Prudential Bank v. Abasolo
REITERATIONFacts
The Antecedents: Leonor Valenzuela-Rosales inherited two parcels of land in Palanan, Sta. Cruz, Laguna, registered under Original Certificates of Title Nos. RO-527 and RO-528; after her death, her heirs executed a Special Power of Attorney (SPA) on June 14, 1993, authorizing respondent Liwayway Abasolo to sell the properties and litigate related matters. In 1995, Corazon Marasigan sought to purchase the properties for P2,448,960 but lacked cash, proposing to mortgage them to petitioner Prudential Bank and Trust Company (PBTC, now BPI) with proceeds paid directly to Abasolo, to which Abasolo agreed. During consultation at PBTC's Head Office, employee Norberto Mendiola allegedly advised Abasolo to authorize Corazon to mortgage the properties and act as co-maker for release of proceeds to both; Abasolo claims Mendiola later advised transferring title to Corazon first for loan processing, assuring direct payment to her via bank guarantee. On August 25, 1995, Corazon executed a Promissory Note for P2,448,960 in Abasolo's favor; Abasolo then executed a Deed of Absolute Sale, leading to Transfer Certificates of Title Nos. 164159 and 164160 issued to Corazon on December 4, 1995. Corazon's loan at PBTC's Tondo Branch was approved in December 1995, secured by real estate mortgage, but without written request for bank guarantee, proceeds were released directly to Corazon, who failed to fully pay Abasolo despite demands; Abasolo accepted partial payment in kind (one owner-type jeepney valued at P200,000 and four passenger jeepneys totaling P1,220,000 per receipts, but trial court computed total partial payments at P665,000, leaving balance of P1,783,960 later adjusted by CA to P1,753,960). Procedural History: Abasolo filed a complaint for collection of sum of money, annulment of sale and mortgage with damages against Corazon and PBTC before RTC Branch 91, Sta. Cruz, Laguna (Civil Case No. SC-3643); Corazon denied direct payment agreement, claiming vehicles constituted full/overpayment; PBTC denied any arrangement for proceeds to Abasolo, citing need for written request. Pre-trial stipulations confirmed no privity between PBTC and sale contract, no written request, and receipt of five vehicles as partial payment; Corazon failed to appear at trial. RTC Decision dated March 12, 2004 held Corazon primarily liable for P1,783,960 plus 3% monthly interest from August 25, 1995, 25% attorney's fees, and PBTC subsidiarily liable if Corazon fails to pay, crediting Abasolo's credible testimony on Mendiola's assurances. CA Decision dated January 14, 2008 affirmed with modification reducing balance to P1,753,960; denied MR on February 23, 2009. The Petition: PBTC petitioned for review on certiorari, arguing no lender-borrower relationship or obligation to Abasolo absent written request, invoking relativity of contracts (Art. 1311 Civil Code), banking regulations (Manual Sec. X302), and lack of proof for apparent authority or fraud by Mendiola; sale perfected via promissory note independent of bank assurances; Abasolo's reliance was on Corazon, not PBTC.
Issue(s)
Whether petitioner Prudential Bank is subsidiarily liable to respondent Liwayway Abasolo for the unpaid purchase price of the properties, considering the absence of a direct lender-borrower relationship and the principles of contractual privity and apparent authority.
Ruling
The petition is meritorious. The Decision of the Court of Appeals dated January 14, 2008, insofar as it holds petitioner Prudential Bank and Trust Company (now Bank of the Philippine Islands) subsidiarily liable in case co-defendant Corazon Marasigan fails to pay the judgment debt, is REVERSED and SET ASIDE. The complaint against petitioner is DISMISSED. Liwayway Abasolo's cause of action lies solely against Corazon Marasigan.
Ratio Decidendi
On Subsidiary Liability of the Bank: Absent a lender-borrower relationship between petitioner bank and respondent Abasolo, no inherent obligation exists to release loan proceeds to her, as banks must follow well-defined lending policies under Section X302 of the Manual of Regulations for Banks. The principle of relativity of contracts in Article 1311, Civil Code, confines effects to parties, assigns, and heirs, requiring for third-person stipulations a clear, deliberate conferment of favor with pre-revocation acceptance. Apparent authority doctrine from Prudential Bank v. Court of Appeals (G.R. No. 108957) binds banks to agents' representations within general scope if involving fraud or abuse for personal benefit, but respondent failed the onus probandi. No breach occurs without established obligation, confining remedy to primary debtor Corazon; RTC/CA erred in crediting uncorroborated testimony over banking practices and formalities. This upholds contractual privity, protecting lenders from unsubstantiated claims in mortgage financing schemes.
Main Doctrine
The principle of relativity of contracts under Article 1311 of the Civil Code dictates that contracts take effect only between the parties, their assigns, and heirs, unless a stipulation clearly and deliberately confers a favor upon a third person who accepts before revocation; a mere incidental benefit is insufficient, and in banking contexts, this requires a written request for loan proceeds to be payable to a third party. Banks adhere to well-defined lending policies, including documentation systems under Section X302 of the Manual of Regulations for Banks, to monitor loans and prevent misrepresentation of financial condition; issuing guarantees without formal requests contravenes these practices. Apparent authority to bind a bank arises only if the agent's representation occurs within the general scope of authority and involves fraud or abuse for personal benefit, as reiterated in Prudential Bank v. Court of Appeals, placing the burden on the claimant to prove such elements. Absent privity or formal documentation, no breach occurs, and subsidiary liability against the bank fails, confining the seller's remedy to the buyer under the perfected sale contract secured by promissory note. This framework protects banking stability while enforcing contractual formalities in real estate mortgage financing.