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014. Far East Bank and Trust Company (now BPI) v Themistocles Pacilan

July 29, 2005

Callejo Sr., J.

TOPIC: Degree of Diligence

SV: Pacilan had a current account with Far East Bank and had issued several postdated checks to different payees. On 4

April 1988, a check drawn against Pacilans account was presented to the Bank, but it was dishonored for lack of funds.The next day, Pacilan deposited money to the bank. When he inquired why his check was dishonored, the bank informed

him that his account was closed on the ground that his account was improperly handled. After complaining to the bank

and failing to get a reply, he filed a case for damages against the bank. RTC and CA ruled in Pacilans favor.

Court held that the Bank should not be liable to pay damages to Pacilan. Contrary to the lower court rulings, the bank did

not unjustifiably close the respondents account in violation of Art. 19 CC (on abuse of rights). The elements of bad faith

and sole intent to cause injury to another werent present. There is evidence that Pacilan had handled his accountimproperly (repeated issuances of checks against insufficient funds, deliberate issuances of checks bearing different

signatures, etc.) over the years for more than a hundred times already. Besides, the express rules of the bank, to which

Pacilan had agreed to be bound when he opened his account, allow the bank to close a depositors accountwithout

informing the latter. Pacilans injury may be characterized as damnum absque injuria; as such, he should be made to bear

the consequences of his actions.

FACTS:

- Pacilan opened a current account with Far East Banks Bacolod Branch. He had since then issued several

postdated checks to different payees drawn against said account.

- In March 1988, Pacilan issued a check in the amount of P680 and the same was presented to the Bank on 4

April 1988, but it was dishonored. The next day, Pacilan deposited P800 to his current account and this was

accepted by the bank, increasing the balance of Pacilans deposit to P1,051.43.

- When Pacilan verified with the bank about the dishonor of his check, he discovered that his current account

was closed on the ground it was improperly handled.

The records of the bank showed that between 30 March and 5 April, Pacilan issued checks presented

for payment which exceeded the deposit in his account.1Because of the overdraft, the Banks branch

accountant, Villadelgado, closed Pacilans current account.

- Pacilan wrote to the bank to complain that the closure of his account was unjustified. He did not receive areply, so he filed with the RTC a complaint for damages against the bank and Villadelgado. He alleged that:

The closure was unjustified because the day right after his check was dishonored, he deposited an

amount sufficient to fund his checks. Also, following the normal banking procedure, the bank had

until the last clearing hour of the following day (5 April 1988) to honor the check or return it, if not

funded. In disregard for this procedure, however, the bank hastily closed his account.

The banks act of closing his account preempted the deposits he intended to make the fund the

several postdated checks he had issued. It also exposed him to criminal prosecution for violation of

BP 22.

The banks closure of his account was patently malicious and was intended to embarrass him, so he

also sought to claim damages. As a cashier working in another bank and a prominent and respected

leader both in the civic and banking communities, the banks act caused his reputation to be

besmirched and caused him social humiliation, wounded feelings, insurmountable worries and

sleepless nights

- The Bank filed an answer, saying that:

Pacilans account was subject to its Rules and Regulations Governing the Establishment and

Operation of Regular Demand, which provide that the Bank reserves the right to close an account if

the depositor frequently draws checks against insufficient funds and/or uncollected deposits and

1He issued checks amounting to P7,410, but his account contained a deposit of P6,981.43

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that the Bank reserves the right at any time to return checks of the depositor which are drawn

against insufficient funds or for any reason.

Pacilan had improperly and irregularly handled his current account: in 1986, the respondents

account was overdrawn 156 times; in 1987, 117 times; and in 1988, 26 times. This was due to the

issuance of checks against insufficient funds. Pacilan had also signed several checks with a different

signature from the specimen on file for dubious reasons.

- [RTC] ordered Far East to pay Pacilan P100K as moral damages and P50K as exemplary damages. MR

denied.

Pacilan, as depositor, had the right to put up sufficient funds for a check that was taken as a returned

item for insufficient funds the day following the receipt of said check from the clearing office. In fact,

the said check could still be recleared for one more time.

In previous, instances, the bank had notified Pacilan when he incurred an overdraft and the latter

would then deposit funds the following day to cover it. It was unjustifiable for the bank to close the

account immediately.

As a result of this closure, Pacilan was humiliated and lost credit standing in the business community.

Even granting that the bank had the right to close the account, the manner attending the closure

constituted an abuse of right in violation of Art. 19, CC.

- [CA] affirmed the decision, but reduced the amount of damages to be awarded

- Far East filed a petition for certiorari.

ISSUE: Should the bank be made to pay damages in favor of Pacilan? (NO)

- Decisions of the lower courts were based on Art. 19, CC, which reads:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with

justice, give everyone his due, and observe honesty and good faith.

- The elements of abuse of rights are the following: (a) the existence of a legal right or duty; (b) which is

exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another.

Malice or bad faith is at the core of this provision. Bad faith does not simply connote bad judgment or

simple negligence, dishonest purpose or some moral obliquity and conscious doing of a wrong, a

breach of known duty due to some motives or interest or ill-will that partakes of the nature of fraud.Malice connotes ill-will or spite and speaks not in response to duty. It implies an intention to do

ulterior and unjustifiable harm. Malice is bad faith or bad motive.

- In this case, Bank undoubtedly has the right to close the account of the respondent based on the following

provisions of its rules. The second and third elements for abuse of rights, however, are not attendant.

- ON BAD FAITH

The evidence presented by the bank negates the existence of bad faith or malice on its part. It closed

the account on 4 April 1988 because it was already overdrawn on said date. Further, the bank

showed that Pacilan had issued checks against insufficient funds several times in the span of several

years. There were also instances when he deliberately issued checks bearing a different signature. All

these justified the banks closure of Pacilans account.

Nowhere under its rules is the bank required to notify Pacilan of the closure of the account for

frequently drawing checks against insufficient funds. No malice or bad faith could be imputed on thebank since the records bear out that Pacilan had indeed been improperly and irregularly handling his

account not just a few times but hundreds of times.

The bank could not be faulted for exercising its right in accordance with the express rules since

Pacilan had agreed to be bound by them upon opening his account.

The fact that the bank accepted Pacilans deposit the day following the closure of his account does not

show bad faith or malice. It could be characterized as simple negligence by its personnel, and this

doesnt constitute bad faith.

- ON HAVING SOLE INTENTION OF PREJDUCIING AND INJURING THE RESPONDENT.

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Although Pacilan may have suffered damages as a result of the closure of his current account, there is

a material distinction between damages and injury.

o Injury is the illegal invasion of a legal right; damage is the loss, hurt or harm which results

from the injuryThus, there can be damage without injury in those instances in which the loss

or harm was not the result of a violation of a legal duty. In such cases, the consequences must

be borne by the injured person alone, the law affords no remedy for damages resulting from an

act which does not amount to a legal injury or wrong. These situations are often calleddamnum absque injuria.

What damages Pacilan may have suffered as a consequence would have to be borne by him alone

because it was his repeated improper and irregular handling of his account which constrained the

bank to close the same in accordance with its rules. Pacilans case is clearly one of damnum absque

injuria.

Petition GRANTED. CA Decision is REVERSED and SET ASIDE.

Digest by Krys