Case Summary (G.R. No. 157314)
Relevant Dates and Procedural History
- Account opened: May 23, 1980
- Incident leading to closure: April 4-5, 1988
- Initial judgment by RTC Bacolod, Branch 54: Civil Case No. 4908
- Court of Appeals Decision: August 30, 2002 (CA-G.R. CV No. 36627)
- CA Resolution denying motion for reconsideration: January 17, 2003
- Supreme Court Decision: July 29, 2005
Applicable law is anchored on the 1987 Philippine Constitution and relevant provisions of the Civil Code and banking regulations.
Facts of the Case
Pacilan opened a current account (No. 53208) with petitioner bank in 1980 and issued multiple postdated checks over the years. On April 4, 1988, one of these checks (No. 2434886) for P680.00 was dishonored due to insufficient funds. Although Pacilan deposited P800.00 on April 5 to cover the amount, he discovered that the bank had closed his account on April 4, citing “improper handling” due to recurrent overdrafts. During March 30 to April 5, 1988, Pacilan issued four checks totaling P7,410.00 while his account balance was only P6,981.43, causing an overdraft of P428.57, which led to dishonor of Check No. 2434886.
Claims of the Respondent
Pacilan contended that the bank’s closure of his current account was unjustified, arguing that he was entitled to make deposits on the day following the dishonor of checks to cover the funds. He asserted that the bank’s premature closure and dishonor of his checks caused him moral and exemplary damages by damaging his reputation and exposing him to potential criminal liability under Batas Pambansa Blg. 22. He emphasized that customary banking procedures allow one day for clearing, which petitioner violated by closing his account on the same day a check was dishonored.
Position of Petitioner Bank
The bank, through its rules and regulations governing demand deposits, reserves the right to close accounts if the depositor frequently draws checks against insufficient funds and to return checks drawn against insufficient funds at any time. The bank demonstrated that Pacilan’s account had been overdrawn hundreds of times prior to 1988 and that some of his checks bore forged or different signatures. The bank justified the closure as an exercise of its right due to “improper and irregular handling” of the account.
Ruling of the Regional Trial Court (RTC)
The RTC ruled in favor of Pacilan, ordering the bank and Villadelgado to pay P100,000.00 as moral damages and P50,000.00 as exemplary damages. The court applied the bank’s own rules that allowed for a check dishonored for insufficient funds to be recleared once more, an opportunity Pacilan was allegedly denied. The court found that the bank acted in bad faith by closing the account abruptly without notification and causing dishonor of additional checks, thereby causing humiliation and damage to Pacilan’s reputation. The court relied on Articles 19 and 20 of the Civil Code concerning the exercise of rights with justice and good faith and liability for damages caused unlawfully.
Court of Appeals’ Decision
The CA affirmed the RTC’s decision with modification, reducing moral damages to P75,000.00 and exemplary damages to P25,000.00. It agreed that the bank unjustifiably closed the account despite its own rules allowing reclearing of dishonored checks, and that the bank did not notify Pacilan nor give him the opportunity to fund the checks timely. The CA emphasized that although the bank had the express right to close accounts, such right must be exercised in good faith and must not be despotic or arbitrary. The CA recognized the serious anxiety and damage to Pacilan’s credit standing resulting from the premature closure.
Supreme Court’s Analysis and Decision
The Supreme Court granted the petition, reversing and setting aside the CA decision. It held that petitioner bank did not act in bad faith or with malice in closing Pacilan’s account. The bank’s rules expressly authorized account closure in case of frequent overdrafts, and evidence showed Pacilan had overdrawn his account numerous times—156 times in 1986, 117 times in 1987, and 26 times in 1988—and engaged in irregularities such as issuing checks with forged signatures. The Court noted that there was no rule obligating the bank to notify Pacilan before closing the account.
The accidental acceptance of the deposit after closure was deemed a mere act of negligence, not evidence of bad faith. The Court emphasized that to prove abuse of rights, the elements of bad faith and intent to injure must be present, which were absent here. While Pacilan suffered damages from the closure, the Court reasoned these did not arise from a legal wrong or breach of duty by the bank but from Pacilan’s own conduct. The Court distinguished between damage (harm or loss) and legal injury (illegal breach of legal duty) and concluded this was a case of damnum absque injuria—loss without legal injury.
Legal Principles Applied
- Article 19 of the Civil Code requires exercising rights with
Case Syllabus (G.R. No. 157314)
Facts of the Case
- The respondent, Themistocles Pacilan, Jr., opened a current account (No. 53208) with the petitioner bank's Bacolod Branch on May 23, 1980.
- The respondent had issued several postdated checks drawn against his current account.
- On April 4, 1988, Check No. 2434886 (amounting to P680.00) was presented for payment but was dishonored by the petitioner bank.
- The day after the dishonor, April 5, 1988, the respondent deposited P800.00 into his account, increasing his balance to P1,051.43.
- The bank had closed the respondent's account on the evening of April 4, 1988, due to frequent overdrafts, with the account showing an overdraft of P428.57 caused by the issuance of four checks totaling P7,410.00 against a balance of only P6,981.43.
- The respondent complained about the unjustified closure but received no reply from the bank.
- Due to the closure, multiple checks were dishonored causing damage to the respondent’s reputation and exposing him to possible criminal charges under Batas Pambansa Blg. 22.
- The respondent, a respected cashier and community leader, filed a damage suit against petitioner bank and its branch accountant, Roger Villadelgado.
Legal Issues Presented
- Whether the petitioner bank acted with bad faith or abuse of right in closing the respondent’s account.
- Whether the petitioner bank violated its own rules and regulations governing demand deposit operations, particularly concerning the handling of checks returned for insufficiency of funds.
- Whether the respondent was entitled to moral and exemplary damages for the bank’s actions.
- Whether the bank's acceptance of the respondent’s deposit after account closure constituted bad faith.
Petitioner Bank's Contentions
- The bank acted in good faith and according to its rules which reserve the right to close accounts of depositors who frequently draw checks against insufficient funds.
- The respondent's account had been improperly handled with numerous overdrafts (156 times in 1986, 117 times in 1987, and 26 times in 1988).
- The respondent issued checks with signatures differing from the specimen on file.
- The bank was justified in dishonoring Check No. 2434886 and closing the account due to overdraft.
- There is no legal right to deposit funds or make good a dishonored check within 24 hours.
- Acceptance of subsequent deposit by the bank was inadvertent and did not constitute bad faith.
Respondent’s Arguments
- The closure of his account was unjustified because he deposited funds on April 5, 1988, sufficient to cover the checks.
- Under normal banking procedures, the bank had until the last clearing hour of April 5, 1988, to honor or return the check.
- The bank acted with indecent haste, dishonored his checks, and caused him unjust humiliation and loss of credit reputation.
- The bank’s conduct was malicious aimed at socially humiliating him.
- The bank’s rules provide that a check returned for insufficient funds may be re-cleared once after depositing sufficient f