torts sample cases in full text
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FIRST DIVISION
[G.R. No. 66641. March 6, 1992.]
FILINVEST CREDIT CORPORATION, petitioner, vs.
INTERMEDIATE APPELLATE COURT and JOVITO Z.
MANAOG, respondents.
Labaguis, Loyola, Angara & Associates for petitioner.
Eduardo F. Elizalde for private respondent.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; EFFECT
OF JUDGMENT; TWO ASPECTS OF RES JUDICATA;
CONSTRUED. — The doctrine of res judicata has two
aspects. The first is the effect of a judgment as a bar to
the prosecution of a second action upon the same
claim, demand or cause of action. The second aspect is
that it precludes relitigation of a particular fact or
issues in another action between the same parties on a
different claim or cause of action (Lopez v. Reyes, G.R.
No. L-29498, March 31, 1977, 76 SCRA 179). Thus, a
party by varying the form of action or method of case
presentation cannot escape the effect of the principle of
res judicata nor can a party avoid an estoppel of a
former judgment by bringing forward in a second action
new or additional grounds in support of his case or
defense or new arguments to sustain it, the facts
remaining the same at least where such additional
matter could have been pleaded and adjudicated in the
prior action.
2. ID.; ID.; ID.; ALLOWING THE JUDGMENT TO
BECOME FINAL AND EXECUTORY; A PARTY IS
PRECLUDED FROM CLAIMING SUBSEQUENT ACTION
FOR DAMAGES FROM AN ERRONEOUS JUDGMENT.— It is worthy to note that the complaint filed by
petitioner Filinvest against respondent Manaog in Civil
Case No. 242126 was for recovery of sum of money
representing unpaid monthly installments for two
airconditioning units bought by respondent Manaog.
The latter filed an answer, as shown by the facts of the
case, alleging that the airconditioning units are
defective. Respondent Manaog did not however raise as
defense the non-delivery of the said units. In fact,
respondent Manaog did not present any evidence for
defense to prove non-delivery. When the trial co
rendered judgment in favor of petitioner Filinv
respondent Manaog allowed the judgment to beco
final and executory and the execution thereof be fu
enforced before disclosing certain fats which shohave been raised and proven during the hearing of
case. Hence, he is now precluded from claiming in
subsequent action for damages that the judgm
against him was erroneous because he did not rece
the airconditioning units from petitioner.
3. ID.; ID.; ID.; REMEDY OF PARTY WHO IS N
SATISFIED FROM A JUDGMENT RENDERED. —
respondent Manaog was not satisfied with the judgm
of the trial court, he should have appealed the case
the Court of Appeals within the reglementary period
fifteen days after receipt of the decision before
judgment of the trial court becomes final and executo
However, if the judgment had become final a
executory, there are only three ways under the law
which said judgment may be questioned: 1) by petit
for relief 2) by direct action to annul and enjoin
enforcement of the judgment where the alleged defec
not apparent on its face or from the recitals contain
in the judgment, and 3) by direct action, as certior
or by a collateral attack against the challen
judgment which is void upon its face or that the nul
of the judgment is apparent from its own recit
(People v. Pareja, G.R. No. 59979, August 30, 1990,
SCRA 143). Respondent Manaog's action for dama
which was founded on the alleged wrong judgment
the trial court in Civil Case No. 242126 does not
within any of the ways enumerated above. Although
action was titled as one for damages, respond
Manaog, was in effect, alleging the nullity of
judgment against him as being without factual ba
which is the reason why he sought damages before
trial court. This is a collateral attack upon a fi
judgment which cannot be done if the said judgmen
valid and regular upon its face, as in the case at bar.
D E C I S I O N
MEDIALDEA, J p:
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This is a petition for review on certiorari of the decision
of the respondent appellate court (now Court of
Appeals) affirming the decision of the court which
awarded damages to private respondent arising from
the alleged wrongful execution of a final judgment.
Cdpr
The antecedent facts of the case are as follows:
On April 24, 1975, petitioner Filinvest Credit
Corporation (Filinvest for brevity) filed a complaint with
the Court of First Instance of Manila (now Regional Trial
Court) against respondent Jovito Manaog and a certain
John Doe, for replevin and/or recovery of sum of money
representing arrearages in the payment of two
airconditioners bought by respondent Manaog from
Heritage Mercantile Corporation. The latter as vendorassigned the contract of "sale with reservation of title"
to petitioner Filinvest. The contract of sale provided
among others for a down payment in the amount of
P2,100.00 by respondent Manaog upon execution of the
contract and the balance in installments of P538.00
each month; and that the failure of respondent Manaog
to pay two installments will make the whole obligation
due and demandable.
Because respondent Manaog failed to pay the monthlyamortization, petitioner Filinvest sent letters of demand
to respondent Manaog demanding payment. The latter
did not respond however to any of the demands, thus,
prompting petitioner Filinvest to file the aforementioned
complaint. Respondent filed his answer and
counterclaim to the complaint alleging that the
airconditioners are defective (p. 39, Rollo) On October 3,
1975, the date of the scheduled hearing, respondent
Manaog failed to appear. Hence, petitioner was allowed
to present its evidence ex-parte.
On November 25, 1975, the trial court rendered a
decision in favor of the petitioner and dismissed
respondent Manaog's counterclaim. The trial court
subsequently issued a writ of execution which was duly
served upon respondent Manaog. By virtue of the said
writ of execution, a sale by public auction was
conducted by the sheriff on October 5, 1977 and a
return thereof was made on October 27, 1977.
On November 11, 1977, respondent Manaog filed
motion to suspend execution of judgment, which w
granted by the trial court. It appears however that
sale at public auction had already been conducted.
On April 28, 1978, respondent Manaog filed
complaint before the Court of First Instance (CFI)
Rizal (now Regional Trial Court) for damages alleg
that the judgment which was made the basis of
execution was wrong because the airconditioning un
subject of the contract of sale were not in fact deliver
and hence, respondent Manaog was not indebted
petitioner.
After trial, the CFI of Rizal rendered its decision,
favor of respondent Manaog, the dispositive portion
which states:
"Premises considered, it is the finding of this Court t
the defendant acted in utmost bad faith, and utilized
means within its control to harass, humiliate a
embarrass the plaintiff. The preponderance of evide
supports the claim of plaintiff and the court finds
defendant liable for having acted high handedly and
bad faith. The Court hereby sentences the defendan
pay the plaintiff the amount of P10,099.00 with inter
thereon at the rate of 14% starting September 24, 19until fully paid; to pay plaintiff the amount
P20,000.00 as exemplary damages and to pay plain
attorney's fees in the amount of P5,000.00 as well
costs of suit.
"SO ORDERED." (p. 38, Rollo).
Not satisfied with the decision of the trial cou
petitioner Filinvest appealed to the Court of Appeals.
January 16, 1984, the Court of Appeals rendered
decision which affirmed in toto the ruling of the tcourt.
Hence this petition was filed with the petitio
assigning the following errors:
"a. The Honorable Intermediate Appellate Co
gravely abused its discretion in not holding priv
respondent a joint fraudfeasor even when the fa
clearly show him to be so;
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"b. The Honorable Intermediate Appellate Court
erred in not holding that private respondent had no
cause of action against petitioners;
"c. The Honorable Intermediate Appellate Court
erred in reopening the question of delivery as private
respondent admitted delivery before the City Court of
Manila; further such issue is barred by prior judgment;
"d. The Honorable Intermediate Appellate Court
erred in not holding that the lower court had no
jurisdiction over the subject of the action as the
complaint is in reality a collateral attack upon;
1) a final judgment of a court of competent
jurisdiction; and
2) a writ of execution validly issued by a Court of
competent jurisdiction;
"e. The Honorable Intermediate Appellate Court
erred in allowing private respondent recovery even when
it conceded the latter's gross negligence in the
protection of his alleged rights;
"f. The Honorable Intermediate Appellate Court
erred in applying the principle of abuse of right in the
instant case;
"g. The Honorable Intermediate Appellate Court
erred in not holding the third-party defendant Badere
liable to Petitioner for indemnification or reimbursement
of what the latter was ordered to pay private
respondent." (pp. 7-8, Rollo)
The assigned errors boil down to the basic issue of
whether or not the losing party may file an action for
damages based on the same facts and issues involved in
the first action where judgment rendered therein hadbecome final and had been fully executed. llcd
Petitioner contends that although respondent Manaog's
complaint is one for damages arising from the wrongful
execution of the judgment in Civil Case No. 242126 filed
by petitioner for recovery of sum of money, the subject
of the action for damages is in reality, the validity of the
judgment in the said civil case which should be
properly attacked in a direct action to annul judgment.
It also contends that the question of delivery, which was
already settled in Civil Case No. 242126 cannot
reopened by respondent Manaog in his action
damages; that if it were true that no delivery was m
to respondent Manaog, the latter should have disclo
this fact when Civil Case No. 242126 for sum of mo
was filed against him.
We find the petition impressed with merit.
Section 49 of Rule 39 of the Rules of Court,
amended, provides:
"Sec. 49. Effect of Judgment. The effect o
judgment or final order rendered by a court or judge
the Philippines, having jurisdiction to pronounce
judgment or order may be as follows:
xxx xxx xxx
"b) In other cases the judgment or order is, w
respect to the matter directly adjudged or as to
other matter that could have been raised in relat
thereto, conclusive between the parties and th
successors in interest by title subsequent to
commencement of the action or special proceedi
litigating for the same thing and under the same t
and in the same capacity;
"c) In any other litigation between the same par
or their successors in interest, that only is deemed
have been adjudged in a former judgment wh
appears upon its face to have been so adjudged,
which was actually and necessarily included therein
necessary thereto." (emphasis supplied)
The aforequoted legal provision contains
fundamental principles of res judicata, finality
judgment and estoppel by judgment which
interchangeable in meaning. They embody the sa
rule that once a judgment has become final a
executory, the issues therein should be laid at rest.
The doctrine of res judicata has two aspects. The firs
the effect of a judgment as a bar to the prosecution o
second action upon the same claim, demand or caus
action. The second aspect is that it preclu
relitigation of a particular fact or issues in anot
action between the same parties on a different claim
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cause of action (Lopez v. Reyes, G.R. No. L-29498,
March 31, 1977, 76 SCRA 179). Thus, a party by
varying the form of action or method of case
presentation cannot escape the effect of the principle of
res judicata nor can a party avoid an estoppel of a
former judgment by bringing forward in a second actionnew or additional grounds in support of his case or
defense or new arguments to sustain it, the facts
remaining the same at least where such additional
matter could have been pleaded and adjudicated in the
prior action.
It is worthy to note that the complaint filed by petitioner
Filinvest against respondent Manaog in Civil Case No.
242126 was for recovery of sum of money representing
unpaid monthly installments for two airconditioning
units bought by respondent Manaog. The latter filed an
answer, as shown by the facts of the case, alleging that
the airconditioning units are defective. Respondent
Manaog did not however raise as defense the non-
delivery of the said units. In fact, respondent Manaog
did not present any evidence for his defense to prove
non-delivery. When the trial court rendered judgment in
favor of petitioner Filinvest, respondent Manaog allowed
the judgment to become final and executory and the
execution thereof be fully enforced before disclosing
certain facts which should have been raised and proven
during the hearing of the case. Hence, he is now
precluded from claiming in a subsequent action for
damages that the judgment against him was erroneous
because he did not receive the airconditioning units
from petitioner.
If respondent Manaog was not satisfied with the
judgment of the trial court, he should have appealed
the case to the Court of Appeals within the
reglementary period of fifteen days after receipt of thedecision before the judgment of the trial court becomes
final and executory. However, if the judgment had
become final and executory, there are only three ways
under the law by which said judgment may be
questioned: 1) by petition for relief 2) by direct action to
annul and enjoin the enforcement of the judgment
where the alleged defect is not apparent on its face or
from the recitals contained in the judgment, and 3) by
direct action, as certiorari, or by a collateral attack
against the challenged judgment which is void upon
face or that the nullity of the judgment is apparent fr
its own recitals (People v. Pareja, G.R. No. 599
August 30, 1990, 189 SCRA 143). Respondent Manao
action for damages which was founded on the alle
wrong judgment of the trial court in Civil Case 242126 does not fall within any of the ways enumera
above. Although the action was titled as one
damages, respondent Manaog, was in effect, alleg
the nullity of the judgment against him as be
without factual basis, which is the reason why
sought damages before the trial court. This is
collateral attack upon a final judgment which cannot
done if the said judgment is valid and regular upon
face, as in the case at bar. LLphil
In view of the foregoing, We find that the respond
appellate court committed reversible error in affirm
the ruling of the trial court which disregarded the fi
judgment in Civil Case No. 242126 as a bar to
relitigation in a subsequent action of the facts a
issues raised therein. Reasons of public policy, judi
orderliness, economy and judicial time and interes
litigants as well as the peace and order of society
require that stability be accorded the solemn and fi
judgments of the courts or tribunals of compet
jurisdiction (Lee Bun Ting, et al. v. Aligaen, et al., G
No. L-30523, April 22, 1977, 76 SCRA 416).
ACCORDINGLY, the petition is GRANTED and
assailed decision of the Court of Appeals dated Janu
16, 1984 is REVERSED and SET ASIDE.
SO ORDERED.
SECOND DIVISION
[G.R. No. 55613. December 10, 1990.]
ERNESTO DICHOSO, petitioner, vs. T
HONORABLE COURT OF APPEALS and TEODOL
RAMOS, respondents.
Pardalis Law Office for petitioner.
Felipe, Sibulo & Associates and Marciano H. Can
for private respondent.
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D E C I S I O N
PARAS, J p:
This is a petition for certiorari of the July 8, 1980
decision ** of the Court of Appeals which affirmed the
November 3, 1975 decision *** of the then Court ofFirst Instance of Camarines Sur, the dispositive portion
of which reads, as follows:
"WHEREFORE, judgment is hereby rendered declaring
the plaintiff owner of the land described in paragraph 2
of the complaint; and ordering the defendants, Ernesto
Dichoso and Marcelino Enciso, to restitute the
possession of the land to the plaintiff and to deliver to
the plaintiff 40 cavans of palay for every year from 1964
until the land in question is returned to the latter ortheir equivalent value of P15.00 per cavan of palay. With
costs against the said defendants.
SO ORDERED."
(CA Decision, Rollo, p. 14). llcd
The facts of the case are as follows:
The spouses Gaspar Prila and Maria Beldad, owned a
16.8716 hectare parcel of land at Cagmanaba, Ocampo,
Camarines Sur, surveyed in the name of Gaspar Prila
under Plan Psu-61453 (Exhibit "2"). Upon the death of
Maria Beldad in 1925, the eastern half thereof was
given to Vivencia Prila, their only daughter, and when
Gaspar Prila died in 1943, the 1/2 portion pertaining to
him was divided into three: one third to Vivencia Prila,
one third to Asuncion Pacamara and the other one-
third to Custodia Parcia, as reflected in the Extra-
judicial Settlement of Estate executed on November 22,
1945. Under the terms of said settlement, 4/6 of the
entire land or 11.2477 hectares was adjudicated to
Vivencia Prila, 1/6 or 2.8119 hectares to Asuncion
Pacamara and another 1/6 or 2.8119 hectares to
Custodio Parcia. This stipulation was reiterated by both
Vivencia Prila and Asuncion Pacamara in an agreement
dated March 29, 1947 duly registered with the Register
of Deeds on June 22, 1947 and was furthermore
confirmed judicially by the Court of First Instance of
Camarines Sur, in Civil Cases Nos. 3370 and 4468.
In 1955, Vivencia Prila sold her 4/6 portion with
area of 11.2477 hectares to the petitioner Erne
Dichoso who had been, ever since, in actual phys
possession thereof, exercising various acts of owners
thereon.
On the other hand, in a Deed of Sale dated June
1948, Asuncion Pacamara sold to the wife of priv
respondent Teodolfo Ramos her 1/6 share, but the d
mentions the area of the lot sold as 4.1250 hectar
obviously in excess of Pacamara's 1/6 share in
property of 2.8119 hectares. Hence, aforesaid 4.12
hectares which Ramos claims to have possessed, is n
the land in question.
As described in Ramos' Deed of Sale dated June
1948, the land bought by his wife is as follows:
"Cogon land situated in the barrio of Cagmana
Municipality of Pili, Province of Camarines Sur, with
area of approximately 4 hectares, 12 ares, and
centares, and is bounded on the North by a da
limited by the same dam, measuring 120 meters; on
East, Cagmanaba River, limited by the same ri
measuring 200 meters; on the South, heirs of Gas
Prila and Mariano Rodriguez, limited by an irrigat
ditch, measuring 200 meters; on the West, heirsGaspar Prila and limited by a big stone, measuring 3
meters." (Exhibit "A", Original Records)
The said Deed of Absolute Sale was notarized a
registered with the Register of Deeds of Camarines S
on August 2, 1948. Realty taxes for the years 19
1960 were paid on July 22, 1960 and for the ye
1961-1962 on November 18, 1964 (CA Decision, Ro
p. 15).
Herein respondent Teodolfo Ramos took possessionthe contested riceland upon its purchase. It yielded
average harvest of 20 sacks of palay per planting wh
was twice a year. One-third of the harvest went
Ramos and the remaining two-thirds was the tenan
share (Rollo, pp. 15-16).
On the other hand, petitioner Ernesto Dichoso clai
that the disputed land is inside his property of 11.24
hectares which he acquired from Vivencia Prila
P2,000.00 and evidenced by a Deed of Absolute S
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Prila ceded to Asuncion Pacamara one hectare more
located on the northern portion of the land covered by
Original Certificate of Title No. 1176. In effect, Asuncion
Pacamara owns at least six (6) hectares of land.
Furthermore, the Deed of Conveyance was registered on
August 2, 1948 and the property has been declared fortax purposes in the name of Ramos' wife. Above all
these, the question raised by Dichoso is purely a
question of fact. LexLib
The records show, however, that the one hectare ceded
by Vivencia Prila to Asuncion Pacamara on the
northern portion of the land supposed to be covered by
Original Certificate of Title No. 1176, is not the same
land covered by said Original Certificate of Title
(Original Exhibits, Exhibit "3", p. 1) Therefore, while it
may be true that Asuncion Pacamara may have been
adjudicated a total of six (6) hectares of land, but what
is covered by Original Certificate of Title No. 1176
pursuant to the Extra-Judicial Settlement Agreement
and the agreement subsequent thereto insofar as
Vivencia Prila's share is concerned, remains to be one-
sixth (1/6) or 2.8119 hectares (Original Exhibits,
Exhibit "3", p. 4).
The striking similarities in the boundaries between the
parcel of land in dispute and the property of Ramos'wife, particularly the boundaries on the North, which is
the dam, and on the East, which is the Cagmanaba
River, and the fact that the deed of sale in favor of
Ramos' wife was executed and registered ahead of that
of Dichoso's deed of sale, led the trial court to conclude
that the property in dispute tallies with the land bought
by Ramos' wife. It must be pointed out, however, that
the deed of sale in favor of Ramos' wife explicitly
described the property as being bounded "on the South
(by) heirs of Gaspar Prila and Mariano Rodriguez,limited by an irrigation ditch, measuring 200 meters; on
the West (by) heirs of Gaspar Prila, limited by a big
stone, measuring 350 meters." The commissioner's
report (Exhibit "11") identified the land claimed by
Ramos and indicated in the sketch as the portion
surrounded by a red line inside Lot-3, the portion
pertaining to Dichoso. As indicated in the said sketch
the land of Dichoso is labelled as Lots-1 and 3 and the
portion labelled as Lot-2 is the land of Ramos. A further
scrutiny of Exhibit "11" shows that the area be
claimed by Ramos, which was enclosed by a red li
went beyond the irrigation ditch. This is contrary to
technical description in the deed of sale in favor
Ramos' wife as to the boundary on the southern port
of the property (Original Exhibits, Exhibit "11").
While the jurisdiction of this Court in cases brou
from the Court of Appeals is limited to the review
errors of law, said appellate court's finding of fa
being conclusive, there are exceptions, among wh
are: (1) when the conclusion is a finding groun
entirely on speculation, surmises or conjectures;
when the inference made is manifestly absu
mistaken, or impossible; (3) . . .; (4) when the judgm
is premised on a misapprehension of facts; (5) . . . (R
Cement, Co., Inc. vs. Villareal, 135 SCRA 15, Febru
28, 1985).
This Court has held that in cases of conflict betw
areas and boundaries, it is the latter which sho
prevail. What really defines a piece of ground is not
area, calculated with more or less certainty, mention
in its description, but the boundaries therein laid dow
as enclosing the land and indicating its limits (Eric
Chigas, 98 SCRA 575, July 16, 1980). In a contrac
sale of land in a mass, it is well established that specific boundaries stated in the contract must con
over any statement with respect to the area contain
within its boundaries. It is not of vital consequence t
a deed or contract of sale of land should disclose
area with mathematical accuracy. It is sufficient if
extent is objectively indicated with sufficient precis
to enable one to identify it. An error as to the superfi
area is immaterial. (Loyola v. Bartolome, 39 Phil. 5
January 24, 1919 reiterated in Erico v. Chigas, supra
With reference to the second error, petitioner alle
that since respondent's share of the harvest is only o
third (1/3), the remaining two-thirds (2/3) represent
his tenant's share, only the one-third (1/3) of
annual harvest must be awarded to Ramos.
Ramos, on the other hand, argues that his tenant
be deprived of his share if only one-third (1/3) of
harvest will be awarded to him.
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Actual or compensatory damages cannot be presumed,
but must be duly proved, and proved with reasonable
degree of certainty. A court cannot rely on speculation,
conjecture or guesswork as to the fact and amount of
damages, but must depend upon competent proof that
they have suffered and on evidence of the actualamount thereof (Dee Hua Liong Electrical Corporation
v. Reyes, 145 SCRA 713, November 25, 1986). prcd
It is undisputed that the land in question yields an
average of twenty (20) sacks of palay per planting and
that it is planted to palay twice a year. Ramos' share of
the harvest is only one-third (1/3). In view of his
dispossession from 1964 and the fact that his tenant
has vacated the land that same year (TSN, Hearing of
February 10, 1971, pp. 2-3), he cannot allege that his
tenant is entitled to his two-thirds (2/3) share.
PREMISES CONSIDERED, the decision appealed from
is hereby SET ASIDE and the area of the land awarded
to herein respondent Ramos is hereby LIMITED to
2.8119 hectares in accordance with the boundaries
indicated in the deed of sale in favor of his wife, and the
award of actual damages is hereby REDUCED in
proportion to the area that may be awarded to Ramos
and to his one-third (1/3) participation in the harvests,
from 1964 up to the time the land appurtenant theretois returned to the respondent.
SO ORDERED.
Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ.,
concur.
THIRD DIVISION
[G.R. No. L-39215. September 1, 1989.]
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.
UTILITY ASSURANCE & SURETY CO., INC.,
defendant-appellant.
The Chief and Asst. Chief Legal Counsel for plaintiff-
appellee.
Ceferino M. Carpio, Jr. for defendant-appellant.
SYLLABUS
1. CIVIL PROCEDURE; ANSWER; DENIAL IN T
EXECUTION OF DOCUMENT SUED UPO
UNAVAILING WHERE DEFENDANT'S AVERMENT
IGNORANCE IS TO THE KNOWLEDGE OF THE COU
PALPABLY UNTRUE. — Utassco had alleged in
answer that it had no knowledge or informatsufficient to form a belief as to the truth of
allegations made by PNB in its complaint. Utassco
other words, purported to deny those allegations a
hence now contends that it had generated an issue
fact which the trial court should have first passed up
Utassco, however, cannot be deemed to have denied
allegations of the amended complaint, considering t
the truth of those allegations relating to the execut
of the surety bond and the contents thereof w
peculiarly within the knowledge of Utassco being issuer of the bond and Endorsement No. B-60-3 its
In Equitable Banking Corporation v. Liwanag, it
been held that said mode of denial is unavailing 'wh
the fact as to which want of knowledge is asserted is
the knowledge of the court so plainly and necessa
within the defendant's knowledge that his avermen
ignorance must be palpably untrue.'
2. ID.; ID.; ANSWER FAILED TO RAISE GENUI
ISSUES OF FACT; JUDGMENT ON THE PLEADING
PROPER. — At the same time that Utassco pretended
have denied the allegations of PNB's amend
complaint, it admitted in the affirmative defense sect
of its answer that it had indeed executed the Sur
Bond and Endorsement No. B-60-3 in favor of PN
Utassco must be deemed thereby to have admitted
due execution of the Bond and the Endorsement.
affirmative defense in fact consisted of pleading the v
provisions of the Surety Bond upon which PNB ba
its cause of action. Thus, the issues raised by
amended complaint and the answer were not genu
issues of fact on which evidence would have had to
submitted. Those pleadings raised, rather, questi
concerning the proper interpretation of the provision
the Surety Bond and Endorsement No. B-60-3, Un
these circumstances, the trial court correctly rende
judgment on the pleadings.
3. ID.; ID.; ID.; JUDGMENT ON THE PLEADING
ISSUANCE NOT PREMATURE. — Utassco claims t
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the trial court should have withheld judgment on the
pleadings until after the third party action brought by
Utassco against the owner of Lanuza Lumber on the
indemnity agreement executed between them, had gone
forward to judgment. The third party complaint could,
of course, have been prosecuted quite separately fromthe principal action between PNB and Utassco. Indeed,
there was no reason at all why the trial court should
have deferred rendering judgment on the pleadings in
the principal action, considering that the PNB was not
interested at all in the outcome of the third party
complaint. Under Section 12, Rule 6 of the Revised
Rules of Court, the purpose of a third party complaint
is to enable a defending party to obtain contribution,
indemnity, subrogation or other relief from a person not
a party to the action. Thus, notwithstanding thejudgment on the pleadings, Utassco could still proceed
with the prosecution of its third party complaint.
4. OBLIGATIONS AND CONTRACTS; CONTRACT
INTERPRETATION; PRINCIPLE OF EFFECTIVENESS. —
The principle of effectiveness is basic in contract
interpretation: where two (2) interpretations of the same
contract language are possible, one interpretation
having the effect of rendering the contract meaningless
(and one of the parties merely dishonest for receiving
consideration thereunder without parting with any),
while the other interpretation would give effect to the
contract as a whole, the latter interpretation must be
adopted.
5. CREDIT TRANSACTION; SURETY'S LIABILITY
TO INTEREST NOT IN VIOLATION OF CONTRACT OF
SURETYSHIP. — The objections that the trial court
should not have granted interest and attorneys' fees in
favor of PNB, considering the clause in the indorsement
limiting the liability of UTASSCO to P25,000.00. "Theobjection has to be overruled, because as far back as
the year 1922 this Court held in Tagawa vs. Aldanese,
43 Phil. 852, that creditors suing on a suretyship bond
may recover from the surety as part of their damages,
interest at the legal rate even if the surety would
thereby become liable to pay more than the total
amount stipulated in the bond. 'The theory is that
interest is allowed only by way of damages for delay
upon the part of the sureties in making payment after
they should have done. "In other words the surety
made to pay interest, not by reason of the contract,
by reason of its failure to pay when demanded and
having compelled the plaintiff to resort to the courts
obtain payment.
6. ATTORNEY'S FEES; AWARD ALLOWED UND
THE CIVIL CODE. — The New Civil Code perm
recovery of attorney's fees in eleven cases enumera
in Article 2208, among them 'where the court deem
just and equitable that attorney's fees and expenses
litigation should be recovered' or 'when the defend
acted in gross and evident bad faith in refusing
satisfy the plaintiff's plainly valid, just and demanda
claim.' This gives the courts discretion in apportion
attorney's fees.
R E S O L U T I O N
FELICIANO, J p:
The Kangyo Bank Ltd., Tokyo, Japan, issued Letter
Credit No. 14-10272 in the amount of US$28,150.00
favor of the Pedro Bartolome Enterprises of Manila
cover an export shipment of logs to Japan. T
beneficiary of the Letter of Credit assigned its rights
Lanuza Lumber. On 29 March 1960, Procopio Cader
doing business under the trade name "Lanuza Lumb
obtained a loan of P25,000.00 from plaintiff-appe
Philippine National Bank (PNB) as evidenced by
promissory note on the security, among other things
the proceeds of the Letter of Credit. The PNB in addit
required Lanuza Lumber to submit a surety bo
Defendant-Appellant Utility Assurance & Surety C
Inc. ("Utassco"), accordingly, executed Surety Bond
B-123 in favor of PNB. It is useful to quote the terms
the Surety Bond in their entirety:
"SURETY BOND
Know All Men By These Presents:
That we, LANUZA LUMBER of Surigao, Surigao (5
Rosario St., Manila) as Principal, and the UTIL
ASSURANCE & SURETY CO., INC., a corporation d
organized and existing under and by virtue of the la
of the Philippines, with Head Office in the City
Manila, as Surety, are held and firmly bound u
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PHILIPPINE NATIONAL BANK in the penal sum of
TWENTY FIVE THOUSAND ONLY — PESOS
(P25,000.00) Philippine Currency, for the payment of
which, well and truly to be made, we bind ourselves,
our heirs, executors, administrators and successors
and assigns, jointly and severally, firmly by thesepresents:
The conditions of this obligation are as follows:
Whereas, the Kangyo Bank, Ltd., Tokyo, Japan has
granted a letter of credit No. 14-10272 in the amount of
$28,150.00 in favor of Pedro Bartolome Enterprises of
302 Salvacion Apt., 2504 Pennsylvania, Manila, to cover
shipment of 500,000 board feet of logs to Shin
Asshigawa Co., Ltd., Tokyo, Japan;
Whereas, on January 21, 1960 the beneficiary, Pedro
Bartolome Enterprises assigned the aforementioned
letter of credit to Lanuza Lumber of Surigao per
attached Deed of Assignment;
Whereas, the correspondent Bank, Philippine National
Bank requires the Lanuza Lumber to post a surety bond
in the sum of Twenty Five Thousand (P25,000.00)
Pesos, Philippine Currency, to guarantee full and
faithful compliance by the beneficiary of the terms and
conditions of the said letter of credit.
It is a special provision of this undertaking to guarantee
the full payment of a loan not to exceed TWENTY FIVE
THOUSAND PESOS (P25,000.00) that may be granted
by the Philippine National Bank to Lanuza Lumber.
Whereas, said contract requires said Principal to give a
good and sufficient bond in the above-stated sum to
secure the full and faithful performance on his part of
said contract;
Now Therefore, if the Principal shall well and truly
perform and fulfill all the undertakings, covenants,
terms, conditions and agreements stipulated in said
contract, then this obligation shall be null and void;
otherwise to remain in full force and effect.
The liability of the UTILITY ASSURANCE & SURETY
CO., INC., on this bond will expire on March 17, 1961
and said bond will be cancelled TEN DAYS after its
expiration, unless Surety is notified of any exist
obligations thereunder.
In Witness Whereof, we have set our hands and sign
our names at Manila on March 17, 1960.
Utility Assurance & Surety Co., Inc.
S/Dalmacio Urtula, Jr.
DALMACIO URTULA, JR.
AUTHORIZED SIGNATURE
LANUZA LUMBER
S/ Procopio O. Caderao
General Manager
SIGNED IN THE PRESENCE OF:
(Sgd) ILLEGIBLE
(Sgd) ILLEGIBLE." (Emphasis supplied)
The surety bond was accompanied by an Endorsem
No. B-60-3 which provided as follows:
"In lieu of the last paragraph of this bond, it is her
declared and agreed that the following condition
incorporated in said bond and made an integral p
thereof:
That, if the above bounden principal and surety sh
in all respects, duly and fully observe and perform
and singular terms and conditions of
aforementioned Letter of Credit, then this obligat
shall be and become null and of no further force
effect; in the contrary case, the same shall continue
full effect and be enforceable, as a joint and seveobligation of the parties hereto in the manner provid
by law so long as the account remains unpaid a
outstanding in the books of the Bank either thru n
collection, extension, renewals or plans of payment w
or without consent of the surety.
It is a special condition of this bond that the liability
the surety thereon shall, at all times, be enforcea
simultaneously with that of the principal without
necessity of having the assets of the principal resor
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to, or exhausted by, the creditor; Provided, however, that
the liability of the surety shall be limited to the sum of
TWENTY-FIVE THOUSAND PESOS (P25,000),
Philippine Currency. Nothing herein contained shall be
held to vary, alter, waive or change any of the terms,
limits or conditions of the bond, except as herein-aboveset forth." (Emphasis supplied)
The promissory note executed by Lanuza Lumber
became due and payable. Neither Lanuza Lumber nor
Utassco paid the loan despite repeated demands by
PNB for payment. Accordingly, PNB filed in the then
Court of First Instance of Manila an action to recover
the amount of the promissory note with interest as
provided thereon plus attorney's fees. 1
In its Answer to PNB's complaint, Utassco stated that ithad "no knowledge or information sufficient to form a
belief as to the truth of the allegations contained in
[paragraphs 2, 3, 4 and 5] of the amended complaint
and perforce [denied] the same." 2 At the same time,
however, in setting out its affirmative defense, Utassco
admitted that it had executed the surety bond and
simultaneously pointed to the provisions of
Endorsement No. B-60-3. In particular, Utassco
contended that its obligation under the Surety Bond
was to secure the performance of all the terms andconditions of the US$28,150.00 Letter of Credit issued
by Kangyo Bank Ltd. and had not guaranteed the
performance of Lanuza Lumber's obligation under its
P25,000.00 loan from PNB.
On 14 January 1971, upon motion of PNB, the trial
court rendered judgment on the pleadings. The
dispositive part of the judgment reads as follows:
"WHEREFORE, in the light of the foregoing
considerations, judgment is hereby rendered ordering
the defendant to pay the plaintiff the sum of
P25,000.00 plus 6% interest per annum counted from
May 19, 1962, the date of the filing of the original
complaint until fully paid, plus attorney's fees
equivalent to 10% of the principal obligation and the
costs of the suit."
Its Motion for Reconsideration of the trial cou
judgment on the pleadings having been denied, Utas
appealed that judgment to the Court of Appeals.
The Court of Appeals, by a Resolution dated 31 J
1974, certified the appeal to us as involving o
questions of law.
Both before the Court of Appeals and this Cou
Utassco claims that the trial court fell into error:
(1) in granting the plaintiff-appellee's (PNB
motion for judgment on the pleadings;
(2) assuming the trial court could render judgm
on the pleadings, in doing so prematurely; and
(3) in awarding interest and attorney's fees in faof plaintiff-appellee PNB.
We turn to the first alleged error. As noted earl
Utassco had alleged in its answer that it had
knowledge or information sufficient to form a belief
to the truth of the allegations made by PNB in
complaint. Utassco, in other words, purported to d
those allegations and hence now contends that it h
generated an issue of fact which the trial court sho
have first passed upon. Utassco, however, cannotdeemed to have denied the allegations of the amend
complaint, considering that the truth of th
allegations relating to the execution of the surety bo
and the contents thereof was peculiarly within
knowledge of Utassco being the issuer of the bond a
Endorsement No. B-60-3 itself. In Equitable Bank
Corporation v. Liwanag, 3 the Supreme Court rejec
out of hand the same argument which Utassco n
seeks to make:
"This pretense is manifestly devoid of merit. Althou
the Rules of Court permit a litigant to file an answ
alleging lack of knowledge to form a belief as to
truth of certain allegations in the complaint, this fo
of denial 'must be availed of with sincerity and in g
faith, — certainly neither for the purpose of del
Indeed, it has been held that said mode of denia
unavailing 'where the fact as to which want
knowledge is asserted is to the knowledge of the co
so plainly and necessarily within the defendan
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knowledge that his averment of ignorance must be
palpably untrue.' Thus, under conditions almost
identical to those obtaining in the case at bar, this
Court, speaking through Mr. Justice Villamor, upheld a
judgment on the pleadings in Capitol Motors vs.
Nemesio L. Yabut (G.R. No. L-28140, March 19, 1970)from which we quote:
"'We agree with the defendant-appellant that one of the
modes of specific denial contemplated in Section 10,
Rule 8, is a denial by stating that the defendant is
without knowledge or information sufficient to form a
belief as to the truth of a material averment in the
complaint. The question, however, is whether paragraph
2 of defendant-appellant's answer constitutes a specific
denial under the said rule. We do not think so. In
Warner Barnes & Co. Ltd. vs. Reyes, et al. G.R. No. L-
9531, May 14, 1958 (103 Phil. 662), this Court said
that the rule authorizing an answer to the effect that
the defendant has no knowledge or information
sufficient to form a belief as to the truth of an averment
and giving such answer the effect of a denial, does not
apply where the fact as to which want of knowledge is
asserted, is so plainly and necessarily within the
defendant's knowledge that his averment of ignorance
must be palpably untrue.
In said case the suit was one for foreclosure of
mortgage, and a copy of the deed of mortgage was
attached to the complaint: thus, according to this
Court, it would have been easy for the defendants to
specifically allege in their answer whether or not they
had executed the alleged mortgage. The same thing can
be said in the present case, where a copy of the
promissory note sued upon was attached to the
complaint. The doctrine in Warner Barnes & Co. Ltd.
was reiterated in J.P. Juan & Sons, Inc. v. LiangaIndustries, Inc., G.R. No. L-25137, July 28, 1969 (28
SCRA 807) . . . .'" (Emphasis supplied)
At the same time that Utassco pretended to have denied
the allegations of PNB's amended complaint, it admitted
in the affirmative defense section of its answer that it
had indeed executed the Surety Bond and Endorsement
No. B-60-3 in favor of PNB; Utassco must be deemed
thereby to have admitted the due execution of the Bond
and the Endorsement. Its affirmative defense in fact
consisted of pleading the very provisions of the Sur
Bond upon which PNB based its cause of action. Th
the issues raised by the amended complaint and
answer were not genuine issues of fact on wh
evidence would have had to be submitted. Th
pleadings raised, rather, questions concerning proper interpretation of the provisions of the Sur
Bond and Endorsement No. B-60-3, i.e.,
determination of whether the surety bond and
endorsement had, as contended by the P
guaranteed the payment by Lanuza Lumber of
P25,000.00 loan from PNB; or whether, as maintain
by Utassco, the surety bond and its endorsem
served merely to secure the performance of the ter
and conditions of the Letter of Credit No. 14-10272.
hold, therefore, that under these circumstances, trial court correctly rendered judgment on
pleadings.
We turn to the second error imputed by Utassco to
trial court: that the judgment on the pleadings, whil
may have been within the jurisdiction of the trial cou
was prematurely issued. This argument appears to
even more tenuous than the first assigned er
Utassco claims that the trial court should h
withheld judgment on the pleadings until after the th
party action brought by Utassco against the owner
Lanuza Lumber on the indemnity agreement execu
between them, had gone forward to judgment. The th
party complaint could, of course, have been prosecu
quite separately from the principal action between P
and Utassco. Indeed, there was no reason at all why
trial court should have deferred rendering judgment
the pleadings in the principal action, considering t
the PNB was not interested at all in the outcome of
third party complaint. Under Section 12, Rule 6 of
Revised Rules of Court, the purpose of a third pa
complaint is to enable a defending party to obt
contribution, indemnity, subrogation or other relief fr
a person not a party to the action. Th
notwithstanding the judgment on the pleadin
Utassco could still proceed with the prosecution of
third party complaint.
Before passing on to the third error assigned
Utassco, it is important to note that Utassco did
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really dispute the correctness of the conclusion reached
by the trial court in respect of the substantive issue
raised before it: whether the bond issued by Utassco
secured the obligations of Lanuza Lumber to repay the
P25,000.00 loan obtained from PNB, or whether the
bond had secured the Letter of Credit. The trial courtheld that the surety bond was intended to secure the
repayment of Lanuza Lumber's loan from PNB. We
believe and so hold that the trial court was correct in so
holding. In the first place, the surety bond explicitly
stated that the P25,000.00 loan was being secured by
the bond: cdrep
"It is a special provision of this undertaking to
guarantee the full payment of a loan not to exceed
TWENTY FIVE THOUSAND PESOS (P25,000,00) that
may be granted by the Philippine National Bank to
Lanuza Lumber."
In the second place, while the bond and the
endorsement had referred to the Letter of Credit,
Lanuza Lumber had no obligations under the Letter of
Credit. As noted earlier, Lanuza Lumber was
beneficiary-assignee of the Letter of Credit. Thus,
Utassco's view would reduce the terms and conditions
of the Surety Bond to nonsense. Such view would also
mean that Utassco, in its own reading of the bond, wasnever at risk since there were no obligations to secure
and that Utassco was in fact collecting premiums for
issuing the bond under which it had no liabilities. The
principle of effectiveness is basic in contract
interpretation: where two (2) interpretations of the same
contract language are possible, one interpretation
having the effect of rendering the contract meaningless
(and one of the parties merely dishonest for receiving
consideration thereunder without parting with any),
while the other interpretation would give effect to thecontract as a whole, the latter interpretation must be
adopted. 4
In the instant case, the reference to the Letter of Credit
in the surety bond and the endorsement was either
merely inadvertent surplusage or, alternatively, merely
indication of ineptness on the part of the draftsman of
the bond and the endorsement. It is not disputed by
Utassco that the endorsement was intended to replace
the final paragraph of the original bond, which
paragraph limited the life of the bond to one year fr
issuance. The endorsement had the important effec
giving the bond continuing life so long as "the accou
remained unpaid and outstanding on the books of PN
The term "account" here could only refer to the acco
of the principal debtor, Lanuza Lumber, with PNB. Tendorsement also made it clear that the liability
Lanuza Lumber and Utassco was joint and several
nature, and that Utassco had waived any benefit
excussion that it might otherwise have had. Finally,
a very practical level, it is difficult to understand h
Utassco could have reasonably supposed that its bo
in the amount of RPP25,000.00 was intended only
even principally) to secure performance of
obligations of the issuer — Kangyo Bank — under
Letter of Credit which had a face value US$28,150.00, many times the face value of the bond
We come to the final error assigned by Utassco: that
trial court should not have granted interest a
attorney's fees in favor of PNB, considering the clause
the endorsement limiting the liability of Utassco
P25,000.00. The issue here presented is not a new o
It was extensively discussed and Utassco's submiss
decisively rejected by this Court in Plaridel Surety a
Insurance Co., Inc. v. P.L. Galang Machinery Co., Inc
There, the Court held: prcd
"Petitioner objects to the payment of interest a
attorney's fees because: (1) they were not mentioned
the bond; and (2) the surety would become liable
more than the amount stated in the contract
suretyship.
"In support of its objection petitioner dwells on
proposition that a surety's liability can not be extend
beyond the terms of his undertaking, citing artic1956 and 2208 of the New Civil Code which provide
follows:
'ART. 1956. No interest shall be due unless it
been expressly stipulated in writing.'
'ART. 2208. In the absence of stipulation, attorne
fees and expenses of litigation, other than judicial co
cannot be recovered, except: . . .'
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"The objection has to be overruled, because as far back
as the year 1922 this Court held in Tagawa vs.
Aldanese, 43 Phil. 852, that creditors suing on a
suretyship bond may recover from the surety as part of
their damages, interest at the legal rate even if the
surety would thereby become liable to pay more thanthe total amount stipulated in the bond. 'The theory is
that interest is allowed only by way of damages for delay
upon the part of the sureties in making payment after
they should have done. In some states, the interest has
been charged from the date of the judgment of the
appellate court. In this jurisdiction, we rather prefer to
follow the general practice which is to order that
interest begin to run from the date when the complaint
was filed in court, . . .'
Such theory aligned with Sec. 510 of the Code of Civil
Procedure which was subsequently recognized in the
Rules of Court (Rule 53, Section 6) and with Article
1108 of the Civil Code (now Art. 2209 of the New Civil
Code).
"In other words the surety is made to pay interest, not
by reason of the contract, but by reason of its failure to
pay when demanded and for having compelled the
plaintiff to resort to the courts to obtain payment. It
should be observed that interest does not run from thetime the obligation became due, but from the filing of
the complaint.
"As to attorneys fees. Before the enactment of the New
Civil Code, successful litigants could not recover
attorney's fees as part of the damages they suffered by
reason of the litigation. Even if the party paid
thousands of pesos to his lawyers, he could not charge
the amount to his opponent.
"However, the New Civil Code permits recovery of
attorney's fees in eleven cases enumerated in Article
2208, among them 'where the court deem it just and
equitable that attorney's fees and expenses of litigation
should be recovered' or 'when the defendant acted in
gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim.'
This gives the courts discretion in apportioning
attorney's fees.
"Now, considering, in this case, that the princi
debtor had openly and expressly admitted his liabi
under the bond, and the surety knew it (p. 123 R.
we can not say there was abuse of lower cou
discretion in the way of awarding fees, specially wh
the indemnity agreement . . . afforded the suradequate protection. (100 Phil. 681-682." (Empha
supplied)
WHEREFORE, the Court Resolved to DISMISS
appeal by defendant-appellant Utility Assurance
Surety Co., Inc. for lack of merit, and to AFFIRM
judgment of the trial court dated 14 January 1971.
pronouncement as to costs. This Resolution
immediately executory.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, J
concur.
FIRST DIVISION
[G.R. No. 82808. July 11, 1991.]
DENNIS L. LAO, petitioner, vs. HON. COURT
APPEALS, JUDGE FLORENTINO FLOR, Regio
Trial Court, Branch 89 of Morong, Rizal BENJAM
L. ESPIRITU, MANUEL QUERUBIN and CHAN TON
respondents.
F. Sumulong & Associates Law Offices for petitioner.
Manuel LL. Querubin for and in his own behalf.
Enrique M. Basa for private respondent.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; AGEN
AGENT NOT PERSONALLY LIABLE TO THE PAR
WITH WHOM HE CONTRACTED. — Lao has a va
defense to the action for malicious prosecution (C
Case No. 84-M) because it was his employer, St. Jos
Lumber, not himself, that was the complainant in
estafa case against Espiritu. It was Chan Tong,
owner of the St. Joseph Lumber, who, upon advice
his counsel, filed the criminal complaint agai
Espiritu. Lao was only a witness in the case. He had
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personal interest in the prosecution of Espiritu for he
was not the party defrauded by Espiritu. He executed
the affidavit which was used as basis of the criminal
charge against Espiritu because he was the salesman
who sold the construction materials to Espiritu. He was
only an agent of St. Joseph Lumber, hence, notpersonally liable to the party with whom he contracted
(Art. 1897, Civil Code; Philippine Products Co. vs.
Primateria Societe Anonyme, 122 Phil. 698).
2. ID.; ACTION FOR DAMAGES BASED ON
MALICIOUS PROSECUTION; ELEMENTS. — "To
maintain an action for damages based on malicious
prosecution, three elements must be present: First, 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; second,
that in bringing the action, the prosecution acted
without probable cause; and third, the prosecutor was
actuated or impelled by legal malice" (Ferrer vs. Vergara,
52 O.G. 291).
3. ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR. —
Lao was only a witness, not the prosecutor in the estafa
case. The prosecutor was his employer, Chan Tong or
the St. Joseph Lumber. There was probable cause for
the charge of estafa against Espiritu, as found andcertified by the investigating fiscal himself. Lao was not
motivated by malice in making the affidavit upon which
the fiscal based the filing of the information against
Espiritu. He executed it as an employee, a salesman of
the St. Joseph Lumber from whom Espiritu made his
purchases of construction materials and who, therefore,
had personal knowledge of the transaction. Although
the prosecution of Espiritu for estafa did not prosper,
the unsuccessful prosecution may not be labelled as
malicious. "Sound principles of justice and public policydictate that persons shall have free resort to the courts
for redress of wrongs and vindication of their rights
without later having to stand trial for instituting
prosecutions in good faith" (Buenaventura vs. Sto.
Domingo, 103 Phil. 239).
4. CONSTITUTIONAL LAW; DUE PROCESS OF
LAW; DENIED IN CASE AT BAR; EFFECT. — There is
merit in petitioner's contention that he was deprived of
his day in court in the damage suit filed by Espiritu,
due to the gross ignorance, negligence, and derelict
of duty of Attorney Manuel Querubin whom
employer had hired to act as counsel for him and the
Joseph Lumber. However, Attorney Querubin neglec
to defend Lao. He concentrated on the defense of
company and completely forgot his duty to defend as well. He never informed Lao about the pre-t
conferences. In fact, he (Attorney Querubin) neglec
to attend other pre-trial conferences set by the cou
When adverse judgment was entered by the co
against Lao and the lumber company, Attor
Querubin did not file a motion for reconsideration of
decision. He allowed it to become final, because anyw
Espiritu would not be able to satisfy his judgm
against Chan Tong who had informed his lawyer t
the St. Joseph Lumber was insolvent, had gone ou business, and did not have any leviable assets. A
result, Espiritu levied on the petitioner's car to sat
the judgment in his favor since the company itself h
no more assets that he could seize. In view of
foregoing circumstances, the judgment against Lao w
a nullity and should be set aside. Its execution agai
the petitioner cannot be allowed to proceed.
D E C I S I O N
GRIÑO-AQUINO, J p:
For being a witness in an unsuccessful estafa c
which his employer filed against a debtor who h
defaulted in paying his just obligation, the petitio
was sued, together with his employer, for damages
malicious prosecution. The issue in this case is whet
the damages awarded to the defaulting debtor may
satisfied by execution against the employee's prope
since his employer's business has already folded up.
Petitioner Dennis Lao was an employee of the New
Joseph Lumber & Hardware Supply, hereinafter ca
St. Joseph Lumber, owned by the private responde
Chan Tong. In January 1981, St. Joseph Lumber file
collection suit against a customer, the priv
respondent, Benjamin Espiritu, for unpaid purchase
construction materials from St. Joseph Lumber.
In November 1981, upon the advice of its lawyer,
Joseph Lumber filed a criminal complaint for est
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against Espiritu, based on the same transaction. Since
the petitioner was the employee who transacted
business with Espiritu, he was directed by his employer,
the firm's owner, Chan Tong, to sign the affidavit or
complaint prepared by the firm's lawyer, Attorney
Manuel Querubin.
Finding probable cause after conducting a preliminary
investigation of the charge, the investigating fiscal filed
an information for estafa in the Court of First Instance
of Quezon City against Espiritu. The case was however
later dismissed because the court believed that
Espiritu's liability was only civil, not criminal.
On April 12, 1984, Espiritu filed a complaint for
malicious prosecution against the petitioner and St.
Joseph Lumber, praying that the defendants be orderedto pay him P500,000 as moral damages, P10,000 as
actual damages, and P100,000 as attorney's fees.
In his answer to the complaint, the petitioner alleged
that he acted only as agent or employee of St. Joseph
Lumber when he executed the affidavit which his
employer submitted to the investigating fiscal who
conducted the preliminary investigation of his
employer's estafa charge against Espiritu. prLL
The pre-trial of the case was set on October 30, 1984.
Since the defendants and their counsel failed to appear
in court, they were declared in default.
On November 11, 1984, the defendants filed a motion
for reconsideration of the order of default.
On November 13, 1984, the motion was granted, and
the order of default was set aside.
On January 16, 1985, the defendants, including herein
petitioner Lao, and their counsel, again failed to attend
the pre-trial despite due notice to the latter who,
however, failed to notify Lao. They were once more
declared in default. The private respondent was allowed
to present his evidence ex parte.
On January 22, 1985, a decision was rendered by the
trial court in favor of Espiritu ordering the defendants
Lao and St. Joseph Lumber to pay jointly and severally
to Espiritu the sums of P100,000 as moral damag
P5,000 as attorney's fees, and costs.
Petitioner's motion for reconsideration of the decis
was denied by the trial court.
On February 25, 1985, Lao filed a motion for new ton the ground of accident and insufficiency of eviden
but it was denied by the trial court.
He appealed to the Court of Appeals (CA-G.R. CV
06796, "Benjamin L. Espiritu, plaintiff-appellee
Dennis Lao and New St. Joseph Lumber and Hardw
Supply, defendants-appellant"). The appellate co
dismissed his appeal on May 21, 1987. He filed t
special civil action of certiorari and prohibition
partially annul the appellate court's decision andenjoin the execution of said decision against him. T
petitioner avers that the Court of Appeals erred:
1. in not holding that he (petitioner Lao) has a v
defense to the action for malicious prosecution in C
Case No. 84-M;
2. in not holding that he was deprived of a day
court due to the gross ignorance, negligence a
dereliction of duty of the lawyer whom his emplo
hired as his and the company's counsel, but who faito protect his interest and even acted in a man
inimical to him; and
3. in not partially annulling the decision of the t
court dated January 22, 1985 insofar as he
concerned.
The petition is meritorious.
Lao had a valid defense to the action for malici
prosecution (Civil Case No. 84-M) because it was employer, St. Joseph Lumber, not himself, that was
complainant in the estafa case against Espiritu. It w
Chan Tong, the owner of the St. Joseph Lumber, w
upon advice of his counsel, filed the criminal compla
against Espiritu. Lao was only a witness in the case.
had no personal interest in the prosecution of Espir
for he was not the party defrauded by Espiritu.
executed the affidavit which was used as basis of
criminal charge against Espiritu because he was
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salesman who sold the construction materials to
Espiritu. He was only an agent of St. Joseph Lumber,
hence, not personally liable to the party with whom he
contracted (Art. 1897, Civil Code; Philippine Products
Co. vs. Primateria Societe Anonyme, 122 Phil. 698).
LexLib
"To maintain an action for damages based on malicious
prosecution, three elements must be present: First, 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; second,
that in bringing the action, the prosecutor acted
without probable cause; and third, the prosecutor was
actuated or impelled by legal malice" (Ferrer vs. Vergara,
52 O.G. 291).
Lao was only a witness, not the prosecutor in the estafa
case. The prosecutor was his employer, Chan Tong or
the St. Joseph Lumber.
There was probable cause for the charge of estafa
against Espiritu, as found and certified by the
investigating fiscal himself.
Lao was not motivated by malice in making the affidavit
upon which the fiscal based the filing of the information
against Espiritu. He executed it as an employee, a
salesman of the St. Joseph Lumber from whom Espiritu
made his purchases of construction materials and who,
therefore, had personal knowledge of the transaction.
Although the prosecution of Espiritu for estafa did not
prosper, the unsuccessful prosecution may not be
labelled as malicious. "Sound principles of justice and
public policy dictate that persons shall have free resort
to the courts for redress of wrongs and vindication of
their rights without later having to stand trial for
instituting prosecutions in good faith" (Buenaventura
vs. Sto. Domingo, 103 Phil. 239).
There is merit in petitioner's contention that he was
deprived of his day in court in the damage suit filed by
Espiritu, due to the gross ignorance, negligence, and
dereliction of duty of Attorney Manuel Querubin whom
his employer had hired to act as counsel for him and
the St. Joseph Lumber. However, Attorney Querubin
neglected to defend Lao. He concentrated on the defense
of the company and completely forgot his duty to defe
Lao as well. He never informed Lao about the pre-t
conferences. In fact, he (Attorney Querubin) neglec
to attend other pre-trial conferences set by the court.
When adverse judgment was entered by the co
against Lao and the lumber company, Attor
Querubin did not file a motion for reconsideration of
decision. He allowed it to become final, because anyw
Espiritu would not be able to satisfy his judgm
against Chan Tong who had informed his lawyer t
the St. Joseph Lumber was insolvent, had gone ou
business, and did not have any leviable assets. A
result Espiritu levied on the petitioner's car to sat
the judgment in his favor since the company itself h
no more assets that he could seize. cdphil
In view of the foregoing circumstances, the judgm
against Lao was a nullity and should be set aside.
execution against the petitioner cannot be allowed
proceed.
WHEREFORE, judgment is hereby rendered parti
setting aside the decision of the Court of Appeals da
May 21, 1987, insofar as it declared the petition
Dennis Lao, solidarily liable with St. Joseph Lumber
pay the damages awarded to the private respondBenjamin Espiritu. Said petitioner is hereby absol
from any liability to the private respondent arising fr
the unsuccessful prosecution of Criminal Case No.
20086 for estafa against said private respondent. Co
against the private respondent.
SO ORDERED.
Narvasa, Cruz and Medialdea, JJ ., concur.
Gancayco, J ., is on leave.
FIRST DIVISION
[G.R. No. 101706. September 23, 1992.]
CONSOLIDATED PLYWOOD INDUSTRIES INC. A
HENRY LEE, petitioners, vs. THE HONORAB
COURT OF APPEALS, WILLIE KHO AND ALFR
C.H. KHO, respondents.
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Villaraza & Cruz Law Offices for petitioner.
Leonido C. Delante and Peter Nugas for private
respondents.
SYLLABUS
1. CIVIL LAW; DAMAGES; TEMPERATE OR
MODERATE DAMAGES; MAY BE RECOVERED WHEN
SOME PECUNIARY LOSS HAS BEEN SUFFERED; NOT
WARRANTED IN CASE AT BAR. — Article 2224 of the
Civil Code provides: "Temperate or moderate damages,
which are more than nominal but less than
compensatory damages, may be recovered when the
Court finds that some pecuniary loss has been suffered
but is amount can not, from the nature of the case, be
proved with certainty." The grant thereof is properunder the provision of Article 2205 of the Civil Code,
which provides that damages may be recovered. In this
case however, there was no showing nor proof that
petitioner was entitled to an award of this kind of
damages in addition to the actual damages it suffered
as a direct consequence of private respondents' act. The
nature of the contract between the parties is such that
damages which the innocent party may have incurred
can be substantiated by evidence.
2. ID.; ID.; MORAL DAMAGES; MAY BE
RECOVERED IF A PARTY NEGLECTED TO PERFORM
ITS OBLIGATION IN BAD FAITH; CASE AT BAR. — It
should be stated here that the hauling agreement
between the petitioners and the private respondent had
no fixed date of termination. It was a verbal agreement
where the private respondents bound themselves until
the loan with Equitable Bank in the personal account of
petitioners had been fully paid. There was substantial
compliance by the private respondents of theirobligations in the contract for about a year. The record
showed that the remaining balance owing to the bank
was only P30,000.00 which was not due until one (1)
year and five (5) months after the breach by the private
respondents or on September 4, 1980. However, the
trial court found that private respondents acted with
bad faith when it surreptitiously pulled out their hauler
trucks from petitioner's jobsite before the termination of
the contract. The trial court held: "The act of
defendants in suddenly and surreptitiously withdrawing
its hauler trucks from the jobsite and abandoning
obligation of hauling the logs is indubitably a wan
violation of its obligation, under the contract, a neg
to perform its obligation in bad faith more particula
in its stipulation to liquidate the cash advance obtain
from Equitable Bank, for the law would not permit sdefendants to enrich themselves at the expense of
plaintiffs."
D E C I S I O N
MEDIALDEA, J p:
This is a petition for review on certiorari of the decis
of the Court of Appeals in CA-G.R. No. 02784 entitl
"Consolidated Plywood Industries, Inc. and Henry W
v. Willie Kho and Alfred C.H. Kho," which modifieddecision of the Court of First Instance (now Regio
Trial Court) of Baganga, Davao Oriental, by deleting
award for moral damages, attorneys fees and act
damages in the sum of P350,000.00 for the unfulfil
import of logs, which were granted by the trial court.
Consolidated Plywood Industries, Inc. (Corporation) a
Henry Wee filed an action for breach of contract a
damages against Willie Kho and Alfred C.H. Kho w
the Court of First Instance (now Regional Trial Court
Baganga, Davao Oriental. The facts as summarized
the trial court are as follows: LLjur
"xxx xxx xxx
"Sometime in February, 1978, the plaintiff Corporat
of which the plaintiff Henry Wee is the President, be
in the business of logging and manufacturing tim
products at its logging concession at Baganga a
Caraga, Davao Oriental, on one hand, and
defendants, father and son, who are operating a fleehauling trucks, entered into a verbal hauling agreem
with the following terms and conditions to wit: t
defendants shall haul the logs of the plaintiffs from
concession area to the logpond at Baculin, Bagan
Davao Oriental, at a hauling fee of P1.25/cu.m./km
all species of timber, payable on weekly liquidat
basis of all timber hauled and scaled at the Bagan
office of the plaintiffs.
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"It was likewise agreed between the parties as a pre-
condition before defendants' sending of the truck
haulers to the jobsite that the plaintiffs provide
financial assistance to the defendants in the amount of
P180,000.00, cash, to defray cost of needed repairs and
re-conditioning of the trucks and other expensesnecessary for the hauling operations.
It was understood that this financial assistance was in
the nature of cash advance obtained by the defendants
from the Equitable Bank in the aggregate amount of
P180,000.00 on the guaranty of plaintiff Henry Wee,
payable by the defendants, and that the hauling
services shall continue unless and until this loan from
the Equitable Bank remain unpaid.
"After the defendants obtained the aggregate amount ofP180,000.00 from the Equitable Bank on the guaranty
of plaintiff Henry Wee by way of cash advance as
financial assistance, the defendants proceeded to the
jobsite at Baculin, Baganga, Davao Oriental, to
commence the hauling service for the plaintiffs. cdrep
"However, after hauling logs for about a year, or so,
specifically on April 12, 1979, the defendants, without
giving notice and information to the plaintiffs, suddenly
and surreptitiously at nighttime, withdrew all its truckhaulers from the jobsite and returned to its base in
Tagum, Davao del Norte, all in violation of the terms of
the hauling agreement, particularly, the repayment of
the cash advance to P180,000.00 obtained from the
Equitable Bank, and that the hauling should continue
until the said amount is fully paid.
"Evidence on record show that all hauling services had
been paid by the plaintiffs. In fact, it appears that from
cash vales in the course of the hauling operation; the
defendants have incurred an overdraft of P10,726.53
still unliquidated.
"Due to the sudden and surreptitious abandonment by
the defendants of its hauling obligation in bad faith
several logs have been left unhauled from the area
which spawned serious and varied consequences to the
great damage and prejudice of the plaintiffs.
"The Aquarius Trading, a Taiwan log importer of
plaintiffs, have charged the plaintiffs of P56,000
reimbursements representing cancellation fee of
chartered vessel, LC extension fee and other char
due to plaintiffs' unfulfilled commitment of 1,500 cu.
of logs because of the failure of hauling by defendants on the due date to the logpond. T
plaintiffs, as a result, failed to realize a profit
P150,000.00.
"During the interim period between the sudd
abandonment by the defendants in April, 1979 to M
1979 when the plaintiffs have no immed
replacement haulers, the plaintiffs could have produ
5,000 cu. m. of logs, to fill other commitments, or a l
of P350,000.00, was suffered by plaintiffs.
"The defendants' violation of its undertaking a
resulted in exposing the plaintiff Henry Wee to liabi
to the Equitable Bank for the loans he guaranteed
favor of the defendants in the total amount
P180,000.00 which have become due, and demands
payment resulted in unduly annoying and vexing s
plaintiff which entitles him to moral damages in
amount of P200,000.00." (pp. 302-305, Rollo)
The evidence of the plaintiffs showed that they sent(2) letters to the defendants demanding the return
the area of the six (6) hauler trucks to be used
hauling the logs (pp. 103-104, Rollo) but the defenda
did not heed the demand.
The defendants waived their right to present eviden
Hence, on January 3, 1983, a decision was rendered
the basis of plaintiffs' evidence, the dispositive port
of which reads: prLL
"WHEREFORE, judgment is hereby rendered in favothe plaintiffs and against the defendants ordering
defendants, jointly and severally to:
(1) pay the plaintiffs the sum of P10,726.53, unp
overdraft cash vales;
(2) pay the plaintiffs the sum of P56,000
reimbursement of charges of Aquarius Trading paid
the plaintiffs;
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(3) pay the plaintiffs the sum of P150,000.00
unrealized profit in the Aquarius Trading transaction
unfulfilled;
(4) pay the plaintiffs the sum of P350,000.00
unfulfilled import of logs after the sudden withdrawal of
defendants' trucks;
(5) pay the plaintiffs P200,000.00 moral damages
caused by the anxiety and annoyance as a consequence
of the demands of the Equitable Bank on the
defendants' unpaid cash advance of P180,000.00;
(6) pay the plaintiffs attorneys' fees of P20,000.00;
(7) to pay the plaintiffs litigation expenses of
P40,000.00; and
(8) pay the costs.
"SO ORDERED." (pp. 306-307, Rollo)
From the decision of the trial court, the defendants
appealed to the Court of Appeals questioning the
amount of damages awarded to the plaintiffs on the
ground that the awards were not supported by
sufficient evidence. The other grounds assigned by the
defendants as errors were improper venue and lack of
cause of action, in the latter case, because there was
allegedly no contract to be enforced. LexLib
On August 30, 1991, as already mentioned, the Court
of Appeals rendered a decision modifying the trial
court's decision. While the awards for the unpaid
overdraft cash vales of P10,726.53; the sum of
P56,000.00 as reimbursement of charges by Aquarius
Trading paid by the plaintiff and the sum of
P150,000.00 for unrealized profit in the Aquarius
Trading transaction were affirmed, all the other awardsof damages for unfulfilled import of logs, attorney's fees
and litigation expenses were deleted. The dispositive
portion of the decision reads:
"WHEREFORE, and in the light of all the foregoing, the
appealed judgment is affirmed except the award of
damages for 'unfulfilled import of logs,' moral damages
and attorney's fees which are hereby denied and
ordered deleted." (p. 354, Rollo)
In this petition before Us, the petitioners Corporat
and Henry Wee question the deletion of the awards
unfulfilled import of logs, moral damages and attorn
fees.
We agree with the appellate court when it deleted
award of P350,000.00 granted by the trial court
actual damages allegedly incurred by petitioners for
unfulfilled import of logs. It correctly held that th
was no evidence to support such claim. This cla
apparently refers to an alleged commitment to a cert
Ching Kee Trading of Taiwan scheduled in June 1979
distinguished from the claim for actual dama
incurred in connection with its Aquarius Trad
transaction. Henry Wee testified on the actual dama
they incurred, as follows:
"Q Let us go to the business of the corporation
which you said that it has a contract for shipment
logs, where are these contracts of shipments go (s
LLpr
"A The company has a commitment of export
logs and wood products in foreign countries
Hongkong and other foreign buyer on monthly ba
and on that month on (sic) April to May, there wa
contracted shipment of 1,500 anticipating to be hau by the services of the Willie Kho trucking, so that
company has to reach their shipment on May 15, wh
was fully contracted with the buyer.
"Q I show to you this letter of Aquarius Trad
Company, duly confirmed and accepted by Consolida
Plywood Industries by Mr. Henry Wee, president, ple
tell the Court what relation has this to the commitm
of the shipment of logs?
"A This is the commitment of shipment of logs1,400 on May 15, for Aquarius Trading.
"Q Other than this commitment, do you have ot
commitment to other buyer?
"A Yes, we have commitment to Ching Kee Trad
in Taiwan scheduled on June (TSN, 12 Jan. 1982,
45-48: pp. 158-160, Rollo).
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The commitment to Aquarius Trading was sufficiently
substantiated by documents (Exhs. "H" and "I").
Petitioners were able to present the papers evidencing
their transaction with said entity including the amount
demanded from them as reimbursement for damages it
incurred due to by petitioners' failure to ship theordered logs on time. In contrast, the alleged
commitment of petitioner to Ching Kee Trading in
Taiwan was not supported by evidence other than the
self-serving statement of Wee. Nor did they present any
other evidence which would show that they had other
unfulfilled shipments for which they incurred damages
because of the pull-out of private respondents' hauler
trucks. But even granting for the sake of argument that
there was in fact a commitment to Chingkee Trading,
the shipment was scheduled some two (2) months afterthe private respondents pulled out their trucks from
petitioners' jobsite on April 12, 1979. That would have
left the petitioners with sufficient time to find other
trucks which could be used for the job. Cdpr
The petitioners insist that if the appellate court did not
consider the P350,000.00 damages for unfulfilled
shipments, it should have awarded this amount as a
form of temperate or moderate damages.
Article 2224 of the Civil Code provides: "Temperate ormoderate damages, which are more than nominal but
less than compensatory damages, may be recovered
when the Court finds that some pecuniary loss has
been suffered but its amount can not, from the nature
of the case, be proved with certainty." The grant thereof
is proper under the provision of Article 2205 of the Civil
Code, which provides that damages may be recovered.
In this case however, there was no showing nor proof
that petitioner was entitled to an award of this kind of
damages in addition to the actual damages it sufferedas a direct consequence of private respondents' act. The
nature of the contract between the parties is such that
damages which the innocent party may have incurred
can be substantiated by evidence.
The Court, however, believes that petitioner is entitled
to an award for moral damages. However, the award
granted by the trial court in the amount of P200,000.00
is excessive. It should be stated here that the hauling
agreement between the petitioners and the private
respondent had no fixed date of termination. It wa
verbal agreement where the private respondents bou
themselves until the loan with Equitable Bank in
personal account of petitioners had been fully pa
There was substantial compliance by the priv
respondents of their obligations in the contract about a year. The record showed that the remain
balance owing to the bank was only P30,000.00 wh
was not due until one (1) year and five (5) months a
the breach by the private respondents or on Septem
4, 1980 (p. 109, Rollo). However, the trial court fou
that private respondents acted with bad faith when
surreptitiously pulled out their hauler trucks fr
petitioner's jobsite before the termination of
contract. The trial court held:
"The act of defendants in suddenly and surreptitiou
withdrawing its hauler trucks from the jobsite a
abandoning its obligation of hauling the logs
indubitably a wanton violation of its obligation, un
the contract, a neglect to perform its obligation in b
faith more particularly. In its stipulation to liquidate
cash advance obtained from Equitable Bank, for the
would not permit said defendants to enrich themsel
at the expense of the plaintiffs." (p. 305, Rollo). prLL
Thus, an award of P50,000.00 for moral damagessufficient.
The award for attorneys fees by the trial court in
amount of P20,000.00 is likewise proper. Petitioner w
forced to litigate in court for the recovery of act
damages incurred by him because the priv
respondent ignored petitioners' letters demanding t
they return to the area and perform their obligations
ACCORDINGLY, the decision of the Court of Appeal
MODIFIED. The award of P50,000.00 as moral dama
and P20,000.00 as attorney's fees are hereby granted
addition to the damages awarded by the appellate cou
SO ORDERED.
Griño