1. National Power Corporation v. Ibrahim GR No.
175863 datus of Guimba, to belong to his eldest son, Datu Magayo-ong
[G.R. No. 175863. February 18, 2015.]
NATIONAL POWER CORPORATION, petitioner, vs. LUCMAN
M. IBRAHIM, ATTY. OMAR G. MARUHOM, ELIAS G.
MARUHOM, BUCAY G. MARUHOM, MAMOD G. MARUHOM,
FAROUK G. MARUHOM, HIDJARA G. MARUHOM, ROCANIA
G. MARUHOM, POTRISAM G. MARUHOM, LUMBA G.
MARUHOM, SINAB G. MARUHOM, ACMAD G. MARUHOM,
SOLAYMAN G. MARUHOM, MOHAMAD M. IBRAHIM,
CAIRONESA M. IBRAHIM and MACAPANTON K.
MANGONDATO, respondents.
DECISION
PEREZ, J p:
At bench is a petition for review on certiorari 1 assailing the Decision 2 dated
24 June 2005 and Resolution 3 dated 5 December 2006 of the Court of Appeals in CA-
G.R. CV No. 68061.
The facts:
The Subject Land
In 1978, petitioner took possession of a 21,995 square meter parcel of land in
Marawi City (subject land) for the purpose of building thereon a hydroelectric power
plant pursuant to its Agus 1 project. The subject land, while in truth a portion of a private
estate registered under Transfer Certificate of Title (TCT) No. 378-A 4 in the name of
herein respondent Macapanton K. Mangondato (Mangondato), 5 was occupied by
petitioner under the mistaken belief that such land is part of the vast tract of public land
reserved for its use by the government under Proclamation No. 1354, s. 1974. 6
Mangondato first discovered petitioner's occupation of the subject land in
1979 — the year that petitioner started its construction of the Agus 1 plant. Shortly after
such discovery, Mangondato began demanding compensation for the subject land from
petitioner.
In support of his demand for compensation, Mangondato sent to petitioner
a letter 7 dated 28 September 1981 wherein the former detailed the origins of his
ownership over the lands covered by TCT No. 378-A, including the subject land. The
relevant portions of the letter read:
Now let me trace the basis of the title to the land adverted to for
particularity. The land titled in my name was originally consisting
of seven (7) hectares. This piece of land was particularly set
aside by the Patriarch Maruhom, a fact recognized by all royal
Maruhom. This is the very foundation of the right and ownership
over the land in question which was titled in my name because
as the son-in-law of Hadji Ali Maruhom the eldest son of, and
only lawyer among the descendants of Datu Magayo-ong
Maruhom, the authority and right to apply for the title to the land
was given to me by said heirs after mutual agreement among
themselves besides the fact that I have already bought a
substantial portion of the original seven (7) hectares. cDACST
The original title of this seven (7) hectares has been subdivided
into several TCTs for the other children of Datu Magayo-ong
Maruhom with whom I have executed a quit claim. Presently,
only three (3) hectares is left to me out of the original seven (7)
hectares representing those portion [sic] belonging to my wife
and those I have bought previously from other heirs. This is now
the subject of this case. 8
Petitioner, at first, rejected Mangondato's claim of ownership over the subject
land; the former then adamant in its belief that the said land is public land covered by
Proclamation No. 1354, s. 1974. But, after more than a decade, petitioner finally
acquiesced to the fact that the subject land is private land covered by TCT No. 378-A
and consequently acknowledged Mangondato's right, as registered owner, to receive
compensation therefor.
Thus, during the early 1990s, petitioner and Mangondato partook in a series
of communications aimed at settling the amount of compensation that the former ought
to pay the latter in exchange for the subject land. Ultimately, however, the
communications failed to yield a genuine consensus between petitioner and
Mangondato as to the fair market value of the subject land.
Civil Case No. 605-92 and Civil Case No. 610-92
With an agreement basically out of reach, Mangondato filed a complaint for
reconveyance against petitioner before the Regional Trial Court (RTC) of Marawi City
in July 1992. In his complaint, Mangondato asked for, among others, the recovery of
the subject land and the payment by petitioner of a monthly rental from 1978 until the
return of such land. Mangondato's complaint was docketed as Civil Case No. 605-92.
For its part, petitioner filed an expropriation complaint 9 before the RTC on 27
July 1992. Petitioner's complaint was docketed as Civil Case No. 610-92.
Later, Civil Case No. 605-92 and Civil Case No. 610-92 were consolidated
before Branch 8 of the Marawi City RTC.
On 21 August 1992, Branch 8 of the Marawi City RTC rendered a
Decision 10 in Civil Case No. 605-92 and Civil Case No. 610-92. The decision upheld
petitioner's right to expropriate the subject land: it denied Mangondato's claim for
reconveyance and decreed the subject land condemned in favor of the petitioner,
effective July of 1992, subject to payment by the latter of just compensation in the
amount of P21,995,000.00. Anent petitioner's occupation of the subject land from 1978
to July of 1992, on the other hand, the decision required the former to pay rentals
therefor at the rate of P15,000.00 per month with 12% interest per annum. The
decision's fallo reads:
 WHEREFORE, the prayer in the recovery case for [petitioner's]
surrender of the property is denied but [petitioner] is ordered to
pay monthly rentals in the amount of P15,000.00 from 1978 up
to July 1992 with 12% interest per annum . . . and the property
is condemned in favor of [petitioner] effective July 1992 upon
payment of the fair market value of the property at One
Thousand (P1,000.00) Pesos per square meter or a total of
Twenty-One Million Nine Hundred Ninety-Five Thousand
(P21,995,000.00) [P]esos. 11
Disagreeing with the amount of just compensation that it was adjudged to pay
under the said decision, petitioner filed an appeal with the Court of Appeals. This appeal
was docketed in the Court of Appeals as CA-G.R. CV No. 39353.
Respondents Ibrahims and Maruhoms and Civil Case No. 967-93
During the pendency of CA-G.R. CV No. 39353, or on 29 March 1993, herein
respondents the Ibrahims and Maruhoms 12 filed before the RTC of Marawi City a
complaint 13 against Mangondato and petitioner. This complaint was docketed as Civil
Case No. 967-93 and was raffled to Branch 10 of the Marawi City RTC. DacTEH
In their complaint, the Ibrahims and Maruhoms disputed Mangondato's
ownership of the lands covered by TCT No. 378-A, including the subject land. The
Ibrahims and Maruhoms asseverate that they are the real owners of the lands covered
by TCT No. 378-A; they being the lawful heirs of the late Datu Magayo-ong Maruhom,
who was the original proprietor of the said lands. 14 They also claimed that
Mangondato actually holds no claim or right over the lands covered by TCT No. 378-A
except that of a trustee who merely holds the said lands in trust for them. 15
The Ibrahims and Maruhoms submit that since they are the real owners of the
lands covered by TCT No. 378-A, they should be the ones entitled to any rental fees or
expropriation indemnity that may be found due for the subject land.
Hence, the Ibrahims and Maruhoms prayed for the following reliefs in their
complaint: 16
1. That Mangondato be ordered to execute a Deed of
Conveyance transferring to them the ownership of the
lands covered by TCT No. 378-A;
2. That petitioner be ordered to pay to them whatever indemnity
for the subject land it is later on adjudged to pay in Civil
Case No. 605-92 and Civil Case No. 610-92;
3. That Mangondato be ordered to pay to them any amount that
the former may have received from the petitioner by way
of indemnity for the subject land;
4. That petitioner and Mangondato be ordered jointly and severally
liable to pay attorney's fees in the sum of P200,000.00.
In the same complaint, the Ibrahims and Maruhoms also prayed for the
issuance of a temporary restraining order (TRO) and a writ of preliminary injunction to
enjoin petitioner, during the pendency of the suit, from making any payments to
Mangondato concerning expropriation indemnity for the subject land. 17
On 30 March 1993, Branch 10 of the Marawi City RTC granted the prayer of
the Ibrahims and Maruhoms for the issuance of a TRO. 18 On 29 May 1993, after
conducting an appropriate hearing for the purpose, the same court likewise granted the
prayer for the issuance of a writ of preliminary injunction. 19
In due course, trial then ensued in Civil Case No. 967-93.
The Decision of the Court of Appeals in CA-G.R. CV No. 39353 and the Decision
of this Court in G.R. No. 113194
On 21 December 1993, the Court of Appeals rendered a Decision in CA-G.R.
CV No. 39353 denying the appeal of petitioner and affirming in toto the 21 August 1992
Decision in Civil Case No. 605-92 and Civil Case No. 610-92. Undeterred, petitioner
next filed a petition for review on certiorari with this Court that was docketed herein
as G.R. No. 113194. 20
On 11 March 1996, we rendered our Decision in G.R. No. 113194 wherein we
upheld the Court of Appeals' denial of petitioner's appeal. 21 In the same decision, we
likewise sustained the appellate court's affirmance of the decision in Civil Case No.
605-92 and Civil Case No. 610-92 subject only to a reduction of the rate of interest on
the monthly rental fees from 12% to 6% per annum. 22 HaDEIc
Our decision in G.R. No. 113194 eventually became final and executory on
13 May 1996. 23
Execution of the 21 August 1992 Decision in Civil Case No. 605-92 and Civil Case
No. 610-92, as Modified
In view of the finality of this Court's decision in G.R. No. 113194, Mangondato
filed a motion for execution of the decision in Civil Case No. 605-92 and Civil Case No.
610-92. 24 Against this motion, however, petitioner filed an opposition. 25
In its opposition, petitioner adverted to the existence of the writ of preliminary
injunction earlier issued in Civil Case No. 967-93 that enjoins it from making any
payment of expropriation indemnity over the subject land in favor of
Mangondato. 26 Petitioner, in sum, posits that such writ of preliminary injunction
constitutes a legal impediment that effectively bars any meaningful execution of the
decision in Civil Case No. 605-92 and Civil Case No. 610-92.
Finding no merit in petitioner's opposition, however, Branch 8 of the Marawi
City RTC rendered a Resolution 27 dated 4 June 1996 ordering the issuance of a writ
of execution in favor of Mangondato in Civil Case No. 605-92 and Civil Case No. 610-
92. Likewise, in the same resolution, the trial court ordered the issuance of a notice of
garnishment against several of petitioner's bank accounts 28 for the amount
of P21,801,951.00 — the figure representing the total amount of judgment debt due
from petitioner in Civil Case No. 605-92 and Civil Case No. 610-92 less the amount
then already settled by the latter. The dispositive portion of the resolution reads:
WHEREFORE, let a Writ of Execution and the corresponding
order or notice of garnishment be immediately issued against
[petitioner] and in favor of [Mangondato] for the amount of
Twenty One Million Eight Hundred One Thousand and Nine
Hundred Fifty One (P21,801,951.00) Pesos.
xxx xxx xxx. 29
 Pursuant to the above resolution, a notice of garnishment 30 dated 5 June
1996 for the amount of P21,801,951.00 was promptly served upon the Philippine
National Bank (PNB) — the authorized depositary of petitioner. Consequently, the
amount thereby garnished was paid to Mangondato in full satisfaction of petitioner's
judgment debt in Civil Case No. 605-92 and Civil Case No. 610-92.
Decision in Civil Case No. 967-93
Upon the other hand, on 16 April 1998, Branch 10 of the Marawi City RTC
decided Civil Case No. 967-93. 31 In its decision, Branch 10 of the Marawi City RTC
made the following relevant findings: 32
1. The Ibrahims and Maruhoms — not Mangondato — are the true
owners of the lands covered by TCT No. 378-A, which
includes the subject land.
2. The subject land, however, could no longer be reconveyed to
the Ibrahims and Maruhoms since the same was already
expropriated and paid for by the petitioner under Civil
Case No. 605-92 and Civil Case No. 610-92.
3. Be that as it may, the Ibrahims and Maruhoms, as true owners
of the subject land, are the rightful recipients of whatever
rental fees and indemnity that may be due for the subject
land as a result of its expropriation.
Consistent with the foregoing findings, Branch 10 of the Marawi City RTC thus
required payment of all the rental fees and expropriation indemnity due for the subject
land, as previously adjudged in Civil Case No. 605-92 and Civil Case No. 610-92, to
the Ibrahims and Maruhoms. HEcTAI
Notable in the trial court's decision, however, was that it held both
Mangondato and the petitioner solidarily liable to the Ibrahims and Maruhoms for
the rental fees and expropriation indemnity adjudged in Civil Case No. 605-92
and Civil Case No. 610-92. 33
In addition, Mangondato and petitioner were also decreed solidarily liable to
the Ibrahims and Maruhoms for attorney's fees in the amount of P200,000.00. 34
The pertinent dispositions in the decision read:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of [the Ibrahims and Maruhoms] and against
[Mangondato and petitioner] as follows:
1. . . .
2. Ordering [Mangondato and petitioner] to pay jointly and
severally [the Ibrahims and Maruhoms] all forms of
expropriation indemnity as adjudged for [the subject land]
consisting of 21,995 square meters in the amount of
P21,801,051.00 plus other forms of indemnity such as
rentals and interests;
3. Ordering [Mangondato and petitioner] to pay [the Ibrahims and
Maruhoms] jointly and severally the sum of P200,000.00
as attorney's fees;
4. . . .
5. . . .
6. . . .
SO ORDERED. 35
Petitioner's Appeal to the Court of Appeals and the Execution
Pending Appeal of the Decision in Civil Case No. 967-93
Petitioner appealed the decision in Civil Case No. 967-93 with the Court of
Appeals: contesting mainly the holding in the said decision that it ought to be solidarily
liable with Mangondato to pay to the Ibrahims and Maruhoms the rental fees and
expropriation indemnity adjudged due for the subject land. This appeal was docketed
as CA-G.R. CV No. 68061.
While the foregoing appeal was still pending decision by the Court of Appeals,
however, the Ibrahims and Maruhoms were able to secure with the court a quo a writ
of execution pending appeal 36 of the decision in Civil Case No. 967-93. The
enforcement of such writ led to the garnishment of Mangondato's moneys in the
possession of the Social Security System (SSS) in the amount of P2,700,000.00 on 18
September 1998. 37 Eventually, the amount thereby garnished was paid to the
Ibrahims and Mangondato in partial satisfaction of the decision in Civil Case No. 967-
93.
On 24 June 2005, the Court of Appeals rendered its Decision 38 in CA-G.R.
CV No. 68061 denying petitioner's appeal. The appellate court denied petitioner's
appeal and affirmed the decision in Civil Case No. 967-93, subject to the right of
petitioner to deduct the amount of P2,700,000.00 from its liability as a consequence of
the partial execution of the decision in Civil Case No. 967-93. 39
Hence, the present appeal by petitioner. SITCEA
The Present Appeal
The present appeal poses the question of whether it is correct, in view of the
facts and circumstances in this case, to hold petitioner liable in favor of the Ibrahims
and Maruhoms for the rental fees and expropriation indemnity adjudged due for the
subject land.
In their respective decisions, both Branch 10 of the Marawi City RTC and the
Court of Appeals had answered the foregoing question in the affirmative. The two
tribunals postulated that, notwithstanding petitioner's previous payment to Mangondato
of the rental fees and expropriation indemnity as a consequence of the execution of the
decision in Civil Case No. 605-92 and 610-92, petitioner may still be held liable to the
Ibrahims and Maruhoms for such fees and indemnity because its previous payment to
Mangondato was tainted with "bad faith." 40 As proof of such bad faith, both courts cite
the following considerations: 41
1. Petitioner "allowed" payment to Mangondato despite its prior
knowledge, which dates back as early as 28 September
 1981, by virtue of Mangondato's letter of even date, that
the subject land was owned by a certain Datu Magayo-
ong Maruhom and not by Mangondato; and
2. Petitioner "allowed" such payment despite the issuance of a
TRO and a writ of preliminary injunction in Civil Case No.
967-93 that precisely enjoins it from doing so.
For the two tribunals, the bad faith on the part of petitioner rendered its
previous payment to Mangondato invalid insofar as the Ibrahims and Maruhoms are
concerned. Hence, both courts concluded that petitioner may still be held liable to the
Ibrahims and Maruhoms for the rental fees and expropriation indemnity previously paid
to Mangondato. 42
Petitioner, however, argues otherwise. It submits that a finding of bad faith
against it would have no basis in fact and law, given that it merely complied with the
final and executory decision in Civil Case No. 605-92 and Civil Case No. 610-92 when
it paid the rental fees and expropriation indemnity due the subject to
Mangondato. 43 Petitioner thus insists that it should be absolved from any liability to
pay the rental fees and expropriation indemnity to the Ibrahims and Maruhoms and
prays for the dismissal of Civil Case No. 967-93 against it.
OUR RULING
We grant the appeal.
No Bad Faith On The Part
of Petitioner
Petitioner is correct. No "bad faith" may be taken against it in paying
Mangondato the rental fees and expropriation indemnity due the subject land.
Our case law is not new to the concept of bad faith. Decisions of this Court,
both old and new, had been teeming with various pronouncements that illuminate the
concept amidst differing legal contexts. In any attempt to understand the basics of bad
faith, it is mandatory to take a look at some of these pronouncements:
In Lopez, et al. v. Pan American World Airways, 44 a 1966 landmark tort case,
we defined the concept of bad faith as:
". . . a breach of a known duty through some motive of interest
or ill will." 45
Just months after the promulgation of Lopez, however, came the case of Air
France v. Carrascoso, et al., 46 In Air France, we expounded on Lopez'sdefinition by
describing bad faith as: EHACcT
". . . a state of mind affirmatively operating with furtive design or
with some motive of self-interest or will or for ulterior
purpose." 47
Air France's articulation of the meaning of bad faith was, in turn, echoed in a
number subsequent cases, 48 one of which, is the 2009 case of Balbuena, et al. v.
Sabay, et al. 49
In the 1967 case of Board of Liquidators v. Heirs of M. Kalaw, 50 on the other
hand, we enunciated one of the more oft-repeated formulations of bad faith in our case
law:
". . . bad faith does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It means breach of a
known duty thru some motive or interest of ill will; it partakes of
the nature of fraud." 51
As a testament to its enduring quality, the foregoing pronouncement in Board
of Liquidators had been reiterated in a slew of later cases, 52 more recently, in the 2009
case of Nazareno, et al. v. City of Dumaguete 53 and the 2012 case of Aliling v.
Feliciano. 54
Still, in 1995, the case of Far East Bank and Trust Company v. Court of
Appeals 55 contributed the following description of bad faith in our jurisprudence:
"Malice or bad faith implies a conscious and intentional design
to do a wrongful act for a dishonest purpose or moral obliquity; .
. . ." 56
The description of bad faith in Far East Bank and Trust Company then went
on to be repeated in subsequent cases such as 1995's Ortega v. Court of
Appeals, 57 1997's Laureano Investment and Development Corporation v. Court of
Appeals, 58 2010's Lambert Pawnbrokers v. Binamira 59 and 2013's California
Clothing, Inc., v. Quiñones, 60 to name a few.
Verily, the clear denominator in all of the foregoing judicial pronouncements is
that the essence of bad faith consists in the deliberate commission of a wrong. Indeed,
the concept has often been equated with malicious or fraudulent motives, yet
distinguished from the mere unintentional wrongs resulting from mere simple
negligence or oversight. 61
A finding of bad faith, thus, usually assumes the presence of two (2)
elements: first, that the actor knew or should have known that a particular course of
action is wrong or illegal, and second, that despite such actual or imputable knowledge,
the actor, voluntarily, consciously and out of his own free will, proceeds with such
course of action. Only with the concurrence of these two elements can we begin to
consider that the wrong committed had been done deliberately and, thus, in bad faith.
In this case, both Branch 10 of the Marawi City RTC and the Court of Appeals
held that petitioner was in bad faith when it paid to Mangondato the rental fees and
expropriation indemnity due the subject land. The two tribunals, in substance, fault
petitioner when it "allowed" such payment to take place despite the latter's alleged
knowledge of the existing claim of the Ibrahims and Maruhoms upon the subject land
and the issuance of a TRO in Civil Case No. 967-93. Hence, the two tribunals claim
that petitioner's payment to Mangondato is ineffective as to the Ibrahims and
Maruhoms, whom they found to be the real owners of the subject land.
We do not agree.
Branch 10 of the Marawi City RTC and the Court of Appeals erred in their
finding of bad faith because they have overlooked the utter significance of one
important fact: that petitioner's payment to Mangondato of the rental fees and
expropriation indemnity adjudged due for the subject land in Civil Case No. 605-92
and Civil Case No. 610-92, was required by the final and executory decision in the
said two cases and was compelled thru a writ of garnishment issued by the court
that rendered such decision. In other words, the payment to Mangondato was not a
product of a deliberate choiceon the part of the petitioner but was made only in
compliance to the lawful orders of a court with jurisdiction. TCEaDI
Contrary then to the view of Branch 10 of the Marawi City RTC and of the
Court of Appeals, it was not the petitioner that "allowed" the payment of the rental fees
and expropriation indemnity to Mangondato. Indeed, given the circumstances, the more
accurate rumination would be that it was the trial court in Civil Case No. 605-92 and
Civil Case No. 610-92 that ordered or allowed the payment to Mangondato and that
petitioner merely complied with the order or allowance by the trial court. Since petitioner
was only acting under the lawful orders of a court in paying Mangondato, we find that
no bad faith can be taken against it, even assuming that petitioner may have had prior
knowledge about the claims of the Ibrahims and Maruhoms upon the subject land and
the TRO issued in Civil Case No. 967-93.
Sans Bad Faith, Petitioner
Cannot Be Held Liable to the
Ibrahims and Maruhoms
Without the existence of bad faith, the ruling of the RTC and of the Court of
Appeals apropos petitioner's remaining liability to the Ibrahims and Maruhoms
becomes devoid of legal basis. In fact, petitioner's previous payment to Mangondato of
the rental fees and expropriation indemnity due the subject land pursuant to the final
judgment in Civil Case No. 605-92 and Civil Case No. 610-92 may be considered to
have extinguished the former's obligation regardless of who between Mangondato,
on one hand, and the Ibrahims and Maruhoms, on the other, turns out to be the
real owner of the subject land. 62 Either way, petitioner cannot be made liable to the
Ibrahims and Maruhoms:
First. If Mangondato is the real owner of the subject land, then the obligation
by petitioner to pay for the rental fees and expropriation indemnity due the subject land
is already deemed extinguished by the latter's previous payment under the final
judgment in Civil Case No. 605-92 and Civil Case No. 610-92. This would be a simple
case of an obligation being extinguished through payment by the debtor to its
creditor. 63 Under this scenario, the Ibrahims and Maruhoms would not even be
entitled to receive anything from anyone for the subject land. Hence, petitioner cannot
be held liable to the Ibrahims and Maruhoms.
Second. We, however, can reach the same conclusion even if the Ibrahims
and Maruhoms turn out to be the real owners of the subject land.
Should the Ibrahims and Maruhoms turn out to be the real owners of the
subject land, petitioner's previous payment to Mangondato pursuant to Civil Case No.
605-92 and Civil Case No. 610-92 — given the absence of bad faith on petitioner's part
as previously discussed — may nonetheless be considered as akin to a payment
made in "good faith" to a person in "possession of credit" per Article 1242 of
the Civil Code that, just the same, extinguishes its obligation to pay for the rental fees
and expropriation indemnity due for the subject land. Article 1242 of the Civil
Code reads:
"Payment made in good faith to any person in possession of the
credit shall release the debtor."
Article 1242 of the Civil Code is an exception to the rule that a valid payment
of an obligation can only be made to the person to whom such obligation is rightfully
owed. 64 It contemplates a situation where a debtor pays a "possessor of credit" i.e.,
someone who is not the real creditor but appears, under the circumstances, to be the
real creditor. 65 In such scenario, the law considers the payment to the "possessor of
credit" as valid even as against the real creditor taking into account the good faith of
the debtor.
Borrowing the principles behind Article 1242 of the Civil Code, we find that
Mangondato — being the judgment creditor in Civil Case No. 605-92 and Civil Case
No. 610-92 as well as the registered owner of the subject land at the time 66 — may
be considered as a "possessor of credit" with respect to the rental fees and
expropriation indemnity adjudged due for the subject land in the two cases, if the
Ibrahims and Maruhoms turn out to be the real owners of the subject land. Hence,
petitioner's payment to Mangondato of the fees and indemnity due for the subject land
as a consequence of the execution of Civil Case No. 605-92 and Civil Case No. 610-
92 could still validly extinguish its obligation to pay for the same even as against the
Ibrahims and Maruhoms. CIETDc
Effect of Extinguishment of
Petitioner's Obligation
The extinguishment of petitioner's obligation to pay for the rental fees and
expropriation indemnity due the subject land carries with it certain legal effects:
First. If Mangondato turns out to be the real owner of the subject land, the
Ibrahims and Maruhoms would not be entitled to recover anything from anyone for the
subject land. Consequently, the partial execution of the decision in Civil Case No. 967-
93 that had led to the garnishment of Mangondato's moneys in the possession of the
Social Security System (SSS) in the amount of P2,700,000.00 in favor of the Ibrahims
and Maruhoms, becomes improper and unjustified. In this event, therefore, the
Ibrahims and Maruhoms may be ordered to return the amount so garnished to
Mangondato.
Otherwise, i.e., if the Ibrahims and Maruhoms really are the true owners of
the subject land, they may only recover the rental fees and expropriation indemnity due
the subject land against Mangondato but only up to whatever payments the latter had
previously received from petitioner pursuant to Civil Case No. 605-92 and Civil Case
No. 610-92.
Second. At any rate, the extinguishment of petitioner's obligation to pay for
the rental fees and expropriation indemnity due the subject land negates whatever
cause of action the Ibrahims and Maruhoms might have had against the former in Civil
Case No. 967-93. Hence, regardless of who between Mangondato, on one hand,
and the Ibrahims and Maruhoms, on the other, turns out to be the real owner of
the subject land, the dismissal of Civil Case No. 967-93 insofar as petitioner is
concerned is called for.
Re: Attorney's Fees
 The dismissal of Civil Case No. 967-93 as against petitioner necessarily
absolves the latter from paying attorney's fees to the Ibrahims and Maruhoms arising
from that case.
WHEREFORE, premises considered, the instant petition is GRANTED. The
Decision dated 24 June 2005 and Resolution dated 5 December 2006 of the Court of
Appeals in CA-G.R. CV No. 68061 is hereby SET ASIDE. The Decision dated 16 April
1998 of the Regional Trial Court in Civil Case No. 967-93 is MODIFIED in that petitioner
is absolved from any liability in that case in favor of the respondents Lucman M.
Ibrahim, Atty. Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mamod G.
Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Rocania G. Maruhom, Potrisam
G. Maruhom, Lumba G. Maruhom, Sinab G. Maruhom, Acmad G. Maruhom, Solayman
G. Maruhom, Mohamad M. Ibrahim and Caironesa M. Ibrahim. Civil Case No. 967-93
is DISMISSED as against petitioner.
No costs.
SO ORDERED.
||| (National Power Corp. v. Ibrahim, G.R. No. 175863, [February 18, 2015])
 2. Enrique JL Ruiz v. The Secretary of National Defense GR No. L-15526
[G.R. No. L-15526. December 28, 1963.]
ENRIQUE J. L. RUIZ and JOSE V. HERRERA, in their behalf
and as minority stockholders of the Allied Technologists,
Inc., plaintiffs-appellants, vs.
THE SECRETARY OF NATIONAL DEFENSE, COL. NICOLAS
JIMENEZ, Head of the Engineering Group,
Office of the Secretaryof National Defense, THE FINANCE
OFFICER of the Department of National Defense, THE
AUDITOR of the Dept. of National Defense, PABLO D.
PANLILIO and ALLIED TECHNOLOGISTS, INC., defendants-
appellees.
Montenegro, Madayag, Viola & Hernandez for plaintiffs-appellants.
Solicitor General for defendants-appellee Secretary of National Defense.
Rosauro Alvarez for defendant-appellee Allied Technologists, Inc.
L.D. Panlilio for defendant-appellee Pablo Panlilio.
SYLLABUS
1. PLEADINGS AND PRACTICE; SINGLE AND INDIVISIBLE
CAUSE OF ACTION; CLAIM FOR RECOGNITION INSEPARABLE FROM CLAIM
FOR NON-PAYMENT OF FEES. — The contention of the appellants in the case
at bar that their claim for recognition as co-architects of the Veterans Memorial
Hospital is divisible and separable from their allegations for non-payment by the
government of a portion of the architectural fees and that the lower court should
have merely ordered the striking out of the moot portion of appellant's
cause of action and proceeded with their claim for recognition was held to be
without merit, because the allegations of the amended complaint show that there
is an indivisible and single cause of action which is primarily to prevent payment
exclusively to the defendant architect, the architectural fees, and that the
matter of recognizing them as co-architects of the hospital was merely incidental
thereto.
2. ID.; CAUSE OF ACTION; RECOGNITION OF PROFESSIONAL
STANDING NOT PROPER SUBJECT OF APPEAL. — Where the sole
object of the appeal in a case is only to secure for appellants a recognition that
they were co-architects in the construction of a hospital so as to enhance their
professional prestige, it is held that a judicial declaration to that effect is
unnecessary, because a brilliant professional enjoys the respect and esteem of his
fellow men, even without a court declaration of such fact, while an incompetent
one may summon all the tribunals of the world to proclaim his genius in vain.
3. ID.; ID., "INJURY" UNDER ART. 21 OF THE CIVIL CODE REQUIRES
A LEGAL RIGHT VIOLATED. — The appellants' contention in the case at bar that
their claim for recognition as co-architects is authorized under Article 21 of the Civil
Code on the ground that the word "injury" in said article refers also to honor or
credit, is held to be without merit, because this Article envisions a situation where
a person has a legal right and such right is violated by another in a manner contrary
to morals, good customs or public policy, and it presupposes losses or injuries,
material or otherwise, which one may suffer as a result of said violation, which
situation does not obtain in the case at bar.
DECISION
PAREDES, J p:
This is an appeal by plaintiffs Enrique J. L. Ruiz and Jose V. Herrera from
an order of the Court of First Instance of Manila, in Civil Case No. 26601, dated
February 25, 1959, dismissing plaintiffs' complaint.
On September 11, 1950, a contract was executed between the defendant
Allied Technologists Inc., (corporation, for short), and the Republic of the
Philippines, for the construction of the Veterans Memorial Hospital. Ruiz and
Herrera were stockholders and officers of the corporation. The construction of the
hospital was terminated in 1955. On August 20, 1954, and June 20, 1955, Civil
Case Nos. 23778 and 26601, respectively, were filed by same plaintiffs herein,
making as parties-defendants in both cases, the same defendants herein,
the Secretary of National Defense, Col. Nicolas Jimenez (Engineer), the Finance
Officer, and the Auditor of the Dept. of National Defense, Pablo D. Panlilio and
Allied Technologists, Inc. Civil Case No. 23778 was dismissed by the CFI on
October 12, 1954 and the dismissal was affirmed by this Court on July 7, 1955, in
G.R. No. L-8638. Civil Case No. 26601 was also dismissed on September 13,
1955. On appeal, this Court reversed the order of dismissal, under the impression
that the real controversy was confined merely between defendant Panlilio and
plaintiffs Ruiz and Herrera over the 15 percent of the contract price, which was
retained by the Department of National Defense. The retention of the 15
percent of the contract price in the sum of P34,740.000 was made to answer for
any claim or lien that might arise, in the course ofthe construction. The last case,
however, was remanded to the court of origin, for further proceedings. Panlilio and
the corporation filed their amended answers, stating that the amount retained by
the Department of National Defense was already paid to defendant corporation, as
sought for by the plaintiffs in their complaint. In view of this development, the trial
court invited the parties to a conference, in which the plaintiffs indicated their
conformity, to the dismissal of the complaint with respect to the retention of the
15% of the contract price; but insisted upon the hearing of the second question,
which sought the declaration and recognition of plaintiffs Ruiz and Herrera, as
two of the three architects of the hospital. The trial court, nevertheless, dismissed
the complaint, for being already academic and moot. Hence, this appeal by
plaintiffs-appellants, who alleged in their lone assignment of error that "the lower
court grievously erred in ordering the dismissal of the case, with costs against the
plaintiffs."
 Plaintiffs-appellants contend that the only ground relied upon by the lower
court to dismissing the case, without any trial, is the allegation contained in pars.
4 and (e) of the answers of the appellees Panlilio and Allied Technologists, Inc.,
respectively, that the amount retained by the Department of National Defense had
already been paid; that except for this bare allegation of the appellees, no
evidence was adduced to prove the truth of the same; that even assuming for the
sake of argument, that the same is true, nevertheless the first part of the first
cause of action still remains, for which they had insisted upon a hearing in order to
establish their right to be recognized as two of the three architects of the hospital;
that because the pleadings do not show any ground which might legally justify the
action taken by the lower court, the latter should not have ordered the
dismissal of the entire case but should have ordered only the striking out of the
moot portion of appellants' first cause of action, citing Pacal vs. Ramos, 81 Phil.
30, 33; 27 C.J.S. 209-210; Bush vs. Murray 205 N.Y.S. 21, 26, 209 App. Div. 563;
Bearden vs. Longino, 190 S.E. 12, 183, Ga. 819). Appellants further argue in their
brief that they base their cause of action on article 21, New Civil Code.
The appeal has no merit. The order appealed from, states —
"Considering the manifestation of counsel for
plaintiffs that the latter would insist on the hearing of the
above-entitled case for the purpose of establishing their
right to be recognized as the architects of the Veterans
Hospital together with defendant Pablo D. Panlilio, and it
appearing that plaintiffs' Amended Complaint with
Injunction prays, among others, 'That this Hon. Court order
defendants Secretary of National Defense, Col. Nicolas
Jimenez, and the Finance Officer and Auditor of the
Department of National Defense to pay the Allied
Technologists, Inc. the balance unpaid by virtue of the
contract executed on Sept. 11, 1960 (Annex 'C' hereof) for
services rendered under Title I and to be rendered under
Title II ofsaid contract; that paragraph 4 of defendant Pablo
Panlilio's Amended Answer to said complaint alleges `That
whatever amounts were retained by the
Dept. of National Defense on the contract price, which
retention was authorized by the contract, was paid by the
Dept. of National Defense to the Allied Technologists, Inc.,
as sought by the plaintiffs; that paragraph (e) of the
ANSWER TO THE AMENDED COMPLAINT of defendant
Allied Technologists, Inc., also alleges 'That whatever
amounts were retained by the
Department of National Defense, per the stipulations
contained in the contract, have already been paid by the
said Department of National Defense to the Allied
Technologists, Inc. and, therefore, the present action
seeking to compel the afore-mentioned
Department of National Defense to pay to defendant Allied
Technologists, Inc. the amounts retained by the
Department of National Defense is academic, groundless,
unfounded and malicious', that the said allegations of the
separate answers ofdefendants Pablo Panlilio and Allied
Technologists, Inc., are not and can not be denied by
plaintiffs, and that it is this Court's understanding that
defendant has no objection to the dismissal of this case —
it is ordered that this case be, as it is hereby DISMISSED,
with costs against plaintiffs."
A cursory reading of pars. 18 and 19 of the amended complaint with
injunction and prayers (1) and (2) thereof, reveals that appellants' first
cause ofaction is composed of two parts, as follows:
(a) A judicial declaration or recognition that appellants Ruiz and Herrera,
together with appellee Panlilio, were the architects of the Veterans Hospital; and
(b) An injunction restraining the appellee government officials from
paying their co-appellee Panlilio the sum retained by the former, as per stipulation
contained in the contract for the construction of the hospital because "they will not
only be deprived of the monetary value of the services legally due them, but that
their professional prestige and standing will be seriously impaired".
As appellants admitted, they no longer consider the Secretary and other
officials of the Department of National Defense, as parties- defendants in the
case, said officials can no longer be compelled to recognize the
appellants, Ruiz and Herrera, as co-architects with appellee Panlilio of the
Veterans Hospital. And, as the amount retained by the Department on the contract
price, which retention was authorized by the contract, was, as sought by the
appellants, already paid to the Allied Technologists, Inc., there is nothing more for
the trial court to decide, even without first ruling on the special
defenses of appellees Panlilio and the corporation.
Moreover, by discarding the Secretary and other officials of the
Department of National Defense, as parties-defendants, appellants could not
expect the trial court to order them to recognize and declare appellants as co-
architects in the construction of the hospital. And this must be so, because the
construction agreement expressly provides that the architect being contracted by
the Government was appellee Pablo Panlilio. The said agreement states that the
same was entered into by the government, party of the first part and "Allied
Technologists, Inc. . . . and Mr. Pablo D. Panlilio, architect, hereinafter called the
party of the second part" and "The Allied Technologists, Inc. for rendering
engineering services and Mr. Pablo D. Panlilio, architect, for rendering architect
services". And the contract was signed for the Government by "Ramon
Magsaysay, Secretary of National Defense (party of the first part)," and Allied
Technologists, Inc. as to By Enrique J. L. Ruiz, President, Contractor, Pablo D.
Panlilio, Architect."
Appellants maintain that their claim for recognition is divisible and
separable from their allegations regarding the non-payment by the
government of a portion of the architectural fees; thereby concluding that what the
lower court should have done, should have been merely to order the striking
out of the moot portion of appellants' cause of action, and should have proceeded
with hearing their claim for recognition. But the allegations in pars. 18 and 19 of the
amended complaint, show otherwise. There is an indivisible and single
cause of action which is primarily to prevent payment exclusively to defendant
Panlilio of the amount of P34,740.00, which said appellants contend should be
paid to appellee Allied Technologists, Inc.; the matter ofrecognizing them together
with Pablo Panlilio as architects of the hospital, being merely incidental thereto.
 The case of Pacal vs. Ramos, 81 Phil. 30, cited by appellants is not applicable. In
this case, the grounds for quo warranto are separable from the grounds for election
irregularities which are distinct and separate causes of action, entitling the
petitioner to separate and unrelated reliefs. These two grounds were alleged under
separate paragraphs and they were two independent actions improperly joined in
one proceedings. In the case at bar, in one paragraph, (par. 19 of the amended
complaint), as first cause of action, the claim for recognition is inseparably linked
with their allegations regarding alleged threatened payment of the P34,740.00 to
Panlilio alone, because "they will not only be deprived of the monetary value of the
services legally due them, but that their professional prestige and standing will be
seriously impaired". When the very defendant Allied Technologists, Inc. itself
asserted in its answer to the amended complaint, that the amount was paid to it,
an assertion which was not at all denied, plaintiffs-appellants' cause of action
under said par. 19 dissipated entirely.
There is a veiled insinuation that appellants' thesis would fall under the
provisions of the Rules on declaratory relief, because appellants wanted merely a
declaration of their rights in a contract in which they were interested. The trial court,
however, was correct in refusing to make such declaration, because it was not
necessary and proper under the circumstances (Sec. 6, Rule 66). Appellants were
not parties to the construction agreement. The sole object of the appeal is only to
secure for them a recognition, that they were allegedly the co-architects of Panlilio,
in the construction of the hospital, so as to enhance their professional prestige and
not to impair their standing. If this is the goal of appellants, a judicial declaration to
that effect would seem unnecessary. Let us ponder over the thought that a brilliant
professional enjoys the respect and esteem of his fellowmen, even without any
court declaration of such fact, and that an incompetent one may summon all the
tribunals in the world, to proclaim his genius in vain.
But appellants invoke Article 21 of the Civil Code, which states —
"Any person who wilfully cause loss or injury to
another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the
damages."
contending that the word "injury" in the said article, refers not only to any
indeterminate right or property, but also to honor or credit (I Tolentino Civ. Code,
p. 67). It may be added, however, that this article also envisions a situation where
a person has a legal right, and such right is violated by another in a manner
contrary to morals, good customs or public policy; it presupposes losses or injuries,
material or otherwise, which one may suffer as a result ofsaid violation. The
pleadings do not show that damages were ever asked or alleged in connection
with this case, predicted upon the article aforecited. And under the facts and
circumstances obtaining in this case, one cannot plausibly sustain the contention
that the failure or refusal to extend the recognition, was an act contrary to morals,
good customs or public policy.
IN VIEW HEREOF, the Order appealed from, is affirmed, with costs
against plaintiffs-appellants.
||| (Ruiz v. Secretary of National Defense, G.R. No. L-15526, [December 28, 1963], 119
PHIL 232-239)
 3. Albensob Enterprises v. CA GR No 88694
[G.R. No. 88694. January 11, 1993.]
ALBENSON ENTERPRISES CORP., JESSE YAP, AND
BENJAMIN MENDIONA, petitioners, vs. THE COURT OF
APPEALS AND EUGENIO S. BALTAO, respondents.
Puruganan, Chato, Chato & Tan for petitioners.
Lino M. Patajo, Francisco Ma. Chanco, Ananiano Desierto and Segundo Mangohig for
private respondent.
SYLLABUS
1. CIVIL LAW; HUMAN RELATIONS; PRINCIPLE OF ABUSE OF RIGHTS;
CONSTRUED. — Article 19, known to contain what is commonly referred to as the
principle of abuse of rights, sets certain standards which may be observed not only in
the exercise of one's rights but also in the performance of one's duties. These standards
are the following: to act with justice; to give everyone his due; and to observe honesty
and good faith. The law, therefore, recognizes the primordial limitation on all rights; that
in their exercises, the norms of human conduct set forth in Article 19 must be observed.
A right, though by itself legal because recognized or granted by law as such, may
nevertheless become the source of some illegality. When a right is exercised in a
manner which does not conform with the norms enshrined in Article 19 and results in
damage to another, a legal wrong is thereby committed for which the wrongdoer must
be held responsible. Although the requirements of each provision is different, these
three (3) articles are all related to each other. As the eminent Civilist Senator Arturo
Tolentino puts it: "With this article (Article 21), combined with Articles 19 and 20, the
scope of our law on civil wrongs has been very greatly broadened; it has become much
more supple and adaptable that the Anglo-American law on torts. It is now difficult to
conceive of any malevolent exercise of a right which could not be checked by the
application of these articles" (Tolentino, 1 Civil Code of the Philippines 72). There is
however, no hard and fast rule which can be applied to determine whether or not the
principle of abuse of rights may be invoked. The question of whether or not the principle
of abuse of rights has been violated, resulting in damages under Article 20 and 21 or
other applicable provision of law, depends on the circumstances of each case. (Globe
Mackay Cable and Radio Corporation vs. Court of Appeals, 176 SCRA 778 [1989]).
2. ID.; ID.; ID.; ELEMENTS. — The elements of an abuse of right under Article 19 are
the following: (1) There is a legal right or duty; (2) which is exercised in bad faith; (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 (Tolentino, supra, p. 71). Thus, anyone who,
whether willfully or negligently, in the exercise of his legal right or duty, causes damage
to another, shall indemnify his victim for injuries suffered thereby. 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; 3)
and it is done with intent to injure. Thus, under any of these three (3) provisions of law,
an act which causes injury to another may be made the basis for an award of damages.
3. ID.; DAMAGES; MORAL DAMAGES; CANNOT BE AWARDED IN THE ABSENCE
OF WRONGFUL ACT OR OMISSION OR OF FRAUD OR BAD FAITH. — The criminal
complaint filed against private respondent after the latter refused to make good the
amount of the bouncing check despite demand was a sincere attempt on the part of
petitioners to find the best possible means by which they could collect the sum of money
due them. A person who has not been paid an obligation owed to him will naturally seek
ways to compel the debtor to pay him. It was normal for petitioners to find means to
make the issuer of the check pay the amount thereof. In the absence of a wrongful act
or omission or of fraud or bad faith, moral damages cannot be awarded and that the
adverse result of an action does not per se make the action wrongful and subject the
actor to the payment of damages, for the law could not have meant to impose a penalty
on the right to litigate (Rubio vs. Court of Appeals, 141 SCRA 488 [1986]).
4. ID.; ID.; AWARD THEREOF ON BASIS ON MALICIOUS PROSECUTION;
ELEMENTS. — To constitute malicious prosecution, there must be proof that the
prosecution was prompted by a sinister design to vex and 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 for
prosecution. (Manila Gas Corporation vs. Court of Appeals, 100 SCRA 602 [1980]).
Still, private respondent argues that liability under Articles 19, 20, and 21 of the Civil
Code is so encompassing that it likewise includes liability for damages for malicious
prosecution under Article 2219 (8). True, a civil action for damages for malicious
prosecution is allowed under the New Civil Code, more specifically Articles 19, 20, 26,
29, 32, 33, 35, and 2219 (8) thereof. In order that such a case can prosper, however,
the following three (3) elements must be present, to wit: (1) 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; (2) That in bringing the action, the prosecutor
acted without probable cause; (3) The prosecutor was actuated or impelled by legal
malice (Lao vs. Court of Appeals, 199 SCRA 58, [1991]).
5. ID.; ID.; ID.; ID.; EXCEPTION. — Thus, a party injured by the filing of a court case
against him, even if he is later on absolved, may file a case for damages grounded
either on the principle of abuse of rights, or on malicious prosecution. As earlier stated,
a complaint for damages based on malicious prosecution will prosper only if the three
(3) elements aforecited are shown to exist. In the case at bar, the second and third
elements were not shown to exist. It is well-settled that one cannot be held liable for
maliciously instituting a prosecution where one has acted with probable cause.
"Probable cause is the existence of such facts and circumstances as would excite the
belief, in a reasonable mind, acting on the facts within the knowledge of the prosecutor,
that the person charged was guilty of the crime for which he was prosecuted. In other
words, a suit will lie only in cases where a legal prosecution has been carried on without
probable cause. The reason for this rule is that it would be a very great discouragement
to public justice, if prosecutors, who had tolerable ground of suspicion, were liable to
be sued at law when their indictment miscarried" (Que vs. Intermediate Appellate
Court, 169 SCRA 137 [1989]). The presence of probable cause signified, as a legal
consequence, the absence of malice. In the instant case, it is evident that petitioners
were not motivated by malicious intent or by sinister design to unduly harass private
respondent, but only by a well-founded anxiety to protect their rights when they filed
the criminal complaint against private respondent. "To constitute malicious prosecution,
there must be proof that the prosecution was prompted by a sinister design to vex and
humiliate a person, that it was initiated deliberately by the defendant knowing that his
charges where false and groundless. Concededly, the mere act of submitting a case to
the authorities for prosecution does not make one liable for malicious prosecution.
Proof and motive that the institution of the action was prompted by a sinister design to
vex and humiliate a person must be clearly and preponderantly established to entitle
the victims to damages."
6. ID.; ID.; UNWARRANTED, WHERE THE ACTION WAS FILED IN GOOD FAITH
AND DAMAGE RESULTS FROM A PERSON'S EXERCISING HIS LEGAL RIGHTS.
— The root of the controversy in this case is founded on a case of mistaken identity. It
is possible that with a more assiduous investigation, petitioners would have eventually
discovered that private respondent Eugenio S. Baltao is not the "Eugenio Baltao"
responsible for the dishonor check. However, the record shows that petitioners did
exert considerable effort in order to determine the liability of private respondent. Their
investigation pointed to private respondent as the "Eugenio Baltao" who issued and
signed the dishonored check as the president of the debtor-corporation Guaranteed
Enterprises. Their error in proceeding against the wrong individual was obviously in the
nature of an innocent mistake, and cannot be characterized as having been committed
in bad faith. This error could have been discovered if respondent had submitted his
counter-affidavit before investigating fiscal Sumaway and was immediately rectified by
Provincial Fiscal Mauro Castro upon discovery thereof, i.e., during the reinvestigation
resulting in the dismissal of the complaint. Furthermore, 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 be charged on those who may even
exercise it erroneously. And an adverse decision does not ipso facto justify the award
of attorney's fees to the winning party (Garcia vs. Gonzales, 183 SCRA 72 [1990]).
Thus, an award of damages and attorney's fees is unwarranted where the action was
filed in good faith. If damage results from a person's exercising his legal rights, it
is damnum absque injuria (Ilocos Norte Electric Company vs. Court of Appeals, 179
SCRA 5 [1989]).
7. ID.; ID.; ACTUAL AND COMPENSATORY DAMAGES; PECUNIARY LOSS MUST
SUBSTANTIALLY BE PROVED. — Coming now to the claim of private respondent for
actual or compensatory damages, the records show that the same was based solely
on his allegations without proof to substantiate the same. He did not present proof of
the cost of the medical treatment which he claimed to have undergone as a result of
the nervous breakdown he suffered, not did he present proof of the actual loss to his
business cause by the unjust litigation against him. In determining actual damages, the
court cannot rely on speculation, conjectures or guesswork as to the amount. Without
the actual proof of loss, the award of actual damages becomes erroneous
(Guilatco vs. City of Dagupan, 171 SCRA 382 [1989]). Actual and compensatory
damages are those recoverable because of pecuniary loss — in business, trade,
property, profession, job or occupation — and the same must be proved, otherwise, if
the proof is flimsy and unsubstantiated, no damages will be given (Rubio vs. Court of
Appeals, 141 SCRA 488 [1986]). For these reason, it was gravely erroneous for
respondent court to have affirmed the award of actual damages in favor of private
respondent in the absence of proof thereof.
8. LEGAL ETHICS; ATTORNEYS FEES; AWARD THEREOF MUST BE
DISALLOWED WHERE THE AWARD OF EXEMPLARY DAMAGES IS ELIMINATED.
— The award of attorney's fees must be disallowed where the award of exemplary
damages is eliminated (Article 2208, Civil Code; Agustin vs. Court of Appeals, 186
SCRA 375 [1990]). Moreover, in view of the fact that there was no malicious
prosecution against private respondent, attorney's fees cannot be awarded him on that
ground.
DECISION
BIDIN, J p:
This petition assails the decision of respondent Court of Appeals in CA-GR CV No.
14948 entitled "Eugenio S. Baltao, plaintiff-appellee vs. Albenson Enterprises
Corporation, et al, defendants-appellants", which modified the judgment of the Regional
Trial Court of Quezon City, Branch XCVIII in Civil Case No. Q-40920 and ordered
petitioner to pay private respondent, among others, the sum of P500,000.00 as moral
damages and attorney's fees in the amount of P50,000.00.
The facts are not disputed.
In September, October, and November 1980, petitioner Albenson Enterprises
Corporation (Albenson for short) delivered to Guaranteed Industries, Inc. (Guaranteed
for short) located at 3267 V. Mapa Street, Sta. Mesa, Manila, the mild steel plates which
the latter ordered. As part payment thereof, Albenson was given Pacific Banking
Corporation Check No. 136361 in the amount of P2,575.00 and drawn against the
account of E.L. Woodworks (Rollo, p. 148).
When presented for payment, the check was dishonored for the reason "Account
Closed." Thereafter, petitioner Albenson, through counsel, traced the origin of the
dishonored check. From the records of the Securities and exchange Commission
(SEC), Albenson discovered that the president of Guaranteed, the recipient of the
unpaid mild steel plates, was one "Eugenio S. Baltao." Upon further inquiry, Albenson
was informed by the Ministry of Trade and Industry that E.L. Woodworks, a single
proprietorship business, was registered in the name of one "Eugenio Baltao". In
addition, upon verification with the drawee bank, Pacific Banking Corporation, Albenson
was advised that the signature appearing on the subject check belonged to one
"Eugenio Baltao"
After obtaining the foregoing information, Albenson, through counsel, made an
extrajudicial demand upon private respondent Eugenio S. Baltao, president of
Guaranteed, to replace and/or make good the dishonored check.
Respondent Baltao, through counsel, denied that he issued the check, or that the
signature appearing thereon is his. He further alleged that Guaranteed was a defunct
entity and hence, could not have transacted business with Albenson. Cdpr
On February 14, 1983, Albenson filed with the Office of the Provincial Fiscal of Rizal a
complaint against Eugenio S. Baltao for violation of Batas Pambansa Bilang 22.
Submitted to support said charges was an affidavit of petitioner Benjamin Mendiona,
an employee of Albenson. In said affidavit, the above-mentioned circumstances were
stated.
It appears, however, that private respondent has a namesake, his son Eugenio Baltao
III, who manages a business establishment, E. L. Woodworks, on the ground floor of
Baltao Building, 3267 V. Mapa Street, Sta. Mesa, Manila, the very same business
address of Guaranteed.
On September 5, 1983, Assistant Fiscal Ricardo Sumaway filed an information against
Eugenio S. Baltao for Violation of Batas Pambansa Bilang 22. In filing said information,
Fiscal Sumaway claimed that he had given Eugenio S. Baltao opportunity to submit
controverting evidence, but the latter failed to do so and therefore, was deemed to have
waived his right.
Respondent Baltao, claiming ignorance of the complaint against him, immediately filed
with the Provincial Fiscal of Rizal a motion for reinvestigation, alleging that it was not
true that he had been given an opportunity to be heard in the preliminary investigation
conducted by Fiscal Sumaway, and that he never had any dealings with Albenson or
Benjamin Mendiona, consequently, the check for which he has been accused of having
issued without funds was not issued by him and the signature in said check was not
his.
On January 30, 1984, Provincial Fiscal Mauro M. Castro of Rizal reversed the finding
of Fiscal Sumaway and exonerated respondent Baltao. He also instructed the Trial
Fiscal to move for dismissal of the information filed against Eugenio S. Baltao. Fiscal
Castro found that the signature in PBC Check No. 136361 is not the signature of
Eugenio S. Baltao. He also found that there is no showing in the records of the
preliminary investigation that Eugenio S. Baltao actually received notice of the said
investigation. Fiscal Castro then castigated Fiscal Sumaway for failing to exercise care
and prudence in the performance of his duties, thereby causing injustice to respondent
who was not properly notified of the complaint against him and of the requirement to
submit his counter evidence. cdrep
Because of the alleged unjust filing of a criminal case against him for allegedly issuing
a check which bounced in violation of Batas Pambansa Bilang 22 for a measly amount
of P2,575.00, respondent Baltao filed before the Regional Trial Court of Quezon City a
complaint for damages against herein petitioners Albenson Enterprises, Jesse Yap, its
owner, and Benjamin Mendiona, its employee.
In its decision, the lower court observed that "the check is drawn against the account
of 'E.L. Woodworks,' not of Guaranteed Industries of which plaintiff used to be
President. Guaranteed Industries had been inactive and had ceased to exist as a
corporation since 1975 . . . The possibility is that it was with Gene Baltao or Eugenio
Baltao III, a son of plaintiff who had a business on the ground floor of Baltao Building
located on V. Mapa Street, that the defendants may have been dealing with. . . . "
(Rollo, pp. 41-42).
The dispositive portion of the trial court's decision reads:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff
and against defendants ordering the latter to pay plaintiff jointly
and severally:
1. actual or compensatory damages of P133,350.00;
2. moral damages of P1,000,000.00 (1 million pesos);
3. exemplary damages of P200,000.00;
4. attorney's fees of P100,000.00;
5. costs.
"Defendants' counterclaim against plaintiff and claim for damages
against Mercantile Insurance Co. on the bond for the issuance of
the writ of attachment at the instance of plaintiff are hereby
dismissed for lack of merit." (Rollo, pp. 38-39).
On appeal, respondent court modified the trial court's decision as follows:
"WHEREFORE, the decision appealed from is MODIFIED by
reducing the moral damages awarded therein from P1,000,000.00
to P500,000.00 and the attorney's fees from P100,000.00 to
P50,000.00, said decision being hereby affirmed in all its other
aspects. With costs against appellants." (Rollo, pp. 50-51) cdll
Dissatisfied with the above ruling, petitioners Albenson Enterprises Corp., Jesse Yap,
and Benjamin Mendiona filed the instant Petition, alleging that the appellate court erred
in:
"1. Concluding that private respondent's cause of action is not one
based on malicious prosecution but one for abuse of rights under
Article 21 of the Civil Code notwithstanding the fact that the basis
of a civil action for malicious prosecution is Article 2219 in relation
to Article 21 of Article 2176 of the Civil Code . . .
"2. Concluding that 'hitting at and in effect maligning (private
respondent) with an unjust criminal case was, without more, a plain
case of abuse of rights by misdirection' and 'was therefore,
actionable by itself,' and which 'became inordinately blatant and
grossly aggravated when . . . (private respondent) was deprived of
his basic right to notice and a fair hearing in the so-called
preliminary investigation . . .'
"3. Concluding that petitioner's 'actuations in this case were coldly
deliberate and calculated', no evidence having been adduced to
support such a sweeping statement.
"4. Holding the petitioner corporation, petitioner Yap and petitioner
Mendiona jointly and severally liable without sufficient basis in law
and in fact.
"5. Awarding respondents-
5.1. P133,350.00 as actual or compensatory
damages, even in the absence of sufficient evidence to
show that such was actually suffered.
5.2. P500,000.00 as moral damages
considering that the evidence in this connection merely
involved private respondent's alleged celebrated status
as a businessman, there being no showing that the act
 complained of adversely affected private respondent's
reputation or that it resulted to material loss.
5.3. P200,000.00 as exemplary damages
despite the fact that petitioners were duly advised by
counsel of their legal recourse.
5.4. P50,000.00 as attorney's fees, no evidence
having been adduced to justify such an award" (Rollo, pp.
4-6).
Petitioners contend that the civil case filed in the lower court was one for malicious
prosecution. Citing the case of Madera vs. Lopez (102 SCRA 700 [1981]), they assert
that the absence of malice on their part absolves them from any liability for malicious
prosecution. Private respondent, on the other hand, anchored his complaint for
Damages on Article 19, 20 and 21 * of the Civil Code.
Article 19, known to contain what is commonly referred to as the principle of abuse of
rights, sets certain standards which may be observed not only in the exercise of one's
rights but also in the performance of one's duties. These standards are the following:
to act with justice; to give everyone his due; and to observe honesty and good faith.
The law, therefore, recognizes the primordial limitation on all rights: that in their
exercise, the norms of human conduct set forth in Article 19 must be observed. A right,
though by itself legal because recognized or granted by law as such, may nevertheless
become the source of some illegality. When a right is exercised in a manner which does
not conform with the norms enshrined in Article 19 and results in damage to another, a
legal wrong is thereby committed for which the wrongdoer must be held responsible.
Although the requirements of each provision is different, these three (3) articles are all
related to each other. As the eminent Civilist Senator Arturo Tolentino puts it: "With this
article (Article 21), combined with articles 19 and 20, the scope of our law on civil
wrongs has been very greatly broadened; it has become much more supple and
adaptable than the Anglo-American law on torts. It is now difficult to conceive of any
malevolent exercise of a right which could not be checked by the application of these
articles" (Tolentino, 1 Civil Code of the Philippines 72). cdrep
There is however, no hard and fast rule which can be applied to determine whether or
not the principle of abuse of rights may be invoked. The question of whether or not the
principle of abuse of rights has been violated, resulting in damages under Articles 20
and 21 or other applicable provision of law, depends on the circumstances of each
case. (Globe Mackay Cable and Radio Corporation vs. Court of Appeals, 176 SCRA
778 [1989]).
The elements of an abuse of right under Article 19 are the following: (1) There is a legal
right or duty; (2) which is exercised in bad faith; (3) for the sole intentof 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 (Tolentino, supra, p. 71). Thus,
anyone who, whether willfully or negligently, in the exercise of his legal right or duty,
causes damage to another, shall indemnify his victim for injuries suffered thereby.
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; 3) and it is done with intent to injure.
Thus, under any of these three (3) provisions of law, an act which causes injury to
another may be made the basis for an award of damages.
There is a common element under Articles 19 and 21, and that is, the act must be
intentional. However, Article 20 does not distinguish: the act may be done either
"willfully", or "negligently". The trial court as well as the respondent appellate court
mistakenly lumped these three (3) articles together, and cited the same as the bases
for the award of damages in the civil complaint filed against petitioners, thus:
"With the foregoing legal provisions (Articles 19, 20, and 21) in
focus, there is not much difficulty in ascertaining the means by
which appellants' first assigned error should be resolved, given the
admitted fact that when there was an attempt to collect the amount
of P2,575.00, the defendants were explicitly warned that plaintiff
Eugenio S. Baltao is not the Eugenio Baltao defendants had been
dealing with (supra, p.5). When the defendants nevertheless
insisted and persisted in filing a case — a criminal case no less —
against plaintiff, said defendants ran afoul of the legal provisions
(Articles 19, 20, and 21 of the Civil Code) cited by the lower court
and heretofore quoted (supra)."
Defendants, not having been paid the amount of P2,575.00,
certainly had the right to complain. But that right is limited by
certain constraints. Beyond that limits is the area of excess, of
abuse of rights." (Rollo, pp. 44-45). cdphil
Assuming, arguendo, that all the three (3) articles, together and not independently of
each one, could be validly made the bases for an award of damages based on the
principle of "abuse of right", under the circumstances, We see no cogent reason for
such an award of damages to be made in favor of private respondent.
Certainly, petitioners could not be said to have violated the aforestated principle of
abuse of right. What prompted petitioners to file the case for violation of Batas
Pambansa Bilang 22 against private respondent was their failure to collect the amount
of P2,575.00 due on a bounced check which they honestly believed was issued to them
by private respondent. Petitioners had conducted inquiries regarding the origin of the
check, and yielded the following results: from the records of the Securities and
Exchange Commission, it was discovered that the President of Guaranteed (the
recipient of the unpaid mild steel plates), was one "Eugenio S. Baltao"; an inquiry with
the Ministry of Trade and Industry revealed that E.L. Woodworks, against whose
account the check was drawn, was registered in the name of one "Eugenio Baltao";
verification with the drawee bank, the Pacific Banking Corporation, revealed that the
signature appearing on the check belonged to one "Eugenio Baltao"
In a letter dated December 16, 1983, counsel for petitioners wrote private respondent
demanding that he make good the amount of the check. Counsel for private respondent
wrote back and denied, among others, that private respondent ever transacted
business with Albenson Enterprises Corporation; that he ever issued the check in
question. Private respondent's counsel even went further: he made a warning to
defendants to check the veracity of their claim. It is pivotal to note at this juncture that
in this same letter, if indeed private respondent wanted to clear himself from the
baseless accusation made against his person, he should have made mention of the
fact that there are three (3) persons with the same name, i.e.: Eugenio Baltao Sr.,
Eugenio S. Baltao, Jr. (private respondent), and Eugenio Baltao III (private
respondent), and Eugenio Baltao III (private respondent's son, who as it turned out
later, was the issuer of the check). He, however, failed to do this. The last two Baltaos
were doing business in the same building — Baltao Building — located at 3267 V. Mapa
Street, Sta. Mesa, Manila. The mild steel plates were ordered in the name of
Guaranteed of which respondent Eugenio S. Baltao is the president and delivered to
Guaranteed at Baltao building. Thus, petitioners had every reason to believe that the
Eugenio Baltao who issued the bouncing check is respondent Eugenio S. Baltao when
their counsel wrote respondent to make good the amount of the check and upon refusal,
filed the complaint for violation for BP Blg. 22.
Private respondent, however, did nothing to clarify the case of mistaken identity at first
hand. Instead, private respondent waited in ambush and thereafter pounced on the
hapless petitioners at a time he thought was propituous by filing an action for damages.
The Court will not countenance this devious scheme. cdphil
The criminal complaint filed against private respondent after the latter refused to make
good the amount of the bouncing check despite demand was a sincere attempt on the
part of petitioners to find the best possible means by which they could collect the sum
of money due them. A person who has not been paid an obligation owed to him will
naturally seek ways to compel the debtor to pay him. It was normal for petitioners to
find means to make the issuer of the check pay the amount thereof. In the absence of
a wrongful act or omission or of fraud or bad faith, moral damages cannot be awarded
and that the adverse result of an action does not per se make the action wrongful and
subject the actor to the payment of damages, for the law could not have meant to
impose a penalty on the right to litigate (Rubio vs. Court of Appeals, 141 SCRA 488
[1986]).
In the case at bar, private respondent does not deny that the mild steel plates were
ordered by and delivered to Guaranteed at Baltao building and as part payment thereof,
the bouncing check was issued by one Eugenio Baltao. Neither had private respondent
conveyed to petitioner that there are two Eugenio Baltaos conducting business in the
same building — he and his son Eugenio Baltao III. Considering that Guaranteed,
which received the goods in payment of which the bouncing check was issued is owned
by respondent, petitioner acted in good faith and probable cause in filing the complaint
before the provincial fiscal:
To constitute malicious prosecution, there must be proof that the prosecution was
prompted by a sinister design to vex and 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 for prosecution does
not make one liable for malicious prosecution. (Manila Gas Corporation vs. Court of
Appeals, 100 SCRA 602 [1980]). Still, private respondent argues that liability under
Articles 19, 20, and 21 of the Civil Code is so encompassing that it likewise includes
liability for damages for malicious prosecution under Article 2219 (8). True, a civil action
for damages for malicious prosecution is allowed under the New Civil Code, more
specifically Articles 19, 20, 26, 29, 32, 33, 35, and 2219 (8) thereof. In order that such
a case can prosper, however, the following three (3) elements must be present, to wit:
(1) 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; (2) That in
bringing the action, the prosecutor acted without probable cause; (3) The prosecutor
was actuated or impelled by legal malice (Lao vs. Court of Appeals, 199 SCRA 58,
[1991]).
Thus, a party injured by the filing of a court case against him, even if he is later on
absolved, may file a case for damages grounded either on the principle of abuse of
rights, or on malicious prosecution. As earlier stated, a complaint for damages based
on malicious prosecution will prosper only if the three (3) elements aforecited are shown
to exist. In the case at bar, the second and third elements were not shown to exist. It is
well-settled that one cannot be held liable for maliciously instituting a prosecution where
one has acted with probable cause. "Probable cause is the existence of such facts and
circumstances as would excite the belief, in a reasonable mind, acting on the facts
within the knowledge of the prosecutor, that the person charged was guilty of the crime
for which he was prosecuted. In other words, a suit will lie only in cases where a legal
prosecution has been carried on without probable cause. The reason for this rule is that
it would be a very great discouragement to public justice, if prosecutors, who had
tolerable ground of suspicion, were liable to be sued at law when their indictment
miscarried" (Que vs. Intermediate Appellate Court, 169 SCRA 137 [1989]). LLjur
The presence of probable cause signifies, as a legal consequence, the absence of
malice. In the instant case, it is evident that petitioners were not motivated by malicious
intent or by sinister design to unduly harass private respondent, but only by a well-
founded anxiety to protect their rights when they filed the criminal complaint against
private respondent.
"To constitute malicious prosecution, there must be proof that the
prosecution was prompted by a sinister design to vex and
humiliate a person, 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
for prosecution does not make one liable for malicious
prosecution. Proof and motive that the institution of the action was
prompted by a sinister design to vex and humiliate a person must
be clearly and preponderantly established to entitle the victims to
damages" (Ibid.).
In the case at bar, there is no proof of a sinister design on the part of petitioners to vex
or humiliate private respondent by instituting the criminal case against him. While
petitioners may have been negligent to some extent in determining the liability of private
respondent for the dishonored check, the same is not so gross or reckless as to amount
to bad faith warranting an award of damages.
The root of the controversy in this case is founded on a case of mistaken identity. It is
possible that with a more assiduous investigation, petitioners would have eventually
discovered that private respondent Eugenio S. Baltao is not the "Eugenio Baltao"
responsible for the dishonored check. However, the record shows that petitioners did
exert considerable effort in order to determine the liability of private respondent. Their
investigation pointed to private respondent as the "Eugenio Baltao" who issued and
signed the dishonored check as the president of the debtor-corporation Guaranteed
Enterprises. Their error in proceeding against the wrong individual was obviously in the
nature of an innocent mistake, and cannot be characterized as having been committed
in bad faith. This error could have been discovered if respondent had submitted his
counter-affidavit before investigating fiscal Sumaway and was immediately rectified by
Provincial Fiscal Mauro Castro upon discovery thereof, i.e., during the reinvestigation
resulting in the dismissal of the complaint. LLpr
Furthermore, the adverse result of an action does not per se make the act wrongful and SO ORDERED.
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 ||| (Albenson Enterprises Corp. v. Court of Appeals, G.R. No. 88694, [January 11,
may not be charged on those who may even exercise it erroneously. And an adverse 1993], 291 PHIL 17-34)
decision does not ipso facto justify the award of attorney's fees to the winning party
(Garcia vs. Gonzales, 183 SCRA 72 [1990]).
Thus, an award of damages and attorney's fees is unwarranted where the action was
filed in good faith. If damage results from a person's exercising his legal rights, it
is damnum absque injuria (Ilocos Norte Electric Company vs. Court of Appeals, 179
SCRA 5 [1989]).
Coming now to the claim of private respondent for actual or compensatory damages,
the records show that the same was based solely on his allegations without proof to
substantiate the same. He did not present proof of the cost of the medical treatment
which he claimed to have undergone as a result of the nervous breakdown he suffered,
nor did he present proof of the actual loss to his business caused by the unjust litigation
against him. In determining actual damages, the court cannot rely on speculation,
conjectures or guesswork as to the amount. Without the actual proof of loss, the award
of actual damages becomes erroneous (Guilatco vs. City of Dagupan, 171 SCRA 382
[1989]).
Actual and compensatory damages are those recoverable because of pecuniary loss
— in business, trade, property, profession, job or occupation — and the same must be
proved, otherwise, if the proof is flimsy and unsubstantiated, no damages will be given
(Rubio vs. Court of Appeals, 141 SCRA 488 [1986]). For these reasons, it was gravely
erroneous for respondent court to have affirmed the award of actual damages in favor
of private respondent in the absence of proof thereof.
Where there is no evidence of the other party having acted in wanton, fraudulent or
reckless, or oppressive manner, neither may exemplary damages be awarded (Dee
Hua Liong Electrical Equipment Corporation vs. Reyes, 145 SCRA 488 [1986]).
As to the award of attorney's fees, it is well-settled that the same is the exception rather
than the general rule. Needless to say, the award of attorney's fees must be disallowed
where the award of exemplary damages is eliminated (Article 2208, Civil Code; Agustin
vs. Court of Appeals, 186 SCRA 375 [1990]). Moreover, in view of the fact that there
was no malicious prosecution against private respondent, attorney's fees cannot be
awarded him on that ground. Cdpr
In the final analysis, there is no proof or showing that petitioners acted maliciously or in
bad faith in the filing of the case against private respondent. Consequently, in the
absence of proof of fraud and bad faith committed by petitioners, they cannot be held
liable for damages (Escritor, Jr. vs. Intermediate Appellate Court, 155 SCRA 577
[1987]). No damages can be awarded in the instant case, whether based on the
principle of abuse of rights, or for malicious prosecution. The questioned judgment in
the instant case attests to the propensity of trial judges to award damages without basis.
Lower courts are hereby cautioned anew against awarding unconscionable sums as
damages without bases therefor.
WHEREFORE, the petition is GRANTED and the decision of the Court of Appeals in
C.A. G.R. C.V. No. 14948 dated May 13, 1989, is hereby REVERSED and SET ASIDE.
Costs against respondent Baltao.
 4. Arlequi v. Hon. CA GR No. 126436
[G.R. No. 126437. March 6, 2002.]
JOSUE ARLEGUI, petitioner, vs.
HON. COURT OF APPEALS and SPOUSES GIL AND BEATRIZ
GENGUYON, respondents.
Julian S. Yap for petitioner.
Norman T. Daanoy for private respondents.
SYNOPSIS
The object of the controversy is a residential apartment unit which was
formerly owned by Serafia Real Estate, Incorporated (Serafia). The unit was leased to
the spouses Gil and Beatriz Genguyon. Sometime thereafter, the Genguyon Spouses
and other tenants were informed that Serafia and its assets had been assigned and
transferred to A.B. Barretto Enterprises. The subject property was later on sold to
Mateo Tan Lu. The Genguyons continued to occupy the subject premises and paid the
rentals therefor. Mateo Tan Lu sold the subject property to Josue Arlegui. In the
meantime, the tenants formed the Barretto Apartment Tenants Association. Mateo Tan
Lu and Josue Arlegui were the officers elected by the tenants of the apartment building
to represent them in the negotiations with A.B. Enterprises. The election of the two
officers was done prior to the sale of the subject property to them. The respondents
Genguyons then filed an action for annulment of sale, specific performance,
redemption and damages against the Barrettos, Mateo Tan Lu and Josue Arleguibefore
the Regional Trial Court of Mandaluyong City. The trial court ruled in
favor of defendant Josue Arlegui and against plaintiffs. On appeal,
the Court ofAppeals reversed and set aside the trial court's decision. Hence, this
petition. CIAHDT
Spouses Genguyon alleged that they are entitled to claim the right of first
refusal or, as stated otherwise, the right of first preference, to purchase the residential
apartment unit they were leasing first from Serafia Realty, then from A.B. Barretto
Enterprises. Spouses Genguyon further alleged that Mateo Tan Lu and
Josue Arlegui breached the trust reposed on them as officers of, and negotiators for,
the tenants' association.
The Supreme Court ruled that as lessees of the residential apartment unit, the
Genguyons have no right of first refusal to speak of. Apartment dwellers are excluded
from the protective mantle of the Urban Land Reform Law. The said law grants the
right of first refusal only to legitimate tenants who have built their homes on the land
they are leasing. The Genguyons did not lease the land only. Neither did they build a
home thereon.
By acquiring for themselves the subject property without informing the
respondent spouses of the progress of the negotiations, or of their desire to purchase
the said property, Mateo Tan Lu and the petitioner did not act with the candor and
honesty expected of them. Their successful, albeit clandestine, ploy to appropriate the
apartment unit that they knew fully well the Genguyons had every intention to buy from
A.B. Barretto Enterprises violated the trust and confidence so willingly and without
reservation reposed on them. The Court ordered petitioner to execute the
corresponding Deed of Reconveyance in favor of the heirs of the deceased Genguyon
spouses covering the apartment unit in question upon payment by the
heirs of P55,000.00 to petitioner, without interest.
SYLLABUS
1. CIVIL LAW; P.D. NO. 1517 (URBAN LAND REFORM LAW);
RIGHT OF FIRST REFUSAL; GRANTED ONLY TO LEGITIMATE TENANTS WHO
HAVE BUILT THEIR HOMES ON THE LAND THEY ARE LEASING. — [A]s
lessees of the residential apartment unit, the Genguyons have no right of first refusal
to speak of. Apartment dwellers are excluded from the protective mantle of the Urban
Land Reform Law. The said law grants the right of first refusal only to legitimate tenants
who have built their homes on the land they are leasing. The Genguyons did not lease
the land only. Neither did they build a home thereon. There is no question that both the
land and the building are owned by the lessor. Consequently, the Genguyons' action
for annulment of the sale to herein petitioner and reconveyance cannot prosper if based
only on the ground that they were denied their right of first refusal under P.D. No. 1517.
2. REMEDIAL LAW; ACTIONS; PRESCRIPTION OF ACTIONS;
RECONVEYANCE OF REGISTERED LAND BASED ON IMPLIED TRUST;
PRESCRIBES IN TEN (10) YEARS EVEN IF DECREE OF REGISTRATION IS NO
LONGER OPEN TO REVIEW. — [I]t is of no moment that the Genguyons filed the
action for reconveyance more than a year after the subject property was registered in
favor of the petitioner. An action for reconveyance of registered land on an implied trust
prescribes in ten (10) years even if the decree of registration is no longer open to
review.
3. ID.; ID.; ID.; ID.; TEN-YEAR PRESCRIPTIVE PERIOD APPLIES ONLY
WHEN PLAINTIFF OR PERSON ENFORCING THE TRUST IS NOT IN
POSSESSION OFTHE PROPERTY; CASE AT BAR. — [W]hen the Genguyons filed
the action for reconveyance, they were at that time in possession of the subject
property. This Court has held that the 10-year prescription period applies only "when
the plaintiff or the person enforcing the trust is not in possession of the property since
if a person claiming to be the owner thereof is in actual possession of the property the
right to seek reconveyance, which in effect seeks to quiet title to the property, does not
prescribe." Even though the Genguyons filed the action for reconveyance after the case
for ejectment against them was instituted, the same was no rendered stale or improper.
This Court has uniformly held that "the one who is in actual possession of a
piece of land claiming to be the owner thereof may wait until his possession is disturbed
or his title is attacked before taking steps to vindicate his right. His undisturbed
possession gives him a continuing right to seek the aid of a court of equity to ascertain
and determine the nature of the adverse claim of a third party and its effect on his own
title, which right can be claimed only by one who is in possession.
4. CIVIL LAW; DAMAGES; NOMINAL DAMAGES; WHEN AWARDED. —
Articles 2221 and 2222 of the New Civil Code provide that the Court may award
nominal damages: (1) in order that a right of the plaintiff, which has been violated or
invaded, may be vindicated or recognized; or (2) in every case where any property right SO ORDERED. 1
has been invaded.
Gleaned from the records are the following undisputed facts:
The object of the controversy is a residential apartment unit (no. 15) located
at the corner of Romualdez and Kalentong Streets in Mandaluyong City. The said
DECISION property was formerly owned by Serafia Real Estate, Incorporated (hereinafter referred
to as Serafia), a company owned by Alberto, Alfonso and Simeon, all surnamed
Barretto, and their siblings Rosa B. Ochoa and Teresita B. Alcantara. For more than
twenty (20) years, unit no. 15 was leased by Serafia to the spouses Gil and Beatriz
YNARES-SANTIAGO, J p: Genguyon. In a letter dated March 26, 1984, the Genguyon spouses, along with the
other tenants in the apartment building were informed by Alberto Barretto that Serafia
This is a petition for review of the decision rendered by and its assets had already been assigned and transferred to A.B. Barretto Enterprises.
the Court of Appeals in CA-G.R. CV No. 32833, which reversed the ruling of the Pasig
Regional Trial Court, Branch 67, in Civil Case No. 58185, and disposing as follows: Apprehensive that they were about to be ejected from their respective units,
the tenants formed an organization called the Barretto Apartment Tenants Association.
WHEREFORE, in view of the foregoing, the decision They elected officers from among themselves to represent them in the negotiations
appealed from is hereby ANNULLED and SET ASIDE. with A.B. Barretto Enterprises for the purchase oftheir respective apartment units.
Accordingly, judgment is rendered as follows: Among those elected were Josue Arlegui as vice-president and Mateo Tan Lu as
auditor of the association. CIaHDc
1) Annulling the sale of the apartment unit at issue between Mateo
Tan Lu and Josue Arlegui; Sometime thereafter, believing that negotiations were still ongoing, the
Genguyons were surprised to learn on January 23, 1987 that the unit they were leasing
2) Ordering Josue Arlegui to execute a corresponding had already been sold to Mateo Tan Lu. This notwithstanding, the Genguyons
Deed of Conveyance in favor of spouses Gil and Beatriz continued to occupy the subject premises and paid the rentals therefor.
Genguyon, involving Transfer Certificate of Title (TCT)
No. 1286 covering the apartment unit at issue, upon The following year, or on July 7, 1988, the Genguyons were informed that
payment by spouses Genguyons (sic) of the Mateo Tan Lu had sold the subject apartment unit to Josue Arlegui. Not long thereafter,
sum of P55,000.00, without any interest, to Arlegui; they received a letter from Arlegui's lawyer demanding that they vacate the premises.
When they failed to accede to Arlegui's demand, the latter filed an action for ejectment
Should defendant Arlegui fail to so execute the against the Genguyons before the Metropolitan Trial Court of Mandaluyong City,
Deed of Conveyance herein ordered within fifteen (15) Branch 60, docketed as Civil Case No. 12647.
days from finality of judgment, the Branch
Clerk of the court a quo shall execute the same and the For their part, the Genguyon spouses filed Civil Case No. 58185 against the
Register of Deeds shall nullify the certificate of title in the Barrettos, Mateo Tan Lu and Josue Arlegui before the Regional Trial Court ofPasig
name of Arlegui and shall issue another certificate of title City, Branch 67, for annulment of sale, specific performance, redemption and damages
in favor of spouses Gil and Beatriz Genguyon; with preliminary injunction. The Genguyons raised therein the following issues:
3) Ordering Mateo Tan Lu and Josue Arlegui to pay the 1) Whether or not they were denied their right of first preference to
Genguyons, jointly and solidarily, the purchase the subject apartment unit; and
amount of P35,000.00, as damages
inclusive ofattorney's fees; 2) Whether or not failure to exercise such right is jurisdictional, the
absence of such jurisdiction rendering the sale from the
4) Ordering a Permanent Injunction upon the Metropolitan Barrettos to Mateo Tan Lu, as well as the subsequent
Trial Court of Mandaluyong, Branch 60, from hearing sale to Josue Arlegui, null and void.
Civil Case No. 12647 entitled "Josue Arlegui,
plaintiff, versus Spouses Gil and Beatriz Genguyon, On January 11, 1990, the RTC ordered the issuance of a writ of preliminary
defendants," and for the said Metropolitan Trial Court to injunction directing the MTC to desist from taking further action in the ejectment case
dismiss the same; pending before it. 2

5) Dismissing the charges as to defendants-appellees Barrettos; On March 22, 1991, the RTC rendered judgment, disposing as follows:
and
WHEREFORE PREMISES CONSIDERED, judgment is
6) Costs against Mateo Tan Lu and Josue Arlegui, jointly and hereby rendered in the above-entitled case in favor of defendant
severally. Josue Arlegui and against the plaintiffs ordering the plaintiffs to
 pay to the defendant Arlegui the sum P3,000.00 as attorney's fees.
In view of the fact that the plaintiffs "acted in gross and evident bad
faith by refusing to satisfy the defendant's plainly valid, just and
demandable claim" (see Article 2208, No. 5, Civil Code); and to
pay the cost.
Moreover, moral damages are not to be awarded to the
defendant Josue Arlegui for while plaintiffs has already acted
fraudulently or in bad faith their failure to vacate the premises is
not in this Court's opinion, the "breach of contract" referred to in
Art. 2220 of the Civil Code.
4) The RTC erred in finding that the Genguyons' action was
premised on their right of first preference under
the Urban Land Reform Law; and
5) The Genguyons are not estopped from denying Arlegui's
ownership of the subject property for no lessor-lessee
relationship was established between them.
Josue Arlegui's motion for reconsideration was denied by
the Court of Appeals in an Order 7 dated September 12, 1996. Hence, the instant
petition for review, assigning the following errors:

Dismissing the complaint as against defendants Alberto I

Barretto, Alfonso Barretto, Simeon Barretto, Rosa B. Ochoa,
THE RESPONDENT COURT ERRED IN HOLDING
Teresita B. Alcantara and Mateo Tan Lu.
THAT THE PRIVATE RESPONDENTS DID NOT BASE THEIR
Lifting the preliminary mandatory injunction issued in the ALLEGED RIGHT OF FIRST PREFERENCE ON P.D. 1517,
instant case as against the Metropolitan THE URBAN LAND REFORM LAW.
Trial Court of Mandaluyong, Branch 60, docketed as Civil Case
II
No. 12647.
THE RESPONDENT COURT ERRED IN HOLDING
Conformably, with what has been stated in the above-
THAT A CONSTRUCTIVE TRUST EXISTED BETWEEN THE
mentioned paragraphs, the claims of the plaintiffs is hereby
PRIVATE RESPONDENTS AND MATEO TAN LU.
DISMISSED, as being purely without merit.
III
SO ORDERED. 3
THE RESPONDENT COURT ERRED, ASSUMING
Not satisfied with the above-quoted disposition of the RTC, the Genguyons
THAT A CONSTRUCTIVE TRUST EXISTED, IN HOLDING THAT
filed their appeal before the Court of Appeals. 4
THE PETITIONER IS NOT INSULATED FROM THE EFFECTS
While the appeal was pending, the ejectment case against the Genguyons THEREOF.
proceeded and, on October 6, 1992, the MTC of Mandaluyong City, Branch 60,
IV
rendered judgment 5 ordering the Genguyons to: (1) vacate the subject premises; (2)
pay the accrued monthly rentals from September of 1989 to September of 1992, and THE RESPONDENT COURT ERRED IN HOLDING
the succeeding monthly rentals thereafter until they shall have finally surrendered THAT THE PRIVATE RESPONDENTS ARE ENTITLED TO
possession of the premises; and (3) pay attorney's fees and costs of suit. The DAMAGES INSTEAD OF THE PETITIONER.
Genguyons appealed the decision to the RTC of Pasig, Branch 166, which affirmed the
MTC judgment in toto in a Decision 6 dated January 25, 1993. V

Thereafter, or on February 14, 1996, the Court of Appeals rendered judgment THE RESPONDENT COURT ERRED IN ENJOINING
in CA-G.R. CV No. 32833, annulling and setting aside the RTC decision. THE METROPOLITAN TRIAL COURT OF MANDALUYONG
The Court of Appeals made the following conclusions: FROM HEARING THE EJECTMENT CASE FILED BY
PETITIONER AGAINST THE PRIVATE RESPONDENTS AND IN
1) There existed between the Genguyons and the officers of the ORDERING THE DISMISSAL OF THE SAID CASE,
tenants' association, particularly Mateo Tan Lu and NOTWITHSTANDING THE FACT THAT THE SAID CASE HAD
Josue Arlegui, a fiduciary relationship; LONG BEEN DECIDED. CHIEDS
2) Mateo Tan Lu and Josue Arlegui committed a breach of trust VI
when they purchased the apartment unit leased by the
Genguyons; THE RESPONDENT COURT ERRED IN NOT
RECONSIDERING ITS DECISION, CONSIDERING THAT THE
3) Josue Arlegui is not an innocent-purchaser for value nor a ISSUES RAISED BEFORE IT HAVE BECOME MOOT AND
buyer in good faith; ACADEMIC AFTER THE PRIVATE RESPONDENTS
VOLUNTARILY VACATED AND/OR ABANDONED THE
SUBJECT UNIT THEY WERE OCCUPYING. 8
 There are four (4) essential matters involved in this controversy. The first one
is whether or not the private respondents, spouses Gil and Beatriz Genguyon, are
entitled to claim the right of first refusal or, as stated otherwise, the right of first
preference, to purchase the residential apartment unit they were leasing first from
Serafia Realty, then from A.B. Barretto Enterprises. It appears that while the
Genguyons' complaint did not specifically allege that their supposed right of first refusal
was by virtue of the provisions of P.D. No. 1517, also known as the Urban Land Reform
Law, 9 Beatriz Genguyon testified on cross-examination that:
Q: Your contention is, being an occupant for more than ten (10)
years of the premises, you should have been given the
right of first refusal under the Urban Land Reform Law. Is
that correct?
A: Yes, sir. 10
Indeed, it would seem that the Genguyons' action is premised on the fact that
they are long-time tenants of the apartment unit, a right accorded to legitimate tenants
in urban zones who have resided on the land for ten (10) years or more and who have
built their homes on the land, as well as residents who have legally and continuously
occupied the lands by contract for the last ten (10) years. 11
Although there is no mention of P.D. No. 1517 in their complaint, the
Genguyons nevertheless assert their alleged right of first refusal as provided by the
said law. However, the Regional Trial Court found that the Genguyons failed to present
any factual or legal basis for its application. The Court of Appeals, on the other hand,
found that although the Genguyons claimed the right of first refusal, their assertion was
not anchored on P.D. No. 1517. And yet, the Genguyons have not shown during these
entire proceedings any other statutory or jurisprudential source of said right of first
refusal which would support their contentions.
Hence, the trial court correctly concluded that the Genguyons' claims were
founded on P.D. No. 1517. However, the said court ruled that P.D. No. 1517cannot
benefit the Genguyons, citing the Supreme Court ruling
in Santos v. Court of Appeals, 12 to the effect that "P.D. No. 1517, in referring to the
pre-emptive or redemptive right of a lease, speaks only of urban land under lease on
which a tenant has built his home and in which he has resided for ten years or more. If
both land and the building belong to the lessor, the right referred to hereinabove does
not apply."
In the parallel case of Nidoy v. Court of Appeals, 13 we held that:
Clearly, the right of first refusal applies only to tenants
who have resided for ten (10) years or more on the leased land
declared as within the Urban Land Reform Zone, and who have
built their homes on that land. It does not apply to apartment
dwellers. (Emphasis ours)
This Court went on to declare that P.D. No. 2016, which amended P.D. No.
1517, likewise did not extend its benefits to apartment dwellers.
Clearly, then, as lessees of the residential apartment unit, the Genguyons
have no right of first refusal to speak of. Apartment dwellers are excluded from the
protective mantle of the Urban Land Reform Law. The said law grants the right of first
refusal only to legitimate tenants who have built their homes on the land they are
leasing. The Genguyons did not lease the land only. Neither did they build a home
thereon. There is no question that both the land and the building are owned by the
lessor. Consequently, the Genguyons' action for annulment of the sale to herein
petitioner and reconveyance cannot prosper if based only on the ground that they were
denied their right of first refusal under P.D. No. 1517.
Be that as it may, on the second matter of whether or not Mateo Tan Lu and
petitioner Josue Arlegui, after him, breached the trust reposed on them as officers of,
and negotiators for, the tenants' association, we are constrained to affirm the findings
and conclusions of the Court of Appeals. By acquiring for themselves the subject
property without informing the respondent spouses of the progress of the negotiations,
or of their desire to purchase the said property, Mateo Tan Lu and the petitioner did
not act with the candor and honesty expected of them. Their successful, albeit
clandestine, ploy to appropriate the apartment unit that they knew fully well the
Genguyons had every intention to buy from A.B. Barretto Enterprises violated the trust
and confidence so willingly and without reservation reposed on them.
The arguments advanced by the petitioner cannot detract from the
cogency of the Court of Appeals' findings in this regard, to wit:
. . . They had a right to expect that because of their
fiduciary dependence on the officers who were conducting the
negotiations in their behalf, the same would act with good faith in
relation to the trust and confidence reposed in them. But when
Mateo Tan Lu later turned out to have purchased the residential
unit occupied by the appellants (aside from the unit he
commercially leased from the Barrettos), he committed a
breach of trust in utter disregard of the existing fiduciary
relationship between the trusted officers of the Association and the
tenants-members thereof.
Without doubt, Mateo Tan Lu had breached the
confidence reposed in him by the Association members, and a
trust was created by force of law in favor of spouses Genguyons,
long time occupants of the apartment unit (24 years: TSN,
September 6, 1990, p. 4) which he surreptitiously bought. The
Supreme Court has long stated that:
If a person obtains legal title to property
by fraud and concealment, Courts of equity will
impress upon the title a so called constructive trust
in favor of the defrauded party. (Gayondato v. The
Treasurer of the Philippines Islands, 49 Phil. 244,
249).
In a similar vein, Tolentino opined: "a receiver, trustee,
attorney, agent, or any other person occupying fiduciary relations
respecting property ofpersons, is utterly disabled from acquiring
for his own benefit the property committed to his custody . . . . No
fraud in fact need be shown and no excuse will be heard the
trustee. . . . .The rule stands on the moral obligation to refrain from
placing one's self in positions which ordinarily excite conflicts
 between self interest and integrity. It seeks to remove the
temptation that might arise out of such a relation to serve one's self
interest at the expense ofone's integrity and duty to another, by
making it impossible to profit by yielding to temptation . . .
(Tolentino, Commentaries and Jurisprudence on the Civil
Code of the Philippines, Vol. IV, 1973, pp. 638-639,
citing Gilbert v. Hemston, 79 Mich. 326 and Severino v. Severino,
44 Phil. 343). 14 (Emphasis ours)
The petitioner cannot claim to be innocent or unaware of Mateo Tan Lu's
underhanded method of acquiring the subject property. He himself bought the said
apartment unit in a manner that cannot be countenanced by the courts. We agree with
the following pronouncements of the Court of Appeals:
. . . Like Mateo Tan Lu, Arlegui was one of the trusted
officers of the Association charged with negotiating for the
purchase of the apartment units. In fact, he was the First Vice-
President thereof. Thus, he was privy to all the discussions that
took place within and between both sides. Arlegui knew that like
all the other bona fide tenants of the apartment, the Genguyons
had the right to purchase their apartment unit in accordance with
the Association's original agreement with the Barrettos. And so
knowing the negotiation terms firsthand and employing the same
to his own benefit and profit, Arleguicould not be considered as an
innocent purchaser for value, or a buyer in good faith (See TSN,
November 22, 1990, pp. 5-6 citing Exhs. B and C, Records, pp.
139-142). Corollarily, he is not and cannot be insulated from the
legal effects of the Genguyons' right of first preference over the
unit. 15 (Emphasis ours)
The facts and evidence on record, as carefully perused by
the Court of Appeals, conclusively show that Mateo Tan Lu surreptitiously purchased
the subject property from the original owners, and that the Genguyons were not
aware of his secret machinations to acquire the property for himself. In fact, Mateo Tan
Lu did not inform the Genguyons of the sale to him. It was Simeon Barretto, Jr. who
wrote the Genguyons telling them that the apartment unit had been sold to Mateo Tan
Lu and that they had six (6) months within which to vacate the premises. 16 Clearly,
Mateo Tan Lu abused the confidence and trust that the Genguyons bestowed on him.
Petitioner, fully aware of the questionable circumstances attending Mateo Tan Lu's
acquisition, added insult to injury when he in turn purchased the said property from
Mateo Tan Lu. The Genguyons had no inkling that Mateo Tan Lu or
petitioner Arlegui were even interested to buy the subject property. They trusted Mateo
Tan Lu and the petitioner to negotiate in behalf of the other tenants, themselves
included. They never suspected that Mateo Tan Lu and the petitioner would appropriate
for themselves the apartment unit they were leasing. That there was
abuse ofconfidence cannot be denied. acEHCD
The petitioner denies that a constructive trust was created and maintains that
there was no fraud committed. He neither received money from the Genguyons, nor
was he unjustly enriched. However, the records show that the Genguyons, along with
the other tenants and members of the association, contributed money to enable the
officers to negotiate with the Barrettos. Besides, constructive trusts do not only arise
out of fraud or duress, 17 but also by abuse of confidence, in order to satisfy the
demands of justice. 18
The petitioner also argues that the Genguyons' failed to prove the
existence of an implied or constructive trust. We disagree. There is ample documentary
and testimonial evidence to establish the existence of a fiduciary relationship between
them, and that petitioner's subsequent acts betrayed the trust and confidence reposed
on him. Petitioner points out that his lawyer wrote a letter informing the Genguyons that
he had already bought the property and telling them to vacate the premises. This cannot
be taken as evidence of good faith. Moreover, it is rather too late for petitioner to argue
that the Genguyons could and should have negotiated directly with the Barrettos after
he had already accepted the responsibility and authority to negotiate in their behalf.
Petitioner suggests that the Genguyons were not financially capable of buying
the subject property anyway so they have no reason to complain. We are not persuaded
by petitioner's contentions. The Court of Appeals' findings in this regard is more than
convincing, to wit:
It is appellees' contention that the Genguyons never
tendered the amount to make the payments for the unit, and that
their indication of a willingness to make the purchase does not
really show a capacity to make the necessary payment. However,
we note that as early was 1987, when hearsay was preponderant
among the tenants that some of the apartment units were
purchased by some officers of the Association who were entrusted
with the negotiations, the Genguyons, through Atty. Eriberto
Guerrero, sent Mateo Tan Lu a letter verifying with him the truth to
the information that he, Tan Lu, had bought their unit from the
Barrettos; they also stated that they were not defaulting from the
monthly rental payments, but since they did not know the true
status of the negotiations, and since rumors were rife about the
purchase of the different units, they had put the payment for that
month in the bank, after which they informed Tan Lu of their
continuing desire to buy their unit (in line with the Association's
agreement with the Barrettos) if it is indeed true that he had bought
it from the same. They also told him that they await
communications from him regarding the amount of the purchase
price. A xerox copy of their bank account accompanied their letter
as proof of their capacity to pay (Records, Exh. H, p. 153).
We found no written response from Tan Lu who sold the
unit to Josue Arlegui after one year. Defendants-appellees claim
that Tan Lu had offered to sell the unit to Beatriz Genguyon
(TSN, Ex Parte Proceedings of May 15, 1990, pp. 11-12). Yet,
such allegation is self-serving and is corroborated only by the self-
serving testimony of Josue Arlegui (Ibid., p. 21), which was in fact
controverted by Beatriz Genguyon in her own testimony (TSN,
September 6, 1990, p. 13). 19
It is further argued that no implied trust, as defined under Article 1456 of the
New Civil Code, was created because the petitioner did not acquire the subject property
through mistake or fraud. Nevertheless, the absence of fraud or mistake on the
part of the petitioner does not prevent the court from ruling that an implied or
constructive trust was created nonetheless. In the case of Roa,
Jr. v. Court of Appeals, 20 the Court held that:
While it is Our ruling that the compromise agreement
between the parties did not create an express trust not an implied
trust under Art. 1456 ofthe New Civil Code, We may, however,
make recourse to the principles of the general law of trusts, insofar
as they are not in conflict with the New Civil Code,
Code of Commerce, the Rules of Court and special laws which
under Art. 1442 of the New Civil Code are adopted. While Articles
1448 to 1456 ofthe New Civil Code enumerates cases of implied
trust, Art. 1447 specifically stipulates that the enumeration of the
cases of implied trust does not exclude others established by the
general law of trusts, but the limitations laid down in Art. 1442 shall
be applicable.
In American law and jurisprudence, We find the following
general principles:
A constructive trust, otherwise known as
a trust ex maleficio, a trust ex delicto, a trust de
son tort, an involuntary trust, or an implied trust, is
a trust by operation of law which arises contrary to
intention and in invitum, against one who, by fraud,
actual or constructive, by duress or
abuse of confidence, by commission of wrong, or
by any form of unconscionable conduct, artifice,
concealment, or questionable means, or who in
any way against equity and good conscience,
either has obtained or holds the legal right to
property which he ought not, in equity and good
conscience, hold and enjoy. It is raised by equity
to satisfy the demands of justice. However, a
constructive trust does not arise on every moral
wrong in acquiring or holding property or on every
abuse of confidence in business or other
affairs; ordinarily such a trust arises and will be
declared only on wrongful acquisitions or
retentions of property of which equity, in
accordance with its fundamental principles and the
traditional exercise of its jurisdiction or in
accordance with statutory provision, takes
cognizance. It has been broadly ruled that a
breach of confidence, although in business or
social relations, rendering an acquisition or
retention of property by one person
unconscionable against another, raises a
constructive trust. (76 Am. Jr. 2d, Sec. 221, pp.
446-447).
And specifically applicable to the case at bar is the
doctrine that "A constructive trust is substantially an appropriate
remedy against unjust enrichment. It is raised by equity in
respect of property, which has been acquired by fraud, or where,
although acquired originally without fraud, it is against equity that
it should be retained by the person holding it." (76 Am. Jur. 2d,
Sec. 222, p. 447).
The above principle is not in conflict with the New Civil
Code, Code of Commerce, Rules of Court and special laws. And
since We are a court of law and of equity, the case at bar must be
resolved on the general principles of law on constructive trust
which basically rest on equitable considerations in order to satisfy
the demands of justice, morality, conscience and fair dealing and
thus protect the innocent against fraud. As the
respondent court said, "It behooves upon the courts to shield
fiduciary relations against every manner of chickanery or
detestable design cloaked by legal technicalities." (Emphasis ours)
Thirdly, it is of no moment that the Genguyons filed the action for
reconveyance more than a year after the subject property was registered in favor ofthe
petitioner. An action for reconveyance of registered land on an implied trust prescribes
in ten (10) years even if the decree of registration is no longer open to
review. 21 Besides, when the Genguyons filed the action for reconveyance, they were
at that time in possession of the subject property. This Courthas held that the 10-year
prescription period applies only "when the plaintiff or the person enforcing the trust is
not in possession of the property since if a person claiming to be the owner thereof is
in actual possession of the property the right to seek reconveyance, which in effect
seeks to quiet title to the property, does not prescribe." 22
Even though the Genguyons filed the action for reconveyance after the case
for ejectment against them was instituted, the same was not rendered stale or improper.
This Court has uniformly held that "the one who is in actual possession of a
piece of land claiming to be the owner thereof may wait until his possession is disturbed
or his title is attacked before taking steps to vindicate his right. His undisturbed
possession gives him a continuing right to seek the aid of a court of equity to ascertain
and determine the nature of the adverse claim of a third party and its effect on his own
title, which right can be claimed only by one who is in possession. 23
Petitioner also assails the award of damages to the Genguyons, arguing that
he should be the one awarded damages. The Court of Appeals ordered Mateo Tan Lu
and the petitioner to pay the Genguyons, jointly and solidarily, the
amount of P35,000.00 as damages inclusive of attorney's fees. The award was justified
by the appellate court thus: DcaSIH
There is no doubt that because of Tan Lu and Arlegui's
violation of the trust and confidence reposed in them as officers
and negotiators in behalf of the tenants-members of the
Association, damages have accrued upon spouses Genguyons for
which they must be indemnified.
Article 19 of the New Civil Code of the Philippines
exhorts the citizens in the correct exercise of rights and
performance of duties in this wise:
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 2) Ordering Josue Arlegui to execute a corresponding
observe honesty and good faith. Deed of Conveyance in favor of the heirs of Gil and
Beatriz Genguyon (Gilda G. Genguyon, Ira G. Genguyon,
This principle of abuse of rights is based upon the Reylan G. Genguyon, Edwin G. Genguyon, Marilou
famous maxim suum jus summa injuria (the abuse of a right is the Genguyon-Rodriguez, and Rosemarie Genguyon-Iwafe)
greatest possible wrong). involving Transfer Certificate of Title (TCT) No. 1286
covering the apartment unit at issue, upon payment by
The acts of Tan Lu and Arlegui directly violate the
said heirs of the sum ofP55,000.00, without any interest,
principles enunciated in Art. 19 which declares that every person
must practice justice, honesty and good faith in his dealings with to Arlegui;
his fellowmen. That there was a valid pact or agreement among Should Josue Arlegui fail to so execute the
the Association members and their entrusted officers charged with Deed of Conveyance herein ordered within fifteen (15)
the negotiations, is an accepted fact. As two of the three entrusted days from finality of judgment, the Branch
officers charged with the negotiations, Tan Lu and Arlegui fall Clerk of the court a quo shall execute the same and the
within the purview of Art. 19 which is also implemented by Art. 21, Register of Deeds shall nullify the certificate of title in the
New Civil Code, a sequent of Art. 19, which declares that "[A]ny name of Arleguiand shall issue another certificate of title
person who wilfully causes loss or injury to another in a manner in favor of the heirs;
that is contrary to morals, good customs or public policy shall
compensate the latter for the damage." 24 3) Ordering Mateo Tan Lu and Josue Arlegui to pay the heirs
jointly and solidarily, the amount of P35,000.00, as
In addition, Articles 2221 and 2222 of the New Civil Code provide that nominal damages inclusive of attorney's fees;
the Court may award nominal damages: (1) in order that a right of the plaintiff, which
has been violated or invaded, may be vindicated or recognized; or (2) in every case 4). Dismissing the charges as to defendants-appellees Barrettos;
where any property right has been invaded. Under the circumstances, whether as and
compensatory or nominal damages, the amount of P35,000.00, inclusive of attorney's
fees, is just and reasonable. 5) Costs against Mateo Tan Lu and Josue Arlegui, jointly and
severally.
Finally, in the assailed Decision, the Court of Appeals ordered a permanent
injunction directing the MTC of Mandaluyong, Branch 60 to dismiss the ejectment SO ORDERED.
case 25 against the Genguyons. The records show that three (3) years before
||| (Arlegui v. Court of Appeals, G.R. No. 126437, [March 6, 2002], 428 PHIL 381-401)
the Court of Appeals rendered its Decision, the ejectment case had already been
decided with finality. Consequently, the Court of Appeals can no longer interfere in the
said case. Besides, the outcome of the ejectment case has no adverse effect on the
action for reconveyance which concerns title to the subject property. Neither will the
said judgment be held conclusive of the facts therein found since the ejectment case
between the same parties is based on a different cause of action involving
possession. 26 For being moot and academic, it is no longer necessary to indulge in
academic discussion on this matter. 27
During these proceedings, counsel for the Genguyon spouses notified
the Court of their untimely demise: Gil on April 16, 2001 and Beatriz on October 18,
2000, as evidenced by the Death Certificates 28 submitted by their surviving heirs. The
said heirs moved that they be substituted as parties-respondents in this case. 29 There
being no opposition on the part of petitioner Arlegui, this Court granted the motion for
substitution in accordance with Rule 3, Section 17 of the Revised Rules of Court.
WHEREFORE, in view of all the foregoing, the petition is DENIED and the
Decision of the Court of Appeals in CA-G.R. No. 32833 is hereby AFFIRMED and
MODIFIED, as follows: DSIaAE
1) Annulling the sale of the apartment unit at issue between Mateo
Tan Lu and Josue Arlegui;
 5. University of the East v. Jader GR No. 132344
[G.R. No. 132344. February 17, 2000.]
UNIVERSITY OF THE EAST, petitioner, vs. ROMEO A.
JADER, respondent.
Puno and Puno for petitioner.
Thelma A. Jader for private respondent.
SYNOPSIS
Jader was a law student of the UE College of Law. For getting an incomplete
grade in his Practice Court I, he took a removal exam for the same. Unknown to him,
however, he was given a failing grade. But still, he was included in the list of graduates
and was able to enroll at the pre-bar review class. Later, he learned of his deficiency
and thus, dropped his review class and was not able to take the bar examinations.
Jader filed an action for damages against the university and both the trial court and the
Court of Appeals ruled in his favor. Thus, this appeal with the question: May an
educational institution be held liable for damages for misleading a student into believing
that the latter had satisfied all the requirements for graduation when such is not the
case?
Petitioner, in belatedly informing respondent of the result of the removal
examination, particularly at a time when he had already commenced preparing for the
bar exams, cannot be said to have acted in good faith. Petitioner was guilty of
negligence and liable for actual damages. However, petitioner is not liable for moral
damages. Respondent should have verified for himself whether he has completed all
necessary requirements to be eligible for the bar examinations. cDACST
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF
EDUCATION BETWEEN A LEARNING INSTITUTION AND THE STUDENT;
OBLIGATION OF THE SCHOOL TO INFORM STUDENTS OF PROBLEMS IN
GRADES. — When a student is enrolled in any educational or learning institution, a
contract of education is entered into between said institution and the student. The
professors, teachers or instructors hired by the school are considered merely as agents
and administrators tasked to perform the school's commitment under the contract.
Since the contracting parties are the school and the student, the latter is not duty-bound
to deal with the former's agents, such as the professors with respect to the status or
result of his grades, although nothing prevents either professors or students from
sharing with each other such information. The Court takes judicial notice of the
traditional practice in educational institutions wherein the professor directly furnishes
his/her students their grades. It is the contractual obligation of the school to timely
inform and furnish sufficient notice and information to each and every student as to
whether he or she had already complied with all the requirements for the conferment
of a degree or whether they would be included among those who will graduate.
Although commencement exercises are but a formal ceremony, it nonetheless is not
an ordinary occasion, since such ceremony is the educational institution's way of
announcing to the whole world that the students included in the list of those who will be
conferred a degree during the baccalaureate ceremony have satisfied all the
requirements for such degree. Prior or subsequent to the ceremony, the school has the
obligation to promptly inform the student of any problem involving the latter's grades
and performance and also most importantly, of the procedures for remedying the same.
2. ID.; HUMAN RELATIONS; GOOD FAITH; WANTING WHEN A STUDENT
WAS BELATEDLY INFORMED OF HIS FAILING GRADE IN CASE AT BAR. —
Petitioner, in belatedly informing respondent of the result of the removal examination,
particularly at a time when he had already commenced preparing for the bar exams,
cannot be said to have acted in good faith. Absence of good faith must be sufficiently
established for a successful prosecution by the aggrieved party in a suit for abuse of
right under Article 19 of the Civil Code. Good faith connotes an honest intention to
abstain from taking undue advantage of another, even though the forms and
technicalities of the law, together with the absence of all information or belief of facts,
would render the transaction unconscientious. It is the school that has access to those
information and it is only the school that can compel its professors to act and comply
with its rules, regulations and policies with respect to the computation and the prompt
submission of grades. Students do not exercise control, much less influence, over the
way an educational institution should run its affairs, particularly in disciplining its
professors and teachers and ensuring their compliance with the school's rules and
orders. Being the party that hired them, it is the school that exercises general
supervision and exclusive control over the professors with respect to the submission of
reports involving the students' standing. Exclusive control means that no other person
or entity had any control over the instrumentality which caused the damage or injury.
3. ID.; DAMAGES; SCHOOL LIABLE FOR THE NEGLIGENCE OF ITS
PROFESSORS. — The college dean is the senior officer responsible for the operation
of an academic program, enforcement of rules and regulations, and the supervision of
faculty and student services. He must see to it that his own professors and teachers,
regardless of their status or position outside of the university, must comply with the
rules set by the latter. The negligent act of a professor who fails to observe the rules of
the school, for instance by not promptly submitting a student's grade, is not only
imputable to the professor but is an act of the school, being his employer. Considering
further, that the institution of learning involved herein is a university which is engaged
in legal education, it should have practiced what it inculcates in its students, more
specifically the principle of good dealings enshrined in Articles 19 and 20 of the Civil
Code. Article 19 was intended to expand the concept of torts by granting adequate legal
remedy for the untold number of moral wrongs which is impossible for human foresight
to provide specifically in statutory law. In civilized society, men must be able to assume
that others will do them no intended injury — that others will commit no internal
aggressions upon them; that their fellowmen, when they act affirmatively will do so with
due care which the ordinary understanding and moral sense of the community exacts
and that those with whom they deal in the general course of society will act in good
faith. The ultimate thing in the theory of liability is justifiable reliance under conditions
of civilized society. Schools and professors cannot just take students for granted and
be indifferent to them, for without the latter, the former are useless. Educational
institutions are duty-bound to inform the students of their academic status and not wait
for the latter to inquire from the former. The conscious indifference of a person to the
rights or welfare of the person/persons who may be affected by his act or omission can
support a claim for damages. Want of care to the conscious disregard of civil obligations
coupled with a conscious knowledge of the cause naturally calculated to produce them
would make the erring party liable. Petitioner ought to have known that time was of the
essence in the performance of its obligation to inform respondent of his grade. It cannot
feign ignorance that respondent will not prepare himself for the bar exams since that is
precisely the immediate concern after graduation of an LL.B. graduate. It failed to act
seasonably. Petitioner cannot just give out its student's grades at any time because a
student has to comply with certain deadlines set by the Supreme Court on the
submission of requirements for taking the bar. Petitioner's liability arose from its failure
to promptly inform respondent of the result of an examination and in misleading the
latter into believing that he had satisfied all requirements of the course. Petitioner
cannot pass on its blame to the professors to justify its own negligence that led to the
delayed relay of information to respondent. When one of two innocent parties must
suffer, he through whose agency the loss occurred must bear it. The modern tendency
is to grant indemnity for damages in cases where there is abuse of right, even when
the act is not illicit. If mere fault or negligence in one's acts can make him liable for
damages for injury caused thereby, with more reason should abuse or bad faith make
him liable. A person should 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.
4. ID.; ID.; ID.; MORAL DAMAGES, NOT PROPER. — While petitioner was
guilty of negligence and thus liable to respondent for the latter's actual damages, we
hold that respondent should not have been awarded moral damages. We do not agree
with the Court of Appeals' findings that respondent suffered shock, trauma and pain
when he was informed that he could not graduate and will not be allowed to take the
bar examinations. At the very least, it behooved on respondent to verify for himself
whether he has completed all necessary requirements to be eligible for the bar
examinations. As a senior law student, respondent should have been responsible
enough to ensure that all his affairs, specifically those pertaining to his academic
achievement, are in order. Given these considerations, we fail to see how respondent
could have suffered untold embarrassment in attending the graduation rites, enrolling
in the bar review classes and not being able to take the bar exams. If respondent was
indeed humiliated by his failure to take the bar, he brought this upon himself by not
verifying if he has satisfied all the requirements including his school records, before
preparing himself for the bar examination. Certainly, taking the bar examinations does
not only entail a mental preparation on the subjects thereof; there are also prerequisites
of documentation and submission of requirements which the prospective examinee
must meet.
DECISION
YNARES-SANTIAGO, J p:
May an educational institution be held liable for damages for misleading a
student into believing that the latter had satisfied all the requirements for graduation
when such is not the case? This is the issue in the instant petition for review premised
on the following undisputed facts as summarized by the trial court and adopted by the
Court of Appeals (CA), 1 to wit:
"Plaintiff was enrolled in the defendants' College of Law
from 1984 up to 1988. In the first semester of his last year (School
year 1987-1988), he failed to take the regular final examination in
Practice Court I for which he was given an incomplete grade
(Exhibits '2', also Exhibit 'H'). He enrolled for the second semester
as fourth year law student (Exhibit 'A') and on February 1, 1988 he
filed an application for the removal of the incomplete grade given
him by Professor Carlos Ortega (Exhibits 'H-2', also Exhibit '2')
which was approved by Dean Celedonio Tiongson after payment
of the required fee. He took the examination on March 28, 1988.
On May 30, 1988, Professor Carlos Ortega submitted his grade. It
was a grade of five (5). (Exhibits 'H-4', also Exhibits '2-L', '2-
N'). prLL
"In the meantime, the Dean and the Faculty Members of
the College of Law met to deliberate on who among the fourth year
students should be allowed to graduate. The plaintiff's name
appeared in the Tentative List of Candidates for graduation for the
Degree of Bachelor of Laws (LL.B) as of Second Semester (1987-
1988) with the following annotation:
"JADER ROMEO A.
Def. Conflict of Laws - x-1-87-88, Practice Court I - Inc.,
1-87-88. C-1 to submit transcript with S.O. (Exhibits '3', '3-C-1', '3-
C-2')."
"The 35th Investitures & Commencement Ceremonies for
the candidates of Bachelor of Laws was scheduled on the 16th of
April 1988 at 3:00 o'clock in the afternoon, and in the invitation for
that occasion the name of the plaintiff appeared as one of the
candidates. (Exhibits 'B', 'B-6', 'B-6-A'). At the foot of the list of the
names of the candidates there appeared however the following
annotation:
'This is a tentative list. Degrees will be conferred upon
these candidates who satisfactorily complete
requirements as stated in the University Bulletin and as
approved of the Department of Education, Culture and
Sports (Exhibit 'B-7-A').
"The plaintiff attended the investiture ceremonies at F.
dela Cruz Quadrangle, U.E., Recto Campus, during the program
of which he went up the stage when his name was called, escorted
by her (sic) mother and his eldest brother who assisted in placing
the Hood, and his Tassel was turned from left to right, and he was
thereafter handed by Dean Celedonio a rolled white sheet of paper
 symbolical of the Law Diploma. His relatives took pictures of the
occasion (Exhibits 'C' to 'C-6', 'D-3' to 'D-11').
"He tendered a blow-out that evening which was attended
by neighbors, friends and relatives who wished him good luck in
the forthcoming bar examination. There were pictures taken too
during the blow-out (Exhibits 'D' to 'D-1').
"He thereafter prepared himself for the bar examination.
He took a leave of absence without pay from his job from April 20,
1988 to September 30, 1988 (Exhibit 'G') and enrolled at the pre-
bar review class in Far Eastern University (Exhibits 'F' to 'F-2').
Having learned of the deficiency he dropped his review class and
was not able to take the bar examination." 2
Consequently, respondent sued petitioner for damages alleging that he
suffered moral shock, mental anguish, serious anxiety, besmirched reputation,
wounded feelings and sleepless nights when he was not able to take the 1988 bar
examinations arising from the latter's negligence. He prayed for an award of moral and
exemplary damages, unrealized income, attorney's fees, and costs of suit. LexLib
In its answer with counterclaim, petitioner denied liability arguing mainly that
it never led respondent to believe that he completed the requirements for a Bachelor of
Laws degree when his name was included in the tentative list of graduating students.
After trial, the lower court rendered judgment as follows:
WHEREFORE, in view of the foregoing judgment is
hereby rendered in favor of the plaintiff and against the defendant
ordering the latter to pay plaintiff the sum of THIRTY FIVE
THOUSAND FOUR HUNDRED SEVENTY PESOS (P35,470.00)
with legal rate of interest from the filing of the complaint until fully
paid, the amount of FIVE THOUSAND PESOS (P5,000.00) as
attorney's fees and the cost of suit.
Defendant's counterclaim is, for lack of merit, hereby
dismissed.
SO ORDERED. 3
which on appeal by both parties was affirmed by the Court of Appeals (CA) with
modification. The dispositive portion of the CA decision reads:
WHEREFORE, in the light of the foregoing, the lower
Court's Decision is hereby AFFIRMED with the MODIFICATION
that defendant-appellee, in addition to the sum adjudged by the
lower court in favor of plaintiff-appellant, is also ORDERED to pay
plaintiff-appellant the amount of FIFTY THOUSAND (P50,000.00)
PESOS for moral damages. Costs against defendant-appellee.
SO ORDERED. 4
Upon the denial of its motion for reconsideration, petitioner UE elevated the
case to this Court on a petition for review under Rule 45 of the Rules of Court, arguing
that it has no liability to respondent Romeo A. Jader, considering that the proximate
and immediate cause of the alleged damages incurred by the latter arose out of his
own negligence in not verifying from the professor concerned the result of his removal
exam. prLL
The petition lacks merit.
When a student is enrolled in any educational or learning institution, a contract
of education is entered into between said institution and the student. The professors,
teachers or instructors hired by the school are considered merely as agents and
administrators tasked to perform the school's commitment under the contract. Since
the contracting parties are the school and the student, the latter is not duty-bound to
deal with the former's agents, such as the professors with respect to the status or result
of his grades, although nothing prevents either professors or students from sharing with
each other such information. The Court takes judicial notice of the traditional practice
in educational institutions wherein the professor directly furnishes his/her students their
grades. It is the contractual obligation of the school to timely inform and furnish
sufficient notice and information to each and every student as to whether he or she had
already complied with all the requirements for the conferment of a degree or whether
they would be included among those who will graduate. Although commencement
exercises are but a formal ceremony, it nonetheless is not an ordinary occasion, since
such ceremony is the educational institution's way of announcing to the whole world
that the students included in the list of those who will be conferred a degree during the
baccalaureate ceremony have satisfied all the requirements for such degree. Prior or
subsequent to the ceremony, the school has the obligation to promptly inform the
student of any problem involving the latter's grades and performance and also most
importantly, of the procedures for remedying the same.
Petitioner, in belatedly informing respondent of the result of the removal
examination, particularly at a time when he had already commenced preparing for the
bar exams, cannot be said to have acted in good faith. Absence of good faith must be
sufficiently established for a successful prosecution by the aggrieved party in a suit for
abuse of right under Article 19 of the Civil Code. Good faith connotes an honest
intention to abstain from taking undue advantage of another, even though the forms
and technicalities of the law, together with the absence of all information or belief of
facts, would render the transaction unconscientious. 5 It is the school that has access
to those information and it is only the school that can compel its professors to act and
comply with its rules, regulations and policies with respect to the computation and the
prompt submission of grades. Students do not exercise control, much less influence,
over the way an educational institution should run its affairs, particularly in disciplining
its professors and teachers and ensuring their compliance with the school's rules and
orders. Being the party that hired them, it is the school that exercises general
supervision and exclusive control over the professors with respect to the submission of
reports involving the students' standing. Exclusive control means that no other person
or entity had any control over the instrumentality which caused the damage or injury. 6
The college dean is the senior officer responsible for the operation of an
academic program, enforcement of rules and regulations, and the supervision of faculty
and student services. 7 He must see to it that his own professors and teachers,
regardless of their status or position outside of the university, must comply with the
rules set by the latter. The negligent act of a professor who fails to observe the rules of
the school, for instance by not promptly submitting a student’s grade, is not only
imputable to the professor but is an act of the school, being his employer.
 Considering further, that the institution of learning involved herein is a
university which is engaged in legal education, it should have practiced what it
inculcates in its students, more specifically the principle of good dealings enshrined in
Articles 19 and 20 of the Civil Code which states:
ARTICLE 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.
ARTICLE 20. Every person who, contrary to law, wilfully
or negligently causes damage to another, shall indemnify the latter
for the same. cda
Article 19 was intended to expand the concept of torts by granting adequate
legal remedy for the untold number of moral wrongs which is impossible for human
foresight to provide specifically in statutory law. 8 In civilized society, men must be able
to assume that others will do them no intended injury – that others will commit no
internal aggressions upon them; that their fellowmen, when they act affirmatively will
do so with due care which the ordinary understanding and moral sense of the
community exacts and that those with whom they deal in the general course of society
will act in good faith. The ultimate thing in the theory of liability is justifiable reliance
under conditions of civilized society. 9 Schools and professors cannot just take
students for granted and be indifferent to them, for without the latter, the former are
useless.
Educational institutions are duty-bound to inform the students of their
academic status and not wait for the latter to inquire from the former. The conscious
indifference of a person to the rights or welfare of the person/persons who may be
affected by his act or omission can support a claim for damages. 10 Want of care to
the conscious disregard of civil obligations coupled with a conscious knowledge of the
cause naturally calculated to produce them would make the erring party
liable. 11 Petitioner ought to have known that time was of the essence in the
performance of its obligation to inform respondent of his grade. It cannot feign
ignorance that respondent will not prepare himself for the bar exams since that is
precisely the immediate concern after graduation of an LL.B. graduate. It failed to act
seasonably. Petitioner cannot just give out its student's grades at any time because a
student has to comply with certain deadlines set by the Supreme Court on the
submission of requirements for taking the bar. Petitioner's liability arose from its failure
to promptly inform respondent of the result of an examination and in misleading the
latter into believing that he had satisfied all requirements for the course. Worth quoting
is the following disquisition of the respondent court:
"It is apparent from the testimony of Dean Tiongson that
defendant-appellee University had been informed during the
deliberation that the professor in Practice Court I gave plaintiff-
appellant a failing grade. Yet, defendant-appellee still did not
inform plaintiff-appellant of his failure to complete the requirements
for the degree nor did they remove his name from the tentative list
of candidates for graduation. Worse, defendant-appellee
university, despite the knowledge that plaintiff-appellant failed in
Practice Court I, again included plaintiff-appellant's name in the
"tentative" list of candidates for graduation which was prepared
after the deliberation and which became the basis for the
commencement rites program. Dean Tiongson reasons out that
plaintiff-appellant's name was allowed to remain in the tentative list
of candidates for graduation in the hope that the latter would still
be able to remedy the situation in the remaining few days before
graduation day. Dean Tiongson, however, did not explain how
plaintiff-appellant Jader could have done something to complete
his deficiency if defendant-appellee university did not exert any
effort to inform plaintiff-appellant of his failing grade in Practice
Court I." 12
Petitioner cannot pass on its blame to the professors to justify its own
negligence that led to the delayed relay of information to respondent. When one of two
innocent parties must suffer, he through whose agency the loss occurred must bear
it. 13 The modern tendency is to grant indemnity for damages in cases where there is
abuse of right, even when the act is not illicit. 14 If mere fault or negligence in one's
acts can make him liable for damages for injury caused thereby, with more reason
should abuse or bad faith make him liable. A person should 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. 15
However, while petitioner was guilty of negligence and thus liable to
respondent for the latter's actual damages, we hold that respondent should not have
been awarded moral damages. We do not agree with the Court of Appeals' findings
that respondent suffered shock, trauma and pain when he was informed that he could
not graduate and will not be allowed to take the bar examinations. At the very least, it
behooved on respondent to verify for himself whether he has completed all necessary
requirements to be eligible for the bar examinations. As a senior law student,
respondent should have been responsible enough to ensure that all his affairs,
specifically those pertaining to his academic achievement, are in order. Given these
considerations, we fail to see how respondent could have suffered untold
embarrassment in attending the graduation rites, enrolling in the bar review classes
and not being able to take the bar exams. If respondent was indeed humiliated by his
failure to take the bar, he brought this upon himself by not verifying if he has satisfied
all the requirements including his school records, before preparing himself for the bar
examination. Certainly, taking the bar examinations does not only entail a mental
preparation on the subjects thereof; there are also prerequisites of documentation and
submission of requirements which the prospective examinee must meet. LLphil
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED
with MODIFICATION. Petitioner is ORDERED to PAY respondent the sum of Thirty-
five Thousand Four Hundred Seventy Pesos (P35,470.00), with legal interest of 6% per
annum computed from the date of filing of the complaint until fully paid; the amount of
Five Thousand Pesos (P5,000.00) as attorney's fees; and the costs of the suit. The
award of moral damages is DELETED.
SO ORDERED.
||| (University of the East v. Jader, G.R. No. 132344, [February 17, 2000], 382 PHIL
697-709)
 6. Baron’s Marketing Corporation v. CA 286 SCRA 98
[G.R. No. 126486. February 9, 1998.]
BARONS MARKETING CORP., petitioner, vs. COURT OF
APPEALS and PHELPS DODGE PHILS., INC., respondents.
Vero B. Librojo for petitioner.
Ponce Enrile Reyes & Manalastas for private respondent.
SYNOPSIS
On August 31, 1973, private respondent Phelps Dodge Phils., Inc. appointed
petitioner Barons Marketing Corporation as one of its dealers of electrical wires and
cables. During the period covering December 1986 to August 1987, petitioner
purchased on credit from respondent various electrical wires and cables in the total
amount of P4,102,438.30. On September 7, 1987, petitioner paid respondent the
amount of P300,000.00 out of its total purchases above-stated. On several occasions,
respondent wrote petitioner demanding payment of its outstanding obligations due
respondent. In response, petitioner wrote respondent requesting the latter if it could
pay its outstanding account in monthly installments of P500,000.00 plus 1% interest
per month. Respondent, however, rejected petitioner's offer and reiterated its demand
for full payment of petitioner's account. Respondent then filed a complaint before the
Pasig Regional Trial Court against petitioner for the recovery of P3,802,478.20
representing the value of the wires and cables the former had delivered to the latter,
including interest. After hearing, the trial court rendered its decision ordering petitioner
to pay respondent: 1) P3,108,000.00 constituting the unpaid balance, plus interest; 2)
25% of the preceding obligation for and as attorney's fees; 3) P10,000.00 as exemplary
damages; and 4) the costs of suit. Both parties appealed to the Court of Appeals. The
appellate court modified the decision of the trial court ordering petitioner to pay
respondent P3,802,478.20, the amount which appeared in the body of the complaint
and proven during the trial rather than P3,108,000.00, the latter amount appearing in
petitioner's prayer supposedly as a result of a typographical error, as well as 5% of the
amount awarded for and as attorney's fees. Petitioner now invokes Articles 19 and 21
of the Civil Code, claiming that private respondent abused its rights when it rejected
petitioner's offer of settlement and subsequently filed the action for collection. CHaDIT
The Supreme Court found petitioner's theory untenable. The Court held that
to constitute an abuse of rights under Article 19 the defendant must act with bad faith
or intent to prejudice the plaintiff. In the case at bar, petitioner has failed to prove bad
faith on the part of private respondent. Petitioner's allegation that private respondent
was motivated by a desire to terminate its agency relationship with petitioner so that
private respondent itself may deal directly with Meralco is not supported by the
evidence. At most, such supposition is considered by the Court merely speculative. The
Court having ruled that private respondent's acts did not transgress the provisions of
Article 21, petitioner cannot be entitled to moral damages or for that matter, exemplary
damages. The Court, however, found the amount of attorney's fees and collection fees
of 25% of the principal to be manifestly exorbitant, and, accordingly, reduced it to 10%.
SYLLABUS
1. CIVIL LAW; HUMAN RELATIONS; GOOD FAITH IS ALWAYS
PRESUMED AND THE BURDEN OF PROVING BAD FAITH RESTS UPON THE
PARTY ALLEGING THE SAME; IN CASE AT BAR, PETITIONER FAILED TO PROVE
BAD FAITH ON THE PART OF THE PRIVATE RESPONDENT. — We hold in the
negative. It is an elementary rule in this jurisdiction that good faith is presumed and that
the burden of proving bad faith rests upon the party alleging the same. In the case at
bar, petitioner has failed to prove bad faith on the part of private respondent. Petitioner's
allegation that private respondent was motivated by a desire to terminate its agency
relationship with petitioner so that private respondent itself may deal directly with
Meralco is simply not supported by the evidence. At most, such supposition is merely
speculative. Moreover, we find that private respondent was driven by very legitimate
reasons for rejecting petitioner's offer and instituting the action for collection before the
trial court. As pointed out by private respondent, the corporation had its own "cash
position to protect in order for it to pay its own obligations." This is not such "a lame
and poor rationalization" as petitioner purports it to be. For if private respondent were
to be required to accept petitioner's offer, there would be no reason for the latter to
reject similar offers from its other debtors. Clearly, this would be inimical to the interests
of any enterprise, especially a profit-oriented one like private respondent. It is plain to
see that what we have here is a mere exercise of rights, not an abuse thereof. Under
these circumstances, we do not deem private respondent to have acted in a manner
contrary to morals, good customs or public policy as to violate the provisions of Article
21 of the Civil Code.
2. ID.; ID.; DAMAGES; PETITIONER IS NOT ENTITLED TO MORAL
DAMAGES OR EXEMPLARY DAMAGES; REASONS. — Having ruled that private
respondent's acts did not transgress the provisions of Article 21, petitioner cannot be
entitled to moral damages or, for that matter, exemplary damages. While the amount
of exemplary damages need not be proved, petitioner 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. As we have
observed above, petitioner has failed to discharge this burden.
3. ID.; CONTRACTS; IN THE ABSENCE OF ANY ABUSE OF RIGHT,
PRIVATE RESPONDENT CANNOT BE ALLOWED TO PERFORM ITS
OBLIGATIONS UNDER SUCH CONTRACT IN PARTS; THE PRINCIPLE OF
AUTONOMY OF CONTRACTS MUST BE RESPECTED. — It may not be amiss to
state that petitioner's contract with private respondent has the force of law between
them. Petitioner is thus bound to fulfill what has been expressly stipulated therein. In
the absence of any abuse of right, private respondent cannot be allowed to perform its
obligation under such contract in parts. Otherwise, private respondent's right under
Article 1248 will be negated, the sanctity of its contract with petitioner defiled. The
principle of autonomy of contracts must be respected.
4. ID.; ID.; DAMAGES; COLLECTION AND ATTORNEY'S FEES REDUCED
BY THE COURT FOR BEING EXORBITANT. — Under Article 1229 of the Civil Code
courts are empowered to reduce such penalty if the same is "iniquitous or
unconscionable." It is true that we have upheld the reasonableness of penalties in the
form of attorney's fees consisting of twenty-five percent (25%) of the principal debt plus
interest. In the case at bar, however, the interest alone runs to some four and a half
million pesos (P4.5M), even exceeding the principal debt amounting to almost four
million pesos (P4.0M). Twenty five percent (25%) of the principal and interest amounts
to roughly two million pesos (P2M). In real terms, therefore, the attorney's fees and
collection fees are manifestly exorbitant. Accordingly, we reduce the same to ten
percent (10%) of the principal.
5. ID.; ID.; ID.; POWER OF THE COURT TO REVIEW MATTERS EVEN
THEY ARE NOT ASSIGNED AS ERRORS. — Private respondent argues that
petitioner failed to question the award of attorney's fees on appeal before respondent
court and raised the issue only in its motion for reconsideration. Consequently,
petitioner should be deemed to have waived its right to question such award. Private
respondent's attempts to dissuade us from reducing the penalty are futile. The Court is
clothed with ample authority to review matters, even if they are not assigned as errors
in their appeal, if it finds that their consideration is necessary in arriving at a just decision
of the case. cIECaS
DECISION
KAPUNAN, J p:
The instant petition raises two issues: (1) whether or not private respondent is
guilty of abuse of right; and (2) whether or not private respondent is entitled to interest
and attorney's fees. prcd
The facts are undisputed:
On August 31, 1973, plaintiff [Phelps Dodge, Philippines,
Inc. private respondent herein] appointed defendant [petitioner
Barons Marketing, Corporation] as one of its dealers of electrical
wires and cables effective September 1, 1973 (Exh. A). As such
dealer, defendant was given by plaintiff 60 days credit for its
purchases of plaintiff's electrical products. This credit term was to
be reckoned from the date of delivery by plaintiff of its products to
defendant (Exh. 1).
During the period covering December 1986 to August 17,
1987, defendant purchased, on credit, from plaintiff various
electrical wires and cables in the total amount of P4,102,438.30
(Exh. B to K). These wires and cables were in turn sold, pursuant
to previous arrangements, by defendant to MERALCO, the former
being the accredited supplier of the electrical requirements of the
latter. Under the sales invoices issued by plaintiff to defendant for
the subject purchases, it is stipulated that interest at 12% on the
amount due for attorney's fees and collection (Exh. BB). 1 On
September 7, 1987, defendant paid plaintiff the amount of
P300,000.00 out of its total purchases as above-stated (Exh. S),
thereby leaving an unpaid account on the aforesaid deliveries of
P3,802,478.20. On several occasions, plaintiff wrote defendant
demanding payment of its outstanding obligations due plaintiff
(Exhs. L, M, N, and P). In response, defendant wrote plaintiff on
October 5, 1987 requesting the latter if it could pay its outstanding
account in monthly installments of P500,000.00 plus 1% interest
per month commencing on October 15, 1987 until full payment
(Exh. O and O-4). Plaintiff, however, rejected defendant's offer and
accordingly reiterated its demand for the full payment of
defendant's account (Exh. P). 2
On 29 October 1987, private respondent Phelps Dodge Phils., Inc. filed a
complaint before the Pasig Regional Trial Court against petitioner Barons Marketing
Corporation for the recovery of P3,802,478.20 representing the value of the wires and
cables the former had delivered to the latter, including interest. Phelps Dodge likewise
prayed that it be awarded attorney's fees at the rate of 25% of the amount demanded,
exemplary damages amounting to at least P100,000.00, the expenses of litigation and
the costs of suit.
Petitioner, in its answer, admitted purchasing the wires and cables from
private respondent but disputed the amount claimed by the latter. Petitioner likewise
interposed a counterclaim against private respondent, alleging that it suffered injury to
its reputation due to Phelps Dodge's acts. Such acts were purportedly calculated to
humiliate petitioner and constituted an abuse of rights.
After hearing, the trial court on 17 June 1991 rendered its decision, the
dispositive portion of which reads:
WHEREFORE, from all the foregoing considerations, the
Court finds Phelps Dodge Phils., Inc. to have preponderantly
proven its case and hereby orders Barons Marketing, Inc. to pay
Phelps Dodge the following:
1. P3,108,000.00 constituting the unpaid balance of
defendant's purchases from plaintiff and interest thereon at 12%
per annum computed from the respective expiration of the 60 day
credit term, vis-a-vis the various sales invoices and/or delivery
receipts;
2. 25% of the preceding obligation for and as attorney's
fees;
3. P10,000.00 as exemplary damages;
4. Costs of suit. 3
Both parties appealed to respondent court. Private respondent claimed that
the trial court should have awarded it the sum of P3,802,478.20, the amount which
appeared in the body of the complaint and proven during the trial rather than
P3,108,000.00. The latter amount appears in petitioner's prayer supposedly as a result
of a typographical error.
 On the other hand, petitioner reiterated its claims for damages as a result of
"creditor's abuse." It also alleged that private respondent failed to prove its cause of
action against it. cdll
On 25 June 1996, the Court of Appeals rendered a decision modifying the
decision of the trial court, thus:
WHEREFORE, from all the foregoing considerations, the
Court finds Phelps Dodge Phils., Inc. to have preponderantly
proven its case and hereby orders Barons Marketing, Inc. to pay
Phelps Dodge the following:
1. P3,802,478.20 constituting the unpaid balance of
defendant's purchases from plaintiff and interest thereon at 12%
per annum computed from the respective expiration of the 60 day
credit term, vis-a-vis the various sales invoices and/or delivery
receipts; and
2. 5% of the preceding obligation for and as attorney's
fees.
No costs. 4
Petitioner Barons Marketing is now before this Court alleging that respondent
court erred when it held (1) private respondent Phelps Dodge not guilty of "creditor's
abuse," and (2) petitioner liable to private respondent for interest and attorney's fees.
I Expounding on its theory, petitioner states:
Petitioner does not deny private respondent's rights to institute an action for
collection and to claim full payment. Indeed, petitioner's right to file an action for
collection is beyond cavil. 5 Likewise, private respondent's right to reject petitioner's
offer to pay in installments is guaranteed by Article 1248 of the Civil Code which states:
ART. 1248. Unless there is an express stipulation to that
effect, the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the
debtor be required to make partial payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may effect
the payment of the former without waiting for the liquidation of the
latter.
Under this provision, the prestation, i.e., the object of the obligation, must be
performed in one act, not in parts.
Tolentino concedes that the right has its limitations:
Partial Prestations. — Since the creditor cannot be
compelled to accept partial performance, unless otherwise
stipulated, the creditor who refuses to accept partial prestations
does not incur in delay or mora accipiendi, except when there is
abuse of right or if good faith requires acceptance. 6
Indeed, the law, as set forth in Article 19 of the Civil Code, prescribes a "primordial
limitation on all rights" by setting certain standards that must be observed in the
exercise thereof. 7 Thus:
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.
Petitioner now invokes Article 19 and Article 21 8 of the Civil Code, claiming
that private respondent abused its rights when it rejected petitioner's offer of settlement
and subsequently filed the action for collection considering:
. . . that the relationship between the parties started in
1973 spanning more than 13 years before the complaint was filed,
that the petitioner had been a good and reliable dealer enjoying a
good credit standing during the period before it became delinquent
in 1987, that the relationship between the parties had been a
fruitful one especially for the private respondent, that the petitioner
exerted its outmost efforts to settle its obligations and avoid a suit,
that the petitioner did not evade in the payment of its obligation to
the private respondent, and that the petitioner was just asking a
small concession that it be allowed to liquidate its obligation to
eight (8) monthly installments of P500,000.00 plus 1% interest per
month on the balance which proposal was supported by post-
dated checks. 9
In the ordinary course of events, a suit for collection of a
sum of money filed in court is done for the primary purpose of
collecting a debt or obligation. If there is an offer by the debtor to
pay its debt or obligation supported by post-dated checks and with
provision for interests, the normal response of a creditor would be
to accept the offer of compromise and not file the suit for collection.
It is of common knowledge that proceedings in our courts would
normally take years before an action is finally settled. It is always
wiser and more prudent to accept an offer of payment in
installment rather than file an action in court to compel the debtor
to settle his obligation in full in a single payment.
xxx xxx xxx
. . . Why then did private respondent elect to file a suit for
collection rather than accept petitioner's offer of settlement,
supported by post-dated checks, by paying monthly installments
of P500,000.00 plus 1% per month commencing on October 15,
1987 until full payment? The answer is obvious. The action of
private respondent in filling a suit for collection was an abuse of
right and exercised for the sole purpose of prejudicing and injuring
the petitioner. 10
Petitioner prays that the Court order private respondent to pay petitioner moral
and exemplary damages, attorney's fees, as well as the costs of suit. It likewise asks
that it be allowed to liquidate its obligation to private respondent, without interests, in
eight equal monthly installments.
Petitioner's theory is untenable. prLL
Both parties agree that to constitute an abuse of rights under Article 19 the
defendant must act with bad faith or intent to prejudice the plaintiff. They cite the
following comments of Tolentino as their authority:
Test of Abuse of Right. — Modern jurisprudence does not
permit acts which, although not unlawful, are anti-social. There is
undoubtedly an abuse of right when it is exercised for the only
purpose of prejudicing or injuring another. When the objective of
the actor is illegitimate, the illicit act cannot be concealed under
the guise of exercising a right. The principle does not permit acts
which, without utility or legitimate purpose cause damage to
another, because they violate the concept of social solidarity which
considers law as rational and just. Hence, every abnormal
exercise of a right, contrary to its socio-economic purpose, is an
abuse that will give rise to liability. The exercise of a right must be
in accordance with the purpose for which it was established, and
must not be excessive or unduly harsh; there must be no intention
to injure another. Ultimately, however, and in practice, courts, in
the sound exercise of their discretion, will have to determine all the
facts and circumstances when the exercise of a right is unjust, or
when there has been an abuse of right. 11
The question, therefore, is whether private respondent intended to prejudice
or injure petitioner when it rejected petitioner's offer and filed the action for collection.
We hold in the negative. It is an elementary rule in this jurisdiction that good
faith is presumed and that the burden of proving bad faith rests upon the party alleging
the same. 12 In the case at bar, petitioner has failed to prove bad faith on the part of
private respondent. Petitioner's allegation that private respondent was motivated by a
desire to terminate its agency relationship with petitioner so that private respondent
itself may deal directly with Meralco is simply not supported by the evidence. At most,
such supposition is merely speculative.
Moreover, we find that private respondent was driven by very legitimate
reasons for rejecting petitioner's offer and instituting the action for collection before the
trial court. As pointed out by private respondent, the corporation had its own "cash
position to protect in order for it to pay its own obligations." This is not such "a lame
and poor rationalization" as petitioner purports it to be. For if private respondent were
to be required to accept petitioner's offer, there would be no reason for the latter to
reject similar offers from its other debtors. Clearly, this would be inimical to the interests
of any enterprise, especially a profit-oriented one like private respondent. It is plain to
see that what we have here is a mere exercise of rights, not an abuse thereof. Under
these circumstances, we do not deem private respondent to have acted in a manner
contrary to morals, good customs or public policy as to violate the provisions of Article
21 of the Civil Code.
Consequently, petitioner's prayer for moral and exemplary damages must
thus be rejected. Petitioner's claim for moral damages is anchored on Article 2219 (10)
of the Civil Code which states:
ART. 2219. Moral damages may be recovered in the
following and analogous cases:
xxx xxx xxx
(10) Acts and actions referred to in articles 21, 26, 27, 28,
29, 30, 32, 34, and 35.
xxx xxx xxx
Having ruled that private respondent's acts did not transgress the provisions of
Article 21, petitioner cannot be entitled to moral damages or, for that matter,
exemplary damages. While the amount of exemplary damages need not be
proved, petitioner 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. 13 As we have observed above,
petitioner has failed to discharge this burden.
It may not be amiss to state that petitioner's contract with private respondent
has the force of law between them. 14 Petitioner is thus bound to fulfill what has been
expressly stipulated therein. 15 In the absence of any abuse of right, private
respondent cannot be allowed to perform its obligation under such contract in parts.
Otherwise, private respondent's right under Article 1248 will be negated, the sanctity of
its contract with petitioner defiled. The principle of autonomy of contracts 16 must be
respected.
II
Under said contract, petitioner is liable to private respondent for the unpaid
balance of its purchases from private respondent plus 12% interest. Private
respondent's sales invoices expressly provide that:
. . . Interest at 12% per annum will be charged on all
overdue account plus 25% on said amount for attorney's fees and
collection. . . . 17
It may also be noted that the above stipulation, insofar as it provides for the
payment of "25% on said amount for attorney's fees and collection (sic)," constitutes
what is known as a penal clause. 18 Petitioner is thus obliged to pay such penalty in
addition to the 12% annual interest, there being an express stipulation to that
effect. dctai
Petitioner nevertheless urges this Court to reduce the attorney's fees for being
"grossly excessive," "considering the nature of the case which is a mere action for
collection of a sum of money." It may be pointed out however that the above penalty is
supposed to answer not only for attorney's fees but for collection fees as well.
Moreover:
. . . the attorneys' fees here provided is not, strictly
speaking, the attorneys' fees recoverable as between attorney and
client spoken of and regulated by the Rules of Court. Rather, the
attorneys' fees here are in the nature of liquidated damages and
the stipulation therefor is aptly called a penal clause. It has been
said that so long as such stipulation does not contravene law,
morals, or public order, it is strictly binding upon defendant. The
 attorneys' fees so provided are awarded in favor of the litigant, not
his counsel. It is the litigant, not counsel, who is the judgment
creditor entitled to enforce the judgment by execution. 19
Nonetheless, courts are empowered to reduce such penalty if the same is
"iniquitous or unconscionable." Article 1229 of the Civil Code states thus:
ART. 1229. The judge shall equitably reduce the penalty
when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable. (Emphasis supplied.)
The sentiments of the law are echoed in Article 2227 of the same Code:
ART. 2227. Liquidated damages, whether intended as an
indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.
It is true that we have upheld the reasonableness of penalties in the form of
attorney's fees consisting of twenty-five percent (25%) of the principal debt plus
interest. 20 In the case at bar, however, the interest alone runs to some four and a half
million pesos (P4.5M), even exceeding the principal debt amounting to almost four
million pesos (P4.0M). Twenty five percent (25%) of the principal and interest amounts
to roughly two million pesos (P2M). In real terms, therefore, the attorney's fees and
collection fees are manifestly exorbitant. Accordingly, we reduce the same to ten
percent (10%) of the principal.
Private respondent, however, argues that petitioner failed to question the
award of attorney's fees on appeal before respondent court and raised the issue only
in its motion for reconsideration. Consequently, petitioner should be deemed to have
waived its right to question such award. LexLib
Private respondent's attempts to dissuade us from reducing the penalty are
futile. The Court is clothed with ample authority to review matters, even if they are not
assigned as errors in their appeal, if it finds that their consideration is necessary in
arriving at a just decision of the case. 21
WHEREFORE, the decision of the Court of Appeals is hereby MODIFIED in
that the attorney's and collection fees are reduced to ten percent (10%) of the principal
but is AFFIRMED in all other respects.
SO ORDERED.
||| (Barons Marketing Corp. v. Court of Appeals, G.R. No. 126486, [February 9, 1998],
349 PHIL 769-781)
 7. Dart Philippines, Inc. v. Spouse Calogcog GR No. 149241
[G.R. No. 149241. August 24, 2009.]
DART PHILIPPINES, INC., petitioner, vs. SPOUSES
FRANCISCO and ERLINDA CALOGCOG, respondents.
DECISION
NACHURA, J p:
Petitioner assails in this Rule 45 petition the February 28, 2001
Decision 1 and the July 30, 2001 Resolution 2 of the Court of Appeals (CA) in CA-
G.R. CV. No. 52474. The facts and proceedings that led to the filing of the instant
petition are pertinently narrated below. EScIAa
Engaged in the business of manufacturing or importing into the
Philippines Tupperware products and marketing the same under a direct selling
distribution system, 3 petitioner entered into a Distributorship Agreement with
respondents on March 3, 1986. 4 The agreement was to expire on March 31, 1987
but was subject to an automatic renewal clause for two one-year terms. 5 On April
1, 1991, the parties again executed another Distributorship Agreement 6 which
was to expire on March 31, 1992 but renewable on a yearly basis upon terms and
conditions mutually agreed upon in writing by the parties. 7
Following the expiration of the agreement, petitioner, on April 30, 1992,
informed respondents that, due to the latter's several violations thereof, it would no
longer renew the same. 8 Respondents then made a handwritten promise for them
to observe and comply with the terms and conditions thereof. 9 This convinced
petitioner to extend, on July 24, 1992, the period of the distributorship up to
September 30, 1992. 10
In the meantime, on July 2, 1992, petitioner subjected respondents'
account to an audit review. 11 In September 1992, petitioner informed
respondents that it had engaged the services of an auditing firm and that it was
again subjecting respondents' account to an audit review. 12 Objecting to the
second audit, 13 respondents disallowed the auditing firm from inspecting their
books and records. As a result, petitioner only accepted respondents' purchase
orders on pre-paid basis. 14
On September 29, 1992, a day before the expiry of the Distributorship
Agreement, respondents filed before the Regional Trial Court (RTC) of Pasig City
a Complaint for damages with application for a writ of injunction and/or restraining
order docketed as Civil Case No. 62444. 15 They alleged that petitioner abused
its right when it caused the audit of their account and when it only honored their
orders if they were pre-paid, thereby causing damages to them of around
P1.3M. 16
On November 12, 1992, the trial court issued a writ of preliminary
injunction and directed petitioner to observe the terms and conditions of the
Distributorship Agreement and to honor, deliver and fulfill its obligations in effecting
deliveries of Tupperware products to respondents. 17 In the
subsequent certiorari proceedings before the appellate court docketed as CA-G.R.
SP No. 29560, the CA ruled that the Distributorship Agreement already expired;
thus, the trial court committed grave abuse of discretion in granting the writ of
preliminary injunction which had the effect of enforcing a contract that had long
expired. 18
Respondents then moved before the trial court, on June 14, 1993, for the
admission of their Supplemental Complaint, 19 in which they alleged that petitioner
refused to award benefits to the members of respondents' sales force and coerced
the said members to transfer to another distributor; that petitioner refused to
comply with Sections 8 and 9 20 of the Distributorship Agreement by not paying
respondents the value of the products on hand and in their custody, and by not
effecting the transfer of their goodwill to the absorbing distributor; and that
petitioner, by its actions which resulted in the loss of respondents' sales force, had
made inutile respondents' investment in their building. Respondents thus prayed
for additional actual damages, specifically P4,495,000.00 for the goodwill, P1M for
the products on hand, and P3M for the cost of the building. HTAIcD
Expectedly, petitioner opposed the admission of the supplemental
complaint. 21 Amid the protestations of petitioner, the trial court admitted the
supplemental complaint 22 and ordered the former to file its supplemental
answer. 23
After trial on the merits, the RTC rendered its Decision 24 on November
27, 1995. It ruled, among others, that the second audit was unreasonable and was
only made to harass respondents; that the shift from credit to pre-paid basis in the
purchase orders of respondents was another act of harassment; that petitioner had
no valid reason to refuse the renewal of the distributorship agreement; and that
petitioner abused its rights under the said agreement. It then concluded that
because of petitioner's unjustified acts, respondents suffered damages, among
which were the salaries paid to the internal auditors during the first audit, the
goodwill money, the value of the warehouse, moral and exemplary damages, and
attorney's fees. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered dismissing
for lack of merit [respondents'] claims for payment of items subject
of credit memoranda, and for products alleged to be on hand at
the termination of the [distributorship] agreement. On
[respondents'] other claims, judgment is hereby rendered, as
follows:
1. Ordering the [petitioner] to pay [respondents] the
amount of P23,500.17 representing the salaries of internal
auditors engaged by the [petitioner] to conduct an audit on
[respondents'] financial records;
2. Ordering the [petitioner] to pay [respondents] the sum
of P4,495,000.00 representing "goodwill" money which
[respondents] failed to realize;
 3. Ordering the [petitioner] to pay [respondents] the sum
of P1,000,000.00 as reasonable compensation to the
[respondents] for acquiring a lot and constructing thereon a
structure to serve as storage, assembly place and warehouse for
[petitioner's] products;
4. Ordering the [petitioner] to pay [respondents] the sum
of P500,000.00 as moral damages and another P500,000.00 as
and by way of exemplary damages; and
5. Ordering the [petitioner] to pay [respondents] the sum
of P100,000.00 as attorney's fees, plus P2,000.00 per Court
appearance.
[Petitioner's] counterclaims are hereby dismissed for lack
of merit.
Costs against the [petitioner].
SO ORDERED. 25
Aggrieved, petitioner timely interposed its appeal. In the assailed
February 28, 2001 Decision, 26 the appellate court affirmed with modification the
ruling of the trial court and disposed of the appeal as follows: ETDaIC
WHEREFORE, in view of the foregoing, the assailed
decision of the court a quo is hereby AFFIRMED WITH
MODIFICATION, the award for moral damages is hereby
REDUCED to P100,000.00 and the award for exemplary damages
is hereby REDUCED to P50,000.00. The award of P1,000,000.00
as reasonable compensation for the acquisition of the lot and
construction of the building is hereby DELETED.
SO ORDERED. 27
Since its motion for reconsideration was subsequently denied by the
appellate court in the further assailed July 30, 2001 Resolution, 28 petitioner
instituted the instant petition for review on certiorari, raising the following grounds:
1. The Court of Appeals committed an error in affirming
the decision of the trial court admitting the supplemental complaint
thereby taking cognizance of the issues raised and rendering
judgment thereon.
2. The Court of Appeals committed an error in affirming
the decision of the trial court holding petitioner liable to pay
respondents the "goodwill money" they allegedly failed to realize.
3. While petitioner lauds the Court of Appeals' decision
deleting the trial court's award of P1,000,000.00 by way of
compensation for the alleged acquisition of the lot and construction
of the building, and appreciates the reduction of the trial court's
awards on the alleged moral damages and exemplary damages,
the Court of Appeals still erred in not totally dismissing
respondents' claims for damages including attorney's fees.
4. The Court of Appeals committed an error in not finding
for the petitioner and in not awarding damages in favor of petitioner
by way of reasonable attorney's fees. 29
The primordial issue to be resolved by the Court in the instant case is
whether petitioner abused its rights under the distributorship agreement when it
conducted an audit of respondents' account, when it accepted respondents'
purchase orders only if they were on a pre-paid basis, and when it refused to renew
the said distributorship agreement.
Preliminarily, the Court admits that, ordinarily, it will not review the
findings of fact made by the appellate court. However, jurisprudence lays down
several exceptions, among which are the following which obtain in this case: when
the judgment is based on a misapprehension of facts and when the appellate court
manifestly overlooked certain relevant facts not disputed by the parties, which, if
properly considered, could justify a different conclusion. 30 Thus, the Court finds
it imperative to evaluate, as in fact it had reviewed, the records of the case,
including the evidence adduced during the trial, in relation to the arguments of the
parties and the applicable law and jurisprudence. EcaDCI
Under Article 19 of the Civil Code, 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. To find the existence of abuse of right
under the said article, the following elements must be present: (1) there is a legal
right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing
or injuring another. 31 Accordingly, the exercise of a right shall always be in
accordance with the purpose for which it has been established, and must not be
excessive or unduly harsh — there must be no intention to injure another. 32 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, not when he acts with
negligence or abuse. 33
Malice or bad faith is at the core of Article 19 of the Civil Code. Good faith
refers to the state of mind which is manifested by the acts of the individual
concerned. It consists of the intention to abstain from taking an unconscionable
and unscrupulous advantage of another. It is presumed. Thus, he who alleges bad
faith has the duty to prove the same. 34 Bad faith does not simply connote bad
judgment or simple negligence; it involves a dishonest purpose or some moral
obloquy and conscious doing of a wrong, a breach of known duty due to some
motives or interest or ill will that partakes of the nature of fraud. Malice connotes ill
will or spite and speaks not in response to duty. It implies an intention to do ulterior
and unjustifiable harm. Malice is bad faith or bad motive. 35
At the crux of this controversy, therefore, is whether petitioner acted in
bad faith or intended to injure respondents when it caused the auditing of the
latter's account, when it implemented the pre-paid basis in treating the latter's
orders, and when it refused to renew the distributorship agreement.
The Court rules in the negative. We note that in the written
correspondence of petitioner to respondents on April 30, 1992 informing the latter
of the non-renewal of the distributorship agreement, petitioner already pointed out
respondents' violations of the agreement. The letter pertinently reads:
 We found that you have committed the following acts Given that petitioner has not abused its rights, it should not be held liable
which are contrary to provisions of Section 2(f) of our Agreement: for any of the damages sustained by respondents. The law affords no remedy for
damages resulting from an act which does not amount to a legal wrong. Situations
(a) You submitted several "Vanguard Reports" containing like this have been appropriately denominated damnum absque injuria. 41 To this
false statements of the sales performance of end, the Court reverses and sets aside the trial and appellate courts' rulings.
your units. A comparison of the reports you Nevertheless, the Court sustains the trial court's order for the reimbursement by
submitted to our office with that actually petitioner to respondents of P23,500.17, with 12% interest per annum, computed
reported by your managers show that the sales from the filing of the original complaint up to actual payment, representing the
of your units are actually much lower than that salaries of the internal auditors, because, first, the award was never questioned by
reported to Tupperware (Exhibits "G", "H", "I", petitioner, and second, petitioner was the one which engaged the services of the
"J", "L", "O", "P", "Q", and "R.") auditors. DAEICc
(b) The unauthorized alteration of the mechanics of As regards petitioner's claim for attorney's fees, the Court cannot grant
"Nan's Challenge", which is a Tupperware the same. We emphasized in prior cases that no premium should be placed on the
company sponsored promotion campaign. The right to litigate. Attorney's fees are not to be awarded every time a party wins a
documentary evidence furnished us, Exhibit "E", suit. Even when a claimant is compelled to litigate or to incur expenses to protect
shows that the amount of target party averages his rights, still attorney's fees may not be awarded where there is no sufficient
were increased by you. cDCSET showing of bad faith in a party's persistence in a case other than an erroneous
conviction of the righteousness of his cause. 42
(c) Charging the managers for accounts of their dealers
and for overdue kits (Exhibits "C" and "D"). 36 With the above disquisition, the Court finds no compelling reason to
resolve the other issues raised in the petition.
The correspondence prompted respondents to make a handwritten
promise that they would observe and comply with the terms and conditions of the WHEREFORE, premises considered, the petition is GRANTED. The
distributorship agreement. 37 This promise notwithstanding, petitioner was not decisions of the Regional Trial Court of Pasig City in Civil Case No. 62444 and of
barred from exercising its right in the agreement to conduct an audit review of the Court of Appeals in CA-G.R. CV. No. 52474 are REVERSED and SET ASIDE.
respondents' account. Thus, an audit was made in July 1992. In September 1992, Petitioner is ORDERED to pay respondents P23,500.17 with interest at 12% per
petitioner informed respondents that it was causing the conduct of a second audit annum computed from the date of filing of the original complaint.
review. And as explained in petitioner's September 11, 1992 correspondence to SO ORDERED.
respondents, the second audit was intended to cover the period not subject of the
initial audit (the period prior to January 1 to June 30, 1992, and the period from ||| (Dart Philippines, Inc. v. Spouses Calogcog, G.R. No. 149241, [August 24, 2009],
July 1, 1992 to September 1992). 38Because respondents objected to the second 613 PHIL 224-239)
audit, petitioner exercised its option under the agreement to vary the manner in
which orders are processed — this time, instead of the usual credit arrangement,
petitioner only admitted respondents' purchase orders on pre-paid basis. It may be
noted that petitioner still processed respondents' orders and that the pre-paid basis
was only implemented during the last month of the agreement, in September 1992.
With the expiry of the distributorship agreement on September 30, 1992, petitioner
no longer acceded to a renewal of the same.
From these facts, we find that bad faith cannot be attributed to the acts of
petitioner. Petitioner's exercise of its rights under the agreement to conduct an
audit, to vary the manner of processing purchase orders, and to refuse the renewal
of the agreement was supported by legitimate reasons, principally, to protect its
own business. The exercise of its rights was not impelled by any evil motive
designed, whimsically and capriciously, to injure or prejudice respondents. The
rights exercised were all in accord with the terms and conditions of the
distributorship agreement, which has the force of law between them. 39 Clearly,
petitioner could not be said to have committed an abuse of its rights. It may not be
amiss to state at this juncture that a complaint based on Article 19 of the Civil Code
must necessarily fail if it has nothing to support it but innuendos and
conjectures. 40
 8. Manila Gas Corporation v. CA GR No. L-44190
[G.R. No. L-44190. October 30, 1980.]
MANILA GAS CORPORATION, petitioner-
appellant, vs. COURT OF APPEALS and ISIDRO M.
ONGSIP, respondent-appellees.
DECISION
MAKASIAR, J p:
This petition for certiorari treated as a special civil action seeks to review the
decision of the Court of Appeals in CA-G.R. No. 50956-R dated July 6, 1976 affirming
the decision of the Court of First Instance of Rizal, Pasay City Branch VII in Civil Case
No. 3019-P dated May 2, 1972.
Manila Gas Corporation, the petitioner herein, is a public utility company duly
authorized to conduct and operate the gainful business of servicing and
supplying gas in the City of Manila and its suburbs for public necessity and
convenience while private respondent, Isidro M. Ongsip, is a businessman holding
responsible positions in a number of business firms and associations in the Philippines.
On May 20, 1964, respondent Ongsip applied for gas service connection with
petitioner Manila Gas Corporation. A 1 x 4 burner gas was installed by petitioner's
employees in respondent's kitchen at his residence at 2685 Park Avenue, Pasay City.
On July 27, 1965, respondent Ongsip requested petitioner to install additional
appliances as well as additional gas service connections in his 46-door Reyno
Apartment located also in the same compound. In compliance with said request,
petitioner installed two 20-gallon capacity water storage heaters and two heavy-
duty gas burners and replaced the original gas meter with a bigger 50-light
capacity gas meter. The installations and connections were all done solely by
petitioner's employees. There was no significant change in the meter reading despite
additional installations.
In May and June of 1966 no gas consumption was registered in the meter, prompting
petitioner to issue a 'meter order' with instructions to change the gasmeter in
respondent's residence.
On August 17, 1966, at around 1 o'clock in the afternoon, petitioner's employee led by
Mariano Coronel, the then Chief of the Distribution Department, went to Ongsip's place.
After identifying themselves to the houseboy therein that they are from
the Manila Gas Corporation, but without notifying or in forming respondent Ongsip,
they changed the gas meter and installed new tube connections. At the time the work
was being undertaken, private respondent was taking a nap but he was informed
afterwards of what had taken place by his houseboy.
On that same afternoon, at about 5 o'clock, petitioner's employees returned with a
photographer who took pictures of the premises. Respondent Ongsip inquired from
Coronel why they were taking pictures but the latter simply gave him a calling card with
instructions to go to his (Coronel's) office. There, he was informed about the
existence of a by-pass valve or "jumper" in the gas connection and that unless he gave
Coronel P3,000.00, he would be deported. Respondent Ongsip refused to give the
money, saying that he was not afraid as he had committed no wrong and that he could
not be deported because he is already a Filipino citizen. By the end of August, a reading
was made on the new meter and expectedly, it registered a sudden increase
in gas consumption.
Thereafter, in October, 1966, a complaint for qualified theft was filed by petitioner
against respondent Ongsip in the Pasay City Fiscal's Office docketed as I.S. No. 51441
(p. 3, Folder of Exhibits).
In February, 1967, pending investigation of the criminal complaint, petitioner
disconnected respondent's gas service for alleged failure and/or refusal to pay
his gas consumptions from July, 1965 to January, 1967 in violation of petitioner's
regulation agreed upon in the 'Application for Gas Service' which states that:
xxx xxx xxx
"(8) The Corporation is authorized to discontinue service to the
customer for any of the following reasons:
After 72 hours' notice in writing for
a) violation of the conditions herein set forth;
b) Non-payment of bills overdue;
xxx xxx xxx" (p. 1, Folder of Exhibits).
Subsequently, the complaint was dismissed by the city fiscal of Pasay City in a
resolution dated May 29, 1967, on the ground that —
". . . there is no evidence to establish the fact that there is an illegal
installation or jumper in the premises of Isidro Ongsip and this is
sustained by the fact that the prosecution witnesses did not
attempt to excavate the premises of Isidro Ongsip in order to
determine with certainty that there is an illegal installation. Without
excavating the premises of Isidro Ongsip it is impossible to
conclude with reasonable certainty that there is a jumper or illegal
installation because illegal installation or jumper must not only
proceed from an assumption but must be based from actual facts
as proved" (pp. 4-6 Folder of Exhibits).
On July 14, 1967, following the dismissal by the investigating fiscal of the complaint for
qualified theft and the disconnection by petitioner of his gas service, respondent
Ongsip filed a complaint with the Court of First Instance of Rizal, Pasay City Branch VII
for moral and exemplary damages against petitioner Manila Gas Corporation based on
two causes of action, firstly: the malicious, oppressive and malevolent filing of the
criminal complaint as a result of which "plaintiff has suffered mental anguish, serious
anxiety, social humiliation, ridicule, embarrassment and degradation in the eyes of his
business associates, friends, relatives and the general public"; and, secondly: the
illegal closure of respondent Ongsip's gas service connection without court order and "(b) Dismissing the defendant's counterclaim" [pp. 44-76, ROA].
without notice of warning purely "to further harass, humiliate and ridicule plaintiff,
thereby again exposing unjustly, cruelly and oppressively the plaintiff, as well as his Within the reglementary period, petitioner appealed to the Court of Appeals assigning
family, to social humiliation and degradation, to public contempt and ridicule, to two errors, to wit:
personal discredit and dishonor and thus causing the plaintiff and the members of his
"The lower court erred in concluding that the filing of the criminal
family irreparable injuries consisting of business and social humiliation, personal
complaint was motivated purely 'to harass, threaten, and ridicule'
dishonor, mental anguish, serious anxieties, wounded feelings and besmirched
plaintiff despite clear and convincing evidence showing the actual
reputation". In addition to attorney's fees and costs of litigation, respondent Ongsip
existence of a gas jumper by-pass in plaintiff's establishment.
likewise prayed that "pending final determination of the case that a writ of preliminary
mandatory injunction forthwith issue, commanding the defendant corporation, its "The lower court erred in concluding without basis and
agents and employees to reconnect the gas service and supply at the residence and findings of facts that the closure of plaintiff's gas service was
apartment of plaintiff at 2685 Park Avenue, Pasay City" (pp. 1-11, ROA). arrogant and abusive despite provision of a contract to the
contrary" (p. 7, Brief for Defendant Appellant).
On July 19, 1967, petitioner filed a motion to dismiss alleging the complaint states no
valid cause of action. Respondent Ongsip filed an opposition thereto (pp. 12-24, ROA). On July 6, 1976, the said Court rendered its decision, pertinent portions of which are
quoted hereinbelow:
On August 11, 1967, the trial court issued an order denying petitioner's motion to
dismiss (pp. 24-25, ROA). "We are inclined to concur with the court a quo that the
existence of a 'jumper' was merely a presumption on the
Consequently, on September 8, 1967, petitioner filed its answer stating that the
part of Coronel. Indeed the discrepancy or fluctuation in
filing of the criminal complaint in the Pasay City Fiscal's Office which was made the
the gas consumption in appellee's place could very well be
basis of the first cause of action was precipitated by the discovery of an illegal by-pass attributed to many factors, such as a defective meter or a reduction
tube or "jumper" in the kitchen cabinet and immediately below the gas burners in in the use of the appliances on the premises considering that the
respondent's residence. With respect to the second cause of action, petitioner stated
restaurant/hotel business is transient. Neither can appellant
that the cutting off or the disconnection ofprivate respondent's gas service was on
attribute any defect in the installation of the appliances to the
account of the latter's failure to settle and pay outstanding and due payments
appellee as the installation was undertaken by the former's
representing gas consumptions from July, 1965 to January, 1967. In both instances,
employees (T.S.N. pp. 12-13, December 17, 1968). Similarly,
according to petitioner, there was no intent to threaten, ridicule, embarrass or humiliate
the gas meter was installed by defendant corporation, so that
respondent Ongsip. A counterclaim for actual or compensatory damages and
when a report was made that the original meter was defective, a
exemplary damages was interposed therein (pp. 24-31, ROA). new one was installed (T.S.N., pp. 27-28, December 1, 1970).
In the meantime, the court had issued an order dated September 6, 1967 granting the
"Again, according to the testimony of Delfin Custodio, mechanical
writ of preliminary mandatory injunction as prayed for in the complaint for damages
engineer of defendant-appellant, the second meter that was
upon respondent Ongsip's filing of a bond in the amount of P10,000.00 (pp. 33-34, installed on August 11, 1966 was replaced as being defective
ROA).
because 'some of its parts were worn out and that it was not
On May 2, 1972, the trial court rendered its decision. properly registering,' (T.S.N., pp. 14-15, December 2, 1970).
Therefore, rather than impute the fluctuation in gas consumption
"(a) Ordering defendant to pay plaintiff: to a 'jumper' in the service connection, it would be more in keeping
with the circumstances of the case to attribute this to the faulty
"(1) P50,000.00 as moral damages in the FIRST meter installed by defendant-appellant. Indeed, from the evidence
CAUSE OF ACTION; for the appellant itself that the old installation was embedded in the
cement wall (which was later changed by appellant to exposed
"(2) P10,000.00 as exemplary damages in the FIRST
pipes; t.s.n. p. 55, March 3, 1971). We are of the belief that it was
CAUSE OF ACTION;
unlikely for the appellee to install a 'jumper' in the cement wall, a
"(3) P30,000.00 as moral damages in the SECOND conclusion which bears support in the report of the City Fiscal,
CAUSE OF ACTION; Pasay City that 'Isidro Ongsip was agreeable to have his place
excavated and demolished provided that if there is no illegal
"(4) P5,000.00 as exemplary damages in the SECOND installation or jumper found in the premises,
CAUSE OF ACTION; the Manila Gas Corporation should answer for whatever damages
that may be incurred in connection with its excavation of the
"(5) P10,000.00 as attorney's fees; and premises 'which offer was declined by appellant, indicating that it
"(6) the costs of the suit; AND was not certain as to the existence of such jumper (Resolution,
 Exhibit 'D'). In the light of the foregoing, appellant's first
assignment of error must necessarily fail.
"Anent the second assignment of error, it appears that
the gas service to appellee's compound was disconnected on the
basis of non-payment of three months bills, which were admittedly
computed only on the average consumption registered, without
benefit of meter reading (T.s.n. p. 13, April 30, 1971), and without
previous notice of disconnection or reminder to pay (T.s.n. pp. 44-
45, id., p. 30, May 18, 1971).
"Considering that the availability of the gas service was of utmost
importance to appellee in the pursuit of his business venture
(hotel-motel restaurant), it is not difficult to foresee the losses that
the business must have incurred as a consequence of appellant's
unwarranted and arbitrary act. It may not be amiss to take note at
his juncture that in assessing the damages in favor of appellee,
the court a quo did not award him actual damages, but merely
moral and exemplary damages plus attorney's fees pursuant to
Articles 2208 paragraphs (1) and (11); Articles 2217, 2219
paragraph (8) and 2229 of the New Civil Code. And, considering
further the provisions of Article 2216 of said Code:
"No proof of pecuniary loss is necessary in
order that moral, nominal, temperate, liquidated or
exemplary damages may be adjudicated. The
assessment of such damages, except liquidated ones, is
left to the discretion of the Court, according to the
circumstances of each case;
which is amply supported by the evidence on record, taking
into consideration appellee's standing in the community,
WE find that the award must be sustained.
WHEREFORE, the decision appealed from is hereby affirmed in
toto, it being in accordance with the law and evidence adduced
during the trial. Costs against appellant" (pp. 75-85, rec.).
Hence, on September 1, 1976, Manila Gas Corporation filed a petition for review by
way of appeal to this Court based on the following grounds, to wit:
"I. The decision is not supported by the facts and the evidence.
Rather, the decision is belied and rebuked by the clear and
overwhelming evidence.
"A. The finding that witness Mariano Coronel is
an unreliable witness is totally unsupported by any
evidence.
"B. The filing of the criminal complaint against
Ongsip was not actuated by malice on the
part of petitioner.
"C. The filing of the criminal complaint against
respondent Ongsip was based on probable cause.
"D. The closure of Ongsip's gas service was
made after due notice to pay his back accounts was given
and after a warning ofdisconnection.
"II. The decision of respondent court is contrary to settled
jurisprudence enunciated by this Honorable Supreme Court and is
unsupported by any evidence.
"A. Advice of counsel is a complete defense
against a suit for malicious prosecution.
"III. The decision of respondent court on the Second
Cause of Action of respondent Ongsip is based on a
misapprehension of facts.
"IV. Under the facts and the law, petitioner is not liable for moral
and exemplary damages.
"V. Assuming arguendo that the petitioner is liable for moral and
exemplary damages, the amount awarded by the trial court and
affirmed by the Court of Appeals are grossly, exorbitant as to call
for a review thereof" (pp. 22-23, rec.).
On December 13, 1976, this Court, after considerating the allegations, issues and
arguments adduced in the petition for review on certiorari of the
decision of the Court of Appeals, private respondent's comment thereon as well as
petitioner's reply to said comment, resolved to GIVE LIMITED DUE COURSE to the
petition as to whether or not the damages awarded by the trial court as affirmed by
the Court of Appeals per its decision of July 6, 1976 are excessive and should be
reduced and to TREAT the petition for review as a special civil action. prcd
WE are thus constricted to a single issue in this case: whether or not the
amount of moral and exemplary damages awarded by the trial court and affirmed by
the Court of Appeals is excessive.
Article 2217 of the Civil Code states 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." On the other hand, Article 2229 provides that
"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" (emphasis supplied).
The first cause of action, for which respondent Ongsip was awarded moral and
exemplary damages in the amount of P50,000.00 and P10,000.00, respectively, is
predicated on Article 2219 of the Civil Code which states that "moral damages may be
recovered in the following and analogous cases: . . . (8) malicious prosecution; . . . ."
To constitute malicious prosecution, there must be proof that the prosecution was
prompted by a siniter design to vex and humiliate a person 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 for prosecution does
not make one liable for malicious prosecution. (Salao vs. Salao, 70 SCRA 65 [March
16, 1976]; Ramos vs. Ramos, 61 SCRA 284 [December 3, 1974]; Solis &
Yarisantos vs. Salvador, 14 SCRA 887] [August 14, 1965]; Buenaventura, et al. vs. Sto.
Domingo, et al., 103 Phil. 239 [1958]; Barreto vs. Arevalo, 99 Phil. 771 [1956]).
In the instant case, however, there is reason to believe that there was malicious intent
in the filing of the complaint for qualified theft. This intent is traceable to that early
afternoon of August 17, 1966, when petitioner's employees, upon being ordered, came
to private respondent's residence and changed the defective gas meter and tube
connections without notice. In other words, respondent Ongsip had no opportunity to
observe the works. Nonetheless, if indeed he had installed an illegal by-pass tube or
jumper, he could have easily asked for its immediate removal soon alter his houseboy
told him what petitioner's employees did. As established by the facts, he had not even
attempted to refuse entrance to petitioner's employees headed by Mariano Coronel nor
to question their authority upon their return later that same afternoon with a
photographer. Little did he realize that the pictures of the premises that were being
taken would be used as evidence against him. Surprisingly, when respondent Ongsip
asked Coronel why they were taking pictures, Coronel just gave him a calling card and
instructed him to go to his office. It was quite an unusual gesture. Obviously, Coronel
had something in mind. As correctly observed by the trial court in its decision —
"A significant fact brought about by the testimony of Coronel
himself is the total absence of immediate accusation against
Plaintiff right at the very moment when the by-pass valve was
allegedly discovered. Right then and there Coronel should have
told Plaintiff that he was using a by-pass valve and in effect
stealing gas from Defendant. There would have been nothing
wrong with that. The circumstance was familiar to that of catching
a thief inflagrante delicto. But the truth is that when Coronel and
his men entered Plaintiff's compound and made changes therein,
Plaintiff was sleeping. He had no knowledge of what was then
going on. Coronel and his men told the 'boy' of Plaintiff that the
changes were being made so that the consumption ofgas could be
decreased. So that when Plaintiff woke up at four o'clock in the
afternoon, Coronel and his men had already made the changes
and had already gone. They returned however at five o'clock, this
time with a photographer. This was the time when Plaintiff met
Coronel. Here was then the opportunity for Coronel to confront
Plaintiff with the allegedly discovered 'by-pass valve' and bluntly,
even brutally, tell him that there was thievery ofgas. This, Coronel
did not do. . . . ."
It bears noting that when he was informed as to the existence of a 'jumper' in
his gas connection, respondent Ongsip did not show any sign of fear or remorse and
did not yield to the threatening demand of Coronel. Experience tells us that this is not
the attitude of a guilty person. On the contrary, this is the attitude of someone who
knows how to take a firm stand where his principles and rights are concerned. To prove
his innocence, he was even willing to have his place excavated but petitioner would not
dare take the consequences. Besides, Delfin Custodio, petitioner's own mechanical
engineer, testified that the second gas meter was replaced as being defective because
"some of its parts were worn out and that it was not properly registering."
Evidently, petitioner Manila Gas Corporation, in failing to recover its lost revenue
caused by the gas meter's incorrect recording, sought to vindicate its financial loss by
filing the complaint for qualified theft against respondent Ongsip knowing it to be false.
It was actually intended to vex and humiliate private respondent and to blacken his
reputation not only as a businessman but also as a person. Qualified theft is a serious
offense indicating moral depravity in an individual. To be accused of such crime without
basis is shocking and libelous. It stigmatized private respondent causing him emotional
depression and social degradation. Petitioner should have realized that what is
believed to be a vindication of a proprietary right is no justification for subjecting one's
name to indignity and dishonor. One can thus imagine the anguish, anxiety, shock and
humiliation suffered by respondent Ongsip. The fact that the complaint for qualified theft
was dismissed by the Pasay City fiscal is no consolation. The damage had been done.
Necessarily, indemnification had to be made.
The trial court awarded P50,000.00 as moral damages and P10,000.00 as exemplary
damages.
WE give due consideration to respondent Ongsip's social and financial status as a
businessman and the mental anguish he suffered as a result of the false imputation.
However, We also consider petitioner's financial capability. Petitioner is a public
utility corporation whose primary concern is service to the people, the profit motive
being merely secondary. Under the circumstances, We are of the opinion that the
award of moral and exemplary damages should be reduced to P25,000,00 and
P5,000.00, respectively. This award is sanctioned by Article 2234 of the Civil Code
which states that:
"When the amount of the exemplary damages need not be proved,
the 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. In case liquidated damages have been agreed upon,
although no proof of loss is necessary in order that such liquidated
damages may be recovered, nevertheless, before the court may
consider the question of granting exemplary in addition to the
liquidated damages, the plaintiff must show that he would be
entitled to moral, temperate or compensatory damages were it not
for the stipulation for liquidated damages" (emphasis supplied).
On the second cause of action which is based on the illegal
disconnection of respondent Ongsip's gas service constituting breach of contract, the
trial courtawarded P30,000.00 as moral damages and P5,000.00 as exemplary
damages. LLpr
Petitioner contends that the disconnection was on account of respondent Ongsip's
failure to pay his gas consumptions for more than three months. While private
respondent admits having accounts with petitioner, he denies having been notified
thereof or having received any warning of the disconnection. In determining the
propriety of the award, it is material to establish that prior notice or warning had been
given to respondent Ongsip before the gas service was disconnected, in accordance
with the terms of the contract. In this regard, We find the trial court's observation in its
decision to be well-founded, to quote:
 "Defendant would insist that the household helpers inside be pointed out that respondent Ongsip is an old man involved in a number of business
Plaintiff's premises refused to receive notices or to sign them. and social undertakings. It is quite natural and understandable that at times he forgets
Defendant has not given the Court any plausible reason why these some minor obligations and details of his concern. This is the time when reminders and
persons would refuse to receive, or sign for, notices of demands friendly notices become indispensable. The rudiments of procedural due process
for payments or warnings of threatened disconnection of the dictate that he should have been notified of any back accounts. In the past, respondent
service. The very evidence of Defendants indicates that Plaintiff Ongsip had not been remiss in the payment of his bills. Petitioner should have at least
had long been a customer of Defendant. Plaintiff has been paying accorded him the courtesy, if not the right, as per contract, of being notified before
his bills. Plaintiff had not suffered any financial reverses. As a effecting disconnection so that he could take steps or initiate measures to avoid such
matter of fact, upon the suggestion of the Court, Plaintiff readily embarrassment. Apparently, such misconduct or omission on the part of petitioner
made payment of his account with Defendant. He made payment formed part of a malevolent scheme to harass and humiliate private respondent,
not because the service would be restored. When he made the exposing him to further ignominy and greater mental torture. Respondent Ongsip's
payment the Court had already issued a mandatory preliminary default in payment cannot be utilized by petitioner to defeat or nullify the claim for
injunction, ordering Defendant to restore gas service in the damages. At most, this circumstance can be considered as a mitigating factor in
premises of Plaintiff. Plaintiff made the payment to comply with the ascertaining the amount ofdamages to which respondent Ongsip is entitled. In
suggestion of the Court because the Court rather than enforce its consequence thereof, We reduce the amount of moral damages to P15,000.00. The
order, would like the parties to settle the case amicably. award of P5,000.00 as exemplary damages, on the other hand, is sustained, being
similarly warranted by Article 2234 of the Civil Code aforequoted as complemented by
"What is peculiar in the stand of Defendant is that while it would Article 2220.
insist on the giving of notices and warnings, it did not have any
competent and sufficient evidence to prove the same. Demands in The award of attorney's fees in the amount of P10,000.00 is justified under the
open were made by Plaintiff's counsel whether Defendant could circumstances. prcd
show any written evidence showing that notices and warnings
were sent to Plaintiff. Not a single piece of evidence was WHEREFORE, PETITIONER MANILA GAS CORPORATION IS HEREBY DIRECTED
produced. Normally, if a notice is refused, then the original and its TO PAY.
copies would still be in the hands of the public utility concerned. In
(1) RESPONDENT ISIDRO M. ONGSIP P25,000.00 AS MORAL DAMAGES AND
the instant case, it has to be repeated, not a single copy, original
P5,000.00 AS EXEMPLARY DAMAGES FOR THE FIRST CAUSE OF ACTION,
or duplicate, triplicate, etc. of any notice to pay or
P15,000.00 AS MORAL DAMAGES AND P5,000.00 AS EXEMPLARY DAMAGES
warning of disconnection was produced in court. The court cannot
FOR THE SECOND CAUSE OF ACTION, AND P10,000.00 AS ATTORNEY'S FEES;
believe that Defendant, as what the testimonies of its witnesses
AND
would like to impress upon this Court, conducts its business that
way. Defendant is a big business concern and it cannot be said (2) THE COSTS.
that it treats its business as a joke. Its personnel should realize
this, for only with such an awareness can they respond faithfully to MODIFIED AS ABOVE STATED, THE
their responsibilities as members of a big business enterprise DECISION OF RESPONDENT COURT OF APPEALS IS HEREBY AFFIRMED IN
imbued with public interest over which the Philippine Government ALL OTHER RESPECTS.
is concerned."
SO ORDERED.
Quite obviously, petitioner's act in disconnecting respondent Ongsip's gas service
without prior notice constitutes breach of contract amounting to an independent tort. ||| (Manila Gas Corp. v. Court of Appeals, G.R. No. L-44190, [October 30, 1980], 188
The prematurity of the action is indicative of an intent to cause additional mental and PHIL 582-597)
moral suffering to private respondent. This is a clear violation of Article 21 of the Civil
Code which provides that "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 damages." This is reiterated by paragraph 10 of Article 2219 of the Code.
Moreover, the award of moral damages is sanctioned by Article 2220 which provides
that "willful injury to property may be a legal ground for awarding moral damages if
the courtshould 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" (emphasis supplied).
WE are not unmindful of the fact that at the time the gas service was disconnected,
respondent Ongsip admitted having been in default of at least three months' bills. WE
have established however that no notice to that effect has been served on him. It must
 9. California Clothing Inc v. Quiñones GR No. 175822
[G.R. No. 175822. October 23, 2013.]
CALIFORNIA CLOTHING, INC. and MICHELLE S.
YBAÑEZ, petitioners, vs. SHIRLEY G. QUIÑONES, respondent.
DECISION
PERALTA, J p:
Assailed in this petition for review on certiorari under Rule 45 of the Rules of
Court are the Court of Appeals Decision 1 dated August 3, 2006 and
Resolution 2 dated November 14, 2006 in CA-G.R. CV No. 80309. The assailed
decision reversed and set aside the June 20, 2003 Decision 3 of the Regional Trial
Court of Cebu City (RTC), Branch 58, in Civil Case No. CEB-26984; while the assailed
resolution denied the motion for reconsideration filed by petitioner Michelle Ybañez
(Ybañez).
The facts of the case, as culled from the records, are as follows:
On July 25, 2001, respondent Shirley G. Quiñones, a Reservation Ticketing
Agent of Cebu Pacific Air in Lapu Lapu City, went inside the Guess USA Boutique at
the second floor of Robinson's Department Store (Robinson's) in Cebu City. She fitted
four items: two jeans, a blouse and a shorts, then decided to purchase the black jeans
worth P2,098.00. 4 Respondent allegedly paid to the cashier evidenced by a
receipt 5 issued by the store. 6 While she was walking through the skywalk connecting
Robinson's and Mercury Drug Store (Mercury) where she was heading next, a Guess
employee approached and informed her that she failed to pay the item she got. She,
however, insisted that she paid and showed the employee the receipt issued in her
favor. 7 She then suggested that they talk about it at the Cebu Pacific Office located at
the basement of the mall. She first went to Mercury then met the Guess employees as
agreed upon. 8 AaSCTD
When she arrived at the Cebu Pacific Office, the Guess employees allegedly
subjected her to humiliation in front of the clients of Cebu Pacific and repeatedly
demanded payment for the black jeans. 9 They supposedly even searched her wallet
to check how much money she had, followed by another argument. Respondent,
thereafter, went home. 10
On the same day, the Guess employees allegedly gave a letter to the Director
of Cebu Pacific Air narrating the incident, but the latter refused to receive it as it did not
concern the office and the same took place while respondent was off duty. 11 Another
letter was allegedly prepared and was supposed to be sent to the Cebu Pacific Office
in Robinson's, but the latter again refused to receive it. 12 Respondent also claimed
that the Human Resource Department (HRD) of Robinson's was furnished said letter
and the latter in fact conducted an investigation for purposes of canceling respondent's
Robinson's credit card. Respondent further claimed that she was not given a copy of
said damaging letter. 13 With the above experience, respondent claimed to have
suffered physical anxiety, sleepless nights, mental anguish, fright, serious
apprehension, besmirched reputation, moral shock and social humiliation. 14 She thus
filed the Complaint for Damages 15 before the RTC against petitioners California
Clothing, Inc. (California Clothing), Excelsis Villagonzalo (Villagonzalo), Imelda
Hawayon (Hawayon) and Ybañez. She demanded the payment of moral, nominal, and
exemplary damages, plus attorney's fees and litigation expenses. 16 HSDaTC
In their Answer, 17 petitioners and the other defendants admitted the
issuance of the receipt of payment. They claimed, however, that instead of the cashier
(Hawayon) issuing the official receipt, it was the invoicer (Villagonzalo) who did it
manually. They explained that there was miscommunication between the employees
at that time because prior to the issuance of the receipt, Villagonzalo asked
Hawayon "Ok na?," and the latter replied "Ok na," which the former believed to mean
that the item has already been paid. 18 Realizing the mistake, Villagonzalo rushed
outside to look for respondent and when he saw the latter, he invited her to go back to
the shop to make clarifications as to whether or not payment was indeed made. Instead,
however, of going back to the shop, respondent suggested that they meet at the Cebu
Pacific Office. Villagonzalo, Hawayon and Ybañez thus went to the agreed venue
where they talked to respondent. 19 They pointed out that it appeared in their
conversation that respondent could not recall whom she gave the payment. 20 They
emphasized that they were gentle and polite in talking to respondent and it was the
latter who was arrogant in answering their questions. 21 As counterclaim, petitioners
and the other defendants sought the payment of moral and exemplary damages, plus
attorney's fees and litigation expenses. 22 EcAHDT
On June 20, 2003, the RTC rendered a Decision dismissing both the
complaint and counterclaim of the parties. From the evidence presented, the trial court
concluded that the petitioners and the other defendants believed in good faith that
respondent failed to make payment. Considering that no motive to fabricate a lie could
be attributed to the Guess employees, the court held that when they demanded
payment from respondent, they merely exercised a right under the honest belief that
no payment was made. The RTC likewise did not find it damaging for respondent when
the confrontation took place in front of Cebu Pacific clients, because it was respondent
herself who put herself in that situation by choosing the venue for discussion. As to the
letter sent to Cebu Pacific Air, the trial court also did not take it against the Guess
employees, because they merely asked for assistance and not to embarrass or
humiliate respondent. In other words, the RTC found no evidence to prove bad faith on
the part of the Guess employees to warrant the award of damages. 23
On appeal, the CA reversed and set aside the RTC decision, the dispositive
portion of which reads:
WHEREFORE, the instant appeal is GRANTED. The
decision of the Regional Trial Court of Cebu City, Branch 58, in
Civil Case No. CEB-26984 (for: Damages) is hereby REVERSED
and SET ASIDE. Defendants Michelle Ybañez and California
Clothing, Inc. are hereby ordered to pay plaintiff-appellant Shirley
G. Quiñones jointly and solidarily moral damages in the amount of
Fifty Thousand Pesos (P50,000.00) and attorney's fees in the
amount of Twenty Thousand Pesos (P20,000.00).
SO ORDERED. 24 IDSETA
 While agreeing with the trial court that the Guess employees were in good
faith when they confronted respondent inside the Cebu Pacific Office about the alleged
non-payment, the CA, however, found preponderance of evidence showing that they
acted in bad faith in sending the demand letter to respondent's employer. It found
respondent's possession of both the official receipt and the subject black jeans as
evidence of payment. 25 Contrary to the findings of the RTC, the CA opined that the
letter addressed to Cebu Pacific's director was sent to respondent's employer not
merely to ask for assistance for the collection of the disputed payment but to subject
her to ridicule, humiliation and similar injury such that she would be pressured to
pay. 26 Considering that Guess already started its investigation on the incident, there
was a taint of bad faith and malice when it dragged respondent's employer who was
not privy to the transaction. This is especially true in this case since the purported letter
contained not only a narrative of the incident but accusations as to the alleged acts of
respondent in trying to evade payment. 27 The appellate court thus held that petitioners
are guilty of abuse of right entitling respondent to collect moral damages and attorney's
fees. Petitioner California Clothing, Inc. was made liable for its failure to exercise
extraordinary diligence in the hiring and selection of its employees; while Ybañez's
liability stemmed from her act of signing the demand letter sent to respondent's
employer. In view of Hawayon and Villagonzalo's good faith, however, they were
exonerated from liability. 28
Ybañez moved for the reconsideration 29 of the aforesaid decision, but the
same was denied in the assailed November 14, 2006 CA Resolution.
Petitioners now come before the Court in this petition for review
on certiorari under Rule 45 of the Rules of Court based on the following grounds:
I.
THE HONORABLE COURT OF APPEALS ERRED IN FINDING
THAT THE LETTER SENT TO THE CEBU PACIFIC OFFICE
WAS MADE TO SUBJECT HEREIN RESPONDENT TO
RIDICULE, HUMILIATION AND SIMILAR INJURY.
II.
THE HONORABLE COURT OF APPEALS ERRED IN
AWARDING MORAL DAMAGES AND ATTORNEY'S FEES. 30
The petition is without merit. AEIcSa
Respondent's complaint against petitioners stemmed from the principle of
abuse of rights provided for in the Civil Code on the chapter of human relations.
Respondent cried foul when petitioners allegedly embarrassed her when they insisted
that she did not pay for the black jeans she purchased from their shop despite the
evidence of payment which is the official receipt issued by the shop. The issuance of
the receipt notwithstanding, petitioners had the right to verify from respondent whether
she indeed made payment if they had reason to believe that she did not. However, the
exercise of such right is not without limitations. Any abuse in the exercise of such right
and in the performance of duty causing damage or injury to another is actionable under
the Civil Code. The Court's pronouncement in Carpio v. Valmonte 31 is noteworthy:
In the sphere of our law on human relations, the victim of
a wrongful act or omission, whether done willfully or negligently, is
not left without any remedy or recourse to obtain relief for the
damage or injury he sustained. Incorporated into our civil law are
not only principles of equity but also universal moral precepts
which are designed to indicate certain norms that spring from the
fountain of good conscience and which are meant to serve as
guides for human conduct. First of these fundamental precepts is
the principle commonly known as "abuse of rights" under Article
19 of the Civil Code.It 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 aHDTAI
The elements of abuse of rights are as follows: (1) there is a legal right or duty; (2)
which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring
another. 33
In this case, petitioners claimed that there was a miscommunication between
the cashier and the invoicer leading to the erroneous issuance of the receipt to
respondent. When they realized the mistake, they made a cash count and discovered
that the amount which is equivalent to the price of the black jeans was missing. They,
thus, concluded that it was respondent who failed to make such payment. It was,
therefore, within their right to verify from respondent whether she indeed paid or not
and collect from her if she did not. However, the question now is whether such right
was exercised in good faith or they went overboard giving respondent a cause of action
against them.
Under the abuse of rights principle found in Article 19 of the Civil Code, a
person must, in the exercise of legal right or duty, act in good faith. He would be liable
if he instead acted in bad faith, with intent to prejudice another. 34 Good faith refers to
the state of mind which is manifested by the acts of the individual concerned. It consists
of the intention to abstain from taking an unconscionable and unscrupulous advantage
of another. 35 Malice or bad faith, on the other hand, implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral
obliquity. 36 DSHcTC
Initially, there was nothing wrong with petitioners asking respondent whether
she paid or not. The Guess employees were able to talk to respondent at the Cebu
Pacific Office. The confrontation started well, but it eventually turned sour when voices
were raised by both parties. As aptly held by both the RTC and the CA, such was the
natural consequence of two parties with conflicting views insisting on their respective
beliefs. Considering, however, that respondent was in possession of the item
purchased from the shop, together with the official receipt of payment issued by
petitioners, the latter cannot insist that no such payment was made on the basis of a
mere speculation. Their claim should have been proven by substantial evidence in the
proper forum.
It is evident from the circumstances of the case that petitioners went
overboard and tried to force respondent to pay the amount they were demanding. In
the guise of asking for assistance, petitioners even sent a demand letter to respondent's
employer not only informing it of the incident but obviously imputing bad acts on the
part of respondent. Petitioners claimed that after receiving the receipt of payment and
the item purchased, respondent "was noted to hurriedly left (sic) the store." They also
accused respondent that she was not completely being honest when she was asked moral shock, social humiliation and similar injury in the cases specified or analogous to
about the circumstances of payment, thus: those provided in Article 2219 of theCivil Code.41 Moral damages are not a bonanza.
They are given to ease the defendant's grief and suffering. They should, thus,
. . . After receiving the OR and the item, Ms. Gutierrez was noted reasonably approximate the extent of hurt caused and the gravity of the wrong
to hurriedly left (sic) the store. . . . done. 42 They are awarded not to enrich the complainant but to enable the latter to
obtain means, diversions, or amusements that will serve to alleviate the moral suffering
When I asked her about to whom she gave the money, she gave
he has undergone. 43 We find that the amount of P50,000.00 as moral damages
out a blank expression and told me, "I can't remember." Then I
awarded by the CA is reasonable under the circumstances. Considering that
asked her how much money she gave, she answered, "P2,100;
2 pcs 1,000 and 1 pc 100 bill." Then I told her that that respondent was compelled to litigate to protect her interest, attorney's fees in the
amount of P20,000.00 is likewise just and proper.
would (sic) impossible since we have no such denomination in
our cash fund at that moment. Finally, I asked her if how much WHEREFORE, premises considered, the petition is DENIED for lack of merit.
change and if she received change from the cashier, she then The Court of Appeals Decision dated August 3, 2006 and Resolution dated November
answered, "I don't remember." After asking these simple 14, 2006 in CA-G.R. CV No. 80309, are AFFIRMED.
questions, I am very certain that she is not completely being
honest about this. In fact, we invited [her] to come to our SO ORDERED.
boutique to clear these matters but she vehemently refused
saying that she's in a hurry and very busy. 37 ECTSDa ||| (California Clothing, Inc. v. Quiñones, G.R. No. 175822, [October 23, 2013], 720
PHIL 373-384)
Clearly, these statements are outrightly accusatory. Petitioners accused
respondent that not only did she fail to pay for the jeans she purchased but that she
deliberately took the same without paying for it and later hurriedly left the shop to evade
payment. These accusations were made despite the issuance of the receipt of payment
and the release of the item purchased. There was, likewise, no showing that
respondent had the intention to evade payment. Contrary to petitioners' claim,
respondent was not in a rush in leaving the shop or the mall. This is evidenced by the
fact that the Guess employees did not have a hard time looking for her when they
realized the supposed non-payment.
It can be inferred from the foregoing that in sending the demand letter to
respondent's employer, petitioners intended not only to ask for assistance in collecting
the disputed amount but to tarnish respondent's reputation in the eyes of her employer.
To malign respondent without substantial evidence and despite the latter's possession
of enough evidence in her favor, is clearly impermissible. A person should not use his
right unjustly or contrary to honesty and good faith, otherwise, he opens himself to
liability. 38 The exercise of a right must be in accordance with the purpose for which it
was established and must not be excessive or unduly harsh. 39 In this case, petitioners
obviously abused their rights.
Complementing the principle of abuse of rights are the provisions of Articles
20 and 21 of the Civil Code which read: 40 SEDIaH
Article 20. Every person who, contrary to law, willfully or
negligently causes damage to another, shall indemnify the latter
for the same.
Article 21. Any person who willfully causes loss or injury
to another in a manner that is contrary to morals or good customs,
or public policy shall compensate the latter for the damage.
In view of the foregoing, respondent is entitled to an award of moral damages
and attorney's fees. Moral damages may be awarded whenever the defendant's
wrongful act or omission is the proximate cause of the plaintiff's physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,