Philippine National Bank vs. Court of Appeals

A bank's unfounded attack on the character of a client to justify its refusal to honor manager's checks constitutes besmirching of reputation that warrants higher awards for moral and exemplary damages; mere allegations without adequate proof cannot justify impeachment of character under Section 11, Rule 132 of the Revised Rules on Evidence.

• Private respondent Carmelo H. Flores is a prominent businessman engaged in real estate under the business name CMS Commercial and a consultant for Dizon-Esguerra Real Estate Company.
• Flores purchased two manager's checks worth P500,000.00 each (totaling P1,000,000.00) from petitioner Philippine National Bank (PNB) Baguio Hyatt Casino Unit and was treated as a valued and VIP client.
• The bank refused to honor the manager's checks claiming shortage in Flores' payment, despite having issued an official receipt for the purchase.
• The bank's money counter failed to perform her duty with diligence and due care, not waiting for the counting machine to finish counting the money because Flores was a VIP client who was in a hurry.
• Reynaldo Castor, another bank employee, was equally negligent for failing to intervene when he noticed that the money counters entertaining Flores were rattled.
• Due to the bank's refusal to encash the P1,000,000.00 face value of the checks, Flores was unable to purchase a house and lot in Monterroza Subdivision, Baguio City worth P1,000,000.00.
• Flores suffered embarrassment and damage to his integrity as a businessman in Baguio, with his dependability being highly doubted by potential business partners whenever he attempted to make deals.
• During the litigation, PNB attacked Flores' character by alleging he was a "gambler and big time casino player" who used the proceeds of the manager's checks on the gaming table, citing that he transacted with the cashier before playing and received advances while playing.
• PNB offered P397,272.41 as settlement to end the dispute.

• PNB argued that Flores was a gambler and big time casino player, implying that his self-serving and uncorroborated evidence could not be fully believed.
• PNB alleged that Flores used the proceeds of the manager's checks on the gaming table, claiming he transacted with the cashier before returning to the gaming table and received P100,000 advances while playing at intervals of one to two hours.
• PNB contended that the embarrassment claimed by Flores was but a figment of his imagination since he allegedly used the money for gambling.
• PNB claimed it was allowed under Section 11, Rule 132 of the Revised Rules on Evidence to impeach the adverse party's witness by evidence that his general reputation for truth, honesty, or integrity is bad.

• Flores contended that the award of damages was too small considering that PNB was willing to enter into a compromise agreement and offered P397,272.41 as settlement.
• Flores assailed PNB's malicious act of attacking his character by alluding to his alleged reputation as a gambler and big time casino player.
• Flores maintained that he suffered embarrassment and damage to his integrity as a businessman when the bank refused to honor the manager's checks, causing him to lose a deal on a house and lot and casting doubt on his dependability in Baguio business circles.

• Procedural Issues:
  • Whether the Supreme Court should grant the Motion for Reconsideration of its April 17, 1996 Decision modifying the award of damages.
• Substantive Issues:
  • Whether the awards for moral and exemplary damages should be increased considering PNB's willingness to settle and its conduct during litigation.
  • Whether PNB's character assassination of Flores as a "gambler" was justified and relevant to the issues.

• Procedural:
  • The Supreme Court granted the Motion for Reconsideration and modified its April 17, 1996 Decision by increasing the awards for moral and exemplary damages.
• Substantive:
  • The Court held that Flores' personality and character were irrelevant to the issues at hand, rendering PNB's resort to character assassination unfair and uncalled for.
  • The Court rejected PNB's reliance on Section 11, Rule 132 of the Revised Rules on Evidence, noting that PNB failed to present adequate evidence to show Flores was indeed a big time gambler, and mere allegations are not equivalent to proof.
  • The Court found that PNB had besmirched Flores' reputation and considerably caused him undue humiliation, justifying higher damages.
  • The Court affirmed the existence of a fiduciary relationship between the bank and Flores as the purchaser of manager's checks, and held that the bank must bear the consequences of its employees' negligent acts in failing to count the money properly and in refusing to honor the checks.
  • The award of moral damages was increased to P200,000.00 and exemplary damages to P50,000.00.

• Fiduciary Relationship Between Bank and Client — The existence of manager's checks creates a fiduciary relationship between the bank and the purchaser, and any breach thereof due to negligence must be borne by the negligent party (the bank).
• Moral Damages — Under Article 2217 of the Civil Code, moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury, and are incapable of pecuniary estimation. The determination of a fair amount depends on the peculiar circumstances of each case.
• Exemplary Damages — Under Article 2229 of the Civil Code, exemplary damages may be imposed by way of example or correction for the public good. While they cannot be recovered as a matter of right and need not be proved, the plaintiff must first show entitlement to moral, temperate or compensatory damages.
• Character Evidence — Section 11, Rule 132 of the Revised Rules on Evidence allows impeachment of a witness by evidence of bad reputation for truth, honesty, or integrity, but mere allegations without adequate proof are insufficient to justify such impeachment.

• "Carmelo H. Flores' personality and character are irrelevant to the issues at hand. Petitioner's resort to character assassination is thus unfair and uncalled for."
• "Mere allegations are not equivalent to proof."
• "A common gambler is a common nuisance, insensible to honor, deaf to pity, bent upon plunder, he is human cormorant, more destructible than the bird of prey itself."
• "To begin with, there is no hard and fast rule in the determination of what would be a fair amount of moral damages, since each case must be governed by its own peculiar circumstances."

• Makabali v. Court of Appeals, 157 SCRA 253 — Cited for the doctrine on the grant of moral and exemplary damages, emphasizing that there is no hard and fast rule for determining moral damages and that exemplary damages may be imposed by way of example or correction for the public good.
• Smith v. Wilson, 31 How. Pr. (N.Y.) 272, 22 Fed. Cas. No. 13,128 — Cited by PNB in its brief (not adopted by the Court) for the proposition regarding the character of gamblers.

• Article 2217, Civil Code of the Philippines — Defines moral damages as including physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury, which are incapable of pecuniary estimation.
• Article 2229, Civil Code of the Philippines — Provides that exemplary damages may be imposed by way of example or correction for the public good, and while they need not be proved, plaintiff must show entitlement to moral, temperate or compensatory damages first.
• Article 2208 (Paragraph 5), Civil Code of the Philippines — Entitles a party compelled to litigate to protect his interest to attorney's fees.
• Section 11, Rule 132, Revised Rules on Evidence — Allows impeachment of an adverse party's witness by evidence that his general reputation for truth, honesty, or integrity is bad; cited by PNB but rejected by the Court for lack of adequate proof.