2011-026772 For the Client

PASCUAL,AIZEN PAULA DS.

3B

The Facts
The following are the pertinent facts:
Miss Ortiz, a loyal blank client of ABC Bank, had a prior
arrangement wherein she would maintain a funding account and an
issuing account, in this arrangement the issuing account will be deemed
sufficient as long as the funding account has sufficient funds. In
connection with this, Miss Ortiz issued a check, however the same was
dishonored by ABC Bank, aggrieved she filed a case for damages against
the bank, the trial court ruled in favor of Miss Ortiz. ABC Bank appealed
to the Court of Appeals. Meanwhile, as a preventive measure, the bank
sent a demand letter to Miss Ortiz, informing her of closing all her
accounts with bank on the premise that it is stated in their contract that
the bank has a prerogative to exercise such right.
The issue here is clear: It is whether or not ABC bank may
unilaterally close the account of Miss Ortiz based on a provision in their
contract.
A contract cannot be unilaterally rescinded without a substantial
breach of the same. Under Art.1159 of the New Civil Code it provides
that “Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith”. In
correlation with this is Art .19 which states that “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.”
In BPI Express Card Corporation v. Court of Appeals, 1 the Court
held that there is abuse of a right under Article 19 if the following
elements are present: 1) there is a legal right or duty; 2) which is
exercise in bad faith; 3) for the sole purpose of prejudicing or injuring
another.
Under the second clause of Art. 1308 of the civil code, the validity
or the compliance with the contract cannot be left to the will of one of
the contracting parties.
In the present case, ABC bank is rescinding their contract with
Miss Ortiz based on a stated provision therein. This premise is
untenable because the bank placed in its own hands the sole power to
determine whether their contractual relationship of creditor-debtor
would continue or not which violates the mutuality of contracts.
In order for one party in a contract to be able to rescind a contract such
party must show or prove that he/she have no other recourse to obtain
reparation for the damages he suffered except the rescission of the
contract. The bank failed to show that Miss Ortiz committed substantial
breach of their contract, which would give rise to an action of rescission.
A general statement of rescinding the contract based on an exercise of a
prerogative is not one of the grounds provided for under the law. Hence,
ABC bank can be held liable for damages.

1
296 SCRA 260 (1998)