Republic of the Philippines

SUPREME COURT
Manila The checks when deposited were returned by HSBANK purportedly for reason of "payment stopped"
SECOND DIVISION pending confirmation, despite the fact that the checks were duly funded. On March 18, 1997, Thomson
G.R. No. 159590 October 18, 2004 wrote a letter to a certain Ricky Sousa7 of HSBANK confirming the checks he issued to Catalan and
HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, petitioner, requesting that all his checks be cleared. On March 20, 1997, Thomson wrote another letter to Sousa of
vs. HSBANK requesting an advice in writing to be sent to the Philippine National Bank, through the fastest
CECILIA DIEZ CATALAN, respondent. means, that the checks he previously issued to Catalan were already cleared. Thereafter, Catalan
x----------------------------x demanded that HSBANK make good the checks issued by Thomson. On May 16, 1997, Marilou A.
G.R. No. 159591 October 18, 2004 Lozada, personal secretary and attorney-in-fact of Thomson, wrote a letter to Sousa of HSBANK
HSBC INTERNATIONAL TRUSTEE LIMITED, petitioner, informing him that HSBANKs failure to clear all the checks had saddened Thomson and requesting that
vs. the clearing of the checks be facilitated. Subsequently, Thomson died and Catalan forwarded her demand
CECILIA DIEZ CATALAN, respondent. to HSBC TRUSTEE. Catalan sent photocopies of the returned checks to HSBC TRUSTEE. Not satisfied,
DECISION HSBC TRUSTEE through deceit and trickery, required Catalan, as a condition for the acceptance of the
AUSTRIA-MARTINEZ, J.: checks, to submit the original copies of the returned checks, purportedly, to hasten payment of her claim.
Before us are two petitions for review on certiorari under Rule 45 of the Rules of Court separately filed by HSBC TRUSTEE succeeded in its calculated deception because on April 21, 1999, Catalan and her
the Hongkong and Shanghai Banking Corporation Limited (HSBANK) and HSBC International Trustee former counsel went to Hongkong at their own expense to personally deliver the originals of the returned
Limited (HSBC TRUSTEE). They seek the reversal of the consolidated Decision, 1 dated August 14, 2003, checks to the officers of HSBC TRUSTEE, anxious of receiving the money value of the checks but HSBC
of the Court of Appeals (CA) in CA-G.R. SP Nos. 75756 and 75757, which dismissed the petitions for TRUSTEE despite receipt of the original checks, refused to pay Catalans claim. Having seen and
certiorari of herein petitioners assailing the Order, dated May 15, 2002, of the Regional Trial Court, received the original of the checks, upon its request, HSBC TRUSTEE is deemed to have impliedly
Branch 44, Bacolod City (RTC) in Civil Case No. 01-11372 that denied their respective motions to accepted the checks. Moreover, the refusal of HSBANK and HSBC TRUSTEE to pay the checks is
dismiss the amended complaint of respondent Cecilia Diez Catalan. equivalent to illegal freezing of ones deposit. On the assurance of HSBC TRUSTEE that her claim will
The factual antecedents are as follows: soon be paid, as she was made to believe that payments of the checks shall be made by HSBC TRUSTEE
On January 29, 2001, respondent filed before the RTC, a complaint for a sum of money with "upon sight," the unsuspecting Catalan left the originals of the checks with HSBC TRUSTEE and was
damages against petitioner HSBANK, docketed as Civil Case No. 01-11372, due to given only an acknowledgment receipt. Catalan made several demands and after several more follow ups,
HSBANKs alleged wanton refusal to pay her the value of five HSBANK checks issued by on August 16, 1999, Phoenix Lam, Senior Vice President of HSBC TRUSTEE, in obvious disregard of
Frederick Arthur Thomson (Thomson) amounting to HK$3,200,000.00.2 her valid claim, informed Catalan that her claim is disapproved. No reason or explanation whatsoever was
On February 7, 2001, summons was served on HSBANK at the Enterprise Center, Tower I, Ayala Avenue made why her claim was disapproved, neither were the checks returned to her. Catalan appealed for
corner Paseo de Roxas St., Makati City.3 HSBANK filed a Motion for Extension of Time to File Answer fairness and understanding, in the hope that HSBC TRUSTEE would act fairly and justly on her claim but
or Motion to Dismiss dated February 21, 2001.4 Then, it filed a Motion to Dismiss, dated March 8, 2001, these demands were met by a stonewall of silence. On June 9, 2000, Catalan through counsel sent a last
on the grounds that (a) the RTC has no jurisdiction over the subject matter of the complaint; (b) the RTC and final demand to HSBC TRUSTEE to remit the amount covered by the checks but despite receipt of
has not acquired jurisdiction for failure of the plaintiff to pay the correct filing or docket fees; (c) the RTC said letter, no payment was made. Clearly, the act of the HSBANK and HSBC TRUSTEE in refusing to
has no jurisdiction over the person of HSBANK; (d) the complaint does not state a cause of action against honor and pay the checks validly issued by Thomson violates the abuse of rights principle under Article
HSBANK; and (e) plaintiff engages in forum-shopping.5 19 of the Civil Code which requires that everyone must act with justice, give everyone his due and
On September 10, 2001, Catalan filed an Amended Complaint impleading petitioner HSBC TRUSTEE as observe honesty and good faith. The refusal of HSBANK and HSBC TRUSTEE to pay the checks without
co-defendant and invoking Article 19 of the Civil Code as basis for her cause of action. 6 any valid reason is intended solely to prejudice and injure Catalan. When they declined payment of the
The Amended Complaint alleges: checks despite instructions of the drawer, Thomson, to honor them, coupled with the fact that the checks
Defendants HSBANK and HSBC TRUSTEE, doing business in the Philippines, are were duly funded, they acted in bad faith, thus causing damage to Catalan. A person may not exercise his
corporations duly organized under the laws of the British Virgin Islands with head office at 1 right unjustly or in a manner that is not in keeping with honesty or good faith, otherwise he opens himself
Grenville Street, St. Helier Jersey, Channel Islands and with branch offices at Level 12, 1 to liability for abuse of right.8
Queens Road Central, Hongkong and may be served with summons and other court processes Catalan prays that HSBANK and HSBC TRUSTEE be ordered to pay P20,864,000.00 representing the
through their main office in Manila with address at HSBC, the Enterprise Center, Tower 1, value of the five checks at the rate of P6.52 per HK$1 as of January 29, 2001 for the acts of HSBANK and
Ayala Avenue corner Paseo de Roxas Street, Makati City. HSBC TRUSTEE in refusing to pay the amount justly due her, in addition to moral and exemplary
Sometime in March 1997, Thomson issued five HSBANK checks payable to Catalan, to wit: damages, attorneys fees and litigation expenses.9
On October 2, 2001, HSBANK filed a Motion to Dismiss Amended Complaint on the grounds that: (a) the
CHECK NO. DATE AMOUNT RTC has no jurisdiction over the subject matter of the complaint since the action is a money claim for a
807852 Mar. 15, 1997 $600,000.00 debt contracted by Thomson before his death which should have been filed in the estate or intestate
proceedings of Thomson; (b) Catalan engages in forum shopping by filing the suit and at the same time
807853 Mar. 17, 1997 800,000.00 filing a claim in the probate proceeding filed with another branch of the RTC; (c) the amended complaint
states no cause of action against HSBANK since it has no obligation to pay the checks as it has not
807854 Mar. 17, 1997 600,000.00 accepted the checks and Catalan did not re-deposit the checks or make a formal protest; (d) the RTC has
not acquired jurisdiction over the person of HSBANK for improper service of summons; and, (e) it did not
807855 Mar. 22, 1997 600,000.00 submit to the jurisdiction of the RTC by filing a motion for extension of time to file a motion to dismiss.10
Meanwhile, on October 17, 2001, summons for HSBC TRUSTEE was tendered to the In House Counsel
807856 Mar. 23, 1997 600,000.00 of HSBANK (Makati Branch) at the Enterprise Center, Tower 1, Ayala Avenue corner Paseo de Roxas,
Makati. Without submitting itself to the jurisdiction of the RTC, HSBC TRUSTEE filed a Special
TOTAL Appearance for Motion to Dismiss Amended Complaint, dated October 29, 2001, questioning the
$3,200,000.00
jurisdiction of the RTC over it.11 HSBC TRUSTEE alleges that tender of summons through HSBANK

Torts and Damages Cases 1 | 1

Makati did not confer upon the RTC jurisdiction over it because: (a) it is a corporation separate and
distinct from HSBANK; (b) it does not hold office at the HSBANK Makati or in any other place in the
Philippines; (c) it has not authorized HSBANK Makati to receive summons for it; and, (d) it has no
resident agent upon whom summons may be served because it does not transact business in the
Philippines.
Subsequently, HSBC TRUSTEE filed a Submission, dated November 15, 2001, attaching the Affidavit
executed in Hongkong by Phoenix Lam, Senior Vice-President of HSBC TRUSTEE, attesting to the fact
that: 1) HSBC TRUSTEE has not done nor is it doing business in the Philippines; 2) it does not maintain
any office in Makati or anywhere in the Philippines; 3) it has not appointed any agent in Philippines; and
4) HSBANK Makati has no authority to receive any summons or court processes for HSBC TRUSTEE. 12
On May 15, 2002, the RTC issued an Order denying the two motions to dismiss. 13 The RTC held that it
has jurisdiction over the subject matter of the action because it is an action for damages under Article 19
of the Civil Code for the acts of unjustly refusing to honor the checks issued by Thomson and not a money
claim against the estate of Thomson; that Catalan did not engage in forum-shopping because the elements
thereof are not attendant in the case; that the question of cause of action should be threshed out or
ventilated during the proceedings in the main action and after the plaintiff and defendants have adduced
evidence in their favor; that it acquired jurisdiction over the person of defendants because the question of
whether a foreign corporation is doing business or not in the Philippines cannot be a subject of a Motion to
Dismiss but should be ventilated in the trial on the merits; and defendants voluntarily submitted to the
jurisdiction of the RTC setting up in their Motions to Dismiss other grounds aside from lack of
jurisdiction.
HSBANK and HSBC TRUSTEE filed separate motions for reconsideration14 but both proved futile as
they were denied by the RTC in an Order dated December 20, 2002. 15
On February 21, 2003, Catalan moved to declare HSBANK and HSBC TRUSTEE in default for failure to
file their answer to the amended complaint.
On March 5, 2003, HSBANK and HSBC TRUSTEE filed separate petitions for certiorari and/or
prohibition with the CA, docketed as CA-G.R. SP Nos. 7575616 and 75757,17 respectively.
Subsequently, HSBANK and HSBC TRUSTEE filed before the RTC separate Answers ad cautelam, both
dated March 18, 2003, as a "precaution against being declared in default and without prejudice to the
separate petitions for certiorari and/or prohibition then pending with the CA." 18
Meanwhile, the two petitions for certiorari before the CA were consolidated and after responsive
pleadings were filed, the cases were deemed submitted for decision.
In a consolidated Decision dated August 14, 2003, the CA dismissed the two petitions for certiorari. 19 The
CA held that the filing of petitioners answers before the RTC rendered moot and academic the issue of
the RTCs lack of jurisdiction over the person of the petitioners; that the RTC has jurisdiction over the
subject matter since it is one for damages under Article 19 of the Civil Code for the alleged unjust acts of
petitioners and not a money claim against the estate of Thomson; and, that the amended complaint states a
cause of action under Article 19 of the Civil Code which could merit a favorable judgment if found to be
true. The CA noted that Catalan may have prayed for payment of the value of the checks but ratiocinated
that she merely used the value as basis for the computation of the damages.
Hence, the present petitions.
In G.R. No. 159590, HSBANK submits the following assigned errors:
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE
COURT A QUO, ACTING AS AN (SIC) REGULAR COURT, HAS JURISDICTION OVER THE
AMENDED COMPLAINT SEEKING TO ORDER HSBC TRUSTEE, THE EXECUTOR OF THE
DECEASED FREDERICK ARTHUR THOMSON, TO PAY SUBJECT CHECKS ISSUED BY
THE LATE FREDERICK ARTHUR THOMSON, ADMITTEDLY IN PAYMENT OF HIS
INDEBTEDNESS TO CATALAN.
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE
AMENDED COMPLAINT DOES NOT SEEK TO ORDER HSBANK AND HSBC
INTERNATIONAL TRUSTEE LIMITED TO PAY THE OBLIGATION OF THE (SIC)
FREDERICK ARTHUR THOMSON AS EVIDENCED BY THE CHECKS, BUT PRAYS FOR
DAMAGES EQUIVALENT OR COMPUTED ON THE BASIS OF THE VALUE OF THE
CHECKS BECAUSE THE DEFENDANTS FAILED TO COMPLY WITH THE MANDATES OF
ARTICLE 19 OF THE NEW CIVIL CODE.
III.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT
ALLEGATIONS IN THE AMENDED COMPLAINT MAKE OUT A CAUSE OF ACTION
WHICH COULD MERIT A FAVORABLE JUDGMENT IF FOUND TO BE TRUE, OR IN NOT
HOLDING THAT THE AMENDED COMPLAINT STATES NO CAUSE OF ACTION AGAINST
HSBANK, AS DRAWEE BANK.
IV.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DISREGARDING THE FACT
THAT CATALAN ENGAGED IN FORUM SHOPPING BY FILING THE AMENDED
COMPLAINT WHILE HER PETITION FOR THE PROBATE OF THE SUPPOSED WILL OF
THE DECEASED FREDERICK ARTHUR THOMSON IS PENDING WITH ANOTHER
BRANCH OF THE COURT A QUO.
V.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT HSBANK
HAD SUBMITTED TO THE JURISDICTION OF THE COURT A QUO BY SUBMITTING AN
ANSWER TO THE AMENDED COMPLAINT.20
In G.R. No. 159591, HSBC TRUSTEE also assigns the foregoing first, second and fifth errors as its
own.21 In addition, it claims that:
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT ORDERING THE
DISMISSAL OF THE AMENDED COMPLAINT AGAINST HSBC TRUSTEE DESPITE
THE FACT IT HAS NOT BEEN DULY SERVED WITH SUMMONS.22
HSBANK and HSBC TRUSTEE contend in common that Catalan has no cause of action for abuse of
rights under Article 19 of the Civil Code; that her complaint, under the guise of a claim for damages, is
actually a money claim against the estate of Thomson arising from checks issued by the latter in her favor
in payment of indebtedness.
HSBANK claims that the money claim should be dismissed on the ground of forum-shopping since
Catalan also filed a petition for probate of the alleged last will of Thomson before RTC, Branch 48,
Bacolod City, docketed as Spec. Proc No. 00-892. In addition, HSBANK imputes error upon the CA in
holding that by filing an answer to the amended complaint, petitioners are estopped from questioning the
jurisdiction of the RTC.
HSBC TRUSTEE maintains that the RTC did not acquire jurisdiction over it for improper service of
summons.
In her Comment, Catalan insists that her complaint is one for damages under Article 19 of the Civil Code
for the wanton refusal to honor and pay the value of five checks issued by the Thomson amounting to
HK$3,200,000.00. She argues that the issue of jurisdiction has been rendered moot by petitioners
participation in the proceedings before the RTC.
Succinctly, the issues boil down to the following:
1) Does the complaint state a cause of action?
2) Did Catalan engage in forum-shopping by filing the complaint for damages when she also
filed a petition for probate of the alleged last will of Thomson with another branch of the RTC?
and,
3) Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE? Corollary thereto,
did the filing of the answer before the RTC render the issue of lack of jurisdiction moot and
academic?
We shall resolve the issue in seriatim.
Does the complaint state a cause of action against HSBANK and HSBC TRUSTEE?
The elementary test for failure to state a cause of action is whether the complaint alleges facts which if
true would justify the relief demanded. Stated otherwise, may the court render a valid judgment upon the
facts alleged therein?23 The inquiry is into the sufficiency, not the veracity of the material allegations.24 If
the allegations in the complaint furnish sufficient basis on which it can be maintained, it should not be
dismissed regardless of the defense that may be presented by the defendants. 25
Catalan anchors her complaint for damages on Article 19 of the Civil Code. It speaks of the fundamental
principle of law and human conduct that a person "must, in the exercise of his rights and in the
performance of his duties, act with justice, give every one his due, and observe honesty and good faith." It
sets the standards which may be observed not only in the exercise of ones rights but also in the
performance of ones duties. 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.26 But a right, though by itself legal because recognized or
granted by law as such, may nevertheless become the source of some illegality. A person should be
Torts and Damages Cases 1 | 2
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.27 There is an abuse of right when it is
exercised for the only purpose of prejudicing or injuring another. The exercise of a right must be in
accordance with the purpose for which it was established, and must not be excessive or unduly harsh;
there must be no intention to injure another.28
Thus, in order to be liable under the abuse of rights principle, three elements must concur, to wit: (a) that
there is a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent of prejudicing
or injuring another.29
In this instance, after carefully examining the amended complaint, we are convinced that the allegations
therein are in the nature of an action based on tort under Article 19 of the Civil Code. It is evident that
Catalan is suing HSBANK and HSBC TRUSTEE for unjustified and willful refusal to pay the value of the
checks.
HSBANK is being sued for unwarranted failure to pay the checks notwithstanding the repeated assurance
of the drawer Thomson as to the authenticity of the checks and frequent directives to pay the value thereof
to Catalan. Her allegations in the complaint that the gross inaction of HSBANK on Thomsons
instructions, as well as its evident failure to inform Catalan of the reason for its continued inaction and
non-payment of the checks, smack of insouciance on its part, are sufficient statements of clear abuse of
right for which it may be held liable to Catalan for any damages she incurred resulting therefrom.
HSBANKs actions, or lack thereof, prevented Catalan from seeking further redress with Thomson for the
recovery of her claim while the latter was alive.
HSBANK claims that Catalan has no cause of action because under Section 189 of the Negotiable
Instruments Law, "a check of itself does not operate as an assignment of any part of the funds to the credit
of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies
it." However, HSBANK is not being sued on the value of the check itself but for how it acted in relation to
Catalans claim for payment despite the repeated directives of the drawer Thomson to recognize the check
the latter issued. Catalan may have prayed that she be paid the value of the checks but it is axiomatic that
what determines the nature of an action, as well as which court has jurisdiction over it, are the allegations
of the complaint, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the
claims asserted therein.30
Anent HSBC TRUSTEE, it is being sued for the baseless rejection of Catalans claim. When Catalan
parted with the checks as a requirement for the processing of her claim, even going to the extent of
traveling to Hongkong to deliver personally the checks, HSBC TRUSTEE summarily disapproved her
claim with nary a reason. HSBC TRUSTEE gave no heed to Catalans incessant appeals for an
explanation. Her pleas fell on deaf and uncaring corporate ears. Clearly, HSBC TRUSTEEs acts are
anathema to the prescription for human conduct enshrined in Article 19 of the Civil Code.
Did Catalan engage in forum-shopping?
It has been held that forum-shopping exists where a litigant sues the same party against whom another
action or actions for the alleged violation of the same right and the enforcement of the same relief is/are
still pending, the defense of litis pendentia in one case is a bar to the others; and, a final judgment in one
would constitute res judicata and thus would cause the dismissal of the rest. 31
Thus, there is forum-shopping when there exist: a) identity of parties, or at least such parties as represent
the same interests in both actions, b) identity of rights asserted and relief prayed for, the relief being
founded on the same facts, and c) the identity of the two preceding particulars is such that any judgment
rendered in the pending case, regardless of which party is successful would amount to res judicata in the
other.32
Applying the foregoing requisites to the case before us in relation to Spec. Proc No. 00-892, the probate
proceeding brought by Catalan before RTC, Branch 48, Bacolod City, it is obvious that forum-shopping
does not exist.
There is no identity of parties. HSBANK is not a party in the probate proceeding. HSBC TRUSTEE is
only a party in the probate proceeding because it is the executor and trustee named in the Hongkong will
of Thomson. HSBC TRUSTEE is representing the interest of the estate of Thomson and not its own
corporate interest.
With respect to the second and third requisites, a scrutiny of the entirety of the allegations of the amended
complaint in this case reveals that the rights asserted and reliefs prayed for therein are different from those
pleaded in the probate proceeding, such that a judgment in one case would not bar the prosecution of the
other case. Verily, there can be no forum-shopping where in one proceeding a party raises a claim for
damages based on tort and, in another proceeding a party seeks the allowance of an alleged last will based
on ones claim as an heir. After all, the merits of the action for damages is not to be determined in the
probate proceeding and vice versa. Undeniably, the facts or evidence as would support and establish the
two causes of action are not the same.33 Consequently, HSBANKs reliance on the principle of forum-
shopping is clearly misplaced.
Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE?
The Rules of Court provides that a court generally acquires jurisdiction over a person through either a
valid service of summons in the manner required by law or the persons voluntary appearance in court. 34
In holding that it acquired jurisdiction over HSBANK and HSBC TRUSTEE, the RTC held that both
voluntarily submitted to the jurisdiction of the court by setting up in their Motions to Dismiss other
grounds aside from lack of jurisdiction. On the other hand, the CA ruled that HSBANK and HSBC
TRUSTEE are estopped from challenging the jurisdiction of the RTC because they filed their respective
answers before the RTC.
We find that both lower courts overlooked Section 20 of Rule 14 of the 1997 Rules of Civil Procedure
which provides that "the inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction
over the person of the defendant shall not be deemed a voluntary appearance." Nonetheless, such omission
does not aid HSBANKs case.
It must be noted that HSBANK initially filed a Motion for Extension of Time to File Answer or Motion to
Dismiss.35 HSBANK already invoked the RTCs jurisdiction over it by praying that its motion for
extension of time to file answer or a motion to dismiss be granted. The Court has held that the filing of
motions seeking affirmative relief, such as, to admit answer, for additional time to file answer, for
reconsideration of a default judgment, and to lift order of default with motion for reconsideration, are
considered voluntary submission to the jurisdiction of the court.36 Consequently, HSBANKs expressed
reservation in its Answer ad cautelam that it filed the same "as a mere precaution against being declared in
default, and without prejudice to the Petition for Certiorari and/or Prohibition xxx now pending before the
Court of Appeals"37 to assail the jurisdiction of the RTC over it is of no moment. Having earlier invoked
the jurisdiction of the RTC to secure affirmative relief in its motion for additional time to file answer or
motion to dismiss, HSBANK, effectively submitted voluntarily to the jurisdiction of the RTC and is
thereby estopped from asserting otherwise, even before this Court.
In contrast, the filing by HSBC TRUSTEE of a motion to dismiss cannot be considered a voluntary
submission to the jurisdiction of the RTC. It was a conditional appearance, entered precisely to question
the regularity of the service of summons. It is settled that a party who makes a special appearance in court
challenging the jurisdiction of said court, e.g., invalidity of the service of summons, cannot be considered
to have submitted himself to the jurisdiction of the court.38 HSBC TRUSTEE has been consistent in all its
pleadings in assailing the service of summons and the jurisdiction of the RTC over it. Thus, HSBC
TRUSTEE cannot be declared in estoppel when it filed an Answer ad cautelam before the RTC while its
petition for certiorari was pending before the CA. Such answer did not render the petition for certiorari
before the CA moot and academic. The Answer of HSBC TRUSTEE was only filed to prevent any
declaration that it had by its inaction waived the right to file responsive pleadings.
Admittedly, HSBC TRUSTEE is a foreign corporation, organized and existing under the laws of the
British Virgin Islands. For proper service of summons on foreign corporations, Section 12 of Rule 14 of
the Revised Rules of Court provides:
SEC. 12. Service upon foreign private juridical entity. When the defendant is a foreign
private juridical entity which has transacted business in the Philippines, service may be made
on its resident agent designated in accordance with law for that purpose, or if there be no such
agent, on the government official designated by law to that effect, or on any of its officers or
agents within the Philippines.
In French Oil Mill Machinery Co., Inc. vs. Court of Appeals, 39 we had occasion to rule that it is not
enough to merely allege in the complaint that a defendant foreign corporation is doing business. For
purposes of the rule on summons, the fact of doing business must first be "established by appropriate
allegations in the complaint" and the court in determining such fact need not go beyond the allegations
therein.40
The allegations in the amended complaint subject of the present cases did not sufficiently show the fact of
HSBC TRUSTEEs doing business in the Philippines. It does not appear at all that HSBC TRUSTEE had
performed any act which would give the general public the impression that it had been engaging, or
intends to engage in its ordinary and usual business undertakings in the country. Absent from the amended
complaint is an allegation that HSBC TRUSTEE had performed any act in the country that would place it
within the sphere of the courts jurisdiction.
We have held that a general allegation, standing alone, that a party is doing business in the Philippines
does not make it so; a conclusion of fact or law cannot be derived from the unsubstantiated assertions of
Torts and Damages Cases 1 | 3
parties notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court
would be guilty of sorcery; extracting substance out of nothingness. 41
Besides, there is no allegation in the amended complaint that HSBANK is the domestic agent of HSBC
TRUSTEE to warrant service of summons upon it. Thus, the summons tendered to the In House Counsel
of HSBANK (Makati Branch) for HSBC TRUSTEE was clearly improper.
There being no proper service of summons, the RTC cannot take cognizance of the case against HSBC
TRUSTEE for lack of jurisdiction over it. Any proceeding undertaken by the RTC is therefore null and
void.42 Accordingly, the complaint against HSBC TRUSTEE should have been dismissed for lack of
jurisdiction over it.
WHEREFORE, the petition in G.R. No. 159590 is DENIED. The Decision of the Court of Appeals,
dated August 14, 2003, in CA-G.R. SP No. 75757 dismissing the petition for certiorari of the Hongkong
and Shanghai Banking Corporation Limited is AFFIRMED.
The petition in G.R. No. 159591 is GRANTED. The Decision of the Court of Appeals, dated August 14,
2003, in CA-G.R. SP No. 75756 dismissing the petition for certiorari of the HSBC International Trustee
Limited is REVERSED and SET ASIDE. The Regional Trial Court, Branch 44, Bacolod City is declared
without jurisdiction to take cognizance of Civil Case No. 01-11372 against the HSBC International
Trustee Limited, and all its orders and issuances with respect to the latter are hereby ANNULLED and
SET ASIDE. The said Regional Trial Court is hereby ORDERED to DESIST from maintaining further
proceedings against the HSBC International Trustee Limited in the case aforestated.
SO ORDERED.

Torts and Damages Cases 1 | 4

 Republic of the Philippines
SUPREME COURT
SECOND DIVISION
G.R. No. 145291 September 21, 2005
Public Estates Authority, Petitioners,
vs.
Rosario Ganac CHU, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Petitioner Public Estates Authority seeks a review of the decision 1 of the Court of Appeals (CA) in CA-
G.R. CV No. 52944 dated June 4, 1999, which affirmed in toto the trial courts award of P2,000,000.00 as
actual and compensatory damages, P100,000.00 as attorneys fees and costs of suit, in favor of respondent
in its Partial Decision dated July 3, 1995 in Civil Case No. 781-93.2
Petitioner filed a motion for reconsideration but this was denied by the CA in its Resolution dated
September 26, 2000.3
This case originated from a complaint for damages with prayer for the issuance of a writ of injunction and
temporary restraining order filed by respondent against petitioner and the National Housing Authority
(NHA). The complaint was lodged in the Regional Trial Court of Imus, Cavite (Branch 20). In her
complaint, respondent alleged that she is the owner of a parcel of land situated in Paliparan, Dasmarias,
Cavite covered by Transfer Certificate of Title (TCT) Nos. T-231966, T-231967, T-231968, T-231969,
and T-231970, measuring 70,410 square meters. According to respondent, some time in June 1993,
without notice and due process, petitioner entered her property and bulldozed the land, destroying her
black pepper plantation, causing damage to her operations and depriving her of her means of livelihood.
Thus, she asked for the following amounts: (1) P5,000,000.00 as actual damages; (2) P200,000.00 as
moral damages; (3) P100,000.00 as exemplary damages; (4) P50,000.00 as attorneys fees; and (5)
P30,000.00 for litigation expenses.4
Petitioner filed its Answer alleging lack of cause of action. It contended that: it is the owner of a property
covered by TCT Nos. 277070, 277071 and 277072, located in Paliparan, Dasmarias, Cavite, and
measuring 51 hectares; under a Memorandum of Agreement dated March 12, 1991, petitioner and the
NHA undertook to relocate the squatters of the reclaimed land in the Financial Center District of Manila
Bay, to the Paliparan site; during the relocation and site development, respondent appeared claiming that
petitioner is encroaching upon her property; respondent failed to prove her ownership thereof; way back in
1990, respondent had already sold 65,410 square meters out of the 70,410 square meters of her property to
one Renato Ignacio. Thus, petitioner prayed for the dismissal of the complaint.5
In a Partial Decision rendered by the trial court on July 3, 1995, petitioner, together with the NHA, was
adjudged jointly and severally liable to pay respondent actual and compensatory damages, attorneys fees
and the costs of suit. The dispositive portion of the Partial Decision reads:
WHEREFORE, in view of the foregoing, partial judgment is hereby rendered in favor of the plaintiff and
against the defendants, ordering jointly and severally to pay plaintiff the sum of P2 million by way of
actual and compensatory damages and the additional amount of P100,000.00 as attorneys fees, plus costs
of suit.
SO ORDERED.6
Both petitioner and the NHA filed a motion for reconsideration with the trial court but these were denied
per Resolution dated January 22, 1996.7
Aggrieved, petitioner appealed to the CA. The appellate court, however, sustained the partial judgment of
the trial court in the assailed Decision dated June 4, 1999 and denied petitioners motion for
reconsideration. Petitioner then filed the present petition for review on certiorari under Rule 45 of the
Rules of Court, on the following grounds:
The Court of Appeals erred in:
I. AFFIRMING THE FINDINGS OF FACT BY THE LOWER COURT WHICH HAVE NOT BEEN
PROVEN WITH REASONABLE DEGREE OF CERTAINTY.
II. AFFIRMING THE GRANT OF ACTUAL DAMAGES IN THE AMOUNT OF P2 MILLION AND
P100,000.00 AS ATTORNEYS FEES PLUS COSTS OF SUIT.8
The sole issue in this petition is whether there is a valid basis for the award of damages in favor of
respondent.
The trial court based its award of the sum of P2,000,000.00 as actual and compensatory damages in favor
of respondent on the following findings:
Admittedly, there were pepper trees on the property of plaintiff which were bulldozed by the defendants,
although the parties differ as to their exact numbers. Defendants witness, Engr. de Gracia, admitted that
he did not make a physical counting. He merely estimated the number of pepper plants, though admitting
that there were 3,000 kakawati trees planted on the one (1) hectare property of plaintiff upon which the
pepper trees clung.
In the same manner, the other witness Engr. Fundabela also made a rough estimate as to the number of
pepper trees that were bulldozed (TSN, pp. 16-17, 29, Sept. 2, 1994). But when queried, he retorted that
the one (1) hectare property of plaintiff is fully planted with black pepper trees whose distance with each
other is only one (1) meter.
As against their testimonies, this Court gives more credence to the straightforward statement of plaintiff
that she planted about 3,000 pepper trees on her property with the help of 25 farmers. She bought the
3,000 seedlings at a cost of P350.00 each. Adding the labor cost and the cost of the water system she
installed to maintain the pepper plantation plus expenses for insecticides, plaintiff invested a capital of
P1.3 million, more or less. Because the pepper trees were already about to be harvested, plaintiff claimed
that she lost an estimated income of P700,000.00 (TSN, pp. 6-8, May 27, 1994).9
The appellate court sustained the factual findings of the trial court and concluded that the same were based
on the evidence presented by the parties.10
Petitioner argues that the appellate court erred in affirming the findings of fact of the trial court
considering that respondent failed to prove her ownership over the property on which the pepper trees
stand, particularly that covered by TCT No. T-231966. Petitioner also contends that respondent failed to
quantify or show any proof of the actual damage she allegedly suffered; and that the amount of attorneys
fees awarded in favor of respondent was double the amount than what was specifically prayed for in her
complaint.11
In her Comment, respondent stated that the Court can only entertain questions of law in a petition for
review on certiorari and cannot now reassess the findings of facts of the trial court, especially since it was
affirmed by the CA.12
While respondent is correct in stating that only questions of law may be raised in a petition for review on
certiorari under Rule 45 of the Rules of Court, as "the Supreme Court is not a trier of facts"; and that it is
not the Courts function to review, examine and evaluate or weigh the probative value of the evidence
presented,13 said rules, however, admit certain exceptions such as:
(a) where there is grave abuse of discretion; (b) when the finding is grounded entirely on speculations,
surmises or conjectures; (c) when the inference made is manifestly mistaken, absurd or impossible; (d)
when the judgment of the Court of Appeals was based on a misapprehension of facts; (e) when the factual
findings are conflicting; (f) when the Court of Appeals, in making its findings, went beyond the issues of
the case and the same are contrary to the admissions of both appellant and appellee; (g) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and, (h) where the findings of fact of the Court of
Appeals are contrary to those of the trial court, or are mere conclusions without citation of specific
evidence, or where the facts set forth by the petitioner are not disputed by the respondent, or where the
findings of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.14 (Emphasis supplied).
In this case, the CA sustained the factual findings of the trial court as follows:
Being aware of the existence of pepper trees on the lot under controversy and knowing that plaintiff is the
one in possession thereof, defendants should have notified her before they bulldozed the same. Their claim
that the area in question belongs to PEA, even if true, is no excuse for defendants to bulldoze it summarily
knowing fully well that there were improvements or crops standing thereon.
Defendants evidently took the law into their hands. They should have acted with caution and prudence
before trespassing on others property. Even squatters are entitled to due process and cannot just be
evicted by the owner without resorting to the court of law.15
Such factual findings of the CA are conclusive on the parties and carry even more weight when the CA
affirmed the factual findings of the trial court.16
Nevertheless, the Court finds that both the trial court and the CA seriously erred in awarding in favor of
respondent the colossal sum of P2,000,000.00 as actual and compensatory damages, and the amount of
P100,000.00 as attorneys fees and costs of suit, as the evidence on record does not support the award of
such amount.
Chapter 2, Title XVIII, Book IV of the Civil Code governs the award
Torts and Damages Cases 1 | 5
of actual or compensatory damages.17 Except as provided by law or by stipulation, one is entitled to some pecuniary loss but its amount cannot be proved with certainty. 32 The amount of P250,000.00 is
compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. 18 sufficient and reasonable under the circumstances of this case.
The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits With regard to the award of attorneys fees and costs of suit, the same was correctly awarded since
that the obligee failed to obtain.19 In contracts and quasi-contracts, the damages which may be awarded are petitioner has compelled respondent to incur expenses to protect her interest. 33 The Court deems, however,
dependent on whether the obligor acted with good faith or otherwise.20 In case of good faith, the damages that the award cannot be more than what was prayed for in respondents complaint, 34 which in this case is
recoverable are those which are the natural and probable consequences of the breach of the obligation and P50,000.00 for attorneys fees and P30,000.00 for litigation expenses.35 Thus, the award of attorneys fees
which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the and costs of suit is reduced in accord with respondents prayer in her Complaint.
obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for WHEREFORE, the Decision dated June 4, 1999 and Resolution dated September 26, 2000 rendered by
all damages which may be reasonably attributed to the non-performance of the obligation. In crimes and the Court of Appeals in CA-G.R. CV
quasi-delicts, the defendants shall be liable for all damages which are the natural and probable No. 52944 are hereby MODIFIED as follows:
consequences of the act or omission complained of, whether or not such damages have been foreseen or 1) The award of Two Million Pesos (P2,000,000.00) as actual and compensatory damages is DELETED;
could have reasonably been foreseen by the defendant.21 and
There is no question that respondent is entitled to damages. However, respondents cause of action before 2) Petitioner Public Estates Authority and the National Housing Authority are held jointly and severally
the trial court is not premised on any contract, quasi-contract, delict or quasi-delict. At best, her demand liable to pay respondent the following amounts:
for damages can be anchored on the "abuse of rights" principle under Article 19 of the Civil Code, which (a) Two Hundred Fifty Thousand Pesos (P250,000.00) as temperate damages;
provides: (b) Fifty Thousand Pesos (P50,000.00) as attorneys fees; and
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with (c) Thirty Thousand Pesos (P30,000.00) for costs of suit.
justice, give everyone his due and observe honesty and good faith. SO ORDERED.
The foregoing provision sets standards which must be observed in the exercise of ones rights as well as in
the performance of its duties, to wit: to act with justice; give everyone his due; and observe honesty and
good faith.22 When a right is exercised in a manner which discards these norms resulting in damage to
another, a legal wrong is committed for which the actor can be held accountable. 23
Respondents ownership of the property on which the pepper trees stand is immaterial in this petition.
There is no dispute that respondent owned the pepper trees that were destroyed by petitioner. Even
assuming that petitioner owns the property or that it bulldozed the land within its boundaries, still, as the
trial court aptly reasoned, there was no excuse for petitioner to disregard respondents rights over her
trees. The exercise of ones rights is not without limitations. Having the right should not be confused with
the manner by which such right is to be exercised.24
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.25 In Rellosa vs. Pellosis,26 the Court ruled 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 a right is exercised in a manner which
discards these norms resulting in damage to another, a legal wrong is committed for which the actor can
be held accountable. In this instance, the issue is not so much about the existence of the right or validity of
the order of demolition as the question of whether or not petitioners have acted in conformity with, and
not in disregard of, the standard set by Article 19 of the Civil Code.27
Actual or compensatory damages are those awarded in order to compensate a party for an injury or loss he
suffered. They arise out of a sense of natural justice and are aimed at repairing the wrong done. 28 To be
recoverable, actual and compensatory damages must be duly proved with reasonable degree of certainty.
A court cannot rely on speculation, conjecture or guesswork as to the fact and amount of damages, but
must depend upon competent proof that they have suffered and on evidence of the actual amount thereof.
The party alleging a fact has the burden of proving it and a mere allegation is not evidence.29
There is nothing in the records of this case that will support the finding that respondent suffered actual
damages in the amount of P2,000,000.00. There must be competent proof of the actual amount of loss, and
credence can be given only to claims that are duly supported by receipts. 30 Save for respondents bare
testimony and the pictures taken on the property, she did not present any other competent and independent
proof to corroborate her claim. No receipt was ever proffered by respondent proving her claims for
compensation for the following items: (1) the 3,000 pepper seedlings, which were allegedly bought at
P350.00 each; (2) the cost of labor and water system installed to maintain the farm; (3) her alleged capital
investment of P1,300,000.00; and (4) the supposed unrealized income of P700,000.00.31 Given the dearth
of evidence, respondents claim for actual and compensatory damages should have been denied by the
trial court and the award thereof corrected by the CA.
In lieu of actual damages, temperate damages, which are more than nominal but less than compensatory
damages, should have been awarded by the trial court considering that respondent, indeed, had suffered

Torts and Damages Cases 1 | 6

 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 154259 February 28, 2005
NIKKO HOTEL MANILA GARDEN and RUBY LIM, petitioners,
vs.
ROBERTO REYES, a.k.a. "AMAY BISAYA," respondent.
DECISION
CHICO-NAZARIO, J.:
In this petition for review on certiorari, petitioners Nikko Hotel Manila Garden (Hotel Nikko)1 and Ruby
Lim assail the Decision2 of the Court of Appeals dated 26 November 2001 reversing the Decision3 of the
Regional Trial Court (RTC) of Quezon City, Branch 104, as well as the Resolution 4 of the Court of
Appeals dated 09 July 2002 which denied petitioners motion for reconsideration.
The cause of action before the trial court was one for damages brought under the human relations
provisions of the New Civil Code. Plaintiff thereat (respondent herein) Roberto Reyes, more popularly
known by the screen name "Amay Bisaya," alleged that at around 6:00 oclock in the evening of 13
October 1994, while he was having coffee at the lobby of Hotel Nikko,5 he was spotted by his friend of
several years, Dr. Violeta Filart, who then approached him.6 Mrs. Filart invited him to join her in a party at
the hotels penthouse in celebration of the natal day of the hotels manager, Mr. Masakazu Tsuruoka. 7 Mr.
Reyes asked if she could vouch for him for which she replied: "of course."8 Mr. Reyes then went up with
the party of Dr. Filart carrying the basket of fruits which was the latters present for the celebrant.9 At the
penthouse, they first had their picture taken with the celebrant after which Mr. Reyes sat with the party of
Dr. Filart.10 After a couple of hours, when the buffet dinner was ready, Mr. Reyes lined-up at the buffet
table but, to his great shock, shame and embarrassment, he was stopped by petitioner herein, Ruby Lim,
who claimed to speak for Hotel Nikko as Executive Secretary thereof. 11 In a loud voice and within the
presence and hearing of the other guests who were making a queue at the buffet table, Ruby Lim told him
to leave the party ("huwag ka nang kumain, hindi ka imbitado, bumaba ka na lang").12 Mr. Reyes tried to
explain that he was invited by Dr. Filart.13 Dr. Filart, who was within hearing distance, however,
completely ignored him thus adding to his shame and humiliation. 14 Not long after, while he was still
recovering from the traumatic experience, a Makati policeman approached and asked him to step out of
the hotel.15 Like a common criminal, he was escorted out of the party by the policeman.16 Claiming
damages, Mr. Reyes asked for One Million Pesos actual damages, One Million Pesos moral and/or
exemplary damages and Two Hundred Thousand Pesos attorneys fees. 17
Ruby Lim, for her part, admitted having asked Mr. Reyes to leave the party but not under the ignominious
circumstance painted by the latter. Ms. Lim narrated that she was the Hotels Executive Secretary for the
past twenty (20) years.18 One of her functions included organizing the birthday party of the hotels former
General Manager, Mr. Tsuruoka.19 The year 1994 was no different. For Mr. Tsuruokas party, Ms. Lim
generated an exclusive guest list and extended invitations accordingly. 20 The guest list was limited to
approximately sixty (60) of Mr. Tsuruokas closest friends and some hotel employees and that Mr. Reyes
was not one of those invited.21 At the party, Ms. Lim first noticed Mr. Reyes at the bar counter ordering a
drink.22 Mindful of Mr. Tsuruokas wishes to keep the party intimate, Ms. Lim approached Mr. Boy
Miller, the "captain waiter," to inquire as to the presence of Mr. Reyes who was not invited.23 Mr. Miller
replied that he saw Mr. Reyes with the group of Dr. Filart.24 As Dr. Filart was engaged in conversation
with another guest and as Ms. Lim did not want to interrupt, she inquired instead from the sister of Dr.
Filart, Ms. Zenaida Fruto, who told her that Dr. Filart did not invite Mr. Reyes. 25 Ms. Lim then requested
Ms. Fruto to tell Mr. Reyes to leave the party as he was not invited.26 Mr. Reyes, however, lingered
prompting Ms. Lim to inquire from Ms. Fruto who said that Mr. Reyes did not want to leave. 27 When Ms.
Lim turned around, she saw Mr. Reyes conversing with a Captain Batung whom she later approached. 28
Believing that Captain Batung and Mr. Reyes knew each other, Ms. Lim requested from him the same
favor from Ms. Fruto, i.e., for Captain Batung to tell Mr. Reyes to leave the party as he was not invited.29
Still, Mr. Reyes lingered. When Ms. Lim spotted Mr. Reyes by the buffet table, she decided to speak to
him herself as there were no other guests in the immediate vicinity. 30 However, as Mr. Reyes was already
helping himself to the food, she decided to wait.31 When Mr. Reyes went to a corner and started to eat,
Ms. Lim approached him and said: "alam ninyo, hindo ho kayo dapat nandito. Pero total nakakuha na ho
kayo ng pagkain, ubusin na lang ninyo at pagkatapos kung pwede lang po umalis na kayo."32 She then
turned around trusting that Mr. Reyes would show enough decency to leave, but to her surprise, he began
screaming and making a big scene, and even threatened to dump food on her.331awphi1.nt
Dr. Violeta Filart, the third defendant in the complaint before the lower court, also gave her version of the
story to the effect that she never invited Mr. Reyes to the party.34 According to her, it was Mr. Reyes who
volunteered to carry the basket of fruits intended for the celebrant as he was likewise going to take the
elevator, not to the penthouse but to Altitude 49.35 When they reached the penthouse, she reminded Mr.
Reyes to go down as he was not properly dressed and was not invited.36 All the while, she thought that Mr.
Reyes already left the place, but she later saw him at the bar talking to Col. Batung. 37 Then there was a
commotion and she saw Mr. Reyes shouting.38 She ignored Mr. Reyes.39 She was embarrassed and did not
want the celebrant to think that she invited him.40
After trial on the merits, the court a quo dismissed the complaint,41 giving more credence to the testimony
of Ms. Lim that she was discreet in asking Mr. Reyes to leave the party. The trial court likewise
ratiocinated that Mr. Reyes assumed the risk of being thrown out of the party as he was uninvited:
Plaintiff had no business being at the party because he was not a guest of Mr. Tsuruoka, the birthday
celebrant. He assumed the risk of being asked to leave for attending a party to which he was not invited by
the host. Damages are pecuniary consequences which the law imposes for the breach of some duty or the
violation of some right. Thus, no recovery can be had against defendants Nikko Hotel and Ruby Lim
because he himself was at fault (Garciano v. Court of Appeals, 212 SCRA 436). He knew that it was not
the party of defendant Violeta Filart even if she allowed him to join her and took responsibility for his
attendance at the party. His action against defendants Nikko Hotel and Ruby Lim must therefore fail.42
On appeal, the Court of Appeals reversed the ruling of the trial court as it found more commanding of
belief the testimony of Mr. Reyes that Ms. Lim ordered him to leave in a loud voice within hearing
distance of several guests:
In putting appellant in a very embarrassing situation, telling him that he should not finish his food and to
leave the place within the hearing distance of other guests is an act which is contrary to morals, good
customs . . ., for which appellees should compensate the appellant for the damage suffered by the latter as
a consequence therefore (Art. 21, New Civil Code). The liability arises from the acts which are in
themselves legal or not prohibited, but contrary to morals or good customs. Conversely, even in the
exercise of a formal right, [one] cannot with impunity intentionally cause damage to another in a manner
contrary to morals or good customs.43
The Court of Appeals likewise ruled that the actuation of Ms. Lim in approaching several people to
inquire into the presence of Mr. Reyes exposed the latter to ridicule and was uncalled for as she should
have approached Dr. Filart first and both of them should have talked to Mr. Reyes in private:
Said acts of appellee Lim are uncalled for. What should have been done by appellee Lim was to approach
appellee Mrs. Filart and together they should have told appellant Reyes in private that the latter should
leave the party as the celebrant only wanted close friends around. It is necessary that Mrs. Filart be the one
to approach appellant because it was she who invited appellant in that occasion. Were it not for Mrs.
Filarts invitation, appellant could not have suffered such humiliation. For that, appellee Filart is equally
liable.
...
The acts of [appellee] Lim are causes of action which are predicated upon mere rudeness or lack of
consideration of one person, which calls not only protection of human dignity but respect of such dignity.
Under Article 20 of the Civil Code, every person who violates this duty becomes liable for damages,
especially if said acts were attended by malice or bad faith. Bad faith does not simply connote bad
judgment or simple negligence. It imports a dishonest purpose or some moral obliquity and conscious
doing of a wrong, a breach of a known duty to some motive or interest or ill-will that partakes of the
nature of fraud (Cojuangco, Jr. v. CA, et al., 309 SCRA 603). 44
Consequently, the Court of Appeals imposed upon Hotel Nikko, Ruby Lim and Dr. Violeta Filart the
solidary obligation to pay Mr. Reyes (1) exemplary damages in the amount of Two Hundred Thousand
Pesos (P200,000); (2) moral damages in the amount of Two Hundred Thousand Pesos (P200,000); and (3)
attorneys fees in the amount of Ten Thousand Pesos (P10,000).45 On motion for reconsideration, the
Court of Appeals affirmed its earlier decision as the argument raised in the motion had "been amply
discussed and passed upon in the decision sought to be reconsidered."46
Thus, the instant petition for review. Hotel Nikko and Ruby Lim contend that the Court of Appeals
seriously erred in
I.
NOT APPLYING THE DOCTRINE OF VOLENTI NON FIT INJURIA CONSIDERING THAT BY
ITS OWN FINDINGS, AMAY BISAYA WAS A GATE-CRASHER
II.
Torts and Damages Cases 1 | 7
 HOLDING HOTEL NIKKO AND RUBY LIM JOINTLY AND SEVERALLY LIABLE WITH DR.
FILART FOR DAMAGES SINCE BY ITS OWN RULING, AMAY BISAYA "COULD NOT HAVE
SUFFERED SUCH HUMILIATION," "WERE IT NOT FOR DR. FILARTS INVITATION"
III.
DEPARTING FROM THE FINDINGS OF FACT OF THE TRIAL COURT AS REGARDS THE
CIRCUMSTANCES THAT ALLEGEDLY CAUSED THE HUMILIATION OF AMAY BISAYA
IV.
IN CONCLUDING THAT AMAY BISAYA WAS TREATED UNJUSTLY BECAUSE OF HIS
POVERTY, CONSIDERING THAT THIS WAS NEVER AN ISSUE AND NO EVIDENCE WAS
PRESENTED IN THIS REGARD
V.
IN FAILING TO PASS UPON THE ISSUE ON THE DEFECTS OF THE APPELLANTS BRIEF,
THEREBY DEPARTING FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS
Petitioners Lim and Hotel Nikko contend that pursuant to the doctrine of volenti non fit injuria, they
cannot be made liable for damages as respondent Reyes assumed the risk of being asked to leave (and
being embarrassed and humiliated in the process) as he was a "gate-crasher."
The doctrine of volenti non fit injuria ("to which a person assents is not esteemed in law as injury"47 )
refers to self-inflicted injury48 or to the consent to injury49 which precludes the recovery of damages by
one who has knowingly and voluntarily exposed himself to danger, even if he is not negligent in doing
so.50 As formulated by petitioners, however, this doctrine does not find application to the case at bar
because even if respondent Reyes assumed the risk of being asked to leave the party, petitioners, under
Articles 19 and 21 of the New Civil Code, were still under obligation to treat him fairly in order not to
expose him to unnecessary ridicule and shame.
Thus, the threshold issue is whether or not Ruby Lim acted abusively in asking Roberto Reyes, a.k.a.
"Amay Bisaya," to leave the party where he was not invited by the celebrant thereof thereby becoming
liable under Articles 19 and 21 of the Civil Code. Parenthetically, and if Ruby Lim were so liable, whether
or not Hotel Nikko, as her employer, is solidarily liable with her.
As the trial court and the appellate court reached divergent and irreconcilable conclusions concerning the
same facts and evidence of the case, this Court is left without choice but to use its latent power to review
such findings of facts. Indeed, the general rule is that we are not a trier of facts as our jurisdiction is
limited to reviewing and revising errors of law.51 One of the exceptions to this general rule, however,
obtains herein as the findings of the Court of Appeals are contrary to those of the trial court. 52 The lower
court ruled that Ms. Lim did not abuse her right to ask Mr. Reyes to leave the party as she talked to him
politely and discreetly. The appellate court, on the other hand, held that Ms. Lim is liable for damages as
she needlessly embarrassed Mr. Reyes by telling him not to finish his food and to leave the place within
hearing distance of the other guests. Both courts, however, were in agreement that it was Dr. Filarts
invitation that brought Mr. Reyes to the party.
The consequential question then is: Which version is credible?
From an in depth review of the evidence, we find more credible the lower courts findings of fact.
First, let us put things in the proper perspective.
We are dealing with a formal party in a posh, five-star hotel,53 for-invitation-only, thrown for the hotels
former Manager, a Japanese national. Then came a person who was clearly uninvited (by the celebrant) 54
and who could not just disappear into the crowd as his face is known by many, being an actor. While he
was already spotted by the organizer of the party, Ms. Lim, the very person who generated the guest list, it
did not yet appear that the celebrant was aware of his presence. Ms. Lim, mindful of the celebrants
instruction to keep the party intimate, would naturally want to get rid of the "gate-crasher" in the most
hush-hush manner in order not to call attention to a glitch in an otherwise seamless affair and, in the
process, risk the displeasure of the celebrant, her former boss. To unnecessarily call attention to the
presence of Mr. Reyes would certainly reflect badly on Ms. Lims ability to follow the instructions of the
celebrant to invite only his close friends and some of the hotels personnel. Mr. Reyes, upon whom the
burden rests to prove that indeed Ms. Lim loudly and rudely ordered him to leave, could not offer any
satisfactory explanation why Ms. Lim would do that and risk ruining a formal and intimate affair. On the
contrary, Mr. Reyes, on cross-examination, had unwittingly sealed his fate by admitting that when Ms.
Lim talked to him, she was very close. Close enough for him to kiss:
Q: And, Mr. Reyes, you testified that Miss Lim approached you while you were at the buffet
table? How close was she when she approached you?
A: Very close because we nearly kissed each other.
Q: And yet, she shouted for you to go down? She was that close and she shouted?
A: Yes. She said, "wag kang kumain, hindi ka imbitado dito, bumaba ka na lang."
Q: So, you are testifying that she did this in a loud voice?
...
A: Yes. If it is not loud, it will not be heard by many. 55
In the absence of any proof of motive on the part of Ms. Lim to humiliate Mr. Reyes and expose him to
ridicule and shame, it is highly unlikely that she would shout at him from a very close distance. Ms. Lim
having been in the hotel business for twenty years wherein being polite and discreet are virtues to be
emulated, the testimony of Mr. Reyes that she acted to the contrary does not inspire belief and is indeed
incredible. Thus, the lower court was correct in observing that
Considering the closeness of defendant Lim to plaintiff when the request for the latter to leave the party
was made such that they nearly kissed each other, the request was meant to be heard by him only and there
could have been no intention on her part to cause embarrassment to him. It was plaintiffs reaction to the
request that must have made the other guests aware of what transpired between them. . .
Had plaintiff simply left the party as requested, there was no need for the police to take him out. 56
Moreover, another problem with Mr. Reyess version of the story is that it is unsupported. It is a basic rule
in civil cases that he who alleges proves. Mr. Reyes, however, had not presented any witness to back his
story up. All his witnesses Danny Rodinas, Pepito Guerrero and Alexander Silva - proved only that it
was Dr. Filart who invited him to the party.57
Ms. Lim, not having abused her right to ask Mr. Reyes to leave the party to which he was not invited,
cannot be made liable to pay for damages under Articles 19 and 21 of the Civil Code. Necessarily, neither
can her employer, Hotel Nikko, be held liable as its liability springs from that of its employee.58
Article 19, known to contain what is commonly referred to as the principle of abuse of rights,59 is not a
panacea for all human hurts and social grievances. Article 19 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.1awphi1.nt
Elsewhere, we explained that 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 responsible."60 The object of this article, therefore, is to set certain standards
which must be observed not only in the exercise of ones rights but also in the performance of ones
duties.61 These standards are the following: act with justice, give everyone his due and observe honesty
and good faith.62 Its antithesis, necessarily, is any act evincing bad faith or intent to injure. Its elements 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.63 When Article 19 is violated, an action for damages is proper under
Articles 20 or 21 of the Civil Code. Article 20 pertains to damages arising from a violation of law64 which
does not obtain herein as Ms. Lim was perfectly within her right to ask Mr. Reyes to leave. Article 21, on
the other hand, states:
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.
Article 2165 refers to acts contra bonus mores and has the following elements: (1) There is an act which is
legal; (2) but which is contrary to morals, good custom, public order, or public policy; and (3) it is done
with intent to injure.66
A common theme runs through Articles 19 and 21,67 and that is, the act complained of must be
intentional.68
As applied to herein case and as earlier discussed, Mr. Reyes has not shown that Ms. Lim was driven by
animosity against him. These two people did not know each other personally before the evening of 13
October 1994, thus, Mr. Reyes had nothing to offer for an explanation for Ms. Lims alleged abusive
conduct except the statement that Ms. Lim, being "single at 44 years old," had a "very strong bias and
prejudice against (Mr. Reyes) possibly influenced by her associates in her work at the hotel with foreign
businessmen."69 The lameness of this argument need not be belabored. Suffice it to say that a complaint
based on Articles 19 and 21 of the Civil Code must necessarily fail if it has nothing to recommend it but
innuendos and conjectures.
Parenthetically, the manner by which Ms. Lim asked Mr. Reyes to leave was likewise acceptable and
humane under the circumstances. In this regard, we cannot put our imprimatur on the appellate courts
declaration that Ms. Lims act of personally approaching Mr. Reyes (without first verifying from Mrs.
Filart if indeed she invited Mr. Reyes) gave rise to a cause of action "predicated upon mere rudeness or
lack of consideration of one person, which calls not only protection of human dignity but respect of such
dignity."70 Without proof of any ill-motive on her part, Ms. Lims act of by-passing Mrs. Filart cannot
Torts and Damages Cases 1 | 8
amount to abusive conduct especially because she did inquire from Mrs. Filarts companion who told her
that Mrs. Filart did not invite Mr. Reyes.71 If at all, Ms. Lim is guilty only of bad judgment which, if done
with good intentions, cannot amount to bad faith.
Not being liable for both actual and moral damages, neither can petitioners Lim and Hotel Nikko be made
answerable for exemplary damages72 especially for the reason stated by the Court of Appeals. The Court
of Appeals held
Not a few of the rich people treat the poor with contempt because of the latters lowly station in
life.l^vvphi1.net This has to be limited somewhere. In a democracy, such a limit must be established.
Social equality is not sought by the legal provisions under consideration, but due regard for decency and
propriety (Code Commission, pp. 33-34). And by way of example or correction for public good and to
avert further commission of such acts, exemplary damages should be imposed upon appellees. 73
The fundamental fallacy in the above-quoted findings is that it runs counter with the very facts of the case
and the evidence on hand.l^vvphi1.net It is not disputed that at the time of the incident in question, Mr.
Reyes was "an actor of long standing; a co-host of a radio program over DZRH; a Board Member of the
Music Singer Composer (MUSICO) chaired by popular singer Imelda Papin; a showbiz Coordinator of
Citizen Crime Watch; and 1992 official candidate of the KBL Party for Governor of Bohol; and an
awardee of a number of humanitarian organizations of the Philippines." 74 During his direct examination on
rebuttal, Mr. Reyes stressed that he had income75 and nowhere did he say otherwise. On the other hand,
the records are bereft of any information as to the social and economic standing of petitioner Ruby Lim.
Consequently, the conclusion reached by the appellate court cannot withstand scrutiny as it is without
basis.
All told, and as far as Ms. Lim and Hotel Nikko are concerned, any damage which Mr. Reyes might have
suffered through Ms. Lims exercise of a legitimate right done within the bounds of propriety and good
faith, must be his to bear alone.
WHEREFORE, premises considered, the petition filed by Ruby Lim and Nikko Hotel Manila Garden is
GRANTED. The Decision of the Court of Appeals dated 26 November 2001 and its Resolution dated 09
July 2002 are hereby REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Quezon
City, Branch 104, dated 26 April 1999 is hereby AFFIRMED. No costs.
SO ORDERED.

Torts and Damages Cases 1 | 9

 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 127358 March 31, 2005
NOEL BUENAVENTURA, Petitioner,
vs.
COURT OF APPEALS and ISABEL LUCIA SINGH BUENAVENTURA, respondents.
x-------------------x
G.R. No. 127449 March 31, 2005
NOEL BUENAVENTURA, Petitioner,
vs.
COURT OF APPEALS and ISABEL LUCIA SINGH BUENAVENTURA, Respondents.
DECISION
AZCUNA, J.:
These cases involve a petition for the declaration of nullity of marriage, which was filed by petitioner
Noel Buenaventura on July 12, 1992, on the ground of the alleged psychological incapacity of his wife,
Isabel Singh Buenaventura, herein respondent. After respondent filed her answer, petitioner, with leave of
court, amended his petition by stating that both he and his wife were psychologically incapacitated to
comply with the essential obligations of marriage. In response, respondent filed an amended answer
denying the allegation that she was psychologically incapacitated.1
On July 31, 1995, the Regional Trial Court promulgated a Decision, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered as follows:
1) Declaring and decreeing the marriage entered into between plaintiff Noel A. Buenaventura
and defendant Isabel Lucia Singh Buenaventura on July 4, 1979, null and void ab initio;
2) Ordering the plaintiff to pay defendant moral damages in the amount of 2.5 million pesos
and exemplary damages of 1 million pesos with 6% interest from the date of this decision plus
attorneys fees of P100,000.00;
3) Ordering the plaintiff to pay the defendant expenses of litigation of P50,000.00, plus costs;
4) Ordering the liquidation of the assets of the conjugal partnership property[,] particularly the
plaintiffs separation/retirement benefits received from the Far East Bank [and] Trust
Company[,] by ceding, giving and paying to her fifty percent (50%) of the net amount of
P3,675,335.79 or P1,837,667.89 together with 12% interest per annum from the date of this
decision and one-half (1/2) of his outstanding shares of stock with Manila Memorial Park and
Provident Group of Companies;
5) Ordering him to give a regular support in favor of his son Javy Singh Buenaventura in the
amount of P15,000.00 monthly, subject to modification as the necessity arises;
6) Awarding the care and custody of the minor Javy Singh Buenaventura to his mother, the
herein defendant; and
7) Hereby authorizing the defendant to revert back to the use of her maiden family name Singh.
Let copies of this decision be furnished the appropriate civil registry and registries of
properties.
SO ORDERED.2
Petitioner appealed the above decision to the Court of Appeals. While the case was pending in the
appellate court, respondent filed a motion to increase the P15,000 monthly support pendente lite of their
son Javy Singh Buenaventura. Petitioner filed an opposition thereto, praying that it be denied or that such
incident be set for oral argument.3
On September 2, 1996, the Court of Appeals issued a Resolution increasing the support pendente lite to
P20,000.4 Petitioner filed a motion for reconsideration questioning the said Resolution.5
On October 8, 1996, the appellate court promulgated a Decision dismissing petitioners appeal for lack of
merit and affirming in toto the trial courts decision.6 Petitioner filed a motion for reconsideration which
was denied. From the abovementioned Decision, petitioner filed the instant Petition for Review on
Certiorari.
On November 13, 1996, through another Resolution, the Court of Appeals denied petitioners motion for
reconsideration of the September 2, 1996 Resolution, which increased the monthly support for the son. 7
Petitioner filed a Petition for Certiorari to question these two Resolutions.
On July 9, 1997, the Petition for Review on Certiorari8 and the Petition for Certiorari9 were ordered
consolidated by this Court.10
In the Petition for Review on Certiorari petitioner claims that the Court of Appeals decided the case not in
accord with law and jurisprudence, thus:
1. WHEN IT AWARDED DEFENDANT-APPELLEE MORAL DAMAGES IN THE
AMOUNT OF P2.5 MILLION AND EXEMPLARY DAMAGES OF P1 MILLION, WITH
6% INTEREST FROM THE DATE OF ITS DECISION, WITHOUT ANY LEGAL AND
MORAL BASIS;
2. WHEN IT AWARDED P100,000.00 ATTORNEYS FEES AND P50,000.00 EXPENSES
OF LITIGATION, PLUS COSTS, TO DEFENDANT-APPELLEE, WITHOUT FACTUAL
AND LEGAL BASIS;
3. WHEN IT ORDERED PLAINTIFF-APPELLANT NOEL TO PAY DEFENDANT-
APPELLEE ONE-HALF OR P1,837,667.89 OUT OF HIS RETIREMENT BENEFITS
RECEIVED FROM THE FAR EAST BANK AND TRUST CO., WITH 12% INTEREST
THEREON FROM THE DATE OF ITS DECISION, NOTWITHSTANDING THAT SAID
RETIREMENT BENEFITS ARE GRATUITOUS AND EXCLUSIVE PROPERTY OF
NOEL, AND ALSO TO DELIVER TO DEFENDANT-APPELLEE ONE-HALF OF HIS
SHARES OF STOCK WITH THE MANILA MEMORIAL PARK AND THE PROVIDENT
GROUP OF COMPANIES, ALTHOUGH SAID SHARES OF STOCK WERE ACQUIRED
BY NOEL BEFORE HIS MARRIAGE TO RESPONDENT ISABEL AND ARE,
THEREFORE, AGAIN HIS EXCLUSIVE PROPERTIES; AND
4. WHEN IT AWARDED EXCLUSIVE CARE AND CUSTODY OVER THE PARTIES
MINOR CHILD TO DEFENDANT-APPELLEE WITHOUT ASKING THE CHILD (WHO
WAS ALREADY 13 YEARS OLD AT THAT TIME) HIS CHOICE AS TO WHOM,
BETWEEN HIS TWO PARENTS, HE WOULD LIKE TO HAVE CUSTODY OVER HIS
PERSON.11
In the Petition for Certiorari, petitioner advances the following contentions:
THE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION WHEN IT REFUSED
TO SET RESPONDENTS MOTION FOR INCREASED SUPPORT FOR THE PARTIES
SON FOR HEARING.12
THERE WAS NO NEED FOR THE COURT OF APPEALS TO INCREASE JAVYS
MONTHLY SUPPORT OF P15,000.00 BEING GIVEN BY PETITIONER EVEN AT
PRESENT PRICES.13
IN RESOLVING RESPONDENTS MOTION FOR THE INCREASE OF JAVYS
SUPPORT, THE COURT OF APPEALS SHOULD HAVE EXAMINED THE LIST OF
EXPENSES SUBMITTED BY RESPONDENT IN THE LIGHT OF PETITIONERS
OBJECTIONS THERETO, INSTEAD OF MERELY ASSUMING THAT JAVY IS
ENTITLED TO A P5,000 INCREASE IN SUPPORT AS SAID AMOUNT IS "TOO
MINIMAL."14
LIKEWISE, THE COURT OF APPEALS SHOULD HAVE GIVEN PETITIONER AN
OPPORTUNITY TO PROVE HIS PRESENT INCOME TO SHOW THAT HE CANNOT
AFFORD TO INCREASE JAVYS SUPPORT.15
With regard to the first issue in the main case, the Court of Appeals articulated:
On Assignment of Error C, the trial court, after findings of fact ascertained from the
testimonies not only of the parties particularly the defendant-appellee but likewise, those of the
two psychologists, awarded damages on the basis of Articles 21, 2217 and 2229 of the Civil
Code of the Philippines.
Thus, the lower court found that plaintiff-appellant deceived the defendant-appellee into
marrying him by professing true love instead of revealing to her that he was under heavy
parental pressure to marry and that because of pride he married defendant-appellee; that he was
not ready to enter into marriage as in fact his career was and always would be his first priority;
that he was unable to relate not only to defendant-appellee as a husband but also to his son,
Javy, as a father; that he had no inclination to make the marriage work such that in times of
trouble, he chose the easiest way out, that of leaving defendantappellee and their son; that he
had no desire to keep defendant-appellee and their son as proved by his reluctance and later,
refusal to reconcile after their separation; that the aforementioned caused defendant-appellee to
suffer mental anguish, anxiety, besmirched reputation, sleepless nights not only in those years
the parties were together but also after and throughout their separation.
Torts and Damages Cases 1 | 10
 Plaintiff-appellant assails the trial courts decision on the ground that unlike those arising from
a breach in ordinary contracts, damages arising as a consequence of marriage may not be
awarded. While it is correct that there is, as yet, no decided case by the Supreme Court where
damages by reason of the performance or non-performance of marital obligations were
awarded, it does not follow that no such award for damages may be made.
Defendant-appellee, in her amended answer, specifically prayed for moral and exemplary
damages in the total amount of 7 million pesos. The lower court, in the exercise of its
discretion, found full justification of awarding at least half of what was originally prayed for.
We find no reason to disturb the ruling of the trial court. 16
The award by the trial court of moral damages is based on Articles 2217 and 21 of the Civil Code, which
read as follows:
ART. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendants wrongful act or omission.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.
The trial court referred to Article 21 because Article 2219 17 of the Civil Code enumerates the cases in
which moral damages may be recovered and it mentions Article 21 as one of the instances. It must be
noted that Article 21 states that the individual must willfully cause loss or injury to another. There is a
need that the act is willful and hence done in complete freedom. In granting moral damages, therefore, the
trial court and the Court of Appeals could not but have assumed that the acts on which the moral damages
were based were done willfully and freely, otherwise the grant of moral damages would have no leg to
stand on.
On the other hand, the trial court declared the marriage of the parties null and void based on Article 36 of
the Family Code, due to psychological incapacity of the petitioner, Noel Buenaventura. Article 36 of the
Family Code states:
A marriage contracted by any party who, at the time of the celebration, was psychologically
incapacitated to comply with the essential marital obligations of marriage, shall likewise be
void even if such incapacity becomes manifest only after its solemnization.
Psychological incapacity has been defined, thus:
. . . no less than a mental (not physical) incapacity that causes a party to be truly incognitive of
the basic marital covenants that concomitantly must be assumed and discharged by the
parties to the marriage which, as so expressed by Article 68 of the Family Code, include their
mutual obligations to live together, observe love, respect and fidelity and render help and
support. There is hardly any doubt that the intendment of the law has been to confine the
meaning of "psychological incapacity" to the most serious cases of personality disorders
clearly demonstrative of an utter insensitivity or inability to give meaning and significance
to the marriage. . . .18
The Court of Appeals and the trial court considered the acts of the petitioner after the marriage as proof of
his psychological incapacity, and therefore a product of his incapacity or inability to comply with the
essential obligations of marriage. Nevertheless, said courts considered these acts as willful and hence as
grounds for granting moral damages. It is contradictory to characterize acts as a product of psychological
incapacity, and hence beyond the control of the party because of an innate inability, while at the same time
considering the same set of acts as willful. By declaring the petitioner as psychologically incapacitated,
the possibility of awarding moral damages on the same set of facts was negated. The award of moral
damages should be predicated, not on the mere act of entering into the marriage, but on specific evidence
that it was done deliberately and with malice by a party who had knowledge of his or her disability and yet
willfully concealed the same. No such evidence appears to have been adduced in this case.
For the same reason, since psychological incapacity means that one is truly incognitive of the basic marital
covenants that one must assume and discharge as a consequence of marriage, it removes the basis for the
contention that the petitioner purposely deceived the private respondent. If the private respondent was
deceived, it was not due to a willful act on the part of the petitioner. Therefore, the award of moral
damages was without basis in law and in fact.
Since the grant of moral damages was not proper, it follows that the grant of exemplary damages cannot
stand since the Civil Code provides that exemplary damages are imposed in addition to moral, temperate,
liquidated or compensatory damages.19
With respect to the grant of attorneys fees and expenses of litigation the trial court explained, thus:
Regarding Attorneys fees, Art. 2208 of the Civil Code authorizes an award of attorneys fees
and expenses of litigation, other than judicial costs, when as in this case the plaintiffs act or
omission has compelled the defendant to litigate and to incur expenses of litigation to protect
her interest (par. 2), and where the Court deems it just and equitable that attorneys fees and
expenses of litigation should be recovered. (par. 11)20
The Court of Appeals reasoned as follows:
On Assignment of Error D, as the award of moral and exemplary damages is fully justified, the
award of attorneys fees and costs of litigation by the trial court is likewise fully justified.21
The acts or omissions of petitioner which led the lower court to deduce his psychological incapacity, and
his act in filing the complaint for the annulment of his marriage cannot be considered as unduly
compelling the private respondent to litigate, since both are grounded on petitioners psychological
incapacity, which as explained above is a mental incapacity causing an utter inability to comply with the
obligations of marriage. Hence, neither can be a ground for attorneys fees and litigation expenses.
Furthermore, since the award of moral and exemplary damages is no longer justified, the award of
attorneys fees and expenses of litigation is left without basis.
Anent the retirement benefits received from the Far East Bank and Trust Co. and the shares of stock in the
Manila Memorial Park and the Provident Group of Companies, the trial court said:
The third issue that must be resolved by the Court is what to do with the assets of the conjugal
partnership in the event of declaration of annulment of the marriage. The Honorable Supreme
Court has held that the declaration of nullity of marriage carries ipso facto a judgment for the
liquidation of property (Domingo v. Court of Appeals, et al., G.R. No. 104818, Sept. 17, 1993,
226 SCRA, pp. 572 573, 586). Thus, speaking through Justice Flerida Ruth P. Romero, it was
ruled in this case:
When a marriage is declared void ab initio, the law states that the final judgment
therein shall provide for the liquidation, partition and distribution of the properties
of the spouses, the custody and support of the common children and the delivery of
their presumptive legitimes, unless such matters had been adjudicated in the
previous proceedings.
The parties here were legally married on July 4, 1979, and therefore, all property acquired
during the marriage, whether the acquisition appears to have been made, contracted or
registered in the name of one or both spouses, is presumed to be conjugal unless the contrary is
proved (Art. 116, New Family Code; Art. 160, Civil Code). Art. 117 of the Family Code
enumerates what are conjugal partnership properties. Among others they are the following:
1) Those acquired by onerous title during the marriage at the expense of the
common fund, whether the acquisition be for the partnership, or for only one of the
spouses;
2) Those obtained from the labor, industry, work or profession of either or both of
the spouses;
3) The fruits, natural, industrial, or civil, due or received during the marriage from
the common property, as well as the net fruits from the exclusive property of each
spouse. . . .
Applying the foregoing legal provisions, and without prejudice to requiring an inventory of
what are the parties conjugal properties and what are the exclusive properties of each spouse,
it was disclosed during the proceedings in this case that the plaintiff who worked first as
Branch Manager and later as Vice-President of Far East Bank & Trust Co. received
separation/retirement package from the said bank in the amount of P3,701,500.00 which after
certain deductions amounting to P26,164.21 gave him a net amount of P3,675,335.79 and
actually paid to him on January 9, 1995 (Exhs. 6, 7, 8, 9, 10, 11). Not having shown debts or
obligations other than those deducted from the said retirement/separation pay, under Art. 129
of the Family Code "The net remainder of the conjugal partnership properties shall constitute
the profits, which shall be divided equally between husband and wife, unless a different
proportion or division was agreed upon in the marriage settlement or unless there has been a
voluntary waiver or forfeiture of such share as provided in this Code." In this particular case,
however, there had been no marriage settlement between the parties, nor had there been any
voluntary waiver or valid forfeiture of the defendant wifes share in the conjugal partnership
properties. The previous cession and transfer by the plaintiff of his one-half (1/2) share in their
residential house and lot covered by T.C.T. No. S-35680 of the Registry of Deeds of
Paraaque, Metro Manila, in favor of the defendant as stipulated in their Compromise
Torts and Damages Cases 1 | 11
 Agreement dated July 12, 1993, and approved by the Court in its Partial Decision dated August
6, 1993, was actually intended to be in full settlement of any and all demands for past support.
In reality, the defendant wife had allowed some concession in favor of the plaintiff husband,
for were the law strictly to be followed, in the process of liquidation of the conjugal assets, the
conjugal dwelling and the lot on which it is situated shall, unless otherwise agreed upon by the
parties, be adjudicated to the spouse with whom their only child has chosen to remain (Art.
129, par. 9). Here, what was done was one-half (1/2) portion of the house was ceded to
defendant so that she will not claim anymore for past unpaid support, while the other half was
transferred to their only child as his presumptive legitime.
Consequently, nothing yet has been given to the defendant wife by way of her share in the
conjugal properties, and it is but just, lawful and fair, that she be given one-half (1/2) share of
the separation/retirement benefits received by the plaintiff the same being part of their conjugal
partnership properties having been obtained or derived from the labor, industry, work or
profession of said defendant husband in accordance with Art. 117, par. 2 of the Family Code.
For the same reason, she is entitled to one-half (1/2) of the outstanding shares of stock of the
plaintiff husband with the Manila Memorial Park and the Provident Group of Companies. 22
The Court of Appeals articulated on this matter as follows:
On Assignment of Error E, plaintiff-appellant assails the order of the trial court for him to give
one-half of his separation/retirement benefits from Far East Bank & Trust Company and half of
his outstanding shares in Manila Memorial Park and Provident Group of Companies to the
defendant-appellee as the latters share in the conjugal partnership.
On August 6, 1993, the trial court rendered a Partial Decision approving the Compromise
Agreement entered into by the parties. In the same Compromise Agreement, the parties had
agreed that henceforth, their conjugal partnership is dissolved. Thereafter, no steps were taken
for the liquidation of the conjugal partnership.
Finding that defendant-appellee is entitled to at least half of the separation/retirement benefits
which plaintiff-appellant received from Far East Bank & Trust Company upon his retirement
as Vice-President of said company for the reason that the benefits accrued from plaintiff
appellants service for the bank for a number of years, most of which while he was married to
defendant-appellee, the trial court adjudicated the same. The same is true with the outstanding
shares of plaintiff-appellant in Manila Memorial Park and Provident Group of Companies. As
these were acquired by the plaintiff-appellant at the time he was married to defendant-appellee,
the latter is entitled to one-half thereof as her share in the conjugal partnership. We find no
reason to disturb the ruling of the trial court.23
Since the present case does not involve the annulment of a bigamous marriage, the provisions of Article
50 in relation to Articles 41, 42 and 43 of the Family Code, providing for the dissolution of the absolute
community or conjugal partnership of gains, as the case may be, do not apply. Rather, the general rule
applies, which is that in case a marriage is declared void ab initio, the property regime applicable and to
be liquidated, partitioned and distributed is that of equal co-ownership.
In Valdes v. Regional Trial Court, Branch 102, Quezon City,24 this Court expounded on the consequences
of a void marriage on the property relations of the spouses and specified the applicable provisions of law:
The trial court correctly applied the law. In a void marriage, regardless of the cause thereof, the
property relations of the parties during the period of cohabitation is governed by the provisions
of Article 147 or Article 148, such as the case may be, of the Family Code. Article 147 is a
remake of Article 144 of the Civil Code as interpreted and so applied in previous cases; it
provides:
ART. 147. When a man and a woman who are capacitated to marry each other, live
exclusively with each other as husband and wife without the benefit of marriage or
under a void marriage, their wages and salaries shall be owned by them in equal
shares and the property acquired by both of them through their work or industry
shall be governed by the rules on co-ownership.
In the absence of proof to the contrary, properties acquired while they lived together
shall be presumed to have been obtained by their joint efforts, work or industry, and
shall be owned by them in equal shares. For purposes of this Article, a party who
did not participate in the acquisition by the other party of any property shall be
deemed to have contributed jointly in the acquisition thereof if the former's efforts
consisted in the care and maintenance of the family and of the household.
Neither party can encumber or dispose by acts inter vivos of his or her share in the
property acquired during cohabitation and owned in common, without the consent
of the other, until after the termination of their cohabitation.
When only one of the parties to a void marriage is in good faith, the share of the
party in bad faith in the co-ownership shall be forfeited in favor of their common
children. In case of default of or waiver by any or all of the common children or
their descendants, each vacant share shall belong to the respective surviving
descendants. In the absence of descendants, such share shall belong to the innocent
party. In all cases, the forfeiture shall take place upon termination of the
cohabitation.
This peculiar kind of co-ownership applies when a man and a woman, suffering no legal
impediment to marry each other, so exclusively live together as husband and wife under a void
marriage or without the benefit of marriage. The term "capacitated" in the provision (in the first
paragraph of the law) refers to the legal capacity of a party to contract marriage, i.e., any "male
or female of the age of eighteen years or upwards not under any of the impediments mentioned
in Articles 37 and 38" of the Code.
Under this property regime, property acquired by both spouses through their work and industry
shall be governed by the rules on equal co-ownership. Any property acquired during the union
is prima facie presumed to have been obtained through their joint efforts. A party who did not
participate in the acquisition of the property shall still be considered as having contributed
thereto jointly if said party's "efforts consisted in the care and maintenance of the family
household." Unlike the conjugal partnership of gains, the fruits of the couple's separate
property are not included in the co-ownership.
Article 147 of the Family Code, in substance and to the above extent, has clarified Article 144
of the Civil Code; in addition, the law now expressly provides that
(a) Neither party can dispose or encumber by act[s] inter vivos [of] his or her share in co-
ownership property, without the consent of the other, during the period of cohabitation; and
(b) In the case of a void marriage, any party in bad faith shall forfeit his or her share in the co-
ownership in favor of their common children; in default thereof or waiver by any or all of the
common children, each vacant share shall belong to the respective surviving descendants, or
still in default thereof, to the innocent party. The forfeiture shall take place upon the
termination of the cohabitation or declaration of nullity of the marriage.
In deciding to take further cognizance of the issue on the settlement of the parties' common
property, the trial court acted neither imprudently nor precipitately; a court which had
jurisdiction to declare the marriage a nullity must be deemed likewise clothed with authority to
resolve incidental and consequential matters. Nor did it commit a reversible error in ruling that
petitioner and private respondent own the "family home" and all their common property in
equal shares, as well as in concluding that, in the liquidation and partition of the property
owned in common by them, the provisions on co-ownership under the Civil Code, not Articles
50, 51 and 52, in relation to Articles 102 and 129, of the Family Code, should aptly prevail.
The rules set up to govern the liquidation of either the absolute community or the conjugal
partnership of gains, the property regimes recognized for valid and voidable marriages (in the
latter case until the contract is annulled), are irrelevant to the liquidation of the co-ownership
that exists between common-law spouses. The first paragraph of Article 50 of the Family
Code, applying paragraphs (2), (3), (4) and (5) of Article 43, relates only, by its explicit terms,
to voidable marriages and, exceptionally, to void marriages under Article 40 of the Code, i.e.,
the declaration of nullity of a subsequent marriage contracted by a spouse of a prior void
marriage before the latter is judicially declared void. The latter is a special rule that somehow
recognizes the philosophy and an old doctrine that void marriages are inexistent from the very
beginning and no judicial decree is necessary to establish their nullity. In now requiring for
purposes of remarriage, the declaration of nullity by final judgment of the previously
contracted void marriage, the present law aims to do away with any continuing uncertainty on
the status of the second marriage. It is not then illogical for the provisions of Article 43, in
relation to Articles 41 and 42, of the Family Code, on the effects of the termination of a
subsequent marriage contracted during the subsistence of a previous marriage to be made
applicable pro hac vice. In all other cases, it is not to be assumed that the law has also meant to
have coincident property relations, on the one hand, between spouses in valid and voidable
Torts and Damages Cases 1 | 12
 marriages (before annulment) and, on the other, between common-law spouses or spouses of
void marriages, leaving to ordain, in the latter case, the ordinary rules on co-ownership subject
to the provision of Article 147 and Article 148 of the Family Code. It must be stressed,
nevertheless, even as it may merely state the obvious, that the provisions of the Family Code
on the "family home," i.e., the provisions found in Title V, Chapter 2, of the Family Code,
remain in force and effect regardless of the property regime of the spouses.25
Since the properties ordered to be distributed by the court a quo were found, both by the trial court and the
Court of Appeals, to have been acquired during the union of the parties, the same would be covered by the
co-ownership. No fruits of a separate property of one of the parties appear to have been included or
involved in said distribution. The liquidation, partition and distribution of the properties owned in
common by the parties herein as ordered by the court a quo should, therefore, be sustained, but on the
basis of co-ownership and not of the regime of conjugal partnership of gains.
As to the issue on custody of the parties over their only child, Javy Singh Buenaventura, it is now moot
since he is about to turn twenty-five years of age on May 27, 200526 and has, therefore, attained the age of
majority.
With regard to the issues on support raised in the Petition for Certiorari, these would also now be moot,
owing to the fact that the son, Javy Singh Buenaventura, as previously stated, has attained the age of
majority.
WHEREFORE, the Decision of the Court of Appeals dated October 8, 1996 and its Resolution dated
December 10, 1996 which are contested in the Petition for Review (G.R. No. 127449), are hereby
MODIFIED, in that the award of moral and exemplary damages, attorneys fees, expenses of litigation
and costs are deleted. The order giving respondent one-half of the retirement benefits of petitioner from
Far East Bank and Trust Co. and one-half of petitioners shares of stock in Manila Memorial Park and in
the Provident Group of Companies is sustained but on the basis of the liquidation, partition and
distribution of the co-ownership and not of the regime of conjugal partnership of gains. The rest of
said Decision and Resolution are AFFIRMED.
The Petition for Review on Certiorari (G.R. No. 127358) contesting the Court of Appeals Resolutions of
September 2, 1996 and November 13, 1996 which increased the support pendente lite in favor of the
parties son, Javy Singh Buenaventura, is now MOOT and ACADEMIC and is, accordingly,
DISMISSED.
No costs.
SO ORDERED.

Torts and Damages Cases 1 | 13

THIRD DIVISION
[G.R. No. 153535. July 28, 2005]
SOLIDBANK CORPORATION, petitioner, vs. MINDANAO FERROALLOY CORPORATION, Spouses
JONG-WON HONG and SOO-OK KIM HONG,* TERESITA CU, and RICARDO P. GUEVARA and
Spouse,** respondents.
DECISION
PANGANIBAN, J.:
To justify an award for moral and exemplary damages under Articles 19 to 21 of the Civil Code (on
human relations), the claimants must establish the other partys malice or bad faith by clear and
convincing evidence.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the December 21,
2001 Decision[2] and the May 15, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No.
67482. The CA disposed as follows:
IN THE LIGHT OF ALL THE FOREGOING, the appeal is DISMISSED. The Decision appealed
from is AFFIRMED.[4]
The assailed Resolution, on the other hand, denied petitioners Motion for Reconsideration.
The Facts
The CA narrated the antecedents as follows:
The Maria Cristina Chemical Industries (MCCI) and three (3) Korean corporations, namely, the
Ssangyong Corporation, the Pohang Iron and Steel Company and the Dongil Industries Company, Ltd.,
decided to forge a joint venture and establish a corporation, under the name of the Mindanao Ferroalloy
Corporation (Corporation for brevity) with principal offices in Iligan City. Ricardo P. Guevara was the
President and Chairman of the Board of Directors of the Corporation. Jong-Won Hong, the General
Manager of Ssangyong Corporation, was the Vice-President of the Corporation for Finance, Marketing
and Administration. So was Teresita R. Cu. On November 26, 1990, the Board of Directors of the
Corporation approved a Resolution authorizing its President and Chairman of the Board of Directors or
Teresita R. Cu, acting together with Jong-Won Hong, to secure an omnibus line in the aggregate amount
of P30,000,000.00 from the Solidbank x x x.
xxx xxx xxx
In the meantime, the Corporation started its operations sometime in April, 1991. Its indebtedness
ballooned to P200,453,686.69 compared to its assets of only P65,476,000.00. On May 21, 1991, the
Corporation secured an ordinary time loan from the Solidbank in the amount of P3,200,000.00. Another
ordinary time loan was granted by the Bank to the Corporation on May 28, 1991, in the amount of
P1,800,000.00 or in the total amount of P5,000,000.00, due on July 15 and 26, 1991, respectively.
However, the Corporation and the Bank agreed to consolidate and, at the same time, restructure the two
(2) loan availments, the same payable on September 20, 1991. The Corporation executed Promissory
Note No. 96-91-00865-6 in favor of the Bank evidencing its loan in the amount of P5,160,000.00,
payable on September 20, 1991. Teresita Cu and Jong-Won Hong affixed their signatures on the note. To
secure the payment of the said loan, the Corporation, through Jong-Won Hong and Teresita Cu, executed a
Deed of Assignment in favor of the Bank covering its rights, title and interest to the following:
The entire proceeds of drafts drawn under Irrevocable Letter of Credit No. M-S-041-2002080 opened
with The Mitsubishi Bank Ltd. Tokyo dated June 13, 1991 for the account of Ssangyong Japan
Corporation, 7F. Matsuoka-Tamura-Cho Bldg., 22-10, 5-Chome, Shimbashi, Minato-Ku, Tokyo, Japan
up to the extent of US$197,679.00
The Corporation likewise executed a Quedan, by way of additional security, under which the
Corporation bound and obliged to keep and hold, in trust for the Bank or its Order, Ferrosilicon for
US$197,679.00. Jong-Won Hong and Teresita Cu affixed their signatures thereon for the Corporation.
The Corporation, also, through Jong-Won Hong and Teresita Cu, executed a Trust Receipt Agreement,
by way of additional security for said loan, the Corporation undertaking to hold in trust, for the Bank, as
its property, the following:
1. THE MITSUBISHI BANK LTD., Tokyo L/C No. M-S-041-2002080 for account of
Ssangyong Japan Corporation, Tokyo, Japan for US$197,679.00 Ferrosilicon to
expire September 20, 1991.
2. SEC QUEDAN NO. 91-476 dated June 26, 1991 covering the following:
Ferrosilicon for US$197,679.00
However, shortly after the execution of the said deeds, the Corporation stopped its operations. The
Corporation failed to pay its loan availments from the Bank inclusive of accrued interest. On February 11,
1992, the Bank sent a letter to the Corporation demanding payment of its loan availments inclusive of
interests due. The Corporation failed to comply with the demand of the Bank. On November 23, 1992,
the Bank sent another letter to the [Corporation] demanding payment of its account which, by November
23, 1992, had amounted to P7,283,913.33. The Corporation again failed to comply with the demand of
the Bank.
On January 6, 1993, the Bank filed a complaint against the Corporation with the Regional Trial Court of
Makati City, entitled and docketed as Solidbank Corporation vs. Mindanao Ferroalloy Corporation, Sps.
Jong-Won Hong and the Sps. Teresita R. Cu, Civil Case No. 93-038 for Sum of Money with a plea for
the issuance of a writ of preliminary attachment. x x x
xxx xxx xxx
Under its Amended Complaint, the Plaintiff alleged that it impleaded Ricardo Guevara and his wife as
Defendants because, [among others]:
Defendants JONG-WON HONG and TERESITA CU, are the Vice-Presidents of defendant corporation,
and also members of the companys Board of Directors. They are impleaded as joint and solidary debtors
of [petitioner] bank having signed the Promissory Note, Quedan, and Trust Receipt agreements with
[petitioner], in this case.
xxx xxx x x x
[Petitioner] likewise filed a criminal complaint x x x entitled and docketed as Solidbank Corporation vs.
Ricardo Guevara, Teresita R. Cu and Jong Won Hong x x x for Violation of P.D. 115. On April 14,
1993, the investigating Prosecutor issued a Resolution finding no probable cause for violation of P.D.
115 against the Respondents as the goods covered by the quedan were nonexistent:
xxx xxx xxx
In their Answer to the complaint [in the civil case], the Spouses Jong-Won Hong and Soo-ok Kim Hong
alleged, inter alia, that [petitioner] had no cause of action against them as:
x x x the clean loan of P5.1 M obtained was a corporate undertaking of defendant MINFACO executed
through its duly authorized representatives, Ms. Teresita R. Cu and Mr. Jong-Won Hong, both Vice
Presidents then of MINFACO. x x x.
xxx xxx xxx
[On their part, respondents] Teresita Cu and Ricardo Guevara alleged that [petitioner] had no cause of
action against them because: (a) Ricardo Guevara did not sign any of the documents in favor of
[petitioner]; (b) Teresita Cu signed the Promissory Note, Deed of Assignment, Trust Receipt and
Quedan in blank and merely as representative and, hence, for and in behalf of the Defendant Corporation
and, hence, was not personally liable to [petitioner].
In the interim, the Corporation filed, on June 20, 1994, a Petition, with the Regional Trial Court of
Iligan City, for Voluntary Insolvency x x x.
xxx xxx xxx
Appended to the Petition was a list of its creditors, including [petitioner], for the amount of
P8,144,916.05. The Court issued an Order, on July 12, 1994, finding the Petition sufficient in form and
substance x x x.
xxx xxx xxx
In view of said development, the Court issued an Order, in Civil Case No. 93-038, suspending the
proceedings as against the Defendant Corporation but ordering the proceedings to proceed as against the
individual defendants x x x.
xxx xxx xxx
On December 10, 1999, the Court rendered a Decision dismissing the complaint for lack of cause of
action of [petitioner] against the Spouses Jong-Won Hong, Teresita Cu and the Spouses Ricardo Guevara,
x x x.
xxx xxx xxx
In dismissing the complaint against the individual [respondents], the Court a quo found and declared that
[petitioner] failed to adduce a morsel of evidence to prove the personal liability of the said [respondents]
for the claims of [petitioner] and that the latter impleaded the [respondents], in its complaint and amended
complaint, solely to put more pressure on the Defendant Corporation to pay its obligations to [petitioner].
[Petitioner] x x x interposed an appeal, from the Decision of the Court a quo and posed, for x x x
resolution, the issue of whether or not the individual [respondents], are jointly and severally liable to
[petitioner] for the loan availments of the [respondent] Corporation, inclusive of accrued interests and
penalties.
In the meantime, on motion of [petitioner], the Court set aside its Order, dated February 2, 1995,
suspending the proceedings as against the [respondent] Corporation. [Petitioner] filed a Motion for
Torts and Damages Cases 1 | 14
Summary Judgment against the [respondent] Corporation. On February 28, 2000, the Court rendered a
Summary Judgment against the [respondent] Corporation, the decretal portion of which reads as follows:
WHEREFORE, premises considered, this Court hereby resolves to give due course to the motion for
summary judgment filed by herein [petitioner]. Consequently, judgment is hereby rendered in favor of
[Petitioner] SOLIDBANK CORPORATION and against [Respondent] MINDANAO FERROALLOY
CORPORATION, ordering the latter to pay the former the amount of P7,086,686.70, representing the
outstanding balance of the subject loan as of 24 September 1994, plus stipulated interest at the rate of 16%
per annum to be computed from the aforesaid date until fully paid together with an amount equivalent to
12% of the total amount due each year from 24 September 1994 until fully paid. Lastly, said [respondent]
is hereby ordered to pay [petitioner] the amount of P25,000.00 to [petitioner] as reasonable attorneys fees
as well as cost of litigation.[5]
In its appeal, petitioner argued that (1) it had adduced the requisite evidence to prove the solidary liability
of the individual respondents, and (2) it was not liable for their counterclaims for damages and attorneys
fees.
Ruling of the Court of Appeals
Affirming the RTC, the appellate court ruled that the individual respondents were not solidarily liable with
the Mindanao Ferroalloy Corporation, because they had acted merely as officers of the corporation, which
was the real party in interest. Respondent Guevara was not even a signatory to the Promissory Note, the
Trust Receipt Agreement, the Deed of Assignment or the Quedan; he was merely authorized to represent
Minfaco to negotiate with and secure the loans from the bank. On the other hand, the CA noted that
Respondents Cu and Hong had not signed the above documents as comakers, but as signatories in their
representative capacities as officers of Minfaco.
Likewise, the CA held that the individual respondents were not liable to petitioner for damages, simply
because (1) they had not received the proceeds of the irrevocable Letter of Credit, which was the subject
of the Deed of Assignment; and (2) the goods subject of the Trust Receipt Agreement had been found to
be nonexistent. The appellate court took judicial notice of the practice of banks and financing institutions
to investigate, examine and assess all properties offered by borrowers as collaterals, in order to determine
the feasibility and advisability of granting loans. Before agreeing to the consolidation of Minfacos loans,
it presumed that petitioner had done its homework.
As to the award of damages to the individual respondents, the CA upheld the trial courts findings that it
was clearly unfair on petitioners part to have impleaded the wives of Guevara and Hong, because the
women were not privy to any of the transactions between petitioner and Minfaco. Under Articles 19, 20
and 2229 of the Civil Code, such reckless and wanton act of pressuring individual respondents to settle the
corporations obligations is a ground to award moral and exemplary damages, as well as attorneys fees.
Hence this Petition.[6]
Issues
In its Memorandum, petitioner raises the following issues:
A. Whether or not there is ample evidence on record to support the joint and solidary liability of
individual respondents with Mindanao Ferroalloy Corporation.
B. In the absence of joint and solidary liability[,] will the provision of Article 1208 in relation to
Article 1207 of the New Civil Code providing for joint liability be applicable to the case at bar.
C. May bank practices be the proper subject of judicial notice under Sec. 1 [of] Rule 129 of the Rules
of Court.
D. Whether or not there is evidence to sustain the claim that respondents were impleaded to apply
pressure upon them to pay the obligations in lieu of MINFACO that is declared insolvent.
E. Whether or not there are sufficient bases for the award of various kinds of and substantial amounts
in damages including payment for attorneys fees.
F. Whether or not respondents committed fraud and misrepresentations and acted in bad faith.
G. Whether or not the inclusion of respondents spouses is proper under certain circumstances and
supported by prevailing jurisprudence.[7]
In sum, there are two main questions: (1) whether the individual respondents are liable, either jointly or
solidarily, with the Mindanao Ferroalloy Corporation; and (2) whether the award of damages to the
individual respondents is valid and legal.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Liability of Individual Respondents
Petitioner argues that the individual respondents were jointly or solidarily liable with Minfaco, either
because their participation in the loan contract and the loan documents made them comakers; or because
they committed fraud and deception, which justifies the piercing of the corporate veil.
The first contention hinges on certain factual determinations made by the trial and the appellate courts.
These tribunals found that, although he had not signed any document in connection with the subject
transaction, Respondent Guevara was authorized to represent Minfaco in negotiating for a P30 million
loan from petitioner. As to Cu and Hong, it was determined, among others, that their signatures on the
loan documents other than the Deed of Assignment were not prefaced with the word by, and that there
were no other signatures to indicate who had signed for and on behalf of Minfaco, the principal borrower.
In the Promissory Note, they signed above the printed name of the corporation -- on the space provided for
Maker/Borrower, not on that provided for Co-maker.
Petitioner has not shown any exceptional circumstance that sanctions the disregard of these findings of
fact, which are thus deemed final and conclusive upon this Court and may not be reviewed on appeal.[8]
No Personal Liability
for Corporate Deeds
Basic is the principle that a corporation is vested by law with a personality separate and distinct from that
of each person composing[9] or representing it.[10] Equally fundamental is the general rule that corporate
officers cannot be held personally liable for the consequences of their acts, for as long as these are for and
on behalf of the corporation, within the scope of their authority and in good faith.[11] The separate
corporate personality is a shield against the personal liability of corporate officers, whose acts are properly
attributed to the corporation.[12]
Tramat Mercantile v. Court of Appeals[13] held thus:
Personal liability of a corporate director, trustee or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate action.
Consistent with the foregoing principles, we sustain the CAs ruling that Respondent Guevara was not
personally liable for the contracts. First, it is beyond cavil that he was duly authorized to act on behalf of
the corporation; and that in negotiating the loans with petitioner, he did so in his official capacity. Second,
no sufficient and specific evidence was presented to show that he had acted in bad faith or gross
negligence in that negotiation. Third, he did not hold himself personally and solidarily liable with the
corporation. Neither is there any specific provision of law making him personally answerable for the
subject corporate acts.
On the other hand, Respondents Cu and Hong signed the Promissory Note without the word by
preceding their signatures, atop the designation Maker/Borrower and the printed name of the
corporation, as follows:
__(Sgd) Cu/Hong__
(Maker/Borrower)
MINDANAO FERROALLOY
While their signatures appear without qualification, the inference that they signed in their individual
capacities is negated by the following facts: 1) the name and the address of the corporation appeared on
the space provided for Maker/Borrower; 2) Respondents Cu and Hong had only one set of signatures on
the instrument, when there should have been two, if indeed they had intended to be bound solidarily -- the
first as representatives of the corporation, and the second as themselves in their individual capacities; 3)
they did not sign under the spaces provided for Co-maker, and neither were their addresses reflected
there; and 4) at the back of the Promissory Note, they signed above the words Authorized
Representative.
Solidary Liability
Not Lightly Inferred
Moreover, it is axiomatic that solidary liability cannot be lightly inferred.[14] Under Article 1207 of the
Civil Code, there is a solidary liability only when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity. Since solidary liability is not clearly expressed in the
Torts and Damages Cases 1 | 15
Promissory Note and is not required by law or the nature of the obligation in this case, no conclusion of
solidary liability can be made.
Furthermore, nothing supports the alleged joint liability of the individual petitioners because, as correctly
pointed out by the two lower courts, the evidence shows that there is only one debtor: the corporation. In
a joint obligation, there must be at least two debtors, each of whom is liable only for a proportionate part
of the debt; and the creditor is entitled only to a proportionate part of the credit.[15]
Moreover, it is rather late in the day to raise the alleged joint liability, as this matter has not been pleaded
before the trial and the appellate courts. Before the lower courts, petitioner anchored its claim solely on
the alleged joint and several (or solidary) liability of the individual respondents. Petitioner must be
reminded that an issue cannot be raised for the first time on appeal, but seasonably in the proceedings
before the trial court.[16]
So too, the Promissory Note in question is a negotiable instrument. Under Section 19 of the Negotiable
Instruments Law, agents or representatives may sign for the principal. Their authority may be established,
as in other cases of agency. Section 20 of the law provides that a person signing for and on behalf of a
[disclosed] principal or in a representative capacity x x x is not liable on the instrument if he was duly
authorized.
The authority of Respondents Cu and Hong to sign for and on behalf of the corporation has been amply
established by the Resolution of Minfacos Board of Directors, stating that Atty. Ricardo P. Guevara
(President and Chairman), or Ms. Teresita R. Cu (Vice President), acting together with Mr. Jong Won
Hong (Vice President), be as they are hereby authorized for and in behalf of the Corporation to: 1.
Negotiate with and obtain from (petitioner) the extension of an omnibus line in the aggregate of P30
million x x x; and 2. Execute and deliver all documentation necessary to implement all of the
foregoing.[17]
Further, the agreement involved here is a contract of adhesion, which was prepared entirely by one party
and offered to the other on a take it or leave it basis. Following the general rule, the contract must be
read against petitioner, because it was the party that prepared it,[18] more so because a bank is held to
high standards of care in the conduct of its business.[19]
In the totality of the circumstances, we hold that Respondents Cu and Hong clearly signed the Note
merely as representatives of Minfaco.
No Reason to Pierce
the Corporate Veil
Under certain circumstances, courts may treat a corporation as a mere aggroupment of persons, to whom
liability will directly attach. The distinct and separate corporate personality may be disregarded, inter
alia, when the corporate identity is used to defeat public convenience, justify a wrong, protect a fraud, or
defend a crime. Likewise, the corporate veil may be pierced when the corporation acts as a mere alter ego
or business conduit of a person, or when it is so organized and controlled and its affairs so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation.[20] But to disregard
the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly
established; it cannot be presumed.[21]
Petitioner contends that the corporation was used to protect the fraud foisted upon it by the individual
respondents. It argues that the CA failed to consider the following badges of fraud and evident bad faith:
1) the individual respondents misrepresented the corporation as solvent and financially capable of paying
its loan; 2) they knew that prices of ferrosilicon were declining in the world market when they secured the
loan in June 1991; 3) not a single centavo was paid for the loan; and 4) the corporation suspended its
operations shortly after the loan was granted.[22]
Fraud refers to all kinds of deception -- whether through insidious machination, manipulation,
concealment or misrepresentation -- that would lead an ordinarily prudent person into error after taking the
circumstances into account.[23] In contracts, a fraud known as dolo causante or causal fraud[24] is
basically a deception used by one party prior to or simultaneous with the contract, in order to secure the
consent of the other.[25] Needless to say, the deceit employed must be serious. In contradistinction, only
some particular or accident of the obligation is referred to by incidental fraud or dolo incidente,[26] or that
which is not serious in character and without which the other party would have entered into the contract
anyway.[27]
Fraud must be established by clear and convincing evidence; mere preponderance of evidence is not
adequate.[28] Bad faith, on the other hand, imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, not simply bad judgment or negligence.[29] It is synonymous with fraud, in
that it involves a design to mislead or deceive another.[30]
Unfortunately, petitioner was unable to establish clearly and precisely how the alleged fraud was
committed. It failed to establish that it was deceived into granting the loans because of respondents
misrepresentations and/or insidious actions. Quite the contrary, circumstances indicate the weakness of its
submission.
First, petitioner does not deny that the P5 million loan represented the consolidation of two loans,[31]
granted long before the bank required the individual respondents to execute the Promissory Note, Trust
Receipt Agreement, Quedan or Deed of Assignment. Hence, no words, acts or machinations arising from
any of those instruments could have been used by them prior to or simultaneous with the execution of the
contract, or even as some accident or particular of the obligation.
Second, petitioner bank was in a position to verify for itself the solvency and trustworthiness of
respondent corporation. In fact, ordinary business prudence required it to do so before granting the
multimillion loans. It is of common knowledge that, as a matter of practice, banks conduct exhaustive
investigations of the financial standing of an applicant debtor, as well as appraisals of collaterals offered
as securities for loans to ensure their prompt and satisfactory payment. To uphold petitioners cry of fraud
when it failed to verify the existence of the goods covered by the Trust Receipt Agreement and the
Quedan is to condone its negligence.
Judicial Notice
of Bank Practices
This point brings us to the alleged error of the appellate court in taking judicial notice of the practice of
banks in conducting background checks on borrowers and sureties. While a court is not mandated to take
judicial notice of this practice under Section 1 of Rule 129 of the Rules of Court, it nevertheless may do so
under Section 2 of the same Rule. The latter Rule provides that a court, in its discretion, may take judicial
notice of matters which are of public knowledge, or ought to be known to judges because of their judicial
functions.
Thus, the Court has taken judicial notice of the practices of banks and other financial institutions.
Precisely, it has noted that it is their uniform practice, before approving a loan, to investigate, examine and
assess would-be borrowers credit standing or real estate[32] offered as security for the loan applied for.
Second Issue:
Award of Damages
The individual respondents were awarded moral and exemplary damages as well as attorneys fees under
Articles 19 to 21 of the Civil Code, on the basic premise that the suit was clearly malicious and intended
merely to harass.
Article 19 of the Civil Code expresses the fundamental principle of law on human conduct that a person
must, in the exercise of his rights and in the performance of his duties, act with justice, give every one his
due, and observe honesty and good faith. Under this basic postulate, the exercise of a right, though legal
by itself, must nonetheless be done in accordance with the proper norm. When the right is exercised
arbitrarily, unjustly or excessively and results in damage to another, a legal wrong is committed for which
the wrongdoer must be held responsible.[33]
To be liable under the abuse-of-rights principle, three elements must concur: a) a legal right or duty, b) its
exercise in bad faith, and c) the sole intent of prejudicing or injuring another.[34] Needless to say, absence
of good faith[35] must be sufficiently established.
Article 20 makes [e]very person who, contrary to law, willfully or negligently causes damage to another
liable for damages. Upon the other hand, held liable for damages under Article 21 is one who willfully
causes loss or injury to another in a manner that is contrary to morals, good customs or public policy.
For damages to be properly awarded under the above provisions, it is necessary to demonstrate by clear
and convincing evidence[36] that the action instituted by petitioner was clearly so unfounded and
untenable as to amount to gross and evident bad faith.[37] To justify an award of damages for malicious
prosecution, one must prove two elements: malice or sinister design to vex or humiliate and want of
probable cause.[38]
Petitioner was proven wrong in impleading Spouses Guevara and Hong. Beyond that fact, however,
respondents have not established that the suit was so patently malicious as to warrant the award of
damages under the Civil Codes Articles 19 to 21, which are grounded on malice or bad faith.[39] With
the presumption of law on the side of good faith, and in the absence of adequate proof of malice, we find
that petitioner impleaded the spouses because it honestly believed that the conjugal partnerships had
benefited from the proceeds of the loan, as stated in their Complaint and subsequent pleadings. Its act
does not amount to evident bad faith or malice; hence, an award for damages is not proper. The adverse
result of an act per se neither makes the act wrongful nor subjects the actor to the payment of damages,
because the law could not have meant to impose a penalty on the right to litigate.[40]
Torts and Damages Cases 1 | 16
For the same reason, attorneys fees cannot be granted. Article 2208 of the Civil Code states that in the
absence of a stipulation, attorneys fees cannot be recovered, except in any of the following
circumstances:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly
valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmens compensation and employers liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees and expenses of
litigation should be recovered.
In the instant case, none of the enumerated grounds for recovery of attorneys fees are present.
WHEREFORE, this Petition is PARTIALLY GRANTED. The assailed Decision is AFFIRMED, but the
award of moral and exemplary damages as well as attorneys fees is DELETED. No costs.
SO ORDERED.

Torts and Damages Cases 1 | 17