G.R. No.

L-109937 March 21, 1994

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 INSURANCE POOL, respondents.

Office of the Legal Counsel for petitioner.

Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J.:

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.

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 read 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 Dan'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 Dan's loan was released on August
11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter, 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 Dan'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 1987 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 Dan'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 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.