[G.R. Nos. 116124-25.

November 22, 2000]

BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION, respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this petition for review is the consolidated decision of the Court of Appeals dated July 7, 1994, which reversed the
separate decisions of the Regional Trial Court of Pasig City and the Regional Trial Court of Quezon City in two cases between
petitioner Reynoso and respondent General Credit Corporation (GCC).

Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, CCC), a financing and investment firm, decided
to organize franchise companies in different parts of the country, wherein it shall hold thirty percent (30%) equity. Employees of the
CCC were designated as resident managers of the franchise companies. Petitioner Bibiano O. Reynoso, IV was designated as the
resident manager of the franchise company in Quezon City, known as the Commercial Credit Corporation of Quezon City
(hereinafter, CCC-QC).

CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted the management and full
control of the business activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its receivables to
CCC. Subsequently, however, this discounting arrangement was discontinued pursuant to the so-called DOSRI Rule, prohibiting the
lending of funds by corporations to its directors, officers, stockholders and other persons with related interests therein.

On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule, CCC decided to form
CCC Equity Corporation, (hereinafter, CCC-Equity), a wholly-owned subsidiary, to which CCC transferred its thirty (30%) percent
equity in CCC-QC, together with two seats in the latters Board of Directors.

Under the new set-up, several officials of Commercial Credit Corporation, including petitioner Reynoso, became employees of
CCC-Equity. While petitioner continued to be the Resident Manager of CCC-QC, he drew his salaries and allowances from CCC-
Equity.Furthermore, although an employee of CCC-Equity, petitioner, as well as all employees of CCC-QC, became qualified
members of the Commercial Credit Corporation Employees Pension Plan.

As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its employees. The business
activities of CCC-QC pertain to the acceptance of funds from depositors who are issued interest-bearing promissory notes. The
amounts deposited are then loaned out to various borrowers. Petitioner, in order to boost the business activities of CCC-QC,
deposited his personal funds in the company. In return, CCC-QC issued to him its interest-bearing promissory notes.

On August 15, 1980, a complaint for sum of money with preliminary attachment,[1] docketed as Civil Case No. Q-30583, was
instituted in the then Court of First Instance of Rizal by CCC-QC against petitioner, who had in the meantime been dismissed from
his employment by CCC-Equity. The complaint was subsequently amended in order to include Hidelita Nuval, petitioners wife, as a
party defendant.[2] The complaint alleged that petitioner embezzled the funds of CCC-QC amounting to P1,300,593.11. Out of this
amount, at least P630,000.00 was used for the purchase of a house and lot located at No. 12 Macopa Street, Valle Verde I, Pasig
City. The property was mortgaged to CCC, and was later foreclosed.

In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum of
P1,300,593.11 represented his money placements in CCC-QC, as shown by twenty-three (23) checks which he issued to the said
company.[3]

The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86, pursuant to the Judiciary
Reorganization Act of 1980.

On January 14, 1985, the trial court rendered its decision, the decretal portion of which states:

Premises considered, the Court finds the complaint without merit. Accordingly, said complaint is hereby DISMISSED.

By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation and mental anguish.

On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby ordered:

a) to pay defendant the sum of P185,000.00 plus 14% interest per annum from October 2, 1980 until fully paid;

b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from June 24, 1981, the date of filing of
Amended Answer, until fully paid; from this amount may be deducted the remaining obligation of defendant under the promissory
note of October 24, 1977, in the sum of P9,738.00 plus penalty at the rate of 1% per month from December 24, 1977 until fully paid;

c) to pay defendants P200,000.00 as moral damages;

d) to pay defendants P100,000.00 as exemplary damages;

e) to pay defendants P25,000.00 as and for attorney's fees; plus costs of the suit.

SO ORDERED.
 Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial Credit Corporation of Quezon City
was dismissed for failure to pay docket fees. Petitioner, on the other hand, withdrew his appeal.

Hence, the decision became final and, accordingly, a Writ of Execution was issued on July 24, 1989. [4] However, the judgment
remained unsatisfied,[5] prompting petitioner to file a Motion for Alias Writ of Execution, Examination of Judgment Debtor, and to
Bring Financial Records for Examination to Court. CCC-QC filed an Opposition to petitioners motion,[6] alleging that the possession
of its premises and records had been taken over by CCC.

Meanwhile, in 1983, CCC became known as the General Credit Corporation.

On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing General Credit Corporation to file
its comment on petitioners motion for alias writ of execution.[7] General Credit Corporation filed a Special Appearance and
Opposition on December 2, 1991,[8] alleging that it was not a party to the case, and therefore petitioner should direct his claim
against CCC-QC and not General Credit Corporation. Petitioner filed his reply,[9] stating that the CCC-QC is an adjunct
instrumentality, conduit and agency of CCC.Furthermore, petitioner invoked the decision of the Securities and Exchange
Commission in SEC Case No. 2581, entitled, Avelina G. Ramoso, et al., Petitioner versus General Credit Corp., et al.,
Respondents, where it was declared that General Credit Corporation, CCC-Equity and other franchised companies including CCC-
QC were declared as one corporation.

On December 9, 1991, the Regional Trial Court of Quezon City ordered the issuance of an alias writ of execution. [10] On
December 20, 1991, General Credit Corporation filed an Omnibus Motion,[11] alleging that SEC Case No. 2581 was still pending
appeal, and maintaining that the levy on properties of the General Credit Corporation by the deputy sheriff of the court was
erroneous.

In his Opposition to the Omnibus Motion, petitioner insisted that General Credit Corporation is just the new name of
Commercial Credit Corporation; hence, General Credit Corporation and Commercial Credit Corporation should be treated as one
and the same entity.

On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus Motion.[12] On March 5, 1992, it issued an
Order directing the issuance of an alias writ of execution.[13]

Previously, on February 21, 1992, General Credit Corporation instituted a complaint before the Regional Trial Court of Pasig
against Bibiano Reynoso IV and Edgardo C. Tanangco, in his capacity as Deputy Sheriff of Quezon City, [14] docketed as Civil Case
No. 61777, praying that the levy on its parcel of land located in Pasig, Metro Manila and covered by Transfer Certificate of Title No.
29940 be declared null and void, and that defendant sheriff be enjoined from consolidating ownership over the land and from further
levying on other properties of General Credit Corporation to answer for any liability under the decision in Civil Case No. Q-30583.

The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining order. Thus, General Credit Corporation
instituted two (2) petitions for certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 27518[15] and CA-G.R. SP No.
27683. These cases were later consolidated.

On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated cases, the dispositive portion of which
reads:

WHEREFORE, in SP No. 27518 we declare the issue of the respondent court's refusal to issue a restraining order as having been
rendered moot by our Resolution of 7 April 1992 which, by way of injunctive relief, provided that "the respondents and their
representatives are hereby enjoined from conducting an auction sale (on execution) of petitioner's properties as well as initiating
similar acts of levying (upon) and selling on execution other properties of said petitioner". The injunction thus granted, as modified
by the words in parenthesis, shall remain in force until Civil Case No. 61777 shall have been finally terminated.

In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET ASIDE, for having been issued in excess of
jurisdiction, the Order of 13 February 1992 in Civil Case No. Q-30583 as well as any other order or process through which the
petitioner is made liable under the judgment in said Civil Case No. Q-30583.

No damages and no costs.

SO ORDERED.[16]

Hence, this petition for review anchored on the following arguments:

1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27683 WHEN IT NULLIFIED AND SET ASIDE THE 13
FEBRUARY 1992 ORDER AND OTHER ORDERS OR PROCESS OF BRANCH 86 OF THE REGIONAL TRIAL COURT OF
QUEZON CITY THROUGH WHICH GENERAL CREDIT CORPORATION IS MADE LIABLE UNDER THE JUDGMENT THAT WAS
RENDERED IN CIVIL CASE NO. Q-30583.

2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27518 WHEN IT ENJOINED THE AUCTION SALE ON
EXECUTION OF THE PROPERTIES OF GENERAL CREDIT CORPORATION AS WELL AS INITIATING SIMILAR ACTS OF
LEVYING UPON AND SELLING ON EXECUTION OF OTHER PROPERTIES OF GENERAL CREDIT CORPORATION.

3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL CREDIT CORPORATION IS A STRANGER
TO CIVIL CASE NO. Q-30583, INSTEAD OF, DECLARING THAT COMMERCIAL CREDIT CORPORATION OF QUEZON CITY IS
THE ALTER EGO, INSTRUMENTALITY, CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT CORPORATION AND ITS
SUCCESSOR GENERAL CREDIT CORPORATION.
 At the outset, it must be stressed that there is no longer any controversy over petitioners claims against his former employer,
CCC-QC, inasmuch as the decision in Civil Case No. Q-30583 of the Regional Trial Court of Quezon City has long become final and
executory. The only issue, therefore, to be resolved in the instant petition is whether or not the judgment in favor of petitioner may
be executed against respondent General Credit Corporation. The latter contends that it is a corporation separate and distinct from
CCC-QC and, therefore, its properties may not be levied upon to satisfy the monetary judgment in favor of petitioner. In short,
respondent raises corporate fiction as its defense. Hence, we are necessarily called upon to apply the doctrine of piercing the veil of
corporate entity in order to determine if General Credit Corporation, formerly CCC, may be held liable for the obligations of CCC-
QC.

The petition is impressed with merit.

A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and
properties expressly authorized by law or incident to its existence. [17] It is an artificial being invested by law with a personality
separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be
related.[18] It was evolved to make possible the aggregation and assembling of huge amounts of capital upon which big business
depends. It also has the advantage of non-dependence on the lives of those who compose it even as it enjoys certain rights and
conducts activities of natural persons.

Precisely because the corporation is such a prevalent and dominating factor in the business life of the country, the law has to
look carefully into the exercise of powers by these artificial persons it has created.

Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to use its supervisory and
adjudicative powers where the corporate fiction is used as an unfair device to achieve an inequitable result, defraud creditors, evade
contracts and obligations, or to shield it from the effects of a court decision. The corporate fiction has to be disregarded when
necessary in the interest of justice.

In First Philippine International Bank v. Court of Appeals, et al.,[19] we held:

When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil
with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.

Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in numerous cases where it was
used, among others, to avoid a judgment credit;[20] to avoid inclusion of corporate assets as part of the estate of a decedent; [21] to
avoid liability arising from debt;[22] when made use of as a shield to perpetrate fraud and/or confuse legitimate issues; [23] or to
promote unfair objectives or otherwise to shield them.[24]

In the appealed judgment, the Court of Appeals sustained respondents arguments of separateness and its character as a
different corporation which is a non-party or stranger to this case.

The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by
the mother corporation to the extent that it becomes an instrument or agent of its parent. But even when there is dominance over the
affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime.[25]

We stated in Tomas Lao Construction v. National Labor Relations Commission,[26] that the legal fiction of a corporation being a
judicial entity with a distinct and separate personality was envisaged for convenience and to serve justice. Therefore, it should not
be used as a subterfuge to commit injustice and circumvent the law.

Precisely for the above reasons, we grant the instant petition.

It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly identify it
as a component of the CCC group of companies engaged in one and the same business, i.e., investment and financing. Aside from
CCC-Quezon City, other franchise companies were organized such as CCC-North Manila and CCC-Cagayan Valley. The
organization of subsidiary corporations as what was done here is usually resorted to for the aggrupation of capital, the ability to
cover more territory and population, the decentralization of activities best decentralized, and the securing of other legitimate
advantages. But when the mother corporation and its subsidiary cease to act in good faith and honest business judgment, when the
corporate device is used by the parent to avoid its liability for legitimate obligations of the subsidiary, and when the corporate fiction
is used to perpetrate fraud or promote injustice, the law steps in to remedy the problem. When that happens, the corporate
character is not necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to remedy injustice, such
as that inflicted in this case.

Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The exclusive management
contract insured that CCC-QC would be managed and controlled by CCC and would not deviate from the commands of the mother
corporation. In addition to the exclusive management contract, CCC appointed its own employee, petitioner, as the resident
manager of CCC-QC.

Petitioners designation as resident manager implies that he was placed in CCC-QC by a superior authority. In fact, even after
his assignment to the subsidiary corporation, petitioner continued to receive his salaries, allowances, and benefits from CCC, which
later became respondent General Credit Corporation. Not only that. Petitioner and the other permanent employees of CCC-QC were
qualified members and participants of the Employees Pension Plan of CCC.

There are other indications in the record which attest to the applicability of the identity rule in this case, namely: the unity of
interests, management, and control; the transfer of funds to suit their individual corporate conveniences; and the dominance of
policy and practice by the mother corporation insure that CCC-QC was an instrumentality or agency of CCC.
 As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of business involving a single
transaction process. Under their discounting arrangements, CCC financed the operations of CCC-QC. The subsidiary sold,
discounted, or assigned its accounts receivables to CCC.

The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the pervasive and intensive auditing
function of CCC over CCC-QC.[27] The two corporations also shared the same office space. CCC-QC had no office of its own.

The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the director-representative of CCC. The
lawyers who filed the complaint and amended complaint were all in-house lawyers of CCC.

The challenged decision of the Court of Appeals states that CCC, now General Credit Corporation, is not a formal party in the
case. The reason for this is that the complaint was filed by CCC-QC against petitioner. The choice of parties was with CCC-QC. The
judgment award in this case arose from the counterclaim which petitioner set up against CCC-QC.

The circumstances which led to the filing of the aforesaid complaint are quite revealing. As narrated above, the discounting
agreements through which CCC controlled the finances of its subordinates became unlawful when Central Bank adopted the DOSRI
prohibitions. Under this rule the directors, officers, and stockholders are prohibited from borrowing from their company. Instead of
adhering to the letter and spirit of the regulations by avoiding DOSRI loans altogether, CCC used the corporate device to continue
the prohibited practice. CCC organized still another corporation, the CCC-Equity Corporation. However, as a wholly owned
subsidiary, CCC-Equity was in fact only another name for CCC. Key officials of CCC, including the resident managers of subsidiary
corporations, were appointed to positions in CCC-Equity.

In order to circumvent the Central Banks disapproval of CCC-QCs mode of reducing its DOSRI lender accounts and its
directive to follow Central Bank requirements, resident managers, including petitioner, were told to observe a pseudo-compliance
with the phasing out orders. For his unwillingness to satisfactorily conform to these directives and his reluctance to resort to illegal
practices, petitioner earned the ire of his employers. Eventually, his services were terminated, and criminal and civil cases were filed
against him.

Petitioner issued twenty-three checks as money placements with CCC-QC because of difficulties faced by the firm in
implementing the required phase-out program. Funds from his current account in the Far East Bank and Trust Company were
transferred to CCC-QC. These monies were alleged in the criminal complaints against him as having been stolen. Complaints for
qualified theft and estafa were brought by CCC-QC against petitioner. These criminal cases were later dismissed. Similarly, the civil
complaint which was filed with the Court of First Instance of Pasig and later transferred to the Regional Trial Court of Quezon City
was dismissed, but his counterclaims were granted.

Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed CCC-QC, in obvious fraud of its
creditors.CCC-QC, instead of opposing its closure, cooperated in its own demise. Conveniently, CCC-QC stated in its opposition to
the motion for alias writ of execution that all its properties and assets had been transferred and taken over by CCC.

Under the foregoing circumstances, the contention of respondent General Credit Corporation, the new name of CCC, that the
corporate fiction should be appreciated in its favor is without merit.

Paraphrasing the ruling in Claparols v. Court of Industrial Relations,[28] reiterated in Concept Builders Inc. v. National Labor
Relations,[29]it is very obvious that respondent seeks the protective shield of a corporate fiction whose veil the present case could,
and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation of its employees.

If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and work an injustice. The
decision raised to us for review is an invitation to multiplicity of litigation. As we stated in Islamic Directorate vs. Court of
Appeals,[30] the ends of justice are not served if further litigation is encouraged when the issue is determinable based on the records.

A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother corporation, is placed
beyond the legal reach of the judgment creditor who, after protracted litigation, has been found entitled to positive relief. Courts have
been organized to put an end to controversy. This purpose should not be negated by an inapplicable and wrong use of the fiction of
the corporate veil.

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and ASIDE. The injunction against the holding of
an auction sale for the execution of the decision in Civil Case No. Q-30583 of properties of General Credit Corporation, and the
levying upon and selling on execution of other properties of General Credit Corporation, is LIFTED.

SO ORDERED.
 Reynoso vs Court of Appeals
345 SCRA 335 [GR No. 116124-25 November 23, 2000]

Facts: Sometime in early 1960s, the Commercial Credit Corporation (CCC), a financing company and investment firm, decided to organize
franchise companies indifferent parts of the country, wherein it shall hold 30% equity. Employees of the CCC were designated as resident
managers of the franchise companies. Petitioner Bibiano O. Reynoso IV was designated as the resident manager of the franchise in Quezon City,
known as the Commercial Credit Corporation of Quezon City. CCC-QC entered into an exclusive agreement management contract with CCC
whereby the latter was granted the management and full control of the business activities of the former. Under the contract, CCC-QC shall sell,
discount and/or assign its receivables to CCC. Subsequently, however, this discounting arrangement was discontinued pursuant to the so called
DOSRI rule, prohibiting the lending of funds by corporations to its directors, officers, stockholders and other persons with related interest therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI rule, CCC decided to form CCC Equity
Corporation, a wholly-owned subsidiary, to which CCC transferred its 30% equity in CCC-QC, together with 2 seats in the latter’s Board of
Directors. A complaint for sum of money with preliminary attachment was filed by CCC-equity against petitioner and the latter was also
dismissed from employment to which the lower court’s decision was rendered in favor of the petitioner and the same has become final and
executory. CCC changed its name to General Credit Corporation (GCC).

Issue: Whether or not the judgement in favor of the petitioner may be executed against respondent GCC.

Held: Yes. A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and
properties expressly authorized by law or incident to its existence. It is an artificial being invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to which it may be related. It was evolved to make possible
the aggregation and assembling of huge amounts of capital upon which big business depends. It also has the advantage of non-dependence on the
lives of those who compose it even as it enjoys certain rights and conducts activities of natural persons.

Any piercing of the corporate veil has to be done with caution. However, the court will not hesitate to use its supervisory and adjudicative powers
where the corporate fiction is used as an unfair device to achieve an inequitable result defraud creditors, evade contracts and obligations, or to
shield it from the effects of a court decision. The corporate fiction has to be disregarded when necessary in the interest of justice.

The defense of separateness will be disregarded when the business affairs of a subsidiary corporation are so controlled by the mother corporation
to the extent that it becomes an instrument or agent of its parent. But even when there is dominance over the affairs of the subsidiary, the doctrine
of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend
crime.

The organization of subsidiary corporations as what was done here is usually resorted to for aggrupation of capital the ability to cover more
territory and population, the decentralization of activities best decentralized, and the securing of other legitimate advantages. But when the
mother corporation and its subsidiary cease to act in good faith and honest business judgement, when the corporate device is used by the parent to
avoid its liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice, the
law steps in to remedy the problem. When that happens, the corporate character is not necessarily abrogated. It continuous for legitimate
objectives. However, it is pursued in order to remedy injustice, such as that inflicted in this case.
 G.R. No. L-42780 January 17, 1936

MANILA GAS CORPORATION, plaintiff-appellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

DeWitt, Perkins and Ponce Enrile for appellant.

Office of the Solicitor-General Hilado for appellee.

MALCOLM, J.:

This is an action brought by the Manila Gas Corporation against the Collector of Internal Revenue for the recovery of P56,757.37,
which the plaintiff was required by the defendant to deduct and withhold from the various sums paid it to foreign corporations as
dividends and interest on bonds and other indebtedness and which the plaintiff paid under protest. On the trial court dismissing the
complaint, with costs, the plaintiff appealed assigning as the principal errors alleged to have been committed the following:

1. The trial court erred in holding that the dividends paid by the plaintiff corporation were subject to income tax in the
hands of its stockholders, because to impose the tax thereon would be to impose a tax on the plaintiff, in violation of the
terms of its franchise, and would, moreover, be oppressive and inequitable.

2. The trial court erred in not holding that the interest on bonds and other indebtedness of the plaintiff corporation, paid by
it outside of the Philippine Islands to corporations not residing therein, were not, on the part of the recipients thereof,
income from Philippine sources, and hence not subject to Philippine income tax.

The facts, as stated by the appellant and as accepted by the appellee, may be summarized as follows: The plaintiff is a corporation
organized under the laws of the Philippine Islands. It operates a gas plant in the City of Manila and furnishes gas service to the
people of the metropolis and surrounding municipalities by virtue of a franchise granted to it by the Philippine Government.
Associated with the plaintiff are the Islands Gas and Electric Company domiciled in New York, United States, and the General
Finance Company domiciled in Zurich, Switzerland. Neither of these last mentioned corporations is resident in the Philippines.

For the years 1930, 1931, and 1932, dividends in the sum of P1,348,847.50 were paid by the plaintiff to the Islands Gas and Electric
Company in the capacity of stockholders upon which withholding income taxes were paid to the defendant totalling P40,460.03 For
the same years interest on bonds in the sum of P411,600 was paid by the plaintiff to the Islands Gas and Electric Company upon
which withholding income taxes were paid to the defendant totalling P12,348. Finally for the stated time period, interest on other
indebtedness in the sum of P131,644,90 was paid by the plaintiff to the Islands Gas and Electric Company and the General Finance
Company respectively upon which withholding income taxes were paid to the defendant totalling P3,949.34.

Some uncertainty existing regarding the place of payment, we will not go into this factor of the case at this point, except to remark
that the bonds and other tokens of indebtedness are not to be found in the record. However, Exhibits E, F, and G, certified correct
by the Treasurer of the Manila Gas Corporation, purport to prove that the place of payment was the United States and Switzerland.

The appeal naturally divides into two subjects, one covered by the first assigned error, and the other by the second assigned error.
We shall discuss these subjects and errors in order.

1. Appellant first contends that the dividends paid by it to its stockholders, the Islands Gas and Electric Company , were
not subject to tax because to impose a tax thereon would be to do so on the plaintiff corporation, in violation of the terms
of its franchise and would, moreover, be oppressive and inequitable. This argument is predicated on the constitutional
provision that no law impairing the obligation of contracts shall be enacted. The particular portion of the franchise which is
invoked provides:

The grantee shall annually on the fifth day of January of each year pay to the City of Manila and the
municipalities in the Province of Rizal in which gas is sold, two and one half per centum of the gross receipts
within said city and municipalities, respectively, during the preceding year. Said payment shall be in lieu of all
taxes, Insular, provincial and municipal, except taxes on the real estate, buildings, plant, machinery, and other
personal property belonging to the grantee.

The trial judge was of the opinion that the instant case was governed by our previous decision in the case of Philippine
Telephone and Telegraph Co., vs. Collector of Internal Revenue ([1933], 58 Phil. 639). In this view we concur. It is true
that the tax exemption provision relating to the Manila Gas Corporation hereinbefore quoted differs in phraseology from
the tax exemption provision to be found in the franchise of the Telephone and Telegraph Company, but the ratio
decidendi of the two cases is substantially the same. As there held and as now confirmed, a corporation has a personality
distinct from that of its stockholders, enabling the taxing power to reach the latter when they receive dividends from the
corporation. It must be considered as settled in this jurisdiction that dividends of a domestic corporation, which are paid
and delivered in cash to foreign corporations as stockholders, are subject to the payment in the income tax, the exemption
clause in the charter of the corporation notwithstanding.

For the foreign reasons, we are led to sustain the decision of the trial court and to overrule appellant's first assigned error.
 2. In support of its second assignment of error, appellant contends that, as the Islands Gas and Electric Company and the
General Finance Company are domiciled in the United States and Switzerland respectively, and as the interest on the
bonds and other indebtedness earned by said corporations has been paid in their respective domiciles, this is not income
from Philippine sources within the meaning of the Philippine Income Tax Law. Citing sections 10 (a) and 13 (e) of Act No.
2833, the Income Tax Law, appellant asserts that their applicability has been squarely determined by decisions of this
court in the cases of Manila Railroad Co. vs. Collector of Internal Revenue (No. 31196, promulgated December 2, 1929,
nor reported), and Philippine Railway Co. vs. Posadas (No. 38766, promulgated October 30, 1933 [58 Phil., 968]) wherein
it was held that interest paid to non-resident individuals or corporations is not income from Philippine sources, and hence
not subject to the Philippine Income Tax. The Solicitor-General answers with the observation that the cited decisions
interpreted the Income Tax Law before it was amended by Act No. 3761 to cover the interest on bonds and other
obligations or securities paid "within or without the Philippine Islands." Appellant rebuts this argument by "assuming, for
the sake of the argument, that by the amendment introduced to section 13 of Act No. 2833 by Act No. 3761 the
Legislature intended the interest from Philippine sources and so is subject to tax," but with the necessary sequel that the
amendatory statute is invalid and unconstitutional as being the power of the Legislature to enact.

Taking first under observation that last point, it is to be observed that neither in the pleadings, the decision of the trial court, nor the
assignment of errors, was the question of the validity of Act No. 3761 raised. Under such circumstances, and no jurisdictional issue
being involved, we do not feel that it is the duty of the court to pass on the constitutional question, and accordingly will refrain from
doing so. (Cadwaller-Gibson Lumber Co. vs. Del Rosario [1913], 26 Phil., 192; Macondray and Co. vs. Benito and Ocampo, P.
137, ante; State vs. Burke [1912], 175 Ala., 561.)

As to the applicability of the local cases cited and of the Porto Rican case of Domenech vs. United Porto Rican Sugar co. ([1932], 62
F. [2d], 552), we need only observe that these cases announced good law, but that each he must be decided on its particular facts.
In other words, in the opinion of the majority of the court, the facts at bar and the facts in those cases can be clearly differentiated.
Also, in the case at bar there is some uncertainty concerning the place of payment, which under one view could be considered the
Philippines and under another view the United States and Switzerland, but which cannot be definitely determined without the
necessary documentary evidence before, us.

The approved doctrine is that no state may tax anything not within its jurisdiction without violating the due process clause of the
constitution. The taxing power of a state does not extend beyond its territorial limits, but within such it may tax persons, property,
income, or business. If an interest in property is taxed, the situs of either the property or interest must be found within the state. If an
income is taxed, the recipient thereof must have a domicile within the state or the property or business out of which the income
issues must be situated within the state so that the income may be said to have a situs therein. Personal property may be separated
from its owner, and he may be taxed on its account at the place where the property is although it is not the place of his own domicile
and even though he is not a citizen or resident of the state which imposes the tax. But debts owing by corporations are obligations of
the debtors, and only possess value in the hands of the creditors. (Farmers Loan Co. vs. Minnesota [1930], 280 U.S., 204; Union
Refrigerator Transit Co. vs. Kentucky [1905], 199 U.S., 194 State Tax on Foreign held Bonds [1873, 15 Wall., 300; Bick vs. Beach
[1907], 206 U. S., 392; State ex rel. Manitowoc Gas Co. vs. Wig. Tax Comm. [1915], 161 Wis., 111; United States Revenue Act of
1932, sec. 143.)

These views concerning situs for taxation purposes apply as well to an organized, unincorporated territory or to a Commonwealth
having the status of the Philippines.

Pushing to one side that portion of Act No. 3761 which permits taxation of interest on bonds and other indebtedness paid without the
Philippine Islands, the question is if the income was derived from sources within the Philippine Islands.

In the judgment of the majority of the court, the question should be answered in the affirmative. The Manila Gas Corporation
operates its business entirely within the Philippines. Its earnings, therefore come from local sources. The place of material delivery
of the interest to the foreign corporations paid out of the revenue of the domestic corporation is of no particular moment. The place
of payment even if conceded to be outside of tho country cannot alter the fact that the income was derived from the Philippines. The
word "source" conveys only one idea, that of origin, and the origin of the income was the Philippines.

In synthesis, therefore, we hold that conditions have not been provided which justify the court in passing on the constitutional
question suggested; that the facts while somewhat obscure differ from the facts to be found in the cases relied upon, and that the
Collector of Internal Revenue was justified in withholding income taxes on interest on bonds and other indebtedness paid to non-
resident corporations because this income was received from sources within the Philippine Islands as authorized by the Income Tax
Law. For the foregoing reasons, the second assigned error will be overruled.

Before concluding, it is but fair to state that the writer's opinion on the first subject and the first assigned error herein discussed is
accurately set forth, but that his opinion on the second subject and the second assigned error is not accurately reflected, because
on this last division his views coincide with those of the appellant. However, in the interest of the prompt disposition of this case, the
decision has been written up in accordance with instructions received from the court.

Judgment affirmed, with the cost of this instance assessed against the appellant.
NATIONAL POWER CORPORATION, petitioner, vs. PHILIPP BROTHERS OCEANIC, INC., respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

Where a person merely uses a right pertaining to him, without bad faith or intent to injure, the fact that damages are thereby suffered by
another will not make him liable.[1]

This principle finds useful application to the present case.

Before us is a petition for review of the Decision[2] dated August 27, 1996 of the Court of Appeals affirming in toto the Decision[3] dated
January 16, 1992 of the Regional Trial Court, Branch 57, Makati City.

The facts are:

On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for the supply and delivery of 120,000 metric
tons of imported coal for its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO)
prequalified and was allowed to participate as one of the bidders. After the public bidding was conducted, PHIBROs bid was accepted.
NAPOCORs acceptance was conveyed in a letter dated July 8, 1987, which was received by PHIBRO on July 15, 1987.

The Bidding Terms and Specifications[4] provide for the manner of shipment of coals, thus:

SECTION V

SHIPMENT

The winning TENDERER who then becomes the SELLER shall arrange and provide gearless bulk carrier for the shipment of coal to arrive at
discharging port on or before thirty (30) calendar days after receipt of the Letter of Credit by the SELLER or its nominee as per Section
XIV hereof to meet the vessel arrival schedules at Calaca, Batangas, Philippines as follows:

60,000 +/ - 10 % July 20, 1987

60,000 +/ - 10% September 4, 1987[5]

On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon plague Australia, the shipments point of origin,
which could seriously hamper PHIBROs ability to supply the needed coal. [6] From July 23 to July 31, 1987, PHIBRO again apprised NAPOCOR
of the situation in Australia, particularly informing the latter that the ship owners therein are not willing to load cargo unless a strike-free clause is
incorporated in the charter party or the contract of carriage. [7] In order to hasten the transfer of coal, PHIBRO proposed to NAPOCOR that they
equally share the burden of a strike-free clause. NAPOCOR refused.

On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit. Instead of delivering the coal on or
before the thirtieth day after receipt of the Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO effected its first shipment
only on November 17, 1987.

Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to its Calaca thermal plant. PHIBRO
participated anew in this subsequent bidding. On November 24, 1987, NAPOCOR disapproved PHIBROs application for pre-qualification to bid
for not meeting the minimum requirements.[8] Upon further inquiry, PHIBRO found that the real reason for the disapproval was its purported
failure to satisfy NAPOCORs demand for damages due to the delay in the delivery of the first coal shipment.

This prompted PHIBRO to file an action for damages with application for injunction against NAPOCOR with the Regional Trial Court,
Branch 57, Makati City.[9] In its complaint, PHIBRO alleged that NAPOCORs act of disqualifying it in the October 1987 bidding and in all
subsequent biddings was tainted with malice and bad faith. PHIBRO prayed for actual, moral and exemplary damages and attorneys fees.

In its answer, NAPOCOR averred that the strikes in Australia could not be invoked as reason for the delay in the delivery of coal because
PHIBRO itself admitted that as of July 28, 1987 those strikes had already ceased. And, even assuming that the strikes were still ongoing,
PHIBRO should have shouldered the burden of a strike-free clause because their contract was C and F Calaca, Batangas, Philippines, meaning,
the cost and freight from the point of origin until the point of destination would be for the account of PHIBRO. Furthermore, NAPOCOR
claimed that due to PHIBROs failure to deliver the coal on time, it was compelled to purchase coal from ASEA at a higher price. NAPOCOR
claimed for actual damages in the amount of P12,436,185.73, representing the increase in the price of coal, and a claim of P500,000.00 as
litigation expenses.[10]

Thereafter, trial on the merits ensued.

On January 16, 1992, the trial court rendered a decision in favor of PHIBRO, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff Philipp Brothers Oceanic Inc. (PHIBRO) and against the defendant National
Power Corporation (NAPOCOR) ordering the said defendant NAPOCOR:

1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant National Power Corporations list of accredited bidders
and allow PHIBRO to participate in any and all future tenders of National Power Corporation for the supply and delivery of
imported steam coal;
 2 To pay Philipp Brothers Oceanic, Inc. (PHIBRO);

a. The peso equivalent at the time of payment of $864,000 as actual damages;

b. The peso equivalent at the time of payment of $100,000 as moral damages;

c. The peso equivalent at the time of payment of $ 50,000 as exemplary damages;

d. The peso equivalent at the time of payment of $73,231.91 as reimbursement for expenses, cost of litigation and attorneys
fees;

3. To pay the costs of suit;

4. The counterclaims of defendant NAPOCOR are dismissed for lack of merit.

SO ORDERED.[11]

Unsatisfied, NAPOCOR, through the Solicitor General, elevated the case to the Court of Appeals. On August 27, 1996, the Court of
Appeals rendered a Decision affirming in toto the Decision of the Regional Trial Court. It ratiocinated that:

There is ample evidence to show that although PHIBROs delivery of the shipment of coal was delayed, the delay was in fact caused by a)
Napocors own delay in opening a workable letter of credit; and b) the strikes which plaqued the Australian coal industry from the first week of
July to the third week of September 1987. Strikes are included in the definition of force majeure in Section XVII of the Bidding Terms and
Specifications, (supra), so Phibro is not liable for any delay caused thereby.

Phibro was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to be effected thirty (30) days from Napocors opening of a
confirmed and workable letter of credit. Napocor was only able to do so on August 6, 1987.

By that time, Australias coal industry was in the middle of a seething controversy and unrest, occasioned by strikes, overtime bans, mine
stoppages. The origin, the scope and the effects of this industrial unrest are lucidly described in the uncontroverted testimony of James Archibald,
an employee of Phibro and member of the Export Committee of the Australian Coal Association during the time these events transpired.

xxxxxx

The records also attest that Phibro periodically informed Napocor of these developments as early as July 1, 1987, even before the bid was
approved. Yet, Napocor did not forthwith open the letter of credit in order to avoid delay which might be caused by the strikes and their after-
effects.

Strikes are undoubtedly included in the force majeure clause of the Bidding Terms and Specifications (supra). The renowned civilist, Prof.
Arturo Tolentino, defines force majeure as an event which takes place by accident and could not have been foreseen. (Civil Code of the
Philippines, Volume IV, Obligations and Constracts, 126, [1991]) He further states:

Fortuitous events may be produced by two general causes: (1) by Nature, such as earthquakes, storms, floods, epidemics, fires, etc., and (2) by the
act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc.

Tolentino adds that the term generally applies, broadly speaking, to natural accidents. In order that acts of man such as a strike, may constitute
fortuitous event, it is necessary that they have the force of an imposition which the debtor could not have resisted. He cites a parallel example in
the case of Philippine National Bank v. Court of Appeals, 94 SCRA 357 (1979), wherein the Supreme Court said that the outbreak of war which
prevents performance exempts a party from liability.

Hence, by law and by stipulation of the parties, the strikes which took place in Australia from the first week of July to the third week of
September, 1987, exempted Phibro from the effects of delay of the delivery of the shipment of coal. [12]

Twice thwarted, NAPOCOR comes to us via a petition for review ascribing to the Court of Appeals the following errors:

Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBROs delay in the delivery of imported
coal was due to NAPOCORs alleged delay in opening a letter of credit and to force majeure, and not to PHIBROs own deliberate acts
and faults.[13]

II

Respondent Court of Appeals gravely and seriously erred in concluding and so holding that NAPOCOR acted maliciously and
unjustifiably in disqualifying PHIBRO from participating in the December 8, 1987 and future biddings for the supply of imported coal
despite the existence of valid grounds therefor such as serious impairment of its track record. [14]
III

Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO was entitled to injunctive relief, to
actual or compensatory, moral and exemplary damages, attorneys fees and litigation expenses despite the clear absence of legal and
factual bases for such award.[15]

IV

Respondent Court of Appeals gravely and seriously erred in absolving PHIBRO from any liability for damages to NAPOCOR for its
unjustified and deliberate refusal and/or failure to deliver the contracted imported coal within the stipulated period. [16]

Respondent Court of Appeals gravely and seriously erred in dismissing NAPOCORs counterclaims for damages and litigation
expenses.[17]

It is axiomatic that only questions of law, not questions of fact, may be raised before this Court in a petition for review under Rule 45 of
the Rules of Court.[18] The findings of facts of the Court of Appeals are conclusive and binding on this Court[19] and they carry even more weight
when the said court affirms the factual findings of the trial court. [20] Stated differently, the findings of the Court of Appeals, by itself, which are
supported by substantial evidence, are almost beyond the power of review by this Court.[21]

With the foregoing settled jurisprudence, we find it pointless to delve lengthily on the factual issues raised by petitioner. The existence of
strikes in Australia having been duly established in the lower courts, we are left only with the burden of determining whether or not NAPOCOR
acted wrongfully or with bad faith in disqualifying PHIBRO from participating in the subsequent public bidding.

Let us consider the case in its proper perspective.

The Court of Appeals is justified in sustaining the Regional Trial Courts decision exonerating PHIBRO from any liability for damages to
NAPOCOR as it was clearly established from the evidence, testimonial and documentary, that what prevented PHIBRO from complying with its
obligation under the July 1987 contract was the industrial disputes which besieged Australia during that time. Extant in our Civil Code is the rule
that no person shall be responsible for those events which could not be foreseeen, or which, though foreseen, were inevitable. [22] This means that
when an obligor is unable to fulfill his obligation because of a fortuitous event or force majeure, he cannot be held liable for damages for non-
performance.[23]

In addition to the above legal precept, it is worthy to note that PHIBRO and NAPOCOR explicitly agreed in Section XVII of the Bidding
Terms and Specifications[24] that neither seller (PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in or failure of the performance of
its obligations, other than the payment of money due, if any such delay or failure is due to Force Majeure. Specifically, they defined force
majeure as any disabling cause beyond the control of and without fault or negligence of the party, which causes may include but are not restricted
to Acts of God or of the public enemy; acts of the Government in either its sovereign or contractual capacity; governmental restrictions; strikes,
fires, floods, wars, typhoons, storms, epidemics and quarantine restrictions.

The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore, we have no reason to rule otherwise.

However, proceeding from the premise that PHIBRO was prevented by force majeure from complying with its obligation, does it
necessarily follow that NAPOCOR acted unjustly, capriciously, and unfairly in disapproving PHIBROs application for pre-qualification to bid?

First, it must be stressed that NAPOCOR was not bound under any contract to approve PHIBROs pre-qualification requirements. In fact,
NAPOCOR had expressly reserved its right to reject bids. The Instruction to Bidders found in the Post-Qualification Documents/ Specifications
for the Supply and Delivery of Coal for the Batangas Coal-Fired Thermal Power Plant I at Calaca, Batangas Philippines,[25] is explicit, thus:

IB-17 RESERVATION OF NAPOCOR TO REJECT BIDS

NAPOCOR reserves the right to reject any or all bids, to waive any minor informality in the bids received. The right is also
reserved to reject the bids of any bidder who has previously failed to properly perform or complete on time any and
all contracts for delivery of coal or any supply undertaken by a bidder.[26] (Emphasis supplied)

This Court has held that where the right to reject is so reserved, the lowest bid or any bid for that matter may be rejected on a mere
technicality.[27]And where the government as advertiser, availing itself of that right, makes its choice in rejecting any or all bids, the losing bidder
has no cause to complain nor right to dispute that choice unless an unfairness or injustice is shown. Accordingly, a bidder has no ground of
action to compel the Government to award the contract in his favor, nor to compel it to accept his bid. Even the lowest bid or any bid may
be rejected.[28] In Celeste v. Court of Appeals,[29] we had the occasion to rule:

Moreover, paragraph 15 of the Instructions to Bidders states that the Government hereby reserves the right to reject any or all bids
submitted. In the case of A.C. Esguerra and Sons v. Aytona, 4 SCRA 1245, 1249 (1962), we held:

x x x [I]n the invitation to bid, there is a condition imposed upon the bidders to the effect that the bidders shall be subject to the right of the
government to reject any and all bids subject to its discretion. Here the government has made its choice, and unless an unfairness or injustice
is shown, the losing bidders have no cause to complain, nor right to dispute that choice.

Since there is no evidence to prove bad faith and arbitrariness on the part of the petitioners in evaluating the bids, we rule that the
private respondents are not entitled to damages representing lost profits. (Emphasis supplied)
 Verily, a reservation of the government of its right to reject any bid, generally vests in the authorities a wide discretion as to who is the best
and most advantageous bidder. The exercise of such discretion involves inquiry, investigation, comparison, deliberation and decision, which are
quasi-judicial functions, and when honestly exercised, may not be reviewed by the court. [30] In Bureau Veritas v. Office of the
President,[31] we decreed:

The discretion to accept or reject a bid and award contracts is vested in the Government agencies entrusted with that function. The
discretion given to the authorities on this matter is of such wide latitude that the Courts will not interfere therewith, unless it is apparent
that it is used as a shield to a fraudulent award. (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x. The exercise of this discretion is a policy
decision that necessitates prior inquiry, investigation, comparison, evaluation, and deliberation. This task can best be discharged by the
Government agencies concerned, not by the Courts. The role of the Courts is to ascertain whether a branch or instrumentality of the Government
has transgresses its constitutional boundaries. But the Courts will not interfere with executive or legislative discretion exercised within those
boundaries. Otherwise, it strays into the realm of policy decision-making. x x x. (Emphasis supplied)

Owing to the discretionary character of the right involved in this case, the propriety of NAPOCORs act should therefore be judged on the
basis of the general principles regulating human relations, the forefront provision of which is Article 19 of the Civil Code which provides that
every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith.[32] Accordingly, a person will be protected only when he acts in the legitimate exercise of his right, that is, when he acts with
prudence and in good faith; but not when he acts with negligence or abuse. [33]

Did NAPOCOR abuse its right or act unjustly in disqualifying PHIBRO from the public bidding?

We rule in the negative.

In practice, courts, in the sound exercise of their discretion, will have to determine under all the facts and circumstances when the exercise
of a right is unjust, or when there has been an abuse of right.[34]

We went over the record of the case with painstaking solicitude and we are convinced that NAPOCORs act of disapproving PHIBRO's
application for pre-qualification to bid was without any intent to injure or a purposive motive to perpetrate damage. Apparently, NAPOCOR
acted on the strong conviction that PHIBRO had a seriously-impaired track record. NAPOCOR cannot be faulted from believing so. At this
juncture, it is worth mentioning that at the time NAPOCOR issued its subsequent Invitation to Bid, i.e., October 1987, PHIBRO had not yet
delivered the first shipment of coal under the July 1987 contract, which was due on or before September 5, 1987. Naturally, NAPOCOR is
justified in entertaining doubts on PHIBROs qualification or capability to assume an obligation under a new contract.

Moreover, PHIBROs actuation in 1987 raised doubts as to the real situation of the coal industry in Australia. It appears from the records
that when NAPOCOR was constrained to consider an offer from another coal supplier (ASEA) at a price of US$33.44 per metric ton, PHIBRO
unexpectedly offered the immediate delivery of 60,000 metric tons of Ulan steam coal at US$31.00 per metric ton for arrival at Calaca, Batangas
on September 20-21, 1987.[35]Of course, NAPOCOR had reason to ponder-- how come PHIBRO could assure the immediate delivery of
60,000 metric tons of coal from the same source to arrive at Calaca not later than September 20/21, 1987 but it could not deliver the coal
it had undertaken under its contract?

Significantly, one characteristic of a fortuitous event, in a legal sense, and consequently in relations to contracts, is that the concurrence
must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. [36] Faced with the above circumstance,
NAPOCOR is justified in assuming that, may be, there was really no fortuitous event or force majeure which could render it impossible for
PHIBRO to effect the delivery of coal.Correspondingly, it is also justified in treating PHIBROs failure to deliver a serious impairment of its track
record. That the trial court, thereafter, found PHIBROs unexpected offer actually a result of its desire to minimize losses on the part of
NAPOCOR is inconsequential. In determining the existence of good faith, the yardstick is the frame of mind of the actor at the time he committed
the act, disregarding actualities or facts outside his knowledge. We cannot fault NAPOCOR if it mistook PHIBROs unexpected offer a mere
attempt on the latters part to undercut ASEA or an indication of PHIBROs inconsistency. The circumstances warrant such contemplation.

That NAPOCOR believed all along that PHIBROs failure to deliver on time was unfounded is manifest from its letters[37] reminding
PHIBRO that it was bound to deliver the coal within 30 days from its (PHIBROs) receipt of the Letter of Credit, otherwise it would be
constrained to take legal action.The same honest belief can be deduced from NAPOCORs Board Resolution, thus:

On the legal aspect, Management stressed that failure of PBO to deliver under the contract makes them liable for damages, considering
that the reasons invoked were not valid. The measure of the damages will be limited to actual and compensatory damages. However, it
was reported that Philipp Brothers advised they would like to have continuous business relation with NPC so they are willing to sit down or even
proposed that the case be submitted to the Department of Justice as to avoid a court action or arbitration.

xxxxxx

On the technical-economic aspect, Management claims that if PBO delivers in November 1987 and January 1988, there are some advantages. If
PBO reacts to any legal action and fails to deliver, the options are: one, to use 100% Semirara and second, to go into urgent coal order. The first
option will result in a 75 MW derating and oil will be needed as supplement. We will stand to lose around P30 M. On the other hand, if NPC
goes into an urgent coal order, there will be an additional expense of $786,000 or P16.11 M, considering the price of the latest purchase with
ASEA. On both points, reliability is decreased.[38]

The very purpose of requiring a bidder to furnish the awarding authority its pre-qualification documents is to ensure that only those
responsible and qualified bidders could bid and be awarded with government contracts. It bears stressing that the award of a contract is measured
not solely by the smallest amount of bid for its performance, but also by the responsibility of the bidder. Consequently, the integrity, honesty, and
trustworthiness of the bidder is to be considered. An awarding official is justified in considering a bidder not qualified or not responsible if he has
previously defrauded the public in such contracts or if, on the evidence before him, the official bona fide believes the bidder has committed such
fraud, despite the fact that there is yet no judicial determination to that effect. [39] Otherwise stated, if the awarding body bona fide believes
that a bidder has seriously impaired its track record because of a particular conduct, it is justified in disqualifying the bidder. This policy is
necessary to protect the interest of the awarding body against irresponsible bidders.
 Thus, one who acted pursuant to the sincere belief that another willfully committed an act prejudicial to the interest of the government
cannot be considered to have acted in bad faith. Bad faith has always been a question of intention. It is that corrupt motive that operates in the
mind. As understood in law, it contemplates a state of mind affirmatively operating with furtive design or with some motive of self-interest or ill-
will or for ulterior purpose.[40]While confined in the realm of thought, its presence may be ascertained through the partys actuation or through
circumstantial evidence.[41] The circumstances under which NAPOCOR disapproved PHIBRO's pre-qualification to bid do not show an intention
to cause damage to the latter. The measure it adopted was one of self-protection. Consequently, we cannot penalize NAPOCOR for the course of
action it took. NAPOCOR cannot be made liable for actual, moral and exemplary damages.

Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the Regional Trial Court computed what could have been
the profits of PHIBRO had NAPOCOR allowed it to participate in the subsequent public bidding. It ruled that PHIBRO would have won the
tenders for the supply of about 960,000 metric tons out of at least 1,200,000 metric tons from the public bidding of December 1987 to 1990. We
quote the trial courts ruling, thus:

x x x. PHIBRO was unjustly excluded from participating in at least five (5) tenders beginning December 1987 to 1990, for the supply and
delivery of imported coal with a total volume of about 1,200,000 metric tons valued at no less than US$32 Million. (Exhs. AA, AA-1, to AA-2).
The price of imported coal for delivery in 1988 was quoted in June 1988 by bidders at US$ 41.35 to US $ 43.95 per metric ton (Exh. JJ); in
September 1988 at US$41.50 to US$49.50 per metric ton (Exh. J-1); in November 1988 at US$ 39.00 to US$ 48.50 per metric ton (Exh. J-2) and
for the 1989 deliveries, at US$ 44.35 to US$ 47.35 per metric ton (Exh. J-3) and US$38.00 to US$48.25 per metric ton in September 1990 (Exh.
JJ-6 and JJ-7). PHIBRO would have won the tenders for the supply and delivery of about 960,000 metric tons of coal out of at least 1,200,000
metric tons awarded during said period based on its proven track record of 80%. The Court, therefore finds that as a result of its
disqualification, PHIBRO suffered damages equivalent to its standard 3% margin in 960,000 metric tons of coal at the most conservative
price of US$ 30.000 per metric ton, or the total of US$ 864,000 which PHIBRO would have earned had it been allowed to participate in
biddings in which it was disqualified and in subsequent tenders for supply and delivery of imported coal.

We find this to be erroneous.

Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with
reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof. [42] A court cannot merely
rely on speculations, conjectures, or guesswork as to the fact and amount of damages. Thus, while indemnification for damages shall comprehend
not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain,[43] it is imperative that the basis of the alleged
unearned profits is not too speculative and conjectural as to show the actual damages which may be suffered on a future period.

In Pantranco North Express, Inc. v. Court of Appeals,[44] this Court denied the plaintiffs claim for actual damages which was premised on a
contract he was about to negotiate on the ground that there was still the requisite public bidding to be complied with, thus:

As to the alleged contract he was about to negotiate with Minister Hipolito, there is no showing that the same has been awarded to him. If Tandoc
was about to negotiate a contract with Minister Hipolito, there was no assurance that the former would get it or that the latter would award the
contract to him since there was the requisite public bidding. The claimed loss of profit arising out of that alleged contract which was still to
be negotiated is a mere expectancy. Tandocs claim that he could have earned P2 million in profits is highly speculative and no concrete
evidence was presented to prove the same. The only unearned income to which Tandoc is entitled to from the evidence presented is that for the
one-month period, during which his business was interrupted, which is P6,125.00, considering that his annual net income was P73, 500.00.

In Lufthansa German Airlines v. Court of Appeals,[45] this Court likewise disallowed the trial court's award of actual damages for
unrealized profits in the amount of US$75,000.00 for being highly speculative. It was held that the realization of profits by respondent x x x was
not a certainty, but depended on a number of factors, foremost of which was his ability to invite investors and to win the bid. This Court went
further saying that actual or compensatory damages cannot be presumed, but must be duly proved, and proved with reasonable degree of
certainty.

And in National Power Corporation v. Court of Appeals,[46] the Court, in denying the bidders claim for unrealized commissions, ruled that
even if NAPOCOR does not deny its (bidder's) claims for unrealized commissions, and that these claims have been transmuted into judicial
admissions, these admissions cannot prevail over the rules and regulations governing the bidding for NAPOCOR contracts, which necessarily and
inherently include the reservation by the NAPOCOR of its right to reject any or all bids.

The award of moral damages is likewise improper. To reiterate, NAPOCOR did not act in bad faith. Moreover, moral damages are not, as
a general rule, granted to a corporation.[47] While it is true that besmirched reputation is included in moral damages, it cannot cause mental
anguish to a corporation, unlike in the case of a natural person, for a corporation has no reputation in the sense that an individual has, and besides,
it is inherently impossible for a corporation to suffer mental anguish. [48] In LBC Express, Inc. v. Court of Appeals,[49] we ruled:

Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person and having existence only in legal
contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering
can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life all of which cannot be suffered by
respondent bank as an artificial person.

Neither can we award exemplary damages under Article 2234 of the Civil Code. Before the court may consider the question of whether or
not exemplary damages should be awarded, the plaintiff must show that he is entitled to moral, temperate, or compensatory damages.

NAPOCOR, in this petition, likewise contests the judgment of the lower courts awarding PHIBRO the amount of $73,231.91 as
reimbursement for expenses, cost of litigation and attorneys fees.

We agree with NAPOCOR.

This Court has laid down the rule that in the absence of stipulation, a winning party may be awarded attorney's fees only in case plaintiff's
action or defendant's stand is so untenable as to amount to gross and evident bad faith. [50] This cannot be said of the case at bar. NAPOCOR is
justified in resisting PHIBROs claim for damages. As a matter of fact, we partially grant the prayer of NAPOCOR as we find that it did not act in
bad faith in disapproving PHIBRO's pre-qualification to bid.

Trial courts must be reminded that attorney's fees may not be awarded to a party simply because the judgment is favorable to him, for it
may amount to imposing a premium on the right to redress grievances in court. We adopt the same policy with respect to the expenses of
litigation. A winning party may be entitled to expenses of litigation only where he, by reason of plaintiff's clearly unjustifiable claims or
defendant's unreasonable refusal to his demands, was compelled to incur said expenditures. Evidently, the facts of this case do not warrant the
granting of such litigation expenses to PHIBRO.

At this point, we believe that, in the interest of fairness, NAPOCOR should give PHIBRO another opportunity to participate in future
public bidding.As earlier mentioned, the delay on its part was due to a fortuitous event.

But before we dispose of this case, we take this occasion to remind PHIBRO of the indispensability of coal to a coal-fired thermal
plant. With households and businesses being entirely dependent on the electricity supplied by NAPOCOR, the delivery of coal cannot be
venturesome. Indeed, public interest demands that one who offers to deliver coal at an appointed time must give a reasonable assurance that it can
carry through. With the deleterious possible consequences that may result from failure to deliver the needed coal, we believe there is greater
strain of commitment in this kind of obligation.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 126204 dated August 27, 1996 is hereby MODIFIED. The
award, in favor of PHIBRO, of actual, moral and exemplary damages, reimbursement for expenses, cost of litigation and attorneys fees, and costs
of suit, is DELETED.

SO ORDERED.
ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING
CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO, respondents.

DECISION

DAVIDE, JR., C.J.:

In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter ABS-CBN) seeks to reverse and set aside
the decision[1] of 31 October 1996 and the resolution [2] of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former
affirmed with modification the decision[3] of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-
12309. The latter denied the motion to reconsider the decision of 31 October 1996.

The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:

In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby Viva gave ABS-CBN an exclusive right to exhibit some
Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating that-

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as may be agreed upon
by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN from the actual offer in writing.

Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three (3) film packages (36
title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement (Exhs. 1 par. 2, 2, 2-A and 2-B Viva). ABS-
CBN, however through Mrs. Concio, can tick off only ten (10) titles (from the list) we can purchase (Exh. 3 Viva) and therefore did not accept
said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film Maging Sino Ka
Man.

For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva) is hereby quoted:

6 January 1992

Dear Vic,

This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending the purchase of the three
film packages you are offering ABS-CBN.

From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will understand my position. Most
of the action pictures in the list do not have big action stars in the cast. They are not for primetime. In line with this I wish to mention that I have
not scheduled for telecast several action pictures in our very first contract because of the cheap production value of these movies as well as the
lack of big action stars.As a film producer, I am sure you understand what I am trying to say as Viva produces only big action pictures.

In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in out non-primetime slots. We have to cover
the amount that was paid for these movies because as you very well know that non-primetime advertising rates are very low. These are the
unaired titles in the first contract.

1. Kontra Persa [sic]

2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon

I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to have them aired at 9:00 p.m.
due to their very adult themes.

As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies produced last year, I have quite
an attractive offer to make.

Thanking you and with my warmest regards.

(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list consisting of 52 original movie titles (i.e., not yet
aired on television) including the 14 titles subject of the present case, as well as 104 re-runs (previously aired on television) from which ABS-
CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-
runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. 4 to 4-C Viva; 9 Viva).

On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon
City to discuss the package proposal of VIVA. What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified
that he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive film rights to fourteen (14) films for a total consideration
of P36 million; that he allegedly put this agreement as to the price and number of films in a napkin and signed it and gave it to Mr. Del Rosario
(Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand. Del Rosario denied having made any agreement with Lopez regarding the 14
Viva films; denied the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez discussed at the lunch meeting
was Vivas film package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a
counter proposal which came in the form of a proposal contract Annex C of the complaint (Exh. 1 Viva; Exh C ABS-CBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions of Vivas
offer to sell the 104 films, after the rejection of the same package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note from Ms. Concio, (Exh. 5 Viva), which reads:
Heres the draft of the contract. I hope you find everything in order, to which was attached a draft exhibition agreement (Exh. C ABS-CBN; Exh.
9 Viva p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film was added by Ms.
Concio, for a consideration of P35 million. Exhibit C provides that ABS-CBN is granted film rights to 53 films and contains a right of first
refusal to 1992 Viva Films.The said counter proposal was however rejected by Vivas Board of Directors [in the] evening of the same day, April
7, 1992, as Viva would not sell anything less than the package of 104 films for P60 million pesos (Exh. 9 Viva), and such rejection was relayed to
Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Vivas President
Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992, granting RBS the exclusive right to air 104
Viva-produced and/or acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including the fourteen (14) films subject of the present case. [4]

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction
and/or temporary restraining order against private respondents Republic Broadcasting Corporation [5] (hereafter RBS), Viva Production (hereafter
VIVA), and Vicente del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.

On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining private respondents from proceeding with the airing,
broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging Sino Ka Man, which was
scheduled to be shown on private respondent RBS channel 7 at seven oclock in the evening of said date.

On 17 June 1992, after appropriate proceedings, the RTC issued an order [7] directing the issuance of a writ of preliminary injunction upon
ABS-CBNs posting of a P35 million bond. ABS-CBN moved for the reduction of the bond,[8] while private respondents moved for
reconsideration of the order and offered to put up a counterbond.[9]

In the meantime, private respondents filed separate answer with counterclaim.[10] RBS also set up a cross-claim against VIVA.

On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary injunction upon the posting by RBS of a P30 million
counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioners injunction
bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary injunction should private respondents be unable to
post a counterbond.

At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to explore the possibility of an amicable
settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million counterbond in the event that
no settlement would be reached.

As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a counterbond, which the RTC approved in its
Order of 15 October 1992.[13]

On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3 August and 15 October 1992 Orders, which RBS opposed. [15]

On 29 October, the RTC conducted a pre-trial.[16]

Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition [17] challenging the RTCs Order
of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin the RTC from enforcing said
orders. The case was docketed as CA-G.R. SP No. 29300.

On 3 November 1992, the Court of Appeals issued a temporary restraining order[18] to enjoin the airing, broadcasting, and televising of any
or all of the films involved in the controversy.

On 18 December 1992, the Court of Appeals promulgated a decision [19] dismissing the petition in CA-G.R. SP No. 29300 for being
premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993, which was docketed s G.R. No.
108363.

In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-12309. Thereafter, on 28 April 1993, it rendered a
decision[20]in favor of RBS and VIVA and against ABS-CBN disposing as follows:

WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in favor of defendants and against the plaintiff.
 (1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:

a) P107,727.00 the amount of premium paid by RBS to the surety which issued defendants RBSs bond to lift the
injunction;

b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in various newspapers;

c) Attorneys fees in the amount of P1 million;

d) P5 million as and by way of moral damages;

e) P5 million as and by way of exemplary damages;

(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorneys fees.

(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.

(5) Plaintiff to pay the costs.

According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between Lopez III and
Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved during the meeting of the Board on
7 April 1992. Hence, there was no basis for ABS-CBNs demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right
of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concios letter to Del Rosario ticking off ten
titles acceptable to them, which would have made the 1992 agreement an entirely new contract.

On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No. 108363, as no reversible error was committed by the
Court of Appeals in its challenged decision and the case had become moot and academic in view of the dismissal of the main action by the
court a quo in its decision of 28 April 1993.

Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract between ABS-
CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also appealed
seeking moral and exemplary damages and additional attorneys fees.

In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and VIVA had not been
perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, its agent, might have agreed with Lopez III. The
appellate court did not even believe ABS-CBNs evidence that Lopez III actually wrote down such an agreement on a napkin, as the same was
never produced in court. It likewise rejected ABS-CBNs insistence on its right of first refusal and ratiocinated as follows:

As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into between Appellant ABS-CBN and
appellant VIVA under Exhibit A in 1990 and that parag. 1.4 thereof provides:

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under such terms as may be agreed
upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the actual
offer in writing (Records, p. 14).

[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subjected to such terms as may be agreed upon by the
parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual offer in writing.

Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of the film right to the twenty-four (24) films, nor did
it specify the terms thereof. The same are still left to be agreed upon by the parties.

In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10) films, and the draft contract
Exhibit C accepted only fourteen (14) films, while parag. 1.4 of Exhibit A speaks of the next twenty-four (24) films.

The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when the first
list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated
January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA. As aptly observed by
the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the
fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter of Mrs. Concio, still the
fifteen (15) day period within which ABS-CBN shall exercise its right of first refusal has already expired.[22]

Accordingly, respondent court sustained the award factual damages consisting in the cost of print advertisements and the premium
payments for the counterbond, there being adequate proof of the pecuniary loss which RBS has suffered as a result of the filing of the complaint
by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBSs reputation was
debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film Maging Sino Ka Man. Respondent court
also held that exemplary damages were correctly imposed by way of example or correction for the public good in view of the filing of the
complaint despite petitioners knowledge that the contract with VIVA had not been perfected. It also upheld the award of attorneys fees, reasoning
that with ABS-CBNs act of instituting Civil Case No. Q-92-12309, RBS was unnecessarily forced to litigate. The appellate court, however,
reduced the awards of moral damages to P 2 million, exemplary damages to P2 million, and attorneys fees to P500,000.00.

On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal because it was RBS and not VIVA which was
actually prejudiced when the complaint was filed by ABS-CBN.
 Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of Appeals gravely
erred in

RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT
VIVA NOTWITHSTANDING PREPONFERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY.

II

IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.

III

IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.

IV

IN AWARDING ATORNEYS FEES OF RBS.

ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film Exhibition
Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopezs testimony that he and Del Rosario met at
the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement
thereon, wrote the same on a paper napkin. It also asserts that the contract has already been effective, as the elements thereof, namely, consent,
object, and consideration were established. It then concludes that the Court of Appeals pronouncements were not supported by law and
jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals, [23] which cited Toyota Shaw, Inc. v.
Court of Appeals;[24] Ang Yu Asuncion v. Court of Appeals,[25]and Villonco Realty Company v. Bormaheco, Inc.[26]

Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the counterbond of its
own volition in order to negate the injunction issued by the trial court after the parties had ventilated their respective positions during the hearings
for the purpose. The filing of the counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to
incur such expense. Besides, RBS had another available option, i.e., move for the dissolution of the injunction; or if it was determined to put up a
counterbond, it could have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss injury is also
required to exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission. As regards the cost of
print advertisements, RBS had not convincingly established that this was a loss attributable to the non-showing of Maging Sino Ka Man; on the
contrary, it was brought out during trial that with or without the case or injunction, RBS would have spent such an amount to generate interest in
the film.

ABS-CBN further contends that there was no other clear basis for the awards of moral and exemplary damages. The controversy involving
ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such damages did not arise from any
contractual dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless; they
arose by virtue only of the filing of the complaint. An award of moral and exemplary damages is not warranted where the record is bereft of any
proof that a party acted maliciously or in bad faith in filing an action. [27] In any case, free resort to courts for redress of wrongs is a matter of
public policy. The law recognizes the right of every one to sue for that which he honestly believes to be his right without fear of standing trial for
damages where by lack of sufficient evidence, legal technicalities, or a different interpretation of the laws on the matter, the case would lose
ground.[28] One who, makes use of his own legal right does no injury. [29] If damage results from filing of the complaint, it is damnum absque
injuria.[30] Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by
the offending party resulting in social humiliation.[31]

As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In sustaining the
trial courts award, the Court of Appeals acted in clear disregard of the doctrine laid down in Buan v. Camaganacan[32] that the text of the decision
should state the reason why attorneys fees are being awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed
on, much less proved as having been committed by, ABS-CBN. It has been held that where no sufficient showing of bad faith would be reflected
in a partys persistence in a case other than an erroneous conviction of the righteousness of his cause, attorneys fees shall not be recovered as
cost.[33]

On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent meeting of minds between them
regarding the object and consideration of the alleged contract. It affirms that ABS-CBNs claim of a right of first refusal was correctly rejected by
the trial court.RBS insists the premium it had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to
put up the counterbond due to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid
claim against RBS and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on the
counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the loss would be equivalent to the cost of
money RBS would forego in case the P30 million came from its funds or was borrowed from banks.

RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film Maging Sino Ka Man because
the print advertisements were out to announce the showing on a particular day and hour on Channel 7, i.e., in its entirety at one time, not as series
to be shown on a periodic basis. Hence, the print advertisements were good and relevant for the particular date of showing, and since the film
could not be shown on that particular date and hour because of the injunction, the expenses for the advertisements had gone to waste.

As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the purpose of
harassing and prejudicing RBS. Pursuant then to Articles 19 and 21 of the Civil Code, ABS-CBN must be held liable for such
damages. Citing Tolentino,[34] damages may be awarded in cases of abuse of rights even if the done is not illicit, and there is abuse of rights where
a plaintiff institutes an action purely for the purpose of harassing or prejudicing the defendant.

In support of its stand that a juridical entity can recover moral and exemplary damages, private respondent RBS cited People v.
Manero,[35] where it was stated that such entity may recover moral and exemplary damages if it has a good reputation that is debased resulting in
social humiliation. It then ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this case. When RBS was not able to fulfill its commitment to
the viewing public to show the film Maging Sino Ka Man on the scheduled dates and times (and on two occasions that RBS advertised), it
suffered serious embarrassment and social humiliation. When the showing was cancelled, irate viewers called up RBS offices and subjected RBS
to verbal abuse (Announce kayo ng announce, hindi ninyo naman ilalabas, nanloloko yata kayo) (Exh. 3-RBS, par.3). This alone was not
something RBS brought upon itself. It was exactly what ABS-CBN had planted to happen.

The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of the award.

The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a broadcasting company is [sic] nationwide. Its
clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an exaggeration to state, and it is a matter of judicial
notice that almost every other person in the country watches television. The humiliation suffered by RBS is multiplied by the number of
televiewers who had anticipated the showing of the film, Maging Sino Ka Man on May 28 and November 3, 1992 but did not see it owing to the
cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and to whom RBS had a commitment in
consideration of the placement to show the film in the dates and times specified.

The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation and injury are far greater in degree when caused by
an entity whose ultimate business objective is to lure customers (viewers in this case) away from the competition.[36]

For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do not support
ABS-CBNs claim that there was a perfected contract. Such factual findings can no longer be disturbed in this petition for review under Rule 45,
as only questions of law can be raised, not questions of fact. On the issue of damages and attorneys fees, they adopted the arguments of RBS.

The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2) whether RBS is
entitled to damages and attorneys fees. It may be noted that that award of attorneys fees of P212,000 in favor of VIVA is not assigned as another
error.

The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one binds himself to
give something or render some service to another[37] for a consideration. There is no contract unless the following requisites concur: (1) consent of
the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the obligation, which is established.[38] A contract
undergoes three stages:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of
the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. [39]

Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence between the offer and the
acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the offer
into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and
without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a
rejection of the original offer.Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not
sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer. [40]

When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the package of films, said
package of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent through Ms.
Concio, counter-proposal in the form a draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal
could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there
was no acceptance of VIVAs offer, for it was met by a counter-offer which substantially varied the terms of the offer.

ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals [41] and Villonco Realty Company v. Bormaheco, Inc.,[42] is
misplaced. In these cases, it was held that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding
acceptance as long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is
granted or not. This ruling was, however, reversed in the resolution of 29 March 1996, [43] which ruled that the acceptance of an offer must be
unqualified and absolute, i.e., it must be identical in all respects with that of the offer so as to produce consent or meetings of the minds.

On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but merely
clarificatory of what had previously been agreed upon. It cited the statement in Stuart v. Franklin Life Insurance Co.[44] that a vendors change in a
phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a rejection of the offer and
the tender of a counter-offer.[45]However, when any of the elements of the contract is modified upon acceptance, such alteration amounts to a
counter-offer.

In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they underwent period of bargaining. ABS-CBN then
formalized its counter-proposals or counter-offer in a draft contract. VIVA through its Board of Directors, rejected such counter-offer. Even if it
be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that
Del Rosario had the specific authority to do so.

Under the Corporation Code,[46] unless otherwise provided by said Code, corporate powers, such as the power to enter into contracts, are
exercised by the Board of Directors. However, the Board may delegate such powers to either an executive committee or officials or contracted
managers. The delegation, except for the executive committee, must be for specific purposes.[47] Delegation to officers makes the latter agents of
the corporation; accordingly, the general rules of agency as to the binding effects of their acts would apply.[48] For such officers to be deemed
fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so. that Del Rosario did not have
the authority to accept ABS-CBNs counter-offer was best evidenced by his submission of the draft contract to VIVAs Board of Directors for the
latters approval. In any event, there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are
instructive:

A number of considerations militate against ABS-CBNs claim that a contract was perfected at that lunch meeting on April 02, 1992 at the
Tamarind Grill.

FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of films, which he wrote on a
napkin.However, Exhibit C contains numerous provisions which were not discussed at the Tamarind Grill, if Lopez testimony was to be believed
nor could they have been physically written on a napkin. There was even doubt as to whether it was a paper napkin or cloth napkin. In short what
were written in Exhibit C were not discussed, and therefore could not have been agreed upon, by the parties. How then could this court compel
the parties to sign Exhibit C when the provisions thereof were not previously agreed upon?

SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The complaint in fact prays for
delivery of 14 films. But Exhibit C mentions 53 films as its subject matter. Which is which? If Exhibit C reflected the true intent of the parties,
then ABS-CBNs claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then Exhibit C did not reflect what was
agreed upon by the parties. This underscores the fact that there was no meeting of the minds as to the subject matter of the contract, so as to
preclude perfection thereof. For settled is the rule that there can be no contract where there is no object certain which is its subject matter (Art.
1318, NCC).

THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D) States:

We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and we agreed to pay Viva the
amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We had already earmarked this P16,050,000.00.

which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00 equals P36,000,000.00).

On cross-examination Mr. Lopez testified:

Q What was written in this napkin?

A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies because the price was
broken down accordingly.The none [sic] Viva and the seven other Viva movies and the sharing between the cash portion and the
concerned spot portion in the total amount of P35 million pesos.

Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.

FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr. Del Rosario with a handwritten note, describing
said Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The said draft has a well defined meaning.

Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms and conditions thereof could
not have been previously agreed upon by ABS-CBN and Viva. Exhibit C could not therefore legally bind Viva, not having agreed thereto. In fact,
Ms. Concio admitted that the terms and conditions embodied in Exhibit C were prepared by ABS-CBNs lawyers and there was no discussion on
said terms and conditions.

As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there was no evidence whatsoever that Viva agreed to
the terms and conditions thereof, said document cannot be a binding contract. The fact that Viva refused to sign Exhibit C reveals only two [sic]
well that it did not agree on its terms and conditions, and this court has no authority to compel Viva to agree thereto.

FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only provisional, in the sense that it
was subject to approval by the Board of Directors of Viva. He testified:

Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you claimed that you have the meeting of the minds
between you and Mr. Vic del Rosario, what happened?

A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of Directors.

Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?

A Yes, sir.

Q So, he was going to forward that to the board of Directors for approval?

A Yes, sir (Tsn, pp. 42-43, June 8, 1992)

Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?

A Yes, sir. (Tsn, p. 69, June 8, 1992).

The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva to a contract with ABS-CBN
until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario is the Executive Producer of defendant
Viva which is a corporation. (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its
Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by plaintiff,
Del Rosario could not be held liable jointly and severally with Viva and his inclusion as party defendant has no legal basis. (Salonga vs. Warner
Barnes [sic],COLTA, 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).

The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have been agreed upon at the
Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because corporate power to enter into a
contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever agreement
Lopez and Del Rosario arrived at could not ripen into a valid binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The
evidence adduced shows that the Board of Directors of Viva rejected Exhibit C and insisted that the film package for 104 films be maintained
(Exh. 7-1 Cica).[49]

The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film Exhibition
Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is untenable. As observed by the
trial court, ABS-CBNs right of first refusal had already been exercised when Ms. Concio wrote to Viva ticking off ten films. Thus:

[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely different package. Ms. Concio
herself admitted on cross-examination to having used or exercised the right of first refusal. She stated that the list was not acceptable and
was indeed not accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of first refusal may
have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic]
that ABS-CBN has lost its right of first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11).[50]

II

However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the
Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to compensation
for actual damages only for such pecuniary loss suffered by him as he has duly proved. [51] The indemnification shall comprehend not only the
value of the loss suffered, but also that of the profits that the obligee failed to obtain. [52] In contracts and quasi-contracts the damages which may
be awarded are dependent on whether the obligor acted with good faith or otherwise. In case of good faith, the damages recoverable are those
which are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably
foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be
responsible for all damages which may be reasonably attributed to the non-performance of the obligation.[53] In crimes and quasi-delicts, the
defendants shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, whether or not
such damages have been foreseen or could have reasonably been foreseen by the defendant.[54]

Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury,
or for injury to the plaintiffs business standing or commercial credit.[55]

The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing of
the complaint despite ABS-CBNs alleged knowledge of lack of cause of action. Thus paragraph 12 of RBSs Answer with Counterclaim and
Cross-claim under the heading COUNTERCLAIM specifically alleges:

12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against RBS. As a result thereof, RBS suffered
actual damages in the amount of P6,621,195.32.[56]

Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could only probably take
refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:

ART. 19. Every person must, in the exercise of hid rights and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.

ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another shall indemnify the latter for the same.

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.

It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant may suffer by
reason of the writ are recoverable from the injunctive bond. [57] In this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it
asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the matter. Clearly then, it was not necessary for
RBS to file a counterbond.Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond.

Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man for lack of sufficient legal basis. The RTC issued
a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed sufficient ground for
the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual basis, but because of the plea of
RBS that it be allowed to put up a counterbond.

As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys fees may be recovered as actual or compensatory
damages under any of the circumstances provided for in Article 2208 of the Civil Code.[58]

The general rule is that attorneys fees cannot be recovered as part of damages because of the policy that no premium should be placed on
the right to litigate.[59] They are not to be awarded every time a party wins a suit. The power of the court t award attorneys fees under Article 2208
demands factual, legal, and equitable justification.[60] Even when a claimant is compelled to litigate with third persons or to incur expenses to
protect his rights, still attorneys fees may not be awarded where no sufficient showing of bad faith could be reflected in a partys persistence in a
case other than an erroneous conviction of the righteousness of his cause.[61]

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are
included in moral damages, while Article 2219 enumerates the cases where they may be recovered. Article 2220 provides that moral damages
may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBSs claim for moral damages could possibly
fall only under item (10) of Article 2219, thereof which reads:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.

Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty
on the wrongdoer.[62] The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain
means, diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed at the restoration, within the limits of
the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted. [63] Trial courts must then guard against the
award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion,
prejudice, or corruption or the part of the trial court.[64]

The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in
legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can
be experienced only by one having a nervous system.[65] The statement in People v. Manero[66] and Mambulao Lumber Co. v. PNB[67] that a
corporation may recover moral damages if it has a good reputation that is debased, resulting in social humiliation is an obiter dictum. On this
score alone the award for damages must be set aside, since RBS is a corporation.

The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of
example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages.[68] They are recoverable in
criminal cases as part of the civil liability when the crime was committed with one or more aggravating circumstances;[69] in quasi-delicts, if the
defendant acted with gross negligence;[70] and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.[71]

It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict. Hence, the
claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code.

The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised in bad
faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all provisions of law which do not
especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the following elements: (1) there is an act
which is legal, (2) but which is contrary to morals, good custom, public order, or public policy, and (3) and it is done with intent to injure. [72]

Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design to
do a wrongful act for a dishonest purpose or moral obliquity.[73] Such must be substantiated by evidence.[74]

There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its cause after it
had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that the adverse result of an action
does not per se make the action wrongful and subject the actor to damages, for the law could not have meant impose a penalty on the right to
litigate. If damages result from a persons exercise of a right, it is damnum absque injuria.[75]

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No. 44125 is hereby
REVERSED except as to unappealed award of attorneys fees in favor of VIVA Productions, Inc.

No pronouncement as to costs.

SO ORDERED.