DEVELOPMENT BANK OF THE PHILIPPINES, PETITIONER, VS. COURT OF APPEALS AND THE ESTATE OF THE LATE JUAN B. DANS, REPRESENTED BY CANDIDA G. DANS, AND THE DBP MORTGAGE REDEMPTION IN…

This is a petition for review on certiorari under Rule 45
of the Revised Rules of Court to reverse and set aside the decision of the
Court of Appeals in CA-G.R CV No. 26434 and its resolution denying
reconsideration thereof.

We affirm the decision of the Court of Appeals with modification.

I

In May 1987, Juan B. Dans, together with his wife Candida, his
son and daughter-in-law, applied for a loan of P500,000.00 with the Development
Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was
advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP
Mortgage Redemption Insurance Pool (DBP MRI Pool).

A loan, in the reduced amount of P300,000.00, was approved by DBP
on August 4, 1987 and released on August 11, 1987. From the 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” and the “Health Statement for DBP MRI
Pool.”

On August 20, 1987, the MRI premium of Dans, less the DBP service
fee of 10 percent, was credited by DBP to the savings account of the DBP MRI
Pool. Accordingly, the DBP MRI Pool was
advised of the credit.

On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this
information to the DBP MRI Pool. On
September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible
for MRI coverage, being over the acceptance age limit of 60 years at the time
of application.

On October 21, 1987, DBP apprised Candida Dans of the disapproval
of her late husband’s MRI application. The DBP offered 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, which the DBP later offered.

On February 10, 1989, respondent Estate, through Candida Dans as
administratrix, 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 alleged that Dans became insured by
the DBP MRI Pool when DBP, with full knowledge of Dans’ age at the time of
application, required him to apply for MRI, and later collected the insurance
premium thereon. Respondent Estate
therefore prayed: (1) that the sum of
P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that
the mortgage debt of the deceased be declared fully paid; and (3) that damages
be awarded.

The DBP and the DBP MRI Pool separately filed their answers, with
the former asserting a cross-claim against the latter.

At the pre-trial, DBP and the DBP MRI Pool admitted all the
documents and exhibits submitted by respondent Estate. As a result of these admissions, the trial
court narrowed down the issues and, without opposition from the parties, found
the case ripe for summary judgment. Consequently, the trial court ordered the parties to submit their
respective position papers and documentary evidence, which may serve as basis
for the judgment.

On March 10, 1990, the trial court rendered a decision in favor
of respondent Estate and against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial
court found no privity of contract between it and the deceased. The trial court declared DBP in estoppel for
having led Dans into applying for MRI and actually collecting the premium and
the service fee, despite knowledge of
his age ineligibility. The dispositive
portion of the decision reads as follows:

“WHEREFORE, in view of the foregoing consideration and in the
furtherance of justice and equity, the Court finds judgment for the plaintiff
and against Defendant DBP, ordering the latter:

1.        
To return and reimburse plaintiff the amount of P139,500.00
plus legal rate of interest as amortization payment paid under protest;

2.        
To consider the mortgage loan of P300,000.00 including all
interest accumulated or otherwise to have been settled, satisfied or set-off by
virtue of the insurance coverage of the late Juan B. Dans;

3.        
To pay plaintiff the
amount of P10,000.00 as attorney’s fees;

4.        
To pay plaintiff in the amount of P10,000.00 as costs of
litigation and other expenses, and other relief just and equitable.

The Counterclaims of Defendants
DBP and DBP?MRI POOL are hereby
dismissed. The Cross-claim of Defendant
DBP is likewise dismissed” (Rollo, p. 79).

The DBP appealed to the Court of Appeals. In a
decision dated September 7, 1992, the appellate court affirmed in
toto the decision of the trial court. The DBP’s motion for reconsideration was denied in a resolution dated
April 20, 1993.

Hence, this recourse.

II

When Dans applied for MRI, he filled up and personally signed a
“Health Statement for DBP MRI Pool” (Exh. “5-Bank”) with
the following declaration:

“I hereby declare and agree that all the statements and
answers contained herein are true, complete and correct to the best of my
knowledge and belief and form part of my application for insurance. It is understood and agreed that no
insurance coverage shall be effected unless and until this application is
approved and the full premium is paid during my continued good health”
(Records, p. 40).

Under the aforementioned provisions, the MRI coverage shall take
effect: (1) when the application shall
be approved by the insurance pool; and (2) when the full premium is paid during
the continued good health of the applicant. These two conditions, being joined conjunctively, must concur.

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 knowledge that it was payment for
Dans’s premium. There was, as a result,
no perfected contract of insurance; hence, the DBP MRI Pool cannot be held
liable on a contract that does not exist.

The liability of DBP is another matter.

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 Pool for MRI coverage. When Dans’s loan was released on August 11, 1987, DBP already
deducted from the proceeds thereof the MRI premium. Four days later, DBP made Dans fill up and sign his application
for MRI, as well as his health statement. The DBP later submitted both the application form and health statement
to the DBP MRI Pool at the DBP Main
Building, Makati, Metro Manila. As
service fee, DBP deducted 10 percent of the premium collected by it from Dans.

In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an
insurance agent.

As an insurance agent, DBP made Dans go through the motion of
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 Dans’s application was never
going to be approved. The maximum age
for MRI acceptance is 60 years as clearly and specifically provided in Article
1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the
insurance companies concerned (Exh. “1-Pool”).

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, unless he expressly binds himself or exceeds the limits of
his authority without giving such party sufficient notice of his powers.”

The DBP is not authorized to accept applications for MRI when its
clients are more than 60 years of age (Exh. “1-Pool”). Knowing all the while that Dans was
ineligible for MRI coverage because of his advanced age, DBP exceeded the scope
of its authority when it accepted Dans’s application for MRI by collecting the
insurance premium, and deducting its agent’s commission and service fee.

The liability of an agent who exceeds the scope of his authority
depends upon whether the third person is aware of the limits of the agent’s
powers. There is no showing that Dans knew
of the limitation on DBP’s authority to solicit applications for MRI.

If the third person dealing with an agent is unaware of the
limits of the authority conferred by the principal on the agent and he (third
person) has been deceived by the non-disclosure 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], citing
Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable when he acts without authority is
founded upon the supposition that there has been some wrong or omission on his
part 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, 46 N.Y. 70, 75). Inasmuch
as the non-disclosure of the limits of the agency carries with it the
implication that a deception was perpetrated on the unsuspecting client, the
provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines come
into play.

Article 19 provides:

“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.”

Article 20 provides:

“Every person who, contrary to law, willfully or negligently
causes damage to another, shall indemnify the latter for the same.”

Article 21 provides:

“Any person, who willfully causes loss or injury to another in
a manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.”

The DBP’s liability, however, cannot be for the entire value of
the insurance policy. To assume that
were it not for DBP’s concealment of the limits of its authority, Dans would
have secured an MRI from another insurance company, and therefore would have
been fully insured by the time he died, is highly speculative. Considering his advanced age, there is no
absolute certainty that Dans could obtain an insurance coverage from another
company. It must also be noted that
Dans died almost immediately, i.e., on the nineteenth day after applying for
the MRI, and on the twenty-third day from the date of release of his loan.

One is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved (Civil Code of 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. Intermediate
Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee 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
entitled to moral damages. No proof of
pecuniary loss is 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 Article 2219 of the
Civil Code.

The assessment of moral damages is left to the discretion of the
court according to the circumstances of each case (Civil Code of the
Philippines, Art. 2216). Considering
that DBP had offered to pay P30,000.00 to respondent Estate in ex gratia
settlement of its claim and that DBP’s non-disclosure of the limits of its
authority amounted to a deception to its client, an award of moral damages in
the amount of P50,000.00 would be reasonable.

The award of attorney’s fees is also just and equitable under the
circumstances (Civil Code of the Philippines, Article 2208 [11]).

WHEREFORE, the decision of the Court of Appeals in CA
G.R.- CV No. 26434 is MODIFIED and petitioner DBP is ORDERED: (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 complaint until fully paid; and (2) to PAY said Estate the amount of
Fifty Thousand Pesos (P50,000.00) as moral damages and the amount of Ten
Thousand Pesos (P10,000.00) as attorney’s fees. With costs against petitioner.

SO ORDERED.

Cruz, (Chairman), Davide, Jr., Bellosillo, and Kapunan, JJ., concur.