RURAL BANK OF MILAOR (CAMARINES SUR), PETITIONER, VS. FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIÑO, FELICISIMO OCFEMIA, RENATO OCFEMIA JR., AND WINSTON OCFEMIA, RESPONDENTS.

Rural Bank of Milaor versus Ocfemia

The Case

This is a petition for review on certiorari brought by the Rural Bank of Milaor (Camarines Sur) against Francisca Ocfemia and her children, who sued the bank to compel its board of directors to issue a board resolution confirming a deed of sale that the bank's own manager had executed in favor of the buyers. The respondents had bought five parcels of land from the bank after foreclosure, paid the price, and taken possession, but could not register the property because the Register of Deeds demanded a confirming board resolution. The case matters because it fixes the rule on a bank's liability for the acts of its manager under apparent authority, and on the duty to perform the lawful acts needed to give a buyer the full enjoyment of a contract the bank itself authorized.

Procedural History

The respondents filed a petition for mandamus with damages before the Regional Trial Court of Naga City. The bank failed to file an answer within the reglementary period and was declared in default. Its motion to set aside the order of default, and later its motion for reconsideration, were both denied. The respondents were then allowed to present their evidence ex parte. The bank went up to the Court of Appeals on certiorari, but that petition was denied in a decision that became final. The trial court thereafter rendered judgment granting the petition, ordering the bank's board of directors to issue the confirming board resolution and awarding actual damages, attorney's fees, moral damages, and exemplary damages, plus costs. The Court of Appeals affirmed the trial court in full. The bank's motion for reconsideration was denied, so it came to the Supreme Court by petition for review on certiorari. The Supreme Court issued a temporary restraining order against execution of the trial court's decision pending appeal.

Facts

The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia mortgaged seven parcels of land to the Rural Bank of Milaor. They failed to redeem, the mortgage was foreclosed, and ownership passed to the bank. In January 1988, the bank, through its manager Fe S. Tena, sold five of those parcels to Renato Ocfemia, the son of the mortgagors, by a deed of sale. The buyers paid the consideration and took possession, and they paid the real estate taxes due on the lots.

The sale was never transferred in the buyers' names. When Marife O. Niño, the daughter of Renato Ocfemia, went to the Register of Deeds of Camarines Sur to register the deed, she was told that registration could not proceed without a board resolution of the bank. She returned to the bank repeatedly, submitting the deed, the tax declaration, the receipts of payment, and an authority from her co-respondents. The bank kept asking for documents she had already given, told her to wait two weeks, and finally said it had no records of the sale from the old manager. A lawyer's letter produced only more requests for papers. The manager even refused to sign a copy showing receipt of the letter. The family needed the transfer so that they could mortgage the lots for the medical expenses of Francisca Ocfemia, who was seriously ill.

Renato Ocfemia had died in July 1994. The bank never filed an answer, and it never specifically denied under oath the deed of sale or the manager's authority to sign it.

Issues

• Whether or not the Regional Trial Court had original jurisdiction over the action, the bank contending that the matter involved title to real property with an assessed value below 20,000 pesos and so belonged to the lower courts.
• Whether or not the board of directors of a rural banking corporation may be compelled to confirm a deed of absolute sale of real property executed by its bank manager without prior authority from the board.

Applicable Provisions

Section 21 of Batas Pambansa Blg. 129, on the original jurisdiction of the Regional Trial Courts, provides:

Section 21. Original jurisdiction in other cases. Regional Trial Courts shall exercise original jurisdiction: (1) in the issuance of writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction which may be enforced in any part of their respective regions; and (2) in actions affecting ambassadors and other public ministers and consuls.

This is the provision that anchors the Regional Trial Court's jurisdiction over a petition for mandamus such as the one the respondents filed.

Section 7 of Rule 8 of the Rules of Court, on actions based on a document, provides:

Section 7. Action or defense based on document. Whenever an action or defense is based upon a written instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect be set forth in the pleading.

This required the respondents to set out the deed of sale in their petition and attach it, which they did.

Section 8 of Rule 8, on contesting the genuineness of such documents, provides:

Section 8. How to contest genuineness of such documents. When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but this provision does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused.

Because the bank filed no verified specific denial, it is deemed to have admitted the due execution of the deed of sale and, with it, the manager's authority to sign for the bank.

Ruling

On the first issue, the Court held that jurisdiction is determined by the allegations of the complaint. The respondents' petition did not raise any question of title; it asked only that the bank's board be directed to issue the confirming resolution. The action was therefore incapable of pecuniary estimation and fell squarely within the Regional Trial Court's original jurisdiction to issue the writ of mandamus under Section 21 of Batas Pambansa Blg. 129. The bank's valuation argument failed because title was never in issue.

On the second issue, the Court held that the bank is bound by the deed of sale. Having failed to deny the deed under oath, the bank admitted its genuineness and due execution, and defenses inconsistent with that admission are cut off. Independently of the admission, the bank clothed its manager with apparent authority: it had allowed her to transact business for it before, the buyers dealt with her in the bank's normal course of business, and the bank took no step to disturb their possession or their payment of taxes. The Court quoted its settled doctrine:

If a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority.

The Court added that corporate transactions would speedily come to a standstill if every person dealing with a corporation were duty-bound to disbelieve every act of its responsible officers. The bank is therefore estopped from questioning the manager's authority, and having authorized the sale, it has a clear legal duty to issue the board resolution. The Court called the resolution mere paper work, yet paper work necessary for the orderly operations of the Register of Deeds and for the buyers' full enjoyment of their rights. Because the bank persistently and unjustifiably refused, and was less than candid with the respondents, the Court assessed treble costs in addition to the damages awarded.

Doctrine

First, jurisdiction is determined by the allegations of the complaint, not by the defenses raised; a petition to compel the issuance of a board resolution is one for mandamus, incapable of pecuniary estimation, and within the Regional Trial Court's jurisdiction under Section 21 of Batas Pambansa Blg. 129.

Second, under Section 8 of Rule 8, the genuineness and due execution of a document attached to the pleading are deemed admitted unless the adverse party specifically denies them under oath; such an admission forecloses any defense inconsistent with the document's due execution, including a denial of the signer's authority.

Third, a corporation that knowingly permits its officer or agent to act within the scope of an apparent authority holds that agent out to the public as possessing the power to do those acts, and is estopped from denying the agent's authority against anyone who dealt with it in good faith. A bank that authorizes its manager to sell an acquired asset must confirm the sale by board resolution so that the buyers may register the property and enjoy the contract's full benefits.

Disposition

The Supreme Court denied the petition and affirmed the decision and resolution of the Court of Appeals, lifted the temporary restraining order, and imposed treble costs against the bank.

Remember This

The one line to memorize: a corporation that clothes its agent with apparent authority is estopped from denying that authority against a third person who dealt with it in good faith, and it must perform the lawful acts, such as issuing a confirming board resolution, that let the buyer enjoy the sale. Examiners use this case on jurisdiction determined by the allegations of the complaint, on the deemed admission under Section 8 of Rule 8 for failure to make a verified specific denial, and on apparent authority of bank officers in the ordinary course of business.