DEE HUA LIONG ELECTRICAL EQUIPMENT CORPORATION, PETITIONER, VS. ROMEO REYES, ET AL., RESPONDENTS.

Dee Hua Liong Electrical Equipment Corporation versus Reyes

The Case

This is a petition for review brought by Dee Hua Liong Electrical Equipment Corporation against Romeo Reyes and his wife. The private respondents sued the corporation for damages, claiming that it had sold them electronic filter capacitors falsely labelled as having a capacity of 2200 micro farad when the units actually carried only 22 micro farad, and that this mislabelling ruined the repair business of private respondent Romeo Reyes. The case matters to a reviewee because the Supreme Court, while leaving intact the default judgment on liability, dismantles nearly every award of damages and restates, in clean and quotable form, the rules on actual or compensatory damages, moral damages, exemplary damages, attorney's fees, and nominal damages.

Procedural History

The case began in the Court of First Instance of Bulacan, sitting in Baliwag, where private respondents sued the corporation for damages. The corporation was declared in default for failure of its counsel or other representative to appear at the pre-trial despite notice, and judgment by default was rendered against it. The trial court sentenced the corporation to pay 50,000 pesos as actual damages, 50,000 pesos as moral damages, 50,000 pesos as exemplary damages, and 10,000 pesos as attorney's fees, plus treble costs. The corporation moved for a new trial, alleging good cause for postponing the pre-trial and offering a meritorious defense, but the trial court denied the motion.

The corporation appealed to the Intermediate Appellate Court. That court affirmed the corporation's liability but reduced the award for moral and exemplary damages to 10,000 pesos and 5,000 pesos, respectively, and it sustained the denial of the motion for new trial. The corporation then seasonably appealed to the Supreme Court, impugning the award of damages and claiming that it had been denied due process in the proceedings before the trial court. The Supreme Court initially denied the petition for lack of merit, and denied the first motion for reconsideration. A second motion for reconsideration was admitted, private respondents were required to comment, and the Court then decided the appeal on the merits.

Facts

Private respondent Romeo Reyes operated what the Intermediate Appellate Court described as the once thriving and prosperous Excelite Electronic Center in San Miguel, Bulacan. Long before September 1981, he began receiving complaints from irate and dissatisfied customers about defective repairs done on their television and stereo units. He repeated the repair jobs over and over, losing man hours for over a month, but his once thriving business was on the verge of ruin.

He finally discovered that the root cause of his troubles was the low grade electronic filter capacitors he had been buying from the corporation for years. He opened one of the capacitors and found that the actual label of 22 micro farad was superimposed by a fake label making it appear to be 2200 micro farad. The actual price of one capacitor with 22 micro farad was only 2 pesos, yet he had been paying 6.40 to 7.40 pesos per piece of the supposed 2200 micro farad capacitor. On September 14, 1981, he bought three capacitors; the invoice stated them to be of 2200 strength, but they were discovered to be only of 22 micro farad.

These findings rested solely on the testimony of private respondent and his wife, because the corporation presented no evidence, having been declared in default. In its motion for new trial, the corporation offered a Component Test Report of the National Institute of Science and Technology attesting to the correctness of the represented capacity of the capacitors, and a certification from the Japanese manufacturer that there was merely a misprint in the labels. The denial of that motion was sustained because the ground for postponing the pre-trial was shown to be false: the corporation's counsel had claimed he had to appear personally before the Municipal Court of Pasig, when the records showed that another lawyer appeared.

Issues

• Whether or not the trial court was justified in declaring the corporation in default and rendering judgment by default against it for failure to appear at the pre-trial despite notice.
• Whether or not the award of actual or compensatory damages was supported by competent proof.
• Whether or not private respondents were entitled to moral damages.
• Whether or not private respondents were entitled to exemplary damages.
• Whether or not private respondents were entitled to attorney's fees.
• Whether or not an award of nominal damages was proper.

Applicable Provisions

Article 2199 of the Civil Code provides:

Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages.

This is the basis for the Court's holding that actual damages cannot be presumed but must be duly proved with a reasonable degree of certainty.

Article 2216 of the Civil Code provides:

No proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of the indemnity being left to the discretion of the court.

The Court cites this to show that even moral damages require proof of their factual basis.

Article 2217 of the Civil Code provides:

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act or omission.

This is the provision requiring that the factual basis of the moral injury and its causal relation to the defendant's acts be satisfactorily proved.

Article 2220 of the Civil Code provides:

Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.

The Court invokes this to hold that a breach of contract not shown to be malicious or fraudulent does not warrant moral damages.

Article 2234 of the Civil Code provides:

While the amount of the exemplary damages need not be proved, the plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded.

This supports the denial of exemplary damages, since private respondents were not entitled to moral or compensatory damages.

Article 2221 of the Civil Code provides:

Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.

This is the basis for the Court's award of 5,000 pesos as nominal damages.

Ruling

On the first issue, the Court held that the findings of fact of the Intermediate Appellate Court are conclusive and may not be reviewed by the Supreme Court, and that there was no compelling reason to deviate from this well known rule. Upon those factual findings, the trial court was justified in declaring the corporation in default and rendering judgment by default against it for failure to appear at the pre-trial despite notice.

On the second issue, the Court struck down the award of actual damages for want of adequate foundation. The grant rested on nothing more substantial than the sworn declarations of private respondents that one capacitor used in repairing an appliance was of 22 micro farad capacity instead of 2200 micro farad, and that three other capacitors subsequently purchased had superimposed labels. There was no proof that defective capacitors were used in the other numerous repair jobs, or that the repairs did entail the use of capacitors, and no evidence of a deliberate intent to foist a fraud on the general public. The Court declared that actual or compensatory damages cannot be presumed, but must be duly proved, and proved with a reasonable degree of certainty; a court cannot rely on speculation, conjecture or guesswork, but must depend upon competent proof of the loss suffered and of the actual amount thereof; if the proof is flimsy and unsubstantial, no damages will be awarded.

On the third issue, the Court held that proof of equivalent character is also necessary to support an award of moral damages, and no such evidence was offered. The decision of the trial court made no mention of any testimony concerning wounded feelings, social humiliation, anxiety and the like, and merely assumed the existence of moral injury from the proof of actual loss. More importantly, there was no evidence that the corporation acted maliciously and with deliberate intent to defraud. The Court stressed that moral damages, though incapable of pecuniary estimation, are designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer, and that a breach of contract not being malicious or fraudulent does not warrant moral damages under Article 2220.

On the fourth issue, the Court held that private respondents may not recover exemplary damages since they are not entitled to moral or compensatory damages, and again because the corporation is not shown to have acted in a wanton, fraudulent, reckless or oppressive manner.

On the fifth issue, the Court held that, upon the same considerations, and absent any proof that the corporation refused in gross and evident bad faith to satisfy the claim, no counsel fees should be awarded.

On the sixth issue, the Court held that an award of nominal damages to private respondents in the amount of 5,000 pesos is sufficient in the premises.

Doctrine

Actual or compensatory damages cannot be presumed; they must be duly proved, and proved with a reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered and on evidence of the actual amount thereof. If the proof is flimsy and unsubstantial, no damages will be awarded. This is the rule of Article 2199.

Moral damages, though incapable of pecuniary estimation, require that the claimant satisfactorily prove the existence of the factual basis of the damages and its causal relation to the defendant's acts. Moral damages are compensation for actual injury suffered, not a penalty on the wrongdoer, and a breach of contract not shown to be malicious or fraudulent does not warrant them. This flows from Articles 2216, 2217 and 2220.

Exemplary damages may not be awarded unless the plaintiff is first entitled to moral, temperate or compensatory damages, and the defendant is shown to have acted in a wanton, fraudulent, reckless or oppressive manner. This is the rule of Article 2234.

Attorney's fees may not be awarded absent proof that the defendant refused in gross and evident bad faith to satisfy the claim.

Where a right of the plaintiff has been violated or invaded but no loss is proved, nominal damages may be adjudicated to vindicate or recognize that right, and not to indemnify the plaintiff. This is the rule of Article 2221.

Disposition

The appealed decision was modified, and the liability of the corporation was declared limited solely and exclusively to the payment of 5,000 pesos as nominal damages, with no pronouncement as to costs.

Remember This

Memorize the line that actual or compensatory damages cannot be presumed but must be duly proved with a reasonable degree of certainty, and that if the proof is flimsy and unsubstantial, no damages will be awarded. Examiners use this case to test the hierarchy of damages, especially why moral, exemplary and nominal damages rise or fall with the proof of actual loss and of bad faith.