Case Summary (G.R. No. 126029)
Facts (operative)
- Carloto, in Cebu on November 12, 1984, planned to proceed to Manila by November 21, 1984 to follow up on rediscounting obligations; he purchased a round-trip ticket.
- On November 16, 1984 Elsie Carloto‑Concha consigned P1,000 and documents via LBC Dipolog Branch (Cashpack Delivery Receipt No. 34805).
- Documents arrived on November 17, 1984 but the cashpack did not. Carloto personally followed up on November 17, 19 and 20 at LBC Cebu without success. He traveled to Dipolog on November 24 and again to Cebu on November 27; LBC advised the cashpack had been returned to Dipolog at shipper’s request. Carloto received P1,000 less revenue charges only on December 15, 1984.
- Carloto alleged the delay prevented timely submission of rediscounting documents, causing his bank to pay P32,000 penalty interest to the Central Bank.
Procedural History
- Complaint for damages (Civil Case No. 3679) filed January 4, 1985; amended complaint (joining the rural bank and praying for reimbursement of P32,000) filed June 25, 1988.
- Trial court rendered judgment awarding: moral damages P10,000; exemplary damages P5,000; attorney’s fees P3,000; litigation expenses P1,000; reimbursement to Rural Bank of Labason of P32,000 with legal interest; and costs.
- Court of Appeals affirmed but deleted the attorney’s fees award. Motion for reconsideration denied. Supreme Court review followed.
Issues Presented to the Supreme Court
- Whether an artificial person (Rural Bank of Labason, Inc.) may be awarded moral damages.
- Whether the award of P32,000 reimbursement was made with grave abuse of discretion.
- Whether the Court of Appeals gravely abused its discretion in affirming awards of moral and exemplary damages despite petitioner’s asserted performance.
Applicable Law and Governing Constitution
- Governing constitution for the decision: 1987 Philippine Constitution (decision date 1994; hence the 1987 Constitution applies).
- Relevant Civil Code provisions and principles cited in the decision: Article 2217 (definition and nature of moral damages), Article 2219 (circumstances for moral damages), Article 2232 (exemplary damages in contractual/quasi‑contractual relationships), and Article 21 (equity principles).
- Controlling jurisprudence referenced in the decision (as stated in the record): Tamayo v. University of Negros Occidental (on corporations and moral suffering); Garciano v. Court of Appeals; People’s Bank and Trust Co. v. Syvel’s Inc.; China Airlines Ltd. v. Court of Appeals (on limits of damages and requirements for bad faith).
Supreme Court’s Analysis — Moral Damages and Corporations
- The Court reaffirmed that moral damages compensate physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and analogous injuries.
- A corporation, being an artificial person that exists only in legal contemplation, lacks nervous system, feelings, and emotions; consequently it cannot experience physical or mental suffering. Therefore, moral damages cannot be awarded to the Rural Bank of Labason, Inc.
Supreme Court’s Analysis — Equity, Clean Hands, and Awardability of Moral Damages
- Recovery of moral damages is equitable in nature and governed by Article 2219 in relation to Article 21; equitable relief requires the plaintiff to come with clean hands.
- The Court found fault attributable to Carloto: he knew the rediscounting obligation matured on November 21, 1984, had set aside funds, had the necessary documents and plane ticket, but delayed departure to secure the P1,000 pocket money, which he admitted was not indispensable and was intended for social function (to “invite people for a snack or dinner”).
- This delay by Carloto contributed to the failure to submit papers on time and undercuts entitlement to moral damages on equitable grounds.
Supreme Court’s Analysis — Bad Faith, Gross Negligence, and Exemplary Damages
- The Court examined whether petitioner LBC’s conduct manifested bad faith, gross negligence, wantonness, or recklessness to justify exemplary damages under Article 2232.
- Evidence at trial showed the cashpack was consigned November 16 (Friday) and forwarded to Cebu on the next business day, November 19, 1984. Given these circumstances, LBC’s conduct did not amount to gross neglect; bad faith cannot be presumed and must be established by clear and convincing evidence.
- In breach of contract cases absent fraud or bad faith, liability is confined to natural and probable consequences reasonably foreseeable from the breach; moral damages are not recoverable. Because respondents did not demonstrate wanton, fraudulent, or oppressive conduct by L
Case Syllabus (G.R. No. 126029)
Citation and Court
- Reported at 306 Phil. 624, Second Division.
- G.R. No. 108670.
- Decision dated September 21, 1994.
- Decision authored in the opinion text by Justice PUNO, J.
- Final lines of the decision record concurrence by Narvasa, C.J. (Chairman), Padilla, Regalado, and Mendoza, JJ.
- The source also contains a footnote referencing Herrera, Manuel, J., as ponente, with Torres, Justo, and Gutierrez, Angelina, JJ., concurring (as reproduced in the source material).
Parties
- Petitioner: LBC Express, Inc. (also referred to as LBC Air Cargo, Inc.).
- Private respondents: Adolfo M. Carloto (incumbent President-Manager of Rural Bank of Labason, Inc.) and Rural Bank of Labason, Inc.
- Original action captioned Civil Case No. 3679 before the Regional Trial Court (RTC) of Dipolog City, Branch 8.
Factual Background — Chronology and Core Facts
- November 12, 1984: Adolfo M. Carloto was in Cebu City transacting business with the Central Bank Regional Office and was instructed to proceed to Manila on or before November 21, 1984 to follow up his rural bank’s plan of payment of rediscounting obligations with Central Bank’s main office in Manila.
- After the instruction, Carloto purchased a round-trip plane ticket to Manila.
- Carloto phoned his sister, Elsie Carloto-Concha, to send him ONE THOUSAND PESOS (P1,000.00) for pocket money for his trip to Manila and to forward some rediscounting papers via petitioner’s LBC office in Dipolog City.
- November 16, 1984: Elsie Carloto-Concha, through her clerk Adelina Antigo, consigned through LBC Dipolog Branch the rediscounting documents and the sum of ONE THOUSAND PESOS (P1,000.00) to Adolfo M. Carloto at No. 2 Greyhound Subdivision, Kinasangan, Pardo, Cebu City. This was evidenced by LBC Air Cargo, Inc., Cashpack Delivery Receipt No. 34805 (as stated in the source).
- November 17, 1984: The documents arrived but the cashpack (the P1,000.00) did not.
- November 17, 19, and 20, 1984: Carloto personally followed up at LBC’s office in Cebu City; LBC failed to deliver the cashpack.
- November 22, 1984: According to petitioner LBC’s version, the cashpack was forwarded via PAL to LBC Cebu City branch and on the same day delivered to respondent Carloto’s residence at No. 2 Greyhound Subdivision, Kinasangan, Pardo, Cebu City. The delivery man allegedly served a claim notice because Carloto was not present to receive the cashpack; this was annotated on Cashpack Delivery Receipt No. 342805 (as reflected in the source). Carloto, according to LBC, did not claim the cashpack at LBC Cebu.
- November 23, 1984: According to LBC, the cashpack was returned to shipper Elsie Carloto-Concha at Dipolog City.
- November 24, 1984: Carloto went to Dipolog City to claim the money at LBC’s office; he did not obtain it.
- November 27, 1984: Carloto again visited LBC’s office in Cebu City and was advised that the money had been returned to LBC’s office in Dipolog City upon shipper’s request.
- Carloto demanded the ONE THOUSAND PESOS (P1,000.00) and refund of FORTY-NINE PESOS (P49.00) LBC revenue charges; he received the money only on December 15, 1984, but less the revenue charges.
- As a consequence of the delay in transmittal of the cashpack, Carloto claimed he failed to submit the rediscounting documents to the Central Bank on time, resulting in Rural Bank of Labason, Inc. paying THIRTY-TWO THOUSAND PESOS (P32,000.00) as penalty interest.
- Carloto alleged he suffered embarrassment and humiliation as a result of the incident.
Procedural History
- January 4, 1985: Carloto instituted an action for damages arising from non-performance of obligation (Civil Case No. 3679) against petitioner LBC Air Cargo, Inc.
- June 25, 1988: An amended complaint was filed adding Rural Bank of Labason, Inc. as one of the plaintiffs and praying for reimbursement of THIRTY-TWO THOUSAND PESOS (P32,000.00).
- Trial court (RTC, Dipolog City, Branch 8) rendered judgment in favor of plaintiffs and ordered multiple awards (see Trial Court Ruling section).
- On appeal to the Court of Appeals (respondent Court of Appeals), the judgment was modified by deleting the award of attorney’s fees.
- Petitioner LBC’s Motion for Reconsideration at the Court of Appeals was denied in a Resolution dated January 11, 1993.
- Petitioner LBC then filed the present Petition for Review on Certiorari to the Supreme Court, raising three main questions.
Issues Presented to the Supreme Court (as raised by petitioner)
- Whether Rural Bank of Labason, Inc., being an artificial person, should be awarded moral damages.
- Whether the award of THIRTY-TWO THOUSAND PESOS (P32,000.00) (penalty interest reimbursed to the rural bank) was made with grave abuse of discretion.
- Whether the Court of Appeals gravely abused its discretion in affirming the trial court’s decision ordering petitioner LBC to pay moral and exemplary damages despite LBC’s alleged performance of its obligation.
Trial Court Decision (Dispositive Portion)
- The RTC ordered the following:
- Payment to plaintiff Adolfo M. Carloto and Rural Bank of Labason, Inc. of moral damages in the amount of P10,000.00.
- Payment of exemplary damages in the amount of P5,000.00.
- Payment of attorney’s fees in the amount of P3,000.00 and litigation expenses of P1,000.00.
- Reimbursement by defendant LBC Air Cargo, Inc. to Rural Bank of Labason, Inc. of the sum of P32,000.00, which the latter paid as penalty interest to the Central Bank, with legal interest computed from the date of filing of the case.
- Payment of the costs of the proceedings.
- The trial court’s decision was penned by Regional Trial Court Judge Pelagio R. Lachica (as stated in the source, Rollo pp. 127–128).
Court of Appeals Ruling
- The Court of Appeals affirmed the tria