Far East Bank and Trust Company v. Honorable Court of Appeals
REITERATIONFacts
The Antecedents: Private respondent Luis A. Luna was issued a FAREASTCARD by petitioner Far East Bank and Trust Company (FEBTC), with a supplemental card issued to his wife, Clarita S. Luna. In August 1988, Clarita's card was lost, and she submitted an affidavit of loss. FEBTC's internal procedure was to then record the lost card as 'Hot Card' or 'Cancelled Card'. On October 6, 1988, Luis presented his FAREASTCARD to pay for a lunch, but it was not honored. He was forced to pay in cash, causing him embarrassment. Procedural History: Luis Luna, through counsel, demanded damages from FEBTC. FEBTC, through a vice-president, apologized and acknowledged a failure to inform Luis about the cancellation policy and that an employee's overzealousness led to the incident. Private respondents filed a complaint for damages with the Regional Trial Court (RTC) of Pasig. The RTC ordered FEBTC to pay P300,000.00 for moral damages, P50,000.00 for exemplary damages, and P20,000.00 for attorney's fees. The Court of Appeals (CA) affirmed the RTC decision. FEBTC filed a petition for review with the Supreme Court. The Petition: FEBTC seeks to set aside the CA decision awarding moral and exemplary damages, arguing that its actions did not constitute bad faith or malice.
Issue(s)
Whether moral damages are recoverable in an action for breach of contract (culpa contractual) where the breach was due to negligence, not fraud or bad faith. Whether exemplary damages are recoverable in this case. Whether nominal damages are appropriate; and whether attorney's fees are recoverable.
Ruling
The petition is given due course. The appealed decision is MODIFIED by deleting the award of moral and exemplary damages. FEBTC is ordered to pay Luis A. Luna P5,000.00 by way of nominal damages. In all other respects, the appealed decision is AFFIRMED.
Ratio Decidendi
On the recoverability of moral damages in culpa contractual: The Court held that in culpa contractual, moral damages may be recovered only when the defendant is shown to have acted in bad faith or with malice in the breach of the contract, as provided by Article 2220 of the Civil Code. Bad faith, in this context, includes gross, but not simple, negligence. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity, which is different from the negative idea of negligence. The bank's remissness in failing to personally inform Luis of his card's cancellation, while negligent, did not sufficiently indicate a deliberate intent to cause harm or amount to gross negligence approximating malice or bad faith. The Court distinguished this from Article 21, which contemplates a conscious act to cause harm and requires the defendant's disregard of contractual obligation to be so deliberate as to approximate misconduct. On the recoverability of exemplary damages: The Court ruled that exemplary or corrective damages are intended as an example or correction for the public good. In contracts and quasi-contracts, these damages may be awarded if the defendant is found to have acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, as per Article 2232 of the Civil Code. Given that the Court found no bad faith or malice on the part of FEBTC, the award of exemplary damages was deemed arduous to sustain. The negligence of the bank's employees, even if overzealous, did not rise to the level of wanton, fraudulent, reckless, oppressive, or malevolent conduct. On the award of nominal damages and attorney's fees: The Court found that the bank's failure to honor its credit card issued to Luis, even if inadvertent, entitled him to recover a measure of damages. Article 2221 of the Civil Code provides for nominal damages, which are adjudicated to vindicate or recognize a right that has been violated or invaded, not for indemnifying loss. Therefore, the Court awarded P5,000.00 by way of nominal damages to Luis A. Luna to vindicate his right that was violated by the bank's failure to honor his credit card. The Court affirmed the award of attorney's fees, stating that reasonable attorney's fees may be recovered where the court deems such recovery to be just and equitable, as provided by Article 2208 of the Civil Code. The Court saw no issue of sound discretion on the part of the appellate court in allowing the award thereof by the trial court.
Main Doctrine
Moral damages are not recoverable in culpa contractual unless the breach is due to fraud or bad faith, which requires a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity, and not merely gross negligence.