URBAN BANK V PENA (2011)

Ponente: Sereno, J.

Facts:

Urban Bank, Inc. (both petitioner and respondent in these two consolidated cases), was a domestic
Philippine corporation, engaged in the business of banking. Petitioner-respondent Atty. Magdaleno M. Peña (Peña)
is a lawyer by profession and was formerly a stockholder, director and corporate secretary of Isabel Sugar
Company, Inc. (ISCI).

Isabel Sugar Company, Inc. (ISCI) owned a parcel of land located in Pasay City (the Pasay property). In
1984, ISCI leased the Pasay property for a period of 10 years. Without its consent and in violation of the lease
contract, the lessee subleased the land to several tenants, who in turn put up 23 establishments, mostly beer
houses and night clubs, inside the compound. In 1994, a few months before the lease contract was to expire, ISCI
informed the lessee and his tenants that the lease would no longer be renewed and that it intended to take over
the Pasay property[17] for the purpose of selling it.
Two weeks before the lease over the Pasay property was to expire, ISCI and Urban Bank executed a
Contract to Sell, whereby the latter would pay ISCI the amount of PhP241,612,000 in installments for the Pasay
property. Both parties agreed that the final installment of PhP25,000,000 would be released by the bank upon
ISCI's delivery of full and actual possession of the land, free from any tenants. In the meantime, the amount of the
final installment would be held by the bank in escrow.

ISCI then instructed Peña, who was its director and corporate secretary, to take over possession of the
Pasay property against the tenants upon the expiration of the lease. ISCI's president, Montilla, faxed a letter to
Peña, confirming the latter's engagement as the corporation's agent to handle the eviction of the tenants from the
Pasay property, to wit:

You are hereby directed to recover and take possession of the property of the corporation situated
at Roxas Boulevard covered by TCT No. 5382 of the Register of Deeds for Pasay City immediately
upon the expiration of the contract of lease over the said property on 29 November 1994. For this
purpose you are authorized to engage the services of security guards to protect the property against
intruders. You may also engage the services of a lawyer in case there is a need to go to court to protect
the said property of the corporation. In addition you may take whatever steps or measures are
necessary to ensure our continued possession of the property.

On 29 November 1994, the day the lease contract was to expire, ISCI and Urban Bank executed a Deed of
Absolute Sale over the Pasay property for the amount agreed upon in the Contract to Sell, but subject to the above
escrow provision. The title to the land was eventually transferred to the name of Urban Bank on 05 December
1994.

On 30 November 1994, the lessee duly surrendered possession of the Pasay property to ISCI, but the
unauthorized sub-tenants refused to leave the area. Pursuant to his authority from ISCI, Peña had the gates of the
property closed to keep the sub-tenants out. He also posted security guards at the property, services for which he
advanced payments. Despite the closure of the gates and the posting of the guards, the sub-tenants would come
back in the evening, force open the gates, and proceed to carry on with their businesses.

Ong, a representative from ISCI, requested Urban Bank to issue a formal authority for Peña. In response,
Urban Bank advised Peña that the bank had noted the engagement of his services by ISCI and stressed that ISCI
remained as the lawyer’s principal.
 To prevent the sub-tenants from further appropriating the Pasay property, petitioner-respondent Peña, as
director and representative of ISCI, filed a complaint for injunction with the RTC-Pasay City. A TRO was issued but it
was recalled when “information reached the judge that the Pasay property had already been transferred by ISCI to
Urban Bank” and the trial court issued a break-open order for the property.

On the same day, Peña received a telephone call from respondent Bejasa. After Peña informed her of the
situation, she allegedly told him that Urban Bank would be retaining his services in guarding the Pasay property,
and that he should continue his efforts in retaining possession thereof. Immediately after talking to respondent
Bejasa, Peña got in touch with Urban Bank's president, respondent Borlongan. Respondent Borlongan supposedly
assured him that the bank was going to retain his services, and that the latter should not give up possession of the
subject land. Nevertheless, petitioner-respondent Peña demanded a written letter of authority from the bank.
Respondent Borlongan acceded and instructed him to see respondent Bejasa for the letter.

In the same telephone conversation, respondent Borlongan allegedly asked Peña to maintain possession
of the Pasay property and to represent Urban Bank in any legal action that might be instituted relative to the
property. Peña supposedly demanded 10% of the market value of the property as compensation and attorney's
fees and reimbursement for all the expenses incurred from the time he took over land until possession was turned
over to Urban Bank. Respondent Borlongan purportedly agreed on condition that possession would be turned over
to the bank, free of tenants, not later than four months; otherwise, Peña would lose the 10% compensation and
attorney's fees.

Later that afternoon, Peña received the bank's letter dated 19 December 1994, which was signed by
respondents Bejasa and Manuel, and is quoted below:

This is to confirm the engagement of your services as the authorized representative of Urban Bank,
specifically to hold and maintain possession of our abovecaptioned property [Pasay property] and to
protect the same from former tenants, occupants or any other person who are threatening to return
to the said property and/or interfere with your possession of the said property for and in our behalf.

You are likewise authorized to represent Urban Bank in any court action that you may institute to carry
out the aforementioned duties, and to prevent any intruder, squatter or any other person not otherwise
authorized in writing by Urban [B]ank from entering or staying in the premises. (Emphasis supplied)
On even date, ISCI sent Urban Bank a letter, which acknowledged ISCI's engagement of Peña and commitment to
pay for any expenses that may be incurred in the course of his services.

In line with our warranties as the Seller of the said property and our undertaking to deliver to you the
full and actual possession and control of said property, free from tenants, occupants or squatters and
from any obstruction or impediment to the free use and occupancy of the property by Urban Bank, we
have engaged the services of Atty. Magdaleno M. Peña to hold and maintain possession of the
property and to prevent the former tenants or occupants from entering or returning to the premises.
In view of the transfer of the ownership of the property to Urban Bank, it may be necessary for Urban
Bank to appoint Atty. Peña likewise as its authorized representative for purposes of holding/maintaining
continued possession of the said property and to represent Urban Bank in any court action that may be
instituted for the abovementioned purposes.

It is understood that any attorney's fees, cost of litigation and any other charges or expenses that may
be incurred relative to the exercise by Atty. Peña of his abovementioned duties shall be for the
account of Isabela Sugar Company and any loss or damage that may be incurred to third parties shall be
answerable by Isabela Sugar Company. (Emphasis supplied)
Peña made efforts to settle the issue of possession of the Pasay property and the tenants eventually
agreed to stay off the property for Php 1,500,000. Peña advanced the payment for the full and final settlement of
their claims against Urban Bank.
Peña claims to have borrowed PhP3,000,000 from one of his friends in order to maintain possession
thereof on behalf of Urban Bank. According to him, although his creditor-friend granted him several extensions, he
failed to pay his loan when it became due, and it later on became the subject of a separate collection suit for
payment with interest and attorney's fees.

On 07 February 1995, within the four-month period allegedly agreed upon in the telephone conversation,
Peña formally informed Urban Bank that it could already take possession of the Pasay property. There was
however no mention of the compensation due and owed to him for the services he had rendered.

On 31 March 1995, the bank subsequently took actual possession of the property and installed its own
guards at the premises.
On 24 January 1996, or nearly a year after he turned over possession of the Pasay property, Peña formally
demanded from Urban Bank the payment of the 10% compensation and attorney's fees allegedly promised to him
during his telephone conversation with Borlongan for securing and maintaining peaceful possession of the
property.

On 28 January 1996, when Urban Bank refused to pay for his services in connection with the Pasay
property, Peña filed a complaint for recovery of agent's compensation and expenses, damages and attorney's fees
in RTC-Bago City in the province of Negros Occidental. The trial court ruled in favor of Peña and awarded him a
total of PhP28, 500, 000.

On 07 June 1999, prior to the filing of the notice of appeal of Urban Bank and individual bank officers,
Peña moved for execution pending appeal of the Decision rendered by the RTC-Bago City, which had awarded him
a total of PhP28,500,000 in compensation and damages.

Ruling of RTC:

The trial court heavily relied on the sole telephone conversation between Peña and Urban Bank's
President to establish that the principal-agent relationship created between them included an agreement to pay
Peña the amount of PhP24,000,000. Furthermore, the trial court held that the individual bank directors and
officers were solidarily or personally liable.

Ruling of CA:

No agency relationship existed between Pena and the bank. Although the CA ruled against an award for
agent’s compensation, it still saw fit to award Peña with Ph3,000,000 for expenses incurred for his efforts in
clearing the Pasay property of tenants. Furthermore, the CA rejected the claim of personal liability against the
individual bank directors holding that the complaint does not point to any particular act of either one or all of the
defendants-appellants that will subject them to personal liability.

Issue/s:

1. What is the legal basis for an award in favor of Peña for the services he rendered to Urban Bank? Should it be a
contract of agency the fee for which was orally agreed on as Peña claims? Should it be the application of the Civil
Code provisions on unjust enrichment? Or is it to be based on something else or a combination of the legal findings
of both the RTC and the CA? How much should the award be?

2. Are the officers and directors of Urban Bank liable in their personal capacities for the amount claimed by Peña?

3. What are the effects of our answers to questions (1) and (2), on the various results of the execution pending
appeal that happened here?
Ruling:

1) Peña is entitled to payment for compensation for services rendered as agent of Urban Bank, but on
the basis of the principles of unjust enrichment and quantum meruit, and not on the purported oral contract.
The Court finds that Peña should be paid for services rendered under the agency relationship that existed
between him and Urban Bank based on the civil law principle against unjust enrichment, but the amount of
payment he is entitled to should be made, again, under the principle against unjust enrichment and on the basis
of quantum meruit.

In a contract of agency, agents bind themselves to render some service or to do something in

representation or on behalf of the principal, with the consent or authority of the latter. The basis of the civil law
relationship of agency is representation, the elements of which include the following: (a) the relationship is
established by the parties' consent, express or implied; (b) the object is the execution of a juridical act in relation
to a third person; (c) agents act as representatives and not for themselves; and (d) agents act within the scope of
their authority. The law makes no presumption of agency; proving its existence, nature and extent is incumbent
upon the person alleging it.
Based on evidence, the Court concludes that Urban Bank constituted Atty. Peña as its agent to secure
possession of the Pasay property. This conclusion, however, is not determinative of the basis of the amount of
payment that must be made to him by the bank. The context in which the agency was created lays the basis for
the amount of compensation Atty. Peña is entitled to.
Urban Bank's letter dated 19 December 1994 confirmed in no uncertain terms Peña's designation as its
authorized representative to secure and maintain possession of the Pasay property against the tenants. Under the
terms of the letter, petitioner-respondent bank confirmed his engagement (a) "to hold and maintain possession"
of the Pasay property; (b) "to protect the same from former tenants, occupants or any other person who are
threatening to return to the said property and/or interfere with your possession of the said property for and in our
behalf"; and (c) to represent the bank in any instituted court action intended to prevent any intruder from
entering or staying in the premises.
These three express directives of petitioner-respondent bank's letter admits of no other construction than
that a specific and special authority was given to Peña to act on behalf of the bank with respect to the latter's
claims of ownership over the property against the tenants.

Both sides readily admit that it was Peña who was responsible for clearing the property of the tenants and
other occupants, and who turned over possession of the Pasay property to petitioner-respondent bank. When the
latter received full and actual possession of the property from him, it did not protest or refute his authority as an
agent to do so. Neither did Urban Bank contest Peña's occupation of the premises, or his installation of security
guards at the site, starting from the expiry of the lease until the property was turned over to the bank, by which
time it had already been vested with ownership thereof. Furthermore, when Peña filed the Second Injunction
Complaint in the RTC-Makati City under the name of petitioner-respondent bank, the latter did not interpose any
objection or move to dismiss the complaint on the basis of his lack of authority to represent its interest as the
owner of the property. When he successfully negotiated with the tenants regarding their departure from its Pasay
property, still no protest was heard from it. After possession was turned over to the bank, the tenants accepted
PhP1,500,000 from Peña, in "full and final settlement" of their claims against Urban Bank, and not against ISCI.
In all these instances, petitioner-respondent bank did not repudiate the actions of Peña, even if it was
fully aware of his representations to third parties on its behalf as owner of the Pasay property. Its tacit
acquiescence to his dealings with respect to the Pasay property and the tenants spoke of its intent to ratify his
actions, as if these were its own. Even assuming arguendo that it issued no written authority, and that the oral
contract was not substantially established, the bank duly ratified his acts as its agent by its acquiescence and
acceptance of the benefits, namely, the peaceful turnover of possession of the property free from sub-tenants.
 Even if, however, Peña was constituted as the agent of Urban Bank, it does not necessarily preclude that a
third party would be liable for the payment of the agency fee of Peña. Nor does it preclude the legal fact that Peña
while an agent of Urban Bank, was also an agent of ISCI, and that his agency from the latter never terminated. This
is because the authority given to Peña by both ISCI and Urban Bank was common - to secure the clean possession
of the property so that it may be turned over to Urban Bank. This is an ordinary legal phenomenon - that an agent
would be an agent for the purpose of pursuing a shared goal so that the common objective of a transferor and a
new transferee would be met.
Indeed, the Civil Code expressly acknowledged instances when two or more principals have granted a
power of attorney to an agent for a common transaction. The agency relationship between an agent and two
principals may even be considered extinguished if the object or the purpose of the agency is accomplished. In this
case, Peña's services as an agent of both ISCI and Urban Bank were engaged for one shared purpose or transaction,
which was to deliver the property free from unauthorized sub-tenants to the new owner - a task that Peña was
able to achieve and is entitled to receive payment for.

That the agency between ISCI and Peña continued, that ISCI is to shoulder the agency fee and
reimbursement for costs of Peña, and that Urban Bank never agreed to pay him a 10% agency fee is established
and supported by the following:
First, the initial agency relationship between ISCI and Peña persisted. No proof was ever offered that the
letter of 26 November 1994 of Mr. Montilla of ISCI to Peña, for the latter "to immediately recover and take
possession of the property upon expiration of the contract of lease on 29 November 1994" was terminated. It is
axiomatic that the appointment of a new agent for the same business or transaction revokes the previous agency
from the day on which notice thereof was given to the former agent. If it is true that the agency relationship was to
be borne by Urban Bank alone, Peña should have demonstrated that his previous agency relationship with ISCI is
incompatible with his new relationship with Urban Bank, and was thus terminated.
Second, instead, what is on the record is that ISCI confirmed the continuation of this agency between
Peña and itself and committed to pay for the services of Peña, in its letter to Urban Bank dated 19 December 1994.

Peña's account of an oral agreement with Urban Bank for the payment of PhP24,000,000 is just too much
for any court to believe. Whatever may be the agreement between Peña and ISCI for compensation is not before
this Court. This is not to say, however, that Urban Bank has no liability to Peña. It has. Payment to him is required
because the Civil Code demands that no one should be unjustly enriched at the expense of another. This payment
is to be measured by the standards of quantum meruit.

Agency is presumed to be for compensation. Unless the contrary intent is shown, a person who acts as an
agent does so with the expectation of payment according to the agreement and to the services rendered or results
effected. We find that the agency of Peña comprised of services ordinarily performed by a lawyer who is tasked
with the job of ensuring clean possession by the owner of a property. We thus measure what he is entitled to for
the legal services rendered. In the absence of a written contract for professional services, the attorney's fees are
fixed on the basis of quantum meruit, i.e., the reasonable worth of the attorney's services. When an agent
performs services for a principal at the latter's request, the law will normally imply a promise on the part of the
principal to pay for the reasonable worth of those services.

2. The corporate officers and directors of Urban Bank are not solidarily or personally liable with their properties
for the corporate liability of Urban Bank to Atty. Peña.
The obligation to pay Peña's compensation, however, falls solely on Urban Bank. Absent any proof that
individual petitioners as bank officers acted in bad faith or with gross negligence or assented to a patently unlawful
act, they cannot be held solidarily liable together with the corporation for services performed by the latter's agent
to secure possession of the Pasay property. Thus, the trial court had indeed committed grave abuse of discretion
when it issued a ruling against the eight individual defendant bank directors and officers and its Decision should be
absolutely reversed and set aside.
A corporation, as a juridical entity, may act only through its directors, officers and employees. Obligations incurred
as a result of the acts of the directors and officers as corporate agents are not their personal liabilities but those of
the corporation they represent. To hold a director or an officer personally liable for corporate obligations, two
requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the
complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.

Peña failed to allege and convincingly show that individual defendant bank directors and officers assented to
patently unlawful acts of the bank, or that they were guilty of gross negligence or bad faith. Contrary to his claim,
the Complaint in the lower court never alleged that individual defendants acquiesced to an unlawful act or were
grossly negligent or acted in bad faith. Neither is there any specific allegation of gross negligence or action in bad
faith that is attributable to the individual defendants in performance of their official duties.

3. Considering the absolute nullification of the trial court's Decision, the proceedings arising from the execution
pending appeal based on the said Decision is likewise completely vacated.
Since the trial court's main Decision awarding PhP28,500,000 in favor of Peña has been nullified above, the
execution pending appeal attendant thereto, as a result, no longer has any leg to stand on and is thus completely
vacated.

WHEREFORE, the Court DENIES Atty. Magdaleno Peña's Petition for Review dated 23 April 2004 (G. R. No.
162562) and AFFIRMS WITH MODIFICATION the Court of Appeals' Decision dated 06 November 2003
having correctly found that the Regional Trial Court of Bago City gravely abused its discretion in awarding
unconscionable damages against Urban Bank, Inc., and its officers. The Decision of the Regional Trial Court
of Bago City dated 28 May 1999 is hence VACATED.

Nevertheless, Urban Bank, Inc., is ORDERED to pay Atty. Peña the amount of PhP3,000,000 as
reimbursement for his expenses and an additional PhP1,500,000 as compensation for his services, with
interest at 6% per annum from 28 May 1999, without prejudice to the right of Urban Bank to invoke
payment of this sum under a right of set-off against the amount of PhP25,000,000 that has been placed in
escrow for the benefit of Isabela Sugar Company, Inc. The Complaint against the eight other individual
petitioners, namely Teodoro Borlongan (+), Delfin C. Gonzales, Jr., Benjamin L. de Leon, P. Siervo G. Dizon,
Eric L. Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr., is hereby DISMISSED.

The Petitions for Review on Certiorari filed by petitioners Urban Bank (G. R. No. 145817) and Benjamin
L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee (G. R. No. 145822) are hereby GRANTED.