Moral and exemplary damages in breach of contract require bad faith
Summary
This case involves a breach of contract action arising from Fountainhead Bakeshop's failure to deliver a wedding cake as ordered and paid for. The Supreme Court reversed lower courts' awards of substantial moral and exemplary damages, ruling that such damages in breach of contract cases require proof of bad faith, wanton, or malicious conduct. Finding only negligence and insensitivity, not bad faith, the Court awarded nominal damages of P10,000.00 instead of the P250,000.00 moral damages and P100,000.00 exemplary damages awarded by the Court of Appeals. The decision clarifies the standards for awarding moral damages in contractual breaches and emphasizes that such damages are compensatory, not punitive.
Focus of dispute
Breach of contract for non-delivery of wedding cake and award of damages.
Legal facts
On November 19, 1992, Rebecca Lo and Annette Ferrer ordered a three-layered wedding cake from Fountainhead Bakeshop for delivery at 5:00 PM on December 14, 1992 at Cebu Country Club. Full payment was made. On the wedding day, the cake was not delivered at the scheduled time. At 7:00 PM, bakeshop cited traffic delay. At 8:00 PM, bakeshop admitted the order slip was lost and no cake could be delivered. Plaintiffs bought a substitute sans rival cake. At 10:00 PM, a two-layered cake (not the ordered three-layered) arrived but was declined. Defendant offered P5,000.00 compensation which was rejected.
Judgement and reasoning
- Regional Trial Court (RTC), Cebu City
- Rendered judgment in favor of plaintiffs, awarding: (1) cost of wedding cake P3,175.00; (2) moral damages P30,000.00; (3) attorney's fees P10,000.00; and (4) costs of litigation.
- Court of Appeals (CA)
- Modified the trial court decision by increasing moral damages from P30,000.00 to P250,000.00 and awarding additional exemplary damages of P100,000.00, while affirming other awards.
- Supreme Court (SC)
- Reversed the Court of Appeals decision, ruling that moral damages require bad faith, wanton, reckless, malicious conduct in breach of contract cases. Found no such bad faith. Awarded only nominal damages of P10,000.00 for insensitivity and prevarication, plus cost of cake P3,175.00, attorney's fees P10,000.00, and costs of litigation.