FIRST DIVISION

[G.R. No. 129919. February 6, 2002.]

DOMINION INSURANCE CORPORATION, petitioner, vs. COURT

OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, respondents.

SYNOPSIS

Acting as agent for petitioner Dominion, Guevarra paid P156,473.90 in

settling the claims of several insured clients of petitioner out of his personal
money. Guevarra thereafter filed a civil case for sum of money to recover said
amount. The RTC and the CA rendered judgment in favor of Guevarra.
On appeal, Dominion claimed Guevarra is not entitled to reimbursement
because he did not act within his authority as agent for Dominion.

The Supreme Court denied the petition with modification, and held: that
Art. 1918 of the Civil Code makes Dominion not liable for expenses incurred by
Guevarra who acted in contravention of his principal's (Dominion's)
instructions. Based on their agreement, Guevarra was instructed to pay for the
claims of the insured from the revolving fund, not from Guevarra's personal
money. However, while the law on agency prohibits Guevarra from obtaining
reimbursement, his right to recover may still be justified under Art. 1236, par. 2
of the Civil Code. In this case, when the risk insured against occurred,
Dominion's liability as insurer arose. This obligation was extinguished when
Guevarra paid the claims of the insured. Thus, to the extent the payment has
been beneficial to Dominion, Guevarra may demand reimbursement from the
latter. To rule otherwise would result in unjust enrichment of Dominion.

SYLLABUS

1. CIVIL LAW; CIVIL CODE; AGENCY; WHEN PRINCIPAL IS NOT LIABLE

FOR EXPENSES INCURRED BY AGENT; CASE AT BAR. — Respondent Guevarra's
authority to settle claims is embodied in the Memorandum of Management
Agreement dated February 18, 1987 which enumerates the scope of
respondent Guevarra's duties and responsibilities as agency manager for San
Fernando, Pampanga. . . . In settling the claims mentioned above, respondent
Guevarra's authority is further limited by the written standard authority to pay,
which states that the payment shall come from respondent Guevarra's
revolving fund or collection. . . . The instruction of petitioner as the principal
could not be any clearer. Respondent Guevarra was authorized to pay the claim
of the insured, but the payment shall come from the revolving fund or collection
in his possession. Having deviated from the instructions of the principal, the
expenses that respondent Guevarra incurred in the settlement of the claims of
the insured may not be reimbursed from petitioner Dominion. This conclusion is
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 in accord with Article 1918, Civil Code.

2. ID.; ID.; OBLIGATIONS AND CONTRACTS; EFFECT OF PAYMENT MADE

BY A THIRD PERSON FOR DEBTOR WITHOUT THE LATTER'S KNOWLEDGE OR
CONSENT; CASE AT BAR. — However, while the law on agency prohibits
respondent Guevarra from obtaining reimbursement, his right to recover may
still be justified under the general law on obligations and contracts (Article
1236, second paragraph, Civil Code.) In this case, when the risk insured against
occurred, petitioner's liability as insurer arose. This obligation was extinguished
when respondent Guevarra paid the claims and obtained Release of Claim Loss
and Subrogation Receipts from the insured who were paid. Thus, to the extent
that the obligation of the petitioner has been extinguished, respondent
Guevarra may demand for reimbursement from his principal. To rule otherwise
would result in unjust enrichment of petitioner.

DECISION

PARDO, J : p

The Case
This is an appeal via certiorari 1 from the decision of the Court of Appeals
2 affirming the decision 3 of the Regional Trial Court, Branch 44, San Fernando,
Pampanga, which ordered petitioner Dominion Insurance Corporation
(Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90
representing the total amount advanced by Guevarra in the payment of the
claims of Dominion's clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted
Civil Case No. 8855 for sum of money against defendant Dominion
Insurance Corporation. Plaintiff sought to recover thereunder the sum
of P156,473.90 which he claimed to have advanced in his capacity as
manager of defendant to satisfy certain claims filed by defendant's
clients.

"In its traverse, defendant denied any liability to plaintiff and

asserted a counterclaim for P249,672.53, representing premiums that
plaintiff allegedly failed to remit.

"On August 8, 1991, defendant filed a third-party complaint

against Fernando Austria, who, at the time relevant to the case, was its
Regional Manager for Central Luzon area.

"In due time, third-party defendant Austria filed his answer.

"Thereafter the pre-trial conference was set on the following
dates: October 18, 1991, November 12, 1991, March 29, 1991,
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 December 12, 1991, January 17, 1992, January 29, 1992, February 28,
1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-
trial conference was held. The record shows that except for the
settings on October 18, 1991, January 17, 1992 and March 17, 1992
which were cancelled at the instance of defendant, third-party
defendant and plaintiff, respectively, the rest were postponed upon
joint request of the parties.

"On May 22, 1992 the case was again called for pre-trial
conference. Only plaintiff and counsel were present. Despite due
notice, defendant and counsel did not appear, although a messenger,
Roy Gamboa, submitted to the trial court a handwritten note sent to
him by defendant's counsel which instructed him to request for
postponement. Plaintiff's counsel objected to the desired
postponement and moved to have defendant declared as in default.
This was granted by the trial court in the following order:

"ORDER

"When this case was called for pre-trial this afternoon only
plaintiff and his counsel Atty. Romeo Maglalang appeared. When
shown a note dated May 21, 1992 addressed to a certain Roy
who was requested to ask for postponement, Atty. Maglalang
vigorously objected to any postponement on the ground that the
note is but a mere scrap of paper and moved that the defendant
corporation be declared as in default for its failure to appear in
court despite due notice.

"Finding the verbal motion of plaintiff's counsel to be

meritorious and considering that the pre-trial conference has
been repeatedly postponed on motion of the defendant
Corporation, the defendant Dominion Insurance Corporation is
hereby declared (as) in default and plaintiff is allowed to present
his evidence on June 16, 1992 at 9:00 o'clock in the morning.

"The plaintiff and his counsel are notified of this order in

open court.
"SO ORDERED.

"Plaintiff presented his evidence on June 16, 1992. This was

followed by a written offer of documentary exhibits on July 8 and a
supplemental offer of additional exhibits on July 13, 1992. The exhibits
were admitted in evidence in an order dated July 17, 1992.

"On August 7, 1992 defendant corporation filed a ‘MOTION TO

LIFT ORDER OF DEFAULT.’ It alleged therein that the failure of counsel
to attend the pre-trial conference was ‘due to an unavoidable
circumstance’ and that counsel had sent his representative on that
date to inform the trial court of his inability to appear. The Motion was
vehemently opposed by plaintiff.
"On August 25, 1992 the trial court denied defendant's motion
for reasons, among others, that it was neither verified nor supported
by an affidavit of merit and that it further failed to allege or specify the
facts constituting his meritorious defense.
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 "On September 28, 1992 defendant moved for reconsideration of
the aforesaid order. For the first time counsel revealed to the trial court
that the reason for his nonappearance at the pre-trial conference was
his illness. An Affidavit of Merit executed by its Executive Vice-
President purporting to explain its meritorious defense was attached to
the said Motion. Just the same, in an Order dated November 13, 1992,
the trial court denied said Motion.
"On November 18, 1992, the court a quo rendered judgment as
follows:

"WHEREFORE, premises considered, judgment is hereby

rendered ordering:

"1. The defendant Dominion Insurance Corporation to

pay plaintiff the sum of P156,473.90 representing the total
amount advanced by plaintiff in the payment of the claims of
defendant's clients;

"2. The defendant to pay plaintiff P10,000.00 as and by

way of attorney's fees;
"3. The dismissal of the counter-claim of the defendant
and the third-party complaint;
"4. The defendant to pay the costs of suit." 4

On December 14, 1992, Dominion appealed the decision to the Court of

Appeals. 5

On July 19, 1996, the Court of Appeals promulgated a decision affirming

that of the trial court. 6 On September 3, 1996, Dominion filed with the Court of
Appeals a motion for reconsideration. 7 On July 16, 1997, the Court of Appeals
denied the motion. 8
Hence, this appeal. 9

The Issues
The issues raised are: (1) whether respondent Guevarra acted within his
authority as agent for petitioner, and (2) whether respondent Guevarra is
entitled to reimbursement of amounts he paid out of his personal money in
settling the claims of several insured.

The Court's Ruling

The petition is without merit.

By the contract of agency, a person binds himself to render some service

or to do something in representation or on behalf of another, with the consent
or authority of the latter. 10 The basis for agency is representation. 11 On the
part of the principal, there must be an actual intention to appoint 12 or an
intention naturally inferrable from his words or actions; 13 and on the part of the
agent, there must be an intention to accept the appointment and act on it, 14
and in the absence of such intent, there is generally no agency. 15
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 A perusal of the Special Power of Attorney 16 would show that petitioner
(represented by third-party defendant Austria) and respondent Guevarra
intended to enter into a principal-agent relationship. Despite the word "special"
in the title of the document, the contents reveal that what was constituted was
actually a general agency. The terms of the agreement read:
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC., 17 a
corporation duly organized and existing under and by virtue of the laws
of the Republic of the Philippines, . . . represented by the undersigned
as Regional Manager, . . . do hereby appoint RSG Guevarra Insurance
Services represented by Mr. Rodolfo Guevarra . . . to be our Agency
Manager in San Fdo., for our place and instead, to do and perform the
following acts and things:
"1. To conduct, sign, manager (sic), carry on and transact
Bonding and Insurance business as usually pertain to a
Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL
ACCIDENT, and BONDING with the right, upon our prior
written consent, to appoint agents and sub-agents.
"2. To accept, underwrite and subscribed (sic) cover notes or
Policies of Insurance and Bonds for and on our behalf.
"3. T o demand, sue, for (sic) collect, deposit, enforce
payment, deliver and transfer for and receive and give
effectual receipts and discharge for all money to which the
FIRST CONTINENTAL ASSURANCE COMPANY, INC., 18 may
hereafter become due, owing payable or transferable to
said Corporation by reason of or in connection with the
above-mentioned appointment.

"4. To receive notices, summons, and legal processes for and

in behalf of the FIRST CONTINENTAL ASSURANCE
COMPANY, INC., in connection with actions and all legal
proceedings against the said Corporation." 19 [Italics
supplied]

The agency comprises all the business of the principal, 20 but, couched in
general terms, it is limited only to acts of administration. 21
A general power permits the agent to do all acts for which the law does
not require a special power. 22 Thus, the acts enumerated in or similar to those
enumerated in the Special Power of Attorney do not require a special power of
attorney.

Article 1878, Civil Code, enumerates the instances when a special power
of attorney is required. The pertinent portion that applies to this case provides
that:
"Article 1878. Special powers of attorney are necessary in the
following cases:
"(1) To make such payments as are not usually considered as
acts of administration;

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

 xxx xxx xxx

"(15) Any other act of strict dominion."

The payment of claims is not an act of administration. The settlement of

claims is not included among the acts enumerated in the Special Power of
Attorney, neither is it of a character similar to the acts enumerated therein. A
special power of attorney is required before respondent Guevarra could settle
the insurance claims of the insured.

Respondent Guevarra's authority to settle claims is embodied in the

Memorandum of Management Agreement 23 dated February 18, 1987 which
enumerates the scope of respondent Guevarra's duties and responsibilities as
agency manager for San Fernando, Pampanga, as follows:
"xxx xxx xxx
"1. You are hereby given authority to settle and dispose of all
motor car claims in the amount of P5,000.00 with prior approval of the
Regional Office.
"2. Full authority is given you on TPPI claims settlement.
"xxx xxx xxx" 24

In settling the claims mentioned above, respondent Guevarra's authority

is further limited by the written standard authority to pay, 25 which states that
the payment shall come from respondent Guevarra's revolving fund or
collection. The authority to pay is worded as follows:
"This is to authorize you to withdraw from your revolving
fund/collection the amount of PESOS __________________(P _______)
representing the payment on the _______________ claim of assured
________________ under Policy No. ________ in that accident of __________
at __________________________.
"It is further expected, release papers will be signed and
authorized by the concerned and attached to the corresponding claim
folder after effecting payment of the claim.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager" 26

[Italics supplied]
The instruction of petitioner as the principal could not be any clearer.
Respondent Guevarra was authorized to pay the claim of the insured, but the
payment shall come from the revolving fund or collection in his possession.

Having deviated from the instructions of the principal, the expenses that
respondent Guevarra incurred in the settlement of the claims of the insured
may not be reimbursed from petitioner Dominion. This conclusion is in accord
with Article 1918, Civil Code, which states that:
"The principal is not liable for the expenses incurred by the agent
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 in the following cases:

"(1) If the agent acted in contravention of the principal's

instructions, unless the latter should wish to avail himself of the
benefits derived from the contract;
"xxx xxx xxx"

However, while the law on agency prohibits respondent Guevarra from

obtaining reimbursement, his right to recover may still be justified under the
general law on obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
"Whoever pays for another may demand from the debtor what
he has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment has
been beneficial to the debtor."
In this case, when the risk insured against occurred, petitioner's liability
as insurer arose. This obligation was extinguished when respondent Guevarra
paid the claims and obtained Release of Claim Loss and Subrogation Receipts
from the insured who were paid.

Thus, to the extent that the obligation of the petitioner has been
extinguished, respondent Guevarra may demand for reimbursement from his
principal. To rule otherwise would result in unjust enrichment of petitioner.

The extent to which petitioner was benefited by the settlement of the

insurance claims could best be proven by the Release of Claim Loss and
Subrogation Receipts 27 which were attached to the original complaint as
Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-1, in the total amount of
P116,276.95.
However, the amount of the revolving fund/collection that was then in the
possession of respondent Guevarra as reflected in the statement of account
dated July 11, 1990 would be deducted from the above amount.
The outstanding balance and the production/remittance for the period
corresponding to the claims was P3,604.84. Deducting this from P116,276.95,
we get P112,672.11. This is the amount that may be reimbursed to respondent
Guevarra.

The Fallo
IN VIEW WHEREOF, we DENY the petition. However, we MODIFY the
decision of the Court of Appeals 28 and that of the Regional Trial Court,
Branch 44, San Fernando, Pampanga, 29 in that petitioner is ordered to pay
respondent Guevarra the amount of P112,672.11 representing the total
amount advanced by the latter in the payment of the claims of petitioner's
clients. EATcHD

No costs in this instance.

SO ORDERED.
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.

Footnotes
1. Under Rule 45, Revised Rules of Court.
2. In CA-G.R. CV No. 40803, promulgated on July 19, 1996, Petition, Annex "B",
pp. 12-18. Godardo A. Jacinto, J., ponente, Salome A. Montoya and Maximiano
C. Asuncion, JJ., concurring.

3. Decision, Original Record, Civil Case 8855, pp. 358-361.

4. Petition, Annex "B", Rollo , pp. 12-18, at pp. 12-15.
5. Notice of Appeal, Original Record, Civil Case No. 8855, p. 362.
6. Petition, Annex "B", Rollo , pp. 12-18.

7. CA Rollo , pp. 99-112.

8. Petition, Annex "A", Rollo , p. 10.
9. Filed on September 8, 1997, Rollo , pp. 20-50. On January 31, 2000, we
resolved to give due course to the petition (Rollo , pp. 79-80).
10. Article 1869, Civil Code.
11. Bordador v. Luz, 347 Phil. 654, 662 (1997).
12. Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing Connell v. McLoughlin , 28 Or. 230; 42 P. 218.
13. Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing. Halladay v. Underwood, 90 III. App. 130.
14. Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing Internal Trust Co. v. Bridges, 57 F. 753.
15. Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing Security Co. v. Graybeal, 85 Iowa 543, 52 N. W. 497.
16. Original Record, Civil Case No. 8855, p. 235.
17. Now Dominion Insurance Corporation.
18. Now Dominion Insurance Corporation.

19. Original Record, Civil Case No. 8855, p. 235.

20. Article 1876, Civil Code.
21. Article 1877, Civil Code.
22. Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil Code of
the Philippines, Vol. V (1997), p. 405, citing 6 Llerena 137.
23. Original Record, Civil Case No. 8855, pp. 236-237.
24. Original Record, Civil Case No. 8855, pp. 236-237, at p. 236.
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 25. Original Record, Civil Case No. 8855, p. 299.
26. Original Record, Civil Case No. 8855, p. 299.
27. Original Record, Civil Case No. 8855, pp. 11, 13, 15, 17, 19, 21, 23, 25.

28. In CA-G.R. CV No. 40803.

29. In Civil Case No. 8855.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com