Associated Bank vs.

Spouses Pronstroller
GR: in the absence of authority from the board of directors, no person, not even its officers, can validly bind a
corporation
EX: board may validly delegate some of its functions and powers to officers, committees and agents doctrine
of apparent authority - with special reference to banks
existence may be ascertained through
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
the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof,
within or beyond the scope of his ordinary powers
FACTS:

April 21, 1988: Spouses Eduardo and Ma. Pilar Vaca (spouses Vaca) executed a Real Estate Mortgage
(REM) in favor of the Associated Bank (Associated) over their parcel of residential land and house

Due to failure to pay its obligation, Associated won its bidding in the public auction and was issued the
title thereto

spouses Vaca commenced an action for the nullification of the REM and the foreclosure sale.

CA: favored Associated

During the pendency of the cases, Associated advertised the subject property for sale to interested buyers
for P9,700,000.00

Rafael and Monaliza Pronstroller (Pronstrollers) bought it for P7.5M with 10% as downpayment

March 18, 1993: Associated, through Atty. Soluta, and the Pronstrollers, executed a Letter-Agreement

Prior to the expiration of the 90-day period within which to make the escrow deposit, in view of the
pendency of the cases the Pronstrollers requested that the balance be payable upon service on them of a
final decision affirmingAssociated's right to possess the property

Atty. Soluta referred respondents' proposal to Associated's Asset Recovery and Remedial Management
Committee (ARRMC) who deferred action

July 14, 1993 (a month after they made the request and after the payment deadline had lapsed): Atty.
Soluta executed another Letter-Agreement allowing the request

Early 1994: Associated reorganized its management

Atty. Braulio Dayday (Atty. Dayday) became Assist. VP and Head of the Documentation Section, while
Atty. Soluta was relieved of his responsibilities

Atty. Dayday discovered that the Pronstrollers failed to deposit the balance and the request

March 4, 1994: It was resubmitted and disapproved at its ARRMC meeting

ARRMC referred the matter to the Legal Department for rescission or cancellation due to breach of
contract

May 5, 1994: Atty. Dayday informed the disapproval, rescinding and deposit forfeiture. They were also
asked to submit their new proposal if they were still interested

The Pronstrollers went to talked to Atty. Dayday and showed him the Letter-Agreement showing that they
were granted extension but Atty. Dayday told them it was a mistake and Atty. Soluta was not authorized
to give such extension

June 6, 1994: The Pronstrollers proposed to pay the balance with P3M upon the approval of their proposal
and the balance after 6 months but it was disapproved by Associated's President

June 9, 1994: They were advised that their proposal will be accepted if they will pay 24.5% per annum
interest and if they do not agree, they are allowed to refund the 750 K

July 14, 1994: Vaca Case: court upheld Associated's right to possess the subject property

July 28, 1994: The Pronstrollers commenced the instant suit by filing a Complaint for Specific
Performance before the RTC

During the pendency of the case, Associated sold the subject property to the spouses Vaca who started
demolishing the house which, however, was not completed by virtue of the writ of preliminary injunction
issued by the court

November 14, 1997:trial court favored the Pronstrollers (rescission of the Agreement to Sell to be null and
void for being contrary to law and public policy)

CA affirmed RTC

ISSUE: W/N Associated can rescind the contract

HELD: NO. CA Affirmed

GR: in the absence of authority from the board of directors, no person, not even its officers, can validly
bind a corporation

EX: board may validly delegate some of its functions and powers to officers, committees and agents

doctrine of apparent authority - with special reference to banks

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

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

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:

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.

This registration 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