International Exchange Bank vs. Spouses Briones

A bank constituted as irrevocable attorney-in-fact to file insurance claims on a mortgaged vehicle is liable for damages when it fails to perform that obligation and instead demands full payment from the principal, as the agency is coupled with interest and cannot be revoked at will.

Spouses Jerome and Quinnie Briones obtained a car loan from International Exchange Bank (iBank), now Union Bank of the Philippines, to purchase a BMW Z4 Roadster, executing a promissory note with chattel mortgage that designated iBank as their attorney-in-fact with irrevocable authority to file insurance claims in case of loss or damage to the vehicle, with insurance proceeds payable to the bank. The promissory note was a standard form prepared by the bank itself.

On July 2, 2003, spouses Jerome and Quinnie Briones obtained a loan of ₱3,789,216.00 from International Exchange Bank (iBank), now Union Bank of the Philippines, to purchase a BMW Z4 Roadster. The monthly amortization for two years was ₱78,942.00. The spouses executed a promissory note with chattel mortgage requiring them to insure the vehicle against loss, damage, theft, and fire, with the insurance proceeds payable to iBank. The promissory note also granted iBank, as the spouses' attorney-in-fact, irrevocable authority to file, follow up, prosecute, compromise, or settle insurance claims and to collect the proceeds in case of loss or damage to the vehicle.

On November 5, 2003, at about 10:50 p.m., the mortgaged vehicle was carnapped by three armed men in front of the Metrobank Banlat Branch in Tandang Sora, Quezon City. Jerome Briones immediately reported the incident to the Philippine National Police Traffic Management Group. The spouses declared the loss to iBank, which instructed them to continue paying the next three monthly installments "as a sign of good faith," a directive they complied with.

On March 26, 2004, after the spouses had finished paying the three-month installment, iBank sent them a letter demanding full payment for the lost vehicle. Constrained by iBank's failure to file an insurance claim despite being their agent, the spouses submitted a notice of claim with their insurance company on April 30, 2004. The insurance company denied the claim on June 29, 2004 due to delayed reporting of the loss.

On May 14, 2004, iBank filed a complaint for replevin and/or sum of money against the spouses and a person named John Doe, alleging that the spouses had defaulted in paying the monthly amortizations. After pre-trial and trial on the merits, the Regional Trial Court dismissed iBank's complaint, finding that as the spouses' duly constituted attorney-in-fact, iBank had the obligation to facilitate the filing of the insurance claim and pursue the release of the proceeds, and that it had prioritized its own interest over that of its principal. The Court of Appeals affirmed this ruling, holding that iBank was bound by its acceptance to carry out the agency and was liable for the damages suffered by the spouses due to its non-performance.

• Entitlement to Recovery: Petitioner claimed entitlement to recover the mortgaged vehicle or, in the alternative, to collect a sum of money from respondents based on the clear wording of the promissory note with chattel mortgage, and insisted on entitlement to damages.
• Insurance as Aleatory Alternative: Petitioner maintained that insurance coverage was only an aleatory alternative available to respondents if their claim was granted by the insurance company, and that it was respondents' duty to file a claim with the insurance company.
• Revocation of Agency: Petitioner posited that respondent Jerome's direct dealing with the insurance company constituted a revocation of the agency relationship between petitioner and respondents, and that respondents only shifted the blame after the insurance company denied their claim.

• Agent's Duty to File Claim: Respondents insisted that when the mortgaged vehicle was carnapped, petitioner as the agent should have asserted its right to collect, demand, and proceed against the insurance company.
• Good Faith Compliance: Respondents stated that after informing petitioner of the loss, they continued to pay the monthly installments for three months as compliance with petitioner's request, yet petitioner still demanded full payment despite their good faith and the existence of the insurance policy.
• Fiduciary Diligence: Respondents maintained that petitioner failed to exercise the degree of diligence required of it considering the fiduciary nature of its relationship with its clients.

• Existence of Agency: Whether an agency relationship existed between the parties.
• Revocation of Agency: Whether the agency relationship was revoked or terminated.
• Entitlement to Recovery: Whether petitioner is entitled to the return of the mortgaged vehicle or, in the alternative, payment of the outstanding balance of the loan taken out for the mortgaged vehicle.

• Existence of Agency: Yes. All elements of agency existed under the promissory note with chattel mortgage, which designated iBank as the spouses' attorney-in-fact with full power to file insurance claims.
• Revocation of Agency: No. The spouses' filing of the insurance claim was not a revocation but a compelled act due to the agent's negligence; the agency was also irrevocable as it was coupled with interest.
• Entitlement to Recovery: No. Petitioner was not entitled to recovery because it breached its fiduciary duty as agent by failing to file the insurance claim and instead demanding full payment, making it liable for damages.

• Existence of Agency: A contract of agency exists when a person binds himself to render some service or to do something in representation or on behalf of another with the latter's consent or authority. The essential elements are: (1) consent of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; and (4) the agent acts within the scope of his authority. All these elements were present: under Sections 6 and 22 of the promissory note with chattel mortgage, the spouses appointed iBank as their attorney-in-fact, authorizing it to file claims with the insurance company and collect the proceeds. The terms of the contract were clear under Article 1370 of the Civil Code, and the factual findings of both lower courts on the existence of agency were binding.

• Revocation of Agency: Revocation under Article 1924 of the Civil Code applies only when the principal disregards or bypasses the agent to deal directly with a third person. The spouses did not bypass iBank; they were constrained to file the claim themselves because of iBank's negligence in failing to do so despite being their agent. Furthermore, under Article 1927, an agency cannot be revoked if a bilateral contract depends upon it. The promissory note created a bilateral contract in which iBank was authorized to claim and apply insurance proceeds toward satisfaction of the loan, making the agency coupled with interest and therefore irrevocable. iBank itself prepared the document designating the agency as irrevocable, indicating its awareness of the bilateral nature of the contract.

• Entitlement to Recovery: As agent, iBank was mandated to look after the interests of the spouses. Instead of pursuing the insurance proceeds, iBank opted to claim the full amount from the spouses, disregarding the principal-agent relationship and preferring its own interests in violation of Article 1889 of the Civil Code. The insurance policy was valid when the vehicle was lost, and the claim was denied only because of belated filing — a direct consequence of iBank's inaction. iBank's bad faith was evident when it advised the spouses to continue paying three monthly installments purportedly to show good faith, without informing them that it was terminating the agency or that they should file the insurance claim themselves. Given the fiduciary nature of the relationship and iBank's negligence and bad faith, it would be inequitable to compel the spouses to pay the full amount of the lost property.

• Elements of Agency — The essential elements of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; and (4) the agent acts within the scope of his authority. The Court found all elements present based on the promissory note designating iBank as attorney-in-fact.

• Agency Coupled with Interest — Under Article 1927 of the Civil Code, an agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted. When an agency is established for both the principal and the agent, it becomes an agency coupled with interest, and the principal cannot revoke it at will. The Court applied this to hold that the agency was irrevocable because the promissory note created a bilateral contract in which iBank was authorized to claim insurance proceeds to satisfy the loan.

• Agent's Liability for Non-Performance — Under Article 1884 of the Civil Code, the agent is bound by his acceptance to carry out the agency and is liable for damages which, through his non-performance, the principal may suffer. The Court held iBank liable for the damages suffered by the spouses because it failed to file the insurance claim, resulting in its denial for belated filing.

• Agent's Duty of Loyalty — Under Article 1889 of the Civil Code, the agent shall be liable for damages if, there being a conflict between his interests and those of the principal, he should prefer his own. The Court found that iBank preferred its own interest by demanding full payment instead of pursuing the insurance proceeds.

• "The Spouses Briones' claim for loss cannot be seen as an implied revocation of the agency or their way of excluding petitioner. They did not disregard or bypass petitioner when they made an insurance claim; rather, they had no choice but to personally do it because of their agent's negligence." — This passage articulates the ratio decidendi on the revocation issue, distinguishing between a principal's voluntary bypass of the agent and a compelled act arising from the agent's negligence.

• "Having been negligent in its duties as the duly constituted agent, petitioner must be held liable for the damages suffered by the Spouses Briones because of non-performance of its obligation as the agent, and because it prioritized its interests over that of its principal." — This states the Court's conclusion on the bank's liability, tying together the agent's duty to perform and the prohibition against preferring its own interests.

• "A bilateral contract that depends upon the agency is considered an agency coupled with interest, making it an exception to the general rule of revocability at will." — This defines the doctrine of agency coupled with interest as an exception to revocability, central to the Court's holding that the agency was irrevocable.

• Rallos vs. Felix Go Chan & Sons Realty Corporation, 171 Phil 222 (1978) — Cited for the essential elements of agency; followed by the Court in determining that all elements were present in the case.
• Bitte vs. Spouses Jonas, G.R. No. 212256, December 9, 2015 — Cited for the principle that revocation of agency under Article 1924 applies when the principal directly manages the business and deals with third persons, excluding the agent; distinguished from the present case where the spouses acted out of necessity.
• Republic vs. Evangelista, 504 Phil 115 (2005) — Cited for the general rule that agency is revocable at will as it is based on trust and confidence.
• Lim vs. Saban, 488 Phil 236 (2004) — Cited for the principle that when an agency is established for both the principal and the agent, an agency coupled with interest is created and the principal cannot revoke it at will.
• Bank of the Philippine Islands vs. Laingo, G.R. No. 205206, March 16, 2016 — Cited for the fiduciary duty of an agent to act in good faith to advance the interests of the principal.

• Article 1868, Civil Code — Defines a contract of agency as one whereby a person binds himself to render some service or to do something in representation or on behalf of another with the latter's consent or authority. Applied to establish the existence of agency between the spouses and iBank.
• Article 1370, Civil Code — Provides that when the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. Applied to the clear wording of Sections 6 and 22 of the promissory note.
• Article 1884, Civil Code — Provides that the agent is bound by his acceptance to carry out the agency and is liable for damages which, through his non-performance, the principal may suffer. Applied to hold iBank liable for failing to file the insurance claim.
• Article 1889, Civil Code — Provides that the agent shall be liable for damages if, there being a conflict between his interests and those of the principal, he should prefer his own. Applied to iBank's act of demanding full payment instead of pursuing insurance proceeds.
• Article 1924, Civil Code — Provides that the agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. Distinguished from the present case, where the spouses' filing of the claim was not a revocation but a compelled act due to iBank's negligence.
• Article 1927, Civil Code — Provides instances when an agency cannot be revoked, including when a bilateral contract depends upon it. Applied to hold that the agency was irrevocable as it was coupled with interest.

Antonio T. Carpio (Chairperson), Diosdado M. Peralta (on official leave), Jose Catral Mendoza, and Samuel R. Martires concurred.