G.R. No. 208845 - Spouses Manas vs. Nicolasora

Petitioner Games and Garments Developers, Inc. (GGDI) owned a parcel of land in Bayanan, Muntinlupa, covered by Transfer Certificate of Title (TCT) No. 205965.
Spouses Bienvenida and Benedicto Pantaleon (the spouses Pantaleon) agreed to purchase the property from GGDI.
The purchase price was P14,000,000 payable to GGDI, P4,000,000 to the Cosay Family (previous owner), and P1,000,000 as attorney’s fees to GGDI’s VP-Legal and counsel, Atty. Cesar M. Lao.

P6,000,000 due upon signing to GGDI by managers/cashiers check drawn against Allied Bank, Pasong Tamo Branch; balance of P8,000,000 plus 18% interest to be paid within 90 days by postdated check guaranteed by Allied Bank.
P3,000,000 to Cosay Family on signing, balance of P1,000,000 within 90 days likewise guaranteed by Allied Bank.
P1,000,000 with 18% interest to attorney Atty. Lao, guaranteed by Allied Bank.

Upon receipt of payments, GGDI to submit Deed of Sale to Allied Bank.
Failure to pay balance results in cancellation of sale, with amounts received forfeited as liquidated damages.

Letter of Guaranty by Allied Bank Branch Manager Ernesto Mercado dated August 22, 1996

Mercado confirmed the spouses Pantaleon had an approved loan of P11,000,000 with Allied Bank, proceeds to be partially applied to the purchase price.
Mercado guaranteed direct payment of P8,360,000 to GGDI by November 21, 1996, upon transfer of TCT to Bienvenida’s name, with an irrevocable guaranty.

P3,000,000 on signing;
Balance of P8,000,000 plus 18% interest due in 90 days by postdated check guaranteed by Allied Bank.

Provisions stated failure to pay balance results in cancellation of sale and forfeiture of payments.
On the same day, TCT No. 205965 cancelled; new TCT No. 206877 issued to Bienvenida; a Real Estate Mortgage executed in favor of Allied Bank for P14,000,000.

Despite the letter of guaranty, Allied Bank released loan proceeds to the spouses Pantaleon on August 23, 1996, not directly to GGDI.
GGDI demanded payment under the guaranty letters several times (November 21 and December 11, 1996).
Partial payment of P1,000,000 was made by the spouses Pantaleon in January 1997. Postdated checks for balance dated March 28, 1997, were dishonored due to insufficient funds.
Mercado issued a second letter of guaranty dated January 27, 1997, guaranteeing payment of P7,802,340 to GGDI by March 28, 1997.

GGDI filed Complaint for Breach of Contract and Damages on April 15, 1998 against the spouses Pantaleon, Mercado, and Allied Bank.
The RTC granted writ of preliminary attachment on spouses Pantaleon’s properties.
Allied Bank denied liability, claiming no authority granted to Mercado to issue guaranty letters due to Section 74 of the General Banking Act prohibiting banks from entering contracts of guaranty.
Allied Bank claimed to be an innocent mortgagee for value after foreclosing the mortgage and purchasing the property at auction for P21,006,000.
Spouses Pantaleon claimed they had paid P6,000,000 partial payment and that their obligation was extinguished by the bank’s guaranty.
GGDI argued letters of guaranty were binding and Allied Bank acted in bad faith.
Trial ensued with testimony from GGDI’s President and documentary evidence; spouses Pantaleon presented no evidence.

RTC ruled in favor of GGDI, ordering spouses Pantaleon and Allied Bank jointly liable to pay balance of purchase price plus damages and attorney’s fees; Deed of Sale, TCT, mortgage, and subsequent transfer to Allied Bank declared null and void if payment not made in 30 days.
Allied Bank appealed to the Court of Appeals (CA).
CA partly granted the appeal, dismissing complaint against Allied Bank on ground of no privity of contract and prohibitions under Section 74 on banks issuing guaranties.
CA declared sale, mortgage foreclosures valid and barred collateral attacks on titles; rejected Allied Bank’s damages claims.
GGDI filed a Petition for Review.

Whether Allied Bank can be held liable despite no privity in the Memorandum of Agreement and Deed of Sale.
Whether the letters of guaranty issued by Mercado constituted contracts of guaranty prohibited by Section 74 of the General Banking Act.
Whether Mercado had authority as Branch Manager to issue the letters of guaranty on behalf of Allied Bank.
Whether Allied Bank is estopped or bound by the doctrine of apparent authority from denying Mercado’s authority.
Whether Allied Bank acted in bad faith as a mortgagee in foreclosing the property despite the pending case.
Whether GGDI is entitled to rescission of sale, damages, and attorney’s fees from spouses Pantaleon and Allied Bank.
Whether the Court of Appeals erred in dismissing Allied Bank’s liability and in restricting rescission and damages.
Proper computation and fixing of the purchase price and balance owed by spouses Pantaleon.