PFR Human Relations Cases

1

[No. L-7817. October 31, 1956]

ALFREDO M. VELAYO, in his capacity as. Assignee of the

insolvent COMMERCIAL AIR LINES, INC. (CALI), plaintiff

and appellant, vs.SHELL COMPANY OF THE PHILIP-

187 VOL. 100, OCTOBER

31, 1956

187

Velayo, etc. vs. Shell Co., of

the Phils., et al.

PINE ISLANDS, LTD., defendant and appellee, ALFONSO

SYCIP, YEK HUA TRADING CORPORATION, PAUL

SYCIP and MABASA & Co., intervenors.

1. 1.INSOLVENCY;PREFERENCE OF CREDITS; A

CREDITOR’S TRANSFER OF CREDIT TO ANOTHER

WITHOUT KNOWLEDGE OF OTHER CREDITORS OF

INSOLVENT.—A creditor’s transfer of assignment of its

credit to another without the knowledge and at the back of

other creditors of the insolvent may be a shrewd and

surprise move that enables the transferor creditor to

collect almost if not the entire amount of its credit, but the

Courts of Justice cannot countenance such attitude at all,

and much less from a foreign corporation to the detriment

of the Government and local business.

1. 2.ID.; POWERS AND DUTIES OF ASSIGNEE.—In

accordance with the spirit of the Insolvency Law and with

the provisions of Chapter V thereof which deal with the

powers and duties of a receiver, the assignee represents

the insolvent as well as the creditors in voluntary and

involuntary proceedings.

1. 3.ID.; CREDITOR’S LIABILITY IN ASSIGNING ITS

CREDIT TO ANOTHER;KNOWLEDGE OF THE

IMPENDING INSOLVENCY PROCEEDINGS OF

DEBTOR.—Where a creditor taking advantage of his

knowledge that insolvency proceedings were to be

instituted by C if the creditors did not come to an

understanding as to the manner of distribution of the

insolvent assets among them, and believing it most

probable that they would not arrive at such understanding

as if really the case schemed and affected the transfer of

its credits to its sister corporation in the United States,

where C’s plane C-54 was and by that swift and

unsuspected operation efficaciously disposed of said

insolvent’s property depriving the latter and the assignee

that was later appointed, of the opportunity to recover said

plane, said creditor acted in bad faith and betrayed the

confidence and trust of the other creditors of the insolvent

for which it is held liable in accordance with pertinent

provisions of the Civil Code.

1. 4.ID.; ID.; SECTION 37 OF INSOLVENCY LAW NOT

APPLICABLE.—The provision of section 37 of the

Insolvency Law making the person coming within its

purview liable for double the value of the property sought

to be disposed of constitúte a sort of penal clause Which

shall be strictly construed, and since the same result may

be obtained by applying only the provisions of the Civil

Code, the said provisions of the insolvency law is not

applicable to a creditor disposing its own credit and not

the insolvent’s property.

188 188 PHILIPPINE REPORTS

ANNOTATED


the Phils., et al.

APPEAL from a judgment of the Court of First Instance of

Manila. Ocampo, J.

2

The facts are stated in the opinion of the Court.

Sycip, Quisumbing, Salazar & Associates for appellant.

Ozaeta, Lichauco & Picazofor appellee.

FELIX, J.:

Antecedents—The Commercial Air Lines, Inc., which will be

hereinafter referred to as CALI, is a corporation duly

organized and existing in accordance with the Philippines

laws, with offices in the City of Manila and previously

engaged in air transportation business. The Shell Company

of the P.I., Ltd., which will be designated as the defendant, is

on the other hand, a corporation organized under the laws of

England and duly licensed to do business in the Philippines,

with principal offices at the Hongkong and Shanghai Bank

building in the City of Manila.

Since the start of CALI’s operations, its fuel needs were all

supplied by the defendant. Mr. Desmond Fitzgerald, its

Credit Manager who extended credit to CALI, was in charge

of the collection thereof. However, all matters referring to

extensions of the term of payment had to be decided first by

Mr. Stephen Crawford and later by Mr. Wildred Wooding,

who represented in this country Defendant’s Board of

Directors, the residence of which is in London, England

(Exhs. 4—B and 4-A).

As of August, 1948, the books, of the Defendant showed a

balance of P170,162.58 in its favor for goods it sold and

delivered to CALI. Even before August 6, 1948, Defendant

had reasons to believe that the financial condition of the

CALI was for from being satisfactory. As a matter of fact,

according to Mr. Fitzgerald, CALI’s Douglas C-54 plane, then

in California, was offered to him by Mr. Alfonso Sycip, CALI’s

President of the Board of Directors, in partial settlement of

their accounts, which offer was, however, declined by Mr.

Crawford, probably because upon inquiries made by Mr.

Fitzgerald sometime before


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the Phils., et al.

August 6, 1948, for the purpose of preparing the report for its

London office regarding CALI’s indebtedness, Col. Lambert,

CALI’s Vice President and General Manager, answered that

the total outstanding liabilities of his corporation was only

P550,000, and the management of Defendant probably

assumed that the assets of the CALI could very well meet

said liabilities and were not included to take charge of the

sale of CALI’s said Douglas C-54 plane to collect its credit.

On August 6, 1948, the management of CALI informally

convened its principal creditors (excepting only the

insignificant small claims) who were invited to a luncheon

that was held between 12:00 and 2:00 o’clock in the afternoon

of that day in the Trade and Commerce Building at 123 Juan

Luna St., Manila, and informed them that CALI was in a

state of insolvency and had to stop operation. The creditors

present, or represented at the meeting, were: Mr. A.L.

Bartolini, representing Firestone Tire & Rubber Co.; Mr.

Quintin Yu, representing Commercial News; Mr. Mark

Pringle, representing Smith, Bell & Co. (Lloyds of London) ;

Messrs. Vicente Liwag, C. Dominguez and Pacifico Agcaoili,

representing National Airports Corporation; Messrs. W.J.

Bunnel and Manuel Chan, representing Goodrich

International Rubber Co.; Mr. G.E. Adair, representing

Goodyear Tire & Rubber Co.; Mr. J.T. Chuidian, representing

Gibbs, Gibbs, Chuidian & Quasha; Mr. E. Valera,

representing Mabasa & Co.; Mr. D. Fitzgerald, representing

Shell Co. P.I. Ltd.; and Mr. Alfonso Z. Sycip, representing

himself, Yek Hua Trading Corporation and Paul Sycip (Exhs.

3

NN, JJJ, MM, QQQ, II-4, SS, TT, UU, VV, WW, XX, YY, ZZ,

AAA, BBB, CCC, DDD, EEE, FFF, GGG, and HHH).

The persons present, including Mr. Desmond Fitzgerald,

signed their names and the names of the companies they

represented on a memorandum pad of the law firm

Quisumbing, Sycip, and Quisumbing (Exhs. VV and VV-1).

In that meeting at noontime of August 6, 1948, out of


ANNOTATED


the Phils., et al.

the 194 creditors in all (Exh. 00) 15 were listed as principal

creditors having big balances (Exh. NN), to wit:

13th Air Force

.......................................................................................................

P12,880.00

Civil Aeronautics Administration

...........................................................................

98,127.00

Gibbs, Giibs, Chuidian & Quasha

.............................................................................

5,544.90

Goodrich Int’l Rubber Co

........................................................................................

3,142.47

Goodyear Tire & Rubber Co

...................................................................................

1,727.50

Mabasa & Co

.........................................................................................................

4,867.72

Manila Int’l Airport

...............................................................................................

55,280.04

Manila Int’l Air Terminal (PAL)

...........................................................................

36,163.68

Shell Co. of the Phil., Ltd

.....................................................................................

152,641.68

Smith, Bell & Co., Ltd

..........................................................................................

45,534.00

Paul Sycip 8,189.33

..............................................................................................................

Mrs. Buenaventura

.................................................................................................

20,000.00

Firestone Tire & Rubber Co

...................................................................................

4,911.72

Alfonso Sycip

........................................................................................................

575,880.83

Yek Hua Trading Corp

...........................................................................................

487,871.20

P1,512,762.87

What occurred in that meeting may be summarized as

follows: Mr. Alexander Sycip, Secretary of the Board of

Directors of the CALI, informed the creditors present that

this corporation was insolvent and had to stop operations. He

explained the memorandum agreement executed by the CALI

with the Philippine Air Lines, Inc., on August 4, 1948,

regarding the proposed sale to the latter of the aviation

equipments of the former (Exhs. MM and QQQ, par. 1—

memo of meeting; Exhs. III and PPP—P. Agcaoili’s

memorandum dated August 7, 1948, to the General Manager

of the National Airports Corp.). Mr. Alexander Sycip was

assisted in the explanation by CPA Alfredo Velayo of

Washington, Sycip & Company, Auditors of the CALI, who

discussed the balance sheets and distributed copies thereof to

the creditors present (Exhs. NN, NN-1 to 7; Exh. JJ—P.

Agcaoili’s copy of balance sheet p. 229–230 t.s.n., Nov. 27,

1951, of the testimony of D. Fitzgerald). The said balance

sheet made mention of a C54 plane in the United States, the

property now involved in this suit. He was likewise assisted

in his explanation


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the Phils., et al.

4

by Mr. Curtis L. Lambert, Vice President and General

Manager of the CALI, who described in greater detail the

assets of the CALI. There was a general understanding

among all the creditors present on the desirability of

consummating the sale in favor of the Philippine Air Lines

Inc. (Exhs. MM and QQQ, par. 2-Memo of meeting; Exhs. III

and PPP, par. 5—P. Agcoaili’s memorandum dated August 7,

1948, to the General Manager of the National Airports Corp.;

and pp. 299–300 t.s.n., January 15, 1952, of the testimony of

Desmond Fitzgerald).

Then ex ollowed a discussion on the payment of claims of

creditors and the preferences claimed for the accounts due to

the employees, the Government and the National Airports

Corporation. The representatives of the latter Messrs.

Vicente H. Liwag, C. Dominguez and Pacifico V. Agcaoili,

contended that their accounts were preferred. The other

creditors disputed such contention of preference (Exhs. MM

and QQQ, par. 3—Memo of meeting; Exhs. III and PPP, par.

3—P. Agcaoili’s memorandum dated August 1, 1948, to the

General Manager of the National Airports Corp.; and pp.

247–248 t.s.n., January 10, 1952, of the testimony of D.

Fitzgerald). No understanding was reached on this point and

it was then generally agreed that the matter of preference be

further studied by a working committee to be formed (Exhs.

MM, par. 3—Memo of meeting). The creditors present agreed

to the formation of a working committee to continue the

discussion of the payment of claims and preferences alleged

by certain creditors, and it was further agreed that said

working committee would supervise the preservation of the

properties of the corporation while the creditors attempted to

come to an understanding as to a fair distribution of the

assets among them (Exhs. MM and QQQ, Memo of meeting).

From the latter exhibit the following is copied:

1. “4.Certain specific matters such as the amount owing to the

Philippine Air Lines, Inc., and the claims of Smith, Bell &

Co., (repre


ANNOTATED


the Phils., et al

1. senting Lloyds of London) that its claim should be offset

against the payments which may be due to CALI from

insurance claims were not taken up in detail. It was

agreed that these matters together with the general

question of what are preferred claims should be the

subject of further discussions, but shall not interfere with

the consummation of the sale in favor of PAL.

2. “5.The creditors present agreed to the formation of the

working committee to supervise the preservation of the

properties of the corporation and agreed further that Mr.

Fitzgerald shall represent the creditors as a whole in this

committee. It was understood, however, that all questions

relating to preference of claims can be decided only by the

creditors assembled.

3. “6.It was the sense of the persons present that, If possible,

the insolvency court be avoided but that should the

creditors not meet in agreement, then all the profits from

the sale will be submitted to an insolvency court for proper

division among the creditors.”

To this working committee, Mr. Desmond Fitzgerald, Credit

Manager, of the Defendant, Atty. Agcaoili of the National

Airports Corporation and Atty. Alexander Sycip (Exhs. III

and PPP, par. 5—P. Agcaoili’s memorandum dated August 7,

1948, to the General Manager of the National Airports

5

(Corp.) were appointed. After the creditors present knew the

balance sheet and heard the explanations of the officers of

the CALI, it was their unanimous opinion that it would be

advantageous not to present suits against this corporation

but to strive for a fair pro-rata division of its assets (Exh.

MM, par 6, Memo of meeting), although the management of

the CALI announced that in case of non-agreement of the

creditors on a pro-rata division of the assets, it would file

insolvency proceedings (p. 70, t.s.n., October 22, 1951).

Mr. Fitzgerald did not decline the nomination to form part

of said working committee and on August 9, 1948, the 3

members thereof discussed methods of achieving the

objectives of the committee as decided at the creditors’

meeting, which were to preserve the assets of the CALI and

to study the way of making a fair division of all the assets

among the creditors. Atty. Sycip made an offer to Mr. D.

Fitzgerald to name a representative to oversee the

preservation of the assets of the CALI, but Mr.


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the Phils., et al.

Fitzgerald replied that the creditors could rely on Col.

Lambert. Atty. Pacifico Agcaoili promised to refer the

arguments adduced at the second meeting to the General

Manager of the National Airports Corporations and to obtain

the advice of the Corporate Counsel, so the negotiation with

respect to the division of assets of the CALI among the

creditors was left pending or under advice when on that very

day of the meeting of the working committee, August 9, 1948,

which Mr. Fitzgerald attended, Defendant effected

a telegraphic transfer of its credit against the CALI to the

American corporation Shell Oil Company, Inc., assigning its

credit, amounting to $79,440.00, which was subsequently

followed by a deed of assignment of credit dated August 10,

1948, the credit amounting this time to the sum of

$85,081.29 (Exh. I).

On August 12, 1948, the American corporation Shell Oil

Company, Inc., filed a complaint against the CALI in the

Superior Court of the State of California, U.S.A. in and for

the County of San Bernardino, for the collection of an

assigned credit of $79,440.00—Case No. 62576 of said Court

(Exhs. A, E, F, G, H, V, and Z) and a writ of attachment was

applied for and issued on the same date against a C-54 plane

(Exhs. B, C, D, Y, W, X, and X-1).

On September 17, 1948, an amended complaint was filed

to recover an assigned credit of $85,081.29 (Exhs. I, K, L, M,

Q, R, S, T, U, DD) and a supplemental attachment for a

higher sum was applied for and issued against the C-54

plane, plus miscellaneous personal properties held by Pacific

Overseas Air Lines for the CALI (Exhs. N, O, P, AA, BB, BB-

1 and CC) and onJanuary 5, 1949, a judgment by default was

entered by the American court (Exhs. J, EE, FF, GG, and

HH).

Unaware of Dedendant’s assignments of credit and

attachment suit, the stockholders of CALI resolved in a

special meeting of August 12, 1948, to approve the

memorandum agreement of sale to the Philippine Air Lines,

Inc. and noted “that the Board had been trying to reach


ANNOTATED


the Phils., et al.

an agreement with the creditors of the corporation to prevent

insolvency proceedings, but so ex ar no definite agreement

had been reached” (Exh. OO—Minutes of August 12, 1948,

stockholders’ meeting).

6

By the first week of September, 1948, the National

Airports Corporation learned of Defendant’s action in the

United States and hastened to file its own complaint with

attachment against the CALI in the Court of First Instance

of Manila (Exhs. KKK, LLL, and MMM). The CALI, also

prompted by Defendant’s action in getting the alleged undue

preference over the other creditors by attaching the C-54

plane in the United States, beyond the jurisdiction of the

Philippines, filed on October 7, 1948, a petition for voluntary

insolvency. On this date, an order of insolvency was issued by

the court (Exh. JJ) which necessarily stayed the National

Airports Corporation’s action against the CALI and dissolved

its attachment (Exh. NNN), thus compelling the National

Airports Corporation to file its claims with the insolvency

court (Exh. SS).

By order of October 28, 1948, the Court confirmed the

appointment of Mr. Alfredo M. Velayo, who was unanimously

elected by the creditors as Assignee in the proceedings, and

ordered him to qualify as such by taking the oath of office

within 5 days from notice and filing a bond in the sum of

P30,000.00 to be approved by the Court conditioned upon the

faithful performance of his duties, and providing further that

all funds that the Assignee may collect or receive from the

debtors of the corporation, or from any other source or

sources, be deposited in a local bank (Exh. KK). OnNovember

3, 1948, the clerk of court executed a deed of conveyance in

favor of the Assignee (Alfredo M. Velayo) over all the assets

of the CALI (Exh. LL).

The Case.—After properly qualifying as Assignee, Alfredo

M. Velayo instituted this case (No. 6966 of the Court of First

Instance of Manila) on December 17, 1948, against the Shell

Company of P.I., Ltd., for the purpose of secur-


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the Phils., et al.

ing from the Court a writ of injunction restraining

Defendant, its agents, servants, attorneys and solicitors from

prosecuting in and for the County of San Bernardino in the

Superior Court of the State of California, U.S.A. the

aforementioned Civil Case No. 62576 against the insolvent

Commercial Air Lines, Inc., begun by it in the name of the

American corporation Shell Oil Company, Inc., and as an

alternative remedy, in case the purported assignment of

Defendant’s alleged credit to the American corporation Shell

Oil Company, Inc., and the attachment issued against CALI

in the said Superior Court of California shall have the effect

of defeating the procurement by plaintiff as Assignee in

insolvency of the above-mentioned airplane, which is the

property of the insolvent CALI, situated in the Ontario

International Airport, within the County of San Bernardino,

State of California, U.S.A., that judgment for damages in

double the value of the airplane be awarded in favor of

plaintiff against Defendant, with costs.

The complaint further prays that upon the filing of a bond

executed to the Defendant in an amount to be fixed by the

Court, to the effect that plaintiff will pay to Defendant all

damages the latter may sustain by reason of the injunction if

the Court should finally decide that the plaintiff was not

entitled thereto, the Court issued a writ of preliminary

injunction enjoining the Defendant, its agent, servants,

attorney’s and solicitor, from prosecuting the aforementioned

case No. 62576, the same writ of preliminary injunction to

issue without notice to the Defendant it appearing by verified

complaint that the great irreparable injury will result to the

plaintiff-appellant before the matter could be on notice. The

plaintiff also prays for such other remedies that the Court

may deem proper in the premises.

7

On December 20, 1948, the Defendant filed an opposition

to the plaintiff’s petition for the issuance of a writ of the

preliminary injunction, and on December 22, 1948,


ANNOTATED


the Phils., et al.

the Court denied the same because whether the conveyance

of Defendant’s credit was fraudulent or not, the Philippine

court would not be in position to enforce its orders as against

the American corporation Shell Oil Company, Inc., which is

outside of the jurisdiction of the Philippines.

Plaintiff having failed to restrain the progress of the

attachment suit in the United States by denial of his

application for a writ of preliminary injunction and the

consequences on execution of the C-54 plane in the County of

San Bernardino, State of California’, U.S. A., he confines his

action to the recovery of damages against the Defendant.

On December 28, 1948, Defendant filed its answer to the

complaint, which was amended on February 3, 1949. In its

answer, Defendant, besides denying certain averments of the

complaint alleged, among other reasons, that the assignment

of its credit in favor of the Shell Oil Company, Inc., in the

United States was for a valuable considertation and made in

accordance with the established commercial practices, there

being no law prohibiting a creditor from assigning his credit

to another; that it had no interest whatsoever in Civil Case

No. 62576 instituted in the Superior Court in the State of

California by the Shell Oil Company, Inc., which is a

separate and distinct corporation organized and existing in

the State of Virginia and doing; business in the State of

California, U.S. A., the Defendant having as its stockholders

the Shell Petroleum Company of London and other persons

residing in that City, while the Shell Oil Company, Inc., of

the United States has its principal stockholders the Shell

Union Oil Company of the U.S. and presumably countless

American investors inasmuch as its shares of stock are being

traded daily in the New York stock market; that Mr.

Fitzgerald, Defendant’s Credit Manager, was merely invited

to a luncheon-meeting at the Trade and Commerce Building

in the City of Manila on August 6, 1948, without knowing the

purpose for


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the Phils., et al.

which it was called; and that Mr. Fitzgerald could not have

officially represented the Defendant at that time because

such authority resides on Mr. Stephen Crawfurd. Defendant,

therefore, prays that the complaint be dismissed with costs

against the plaintiff.

Then Alfonso Sycip, Yek Hua Trading Corporation and

Paul Sycip, as well as Mabasa & Co., filed, with permission of

the Court, their respective complaints in intervention taking

the side of the plaintiff. These complaints in intervention

were timely answered by Defendant which prayed that they

be dismissed.

After proper proceedings and hearing, the Court rendered

decision on February 26, 1954, dismissing the complaint as

well as the complaints in intervention, with costs against the

plaintiff. In view of this outcome, plaintiff comes to us

praying that the judgment of the lower court be reversed and

that the Defendant be ordered to pay him damages in the

sum of P660,000 (being double the value of the ariplane as

established by evidence, i.e., P330,000), with costs, and for

such other remedy as the Court may deem just and equitable

in the premises.

8

The Issues.—Either admission of the parties, or by

preponderance of evidence, or by sheer weight of the

circumstance attending the transactions herein involved, We

find that the facts narrated in the preceding statement of the

“antecedents” have been sufficiently established, and the

questions at issue submitted to our determination in this

instance may be boiled down to the following propositions:

(1) Whether or not under the facts of the case, the defendant Shell

Company of the P.I., Ltd., taking advantage of its knowledge of the

existence of CALI’s airplane C-54 at the Ontario International

Airport within the Country of San Bernardino, State of California,

U.S. A.,

(Which knowledge it acquired: firstat the informal luncheon-meeting of

the principal creditors of CALI onAugust 5, 1948, where its Credit

Manager, Mr. Desmond Fitzgerald, was selected to form part of the

Working Committee to supervise


ANNOTATED


the Phils., et al.

the preservation of CALI’s properties and to study the way of making a

fair division of all the assets among the creditors and thus avoid the

institution of insolvency proceedings in court; and

Subsequently, at the meeting ofAugust 9, 1948, when said Mr.

Fitzgerald met the other members of the said Working Committee and

heard and discussed the contention of certain creditors of CALI—on the

accounts due the employees, the Government and the National Airports

Corporation—who alleged that their claims were preferred),

acted in bad faith and betrayed the confidence and trust of the

other creditors of CALI present in said meeting by affecting a

hasty telegraphic transfer of its credit to the American corporation

Shell Oil Company, Inc., for the sum of $79,440 which was

subsequently followed by a deed of assignment of credit dated

August 10, 1948, amounting this time to the sum of $85,081.28

(Exhs. Z), thus defeating the purpose of the informal meetings of

CALI’s principal creditors and depriving the plaintiff, as its

Assignee, of the means of obtaining said C-54 plane, or the value

thereof, to the detriment and prejudice of the other CALI’s

creditors who were consequently deprived of their share in the

distribution of said value; and

(2) Whether or not by reason of said betrayal of confidence and

trust, Defendant may be made under the law to answer for the

damages prayed by the plaintiff; and if so, what should be the

amount of such damages.

DISCUSSION OF THE CONTROVERSY

I. The mere enunciation of the first proposition can lead to no

other conclusion than that Defendant, upon learning the

precarious economic situation of CALI and that with all

probability, it could not get much of its outstanding credit

because of the preferred claims of certain other creditors,

forgot that “Man does not live by bread alone” and entirely

disregarded all moral inhibitory tenets. So, on the very day

its Credit Manager attended the meeting of the Working

Committee on August 9, 1948, it hastily made a telegraphic

assignment of its credit against the CALI to its sister

Amercian Corporation, the Shell Oil Company, Inc., and by

what is stated in the preceding pages hereof, We know that

were the damaging effects of said assignment upon the right

of other


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the Phils., et al.

creditors of the CALI to participate in the proceeds of said

CALI’s plane C-54.

9

Defendants endeavor to extricate itself from any liability

caused by such evident misdeed of its part, alleging that Mr.

Fitzgerald had no authority from his principal to commit the

latter on any agreement; that the assignment of its credit in

favor of its sister corporation, Shell Oil Company, Inc., was

for a valuable consideration and in accordance with the

established commercial practices; that there is no law

prohibiting a creditor from assigning his credit to another;

and that the Shell Oil Company Inc., of the United States is

a corporation different and independent from the Defendant.

But all these defenses are intirely immaterial and have no

bearing on the main question at issue in this appeal.

Moreover, we might say that Defendant could not have

accomplished the transfer of its credit to its sister corporation

if all the Shell companies throughout the world would not

have a sort of union, relation or understanding among

themselves to come to the aid of each other. The telegraphic

transfer made without knowledge and at the back of the

other creditors of CALI may be a shrewd and surprise move

that enabled Defendant to collect almost all if not the entire

amount of its credit, but the Court of Justice cannot

countenance such attitude at all, and much less from a

foreign corporation to the detriment of our Government and

local business.

To justify its actions, Defendant may also claim that Mr.

Fitzgerald, based on his feeling of distrust and apprehension,

entertained the conviction that intervenors Alfonso Sycip and

Yek Hua Trading Corporation tried to take undue advantage

by infiltrating their credits. But even assuming for the sake

of argument, that these intervenors really resorted to such

strategem or fraudulent device, yet Defendant’s act finds not

justification for no misdeed on the part of a person is cured

by any misdeed of another, and it is to be noted that neither

Alfonso

200

200 PHILIPPINE REPORTS

ANNOTATED


the Phils., et al.

Z. Sycip, nor Yek Hua Trading Corporation were the only

creditors of CALI, nor even preferred ones, and that the

infiltration of one’s credit is of no sequence if it can not be

proven in the insolvency proceedings to the satisfaction of the

court. Under the circumstances of the case, Defendant’s

transfer of its aforementioned credit would have been

justified onlyif Mr. Fitzgerald had declined to take part in

the Working Committee and frankly and honestly informed

the other creditors present that he had no authority to bind

his principal and that the latter was to be left free to collect

its credit from CALI by whatever means his principal

deemed wise and were available to it. But then such

information would have immediately dissolved all attempts

to come to an amicable conciliation among the creditors and

would have precipitated the filing in court of CALI’s

voluntary insolvency proceedings and nulified the intended

transfer of Defendant’s credit to its above-mentioned sister

corporation.

II. We may agree with the trial judge, that the assignment

of Defendant’s credit for a valuable consideration is not

violative of the provisions of sections 32 and 70 of the

Insolvency Law (Public Act No. 1956), because the

assignment was made since August 9, 1948,the original

complaint in the United States was filed onAugust

12,1948, and the writ of attachment issued on this same

date, while CALI filed its petition for insolvency onOctober 7,

1948. At his Honor correctly states, said Sections 32 and 70

only contemplate acts and transactions occuring within 30

days prior to the commencement of the proceedings in

insolvency and, consequently, all other acts outside of the 30-

day period cannot possibly be considered as coming within

10

the orbit of the operation. In addition to this, We may add

that Article 70 of the Insolvency Law refers to acts of the

debtor (in this case the insolvent CALI) and not of

the creditor, the Shell Company of the P.I. Ltd. But section

70 does not constitute the


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the Phils., et al.

only provisions of the law pertinent to the matter. The

Insolvency Law also provides the following:

“SEC. 33. The assignee shall have the right to recover all the

estate, debt and effects of said insolvent. If at the time of the

commencement of the proceedings in insolvency, an action is

pending in the name of the debtor, for the recovery of a debt or

other thing might or ought to pass to the assignee by the

assignment, the assignee shall be allowed to prosecute the action,

in like manner and with life effect as if it had been originally

commenced by him. //there are any rights of action in favor of the

insolvency for damages, on any account, for which an action is not

pending the assignee shall have the right to prosecute the same with

effect as the insolvent might have done himself if no proceedings in

insolvency had been instituted. * * *."

It must not be forgotten that in accordance with the spirit of

the Insolvency Law and with the provisions of Chapter V

thereof which deal with the powers and duties of a receiver,

the assignee represents the insolvent as well as the creditors

in voluntary and involuntary proceedings—Intestate of

Mariano G. Veloso, etc. vs.Vda. de Veloso S.C.—G. R. NO.

42454; Hunter, Kerr & Co. vs. Samuel Murray, 48 Phil.

449; Chartered Bank vs.Imperial, 48 Phil. 931; Asia Banking

Corporation vs.Herridge, 45 Phil. 527—(II Tolentino’s

Commercial Laws of the Philippines, 633). See also Section

36 of the Insolvency Law.

From the foregoing, We see that plaintiff, as Assignee of

the Insolvent CALI, had personality and authority to

institute this case for damages, and the only question that

remains determination is whether the payment of damages

sought to be recovered from Defendant may be ordered under

the Law and the evidence of record.

IF ANY PERSON, before the assignment is made, having notice of

the commencement of the procedings in insolvency, orhaving

reason to believe that insolvency proceedings are about to be

commenced, embezzles or disposes of any money, goods, chattels, or

effects of the insolvent, he is chargeable therewith, and liable to an

action by the assignee for double the value of the property sought to

be


ANNOTATED


the Phils., et al.

embezzled or disposed of, to be recieved for the benefit of the

insolvent estate.

The writer of this decision does not entertain any doubt that

the Defendant—taking advantage of his knowledge that

insolvency proceedings were to be institued by CALI if the

creditors did not come to an understanding as to the manner

of distribution of the insolvent asset among them, and

believing it most probable that they would not arrive at such

understanding as it was really the case—schemed and

effected the transfer of its sister corporation in the United

States, where CALI’s plane C-54 was by that swift and

unsuspected operation efficaciously disposed of said

insolvent’s property depriving the latter and the Assignee

that was latter appointed, of the opportunity to recover said

plane. In addition to the aforementioned Section 37, Chapter

2 of the PRELIMINARY TITLE of the Civil Code, dealing on

Human Relations, provides the following:

11

“Art 19. Any person must, in the exercise of his rights and in

theperformances of his duties, act with justice, give everyone his

due and observe honesty and good faith”.

It maybe said that this article only contains a mere

declarations of principles and while such statement may be is

essentially correct, yet We find that such declaration is

implemented by Article 21 and sequencte of the same

Chapter which prescribe the following:

“Art. 21. Any person who wilfully causes loss or injury to another

in a manner that is contrary to morals, good customs or public

policy shall compensate the latter for the damage”.

The Code Commission commenting on this article, says the

following:

“Thus at one stroke, the legislator, if the forgoing rule is approved

(as it was approved), would vouchsafe adequate legal remedy for

that untold numbers of moral wrongs which is impossible for

human foresight to provide for specifically in the statutes.

“But, it may be asked, would this proposed article obliterate the

boundary line between morality and law? The answer


31, 1956

203


the Phils., et al.

is that, in the last analysis, every good law draws its breath of life

from morals, from those principles which are written with words of

fire in the conscience of man. If this premises is admitted, then the

proposed rule is a prudent earnest of justice in the face of the

impossibility of enumerating, one by one, all wrongs which cause

damages. When it is reflected that while codes of law and statutes

have changed from age to age, the conscience of man has remained

fixed to its ancient moorings, one can not but feel that it is safe

and salutary to transmute, as far as may be, moral norms into

legal rules, thus imparting to every legal system that enduring

quality which ought to be one of its superlative attributes.

“Furthermore, there is no belief of more baneful consequence

upon the social order than that a person may with impunity cause

damage to his fellow-men so long as he does not break any law of

the State, though he may be defying the most sacred postulates of

morality. What is more, the victim loses faith in the ability of the

government to afford him protection or relief.

“A provision similar to the one under consideration is embodied

in article 826 of the German Civil Code.

“The same observations may be made concerning injurious acts

that are contrary to public policy but are not forbidden by statute.

There are countless acts of such character, but have not been

foreseen by the lawmakers.Among these are many business

practices that are unfair or oppressive, and certain acts of

landholders and employers affecting their tenants and employees

which contravene the public policy of social justice.

“Another rule is expressed in Article. 24 which compels the

return of a thing acquired ‘without just or legal grounds’.This

provision embodies the doctrine that no person should unjustly

enrich himself at the expense of another, which has been one of the

mainstays of every legal system for centuries. It is most needful that

this ancient principles be clearly and specifically consecrated in the

proposed Civil Code to the end that in cases not foreseen by the

lawmaker, no one may unjustly benefit himself to the prejudice of

another. The German Civil Code has a similar provision (art. 812)."

(Report of the Code Commission on the Proposed Civil Code of the

Philippines, p. 40–41).

From the Civil Code Annonated by Ambrosio Padilla, Vol. I,

p. 51, 1956 edition, We also copy the following:

“A moral wrong or injury, even if it does not constitute a violation

of a statute law, should be compensated by damages. Moral

damages (Art. 2217) may be recovered (Art. 2219). In


ANNOTATED


12

the Phils., et al.

Article 20, the liability for damages arises from a willful or

negligent act contrary to law. In this article, the act is contrary to

morals, good customs or public policy.”

Now, if Article 23 of the Civil Code goes as far as to provide

that:

“Even if an act or event causing damage to another’s propertywas

not due to the fault or negligence of the defendant, the latter shall

be liable for indemnity if through the act or event he was benefited.”

with mere much more reason the Defendant should be liable

for indemnity for acts it committed in bad faith and with

betrayal of confidence.

It may be argued that the aforequoted provisions of the

Civil Code only came into effect on August 30, 1950, and that

they cannot be applicable to acts that took place in 1948,

prior to its effectivety. But Article 2252 of the Civil Code,

though providing that:

“Changes made and new provisions and rules laind down by this

Code which may be prejudice or impair vested or acquired rights in

accordance with the old legislation, shall have no retroactive effect.

* * *"

implies that when the new provisions of the Code does nor

prejudice or impair vested or acquired rights in accordance

with the old legislation—and it cannot be alleged that in the

case at bar Defendant had any vested or acquired right to

betray the confidence of the insolvent CALI or of its

creditors-said new provisions, like those on Human

Relations, can be given retroactive effect. Moreover, Article

2253 of the Civil Code further provides:

"* * *. But if a right should be declared for the first time in this

Code, it shall be effective at once,even though the act or event

which may give rise thereto may have ben done or may have

occurred under the prior legislation, provided said new right does

not prejudice or impair any vested or acquired right, of the same

origin.”

and according to Article 2254, “no vested or acquired right

can arise from acts or omissions which are against


31, 1956

205


the Phils., et al.

the law or which infringe upon the right of others.”

In case of Juan Castro vs.Acro Taxicab Company, (82

Phil., 359; 47 Off. Gaz., [5] 2023), one of the question at issue

was whether or not the provisions of the New Civil Code of

the Philippines on moral damages should be applied to an act

of negligence which occurred before the effectivity of said

code, and this Court, through Mr. Justice Briones, sustaining

the affirmative proposition and citing decisions of the

Supreme Court of Spain of February 14, 1941, and November

14, 1934, as well as the comment of Mr. Castan, Chief Justice

of the Supreme Court of Spain, about the revolutionary

tendency of Spanish jurisprudence, said the following:

“We conclude, therefore, reaffirming the doctrine laid down in the

case of Lilius (59 J.F. 800) in the sense that indemnity lies for

moral and patrimonial damages which include physical and pain

sufferings. With this (doctrine), We effect in this jurisdiction a real

symbiosis1 of the Spanish and American Laws and, at the same

time, We act in consonance with the spirit and progressive march

of time” (translation).

The writer of this decision does not see any reason for not

applying the provisions of Section 37 of the Insolvency Law

to the case at bar, specially if We take into consideration that

the term “any person” used therein cannot be limited to the

officers or employee of the insolvent, as no such limitation

exist in the wording of the section (See also Sec. 38 of the

same Act), and that, as stated before, the Defendant schemed

and affected the transfer of its credits (from which it could

derive practi-

http://www.central.com.ph/sfsreader/session/000001507df18f0c99db2483000a0094004f00ee/p/ALJ005/?username=Guest#p100pra8960205001

13

________________

1 SYMBIOSIS—Biol. The living together in more or less intimate

association or even close union of two dissimilar organisms. In a broad sense

the term includes parasitism orantagonistic or antipathetic symbiosis in

which the association is disadvantageous or destructive to one of the

organism, but ordinarily it is used of cases where the association is

advantageous, or often necessary, to one or both, and not harmful to either.

(Webster’s New International Dictionary, 2nd Ed., p. 2555).


ANNOTATED


the Phils., et al.

cally nothing) to its sister corporation in the United States

where CALI’s plane C-54 was then situated, succeeding by

such swift and unsuspected operation in disposing of said

insolvent’s property by removing it from the possession and

ownership of the insolvent. However, some members of this

Court entertain doubt as to the applicability of said section

37 because in their opinion what Defendant in reality

disposed of was its own credit and not the insolvent’s

property, although this was practically the effect and result

of the scheme. Having in mind this objection and that the

provisions of Article 37 making the person coming within its

purview liable for double the value of the property sought to

be disposed of constitute a sort of penal clause which shall be

strictly construed, and considering further that the same

result may be obtained, by applying only the provisions of the

Civil Code, the writer of this decision yields to the objection

aforementioned.

Articles 2229, 2232, 2234, 2142, and 2143 of the Civil Code

read as follows:

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

of example or correction for the public good, in addition to the

moral, temperate, liquidated or compensatory damages.”

“Art. 2232. In contracts quasi-contracts, the Court may award

exemplary damages if the defendant acted in a

wanton,fraudulent, reckless, oppressive, or malevolent manner.”

“Art. 2234. While 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 ourt may consider

the question of whether or not exemplary damages should be

awarded. In case liquidated damages should be upon, although no

proof of loss is necessary in order that such liquidated damages 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.”

“Art. 2142. Certain lawful, voluntary and unilateral acts give

rise to the juridical relation of quasi-contract to the end that no

one shall be unjustly enriched or benefited at the expense of

another.”


31, 1956

207


the Phils., et al.

“Art. 2143. The provisions for quasi-contracts in this Chapter do

not exclude other quasi-contracts which may come within the

purview of the preceding article.”

In accordance with these quoted provisions of the Civil Code,

We hold Defendant liable to pay to the plaintiff, for the

benefit of the insolvent CALI and its creditors, as

compensatory damages a sum equivalent to the value of the

plane at the time aforementioned and another equal sum as

exemplary damages.

14

There is no clear proof in the record about the real value of

CALI’s plane C-54 at the time when Defendant’s credit was

assigned to its sister corporation in the United States.

Judgment

Wherefore, and on the strength of the foregoing

considerations, the decision appealed from is reversed and

Defendant-Appellee-, Shell Company of the Philippine

Islands, Ltd., is hereby sentenced to pay to

PlaintiffAppellant, as Assignee of the insolvent CALI,

damages in a sum double the amount of the value of the

insolvent’s airplane C-54 at the time Defendant’s credit

against the CALI was assigned to its sister corporation in the

United States, which value shall be determined in the

corresponding incident in the lower court after this decision

becomes final. Costs are taxed against defendant-appellee. It

is so ordered.

Parás, C.J., Padilla,Montemayor, Bautista

Angelo,Labrador, Concepcion, Reyes, J.B.

L., and Endencia, concur.

RESOLUTION

July 80, 1957

FELIX, J.:

Plaintiff-appellant and intervernors on one hand and

defendant Shell Company of the Philippine Islands, Ltd., on

the other, have filed their respective motions for

reconsideration of Our decision rendered in this case. The


ANNOTATED


the Phils., et al.

motion of plaintiff appellant and the intervenors seeks the

reconsideration of said decision in so far as it held that:

“There is no clear proof in the record about the real value of CALI’s

plane C-54, at the time when defendant’s credit was assigned to its

sister corporation in the United States.”

and, upon such holding, it orders that the value of the C-54

plane—

“be determined in the corresponding incident in the lower Court

after this decision becomes final.”

The movants maintain that ther is evidence sufficient to

support a finding that CALI’s C-54 plane had a fair market

value of $165,000 at or about the time defendant credit was

assigned to its sister corporation in the United States and

the plane attached. This motion was opposed by defendant-

appellee which was replied by plaintiff-appellant with a

supplemental motion for reconsideration, and then retorted

with a manifestation and motion of defendant-appellant

followed by defendant’s answer to plaintiff’s motion for

reconsideration.

After considering the evidence pointed out by said parties

in support of their respective contentions, we are more

convinced that the proofs relative to the real value of CALI

plane C-54 at the time defendant’s credit was assigned to its

sister corporation in the United States, is not clear. Hence,

plaintiff-appellant’s and intervenors’ motion for

reconsideration is hereby overruled.

The main grounds on which defendant-appellee bases its

motion for reconsideration, as relied upon in its counsel’s

memoranda and oral argument, may be reduced to the

following:

1. (1)That the defendant-appellee is not guilty of bad faith, it

having done nothing but to protect legitimately its own

interest or credit against the bad faith of its debtor, the

15

insolvent CALI, under the control of the latter’s President

Alfonso Sycip;

2. (2)That appellee’s transfer of its credit to its sister

corporation in the United States, did not prejudice the

Government, because its claims were fully paid, nor

caused any loss or injury to


31, 1956

209


the Phils., et al.

1. other creditors, except the entities and groups controlled by

Alfonso Z. Sycip;

2. (3)That appellee is not liable for exemplary damages

because the provisions of the new Civil Code on the matter

are not applicable to this case;

3. (4)That the plaintiff-appellant has no cause of action

against defendant-appellant and is not the real party in

interest; and

4. (5)That plaintiff’s right of action was based and prosecuted

in the lower court under the provisions of the Insolvency

Law and consequently that he is stopped from pursuing

another theory and is not entitled to damages under the

provisions of the New Civil Code.

1. I.The facts on which this Court based its conclusion that

defendant corporation acted in bad faith are plainly and

explicitly narrated in the decision. They are not and

cannot be denied or contradicted by said defendant. On the

contrary they are in many respects admitted by the

defendant and no amount of reasoning can make Us

change that conclusion.

2. II.As pointed out by counsel for plaintiff, defendant choses

to ignore that besides the claims of intervenors Alfonso Z.

Sycip and Yek Hua Trading Corporation, which counsel

for the Shell says to constitute 10/11 of

theapproved ordinary claims, there is still 1/11 of the

other creditors whose claims have been alsoapproved by

the insolvency Court, in addition to the ordinary creditors

whose claims are yetunapproved by the insolvency Court,

amounting to P560,296,32, and “no good reason suggests

itself why these unapproved but pending claims should be

taken into account in considering the prejudice caused all

the creditors of the insolvent CALI. As long as these

claims are pending, the contingency exist, that these

creditors may recover from the insolvent estate and when

they do, they will suffer to the diminution of CALI’s asset

resulting from the attachment of the plane by appellee

Shell.”

Answering Defendant’s contention that the transfer of its

credit to its sister corporation in the United States did not

prejudice the Government or the other creditors of CALI,

counsel for plaintiff-appellant has the following to say:

“So far as the claims of the Government are concerned, it is true

that they were preferred claims and have all been paid. But this

circumstance cannot erase the fact that the appellee’s action

jeopardized the Government’s claims as well as the other claims.


ANNOTATED


the Phils., et al.

There was doubt as to the preferential character of the

Government’s claims.. Indeed, the preferential character of one of

the Government’s claims necessitated a litigation to establish. Had

it been held to be an ordinary claim, the Government would have

16

suffered as other creditors. But that is neither here nor there;

neither the character of the claim nor the identity of the claimant

can possibly affect the application of a principle that no person

may profit from his betrayal of a trust.”

And the appellant continues thus:

“Appellee had a credit of P170,000 against the insolvent CALI as of

August 1948, which is assigned to its sister corporation in the

United States for P120.000. Hence, appellee recovered 70% of its

credit andimmediately upon making the assignment in 1948. More

than this, the stated consideration was fixed by and and between

two sister companies. The fact remains that appellee’s sister

company was enabled to get hold of a C-54 plane worth

aboutP330,000.

“On the other hand, the ordinary creditors who filed their

claims against the insolvent CALl had to wait

until November1956 to get their dividends andonly at the rate of

30%, computed as ex ollows:

Assets as of October 30, 1956

..........................................................

P668,605.15

Less:

Preferred claims still uncollected,

assignee and attorney’s fees and

other reserves

.................................................................

........

P138,719.56

——————

—

Amount available for distribution

....................................................

P529,885.59

Divident:

Amount available for distribution

................................................

P529,885.59

——————

—

=30

%

Total of all ordinary claims ap- P1,746,222.33

proved and unapproved

............................................................

Had appellee not assigned its credit in 1948, the insolvent CALI

would have realized from the sale of the plane (which was attached

by appellee) P330,000 representing the fair market value of the

plane at the time of the attachment. Therefore, if this amount of

P330,000 is added to the distributable amount of P529,-885.59, the

share of each of the ordinary creditos would certainly amount to

approximately 1½ times the dividend each of them has received; in

other words, each -ordinary creditors would received not 30% but

approximately 45% of his claim


31, 1956

211


the Phils., et al.

and appellee would recover approximately only 45% and not 70%

of its credit.”

And even if the sale of CALI’s plane would not have obtained

the sum of P330,000.00, the proceeds thereof that might be

diminished though affecting, no doubt, the calculated

dividend of each of the ordinary creditors, estimated at 45%

by reducing it proportionately, such diminution would at the

same time increase the differencebetween the dividend paid

CALI’s ordinary creditors in November, 1956, and the

dividend of 70% secured by defendant Shell in 1948.

III and IV. That appellee Shell is not liable for exemplary

damages in this case and that plaintiff-appellant has no

cause of action against defendant-appellee, for he is not the

real party in interest, are matters fully discussed in Our

decision and We find no sensible reason for disturbing the

conclusions We reached therein.

V. As to the fifth question raised by counsel for appellee In

the course of his oral argument at the hearing in the City of

Baguio of his motion, i.e., “that plaintiff’s right of action was

17

based and prosecuted in the lower court under the provisions

of the Insolvency Law and he is, therefore, stopped from

pursuing on appeal another theory under which he might be

entitled to damages in consonance with the provisions of the

new Civil Code”, We amy invoke the decision in the case of

Dimaliwat vs. Asuncion, 59 Phil., 396, 401. In that decision

We said the following:

“Vicente Dimaliwat contends that Esperanza Dimaliwat has no

right to claim the ownership of the property in question to the

exclusion of the children of the third marriage, under the foregoing

provisions of the Civil Code, because the case was not tried on that

theory in the lower court. We find no merit in that contention. The

decision cited are not in point. Articles 968 and 969 of the Civil

Code are rules of substantive law, and if they are applicable to the

facts of this case they must be given effect.”

The same thing can be said in the case at bar. Articles 19, 21,

2229, 2232, 2234, 2142 and 2143 of the new Civil


ANNOTATED


the Phils., et al.

Code are rules of substantive law, and if they are applicable

to the facts of this case, which We hold they do, they must be

made operative and given effect in this litigation.

* * * * * *

*

It maybe seen form the foregoing that the above mentioned

grounds on which the motion for reconsideration, of the

defendant Shell stand, are not well taken. However, and

despite this finding, We insist to delve in the question of

whether the exemplary damages imposed in this Court upon

Defendant-Appellee, which the latter’s counsel contends to be

inequitable and unfair, may be modified.

It will be remembered that this case was looked into from

the point of view of the provisions of Section 37 of the

Insolvency Law, which reads as follows:

SEC. 37. IF ANY PERSON,before the assignment is made,having

notice of the commencement of the procedings in insolvency, or

having reason to believe that insolvency proceeings are about to be

commenced,embezzles or disposses of any of the money, goods,

chattels, or effects of the insolvent, he is chargeable therewith, and

liable to an action by the assignee for double the value of the

property sought to be embezzled or disposed of, to be received for

the benefit of the insolvent estate.

The writer of the decision was then and still is of the opinion

that the provisions of this section were applicable to the case,

and accordingly, that defendant Shell was liable in this

action instituted by the Assignee for double the value of the

property disposed of, to be recieved for the benefit of the

Insolvent estate. However, some of the members of this Court,

for the reasons already stated in the decision, entertained

some doubt as to the applicability of said Section 37, and

yielding to their objections the writer of the decision turned

his eyes to the provisions of the new Civil Code, inasmuch as

the same result could be achieved. In the case at bar, it

cannot be denied that:

“Defendant—taking advantage of his knowledge that insolvency

proceedings were to be instituted by CALI if the creditors did not

come to an understanding as to the manner of distribution


31, 1956

213


the Phils., et al.

of the insolvent assets among them, and believing as most

probable that they would not arrive at such understanding, as it

18

was really the case-schemed and effected the transfer of its credit

to its sister corporation in the United States where CALI’s plane

C-54 was and by this swift and unsuspected operationefficaciously

disposed of said insolvent’s property depriving the latter and the

Assignee that was later appointed, of the opportunity to recover

said plane.”

These acts of defendant Shell come squarely within the

sanction prescribed by Congress by similar acts and no

reflection can be reasonably cast on Us if in the measure of

the exemplary damages that were to be imposed upon

Defendant-Appellee, We were influenced by the provisions of

Section 37 of the Insolvency Law. In this connection it is to

be noted that, according to the Civil Code, exemplary or

corrective damages are imposed by way of example or

correction for the public good,in addition of the moral,

temperate, liquidated or compensatory dam.ages Art. 2229,

and that the amount of the exemplary damages need not be

proved (Art. 2234), for it is left to the sound discretion of the

Court.

Notwithstanding the foregoing, a majority of this Court

was of the belief that the value of CALI’s plane C-54, .at the

time when defendant’s credit was assigned to its sister

corporation in the United States, might result quite high,

and that exemplary damages should not be left to speculation

but properly determined by a certain and fixed amount. So

they voted for the reconsideration of the decision with regard

to the amount of exemplary damages which this Court fixed

at P25,000.00.

Because of this attitude of the Court, the dispositive part

of our decision rendered in this case is hereby amended to

read as follows:

Wherefore, and on the strength of the foregoing

considerations, the decision appealed from is reversed and

Defendant-Appellee, Shell Company of the Philippine Islands

Ltd., is hereby sentenced to pay Plaintiff-Appellant, as

Assignee of the insolvent CALI, compensatory damages


ANNOTATED

Lim Hoa vs. Director of

Patents

in a sum equal to the value of the insolvent’s airplane C-54 at

the time Defendant’s credit against CALI was assigned to its

sister corporation in the United States—which shall be

determined in the corresponding incident in the lower Court

after this decision becomes final—and exemplary damages in

the sum of P25,000. Costs are taxed against defendant-

appellee. It is so ordered.

Parás, C.J., Padilla,Concepcion and Endencia,

JJ., concur.

MONTEMAYOR, J., concurs in the result.

We concur, but we feel that the ends of justice would be

sufficiently served if the exemplary damages were reduced to

P10,000.

Reyes, Bengzon, Bautista Angelo and Labrador,

JJ.,concur.

Judgment reversed.

_____________

19

ALBENSON ENTERPRISES CORP., JESSE YAP, AND

BEN-JAMIN MENDIONA, petitioners, vs. THE COURT OF

AP-PEALS AND EUGENIO S. BALTAO, respondents.

Civil Law; Damages; Article 19 sets certain standards which

may be observed not only in the exercise of one’s right but also in

the performance of one’s duties.—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.

Same; Same; Same; A right though by itself legal because

recognized or granted by law as such may nevertheless become the

source of some illegality.—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

________________

* THIRD DIVISION.

17

VOL. 217,

JANUARY 11, 1993

1

7

Albenson Enterprises

Corp. vs. Court of Appeals

to another, a legal wrong is thereby committed for which the

wrongdoer must be held responsible.

Same; Same; Same; There is no hard and fast rule which can

be applied to determine whether or not the principle of abuse of

rights may be invoked.—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.

Same; Same; Same;Elements of an abuse of right under Article

19.—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.

Same; Same; 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.—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

semake 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.

Same; Same; Malicious Prosecution; The mere act of

submitting a case to the authorities for prosecution does not make

one liable for malicious prosecution.—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.

18

20

1

8

SUPREME COURT

REPORTS ANNOTATED



Same; Same; Same; Same;Essential elements for a case of

malicious prosecution to prosper.—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.

Same; Same; Same; 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.—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.

Same; Same; Same; Same; It is well settled that one cannot be

held liable for maliciously instituting a prosecution where one has

acted with probable cause.—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.”

Same; Same; Same; Same;Same; The presence of probable

cause signifies as a legal consequence the absence of malice.—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.

19

VOL. 217,

JANUARY 11, 1993

1

9



Same; Same; The adverse result of an action does not per se

make the act wrongful and subject the actor to the payment of

moral damages.—Furthermore, the adverse result of an action

does not per semake the act wrongful and subject the actor to the

payment of moral damages. The law could not have meant to

impose a penalty on the right to litigate, such right is so precious

that moral damages may not be charged on those who may even

exercise it erroneously. And an adverse decision does not ipso

facto justify the award of attorney’s fees to the winning party.

Same; Same; Same; An award of damages and attorney’s fees

is unwarranted where the action was filed in good faith.—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.

Same; Same; In determining actual damages, the court cannot

rely on speculation, conjectures or guesswork as to the amount.—

Coming now to the claim of private respondent for actual or

compensatory damages, the records show that the same was based

21

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.

Same; Same; Same; Actual and compensatory damages are

those recoverable because of pecuniary loss and the same must be

proved otherwise if the proof is flimsy and unsubstantiated no

damages will be given.—Actual and compensatory damages are

those recoverable because of pecuniary lossade, 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.

Same; Same; Same; Same;Neither may exemplary damages be

awarded where there is no evidence of the other party having acted

in wanton, fraudulent or reckless or oppressive manner.—Where

there is

20

2

0

SUPREME COURT

REPORTS ANNOTATED



reckless, or oppressive manner, neither may exemplary

damages be awarded.

Same; Same; Attorney’s fees;The award of attorney’s fees must

be disallowed where the award of exemplary damages is

eliminated.—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.

PETITION to review the decision of the Court of Appeals.


Puruganan, Chato,Chato & Tan for petitioners.

Lino M. Patajo,Francisco Ma. Chanco,Ananiano

Desierto andSegundo Mangohig for private respondent.

BIDIN, J.:

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 Al-

benson 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

21

22

VOL. 217, JANUARY 11,

1993

21

Albenson Enterprises Corp.

vs. Court of Appeals

(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.

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 Men-diona, 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

22 22 SUPREME COURT

REPORTS ANNOTATED



Mendiona, consequently, the check for which he has been ac

cused 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.

Because of the alleged unjust filing of a criminal case

against him for allegedly issuing a check which bounced in

23

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. x x x. 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. x x x” (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. 1.actual or compensatory damages of P133,350.00;

2. 2.moral damages of P1,000,000.00 (1 million pesos);

3. 3.exemplary damages of P200,000.00;

23 VOL. 217, JANUARY 11,

1993

23



1. 4.attorney’s fees of P100,000.00;

2. 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)

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. “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 or Article 2176 of the Civil Code x x x.

2. “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 x x x (private respondent) was deprived

of his basic right to notice and a fair hearing in the so-

called preliminary investigation x x x’

3. “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. “4.Holding the petitioner corporation, petitioner Yap and

petitioner Mendiona jointly and severally liable without

sufficient basis in law and in fact.

5. “5.Awarding respondents—

24

1. 5.1.P133,350.00 as actual or compensatory damages, even

in the absence of sufficient evidence to show that such was

actually suffered.

24 24 SUPREME COURT

REPORTS ANNOTATED



1. 5.2.P500,000.00 as moral damages considering that the

evidence in this connection merely involved private

respon-dent’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.

2. 5.3.P200,000.00 as exemplary damages despite the fact that

petitioners were duly advised by counsel of their legal

recourse.

3. 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 Articles

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 commit-

__________________

** “Art. 19. Every person must, in the exercise of his rights and in the

performance of his duties, act with justice, give everyone his due, and observe

honesty and good faith.

“Art. 20. Every person who, contrary to law, willfully or negli-gently causes damage to

another, shall indemnify the latter for the same.

“Art. 21. Any person who willfully causes loss or injury to another in a manner

that is contrary to morals, good customs or public policy shall compensate the latter

for the damage.


1993

25



ted 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).

http://www.central.com.ph/sfsreader/session/000001507df37cd0c55b0773000a0094004f00ee/p/AMD094/?username=Guest#p217scra8960024001

25

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 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 ornegligently, 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 actscontra 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

“negli-gently”. 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:

26 26 SUPREME COURT

REPORTS ANNOTATED



“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 limit is the area of excess, of

abuse of rights.” (Rollo, pp. 44-45).

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

26

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 trans-


1993

27



acted 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’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 of 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.

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

semake 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]).

28 28 SUPREME COURT

REPORTS ANNOTATED



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.

27

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 insti-


1993

29



tuting 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 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.).

28

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 Bal-tao” responsible for the dishonored check.

However, the record

30 30 SUPREME COURT

REPORTS ANNOTATED



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 notper

se make the act wrongful and subject the actor to the

payment of moral damages. The law could not have meant to

impose a penalty on the right to litigate, such right is so

precious that moral damages may not be charged on those

who may even exercise it erroneously. And an adverse

decision does notipso 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,

profes-


1993

31



sion, job or occupation—and the same must be proved, other

wise, 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

29

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.

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.

SO ORDERED.

Gutierrez, Jr., (Chairman), Davide,

Jr.,Romero and Melo, JJ., concur.

Petition granted; decision reversed and set aside.

32 32 SUPREME COURT

REPORTS ANNOTATED

State Investment House, Inc.


Note.—In the absence of malice and bad faith, moral

damages cannot be awarded (Capco vs. Macasaet, 189 SCRA

561).

——o0o——

30

G.R. No. 81262. August 25, 1989.*

GLOBE MACKAY CABLE AND RADIO CORP., and

HERBERT C. HENDRY, petitioners, vs. THE HONORABLE

COURT OF APPEALS and RESTITUTO M. TOBIAS,

respondents.

Torts and Damages; Human Relations; Labor

Law; Dismissal;The employer is liable for damages to the employee

if the dismissal is done abusively.—The Court has already ruled

that the right of the employer to dismiss an employee should not

be confused with the manner in which the right is exercised and

the effects flowing therefrom. If the dismissal is done abusively,

then the employer is liable for damages to the employee [Quisaba

v. Sta. Ines-Melale Veneer and Plywood Inc., G.R. No. L-38088,

August 30, 1974, 58 SCRA 771; See also Philippine Refining Co.,

Inc. v. Garcia, G.R. No. L-21871, September 27, 1966, 18 SCRA

107]. Under the circumstances of the instant case, the petitioners

clearly failed to exercise in a legitimate manner their right to

dismiss Tobias, giving the latter the right to recover damages

under Article 19 in relation to Article 21 of the Civil Code.

Same; Same; Malicious Prosecution; The right to institute

criminal prosecutions cannot be exercised maliciously and in bad

faith.—While sound principles of justice and public policy dictate

that persons shall have free resort to the courts for redress of

wrongs and vindication of their rights [Buenaventura v. Sto.

Domingo, 103 Phil. 239 (1958)], the right to institute criminal

prosecutions can not be exercised maliciously and in bad faith

[Ventura v. Bernabe, G.R. No. L-26760, April 30, 1971, 38 SCRA

587]. Hence, in Yutuk v. Manila Electric Co., G.R. No. L-13016,

May 31, 1961, 2 SCRA 337, the Court held that the right to file

criminal complaints should not be used as a weapon to force an

alleged debtor to pay an indebtedness. To do so would be a clear

perversion of the function of the criminal processes and of the

courts of justice. And in Hawpia v. CA, G.R. No. L-20047, June 30,

1967, 20 SCRA 536, the Court upheld the judgment against the

petitioner for actual and moral damages and attorney’s fees after

making a finding that petitioner, with persistence, filed at least six

criminal complaints against respondent, all of which were

dismissed.

Same; Same; Same; Mere dismissal of a criminal complaint is

not a ground for an award of damages for malicious prosecution in

the

_______________

* THIRD DIVISION.

779

VOL. 176,

AUGUST 25, 1989

7

79

Globe Mackay Cable and

Radio Corp. vs. Court of

Appeals

absence of competent evidence showing bad faith on the part of

complainant.—To constitute malicious prosecution, there must be

proof that the prosecution was prompted by a design to vex and

humiliate a person and that it was initiated deliberately by the

defendant knowing that the charges were false and groundless

[Manila Gas Corporation v. CA, G.R. No. L-44190, October 30,

1980, 100 SCRA 602]. Concededly, the filing of a suit, by itself,

does not render a person liable for malicious prosecution [Inhelder

Corporation v. CA, G.R. No. 52358, May 30, 1983, 122 SCRA 576].

The mere dismissal by the fiscal of the criminal complaint is not a

ground for an award of damages for malicious prosecution if there

is no competent evidence to show that the complainant had acted

in bad faith [Sison v. David, G.R. No. L-11268, January 28, 1961, 1

SCRA 60].

Same; Same; Same; The fact that the 6 criminal cases were

filed notwithstanding the police reports exculpating private

respondent from the anomalies, and the eventual dismissal of all

such criminal cases, lead to the conclusion that petitioner was

motivated by malicious intent in filing the criminal cases.—In fine,

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31

considering the haste in which the criminal complaints were filed,

the fact that they were filed during the pendency of the illegal

dismissal case against petitioners, the threat made by Hendry, the

fact that the cases were filed notwithstanding the two police

reports exculpating Tobias from involvement in the anomalies

committed against GLOBE MACKAY, coupled by the eventual

dismissal of all the cases, the Court is led into no other conclusion

than that petitioners were motivated by malicious intent in filing

the six criminal complaints against Tobias.

Same; Same; Quasi Delict;The principle of damnum absque

injuria does not apply in the instant case considering the abusive

manner in which petitioner exercised its right to dismiss private

respondent, and the several other quasi-delictual acts committed by

the former.—According to the principle of damnum absque injuria,

damage or loss which does not constitute a violation of a legal right

or amount to a legal wrong is not actionable [Escano v. CA, G.R.

No. L-47207, September 25, 1980, 100 SCRA 197; See also

Gilchrist v. Cuddy, 29 Phil. 542 (1915); The Board of Liquidators v.

Kalaw, G.R. No. L-18805, August 14, 1967, 20 SCRA 987]. This

principle finds no application in this case. It bears repeating that

even granting that petitioners might have had the right to dismiss

Tobias from work, the abusive manner in which that right was

exercised amounted to a legal wrong for which petitioners must

now be held liable. Moreover, the damage incurred by Tobias was

not only in connection with the abusive manner in

780

7

80

SUPREME COURT

REPORTS

ANNOTATED



Appeals

which he was dismissed but was also the result of several

other quasi-delictual acts committed by petitioners.

Same; Same; Same;Exemplary Damages; Award of exemplary

damages is proper when the act performed is deliberate, malicious,

and tainted with bad faith.—Lastly, the award of exemplary

damages is impugned by petitioners. Although Article 2231 of the

Civil Code provides that “[i]n quasi-delicts, exemplary damages

may be granted if the defendant acted with gross negligence,” the

Court, in Zulueta v. Pan American World Airways, Inc., G.R. No.

L-28589, January 8, 1973, 49 SCRA 1, ruled that if gross

negligence warrants the award of exemplary damages, with more

reason is its imposition justified when the act performed is

deliberate, malicious and tainted with bad faith. As in the Zulueta

case, the nature of the wrongful acts shown to have been

committed by petitioners against Tobias is sufficient basis for the

award of exemplary damages to the latter.

PETITION for certiorari to review the decision of the Court

of Appeals. Coquia, J.


Atencia & Arias Law Offices for petitioners.

Romulo C. Felizmenafor private respondent.

CORTÉS, J.:

Private respondent Restituto M. Tobias was employed by

petitioner Globe Mackay Cable and Radio Corporation

(GLOBE MACKAY) in a dual capacity as a purchasing agent

and administrative assistant to the engineering operations

manager. In 1972, GLOBE MACKAY discovered fictitious

purchases and other fraudulent transactions for which it lost

several thousands of pesos.

According to private respondent it was he who actually

discovered the anomalies and reported them on November

10, 1972 to his immediate superior Eduardo T. Ferraren and

32

to petitioner Herbert C. Hendry who was then the Executive

Vice-President and General Manager of GLOBE MACKAY.

On November 11, 1972, one day after private respondent

Tobias made the report, petitioner Hendry confronted him by

stating that he was the number one suspect, and ordered him

to

781 VOL. 176, AUGUST

25, 1989

781



Appeals

take a one week forced leave, not to communicate with the

office, to leave his table drawers open, and to leave the office

keys.

On November 20, 1972, when private respondent Tobias

returned to work after the forced leave, petitioner Hendry

went up to him and called him a “crook” and a “swindler.”

Tobias was then ordered to take a lie detector test. He was

also instructed to submit specimen of his handwriting,

signature, and initials for examination by the police

investigators to determine his complicity in the anomalies.

On December 6, 1972, the Manila police investigators

submitted a laboratory crime report (Exh. “A”) clearing

private respondent of participation in the anomalies.

Not satisfied with the police report, petitioners hired a

private investigator, retired Col. Jose G. Fernandez, who on

December 10, 1972, submitted a report (Exh. “2”) finding

Tobias guilty. This report however expressly stated that

further investigation was still to be conducted.

Nevertheless, on December 12, 1972, petitioner Hendry

issued a memorandum suspending Tobias from work

preparatory to the filing of criminal charges against him.

On December 19, 1972, Lt. Dioscoro V. Tagle, Metro

Manila Police Chief Document Examiner, after investigating

other documents pertaining to the alleged anomalous

transactions, submitted a second laboratory crime report

(Exh. “B”) reiterating his previous finding that the

handwritings, signatures, and initials appearing in the

checks and other documents involved in the fraudulent

transactions were not those of Tobias. The lie detector tests

conducted on Tobias also yielded negative results.

Notwithstanding the two police reports exculpating Tobias

from the anomalies and the fact that the report of the private

investigator, was, by its own terms, not yet complete,

petitioners filed with the City Fiscal of Manila a complaint

for estafa through falsification of commercial documents,

later amended to just estafa. Subsequently, five other

criminal complaints were filed against Tobias, four of which

were for estafa through falsification of commercial document

while the fifth was for violation of Article 290 of the Revised

Penal Code (Discovering

782 782 SUPREME COURT

REPORTS

ANNOTATED



Appeals

Secrets Through Seizure of Correspondence). Two of these

complaints were refiled with the Judge Advocate General’s

Office, which however, remanded them to the fiscal’s office.

All of the six criminal complaints were dismissed by the

fiscal. Petitioners appealed four of the fiscal’s resolutions

dismissing the criminal complaints with the Secretary of

Justice, who, however, affirmed their dismissal.

In the meantime, on January 17, 1973, Tobias received a

notice (Exh. “F”) from petitioners that his employment has

been terminated effective December 13, 1972. Whereupon,

Tobias filed a complaint for illegal dismissal. The labor

33

arbiter dismissed the complaint. On appeal, the National

Labor Relations Commission (NLRC) reversed the labor

arbiter’s decision. However, the Secretary of Labor, acting on

petitioners’ appeal from the NLRC ruling, reinstated the

labor arbiter’s decision. Tobias appealed the Secretary of

Labor’s order with the Office of the President. During the

pendency of the appeal with said office, petitioners and

private respondent Tobias entered into a compromise

agreement regarding the latter’s complaint for illegal

dismissal.

Unemployed, Tobias sought employment with the

Republic Telephone Company (RETELCO). However,

petitioner Hendry, without being asked by RETELCO, wrote

a letter to the latter stating that Tobias was dismissed by

GLOBE MACKAY due to dishonesty.

Private respondent Tobias filed a civil case for damages

anchored on alleged unlawful, malicious, oppressive, and

abusive acts of petitioners. Petitioner Hendry, claiming

illness, did not testify during the hearings. The Regional

Trial Court (RTC) of Manila, Branch IX, through Judge

Manuel T. Reyes rendered judgment in favor of private

respondent by ordering petitioners to pay him eighty

thousand pesos (P80,000.00) as actual damages, two hundred

thousand pesos (P200,000.00) as moral damages, twenty

thousand pesos (P20,000.00) as exemplary damages, thirty

thousand pesos (P30,000.00) as attorney’s fees, and costs.

Petitioners appealed the RTC decision to the Court of

Appeals. On the other hand, Tobias appealed as to the

amount of damages. However, the Court of Appeals, in a

decision dated


25, 1989

783



Appeals

August 31, 1987,** affirmed the RTC decision in toto.

Petitioners’ motion for reconsideration having been denied,

the instant petition for review on certiorari was filed.

The main issue in this case is whether or not petitioners

are liable for damages to private respondent.

Petitioners contend that they could not be made liable for

damages in the lawful exercise of their right to dismiss

private respondent.

On the other hand, private respondent contends that

because of petitioners’ abusive manner in dismissing him as

well as for the inhuman treatment he got from them, the

petitioners must indemnify him for the damage that he had

suffered.

One of the more notable innovations of the New Civil Code

is the codification of “some basic principles that are to be

observed for the rightful relationship between human beings

and for the stability of the social order.” [REPORT ON THE

CODE COMMISSION ON THE PROPOSED CIVIL CODE

OF THE PHILIPPINES, p. 39]. The framers of the Code,

seeking to remedy the defect of the old Code which merely

stated the effects of the law, but failed to draw out its spirit,

incorporated certain fundamental precepts which were

“designed to indicate certain norms that spring from the

fountain of good conscience” and which were also meant to

serve as “guides for human conduct [that] should run as

golden threads through society, to the end that law may

approach its supreme ideal, which is the sway and

dominance of justice” (Id.) Foremost among these principles

is that pronounced in Article 19 which provides:

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.

This article, known to contain what is commonly referred to

as the principle of abuse of rights, sets certain standards

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34

which must be observed not only in the exercise of one’s

rights but also in the performance of one’s duties. These

standards are the

_______________

** Penned by Justice Jorge R. Coquia and concurred in by Justice Josue N.

Bellosillo and Justice Venancio D. Aldecoa, Jr.


REPORTS

ANNOTATED



Appeals

following: to act with justice; to give everyone his due; and to

observe honesty and good faith. The law, therefore,

recognizes a 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. But while Article 19

lays down a rule of conduct for the government of human

relations and for the maintenance of social order, it does not

provide a remedy for its violation. Generally, an action for

damages under either Article 20 or Article 21 would be

proper.

Article 20, which pertains to damage arising from a

violation of law, provides that:

Art. 20. Every person who contrary to law, wilfully or negligently

causes damage to another, shall indemnify the latter for the same.

However, in the case at bar, petitioners claim that they did

not violate any provision of law since they were merely

exercising their legal right to dismiss private respondent.

This does not, however, leave private respondent with no

relief because Article 21 of the Civil Code provides that:

Art. 21. Any person who wilfully causes loss or injury to another in

a manner that is contrary to morals, good customs or public policy

shall compensate the latter for the damage.

This article, adopted to remedy the “countless gaps in the

statutes, which leave so many victims of moral wrongs

helpless, even though they have actually suffered material

and moral injury” [Id.] should “vouchsafe adequate legal

remedy for that untold number of moral wrongs which it is

impossible for human foresight to provide for specifically in

the statutes” [Id., at p. 40; See also PNB v. CA, G.R. No. L-

27155, May 18, 1978, 83 SCRA 237, 247].


25, 1989

785



Appeals

In determining whether or not the principle of abuse of rights

may be invoked, there is no rigid test which can be applied.

While the Court has not hesitated to apply Article 19

whether the legal and factual circumstances called for its

application [See for e.g., Velayo v. Shell Co. of the Phil.,

Ltd., 100 Phil. 186(1956); PNB v. CA, supra;Grand Union

Supermarket, Inc. v. Espino, Jr., G.R. No. L-48250,

December 28, 1979, 94 SCRA 953; PAL v. CA, G.R. No. L-

46558, July 31, 1981,106 SCRA 391; United General

Industries, Inc. v. Paler, G.R. No. L-30205, March 15,

1982, 112 SCRA 404; Rubio v. CA, G.R. No. 50911, August

21, 1987, 153 SCRA 183] the question of whether or not the

principle of abuse of rights has been violated resulting in

35

damages under Article 20 or Article 21 or other applicable

provision of law, depends on the circumstances of each case.

And in the instant case, the Court, after examining the

record and considering certain significant circumstances,

finds that petitioners have indeed abused the right that they

invoke, causing damage to private respondent and for which

the latter must now be indemnified.

The trial court made a finding that notwithstanding the

fact that it was private respondent Tobias who reported the

possible existence of anomalous transactions, petitioner

Hendry “showed belligerence and told plaintiff (private

respondent herein) that he was the number one suspect and

to take a one week vacation leave, not to communicate with

the office, to leave his table drawers open, and to leave his

keys to said defendant (petitioner Hendry)” [RTC Decision, p.

2; Rollo, p. 232]. This, petitioners do not dispute. But

regardless of whether or not it was private respondent Tobias

who reported the anomalies to petitioners, the latter’s

reaction towards the former upon uncovering the anomalies

was less than civil. An employer who harbors suspicions that

an employee has committed dishonesty might be justified in

taking the appropriate action such as ordering an

investigation and directing the employee to go on a leave.

Firmness and the resolve to uncover the truth would also be

expected from such employer. But the high-handed

treatment accorded Tobias by petitioners was certainly

uncalled for. And this reprehensible attitude of petitioners

was to continue when private respondent returned to work

on November 20, 1972


REPORTS

ANNOTATED



Appeals

after his one week forced leave. Upon reporting for work,

Tobias was confronted by Hendry who said. “Tobby, you are

the crook and swindler in this company.” Considering that

the first report made by the police investigators was

submitted only on December 10, 1972 [See Exh. “A”] the

statement made by petitioner Hendry was baseless. The

imputation of guilt without basis and the pattern of

harassment during the investigations of Tobias transgress

the standards of human conduct set forth in Article 19 of the

Civil Code. The Court has already ruled that the right of the

employer to dismiss an employee should not be confused with

the manner in which the right is exercised and the effects

flowing therefrom. If the dismissal is done abusively, then

the employer is liable for damages to the employee [Quisaba

v. Sta. Ines-Melale Veneer and Plywood Inc.,G.R. No. L-

38088, August 30, 1974, 58 SCRA 771; See alsoPhilippine

Refining Co., Inc. v. Garcia, G.R. No. L-21871, September 27,

1966, 18 SCRA 107]. Under the circumstances of the instant

case, the petitioners clearly failed to exercise in a legitimate

manner their right to dismiss Tobias, giving the latter the

right to recover damages under Article 19 in relation to

Article 21 of the Civil Code.

But petitioners were not content with just dismissing

Tobias. Several other tortious acts were committed by

petitioners against Tobias after the latter’s termination from

work. Towards the latter part of January, 1973, after the

filing of the first of six criminal complaints against Tobias,

the latter talked to Hendry to protest the actions taken

against him. In response, Hendry cut short Tobias’

protestations by telling him to just confess or else the

company would file a hundred more cases against him until

he landed in jail. Hendry added that, “You Filipinos cannot

be trusted.” The threat unmasked petitioner’s bad faith in

the various actions taken against Tobias. On the other hand,

36

the scornful remark about Filipinos as well as Hendry’s

earlier statements about Tobias being a “crook” and

“swindler” are clear violations of Tobias’ personal dignity

[See Article 26, Civil Code].

The next tortious act committed by petitioners was the

writing of a letter to RETELCO sometime in October 1974,

stating that Tobias had been dismissed by GLOBE MACKAY

due to dishonesty. Because of the letter, Tobias failed to gain

employ-


25, 1989

787



Appeals

ment with RETELCO and as a result of which, Tobias

remained unemployed for a longer period of time. For this

further damage suffered by Tobias, petitioners must likewise

be held liable for damages consistent with Article 2176 of the

Civil Code. Petitioners, however, contend that they have a

“moral, if not legal, duty to forewarn other employers of the

kind of employee the plaintiff (private respondent herein)

was.” [Petition, p. 14; Rollo, p. 15]. Petitioners further claim

that “it is the accepted moral and societal obligation of every

man to advise or warn his fellowmen of any threat or danger

to the latter’s life, honor or property. And this includes

warning one’s brethren of the possible dangers involved in

dealing with, or accepting into confidence, a man whose

honesty and integrity is suspect” [Id.]. These arguments,

rather than justify petitioners’ act, reveal a seeming

obsession to prevent Tobias from getting a job, even after

almost two years from the time Tobias was dismissed.

Finally, there is the matter of the filing by petitioners of

six criminal complaints against Tobias. Petitioners contend

that there is no case against them for malicious prosecution

and that they cannot be “penalized for exercising their right

and prerogative of seeking justice by filing criminal

complaints against an employee who was their principal

suspect in the commission of forgeries and in the

perpetration of anomalous transactions which defrauded

them of substantial sums of money” [Petition, p. 10, Rollo, p.

11].

While sound principles of justice and public policy dictate

that persons shall have free resort to the courts for redress of

wrongs and vindication of their rights [Buenaventura v. Sto.

Domingo, 103 Phil. 239(1958)], the right to institute criminal

prosecutions can not be exercised maliciously and in bad

faith [Ventura v. Bernabe, G.R. No. L-26760, April 30,

1971, 38 SCRA 587]. Hence, in Yutuk v. Manila Electric

Co., G.R. No. L-13016, May 31, 1961, 2 SCRA 337, the Court

held that the right to file criminal complaints should not be

used as a weapon to force an alleged debtor to pay an

indebtedness. To do so would be a clear perversion of the

function of the criminal processes and of the courts of justice.

And in Hawpia v. CA,G.R. No. L-20047, June 30, 1967, 20

SCRA 536, the Court upheld the judgment against the

petitioner for actual and moral damages


REPORTS

ANNOTATED



Appeals

and attorney’s fees after making a finding that petitioner,

with persistence, filed at least six criminal complaints

against respondent, all of which were dismissed.

To constitute malicious prosecution, there must be proof

that the prosecution was prompted by a design to vex and

humiliate a person and that it was initiated deliberately by

37

the defendant knowing that the charges were false and

groundless [Manila Gas Corporation v. CA, G.R. No. L-44190,

October 30, 1980, 100 SCRA 602]. Concededly, the filing of a

suit, by itself, does not render a person liable for malicious

prosecution [Inhelder Corporation v. CA,G.R. No. 52358, May

30, 1983, 122 SCRA 576]. The mere dismissal by the fiscal of

the criminal complaint is not a ground for an award of

damages for malicious prosecution if there is no competent

evidence to show that the complainant had acted in bad faith

[Sison v. David, G.R. No. L-11268, January 28, 1961, 1 SCRA

60].

In the instant case, however, the trial court made a

finding that petitioners acted in bad faith in filing the

criminal complaints against Tobias, observing that:

x x x

Defendants (petitioners herein) filed with the Fiscal’s Office of

Manila a total of six (6) criminal cases, five (5) of which were for

estafa thru falsification of commercial document and one for

violation of Art. 290 of the Revised Penal Code “discovering secrets

thru seizure of correspondence,” and all were dismissed for

insufficiency or lack of evidence.” The dismissal of four (4) of the

cases was appealed to the Ministry of Justice, but said Ministry

invariably sustained the dismissal of the cases. As above adverted

to, two of these cases were refiled with the Judge Advocate

General’s Office of the Armed Forces of the Philippines to railroad

plaintiff’s arrest and detention in the military stockade, but this

was frustrated by a presidential decree transferring criminal cases

involving civilians to the civil courts.

x x x

To be sure, when despite the two (2) police reports embodying

the findings of Lt. Dioscoro Tagle, Chief Document Examiner of

the Manila Police Department, clearing plaintiff of participation or

involvement in the fraudulent transactions complained of, despite

the negative results of the lie detector tests which defendants

compelled plaintiff to undergo, and although the police

investigation was “still under follow-up and a supplementary

report will be submitted after all the


25, 1989

789



Appeals

evidence has been gathered,” defendants hastily filed six (6)

criminal cases with the city Fiscal’s Office of Manila, five (5) for

estafa thru falsification of commercial document and one (1) for

violation of Art. 290 of the Revised Penal Code, so much so that as

was to be expected, all six (6) cases were dismissed, with one of the

investigating fiscals, Asst. Fiscal de Guia, commenting in one case

that, “Indeed, the haphazard way this case was investigated is

evident. Evident likewise is the flurry and haste in the filing of

this case against respondent Tobias,” there can be no mistaking

that defendants would not but be motivated by malicious and

unlawful intent to harass, oppress, and cause damage to plaintiff.

x x x

[RTC Decision, pp. 5-6; Rollo, pp. 235-236].

In addition to the observations made by the trial court, the

Court finds it significant that the criminal complaints were

filed during the pendency of the illegal dismissal case filed by

Tobias against petitioners. This explains the haste in which

the complaints were filed, which the trial court earlier noted.

But petitioners, to prove their good faith, point to the fact

that only six complaints were filed against Tobias when they

could have allegedly filed one hundred cases, considering the

number of anomalous transactions committed against

GLOBE MACKAY. However, petitioners’ good faith is belied

by the threat made by Hendry after the filing of the first

complaint that one hundred more cases would be filed

against Tobias. In effect, the possible filing of one hundred

more cases was made to hang like the sword of Damocles

38

over the head of Tobias. In fine, considering the haste in

which the criminal complaints were filed, the fact that they

were filed during the pendency of the illegal dismissal case

against petitioners, the threat made by Hendry, the fact that

the cases were filed notwithstanding the two police reports

exculpating Tobias from involvement in the anomalies

committed against GLOBE MACKAY, coupled by the

eventual dismissal of all the cases, the Court is led into no

other conclusion than that petitioners were motivated by

malicious intent in filing the six criminal complaints against

Tobias.

Petitioners next contend that the award of damages was

excessive. In the complaint filed against petitioners, Tobias

prayed for the following: one hundred thousand pesos

(P100,000.00) as


REPORTS

ANNOTATED



Appeals

actual damages; fifty thousand pesos (P50,000.00) as

exemplary damages; eight hundred thousand pesos

(P800,000.00) as moral damages; fifty thousand pesos

(P50,000.00) as attorney’s fees; and costs. The trial court,

after making a computation of the damages incurred by

Tobias [See RTC Decision, pp. 7-8; Rollo, pp. 154-155],

awarded him the following: eighty thousand pesos

(P80,000.00) as actual damages; two hundred thousand pesos

(P200,000.00) as moral damages; twenty thousand pesos

(P20,000.00) as exemplary damages; thirty thousand pesos

(P30,000.00) as attorney’s fees; and, costs. It must be

underscored that petitioners have been guilty of committing

several actionable tortious acts, i.e., the abusive manner in

which they dismissed Tobias from work including the

baseless imputation of guilt and the harassment during the

investigations; the defamatory language heaped on Tobias as

well as the scornful remark on Filipinos; the poison letter

sent to RETELCO which resulted in Tobias’ loss of possible

employment; and, the malicious filing of the criminal

complaints. Considering the extent of the damage wrought

on Tobias, the Court finds that, contrary to petitioners’

contention, the amount of damages awarded to Tobias was

reasonable under the circumstances.

Yet, petitioners still insist that the award of damages was

improper, invoking the principle of damnum absque injuria.

It is argued that “[t]he only probable actual damage that

plaintiff (private respondent herein) could have suffered was

a direct result of his having been dismissed from his

employment, which was a valid and legal act of the

defendants-appellants (petitioners herein).” [Petition, p. 17;

Rollo, p. 18].

According to the principle of damnum absque injuria,

damage or loss which does not constitute a violation of a legal

right or amount to a legal wrong is not actionable [Escano v.

CA, G.R. No. L-47207, September 25, 1980,100 SCRA 197;

See alsoGilchrist v. Cuddy, 29 Phil. 542 (1915); The Board of

Liquidators v. Kalaw, G.R. No. L-18805, August 14, 1967,20

SCRA 987]. This principle finds no application in this case. It

bears repeating that even granting that petitioners might

have had the right to dismiss Tobias from work, the abusive

manner in which that right was exercised amounted to a

legal wrong for which petitioners must now be held liable.

Moreover, the dam-


25, 1989

791



39

Appeals

age incurred by Tobias was not only in connection with the

abusive manner in which he was dismissed but was also the

result of several other quasi-delictual acts committed by

petitioners.

Petitioners next question the award of moral damages.

However, the Court has already ruled in Wassmer v.

Velez, G.R. No. L-20089, December 26, 1964, 12 SCRA 648,

653, that “[p]er express provision of Article 2219 (10) of the

New Civil Code, moral damages are recoverable in the cases

mentioned in Article 21 of said Code.” Hence, the Court of

Appeals committed no error in awarding moral damages to

Tobias.

Lastly, the award of exemplary damages is impugned by

petitioners. Although Article 2231 of the Civil Code provides

that “[i]n quasi-delicts, exemplary damages may be granted if

the defendant acted with gross negligence,” the Court,

in Zulueta v. Pan American World Airways, Inc., G.R. No. L-

28589, January 8, 1973, 49 SCRA 1, ruled that if gross

negligence warrants the award of exemplary damages, with

more reason is its imposition justified when the act

performed is deliberate, malicious and tainted with bad faith.

As in the Zulueta case, the nature of the wrongful acts shown

to have been committed by petitioners against Tobias is

sufficient basis for the award of exemplary damages to the

latter.

WHEREFORE, the petition is hereby DENIED and the

decision of the Court of Appeals in CA-G.R. CV No. 09055 is

AFFIRMED.

SO ORDERED.

Fernan, (C.J.),Gutierrez, Jr. and Bidin, JJ., concur.

Feliciano, J., No part. My former firm acted as

counsel for petitioner corp. in other cases.

Petition denied and decision affirmed.

Notes.—Dismissal without just cause of an employee from

his employment is a violation of the Labor Code, but which

does not amount to an offense under said Code. (Callanta vs.

Carnation Philippines, Inc., 145 SCRA 268.)

Termination of an employment without just cause, not an

un


REPORTS

ANNOTATED

Kapalaran Bus Line vs.

Coronado

lawful practice. (Callanta vs. Carnation Philippines, Inc.,145

SCRA 268.)

——o0o——

40

G.R. No. 126486. February 9, 1998.*

BARONS MARKETING CORP., petitioner, vs.COURT OF

APPEALS and PHELPS DODGE PHILS., INC., respondents.

Actions; Damages; It is an elementary rule that good faith is

presumed and that the burden of proving bad faith rests upon the

party alleging the same.—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. 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.

Same; Same; A person who, in exercising his rights, does not

act in an abusive manner is not deemed 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.—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

_______________

* THIRD DIVISION.

97

VOL. 286, 9

FEBRUARY 9, 1998 7

Barons Marketing Corp.


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 mereexercise of rights, not an abusethereof.

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.

Contracts; Principle of Autonomy of Contracts; Since a

contract has the force of law between the parties, each is bound to

fulfill what has been expressly stipulated therein.—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.

Same; Penalty Clauses;Attorney’s Fees; The attorneys’ fees so

provided in penal clauses are awarded in favor of the litigant, not

his counsel, and it is the litigant, not counsel, who is the judgment

creditor entitled to enforce the judgment by execution.—Petitioner

nevertheless urges this Sourt 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:

x x x 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

http://www.central.com.ph/sfsreader/session/000001507df9550402e13b50000a0094004f00ee/p/AJV746/?username=Guest#p286scra8960096001

41

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.

Same; Same; Same; Courts are empowered to reduce the

penalty if the same is “iniquitous or unconscionable.”—

Nonetheless,

98

9

8

SUPREME COURT

REPORTS ANNOTATED

Barons Marketing Corp.


courts are empowered to reduce such penalty if the same is

“iniqui-tous 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. (Italics supplied.)

Same; Same; Same;Attorney’s fees and collection fees

equivalent to twenty-five percent (25%) of the principal and

interest—with the interest running to some P4.5 Million, which

interest even exceeds the principal debt—are manifestly

exorbitant.—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 theprincipal.

Same; Same; Same; Appeals;Supreme Court; Equity

Jurisdiction; The Supreme Court is clothed with ample authority to

review matters, even if they are not assigned as errors in the appeal,

if it finds that their consideration is necessary in arriving at a just

decision of the case.—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. 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.

PETITION for review on certiorari of a decision of the Court

of Appeals.


Vero B. Librojo for petitioner.

99 VOL. 286, FEBRUARY

9, 1998

99

Barons Marketing Corp. vs.

Court of Appeals

Ponce Enrile, Reyes & Manalastas for private respondent.

KAPUNAN, J.:

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.

The facts are undisputed:

On August 31, 1973, plaintiff [Phelps Dodge, Philippines, Inc.

private respondent herein] appointed defendant [petitioner Barons

42

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

_______________

1 More accurately, the invoices state: x x x Interest at 12% per annum will be

charged on all overdue account plus 25% on said amount for attorney’s fees and

collection. x x x.


REPORTS

ANNOTATED


Court of Appeals

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. 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-à-vis the various

sales invoices and/or delivery receipts;

2. 2.25% of the preceding obligation for and as attorney’s fees;

3. 3.P10,000.00 as exemplary damages;

4. 4.Costs of suit.3




43

_______________

2 Rollo, p. 51.

3 Id., at 54.


9, 1998

101


Court of Appeals

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.

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. 1.P3,802,478.20constituting 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-à-vis the various

sales invoices and/or delivery receipts; and

2. 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

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

_______________

4 Id., at 43; italics in the original.


REPORTS

ANNOTATED


Court of Appeals

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



44

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.

_______________

5 See Melendez v. Lavarias, 9 SCRA 548 (1963).

6 IV Tolentino, Commentaries and Jurisprudence on the Civil Code of the

Philippines, 1990 ed., p. 298; italics supplied.

7 Globe Mackay Cable and Radio Corp. v. Court of Appeals, 176 SCRA

778 (1989).


9, 1998

103


Court of Appeals

Petitioner now invokes Article 19 and Article 218 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:

x x x 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 utmost 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

Expounding on its theory, petitioner states:

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.

x x x.

x x x. 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

_______________

8 ART. 21. Any person who willfully causes loss or injury to another in a

manner that is contrary to morals, good customs or public policy shall compensate

the latter for the damage.

9 Rollo, p. 137.


REPORTS

ANNOTATED


Court of Appeals





45

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 filing 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.

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

_______________

10 Id., at 18-20.

11 I Tolentino, pp. 61-62; italics supplied.


9, 1998

105


Court of Appeals

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




46

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:

_______________

12 Ford Philippines v. Court of Appeals, G.R. No. 99039, February 3, 1997.


REPORTS

ANNOTATED


Court of Appeals

x x x.

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29,

30, 32, 34, and 35.

x x x.

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 tomoral,

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.14Petitioner is thus bound to fulfill what has been

expressly stipulated therein.15In 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 contracts16 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:

_______________

13 ART. 2234, Civil Code.





9, 1998

107


Court of Appeals

x x x. Interest at 12% per annum will be charged on all overdue

account plus 25% on said amount for attorney’s fees and collection.

x x x.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.18Petitioner is thus obliged to pay

such penalty in additionto the 12% annual interest, there

being an express stipulation to that effect.

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







47

penalty is supposed to answer not only for attorney’s fees but

for collection fees as well. Moreover:

x x x 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

_______________

17 Exhibit “BB”; italics supplied.

18 See Luneta Motor Co. v. Mora, 73 Phil. 80 (1941).

19 Polytrade Corporation v. Blanco, 30 SCRA 187 (1969).


REPORTS

ANNOTATED


Court of Appeals

penalty may also be reduced by the courts if it is iniquitous or

unconscionable. (Italics 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 theprincipal.

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.

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

_______________

20 See Polytrade v. Blanco, supra, note 1.

21 Korean Airlines Co., Ltd. v. Court of Appeals, 234 SCRA 717(1994); see

also: Asset Privatization Trust v. CA, 214 SCRA 400 (1994).

109 VOL. 286, FEBRUARY 109




48

10, 1998

Association of Philippine

Coconut Desiccators vs.

Philippine Coconut Authority

are reduced to ten percent (10%) of the principal but is

AFFIRMED in all other respects.

SO ORDERED.

Narvasa (C.J.,

Chairman), Romero,Francisco and Purisima, JJ.,concur.

Decision modified.

Notes.—When non-compliance with the Rules was not

intended for delay or did not result in prejudice to the

adverse party, dismissal of appeal on mere technicalities—in

cases where appeal is a matter of right—may be stayed, in

the exercise of the court’s equity jurisdiction. (Parañaque

Kings Enterprises, Inc. vs. Court of Appeals, 268 SCRA

727 [1997]) Where the findings of the NLRC contradict those

of the labor arbiter, the Supreme Court, in the exercise of its

equity jurisdiction, may look into the records of the case and

reexamine the questioned findings. (Industrial Timber

Corporation vs. National Labor Relations Commission,273

SCRA 200 [1997])

——o0o——

©

49

G.R. No. 147076. June 17, 2004.*

METROPOLITAN WATERWORKS AND SEWERAGE

SYSTEM, petitioner, vs. ACT THEATER, INC., respondent.

Civil Law; Damages;Definition of a Right; The exercise of

rights is not without limitations; Having the right should not be

confused with the manner by which such right is to be exercised.—A

right is a power, privilege, or immunity guaranteed under a

constitution, statute or decisional law, or recognized as a result of

long usage, constitutive of a legally enforceable claim of one person

against the other. Concededly, the petitioner, as the owner of the

utility providing water supply to certain consumers including the

respondent, had the right to exclude any person from the

enjoyment and disposal thereof. However, the exercise of rights is

not without limitations. Having the right should not be confused

with the manner by which such right is to be exercised. Article 19

of the Civil Code precisely sets the norms for the exercise of one’s

rights: Art. 19. Every person must, in the exercise of his rights and

in the performance of his duties, act with justice, give everyone his


Same; Same; Same; When a right is exercised in a manner

which discards the norms set in Article 19 of the Civil Code,

resulting in damage to another, a legal wrong is committed for

which actor can be held accountable.—When a right is exercised in

a manner which discards these norms resulting in damage to

another, a legal wrong is committed for which actor can be held

accountable. In this case, the petitioner failed to act with justice

and give the respondent what is due to it when the petitioner

unceremoniously cut off the respondent’s water service connection.

_______________

* SECOND DIVISION.

419

VOL. 432, JUNE

17, 2004

4

19

Metropolitan Waterworks

and Sewerage System vs. Act

Theater, Inc.

Same; Same; Same;Petitioner’s act was arbitrary, injurious

and prejudicial to the respondent, justifying the award of damages

under Article 19 of the Civil Code.—There is, thus, no reason to

deviate from the uniform findings and conclusion of the court a

quo and the appellate court that the petitioner’s act was arbitrary,

injurious and prejudicial to the respondent, justifying the award of

damages under Article 19 of the Civil Code.

Same; Same; Attorney’s Fees;Attorney’s fees may be awarded

when a party is compelled to litigate or incur expenses to protect his

interest by reason of an unjustified act of the other party.—The

award of P5,000 as attorney’s fees is reasonable and warranted.

Attorney’s fees may be awarded when a party is compelled to

litigate or incur expenses to protect his interest by reason of an

unjustified act of the other party.


of Appeals.


Anabella S. Altuna for petitioner.

Eulogio E. Gatdula for respondent.

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari filed by

the Metropolitan Waterworks and Sewerage System

(MWSS), seeking to reverse and set aside the Decision1 dated

January 31, 2001 of the Court of Appeals in CA-G.R. CV No.

58581, which affirmed the civil aspect of the Decision2 dated

May 5, 1997 of the Regional Trial Court of Quezon City,

Branch 77, directing the petitioner MWSS to pay the

respondent Act Theater, Inc. damages and attorney’s fees.

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50

The present case stemmed from the consolidated cases of

Criminal Case No. Q-89-2412entitled People of the

Philippines v. Rodolfo Tabian, et al., for violation of

Presidential Decree (P.D.) No. 401, as amended by Batas

Pambansa Blg. 876, and Civil Case No. Q-88-768 entitledAct

Theater, Inc. v. Metropolitan Waterworks

_______________

1 Penned by Associate Justice Portia Aliño-Hormachuelos, with Associate

Justices Fermin A. Martin, Jr. and Mercedes Gozo-Dadole concurring.

2 Penned by Judge Normandie B. Pizarro.


REPORTS

ANNOTATED

Metropolitan Waterworks and

Sewerage System vs. Act

Theater, Inc.

and Sewerage System. The two cases were jointly tried in the

court a quo as they arose from the same factual

circumstances, to wit:

On September 22, 1988, four employees of the respondent

Act Theater, Inc., namely, Rodolfo Tabian, Armando Aguilar,

Arnel Concha and Modesto Ruales, were apprehended by

members of the Quezon City police force for allegedly

tampering a water meter in violation of P.D. No. 401, as

amended by B.P. Blg. 876. The respondent’s employees were

subsequently criminally charged (Criminal Case No. Q-89-

2412) before the court a quo. On account of the incident, the

respondent’s water service connection was cut off.

Consequently, the respondent filed a complaint for injunction

with damages (Civil Case No. Q-88-768) against the

petitioner MWSS.

In the civil case, the respondent alleged in its complaint

filed with the courta quo that the petitioner acted arbitrarily,

whimsically and capriciously, in cutting off the respondent’s

water service connection without prior notice. Due to lack of

water, the health and sanitation, not only of the respondent’s

patrons but in the surrounding premises as well, were

adversely affected. The respondent prayed that the petitioner

be directed to pay damages.

After due trial, the court a quo rendered its decision, the

dispositive portion of which reads:

In Criminal Case No. Q-89-2412

“WHEREFORE, for failure of the prosecution to prove the guilt of

the accused beyond reasonable doubt, the four (4) above-named

Accused are hereby ACQUITTED of the crime charged.3

In Civil Case No. Q-88-768

. . .

1. 1.Ordering defendant MWSS to pay plaintiff actual or

compensatory damages in the amount of P25,000.00; and to

return the sum of P200,000.00 deposited by the plaintiff for the

restoration of its water services after its disconnection on

September 23, 1988;

2. 2.Defendant’s counterclaim for undercollection of P530,759.96 is

dismissed for lack of merit;

3. 3.Ordering defendant MWSS to pay costs of suit;

_______________

3 Rollo, p. 35.

421 VOL. 432, JUNE 17,

2004

421


51



Theater, Inc.

1. 4.Ordering defendant MWSS to pay plaintiff the amount of

P5,000.00 as attorney’s fees;

2. 5.Making the mandatory injunction earlier issued to plaintiff Act

Theater, Inc. permanent.

SO ORDERED.”4

Aggrieved, the petitioner appealed the civil aspect of the

aforesaid decision to the CA. The appellate court, however,

dismissed the appeal. According to the CA, the court a

quo correctly found that the petitioner’s act of cutting off the

respondent’s water service connection without prior notice

was arbitrary, injurious and prejudicial to the latter

justifying the award of damages under Article 19 of the Civil

Code.

Undaunted, the petitioner now comes to this Court

alleging as follows:

I

WHETHER OR NOT THE HONORABLE COURT OF APPEAL[S]

VALIDLY AFFIRMED THE DECISION OF THE REGIONAL

TRIAL COURT IN RESOLVING THE PETITIONER’S APPEAL;

II

WHETHER OR NOT THE HONORABLE COURT OF

APPEALS VALIDLY UPHELD THE AWARD OF ATTORNEY’S

FEES;

III

WHETHER OR NOT THE HONORABLE COURT OF

APPEAL[S] CORRECTLY APPLIED THE PROVISION OF

ARTICLE 19 OF THE NEW CIVIL CODE WITHOUT

CONSIDERING THE APPLICABLE PROVISION OF ARTICLE

429 OF THE SAME CODE.5

Preliminarily, the petitioner harps on the fact that, in

quoting the decretal portion of the court a quo’s decision, the

CA erroneously typed P500,000 as the attorney’s fees

awarded in favor of the respondent when the same should

only be P5,000. In any case, according to the petitioner,

whether the amount is P500,000 or P5,000, the award of

attorney’s fees is improper considering that there was no

discussion or statement in the body of the assailed

_______________

4 Id., at p. 37.

5 Id., at pp. 13-14.


REPORTS

ANNOTATED



Theater, Inc.

decision justifying such award. The petitioner insists that in

cutting off the respondent’s water service connection, the

petitioner merely exercised its proprietary right under


The petition is devoid of merit.

Article 429 of the Civil Code, relied upon by the petitioner

in justifying its act of disconnecting the water supply of the

respondent without prior notice, reads:

Art. 429. The owner or lawful possessor of a thing has the right to

exclude any person from the enjoyment and disposal thereof. For



52

this purpose, he may use such force as may be reasonable to repel

or prevent an actual or threatened unlawful physical invasion or

usurpation of his property.

A right is a power, privilege, or immunity guaranteed under

a constitution, statute or decisional law, or recognized as a

result of long usage,6 constitutive of a legally enforceable

claim of one person against the other.7

Concededly, the petitioner, as the owner of the utility

providing water supply to certain consumers including the

respondent, had the right to exclude any person from the

enjoyment and disposal thereof. However, the exercise of

rights is not without limitations. Having the right should not

be confused with the manner by which such right is to be

exercised.8

Article 19 of the Civil Code precisely sets the norms for

the exercise of one’s rights:

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.

When a right is exercised in a manner which discards these

norms resulting in damage to another, a legal wrong is

committed for which actor can be held accountable.9 In this

case, the petitioner failed to act with justice and give the

respondent what is due

_______________

6 BLACK’S LAW DICTIONARY, 6th Ed., p. 1324.

7 Rellosa v. Pellosis, 362 SCRA 486(2001).

8 Paguio v. Philippine Long Distance Telephone Co., Inc., 393 SCRA

379 (2002).

9 Rellosa v. Pellosis, supra.

423 VOL. 432, JUNE 17,

2004

423



Theater, Inc.

to it when the petitioner unceremoniously cut off the

respondent’s water service connection. As correctly found by

the appellate court:

While it is true that MWSS had sent a notice of investigation to

plaintiff-appellee prior to the disconnection of the latter’s water

services, this was done only a few hours before the actual

disconnection. Upon receipt of the notice and in order to ascertain

the matter, Act sent its assistant manager Teodulo Gumalid, Jr. to

the MWSS office but he was treated badly on the flimsy excuse

that he had no authority to represent Act. Act’s water services

were cut at midnight of the day following the apprehension of the

employees. Clearly, the plaintiff-appellee was denied due process

when it was deprived of the water services. As a consequence

thereof, Act had to contract another source to provide water for a

number of days. Plaintiff-appellee was also compelled to deposit

with MWSS the sum of P200,000.00 for the restoration of their

water services.10

There is, thus, no reason to deviate from the uniform findings

and conclusion of the court a quo and the appellate court that

the petitioner’s act was arbitrary, injurious and prejudicial to

the respondent, justifying the award of damages under


Finally, the amount of P500,000 as attorney’s fees in that

portion of the assailed decision which quoted thefallo of the

court a quo’sdecision was obviously a typographical error. As

attorney’s fees, the court a quo awarded the amount of

P5,000 only. It was this amount, as well as actual and

compensatory damages of P25,000 and the reimbursement of

P200,000 deposited by the respondent for the restoration of

its water supply, that the CA affirmed, as it expressly stated

in its dispositive portion that “finding no cogent reason to






53

reverse the appealed Decision which is in conformity with the

law and evidence, the same is hereby AFFIRMED.”11

The award of P5,000 as attorney’s fees is reasonable and

warranted. Attorney’s fees may be awarded when a party is

compelled to litigate or incur expenses to protect his interest

by reason of an unjustified act of the other party.12

_______________

10 Rollo, p. 26.

11 Id., at p. 27.

12 Terminal Facilities and Services Corporation vs. Philippine Ports

Authority, 378 SCRA 82 (2002).


REPORTS

ANNOTATED

People vs. Ibarrientos

WHEREFORE, the petition is DENIED. The Decision of the

Court of Appeals dated January 31, 2001 in CA-G.R. CV No.

58581 is AFFIRMEDin toto.

SO ORDERED.

Puno (Chairman),Quisumbing, Austria-

Martinez and Tinga, JJ.,concur.

Petition denied, assailed decision affirmed in toto.

Note.—The power of the courts to grant damages and

attorney’s fees demands factual, legal and equitable

justification; its basis cannot be left to speculation or

conjecture. (Ranola vs. Court of Appeals, 322 SCRA 1[2000])

——o0o——



54

G.R. No. 151866. September 9, 2004.*

SOLEDAD CARPIO, petitioner, vs. LEONORA A.

VALMONTE, respondent.

Civil Law; Damages; Abuse of Rights; To find the existence of

an abuse of right, 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.—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.” To find the

existence of an abuse of right, 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.

When a right is exercised in a manner which discards these norms

resulting in damage to another, a legal wrong is committed for

which the actor can be held accountable.

Same; Same; Same; A person should be protected only when he

acts in the legitimate exercise of his right, that is when he acts with

prudence and good faith; but not when he acts with negligence or

abuse.—One is not allowed to exercise his right in a manner which

would cause unnecessary prejudice to another or if he would

thereby offend morals or good customs. Thus, a person should be

protected only when he acts in the legitimate exercise of his right,

that is when he acts with prudence and good faith; but not when

he acts with negligence or abuse.

Same; Same; Same; To be recoverable, actual damages must

be duly proved with reasonable degree of certainty and the courts

cannot rely on speculation, conjecture or guesswork.—Owing to the

rule that great weight and even finality is given to factual

conclusions of the Court of Appeals which affirm those of the trial

court, we sustain the findings of the trial court and the appellate

court that respondent’s claim for actual damages has not been

substantiated with satisfactory evidence during the trial and must

therefore be denied. To be recoverable, actual damages must be

duly proved with reasonable degree of certainty and the courts

cannot rely on speculation, conjecture or guesswork.


of Appeals.


Roberto A. Abad for petitioner.

Marlon B. Llauder for respondent.

40 40 SUPREME COURT

REPORTS ANNOTATED

Carpio vs. Valmonte

TINGA, J.:

Assailed in the instant petition for review is theDecision of

the Court of Appeals in C.A.-G.R. CV No.

69537,1 promulgated on 17 January 2002.2 The appellate

court reversed the trial court’s decision denying respondent’s

claim for damages against petitioner and ordered the latter

to pay moral damages to the former in the amount of

P100,000.00.

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55

Respondent Leonora Valmonte is a wedding coordinator.

Michelle del Rosario and Jon Sierra engaged her services for

their church wedding on 10 October 1996. At about 4:30 p.m.

on that day, Valmonte went to the Manila Hotel where the

bride and her family were billeted. When she arrived at Suite

326-A, several persons were already there including the

bride, the bride’s parents and relatives, the make-up artist

and his assistant, the official photographers, and the fashion

designer. Among those present was petitioner Soledad

Carpio, an aunt of the bride who was preparing to dress up

for the occasion.

After reporting to the bride, Valmonte went out of the

suite carrying the items needed for the wedding rites and the

gifts from the principal sponsors. She proceeded to the

Maynila Restaurant where the reception was to be held. She

paid the suppliers, gave the meal allowance to the band, and

went back to the suite. Upon entering the suite, Valmonte

noticed the people staring at her. It was at this juncture that

petitioner allegedly uttered the following words to

Valmonte:“Ikaw lang ang lumabas ng kwarto, nasaan ang

dala mong bag? Saan ka pumunta? Ikaw lang ang lumabas

ng kwarto, ikaw ang kumuha.”Petitioner then ordered one of

the ladies to search Valmonte’s bag. It turned out that after

Valmonte left the room to attend to her duties, petitioner

discovered that the pieces of jewelry which she placed inside

the comfort room in a paper bag were lost. The jewelry pieces

consist of two (2) diamond rings, one (1) set of diamond

earrings, bracelet and necklace with a total value of about

one million pesos. The hotel security was called in to help in

the search. The bags and personal belongings of all the

people inside the room were searched. Valmonte was

allegedly bodily searched, interrogated and trailed by a

security guard throughout the evening. Later, police officers

arrived and interviewed all persons who had access to the

suite and fingerprinted them including Valmonte. During all

the time Valmonte was being interrogated by the police

officers, petitioner kept on saying the words “Siya lang ang

lumabas ng kwarto.” Valmonte’s car which was parked at the

hotel premises was also searched but the search yielded

nothing.

A few days after the incident, petitioner received a letter

from Valmonte demanding a formal letter of apology which

she wanted to be circulated to the newlyweds’ relatives and

guests to redeem her smeared reputation as a result of

petitioner’s imputations against her. Petitioner did not

respond to the letter. Thus, on 20 February 1997, Valmonte

filed a suit for damages against her before the Regional Trial

Court (RTC) of Pasig City, Branch 268. In her complaint,

Valmonte prayed that petitioner be ordered to pay actual,

moral and exemplary damages, as well as attorney’s fees.

Responding to the complaint, petitioner denied having

uttered words or done any act to confront or single out

Valmonte during the investigation and claimed that

everything that transpired after the theft incident was purely

a police matter in which she had no participation. Petitioner

prayed for the dismissal of the complaint and for the court to

adjudge Valmonte liable on her counterclaim.

The trial court rendered itsDecision on 21 August 2000,

dismissing Valmonte’s complaint for damages. It ruled that

when petitioner sought investigation for the loss of her

jewelry, she was merely exercising her right and if damage

results from a person exercising his legal right, it is damnum

42 42 SUPREME COURT

REPORTS ANNOTATED

Carpio vs. Valmonte

absque injuria. It added that no proof was presented by

Valmonte to show that petitioner acted maliciously and in

bad faith in pointing to her as the culprit. The court said that

Valmonte failed to show that she suffered serious anxiety,

56

moral shock, social humiliation, or that her reputation was

besmirched due to petitioner’s wrongful act.

Respondent appealed to the Court of Appeals alleging that

the trial court erred in finding that petitioner did not slander

her good name and reputation and in disregarding the

evidence she presented.

The Court of Appeals ruled differently. It opined that

Valmonte has clearly established that she was singled out by

petitioner as the one responsible for the loss of her jewelry. It

cited the testimony of Serena Manding, corroborating

Valmonte’s claim that petitioner confronted her and uttered

words to the effect that she was the only one who went out of

the room and that she was the one who took the jewelry. The

appellate court held that Valmonte’s claim for damages is not

predicated on the fact that she was subjected to body search

and interrogation by the police but rather petitioner’s act of

publicly accusing her of taking the missing jewelry. It

categorized petitioner’s utterance defamatory considering

that it imputed upon Valmonte the crime of theft. The court

concluded that petitioner’s verbal assault upon Valmonte

was done with malice and in bad faith since it was made in

the presence of many people without any solid proof except

petitioner’s suspicion. Such unfounded accusation entitles

Valmonte to an award of moral damages in the amount of

P100,000.00 for she was publicly humiliated, deeply insulted,

and embarrassed. However, the court found no sufficient

evidence to justify the award of actual damages.

Hence, this petition.

Petitioner contends that the appellate court’s conclusion

that she publicly humiliated respondent does not conform to

the evidence presented. She adds that even on the

assumption

43 VOL. 438, SEPTEMBER

9, 2004

43

Carpio vs. Valmonte

that she uttered the words complained of, it was not shown

that she did so with malice and in bad faith.

In essence, petitioner would want this Court to review the

factual conclusions reached by the appellate court. The

cardinal rule adhered to in this jurisdiction is that a petition

for review must raise only questions of law,3 and judicial

review under Rule 45 does not extend to an evaluation of the

sufficiency of evidence unless there is a showing that the

findings complained of are totally devoid of support in the

record or that they are so glaringly erroneous as to constitute

serious abuse of discretion.4 This Court, while not a trier of

facts, may review the evidence in order to arrive at the

correct factual conclusion based on the record especially so

when the findings of fact of the Court of Appeals are at

variance with those of the trial court, or when the inference

drawn by the Court of Appeals from the facts is manifestly

mistaken.5

Contrary to the trial court’s finding, we find sufficient

evidence on record tending to prove that petitioner’s

imputations against respondent was made with malice and

in bad faith.

Petitioner’s testimony was shorn of substance and consists

mainly of denials. She claimed not to have uttered the words

imputing the crime of theft to respondent or to have

mentioned the latter’s name to the authorities as the one

responsible for the loss of her jewelry. Well-settled is the rule

that denials, if unsubstantiated by clear and convincing

evidence, are negative and self-serving which merit no

weight in law and cannot be given greater evidentiary value

over the testi-

_______________




57

3 Abalos v. Court of Appeals, 375 Phil. 419; 317 SCRA 14 (1999);Viloria v.

Court of Appeals, 368 Phil. 851; 309 SCRA 529 (1999).

4 Lagrosa v. Court of Appeals, 371 Phil. 225; 312 SCRA 298 (1999).

5 Roman Catholic Bishop of Malolos, Inc. v. Intermediate Appellate

Court, G.R. No. 72110, November 16, 1990, 191 SCRA 411;Ferrer v. Court of

Appeals, G.R. No. 98182, March 1, 1993, 219 SCRA 302.

44 44 SUPREME COURT

REPORTS ANNOTATED

Carpio vs. Valmonte

mony of credible witnesses who testify on affirmative mat-

ters.6

Respondent, however, has successfully refuted petitioner’s

testimony. Quite credibly, she has narrated in great detail

her distressing experience on that fateful day. She testified

as to how rudely she was treated by petitioner right after she

returned to the room. Petitioner immediately confronted her

and uttered the words “Ikaw lang ang lumabas ng kwarto.

Nasaan ang dala mong bag? Saan ka pumunta? Ikaw ang

kumuha.” Thereafter, her body was searched including her

bag and her car. Worse, during the reception, she was once

more asked by the hotel security to go to the ladies room and

she was again bodily searched.7

Sereña Manding, a make-up artist, corroborated

respondent’s testimony. She testified that petitioner

confronted respondent in the presence of all the people inside

the suite accusing her of being the only one who went out of

the comfort room before the loss of the jewelry. Manding

added that respondent was embarrassed because everybody

else in the room thought she was a thief.8If only to debunk

petitioner’s assertion that she did not utter the accusatory

remarks in question publicly and with malice, Manding’s

testimony on the point deserves to be reproduced. Thus,

Q After that what did she do?

A Then Leo came out from

the other room she said, she

is (sic) the one I only saw

from the comfort room.

Q Now, what exact word (sic)

were said by Mrs. Carpio

on that matter?

A She said “siya lang yung

nakita kong galing sa C.R.”

_______________

6 People v. Sernadilla, G.R. No. 137696, January 24, 2001, 350 SCRA

243; People v. Preciados, G.R. No. 122934, January 5, 2001, 349 SCRA

1; People v. Baway, G.R. No. 130406, January 22, 2001, 350 SCRA 29.

7 TSN, October 22, 1997, pp. 6, 13-19.

8 TSN, December 15, 1998, pp. 10-12.


9, 2004

45

Carpio vs. Valmonte

Q And who was Mrs.

Carpio or the defendant

referring to?

A Leo Valmonte.

Q Did she say anything

else, the defendant?

A Her jewelry were lost

and Leo was the only

one she saw in the C.R.

After that she get (sic)

the paper bag then the

jewelry were already

gone.

Q Did she confront the




58

plaintiff Mrs. Valmonte

regarding that fact?

A Yes.

Q What did the defendant

Mrs. Carpio tell the

plaintiff, Mrs.

Valmonte?

A “Ikaw yung nakita ko sa

C.R. nawawala yung

alahas ko.”

Q When the defendant

Mrs. Carpio said that to

plaintiff Mrs. Valmonte

were there other people

inside the room?

A Yes, sir.

Q Were they able to hear

what Mrs. Carpio said

to Mrs. Valmonte?

A Yes, sir.

Q What was your thinking

at that time that Mrs.

Carpio said that to Mrs.

Valmonte?

A “Nakakahiya kasi akala

ng iba doon na talagang

magnanakaw siya. Kasi

marami na kaming

nandodoon, dumating

na yung couturier pati

yung video man and we

sir.

Q Who was the person

you [were] alleging “na

nakakahiya” whose

(sic) being accused or

being somebody who

stole those item of

jewelry?

A “Nakakahiya para kay

Leo kasi

pinagbibintangan siya.

Sa dami namin doon

siya yung

napagbintangan.”

Q And who is Leo, what is

her full name?

A Leo Valmonte.

Q Did the defendant tell

this matter to other

people inside the room?

A Yes, the mother of the

bride.

Q And who else did she

talk to?

A The father of the bride

also.

46 46 SUPREME COURT

REPORTS ANNOTATED

Carpio vs. Valmonte

Q And what did the

defendant tell the mother

regarding this matter?

A “Nawawala yung alahas

ko.” Sabi naman nung

mother baka naman hindi

mo dala tignan mo munang

mabuti.

Q Who was that other person

59

that she talked to?

A Father of the bride.9

Significantly, petitioner’s counsel elected not to pursue her

cross-examination of the witness on this point following her

terse and firm declaration that she remembered petitioner’s

exact defamatory words in answer to the counsel’s question.10

Jaime Papio, Security Supervisor at Manila Hotel,

likewise contradicted petitioner’s allegation that she did not

suspect or mention the name of respondent as her suspect in

the loss of the jewelry.11

To warrant recovery of damages, there must be both a

right of action, for a wrong inflicted by the defendant, and

the damage resulting therefrom to the plaintiff. Wrong

without damage, or damage without wrong, does not

constitute a cause of action.12

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.13 First

_______________

9 TSN, December 15, 1998, pp. 9-12.

10 TSN, February 9, 1999, p. 14.

11 TSN, May 27, 1998, pp. 9, 12, and 16.

12 Sangco, Torts and Damages, Vol. II, 1994 Edition, p. 941.

13 Report on the Code Commission on the Proposed Civil Code of the

Philippines, p. 39 cited in Globe Mackay Cable and Radio Corporation v.

Court of Appeals, G.R. No. 81262, August 25, 1989, 176 SCRA 779.

47

VOL. 438, SEPTEMBER

9, 2004

47

Carpio vs. Valmonte

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.” To

find the existence of an abuse of right, 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.14 When a right is exercised in a manner

which discards these norms resulting in damage to another,

a legal wrong is committed for which the actor can be held

accountable.15 One is not allowed to exercise his right in a

manner which would cause unnecessary prejudice to another

or if he would thereby offend morals or good customs. Thus, a

person should be protected only when he acts in the

legitimate exercise of his right, that is when he acts with

prudence and good faith; but not when he acts with

negligence or abuse.16

Complementing the principle of abuse of rights are the

provisions of Articles 20 and 21 of the Civil Code which read,

thus:

Art. 20. Every person who, contrary to law, willfully or negligently


Art. 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.

The foregoing rules provide the legal bedrock for the award of

damages to a party who suffers damage whenever one

_______________









60

14 BPI Express Card Corporation v. Court of Appeals, 357 Phil. 262;296

SCRA 260 (1998); Globe Mackay v. Court of Appeals, G.R. No. 81262, August

25, 1989, 176 SCRA 779;NPC v. Philipp Brothers Oceanic, Inc., G.R. No.

126204, November 20, 2001, 369 SCRA 629.

15 Rellosa v. Pellosis, 414 Phil. 786;362 SCRA 486 (2001).

16 See 1 Tolentino, THE CIVIL CODE, 1990 Ed. p. 61.

48 48 SUPREME COURT

REPORTS ANNOTATED

Carpio vs. Valmonte

commits an act in violation of some legal provision, or an act

which though not constituting a transgression of positive

law, nevertheless violates certain rudimentary rights of the

party aggrieved.

In the case at bar, petitioner’s verbal reproach against

respondent was certainly uncalled for considering that by her

own account nobody knew that she brought such kind and

amount of jewelry inside the paper bag.17 This being the case,

she had no right to attack respondent with her innuendos

which were not merely inquisitive but outrightly accusatory.

By openly accusing respondent as the only person who went

out of the room before the loss of the jewelry in the presence

of all the guests therein, and ordering that she be

immediately bodily searched, petitioner virtually branded

respondent as the thief. True, petitioner had the right to

ascertain the identity of the malefactor, but to malign

respondent without an iota of proof that she was the one who

actually stole the jewelry is an act which, by any standard or

principle of law is impermissible. Petitioner had willfully

caused injury to respondent in a manner which is contrary to

morals and good customs. Her firmness and resolve to find

her missing jewelry cannot justify her acts toward

respondent. She did not act with justice and good faith for

apparently, she had no other purpose in mind but to

prejudice respondent. Certainly, petitioner transgressed the

provisions of Article 19 in relation to Article 21 for which she

should be held accountable.

Owing to the rule that great weight and even finality is

given to factual conclusions of the Court of Appeals which

affirm those of the trial court,18 we sustain the findings of the

trial court and the appellate court that respondent’s claim for

actual damages has not been substantiated with satisfactory

_______________

17 TSN, March 17, 1998, pp. 15-16 and p. 26.

18 Bañas, Jr., v. Court of Appeals,382 Phil. 144; 325 SCRA

259 (2000);Compania Maritima, Inc. v. Court of Appeals, 376 Phil. 278; 318

SCRA 169 (1999); Borromeo v. Sun, 375 Phil. 595; 317 SCRA 176 (1999).


9, 2004

49

Carpio vs. Valmonte

evidence during the trial and must therefore be denied. To be

recoverable, actual damages must be duly proved with

reasonable degree of certainty and the courts cannot rely on

speculation, conjecture or guesswork.19

Respondent, however, is clearly entitled to an award of

moral damages. 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, moral shock, social humiliation, and similar

injury20 in the cases specified or analogous to those provided

in Article 2219 of the Civil Code.21 Though no proof of

pecuniary loss is necessary in order that moral damages may

be adjudicated, courts are mandated to take into account all

the circumstances obtaining in the case and assess damages

according to






61

_______________

19 Bayer Philippines, Inc. v. Court of Appeals, G.R. No. 109269, September

15, 2000, 340 SCRA 437;Congregation of the Religious of the Virgin Mary v.

Court of Appeals, 353 Phil. 591; 291 SCRA 385 (1998);Marina Properties

Corporation v. Court of Appeals, 355 Phil. 705; 294 SCRA 273 (1998).

20 Art. 2217, Civil Code.

21 Art. 2219. Moral damages may be recovered in the following and

analogous cases:

1. (1)A criminal offense resulting in physical injuries;

2. (2)Quasi-delicts causing physical injuries;

3. (3)Seduction, abduction, rape, or other lascivious acts;

4. (4)Adultery or concubinage;

5. (5)Illegal or arbitrary detention or arrest;

6. (6)Illegal search;

7. (7)Libel, slander or any other form of defamation;

8. (8)Malicious prosecution;

9. (9)Acts mentioned in article 309;

10. (10)Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32,

34, and 35.

x x x x

50 50 SUPREME COURT

REPORTS ANNOTATED

Carpio vs. Valmonte

their discretion.22 Worthy of note is that moral damages are

not awarded to penalize the defendant,23 or to enrich a

complainant, but to enable the latter to obtain means,

diversions or amusements that will serve to alleviate the

moral suffering he has undergone, by reason of defendant’s

culpable action. In any case, award of moral damages must

be proportionate to the sufferings inflicted.24

Based on the foregoing jurisprudential pronouncements,

we rule that the appellate court did not err in awarding

moral damages. Considering respondent’s social standing,

and the fact that her profession is based primarily on trust

reposed in her by her clients, the seriousness of the

imputations made by petitioner has greatly tarnished her

reputation and will in one way or the other, affect her future

dealings with her clients, the award of P100,000.00 as moral

damages appears to be a fair and reasonable assessment of

respondent’s damages.

WHEREFORE, the instantPetition is DENIED. Costs

against petitioner.

SO ORDERED.

Puno (Chairman) andCallejo, Sr., JJ., concur.

Austria-Martinez, J.,On Official Leave.

Chico-Nazario, J., On Leave.

Petition denied.

Notes.—It is well-settled that actual or compensatory

damages must be duly proved and proved with reasonable

degree of certainty. A party is entitled only up to such

compensation for the pecuniary loss that he has duly proven.

(Sabio vs. International Corporate Bank, Inc., 364 SCRA

385 [2001])

Actual damages are primarily intended to simply make

good or replace the loss caused by a wrong. (Flores vs.

Uy, 368 SCRA 347 [2001])

——o0o——




62

G.R. No. 180764. January 19, 2010.*

TITUS B. VILLANUEVA, petitioner, vs. EMMA M.

ROSQUETA, respondent.

Civil Law; Damages; Abuse of Rights; A person must, in the

exercise of his legal right or duty, act in good faith; He would be

liable if he instead acts in bad faith with intent to prejudice

another.—Under the abuse of right principle found in Article 19 of

the Civil Code, a person must, in the exercise of his legal right or

duty, act in good faith. He would be liable if he instead acts in bad

faith, with intent to prejudice another. Complementing this

principle are Articles 20 and 21 of the Civil Code which grant the

latter indemnity for the injury he suffers because of such abuse of

right or duty.

Same; Same; Same; A party’s refusal to abide by a court order

enjoining him from doing an act, otherwise lawful, constitutes an

abuse and an unlawful exercise of right.—That petitioner

Villanueva ignored the injunction shows bad faith and intent to

spite Rosqueta who remained in the eyes of the law the Deputy

Commissioner. His exclusion of her from the centennial

anniversary memorabilia was not an honest mistake by any

reckoning. Indeed, he withheld her salary and prevented her from

assuming the duties of the position. As the Court said inAmonoy v.

Spouses Gutierrez, 351 SCRA 731 (2001) a party’s refusal to abide

by a court order enjoining him from doing an act, otherwise lawful,

constitutes an abuse and an unlawful exercise of right.

Same; Same; Moral Damages; Moral damages may be

awarded when the defendant’s transgression is the immediate

cause of the plaintiff’s anguish.—The CA correctly awarded moral

damages to respondent Rosqueta. Such damages may be awarded

when the defendant’s transgression is the immediate cause of the

plaintiff’s anguish in the cases specified in Article 2219 of the Civil

Code.

Same; Same; Same; Moral damages should reasonably

approximate the extent of hurt caused and the gravity of the wrong

done.—The Court, however, finds the award of P500,000.00

excessive. As it held in Philippine Commercial International Bank

v. Alejandro, 533 SCRA 738 (2007) moral damages are not a

bonanza. They are given to ease the defendant’s grief and

suffering. Moral damages should reasonably approximate the

extent of hurt caused and the gravity of the wrong done. Here, that

would be P200,000.00.


of Appeals.


Quasha, Ancheta, Peña & Nolasco for petitioner.

Nelson M. Reyes and Batuhan, Blando, Concepcionfor

respondent.

ABAD, J.:

This case is about the right to recover damages for alleged

abuse of right committed by a superior public officer in

preventing a subordinate from doing her assigned task and

being officially recognized for it.336

336 SUPREME COURT

REPORTS

ANNOTATED

Villanueva vs. Rosqueta

The Facts and the Case

Respondent Emma M. Rosqueta (Rosqueta), formerly

Deputy Commissioner of the Revenue Collection and

Monitoring Group of the Bureau of Customs (the Bureau),

tendered her courtesy resignation from that post on January

23, 2001, shortly after President Gloria Macapagal-Arroyo

assumed office. But five months later on June 5, 2001, she

withdrew her resignation, claiming that she enjoyed security

of tenure and that she had resigned against her will on

orders of her superior.1

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Meantime, on July 13, 2001 President Arroyo appointed

Gil Valera (Valera) to respondent Rosqueta’s position.

Challenging such appointment, Rosqueta filed a petition for

prohibition, quo warranto, and injunction against petitioner

Titus B. Villanueva (Villanueva), then Commissioner of

Customs, the Secretary of Finance, and Valera with the

Regional Trial Court2 (RTC) of Manila in Civil Case 01-

101539. On August 27, 2001 the RTC issued a temporary

restraining order (TRO), enjoining Villanueva and the

Finance Secretary3 from implementing Valera’s appointment.

On August 28, 2001 the trial court superseded the TRO with

a writ of preliminary injunction.4

Petitioner Villanueva, Valera, and the Secretary of

Finance challenged the injunction order before the Court of

Appeals

_______________

1 Former Commissioner of Customs, Renato A. Ampil.

2 Branch 51.

3 Hon. Jose Isidro Camacho.

4 Records, p. 12. It is hereby ordered by the undersigned Judge of the

Regional Trial Court that until further orders, you, the said respondents and

all your attorneys, representatives, agents and any other persons assisting

are hereby enjoined from implementing or enforcing the appointment of

respondent GIL A. VALERA to the position of Customs Deputy

Commissioner for Revenue Collection and Monitoring and respondent Valera

from assuming the said office or exercising its functions until further orders

from this Court.

337 VOL. 610m, JANUARY

19, 2010

337


(CA) in CA-G.R. SP 66070. On September 14, 2001 the CA

issued its own TRO, enjoining the implementation of the

RTC’s injunction order. But the TRO lapsed after 60 days

and the CA eventually dismissed the petition before it.

On November 22, 2001 while the preliminary injunction in

the quo warranto case was again in force, petitioner

Villanueva issued Customs Memorandum Order 40-2001,

authorizing Valera to exercise the powers and functions of

the Deputy Commissioner.

During the Bureau’s celebration of its centennial

anniversary in February 2002, its special Panorama

magazine edition featured all the customs deputy

commissioners, except respondent Rosqueta. The souvenir

program, authorized by the Bureau’s Steering Committee

headed by petitioner Villanueva to be issued on the occasion,

had a space where Rosqueta’s picture was supposed to be but

it instead stated that her position was “under litigation.”

Meanwhile, the commemorative billboard displayed at the

Bureau’s main gate included Valera’s picture but not

Rosqueta’s.

On February 28, 2002 respondent Rosqueta filed a

complaint5 for damages before the RTC of Quezon City

against petitioner Villanueva in Civil Case Q-02-46256,

alleging that the latter maliciously excluded her from the

centennial anniversary memorabilia. Further, she claimed

that he prevented her from performing her duties as Deputy

Commissioner, withheld her salaries, and refused to act on

her leave applications. Thus, she asked the RTC to award her

P1,000,000.00 in moral damages, P500,000.00 in exemplary

damages, and P300,000.00 in attorney’s fees and costs of suit.

But the RTC dismissed6respondent Rosqueta’s complaint,

stating that petitioner Villanueva committed no wrong and

incurred no omission that entitled her to damages. The RTC

_______________

5 Id., at pp. 1-8.

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64

6 Rollo, pp. 80-109. Penned by Judge Thelma A. Ponferrada.


REPORTS

ANNOTATED


found that Villanueva had validly and legally replaced her as

Deputy Commissioner seven months before the Bureau’s

centennial anniversary.

But the CA reversed the RTC’s decision,7 holding instead

that petitioner Villanueva’s refusal to comply with the

preliminary injunction order issued in thequo warranto case

earned for Rosqueta the right to recover moral damages from

him.8Citing the abuse of right principle, the RTC said that

Villanueva acted maliciously when he prevented Rosqueta

from performing her duties, deprived her of salaries and

leaves, and denied her official recognition as Deputy

Commissioner by excluding her from the centennial

anniversary memorabilia. Thus, the appellate court ordered

Villanueva to pay P500,000.00 in moral damages,

P200,000.00 in exemplary damages and P100,000.00 in

attorney’s fees and litigation expenses. With the denial of his

motion for reconsideration, Villanueva filed this petition for

review on certiorari under Rule 45.

The Issue Presented

The key issue presented in this case is whether or not the

CA erred in holding petitioner Villanueva liable in damages

to respondent Rosqueta for ignoring the preliminary

injunction order that the RTC issued in the quo warrantocase

(Civil Case 01-101539), thus denying her of the right to do

her job as Deputy Commissioner of the Bureau and to be

officially recognized as such public officer.

_______________

7 Id., at pp. 48-65. Penned by Associate Justice Enrico A. Lanzanas and

concurred in by Associate Justices Remedios Salazar-Fernando and

Rosalinda Asuncion-Vicente.

8 Id., at p. 63.


19, 2010

339


The Court’s Ruling

Under the abuse of right principle found in Article 19 of

the Civil Code,9 a person must, in the exercise of his legal

right or duty, act in good faith. He would be liable if he

instead acts in bad faith, with intent to prejudice another.

Complementing this principle are Articles 2010 and 2111 of the

Civil Code which grant the latter indemnity for the injury he

suffers because of such abuse of right or duty.12

Petitioner Villanueva claims that he merely acted on

advice of the Office of the Solicitor General (OSG) when he

allowed Valera to assume the office as Deputy Commissioner

since respondent Rosqueta held the position merely in a

temporary capacity and since she lacked the Career

Executive Service eligibility required for the job.

But petitioner Villanueva cannot seek shelter in the

alleged advice that the OSG gave him. Surely, a government

official of his rank must know that a preliminary injunction

order issued by a court of law had to be obeyed, especially

since the question of Valera’s right to replace respondent

Rosqueta had not yet been properly resolved.

That petitioner Villanueva ignored the injunction shows

bad faith and intent to spite Rosqueta who remained in the

eyes of the law the Deputy Commissioner. His exclusion of

her from the centennial anniversary memorabilia was not an

_______________




65

9 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.

10 Art. 20. Every person who, contrary to law, willfully or negligently


11 Art. 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.

12 Carpio v. Valmonte, 481 Phil. 352, 362; 438 SCRA 38, 46-47 (2004).


REPORTS

ANNOTATED


honest mistake by any reckoning. Indeed, he withheld her

salary and prevented her from assuming the duties of the

position. As the Court said in Amonoy v. Spouses

Gutierrez,13 a party’s refusal to abide by a court order

enjoining him from doing an act, otherwise lawful,

constitutes an abuse and an unlawful exercise of right.

That respondent Rosqueta was later appointed Deputy

Commissioner for another division of the Bureau is

immaterial. While such appointment, when accepted,

rendered the quo warrantocase moot and academic, it did not

have the effect of wiping out the injuries she suffered on

account of petitioner Villanueva’s treatment of her. The

damage suit is an independent action.

The CA correctly awarded moral damages to respondent

Rosqueta. Such damages may be awarded when the

defendant’s transgression is the immediate cause of the

plaintiff’s anguish14 in the cases specified in Article 221915 of

the Civil Code.16

_______________

13 404 Phil. 586, 594; 351 SCRA 731, 738 (2001).

14 Art. 2217, Civil Code. 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 for omission.

15 Art. 2219. Moral damages may be recovered in the following and

analogous cases:

1) A criminal offense resulting in physical injuries;

2) Quasi-delicts causing physical injuries;

3) Seduction, abduction, rape, or other lascivious acts;

4) Adultery or concubinage;

5) Illegal or arbitrary detention or arrest;

6) Illegal search;

7) Libel, slander or any other form of defamation;

8) Malicious prosecution;

9) Acts mentioned in Article 309;


19, 2010

341


Here, respondent Rosqueta’s colleagues and friends

testified that she suffered severe anxiety on account of the

speculation over her employment status.17 She had to endure

being referred to as a “squatter” in her workplace. She had to

face inquiries from family and friends about her exclusion

from the Bureau’s centennial anniversary memorabilia. She

did not have to endure all these affronts and the angst and

depression they produced had Villanueva abided in good

faith by the court’s order in her favor. Clearly, she is entitled

to moral damages.

The Court, however, finds the award of P500,000.00

excessive. As it held inPhilippine Commercial International

Bank v. Alejandro,18 moral damages are not a bonanza. They

are given to ease the defendant’s grief and suffering. Moral








66

damages should reasonably approximate the extent of hurt

caused and the gravity of the wrong done. Here, that would

be P200,000.00.

The Court affirms the grant of exemplary damages by way

of example or correction for the public good but, in line with

the same reasoning, reduces it to P50,000.00. Finally, the

Court affirms the award of attorney’s fees and litigation

expenses but reduces it to P50,000.00.

WHEREFORE, the Court DENIES the petition and

AFFIRMS the decision of the Court of Appeals dated April

30, 2007 in CA-G.R. CV 85931 with MODIFICATION in that

petitioner Titus B. Villanueva is ORDERED to pay

respondent Emma M. Rosqueta the sum of P200,000.00 in

moral damages, P50,000.00 in exemplary damages,

and P50,000.00 in attorney’s fees and litigation expenses.

SO ORDERED

_______________

10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34

and 35.

The parents of the female seduced, abducted, raped, or abused, referred to

in No. 3 of this Article, may also recover moral damages.

The spouse, descendants, ascendants, and brothers and sisters may bring

the action mentioned in No. 9 of this Article, in the order named.

16 Carpio v. Valmonte, supra note 12, at 364.

17 Testimony of Wilnora Cawile, TSN, March 5, 2003, pp. 16-18;

testimony of Wilhelmina Faustino, TSN, May 15, 2003, pp. 10-13, 19-25;

testimony of John Aclaro, June 6, 2003, pp. 20-26.

18 G.R. No. 175587, September 21, 2007, 533 SCRA 738, 757-758.

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67

G.R. No. 171365. October 6, 2010.*

ERMELINDA C. MANALOTO, AURORA J. CIFRA,

FLORDELIZA J. ARCILLA, LOURDES J. CATALAN,

ETHELINDA J. HOLT, BIENVENIDO R. JONGCO,

ARTEMIO R. JONGCO, JR. and JOEL JONGCO,

petitioners, vs .ISMAEL VELOSO III, respondent.

Appeals; Fresh Period Rule; Pleadings and Practice; Words

and Phrases; Jurisprudence has settled the “fresh period rule,”

according to which, an ordinary appeal from the Regional Trial

Court (RTC) to the Court of Appeals, under Section 3 of Rule 41 of

the Rules of Court, shall be taken within fifteen (15) days either

from receipt of the original judgment of the trial court or from

receipt of the final order of the trial court dismissing or denying the

motion for new trial or motion for reconsideration.—Jurisprudence

has settled the “fresh period rule,” according to which, an ordinary

appeal from the RTC to the Court of Appeals, under Section 3 of

Rule 41 of the Rules of Court, shall be taken within fifteen (15)

days eitherfrom receipt of the original judgment of the trial

court orfrom receipt of the final order of the trial court dismissing

or denying the motion for new trial or motion for reconsideration.

InSumiran v. Damaso, 596 SCRA 450 (2009), we presented a

survey of the cases applying the fresh period rule: As early as

2005, the Court categorically declared in Neypes v. Court of

Appeals, 469 SCRA 633 (2005), that by virtue of the power of the

Supreme Court to amend, repeal and create new procedural rules

in all courts, the Court is allowing a fresh period of 15 days

within which to file a notice of appeal in the RTC, counted

from receipt of the order dismissing or denying a motion

for new trial or motion for reconsideration. This would

standardize the appeal periods provided in the Rules and do away

with the confusion as to when the 15-day appeal period should be

counted.

Same; Same; Same; The fresh period rule has retroactive

application to cases pending and undetermined upon its

effectivity—procedural laws may be given retroactive effect to

actions pending and undetermined at the time of their passage,

there being no vested

_______________

* FIRST DIVISION.

348

3

48

SUPREME COURT

REPORTS

ANNOTATED

Manaloto vs. Veloso III

rights in the rules of procedure.—Also in Sumiran, we

recognized the retroactive application of the fresh period rule to

cases pending and undetermined upon its effectivity: The

retroactivity of the Neypes rule in cases where the period for

appeal had lapsed prior to the date of promulgation of Neypes

on September 14, 2005, was clearly explained by the Court in Fil-

Estate Properties, Inc. v. Homena-Valencia, stating thus: The

determinative issue is whether the “fresh period” rule announced

in Neypes could retroactively apply in cases where the period for

appeal had lapsed prior to 14 September 2005 when Neypes was

promulgated. That question may be answered with the

guidance of the general rule that procedural laws may be

given retroactive effect to actions pending and

undetermined at the time of their passage, there being no

vested rights in the rules of procedure. Amendments to

procedural rules are procedural or remedial in character as they do

not create new or remove vested rights, but only operate in

furtherance of the remedy or confirmation of rights already

existing.

Actions; Motions to Dismiss; When the ground for dismissal is

that the complaint states no cause of action, such fact can be

determined only from the facts alleged in the complaint and from

no other, and the court cannot consider other matters aliunde.—

According to Rule 2, Section 2 of the Rules of Court, a cause of

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68

action is the act or omission by which a party violates a right of

another. When the ground for dismissal is that the complaint

states no cause of action, such fact can be determined only from

the facts alleged in the complaint and from no other, and the court

cannot consider other mattersaliunde. The test, therefore, is

whether, assuming the allegations of fact in the complaint to be

true, a valid judgment could be rendered in accordance with the

prayer stated therein.

Same; Same; Elements.—A cause of action (for damages)

exists if the following elements are present: (1) a right in favor of

the plaintiff by whatever means and under whatever law it arises

or is created; (2) an obligation on the part of the named defendant

to respect or not to violate such right; and (3) an act or omission on

the part of such defendant violative of the right of the plaintiff or

constituting a breach of the obligation of defendant to the plaintiff

for which the latter may maintain an action for recovery of

damages. We find that all three elements exist in the case at bar.

Respondent may not have

349

VOL. 632,

OCTOBER 6, 2010

3

49


specifically identified each element, but it may be sufficiently

determined from the allegations in his complaint.

Same; Human Relations; Abuse of Rights; Torts and Damages;

Every man has a right to build, keep, and be favored with a good

name; A party is obliged to respect the other party’s good name even

though they are opposing parties in the unlawful detainer case; A

violation of the principle embodied in Article 19 of the Civil Code

constitutes an abuse of rights, a tortuous conduct.—First,

respondent filed the complaint to protect his good character, name,

and reputation. Every man has a right to build, keep, and be

favored with a good name. This right is protected by law with the

recognition of slander and libel as actionable wrongs, whether as

criminal offenses or tortuous conduct.Second, petitioners are

obliged to respect respondent’s good name even though they are

opposing parties in the unlawful detainer case. As Article 19 of the

Civil Code requires, “[e]very 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.” A violation

of such principle constitutes an abuse of rights, a tortuous conduct.

Same; Same; Same; Same; While a prevailing party in a case

is free to copy and distribute copies of a favorable judgment to the

public, he must not do so with the intent of humiliating the other

party and destroying the latter’s good name and reputation in the

community.—It is already settled that the public has a right to see

and copy judicial records and documents. However, this is not a

case of the public seeking and being denied access to judicial

records and documents. The controversy is rooted in the

dissemination by petitioners of the MeTC judgment against

respondent to Horseshoe Village homeowners, who were not

involved at all in the unlawful detainer case, thus, purportedly

affecting negatively respondent’s good name and reputation among

said homeowners. The unlawful detainer case was a private

dispute between petitioners and respondent, and the MeTC

decision against respondent was then still pending appeal before

the RTC-Branch 88, rendering suspect petitioners’ intentions for

distributing copies of said MeTC decision to non-parties in the

case. While petitioners were free to copy and distribute such copies

of the MeTC judgment to the public, the question is whether they

did so with the intent of humiliating respondent and destroying

the latter’s good name and reputation in the community.350

3

50

SUPREME COURT

REPORTS

ANNOTATED


Same; Same; Same; Same; Bad Faith; Words and Phrases;

Good faith refers to the state of the mind which is manifested by the

acts of the individual concerned; Good faith is presumed and he

who alleges bad faith has the duty to prove the same.—The finding

69

of the Court of Appeals of bad faith and malice on the part of

petitioners has no factual basis. Good faith is presumed and he

who alleges bad faith has the duty to prove the same. Good faith

refers to the state of the 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. Bad faith, on the other hand, does not simply connote bad

judgment to simple negligence. It imports a dishonest purpose or

some moral obliquity and conscious doing of a wrong, a breach of

known duty due to some motive 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.

Same; A finding that the complaint sufficiently states a cause

of action does not necessarily mean that the complaint is

meritorious—it shall only result in the reinstatement of the

complaint and the hearing of the case for presentation of evidence

by the parties.—We cannot subscribe to respondent’s argument

that there is no more need for the presentation of evidence by the

parties since petitioners, in moving for the dismissal of

respondent’s complaint for damages, hypothetically admitted

respondent’s allegations. The hypothetical admission of

respondent’s allegations in the complaint only goes so far as

determining whether said complaint should be dismissed on the

ground of failure to state a cause of action. A finding that the

complaint sufficiently states a cause of action does not necessarily

mean that the complaint is meritorious; it shall only result in the

reinstatement of the complaint and the hearing of the case for

presentation of evidence by the parties.


of Appeals.


Rafael P. Garcia for petitioners.

Polido and Anchuvas Law Office for respondent.

351

VOL. 632, OCTOBER 6,

2010

351


LEONARDO-DE CASTRO, J.:

Before Us is a Petition for Review on Certiorari of the

Decision1 dated January 31, 2006 of the Court Appeals in CA-

G.R. CV No. 82610, which affirmed with modification the

Resolution2 dated September 2, 2003 of Branch 227 of the

Regional Trial Court (RTC-Branch 227) of Quezon City in

Civil Case No. Q-02-48341.

We partly reproduce below the facts of the case as culled

by the Court of Appeals from the records:

“This case is an off-shoot of an unlawful detainer case filed by

[herein petitioners] Ermelinda C. Manaloto, Aurora J. Cifra,

Flordeliza J. Arcilla, Lourdes J. Catalan, Ethelinda J. Holt,

Bienvenido R. Jongco, Artemio R. Jongco, Jr. and Joel Jongco

against [herein respondent]. In said complaint for unlawful

detainer, it was alleged that they are the lessors of a residential

house located at No. 42 Big Horseshoe Drive, Horseshoe Village,

Quezon City [subject property] which was leased to [respondent] at

a monthly rental of P17,000.00. The action was instituted on the

ground of [respondent’s] failure to pay rentals from May 23, 1997

to December 22, 1998 despite repeated demands. [Respondent]

denied the non-payment of rentals and alleged that he made an

advance payment of P825,000.00 when he paid for the repairs done

on the leased property.

After trial, the Metropolitan Trial Court (MeTC) decided in

favor of [petitioners] by ordering [respondent] to (a) vacate the

premises at No. 42 Big Horseshoe Drive, Horseshoe Village,

Quezon City; (b) pay [petitioners] the sum of P306,000.00

corresponding to the rentals due from May 23, 1997 to November

22, 1998, and the sum of P17,000.00 a month thereafter until

[respondent] vacates the premises; and (c) pay [petitioners] the

sum of P5,000.00 as attorney’s fees.

70

On appeal to the Regional Trial Court (RTC) [Branch 88,

Quezon City], the MeTC decision was reversed. [Respondent] was

ordered to pay arrearages from May 23, 1997 up to the date of the

_______________

1 Rollo, pp. 5-13; penned by Associate Justice Magdangal M. de Leon with

Associate Justices Conrado M. Vasquez, Jr. and Mariano C. del Castillo (now a

member of this Court), concurring.

2 Records, pp. 186-187.

352

352 SUPREME COURT

REPORTS

ANNOTATED


decision but he was also given an option to choose between staying

in the leased property or vacating the same, subject to the

reimbursement by [petitioners] of one-half of the value of the

improvements which it found to be in the amount of P120,000.00.

[Respondent] was also given the right to remove said

improvements pursuant to Article 1678 of the Civil Code, should

[petitioners] refuse to pay P60,000.00.

When both parties moved for the reconsideration of the RTC

decision, the RTC issued an Order dated February 23, 2001

modifying its previous ruling by increasing the value of the

improvements from P120,000.00 to P800,000.00.

After successive appeals to the Court of Appeals and the

Supreme Court, the decision of the RTC dated November 29, 2000

which reversed the decision of the MeTC, became final and

executory.”3

Whilst respondent’s appeal of the Metropolitan Trial

Court (MeTC) judgment in the unlawful detainer case was

pending before the RTC-Branch 88, respondent filed before

the RTC-Branch 227 on November 26, 2002 a Complaint for

Breach of Contract and Damages4against the petitioners,

docketed as Civil Case No. Q-02-48341. The said complaint

alleged two causes of action. The first cause of action was for

damages because the respondent supposedly suffered

embarrassment and humiliation when petitioners distributed

copies of the above-mentioned MeTC decision in the unlawful

detainer case to the homeowners of Horseshoe Village while

respondent’s appeal was still pending before the Quezon City

RTC-Branch 88. The second cause of action was for breach of

contract since petitioners, as lessors, failed to make

continuing repairs on the subject property to preserve and

keep it tenantable. Thus, respondent sought the following

from the court a quo:

_______________

3 Rollo, pp. 6-7.

4 Records, pp. 1-109.

353 VOL. 632, OCTOBER 6,

2010

353


PRAYER

“WHEREFORE, premises considered, it is respectfully prayed

that after hearing the court render a decision against the [herein

petitioners] and in favor of the [herein respondent] by —

1. Ordering [petitioners] to pay [respondent] the following

amounts:

a) P1,500,000.00 as moral damages and consequential

damages;

b) P500,000.00 as exemplary damages;

c) P425,000.00 representing the difference of the

expenses of the improvements of P825,000.00 and

P400,000.00 pursuant to Art. 1678 of the Civil Code;





71

d) P594,000.00 representing interest for three (3) years

from 1998 to 2000 on the P825,000.00 advanced by the

[respondent] at the rate of 24% per annum;

e) P250,000.00 as compensation for the [respondent’s]

labor and efforts in overseeing and attending the needs of

contractors the repair/renovation of the leased premises;

f) P250,000.00, plus 20% of all recoveries from

[petitioners] and P2,500.00 per hearing as attorney’s fees;

g) Cost of suit.

[Respondent] further prays for such other reliefs and remedies

which are just and equitable under the premises.”5

The petitioners filed an Omnibus Motion6 on February 18,

2003 praying for, among other reliefs, the dismissal of

respondent’s complaint in Civil Case No. Q-02-48341.

Petitioners argued that respondent had no cause of action

against them because the MeTC decision in the unlawful

detainer case was a matter of public record and its disclosure

to the public violated no law or any legal right of the

respondent. Moreover, petitioners averred that the

respondent’s present

_______________

5 Id., at pp. 16-17.

6 Id., at pp. 112-130.


REPORTS

ANNOTATED


Complaint for Breach of Contract and Damages was barred

by prior judgment since it was a mere replication of

respondent’s Answer with Compulsory Counterclaim in the

unlawful detainer case before the MeTC. The said unlawful

detainer case was already judicially decided with finality.

On September 2, 2003, the RTC-Branch 227 issued a

Resolution dismissing respondent’s complaint in Civil Case

No. Q-02-48341 for violating the rule against splitting of

cause of action, lack of jurisdiction, and failure to disclose the

pendency of a related case. The RTC-Branch 227 adjudged

that Civil Case No. Q-02-48341 involved the same facts,

parties, and causes of action as those in the unlawful

detainer case, and the MeTC had already properly taken

cognizance of the latter case.

Respondent received a copy of the RTC-Branch 227

decision in Civil Case No. Q-02-48341 on September 26,

2003. He filed a Motion for Reconsideration7 of said judgment

on October 10, 2003, which RTC-Branch 227 denied in an

Order8 dated December 30, 2003.

Respondent received a copy of the RTC-Branch 227 order

denying his Motion for Reconsideration on February 20,

2004, and he filed his Notice of Appeal9 on March 1, 2004.

However, the RTC-Branch 227, in an Order10dated March 23,

2004, dismissed respondent’s appeal for being filed out of

time.

Respondent received a copy of the RTC-Branch 27 order

dismissing his appeal on April 30, 2004 and he filed a Motion

for Reconsideration11 of the same on May 3, 2004. The RTC-

Branch 227, in another Order12 dated May 31, 2004, granted

respondent’s latest motion because it was “convinced that it

is

_______________

7 Id., at pp. 189-196.

8 Id., at p. 205.

9 Id., at pp. 209-210.

10 Id., at p. 214.

11 Id., at pp. 215-217.

12 Id., at pp. 224-225.









72


2010

355


but appropriate and fair to both parties that this matter of

whether or not the Appeal was filed on time, be resolved by

the appellate court rather than by this Court.” The RTC-

Branch 227 then ordered that the records of the case be

forwarded as soon as possible to the Court of Appeals for

further proceedings.

The Court of Appeals, in a Resolution13 dated February 8,

2005, resolved to give due course to respondent’s appeal. Said

appeal was docketed as CA-G.R. CV No. 82610.

On January 31, 2006, the Court of Appeals rendered its

Decision in CA-G.R. CV No. 82610. The Court of Appeals

fully agreed with the RTC-Branch 227 in dismissing

respondent’s second cause of action (i.e., breach of contract)

in Civil Case No. Q-02-48341. The appellate court, however,

held that RTC-Branch 227 should have proceeded with the

trial on the merits of the first cause of action (i.e., damages)

in Civil Case No. Q-02-48341, because “[a]lthough [herein

respondent] may have stated the same factual antecedents

that transpired in the unlawful detainer case, such

allegations were necessary to give an overview of the facts

leading to the institution of another case between the parties

before the RTC acting in its original jurisdiction.”14

The Court of Appeals then went on to find that petitioners

were indeed liable to respondent for damages:

“No doubt, distributing the copies was primarily intended to

embarrass [herein respondent] in the community he mingled in.

We are not unmindful of the fact that court decisions are public

documents and the general public is allowed access thereto to

make inquiries thereon or to secure a copy thereof. Nevertheless,

under the circumstances of this case, although court decisions are

public documents, distribution of the same during the pendency of

an appeal was clearly intended to cause [respondent] some form of

harassment and/or humiliation so that [respondent] would be

ostracized by his

_______________

13 CA Rollo, pp. 158-159.

14 Rollo, pp. 11-12.

356

356 SUPREME COURT

REPORTS

ANNOTATED


neighbors. The appeal may have delayed the attainment of finality

of the determination of the rights of the parties and the execution

in the unlawful detainer case but it did not justify [herein

petitioners’] pre-emption of the outcome of the appeal. By

distributing copies of the MeTC decision, [petitioners] appeared to

have assumed that the MeTC decision would simply be affirmed

and therefore they tried to cause the early ouster of [respondent]

thinking that a humiliated [respondent] would scurry out of the

leased premises. Clearly, there was evident bad faith intended to

mock [respondent’s] right to appeal which is a statutory remedy to

correct errors which might have been committed by the lower

court.

Thus, moral damages may be awarded since [petitioners] acted

in bad faith. Bad faith does not simply connote bad judgment or

negligence, it imports a dishonest purpose or some moral obliquity

and conscious doing of a wrong, a breach of known duty through

some motive or interest or ill will that partakes of the nature of

fraud. However, an award of moral damages would require certain

conditions to be met, to wit: (1) first, there must be an injury,

whether physical, mental or psychological, clearly sustained by the

claimant; (2) second, there must be culpable act or omission

factually established; (3) third, the wrongful act or omission of the



73

defendant is the proximate cause of the injury sustained by the

claimant; and (4) fourth, the award of damages is predicated on

any of the cases stated in Article 2219 of the Civil Code.

But it must again be stressed that moral damages are

emphatically not intended to enrich a plaintiff at the expense of

the defendant. When awarded, moral damages must not be

palpably and scandalously excessive as to indicate that it was the

result of passion, prejudice or corruption on the part of the trial

court judge. For this reason, this Court finds an award of

P30,000.00 moral damages sufficient under the circumstances.

On the other hand, to warrant the award of exemplary

damages, the wrongful act must be accompanied by bad faith, and

an award of damages would be allowed only if the guilty party

acted in a wanton, fraudulent, reckless or malevolent manner.

Accordingly, exemplary damages in the amount of P10,000.00 is

appropriate.”15

_______________

15 Id.


2010

357


In the end, the Court of Appeals decreed:

“WHEREFORE, the decision of the Regional Trial Court is

AFFIRMED with the MODIFICATION that the case is dismissed

only as to the second cause of action. As to the first cause of action,

[herein petitioners] are ordered to pay [herein respondent] moral

damages of P30,000.00 and exemplary damages of P10,000.00.”16

Hence, the instant Petition for Review.

Petitioners assert that respondent’s appeal of the RTC-

Branch 227 Resolution dated September 2, 2003, which

dismissed the latter’s complaint in Civil Case No. Q-02-

48341, was filed out of time. Respondent received a copy of

the said resolution onSeptember 26, 2003, and he only

had 15 days from such date to file his appeal, or

untilOctober 11, 2003. Respondent, instead, filed a Motion

for Reconsideration of the resolution on October 10, 2003,

which left him with only one more day to file his appeal. The

RTC-Branch 227 subsequently denied respondent’s Motion

for Reconsideration in an Order dated December 30, 2003,

which the respondent received on February 20, 2004.

Respondent only had until the following day,February 21,

2004, to file the appeal. However, respondent filed his Notice

of Appeal only on March 1, 2004. Hence, petitioners

conclude that the dismissal of respondent’s complaint in Civil

Case No. Q-02-48341 already attained finality.

Petitioners argue in the alternative that the award of

damages in respondent’s favor has no factual and legal bases.

They contend that the Court of Appeals erred in awarding

moral and exemplary damages to respondent based on the

bare and unproven allegations in the latter’s complaint and

without the benefit of any hearing or trial. While the

appellate court declared that RTC-Branch 227 should have

proceeded with the trial on the merits involving the action for

damages, it surprisingly went ahead and ruled on petitioners’

_______________

16 Id., at p. 12.


REPORTS

ANNOTATED


liability for said damages even without trial. Even assuming

for the sake of argument that respondent’s allegations in his

complaint are true, he still has no cause of action for

damages against petitioners, for the disclosure of a court



74

decision, which is part of public record, did not cause any

legal and compensable injury to respondent.

Respondent, on the other hand, maintains that his appeal

of the September 2, 2003 Resolution of the RTC-Branch 227

to the Court of Appeals was timely filed and that the same

was aptly given due course. In addition, respondent asserts

that the appellate court was correct in holding petitioners

liable for damages even without any hearing or trial since

petitioners, in filing their omnibus motion praying for the

dismissal of respondent’s complaint on the ground of “no

cause of action,” were deemed to have hypothetically

admitted as true the allegations in said complaint.

The petition is partly meritorious.

We note, at the outset, that the propriety of the dismissal

by the RTC-Branch 227 of respondent’s second cause of

action against petitioners (e.g., for breach of contract) was no

longer disputed by the parties. Thus, the present appeal

pertains only to respondent’s first cause of action (e.g., for

damages), and in connection therewith, we are called upon to

resolve the following issues: (1) whether respondent timely

filed his appeal of the Resolution dated September 2, 2003 of

the RTC-Branch 227 before the Court of Appeals; and (2)

whether respondent is entitled to the award of moral and

exemplary damages.

We answer the first issue on the timeliness of respondent’s

appeal affirmatively.

Jurisprudence has settled the “fresh period rule,”

according to which, an ordinary appeal from the RTC to the

Court of Appeals, under Section 3 of Rule 41 of the Rules of

Court, shall be taken within fifteen (15) dayseither from

receipt of the original judgment of the trial court or from

receipt of the


2010

359


final order of the trial court dismissing or denying the motion

for new trial or motion for reconsideration. InSumiran v.

Damaso,17 we presented a survey of the cases applying the

fresh period rule:

“As early as 2005, the Court categorically declared in Neypes v.

Court of Appeals that by virtue of the power of the Supreme

Court to amend, repeal and create new procedural rules in all

courts, the Court is allowing a fresh period of 15 days within

which to file a notice of appeal in the RTC, counted from

receipt of the order dismissing or denying a motion for new

trial or motion for reconsideration. This would standardize

the appeal periods provided in the Rules and do away with the

confusion as to when the 15-day appeal period should be counted.

Thus, the Court stated:

To recapitulate, a party-litigant may either file his

notice of appeal within 15 days from receipt of the

Regional Trial Court’s decision or file it within 15

days from receipt of the order (the “final order”)

denying his motion for new trial or motion for

reconsideration. Obviously, the new 15-day period

may be availed of only if either motion is filed;

otherwise, the decision becomes final and executory

after the lapse of the original appeal period provided

in Rule 41, Section 3.

The foregoing ruling of the Court was reiterated in Makati

Insurance Co., Inc. v. Reyes, to wit:

Propitious to petitioner is Neypes v. Court of Appeals,

promulgated on 14 September 2005 while the present

Petition was already pending before us. x x x.

x x x x

With the advent of the “fresh period rule” parties

who availed themselves of the remedy of motion for

reconsideration are now allowed to file a notice of

75

appeal within fifteen days from the denial of that

motion.

The “fresh period rule” is not inconsistent withRule 41,

Section 3 of the Revised Rules of Court which states that

the

_______________

17 G.R. No. 162518, August 19, 2009, 596 SCRA 450, 455-459.

360

360 SUPREME COURT

REPORTS

ANNOTATED


appeal shall be taken “within fifteen (15) days from notice of

judgment or final order appealed from.” The use of the

disjunctive word “or” signifies disassociation and

independence of one thing from another. It should, as a rule,

be construed in the sense which it ordinarily implies.

Hence, the use of “or” in the above provision supposes

that the notice of appeal may be filed within 15 days

from the notice of judgment or within 15 days from

notice of the “final order,” x x x.

x x x x

The “fresh period rule” finally eradicates the confusion as

to when the 15-day appeal period should be counted — from

receipt of notice of judgment or from receipt of notice of “final

order” appealed from.

Taking our bearings from Neypes, in Sumaway v. Urban

Bank, Inc., we set aside the denial of a notice of appeal which

was purportedly filed five days late. With the fresh period

rule, the 15-day period within which to file the notice of

appeal was counted from notice of the denial of the therein

petitioner’s motion for reconsideration.

We followed suit inElbiña v. Ceniza, wherein we applied

the principle granting a fresh period of 15 days within which

to file the notice of appeal, counted from receipt of the order

dismissing a motion for new trial or motion for

reconsideration or any final order or resolution.

Thereafter, in First Aqua Sugar Traders, Inc. v. Bank of

the Philippine Islands, we held that a party-litigant may now

file his notice of appeal either within fifteen days from

receipt of the original decision or within fifteen days from the

receipt of the order denying the motion for reconsideration.

In De los Santos v. Vda. de Mangubat, we applied the

same principle of “fresh period rule,” expostulating that

procedural law refers to the adjective law which prescribes

rules and forms of procedure in order that courts may be able

to administer justice. Procedural laws do not come within the

legal conception of a retroactive law, or the general rule

against the retroactive operation of statutes. The “fresh

period rule” is irrefragably procedural, prescribing the

manner in which the appropriate period for appeal is to be

computed or determined

361


2010

361


and, therefore, can be made applicable to actions pending

upon its effectivity, such as the present case, without danger

of violating anyone else’s rights.18(Emphases supplied.)

Also in Sumiran, we recognized the retroactive application

of the fresh period rule to cases pending and undetermined

upon its effectivity:

The retroactivity of the Neypes rule in cases where the period

for appeal had lapsed prior to the date of promulgation of Neypes

on September 14, 2005, was clearly explained by the Court

in Fil-Estate Properties, Inc. v. Homena-Valencia, stating

thus:


76

The determinative issue is whether the “fresh period” rule

announced in Neypes could retroactively apply in cases

where the period for appeal had lapsed prior to 14 September

2005 when Neypes was promulgated.That question may

be answered with the guidance of the general rule

that procedural laws may be given retroactive effect

to actions pending and undetermined at the time of

their passage, there being no vested rights in the rules

of procedure. Amendments to procedural rules are

procedural or remedial in character as they do not create

new or remove vested rights, but only operate in furtherance

of the remedy or confirmation of rights already

existing.”19 (Emphases supplied.)

In the case before us, respondent received a copy of the

Resolution dated September 2, 2003 of the RTC-Branch 227

dismissing his complaint in Civil Case No. Q-02-48341

onSeptember 26, 2003. Fourteen days thereafter,

onOctober 10, 2003, respondent filed a Motion for

Reconsideration of said resolution. The RTC-Branch 227

denied respondent’s Motion for Reconsideration in an Order

dated December 30, 2003, which the respondent received

on February 20, 2004. On March 1, 2004, just after nine

days from receipt of the order denying his Motion for

Reconsideration, respondent already filed his Notice of

Appeal. Clearly, under the fresh

_______________

18 Id., at pp. 455-457.

19 Id., at pp. 457-458.


REPORTS

ANNOTATED


period rule, respondent was able to file his appeal well-

within the prescriptive period of 15 days, and the Court of

Appeals did not err in giving due course to said appeal in CA-

G.R. CV No. 82610.

We likewise agree with the Court of Appeals that the

RTC-Branch 227 should not have dismissed respondent’s

complaint for damages on the ground of failure to state a

cause of action.

According to Rule 2, Section 2 of the Rules of Court, a

cause of action is the act or omission by which a party

violates a right of another.

When the ground for dismissal is that the complaint states

no cause of action, such fact can be determined only from the

facts alleged in the complaint and from no other, and the

court cannot consider other matters aliunde. The test,

therefore, is whether, assuming the allegations of fact in the

complaint to be true, a valid judgment could be rendered in

accordance with the prayer stated therein.20

Respondent made the following allegations in support of

his claim for damages against petitioners:

FIRST CAUSE OF ACTION

28. After the promulgation of the Metropolitan Trial

Court of its Decision dated August 3, 1999, ordering the

[herein respondent] and all person claiming rights under him

to —

(a) Vacate the leased premises;

(b) pay the [herein petitioners] the sum of P306,000.00 as

unpaid rentals from May 23, 1997 to November 22,

1998; and

(c) pay the sum of P5,000.00 as attorneys fees;

But while said Decision was still pending appeal with the

Regional Trial Court, the [petitioners], through [petitioner]

Manaloto, already distributed copies of said Decision to some

of the homeowners of



77

_______________

20 Associated Bank v. Montano, Sr., G.R. No. 166383, October 16, 2009,

604 SCRA 134, 144.


2010

363


Horseshoe Village, who personally know the [respondent]. This act

is a direct assault or character assassination on the part of the

[respondent] because as stated in the said decision, [respondent]

has been staying in the premises but did not or refused to pay his

monthly rentals for a long period of time when in truth and in fact

was untrue.

29. That from the time the said decision was distributed

to said members homeowners, the [respondent] became the

subject of conversation or talk of the town and by virtue of

which [respondent’s] good name within the community or

society where he belongs was greatly damaged; his

reputation was besmirched; [respondent] suffered sleepless

night and serious anxiety. [Respondent], who is the grandson

of the late Senator Jose Veloso and Congressman Ismael

Veloso, was deprived of political career and to start with was

to run as candidate for Barangay Chairman within their area

which was being offered to him by the homeowners but this

offer has started to fade and ultimately totally vanished after

the distribution of said Decision. Damages to his good names

and reputations and other damages which he suffered as a

consequence thereof, may be reasonably compensated for at

least P1,500,000.00 as moral and consequential damages.

30. In order to deter [petitioners] and others from doing

as abovementioned, [petitioners] should likewise be assessed

exemplary damages in the amount of P500,000.00.”21

A cause of action (for damages) exists if the following

elements are present: (1) a right in favor of the plaintiff by

whatever means and under whatever law it arises or is

created; (2) an obligation on the part of the named defendant

to respect or not to violate such right; and (3) an act or

omission on the part of such defendant violative of the right

of the plaintiff or constituting a breach of the obligation of

defendant to the plaintiff for which the latter may maintain

an action for recovery of damages.22 We find that all three

elements exist in the case at bar. Respondent may not have

_______________

21 Records, pp. 12-14.

22 Vergara v. Court of Appeals, 377 Phil. 336, 341; 319 SCRA 323, 327

(1999).


REPORTS

ANNOTATED


specifically identified each element, but it may be sufficiently

determined from the allegations in his complaint.

First, respondent filed the complaint to protect his good

character, name, and reputation. Every man has a right to

build, keep, and be favored with a good name. This right is

protected by law with the recognition of slander and libel as

actionable wrongs, whether as criminal offenses or tortuous

conduct.23

Second, petitioners are obliged to respect respondent’s

good name even though they are opposing parties in the

unlawful detainer case. As Article 19 of the Civil Code

requires, “[e]very 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.” A




78

violation of such principle constitutes an abuse of rights, a

tortuous conduct. We expounded inSea Commercial

Company, Inc. v. Court of Appeals24that:

“The principle of abuse of rights stated in the above article,

departs from the classical theory that “he who uses a right injures

no one.” The modern tendency is to depart from the classical and

traditional theory, and to grant indemnity for damages in cases

where there is an abuse of rights, even when the act is not illicit.

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. 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. The

absence of good faith is essential to abuse of right. Good faith is an

honest intention to abstain from taking any unconscientious

advantage of another, even through the forms or technicalities of

the law, together with an absence of all information or belief of fact

which would ren-

_______________

23 Brillante v. Court of Appeals, 483 Phil. 568, 571; 440 SCRA 541, 546

(2004).

24 377 Phil. 221; 319 SCRA 210 (1999).

365


2010

365


der the transaction unconscientious. In business relations, it

means good faith as understood by men of affairs.

While Article 19 may have been intended as a mere declaration

of principle, the “cardinal law on human conduct” expressed in said

article has given rise to certain rules, e.g. that where a person

exercises his rights but does so arbitrarily or unjustly or performs

his duties in a manner that is not in keeping with honesty and

good faith, he opens himself to liability. The elements of an abuse

of rights under Article 19 are: (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.”25

Petitioners are also expected to respect respondent’s

“dignity, personality, privacy and peace of mind” under

Article 26 of the Civil Code, which provides:

“ART. 26. Every person shall respect the dignity, personality,

privacy and peace of mind of his neighbors and other persons. The

following and similar acts, though they may not constitute a

criminal offense, shall produce a cause of action for damages,

prevention and other relief:

(1) Prying into the privacy of another’s residence;

(2) Meddling with or disturbing the private life or family

relations of another;

(3) Intriguing to cause another to be alienated from his

friends;

(4) Vexing or humiliating another on account of his religious

beliefs, lowly station in life, place of birth, physical defect, or other

personal condition.”

Thus, Article 2219(10) of the Civil Code allows the

recovery of moral damages for acts and actions referred to in

Article 26, among other provisions, of the Civil Code.

In Concepcion v. Court of Appeals,26 we explained that:

_______________

25 Id., at pp. 229-230; p. 219.

26 381 Phil. 90; 324 SCRA 85 (2000).


REPORTS

ANNOTATED






79

“The philosophy behind Art. 26 underscores the necessity for its

inclusion in our civil law. The Code Commission stressed in no

uncertain terms that the human personality must be exalted. The

sacredness of human personality is a concomitant consideration of

every plan for human amelioration. The touchstone of every

system of law, of the culture and civilization of every country, is

how far it dignifies man. If the statutes insufficiently protect a

person from being unjustly humiliated, in short, if human

personality is not exalted—then the laws are indeed defective.

Thus, under this article, the rights of persons are amply protected,

and damages are provided for violations of a person’s dignity,

personality, privacy and peace of mind.

It is petitioner’s position that the act imputed to him does not

constitute any of those enumerated in Arts. 26 and 2219. In this

respect, the law is clear. The violations mentioned in the codal

provisions are not exclusive but are merely examples and do not

preclude other similar or analogous acts. Damages therefore are

allowable for actions against a person’s dignity, such as profane,

insulting, humiliating, scandalous or abusive language. Under Art.

2217 of the Civil Code, moral damages which include physical

suffering, mental anguish, fright, serious anxiety, besmirched

reputation, wounded feelings, moral shock, social humiliation, and

similar injury, although incapable of pecuniary computation, may

be recovered if they are the proximate result of the defendant’s

wrongful act or omission.”27

And third, respondent alleged that the distribution by

petitioners to Horseshoe Village homeowners of copies of the

MeTC decision in the unlawful detainer case, which was

adverse to respondent and still on appeal before the RTC-

Branch 88, had no apparent lawful or just purpose except to

humiliate respondent or assault his character. As a result,

respondent suffered damages—becoming the talk of the town

and being deprived of his political career.

Petitioners reason that respondent has no cause of action

against them since the MeTC decision in the unlawful

detainer case was part of public records.

_______________

27 Id., at p. 99; pp. 94-95.


2010

367


It is already settled that the public has a right to see and

copy judicial records and documents.28 However, this is not a

case of the public seeking and being denied access to judicial

records and documents. The controversy is rooted in the

dissemination by petitioners of the MeTC judgment against

respondent to Horseshoe Village homeowners, who were not

involved at all in the unlawful detainer case, thus,

purportedly affecting negatively respondent’s good name and

reputation among said homeowners. The unlawful detainer

case was a private dispute between petitioners and

respondent, and the MeTC decision against respondent was

then still pending appeal before the RTC-Branch 88,

rendering suspect petitioners’ intentions for distributing

copies of said MeTC decision to non-parties in the case. While

petitioners were free to copy and distribute such copies of the

MeTC judgment to the public, the question is whether they

did so with the intent of humiliating respondent and

destroying the latter’s good name and reputation in the

community.

Nevertheless, we further declare that the Court of Appeals

erred in already awarding moral and exemplary damages in

respondent’s favor when the parties have not yet had the

chance to present any evidence before the RTC-Branch 227.

In civil cases, he who alleges a fact has the burden of proving


80

it by a preponderance of evidence. It is incumbent upon the

party claiming affirmative relief from the court to

convincingly prove its claim. Bare allegations,

unsubstantiated by evidence are not equivalent to proof

under our Rules. In short, mere allegations are not

evidence.29

At this point, the finding of the Court of Appeals of bad

faith and malice on the part of petitioners has no factual

basis. Good faith is presumed and he who alleges bad faith

has

_______________

28 Hilado v. Judge Reyes, 496 Phil. 55, 68; 456 SCRA 146, 159 (2005).

29 Mayor v. Belen, G.R. No. 151035, June 3, 2004, 430 SCRA 561, 567.


REPORTS

ANNOTATED


the duty to prove the same. Good faith refers to the state of

the 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.

Bad faith, on the other hand, does not simply connote bad

judgment to simple negligence. It imports a dishonest

purpose or some moral obliquity and conscious doing of a

wrong, a breach of known duty due to some motive 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.30

We cannot subscribe to respondent’s argument that there

is no more need for the presentation of evidence by the

parties since petitioners, in moving for the dismissal of

respondent’s complaint for damages, hypothetically admitted

respondent’s allegations. The hypothetical admission of

respondent’s allegations in the complaint only goes so far as

determining whether said complaint should be dismissed on

the ground of failure to state a cause of action. A finding that

the complaint sufficiently states a cause of action does not

necessarily mean that the complaint is meritorious; it shall

only result in the reinstatement of the complaint and the

hearing of the case for presentation of evidence by the

parties.

WHEREFORE, in view of all the foregoing, the petition is

PARTIALLY GRANTED. The Decision dated January 31,

2006 of the Court of Appeals in CA-G.R. CV No. 82610 is

AFFIRMED WITH MODIFICATIONS. The award of moral

and exemplary damages made by the Court of Appeals in

favor of respondent Ismael Veloso III is DELETED. The

complaint of respondent Ismael Veloso III in Civil Case No.

Q-02-48341 is hereby REINSTATED before Branch 227 of

the Regional Trial Court of Quezon City only in so far as the

first

_______________

30 Arra Realty Corporation v. Guarantee Development Corporation and

Insurance Agency, G.R. No. 142310, September 20, 2004, 438 SCRA 441, 469.



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81

No. L-44748. August 29, 1986.*

RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI),

petitioner, vs.COURT OF APPEALS and LORETO

DIONELA, respondents.

Civil Law; Damages; Breach of contract; Inclusion of

extraneous and libelous matter in telegraphic message constitutes

breach of contract.—Petitioner is a domestic corporation engaged

in the business of receiving and transmitting messages. Everytime

a person transmits a message through the facilities of the

petitioner, a contract is entered into. Upon receipt of the rate or fee

fixed, the petitioner undertakes to transmit the message

accurately. There is no question that in the case at bar, libelous

matters were included in the message transmitted, without the

consent or knowledge of the

_________________

* SECOND DIVISION.

658

6

58

SUPREME COURT

REPORTS

ANNOTATED

Radio Communications of

the Philippines, Inc. vs. Court

of Appeals

sender. There is a clear case of breach of contract by the

petitioner in adding extraneous and libelous matters in the

message sent to the private respondent.

Same; Same; Same; Same;Telegraph corporation, as employer

is liable directly for the acts of its employees; Action based on Arts.

19 and 20 of the Civil Code, not on subsidiary liability of

corporation under Article 1161, New Civil Code.—As a corporation,

the petitioner can act only through its employees. Hence the acts of

its employees in receiving and transmitting messages are the acts

of the petitioner. To hold that the petitioner is not liable directly

for the acts of its employees in the pursuit of petitioner’s business

is to deprive the general public availing of the services of the

petitioner of an effective and adequate remedy. The action for

damages was filed in the lower court directly against respondent

corporation not as an employer subsidiarily liable under the

provisions of Article 1161 of the New Civil Code in relation to Art.

103 of the Revised Penal Code. The cause of action of the private

respondent is based on Arts. 19 and 20 of the New Civil Code

(supra). As well as on respondent’s breach of contract thru the

negligence of its own employees.

Same; Same; Same; Same;Res ipsa loquitur; Since negligence

may be hard to substantiate in some cases, the application of the

doctrine of res ipsa loquitur is proper; Case at bar.—In most cases,

negligence must be proved in order that plaintiff may recover.

However, since negligence may be hard to substantiate in some

cases, we may apply the doctrine of RES IPSA LOQUITUR (the

thing speaks for itself), by considering the presence of facts or

circumstances surrounding the injury.

PETITION for review by certiorari of the decision of the

Court of Appeals.


O. Pythogoras Oliver for respondents.

PARAS, J.:

Before Us, is a Petition for Review by certiorari of the

decision of the Court of Appeals, modifying the decision of the

trial court in a civil case for recovery of damages against

petitioner corporation by reducing the award to private

respondent


29, 1986

659

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82

Radio Communications of the

Philippines, Inc. vs. Court of

Appeals

Loreto Dionela of moral damages from P40,000 to P15,000,

and attorney’s fees from P3,000 to P2,000.00.

The basis of the complaint against the defendant

corporation is a telegram sent through its Manila Office to

the offended party, Loreto Dionela, reading as follows:

“176 AS JR 1215 PM 9PAID

MANDALUYONG JUL. 22-66

LORETO DIONELA

CABANGAN LEGASPI CITY

WIRE ARRIVAL OF CHECK

FER

LORETO DIOMELA-CABANGAN-WIRE ARRIVAL OF CHECK-

PER

115 PM

SA IYO WALANG PAKINABANG DUMATING KA DIYAN—

WALA KANG PADALA DITO—KAHIT BULBUL MO”

(p. 19, Annex “A”)

Plaintiff-respondent Loreto Dionela alleges that the

defamatory words on the telegram sent to him not only

wounded his feelings but also caused him undue

embarrassment and affected adversely his business as well

because other people have come to know of said defamatory

words. Defendant-corporation as a defense, alleges that the

additional words in Tagalog was a private joke between the

sending and receiving operators and that they were not

addressed to or intended for plaintiff and therefore did not

form part of the telegram and that the Tagalog words are not

defamatory. The telegram sent through its facilities was

received in its station at Legaspi City. Nobody other than the

operator manned the teletype machine which automatically

receives telegrams being transmitted. The said telegram was

detached from the machine and placed inside a sealed

envelope and delivered to plaintiff, obviously as is. The

additional words in Tagalog were


REPORTS

ANNOTATED


Philippines, Inc, vs. Court of

Appeals

never noticed and were included in the telegram when

delivered.

The trial court in finding for the plaintiff ruled as follows:

“There is no question that the additional words in Tagalog are

libelous. They clearly impute a vice or defect of the plaintiff.

Whether or not they were intended for the plaintiff, the effect on

the plaintiff is the same. Any person reading the additional words

in Tagalog will naturally think that they refer to the addressee,

the plaintiff. There is no indication from the face of the telegram

that the additional words in Tagalog were sent as a private joke

between the operators of the defendant.

“The defendant is sued directly—not as an employer. The

business of the defendant is to transmit telegrams. It will open the

door to frauds and allow the defendant to act with impunity if it

can escape liability by the simple expedient of showing that its

employees acted beyond the scope of their assigned tasks.

‘The liability of the defendant is predicated not only on Article

33 of the Civil Code of the Philippines but on the following articles

of said Code:

“ART. 19.—Every person must, in the exercise of his rights and

in the performance of his duties, act with justice, give everyone his


83

“ART. 20.—Every person who, contrary to law, wilfully or

negligently causes damage to another, shall indemnify the latter

for the same.”

“There is sufficient publication of the libelous Tagalog words.

The office file of the defendant containing copies of telegrams

received are open and held together only by a metal fastener.

Moreover, they are open to view and inspection by third parties.

“It follows that the plaintiff is entitled to damages and

attorney’s fees. The plaintiff is a businessman. The libelous

Tagalog words must have affected his business and social standing

in the community. The Court fixes the amount of P40,000.00 as the

reasonable amount of moral damages and the amount of P3,000.00

as attorney’s fees which the defendant should pay the plaintiff.”

(pp. 15-16, Record on Appeal)

The respondent appellate court in its assailed decision con-


29, 1986

661



Appeals

firming the aforegoing findings of the lower court stated:

“The proximate cause, therefore, resulting in injury to appellee,

was the failure of the appellant to take the necessary or

precautionary steps to avoid the occurrence of the humiliating

incident now complained of. The company had not imposed any

safeguard against such eventualities and this void in its operating

procedure does not speak well of its concern for their clientele’s

interests. Negligence here is very patent. This negligence is

imputable to appellant and not to its employees.

“The claim that there was no publication of the libelous words

in Tagalog is also without merit. The fact that a carbon copy of the

telegram was filed among other telegrams and left to hang for the

public to see, open for inspection by a third party is sufficient

publication. It would have been otherwise perhaps had the

telegram been placed and kept in a secured place where no one

may have had a chance to read it without appellee’s permission,

“The additional Tagalog words at the bottom of the telegram

are, as correctly found by the lower court, libelous per se, and from

which malice may be presumed in the absence of any showing of

good intention and justifiable motive on the part of the appellant.

The law implies damages in this instance (Quemel vs. Court of

Appeals, L-22794, January 16, 1968; 22 SCRA 44). The award of

P40,000.00 as moral damages is hereby reduced to P15,000.00 and

for attorney’s fees the amount of P2,000.00 is awarded.” (pp. 22-23,

record)

After a motion for reconsideration was denied by the

appellate court, petitioner came to Us with the following:

ASSIGNMENTS OF ERRORS

I

The Honorable Court of Appeals erred in holding that Petitioner-

employer should answer directly and primarily for the civil

liability arising from the criminal act of its employee,

II

The Honorable Court of Appeals erred in holding that there was

sufficient publication of the alleged libelous telegram in question,

as


REPORTS

ANNOTATED



Appeals

contemplated by law on libel.

84

III

The Honorable Court of Appeals erred in holding that the

liability of petitioner-company-employer is predicated on Articles

19 and 20 of the Civil Code, Articles on Human Relations.

IV

The Honorable Court of Appeals erred in awarding Atty.’s fees.

(p. 4, Record)

Petitioner’s contentions do not merit our consideration. The

action for damages was filed in the lower court directly

against respondent corporation not as an employer

subsidiarily liable under the provisions of Article 1161 of the

New Civil Code in relation to Art. 103 of the Revised Penal

Code. The cause of action of the private respondent is based

on Arts. 19 and 20 of the New Civil Code (supra). As well as

on respondent’s breach of contract thru the negligence of its

own employees.1

Petitioner is a domestic corporation engaged in the

business of receiving and transmitting messages. Everytime

a person transmits a message through the facilities of the

petitioner, a contract is entered into. Upon receipt of the rate

or fee fixed, the petitioner undertakes to transmit the

message accurately. There is no question that in the case at

bar, libelous matters were included in the message

transmitted, without the consent or knowledge of the sender.

There is a clear case of breach of contract by the petitioner in

adding extraneous and libelous matters in the message sent

to the private respondent. As a corporation, the petitioner

can act only through its employees. Hence the acts of its

employees in receiving and transmitting messages are the

acts of the petitioner. To hold that the petitioner is not liable

directly for the acts of its employees in the pursuit of

petitioner’s business is to deprive the general public

_____________

1 In contracts the negligence of the employee (servant) is the negligence of

the employer (master). This is the master and servant rule.

663 VOL. 143, AUGUST 29,

1986

663

Joseph & Sons Enterprises,

Inc. vs. Court of Appeals

availing of the services of the petitioner of an effective and

adequate remedy. In most cases, negligence must be proved

in order that plaintiff may recover, However, since negligence

may be hard to substantiate in some cases, we may apply the

doctrine of RES IPSA LOQUITUR (the thing speaks for

itself), by considering the presence of facts or circumstances

surrounding the injury.

WHEREFORE, premises considered, the judgment of the

appellate court is hereby AFFIRMED.

SO ORDERED.

Feria (Chairman),Fernan, Alampay, andGutierrez,

Jr., JJ., concur.

Judgment affirmed.

Notes.—Award of moral damages based on documentary

evidence without supporting oral testimonies is proper.

(Kapoe v., Masa, 134 SCRA 231.)

Moral damages cannot be awarded in the absence of a

wrongful act or omission or of fraud or bad faith. (Siasat vs.

Intermediate Appellate Court,139 SCRA 238.)

———o0o——

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85

G.R. No. 168512. March 20, 2007.*

ORLANDO D. GARCIA, JR., doing business under the name

and style COMMUNITY DIAGNOSTIC CENTER and BU

CASTRO,1petitioners, vs. RANIDA D. SALVADOR and

RAMON SALVADOR, respondents.

Health Care Providers; Torts;Quasi-Delicts; Appeals; Whether

a person is negligent or not is a question of fact which the Supreme

Court cannot pass upon in a petition for review on certiorari which

is limited to reviewing errors of law; For health care providers, the

test of the existence of negligence is—did the health care provider

either fail to do something which a reasonably prudent health care

provider would have done, or that he or she did something that a

reasonably prudent health care provider would not have done, and

that failure or action caused injury to the patient.—We note that

the issues raised are factual in nature. Whether a person is

negligent or not is a question of fact which we cannot pass upon in

a petition for review oncertiorari which is limited to reviewing

errors of law. Negligence is the failure to observe for the protection

of the interest of another person that degree of care, precaution

and vigilance which the circumstances justly demand, whereby

such other person suffers injury. For health care providers, the test

of the existence of negligence is: did the health care provider either

fail to do something which a reasonably prudent health care

provider would have done, or that he or she did something that a

reasonably prudent health care provider would not have done; and

that failure or action caused injury to the patient; if yes, then he is

guilty of negligence. Thus, the elements of an actionable conduct

are: 1) duty, 2) breach, 3) injury, and 4) proximate causation.

Same; Same; Same; Owners and operators of clinical

laboratories have the duty to comply with statutes, as well as rules

and regulations, purposely promulgated to protect and promote the

health of the people by preventing the operation of substandard,

improperly managed and inadequately supported clinical

laboratories and by improving the quality of performance of clinical

laboratory examinations.—Owners and operators of clinical

laboratories have the duty to comply with statutes, as well as rules

and regulations, purposely promulgated to protect and promote the

health of the people by preventing the operation of substandard,

improperly managed and inadequately supported clinical

laboratories and by improving the quality of performance of

clinical laboratory examinations. Their business is impressed with

public interest, as such, high standards of performance are

expected from them.

Same; Same; Same;Violation of a statutory duty is

negligence.—Violation of a statutory duty is negligence. Where the

law imposes upon a person the duty to do something, his omission

or non-performance will render him liable to whoever may be

injured thereby.

Same; Same; Same; Statutes;The Clinical Laboratory Law

(R.A. No. 4688); The Philippine Medical Technology Act of 1969

(R.A. No. 5527); Revised Rules and Regulations Governing the

Registration, Operation and Maintenance of Clinical Laboratories

in the Philippines (DOH Adm. Order No. 49-B, Series of 1988); A

clinical laboratory must be administered, directed and supervised

by a licensed physician authorized by the Secretary of Health, like a

pathologist who is specially trained in methods of laboratory

medicine; that the medical technologist must be under the

supervision of the pathologist or a licensed physician; and that the

results of any examination may be released only to the requesting

physician or his authorized representative upon the direction of the

laboratory pathologist.—It is clear that a clinical laboratory must

be administered, directed and supervised by a licensed physician

authorized by the Secretary of Health, like a pathologist who is

specially trained in methods of laboratory medicine; that the

medical technologist must be under the supervision of the

pathologist or a licensed physician; and that the results of any

examination may be released only to the requesting physician or

his authorized representative upon the direction of the laboratory

pathologist. These rules are intended for the protection of the

public by preventing performance of substandard clinical

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86

examinations by laboratories whose personnel are not properly

supervised. The public demands no less than an effective and

efficient performance of clinical laboratory examinations through

compliance with the quality standards set by laws and regulations.

570

5

70

SUPREME COURT

REPORTS

ANNOTATED

Garcia, Jr. vs. Salvador

Same; Same; Same;Administrative Law; Power of Control and

Supervision; Words and Phrases; “Supervision and control” means

the authority to act directly whenever a specific function is

entrusted by law or regulation to a subordinate; direct the

performance of duty; restrain the commission of acts; review,

approve, revise or modify acts and decisions of subordinate officials

or units.—Castro’s infrequent visit to the clinical laboratory barely

qualifies as an effective administrative supervision and control

over the activities in the laboratory. “Supervision and control”

means the authority to act directly whenever a specific function is

entrusted by law or regulation to a subordinate; direct the

performance of duty; restrain the commission of acts; review,

approve, revise or modify acts and decisions of subordinate officials

or units.

Same; Same; Same; Art. 20 of the Civil Code provides the legal

basis for the award of damages to a party who suffers damage

whenever one commits an act in violation of some legal provision.—

Article 20 of the New Civil Code provides: Art.20.Every person

who, contrary to law, willfully or negligently causes damage to

another, shall indemnify the latter for the same. The foregoing

provision provides the legal basis for the award of damages to a

party who suffers damage whenever one commits an act in

violation of some legal provision. This was incorporated by the

Code Commission to provide relief to a person who suffers damage

because another has violated some legal provision.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.


Bu C. Castro for petitioners.

Albert D. Rebosa co-counsel for petitioners.

Emiliano S. Pomer for respondents.

571 VOL. 518, MARCH 20,

2007

571


YNARES-SANTIAGO, J.:

This is a petition for review2under Rule 45 of the Rules of

Court assailing the February 27, 2004 Decision3 of the Court

of Appeals in CA-G.R. CV No. 58668 finding petitioner

Orlando D. Garcia liable for gross negligence; and its June

16, 2005 Resolution4 denying petitioner’s motion for

reconsideration.

On October 1, 1993, respondent Ranida D. Salvador

started working as a trainee in the Accounting Department

of Limay Bulk Handling Terminal, Inc. (the Company). As a

prerequisite for regular employment, she underwent a

medical examination at the Community Diagnostic Center

(CDC). Garcia who is a medical technologist, conducted the

HBs Ag (Hepatitis B Surface Antigen) test and on October

22, 1993, CDC issued the test result5indicating that Ranida

was “HBs Ag: Reactive.” The result bore the name and

signature of Garcia as examiner and the rubber stamp

signature of Castro as pathologist.

When Ranida submitted the test result to Dr. Sto.

Domingo, the Company physician, the latter apprised her

that the findings indicated that she is suffering from

Hepatitis B, a liver disease. Thus, based on the medical





87

report6 submitted by Sto. Domingo, the Company terminated

Ranida’s employment for failing the physical examination.7

When Ranida informed her father, Ramon, about her

ailment, the latter suffered a heart attack and was confined

at the Bataan Doctors Hospital. During Ramon’s

confinement,

_______________

2 Rollo, pp. 7-45.

3 Id., at pp. 48-63. Penned by Associate Justice Marina L. Buzon and

concurred in by Associate Justices Sergio L. Pestaño and Aurora Santiago-

Lagman.

4 Id., at pp. 46-47.

5 Records, p. 186.

6 Id., at p. 199.

7 Id., at p. 187.


REPORTS

ANNOTATED


Ranida underwent another HBs Ag test at the said hospital

and the result8indicated that she is non-reactive. She

informed Sto. Domingo of this development but was told that

the test conducted by CDC was more reliable because it used

the Micro-Elisa Method.

Thus, Ranida went back to CDC for confirmatory testing,

and this time, the Anti-HBs test conducted on her indicated a

“Negative” result.9

Ranida also underwent another HBs Ag test at the Bataan

Doctors Hospital using the Micro-Elisa Method. The result

indicated that she was non-reactive.10

Ranida submitted the test results from Bataan Doctors

Hospital and CDC to the Executive Officer of the Company

who requested her to undergo another similar test before her

re-employment would be considered. Thus, CDC conducted

another HBs Ag test on Ranida which indicated a “Negative”

result.11 Ma. Ruby G. Calderon, Med-Tech Officer-in-Charge

of CDC, issued a Certification correcting the initial result

and explaining that the examining medical technologist

(Garcia) interpreted the delayed reaction as positive or

reactive.12

Thereafter, the Company rehired Ranida.

On July 25, 1994, Ranida and Ramon filed a complaint13for

damages against petitioner Garcia and a purportedly

unknown pathologist of CDC, claiming that, by reason of the

erroneous interpretation of the results of Ranida’s

examination, she lost her job and suffered serious mental

anxiety, trauma and sleepless nights, while Ramon was

hospitalized and lost business opportunities.

_______________

8 Id., at p. 188.

9 Id., at p. 189.

10 Id., at p. 190.

11 Id., at p. 192.

12 Id., at p. 209.

13 Id., at pp. 1-7.

573 VOL. 518, MARCH 20,

2007

573


On September 26, 1994, respondents amended their

complaint14 by naming Castro as the “unknown pathologist.”

Garcia denied the allegations of gross negligence and

incompetence and reiterated the scientific explanation for the

“false positive” result of the first HBs Ag test in his

December 7, 1993 letter to the respondents.15











88

For his part, Castro claimed that as pathologist, he rarely

went to CDC and only when a case was referred to him; that

he did not examine Ranida; and that the test results bore

only his rubber-stamp signature.

On September 1, 1997,16the trial court dismissed the

complaint for failure of the respondents to present sufficient

evidence to prove the liability of Garcia and Castro. It held

that respondents should have presented Sto. Domingo

because he was the one who interpreted the test result issued

by CDC. Likewise, respondents should have presented a

medical expert to refute the testimonies of Garcia and Castro

regarding the medical explanation behind the conflicting test

results on Ranida.17

Respondents appealed to the Court of Appeals which

reversed the trial court’s findings, the dispositive portion of

which states:

“WHEREFORE, the decision appealed from is REVERSED and

SET ASIDE and another one entered ORDERING

defendantappellee Orlando D. Garcia, Jr. to pay plaintiff-appellant

Ranida D. Salvador moral damages in the amount of P50,000.00,

exemplary damages in the amount of P50,000.00 and attorney’s

fees in the amount of P25,000.00.

SO ORDERED.”18

_______________

14 Id., at pp. 45-51.

15 Id., at pp. 31-41.

16 CA Rollo, pp. 51-61. Penned by Judge Lorenzo R. Silva, Jr.

17 Id., at p. 59.

18 Rollo, p. 63.


REPORTS

ANNOTATED


The appellate court found Garcia liable for damages for

negligently issuing an erroneous HBs Ag result. On the other

hand, it exonerated Castro for lack of participation in the

issuance of the results.

After the denial of his motion for reconsideration, Garcia

filed the instant petition.

The main issue for resolution is whether the Court of

Appeals, in reversing the decision of the trial court, correctly

found petitioner liable for damages to the respondents for

issuing an incorrect HBsAG test result.

Garcia maintains he is not negligent, thus not liable for

damages, because he followed the appropriate laboratory

measures and procedures as dictated by his training and

experience; and that he did everything within his

professional competence to arrive at an objective, impartial

and impersonal result.

At the outset, we note that the issues raised are factual in

nature. Whether a person is negligent or not is a question of

fact which we cannot pass upon in a petition for review

on certiorari which is limited to reviewing errors of law.19

Negligence is the failure to observe for the protection of

the interest of another person that degree of care, precaution

and vigilance which the circumstances justly

demand,20 whereby such other person suffers injury. For

health care providers, the test of the existence of negligence

is: did the health care provider either fail to do something

which a reasonably prudent health care provider would have

done, or that he or she did something that a reasonably

prudent health care provider

_______________

19 Estacion v. Bernardo, G.R. No. 144723, February 27, 2006, 483 SCRA

222, 231.






89

20 Child Learning Center, Inc. v. Tagorio, G.R. No. 150920, November 25,

2005, 476 SCRA 236, 242.

575 VOL. 518, MARCH 20,

2007

575


would not have done; and that failure or action caused injury

to the patient;21 if yes, then he is guilty of negligence.

Thus, the elements of an actionable conduct are: 1) duty,

2) breach, 3) injury, and 4) proximate causation.

All the elements are present in the case at bar.

Owners and operators of clinical laboratories have the

duty to comply with statutes, as well as rules and

regulations, purposely promulgated to protect and promote

the health of the people by preventing the operation of

substandard, improperly managed and inadequately

supported clinical laboratories and by improving the quality

of performance of clinical laboratory examinations.22Their

business is impressed with public interest, as such, high

standards of performance are expected from them.

In F.F. Cruz and Co., Inc. v. Court of Appeals, we found

the owner of a furniture shop liable for the destruction of the

plaintiff’s house in a fire which started in his establishment

in view of his failure to comply with an ordinance which

required the construction of a firewall. InTeague v.

Fernandez, we stated that where the very injury which was

intended to be prevented by the ordinance has happened,

non-compliance with the ordinance was not only an act of

negligence, but also the proximate cause of the death.23

In fine, violation of a statutory duty is negligence. Where

the law imposes upon a person the duty to do something, his

omission or non-performance will render him liable to

whoever may be injured thereby.

Section 2 of Republic Act (R.A.) No. 4688, otherwise

known as The Clinical Laboratory Law, provides:

_______________

21 Garcia-Rueda v. Pascasio, 344 Phil. 323, 331; 278 SCRA 769, 778 (1997).

22 Department of Health (DOH) Administrative Order 49-B (1988), Sec. 3.

23 Cipriano v. Court of Appeals,331 Phil. 1019, 1025; 263 SCRA 711, 717

(1996).


REPORTS

ANNOTATED


“Sec. 2. It shall be unlawful for any person to be professionally in-

charge of a registered clinical laboratory unless he is a licensed

physician duly qualified in laboratory medicine and authorized by

the Secretary of Health, such authorization to be renewed

annually.

No license shall be granted or renewed by the Secretary of

Health for the operation and maintenance of a clinical laboratory

unless such laboratory is under the administration, direction and

supervision of an authorized physician, as provided for in the

preceding paragraph.”

Corollarily, Sections 9(9.1)(1), 11 and 25(25.1)(1) of the DOH

Administrative Order No. 49-B Series of 1988, otherwise

known as the Revised Rules and Regulations Governing the

Registration, Operation and Maintenance of Clinical

Laboratories in the Philippines, read:

“Sec. 9. Management of the Clinical Laboratory:

9.1 Head of the Clinical Laboratory: The head is that person who

assumes technical and administrative supervision and control of the

activities in the laboratory.

For all categories of clinical laboratories, the head shall be a licensed

physician certified by the Philippine Board of Pathology in either

Anatomic or Clinical Pathology or both provided that:

(1) This shall be mandatory for all categories of freestanding clinical

laboratories; all tertiary category hospital laboratories and for all




90

secondary category hospital laboratories located in areas with sufficient

available pathologist.

x x x x

Sec. 11. Reporting: All laboratory requests shall be considered

as consultations between the requesting physician and pathologist

of the laboratory. As such all laboratory reports on various

examinations of human specimens shall be construed as

consultation report and shall bear the name of the pathologist or

his associate. No person in clinical laboratory shall issue a report,

orally or in writing, whole portions thereof without a directive from

the pathologist or his authorized associate and only to the

requesting physician or his

577 VOL. 518, MARCH 20,

2007

577


authorized representative except in emergencies when the results

may be released as authorized by the pathologist.

x x x x

Sec. 25. Violations:

25.1 The license to operate a clinical laboratory may be

suspended or revoked by the Undersecretary of Health for

Standards and Regulation upon violation of R.A. 4688 or the rules

and regulations issued in pursuance thereto or the commission of

the following acts by the persons owning or operating a clinical

laboratory and the persons under their authority.

(1) Operation of a Clinical Laboratory without a certified pathologist or

qualified licensed physician authorized by the Undersecretary of Health

or without employing a registered medical technologist or a person not

registered as a medical technologist in such a position.”

And Section 29(b) of R.A. No. 5527, otherwise known as The

Philippine Medical Technology Act of 1969, reads:

“Section 29. Penal Provisions.—Without prejudice to the provision

of the Medical Act of 1959, as amended relating to illegal practice

of Medicine, the following shall be punished by a fine of not less

than two thousand pesos nor more than five thousand pesos, or

imprisonment for not less than six months nor more than two

years, or both, in the discretion of the court:

x x x x

(b) Any medical technologist, even if duly registered, who shall

practice medical technology in the Philippines without the

necessary supervision of a qualified pathologist or physician

authorized by the Department of Health;”

From the foregoing laws and rules, it is clear that a clinical

laboratory must be administered, directed and supervised by

a licensed physician authorized by the Secretary of Health,

like a pathologist who is specially trained in methods of

laboratory medicine; that the medical technologist must be

under the supervision of the pathologist or a licensed

physician; and that the results of any examination may be

released only to


REPORTS

ANNOTATED


the requesting physician or his authorized representative

upon the direction of the laboratory pathologist.

These rules are intended for the protection of the public by

preventing performance of substandard clinical examinations

by laboratories whose personnel are not properly supervised.

The public demands no less than an effective and efficient

performance of clinical laboratory examinations through

compliance with the quality standards set by laws and

regulations.

We find that petitioner Garcia failed to comply with these

standards.

First, CDC is not administered, directed and supervised

by a licensed physician as required by law, but by Ma. Ruby

C. Calderon, a licensed Medical Technologist.24 In the License


91

to Open and Operate a Clinical Laboratory for the years 1993

and 1996 issued by Dr. Juan R. Nañagas, M.D.,

Undersecretary for Health Facilities, Standards and

Regulation, defendant-appellee Castro was named as the

head of CDC.25 However, in his Answer with Counterclaim, he

stated:

“3. By way of affirmative and special defenses, defendant

pathologist further avers and plead as follows:

Defendant pathologist is not the owner of the Community Diagnostic

Center nor an employee of the same nor the employer of its employees.

Defendant pathologist comes to the Community Diagnostic Center when

and where a problem is referred to him. Its employees are licensed under

the Medical Technology Law (Republic Act No. 5527) and are certified by,

and registered with, the Professional Regulation Commission after

having passed their Board Examinations. They are competent within the

sphere of their own profession in so far as conducting laboratory

examinations and are allowed to sign for and in behalf of the clinical

laboratory. The defendant pathologist, and all pathologists in general, are

hired by laboratories

VOL. 518, MARCH 20,

2007

579


for purposes of complying with the rules and regulations and orders

issued by the Department of Health through the Bureau of Research and

Laboratories. Defendant pathologist does not stay that long period of time

at the Community Diagnostic Center but only periodically or whenever a

case is referred to him by the laboratory. Defendant pathologist does not

appoint or select the employees of the laboratory nor does he arrange or

approve their schedules of duty.”26

Castro’s infrequent visit to the clinical laboratory barely

qualifies as an effective administrative supervision and

control over the activities in the laboratory. “Supervision and

control” means the authority to act directly whenever a

specific function is entrusted by law or regulation to a

subordinate; direct the performance of duty; restrain the

commission of acts; review, approve, revise or modify acts

and decisions of subordinate officials or units.27

Second, Garcia conducted the HBsAG test of respondent

Ranida without the supervision of defendant-appellee Castro,

who admitted that:

“[He] does not know, and has never known or met, the plaintiff-

patient even up to this time nor has he personally examined any

specimen, blood, urine or any other tissue, from the plaintiff-

patient otherwise his own handwritten signature would have

appeared in the result and not merely stamped as shown in Annex

“B” of the Amended Complaint.”28

Last, the disputed HBsAG test result was released to

respondent Ranida without the authorization of

defendantappellee Castro.29

Garcia may not have intended to cause the consequences

which followed after the release of the HBsAG test result.

580 SUPREME COURT

REPORTS

ANNOTATED


However, his failure to comply with the laws and rules

promulgated and issued for the protection of public safety

and interest is failure to observe that care which a

reasonably prudent health care provider would observe.

Thus, his act or omission constitutes a breach of duty.

Indubitably, Ranida suffered injury as a direct

consequence of Garcia’s failure to comply with the mandate

of the laws and rules aforequoted. She was terminated from

the service for failing the physical examination; suffered

anxiety because of the diagnosis; and was compelled to

undergo several more tests. All these could have been

avoided had the proper safeguards been scrupulously






92

followed in conducting the clinical examination and releasing

the clinical report.

Article 20 of the New Civil Code provides:

“Art. 20. Every person who, contrary to law, willfully or negligently

causes damage to another, shall indemnify the latter for the

same.”

The foregoing provision provides the legal basis for the award

of damages to a party who suffers damage whenever one

commits an act in violation of some legal provision.30 This was

incorporated by the Code Commission to provide relief to a

person who suffers damage because another has violated

some legal provision.31

We find the Court of Appeals’ award of moral damages

reasonable under the circumstances bearing in mind the

mental trauma suffered by respondent Ranida who thought

she was afflicted by Hepatitis B, making her “unfit or unsafe

for any type of employment.”32Having established her right to

moral damages, we see no reason to disturb the award of

exemplary

_______________

30 Carpio v. Valmonte, G.R. No. 151866, September 9, 2004, 438 SCRA 38,

47-48.

31 Sanco, Cezar S., Torts and Damages (1994), Volume II, p. 748.

32 Records, p. 199.

581 VOL. 518, MARCH 20,

2007

581


damages and attorney’s fees. Exemplary damages are

imposed, by way of example or correction for the public good,

in addition to moral, temperate, liquidated or compensatory

damages,33 and attorney’s fees may be recovered when, as in

the instant case, exemplary damages are awarded.34

WHEREFORE, the Decision of the Court of Appeals in

CAG.R. CV No. 58668 dated February 27, 2004 finding

petitioner Orlando D. Garcia, Jr. guilty of gross negligence

and liable to pay to respondents P50,000.00 as moral

damages, P50,000.00 as exemplary damages, and P25,000.00

as attorney’s fees, is AFFIRMED.

SO ORDERED.

Austria-Martinez,Chico-Nazario and Nachura, JJ.,

concur.

Callejo, Sr., J., On Leave.

Judgment affirmed.

Notes.—Our jurisprudence is wanting as to the definite

scope of “corporate tort.” (Naguiat vs. National Labor

Relations Commission, 269 SCRA 564[1997])

Although no law requires the passing of psychological and

physical tests prior to employment, such circumstance would

certainly be a reliable indicator of the exercise of due

diligence. (Sanitary Steam Laundry, Inc. vs. Court of

Appeals, 300 SCRA 20 [1998])

——o0o——

_______________

33 Civil Code, Article 2229.

34 Civil Code, Article 2208.






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