MORAL DAMAGES (DEFAMATION) GROUP LIBEL

ERLINDA L. PONCE, petitioner,

vs.
VALENTINO L. LEGASPI and THE HON. COURT OF APPEALS, respondents.
PRINCIPLE: Allegations and averments in a lawyer's pleadings are absolutely privileged as long as they are
relevant or pertinent to the issues (See Montenegro v. Medina, 73 Phil. 602 [1942]). The test to break
through the protective barrier of an absolutely privileged communication is not "bona fides" but relevance.
Thus, where the allegations made in the complaint for disbarment are not claimed to be irrelevant, the
complaint for disbarment is still covered by the privilege and may not be the basis of a damage suit arising
from libel.
Malice is essential to the maintenance of an action for malicious prosecution and not merely to the
recovery of exemplary damages. But malice alone does not make one liable for malicious prosecution,
where probable cause is shown, even where it appears that the suit was brought for the mere purpose of
vexing, harassing and injuring his adversary. In other words mal- ice and want of probable cause must both
exist in order to justify the action. Probable cause is the existence of such facts and circumstances as
would excite the belief, in a reasonable mind, acting on the facts within the knowledge of the prosecutor,
that the person charged was guilty of the crime (or in this case, the wrongdoing) for which he was
prosecuted. Where there is probable cause, the charge of malicious prosecution is then defeated,
regardless of considerations of malice.
FACTS: The present case stemmed from the filing before the Supreme Court on October 3, 1977 of a
complaint for disbarment against respondent Atty. Valentino Legaspi by petitioner Erlinda Ponce.
At the time of the filing of the disbarment proceedings, petitioner Ponce, together with her husband
Manuel, owned forty three percent (43%) of the stockholdings of L'NOR Marine Services, Inc. (L'NOR). She
was then Treasurer and director of the Board of Directors of L'NOR while her husband was a director. Forty
eight percent (48%) of L'NOR's stocks was owned by the spouses Edward and Norma Porter who were then
serving as President/General Manager and Secretary respectively.
The pertinent portions of the complaint are reproduced below:
10. During the time or period while respondent is the legal counsel of the aforecited corporation, there
occurred certain fraudulent manipulations, anomalous management and prejudicial operations by certain
officers of said corporation, namely: Edward J. Porter, President/General Manager; Norma Y. Porter,
Secretary; and Zenaida T. Manaloto, Director, who caused great damage and prejudice which will be
related hereunder;
14. About July, 1976, said spouses Edward J. Porter and Norma Y. Porter, together with Zenaida T. Manaloto,
facilitated, assisted and aided by herein respondent Legaspi incorporated the Yrasport Drydocks, Inc.,
hereinafter designated YRASPORT, which they control with the following stockholdings:
Edward J. Porter 180 shares
Norma Y. Porter 180 shares
Eriberto F. Yrastorza 16 shares
Zenaida T. Manaloto 8 shares
Roman M. Maceda 8 shares
Andres A. Nombrado 8 shares
and whose line of business is in direct competition with L'NOR;
15. YRASPORT, like Yrasport Enterprises, was launched without the knowledge of the minority stockholders
owning 43% of L'NOR, and was really designed to compete, if not eliminate, L'NOR as a competitor;
16. That as a matter of fact attempts were made to secure one of L'NOR jobs in favor of YRASPORT, which
fraudulent scheme was however frustrated only by the timely opposition of herein complainant;
17. YRASPORT likewise availed of and used the office space, equipment, personnel, funds, other physical
facilities, and goodwill of L'NOR while competing at the same time against and causing the latter great
damage and irreparable injury;
21. Edward J. Porter, President-General Manager of L'NOR, purchased from ISECOR (Industrial Supply
Corporation) on November 3, 1974 one skaagit winch with its cables for P10,000.00; that on November 18,
1974 said Edward J. Porter assigned the purchase of said skaagit winch with its cables in favor of L'NOR at

the price of P10,000.00; and that the latter corporation then assumed the agreed obligation covering the
P10,000.00 purchase price in favor of ISECOR;
22. Subsequently, on or about October 18, 1975, said President-General Manager Edward J. Porter
misrepresented facts regarding the acquisition cost of said skaagit winch with its cables to the effect that
the same was sold by ISECOR at the cost of P20,000.00; that he collected the sum from L'NOR for direct
payment to ISECOR allegedly to liquidate in full the obligation of P20,000.00 in favor of ISECOR, when, in
truth and in fact, the obligation is only P10,000.00 and not more;
23. On account of the aforecited flagrant fraud, a charge of Estafa was filed against Edward J. Porter and
the office of the City Fiscal handed down a resolution to prosecute him in court, copy of pertinent exhibits
herewith marked as Annexes "C", "C-1", "C-2", "C-3", "C-4" and "C-5";
24. In view of the aforesaid illegal manipulations, illicit schemes, palpable frauds and estafa committed by
said President-General Manager Edward J. Porter, in confabulation and conspiracy with the other officers of
the corporation, namely: his wife Norma Y. Porter and Zenaida T. Manaloto, herein complainant requested
respondent Valentino Legaspi to take and pursue appropriate local steps and seasonable actions in order to
protect the paramount interest of L'NOR of which he is the legal counsel by retainer, but the latter, without
any valid excuse whatsoever, refused to do so, although he is still collecting his monthly retainer;
25. On account of the refusal of said corporate attorney of L'NOR, respondent Legaspi, complainant was
forced to retain the services of another counsel to prosecute the appropriate derivative suit in the Court of
First Instance of Cebu, copy herewith marked Annex "D"; and that, in opposition to the same, respondent
Legaspi appeared as legal counsel and attorney of Edward J. Porter and his confederates, copy of exhibits
marked Annex "D-1" herewith;
26. In the Criminal Case filed against Edward J. Porter for Estafa respondent Legaspi likewise appeared as
counsel for respondent Porter despite the fact that he is the legal counsel of L'NOR which is the prejudiced
party and for whose benefit the criminal case was really being prosecuted, copy of letter of respondent,
marked as Annex "C-6" herewith;
27. Up to the present time respondent is still collecting his monthly retainer, and for his appearance for
Edward J. Porter, et. als. in the derivative suit, he collected the sum of P2,000.00 from L'NOR as payment
for his illicit legal services in defending the Porters and Manaloto against the very interest of the
corporation paying him monthly retainer;
28. Said Edward J. Porter and his confederates, in their respective capacity as such officers of L'NOR,
continue and persist in perpetrating malicious acts, anomalous management and fraudulent operations
against the interest of L'NOR, and that respondent Legaspi was duly adviced verbally and also in writing by
complainant to take the necessary action in his capacity as legal counsel of L'NOR to protect zealously the
interest of the latter, but respondent Legaspi has done absolutely nothing, and grossly neglected and
flagrantly violated his duties as legal counsel up to the present time, pertinent exhibits herewith marked as
Annexes "E", "E-1", "E-2", "E-4", "E-5", "E-6";
29. That, on the contrary, respondent Legaspi in his dual capacity as legal counsel of L'NOR and
YRASPORT, and at the same time acting in his capacity as corporate secretary of YRASPORT, facilitated,
assisted, aided or otherwise abetted the illegal manipulations, illicit schemes, fraudulent operations and
grave frauds committed by said Edward J. Porter and his confederates who are officers of L'NOR against
the interest of the latter and to further the malicious competitive sabotage of YRASPORT alleged
heretofore; and
30. That, upon the foregoing, we most respectfully prefer against respondent Valentino Legaspi the
following charges:
First Specification:
That respondent Valentino Legaspi has committed gross misconduct in office as a practicing lawyer and
member of the Philippine Bar, because, as legal counsel, he violated his duty to and the trust of his client,
L'NOR Marine Services, Inc., whom he is professionally duty bound to represent with entire devotion
faithfully as such attorney, and whose paramount interest he should protect in all good faith with absolute
fidelity, but that, in truth and in fact, he did not do so.
Second Specification:
That respondent Valentino Legaspi, while acting as legal counsel of L'NOR under continuing monthly
retainer, has acted at the same time as lawyer of Edward J. Porter, et. als., who have committed
anomalous acts, prejudicial manipulations and grave frauds against his client L'NOR Marine services, Inc.,

that he therefore represented professionally conflicting interest; and that he committed grave malpractice
that is in flagrant violation of the recognized canons of legal ethics.
Third Specification:
That respondent Valentino Legaspi committed grossly corrupt or dishonest conduct while under retainer
and acting as attorney of L'NOR Marine Services, Inc., when he facilitated, assisted, aided or otherwise
abetted the organization, registration and operation of another competing entity, Yrasport Drydocks, Inc.,
in which he is also the lawyer and corporate Secretary, at the expense of and to which the business and
transactions of L'NOR are being diverted or otherwise appropriated, including the pirating of skilled
personnel and also facilities, and that respondent committed the same with evident bad faith and absolute
lack of fidelity to his client L'NOR, thereby degrading the good esteem, integrity and honor of the
profession. (Records, Administrative Case No. 1819, pp. 4-13)
SC- Administrative Case No. 1819 (Erlinda L. Ponce v. Valentino L. Legaspi). Considering the complaint
for disbarment against Atty. Valentino L. Legaspi as well as said respondent's comment thereon, the Court
Resolved to DISMISS the complaint for lack of merit. (Records, Administrative Case No. 1819 p. 91)
The petitioner filed a motion for reconsideration which was denied by the Court on March 31, 1978.
On February 10, 1978, Atty. Legaspi filed before the Court of First Instance (now Regional Trial Court of
Cebu) a complaint for damages against the petitioner.
The petitioner filed a motion to dismiss which was denied by the trial court.
On July 18, 1983, the lower court rendered judgment the dispositive portion of which reads as follows:
WHEREFORE, this court being satisfied that the material allegations of the complaint have
been proved and remained uncontradicted with the testimonial and documentary evidence
introduced and admitted by the court, judgment is hereby rendered in favor of the plaintiff
and against the defendant Erlinda L. Ponce ordering the defendant to pay Valentino L.
Legaspi, plaintiff herein, the amount of P1,000.00 as actual damages, P50,000.00 as moral
damages and P25,000.00 as exemplary damages and to pay the costs. (Rollo, p. 115)
HELD:
An action for damages arising from malicious prosecution is anchored on the provisions of Article 21, 2217
and 2219 [8] of the New Civil Code. Under these Articles:
Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for damages.
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are
the proximate result of the defendant's wrongful act or omission.
Art. 2219. Moral damages may be recovered in the following and analogous cases:
xxx xxx xxx
(8) Malicious prosecution.
In order, however, for the malicious prosecution suit to prosper, the plaintiff must prove: (1) the fact of the
prosecution and the further fact that the defendant was himself the prosecutor, and that the action finally
terminated with an acquittal; (2) that in bringing the action, the prosecutor acted without probable cause;
and (3) that the prosecutor was actuated or impelled by legal malice, that is by improper or sinister
motive.
The foregoing requisites are necessary safeguards to preserve a person's right to litigate which may
otherwise be emasculated by the undue filing of malicious prosecution cases. Thus, as further held in the
aforecited case ofBuchanan v. Viuda. de Esteban, supra: "Malice is essential to the maintenance of an
action for malicious prosecution and not merely to the recovery of exemplary damages. But malice alone
does not make one liable for malicious prosecution, where probable cause is shown, even where it appears
that the suit was brought for the mere purpose of vexing, harassing and injuring his adversary. In other
words, malice and want of probable cause must both exist in order to justify the action."
Probable cause is the existence of such facts and circumstances as would excite the belief, in a reasonable
mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of the

crime (or in this case, the wrongdoing) for which he was prosecuted. (See Buchanan v. Viuda de
Esteban, supra)
The general rule is well settled that one cannot be held liable in damages for maliciously instituting a
prosecution where he acted with probable cause. In other words, a suit will lie only in cases where a legal
prosecution has been carried on without probable cause. (Id.; emphasis supplied)
The petitioner, at the time of her filing of the administrative complaint against the respondent, held
substantial stockholdings in L'NOR. She believed that L'NOR was defrauded by its President/General
Manager, Edward Porter, and filed a complaint for estafa against the latter. Porter was convicted by the
trial court but, upon appeal, was acquitted by the appellate court.
Respondent did not deny that he represented Porter during the preliminary investigation and trial of the
criminal case. In his comment in the disbarment complaint against him, he justified his action by saying
that they were "direct orders of management" and that there is "nothing improper for counsel to represent
both the corporation and corporate officers at the same time they are being sued." (Records,
Administrative Case No. 1819, p. 64)
It is of no moment now that Porter was acquitted of the estafa charge. Apparently, at that time, petitioner
Ponce saw a conflict of interest situation. To her mind, the act of the respondent in appearing as counsel
for Porter, who had allegedly swindled L'NOR, the interest of which he was duty bound to protect by virtue
of the retainer contract, constituted grave misconduct and gross malpractice.
Atty. Legaspi did not deny that he aided the Porters in facilitating the incorporation of YRASPORT and that
he himself was its corporate secretary. He emphasized, though, that due to L'NOR'S limited capitalization,
YRASPORT was organized to complement L'NOR'S business and not to compete with the latter's
undertakings.
Since the petitioner, however, was of the honest perception that YRASPORT was actually organized to
appropriate for itself some of L'NOR's business, then we find that she had probable cause to file the
disbarment suit.
We take exception to the respondent's comment that, assuming the petitioner's accusation to be true,
"there is nothing in Philippine law which considers as unethical the formation of competitive corporations
and neither can it be considered with evident bad faith and absolute lack of fidelity." (Records,
Administrative Case No. 1819, p. 69)
The circumstances of the case do not depict a simple case of formation of competitive corporations. What
the petitioner objects to is the fact that both the respondent lawyer and Porter are fiduciaries of L'NOr and
are at the same time fiduciaries of YRASPORT, both of which are engaged in the same line of business.
True, at that time, the Corporation Law did not prohibit a director or any other person occupying a fiduciary
position in the corporate hierarchy from engaging in a venture which competed with that of the
corporation. But as a lawyer, Atty. Legaspi should have known that while some acts may appear to be
permitted through sheer lack of statutory prohibition, these acts are nevertheless circumscribed upon
ethical and moral considerations. And had Atty. Legaspi turned to American jurisprudence which then, as
now, wielded a persuasive influence on our law on corporations, he would have known that it was unfair for
him or for Porter, acting as fiduciary, to take advantage of an opportunity when the interest of the
corporation justly calls for protection. (See Ballantine, Corporations, 204, Callaghan & Co., N. Y. [1946])
Parenthetically, this lapse in the old Corporation Law is now cured by sections 31 and 34 of the Corporation
Code which provide:
Sec. 31. Liability of directors, trustees or officers. Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such directors or trustees shall he
liable jointly and severally for all damages resulting therefrom suffered by the corporation,
its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty,
any interest adverse to the corporation in respect of any matter which has been reposed in
him in confidence, as to which equity imposes a disability upon him to deal in his own
behalf, he shall be liable as a trustee for the corporation and must account for the profits
which otherwise have accrued to the corporation.
Sec. 34. Disloyalty of a director. Where a director, by virtue of his office, acquires for
himself a business opportunity which should belong to the corporation, thereby obtaining

profits to the prejudice of such corporation, he must account to the latter for all such profits
by refunding the same, unless his act has been ratified by a vote of the stockholders owning
or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall
be applicable, notwithstanding the fact that the director risked his own funds in the venture.
The Court finds it unnecessary to discuss all the other charges imputed to the respondent lawyer in the
disbarment complaint. From the foregoing discussion, we have sufficient basis to declare that the
petitioner had probable cause in filing the administrative case against Atty. Legaspi. Facts and
circumstances existed which excited belief in Mrs. Ponce's mind that the respondent indeed committed
unethical acts which warranted the imposition of administrative sanctions. Whether or not the petitioner's
perception of these facts and circumstances is actually correct is irrelevant to our inquiry, the only issue
being whether or not the petitioner had probable cause in filing the complaint.
The above discussion should not be construed as a re-opening of the disbarment proceeding against Atty.
Legaspi. References to the complaint for disbarment and the respondent's comment thereto are made only
for the purpose of determining the existence of probable cause.
Since we adjudge that petitioner Ponce was moved by probable cause, we need not anymore ascertain
whether or not the petitioner acted with malice in filing the complaint. The existence of probable cause
alone, regardless of considerations of malice, is sufficient to defeat the charge of malicious prosecution.
The respondent court treated Atty. Legaspi's complaint as one for damages arising from libel and applied
the test of bona fides, citing the case of Deles v. Aragona (27 SCRA 633 [1969]). This is incorrect.
In the first place, allegations and averments in pleadings are absolutely privileged as long as they are
relevant or pertinent to the issues (See Montenegro v. Medina, 73 Phil. 602 [1942]). The test of good faith
applies only to a qualified privileged communication. Had the respondent court studied the Deles case
more closely, it would have traced the "bona fides" test to the case of U.S. v. Bustos, (37 Phil. 731 [1918]).
In the latter case, the Court was referring to a qualified privileged communication when it formulated the
"bona fides" test.
Moreover, the test to break through the protective barrier of an absolutely privileged communication is not
"bona fides" but relevance. In the present case, Atty. Legaspi's complaint nowhere alleged that the
statements made by the petitioner were irrelevant. Thus, we find that the petitioner's complaint for
disbarment is still covered by the privilege and may not be the basis of a damage suit arising from libel.
We disagree with the findings of the two lower courts that it was the petitioner who distributed copies of
the complaint for disbarment to Atty. Legaspi's clients. It should be noted that Atty. Legaspi did not even
present these alleged clients in court to testify to the source of these copies. Considering that a complaint
for disbarment becomes of public record once it is filed with the Court, then the petitioner may not be
pinpointed as the sole and indisputable source of the copies received by the respondent's clients.
Atty. Legaspi may have suffered injury as a consequence of the disbarment proceedings. But the adverse
result of an action does not per se make the action wrongful and subject the actor to make payment of
damages for the law could not have meant to impose a penalty on the right to litigate (Saba v. Court of
Appeals, 189 SCRA 50 [1990], citing Rubio v. Court of Appeals, 141 SCRA 488 [1986]; see also Salao v.
Salao, 70 SCRA 65 [1976] and Ramos v. Ramos, 61 SCRA 284 [1974], citing Barreto v. Arevalo, 99 Phil. 771
[1956]). One who exercises his rights does no injury. (Saba v. Court of Appeals, supra, citing Auyong Hian v.
Court of Tax Appeals, 59 SCRA 110 [1974]). If damage results from a person's exercising his legal rights, it
is damnum absque injuria. [Id.]