Urban Bank, Inc. vs. Peña

Where an agency relationship exists but the agreed compensation is not proven, payment must be based on quantum meruit and the principle against unjust enrichment. Corporate officers are not solidarily liable for corporate obligations absent clear and convincing proof of bad faith or gross negligence. Execution pending appeal based solely on a collection suit filed against the judgment creditor is invalid for lacking "good reasons," and the total reversal of the main decision necessitates the complete restitution of properties sold under the void execution.

ISCI owned a property leased to a tenant who subleased it to 23 unauthorized commercial establishments. Before the lease expired, ISCI sold the property to Urban Bank, retaining a PhP 25,000,000 escrow to ensure delivery free of tenants. ISCI's president directed Atty. Peña, a director and corporate secretary, to take over the property. When the sub-tenants refused to leave and questioned ISCI's authority, ISCI requested Urban Bank to issue authority to Peña. Urban Bank initially noted Peña was ISCI's agent but, following a break-open order by a trial court, issued a letter confirming Peña as its authorized representative to secure and maintain possession. Peña successfully evicted the sub-tenants, advancing PhP 1,500,000 for settlement and incurring expenses for security guards. Peña claimed Urban Bank's president orally agreed to pay 10% of the property's market value (PhP 24,000,000) as compensation. Urban Bank refused to pay, leading Peña to file a complaint for agent's compensation against the bank and eight of its officers and directors.

• The ISCI-Urban Bank Transaction: ISCI sold its Pasay property to Urban Bank for PhP 241,612,000, with PhP 25,000,000 held in escrow until ISCI delivered possession free of tenants.
• Peña's Engagement: ISCI engaged Peña, its director and corporate secretary, to evict the unauthorized sub-tenants. When the sub-tenants questioned ISCI's authority, ISCI requested Urban Bank to issue authority to Peña.
• Urban Bank's Authorization: Urban Bank initially noted Peña was ISCI's agent. However, on December 19, 1994, after a break-open order was issued by a trial court, Urban Bank issued a letter confirming Peña as its authorized representative to hold possession and represent the bank in court.
• The Alleged Oral Agreement: Peña claimed that in a telephone conversation on December 19, 1994, Urban Bank President Borlongan agreed to a 10% fee (PhP 24,000,000) if possession was turned over within four months. Borlongan denied this.
• Performance and Expenses: Peña filed an injunction suit for Urban Bank, settled with the sub-tenants for PhP 1,500,000 (which he advanced), and paid for security guards. He turned over possession in February 1995.
• The Demand and Suit: After Urban Bank ignored his demands, Peña sued Urban Bank and eight of its eleven directors/officers in RTC-Bago City.
• Execution Pending Appeal: The RTC awarded PhP 28,500,000. Peña sought execution pending appeal, citing a collection suit filed by his creditor (Roberto Ignacio) for a PhP 3,000,000 loan Peña used for the property. The RTC granted it. Properties worth over PhP 181,000,000 were levied and sold, including prime condos and exclusive club shares, far exceeding the judgment debt.

• Validity of the Agency Fee: Urban Bank argued that Peña was never its agent but remained ISCI's agent, and that the CA erred in awarding compensation based on unjust enrichment. Peña argued that an agency relationship was established and the CA erred in denying the 10% compensation based on the oral contract.
• Solidary Liability of Officers: The De Leon Group argued that even assuming an agency contract existed, the trial court committed reversible error in holding bank directors solidarily liable with the corporation absent bad faith or gross negligence. Peña argued that the bank officers should be held solidarily liable because they failed to raise the defense of limited corporate liability.
• Propriety of Execution Pending Appeal: Urban Bank and the De Leon Group argued that the execution pending appeal was improper because the collection suit against Peña was not a sufficient "good reason." Urban Bank also argued that the CA erred in finding the bank's receivership as a ground for execution pending appeal, especially since the bank's co-defendants (officers) were not insolvent and the bank's assets were custodia legis.

• Validity of the Agency Fee: Urban Bank countered that Peña was ISCI's agent, not Urban Bank's, and ISCI was responsible for the expenses. Urban Bank also argued that the 10% fee was unconscionable and unproven.
• Solidary Liability of Officers: The bank officers countered that Peña failed to allege and prove that they assented to patently unlawful acts or were guilty of gross negligence or bad faith, which are requisites for piercing the corporate veil.
• Propriety of Execution Pending Appeal: Peña countered that the CA correctly considered the bank's imminent insolvency as a good reason for execution pending appeal. He maintained that the pendency of the collection suit against him justified immediate execution.

• Basis of Compensation: Whether the legal basis for Peña's compensation is an oral contract of agency with a 10% fee, or the principles of unjust enrichment and quantum meruit.
• Solidary Liability of Officers: Whether the corporate officers and directors of Urban Bank are solidarily liable for the bank's obligation to Peña.
• Validity of Execution Pending Appeal: Whether the trial court's grant of execution pending appeal, based on a collection suit against the judgment creditor and the bank's subsequent receivership, was valid.
• Restitution: What effects the reversal of the trial court's decision and the nullification of the execution pending appeal have on the levied and sold properties.

• Basis of Compensation: Compensation must be based on unjust enrichment and quantum meruit, not the alleged oral contract. While an agency relationship between Peña and Urban Bank was established by the December 19, 1994 letter and ratified by the bank's acceptance of the benefits, the 10% fee was not proven. Peña's testimony regarding the phone conversation was deemed incredible, and a PhP 24,000,000 fee is unconscionable for the services rendered (evicting 23 sub-tenants who settled for only PhP 1,500,000). The award was fixed at PhP 4,500,000 (PhP 3,000,000 for expenses + PhP 1,500,000 for legal services).
• Solidary Liability of Officers: Corporate officers are not solidarily liable. A corporation has a separate juridical personality. To hold officers personally liable, the complainant must allege and clearly prove that the officers assented to patently unlawful acts or were guilty of gross negligence or bad faith. Peña failed to allege this in the complaint and failed to prove specific unlawful acts by the officers.
• Validity of Execution Pending Appeal: The execution pending appeal was invalid. A pending collection suit against the judgment creditor (Peña) is not a "good reason" justifying execution pending appeal; it does not prove the judgment debtor's insolvency or risk of the judgment becoming illusory. Furthermore, the bank's receivership did not justify execution against its assets, which are considered custodia legis and exempt from garnishment, nor did it justify execution against the solidarily liable (but solvent) individual co-defendants.
• Restitution: Because the RTC decision was vacated and the execution pending appeal was void, all proceedings arising from it are null and void. Restitution is mandatory. Urban Bank is entitled to full restoration of its properties upon payment of the PhP 4,500,000 judgment. The individual officers are entitled to absolute restitution. If Peña purchased the properties, he must return them or pay their full value at seizure. If third parties purchased them and title has not transferred, the property must be returned to the bank/officers, subject to the third party's right to claim the purchase price from Peña. If title validly transferred to a third party, Peña must pay the bank/officers the amount realized from the sale.

• Quantum Meruit — Defined as the reasonable worth of services rendered, applied when a lawyer/agent performs services without a written agreement on compensation. Applied to reduce Peña's unconscionable PhP 24,000,000 claim to PhP 1,500,000 for services, plus PhP 3,000,000 for expenses.
• Solidary Liability of Corporate Officers — To hold a director or officer personally liable for corporate debts (piercing the corporate veil), two requisites must concur: (1) the complaint must allege that the officer assented to patently unlawful acts or was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such acts, negligence, or bad faith. Applied to absolve the bank officers because Peña failed to allege or prove bad faith or gross negligence.
• Execution Pending Appeal — An extraordinary remedy requiring "good reasons" consisting of exceptional circumstances of urgency outweighing the injury to the losing party if the judgment is reversed. The financial distress of the prevailing party (e.g., a pending collection suit) is not a good reason. The insolvency of one solidarily liable co-defendant is not a good reason if other co-defendants are solvent. Applied to nullify the execution pending appeal because a collection suit against Peña is insufficient, and Urban Bank's receivership did not justify executing against solvent co-defendants or assets under custodia legis.
• Restitution of Executed Properties — When an executed judgment is reversed, the trial court may order restitution as equity and justice warrant. Rules adopted: (a) If the purchaser is the judgment creditor, they must pay the full value of the property at seizure with interest; (b) If the purchaser is a third party and title has not transferred, the property is returned, and the third party reclaims the price from the judgment creditor; (c) If title validly transferred to a third party, the judgment creditor pays the judgment debtor the amount realized from the sale with interest.

• "Lawyering is not a business; it is a profession in which duty to public service, not money, is the primary consideration."
• "The mere fact that Atty. Peña was already subjected to a collection suit for payment of the loan proceeds he used to perform his services for Urban Bank is not an acceptable reason to order the execution pending appeal against the bank."
• "Quod nullum est, nullum producit effectum. Hence, the validity of the execution pending appeal will ultimately hinge on the court’s findings with respect to the decision in which the execution is based."

• Florendo v. Paramount Insurance, Corp. — Followed. Defined "good reasons" for execution pending appeal as compelling circumstances justifying immediate execution lest the judgment becomes illusory.
• Philippine Bank of Communications v. Court of Appeals — Followed. Held that the financial distress of a juridical entity is not comparable to a natural person who is ill or dying, and thus does not justify execution pending appeal.
• Flexo Manufacturing Corp. v. Columbus Food, Inc. — Followed. Held that when there are solidarily liable co-defendants, the insolvency of one is not a good reason for execution pending appeal if the others are solvent.
• Francisco v. Mallen, Jr. — Followed. Stated the requisites for holding a corporate officer personally liable for corporate obligations.

• Civil Code, Art. 1868 — Defines agency as a contract where a person binds themselves to render some service in representation or on behalf of another.
• Civil Code, Art. 1875 — Presumes agency is for compensation.
• Civil Code, Art. 22 — States that there is no unjust enrichment at the expense of another.
• Rules of Court, Rule 39, Sec. 5 — Provides for restitution when a judgment executed is reversed on appeal.
• Republic Act No. 7653, Sec. 30 — States that assets of a bank under receivership are custodia legis and exempt from garnishment, levy, attachment, or execution.

Brion, A.C.J., Villarama, Jr., Mendoza, Perlas-Bernabe