G.R. No. 115849, 24 January 1996


In the course of its banking operations, the defendant Producer Bank of the Philippines acquired 6 parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna and covered by TCT No. T-106932 to T-106937.

The property used to be owned by BYME Investment and Development Corporation which hd them mortgaged with the bank as collateral for a loan. The plaintiff originals, Demetrio Demetria and Jose Janolo wanted to purchase the property and thus initiated negotiations for that purpose.

In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment’s legal counsel, Fajardo met with defendant Mercurio Rivera, manager of the property management department of the defendant bank. The meeting was held in pursuant to plaintiffs’ plan to buy the property.

After the meeting, plaintiff Janolo, following the advice of defendant Rivera made a formal purchase offer to the Bank through a letter dated August 30,1987. Negotiations took place and an offer price was fixed at P5.5million. During the course of the negotiations, the defendant bank was placed under conservatorship and a new conservator was appointed to which the name has been refused to recognize. A derivative suit has been filed against Rivera for the damages suffered from the alleged perfect contract of sale involving the 6 parcels of land.


Whether or not a derivative suit may lie involving the bank and its stockholders.


No. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he hold stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones, to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party with the corporation as the real party in interest.

In the face of the damaging admissions taken from the complaint in the second case, petitioners, quite strangely, sought to deny that the second case was a derivative suit, reasoning that it was brought not by the minority shareholders, but by Henry Co. etal. who not only hold or control over 80% of the outstanding capital stock, but also constitute the majority in the board of directors of petitioners bank. That being so, then they really represent the bank, so whether they sued derivatively or directly, there is undeniably an identity of interest/entity represented.

In addition to the many cases, where the corporate fiction has been regarded, we now add the instant case, and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed to trifle with court processes particularly where, as in this case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping.

From the facts, the official bank price, at any rte, the bank placed its official, Rivera is a position of authority to accept offers to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and say, as it now does, that what Rivera states as the bank’s action on the matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a corporation on knowingly permits one of its officers, or any other agent, to do acts within the scope of 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, he estopped from denying his authority.

A bank is liable for wrongful acts of its officers done in the interest of the bank or in he course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority. A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they my thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shrink its responsibility for such fraud even through no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of its authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate fraud upon his principal or some other person, for his own ultimate benefit.

Section 28-A of BP 68 merely gives the conservator power to revoke contracts that are, under existing law, deemed not to be effective – i.e void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank’s board of directors. What the said board cannot do – such as repudiating a contract validly entered into under the doctrine of implied authority – the conservator cannot do either.

*Case Digest by Bryne Angelo M. Brillantes, JD-IV, Andres Bonifacio Law School, SY 2019-2020