BA Finance Corporation vs. Court of Appeals

A mortgagee constituted as attorney-in-fact to prosecute insurance claims on a mortgaged vehicle breaches its duty as agent under Article 1884 of the Civil Code when it refuses to enforce a valid total loss provision, and such breach extinguishes the mortgagors' remaining obligation under the promissory note because the mortgagee's non-performance caused the principals the pecuniary loss equivalent to the salvage value and the unpaid balance.

Manuel and Lilia Cuady obtained credit from Supercars, Inc. on July 15, 1977 in the amount of ₱39,574.80 to purchase a Ford Escort 1300 sedan, executing a promissory note with interest at 14% per annum payable in monthly installments over 36 months, secured by a chattel mortgage on the vehicle. On July 25, 1977, Supercars, Inc. assigned the promissory note and chattel mortgage to BA Finance Corporation, which was thereby subrogated to the rights and obligations of Supercars, Inc. Under the chattel mortgage, BA Finance Corporation was constituted attorney-in-fact with full authority to file, follow-up, prosecute, compromise, or settle insurance claims and to collect the proceeds to the extent of its interests. BA Finance Corporation also obtained renewal of the vehicle's insurance coverage for 1980 with Zenith Insurance Corporation, with the policy stipulating that any loss under the policy was payable to BA Finance Corporation. The Cuadys paid a total of ₱36,730.15, leaving an unpaid balance of ₱2,344.65 as of July 18, 1980, plus ₱460.00 in penalties.

On July 15, 1977, Manuel and Lilia Cuady obtained from Supercars, Inc. a credit of ₱39,574.80 covering the cost of one unit of Ford Escort 1300, four-door sedan. The obligation was evidenced by a promissory note obligating the spouses to pay Supercars, Inc. or order the sum of ₱39,574.80, inclusive of interest at 14% per annum, payable in monthly installments of ₱1,098.00 starting August 16, 1977, and on the 16th day of each of the next 35 months until full payment. A penalty of ₱10.00 for every month of late installment payment was also stipulated. To secure faithful and prompt compliance, the Cuadys constituted a chattel mortgage on the vehicle. Ten days later, on July 25, 1977, Supercars, Inc. assigned the promissory note and chattel mortgage to BA Finance Corporation. Under the deed of chattel mortgage, BA Finance Corporation was constituted attorney-in-fact with full power and authority to file, follow-up, prosecute, compromise, or settle insurance claims, to sign and execute the corresponding papers and documents necessary to prove the claim, and to collect from the insurer the proceeds of insurance to the extent of its interests in the event the mortgaged car suffered any loss or damage. The Cuadys paid a total of ₱36,730.15 to BA Finance Corporation, leaving an unpaid balance of ₱2,344.65 as of July 18, 1980, plus ₱460.00 in penalties for tardy monthly installments.

BA Finance Corporation, as assignee of the mortgage lien, obtained the renewal of the insurance coverage over the vehicle for 1980 with Zenith Insurance Corporation when the Cuadys failed to renew it themselves. The policy stipulated that any loss under the policy was payable to BA Finance Corporation. On April 18, 1980, the vehicle figured in an accident and was badly damaged. The Cuadys reported the accident to both BA Finance Corporation and the insurer and requested that the damage be treated as a total loss, that BA Finance Corporation claim the face value of the insurance policy, apply it to the remaining account, and return any surplus. BA Finance Corporation instead prevailed upon the Cuadys to have the car repaired. The insurer's chosen repair shop, Rea Auto Center, misrepaired the vehicle, rendering it completely useless and unserviceable shortly thereafter.

The Cuadys again wrote BA Finance Corporation requesting enforcement of the total loss provision in the insurance coverage. When BA Finance Corporation did not respond favorably, the Cuadys stopped paying their monthly installments. On June 29, 1982, BA Finance Corporation sued the Cuadys in the Regional Trial Court of Manila, Branch 43, for recovery of the remaining installments. After pre-trial, the case was set for trial on April 25, 1984. BA Finance Corporation presented its evidence on that date, and the presentation of the Cuadys' evidence was set for August 15, 1984. On August 7, 1984, BA Finance Corporation's counsel filed a motion for postponement because the handling counsel was temporarily assigned in Cebu City. The trial court denied the motion on August 10, 1984, and on August 15, 1984, allowed the Cuadys to adduce evidence ex parte in the form of sworn affidavits. BA Finance Corporation moved for reconsideration, which the trial court granted on September 26, 1984, allowing it to submit counter-affidavits within ten days. BA Finance Corporation never complied, and the trial court dismissed the complaint on January 18, 1985. The Court of Appeals affirmed the dismissal on July 21, 1987, and denied reconsideration on February 9, 1988.

• Extinguishment of Obligation: Petitioner argued that even if it failed to enforce the total loss provision in the insurance policy, such failure does not operate to extinguish the unpaid balance on the promissory note, because the circumstances do not fall under any of the modes of extinguishment of obligations under Article 1231 of the Civil Code.
• Factual Findings: Petitioner contended that the respondent court's finding that BA Finance Corporation failed to claim for the damage to the car was not supported by evidence.
• Procedural Due Process: Petitioner alleged that the trial court committed grave abuse of discretion in two instances: first, when it denied the motion for reconsideration praying that counsel be allowed to cross-examine the affiant; and second, when it seriously considered the ex parte evidence adduced by the Cuadys and relied thereon, when the same was not formally admitted as part of the evidence for the private respondents.

• Waiver through Breach of Agency: Respondents insisted that owing to BA Finance Corporation's failure to enforce the total loss provision in the insurance policy, the corporation lost not only its opportunity to collect the insurance proceeds as assignee of the mortgage lien under the policy's loss-payable clause, but also the remaining balance on the promissory note.
• Pecuniary Loss: Respondents contended that BA Finance Corporation's steadfast refusal to proceed against the insurer for a clearly valid insurance claim caused them pecuniary loss in the form of the salvage value of the vehicle and the unpaid balance on the promissory note, especially after the repair shop chosen by the insurer misrepaired the vehicle and rendered it completely useless.

• Breach of Agency: Whether BA Finance Corporation waived its right to collect the unpaid balance on the promissory note by failing to enforce the total loss provision in the insurance coverage of the mortgaged vehicle.
• Review of Factual Findings: Whether the Supreme Court may review and reverse the factual findings of the Court of Appeals.
• Procedural Due Process: Whether the trial court committed grave abuse of discretion in denying cross-examination and in considering ex parte evidence not formally admitted.

• Breach of Agency: Yes. BA Finance Corporation, constituted as attorney-in-fact under the chattel mortgage, was bound by Article 1884 of the Civil Code to carry out the agency and was liable for damages caused by its non-performance; its refusal to enforce the insurance claim extinguished the Cuadys' remaining obligation.
• Review of Factual Findings: No. The judgment of the Court of Appeals is conclusive as to the facts and may not ordinarily be reviewed by the Supreme Court; none of the recognized exceptions obtained.
• Procedural Due Process: No. The issue was raised for the first time on appeal before the Supreme Court and was never ventilated in the trial court or the Court of Appeals, making it offensive to the basic rules of fair play, justice, and due process.

• Breach of Agency: BA Finance Corporation was deemed subrogated to the rights and obligations of Supercars, Inc. upon assignment of the promissory note and chattel mortgage. Under the deed of chattel mortgage, the Cuadys constituted BA Finance Corporation as attorney-in-fact with full authority to file, prosecute, compromise, or settle insurance claims and to collect the proceeds. By granting these powers, the Cuadys created an agency in favor of BA Finance Corporation. 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. The Cuadys suffered pecuniary loss — the salvage value of the vehicle and the unpaid balance on the note — when BA Finance Corporation refused to proceed against the insurer for a clearly valid insurance claim, despite the fact that the repair shop chosen by the insurer had misrepaired the vehicle and rendered it completely useless. The Court of Appeals correctly held that it would be unjust, unfair, and inequitable to require the chattel mortgagors to pay the unpaid balance when the non-payment was due to the mortgagee's stubborn refusal to avail of insurance money that had become due and demandable.
• Review of Factual Findings: It is axiomatic that the judgment of the Court of Appeals is conclusive as to the facts and may not ordinarily be reviewed by the Supreme Court. While the doctrine is subject to specific exceptions, none of those exceptions obtained in the case. The records showed that BA Finance Corporation insisted on repairs instead of acting on the Cuadys' instruction to enforce the total loss provision, the repair shop failed to restore the vehicle, and subsequent requests for BA Finance Corporation to file a total loss claim went unanswered, prompting the Cuadys to stop paying.
• Procedural Due Process: The Court did not need to dwell on this issue because it was raised by BA Finance Corporation for the first time on appeal before the Supreme Court. A review of the records showed that BA Finance Corporation failed to directly raise or ventilate in the trial court or the Court of Appeals the validity of the ex parte evidence adduced by the Cuadys. Issues not raised in the lower courts cannot be raised for the first time on appeal, as it would be offensive to the basic rules of fair play, justice, and due process.

• Agency — Duty to Carry Out (Article 1884, 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. Applied here, the chattel mortgage's grant of authority to BA Finance Corporation to prosecute and settle insurance claims created an agency relationship; the mortgagee's refusal to enforce a valid total loss claim constituted non-performance causing pecuniary loss to the principals, thereby extinguishing their remaining obligation.
• Conclusiveness of Court of Appeals Factual Findings — The judgment of the Court of Appeals is conclusive as to the facts and may not ordinarily be reviewed by the Supreme Court, subject only to specific exceptions. None of the recognized exceptions obtained in this case, so the factual finding that BA Finance Corporation failed to claim for the damage stood.
• Issues Cannot Be Raised 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 before the Supreme Court, as it would be offensive to the basic rules of fair play, justice, and due process.

• "In granting B.A. Finance Corporation the aforementioned powers and prerogatives, the Cuady spouses created in the former's favor an agency. Thus, under Article 1884 of the Civil Code of the Philippines, B.A. Finance Corporation is bound by its acceptance to carry out the agency, and is liable for damages which, through its non-performance, the Cuadys, the principal in the case at bar, may suffer." — This passage articulates the ratio decidendi: the chattel mortgage's grant of insurance-claim authority created an agency, and the mortgagee's refusal to act breached that agency, giving rise to liability for damages that extinguished the debt.
• "Under the established facts and circumstances, it is unjust, unfair and inequitable to require the chattel mortgagors, appellees herein, to still pay the unpaid balance of their mortgage debt on the said car, the non-payment of which account was due to the stubborn refusal and failure of appellant mortgagee to avail of the insurance money which became due and demandable after the insured motor vehicle was badly damaged in a vehicular accident covered by the insurance risk." — This quotation from the Court of Appeals, adopted by the Supreme Court, states the equitable rationale for extinguishing the obligation: the mortgagors should not bear the consequences of the mortgagee's refusal to collect available insurance proceeds.
• "It is axiomatic that the judgment of the Court of Appeals is conclusive as to the facts and may not ordinarily be reviewed by the Supreme Court." — This passage states the controlling procedural doctrine limiting the Supreme Court's review of factual findings from the Court of Appeals.

• Luzon Brokerage Corporation vs. Court of Appeals, 176 SCRA 483 (1989) — Cited as authority for the doctrine that the Court of Appeals' factual findings are conclusive and may not ordinarily be reviewed by the Supreme Court, subject to specific exceptions.
• Galicia vs. Polo, 179 SCRA 375 (1989) — Cited for the rule that issues not raised in the trial court or Court of Appeals cannot be raised for the first time on appeal.
• Ramos vs. Intermediate Appellate Court, 175 SCRA 70 (1989) — Cited for the same rule on issues raised for the first time on appeal.
• Dulos Realty & Development Corporation vs. Court of Appeals, 157 SCRA 425 (1988) — Cited for the same rule on issues raised for the first time on appeal.
• Dihiansan vs. Court of Appeals, 153 SCRA 712 (1987) — Cited for the same rule on issues raised for the first time on appeal.
• De la Santa vs. Court of Appeals, 140 SCRA 44 (1985) — Cited for the same rule on issues raised for the first time on appeal.

• Article 1884, Civil Code of the Philippines — Provides that the agent is bound by acceptance to carry out the agency and is liable for damages which, through its non-performance, the principal may suffer. Applied to hold BA Finance Corporation liable as agent constituted under the chattel mortgage for its refusal to enforce the insurance total loss claim.
• Article 1231, Civil Code of the Philippines — Enumerates the modes of extinguishment of obligations. Petitioner invoked it to argue that the circumstances did not fall under any mode of extinguishment; the Court effectively rejected this argument by finding that the mortgagee's breach of agency caused the loss that equitably extinguished the obligation.
• Section 13, Article VIII, 1987 Constitution — Referenced in the Court of Appeals' decision regarding consultation among the members of the Division in compliance with constitutional requirements before rendering judgment.

Justices Melencio-Herrera (Chairperson), Padilla, and Regalado concurred. Justice Sarmiento was on leave.