G.R. No. L-60335. April 29, 1983.
DOLORES VASQUEZ VDA. DE ARROYO, petitioner, vs. COURT OF APPEALS and JUANA T. DE LA VIÑA, respondents.

FACTS

Petitioner Dolores Vasquez Vda. de Arroyo and private respondent Juana T. de la Viña entered into an agreement on March 12, 1962. De la Viña agreed to redeem Arroyo’s mortgaged property from the Development Bank of the Philippines (DBP) and subsequently mortgage the same property to secure a loan, from which Arroyo would receive an additional sum. To facilitate this, Arroyo executed special powers of attorney authorizing de la Viña to redeem and mortgage the property. De la Viña fulfilled her obligation by securing a personal loan, redeeming the property from DBP on April 27, 1962, and preventing its foreclosure.
However, Arroyo, without informing de la Viña, revoked the initial power of attorney on April 23, 1962. When de la Viña later requested a corrected power of attorney containing the property’s technical description, Arroyo executed a new one on May 5, 1962, but limited the authorized loan to P40,000. Arroyo then revoked this second power of attorney on May 17, 1962, and caused the publication of its revocation in a newspaper. Arroyo also filed a criminal complaint for estafa against de la Viña, which was later dismissed by the fiscal, who noted Arroyo’s “ungratefulness” and “criminal designs.”

ISSUE

Whether the Court of Appeals erred in affirming the trial court’s award of moral damages and attorney’s fees to de la Viña based on a finding of Arroyo’s bad faith.

RULING

The Supreme Court affirmed the finding of bad faith but modified the monetary awards. The legal logic is anchored on the principle that moral damages under Article 2220 of the Civil Code are recoverable for breaches of contract where the defendant acted in bad faith. The Court sustained the concurrent factual findings of the trial court and the Court of Appeals that Arroyo acted in bad faith. Her actions—secretly revoking the powers of attorney, publishing the revocation unnecessarily, and filing a baseless criminal case—constituted a clear and deliberate violation of the agreement and were designed to evade her contractual obligations after de la Viña had already performed her part by redeeming the property. This wanton and fraudulent conduct caused de la Viña mental anguish, warranting moral damages.
However, the Supreme Court, exercising its discretion, found the original awards excessive. It reduced the moral damages from P30,000 to P15,000 and the attorney’s fees from P10,000 to P5,000, deeming these amounts sufficient and reasonable compensation under the circumstances. The core ruling affirms that bad faith in contractual breaches justifies damages, but the award must be temperate and not punitive. The Resolution of the Court of Appeals was thus affirmed with modification.