Associated Bank Versus Pronstroller

CORPORATION LAW: Doctrine of Apparent Authority ASSOCIATED BANK (now UNITED OVERSEAS BANK [PHILS.]), petitioner versus SPOUSES RAFAEL and MONALIZA PRONSTROLLER, respondents G.R. No. 148444, July 14, 2008 NACHURA, J.: FACTS On April 21, 1988, the spouses Eduardo and Ma. Pilar Vaca (spouses Vaca) executed a Real Estate Mortgage (REM) in favor of the petitioner over their parcel of residential land located at Quezon City. For failure of the spouses Vaca to pay their obligation, the subject property was sold at public auction with the petitioner as the highest bidder. The spouses Vaca, however, commenced an action for the nullification of the real estate mortgage and the foreclosure sale. During the pendency of the aforesaid cases, Respondents Rafael and Monaliza Pronstroller offered to purchase the property for P7,500,000.00. Said offer was made through Atty. Jose Soluta, Jr. (Atty. Soluta), petitioner’s Vice-President, Corporate Secretary and a member of its Board of Directors. Petitioner accepted respondents’ offer of P7.5 million. Consequently, respondents paid petitioner P750,000.00, or 10% of the purchase price, as down payment. On March 18, 1993, petitioner, through Atty. Soluta, and respondents, executed a Letter-Agreement setting forth therein that respondents shall, within 90 days, deposit the balance of P6,750,000.00 under an escrow agreement.. On July 14, 1993, respondents and Atty. Soluta, acting for the petitioner, executed another Letter-Agreement allowing the former to pay the balance of the purchase price upon receipt of a final order from this Court (in the Vaca case) and/or the delivery of the property to them free from occupants. In early 1994, Atty. Braulio Dayday (Atty. Dayday) became petitioner’s Assistant Vice-President and Head of the Documentation Section, while Atty. Soluta was relieved of his responsibilities. Atty. Dayday reviewed petitioner’s records of its outstanding accounts and discovered that respondents failed to deposit the balance of the purchase price of the subject property. He, likewise, found that respondents requested for an extension of time within which to pay. The said request was disapproved by Asset Recovery and Remedial Management Committee (ARRMC) on March 4, 1994 and invoked the rescission or cancellation of the contract due to respondents’ breach thereof. Respondents went to the petitioner’s office, talked to Atty. Dayday and gave him the Letter-Agreement of July 14, 1993 to show that they were granted an extension. However, Atty. Dayday claimed that the letter was a mistake and that Atty. Soluta was not authorized to give such extension. On June 6, 1994, respondents proposed to pay the balance of the purchase price as follows: P3,000,000.00 upon the approval of their proposal and the balance after six (6) months. However, the proposal was disapproved by the petitioner’s President. For failure of the parties to reach an agreement, respondents, through their counsel, informed petitioner that they would be enforcing their agreement dated July 14, 1993. Petitioner countered that it was not aware of the existence of the July 14 agreement and that Atty. Soluta was not authorized to sign for and on behalf of the bank. It, likewise, reiterated the rescission of their previous agreement because of the breach committed by respondents.

On July 28, 1994, respondents commenced the instant suit by filing a Complaint for Specific Performance before the RTC of Antipolo, Rizal. Respondents prayed that petitioner be ordered to sell the subject property to them in accordance with their letter-agreement of July 14, 1993. For its part, petitioner contended that their contract had already been rescinded because of respondents’ failure to deposit in escrow the balance of the purchase price within the stipulated period. On November 14, 1997, the trial court finally resolved the matter in favor of respondents. On appeal, the CA affirmed the RTC decision and upheld Atty. Soluta’s authority to represent the petitioner. Petitioner’s motion for reconsideration was denied on May 31, 2001. Hence, the present petition. ISSUE Whether or not the petitioner is bound by the July 14, 1993 Letter-Agreement signed by Atty. Soluta under the doctrine of apparent authority? RULING: The petition is unmeritorious. RATIO DECIDENDI 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. The power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board of directors. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board may validly delegate some of its functions and powers to officers, committees and agents. 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. The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. The doctrine of “apparent authority,” with special reference to banks, had long been recognized in this jurisdiction. 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. Accordingly, the authority to act for and to 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. Undoubtedly, 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. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation. Naturally, the third person has little or no information as to what occurs in corporate meetings; and he 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, petitioner may not impute negligence on the part of the respondents in failing to find out the scope of Atty. Soluta’s authority. Indeed, the public has the right to rely on the trustworthiness of bank officers and their acts. It was only after one year and after the bank’s reorganization that the board rejected respondents’ request. We cannot therefore blame the respondents in relying on the July 14, 1993 Letter-Agreement. Petitioner’s inaction, coupled with the apparent authority of Atty. Soluta to act on behalf of the corporation, validates the July 14 agreement and thus binds the corporation. 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.