GR L 45770; (March, 1988) (Digest)
G.R. No. L-45770 March 30, 1988
PHILIPPINE NATIONAL BANK, petitioner, vs. THE HONORABLE COURT OF APPEALS, NAPOLEON C. NAVARRO, PATRICIA CRUZ, VICENTE B. MEDINA and LETICIA LOPEZ, respondents.
FACTS
Petitioner Philippine National Bank (PNB) filed Civil Case No. 4507 to annul a Deed of Sale executed by its former employee, respondent Napoleon Navarro, and his wife Patricia Cruz, in favor of respondent spouses Vicente Medina and Leticia Lopez. Navarro had defalcated bank funds. The sale was registered on February 25, 1965, the same day PNB filed a separate collection case (Civil Case No. 4506) against Navarro and sought a writ of preliminary attachment. PNB alleged the sale was fraudulent, executed to prevent the attachment of the property. The Medina spouses countered in their answer that they were buyers in good faith and filed a counterclaim for damages, later amended to seek P100,000 in moral and exemplary damages and P5,000 in attorney’s fees, alleging the suit besmirched their reputation.
ISSUE
The primary issues were: (1) whether the Court of Appeals erred in dismissing PNB’s complaint to annul the sale; (2) whether the award of damages and attorney’s fees to the Medina spouses was proper; and (3) whether the trial court correctly admitted the Medina spouses’ amended counterclaim.
RULING
The Supreme Court modified the appellate decision. On the first issue, it upheld the dismissal of PNB’s annulment complaint. The Court deferred to the factual findings of the Court of Appeals, which ruled there was insufficient evidence to prove the sale was executed to defraud PNB. The findings indicated PNB was aware of the impending sale and that its purpose was for Navarro to raise funds to repay the bank. As these are factual determinations supported by evidence, they are conclusive in a petition for review.
On the second issue, the Court deleted the award of moral and exemplary damages and attorney’s fees to the Medina spouses. The Court held that a judicial action, per se, does not automatically give rise to moral damages. For such damages to be awarded, the suit must be proven to be patently frivolous, filed in bad faith, or intended to harass. PNB’s action to annul the sale, based on Navarro’s defalcation and the timing of the sale, constituted a legitimate exercise of its right to litigate. There was no clear evidence of malice or bad faith in filing the suit. Consequently, with the deletion of moral damages, the basis for exemplary damages and the grant of attorney’s fees under Article 2208(5) of the Civil Code also fell.
On the procedural issue, the Court found no reversible error in the trial court’s admission of the amended counterclaim. Lapses in the literal observance of procedural rules may be overlooked when they do not prejudice the adverse party or deprive the court of its authority. The liberal policy on procedure justified the admission.