G.R. No. 179015 ; June 13, 2012
UNITED COCONUT PLANTERS BANK, Petitioner, vs. PLANTERS PRODUCTS, INC., JANET LAYSON and GREGORY GREY, Respondents.

FACTS

Respondent Planters Products, Inc. (PPI) entered into a financing arrangement with respondent Janet Layson for fertilizer deliveries. On February 11, 1980, Layson executed a document called a “pagares” on the dorsal side of a UCPB promissory note, assigning the proceeds of her approved ₱200,000 loan from UCPB-Iloilo to PPI as payment. UCPB branch manager Gregory Grey signed a portion stating, “Assignment accepted and payment unconditionally guaranteed.” Relying on this, PPI delivered fertilizers. However, Layson, with Grey’s connivance, withdrew the loan proceeds the next day. Similar transactions followed. When PPI presented the documents for collection, UCPB denied liability, asserting Grey exceeded his authority and that such guarantees are prohibited by banking law.
The Regional Trial Court absolved UCPB, holding Grey acted beyond his authority. The Court of Appeals reversed, declaring UCPB jointly and severally liable with Layson for the first ₱200,000 transaction, ruling the pagares constituted a binding assignment of credit which UCPB, through Grey, undertook to honor.

ISSUE

Whether UCPB is bound by its branch manager’s undertaking to guarantee payment and deliver loan proceeds to PPI.

RULING

No, UCPB is not bound. The Supreme Court reversed the CA and reinstated the RTC decision. The legal logic hinges on the principle of agency and the doctrine of apparent authority. For a corporation to be bound by an agent’s act, the agent must have acted within the scope of his actual or apparent authority. Here, Grey’s act of guaranteeing payment was neither. The document itself showed Grey was acting in a personal capacity, as he signed the guarantee without indicating he was representing UCPB. His undertaking was a direct personal guarantee, a practice expressly prohibited for bank officers under the General Banking Act (Section 83, R.A. 337). A prohibited act cannot be considered within an officer’s apparent authority. UCPB did not hold Grey out as possessing the power to issue such guarantees; therefore, it cannot be estopped from denying liability. The bank cannot be bound by an unauthorized, illegal act of its officer done in connivance with a client. Consequently, only Layson is primarily liable to PPI for the fertilizer purchases, with PPI having recourse against Grey’s estate. The Court also upheld the deletion of attorney’s fees against PPI, as its suit against UCPB was not baseless given Grey’s pivotal role.