GSIS is suable, and can be made liable for damages

We rule that the GSIS is liable for damages. We deny the petition for lack of merit.

GSIS, citing the sixth paragraph of Article 2180 of the Civil Code argues that as a GOCC, it falls within the term "State" and cannot be held vicariously liable for negligence committed by its employee acting within his functions.²⁶

"Article 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible.

xxx

"Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business of industry.

"The State is responsible in like manner when it acts though a special agent, but not when the damage has been caused by the official to whom the task was done properly pertains, in which case what is provided in Article 2176 shall be applicable.

xxx (italics ours)"

The argument is untenable. The cited provision of the Civil Code is not applicable to the case at bar. However, the trial court and the Court of Appeals erred in citing it as the applicable law. Nonetheless, the conclusion is the same. As heretofore stated, we find that GSIS is liable for damages.

The trial court and the Court of Appeals treated the obligation of GSIS as one springing from quasi-delict.²⁷ We do not agree. Article 2176 of the Civil Code defines quasi-delict as follows:

"Whoever by act or omission causes damages to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter (italics ours)."

Under the facts, there was a pre-existing contract between the parties. GSIS and the spouses Deang had a loan agreement secured by a real estate mortgage. The duty to return the owner's duplicate copy of title arose as soon as the mortgage was released.²⁸ GSIS insists that it was under no obligation to return the owner's duplicate copy of the title immediately. This insistence is not warranted. Negligence is obvious as the owners' duplicate copy could not be returned to the owners. Thus, the more applicable provisions of the Civil Code are:

"Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof are liable for damages."

"Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted x x x."

Since good faith is presumed and bad faith is a matter of fact which should be proved,²⁹ we shall treat GSIS as a party who defaulted in its obligation to return the owners' duplicate copy of the title. As an obligor in good faith, GSIS is liable for all the "natural and probable consequences of the breach of the obligation." The inability of the spouses Deang to secure another loan and the damages they suffered thereby has its roots in the failure of the GSIS to return the owners' duplicate copy of the title.

We come now to the amount of damages. In a breach of contract, moral damages are not awarded if the defendant is not shown to have acted fraudulently or with malice or bad faith.³⁰ The fact that the complainant suffered economic hardship³¹ or worries and mental anxiety³² is not enough.

FIRST DIVISION

G.R. No. 135644            September 17, 2001
GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,
vs.
SPOUSES GONZALO and MATILDE LABUNG-DEANG, respondents.