G.R. No. 148444 - Associated Bank vs. Spouses Pronstroller

Case Summary (G.R. No. 148444)

Factual Background: Mortgage, Foreclosure, and Title Transfers

Spouses Vaca executed a real estate mortgage (REM) in favor of petitioner on April 21, 1988 over a residential parcel in Green Meadows Subdivision, Quezon City. Due to default, the property was foreclosed and sold at public auction with petitioner as highest bidder; TCT No. 254504 (Vacas) was cancelled and TCT No. 52593 issued in petitioner’s name. The Vacas lodged an action to nullify the mortgage and foreclosure sale; petitioner sought a writ of possession, which the RTC denied but the Court of Appeals granted and which the Vacas elevated to this Court (G.R. No. 109672). While those proceedings were pending, petitioner advertised the subject property for sale.

Formation of the Agreement to Sell (March 18, 1993) and Initial Deposit

Respondents offered to buy the property for P7,500,000.00 through Atty. Soluta; petitioner accepted. Respondents paid a 10% downpayment (P750,000.00) on March 8, 1993. On March 18, 1993, petitioner (through Atty. Soluta) and respondents executed a Letter-Agreement setting price and payment terms: 10% deposit, balance of P6,750,000.00 to be deposited under escrow within 90 days, with escrow to be applied upon delivery of the property free from occupants; deposit non-interest earning and any interest from investment to belong to buyer.

Modification by July 14, 1993 Letter-Agreement

Because of the pending litigation affecting deliverability, respondents requested that full payment be deferred until a final decision of this Court confirming petitioner’s right to possess the property. The bank’s Asset Recovery and Remedial Management Committee (ARRMC) deferred action on that request. On July 14, 1993, respondents and Atty. Soluta (acting for petitioner) executed another Letter-Agreement allowing payment of the balance upon receipt of a final order from this Court and/or delivery of the property free from occupants. The July 14 letter used the same letterhead and form as the March 18 agreement and was signed by the same parties.

Corporate Reorganization, Claim of Unauthorized Extension, and Alleged Rescission

Towards late 1993 or early 1994 petitioner reorganized; Atty. Dayday assumed new documentation responsibilities and discovered respondents had not deposited the balance. ARRMC met on March 4, 1994 and disapproved respondents’ extension request, referring the matter to the Legal Department for rescission for breach. On May 5, 1994 Atty. Dayday advised respondents that petitioner rescinded the contract and forfeited the deposit, stating that Atty. Soluta lacked authority to grant the July 14 extension. Respondents presented the July 14 letter in person; petitioner maintained the letter was a mistake and that Soluta lacked authority. Respondents thereafter proposed a new payment scheme by letter dated June 6, 1994; petitioner counter-offered requiring 24.5% interest on unpaid balance and offered refund of deposit if respondents did not accept.

Subsequent Events: Final Decision in Vaca Case and Filing of Specific Performance Suit

This Court, in the Vaca matter, affirmed petitioner’s right to possess the property on July 14, 1994. On July 28, 1994 respondents filed a Complaint for Specific Performance in RTC Antipolo (Civil No. 94-3298) seeking enforcement of the July 14, 1993 Letter-Agreement. Respondents also annotated a notice of lis pendens on TCT No. 52593. During pendency, petitioner sold the subject property to the Vacas, who registered title (TCT No. 158082) and began demolishing the improvements; demolition was partially stayed by a preliminary injunction.

Trial Court Ruling: Applicability of Apparent Authority and Relief Ordered

The RTC found petitioner’s rescission null and void as contrary to law and public policy. The trial court applied the doctrine of apparent authority, concluding that Atty. Soluta had authority to grant the July 14 extension such that respondents did not incur delay. The RTC ordered petitioner to accept payment of P6,750,000.00 and deliver title and possession free of liens and encumbrances, and awarded moral damages, attorney’s fees, and litigation expenses totaling P150,000.00.

Court of Appeals Ruling: Affirmance and Additional Reasoning

The Court of Appeals affirmed the RTC, upholding Atty. Soluta’s authority and ruling that petitioner could not unilaterally rescind the contract. The CA reasoned that allowing unilateral rescission by succeeding officers or committees would permit continuous review and eventual rescission of prior officers’ valid contracts. The CA further ruled petitioner was estopped from questioning the efficacy of the July 14 agreement due to its failure to repudiate the agreement within one year.

Issues Raised in the Petition for Review

Petitioner raised multiple assignments of error, condensed into core questions: (1) whether petitioner is bound by the July 14, 1993 Letter-Agreement under apparent authority; (2) whether valid rescission of the March 18 and/or July 14 agreements occurred; (3) whether respondents were estopped from enforcing the July 14 agreement because of their June 6, 1994 new proposal; (4) whether petitioner was estopped from questioning the July 14 letter due to failure to repudiate; and (5) whether the action constituted a prohibited collateral attack on TCT No. 158082 issued in favor of the Vacas.

Supreme Court’s Treatment of Findings of Fact and Standard of Review

The Court recalled well-settled principles limiting its review in a Rule 45 petition: factual findings of the RTC as affirmed by the CA are binding unless unsupported by the record. The CA did not merely adopt RTC findings but independently analyzed records, testimonies, and documentary evidence. Petitioner failed to demonstrate that the concurrent factual findings lacked evidentiary support.

Doctrine of Apparent Authority: Application and Rationale

The Court reiterated the law on corporate authority: while the board generally holds power to bind a corporation, its officers may be vested with actual or apparent authority by law, bylaws, express delegation, habit, custom, or acquiescence. Apparent authority is established by the manner in which the corporation holds out an officer or by acquiescence in acts of a particular nature. The Court found that petitioner had previously allowed Atty. Soluta to enter into the March 18, 1993 agreement without a board resolution, thereby clothing him with apparent authority to modify those terms in the July 14 letter. The external manifestations—same letterhead and form, the same signatory, petitioner’s initial recognition of Soluta’s authority in the March 18 agreement, and deferral by the board of respondents’ extension request—supported respondents’ reliance on Soluta. The Court emphasized that third parties must rely on external manifestations and that internal board-room matters do not defeat apparent authority, particularly in bank-customer dealings.

Rescission, New Offer, and Abandonment: Court’s Analysis

The Court examined rescission provisions and the parties’ conduct. While unilateral rescission or forfeiture clauses may be valid, the later July 14 agreement modified the March 18 terms by extending the payment period; thus petitioner’s as

Case Syllabus (G.R. No. 148444)

Case Citation and Nature

Reported at 580 Phil. 104, Third Division, G.R. No. 148444, decided July 14, 2008.
Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by petitioner Associated Bank (which became Westmont Bank and is now United Overseas Bank [Phils.]).
The petition assails the Court of Appeals (CA) Decision dated February 27, 2001 (CA-G.R. CV No. 60315) affirming the Regional Trial Court (RTC), Branch 72, Antipolo, Rizal Decision dated November 14, 1997 in Civil Case No. 94-3298 for Specific Performance, and the CA Resolution dated May 31, 2001 denying petitioner’s motion for reconsideration.

Parties and Roles

Petitioner: Associated Bank (later Westmont Bank; now United Overseas Bank [Phils.]).
Respondents/Plaintiffs below: Spouses Rafael and Monaliza Pronstroller (buyers under the disputed agreements).
Other materially involved parties: Spouses Eduardo and Ma. Pilar Vaca (original mortgagors, subject property owners at time of mortgage; later reacquired the property and registered title TCT No. 158082).
Atty. Jose Soluta, Jr.: Vice-President, Corporate Secretary, and member of petitioner’s Board of Directors; signed the March 18, 1993 and July 14, 1993 letters for petitioner.
Atty. Braulio Dayday: Assistant Vice-President and Head of Documentation Section after petitioner’s reorganization; responsible for review leading to ARRMC recommendation to rescind.

Factual Background — Mortgage, Foreclosure, Initial Title Events

April 21, 1988: Spouses Vaca executed a Real Estate Mortgage (REM) in favor of petitioner over a residential parcel (953 sq. m.) and house at No. 18, Lovebird Street, Green Meadows Subdivision 1, Quezon City (the subject property).
For failure to pay, the property was sold at public auction with petitioner as highest bidder; TCT No. 254504 (in Vaca names) cancelled and new TCT No. 52593 issued in petitioner’s name.
Spouses Vaca commenced action nullifying the REM and the foreclosure sale. Petitioner sought a writ of possession from RTC (denied), obtained relief from CA, and the Vaca-Associated Bank dispute reached this Court (G.R. No. 109672), with a final resolution on July 14, 1994 (234 SCRA 146).

Factual Background — Solicitation and Offer to Purchase

During pendency of the Vaca litigation petitioner advertised the subject property for sale at P9,700,000.00.
Respondents offered to purchase for P7,500,000.00 through Atty. Jose Soluta, Jr., who acted on behalf of petitioner.
Respondents paid a 10% down payment (P750,000.00) on March 8, 1993.

The March 18, 1993 Letter-Agreement (Exhibit B)

Executed March 18, 1993 by Atty. Soluta and respondents; written on petitioner’s letterhead and signed by Atty. Soluta with respondents’ conformity.
Express terms as reflected in the records:
- Selling price: P7,500,000.00.
- Payment: 10% deposit (non-interest earning) and balance of P6,750,000.00 to be deposited under an escrow agreement.
- Escrow deposit to be made within ninety (90) days from date of the letter; escrow deposit to be applied as payment upon delivery of property free from occupants.
- Any interest earned on escrow investment is for buyer’s account.
- Clause in March 18 letter provided for forfeiture of deposit in case of buyer’s default (stipulated unilateral rescission remedy).

Pre-Expiry Request to Modify Payment Condition and July 14, 1993 Agreement

Prior to the 90-day expiration, because of the pendency of the Vaca case (and inability to deliver free from occupants), respondents requested that the balance be payable only upon service to them of a final decision of this Court affirming petitioner’s right to possess the property.
Atty. Soluta referred the request to petitioner’s Asset Recovery and Remedial Management Committee (ARRMC); the committee deferred action.
July 14, 1993: Respondents and Atty. Soluta (for petitioner) executed another Letter-Agreement on the same letterhead, of the same form and signed by the same person, allowing respondents to pay the balance upon receipt of a final order from this Court and/or delivery of the property free from occupants (hereinafter the July 14, 1993 Letter-Agreement).

Corporate Reorganization, ARRMC, and Rescission Attempts

Late 1993 / early 1994: Petitioner reorganized management. Atty. Dayday became Assistant Vice-President and Head of Documentation; Atty. Soluta relieved of responsibilities.
Atty. Dayday’s review found respondents had not deposited the balance and had requested an extension. ARRMC discussed matter on March 4, 1994 and disapproved the extension, referring matter to Legal Department for rescission/cancellation for breach.
May 5, 1994: Atty. Dayday informed respondents their extension request was disapproved, rescinded the contract, and forfeited their deposit; offered respondents to submit a new proposal if still interested.
Respondents presented the July 14, 1993 Letter-Agreement to Atty. Dayday; he contended it was a mistake and that Atty. Soluta lacked authority to grant extension.

Negotiations and New Offer by Respondents

June 6, 1994: Respondents proposed to pay P3,000,000.00 upon approval and the balance after six months.
June 9, 1994: Petitioner (President) disapproved the proposal; offered acceptance only if respondents paid interest at 24.5% per annum on unpaid balance, and allowed refund of deposit if respondents declined.
Respondents’ counsel informed petitioner they would enforce the July 14, 1993 agreement; petitioner maintained Soluta lacked authority and reiterated rescission.

Final Developments Pre-Suit and Filing

July 14, 1994: This Court (in the Vaca case) upheld petitioner’s right to possess the subject property.
July 28, 1994: Respondents filed Complaint for Specific Performance in RTC Antipolo (Civil Case No. 94-3298), prayed that petitioner be ordered to sell subject property per the July 14, 1993 letter-agreement; respondents caused annotation of a notice of lis pendens on TCT No. 52593.
During pendency of this suit, petitioner sold the subject property to spouses Vaca, who registered sale and obtained TCT No. 158082 in their names; spouses Vaca commenced demolition but demolition was halted by a writ of preliminary injunction issued by court.

Trial Court Disposition (RTC, Nov. 14, 1997)

Trial court found petitioner’s rescission of the Agreement to Sell null and void as contrary to law and public policy.
Ordered petitioner to accept respondents’ payment of the balance (P6,750,000.00) and to deliver title and possession of the subject property free from liens and encumbrances upon receipt of said payment.
Awarded moral damages and attorney’s fees of P130,000.00 and litigation expenses of P20,000.00 to respondents.
Trial court applied the doctrine of apparent authority to uphold validity of July 14, 1993 Letter-Agreement and concluded respondents did not incur delay; rescission was without basis.

Court of Appeals Disposition (Feb. 27, 2001) — Affirmation and Additional Orders

CA affirmed RTC decision and upheld Atty. Soluta’s authority to represent petitioner und