A public utility corporation that files a baseless criminal complaint for qualified theft against a customer with malicious intent to vex and humiliate, and subsequently disconnects the customer's service without the required prior notice in breach of contract and in bad faith, is liable for moral and exemplary damages; however, the amount of such damages may be reduced by the court based on the specific circumstances of the case, including the financial capacity of the utility and any mitigating actions or faults of the customer.

Manila Gas Corporation, a public utility, supplied gas to the residence and 46-door apartment complex of Isidro M. Ongsip, a prominent businessman. After new appliances were installed in 1965, the gas meter readings remained unusually low, registering zero consumption in May and June 1966. This discrepancy prompted Manila Gas to investigate, leading to the discovery of an alleged illegal "jumper" or by-pass valve, which became the basis for the ensuing legal conflict.

• On August 17, 1966, employees of Manila Gas, led by Mariano Coronel, entered Isidro Ongsip's property while he was asleep and changed his gas meter and connections without his knowledge or presence.
• Later that day, the employees returned with a photographer, and Coronel informed Ongsip of an alleged illegal "jumper" in the gas line, attempting to extort P3,000.00 from him under threat of deportation.
• Ongsip, a Filipino citizen, refused the demand, asserting his innocence and even offering to have his property excavated to prove there was no illegal connection, an offer Manila Gas declined.
• In October 1966, Manila Gas filed a criminal complaint for qualified theft against Ongsip with the Pasay City Fiscal's Office.
• While the criminal complaint was pending, in February 1967, Manila Gas disconnected Ongsip's gas service for alleged non-payment of bills from July 1965 to January 1967, without providing prior written notice as required by their contract.
• In May 1967, the Pasay City Fiscal dismissed the qualified theft complaint for lack of evidence.
• Following the dismissal and the service disconnection, Ongsip filed a civil suit for moral and exemplary damages against Manila Gas based on two causes of action: malicious prosecution and illegal disconnection of service.

• The filing of the criminal complaint was not malicious but was based on probable cause arising from the discovery of an illegal gas jumper.
• The disconnection of Ongsip's gas service was a valid exercise of its contractual right due to his failure to pay overdue bills for several months.
• Proper notice of disconnection was given, but Ongsip's household helpers refused to receive it.
• The damages awarded by the lower courts were grossly exorbitant and excessive, warranting a review.

• The criminal complaint for qualified theft was malicious, oppressive, and filed with the intent to harass, humiliate, and vex him, causing him mental anguish and damaging his reputation.
• The disconnection of his gas service was illegal as it was done without a court order and without the contractually required 72-hour written notice, constituting a breach of contract in bad faith.
• Both actions by Manila Gas were part of a scheme to cause him social humiliation, personal dishonor, and besmirch his reputation, entitling him to moral and exemplary damages.

• Procedural Issues:
  • N/A
• Substantive Issues:
  • Whether Manila Gas Corporation is liable for damages for malicious prosecution in filing the qualified theft complaint against Ongsip.
  • Whether Manila Gas Corporation is liable for damages for breach of contract in bad faith for disconnecting Ongsip's gas service without prior notice.
  • Whether the amount of moral and exemplary damages awarded by the trial court and affirmed by the Court of Appeals is excessive.

• Procedural:
  • N/A
• Substantive:
  • Yes, Manila Gas is liable for malicious prosecution. The Court found that the circumstances surrounding the "discovery" of the jumper, including the failure to immediately confront Ongsip and the subsequent extortion attempt by its employee, demonstrated a malicious intent to vex and humiliate Ongsip, rather than a genuine belief in his guilt. The complaint was a false and baseless attempt to recover financial losses caused by its own defective meters.
  • Yes, Manila Gas is liable for damages for the illegal disconnection. The Court ruled that disconnecting the service without the required prior written notice was a breach of contract amounting to an independent tort. This act was deemed part of a malevolent scheme to further harass Ongsip. While Ongsip was in default, this did not excuse the petitioner's failure to provide notice, though it served as a mitigating circumstance in determining the amount of damages.
  • Yes, the damages awarded were excessive. The Supreme Court reduced the awards, balancing the mental anguish suffered by Ongsip against Manila Gas's status as a public utility and Ongsip's own default in payment. For the first cause of action (malicious prosecution), moral damages were reduced from P50,000 to P25,000 and exemplary damages from P10,000 to P5,000. For the second cause of action (illegal disconnection), moral damages were reduced from P30,000 to P15,000, while exemplary damages of P5,000 were sustained.

• Malicious Prosecution — This requires proof that a prosecution was prompted by a sinister design to vex and humiliate a person, initiated with knowledge that the charges were false and groundless. The Court applied this doctrine by finding that Manila Gas's actions, from the suspicious "discovery" of the jumper to the extortion attempt, were not made in good faith but were intended to unjustly pressure Ongsip to cover the company's financial losses from its faulty equipment.
• Moral Damages — As defined in Article 2217 of the Civil Code, these include compensation for mental anguish, serious anxiety, and social humiliation resulting from a defendant's wrongful act. The Court awarded moral damages for the suffering Ongsip endured from the baseless criminal accusation (under Article 2219[8]) and the abusive disconnection of his utility service.
• Exemplary or Corrective Damages — As defined in Article 2229 of the Civil Code, these are imposed by way of example or correction for the public good. The Court affirmed the award of exemplary damages to correct Manila Gas's abusive conduct as a public utility and to deter similar behavior in the future.
• Breach of Contract in Bad Faith — Under Article 2220 of the Civil Code, moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. This was applied to the disconnection of service, which the Court found was not a simple contractual breach but an act done willfully and as part of a "malevolent scheme" to harass Ongsip, thus justifying moral damages.
• Abuse of Rights Doctrine — Embodied in Article 21 of the Civil Code, this principle holds that any person who willfully causes loss or injury to another in a manner contrary to morals, good customs, or public policy shall compensate the latter. The Court invoked this to characterize the premature and unnotified disconnection of gas service as an act intended to cause additional mental and moral suffering, making it an actionable wrong.

• "A significant fact brought about by the testimony of Coronel himself is the total absence of immediate accusation against Plaintiff right at the very moment when the by-pass valve was allegedly discovered. Right then and there Coronel should have told Plaintiff that he was using a by-pass valve and in effect stealing gas from Defendant. There would have been nothing wrong with that. The circumstance was similar to that of catching a thief in flagrante delicto. But the truth is that when Coronel and his men entered Plaintiff's compound and made changes therein, Plaintiff was sleeping... Here was then the opportunity for Coronel to confront Plaintiff with the allegedly discovered 'by-pass valve' and bluntly, even brutally, tell him that there was thievery of gas. This, Coronel did not do."

• Salao vs. Salao (1976), Ramos vs. Ramos (1974), Solis & Yarisantos vs. Salvador (1965), Buenaventura, et al. vs. Sto. Domingo, et al. (1958), Barreto vs. Arevalo (1956) — These cases were cited to establish the general rule that the mere act of submitting a case to authorities for prosecution does not automatically constitute malicious prosecution. The Court distinguished the present case by finding sufficient evidence of malicious intent and a sinister design to vex and humiliate the respondent, which is the exception required by this line of jurisprudence.

• Article 21, Civil Code — Cited as the basis for finding that the willful disconnection of service, being contrary to good customs, was a compensable wrong causing injury to Ongsip.
• Article 2217, Civil Code — Cited to define the scope of moral damages (mental anguish, besmirched reputation, etc.) awarded to Ongsip.
• Article 2219 (8), Civil Code — Cited as the specific legal basis for awarding moral damages in cases of malicious prosecution.
• Article 2219 (10), Civil Code — Cited in conjunction with Article 21 to justify moral damages for acts contrary to morals and good customs.
• Article 2220, Civil Code — Cited to justify the award of moral damages for the disconnection of service, as it was a breach of contract committed in bad faith.
• Article 2229, Civil Code — Cited as the legal basis for imposing exemplary or corrective damages to serve as a public example.
• Article 2234, Civil Code — Cited to establish the prerequisite for awarding exemplary damages, which is that the claimant must first be entitled to moral, temperate, or compensatory damages.