FILINVEST CREDIT CORPORATION, PETITIONER, VS. IVAN MENDEZ, RESPONDENT.

This is a petition to review on certiorari the decision of
the Intermediate Appellate Court, now Court of Appeals, rendered in AC-G.R. CV
No. 63673 affirming in toto the decision of the Court of First
Instance of Davao, Branch 6, 16th Judicial District.

The factual background of this case, as summarized in the trial
court’s decision and adopted by the appellate court, is as follows:

“On August 6, 1974, Ivan Mendez purchased a Ford Cortina from
the Davao Motor Sales Company and to secure balance of P49,428.40 plaintiff
executed and delivered a promissory note and chattel mortgage in favor of Davao
Motor Sales Company.

“On August 11, 1974, Davao Motor Sales Company assigned to
Filinvest Credit Corp., its rights, title and interest in the promissory note
and chattel mortgage.  According to the
terms of the promissory note, the monthly installments of P1,373.00 would begin
on September 13, 1974, and on or before the 13th day of the month thereafter
until August 13, 1977, with interest and such other charges customarily imposed
by defendant on transactions of the same nature.

“It appears that Ivan Mendez failed to pay the February 13,
March 13, and April 13, 1976 installments due on the promissory note.  Thus, defendant financing company sent
written demands to Ivan Mendez to update his account.

“On May 3, 1976, Ivan Mendez paid the financing company
P2,000.00 through Philippine Veteran’s Bank Check No. 58166 which was credited
to payments for the following months:

“On May 6, 1976, the check was returned to the financing corporation
on the ground of insufficient funds by the Philippine Veterans Bank.

“On May 10, 1976, defendant financing company filed an action
for recovery of personal property and/or sum of money docketed as Civil Case
No. 9468 in the Court of First Instance against Ivan Mendez, et al.

“On May 13, 1976 (or May 26, 1976), the check was finally
cleared and considered payment for the February, March and April, 1976,
installments.

“On May 24, 1976, this Court issued Order of Seizure which
states, among others:

“‘WHEREAS, it is further alleged in the complaint that in
viola­tion of their undertakings the defendants defaulted in complying with the
terms and conditions of the said promissory note and chattel mortgage (Annexes
‘A’ and ‘B’), by failing to pay part of the installment which fell due on
February 13, 1976, as well as the subsequent two (2) consecutive install­ments
which fell due on March 12 – April 13, 1976;’ (Exh. “B”).

“Early in the morning of June 8, 1976, Ivan Mendez used the
car to fetch a certain Col. Coronel at the airport who came to the city to
speak at a gathering of reserve officers. 
Ivan Mendez, a Captain in the reserve force, brought Col. Coronel to a
hotel thence to an eatery downtown where the conference was being held.  After which, Mendez instructed his driver to
take the car home to the Central Park Subdivision, Davao City.  Shortly before noon, personnel of the
financing company and a deputy sheriff arrived at the house of Mendez and
seized the car pursuant to the Order dated May 24, 1976.  The car was driven back to the eatery where
Ivan Mendez was called and he pleaded with the FILINVEST people to release his
car in the meantime.  Refused, Mendez
then went to the office of the financing company and reiterated his plea.  He was told by Benjamin Bontia, collection
and credit manager of the financing company that he had to pay the whole amount
due in order to get back the car.  After
further negotiations, Bontia relented and permitted Mendez to pay his April,
May and June installments plus repossession expenses as a condition to the
release of the car.

“On June 11, 1976, Mendez paid P3,000.00, which was credited
to the following months:  April —
P957.95; May — P1,373.00; and, June -? P643.67 plus interest of P25.38
(Exh. “6-B”).  On June 18,
1976, Mendez paid P1,894.00 as and for repossession expenses (Exh.
“C”).  After payments of these
amounts, the financing company finally released the car to Ivan Mendez.

“On June 21, 1976, the financing company filed a motion in
court seeking the dismissal of Civil Case No. 9468 ‘on the ground that
defendants have updated their obligation to the plaintiff’, and which was
granted by virtue of the Order of this Court dated June 24, 1976.” (pp.
105-106, Rollo)

On July 14, 1976, respondent Mendez filed a complaint for Solutio
Indebiti and damages against the petitioner before the Court of First
Instance of Davao, Branch 6, 16th Judicial District.  His amended complaint dated July 28, 1976,
alleged, among others, “that the seizure order was illegal, as the unpaid
installments for the months of February, March, April, 1976 subject of Civil
Case No. 9468 had previously been updated by the clearing of the PVB check, and
that petitioner was therefore without any right to claim from him the
repossession expenses and, that due to the alleged unjustified repossession of
the car and the factual circumstances attendant thereto, he is entitled to
moral damages.” (p. 24, Rollo)

In its answer to the complaint, the petitioner countered:  “that since the PVB check was only cleared
subsequent to May 10, 1976, respondent was in default of the February, March
and April installments at the time it filed its complaint for the repossession
of the car on the aforesaid dated; and, that the subsequent updating of
respondent’s account did not invalidate the seizure order, as the basis
therefor was the failure of respondent to pay the installments when they fell
due, and not the failure to pay the February, March and April installments in
particular.” (pp. 24-25, Rollo)

On December 10, 1977, the trial court rendered its judgment, the
dispositive portion of which reads:

“WHEREFORE, in view of the foregoing, judgment is hereby
rendered in favor of plaintiff Ivan Mendez, and against the defendant Filinvest
Credit Corporation:

“1.  Ordering the defendant Filinvest Credit
Corporation, to return to plaintiff the sum of P1,894.80 representing the
repossession expenses paid by Ivan Mendez to the financing company with legal
rate of interest from June 17, 1976, the date of payment up to the time the
full amount is returned;

“2.  Ordering the defendant to pay to plaintiff
the sum of P80,000.00, as and for moral damages; and

“3.  Ordering the defendant to pay to plaintiff
the amount of P80,000.00, as and for attorney’s fees.

“The defendant Filinvest Credit Corporation shall pay the
costs of suit.” (pp. 101-102, Rollo)

The petitioner appealed to the Intermediate Appellate Court which
affirmed in toto the decision of the trial court.  Its motion for reconsideration having been
denied, the petitioner filed the present petition.

The petitioner now comes before this Court with the following
assignments of errors:

I

THE TRIAL COURT ERRED IN HOLDING THAT THE
SEIZURE OF THE CAR WAS TOTALLY UNJUSTIFIED AND IN ORDERING PETITIONER TO
REIMBURSE RESPONDENT THE SUM OF ONE THOUSAND EIGHT HUNDRED NINETY FOUR PESOS
& 80/100 (P1,894.80) REPRESENTING THE REPOSSESSION EXPENSES.

II

THE TRIAL COURT ERRED IN AWARDING
RESPONDENT MORAL DAMAGES IN THE AMOUNT OF EIGHTY THOUSAND PESOS (P80,000.00)

III

THE TRIAL COURT ERRED IN ORDERING
PETITIONER TO PAY RESPONDENT THE SUM OF EIGHT THOUSAND PESOS (P8,000.00) AS AND
FOR ATTORNEY’S FEES.

V

THE TRIAL COURT ERRED IN NOT DISMISSING
CIVIL CASE NO. 9621 AND IN NOT AWARDING PETITIONER ITS LEGITIMATE COUNTERCLAIM
FOR DAMAGES.  (p. 28, Rollo)

The arguments of the petitioner are centered on its having a
clear cause of action and a right to the corresponding remedy at the time the
complaint was filed on May 10, 1976.  The
respondent had not paid the February, March, and April 1976 installments or
more than two installments due on the promissory note.

On the other hand, the respondent claims that the acceleration
clause stipulated in the promissory note and in the chattel mortgage cannot
justify the action taken by the petitioner because it contravenes the letter
and the avowed public policy of the installment sales law, and, therefore, is
illegal and unenforceable.

The respondent states that since the petitioner was exacting
fulfillment of the obligation it should have desisted from repossessing the
car.  It cannot exercise its remedies
cumulatively.  It cannot pretend that it
was recovering the car preparatory to cancellation of the sale or foreclosure
of the chattel mortgage because it had elected to exact fulfillment of the
obligation when it filed Civil Case No. 9468.

The respondent stresses that the PVB check bounced on May 6,
1976, but the petitioner re-deposited it and in due course of business it
cleared on May 13, 1976.  Thus, as of May
13, 1976, the remaining unpaid installment was only part of the April, 1976
installment, in the amount of P957.95. 
Having re?deposited the check before May 13, 1976, the petitioner
should have waited until the check bounced before filing the complaint.

According to the private respondent, the complaint in Civil Case
No. 9468 not only alleged a cause of action for specific performance but also
alternatively asked for the issuance of a writ of replevin.  The petitioner, therefore, acted cumulatively
in pursuing its various remedies which is against the intent and spirit of the
installment sales law.

We agree with the petitioner.

The remittance of the PVB check on May 3, 1976 could not have
cured the defaults in payment because the check bounced when it was presented
for payment.  The respondent’s account
had no funds at the time to back up the check he used as payment.

Article 1249 of the Civil Code provides:

x x x                          x x x                             x
x x

“The delivery of promissory notes payable to order, or bills
of exchange or other mercantile documents shall produce the effect of payment
only when they have been cashed, or when through the fault of the creditor they
have been impaired.”

x x x                          x x x                             x
x x

The petitioner stresses that the seizure order was anchored on the
respondent’s failure to pay installments on time and not on the mere
unqualified failure to pay the February, March, and April installments.  It states that the making of timely payments
was an absolute undertaking in the promissory note and the deed of chattel
mortgage.  The grievance sought to be
vindicated by the replevin suit was the non-compliance with this undertaking.

The records sustain the petitioner’s arguments that it had a
valid cause of action when the complaint was filed.  It filed suit for the total balance of
P25,597.56 in accordance with the stipulated acceleration clause in case of
default.  The consideration for the
seizure order prayed for by the petitioner included the non-payment of the
remaining total obligation.

With respect to the trial court’s ordering the petitioner to
reimburse P1,894.80 representing the expenses incurred because of the seizure
of the car and as a condition for its release, the petitioner maintains that it
had sufficient justification to proceed with Civil Case No. 9468 and to
repossess the car.  It disclaims any
obligation to withdraw the replevin suit upon the clearing of the PVB check,
because the fact that it was cleared did not wipe out the bases of the
proceedings.

Insofar as the P1,894.80 are concerned, the petitioner is correct
that the repossession expenses must be for the account of the respondent whose
duty was to immediately surrender the car upon valid demand and thereby prevent
the necessity of the petitioner’s having to spend in order to repossess it.

The petitioner also questions the award of attorney’s fees.  It asserts that according to decisions of
this Court, an award of attorney’s fees is improper on the sole basis of an
adverse decision (Ramos v. Ramos, 61 SCRA 284), or if one considers the good
faith of parties in prosecuting a cause of action though declared to be
unfounded (Salao v. Salao, 70 SCRA 65), or in the absence of clear proof that
an action was intended merely to prejudice the other party (Mercader v. Manila
Polo Club, L-8373, September 28, 1956). 
The records sustain the contention that there is no basis for
entitlement to attorney’s fees.

Concerning the award of moral damages in the amount of
P80,000.00, the petitioner argues that moral damages may be recovered if they
are the proximate result of a wrongful act or omission.  The petitioner points out that it repossessed
the car as a matter of right and upon faithful compliance with all the legal
requirements.  As the exercise of a right
within legal bounds is not wrongful, the basic requirement for an award of
moral damages is absent.  It was the
respondent and not the petitioner, who was guilty of a wrongful act.  The failure to abide by one’s express financial
obligations is deplorable.  To hold
otherwise is to reward contractual breach and penalize one who avails of
contractual and legal remedies to correct the prejudice resulting from any such
breach.  The petitioner argues that the
respondent alone must bear the consequences of his wrongful omission.

On the other hand, the private respondent bases his claim to
moral damages on the alleged failure of the petitioner to act with caution and
to observe honesty and good faith with due regard to the respondent’s rights
under the installment sales law as well as on the act of the petitioner in
deliberately repossessing the car in violation of law.

The award for moral damages has no factual and legal basis.

The respondent claims that it was while he was attending a
seminar for home defense in Davao City that the car was repossessed by the
petitioner.  When he pleaded with the
petitioner not to seize the car at that very moment because he was using it for
his visitor from Manila, the petitioner chose to brandish the seizure order as
its weapon to enforce collection of his whole account.  The respondent claims that he was humiliated
and embarrassed most especially before his visitor and among those attending
the seminar as well as among his friends and business associates.  The shock and humiliation he suffered
resulted to his hospitalization immediately, thereafter, for about a week.

The testimony, however, of the driver of the respondent shows
that the car was seized at the residence of the respondent while the said
driver was cleaning the same.  It is,
therefore, not true that the respondent was humiliated and embarrassed before
his visitor and among those attending the seminar.

The rule is settled that moral damages cannot be awarded in the
absence of a wrongful act or omission or fraud or bad faith.  (R & B Surety & Insurance Co., v.
Intermediate Appellate Court, 129 SCRA 736; and Siasat v. Intermediate
Appellate Court, 139 SCRA 238).  When the
action is filed in good faith there should be no penalty on the right to
litigate.  (Espiritu v. Court of Appeals,
137 SCRA 50).  The petitioner may have
erred but error alone is not a ground for moral damages.

The petitioner filed an action for recovery of personal property
and/or sum of money against the respondent (Civil Case No. 9468) when the
latter’s PVB check intended for the February, March, and April installments
bounced due to insufficiency of funds. 
By virtue of an order of seizure issued by the court, the car was
repossessed.  The check was later
re-deposited and credited for the months mentioned.  When the respondent negotiated with the petitioner
for the release of the car, the latter demanded payment of the total
outstanding balance on the promissory note. 
Due to the persistent pleas of the respondent, the petitioner released
the car to him upon payment of the installment remaining unpaid for the months
of April, May, and June, 1976, in addition to the costs incurred in
repossessing the car amounting to P1,894.80. 
On June 21, 1976, Civil Case No. 9468 was dismissed upon motion of the
petitioner.  The willingness of the
petitioner to allow the respondent to pay only the unpaid installments for
April, May, and June instead of the total outstanding balance and to release
the car as well as its voluntary motion to dismiss the case indicates lack of
fraud or bad faith on the part of the petitioner.  The private respondent was not without
fault.  He was three months behind in his
payments and he issued a bouncing check. 
The dismissal of Civil Case No. 9468 rendered moot and academic the
issues of whether or not the acceleration clause in the promissory note is
illegal and unenforceable as well as the other issue of whether or not the
petitioner acted cumulatively in pursuing its various remedies to effect
collection.

WHEREFORE, the petition is hereby GRANTED.  The decisions of the trial court and the
Intermediate Appellate Court are REVERSED and SET ASIDE.  The complaint of the respondent is DISMISSED.

SO ORDERED.

Fernan, (Chairman), Feliciano, Bidin, and Cortes, JJ., concur.