BA FINANCE CORPORATION, PETITIONER, VS. HON. COURT OF APPEALS AND TRADERS ROYAL BANK, RESPONDENTS.

This is a petition for review on certiorari of the decision
of the respondent appellate court, which reversed the ruling of the trial court
dismissing the case against petitioner.

The antecedent facts are as follows:

On December 17, 1980, Renato Gaytano, doing business under the
name Gebbs International, applied for and was granted a loan with respondent
Traders Royal Bank in the amount of P60,000.00. As security for the payment of said loan, the Gaytano spouses
executed a deed of suretyship whereby they agreed to pay jointly and severally
to respondent bank the amount of the
loan including interests, penalty and other bank charges.

In a letter dated December 5, 1980 addressed to respondent bank,
Philip Wong as credit administrator of BA Finance Corporation for and in behalf
of the latter, undertook to guarantee the loan of the Gaytano spouses. The letter reads:

“This is in reference to the application of Gebbs
International for a twenty-five (25) month term loan of 60,000.00 with your
Bank.

“In this connection, please be advised that we unconditionally
guarantee full payment in peso value the said accommodation (sic) upon
non-payment by subject up to a maximum amount of P60,000.00.

“Hoping this would meet your requirement and expedite the
early processing of their application.

“Thank you.

Very truly yours,

BA FINANCE CORPORATION

(signed)

PHILIP H. WONG

Credit Administrator”

(p. 12, Rollo)

Partial payments were made on the loan leaving an unpaid balance
in the amount of P85,807.25. Since the
Gaytano spouses refused to pay their obligation, respondent bank filed with the
trial court a complaint for sum
of money against the Gaytano spouses and petitioner corporation as alternative
defendant.

The Gaytano spouses did not present evidence for their
defense. Petitioner corporation, on the
other hand, raised the defense of lack of authority of its credit administrator
to bind the corporation.

On December 12, 1988, the trial court rendered a decision the
dispositive portion of which states:

“IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor
of plaintiff and against defendants/Gaytano spouses, ordering the latter to
jointly and severally pay the plaintiff the following:

“1) EIGHTY FIVE
THOUSAND EIGHT HUNDRED SEVEN AND 25/100 (P85,807.25), representing the total
unpaid balance with accumulated interests, penalties and bank charges as of
September 22, 1987, plus interests, penalties and bank charges thereafter until
the whole obligation shall have been fully paid.

“2) Attorney’s fees at the
stipulated rate of ten (10%) percent computed from the total obligation; and

“3) The costs of suit.

“The dismissal of the case against defendant BA Finance
Corporation is hereby ordered without pronouncement as to cost.

“SO ORDERED.” (p. 31, Rollo)

Not satisfied with the decision, respondent bank appealed with
the Court of Appeals. On March 13,
1990, respondent appellate court rendered judgment modifying the decision of
the trial court as follows:

“In view of the foregoing, the judgment is hereby rendered
ordering the defendants Gaytano spouses and alternative defendant BA Finance
Corporation, jointly and severally, to pay the plaintiff the amount of
P85,807.25 as of September 8, 1987, including interests, penalties and other
back (sic) charges thereon, until the full obligation shall have been fully paid. No pronouncement as to costs.

“SO ORDERED.” (p. 27, Rollo)

Hence this petition was filed with the petitioner assigning the
following errors committed by respondent appellate court:

“1. THE
HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER IS JOINTLY
AND SEVERALLY LIABLE WITH GAYTANO SPOUSES DESPITE ITS FINDINGS THAT THE LETTER
GUARANTY (EXH. ‘C’) IS ‘INVALID AT ITS INCEPTION’;

“2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN RULING THAT THE PETITIONER WAS GUILTY OF ESTOPPEL DESPITE THE FACT THAT IT
NEVER KNEW OF SUCH ALLEGED LETTER-GUARANTY;

“3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN NOT RULING THAT SUCH LETTER GUARANTY (EXHIBIT ‘C’) BEING PATENTLY ULTRA
VIRES, IS UNENFORCEABLE;

“4. THE HONORABLE COURT OF APPEALS ERRED IN NOT
AWARDING RELIEF ON PETITIONER’S COUNTERCLAIM (p. 10, Rollo).”

Since the issues are interrelated, it would be well to discuss
them jointly.

Petitioner contends that the letter guaranty is ultra vires,
and therefore unenforceable; that said letter-guaranty was issued by an
employee of petitioner corporation beyond the scope of his authority since the
petitioner itself is not even empowered by its articles of incorporation and
by-laws to issue guaranties. Petitioner
also submits that it is not guilty of estoppel to make it liable under the
letter-guaranty because petitioner had no knowledge or notice of such
letter-guaranty; that the allegation of Philip Wong, credit administrator, that there was an audit was not
supported by evidence of any audit report or record of such transaction in the
office files.

We find the petitioner’s contentions meritorious. It is a settled rule that persons dealing
with an assumed agent, whether the assumed agency be a general or special one
are bound at their peril, if they would hold the principal liable, to ascertain
not only the fact of agency but also the nature and extent of authority, and in
case either is controverted, the burden of proof is upon them to establish it
(Harry Keeler v. Rodriguez, 4 Phil. 19). Hence, the burden is on respondent bank to satisfactorily prove that the
credit administrator with whom they transacted acted within the authority given
to him by his principal, petitioner corporation. The only evidence presented by respondent bank was the testimony
of Philip Wong, credit administrator, who testified that he had authority to
issue guarantees as can be deduced from the wording of the memorandum given to
him by petitioner corporation on his lending authority. The said memorandum which allegedly authorized
Wong not only to approve and grant loans but also to enter into contracts of
guaranty in behalf of the corporation, partly reads:

“To:   Philip H. Wong, SAM

Credit Administrator

From: Hospicio B. Bayona, Jr., VP and

Head of Credit
Administration

Re:    Lending Authority

I am pleased to delegate to you in your capacity as Credit
Administrator the following lending limits:

a) P650,000.00 – Secured Loans

b) P550,000.00 – Supported Loans

c) P350,000.00 – Truck Loans/Contracts/
Leases

d) P350,000.00 – Auto Loan Contracts/
Leases

e) P350,000.00 – Appliance Loan
Contracts

f) P350,000.00 – Unsecured Loans

Total loans and/or credits (Combination of
(a) thru (f) extended to any one borrower including parents, affiliates and/or
subsidiaries, should not exceed P750,000.00. In exercising the limits aforementioned, both direct and contingent commitments to the borrower
(s) should be considered.

All loans must be within the Company’s
established lending guideline and policies.

x x x

LEVELS OF APPROVAL

All transactions in
excess of any branch’s limit must be recommended to you through the Official
Credit Report for approval. If the
transaction exceeds your limit, you must concur in application before
submitting it to the Vice President, Credit Administration for approval or
concurrence.

x x x” (pp. 62-63, Rollo)
(Emphasis ours)

Although Wong was clearly authorized to approve loans even up to
P350,000.00 without any security requirement, which is far above the amount
subject of the guaranty in the amount of P60,000.00, nothing in the said
memorandum expressly vests on the credit administrator power to issue
guarantees. We cannot agree with
respondent’s contention that the phrase “contingent commitment” set
forth in the memorandum means guarantees. It has been held that a power of attorney or authority of an agent
should not be inferred from the use of vague or general words. Guaranty is not presumed, it must be expressed
and cannot be extended beyond its specified limits (Director v. Sing Juco, 53
Phi. 205). In one case, where it
appears that a wife gave her husband power of attorney to loan money, this
Court ruled that such fact did not authorize him to make her liable as a surety
for the payment of the debt of a third person (Bank of Philippine Islands v.
Coster, 47 Phil. 594).

The sole allegation of the credit administrator in the absence of
any other proof that he is authorized to bind petitioner in a contract of guaranty with third
persons should not be given weight. The
representation of one who acts as agent cannot by itself serve as proof of his
authority to act as agent or of the extent of his authority as agent (Velasco
v. La Urbana, 58 Phil. 681). Wong’s
testimony that he had entered into similar transactions of guaranty in the past
for and in behalf of the petitioner, lacks credence due to his failure to show
documents or records of the alleged past transactions. The actuation of Wong in claiming and testifying that he has
the authority is understandable. He
would naturally take steps to save himself from personal liability for damages
to respondent bank considering that he had exceeded his authority. The rule is clear that an agent who exceeds
his authority is personally liable for damages (National Power Corporation
v. National Merchandising Corporation,
Nos. L-33819 and L-33897, October 23, 1982, 117 SCRA 789).

Anent the conclusion of respondent appellate court that
petitioner is estopped from alleging lack of authority due to its failure to
cancel or disallow the guaranty, We find that the said conclusion has no basis
in fact. Respondent bank had not shown
any evidence aside from the testimony of the credit administrator that the
disputed transaction of guaranty was in fact entered into the official records
or files of petitioner corporation, which will show notice or knowledge on the
latter’s part and its consequent ratification of the said transaction. In the absence of clear proof, it would be
unfair to hold petitioner corporation guilty of estoppel in allowing its credit
administrator to act as though the latter had power to guarantee.

ACCORDINGLY, the petition is GRANTED and the assailed
decision of the respondent appellate court dated March 13, 1990 is hereby
REVERSED and SET ASIDE and another one is rendered dismissing the complaint for
sum of money against BA Finance Corporation.

SO ORDERED.

Cruz, (Chairman), Griño-Aquino, and
Bellosillo, JJ., concur.