Associated Bank vs. Pronstroller

A corporation is bound by the acts of its officer or agent under the doctrine of apparent authority when the corporation has clothed such officer or agent with apparent authority by holding him out or permitting him to appear as having such authority, and a third person deals with him in good faith. The authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was exercised without objection from the board or shareholders. The corporation is estopped from denying such authority as against any person who has dealt in good faith with the corporation through such agent.

The petitioner, Associated Bank (now United Overseas Bank [Phils.]), was the mortgagee and subsequent purchaser at foreclosure of a residential property in Green Meadows Subdivision, Quezon City, originally owned by spouses Eduardo and Ma. Pilar Vaca. The spouses Vaca had commenced an action to nullify the real estate mortgage and foreclosure sale, and the bank had filed a petition for a writ of possession, which litigation was pending before the Supreme Court in G.R. No. 109672. During the pendency of these cases, the bank advertised the subject property for sale, and the respondents, spouses Rafael and Monaliza Pronstroller, offered to purchase it.

On April 21, 1988, spouses Eduardo and Ma. Pilar Vaca executed a Real Estate Mortgage in favor of Associated Bank over their residential property located at No. 18, Lovebird Street, Green Meadows Subdivision 1, Quezon City. When the spouses Vaca failed to pay their obligation, the property was sold at public auction with the bank as the highest bidder, and TCT No. 254504 was cancelled and replaced with TCT No. 52593 in the bank's name. The spouses Vaca commenced an action to nullify the mortgage and foreclosure sale, while the bank filed a petition for a writ of possession which was denied by the RTC; the CA later granted the bank's petition, and the spouses Vaca brought the matter to the Supreme Court in G.R. No. 109672.

During the pendency of these cases, the bank advertised the subject property for sale for ₱9,700,000.00. Respondents Rafael and Monaliza Pronstroller offered to purchase the property for ₱7,500,000.00, through Atty. Jose Soluta, Jr., the bank's Vice-President, Corporate Secretary, and a member of its Board of Directors. The bank accepted the offer, and the respondents paid ₱750,000.00 as down payment. On March 18, 1993, the bank, through Atty. Soluta, and the respondents executed a Letter-Agreement setting forth the terms of the sale: the selling price was ₱7,500,000.00, with the 10% deposit already paid and the balance of ₱6,750,000.00 to be deposited under an escrow agreement within ninety days, applied as payment upon delivery of the property free from occupants.

Prior to the expiration of the 90-day period, the respondents requested that the balance be made payable only upon service of a final decision or resolution of the Supreme Court affirming the bank's right to possess the property, given the pendency of the Vaca case. Atty. Soluta referred the proposal to the bank's Asset Recovery and Remedial Management Committee, which deferred action. On July 14, 1993, a month after the request and after the payment deadline had lapsed, the respondents and Atty. Soluta, acting for the bank, executed another Letter-Agreement allowing the respondents to pay the balance upon receipt of a final order from the Supreme Court in the Vaca case and/or delivery of the property free from occupants.

Towards the end of 1993 or early 1994, the bank reorganized its management. Atty. Braulio Dayday became Assistant Vice-President and Head of the Documentation Section, while Atty. Soluta was relieved of his responsibilities. Atty. Dayday reviewed the bank's records and discovered that the respondents had failed to deposit the balance, and found that they had requested an extension of time to pay. The matter was resubmitted to the ARRMC on March 4, 1994, and disapproved; the committee referred the matter to the Legal Department for rescission or cancellation of the contract due to the respondents' alleged breach. On May 5, 1994, Atty. Dayday informed the respondents that their request for extension was disapproved and that the bank was rescinding the contract and forfeiting their deposit. The respondents showed Atty. Dayday the July 14, 1993 Letter-Agreement, but he claimed it was a mistake and that Atty. Soluta was not authorized to give such extension.

On June 6, 1994, the respondents proposed to pay ₱3,000,000.00 upon approval of their proposal and the balance after six months, but the proposal was disapproved by the bank's President. In a letter dated June 9, 1994, the bank said it would accept the proposal only if the respondents paid interest at 24.5% per annum on the unpaid balance, and allowed them a refund of their deposit if they did not agree. The parties failed to reach an agreement, and the respondents informed the bank they would enforce the July 14, 1993 agreement. The bank countered that it was not aware of the agreement and that Atty. Soluta was not authorized to sign for the bank.

On July 14, 1994, the Supreme Court upheld the bank's right to possess the subject property in the Vaca case. On July 28, 1994, the respondents filed a Complaint for Specific Performance before the RTC of Antipolo, Rizal, docketed as Civil Case No. 94-3298, and caused the annotation of a notice of lis pendens on TCT No. 52593. During the pendency of the case, the bank sold the subject property to the spouses Vaca, who registered the sale, and TCT No. 52593 was cancelled and TCT No. 158082 was issued in their names. The spouses Vaca began demolishing the house on the property but were stopped by a writ of preliminary injunction issued by the court. The trial court found the bank's rescission null and void, applying the doctrine of apparent authority, and ordered the bank to accept the respondents' payment and deliver title and possession, and to pay moral damages, attorney's fees, and litigation expenses. The CA affirmed, and the bank appealed to the Supreme Court.

• Factual Findings: Petitioner argued that the CA's narration of facts was totally bereft of evidentiary support, contrary to the evidence on record, and based on erroneous assumptions, presumptions, surmises, and conjectures.
• Lack of Apparent Authority: Petitioner maintained that the lower courts grossly erred in relying on the alleged apparent authority of Atty. Jose Soluta, Jr., arguing that the finding was contrary to undisputed facts and evidence, that at no time did petitioner admit Atty. Soluta was authorized to sell the property on his own, that his authority could not be presumed from his designations or titles, and that respondents fully knew of his lack of authority.
• Misapplication of Apparent Authority Doctrine: Petitioner argued that the trial court and the CA grossly misapplied the doctrine of apparent authority in the present case.
• Valid Rescission: Petitioner contended that the contract to sell contained in the March 18, 1993 letter was validly rescinded due to respondents' failure to deposit the balance within the stipulated period.
• Estoppel of Respondents: Petitioner argued that respondents were estopped from denying the validity of the rescission and the lack of authority of Atty. Soluta after they voluntarily submitted a new offer to purchase in their letter dated June 6, 1994, with full knowledge of its import and implication.
• Abandonment of Contract: Petitioner maintained that the contract to sell under the March 18 and July 14, 1993 letters had been vacated when respondents voluntarily submitted their new offer of June 6, 1994 without any condition or reservation.
• Estoppel of Petitioner: Petitioner argued that the CA erred in holding petitioner estopped from questioning the validity of the July 14, 1993 letter signed by Atty. Soluta.
• Bad Faith: Petitioner argued that the CA grossly erred in holding that petitioner allegedly acted fraudulently and in bad faith in its dealings with respondents.
• Collateral Attack on Title: Petitioner argued that the order to cancel TCT No. 158082 under the names of the spouses Vaca was a collateral attack against the certificate of title proscribed by Section 48 of P.D. 1529.
• Damages: Petitioner argued that the CA erred in awarding moral damages, attorney's fees, and expenses of litigation in favor of respondents.

• Enforcement of Agreement: Respondents argued that they were entitled to enforce the July 14, 1993 Letter-Agreement, which granted them an extension to pay the balance upon receipt of a final order from the Supreme Court and/or delivery of the property free from occupants.
• Apparent Authority: Respondents maintained that Atty. Soluta had apparent authority to bind the bank, as the bank had previously allowed him to enter into the March 18, 1993 Letter-Agreement without a board resolution, and the public has the right to rely on the trustworthiness of bank officers and their acts.

• Apparent Authority: Whether the petitioner is bound by the July 14, 1993 Letter-Agreement signed by Atty. Soluta under the doctrine of apparent authority.
• Validity of Rescission: Whether there was a valid rescission of the March 18, 1993 and/or July 14, 1993 Letter-Agreement.
• Estoppel of Respondents: Whether the respondents are estopped from enforcing the July 14 Letter-Agreement because of their June 6, 1994 "new" proposal.
• Estoppel of Petitioner: Whether the petitioner is estopped from questioning the validity of the July 14 letter because of its failure to repudiate the same.
• Collateral Attack on Title: Whether the instant case is a collateral attack on TCT No. 158082 in the name of the spouses Vaca.

• Apparent Authority: Yes. The petitioner is bound by the July 14, 1993 Letter-Agreement signed by Atty. Soluta under the doctrine of apparent authority, as the bank had previously clothed him with apparent authority by allowing him to enter into the first agreement without a board resolution.
• Validity of Rescission: No. There was no valid rescission because the execution of the July 14 Agreement modified the date of full payment, and thus there was no breach of contract on the part of the respondents.
• Estoppel of Respondents: No. The respondents are not estopped from enforcing the July 14 Letter-Agreement because their June 6, 1994 proposal was made only to demonstrate their capacity to purchase and was not an abandonment of the previous contract.
• Estoppel of Petitioner: Yes. The petitioner is estopped from questioning the validity of the July 14 letter because of its failure to repudiate the same for a period of one year.
• Collateral Attack on Title: No. The cancellation of TCT No. 158082 is not a collateral attack on the title because the respondents timely registered a notice of lis pendens, which binds purchasers of the land subject of the litigation to the judgment of the court.

• Apparent Authority: The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. However, the board may validly delegate some of its functions and powers to officers, committees, and agents. The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. Apparent authority is derived not merely from practice; its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act, or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. The authority to act for and bind a corporation may be presumed from acts of recognition in other instances wherein the power was exercised without any objection from its board or shareholders. The petitioner had previously allowed Atty. Soluta to enter into the first agreement without a board resolution expressly authorizing him; thus, it had clothed him with apparent authority to modify the same via the second letter-agreement. The third person has little or no information as to what occurs in corporate meetings and must necessarily rely upon the external manifestations of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law. What transpires in the corporate board room is entirely an internal matter; hence, the petitioner may not impute negligence on the part of the respondents in failing to find out the scope of Atty. Soluta's authority. The public has the right to rely on the trustworthiness of bank officers and their acts. The board deferred action on the respondents' request for modification, and it was only after one year and after the bank's reorganization that the board rejected the request. The petitioner's inaction, coupled with the apparent authority of Atty. Soluta, validates the July 14 agreement and binds the corporation. If a corporation knowingly permits its officer or agent to perform acts within the scope of apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corporation through such agent, be estopped from denying such authority.

• Validity of Rescission: A contract constitutes the law between the parties, and parties may validly stipulate the unilateral rescission of a contract. While the petitioner may have had the right, under the March 18 agreement, to unilaterally rescind the contract in case of the respondents' failure to comply with its terms, the execution of the July 14 Agreement prevented the petitioner from exercising the right to rescind. This is because there was no breach of contract, as the date of full payment had already been modified by the later agreement.

• Estoppel of Respondents: The July 14, 1993 agreement cannot be considered abandoned by the respondents' act of making a new offer, which was rejected by the petitioner. A careful reading of the June 6, 1994 letter impels the belief that such offer was made only to demonstrate the respondents' capacity to purchase the subject property. Even if it was a valid new offer, the respondents did so only due to the fraudulent misrepresentation made by the petitioner that their earlier contracts had already been rescinded. Considering the respondents' capacity to pay and their continuing interest in the subject property, to abandon their right to the contract and to the property, absent any form of protection, is contrary to human nature. The presumption that a person takes ordinary care of his concerns applies and remains unrebutted. Since there was never a perfected new contract, the July 14, 1993 agreement was still in effect and there was no abandonment.

• Estoppel of Petitioner: The appellate court found that the petitioner was estopped from questioning the efficacy of the July 14 agreement because of its failure to repudiate the same for a period of one year. The Court affirmed this finding.

• Collateral Attack on Title: The respondents timely registered a notice of lis pendens, which refers to the jurisdiction, power, or control which a court acquires over property involved in a suit, pending the continuance of the action, and until final judgment. The notice of lis pendens is an announcement to the whole world that a particular property is in litigation and serves as a warning that one who acquires an interest over said property does so at his own risk. The filing of a notice of lis pendens has a twofold effect: (1) to keep the subject matter of the litigation within the power of the court until the entry of the final judgment to prevent the defeat of the final judgment by successive alienations; and (2) to bind a purchaser, bona fide or not, of the land subject of the litigation to the judgment or decree that the court will promulgate subsequently. This registration gives the court clear authority to cancel the title of the spouses Vaca, since the sale of the subject property was made after the notice of lis pendens. The notice is not considered a collateral attack on the title, for the indefeasibility of the title shall not be used to defraud another especially if the latter performs acts to protect his rights such as the timely registration of a notice of lis pendens.

• Damages: Article 2220 of the New Civil Code allows the recovery of moral damages in breaches of contract where the party acted fraudulently and in bad faith. The petitioner undoubtedly acted fraudulently and in bad faith in breaching the letter-agreements, as it sold the subject property to the spouses Vaca despite the pendency of the case in the RTC and allowed the demolition of the house even if there was already a writ of preliminary injunction lawfully issued by the court. The respondents were compelled to litigate because of the petitioner's acts, justifying the award of attorney's fees and expenses of litigation.

• Doctrine of Apparent Authority — Apparent authority is derived not merely from practice; its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act, or the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. The authority to act for and bind a corporation may be presumed from acts of recognition in other instances wherein the power was exercised without any objection from its board or shareholders. If a corporation knowingly permits its officer or agent to perform acts within the scope of apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corporation through such agent, be estopped from denying such authority. In this case, the bank had previously allowed Atty. Soluta to enter into the first agreement without a board resolution, thus clothing him with apparent authority to modify the same via the second letter-agreement.

• Doctrine of Lis Pendens — Lis pendens, which literally means pending suit, refers to the jurisdiction, power, or control which a court acquires over property involved in a suit, pending the continuance of the action, and until final judgment. The filing of a notice of lis pendens has a twofold effect: (1) to keep the subject matter of the litigation within the power of the court until the entry of the final judgment to prevent the defeat of the final judgment by successive alienations; and (2) to bind a purchaser, bona fide or not, of the land subject of the litigation to the judgment or decree that the court will promulgate subsequently. The notice is not considered a collateral attack on the title, for the indefeasibility of the title shall not be used to defraud another especially if the latter performs acts to protect his rights such as the timely registration of a notice of lis pendens.

• Rule on Factual Findings of Lower Courts — The findings of the RTC, as affirmed by the appellate court, are binding on the Supreme Court. In a petition for review on certiorari under Rule 45 of the Rules of Court, the Court may not review the findings of fact all over again, as it is not a trier of facts and it is not its function to re-examine and weigh anew the respective evidence of the parties. The findings of the CA are conclusive on the parties and carry even more weight when these coincide with the factual findings of the trial court, unless the factual findings are not supported by the evidence on record.

• "Apparent authority is derived not merely from practice. Its existence may be ascertained through 1) the general manner in which the corporation holds out an officer or agent as having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or 2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers." — This passage defines the canonical two-part test for determining the existence of apparent authority, which the Court applied to bind the bank to the July 14, 1993 Letter-Agreement.

• "We would like to emphasize that if a corporation knowingly permits its officer, or any other agent, to perform acts within the scope of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corporation through such agent, be estopped from denying such authority." — This passage articulates the estoppel effect of apparent authority, which was central to the Court's ruling that the bank could not question the validity of the July 14 agreement.

• "The filing of a notice of lis pendens has a twofold effect: (1) to keep the subject matter of the litigation within the power of the court until the entry of the final judgment to prevent the defeat of the final judgment by successive alienations; and (2) to bind a purchaser, bona fide or not, of the land subject of the litigation to the judgment or decree that the court will promulgate subsequently." — This passage states the twofold effect of lis pendens, which the Court used to reject the bank's argument that the cancellation of TCT No. 158082 was a collateral attack on the title.

• Inter-Asia Investments Ind., Inc. vs. Court of Appeals, 451 Phil. 554 (2003) — Cited as controlling authority for the general rule that in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation, and that the authority of such individuals to bind the corporation is generally derived from law, corporate bylaws, or authorization from the board, either expressly or impliedly, by habit, custom, or acquiescence in the general course of business.
• First Philippine International Bank vs. Court of Appeals, 322 Phil. 280 (1996) — Cited for the proposition that the doctrine of apparent authority, with special reference to banks, had long been recognized in this jurisdiction.
• BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation, G.R. No. 132390, May 21, 2004, 429 SCRA 30 — Cited for the rule that the third person has little or no information as to what occurs in corporate meetings and must necessarily rely upon the external manifestations of corporate consent, and that the integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law.
• Romero vs. Court of Appeals, G.R. No. 142406, May 16, 2005, 458 SCRA 483 — Cited for the definition and effects of lis pendens, including its twofold effect of keeping the subject matter of litigation within the power of the court and binding purchasers to the judgment.
• Valdez vs. Reyes, G.R. No. 152251, August 17, 2006, 499 SCRA 212 — Cited for the rule that findings of the RTC, as affirmed by the appellate court, are binding on the Supreme Court in a petition for review on certiorari under Rule 45.

• Article 2220, New Civil Code — Provides that willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due, and that the same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. The Court applied this provision to affirm the award of moral damages against the bank, which acted fraudulently and in bad faith in breaching the letter-agreements.
• Section 48, P.D. 1529 — Cited by the petitioner in arguing that the cancellation of TCT No. 158082 was a collateral attack against the certificate of title. The Court rejected this argument, holding that the timely registration of a notice of lis pendens gives the court clear authority to cancel the title of the spouses Vaca, and that the notice is not considered a collateral attack on the title.
• Rule 131, Section 3(d), Revised Rules on Evidence — Provides the presumption that a person takes ordinary care of his concerns. The Court applied this presumption, which remained unrebutted, in concluding that the respondents made their June 6, 1994 new offer without abandoning the previous contract.

• Ynares-Santiago, J. (Chairperson)
• Austria-Martinez, J.
• Chico-Nazario, J.
• Reyes, J.