G.R. No. L-59647 December 27, 1982
Panay Electric Co., Inc. vs. The Honorable Court of Appeals, Florentino Sarabia and Luzon Surety Co., Inc.

FACTS

Petitioner Panay Electric Co., Inc. employed private respondent Florentino Sarabia as a bill collector. In January 1965, an auditing report from Sycip, Gorres and Velayo indicated a shortage in Sarabia’s collections totaling P12,155.68 over seven and a half years. Based on this, petitioner terminated Sarabia’s services in February 1965 and later filed a suit for reimbursement against him and his surety company in June 1966. Sarabia denied the shortage, attributing it to accounting errors, and in his original Answer prayed for damages. In an Amended Answer filed in 1972, he additionally prayed for reinstatement with back wages and damages, alleging dismissal without cause.
The Trial Court found the actual shortage to be only P41.85, characterizing the case as a product of either a willful frame-up or an accounting mistake. It ordered Sarabia’s reinstatement with back wages, moral damages, exemplary damages, attorney’s fees, and litigation expenses. The Court of Appeals affirmed the finding on the minimal shortage and the reinstatement order but modified the damages awarded.

ISSUE

Whether the awards for moral and exemplary damages to Sarabia are proper, and whether his claim for reinstatement in the Amended Answer is barred by prescription or laches.

RULING

The Supreme Court modified the appellate decision. It upheld the award of actual damages (back wages limited to three years) and attorney’s fees, finding them just and equitable. However, it eliminated the awards for moral and exemplary damages. The Court ruled that moral damages were uncalled for because petitioner did not act with malice, fraud, or bad faith; it relied on an accounting firm’s letter, which was later found to be an unverified and incomplete summary. Exemplary damages were also improper as petitioner’s actions, based on the accounting findings, were not wanton, fraudulent, reckless, oppressive, or malevolent.
On the procedural issue, the Court held that the claim for reinstatement in the Amended Answer was not barred by prescription or laches. The original Answer had already alleged the fact of termination due to a disputed shortage, which was effectively an allegation of termination without cause. The amendment merely supplemented and amplified these original facts and thus related back to the commencement of the action. The order for reinstatement, subject to Sarabia’s physical fitness, was affirmed. Sarabia was also ordered to reimburse the petitioner the amount of P41.85.