probable cause for the criminal case. Here, the complaint for
estafa was dismissed outright as the prosecutor did not find any probable
cause against respondents. A suit for malicious prosecution will prosper
where legal prosecution is carried out without probable cause.
In sum, we find no reversible error on the part of the appellate court in
dismissing the petition and in effect affirming the trial courts decision holding
petitioners liable for damages for the malicious prosecution of respondents.
WHEREFORE, the decision declaring petitioners liable for malicious
prosecution is hereby AFFIRMED in toto.
SO ORDERED.

[G.R. No. 156168. December 14, 2004]

EQUITABLE BANKING CORPORATION, petitioner, vs. JOSE T.


CALDERON, respondent.

DECISION
GARCIA, J.:

Thru this petition for review on certiorari under Rule 45 of the Rules of
Court, petitioner Equitable Banking Corporation (EBC), seeks the reversal
and setting aside of the decision dated November 25, 2002 of the Court of
[1]

Appeals in CA-G.R. CV No. 60016, which partially affirmed an earlier decision


of the Regional Trial Court at Makati City, Branch 61, insofar as it grants moral
damages and costs of suit to herein respondent, Jose T. Calderon.
The decision under review recites the factual background of the case, as
follows:

Plaintiff-appellee [now respondent] Jose T. Calderon (Calderon for brevity), is a


businessman engaged in several business activities here and abroad, either in his
capacity as President or Chairman of the Board thereon. In addition thereto, he is a
stockholder of PLDT and a member of the Manila Polo Club, among others. He is a
seasoned traveler, who travels at least seven times a year in the U.S., Europe and
Asia. On the other hand, the defendant-appellant [now petitioner] Equitable Banking
Corporation (EBC for brevity), is one of the leading commercial banking institutions
in the Philippines, engaged in commercial banking, such as acceptance of deposits,
extension of loans and credit card facilities, among others.

xxx xxx xxx

Sometime in September 1984, Calderon applied and was issued an Equitable


International Visa card (Visa card for brevity). The said Visa card can be used for
both peso and dollar transactions within and outside the Philippines. The credit limit
for the peso transaction is TWENTY THOUSAND (P20,000.00) PESOS; while in the
dollar transactions, Calderon is required to maintain a dollar account with a
minimum deposit of $3,000.00, the balance of dollar account shall serve as the credit
limit.

In April 1986, Calderon together with some reputable business friends and associates,
went to Hongkong for business and pleasure trips. Specifically on 30 April 1986,
Calderon accompanied by his friend, Ed De Leon went to Gucci Department Store
located at the basement of the Peninsula Hotel (Hongkong). There and then, Calderon
purchased several Gucci items (t-shirts, jackets, a pair of shoes, etc.). The cost of his
total purchase amounted to HK$4,030.00 or equivalent to US$523.00. Instead of
paying the said items in cash, he used his Visa card (No. 4921 6400 0001 9373) to
effect payment thereof on credit. He then presented and gave his credit card to the
saleslady who promptly referred it to the store cashier for verification. Shortly
thereafter, the saleslady, in the presence of his friend, Ed De Leon and other shoppers
of different nationalities, informed him that his Visa card was blacklisted. Calderon
sought the reconfirmation of the status of his Visa card from the saleslady, but the
latter simply did not honor it and even threatened to cut it into pieces with the use of a
pair of scissors.

Deeply embarrassed and humiliated, and in order to avoid further indignities,


Calderon paid cash for the Gucci goods and items that he bought.

Upon his return to the Philippines, and claiming that he suffered much
torment and embarrassment on account of EBCs wrongful act of
blacklisting/suspending his VISA credit card while at the Gucci store in
Hongkong, Calderon filed with the Regional Trial Court at Makati City a
complaint for damages against EBC.
[2]

In its Answer, EBC denied any liability to Calderon, alleging that the
[3]

latters credit card privileges for dollar transactions were earlier placed under
suspension on account of Calderons prior use of the same card in excess of
his credit limit, adding that Calderon failed to settle said prior credit purchase
on due date, thereby causing his obligation to become past due. Corollarily,
EBC asserts that Calderon also failed to maintain the required minimum
deposit of $3,000.00.
To expedite the direct examination of witnesses, the trial court required the
parties to submit affidavits, in question-and-answer form, of their respective
witnesses, to be sworn to in court, with cross examination to be made in open
court.
Eventually, in a decision dated October 10, 1997, the trial court, [4]

concluding that defendant bank was negligent if not in bad faith, in


suspending, or blacklisting plaintiffs credit card without notice or basis,
rendered judgment in favor of Calderon, thus:

WHEREFORE PREMISES ABOVE CONSIDERED, judgment is hereby rendered in


favor of plaintiff as against defendant EQUITABLE BANKING CORPORATION,
which is hereby ORDERED to pay plaintiff as follows:

1. the sum of US$150.00 as actual damages;

2. the sum of P200,000.00 as and by way of moral damages;

3. the amount of P100,000.00 as exemplary damages;

4. the sum of P100,000.00 as attorneys fees plus P500.00 per court hearing
and

5. costs of suit.

SO ORDERED.

Therefrom, EBC went to the Court of Appeals (CA), whereat its recourse
was docketed as CA G.R. CV No. 60016.
After due proceedings, the CA, in a decision dated November 25,
2002, affirmed that of the trial court but only insofar as the awards of moral
[5]

damages, the amount of which was even reduced, and the costs of suits are
concerned. More specifically, the CA decision dispositively reads: [6]

WHEREFORE, in consideration of the foregoing disquisitions, the decision of the


court a quo dated 10 October 1997 is AFFIRMED insofar as the awards of moral
damages and costs of suit are concerned. However, anent the award of moral
damages, the same is reduced to One Hundred Thousand (P100,000.00) Pesos.

The rest of the awards are deleted.

SO ORDERED.

Evidently unwilling to accept a judgment short of complete exemption from


any liability to Calderon, EBC is now with us via the instant petition on its lone
submission that THE COURT OF APPEALS ERRED IN HOLDING THAT THE
RESPONDENT IS ENTITLED TO MORAL DAMAGES NOTWITHSTANDING
ITS FINDING THAT PETITIONERS ACTIONS HAVE NOT BEEN ATTENDED
WITH ANY MALICE OR BAD FAITH. [7]

The petition is impressed with merit.


In law, moral damages include physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation and similar injury. However, to be entitled to the award thereof, it
[8]

is not enough that one merely suffered sleepless nights, mental anguish or
serious anxiety as a result of the actuations of the other party. In Philippine
[9]

Telegraph & Telephone Corporation vs. Court of Appeals, we have had the
[10]

occasion to reiterate the conditions to be met in order that moral damages


may be recovered, viz:

An award of moral damages would require, firstly, evidence of besmirched reputation,


or physical, mental or psychological suffering sustained by the claimant; secondly, a
culpable act or omission factually established; thirdly, proof that the wrongful act or
omission of the defendant is the proximate cause of the damages sustained by the
claimant; and fourthly, that the case is predicated on any of the instances expressed
or envisioned by Articles 2219 and 2220 of the Civil Code.

Particularly, in culpa contractual or breach of contract, as here, moral


damages are recoverable only if the defendant has acted fraudulently or in
bad faith, or is found guilty of gross negligence amounting to bad faith, or in
[11]

wanton disregard of his contractual obligations. Verily, the breach must be


[12]

wanton, reckless, malicious or in bad faith, oppressive or abusive. [13]

Here, the CA ruled, and rightly so, that no malice or bad faith attended
petitioners dishonor of respondents credit card. For, as found no less by the
same court, petitioner was justified in doing so under the provisions of its
Credit Card Agreement with respondent, paragraph 3 of which states:
[14]

xxx the CARDHOLDER agrees not to exceed his/her approved credit limit, otherwise,
all charges incurred including charges incurred through the use of the extension
CARD/S, if any in excess of credit limit shall become due and demandable and the
credit privileges shall be automatically suspended without notice to the
CARDHOLDER in accordance with Section 11 hereof.

We are thus at a loss to understand why, despite its very own finding of
absence of bad faith or malice on the part of the petitioner, the CA
nonetheless adjudged it liable for moral damages to respondent.
Quite evidently, in holding petitioner liable for moral damages, the CA
justified the award on its assessment that EBC was negligent in not informing
Calderon that his credit card was already suspended even before he left for
Hongkong, ratiocinating that petitioners right to automatically suspend a
cardholders privileges without notice should not have been indiscriminately
used in the case of respondent because the latter has already paid his past
obligations and has an existing dollar deposit in an amount more than the
required minimum for credit card at the time he made his purchases in
Hongkong. But, as explained by the petitioner in the memorandum it filed with
this Court, which explanations were never controverted by respondent:
[15]

xxx prior to the incident in question (i.e., April 30, 1986 when the purchases at the
Gucci store in Hongkong were made), respondent made credit purchases in Japan and
Hongkong from August to September 1985 amounting to US$14,226.12, while only
having a deposit of US$3,639.00 in his dollar account as evidenced by the pertinent
monthly statement of respondents credit card transactions and his bank passbook, thus
exceeding his credit limit; these purchases were accommodated by the petitioner on
the condition that the amount needed to cover the same will be deposited in a few
days as represented by respondents secretary and his companys general manager a
certain Mrs. Zamora and Mr. F.R. Oliquiano; respondent however failed to make good
on his commitment; later, respondent likewise failed to make the required deposit on
the due date of the purchases as stated in the pertinent monthly statement of account;
as a consequence thereof, his card privileges for dollar transactions were suspended; it
was only four months later on 31 January 1986, that respondent deposited the sum
of P14,501.89 in his dollar account to cover his purchases; the said amount however
was not sufficient to maintain the required minimum dollar deposit of $3,000.00 as
the respondents dollar deposit stood at only US$2,704.94 after satisfaction of his
outstanding accounts; a day before he left for Hongkong, respondent made another
deposit of US$14,000.00 in his dollar account but did not bother to request the
petitioner for the reinstatement of his credit card privileges for dollar transactions,
thus the same remained under suspension. [16]

The foregoing are based on the sworn affidavit of petitioners Collection


Manager, a certain Lourdes Canlas, who was never cross examined by the
respondent nor did the latter present any evidence to refute its veracity.
Given the above, and with the express provision on automatic suspension
without notice under paragraph 3, supra, of the parties Credit Card
Agreement, there is simply no basis for holding petitioner negligent for not
notifying respondent of the suspended status of his credit card privileges.
It may be so that respondent, a day before he left for Hongkong, made a
deposit of US$14,000.00 to his dollar account with petitioner. The sad reality,
however, is that he never verified the status of his card before departing for
Hongkong, much less requested petitioner to reinstate the same. [17]
And, certainly, respondent could not have justifiably assumed that
petitioner must have reinstated his card by reason alone of his having
deposited US$14,000.00 a day before he left for Hongkong. As issuer of the
card, petitioner has the option to decide whether to reinstate or altogether
terminate a credit card previously suspended on considerations which the
petitioner deemed proper, not the least of which are the cardholders payment
record, capacity to pay and compliance with any additional requirements
imposed by it. That option, after all, is expressly embodied in the same Credit
Card Agreement, paragraph 12 of which unmistakably states:

The issuer shall likewise have the option of reinstating the card holders privileges
which have been terminated for any reason whatsoever upon submission of a new
accomplished application form if required by the issuer and upon payment of an
additional processing fee equivalent to annual fee.[18]

Even on the aspect of negligence, therefore, petitioner could not have


been properly adjudged liable for moral damages.
Unquestionably, respondent suffered damages as a result of the dishonor
of his card. There is, however, a material distinction between damages and
injury. To quote from our decision in BPI Express Card Corporation vs. Court
of Appeals: [19]

Injury is the illegal invasion of a legal right; damage is the loss, hurt or harm which
results from the injury; and damages are the recompense or compensation awarded
for the damage suffered. Thus, there can be damage without injury in those
instances in which the loss or harm was not the result of a violation of a legal duty.
In such cases the consequences must be borne by the injured person alone, the law
affords no remedy for damages resulting from an act which does not amount to a
legal injury or wrong. These situations are often called damnum absque injuria.

In other words, in order that a plaintiff may maintain an action for the injuries of
which he complains, he must establish that such injuries resulted from a breach of
duty which the defendant owed to the plaintiff- a concurrence of injury to the plaintiff
and legal responsibility by the person causing it. The underlying basis for the award
of tort damages is the premise that an individual was injured in contemplation of
law. Thus, there must first be a breach of some duty and the imposition of liability
for that breach before damages may be awarded; and the breach of such duty should
be the proximate cause of the injury. (Emphasis supplied).

In the situation in which respondent finds himself, his is a case of damnum


absque injuria.
We do not take issue with the appellate court in its observation that the
Credit Card Agreement herein involved is a contract of adhesion, with the
stipulations therein contained unilaterally prepared and imposed by the
petitioner to prospective credit card holders on a take-it-or-leave-it basis. As
said by us in Polotan, Sr. vs. Court of Appeals: [20]

A contract of adhesion is one in which one of the contracting parties imposes a ready-
made form of contract which the other party may accept or reject, but cannot modify.
One party prepares the stipulation in the contract, while the other party merely affixes
his signature or his adhesion thereto giving no room for negotiation and depriving the
latter of the opportunity to bargain on equal footing.

On the same breath, however, we have equally ruled that such a contract
is as binding as ordinary contracts, the reason being that the party who
adheres to the contract is free to reject it entirely. [21]

Moreover, the provision on automatic suspension without notice embodied


in the same Credit Card Agreement is couched in clear and unambiguous
term, not to say that the agreement itself was entered into by respondent who,
by his own account, is a reputable businessman engaged in business
activities here and abroad.
On a final note, we emphasize that moral damages are in the category of
an award designed to compensate the claim for actual injury suffered and not
to impose a penalty on the wrongdoer. [22]

WHEREFORE, the instant petition is hereby GRANTED and the decision


under review REVERSED and SET ASIDE.
SO ORDERED.

G.R. No. L-22973 January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant,


vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of
Camarines Norte,defendants-appellees.

Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant.


Tomas Besa and Jose B. Galang for defendants-appellees.

ANGELES, J.:

An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case
No. 52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine National Bank and
Anacleto Heraldo, defendants", dismissing the complaint against both defendants and sentencing
the plaintiff to pay to defendant Philippine National Bank (PNB for short) the sum of P3,582.52 with
interest thereon at the rate of 6% per annum from December 22, 1961 until fully paid, and the costs
of suit.

In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which
may be restated as follows:

1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87
and not P58,213.51 as concluded by the court a quo; hence, the proceeds of the foreclosure
sale of its real property alone in the amount of P56,908.00 on that date, added to the sum of
P738.59 it remitted to the PNB thereafter was more than sufficient to liquidate its obligation,
thereby rendering the subsequent foreclosure sale of its chattels unlawful;

2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the
additional sum of P298.54 as expenses of the foreclosure sale;

3. That the subsequent foreclosure sale of its chattels is null and void, not only because it
had already settled its indebtedness to the PNB at the time the sale was effected, but also
for the reason that the said sale was not conducted in accordance with the provisions of the
Chattel Mortgage Law and the venue agreed upon by the parties in the mortgage contract;

4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and

5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard
of plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale thru
force, intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNB
is liable to plaintiff for damages and attorney's fees.

The antecedent facts of the case, as found by the trial court, are as follows:

On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch
of defendant PNB and the former offered real estate, machinery, logging and transportation
equipments as collaterals. The application, however, was approved for a loan of P100,000
only. To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of
land, together with the buildings and improvements existing thereon, situated in the
poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte, and
covered by Transfer Certificate of Title No. 381 of the land records of said province, as well
as various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all situated in
its compound in the aforementioned municipality.

On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which
the plaintiff signed a promissory note wherein it promised to pay to the PNB the said sum in
five equal yearly installments at the rate of P6,528.40 beginning July 31, 1957, and every
year thereafter, the last of which would be on July 31, 1961.

On October 19, 1956, the PNB made another release of P15,500 as part of the approved
loan granted to the plaintiff and so on the said date, the latter executed another promissory
note wherein it agreed to pay to the former the said sum in five equal yearly installments at
the rate of P3,679.64 beginning July 31, 1957, and ending on July 31, 1961.
The plaintiff failed to pay the amortization on the amounts released to and received by it.
Repeated demands were made upon the plaintiff to pay its obligation but it failed or
otherwise refused to do so. Upon inspection and verification made by employees of the PNB,
it was found that the plaintiff had already stopped operation about the end of 1957 or early
part of 1958.

On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the parcel of land, together with the improvements
existing thereon, covered by Transfer Certificate of Title No. 381 of the land records of
Camarines Norte, and to sell it at public auction in accordance with the provisions of Act No.
3135, as amended, for the satisfaction of the unpaid obligation of the plaintiff, which as of
September 22, 1961, amounted to P57,646.59, excluding attorney's fees. In compliance with
the request, on October 16, 1961, the Provincial Sheriff of Camarines Norte issued the
corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff. According
to the notice, the mortgaged property would be sold at public auction at 10:00 a.m. on
November 21, 1961, at the ground floor of the Court House in Daet, Camarines Norte.

On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the chattels mortgaged to it by the plaintiff and sell
them at public auction also on November 21, 1961, for the satisfaction of the sum of
P57,646.59, plus 6% annual interest therefore from September 23, 1961, attorney's fees
equivalent to 10% of the amount due and the costs and expenses of the sale. On the same
day, the PNB sent notice to the plaintiff that the former was foreclosing extrajudicially the
chattels mortgaged by the latter and that the auction sale thereof would be held on
November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where
the mortgaged chattels were situated.

On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the
chattels mortgaged by the plaintiff and made an inventory thereof in the presence of a PC
Sergeant and a policeman of the municipality of Jose Panganiban. On November 9, 1961,
the said Deputy Sheriff issued the corresponding notice of public auction sale of the
mortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's
compound situated in the municipality of Jose Panganiban, Province of Camarines Norte.

On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail
matter, one to the Naga Branch of the PNB and another to the Provincial Sheriff of
Camarines Norte, protesting against the foreclosure of the real estate and chattel mortgages
on the grounds that they could not be effected unless a Court's order was issued against it
(plaintiff) for said purpose and that the foreclosure proceedings, according to the terms of the
mortgage contracts, should be made in Manila. In said letter to the Naga Branch of the PNB,
it was intimated that if the public auction sale would be suspended and the plaintiff would be
given an extension of ninety (90) days, its obligation would be settled satisfactorily because
an important negotiation was then going on for the sale of its "whole interest" for an amount
more than sufficient to liquidate said obligation.

The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a
request for extension of the foreclosure sale of the mortgaged chattels and so it advised the
Sheriff of Camarines Norte to defer it to December 21, 1961, at the same time and place. A
copy of said advice was sent to the plaintiff for its information and guidance.

The foreclosure sale of the parcel of land, together with the buildings and improvements
thereon, covered by Transfer Certificate of Title No. 381, was, however, held on November
21, 1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to
the right of the plaintiff to redeem the same within a period of one year. On the same date,
Deputy Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a
copy thereof was sent to the plaintiff.

In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff
sent a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full settlement of
the balance of the obligation of the plaintiff after the application thereto of the sum of
P56,908.00 representing the proceeds of the foreclosure sale of parcel of land described in
Transfer Certificate of Title No. 381. In the said letter, the plaintiff reiterated its request that
the foreclosure sale of the mortgaged chattels be discontinued on the grounds that the
mortgaged indebtedness had been fully paid and that it could not be legally effected at a
place other than the City of Manila.

In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines
Norte that it had fully paid its obligation to the PNB, and enclosed therewith a copy of its
letter to the latter dated December 14, 1961.

On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff
acknowledging the remittance of P738.59 with the advice, however, that as of that date the
balance of the account of the plaintiff was P9,161.76, to which should be added the
expenses of guarding the mortgaged chattels at the rate of P4.00 a day beginning December
19, 1961. It was further explained in said letter that the sum of P57,646.59, which was stated
in the request for the foreclosure of the real estate mortgage, did not include the 10%
attorney's fees and expenses of the sale. Accordingly, the plaintiff was advised that the
foreclosure sale scheduled on the 21st of said month would be stopped if a remittance of
P9,161.76, plus interest thereon and guarding fees, would be made.

On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00
a.m. and they were awarded to the PNB for the sum of P4,200 and the corresponding bill of
sale was issued in its favor by Deputy Provincial Sheriff Heraldo.

In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised
the plaintiff giving it priority to repurchase the chattels acquired by the former at public
auction. This offer was reiterated in a letter dated January 3, 1962, of the Attorney of the
Naga Branch of the PNB to the plaintiff, with the suggestion that it exercise its right of
redemption and that it apply for the condonation of the attorney's fees. The plaintiff did not
follow the advice but on the contrary it made known of its intention to file appropriate action
or actions for the protection of its interests.

On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in
Jose Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security Guard
of the premises, that the properties therein had been auctioned and bought by the PNB,
which in turn sold them to Mariano Bundok. Upon being advised that the purchaser would
take delivery of the things he bought, Salgado was at first reluctant to allow any piece of
property to be taken out of the compound of the plaintiff. The employees of the PNB
explained that should Salgado refuse, he would be exposing himself to a litigation wherein
he could be held liable to pay big sum of money by way of damages. Apprehensive of the
risk that he would take, Salgado immediately sent a wire to the President of the plaintiff in
Manila, asking advice as to what he should do. In the meantime, Mariano Bundok was able
to take out from the plaintiff's compound two truckloads of equipment.
In the afternoon of the same day, Salgado received a telegram from plaintiff's President
directing him not to deliver the "chattels" without court order, with the information that the
company was then filing an action for damages against the PNB. On the following day, May
25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit them to
take out any equipment from inside the compound of the plaintiff. Thru the intervention,
however, of the local police and PC soldiers, the trucks of Mariano Bundok were able finally
to haul the properties originally mortgaged by the plaintiff to the PNB, which were bought by
it at the foreclosure sale and subsequently sold to Mariano Bundok.

Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the
first paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to the defendant
PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22,
1961 (day following the date of the questioned foreclosure of plaintiff's chattels) until fully paid, and
the costs. Mambulao Lumber Company interposed the instant appeal.

We shall discuss the various points raised in appellant's brief in seriatim.

The first question Mambulao Lumber Company poses is that which relates to the amount of its
indebtedness to the PNB arising out of the principal loans and the accrued interest thereon. It is
contended that its obligation under the terms of the two promissory notes it had executed in favor of
the PNB amounts only to P56,485.87 as of November 21, 1961, when the sale of real property was
effected, and not P58,213.51 as found by the trial court.

There is merit to this claim. Examining the terms of the promissory note executed by the appellant in
favor of the PNB, we find that the agreed interest on the loan of P43,000.00 — P27,500.00 released
on August 2, 1956 as per promissory note of even date (Exhibit C-3), and P15,500.00 released on
October 19, 1956, as per promissory note of the same date (Exhibit C-4) — was six per cent (6%)
per annum from the respective date of said notes "until paid". In the statement of account of the
appellant as of September 22, 1961, submitted by the PNB, it appears that in arriving at the total
indebtedness of P57,646.59 as of that date, the PNB had compounded the principal of the loan and
the accrued 6% interest thereon each time the yearly amortizations became due, and on the basis of
these compounded amounts charged additional delinquency interest on them up to September 22,
1961; and to this erroneously computed total of P57,646.59, the trial court added 6% interest per
annum from September 23, 1961 to November 21 of the same year. In effect, the PNB has claimed,
and the trial court has adjudicated to it, interest on accrued interests from the time the various
amortizations of the loan became due until the real estate mortgage executed to secure the loan was
extra-judicially foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655
expressly provides that in computing the interest on any obligation, promissory note or other
instrument or contract, compound interest shall not be reckoned, except by agreement, or in default
thereof, whenever the debt is judicially claimed. This is also the clear mandate of Article 2212 of the
new Civil Code which provides that interest due shall earn legal interest only from the time it is
judicially demanded, and of Article 1959 of the same code which ordains that interest due and
unpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the interest due
and unpaid, which as added principal shall earn new interest; but such stipulation is nowhere to be
found in the terms of the promissory notes involved in this case. Clearly therefore, the trial court fell
into error when it awarded interest on accrued interests, without any agreement to that effect and
before they had been judicially demanded.

Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor
of the PNB. With respect to the amount of P298.54 allowed as expenses of the extra-judicial sale of
the real property, appellant maintains that the same has no basis, factual or legal, and should not
have been awarded. It likewise decries the award of attorney's fees which, according to the
appellant, should not be deducted from the proceeds of the sale of the real property, not only
because there is no express agreement in the real estate mortgage contract to pay attorney's fees in
case the same is extra-judicially foreclosed, but also for the reason that the PNB neither spent nor
incurred any obligation to pay attorney's fees in connection with the said extra-judicial foreclosure
under consideration.

There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this
respect, the trial court said:

The parcel of land, together with the buildings and improvements existing thereon covered
by Transfer Certificate of Title No. 381, was sold for P56,908. There was, however, no
evidence how much was the expenses of the foreclosure sale although from the pertinent
provisions of the Rules of Court, the Sheriff's fees would be P1 for advertising the sale (par.
k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his commission for the sale (par. n,
Sec. 7, Rule 130 of the Old Rules) or a total of P298.54.

There is really no evidence of record to support the conclusion that the PNB is entitled to the amount
awarded as expenses of the extra-judicial foreclosure sale. The court below committed error in
applying the provisions of the Rules of Court for purposes of arriving at the amount awarded. It is to
be borne in mind that the fees enumerated under paragraphs k and n, Section 7, of Rule 130 (now
Rule 141) are demandable, only by a sheriff serving processes of the court in connection with
judicial foreclosure of mortgages under Rule 68 of the new Rules, and not in cases of extra-judicial
foreclosure of mortgages under Act 3135. The law applicable is Section 4 of Act 3135 which
provides that the officer conducting the sale is entitled to collect a fee of P5.00 for each day of actual
work performed in addition to his expenses in connection with the foreclosure sale. Admittedly, the
PNB failed to prove during the trial of the case, that it actually spent any amount in connection with
the said foreclosure sale. Neither may expenses for publication of the notice be legally allowed in the
absence of evidence on record to support it. 1 It is true, as pointed out by the appellee bank, that
courts should take judicial notice of the fees provided for by law which need not be proved; but in the
absence of evidence to show at least the number of working days the sheriff concerned actually
spent in connection with the extra-judicial foreclosure sale, the most that he may be entitled to,
would be the amount of P10.00 as a reasonable allowance for two day's work — one for the
preparation of the necessary notices of sale, and the other for conducting the auction sale and
issuance of the corresponding certificate of sale in favor of the buyer. Obviously, therefore, the
award of P298.54 as expenses of the sale should be set aside.

But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in
case the same is extra-judicially foreclosed, cannot be favorably considered, as would readily be
revealed by an examination of the pertinent provision of the mortgage contract. The parties to the
mortgage appear to have stipulated under paragraph (c) thereof, inter alia:

. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the
Mortgagee his attorney-in-fact to sell the property mortgaged under Act 3135, as amended,
to sign all documents and to perform all acts requisite and necessary to accomplish said
purpose and to appoint its substitute as such attorney-in-fact with the same powers as above
specified. In case of judicial foreclosure, the Mortgagor hereby consents to the appointment
of the Mortgagee or any of its employees as receiver, without any bond, to take charge of the
mortgaged property at once, and to hold possession of the same and the rents, benefits and
profits derived from the mortgaged property before the sale, less the costs and expenses of
the receivership; the Mortgagor hereby agrees further that in all cases, attorney's fees
hereby fixed at Ten Per cent (10%) of the total indebtedness then unpaid which in no case
shall be less than P100.00 exclusive of all fees allowed by law, and the expenses of
collection shall be the obligation of the Mortgagor and shall with priority, be paid to the
Mortgagee out of any sums realized as rents and profits derived from the mortgaged
property or from the proceeds realized from the sale of the said property and this mortgage
shall likewise stand as security therefor. . . .

We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure
sale mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all cases" appears
to be part of the second sentence, a reading of the whole context of the stipulation would readily
show that it logically refers to extra-judicial foreclosure found in the first sentence and to judicial
foreclosure mentioned in the next sentence. And the ambiguity in the stipulation suggested and
pointed out by the appellant by reason of the faulty sentence construction should not be made to
defeat the otherwise clear intention of the parties in the agreement.

It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees
were applicable to the extra-judicial foreclosure sale of its real properties, still, the award of
P5,821.35 for attorney's fees has no legal justification, considering the circumstance that the PNB
did not actually spend anything by way of attorney's fees in connection with the sale. In support of
this proposition, appellant cites authorities to the effect: (1) that when the mortgagee has neither
paid nor incurred any obligation to pay an attorney in connection with the foreclosure sale, the claim
for such fees should be denied; 2 and (2) that attorney's fees will not be allowed when the attorney
conducting the foreclosure proceedings is an officer of the corporation (mortgagee) who receives a
salary for all the legal services performed by him for the corporation. 3 These authorities are indeed
enlightening; but they should not be applied in this case. The very same authority first cited suggests
that said principle is not absolute, for there is authority to the contrary. As to the fact that the
foreclosure proceeding's were handled by an attorney of the legal staff of the PNB, we are reluctant
to exonerate herein appellant from the payment of the stipulated attorney's fees on this ground
alone, considering the express agreement between the parties in the mortgage contract under which
appellant became liable to pay the same. At any rate, we find merit in the contention of the appellant
that the award of P5,821.35 in favor of the PNB as attorney's fees is unconscionable and
unreasonable, considering that all that the branch attorney of the said bank did in connection with
the foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines
Norte requesting the latter to sell the same in accordance with the provisions of Act 3135.

The principle that courts should reduce stipulated attorney's fees whenever it is found under the
circumstances of the case that the same is unreasonable, is now deeply rooted in this jurisdiction to
entertain any serious objection to it. Thus, this Court has explained:

But the principle that it may be lawfully stipulated that the legal expenses involved in the
collection of a debt shall be defrayed by the debtor does not imply that such stipulations must
be enforced in accordance with the terms, no matter how injurious or oppressive they may
be. The lawful purpose to be accomplished by such a stipulation is to permit the creditor to
receive the amount due him under his contract without a deduction of the expenses caused
by the delinquency of the debtor. It should not be permitted for him to convert such a
stipulation into a source of speculative profit at the expense of the debtor.

Contracts for attorney's services in this jurisdiction stands upon an entirely different footing
from contracts for the payment of compensation for any other services. By express provision
of section 29 of the Code of Civil Procedure, an attorney is not entitled in the absence of
express contract to recover more than a reasonable compensation for his services; and even
when an express contract is made the court can ignore it and limit the recovery to
reasonable compensation if the amount of the stipulated fee is found by the court to be
unreasonable. This is a very different rule from that announced in section 1091 of the Civil
Code with reference to the obligation of contracts in general, where it is said that such
obligation has the force of law between the contracting parties. Had the plaintiff herein made
an express contract to pay his attorney an uncontingent fee of P2,115.25 for the services to
be rendered in reducing the note here in suit to judgment, it would not have been enforced
against him had he seen fit to oppose it, as such a fee is obviously far greater than is
necessary to remunerate the attorney for the work involved and is therefore unreasonable. In
order to enable the court to ignore an express contract for an attorney's fees, it is not
necessary to show, as in other contracts, that it is contrary to morality or public policy (Art.
1255, Civil Code). It is enough that it is unreasonable or unconscionable. 4

Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees
stipulated appear excessive, unconscionable, or unreasonable, because a lawyer is primarily a court
officer charged with the duty of assisting the court in administering impartial justice between the
parties, and hence, the fees should be subject to judicial control. Nor should it be ignored that sound
public policy demands that courts disregard stipulations for counsel fees, whenever they appear to
be a source of speculative profit at the expense of the debtor or mortgagor. 5 And it is not material
that the present action is between the debtor and the creditor, and not between attorney and client.
As court have power to fix the fee as between attorney and client, it must necessarily have the right
to say whether a stipulation like this, inserted in a mortgage contract, is valid. 6

In determining the compensation of an attorney, the following circumstances should be considered:


the amount and character of the services rendered; the responsibility imposed; the amount of money
or the value of the property affected by the controversy, or involved in the employment; the skill and
experience called for in the performance of the service; the professional standing of the attorney; the
results secured; and whether or not the fee is contingent or absolute, it being a recognized rule that
an attorney may properly charge a much larger fee when it is to be contingent than when it is
not. 7 From the stipulation in the mortgage contract earlier quoted, it appears that the agreed fee is
10% of the total indebtedness, irrespective of the manner the foreclosure of the mortgage is to be
effected. The agreement is perhaps fair enough in case the foreclosure proceedings is prosecuted
judicially but, surely, it is unreasonable when, as in this case, the mortgage was foreclosed extra-
judicially, and all that the attorney did was to file a petition for foreclosure with the sheriff concerned.
It is to be assumed though, that the said branch attorney of the PNB made a study of the case
before deciding to file the petition for foreclosure; but even with this in mind, we believe the amount
of P5,821.35 is far too excessive a fee for such services. Considering the above circumstances
mentioned, it is our considered opinion that the amount of P1,000.00 would be more than sufficient
to compensate the work aforementioned.

The next issue raised deals with the claim that the proceeds of the sale of the real properties alone
together with the amount it remitted to the PNB later was more than sufficient to liquidate its total
obligation to herein appellee bank. Again, we find merit in this claim. From the foregoing discussion
of the first two errors assigned, and for purposes of determining the total obligation of herein
appellant to the PNB as of November 21, 1961 when the real estate mortgage was foreclosed, we
have the following illustration in support of this conclusion:1äwphï1.ñët

A. -

I. Principal Loan
(a) Promissory note dated August 2, 1956 P27,500.00

(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961 8,751.78
(b) Promissory note dated October 19, 1956 P15,500.00
(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 4,734.08
II. Sheriff's fees [for two (2) day's work] 10.00
III. Attorney's fee 1,000.00

Total obligation as of Nov. 21, 1961 P57,495.86

B. -
I. Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961 P56,908.00

II. Additional amount remitted to the PNB on Dec. 18, 1961 738.59

Total amount of Payment made to PNB as of Dec. 18, 1961 P57,646.59

Deduct: Total obligation to the PNB P57,495.86

Excess Payment to the PNB P 150.73


========

From the foregoing illustration or computation, it is clear that there was no further necessity to
foreclose the mortgage of herein appellant's chattels on December 21, 1961; and on this ground
alone, we may declare the sale of appellant's chattels on the said date, illegal and void. But we take
into consideration the fact that the PNB must have been led to believe that the stipulated 10% of the
unpaid loan for attorney's fees in the real estate mortgage was legally maintainable, and in
accordance with such belief, herein appellee bank insisted that the proceeds of the sale of
appellant's real property was deficient to liquidate the latter's total indebtedness. Be that as it may,
however, we still find the subsequent sale of herein appellant's chattels illegal and objectionable on
other grounds.

That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of
its real estate mortgage on November 21, 1961, can not be doubted, as shown not only by its letter
to the PNB on November 19, 1961, but also in its letter to the provincial sheriff of Camarines Norte
on the same date. These letters were followed by another letter to the appellee bank on December
14, 1961, wherein herein appellant, in no uncertain terms, reiterated its objection to the scheduled
sale of its chattels on December 21, 1961 at Jose Panganiban, Camarines Norte for the reasons
therein stated that: (1) it had settled in full its total obligation to the PNB by the sale of the real estate
and its subsequent remittance of the amount of P738.59; and (2) that the contemplated sale at Jose
Panganiban would violate their agreement embodied under paragraph (i) in the Chattel Mortgage
which provides as follows:

(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the
parties hereto agree that the corresponding complaint for foreclosure or the petition for sale
should be filed with the courts or the sheriff of the City of Manila, as the case may be; and
that the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of the total
indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of all costs
and fees allowed by law and of other expenses incurred in connection with the said
foreclosure. [Emphasis supplied]
Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter disregard
of the objection of herein appellant to the sale of its chattels at Jose Panganiban, Camarines Norte
and not in the City of Manila as agreed upon, the PNB proceeded with the foreclosure sale of said
chattels. The trial court, however, justified said action of the PNB in the decision appealed from in
the following rationale:

While it is true that it was stipulated in the chattel mortgage contract that a petition for the
extra-judicial foreclosure thereof should be filed with the Sheriff of the City of Manila,
nevertheless, the effect thereof was merely to provide another place where the mortgage
chattel could be sold in addition to those specified in the Chattel Mortgage Law. Indeed, a
stipulation in a contract cannot abrogate much less impliedly repeal a specific provision of
the statute. Considering that Section 14 of Act No. 1508 vests in the mortgagee the choice
where the foreclosure sale should be held, hence, in the case under consideration, the PNB
had three places from which to select, namely: (1) the place of residence of the mortgagor;
(2) the place of the mortgaged chattels were situated; and (3) the place stipulated in the
contract. The PNB selected the second and, accordingly, the foreclosure sale held in Jose
Panganiban, Camarines Norte, was legal and valid.

To the foregoing conclusion, We disagree. While the law grants power and authority to the
mortgagee to sell the mortgaged property at a public place in the municipality where the mortgagor
resides or where the property is situated, 8 this Court has held that the sale of a mortgaged chattel
may be made in a place other than that where it is found, provided that the owner thereof consents
thereto; or that there is an agreement to this effect between the mortgagor and the mortgagee. 9 But
when, as in this case, the parties agreed to have the sale of the mortgaged chattels in the City of
Manila, which, any way, is the residence of the mortgagor, it cannot be rightly said that mortgagee
still retained the power and authority to select from among the places provided for in the law and the
place designated in their agreement over the objection of the mortgagor. In providing that the
mortgaged chattel may be sold at the place of residence of the mortgagor or the place where it is
situated, at the option of the mortgagee, the law clearly contemplated benefits not only to the
mortgagor but to the mortgagee as well. Their right arising thereunder, however, are personal to
them; they do not affect either public policy or the rights of third persons. They may validly be
waived. So, when herein mortgagor and mortgagee agreed in the mortgage contract that in cases of
both judicial and extra-judicial foreclosure under Act 1508, as amended, the corresponding
complaint for foreclosure or the petition for sale should be filed with the courts or the Sheriff of
Manila, as the case may be, they waived their corresponding rights under the law. The correlative
obligation arising from that agreement have the force of law between them and should be complied
with in good faith. 10

By said agreement the parties waived the legal venue, and such waiver is valid and legally
effective, because it, was merely a personal privilege they waived, which is not contrary, to
public policy or to the prejudice of third persons. It is a general principle that a person may
renounce any right which the law gives unless such renunciation is expressly prohibited or
the right conferred is of such nature that its renunciation would be against public policy. 11

On the other hand, if a place of sale is specified in the mortgage and statutory requirements
in regard thereto are complied with, a sale is properly conducted in that place. Indeed, in the
absence of a statute to the contrary, a sale conducted at a place other than that stipulated for
in the mortgage is invalid, unless the mortgagor consents to such sale. 12

Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should
make a return of his doings which shall particularly describe the articles sold and the amount
received from each article. From this, it is clear that the law requires that sale be made article by
article, otherwise, it would be impossible for him to state the amount received for each item. This
requirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he sold the
chattels in question in bulk, notwithstanding the fact that the said chattels consisted of no less than
twenty different items as shown in the bill of sale. 13 This makes the sale of the chattels manifestly
objectionable. And in the absence of any evidence to show that the mortgagor had agreed or
consented to such sale in gross, the same should be set aside.

It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in
accordance with its terms, or where the proceedings as to the sale of foreclosure do not comply with
the statute. 14 This rule applies squarely to the facts of this case where, as earlier shown, herein
appellee bank insisted, and the appellee deputy sheriff of Camarines Norte proceeded with the sale
of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid
objection of the mortgagor thereto for the reason that it is not the place of sale agreed upon in the
mortgage contract; and the said deputy sheriff sold all the chattels (among which were a skagit with
caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and Sawmill equipment consisting of
a 150 HP Murphy Engine, plainer, large circular saws etc.) as a single lot in violation of the
requirement of the law to sell the same article by article. The PNB has resold the chattels to another
buyer with whom it appears to have actively cooperated in subsequently taking possession of and
removing the chattels from appellant compound by force, as shown by the circumstance that they
had to take along PC soldiers and municipal policemen of Jose Panganiban who placed the chief
security officer of the premises in jail to deprive herein appellant of its possession thereof. To
exonerate itself of any liability for the breach of peace thus committed, the PNB would want us to
believe that it was the subsequent buyer alone, who is not a party to this case, that was responsible
for the forcible taking of the property; but assuming this to be so, still the PNB cannot escape liability
for the conversion of the mortgaged chattels by parting with its interest in the property. Neither would
its claim that it afterwards gave a chance to herein appellant to repurchase or redeem the chattels,
improve its position, for the mortgagor is not under obligation to take affirmative steps to repossess
the chattels that were converted by the mortgagee. 15 As a consequence of the said wrongful acts of
the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that herein
appellant is entitled to collect from them, jointly and severally, the full value of the chattels in
question at the time they were illegally sold by them. To this effect was the holding of this Court in a
similar situation. 16

The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant
for the full value of the truck at the time the plaintiff thus carried it off to be sold; and of
course, the burden is on the defendant to prove the damage to which he was thus subjected.
...

This brings us to the problem of determining the value of the mortgaged chattels at the time of their
sale in 1961. The trial court did not make any finding on the value of the chattels in the decision
appealed from and denied altogether the right of the appellant to recover the same. We find enough
evidence of record, however, which may be used as a guide to ascertain their value. The record
shows that at the time herein appellant applied for its loan with the PNB in 1956, for which the
chattels in question were mortgaged as part of the security therefore, herein appellant submitted a
list of the chattels together with its application for the loan with a stated value of P107,115.85. An
official of the PNB made an inspection of the chattels in the same year giving it an appraised value
of P42,850.00 and a market value of P85,700.00. 17 The same chattels with some additional
equipment acquired by herein appellant with part of the proceeds of the loan were reappraised in a
re-inspection conducted by the same official in 1958, in the report of which he gave all the chattels
an appraised value of P26,850.00 and a market value of P48,200.00. 18 Another re-inspection report
in 1959 gave the appraised value as P19,400.00 and the market value at P25,600.00. 19 The said
official of the PNB who made the foregoing reports of inspection and re-inspections testified in court
that in giving the values appearing in the reports, he used a conservative method of appraisal which,
of course, is to be expected of an official of the appellee bank. And it appears that the values were
considerably reduced in all the re-inspection reports for the reason that when he went to herein
appellant's premises at the time, he found the chattels no longer in use with some of the heavier
equipments dismantled with parts thereof kept in the bodega; and finding it difficult to ascertain the
value of the dismantled chattels in such condition, he did not give them anymore any value in his
reports. Noteworthy is the fact, however, that in the last re-inspection report he made of the chattels
in 1961, just a few months before the foreclosure sale, the same inspector of the PNB reported that
the heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free from
rains" 20 showing that although they were no longer in use at the time, they were kept in a proper
place and not exposed to the elements. The President of the appellant company, on the other hand,
testified that its caterpillar (tractor) alone is worth P35,000.00 in the market, and that the value of its
two trucks acquired by it with part of the proceeds of the loan and included as additional items in the
mortgaged chattels were worth no less than P14,000.00. He likewise appraised the worth of its
Murphy engine at P16,000.00 which, according to him, when taken together with the heavy
equipments he mentioned, the sawmill itself and all other equipment forming part of the chattels
under consideration, and bearing in mind the current cost of equipments these days which he
alleged to have increased by about five (5) times, could safely be estimated at P120,000.00. This
testimony, except for the appraised and market values appearing in the inspection and re-inspection
reports of the PNB official earlier mentioned, stand uncontroverted in the record; but We are not
inclined to accept such testimony at its par value, knowing that the equipments of herein appellant
had been idle and unused since it stopped operating its sawmill in 1958 up to the time of the sale of
the chattels in 1961. We have no doubt that the value of chattels was depreciated after all those
years of inoperation, although from the evidence aforementioned, We may also safely conclude that
the amount of P4,200.00 for which the chattels were sold in the foreclosure sale in question was
grossly unfair to the mortgagor. Considering, however, the facts that the appraised value of
P42,850.00 and the market value of P85,700.00 originally given by the PNB official were admittedly
conservative; that two 6 x 6 trucks subsequently bought by the appellant company had thereafter
been added to the chattels; and that the real value thereof, although depreciated after several years
of inoperation, was in a way maintained because the depreciation is off-set by the marked increase
in the cost of heavy equipment in the market, it is our opinion that the market value of the chattels at
the time of the sale should be fixed at the original appraised value of P42,850.00.

Herein appellant's claim for moral damages, however, seems to have no legal or factual basis.
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. 21 A corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages. The same cannot be
considered under the facts of this case, however, not only because it is admitted that herein
appellant had already ceased in its business operation at the time of the foreclosure sale of the
chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels
could have upon its reputation or business standing would undoubtedly be the same whether the
sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed
upon by the parties in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in
proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as
provided for in the mortgage contract, to which their attentions were timely called by herein
appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein
appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of
the case also warrant the award of P3,000.00 as attorney's fees for herein appellant.

WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be,
as hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of the province of
Camarines Norte are ordered to pay, jointly and severally, to Mambulao Lumber Company the total
amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the
value of the chattels at the time of the sale with interest at the rate of 6% per annum from December
21, 1961, until fully paid, P10,000.00 in exemplary damages, and P3,000.00 as attorney's fees.
Costs against both appellees.

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 vice-
president 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
petition17challenging 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 order18 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 denied21 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 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 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 ABS-
CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABS-
CBN 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

. . . 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 ABS-
CBN 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 RBS cited 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 counter-
proposal 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. Willetsand 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 cross-
examination 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 quasi-delicts, 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 quasi-
delict. 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.60Even 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
quasi-contracts, 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.
1âw phi 1.nêt

No pronouncement as to costs.

SO ORDERED.

[G.R. No. 126204. November 20, 2001]

NATIONAL POWER CORPORATION, petitioner, vs. PHILIPP BROTHERS


OCEANIC, INC., respondent.

DECISION
SANDOVAL-GUTIERREZ, J.:

Where a person merely uses a right pertaining to him, without bad faith or intent to injure,
the fact that damages are thereby suffered by another will not make him liable.[1]
This principle finds useful application to the present case.
Before us is a petition for review of the Decision[2] dated August 27, 1996 of the Court of
Appeals affirming in toto the Decision[3] dated January 16, 1992 of the Regional Trial Court,
Branch 57, Makati City.
The facts are:
On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid
for the supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired
Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO)
prequalified and was allowed to participate as one of the bidders. After the public bidding was
conducted, PHIBROs bid was accepted. NAPOCORs acceptance was conveyed in a letter dated
July 8, 1987, which was received by PHIBRO on July 15, 1987.
The Bidding Terms and Specifications[4] provide for the manner of shipment of coals, thus:

SECTION V

SHIPMENT

The winning TENDERER who then becomes the SELLER shall arrange and provide
gearless bulk carrier for the shipment of coal to arrive at discharging port on or
before thirty (30) calendar days after receipt of the Letter of Credit by the
SELLER or its nominee as per Section XIV hereof to meet the vessel arrival
schedules at Calaca, Batangas, Philippines as follows:

60,000 +/ - 10 % July 20, 1987

60,000 +/ - 10% September 4, 1987[5]

On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon
plague Australia, the shipments point of origin, which could seriously hamper PHIBROs ability
to supply the needed coal.[6] From July 23 to July 31, 1987, PHIBRO again apprised NAPOCOR
of the situation in Australia, particularly informing the latter that the ship owners therein are not
willing to load cargo unless a strike-free clause is incorporated in the charter party or the contract
of carriage.[7] In order to hasten the transfer of coal, PHIBRO proposed to NAPOCOR that they
equally share the burden of a strike-free clause. NAPOCOR refused.
On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of
credit. Instead of delivering the coal on or before the thirtieth day after receipt of the Letter of
Credit, as agreed upon by the parties in the July contract, PHIBRO effected its first shipment
only on November 17, 1987.
Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to
its Calaca thermal plant. PHIBRO participated anew in this subsequent bidding. On November
24, 1987, NAPOCOR disapproved PHIBROs application for pre-qualification to bid for not
meeting the minimum requirements.[8] Upon further inquiry, PHIBRO found that the real reason
for the disapproval was its purported failure to satisfy NAPOCORs demand for damages due to
the delay in the delivery of the first coal shipment.
This prompted PHIBRO to file an action for damages with application for injunction against
NAPOCOR with the Regional Trial Court, Branch 57, Makati City. [9] In its complaint, PHIBRO
alleged that NAPOCORs act of disqualifying it in the October 1987 bidding and in all
subsequent biddings was tainted with malice and bad faith. PHIBRO prayed for actual, moral
and exemplary damages and attorneys fees.
In its answer, NAPOCOR averred that the strikes in Australia could not be invoked as
reason for the delay in the delivery of coal because PHIBRO itself admitted that as of July 28,
1987 those strikes had already ceased. And, even assuming that the strikes were still ongoing,
PHIBRO should have shouldered the burden of a strike-free clause because their contract was C
and F Calaca, Batangas, Philippines, meaning, the cost and freight from the point of origin until
the point of destination would be for the account of PHIBRO. Furthermore, NAPOCOR claimed
that due to PHIBROs failure to deliver the coal on time, it was compelled to purchase coal from
ASEA at a higher price. NAPOCOR claimed for actual damages in the amount
of P12,436,185.73, representing the increase in the price of coal, and a claim of P500,000.00 as
litigation expenses.[10]
Thereafter, trial on the merits ensued.
On January 16, 1992, the trial court rendered a decision in favor of PHIBRO, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Philipp Brothers
Oceanic Inc. (PHIBRO) and against the defendant National Power Corporation
(NAPOCOR) ordering the said defendant NAPOCOR:

1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant National Power
Corporations list of accredited bidders and allow PHIBRO to participate in any and all future
tenders of National Power Corporation for the supply and delivery of imported steam coal;
2 To pay Philipp Brothers Oceanic, Inc. (PHIBRO);

a. The peso equivalent at the time of payment of $864,000 as actual


damages;

b. The peso equivalent at the time of payment of $100,000 as moral


damages;

c. The peso equivalent at the time of payment of $ 50,000 as exemplary


damages;

d. The peso equivalent at the time of payment of $73,231.91 as


reimbursement for expenses, cost of litigation and attorneys fees;

3. To pay the costs of suit;


4. The counterclaims of defendant NAPOCOR are dismissed for lack of merit.

SO ORDERED.[11]

Unsatisfied, NAPOCOR, through the Solicitor General, elevated the case to the Court of
Appeals. On August 27, 1996, the Court of Appeals rendered a Decision affirming in toto the
Decision of the Regional Trial Court. It ratiocinated that:

There is ample evidence to show that although PHIBROs delivery of the shipment of
coal was delayed, the delay was in fact caused by a) Napocors own delay in opening a
workable letter of credit; and b) the strikes which plaqued the Australian coal industry
from the first week of July to the third week of September 1987. Strikes are included
in the definition of force majeure in Section XVII of the Bidding Terms and
Specifications, (supra), so Phibro is not liable for any delay caused thereby.

Phibro was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was
to be effected thirty (30) days from Napocors opening of a confirmed and workable
letter of credit. Napocor was only able to do so on August 6, 1987.

By that time, Australias coal industry was in the middle of a seething controversy and
unrest, occasioned by strikes, overtime bans, mine stoppages. The origin, the scope
and the effects of this industrial unrest are lucidly described in the uncontroverted
testimony of James Archibald, an employee of Phibro and member of the Export
Committee of the Australian Coal Association during the time these events transpired.

xxxxxx

The records also attest that Phibro periodically informed Napocor of these
developments as early as July 1, 1987, even before the bid was approved. Yet,
Napocor did not forthwith open the letter of credit in order to avoid delay which might
be caused by the strikes and their after-effects.

Strikes are undoubtedly included in the force majeure clause of the Bidding Terms
and Specifications (supra). The renowned civilist, Prof. Arturo Tolentino, defines
force majeure as an event which takes place by accident and could not have been
foreseen. (Civil Code of the Philippines, Volume IV, Obligations and Constracts, 126,
[1991]) He further states:

Fortuitous events may be produced by two general causes: (1) by Nature, such as
earthquakes, storms, floods, epidemics, fires, etc., and (2) by the act of man, such as
an armed invasion, attack by bandits, governmental prohibitions, robbery, etc.

Tolentino adds that the term generally applies, broadly speaking, to natural
accidents. In order that acts of man such as a strike, may constitute fortuitous event, it
is necessary that they have the force of an imposition which the debtor could not have
resisted. He cites a parallel example in the case of Philippine National Bank v. Court
of Appeals, 94 SCRA 357 (1979), wherein the Supreme Court said that the outbreak
of war which prevents performance exempts a party from liability.

Hence, by law and by stipulation of the parties, the strikes which took place in
Australia from the first week of July to the third week of September, 1987, exempted
Phibro from the effects of delay of the delivery of the shipment of coal.[12]

Twice thwarted, NAPOCOR comes to us via a petition for review ascribing to the Court of
Appeals the following errors:
I

Respondent Court of Appeals gravely and seriously erred in concluding and so


holding that PHIBROs delay in the delivery of imported coal was due to
NAPOCORs alleged delay in opening a letter of credit and to force majeure, and
not to PHIBROs own deliberate acts and faults.[13]
II
Respondent Court of Appeals gravely and seriously erred in concluding and so
holding that NAPOCOR acted maliciously and unjustifiably in disqualifying
PHIBRO from participating in the December 8, 1987 and future biddings for the
supply of imported coal despite the existence of valid grounds therefor such as
serious impairment of its track record.[14]
III

Respondent Court of Appeals gravely and seriously erred in concluding and so


holding that PHIBRO was entitled to injunctive relief, to actual or
compensatory, moral and exemplary damages, attorneys fees and litigation
expenses despite the clear absence of legal and factual bases for such award.[15]
IV

Respondent Court of Appeals gravely and seriously erred in absolving PHIBRO


from any liability for damages to NAPOCOR for its unjustified and deliberate
refusal and/or failure to deliver the contracted imported coal within the
stipulated period.[16]
V

Respondent Court of Appeals gravely and seriously erred in dismissing


NAPOCORs counterclaims for damages and litigation expenses.[17]

It is axiomatic that only questions of law, not questions of fact, may be raised before this
Court in a petition for review under Rule 45 of the Rules of Court.[18] The findings of facts of the
Court of Appeals are conclusive and binding on this Court[19] and they carry even more weight
when the said court affirms the factual findings of the trial court.[20] Stated differently, the
findings of the Court of Appeals, by itself, which are supported by substantial evidence, are
almost beyond the power of review by this Court.[21]
With the foregoing settled jurisprudence, we find it pointless to delve lengthily on the
factual issues raised by petitioner. The existence of strikes in Australia having been duly
established in the lower courts, we are left only with the burden of determining whether or not
NAPOCOR acted wrongfully or with bad faith in disqualifying PHIBRO from participating in
the subsequent public bidding.
Let us consider the case in its proper perspective.
The Court of Appeals is justified in sustaining the Regional Trial Courts decision
exonerating PHIBRO from any liability for damages to NAPOCOR as it was clearly established
from the evidence, testimonial and documentary, that what prevented PHIBRO from complying
with its obligation under the July 1987 contract was the industrial disputes which besieged
Australia during that time. Extant in our Civil Code is the rule that no person shall be responsible
for those events which could not be foreseeen, or which, though foreseen, were
inevitable.[22] This means that when an obligor is unable to fulfill his obligation because of a
fortuitous event or force majeure, he cannot be held liable for damages for non-performance.[23]
In addition to the above legal precept, it is worthy to note that PHIBRO and NAPOCOR
explicitly agreed in Section XVII of the Bidding Terms and Specifications[24] that neither seller
(PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in or failure of the performance
of its obligations, other than the payment of money due, if any such delay or failure is due to
Force Majeure. Specifically, theydefined force majeure as any disabling cause beyond the
control of and without fault or negligence of the party, which causes may include but are not
restricted to Acts of God or of the public enemy; acts of the Government in either its sovereign
or contractual capacity; governmental restrictions; strikes, fires, floods, wars, typhoons, storms,
epidemics and quarantine restrictions.
The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore, we
have no reason to rule otherwise.
However, proceeding from the premise that PHIBRO was prevented by force majeure from
complying with its obligation, does it necessarily follow that NAPOCOR acted unjustly,
capriciously, and unfairly in disapproving PHIBROs application for pre-qualification to bid?
First, it must be stressed that NAPOCOR was not bound under any contract to approve
PHIBROs pre-qualification requirements. In fact, NAPOCOR had expressly reserved its right to
reject bids. The Instruction to Bidders found in the Post-Qualification Documents/ Specifications
for the Supply and Delivery of Coal for the Batangas Coal-Fired Thermal Power Plant I at
Calaca, Batangas Philippines,[25] is explicit, thus:

IB-17 RESERVATION OF NAPOCOR TO REJECT BIDS

NAPOCOR reserves the right to reject any or all bids, to waive any minor
informality in the bids received. The right is also reserved to reject the
bids of any bidder who has previously failed to properly perform or
complete on time any and all contracts for delivery of coal or any
supply undertaken by a bidder.[26] (Emphasis supplied)

This Court has held that where the right to reject is so reserved, the lowest bid or any bid for
that matter may be rejected on a mere technicality.[27] And where the government as advertiser,
availing itself of that right, makes its choice in rejecting any or all bids, the losing bidder has no
cause to complain nor right to dispute that choice unless an unfairness or injustice is
shown. Accordingly, a bidder has no ground of action to compel the Government to award
the contract in his favor, nor to compel it to accept his bid. Even the lowest bid or any bid
may be rejected.[28] In Celeste v. Court of Appeals,[29]we had the occasion to rule:

Moreover, paragraph 15 of the Instructions to Bidders states that the Government


hereby reserves the right to reject any or all bids submitted. In the case of A.C.
Esguerra and Sons v. Aytona, 4 SCRA 1245, 1249 (1962), we held:
x x x [I]n the invitation to bid, there is a condition imposed upon the bidders to the
effect that the bidders shall be subject to the right of the government to reject any and
all bids subject to its discretion. Here the government has made its choice, and
unless an unfairness or injustice is shown, the losing bidders have no cause to
complain, nor right to dispute that choice.

Since there is no evidence to prove bad faith and arbitrariness on the part of the
petitioners in evaluating the bids, we rule that the private respondents are not
entitled to damages representing lost profits. (Emphasis supplied)

Verily, a reservation of the government of its right to reject any bid, generally vests in the
authorities a wide discretion as to who is the best and most advantageous bidder. The exercise of
such discretion involves inquiry, investigation, comparison, deliberation and decision, which are
quasi-judicial functions, and when honestly exercised, may not be reviewed by the
court.[30] In Bureau Veritas v. Office of the President,[31] we decreed:

The discretion to accept or reject a bid and award contracts is vested in the
Government agencies entrusted with that function. The discretion given to the
authorities on this matter is of such wide latitude that the Courts will not
interfere therewith, unless it is apparent that it is used as a shield to a fraudulent
award. (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x. The exercise of this
discretion is a policy decision that necessitates prior inquiry, investigation,
comparison, evaluation, and deliberation. This task can best be discharged by the
Government agencies concerned, not by the Courts. The role of the Courts is to
ascertain whether a branch or instrumentality of the Government has transgresses its
constitutional boundaries. But the Courts will not interfere with executive or
legislative discretion exercised within those boundaries. Otherwise, it strays into the
realm of policy decision-making. x x x. (Emphasis supplied)

Owing to the discretionary character of the right involved in this case, the propriety of
NAPOCORs act should therefore be judged on the basis of the general principles regulating
human relations, the forefront provision of which is Article 19 of the Civil Code which provides
that 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.[32] Accordingly, a person will
be protected only when he acts in the legitimate exercise of his right, that is, when he acts with
prudence and in good faith; but not when he acts with negligence or abuse.[33]
Did NAPOCOR abuse its right or act unjustly in disqualifying PHIBRO from the public
bidding?
We rule in the negative.
In practice, courts, in the sound exercise of their discretion, will have to determine under all
the facts and circumstances when the exercise of a right is unjust, or when there has been an
abuse of right.[34]
We went over the record of the case with painstaking solicitude and we are convinced that
NAPOCORs act of disapproving PHIBRO's application for pre-qualification to bid was without
any intent to injure or a purposive motive to perpetrate damage. Apparently, NAPOCOR acted
on the strong conviction that PHIBRO had a seriously-impaired track record. NAPOCOR cannot
be faulted from believing so.At this juncture, it is worth mentioning that at the time NAPOCOR
issued its subsequent Invitation to Bid, i.e., October 1987, PHIBRO had not yet delivered the
first shipment of coal under the July 1987 contract, which was due on or before September 5,
1987. Naturally, NAPOCOR is justified in entertaining doubts on PHIBROs qualification or
capability to assume an obligation under a new contract.
Moreover, PHIBROs actuation in 1987 raised doubts as to the real situation of the coal
industry in Australia. It appears from the records that when NAPOCOR was constrained to
consider an offer from another coal supplier (ASEA) at a price of US$33.44 per metric ton,
PHIBRO unexpectedly offered the immediate delivery of 60,000 metric tons of Ulan steam coal
at US$31.00 per metric ton for arrival at Calaca, Batangas on September 20-21, 1987.[35] Of
course, NAPOCOR had reason to ponder-- how come PHIBRO could assure the immediate
delivery of 60,000 metric tons of coal from the same source to arrive at Calaca not later
than September 20/21, 1987 but it could not deliver the coal it had undertaken under its
contract?
Significantly, one characteristic of a fortuitous event, in a legal sense, and consequently in
relations to contracts, is that the concurrence must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner.[36] Faced with the above circumstance,
NAPOCOR is justified in assuming that, may be, there was really no fortuitous event or
force majeure which could render it impossible for PHIBRO to effect the delivery of
coal. Correspondingly, it is also justified in treating PHIBROs failure to deliver a serious
impairment of its track record. That the trial court, thereafter, found PHIBROs unexpected offer
actually a result of its desire to minimize losses on the part of NAPOCOR is inconsequential. In
determining the existence of good faith, the yardstick is the frame of mind of the actor at the time
he committed the act, disregarding actualities or facts outside his knowledge. We cannot fault
NAPOCOR if it mistook PHIBROs unexpected offer a mere attempt on the latters part to
undercut ASEA or an indication of PHIBROs inconsistency. The circumstances warrant such
contemplation.
That NAPOCOR believed all along that PHIBROs failure to deliver on time was unfounded
is manifest from its letters[37] reminding PHIBRO that it was bound to deliver the coal within 30
days from its (PHIBROs) receipt of the Letter of Credit, otherwise it would be constrained to
take legal action. The same honest belief can be deduced from NAPOCORs Board Resolution,
thus:

On the legal aspect, Management stressed that failure of PBO to deliver under
the contract makes them liable for damages, considering that the reasons
invoked were not valid. The measure of the damages will be limited to actual and
compensatory damages. However, it was reported that Philipp Brothers advised they
would like to have continuous business relation with NPC so they are willing to sit
down or even proposed that the case be submitted to the Department of Justice as to
avoid a court action or arbitration.
xxxxxx

On the technical-economic aspect, Management claims that if PBO delivers in


November 1987 and January 1988, there are some advantages. If PBO reacts to any
legal action and fails to deliver, the options are: one, to use 100% Semirara and
second, to go into urgent coal order. The first option will result in a 75 MW derating
and oil will be needed as supplement. We will stand to lose around P30 M. On the
other hand, if NPC goes into an urgent coal order, there will be an additional expense
of $786,000 or P16.11 M, considering the price of the latest purchase with ASEA. On
both points, reliability is decreased.[38]

The very purpose of requiring a bidder to furnish the awarding authority its pre-qualification
documents is to ensure that only those responsible and qualified bidders could bid and be
awarded with government contracts. It bears stressing that the award of a contract is measured
not solely by the smallest amount of bid for its performance, but also by the responsibility of the
bidder. Consequently, the integrity, honesty, and trustworthiness of the bidder is to be
considered. An awarding official is justified in considering a bidder not qualified or not
responsible if he has previously defrauded the public in such contracts or if, on the evidence
before him, the official bona fide believes the bidder has committed such fraud, despite the fact
that there is yet no judicial determination to that effect.[39] Otherwise stated, if the awarding
body bona fide believes that a bidder has seriously impaired its track record because of a
particular conduct, it is justified in disqualifying the bidder. This policy is necessary to protect
the interest of the awarding body against irresponsible bidders.
Thus, one who acted pursuant to the sincere belief that another willfully committed an act
prejudicial to the interest of the government cannot be considered to have acted in bad faith. Bad
faith has always been a question of intention. It is that corrupt motive that operates in the
mind. As understood in law, it contemplates a state of mind affirmatively operating with furtive
design or with some motive of self-interest or ill-will or for ulterior purpose.[40] While confined in
the realm of thought, its presence may be ascertained through the partys actuation or through
circumstantial evidence.[41] The circumstances under which NAPOCOR disapproved PHIBRO's
pre-qualification to bid do not show an intention to cause damage to the latter. The measure it
adopted was one of self-protection.Consequently, we cannot penalize NAPOCOR for the course
of action it took. NAPOCOR cannot be made liable for actual, moral and exemplary damages.
Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the
Regional Trial Court computed what could have been the profits of PHIBRO had NAPOCOR
allowed it to participate in the subsequent public bidding. It ruled that PHIBRO would have won
the tenders for the supply of about 960,000 metric tons out of at least 1,200,000 metric tons from
the public bidding of December 1987 to 1990. We quote the trial courts ruling, thus:

x x x. PHIBRO was unjustly excluded from participating in at least five (5) tenders
beginning December 1987 to 1990, for the supply and delivery of imported coal with
a total volume of about 1,200,000 metric tons valued at no less than US$32 Million.
(Exhs. AA, AA-1, to AA-2). The price of imported coal for delivery in 1988 was
quoted in June 1988 by bidders at US$ 41.35 to US $ 43.95 per metric ton (Exh. JJ);
in September 1988 at US$41.50 to US$49.50 per metric ton (Exh. J-1); in November
1988 at US$ 39.00 to US$ 48.50 per metric ton (Exh. J-2) and for the 1989 deliveries,
at US$ 44.35 to US$ 47.35 per metric ton (Exh. J-3) and US$38.00 to US$48.25 per
metric ton in September 1990 (Exh. JJ-6 and JJ-7). PHIBRO would have won the
tenders for the supply and delivery of about 960,000 metric tons of coal out of at least
1,200,000 metric tons awarded during said period based on its proven track record of
80%. The Court, therefore finds that as a result of its disqualification, PHIBRO
suffered damages equivalent to its standard 3% margin in 960,000 metric tons of
coal at the most conservative price of US$ 30.000 per metric ton, or the total of
US$ 864,000 which PHIBRO would have earned had it been allowed to
participate in biddings in which it was disqualified and in subsequent tenders for
supply and delivery of imported coal.

We find this to be erroneous.


Basic is the rule that to recover actual damages, the amount of loss must not only be capable
of proof but must actually be proven with reasonable degree of certainty, premised upon
competent proof or best evidence obtainable of the actual amount thereof.[42] A court cannot
merely rely on speculations, conjectures, or guesswork as to the fact and amount of
damages. Thus, while indemnification for damages shall comprehend not only the value of the
loss suffered, but also that of the profits which the obligee failed to obtain,[43] it is imperative that
the basis of the alleged unearned profits is not too speculative and conjectural as to show the
actual damages which may be suffered on a future period.
In Pantranco North Express, Inc. v. Court of Appeals,[44] this Court denied the plaintiffs
claim for actual damages which was premised on a contract he was about to negotiate on the
ground that there was still the requisite public bidding to be complied with, thus:

As to the alleged contract he was about to negotiate with Minister Hipolito, there is no
showing that the same has been awarded to him. If Tandoc was about to negotiate a
contract with Minister Hipolito, there was no assurance that the former would get it or
that the latter would award the contract to him since there was the requisite public
bidding. The claimed loss of profit arising out of that alleged contract which was
still to be negotiated is a mere expectancy. Tandocs claim that he could have
earned P2 million in profits is highly speculative and no concrete evidence was
presented to prove the same. The only unearned income to which Tandoc is entitled
to from the evidence presented is that for the one-month period, during which his
business was interrupted, which is P6,125.00, considering that his annual net income
was P73, 500.00.

In Lufthansa German Airlines v. Court of Appeals,[45] this Court likewise disallowed the trial
court's award of actual damages for unrealized profits in the amount of US$75,000.00 for being
highly speculative. It was held that the realization of profits by respondent x x x was not a
certainty, but depended on a number of factors, foremost of which was his ability to invite
investors and to win the bid.This Court went further saying that actual or compensatory
damages cannot be presumed, but must be duly proved, and proved with reasonable degree of
certainty.
And in National Power Corporation v. Court of Appeals,[46] the Court, in denying the bidders
claim for unrealized commissions, ruled that even if NAPOCOR does not deny its (bidder's)
claims for unrealized commissions, and that these claims have been transmuted into judicial
admissions, these admissions cannot prevail over the rules and regulations governing the bidding
for NAPOCOR contracts, which necessarily and inherently include the reservation by the
NAPOCOR of its right to reject any or all bids.
The award of moral damages is likewise improper. To reiterate, NAPOCOR did not act in
bad faith. Moreover, moral damages are not, as a general rule, granted to a corporation.[47] While
it is true that besmirched reputation is included in moral damages, it cannot cause mental anguish
to a corporation, unlike in the case of a natural person, for a corporation has no reputation in the
sense that an individual has, and besides, it is inherently impossible for a corporation to suffer
mental anguish.[48] In LBC Express, Inc. v. Court of Appeals,[49] we ruled:

Moral damages are granted in recompense for physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings, no emotions, no senses;
therefore, it cannot experience physical suffering and mental anguish. Mental
suffering can be experienced only by one having a nervous system and it flows from
real ills, sorrows, and griefs of life all of which cannot be suffered by respondent bank
as an artificial person.

Neither can we award exemplary damages under Article 2234 of the Civil Code. Before the
court may consider the question of whether or not exemplary damages should be awarded, the
plaintiff must show that he is entitled to moral, temperate, or compensatory damages.
NAPOCOR, in this petition, likewise contests the judgment of the lower courts awarding
PHIBRO the amount of $73,231.91 as reimbursement for expenses, cost of litigation and
attorneys fees.
We agree with NAPOCOR.
This Court has laid down the rule that in the absence of stipulation, a winning party may be
awarded attorney's fees only in case plaintiff's action or defendant's stand is so untenable as to
amount to gross and evident bad faith.[50] This cannot be said of the case at bar. NAPOCOR is
justified in resisting PHIBROs claim for damages. As a matter of fact, we partially grant the
prayer of NAPOCOR as we find that it did not act in bad faith in disapproving PHIBRO's pre-
qualification to bid.
Trial courts must be reminded that attorney's fees may not be awarded to a party simply
because the judgment is favorable to him, for it may amount to imposing a premium on the right
to redress grievances in court. We adopt the same policy with respect to the expenses of
litigation. A winning party may be entitled to expenses of litigation only where he, by reason of
plaintiff's clearly unjustifiable claims or defendant's unreasonable refusal to his demands, was
compelled to incur said expenditures. Evidently, the facts of this case do not warrant the granting
of such litigation expenses to PHIBRO.
At this point, we believe that, in the interest of fairness, NAPOCOR should give PHIBRO
another opportunity to participate in future public bidding. As earlier mentioned, the delay on its
part was due to a fortuitous event.
But before we dispose of this case, we take this occasion to remind PHIBRO of the
indispensability of coal to a coal-fired thermal plant. With households and businesses being
entirely dependent on the electricity supplied by NAPOCOR, the delivery of coal cannot be
venturesome. Indeed, public interest demands that one who offers to deliver coal at an appointed
time must give a reasonable assurance that it can carry through. With the deleterious possible
consequences that may result from failure to deliver the needed coal, we believe there is greater
strain of commitment in this kind of obligation.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 126204 dated
August 27, 1996 is hereby MODIFIED. The award, in favor of PHIBRO, of actual, moral and
exemplary damages, reimbursement for expenses, cost of litigation and attorneys fees, and costs
of suit, is DELETED.
SO ORDERED.

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. WHETHER THE BROADCASTS ARE LIBELOUS;

II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

IV. 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. x x x

4. 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 Mambulao that 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 non-payment 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.

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