370 SUPREMECOURTREPORTSANNOTATED

DevelopmentBankofthePhilippinesvs.CourtofAppeals
*
G.R.No.109937.March21,1994.

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.

COURTOFAPPEALSandtheESTATEOFTHELATEJUANB.
DANS, represented by CANDIDA G. DANS, and the DBP
MORTGAGEREDEMPTIONINSURANCEPOOL,respondents.

Civil Law Contracts Insurance Where there was no perfected

contractofinsurance,DBPMRIPoolcannotbeheldliableonthecontract
that does not exist.Undisputably, the power to approve MRI applications
islodgedwiththeDBPMRIPool.Thepool,however,didnotapprovethe
application of Dans. There is also no showing that it accepted the sum of
P1,476.00,whichDBPcreditedtoitsaccountwithfullknowledgethatitwas
payment for Danss premium. There was, as a result, no perfected contract
of insurance hence, the DBP MRI Pool cannot be held liable on a contract
thatdoesnotexist.
Same Agency Obligation of the Agent Agent acting as such is not
personallyliableunlessheexpresslybindshimselforexceedshisauthority.
Under Article 1897 of the Civil Code of the Philippines, the agent who
acts as such is not personally liable to the party with whom he contracts,
unlessheexpresslybindshimselforexceedsthelimitsof

_______________

*FIRSTDIVISION.

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VOL.231,MARCH21,1994 371

DevelopmentBankofthePhilippinesvs.CourtofAppeals

hisauthoritywithoutgivingsuchpartysufficientnoticeofhispowers.
 SameSameSameLiabilityoftheagentwhoexceedsthescopeofhis
authority depends upon whether the 3rd person is aware of the limits of
agents powers.The liability of an agent who exceeds the scope of his
authoritydependsuponwhetherthethirdpersonisawareofthelimitsofthe
agents powers. There is no showing that Dans knew of the limitation on
DBPsauthoritytosolicitapplicationsforMRI.
Same Same Same If the third person dealing with an agent is
unawareofthelimitsoftheauthorityconferredbytheprincipalontheagent
and the third person has been deceived by the nondisclosure by the agent,
thenthelatterisliablefordamagestohim.Ifthethirdpersondealingwith
anagentisunawareofthelimitsoftheauthorityconferredbytheprincipal
on the agent and he (third person) has been deceived by the nondisclosure
thereof by the agent, then the latter is liable for damages to him (V
Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines,p.422[1992],citingSentencia[Cuba]ofSeptember25,1907).
The rule that the agent is liable when he acts without authority is founded
uponthesuppositionthattherehasbeensomewrongoromissiononhispart
either in misrepresenting, or in affirming, or concealing the authority under
which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v.
Lauderdale,46N.Y.70,75).Inasmuchasthenondisclosureofthelimitsof
theagencycarrieswithittheimplicationthatadeceptionwasperpetratedon
theunsuspectingclient,theprovisionsofArticles19,20and21oftheCivil
CodeofthePhilippinescomeintoplay.
SameDamagesOneisentitledtoanadequatecompensationonlyfor
suchpecuniarylosssufferedbyhimashehasdulyproved.Oneisentitled
toanadequatecompensationonlyforsuchpecuniarylosssufferedbyhimas
hehasdulyproved(CivilCodeofthePhilippines,Art.2199).Damages,to
be recoverable, must not only be capable of proof, but must be actually
proved with a reasonable degree of certainty (Refractories Corporation v.
Intermediate Appellate Court, 176 SCRA 539 [1989] Choa Tek Hee v.
PhilippinePublishingCo.,34Phil.447[1916]).Speculativedamagesaretoo
remote to be included in an accurate estimate of damages (Sun Life
Assurancev.RuedaHermanos,37Phil.844[1918]).
SameSameNoproofofpecuniarylossisrequiredintheassessment
ofmoraldamages.WhileDansisnotentitledtocompensatorydamages,he
isentitledtomoraldamages.Noproofofpecuniarylossis

372

372 SUPREMECOURTREPORTSANNOTATED

DevelopmentBankofthePhilippinesvs.CourtofAppeals

required in the assessment of said kind of damages (Civil Code of the

Philippines, Art. 2216). The same may be recovered in acts referred to in
Article2219oftheCivilCode.

PETITIONforreviewoncertiorariofadecisionoftheCourtof
Appeals.

ThefactsarestatedintheopinionoftheCourt.
OfficeoftheLegalCounselforpetitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage
RedemptionInsurancePool.

QUIASON,J.:

This is a petition for review on certiorari under Rule 45 of the

RevisedRulesofCourttoreverseandsetasidethedecisionofthe
Court of Appeals in CAG.R. CV No. 26434 and its resolution
denyingreconsiderationthereof.
We affirm the decision of the Court of Appeals with
modification.

InMay1987,JuanB.Dans,togetherwithhiswifeCandida,hisson
and daughterinlaw, applied for a loan of P500,000.00 with the
Development Bank of the Philippines (DBP), Basilan Branch. As
theprincipalmortgagor,Dans,then76yearsofage,wasadvisedby
DBP to obtain a mortgage redemption insurance (MRI) with the
DBPMortgageRedemptionInsurancePool(DBPMRIPool).
Aloan,inthereducedamountofP300,000.00,wasapprovedby
DBPonAugust4,1987andreleasedonAugust11,1987.Fromthe
proceeds of the loan, DBP deducted the amount of P1,476.00 as
payment for the MRI premium. On August 15, 1987, Dans
accomplished and submitted the MRI Application for Insurance
andtheHealthStatementforDBPMRIPool.
On August 20, 1987, the MRI premium of Dans, less the DBP
service fee of 10 percent, was credited by DBP to the savings
accountoftheDBPMRIPool.Accordingly,theDBPMRIPoolwas
advisedofthecredit.

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VOL.231,MARCH21,1994 373
DevelopmentBankofthePhilippinesvs.CourtofAppeals

OnSeptember3,1987,Dansdiedofcardiacarrest.TheDBP,upon
notice, relayed this information to the DBP MRI Pool. On
September23,1987,theDBPMRIPoolnotifiedDBPthatDanswas
not eligibleforMRI coverage, being over the acceptance age limit
of60yearsatthetimeofapplication.
 On October 21, 1987, DBP apprised Candida Dans of the
disapprovalofherlatehusbandsMRIapplication.TheDBPoffered
to refund the premium of P1,476.00 which the deceased had paid,
but Candida Dans refused to accept the same, demanding payment
of the face value of the MRI or an amount equivalent to the loan.
She, likewise, refused to accept an ex gratia settlement of
P30,000.00,whichtheDBPlateroffered.
OnFebruary10,1989,respondentEstate,throughCandidaDans
as amdinistratrix, filed a complaint with the Regional Trial Court,
Branch I, Basilan, against DBP and the insurance pool for
Collection of Sum of Money with Damages. Respondent Estate
allegedthatDansbecameinsuredbytheDBPMRIPoolwhenDBP,
withfullknowledgeofDansageatthetimeofapplication,required
him to apply for MRI, and later collected the insurance premium
thereon. Respondent Estate therefore prayed: (1) that the sum
P139,500.00,whichitpaidunderprotestfortheloan,bereimbursed
(2) that the mortgage debt of the deceased be declared fully paid
and(3)thatdamagesbeawarded.
TheDBPandtheDBPMRIPoolseparatelyfiledtheiranswers,
withtheformerassertingacrossclaimagainstthelatter.
At the pretrial, DBP and the DBP MRI Pool admitted all the
documentsandexhibitssubmittedbyrespondentEstate.Asaresult
of these admissions, the trial court narrowed down the issues and,
withoutoppositionfromtheparties,foundthecaseripeforsummary
judgment.Consequently,thetrialcourtorderedthepartiestosubmit
their respective position papers and documentary evidence, which
mayserveasbasisforthejudgment.
OnMarch10,1990,thetrialcourtrenderedadecisioninfavorof
respondent Estate and against DBP. The DBP MRI Pool, however,
wasabsolvedfromliability,afterthetrialcourtfoundnoprivityof
contractbetweenitandthedeceased.ThetrialcourtdeclaredDBP
inestoppelforhavingledDansintoapplyingforMRIandactually
collectingthepremiumandtheservicefee,despiteknowledgeofhis
ageineligibility.Thedispositiveportion

374

374 SUPREMECOURTREPORTSANNOTATED
DevelopmentBankofthePhilippinesvs.CourtofAppeals

ofthedecisionreadsasfollows:

WHEREFORE, in view of the foregoing consideration and in the

furtherance of justice and equity, the Court finds judgment for the plaintiff
andagainstDefendantDBP,orderingthelatter:

1. To return and reimburse plaintiff the amount of P139,500.00 plus

legalrateofinterestasamortizationpaymentpaidunderprotest
 ToconsiderthemortgageloanofP300,000.00includingallinterest
2.
accumulated or otherwise to have been settled, satisfied or setoff
byvirtueoftheinsurancecoverageofthelateJuanB.Dans
3. TopayplaintifftheamountofP10,000.00asattorneysfees
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation
andotherexpenses,andotherreliefjustandequitable.

TheCounterclaimsofDefendantsDBPandDBPMRIPOOLarehereby
dismissed. The Crossclaim of Defendant DBP is likewise dismissed
(Rollo,p.79).

The DBP appealed to the Court of Appeals. In a decision dated

September7,1992,theappellatecourtaffirmedintotothedecision
ofthetrialcourt.TheDBPsmotionforreconsiderationwasdenied
inaresolutiondatedApril20,1993.
Hence,thisrecourse.

II

When Dans applied for MRI, he filled up and personally signed a

Health Statement for DBP MRI Pool (Exh. 5Bank) with the
followingdeclaration:

I hereby declare and agree that all the statements and answers contained
hereinaretrue,completeandcorrecttothebestofmyknowledgeandbelief
and form part of my application for insurance. It is understood and agreed
thatnoinsurancecoverageshallbeeffectedunlessanduntilthisapplication
isapprovedandthefullpremiumispaidduringmycontinuedgoodhealth
(Records,p.40).

Under the aforementioned provisions, the MRI coverage shall take

effect:(1)whentheapplicationshallbeapprovedbythe

375

VOL.231,MARCH21,1994 375
DevelopmentBankofthePhilippinesvs.CourtofAppeals

insurance pool and (2) when the full premium is paid during the
continuedgoodhealthoftheapplicant.Thesetwoconditions,being
joinedconjunctively,mustconcur.
Undisputably, the power to approve MRI applications is lodged
with the DBP MRI Pool. The pool, however, did not approve the
application of Dans. There is also no showing that it accepted the
sum of P1,476.00, which DBP credited to its account with full
knowledgethatitwaspaymentforDansspremium.Therewas,asa
result,noperfectedcontractofinsurancehence,theDBPMRIPool
cannotbeheldliableonacontractthatdoesnotexist.Theliability
ofDBPisanothermatter.
It was DBP, as a matter of policy and practice, that required
Dans, the borrower, to secure MRI coverage. Instead of allowing
Dans to look for his own insurance carrier or some other form of
insurance policy, DBP compelled him to apply with the DBP MRI
PoolforMRIcoverage.WhenDanssloanwasreleasedonAugust
11,1987,DBPalreadydeductedfromtheproceedsthereoftheMRI
premium. Four days later, DBP made Dans fill up and sign his
applicationforMRI,aswellashishealthstatement.TheDBPlater
submittedboththeapplicationformandhealthstatementtotheDBP
MRI Pool at the DBP Main Building, Makati, Metro Manila. As
servicefee,DBPdeducted10percentofthepremiumcollectedbyit
fromDans.
IndealingwithDans,DBPwaswearingtwolegalhats:thefirst
asalender,andthesecondasaninsuranceagent.
Asaninsuranceagent,DBPmadeDansgothroughthemotionof
applying for said insurance, thereby leading him and his family to
believe that they had already fulfilled all the requirements for the
MRI and that the issuance of their policy was forthcoming.
Apparently, DBP had full knowledge that Danss application was
nevergoingtobeapproved.ThemaximumageforMRIacceptance
is 60 years as clearly and specifically provided in Article 1 of the
GroupMortgageRedemptionInsurancePolicysignedin1984byall
theinsurancecompaniesconcerned(Exh.1Pool).
Under Article 1897 of the Civil Code of the Philippines, the
agent who acts as such is not personally liable to the party with
whomhecontracts,unlessheexpresslybindshimselforexceedsthe
limitsofhisauthoritywithoutgivingsuchpartysufficientnoticeof
hispowers.

376

376 SUPREMECOURTREPORTSANNOTATED
DevelopmentBankofthePhilippinesvs.CourtofAppeals

TheDBPisnotauthorizedtoacceptapplicationsforMRIwhenits
clientsaremorethan60yearsofage(Exh.1Pool).Knowingall
thewhilethatDanswasineligibleforMRIcoveragebecauseofhis
advanced age, DBP exceeded the scope of its authority when it
accepted Danss application for MRI by collecting the insurance
premium,anddeductingitsagentscommissionandservicefee.
Theliabilityofanagentwhoexceedsthescopeofhisauthority
dependsuponwhetherthethirdpersonisawareofthelimitsofthe
agents powers. There is no showing that Dans knew of the
limitationonDBPsauthoritytosolicitapplicationsforMRI.
Ifthethirdpersondealingwithanagentisunawareofthelimits
oftheauthorityconferredbytheprincipalontheagentandhe(third
person) has been deceived by the nondisclosure thereof by the
agent, then the latter is liable for damages to him (V Tolentino,
Commentaries and Jurisprudence on the Civil Code of the
Philippines,p.422[1992],citingSentencia[Cuba]ofSeptember25,
1907). The rule that the agent is liable when he acts without
authorityisfoundeduponthesuppositionthattherehasbeensome
wrong or omission on his part either in misrepresenting, or in
affirming,orconcealingtheauthorityunderwhichheassumestoact
(Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46
N.Y. 70, 75). Inasmuch as the nondisclosure of the limits of the
agency carries with it the implication that a deception was
perpetratedontheunsuspectingclient,theprovisionsofArticles19,
20and21oftheCivilCodeofthePhilippinescomeintoplay.
Article19provides:

Everypersonmust,intheexerciseofhisrightsandintheperformanceof
his duties, act with justice give everyone his due and observe honesty and
goodfaith.

Article20provides:

Everypersonwho,contrarytolaw,willfullyornegligentlycausesdamage
toanother,shallindemnifythelatterforthesame.

377

VOL.231,MARCH21,1994 377
DevelopmentBankofthePhilippinesvs.CourtofAppeals

Article21provides:

Anyperson,whowillfullycauseslossorinjurytoanotherinamannerthat
is contrary to morals, good customs or public policy shall compensate the
latterforthedamage.

The DBPs liability, however, cannot be for the entire value of the
insurancepolicy.ToassumethatwereitnotforDBPsconcealment
ofthelimitsofitsauthority,DanswouldhavesecuredanMRIfrom
another insurance company, and therefore would have been fully
insured by the time he died, is highly speculative. Considering his
advancedage,thereisnoabsolutecertaintythatDanscouldobtain
aninsurancecoveragefromanothercompany.Itmustalsobenoted
thatDansdiedalmostimmediately,i.e.,onthenineteenthdayafter
applyingfortheMRI,andonthetwentythirddayfromthedateof
releaseofhisloan.
One is entitled to an adequate compensation only for such
pecuniarylosssufferedbyhimashehasdulyproved(CivilCodeof
the Philippines, Art. 2199). Damages, to be recoverable, must not
only be capable of proof, but must be actually proved with a
reasonable degree of certainty (Refractories Corporation v.
IntermediateAppellateCourt,176SCRA539[1989]ChoaTekHee
v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative
damages are too remote to be included in an accurate estimate of
damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844
[1918]).
While Dans is not entitled to compensatory damages, he is
entitledtomoraldamages.Noproofofpecuniarylossisrequiredin
the assessment of said kind of damages (Civil Code of the
Philippines,Art.2216).Thesamemayberecoveredinactsreferred
toinArticle2219oftheCivilCode.
Theassessmentofmoraldamagesislefttothediscretionofthe
courtaccordingtothecircumstancesofeachcase(CivilCodeofthe
Philippines, Art. 2216). Considering that DBP had offered to pay
P30,000.00torespondentEstateinexgratiasettlementofitsclaim
andthatDBPsnondisclosureofthelimitsofitsauthorityamounted
toadeceptiontoitsclient,anawardofmoraldamagesintheamount
ofP50,000.00wouldbereasonable.

378

378 SUPREMECOURTREPORTSANNOTATED
DevelopmentBankofthePhilippinesvs.CourtofAppeals

The award of attorneys fees is also just and equitable under the
circumstances(CivilCodeofthePhilippines,Article2208[11]).
WHEREFORE,thedecisionoftheCourtofAppealsinCAG.R.
CVNo.26434isMODIFIEDandpetitionerDBPisORDERED:(1)
to REIMBURSE respondent Estate of Juan B. Dans the amount of
P1,476.00 with legal interest from the date of the filing of the
complaintuntilfullypaidand(2)toPAYsaidEstatetheamountof
Fifty Thousand Pesos (P50,000.00) as moral damages and the
amount of Ten Thousand Pesos (P 10,000.00) as attorneys fees.
Withcostsagainstpetitioner.
SOORDERED.

Cruz(Chairman),Davide,Jr.,BellosilloandKapunan,JJ.,
concur.

Revieweddecisionmodified.

Note.SinceithasbeenfoundthatBediawasactingbeyondthe
scope of her authority when she entered into the Participation
ContractonbehalfoftheHonteveros,itisthelatterthatshouldbe
held answerable for any obligation arising from that agreement
(Bediavs.White,204SCRA273).

o0o
 379

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