G.R. No. L-50092 December 18, 1979
RAMON A. GONZALES, petitioner, vs. NATIONAL HOUSING CORPORATION, BENJAMIN DEL ROSARIO, GREGORIO S. LICAROS, ROBERTO S. BENEDICTO, GILBERTO TEODORO, ESTEBAN BERNIDO, SOCIAL SECURITY SYSTEM, GOVERNMENT SERVICE INSURANCE SYSTEM, PHILIPPINE NATIONAL BANK, DEVELOPMENT BANK OF THE PHILIPPINES and ROBERT HILDEBRAND MASCHINEHANDEL, GMDH, respondents.

FACTS

This is a taxpayer’s suit filed by Ramon A. Gonzales. The National Housing Corporation (NHC) was incorporated in 1968 by heads of various government financial institutions to assist in the government’s low-cost housing program. Its capitalization was later increased to P100 million, with major subscriptions from government-owned corporations. In November 1968, NHC entered into a contract with Robert Hildebrand Maschinehandel, a German corporation, for the supply of machinery. Petitioner filed a complaint before the Court of First Instance of Manila seeking the annulment of this contract. He alleged that NHC was illegally created under the general Corporation Law instead of a special legislative act, making it a void corporation without authority to contract. He further contended that the government financial institutions lacked the power to invest in NHC. Prior to this suit, petitioner had filed a Petition for Prohibition with this Court (G.R. No. L-30080), which was dismissed, and the Solicitor General had filed a quo warranto action directly challenging NHC’s legality.

ISSUE

The primary issue resolved by the Supreme Court was whether the Court of Appeals erred in awarding attorney’s fees and litigation expenses to the respondents upon finding petitioner’s suit to be “clearly unfounded.”

RULING

The Supreme Court reversed the award of attorney’s fees and litigation expenses. The Court held that the Court of Appeals had jurisdiction over the appeal, as respondents’ assignments of error involved mixed questions of fact and law, particularly concerning the factual basis for finding the suit “unfounded” and the reasonableness of the awarded fees. However, on the merits, the Supreme Court found the award improper. The legal logic is anchored on the principle that, in the absence of a stipulation, attorney’s fees may only be awarded if the losing party’s action or defense is so untenable as to constitute gross and evident bad faith. The Court emphasized that fraud or bad faith cannot be presumed and must be established by clear evidence. Examining petitioner’s actions, the Court found no sufficient showing of bad faith. His persistence in filing multiple suits, including this taxpayer’s action, could be attributed more to an erroneous but sincere conviction in the righteousness of his cause rather than to an intent to harass or vex the respondents. Granting attorney’s fees simply because the judgment was favorable to the defendants would impermissibly impose a premium on the constitutional right to seek judicial redress. Therefore, while the dismissal of the main complaint was affirmed, the ancillary award of damages was set aside.