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Torts

NCC
G.R. No. 88694 January 11, 1993
ALBENSON
ENTERPRISES
CORP.,
JESSE
YAP,
AND
BENJAMIN
MENDIONA, petitioners, vs. THE COURT OF APPEALS AND EUGENIO S.
BALTAO, respondents.
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 Albenson Enterprises
Corporation (Albenson for short) delivered to Guaranteed Industries, Inc.
(Guaranteed for short) located at 3267 V. Mapa Street, Sta. Mesa, Manila, the mild
steel plates which the latter ordered. As part payment thereof, Albenson was given
Pacific Banking Corporation Check No. 136361 in the amount of P2,575.00 and
drawn against the account of E.L. Woodworks (Rollo, p. 148).
When presented for payment, the check was dishonored for the reason "Account
Closed." Thereafter, petitioner Albenson, through counsel, traced the origin of the
dishonored check. From the records of the Securities and Exchange Commission
(SEC), Albenson discovered that the president of Guaranteed, the recipient of the
unpaid mild steel plates, was one "Eugenio S. Baltao." Upon further inquiry,
Albenson was informed by the Ministry of Trade and Industry that E.L. Woodworks, a
single proprietorship business, was registered in the name of one "Eugenio Baltao".
In addition, upon verification with the drawee bank, Pacific Banking Corporation,
Albenson was advised that the signature appearing on the subject check belonged
to one "Eugenio Baltao."
After obtaining the foregoing information, Albenson, through counsel, made an
extrajudicial demand upon private respondent Eugenio S. Baltao, president of
Guaranteed, to replace and/or make good the dishonored check.
Respondent Baltao, through counsel, denied that he issued the check, or that the
signature appearing thereon is his. He further alleged that Guaranteed was a
defunct entity and hence, could not have transacted business with Albenson.
On February 14, 1983, Albenson filed with the Office of the Provincial Fiscal of Rizal
a complaint against Eugenio S. Baltao for violation of Batas Pambansa Bilang 22.
Submitted to support said charges was an affidavit of petitioner Benjamin
Mendiona, an employee of Albenson. In said affidavit, the above-mentioned
circumstances were stated.

Art 19-22
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 the Baltao Building, 3267 V. Mapa Street, Sta. Mesa, Manila, the very same
business address of Guaranteed.
On September 5, 1983, Assistant Fiscal Ricardo Sumaway filed an information
against Eugenio S. Baltao for Violation of Batas Pambansa Bilang 22. In filing said
information, Fiscal Sumaway claimed that he had given Eugenio S. Baltao
opportunity to submit controverting evidence, but the latter failed to do so and
therefore, was deemed to have waived his right.
Respondent Baltao, claiming ignorance of the complaint against him, immediately
filed with the Provincial Fiscal of Rizal a motion for reinvestigation, alleging that it
was not true that he had been given an opportunity to be heard in the preliminary
investigation conducted by Fiscal Sumaway, and that he never had any dealings
with Albenson or Benjamin Mendiona, consequently, the check for which he has
been accused of having issued without funds was not issued by him and the
signature in said check was not his.
On January 30, 1984, Provincial Fiscal Mauro M. Castro of Rizal reversed the finding
of Fiscal Sumaway and exonerated respondent Baltao. He also instructed the Trial
Fiscal to move for dismissal of the information filed against Eugenio S. Baltao. Fiscal
Castro found that the signature in PBC Check No. 136361 is not the signature of
Eugenio S. Baltao. He also found that there is no showing in the records of the
preliminary investigation that Eugenio S. Baltao actually received notice of the said
investigation. Fiscal Castro then castigated Fiscal Sumaway for failing to exercise
care and prudence in the performance of his duties, thereby causing injustice to
respondent who was not properly notified of the complaint against him and of the
requirement to submit his counter evidence.
Because of the alleged unjust filing of a criminal case against him for allegedly
issuing a check which bounced in violation of Batas Pambansa Bilang 22 for a
measly amount of P2,575.00, respondent Baltao filed before the Regional Trial Court
of Quezon City a complaint for damages against herein petitioners Albenson
Enterprises, Jesse Yap, its owner, and Benjamin Mendiona, its employee.
In its decision, the lower court observed that "the check is drawn against the
account of "E.L. Woodworks," not of Guaranteed Industries of which plaintiff used to
be President. Guaranteed Industries had been inactive and had ceased to exist as a
corporation since 1975. . . . . The possibility is that it was with Gene Baltao or
Eugenio Baltao III, a son of plaintiff who had a business on the ground floor of
Baltao Building located on V. Mapa Street, that the defendants may have been
dealing with . . . ." (Rollo, pp. 41-42).
The dispositive portion of the trial court 's decision reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendants ordering the latter to pay plaintiff jointly and severally:
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Art 19-22
1.

actual or compensatory damages of P133,350.00;

2.

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

3.

exemplary damages of P200,000.00;

4.

attorney's fees of P100,000.00;


i.

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).

4. Holding the petitioner corporation, petitioner Yap and petitioner


Mendiona jointly and severally liable without sufficient basis in
law and in fact.
5. Awarding respondents
5.1. P133,350.00 as actual or compensatory damages,
even in the absence of sufficient evidence to show that
such was actually suffered.
5.2. P500,000.00 as moral damages considering that the
evidence in this connection merely involved private
respondent's
alleged
celebrated
status
as
a
businessman, there being no showing that the act
complained of adversely affected private respondent's
reputation or that it resulted to material loss.

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. 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 . . . .
2. Concluding that "hitting at and in effect maligning (private
respondent) with an unjust criminal case was, without more, a
plain case of abuse of rights by misdirection" and "was therefore,
actionable by itself," and which "became inordinately blatant and
grossly aggravated when . . . (private respondent) was deprived
of his basic right to notice and a fair hearing in the so-called
preliminary investigation . . . . "
3. Concluding that petitioner's "actuations in this case were coldly
deliberate and calculated", no evidence having been adduced to
support such a sweeping statement.

5.3. P200,000.00 as exemplary damages despite the fact


that petitioners were duly advised by counsel of their
legal recourse.
5.4. P50,000.00 as attorney's fees, no evidence having
been adduced to justify such an award (Rollo, pp. 4-6).
Petitioners contend that the civil case filed in the lower court was one for malicious
prosecution. Citing the case ofMadera 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 committed for which
the wrongdoer must be held responsible. Although the requirements of each
provision is different, these three (3) articles are all related to each other. As the
eminent Civilist Senator Arturo Tolentino puts it: "With this article (Article 21),
combined with articles 19 and 20, the scope of our law on civil wrongs has been
very greatly broadened; it has become much more supple and adaptable than the
Anglo-American law on torts. It is now difficult to conceive of any malevolent
exercise of a right which could not be checked by the application of these articles"
(Tolentino, 1 Civil Code of the Philippines 72).
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Art 19-22

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 or negligently, in the
exercise of his legal right or duty, causes damage to another, shall indemnify his
victim for injuries suffered thereby. Article 21 deals with acts contra bonus mores,
and has the following elements: 1) There is an act which is legal; 2) but which is
contrary to morals, good custom, public order, or public policy; 3) and it is done
with intent to injure.
Thus, under any of these three (3) provisions of law, an act which causes injury to
another may be made the basis for an award of damages.
There is a common element under Articles 19 and 21, and that is, the act must be
intentional. However, Article 20 does not distinguish: the act may be done either
"willfully", or "negligently". The trial court as well as the respondent appellate court
mistakenly lumped these three (3) articles together, and cited the same as the
bases for the award of damages in the civil complaint filed against petitioners, thus:
With the foregoing legal provisions (Articles 19, 20, and 21) in
focus, there is not much difficulty in ascertaining the means by
which appellants' first assigned error should be resolved, given
the admitted fact that when there was an attempt to collect the
amount of P2,575.00, the defendants were explicitly warned that
plaintiff Eugenio S. Baltao is not the Eugenio Baltao defendants
had been dealing with (supra, p. 5). When the defendants
nevertheless insisted and persisted in filing a case a criminal
case no less against plaintiff, said defendants ran afoul of the
legal provisions (Articles 19, 20, and 21 of the Civil Code) cited by
the lower court and heretofore quoted (supra).
Defendants, not having been paid the amount of P2,575.00,
certainly had the right to complain. But that right is limited by
certain constraints. Beyond that 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 account the check was drawn, was registered in the
name of one "Eugenio Baltao"; verification with the drawee bank, the Pacific
Banking Corporation, revealed that the signature appearing on the check belonged
to one "Eugenio Baltao".
In a letter dated December 16, 1983, counsel for petitioners wrote private
respondent demanding that he make good the amount of the check. Counsel for
private respondent wrote back and denied, among others, that private respondent
ever transacted business with Albenson Enterprises Corporation; that he ever
issued the check in question. Private respondent's counsel even went further: he
made a warning to defendants to check the veracity of their claim. It is pivotal to
note at this juncture that in this same letter, if indeed private respondent wanted to
clear himself from the baseless accusation made against his person, he should have
made mention of the fact that there are three (3) persons with the same name, i.e.:
Eugenio Baltao, Sr., Eugenio S. Baltao, Jr. (private respondent), and Eugenio Baltao
III (private respondent'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 propitious 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 se make the action wrongful and subject the actor to the payment of
damages, for the law could not have meant to impose a penalty on the right to
litigate (Rubio vs. Court of Appeals, 141 SCRA 488 [1986]).
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In the case at bar, private respondent does not deny that the mild steel plates were
ordered by and delivered to Guaranteed at Baltao building and as part payment
thereof, the bouncing check was issued by one Eugenio Baltao. Neither had private
respondent conveyed to petitioner that there are two Eugenio Baltaos conducting
business in the same building he and his son Eugenio Baltao III. Considering that
Guaranteed, which received the goods in payment of which the bouncing check was
issued is owned by respondent, petitioner acted in good faith and probable cause in
filing the complaint before the provincial fiscal.
To constitute malicious prosecution, there must be proof that the prosecution was
prompted by a sinister design to vex and humiliate a person, and that it was
initiated deliberately by the defendant knowing that his charges were false and
groundless. Concededly, the mere act of submitting a case to the authorities for
prosecution does not make one liable for malicious prosecution. (Manila Gas
Corporation vs. Court of Appeals, 100 SCRA 602 [1980]). Still, private respondent
argues that liability under Articles 19, 20, and 21 of the Civil Code is so
encompassing that it likewise includes liability for damages for malicious
prosecution under Article 2219 (8). True, a civil action for damages for malicious
prosecution is allowed under the New Civil Code, more specifically Articles 19, 20,
26, 29, 32, 33, 35, and 2219 (8) thereof. In order that such a case can prosper,
however, the following three (3) elements must be present, to wit: (1) The fact of
the prosecution and the further fact that the defendant was himself the prosecutor,
and that the action was finally terminated with an acquittal; (2) That in bringing the
action, the prosecutor acted without probable cause; (3) The prosecutor was
actuated or impelled by legal malice (Lao vs. Court of Appeals, 199 SCRA 58,
[1991]).
Thus, a party injured by the filing of a court case against him, even if he is later on
absolved, may file a case for damages grounded either on the principle of abuse of
rights, or on malicious prosecution. As earlier stated, a complaint for damages
based on malicious prosecution will prosper only if the three (3) elements aforecited
are shown to exist. In the case at bar, the second and third elements were not
shown to exist. It is well-settled that one cannot be held liable for maliciously
instituting a prosecution where one has acted with probable cause. "Probable cause
is the existence of such facts and circumstances as would excite the belief, in a
reasonable mind, acting on the facts within the knowledge of the prosecutor, that
the person charged was guilty of the crime for which he was prosecuted. In other
words, a suit will lie only in cases where a legal prosecution has been carried on
without probable cause. The reason for this rule is that it would be a very great
discouragement to public justice, if prosecutors, who had tolerable ground of
suspicion, were liable to be sued at law when their indictment miscarried" (Que vs.
Intermediate Appellate Court, 169 SCRA 137 [1989]).
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.

Art 19-22
To constitute malicious prosecution, there must be proof that the
prosecution was prompted by a sinister design to vex and
humiliate a person, that it was initiated deliberately by the
defendant knowing that his charges were false and groundless.
Concededly, the mere act of submitting a case to the authorities
for prosecution does not make one liable for malicious
prosecution. Proof and motive that the institution of the action
was prompted by a sinister design to vex and humiliate a person
must be clearly and preponderantly established to entitle the
victims to damages (Ibid.).
In the case at bar, there is no proof of a sinister design on the part of petitioners to
vex or humiliate private respondent by instituting the criminal case against him.
While petitioners may have been negligent to some extent in determining the
liability of private respondent for the dishonored check, the same is not so gross or
reckless as to amount to bad faith warranting an award of damages.
The root of the controversy in this case is founded on a case of mistaken identity. It
is possible that with a more assiduous investigation, petitioners would have
eventually discovered that private respondent Eugenio S. Baltao is not the "Eugenio
Baltao" responsible for the dishonored check. However, the record shows that
petitioners did exert considerable effort in order to determine the liability of private
respondent. Their investigation pointed to private respondent as the "Eugenio
Baltao" who issued and signed the dishonored check as the president of the debtorcorporation Guaranteed Enterprises. Their error in proceeding against the wrong
individual was obviously in the nature of an innocent mistake, and cannot be
characterized as having been committed in bad faith. This error could have been
discovered if respondent had submitted his counter-affidavit before investigating
fiscal Sumaway and was immediately rectified by Provincial Fiscal Mauro Castro
upon discovery thereof, i.e., during the reinvestigation resulting in the dismissal of
the complaint.
Furthermore, the adverse result of an action does not per se make the act wrongful
and subject the actor to the payment of moral damages. The law could not have
meant to impose a penalty on the right to litigate, such right is so precious that
moral damages may 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 (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
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Art 19-22

court cannot rely on speculation, conjectures or guesswork as to the amount.


Without the actual proof of loss, the award of actual damages becomes erroneous
(Guilatco vs. City of Dagupan, 171 SCRA 382 [1989]).
Actual and compensatory damages are those recoverable because of pecuniary loss
in business, trade, property, profession, job or occupation and the same must
be proved, otherwise, if the proof is flimsy and unsubstantiated, no damages will be
given (Rubio vs. Court of Appeals, 141 SCRA 488 [1986]). For these reasons, it was
gravely erroneous for respondent court to have affirmed the award of actual
damages in favor of private respondent in the absence of proof thereof.
Where there is no evidence of the other party having acted in wanton, fraudulent or
reckless, or oppressive manner, neither may exemplary damages be awarded (Dee
Hua Liong Electrical Equipment Corporation vs. Reyes, 145 SCRA 488 [1986]).
As to the award of attorney's fees, it is well-settled that the same is the exception
rather than the general rule. Needless to say, the award of attorney's fees must be
disallowed where the award of exemplary damages is eliminated (Article 2208, Civil
Code; Agustin vs. Court of Appeals, 186 SCRA 375 [1990]). Moreover, in view of the
fact that there was no malicious prosecution against private respondent, attorney's
fees cannot be awarded him on that ground.
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.

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


ALFREDO M.
COMMERCIAL
COMPANY OF
HUA TRADING

VELAYO, in his capacity as Assignee of the insolvent


AIR LINES, INC. (CALI), Plaintif-Appellant, vs. SHELL
THE PHILIPPINE ISLANDS, LTD., Defendant-Appellee, YEK
CORPORATION, PAUL SYCIP and MABASA & CO., intervenors.

DECISION
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 CALIs 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 Defendants
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, CALIs
Douglas C-54 plane, then in California, was offered to him by Mr. Alfonso Sycip,
CALIs 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 August 6, 1948, for the purpose
of preparing the report for its London office regarding CALIs indebtedness, Col.
Lambert, CALIs 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 CALIs said
Douglas C-54 plane to collect its credit.
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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:chanroblesvirtuallawlibrary00
and
2:chanroblesvirtuallawlibrary00 oclock 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.; .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. 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 the 194 creditors in all (Exh.
OO) 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 Intl Rubber Co. 3,142.47
Goodyear Tire & Rubber Co. 1,727.50
Mabasa & Co. 4,867.72
Manila Intl Airport 55,280.04
Manila Intl 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

Art 19-22
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. Agcaoilis 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. Agcaoilis 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 C-54 plane in the United States, the property now
involved in this suit. He was likewise assisted in his explanation 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. Agcoailis 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 followed 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 0151 Memo of meeting; Exhs. III and PPP, par. 3 P. Agcaoilis
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:
4. Certain specific matters such as the amount owing to the Philippine Air Lines,
Inc., and the claims of Smith, Bell vs. Co., (representing 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.
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.
6

Torts
NCC
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. Agcaoilis memorandum dated August
7, 1948, to the General Manager of the National Airports (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.
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 on January 5, 1949, a judgment by
default was entered by the American court (Exhs. J, EE, FF, GG, and HH).
Unaware of Defendants 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 an agreement with the creditors of the

Art 19-22
corporation to prevent insolvency proceedings, but so far no definite agreement
had been reached (Exh. OO Minutes of August 12, 1948, stockholders meeting).
By the first week of September, 1948, the National Airports Corporation learned
of Defendants 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 Defendants 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
Corporations 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). On November 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 securing 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 Defendants 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 Plaintif as
Assignee in insolvency of the above- mentioned airplane, which is the property of
the insolvent CALI, situated in the Ontario International Airport, with in 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 Plaintif 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 Plaintif will
pay to Defendant all damages the latter may sustain by reason of the injunction if
the Court should finally decide that the Plaintif was not entitled thereto, the Court
issued a writ of preliminary injunction enjoining the Defendant, its agent, servants,
attorneys 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 Plaintif-Appellant before the matter could be on notice. The Plaintif also prays
for such other remedies that the Court may deem proper in the premises.
7

Torts
NCC
On December 20, 1948, the Defendant filed an opposition to the Plaintifs petition
for the issuance of a writ of the preliminary injunction, and on December 22, 1948,
the Court denied the same because whether the conveyance of Defendants 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.
Plaintif 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 consideration 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 State 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, Defendants 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 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 Plaintif.
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 Plaintif. 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 Plaintif. In view of this outcome, Plaintif 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 airplane 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.
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:

Art 19-22
(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 CALIs airplane C-54
at the Ontario International Airport within the Country of San Bernardino, State of
California, U. S. A.,
(Which knowledge it acquired: first at the informal luncheon-meeting of the
principal creditors of CALI on August 5, 1948, where its Credit Manager, Mr.
Desmond Fitzgerald, was selected to form part of the Working Committee to
supervise the preservation of CALIs 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 of August 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 CALIs principal creditors end depriving the Plaintif, as
its Assignee, of the means of obtaining said C-54 plane, or the value thereof, to the
detriment and prejudice of the other CALIs creditors who were consequently
deprived of their share in the distribution of said value; c 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 Plaintif; 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
American 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 creditors of the CALI to participate in the
proceeds of said CALIs plane C-54.
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; c 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 entirely immaterial and have no bearing
on the main question at issue in this appeal. Moreover, we might say
8

Torts
NCC
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 Defendants
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 Z. Sycip, nor Yek Hua
Trading Corporation were the only creditors of CALI, nor even preferred ones, and
that the infiltration of ones credit is of no sequence if it cannot be proven in the
insolvency proceedings to the satisfaction of the court. Under the circumstances of
the case, Defendants transfer of its aforementioned credit would have been
justified only if 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 CALIs voluntary insolvency proceedings and nullified the
intended transfer of Defendants credit to its above-mentioned sister corporation.
II. We may agree with the trial judge, that the assignment of Defendants 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 on August 12,
1948, and the writ of attachment issued on this same date, while CALI filed its
petition for insolvency on October 7, 1948. At his Honor correctly states, said
Sections 32 and 70 only contemplate acts and transactions occurring 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 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 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. If 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

Art 19-22
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 Tolentinos Commercial Laws of the Philippines, 633). See also
Section 36 of the Insolvency Law.From the foregoing, We see that Plaintif, 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 proceedings in insolvency, or having 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
embezzled or disposed of, to be received 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
instituted 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 CALIs plane C-54 was by that swift and unsuspected operation efficaciously
disposed of said insolvents 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:
Art 19. Any person must, in the exercise of his rights and in the performances 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 sequence of the same Chapter which
prescribe the following:
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.
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.
9

Torts
NCC
But, it may be asked, would this proposed article obliterate the boundary line
between morality and law? The answer 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 cannot 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.

Art 19-22
place in 1948, prior to its effectivity. But Article 2252 of the Civil Code, though
providing that:
Changes made and new provisions and rules laid 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 been
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.

A provision similar to the one under consideration is embodied in article 826 of the
German Civil Code.

and according to Article 2254, no vested or acquired right can arise from acts or
omissions which are against the law or which infringe upon the right of others.

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.

In case of Juan Castro vs. Acro Taxicab Company, (82 Phil., 359; chan
roblesvirtualawlibrary47 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:

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).
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 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 anothers property was 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

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 symbiosis 1 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 practically nothing) to its sister corporation in the United States where CALIs
plane C-54 was then situated, succeeding by such swift and unsuspected operation
in disposing of said insolvents 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 insolvents 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
10

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Art 19-22

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 Plaintif must show that he is entitled to moral, temperate, or compensatory damages
before the court may consider the question of whether or not exemplary damages should
be awarded. In case liquidated damages 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 Plaintif 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.
Art, 2143. The provisions for quasi-contracts in this Chapter do not exclude other quasicontracts 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 Plaintif, 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.
There is no clear proof in the record about the real value of CALIs plane C-54 at the time
when Defendants 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 Plaintif-Appellant, as Assignee of the insolvent CALI,
damages in a sum double the amount of the value of the insolvents airplane C-54 at the
time Defendants 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

G.R. No. 132344

February 17, 2000

UNIVERSITY OF THE EAST, petitioner, vs. ROMEO A. JADER, respondent.


YNARES-SANTIAGO, J.:

May an educational institution be held liable for damages for misleading a student
into believing that the latter had satisfied all the requirements for graduation when
such is not the case? This is the issue in the instant petition for review premised on
the following undisputed facts as summarized by the trial court and adopted by the
Court of Appeals (CA),1 to wit:
Plaintiff was enrolled in the defendants' College of Law from 1984 up to
1988. In the first semester of his last year (School year 1987-1988), he
failed to take the regular final examination in Practice Court I for which he
was given an incomplete grade (Exhibits "2", also Exhibit "H"). He enrolled
for the second semester as fourth year law student (Exhibit "A") and on
February 1, 1988 he filed an application for the removal of the incomplete
grade given him by Professor Carlos Ortega (Exhibits "H-2", also Exhibit
"2") which was approved by Dean Celedonio Tiongson after payment of the
required fee. He took the examination on March 28, 1988. On May 30,
1988, Professor Carlos Ortega submitted his grade. It was a grade of five
(5). (Exhibits "H-4", also Exhibits "2-L", "2-N").1wphi1.nt
In the meantime, the Dean and the Faculty Members of the College of Law
met to deliberate on who among the fourth year students should be
allowed to graduate. The plaintiff's name appeared in the Tentative List of
Candidates for graduation for the Degree of Bachelor of Laws (LL.B) as of
Second Semester (1987-1988) with the following annotation:
JADER ROMEO A.
Def. Conflict of Laws x-1-87-88, Practice Court I Inc., 1-87-88 C-1 to
submit transcript with S.O. (Exhibits "3", "3-C-1", "3-C-2").
The 35th Investitures & Commencement Ceremonies for the candidates of
Bachelor of Laws was scheduled on the 16th of April 1988 at 3:00 o'clock
in the afternoon, and in the invitation for that occasion the name of the
plaintiff appeared as one of the candidates. (Exhibits "B", "B-6", "B-6-A").
At the foot of the list of the names of the candidates there appeared
however the following annotation:
This is a tentative list Degrees will be conferred upon these
candidates who satisfactorily complete requirements as stated in
the University Bulletin and as approved of the Department of
Education, Culture and Sports (Exhibit "B-7-A").
The plaintiff attended the investiture ceremonies at F. dela Cruz
Quadrangle, U.E., Recto Campus, during the program of which he went up
the stage when his name was called, escorted by her (sic) mother and his
eldest brother who assisted in placing the Hood, and his Tassel was turned
from left to right, and he was thereafter handed by Dean Celedonio a rolled
white sheet of paper symbolical of the Law Diploma. His relatives took
pictures of the occasion (Exhibits "C" to "C-6", "D-3" to "D-11").
11

Torts
NCC

Art 19-22
He tendered a blow-out that evening which was attended by neighbors,
friends and relatives who wished him good luck in the forthcoming bar
examination. There were pictures taken too during the blow-out (Exhibits
"D" to "D-1").

it has no liability to respondent Romeo A. Jader, considering that the proximate and
immediate cause of the alleged damages incurred by the latter arose out of his own
negligence in not verifying from the professor concerned the result of his removal
exam.

He thereafter prepared himself for the bar examination. He took a leave of


absence without pay from his job from April 20, 1988 to September 30,
1988 (Exhibit "G") and enrolled at the pre-bar review class in Far Eastern
University. (Exhibits "F" to "F-2"). Having learned of the deficiency he
dropped his review class and was not able to take the bar examination. 2

The petition lacks merit.

Consequently, respondent sued petitioner for damages alleging that he suffered


moral shock, mental anguish, serious anxiety, besmirched reputation, wounded
feelings and sleepless nights when he was not able to take the 1988 bar
examinations arising from the latter's negligence. He prayed for an award of moral
and exemplary damages, unrealized income, attorney's fees, and costs of suit.
In its answer with counterclaim, petitioner denied liability arguing mainly that it
never led respondent to believe that he completed the requirements for a Bachelor
of Laws degree when his name was included in the tentative list of graduating
students. After trial, the lower court rendered judgment as follows:
WHEREFORE, in view of the foregoing judgment is hereby rendered in favor
of the plaintiff and against the defendant ordering the latter to pay plaintiff
the sum of THIRTY FIVE THOUSAND FOUR HUNDRED SEVENTY PESOS
(P35,470.00) with legal rate of interest from the filing of the complaint until
fully paid, the amount of FIVE THOUSAND PESOS (P5,000.00) as attorney's
fees and the cost of suit.
Defendant's counterclaim is, for lack of merit, hereby dismissed.
SO ORDERED.3
which on appeal by both parties was affirmed by the Court of Appeals (CA) with
modification. The dispositive portion of the CA decision reads:
WHEREFORE, in the light of the foregoing, the lower Court's Decision is
hereby AFFIRMED with the MODIFICATION that defendant-appellee, in
addition to the sum adjudged by the lower court in favor of plaintiffappellant, is also ORDERED to pay plaintiff-appellant the amount of FIFTY
THOUSAND (P50,000.00) PESOS for moral damages. Costs against
defendant-appellee.
SO ORDERED.4
Upon the denial of its motion for reconsideration, petitioner UE elevated the case to
this Court on a petition for review under Rule 45 of the Rules of Court, arguing that

When a student is enrolled in any educational or learning institution, a contract of


education is entered into between said institution and the student. The professors,
teachers or instructors hired by the school are considered merely as agents and
administrators tasked to perform the school's commitment under the contract.
Since the contracting parties are the school and the student, the latter is not dutybound to deal with the former's agents, such as the professors with respect to the
status or result of his grades, although nothing prevents either professors or
students from sharing with each other such information. The Court takes judicial
notice of the traditional practice in educational institutions wherein the professor
directly furnishes his/her students their grades. It is the contractual obligation of the
school to timely inform and furnish sufficient notice and information to each and
every student as to whether he or she had already complied with all the
requirements for the conferment of a degree or whether they would be included
among those who will graduate. Although commencement exercises are but a
formal ceremony, it nonetheless is not an ordinary occasion, since such ceremony is
the educational institution's way of announcing to the whole world that the students
included in the list of those who will be conferred a degree during the baccalaureate
ceremony have satisfied all the requirements for such degree. Prior or subsequent
to the ceremony, the school has the obligation to promptly inform the student of
any problem involving the latter's grades and performance and also most
importantly, of the procedures for remedying the same.
Petitioner, in belatedly informing respondent of the result of the removal
examination, particularly at a time when he had already commenced preparing for
the bar exams, cannot be said to have acted in good faith. Absence of good faith
must be sufficiently established for a successful prosecution by the aggrieved party
in a suit for abuse of right under Article 19 of the Civil Code. Good faith connotes an
honest intention to abstain from taking undue advantage of another, even though
the forms and technicalities of the law, together with the absence of all information
or belief of facts, would render the transaction unconscientious. 5 It is the school that
has access to those information and it is only the school that can compel its
professors to act and comply with its rules, regulations and policies with respect to
the computation and the prompt submission of grades. Students do not exercise
control, much less influence, over the way an educational institution should run its
affairs, particularly in disciplining its professors and teachers and ensuring their
compliance with the school's rules and orders. Being the party that hired them, it is
the school that exercises general supervision and exclusive control over the
professors with respect to the submission of reports involving the students'
standing. Exclusive control means that no other person or entity had any control
over the instrumentality which caused the damage or injury.6
The college dean is the senior officer responsible for the operation of an academic
program, enforcement of rules and regulations, and the supervision of faculty and
12

Torts
NCC

Art 19-22

student services.7 He must see to it that his own professors and teachers,
regardless of their status or position outside of the university, must comply with the
rules set by the latter. The negligent act of a professor who fails to observe the
rules of the school, for instance by not promptly submitting a student's grade, is not
only imputable to the professor but is an act of the school, being his employer.
Considering further, that the institution of learning involved herein is a university
which is engaged in legal education, it should have practiced what it inculcates in
its students, more specifically the principle of good dealings enshrined in Articles 19
and 20 of the Civil Code which states:
Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
Art. 20. Every person who, contrary to law, wilfully or negligently causes
damage to another, shall indemnify the latter for the same.
Art. 19 was intended to expand the concept of torts by granting adequate legal
remedy for the untold number of moral wrongs which is impossible for human
foresight to provide specifically in statutory law. 8 In civilized society, men must be
able to assume that others will do them no intended injury that others will
commit no internal aggressions upon them; that their fellowmen, when they act
affirmatively will do so with due care which the ordinary understanding and moral
sense of the community exacts and that those with whom they deal in the general
course of society will act in good faith. The ultimate thing in the theory of liability is
justifiable reliance under conditions of civilized society. 9 Schools and professors
cannot just take students for granted and be indifferent to them, for without the
latter, the former are useless.
Educational institutions are duty-bound to inform the students of their academic
status and not wait for the latter to inquire from the former. The conscious
indifference of a person to the rights or welfare of the person/persons who may be
affected by his act or omission can support a claim for damages. 10 Want of care to
the conscious disregard of civil obligations coupled with a conscious knowledge of
the cause naturally calculated to produce them would make the erring party
liable.11 Petitioner ought to have known that time was of the essence in the
performance of its obligation to inform respondent of his grade. It cannot feign
ignorance that respondent will not prepare himself for the bar exams since that is
precisely the immediate concern after graduation of an LL.B. graduate. It failed to
act seasonably. Petitioner cannot just give out its student's grades at any time
because a student has to comply with certain deadlines set by the Supreme Court
on the submission of requirements for taking the bar. Petitioner's liability arose from
its failure to promptly inform respondent of the result of an examination and in
misleading the latter into believing that he had satisfied all requirements for the
course. Worth quoting is the following disquisition of the respondent court:
It is apparent from the testimony of Dean Tiongson that defendantappellee University had been informed during the deliberation that the

professor in Practice Court I gave plaintiff-appellant a failing grade. Yet,


defendant-appellee still did not inform plaintiff-appellant of his failure to
complete the requirements for the degree nor did they remove his name
from the tentative list of candidates for graduation. Worse, defendantappellee university, despite the knowledge that plaintiff-appellant failed in
Practice Court I, againincluded plaintiff-appellant's name in the "tentative
list of candidates for graduation which was prepared after the deliberation
and which became the basis for the commencement rites program. Dean
Tiongson reasons out that plaintiff-appellant's name was allowed to remain
in the tentative list of candidates for graduation in the hope that the latter
would still be able to remedy the situation in the remaining few days
before graduation day. Dean Tiongson, however, did not explain how
plaintiff appellant Jader could have done something to complete his
deficiency if defendant-appellee university did not exert any effort to
inform plaintiff-appellant of his failing grade in Practice Court I.12
Petitioner cannot pass on its blame to the professors to justify its own negligence
that led to the delayed relay of information to respondent. When one of two
innocent parties must suffer, he through whose agency the loss occurred must bear
it.13 The modern tendency is to grant indemnity for damages in cases where there is
abuse of right, even when the act is not illicit. 14 If mere fault or negligence in one's
acts can make him liable for damages for injury caused thereby, with more reason
should abuse or bad faith make him liable. A person should be protected only when
he acts in the legitimate exercise of his right, that is, when he acts with prudence
and in good faith, but not when he acts with negligence or abuse. 15
However, while petitioner was guilty of negligence and thus liable to respondent for
the latter's actual damages, we hold that respondent should not have been
awarded moral damages. We do not agree with the Court of Appeals' findings that
respondent suffered shock, trauma and pain when he was informed that he could
not graduate and will not be allowed to take the bar examinations. At the very least,
it behooved on respondent to verify for himself whether he has completed all
necessary requirements to be eligible for the bar examinations. As a senior law
student, respondent should have been responsible enough to ensure that all his
affairs, specifically those pertaining to his academic achievement, are in order.
Given these considerations, we fail to see how respondent could have suffered
untold embarrassment in attending the graduation rites, enrolling in the bar review
classes and not being able to take the bar exams. If respondent was indeed
humiliated by his failure to take the bar, he brought this upon himself by not
verifying if he has satisfied all the requirements including his school records, before
preparing himself for the bar examination. Certainly, taking the bar examinations
does not only entail a mental preparation on the subjects thereof; there are also
prerequisites of documentation and submission of requirements which the
prospective examinee must meet.
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner is ORDERED to PAY respondent the sum of Thirty-five
Thousand Four Hundred Seventy Pesos (P35,470.00), with legal interest of 6% per
annum computed from the date of filing of the complaint until fully paid; the
amount of Five Thousand Pesos (P5,000.00) as attorney's fees; and the costs of the
suit. The award of moral damages is DELEIED.1wphi1.nt
13

Torts
NCC

Art 19-22

SO ORDERED.

G.R. No. 142668

August 31, 2004

UNITED
COCONUT
PLANTERS
BANK
and
ONGSIAPCO, petitioners, vs. RUBEN E. BASCO, respondent.

LUIS

MA.

CALLEJO, SR., J.:


This is a petition for review on certiorari assailing the Decision 1 of the Court of
Appeals dated March 30, 2000, affirming, with modifications, the Decision 2 of the
Regional Trial Court (RTC), Makati City, Branch 146, which found the petitioner bank
liable for payment of damages and attorney's fees.
The Case for the Respondent
Respondent Ruben E. Basco had been employed with the petitioner United Coconut
Planters Bank (UCPB) for seventeen (17) years. 3 He was also a stockholder thereof
and owned 804 common shares of stock at the par value of P1.00.4 He likewise
maintained a checking account with the bank at its Las Pias Branch under Account
No. 117-001520-6.5 Aside from his employment with the bank, the respondent also
worked as an underwriter at the United Coconut Planters Life Association (Coco
Life), a subsidiary of UCPB since December, 1992. 6 The respondent also solicited
insurance policies from UCPB employees.

14

Torts
NCC

Art 19-22

On June 19, 1995, the respondent received a letter from the UCPB informing him of
the termination of his employment with the bank for grave abuse of discretion and
authority, and breach of trust in the conduct of his job as Bank Operations Manager
of its Olongapo Branch. The respondent thereafter filed a complaint for illegal
dismissal, non-payment of salaries, and damages against the bank in the National
Labor Relations Commission (NLRC), docketed as NLRC Cases Nos. 00-09-05354-92
and 00-09-05354-93. However, the respondent still frequented the UCPB main office
in Makati City to solicit insurance policies from the employees thereat. He also
discussed the complaint he filed against the bank with the said employees. 7
The respondent was also employed by All-Asia Life Insurance Company as an
underwriter. At one time, the lawyers of the UCPB had an informal conference with
him at the head office of the bank, during which the respondent was offered money
so that the case could be amicably settled. The respondent revealed the incident to
some of the bank employees.8
On November 15, 1995, Luis Ma. Ongsiapco, UCPB First Vice-President, Human
Resource Division, issued a Memorandum to Jesus Belanio, the Vice-President of the
Security Department, informing him that the respondent's employment had been
terminated as of June 19, 1995, that the latter filed charges against the bank and
that the case was still on-going. Ongsiapco instructed Belanio not to allow the
respondent access to all bank premises. 9 Attached to the Memorandum was a
passport-size picture of the respondent. The next day, the security guards on duty
were directed to strictly impose the security procedure in conformity with
Ongsiapco's Memorandum.10
On December 7, 1995, the respondent, through counsel, wrote Ongsiapco,
requesting that such Memorandum be reconsidered, and that he be allowed entry
into the bank premises.11 His counsel emphasized that
In the meantime, we are more concerned with your denying Mr. Basco
"access to all bank premises." As you may know, he is currently connected
with Cocolife as insurance agent. Given his 17-year tenure with your bank,
he has established good relationships with many UCPB employees, who
comprise the main source of his solicitations. In thecourse of his work as
insurance agent, he needs free access to your bank premises, within
reason, to add the unnecessary. Your memorandum has effectively
curtailed his livelihood and he is once again becoming a victim of another
"illegal termination," so to speak. And Shakespeare said: "You take his life
when you do take the means whereby he lives."
Mr. Basco's work as an insurance agent directly benefits UCPB, Cocolife's
mother company. He performs his work in your premises peacefully
without causing any disruption of bank operations. To deny him access to
your premises for no reason except the pendency of the labor case, the
outcome of which is still in doubt his liability, if any, certainly has not
been proven is a clear abuse of right in violation of our client's rights.
Denying him access to the bank, which is of a quasi-public nature, is an
undue restriction on his freedom of movement and right to make a

livelihood, comprising gross violations of his basic human rights. (This is


Human Rights Week, ironically).
We understand that Mr. Basco has been a stockholder of record of 804
common shares of the capital stock of UCPB since July 1983. As such, he
certainly deserves better treatment than the one he has been receiving
from your office regarding property he partly owns. He is a particle of
corporate sovereignty. We doubt that you can impose the functional
equivalent of the penalty of destierro on our client who really wishes only
to keep his small place in the sun, to survive and breathe. No activity can
be more legitimate than to toil for a living. Let us live and let live. 12
In his reply dated December 12, 1995, Ongsiapco informed the respondent that his
request could not be granted:
As you understand, we are a banking institution; and as such, we deal with
matters involving confidences of clients. This is among the many reasons
why we, as a matter of policy, do not allow non-employees to have free
access to areas where our employees work. Of course, there are places
where visitors may meet our officers and employees to discuss business
matters; unfortunately, we have limited areas where our officers and
employees can entertain non-official matters.
Furthermore, in keeping with good business practices, the Bank prohibits
solicitation, peddling and selling of goods, service and other commodities
within its premises as it disrupts the efficient performance and function of
the employees.
Please be assured that it is farthest from our intention to discriminate
against your client. In the same vein, it is highly improper for us to carve
exceptions to our policies simply to accommodate your client's business
ventures.13
The respondent was undaunted. At 5:30 p.m. of December 21, 1995, he went to the
office of Junne Cacay, the Assistant Manager of the Makati Branch. Cacay was then
having a conference with Bong Braganza, an officer of the UCPB Sucat Branch.
Cacay entertained the respondent although the latter did have an appointment.
Cacay even informed him that he had a friend who wanted to procure an insurance
policy.14 Momentarily, a security guard of the bank approached the respondent and
told him that it was already past office hours. He was also reminded not to stay
longer than he should in the bank premises.15 Cacay told the guard that the
respondent would be leaving shortly.16 The respondent was embarrassed and told
Cacay that he was already leaving.17
At 1:30 p.m. of January 31, 1996, the respondent went to the UCPB Makati Branch
to receive a check from Rene Jolo, a bank employee, and to deposit money with the
bank for a friend.18 He seated himself on a sofa fronting the teller's booth 19 where
other people were also seated. 20 Meanwhile, two security guards approached the
respondent. The guards showed him the Ongsiapco's Memorandum and told him to
15

Torts
NCC

Art 19-22

leave the bank premises. The respondent pleaded that he be allowed to finish his
transaction before leaving. One of the security guards contacted the management
and was told to allow the respondent to finish his transaction with the bank.
Momentarily, Jose Regino Casil, an employee of the bank who was in the 7 th floor of
the building, was asked by Rene Jolo to bring a check to the respondent, who was
waiting in the lobby in front of the teller's booth. 21 Casil agreed and went down to
the ground floor of the building, through the elevator. He was standing in the
working area near the Automated Teller Machine (ATM) Section 22 in the ground floor
when he saw the respondent standing near the sofa 23 near the two security
guards.24 He motioned the respondent to come and get the check, but the security
guard tapped the respondent on the shoulder and prevented the latter from
approaching Casil. The latter then walked towards the respondent and handed him
the check from Jolo.
Before leaving, the respondent requested the security guard to log his presence in
the logbook. The guard did as requested and the respondent's presence was
recorded in the logbook.25
On March 11, 1996, the respondent filed a complaint for damages against the
petitioners UCPB and Ongsiapco in the RTC of Manila, alleging inter alia, that
12. It is readily apparent from this exchange of correspondence that
defendant bank'' acknowledged reason for barring plaintiff from its
premises - the pending labor case is a mere pretense for its real
vindictive and invidious intent: to prevent plaintiff, and plaintiff alone, from
carrying out his trade as an insurance agent among defendant bank's
employees, a practice openly and commonly allowed and tolerated
(encouraged even, for some favored proverbial sacred cows) in the bank
premises, now being unjustly denied to plaintiff on spurious grounds.
13. Defendants, to this day, have refused to act on plaintiff's claim to be
allowed even in only the "limited areas where [the bank's] officers and
employees can entertain non-official matters" and have maintained the
policy banning plaintiff from all bank premises. As he had dared exercised
his legal right to question his dismissal, he is being penalized with a
variation of destierro, available in criminal cases where the standard
however, after proper hearing, is much more stringent and based on more
noble grounds than mere pique or vindictiveness.
14. This appallingly discriminatory policy resulted in an incident on January
31, 1996 at 1:30 p.m. at defendant bank's branch located at its head
office, which caused plaintiff tremendous undeserved humiliation,
embarrassment, and loss of face.26

15. Defendants' memorandum and the consequent acts of defendants'


security guards, together with defendant Ongsiapco's disingenuous letter
of December 12, 1995, are suggestive of malice and bad faith in
derogation of plaintiff's right and dignity as a human being and citizen of
this country, which acts have caused him considerable undeserved
embarrassment. Even if defendants, for the sake of argument, may be
acting within their rights, they cannot exercise same abusively, as they
must, always, act with justice and in good faith, and give plaintiff his due. 27
The respondent prayed that, after trial, judgment be rendered in his favor, as
follows:
WHEREFORE, it is respectfully prayed that judgment issue ordering
defendants:
1. To rescind the directive to its agents barring plaintiff from all bank
premises as embodied in the memorandum of November 15, 1995, and
allow plaintiff access to the premises of defendant bank, including all its
branches, which are open to members of the general public, during
reasonable hours, to be able to conduct lawful business without being
subject to invidious discrimination; and
2. To pay plaintiff P100,000.00 as moral damages, P100,000.00 as
exemplary damages, and P50,000.00 by way of attorney's fees.
Plaintiff likewise prays for costs, interest, the disbursements of this action,
and such other further relief as may be deemed just and equitable in the
premises.28
In their Answer to the complaint, the petitioners interposed the following affirmative
defenses:
9. Plaintiff had been employed as Branch Operations Officer, Olongapo
Branch, of defendant United Coconut Planters Bank.
In or about the period May to June 1992, he was, together with other fellow
officers and employees, investigated by the bank in connection with
various anomalies. As a result of the investigation, plaintiff was
recommended terminated on findings of fraud and abuse of discretion in
the performance of his work. He was found by the bank's Committee on
Employee Discipline to have been guilty of committing or taking part in the
commission of the following:
a.

b.

Abuse of discretion in connection with actions taken


beyond or outside the limits of his authority.
Borrowing money from a bank client.

16

Torts
NCC

Art 19-22
c.
d.
e.
f.

Gross negligence or dereliction of duty in the


implementation of bank policies or valid orders from
management.
Direct refusal or willful failure to perform, or delay in
performing, an assigned task.
Fraud or willful breach of trust in the conduct of his
work.
Falsification or forgery of bank records/documents.

10. Plaintiff thereafter decided to contest his termination by filing an action


for illegal dismissal against the bank.
Despite the pendency of this litigation, plaintiff was reported visiting
employees of the bank in their place of work during work hours, and
circulating false information concerning the status of his case against the
bank, including alleged offers by management of a monetary settlement
for his "illegal dismissal."
11. Defendants acted to protect the bank's interest by preventing
plaintiff's access to the bank's offices, and at the same time informing him
of that decision.
Plaintiff purported to insist on seeing and talking to the bank's employees
despite this decision, claiming he needed to do this in connection with his
insurance solicitation activities, but the bank has not reconsidered.
12. The complaint states, and plaintiff has, no cause of action against
defendants.29

the respondent access to the bank premises near the working area. 32 The said
Memorandum was circulated by the Chief of Security to the security guards and
bank employees.
At about 12:30 p.m. on January 31, 1996, Security Guard Raul Caspe, a substitute
for the regular guard who was on leave, noticed the respondent seated on the sofa
in front of the teller's booth.33 Caspe notified his superior of the respondent's
presence, and was instructed not to confront the respondent if the latter was going
to make a deposit or withdrawal. 34 Caspe was also instructed not to allow the
respondent to go to the upper floors of the building. 35 The respondent went to the
teller's booth and, after a while, seated himself anew on the sofa. Momentarily,
Caspe noticed Casil, another employee of the bank who was at the working section
of the Deposit Service Department (DSD), motioning to the respondent to get the
check. The latter stood up and proceeded in the direction of Casil's workstation.
After the respondent had taken about six to seven paces from the sofa, Caspe and
the company guard approached him. The guards politely showed Ongsiapco's
Memorandum to the respondent and told the latter that he was not allowed to enter
the DSD working area; it was lunch break and no outsider was allowed in that
area.36 The respondent looked at the Memorandum and complied.
On May 29, 1998, the trial court rendered judgment in favor of the respondent. The
fallo of the decision reads:
WHEREFORE, premises considered, defendants are hereby adjudged liable
to plaintiff and orders them to rescind and set-aside the Memorandum of
November 15, 1995 and orders them to pay plaintiff the following:

The petitioners likewise interposed compulsory counterclaims for damages.

1)
2)
3)
4)

the amount of P100,000.00 as moral damages;


the amount of P50,000.00 as exemplary damages;
P50,000.00 for and as attorney's fees;
Cost of suit.

The Case for the Petitioners

Defendants' counterclaim is dismissed for lack of merit.

The petitioners adduced evidence that a day or so before November 15, 1995,
petitioner Ongsiapco was at the 10th floor of the main office of the bank where the
training room of the Management Development Training Office was located. Some
of the bank's management employees were then undergoing training. The bank
also kept important records in the said floor. When Ongsiapco passed by, he saw
the respondent talking to some of the trainees. Ongsiapco was surprised because
non-participants in the training were not supposed to be in the premises. 30 Besides,
the respondent had been dismissed and had filed complaints against the bank with
the NLRC. Ongsiapco was worried that bank records could be purloined and
employees could be hurt.

SO ORDERED.37
The trial court held that the petitioners abused their right; hence, were liable to the
respondent for damages under Article 19 of the New Civil Code.
The petitioners appealed the decision to the Court of Appeals and raised the
following issues:
4.1 Did the appellants
Memorandum?

abuse

their

right

when

they

issued

the

The next day, Ongsiapco contacted the training supervisor and inquired why the
respondent was in the training room the day before. The supervisor replied that he
did not know why.31 Thus, on November 15, 1995, Ongsiapco issued a Memorandum
to Belanio, the Vice-President for Security Services, directing the latter not to allow
17

Torts
NCC

Art 19-22
4.2 Did the appellants abuse their right when Basco was asked to leave the
bank premises, in implementation of the Memorandum, on 21 December
1995?
4.3. Did the appellants abuse their right when Basco was asked to leave
the bank premises, in implementation of the Memorandum, on 31 January
1995?
4.4. Is Basco entitled to moral and exemplary damages and attorney's
fees?
4.5. Are the appellants entitled to their counterclaim? 38

The CA rendered a Decision on March 30, 2000, affirming the decision of the RTC
with modifications. The CA deleted the awards for moral and exemplary damages,
but ordered the petitioner bank to pay nominal damages on its finding that latter
abused its right when its security guards stopped the respondent from proceeding
to the working area near the ATM section to get the check from Casil. The decretal
portion of the decision reads:
WHEREFORE, the Decision of the Regional Trial Court dated May 29, 1998
is hereby MODIFIED as follows:
1.
2.
3.
4.

The awards for moral and exemplary damages are deleted;


The award for attorney's fees is deleted;
The order rescinding Memorandum dated November 15, 1995 is set
aside; and
UCPB is ordered to pay nominal damages in the amount of P25,000.00
to plaintiff-appellee.

Costs de oficio.39
The Present Petition
The petitioners now raise the following issues before this Court:
I. Whether or not the appellate court erred when it found that UCPB
excessively exercised its right to self-help to the detriment of Basco as a
depositor, when on January 31, 1996, its security personnel stopped
respondent from proceeding to the area restricted to UCPB's employees.
II. Whether or not the appellate court erred when it ruled that respondent
is entitled to nominal damages.
III. Whether or not the appellate court erred when it did not award the
petitioners' valid and lawful counterclaim.40

The core issues are the following: (a) whether or not the petitioner bank abused its
right when it issued, through petitioner Ongsiapco, the Memorandum barring the
respondent access to all bank premises; (b) whether or not petitioner bank is liable
for nominal damages in view of the incident involving its security guard Caspe, who
stopped the respondent from proceeding to the working area of the ATM section to
get the check from Casil; and (c) whether or not the petitioner bank is entitled to
damages on its counterclaim.
The Ruling of the Court
On the first issue, the petitioners aver that the petitioner bank has the right to
prohibit the respondent from access to all bank premises under Article 429 of the
New Civil Code, which provides that:
Art. 429. The owner or lawful possessor of a thing has the right to exclude
any person from the enjoyment and disposal thereof. For this purpose, he
may use such force as may be reasonably necessary to repel or prevent an
actual or threatened unlawful physical invasion or usurpation of his
property.
The petitioners contend that the provision which enunciates the principle of selfhelp applies when there is a legitimate necessity to personally or through another,
prevent not only an unlawful, actual, but also a threatened unlawful aggression or
usurpation of its properties and records, and its personnel and customers/clients
who are in its premises. The petitioners assert that petitioner Ongsiapco issued his
Memorandum dated November 15, 1995 because the respondent had been
dismissed from his employment for varied grave offenses; hence, his presence in
the premises of the bank posed a threat to the integrity of its records and to the
persons of its personnel. Besides, the petitioners contend, the respondent, while in
the bank premises, conversed with bank employees about his complaint for illegal
dismissal against the petitioner bank then pending before the Labor Arbiter,
including negotiations with the petitioner bank's counsels for an amicable
settlement of the said case.
The respondent, for his part, avers that Article 429 of the New Civil Code does not
give to the petitioner bank the absolute right to exclude him, a stockholder and a
depositor, from having access to the bank premises, absent any clear and
convincing evidence that his presence therein posed an imminent threat or peril to
its property and records, and the persons of its customers/clients.
We agree with the respondent bank that it has the right to exclude certain
individuals from its premises or to limit their access thereto as to time, to protect,
not only its premises and records, but also the persons of its personnel and its
customers/clients while in the premises. After all, by its very nature, the business of
the petitioner bank is so impressed with public trust; banks are mandated to
exercise a higher degree of diligence in the handling of its affairs than that
expected of an ordinary business enterprise. 41 Banks handle transactions involving
millions of pesos and properties worth considerable sums of money. The banking
business will thrive only as long as it maintains the trust and confidence of its
18

Torts
NCC

Art 19-22

customers/clients. Indeed, the very nature of their work, the degree of


responsibility, care and trustworthiness expected of officials and employees of the
bank is far greater than those of ordinary officers and employees in the other
business firms.42 Hence, no effort must be spared by banks and their officers and
employees to ensure and preserve the trust and confidence of the general public
and its customers/clients, as well as the integrity of its records and the safety and
well being of its customers/clients while in its premises. For the said purpose, banks
may impose reasonable conditions or limitations to access by non-employees to its
premises and records, such as the exclusion of non-employees from the working
areas for employees, even absent any imminent or actual unlawful aggression on or
an invasion of its properties or usurpation thereof, provided that such limitations
are not contrary to the law.43
It bears stressing that property rights must be considered, for many purposes, not
as absolute, unrestricted dominions but as an aggregation of qualified privileges,
the limits of which are prescribed by the equality of rights, and the correlation of
rights and obligations necessary for the highest enjoyment of property by the entire
community of proprietors.44 Indeed, in Rellosa vs. Pellosis,45 we held that:
Petitioner might verily be the owner of the land, with the right to enjoy and
to exclude any person from the enjoyment and disposal thereof, but the
exercise of these rights is not without limitations. The abuse of rights rule
established in Article 19 of the Civil Code requires every person to act with
justice, to give everyone his due; and to observe honesty and good faith.
When 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.

(Sgd.) LUIS MA. ONGSIAPCO


First
Human Resource Division

Vice

President

16 November 1995

TO: ALL GUARDS


ON DUTY
Strictly adhere/impose Security Procedure RE: Admission to Bank premises.
For your compliance.

(Signature) 11/16/95
Rights of property, like all other social and conventional rights, are subject to such
reasonable limitations in their enjoyment and to such reasonable restraints
established by law.46
In this case, the Memorandum of the petitioner Ongsiapco dated November 15,
1995, reads as follows:
MEMO
TO
Vice
Security Department

MR.

JESUS

M.

BELANIO
President

D A T E : 15 November 1995
R E : MR. RUBEN E. BASCO
Please be advised that Mr. Ruben E. Basco was terminated for a cause by
the Bank on 19 June 1992. He filed charges against the bank and the case
is still on-going.
In view of this, he should not be allowed access to all bank premises.

JOSE G. TORIAGA47

On its face, the Memorandum barred the respondent, a stockholder of the petitioner
bank and one of its depositors, from gaining access to all bank premises under all
circumstances. The said Memorandum is all-embracing and admits of no exceptions
whatsoever. Moreover, the security guards were enjoined to strictly implement the
same.
We agree that the petitioner may prohibit non-employees from entering the working
area of the ATM section. However, under the said Memorandum, even if the
respondent wished to go to the bank to encash a check drawn and issued to him by
a depositor of the petitioner bank in payment of an obligation, or to withdraw from
his account therein, or to transact business with the said bank and exercise his right
as a depositor, he could not do so as he was barred from entry into the bank. Even
if the respondent wanted to go to the petitioner bank to confer with the corporate
secretary in connection with his shares of stock therein, he could not do so, since as
stated in the Memorandum of petitioner Ongsiapco, he would not be allowed access
to all the bank premises. The said Memorandum, as worded, violates the right of
19

Torts
NCC

Art 19-22

the respondent as a stockholder or a depositor of the petitioner bank, for being


capricious and arbitrary.
The Memorandum even contravenes Article XII, paragraph 4 (4.1 and 4.2) of the
Code of Ethics issued by the petitioner bank itself, which provides that one whose
employment had been terminated by the petitioner bank may, nevertheless, be
allowed access to bank premises, thus:
4.1 As a client of the Bank in the transaction of a regular bank-client
activity.
4.2 When the offending party is on official business concerning his
employment with the Bank with the prior approval and supervision of the
Head of HRD or of the Division Head, or of the Branch Head in case of
branches.48

ATTY. A. BATUHAN
Your Honor, objection. Argumentative, Your Honor.
There is no question posed at all, Your Honor.
COURT
Answer. Is there any guideline?
A
Q
A

There must be a guideline of the security.


But you are not very familiar about the security procedures?
Yes, Sir.

ATTY. R. ALIKPALA
For another, the Memorandum, as worded, is contrary to the intention of the
petitioners. Evidently, the petitioners did not intend to bar the respondent from
access to all bank premises under all circumstances. When he testified, petitioner
Ongsiapco admitted that a bank employee whose services had been terminated
may be allowed to see an employee of the bank and may be allowed access to the
bank premises under certain conditions, viz:
ATTY. R. ALIKPALA
Q
So the permission you are referring to is merely a permission to be
granted by the security guard?
A
No, sir, not the security guard. The security will call the office where
they are going. Because this is the same procedure they do for visitors.
Anybody who wants to see anybody in the bank before they are allowed
access or entry, they call up the department or the division.
Q
So I want to clarify, Mr. Witness. Former bank employees are not
allowed within the bank premises until after the security guard call, which
ever department they are headed for, and that they give the permission
and they tell the security guard to allow the person?
A
Yes, Sir, that is the usual procedure.
Q
If an employee resigned from the bank, same treatment?
A
Yes, Sir.
Q
If an employee was terminated by the bank for cause, same
treatment?
A
Yes, Sir.
Q
Outsiders who are not employees or who were never employees of
the bank also must ask permission?
A
Yes, Sir. Because there is a security control at the lobby.
Q
You mentioned that this is a general rule?
A
Yes, Sir.
Q
Is this rule written down in black and white anywhere?
A
I think this is more of a security procedure.
Q
But being a huge financial institution, we expect Cocobank has its
procedure written down in black and white?

Q
Mr. Ongsiapco, the agency that you hired follows certain procedures?
A
Yes, Sir.
Q
Which of course are under the direct control and supervision of the
bank?
A
Yes, Sir.
Q
And did the security agency have any of this procedure written
down?
A
It will be given to them by the Security Department, because they
are under the Security Department.
Q
But if an employee is only entering the ground floor bank area,
where customers of the bank are normally allowed, whether depositors or
not, they don't need to ask for express permission, is that correct?
A
Yes, if they are client.
Q
Even if they are not client, but let us say they have to encash a
check paid to them by someone?
A
He is a client then.
Q
But he is not yet a client when he enters the bank premises. He only
becomes you know because you do not all these people, you do not
know every client of the bank so you just allow them inside the bank?
A
Yes, the premises.49
Petitioner Ongsiapco also testified that a former employee who is a customer/client
of the petitioner bank also has access to the bank premises, except those areas
reserved for its officers and employees, such as the working areas:
ATTY. R. ALIKPALA
Q
So Mr. Witness, just for the sake of clarity. The ground floor area is
where the regular consumer banking services are held? What do you call
this portion?
A
That is the Deposit Servicing Department.
20

Torts
NCC

Art 19-22
Q
A

Where the .
Where the people transact business.

ATTY. R. ALIKAPALA
Q
They are freely allowed in this area?
A
Yes, Sir.
Q
This is the area where there are counters, Teller, where a person
would normally go to let us say open a bank account or to request for
manager's check, is that correct?
A
Yes, Sir.
Q
So, in this portion, no, I mean beyond this portion, meaning the
working areas and second floor up, outsiders will have to ask express
permission from the security guard?
A
Yes, Sir.
Q
And you say that the security guards are instructed to verify the
purpose of every person who goes into this area?
A
As far as I know, sir.50
It behooved the petitioners to revise such Memorandum to conform to its Code of
Ethics and their intentions when it was issued, absent facts and circumstances that
occurred pendente lite which warrant the retention of the Memorandum as
presently worded.
On the second issue, the Court of Appeals ruled that the petitioner bank is liable for
nominal damages to the respondent despite its finding that the petitioners had the
right to issue the Memorandum. The CA ratiocinated that the petitioner bank should
have allowed the respondent to walk towards the restricted area of the ATM section
until they were sure that he had entered such area, and only then could the guards
enforce the Memorandum of petitioner Ongsiapco. The Court of Appeals ruled that
for such failure of the security guards, the petitioner bank thereby abused its right
of self-help and violated the respondent's right as one of its depositors:
With respect, however, to the second incident on January 31, 1996, it
appears that although according to UCPB security personnel they tried to
stop plaintiff-appellee from proceeding to the stairs leading to the upper
floors, which were limited to bank personnel only (TSN, pp. 6-9, June 4,
1997), the said act exposed plaintiff-appellee to humiliation considering
that it was done in full view of other bank customers. UCPB security
personnel should have waited until they were sure that plaintiff-appellee
had entered the restricted areas and then implemented the memorandum
order by asking him to leave the premises. Technically, plaintiff-appellee
was still in the depositing area when UCPB security personnel approached
him. In this case, UCPB's exercise of its right to self-help was in excess and
abusive to the detriment of the right of plaintiff-appellee as depositor of
said Bank, hence, warranting the award of nominal damages in favor of
plaintiff-appellee. Nominal damages are adjudicated in order that a right of
a plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized and not for the purpose of indemnifying any loss
suffered by him (Japan Airlines vs. Court of Appeals, 294 SCRA 19).51

The petitioners contend that the respondent is not entitled to nominal damages and
that the appellate court erred in so ruling for the following reasons: (a) the
respondent failed to prove that the petitioner bank violated any of his rights; (b) the
respondent did not suffer any humiliation because of the overt acts of the security
guards; (c) even if the respondent did suffer humiliation, there was no breach of
duty committed by the petitioner bank since its security guards politely asked the
respondent not to proceed to the working area of the ATM section because they
merely acted pursuant to the Memorandum of petitioner Ongsiapco, and
accordingly, under Article 429 of the New Civil Code, this is a case of damnum
absque injuria;52 and (d) the respondent staged the whole incident so that he could
create evidence to file suit against the petitioners.
We rule in favor of the petitioners.
The evidence on record shows that Casil was in the working area of the ATM section
on the ground floor when he motioned the respondent to approach him and receive
the check. The respondent then stood up and walked towards the direction of Casil.
Indubitably, the respondent was set to enter the working area, where nonemployees were prohibited entry; from there, the respondent could go up to the
upper floors of the bank's premises through the elevator or the stairway. Caspe and
the company guard had no other recourse but prevent the respondent from going
to and entering such working area. The security guards need not have waited for
the respondent to actually commence entering the working area before stopping
the latter. Indeed, it would have been more embarrassing for the respondent to
have started walking to the working area only to be halted by two uniformed
security guards and disallowed entry, in full view of bank customers. It bears
stressing that the security guards were polite to the respondent and even
apologized for any inconvenience caused him. The respondent could have just
motioned to Casil to give him the check at the lobby near the teller's booth, instead
of proceeding to and entering the working area himself, which the respondent knew
to be an area off-limits to non-employees. He did not.
The respondent failed to adduce evidence other than his testimony that people in
the ground floor of the petitioner bank saw him being stopped from proceeding to
the working area of the bank. Evidently, the respondent did not suffer
embarrassment, inconvenience or discomfort which, however, partakes of the
nature ofdamnum absque injuria, i.e. damage without injury or damage inflicted
without injustice, or loss or damage without violation of legal rights, or a wrong due
to a pain for which the law provides no remedy. 53 Hence, the award of nominal
damages by the Court of Appeals should be deleted.
On the third issue, we now hold that the petitioner bank is not entitled to damages
and attorney's fees as its counterclaim. There is no evidence on record that the
respondent acted in bad faith or with malice in filing his complaint against the
petitioners. Well-settled is the rule that the commencement of an action does not
per se make the action wrongful and subject the action to damages, for the law
could not have meant to impose a penalty on the right to litigate.
We reiterate case law that if damages result from a party's exercise of a right, it
is damnum absque injuria.54
21

Torts
NCC

Art 19-22

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed


Decision of the Court of Appeals is REVERSED and SET ASIDE. The complaint of the
respondent in the trial court and the counterclaims of the petitioners are
DISMISSED.
No costs.
SO ORDERED.

G.R. No. 132981

August 31, 2004

MAMITUA SABER, substituted by his HEIRS, represented by ORFIA ALICER


SABER, petitioners, vs. COURT OF APPEALS, PHILIPPINE AMANAH BANK and
ASGARI ARADJI, respondents
CALLEJO, SR., J.:
This is a petition for review on certiorari filed by the heirs of Dr. Mamitua Saber of
the Decision1 of the Court of Appeals in CA-G.R. CV No. 22626 reversing the
Decision2 of the Regional Trial Court of Marawi City, Branch 9, in Civil Case No. 2323
(84-R), as well as the Resolution of the appellate court denying the motion for
reconsideration thereof.
The Antecedents
On April 8, 1974 then President Ferdinand E. Marcos appointed Dr. Mamitua Saber,
then Dean of Research at the Mindanao State University and Acting Director,
National Science Museum, as Executive Vice-President of the Philippine Amanah
Bank (PAB).3 He was also designated as the Officer-in-Charge of the bank pending
the election of its president by the Board of Directors. Saber was surprised because
he did not apply for appointment to the position. He inquired from Executive
Secretary Alejandro Melchor why he was appointed thereto, considering that he had
no experience whatsoever in the field of business and banking. He was told that he
was chosen by the President from among forty applicants because of his proven
personal integrity. Saber took a year-long leave of absence from the university and
assumed office at the PAB. From the serenity of the academe, he plunged head-on
into the turbulent and intricate world of business.
One of the members of the Board of Directors of the bank was Asgari Aradji who
was also the Acting Chairman of the Screening Committee for Personnel. Martin
Saludo, then Senior Vice-President of the Philippine National Bank (PNB), was a
management consultant of the PAB.
Saber was sent to Malaysia to study how its Malaysian government prepared and
managed the annual Muslim pilgrimage (Hajj) to Mecca, and thus, avoid the fiascos
22

Torts
NCC
that plagued previous such pilgrimages of Filipino Muslims in the past. After his stint
in Malaysia, Saber resumed his duties at the PAB.
In a Letter dated September 19, 1974, Executive Secretary Alejandro Melchor
informed Chairman of the PAB Board of Directors Dr. Cesar A. Majul, that the bank
had been designated to make appropriate preparations and arrangements for the
annual pilgrimage of Filipino Muslims to Mecca. 4 The next day, Majul forwarded the
letter to Saber, directing the latter to undertake the appropriate arrangements for
the pilgrimage.5 Saber was concerned because he had only two months to prepare;
the pilgrims had to be in Mecca in time for the one-day ceremony at Mt. Arafat on
December 23, 1974. Considering that Saber had no experience thereon, the PAB
Board of Directors designated Saludo as the head of the one-man oversight
committee to oversee the preparations.
Saber issued Office Memorandum No. 92 forming a Pilgrimage Secretariat with the
following officers: Atty. Lanang S. Ali, as Chairman and Pilgrimage Administrator;
Dialel Basman, as Finance Officer; and Kuisan Go, as Trade and Investment Officer.
Saber later issued Office Order No. 95, designating ten (10) members of the
Secretariat who would join the pilgrimage and coordinate the same. This included
Lugum Uka, as Vice-Chairman, and Alexander Lucman, as member. 6 On October 4,
1974, Saber issued another Memorandum delineating the specific duties of the
Secretariat members who were joining the trip.7
Saber decided to charter the M/V Sweet Homes, owned by the Sweet Lines, Inc., for
the trip. In behalf of the PAB, as charter, Saber executed a Uniform Time-Charter on
October 15, 1974 under which the PAB chartered the M/V Sweet Homes to transport
the pilgrims to Mecca and back to the Philippines for P5,300,000 cash, the amount
budgeted8 by the PAB. The parties executed a Rider to Charter Party in which the
PAB was allowed to load cargoes in the cargo hold of the vessel up to 500 metric
tons free of freight.9 The vessel was scheduled to leave on November 28, 1974.
There was no time to lose; the PAB conducted a massive information drive to inform
the Muslims of the arrangements, including the accommodations on board the
vessel and urged them to join the Hajj through the bank. Prospective pilgrims,
including PAB depositors, made reservations for the voyage and made partial
payments for their tickets thereon.
On October 25, 1974, Saber wrote then President Marcos requesting that other
parties not be allowed to charter any ship or aircraft bringing pilgrims to Jeddah, to
avoid unfair competition with the PAB.10 However, President Marcos granted
Congressman Ali Dimaporo and some politicians from Lanao del Sur permission to
charter a plane to transport the pilgrims. Worse, Sacar Basman, the General
Manager of the Arabian Gulf Export Agency Corporation (AGEAC) had been
representing to the public that he was one of the Pilgrimage Directors, that he had
been allotted 25 passengers for the voyage on board the M/V Sweet Homes and
solicited fare payments from interested pilgrims. 11
On November 8, 1974, Indar Tampi, the Marawi Branch Manager of the PAB, wrote
Saber expressing his disappointment over the turn of events politicians being
allowed to charter a private plane which was in direct competition with the PAB. He
stated that this could derail the success of the pilgrimage and cause great financial

Art 19-22
loss to the bank. He also expressed his apprehensions about the representations of
Sacar Basman that he was one of pilgrimage directors, and that he was allotted 25
accommodations on the M/V Sweet Homes. 12 Tampi sent a telegram to Saber on
November 14, 1974 informing the latter that many prospective passengers,
including 120 depositors of the PAB who were booked for the voyage on board the
M/V Sweet Homes, had withdrawn their reservations. Furthermore, about 200
1st and 2nd class cabin accommodations were rendered vacant. 13 When he learned of
the foregoing developments, President Marcos was alarmed and ordered that
pilgrims going to Mecca by plane be limited to 100 passengers.14
In November 1974, Saber formed a three-man panel called the "Troika," composed
of Atty. Lanang Ali, Dialel Basman and Ibrahim Mamao, to coordinate the
arrangements for the pilgrimage. Rather than allow the vessel to leave for Mecca
with many vacant cabins, Saber decided to sell tickets to Basman on credit. He
issued a Memorandum15 on November 21, 1974, informing the Troika that he had
reached an agreement with Basman that the latter would purchase forty (40) first
class (ordinary) cabin accommodations and thirty (30) second class (dormitory)
accommodations on board the M/V Sweet Homes, and that Basman would pay via a
postdated check. Saber directed the Troika to implement the agreement. Saber
issued a supplemental memorandum to the Secretariat ordering it as follows:
[T]o give and issue on credit purchase basis additional One Hundred
Twenty (120) fare tickets all of first class accommodations at P6,500.00
each under the following terms and conditions, tax FREE;
1. The said fare tickets all first class accommodations at
P6,500.00 each in the total sum of SEVEN HUNDRED FIFTY-SIX
THOUSAND (P756,000.00) PESOS, Philippine Currency, shall
consist of the unsold tickets and the same shall be given and
issued to Datu Sacar Basman on credit purchase basis.
2. The said sum of P756,000.00 shall be paid by means of postdated check issued by Datu Sacar Basman in favor of the
Philippine Amanah Bank.16
In a parallel development, Atty. Mangawan Toro, the Legal Counsel of the PAB,
prepared a Freight Contract which the PAB, through Saber, and the AGEAC, through
Basman, its General Manager, executed without the approval of the PAB Board of
Directors. Under the contract, AGEAC was allowed to load on the M/V Sweet Homes
chartered by the PAB, exportable/importable goods and other cargoes on its trip to
Saudi Arabia and return, in consideration of P178,000 to be paid by AGEAC via a
postdated check, under the following terms and conditions:
7. That the PARTY OF THE SECOND PART will pay, and hand in and deliver
the payment of the consideration referred to above within a period of ten
(10) days from and after arrival in the Philippines in its return home trip.
8. That as a security for the payment of the freight agreed upon, the PARTY
OF THE SECOND PART hereby agrees that the PARTY OF THE FIRST PART
23

Torts
NCC

Art 19-22
shall have a superior lien in the proceeds on the sale of the goods
evidenced by the bill of lading, invoices and other documents and/or on
the goods in case no sale is made.17

Authorities

On the other hand, Saber stated in his Memo-Directives in the Secretariat that in
connection with the Freight Contract with AGEAC
4. The proceeds of the exported goods sold shall be placed in the
possession of the PAB Treasurer or his authorized representative which
shall be made available to Datu Sacar Basman for use in payment for
goods to be imported; likewise, the proceeds derived from the sale of the
imported goods shall be kept by the said Treasurer or his authorized
representative and all sums indicated in the postdated check/s issued by
Datu Sacar Basman be deducted therefrom and/or whatever amount or
sums of money due to the bank as embodied in the memo-directive of
November 21, 1974 and in this addendum, likewise, in other contracts
signed by the parties herein.18
Although they believed that the agreements of Saber with Basman/AGEAC were
against the policies of the PAB, the Troika/Secretariat had to implement the
Memoranda, and because of Sabers insistence, gave the tickets to Basman. In
payment thereof, Basman drew and issued PAB Check Nos. 00377 and 00378, both
postdated February 4, 1975 against his account No. 10000008 payable to PAB with
no amounts written thereon.19 Basman loaded exportable goods on board the
vessel. When the vessel arrived in Saudi Arabia, the authorities did not allow the
M/V Sweet Homes to dock. Its passengers were boarded on boats and transported
to the pier. Basman failed to unload and sell the exportable goods, much less
purchase importable goods. When the postdated checks were deposited on the due
dates thereof in the account of the PAB, they were dishonored. 20 Basman, likewise,
failed to pay for the freight charge for the exportable cargo of AGEAC to Saudi
Arabia. Consequently, the PAB sustained a huge financial loss.

3. Eight (8) persons guaranteed by Ambassador L.


Pangandaman

49,600.00

4. Nascuin Dakinangcob

1,700.00

5. Acmad Buat

2,700.00

6. Ali Usman

3,800.00

7. Ali Laguindab

3,800.00

Sub-total

P1,012,000.00

PAB Auditor Aramis Aguilar submitted his Report of the Accounts Receivables in
connection with the pilgrimage in the total amount of P1,033,700, thus:
SCHEDULE OF RECEIVABLES
I. For Tickets Sold:
II. For Mutawiff:

1. Sacar Basman

P654,000.00
1. Cosain Ali Usman

2. 78 Passengers (Surrenderees) sponsored by PC

900.00

296,400.00
24

Torts
NCC

Art 19-22

2. Surrenderees assessed by the PC Authorities

13,600.00

3. Eight (8) Passengers guaranteed by Ambassador


L. Pangandaman

7,200.00

Sub-total

P 21,700.00

TOTAL RECEIVABLES

P 1,033,700.0021

During the meeting of the PAB Board of Directors, Saber was present. The Board,
after exhaustive deliberations, approved Resolution No. 67, Series of 1975, without
any objection, declaring Saber liable for the receivables on the ground that the
Board did not authorize him to sell tickets on credit payable via postdated checks,
and to execute the Freight Contract with AGEAC. The Board directed Saber to collect
the receivables himself, because of its perception that if the PAB endeavored to
collect the receivables, it would, thereby, be ratifying the unauthorized acts of
Saber.
PAB Director Asgari A. Aradji, who was also Acting Chairman of the Personnel
Screening Committee of the PAB, made verbal representations to the PAB Board of
Directors to grant PAB Management Consultant and PAB Senior Vice-President
Martin L. Saludo the power to perform the duties and exercise the powers of PAB
President, in lieu of Saber who was only the Officer-in-Charge. He issued a
Memorandum to the Board of Directors, through the Chairman of the Board, on
February 21, 1975 reiterating his proposal. He explained the following therein:
Specifically, I refer to the mishandling of the 1974 MECCA Pilgrimage. The
Board set a budget of P5.53 million but the incumbent OIC authorized a
total disbursement of P9.157 million or an excess of P3.62 million.
As Chairman of the Personnel Screening Committee, I have discovered,
much to my surprise, that a number of employees have been retained in
spite their not having the necessary qualifications for the positions;
other[s] were terminated despite the fact that they are more deserving
than those who were retained.

These instances clearly indicate the apparent lack of exercise of effective


leadership which is so vital and essential at this crucial stage if we are to
make the Amanah Bank truly responsive to the needs of our Muslim
brothers. Moreover, the purpose for which Dr. Namitua Saber has been
designated as OIC have already been accomplished and such designation
has become academic with the constitution of the PAB Board of Directors. 22
Meanwhile, Sabers leave of absence at the Mindanao State University expired and
he had to report back to the university. He applied for a clearance from the PAB.
Assistant Auditor Rodolfo Ocampo signed the said clearance for and in behalf of
Auditor Aramis Aguilar, subject to Resolution No. 67, Series of 1975 of the PAB
Board of Directors. Because of the conditional clearance issued by the PAB, Saber
was reinstated to his position as professor at the university with the salary
of P34,000.00 per annum, but not to his former position as Dean for Research.
On May 6, 1975, the PAB Board of Directors approved Resolution No. 92 confirming
the recommendation of the management of the bank for the creation of an
Investigating Committee of five (5) members, chaired by Aradji, to look into the
administrative and/or criminal liabilities of the persons involved in the Pilgrimage
Project.23 It also resolved that pending the outcome of the investigation, Saber be
given only a conditional clearance.24
During the formal investigation, Saber testified and submitted documentary
evidence. Aradji submitted his Report to the PAB Board of Directors that there was
basis for Saber to be charged with violation of Republic Act No. 3019, otherwise
known as the Anti-Graft and Corrupt Practices Act, and recommended that the
proper criminal complaint be filed against him. The management approved the
recommendation of Aradji.
On July 10, 1975, the Board of Directors of the PAB approved Resolution No. 155
confirming the recommendation of the PAB Management based on the Report of the
Investigating Committee headed by Aradji. The resolution authorized the filing of a
criminal complaint against Saber for violation of Rep. Act No. 3019, and for Aradji to
sign the said complaint and testify against Saber:
1. That a criminal case for violation of the provisions of the Anti-Graft and
Corrupt Practices Act (Republic Act 3019) be filed against Dr. Mamitua
Saber and that Director Asgari A. Aradji, Chairman, Investigation
Committee, 1974 Mecca Pilgrimage Project be authorized, as he is hereby
authorized to sign for and in behalf of the Bank the complaint against Dr.
Mamitua Saber and thereafter to testify and represent the Bank. Should
sufficient evidence be found later to prove conspiracy in the preparation
and execution of the Freight Contract, the memorandum and the
addendum thereto mentioned above, that Messrs. Lanang Ali, Magawan
Doro, Dialel Basman and other persons involved be included as
respondents;25
Pursuant thereto, Aradji signed the criminal complaint filed with the Office of the
City Fiscal of Zamboanga City against Saber for violation of Rep. Act No. 3019. The
25

Torts
NCC

Art 19-22

case was docketed as Slip No. 527-75. The complaint, as well as the report on the
investigation of Saber, was the subject of a news item in the Times Journal, a
newspaper of general circulation under the by-line of reporter Emilio Macaspac. 26
On October 6, 1975, Saber filed a civil complaint for damages in the RTC of Marawi
City, Branch 9, against the PAB, 27 the Chairman and the members of its Board of
Directors, its Managing Director Martin Saludo, Auditor Aramis Aguilar, and
Assistant Auditor Rodolfo Ocampo. Saber alleged therein that the PAB was
authorized to make the appropriate arrangements for the pilgrimage; he had the
implied authority to enter into transactions, including the authority to sell the
tickets to Basman on credit and to execute the Freight Contract with AGEAC. He
pointed out that Martin Saludo, who was appointed by the Board of Directors to
oversee the preparation of the pilgrimage, approved the said transactions; hence,
he is not personally liable for the receivables of P1,033,700. He alleged that the
defendants therein acted arbitrarily, oppressively and unfairly in considering the
receivables in connection with the pilgrimage as his personal obligation and in
approving Resolution No. 67. He further averred that the conditional clearance
made by Ocampo and Aguilar caused him great damage and prejudice, and that the
filing of the anti-graft charges against him by the PAB and its Board of Directors was
devoid of any factual and legal basis. He claimed that the filing of the charges, the
nationwide publication thereof at the behest of the PAB, and the press release of
the Investigating Committees report and the complaint caused him dishonor,
shame, discredit and contempt, shock, besmirched reputation, and wounded
feelings, for which the defendants were liable for moral, exemplary and actual
damages. He also alleged that because of his preventive suspension, he failed to
receive his salary from the Mindanao State University, causing him and his family
severe economic losses. He further claimed that Aradji and Saludo conspired to oust
him from the PAB.
Saber, thereafter, prayed that, after due proceedings, judgment be rendered in his
favor:
WHEREFORE, it is respectfully prayed that judgment be rendered in favor
of plaintiff and against defendants, as follows:
1.
2.
3.

Declaring PAB Boards Resolution No. 67, Series of 1975 (Annex D)


null and void;
Ordering the deletion of the questioned notation Subject to Board
Resolution No. 67, Series of 1975 contained in the Certificate of
Clearance (Annex E);
Ordering defendant, jointly and severally in their official and/or
personal capacity, to pay plaintiff, the following:
a. The amount of no less than P1,000,000.00 as and for moral
damages;
b. The amount of no less than P3,650.00 monthly from July
1975, until plaintiff shall have resumed his position in the
Mindanao State University;
c. The amount of no less than P100,000.00 as nominal
damages;

d.
e.

A reasonable amount to be determined by the Honorable


Court, as and for exemplary damages;
Attorneys fees in the amount equivalent to 25% of whatever
amount is awarded by the Honorable Court in favor of the
plaintiff.

Plaintiff further prays for such other and further relief as this Honorable
Court may deem just and equitable in the premises.28
On motion of Saber, the complaint was dismissed as against the chairman and
members of the PAB Board of Directors.29
The remaining defendants therein, the PAB and Aradji, alleged the following in their
Answer: Saber sold tickets on credit to Basman payable via postdated checks
without authority from the PAB Board of Directors; defendant Martin Saludo
approved in principle the lease of the cargo spaces in the M/V Sweet Home, but
subject to the approval of the PAB Board of Directors; the said lease contract,
including the Freight Contract with AGEAC, was never approved by the PAB Board of
Directors; the PAB had no obligation to issue a clearance to Saber, and it would
have been injudicious it to have done so on account of Sabers unpaid personal
obligations to the bank; contrary to Sabers claim, there were factual and legal
bases for the approval of Resolution No. 67 and the filing of the graft charges
against him; Saber made no allegations in the complaint that they (the defendants
therein) caused or in any way participated in the publication of the charges filed by
the PAB against him; and, the defendants acted in good faith, in the performance of
their duties in the filing of the complaint in violation of Section 3, Rep. Act No. 3019.
On December 9, 1975, the Board of Trustees of the MSU approved Resolution No.
969, Series of 1975, approving the reinstatement of Saber to his former position as
Dean of Research, with the corresponding salary effective from the date he would
report for work.30
After a preliminary investigation, Special Counsel Genaro T. Lorena, Jr. of the Office
of the City Fiscal issued a Resolution dismissing the complaint in Slip No. 52775.31 The petition for review thereon filed by the PAB was dismissed on August 2,
1978.32 However, upon review by the Tanodbayan, the resolution of the Special
Counsel was reversed with the following recommendation:
The undersigned finds and so holds that there exists a prima facie case for
violation of Sec. 3, par. (e) on three (3) counts (on the basis of the
memoranda of November 21 and 28, 1974, and that of the freight
contract, respectively) of the Anti-Graft Law against respondents MAMITUA
SABER, LANANG ALI, DIALEL BASMAN, IBRAHIM MAMAO, TINDUG
MACARAMBON, IBRAHIM MACADATAR and SACAR BASMAN, and that they
are probably guilty thereof. Accordingly, it is recommended that the
corresponding informations for Violation of the Anti-Graft Law be filed
against respondents.33

26

Torts
NCC

Art 19-22

Three Informations were filed against Saber, Sacar Basman, Lanang Ali, Dialel
Basman, Ibrahim Mamao, Tindug Macarambon and Ibrahim Macadatar in the
Sandiganbayan for violation of Section 3(e) of Rep. Act No. 3019. The cases were
docketed as Criminal Cases Nos. 1835 to 1837. 34 Saber was preventively suspended
by the Sandiganbayan as required by law.
After trial, the Sandiganbayan rendered a Decision on January 6, 1982 acquitting all
the accused.35 In acquitting Saber of the charge, the Sandiganbayan ruled:
It is of no legal consequence that both the MEMORANDUM and the
ADDENDUM were not approved by the Board of Directors of the BANK. For
one thing, it is not the absence of such approval that made the
transactions subject of both documents criminal under the penalizing Act
but whether they caused undue injury to the BANK or gave unwarranted
benefits, advantage or preference to Sacar Basman through manifest
partiality, evident bad faith or gross inexcusable negligence of the accused
BANK officials, which the court believes did not. For another thing, the time
element and the fact that the members of the Board were themselves
responsible officials of different government offices precluded convening
them to a meeting for that purpose. And still for another thing, Dr. Saber,
who was then the Executive Vice President and Officer-in-Charge of the
BANK and entrusted with the management of the Pilgrimage Project must
be deemed to have been impliedly clothed with authority to enter into any
contract related to the Project. A corporate officer, entrusted with the
general management and control of its business, has implied authority to
make any contract or do any other act which is necessary or appropriate to
the conduct of the ordinary business of the corporation. (Board of
Liquidators vs. Kalaw, supra, citing 2 Fletcher Cyclopedia Corporations, p.
607.)36
On February 11, 1989, the RTC rendered a Decision in Civil Case No. 2323 in favor
of Saber, and against the PAB and Aradji, thus:
WHEREFORE, for all the foregoing findings, judgment is hereby rendered in
favor of plaintiff and against defendants, as follows:
1. Ordering defendant Philippine Amanah Bank jointly and severally with
defendant Asgari Aradji, to pay plaintiff the amounts of:
a.
b.
c.
d.

Nine Hundred Thousand (P900,000.00) Pesos as moral


damages;
One Hundred Thousand (P100,000.00) Pesos as nominal
damages;
Seventy Thousand (P70,000.00) Pesos as and for Attorneys
fee; and
The costs of suit.

SO ORDERED.37

The trial court ruled that the PAB and Aradji were liable for damages based on the
following:
...(1) Malicious Prosecution of the criminal cases against plaintiff; (2) Libel
arising from derogatory and malicious publications against plaintiff; and (3)
willful injury against plaintiff under the provisions of the New Civil Code on
Human Relations, arising from Resolution No. 67, Series of 1975 and the
conditional clearance in question.38
The trial court based its ruling partly on the decision of the Sandiganbayan in
Criminal Cases Nos. 1836 to 1837, on the finding that the PAB and Aradji caused
the publication of the filing of the criminal charges against Saber in the Office of the
City Fiscal in the Times Journal, and that the ouster of the plaintiff from the PAB was
instigated by Aradji. Thus:
It is unrebutted that plaintiffs ouster was conspired in as demonstrated
by the fact that when Saludo and other members of the Task Force
prepared the budget for Amanah Bank, the salary of the President of the
Bank was P67,000.00 per annum and the salary of the Executive VicePresident which the plaintiff assumed was P48,000.00 but to pressure
plaintiff from giving up his position, the Board was moved by Saludo to
reduce his salary to only P30,000.00 per annum. When plaintiff left the
Bank, Saludo took over the position which plaintiff held. After Saludo,
defendant Aradji assumed the position of Executive Vice-President, the
same position which plaintiff held before he left the Bank. (pp. 4, 26,
Deposition of Aradji).39
The trial court also ruled that the sales of the tickets to Basman on credit and the
execution of the Freight Contract were with the prior approval of Martin Saludo, the
head of the One-Man Oversight Committee, as well as Nestor Kalaw, who was the
PNB Legal Counsel.
The decision was appealed to the Court of Appeals, which rendered a judgment
reversing the decision of the trial court. The CA ruled that Saber failed to prove bad
faith and malice against the PAB and Aradji in the performance of their duties, and
in exercising the powers of their office. It also held that the latter acted out of duty
to protect the interests of the PAB. The CA further ratiocinated that
Defendants could not be blamed for acting the way they did for they were
charged with the duty to act for the bank with loyalty and dedication, and
according to their best judgment. It is a well-known rule of law that
questions of policy or of management are left solely to the honest
decisions of officers and directors of a corporation, and so long as they act
in good faith, their orders are not reviewable by the courts.
It is, thus, evident that defendants PAB and Aradji were not in the least
motivated by any malicious intent or by a sinister design to unduly harass
plaintiff Saber, but only by a well-founded anxiety to protect the interests
of the bank when they caused the filing of a criminal complaint against the
27

Torts
NCC

Art 19-22
latter. The facts which presented themselves were such as would excite
the belief in a reasonable mind that the person charged was guilty of the
crimes for which he was prosecuted. This is the essence of probable cause
which eliminates the element of malice essential in making out a case of
malicious prosecution. (Almendra v. Alvero, 50 SCRA 62 [1965]).

Executive Vice-President from P48,000 per annum to P24,000 per annum, and
conspired to oust him from the said position and as officer-in-charge of the
petitioner bank because of their ambitions: Saludo aspired to become the president
of the respondent bank, while respondent Aradji wanted to be the Managing
Director.

But whether or not defendants perception of the facts and circumstances


is actually correct is irrelevant, the only issue being whether or not there
was probable cause in the filing of the criminal complaint.40

The petitioners claim that Saber acted in good faith in entering into agreements
with Basman/AGEAC as confirmed by the Sandiganbayan in its decision; yet,
respondent PAB still approved Resolution No. 67, Series of 1975, holding Saber
personally liable for P1,012,000.00 even before the PAB tried to collect the amount
from the debtors; by its acts, the respondent bank merely made Saber as a
scapegoat.

The appellate court disagreed with the trial courts finding of the existence of
conspiracy between Saludo and Aradji, thus:
Nor can we see any "conspiracy" to pressure Saber into giving up his
position by the reduction of his salary. As explained by defendants, PABs
salary structure could not be made at par with that of the Philippine
National Bank, for instance, since it was just a small bank with a paid-up
capital of only P50 Million and moreover, it had only eight branches. It was
therefore deemed necessary to rationalize the salary level of the banks
officers and staff to make the operations of the bank more economically
sound and viable.41

Finally, the petitioners aver that the respondents are liable for damages for
malicious prosecution because (a) Saber alone was charged for violation of Rep. Act
No. 3019, although there were others who were involved in the pilgrimage fiasco;
and (b) despite the dismissal of the criminal complaint by the Special Counsel, the
respondents, nevertheless, pursued their appeal in the Tanodbayan who found
probable cause against Saber which finding was barren of factual basis as
confirmed by the decision of the Sandiganbayan acquitting him of the charges.
The Ruling of the Court

The Present Petition


The petition has no merit.
In the meantime, Saber died intestate. His heirs, represented by Orfia Alicer Saber,
filed the instant petition for review on certiorari of the decision of the CA, alleging
that the appellate court erred in reversing the decision of the trial court:
Petitioners herein respectfully submit that the Court a quo committed error
in concluding that under the environmental circumstances, the award of
damages to plaintiff may not be sustained whether based on the principle
of abuse of rights or for malicious prosecution. 42
The petitioners aver that Saber was able to prove his claims for damages against
the respondent, based on the principles of abuse of rights and malicious
prosecution.
The petitioners contend that the respondents acted with malice and/or in bad faith.
They allege that Saber was deprived of his right to be investigated by the impartial
investigator. They pointed out that respondent Aradji, who was the Chairman of the
Investigating Committee, was biased against Saber, considering that the
respondent made strong representations to the Board of Directors of the
respondent bank that he (Saber) be replaced by Saludo. The petitioners stress that
respondent Aradji, a non-lawyer, was designated to head the Investigating
Committee to investigate the pilgrimage fiasco. The petitioners also allege that
Saber was denied due process, as he was never furnished with a copy of the Report
of the Investigating Committee. They claim that Saludo and respondent Aradji
pressed Saber into resigning by proposing for the reduction of his salary as PAB

Abuse of right under Article 19 of the New Civil Code on which Saber anchored his
claim for damages and attorneys fees, 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.
The elements of abuse of rights are the following: (a) the existence of a legal right
or duty which is exercised in bad faith; and (b) for the sole intent of prejudicing or
injuring another. Malice or bad faith is at the core of said provision. 43 Good faith is
presumed and he who alleges bad faith has the duty to prove the same. 44 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. 45 A public officer is presumed to have acted in
good faith in the performance of his duties. Unless there is a clear showing of
malice, bad faith or gross negligence, such public officer is not liable for moral and
exemplary damages for acts done in the performance of his official
duties.46 Mistakes committed by a public officer are not actionable absent any clear
showing that they were motivated by malice or gross negligence amounting to bad
faith.47 Bad faith, on the other hand, does not simply connote bad judgment to
simple negligence, dishonest purpose or some moral obloquy and conscious doing
of a wrong, a breach of known duty due to some motives or interest or ill-will that
partakes of the nature of fraud.48 Malice connotes ill-will or spite and speaks not in
28

Torts
NCC

Art 19-22

response to duty. It implies an intention to do ulterior and unjustifiable harm. Malice


is bad faith or bad motive.49

committee, and that the latter acted in bad faith or with malice in accepting the
position and in not inhibiting himself from the said investigation.

We agree with the petitioners that a person other than respondent Aradji should
have been designated as Chairperson of the Investigating Committee to investigate
the pilgrimage fiasco. This is so because in his Memorandum to the Board of
Directors of the PAB on February 21, 1975, respondent Aradji had declared that the
1974 Mecca pilgrimage under the supervision of Saber was mishandled and there
were indications then that there was an apparent lack of exercise of effective
leadership which was so vital and essential to make the bank truly responsive to
the needs of the Filipino Muslims. Respondent Aradji then proposed that Saludo
exercise the powers of the president of the respondent bank in place of Saber. In
fine, respondent Aradji attributed the problems attendant to the pilgrimage fiasco
to Saber. But then Saber did not oppose the designation by the Board of Directors
for respondent Aradji to be the Chairman of the Investigating Committee, or even
asked for the latters inhibition. Saber must have believed that he could still prove
that he acted in good faith, and was not guilty of any wrongdoing regardless of any
misconception of respondent Aradji. Besides, respondent Aradji was only the
chairman of the committee, and there were four (4) other members who could rule
in Sabers favor. As it was, Saber even appeared before the committee and adduced
testimonial and documentary evidence in his behalf. Thus, Saber testified:

Respondent Aradji was the Acting Chairman of the Personnel Servicing Committee.
There were four (4) other members of the Investigating Committee, one of whom
was a lawyer, Atty. Arasad Alpad, Jr.; the other members were Executive VicePresident Berua Ibrahim and Assistant Vice-President Alexander Lacman, 51 all of
whom could rule for Saber based on the evidence on record. Moreover, the report
and recommendations of the committee were still subject to the review of the Board
of Directors of the respondent bank, which included then Minister Cesar Virata.
Respondent Aradji, for his part, could also still rule for Saber, based on the evidence
on record.

Q Now, what was your rule in the investigation when you were invited to
appear?
A As I have stated, they wanted me to shed light or give information about
the behavior or what had happened in that pilgrimage.
Q Did you actually appear and testified?
A Yes, I testified. I even gave the committee some documentary reports, a
copy of the report which had been submitted to the chairman of the bank,
Dr. Majul.
Q You said that Mr. Aradji headed the investigation committee created by
the bank. Is that Mr. Aradji the same defendant in this case?
A Yes, sir.

50

It was only after the Report and Recommendation of the Investigating Committee
was approved by the Board of Directors of the respondent PAB, and the subsequent
publication of the said report in the Times Journal that Saber complained, for the
first time, of the impropriety of the designation of respondent Aradji as Chairman of
the committee.
In any event, it cannot be concluded that the Board of Directors of the PAB acted in
bad faith or with malice in designating the respondent Aradji as chairman of the

It is true that in his Memorandum dated February 21, 1975 respondent Aradji
proposed to the Board of Directors of the respondent PAB that Saludo, a Senior
Vice-President of the PNB and PAB management consultant, to exercise the powers
and perform the duties of the president of the respondent bank, in effect
terminating the designation of Saber as Officer-in-Charge. However, he did so not to
spite Saber, but for good and justifiable reasons, thus:
Mr. Saludo has behind him more than 35 years of solid banking experience
and expertise in the Bank. He is acceptable to both Christians and
Muslims. I strongly believe that he is imminently qualified to exercise the
duties and powers of the President of the Bank.
For the record, I wish to emphasize that Mr. Saludo was never sought much
less intimated to me his desire to exercise such duties and powers. On the
contrary, his being connected with our Bank is an additional burden to him
but which he has graciously accepted as [a] challenge to place the Bank
on a competitive level with the other commercial banks in the country.
In submitting this proposal, I am only motivated by my desire to improve
the stature of the Bank, which gesture could only be accomplished if we
grant the men that executive freedom to act, and to exercise strong,
positive and assertive leadership in our organization.52
Saber failed to adduce convincing evidence that Saludo and respondent Aradji
conspired to oust him from his position as Assistant Vice-President of the
respondent bank.
Neither may bad faith nor malice be imputed on the respondents in holding Saber
personally liable for the receivables of P1,033,700. The evidence of Saber, no less,
shows that he was present during the 16 th Meeting of the Board of Directors of the
PAB. So were Ministers Cesar Virata and Leonides Virata. After an intensive and
exhaustive discussion, the Board resolved that Saber had no authority to enter into
any agreement with Basman for the sale of the tickets on credit payable by
postdated checks, and to execute a Freight Contract with AGEAC over the cargo
hold in the M/V Sweet Homes. The Board unanimously resolved not to ratify the
agreements executed by Basman and Saber in behalf of the PAB and with AGEAC,
29

Torts
NCC

Art 19-22

and for Saber to take full responsibility for the collection of receivables. This is
shown by the Minutes of the stenographic notes taken during the Board Meeting:
MR. SALUDO : Atty. Sadac is a lawyer, there are problems but we have to
concentrate on this.
ATTY. ABBAS : Does the Board ratify such act?
DIR. C. VIRATA : No.
ATTY. ABBAS : Is it against Dr. Saber in his individual capacity?
DR. SABER : I have not been acting as an individual person. I have always
acted on that because it is part of my position as an officer of the Bank.
There is not a single act that have not think (sic) to save the predicament
of the boat in the tense moments. When the boat was about to leave, my
Troika recommended to me that this is the recourse, even my Legal Officer
advised me, even the Auditor himself who is (sic) there in Zamboanga. If
(sic) it was really very urgent that I have to act on the spot. I have to take
(sic) a decision because it is going to affect the entire boat if the result was
negative but the real intention is (sic) to help. We thought that we will
make good for the Bank.
DIR. C. VIRATA : I think, we have to clarify, Dr. Saber, as between the
responsibility of the officers and that of the Board. While it is true that you
have certain discretionary powers but that is either affirmed or reviewed
by the Board. In this case, you have no authority on this very important
matter so you have to take on your individual capacity because the Board
refuses to share the responsibility.
DIR. DOMINGO : Which we will review or affirm.
DIR. C. VIRATA : That is the responsibility as being the head of the
institution and all of us are subject to this restriction.
CHAIRMAN : So, I think, better muster all the legal minds in the Bank, Mr.
Saludo and the staff.
DIR. DOMINGO : And finish this once and for all.
MR. SALUDO : We could file an action against Sacar Basman. The question
is, can we recommend?
DIR. CRUZ : That is ratifying an act.
MR. SALUDO : We declared that Troika is short.

DR. SABER : The Troika is here.


DIR. C. VIRATA : It is useless. The Troika will say that Dr. Saber was the one.
CHAIRMAN : You run after them individually.
DIR. DOMINGO : Who are the members of the Troika?
DR. SABER : They are: Atty. Lanang Ali, Administrator, Dialel Basman, the
Treasurer, Tindug Macarambon, Project Accountant and Ibrahim Mamao.
Anything they recommended that these are their needs I issued them
because they are the ones implementing. They implemented even in the
Branches and I thought it is for the good of the Bank.
DIR. TEODORO : The problem here is they are funds due to the Bank. This
boat was chartered even without the approval of the Board.
AUD. AGUILAR : Excuse me, there is a possibility to collect because they
have issued a communication ordering the people to ride in the boat.
DIR. CRUZ : We will get good Legal Advisers here. It must be the Solicitor
General.
CHAIRMAN : This was what I was suggesting.
MR. SALUDO : Atty. Sadac here is willing to assist the Legal Counsel of the
Amanah Bank.
DIR. CRUZ : Can we not engage the services of the government counsel?
CHAIRMAN : If you think you find this necessary. (MR. SALUDO)
DIR. CRUZ : I dont know the lawyer involved but basing in (sic) our
experience, unless you hire a super-duper lawyer at least you can easily
win the case. We could ask for the assistance of the Office of the Solicitor
General.
DR. SABER : Mr. Chairman and gentlemen, let me comment. Will you
please look on this affair of the pilgrimage not in terms of loss but in terms
of other things, what are the various outcome[s] of the pilgrimage.
CHAIRMAN : With all respect to your views, Dr.
here. The Bank is incurring losses, the other one
money. These are 2 different things. The way
already incurring a loss of P900,000. We are

Saber, there are 2 points


is, there are people owing
I look at it, the Bank is
only talking on (sic) the
30

Torts
NCC

Art 19-22
Accounts Receivables, it can only serve to explain why we are losing. I
think every effort should be made because it involved not only you but
also other people like Ambassador Pangandaman. Even these people, you
have to have the legal counseling to help, and we will work hand in hand
with other lawyers with their advice. If this is difficult, we have government
lawyers, this is a government bank. We can seek their advice. The problem
is how do we collect money? We are not talking (sic) that the charter of the
boat is exorbitant, if it is high. The question is how can the Bank recover?
Shall the people owing the Bank pay? Even the Charter rate, it is very big,
that is something else. I think, that is the problem. I dont know if we
understand the Board here, whether we like it or not, we have to collect.
DIR. CRUZ : We have reached a consensus, why dont we give Dr. Saber 30
days to liquidate? He is accountable, then we will decide later what course
of action shall we take.
DIR. TEODORO : Until the money is returned here as the Board has found it
necessary and it is reflected in the report, and efforts should be made on
the Accounts Receivables. He is responsible to go after the people
involved. This is the only official action of the Board.
MR. SALUDO : Sir, do you think the case will drag on if we can not liquidate
within 30 days?
DIR. TEODORO : We can not close our eyes that the money of the Bank is
lacking in amount.
DIR. CRUZ : The idea here is that, such Legal action on those people
responsible, so these people have to liquidate the account within 30 days,
failure on your part, then we resort on (sic) the other course[s] of action.
CHAIRMAN : Any objections[?]
BOARD MEMBERS : None.
CHAIRMAN : APPROVED[53]

Indeed, the Sandiganbayan ruled in its decision in Criminal Cases Nos. 1835-1837
that Saber had the implied authority as Executive Vice-President to sell tickets on
credit via postdated checks and to allow Basman to load his cargoes in the cargo
section of the M/V Sweet Homes; that Saber acted in good faith; hence, was not
criminally liable therefor; that the respondent bank resorted to the dubious
expedience of charging the receivables against the account of Saber, instead of
availing itself of legal remedies for their collection. However, it cannot thereby be
concluded that the Board of Directors of respondent PAB acted in bad faith or with
malice.

There is no evidence on record that as claimed by the petitioners, Saludo and


respondent Aradji conspired to oust Saber as Executive Vice-President of the PAB
and Officer-in-Charge. Saludo merely told Saber intimately that it was his ambition
to become President of the bank had not President Marcos appointed Saber.
Moreover, Saludo and Saber even became intimate friends:
ATTY. FABIE:
Cross-examination to elucidate not because he does not
understand. It is not that, Your Honor. A practitioner should be fair.
If he cross-examines, the purpose is to elicit the truth, not to
distort. Here, in this case, we want the truth.
ATTY. SADAC:
That is the purpose of my cross-examination.
COURT:
LET US PROCEED.
ATTY. SADAC: (to witness)
Q Again, Dr. Saber, on page 213 of the transcript of stenographic notes,
dated January 16, 1980, you testified that Mr. Saludo allegedly manifested
to you his desire to be president of the Philippine Amanah Bank. For the
information of this Honorable Court, will you tell us when was this made or
relayed to you?
A During my incumbency in the Philippine Amanah Bank. He did not tell
me that he desires to replace me, only his desire to become president of
the Bank. He told me intimately, he said: "Brod, if President Marcos did not
get you I would have been made president of the Philippine Amanah Bank
because I am also a Muslim." He told that to me intimately. It was intimate,
the same as I was intimate with you.
Q When was that within your incumbency, when was that made?
A In fact, he said this to me several times, and again I cannot count how
many times I am not keeping statistics of statements.
COURT:
Q AND THAT WAS SAID TO YOU DURING YOUR INCUMBENCY?

31

Torts
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Art 19-22
A Yes, Your Honor.
ATTY. SADAC:
Q Will you tell us, Dr. Saber, because we want to be specific, in what
occasion did Mr. Saludo tell you, what particular occasion?
A Well, under the roof of the Philippine Amanah Bank and some other
occasions, but I cannot recall again as I said I did not put this in my diary.

Saber failed to adduce evidence that respondent Aradji issued any press release
covering his Report to the Board of Directors of the PAB or his formal investigation
and the criminal complaint he filed against Saber for violation of Rep. Act No. 3019.
The news report of Emil Macaspac of the Times Journal does not attribute the
source of the facts contained therein. When pressed to adduce evidence to prove
that the news report was based on the press release issued by the respondent
Aradji, Saber hedged and surmised that the source of the news report could have
been Atty. Roberto Sadac, the Legal Officer of the PAB:
Q Do you know personally Emil Macaspac, the reporter of the Times
Journal?

Q You cannot again remember, Dr. Saber?


ATTY. R. SADAC:
A Yes, Sir.
I just want to remind the witness that he is testifying under oath.
Q And when he made this alleged manifestation of his desire to become
president of the Philippine Amanah Bank, were there other people around
you in these alleged several occasions?
A I cannot remember if there were people around. If there were I will bring
them to court to testify because, as I said, this is between friends. Mr.
Saludo confirmed his friendship to me and we became friends when we
were in the Philippine Amanah Bank.54
Neither is there evidence that respondent Aradji had any involvement at all in the
reduction of Sabers salary fromP48,000 to P24,000 per annum. The budget of the
bank was modified upon the advice of PNB President Panfilo Domingo and Saludo.
This is gleaned from the transcript of stenographic notes of Sabers testimony:
Q Do you know, Mr. Saber, for the information of this Honorable Court, how
much does the president of the Philippine Amanah Bank received?
A The budget was P48,000.00 per annum, but I received that for a few
months the Board of Directors with the advise of President Domingo of the
Philippine National Bank and Vice-President Saludo reduced it to 50% and I
was paid only P24,000.00 per annum. That discourage me staying with the
Bank.
Q In other words, the President of the Philippine Amanah Bank under that
new budget that you have mentioned is receiving about P24,000.00 per
annum?
A The last salary was P24,000.00 instead of P48,000.00.55
The budget was approved by the Board of Directors of the PAB and Central Bank of
the Philippines Governor Gregorio Licaros.56

ATTY. B. FABIE:
The witness, Your Honor, is an intelligent man. Dr. Saber is an
educator.
COURT:
GO AHEAD ANSWER THE QUESTION.
WITNESS:
A I do not know him personally nor intimately associated with him. I cannot
remember his face but he was among the newspaper men frequenting
your office and my office.
Q To be specific Dr. Saber, will you tell this Honorable Court the day or the
time or the period when these newspaper men especially Emil Macaspac
frequenting my office or your office?
A I am getting the evidence from the dateline of the news of July 28, 1975.
So, I presumed that before the news report was printed, he was
frequenting your office, otherwise, where is the source of the news? He
cannot get it from outside.57
The respondent PAB cannot be faulted, nor can it be ordered to pay damages and
attorneys fees for issuing a conditional clearance to Saber after his resignation
from respondent PAB. Saber had not yet liquidated his accountability of P1,012,000
when his leave of absence from the university had expired. The Investigating
Committee had yet to commence and terminate its investigation of Sabers
accountability, administrative or civil, for the pilgrimage fiasco. The respondent PAB
32

Torts
NCC

Art 19-22

had no discretion to issue a clearance to Saber. It bears stressing that a public


officer, in the discharge of his duties has to use prudence, caution and attention in
the management of his affairs. In fact, the respondent PAB was duty bound to
withhold such clearance to Saber pending final determination of his monetary
accountabilities. Even assuming that Saber and/or the petitioners sustained
economic difficulties on account of the conditional clearance issued by the
respondent PAB, the petitioners are not entitled to moral and exemplary damages.
The act of the respondent PAB was not wrongful. It is a case ofdamnum absque
injuria and not of damnum et injuria.58

(3) That he or she causes undue injury to any party, whether the
government or a private party;

To constitute malicious prosecution, there must be proof that the prosecutor was
prompted by a sinister or devious design to vex and humiliate a person, and that it
was initiated deliberately, knowing that the charges are false and
groundless.59 Malice with probable cause must both be clearly established to justify
an award of damages based on malicious prosecution. 60 Lack of probable cause is
an element separate and distinct from that of malice. One cannot be held liable for
damages for malicious prosecution where he acted with probable cause. 61 We also
held that a determination that there is no probable cause cannot be made to rest
solely on the fact that the trial court after trial decided to acquit the accused.
Neither can lack of probable cause be made to rest on the fact that the finding of
probable cause of the Special Counsel was reversed by the Secretary of Justice or
the Ombudsman as the case may be. 62 The mere act of submitting the case to the
authorities for prosecution does not make one liable for malicious
prosecution.63 Moreover, the adverse result of an action does not per se make the
action wrongful and subject the action to damages, for the law could not have
meant to impose a penalty on the right to litigate. If damages result from a persons
exercise of a right, it is damnum absque injuria.64

In this case, the Tanodbayan found probable cause for three (3) counts of violations
of Section 3(e) of Republic Act No. 3019.67 Indeed, the evidence on record shows the
following:

Probable cause is that which engenders a well-founded belief that a crime has been
committed and that the respondent is probably guilty thereof and should be held for
trial. A finding for probable cause needs only to rest on evidence showing that in all
probability, a crime has been committed by the respondent. Probable cause need
not be based on clear and convincing evidence beyond reasonable doubt. While
probable cause demands more than mere suspicion, it does not require that the
evidence would justify conviction.65
Saber failed to prove that the respondents filed the criminal complaints against him
with malice and despite lack of probable cause therefor.
The respondent PAB, through respondent Aradji, filed a criminal complaint against
Saber for violations of Section 3(e) of Rep. Act No. 3019, which has the following
enumerated elements:
(1) The accused is a public officer or a private person charged in
conspiracy with the former;

(4) Such undue injury is caused by giving unwarranted benefits, advantage


or preference to such parties; and
(5) That the public officer has acted with manifest partiality, evident bad
faith or gross inexcusable neglect.66

First. Saber allowed Basman to buy tickets worth P756,000 payable on credit via
postdated checks over the objection of the Troika-Secretariat. The postdated checks
were blank as to the amounts. As found by the Sandiganbayan:
Pursuant to the MEMORANDUM (Exh."G"), accused Dialel Basman as
Finance Officer of the Secretariat issued to Sacar Basman the seventy (70)
tickets therein specified worth P392,000 (t.s.n., p. 23, August 11, 1981),
for which Sacar Basman issued Philippine Amanah Bank Check No. 00377
payable to the BANK, postdated February 4, 1975, drawn against Sacar
Basmans account No. 10000008 but blank as to the amount (Exh. "I").
Under the ADDENDUM (Exh. "G-1"), Dialel Basman issued one hundred
twenty (120) first class tickets to Sacar Basman for which Sacar Basman
issued PAB Check No. 00378 payable to the BANK, similarly postdated
February 4, 1975, drawn against the same account, and also blank as to
the amount. (Exh. "I-1".). 68
Saber failed to ascertain whether Basman issued the said checks against sufficient
funds in his account with the respondent bank. When the checks were deposited by
respondent PAB in its account, the said checks were dishonored.
Second. Saber allowed the AGEAC to pay freight charges of P178,000 via Check
Nos. 00377 and 00378 postdated February 4, 1975, although the balance of the
account of Basman in the respondent bank was onlyP1,834.55. AGEAC/Basman
failed to pay the amount to the respondent PAB after the pilgrimage.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED DUE COURSE. No
costs.
SO ORDERED.

(2) The said public officer commits the prohibited acts during the
performance of his or her official duties or in relation to his or her public
functions;
33

Torts
NCC

Art 19-22
TORRES, J.:
In a decision dated February 9, 1903, the judge of the Sixth Judicial District,
deciding a case brought by the plaintiff against the defendant for the recovery of
wages due and unpaid, gave judgment against the latter for the sum of $600 and
the costs of suit, less the sum of $50, Mexican.
On August 27, 1902, Don Vicente Perez filed in the Court of First Instance of Laguna
a complaint, which was amended on the 17th of January of this year, asking that
the court determine the amount due the plaintiff, at the customary rate of
compensation for interpreting in these Islands, for services rendered in the
Tabacalera Company, and that, in view of the circumstances of the case, judgment
be rendered in his favor for such sum. The complaint also asked that the defendant
be condemned to the payment of damages in the sum of $3,200, gold, together
with the costs of suit. In this complaint it was alleged that Don Eugenio Pomar, as
general agent of the Compaia General de Tabacos in the said province, verbally
requested the plaintiff on the 8th of December, 1901, to act as interpreter between
himself and the military authorities; that after the date mentioned the plaintiff
continued to render such services up to and including May 31, 1902; that he had
accompanied the defendant, Pomar, during that time at conferences between the
latter and the colonel commanding the local garrison, and with various officers and
doctors residing in the capital, and at conferences with Captain Lemen in the town
of Pilar, and with the major in command at the town of Pagsanjan, concerning the
shipment of goods from Manila, and with respect to Pagsanjan to this city; that the
plaintiff during this period held himself in readiness to render services whenever
required; that on this account his private business, and especially a soap factory
established in the capital, was entirely abandoned; that to the end that such
services might be punctually rendered, the agent, Pomar, assured him that the
Tabacalera Company always generously repaid services rendered it, and that he
therefore did not trouble himself about his inability to devote the necessary amount
of time to his business, the defendant going so far as to make him flattering
promises of employment with the company, which he did not accept; that these
statements were made in the absence of witnesses and that therefore his only proof
as to the same was Mr. Pomar's word as a gentleman; that the employees of the
company did not understand English, and by reason of the plaintiff's mediation
between the agent, and the military authorities large profits were obtained, as
would appear from the account and letterpress books of the agency corresponding
to those dates. In the amended complaint it was added that the defendant, on
behalf of the company, offered to renumerate the plaintiff for the services rendered
in the most advantageous manner in which such services are compensated, in view
of the circumstances under which they were requested; and that the plaintiff, by
rendering the company such services, was obliged to abandon his own business,
the manufacture of soap, and thereby suffered damages in the sum of $3,200,
United States currency.

G.R. No. L-1299

November 16, 1903

VICENTE PEREZ, plaintiff-appellee, vs. EUGENIO POMAR, Agent of


Compaia General de Tabacos, defendant-appellant.

the

The defendant, on the 25th of September, 1902, filed an answer asking for the
dismissal of the complaint, with costs to the plaintiff. In his answer the defendant
denied the allegation in the first paragraph of the complaint, stating that it was
wholly untrue that the company, and the defendant as its agent, had solicited the
services of the plaintiff as interpreter before the military authorities for the period
stated, or for any other period, or that the plaintiff had accompanied Pomar at the
34

Torts
NCC
conferences mentioned, concerning shipments from Manila and exports from some
of the towns of the province to this capital. He stated that he especially denied
paragraphs 2 of the complaint, as it was absolutely untrue that the plaintiff had
been at the disposal of the defendant for the purpose of rendering such services;
that he therefore had not been obliged to abandon his occupation or his soap
factory, and that the statement that an offer of employment with the company had
been made to him was false. The defendant also denied that through the mediation
of the plaintiff the company and himself had obtained large profits. The statements
in paragraphs 6, 7, 8, and 9 of the complaint were also denied. The defendant
stated that, on account of the friendly relations which sprang up between the
plaintiff and himself, the former borrowed from him from time to time money
amounting to $175 for the purposes of his business, and that he had also delivered
to the plaintiff 36 arrobas of oil worth $106, and three packages of resin for use in
coloring his soap; that the plaintiff accompanied the defendant to Pagsanjan, Pilar,
and other towns when the latter made business trips to them for the purpose of
extending his business and mercantile relations therein; that on these excursions,
as well as on private and official visits which he had to make, the plaintiff
occasionally accompanied him through motives of friendship, and especially
because of the free transportation given him, and not on behalf of the company of
which he was never interpreter and for which he rendered no services; that the
plaintiff in these conferences acted as interpreter of his own free will, without being
requested to do so by the defendant and without any offer of payment or
compensation; that therefore there existed no legal relation whatever between the
company and the plaintiff, and that the defendant, when accepting the
spontaneous, voluntary and officious services of the plaintiff, did so in his private
capacity and not as agent of the company, and that it was for this reason that he
refused to enter into negotiations with the plaintiff, he being in no way indebted to
the latter. The defendant concluded by saying that he answered in his individual
capacity.
A complaint having been filed against the Compaia General de Tabacos and Don
Eugenio Pomar, its agent in the Province of Laguna, the latter, having been duly
summoned, replied to the complaint, which was subsequently amended, and stated
that he made such reply in his individual capacity and not as agent of the company,
with which the plaintiff had had no legal relations. The suit was instituted between
the plaintiff and Pomar, who, as such, accepted the issue and entered into the
controversy without objection, opposed the claim of the plaintiff, and concluded by
asking that the complaint be dismissed, with the costs to the plaintiff. Under these
circumstances and construing the statutes liberally, we think it proper to decide the
case pending between both parties in accordance with law and the strict principles
of justice.
From the oral testimony introduced at the trial, it appears that the plaintiff, Perez,
did on various occasions render Don Eugenio Pomar services as interpreter of
English; and that he obtained passes and accompanied the defendant upon his
journeys to some of the towns in the Province of Laguna. It does not appear from
the evidence, however, that the plaintiff was constantly at the disposal of the
defendant during the period of six months, or that he rendered services as such
interpreter continuously and daily during that period of time.

Art 19-22
It does not appear that any written contract was entered into between the parties
for the employment of the plaintiff as interpreter, or that any other innominate
contract was entered into; but whether the plaintiff's services were solicited or
whether they were offered to the defendant for his assistance, inasmuch as these
services were accepted and made use of by the latter, we must consider that there
was a tacit and mutual consent as to the rendition of the services. This gives rise to
the obligation upon the person benefited by the services to make compensation
therefor, since the bilateral obligation to render services as interpreter, on the one
hand, and on the other to pay for the services rendered, is thereby incurred. (Arts.
1088, 1089, and 1262 of the Civil Code). The supreme court of Spain in its decision
of February 12, 1889, holds, among other things, "that not only is there an express
and tacit consent which produces real contract but there is also a presumptive
consent which is the basis of quasi contracts, this giving rise to the multiple juridical
relations which result in obligations for the delivery of a thing or the rendition of a
service."
Notwithstanding the denial of that defendant, it is unquestionable that it was with
his consent that the plaintiff rendered him services as interpreter, thus aiding him
at a time when, owing to the existence of an insurrection in the province, the most
disturbed conditions prevailed. It follows, hence, that there was consent on the part
of both in the rendition of such services as interpreter. Such service not being
contrary to law or to good custom, it was a perfectly licit object of contract, and
such a contract must necessarily have existed between the parties, as alleged by
the plaintiff. (Art. 1271, Civil Code.)
The consideration for the contract is also evident, it being clear that a mutual
benefit was derived in consequence of the service rendered. It is to be supposed
that the defendant accepted these services and that the plaintiff in turn rendered
them with the expectation that the benefit would be reciprocal. This shows the
concurrence of the three elements necessary under article 1261 of the Civil Code to
constitute a contract of lease of service, or other innominate contract, from which
an obligation has arisen and whose fulfillment is now demanded.
Article 1254 of the Civil Code provides that a contract exists the moment that one
or more persons consent to be bound, with respect to another or others, to deliver
some thing or to render some service. Article 1255 provides that the contracting
parties may establish such covenants, terms, and conditions as they deem
convenient, provided they are not contrary to law, morals or public policy. Whether
the service was solicited or offered, the fact remains that Perez rendered to Pomar
services as interpreter. As it does not appear that he did this gratuitously, the duty
is imposed upon the defendant, having accepted the benefit of the service, to pay a
just compensation therefor, by virtue of the innominate contract of facio ut
des implicitly established.
The obligations arising from this contract are reciprocal, and, apart from the general
provisions with respect to contracts and obligations, the special provisions
concerning contracts for lease of services are applicable by analogy.
In this special contract, as determined by article 1544 of the Civil Code, one of the
parties undertakes to render the other a service for a price certain. The tacit
35

Torts
NCC
agreement and consent of both parties with respect to the service rendered by the
plaintiff, and the reciprocal benefits accruing to each, are the best evidence of the
fact that there was an implied contract sufficient to create a legal bond, from which
arose enforceable rights and obligations of a bilateral character.lawphi1.net

Art 19-22
costs of this instance. The judgment below is accordingly affirmed in so far as it
agrees with this opinion, and reversed in so far as it may be in conflict therewith.
Judgment will be entered accordingly twenty days after this decision is filed.

In contracts the will of the contracting parties is law, this being a legal doctrine
based upon the provisions of articles 1254, 1258, 1262, 1278, 1281, 1282, and
1289 of the Civil Code. If it is a fact sufficiently proven that the defendant, Pomar,
on various occasions consented to accept an interpreter's services, rendered in his
behalf and not gratuitously, it is but just that he should pay a reasonable
remuneration therefor, because it is a well-known principle of law that no one
should be permitted to enrich himself to the damage of another.
With respect to the value of the services rendered on different occasions, the most
important of which was the first, as it does not appear that any salary was fixed
upon by the parties at the time the services were accepted, it devolves upon the
court to determine, upon the evidence presented, the value of such services, taking
into consideration the few occasions on which they were rendered. The fact that no
fixed or determined consideration for the rendition of the services was agreed upon
does not necessarily involve a violation of the provisions of article 1544 of the Civil
Code, because at the time of the agreement this consideration was capable of
being made certain. The discretionary power of the court, conferred upon it by the
law, is also supported by the decisions of the supreme court of Spain, among which
may be cited that of October 18, 1899, which holds as follows: "That as stated in
the article of the Code cited, which follows the provisions of law 1, title 8, of the fifth
partida, the contract for lease of services is one in which one of the parties
undertakes to make some thing or to render some service to the other for a certain
price, the existence of such a price being understood, as this court has held not
only when the price has been expressly agreed upon but also when it may be
determined by the custom and frequent use of the place in which such services
were rendered."
No exception was taken to the judgment below by the plaintiff on account of the
rejection of his claim for damages. The decision upon this point is, furthermore,
correct.
Upon the supposition that the recovery of the plaintiff should not exceed 200
Mexican pesos, owing to the inconsiderable number of times he acted as
interpreter, it is evident that the contract thus implicitly entered into was not
required to be in writing and that therefore it does not fall within article 1280 of the
Civil Code; nor is it included within the provisions of section 335 of the Code of Civil
Procedure, as this innominate contract is not covered by that section. The contract
of lease of services is not included in any of the cases expressly designated by that
section of the procedural law, as affirmed by the appellant. The interpretation of the
other articles of the Code alleged to have been infringed has also been stated fully
in this opinion.
For the reasons stated, we are of the opinion that judgment should be rendered
against Don Eugenio Pomar for the payment to the plaintiff of the sum of 200
Mexican pesos, from which will be deducted the sum of 50 pesos is made as to the

G.R. No. 152411


UNIVERSITY OF
INC., respondent.

September 29, 2004


THE

PHILIPPINES, petitioner,

vs. PHILAB INDUSTRIES,

CALLEJO, SR., J.:


Before the Court is a petition for review on certiorari of the Decision 1 of the Court of
Appeals in CA-G.R. CV No. 44209, as well as its Resolution 2 denying the petitioners
motion for the reconsideration thereof. The mo1 mo2Court of Appeals set aside the
Decision3 of Branch 150 of the Regional Trial Court (RTC) of Makati City, which
dismissed the complaint of the respondent against the petitioner for sum of money
and damages.
The Facts of the Case
Sometime in 1979, the University of the Philippines (UP) decided to construct an
integrated system of research organization known as the Research Complex. As
part of the project, laboratory equipment and furniture were purchased for the
National Institute of Biotechnology and Applied Microbiology (BIOTECH) at the UP
36

Torts
NCC

Art 19-22

Los Baos. Providentially, the Ferdinand E. Marcos Foundation (FEMF) came forward
and agreed to fund the acquisition of the laboratory furniture, including the
fabrication thereof.
Renato E. Lirio, the Executive Assistant of the FEMF, gave the go-signal to BIOTECH
to contact a corporation to accomplish the project. On July 23, 1982, Dr. William
Padolina, the Executive Deputy Director of BIOTECH, arranged for Philippine
Laboratory Industries, Inc. (PHILAB), to fabricate the laboratory furniture and deliver
the same to BIOTECH for the BIOTECH Building Project, for the account of the FEMF.
Lirio directed Padolina to give the go-signal to PHILAB to proceed with the
fabrication of the laboratory furniture, and requested Padolina to forward the
contract of the project to FEMF for its approval.
On July 13, 1982, Padolina wrote Lirio and requested for the issuance of the
purchase order and downpayment for the office and laboratory furniture for the
project, thus:
1.

2.

In a Letter dated July 23, 1982, Padolina informed Hector Navasero, the President of
PHILAB, to proceed with the fabrication of the laboratory furniture, per the directive
of FEMF Executive Assistant Lirio. Padolina also requested for copies of the shop
drawings and a sample contract 5 for the project, and that such contract and
drawings had to be finalized before the down payment could be remitted to the
PHILAB the following week. However, PHILAB failed to forward any sample contract.
Subsequently, PHILAB made partial deliveries of office and laboratory furniture to
BIOTECH after having been duly inspected by their representatives and FEMF
Executive Assistant Lirio.
On August 24, 1982, FEMF remitted P600,000 to PHILAB as downpayment for the
laboratory furniture for the BIOTECH project, for which PHILAB issued Official
Receipt No. 253 to FEMF. On October 22, 1982, FEMF made another partial payment
of P800,000 to PHILAB, for which the latter issued Official Receipt No. 256 to FEMF.
The remittances were in the form of checks drawn by FEMF and delivered to
PHILAB, through Padolina.

On October 16, 1982, UP, through Emil Q. Javier, the Chancellor of UP Los Baos
and FEMF, represented by its Executive Officer, Rolando Gapud, executed a
Supply and Installation of Laboratory furniture for the BIOTECH Building Project
Memorandum of Agreement (MOA) in which FEMF agreed to grant financial support
and donate sums of money to UP for the construction of buildings, installation of
laboratory and other capitalization for the project, not to exceed P29,000,000.00.
Amount
: P2,934,068.90
The obligations of FEMF under the MOA are the following:
Supplier

Philippine Laboratory Furniture Co.,


College, Laguna

ARTICLE II

Attention

Mr. Hector C. Navasero


President

OBLIGATIONS OF THE FOUNDATION

Downpayme
nt

40% or P1,173,627.56

Fabrication and Supply of office furniture for the BIOTECH Building Project
Amount

P573,375.00

Supplier

Trans-OrientalWoodworks, Inc.
1st Avenue, Bagumbayan Tanyag, Taguig, Metro Manila

Downpayme
nt

50% or P286,687.504

Padolina assured Lirio that the contract would be prepared as soon as possible
before the issuance of the purchase orders and the downpayment for the goods,
and would be transmitted to the FEMF as soon as possible.

2.1. The FOUNDATION, in carrying out its principal objectives of promoting


philantrophic and scientific projects through financial support to such
projects that will contribute to the countrys economic development, shall
grant such financial support and donate such sums of money to the
RESEARCH COMPLEX as may be necessary for the construction of
buildings, installation of laboratories, setting up of offices and physical
plants and facilities and other capital investment of the RESEARCH
COMPLEX and/or any of its component Research Institutes not to
exceed P29 Million. For this purpose, the FOUNDATION shall:
(a) Acquire and donate to the UNIVERSITY the site for the
RESEARCH COMPLEX; and
(b) Donate or cause to be donated to the UNIVERSITY the sum of
TWENTY-NINE MILLION PESOS (P29,000,000.00) for the
construction of the buildings of the National Institutes of
Biotechnology and Applied Microbiology (BIOTECH) and the
installation of their laboratories and their physical plants and
other facilities to enable them to commence operations.
37

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NCC

Art 19-22
2.2. In addition, the FOUNDATION shall, subject to the approval of the
Board of Trustees of the FOUNDATION, continue to support the activities of
the RESEARCH COMPLEX by way of recurrent additional grants and
donations for specific research and development projects which may be
mutually agreed upon and, from time to time, additional grants and
donations of such amounts as may be necessary to provide the RESEARCH
COMPLEX and/or any of its Research Institutes with operational flexibility
especially
with
regard
to
incentives
to
staff
purchase
of
equipment/facilities, travel abroad, recruitment of local and expatriate
staff and such other activities and inputs which are difficult to obtain under
usual government rules and regulations.6

The Board of Regents of the UP approved the MOA on November 25, 1982. 7
In the meantime, Navasero promised to submit the contract for the installation of
laboratory furniture to BIOTECH, by January 12, 1983. However, Navasero failed to
do so. In a Letter dated February 1, 1983, BIOTECH reminded Navasero of the need
to submit the contract so that it could be submitted to FEMF for its evaluation and
approval.8 Instead of submitting the said contract, PHILAB submitted to BIOTECH an
accomplishment report on the project as of February 28, 1983, and requested
payment thereon.9 By May 1983, PHILAB had completed 78% of the project,
amounting to P2,288,573.74 out of the total cost of P2,934,068.90. The FEMF had
already paid forty percent (40%) of the total cost of the project. On May 12, 1983,
Padolina wrote Lirio and furnished him the progress billing from PHILAB. 10 On August
11, 1983, the FEMF made another partial payment ofP836,119.52 representing the
already delivered laboratory and office furniture after the requisite inspection and
verification thereof by representatives from the BIOTECH, FEMF, and PHILAB. The
payment was made in the form of a check, for which PHILAB issued Official Receipt
No. 202 to FEMF through Padolina.11
On July 1, 1984, PHILAB submitted to BIOTECH Invoice No. 01643 in the amount
of P702,939.40 for the final payment of laboratory furniture. Representatives from
BIOTECH, PHILAB, and Lirio for the FEMF, conducted a verification of the
accomplishment of the work and confirmed the same. BIOTECH forwarded the
invoice to Lirio on December 18, 1984 for its payment. 12 Lirio, in turn, forwarded the
invoice to Gapud, presumably sometime in the early part of 1985. However, the
FEMF failed to pay the bill. PHILAB reiterated its request for payment through a
letter on May 9, 1985. 13 BIOTECH again wrote Lirio on March 21, 1985, requesting
the payment of PHILABs bill.14 It sent another letter to Gapud, on November 22,
1985, again appealing for the payment of PHILABs bill. 15 In a Letter to BIOTECH
dated December 5, 1985, PHILAB requested payment of P702,939.40 plus interest
thereon of P224,940.61.16 There was, however, no response from the FEMF. On
February 24, 1986, PHILAB wrote BIOTECH, appealing for the payment of its bill
even on installment basis.17
President Marcos was ousted from office during the February 1986 EDSA Revolution.
On March 26, 1986, Navasero wrote BIOTECH requesting for its much-needed
assistance for the payment of the balance already due plus interest of P295,234.55
for its fabrication and supply of laboratory furniture. 18

On April 22, 1986, PHILAB wrote President Corazon C. Aquino asking her help to
secure the payment of the amount due from the FEMF. 19 The letter was referred to
then Budget Minister Alberto Romulo, who referred the letter to then UP President
Edgardo Angara on June 9, 1986. On September 30, 1986, Raul P. de Guzman, the
Chancellor of UP Los Baos, wrote then Chairman of the Presidential Commission on
Good Government (PCGG) Jovito Salonga, submitting PHILABs claim to be officially
entered as "accounts payable" as soon as the assets of FEMF were liquidated by the
PCGG.20
In the meantime, the PCGG wrote UP requesting for a copy of the relevant contract
and the MOA for its perusal.21
Chancellor De Guzman wrote Navasero requesting for a copy of the contract
executed between PHILAB and FEMF. In a Letter dated October 20, 1987, Navasero
informed De Guzman that PHILAB and FEMF did not execute any contract regarding
the fabrication and delivery of laboratory furniture to BIOTECH.
Exasperated, PHILAB filed a complaint for sum of money and damages against UP.
In the complaint, PHILAB prayed that it be paid the following:
(1) PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY
NINE & 40/100 (P702,939.40) plus an additional amount (as shall be
determined during the hearing) to cover the actual cost of money which at
the time of transaction the value of the peso was eleven to a dollar
(P11.00:$1) and twenty seven (27%) percent interest on the total amount
from August 1982 until fully paid;
(2) PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages;
(3) FIFTY THOUSAND [PESOS] (P50,000.00) as and for attorneys fees; and
(4) Cost of suit.22
PHILAB alleged, inter alia, that:
3. Sometime in August 1982, defendant, through its officials, particularly
MR. WILLIAM PADOLINA, Director, asked plaintiff to supply and install
several laboratory furnitures and equipment at BIOTECH, a research
laboratory of herein defendant located at its campus in College, Laguna,
for a total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTYNINE THOUSAND FIFTY-EIGHT & 90/100 (P2,939,058.90);
4. After the completion of the delivery and installation of said laboratory
furnitures and equipment at defendants BIOTECH Laboratory, defendant
paid three (3) times on installment basis:

38

Torts
NCC

Art 19-22
a) P600,000.00 as per Official Receipt No. 253 dated August 24,
1982;

Undaunted, PHILAB appealed to the Court of Appeals (CA) alleging that the trial
court erred in finding that:

b) P800,000.00 as per Official Receipt No. 256 dated October 22,


1982;

1. the contract for the supply and installation of subject laboratory


furniture and equipment was between PHILAB and the Marcos Foundation;
and,

c) P836,119.52 as per Official Receipt No. 202 dated August 11,


1983;
thus leaving a balance of PESOS: SEVEN HUNDRED TWO THOUSAND NINE
HUNDRED THIRTY-NINE & 40/100 (P702,939.40).
5. That notwithstanding repeated demands for the past eight years,
defendant arrogantly and maliciously made plaintiff believe that it was
going to pay the balance aforestated, that was why plaintiffs President
and General Manager himself, HECTOR C. NAVASERO, personally went to
and from UP Los Baos to talk with defendants responsible officers in the
hope of expecting payment, when, in truth and in fact, defendant had no
intention to pay whatsoever right from the start on a misplaced ground of
technicalities. Some of plaintiffs demand letters since year 1983 up to the
present are hereto attached as Annexes A, B, C, D, E, F, G, and H hereof;
6. That by reason of defendants malicious, evil and unnecessary
misrepresentations that it was going to pay its obligation and asking
plaintiff so many red tapes and requirements to submit, compliance of all
of which took plaintiff almost eight (8) years to finish, when, in truth and in
fact, defendant had no intention to pay, defendant should be ordered to
pay plaintiff no less than PESOS: ONE HUNDRED THOUSAND (P100,000.00)
exemplary damages, so that other government institutions may be warned
that they must not unjustly enrich themselves at the expense of the
people they serve.23
In its answer, UP denied liability and alleged that PHILAB had no cause of action
against it because it was merely the donee/beneficiary of the laboratory furniture in
the BIOTECH; and that the FEMF, which funded the project, was liable to the PHILAB
for the purchase price of the laboratory furniture. UP specifically denied obliging
itself to pay for the laboratory furniture supplied by PHILAB.
After due proceedings, the trial court rendered judgment dismissing the complaint
without prejudice to PHILABs recourse against the FEMF. The fallo of the decision
reads:
WHEREFORE, this case is hereby DISMISSED for lack of merit without
prejudice to plaintiff's recourse to the assets of the Marcos Foundation for
the unpaid balance of P792,939.49.
SO ORDERED.24

2. the Marcos Foundation, not the University of the Philippines, is liable to


pay the respondent the balance of the purchase price.25
The CA reversed and set aside the decision of the RTC and held that there was
never a contract between FEMF and PHILAB. Consequently, PHILAB could not be
bound by the MOA between the FEMF and UP since it was never a party thereto.
The appellate court ruled that, although UP did not bind itself to pay for the
laboratory furniture; nevertheless, it is liable to PHILAB under the maxim: "No one
should unjustly enrich himself at the expense of another."
The Present Petition
Upon the denial of its motion for reconsideration of the appellate courts decision,
UP, now the petitioner, filed its petition for review contending that:
I. THE COURT OF APPEALS ERRED WHEN IT FAILED TO APPLY THE LAW ON
CONTRACTS BETWEEN PHILAB AND THE MARCOS FOUNDATION.
II. THE COURT OF APPEALS ERRED IN APPLYING THE LEGAL PRINCIPLE OF
UNJUST ENRICHMENT WHEN IT HELD THAT THE UNIVERSITY, AND NOT THE
MARCOS FOUNDATION, IS LIABLE TO PHILAB.26
Prefatorily, the doctrinal rule is that pure questions of facts may not be the subject
of appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as this
mode of appeal is generally restricted to questions of law. 27However, this rule is not
absolute. The Court may review the factual findings of the CA should they be
contrary to those of the trial court. 28 Correspondingly, this Court may review
findings of facts when the judgment of the CA is premised on a misapprehension of
facts.29
On the first assigned error, the petitioner argues that the CA overlooked the
evidentiary effect and substance of the corresponding letters and communications
which support the statements of the witnesses showing affirmatively that an
implied contract of sale existed between PHILAB and the FEMF. The petitioner
furthermore asserts that no contract existed between it and the respondent as it
could not have entered into any agreement without the requisite public bidding and
a formal written contract.
The respondent, on the other hand, submits that the CA did not err in not applying
the law on contracts between the respondent and the FEMF. It, likewise, attests that
39

Torts
NCC
it was never privy to the MOA entered into between the petitioner and the FEMF.
The respondent adds that what the FEMF donated was a sum of money equivalent
toP29,000,000, and not the laboratory equipment supplied by it to the petitioner.
The respondent submits that the petitioner, being the recipient of the laboratory
furniture, should not enrich itself at the expense of the respondent.
The petition is meritorious.
It bears stressing that the respondents cause of action is one for sum of money
predicated on the alleged promise of the petitioner to pay for the purchase price of
the furniture, which, despite demands, the petitioner failed to do. However, the
respondent failed to prove that the petitioner ever obliged itself to pay for the
laboratory furniture supplied by it. Hence, the respondent is not entitled to its claim
against the petitioner.
There is no dispute that the respondent is not privy to the MOA executed by the
petitioner and FEMF; hence, it is not bound by the said agreement. Contracts take
effect only between the parties and their assigns. 30 A contract cannot be binding
upon and cannot be enforced against one who is not a party to it, even if he is
aware of such contract and has acted with knowledge thereof. 31 Likewise admitted
by the parties, is the fact that there was no written contract executed by the
petitioner, the respondent and FEMF relating to the fabrication and delivery of office
and laboratory furniture to the BIOTECH. Even the CA failed to specifically declare
that the petitioner and the respondent entered into a contract of sale over the said
laboratory furniture. The parties are in accord that the FEMF had remitted to the
respondent partial payments via checks drawn and issued by the FEMF to the
respondent, through Padolina, in the total amount of P2,288,573.74 out of the total
cost of the project ofP2,934,068.90 and that the respondent received the said
checks and issued receipts therefor to the FEMF. There is also no controversy that
the petitioner did not pay a single centavo for the said furniture delivered by the
respondent that the petitioner had been using ever since.
We agree with the petitioner that, based on the records, an implied-in-fact contract
of sale was entered into between the respondent and FEMF. A contract implied in
fact is one implied from facts and circumstances showing a mutual intention to
contract. It arises where the intention of the parties is not expressed, but an
agreement in fact creating an obligation. It is a contract, the existence and terms of
which are manifested by conduct and not by direct or explicit words between
parties but is to be deduced from conduct of the parties, language used, or things
done by them, or other pertinent circumstances attending the transaction. To create
contracts implied in fact, circumstances must warrant inference that one expected
compensation and the other to pay.32 An implied-in-fact contract requires the
parties intent to enter into a contract; it is a true contract. 33 The conduct of the
parties is to be viewed as a reasonable man would view it, to determine the
existence or not of an implied-in-fact contract. 34 The totality of the acts/conducts of
the parties must be considered to determine their intention. An implied-in-fact
contract will not arise unless the meeting of minds is indicated by some intelligent
conduct, act or sign.35

Art 19-22
In this case, the respondent was aware, from the time Padolina contacted it for the
fabrication and supply of the laboratory furniture until the go-signal was given to it
to fabricate and deliver the furniture to BIOTECH as beneficiary, that the FEMF was
to pay for the same. Indeed, Padolina asked the respondent to prepare the draft of
the contract to be received by the FEMF prior to the execution of the parties (the
respondent and FEMF), but somehow, the respondent failed to prepare one. The
respondent knew that the petitioner was merely the donee-beneficiary of the
laboratory furniture and not the buyer; nor was it liable for the payment of the
purchase price thereof. From the inception, the FEMF paid for the bills and
statement of accounts of the respondent, for which the latter unconditionally issued
receipts to and under the name of the FEMF. Indeed, witness Lirio testified:
Q: Now, did you know, Mr. Witness, if PHILAB Industries was aware that it
was the Marcos Foundation who would be paying for this particular
transaction for the completion of this particular transaction?
A: I think they are fully aware.
Q: What is your basis for saying so?
A: First, I think they were appraised by Dr. Padolina. Secondly, there were
occasions during our inspection in Los Baos, at the installation site, there
were occasions, two or three occasions, when we met with Mr. Navasero
who is the President, I think, or manager of PHILAB, and we appraised him
that it was really between the foundation and him to which includes (sic)
the construction company constructing the building. He is fully aware that
it is the foundation who (sic) engaged them and issued the payments. 36
The respondent, in its Letter dated March 26, 1986, informed the petitioner and
sought its assistance for the collection of the amount due from the FEMF:
Dear Dr. Padolina:
May we request for your much-needed assistance in the payment of the
balance still due us on the laboratory furniture we supplied and installed
two years ago?
Business is still slow and we will appreciate having these funds as soon as
possible to keep up our operations.
We look forward to hearing from you regarding this matter.
Very truly yours,
PHILAB INDUSTRIES, INC.37

40

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Art 19-22

The respondent even wrote former President Aquino seeking her assistance for the
payment of the amount due, in which the respondent admitted it tried to collect
from her predecessor, namely, the former President Ferdinand E. Marcos:
YOUR EXCELLENCY:
At the instance of the national government, subject laboratory furnitures
were supplied by our company to the National Institute of Biotechnology &
Applied Microbiology (BIOTECH), University of the Philippines, Los Baos,
Laguna, in 1984.
Out of the total contract price of PESOS: TWO MILLION NINE HUNDRED
THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (P2,939,058.90), the
previous administration had so far paid us the sum ofP2,236,119.52 thus
leaving a balance of PESOS: ONE MILLION FOUR HUNDRED TWELVE
THOUSAND SEVEN HUNDRED FORTY-EIGHT & 61/100 (P1,412.748.61)
inclusive of interest of 24% per annum and 30% exchange rate
adjustment.
On several occasions, we have tried to collect this amount from your
predecessor, the latest of which was subject invoice (01643) we submitted
to DR. W. PADOLINA, deputy director of BIOTECH. But this, notwithstanding,
our claim has remained unacted upon up to now. Copy of said invoice is
hereto attached for easy reference.
Now that your excellency is the head of our government, we sincerely
hope that payment of this obligation will soon be made as this is one
project the Republic of the Philippines has use of and derives benefit
from.38
Admittedly, the respondent sent to the petitioner its bills and statements of
accounts for the payments of the laboratory furniture it delivered to the petitioner
which the petitioner, through Padolina, transmitted to the FEMF for its payment.
However, the FEMF failed to pay the last statement of account of the respondent
because of the onset of the EDSA upheaval. It was only when the respondent lost all
hope of collecting its claim from the government and/or the PCGG did it file the
complaint against the petitioner for the collection of the payment of its last delivery
of laboratory furniture.
We reject the ruling of the CA holding the petitioner liable for the claim of the
respondent based on the maxim that no one should enrich itself at the expense of
another.

Moreover, to substantiate a claim for unjust enrichment, the claimant must


unequivocally prove that another party knowingly received something of value to
which he was not entitled and that the state of affairs are such that it would be
unjust for the person to keep the benefit. 40 Unjust enrichment is a term used to
depict result or effect of failure to make remuneration of or for property or benefits
received under circumstances that give rise to legal or equitable obligation to
account for them; to be entitled to remuneration, one must confer benefit by
mistake, fraud, coercion, or request.41 Unjust enrichment is not itself a theory of
reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of
restitution.42
Article 22 of the New Civil Code reads:
Every person who, through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of
the latter without just or legal ground, shall return the same to him.
(Boldface supplied)
In order that accion in rem verso may prosper, the essential elements must be
present: (1) that the defendant has been enriched, (2) that the plaintiff has suffered
a loss, (3) that the enrichment of the defendant is without just or legal ground, and
(4) that the plaintiff has no other action based on contract, quasi-contract, crime or
quasi-delict.43
An accion in rem verso is considered merely an auxiliary action, available only when
there is no other remedy on contract, quasi-contract, crime, and quasi-delict. If
there is an obtainable action under any other institution of positive law, that action
must be resorted to, and the principle of accion in rem verso will not lie.44
The essential requisites for the application of Article 22 of the New Civil Code do not
obtain in this case. The respondent had a remedy against the FEMF via an action
based on an implied-in-fact contract with the FEMF for the payment of its claim. The
petitioner legally acquired the laboratory furniture under the MOA with FEMF;
hence, it is entitled to keep the laboratory furniture.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed
Decision of the Court of Appeals isREVERSED AND SET ASIDE. The Decision of
the Regional Trial Court, Makati City, Branch 150, isREINSTATED. No costs.
SO ORDERED.

Unjust enrichment claims do not lie simply because one party benefits from the
efforts or obligations of others, but instead it must be shown that a party was
unjustly enriched in the sense that the term unjustly could mean illegally or
unlawfully.39
41

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Art 19-22
lease was commenced. However, due to the peculiar circumstances in the present
case, the Court makes an exception to this rule. Otherwise, it would sanction unjust
enrichment in favor of the respondent and cause unjust poverty to the petitioner.
The Case
The instant Petition for Review on Certiorari1 seeks to set aside the February 28,
2002 Decision2 and the April 30, 2002 Resolution 3 of the Court of Appeals (CA) in
CA-GR SP No. 62908. The dispositive portion of the challenged Decision reads:
"WHEREFORE, the instant petition is hereby DENIED DUE COURSE and
DISMISSED. The Decision, dated March 24, 1999, is hereby AFFIRMED." 4
The assailed Resolution denied reconsideration of the foregoing disposition.
The March 24, 1999 Decision5 of the Regional Trial Court (RTC)6 of Manila, upheld by
the CA, disposed as follows:
"WHEREFORE, the
modification, to wit:

appealed

judgment

is

hereby

affirmed

with

1) Ordering [petitioner] to pay [respondent] the amount of P86,000 as


payment for rental arrearages covering the period September, 1996 to
June, 1997 and from July, 1997 to December, 1997 at a monthly rate of
P5,000 and P6,000 respectively.
2) [Petitioner's] counterclaim is hereby dismissed for lack of merit." 7
On the other hand, the Decision 8 of the Metropolitan Trial Court (MTC)9 of Manila
(Branch 5), which was "affirmed with modification" by the RTC, dismissed
respondent's complaint for unlawful detainer against the petitioner.
The Facts
The CA summarized the facts in this manner:
G.R. No. 154895

November 18, 2004

JOSIE GO TAMIO, petitioner, vs. ENCARNACION TICSON, respondent.


PANGANIBAN, J.:
In general, a lessee is not allowed to challenge the title of the lessor. Indeed, it is
immaterial whether the lessor had any title at all to the property at the time the

"The Roman Catholic Archbishop of Manila (RCAM) is the owner of an


apartment unit originally leased to Mr. Fernando Lopez Lim. After the
demise of Mr. Fernando Lim, [his] children became the occupants thereof.
One of [them, Valentine Lim] requested respondent Encarnacion Ticson, for
financial assistance [in order] to purchase the apartment unit from RCAM.
In exchange, Valentine Lim executed a waiver in favor of respondent.
"On June 15, 1996, respondent executed a contract of lease [in favor of
petitioner], on the basis of the waiver from Valentine Lim respecting the
apartment unit, for a period of three (3) months. After signing the contract
42

Torts
NCC

Art 19-22
and paying the rentals, [petitioner] discovered that the apartment was
actually owned by RCAM.

Archbishop of Manila (RCAM) -- regarding her discovery, thereby implying her


acknowledgment of respondent's right to sublease the property.

"Meanwhile, after the expiration of the three (3) month lease, respondent
demanded petitioner to vacate the premises for the use of the former's
family members. Petitioner failed to comply, giving rise to the instant case
for unlawful detainer.

Consequently, while holding that, "as found by the lower court, RCAM and petitioner
entered into a new Contract of Lease that rendered the instant case moot and
academic," the CA ordered petitioner to pay rental arrearages to respondent for the
period September 1996 to December 1997.

"After trial, the Metropolitan Trial Court (MTC) found respondent guilty of
concealment [amounting to] fraud when she misrepresented that she was
the owner or authorized lessor of the apartment. Consequently, the
contract did not produce any legal effect, much less, rights or obligations.
Thus, the MTC ordered the dismissal of the complaint for unlawful detainer.

Hence, this Petition.12

"Unsatisfied therewith, respondent appealed the dismissal with


Regional Trial Court (RTC). After review thereof, the RTC found that
concealment did not amount to fraud, but [was merely due]
respondent's honest belief that she became or will eventually become
owner of the property by reason of the said waiver.

the
the
to
the

Issue
The lone issue presented for our consideration is as follows:
"Whether or not petitioner should be held liable to pay respondent the amount of
P86,000.00 representing the alleged rental arrearages from September 1996 to
December 1997."13
The Court's Ruling

"Moreover, the RTC found that 'if [petitioner] has indeed questioned the
[respondent's] title, she should have communicated with RCAM
immediately since she came to know of RCAM's ownership over the subject
property early on.'
"On the basis thereof, the RTC ordered petitioner to pay respondent
P86,000.00 as rental arrearages from September 1996 to June 1997 and
from July 1997 to December 1997 at a monthly rate of P5,000.00 and
P6,000.00 respectively, and dismissed petitioner's counterclaim for lack of
merit."10
Meanwhile, on March 3, 1998, petitioner entered into a Contract of Lease 11 over the
same property with RCAM for a term of one year, commencing from January 1, 1998
to December 31, 1998. In that Contract, petitioner assumed to pay the rent
corresponding to her use and occupation of the property prior to its execution; that
is, from June 1, 1996 to December 31, 1997.
Ruling of the Court of Appeals
The CA agreed with the RTC that the misrepresentation of respondent as the owner
or lessor of the property did not amount to fraud, but was merely an error under
Article 1343 of the Civil Code. The appellate court added that she must have
acquired legal possession over the apartment unit as an assignee thereof,
considering the waiver/assignment executed in her favor by the previous lessees.
The appellate court added that petitioner herself had been negligent in not
immediately communicating with the owner of the property -- the Roman Catholic

The Petition has merit.


Lone Issue:
Entitlement to Rental Arrearages
Petitioner contends that she is not bound by her lease agreement with respondent,
because the latter never acquired legal possession of the property. The
assignment/waiver of rights executed by Valentine Lim was null and void, as the
lease of her father (Fernando) with RCAM had long been terminated for nonpayment
of rentals. With the invalidity of the assignment, respondent acquired no rights that
she could transmit. Assuming arguendo that Valentine's lease was still subsisting,
petitioner argues that the consent of RCAM should have been obtained.
Petitioner further avers that under her Contract with RCAM, she undertook to pay
rentals corresponding to the holdover period. Hence, she would in effect be paying
the rental twice, if she were still to pay respondent. The latter would be unjustly
enriched at petitioner's expense, which should not be allowed by the Court.
The assignment of a lease by the lessee involves a transfer of rights and obligations
pertaining to the contract; hence, the consent of the lessor is necessary. 14 Article
1649 of the Civil Code is explicit:
"Art. 1649. The lessee cannot assign the lease without the consent of the
lessor, unless there is a stipulation to the contrary."
43

Torts
NCC
The objective of the law in prohibiting the assignment of the lease without the
lessor's consent is to protect the owner or lessor of the leased property. 15 In the
case of cession or assignment of lease rights on real property, there is a novation
by the substitution of the person of one of the parties -- the lessee. 16 The
personality of the lessee, who dissociates from the lease, disappears; only two
persons remain in the juridical relation -- the lessor and the assignee who is
converted into the new lessee.17
In the instant case, RCAM never assented to the assignment of the lease. This is
apparent from the December 11, 1997 letter 18 of its counsel, Atty. Socrates R.
Rivera, stating that Fernando Lim was no longer its tenant for his failure to pay the
rentals as of August 1988. As a rule, this letter may not necessarily result in the
cessation of Mr. Fernando's right to possess the leased premises. Under the law,
mere nonpayment of rentals without the lessor's demand to pay and vacate is not
sufficient to oust the lessee from the leased premises. 19 The letter, however,
demonstrates the lessor's lack of consent to the assignment.
There is no evidence to show that RCAM subsequently agreed to the substitution of
the original lessee by respondent. In fact, the only lessee it ever recognized was
Fernando Lim. In the same letter, it was stated that "neither [petitioner] nor
[respondent] have the right to [possess] said apartment considering that it [was]
Mr. Fernando Lopez Lim whom our client RCAM ha[d] contractual relationship;
unfortunately said tenant [has ceased] to be such."
Neither does respondent appear to have paid monthly rents to RCAM to apprise it
sufficiently of her occupation of the subject premises. Hence, it cannot be charged
with knowledge of, much less implied consent to, this fact.
As against RCAM, which has not consented to the assignment, respondent-assignee
obtains no rights to the leased premises. Consequently, the sublease between her
and petitioner is not binding on it. With the abandonment of the lease by the
original lessee through his unauthorized assignment, the right to the possession of
the apartment reverted to the owner. Being the owner, RCAM enjoys the
prerogative to enter into a new lease contract over the property with anyone it
chooses.20 Unfortunately for respondent, it chose to grant to petitioner leasehold
rights to the subject premises by virtue of the Contract entered into on March 3,
1998. It was agreed thereunder that petitioner would pay RCAM reasonable
compensation for the entire period of her occupancy of the property.
To allow respondent to receive from petitioner rental arrearages for the period
September 1996 to December 1997, notwithstanding the latter's agreement with
the owner to pay rent for her occupancy of the property, would constitute unjust
enrichment at the expense of petitioner. Under Article 22 of the Civil Code, there is
unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is
derived at the expense of or with damages to another. 21
Prior to the March 3, 1998 Contract, petitioner and respondent were technically
"strangers" to the property; both were unlawfully withholding its possession from
the owner. Petitioner cannot therefore be faulted in assuming to pay a reasonable

Art 19-22
value for her occupancy of the property as a sign of good faith. On the other hand,
nonpayment of rentals of respondent to RCAM -- notwithstanding her receipt from
petitioner of the rental covering the term of the sublease contract -- is indicative of
bad faith.
Having assumed to pay the rentals to RCAM, petitioner should no longer be required
to pay rental arrearages to respondent. To do so would be to sanction unjust
enrichment in favor of respondent and to cause unjust poverty to the petitioner. A
double burden would be imposed upon the latter, because she would be paying
twice for her use of the same premises for the same period of time.
We are not unmindful of the standing rule that a lessee is estopped or prevented
from disputing the title of the landlord in an action for recovery of possession of the
leased premises.22
In Geminiano v. Court of Appeals,23 we stated:
"x x x. The private respondents, as lessees who had undisturbed
possession for the entire term under the lease, are then estopped to deny
their landlord's title, or to assert a better title not only in themselves, but
also in some third person while they remain in possession of the leased
premises and until they surrender possession to the landlord. This estoppel
applies even though the lessor had no title at the time the relation of
lessor and lessee was created, and may be asserted not only by the
original lessor, but also by those who succeed to his title." 24
Indeed, the relation of lessor and lessee does not depend on the former's title but
on the agreement between the parties, followed by the possession of the premises
by the lessee under such agreement.25 As long as the latter remains in undisturbed
possession, it is immaterial whether the lessor has a valid title -- or any title at all -at the time the relationship was entered into. 26 Between the present parties, the
lease -- which was actually a sublease -- was effective. And respondent had a
colorable right to lease the premises by virtue of the assignment even if, as against
the owner, both the assignment and the sublease were ineffectual.
However, considering the peculiar circumstances availing in the present case,
equity demands that such rule be relaxed. As discussed earlier, it would be grossly
unjust if, after having paid the owner prior rentals for June 1996 to December 1997,
petitioner would still be required to pay again the same rental arrearages to
respondent for the latter's retention of the property after the termination of
sublease contract. Note that the sublease had already expired, and that the
arrearages refer to a subsequent period not covered by the said sublease.
It is worth reminding everyone of our pronouncement in Air Manila v. CIR: 27 "Equity
as the complement of legal jurisdiction seeks to reach and to complete justice
where courts of law, through the inflexibility of their rules and want of power to
adapt their judgments to the special circumstances of cases, are incompetent to do
so. Equity regards the spirit and not the letter, the intent and not the form, the
44

Torts
NCC

Art 19-22

substance rather than the circumstance, as it is variously expressed by different


courts."
WHEREFORE, the Petition is GRANTED and the assailed Decision and Resolution SET
ASIDE. The dispositive portion of the August 14, 1998 Decision of the Metropolitan
Trial Court of Manila is hereby REINSTATED. No costs.
SO ORDERED.

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