Calubad vs. Ricarcen Development Corporation

A corporation that intentionally or negligently clothes its agent with apparent authority to act on its behalf is estopped from denying that apparent authority as to innocent third parties who dealt with the agent in good faith, even if the agent lacked actual authority, provided the third party reasonably relied on the principal's conduct in believing the agent was authorized.

Ricarcen Development Corporation was a domestic family corporation engaged in renting out real estate and was the registered owner of a parcel of land at 53 Linaw St., Sta. Mesa Heights, Quezon City, covered by TCT No. RT-84937 (166018). Marilyn R. Soliman served as president from 2001 to August 2003, with her mother Erlinda Villanueva, brother Josefelix Villanueva, aunt Maura Rico, and sisters Ma. Elizabeth V. Chamorro, Ma. Theresa R. Villanueva, and Annabelle R. Villanueva comprising the rest of the board of directors. Elizabeth acted as corporate secretary.

Ricarcen Development Corporation, a family corporation engaged in renting out real estate, was the registered owner of a parcel of land at 53 Linaw St., Sta. Mesa Heights, Quezon City, covered by TCT No. RT-84937 (166018) and subdivided into two lots. Marilyn R. Soliman served as president from 2001 to August 2003, with her mother Erlinda Villanueva, brother Josefelix Villanueva, aunt Maura Rico, and sisters including Ma. Elizabeth V. Chamorro (corporate secretary) comprising the rest of the board.

On October 15, 2001, Marilyn, acting on Ricarcen's behalf as its president, obtained a ₱4,000,000.00 loan from Arturo C. Calubad, secured by a real estate mortgage over the Quezon City property. The loan was payable within six months at a compounded interest of 5% for the first month and 3% for succeeding months, with a 1% monthly penalty on the principal in case of delay, and with the first monthly interest payment of ₱200,000.00 deducted from the loan proceeds. To prove her authority, Marilyn presented a Board Resolution dated October 15, 2001, empowering her to borrow money and use the property as collateral, along with Secretary's Certificates dated December 6, 2001 and May 8, 2002, executed by Elizabeth in her capacity as corporate secretary. The loan was subsequently increased to ₱5,000,000.00 on December 6, 2001, and by an additional ₱2,000,000.00 on May 8, 2002, through amended deeds of mortgage under the same terms, with the same property as security.

Calubad released the loan proceeds through checks payable to Ricarcen, which were deposited in Ricarcen's bank account with Banco de Oro, Banawe Branch, and were honored by the drawee bank. From December 15, 2001 to December 6, 2002, Ricarcen issued several Banco de Oro checks payable to Calubad representing monthly interest payments and principal payments on the loans. These checks were drawn by either Erlinda or Elizabeth, jointly with Marilyn. Some of the later checks were dishonored for insufficiency of funds, and Calubad no longer deposited several subsequent checks upon Marilyn's request, as Ricarcen's funds were by then insufficient.

Sometime in 2003, after Ricarcen failed to pay its loan, Calubad initiated extrajudicial foreclosure proceedings on the real estate mortgage. The auction sale was set on March 19, 2003, where Calubad was the highest bidder. A Certificate of Sale was issued on March 27, 2003, and annotated on the title on April 10, 2003. Ricarcen claimed it only learned of Marilyn's transactions with Calubad sometime in July 2003, upon receiving a notice of foreclosure. Upon confirming that the property had been mortgaged, foreclosed, and sold to Calubad, Ricarcen's board removed Marilyn as president, appointed Josefelix as the new president, and authorized him to initiate court actions to protect Ricarcen's interests. On September 9, 2003, Ricarcen filed its complaint for annulment of the real estate mortgage, extrajudicial foreclosure, and sale with damages against Marilyn, Calubad, and employees of the Registry of Deeds and RTC of Quezon City. Ricarcen claimed it never authorized Marilyn to obtain loans or use the property as collateral. The RTC found that the Board Resolution and Secretary's Certificates were fabricated, as the notary public, Atty. William S. Merginio, denied having notarized them, and they did not appear in his notarial register. Elizabeth later denied signing the documents, saying she regularly signed blank documents and left them with Marilyn, and that the Board Resolution and Secretary's Certificates might have been among those blank documents.

• Apparent Authority and Estoppel: Petitioner argued that Ricarcen clothed Marilyn with apparent authority to act on its behalf by entrusting signed blank documents to her and by giving her possession of the owner's duplicate copy of TCT No. RT-84937 (166018), and that Ricarcen was therefore estopped from denying her authority.
• Benefit from Loan Proceeds: Petitioner maintained that Ricarcen benefited from the loan proceeds, which were issued through checks payable to Ricarcen, deposited in its bank account, and cleared, and that several withdrawal slips and checks drawn from Ricarcen's account by Elizabeth or Erlinda jointly with Marilyn proved that the proceeds were used by the corporation.
• Implied Agreement Through Interest Payments: Petitioner asserted that Ricarcen impliedly agreed to the mortgage loans by paying the monthly interest payments through checks drawn and issued by Erlinda and Marilyn, which induced him to grant additional loans.
• Good Faith and Diligence: Petitioner argued that he exercised the necessary diligence by requiring Marilyn to submit the Board Resolution and Secretary's Certificates to prove her authority, and that as an innocent third party dealing in good faith, he should not be made to suffer for Ricarcen's negligence.
• Propriety of Rule 45 Appeal: Petitioner claimed that the case fell under recognized exceptions to the general rule that only questions of law may be raised in a Rule 45 petition, since the findings of the lower courts were contradicted by the evidence on record, making the inference manifestly mistaken.

• Improper Resort to Rule 45: Respondent argued that the petition raised questions of fact, which are not proper in a petition for review on certiorari, and that petitioner failed to demonstrate any exceptional circumstances warranting a review of factual findings.
• Fabricated Authority Documents: Respondent asserted that while the documents it purportedly issued enjoy the presumption of validity, this presumption is not absolute, and it had shown convincing evidence of the invalidity of the Board Resolution and Secretary's Certificates, which were not in fact executed by the board of directors.
• Void Contracts Not Subject to Ratification: Respondent maintained that Marilyn clearly acted without authority, rendering the contracts of loan and mortgage void and incapable of ratification.
• Absence of Estoppel: Respondent claimed it could not be held guilty of estoppel in pais since it never induced nor led petitioner to believe that Marilyn was duly authorized, and it did not knowingly accept any benefit from the loan proceeds.
• Absence of Laches: Respondent argued it was not guilty of laches because it only learned about the loan in July 2003 upon receiving a notice of foreclosure, and immediately took action by removing Marilyn as president and filing the annulment case.
• Petitioner's Lack of Diligence: Respondent declared that petitioner either connived with Marilyn or, at the very least, failed to exercise reasonable diligence and prudence in ascertaining Marilyn's supposed authority.

• Estoppel/Apparent Authority: Whether Ricarcen Development Corporation is estopped from denying or disowning the authority of Marilyn R. Soliman, its former president, from entering into a contract of loan and mortgage with Arturo C. Calubad.
• Propriety of Rule 45 Review: Whether the case falls under recognized exceptions to the general rule that only questions of law may be raised in a petition for review on certiorari under Rule 45.
• Damages: Whether petitioner is entitled to an award of moral, exemplary damages, and attorney's fees.

• Estoppel/Apparent Authority: Yes. Ricarcen was estopped from denying Marilyn's apparent authority because it had negligently clothed her with indicia of authority—entrusting signed blank documents and the owner's duplicate title to her—and its officers had issued checks representing interest payments, all of which reasonably led Calubad, as an innocent third party dealing in good faith, to believe she was duly authorized.
• Propriety of Rule 45 Review: Yes. The case fell under the recognized exceptions to the general rule, specifically where "the inference made is manifestly mistaken," as the lower courts' findings were contradicted by the evidence on record.
• Damages: No. Petitioner's prayer for damages was denied for failure to provide factual or legal basis, there being no sufficient showing that Ricarcen acted fraudulently, in bad faith, or with wanton disregard of its obligation.

• Estoppel/Apparent Authority: Under Section 23 of the Corporation Code, corporate powers are exercised by the board of directors, which may delegate its functions to officers or agents. The authority to bind the corporation may be express or implied by habit, custom, or acquiescence. Two types of authority are recognized: actual authority (express or implied) and apparent authority, the latter based on estoppel under Articles 1431 and 1869 of the Civil Code. Apparent authority is determined by the acts of the principal, not the agent. As Ricarcen's former president, Marilyn acted within the scope of her authority. The corporate secretary had entrusted her with signed blank documents, and she possessed the owner's duplicate copy of the land title. Loan proceeds were deposited in Ricarcen's bank account and cleared. From December 2001 to 2002, Erlinda and Elizabeth, jointly with Marilyn, issued checks representing interest and principal payments to Calubad. These acts constituted clothing Marilyn with apparent authority and manifested acquiescence to her transactions. Calubad, as an innocent third party dealing in good faith, should not be made to suffer for Ricarcen's negligence in conducting its own business affairs. Under the doctrine from Yao Ka Sin Trading vs. Court of Appeals, if a corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation is estopped to deny that such apparent authority is real as to innocent third persons.
• Propriety of Rule 45 Review: While Rule 45 petitions are limited to questions of law, recognized exceptions exist, including when "the inference made is manifestly mistaken." After a careful study of the records, the Court was convinced that this case fell under the exceptions cited in Medina vs. Mayor Asistio, Jr., making the Rule 45 appeal proper.
• Damages: Moral damages are not automatically awarded upon breach of contract; it must be proven that the breaching party acted fraudulently or in bad faith or with wanton disregard of the obligation. Petitioner failed to allege that Ricarcen acted fraudulently or wantonly. The Court was not convinced that fraud, bad faith, or wanton disregard could be imputed to Ricarcen due to its bad business judgment and negligence in trusting Marilyn. Without a showing of fraudulent or wanton conduct, exemplary damages under Article 2232 of the Civil Code could not be awarded, and consequently, attorney's fees and costs of suit under Article 2208 could not be recovered either.

• Doctrine of Apparent Authority — Apparent authority is based on the principle of estoppel. Even if no actual authority has been conferred on an agent, the agent's acts bind the principal so long as they are within the apparent scope of authority, provided the third person reasonably relied on the principal's conduct in believing the agent was authorized. Apparent authority is determined by the acts of the principal and not by the acts of the agent. It may be ascertained through: (1) the general manner by which the corporation holds out an officer or agent as having the power to act, or (2) the acquiescence in the agent's acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of ordinary powers. In this case, Ricarcen clothed Marilyn with apparent authority by entrusting signed blank documents and the owner's duplicate title to her, and by its officers' issuance of checks representing interest payments, thereby estopping it from denying her authority as to Calubad, who dealt in good faith.
• Estoppel of Corporation Against Innocent Third Parties — If a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation is estopped to deny that such apparent authority is real, as to innocent third persons dealing in good faith with such officers or agents. Applied here, Ricarcen's negligence in conducting its own business affairs—entrusting blank signed documents and the title to Marilyn—could not be used to prejudice Calubad, an innocent third party.
• Exceptions to the Rule on Questions of Law in Rule 45 Petitions — While only questions of law may be raised in a Rule 45 petition, ten recognized exceptions allow review of factual findings, including when the inference made is manifestly mistaken, when the judgment is based on a misapprehension of facts, when the findings of fact are conflicting, and when the findings of the Court of Appeals are contrary to those of the trial court, among others. Parties must demonstrate by convincing evidence that the case clearly falls under these exceptions.

• "When a corporation intentionally or negligently clothes its agent with apparent authority to act in its behalf, it is estopped from denying its agent's apparent authority as to innocent third parties who dealt with this agent in good faith." — This is the opening statement of the decision and encapsulates the controlling doctrine on apparent authority and corporate estoppel applied throughout the ruling.
• "However, Calubad, as an innocent third party dealing in good faith with Marilyn, should not be made to suffer because of Ricarcen's negligence in conducting its own business affairs." — This passage articulates the ratio decidendi for reversing the Court of Appeals, foregrounding the protection of innocent third parties over a corporation's internal negligence.
• "Apparent authority is determined by the acts of the principal and not by the acts of the agent." — This defines the canonical formulation of how apparent authority is assessed, emphasizing that the principal's conduct—not the agent's—is the operative factor, a principle frequently cited in subsequent corporate law jurisprudence.

• Yao Ka Sin Trading vs. Court of Appeals, 285 Phil. 345 (1992) — Controlling precedent on apparent authority and corporate estoppel. The Court relied on its formulation that a corporation intentionally or negligently clothing its agents with apparent power is estopped from denying that authority as to innocent third persons, and applied its two-pronged test for ascertaining apparent authority.
• Medina vs. Mayor Asistio, Jr., 269 Phil. 225 (1990) — Followed for its enumeration of the ten recognized exceptions to the general rule that only questions of law may be raised in a Rule 45 petition. The Court found that the case fell under the exception where "the inference made is manifestly mistaken."
• Pascual vs. Burgos, G.R. No. 171722, Jan. 11, 2016 — Followed for the instruction that parties seeking review of factual findings must demonstrate by convincing evidence that the case clearly falls under the recognized exceptions, bearing the burden of proving that such review is necessary.
• People's Aircargo and Warehousing Co., Inc. vs. Court of Appeals, 357 Phil. 850 (1998) — Cited for the principle that the authority to bind a corporation is derived from law, its corporate by-laws, or directly from the board of directors, either expressly or impliedly by habit, custom, or acquiescence in the general course of business.
• Banate vs. Philippine Countryside Rural Bank (Liloan, Cebu), Inc., 639 Phil. 35 (2010) — Followed for the distinction between actual authority (express or implied) and apparent authority, and for the principle that apparent authority is determined by the acts of the principal and not by the acts of the agent.
• Philippine Savings Bank vs. Spouses Castillo, 664 Phil. 774 (2011) — Cited for the rule that moral damages are not automatically awarded upon breach of contract and require proof of fraudulent or bad faith conduct.
• Francisco vs. Ferrer, Jr., 405 Phil. 741 (2001) — Followed for the four conditions that must be met before moral damages may be awarded: injury sustained, culpable act or omission established, proximate cause, and predicate under Article 2219 of the Civil Code.

• Section 23, Corporation Code (Batas Pambansa Blg. 68) — Provides that corporate powers are exercised, business conducted, and property controlled by the board of directors, which may delegate its functions to officers or agents. Applied to establish that Marilyn's authority as president could bind Ricarcen if properly delegated or if the corporation clothed her with apparent authority.
• Article 1317, Civil Code — Provides that no one may contract in the name of another without being authorized by the latter or unless he has by law a right to represent him. Cited to underscore the necessity of delegated authority for agency, while acknowledging that apparent authority operates as an exception through estoppel.
• Article 1431, Civil Code — Provides that through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon. Applied as the statutory basis for the doctrine of apparent authority.
• Article 1869, Civil Code — Provides that agency may be express or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. Applied to support the finding that Ricarcen's acquiescence in Marilyn's acts constituted implied agency.
• Article 2232, Civil Code — Provides that in contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Applied to deny exemplary damages for lack of evidence of such conduct by Ricarcen.
• Article 2208, Civil Code — Enumerates the instances when attorney's fees and expenses of litigation may be recovered, including when exemplary damages are awarded. Applied to deny attorney's fees since no exemplary damages were awarded.
• Rule 45, Section 1, Rules of Court — Provides that a petition for review on certiorari shall raise only questions of law. Applied with recognized exceptions to allow the Court to review the lower courts' findings.
• Rule 45, Section 6, Rules of Court — States that review of appeals filed before the Supreme Court is not a matter of right but of sound judicial discretion. Cited to frame the discretionary nature of the Court's review.

Velasco, Jr. (Chairperson), Bersamin, Martires, and Gesmundo, JJ., concurred.