torts sample cases in full text

8/16/2019 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


10/76

Page 10 of 76

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


11/76

Page 11 of 76

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


12/76

Page 12 of 76

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


13/76

Page 13 of 76

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: . . .'


14/76

Page 14 of 76

"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


15/76

Page 15 of 76

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


16/76

Page 16 of 76

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


17/76

Page 17 of 76

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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Page 18 of 76

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.


19/76

Page 19 of 76

"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;


20/76

Page 20 of 76

(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).


21/76

Page 21 of 76

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

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