Georg vs. Holy Trinity College

A corporation is bound by contracts entered into by its president on behalf of an unregistered internal organization when the corporation knowingly permits the president to act within the scope of apparent authority by consistently providing financial support, supervision, and resources to the organization without board objection, thereby holding the president out as possessing the power to bind the corporation in transactions related to that organization.

The dispute arose from a Memorandum of Agreement (MOA) executed to finance international airline tickets for the Holy Trinity College Grand Chorale and Dance Company's European tour. The Group, though composed of college students and supervised by the school administration, was not registered as a separate juridical entity. The central legal question is whether the college, as a corporation, is liable for the financial obligations contracted by its president for the benefit of this internal group, particularly under the doctrines of apparent authority and corporation by estoppel.

• The Holy Trinity College Grand Chorale and Dance Company (the Group) was organized in 1987 by Sr. Teresita Medalle (Sr. Medalle), who was the President of respondent Holy Trinity College, Inc.
• The Group was composed of college students and was not registered with the Securities and Exchange Commission; it existed as an internal organization subject to the college's full control and supervision, including selection and hiring of trainers, provision of honorarium, and financing of costumes.
• In 2001, the Group was scheduled to perform in Greece, Italy, Spain, and Germany. Edward Enriquez, allegedly representing Sr. Medalle, contacted petitioner Benjie B. Georg (a Filipina married to a German national and owner of a travel agency) to seek assistance in paying for international airline tickets.
• On April 24, 2001, a Memorandum of Agreement with Deed of Assignment (MOA) was executed between petitioner (represented by Atty. Benjamin Belarmino, Jr.), the Group (represented by Sr. Medalle and/or Enriquez), and S.C. Roque Foundation as foundation-grantor.
• Under the MOA, petitioner advanced P4,624,705.00 for the Group's domestic and international airplane tickets based on the assurance that the foundation would allocate funds to repay the advance.
• Sr. Medalle affixed her thumbmark to the MOA while confined at the University of Santo Tomas Hospital following a stroke; Atty. Belarmino personally met with her to verify her consent and authority.
• The Group proceeded with the European tour but the obligation to petitioner remained unpaid, prompting the filing of the collection suit.
• During pre-trial, respondent's counsel admitted that Sr. Medalle's act was not ultra vires, which the trial court construed as an admission that she acted within the scope of her authority.
• The Board of Trustees of Holy Trinity College never passed a resolution authorizing the loan, nor did they formally object to the existence or activities of the Group prior to the litigation.

• Sr. Medalle affixed her thumbmark to the MOA in her capacity as President of Holy Trinity College, not merely as head of the Group, as evidenced by the document's reference to "ITS" President and the Group's lack of juridical personality.
• The doctrine of corporation by estoppel operates against respondent because the college allowed the Group to exist and operate under its name, and petitioner dealt with the Group in good faith believing it to be an official college entity.
• The doctrine of piercing the veil of corporate fiction applies because the Group has no separate juridical personality and merely derives its existence from the college administration.
• The deposition of Sr. Medalle was improperly admitted by the Court of Appeals because it lacked the required certification under Section 20, Rule 23 of the Rules of Court and was taken without leave of court as required by Section 1, Rule 23.
• Sr. Medalle possessed full mental capacity when she affixed her thumbmark, and respondent failed to prove that her illness impaired her judgment or that her consent was vitiated by fraud.
• Respondent is deemed to have admitted the genuineness and due execution of the MOA during pre-trial and cannot raise lack of privity for the first time on appeal.
• Sr. Medalle had apparent authority to bind the college because she organized the Group as a college project, funded it through college resources, and the Board never questioned her authority over the Group.

• Holy Trinity College is not a party to the MOA because its name does not appear as a signatory or party thereto; only the Group (an unregistered entity) was named as assignor.
• Sr. Medalle was no longer the President of the college when she affixed her thumbmark, having been succeeded by Sr. Estrella Tangan (or Sr. Lina Tuyac as Acting President) as of March 2001.
• Sr. Medalle was not authorized by the Board of Trustees to enter into a loan agreement; her authority was limited to spending P30,000.00 for non-budgeted expenses without board approval.
• Sr. Medalle's thumbmark was secured through fraud or mistake because she believed the document was necessary only to facilitate the release of a donation from the foundation, not to create a binding loan obligation.
• Petitioner failed to exercise reasonable diligence in ascertaining the extent of Enriquez's and Sr. Medalle's authority, and should have verified the board resolution authorizing the loan.
• The doctrine of corporation by estoppel does not apply because the college was not complicit in any misrepresentation and did not benefit from the loan transaction.

• Procedural Issues: Whether the Court of Appeals erred in admitting the deposition of Sr. Medalle despite non-compliance with the requirements of Sections 1 and 20, Rule 23 of the Rules of Court; Whether the Court of Appeals erred in disregarding the trial court's finding that respondent admitted the genuineness and due execution of the MOA.
• Substantive Issues: Whether respondent is liable under the MOA; Whether Sr. Medalle had actual or apparent authority to bind respondent to the loan agreement; Whether the doctrine of corporation by estoppel applies to hold respondent liable; Whether Sr. Medalle's consent was vitiated by fraud, mistake, or lack of mental capacity.

• Procedural: The Supreme Court held that the deposition of Sr. Medalle was improperly admitted. Respondent failed to comply with Section 20, Rule 23 (lack of certification by the officer that the witness was sworn and that the deposition is a true record) and Section 1, Rule 23 (failure to obtain leave of court before filing an answer). However, the Court noted that the trial court did not give probative weight to this deposition, and the reversal of the Court of Appeals was based on other substantial evidence of record.
• Substantive: The Supreme Court held that Sr. Medalle acted with apparent authority. The Group was organized by Sr. Medalle in her capacity as College President, funded and supervised by the college, used school premises for rehearsals, and represented the college in performances. The Board of Trustees never questioned the existence of the Group or Sr. Medalle's actions regarding it, effectively acquiescing to her authority. Under the doctrine of apparent authority, a corporation is estopped from denying an agent's authority if it knowingly permits the officer to act within the scope of apparent authority and holds him out to the public as possessing such power. The Court found that petitioner dealt with Sr. Medalle in good faith reliance on her presidential authority over the Group. Consequently, the Court reversed the Court of Appeals and reinstated the RTC decision holding respondent liable.

• Apparent Authority — Defined as the authority which a corporation knowingly permits one of its officers or agents to act within, holding him out to the public as possessing the power to do such acts. The existence of apparent authority may be ascertained through: (1) the general manner in which the corporation holds out an officer or agent as having the power to act; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. In this case, the Court applied this doctrine because the college consistently allowed Sr. Medalle to organize, fund, and supervise the Group using corporate resources without board objection, thereby clothing her with apparent authority to contract for the Group's benefit.
• Corporation by Estoppel — A doctrine holding that when a corporation allows someone to act in a manner that leads third parties to believe they are dealing with the corporation, the corporation cannot later deny liability. The Court noted that respondent allowed the Group to operate under its name and supervision, making this doctrine applicable.
• Piercing the Veil of Corporate Fiction — Applied when the separate juridical personality of a corporation is disregarded to prevent fraud or injustice. The Court noted that the Group had no juridical personality separate from the college, as it was merely an internal organization created and controlled by the school administration.

• "The doctrine of apparent authority provides that a corporation will be estopped from denying the agent's authority if it knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, and it holds him out to the public as possessing the power to do those acts."
• "The existence of apparent authority may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers."
• "Assuming arguendo that Sr. Medalle was not authorized by the Holy Trinity College Board, the doctrine of apparent authority applies in this case."
• "A notarized document enjoys the presumption of regularity and is conclusive as to the truthfulness of its contents absent any clear and convincing proof to the contrary."

• Advance Paper Corp. v. Arma Traders Corp. — Cited for the definition of apparent authority and the test for its existence.
• Inter-Asia Investments Ind., Inc. v. Court of Appeals — Cited for the proposition that apparent authority may be shown by acquiescence in the agent's acts with actual or constructive knowledge.
• People's Aircargo and Warehousing Co., Inc. v. Court of Appeals — Cited for the principle that a corporation is estopped from denying an agent's apparent authority.
• Francisco v. Government Service Insurance System — Cited for the doctrine of apparent authority.
• Republic of the Phils. v. Sandiganbayan — Cited for the rule that depositions pending action require leave of court before an answer is filed.
• Archipelago Management and Marketing Corp. v. Court of Appeals — Cited for the definition of causal fraud (dolo causante) under Article 1330 of the Civil Code.

• Article 1318, New Civil Code — States the essential requisites of contracts (consent, object certain, cause).
• Article 1330, New Civil Code — Provides that consent may be vitiated by mistake, violence, intimidation, undue influence, or fraud, rendering the contract voidable.
• Section 1, Rule 23, Rules of Court — Requires leave of court to take a deposition before an answer is served.
• Section 20, Rule 23, Rules of Court — Mandates that the officer certify on the deposition that the witness was sworn and that the deposition is a true record.
• Section 8, Rule 8, Rules of Court — Discussed regarding the requirement of specific denial under oath for documents; held inapplicable to parties not appearing to be parties to the instrument.