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

Case Summary (G.R. No. 148444)

Factual Background

The spouses Eduardo and Ma. Pilar Vaca executed a Real Estate Mortgage in favor of petitioner over a 953-square-meter residential lot and improvements located at No. 18, Lovebird Street, Green Meadows Subdivision 1, Quezon City. For failure to pay, the property was foreclosed and sold at public auction with petitioner as highest bidder; TCT No. 254504 was cancelled and TCT No. 52593 was issued in petitioner's name. The spouses Vaca litigated the nullification of the mortgage and the foreclosure sale, and petitioner sought writs of possession which produced conflicting results before the RTC, CA, and ultimately this Court in G.R. No. 109672.

Negotiation and Contractual Agreements

While litigation over title and possession was pending, petitioner advertised the property for sale at P9,700,000. Respondents offered P7,500,000 through Atty. Soluta, who was petitioner’s Vice-President, Corporate Secretary, and a director, and paid P750,000 as a 10% deposit on March 8, 1993. On March 18, 1993 petitioner, through Atty. Soluta, and respondents executed a Letter-Agreement setting P7,500,000 as the selling price, with the P6,750,000 balance to be deposited in escrow within ninety days and the deposit forfeitable in case of buyer default. Prior to the lapse of the ninety-day period and amid the pendency of the Vaca litigation, respondents sought that the balance be payable only upon a final favorable resolution by this Court or delivery of possession free of occupants. The request was referred to petitioner’s Asset Recovery and Remedial Management Committee (ARRMC), which deferred action. On July 14, 1993 respondents and Atty. Soluta executed a second 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.

Petitioner’s Internal Changes and Alleged Rescission

Late 1993 or early 1994 petitioner reorganized management. Atty. Dayday became Assistant Vice-President and Head of Documentation; Atty. Soluta was relieved of responsibilities. Atty. Dayday found respondents had not deposited the balance and that an extension had been requested; ARRMC disapproved the extension at its March 4, 1994 meeting and referred the matter to Legal for rescission for breach. On May 5, 1994 petitioner informed respondents it rescinded the contract and forfeited the deposit unless they submitted a new proposal. Respondents produced the July 14, 1993 Letter-Agreement but Atty. Dayday claimed the extension was unauthorized. Respondents offered on June 6, 1994 to pay P3,000,000 upon approval and the balance after six months; petitioner countered on June 9, 1994 by demanding interest at 24.5% per annum and offering a refund of the deposit if respondents did not agree. Respondents asserted their right to enforce the July 14, 1993 agreement.

Subsequent Transactions and Filing of Suit

On July 14, 1994 this Court upheld petitioner’s right to possess the property in the Vaca case. On July 28, 1994 respondents filed a Complaint for Specific Performance in RTC Branch 72 seeking enforcement of the July 14, 1993 Letter-Agreement. During pendency, petitioner sold the property to the spouses Vaca and caused registration in their names as TCT No. 158082; the Vaca spouses began demolishing the house but demolition was restrained by a writ of preliminary injunction. Respondents timely annotated a notice of lis pendens on TCT No. 52593.

Trial Court Findings and Relief

The RTC found respondent’s delay had been cured by the July 14, 1993 Letter-Agreement and that petitioner’s unilateral rescission was null and void as contrary to law and public policy. Applying the doctrine of apparent authority, the court held Atty. Soluta had the authority to modify the agreement and prevented petitioner from rescinding. The trial court ordered petitioner to accept payment of P6,750,000 and deliver title and possession free of encumbrances, and awarded moral damages, attorney’s fees, and litigation expenses totaling P150,000 in specified amounts.

Court of Appeals Ruling

The CA affirmed the RTC. It upheld Atty. Soluta’s authority to represent petitioner under the doctrine of apparent authority, ruled that petitioner could not unilaterally rescind a contract properly modified, and rejected petitioner’s estoppel argument against respondents. The appellate court found petitioner estopped from questioning the efficacy of the July 14, 1993 agreement because of its failure to repudiate the agreement for a period of one year. The CA directed execution of a Deed of Absolute Sale in respondents’ favor, ordered cancellation of TCT No. 158082 in the names of the spouses Vaca and issuance of a new title to respondents, and awarded moral damages, attorney’s fees, and litigation expenses in specified amounts.

Issues Raised in the Petition for Review

Petitioner urged numerous grounds: that the CA’s factual narrative lacked evidentiary support; that the courts erred in applying apparent authority to Atty. Soluta; that Atty. Soluta lacked actual authority to bind petitioner and could not unilaterally modify or sell the property; that the March 18, 1993 agreement had been validly rescinded and that respondents were estopped from enforcing the July 14, 1993 letter by virtue of their June 6, 1994 offer; that petitioner was estopped from denying the rescission; that the suit constituted a collateral attack on TCT No. 158082 proscribed by Section 48, P.D. 1529; and that the awards of moral damages, attorney’s fees, and expenses were erroneous.

Standard of Review and Appellate Deference

The Supreme Court reaffirmed that factual findings of the RTC, when affirmed by the CA, are binding and conclusive unless unsupported by the record, because this Court in a Rule 45 petition is not a trier of facts and may not reweigh evidence. The CA’s decision was held to contain its own analysis of the record, drawn from pleadings, testimony, and documentary evidence, and therefore petitioner had not overcome the presumption of correctness accorded to concurrent findings.

The Doctrine of Apparent Authority Applied

The Court analyzed apparent authority as deriving from the manner in which a corporation holds out an officer or agent and from acquiescence in his acts. It emphasized that authority to bind a corporation may be actual or apparent, and that apparent authority may be presumed from recognition in similar instances without objection by the board. The Court noted the March 18 and July 14 letters were on petitioner’s letterhead, bore the same signatory and form, and that petitioner previously allowed Atty. Soluta to enter into the first agreement without a board resolution. The board’s deferral of action on respondents’ requested modification, coupled with petitioner’s subsequent inaction and the bank’s reorganization, supported the conclusion that third persons were justified in relying on Atty. Soluta’s authority. For those reasons the Court affirmed that petitioner was bound by the July 14, 1993 Letter-Agreement under apparent authority.

Rescission, New Offer, Abandonment and Estoppel

The Court held that although the March 18, 1993 agreement contained a forfeiture clause permitting unilateral rescission for buyer default, the July 14, 1993 agreement modified the time for full payment and prevented petitioner from exercising the right to rescind. The Court further found that respondents’ June 6, 1994

Case Syllabus (G.R. No. 148444)

Parties and Posture

Associated Bank (now United Overseas Bank [Phils.]) filed a Petition for Review on Certiorari under Rule 45, Rules of Court assailing the Court of Appeals Decision affirming the Regional Trial Court judgment ordering specific performance.
Spouses Rafael and Monaliza Pronstroller are the buyers who sued for specific performance to compel the bank to sell the subject property under their agreement.
The case arose from competing claims to a parcel of land and house originally encumbered by a Real Estate Mortgage in favor of Associated Bank and subsequently the subject of foreclosure and litigation involving the spouses Vaca.

Key Facts

The spouses Eduardo and Ma. Pilar Vaca executed a Real Estate Mortgage in favor of Associated Bank over a 953 sq. m. parcel at No. 18, Lovebird Street, Green Meadows Subdivision 1, Quezon City.
The property was foreclosed and a new Transfer Certificate of Title, TCT No. 52593, was issued in the name of Associated Bank after the foreclosure sale.
Associated Bank advertised the property for sale at P9,700,000, and the respondents offered P7,500,000, paying a P750,000 down payment on March 8, 1993.

Agreements and Payments

On March 18, 1993, the parties executed a Letter-Agreement setting the price at P7,500,000 with a 10% deposit and the P6,750,000 balance to be placed in escrow within ninety days.
Prior to the expiry of the ninety-day period, respondents requested that payment of the balance be deferred until final resolution of the separate Vaca litigation before the Supreme Court.
On July 14, 1993, a second Letter-Agreement was executed allowing respondents to pay the balance upon receipt of a final order from the Supreme Court and/or upon delivery of the property free from occupants.

Corporate Authorization Dispute

Associated Bank later contended that Atty. Jose Soluta, Jr. lacked authority to bind the bank in modifying the March 18, 1993 agreement or to execute the July 14, 1993 letter.
Associated Bank asserted that its Asset Recovery and Remedial Management Committee (ARRMC) and Board did not approve the extension and that subsequent management reorganization revealed noncompliance by respondents.
Associated Bank formally rescinded the contract and forfeited the respondents' deposit on May 5, 1994, and later sold the property to the spouses Vaca, resulting in issuance of TCT No. 158082 in their names.

Trial Court Findings

The Regional Trial Court found the bank's rescission of the agreement null and void as contrary to law and public policy.
The trial court applied the doctrine of apparent authority and concluded that Atty. Soluta had the apparent authority to bind the bank by the July 14, 1993 letter.
The RTC ordered Associated Bank to accept payment of P6,750,000, deliver title and possession free from liens and encumbrances, and awarded moral damages, attorney’s fees, and litigation expenses to the respondents.

Appellate Court Findings

The Court of Appeals affirmed the RTC and upheld Atty. Soluta’s authority to represent Associated Bank based on the bank’s prior conduct and acquiescence.
The CA held that Associated Bank had no right to unilaterally rescind the contract once the July 14, 1993 agreement modified the payment terms.
The Court of Appeals further found that Associated Bank was estopped from questioning the efficacy of the July 14, 1993 letter because of its failure to repudiate the agreement for a period of one year and ordered cancellation of TCT No. 158082 and issuance of title in favor of the respondents.

Issues Presented

Whether Associated Bank is bound by the July 14, 1993 Letter-Agreement under the doctrine of apparent authority.
Whether Associated Bank validly rescinded the March 18, 1993 and/or July 14, 1993 agreements.
Whether the respondents are estopped from enforcing the July 14, 1993 Letter-Agreement because of their June 6, 1994 new of