G.R. No. L-13851; July 27, 1960
Deogracias F. Malonzo, petitioner, vs. Gregoria T. Galang and Francisco Galang, respondents.

FACTS

On October 5, 1946, respondent Gregoria T. Galang, wife of co-respondent Francisco Galang, obtained a loan of P5,000.00 from petitioner Deogracias F. Malonzo. On April 17, 1947, Francisco Galang received a loan check from the Rehabilitation Finance Corporation for P14,968.00, which he endorsed to Malonzo. Out of the proceeds, P10,000.00 was applied to Galang’s share in a fishing venture with Malonzo. The respondents claimed the balance of P4,968.00, plus P32.00 in cash, extinguished the P5,000.00 loan to Gregoria. Malonzo, however, alleged he returned the P4,968.00 to the Galangs via cash and a check payable to Gregoria, claiming the original loan remained unpaid. On August 27, 1955, Malonzo sued the Galang spouses for payment of the P5,000.00 loan. The trial court found the loan had been paid, dismissed the complaint, and awarded the respondents P500.00 as compensatory and moral damages and P1,000.00 as attorney’s fees under their counterclaim, a decision affirmed by the Court of Appeals. Malonzo appealed to the Supreme Court, contesting the awards for damages and attorney’s fees.

ISSUE

Whether the awards of (1) attorney’s fees, (2) compensatory damages, and (3) moral damages to the respondents were proper given the finding that the petitioner’s suit was “clearly unfounded.”

RULING

1. Attorney’s Fees: The award of attorney’s fees was correct and proper. Under Article 2208(4) of the New Civil Code, attorney’s fees are recoverable “in case of a clearly unfounded civil action or proceeding against the plaintiff.” This provision applies to a defendant’s counterclaim for attorney’s fees, as a counterclaim is essentially a complaint by the defendant against the plaintiff.
2. Compensatory Damages: The award of P500.00 as compensatory damages (excluding attorney’s fees and costs) was improper and is eliminated. While a clearly unfounded suit could be considered a tort making the plaintiff liable for damages under Article 2202, such damages must be duly proved under Article 2199 and cannot be presumed. The trial court merged this award with moral damages in a round sum without pointing to specific facts proving the actual loss suffered by the respondents beyond litigation costs.
3. Moral Damages: The award of moral damages was improper and is eliminated. Moral damages are recoverable only in the cases enumerated in Article 2219 of the New Civil Code. A “clearly unfounded civil action” is expressly listed in Article 2208 as a ground for attorney’s fees but is not included in the enumeration under Article 2219 for moral damages. The Court held it was not intended as an “analogous case” under Article 2219. Furthermore, moral damages are designed to compensate for actual injury suffered, not to penalize the wrongdoer. While no proof of pecuniary loss is required, the claimant must satisfactorily prove the factual basis of the damage and its causal relation to the defendant’s acts under Article 2217. The lower courts made no such finding, erroneously treating the award as a penalty for filing an unfounded suit.
DISPOSITIVE:
The decision appealed from is modified. The awards of compensatory and moral damages to the respondents are eliminated. The decision is affirmed in all other respects (including the award of attorney’s fees). No costs.