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SECOND DIVISION

G.R. No. 123650               March 23, 2009

WESTMONT BANK (formerly ASSOCIATED CITIZENS BANK and now

UNITED OVERSEAS BANK, PHILS.) AND THE PROVINCIAL SHERIFF OF
RIZAL, Petitioners,
vs.
INLAND CONSTRUCTION AND DEVELOPMENT CORP., Respondent.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 123822               March 23, 2009

WESTMONT BANK (formerly ASSOCIATED CITIZENS BANK and now

UNITED OVERSEAS BANK, PHILS.), Petitioner,
vs.
COURT OF APPEALS and INLAND CONSTRUCTION AND DEVELOPMENT
CORP., Respondents.

DECISION

CARPIO MORALES, J.:

Inland Construction and Development Corp. (Inland) obtained various loans and other
credit accommodations from petitioner, then known as Associated Citizens Bank ([the
bank] which later became United Overseas Bank, Phils., and still later Westmost Bank) in
1977.

To secure the payment of its obligations, Inland executed real estate mortgages over three
real properties in Pasig City covered by Transfer Certificates of Title Nos. 4820, 4821 and
4822.1

Inland likewise issued promissory notes in favor of the bank, viz:

Promissory Note No. BD-2739-77

Amount: P155,000.00

Due Date: January 2, 19782

Promissory Note No. BD-2884-77

Amount: P880,000.00

Due Date: February 23, 19783

Promissory Note No. BD-2997

Amount: P60,000.00

Due Date: March 22, 19784 (Emphasis supplied)

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When the first and second promissory notes fell due, Inland defaulted in its payments. It,
however, authorized the bank to debit ₱350,000 from its savings account to partially
satisfy its obligations.5

It appears that by a Deed of Assignment, Conveyance and Release dated May 2, 1978,
Felix Aranda, President of Inland, assigned and conveyed all his rights and interests at
Hanil-Gonzales Construction & Development (Phils.) Corporation (Hanil-Gonzales
Corporation) in favor of Horacio Abrantes (Abrantes), Executive Vice-President and
General Manager of Hanil-Gonzales Corporation. Under the same Deed of Assignment, it
appears that Abrantes assumed, among other obligations of Inland and Aranda,
Promissory Note No. BD-2884-77 in the amount of ₱800,000 as shown in the May 26,
1978 Deed of Assignment of Obligation in which Aranda and Inland, on one hand, and
Abrantes and Hanil-Gonzales Corporation, on the other, forged as follows:

x x x x.

WHEREAS, among the obligations assumed by Mr. HORACIO C. ABRANTES [in the

May 2, 1978 Deed] is the account of the FIRST PARTY (Aranda and Inland) in favor of
the ASSOCIATED CITIZENS BANK as evidenced by Promissory Note No. BD-2884-
77 in the amount of EIGHT HUNDRED EIGHTY THOUSAND (₱880,000.00) PESOS,
x x x x;

WHEREAS, the parties herein have agreed to obtain the conformity of the

ASSOCIATED CITIZENS BANK to the foregoing arrangement x x x x;

NOW, THEREFORE, the herein parties have mutually agreed that the SECOND PARTY
(Abrantes and Hanil-Gonzalez) shall assume full and complete liability and responsibility
for the payment to ASSOCIATED CITIZENS BANK Promissory Note No. BD-2884-77
x x x x.

THE SECOND PARTY shall make such necessary arrangements with the ASSOCIATED
CITIZENS BANK for the full liquidation of said account, x x x x.

x x x x. (Emphasis and underscoring supplied)

The bank’s Account Officer, Lionel Calo Jr. (Calo), signed for its conformity to the
deed.6

On December 14, 1979, Inland was served a Notice of Sheriff’s Sale foreclosing the real
estate mortgages over its real properties, prompting it to file a complaint for injunction
against the bank and the Provincial Sheriff of Rizal at the Regional Trial Court (RTC) of
Pasig City.7 This complaint was later amended.8

Answering the amended complaint, the bank underscored that it "had no knowledge,
much less did it give its conformity to the alleged assignment of the obligation covered by
PN# BD-2884 [-77]."9

The trial court found that the bank ratified the act of its account officer Calo, thus:
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x x x x. Culled from the evidence on record, the Court finds that the defendant Bank
ratified the act of Calo when its Executive Committee failed to repudiate the assignment
within a reasonable time and even approved the request for a restructuring of Liberty
Const. & Dev. Corp./Hanil-Gonzales Construction & Development Corp.’s obligations,
which included the ₱880,000.00 loan (Exhibit "U" to "X", and its submarkings). Clearly,
the assumption of the loan was very well known to the defendant Bank and the latter
posed no objection to it. In fact, the positive act on the part of the defendant in
restructuring the loan of the assignee attest to its consent in the said transaction. The
evidence on record conveys the fact that the Hanil-Gonzales Const. and Development
Corp. assumed the obligation of the plaintiff on the SECOND NOTE. Later, it asked the
defendant for a restructuring of its loan, including the ₱880,000.00 loan. Thereafter,
payments were made by the assignee to the defendant Bank. The preponderance of
evidence tilts heavily in favor of the plaintiff claiming that a case
of delegacion occurs.10 (Emphasis and italics supplied; Underscoring in the original)

It accordingly rendered judgment in favor of Inland by Decision 11 of March 31, 1992, the
dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, permanently, perpetually and forever restraining and enjoining the defendants
Associated Citizens Bank and the Sheriff of this Court from proceeding with the
foreclosure of and conducting an auction sale on the real estate covered by and embraced
in Transfer Certificates of Title Nos. 4820, 4821 and 4822 of the Register of Deeds of
Rizal (now Pasig, Metro Manila) and to refund to plaintiff the amount of ₱8,866.89, with
legal interest thereon from the filing of the complaint until full payment, with costs.

SO ORDERED. (Emphasis and underscoring supplied)

The bank appealed the trial court’s decision to the Court of Appeals which, by
Decision12 of May 31, 1995, modified the same, disposing as follows:13

WHEREFORE, the decision appealed from is hereby AFFIRMED only insofar as it finds

appellant Associated Bank to have ratified the Deed of Assignment (Exhibit "O"),
but REVERSED in all other respects, and judgment is accordingly rendered ordering the
plaintiff-appellee Inland Construction and Development Corporation to pay defendant-
appellant Associated Bank the sum of One Hundred Eighty Six Thousand Two Hundred
Forty One Pesos and Eighty Six Centavos (₱186,241.86) with legal interest thereon
computed from December 21, 1979 until the same is fully paid.

No pronouncement as to costs.

SO ORDERED. (Underscoring supplied)

In affirming the observation of the trial court that the bank ratified the assignment of
Inland’s Promissory Note No. BD-2884-77, the appellate court discoursed as follows:

In the instant case, both the assignors (Aranda and Inland) and assignees (Abrantes and

Hanil-Gonzales) in the subject deed of assignment have been major clients of Associated
Bank for several years with accounts amounting to millions of pesos. For several years,
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Associated Bank had, either intentionally or negligently, been habitually clothing Calo
with the apparent powers to perform acts in behalf of the bank. x x x x.

x x x x.

Calo signed the subject deed of assignment on or about May 26, 1978. The principal
obligation covered by the deed involved a hefty sum of eight hundred eighty thousand
pesos (P880,000.00). Despite the enormity of the amount involved, Associated Bank
never made any attempt to repudiate the act of Calo until almost seven (7) years later,
when Mitos C. Olivares, Manager of the Cash Department of Associated Bank, issued an
INTER-OFFICE MEMORANDUM dated May 20, 1985 which pertinently reads:

"2) Conforme of Associated Bank signed by Lionel Calo Jr. has no bearing since he has
no authority to sign for the bank as he was only an account officer with no signing
authority;

x x x x.

5) I suggest, Mr. Calo be asked to be present at court hearings to explain why he signed
for the bank, knowing his limitations"

The abovequoted inter-office memorandum is addressed internally to the other offices

within Associated Bank. It is not addressed to Inland or any outsider for that matter.
Worse, it was not even offered in evidence by Associated Bank to give Inland the
opportunity to object to or comment on the said document, but was merely attached as
one of the annexes to the bank’s MEMORANDUM FOR DEFENDANTS. Obviously, no
evidentiary weight may be attached to said inter-office memorandum, which is even self
serving. In fact, it ought not to be considered at all. (Emphasis and underscoring supplied)

The appellate court, however, specifically mentioned that the "lower court erred when it
rendered a decision which ‘permanently, perpetually and forever’ restrains the sheriff
from proceeding with the threatened foreclosure auction sale of the subject mortgage
properties."14

The bank moved for partial reconsideration of the appellate court’s decision on the aspect
of its ratification of the Deed of Assignment but the same was denied by Resolution 15 of
January 24, 1996.

The bank, via two different counsels,16 filed before this Court separate petitions for
review, G.R. No. 123650, Associated Citizens Bank, et al. v. Court of Appeals, et al; and
G.R. No. 123822, Westmont Bank (formerly Associated Bank) v. Inland Construction &
Development Corp., assailing the same appellate court’s decision.1awphi1 Owing to a
series of oversight,17 the petition in G.R. 123650 was initially dismissed but was later
reinstated by Resolution of June 21, 1999.

The records18 show that Inland failed to file its comment and memorandum on the
petitions.

Both petitions for review impute error on the part of the appellate court in
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…AFFIRMING THE FINDING OF THE TRIAL COURT THAT PETITIONER HAVE

[SIC] RATIFIED THE DEED OF ASSIGNMENT (EXH. "O").

The bank, which had, as reflected early on, become known as Westmont Bank
(petitioner), maintains that Calo had no authority to bind it in the Deed of Assignment and
that a single, isolated unauthorized act of its agent is not sufficient to establish that it
clothed him with apparent authority. Petitioner adds that the records fail to disclose
evidence of similar acts of Calo executed either in its favor or in favor of other
parties.19 Moreover, petitioner reasserts that the unauthorized act of Calo never came to its
knowledge, hence, it is not estopped from repudiating the Deed of Assignment.20

The petitions fail.

The general rule remains that, in the absence of authority from the board of directors, no
person, not even its officers, can validly bind a corporation. 21 If a corporation, however,
consciously lets one of its officers, or any other agent, to act within the scope of an
apparent authority, it will be estopped from denying such officer’s authority.22

The records show that Calo was the one assigned to transact on petitioner’s behalf
respecting the loan transactions and arrangements of Inland as well as those of Hanil-
Gonzales and Abrantes. Since it conducted business through Calo, who is an Account
Officer, it is presumed that he had authority to sign for the bank in the Deed of
Assignment.

Petitioner cannot feign ignorance of the May 26, 1978 Deed of Assignment, the pertinent
portion of which was quoted above. Notably, assignee Abrantes notified petitioner about
his assumption of Inland’s obligation. Thus, in his July 26, 1979 letter to petitioner, he
wrote:

This refers to the accounts of Liberty Construction and Development Corporation

(LCDC) and our sister-company, Hanil-Gonzalez Construction & Development
Corporation (HGCDC) which as of July 31, 1979 was computed at ₱1,814,442.40,
inclusive of interest, penalties and fees, net of marginal deposits. This includes the
account of

Inland Construction & Development Corporation which had been assumed by

HGCDC.23 (Emphasis and underscoring supplied)

That petitioner sent the following reply-letter, dated November 29, 1982, to the above-
quoted letter to it of assignee Abrantes indicates that it had full and complete knowledge
of the assumption by Abrantes of Inland’s obligation:

We are pleased to advise you that our Executive Committee in its meeting last November
25, 1982, has approved your request for the restructuring of your outstanding obligations
x x x x.24 (Underscoring supplied)

Respecting this reply-letter of the bank granting Hanil-Gonzales’ request to restructure its
loans, petitioner, as a banking institution, is expected to have exercised the highest degree
of diligence and meticulousness in the conduct of its business. When it received the loan
restructuring request, with specific mention of Inland’s Promissory Note No. BD-2884-
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77, petitioner-bank was under obligation to fastidiously scrutinize such loan account. And
since it clearly approved the request for restructuring, any "uncertainty" that its reply-
letter approving such request may not thus work to prejudice Hanil-Gonzales or Inland.

Petitioner relies heavily, however, on the Court’s pronouncement in Yao Ka Sin Trading
that it was incumbent upon, in this case, Inland to prove that petitioner had clothed its
account officer with apparent power to conform to the Deed of Assignment.25

Petitioner’s simplistic reading of Yao Ka Sin Trading v. Court of Appeals26 does not

impress. In Yao Ka Sin Trading, the therein respondent cement company had shown by
clear and convincing evidence that its president was not authorized to undertake a
particular transaction. It presented its by-laws stating that only its board of directors has
the power to enter into an agreement or contract of any kind. The company’s board of
directors even forthwith issued a resolution to repudiate the contract. Thus, it was only
after the company successfully discharged its burden that the other party, the therein
petitioner Yao Ka Sin Trading, had to prove that indeed the cement company had clothed
its president with the apparent power to execute the contract by evidence of similar acts
executed in its favor or in favor of other parties.

Unmistakably, the Court’s directive in Yao Ka Sin Trading is that a corporation should
first prove by clear evidence that its corporate officer is not in fact authorized to act on its
behalf before the burden of evidence shifts to the other party to prove, by previous
specific acts, that an officer was clothed by the corporation with apparent authority.

It bears noting that in Westmont Bank v. Pronstroller, 27 the therein petitioner Westmont
Bank, through a management committee, proved that it rejected the letter-agreement
entered into by its assistant vice-president. Consequently, the therein respondent had to
prove by citing other instances of the said officer’s apparent authority to bind the bank-
therein petitioner.1avvphi1

In the present petitions, petitioner-bank failed to discharge its primary burden of proving
that Calo was not authorized to bind it, as it did not present proof that Calo was
unauthorized. It did not present, much less cite, any Resolution from its Board of
Directors or its Charter or By-laws from which the Court could reasonably infer that he
indeed had no authority to sign in its behalf or bind it in the Deed of Assignment. The
May 20, 1985 inter-office memorandum28 stating that Calo had "no signing
authority" remains self-serving as it does not even form part of petitioner’s body of
evidence.

Thus, the assertion that the petitioner cannot be faulted for its delay in repudiating the
apparent authority of Calo is similarly flawed, there being no evidence on record that it
had actually repudiated such apparent authority. It should be noted that it was the bank
which pleaded that defense in the first place. What is extant in the records is a reasonable
certainty that the bank had ratified the Deed of Assignment.

The assumption that a ruling on the issue of ratification would affect any and all
foreclosure proceedings on the mortgaged properties remains unfounded. For the
challenged appellate court’s Decision29 still mentioned the possibility of foreclosing on
the mortgaged properties as Inland was still indebted to the bank in the amount of ₱186,
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241.86 covering the other two promissory notes (No. BD-2739-77 and No. BD-2997) and
other obligations that Inland was not able to satisfy upon maturity.

Both the trial court’s and the appellate court’s inferences and conclusion that petitioner
ratified its account officer’s act are thus rationally based on evidence and circumstances
duly highlighted in their respective decisions. Absent any serious abuse or evident lack of
basis or capriciousness of any kind, the lower courts’ findings of fact are conclusive upon
this Court.30

WHEREFORE, the petitions are DENIED. The decision of the Court of Appeals in CA-
G.R. CV No. 39634 is AFFIRMED.

Costs against petitioner.

SO ORDERED.