Associated Bank V SPS Pronstroller

ASSOCIATED BANK (now UNITED OVERSEAS BANK [PHILS.
]), Petitioner,
vs.
SPOUSES RAFAEL and MONALIZA PRONSTROLLER, Respondents.
G.R. No. 148444 July 14, 2008
FACTS:
- Spouses Eduardo and Ma. Pilar Vaca executed a Real Estate Mortgage (REM) in favor of the
petitioner5 over their parcel of residential land 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. Petitioner, on the other hand, filed a petition for the issuance of a writ of possession
which was denied by the RTC. Petitioner, thereafter, obtained a favorable judgment when the CA granted
its petition but the spouses Vaca questioned the CA decision before this Court in the case docketed as
G.R. No. 109672. During the pendency of the aforesaid cases, petitioner advertised the subject property
for sale to interested buyers. Respondents Rafael and Monaliza Pronstroller offered to purchase the
property. Petitioner, through Atty. Soluta, and respondents, executed a Letter-Agreement setting forth
therein the terms and conditions of the sale.
- For failure of the parties to reach an agreement, respondents, through their counsel, informed petitioner
that they would be enforcing their agreement. 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. In the Vaca case, this Court upheld petitioner’s right to possess the subject property.
- Respondents commenced the instant suit by filing a Complaint for Specific Performance before the RTC.
During the pendency of the case, petitioner sold the subject property to the spouses Vaca, who eventually
registered the sale; and on the basis thereof, TCT No. 52593 was cancelled and TCT No. 158082 was issued
in their names.24 As new owners, the spouses Vaca started demolishing the house on the subject property
which, however, was not completed by virtue of the writ of preliminary injunction issued by the court.
ISSUE: WON the petitioner is bound by the Letter-Agreement signed by Atty. Soluta under the doctrine of apparent
authority?
RULING: 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, 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.
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. 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. As early as June 1993, or prior to the 90-day period within
which to make the full payment, respondents already requested a modification of the earlier agreement such that
the full payment should be made upon receipt of this Court’s decision confirming petitioner’s right to the subject
property. The matter was brought to the petitioner’s attention and was in fact discussed by the members of the
Board. Instead of acting on said request (considering that the 90-day period was about to expire), the board
deferred action on the request. 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. All these taken together, lead to no
other conclusion than that the petitioner attempted to defraud the respondents. This is bolstered by the fact that
it forged another contract involving the same property, with another buyer, the spouses Vaca, notwithstanding the
pendency of the instant case.
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.

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ASSOCIATED BANK (now UNITED OVERSEAS BANK [PHILS.

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