41 Phil. 263 head office in Montreal.
" To reenforce the same there follows the negative condition
[ G. R. No. 15774, November 29, 1920 ]
PILAR C. DE LIM, PLAINTIFF AND APPELLANT, VS. SUN LIFE ASSURANCE COMPANY OF
CANADA, DEFENDANT AND APPELLEE.
DECISION
MALCOLM, J.:
This is an appeal by plaintiff from an order of the Court of First Instance of Zamboanga
sustaining a demurrer to plaintiff's complaint, upon the ground that it fails to state a cause of
action.
As the demurrer had the effect of admitting the material facts set forth in the complaint, the
factsare those alleged by the plaintiff. On July 6, 1917, Luis Lim y Garcia of Zamboanga made
application to the Sun Life Assurance Company of Canada for a policy of insurance on his life
in the sum of P5,000. In his application Lim designated his wife, Pilar C. de Lim, the plaintiff
herein, as the beneficiary. The first premium of P433 was paid by Lim, and upon such
payment the company issued what was called a "provisional policy." Luis Lim y Garcia died
on August 23, 1917, after the issuance of the provisional policy but before approval of the
application by the home office of the insurance company. The instant action is brought by
the beneficiary, Pilar C. de Lim, to recover from the Sun Life Assurance Company of Canada
the sum of P5,000, the amount named in the provisional policy.
The "provisional policy" upon which this action rests reads as follows:
"Received (subject to the following stipulations and agreements) the sum of four hundred
and thirty-three pesos, being the amount of the first year's premium for a Life Assurance
Policy on the life of Mr. Luis D. Lim y Garcia of Zamboanga for P5,000, for which an
application dated the 6th day of July, 1917, has been made to the Sun Life Assurance
Company of Canada.
"The above-mentioned life is to be assured in accordance with the terms and conditions
contained or inserted by the Company in the policy which may be granted by it in this
particular case for four months only from the date of the application, provided that the
Company shall confirm this agreement by issuing a policy on said application when the same
shall be submitted to the Head Office in Montreal. Should the Company not issue such a
policy, then this agreement shall be null and void ab initio, and the Company shall be held
not to have been on the risk at all, but in such case the amount herein acknowledged shall be
returned.
[SEAL.] (Sgd.) "T. B. MACAULAY, President.
(Sgd.) "A. F. PETERS, Agent."
Our duty in this case is to ascertain the correct meaning of the document above quoted. A
perusal of the same many times by the writer and by other members of the court leaves a
decided impression of vagueness in the mind. Apparently it is to be a provisional policy "for
four months only from the date of this application." We use the term "apparently" advisedly,
because immediately following the words fixing the four months period comes the word
"provided" which has the meaning of "if." Otherwise stated, the policy for four months is
expressely made subject to the affirmative condition that "the company shall confirm this
agreement by issuing a policy on said application when the same shall be submitted to the
"Should the company not issue such a policy, then this agreement shall be null and void ab
initio, and the company shall be held not to have been on the risk." Certainly, language could
hardly be used which would more clearly stipulate that the agreement should not go into
effect until the home office of the company should confirm it by issuing a policy. As we read
and understand the so-called provisional policy it amounts to nothing but an
acknowledgment on behalf of the company, that it has received from the person named
therein the sum of money agreed upon as the first year's premium upon a policy to be issued
upon the application, if the application is accepted by the company.
It is of course a primary rule that a contract of insurance, like other contracts, must be
assented to by both parties either in person or by their agents. So long as an application for
insurance has not been either accepted or rejected, it is merely an offer or proposal to make
a contract. The contract, to be binding from the date of the application, must have been a
completed contract, one that leaves nothing to be done, nothing to be completed, nothing to
be passed upon, or determined, before it shall take effect. There can be no contract of
insurance unless the minds of the parties have met in agreement. Our view is, that a
contract of insurance was not here consummated by the parties.
Appellant relies on Joyce on Insurance. Beginning at page 253, of Volume I, Joyce states the
general rules concerning the agent's receipt pending approval or issuance of policy. The first
rule which Joyce lays down is this: If the act of acceptance of the risk by the agent and the
giving by him of a receipt, is within the scope of the agent's authority, and nothing remains
but to issue a policy, then the receipt will bind the company. This rule does not apply, for
while here nothing remained but to issue the policy, this was made an express condition to
the contract. The second rule laid down by Joyce is this: Where an agreement is made
between the applicant and the agent whether by signing an application containing such
condition, or otherwise, that no liability shall attach until the principal approves the risk and
a receipt is given by the agent, such acceptance is merely conditional, and is subordinated to
the act of the'company in approving or rejecting; so in life insurance a "binding slip" or
"binding receipt" does not insure of itself. This is the rule which we believe applies to the
instant case. The third rule an nounced by Joyce is this: Where the acceptance by the agent
is within the scope of his authority a receipt containing a contract for insurance for a
specified time which is not absolute but conditional, upon acceptance or rejection by the
principal, covers the specified 'period unless the risk is declined within that period. The case
cited by Joyce to substantiate the last principle is that of Goodfellow vs. Times & Beacon
Assurance Com. (17 U. C. Q. B., 411), not available.
The two cases most nearly in point come from the federal courts and the Supreme Court of
Arkansas.
In the case of Steinle vs. New York Life Insurance Co. ([1897], 81 Fed., 489) the facts were
that the amount of the first premium had been paid to an insurance agent and a receipt
given therefor. The receipt, however, expressly declared that if the application was accepted
by the company, the insurance shall take effect from the date of the application but that if
the application was not accepted, the money shall be returned. The trite decision of the
circuit court of appeals was, "On the conceded facts of this case, there was no contract of life
insurance perfected and the judgment of the circuit court must be affirmed."

In the case of Cooksey vs. Mutual Life Insurance Co. ([1904], 73 Ark., 117) the person
applying for the life insurance paid an amount equal to the first premium, but the application
and the receipt for the money paid, stipulated that the insurance was to become effective
only when the application was approved and the policy issued. The court held that the
transaction did not amount to an agreement for preliminary or temporary insurance. It was
said:
"It is not an unfamiliar custom among life insurance companies in the operation of the
business, upon receipt of an application for insurance, to enter into a contract with the
applicant in the shape of a so-called 'binding receipt' for temporary insurance pending the
consideration of the application, to last until the policy be issued or the application rejected,
and such contracts are upheld and enforced when the applicant dies before the issuance of a
policy or final rejection of the aplication. It is held, too, that such contracts may rest in parol.
Counsel for appellant insists that such a preliminary contract for temporary insurance was
entered into in this instance, but we do not think so. On the contrary, the clause.in the
application and the receipt given by the solicitor, which are to be read together, stipulate
expressly that the insurance shall become effective only when the 'application shall be
approved and the policy duly signed by the secretary at the head office of the company and
issued.' It constituted no agreement at all for preliminary or temporary insurance;
Mohrstadt vs. Mutual Life Ins. Co., 115 Fed., 81, 52 C. C. A., 675; Steinle vs. New York Life Ins.
Co., 81 Fed., 489, 26 C. C. A., 491." (See further Weinfeld vs. Mutual Reserve Fund Life Ass'n.
[1892], 53 Fed., 203; Mohrstadt vs. Mutual Life Insurance Co. [1902], 115 Fed., 81; Insurance
Co. vs. Young's Administrator [1875], 90 U. S., 85; Chamberlain vs. Prudential Insurance
Company of America [1901], 109 Wis., 4; Shawnee Mut. Fire Ins. Co. vs. McClure [1913], 39
Okla., 535; Dorman vs.Connecticut Fire Ins. Co. [1914], 51 Okla., 509; contra, Starr vs. Mutual
Life Ins. Co. [1905], 41 Wash., 228.)
We are of the opinion that the trial court committed no error in sustaining the demurrer and
dismissing the case. It is to be noted, however, that counsel for appellee admits the liability
of the company for the return of the first premium to the estate of the deceased. It is not to
be doubted but that the Sun Life Assurance Company of Canada will immediately, on the
promulgation of this decision, pay to the estate of the late Luis Lim y Garcia the sum of P433.
The order appealed from, in the nature of a final judgment is affirmed, without special
finding as to costs in this instance. So ordered.
Mapa, C. J., Johnson, Araullo, Avanceña and Villamor, JJ., concur.
DIVISION
[ GR No. 51369, Jul 29, 1987 ]
BADILLO v. CLARITA FERRER +
DECISION
236 Phil. 438
GANCAYCO, J.:
This case was certified to this Court by the Court of Appeals which found in its Resolution
dated August 13, 1979, that the issues raisedtherein are pure questions of law. The instant
case is treated as a petition for review on certiorari.
The facts of this case as found by the Court of Appeals are as follows:
"xxx Macario Badillo died intestate on February 4, 1966, survived by his widow, Clarita Ferrer,
and five minor children: Alberto 16, Nenita 14, Hilly 12, Cristy 9, and Maria Salome 5. He left
a parcel of registered land of 77 square meters in Lumban, Laguna, with ahouse erected
thereon, valued at P7,500.00, (the "PROPERTY", for short). Hence, each of the five minor
plaintiffs had inherited a 1/12 share of the P7,500.00, or P625.00 each, which is less than the
P2,000.00 mentioned in Article 320 of the Civil Code.
"On January 18, 1967, the surviving widow, in her own behalf and as natural guardian of the
minor plaintiffs, executed a Deed of Extrajudicial Partition and Sale of the PROPERTY through
which the PROPERTY was sold to defendants-appellants, the spouses
Gregorio Soromero and Eleuteria Rana. The Register of Deeds at Sta. Cruz, Laguna, extended
recognition to the validity of the Deed of Extrajudicial Partition and Sale, recorded the same,
and issued a new transfer certificate of title to defendants-appellants. x x x.
On November 11, 1968, Modesta Badillo, a sister of Macario Badillo, was able to obtain
guardianship over the persons and properties of the minor plaintiffs, without personal notice
to their mother, who was alleged "could not be located inspite of the efforts exerted" (ROA,
p. 26).
"On July 23, 1970, their guardian caused the minor plaintiffs to file a complaint in the case
below for the annulment of the sale of their participation in the PROPERTY to defendants-
appellants and, conceding the validity of the sale of the widow's participation in the
PROPERTY, they asked that, as co-owners, they be allowed to exercise the right of legal
redemption.
"The lower court defined the issues in the case below as follows:
'(1) Was the sale of the shares of the plaintiffs in the ownership of the land in question which
was made by their mother, defendant Clarita Ferrer Badilla, in favor of the defendant
spouses Gregorio Soromero and Eleuteria Rana as evidenced by the document marked as
Exhibit "A" for the plaintiffs and Exhibit "2" for the defendants, valid and binding upon the
plaintiffs?
(2) May the plaintiffs, as co-owners of the property in question, still exercise their right of
redemption under Art. 1620 and pursuant to Art. 1623 of the Civil Code; and if so, for how
much?'
"The lower court, invoking the Nario case (Nario vs. Philippine American Life Insurance Co.,
20 SCRA 434), promulgated the appealed judgment annulling the sale to defendants-
appellants of the minor plaintiffs' participation in the PROPERTY, and allowing them to
redeem the sold participation of their mother."[1]
In this appeal, the defendants-appellants assign the following errors:
I. THE COURT ERRED IN FINDING THAT THE PERIOD OF THIRTY (30) DAYS PROVIDED FOR BY
ARTICLE 1623 OF THE NEW CIVIL CODE FOR PLAINTIFFS TO REDEEM THE SHARE OF THEIR
MOTHER IN THE PROPERTY SUBJECT OF THEIR CO-OWNERSHIP SOLD BY THE LATTER TO
DEFENDANTS HAS NOT YET ELAPSED.
2. THE COURT ERRED IN DECLARING THE SALE BY CLARITA FERRER BADILLO OF THE 5/12
SHARE OF HIS CHILDREN ON THE PROPERTY INVOLVED TO DEFENDANTS AS NULL AND VOID
AND RELATIVE THERETO THE COURT CONSEQUENTLY ERRED IN ITS FAILURE TO ORDER
PLAINTIFFS MINORS TO RETURN TO DEFENDANTS THE PURCHASE PRICE AS WELL AS THE
VALUE OF THE IMPROVEMENTS MADE BY DEFENDANTS ON THE PROPERTY.
3. THE COURT ERRED IN ORDERING THE DEFENDANTS TO RE-SELL TO PLAINTIFFS THE
REMAINING 7/12 PORTION OF THE PROPERTY IN QUESTION IN THE AMOUNT OF P4,375.00. [2]
The Statutory provision involved in the first error assigned is Article 1623 of the New Civil
Code, which is hereunder reproduced, thus:
"ART. 1623. The right of legal pre-emption or redemption shall not be exercised except
within thirty days from the notice in writing by the prospective vendor, or by the vendor, as
the case may be. The deed of sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given written notice thereof to all
possible redemptioners.
"The right of redemption of co-owners excludes that of adjoining owners."
Under their first assignment of error, the appellants advance the view that "the requisite
notice in writing provided for by Article 1623 of the New Civil Code was already received by
the minors-plaintiffs thru their then legal guardian, Clarita Ferrer Badillo, their mother, on
the date the deed of extra-judicial partition and sale was executed on January 18, 1967. And
the thirty-day period of redemption must be reckoned from this date."[3] Stated differently,
under Article 320 of the New Civil Code, the right granted to Clarita Ferrer Badillo to
administer her children's property if the same is less than P2,000.00 includes the right to
receive for her minor children such notice in writing. When she received her copy of the
Deed of Extrajudicial Partition and Sale, Clarita Ferrer Badillo in effect received a notice in
writing of the said sale in behalf of her minor children.
This argument is meritorious.
Articles 320 and 326 of the New Civil Code state that:
"ART. 320. The father, or in his absence the mother, is the legal administrator of the
property pertaining to the child under parental authority. If the property is worth more than
two thousand pesos, the father or mother shall give a bond subject to the approval of the
Court of First Instance.
"ART. 326. When the property of the child is worth more than two thousand pesos, the
father or mother shall be considered aguardian of the child's property, subject to the duties
and obligations of guardians under the Rules of Court."
In other words, the father, or in his absence the mother, is considered the legal administrator
of the property pertaining to his child under parental authority without need of giving a bond
in case the amount of his child's property does not exceed Two Thousand Pesos.
Rule 93, Section 7, of the Revised Rules of Court goes further by automatically designating
the parent as the legal guardian of the child without need of any judicial appointment in case
the latter's property does not exceed Two Thousand Pesos. It reads, thus:
"SEC. 7. Parents as guardians. - When the property of the child under parental authority is
worth two thousand pesos or less, the father or the mother, without the necessity of court
appointment, shall be his legal guardian. When the property of the child is worth more than
two thousand pesos, the father or the mother shall be considered guardian of the child's
property, with the duties and obligations of guardians under these rules, and shall file the
petition required by section 2 hereof. For good reasons the court may, however, appoint
another suitable person."
Our standing jurisprudence reveals that there is a case which is applicable to the case at
bar. This case involved an interpretation of Article 1524 of the Old Civil Code, the statutory
provision from which Article 1623 of the New Civil Code originated and the one which the
latter amended. The two articles are basically the same except that Article 1623 mandates a
longer period for redemption and limits the manner of transmitting the notice of the sale of
the property co-owned to one in writing served by the vendor.
The case is Villasor vs. Medel, et al.[4]
In this case, the co-owner plaintiff, upon reaching the age of majority, sought to
redeem a portion of a large tract of land which was sold to the defendant while the former
was still a minor. The plaintiff, during his minority, became a co-owner of an undivided
property which he, together with his cousins, acquired by donation from his grandmother. A
legal guardian was duly appointed by the court to represent the minor co-owners. This legal
guardian later sold, with the necessary permission of the court, the shares of three co-
owners to the defendant. When the plaintiff reached the age of majority, he wanted to
redeem the said shares.
This Court ruled in favor of the defendant, holding that:
"The law in prescribing certain contingencies as the starting point from which the nine-day
period should be counted, is to be presumed to exclude all
others. Exclusio unius est exclusio alterius. The starting point is registration or, in the
absence of registration, knowledge of the conveyance by the co-owners. It is logical to
assume that if minority had been contemplated, the law would have so expressly
stated. This is specially true in a code which, unlike an ordinary statute, is framed with
meticulous care andthorough reflection. The role of minors in cases of legal redemption is
too conspicuous and perceptible to have been overlooked in the framing of article 1524. The
onerous position of the purchaser and considerations of public interest, we believe, forbade
liberality as to time in favor of redemptioners; hence the limitation of the causes of extension
to those factors (actual or constructive notice) without which the exercise of the right of
redemption would not be possible. The shortness of the period fixed in the above article is
itself a safe index, in our opinion, of its peremptoriness and inflexibility."
"xxx The present appellant not only had such a guardian but it was this very guardian, Jose
C. Villasor, who, as guardian of plaintiff's cousins and former co-owners, sold the lots in
question to the defendant-appellee. This guardian not only could have repurchased those
lots for the plaintiff within nine days but could have sold them, with the court's authority,
directly to the plainttiff himself instead of to Medalla."[5]
In the decision, this Court frowned against a liberal interpretation of the codal provision
prescribing the period for legal redemption, hence, the following disquisition, to wit:
xxx legal redemption is in the nature of a mere privilege created by law partly for reasons of
public policy and partly for the benefit and convenience of the redemptioner, to afford him a
way out of what might be a disagreeable or inconvenient association into which he has been
thrust."
"xxx The right of legal redemption is a pure creature of the law regulated by law, and works
only one way - in favor of the redemptioner. Not having parted with anything, the
legal redemptioner can compel the purchaser to sell but can not be compelled to buy.
"We do not believe that the framers of the Civil Code ever intended to countenance a
situation so unjust to one of the parties and prejudicial to social interest. The construction of
article 1524 which the plaintiff offers would keep the property in a state of indivision even if
one of the co-owners wanted to separate. This is contrary to the express policy of the law
that 'No co-owner shall be obliged to remain a party to the community, but each may, at any
time, demand partition of the thing held in common.' (Article 400, Civil Code.) It would be
extremely unfair to the purchaser and injurious to the public welfare to keep in a state of
suspense, for possibily as long as 20 years or more, what his co-owner might do when he
becomes of age. While the uncertainty continued the purchaser could not make any
improvement on the property without running the risk of losing his investments and the
fruits of his labor."[6]
The wisdom that can easily be formulated in reconciling the laws and the case discussed
above is that the period fixed for legal redemption in accordance with Article 1623 (then
Article 1524) of the New Civil Code will run against a minor co-owner duly represented by a
judicially appointed guardian, provided that said guardian is served with the necessary
written notice by the vendor. Corollary to this, the period fixed for legal redemption will also
run against a minor co-owner whose property is valued no more than Two Thousand Pesos
and who is merely represented by his father or mother with no judicial appointment as a
guardian because according to Rule 93, Section 7, of the Revised Rules of Court, the parent in
this situation is automatically the child's legal guardian. Of course, the parent-guardian must
first be served with a notice in writing of the sale of an undivided portion of the property by
the vendor in order that the period for redemption may begin to accrue.
In the case at bar, the value of the property of each appellee minor does not exceed Two
Thousand Pesos. The Court of Appeals found that each of them inherited only an undivided
portion worth P625.00.[7] Therefore, after the minors' father died, their mother,
Clarita FerrerBadillo, automatically became their legal guardian. As such, she acquired the
plenary powers of a judicial guardian except that power to alienate or encumber her
children's property without judicial authorization.[8]
When Clarita Ferrer Badillo signed and received on January 18, 1967, her copy of the Deed of
Extrajudicial Partition and Sale, the document evidencing the transfer of the property in
question to the appellants, she also in effect received the notice in writing required by Article
1623 in behalf of her children. This manner of receiving a written notice is specifically
sanctioned by the case of Conejero, et al. vs. Court of Appeals, et al.[9] Thus, in this case, the
period of redemption began to toll from the time of that receipt.
On the other hand, the judicial guardian of the appellee minors, Modesta Badillo, was only
appointed as such on November 11, 1968. She thereafter manifested her desire to redeem
the property from the appellants, formalizing such intention in the complaint that was finally
filed for this case on July 23, 1970.
Since the required written notice was served on January 18, 1967 and the offer to redeem
was only made after November 11, 1968, the period for legal redemption had already
expired and the appellants cannot now be ordered to reconvey to the appellees that portion
of the undivided property which originally belonged to Clarita Ferrer Badillo.
Under the second assignment of error, the appellants contend that the Deed of Extrajudicial
Partition and Sale, in so far as it sold to them the appellee minors' share of 5/12, is
a voidable contract pursuant to Article 1390 of the New Civil Code. They then quoted
verbatim the text of the said article without identifying the particular portion of that
provision which directly supports their contention.
According to the appellants, in case a voidable contract is annulled, Article 1398 requires the
restitution by the contracting parties to each other of the things received by them under the
contract. The appellants, however, concede that by express mandate of Article 1399, full
restitution cannot be ordered from the minors involved in the contract. Said minors can only
be required to restore partially, only to the extent of the benefits they received by virtue of
the questioned contract.
This contention is untenable.
The Deed of Extrajudicial Partition and Sale is not a voidable or an annullable contract under
Article 1390 of the New Civil Code. Article 1390 renders a contract voidable if one of the
parties is incapable of giving consent to the contract or if the contracting party's consent is
vitiated by mistake, violence, intimidation, undue influence or fraud. In this case, however,
the appellee minors are not even parties to the contract involved. Their names were merely
dragged into the contract by their mother who claimed a right to represent them,
purportedly in accordance with Article 320 of the New Civil Code.[10]
The Deed of Extrajudicial Partition and Sale is an unenforceable or, more specifically, an
unauthorized contract under Articles 1403(1) and 1317 of the New Civil Code. These
provisions state that:
"ART. 1403. The following contracts are unenforceable, unless they are ratified:
"(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers; xxx"
"ART. 1317. No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him.
"A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it
is revoked by the other contracting party."
Clearly, Clarita Ferrer Badillo has no authority or has acted beyond her powers in conveying
to the appellants that 5/12 undivided share of her minor children in the property involved in
this case. The powers given to her by the laws as the natural guardian covers only matters of
administration[11] and cannot include the power of disposition.[12] She should have first
secured the permission of the court before she alienated that portion of the property in
question belonging to her minor children.[13]
The appellee minors never ratified this Deed of Extrajudicial Partition and Sale. In fact, they
questioned its validity as to them. Hence, the contract remained unenforceable or
unauthorized. No restitution may be ordered from the appellee minors either as to that
portion of the purchase price which pertains to their share in the property or at least as to
that portion which benefited them because the law does not sanction any.
The third error assigned need not be discussed further because Our pronouncement on the
first assignment of error has rendered it academic. Suffice it to state that since the 30-day
period for redemption had already lapsed, the appellants cannot be ordered to re-sell to
the appellees the remaining 7/12 portion of the property in question.
In view of the foregoing, the appellants are hereby ordered to restore to the appellees the
full ownership and possession of the latter's 5/12 share in the undivided property by
executing the proper deed of reconveyance. The appellants' ownership over the remaining
7/12 share in the undivided property is hereby confirmed.
WHEREFORE, the decision under review is hereby modified accordingly and appellants are
directed to deliver possession of above appellees' share, with no pronouncement as to costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz, and Paras, JJ., concur.
377 Phil. 436
FIRST DIVISION
[ G. R. No. 126800, November 29, 1999 ]
NATALIA P. BUSTAMANTE, PETITIONER VS. SPOUSES RODITO F. ROSEL AND NORMA A.
ROSEL, RESPONDENTS.
RESOLUTION
PARDO, J. :
The case before the Court is a petition for review on certiorari[1] to annul the decision of the
Court of Appeals,[2] reversing and setting aside the decision of the Regional Trial Court,[3],
dated November 10, 1992, Judge Teodoro P. Regino. 3 Quezon City, Branch 84, in an action
for specific performance with consignation.
On March 8, 1987, at Quezon City, Norma Rosel entered into a loan agreement with
petitioner Natalia Bustamante and her late husband Ismael C. Bustamante, under the
following terms and conditions:
"1. That the borrowers are the registered owners of a parcel of land, evidenced by TRANSFER
CERTIFICATE OF TITLE No. 80667, containing an area of FOUR HUNDRED TWENTY THREE
(423) SQUARE Meters, more or less, situated along Congressional Avenue.
"2. That the borrowers were desirous to borrow the sum of ONE HUNDRED THOUSAND
(P100,000.00) PESOS from the LENDER, for a period of two (2) years, counted from March 1,
1987, with an interest of EIGHTEEN (18%) PERCENT per annum, and to guaranty the payment
thereof, they are putting as a collateral SEVENTY (70) SQUARE METERS portion, inclusive of
the apartment therein, of the aforestated parcel of land, however, in the event the
borrowers fail to pay, the lender has the option to buy or purchase the collateral for a total
consideration of TWO HUNDRED THOUSAND (P200,000.00) PESOS, inclusive of the borrowed
amount and interest therein;
"3. That the lender do hereby manifest her agreement and conformity to the preceding
paragraph, while the borrowers do hereby confess receipt of the borrowed amount."[4]
When the loan was about to mature on March 1, 1989, respondents proposed to buy at the
pre-set price of P200,000.00, the seventy (70) square meters parcel of land covered by TCT
No. 80667, given as collateral to guarantee payment of the loan. Petitioner, however,
refused to sell and requested for extension of time to pay the loan and offered to sell to
respondents another residential lot located at Road 20, Project 8, Quezon City, with the
principal loan plus interest to be used as down payment. Respondents refused to extend the
payment of the loan and to accept the lot in Road 20 as it was occupied by squatters and
petitioner and her husband were not the owners thereof but were mere land developers
entitled to subdivision shares or commission if and when they developed at least one half of
the subdivision area.[5]
Hence, on March 1, 1989, petitioner tendered payment of the loan to respondents which the
latter refused to accept, insisting on petitioner's signing a prepared deed of absolute sale of
the collateral.
On February 28, 1990, respondents filed with the Regional Trial Court, Quezon City, Branch
84, a complaint for specific performance with consignation against petitioner and her
spouse.[6]
Nevertheless, on March 4, 1990, respondents sent a demand letter asking petitioner to sell
the collateral pursuant to the option to buy embodied in the loan agreement.
On the other hand, on March 5, 1990, petitioner filed in the Regional Trial Court, Quezon City
a petition for consignation, and deposited the amount of P153,000.00 with the City Treasurer
of Quezon City on August 10, 1990.[7]
When petitioner refused to sell the collateral and barangay conciliation failed, respondents
consigned the amount of P47,500.00 with the trial court.[8] In arriving at the amount
deposited, respondents considered the principal loan of P100,000.00 and 18% interest per
annum thereon, which amounted to P52,500.00.[9] The principal loan and the interest taken
together amounted to P152,500.00, leaving a balance of P 47,500.00.[10]

After due trial, on November 10, 1992, the trial court rendered decision holding:
"WHEREFORE, premises considered, judgment is hereby rendered as follows:
"1. Denying the plaintiff's prayer for the defendants' execution of the Deed of Sale to Convey
the collateral in plaintiffs' favor;
"2. Ordering the defendants to pay the loan of P100,000.00 with interest thereon at 18% per
annum commencing on March 2, 1989, up to and until August 10, 1990, when defendants
deposited the amount with the Office of the City Treasurer under Official Receipt No.
0116548 (Exhibit "2"); and
"3. To pay Attorney's Fees in the amount of P 5,000.00, plus costs of suit.
"SO ORDERED.
"Quezon City, Philippines, November 10, 1992.
"TEODORO P. REGINO
"Judge"[11]
On November 16, 1992, respondents appealed from the decision to the Court of
Appeals.[12] On July 8, 1996, the Court of Appeals rendered decision reversing the ruling of
the Regional Trial Court. The dispositive portion of the Court of Appeals' decision reads:
"IN VIEW OF THE FOREGOING, the judgment appeal (sic) from is REVERSED and SET
ASIDE and a new one entered in favor of the plaintiffs ordering the defendants to accept the
amount of P 47,000.00 deposited with the Clerk of Court of Regional Trial Court of Quezon
City under Official Receipt No. 0719847, and for defendants to execute the necessary Deed of
Sale in favor of the plaintiffs over the 70 SQUARE METER portion and the apartment standing
thereon being occupied by the plaintiffs and covered by TCT No. 80667 within fifteen (15)
days from finality hereof. Defendants, in turn, are allowed to withdraw the amount of
P153,000.00 deposited by them under Official Receipt No. 0116548 of the City Treasurer's
Office of Quezon City. All other claims and counterclaims are DISMISSED, for lack of sufficient
basis. No costs.
"SO ORDERED."[13]
Hence, this petition.[14]
On January 20, 1997, we required respondents to comment on the petition within ten (10)
days from notice.[15] On February 27, 1997, respondents filed their comment.[16]
On February 9, 1998, we resolved to deny the petition on the ground that there was no
reversible error on the part of respondent court in ordering the execution of the necessary
deed of sale in conformity the with the parties' stipulated agreement. The contract is the law
between the parties thereof (Syjuco v. Court of Appeals, 172 SCRA 111, 118, citing Phil.
American General Insurance v. Mutuc, 61 SCRA 22; Herrera v. Petrophil Corporation, 146
SCRA 360).[17]
On March 17, 1998, petitioner filed with this Court a motion for reconsideration of the denial
alleging that the real intention of the parties to the loan was to put up the collateral as
guarantee similar to an equitable mortgage according to Article 1602 of the Civil Code.[18]
On April 21, 1998, respondents filed an opposition to petitioner's motion for reconsideration.
They contend that the agreement between the parties was not a sale with right of re-
purchase, but a loan with interest at 18% per annum for a period of two years and if
petitioner fails to pay, the respondent was given the right to purchase the property or
apartment for P200,000.00, which is not contrary to law, morals, good customs, public order
or public policy.[19]
Upon due consideration of petitioner's motion, we now resolve to grant the motion for
reconsideration.
The questions presented are whether petitioner failed to pay the loan at its maturity date
and whether the stipulation in the loan contract was valid and enforceable.
We rule that petitioner did not fail to pay the loan.
The loan was due for payment on March 1, 1989. On said date, petitioner tendered payment
to settle the loan which respondents refused to accept, insisting that petitioner sell to them
the collateral of the loan.
When respondents refused to accept payment, petitioner consigned the amount with the
trial court.
We note the eagerness of respondents to acquire the property given as collateral to
guarantee the loan. The sale of the collateral is an obligation with a suspensive
condition.[20] It is dependent upon the happening of an event, without which the obligation
to sell does not arise. Since the event did not occur, respondents do not have the right to
demand fulfillment of petitioner's obligation, especially where the same would not only be
disadvantageous to petitioner but would also unjustly enrich respondents considering the
inadequate consideration (P200,000.00) for a 70 square meter property situated at
Congressional Avenue, Quezon City.
Respondents argue that contracts have the force of law between the contracting parties and
must be complied with in good faith.[21] There are, however, certain exceptions to the rule,
specifically Article 1306 of the Civil Code, which provides:
"Article 1306. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy."
A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire
the property given as security for the loan. This is embraced in the concept of pactum
commissorium, which is proscribed by law.[22]
"The elements of pactum commissorium are as follows: (1) there should be a property
mortgaged by way of security for the payment of the principal obligation, and (2) there
should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in
case of non-payment of the principal obligation within the stipulated period."[23]
In Nakpil vs. Intermediate Appellate Court,[24] we said:
"The arrangement entered into between the parties, whereby Pulong Maulap was to be
"considered sold to him (respondent) xxx in case petitioner fails to reimburse Valdes, must
then be construed as tantamount to pactum commissorium which is expressly prohibited by
Art. 2088 of the Civil Code. For, there was to be automatic appropriation of the property by
Valdes in the event of failure of petitioner to pay the value of the advances. Thus, contrary to
respondent's manifestation, all the elements of a pactum commissorium were present: there
was a creditor-debtor relationship between the parties; the property was used as security for
the loan; and there was automatic appropriation by respondent of Pulong Maulap in case of
default of petitioner."
A significant task in contract interpretation is the ascertainment of the intention of the
parties and looking into the words used by the parties to project that intention. In this case,
the intent to appropriate the property given as collateral in favor of the creditor appears to
be evident, for the debtor is obliged to dispose of the collateral at the pre-agreed
consideration amounting to practically the same amount as the loan. In effect, the creditor
acquires the collateral in the event of non payment of the loan. This is within the concept
of pactum commissorium. Such stipulation is void.[25]
All persons in need of money are liable to enter into contractual relationships whatever the
condition if only to alleviate their financial burden albeit temporarily. Hence, courts are duty
bound to exercise caution in the interpretation and resolution of contracts lest the lenders
devour the borrowers like vultures do with their prey.
WHEREFORE, we GRANT petitioner's motion for reconsideration and SET ASIDE the Court's
resolution of February 9, 1998. We REVERSE the decision of the Court of Appeals in CA-G. R.
CV No. 40193. In lieu thereof, we hereby DISMISS the complaint in Civil Case No. Q-90-4813.
No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan, and Ynares-Santiago, JJ., concur.
361 Phil. 499
DIVISION
[ GR No. 128690, Jan 21, 1999 ]
ABS-CBN BROADCASTING CORPORATION v. CA +
DECISION
DAVIDE JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter
ABS-CBN) seeks to reverse and set aside the decision[1] of 31 October 1996 and the
resolution[2] of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former
affirmed with modification the decision[3] of 28 April 1993 of the Regional Trial Court (RTC) of
Quezon City, Branch 80, in Civil Case No. Q-12309. The latter denied the motion to
reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. "A") whereby Viva
gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in
accordance with paragraph 2.4 [sic] of said agreement stating that-
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV
telecast under such terms as may be agreed upon by the parties hereto, provided, however,
that such right shall be exercised by ABS-CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo
Santos-Concio, a list of three (3) film packages (36 title) from which ABS-CBN may exercise its
right of first refusal under the afore-said agreement (Exhs. "1" par. 2, "2," "2-A" and "2-B
Viva). ABS-CBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from the
list) "we can purchase" (Exh. "3" Viva) and therefore did not accept said list (TSN, June 8,
1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar
except the film "Maging Sino Ka Man."
For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" Viva) is
hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my
difficulty in recommending the purchase of the three film packages you are offering ABS-
CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see
attached. I hope you will understand my position. Most of the action pictures in the list do
not have big action stars in the cast. They are not for primetime. In line with this I wish to
mention that I have not scheduled for telecast several action pictures in our very first
contract because of the cheap production value of these movies as well as the lack of big
action stars. As a film producer, I am sure you understand what I am trying to say as Viva
produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule
them in out non-primetime slots. We have to cover the amount that was paid for these
movies because as you very well know that non-primetime advertising rates are very low.
These are the unaired titles in the first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of
the ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the
other Viva movies produced last year, I have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list
consisting of 52 original movie titles (i.e., not yet aired on television) including the 14 titles
subject of the present case, as well as 104 re-runs (previously aired on television) from which
ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN
airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of which
P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. "4" to "4-
C" Viva; "9" Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBN's general manager, Eugenio Lopez III,
met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of VIVA.
What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez
testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive
film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put
this agreement as to the price and number of films in a "napkin" and signed it and gave it to
Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand. Del
Rosario denied having made any agreement with Lopez regarding the 14 Viva films; denied
the existence of a napkin in which Lopez wrote something; and insisted that what he and
Lopez discussed at the lunch meeting was Viva's film package offer of 104 films (52 originals
and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter
proposal which came in the form of a proposal contract Annex "C" of the complaint (Exh. "1"
Viva; Exh "C" ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for
Finance discussed the terms and conditions of Viva's offer to sell the 104 films, after the
rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note
from Ms. Concio, (Exh. "5" Viva), which reads: "Here's the draft of the contract. I hope you
find everything in order," to which was attached a draft exhibition agreement (Exh. "C" ABS-
CBN; Exh. "9" Viva p. 3) a counter-proposal covering 53 films, 52 of which came from the list
sent by defendant Del Rosario and one film was added by Ms. Concio, for a consideration of
P35 million. Exhibit "C" provides that ABS-CBN is granted film rights to 53 films and contains
a right of first refusal to 1992 Viva Films." The said counter proposal was however rejected
by Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not
sell anything less than the package of 104 films for P60 million pesos (Exh. "9" Viva), and such
rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and
meetings defendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60
million, signed a letter of agreement dated April 24, 1992, granting RBS the exclusive right to
air 104 Viva-produced and/or acquired films (Exh. "7-A" - RBS; Exh. "4" RBS) including the
fourteen (14) films subject of the present case.[4]
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a
prayer for a writ of preliminary injunction and/or temporary restraining order against private
respondents Republic Broadcasting Corporation[5] (hereafter RBS), Viva Production (hereafter
VIVA), and Vicente del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining private
respondents from proceeding with the airing, broadcasting, and televising of the fourteen
VIVA films subject of the controversy, starting with the film Maging Sino Ka Man, which was
scheduled to be shown on private respondent RBS' channel 7 at seven o'clock in the evening
of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order[7] directing the
issuance of a writ of preliminary injunction upon ABS-CBN's posting of a P35 million bond.
ABS-CBN moved for the reduction of the bond,[8] while private respondents moved for
reconsideration of the order and offered to put up a counterbond. [9]
In the meantime, private respondents filed separate answer with counterclaim.[10] RBS also
set up a cross-claim against VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary injunction
upon the posting by RBS of a P30 million counterbond to answer for whatever damages ABS-
CBN might suffer by virtue of such dissolution. However, it reduced petitioner's injunction
bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary
injunction should private respondents be unable to post a counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to
explore the possibility of an amicable settlement. In the meantime, RBS prayed for and was
granted reasonable time within which to put up a P30 million counterbond in the event that
no settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a
counterbond, which the RTC approved in its Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3 August and 15
October 1992 Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals
a petition[17] challenging the RTC's Order of 3 August and 15 October 1992 and praying for
the issuance of a writ of preliminary injunction to enjoin the RTC from enforcing said orders.
The case was docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order[18] to enjoin
the airing, broadcasting, and televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision[19] dismissing the
petition in CA-G.R. SP No. 29300 for being premature. ABS-CBN challenged the dismissal in a
petition for review filed with this Court on 19 January 1993, which was docketed s G.R. No.
108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-12309.
Thereafter, on 28 April 1993, it rendered a decision[20] in favor of RBS and VIVA and against
ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered
in favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
P107,727.00 the amount of premium paid by RBS to the surety which
a)
issued defendants RBS's bond to lift the injunction;
P191,843.00 for the amount of print advertisement for "Maging Sino Ka
b)
Man" in various newspapers;
c) Attorney's fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of
(3)
reasonable attorney's fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer.
The alleged agreement between Lopez III and Del Rosario was subject to the approval of the
VIVA Board of Directors, and said agreement was disapproved during the meeting of the
Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA signed
the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990
Film Exhibition Agreement had previously been exercised per Ms. Concio's letter to Del
Rosario ticking off ten titles acceptable to them, which would have made the 1992
agreement an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBN's petition for review in G.R. No. 108363, as
no reversible error was committed by the Court of Appeals in its challenged decision and the
case had "become moot and academic in view of the dismissal of the main action by the
court a quo in its decision" of 28 April 1993.
Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that
there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive
right to exhibit the subject films. Private respondents VIVA and Del Rosario also appealed
seeking moral and exemplary damages and additional attorney's fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the
contract between ABS-CBN and VIVA had not been perfected, absent the approval by the
VIVA Board of Directors of whatever Del Rosario, it's agent, might have agreed with Lopez III.
The appellate court did not even believe ABS-CBN's evidence that Lopez III actually wrote
down such an agreement on a "napkin," as the same was never produced in court. It likewise
rejected ABS-CBN's insistence on its right of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement
was entered into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990
and that parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV
telecast under such terms as may be agreed upon by the parties hereto, provided, however,
that such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the
actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be
subjected to such terms as may be agreed upon by the parties thereto, and that the said
right shall be exercised by ABS-CBN within fifteen (15) days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of
the film right to the twenty-four (24) films, nor did it specify the terms thereof. The same are
still left to be agreed upon by the parties.
In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can
only tick off ten (10) films, and the draft contract Exhibit "C" accepted only fourteen (14)
films, while parag. 1.4 of Exhibit "A" speaks of the next twenty-four (24) films.
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88;
Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario
to ABS-CBN. The Vice President of ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated
January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by
rejecting the offer of VIVA. As aptly observed by the trial court, with the said letter of Mrs.
Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon
the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was
sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which
ABS-CBN shall exercise its right of first refusal has already expired.[22]
Accordingly, respondent court sustained the award factual damages consisting in the cost of
print advertisements and the premium payments for the counterbond, there being adequate
proof of the pecuniary loss which RBS has suffered as a result of the filing of the complaint by
ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis
therefor, holding that RBS's reputation was debased by the filing of the complaint in Civil
Case No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka Man."
Respondent court also held that exemplary damages were correctly imposed by way of
example or correction for the public good in view of the filing of the complaint despite
petitioner's knowledge that the contract with VIVA had not been perfected. It also upheld
the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No.
Q-92-12309, RBS was "unnecessarily forced to litigate." The appellate court, however,
reduced the awards of moral damages to P 2 million, exemplary damages to P2 million, and
attorney's fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal
because it was "RBS and not VIVA which was actually prejudiced when the complaint was
filed by ABS-CBN."
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case,
contending that the Court of Appeals gravely erred in
I exemplary damages. The controversy involving ABS-CBN and RBS did not in any way
… RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE
RESPONDENT VIVA NOTWITHSTANDING PREPONFERANCE OF EVIDENCE ADDUCED BY
PETITIONER TO THE CONTRARY.
II
… IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
III
… IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT
RBS.
IV
… IN AWARDING ATORNEY'S FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles
under the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list.
It insists that we give credence to Lopez's testimony that he and Del Rosario met at the
Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992
Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper
napkin. It also asserts that the contract has already been effective, as the elements thereof,
namely, consent, object, and consideration were established. It then concludes that the
Court of Appeals' pronouncements were not supported by law and jurisprudence, as per our
decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals,[23]which
cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang Yu Asuncion v. Court of
Appeals,[25] and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent
for the premium on the counterbond of its own volition in order to negate the injunction
issued by the trial court after the parties had ventilated their respective positions during the
hearings for the purpose. The filing of the counterbond was an option available to RBS, but it
can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had
another available option, i.e., move for the dissolution of the injunction; or if it was
determined to put up a counterbond, it could have presented a cash bond. Furthermore
under Article 2203 of the Civil Code, the party suffering loss injury is also required to exercise
the diligence of a good father of a family to minimize the damages resulting from the act or
omission. As regards the cost of print advertisements, RBS had not convincingly established
that this was a loss attributable to the non-showing of "Maging Sino Ka Man"; on the
contrary, it was brought out during trial that with or without the case or injunction, RBS
would have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the awards of moral and
originate from business transaction between them. The claims for such damages did not
arise from any contractual dealings or from specific acts committed by ABS-CBN against RBS
that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the
filing of the complaint. An award of moral and exemplary damages is not warranted where
the record is bereft of any proof that a party acted maliciously or in bad faith in filing an
action.[27] In any case, free resort to courts for redress of wrongs is a matter of public policy.
The law recognizes the right of every one to sue for that which he honestly believes to be his
right without fear of standing trial for damages where by lack of sufficient evidence, legal
technicalities, or a different interpretation of the laws on the matter, the case would lose
ground.[28] One who, makes use of his own legal right does no injury.[29] If damage results
from filing of the complaint, it is damnum absque injuria.[30] Besides, moral damages are
generally not awarded in favor of a juridical person, unless it enjoys a good reputation that
was debased by the offending party resulting in social humiliation. [31]
As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual,
legal, or equitable justification. In sustaining the trial court's award, the Court of Appeals
acted in clear disregard of the doctrine laid down in Buan v. Camaganacan[32] that the text of
the decision should state the reason why attorney's fees are being awarded; otherwise, the
award should be disallowed. Besides, no bad faith has been imputed on, much less proved
as having been committed by, ABS-CBN. It has been held that "where no sufficient showing
of bad faith would be reflected in a party's persistence in a case other than an erroneous
conviction of the righteousness of his cause, attorney's fees shall not be recovered as
cost."[33]
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and
VIVA absent meeting of minds between them regarding the object and consideration of the
alleged contract. It affirms that ABS-CBN's claim of a right of first refusal was correctly
rejected by the trial court. RBS insists the premium it had paid for the counterbond
constituted a pecuniary loss upon which it may recover. It was obliged to put up the
counterbond due to the injunction procured by ABS-CBN. Since the trial court found that
ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the
writ of injunction, RBS could recover from ABS-CBN the premium paid on the counterbond.
Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the
loss would be equivalent to the cost of money RBS would forego in case the P30 million came
from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled
showing of the film "Maging Sino Ka Man" because the print advertisements were out to
announce the showing on a particular day and hour on Channel 7, i.e., in its entirety at one
time, not as series to be shown on a periodic basis. Hence, the print advertisements were
good and relevant for the particular date of showing, and since the film could not be shown
on that particular date and hour because of the injunction, the expenses for the
advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and
secured injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then
to Articles 19 and 21 of the Civil Code, ABS-CBN must be held liable for such damages. Citing
Tolentino,[34] damages may be awarded in cases of abuse of rights even if the done is not
illicit, and there is abuse of rights where a plaintiff institutes an action purely for the purpose
of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages,
private respondent RBS cited People v. Manero,[35] where it was stated that such entity may
recover moral and exemplary damages if it has a good reputation that is debased resulting in
social humiliation. It then ratiocinates; thus:
There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case.
When RBS was not able to fulfill its commitment to the viewing public to show the film
"Maging Sino Ka Man" on the scheduled dates and times (and on two occasions that RBS
advertised), it suffered serious embarrassment and social humiliation. When the showing
was cancelled, irate viewers called up RBS' offices and subjected RBS to verbal abuse
("Announce kayo ng announce, hindi ninyo naman ilalabas", "nanloloko yata kayo") (Exh. 3-
RBS, par.3). This alone was not something RBS brought upon itself. It was exactly what ABS-
CBN had planted to happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons
justify the amount of the award.
The first is that the humiliation suffered by RBS, is national in extent. RBS' operations as a
broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of
those who own and watch television. It is not an exaggeration to state, and it is a matter of
judicial notice that almost every other person in the country watches television. The
humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated
the showing of the film, "Maging Sino Ka Man" on May 28 and November 3, 1992 but did not
see it owing to the cancellation. Added to this are the advertisers who had placed
commercial spots for the telecast and to whom RBS had a commitment in consideration of
the placement to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation
and injury are far greater in degree when caused by an entity whose ultimate business
objective is to lure customers (viewers in this case) away from the competition.[36]
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court
and the Court of Appeals do not support ABS-CBN's claim that there was a perfected
contract. Such factual findings can no longer be disturbed in this petition for review under
Rule 45, as only questions of law can be raised, not questions of fact. On the issue of
damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between
VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and attorney's fees. It may
be noted that that award of attorney's fees of P212,000 in favor of VIVA is not assigned as
another error.
I
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds
between two persons whereby one binds himself to give something or render some service
to another[37] for a consideration. There is no contract unless the following requisites concur:
(1) consent of the contracting parties; (2) object certain which is the subject of the contract;
and (3) cause of the obligation, which is established.[38] A contract undergoes three stages:
preparation, conception, or generation, which is the period of negotiation and
(a)
bargaining, ending at the moment of agreement of the parties;
perfection or birth of the contract, which is the moment when the parties come to
(b)
agree on the terms of the contract; and
consummation or death, which is the fulfillment or performance of the terms
(c)
agreed upon in the contract.[39]
Contracts that are consensual in nature are perfected upon mere meeting of the minds.
Once there is concurrence between the offer and the acceptance upon the subject matter,
consideration, and terms of payment a contract is produced. The offer must be certain. To
convert the offer into a contract, the acceptance must be absolute and must not qualify the
terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any
sort from the proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer. Consequently, when
something is desired which is not exactly what is proposed in the offer, such acceptance is
not sufficient to generate consent because any modification or variation from the terms of
the offer annuls the offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April
1992 to discuss the package of films, said package of 104 VIVA films was VIVA's offer to ABS-
CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent through Ms. Concio,
counter-proposal in the form a draft contract proposing exhibition of 53 films for a
consideration of P35 million. This counter-proposal could be nothing less than the counter-
offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant.
Clearly, there was no acceptance of VIVA's offer, for it was met by a counter-offer which
substantially varied the terms of the offer.
ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of Appeals[41] and Villonco Realty
Company v. Bormaheco, Inc.,[42] is misplaced. In these cases, it was held that an acceptance
may contain a request for certain changes in the terms of the offer and yet be a binding
acceptance as long as "it is clear that the meaning of the acceptance is positively and
unequivocally to accept the offer, whether such request is granted or not." This ruling was,
however, reversed in the resolution of 29 March 1996,[43] which ruled that the acceptance of
an offer must be unqualified and absolute, i.e., it "must be identical in all respects with that
of the offer so as to produce consent or meetings of the minds."
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-
offer were not material but merely clarificatory of what had previously been agreed upon. It
cited the statement in Stuart v. Franklin Life Insurance Co.[44] that "a vendor's change in a
phrase of the offer to purchase, which change does not essentially change the terms of the
offer, does not amount to a rejection of the offer and the tender of a counter-
offer."[45] However, when any of the elements of the contract is modified upon acceptance,
such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer hence, they
underwent period of bargaining. ABS-CBN then formalized its counter-proposals or counter-
offer in a draft contract. VIVA through its Board of Directors, rejected such counter-offer.
Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the
acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the
specific authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code, corporate powers,
such as the power to enter into contracts, are exercised by the Board of Directors. However,
the Board may delegate such powers to either an executive committee or officials or
contracted managers. The delegation, except for the executive committee, must be for
specific purposes.[47] Delegation to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the binding effects of their acts would
apply.[48] For such officers to be deemed fully clothed by the corporation to exercise a power
of the Board, the latter must specially authorize them to do so. that Del Rosario did not have
the authority to accept ABS-CBN's counter-offer was best evidenced by his submission of the
draft contract to VIVA's Board of Directors for the latter's approval. In any event, there was
between Del Rosario and Lopez III no meeting of minds. The following findings of the trial
court are instructive:
A number of considerations militate against ABS-CBN's claim that a contract was perfected
at that lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the
price and the number of films, which he wrote on a napkin. However, Exhibit "C" contains
numerous provisions which were not discussed at the Tamarind Grill, if Lopez testimony
was to be believed nor could they have been physically written on a napkin. There was
even doubt as to whether it was a paper napkin or cloth napkin. In short what were
written in Exhibit "C" were not discussed, and therefore could not have been agreed upon,
by the parties. How then could this court compel the parties to sign Exhibit "C" when the
provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the
contract was 14 films. The complaint in fact prays for delivery of 14 films. But Exhibit "C"
mentions 53 films as its subject matter. Which is which? If Exhibit "C" reflected the true
intent of the parties, then ABS-CBN's claim for 14 films in its complaint is false or if what it
alleged in the complaint is true, then Exhibit "C" did not reflect what was agreed upon by
the parties. This underscores the fact that there was no meeting of the minds as to the
subject matter of the contract, so as to preclude perfection thereof. For settled is the rule
that there can be no contract where there is no object certain which is its subject matter
(Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") States:
"We were able to reach an agreement. VIVA gave us the exclusive license to show these
fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as
grant Viva commercial slots worth P19,950,000.00. We had already earmarked this
P16,050,000.00."
which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00
equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?
The total price, the breakdown the known Viva movies, the 7 blockbuster movies
and the other 7 Viva movies because the price was broken down accordingly. The
A
none [sic] Viva and the seven other Viva movies and the sharing between the cash
portion and the concerned spot portion in the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to
Mr. Del Rosario with a handwritten note, describing said Exhibit "C" as a draft." (Exh. "5"
Viva; tsn pp. 23-24, June 08, 1992). The said draft has a well defined meaning.
…
Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared
for discussion, the terms and conditions thereof could not have been previously agreed
upon by ABS-CBN and Viva. Exhibit "C" could not therefore legally bind Viva, not having
agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in
Exhibit "C" were prepared by ABS-CBN's lawyers and there was no discussion on said terms
and conditions….
As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and
there was no evidence whatsoever that Viva agreed to the terms and conditions thereof,
said document cannot be a binding contract. The fact that Viva refused to sign Exhibit "C"
reveals only two [sic] well that it did not agree on its terms and conditions, and this court
has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the
Tamarind Grill was only provisional, in the sense that it was subject to approval by the
Board of Directors of Viva. He testified:
Now, Mr. Witness, and after that Tamarinf meeting … the second meeting wherein
Q
you claimed that you have the meeting of the minds between you and Mr. Vic del
 Rosario, what happened?
Vic Del Rosario was supposed to call us up and tell us specifically the result of the
A
discussion with the Board of Directors.
And you are referring to the so-called agreement which you wrote in [sic] a piece of
Q
paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
… faith or otherwise. In case of good faith, the damages recoverable are those which are the
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had
no authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors
approved it. The complaint, in fact, alleges that Mr. Del Rosario "is the Executive Producer
of defendant Viva" which "is a corporation." (par. 2, complaint). As a mere agent of Viva,
Del Rosario could not bind Viva unless what he did is ratified by its Directors. (Vicente
vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent,
recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally
with Viva and his inclusion as party defendant has no legal basis. (Salonga vs. Warner
Barnes [sic],COLTA, 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that
what was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez
and Del Rosario was not a binding agreement. It is as it should be because corporate
power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation
Code). Without such board approval by the Viva board, whatever agreement Lopez and
Del Rosario arrived at could not ripen into a valid binding upon Viva (Yao Ka Sin Trading vs.
Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors
of Viva rejected Exhibit "C" and insisted that the film package for 104 films be maintained
(Exh. "7-1 Viva).[49]
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-
four films under the 1990 Film Exhibition Agreement and that the meeting between Lopez
and Del Rosario was a continuation of said previous contract is untenable. As observed by
the trial court, ABS-CBN's right of first refusal had already been exercised when Ms. Concio
wrote to Viva ticking off ten films. Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for
an entirely different package. Ms. Concio herself admitted on cross-examination to having
used or exercised the right of first refusal. She stated that the list was not acceptable and
was indeed not accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez himself
admitted that the right of first refusal may have been already exercised by Ms. Concio (as she
had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic] that
ABS-CBN has lost its right of first refusal when his list of 36 titles were rejected (Tsn, June 9,
1992, pp. 10-11).[50]
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual
damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or
compensatory damages. Except as provided by law or by stipulation, one is entitled to
compensation for actual damages only for such pecuniary loss suffered by him as he has duly
proved.[51] The indemnification shall comprehend not only the value of the loss suffered, but
also that of the profits that the obligee failed to obtain.[52] In contracts and quasi-contracts
the damages which may be awarded are dependent on whether the obligor acted with good
natural and probable consequences of the breach of the obligation and which the parties
have foreseen or could have reasonably foreseen at the time of the constitution of the
obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be
responsible for all damages which may be reasonably attributed to the non-performance of
the obligation.[53] In crimes and quasi-delicts, the defendants shall be liable for all damages
which are the natural and probable consequences of the act or omission complained of,
whether or not such damages have been foreseen or could have reasonably been foreseen
by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning capacity in
cases of temporary or permanent personal injury, or for injury to the plaintiff's business
standing or commercial credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or
quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBN's alleged
knowledge of lack of cause of action. Thus paragraph 12 of RBS's Answer with Counterclaim
and Cross-claim under the heading COUNTERCLAIM specifically alleges:
ABS-CBN filed the complaint knowing fully well that it has no cause of action against
12. RBS. As a result thereof, RBS suffered actual damages in the amount of
P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the above
law on actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of
the Civil Code, which read as follows:
ART. 19. Every person must, in the exercise of hid rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith.
ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another
shall indemnify the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the
damages which the defendant may suffer by reason of the writ are recoverable from the
injunctive bond.[57] In this case, ABS-CBN had not yet filed the required bond; as a matter of
fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge
the order on the matter. Clearly then, it was not necessary for RBS to file a counterbond.
Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond.

Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for
lack of sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of
preliminary injunction on the basis of its determination that there existed sufficient ground
for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of
lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a
counterbond.
As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees
may be recovered as actual or compensatory damages under any of the circumstances
provided for in Article 2208 of the Civil Code.[58]
The general rule is that attorney's fees cannot be recovered as part of damages because of
the policy that no premium should be placed on the right to litigate.[59] They are not to be
awarded every time a party wins a suit. The power of the court t award attorney's fees
under Article 2208 demands factual, legal, and equitable justification.[60] Even when a
claimant is compelled to litigate with third persons or to incur expenses to protect his rights,
still attorney's fees may not be awarded where no sufficient showing of bad faith could be
reflected in a party's persistence in a case other than an erroneous conviction of the
righteousness of his cause.[61]
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code.
Article 2217 thereof defines what are included in moral damages, while Article 2219
enumerates the cases where they may be recovered. Article 2220 provides that moral
damages may be recovered in breaches of contract where the defendant acted fraudulently
or in bad faith. RBS's claim for moral damages could possibly fall only under item (10) of
Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
Moral damages are in the category of an award designed to compensate the claimant for
actual injury suffered and not to impose a penalty on the wrongdoer.[62] The award is not
meant to enrich the complainant at the expense of the defendant, but to enable the injured
party to obtain means, diversion, or amusements that will serve to obviate the moral
suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of
the spiritual status quo ante, and should be proportionate to the suffering inflicted.[63] Trial
courts must then guard against the award of exorbitant damages; they should exercise
balanced restrained and measured objectivity to avoid suspicion that it was due to passion,
prejudice, or corruption or the part of the trial court.[64]
The award of moral damages cannot be granted in favor of a corporation because, being an
artificial person and having existence only in legal contemplation, it has no feelings, no
emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish,
which can be experienced only by one having a nervous system.[65] The statement in People
v. Manero[66] and Mambulao Lumber Co. v. PNB[67] that a corporation may recover moral
damages if it "has a good reputation that is debased, resulting in social humiliation" is
an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a
corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of the Civil
Code. These are imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated, or compensatory damages. [68] They are recoverable in criminal
cases as part of the civil liability when the crime was committed with one or more
aggravating circumstances;[69] in quasi-delicts, if the defendant acted with gross
negligence;[70] and in contracts and quasi-contracts, if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.[71]
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-
contract, delict, or quasi-delict. Hence, the claims for moral and exemplary damages can
only be based on Articles 19, 20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal
right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or
injuring another. Article 20 speaks of the general sanction for all provisions of law which do
not especially provide for their own sanction; while Article 21 deals with acts contra bonus
mores, and has the following elements: (1) there is an act which is legal, (2) but which is
contrary to morals, good custom, public order, or public policy, and (3) and it is done with
intent to injure.[72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith
implies a conscious and intentional design to do a wrongful act for a dishonest purpose or
moral obliquity.[73] Such must be substantiated by evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly
convinced of the merits of its cause after it had undergone serious negotiations culminating
in its formal submission of a draft contract. Settled is the rule that the adverse result of an
action does not per se make the action wrongful and subject the actor to damages, for the
law could not have meant impose a penalty on the right to litigate. If damages result from a
person's exercise of a right, it is damnum absque injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of
Appeals in CA-G.R. CV No. 44125 is hereby REVERSED except as to unappealed award of
attorney's fees in favor of VIVA Productions, Inc.
No pronouncement as to costs.
SO ORDERED.
Melo, Kapunan, Martinez, and Pardo, JJ., concur.