FACTS:

The petitioner, a private corporation involved in exporting food products, deposited P100,000.00 into its checking account with the respondent bank. However, the petitioner later discovered that several checks issued against their deposit were dishonored due to insufficient funds. Consequently, this led to some suppliers withholding delivery of the petitioner's orders and canceling the petitioner's credit line. Investigation revealed that the P100,000.00 deposit was not initially credited to the petitioner's account, but the error was later rectified and the dishonored checks were paid after they were re-deposited. The petitioner demanded reparation from the respondent bank for its negligence, but the bank did not meet the demand. As a result, the petitioner filed a complaint seeking moral damages, exemplary damages, attorney's fees, and costs against the bank. However, both the trial court and the respondent court ruled in favor of the respondent bank, stating that moral and exemplary damages were not warranted. Nonetheless, the respondent bank was ordered to pay nominal damages. Dissatisfied with the decision, the petitioner appealed the case to the Supreme Court, claiming that the respondent bank's negligence justified the grant of moral damages and criticizing the lower courts for failing to consider the prejudice suffered by the petitioner.

ISSUES:

1. Whether the petitioner is entitled to moral and exemplary damages.

2. Whether the respondent bank's negligence constitutes bad faith or wanton bad faith.

RULING:

1. The Supreme Court held that the petitioner is entitled to moral damages.

2. The respondent bank's negligence constitutes gross negligence, if not wanton bad faith.

PRINCIPLES:

• The essential ingredient of moral damages is proof of bad faith.

• Gross negligence, if not wanton bad faith, can justify the grant of moral damages.