Country Bankers Insurance v. Keppel Cebu Shipyard
REITERATIONFacts
The Antecedents: Unimarine Shipping Lines, Inc. (Unimarine) contracted Keppel Cebu Shipyard (Cebu Shipyard) for dry docking and ship repair works on its vessel, M/V Pacific Fortune. Cebu Shipyard issued a bill amounting to ₱4,486,052.00, later negotiated to ₱3,850,000.00, excluding VAT. The payment terms were set for May 30, 1992 (₱2,350,000.00) and June 30, 1992 (₱1,500,000.00). Unimarine agreed to provide surety bonds equivalent to 120% of the credit extended. Unimarine obtained CBIC Surety Bond No. G (16) 29419 for ₱3,000,000.00 from Country Bankers Insurance Corporation (CBIC), through its agent Bethoven Quinain, and another bond from Plaridel Surety and Insurance Co. for ₱1,620,000.00. Unimarine executed a Contract of Undertaking in favor of Cebu Shipyard, unconditionally and irrevocably undertaking to make punctual payment and waiving the right of excussion. Unimarine failed to pay the first installment, and its post-dated check was dishonored. Despite repeated demands and promises from Unimarine, payment was not made. Cebu Shipyard then demanded payment from the sureties, CBIC and Plaridel. Procedural History: Cebu Shipyard filed a complaint against Unimarine, CBIC, and Plaridel. CBIC argued that the surety bond was issued in excess of Quinain's authority and that its liability was extinguished by novation, payment, or prescription. CBIC also filed a cross and third-party complaint against Unimarine, Paul Rodriguez, Peter Rodriguez, Albert Hontanosas, and Bethoven Quinain. The RTC ruled in favor of Cebu Shipyard, holding Unimarine, CBIC, and Plaridel jointly and severally liable. The RTC found CBIC bound by the surety bond issued by its agent within the apparent scope of his authority. The Court of Appeals affirmed the RTC decision with modification, holding Bethoven Quinain jointly and severally liable with CBIC. CBIC's motion for reconsideration was denied. CBIC filed the present petition for review on certiorari. The Petition: CBIC seeks to reverse the Court of Appeals' decision, arguing that the CA erred in applying Article 1911 of the Civil Code to hold CBIC liable for acts done by its agent in excess of authority, that an extension of time for performance does not release the surety, and that CBIC's liability should not exceed the bond's value.
Issue(s)
Whether Country Bankers Insurance Corporation (CBIC) is liable under the surety bond issued by its agent, Bethoven Quinain, who allegedly acted in excess of his authority. Whether the obligation of Unimarine Shipping Lines, Inc. (Unimarine) to Keppel Cebu Shipyard (Cebu Shipyard) was extinguished by novation. Whether CBIC's liability, if any, should be limited to the face value of the surety bond. Whether CBIC is liable for attorney's fees and litigation expenses.
Ruling
The petition is GRANTED. The complaint against CBIC is DISMISSED. The Court of Appeals' decision is MODIFIED insofar as it affirmed CBIC's liability on Surety Bond No. G (16) 29419 and Endorsement No. 33152. CBIC is released from its liability on the surety bond.
Ratio Decidendi
On the liability of CBIC under the surety bond: The Supreme Court held that CBIC cannot be held liable under the surety bond issued by its agent, Bethoven Quinain, because Quinain exceeded the scope of his authority as clearly defined in the Special Power of Attorney. The Court emphasized that the Special Power of Attorney limited Quinain's authority to issue surety bonds to those in favor of government agencies and not exceeding ₱500,000.00. The surety bond in question was for ₱3,000,000.00 and was issued in favor of Unimarine, a private entity. The Court found no evidence of ratification by CBIC, as it was unaware of the bond's existence. Furthermore, the Court found no basis for agency by estoppel under Article 1911 of the Civil Code, as Unimarine failed to prove that CBIC represented Quinain as having full powers or knowingly allowed him to assume such authority. Unimarine was deemed negligent for failing to ascertain the extent of Quinain's authority, as persons dealing with an agent are bound at their peril to do so. The Court reiterated that a person dealing with an agent must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority, and failure to do so means the principal cannot be charged by relying on the agent's assumption of authority that proves to be unfounded. On the issue of novation: The Court did not directly rule on the issue of novation as it found CBIC not liable on the surety bond. However, the Court of Appeals had previously dismissed CBIC's contention of novation for lack of merit, holding that there was no novation that would discharge CBIC from its obligation. The Supreme Court's focus remained on the validity and scope of the agency agreement. On the limitation of liability to the bond's value: The Supreme Court found CBIC not liable on the bond, thus rendering the issue of the extent of liability moot. However, the Court's reasoning implies that if CBIC were liable, its liability would be governed by the terms of the bond and the law on suretyship, and that the lower courts erred in holding CBIC solidarily liable beyond the value of the bond without proper basis. On attorney's fees and litigation expenses: Similar to the issue of novation, the Supreme Court's dismissal of the case against CBIC renders the award of attorney's fees and litigation expenses against CBIC moot. The Court of Appeals had affirmed the award, finding that the defendants' liability was clearly established and they attempted to evade it. However, since CBIC is absolved from liability on the surety bond, it is no longer liable for these costs in relation to that bond.
Main Doctrine
A principal is solidarily liable with an agent if the principal allowed the agent to act as though he had full powers, even if the agent exceeded his authority. However, for agency by estoppel to exist, the principal must have manifested a representation of the agent's authority or knowingly allowed the agent to assume such authority, the third person must have relied in good faith on such representation, and changed his position to his detriment. Persons dealing with an agent are bound at their peril to ascertain the nature and extent of the agent's authority.