Rural Bank of Milaor vs. Francisca Ocfemia

When a corporation knowingly permits its officer or agent to act within the scope of apparent authority, thereby holding him out to the public as possessing power to perform such acts, the corporation is estopped from denying the agent's authority as against any person who has in good faith dealt with it through such agent; consequently, the corporation may be compelled by mandamus to perform necessary ministerial acts, such as issuing a board resolution, to confirm the transaction and enable the buyers to register the property.

The spouses Felicisimo and Juanita Ocfemia mortgaged seven parcels of land to the Rural Bank of Milaor. Upon their default, the mortgage was foreclosed, and ownership of the properties was transferred to the bank. In the normal course of business, bank managers routinely handle the disposition of acquired assets. In January 1988, the bank manager executed a deed of sale covering five of these parcels in favor of the spouses' son, Renato Ocfemia. The buyers took possession and paid real estate taxes, but years later, when the heirs sought to register the sale, the bank refused to issue the required board resolution, claiming the manager lacked express authority and that no records of the sale existed.

• Spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia mortgaged seven parcels of land located in Bombon, Camarines Sur to the Rural Bank of Milaor to secure a loan obligation.
• The spouses defaulted on the mortgage, leading to extrajudicial foreclosure and the subsequent transfer of ownership of the seven parcels to the bank.
• In January 1988, Fe S. Tena, then manager of the petitioner bank, executed a Deed of Sale (Exhibits C, C-1, C-2) in favor of Renato Ocfemia (son of the mortgagors) covering five of the foreclosed parcels of land.
• Renato Ocfemia died on July 23, 1994. His heirs (herein respondents), including his widow Francisca Ocfemia and their children, continued possession of the properties and paid real estate taxes thereon.
• In 1995, Marife O. Niño (daughter of Renato) attempted to register the Deed of Sale with the Register of Deeds of Camarines Sur to have the five parcels transferred to the names of the heirs.
• The Register of Deeds refused registration without a board resolution from the bank confirming the sale and the authority of the manager to execute the deed.
• Marife Niño requested the board resolution from the bank but was met with various excuses: the bank had a new manager, no records of the sale existed, and she was asked to submit additional documents including copies of the deed, receipts, and authority from co-heirs.
• After complying with all requests, the bank still refused to issue the resolution, initially stating it would study the matter, and later categorically stating it could not issue the resolution due to lack of records from the old manager.
• Respondents' lawyer sent letters to the bank (December 22, 1995 and January 23, 1996) demanding the resolution; the bank responded by requesting further documentation but ultimately maintained its refusal.
• The refusal prevented respondents from mortgaging the property to raise funds for the medical expenses of their ailing mother, Francisca Ocfemia, who suffered from serious arthritis and pulmonary disease, causing the family mental anguish and sleepless nights.

• The RTC lacked jurisdiction because the action involved title to real property with a total assessed value of less than P20,000.00, which under Republic Act No. 7691 should have been filed with the Metropolitan Trial Court, Municipal Trial Court, or Municipal Circuit Trial Court.
• The bank manager (Fe S. Tena) had no prior express authority from the board of directors to execute the Deed of Sale; therefore, the board cannot be compelled to confirm an unauthorized transaction.
• The bank claimed lack of records regarding the sale and questioned the validity of the transaction due to the absence of prior board approval, arguing that corporate powers are exercised by the board of directors under Section 23 of the Corporation Code.

• The action is for mandamus to compel the performance of a ministerial duty, not a dispute over title to real property; hence, it is within the original jurisdiction of the RTC pursuant to Section 21 of Batas Pambansa Blg. 129.
• The bank is estopped from denying the authority of its manager because, by its acts and failure to act (such as allowing the manager to transact business, acknowledging her authority in previous transactions, and failing to deny the deed's genuineness under oath), it clothed her with apparent authority to sell foreclosed assets in the normal course of business.
• Under Rule 8, Sections 7 and 8 of the Rules of Court, the bank's failure to file an answer and specifically deny under oath the due execution of the Deed of Sale constituted an admission of the manager's authority.
• The bank has a clear legal duty to confirm the sale to enable respondents to enjoy the benefits of the contract and register the property, and mandamus lies to compel the performance of this duty.

• Procedural Issues:
  • Whether the Regional Trial Court had original jurisdiction over the action for mandamus involving real property with an assessed value of less than P20,000.00, or whether jurisdiction properly lay with the municipal trial courts under Republic Act No. 7691.
• Substantive Issues:
  • Whether the board of directors of a rural banking corporation may be compelled by mandamus to confirm a Deed of Absolute Sale of real property executed by the bank manager without prior express authority from the board, and whether the doctrine of apparent authority and estoppel applies to bind the corporation.

• Procedural: The Supreme Court held that the RTC had jurisdiction. Jurisdiction is determined by the allegations of the complaint, not the defenses raised. The petition sought to compel the issuance of a board resolution—a ministerial act—not to adjudicate title to the property or recover possession. An action for mandamus falls under Section 21 of Batas Pambansa Blg. 129, granting RTCs original jurisdiction over special civil actions for mandamus.
• Substantive: The Court ruled that the bank manager had apparent authority to execute the sale. The bank, by its acts and failure to act (including allowing the manager to transact business on its behalf, acknowledging her authority in previous transactions, and failing to specifically deny the deed's genuineness under oath as required by Rule 8), clothed the manager with apparent authority. Under the doctrine of estoppel, the bank cannot now deny the manager's authority as against innocent third persons who dealt in good faith. The bank has a legal duty to confirm the transaction by issuing the required board resolution to enable registration, and its unjustified refusal warrants the issuance of the writ of mandamus and the award of damages.

• Apparent Authority/Ostensible Authority — Authority that a reasonably prudent person, knowing the facts and the course of business observed by the corporation, would naturally suppose the agent to possess. The corporation is bound by the acts of its agent within the scope of such apparent authority. In this case, the bank's course of business, its failure to object to the manager's previous acts, and its admission of the deed's execution estopped it from denying the manager's authority to sell foreclosed assets.
• Estoppel — A corporation that knowingly permits its officer or agent to act within the scope of apparent authority, holding him out to the public as possessing such power, is estopped from denying such authority as against innocent third persons dealing in good faith. The bank is estopped from questioning the sale after allowing the manager to act and failing to protect its title or possession for years.
• Admission by Failure to Specifically Deny (Rule 8, Sections 7 and 8, Rules of Court) — When an action or defense is based on a written instrument, the genuineness and due execution of which are deemed admitted unless the adverse party specifically denies them under oath. The bank's failure to file an answer and specifically deny the Deed of Sale resulted in an admission of the manager's authority to execute it.
• Mandamus — A writ available to compel a board of directors to perform a ministerial duty (such as issuing a board resolution to confirm a valid sale) which they are legally obligated to perform but unjustifiably refuse to do.
• Ultra Vires vs. Unauthorized Acts (Corporation Code, Section 45) — As clarified in the concurring opinion, acts outside corporate powers (ultra vires) are void and cannot be ratified, whereas unauthorized acts of officers within corporate powers are merely unenforceable or voidable (if the third party knew of the lack of authority) and are susceptible to ratification or confirmation.

• "When a bank, by its acts and failure to act, has clearly clothed its manager with apparent authority to sell an acquired asset in the normal course of business, it is legally obliged to confirm the transaction by issuing a board resolution to enable the buyers to register the property in their names."
• "Corporate transactions would speedily come to a standstill were every person dealing with a corporation held duty-bound to disbelieve every act of its responsible officers, no matter how regular they should appear on their face."
• "If a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority."

• Board of Liquidators v. Kalaw — Cited for the principle that where similar acts have been approved by directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors.
• Francisco v. GSIS — Cited for the doctrine of estoppel regarding apparent authority of corporate agents and the integrity of commercial transactions.
• First Philippine International Bank v. Court of Appeals — Cited for the rule that a bank is liable to innocent third persons where representation is made in the course of its normal business by an agent acting within apparent authority.
• Imperial Textile Mills, Inc. v. Court of Appeals — Cited for the rule that failure to specifically deny under oath the due execution of a written instrument constitutes an admission of its genuineness.
• Ramirez v. Orientalist Co. — Cited for the principle that the integrity of commercial transactions requires holding corporations strictly to liabilities fixed by their agents acting with apparent authority.
• Santiago v. Guingona, Bernate v. CA, Sandel v. CA — Cited for the rule that jurisdiction is determined by the allegations of the complaint.

• Batas Pambansa Blg. 129, Section 21 — Grants Regional Trial Courts original jurisdiction over special civil actions for mandamus, prohibition, certiorari, and other writs.
• Republic Act No. 7691 — Discussed regarding the expanded jurisdiction of municipal trial courts over real property cases, but held inapplicable because the action was for mandamus, not title recovery.
• Rules of Court, Rule 8, Sections 7 and 8 — Regarding the requirement to specifically deny under oath the genuineness and due execution of written instruments; failure to do so constitutes an admission.
• Corporation Code, Section 23 — Provides that corporate powers are exercised, all business conducted, and all property of corporations controlled and held by the Board of Directors.
• Corporation Code, Section 45 — Defines ultra vires acts as those outside the powers conferred by the Code or articles of incorporation.
• Civil Code, Article 5 — Acts executed against the provisions of mandatory or prohibitory laws shall be void.
• Civil Code, Article 1403 — Unenforceable contracts include those entered into in the name of another by one who has no authority or who acted beyond his powers.
• Civil Code, Article 1898 — If an agent contracts in the name of the principal exceeding the scope of his authority, and the principal does not ratify, the contract shall be void if the party with whom the agent contracted is aware of the limits of the powers granted.

• Justice Vitug — Clarified the distinction between ultra vires acts of the corporation itself (which are void and not susceptible to ratification) and unauthorized acts of corporate officers (which are unenforceable or voidable but susceptible to ratification). He emphasized that apparent authority can bind the corporation through estoppel, and that the Civil Code provisions on agency and contracts are suppletory to the Corporation Code.