Reyes vs. RCPI Employees Credit Union, Inc.

Corporate officers, including the President and Chairman of the Board, cannot validly bind a corporation in a borrowing transaction or in executing a promissory note without specific authorization from the Board of Directors; the power to borrow money is not inherent in the office of the president and requires express authority through by-laws or board resolution.

The case arises from a dispute between a former treasurer of a credit union and the credit union itself, involving a promissory note executed by the union's president allegedly to settle obligations, alongside cross-allegations of fund misappropriation and the subsequent filing of criminal complaints between the parties.

• On December 8, 1986, David F. Halican (President and Chairman of the Board) and Nestor Estremera (Accounting Officer) of RCPI Employees Credit Union, Inc. executed a promissory note for P162,338.52 in favor of Natividad G. Reyes, payable on or before March 8, 1987, with 2% monthly interest and liquidated damages of P15,000.
• Reyes was a former treasurer of the respondent credit union from 1981 to 1987.
• When the note matured unpaid, Halican issued four postdated PCIB checks in favor of Reyes, all of which were dishonored upon presentment.
• The respondent credit union filed two estafa cases against Reyes (I.S. No. 88-2693 and I.S. No. 90-108555) alleging misappropriation of corporate funds; both were dismissed by the City Prosecutor for insufficiency of evidence.
• Reyes filed a BP Blg. 22 case against Halican which was dismissed because she was also a signatory to the checks.
• The respondent denied authorizing Halican or Estremera to execute the promissory note or borrow money on its behalf.
• The respondent presented a Financial Audit Report claiming Reyes misappropriated P1,049,515.70 while serving as treasurer.
• The trial court ruled for Reyes based on the respondent's failure to deny under oath the Request for Admission regarding the promissory note execution.

• David Halican had authority to bind the respondent as its President and Chairman of the Board of Directors, and his acts were within the scope of his authority.
• The respondent is estopped from denying Halican's authority because: (1) it admitted Halican was its president at the time of execution; (2) Halican signed postdated checks as payment for the note; and (3) Halican did not raise lack of authority as a defense in the BP Blg. 22 case.
• The respondent impliedly admitted Halican's authority when it failed to deny under oath the matters alleged in the Request for Admission, particularly the execution of the promissory note.
• The counterclaim for misappropriation lacks factual and legal basis as the audit conclusions were based on conjectures, and she was not the record custodian of the credit union.

• It did not authorize David Halican or Nestor Estremera to act on its behalf in executing the promissory note or contracting the loan; the officers acted without authority.
• The petitioner failed to prove by the requisite quantum of evidence that Halican was authorized by the board of directors to borrow money or execute the promissory note.
• The power to borrow money requires a specific enabling act of the corporation approved by its Board of Directors, not merely the title of president.
• The counterclaim for P1,049,515.70 is supported by the Financial Audit Report showing petitioner's accountability for funds misappropriated while she was treasurer.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether the respondent credit union is liable to the petitioner on the subject promissory note executed and signed by its president and accounting officer.
  • Whether the petitioner is liable to the respondent on the latter's counterclaim for alleged misappropriation of funds.

• Procedural: N/A
• Substantive:
  • On the promissory note liability: The Court held that the respondent is NOT liable. A corporation may act only through its board of directors or through officers/agents when authorized by by-laws or board resolution. For corporate officers to exercise a power of the board, they must be specially authorized. The power to borrow money requires specific board authorization, which the petitioner failed to prove existed. The respondent did not ratify Halican's acts, and the circumstances cited (Halican's position, issuance of checks, failure to raise defense in BP Blg. 22 case) do not constitute ratification or estoppel. The failure to deny the Request for Admission does not establish authority because the request merely reiterated allegations already denied in the answer.
  • On the counterclaim: The Court held that the petitioner is NOT liable. The CA erred in finding the petitioner liable on the counterclaim. The trial court's evaluation was correct in finding that the audit conclusions were based on conjectures and that the petitioner, not being the record custodian, could not be held liable for alleged deficiencies in documentation that passed internal audits.

• Authority of Corporate Officers — Corporate officers can only bind the corporation when acting within the scope of their authority. The power to borrow money and execute promissory notes is not inherent in the office of the president and requires specific authorization from the Board of Directors, either through by-laws or board resolution. Applied here to absolve the credit union where no such authorization was proven.
• Ratification and Estoppel — A corporation may be bound by unauthorized acts of its officers if it ratifies such acts or is estopped from disclaiming them. Ratification may be express or implied, but mere silence or failure to deny allegations does not constitute ratification. The Court found no ratification where the corporation consistently denied liability and the circumstances did not show acceptance of the obligation.
• Request for Admission — A request for admission under the Rules of Court should set forth relevant evidentiary matters of fact, not merely reproduce or reiterate allegations already denied in the answer. Applied here to reject the petitioner's argument that failure to deny the request constituted admission of authority.

• "Hornbook is the rule that a corporation, like the respondent, may act only through its board of directors or, when authorized either by its by-laws or by board resolution, through its officers or agents in the normal course of business."
• "It is important, however, that for such corporate officers or agents to be deemed fully clothed by the corporation to exercise a power of the board, the latter must specially authorize them to do so."
• "As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation, but when these officers exceeded their authority, their actions cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them."
• "A request for admission is not intended to merely reproduce or reiterate the allegations of the requesting party's pleading but should set forth relevant evidentiary matters of fact, or documents described in and exhibited with the request, whose purpose is to establish said party's cause of action or defense."

• People's Aircargo and Warehousing Co., Inc. v. Court of Appeals — Cited for the principle that in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation.
• San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals — Cited for the rule that a corporation acts through its board of directors.
• ABS-CBN Broadcasting Corp. v. Court of Appeals — Cited for the principle that officers need special authorization to exercise corporate powers.
• Po v. Court of Appeals — Cited for the rule that a request for admission should not merely reiterate allegations already denied in the answer.

• Section 23, Corporation Code — Provides that corporate powers of all corporations shall be exercised by the board of directors or trustees. Cited to establish that borrowing money is a corporate power requiring board authorization.
• Article 1910, Civil Code — Provides that the principal is bound by the acts of the agent when the latter acts within the scope of his authority. Cited to distinguish between authorized and unauthorized acts of corporate officers.