ESCRA

8/15/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 673
G.R. No. 166044. June 18, 2012.*

COUNTRY BANKERS INSURANCE CORPORATION,
petitioner, vs. KEPPEL CEBU SHIPYARD, UNIMARINE
SHIPPING LINES, INC., PAUL RODRIGUEZ, PETER
RODRIGUEZ, ALBERT HONTANOSAS, and BETHOVEN
QUINAIN, respondents.
Civil Law; Agency; In a contract of agency, a person, the

agent, binds himself to represent another, the principal, with the
latter’s
_______________
* FIRST DIVISION.
428
428 SUPREME COURT REPORTS ANNOTATED
Country Bankers Insurance Corporation vs. Keppel Cebu

Shipyard
consent or authority; By this legal fiction of representation, the

actual or legal absence of the principal is converted into his legal
or juridical presence.—In a contract of agency, a person, the
agent, binds himself to represent another, the principal, with the
latter’s consent or authority. Thus, agency is based on
representation, where the agent acts for and in behalf of the
principal on matters within the scope of the authority conferred
upon him. Such “acts have the same legal effect as if they were
personally done by the principal. By this legal fiction of
representation, the actual or legal absence of the principal is
converted into his legal or juridical presence.”
Same; Same; Guaranty; Suretyship; Special Power of
Attorney; Under Article 1878(11) of the Civil Code, a special power
of attorney is necessary to obligate the principal as a guarantor or
surety.—The scope of an agent’s authority is what appears in the
written terms of the power of attorney granted upon him. Under
Article 1878(11) of the Civil Code, a special power of attorney
is necessary to obligate the principal as a guarantor or surety.
www.central.com.ph/sfsreader/session/0000016c950f98d8880801ef003600fb002c009e/t/?o=False 1/26
Same; Same; An agent’s act, even if done beyond the scope of

his authority, may bind the principal if he ratifies them, whether
expressly or tacitly.—Under Articles 1898 and 1910, an agent’s
act, even if done beyond the scope of his authority, may bind the
principal if he ratifies them, whether expressly or tacitly. It must
be stressed though that only the principal, and not the agent, can
ratify the unauthorized acts, which the principal must have
knowledge of.
Same; Same; Agency by Estoppel; The principal is solidarily
liable with the agent even when the latter has exceeded his
authority, if the principal allowed him to act as though he had full
powers.—Article 1911, on the other hand, is based on the principle
of estoppel, which is necessary for the protection of third persons.
It states that the principal is solidarily liable with the agent even
when the latter has exceeded his authority, if the principal
allowed him to act as though he had full powers. However, for an
agency by estoppel to exist, the following must be established: 1.
The principal manifested a representation of the agent’s authority
or knowingly allowed the agent to assume such authority; 2. The
third person, in good faith, relied upon such representation; and
3. Relying upon such representation, such third person has
changed his position to his detriment.
429
VOL. 673, JUNE 18, 2012 429

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Same; Same; Same; Persons dealing with an assumed agent

are bound at their peril, and if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature
and extent of authority, and in case either is controverted, the
burden of proof is upon them to prove it.—As this Court held in
Litonjua, Jr. v. Eternit Corp., 490 SCRA 204, 224-225 (2006): A
person dealing with a known agent is not authorized, under any
circumstances, blindly to trust the agents; statements as to the
extent of his powers; such person must not act negligently but
must use reasonable diligence and prudence to ascertain whether
the agent acts within the scope of his authority. The settled rule is
that, persons dealing with an assumed agent are bound at their
peril, and if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon
them to prove it. In this case, the petitioners failed to discharge
their burden; hence, petitioners are not entitled to damages from

respondent EC.
PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Velasquez and Associates for petitioner.
Angara, Abello, Concepcion, Regala and Cruz for
respondent Keppel Cebu Shipyard, Inc.
Albert L. Hontanosas for himself and for respondents
Unimarine Shipping Lines, Inc., Paul Rodriguez and Peter
Rodriguez.
Lorenzo S. Paylado for respondent B. Quinain.
LEONARDO-DE CASTRO,** J.:

This is a petition for review on certiorari1 to reverse and
set
_______________
** Acting Chairperson, Per Special Order No. 1226 dated May 30, 2012.
430

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aside the January 29, 2004 Decision2 and October 28, 2004
Resolution3 of the Court of Appeals in CA-G.R. CV No.
58001, wherein the Court of Appeals affirmed with
modification the February 10, 1997 Decision4 of the
Regional Trial Court (RTC) of Cebu City, Branch 7, in Civil
Case No. CBB-13447.
Hereunder are the undisputed facts as culled from the
records of the case.
On January 27, 1992, Unimarine Shipping Lines, Inc.
(Unimarine), a corporation engaged in the shipping
industry, contracted the services of Keppel Cebu Shipyard,
formerly known as Cebu Shipyard and Engineering Works,
Inc. (Cebu Shipyard), for dry docking and ship repair works
on its vessel, the M/V Pacific Fortune.5
On February 14, 1992, Cebu Shipyard issued Bill No.
26035 to Unimarine in consideration for its services, which
amounted to P4,486,052.00.6 Negotiations between Cebu
Shipyard and Unimarine led to the reduction of this
amount to P3,850,000.00. The terms of this agreement
were embodied in Cebu Shipyard’s February 18, 1992 letter
to the President/General Manager of Unimarine, Paul
Rodriguez, who signed his conformity to said letter, quoted

in full below:
18 February 1992
Ref No.: LL92/0383
UNIMARINE SHIPPING LINES, INC.
C/O Autographics, Inc.
Gorordo Avenue, Lahug, Cebu City
_______________
1 Under Rule 45 of the 1997 Rules of Court.
2 Rollo, pp. 31-55; penned by Associate Justice Jose C. Reyes, Jr. with Associate
Justices Romeo A. Brawner and Rebecca De Guia-Salvador, concurring.
3 Id., at pp. 57-58.
4 CA Rollo, pp. 25-33.
5 Rollo, pp. 81-82.
6 Id., at pp. 94-114.
431
VOL. 673, JUNE 18, 2012 431

Shipyard
Attention: Mr. Paul Rodriguez

President/General Manager
This is to confirm our agreement on the shiprepair bills charged
for the repair of MV Pacific Fortune, our invoice no. 26035.
The shiprepair bill (Bill No. 26035) is agreed at a negotiated
amount of P3,850,000.00 excluding VAT.
Unimarine Shipping Lines, Inc. (“Unimarine”) will pay the above
amount of [P3,850,000.00] in US Dollars to be fixed at the
prevailing USDollar to Philippine Peso exchange rate at the time
of payment. The payment terms to be extended to Unimarine is as
follows:
Installments Amount Due Date

1st Installment P2,350,000.00 30 May 1992
2nd Installment P1,500,000.00 30 Jun 1992
Unimarine will deposit post-dated checks equivalent to the above

amounts in Philippine Peso and an additional check amount of
P385,000.00, representing 10% [Value Added Tax] VAT on the
above bill of P3,850,000.00. In the event that Unimarine fails to
make full payment on the above due dates in US Dollars, the
post-dated checks will be deposited by CSEW in payment of the
amounts owned by Unimarine and Unimarine agree that the 10%
VAT (P385,000.00) shall also become payable to CSEW.
Unimarine in consideration of the credit terms extended by
CSEW and the release of the vessel before full payment of the
above debt, agree to present CSEW surety bonds equal to 120% of

the value of the credit extended. The total bond amount shall be
P4,620,000.00.
Yours faithfully,
CEBU SHIPYARD & ENG’G WORKS, INC Conforme:
(SGD) (SGD
_______________
SEET KENG TAT PAUL RODRIGUEZ
Treasurer/VP-Admin. Unimarine Shipping
Lines, Inc.7
_______________
7 Id., at p. 115.
432

Shipyard
In compliance with the agreement, Unimarine, through

Paul Rodriguez, secured from Country Bankers Insurance
Corp. (CBIC), through the latter’s agent, Bethoven Quinain
(Quinain), CBIC Surety Bond No. G (16) 294198 (the surety
bond) on January 15, 1992 in the amount of P3,000,000.00.
The expiration of this surety bond was extended to January
15, 1993, through Endorsement No. 331529 (the
endorsement), which was later on attached to and formed
part of the surety bond. In addition to this, Unimarine, on
February 19, 1992, obtained another bond from Plaridel
Surety and Insurance Co. (Plaridel), PSIC Bond No. G
(16)-0036510 in the amount of P1,620,000.00.
On February 17, 1992, Unimarine executed a Contract
of Undertaking in favor of Cebu Shipyard. The pertinent
portions of the contract read as follows:
“Messrs, Uni-Marine Shipping Lines, Inc. (“the Debtor”) of

Gorordo Avenue, Cebu City hereby acknowledges that in
consideration of Cebu Shipyard & Engineering Works, Inc.
(“Cebu Shipyard”) at our request agreeing to release the vessel
specified in part A of the Schedule (“name of vessel”) prior to the
receipt of the sum specified in part B of the Schedule (“Moneys
Payable”) payable in respect of certain works performed or to be
performed by Cebu Shipyard and/or its subcontractors and/or
material and equipment supplied or to be supplied by Cebu
Shipyard and/or its subcontractors in connection with the vessel
for the party specified in part C of the Schedule (“the Debtor”), we
hereby unconditionally, irrevocably undertake to make punctual
payment to Cebu Shipyard of the Moneys Payable on the terms

and conditions as set out in part B of the Schedule. We likewise
hereby expressly waive whatever right of excussion we may have
under the law and equity.
This contract shall be binding upon Uni-Marine Shipping Lines,
Inc., its heirs, executors, administrators, successors, and assigns
and
_______________
8 Id., at pp. 116-117.
9 Id., at p. 118.
10 Id., at pp. 119-120.
433
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shall not be discharged until all obligation of this contract shall

have been faithfully and fully performed by the Debtor.”11
Because Unimarine failed to remit the first installment

when it became due on May 30, 1992, Cebu Shipyard was
constrained to deposit the peso check corresponding to the
initial installment of P2,350,000.00. The check, however,
was dishonored by the bank due to insufficient funds.12
Cebu Shipyard faxed a message to Unimarine, informing it
of the situation, and reminding it to settle its account
immediately.13
On June 24, 1992, Cebu Shipyard again faxed a
message14 to Unimarine, to confirm Paul Rodriguez’s
promise that Unimarine will pay in full the P3,850,000.00,
in US Dollars on July 1, 1992.
Since Unimarine failed to deliver on the above promise,
Cebu Shipyard, on July 2, 1992, through a faxed letter,
asked Unimarine if the payment could be picked up the
next day. This was followed by another faxed message on
July 6, 1992, wherein Cebu Shipyard reminded Unimarine
of its promise to pay in full on July 28, 1992. On August 24,
1992, Cebu Shipyard again faxed15 Unimarine, to inform it
that interest charges will have to be imposed on their
outstanding debt, and if it still fails to pay before August
28, 1992, Cebu Shipyard will have to enforce payment
against the sureties and take legal action.
On November 18, 1992, Cebu Shipyard, through its
counsel, sent Unimarine a letter,16 demanding payment,
within seven days from receipt of the letter, the amount of
P4,859,458.00, broken down as follows:
_______________
11 Id., at p. 121.
12 Id., at p. 85.
13 Id., at p. 123.
14 Id., at p. 124.
15 Id., at pp. 125-127.
16 Id., at pp. 128-129.
434

Shipyard
B#26035 MV PACIFIC FORTUNE 4,486,052.00

LESS: ADJUSTMENT:
CN#00515-03/19/92 (636,052.00)
------------------
3,850,000.00
Add: VAT on repair bill no. 26035 385,000.00
------------------
4,235,000.00
Add: Interest/penalty charges:
Debit Note No. 02381 189,888.00
Debit Note No. 02382 434,570.00
------------------
4,859,458.0017
Due to Unimarine’s failure to heed Cebu Shipyard’s

repeated demands, Cebu Shipyard, through counsel, wrote
the sureties CBIC18 on November 18, 1992, and Plaridel,19
on November 19, 1992, to inform them of Unimarine’s
nonpayment, and to ask them to fulfill their obligations as
sureties, and to respond within seven days from receipt of
the demand.
However, even the sureties failed to discharge their
obligations, and so Cebu Shipyard filed a Complaint dated
January 8, 1993, before the RTC, Branch 18 of Cebu City,
against Unimarine, CBIC, and Plaridel. This was docketed
as Civil Case No. CBB-13447.
CBIC, in its Answer,20 said that Cebu Shipyard’s
complaint states no cause of action. CBIC alleged that the
surety bond was issued by its agent, Quinain, in excess of
his authority. CBIC claimed that Cebu Shipyard should
have doubted the authority of Quinain to issue the surety
bond based on the following:
_______________
17 Id., at p. 130.
18 Id., at pp. 131-132.
19 Id., at p. 133.
20 Id., at pp. 136-143.
435
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1. The nature of the bond undertaking (guarantee

payment), and the amount involved.
2. The surety bond could only be issued in favor of the
Department of Public Works and Highways, as
stamped on the upper right portion of the face of the
bond.21 This stamp was covered by documentary
stamps.
3. The issuance of the surety bond was not reported,
and the corresponding premiums were not remitted to
CBIC.22
CBIC added that its liability was extinguished when,
without its knowledge and consent, Cebu Shipyard and
Unimarine novated their agreement several times.
Furthermore, CBIC stated that Cebu Shipyard’s claim had
already been paid or extinguished when Unimarine
executed an Assignment of Claims23 of the proceeds of the
sale of its vessel M/V Headline in favor of Cebu Shipyard.
CBIC also averred that Cebu Shipyard’s claim had already
prescribed as the endorsement that extended the surety
bond’s expiry date, was not reported to CBIC. Finally,
CBIC asseverated that if it were held to be liable, its
liability should be limited to the face value of the bond and
not for exemplary damages, attorney’s fees, and costs of
litigation.24
Subsequently, CBIC filed a Motion to Admit Cross and
Third Party Complaint25 against Unimarine, as cross
defendant; Paul Rodriguez, Albert Hontanosas, and Peter
Rodriguez, as signatories to the Indemnity Agreement they
executed in favor of CBIC; and Bethoven Quinain, as the
agent
_______________
21 Id., at p. 236.
22 Id., at p. 137.
23 CA Rollo, p. 27.
24 Rollo, pp. 138-141.
25 Id., at pp. 144-145.
436

Shipyard
who issued the surety bond and endorsement in excess of

his authority, as third party defendants.26
CBIC claimed that Paul Rodriguez, Albert Hontanosas,
and Peter Rodriguez executed an Indemnity Agreement,
wherein they bound themselves, jointly and severally, to
indemnify CBIC for any amount it may sustain or incur in
connection with the issuance of the surety bond and the
endorsement.27 As for Quinain, CBIC alleged that he
exceeded his authority as stated in the Special Power of
Attorney, wherein he was authorized to solicit business and
issue surety bonds not exceeding P500,000.00 but only in
favor of the Department of Public Works and Highways,
National Power Corporation, and other government
agencies.28
On August 23, 1993, third party defendant Hontanosas
filed his Answer with Counterclaim, to the Cross and Third
Party Complaint. Hontanosas claimed that he had no
financial interest in Unimarine and was neither a
stockholder, director nor an officer of Unimarine. He
asseverated that his relationship to Unimarine was limited
to his capacity as a lawyer, being its retained counsel. He
further denied having any participation in the Indemnity
Agreement executed in favor of CBIC, and alleged that his
signature therein was forged, as he neither signed it nor
appeared before the Notary Public who acknowledged such
undertaking.29
Various witnesses were presented by the parties during
the course of the trial of the case. Myrna Obrinaga testified
for Cebu Shipyard. She was the Chief Accountant in charge
of the custody of the documents of the company. She
corroborated Cebu Shipyard’s allegations and produced in
court the documents to support Cebu Shipyard’s claim. She
also testified that while it was true that the proceeds of the
sale of
_______________
26 CA Rollo, pp. 42-43.
27 Rollo, p. 150.
28 Id., at pp. 233-234.
29 Id., at pp. 153-155.
437
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Unimarine’s vessel, M/V Headline, were assigned to Cebu

Shipyard, nothing was turned over to them.30
Paul Rodriguez admitted that Unimarine failed to pay
Cebu Shipyard for the repairs it did on M/V Pacific
Fortune, despite the extensions granted to Unimarine. He
claimed that he signed the Indemnity Agreement because
he trusted Quinain that it was a mere pre-requisite for the
issuance of the surety bond. He added that he did not
bother to read the documents and he was not aware of the
consequences of signing an Indemnity Agreement. Paul
Rodriguez also alleged to not having noticed the limitation
“Valid only in favor of DPWH” stamped on the surety
bond.31 However, Paul Rodriguez did not contradict the fact
that Unimarine failed to pay Cebu Shipyard its
obligation.32
CBIC presented Dakila Rianzares, the Senior Manager
of its Bonding Department. Her duties included the
evaluation and approval of all applications for and reviews
of bonds issued by their agents, as authorized under the
Special Power of Attorney and General Agency Contract of
CBIC. Rianzares testified that she only learned of the
existence of CBIC Surety Bond No. G (16) 29419 when she
received the summons for this case. Upon investigation,
she found out that the surety bond was not reported to
CBIC by Quinain, the issuing agent, in violation of their
General Agency Contract, which provides that all bonds
issued by the agent be reported to CBIC’s office within one
week from the date of issuance. She further stated that the
surety bond issued in favor of Unimarine was issued
beyond Quinain’s authority. Rianzares added that she was
not aware that an endorsement pertaining to the surety
bond was also issued by Quinain.33
_______________
30 CA Rollo, p. 27.
31 Id., at p. 28.
32 Id., at p. 30.
33 Id., at pp. 28-29.
438

Shipyard
After the trial, the RTC was faced with the lone issue of
whether or not CBIC was liable to Cebu Shipyard based on
Surety Bond No. G (16) 29419.34
On February 10, 1997, the RTC rendered its Decision,
the fallo of which reads:
“WHEREFORE, judgment is hereby rendered in favor of the

plaintiff Cebu Shipyard & Engineering Works, Incorporated and
against the defendants:
1. Ordering the defendants Unimarine Shipping Lines,
Incorporated, Country Bankers Insurance Corporation and
Plaridel Surety and Insurance Corporation to pay plaintiff jointly
and severally the amount of P4,620,000.00 equivalent to the value
of the surety bonds;
2. Ordering further defendant Unimarine to pay plaintiff the
amount of P259,458.00 to complete its entire obligation of
P4,859,458.00;
3. To pay plaintiff jointly and severally the amount of
P100,000.00 in attorney’s fees and litigation expenses;
4. For Cross defendant Unimarine Shipping Lines,
Incorporated and Third party defendants Paul Rodriguez, Peter
Rodriguez and Alber[t] Hontanosas: To indemnify jointly and
severally, cross plaintiff and third party plaintiff Country
Bankers Insurance Corporation whatever amount the latter is
made to pay to plaintiff.”35
The RTC held that CBIC, “in its capacity as surety is

bound with its principal jointly and severally to the extent
of the surety bond it issued in favor of [Cebu Shipyard]”
because “although the contract of surety is in essence
secondary only to a valid principal obligation, his liability
to [the] creditor is said to be direct, primary[,] and
absolute, in other words, he is bound by the principal.”36
The RTC added:
_______________
34 Id., at p. 31.
35 Id., at p. 33.
36 Id., at p. 31.
439
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“Solidary obligations on the part of Unimarine and CBIC

having been established and expressly stated in the Surety Bond
No. 29419 (Exh. “C”), [Cebu Shipyard], therefore, is entitled to
collect and enforce said obligation against any and or both of
them, and if and when CBIC pays, it can compel its co-defendant
Unimarine to reimburse to it the amount it has paid.”37
The RTC found CBIC’s contention that Quinain acted in

excess of his authority in issuing the surety bond
untenable. The RTC held that CBIC is bound by the surety
bond issued by its agent who acted within the apparent
scope of his authority. The RTC said:
“[A]s far as third persons are concerned, an act is deemed to

have been performed within the scope of the agent’s authority, if
such act is within the terms of the powers of attorney as written,
even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the
agent.”38
All the defendants appealed this Decision to the Court of

Appeals.
Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert
Hontanosas argued that Unimarine’s obligation under Bill
No. 26035 had been extinguished by novation, as Cebu
Shipyard had agreed to accept the proceeds of the sale of
the M/V Headline as payment for the ship repair works it
did on M/V Pacific Fortune. Paul Rodriguez and Peter
Rodriguez added that such novation also freed them from
their liability under the Indemnity Agreement they signed
in favor of CBIC. Albert Hontanosas in turn reiterated that
he did not sign the Indemnity Agreement.39
_______________
37 Id.
38 Id., at p. 33.
39 Id., at pp. 21-22.
440

Shipyard
CBIC, in its Appellant’s Brief,40 claimed that the RTC

erred in enforcing its liability on the surety bond as it was
issued in excess of Quinain’s authority. Moreover, CBIC
averred, its liability under such surety had been
extinguished by reasons of novation, payment, and
prescription. CBIC also questioned the RTC’s order,
holding it jointly and severally liable with Unimarine and
Plaridel for the amount of P4,620,000.00, a sum larger than
the face value of CBIC Surety Bond No.
G (16) 29419, and why the RTC did not hold Quinain liable
to indemnify CBIC for whatever amount it was ordered to
pay Cebu Shipyard.
On January 29, 2004, the Court of Appeals promulgated
its decision, with the following dispositive portion:
“WHEREFORE, in view of the foregoing, the respective

appeal[s] filed by Defendants-Appellants Unimarine Shipping
Lines, Inc. and Country Bankers Insurance Corporation; Cross-
Defendant-Appellant Unimarine Shipping Lines, Inc. and; Third-
Party Defendants-Appellants Paul Rodriguez, Peter Rodriguez
and Albert Hontanosas are hereby DENIED. The decision of the
RTC in Civil Case No. CEB-13447 dated February 10, 1997 is
AFFIRMED with modification that Mr. Bethoven Quinain,
CBIC’s agent is hereby held jointly and severally liable with CBIC
by virtue of Surety Bond No. 29419 executed in favor of plaintiff-
appellee CSEW.”41
In its decision, the Court of Appeals resolved the

following issues, as it had summarized from the parties’
pleadings:
I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a

sum of money arising from the ship-repair contract;
II. Whether or not the obligation of UNIMARINE to [Cebu
Shipyard] has been extinguished by novation;
III. Whether or not Defendant-Appellant CBIC, allegedly being
the Surety of UNIMARINE is liable under Surety Bond No.
29419[;]
_______________
40 Id., at pp. 39-63.
41 Rollo, pp. 54-55.
441
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IV. Whether or not Cross Defendant-Appellant UNIMARINE

and Third-Party Defendants-Appellants Paul Rodriguez, Peter
Rodriguez, Albert Hontanosas and Third-Party Defendant
Bethoven Quinain are liable by virtue of the Indemnity
Agreement executed between them and Cross and Third Party
Plaintiff CBIC;
V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled
to the award of P100,000.00 in attorney’s fees and litigation
expenses.42
The Court of Appeals held that it was duly proven that

Unimarine was liable to Cebu Shipyard for the ship repair
works it did on the former’s M/V Pacific Fortune. The Court
of Appeals dismissed CBIC’s contention of novation for lack
of merit.43 CBIC was held liable under the surety bond as
there was no novation on the agreement between
Unimarine and Cebu Shipyard that would discharge CBIC
from its obligation. The Court of Appeals also did not allow
CBIC to disclaim liability on the ground that Quinain
exceeded his authority because third persons had relied
upon Quinain’s representation, as CBIC’s agent.44 Quinain
was, however, held solidarily liable with CBIC under
Article 1911 of the Civil Code.45
Anent the liability of the signatories to the Indemnity
Agreement, the Court of Appeals held Paul Rodriguez,
Peter Rodriguez, and Albert Hontanosas jointly and
severally liable thereunder. The Court of Appeals rejected
Hontanosas’ claim that his signature in the Indemnity
Agreement was forged, as he was not able to prove it.46
The Court of Appeals affirmed the award of attorney’s
fees and litigation expenses to Cebu Shipyard since it was
able to clearly establish the defendants’ liability, which
they tried to
_______________
42 Id., at p. 38.
43 Id., at pp. 39-40.
44 Id., at pp. 44-46.
45 Id., at p. 53.
46 Id., at pp. 49-51.
442

Shipyard
dodge by setting up defenses to release themselves from

their obligation.47
CBIC48 and Unimarine, together with third party
defendants-appellants49 filed their respective Motions for
Reconsideration. This was, however, denied by the Court of
Appeals in its October 28, 2004 Resolution for lack of merit.
Unimarine elevated its case to this Court via a petition
for review on certiorari, docketed as G.R. No. 166023,
which was denied in a Resolution dated January 19,
2005.50
The lone petitioner in this case, CBIC, is now before this
Court, seeking the reversal of the Court of Appeals’
decision and resolution on the following grounds:
A.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN APPLYING THE PROVISIONS OF ARTICLE
1911 OF THE CIVIL CODE TO HOLD PETITIONER
LIABLE FOR THE ACTS DONE BY ITS AGENT IN EXCESS
OF AUTHORITY.
B.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN HOLDING THAT AN EXTENSION OF THE
PERIOD FOR THE PERFORMANCE OF AN OBLIGATION
GRANTED BY THE CREDITOR TO THE PRINCIPAL
DEBTOR IS NOT SUFFICIENT TO RELEASE THE
SURETY.
C.
ASSUMING THAT PETITIONER IS LIABLE UNDER THE
BOND, THE HONORABLE COURT OF APPEALS
NONETHE-
_______________
47 Id., at p. 54.
48 CA Rollo, pp. 240-252.
49 Id., at pp. 253-256.
50 Rollo, p. 389.
443
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LESS SERIOUSLY ERRED IN AFFIRMING THE

SOLIDARY LIABILITY OF PETITIONER BEYOND THE
VALUE OF THE BOND.
D.
THE HONORABLE COURT OF APPEALS ERRED IN

HOLDING PETITIONER JOINTLY AND SEVERALLY
LIABLE FOR ATTORNEY’S FEES IN THE AMOUNT OF
P100,000.00.51
Issue
The crux of the controversy lies in CBIC’s liability on the

surety bond Quinain issued to Unimarine, in favor of Cebu
Shipyard.
CBIC avers that the Court of Appeals erred in
interpreting and applying the rules governing the contract
of agency. It argued that the Special Power of Attorney
granted to Quinain clearly set forth the extent and limits of
his authority with regard to businesses he can transact for
and in behalf of CBIC. CBIC added that it was incumbent
upon Cebu Shipyard to inquire and look into the power of
authority conferred to Quinain. CBIC said:
“The authority to bind a principal as a guarantor or surety is one

of those powers which requires a Special Power of Attorney
pursuant to Article 1878 of the Civil Code. Such power could
not be simply assumed or inferred from the mere existence
of an agency. A person who enters into a contract of suretyship
with an agent without confirming the extent of the latter’s
authority does so at his peril. x x x.”52
CBIC claims that the foregoing is true even if Quinain

was granted the authority to transact in the business of
insurance in general, as “the authority to bind the
principal in a
_______________
51 Id., at pp. 13-14.
52 Id., at p. 15.
444

Shipyard
contract of suretyship could nonetheless never be

presumed.”53 Thus, CBIC claims, that:
“[T]hird persons seeking to hold the principal liable for

transactions entered into by an agent should establish the
following, in case the same is controverted:
6.6.1. The fact or existence of the agency.
6.6.2. The nature and extent of authority.”54
To go a little further, CBIC said that the correct Civil

Code provision to apply in this case is Article 1898. CBIC
asserts that “Cebu Shipyard was charged with knowledge
of the extent of the authority conferred on Mr. Quinain by
its failure to perform due diligence investigations.”55
Cebu Shipyard, in its Comment56 first assailed the
propriety of the petition for raising factual issues. In
support, Cebu Shipyard claimed that the Court of Appeals’
application of Article 1911 of the Civil Code was founded on
findings of facts that CBIC now disputes. Thus, the
question is not purely of law.
Discussion
The fact that Quinain was an agent of CBIC was never

put in issue. What has always been debated by the parties
is the extent of authority or, at the very least, apparent
authority, extended to Quinain by CBIC to transact
insurance business for and in its behalf.
In a contract of agency, a person, the agent, binds
himself to represent another, the principal, with the
latter’s consent
_______________
53 Id., at p. 16.
54 Id., at p. 18.
55 Id., at p. 19.
56 Id., at pp. 248-287.
445
VOL. 673, JUNE 18, 2012 445

Shipyard
or authority.57 Thus, agency is based on representation,

where the agent acts for and in behalf of the principal on
matters within the scope of the authority conferred upon
him.58 Such “acts have the same legal effect as if they were
personally done by the principal. By this legal fiction of
representation, the actual or legal absence of the principal
is converted into his legal or juridical presence.”59
The RTC applied Articles 1900 and 1911 of the Civil
Code in holding CBIC liable for the surety bond. It held
that CBIC could not be allowed to disclaim liability because
Quinain’s actions were within the terms of the special
power of attorney given to him.60 The Court of Appeals

agreed that CBIC could not be permitted to abandon its
obligation especially since third persons had relied on
Quinain’s representations. It based its decision on Article
1911 of the Civil Code and found CBIC to have been
negligent and less than prudent in conducting its insurance
business for its failure to supervise and monitor the acts of
its agents, to regulate the distribution of its insurance
forms, and to devise schemes to prevent fraudulent
misrepresentations of its agents.61
This Court does not agree. Pertinent to this case are
the following provisions of the Civil Code:
“Art. 1898. If the agent contracts in the name of the

principal, exceeding the scope of his authority, and the principal
does not ratify the contract, it shall be void if the party with
whom the agent contracted is aware of the limits of the powers
granted by the principal. In this case, however, the agent is liable
if he undertook to secure the principal’s ratification.
_______________
57 Civil Code, Art. 1868.
58 Id., Art. 1881.
59 Siredy Enterprises, Inc. v. Court of Appeals, 437 Phil. 580, 591; 389 SCRA 34,
42-43 (2002).
60 CA Rollo, pp. 31-32.
61 Rollo, pp. 46-47.
446

Shipyard
Art. 1900. So far as third persons are concerned, an act is

deemed to have been performed within the scope of the agent’s
authority, if such act is within the terms of the power of attorney,
as written, even if the agent has in fact exceeded the limits of his
authority according to an understanding between the principal
and the agent.
Art. 1902. A third person with whom the agent wishes to
contract on behalf of the principal may require the presentation of
the power of attorney, or the instructions as regards the agency.
Private or secret orders and instructions of the principal do not
prejudice third persons who have relied upon the power of
attorney or instructions shown to them.
Art. 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of his
authority.
As for any obligation wherein the agent has exceeded his

power, the principal is not bound except when he ratifies it
expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority,
the principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers.”
Our law mandates an agent to act within the scope of

his authority.62 The scope of an agent’s authority is what
appears in the written terms of the power of attorney
granted upon him.63 Under Article 1878(11) of the Civil
Code, a special power of attorney is necessary to
obligate the principal as a guarantor or surety.
In the case at bar, CBIC could be held liable even if
Quinain exceeded the scope of his authority only if
Quinain’s act of issuing Surety Bond No. G (16) 29419 is
deemed to have been performed within the written terms
of the power of attorney he was granted.64
_______________
62 CIVIL CODE, Art. 1881.
63 Id., Art. 1900.
64 Id.
447
VOL. 673, JUNE 18, 2012 447

Shipyard
However, contrary to what the RTC held, the Special

Power of Attorney accorded to Quinain clearly states the
limits of his authority and particularly provides that in
case of surety bonds, it can only be issued in favor of the
Department of Public Works and Highways, the National
Power Corporation, and other government agencies;
furthermore, the amount of the surety bond is limited to
P500,000.00, to wit:
SPECIAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:
That, COUNTRY BANKERS INSURANCE CORPORATION, a
corporation duly organized and existing under and by virtue of
the laws of the Philippines, with head offices at 8th Floor, G.F.
Antonino Building, T.M. Kalaw Street, Ermita, Manila, now and
hereinafter referred to as “the Company” hereby appoints
BETHOVEN B. QUINAIN with address at x x x to be its General
Agent and Attorney-in-Fact, for and in its place, name and stead,
and for its own use and benefit, to do and perform the following
acts and things:
1. To conduct, manage, carry on and transact insurance
business as usually pertains to a General Agency of Fire, Personal
Accident, Bond, Marine, Motor Car (Except Lancer).
2. To accept, underwrite and subscribe policies of insurance
for and in behalf of the Company under the terms and conditions
specified in the General Agency Contract executed and entered
into by and between it and its said Attorney-in-Fact subject to the
following Schedule of Limits:
- SCHEDULE OF LIMITS -
a. FIRE:
xxxx
b. PERSONAL ACCIDENT:
xxxx
c. MOTOR CAR:
xxxx
448

Shipyard
d. MARINE:
xxxx
e. BONDS:
xxxx
Surety Bond (in favor of Dept. of Pub. Works and Highways,
Nat’l. Power Corp. & other Government
agencies)65........................... 500,000.00
CBIC does not anchor its defense on a secret agreement,

mutual understanding, or any verbal instruction to
Quinain. CBIC’s stance is grounded on its contract with
Quinain, and the clear, written terms therein. This Court
finds that the terms of the foregoing contract specifically
provided for the extent and scope of Quinain’s authority,
and Quinain has indeed exceeded them.
Under Articles 1898 and 1910, an agent’s act, even if
done beyond the scope of his authority, may bind the
principal if he ratifies them, whether expressly or tacitly. It
must be stressed though that only the principal, and not
the agent, can ratify the unauthorized acts, which the
principal must have knowledge of.66 Expounding on the
concept and doctrine of ratification in agency, this Court
said:
“Ratification in agency is the adoption or confirmation by one

person of an act performed on his behalf by another without
authority. The substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior authority.
Ordinarily, the principal must have full knowledge at the time of
ratification of all the material facts and circumstances relating to
the unauthorized act of the person who assumed to act as agent.
Thus, if material facts were suppressed or unknown, there
can be no valid ratification and this regardless of the
purpose or lack thereof in concealing such facts and
regardless of the parties be-
_______________
65 Rollo, pp. 233-234.
66 Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No. 151319,
November 22, 2004, 443 SCRA 377, 394.
449
VOL. 673, JUNE 18, 2012 449

Shipyard
tween whom the question of ratification may arise.

Nevertheless, this principle does not apply if the principal’s
ignorance of the material facts and circumstances was willful, or
that the principal chooses to act in ignorance of the facts.
However, in the absence of circumstances putting a
reasonably prudent man on inquiry, ratification cannot be
implied as against the principal who is ignorant of the
facts.”67 (Emphases supplied.)
Neither Unimarine nor Cebu Shipyard was able to

repudiate CBIC’s testimony that it was unaware of the
existence of Surety Bond No. G (16) 29419 and
Endorsement No. 33152. There were no allegations either
that CBIC should have been put on alert with regard to
Quinain’s business transactions done on its behalf. It is
clear, and undisputed therefore, that there can be no
ratification in this case, whether express or implied.
Article 1911, on the other hand, is based on the principle
of estoppel, which is necessary for the protection of third
persons. It states that the principal is solidarily liable with
the agent even when the latter has exceeded his authority,
if the principal allowed him to act as though he had full
powers. However, for an agency by estoppel to exist, the
following must be established:
1. The principal manifested a representation of the
agent’s authority or knowingly allowed the agent to
assume such authority;

2. The third person, in good faith, relied upon such
representation; and
3. Relying upon such representation, such third person
has changed his position to his detriment.68
In Litonjua, Jr. v. Eternit Corp.,69 this Court said that
“[a]n agency by estoppel, which is similar to the doctrine of
appar-
_______________
67 Id., at pp. 394-395.
68 Litonjua, Jr. v. Eternit Corp., G.R. No. 144805, June 8, 2006, 490
SCRA 204, 224-225.
4450

Shipyard
ent authority, requires proof of reliance upon the

representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.”70
This Court cannot agree with the Court of Appeals’
pronouncement of negligence on CBIC’s part. CBIC not
only clearly stated the limits of its agents’ powers in their
contracts, it even stamped its surety bonds with the
restrictions, in order to alert the concerned parties.
Moreover, its company procedures, such as reporting
requirements, show that it has designed a system to
monitor the insurance contracts issued by its agents. CBIC
cannot be faulted for Quinain’s deliberate failure to notify
it of his transactions with Unimarine. In fact, CBIC did not
even receive the premiums paid by Unimarine to Quinain.
Furthermore, nowhere in the decisions of the lower
courts was it stated that CBIC let the public, or specifically
Unimarine, believe that Quinain had the authority to issue
a surety bond in favor of companies other than the
Department of Public Works and Highways, the National
Power Corporation, and other government agencies.
Neither was it shown that CBIC knew of the existence of
the surety bond before the endorsement extending the life
of the bond, was issued to Unimarine. For one to
successfully claim the benefit of estoppel on the ground
that he has been misled by the representations of another,
he must show that he was not misled through his own want
of reasonable care and circumspection.71
It is apparent that Unimarine had been negligent or less

than prudent in its dealings with Quinain. In Manila
Memorial Park Cemetery, Inc. v. Linsangan,72 this Court
held:
_______________
69 Id.
70 Id., at p. 225.
71 Manila Memorial Park Cemetery, Inc. v. Linsangan, supra note 66
at p. 397.
72 Id., at pp. 391-392.
451
VOL. 673, JUNE 18, 2012 451

Shipyard
“It is a settled rule that persons dealing with an agent are

bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden
of proof is upon them to establish it. The basis for agency is
representation and a person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the
agent. If he does not make such an inquiry, he is chargeable with
knowledge of the agent’s authority and his ignorance of that
authority will not be any excuse.”
In the same case, this Court added:
“[T]he ignorance of a person dealing with an agent as to the scope

of the latter’s authority is no excuse to such person and the fault
cannot be thrown upon the principal. A person dealing with an
agent assumes the risk of lack of authority in the agent. He
cannot charge the principal by relying upon the agent’s
assumption of authority that proves to be unfounded. The
principal, on the other hand, may act on the presumption that
third persons dealing with his agent will not be negligent in
failing to ascertain the extent of his authority as well as the
existence of his agency.”73
Unimarine undoubtedly failed to establish that it even

bothered to inquire if Quinain was authorized to agree to
terms beyond the limits indicated in his special power of
attorney. While Paul Rodriguez stated that he has done
business with Quinain more than once, he was not able to
show that he was misled by CBIC as to the extent of
authority it granted Quinain. Paul Rodriguez did not even

allege that he asked for documents to prove Quinain’s
authority to contract business for CBIC, such as their
contract of agency and power of attorney. It is also worthy
to note that even with the Indemnity Agreement, Paul
Rodriguez signed it on Quinain’s mere assurance and
without truly understanding the consequences of the terms
of the said agreement. Moreover, both Unimarine and Paul
Rodriguez could have inquired directly from CBIC to verify
the validity and effectivity of the surety
_______________
73 Id., at p. 392.
452

Shipyard
bond and endorsement; but, instead, they blindly relied on

the representations of Quinain. As this Court held in
Litonjua, Jr. v. Eternit Corp.:74
“A person dealing with a known agent is not authorized, under

any circumstances, blindly to trust the agents; statements as to
the extent of his powers; such person must not act negligently but
must use reasonable diligence and prudence to ascertain whether
the agent acts within the scope of his authority. The settled rule is
that, persons dealing with an assumed agent are bound at their
peril, and if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon
them to prove it. In this case, the petitioners failed to discharge
their burden; hence, petitioners are not entitled to damages from
respondent EC.”75
In light of the foregoing, this Court is constrained to

release CBIC from its liability on Surety Bond No. G (16)
29419 and Endorsement No. 33152. This Court sees no
need to dwell on the other grounds propounded by CBIC in
support of its prayer.
WHEREFORE, this petition is hereby GRANTED and
the complaint against CBIC is DISMISSED for lack of
merit. The January 29, 2004 Decision and October 28, 2004
Resolution of the Court of Appeals in CA-G.R. CV No.
58001 is MODIFIED insofar as it affirmed CBIC’s liability
on Surety Bond No.

G (16) 29419 and Endorsement No. 33152.
SO ORDERED.
Bersamin, Del Castillo, Villarama, Jr. and Perlas-

Bernabe,*** JJ., concur.
Petition granted, complaint dismissed. Judgment and

resolution modified.
_______________
74 Supra note 68.
75 Id., at pp. 223-224.
*** Per Special Order No. 1227 dated May 30, 2012.
453
VOL. 673, JUNE 18, 2012 453

Shipyard
Notes.—In an agency by estoppel, there is no agency at

all, but the one assuming to act as agent has apparent or
ostensible, although not real, authority to represent
another; The law makes no presumption of agency and
proving its existence, nature and extent is incumbent upon
the person alleging it. (Yun Kwan Byung vs. Philippine
Amusement and Gaming Corporation, 608 SCRA 107
[2009])
The basis for agency is representation, that is, the agent
acts for and on behalf of the principal on matters within
the scope of his authority and said acts have the same legal
effect as if they were personally executed by the principal.
(Id.)
An agency by estoppel, which is similar to the doctrine of
apparent authority requires proof of reliance upon the
representations, and that, in turn, needs proof that the
representations predated the action taken in reliance. (Id.)
——o0o——
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8/15/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 673

G.R. No. 166044. June 18, 2012.*

Civil Law; Agency; In a contract of agency, a person, the

428 SUPREME COURT REPORTS ANNOTATED

Country Bankers Insurance Corporation vs. Keppel Cebu

consent or authority; By this legal fiction of representation, the

Same; Same; An agent’s act, even if done beyond the scope of

VOL. 673, JUNE 18, 2012 429

Country Bankers Insurance Corporation vs. Keppel Cebu

Same; Same; Same; Persons dealing with an assumed agent

their burden; hence, petitioners are not entitled to damages from

PETITION for review on certiorari of the decision and

LEONARDO-DE CASTRO,** J.:

430 SUPREME COURT REPORTS ANNOTATED

Rodriguez, who signed his conformity to said letter, quoted

VOL. 673, JUNE 18, 2012 431

Attention: Mr. Paul Rodriguez

Installments Amount Due Date

Unimarine will deposit post-dated checks equivalent to the above

above debt, agree to present CSEW surety bonds equal to 120% of

432 SUPREME COURT REPORTS ANNOTATED

In compliance with the agreement, Unimarine, through

“Messrs, Uni-Marine Shipping Lines, Inc. (“the Debtor”) of

payment to Cebu Shipyard of the Moneys Payable on the terms

VOL. 673, JUNE 18, 2012 433

shall not be discharged until all obligation of this contract shall

Because Unimarine failed to remit the first installment

434 SUPREME COURT REPORTS ANNOTATED

B#26035 MV PACIFIC FORTUNE 4,486,052.00

Due to Unimarine’s failure to heed Cebu Shipyard’s

VOL. 673, JUNE 18, 2012 435

1. The nature of the bond undertaking (guarantee

25 Id., at pp. 144-145.

436 SUPREME COURT REPORTS ANNOTATED

who issued the surety bond and endorsement in excess of

29 Id., at pp. 153-155.

VOL. 673, JUNE 18, 2012 437

Unimarine’s vessel, M/V Headline, were assigned to Cebu

438 SUPREME COURT REPORTS ANNOTATED

“WHEREFORE, judgment is hereby rendered in favor of the

The RTC held that CBIC, “in its capacity as surety is

VOL. 673, JUNE 18, 2012 439

Country Bankers Insurance Corporation vs. Keppel Cebu

“Solidary obligations on the part of Unimarine and CBIC

The RTC found CBIC’s contention that Quinain acted in

“[A]s far as third persons are concerned, an act is deemed to

All the defendants appealed this Decision to the Court of

440 SUPREME COURT REPORTS ANNOTATED

CBIC, in its Appellant’s Brief,40 claimed that the RTC

“WHEREFORE, in view of the foregoing, the respective

In its decision, the Court of Appeals resolved the

I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a

VOL. 673, JUNE 18, 2012 441

IV. Whether or not Cross Defendant-Appellant UNIMARINE

The Court of Appeals held that it was duly proven that

442 SUPREME COURT REPORTS ANNOTATED

dodge by setting up defenses to release themselves from

VOL. 673, JUNE 18, 2012 443

LESS SERIOUSLY ERRED IN AFFIRMING THE

THE HONORABLE COURT OF APPEALS ERRED IN