The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail to give prior notice to Gonzales about the Offering Ticket for the process of termination, suspension, or revocation of the credit line under the COHLA, but PCIB likewise failed to inform Gonzales of the fact that his credit line has been terminated. Thus, we find PCIB grossly negligent in the termination, revocation, or suspension of the credit line under the COHLA. While PCIB invokes its right on the so-called “cross default provisions,” it may not with impunity ignore the rights of Gonzales under the COHLA.
Indeed, the business of banking is impressed with public interest and great reliance is made on the bank’s sworn profession of diligence and meticulousness in giving irreproachable service. Like a common carrier whose business is imbued with public interest, a bank should exercise extraordinary diligence to negate its liability to the depositors. In this instance, PCIB is sorely remiss in the diligence required in treating with its client, Gonzales. It may not wantonly exercise its rights without respecting and honoring the rights of its clients.
Art. 19 of the New Civil Code clearly provides that “[e]very 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.” This is the basis of the principle of abuse of right which, in turn, is based upon the maxim suum jus summa injuria (the abuse of right is the greatest possible wrong).
In order for Art. 19 to be actionable, the following elements must be present: “(1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another.” We find that such elements are present in the instant case. The effectivity clause of the COHLA is crystal clear that termination of the COH should be done only upon prior notice served on the CLIENT. This is the legal duty of PCIB––to inform Gonzales of the termination. However, as shown by the above testimonies, PCIB failed to give prior notice to Gonzales.
Malice or bad faith is at the core of Art. 19. Malice or bad faith “implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.” In the instant case, PCIB was able to send a letter advising Gonzales of the unpaid interest on the loans but failed to mention anything about the termination of the COHLA. More significantly, no letter was ever sent to him about the termination of the COHLA. The failure to give prior notice on the part of PCIB is already prima facie evidence of bad faith. Therefore, it is abundantly clear that this case falls squarely within the purview of the principle of abuse of rights as embodied in Art. 19.
Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the COHLA under the “cross default provisions” of both the promissory notes and the COHLA. However, these cross default provisions do not confer absolute unilateral right to PCIB, as they are qualified by the other stipulations in the contracts or specific circumstances, like in the instant case of an accommodation party.
The promissory notes uniformly provide:
The lender is hereby authorized, at its option and without notice, to set off or apply to the payment of this Note any and all moneys which may be in its hands on deposit or otherwise belonging to the Borrower. The Borrower irrevocably appoint/s the Lender, effective upon the nonpayment of this Note on demand/at maturity or upon the happening of any of the events of default, but without any obligation on the Lender’s part should it choose not to perform this mandate, as the attorney-in-fact of the Borrower, to sell and dispose of any property of the Borrower, which may be in the Lender’s possession by public or private sale, and to apply the proceeds thereof to the payment of this Note; the Borrower, however, shall remain liable for any deficiency. (Emphasis ours.)
The above provisos are indeed qualified with the specific circumstance of an accommodation party who, as such, has not been servicing the payment of the dues of the loans, and must first be properly apprised in writing of the outstanding dues in order to answer for his solidary obligation.
The same is true for the COHLA, which in its default clause provides:
16. DEFAULT — The CLIENT shall be considered in default under the COH if any of the following events shall occur:
1. x x x
2. Violation of the terms and conditions of this Agreement or any contract of the CLIENT with the BANK or any bank, persons, corporations or entities for the payment of borrowed money, or any other event of default in such contracts.
The above pertinent default clause must be read in conjunction with the effectivity clause (No. 4 of the COHLA, quoted above), which expressly provides for the right of client to prior notice. The rationale is simple: in cases where the bank has the right to terminate, revoke, or suspend the credit line, the client must be notified of such intent in order for the latter to act accordingly—whether to correct any ground giving rise to the right of the bank to terminate the credit line and to dishonor any check issued or to act in accord with such termination, i.e., not to issue any check drawn from the credit line or to replace any checks that had been issued. This, the bank—with gross negligence—failed to accord Gonzales, a valued client for more than 15 years.
Fourth. We find the testimony of Ocampo incredible on the point that the principal borrower of the PhP 1,800,000 loan covered by the three promissory notes is Gonzales for which the bank officers had special instructions to grant and that it was through the instructions of Gonzales that the payment of the periodic interest dues were debited from the account of the spouses Panlilio.
For one, while the first promissory note dated October 30, 1995 indeed shows Gonzales as the principal borrower, the other promissory notes dated December 26, 1995 and January 3, 1996 evidently show that it was Jose Panlilio who was the principal borrower with Gonzales as co-borrower. For another, Ocampo cannot feign ignorance on the arrangement of the payments by the spouses Panlilio through the debiting of their bank account. It is incredulous that the payment arrangement is merely at the behest of Gonzales and at a mere verbal directive to do so. The fact that the spouses Panlilio not only received the proceeds of the loan but were servicing the periodic interest dues reinforces the fact that Gonzales was only an accommodation party.
Thus, due to PCIB’s negligence in not giving Gonzales—an accommodation party—proper notice relative to the delinquencies in the PhP 1,800,000 loan covered by the three promissory notes, the unjust termination, revocation, or suspension of the credit line under the COHLA from PCIB’s gross negligence in not honoring its obligation to give prior notice to Gonzales about such termination and in not informing Gonzales of the fact of such termination, treating Gonzales’ account as closed and dishonoring his PhP 250,000 check, was certainly a reckless act by PCIB. This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD account was frozen and had to look elsewhere for money to pay Unson.
With banks, the degree of diligence required is more than that of a good father of the family considering that the business of banking is imbued with public interest due to the nature of their function. The law imposes on banks a high degree of obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking. Had Gonzales been properly notified of the delinquencies of the PhP 1,800,000 loan and the process of terminating his credit line under the COHLA, he could have acted accordingly and the dishonor of the check would have been avoided.
Third Issue: Award of Damages
The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society—banks have attained a ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence, and it is for this reason, banks should guard against injury attributable to negligence or bad faith on its part.
In the instant case, Gonzales suffered from the negligence and bad faith of PCIB. From the testimonies of Gonzales’ witnesses, particularly those of Dominador Santos and Freddy Gomez, the embarrassment and humiliation Gonzales has to endure not only before his former close friend Unson but more from the members and families of his friends and associates in the PCA, which he continues to experience considering the confrontation he had with Unson and the consequent loss of standing and credibility among them from the fact of the apparent bouncing check he issued. Credit is very important to businessmen and its loss or impairment needs to be recognized and compensated.
The termination of the COHLA by PCIB without prior notice and the subsequent dishonor of the check issued by Gonzales constitute acts of contra bonus mores. Art. 21 of the Civil Code refers to such acts when it says, “Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for damage.”
Accordingly, this Court finds that such acts warrant the payment of indemnity in the form of nominal damages. Nominal damages “are recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind x x x.” We further explained the nature of nominal damages in Almeda v. Cariño:
x x x Its award is thus not for the purpose of indemnification for a loss but for the recognition and vindication of a right. Indeed, nominal damages are damages in name only and not in fact. When granted by the courts, they are not treated as an equivalent of a wrong inflicted but simply a recognition of the existence of a technical injury. A violation of the plaintiff’s right, even if only technical, is sufficient to support an award of nominal damages. Conversely, so long as there is a showing of a violation of the right of the plaintiff, an award of nominal damages is proper. (Emphasis Ours.)
In the present case, Gonzales had the right to be informed of the accrued interest and most especially, for the suspension of his COHLA. For failure to do so, the bank is liable to pay nominal damages. The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant circumstances. In this case, the Court finds that the grant of PhP 50,000 as nominal damages is proper.
Moreover, as We held in MERALCO v. CA, failure to give prior notice when required, such as in the instant case, constitutes a breach of contract and is a clear violation of Art. 21 of the Code. In cases such as this, Art. 2219 of the Code provides that moral damages may be recovered in acts referred to in its Art. 21. Further, Art. 2220 of the Code provides that “[w]illful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.” Similarly, “every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.” Evidently, Gonzales is entitled to recover moral damages.
Even in the absence of malice or bad faith, a depositor still has the right to recover reasonable moral damages, if the depositor suffered mental anguish, serious anxiety, embarrassment, and humiliation. Although incapable of pecuniary estimation, moral damages are certainly recoverable if they are the proximate result of the defendant’s wrongful act or omission. The factual antecedents bolstered by undisputed testimonies likewise show the mental anguish and anxiety Gonzales had to endure with the threat of Unson to file a suit. Gonzales had to pay Unson PhP 250,000, while his FCD account in PCIB was frozen, prompting Gonzales to demand from PCIB and to file the instant suit.
The award of moral damages is aimed at a restoration within the limits of the possible, of the spiritual status quo ante—it must always reasonably approximate the extent of injury and be proportional to the wrong committed. Thus, an award of PhP 50,000 is reasonable moral damages for the unjust dishonor of the PhP 250,000 which was the proximate cause of the consequent humiliation, embarrassment, anxiety, and mental anguish suffered by Gonzales from his loss of credibility among his friends, colleagues and peers.
Furthermore, the initial carelessness of the bank’s omission in not properly informing Gonzales of the outstanding interest dues––aggravated by its gross neglect in omitting to give prior notice as stipulated under the COHLA and in not giving actual notice of the termination of the credit line––justifies the grant of exemplary damages of PhP 10,000. Such an award is imposed by way of example or correction for the public good.
Finally, an award for attorney’s fees is likewise called for from PCIB’s negligence which compelled Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) of the Code, attorney’s fees may be recovered when exemplary damages are awarded. We find that the amount of PhP 50,000 as attorney’s fees is reasonable.