Cebu Mactan Members Center, Inc. vs. Tsukahara

A corporate president expressly empowered by the by-laws to borrow money, execute contracts, and sign checks and promissory notes binds the corporation without need of a separate board resolution. Because the by-laws themselves conferred such authority, the loans contracted by the president were valid corporate obligations.

Cebu Mactan Members Center, Inc. is a domestic corporation operating a beach resort, with Mitsumasa Sugimoto as its President and Chairman of the Board of Directors. Its corporate by-laws expressly empower the President to borrow money by any legal means, execute contracts and agreements, and sign, indorse, and deliver checks and promissory notes in the name and on behalf of the corporation. Corporate powers are otherwise exercised by the board of directors pursuant to Section 23 of the Corporation Code of the Philippines, subject to valid delegation to officers.

In February 1994, Cebu Mactan Members Center, Inc., through its President and Chairman Mitsumasa Sugimoto, obtained a loan of ₱6,500,000 from Masahiro Tsukahara. As payment, CMMCI issued seven postdated checks payable to Tsukahara, namely PNB Check No. 892657 dated 6 May 1994 for ₱4,860,000, PNB Check No. 892683 dated 6 September 1994 for ₱280,000, PNB Check No. 892684 dated 25 December 1994 for ₱270,000, PNB Check No. 892685 dated 31 March 1995 for ₱270,000, PNB Check No. 892686 dated 30 June 1995 for ₱280,000, PNB Check No. 892687 dated 30 September 1995 for ₱270,000, and PNB Check No. 892688 dated 25 December 1995 for ₱270,000.

Thereafter, on 13 April 1994, CMMCI, again through Sugimoto, obtained another loan of ₱10,000,000 from Tsukahara. Sugimoto executed and signed a promissory note both in his capacity as CMMCI President and Chairman and in his personal capacity, promising to pay Tsukahara or order ₱10,000,000 on or before 30 August 1996, plus interest at 18% per annum from the date of the instrument until fully paid.

Upon maturity, the seven checks were presented for payment but were dishonored by PNB, the drawee bank. After several failed attempts to collect the total ₱16,500,000, Tsukahara filed the action for collection of sum of money against CMMCI and Sugimoto. According to Tsukahara, the ₱16,500,000 was used by CMMCI for improvement of its beach resort, including construction of a wave fence, purchase of airconditioners and curtains, and payment of employees' salaries, and Sugimoto as President had power to borrow money and sign checks and promissory notes on behalf of the corporation. CMMCI, for its part, denied borrowing the amounts and claimed both loans were Sugimoto's personal loans, contending that any corporate loans should have been supported by resolutions of its Board of Directors.

The trial court found for Tsukahara and ordered CMMCI and Sugimoto jointly and severally to pay the two principal amounts with the stated interest, plus attorney's fees and costs, with Sugimoto, served by publication, declared in default. The Court of Appeals affirmed, sustaining the trial court's reliance on the express powers granted to the president under the corporate by-laws.

• Nature of the Loans: Petitioner argued that it never borrowed the amounts from Tsukahara and that both loans were the personal loans of Sugimoto, not corporate obligations.
• Necessity of Board Resolution: Petitioner maintained that if the loans were to be treated as those of CMMCI, they should have been supported by resolutions issued by CMMCI's Board of Directors, without which its president could not validly bind it.

• Use of Loan Proceeds: Respondent alleged that the ₱16,500,000 was used by CMMCI for improvement of its beach resort, including construction of a wave fence, purchase of airconditioners and curtains, and provision of salaries of resort employees.
• Authority of the President: Respondent asserted that Sugimoto, as President of CMMCI, has the power to borrow money for said corporation by any legal means whatsoever and to sign, endorse and deliver all checks and promissory notes on behalf of the corporation.

• Authority to Bind Corporation: Whether the Court of Appeals erred in holding that CMMCI is liable for the loan contracted by its President without a resolution issued by the CMMCI Board of Directors.

• Authority to Bind Corporation: No. CMMCI is liable because its by-laws expressly authorized its president to borrow money and execute checks and notes on its behalf, making a board resolution unnecessary.

• Authority to Bind Corporation: While corporate powers are exercised by the board of directors under Section 23 and no person, not even officers, can generally bind the corporation without board authority, the board may validly delegate functions and powers to officers, committees, or agents. Authority to bind may be derived from law, corporate by-laws, or board authorization expressly or impliedly by habit, custom, or acquiescence, including incidental, customary, and apparent powers. Here, Article III of CMMCI's by-laws expressly empowered the President to borrow money by any legal means, execute contracts and agreements, and sign, indorse, and deliver checks, drafts, promissory notes, and orders of payment in the name and on behalf of the corporation. With such express conferment, requiring a further board resolution would defeat the by-laws, which operate as the corporation's self-imposed private laws binding the corporation, its directors, and officers, and the corporation was estopped from denying its president's authority.

• Corporate powers vested in the board of directors — As a juridical entity, a corporation acts through its board of directors, which exercises almost all corporate powers, lays down business policies, and decides whether the corporation should enter into binding contracts, subject to the articles, by-laws, or law. Applied to establish the general rule that absent board authority, no person, not even officers, can validly bind the corporation.
• Delegation and sources of authority to bind the corporation — Just as a natural person may authorize another to act for him, the board may delegate functions and powers to officers, committees, or agents, whose authority is generally derived from law, corporate by-laws, or board authorization either expressly or impliedly by habit, custom, or acquiescence in the general course of business. Applied to sustain Sugimoto's authority as derived expressly from the by-laws without need of a separate resolution.
• Scope of corporate officer's or agent's authority — A corporate officer or agent may represent and bind the corporation to the extent authority has been conferred, including powers intentionally conferred, powers incidental to or implied from those powers in the usual course of business, powers added by custom and usage usually pertaining to the officer or agent, and apparent powers the corporation has caused third persons to believe were conferred. Applied to confirm that borrowing, contracting, and signing notes fell within the president's conferred powers.
• By-laws as binding private laws; estoppel — Valid corporate by-laws are construed under contract-construction rules and have substantially the same force as laws of the corporation, in effect written into the charter as part of its fundamental law, binding the corporation, its directors, and officers. Applied to hold that insisting on a board resolution despite the express by-laws grant would defeat the by-laws' purpose and estop CMMCI from denying its president's authority, as in People vs. Santos illustration is not needed here but the principle controlled.

• "A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that [the] authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred." — States the comprehensive formulation of conferred, incidental, customary, and apparent authority relied upon to uphold delegation to corporate officers.
• "x x x The court a quo correctly ruled that a board resolution in this case is a superfluity given the express provision of the corporate by-laws." — States the ratio that express by-laws authority dispenses with a separate board resolution for the president's loan transactions.
• "They, as the self-imposed private laws of a corporation, have, when valid, substantially the same force and effect as laws of the corporation, as have the provisions of its charter insofar as the corporation and the persons within it are concerned." — Defines the juridical force of by-laws and why CMMCI, its directors, and officers were bound to honor the president's by-laws-based powers.

• People's Aircargo and Warehousing Co., Inc. vs. Court of Appeals, 357 Phil. 850, 862 (1998) — Controlling precedent for the general rule requiring board authority and the rule that power to decide whether to enter a binding contract is lodged in the board, subject to delegation; followed, including its citation to Premium Marble Resources, Inc. vs. Court of Appeals.
• Premium Marble Resources, Inc. vs. Court of Appeals, 332 Phil. 10, 20 (1996) — Cited through People's Aircargo for the proposition that in the absence of board authority, no person, not even officers, can validly bind a corporation; followed as general rule.
• Yao Ka Sin Trading vs. Court of Appeals, G.R. No. 53820, 15 June 1992, 209 SCRA 763, 781 — Cited through People's Aircargo on the board's power over binding contracts; followed.
• San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals, 357 Phil. 631, 644 (1998) — Cited for the rule that the board may validly delegate functions and powers to officers, committees, or agents and that authority may arise expressly or impliedly; followed.

• Section 23, Corporation Code of the Philippines — Provides that corporate powers shall be exercised, business conducted, and property controlled and held by the board of directors or trustees; applied to frame the general rule on board authority, subject to valid delegation to the president.
• Article III, Officers, paragraphs 2(c), (d), and (e), CMMCI Corporate By-laws — Grants the President power to borrow money by any legal means including letters of credit and overdrafts, execute contracts and agreements, and sign, indorse, and deliver checks, drafts, bills of exchange, promissory notes, and payment orders in the name and on behalf of the corporation; applied as the express delegation rendering a board resolution unnecessary and validating Sugimoto's loans.

Reynato S. Puno, C.J., Chairperson, Renato C. Corona, J., Teresita J. Leonardo-De Castro, J., Lucas P. Bersamin, J.