GR 201436; (July, 2016) (Digest)
G.R. No. 201436 , July 11, 2016
SPOUSES MAMERTO and ADELIA TIMADO, Petitioners, vs. RURAL BANK OF SAN JOSE, INC., TEDDY MONASTERIO, and ATTY. AVELINO SALES, Respondents.
FACTS
Petitioners obtained a loan from respondent Rural Bank, secured by real estate and chattel mortgages. Upon default, the bank initiated foreclosure. Petitioners filed a complaint for reformation of instruments and a petition for injunction. No injunction was issued. The bank proceeded with an extrajudicial foreclosure sale, became the highest bidder, and, after petitioners failed to redeem, consolidated title. Petitioners then filed a petition for indirect contempt, alleging the bank pre-empted judicial authority by foreclosing during the pendency of their case. The Regional Trial Court (RTC) dismissed both the complaint and the contempt petition, awarded exemplary damages and attorney’s fees to the respondents, and ordered the issuance of a writ of possession. The Court of Appeals affirmed the dismissal and the writ but deleted moral damages and reduced exemplary damages.
ISSUE
The core issues are: (1) whether the award of exemplary damages is proper absent an award of moral, temperate, liquidated, or compensatory damages; and (2) whether the award of attorney’s fees is legally justified.
RULING
The Supreme Court ruled the petition partly meritorious. On the first issue, the Court deleted the award of exemplary damages. Exemplary damages are imposed by way of example for the public good and are recoverable only in addition to other forms of damages, such as moral, temperate, liquidated, or compensatory damages. They cannot stand alone. Since the Court of Appeals had already deleted the award of moral damages and no other base damages were awarded, the legal prerequisite for exemplary damages was absent. The Court emphasized that exemplary damages are not recoverable as a matter of right and depend on an award of base damages.
On the second issue, the Court sustained the award of attorney’s fees but reduced the amount. Attorney’s fees are not recoverable as a matter of course; they must be justified. The Court found legal basis under Article 2208(4) of the Civil Code, which allows recovery when the action is clearly unfounded. The petitioners’ filing of multiple suits, including contempt charges, despite the absence of a court order enjoining the foreclosure and their clear default, constituted a clearly unfounded civil action that compelled the respondents to incur litigation expenses. However, the Court found the awarded amount excessive and reduced it to a reasonable sum of ₱100,000.00. The decision of the Court of Appeals was thus affirmed with modification: the exemplary damages were deleted, and attorney’s fees were fixed at ₱100,000.00.