G.R. No. L-66070 October 31, 1984
Equitable Banking Corporation, petitioner, vs. Intermediate Appellate Court, Zenia Villariza, Armando Villariza and Fernando N. Contreras, respondents.

FACTS

The Villariza spouses, with lawyer Fernando N. Contreras as co-maker, obtained a loan from Equitable Banking Corporation. After several partial payments, a balance of P250 remained overdue. The bank’s counsel, after a phone conversation with Contreras where Contreras allegedly told him to proceed with filing the case, instituted a collection suit on December 22, 1977. The following day, Contreras paid the P250 principal but not the accrued interest and costs. The bank’s lawyer, unaware of this payment, filed the suit. Upon later learning of the payment, the lawyer filed a notice of dismissal on February 10, 1978, before summons could be served on Contreras. The city court dismissed the complaint.
Contreras and the Villarizas then filed a separate action against the bank, claiming the collection suit constituted malicious prosecution that caused them mental anguish and besmirched reputation. They sought moral and exemplary damages totaling P80,000, plus attorney’s fees. The trial court awarded Contreras P40,000 in moral and exemplary damages and P6,000 in attorney’s fees, a decision affirmed by the Intermediate Appellate Court. The bank appealed to the Supreme Court.

ISSUE

Whether the filing of the collection suit by the bank constituted malicious prosecution, thereby entitling Contreras to an award of moral and exemplary damages.

RULING

No. The Supreme Court reversed the lower courts’ decisions and dismissed the complaint. The Court held that the bank’s action was filed in good faith (uberrima fides) and with probable cause, as the P250 debt was legitimately overdue. The essential elements of malice and lack of probable cause for a claim of malicious prosecution were absent. The suit was dismissed promptly upon the bank’s discovery of the payment, even before Contreras was served with summons.
The Court cited the controlling precedent of Inhelder Corporation vs. Court of Appeals, where an erroneously filed collection suit, absent malice, did not justify an award of damages. Moral damages are not recoverable merely for an unsuccessful suit filed in good faith; litigation expenses and annoyance are part of the social burden of maintaining a legal system. Since the claim of malicious prosecution was unfounded, the award of exemplary damages also lacked legal basis. The Court, however, dismissed the bank’s counterclaim for damages, upholding the principle that there should be no penalty on the right to litigate.