Sps. Moises and Clemencia Andrada vs. Pilhino Sales Corporation

A petition for review on certiorari under Rule 45 may raise only questions of law, and the Court of Appeals' factual findings—including a finding of good faith—are conclusive and binding absent any recognized exception. A claim for damages under Article 21 of the Civil Code requires proof of abuse of rights, whose elements are a legal right or duty, exercise in bad faith, and sole intent to prejudice or injure another; without bad faith, neither damages nor attorney's fees under Article 2208(4) may be awarded.

Pilhino Sales Corporation was a creditor of Spouses Jose Andrada, Jr. and Maxima Andrada, having sued them in the Regional Trial Court in Davao City to recover ₱240,863.00 plus interest and incidental charges. The Andrada family also included Jose Andrada, Sr. and Spouses Moises and Clemencia Andrada. The Hino truck at the center of the controversy was owned by Jose Andrada, Jr. and later became the subject of a sale to Moises Andrada and a chattel mortgage in favor of BA Finance Corporation. The governing statutory backdrop invoked by the parties includes Articles 19, 21, and 2208 of the Civil Code, and Section 1, Rule 45 of the Rules of Court.

Pilhino Sales Corporation was a creditor of Spouses Jose Andrada, Jr. and Maxima Andrada. On December 28, 1990, Pilhino sued them in the Regional Trial Court in Davao City to recover the principal sum of ₱240,863.00, plus interest and incidental charges, in Civil Case No. 20,489-90. Upon Pilhino's application, the RTC issued a writ of preliminary attachment, which was implemented against a Hino truck and a Fuso truck both owned by Jose Andrada, Jr. The levies on attachment were lifted after Jose filed a counter-attachment bond. In due course, the RTC rendered a decision against Jose Andrada, Jr. and his wife. Pilhino opted to enforce the writ of execution against the properties of the Andradas instead of claiming against the counter-attachment bond because the premium on the bond had not been paid. As a result, the sheriff seized the Hino truck and sold it at public auction, with Pilhino as the highest bidder.

The Hino truck could not be transferred to Pilhino's name because it had already been registered in the name of petitioner Moises Andrada. It appears that the Hino truck had been meanwhile sold by Jose Andrada, Jr. to Moises Andrada, a sale unknown to Pilhino, and that Moises had mortgaged the truck to BA Finance Corporation to secure his own obligation. BA Finance sued Moises Andrada for his failure to pay the loan in Civil Case No. 5117. After a decision was rendered in favor of BA Finance, a writ of execution issued, by which the sheriff levied upon and seized the Hino truck while it was in the possession of Pilhino and sold it at public auction, with BA Finance as the highest bidder.

Consequently, Pilhino instituted Civil Case No. 21,898-93 in the RTC in Davao City against Spouses Jose Andrada, Jr. and Maxima Andrada, Spouses Moises Andrada and Clemencia Andrada, Jose Andrada, Sr., BA Finance, the Land Transportation Office in Surallah, South Cotabato, and the Registrar of Deeds of General Santos City. Pilhino sought to annul (a) the deed of sale between Jose Andrada, Jr. and Moises Andrada; (b) the chattel mortgage involving the Hino truck between Moises Andrada and BA Finance; (c) the deed of conveyance executed by Jose Andrada, Jr. in favor of his father, Jose Andrada, Sr., involving a hard-top jeep; and (d) the certificate of registration of the Hino truck in the name of Moises Andrada as well as the registration of the chattel mortgage with the Registry of Deeds of General Santos City.

Moises Andrada and his wife averred as defenses that they had already acquired the Hino truck from Jose Andrada, Jr. free from any lien or encumbrance prior to its seizure by the sheriff pursuant to the writ of execution issued in Civil Case No. 20,489-90; that their acquisition had been made in good faith, considering that at the time of the sale the preliminary attachment had already been lifted; and that Pilhino's recourse was to proceed against the counter-attachment bond. For its part, BA Finance claimed lack of knowledge of the truth of the material allegations of Pilhino's complaint and insisted that the Hino truck had been validly mortgaged to it by Moises Andrada, the lawful owner, to secure his own valid obligation.

The RTC found that the deed of sale of the Hino truck executed by Jose Andrada, Jr. in favor of Moises Andrada was simulated to put the truck beyond the reach of creditors, especially Pilhino, considering that the purported consideration was only ₱50,000.00; that only three days after the purported sale, Moises Andrada was able to secure a loan from BA Finance in the amount of ₱235,632.00 by giving the Hino truck as collateral; and that Jose Andrada, Jr. continued to operate the Hino truck in hauling for Dole Philippines. The CA, on the other hand, found that Pilhino had acted in good faith in bringing Civil Case No. 21,898-93 to annul the deed of sale, believing that the sale in favor of Moises Andrada had been resorted to so that Jose Andrada might evade his obligations.

• Liability for Damages: Petitioners maintained that Pilhino should be held liable for the damages they sustained from Pilhino's levy on execution upon the Hino truck under Civil Case No. 20,489-90, anchoring their claim on Article 21 of the Civil Code.
• Bad Faith: Petitioners insisted that Pilhino was guilty of bad faith when it proceeded with the levy on execution upon the Hino truck owned by Moises Andrada, and that both lower courts erred in concluding that the second and third elements of abuse of rights were not established.
• Attorney's Fees: Petitioners sought attorney's fees based on Article 2208(4) of the Civil Code, which allows recovery in cases of a clearly unfounded civil action or proceeding against the plaintiff.

• Liability for Damages: Whether Pilhino should be held liable for the damages the petitioners sustained from Pilhino's levy on execution upon the Hino truck under Civil Case No. 20,489-90.
• Bad Faith: Whether Pilhino was guilty of bad faith when it proceeded with the levy on execution upon the Hino truck owned by Moises Andrada.
• Attorney's Fees: Whether the petitioners are entitled to attorney's fees under Article 2208(4) of the Civil Code.

• Liability for Damages: No. The claim for damages was denied because the CA's finding of good faith is a factual finding binding on the Court under Rule 45, and the petitioners failed to prove the elements of abuse of rights.
• Bad Faith: No. Bad faith was not established; the CA found that Pilhino acted in good faith in bringing Civil Case No. 21,898-93, believing that the sale was resorted to so that Jose Andrada might evade his obligations.
• Attorney's Fees: No. Attorney's fees are the exception rather than the rule and require factual, legal, and equitable justification; bad faith under Article 2208(4) was not established.

• Liability for Damages: Article 21 of the Civil Code, in conjunction with Article 19, is part of the cause of action known as abuse of rights. Its elements are: (a) a legal right or duty; (b) exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another. The CA found that Pilhino acted in good faith in bringing Civil Case No. 21,898-93, believing that the sale in favor of Moises Andrada had been resorted to so that Jose Andrada might evade his obligations. The petitioners' insistence that both lower courts erred on the absence of bad faith required a review of factual issues. Under Section 1, Rule 45, an appeal by petition for review on certiorari shall raise only questions of law. The Court is not a trier of facts and does not normally re-examine the evidence; the CA's factual findings are conclusive and binding. Although exceptions to this rule exist, none applied. The petitioners did not prove the concurrence of the elements of abuse of rights.
• Bad Faith: The CA's finding and conclusion rested on the RTC's own persuasion that the sale of the Hino truck to Moises Andrada had been simulated. The petitioners' disagreement with the CA's declaration that the second and third elements of abuse of rights were not established required consideration and review of factual issues. The circumstances did not warrant reversing or modifying the CA's findings, which were consistent with the established facts. Thus, bad faith was not established.
• Attorney's Fees: Article 2208(4) of the Civil Code allows attorney's fees in cases of a clearly unfounded civil action or proceeding against the plaintiff. However, no premium should be placed on the right to litigate, and not every winning party is entitled to an automatic grant of attorney's fees. The award of attorney's fees is the exception rather than the rule; the power to award them demands factual, legal, and equitable justification, and its basis cannot be left to speculation and conjecture. The element of bad faith on the part of Pilhino in commencing and prosecuting Civil Case No. 21,898-93, necessary to predicate the lawful grant of attorney's fees under Article 2208(4), was not established. Accordingly, the demand for attorney's fees failed.

• Appeal by petition for review on certiorari under Rule 45 — Section 1, Rule 45 of the Rules of Court limits such appeals to questions of law. The Court is not a trier of facts and does not normally re-examine the evidence; findings of fact by the Court of Appeals are conclusive and binding. Exceptions exist, such as when findings are grounded entirely on speculation, surmises, or conjectures; when the inference made is manifestly mistaken, absurd, or impossible; when there is grave abuse of discretion; when the judgment is based on a misapprehension of facts; when the findings of fact are conflicting; or when the CA manifestly overlooked certain relevant facts not disputed by the parties. In this case, none of the exceptions applied because the petitioners' challenge to the CA's good-faith finding was a factual issue, so the petition failed.
• Abuse of rights — Under Articles 19 and 21 of the Civil Code, abuse of rights has the following elements: (a) there is a legal right or duty; (b) exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another. The Court applied this doctrine by holding that the petitioners did not prove the concurrence of these elements. The CA found that Pilhino acted in good faith in bringing Civil Case No. 21,898-93, believing that the sale in favor of Moises Andrada had been resorted to so that Jose Andrada might evade his obligations. Without bad faith, no damages could be awarded under Article 21.
• Attorney's fees as exception — Under Article 2208 of the Civil Code, attorney's fees cannot be recovered absent stipulation except in enumerated cases, such as a clearly unfounded civil action or proceeding against the plaintiff. The award of attorney's fees is the exception rather than the rule; it demands factual, legal, and equitable justification and cannot rest on speculation and conjecture. The Court applied this doctrine by denying the petitioners' claim because the element of bad faith on the part of Pilhino in commencing and prosecuting Civil Case No. 21,898-93 was not established.

• "An appeal by petition for review on certiorari under Rule 45 shall raise only questions of law. Thus, the herein petition for review must fail for raising a question essentially of fact." — This opening passage states the procedural ratio decidendi: the petitioners' challenge to the CA's finding of good faith was a factual question beyond the scope of Rule 45 review.
• "Article 21 of the Civil Code, in conjunction with Article 19 of the Civil Code, is part of the cause of action known in this jurisdiction as "abuse of rights." The elements of abuse of rights are: (a) there is a legal right or duty; (b) exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another." — This passage defines the abuse-of-rights cause of action and its three elements, which the Court used to reject the petitioners' damages claim.
• "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." — This passage articulates the controlling rule on attorney's fees, which the Court applied to deny the petitioners' demand absent bad faith.
• "WHEREFORE, we deny the petition for review on certiorari for its lack of merit, and affirm the decision of the Court of Appeals." — This is the dispositive portion of the decision.

• Albenson Enterprises Corp. vs. Court of Appeals, G.R. No. 88694, January 11, 1993, 217 SCRA 16, 25 — Cited for the elements of abuse of rights under Articles 19 and 21 of the Civil Code.
• Morales vs. Court of Appeals, G.R. No. 117228, June 19, 1997, 274 SCRA 282, 309 — Cited for the rule that the award of attorney's fees is the exception rather than the rule and requires factual, legal, and equitable justification.
• Firestone Tire & Rubber Co. of the Phils. vs. Ines Chaves & Co., Ltd., G.R. No. L-17106, October 19, 1966, 18 SCRA 356, 358 — Cited for the policy that no premium should be placed on the right to litigate and that attorney's fees cannot be recovered absent stipulation before the new Civil Code.
• Scott Consultants & Resource Development Corporation vs. Court of Appeals, G.R. No. 112911, March 16, 1995, 242 SCRA 393, 406 — Cited for the requirement that the power to award attorney's fees demands factual, legal, and equitable justification.

• Article 21, Civil Code — Provides 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 for damage. The petitioners invoked it as the basis for damages; the claim was denied because bad faith was not established.
• Article 19, Civil Code — Requires everyone, in the performance of duties, to observe honesty and good faith. Cited in conjunction with Article 21 to define abuse of rights and as a corollary for attorney's fees.
• Article 2208(4), Civil Code — Allows attorney's fees in cases of a clearly unfounded civil action or proceeding against the plaintiff. The petitioners invoked it; the claim was denied because bad faith was not established.
• Article 2208(5), Civil Code — Mentioned in footnote as the basis for attorney's fees where the defendant is guilty of gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim.
• Article 1170, Civil Code — Provides that anyone guilty of fraud (bad faith) in the performance of an obligation shall be liable for damages. Cited as a corollary to Article 19 and Article 2208.
• Section 1, Rule 45, Rules of Court — Provides that a petition for review on certiorari shall raise only questions of law. Applied to deny review of the CA's factual findings. The decision also notes the amendment by A.M. No. 07-7-12-SC, effective December 27, 2007.

Justice Arturo D. Brion (Acting Chairperson), Justice Roberto A. Abad, Justice Martin S. Villarama, Jr., and Justice Maria Lourdes P. A. Sereno.