Sian vs. Spouses Somoso

The filing of an unfounded suit does not automatically entitle the prevailing defendant to moral damages; absent proof of bad faith, a third-party claimant’s independent action to assail a levy is a lawful remedy and not a frivolous suit.

The case concerns a parcel of land covered by TCT No. T-29793, registered in the name of Iluminada Quiblatin, married to Juanito Quiblatin, and later claimed by petitioner Thelma B. Sian under a deed of sale. Respondent Caesar A. Somoso was a judgment creditor of Spouses Quiblatin in a collection suit, while respondent Macario M. De Guzman, Jr. acted as Sheriff III of the Regional Trial Court of Panabo, Davao, Branch 4. The dispute implicates Section 16, Rule 39 of the Rules of Court, which governs the remedies of a third-party claimant whose property has been levied upon.

On March 26, 1981, Caesar A. Somoso filed a collection suit with prayer for issuance of a writ of preliminary attachment against Spouses Iluminada and Juanita Quiblatin before the Regional Trial Court of Tagum, Davao, Branch 3, docketed as Civil Case No. 1460. The subject property was a parcel of land covered by Transfer Certificate of Title No. T-29793, covering an area of 413 square meters, more or less, issued in the name of “Iluminada Quiblatin, married to Juanito Quiblatin.” On May 8, 1981, the RTC granted the prayer for issuance of a writ of preliminary attachment on the properties of Spouses Quiblatin. On May 20, 1981, the Provincial Sheriff attached the properties of Spouses Quiblatin, including the subject property. On July 14, 1981, the attachment on the subject property was annotated on TCT No. T-29793.

Petitioner Thelma B. Sian, represented by her husband Romualdo A. Sian, claimed that the subject property had been sold to her by Iluminada on July 26, 1980, and that the deed of sale was duly registered with the Register of Deeds of Davao on August 18, 1981, with TCT No. T-34705 issued in her name on the same date. She alleged that she had been in possession of the subject property since July 26, 1980, had religiously paid taxes, and had introduced improvements. She claimed that sometime in 1981 she learned that the subject property was among those levied by the Sheriff of Davao del Norte in connection with the collection suit, and that since the levy on July 14, 1981, the Sheriff had withheld possession despite her third-party claim. She further claimed that the levy and attachment were without legal basis, as respondents knew from the beginning that she had bought the land from Iluminada.

On September 30, 1985, the RTC decided Civil Case No. 1460 in favor of Somoso, ordering Spouses Quiblatin to pay P154,000.00 with 12% interest per annum until fully paid, P5,000.00 as expenses of litigation, P20,000.00 as attorney’s fees, and the costs of suit. Spouses Quiblatin failed to appeal, and the decision became final and executory. On October 30, 1989, a Writ of Execution was issued, and among the properties levied was the subject property. Before the writ could be implemented, petitioner filed on March 13, 1990 a third-party claim over TCT No. T-29793, praying that the auction sale not proceed and that the subject property be immediately released to her.

The RTC dismissed the third-party claim in its Order dated June 6, 1990, ruling that the levy was annotated on the subject property on July 14, 1981 ahead of the registration of the deed of sale on August 18, 1981, and that the third-party claim could only be taken up in a separate and independent action. Petitioner then filed an action for annulment and cancellation of writ of attachment and notice of levy, injunction, damages, and attorney’s fees before the RTC of Panabo City, Davao del Norte, Branch 4. Respondents countered that TCT No. T-34705 in petitioner’s name was null and void, as it was obtained through machination employed by petitioner in connivance with Iluminada, a fugitive of justice; that the title had been attached long before TCT No. T-34705 was issued; and that the alleged Deed of Sale dated July 26, 1980 was not annotated on TCT No. T-29793 even when the property was attached on July 14, 1981. On motion of respondents, the RTC issued a temporary restraining order enjoining petitioner from constructing any building inside the subject property. Petitioner subsequently amended her complaint to allege that at the time the Sheriff made the levy, Iluminada had not yet been served with summons in Civil Case No. 1460, which was served by publication only on March 1, 1984. Respondents specifically denied the allegation and averred that petitioner, not being a party to the case, had no personality to assail the proceedings.

After trial on the merits, the RTC rendered a Decision dated May 7, 2001 dismissing petitioner’s amended complaint, as well as the other claims and counterclaims, for lack or insufficiency of evidence. The RTC found that when the Sheriff attached the property on July 14, 1981, TCT No. T-29793 was still registered in the name of the judgment debtor, Iluminada Quiblatin, and that although the Deed of Sale was executed on July 26, 1980, it was registered only on August 18, 1981. On reconsideration, the RTC partially reconsidered its decision in an Order dated February 16, 2006, declaring petitioner as the legal owner of the property subject to the timely and valid attachment and levy, and stating that the property, though owned by petitioner, was brought under custodia legis. The Court of Appeals found that the sale of the subject property by Iluminada to petitioner was not fictitious and that the reivindicatory action had not prescribed.

• Damages Not Proven: Petitioner argued that respondents are not entitled to damages for their failure to prove the same.
• Absence of Bad Faith: Petitioner maintained that she is not guilty of bad faith in pursuing her claim over the subject property, and that being the registered owner, she may not be faulted in assailing the validity of the levy by filing the complaint.
• Moral Damages Require Bad Faith: Petitioner argued that moral damages may be granted only if bad faith is proven, and that her successful albeit late registration of the subject property on August 18, 1981 did not constitute bad faith, much less a wrongful act or omission, as she did so to protect her interest over the land.
• Possession and No Basis for Damages: Petitioner averred that respondents could not deny that at the time the levy on attachment was made, she was in actual possession of the subject property, and that there is no basis for the award of moral damages, and consequently exemplary damages cannot be awarded either.

• Bad Faith and Baseless Complaint: Respondents maintained that petitioner was in bad faith when she filed the complaint, considering that there is absolutely no basis to annul the levy on the subject property.
• Simulated Deed and False Possession: Respondents averred that petitioner was trying to mislead the trial court with a “simulated” deed of sale, coupled with the false claim that petitioner was in possession of the property.
• Lack of Knowledge and Absence: Respondents claimed that they do not know about petitioner’s transaction on the subject property, and that petitioner could not possibly buy the subject property on July 26, 1980, since petitioner was not in the Philippines during the whole year of 1980.

• Liability for Damages: Whether petitioner should pay respondents P50,000.00 as moral damages, P25,000.00 as exemplary damages, and P30,000.00 as attorney’s fees and litigation cost for instituting a frivolous suit against respondents.

• Liability for Damages: No. The complaint was not frivolous; petitioner, as registered owner and third-party claimant, was exercising a lawful remedy, and absent bad faith the awards of moral damages, exemplary damages, attorney’s fees, and litigation cost cannot stand.

• Liability for Damages: The Court of Appeals erred in awarding damages. A frivolous action is a groundless lawsuit with little prospect of success, often brought merely to harass, annoy, and cast groundless suspicions on the integrity and reputation of the defendant. Petitioner’s complaint for annulment and cancellation of writ of attachment and notice of levy was not frivolous. When petitioner filed the third-party complaint, she was merely exercising her right to litigate, claiming ownership over the subject property and submitting as evidence the Deed of Sale dated July 26, 1980 and TCT No. T-34705 issued in her name. Being the registered owner, she had a remedy under the law to assail the writ of attachment and notice of levy. A third-party claimant or any third person may vindicate a claim to property wrongfully levied by filing a proper action distinct and separate from the case in which the judgment is being enforced, seeking recovery of possession of the property seized by the Sheriff, as well as damages resulting from the allegedly wrongful seizure and detention despite the third-party claim. When the third-party complaint was denied by the RTC, petitioner’s remedy was to file an independent reivindicatory action against the judgment creditor, herein respondents, which was in fact the directive of the RTC. Thus, petitioner did not act in bad faith, and the complaint was not frivolous.

The remedies of a third-party claimant under Section 16, Rule 39 of the Rules of Court are cumulative and may be resorted to independently of or separately from and without need of availing of the others. If the claimant opts to file a proper action to vindicate a claim of ownership, the action must be distinct and separate from the enforcement case, may be filed before or without filing a claim in the court which issued the writ, and may seek recovery of ownership or possession of the property seized by the Sheriff, as well as damages against the Sheriff and other persons responsible for the illegal seizure or detention; the validity of the claimant’s title is resolved in that action, and a writ of preliminary injunction may be issued against the Sheriff.

When the Court of Appeals held that petitioner’s complaint was frivolous, it was in effect granting moral damages on the basis of Article 2219(8) of the Civil Code on malicious prosecution. Traditionally, malicious prosecution has been associated with unfounded criminal actions, but jurisprudence has also recognized it to include baseless civil suits intended to vex and humiliate the defendant despite the absence of a cause of action or probable cause. However, the filing of an unfounded suit is not a ground for the grant of moral damages; otherwise, moral damages must every time be awarded in favor of the prevailing defendant against an unsuccessful plaintiff. The law never intended to impose a penalty on the right to litigate, so that the filing of an unfounded suit does not automatically entitle the defendant to moral damages. There was no showing that petitioner filed the case in bad faith or that the action was vexatious and baseless. Accordingly, since respondents are not entitled to moral damages, neither can they be awarded exemplary damages, attorney’s fees, or the cost of litigation.

Exemplary damages are awarded in addition to moral damages. Where there is no proof or evidence upon which a claim for moral damages could be based, moral damages cannot be awarded, and exemplary damages cannot be awarded unless the claimant first establishes a clear right to moral damages; exemplary damages also require proof that the party acted in a wanton, oppressive, or malevolent manner. The award of attorney’s fees should likewise be deleted. The general rule is that attorney’s fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate; they are not to be awarded every time a party wins a suit. The power of the court to award attorney’s fees under Article 2208 demands factual, legal, and equitable justification, and even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, attorney’s fees may not be awarded where no sufficient showing of bad faith is reflected in a party’s persistence in the case.

• Third-Party Claimant’s Cumulative Remedies under Section 16, Rule 39 — A third-party claimant whose property has been levied may resort to the remedies in Section 16, Rule 39—summary hearing before the court that authorized execution, a terceria or third-party claim filed with the Sheriff, an action for damages on the bond posted by the judgment creditor, or an independent revindicatory action—cumulatively and independently, without need of availing of the others. If the claimant opts to file a proper action to vindicate ownership, the action must be distinct and separate from the enforcement case, may be filed before or without filing a claim in the court that issued the writ, and may seek recovery of ownership or possession and damages; the validity of the claimant’s title is resolved in that action, and a writ of preliminary injunction may issue against the Sheriff. Applied: petitioner’s independent action after denial of her third-party claim was a proper remedy, not a frivolous suit.

• Frivolous Action — A frivolous action is a groundless lawsuit with little prospect of success, often brought merely to harass, annoy, and cast groundless suspicions on the integrity and reputation of the defendant. Applied: petitioner’s complaint was not frivolous because she asserted ownership based on a deed of sale and a registered title and pursued a remedy expressly available to a third-party claimant.

• Moral Damages for Malicious Prosecution — Under Article 2219(8) of the Civil Code, moral damages may be recovered for malicious prosecution, which jurisprudence has extended to baseless civil suits intended to vex and humiliate the defendant despite the absence of a cause of action or probable cause. However, the filing of an unfounded suit is not itself a ground for moral damages; the law never intended to impose a penalty on the right to litigate, and an unfounded suit does not automatically entitle the prevailing defendant to moral damages. Applied: no bad faith or vexatious, baseless action was shown, so moral damages were improperly awarded.

• Exemplary Damages — Exemplary damages are awarded in addition to moral damages and cannot be awarded unless the claimant first establishes a clear right to moral damages; they also require proof that the party acted in a wanton, oppressive, or malevolent manner. Applied: because respondents had no right to moral damages, the award of exemplary damages had no basis.

• Attorney’s Fees — Attorney’s fees cannot generally be recovered as part of damages because of the policy that no premium should be placed on the right to litigate; they are not awarded every time a party wins. The court’s power to award them under Article 2208 requires factual, legal, and equitable justification, and even a claimant compelled to litigate or incur expenses to protect rights may not recover them absent sufficient showing of bad faith. Applied: no sufficient bad faith was shown, so the award of attorney’s fees and litigation costs was deleted.

• "A frivolous action is a groundless lawsuit with little prospect of success. It is often brought merely to harass, annoy, and cast groundless suspicions on the integrity and reputation of the defendant." — This defines the standard the Court used to test whether petitioner’s suit could justify the damages awarded by the Court of Appeals.
• "When the third-party complaint was denied by the RTC, petitioner's remedy was to file an independent reivindicatory action against the judgment creditor - herein respondents." — This states the ratio for rejecting the finding of bad faith: petitioner pursued the very remedy the RTC had indicated after denying her third-party claim.
• "However, it should be stressed that the filing of an unfounded suit is not a ground for the grant of moral damages. Otherwise, moral damages must every time be awarded in favor of the prevailing defendant against an unsuccessful plaintiff. The law never intended to impose a penalty on the right to litigate so that the filing of an unfounded suit does not automatically entitle the defendant to moral damages." — This is the Court’s central ruling on moral damages and the right to litigate.
• "The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under Article 2208 demands factual, legal, and equitable justification." — This states the controlling rule used to delete the award of attorney’s fees and litigation costs.

• Prieto vs. Corpuz, 539 Phil. 65, 72 (2006) — Cited in support of the definition and characterization of a frivolous action as one often brought to harass, annoy, and cast groundless suspicions.
• Capa vs. Court of Appeals, 533 Phil. 691, 702 (2006) — Cited for the rule that a third-party claimant or third person may vindicate a claim to property wrongfully levied by filing a proper action distinct and separate from the enforcement case, seeking recovery of possession and damages.
• Sy vs. Discaya, 260 Phil. 401 (1990) — Cited in the Regalado excerpt for the remedies of a third-party claimant under Section 16, Rule 39.
• Villanueva-Ong vs. Enrile, G.R. No. 212904, November 22, 2017, 846 SCRA 376, 387-386 — Cited for the recognition that malicious prosecution includes baseless civil suits intended to vex and humiliate the defendant despite absence of a cause of action or probable cause.
• Delos Santos vs. Papa, 605 Phil. 460, 471 (2009) — Cited for the rule that the filing of an unfounded suit does not automatically entitle the defendant to moral damages and that the law never intended to penalize the right to litigate; also cited for exemplary damages being awarded in addition to moral damages.
• Mahinay vs. Velasquez, Jr., 464 Phil. 146 (2004) — Cited for the rule that moral damages cannot be awarded without proof and that exemplary damages require wanton, oppressive, or malevolent conduct and cannot be awarded unless the claimant first establishes a clear right to moral damages.
• Spouses Timado vs. Rural Bank of San Jose, Inc., 789 Phil. 453, 460 (2016) — Cited for the rule that attorney’s fees are not awarded every time a party wins and that Article 2208 requires factual, legal, and equitable justification, with no sufficient showing of bad faith.

• Section 16, Rule 39, Rules of Court — Governs the remedies of a third-party claimant; the Court applied it to hold that petitioner could file an independent revindicatory action after her third-party claim was denied, and that such remedies are cumulative and may be resorted to independently.
• Article 2219(8), Civil Code — Provides for moral damages in cases of malicious prosecution; the Court noted that the Court of Appeals’ award effectively rested on this provision but held that an unfounded suit without bad faith does not automatically warrant moral damages.
• Article 2208, Civil Code — Governs attorney’s fees; the Court applied it to delete the award because attorney’s fees require factual, legal, and equitable justification and are not awarded every time a party wins, especially absent sufficient bad faith.

Justice Leonen (Chairperson), Justice Gesmundo, Justice Zalameda, and Justice Gaerlan concurred.