G.R. No. L-15512. February 28, 1962.
REHABILITATION FINANCE CORPORATION, plaintiff-appellant, vs. FRANCISCO T. KOH, et al., defendants-appellees.

FACTS

The Rehabilitation Finance Corporation (RFC) filed a complaint against Francisco T. Koh and others, alleging two alternative causes of action. The first was for damages due to alleged fraud. RFC claimed Koh, as an officer of Villanueva Steamship Co., secured a P1,300,000 loan through misrepresentations about the purchase price and financial condition of the company and the value of the vessel “SS Jolly” offered as collateral. RFC alleged Koh induced its officers to approve the loan and release the funds despite unmet conditions, and that he evaded liability by transferring his shares before the loan was finalized to avoid signing the promissory note. The second cause was an ordinary action for sum of money and foreclosure of mortgage against the other defendants for defaulting on the promissory note. The trial court, however, dismissed the complaint against Koh on the first cause and awarded him substantial damages on his counterclaim for malicious prosecution.

ISSUE

Whether the RFC acted with malice or bad faith in filing the complaint against Francisco T. Koh, thereby making it liable for damages on his counterclaim for malicious prosecution.

RULING

No. The Supreme Court reversed the trial court’s award of damages to Koh. The legal logic centers on the defense of advice of counsel against a claim of malicious prosecution. The Court found that RFC’s decision to sue was based on a prior investigation and the recommendation of a committee, which included its counsel and future judges, after considering the pertinent documents and circumstances. These circumstances included the company’s arrears in substantial loan installments and the fact that the mortgaged vessel was abroad and damaged. The Court held that, in the absence of statutory provision to the contrary, advice of counsel is a complete defense to an action for malicious prosecution when the prosecution was instituted in good faith reliance on such advice, given after a full and fair disclosure of facts. This principle applies whether the advice concerns a civil or criminal action. Crucially, it is immaterial if the attorney’s advice later proves unsound or erroneous; the client’s good faith reliance on it is what matters. Since RFC acted upon such advice, its filing of the complaint was not tainted with malice or bad faith. Consequently, Koh’s counterclaim for damages was without merit.