PHILIPPINE NATIONAL BANK, PETITIONER, VS. COURT OF APPEALS AND CARMELO H. FLORES, RESPONDENTS.

Philippine National Bank versus Flores

The Case

This is a civil action for damages arising from a bank's refusal to honor its own manager's checks. Carmelito Flores, a businessman in Baguio City, sued the Philippine National Bank after the bank declined to encash two manager's checks worth 500,000 pesos each, which he had purchased and paid for. The case matters for two reasons. First, it confirms that a manager's check creates a fiduciary relationship between the bank and the purchaser, so that any breach of that relationship is borne by the negligent party. Second, and more memorably for the bar candidate, it is a study in the award of moral and exemplary damages, and in the limits of attacking a witness's character: mere allegations that a man is a gambler are not proof, and character assassination in a pleading is not evidence.

Procedural History

Flores filed the complaint for damages before the Regional Trial Court of Baguio City. The trial court ruled in his favor, finding the bank negligent and awarding moral damages, exemplary damages, and attorney's fees. The bank appealed to the Court of Appeals, which affirmed the trial court's decision. The bank then elevated the matter to the Supreme Court. The Supreme Court promulgated its decision in April 1996, modifying the awards by reducing the moral damages from 1,000,000 pesos to 100,000 pesos and the exemplary damages from 1,000,000 pesos to 25,000 pesos, and affirming the rest. Flores then filed a motion for reconsideration dated 29 May 1996, asking that the damages be increased. The decision now before us resolves that motion for reconsideration.

Facts

Flores, a prominent businessman licensed in the real estate business and a consultant of a real estate company, purchased from the Philippine National Bank two manager's checks worth 500,000 pesos each. The purchase was evidenced by an official receipt. He intended to use the money to buy a house and lot in a subdivision in Baguio City. When he presented the checks for encashment, the bank refused to honor the entire one million peso face amount, allegedly because of a shortage in his payment. The bank's money counter, who was in charge of counting the money received from a client purchasing a manager's check, did not wait for the counting machine to finish counting because Flores was a valued client and was in a hurry. Another bank employee noticed that the counters were rattled but did nothing.

Because of the refusal, Flores had to go back and forth to the bank, and he lost the deal on the house worth one million pesos. He testified that his integrity and dependability as a businessman were highly doubted in Baguio because of the incident.

In its brief before the Court of Appeals and in its memorandum before the Supreme Court, the bank attacked Flores's character, asserting that he was a gambler and a big time casino player and that he had used the proceeds of the checks on the gaming table. The Supreme Court found that the bank had presented no adequate evidence to show that Flores was indeed a big time gambler, and that mere allegations are not equivalent to proof.

Issues

• Whether or not the award of moral and exemplary damages in favor of Flores should be increased on reconsideration.
• Whether or not the bank's attack on Flores's character as a gambler and big time casino player was a proper and fair basis for reducing the damages.

Applicable Provisions

Article 2217 of the Civil Code provides:

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act or omission.

This provision identifies besmirched reputation and social humiliation as components of moral damages, which is precisely the injury the bank inflicted when it attacked Flores's character.

Article 2229 of the Civil Code provides:

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.

This provision authorizes exemplary damages by way of example or correction for the public good, which the Court applied in increasing the award.

Section 11, Rule 132 of the Revised Rules on Evidence, invoked by the bank, provides:

Except as provided by the rules on examination of a witness by the court, a witness may be impeached by evidence that his general reputation for truth, honesty, or integrity is bad.

The Court held that this provision does not save the bank, because it presented no adequate evidence of Flores's alleged reputation as a big time gambler.

Ruling

On the first issue, the Court granted the motion for reconsideration and increased the awards. It reiterated the doctrine in Makabali versus Court of Appeals that there is no hard and fast rule in determining a fair amount of moral damages, since each case must be governed by its own peculiar circumstances. Moral damages, which include besmirched reputation, wounded feelings, and social humiliation, are incapable of pecuniary estimation. As to exemplary damages, while they cannot be recovered as a matter of right, they need not be proved, although the plaintiff must first show that he is entitled to moral, temperate, or compensatory damages. Accordingly, the Court increased the moral damages by 100,000 pesos and the exemplary damages by 25,000 pesos.

On the second issue, the Court held that Flores's personality and character were irrelevant to the issues at hand, and that the bank's resort to character assassination was unfair and uncalled for. The bank's reliance on Section 11, Rule 132 was undeserving of merit, because it had not presented adequate evidence to show that Flores was indeed a big time gambler. The Court stressed that mere allegations are not equivalent to proof. It found that the bank had besmirched Flores's reputation and caused him undue humiliation, and it reiterated the findings of the trial court and the Court of Appeals that the bank was negligent and that Flores was a prominent businessman treated as a valued client.

Doctrine

First, a manager's check creates a fiduciary relationship between the bank and the purchaser, and any breach of that relationship must be borne by the negligent party. Second, there is no hard and fast rule in determining a fair amount of moral damages, since each case must be governed by its own peculiar circumstances; moral damages include besmirched reputation, wounded feelings, and social humiliation, and are incapable of pecuniary estimation. Third, exemplary damages may be imposed by way of example or correction for the public good; they cannot be recovered as a matter of right and need not be proved, but the plaintiff must first show entitlement to moral, temperate, or compensatory damages. Fourth, a party who invokes Section 11, Rule 132 to impeach a witness by evidence of bad reputation for truth, honesty, or integrity must present adequate evidence; mere allegations are not equivalent to proof, and character assassination in a pleading is not evidence.

Disposition

The Court granted the motion for reconsideration, increasing the award of moral damages to 200,000 pesos and the award of exemplary damages to 50,000 pesos, with the rest of the decision affirmed.

Remember This

Memorize the line that mere allegations are not equivalent to proof, and that a manager's check creates a fiduciary relationship between the bank and the purchaser. Examiners use this case to test the requisites and measure of moral and exemplary damages under Articles 2217 and 2229 of the Civil Code, and the limits of impeaching a witness under Section 11, Rule 132.