DENNIS L. LAO, PETITIONER, VS. HON. COURT OF APPEALS, JUDGE FLORENTINO FLOR, REGIONAL TRIAL COURT, BRANCH 89 OF MORONG, RIZAL, BENJAMIN L. ESPIRITU, MANUEL QUERUBIN AND CHAN TON…

Lao versus Court of Appeals

The Case

This is a petition for certiorari and prohibition brought by Dennis Lao against the Court of Appeals, the presiding judge of the Regional Trial Court of Morong, Rizal, and the private respondents Benjamin Espiritu, Attorney Manuel Querubin, and Chan Tong. Lao asks the Supreme Court to annul, in part, the decision of the Court of Appeals that held him solidarily liable with his employer for damages awarded in a malicious prosecution suit, and to stop the execution of that judgment against his property. The case matters because it fixes the elements of malicious prosecution, clarifies that an employee who merely signs an affidavit at his employer's direction is not the prosecutor, and reminds us that a judgment rendered against a party who was denied his day in court through counsel's gross negligence is a nullity.

Procedural History

Espiritu filed a complaint for malicious prosecution against Lao and his employer, St. Joseph Lumber, before the trial court. The defendants were twice declared in default for failure to appear at pre-trial, and the court received Espiritu's evidence ex parte. Judgment was rendered against Lao and the lumber company, ordering them to pay jointly and severally moral damages, attorney's fees, and costs. Lao's motion for reconsideration was denied, and so was his motion for new trial grounded on accident and insufficiency of evidence.

Lao appealed to the Court of Appeals, which dismissed his appeal. He then came to the Supreme Court by a special civil action of certiorari and prohibition, seeking to partially annul the appellate decision and to enjoin its execution against him.

Facts

Dennis Lao was a salesman employed by New St. Joseph Lumber and Hardware Supply, a business owned by Chan Tong. In January 1981, the lumber company sued a customer, Benjamin Espiritu, for unpaid purchases of construction materials. In November 1981, upon the advice of its lawyer, the company filed a criminal complaint for estafa against Espiritu arising from the same transaction. Because Lao was the employee who had transacted with Espiritu, his employer directed him to sign the affidavit prepared by the company's lawyer, Attorney Manuel Querubin.

After preliminary investigation, the investigating fiscal found probable cause and filed an information for estafa against Espiritu. The case was later dismissed because the court believed Espiritu's liability was civil, not criminal. Espiritu then filed a complaint for malicious prosecution against Lao and the lumber company.

Lao alleged in his answer that he had acted only as agent or employee of the company. The defendants failed to appear at pre-trial and were declared in default, but the order was later set aside. They again failed to appear at a subsequent pre-trial, and were once more declared in default. Attorney Querubin never informed Lao of the pre-trial conferences and concentrated on defending the company. Judgment was rendered against Lao and the company. When Espiritu could not satisfy the judgment against the insolvent company, he levied on Lao's car.

Issues

• Whether or not the Court of Appeals erred in not holding that Lao had a valid defense to the action for malicious prosecution.
• Whether or not Lao was deprived of his day in court due to the gross ignorance, negligence, and dereliction of duty of the lawyer hired by his employer to defend him.
• Whether or not the trial court's decision should be partially annulled insofar as Lao is concerned.

Applicable Provisions

Article 1897 of the Civil Code provides:

If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the agent's powers. In this case, however, the agent is liable if he undertook to secure the principal's ratification.

The Court cites this to show that Lao, acting only as an agent of the lumber company, was not personally liable to the party with whom he contracted.

Ruling

The petition is meritorious. On the first issue, the Court held that Lao had a valid defense because he was not the prosecutor in the estafa case. It was his employer, St. Joseph Lumber, through its owner Chan Tong, that filed the criminal complaint. Lao was only a witness who signed the affidavit because he was the salesman who sold the materials to Espiritu. As an agent, he was not personally liable to the party with whom he contracted.

The Court laid down the elements of malicious prosecution:

To maintain an action for damages based on malicious prosecution, three elements must be present: First, the fact of the prosecution and the further fact that the defendant was himself the prosecutor, and that the action was finally terminated with an acquittal; second, that in bringing the action, the prosecutor acted without probable cause; and third, the prosecutor was actuated or impelled by legal malice.

Lao was only a witness, not the prosecutor. There was probable cause, as found by the investigating fiscal. And Lao was not motivated by malice, having executed the affidavit as an employee with personal knowledge of the transaction. The Court stressed that an unsuccessful prosecution may not be labelled malicious, for sound principles of justice and public policy dictate that persons shall have free resort to the courts for redress of wrongs without later having to stand trial for instituting prosecutions in good faith.

On the second issue, the Court found merit in Lao's contention that he was deprived of his day in court. Attorney Querubin, hired by the employer to defend both Lao and the company, neglected Lao's defense, never informed him of pre-trial conferences, and failed to file a motion for reconsideration, allowing the judgment to become final. The Court held that the judgment against Lao was a nullity and should be set aside, and that its execution against him could not be allowed to proceed.

Doctrine

A bar candidate must retain these rules. First, the elements of malicious prosecution are: the fact of the prosecution and that the defendant was himself the prosecutor, and that the action was finally terminated with an acquittal; that in bringing the action the prosecutor acted without probable cause; and that the prosecutor was actuated by legal malice. Second, an employee who merely signs an affidavit at his employer's direction, having no personal interest in the prosecution, is not the prosecutor and cannot be held liable for malicious prosecution. Third, an agent who contracts in the name of the principal is not personally liable to the party with whom he contracted, consistent with Article 1897 of the Civil Code. Fourth, a judgment rendered against a party who was denied his day in court through the gross negligence of counsel is a nullity and may be set aside.

Disposition

The Court partially set aside the decision of the Court of Appeals insofar as it held Lao solidarily liable with St. Joseph Lumber, absolved him from any liability to Espiritu, and ordered costs against the private respondent.

Remember This

The single line worth memorizing: to sustain malicious prosecution, the defendant must himself be the prosecutor, acting without probable cause and with legal malice; an employee who merely signs an affidavit is not the prosecutor. Examiners use this case to test the elements of malicious prosecution and the rule that a judgment against a party denied his day in court through counsel's gross negligence is a nullity.