Engineering Geoscience, Inc. vs. Philippine Savings Bank

A corporation is bound by the acts of its officers under the doctrine of apparent authority when it knowingly permits an officer to act within the scope of apparent authority and holds him out to the public as possessing such power; moreover, a corporation is estopped from denying an officer's authority after benefiting from the officer's acts and unduly delaying its repudiation for twelve years.

The case arose from a loan obligation of EGI to PSBank secured by real estate mortgage. After EGI defaulted on the loan, PSBank initiated foreclosure proceedings. EGI filed a complaint before the Regional Trial Court (RTC) to annul the loan contract and obtained a writ of preliminary injunction. Before the case proceeded to trial, the parties entered into a compromise agreement which the RTC approved in 1993. When EGI failed to comply with the payment terms under the compromise, execution proceedings followed, culminating in the transfer of the mortgaged properties to PSBank. Twelve years after the approval of the compromise agreement, EGI sought to nullify it, claiming its former president acted without board authority and had fraudulently concealed the proceedings from the corporation.

• EGI obtained a loan from PSBank in the principal amount of ₱24,064,000.00 on February 14, 1990, secured by a Real Estate Mortgage over two parcels of land covered by TCT Nos. 292874 and 249866, executed by EGI's President Jose Rolando Santos.
• EGI defaulted on the loan after making only partial payments totaling ₱3,223,192.91, prompting PSBank to invoke the acceleration clause and demand full payment on February 11, 1991.
• PSBank filed a petition for extra-judicial foreclosure on May 21, 1991, but the sale was enjoined by the RTC on August 26, 1991, upon EGI's filing of a complaint to annul the loan contract.
• On December 29, 1992, the parties submitted a Joint Motion for Approval of Compromise Agreement, which the RTC approved on January 12, 1993, requiring EGI to pay ₱38,002,182.56 by December 31, 1993, with alternative provisions for deed of absolute sale or extended payment terms depending on compliance.
• Paragraph 10 of the Compromise Agreement stated: "The parties' representatives signing this Compromise Agreement expressly warrant that they have been duly authorized to represent and bind their respective corporations."
• EGI failed to comply with the compromise terms; PSBank obtained a Writ of Execution on July 18, 1994, leading to the execution of a Deed of Absolute Sale by the Branch Clerk of Court as attorney-in-fact of EGI on February 27, 1995.
• The mortgaged properties were registered in PSBank's name under new TCT Nos. N-136360 and N-136261.
• In 2005, twelve years after the approval of the compromise agreement, EGI first raised the issue that its former president, Jose Rolando Santos, lacked authority from the Board of Directors to file the original complaint and enter into the compromise agreement.
• EGI alleged that Santos intentionally and deliberately concealed the complaint and compromise agreement from the board, and that no special power of attorney, board resolution, or secretary's certificate authorized Santos to bind the corporation.
• The records showed that Santos signed the promissory notes from 1984 to 1990 as EGI's President, and EGI made partial payments on the loan without informing PSBank of any change in Santos' status or authority.

• EGI argued that its former president, Jose Rolando Santos, had no actual authority to file the complaint against PSBank or to enter into the compromise agreement, as there was no board resolution, special power of attorney, or secretary's certificate authorizing him to do so.
• EGI contended that the compromise agreement was void ab initio and the judgment based on it was null and void, vesting no rights and holding no obligations, citing Rivero vs. Court of Appeals.
• EGI asserted that the trial court never acquired jurisdiction over EGI because the complaint was filed without proper authorization, violating due process.
• EGI claimed that Santos acted fraudulently in concealing the proceedings from the board of directors, and that the compromise agreement was highly inequitable.
• EGI argued that it was not guilty of forum shopping or laches, and that it was merely following the CA's earlier directive to avail of the proper remedy to set aside the compromise agreement.

• PSBank argued that EGI was estopped from questioning the authority of Santos and its counsel after actively participating in the proceedings for over twelve years and benefiting from the compromise agreement's extended payment terms.
• PSBank contended that the CA had already declared the 1993 Decision final and executory in CA-G.R. SP No. 41348, and that the trial court could not reverse a decision of a co-equal body.
• PSBank asserted that Santos had apparent authority to bind EGI, as he was the corporation's president and had previously transacted with PSBank regarding the loan and mortgage without EGI disclaiming his authority.
• PSBank argued that the compromise agreement was a judicial compromise stamped with judicial approval, having the force of law and the effect of res judicata, citing Ynson vs. Court of Appeals.
• PSBank claimed that EGI's delay of twelve years in questioning the authority constituted laches, and that EGI was guilty of forum shopping for filing multiple petitions while motions were pending.

• Procedural Issues:
  • Whether the petition for review on certiorari under Rule 45 properly raises questions of law or involves questions of fact regarding the authority of EGI's former president.
  • Whether the Court of Appeals erred in annulling the trial court orders dated August 24, 2007 and January 23, 2008 which set aside the compromise agreement.
  • Whether the trial court could reverse a final and executory decision of a co-equal body (the Court of Appeals).
• Substantive Issues:
  • Whether Jose Rolando Santos, as former president of EGI, had actual or apparent authority to enter into the compromise agreement and file the complaint on behalf of EGI.
  • Whether the doctrines of apparent authority, estoppel, and laches apply to bind EGI to the compromise agreement despite the alleged lack of express board authorization.

• Procedural:
  • The Court held that while the petition hinges on a factual determination (whether Santos had authority to represent EGI), none of the recognized exceptions to the rule that Rule 45 petitions cover only questions of law apply in this case.
  • The Court found that the Court of Appeals correctly annulled the trial court orders because the trial court gravely abused its discretion in reversing the 1993 Decision, which had long become final and executory and had been affirmed by the Court of Appeals in CA-G.R. SP No. 41348; a trial court cannot reverse a decision of a co-equal body.
  • The Court noted that the alleged violation of the 10-day notice period under Section 5, Rule 15 was harmless and did not prejudice EGI.
• Substantive:
  • The Court ruled that while no evidence showed express authority (board resolution, special power of attorney, or secretary's certificate) for Santos to file the complaint or enter into the compromise, the doctrine of apparent authority applied.
  • EGI held out Santos as its president in previous loan transactions (signing promissory notes from 1984-1990) and did not inform PSBank of any change in his status or authority, leading PSBank to reasonably believe Santos had authority to compromise.
  • EGI is estopped from denying Santos' authority after benefiting from the compromise agreement (which extended payment terms and prevented immediate foreclosure) and after actively participating in the proceedings for twelve years.
  • The twelve-year delay in questioning Santos' authority constitutes laches, barring EGI's claim and prejudicing PSBank.
  • The Court affirmed the reinstatement of the January 12, 1993 Decision approving the compromise agreement.

• Apparent Authority — Acts and contracts of an agent within the apparent scope of authority conferred on him, although no actual authority has been conferred, bind the principal when the principal's conduct leads third persons reasonably to believe such authority exists. The principal's liability is limited to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was actually given. Apparent authority is determined only by the acts of the principal and not by the acts of the agent.
• Estoppel — If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority.
• Laches — The failure to assert a right for an unreasonable length of time, coupled with undue delay that prejudices the other party, bars the claim. In this case, the twelve-year delay in questioning the authority of the corporate president to enter into a compromise agreement constituted laches.
• Judicial Compromise — A compromise agreement approved by the court has the force of law between the parties and the effect of res judicata, and should not be disturbed except for vices of consent or forgery.
• Authority of Corporate Officers — The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation; however, this admits of exceptions such as apparent authority and estoppel.

• "A corporation, as a juridical entity, acts through its board of directors. The board exercises almost all corporate powers, lays down all corporate business policies, and is responsible for the efficiency of management. The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation."
• "Under this doctrine [apparent authority], acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred, bind the principal."
• "Apparent authority is determined only by the acts of the principal and not by the acts of the agent."
• "It is a familiar doctrine that if a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority."
• "Fraud is never presumed, but must be established by clear and convincing evidence. Outside its bare allegation of fraud and the absence of a special power of attorney and/or secretary's certificate, EGI never advanced any evidence to show how and why its former president deliberately concealed from its board of directors the complaint filed before the trial court and the subsequent compromise agreement."

• Rivero v. Court of Appeals — Cited by the trial court for the proposition that a compromise agreement executed by one not duly authorized is void; distinguished by the Supreme Court because the present case involves apparent authority and estoppel.
• Ynson v. Court of Appeals — Cited by PSBank to establish that a judicial compromise stamped with judicial approval has the force of law and is conclusive between the parties, having the sanction of the court.
• Cruz v. Intermediate Appellate Court — Cited by the Court of Appeals to emphasize that a judgment on compromise has the effect of res judicata and should not be disturbed except for vices of consent or forgery.
• Cebu Mactan Members Center, Inc. v. Tsukahara — Cited for the general rule regarding authority of corporate officers and the requirement of board action to bind the corporation.
• Banate v. Philippine Countryside Rural Bank (Liloan, Cebu), Inc. — Cited for the doctrine of apparent authority as applied to corporate officers.
• Lipat v. Pacific Banking Corp. — Cited for the principle that apparent authority may be ascertained through the general manner in which the corporation holds out an officer as having power to act, or through acquiescence in his acts with actual or constructive knowledge.
• Republic of the Philippines v. Belmonte — Cited for the exceptions to the rule that petitions for review on certiorari under Rule 45 should cover only questions of law.

• Section 23, Corporation Code of the Philippines — Provides that corporate powers are exercised by the board of directors or trustees, establishing the general rule that officers need board authority to bind the corporation.
• Section 1, Rule 45, 1997 Rules of Civil Procedure — Limits petitions for review on certiorari to questions of law, which must be distinctly set forth.
• Section 5, Rule 7, Rules of Court — Cited regarding forum shopping and the sanction of dismissal for deliberate resort to forum shopping.
• Section 5, Rule 15, Rules of Court — Cited regarding the 10-day notice period for motions, which the trial court found violated but the appellate court deemed harmless and not prejudicial.