Associated Bank Vs Sps Pron Stroller

Associated Bank (United Overseas Bank [Phils.] v. Spouses Pronstroller (July 14, 2008) Subjects: Agency and Partnership, Torts and Damages Facts: In 1988, the spouses Vaca executed a real estate mortgage in favor of petitioner bank over their parcel of land in 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. TCT was issued to petitioner. The spouses Vaca however commenced an action for the nullification of the real estate mortgage and the foreclosure sale. Petitioner filed a petition for a writ of possession. The cases reached the SC, which eventually decided that the petitioner has a right to possess the property. During their pendency however, the petitioner advertised the property for sale. The spouses Pronstroller offered to purchase the property. Said offer was made through Atty. Soluta, Jr., the bank’s VP, Corporate Secretary and a member of its Board of Directors. Respondents paid P750th or 10% of the purchase price. Petitioner, through Atty. Soluta, and respondents executed a Letter-Agreement containing the terms and conditions of the sale. One of the terms was that the Pronstrollers have to make 10% deposit and balance of P6.75M to be deposited under escrow agreement. This was modified by another letter-agreement which allowed the spouses to pay the balance of the purchase price after the SC resolution of the cases. By the end of 1993, petitioner reorganized its management and the new management discovered that the spouses failed to pay the balance of the purchase price. The bank then rescinded the sale and suggested that spouses come up with a new proposal. The parties failed to reach an agreement and the spouses informed the bank that they would be enforcing their second Letter-Agreement. Petitioner countered that it was not aware of the existence of such agreement and Atty. Soluta was not authorized to represent the bank. Respondents commenced the suit for specific performance. During the pendency of this case, the bank sold the property to spouses Vaca. Trial court ruled in favor of the respondents and applied the doctrine of “apparent authority”. CA upheld the RTC decision. Hence, this petition for review on certiorari. Issue: 1) WON the petitioner is bound by the letter-agreement signed by Atty. Soluta under the doctrine of apparent authority Held: Yes. 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, 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 by-laws 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 on 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 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. The bank had previously allowed Atty. Soluta to enter into the first agreement without a board resolution; 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 to rely upon the external manifestations of corporate consent. The public has to rely on the trustworthiness of bank officers and their acts. Issue: 2) WON the bank is liable for moral damages Held: Yes. Art. 2209 of the NCC allows the recovery of moral damages in breaches of contract where the party acted fraudulently and in bad faith. As found by the CA, petitioner undoubtedly acted fraudulently and in bad faith in breaching the letteragreements. Despite the pendency of the case in the RTC, it sold the subject property to spouses Vaca. This is apart from its act of unilaterally rescinding the subject contract. Clearly, petitioner’s acts are brazen attempts to frustrate the decision that the court may render in favor of respondents. It is likewise apparent that because of petitioner’s acts, respondents were compelled to litigate justifying the award of attorney’s fees and expenses of litigation.