PACIFIC BANKING CORPORATION and CHESTER BABST vs.

THE COURT OF APPEALS,

Doctrine
A bank may be made liable for damages arising from a quasi-delict when a notary public’s
foreclosure on the pledged stocks was premature and done in bad faith. As between the bank
and the notary, the law merely gives the employer a right to reimbursement from the employee
for what is paid to the private respondent. (copy paste ko lang itu AHAHAHAH)

Facts
Respondents Joseph and Eleanor Hart organized Insular Farms Inc. and approached John
Clarkin for financial assistance, which eventually led to the signing of a MOA on July 15, 1956,
stating implicitly that (a) 510 of the total shares be made under Clarkin's care while the
remaining 490 for the respondents and that (b) Joseph Hart be appointed as President and
General Manager. Due to financial constraints around July 1956, Insular Farms Inc. borrowed
P250,000 from Pacific Banking Corporation and executed a promissory note of P250,000
payable in five equal annual installments, the first payment due on or before July 1957. It was
further provided that upon default in the payment of any installment when due, all other
installments shall become due and payable. The loan took effect without security except for the
Continuing Guaranty of Clarkin.

When the business began to fail, PBC and its then Executive Vice President, Chester Babst, did
not demand payment for the initial installment and entire obligation but instead opted for more
collateral in addition to Clarkin’s guaranty. As the business further deteriorated, Hart agreed to
pledge all shares of stocks to the petitioner bank in lieu of additional collateral and to ensure an
extension of time to pay for their obligation.

Less than a month later, Pacific Farms Inc. was organized to engage in the same business as
Insular Farms Inc. The following day, Pacific Banking, through Babst, insisted that Insular Farms
pay the entire obligation within 48 hours. Three (3) days later, Hart was notified that the pledged
shares would be placed at a public auction to satisfy their outstanding obligation. Respondents
then filed a complaint for reconveyance and damages with prayer for writ of preliminary
injunction before the Court of First Instance of Manila, with the writ of preliminary injunction
granted but later lifted. Subsequently, Insular Farms' stocks were sold to Pacific Farms. The
respondents filed another case demanding for the recovery of sum of money, including
investments and earnings against Insular Farms, claiming that the sale by PBC of the pledged
shares of stocks to the Pacific Farms on March 21, 1958 is void on the ground that it was done
to cause an indefinite extension of their time to pay for the obligation under the promissory note
and no demand was made whatsoever by the bank for its payment.

Issue
Whether or not the foreclosure of the shares of stocks of IFI by the notary public was premature
and in bad faith, resulting in a quasi-delict.
Ruling
Yes. The foreclosure sale was premature and done in bad faith, petitioners are liable for
damages arising from a quasi-delict. It was established that there was an agreement to extend
indefinitely the payment of the installment of P50,000.00 in July 1957 as provided in the
promissory note. Consequently, Pacific Banking Corporation was precluded from enforcing the
payment of the said installment of July 1957, before the expiration of the indefinite period of
extension, which period had to be fixed by the court as provided in Art. 1197 of the Civil Code.
As found by the Court of Appeals, there was really no investigation of Insular Farms' ability to
pay the loan after the pledge was executed but before the demand for payment, considering
that the latter was made barely two weeks after the execution of the pledge.

As between Pacific Banking and Babst, the law merely gives the employer a right to
reimbursement from the employee for what is paid to the private respondent. Article 2181 does
not make recovery from the employee a mandatory requirement. A right to relief shall be
recognized only when the party concerned asserts it through a proper pleading filed in court. In
this case, the employer, Pacific Banking Corporation did not manifest any claim against Babst
by filing a cross-claim before the trial court; thus, it cannot make its light automatically
enforceable. Babst was made a party to the case upon the complaint of the private respondents
in his official capacity as Executive Vice President of the bank. In the absence of a cross-claim
against Babst, the court has no basis for enforcing a right against him to which his co-defendant
may be entitled. We leave the matter to the two petitioners' own internal arrangements or
actions should the bank decide to charge its own officer.

The Court of Appeals applied Article 2180 of the Civil Code, under which, "employers shall be
liable for the damages caused by their employees ... acting within the scope of their assigned
tasks.” Chester G. Babst, as admitted, was Executive Vice-President of Pacific Banking
Corporation and "acted only upon direction by the Board of Directors of the Pacific Banking
Corporation." The appellate court also applied Article 2181 of the same Code which provides
that "whoever pays for the damages caused by his dependents or employees may recover from
the latter what he has paid or delivered in satisfaction of the claim."
 SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, vs. THE HONORABLE
COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
G.R. No. 88013, March 19, 1990

Doctrine
The banking system is an indispensable institution in the modern world and plays a vital role in
the economic life of every civilized nation. In every case, the depositor expects the bank to treat
his account with the utmost fidelity.

As a business affected with public interest and because of the nature of its functions, the bank is
under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.

Facts
Petitioner Simex International (Manila), Incorporated is a private corporation engaged in the
exportation of food products that are mostly purchased by the Traders Royal Bank on credit.
May 25, 1981, the petitioner deposited the amount of P100,000.00 to its account in the
aforementioned bank, increasing the total balance to P190,380.74. Simex International issued
several checks and later learned that they were dishonored for insufficient funds.

As a consequence, the business’ operations were disturbed and entities to which Simex had
obligations threatened prosecution. The petitioner complained to the respondent bank and
investigation revealed that the petitioner’s deposit on May 25, 1981 was not credited, the said
issue addressed only after twenty-three (23) days.

The petitioner sued the Traders Royal Bank for moral damages in the sum of P1,000,000.00
and exemplary damages in the sum of P500,000.00, plus 25% attorney’s fee and costs.
However, the trial court held that moral and exemplary damages were not applicable under the
said circumstance, but ordered the respondent bank to pay the petitioner of nominal damages
amounting to P20,000.00, plus P5,000.00 attorney’s fees and cost, which was then affirmed by
the Court of Appeals.

Issue
Whether or not the petitioner, Simex International, Incorporated, is entitled to claim for moral
and exemplary damages arising from Traders Royal Bank’s negligence.

Ruling
Yes. The petitioner is entitled to claim for moral and exemplary damages.

As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant of moral damages. The fact is that the
petitioner's credit line was canceled and its orders were not acted upon pending receipt of
actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing
was reduced in the business community. All this was due to the fault of the respondent bank
which was undeniably remiss in its duty to the petitioner. Article 2205 of the Civil Code provides
that actual or compensatory damages may be received "(2) for injury to the plaintiff's business
standing or commercial credit." There is no question that the petitioner did sustain actual injury.

In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. A blunder on the part
of the bank, such as the dishonor of a check without good reason, can cause the depositor not a
little embarrassment if not also financial loss and perhaps even civil and criminal litigation. Art.
2229 of the Civil Code provides that exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages. Art. 2232, on the other hand, states that in contracts and quasi-
contracts, the court may award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.

In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated
that relationship. What is especially deplorable is that, having been informed of its error in not
crediting the deposit in question to the petitioner, the respondent bank did not immediately
correct it but did so only one week later or twenty-three days after the deposit was made. It
bears repeating that the record does not contain any satisfactory explanation of why the error
was made in the first place and why it was not corrected immediately after its discovery. Such
ineptness comes under the concept of the wanton manner contemplated in the Civil Code that
calls for the imposition of exemplary damages.