BA FINANCE CORPORATION, PETITIONER, VS. HON. COURT OF APPEALS, HON. PRESIDING JUDGE OF REGIONAL TRIAL COURT OF MANILA, BRANCH 43, MANUEL CUADY AND LILIA CUADY, RESPONDENTS.

B.A. Finance versus Cuady

The Case

This is a petition for review on certiorari brought by B.A. Finance Corporation against the Court of Appeals, the presiding judge of the Regional Trial Court of Manila, Branch 43, and the spouses Manuel Cuady and Lilia Cuady. B.A. Finance sued the Cuady spouses to collect the unpaid balance of a promissory note secured by a chattel mortgage over a motor vehicle. The Cuadys resisted payment on the ground that the finance company, which held the power to claim on the insurance covering the car, refused to enforce the total loss provision after the car was wrecked, and thereby lost the insurance money that should have paid their account. The case matters because it teaches how an assignee of a credit and a mortgage is bound by the terms of the mortgage, including an agency to pursue insurance claims, and how its breach of that agency can defeat its own collection suit.

Procedural History

B.A. Finance Corporation filed a complaint for the recovery of the remaining installments in the Regional Trial Court of Manila, Branch 43. After pre-trial, the trial court denied the finance company's motion for postponement, allowed the Cuadys to present evidence ex parte, and later granted the finance company leave to submit counter-affidavits within ten days. The finance company never complied. The trial court then rendered judgment dismissing the complaint, without costs.

B.A. Finance appealed to the Court of Appeals, which affirmed the trial court's decision, finding no reversible error. The finance company moved for reconsideration, and the appellate court denied the motion. Hence this petition for review on certiorari before the Supreme Court, which gave due course to the petition and required the parties to submit their memoranda.

Facts

On July 15, 1977, the Cuady spouses obtained from Supercars, Incorporated a credit of 39,574 pesos and 80 centavos, covering the cost of a Ford Escort sedan. They signed a promissory note in favor of Supercars obligating themselves to pay that sum, inclusive of interest at 14 percent per annum, in monthly installments of 1,098 pesos beginning August 16, 1977 and continuing for the next 35 months. A penalty of 10 pesos was stipulated for every month of late payment. To secure the obligation, the Cuadys constituted a chattel mortgage on the motor vehicle. On July 25, 1977, Supercars assigned the promissory note, together with the chattel mortgage, to B.A. Finance Corporation.

The Cuadys paid a total of 36,730 pesos and 15 centavos, leaving an unpaid balance of 2,344 pesos and 65 centavos as of July 18, 1980, plus 460 pesos in penalties for tardy installments. When the Cuadys failed to renew the insurance on the car, B.A. Finance, as assignee of the mortgage lien, obtained renewal of the coverage with Zenith Insurance Corporation for the year 1980, with any loss payable to B.A. Finance.

On April 18, 1980, the car figured in an accident and was badly damaged. The Cuadys asked B.A. Finance to treat the car as a total loss, to claim the face value of the policy from the insurer, and to apply the proceeds to their account, giving them any surplus. Instead, B.A. Finance prevailed upon them to have the car repaired. The repair shop chosen by the insurer misrepaired the car and rendered it useless, and it soon bogged down. The Cuadys again asked B.A. Finance to pursue the total loss claim, but the finance company ignored them, so the Cuadys stopped paying their installments. B.A. Finance then sued for the balance.

Issues

• Whether or not B.A. Finance Corporation waived its right to collect the unpaid balance on the promissory note by its failure to enforce the total loss provision in the insurance coverage of the mortgaged motor vehicle.
• Whether or not the Court of Appeals erred in its factual findings, which the finance company asked the Supreme Court to review and reverse.
• Whether or not the trial court committed grave abuse of discretion in denying the motion for reconsideration seeking to cross-examine the affiant and in relying on the evidence adduced ex parte by the Cuadys.

Applicable Provisions

Article 1884 of the Civil Code provides:

The agent is bound by his acceptance to carry out the agency, and is liable for the damages which, through his non-performance, the principal may suffer.

This governs because the chattel mortgage constituted B.A. Finance as attorney-in-fact with authority to pursue and collect insurance claims, creating an agency whose breach makes the agent liable for the principal's damages.

Ruling

On the first issue, the Court held that the petition is devoid of merit. When Supercars assigned the promissory note and the chattel mortgage to B.A. Finance, the latter was deemed subrogated to the rights and obligations of Supercars and was bound by the terms and conditions of the chattel mortgage. Under that deed, B.A. Finance was constituted attorney-in-fact with full power to file, follow up, prosecute, compromise or settle insurance claims, to execute the necessary papers, and to collect the insurance proceeds to the extent of its interests should the mortgaged car suffer loss or damage. In granting these powers, the Cuadys created an agency in favor of B.A. Finance. Under Article 1884, the agent is bound by its acceptance to carry out the agency and is liable for damages which, through its non-performance, the principal may suffer.

The Court found that the Cuadys unquestionably suffered pecuniary loss in the form of the salvage value of the car, not to mention the amount equivalent to the unpaid balance, when B.A. Finance steadfastly refused to proceed against the insurer on a clearly valid claim and ignored the Cuadys' requests, despite the fact that the repair shop chosen by the insurer itself misrepaired the car and rendered it completely useless. The Court agreed with the Court of Appeals that it would be unjust, unfair and inequitable to require the chattel mortgagors to still pay the unpaid balance, since their non-payment was due to the stubborn refusal of the mortgagee to avail of the insurance money that had become due and demandable.

On the second issue, the Court refused to review the factual findings of the Court of Appeals, which are conclusive as to the facts and ordinarily may not be reviewed by the Supreme Court, and held that none of the recognized exceptions obtained.

On the third issue, the Court declined to dwell on the alleged grave abuse of discretion because B.A. Finance raised it for the first time on appeal. Issues not raised or ventilated in the trial court, let alone in the Court of Appeals, cannot be raised for the first time on appeal, as that would offend the basic rules of fair play, justice and due process.

Doctrine

An assignee of a promissory note and the accompanying chattel mortgage is subrogated to the rights and obligations of the assignor and is bound by the terms and conditions of the mortgage. Where the mortgage deed constitutes the mortgagee as attorney-in-fact with authority to pursue and collect insurance claims on the mortgaged vehicle, an agency is created, and under Article 1884 of the Civil Code the agent is bound by its acceptance to carry out the agency and is liable for damages which, through its non-performance, the principal may suffer. A mortgagee that stubbornly refuses to enforce a valid total loss claim, causing the mortgagors to lose the insurance proceeds that should have paid their account, cannot thereafter collect the unpaid balance from them. The factual findings of the Court of Appeals are conclusive and ordinarily cannot be reviewed by the Supreme Court, and issues not raised in the trial court or the Court of Appeals cannot be raised for the first time on appeal.

Disposition

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals, so the Cuady spouses prevailed and the complaint for the unpaid balance remained dismissed.

Remember This

The single line to memorize is that a mortgagee constituted attorney-in-fact to collect insurance proceeds is bound by its acceptance to carry out the agency, and its refusal to do so bars it from collecting the balance from the mortgagors. Examiners use this case on agency under Article 1884, on the binding effect of mortgage terms upon an assignee, and on the rule against raising new issues for the first time on appeal.