Westmont Bank v. Inland Construction
REITERATIONFacts
The Antecedents: Inland Construction and Development Corp. (Inland) obtained loans from Associated Citizens Bank (the bank), executing real estate mortgages and promissory notes. Inland defaulted on two promissory notes. Inland and its President, Felix Aranda, executed a Deed of Assignment, Conveyance and Release, assigning rights in Hanil-Gonzales Construction & Development (Phils.) Corporation (Hanil-Gonzales Corporation) to Horacio Abrantes, Executive Vice-President of Hanil-Gonzales Corporation. Under this deed, Abrantes assumed Promissory Note No. BD-2884-77 for P880,000.00. The bank's Account Officer, Lionel Calo Jr., signed for the bank's conformity to this deed. Inland later authorized the bank to debit P350,000.00 from its savings account as partial payment. Procedural History: Inland filed a complaint for injunction against the bank and the Provincial Sheriff of Rizal to stop the foreclosure of its mortgaged properties. The Regional Trial Court (RTC) ruled in favor of Inland, finding that the bank ratified Calo's act of conforming to the assignment, as the bank's Executive Committee failed to repudiate the assignment within a reasonable time and approved a restructuring of obligations that included the P880,000.00 loan. The RTC permanently enjoined the foreclosure. The Court of Appeals (CA) affirmed the RTC's finding of ratification but reversed the permanent injunction, ordering Inland to pay P186,241.86 for the other outstanding obligations. The bank appealed to the Supreme Court. The Petition: The bank (now Westmont Bank) argued that Calo had no authority to bind it in the Deed of Assignment and that an isolated unauthorized act is insufficient to establish apparent authority. It also claimed it had no knowledge of the assignment. The Supreme Court consolidated two petitions filed by the bank.
Issue(s)
Whether the bank ratified the Deed of Assignment executed by its account officer, Lionel Calo Jr., concerning Inland's Promissory Note No. BD-2884-77, based on Calo's apparent authority. Whether the bank is estopped from denying Calo's authority to bind it in the Deed of Assignment, considering its subsequent actions and failure to repudiate the assignment.
Ruling
The petitions are DENIED. The decision of the Court of Appeals is AFFIRMED.
Ratio Decidendi
On the issue of ratification and apparent authority: The Supreme Court affirmed the findings of the lower courts that the bank ratified the Deed of Assignment. The general rule is that a corporation can only be bound by acts authorized by its board of directors. However, if a corporation consciously allows an agent to act within the scope of apparent authority, it will be estopped from denying that authority. In this case, the bank's Account Officer, Lionel Calo Jr., signed for the bank's conformity to the Deed of Assignment, which involved a substantial amount of P880,000.00. The bank failed to prove Calo lacked authority by not presenting evidence such as board resolutions or by-laws. The inter-office memorandum stating Calo had no signing authority was deemed self-serving and not part of the evidence presented to Inland. On the issue of estoppel: The bank's subsequent actions, particularly its Executive Committee's approval of a loan restructuring request for Hanil-Gonzales Corporation (which included the P880,000.00 loan) and its failure to repudiate the assignment within a reasonable time, demonstrated ratification. Furthermore, the bank received a letter from assignee Horacio Abrantes notifying it of the assumption of Inland's obligation, and later replied approving the restructuring of Hanil-Gonzales' obligations, which included the specific promissory note. This conduct indicated full knowledge and acceptance of the assignment. The Court emphasized that as a banking institution, the bank was expected to exercise the highest degree of diligence and meticulously scrutinize such loan accounts, especially when approving restructuring requests. Therefore, the bank's assertion of ignorance and delay in repudiation was flawed, as the records showed a reasonable certainty of ratification.
Main Doctrine
A bank is estopped from denying the authority of its agent if it consciously allows the agent to act within the scope of apparent authority, especially when the bank ratifies the agent's act by approving loan restructuring requests that include the assigned obligation, and fails to repudiate the assignment within a reasonable time.