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BA Finance Corp vs.


1. General Obligation of Agent Who Accepts the Agency

Art. 1884. The agent is bound by his acceptance to carry out the
agency and is liable for the damages which, through his nonperformance, the principal may suffer.


He must also finish the business already begun on the death of

the principal, should delay entail any danger. (1718).
Art. 1159. Obligations arising from contracts have the force of
law between the contracting parties and should be complied
with in good faith
Art. 1315. Contracts are perfected by mere consent, and from
that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in
keeping with good faith, usage and law.
Art. 1356. Contracts shall be obligatory, in whatever form they
may have been entered into, provided all the essential
requisites for their validity

2. Duties

An agent must act in accordance with the instructions of the

principal. (Art. 1887)
CONTROL: One factor which most distinguishes agency from other
legal concepts is control; one persons (the agent) agrees to act
under the control or direction of another (the principal). Since the
agent acts in representation of the principal, he must enter into
juridical relations on behalf of the principal where he represents the
will or consent of the principal, and not the agents own will.

Respondents Manuel Cuady and Lilia Cuady obtained a

credit from Supercars, Inc. to cover the cost of the unit of
one Ford Escort 1300.
The obligation was evidenced by a promissory note
executed by the respondents in favor of Supercars, Inc.,
obligating themselves to pay the latter or order the sum of
P39,574.80, inclusive of interest at 14% per annum, payable
on monthly installments
To secure the faithful and prompt compliance of the
obligation, the Cuady spouses constituted a chattel
mortage on the aforementioned motor vehicle.
After a few days, Supercars, Inc. assigned the promissory
note, together with the chattel mortgage, to B.A. Finance
After partial payments, they have an unpaid balance of
B.A. Finance Corporation obtained the renewal of the
insurance coverage over the vehicle with Zenith Insurance
Corporation, when the Cuadys failed to renew said
insurance coverage themselves.
The car got into an accident and was badly damaged. The
accident was reported to the B.A. Finance Corporation and
to the insurer, Zenith Insurance Corporation.
The Cuadys asked the B.A. Finance Corporation to
consider the same as a total loss, and to claim from the
insurer the face value of the car insurance policy and
apply the same to the payment of their remaining
account and give them the surplus thereof, if any. But
instead of heeding the request of the Cuadys, B.A. Finance
Corporation insisted to just have the car repaired
When the car broke the second time, the Cuadys again
wrote B.A. Finance Corporation requesting the latter to
pursue their prior instruction of enforcing the total loss
provision in the insurance coverage. However, their requests
fell on deaf ears. This pushed the Cuadys to stop paying

their monthly installments on the promissory note

In view of the failure of the Cuadys to pay the remaining
installments on the note, B.A. Finance Corporation sued
them for the recovery of the said remaining installments
RTC dismissed the case, and the Court of Appeals affirmed
the dismissal, and also dismissed the companys Motion for
On appeal before the Supreme Court, B.A. Finance
Corporation claimed that its failure to enforce the total
loss provision in the insurance policy did not extinguish
the unpaid balance on the promissory note. Such, it
claimed, was not one of the modes of extinguishing an
obligation as provided for in Article 1231 of the Civil
On the other hand, the Cuadys insisted that due to its failure
to enforce the total loss provision in the insurance policy, the
company lost not only its opportunity to collect the insurance
proceeds, but also the remaining balance on the promissory

Issue: Whether or not B.A. Finance Corporation has waived its right
to collect the unpaid balance of the Cuady spouses on the
promissory note for failure of the former to enforce the total loss
provision in the insurance coverage of the motor vehicle subject of
the chattel mortgage?


YES. As it had become subrogated to the rights and

obligations of Supercars, Inc. by virtue of the assignment,
B.A. Finance Corporation is bound by the terms and
conditions of the chattel mortgage executed between the
Cuadys and Supercars, Inc.
The chattel mortgage authorized B.A. Finance Corporation

to file, follow-up, prosecute, compromise or settle

insurance claims; to sign execute and deliver the
corresponding papers, receipts and documents to the
Insurance Company as may be necessary to prove the
claim, and to collect from the latter the proceeds of
insurance to the extent of its interests, in the event that
the mortgaged car suffers any loss or damage.
In other words, the Cuady spouses created an agency in
B.A. Finance Corporations favor. Under Article 1884 of the
Civil Code, B.A. Finance Corporation is bound by its
acceptance to carry out the agency, and is liable for
damages which, through its non-performance, the Cuadys
may suffer.
The records show that instead of acting on the instruction of
the Cuadys to enforce the total loss provision in the
insurance policy, the company refused and instead insisted
on just having the motor vehicle repaired. However, Rea
Auto Center, the auto repair shop chosen by the insurer to
repair the car, misrepaired it, making it completely useless
and unserviceable. Despite this, the company still refused to
follow the Cuadys repeated request to heed their previous
instructions, which caused the spouses to stop paying the
remaining balance on the promissory note.
Clearly, the Cuadys suffered pecuniary loss in the form of
salvage value of the car, as well as the unpaid balance on
the promissory note due to the companys actions.
Considering that their agents disregard of their request and
refusal to avail of the insurance policy that wouldve been
used to pay the debt was the reason the spouses payments
ceased, it would be unjust to require the spouses to pay the
balance of their debt.