Yasuma vs. Heirs of De Villa

A corporation cannot be held liable for loans obtained by its president where the promissory notes indicate only the personal liability of the officer, absent any showing of express, implied, or apparent authority to borrow on behalf of the corporation, or subsequent ratification with full knowledge of the material facts; additionally, a mortgage over corporate real property executed by a corporate officer without a special power of attorney is void ab initio and cannot be ratified.

• On September 15, 1988, October 21, 1988, and December 5, 1988, Cecilio S. de Villa obtained loans from petitioner Koji Yasuma in the amounts of P1,100,000, P100,000, and P100,000 respectively, totaling P1.3 million.
• The loans were evidenced by three promissory notes signed by de Villa as borrower; the last note for P1.3 million cancelled the first two.
• The loans were secured by three separate real estate mortgages on a parcel of land covered by Transfer Certificate of Title No. 176575 registered in the name of respondent East Cordillera Mining Corporation.
• The deeds of mortgage were executed on the same dates as the loans and were signed by de Villa in his capacity as president of the respondent corporation; the third mortgage cancelled the first two.
• For failure of de Villa to pay, petitioner filed a collection suit in the Regional Trial Court of Makati City, Branch 148.
• During the pendency of the case in RTC-Br. 148, de Villa died, prompting petitioner to amend the complaint to implead the heirs of de Villa as defendants.
• In the pre-trial order dated March 4, 1997 issued by RTC-Br. 139, respondent corporation admitted that the total amount of P1.3 million was received by the defendant-corporation, but claimed in its answer that the amount was an investment in a mining project rather than a loan.
• The promissory notes were signed by de Villa without indicating that he was signing in a representative capacity on behalf of the corporation; the notes made no mention of the corporation and appeared on their face to be personal loans of de Villa.
• Petitioner's demand letters were personally addressed to de Villa and not to respondent corporation.

• Respondent corporation effectively ratified the act of its president in obtaining the loans by admitting during pre-trial that it received the P1.3 million.
• The Court of Appeals committed reversible error in disregarding the admitted facts and issues agreed upon by the parties and approved by the trial court during the pre-trial conference.
• The mortgage was validly ratified by the corporation as it was an accessory contract to the loan.
• The Court of Appeals erred in setting aside the award of interest by way of damages, attorney's fees, 10% liquidated damages, and costs of suit.

• The loans were personal liabilities of de Villa and not debts of the respondent corporation.
• The mortgage on the corporate property was null and void for having been executed without authority from the corporation.
• The money received by the corporation was an investment in a mining project, not the proceeds of a loan, and the corporation acted in good faith without knowledge of the loan transaction between de Villa and the petitioner.
• There was misrepresentation made to the corporation to the effect that the money was an investment and not a loan.

• Procedural: N/A
• Substantive Issues:
  • Whether the loans were personal liabilities of de Villa or corporate debts of respondent East Cordillera Mining Corporation.
  • Whether the mortgage on respondent corporation's property was null and void for having been executed without corporate authority.
  • Whether respondent corporation ratified the unauthorized acts of its president by admitting receipt of the funds.

• Procedural: N/A
• Substantive:
  • The loans were personal to de Villa. There was no showing that respondent corporation ever authorized de Villa to obtain the loans on its behalf. The promissory notes, on their face, appeared to be personal loans of de Villa, and petitioner dealt with de Villa purely in his personal capacity as evidenced by the demand letters addressed solely to de Villa.
  • There was no valid ratification of the loans by the corporation. Ratification requires a voluntary choice knowingly made with full knowledge of all material facts and circumstances relating to the unauthorized act. The corporation admitted receiving the money but believed it was an investment, not loan proceeds; thus, it lacked knowledge of the material fact that the funds were borrowed money. Good faith is always presumed, and petitioner failed to prove the corporation acted in bad faith.
  • The mortgage was void for lack of special power of attorney. Under Article 1878(12) of the Civil Code, a special power of attorney is necessary to create or convey real rights over immovable property, and under Article 1358(1), such power must appear in a public document. Since the mortgage was void, it could not be ratified.
  • Respondent corporation cannot be held liable for interest, attorney's fees, and liquidated damages arising from the personal loan of de Villa.
  • The liability arising from the loan was the sole indebtedness of de Villa (or his estate), and petitioner's remedy is to file a money claim in the settlement proceedings of de Villa's estate under Rule 86, Section 5 of the Rules of Court.

• Separate Juridical Personality — A corporation is a juridical person separate and distinct from its stockholders, capable of acting only through its board of directors or authorized officers.
• Authority of Corporate Officers (Agency Principles) — General principles of agency govern the relation between the corporation and its officers or agents; when unauthorized, their acts cannot bind the corporation unless ratified.
• Ratification — Ratification is the voluntary adoption, confirmation, and sanction by the principal of an unauthorized act of its agent, made with full knowledge of all material facts and circumstances; it is confirmation after conduct amounting to a substitute for prior authority.
• Implied Ratification — May take various forms such as silence, acquiescence, acts showing approval, or acceptance and retention of benefits, but requires knowledge of the unauthorized act to be valid.
• Special Power of Attorney for Loans and Mortgages — Under Articles 1878(7) and 1878(12) of the Civil Code, a special power of attorney is necessary to borrow money and to create or convey real rights over immovable property; such power must appear in a public document per Article 1358(1).
• Void Contracts — A void contract produces no legal effects and cannot be ratified; a mortgage executed without the required special power of attorney is void ab initio.

• "A corporation is a juridical person, separate and distinct from its stockholders."
• "The general principles of agency govern the relation between the corporation and its officers or agents. When authorized, their acts can bind the corporation. Conversely, when unauthorized, their acts cannot bind it."
• "Ratification means that the principal voluntarily adopts, confirms and gives sanction to some unauthorized act of its agent on its behalf. It is this voluntary choice, knowingly made, which amounts to a ratification of what was theretofore unauthorized and becomes the authorized act of the party so making the ratification."
• "Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification."
• "Good faith is always presumed."
• "A special power of attorney is necessary to create or convey real rights over immovable property."
• "Since the mortgage was void, it could not be ratified."

• Rural Bank of Milaor (Camarines Sur) v. Ocfemia — Cited for the principle that corporations act through corporate officers authorized either expressly by by-laws or board resolutions or impliedly by general practice or policy.
• San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals — Cited for the proposition that general principles of agency govern the relation between the corporation and its officers or agents.
• Safic Alcan & Cie v. Imperial Vegetable Oil Co., Inc. — Cited for the rule that acts of an agent beyond the scope of his authority do not bind the principal unless the latter ratifies the same expressly or impliedly.
• Manila Memorial Park Cemetery, Inc. v. Linsangan — Cited for the requirement that the principal must have full knowledge at the time of ratification of all material facts relating to the unauthorized act.
• Metropolitan Waterworks and Sewerage System (MWSS) v. Court of Appeals — Cited for the proposition that implied ratification may take various forms such as silence, acquiescence, or acceptance and retention of benefits.
• Aguenza v. Metropolitan Bank & Trust Co. — Cited for the requirement that the power to borrow money is one of those cases where corporate officers need a special power of attorney.
• de Asis & Co., Inc. v. Court of Appeals — Distinguished; in that case, there was no promissory note and the creditor knew all along that the debtor was the corporation, not its president.
• Apex Investment and Financing Corporation v. Intermediate Appellate Court — Cited for the requirement of a special power of attorney to mortgage real property.
• Metropolitan Bank & Trust Company v. Quilts & All, Inc. — Cited for the same proposition regarding the necessity of special power of attorney for mortgages.

• Section 23, Corporation Code of the Philippines (Batas Pambansa Blg. 68) — Provides that corporate powers shall be exercised by the board of directors or trustees.
• Article 1878(7), Civil Code of the Philippines — Requires a special power of attorney to loan money.
• Article 1878(12), Civil Code of the Philippines — Requires a special power of attorney to create or convey real rights over immovable property.
• Article 1358(1), Civil Code of the Philippines — Requires that the special power of attorney to mortgage real property must appear in a public document.
• Articles 1898 and 1910, Civil Code of the Philippines — Provide that acts of an agent beyond the scope of his authority do not bind the principal unless ratified.
• Rule 86, Section 5, Rules of Court — Governs the filing of claims against the estate of a decedent.