First Philippine International Bank vs. Court of Appeals

A bank conservator appointed under Section 28-A of the Central Bank Act (Republic Act No. 265) does not possess the unilateral power to repudiate or revoke a perfected and valid contract of sale entered into by bank officers acting within the scope of their apparent authority; such power is limited to contracts that are void, voidable, unenforceable, or rescissible under existing law, and any broader interpretation would violate the constitutional prohibition against the impairment of contractual obligations.

Producers Bank of the Philippines (later First Philippine International Bank) acquired six parcels of land totaling approximately 101 hectares in Don Jose, Sta. Rosa, Laguna through foreclosure from BYME Investment and Development Corporation. Since 1984, the bank had been under conservatorship by the Central Bank of the Philippines. The property was managed by the bank's Property Management Department headed by Mercurio Rivera.

• In August 1987, Demetrio Demetria and Jose Janolo initiated negotiations to purchase six parcels of land (101 hectares) in Sta. Rosa, Laguna from Producers Bank, which had acquired the property through foreclosure from BYME Investment and Development Corporation.
• On August 30, 1987, Janolo sent a formal letter to Mercurio Rivera, Manager of the Property Management Department, offering to buy the property for P3.5 million in cash.
• On September 1, 1987, Rivera replied with a letter stating that "the bank's counter-offer is at P5.5 million for more than 101 hectares on lot basis."
• On September 17, 1987, Janolo sent a revised offer of P4.25 million in cash.
• On September 28, 1987, a meeting was held between the buyers (Demetria and Janolo), Rivera, and Luis Co (Senior Vice-President of the bank and head of the Past Due Committee), during which Co confirmed that P5.5 million was the final price approved by the Committee and could not be lowered.
• On September 30, 1987, Janolo sent a letter accepting the P5.5 million offer, referencing the September 28 meeting.
• On October 12, 1987, Leonida T. Encarnacion replaced Rodolfo Romey as Acting Conservator of the bank.
• On November 4, 1987, Rivera informed Demetria that the proposal was under study by a newly created committee for submission to the Acting Conservator.
• On November 17, 1987, plaintiffs tendered payment of P5.5 million through a letter to Rivera, which the bank refused to receive.
• On December 14, 1987, plaintiffs made a second tender of payment directly to Acting Conservator Encarnacion via manager's check, which drew no response for over four months.
• On May 12, 1988, Encarnacion sent a letter repudiating Rivera's authority and claiming his dealings were unauthorized or illegal.
• On May 16, 1988, plaintiffs filed a suit for specific performance with damages in the Regional Trial Court of Makati.
• On March 14, 1991, Henry L. Co (owner of 80% of the bank's shares) filed a motion to intervene in the RTC, which was denied on July 8, 1991.
• On July 10, 1991, the RTC rendered judgment declaring the existence of a perfected contract and ordering the bank to execute a deed of sale.
• Carlos Ejercito was substituted as plaintiff in place of Demetria and Janolo, having been assigned their rights in the litigation.

• There was no perfected contract of sale because Rivera lacked actual authority to make binding offers or counter-offers on behalf of the bank, and the P5.5 million counter-offer was allegedly extinguished by the subsequent P4.25 million offer from the buyers.
• Even assuming there was a contract, it was unenforceable under the Statute of Frauds because there was no single written document signed by the bank evidencing the sale.
• The Central Bank-appointed conservator had the power under Section 28-A of Republic Act No. 265 to overrule or revoke actions of the previous management and board of directors, including the alleged contract of sale.
• The Court of Appeals committed reversible errors of fact in finding that the P5.5 million price was approved by the Past Due Committee and that the September 28, 1987 meeting confirmed the final price rather than initiated new negotiations.

• A perfected contract of sale existed through the apparent authority of Rivera as Manager of the Property Management Department, evidenced by the exchange of letters and the meeting of minds on September 28, 1987, confirmed by the acceptance letter of September 30, 1987.
• The contract was enforceable as the series of letters constituted a sufficient memorandum under the Statute of Frauds, and any defects were waived by the petitioners' failure to object to oral testimony proving the contract.
• The conservator's power to revoke under the Central Bank Act is limited to void, voidable, unenforceable, or rescissible contracts; it does not extend to valid perfected contracts, as this would violate the constitutional prohibition against impairment of contractual obligations.
• The filing of the derivative suit by majority stockholders while the specific performance case was pending constituted forum shopping, as it involved the same parties (stockholders representing the bank), same rights, and same reliefs.

• Procedural Issues:
  • Whether petitioners engaged in forum shopping by filing a derivative suit in the Regional Trial Court while the specific performance case was pending in the Court of Appeals.
  • Whether issues regarding the extinguishment of the offer and the conservator's power to revoke perfected contracts could be raised for the first time on appeal.
• Substantive Issues:
  • Whether there was a perfected contract of sale between the parties based on the apparent authority of the bank officer.
  • Whether the perfected contract was enforceable under the Statute of Frauds.
  • Whether the conservator had the unilateral power to repudiate the authority of bank officers and/or revoke the perfected contract of sale.

• Procedural:
  • The Supreme Court found that forum shopping existed. The derivative suit filed by majority stockholders (Henry Co, et al.) involved the same parties (the stockholders, as nominal plaintiffs, represented the same interest as the bank corporation), the same rights (avoidance of the contractual obligation to sell), and the same reliefs (preventing enforcement of the sale) as the defense interposed by the bank in the specific performance case. The Court pierced the corporate veil to prevent the use of the derivative suit as a shield to circumvent the prohibition against forum shopping. Both cases were dismissed with prejudice.
  • The Court held that issues regarding the extinguishment of the P5.5 million offer by the P4.25 million counter-offer, and the scope of the conservator's powers under the Central Bank Act, were raised for the first time on appeal and could not be entertained without violating basic rules of fair play, justice, and due process.
• Substantive:
  • The Court affirmed the existence of a perfected contract of sale. Rivera, as Manager of the Property Management Department, possessed apparent authority to negotiate and accept offers for the sale of acquired assets, as evidenced by his position, the bank's advertisements, and his conduct in handling the negotiations. The exchange of letters and the September 28, 1987 meeting demonstrated a meeting of the minds on the price of P5.5 million, which was accepted unconditionally on September 30, 1987.
  • The contract was enforceable. The series of letters exchanged between the parties constituted a sufficient memorandum satisfying the Statute of Frauds under Article 1403(2) of the Civil Code, as they identified the parties, object, and price. Additionally, petitioners waived any defects under the Statute of Frauds by failing to object to oral testimony regarding the contract, pursuant to Article 1405 of the Civil Code.
  • The conservator had no power to unilaterally revoke the perfected contract. Section 28-A of Republic Act No. 265 (Central Bank Act) grants the conservator power to "overrule or revoke" only those acts of the previous management that are void, voidable, unenforceable, or rescissible under existing law. The power does not extend to valid contracts, as this would violate the non-impairment clause of the Constitution (Section 10, Article III). The conservator's authority is limited to bringing court actions to assail such contracts.

• Apparent Authority (Ostensible Authority) — A corporation is bound by the acts of its officers performed within the scope of their apparent authority. If a corporation knowingly permits an officer to act in a manner suggesting authority, or holds him out as possessing such power, it is estopped from denying that authority to innocent third parties who dealt in good faith. Applied to hold the bank liable for the acts of Rivera as Manager of the Property Management Department.
• Forum Shopping — Exists where there is identity of parties or interests represented, identity of rights asserted, and identity of reliefs sought, such that a final judgment in one case would constitute res judicata in the other. The filing of multiple suits to secure a favorable judgment or harass the opponent is prohibited and warrants dismissal with prejudice.
• Piercing the Corporate Veil — The separate corporate personality may be disregarded where it is used as a shield to perpetrate fraud, circumvent statutes, evade obligations, or circumvent procedural rules such as those against forum shopping. Applied to prevent majority stockholders from using a derivative suit to avoid the effect of the specific performance judgment.
• Statute of Frauds — Contracts for the sale of real property must be in writing or evidenced by some note or memorandum. The requirement may be satisfied by a series of letters or communications showing the terms of the agreement. Defects are waived by failure to object to oral evidence or by acceptance of benefits.
• Non-Impairment of Contracts — Neither the legislature nor its delegate (such as a conservator) may revoke an existing valid contract. The conservator's power under the Central Bank Act cannot be interpreted to allow the unilateral revocation of valid perfected contracts.

• "A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom."
• "If the legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator under Section 28-A of said law?"
• "To rule otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one way or another come to be considered unfavorable to the Bank."
• "When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes... the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted."
• "There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) in another."

• Prudential Bank v. Court of Appeals — Cited for the doctrine of apparent authority as applied to banking institutions, holding that banks are liable for wrongful acts of officers done in the interests of the bank or in the course of dealings in their representative capacity.
• Limketkai Sons Milling, Inc. v. Court of Appeals — Affirmed the doctrine of apparent authority of bank officers in charge of acquired assets.
• Buan v. Lopez — Established the test for forum shopping requiring identity of parties, rights asserted, and reliefs sought.
• Danville Maritime, Inc. v. Commission on Audit — Held that forum shopping exists when two actions have the same ultimate objective despite different wording or reliefs prayed for.
• Palm Avenue Realty Development Corp. v. PCGG — Discussed forum shopping as the filing of multiple actions based on essentially the same facts and issues.
• Villa-Rey Transit, Inc. v. Ferrer — Established the doctrine on piercing the corporate veil when the fiction is used to evade obligations or circumvent statutes.
• Francisco v. GSIS — Cited for the doctrine of ostensible authority.

• Article 1318, Civil Code — Enumerates the requisites of a valid contract (consent, object certain, cause).
• Article 1319, Civil Code — Provides that consent is manifested by the meeting of offer and acceptance upon the thing and cause.
• Article 1403(2), Civil Code — Statute of Frauds provision requiring contracts for the sale of real property to be in writing or evidenced by a note or memorandum.
• Article 1405, Civil Code — Provides that defects under the Statute of Frauds are ratified by failure to object to oral evidence or by acceptance of benefits.
• Section 28-A, Republic Act No. 265 (Central Bank Act) — Grants the conservator power to take charge of assets and liabilities, collect debts, and "overrule or revoke the actions of the previous management and board of directors."
• Section 10, Article III, Constitution — Non-impairment of contracts clause.
• Section 23 and 36, Batas Pambansa Blg. 68 (Corporation Code) — Provisions regarding the authority of the Board of Directors to bind the corporation.