Greatest wrong

This case of Eugene is about award of nominal damages. Nominal damages are damages in name only and not in fact. Its award is not for the purpose of indemnification for an actual loss but for recognition and vindication of a right.

Since October 1992, Eugene had an existing credit line with a bank (PCIB) in which the aggregate amount of his deposits in said bank, both domestic and foreign, served as collateral and credit limit. The credit line was for a period of one year subject to automatic renewals for same periods unless terminated by the bank upon prior notice served upon Eugene. In availing of the line, Eugene would just draw checks from a checkbook issued by the bank.

Subsequently, between 1995 and 1999 Eugene also signed three promissory notes (PNs) totaling P1.8 million as co- borrower of his friends, the spouses Jess and Linda. The PNs were secured by a Real Estate Mortgage executed by Eugene and the spouses over a parcel of land covered by TCT No. 38012 co-owned by them. The PNs specified, among others, the solidary liability of Eugene and the spouses for the payment of the loans although it was the spouses who received the P1.8 million loan proceeds. Evidently Eugene only accommodated the spouses by signing as co-borrower without receiving value for doing so but only for purposes of lending his name to the spouses. In fact the monthly interest on the loans was paid by the spouses through the automatic debiting of their account with the bank.

The spouses however defaulted in the payment of the periodic interest of their loans by not maintaining sufficient amounts in their deposits with the bank starting July 1998. As co-borrower Eugene should have been formally notified of such default but the bank failed to do so. Neither do the records show that Eugene was aware of the amounts of the periodic interest due.

In the meantime Eugene utilized his credit line with PCIB by issuing a check for P250,000 dated September 30, 1998 in favor of Rudy, his close family friend and co-member of an exclusive club. At the time he issued the check, the bank deposit statement of his credit line showed a balance of P270,000 plus a Foreign Currency Deposit (FCD) of US$ 8,715.72 which are more than sufficient collateral to guarantee the P250,000 check he issued to Rudy.

However, when Rudy presented the check for payment on October 13, 1998, it was dishonored by PCIB due to its unilateral termination of Eugene’s credit line and the freezing of his FCD for the unpaid periodic interest and penalties due from the loans of the spouses Jess and Linda of which Eugene was a co-maker or accommodation party.

Consequently, Eugene had a falling out with Rudy. They had a heated argument in the premises of the club which caused great embarrassment and humiliation to Eugene. With the threats of legal action by Rudy and the freezing of his FCD account, Eugene was forced to source out funds to pay Rudy in cash.

As a consequence, on January 28, 1999, Eugene wrote a letter to the bank demanding among others, payment of nominal damages and asking the unfreezing of his FCD. He insisted that the check of P250,000 was fully funded when he issued it so PCIB had no right to dishonor it. But the bank stood its grounds and refused to heed his demands. The bank contended that the termination of the credit line and the freezing of the FCD were proper because it has the right to set off or apply all moneys of Eugene to pay off the loans of the spouses Jess and Linda of which he was a co-borrower. Can Eugene recover the nominal damages among others?

Yes. There is no dispute that PCIB has the right to suspend, terminate or revoke the credit line under the provisions of the PNs and the Credit line agreement. However it may not wantonly exercise its rights without respecting the rights of its clients. Every person must, in the exercise of his rights and the performance of his duties, act with justice, give everyone his due and observe honesty and good faith (Article 19 Civil Code). This is the principle of abuse of rights which is the greatest possible wrong where malice or bad faith is the core.

In this case, Eugene has the right to be informed of the accrued interest in the loan of the spouses and most especially of the suspension, revocation or termination of the credit line as provided by the PNs and the credit line agreement. But the bank failed to give proper notice to him not only relative to the delinquencies of the spouses in the P1.8 million loan to which he was admittedly liable as co-borrower, but also with regards to the termination or suspension of his credit line that resulted in the dishonor of his check issued to Rudy. Clearly the bank is grossly negligent amounting to malice or bad faith which constitutes acts contrary to morals, good customs or public policy (Article 21 Civil Code). Such acts warrant payment of indemnity in the form of nominal damages, among others, fixed at the discretion of the court in the amount of P50,000 (Gonzales vs. PCIB, G.R. 180257, February 23, 2011, 644 SCRA, 180).

Note: Books containing compilation of my articles on Labor Law and Criminal Law (Vols. I and II) are now available. Call Tel. 7249445.

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