G.R. No. 88694 January 11, 1993

ALBENSON ENTERPRISES CORP., JESSE YAP, AND BENJAMIN MENDIONA, petitioners, vs. THE COURT OF APPEALS AND EUGENIO S. BALTAO, respondents.

Puruganan, Chato, Chato & Tan for petitioners.

Lino M. Patajo, Francisco Ma. Chanco, Ananiano Desierto and Segundo Mangohig for private respondent.

BIDIN, J.:

This petition assails the decision of respondent Court of Appeals in CA-GR CV No. 14948 entitled "Eugenio S. Baltao, plaintiff-appellee vs. Albenson Enterprises Corporation, et al, defendants-appellants", which modified the judgment of the Regional Trial Court of Quezon City, Branch XCVIII in Civil Case No. Q-40920 and ordered petitioner to pay private respondent, among others, the sum of P500,000.00 as moral damages and attorney's fees in the amount of P50,000.00.

The facts are not disputed.

In September, October, and November 1980, petitioner Albenson Enterprises Corporation (Albenson for short) delivered to Guaranteed Industries, Inc. (Guaranteed for short) located at 3267 V. Mapa Street, Sta. Mesa, Manila, the mild steel plates which the latter ordered. As part payment thereof, Albenson was given Pacific Banking Corporation Check No. 136361 in the amount of P2,575.00 and drawn against the account of E.L. Woodworks (Rollo, p. 148).

When presented for payment, the check was dishonored for the reason "Account Closed." Thereafter, petitioner Albenson, through counsel, traced the origin of the dishonored check. From the records of the Securities and Exchange Commission (SEC), Albenson discovered that the president of Guaranteed, the recipient of the unpaid mild steel plates, was one "Eugenio S. Baltao." Upon further inquiry, Albenson was informed by the Ministry of Trade and Industry that E.L. Woodworks, a single proprietorship business, was registered in the name of one "Eugenio Baltao". In addition, upon

verification with the drawee bank, Pacific Banking Corporation, Albenson was advised that the signature appearing on the subject check belonged to one "Eugenio Baltao."

After obtaining the foregoing information, Albenson, through counsel, made an extrajudicial demand upon private respondent Eugenio S. Baltao, president of Guaranteed, to replace and/or make good the dishonored check.

Respondent Baltao, through counsel, denied that he issued the check, or that the signature appearing thereon is his. He further alleged that Guaranteed was a defunct entity and hence, could not have transacted business with Albenson.

On February 14, 1983, Albenson filed with the Office of the Provincial Fiscal of Rizal a complaint against Eugenio S. Baltao for violation of Batas Pambansa Bilang 22. Submitted to support said charges was an affidavit of petitioner Benjamin Mendiona, an employee of Albenson. In said affidavit, the above-mentioned circumstances were stated.

It appears, however, that private respondent has a namesake, his son Eugenio Baltao III, who manages a business establishment, E.L. Woodworks, on the ground floor of the Baltao Building, 3267 V. Mapa Street, Sta. Mesa, Manila, the very same business address of Guaranteed.

On September 5, 1983, Assistant Fiscal Ricardo Sumaway filed an information against Eugenio S. Baltao for Violation of Batas Pambansa Bilang 22. In filing said information, Fiscal Sumaway claimed that he had given Eugenio S. Baltao opportunity to submit controverting evidence, but the latter failed to do so and therefore, was deemed to have waived his right.

Respondent Baltao, claiming ignorance of the complaint against him, immediately filed with the Provincial Fiscal of Rizal a motion for reinvestigation, alleging that it was not true that he had been given an opportunity to be heard in the preliminary investigation conducted by Fiscal Sumaway, and that he never had any dealings with Albenson or Benjamin Mendiona, consequently, the check for which he has been accused of having issued without funds was not issued by him and the signature in said check was not his.

On January 30, 1984, Provincial Fiscal Mauro M. Castro of Rizal reversed the finding of Fiscal Sumaway and exonerated respondent Baltao. He also instructed the Trial Fiscal to move for dismissal of the information filed against Eugenio S. Baltao. Fiscal Castro found that the signature in PBC Check No. 136361 is not the signature of Eugenio S. Baltao. He also found that there is no showing in the records of the preliminary investigation that Eugenio S. Baltao actually received notice of the said investigation. Fiscal Castro then castigated Fiscal Sumaway for failing to exercise care and prudence in the performance of his duties, thereby causing injustice to respondent who was not properly notified of the complaint against him and of the requirement to submit his counter evidence.

Because of the alleged unjust filing of a criminal case against him for allegedly issuing a check which bounced in violation of Batas Pambansa Bilang 22 for a measly amount of P2,575.00, respondent Baltao filed before the Regional Trial Court of Quezon City a complaint for damages against herein petitioners Albenson Enterprises, Jesse Yap, its owner, and Benjamin Mendiona, its employee.

In its decision, the lower court observed that "the check is drawn against the account of "E.L. Woodworks," not of Guaranteed Industries of which plaintiff used to be President. Guaranteed Industries had been inactive and had ceased to exist as a corporation since 1975. . . . . The possibility is that it was with Gene Baltao or Eugenio Baltao III, a son of plaintiff who had a business on the ground floor of Baltao Building located on V. Mapa Street, that the defendants may have been dealing with . . . ." (Rollo, pp. 41-42).

The dispositive portion of the trial court 's decision reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants ordering the latter to pay plaintiff jointly and severally:

1. actual or compensatory damages of P133,350.00;

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

3. exemplary damages of P200,000.00;

4. attorney's fees of P100,000.00;

5 costs.

Defendants' counterclaim against plaintiff and claim for damages against Mercantile Insurance Co. on the bond for the issuance of the writ of attachment at the instance of plaintiff are hereby dismissed for lack of merit. (Rollo, pp. 38-39).

On appeal, respondent court modified the trial court's decision as follows:

WHEREFORE, the decision appealed from is MODIFIED by reducing the moral damages awarded therein from P1,000,000.00 to P500,000.00 and the attorney's fees from P100,000.00 to P50,000.00, said decision being hereby affirmed in all its other aspects. With costs against appellants. (Rollo, pp. 50-51)

Dissatisfied with the above ruling, petitioners Albenson Enterprises Corp., Jesse Yap, and Benjamin Mendiona filed the instant Petition, alleging that the appellate court erred in:

1. Concluding that private respondent's cause of action is not one based on malicious prosecution but one for abuse of rights under Article 21 of the Civil Code notwithstanding the fact that the basis of a civil action for malicious prosecution is Article 2219 in relation to Article 21 or Article 2176 of the Civil Code . . . .

2. Concluding that "hitting at and in effect maligning (private respondent) with an unjust criminal case was, without more, a plain case of abuse of rights by misdirection" and "was therefore, actionable by itself," and which "became inordinately blatant and grossly aggravated when . . . (private respondent) was deprived of his basic right to notice and a fair hearing in the so-called preliminary investigation . . . . "

3. Concluding that petitioner's "actuations in this case were coldly deliberate and calculated", no evidence having been adduced to support such a sweeping statement.

4. Holding the petitioner corporation, petitioner Yap and petitioner Mendiona jointly and severally liable without sufficient basis in law and in fact.

5. Awarding respondents —

5.1. P133,350.00 as actual or compensatory damages, even in the

absence of sufficient evidence to show that such was actually suffered.

5.2. P500,000.00 as moral damages considering that the evidence in this connection merely involved private respondent's alleged celebrated status as a businessman, there being no showing that the act complained of adversely affected private respondent's reputation or that it resulted to material loss.

5.3. P200,000.00 as exemplary damages despite the fact that petitioners were duly advised by counsel of their legal recourse.

5.4. P50,000.00 as attorney's fees, no evidence having been adduced to justify such an award (Rollo, pp. 4-6).

Petitioners contend that the civil case filed in the lower court was one for malicious prosecution. Citing the case of Madera vs. Lopez (102 SCRA 700 [1981]), they assert that the absence of malice on their part absolves them from any liability for malicious prosecution. Private respondent, on the other hand, anchored his complaint for Damages on Articles 19, 20, and 21 ** of the Civil Code.

Article 19, known to contain what is commonly referred to as the principle of abuse of rights, sets certain standards which may be observed not only in the exercise of one's rights but also in the performance of one's duties. These standards are the following: to act with justice; to give everyone his due; and to observe honesty and good faith. The law, therefore, recognizes the primordial limitation on all rights: that in their exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by itself legal because recognized or granted by law as such, may nevertheless become the source of some illegality. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be held responsible. Although the requirements of each provision is different, these three (3) articles are all related to each other. As the eminent Civilist Senator Arturo Tolentino puts it: "With this article (Article 21), combined with articles 19 and 20, the scope of our law on civil wrongs has been very greatly broadened; it has become much more supple and adaptable than the Anglo-American law on torts. It is now difficult to conceive of any malevolent exercise of a right which could not be checked by the application of these articles" (Tolentino, 1 Civil Code

of the Philippines 72).

There is however, no hard and fast rule which can be applied to determine whether or not the principle of abuse of rights may be invoked. The question of whether or not the principle of abuse of rights has been violated, resulting in damages under Articles 20 and 21 or other applicable provision of law, depends on the circumstances of each case. (Globe Mackay Cable and Radio Corporation vs. Court of Appeals, 176 SCRA 778 [1989]).

The elements of an abuse of right under Article 19 are the following: (1) There is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all other provisions of law which do not especially provide for their own sanction (Tolentino, supra, p. 71). Thus, anyone who, whether willfully or negligently, in the exercise of his legal right or duty, causes damage to another, shall indemnify his victim for injuries suffered thereby. Article 21 deals with acts contra bonus mores, and has the following elements: 1) There is an act which is legal; 2) but which is contrary to morals, good custom, public order, or public policy; 3) and it is done with intent to injure.

Thus, under any of these three (3) provisions of law, an act which causes injury to another may be made the basis for an award of damages.

There is a common element under Articles 19 and 21, and that is, the act must be intentional. However, Article 20 does not distinguish: the act may be done either "willfully", or "negligently". The trial court as well as the respondent appellate court mistakenly lumped these three (3) articles together, and cited the same as the bases for the award of damages in the civil complaint filed against petitioners, thus:

With the foregoing legal provisions (Articles 19, 20, and 21) in focus, there is not much difficulty in ascertaining the means by which appellants' first assigned error should be resolved, given the admitted fact that when there was an attempt to collect the amount of P2,575.00, the defendants were explicitly warned that plaintiff Eugenio S. Baltao is not the Eugenio Baltao defendants had been dealing with (supra, p. 5). When the defendants nevertheless insisted and persisted in filing a case — a criminal case no less — against plaintiff, said defendants ran afoul of the legal provisions

(Articles 19, 20, and 21 of the Civil Code) cited by the lower court and heretofore quoted (supra).

Defendants, not having been paid the amount of P2,575.00, certainly had the right to complain. But that right is limited by certain constraints. Beyond that limit is the area of excess, of abuse of rights. (Rollo, pp. 44-45).

Assuming, arguendo, that all the three (3) articles, together and not independently of each one, could be validly made the bases for an award of damages based on the principle of "abuse of right", under the circumstances, We see no cogent reason for such an award of damages to be made in favor of private respondent.

Certainly, petitioners could not be said to have violated the aforestated principle of abuse of right. What prompted petitioners to file the case for violation of Batas Pambansa Bilang 22 against private respondent was their failure to collect the amount of P2,575.00 due on a bounced check which they honestly believed was issued to them by private respondent. Petitioners had conducted inquiries regarding the origin of the check, and yielded the following results: from the records of the Securities and Exchange Commission, it was discovered that the President of Guaranteed (the recipient of the unpaid mild steel plates), was one "Eugenio S. Baltao"; an inquiry with the Ministry of Trade and Industry revealed that E.L. Woodworks, against whose account the check was drawn, was registered in the name of one "Eugenio Baltao"; verification with the drawee bank, the Pacific Banking Corporation, revealed that the signature appearing on the check belonged to one "Eugenio Baltao".

In a letter dated December 16, 1983, counsel for petitioners wrote private respondent demanding that he make good the amount of the check. Counsel for private respondent wrote back and denied, among others, that private respondent ever transacted business with Albenson Enterprises Corporation; that he ever issued the check in question. Private respondent's counsel even went further: he made a warning to defendants to check the veracity of their claim. It is pivotal to note at this juncture that in this same letter, if indeed private respondent wanted to clear himself from the baseless accusation made against his person, he should have made mention of the fact that there are three (3) persons with the same name, i.e.: Eugenio Baltao, Sr., Eugenio S. Baltao, Jr. (private respondent), and Eugenio Baltao III (private respondent's son, who as it turned out later,

was the issuer of the check). He, however, failed to do this. The last two Baltaos were doing business in the same building — Baltao Building — located at 3267 V. Mapa Street, Sta. Mesa, Manila. The mild steel plates were ordered in the name of Guaranteed of which respondent Eugenio S. Baltao is the president and delivered to Guaranteed at Baltao building. Thus, petitioners had every reason to believe that the Eugenio Baltao who issued the bouncing check is respondent Eugenio S. Baltao when their counsel wrote respondent to make good the amount of the check and upon refusal, filed the complaint for violation of BP Blg. 22.

Private respondent, however, did nothing to clarify the case of mistaken identity at first hand. Instead, private respondent waited in ambush and thereafter pounced on the hapless petitioners at a time he thought was propitious by filing an action for damages. The Court will not countenance this devious scheme.

The criminal complaint filed against private respondent after the latter refused to make good the amount of the bouncing check despite demand was a sincere attempt on the part of petitioners to find the best possible means by which they could collect the sum of money due them. A person who has not been paid an obligation owed to him will naturally seek ways to compel the debtor to pay him. It was normal for petitioners to find means to make the issuer of the check pay the amount thereof. In the absence of a wrongful act or omission or of fraud or bad faith, moral damages cannot be awarded and that the adverse result of an action does not per se make the action wrongful and subject the actor to the payment of damages, for the law could not have meant to impose a penalty on the right to litigate (Rubio vs. Court of Appeals, 141 SCRA 488 [1986]).

In the case at bar, private respondent does not deny that the mild steel plates were ordered by and delivered to Guaranteed at Baltao building and as part payment thereof, the bouncing check was issued by one Eugenio Baltao. Neither had private respondent conveyed to petitioner that there are two Eugenio Baltaos conducting business in the same building — he and his son Eugenio Baltao III. Considering that Guaranteed, which received the goods in payment of which the bouncing check was issued is owned by respondent, petitioner acted in good faith and probable cause in filing the complaint before the provincial fiscal.

To constitute malicious prosecution, there must be proof that the

prosecution was prompted by a sinister design to vex and humiliate a person, and that it was initiated deliberately by the defendant knowing that his charges were false and groundless. Concededly, the mere act of submitting a case to the authorities for prosecution does not make one liable for malicious prosecution. (Manila Gas Corporation vs. Court of Appeals, 100 SCRA 602 [1980]). Still, private respondent argues that liability under Articles 19, 20, and 21 of the Civil Code is so encompassing that it likewise includes liability for damages for malicious prosecution under Article 2219 (8). True, a civil action for damages for malicious prosecution is allowed under the New Civil Code, more specifically Articles 19, 20, 26, 29, 32, 33, 35, and 2219 (8) thereof. In order that such a case can prosper, however, the following three (3) elements must be present, to wit: (1) The fact of the prosecution and the further fact that the defendant was himself the prosecutor, and that the action was finally terminated with an acquittal; (2) That in bringing the action, the prosecutor acted without probable cause; (3) The prosecutor was actuated or impelled by legal malice (Lao vs. Court of Appeals, 199 SCRA 58, [1991]).

Thus, a party injured by the filing of a court case against him, even if he is later on absolved, may file a case for damages grounded either on the principle of abuse of rights, or on malicious prosecution. As earlier stated, a complaint for damages based on malicious prosecution will prosper only if the three (3) elements aforecited are shown to exist. In the case at bar, the second and third elements were not shown to exist. It is well-settled that one cannot be held liable for maliciously instituting a prosecution where one has acted with probable cause. "Probable cause is the existence of such facts and circumstances as would excite the belief, in a reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of the crime for which he was prosecuted. In other words, a suit will lie only in cases where a legal prosecution has been carried on without probable cause. The reason for this rule is that it would be a very great discouragement to public justice, if prosecutors, who had tolerable ground of suspicion, were liable to be sued at law when their indictment miscarried" (Que vs. Intermediate Appellate Court, 169 SCRA 137 [1989]).

The presence of probable cause signifies, as a legal consequence, the absence of malice. In the instant case, it is evident that petitioners were not motivated by malicious intent or by sinister design to unduly harass private respondent, but only by a well-founded anxiety to protect their rights when

they filed the criminal complaint against private respondent.

To constitute malicious prosecution, there must be proof that the prosecution was prompted by a sinister design to vex and humiliate a person, that it was initiated deliberately by the defendant knowing that his charges were false and groundless. Concededly, the mere act of submitting a case to the authorities for prosecution does not make one liable for malicious prosecution. Proof and motive that the institution of the action was prompted by a sinister design to vex and humiliate a person must be clearly and preponderantly established to entitle the victims to damages (Ibid.).

In the case at bar, there is no proof of a sinister design on the part of petitioners to vex or humiliate private respondent by instituting the criminal case against him. While petitioners may have been negligent to some extent in determining the liability of private respondent for the dishonored check, the same is not so gross or reckless as to amount to bad faith warranting an award of damages.

The root of the controversy in this case is founded on a case of mistaken identity. It is possible that with a more assiduous investigation, petitioners would have eventually discovered that private respondent Eugenio S. Baltao is not the "Eugenio Baltao" responsible for the dishonored check. However, the record shows that petitioners did exert considerable effort in order to determine the liability of private respondent. Their investigation pointed to private respondent as the "Eugenio Baltao" who issued and signed the dishonored check as the president of the debtor-corporation Guaranteed Enterprises. Their error in proceeding against the wrong individual was obviously in the nature of an innocent mistake, and cannot be characterized as having been committed in bad faith. This error could have been discovered if respondent had submitted his counter-affidavit before investigating fiscal Sumaway and was immediately rectified by Provincial Fiscal Mauro Castro upon discovery thereof, i.e., during the reinvestigation resulting in the dismissal of the complaint.

Furthermore, the adverse result of an action does not per se make the act wrongful and subject the actor to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate, such right is so precious that moral damages may not be charged on those who may even exercise it erroneously. And an adverse decision does not ipso facto

justify the award of attorney's fees to the winning party (Garcia vs. Gonzales, 183 SCRA 72 [1990]).

Thus, an award of damages and attorney's fees is unwarranted where the action was filed in good faith. If damage results from a person's exercising his legal rights, it is damnum absque injuria (Ilocos Norte Electric Company vs. Court of Appeals, 179 SCRA 5 [1989]).

Coming now to the claim of private respondent for actual or compensatory damages, the records show that the same was based solely on his allegations without proof to substantiate the same. He did not present proof of the cost of the medical treatment which he claimed to have undergone as a result of the nervous breakdown he suffered, nor did he present proof of the actual loss to his business caused by the unjust litigation against him. In determining actual damages, the court cannot rely on speculation, conjectures or guesswork as to the amount. Without the actual proof of loss, the award of actual damages becomes erroneous (Guilatco vs. City of Dagupan, 171 SCRA 382 [1989]).

Actual and compensatory damages are those recoverable because of pecuniary loss — in business, trade, property, profession, job or occupation — and the same must be proved, otherwise, if the proof is flimsy and unsubstantiated, no damages will be given (Rubio vs. Court of Appeals, 141 SCRA 488 [1986]). For these reasons, it was gravely erroneous for respondent court to have affirmed the award of actual damages in favor of private respondent in the absence of proof thereof.

Where there is no evidence of the other party having acted in wanton, fraudulent or reckless, or oppressive manner, neither may exemplary damages be awarded (Dee Hua Liong Electrical Equipment Corporation vs. Reyes, 145 SCRA 488 [1986]).

As to the award of attorney's fees, it is well-settled that the same is the exception rather than the general rule. Needless to say, the award of attorney's fees must be disallowed where the award of exemplary damages is eliminated (Article 2208, Civil Code; Agustin vs. Court of Appeals, 186 SCRA 375 [1990]). Moreover, in view of the fact that there was no malicious prosecution against private respondent, attorney's fees cannot be awarded him on that ground.

In the final analysis, there is no proof or showing that petitioners acted

maliciously or in bad faith in the filing of the case against private respondent. Consequently, in the absence of proof of fraud and bad faith committed by petitioners, they cannot be held liable for damages (Escritor, Jr. vs. Intermediate Appellate Court, 155 SCRA 577 [1987]). No damages can be awarded in the instant case, whether based on the principle of abuse of rights, or for malicious prosecution. The questioned judgment in the instant case attests to the propensity of trial judges to award damages without basis. Lower courts are hereby cautioned anew against awarding unconscionable sums as damages without bases therefor.

WHEREFORE, the petition is GRANTED and the decision of the Court of Appeals in C.A. G.R. C.V. No. 14948 dated May 13, 1989, is hereby REVERSED and SET ASIDE. Costs against respondent Baltao.

SO ORDERED.

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

ALFREDO M. VELAYO, in his capacity as Assignee of the insolvent COMMERCIAL AIR LINES, INC. (CALI), Plaintiff-Appellant, vs. SHELL COMPANY OF THE PHILIPPINE ISLANDS, LTD., Defendant-Appellee, YEK HUA TRADING CORPORATION, PAUL SYCIP and MABASA & CO., intervenors.

D E C I S I O N

FELIX, J.:

Antecedents — The Commercial Air Lines, Inc., which will be hereinafter referred to as CALI, is a corporation duly organized and existing in accordance with the Philippines laws, with offices in the City of Manila and previously engaged in air transportation business. The Shell Company of the P. I., Ltd., which will be designated as the Defendant, is on the other hand, a corporation organized under the laws of England and duly licensed to do business in the Philippines, with principal offices at the Hongkong and Shanghai Bank building in the City of Manila.

Since the start of CALI‘s operations, its fuel needs were all supplied by the Defendant. Mr. Desmond Fitzgerald, its Credit Manager who extended credit to CALI, was in charge of the collection thereof. However, all matters referring to extensions of the term of payment had to be decided first by Mr.

Stephen Crawford and later by Mr. Wildred Wooding, who represented in this country Defendant‘s Board of Directors, the residence of which is in London, England (Exhs. 4-B and 4-A).

As of August, 1948, the books of the Defendant showed a balance of P170,162.58 in its favor for goods it sold and delivered to CALI. Even before August 6, 1948, Defendant had reasons to believe that the financial condition of the CALI was for from being satisfactory. As a matter of fact, according to Mr. Fitzgerald, CALI‘s Douglas C-54 plane, then in California, was offered to him by Mr. Alfonso Sycip, CALI‘s President of the Board of Directors, in partial settlement of their accounts, which offer was, however, declined by Mr. Crawford, probably because upon inquiries made by Mr. Fitzgerald sometime before August 6, 1948, for the purpose of preparing the report for its London office regarding CALI‘s indebtedness, Col. Lambert, CALI‘s Vice President and General Manager, answered that the total outstanding liabilities of his corporation was only P550,000, and the management of Defendant probably assumed that the assets of the CALI could very well meet said liabilities and were not included to take charge of the sale of CALI‘s said Douglas C-54 plane to collect its credit.

On August 6, 1948, the management of CALI informally convened its principal creditors (excepting only the insignificant small claims) who were invited to a luncheon that was held between 12:chanroblesvirtuallawlibrary00 and 2:chanroblesvirtuallawlibrary00 o‘clock in the afternoon of that day in the Trade and Commerce Building at 123 Juan Luna St., Manila, and informed them that CALI was in a state of insolvency and had to stop operation. The creditors present, or represented at the meeting, were:chanroblesvirtuallawlibrary Mr. A. L. Bartolini, representing Firestone Tire & Rubber Co.; chan roblesvirtualawlibraryMr. Quintin Yu, representing Commercial News; chan roblesvirtualawlibraryMr. Mark Pringle, representing Smith, Bell & Co. (Lloyds of London); chan roblesvirtualawlibraryMessrs. Vicente Liwag, C. Dominguez and Pacifico Agcaoili, representing National Airports Corporation; chan roblesvirtualawlibraryMessrs. W. J. Bunnel and Manuel Chan, representing Goodrich International Rubber Co.; chan roblesvirtualawlibraryMr. G. E. Adair, representing Goodyear Tire & Rubber Co.; chan roblesvirtualawlibraryMr. J. T. Chuidian, representing Gibbs, Gibbs, Chuidian & Quasha; chan roblesvirtualawlibraryMr. E. Valera, representing Mabasa & Co.; chan roblesvirtualawlibraryMr. D. Fitzgerald, representing Shell Co. P.I. Ltd.; chan roblesvirtualawlibraryand Mr. Alfonso Z. Sycip, representing himself, Yek Hua Trading Corporation and Paul Sycip (Exhs.

NN, JJJ, MM, QQQ, II-4, SS, TT, UU, VV, WW, XX, YY, ZZ, AAA, BBB, CCC, DDD, EEE, FFF, GGG, and HHH).

The persons present, including Mr. Desmond Fitzgerald, signed their names and the names of the companies they represented on a memorandum pad of the law firm Quisumbing, Sycip, and Quisumbing (Exhs. VV and VV-1).

In that meeting at noontime of August 6, 1948, out of the 194 creditors in all (Exh. OO) 15 were listed as principal creditors having big balances (Exh. NN), to wit:chanroblesvirtuallawlibrary

13th Air Force P12,880.00

Civil Aeronautics Administration 98,127.00

Gibbs, Giibs, Chuidian & Quasha 5,544.90

Goodrich Int‘l Rubber Co. 3,142.47

Goodyear Tire & Rubber Co. 1,727.50

Mabasa & Co. 4,867.72

Manila Int‘l Airport 55,280.04

Manila Int‘l Air Terminal (PAL) 36,163.68

Shell Co. of the Phil., Ltd. 152,641.68

Smith, Bell & Co., Ltd. 45,534.00

Paul Sycip 8,189.33

Mrs. Buenaventura 20,000.00

Firestone Tire & Rubber Co. 4,911.72

Alfonso Sycip 575,880.83

Yek Hua Trading Corp. 487,871.20

—————

P1,512,762.87

What occurred in that meeting may be summarized as follows:chanroblesvirtuallawlibrary Mr. Alexander Sycip, Secretary of the Board of Directors of the CALI, informed the creditors present that this corporation was insolvent and had to stop operations. He explained the

memorandum agreement executed by the CALI with the Philippine Air Lines, Inc., on August 4, 1948, regarding the proposed sale to the latter of the aviation equipments of the former (Exhs. MM and QQQ, par. 1 — memo of meeting; chan roblesvirtualawlibraryExhs. III and PPP — P. Agcaoili‘s memorandum dated August 7, 1948, to the General Manager of the National Airports Corp.). Mr. Alexander Sycip was assisted in the explanation by CPA Alfredo Velayo of Washington, Sycip & Company, Auditors of the CALI, who discussed the balance sheets and distributed copies thereof to the creditors present (Exhs. NN, NN-1 to 7; chan roblesvirtualawlibraryExh. JJ — P. Agcaoili‘s copy of balance sheet p. 229- 230 t.s.n., Nov. 27, 1951, of the testimony of D. Fitzgerald). The said balance sheet made mention of a C-54 plane in the United States, the property now involved in this suit. He was likewise assisted in his explanation by Mr. Curtis L. Lambert, Vice President and General Manager of the CALI, who described in greater detail the assets of the CALI. There was a general understanding among all the creditors present on the desirability of consummating the sale in favor of the Philippine Air Lines Inc. (Exhs. MM and QQQ, par. 2 — Memo of meeting; chan roblesvirtualawlibraryExhs. III and PPP, par. 5 — P. Agcoaili‘s memorandum dated August 7, 1948, to the General Manager of the National Airports Corp.; chan roblesvirtualawlibraryand pp. 299-300 t.s.n., January 15, 1952, of the testimony of Desmond Fitzgerald).

Then followed a discussion on the payment of claims of creditors and the preferences claimed for the accounts due to the employees, the Government and the National Airports Corporation. The representatives of the latter Messrs. Vicente H. Liwag, C. Dominguez and Pacifico V. Agcaoili, contended that their accounts were preferred. The other creditors disputed such contention of preference (Exhs. MM and QQQ, par. 3 — 0151 Memo of meeting; chan roblesvirtualawlibraryExhs. III and PPP, par. 3 — P. Agcaoili‘s memorandum dated August 1, 1948, to the General Manager of the National Airports Corp.; chan roblesvirtualawlibraryand pp. 247-248 t.s.n., January 10, 1952, of the testimony of D. Fitzgerald). No understanding was reached on this point and it was then generally agreed that the matter of preference be further studied by a working committee to be formed (Exhs. MM, par. 3 — Memo of meeting). The creditors present agreed to the formation of a working committee to continue the discussion of the payment of claims and preferences alleged by certain creditors, and it was further agreed that said working committee would supervise the preservation of the properties of the corporation while the creditors

attempted to come to an understanding as to a fair distribution of the assets among them (Exhs. MM and QQQ, Memo of meeting). From the latter exhibit the following is copied:chanroblesvirtuallawlibrary

―4. Certain specific matters such as the amount owing to the Philippine Air Lines, Inc., and the claims of Smith, Bell vs. Co., (representing Lloyds of London) that its claim should be offset against the payments which may be due to CALI from insurance claims were not taken up in detail. It was agreed that these matters together with the general question of what are preferred claims should be the subject of further discussions, but shall not interfere with the consummation of the sale in favor of PAL.

―5. The creditors present agreed to the formation of the working committee to supervise the preservation of the properties of the corporation and agreed further that Mr. Fitzgerald shall represent the creditors as a whole in this committee. It was understood, however, that all questions relating to preference of claims can be decided only by the creditors assembled.

―6. It was the sense of the persons present that, if possible, the insolvency court be avoided but that should the creditors not meet in agreement, then all the profits from the sale will be submitted to an insolvency court for proper division among the creditors.‖

To this working committee, Mr. Desmond Fitzgerald, Credit Manager, of the Defendant, Atty. Agcaoili of the National Airports Corporation and Atty. Alexander Sycip (Exhs. III and PPP, par. 5 — P. Agcaoili‘s memorandum dated August 7, 1948, to the General Manager of the National Airports (Corp.) were appointed. After the creditors present knew the balance sheet and heard the explanations of the officers of the CALI, it was their unanimous opinion that it would be advantageous not to present suits against this corporation but to strive for a fair pro-rata division of its assets (Exh. MM, par 6, Memo of meeting), although the management of the CALI announced that in case of non-agreement of the creditors on a pro-rata division of the assets, it would file insolvency proceedings (p. 70, t.s.n., October 22, 1951).

Mr. Fitzgerald did not decline the nomination to form part of said working committee and on August 9, 1948, the 3 members thereof discussed methods of achieving the objectives of the committee as decided at the creditors‘ meeting, which were to preserve the assets of the CALI and to study the way of making a fair division of all the assets among the creditors. Atty. Sycip made an offer to Mr. D. Fitzgerald to name a

representative to oversee the preservation of the assets of the CALI, but Mr. Fitzgerald replied that the creditors could rely on Col. Lambert. Atty. Pacifico Agcaoili promised to refer the arguments adduced at the second meeting to the General Manager of the National Airports Corporations and to obtain the advice of the Corporate Counsel, so the negotiation with respect to the division of assets of the CALI among the creditors was left pending or under advice when on that very day of the meeting of the working committee, August 9, 1948, which Mr. Fitzgerald attended, Defendant effected a telegraphic transfer of its credit against the CALI to the American corporation Shell Oil Company, Inc., assigning its credit, amounting to $79,440.00, which was subsequently followed by a deed of assignment of credit dated August 10, 1948, the credit amounting this time to the sum of $85,081.29 (Exh. I).

On August 12, 1948, the American corporation Shell Oil Company, Inc., filed a complaint against the CALI in the Superior Court of the State of California, U.S.A. in and for the County of San Bernardino, for the collection of an assigned credit of $79,440.00 — Case No. 62576 of said Court (Exhs. A, E, F, G, H, V, and Z) and a writ of attachment was applied for and issued on the same date against a C-54 plane (Exhs. B, C, D, Y, W, X, and X-1).

On September 17, 1948, an amended complaint was filed to recover an assigned credit of $85,081.29 (Exhs. I, K, L, M, Q, R, S, T, U, DD) and a supplemental attachment for a higher sum was applied for and issued against the C-54 plane, plus miscellaneous personal properties held by Pacific Overseas Air Lines for the CALI (Exhs. N, O, P, AA, BB, BB-1 and CC) and on January 5, 1949, a judgment by default was entered by the American court (Exhs. J, EE, FF, GG, and HH).

Unaware of Defendant‘s assignments of credit and attachment suit, the stockholders of CALI resolved in a special meeting of August 12, 1948, to approve the memorandum agreement of sale to the Philippine Air Lines, Inc, and noted ―that the Board had been trying to reach an agreement with the creditors of the corporation to prevent insolvency proceedings, but so far no definite agreement had been reached‖ (Exh. OO — Minutes of August 12, 1948, stockholders‘ meeting).

By the first week of September, 1948, the National Airports Corporation learned of Defendant‘s action in the United States and hastened to file its own complaint with attachment against the CALI in the Court of First Instance of Manila (Exhs. KKK, LLL, and MMM). The CALI, also prompted

by Defendant‘s action in getting the alleged undue preference over the other creditors by attaching the C-54 plane in the United States, beyond the jurisdiction of the Philippines, filed on October 7, 1948, a petition for voluntary insolvency. On this date, an order of insolvency was issued by the court (Exh. JJ) which necessarily stayed the National Airports Corporation‘s action against the CALI and dissolved its attachment (Exh. NNN), thus compelling the National Airports Corporation to file its claims with the insolvency court (Exh. SS).

By order of October 28, 1948, the Court confirmed the appointment of Mr. Alfredo M. Velayo, who was unanimously elected by the creditors as Assignee in the proceedings, and ordered him to qualify as such by taking the oath of office within 5 days from notice and filing a bond in the sum of P30,000.00 to be approved by the Court conditioned upon the faithful performance of his duties, and providing further that all funds that the Assignee may collect or receive from the debtors of the corporation, or from any other source or sources, be deposited in a local bank (Exh. KK). On November 3, 1948, the clerk of court executed a deed of conveyance in favor of the Assignee (Alfredo M. Velayo) over all the assets of the CALI (Exh. LL).

The Case. — After properly qualifying as Assignee, Alfredo M. Velayo instituted this case (No. 6966 of the Court of First Instance of Manila) on December 17, 1948, against the Shell Company of P. I., Ltd., for the purpose of securing from the Court a writ of injunction restraining Defendant, its agents, servants, attorneys and solicitors from prosecuting in and for the County of San Bernardino in the Superior Court of the State of California, U.S.A. the aforementioned Civil Case No. 62576 against the insolvent Commercial Air Lines, Inc., begun by it in the name of the American corporation Shell Oil Company, Inc., and as an alternative remedy, in case the purported assignment of Defendant‘s alleged credit to the American corporation Shell Oil Company, Inc., and the attachment issued against CALI in the said Superior Court of California shall have the effect of defeating the procurement by Plaintiff as Assignee in insolvency of the above- mentioned airplane, which is the property of the insolvent CALI, situated in the Ontario International Airport, with in the County of San Bernardino, State of California, U.S.A., that judgment for damages in double the value of the airplane be awarded in favor of Plaintiff against Defendant, with costs.

The complaint further prays that upon the filing of a bond executed to the

Defendant in an amount to be fixed by the Court, to the effect that Plaintiff will pay to Defendant all damages the latter may sustain by reason of the injunction if the Court should finally decide that the Plaintiff was not entitled thereto, the Court issued a writ of preliminary injunction enjoining the Defendant, its agent, servants, attorney‘s and solicitor, from prosecuting the aforementioned case No. 62576, the same writ of preliminary injunction to issue without notice to the Defendant it appearing by verified complaint that the great irreparable injury will result to the Plaintiff-Appellant before the matter could be on notice. The Plaintiff also prays for such other remedies that the Court may deem proper in the premises.

On December 20, 1948, the Defendant filed an opposition to the Plaintiff‘s petition for the issuance of a writ of the preliminary injunction, and on December 22, 1948, the Court denied the same because whether the conveyance of Defendant‘s credit was fraudulent or not, the Philippine court would not be in position to enforce its orders as against the American corporation Shell Oil Company, Inc., which is outside of the jurisdiction of the Philippines.

Plaintiff having failed to restrain the progress of the attachment suit in the United States by denial of his application for a writ of preliminary injunction and the consequences on execution of the C-54 plane in the County of San Bernardino, State of California, U. S. A., he confines his action to the recovery of damages against the Defendant.

On December 28, 1948, Defendant filed its answer to the complaint, which was amended on February 3, 1949. In its answer, Defendant, besides denying certain averments of the complaint alleged, among other reasons, that the assignment of its credit in favor of the Shell Oil Company, Inc., in the United States was for a valuable consideration and made in accordance with the established commercial practices, there being no law prohibiting a creditor from assigning his credit to another; chan roblesvirtualawlibrarythat it had no interest whatsoever in Civil Case No. 62576 instituted in the Superior Court in the State of California by the Shell Oil Company, Inc., which is a separate and distinct corporation organized and existing in the State of Virginia and doing business in the State of California, U. S. A., the Defendant having as its stockholders the Shell Petroleum Company of London and other persons residing in that City, while the Shell Oil Company Inc., of the United State has its principal stockholders the Shell Union Oil Company of the U.S. and presumably countless American investors inasmuch as its shares of stock are being

traded daily in the New York stock market; chan roblesvirtualawlibrarythat Mr. Fitzgerald, Defendant‘s Credit Manager, was merely invited to a luncheon-meeting at the Trade and Commerce Building in the City of Manila on August 6, 1948, without knowing the purpose for which it was called; chan roblesvirtualawlibraryand that Mr. Fitzgerald could not have officially represented the Defendant at that time because such authority resides on Mr. Stephen Crawfurd. Defendant, therefore, prays that the complaint be dismissed with costs against the Plaintiff.

Then Alfonso Sycip, Yek Hua Trading Corporation and Paul Sycip, as well as Mabasa & Co., filed, with permission of the Court, their respective complaints in intervention taking the side of the Plaintiff. These complaints in intervention were timely answered by Defendant which prayed that they be dismissed.

After proper proceedings and hearing, the Court rendered decision on February 26, 1954, dismissing the complaint as well as the complaints in intervention, with costs against the Plaintiff. In view of this outcome, Plaintiff comes to us praying that the judgment of the lower court be reversed and that the Defendant be ordered to pay him damages in the sum of P660,000 (being double the value of the airplane as established by evidence, i.e., P330,000), with costs, and for such other remedy as the Court may deem just and equitable in the premises.

The Issues. — Either admission of the parties, or by preponderance of evidence, or by sheer weight of the circumstance attending the transactions herein involved, We find that the facts narrated in the preceding statement of the ―antecedents‖ have been sufficiently established, and the questions at issue submitted to our determination in this instance may be boiled down to the following propositions:chanroblesvirtuallawlibrary

(1) Whether or not under the facts of the case, the Defendant Shell Company of the P. I., Ltd., taking advantage of its knowledge of the existence of CALI‘s airplane C-54 at the Ontario International Airport within the Country of San Bernardino, State of California, U. S. A.,

(Which knowledge it acquired:chanroblesvirtuallawlibrary first at the informal luncheon-meeting of the principal creditors of CALI on August 5, 1948, where its Credit Manager, Mr. Desmond Fitzgerald, was selected to form part of the Working Committee to supervise the preservation of CALI‘s properties and to study the way of making a fair division of all the assets among the creditors and thus avoid the institution of insolvency

proceedings in court; chan roblesvirtualawlibraryand

Subsequently, at the meeting of August 9, 1948, when said Mr. Fitzgerald met the other members of the said Working Committee and heard and discussed the contention of certain creditors of CALI — on the accounts due the employees, the Government and the National Airports Corporation — who alleged that their claims were preferred),

acted in bad faith and betrayed the confidence and trust of the other creditors of CALI present in said meeting by affecting a hasty telegraphic transfer of its credit to the American corporation Shell Oil Company, Inc., for the sum of $79,440 which was subsequently followed by a deed of assignment of credit dated August 10, 1948, amounting this time to the sum of $85,081.28 (Exhs. Z), thus defeating the purpose of the informal meetings of CALI‘s principal creditors end depriving the Plaintiff, as its Assignee, of the means of obtaining said C-54 plane, or the value thereof, to the detriment and prejudice of the other CALI‘s creditors who were consequently deprived of their share in the distribution of said value; chan roblesvirtualawlibraryand (2) Whether or not by reason of said betrayal of confidence and trust, Defendant may be made under the law to answer for the damages prayed by the Plaintiff; chan roblesvirtualawlibraryand if so, what should be the amount of such damages.

DISCUSSION OF THE CONTROVERSY

I. The mere enunciation of the first proposition can lead to no other conclusion than that Defendant, upon learning the precarious economic situation of CALI and that with all probability, it could not get much of its outstanding credit because of the preferred claims of certain other creditors, forgot that ―Man does not live by bread alone‖ and entirely disregarded all moral inhibitory tenets. So, on the very day its Credit Manager attended the meeting of the Working Committee on August 9, 1948, it hastily made a telegraphic assignment of its credit against the CALI to its sister American Corporation, the Shell Oil Company, Inc., and by what is stated in the preceding pages hereof, We know that were the damaging effects of said assignment upon the right of other creditors of the CALI to participate in the proceeds of said CALI‘s plane C-54.

Defendants endeavor to extricate itself from any liability caused by such evident misdeed of its part, alleging that Mr. Fitzgerald had no authority from his principal to commit the latter on any agreement; chan roblesvirtualawlibrarythat the assignment of its credit in favor of its sister

corporation, Shell Oil Company, Inc., was for a valuable consideration and in accordance with the established commercial practices; chan roblesvirtualawlibrarythat there is no law prohibiting a creditor from assigning his credit to another; chan roblesvirtualawlibraryand that the Shell Oil Company Inc., of the United States is a corporation different and independent from the Defendant. But all these defenses are entirely immaterial and have no bearing on the main question at issue in this appeal. Moreover, we might say that Defendant could not have accomplished the transfer of its credit to its sister corporation if all the Shell companies throughout the world would not have a sort of union, relation or understanding among themselves to come to the aid of each other. The telegraphic transfer made without knowledge and at the back of the other creditors of CALI may be a shrewd and surprise move that enabled Defendant to collect almost all if not the entire amount of its credit, but the Court of Justice cannot countenance such attitude at all, and much less from a foreign corporation to the detriment of our Government and local business.

To justify its actions, Defendant may also claim that Mr. Fitzgerald, based on his feeling of distrust and apprehension, entertained the conviction that intervenors Alfonso Sycip and Yek Hua Trading Corporation tried to take undue advantage by infiltrating their credits. But even assuming for the sake of argument, that these intervenors really resorted to such strategem or fraudulent device, yet Defendant‘s act finds not justification for no misdeed on the part of a person is cured by any misdeed of another, and it is to be noted that neither Alfonso Z. Sycip, nor Yek Hua Trading Corporation were the only creditors of CALI, nor even preferred ones, and that the infiltration of one‘s credit is of no sequence if it cannot be proven in the insolvency proceedings to the satisfaction of the court. Under the circumstances of the case, Defendant‘s transfer of its aforementioned credit would have been justified only if Mr. Fitzgerald had declined to take part in the Working Committee and frankly and honestly informed the other creditors present that he had no authority to bind his principal and that the latter was to be left free to collect its credit from CALI by whatever means his principal deemed wise and were available to it. But then such information would have immediately dissolved all attempts to come to an amicable conciliation among the creditors and would have precipitated the filing in court of CALI‘s voluntary insolvency proceedings and nulified the intended transfer of Defendant‘s credit to its above-mentioned sister corporation.

II. We may agree with the trial judge, that the assignment of Defendant‘s credit for a valuable consideration is not violative of the provisions of sections 32 and 70 of the Insolvency Law (Public Act No. 1956), because the assignment was made since August 9, 1948, the original complaint in the United States was filed on August 12, 1948, and the writ of attachment issued on this same date, while CALI filed its petition for insolvency on October 7, 1948. At his Honor correctly states, said Sections 32 and 70 only contemplate acts and transactions occuring within 30 days prior to the commencement of the proceedings in insolvency and, consequently, all other acts outside of the 30-day period cannot possibly be considered as coming within the orbit of the operation. In addition to this, We may add that Article 70 of the Insolvency Law refers to acts of the debtor (in this case the insolvent CALI) and not of the creditor, the Shell Company of the P. I. Ltd. But section 70 does not constitute the only provisions of the law pertinent to the matter. The Insolvency Law also provides the following:chanroblesvirtuallawlibrary

―SEC. 33. The assignee shall have the right to recover all the estate, debt and effects of said insolvent. If at the time of the commencement of the proceedings in insolvency, an action is pending in the name of the debtor, for the recovery of a debt or other thing might or ought to pass to the assignee by the assignment, the assignee shall be allowed to prosecute the action, in like manner and with life effect as if it had been originally commenced by him. If there are any rights of action in favor of the insolvency for damages, on any account, for which an action is not pending the assignee shall have the right to prosecute the same with effect as the insolvent might have done himself if no proceedings in insolvency had been instituted cralaw .‖

It must not be forgotten that in accordance with the spirit of the Insolvency Law and with the provisions of Chapter V thereof which deal with the powers and duties of a receiver, the assignee represents the insolvent as well as the creditors in voluntary and involuntary proceedings — Intestate of Mariano G. Veloso, etc. vs. Vda. de Veloso S. C. — G. R. No. 42454; chan roblesvirtualawlibraryHunter, Kerr & Co. vs. Samuel Murray, 48 Phil. 449; chan roblesvirtualawlibraryChartered Bank vs. Imperial, 48 Phil. 931; chan roblesvirtualawlibraryAsia Banking Corporation vs. Herridge, 45 Phil. 527 — (II Tolentino‘s Commercial Laws of the Philippines, 633). See also Section 36 of the Insolvency Law.From the foregoing, We see that Plaintiff, as Assignee of the Insolvent CALI, had personality and authority to institute this case for damages, and the only question that remains determination is

whether the payment of damages sought to be recovered from Defendant may be ordered under the Law and the evidence of record.

IF ANY PERSON, before the assignment is made, having notice of the commencement of the proceedings in insolvency, or having reason to believe that insolvency proceedings are about to be commenced, embezzles or disposes of any money, goods, chattels, or effects of the insolvent, he is chargeable therewith, and liable to an action by the assignee for double the value of the property sought to be embezzled or disposed of, to be received for the benefit of the insolvent estate.

The writer of this decision does not entertain any doubt that the Defendant — taking advantage of his knowledge that insolvency proceedings were to be instituted by CALI if the creditors did not come to an understanding as to the manner of distribution of the insolvent asset among them, and believing it most probable that they would not arrive at such understanding as it was really the case — schemed and effected the transfer of its sister corporation in the United States, where CALI‘s plane C-54 was by that swift and unsuspected operation efficaciously disposed of said insolvent‘s property depriving the latter and the Assignee that was latter appointed, of the opportunity to recover said plane. In addition to the aforementioned Section 37, Chapter 2 of the PRELIMINARY TITLE of the Civil Code, dealing on Human Relations, provides the following:chanroblesvirtuallawlibrary

―Art 19. Any person must, in the exercise of his rights and in the performances of his duties, act with justice, give everyone his due and observe honesty and good faith‖.

It maybe said that this article only contains a mere declarations of principles and while such statement may be is essentially correct, yet We find that such declaration is implemented by Article 21 and sequence of the same Chapter which prescribe the following:chanroblesvirtuallawlibrary

―Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage‖.

The Code Commission commenting on this article, says the following:chanroblesvirtuallawlibrary

―Thus at one stroke, the legislator, if the forgoing rule is approved (as it was approved), would vouchsafe adequate legal remedy for that untold

numbers of moral wrongs which is impossible for human foresight to provide for specifically in the statutes.

―But, it may be asked, would this proposed article obliterate the boundary line between morality and law? The answer is that, in the last analysis, every good law draws its breath of life from morals, from those principles which are written with words of fire in the conscience of man. If this premises is admitted, then the proposed rule is a prudent earnest of justice in the face of the impossibility of enumerating, one by one, all wrongs which cause damages. When it is reflected that while codes of law and statutes have changed from age to age, the conscience of man has remained fixed to its ancient moorings, one cannot but feel that it is safe and salutary to transmute, as far as may be, moral norms into legal rules, thus imparting to every legal system that enduring quality which ought to be one of its superlative attributes.

―Furthermore, there is no belief of more baneful consequence upon the social order than that a person may with impunity cause damage to his fellow-men so long as he does not break any law of the State, though he may be defying the most sacred postulates of morality. What is more, the victim loses faith in the ability of the government to afford him protection or relief.

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

―The same observations may be made concerning injurious acts that are contrary to public policy but are not forbidden by statute. There are countless acts of such character, but have not been foreseen by the lawmakers. Among these are many business practices that are unfair or oppressive, and certain acts of landholders and employers affecting their tenants and employees which contravene the public policy of social justice.

―Another rule is expressed in Article 24 which compels the return of a thing acquired ‗without just or legal grounds‘. This provision embodies the doctrine that no person should unjustly enrich himself at the expense of another, which has been one of the mainstays of every legal system for centuries. It is most needful that this ancient principles be clearly and specifically consecrated in the proposed Civil Code to the end that in cases not foreseen by the lawmaker, no one may unjustly benefit himself to the prejudice of another. The German Civil Code has a similar provision (art. 812).‖ (Report of the Code Commission on the Proposed Civil Code of the

Philippines, p. 40- 41).

From the Civil Code Annotated by Ambrosio Padilla, Vol. I, p. 51, 1956 edition, We also copy the following:chanroblesvirtuallawlibrary

―A moral wrong or injury, even if it does not constitute a violation of a statute law, should be compensated by damages. Moral damages (Art. 2217) may be recovered (Art. 2219). In Article 20, the liability for damages arises from a willful or negligent act contrary to law. In this article, the act is contrary to morals, good customs or public policy.‖

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

―Even if an act or event causing damage to another‘s property was not due to the fault or negligence of the Defendant, the latter shall be liable for indemnity if through the act or event he was benefited.‖

with mere much more reason the Defendant should be liable for indemnity for acts it committed in bad faith and with betrayal of confidence.

It may be argued that the aforequoted provisions of the Civil Code only came into effect on August 30, 1950, and that they cannot be applicable to acts that took place in 1948, prior to its effectivity. But Article 2252 of the Civil Code, though providing that:chanroblesvirtuallawlibrary

―Changes made and new provisions and rules laid down by this Code which may be prejudice or impair vested or acquired rights in accordance with the old legislation, shall have no retroactive effect cralaw .‖

implies that when the new provisions of the Code does nor prejudice or impair vested or acquired rights in accordance with the old legislation — and it cannot be alleged that in the case at bar Defendant had any vested or acquired right to betray the confidence of the insolvent CALI or of its creditors — said new provisions, like those on Human Relations, can be given retroactive effect. Moreover, Article 2253 of the Civil Code further provides:chanroblesvirtuallawlibrary

― cralaw But if a right should be declared for the first time in this Code, it shall be effective at once, even though the act or event which may give rise thereto may have been done or may have occurred under the prior legislation, provided said new right does not prejudice or impair any vested or acquired right, of the same origin.‖

and according to Article 2254, ―no vested or acquired right can arise from

acts or omissions which are against the law or which infringe upon the right of others.‖

In case of Juan Castro vs. Acro Taxicab Company, (82 Phil., 359; chan roblesvirtualawlibrary47 Off. Gaz., [5] 2023), one of the question at issue was whether or not the provisions of the New Civil Code of the Philippines on moral damages should be applied to an act of negligence which occurred before the effectivity of said code, and this Court, through Mr. Justice Briones, sustaining the affirmative proposition and citing decisions of the Supreme Court of Spain of February 14, 1941, and November 14, 1934, as well as the comment of Mr. Castan, Chief Justice of the Supreme Court of Spain, about the revolutionary tendency of Spanish jurisprudence, said the following:chanroblesvirtuallawlibrary

―We conclude, therefore, reaffirming the doctrine laid down in the case of Lilius (59 J. F. 800) in the sense that indemnity lies for moral and patrimonial damages which include physical and pain sufferings. With this (doctrine), We effect in this jurisdiction a real symbiosis 1 of the Spanish and American Laws and, at the same time, We act in consonance with the spirit and progressive march of time‖ (translation)

The writer of this decision does not see any reason for not applying the provisions of Section 37 of the Insolvency Law to the case at bar, specially if We take into consideration that the term ―any person‖ used therein cannot be limited to the officers or employee of the insolvent, as no such limitation exist in the wording of the section (See also Sec. 38 of the same Act), and that, as stated before, the Defendant schemed and affected the transfer of its credits (from which it could derive practically nothing) to its sister corporation in the United States where CALI‘s plane C-54 was then situated, succeeding by such swift and unsuspected operation in disposing of said insolvent‘s property by removing it from the possession and ownership of the insolvent. However, some members of this Court entertain doubt as to the applicability of said section 37 because in their opinion what Defendant in reality disposed of was its own credit and not the insolvent‘s property, although this was practically the effect and result of the scheme. Having in mind this objection and that the provisions of Article 37 making the person coming within its purview liable for double the value of the property sought to be disposed of constitute a sort of penal clause which shall be strictly construed, and considering further that the same result may be obtained, by applying only the provisions of the Civil Code, the writer of this decision yields to the objection aforementioned.

Articles 2229, 2232, 2234, 2142, and 2143 of the Civil Code read as follows:chanroblesvirtuallawlibrary

―Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.‖

―Art. 2232. In contracts quasi-contracts, the Court may award exemplary damages if the Defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.‖

―Art. 2234. While the amount of the exemplary damages need not be proved, the Plaintiff must show that he is entitled to moral, temperate, or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. In case liquidated damages should be upon, although no proof of loss is necessary in order that such liquidated damages be recovered, nevertheless, before the court may consider the question of granting exemplary in addition to the liquidated damages, the Plaintiff must show that he would be entitled to moral, temperate or compensatory damages were it not for the stipulation for liquidated damages.‖

―Art. 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.‖

―Art, 2143. The provisions for quasi-contracts in this Chapter do not exclude other quasi-contracts which may come within the purview of the preceding article.‖

In accordance with these quoted provisions of the Civil Code, We hold Defendant liable to pay to the Plaintiff, for the benefit of the insolvent CALI and its creditors, as compensatory damages a sum equivalent to the value of the plane at the time aforementioned and another equal sum as exemplary damages.

There is no clear proof in the record about the real value of CALI‘s plane C-54 at the time when Defendant‘s credit was assigned to its sister corporation in the United States.

Judgment

Wherefore, and on the strength of the foregoing considerations, the decision appealed from is reversed and Defendant-Appellee-, Shell

Company of the Philippine Islands, Ltd., is hereby sentenced to pay to Plaintiff-Appellant, as Assignee of the insolvent CALI, damages in a sum double the amount of the value of the insolvent‘s airplane C-54 at the time Defendant‘s credit against the CALI was assigned to its sister corporation in the United States, which value shall be determined in the corresponding incident in the lower court after this decision becomes final. Costs are taxed against Defendant-Appellee. It is SO ORDERED.

Paras, C.J., Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L., and Endencia, concur.

RESOLUTION

July 30, 1957

FELIX, J.:

Plaintiff-Appellant and intervenors on one hand and Defendant Shell Company of the Philippine Islands, Ltd., on the other, have filed their respective motions for reconsideration of Our decision rendered in this case. The motion of Plaintiff Appellant and the intervenors seeks the reconsideration of said decision in so far as it held that:chanroblesvirtuallawlibrary

―There is no clear proof in the record about the real value of CALI‘s plane C-54, at the time when Defendant‘s credit was assigned to its sister corporation in the United States.‖

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

―be determined in the corresponding incident in the lower Court after this decision becomes final.‖

The movants maintain that there is evidence sufficient to support a finding that CALI‘s C-54 plane had a fair market value of $165,000 at or about the time Defendant credit was assigned to its sister corporation in the United States and the plane attached. This motion was opposed by Defendant-Appellee which was replied by Plaintiff- Appellant with a supplemental motion for reconsideration, and then retorted with a manifestation and motion of Defendant-Appellant followed by Defendant‘s answer to Plaintiff‘s motion for reconsideration.

After considering the evidence pointed out by said parties in support of their respective contentions, we are more convinced that the proofs relative to the real value of CALI plane C-54 at the time Defendant‘s credit was assigned to its sister corporation in the United States, is not clear. Hence, Plaintiff-Appellant‘s and intervenors‘ motion for reconsideration is hereby overruled.

The main grounds on which Defendant-Appellee bases its motion for reconsideration, as relied upon in its counsel‘s memoranda and oral argument, may be reduced to the following:chanroblesvirtuallawlibrary

(1) That the Defendant Appellee is not guilty of bad faith, it having done nothing but to protect legitimately its own interest or credit against the bad faith of its debtor, the insolvent CALI, under the control of the latter‘s President Alfonso Sycip;

(2) That Appellee‘s transfer of its credit to its sister corporation in the United States, did not prejudice the Government, because its claims were fully paid, nor caused any loss or injury to other creditors, except the entities and groups controlled by Alfonso Z. Sycip;

(3) That Appellee is not liable for exemplary damages because the provisions of the new Civil Code on the matter are not applicable to this case;

(4) That the Plaintiff-Appellant has no cause of action against Defendant-Appellant and is not the real party in interest; chan roblesvirtualawlibraryand

(5) That Plaintiff‘s right of action was based and prosecuted in the lower court under the provisions of the Insolvency Law and consequently that he is stopped from pursuing another theory and is not entitled to damages under the provisions of the New Civil Code.

I. The facts on which this Court based its conclusion that Defendant corporation acted in bad faith are plainly and explicitly narrated in the decision. They are not and cannot be denied or contradicted by said Defendant. On the contrary they are in many respects admitted by the Defendant and no amount of reasoning can make Us change that conclusion.

II. As pointed out by counsel for Plaintiff, Defendant choses to ignore that besides the claims of intervenors Alfonso Z. Sycip and Yek Hua Trading Corporation, which counsel for the Shell says to constitute 10/11 of the

approved ordinary claims, there is still 1/11 of the other creditors whose claims have been also approved by the insolvency Court, in addition to the ordinary creditors whose claims are yet unapproved by the insolvency Court, amounting to P560,296,32, and ―no good reason suggests itself why these unapproved but pending claims should be taken into account in considering the prejudice caused all the creditors of the insolvent CALI. As long as these claims are pending, the contingency exist, that these creditors may recover from the insolvent estate and when they do, they will suffer to the diminution of CALI‘s asset resulting from the attachment of the plane by Appellee Shell.‖

Answering Defendant‘s contention that the transfer of its credit to its sister corporation in the United States did not prejudice the Government or the other creditors of CALI, counsel for Plaintiff-Appellant has the following to say:chanroblesvirtuallawlibrary

―So far as the claims of the Government are concerned, it is true that they were preferred claims and have all been paid. But this circumstance cannot erase the fact that the Appellee‘s action jeopardised the Government‘s claims as well as the other claims. There was doubt as to the preferential character of the Government‘s claims. Indeed, the preferential character of one of the Government‘s claims necessitated a litigation to establish. Had it been held to be an ordinary claim, the Government would have suffered as other creditors. But that is neither here nor there; chan roblesvirtualawlibraryneither the character of the claim nor the identity of the claimant can possibly affect the application of a principle that no person may profit from his betrayal of a trust.‖

And the Appellant continues thus:chanroblesvirtuallawlibrary

―Appellee had a credit of P170,000 against the insolvent CALI as of August 1948, which is assigned to its sister corporation in the United States for P120.000. Hence, Appellee recovered 70% of its credit and immediately upon making the assignment in 1948. More than this, the stated consideration was fixed by and and between two sister companies. The fact remains that Appellee‘s sister company was enabled to get hold of a C-54 plane worth about P330,000.

―On the other hand, the ordinary creditors who filed their claims against the insolvent CALI had to wait until November 1956 to get their dividends and only at the rate of 30%, computed as follows:chanroblesvirtuallawlibrary

Assets as of October 30, 1956 P668,605.15

Less:chanroblesvirtuallawlibrary

Preferred claims still uncollected,

assignee and attorney‘s fees and

other reserves P138,719.56

—————

Amount available for distribution P529,885.59

Divident:chanroblesvirtuallawlibrary

Amount available for distribution P529,885.59

————— = 30%

Total of all ordinary claims approved

and unapproved P1,746,222.33

Had Appellee not assigned its credit in 1948, the insolvent CALI would have realized from the sale of the plane (which was attached by Appellee) P330,000 representing the fair market value of the plane at the time of the attachment. Therefore, if this amount of P330,000 is added to the distributable amount of P529,- 885.59, the share of each of the ordinary creditos would certainly amount to approximately 1 1/2 times the dividend each of them has received; chan roblesvirtualawlibraryin other words, each ordinary creditors would received not 30% but approximately 45% of his claim, and Appellee would recover approximately only 45% and not 70% of its credit.‖

And even if the sale of CALI‘s plane would not have obtained the sum of P330,000.00, the proceeds thereof that might be diminished though affecting, no doubt, the calculated dividend of each of the ordinary creditors, estimated at 45% by reducing it proportionately, such diminution would at the same time increase the difference between the dividend paid CALI‘s ordinary creditors in November, 1956, and the dividend of 70% secured by Defendant Shell in 1948.

III and IV. That Appellee Shell is not liable for exemplary damages in this case and that Plaintiff-Appellant has no cause of action against Defendant-Appellee, for he is not the real party in interest, are matters fully discussed in Our decision and We find no sensible reason for disturbing the conclusions We reached therein.

V. As to the fifth question raised by counsel for Appellee in the course of his oral argument at the hearing in the City of Baguio of his motion, i.e., ―that Plaintiff‘s right of action was based and prosecuted in the lower court under the provisions of the Insolvency Law and he is, therefore, stopped from pursuing on appeal another theory under which he might be entitled to damages in consonance with the provisions of the new Civil Code‖, We may invoke the decision in the case of Dimaliwat vs. Asuncion, 59 Phil., 396, 401. In that decision We said the following:chanroblesvirtuallawlibrary

―Vicente Dimaliwat contends that Esperanza Dimaliwat has no right to claim the ownership of the property in question to the exclusion of the children of the third marriage, under the foregoing provisions of the Civil Code, because the case was not tried on that theory in the lower court. We find no merit in that contention. The decision cited are not in point. Articles 968 and 969 of the Civil Code are rules of substantive law, and if they are applicable to the facts of this case they must be given effect.‖

The same thing can be said in the case at bar. Articles 19, 21, 2229, 2232, 2234, 2142 and 2143 of the new Civil Code are rules of substantive law, and if they are applicable to the facts of this case, which We hold they do, they must be made operative and given effect in this litigation.

x x x x x x x x x

It maybe seen from the foregoing that the above mentioned grounds on which the motion for reconsideration of the Defendant Shell stand, are not well taken. However, and despite this finding, We insist to delve in the question of whether the exemplary damages imposed in this Court upon Defendant Appellee, which the latter‘s counsel contends to be inequitable and unfair, may be modified.

It will be remembered that this case was looked into from the point of view of the provisions of Section 37 of the Insolvency Law, which reads as follows:chanroblesvirtuallawlibrary

SEC. 37. IF ANY PERSON, before the assignment is made, having notice of the commencement of the proceedings in insolvency, or having reason to believe that insolvency proceedings are about to be commenced, embezzles or disposses of any of the money, goods, chattels, or effects of the insolvent, he is chargeable therewith, and liable to an action by the assignee for double the value of the property sought to be embezzled or disposed of, to be received for the benefit of the insolvent estate.

The writer of the decision was then and still is of the opinion that the provisions of this section were applicable to the case, and accordingly, that Defendant Shell was liable in this action instituted by the Assignee for double the value of the property disposed of, to be received for the benefit of the Insolvent estate. However, some of the members of this Court, for the reasons already stated in the decision, entertained some doubt as to the applicability of said Section 37, and yielding to their objections the writer of the decision turned his eyes to the provisions of the new Civil Code, inasmuch as the same result could be achieved. In the case at bar, it cannot be denied that:chanroblesvirtuallawlibrary

―Defendant — taking advantage of his knowledge that insolvency proceedings were to be instituted by CALI if the creditors did not come to an understanding as to the manner of distribution of the insolvent assets among them, and believing as most probable that they would not arrive at such understanding, as it was really the case- schemed and effected the transfer of its credit to its sister corporation in the United States where CALI‘s plane C-54 was and by this swift and unsuspected operation efficaciously disposed of said insolvent‘s property depriving the latter and the Assignee that was later appointed, of the opportunity to recover said plane.‖

These acts of Defendant Shell come squarely within the sanction prescribed by Congress by similar acts and no reflection can be reasonably cast on Us if in the measure of the exemplary damages that were to be imposed upon Defendant-Appellee, We were influenced by the provisions of Section 37 of the Insolvency Law. In this connection it is to be noted that, according to the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition of the moral, temperate, liquidated or compensatory damages Art. 2229, and that the amount of the exemplary damages need not be proved (Art. 2234), for it is left to the sound discretion of the Court.

Notwithstanding the foregoing, a majority of this Court was of the belief that the value of CALI‘s plane C-54, at the time when Defendant‘s credit was assigned to its sister corporation in the United States, might result quite high, and that exemplary damages should not be left to speculation but properly determined by a certain and fixed amount. So they voted for the reconsideration of the decision with regard to the amount of exemplary damages which this Court fixed at P25,000.00.

Because of this attitude of the Court, the dispositive part of our decision

rendered in this case is hereby amended to read as follows:chanroblesvirtuallawlibrary

Wherefore, and on the strength of the foregoing considerations, the decision appealed from is reversed and Defendant-Appellee, Shell Company of the Philippine Islands Ltd., is hereby sentenced to pay Plaintiff-Appellant, as Assignee of the insolvent CALI, compensatory damages in a sum equal to the value of the insolvent‘s airplane C-54 at the time Defendant‘s credit against CALI was assigned to its sister corporation in the United States - which shall be determined in the corresponding incident in the lower Court after this decision becomes final - and exemplary damages in the sum of P25,000. Costs are taxed against Defendant-Appellee. It is SO ORDERED.

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

Separate Opinions

MONTEMAYOR, J., concurring:chanroblesvirtuallawlibrary

We concur, but we feel that the ends of justice would be sufficiently served if the exemplary damages were reduced to P10,000.

Reyes, Bengzon, Bautista Angelo and Labrador, JJ., concur. UNIVERSITY OF THE EAST, petitioner, vs. ROMEO A. JADER, respondent.

YNARES-SANTIAGO, J.:

May an educational institution be held liable for damages for misleading a student into believing that the latter had satisfied all the requirements for graduation when such is not the case? This is the issue in the instant petition for review premised on the following undisputed facts as summarized by the trial court and adopted by the Court of Appeals (CA),1 to wit:

Plaintiff was enrolled in the defendants' College of Law from 1984 up to 1988. In the first semester of his last year (School year 1987-1988), he failed to take the regular final examination in Practice Court I for which he

was given an incomplete grade (Exhibits "2", also Exhibit "H"). He enrolled for the second semester as fourth year law student (Exhibit "A") and on February 1, 1988 he filed an application for the removal of the incomplete grade given him by Professor Carlos Ortega (Exhibits "H-2", also Exhibit "2") which was approved by Dean Celedonio Tiongson after payment of the required fee. He took the examination on March 28, 1988. On May 30, 1988, Professor Carlos Ortega submitted his grade. It was a grade of five (5). (Exhibits "H-4", also Exhibits "2-L", "2-N").1âwphi1.nêt

In the meantime, the Dean and the Faculty Members of the College of Law met to deliberate on who among the fourth year students should be allowed to graduate. The plaintiff's name appeared in the Tentative List of Candidates for graduation for the Degree of Bachelor of Laws (LL.B) as of Second Semester (1987-1988) with the following annotation:

JADER ROMEO A.

Def. Conflict of Laws — x-1-87-88, Practice Court I Inc., 1-87-88 C-1 to submit transcript with S.O. (Exhibits "3", "3-C-1", "3-C-2").

The 35th Investitures & Commencement Ceremonies for the candidates of Bachelor of Laws was scheduled on the 16th of April 1988 at 3:00 o'clock in the afternoon, and in the invitation for that occasion the name of the plaintiff appeared as one of the candidates. (Exhibits "B", "B-6", "B-6-A"). At the foot of the list of the names of the candidates there appeared however the following annotation:

This is a tentative list Degrees will be conferred upon these candidates who satisfactorily complete requirements as stated in the University Bulletin and as approved of the Department of Education, Culture and Sports (Exhibit "B-7-A").

The plaintiff attended the investiture ceremonies at F. dela Cruz Quadrangle, U.E., Recto Campus, during the program of which he went up the stage when his name was called, escorted by her (sic) mother and his eldest brother who assisted in placing the Hood, and his Tassel was turned from left to right, and he was thereafter handed by Dean Celedonio a rolled white sheet of paper symbolical of the Law Diploma. His relatives took pictures of the occasion (Exhibits "C" to "C-6", "D-3" to "D-11").

He tendered a blow-out that evening which was attended by neighbors,

friends and relatives who wished him good luck in the forthcoming bar examination. There were pictures taken too during the blow-out (Exhibits "D" to "D-1").

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

Consequently, respondent sued petitioner for damages alleging that he suffered moral shock, mental anguish, serious anxiety, besmirched reputation, wounded feelings and sleepless nights when he was not able to take the 1988 bar examinations arising from the latter's negligence. He prayed for an award of moral and exemplary damages, unrealized income, attorney's fees, and costs of suit.

In its answer with counterclaim, petitioner denied liability arguing mainly that it never led respondent to believe that he completed the requirements for a Bachelor of Laws degree when his name was included in the tentative list of graduating students. After trial, the lower court rendered judgment as follows:

WHEREFORE, in view of the foregoing judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter to pay plaintiff the sum of THIRTY FIVE THOUSAND FOUR HUNDRED SEVENTY PESOS (P35,470.00) with legal rate of interest from the filing of the complaint until fully paid, the amount of FIVE THOUSAND PESOS (P5,000.00) as attorney's fees and the cost of suit.

Defendant's counterclaim is, for lack of merit, hereby dismissed.

SO ORDERED.3

which on appeal by both parties was affirmed by the Court of Appeals (CA) with modification. The dispositive portion of the CA decision reads:

WHEREFORE, in the light of the foregoing, the lower Court's Decision is hereby AFFIRMED with the MODIFICATION that defendant-appellee, in addition to the sum adjudged by the lower court in favor of plaintiff-appellant, is also ORDERED to pay plaintiff-appellant the amount of FIFTY

THOUSAND (P50,000.00) PESOS for moral damages. Costs against defendant-appellee.

SO ORDERED.4

Upon the denial of its motion for reconsideration, petitioner UE elevated the case to this Court on a petition for review under Rule 45 of the Rules of Court, arguing that it has no liability to respondent Romeo A. Jader, considering that the proximate and immediate cause of the alleged damages incurred by the latter arose out of his own negligence in not verifying from the professor concerned the result of his removal exam.

The petition lacks merit.

When a student is enrolled in any educational or learning institution, a contract of education is entered into between said institution and the student. The professors, teachers or instructors hired by the school are considered merely as agents and administrators tasked to perform the school's commitment under the contract. Since the contracting parties are the school and the student, the latter is not duty-bound to deal with the former's agents, such as the professors with respect to the status or result of his grades, although nothing prevents either professors or students from sharing with each other such information. The Court takes judicial notice of the traditional practice in educational institutions wherein the professor directly furnishes his/her students their grades. It is the contractual obligation of the school to timely inform and furnish sufficient notice and information to each and every student as to whether he or she had already complied with all the requirements for the conferment of a degree or whether they would be included among those who will graduate. Although commencement exercises are but a formal ceremony, it nonetheless is not an ordinary occasion, since such ceremony is the educational institution's way of announcing to the whole world that the students included in the list of those who will be conferred a degree during the baccalaureate ceremony have satisfied all the requirements for such degree. Prior or subsequent to the ceremony, the school has the obligation to promptly inform the student of any problem involving the latter's grades and performance and also most importantly, of the procedures for remedying the same.

Petitioner, in belatedly informing respondent of the result of the removal examination, particularly at a time when he had already commenced

preparing for the bar exams, cannot be said to have acted in good faith. Absence of good faith must be sufficiently established for a successful prosecution by the aggrieved party in a suit for abuse of right under Article 19 of the Civil Code. Good faith connotes an honest intention to abstain from taking undue advantage of another, even though the forms and technicalities of the law, together with the absence of all information or belief of facts, would render the transaction unconscientious.5 It is the school that has access to those information and it is only the school that can compel its professors to act and comply with its rules, regulations and policies with respect to the computation and the prompt submission of grades. Students do not exercise control, much less influence, over the way an educational institution should run its affairs, particularly in disciplining its professors and teachers and ensuring their compliance with the school's rules and orders. Being the party that hired them, it is the school that exercises general supervision and exclusive control over the professors with respect to the submission of reports involving the students' standing. Exclusive control means that no other person or entity had any control over the instrumentality which caused the damage or injury.6

The college dean is the senior officer responsible for the operation of an academic program, enforcement of rules and regulations, and the supervision of faculty and student services.7 He must see to it that his own professors and teachers, regardless of their status or position outside of the university, must comply with the rules set by the latter. The negligent act of a professor who fails to observe the rules of the school, for instance by not promptly submitting a student's grade, is not only imputable to the professor but is an act of the school, being his employer.

Considering further, that the institution of learning involved herein is a university which is engaged in legal education, it should have practiced what it inculcates in its students, more specifically the principle of good dealings enshrined in Articles 19 and 20 of the Civil Code which states:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same.

Art. 19 was intended to expand the concept of torts by granting adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight to provide specifically in statutory law.8 In civilized society, men must be able to assume that others will do them no intended injury — that others will commit no internal aggressions upon them; that their fellowmen, when they act affirmatively will do so with due care which the ordinary understanding and moral sense of the community exacts and that those with whom they deal in the general course of society will act in good faith. The ultimate thing in the theory of liability is justifiable reliance under conditions of civilized society.9 Schools and professors cannot just take students for granted and be indifferent to them, for without the latter, the former are useless.

Educational institutions are duty-bound to inform the students of their academic status and not wait for the latter to inquire from the former. The conscious indifference of a person to the rights or welfare of the person/persons who may be affected by his act or omission can support a claim for damages.10 Want of care to the conscious disregard of civil obligations coupled with a conscious knowledge of the cause naturally calculated to produce them would make the erring party liable.11 Petitioner ought to have known that time was of the essence in the performance of its obligation to inform respondent of his grade. It cannot feign ignorance that respondent will not prepare himself for the bar exams since that is precisely the immediate concern after graduation of an LL.B. graduate. It failed to act seasonably. Petitioner cannot just give out its student's grades at any time because a student has to comply with certain deadlines set by the Supreme Court on the submission of requirements for taking the bar. Petitioner's liability arose from its failure to promptly inform respondent of the result of an examination and in misleading the latter into believing that he had satisfied all requirements for the course. Worth quoting is the following disquisition of the respondent court:

It is apparent from the testimony of Dean Tiongson that defendant-appellee University had been informed during the deliberation that the professor in Practice Court I gave plaintiff-appellant a failing grade. Yet, defendant-appellee still did not inform plaintiff-appellant of his failure to complete the requirements for the degree nor did they remove his name from the tentative list of candidates for graduation. Worse, defendant-appellee university, despite the knowledge that plaintiff-appellant failed in Practice Court I, again included plaintiff-appellant's name in the "tentative list of

candidates for graduation which was prepared after the deliberation and which became the basis for the commencement rites program. Dean Tiongson reasons out that plaintiff-appellant's name was allowed to remain in the tentative list of candidates for graduation in the hope that the latter would still be able to remedy the situation in the remaining few days before graduation day. Dean Tiongson, however, did not explain how plaintiff appellant Jader could have done something to complete his deficiency if defendant-appellee university did not exert any effort to inform plaintiff-appellant of his failing grade in Practice Court I.12

Petitioner cannot pass on its blame to the professors to justify its own negligence that led to the delayed relay of information to respondent. When one of two innocent parties must suffer, he through whose agency the loss occurred must bear it.13 The modern tendency is to grant indemnity for damages in cases where there is abuse of right, even when the act is not illicit.14 If mere fault or negligence in one's acts can make him liable for damages for injury caused thereby, with more reason should abuse or bad faith make him liable. A person should be protected only when he acts in the legitimate exercise of his right, that is, when he acts with prudence and in good faith, but not when he acts with negligence or abuse.15

However, while petitioner was guilty of negligence and thus liable to respondent for the latter's actual damages, we hold that respondent should not have been awarded moral damages. We do not agree with the Court of Appeals' findings that respondent suffered shock, trauma and pain when he was informed that he could not graduate and will not be allowed to take the bar examinations. At the very least, it behooved on respondent to verify for himself whether he has completed all necessary requirements to be eligible for the bar examinations. As a senior law student, respondent should have been responsible enough to ensure that all his affairs, specifically those pertaining to his academic achievement, are in order. Given these considerations, we fail to see how respondent could have suffered untold embarrassment in attending the graduation rites, enrolling in the bar review classes and not being able to take the bar exams. If respondent was indeed humiliated by his failure to take the bar, he brought this upon himself by not verifying if he has satisfied all the requirements including his school records, before preparing himself for the bar examination. Certainly, taking the bar examinations does not only entail a mental preparation on the subjects thereof; there are also prerequisites of documentation and submission of requirements which the prospective examinee must meet.

WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner is ORDERED to PAY respondent the sum of Thirty-five Thousand Four Hundred Seventy Pesos (P35,470.00), with legal interest of 6% per annum computed from the date of filing of the complaint until fully paid; the amount of Five Thousand Pesos (P5,000.00) as attorney's fees; and the costs of the suit. The award of moral damages is DELEIED.1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Kapunan and Pardo, JJ., concur. Puno, J., took no part. UNITED COCONUT PLANTERS BANK and LUIS MA. ONGSIAPCO,

petitioners, vs. RUBEN E. BASCO, respondent.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review on certiorari assailing the Decision[1] of the Court of Appeals dated March 30, 2000, affirming, with modifications, the Decision[2] of the Regional Trial Court (RTC), Makati City, Branch 146, which found the petitioner bank liable for payment of damages and attorney‘s fees.

The Case for the Respondent

Respondent Ruben E. Basco had been employed with the petitioner United Coconut Planters Bank (UCPB) for seventeen (17) years.[3] He was also a stockholder thereof and owned 804 common shares of stock at the par value of P1.00.[4] He likewise maintained a checking account with the bank at its Las Piñas Branch under Account No. 117-001520-6.[5] Aside from his employment with the bank, the respondent also worked as an underwriter at the United Coconut Planters Life Association (Coco Life), a subsidiary of UCPB since December, 1992.[6] The respondent also solicited insurance policies from UCPB employees.

On June 19, 1995, the respondent received a letter from the UCPB informing him of the termination of his employment with the bank for grave abuse of discretion and authority, and breach of trust in the conduct of his job as Bank Operations Manager of its Olongapo Branch. The respondent

thereafter filed a complaint for illegal dismissal, non-payment of salaries, and damages against the bank in the National Labor Relations Commission (NLRC), docketed as NLRC Cases Nos. 00-09-05354-92 and 00-09-05354-93. However, the respondent still frequented the UCPB main office in Makati City to solicit insurance policies from the employees thereat. He also discussed the complaint he filed against the bank with the said employees.[7]

The respondent was also employed by All-Asia Life Insurance Company as an underwriter. At one time, the lawyers of the UCPB had an informal conference with him at the head office of the bank, during which the respondent was offered money so that the case could be amicably settled. The respondent revealed the incident to some of the bank employees.[8]

On November 15, 1995, Luis Ma. Ongsiapco, UCPB First Vice-President, Human Resource Division, issued a Memorandum to Jesus Belanio, the Vice-President of the Security Department, informing him that the respondent‘s employment had been terminated as of June 19, 1995, that the latter filed charges against the bank and that the case was still on-going. Ongsiapco instructed Belanio not to allow the respondent access to all bank premises.[9] Attached to the Memorandum was a passport-size picture of the respondent. The next day, the security guards on duty were directed to strictly impose the security procedure in conformity with Ongsiapco‘s Memorandum.[10]

On December 7, 1995, the respondent, through counsel, wrote Ongsiapco, requesting that such Memorandum be reconsidered, and that he be allowed entry into the bank premises.[11] His counsel emphasized that –

In the meantime, we are more concerned with your denying Mr. Basco ―access to all bank premises.‖ As you may know, he is currently connected with Cocolife as insurance agent. Given his 17-year tenure with your bank, he has established good relationships with many UCPB employees, who comprise the main source of his solicitations. In the course of his work as insurance agent, he needs free access to your bank premises, within reason, to add the unnecessary. Your memorandum has effectively curtailed his livelihood and he is once again becoming a victim of another ―illegal termination,‖ so to speak. And Shakespeare said: ―You take his life when you do take the means whereby he lives.‖

Mr. Basco‘s work as an insurance agent directly benefits UCPB, Cocolife‘s mother company. He performs his work in your premises peacefully without causing any disruption of bank operations. To deny him access to your premises for no reason except the pendency of the labor case, the outcome of which is still in doubt – his liability, if any, certainly has not been proven – is a clear abuse of right in violation of our client‘s rights. Denying him access to the bank, which is of a quasi-public nature, is an undue restriction on his freedom of movement and right to make a livelihood, comprising gross violations of his basic human rights. (This is Human Rights Week, ironically).

We understand that Mr. Basco has been a stockholder of record of 804 common shares of the capital stock of UCPB since July 1983. As such, he certainly deserves better treatment than the one he has been receiving from your office regarding property he partly owns. He is a particle of corporate sovereignty. We doubt that you can impose the functional equivalent of the penalty of destierro on our client who really wishes only to keep his small place in the sun, to survive and breathe. No activity can be more legitimate than to toil for a living. Let us live and let live.[12]

In his reply dated December 12, 1995, Ongsiapco informed the respondent that his request could not be granted:

As you understand, we are a banking institution; and as such, we deal with matters involving confidences of clients. This is among the many reasons why we, as a matter of policy, do not allow non-employees to have free access to areas where our employees work. Of course, there are places where visitors may meet our officers and employees to discuss business matters; unfortunately, we have limited areas where our officers and employees can entertain non-official matters.

Furthermore, in keeping with good business practices, the Bank prohibits solicitation, peddling and selling of goods, service and other commodities within its premises as it disrupts the efficient performance and function of the employees.

Please be assured that it is farthest from our intention to discriminate against your client. In the same vein, it is highly improper for us to carve exceptions to our policies simply to accommodate your client‘s business ventures.[13]

The respondent was undaunted. At 5:30 p.m. of December 21, 1995, he went to the office of Junne Cacay, the Assistant Manager of the Makati Branch. Cacay was then having a conference with Bong Braganza, an officer of the UCPB Sucat Branch. Cacay entertained the respondent although the latter did have an appointment. Cacay even informed him that he had a friend who wanted to procure an insurance policy.[14] Momentarily, a security guard of the bank approached the respondent and told him that it was already past office hours. He was also reminded not to stay longer than he should in the bank premises.[15] Cacay told the guard that the respondent would be leaving shortly.[16] The respondent was embarrassed and told Cacay that he was already leaving.[17]

At 1:30 p.m. of January 31, 1996, the respondent went to the UCPB Makati Branch to receive a check from Rene Jolo, a bank employee, and to deposit money with the bank for a friend.[18] He seated himself on a sofa fronting the teller‘s booth[19] where other people were also seated.[20] Meanwhile, two security guards approached the respondent. The guards showed him the Ongsiapco‘s Memorandum and told him to leave the bank premises. The respondent pleaded that he be allowed to finish his transaction before leaving. One of the security guards contacted the management and was told to allow the respondent to finish his transaction with the bank.

Momentarily, Jose Regino Casil, an employee of the bank who was in the 7th floor of the building, was asked by Rene Jolo to bring a check to the respondent, who was waiting in the lobby in front of the teller‘s booth.[21] Casil agreed and went down to the ground floor of the building, through the elevator. He was standing in the working area near the Automated Teller Machine (ATM) Section[22] in the ground floor when he saw the respondent standing near the sofa[23] near the two security guards.[24] He motioned the respondent to come and get the check, but the security guard tapped the respondent on the shoulder and prevented the latter from approaching Casil. The latter then walked towards the respondent and handed him the check from Jolo.

Before leaving, the respondent requested the security guard to log his presence in the logbook. The guard did as requested and the respondent‘s presence was recorded in the logbook.[25]

On March 11, 1996, the respondent filed a complaint for damages against the petitioners UCPB and Ongsiapco in the RTC of Manila, alleging

inter alia, that –

12. It is readily apparent from this exchange of correspondence that defendant bank'‘ acknowledged reason for barring plaintiff from its premises - the pending labor case – is a mere pretense for its real vindictive and invidious intent: to prevent plaintiff, and plaintiff alone, from carrying out his trade as an insurance agent among defendant bank‘s employees, a practice openly and commonly allowed and tolerated (encouraged even, for some favored proverbial sacred cows) in the bank premises, now being unjustly denied to plaintiff on spurious grounds.

13. Defendants, to this day, have refused to act on plaintiff‘s claim to be allowed even in only the ―limited areas where [the bank‘s] officers and employees can entertain non-official matters‖ and have maintained the policy banning plaintiff from all bank premises. As he had dared exercised his legal right to question his dismissal, he is being penalized with a variation of destierro, available in criminal cases where the standard however, after proper hearing, is much more stringent and based on more noble grounds than mere pique or vindictiveness.

14. This appallingly discriminatory policy resulted in an incident on January 31, 1996 at 1:30 p.m. at defendant bank‘s branch located at its head office, which caused plaintiff tremendous undeserved humiliation, embarrassment, and loss of face.[26]

…

15. Defendants‘ memorandum and the consequent acts of defendants‘ security guards, together with defendant Ongsiapco‘s disingenuous letter of December 12, 1995, are suggestive of malice and bad faith in derogation of plaintiff‘s right and dignity as a human being and citizen of this country, which acts have caused him considerable undeserved embarrassment. Even if defendants, for the sake of argument, may be acting within their rights, they cannot exercise same abusively, as they must, always, act with justice and in good faith, and give plaintiff his due.[27]

The respondent prayed that, after trial, judgment be rendered in his favor, as follows:

WHEREFORE, it is respectfully prayed that judgment issue ordering

defendants:

1. To rescind the directive to its agents barring plaintiff from all bank premises as embodied in the memorandum of November 15, 1995, and allow plaintiff access to the premises of defendant bank, including all its branches, which are open to members of the general public, during reasonable hours, to be able to conduct lawful business without being subject to invidious discrimination; and

2. To pay plaintiff P100,000.00 as moral damages, P100,000.00 as exemplary damages, and P50,000.00 by way of attorney‘s fees.

Plaintiff likewise prays for costs, interest, the disbursements of this action, and such other further relief as may be deemed just and equitable in the premises.[28]

In their Answer to the complaint, the petitioners interposed the following affirmative defenses:

9. Plaintiff had been employed as Branch Operations Officer, Olongapo Branch, of defendant United Coconut Planters Bank.

In or about the period May to June 1992, he was, together with other fellow officers and employees, investigated by the bank in connection with various anomalies. As a result of the investigation, plaintiff was recommended terminated on findings of fraud and abuse of discretion in the performance of his work. He was found by the bank‘s Committee on Employee Discipline to have been guilty of committing or taking part in the commission of the following:

a. Abuse of discretion in connection with actions taken beyond or outside the limits of his authority.

b. Borrowing money from a bank client. c. Gross negligence or dereliction of duty in the

implementation of bank policies or valid orders from management. d. Direct refusal or willful failure to perform, or delay in

performing, an assigned task. e. Fraud or willful breach of trust in the conduct of his

work. f. Falsification or forgery of bank records/documents.

10. Plaintiff thereafter decided to contest his termination by filing an action for illegal dismissal against the bank.

Despite the pendency of this litigation, plaintiff was reported visiting employees of the bank in their place of work during work hours, and circulating false information concerning the status of his case against the bank, including alleged offers by management of a monetary settlement for his ―illegal dismissal.‖

11. Defendants acted to protect the bank‘s interest by preventing plaintiff‘s access to the bank‘s offices, and at the same time informing him of that decision.

Plaintiff purported to insist on seeing and talking to the bank‘s employees despite this decision, claiming he needed to do this in connection with his insurance solicitation activities, but the bank has not reconsidered.

12. The complaint states, and plaintiff has, no cause of action against defendants.[29]

The petitioners likewise interposed compulsory counterclaims for damages.

The Case for the Petitioners

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

The next day, Ongsiapco contacted the training supervisor and inquired why the respondent was in the training room the day before. The supervisor replied that he did not know why.[31] Thus, on November 15,

1995, Ongsiapco issued a Memorandum to Belanio, the Vice-President for Security Services, directing the latter not to allow the respondent access to the bank premises near the working area.[32] The said Memorandum was circulated by the Chief of Security to the security guards and bank employees.

At about 12:30 p.m. on January 31, 1996, Security Guard Raul Caspe, a substitute for the regular guard who was on leave, noticed the respondent seated on the sofa in front of the teller‘s booth.[33] Caspe notified his superior of the respondent‘s presence, and was instructed not to confront the respondent if the latter was going to make a deposit or withdrawal.[34] Caspe was also instructed not to allow the respondent to go to the upper floors of the building.[35] The respondent went to the teller‘s booth and, after a while, seated himself anew on the sofa. Momentarily, Caspe noticed Casil, another employee of the bank who was at the working section of the Deposit Service Department (DSD), motioning to the respondent to get the check. The latter stood up and proceeded in the direction of Casil‘s workstation. After the respondent had taken about six to seven paces from the sofa, Caspe and the company guard approached him. The guards politely showed Ongsiapco‘s Memorandum to the respondent and told the latter that he was not allowed to enter the DSD working area; it was lunch break and no outsider was allowed in that area.[36] The respondent looked at the Memorandum and complied.

On May 29, 1998, the trial court rendered judgment in favor of the respondent. The fallo of the decision reads:

WHEREFORE, premises considered, defendants are hereby adjudged liable to plaintiff and orders them to rescind and set-aside the Memorandum of November 15, 1995 and orders them to pay plaintiff the following:

1) the amount of P100,000.00 as moral damages; 2) the amount of P50,000.00 as exemplary damages; 3) P50,000.00 for and as attorney‘s fees;

4) Cost of suit.

Defendants‘ counterclaim is dismissed for lack of merit.

SO ORDERED.[37]

The trial court held that the petitioners abused their right; hence, were liable to the respondent for damages under Article 19 of the New Civil Code.

The petitioners appealed the decision to the Court of Appeals and raised the following issues:

4.1 Did the appellants abuse their right when they issued the Memorandum?

4.2 Did the appellants abuse their right when Basco was asked to leave the bank premises, in implementation of the Memorandum, on 21 December 1995?

4.3. Did the appellants abuse their right when Basco was asked to leave the bank premises, in implementation of the Memorandum, on 31 January 1995?

4.4. Is Basco entitled to moral and exemplary damages and attorney‘s fees?

4.5. Are the appellants entitled to their counterclaim?[38]

The CA rendered a Decision on March 30, 2000, affirming the decision of the RTC with modifications. The CA deleted the awards for moral and exemplary damages, but ordered the petitioner bank to pay nominal damages on its finding that latter abused its right when its security guards stopped the respondent from proceeding to the working area near the ATM section to get the check from Casil. The decretal portion of the decision reads:

WHEREFORE, the Decision of the Regional Trial Court dated May 29, 1998 is hereby MODIFIED as follows:

1. The awards for moral and exemplary damages are deleted;

2. The award for attorney‘s fees is deleted;

3. The order rescinding Memorandum dated November 15, 1995 is set aside; and

4. UCPB is ordered to pay nominal damages in the amount of P25,000.00 to plaintiff-appellee.

Costs de oficio.[39]

The Present Petition

The petitioners now raise the following issues before this Court:

I. Whether or not the appellate court erred when it found that UCPB excessively exercised its right to self-help to the detriment of Basco as a depositor, when on January 31, 1996, its security personnel stopped respondent from proceeding to the area restricted to UCPB‘s employees.

II. Whether or not the appellate court erred when it ruled that respondent is entitled to nominal damages.

III. Whether or not the appellate court erred when it did not award the petitioners‘ valid and lawful counterclaim.[40]

The core issues are the following: (a) whether or not the petitioner bank abused its right when it issued, through petitioner Ongsiapco, the Memorandum barring the respondent access to all bank premises; (b) whether or not petitioner bank is liable for nominal damages in view of the incident involving its security guard Caspe, who stopped the respondent from proceeding to the working area of the ATM section to get the check from Casil; and (c) whether or not the petitioner bank is entitled to damages on its counterclaim.

The Ruling of the Court

On the first issue, the petitioners aver that the petitioner bank has the right to prohibit the respondent from access to all bank premises under Article 429 of the New Civil Code, which provides that:

Art. 429. The owner or lawful possessor of a thing has the right to exclude any person from the enjoyment and disposal thereof. For this purpose, he may use such force as may be reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his

property.

The petitioners contend that the provision which enunciates the principle of self-help applies when there is a legitimate necessity to personally or through another, prevent not only an unlawful, actual, but also a threatened unlawful aggression or usurpation of its properties and records, and its personnel and customers/clients who are in its premises. The petitioners assert that petitioner Ongsiapco issued his Memorandum dated November 15, 1995 because the respondent had been dismissed from his employment for varied grave offenses; hence, his presence in the premises of the bank posed a threat to the integrity of its records and to the persons of its personnel. Besides, the petitioners contend, the respondent, while in the bank premises, conversed with bank employees about his complaint for illegal dismissal against the petitioner bank then pending before the Labor Arbiter, including negotiations with the petitioner bank‘s counsels for an amicable settlement of the said case.

The respondent, for his part, avers that Article 429 of the New Civil Code does not give to the petitioner bank the absolute right to exclude him, a stockholder and a depositor, from having access to the bank premises, absent any clear and convincing evidence that his presence therein posed an imminent threat or peril to its property and records, and the persons of its customers/clients.

We agree with the respondent bank that it has the right to exclude certain individuals from its premises or to limit their access thereto as to time, to protect, not only its premises and records, but also the persons of its personnel and its customers/clients while in the premises. After all, by its very nature, the business of the petitioner bank is so impressed with public trust; banks are mandated to exercise a higher degree of diligence in the handling of its affairs than that expected of an ordinary business enterprise.[41] Banks handle transactions involving millions of pesos and properties worth considerable sums of money. The banking business will thrive only as long as it maintains the trust and confidence of its customers/clients. Indeed, the very nature of their work, the degree of responsibility, care and trustworthiness expected of officials and employees of the bank is far greater than those of ordinary officers and employees in the other business firms.[42] Hence, no effort must be spared by banks and their officers and employees to ensure and preserve the trust and confidence of the general public and its customers/clients, as well as the integrity of its records and the safety and well being of its customers/clients

while in its premises. For the said purpose, banks may impose reasonable conditions or limitations to access by non-employees to its premises and records, such as the exclusion of non-employees from the working areas for employees, even absent any imminent or actual unlawful aggression on or an invasion of its properties or usurpation thereof, provided that such limitations are not contrary to the law.[43]

It bears stressing that property rights must be considered, for many purposes, not as absolute, unrestricted dominions but as an aggregation of qualified privileges, the limits of which are prescribed by the equality of rights, and the correlation of rights and obligations necessary for the highest enjoyment of property by the entire community of proprietors.[44] Indeed, in Rellosa vs. Pellosis,[45] we held that:

Petitioner might verily be the owner of the land, with the right to enjoy and to exclude any person from the enjoyment and disposal thereof, but the exercise of these rights is not without limitations. The abuse of rights rule established in Article 19 of the Civil Code requires every person to act with justice, to give everyone his due; and to observe honesty and good faith. When right is exercised in a manner which discards these norms resulting in damage to another, a legal wrong is committed for which the actor can be held accountable.

Rights of property, like all other social and conventional rights, are subject to such reasonable limitations in their enjoyment and to such reasonable restraints established by law.[46]

In this case, the Memorandum of the petitioner Ongsiapco dated November 15, 1995, reads as follows:

MEMO TO : MR. JESUS M. BELANIO Vice President

Security Department

D A T E : 15 November 1995

R E : MR. RUBEN E. BASCO

Please be advised that Mr. Ruben E. Basco was terminated for a cause by the Bank on 19 June 1992. He filed charges against the bank and the case is still on-going.

In view of this, he should not be allowed access to all bank premises.

(Sgd.) LUIS MA. ONGSIAPCO

First Vice President

Human Resource Division

16 November 1995

TO: ALL GUARDS ON DUTY

Strictly adhere/impose Security Procedure RE: Admission to Bank premises.

For your compliance.

(Signature) 11/16/95

JOSE G. TORIAGA[47]

On its face, the Memorandum barred the respondent, a stockholder of the petitioner bank and one of its depositors, from gaining access to all bank premises under all circumstances. The said Memorandum is all-embracing and admits of no exceptions whatsoever. Moreover, the security guards were enjoined to strictly implement the same.

We agree that the petitioner may prohibit non-employees from entering

the working area of the ATM section. However, under the said Memorandum, even if the respondent wished to go to the bank to encash a check drawn and issued to him by a depositor of the petitioner bank in payment of an obligation, or to withdraw from his account therein, or to transact business with the said bank and exercise his right as a depositor, he could not do so as he was barred from entry into the bank. Even if the respondent wanted to go to the petitioner bank to confer with the corporate secretary in connection with his shares of stock therein, he could not do so, since as stated in the Memorandum of petitioner Ongsiapco, he would not be allowed access to all the bank premises. The said Memorandum, as worded, violates the right of the respondent as a stockholder or a depositor of the petitioner bank, for being capricious and arbitrary.

The Memorandum even contravenes Article XII, paragraph 4 (4.1 and 4.2) of the Code of Ethics issued by the petitioner bank itself, which provides that one whose employment had been terminated by the petitioner bank may, nevertheless, be allowed access to bank premises, thus:

4.1 As a client of the Bank in the transaction of a regular bank-client activity.

4.2 When the offending party is on official business concerning his employment with the Bank with the prior approval and supervision of the Head of HRD or of the Division Head, or of the Branch Head in case of branches.[48]

For another, the Memorandum, as worded, is contrary to the intention of the petitioners. Evidently, the petitioners did not intend to bar the respondent from access to all bank premises under all circumstances. When he testified, petitioner Ongsiapco admitted that a bank employee whose services had been terminated may be allowed to see an employee of the bank and may be allowed access to the bank premises under certain conditions, viz:

ATTY. R. ALIKPALA

Q So the permission you are referring to is merely a permission to be granted by the security guard?

A No, sir, not the security guard. The security will call the office where they are going. Because this is the same procedure they do for visitors. Anybody who wants to see anybody in

the bank before they are allowed access or entry, they call up the department or the division.

Q So I want to clarify, Mr. Witness. Former bank employees are not allowed within the bank premises until after the security guard call, which ever department they are headed for, and that they give the permission and they tell the security guard to allow the person?

A Yes, Sir, that is the usual procedure.

Q If an employee resigned from the bank, same treatment?

A Yes, Sir.

Q If an employee was terminated by the bank for cause, same treatment?

A Yes, Sir.

Q Outsiders who are not employees or who were never employees of the bank also must ask permission?

A Yes, Sir. Because there is a security control at the lobby.

Q You mentioned that this is a general rule?

A Yes, Sir.

Q Is this rule written down in black and white anywhere?

A I think this is more of a security procedure.

Q But being a huge financial institution, we expect Cocobank has its procedure written down in black and white?

ATTY. A. BATUHAN

Your Honor, objection. Argumentative, Your Honor. There is no question posed at all, Your Honor.

C O U R T

Answer. Is there any guideline?

A There must be a guideline of the security.

Q But you are not very familiar about the security procedures?

A Yes, Sir.

ATTY. R. ALIKPALA

Q Mr. Ongsiapco, the agency that you hired follows certain procedures?

A Yes, Sir.

Q Which of course are under the direct control and supervision of the bank?

A Yes, Sir.

Q And did the security agency have any of this procedure written down?

A It will be given to them by the Security Department, because they are under the Security Department.

Q But if an employee is only entering the ground floor bank area, where customers of the bank are normally allowed, whether depositors or not, they don‘t need to ask for express permission, is that correct?

A Yes, if they are client.

Q Even if they are not client, but let us say they have to encash a check paid to them by someone?

A He is a client then.

Q But he is not yet a client when he enters the bank premises. He only becomes … you know because you do not all these people, you do not know every client of the bank so you just allow them inside the bank?

A Yes, the premises.[49]

Petitioner Ongsiapco also testified that a former employee who is a customer/client of the petitioner bank also has access to the bank premises, except those areas reserved for its officers and employees, such as the working areas:

ATTY. R. ALIKPALA

Q So Mr. Witness, just for the sake of clarity. The ground floor area is where the regular consumer banking services are held? What do you call this portion?

A That is the Deposit Servicing Department.

Q Where the ….

A Where the people transact business.

ATTY. R. ALIKAPALA

Q They are freely allowed in this area?

A Yes, Sir.

Q This is the area where there are counters, Teller, where a person would normally go to let us say open a bank account or to request for manager‘s check, is that correct?

A Yes, Sir.

Q So, in this portion, no, I mean beyond this portion, meaning the working areas and second floor up, outsiders will have to ask express permission from the security guard?

A Yes, Sir.

Q And you say that the security guards are instructed to verify the purpose of every person who goes into this area?

A As far as I know, sir.[50]

It behooved the petitioners to revise such Memorandum to conform to its Code of Ethics and their intentions when it was issued, absent facts and circumstances that occurred pendente lite which warrant the retention of the Memorandum as presently worded.

On the second issue, the Court of Appeals ruled that the petitioner bank is liable for nominal damages to the respondent despite its finding that the petitioners had the right to issue the Memorandum. The CA ratiocinated that the petitioner bank should have allowed the respondent to walk towards the restricted area of the ATM section until they were sure that he had entered such area, and only then could the guards enforce the

Memorandum of petitioner Ongsiapco. The Court of Appeals ruled that for such failure of the security guards, the petitioner bank thereby abused its right of self-help and violated the respondent's right as one of its depositors:

With respect, however, to the second incident on January 31, 1996, it appears that although according to UCPB security personnel they tried to stop plaintiff-appellee from proceeding to the stairs leading to the upper floors, which were limited to bank personnel only (TSN, pp. 6-9, June 4, 1997), the said act exposed plaintiff-appellee to humiliation considering that it was done in full view of other bank customers. UCPB security personnel should have waited until they were sure that plaintiff-appellee had entered the restricted areas and then implemented the memorandum order by asking him to leave the premises. Technically, plaintiff-appellee was still in the depositing area when UCPB security personnel approached him. In this case, UCPB‘s exercise of its right to self-help was in excess and abusive to the detriment of the right of plaintiff-appellee as depositor of said Bank, hence, warranting the award of nominal damages in favor of plaintiff-appellee. Nominal damages are adjudicated in order that a right of a plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized and not for the purpose of indemnifying any loss suffered by him (Japan Airlines vs. Court of Appeals, 294 SCRA 19).[51]

The petitioners contend that the respondent is not entitled to nominal damages and that the appellate court erred in so ruling for the following reasons: (a) the respondent failed to prove that the petitioner bank violated any of his rights; (b) the respondent did not suffer any humiliation because of the overt acts of the security guards; (c) even if the respondent did suffer humiliation, there was no breach of duty committed by the petitioner bank since its security guards politely asked the respondent not to proceed to the working area of the ATM section because they merely acted pursuant to the Memorandum of petitioner Ongsiapco, and accordingly, under Article 429 of the New Civil Code, this is a case of damnum absque injuria;[52] and (d) the respondent staged the whole incident so that he could create evidence to file suit against the petitioners.

We rule in favor of the petitioners.

The evidence on record shows that Casil was in the working area of the ATM section on the ground floor when he motioned the respondent to approach him and receive the check. The respondent then stood up and

walked towards the direction of Casil. Indubitably, the respondent was set to enter the working area, where non-employees were prohibited entry; from there, the respondent could go up to the upper floors of the bank‘s premises through the elevator or the stairway. Caspe and the company guard had no other recourse but prevent the respondent from going to and entering such working area. The security guards need not have waited for the respondent to actually commence entering the working area before stopping the latter. Indeed, it would have been more embarrassing for the respondent to have started walking to the working area only to be halted by two uniformed security guards and disallowed entry, in full view of bank customers. It bears stressing that the security guards were polite to the respondent and even apologized for any inconvenience caused him. The respondent could have just motioned to Casil to give him the check at the lobby near the teller‘s booth, instead of proceeding to and entering the working area himself, which the respondent knew to be an area off-limits to non-employees. He did not.

The respondent failed to adduce evidence other than his testimony that people in the ground floor of the petitioner bank saw him being stopped from proceeding to the working area of the bank. Evidently, the respondent did not suffer embarrassment, inconvenience or discomfort which, however, partakes of the nature of damnum absque injuria, i.e. damage without injury or damage inflicted without injustice, or loss or damage without violation of legal rights, or a wrong due to a pain for which the law provides no remedy.[53] Hence, the award of nominal damages by the Court of Appeals should be deleted.

On the third issue, we now hold that the petitioner bank is not entitled to damages and attorney‘s fees as its counterclaim. There is no evidence on record that the respondent acted in bad faith or with malice in filing his complaint against the petitioners. Well-settled is the rule that the commencement of an action does not per se make the action wrongful and subject the action to damages, for the law could not have meant to impose a penalty on the right to litigate.

We reiterate case law that if damages result from a party‘s exercise of a right, it is damnum absque injuria.[54]

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED and SET

ASIDE. The complaint of the respondent in the trial court and the counterclaims of the petitioners are DISMISSED. MAMITUA SABER, substituted by his HEIRS, represented by ORFIA

ALICER SABER, petitioners, vs. COURT OF APPEALS, PHILIPPINE AMANAH BANK and ASGARI ARADJI, respondents.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review on certiorari filed by the heirs of Dr. Mamitua Saber of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 22626 reversing the Decision[2] of the Regional Trial Court of Marawi City, Branch 9, in Civil Case No. 2323 (84-R), as well as the Resolution of the appellate court denying the motion for reconsideration thereof.

The Antecedents

On April 8, 1974 then President Ferdinand E. Marcos appointed Dr. Mamitua Saber, then Dean of Research at the Mindanao State University and Acting Director, National Science Museum, as Executive Vice-President of the Philippine Amanah Bank (PAB).[3] He was also designated as the Officer-in-Charge of the bank pending the election of its president by the Board of Directors. Saber was surprised because he did not apply for appointment to the position. He inquired from Executive Secretary Alejandro Melchor why he was appointed thereto, considering that he had no experience whatsoever in the field of business and banking. He was told that he was chosen by the President from among forty applicants because of his proven personal integrity. Saber took a year-long leave of absence from the university and assumed office at the PAB. From the serenity of the academe, he plunged head-on into the turbulent and intricate world of business.

One of the members of the Board of Directors of the bank was Asgari Aradji who was also the Acting Chairman of the Screening Committee for Personnel. Martin Saludo, then Senior Vice-President of the Philippine National Bank (PNB), was a management consultant of the PAB.

Saber was sent to Malaysia to study how its Malaysian government

prepared and managed the annual Muslim pilgrimage (Hajj) to Mecca, and thus, avoid the fiascos that plagued previous such pilgrimages of Filipino Muslims in the past. After his stint in Malaysia, Saber resumed his duties at the PAB.

In a Letter dated September 19, 1974, Executive Secretary Alejandro Melchor informed Chairman of the PAB Board of Directors Dr. Cesar A. Majul, that the bank had been designated to make appropriate preparations and arrangements for the annual pilgrimage of Filipino Muslims to Mecca.[4] The next day, Majul forwarded the letter to Saber, directing the latter to undertake the appropriate arrangements for the pilgrimage.[5] Saber was concerned because he had only two months to prepare; the pilgrims had to be in Mecca in time for the one-day ceremony at Mt. Arafat on December 23, 1974. Considering that Saber had no experience thereon, the PAB Board of Directors designated Saludo as the head of the one-man oversight committee to oversee the preparations.

Saber issued Office Memorandum No. 92 forming a Pilgrimage Secretariat with the following officers: Atty. Lanang S. Ali, as Chairman and Pilgrimage Administrator; Dialel Basman, as Finance Officer; and Kuisan Go, as Trade and Investment Officer. Saber later issued Office Order No. 95, designating ten (10) members of the Secretariat who would join the pilgrimage and coordinate the same. This included Lugum Uka, as Vice-Chairman, and Alexander Lucman, as member.[6] On October 4, 1974, Saber issued another Memorandum delineating the specific duties of the Secretariat members who were joining the trip.[7]

Saber decided to charter the M/V Sweet Homes, owned by the Sweet Lines, Inc., for the trip. In behalf of the PAB, as charter, Saber executed a Uniform Time-Charter on October 15, 1974 under which the PAB chartered the M/V Sweet Homes to transport the pilgrims to Mecca and back to the Philippines for P5,300,000 cash, the amount budgeted[8] by the PAB. The parties executed a Rider to Charter Party in which the PAB was allowed to load cargoes in the cargo hold of the vessel up to 500 metric tons free of freight.[9] The vessel was scheduled to leave on November 28, 1974. There was no time to lose; the PAB conducted a massive information drive to inform the Muslims of the arrangements, including the accommodations on board the vessel and urged them to join the Hajj through the bank. Prospective pilgrims, including PAB depositors, made reservations for the voyage and made partial payments for their tickets thereon.

On October 25, 1974, Saber wrote then President Marcos requesting that other parties not be allowed to charter any ship or aircraft bringing pilgrims to Jeddah, to avoid unfair competition with the PAB.[10] However, President Marcos granted Congressman Ali Dimaporo and some politicians from Lanao del Sur permission to charter a plane to transport the pilgrims. Worse, Sacar Basman, the General Manager of the Arabian Gulf Export Agency Corporation (AGEAC) had been representing to the public that he was one of the Pilgrimage Directors, that he had been allotted 25 passengers for the voyage on board the M/V Sweet Homes and solicited fare payments from interested pilgrims.[11]

On November 8, 1974, Indar Tampi, the Marawi Branch Manager of the PAB, wrote Saber expressing his disappointment over the turn of events – politicians being allowed to charter a private plane which was in direct competition with the PAB. He stated that this could derail the success of the pilgrimage and cause great financial loss to the bank. He also expressed his apprehensions about the representations of Sacar Basman that he was one of pilgrimage directors, and that he was allotted 25 accommodations on the M/V Sweet Homes.[12] Tampi sent a telegram to Saber on November 14, 1974 informing the latter that many prospective passengers, including 120 depositors of the PAB who were booked for the voyage on board the M/V Sweet Homes, had withdrawn their reservations. Furthermore, about 200 1st and 2nd class cabin accommodations were rendered vacant.[13] When he learned of the foregoing developments, President Marcos was alarmed and ordered that pilgrims going to Mecca by plane be limited to 100 passengers.[14]

In November 1974, Saber formed a three-man panel called the ―Troika,‖ composed of Atty. Lanang Ali, Dialel Basman and Ibrahim Mamao, to coordinate the arrangements for the pilgrimage. Rather than allow the vessel to leave for Mecca with many vacant cabins, Saber decided to sell tickets to Basman on credit. He issued a Memorandum[15] on November 21, 1974, informing the Troika that he had reached an agreement with Basman that the latter would purchase forty (40) first class (ordinary) cabin accommodations and thirty (30) second class (dormitory) accommodations on board the M/V Sweet Homes, and that Basman would pay via a postdated check. Saber directed the Troika to implement the agreement. Saber issued a supplemental memorandum to the Secretariat ordering it as follows:

… [T]o give and issue on credit purchase basis additional One Hundred

Twenty (120) fare tickets all of first class accommodations at P6,500.00 each under the following terms and conditions, tax FREE;

1. The said fare tickets all first class accommodations at P6,500.00 each in the total sum of SEVEN HUNDRED FIFTY-SIX THOUSAND (P756,000.00) PESOS, Philippine Currency, shall consist of the unsold tickets and the same shall be given and issued to Datu Sacar Basman on credit purchase basis.

2. The said sum of P756,000.00 shall be paid by means of post-dated check issued by Datu Sacar Basman in favor of the Philippine Amanah Bank.[16]

In a parallel development, Atty. Mangawan Toro, the Legal Counsel of the PAB, prepared a Freight Contract which the PAB, through Saber, and the AGEAC, through Basman, its General Manager, executed without the approval of the PAB Board of Directors. Under the contract, AGEAC was allowed to load on the M/V Sweet Homes chartered by the PAB, exportable/importable goods and other cargoes on its trip to Saudi Arabia and return, in consideration of P178,000 to be paid by AGEAC via a postdated check, under the following terms and conditions:

7. That the PARTY OF THE SECOND PART will pay, and hand in and deliver the payment of the consideration referred to above within a period of ten (10) days from and after arrival in the Philippines in its return home trip.

8. That as a security for the payment of the freight agreed upon, the PARTY OF THE SECOND PART hereby agrees that the PARTY OF THE FIRST PART shall have a superior lien in the proceeds on the sale of the goods evidenced by the bill of lading, invoices and other documents and/or on the goods in case no sale is made.[17]

On the other hand, Saber stated in his Memo-Directives in the Secretariat that in connection with the Freight Contract with AGEAC –

4. The proceeds of the exported goods sold shall be placed in the possession of the PAB Treasurer or his authorized representative which shall be made available to Datu Sacar Basman for use in payment for goods to be imported; likewise,

the proceeds derived from the sale of the imported goods shall be kept by the said Treasurer or his authorized representative and all sums indicated in the postdated check/s issued by Datu Sacar Basman be deducted therefrom and/or whatever amount or sums of money due to the bank as embodied in the memo-directive of November 21, 1974 and in this addendum, likewise, in other contracts signed by the parties herein.[18]

Although they believed that the agreements of Saber with Basman/AGEAC were against the policies of the PAB, the Troika/Secretariat had to implement the Memoranda, and because of Saber‘s insistence, gave the tickets to Basman. In payment thereof, Basman drew and issued PAB Check Nos. 00377 and 00378, both postdated February 4, 1975 against his account No. 10000008 payable to PAB with no amounts written thereon.[19] Basman loaded exportable goods on board the vessel. When the vessel arrived in Saudi Arabia, the authorities did not allow the M/V Sweet Homes to dock. Its passengers were boarded on boats and transported to the pier. Basman failed to unload and sell the exportable goods, much less purchase importable goods. When the postdated checks were deposited on the due dates thereof in the account of the PAB, they were dishonored.[20] Basman, likewise, failed to pay for the freight charge for the exportable cargo of AGEAC to Saudi Arabia. Consequently, the PAB sustained a huge financial loss.

PAB Auditor Aramis Aguilar submitted his Report of the Accounts Receivables in connection with the pilgrimage in the total amount of P1,033,700, thus:

SCHEDULE OF RECEIVABLES

I. For Tickets Sold:

1. Sacar Basman P654,000.00

2. 78 Passengers (Surrenderees) sponsored by PC

Authorities 296,400.00 3. Eight (8) persons guaranteed by Ambassador L.

Pangandaman 49,600.00

4. Nascuin Dakinangcob 1,700.00

5. Acmad Buat 2,700.00

6. Ali Usman 3,800.00

7. Ali Laguindab 3,800.00

Sub-total P1,012,000.00

II. For Mutawiff:

1. Cosain Ali Usman 900.00

2. Surrenderees assessed by the PC

Authorities 13,600.00 3. Eight (8) Passengers guaranteed

by Ambassador L. Pangandaman 7,200.00

Sub-total P 21,700.00

TOTAL RECEIVABLES P 1,033,700.00[21]

During the meeting of the PAB Board of Directors, Saber was present. The Board, after exhaustive deliberations, approved Resolution No. 67, Series of 1975, without any objection, declaring Saber liable for the receivables on the ground that the Board did not authorize him to sell tickets on credit payable via postdated checks, and to execute the Freight Contract with AGEAC. The Board directed Saber to collect the receivables himself, because of its perception that if the PAB endeavored to collect the receivables, it would, thereby, be ratifying the unauthorized acts of Saber.

PAB Director Asgari A. Aradji, who was also Acting Chairman of the Personnel Screening Committee of the PAB, made verbal representations to the PAB Board of Directors to grant PAB Management Consultant and PAB Senior Vice-President Martin L. Saludo the power to perform the duties and exercise the powers of PAB President, in lieu of Saber who was only the Officer-in-Charge. He issued a Memorandum to the Board of

Directors, through the Chairman of the Board, on February 21, 1975 reiterating his proposal. He explained the following therein:

Specifically, I refer to the mishandling of the 1974 MECCA Pilgrimage. The Board set a budget of P5.53 million but the incumbent OIC authorized a total disbursement of P9.157 million or an excess of P3.62 million.

As Chairman of the Personnel Screening Committee, I have discovered, much to my surprise, that a number of employees have been retained in spite their not having the necessary qualifications for the positions; other[s] were terminated despite the fact that they are more deserving than those who were retained.

These instances clearly indicate the apparent lack of exercise of effective leadership which is so vital and essential at this crucial stage if we are to make the Amanah Bank truly responsive to the needs of our Muslim brothers. Moreover, the purpose for which Dr. Namitua Saber has been designated as OIC have already been accomplished and such designation has become academic with the constitution of the PAB Board of Directors.[22]

Meanwhile, Saber‘s leave of absence at the Mindanao State University expired and he had to report back to the university. He applied for a clearance from the PAB. Assistant Auditor Rodolfo Ocampo signed the said clearance for and in behalf of Auditor Aramis Aguilar, subject to Resolution No. 67, Series of 1975 of the PAB Board of Directors. Because of the conditional clearance issued by the PAB, Saber was reinstated to his position as professor at the university with the salary of P34,000.00 per annum, but not to his former position as Dean for Research.

On May 6, 1975, the PAB Board of Directors approved Resolution No. 92 confirming the recommendation of the management of the bank for the creation of an Investigating Committee of five (5) members, chaired by Aradji, to look into the administrative and/or criminal liabilities of the persons involved in the Pilgrimage Project.[23] It also resolved that pending the outcome of the investigation, Saber be given only a conditional clearance.[24]

During the formal investigation, Saber testified and submitted documentary evidence. Aradji submitted his Report to the PAB Board of Directors that there was basis for Saber to be charged with violation of

Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, and recommended that the proper criminal complaint be filed against him. The management approved the recommendation of Aradji.

On July 10, 1975, the Board of Directors of the PAB approved Resolution No. 155 confirming the recommendation of the PAB Management based on the Report of the Investigating Committee headed by Aradji. The resolution authorized the filing of a criminal complaint against Saber for violation of Rep. Act No. 3019, and for Aradji to sign the said complaint and testify against Saber:

1. That a criminal case for violation of the provisions of the Anti-Graft and Corrupt Practices Act (Republic Act 3019) be filed against Dr. Mamitua Saber and that Director Asgari A. Aradji, Chairman, Investigation Committee, 1974 Mecca Pilgrimage Project be authorized, as he is hereby authorized to sign for and in behalf of the Bank the complaint against Dr. Mamitua Saber and thereafter to testify and represent the Bank. Should sufficient evidence be found later to prove conspiracy in the preparation and execution of the Freight Contract, the memorandum and the addendum thereto mentioned above, that Messrs. Lanang Ali, Mañgawan Doro, Dialel Basman and other persons involved be included as respondents;[25]

Pursuant thereto, Aradji signed the criminal complaint filed with the Office of the City Fiscal of Zamboanga City against Saber for violation of Rep. Act No. 3019. The case was docketed as Slip No. 527-75. The complaint, as well as the report on the investigation of Saber, was the subject of a news item in the Times Journal, a newspaper of general circulation under the by-line of reporter Emilio Macaspac.[26]

On October 6, 1975, Saber filed a civil complaint for damages in the RTC of Marawi City, Branch 9, against the PAB,[27] the Chairman and the members of its Board of Directors, its Managing Director Martin Saludo, Auditor Aramis Aguilar, and Assistant Auditor Rodolfo Ocampo. Saber alleged therein that the PAB was authorized to make the appropriate arrangements for the pilgrimage; he had the implied authority to enter into transactions, including the authority to sell the tickets to Basman on credit and to execute the Freight Contract with AGEAC. He pointed out that Martin Saludo, who was appointed by the Board of Directors to oversee the preparation of the pilgrimage, approved the said transactions; hence, he is not personally liable for the receivables of P1,033,700. He alleged that the

defendants therein acted arbitrarily, oppressively and unfairly in considering the receivables in connection with the pilgrimage as his personal obligation and in approving Resolution No. 67. He further averred that the conditional clearance made by Ocampo and Aguilar caused him great damage and prejudice, and that the filing of the anti-graft charges against him by the PAB and its Board of Directors was devoid of any factual and legal basis. He claimed that the filing of the charges, the nationwide publication thereof at the behest of the PAB, and the press release of the Investigating Committee‘s report and the complaint caused him dishonor, shame, discredit and contempt, shock, besmirched reputation, and wounded feelings, for which the defendants were liable for moral, exemplary and actual damages. He also alleged that because of his preventive suspension, he failed to receive his salary from the Mindanao State University, causing him and his family severe economic losses. He further claimed that Aradji and Saludo conspired to oust him from the PAB.

Saber, thereafter, prayed that, after due proceedings, judgment be rendered in his favor:

WHEREFORE, it is respectfully prayed that judgment be rendered in favor of plaintiff and against defendants, as follows:

1. Declaring PAB Board‘s Resolution No. 67, Series of 1975 (Annex ‗D‘) null and void;

2. Ordering the deletion of the questioned notation ‗Subject to Board Resolution No. 67, Series of 1975‘ contained in the Certificate of Clearance (Annex ‗E‘);

3. Ordering defendant, jointly and severally in their official and/or personal capacity, to pay plaintiff, the following:

1. The amount of no less than P1,000,000.00 as and for moral damages;

2. The amount of no less than P3,650.00 monthly from July 1975, until plaintiff shall have resumed his position in the Mindanao State University;

3. The amount of no less than P100,000.00 as nominal damages;

4. A reasonable amount to be determined by the Honorable Court, as and for exemplary damages;

5. Attorney‘s fees in the amount equivalent to 25% of whatever amount is awarded by the Honorable Court in favor of the plaintiff.

Plaintiff further prays for such other and further relief as this Honorable Court may deem just and equitable in the premises.[28]

On motion of Saber, the complaint was dismissed as against the chairman and members of the PAB Board of Directors.[29]

The remaining defendants therein, the PAB and Aradji, alleged the following in their Answer: Saber sold tickets on credit to Basman payable via postdated checks without authority from the PAB Board of Directors; defendant Martin Saludo approved in principle the lease of the cargo spaces in the M/V Sweet Home, but subject to the approval of the PAB Board of Directors; the said lease contract, including the Freight Contract with AGEAC, was never approved by the PAB Board of Directors; the PAB had no obligation to issue a clearance to Saber, and it would have been injudicious it to have done so on account of Saber‘s unpaid personal obligations to the bank; contrary to Saber‘s claim, there were factual and legal bases for the approval of Resolution No. 67 and the filing of the graft charges against him; Saber made no allegations in the complaint that they (the defendants therein) caused or in any way participated in the publication of the charges filed by the PAB against him; and, the defendants acted in good faith, in the performance of their duties in the filing of the complaint in violation of Section 3, Rep. Act No. 3019.

On December 9, 1975, the Board of Trustees of the MSU approved Resolution No. 969, Series of 1975, approving the reinstatement of Saber to his former position as Dean of Research, with the corresponding salary effective from the date he would report for work.[30]

After a preliminary investigation, Special Counsel Genaro T. Lorena, Jr. of the Office of the City Fiscal issued a Resolution dismissing the complaint in Slip No. 527-75.[31] The petition for review thereon filed by the PAB was dismissed on August 2, 1978.[32] However, upon review by the Tanodbayan, the resolution of the Special Counsel was reversed with the following recommendation:

The undersigned finds and so holds that there exists a prima facie case for violation of Sec. 3, par. (e) on three (3) counts (on the basis of the memoranda of November 21 and 28, 1974, and that of the freight contract, respectively) of the Anti-Graft Law against respondents MAMITUA SABER, LANANG ALI, DIALEL BASMAN, IBRAHIM MAMAO, TINDUG MACARAMBON, IBRAHIM MACADATAR and SACAR BASMAN, and that they are probably guilty thereof. Accordingly, it is recommended that the corresponding informations for Violation of the Anti-Graft Law be filed against respondents.[33]

Three Informations were filed against Saber, Sacar Basman, Lanang Ali, Dialel Basman, Ibrahim Mamao, Tindug Macarambon and Ibrahim Macadatar in the Sandiganbayan for violation of Section 3(e) of Rep. Act No. 3019. The cases were docketed as Criminal Cases Nos. 1835 to 1837.[34] Saber was preventively suspended by the Sandiganbayan as required by law.

After trial, the Sandiganbayan rendered a Decision on January 6, 1982 acquitting all the accused.[35] In acquitting Saber of the charge, the Sandiganbayan ruled:

It is of no legal consequence that both the MEMORANDUM and the ADDENDUM were not approved by the Board of Directors of the BANK. For one thing, it is not the absence of such approval that made the transactions subject of both documents criminal under the penalizing Act but whether they caused undue injury to the BANK or gave unwarranted benefits, advantage or preference to Sacar Basman through manifest partiality, evident bad faith or gross inexcusable negligence of the accused BANK officials, which the court believes did not. For another thing, the time element and the fact that the members of the Board were themselves responsible officials of different government offices precluded convening them to a meeting for that purpose. And still for another thing, Dr. Saber, who was then the Executive Vice President and Officer-in-Charge of the BANK and entrusted with the management of the Pilgrimage Project must be deemed to have been impliedly clothed with authority to enter into any contract related to the Project. A corporate officer, entrusted with the general management and control of its business, has implied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the ordinary business of the corporation. (Board of Liquidators vs. Kalaw, supra, citing 2 Fletcher Cyclopedia Corporations, p. 607.)[36]

On February 11, 1989, the RTC rendered a Decision in Civil Case No. 2323 in favor of Saber, and against the PAB and Aradji, thus:

WHEREFORE, for all the foregoing findings, judgment is hereby rendered in favor of plaintiff and against defendants, as follows:

1. Ordering defendant Philippine Amanah Bank jointly and severally with defendant Asgari Aradji, to pay plaintiff the amounts of:

a. Nine Hundred Thousand (P900,000.00) Pesos as moral damages;

b. One Hundred Thousand (P100,000.00) Pesos as nominal damages;

c. Seventy Thousand (P70,000.00) Pesos as and for Attorney‘s fee; and

d. The costs of suit.

SO ORDERED.[37]

The trial court ruled that the PAB and Aradji were liable for damages based on the following:

...(1) Malicious Prosecution of the criminal cases against plaintiff; (2) Libel arising from derogatory and malicious publications against plaintiff; and (3) willful injury against plaintiff under the provisions of the New Civil Code on Human Relations, arising from Resolution No. 67, Series of 1975 and the conditional clearance in question.[38]

The trial court based its ruling partly on the decision of the Sandiganbayan in Criminal Cases Nos. 1836 to 1837, on the finding that the PAB and Aradji caused the publication of the filing of the criminal charges against Saber in the Office of the City Fiscal in the Times Journal, and that the ouster of the plaintiff from the PAB was instigated by Aradji. Thus:

… It is unrebutted that plaintiff‘s ouster was conspired in as demonstrated by the fact that when Saludo and other members of the Task Force prepared the budget for Amanah Bank, the salary of the President of the Bank was P67,000.00 per annum and the salary of the Executive Vice-President which the plaintiff assumed was P48,000.00 but to pressure plaintiff from giving up his position, the Board was moved by Saludo to

reduce his salary to only P30,000.00 per annum. When plaintiff left the Bank, Saludo took over the position which plaintiff held. After Saludo, defendant Aradji assumed the position of Executive Vice-President, the same position which plaintiff held before he left the Bank. (pp. 4, 26, Deposition of Aradji).[39]

The trial court also ruled that the sales of the tickets to Basman on credit and the execution of the Freight Contract were with the prior approval of Martin Saludo, the head of the One-Man Oversight Committee, as well as Nestor Kalaw, who was the PNB Legal Counsel.

The decision was appealed to the Court of Appeals, which rendered a judgment reversing the decision of the trial court. The CA ruled that Saber failed to prove bad faith and malice against the PAB and Aradji in the performance of their duties, and in exercising the powers of their office. It also held that the latter acted out of duty to protect the interests of the PAB. The CA further ratiocinated that –

Defendants could not be blamed for acting the way they did for they were charged with the duty to act for the bank with loyalty and dedication, and according to their best judgment. It is a well-known rule of law that questions of policy or of management are left solely to the honest decisions of officers and directors of a corporation, and so long as they act in good faith, their orders are not reviewable by the courts.

It is, thus, evident that defendants PAB and Aradji were not in the least motivated by any malicious intent or by a sinister design to unduly harass plaintiff Saber, but only by a well-founded anxiety to protect the interests of the bank when they caused the filing of a criminal complaint against the latter. The facts which presented themselves were such as would excite the belief in a reasonable mind that the person charged was guilty of the crimes for which he was prosecuted. This is the essence of probable cause which eliminates the element of malice essential in making out a case of malicious prosecution. (Almendra v. Alvero, 50 SCRA 62 [1965]).

But whether or not defendants‘ perception of the facts and circumstances is actually correct is irrelevant, the only issue being whether or not there was probable cause in the filing of the criminal complaint.[40]

The appellate court disagreed with the trial court‘s finding of the existence of conspiracy between Saludo and Aradji, thus:

Nor can we see any ―conspiracy‖ to pressure Saber into giving up his position by the reduction of his salary. As explained by defendants, PAB‘s salary structure could not be made at par with that of the Philippine National Bank, for instance, since it was just a small bank with a paid-up capital of only P50 Million and moreover, it had only eight branches. It was therefore deemed necessary to rationalize the salary level of the bank‘s officers and staff to make the operations of the bank more economically sound and viable.[41]

The Present Petition

In the meantime, Saber died intestate. His heirs, represented by Orfia Alicer Saber, filed the instant petition for review on certiorari of the decision of the CA, alleging that the appellate court erred in reversing the decision of the trial court:

Petitioners herein respectfully submit that the Court a quo committed error in concluding that under the environmental circumstances, the award of damages to plaintiff may not be sustained whether based on the principle of abuse of rights or for malicious prosecution.[42]

The petitioners aver that Saber was able to prove his claims for damages against the respondent, based on the principles of abuse of rights and malicious prosecution.

The petitioners contend that the respondents acted with malice and/or in bad faith. They allege that Saber was deprived of his right to be investigated by the impartial investigator. They pointed out that respondent Aradji, who was the Chairman of the Investigating Committee, was biased against Saber, considering that the respondent made strong representations to the Board of Directors of the respondent bank that he (Saber) be replaced by Saludo. The petitioners stress that respondent Aradji, a non-lawyer, was designated to head the Investigating Committee to investigate the pilgrimage fiasco. The petitioners also allege that Saber was denied due process, as he was never furnished with a copy of the Report of the Investigating Committee. They claim that Saludo and respondent Aradji pressed Saber into resigning by proposing for the reduction of his salary as PAB Executive Vice-President from P48,000 per annum to P24,000 per annum, and conspired to oust him from the said position and as officer-in-charge of the petitioner bank because of their

ambitions: Saludo aspired to become the president of the respondent bank, while respondent Aradji wanted to be the Managing Director.

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

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

The Ruling of the Court

The petition has no merit.

Abuse of right under Article 19 of the New Civil Code on which Saber anchored his claim for damages and attorney‘s fees, provides:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

The elements of abuse of rights are the following: (a) the existence of a legal right or duty which is exercised in bad faith; and (b) for the sole intent of prejudicing or injuring another. Malice or bad faith is at the core of said provision.[43] Good faith is presumed and he who alleges bad faith has the duty to prove the same.[44] Good faith refers to the state of the mind which is manifested by the acts of the individual concerned. It consists of the intention to abstain from taking an unconscionable and unscrupulous advantage of another.[45] A public officer is presumed to have acted in good faith in the performance of his duties. Unless there is a clear showing of malice, bad faith or gross negligence, such public officer is not liable for moral and exemplary damages for acts done in the

performance of his official duties.[46] Mistakes committed by a public officer are not actionable absent any clear showing that they were motivated by malice or gross negligence amounting to bad faith.[47] Bad faith, on the other hand, does not simply connote bad judgment to simple negligence, dishonest purpose or some moral obloquy and conscious doing of a wrong, a breach of known duty due to some motives or interest or ill-will that partakes of the nature of fraud.[48] Malice connotes ill-will or spite and speaks not in response to duty. It implies an intention to do ulterior and unjustifiable harm. Malice is bad faith or bad motive.[49]

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

Q Now, what was your rule in the investigation when you were invited to appear?

A As I have stated, they wanted me to shed light or give information about the behavior or what had happened in that pilgrimage.

Q Did you actually appear and testified?

A Yes, I testified. I even gave the committee some

documentary reports, a copy of the report which had been submitted to the chairman of the bank, Dr. Majul.

Q You said that Mr. Aradji headed the investigation committee created by the bank. Is that Mr. Aradji the same defendant in this case?

A Yes, sir.[50]

It was only after the Report and Recommendation of the Investigating Committee was approved by the Board of Directors of the respondent PAB, and the subsequent publication of the said report in the Times Journal that Saber complained, for the first time, of the impropriety of the designation of respondent Aradji as Chairman of the committee.

In any event, it cannot be concluded that the Board of Directors of the PAB acted in bad faith or with malice in designating the respondent Aradji as chairman of the committee, and that the latter acted in bad faith or with malice in accepting the position and in not inhibiting himself from the said investigation.

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

It is true that in his Memorandum dated February 21, 1975 respondent Aradji proposed to the Board of Directors of the respondent PAB that Saludo, a Senior Vice-President of the PNB and PAB management consultant, to exercise the powers and perform the duties of the president of the respondent bank, in effect terminating the designation of Saber as Officer-in-Charge. However, he did so not to spite Saber, but for good and justifiable reasons, thus:

Mr. Saludo has behind him more than 35 years of solid banking experience and expertise in the Bank. He is acceptable to both Christians and Muslims. I strongly believe that he is imminently qualified to exercise the

duties and powers of the President of the Bank.

For the record, I wish to emphasize that Mr. Saludo was never sought much less intimated to me his desire to exercise such duties and powers. On the contrary, his being connected with our Bank is an additional burden to him but which he has graciously accepted as [a] challenge to place the Bank on a competitive level with the other commercial banks in the country.

In submitting this proposal, I am only motivated by my desire to improve the stature of the Bank, which gesture could only be accomplished if we grant the men that executive freedom to act, and to exercise strong, positive and assertive leadership in our organization.[52]

Saber failed to adduce convincing evidence that Saludo and respondent Aradji conspired to oust him from his position as Assistant Vice-President of the respondent bank.

Neither may bad faith nor malice be imputed on the respondents in holding Saber personally liable for the receivables of P1,033,700. The evidence of Saber, no less, shows that he was present during the 16th Meeting of the Board of Directors of the PAB. So were Ministers Cesar Virata and Leonides Virata. After an intensive and exhaustive discussion, the Board resolved that Saber had no authority to enter into any agreement with Basman for the sale of the tickets on credit payable by postdated checks, and to execute a Freight Contract with AGEAC over the cargo hold in the M/V Sweet Homes. The Board unanimously resolved not to ratify the agreements executed by Basman and Saber in behalf of the PAB and with AGEAC, and for Saber to take full responsibility for the collection of receivables. This is shown by the Minutes of the stenographic notes taken during the Board Meeting:

CHAIRMAN : Item No. 3 is the Pilgrimage Project Report. DIR. L. VIRATA : How much money did you lose? DIR. C. VIRATA : How much did you collect from Basman? DR. SABER : None. DIR. C. VIRATA : What is the reason for not collecting? DR. SABER : We have sent him demand letters. DIR. C. VIRATA : Is that all what you have done? MR. SALUDO : In the case of Sacar Basman, the management committee is

preparing letters on this, but we have not finished them yet. If we

are going to demand money from Basman, the thing is, it compels us that we are recognizing an unauthorized act of management, because the moment an official demand letter will be made, they will file an action against us, because I understand that the tickets are actually first class but sold at discounted rates.

DIR. DOMINGO : Will you repeat those words? MR. SALUDO : That they will file an action against Amanah Bank for alleged

violation of the contract between Dr. Saber and Sacar Basman. Since the delivery of tickets to Basman is without the consent and knowledge of the Board, this will be equivalent to sanctioning the action of Management.

DIR. C. VIRATA : I think we sanctioned the acts of management to collect. It was done by management and therefore we are asking management to collect. If we can‘t do anything, we will be responsible the same as management.

DIR. L. VIRATA : I agree, there is no other way. CHAIRMAN : If the tickets are then sold at 3rd class rates not first class. MR. SALUDO : Mr. Basman is now in Manila. DIR. L. VIRATA : Let him do whatever he wants to do against the Bank. You can not

count on us, Dr. Saber. You try to press your collection without the Board being involved. There is no other way.

DIR. C. VIRATA : How much is the amount involved? MR. SALUDO : The value of the tickets is P700,000.00 plus the cost of the

freightage. CHAIRMAN : You study all the legalities. DR. SABER : I gave a directive to my Legal Officer about this including the check

that bounced but issued to the Amanah Bank. CHAIRMAN : He issued a check that bounced. How can the Board held (sic)

Management. Let us help Management. Can we have lawyers from other institutions that can help the Legal Officer? The Legal Officer is only one man. You might have consultants in other institutions, can we allow them to help?

DIR. L. VIRATA : I think, Mr. Saludo can take care of that. DIR. CRUZ : We have also the Corporate Secretary, it‘s a simple case. DR. SABER : We are all saddled in (sic) this problem, we have to concentrate all

our efforts. MR. SALUDO : Atty. Sadac is a lawyer, there are problems but we have to

concentrate on this. ATTY. ABBAS : Does the Board ratify such act? DIR. C. VIRATA : No.

ATTY. ABBAS : Is it against Dr. Saber in his individual capacity? DR. SABER : I have not been acting as an individual person. I have always acted

on that because it is part of my position as an officer of the Bank. There is not a single act that have not think (sic) to save the predicament of the boat in the tense moments. When the boat was about to leave, my Troika recommended to me that this is the recourse, even my Legal Officer advised me, even the Auditor himself who is (sic) there in Zamboanga. If (sic) it was really very urgent that I have to act on the spot. I have to take (sic) a decision because it is going to affect the entire boat if the result was negative but the real intention is (sic) to help. We thought that we will make good for the Bank.

DIR. C. VIRATA : I think, we have to clarify, Dr. Saber, as between the responsibility of the officers and that of the Board. While it is true that you have certain discretionary powers but that is either affirmed or reviewed by the Board. In this case, you have no authority on this very important matter so you have to take on your individual capacity because the Board refuses to share the responsibility.

DIR. DOMINGO : Which we will review or affirm. DIR. C. VIRATA : That is the responsibility as being the head of the institution and all

of us are subject to this restriction. CHAIRMAN : So, I think, better muster all the legal minds in the Bank, Mr. Saludo

and the staff. DIR. DOMINGO : And finish this once and for all. MR. SALUDO : We could file an action against Sacar Basman. The question is, can

we recommend? DIR. CRUZ : That is ratifying an act. MR. SALUDO : We declared that Troika is short. DR. SABER : The Troika is here. DIR. C. VIRATA : It is useless. The Troika will say that Dr. Saber was the one. CHAIRMAN : You run after them individually. DIR. DOMINGO : Who are the members of the Troika? DR. SABER : They are: Atty. Lanang Ali, Administrator, Dialel Basman, the

Treasurer, Tindug Macarambon, Project Accountant and Ibrahim Mamao. Anything they recommended that these are their needs I issued them because they are the ones implementing. They implemented even in the Branches and I thought it is for the good of the Bank.

DIR. TEODORO : The problem here is they are funds due to the Bank. This boat was chartered even without the approval of the Board.

AUD. AGUILAR : Excuse me, there is a possibility to collect because they have issued a communication ordering the people to ride in the boat.

DIR. CRUZ : We will get good Legal Advisers here. It must be the Solicitor General.

CHAIRMAN : This was what I was suggesting. MR. SALUDO : Atty. Sadac here is willing to assist the Legal Counsel of the

Amanah Bank. DIR. CRUZ : Can we not engage the services of the government counsel? CHAIRMAN : If you think you find this necessary. (MR. SALUDO) DIR. CRUZ : I don‘t know the lawyer involved but basing in (sic) our experience,

unless you hire a super-duper lawyer at least you can easily win the case. We could ask for the assistance of the Office of the Solicitor General.

DR. SABER : Mr. Chairman and gentlemen, let me comment. Will you please look on this affair of the pilgrimage not in terms of loss but in terms of other things, what are the various outcome[s] of the pilgrimage.

CHAIRMAN : With all respect to your views, Dr. Saber, there are 2 points here. The Bank is incurring losses, the other one is, there are people owing money. These are 2 different things. The way I look at it, the Bank is already incurring a loss of P900,000. We are only talking on (sic) the Accounts Receivables, it can only serve to explain why we are losing. I think every effort should be made because it involved not only you but also other people like Ambassador Pangandaman. Even these people, you have to have the legal counseling to help, and we will work hand in hand with other lawyers with their advice. If this is difficult, we have government lawyers, this is a government bank. We can seek their advice. The problem is how do we collect money? We are not talking (sic) that the charter of the boat is exorbitant, if it is high. The question is how can the Bank recover? Shall the people owing the Bank pay? Even the Charter rate, it is very big, that is something else. I think, that is the problem. I don‘t know if we understand the Board here, whether we like it or not, we have to collect.

DIR. CRUZ : We have reached a consensus, why don‘t we give Dr. Saber 30 days to liquidate? He is accountable, then we will decide later what course of action shall we take.

DIR. TEODORO : Until the money is returned here as the Board has found it necessary and it is reflected in the report, and efforts should be made on the Accounts Receivables. He is responsible to go after

the people involved. This is the only official action of the Board. MR. SALUDO : Sir, do you think the case will drag on if we can not liquidate within

30 days? DIR. TEODORO : We can not close our eyes that the money of the Bank is lacking in

amount. DIR. CRUZ : The idea here is that, such Legal action on those people

responsible, so these people have to liquidate the account within 30 days, failure on your part, then we resort on (sic) the other course[s] of action.

CHAIRMAN : Any objections[?] BOARD MEMBERS

: None.

CHAIRMAN : APPROVED[53] Indeed, the Sandiganbayan ruled in its decision in Criminal Cases

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

There is no evidence on record that as claimed by the petitioners, Saludo and respondent Aradji conspired to oust Saber as Executive Vice-President of the PAB and Officer-in-Charge. Saludo merely told Saber intimately that it was his ambition to become President of the bank had not President Marcos appointed Saber. Moreover, Saludo and Saber even became intimate friends:

ATTY. FABIE:

Cross-examination to elucidate not because he does not understand. It is not that, Your Honor. A practitioner should be fair. If he cross-examines, the purpose is to elicit the truth, not to distort. Here, in this case, we want the truth.

ATTY. SADAC:

That is the purpose of my cross-examination.

COURT:

LET US PROCEED.

ATTY. SADAC: (to witness)

Q Again, Dr. Saber, on page 213 of the transcript of stenographic notes, dated January 16, 1980, you testified that Mr. Saludo allegedly manifested to you his desire to be president of the Philippine Amanah Bank. For the information of this Honorable Court, will you tell us when was this made or relayed to you?

A During my incumbency in the Philippine Amanah Bank. He did not tell me that he desires to replace me, only his desire to become president of the Bank. He told me intimately, he said: ―Brod, if President Marcos did not get you I would have been made president of the Philippine Amanah Bank because I am also a Muslim.‖ He told that to me intimately. It was intimate, the same as I was intimate with you.

Q When was that within your incumbency, when was that made?

A In fact, he said this to me several times, and again I cannot count how many times I am not keeping statistics of statements.

COURT:

Q AND THAT WAS SAID TO YOU DURING YOUR INCUMBENCY?

A Yes, Your Honor.

ATTY. SADAC:

Q Will you tell us, Dr. Saber, because we want to be specific, in what occasion did Mr. Saludo tell you, what particular occasion?

A Well, under the roof of the Philippine Amanah Bank and some other occasions, but I cannot recall again as I said I did not put this in my diary.

Q You cannot again remember, Dr. Saber?

A Yes, Sir.

Q And when he made this alleged manifestation of his desire to become president of the Philippine Amanah Bank, were there other people around you in these alleged several occasions?

A I cannot remember if there were people around. If there were I will bring them to court to testify because, as I said, this is between friends. Mr. Saludo confirmed his friendship to me and we became friends when we were in the Philippine Amanah Bank.[54]

Neither is there evidence that respondent Aradji had any involvement at all in the reduction of Saber‘s salary from P48,000 to P24,000 per annum. The budget of the bank was modified upon the advice of PNB President Panfilo Domingo and Saludo. This is gleaned from the transcript of stenographic notes of Saber‘s testimony:

Q Do you know, Mr. Saber, for the information of this Honorable Court, how much does the president of the Philippine Amanah Bank received?

A The budget was P48,000.00 per annum, but I received that for a few months the Board of Directors with the advise of President Domingo of the Philippine National Bank and Vice-President Saludo reduced it to 50% and I was paid only P24,000.00 per annum. That discourage me staying with the Bank.

Q In other words, the President of the Philippine Amanah Bank under that new budget that you have mentioned is receiving about P24,000.00 per annum?

A The last salary was P24,000.00 instead of P48,000.00.[55]

The budget was approved by the Board of Directors of the PAB and Central Bank of the Philippines Governor Gregorio Licaros.[56]

Saber failed to adduce evidence that respondent Aradji issued any press release covering his Report to the Board of Directors of the PAB or his formal investigation and the criminal complaint he filed against Saber for violation of Rep. Act No. 3019. The news report of Emil Macaspac of the Times Journal does not attribute the source of the facts contained

therein. When pressed to adduce evidence to prove that the news report was based on the press release issued by the respondent Aradji, Saber hedged and surmised that the source of the news report could have been Atty. Roberto Sadac, the Legal Officer of the PAB:

Q Do you know personally Emil Macaspac, the reporter of the Times Journal?

ATTY. R. SADAC:

I just want to remind the witness that he is testifying under oath.

ATTY. B. FABIE:

The witness, Your Honor, is an intelligent man. Dr. Saber is an educator.

COURT:

GO AHEAD ANSWER THE QUESTION.

WITNESS:

A I do not know him personally nor intimately associated with him. I cannot remember his face but he was among the newspaper men frequenting your office and my office.

Q To be specific Dr. Saber, will you tell this Honorable Court the day or the time or the period when these newspaper men especially Emil Macaspac frequenting my office or your office?

A I am getting the evidence from the dateline of the news of July 28, 1975. So, I presumed that before the news report was printed, he was frequenting your office, otherwise, where is the source of the news? He cannot get it from outside.[57]

The respondent PAB cannot be faulted, nor can it be ordered to pay damages and attorney‘s fees for issuing a conditional clearance to Saber after his resignation from respondent PAB. Saber had not yet liquidated his accountability of P1,012,000 when his leave of absence from the university had expired. The Investigating Committee had yet to commence and terminate its investigation of Saber‘s accountability, administrative or civil, for the pilgrimage fiasco. The respondent PAB had no discretion to issue a

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

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

Probable cause is that which engenders a well-founded belief that a crime has been committed and that the respondent is probably guilty thereof and should be held for trial. A finding for probable cause needs only to rest on evidence showing that in all probability, a crime has been committed by the respondent. Probable cause need not be based on clear and convincing evidence beyond reasonable doubt. While probable cause demands more than mere suspicion, it does not require that the evidence would justify conviction.[65]

Saber failed to prove that the respondents filed the criminal complaints against him with malice and despite lack of probable cause therefor.

The respondent PAB, through respondent Aradji, filed a criminal complaint against Saber for violations of Section 3(e) of Rep. Act No. 3019, which has the following enumerated elements:

(1) The accused is a public officer or a private person charged in conspiracy with the former;

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

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

(4) Such undue injury is caused by giving unwarranted benefits, advantage or preference to such parties; and

(5) That the public officer has acted with manifest partiality, evident bad faith or gross inexcusable neglect.[66]

In this case, the Tanodbayan found probable cause for three (3) counts of violations of Section 3(e) of Republic Act No. 3019.[67] Indeed, the evidence on record shows the following:

First. Saber allowed Basman to buy tickets worth P756,000 payable on credit via postdated checks over the objection of the Troika-Secretariat. The postdated checks were blank as to the amounts. As found by the Sandiganbayan:

Pursuant to the MEMORANDUM (Exh.―G‖), accused Dialel Basman as Finance Officer of the Secretariat issued to Sacar Basman the seventy (70) tickets therein specified worth P392,000 (t.s.n., p. 23, August 11, 1981), for which Sacar Basman issued Philippine Amanah Bank Check No. 00377 payable to the BANK, postdated February 4, 1975, drawn against Sacar Basman‘s account No. 10000008 but blank as to the amount (Exh. ―I‖). Under the ADDENDUM (Exh. ―G-1‖), Dialel Basman issued one hundred twenty (120) first class tickets to Sacar Basman for which Sacar Basman issued PAB Check No. 00378 payable to the BANK, similarly postdated February 4, 1975, drawn against the same account, and also blank as to the amount. (Exh. ―I-1‖.). …[68]

Saber failed to ascertain whether Basman issued the said checks against sufficient funds in his account with the respondent bank. When the checks were deposited by respondent PAB in its account, the said checks were dishonored.

Second. Saber allowed the AGEAC to pay freight charges of P178,000 via Check Nos. 00377 and 00378 postdated February 4, 1975, although the balance of the account of Basman in the respondent bank was only P1,834.55. AGEAC/Basman failed to pay the amount to the respondent PAB after the pilgrimage.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED DUE COURSE. No costs.

SO ORDERED. VICENTE PEREZ, plaintiff-appellee, vs. EUGENIO POMAR, Agent of the Compañia General de Tabacos, defendant-appellant.

Francisco Dominguez for appellant. Ledesma, Sumulong and Quintos for appellee.

TORRES, J.:

In a decision dated February 9, 1903, the judge of the Sixth Judicial District, deciding a case brought by the plaintiff against the defendant for the recovery of wages due and unpaid, gave judgment against the latter for the sum of $600 and the costs of suit, less the sum of $50, Mexican.

On August 27, 1902, Don Vicente Perez filed in the Court of First Instance of Laguna a complaint, which was amended on the 17th of January of this year, asking that the court determine the amount due the plaintiff, at the customary rate of compensation for interpreting in these Islands, for services rendered in the Tabacalera Company, and that, in view of the circumstances of the case, judgment be rendered in his favor for such sum. The complaint also asked that the defendant be condemned to the payment of damages in the sum of $3,200, gold, together with the costs of suit. In this complaint it was alleged that Don Eugenio Pomar, as general agent of the Compañia General de Tabacos in the said province, verbally requested the plaintiff on the 8th of December, 1901, to act as interpreter

between himself and the military authorities; that after the date mentioned the plaintiff continued to render such services up to and including May 31, 1902; that he had accompanied the defendant, Pomar, during that time at conferences between the latter and the colonel commanding the local garrison, and with various officers and doctors residing in the capital, and at conferences with Captain Lemen in the town of Pilar, and with the major in command at the town of Pagsanjan, concerning the shipment of goods from Manila, and with respect to Pagsanjan to this city; that the plaintiff during this period held himself in readiness to render services whenever required; that on this account his private business, and especially a soap factory established in the capital, was entirely abandoned; that to the end that such services might be punctually rendered, the agent, Pomar, assured him that the Tabacalera Company always generously repaid services rendered it, and that he therefore did not trouble himself about his inability to devote the necessary amount of time to his business, the defendant going so far as to make him flattering promises of employment with the company, which he did not accept; that these statements were made in the absence of witnesses and that therefore his only proof as to the same was Mr. Pomar's word as a gentleman; that the employees of the company did not understand English, and by reason of the plaintiff's mediation between the agent, and the military authorities large profits were obtained, as would appear from the account and letterpress books of the agency corresponding to those dates. In the amended complaint it was added that the defendant, on behalf of the company, offered to renumerate the plaintiff for the services rendered in the most advantageous manner in which such services are compensated, in view of the circumstances under which they were requested; and that the plaintiff, by rendering the company such services, was obliged to abandon his own business, the manufacture of soap, and thereby suffered damages in the sum of $3,200, United States currency.

The defendant, on the 25th of September, 1902, filed an answer asking for the dismissal of the complaint, with costs to the plaintiff. In his answer the defendant denied the allegation in the first paragraph of the complaint, stating that it was wholly untrue that the company, and the defendant as its agent, had solicited the services of the plaintiff as interpreter before the military authorities for the period stated, or for any other period, or that the plaintiff had accompanied Pomar at the conferences mentioned, concerning shipments from Manila and exports from some of the towns of the province to this capital. He stated that he especially denied paragraphs

2 of the complaint, as it was absolutely untrue that the plaintiff had been at the disposal of the defendant for the purpose of rendering such services; that he therefore had not been obliged to abandon his occupation or his soap factory, and that the statement that an offer of employment with the company had been made to him was false. The defendant also denied that through the mediation of the plaintiff the company and himself had obtained large profits. The statements in paragraphs 6, 7, 8, and 9 of the complaint were also denied. The defendant stated that, on account of the friendly relations which sprang up between the plaintiff and himself, the former borrowed from him from time to time money amounting to $175 for the purposes of his business, and that he had also delivered to the plaintiff 36 arrobas of oil worth $106, and three packages of resin for use in coloring his soap; that the plaintiff accompanied the defendant to Pagsanjan, Pilar, and other towns when the latter made business trips to them for the purpose of extending his business and mercantile relations therein; that on these excursions, as well as on private and official visits which he had to make, the plaintiff occasionally accompanied him through motives of friendship, and especially because of the free transportation given him, and not on behalf of the company of which he was never interpreter and for which he rendered no services; that the plaintiff in these conferences acted as interpreter of his own free will, without being requested to do so by the defendant and without any offer of payment or compensation; that therefore there existed no legal relation whatever between the company and the plaintiff, and that the defendant, when accepting the spontaneous, voluntary and officious services of the plaintiff, did so in his private capacity and not as agent of the company, and that it was for this reason that he refused to enter into negotiations with the plaintiff, he being in no way indebted to the latter. The defendant concluded by saying that he answered in his individual capacity.

A complaint having been filed against the Compañia General de Tabacos and Don Eugenio Pomar, its agent in the Province of Laguna, the latter, having been duly summoned, replied to the complaint, which was subsequently amended, and stated that he made such reply in his individual capacity and not as agent of the company, with which the plaintiff had had no legal relations. The suit was instituted between the plaintiff and Pomar, who, as such, accepted the issue and entered into the controversy without objection, opposed the claim of the plaintiff, and concluded by asking that the complaint be dismissed, with the costs to the plaintiff. Under these circumstances and construing the statutes liberally, we think it proper

to decide the case pending between both parties in accordance with law and the strict principles of justice.

From the oral testimony introduced at the trial, it appears that the plaintiff, Perez, did on various occasions render Don Eugenio Pomar services as interpreter of English; and that he obtained passes and accompanied the defendant upon his journeys to some of the towns in the Province of Laguna. It does not appear from the evidence, however, that the plaintiff was constantly at the disposal of the defendant during the period of six months, or that he rendered services as such interpreter continuously and daily during that period of time.

It does not appear that any written contract was entered into between the parties for the employment of the plaintiff as interpreter, or that any other innominate contract was entered into; but whether the plaintiff's services were solicited or whether they were offered to the defendant for his assistance, inasmuch as these services were accepted and made use of by the latter, we must consider that there was a tacit and mutual consent as to the rendition of the services. This gives rise to the obligation upon the person benefited by the services to make compensation therefor, since the bilateral obligation to render services as interpreter, on the one hand, and on the other to pay for the services rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code). The supreme court of Spain in its decision of February 12, 1889, holds, among other things, "that not only is there an express and tacit consent which produces real contract but there is also a presumptive consent which is the basis of quasi contracts, this giving rise to the multiple juridical relations which result in obligations for the delivery of a thing or the rendition of a service."

Notwithstanding the denial of that defendant, it is unquestionable that it was with his consent that the plaintiff rendered him services as interpreter, thus aiding him at a time when, owing to the existence of an insurrection in the province, the most disturbed conditions prevailed. It follows, hence, that there was consent on the part of both in the rendition of such services as interpreter. Such service not being contrary to law or to good custom, it was a perfectly licit object of contract, and such a contract must necessarily have existed between the parties, as alleged by the plaintiff. (Art. 1271, Civil Code.)

The consideration for the contract is also evident, it being clear that a

mutual benefit was derived in consequence of the service rendered. It is to be supposed that the defendant accepted these services and that the plaintiff in turn rendered them with the expectation that the benefit would be reciprocal. This shows the concurrence of the three elements necessary under article 1261 of the Civil Code to constitute a contract of lease of service, or other innominate contract, from which an obligation has arisen and whose fulfillment is now demanded.

Article 1254 of the Civil Code provides that a contract exists the moment that one or more persons consent to be bound, with respect to another or others, to deliver some thing or to render some service. Article 1255 provides that the contracting parties may establish such covenants, terms, and conditions as they deem convenient, provided they are not contrary to law, morals or public policy. Whether the service was solicited or offered, the fact remains that Perez rendered to Pomar services as interpreter. As it does not appear that he did this gratuitously, the duty is imposed upon the defendant, having accepted the benefit of the service, to pay a just compensation therefor, by virtue of the innominate contract of facio ut des implicitly established.

The obligations arising from this contract are reciprocal, and, apart from the general provisions with respect to contracts and obligations, the special provisions concerning contracts for lease of services are applicable by analogy.

In this special contract, as determined by article 1544 of the Civil Code, one of the parties undertakes to render the other a service for a price certain. The tacit agreement and consent of both parties with respect to the service rendered by the plaintiff, and the reciprocal benefits accruing to each, are the best evidence of the fact that there was an implied contract sufficient to create a legal bond, from which arose enforceable rights and obligations of a bilateral character.lawphi1.net

In contracts the will of the contracting parties is law, this being a legal doctrine based upon the provisions of articles 1254, 1258, 1262, 1278, 1281, 1282, and 1289 of the Civil Code. If it is a fact sufficiently proven that the defendant, Pomar, on various occasions consented to accept an interpreter's services, rendered in his behalf and not gratuitously, it is but just that he should pay a reasonable remuneration therefor, because it is a well-known principle of law that no one should be permitted to enrich

himself to the damage of another.

With respect to the value of the services rendered on different occasions, the most important of which was the first, as it does not appear that any salary was fixed upon by the parties at the time the services were accepted, it devolves upon the court to determine, upon the evidence presented, the value of such services, taking into consideration the few occasions on which they were rendered. The fact that no fixed or determined consideration for the rendition of the services was agreed upon does not necessarily involve a violation of the provisions of article 1544 of the Civil Code, because at the time of the agreement this consideration was capable of being made certain. The discretionary power of the court, conferred upon it by the law, is also supported by the decisions of the supreme court of Spain, among which may be cited that of October 18, 1899, which holds as follows: "That as stated in the article of the Code cited, which follows the provisions of law 1, title 8, of the fifth partida, the contract for lease of services is one in which one of the parties undertakes to make some thing or to render some service to the other for a certain price, the existence of such a price being understood, as this court has held not only when the price has been expressly agreed upon but also when it may be determined by the custom and frequent use of the place in which such services were rendered."

No exception was taken to the judgment below by the plaintiff on account of the rejection of his claim for damages. The decision upon this point is, furthermore, correct.

Upon the supposition that the recovery of the plaintiff should not exceed 200 Mexican pesos, owing to the inconsiderable number of times he acted as interpreter, it is evident that the contract thus implicitly entered into was not required to be in writing and that therefore it does not fall within article 1280 of the Civil Code; nor is it included within the provisions of section 335 of the Code of Civil Procedure, as this innominate contract is not covered by that section. The contract of lease of services is not included in any of the cases expressly designated by that section of the procedural law, as affirmed by the appellant. The interpretation of the other articles of the Code alleged to have been infringed has also been stated fully in this opinion.

For the reasons stated, we are of the opinion that judgment should be

rendered against Don Eugenio Pomar for the payment to the plaintiff of the sum of 200 Mexican pesos, from which will be deducted the sum of 50 pesos is made as to the costs of this instance. The judgment below is accordingly affirmed in so far as it agrees with this opinion, and reversed in so far as it may be in conflict therewith. Judgment will be entered accordingly twenty days after this decision is filed.

Arellano, C.J., Willard, and Mapa, JJ., concur.

UNIVERSITY OF THE PHILIPPINES, petitioner, vs. PHILAB INDUSTRIES, INC., respondent.

D E C I S I O N

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 44209, as well as its Resolution[2] denying the petitioner‘s motion for the reconsideration thereof. The Court of Appeals set aside the Decision[3] of Branch 150 of the Regional Trial Court (RTC) of Makati City, which dismissed the complaint of the respondent against the petitioner for sum of money and damages.

The Facts of the Case

Sometime in 1979, the University of the Philippines (UP) decided to construct an integrated system of research organization known as the Research Complex. As part of the project, laboratory equipment and furniture were purchased for the National Institute of Biotechnology and Applied Microbiology (BIOTECH) at the UP Los Baños. Providentially, the Ferdinand E. Marcos Foundation (FEMF) came forward and agreed to fund the acquisition of the laboratory furniture, including the fabrication thereof.

Renato E. Lirio, the Executive Assistant of the FEMF, gave the go-signal to BIOTECH to contact a corporation to accomplish the project. On July 23, 1982, Dr. William Padolina, the Executive Deputy Director of BIOTECH, arranged for Philippine Laboratory Industries, Inc. (PHILAB), to fabricate the laboratory furniture and deliver the same to BIOTECH for the

BIOTECH Building Project, for the account of the FEMF. Lirio directed Padolina to give the go-signal to PHILAB to proceed with the fabrication of the laboratory furniture, and requested Padolina to forward the contract of the project to FEMF for its approval.

On July 13, 1982, Padolina wrote Lirio and requested for the issuance of the purchase order and downpayment for the office and laboratory furniture for the project, thus:

1. Supply and Installation of Laboratory furniture for the BIOTECH Building Project

Amount : P2,934,068.90

Supplier : Philippine Laboratory Furniture Co.,

College, Laguna Attention: Mr. Hector C. Navasero President

Downpayment : 40% or P1,173,627.56

2. Fabrication and Supply of office furniture for the BIOTECH Building Project

Amount : P573,375.00 Supplier : Trans-Oriental

Woodworks, Inc. 1st Avenue, Bagumbayan Tanyag, Taguig, Metro

Manila Downpayment : 50% or P286,687.50[4]

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

In a Letter dated July 23, 1982, Padolina informed Hector Navasero, the President of PHILAB, to proceed with the fabrication of the laboratory furniture, per the directive of FEMF Executive Assistant Lirio. Padolina also requested for copies of the shop drawings and a sample contract[5] for the

project, and that such contract and drawings had to be finalized before the down payment could be remitted to the PHILAB the following week. However, PHILAB failed to forward any sample contract.

Subsequently, PHILAB made partial deliveries of office and laboratory furniture to BIOTECH after having been duly inspected by their representatives and FEMF Executive Assistant Lirio.

On August 24, 1982, FEMF remitted P600,000 to PHILAB as downpayment for the laboratory furniture for the BIOTECH project, for which PHILAB issued Official Receipt No. 253 to FEMF. On October 22, 1982, FEMF made another partial payment of P800,000 to PHILAB, for which the latter issued Official Receipt No. 256 to FEMF. The remittances were in the form of checks drawn by FEMF and delivered to PHILAB, through Padolina.

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

ARTICLE II

OBLIGATIONS OF THE FOUNDATION

2.1. The FOUNDATION, in carrying out its principal objectives of promoting philantrophic and scientific projects through financial support to such projects that will contribute to the country‘s economic development, shall grant such financial support and donate such sums of money to the RESEARCH COMPLEX as may be necessary for the construction of buildings, installation of laboratories, setting up of offices and physical plants and facilities and other capital investment of the RESEARCH COMPLEX and/or any of its component Research Institutes not to exceed P29 Million. For this purpose, the FOUNDATION shall:

(a) Acquire and donate to the UNIVERSITY the site for the RESEARCH COMPLEX; and

(b) Donate or cause to be donated to the UNIVERSITY the sum of TWENTY-NINE MILLION PESOS (P29,000,000.00) for the construction of the buildings of the National Institutes of Biotechnology and Applied Microbiology (BIOTECH) and the installation of their laboratories and their physical plants and other facilities to enable them to commence operations.

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

The Board of Regents of the UP approved the MOA on November 25, 1982.[7]

In the meantime, Navasero promised to submit the contract for the installation of laboratory furniture to BIOTECH, by January 12, 1983. However, Navasero failed to do so. In a Letter dated February 1, 1983, BIOTECH reminded Navasero of the need to submit the contract so that it could be submitted to FEMF for its evaluation and approval.[8] Instead of submitting the said contract, PHILAB submitted to BIOTECH an accomplishment report on the project as of February 28, 1983, and requested payment thereon.[9] By May 1983, PHILAB had completed 78% of the project, amounting to P2,288,573.74 out of the total cost of P2,934,068.90. The FEMF had already paid forty percent (40%) of the total cost of the project. On May 12, 1983, Padolina wrote Lirio and furnished him the progress billing from PHILAB.[10] On August 11, 1983, the FEMF made another partial payment of P836,119.52 representing the already delivered laboratory and office furniture after the requisite inspection and verification thereof by representatives from the BIOTECH, FEMF, and PHILAB. The payment was made in the form of a check, for which PHILAB issued Official Receipt No. 202 to FEMF through Padolina.[11]

On July 1, 1984, PHILAB submitted to BIOTECH Invoice No. 01643 in

the amount of P702,939.40 for the final payment of laboratory furniture. Representatives from BIOTECH, PHILAB, and Lirio for the FEMF, conducted a verification of the accomplishment of the work and confirmed the same. BIOTECH forwarded the invoice to Lirio on December 18, 1984 for its payment.[12] Lirio, in turn, forwarded the invoice to Gapud, presumably sometime in the early part of 1985. However, the FEMF failed to pay the bill. PHILAB reiterated its request for payment through a letter on May 9, 1985.[13] BIOTECH again wrote Lirio on March 21, 1985, requesting the payment of PHILAB‘s bill.[14] It sent another letter to Gapud, on November 22, 1985, again appealing for the payment of PHILAB‘s bill.[15] In a Letter to BIOTECH dated December 5, 1985, PHILAB requested payment of P702,939.40 plus interest thereon of P224,940.61.[16] There was, however, no response from the FEMF. On February 24, 1986, PHILAB wrote BIOTECH, appealing for the payment of its bill even on installment basis.[17]

President Marcos was ousted from office during the February 1986 EDSA Revolution. On March 26, 1986, Navasero wrote BIOTECH requesting for its much-needed assistance for the payment of the balance already due plus interest of P295,234.55 for its fabrication and supply of laboratory furniture.[18]

On April 22, 1986, PHILAB wrote President Corazon C. Aquino asking her help to secure the payment of the amount due from the FEMF.[19] The letter was referred to then Budget Minister Alberto Romulo, who referred the letter to then UP President Edgardo Angara on June 9, 1986. On September 30, 1986, Raul P. de Guzman, the Chancellor of UP Los Baños, wrote then Chairman of the Presidential Commission on Good Government (PCGG) Jovito Salonga, submitting PHILAB‘s claim to be officially entered as ―accounts payable‖ as soon as the assets of FEMF were liquidated by the PCGG.[20]

In the meantime, the PCGG wrote UP requesting for a copy of the relevant contract and the MOA for its perusal.[21]

Chancellor De Guzman wrote Navasero requesting for a copy of the contract executed between PHILAB and FEMF. In a Letter dated October 20, 1987, Navasero informed De Guzman that PHILAB and FEMF did not execute any contract regarding the fabrication and delivery of laboratory furniture to BIOTECH.

Exasperated, PHILAB filed a complaint for sum of money and

damages against UP. In the complaint, PHILAB prayed that it be paid the following:

(1) PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY NINE & 40/100 (P702,939.40) plus an additional amount (as shall be determined during the hearing) to cover the actual cost of money which at the time of transaction the value of the peso was eleven to a dollar (P11.00:$1) and twenty seven (27%) percent interest on the total amount from August 1982 until fully paid;

(2) PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages;

(3) FIFTY THOUSAND [PESOS] (P50,000.00) as and for attorney‘s fees; and

(4) Cost of suit.[22]

PHILAB alleged, inter alia, that:

3. Sometime in August 1982, defendant, through its officials, particularly MR. WILLIAM PADOLINA, Director, asked plaintiff to supply and install several laboratory furnitures and equipment at BIOTECH, a research laboratory of herein defendant located at its campus in College, Laguna, for a total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (P2,939,058.90);

4. After the completion of the delivery and installation of said laboratory furnitures and equipment at defendant‘s BIOTECH Laboratory, defendant paid three (3) times on installment basis:

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

b) P800,000.00 as per Official Receipt No. 256 dated October 22, 1982;

c) P836,119.52 as per Official Receipt No. 202 dated August 11, 1983;

thus leaving a balance of PESOS: SEVEN HUNDRED TWO

THOUSAND NINE HUNDRED THIRTY-NINE & 40/100 (P702,939.40).

5. That notwithstanding repeated demands for the past eight years, defendant arrogantly and maliciously made plaintiff believe that it was going to pay the balance aforestated, that was why plaintiff‘s President and General Manager himself, HECTOR C. NAVASERO, personally went to and from UP Los Baños to talk with defendant‘s responsible officers in the hope of expecting payment, when, in truth and in fact, defendant had no intention to pay whatsoever right from the start on a misplaced ground of technicalities. Some of plaintiff‘s demand letters since year 1983 up to the present are hereto attached as Annexes A, B, C, D, E, F, G, and H hereof;

6. That by reason of defendant‘s malicious, evil and unnecessary misrepresentations that it was going to pay its obligation and asking plaintiff so many red tapes and requirements to submit, compliance of all of which took plaintiff almost eight (8) years to finish, when, in truth and in fact, defendant had no intention to pay, defendant should be ordered to pay plaintiff no less than PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages, so that other government institutions may be warned that they must not unjustly enrich themselves at the expense of the people they serve.[23]

In its answer, UP denied liability and alleged that PHILAB had no cause of action against it because it was merely the donee/beneficiary of the laboratory furniture in the BIOTECH; and that the FEMF, which funded the project, was liable to the PHILAB for the purchase price of the laboratory furniture. UP specifically denied obliging itself to pay for the laboratory furniture supplied by PHILAB.

After due proceedings, the trial court rendered judgment dismissing the complaint without prejudice to PHILAB‘s recourse against the FEMF. The fallo of the decision reads:

WHEREFORE, this case is hereby DISMISSED for lack of merit without prejudice to plaintiff's recourse to the assets of the Marcos Foundation for the unpaid balance of P792,939.49.

SO ORDERED.[24]

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

1. the contract for the supply and installation of subject laboratory furniture and equipment was between PHILAB and the Marcos Foundation; and,

2. the Marcos Foundation, not the University of the Philippines, is liable to pay the respondent the balance of the purchase price.[25]

The CA reversed and set aside the decision of the RTC and held that there was never a contract between FEMF and PHILAB. Consequently, PHILAB could not be bound by the MOA between the FEMF and UP since it was never a party thereto. The appellate court ruled that, although UP did not bind itself to pay for the laboratory furniture; nevertheless, it is liable to PHILAB under the maxim: ―No one should unjustly enrich himself at the expense of another.‖

The Present Petition

Upon the denial of its motion for reconsideration of the appellate court‘s decision, UP, now the petitioner, filed its petition for review contending that:

I. THE COURT OF APPEALS ERRED WHEN IT FAILED TO APPLY THE LAW ON CONTRACTS BETWEEN PHILAB AND THE MARCOS FOUNDATION.

II. THE COURT OF APPEALS ERRED IN APPLYING THE LEGAL PRINCIPLE OF UNJUST ENRICHMENT WHEN IT HELD THAT THE UNIVERSITY, AND NOT THE MARCOS FOUNDATION, IS LIABLE TO PHILAB.[26]

Prefatorily, the doctrinal rule is that pure questions of facts may not be the subject of appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as this mode of appeal is generally restricted to questions of law.[27] However, this rule is not absolute. The Court may review the factual findings of the CA should they be contrary to those of the trial court.[28] Correspondingly, this Court may review findings of facts when

the judgment of the CA is premised on a misapprehension of facts.[29]

On the first assigned error, the petitioner argues that the CA overlooked the evidentiary effect and substance of the corresponding letters and communications which support the statements of the witnesses showing affirmatively that an implied contract of sale existed between PHILAB and the FEMF. The petitioner furthermore asserts that no contract existed between it and the respondent as it could not have entered into any agreement without the requisite public bidding and a formal written contract.

The respondent, on the other hand, submits that the CA did not err in not applying the law on contracts between the respondent and the FEMF. It, likewise, attests that it was never privy to the MOA entered into between the petitioner and the FEMF. The respondent adds that what the FEMF donated was a sum of money equivalent to P29,000,000, and not the laboratory equipment supplied by it to the petitioner. The respondent submits that the petitioner, being the recipient of the laboratory furniture, should not enrich itself at the expense of the respondent.

The petition is meritorious.

It bears stressing that the respondent‘s cause of action is one for sum of money predicated on the alleged promise of the petitioner to pay for the purchase price of the furniture, which, despite demands, the petitioner failed to do. However, the respondent failed to prove that the petitioner ever obliged itself to pay for the laboratory furniture supplied by it. Hence, the respondent is not entitled to its claim against the petitioner.

There is no dispute that the respondent is not privy to the MOA executed by the petitioner and FEMF; hence, it is not bound by the said agreement. Contracts take effect only between the parties and their assigns.[30] A contract cannot be binding upon and cannot be enforced against one who is not a party to it, even if he is aware of such contract and has acted with knowledge thereof.[31] Likewise admitted by the parties, is the fact that there was no written contract executed by the petitioner, the respondent and FEMF relating to the fabrication and delivery of office and laboratory furniture to the BIOTECH. Even the CA failed to specifically declare that the petitioner and the respondent entered into a contract of sale over the said laboratory furniture. The parties are in accord that the FEMF had remitted to the respondent partial payments via checks drawn and issued by the FEMF to the respondent, through Padolina, in the total

amount of P2,288,573.74 out of the total cost of the project of P2,934,068.90 and that the respondent received the said checks and issued receipts therefor to the FEMF. There is also no controversy that the petitioner did not pay a single centavo for the said furniture delivered by the respondent that the petitioner had been using ever since.

We agree with the petitioner that, based on the records, an implied-in-fact contract of sale was entered into between the respondent and FEMF. A contract implied in fact is one implied from facts and circumstances showing a mutual intention to contract. It arises where the intention of the parties is not expressed, but an agreement in fact creating an obligation. It is a contract, the existence and terms of which are manifested by conduct and not by direct or explicit words between parties but is to be deduced from conduct of the parties, language used, or things done by them, or other pertinent circumstances attending the transaction. To create contracts implied in fact, circumstances must warrant inference that one expected compensation and the other to pay.[32] An implied-in-fact contract requires the parties‘ intent to enter into a contract; it is a true contract.[33] The conduct of the parties is to be viewed as a reasonable man would view it, to determine the existence or not of an implied-in-fact contract.[34] The totality of the acts/conducts of the parties must be considered to determine their intention. An implied-in-fact contract will not arise unless the meeting of minds is indicated by some intelligent conduct, act or sign.[35]

In this case, the respondent was aware, from the time Padolina contacted it for the fabrication and supply of the laboratory furniture until the go-signal was given to it to fabricate and deliver the furniture to BIOTECH as beneficiary, that the FEMF was to pay for the same. Indeed, Padolina asked the respondent to prepare the draft of the contract to be received by the FEMF prior to the execution of the parties (the respondent and FEMF), but somehow, the respondent failed to prepare one. The respondent knew that the petitioner was merely the donee-beneficiary of the laboratory furniture and not the buyer; nor was it liable for the payment of the purchase price thereof. From the inception, the FEMF paid for the bills and statement of accounts of the respondent, for which the latter unconditionally issued receipts to and under the name of the FEMF. Indeed, witness Lirio testified:

Q: Now, did you know, Mr. Witness, if PHILAB Industries was aware that it was the Marcos Foundation who would be

paying for this particular transaction for the completion of this particular transaction?

A: I think they are fully aware.

Q: What is your basis for saying so?

A: First, I think they were appraised by Dr. Padolina. Secondly, there were occasions during our inspection in Los Baños, at the installation site, there were occasions, two or three occasions, when we met with Mr. Navasero who is the President, I think, or manager of PHILAB, and we appraised him that it was really between the foundation and him to which includes (sic) the construction company constructing the building. He is fully aware that it is the foundation who (sic) engaged them and issued the payments.[36]

The respondent, in its Letter dated March 26, 1986, informed the petitioner and sought its assistance for the collection of the amount due from the FEMF:

Dear Dr. Padolina:

May we request for your much-needed assistance in the payment of the balance still due us on the laboratory furniture we supplied and installed two years ago?

Business is still slow and we will appreciate having these funds as soon as possible to keep up our operations.

We look forward to hearing from you regarding this matter.

Very truly yours,

PHILAB INDUSTRIES, INC.[37]

The respondent even wrote former President Aquino seeking her assistance for the payment of the amount due, in which the respondent admitted it tried to collect from her predecessor, namely, the former President Ferdinand E. Marcos:

YOUR EXCELLENCY:

At the instance of the national government, subject laboratory furnitures were supplied by our company to the National Institute of Biotechnology & Applied Microbiology (BIOTECH), University of the Philippines, Los Baños, Laguna, in 1984.

Out of the total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (P2,939,058.90), the previous administration had so far paid us the sum of P2,236,119.52 thus leaving a balance of PESOS: ONE MILLION FOUR HUNDRED TWELVE THOUSAND SEVEN HUNDRED FORTY-EIGHT & 61/100 (P1,412.748.61) inclusive of interest of 24% per annum and 30% exchange rate adjustment.

On several occasions, we have tried to collect this amount from your predecessor, the latest of which was subject invoice (01643) we submitted to DR. W. PADOLINA, deputy director of BIOTECH. But this, notwithstanding, our claim has remained unacted upon up to now. Copy of said invoice is hereto attached for easy reference.

Now that your excellency is the head of our government, we sincerely hope that payment of this obligation will soon be made as this is one project the Republic of the Philippines has use of and derives benefit from.[38]

Admittedly, the respondent sent to the petitioner its bills and statements of accounts for the payments of the laboratory furniture it delivered to the petitioner which the petitioner, through Padolina, transmitted to the FEMF for its payment. However, the FEMF failed to pay the last statement of account of the respondent because of the onset of the EDSA upheaval. It was only when the respondent lost all hope of collecting its claim from the government and/or the PCGG did it file the complaint against the petitioner for the collection of the payment of its last delivery of laboratory furniture.

We reject the ruling of the CA holding the petitioner liable for the claim of the respondent based on the maxim that no one should enrich itself at the expense of another.

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

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitled and that the state of affairs are such that it would be unjust for the person to keep the benefit.[40] Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request.[41] Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of restitution.[42]

Article 22 of the New Civil Code reads:

Every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. (Boldface supplied)

In order that accion in rem verso may prosper, the essential elements must be present: (1) that the defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the defendant is without just or legal ground, and (4) that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict.[43]

An accion in rem verso is considered merely an auxiliary action, available only when there is no other remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action under any other institution of positive law, that action must be resorted to, and the principle of accion in rem verso will not lie.[44]

The essential requisites for the application of Article 22 of the New Civil Code do not obtain in this case. The respondent had a remedy against the FEMF via an action based on an implied-in-fact contract with the FEMF for the payment of its claim. The petitioner legally acquired the laboratory furniture under the MOA with FEMF; hence, it is entitled to keep the laboratory furniture.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED AND SET ASIDE. The Decision of the Regional Trial Court, Makati City, Branch 150, is REINSTATED. No costs.

SO ORDERED. JOSIE GO TAMIO, petitioner, vs. ENCARNACION TICSON,

respondent.

D E C I S I O N

PANGANIBAN, J.:

In general, a lessee is not allowed to challenge the title of the lessor. Indeed, it is immaterial whether the lessor had any title at all to the property at the time the lease was commenced. However, due to the peculiar circumstances in the present case, the Court makes an exception to this rule. Otherwise, it would sanction unjust enrichment in favor of the respondent and cause unjust poverty to the petitioner.

The Case

The instant Petition for Review on Certiorari[1] seeks to set aside the February 28, 2002 Decision[2] and the April 30, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 62908. The dispositive portion of the challenged Decision reads:

―WHEREFORE, the instant petition is hereby DENIED DUE COURSE and DISMISSED. The Decision, dated March 24, 1999, is hereby AFFIRMED.‖[4]

The assailed Resolution denied reconsideration of the foregoing disposition.

The March 24, 1999 Decision[5] of the Regional Trial Court (RTC)[6] of Manila, upheld by the CA, disposed as follows:

―WHEREFORE, the appealed judgment is hereby affirmed with modification, to wit:

1) Ordering [petitioner] to pay [respondent] the amount of P86,000 as payment for rental arrearages covering the period September, 1996 to June, 1997 and from July, 1997 to December, 1997 at a monthly rate of P5,000 and P6,000

respectively.

2) [Petitioner‘s] counterclaim is hereby dismissed for lack of merit.‖[7]

On the other hand, the Decision[8] of the Metropolitan Trial Court (MTC)[9] of Manila (Branch 5), which was ―affirmed with modification‖ by the RTC, dismissed respondent‘s complaint for unlawful detainer against the petitioner.

The Facts

The CA summarized the facts in this manner:

―The Roman Catholic Archbishop of Manila (RCAM) is the owner of an apartment unit originally leased to Mr. Fernando Lopez Lim. After the demise of Mr. Fernando Lim, [his] children became the occupants thereof. One of [them, Valentine Lim] requested respondent Encarnacion Ticson, for financial assistance [in order] to purchase the apartment unit from RCAM. In exchange, Valentine Lim executed a waiver in favor of respondent.

―On June 15, 1996, respondent executed a contract of lease [in favor of petitioner], on the basis of the waiver from Valentine Lim respecting the apartment unit, for a period of three (3) months. After signing the contract and paying the rentals, [petitioner] discovered that the apartment was actually owned by RCAM.

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

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

―Unsatisfied therewith, respondent appealed the dismissal with the

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

―Moreover, the RTC found that ‘if [petitioner] has indeed questioned the [respondent’s] title, she should have communicated with RCAM immediately since she came to know of RCAM’s ownership over the subject property early on.‘

―On the basis thereof, the RTC ordered petitioner to pay respondent P86,000.00 as rental arrearages from September 1996 to June 1997 and from July 1997 to December 1997 at a monthly rate of P5,000.00 and P6,000.00 respectively, and dismissed petitioner‘s counterclaim for lack of merit.‖[10]

Meanwhile, on March 3, 1998, petitioner entered into a Contract of Lease[11] over the same property with RCAM for a term of one year, commencing from January 1, 1998 to December 31, 1998. In that Contract, petitioner assumed to pay the rent corresponding to her use and occupation of the property prior to its execution; that is, from June 1, 1996 to December 31, 1997.

Ruling of the Court of Appeals

The CA agreed with the RTC that the misrepresentation of respondent as the owner or lessor of the property did not amount to fraud, but was merely an error under Article 1343 of the Civil Code. The appellate court added that she must have acquired legal possession over the apartment unit as an assignee thereof, considering the waiver/assignment executed in her favor by the previous lessees.

The appellate court added that petitioner herself had been negligent in not immediately communicating with the owner of the property -- the Roman Catholic Archbishop of Manila (RCAM) -- regarding her discovery, thereby implying her acknowledgment of respondent‘s right to sublease the property.

Consequently, while holding that, ―as found by the lower court, RCAM and petitioner entered into a new Contract of Lease that rendered the

instant case moot and academic,‖ the CA ordered petitioner to pay rental arrearages to respondent for the period September 1996 to December 1997.

Hence, this Petition.[12]

Issue

The lone issue presented for our consideration is as follows:

―Whether or not petitioner should be held liable to pay respondent the amount of P86,000.00 representing the alleged rental arrearages from September 1996 to December 1997.‖[13]

The Court’s Ruling

The Petition has merit.

Lone Issue: Entitlement to Rental Arrearages

Petitioner contends that she is not bound by her lease agreement with respondent, because the latter never acquired legal possession of the property. The assignment/waiver of rights executed by Valentine Lim was null and void, as the lease of her father (Fernando) with RCAM had long been terminated for nonpayment of rentals. With the invalidity of the assignment, respondent acquired no rights that she could transmit. Assuming arguendo that Valentine‘s lease was still subsisting, petitioner argues that the consent of RCAM should have been obtained.

Petitioner further avers that under her Contract with RCAM, she undertook to pay rentals corresponding to the holdover period. Hence, she would in effect be paying the rental twice, if she were still to pay respondent. The latter would be unjustly enriched at petitioner‘s expense, which should not be allowed by the Court.

The assignment of a lease by the lessee involves a transfer of rights and obligations pertaining to the contract; hence, the consent of the lessor is necessary.[14] Article 1649 of the Civil Code is explicit:

―Art. 1649. The lessee cannot assign the lease without the

consent of the lessor, unless there is a stipulation to the contrary.‖

The objective of the law in prohibiting the assignment of the lease without the lessor‘s consent is to protect the owner or lessor of the leased property.[15] In the case of cession or assignment of lease rights on real property, there is a novation by the substitution of the person of one of the parties -- the lessee.[16] The personality of the lessee, who dissociates from the lease, disappears; only two persons remain in the juridical relation -- the lessor and the assignee who is converted into the new lessee.[17]

In the instant case, RCAM never assented to the assignment of the lease. This is apparent from the December 11, 1997 letter[18] of its counsel, Atty. Socrates R. Rivera, stating that Fernando Lim was no longer its tenant for his failure to pay the rentals as of August 1988. As a rule, this letter may not necessarily result in the cessation of Mr. Fernando‘s right to possess the leased premises. Under the law, mere nonpayment of rentals without the lessor‘s demand to pay and vacate is not sufficient to oust the lessee from the leased premises.[19] The letter, however, demonstrates the lessor‘s lack of consent to the assignment.

There is no evidence to show that RCAM subsequently agreed to the substitution of the original lessee by respondent. In fact, the only lessee it ever recognized was Fernando Lim. In the same letter, it was stated that ―neither [petitioner] nor [respondent] have the right to [possess] said apartment considering that it [was] Mr. Fernando Lopez Lim whom our client RCAM ha[d] contractual relationship; unfortunately said tenant [has ceased] to be such.‖

Neither does respondent appear to have paid monthly rents to RCAM to apprise it sufficiently of her occupation of the subject premises. Hence, it cannot be charged with knowledge of, much less implied consent to, this fact.

As against RCAM, which has not consented to the assignment, respondent-assignee obtains no rights to the leased premises. Consequently, the sublease between her and petitioner is not binding on it. With the abandonment of the lease by the original lessee through his unauthorized assignment, the right to the possession of the apartment reverted to the owner. Being the owner, RCAM enjoys the prerogative to enter into a new lease contract over the property with anyone it chooses.[20] Unfortunately for respondent, it chose to grant to

petitioner leasehold rights to the subject premises by virtue of the Contract entered into on March 3, 1998. It was agreed thereunder that petitioner would pay RCAM reasonable compensation for the entire period of her occupancy of the property.

To allow respondent to receive from petitioner rental arrearages for the period September 1996 to December 1997, notwithstanding the latter‘s agreement with the owner to pay rent for her occupancy of the property, would constitute unjust enrichment at the expense of petitioner. Under Article 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another.[21]

Prior to the March 3, 1998 Contract, petitioner and respondent were technically ―strangers‖ to the property; both were unlawfully withholding its possession from the owner. Petitioner cannot therefore be faulted in assuming to pay a reasonable value for her occupancy of the property as a sign of good faith. On the other hand, nonpayment of rentals of respondent to RCAM -- notwithstanding her receipt from petitioner of the rental covering the term of the sublease contract -- is indicative of bad faith.

Having assumed to pay the rentals to RCAM, petitioner should no longer be required to pay rental arrearages to respondent. To do so would be to sanction unjust enrichment in favor of respondent and to cause unjust poverty to the petitioner. A double burden would be imposed upon the latter, because she would be paying twice for her use of the same premises for the same period of time.

We are not unmindful of the standing rule that a lessee is estopped or prevented from disputing the title of the landlord in an action for recovery of possession of the leased premises.[22]

In Geminiano v. Court of Appeals,[23] we stated:

―x x x. The private respondents, as lessees who had undisturbed possession for the entire term under the lease, are then estopped to deny their landlord‘s title, or to assert a better title not only in themselves, but also in some third person while they remain in possession of the leased premises and until they surrender possession to the landlord. This estoppel applies even though the lessor had no title at the time the relation of lessor and lessee was created, and may be asserted not only by the original lessor, but

also by those who succeed to his title.‖[24]

Indeed, the relation of lessor and lessee does not depend on the former‘s title but on the agreement between the parties, followed by the possession of the premises by the lessee under such agreement.[25] As long as the latter remains in undisturbed possession, it is immaterial whether the lessor has a valid title -- or any title at all -- at the time the relationship was entered into.[26] Between the present parties, the lease -- which was actually a sublease -- was effective. And respondent had a colorable right to lease the premises by virtue of the assignment even if, as against the owner, both the assignment and the sublease were ineffectual.

However, considering the peculiar circumstances availing in the present case, equity demands that such rule be relaxed. As discussed earlier, it would be grossly unjust if, after having paid the owner prior rentals for June 1996 to December 1997, petitioner would still be required to pay again the same rental arrearages to respondent for the latter‘s retention of the property after the termination of sublease contract. Note that the sublease had already expired, and that the arrearages refer to a subsequent period not covered by the said sublease.

It is worth reminding everyone of our pronouncement in Air Manila v. CIR:[27] ―Equity as the complement of legal jurisdiction seeks to reach and to complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so. Equity regards the spirit and not the letter, the intent and not the form, the substance rather than the circumstance, as it is variously expressed by different courts.‖

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

SO ORDERED.