FACTS:

In this case, the private respondent, Luis A. Luna, applied for a FAREASTCARD issued by petitioner Far East Bank and Trust Company (FEBTC) in October 1986. FEBTC also issued a supplemental card to Clarita S. Luna upon request. In August 1988, Clarita lost her credit card and promptly informed FEBTC about the incident. FEBTC's procedure was to tag lost cards as "Hot Card" in their master file.

However, on October 6, 1988, Luis attempted to use his FAREASTCARD to pay for a lunch at a restaurant, but it was not honored. Consequently, he had to pay in cash and felt embarrassed. Subsequently, Luis demanded payment of damages from FEBTC due to the incident. In response, FEBTC acknowledged their failure to inform Luis about their security policy and admitted that the incident occurred because of an overzealous employee.

As a result, the private respondents filed a complaint for damages with the Regional Trial Court (RTC) of Pasig. The RTC ruled in favor of the private respondents and ordered FEBTC to pay moral damages, exemplary damages, and attorney's fees. FEBTC decided to appeal the RTC's decision to the Court of Appeals but was unsuccessful, as the appellate court affirmed the RTC's ruling.

FEBTC then filed a petition for review with the Supreme Court, wherein they argued that they acted without bad faith or malice in this case.

ISSUES:

1. Whether the bank is liable to pay moral damages for its failure to properly inform the cardholder about the cancellation of his credit card

RULING:

1. No, the bank is not liable to pay moral damages. While it is conceded that the bank was negligent in failing to personally inform the cardholder about the cancellation of his credit card, there is no indication of any deliberate intent on the part of the bank to cause harm to the cardholder. The negligence of the bank does not rise to the level of bad faith or malice, which is necessary to recover moral damages. The application of Article 21 of the Civil Code, which imposes liability for willfully causing loss or injury, is also not warranted in this case since there was no deliberate act to cause harm. Moreover, Article 2220 of the Civil Code specifically authorizes the grant of moral damages in contractual breaches only when the breach is due to fraud or bad faith.

PRINCIPLES: