G.R. No.
90856 July 23, 1992 On November 7, 1986, the petitioner filed his own complaint with the NLRC against
ARTURO DE GUZMAN, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER MA. LOURDES
A. SALES, AVELINO D. VALLESTEROL, ALEJANDRO Q. FRIAS, LINDA DE LA
CRUZ, CORAZON M. DE LA FUENTE, LILIA F. FLORO, and MARIO F.
JAYME, respondents.
CRUZ, J.:
It is a fundamental principle of law and human conduct that a person "must, in the
exercise of his rights and in the performance of his duties, act with justice, give every
one his due, and observe honesty and good faith." 1 This is the principle we shall
apply in the case at bar to gauge the petitioner's motives in his dealings with the
private respondents.
Arturo de Guzman was the general manager of the Manila office of the Affiliated
Machineries Agency, Ltd., which was based in Hongkong. On June 30, 1986, he
received a telex message from Leo A. Fialla, managing director of AMAL in its main
office, advising him of the closure of the company due to financial reverses. This
message triggered the series of events that are the subject of this litigation.
Immediately upon receipt of the advise, De Guzman notified all the personnel of the
Manila office. The employees then sent a letter to AMAL accepting its decision to
close, subject to the payment to them of their current salaries, severance pay, and
other statutory benefits. De Guzman joined them in these representations.
These requests were, however, not heeded. Consequently, the employees, now
herein private respondents, lodged a complaint with the NLRC against AMAL, through
Leo A. Fialla and Arturo de Guzman, for illegal dismissal, unpaid wages or
commissions, separation pay, sick and vacation leave benefits, 13th month pay, and
bonus.
For his part, the petitioner began selling some of AMAL's assets and applied the
proceeds thereof, as well as the remaining assets, to the payment of his claims
against the company. He also organized Susarco, Inc., with himself as its president
and his wife as one of the incorporators and a member of the board of directors. This
company is engaged in the same line of business and has the same clients as that of
the dissolved AMAL.
With this development, Susarco and its officers were impleaded in the amended
complaint of the private respondents. Later, William Quasha and/or Cirilo Asperilla
were also included in the suit as the resident agents of AMAL of the Philippines.
AMAL for his remaining unsatisfied claims.
On May 29, 1987, Labor Arbiter Eduardo G. Magno, to whom the petitioner's
complaint was assigned, rendered a decision ordering AMAL to pay the petitioner the
amount of P371,469.59 as separation pay, unpaid salary and commissions, after
deducting the value of the assets earlier appropriated by the petitioner. 2
On September 30, 1987, Labor Arbiter Ma. Lourdes A. Sales, who tried the private
respondents' complaint, rendered a decision —
1. Ordering Respondents AMAL and Arturo de Guzman to pay
jointly and severally to each Complainant separation pay computed
at one-half month pay for every year of service, backwages for one
month, unpaid salaries for June 16-30, 1986, 13th month pay from
January to June 30, 1986 and incentive leave pay equivalent to two
and-a-half days pay;
2. Dismissing the complaint against respondents Leo Fialla, William
Quasha, Susarco, Inc. and its directors Susan de Guzman, Pacita
Castaneda, George Estomata and Cynthia Serrano for lack of basis
and/or merit;
3. Dismissing the claims for damages for lack of basis;
4. Ordering respondents AMAL and Arturo de Guzman to pay
jointly and severally attorney's fees to Complainants equivalent to
10% of the monetary awards herein. 3
This decision was on appeal affirmed in toto by the NLRC, which is now faulted for
grave abuse of discretion in this petition for certiorari.
The petitioner does not dispute the jurisdiction of the Labor Arbiter and NLRC over
the complaint of the private respondents against AMAL in view of their previous
employment relationship. He argues, however, that the public respondents acted
without or in excess of jurisdiction in holding him jointly and severally liable with
AMAL as he was not an employer of the private respondents.
The Solicitor General and the private respondents disagree. They maintain that the
petitioner, being AMAL's highest local representative in the Philippines, may be held
personally answerable for the private respondents' claims because he is included in
the term "employer" under Art. 212 (c),
(now e) of the Labor Code which provides:
Art. 212. Definitions. —
xxx xxx xxx
 c. "Employer" includes any person acting in the interest of an
employer, directly or indirectly. . . .
In the leading case of A.C. Ransom Labor Union-CCLU vs. NLRC, 4 as affirmed in the
subsequent cases of Gudez vs. NLRC, 5 and Maglutac vs.
NLRC, 6 this Court treated the president of the employer corporation as an "employer"
and held him solidarily liable with the said corporation for the payment of the
employees' money claims. So was the vice-president of the employer corporation in
the case of Chua vs. NLRC. 7
The aforecited cases will not apply to the instant case, however, because the persons
who were there made personally liable for the employees' claims were stockholders-
officers of the respondent corporation. In the case at bar, the petitioner, while
admittedly the highest ranking local representative of AMAL in the Philippines, is
nevertheless not a stockholder and much less a member of the board of directors or
an officer thereof. He is at most only a managerial employee under Art. 212 (m) of the
Labor Code, which reads in relevant part as follows:
Art 212. Definitions. —
xxx xxx xxx
m. Managerial employee is one who is vested with powers and
prerogatives to lay down and execute management policies and/or
to
hire, transfer, suspend, lay off, recall, discharge, assign or
discipline employees. . . .
As such, the petitioner cannot be held directly responsible for the decision to close
the business that resulted in his separation and that of the private respondents. That
decision came directly and exclusively from AMAL. The petitioner's participation was
limited to the enforcement of this decision in line with his duties as general manager
of the company. Even in a normal situation, in fact, he would not be liable, as a
managerial employee of AMAL, for the monetary claims of its employees. There
should be no question that the private respondents' recourse for such claims cannot
be against the petitioner but against AMAL and AMAL alone.
The judgment in favor of the private respondents could have been enforced against
the properties of AMAL located in this country except for one difficulty. The problem is
that these properties have already been appropriated by the petitioner to satisfy his
own claims against the company.
By so doing, has the petitioner incurred liability to the private respondents?
The Labor Arbiter believed he had because of his bad faith and ruled as follows:
Considering that Respondent A. de Guzman is guilty of bad faith in
appropriating for himself the properties of Respondent AMAL to the
prejudice of Complainants herein whose claims are known to
Respondent at the time he made the disposition of AMAL's
properties, he is held jointly and severally liable with Respondent
AMAL for the award of unpaid wages, separation pay, backwages
for one month, 13th month pay and cash value of unused vacation
leave.
In Velayo v. Shell Co. of the Philippines, 8 Commercial Air Lines, Inc. (CALI), knowing
that it did not have enough assets to pay off its liabilities, called a meeting of its
creditors where it announced that in case of non-agreement on a pro-rata distribution
of its assets, including the C-54 plant in California, it would file insolvency
proceedings. Shell Company of the Philippines, one of its creditors, took advantage of
this information and immediately made a telegraphic assignment of its credits in favor
of its sister corporation in the United States. The latter thereupon promptly attached
the plane in California and disposed of the same, thus depriving the other creditors of
their proportionate share in its value. The Court declared that Shell had acted in bad
faith and betrayed the trust of the other creditors of CALI. The said company was
ordered to pay them compensatory damages in a sum equal to the value of the C-54
plane at the time it assigned its credit and exemplary damages in the sum of
P25,000.00.
We quote with approval the following observations of Labor Arbiter Sales in her
decision:
While the legitimacy of Respondent A. de Guzman's claims against
AMAL is not questioned, it must be stated that the manner and the
means by which he satisfied such claims are evidently
characterized by bad faith on his part. For one, Respondent A. de
Guzman took advantage of his position as General Manager and
arrogated to himself the right to retain possession and ownership of
all properties owned and left by AMAL in the Philippines, even if he
knew that Complainants herein have similar valid claims for unpaid
wages and other employee benefits from the Respondent AMAL. . .
.
Another strong indication of bad faith on the part of Respondent A.
de Guzman is his filing of a separate complaint against AMAL
before the NLRC Arbitration Branch about four (4) months after the
filing of the instant case without informing this Office about the
existence of said case during the proceedings in the instant case.
This case was deemed submitted for decision on May 18, 1987 but
it was only on June 2, 1987 that Respondent A. de Guzman
formally notified this Office through his Supplemental Position
Paper of his pending complaint before Arbiter Eduardo Magno
docketed as NLRC Case No. 11-4441-86. Under Rule V, Section 4
of the revised rules of the NLRC, it is provided that:
Sec. 4. CONSOLIDATION OF CASES — where
there are two or more cases pending before
different Labor Arbiters in the same Regional
 Arbitration Branch involving the same employer
and issues or the same parties with different
issues, the case which was filed last shall be
consolidated with the first to avoid unnecessary
costs or delay. Such cases shall be disposed of
by the Labor Arbiter to whom the first case was
assigned. (Emphasis supplied).
Had Respondent A. de Guzman given timely notice of his
complaint, his case could have been consolidated with this case
and the issues in both cases could have been resolved in a manner
that would give due consideration to the rights and liabilities of all
parties in interest at the least, in case consolidation is objected to or
no longer possible, the Complainants herein could have been given
a chance to intervene in the other case so that whatever disposition
might be rendered by Arbiter Magno would include consideration of
Complainants' claims herein.
It is not disputed that the petitioner in the case at bar had his own claims against
AMAL and consequently had some proportionate right over its assets. However, this
right ceased to exist when, knowing fully well that the private respondents had
similarly valid claims, he took advantage of his position as general manager and
applied AMAL's assets in payment exclusively of his own claims.
According to Tolentino in his distinguished work on the Civil Code:
The exercise of a right ends when the right disappears, and it
disappears when it is abused, especially to the prejudice of others.
The mask of a right without the spirit of justice which gives it life, is
repugnant to the modern concept of social law. It cannot be said
that a person exercises a right when he unnecessarily prejudices
another or offends morals or good customs. Over and above the
specific precepts of positive law are the supreme norms of justice
which the law develops and which are expressed in three
principles: honeste vivere, alterum non laedre and just suum quique
tribuere; and he who violates them violates the law. For this reason,
it is not permissible to abuse our rights to prejudice others. 9
The modern tendency, he continues, is to depart from the classical and traditional
theory, and to grant indemnity for damages in cases where there is an abuse of
rights, even when the act is not illicit. Law cannot be given an anti-social effect. If
mere fault or negligence in one's acts can make him liable for damages for injury
caused thereby, with more reason should abuse or bad faith make him liable. A
person should be protected only when he acts in the legitimate exercise of his right,
that is, when he acts with prudence and in good faith; but not when he acts with
negligence or abuse. 10
The above-mentioned principles are contained in Article 19 of the Civil Code which
provides:
Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.
This is supplemented by Article 21 of the same Code thus:
Art. 21. Any person who willfully causes loss or injury to another in
a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage.
Applying these provisions, we hold that although the petitioner cannot be made
solidarily liable with AMAL for the monetary demand of its employees, he is
nevertheless directly liable to them for his questionable conduct in attempting to
deprive them of their just share in the assets of AMAL.
Under Art. 2219, (10) of the Civil Code, moral damages may be recovered for the acts
referred to in Art. 21. In Bert Osmeña & Associates vs. Court of Appeals, 11 we held
that "fraud and bad faith having been established, the award of moral damages is in
order." And in Pan Pacific Company (Phil.) vs. Phil. Advertising Corp., 12 moral
damages were awarded against the defendant for its wanton and deliberate refusal to
pay the just debt due the plaintiff.
It is settled that the court can grant the relief warranted by the allegation and the proof
even if it is not specifically sought by the injured party. 13 In the case at bar, while the
private respondents did not categorically pray for damages, they did allege that the
petitioner, taking advantage of his position as general manager, had appropriated the
properties of AMAL in payment of his own claims against the company. That was
averment enough of the injury they suffered as a result of the petitioner's bad faith.
The fact that no actual or compensatory damages was proven before the trial court
does not adversely affect the private respondents' right to recover moral damages.
We have held that moral damages may be awarded in the cases referred to in the
chapter on Human Relations of the Civil Code (Articles 19-36) without need of proof
that the wrongful act complained of had caused any physical injury upon the
complainant. 14
When moral damages are awarded, exemplary damages may also be
decreed. 15 Exemplary damages are imposed by the way of example or correction for
the public good, in additional to moral, temperate, liquidated or compensatory
damages. 16 According to the Code Commission, "exemplary damages are required
by public policy, for wanton acts must be suppressed. They are an antidote so that
the poison of wickedness may not run through the body politic." 17 These damages
are legally assessible against him.
The petitioner asserts that, assuming the private respondents to have a cause of
action against him for his alleged bad faith, the civil courts and not the Labor Arbiter
have jurisdiction over the case.
In Associated Citizen Bank, et al. vs. Judge Japson, 18 this Court held:
 Primarily, the issue to be resolved is whether or not the respondent
court has jurisdiction to hear and decide an action for damages
based on the dismissal of the employee.
On all fours to the above issue is the ruling of this Court in Primero
v. Intermediate Appellate Court(156 SCRA 435 [1987]) which once
again reiterated the doctrine that the jurisdiction of the Labor Arbiter
under Article 217 of the Labor Code is broad and comprehensive
enough to include claims for moral and exemplary damages sought
to be recovered by an employee whose services has been illegally
terminated by is employer (Ebon v. De Guzman, 113 SCRA 55
[1982]; Aguda v. Vallejos, 113 SCRA 69 [1982]; Getz Corporation
v. Court of Appeals, 116 SCRA 86 [1982]).
For the unlawful termination of employment, this Court in Primero
v. Intermediate Appellate Court, supra, ruled that the Labor Arbiter
had the exclusive and original jurisdiction over claims for moral and
other forms of damages, so that the employee in the proceedings
before the Labor Arbiter should prosecute his claims not only for
reliefs specified under the Labor Code but also for damages under
the Civil Code.
. . . Question of damages which arose out of or connected with the
labor dispute should be determined by the labor tribunal to the
exclusion of the regular courts of justice (Limquiaco, Jr. v.
Ramolete, 156 SCRA 162 [1987]). The regular courts have no
jurisdiction over claims for moral and exemplary damages arising
from illegal dismissal of an employee (Vargas v. Akai Philippines,
Inc., 156 SCRA 531 [1987]).
Although the question of damages arising from the petitioner's bad faith has not
directly sprung from the illegal dismissal, it is clearly intertwined therewith. The
predicament of the private respondents caused by their dismissal was aggravated by
the petitioner's act in the arrogating to himself all of AMAL's assets to the exclusion of
its other creditors, including its employees. The issue of bad faith is incidental to the
main action for illegal dismissal and is thus properly cognizable by the Labor Arbiter.
We agree that, strictly speaking, the determination of the amount thereof would
require a remand to the Labor Arbiter. However, inasmuch as the private respondents
were separated in 1986 and this case has been pending since then, the interests of
justice demand the direct resolution of this motion in this proceeding.
As this Court has consistently declared:
. . . it is a cherished rule of procedure for this Court to always strive
to settle the entire controversy in a single proceeding leaving no
root or branch to bear the seeds of future litigation. No useful
purpose will be served if this case is remanded to the trial court
only to have its decision raised again tot the Indeterminate
Appellate Court and from there to this Court. (Alger Electric, Inc. v.
Court of Appeals, 135 SCRA 37)
Remand of the case to the lower court for further reception of
evidence is not necessary where the court is in a position to resolve
the dispute based on the records before it. On many occasions, the
Court, in the public interest and the expeditious administration of
justice, has resolved actions on the merits instead of remanding
them to the trial court for further proceedings, such as where the
ends of justice would not be subserved by the remand of the case
or when public interest demands an early disposition of the case.
(Lianga Bay Logging Co., Inc. v. CA, 157 SCRA 357)
Sound practice seeks to accommodate the theory which avoids
waste of time, effort and expense, both to the parties and the
government, not to speak of delay in the disposal of the case (cf.
Fernandez v. Garcia, 92 Phil. 592, 597). A marked characteristics
of our judicial set-up is that where the dictates of justice so demand
. . . the Supreme Court should act, and act with finality. (Li Siu Liat
v. Republic, 21 SCRA 1039, 1046, citing Samal v. CA, 99 Phil. 230
and U.S. v. Gimenez, 34 Phil. 74). In this case, the dictates of
justice do demand that this Court act, and act with finality.
(Beautifont, Inc. v. CA, 157 SCRA 481)
It is stressed that the petitioner's liability to the private respondents is a direct liability
in the form of moral and exemplary damages and not a solidary liability with AMAL for
the claims of its employees against the company. He is being held liable not because
he is the general manager of AMAL but because he took advantage of his position by
applying the properties of AMAL to the payment exclusively of his own claims to the
detriment of other employees.
WHEREFORE, the questioned decision is AFFIRMED but with the modification that
the petitioner shall not be held jointly and severally liable with AMAL for the private
respondents' money claims against the latter. However, for his bad faith in arrogating
to himself AMAL's properties to the prejudice of the private respondents, the petitioner
is ordered: 1) to pay the private respondents moral damages in the sum of P20,00.00
and exemplary damages in the sum of P20,00.00; and 2) to return the assets of
AMAL that he has appropriated, or the value thereof, with legal interests thereon from
the date of the appropriation until they are actually restored, these amounts to be
proportionately distributed among the private respondents in satisfaction of the
judgment rendered in their favor against AMAL.
SO ORDERED.

G.R. No. 122823 November 25, 1999
SEA COMMERCIAL COMPANY, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, JAMANDRE INDUSTRIES, INC. and
TIRSO JAMANDRE, respondents.
GONZAGA-REYES, J.:
In this petition for review by certiorari, SEA Commercial Company, Inc. (SEACOM)
assails the decision of the Court of Appeals in CA-G.R. CV NO. 31263 affirming
in toto the decision of the Regional Trial Court of Manila, Branch 5, in Civil Case No.
122391, in favor of Jamandre Industries, Inc. (JII) et al., the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of the
defendant and against the plaintiff, ordering the plaintiff:
1) To pay defendant the sum of P66,156.15 (minus 18,843.85) with
legal interest thereon, from the date of the filing of the counterclaim
until fully paid;
2) To pay defendant P2,000.00 as moral and exemplary damages;
3) To pay attorney's fees in the sum of P10,000.00; and
4) To pay the costs of this suit.
SO ORDERED.
SEACOM is a corporation engaged in the business of selling and distributing
agricultural machinery, products and equipment. On September 20, 1966, SEACOM
and JII entered into a dealership agreement whereby SEACOM appointed JII as its
exclusive dealer in the City and Province of Iloilo 1. Tirso Jamandre executed a
suretyship agreement binding himself jointly and severally with JII to pay for all
obligations of JII to SEACOM 2. The agreement was subsequently amended to
include Capiz in the territorial coverage and to make the dealership agreement on a
non-exclusive basis 3 . In the course of the dealership agreement, JII allegedly
incurred a balance of P18,843.85 for unpaid deliveries, and SEACOM brought action
to recover said amount plus interest and attorney's fees.
JII filed an Answer denying the obligation and interposing a counterclaim for damages
representing unrealized profits when JII sold to the Farm System Development
Corporation (FSDC) twenty one (21) units of Mitsubishi power tillers. In the
counterclaim, JII alleged that as a dealer in Capiz, JII contracted to sell in 1977
twenty-four (24) units of Mitsubishi power tillers to a group of farmers to be financed
by said corporation, which fact JII allegedly made known to petitioner, but the latter
taking advantage of said information and in bad faith, went directly to FSDC and dealt
with it and sold twenty one (21) units of said tractors, thereby depriving JII of
unrealized profit of eighty-five thousand four hundred fifteen and 61/100 pesos
(P85,415.61).
The trial court rendered its decision on January 24, 1990 ordering JII to pay SEACOM
the amount of Eighteen Thousand Eight Hundred Forty Three and 85/100
(P18,843.85) representing its outstanding obligation. The trial court likewise granted
JII's counterclaim for unrealized profits, and for moral and exemplary damages and
attorney' fees as above quoted.
SEACOM appealed the decision on the counterclaim.
The Court of Appeals held that while there exists no agency relationship between
SEACOM and JII, SEACOM is liable for damages and unrealized profits to JII.
This Court, however, is convinced that with or without the existence
of an agency relationship between appellant SEACOM and
appellee JII and notwithstanding the error committed by the lower
court in finding that an agency relationship existed between
appellant and defendant corporation the former is liable for the
unrealized profits which the latter could have gained had not
appellant unjustly stepped in and in bad faith unethically intervened.
It should be emphasized that the very purpose of the dealership
agreement is for SEACOM to have JII as its dealer to sell its
products in the provinces of Capiz and Iloilo. In view of this
agreement, the second assigned error that the lower court erred in
holding that appellant learned of the FSDC transaction from
defendant JII is clearly immaterial and devoid of merit. The fact that
the dealership is on a non-exclusive basis does not entitle appellant
SEACOM to join the fray as against its dealer. To do so, is to
violate the norms of conduct enjoined by Art. 19 of the Civil Code.
By virtue of such agreement, the competition in the market as
regards the sale of farm equipment shall be between JII, as the
dealer of SEACOM and other companies, not as against SEACOM
itself. However, SEACOM, not satisfied with the presence of its
dealer JII in the market, joined the competition even as the against
the latter and, therefore, changed the scenario of the competition
thereby rendering inutile the dealership agreement which they
entered into the manifest prejudice of JII. Hence, the trial court was
correct when it applied Art. 19 of the Civil Code in the case at bar in
that appellant SEACOM acted in bad faith when it competed with its
own dealer as regards the sale of farm machineries, thereby
depriving appellee JII of the opportunity to gain a clear profit of
P85,000.00.
 and affirmed the judgment appealed from in toto.
Hence this petition for review on certiorari, which submits the following reasons for
the allowance thereof:
THE RESPONDENT COURT OF APPEALS DECIDED
QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORDANCE
WITH LAW AND JURISPRUDENCE, CONSIDERING THAT:
A demonstration conducted by JII, and after JII informed SEACOM about the
THE RESPONDENT COURT OF APPEALS GARAVELY ERRED
IN RULING THAT PETITIONER IS LIABLE TO PAY DAMAGES
AND UNREALIZED PROFITS TO THE PRIVATE RESPONDENTS
DESPITE THE FACT THAT NO AGENCY RELATIONSHIP
EXISTS BETWEEN THEM.
B breached when petitioner in bad faith sold directly to FSDC with whom JII had
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
RULING THAT PETITIONER ACTED IN BAD FAITH AGAINST
THE PRIVATE RESPONDENT CORPORATION DESPITE THE
FACT THAT SAID RULING IS CONTRARY TO THE EVIDENCE
ON RECORD.
C have closed the deal since thirty seven (37) bidders participated. SEACOM contends
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
RULING THAT THE NON-EXCLUSIVITY CLAUSE IN THE
DEALERSHIP AGREEMENT EXECUTED BETWEEN THE
PETITIONER AND PRIVATE RESPONDENT CORPORATION
PRECLUDES THE PETITIONER FROM COMPETING WITH THE
PRIVATE RESPONDENT CORPORAITON.
D SEACOM for every delivery from November 26, 1976 to December 24, 1978. Private
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
RULING THAT PRIVATE RESPONDENT IS ENTITLED TO
UNREALIZED PROFITS, MORAL AND EXEMPLARY DAMAGES
AND ATTORNEY'S FEES. 4
Petitioner SEACOM disputes the conclusion of the Court of Appeals that despite the
fact that no agency relationship existed between the parties, the SEACOM is still
liable in damages and unrealized profits for the reason that it acted in bad faith.
Petitioner SEACOM invokes the non-exclusivity clause in the dealership agreement
and claims that the transaction with FSDC was concluded pursuant to a public
bidding and not on the basis of alleged information it received from private
respondent Tirso Jamandre. Moreover, petitioner SEACOM claims that it did not
underprice its products during the public bidding wherein both SEACOM and JII
participated. Petitioner also disputes the award of moral damages to JII which is a
corporation, in the absence of any evidence that the said corporation had a good
reputation which was debased.
Private respondents in their comment, contends that the four assigned errors raise
mixed questions of fact and law and are therefore beyond the jurisdiction of the
Supreme Court which may take cognizance of only questions of law. The assigned
errors were also refuted to secure affirmance of the appealed decision. JII maintains
that the bidding set by FSDC on March 24, 1997 was scheduled after the
preference of the farmers to buy Mitsubishi tillers. JII further rebuts the SEACOM's
contention that the transaction with FSDC was pursuant to a public bidding with full
disclosure to the public and private respondent JII considering that JII had nothing to
do with the list of 37 bidders and cannot be bound by the listing made by SEACOM's
employee; moreover, JII did not participate in the bidding not having been informed
about it. Furthermore, the price at which SEACOM sold to FSDC was lower than the
price it gave to JII. Also, even if the dealership agreement was not exclusive, it was
previously offered the subject farm equipment. With respect to the awards of moral
and exemplary damages, JII seeks an affirmation of the ruling of the Court of Appeals
justifying the awards.
SEACOM filed Reply defending the jurisdiction of this Court over the instant petition
since the decision of the Court of Appeals was "based on a misapprehension of
facts". SEACOM insists that FSDC's purchase was made pursuant to a public
bidding, and even if SEACOM did not participate thereon, JII would not necessarily
that no evidence was presented to prove that the bidding was a fraudulent scheme of
SEACOM and FSDC. SEACOM further controverts JII's contention that JII did not
take part in the bidding as Tirso Jamandre was one of the bidders and that SEACOM
underpriced its products to entice FSDC to buy directly from it. In fine, JII is not
entitled to the award of unrealized profits and damages.
In its Rejoinder, private responder insist that there is an agency relationship, citing the
evidence showing that credit memos and not cash vouchers were issued to JII by
respondents maintain that SEACOM "torpedoed the emerging deal between JII and
FSDC after being informed about it by JII by dealing directly with FSDC at a lower
price" and after betraying JII, SEACOM would cover up the deceit by conniving with
FSDC to post up a "sham public bidding.
SEACOM's sur-rejoinder contains basically a reiteration of its contention in previous
pleadings. Additionally, it is contended that private respondents are barred from
questioning in their Rejoinder, the finding of the Court of Appeals that there is no
agency relationship between the parties since this matter was not raised as error in
their comment.
The core issue is whether SEACOM acted in bad faith when it competed with its own
dealer as regards the sale of farm machineries to FSDC.
Both the trial court and the Court of Appeals held affirmatively; the trial court found
that JII was an agent of SEACOM and the act of SEACOM in dealing directly with
FSDC was unfair and unjust to its agent, and that there was fraud in the transaction
between FSDC and SEACOM to the prejudice of JII. On the other hand, the Court of
Appeals ruled that there was no agency relationship between the parties but
SEACOM is nevertheless liable in damages for having acted in bad faith when it
competed with its own dealer in the sale of the farm machineries to FSDC. Both
courts invoke as basis for the award Article 19 of the Civil Code which reads as
follows:
Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due
and observe honesty and good faith.
The principle of abuse of rights stated in the above article, departs from the classical
theory that "he who uses a right injures no one". The modern tendency is to depart
from the classical and traditional theory, and to grant indemnity for damages in cases
where there is an abuse of rights, even when the act is not illicit. 5
Art. 19 was intended to expand the concept of torts by granting adequate legal
remedy for the untold number of moral wrongs which is impossible for human
foresight to provide specifically in statutory law. 6 If mere fault or negligence in one's
acts can make him liable for damages for injury caused thereby, with more reason
should abuse or bad faith make him liable. The absence of good faith is essential to
abuse of right. Good faith is an honest intention to abstain from taking any
unconscientious advantage of another, even through the forms or technicalities of the
law, together with an absence of all information or belief of fact which would render
the transaction unconscientious. In business relations, it means good faith as
understood by men of affairs. 7
While Article 19 may have been intended as a mere declaration of
principle 8, the "cardinal law on human conduct" expressed in said article has given
rise to certain rules, e.g. that where a person exercises his rights but does so
arbitrarily or unjustly or performs his duties in a manner that is not in keeping with
honesty and good faith, he opens himself to liability. 9 The elements of an abuse of
rights under Article 19 are: (1) there is a legal right or duty; (2) which is exercised in
bad faith; (3) for the sole intent of prejudicing or injuring
another. 10
The issue whether JII is "entitled to recovery on its counterclaim for unrealized profit
in the twenty one (21) units of Mitsubishi power tillers sold by SEACOM to FSDC"
was resolved by the trial court in favor of JII on the basis of documentary
evidence 11 showing that (1) JII has informed SEACOM as early as February 1977 of
the promotions undertaken by JII for the sale of 24 contracted units to FSDC and in
connection therewith, requested a 50% discount to make the price competitive, and to
increase the warranty period for eight months to one year. In said letter Jamandre
clarified that they were not amenable to SEACOM's offering directly to FSDC" and to
be only given the usual overriding commission as "we have considerable investments
on this transaction". (2) In response, the general sales manager of SEACOM declined
to give the requested 50% discount and offered a "less 30% less 10% up to end
March . . . on cash before delivery basis", granted the requested extension of the
warranty period and stated that "we are glad to note that you have quite a number of
units pending with the FSDC."
The trial court ruled that with said information, SEACOM dealt directly with FSDC and
offered its units at a lower price, leaving FSDC "no choice but to accept the said offer
of (SEACOM)".
In affirming the judgment of the of the trial court, the Court of Appeals held that by
virtue of the dealership agreement the competition in the market as regards the sale
of farm equipment shall be between JII, as the dealer of SEACOM, and other
companies, not as against SEACOM itself, the Court stated:
However, SEACOM not satisfied with the presence of its dealer JII
in the market, joined the competition even as against the latter, and
thereby changed the scenario of the competition thereby rendering
inutile the dealership agreement which they entered into to the
manifest prejudice of JII. Hence the trial court trial court was correct
when it applied Art. 19 of the Civil Code in the case at bar in that
appellant SEACOM acted in bad faith when it competed with its
own dealer as regards the sale of farm machineries, thereby
depriving appellee JII of the opportunity to gain a clear profit of
P85,000.00.
We find no cogent reason to overturn the factual finding of the two courts that
SEACOM joined the bidding for the sale of the farm equipment after it was informed
that JII was already promoting the sales of said equipment to the FSDC. Moreover,
the conclusion of the trial court that the SEACOM offered FSDC a lower price than
the price offered by JII to FSDC is supported by the evidence: the price offered by JII
to FSDC is P27,167 per unit 12 but the prices at which SEACOM sold to FSDC were
at P22,867.00 for Model CT 83-2, P21,093.50 for model CT 83-E, and P18,979.25 for
model CT 534. The fact that SEACOM may have offered to JII, in lieu of a requested
50% discount, a discount effectively translating to 37% of the list price and actually
sold to FSDC at 35% less than the list price 13does not detract from the fact that by
participating in the bidding of FSDC, it actually competed with its own dealer who had
earlier conducted demonstrations and promoted its own products for the sale of the
very same equipment, Exh. "N" for the plaintiff confirms that both SEACOM and
Jamandre participated in the bidding. 14 However, the SEACOM was awarded the
contract directly from Manila. 15 The testimony of Tirso Jamandre that JII was the sole
representative of SEACOM in the local demonstrations to convince the farmers and
cooperative officers to accept the Mitsubishi brand of equipment in preference to
other brands, was unrebutted by SEACOM.
Clearly, the bad faith of SEACOM was established. By appointing as a dealer of its
agricultural equipment, SEACOM recognized the role and undertaking of JII to
promote and sell said equipment. Under the dealership agreement, JII was to act as a
middleman to sell SEACOM's products, in its area of operations, i.e. Iloilo and Capiz
provinces, to the exclusion of other places, 16 to send its men to Manila for training on
repair, servicing and installation of the items to be handled by it, and to comply with
other personnel and vehicle requirements intended for the benefit of the
dealership. 17 After being informed of the demonstrations JII had conducted to
promote the sales of SEACOM equipment, including the operations at JII's expense
conducted for five months, and the approval of its facilities (service and parts) by
FSDC, 18 SEACOM participated in the bidding for the said equipment at a lower price,
placing itself in direct competition with its own dealer. The actuations of SEACOM are
tainted by bad faith.

Even if the dealership agreement was amended to make it on a non-exclusive

basis, 19 SEACOM may not exercise its right unjustly or in a manner that is not in
keeping with honesty or good faith; otherwise it opens itself to liability under the
abuse of right rule embodied in Article 19 of the Civil Code above-quoted. This
provision, together with the succeeding article on human relation, was intended to
embody certain basic principles "that are to be observed for the rightful relationship
between human being. and for the stability of the social order." 20 What is sought to
be written into the law is the pervading principle of equity and justice above strict
legalism. 21

We accordingly resolve to affirm the award for unrealized profits. The Court of
Appeals noted that the trial court failed to specify to which the two appellees the
award for moral and exemplary damages in granted. However, in view of the fact that
moral damages are not as a general rule granted to a corporation, and that Tirso
Jamandre was the one who testified on his feeling very aggrieved and on his mental
anguish and sleepless nights thinking of how SEACOM "dealt with us behind (our)
backs", 22 the award should go to defendant Jamandre, President of JII.

WHEREFORE. the judgment appealed from is AFFIRMED with the modification that
the award of P2,000.00 in moral and exemplary damages shall be paid to defendant
Tirso Jamandre.

Costs against appellant.

SO ORDERED.
G.R. No. L-17396 May 30, 1962
CECILIO PE, ET AL., plaintiffs-appellants,
vs.
ALFONSO PE, defendant-appellee.
Cecilio L. Pe for and in his own behalf as plaintiff-appellant.
Leodegario L. Mogol for defendant-appellee.
BAUTISTA ANGELO, J.:
Plaintiffs brought this action before the Court of First Instance of Manila to recover
moral, compensatory, exemplary and corrective damages in the amount of
P94,000.00 exclusive of attorney's fees and expenses of litigation.
Defendant, after denying some allegations contained in the complaint, set up as a
defense that the facts alleged therein, even if true, do not constitute a valid cause of
action.
After trial, the lower court, after finding that defendant had carried on a love affair with
one Lolita Pe, an unmarried woman, being a married man himself, declared that
defendant cannot be held liable for moral damages it appearing that plaintiffs failed to
prove that defendant, being aware of his marital status, deliberately and in bad faith
tried to win Lolita's affection. So it rendered decision dismissing the
complaint.1äwphï1.ñët
Plaintiffs brought this case on appeal before this Court on the ground that the issues
involved are purely of law.
The facts as found by the trial court are: Plaintiffs are the parents, brothers and
sisters of one Lolita Pe. At the time of her disappearance on April 14, 1957, Lolita was
24 years old and unmarried. Defendant is a married man and works as agent of the
La Perla Cigar and Cigarette Factory. He used to stay in the town of Gasan,
Marinduque, in connection with his aforesaid occupation. Lolita was staying with her
parents in the same town. Defendant was an adopted son of a Chinaman named Pe
Beco, a collateral relative of Lolita's father. Because of such fact and the similarity in
their family name, defendant became close to the plaintiffs who regarded him as a
member of their family. Sometime in 1952, defendant frequented the house of Lolita
on the pretext that he wanted her to teach him how to pray the rosary. The two
eventually fell in love with each other and conducted clandestine trysts not only in the
town of Gasan but also in Boac where Lolita used to teach in a barrio school. They
exchanged love notes with each other the contents of which reveal not only their
infatuation for each other but also the extent to which they had carried their
relationship. The rumors about their love affairs reached the ears of Lolita's parents
sometime, in 1955, and since then defendant was forbidden from going to their house
and from further seeing Lolita. The plaintiffs even filed deportation proceedings
against defendant who is a Chinese national. The affair between defendant and Lolita
continued nonetheless.
Sometime in April, 1957, Lolita was staying with her brothers and sisters at their
residence at 54-B España Extension, Quezon City. On April 14, 1957, Lolita
disappeared from said house. After she left, her brothers and sisters checked up her
thing and found that Lolita's clothes were gone. However, plaintiffs found a note on a
crumpled piece of paper inside Lolita's aparador. Said note, written on a small slip of
paper approximately 4" by 3" in size, was in a handwriting recognized to be that of
defendant's. In English it reads:
Honey, suppose I leave here on Sunday night, and that's 13th of this month
and we will have a date on the 14th, that's Monday morning at 10 a.m.
Reply
Love
The disappearance of Lolita was reported to the police authorities and the NBI but up
to the present there is no news or trace of her whereabouts.
The present action is based on Article 21 of the New Civil Code which provides:
Any person who wilfully causes loss or injury to another in a manner which is
contrary to morals, good customs or public policy shall compensate the latter
for the damage.
There is no doubt that the claim of plaintiffs for damages is based on the fact that
defendant, being a married man, carried on a love affair with Lolita Pe thereby
causing plaintiffs injury in a manner contrary to morals, good customs and public
policy. But in spite of the fact that plaintiffs have clearly established that in illicit affair
was carried on between defendant and Lolita which caused great damage to the
name and reputation of plaintiffs who are her parents, brothers and sisters, the trial
court considered their complaint not actionable for the reason that they failed to prove
that defendant deliberately and in bad faith tried to win Lolita's affection Thus, the trial
court said: "In the absence of proof on this point, the court may not presume that it
was the defendant who deliberately induced such relationship. We cannot be
unmindful of the uncertainties and sometimes inexplicable mysteries of the human
emotions. It is a possibility that the defendant and Lolita simply fell in love with each
other, not only without any desire on their part, but also against their better judgment
and in full consciousness of what it will bring to both of them. This is specially so with
respect to Lolita, being an unmarried woman, falling in love with defendant who is a
married man."
We disagree with this view. The circumstances under which defendant tried to win
Lolita's affection cannot lead, to any other conclusion than that it was he who, thru an
ingenious scheme or trickery, seduced the latter to the extent of making her fall in
love with him. This is shown by the fact that defendant frequented the house of Lolita
on the pretext that he wanted her to teach him how to pray the rosary. Because of the
frequency of his visits to the latter's family who was allowed free access because he
was a collateral relative and was considered as a member of her family, the two
eventually fell in love with each other and conducted clandestine love affairs not only
in Gasan but also in Boac where Lolita used to teach in a barrio school. When the
rumors about their illicit affairs reached the knowledge of her parents, defendant was
forbidden from going to their house and even from seeing Lolita. Plaintiffs even filed
deportation proceedings against defendant who is a Chinese national. Nevertheless,
defendant continued his love affairs with Lolita until she disappeared from the
parental home. Indeed, no other conclusion can be drawn from this chain of events
than that defendant not only deliberately, but through a clever strategy, succeeded in
winning the affection and love of Lolita to the extent of having illicit relations with her.
The wrong he has caused her and her family is indeed immeasurable considering the
fact that he is a married man. Verily, he has committed an injury to Lolita's family in a
manner contrary to morals, good customs and public policy as contemplated in Article
21 of the new Civil Code.

WHEREFORE, the decision appealed from is reversed. Defendant is hereby

sentenced to pay the plaintiffs the sum of P5,000.00 as damages and P2,000.00 as
attorney's fees and expenses of litigations. Costs against appellee.
G.R. No. 117009 October 11, 1995
SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT, petitioners,
vs.
COURT OF APPEALS and YSMAEL C. FERRER, respondents.
PADILLA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioners seek a
review and reversal of the decision * of respondent Court of Appeals in CA-G.R. CV
No. 40450, entitled "Ysmael C. Ferrer v. Security Bank and Trust Company, et. al."
dated 31 August 1994, which affirmed the decision ** of the Regional Trial Court,
Branch 63, Makati in Civil Case No. 42712, a complaint for breach of contract with
damages.
Private respondent Ysmael C. Ferrer was contracted by herein petitioners Security
Bank and Trust Company (SBTC) and Rosito C. Manhit to construct the building of
SBTC in Davao City for the price of P1,760,000.00. The contract dated 4 February
1980 provided that Ferrer would finish the construction in two hundred (200) working
days. Respondent Ferrer was able to complete the construction of the building on 15
August 1980 (within the contracted period) but he was compelled by a drastic
increase in the cost of construction materials to incur expenses of about P300,000.00
on top of the original cost. The additional expenses were made known to petitioner
SBTC thru its Vice-President Fely Sebastian and Supervising Architect Rudy de la
Rama as early as March 1980. Respondent Ferrer made timely demands for payment
of the increased cost. Said demands were supported by receipts, invoices, payrolls
and other documents proving the additional expenses.
In March 1981, SBTC thru Assistant Vice-President Susan Guanio and a
representative of an architectural firm consulted by SBTC, verified Ferrer's claims for
additional cost. A recommendation was then made to settle Ferrer's claim but only for
P200,000.00. SBTC, instead of paying the recommended additional amount, denied
ever authorizing payment of any amount beyond the original contract price. SBTC
likewise denied any liability for the additional cost based on Article IX of the building
contract which states:
If at any time prior to the completion of the work to be performed
hereunder, increase in prices of construction materials and/or labor
shall supervene through no fault on the part of the contractor
whatsoever or any act of the government and its instrumentalities
which directly or indirectly affects the increase of the cost of the
project, OWNER shall equitably make the appropriate adjustment
on mutual agreement of both parties.
Ysmael C. Ferrer then filed a complaint for breach of contract with damages. The trial
court ruled for Ferrer and ordered defendants SBTC and Rosito C. Manhit to pay:
a) P259,417.23 for the increase in price of labor and materials plus
12% interest thereon per annumfrom 15 August 1980 until fully
paid;
b) P24,000.00 as actual damages;
c) P20,000.00 as moral damages;
d) P20,000.00 as exemplary damages;
e) attorney's fees equivalent to 25% of the principal amount due;
and
f) costs of suit.
On appeal, the Court of Appeals affirmed the trial court decision.
In the present petition for review, petitioners assign the following errors to the
appellate court:
. . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY
PREPONDERANCE OF EVIDENCE SUFFICIENTLY PROVEN
HIS CLAIM AGAINST THE DEFENDANTS-APPELLANTS.
. . . IN INTERPRETING AN OTHERWISE CLEAR AND
UNAMBIGUOUS PROVISION OF THE CONSTRUCTION
CONTRACT.
. . . IN DISREGARDING THE EXPRESS PROVISION OF THE
CONSTRUCTION CONTRACT, THE LOWER COURT VIOLATED
DEFENDANTS-APPELLANTS' CONSTITUTIONAL GUARANTY
OF NON IMPAIRMENT OF THE OBLIGATION OF CONTRACT.1
Petitioners argue that under the aforequoted Article IX of the building contract, any
increase in the price of labor and/or materials resulting in an increase in construction
cost above the stipulated contract price will not automatically make petitioners liable
to pay for such increased cost, as any payment above the stipulated contract price
has been made subject to the condition that the "appropriate adjustment" will be
made "upon mutual agreement of both parties". It is contended that since there was
no mutual agreement between the parties, petitioners' obligation to pay amounts
above the original contract price never materialized.
Respondent Ysmael C. Ferrer, through counsel, on the other hand, opposed the
arguments raised by petitioners. It is of note however that the pleadings filed with this
Court by counsel for Ferrer hardly refute the arguments raised by petitioners, as the
contents of said pleadings are mostly quoted portions of the decision of the Court of
Appeals, devoid of adequate discussion of the merits of respondent's case. The
Court, to be sure, expects more diligence and legal know-how from lawyers than what
has been exhibited by counsel for respondent in the present case. Under these
circumstances, the Court had to review the entire records of this case to evaluate the
merits of the issues raised by the contending parties.
Article 22 of the Civil Code which embodies the maxim, Nemo ex alterius incommodo
debet lecupletari (no man ought to be made rich out of another's injury) states:
Art. 22. Every person who through an act of performance by
another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground,
shall return the same to him.
The above-quoted article is part of the chapter of the Civil Code on Human Relations,
the provisions of which were formulated as "basic principles to be observed for the
rightful relationship between human beings and for the stability of the social order, . . .
designed to indicate certain norms that spring from the fountain of good conscience, .
. . guides for human conduct [that] should run as golden threads through society to
the end that law may approach its supreme ideal which is the sway and dominance of
justice." 2
In the present case, petitioners' arguments to support absence of liability for the cost
of construction beyond the original contract price are not persuasive.
Under Article 1182 of the Civil Code, a conditional obligation shall be void if its
fulfillment depends upon the sole will of the debtor. In the present case, the mutual
agreement, the absence of which petitioner bank relies upon to support its non-
liability for the increased construction cost, is in effect a condition dependent on
petitioner bank's sole will, since private respondent would naturally and logically give
consent to such an agreement which would allow him recovery of the increased cost.
Further, it cannot be denied that petitioner bank derived benefits when private
respondent completed the construction even at an increased cost.
Hence, to allow petitioner bank to acquire the constructed building at a price far below
its actual construction cost would undoubtedly constitute unjust enrichment for the
bank to the prejudice of private respondent. Such unjust enrichment, as previously
discussed, is not allowed by law.
Finally, with respect to the award of attorney's fees to respondent, the Court has
previously held that, "even with the presence of an agreement between the parties,
the court may nevertheless reduce attorney's fees though fixed in the contract when
the amount thereof appears to be unconscionable or unreasonable."3 As previously
noted, the diligence and legal know-how exhibited by counsel for private respondent
hardly justify an award of 25% of the principal amount due, which would be at least
P60,000.00. Besides, the issues in this case are far from complex and intricate. The
award of attorney's fees is thus reduced to P10,000.00.

Under the previously quoted Article IX of the construction contract, petitioners would WHEREFORE, with the above modification in respect of the amount of attorney's
make the appropriate adjustment to the contract price in case the cost of the project fees, the appealed decision of the Court of Appeals in CA G.R. CV No. 40450 is
increases through no fault of the contractor (private respondent). Private respondent AFFIRMED.
informed petitioners of the drastic increase in construction cost as early as March
1980. SO ORDERED.

Petitioners in turn had the increased cost evaluated and audited. When private
respondent demanded payment of P259,417.23, petitioner bank's Vice-President
Rosito C. Manhit and the bank's architectural consultant were directed by the bank to
verify and compute private respondent's claims of increased cost. A recommendation
was then made to settle private respondent's claim for P200,000.00. Despite this
recommendation and several demands from private respondent, SBTC failed to make
payment. It denied authorizing anyone to make a settlement of private respondent's
claim and likewise denied any liability, contending that the absence of a mutual
agreement made private respondent's demand premature and baseless.

Petitioners' arguments are specious.

It is not denied that private respondent incurred additional expenses in constructing

petitioner bank's building due to a drastic and unexpected increase in construction
cost. In fact, petitioner bank admitted liability for increased cost when a
recommendation was made to settle private respondent's claim for P200,000.00.
Private respondent's claim for the increased amount was adequately proven during
the trial by receipts, invoices and other supporting documents.