R & B SURETY & INSURANCE CO., INC., PETITIONER, VS. THE INTERMEDIATE APPELLATE COURT AND ANGELINA USON, RESPONDENTS.

This is a petition for review on certiorari, seeking to set
aside the decision of the Intermediate Appellate Court which awarded the
private respondent moral and exemplary damages plus attorney’s fees,
after finding that the petitioner acted in bad faith in filing an action
against said respondent.

The facts are stated in the decision of the appellate court:

xxx                xxx                   xxx

“x x x On January 3, 1969, defendant Maria Isabel Diaz was granted
a loan of P20,000.00 by the Philippine National Bank. To secure the
repayment of the loan, Maria Isabel Diaz submitted a surety bond (Exh.
B) of plaintiff R & B Surety & Insurance Co., Inc. for the sum
of P20,000.00 in favor of the Philippine National Bank. In turn,
defendants executed an indemnity agreement with the chattel mortgage
(Exh. C) to indemnify the plaintiff surety ‘for any damage, prejudice,
loss, costs, payments, advances and expenses of whatever kind and
nature, including attorney’s fees, which the corporation may, at any
time, became liable for, sustain or incur, as a consequence of having
executed the above-mentioned Bond, its renewals, extensions, or
substitutions and said attorney’s fees not to be less than twenty (20%)
per cent of the total amount claimed by the corporation in each action,
the same to be due, demandable and payable, irrespective of whether the
case is settled judicially or extrajudicially and whether the amount has
been actually paid or not.’

“Maria Isabel Diaz did not file her answer to the complaint or the
crossclaim of defendant Angelina Uson, and she was declared in default
in both cases. Defendant Eliseo Santos filed his answer to the complaint
wherein he admits signing the indemnity agreement but claims that ‘all
the time he thought he was and actually intended to be a character
witness only.’ In his counterclaim, he asks for attorney’s fees,
expenses of litigation and other damages in unspecified amounts against
the plaintiff. Defendant Angelina Uson filed a separate answer, stating
her signatures appearing on the indemnity agreement are all forgeries.
By way of counterclaim against the plaintiff, she asks for P100,000.00
as moral damages and a sum equivalent to 25% of the amount of damages
she may recover as and for counsel fees. By way of crossclaim against
defendant Maria Isabel Diaz, she asks for the payment of moral damages
and attorney’s fees in like amounts for forging or causing to be forged
her signature in the indemnity agreement.

“After due trial, judgment was rendered by the Court of First Instance the dispositive portion of which reads as follows:

“‘WHEREFORE, judgment is hereby rendered in favor of the plaintiff
and against the defendants Maria Isabel Diaz and Eliseo Santos,
ordering them, jointly and severally, to pay the former the sum of
P20,000.00, with interest thereon at the rate of 13-1/2% from January
16, 1974, the date when plaintiff paid the Philippine National Bank; a
sum equal to 20% thereof as and for attorney’s fees; and the costs of
suit. The complaint is dismissed as against the defendant Angelina Uson.

“The counterclaims of the defendants Eliseo Santos and Angelina Uson are hereby dismissed.”

xxx                xxx                   xxx

Respondent appealed the dismissal of her counterclaim. On April 29, 1982, the Intermediate Appellate Court^*
modified the decision of the lower court and ordered the
plaintiff-appellee R & B Surety and Insurance Co., Inc. (R & B),
to pay “the sum of P100,000.00 as moral damages, twenty five (25%) per
cent of said amount as attorney’s fees and P10,000.00 as exemplary
damages x x x”, on a finding that R & B acted in bad faith when it
filed the action against defendant-appellant Uson. A motion for
reconsideration was filed by R & B but the same was denied. Hence,
this petition.

Petitioner R & B assigns the following errors:

1. The respondent appellate Court has committed grievous error in
drawing from the established facts a conclusion that herein Petitioner
is guilty of bad faith and negligence, and, therefore liable to private
respondent for moral and exemplary damages, attorney’s fees and costs;

2. The respondent appellate Court has committed grave error in
over-riding legal presumptions of law by and with conjectural,
illogical, flimsy and misleading deductions not supported by the
established facts;

3. The respondent appellate Court has awarded a kind of damage
(exemplary damage) which is not within the contemplation of the
pleadings and which, even the private respondent had not conceived and
asked for; and

4. Generally, the respondent appellate Court had rendered a decision
which, in a way, is not in accord with law or with the applicable
decisions of this Honorable Supreme Court.

The only issue raised in the above assignments of errors is whether or
not, on the basis of the evidence found in the records, the respondent
court correctly adjudged the petitioner guilty of bad faith and
negligence in filing the complaint against respondent Uson sufficient to
warrant an award of moral and exemplary damages and attorney’s fees in
the total amount of P135,000.00.

The appellate court tried to justify the award by stating:

“The plaintiff did not appeal from the findings of the lower court
that the signatures appearing in the indemnity agreement (Exh. C),
purporting to be those of Miss Uson, are all forgeries, which meant that
some other person, upon the inducement of Maria Isabel Diaz, signed the
names of Uson in said Exhibit C. This could only be done if Exhibit C
was signed in the absence of the representative of the plaintiff
corporation, or because the corporation entrusted blank copies or forms
of the indemnity agreement to Maria Isabel Diaz to be signed and
accomplished. Herein lies the plaintiff’s bad faith. The perpetration of
the forgeries was made possible due to the negligence of plaintiff.
Yet, the plaintiff presented Crisoforo Lopez, its Assistant Manager, who
had the temerity to claim that Miss Uson signed Exhibit C. On top of
all this is the uncontradicted testimony of Uson that before the case
was filed in court she personally informed Atty. Armando Abad, an
official of plaintiff, that the signatures appearing to be hers in
Exhibit C are forgeries (pp. 13-15, t.s.n., Nov. 6, 1974). Plaintiff’s
negligence is also demonstrated by its omission to request, as required
of it by Commonwealth Act No. 465, otherwise known as the Residence
Certificate Law, Uson, if she was really present, to exhibit her latest
residence certificate before it signed said indemnity agreement. This
cir­cumstance likewise shows that Uson was not present during the
execution of Exhibit C.”

Petitioner contends that bad faith and negligence cannot be deduced from
the fact that it handed out blank forms of the indemnity agreement to
Maria Isabel Diaz for her and her co-signatories to accomplish without
any representative from the petitioner corporation being present and to
return the same to the latter already duly notarized. Petitioner also
maintains that neither can bad faith be presumed from the fact that it
pursued the filing of an action against Uson notwithstanding the fact
that the latter had already informed petitioner beforehand that her
signatures on the said agreement were forged.

We find merit in the petition.

While petitioner might have been negligent in not verifying the
authenticity of the signatures in the indem­nity agreement, still the
same does not amount to bad faith as to justify the award of damages and
the conclusion that the act of filing the complaint against respondent
Uson amounts to malicious prosecution. In filing the action, the
petitioner was only protecting its business interests by trying to
recover the amount it had already paid to the Philippine National Bank.

In a long line of cases, we have consistently ruled that in the absence
of a wrongful act or omission or of fraud or bad faith, moral damages
cannot be awarded and that the adverse result of an action does not per
se make the action wrongful and subject the actor to the payment of
damages, for the law could not have meant to impose a penalty on the
right to litigate. (Salao v. Salao, 70 SCRA 86, 87, citing Barreto v.
Arevalo, 99 Phil. 771, 779, Herrera v. Luy Kim Guan, 110 Phil. 1020,
1028, Heirs of Justina v. Gustilo, 61 O.G. 6959; Castillo v. Castillo,
95 SCRA 68, Mirasol v. De la Cruz, 84 SCRA 342, 343; citing Pacific
Merchandising Corporation v. Diestro Logging Development Corporation, 34
SCRA 704; Octot v. Ybañez, 111 SCRA 84, 85; citing Ong Yiu v. Court of
Appeals, 91 SCRA 223 and Inhelder Corporation v. Court of Appeals, 122
SCRA 584-585, citing Buenaventura v. Sto. Domingo, 103 Phil. 239).

In the case at bar, the act of filing the complaint against respondent
Uson was not at all motivated by ill will or by any desire to vex and
humiliate the respondent. This can be gleaned from the fact that after
the termination of the case before the trial court, the petitioner did
not appeal the dismissal of the case against the respondent even though
it knew that it would have a greater chance of collecting what it paid
for if all the defendants were adjudged to pay the amount in the
indemnity agreement especially since the main signatory to the agreement
had already been declared in default and was nowhere to be found.

We agree with the trial court in its finding that:

“As regards Uson’s counterclaim against the plaintiff, the
evidence does not support a finding that the filing of the complaint
against this defendant was done in bad faith and with malice. The
plaintiff, it must be assumed was guided solely by the records in its
possession in the filing of this case and it cannot be faulted if the
defendant Uson was impleaded as a defendant since her name appears in
the indemnity agreement and other supporting papers. It must be borne in
mind that this case was filed more than four years after the said
document was executed and, considering the volume of business done by
the plaintiff of the same nature, defendant Angelina Uson was only a
name as far as it is concerned.”

Neither can bad faith be presumed from the fact that inspite of the
respondent’s declaration outside the court that her signatures were
forged, the petitioner still included her in the complaint. There is no
reason why such declaration should be given full faith and credit by
herein petitioner as to totally exclude respondent from the complaint.
It is natural for a prospective defendant to deny any participation or
involvement in the subject matter of the litigation. Precisely, the very
purpose of going to trial was to ascertain whether or not her
signatures were indeed forged. And as stated earlier, the mere fact that
an action is later found to be based on an erroneous ground does not
per se make its initiator guilty of bad faith and liable for damages,
much less in the amount of P110,000.00. Sound principles of justice and
public policy demand that persons shall have free resort to courts of
law for redress of wrongs and vindication of their rights without fear
of later on standing trial for damages should their actions lose ground.
(Inhelder Corporation v. Court of Appeals, supra citing
Buenaventura v. Sto. Domingo, 103 Phil. 239) In one case, we held that
the award of moral and exemplary damages was uncalled for on the ground
that the petitioner had not acted with malice, fraud or in bad faith
despite the fact that petitioner in instituting the action, solely
relied on a letter of the accounting firm which it knew was still
unverified, undetailed, and incomplete. (Panay Electric Co., Inc. v.
Court of Appeals, 119 SCRA 459). We reiterate the reminder to lower
courts “to guard against the award of exhorbitant damages that are way
out of proportion to the environmental circumstances of a case and which
time and again, this Court has reduced or eliminated. Judicial
discretion granted to the courts in the assessment of damages must
always be exercised with balanced restraint and measured objectivity.”
(Inhelder Corporation v. Court of Appeals, supra) In the case
at bar, even if the respondent were entitled to damages, the award of a
total amount of P135,000.00 as damages and attorney’s fees was entirely
way out of proportion.

In any case, we hold that the award of damages was erroneous. Moral
damages are emphatically not intended to enrich a complainant at the
expense of a defendant; they are awarded only to enable the injured
party to obtain means, diversion or amusements that will serve to
alleviate the moral suffering he has undergone, by reason of the
defendants culpable action. In other words, the award of moral damages
is aimed at a restoration, within the limits of the possible of the
spiritual status quo ante, and it must be proportionate to the suffering
inflicted. (Grand Union Supermarket, Inc. v. Espino, Jr., 94 SCRA 966,
citing the concurring and dissenting opinion of Justice J. B. L. Reyes
in Pangasinan Transportation Company, Inc. v. Legaspi, 12 SCRA 598)

In the absence of a wrongful act or omission or of fraud or bad faith,
petitioner cannot be adjudged to pay moral damages. The award of
exemplary damages and attorney’s fees are likewise untenable for they
can only be given in case the petitioner acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner and if the action instituted
by it was clearly unfounded and so untenable as to amount to gross and
evident bad faith. (See Ong Yiu v. Court of Appeals, supra and Mirasol v. De la Cruz, supra,
citing Rizal Surety & Insurance Co. v. Court of Appeals, 20 SCRA
61). The records are bereft of proof to support any finding of bad faith
on the part of the petitioner.

WHEREFORE, the petition is GRANTED. The decision of the Intermediate
Appellate Court is hereby REVERSED and SET ASIDE and the decision of the
Court of First Instance of Manila, Branch XVI is REINSTATED and
AFFIRMED in toto.
SO ORDERED.

Teehankee, (Chairman), Melencio-Herrera, Plana, Relova, and De la Fuente, JJ., concur.

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^* J. Sison, PV., Ponente, concurred in by JJ. Victoriano & Melo.