G.R. No.

148444               July 14, 2008

ASSOCIATED BANK (now UNITED OVERSEAS BANK [PHILS.]), Petitioner,

vs.
SPOUSES RAFAEL and MONALIZA PRONSTROLLER, Respondents.

DECISION

NACHURA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by petitioner
Associated Bank (now United Overseas Bank [Phils.]) assailing the Court of Appeals (CA)
Decision1 dated February 27, 2001, which in turn affirmed the Regional Trial Court2 (RTC)
Decision3 dated November 14, 1997 in Civil Case No. 94-3298 for Specific Performance. Likewise
assailed is the appellate court’s Resolution4 dated May 31, 2001 denying petitioner’s motion for
reconsideration.

The facts of the case are as follows:

On April 21, 1988, the spouses Eduardo and Ma. Pilar Vaca (spouses Vaca) executed a Real Estate
Mortgage (REM) in favor of the petitioner 5 over their parcel of residential land with an area of 953 sq.
m. and the house constructed thereon, located at No. 18, Lovebird Street, Green Meadows
Subdivision 1, Quezon City (herein referred to as the subject property). 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. Transfer Certificate of Title (TCT) No. 254504, in the name of spouses Vaca, was
cancelled and a new one --TCT No. 52593-- was issued in the name of the petitioner.6

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. 109672.7

During the pendency of the aforesaid cases, petitioner advertised the subject property for sale to
interested buyers for ₱9,700,000.00.8 Respondents Rafael and Monaliza Pronstroller offered to
purchase the property for ₱7,500,000.00. Said offer was made through Atty. Jose Soluta, Jr. (Atty.
Soluta), petitioner’s Vice-President, Corporate Secretary and a member of its Board of
Directors.9 Petitioner accepted respondents’ offer of ₱7.5 million. Consequently, respondents paid
petitioner ₱750,000.00, or 10% of the purchase price, as down payment.10

On March 18, 1993, petitioner, through Atty. Soluta, and respondents, executed a Letter-Agreement
setting forth therein the terms and conditions of the sale, to wit:

1. Selling price shall be at ₱7,500,000.00 payable as follows:

a. 10% deposit and balance of ₱6,750,000.00 to be deposited under escrow agreement.

Said escrow deposit shall be applied as payment upon delivery of the aforesaid property to
the buyers free from occupants.
 b. The deposit shall be made within ninety (90) days from date hereof.  Any interest earned
lawphil

on the aforesaid investment shall be for the buyer’s account. However, the 10% deposit is
non-interest earning.11

Prior to the expiration of the 90-day period within which to make the escrow deposit, in view of the
pendency of the case between the spouses Vaca and petitioner involving the subject
property,12 respondents requested that the balance of the purchase price be made payable only
upon service on them of a final decision or resolution of this Court affirming petitioner’s right to
possess the subject property. Atty. Soluta referred respondents’ proposal to petitioner’s Asset
Recovery and Remedial Management Committee (ARRMC) but the latter deferred action thereon.13

On July 14, 1993, a month after they made the request and after the payment deadline had lapsed,
respondents and Atty. Soluta, acting for the petitioner, executed another Letter-Agreement allowing
the former to pay the balance of the purchase price upon receipt of a final order from this Court (in
the Vaca case) and/or the delivery of the property to them free from occupants.14

Towards the end of 1993, or in early 1994, petitioner reorganized its management. Atty. Braulio
Dayday (Atty. Dayday) became petitioner’s Assistant Vice-President and Head of the Documentation
Section, while Atty. Soluta was relieved of his responsibilities. Atty. Dayday reviewed petitioner’s
records of its outstanding accounts and discovered that respondents failed to deposit the balance of
the purchase price of the subject property. He, likewise, found that respondents requested for an
extension of time within which to pay. The matter was then resubmitted to the ARRMC during its
meeting on March 4, 1994, and it was disapproved. ARRMC, thus, referred the matter to petitioner’s
Legal Department for rescission or cancellation of the contract due to respondents’ breach thereof.15

On May 5, 1994, Atty. Dayday informed respondents that their request for extension was
disapproved by ARRMC and, in view of their breach of the contract, petitioner was rescinding the
same and forfeiting their deposit. Petitioner added that if respondents were still interested in buying
the subject property, they had to submit their new proposal. 16 Respondents went to the petitioner’s
office, talked to Atty. Dayday and gave him the Letter-Agreement of July 14, 1993 to show that they
were granted an extension. However, Atty. Dayday claimed that the letter was a mistake and that
Atty. Soluta was not authorized to give such extension.17

On June 6, 1994, respondents proposed to pay the balance of the purchase price as follows:
₱3,000,000.00 upon the approval of their proposal and the balance after six (6) months.18 However,
the proposal was disapproved by the petitioner’s President. In a letter dated June 9, 1994, petitioner
advised respondents that the former would accept the latter’s proposal only if they would pay interest
at the rate of 24.5% per annum on the unpaid balance. Petitioner also allowed respondents a refund
of their deposit of ₱750,000.00 if they would not agree to petitioner’s new proposal.19

For failure of the parties to reach an agreement, respondents, through their counsel, informed
petitioner that they would be enforcing their agreement dated July 14, 1993.20 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.21

On July 14, 1994, in the Vaca case, this Court upheld petitioner’s right to possess the subject
property.

On July 28, 1994, respondents commenced the instant suit by filing a Complaint for Specific
Performance before the RTC of Antipolo, Rizal. 22 The case was raffled to Branch 72 and was
docketed as Civil Case No. 94-3298. Respondents prayed that petitioner be ordered to sell the
subject property to them in accordance with their letter-agreement of July 14, 1993. They, likewise,
caused the annotation of a notice of lis pendens at the dorsal portion of TCT No. 52593.

For its part, petitioner contended that their contract had already been rescinded because of
respondents’ failure to deposit in escrow the balance of the purchase price within the stipulated
period.23

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.25

On November 14, 1997, the trial court finally resolved the matter in favor of respondents, disposing,
as follows:

WHEREFORE, premises considered, the Court finds defendant’s rescission of the Agreement to Sell
to be null and void for being contrary to law and public policy.

ACCORDINGLY, defendant bank is hereby ordered to accept plaintiffs’ payment of the balance of
the purchase price in the amount of Six Million Seven Hundred Fifty Thousand Pesos
(₱6,750,000.00) and to deliver the title and possession to subject property, free from all liens and
encumbrances upon receipt of said payment. Likewise, defendant bank is ordered to pay plaintiffs
moral damages and attorney’s fees in the amount of One Hundred Thirty Thousand Pesos
(₱130,000.00) and expenses of litigation in the amount of Twenty Thousand Pesos (₱20,000.00).

SO ORDERED.26

Applying the rule of "apparent authority,"27 the court upheld the validity of the July 14, 1993 Letter-
Agreement where the respondents were given an extension within which to make payment.
Consequently, respondents did not incur in delay, and thus, the court concluded that the rescission
of the contract was without basis and contrary to law.28

On appeal, the CA affirmed the RTC decision and upheld Atty. Soluta’s authority to represent the
petitioner. It further ruled that petitioner had no right to unilaterally rescind the contract; otherwise, it
would give the bank officers license to continuously review and eventually rescind contracts entered
into by previous officers. As to whether respondents were estopped from enforcing the July 14, 1993
Letter-Agreement, the appellate court ruled in the negative. It found, instead, that petitioners were
estopped from questioning the efficacy of the July 14 agreement because of its failure to repudiate
the same for a period of one year.29 Thus, the court said in its decision:

1. The Appellant (Westmont Bank) is hereby ordered to execute a "Deed of Absolute Sale" in
favor of the Appellees over the property covered by Transfer Certificate of Title No. 52593,
including the improvement thereon, and secure, from the Register of Deeds, a Torrens Title
over the said property free from all liens, claims or encumbrances upon the payment by the
Appellees of the balance of the purchase price of the property in the amount of
₱6,750,000.00;

2. The Register of Deeds is hereby ordered to cancel Transfer Certificate of Title No. 158082
under the names of the Spouses Eduardo [and Ma. Pilar] Vaca and to issue another under
the names of the Appellees as stated in the preceding paragraph;
 3. The appellant is hereby ordered to pay to the appellee Rafael Pronstroller the amount of
₱100,000.00 as and by way of moral damages and to pay to the Appellees the amount of
₱30,000.00 as and by way of attorney’s fees and the amount of ₱20,000.00 for litigation
expense.

4. The counterclaims of the Appellant are dismissed.

SO ORDERED.30

Petitioner’s motion for reconsideration was denied on May 31, 2001. Hence, the present petition
raising the following issues:

I.

THE NARRATION OR STATEMENT OF THE FACTS OF THE CASE BY THE HONORABLE

COURT OF APPEALS IS TOTALLY BEREFT OF EVIDENTIARY SUPPORT, CONTRARY TO THE
EVIDENCE ON RECORD AND PURELY BASED ON ERRONEOUS ASSUMPTIONS,
PRESUMPTIONS, SURMISES, AND CONJECTURES.

II.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN MERELY RELYING UPON THE
MANIFESTLY ERRONEOUS FINDING OF THE HONORABLE TRIAL COURT ON THE ALLEGED
APPARENT AUTHORITY OF ATTY. JOSE SOLUTA, JR. IN THAT THE LATTER’S FINDING IS
CONTRARY TO THE UNDISPUTED FACTS AND THE EVIDENCE ON RECORD.

III.

THE HONORABLE COURT OF APPEALS’ OWN FINDING THAT ATTY. JOSE SOLUTA, JR. HAD
AUTHORITY TO SELL THE SUBJECT PROPERTY ON HIS OWN (EVEN WITHOUT THE
COMMITTEE’S APPROVAL) IS LIKEWISE GROSSLY ERRONEOUS, FINDS NO EVIDENTIARY
SUPPORT AND IS EVEN CONTRARY TO THE EVIDENCE ON RECORD IN THAT –

A.) AT NO TIME DID PETITIONER ADMIT THAT ATTY. JOSE SOLUTA, JR. IS
AUTHORIZED TO SELL THE SUBJECT PROPERTY ON HIS OWN;

B.) THE AUTHORITY OF ATTY. JOSE SOLUTA, JR. CANNOT BE PRESUMED FROM HIS
DESIGNATIONS OR TITLES; AND

C.) RESPONDENTS FULLY KNEW OR HAD KNOWLEDGE OF THE LACK OF

AUTHORITY OF ATTY. JOSE SOLUTA, JR. TO SELL THE SUBJECT PROPERTY ON HIS
OWN.

IV.

THE HONORABLE TRIAL COURT AND THE HONORABLE COURT OF APPEALS GROSSLY
MISAPPLIED THE DOCTRINE OF APPARENT AUTHORITY IN THE PRESENT CASE.

V.
THE HONORABLE TRIAL COURT AND THE HONORABLE COURT OF APPEALS GROSSLY
ERRED IN NOT HOLDING THAT THE CONTRACT TO SELL CONTAINED IN THE MARCH 18,
1993 LETTER WAS VALIDLY RESCINDED BY PETITIONER.

VI.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN NOT HOLDING RESPONDENTS

ESTOPPED FROM DENYING THE VALIDITY OF THE RESCISSION OF THE CONTRACT TO
SELL AS EMBODIED IN THE MARCH 18, 1993 LETTER AND THE LACK OF AUTHORITY OF
ATTY. SOLUTA, JR. TO GRANT THE EXTENSION AS CONTAINED IN HIS LETTER OF JULY 14,
1993 AFTER THEY VOLUNTARILY SUBMITTED WITH FULL KNOWLEDGE OF ITS IMPORT AND
IMPLICATION A NEW OFFER TO PURCHASE THE SUBJECT PROPERTY CONTAINED IN
THEIR LETTER DATED JUNE 6, 1994.

VII.

IN ANY EVENT, THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
CONTRACT TO SELL UNDER THE LETTER OF MARCH 18, 1993 AND THE LETTER OF JULY
14, 1993 HAD BEEN VACATED WHEN RESPONDENTS VOLUNTARILY SUBMITTED WITH FULL
KNOWLEDGE OF ITS IMPORT AND IMPLICATION THEIR NEW OFFER CONTAINED IN THEIR
LETTER OF JUNE 6, 1994 WITHOUT ANY CONDITION OR RESERVATION WHATSOEVER.

VIII.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER ESTOPPED FROM

QUESTIONING THE VALIDITY OF THE JULY 14, 1993 LETTER SIGNED BY ATTY. JOSE
SOLUTA, JR.

IX.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN HOLDING THAT PETITIONER

ALLEGEDLY ACTED FRAUDULENTLY AND IN BAD FAITH IN ITS DEALINGS WITH
RESPONDENTS.

X.

THE ORDER OF THE HONORABLE COURT OF APPEALS TO CANCEL TCT NO. 158082 UNDER
THE NAMES OF SPS. VACA IS A COLLATERAL ATTACK AGAINST THE SAID CERTIFICATE OF
TITLE WHICH IS PROSCRIBED BY SECTION 48 OF P.D. 1529.

XI.

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING MORAL DAMAGES,

ATTORNEY’S FEES, AND EXPENSES OF LITIGATION IN FAVOR OF RESPONDENTS.31

Reduced to bare essentials, the decision on the instant petition hinges on the resolution of the
following specific questions: 1) Is the petitioner bound by the July 14, 1993 Letter-Agreement signed
by Atty. Soluta under the doctrine of apparent authority? 2) Was there a valid rescission of the March
18, 1993 and/or July 14, 1993 Letter-Agreement? 3) Are the respondents estopped from enforcing
the July 14 Letter-Agreement because of their June 6, 1994 "new" proposal? 4) Is the petitioner
estopped from questioning the validity of the July 14 letter because of its failure to repudiate the
same and 5) Is the instant case a collateral attack on TCT No. 158082 in the name of the spouses
Vaca?

The petition is unmeritorious.

Well-settled is the rule that the findings of the RTC, as affirmed by the appellate court, are binding on
this Court. In a petition for review on certiorari under Rule 45 of the Rules of Court, as in this case,
this Court may not review the findings of fact all over again. It must be stressed that this Court is not
a trier of facts, and it is not its function to re-examine and weigh anew the respective evidence of the
parties.32 The findings of the CA are conclusive on the parties and carry even more weight when
these coincide with the factual findings of the trial court, unless the factual findings are not supported
by the evidence on record. 33 Petitioner failed to show why the above doctrine should not be applied
to the instant case.

Contrary to petitioner’s contention that the CA’s factual findings are not supported by the evidence
on record, the assailed decision clearly shows that the appellate court not only relied on the RTC’s
findings but made its own analysis of the record of the case. The CA decision contains specific
details drawn from the contents of the pleadings filed by both parties, from the testimonies of the
witnesses and from the documentary evidence submitted. It was from all these that the appellate
court drew its own conclusion using applicable legal principles and jurisprudential rules.

The Court notes that the March 18, 1993 Letter-Agreement was written on a paper with petitioner’s
letterhead. It was signed by Atty. Soluta with the conformity of respondents. The authority of Atty.
Soluta to act for and on behalf of petitioner was not reflected in said letter or on a separate paper
attached to it. Yet, petitioner recognized Atty. Soluta’s authority to sign the same and, thus,
acknowledged its binding effect. On the other hand, the July 14, 1993 letter was written on the same
type of paper with the same letterhead and of the same form as the earlier letter. It was also signed
by the same person with the conformity of the same respondents. Again, nowhere in said letter did
petitioner specifically authorize Atty. Soluta to sign it for and on its behalf. This time, however,
petitioner questioned the validity and binding effect of the agreement, arguing that Atty. Soluta was
not authorized to modify the earlier terms of the contract and could not in any way bind the
petitioner.

We beg to differ.

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.34

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.35 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.36
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. 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.37

Naturally, the third person has little or no information as to what occurs in corporate meetings; and
he must necessarily rely upon the external manifestations of corporate consent. The integrity of
commercial transactions can only be maintained by holding the corporation strictly to the liability
fixed upon it by its agents in accordance with law. 38 What transpires in the corporate board room is
entirely an internal matter. Hence, 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.39
1avvphi1

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.40

Petitioner further insists that specific performance is not available to respondents because the
Letter-Agreements had already been rescinded --- the March 18 agreement because of the breach
committed by the respondents; and the July 14 letter because of the new offer of the respondents
which was not approved by petitioner.

Again, the argument is misplaced.

Basic is the rule that a contract constitutes the law between the parties. Concededly, parties may
validly stipulate the unilateral rescission of a contract.41 This is usually in the form of a stipulation
granting the seller the right to forfeit installments or deposits made by the buyer in case of the latter’s
failure to make full payment on the stipulated date. While the petitioner in the instant case may have
the right, under the March 18 agreement, to unilaterally rescind the contract in case of respondents’
failure to comply with the terms of the contract, 42 the execution of the July 14 Agreement prevented
petitioner from exercising the right to rescind. This is so because there was in the first place, no
breach of contract, as the date of full payment had already been modified by the later agreement.
Neither can the July 14, 1993 agreement be considered abandoned by respondents’ act of making a
new offer, which was unfortunately rejected by petitioner. A careful reading of the June 6, 1994 letter
of respondents impels this Court to believe that such offer was made only to demonstrate their
capacity to purchase the subject property.43 Besides, even if it was a valid new offer, they did so only
due to the fraudulent misrepresentation made by petitioner that their earlier contracts had already
been rescinded. Considering respondents’ capacity to pay and their continuing interest in the subject
property,44 to abandon their right to the contract and to the property, absent any form of protection, is
contrary to human nature. The presumption that a person takes ordinary care of his concerns
applies and remains unrebutted.45 Obviously therefore, respondents made the new offer without
abandoning the previous contract. Since there was never a perfected new contract, the July 14,
1993 agreement was still in effect and there was no abandonment to speak of.

In its final attempt to prevent respondents from attaining a favorable result, petitioner argues that the
instant case should not prosper because the cancellation of TCT No. 158082 is a collateral attack on
the title which is proscribed by law.

Such contention is baseless.

Admittedly, during the pendency of the case, respondents timely registered a notice of lis pendens to
warn the whole world that the property was the subject of a pending litigation.

Lis pendens, which literally means pending suit, refers to the jurisdiction, power or control which a
court acquires over property involved in a suit, pending the continuance of the action, and until final
judgment. Founded upon public policy and necessity, lis pendens is intended to keep the properties
in litigation within the power of the court until the litigation is terminated, and to prevent the defeat of
the judgment or decree by subsequent alienation. Its notice is an announcement to the whole world
that a particular property is in litigation and serves as a warning that one who acquires an interest
over said property does so at his own risk or that he gambles on the result of the litigation over said
property.46

The filing of a notice of lis pendens has a twofold effect: (1) to keep the subject matter of the
litigation within the power of the court until the entry of the final judgment to prevent the defeat of the
final judgment by successive alienations; and (2) to bind a purchaser, bona fide or not, of the land
subject of the litigation to the judgment or decree that the court will promulgate subsequently.47

This registration, therefore, gives the court clear authority to cancel the title of the spouses Vaca,
since the sale of the subject property was made after the notice of lis pendens. Settled is the rule
that the notice is not considered a collateral attack on the title,48 for the indefeasibility of the title shall
not be used to defraud another especially if the latter performs acts to protect his rights such as the
timely registration of a notice of lis pendens.

As to the liability for moral damages, attorney’s fees and expenses of litigation, we affirm in toto the
appellate court’s conclusion. Article 222049 of the New Civil Code 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 letter-agreements.
Despite the pendency of the case in the RTC, it sold the subject property to the spouses Vaca and
allowed the demolition of the house even if there was already a writ of preliminary injunction lawfully
issued by the court. 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.50 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.
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals
dated February 27, 2001 and its Resolution dated May 31, 2001 in CA-G.R. CV No. 60315 are
AFFIRMED.

SO ORDERED.