Supreme Court E-Library
Information At Your Fingertips

  View printer friendly version

605 Phil. 460


[ G.R. No. 154427, May 08, 2009 ]




In this petition for review on certiorari under Rule 45 of the Rules of Court, the petitioner Zacarias Delos Santos (petitioner) seeks the reversal of the January 16, 2002 Decision[1] of the Court of Appeals (CA) and its subsequent Resolution of July 22, 2002[2] denying the petitioner's motion for reconsideration.


The facts of this case are undisputed.[3] The petitioner was leasing respondent Consuelo Papa's (Papa) property (subject property). On May 2, 1994, Papa verbally offered to sell the subject property to the petitioner. However, the petitioner turned down the offer because he did not have the means to purchase the property. Thereafter, Papa found another buyer in the person of Maria C. Mateo (Mateo), the other respondent in this case. The subject property's ownership was duly transferred to Mateo's name through the issuance of Transfer Certificate of Title (TCT) No. 216221 by the Registry of Deeds of Manila.

Meanwhile, the petitioner failed to pay his rent from May to August 1994, prompting Mateo, as the subject property's new owner, to institute ejectment proceedings against him before the Metropolitan Trial Court (MeTC) of Manila; the complaint was docketed as Civil Case No. 146030. The MeTC ruled in favor of Mateo and ordered the petitioner's ejectment. The CA, on appeal, upheld the MeTC's order.

On October 17, 1994, while the ejectment case was pending, the petitioner filed the present case for "Annulment of Deed of Sale and Cancellation of Title with Injunction and/or Issuance of Temporary Restraining Order," docketed as Civil Case No. 94-71936, with the Regional Trial Court (RTC), Branch 38, Manila. On November 25, 1994, the respondents filed a counterclaim for attorney's fees, costs of suit, moral and exemplary damages.

During the trial that ensued, the petitioner presented two witnesses - his son, William Delos Santos (who had been his representative in the suit) and Mrs. Geronima Angeles (Angeles), District Manager of the National Housing Authority.  At the scheduled hearing for the completion of Angeles' testimony, neither the petitioner nor his counsel appeared. The RTC ordered Angeles' incomplete testimony stricken off the record, and declared that the lone testimony of the petitioner's son was insufficient to sustain a judgment against the respondents. Thus, the RTC dismissed the complaint.

The RTC continued to hear and receive evidence on the respondents' counterclaim, consisting of the testimonies of respondents Papa and Mateo.  On March 8, 2000, the RTC rendered a Decision awarding respondents exemplary damages in the amount of P100,000.00 each, moral damages for P100,000.00 each and attorney's fees and litigation expenses in the amount of P50,000.00 each, with costs of suit.

On January 16, 2001, the CA affirmed the RTC decision, with the modification that the amount awarded as moral and exemplary damages to each respondent be reduced to P50,000.00. The CA reasoned that the petitioner was not a bona fide lessee as contemplated by Presidential Decree (P.D.) No. 1517 and P.D. No. 2016; he had failed to pay his rent from May to August 1994, the time that the subject property was offered and subsequently sold to Mateo.  The CA thus concluded that he instituted the complaint in bad faith, considering that he was aware that he was in no position to exercise the right of first refusal. The CA also ruled that he violated Article 19 of the Civil Code.[4]

The CA denied the petitioner's subsequent motion for reconsideration. Hence, this petition for review on certiorari, raising the following issues:




The petitioner argues that respondent Papa is mandated by law to give him a written notice of her intention to sell the subject property to Mateo and that the failure to do so renders the sale to the latter null and void. This right of first refusal or first option is provided under P.D. No. 1517 and P.D. No. 2016.

He further argues that the filing of the complaint was the idea of his previous counsel, who later abandoned his case. He cannot be said to have acted in bad faith when his lawyer was the one who advised him to file the suit. Bad faith is never presumed, and the respondents miserably failed to discharge the burden of proof required to prove that he had acted in bad faith. He also argues that the CA erred in finding him guilty of committing an act similar to malicious prosecution, which has the following elements:  1) there is a sinister design to vex and humiliate a person, and 2) the suit was deliberately initiated by the defendant knowing that his charges were false and groundless. Petitioner stresses that the mere act of submitting a case to the authorities does not make one liable for malicious prosecution.

Petitioner argues that there is no factual basis and evidentiary support for the grant of moral and exemplary damages, the only bases being: Papa's self-serving and inadequate testimony that she felt "great inconvenience"; her agreement with her lawyer regarding attorney's fees; and Mateo's unsubstantiated assertion that she suffered hypertension. The petitioner also argues that there is no basis for the lower courts' conclusion that he violated Article 19 of the Civil Code.

On his failure to appeal the RTC's dismissal of his complaint for lack of cause of action, the petitioner explains that his son, William, who was acting as his attorney-in-fact and legal representative, died in 1996; that William was the one who contacted his lawyers; and that since William's death, the petitioner lost contact with these lawyers.

The respondent, on the other hand, argues that the petitioner knew that he was disqualified from exercising the right of first refusal under P.D. No. 1517 and P.D. No. 2016. His filing of the baseless and unfounded complaint caused the petitioner to suffer mental anguish; thus, the award of moral and exemplary damages, and of attorney's fees, is justified.[5]


We find the petition meritorious.

When moral damages are

The award of moral damages is proper when the following circumstances concur: (1) there is an injury, whether physical, mental or psychological, clearly sustained by the claimant; (2) there is a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award of damages is predicated on any of the cases stated in Article 2219.[6]  This article provides:
Art. 2219. Moral damages may be recovered in the following and 
analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

(3) Seduction, abduction, rape, or other lascivious acts;

(4) Adultery or concubinage;

(5) Illegal or arbitrary detention or arrest;

(6) Illegal search;

(7) Libel, slander or any other form of defamation;

(8) Malicious prosecution;

(9) Acts mentioned in Article 309;

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also recover moral damages.

The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No. 9 of this article, in the order named.
The CA sustained the lower court's grant of moral damages on the ground that the petitioner, in filing the "baseless, unfounded and groundless suit despite the fact that defendant Maria C. Mateo owns the property in question as evidenced by her Transfer Certificate of Title No. 216221 of the Registry of Deeds of Manila which she acquired by purchase from her co-defendant Consuelo B. Papa, xxx did not act with justice, did not give defendants their due and did not observe honesty and good faith in violation of the Civil Code."[7]  However, a close scrutiny of the case reveals that the complaint was not completely groundless.

Petitioner's Right of First Refusal
under P.D. No. 1517

At the outset, we note that the petitioner's failure to appeal the RTC's dismissal of his complaint rendered the dismissal final and executory. Hence, we cannot reverse the RTC's ruling that the petitioner lacked a cause of action and that the lone testimony of the petitioner's son failed to muster a preponderance of evidence in his favor. If we look at this aspect of the case at all, it is for purposes of determining whether sufficient basis exists to conclude that the filing of the  complaint was an act of malicious prosecution that entitled the respondent to the awards of moral and exemplary damages, attorney's fees, and costs of suit granted by the lower courts. In other words, the dismissal of the complaint is final, but for purposes of reviewing the propriety of the awards, we examine the filing of the complaint from the prism of whether it constituted a malicious prosecution or an abuse of rights. We rule that it was not.

First. The complaint was based on P.D. No. 1517 or the Urban Land Reform Act (the Act) that grants preferential rights to landless tenants to acquire land within urban land reform areas.[8] The right of first refusal is provided by Section 6 of the Act, which states:
Section 6. Land Tenancy in Urban Land Reform Areas. Within the Urban Zones legitimate tenants who have resided on the land for ten years or more who have built their homes on the land and residents who have legally occupied the lands by contract, continuously for the last ten years shall not be dispossessed of the land and shall be allowed the right of first refusal to purchase the same within a reasonable time and at reasonable prices, under terms and conditions to be determined by the Urban Zone Expropriation and Land Management Committee created by Section 8 of this Decree. [Underscoring supplied]
A beneficiary of this Act must fulfill the following requirements: he or she (1) must be a legitimate tenant of the land for ten (10) years or more; (2) must have built his or her home on the land by contract; and (3) has resided on the land continuously for the last ten (10) years or more.[9] It is likewise imperative that the leased property be within a declared Area for Priority Development (APD) and Urban Land Reform Zone (ULRZ).[10]

It appears undisputed that the petitioner possesses requisites 2 and 3 - he built his home on the leased property and has lived there for more than 10 years. The inclusion of the land in the APD and the ULRZ was not raised as an issue before the appellate court.[11] The bone of contention that the lower courts emphasized is whether he is a legitimate tenant as defined by the Act, as amended by P.D. No. 2016. A legitimate tenant is one who is not a usurper or an occupant by tolerance.[12] Sections 3(f) of the Act, as amended by P.D. No. 2016, provides:
SEC. 3(f). Tenant refers to the rightful occupant of land and its structures, but does not include those whose presence on the land is merely tolerated and without the benefit of contract, those who enter the land by force or deceit, or those whose possession is under litigation.
The lower courts unanimously held that the petitioner was not a legitimate tenant, as he had failed to pay his rentals for the months of May to August, 1994. We find this conclusion questionable, as mere failure to pay rent does not make the lessee's possession of the premises unlawful, thereby denying him the status of being a tenant.  What should assume materiality here is that the petitioner is not a usurper or an occupant by tolerance, but one who believed that he had a claim to possession based on the right of first refusal. If at all, the more appropriate reason would have been the pendency of an ejectment case against the petitioner at the time he filed his complaint for annulment of sale.  Even this reason, however, is not a clear cut reason for barring him from filing his annulment of sale case; his status as a tenant involves factual and legal questions touching on, and intertwined with, the merits of the annulment of sale case.  In other words, it is a legitimate issue that could have been raised in the case and cannot be an outright bar to the filing of the case.  We find it obvious that, at that point, the petitioner resorted to the complaint for annulment of sale as a counter-step, taken at another venue and for another legal reason bearing on, but not directly related to, the issues in the ejectment case he was facing.

Second. The petitioner's complaint is anchored on the argument that the sale to Mateo is void because no written offer to sell was extended to him before the property was sold to Mateo. This argument is not without basis in law. Section 34 of the Rules and Regulations to Implement P.D. No. 1517 provides:
Period to Exercise Right of First Refusal. In cases where the tenants and residents referred to in Section 33 are unable to purchase the said lands or improvement, they may apply for financial assistance from the government. The right of first refusal shall be exercised within the time to be determined by the Urban Zone Committee which shall not exceed 6 months from the time the owner made a written offer to sell to the tenant or resident.
Since the implementing rules require a written offer to sell to the tenant, the petitioner - who allegedly was not served a written offer - was merely exercising his right to litigate when he filed his complaint for annulment.

Under these circumstances, we cannot conclude that the suit for annulment of sale that the petitioner filed was completely without basis and one that was filed simply to vex or harass the respondents. On the contrary, from the surrounding factual and legal circumstances, it appears that the petitioner was at the point of losing his home and was motivated by the desire to prevent the loss, rather than by any intent to vex or harass the respondents; he had a legal basis, although a disputable one, to back up his claim.  If he failed at all to pursue his case, it was not due to lack of merit; the case was lost because nobody pursued the case after his son and attorney-in-fact, who was handling the case for him, died.

The filing of an unfounded suit is
not a ground for the grant of moral

Assuming arguendo that the petitioner's case lacked merit, the award of moral damages is not a legal consequence that automatically followed. Moral damages are only awarded if the basis therefor, as provided in the law quoted above, is duly established. In the present case, the ground the respondents invoked and failed to establish is malicious prosecution.  Crystal v. Bank of the Philippine Islands[13] is instructive on this point, as it tells us that the law never intended to impose a penalty on the right to litigate so that the filing of an unfounded suit does not automatically entitle the defendant to moral damages:
The spouses' complaint against BPI proved to be unfounded, but it does not automatically entitle BPI to moral damages. Although the institution of a clearly unfounded civil suit can at times be a legal justification for an award of attorney's fees, such filing, however, has almost invariably been held not to be a ground for an award of moral damages. The rationale for the rule is that the law could not have meant to impose a penalty on the right to litigate. Otherwise, moral damages must every time be awarded in favor of the prevailing defendant against an unsuccessful plaintiff. 
Given this conclusion, we find it unnecessary to rule on whether the respondents indeed suffered injuries for which they should be awarded moral damages.

Award of Exemplary Damages and
Attorney's Fees Deleted

The rule in our jurisdiction is that exemplary damages are awarded in addition to moral damages. In Mahinay v. Velasquez, Jr.,[14] we held:
Neither is respondent entitled to exemplary damages. "If the court has no proof or evidence upon which the claim for moral damages could be based, such indemnity could not be outrightly awarded. The same holds true with respect to the award of exemplary damages where it must be shown that the party acted in a wanton, oppressive or malevolent manner." Furthermore, this specie of damages is allowed only in addition to moral damages such that no exemplary damages can be awarded unless the claimant first establishes his clear right to moral damages. (emphasis ours)
In light of our ruling on non-entitlement to moral damages, the CA's award of exemplary damages should be deleted.

Neither do we find factual and legal basis for the award of attorney's fees. We have consistently held that the award of attorney's fees is the exception rather than the general rule, and "counsel's fees are not to be awarded every time a party wins a suit. The discretion of the court to award attorney's fees under Article 2208 of the Civil Code demands factual, legal, and equitable justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the court must state the reason for the award of attorney's fees."[15] None of the circumstances justifying an award of attorney's fees enumerated under Art. 2008 of the Civil Code are present, or have been proven in this case.[16]

WHEREFORE, the Decision of the Court of Appeals - which affirmed with modification the award of the Regional Trial Court Manila, Branch 38, of damages, attorney's fees and costs in the respondents' counterclaim in Civil Case No. 94-71936 - is REVERSED and SET ASIDE. No pronouncement as to costs.


Carpio-Morales, Tinga, Velasco, Jr., and Leonardo-De Castro, JJ.,** concur.
Quisumbing, (Chairperson), J., on official leave.

** Designated Acting Chairperson of the Second Division per Special Order No. 618 dated April 14, 2009.

*** Designated additional Member of the Second Division per Special Order No. 619 dated April 14, 2009.

[1] Penned by Associate Justice Andres B. Reyes, Jr., with Associate Justices Conrado M. Vasquez, Jr. and Amelita G. Tolentino, concurring; rollo, pp. 14-20.

[2] Id., p. 22.

[3] Id., pp. 15-16.

[4] 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.

[5] Rollo, p. 27.

[6] Expertravel & Tours, Inc, v. Court of Appeals, G.R. No. 130030, June 25, 1999, 309 SCRA 141.

[7] Rollo, p. 19.

[8] Dimaculangan v. Casalla, G.R. No. 156689, June 8, 2007, 524 SCRA 181; Frilles v. Yambao, G.R. No. 129889, July 11, 2002, 384 SCRA 353.

[9] Alcantara v. Reta, G.R. No. 136996, December 14, 2001, 372 SCRA 364.

[10] Fernando v. Lim, G.R. No. 176282, August 22, 2008.

[11] The records show that a witness, the District Manager of the National Housing Authority, was testifyhing on this point, but her testimony was not completed because of the failure of the petitioner and his counsel to appear.

[12] Delos Santos v. Court of Appeals, G.R. No. 127465, October 25, 2001, 368 SCRA 226.

[13] G.R. No. 172428, November 28, 2008. See also Expertravel & Tours, Inc. v. Court of Appeals, supra note 6.

[14] G.R. No. 152753, January 13, 2004, 419 SCRA 118.

[15] Congregation of the Religious of the Virgin Mary v. Court of Appeals, G.R. No. 126363, 26 June 1998, 291 SCRA 385; Philipp Brothers Oceanic v. Court of Appeals, G.R. No. 105416-17, 111863, 143715, 25 June 2003, 404 SCRA 605.

[16] In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be reasonable.

© Supreme Court E-Library 2019
This website was designed and developed, and is maintained, by the E-Library Technical Staff in collaboration with the Management Information Systems Office.