First Philippine International Bank vs. Court of Appeals

A corporation, including a bank, is bound by the acts of its officers performed within the scope of their apparent authority, and a conservator appointed under the Central Bank Act does not have the power to unilaterally repudiate a contract validly entered into by the bank's officers, as such power would violate the constitutional non-impairment clause.

First Philippine International Bank (formerly Producers Bank) acquired six parcels of land in Sta. Rosa, Laguna, through foreclosure. Demetrio Demetria and Jose Janolo sought to purchase the property. They negotiated with Mercurio Rivera, the bank's Property Management Department Manager. An exchange of letters culminated in the buyers' formal acceptance of the bank's counter-offer of P5.5 million. After the bank, under a new conservator, refused to honor the agreement, the buyers filed a suit for specific performance. During the appeal, the bank's majority shareholders filed a separate "derivative suit" to declare the sale unenforceable.

• Nature of the Action: The case originated from a complaint for specific performance filed by buyers Demetria and Janolo (later substituted by Carlos Ejercito) against First Philippine International Bank (formerly Producers Bank), its Property Management Department Manager Mercurio Rivera, and Acting Conservator Leonida Encarnacion.
• Negotiations and Perfected Contract: In August 1987, the buyers met with Rivera to express their intent to purchase the bank's 101-hectare property in Sta. Rosa, Laguna. Following Rivera's advice, the buyers submitted a formal offer of P3.5 million. On September 1, 1987, Rivera sent a letter stating the bank's counter-offer was P5.5 million. The buyers countered with P4.25 million on September 17, 1987. A meeting ensued on September 28, 1987, with Rivera and Senior Vice-President Luis Co, where the bank officials confirmed that P5.5 million was the final, committee-approved price. On September 30, 1987, the buyers sent a letter accepting the P5.5 million offer.
• Bank's Repudiation: After a new Acting Conservator, Leonida Encarnacion, took over, the bank refused the buyers' tenders of payment. On May 12, 1988, Encarnacion repudiated Rivera's authority, claiming his actions were unauthorized and illegal.
• Derivative Suit: During the appeal of the specific performance case, Henry Co and other majority shareholders filed a derivative suit seeking to declare the sale unenforceable.

• No Perfected Contract: Petitioners argued there was no meeting of the minds on the price, as Rivera's alleged counter-offer of P5.5 million was unauthorized and was extinguished by the buyers' subsequent counter-offer of P4.25 million.
• Unenforceable Contract: Petitioners contended that even if a verbal offer was made during the September 28 meeting, the resulting contract was unenforceable under the Statute of Frauds, as there was no sufficient memorandum subscribed by the bank.
• Conservator's Power: Petitioners asserted that the conservator, under Section 28-A of the Central Bank Act, has the power to overrule or revoke actions of previous management, including the alleged unauthorized acts of Rivera.
• Forum Shopping: Petitioners denied engaging in forum shopping, arguing the derivative suit was distinct from the specific performance case as the bank was a defendant in the first case and a plaintiff (through its shareholders) in the second.

• Perfected Contract: Respondent countered that a perfected contract of sale existed, evidenced by the exchange of letters and the confirmation of the P5.5 million price by authorized bank officers during the September 28 meeting.
• Apparent Authority: Respondent argued that Rivera had apparent authority to negotiate and sell the property, and the bank was estopped from denying this authority after holding him out as having such power.
• Statute of Frauds Inapplicable: Respondent maintained that the letters constituted a sufficient memorandum of the contract, and in any case, the bank waived any objection under the Statute of Frauds by failing to object to oral testimony proving the agreement.
• Conservator's Limited Power: Respondent argued that the conservator's power to revoke actions is limited to defective contracts and cannot extend to unilaterally repudiating a valid, perfected obligation, as this would violate the constitutional non-impairment clause.
• Forum Shopping Existed: Respondent contended that the derivative suit constituted forum shopping, as it involved the same parties/interests, rights, and reliefs as the specific performance case, aiming to prevent the enforcement of the sale.

• Forum Shopping: Whether the filing of the derivative suit by the bank's majority shareholders during the pendency of the specific performance case constitutes forum shopping.
• Perfection of Contract: Whether the exchange of letters and the meeting of September 28, 1987, resulted in a perfected contract of sale.
• Enforceability (Statute of Frauds): Whether the alleged contract is enforceable despite the absence of a formal deed of sale, considering the Statute of Frauds.
• Conservator's Authority: Whether the bank conservator has the unilateral power to repudiate a contract entered into by the bank's officers prior to the conservator's appointment.

• Forum Shopping: The petitioners were guilty of forum shopping. The derivative suit and the specific performance case shared identity of parties/interests (the bank being the real party in interest in both), identity of rights asserted and reliefs sought (to avoid the obligation to sell the property), and would result in conflicting judgments if both proceeded. The corporate veil could not be used to circumvent the prohibition against forum shopping.
• Perfection of Contract: A perfected contract of sale existed. The object (the property) and price (P5.5 million) were certain. Consent was established through the exchange of letters and the confirmation during the September 28 meeting. The bank was bound by Rivera's actions under the doctrine of apparent authority, as he was held out as having the power to negotiate and sell acquired assets.
• Enforceability (Statute of Frauds): The contract was enforceable. The series of letters, particularly the bank's September 1 counter-offer and the buyers' September 30 acceptance, constituted a sufficient memorandum. Furthermore, the bank waived any defense under the Statute of Frauds by failing to object to the introduction of oral testimony proving the contract during trial.
• Conservator's Authority: The conservator does not have the power to unilaterally repudiate a validly perfected contract. While Section 28-A of the Central Bank Act grants broad powers to preserve the bank's assets and restore viability, these powers cannot extend to impairing vested contractual rights, which would violate the non-impairment clause of the Constitution. The conservator's power is analogous to that of the board of directors and cannot be used to revoke a valid obligation.

• Doctrine of Apparent Authority — A principal is bound by the acts of its agent performed within the scope of the agent's apparent or ostensible authority, even if the agent exceeded their actual authority, provided the third party dealt with the agent in good faith. In this case, the bank held out Rivera as having authority to sell its acquired assets through his position, his involvement in negotiations, and the bank's advertisements, thus estopping the bank from denying his authority.
• Forum Shopping — Exists when a party files multiple actions based on the same essential facts and circumstances, seeking the same or substantially similar reliefs, such that a judgment in one action would amount to res judicata in the other. The test is the presence of litis pendentia or res judicata elements. Here, the derivative suit was filed to achieve the same objective as the bank's defense in the specific performance case—to avoid the sale.
• Waiver of Statute of Frauds Defense — Under Article 1405 of the Civil Code, a contract infringing the Statute of Frauds is ratified by the failure to object to the presentation of oral evidence to prove the same. The bank's failure to object during trial to testimony about the verbal agreement constituted a waiver of this defense.

• "The corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed to trifle with court processes..."
• "A contrary understanding of the law [granting conservator power to repudiate valid contracts] would simply not be permitted by the Constitution. Neither by common sense. 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 or come to be considered unfavorable to the Bank..."
• "To rule in favor of the Bank simply because the property in question has algebraically accelerated in price during the long period of litigation is to reward lawlessness and delays in the fulfillment of binding contracts."

• Prudential Bank vs. Court of Appeals, 223 SCRA 350 (1993) — Applied to establish the doctrine of apparent authority, particularly in the context of banks, holding that a bank is liable for the acts of its officers done within the apparent scope of their authority.
• Buan vs. Lopez, 145 SCRA 34 (1986) — Cited to define the test for forum shopping: the presence of the elements of litis pendentia or where a final judgment in one case would amount to res judicata in the other.
• Danville Maritime, Inc. vs. Commission on Audit, 175 SCRA 701 (1989) — Cited to support the finding of forum shopping where two different actions had the same ultimate objective.

• Article 1318, Civil Code — Enumerates the essential requisites of a contract: consent, object certain, and cause. Applied to find that all requisites for a perfected contract of sale were present.
• Article 1319, Civil Code — Defines consent as the meeting of the offer and acceptance. Used to analyze the exchange of letters and the September 28 meeting.
• Article 1403(2), Civil Code (Statute of Frauds) — Requires agreements for the sale of real property to be in writing. The Court found the contract enforceable despite this provision due to sufficient memoranda and waiver.
• Article 1405, Civil Code — Provides that contracts infringing the Statute of Frauds are ratified by failure to object to oral evidence. Applied to hold that the bank waived its Statute of Frauds defense.
• Section 28-A, Republic Act No. 265 (Central Bank Act) — Grants a conservator power to overrule or revoke actions of the previous management. The Court construed this power as not extending to the unilateral revocation of valid, perfected contracts.
• Section 10, Article III, 1987 Constitution (Non-Impairment Clause) — Cited as a constitutional limitation on the conservator's power, prohibiting laws (or delegated powers) that impair the obligation of contracts.

Chief Justice Andres R. Narvasa, Justices Hilario G. Davide Jr., Jose A.R. Melo, and Flerida Ruth P. Romero.

N/A — The decision was unanimous.