Arko Pulp
Arko Pulp
Arko Pulp
case of breach of contract where the breach is due to fraud or bad faith:
In Arco Pulp v. Lim, the injury suffered by respondent (Lim) is the loss of
₱7,220,968.31 from his business. This has remained unpaid since 2007.
This injury undoubtedly was caused by petitioner Arco Pulp and Paper's
act of refusing to pay its obligations.
When the obligation became due and demandable, petitioner Arco Pulp
and Paper not only issued an unfunded check but also entered into a
contract with a third person in an effort to evade its liability. This proves
the third requirement.
As to the fourth requisite, Article 2219 of the Civil Code provides that
moral damages may be awarded in the following instances:
Persons who have the right to enter into contractual relations must
exercise that right with honesty and good faith. Failure to do so results in
an abuse of that right, which may become the basis of an action for
damages. Article 19, however, cannot be its sole basis.
Article 21, on the other hand, concerns injuries that may be caused by
acts which are not necessarily proscribed by law. This article requires
that the act be willful, that is, that there was an intention to do the act
and a desire to achieve the outcome. In cases under Article 21, the legal
issues revolve around whether such outcome should be considered a
legal injury on the part of the plaintiff or whether the commission of the
act was done in violation of the standards of care required in Article 19.
When parties act in bad faith and do not faithfully comply with their
obligations under contract, they run the risk of violating Article 1159 of
the Civil Code:
Moral damages, however, are not recoverable on the mere breach of the
contract. Article 2220 requires that the breach be done fraudulently or in
bad faith. As Adriano v. Lasala dictates, to recover moral damages in an
action for breach of contract, the breach must be palpably wanton,
reckless and malicious, in bad faith, oppressive, or abusive. Hence, the
person claiming bad faith must prove its existence by clear and
convincing evidence for the law always presumes good faith.
What does bad faith mean? Bad faith does not simply connote bad
judgment or negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of known duty
through some motive or interest or ill will that partakes of the nature of
fraud. It is, therefore, a question of intention, which can be inferred from
one’s conduct and/or contemporaneous statements.
When petitioner Arco Pulp and Paper issued a check in partial payment
of its obligation to respondent, it was presumably with the knowledge
that it was being drawn against a closed account. Worse, it attempted to
shift their obligations to a third person without the consent of
respondent.
Are there other forms of damages that may be awarded? Yes, exemplary
damages may also be awarded. Under the Civil Code, exemplary
damages are due in the following circumstances:
Since the award of exemplary damages is proper, attorney's fees and cost
of the suit may also be recovered. Article 2208 provides that, in the
absence of stipulation, attorney's fees and expenses of litigation, other
than judicial costs, cannot be recovered, except: "(1) When exemplary
damages are awarded; [xxx]." (Arco Pulp v. Lim. G.R. No. 206806. June
25, 2014. Justice Leonen)