Yasuma vs. Heirs of De Villa

A corporation is not liable for loans obtained by its president in his personal capacity despite the corporation's receipt of the proceeds, where (1) the president lacked express, implied, or apparent authority to borrow on behalf of the corporation, and (2) the corporation did not ratify the loan because it lacked knowledge that the funds received were loan proceeds (believing them to be an investment). A mortgage on corporate property executed by a president without a special power of attorney is void and cannot be ratified.

This case stems from a financial transaction between a private creditor (Yasuma) and the president of a mining corporation (de Villa), where the boundary between personal and corporate liability became contested after the debtor's death. The dispute centers on whether corporate funds received from a corporate officer automatically bind the corporation to the officer's personal loan obligations.

• Filed in RTC Makati City, Branch 148 as Civil Case No. 90-1837
• RTC-Br. 148 rendered judgment for petitioner; on appeal, judgment annulled due to improper service of summons; case remanded for retrial
• During pendency, de Villa died; petitioner amended complaint to implead heirs of de Villa as defendants
• RTC Makati City, Branch 139 rendered judgment on November 13, 1998 in favor of petitioner against respondent corporation (ordering payment of P1.3 million plus interest, attorney's fees, and liquidated damages); complaint dismissed against heirs
• Petitioner appealed to CA (CA-G.R. CV No. 61755)
• CA reversed and set aside RTC decision on October 18, 2001, declaring the loan personal to de Villa and the mortgage void
• Petitioner filed petition for review on certiorari under Rule 45 before the SC

• Nature of Action: Collection suit for sum of money with damages
• Parties: Petitioner Koji Yasuma (creditor); Respondent Heirs of Cecilio S. de Villa (borrower's estate); Respondent East Cordillera Mining Corporation (corporation whose property was mortgaged)
• Loans: On September 15, 1988, October 21, 1988, and December 5, 1988, de Villa obtained loans totaling P1.3 million from Yasuma, evidenced by three promissory notes signed by de Villa as "borrower" without indicating corporate capacity
• Documentation: The final promissory note (P1.3 million) cancelled the first two notes
• Security: Three real estate mortgages executed on dates corresponding to loans, signed by de Villa as president of respondent corporation, covering land under TCT No. 176575 registered in the corporation's name; the third mortgage cancelled the first two
• Payment Default: De Villa failed to pay; Yasuma filed collection suit
• Corporate Defense: Respondent corporation admitted in pre-trial and answer that it received P1.3 million, but contended the amount was an investment in its mining project (which failed due to typhoons and the 1990 earthquake), not a loan

• The CA erred in declaring the corporation did not ratify its president's act despite admitting receipt of the P1.3 million
• The CA erred in disregarding admitted facts and issues agreed upon during pre-trial (specifically the admission of receipt)
• The CA erred in setting aside the real estate mortgage and the awards for attorney's fees, 10% liquidated damages, and costs of suit
• The CA erred in setting aside the award of interest by way of damages
• de Asis & Co., Inc. v. Court of Appeals was controlling precedent where similar corporate receipt created liability

• The loans were personal liabilities of de Villa, not debts of the corporation
• The promissory notes were signed by de Villa purely in his personal capacity; no corporate authorization existed to borrow money or mortgage corporate assets
• The mortgage was void for lack of authority from the corporation
• The corporation received the money as an investment, not as a loan; therefore, it had no knowledge of the loan transaction between de Villa and Yasuma, preventing ratification
• The corporation acted in good faith and could not be faulted for not knowing the source of funds accepted from its then-president

• Procedural Issues: N/A
• Substantive Issues:
  • Whether the loans were personal liabilities of de Villa or debts of respondent corporation
  • Whether the real estate mortgage on respondent corporation's property was null and void for having been executed without its authority

• Procedural: N/A
• Substantive:
  • Personal Liability: The loans were purely personal to de Villa. The SC found no express, implied, or apparent authority for de Villa to borrow on the corporation's behalf. The promissory notes named de Villa alone as borrower; Yasuma dealt exclusively with de Villa personally (demand letters addressed to him personally).
  • No Ratification: The corporation's admission that it received P1.3 million did not constitute ratification of the loan. Ratification requires voluntary adoption with full knowledge of all material facts; the corporation received the funds in good faith as an "investment" and had no knowledge it was accepting loan proceeds. Good faith is always presumed; Yasuma failed to prove bad faith.
  • Mortgage Validity: The mortgage was null and void. A special power of attorney is required to mortgage corporate immovable property (Art. 1878[12], Civil Code) and must appear in a public instrument (Art. 1358). De Villa lacked such authority; therefore, no valid mortgage existed to ratify.
  • Damages: The corporation could not be held liable for interest, attorney's fees, or liquidated damages arising from a non-existent corporate obligation.
  • Heirs' Liability: The complaint was properly dismissed against the heirs; Yasuma'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 (if not barred by time).

• Doctrine of Separate Juridical Personality — A corporation is a juridical person distinct from its stockholders. Corporate powers are exercised by the Board of Directors (Sec. 23, Corporation Code), not automatically by the president.
• Agency Principles in Corporate Context — General principles of agency govern relations between corporations and their officers. Unauthorized acts do not bind the principal unless ratified.
• Ratification — The voluntary adoption, confirmation, and sanction by a principal of an unauthorized agent's act, made with full knowledge of material facts. Requisites applied by the SC:
  • Must be knowingly made (voluntary choice)
  • Principal must have full knowledge of all material facts and circumstances of the unauthorized act
  • Cannot exist where material facts were suppressed or unknown
  • Forms: Express or implied (silence, acquiescence, acceptance of benefits)
  • Special Power of Attorney Requirement for Loans — Under Article 1878(7) of the Civil Code, a special power of attorney is necessary for an agent to borrow money.
  • Special Power of Attorney for Real Rights over Immovables — Under Article 1878(12) of the Civil Code, a special power of attorney is required to create or convey real rights over immovable property; under Article 1358(1), this power must appear in a public instrument.
  • Presumption of Good Faith — Good faith is always presumed; the burden to prove bad faith rests on the claimant.

• "A corporation is a juridical person, separate and distinct from its stockholders."
• "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..."
• "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."

• Rural Bank of Milaor (Camarines Sur) v. Ocfemia — Cited for the principle that corporations act through officers authorized by by-laws or board resolutions.
• San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals — Cited for the application of general agency principles to corporate officers.
• Manila Memorial Park Cemetery, Inc. v. Linsangan — Cited for the definition of ratification and the requirement of full knowledge of material facts.
• Aguenza v. Metropolitan Bank & Trust Co. — Cited for the rule that special power of attorney is required to borrow money.
• de Asis & Co., Inc. v. Court of Appeals — Distinguished by the SC; in de Asis, the creditor knew the corporation was the debtor and deposited money directly into the corporate account, whereas here the notes evidenced purely personal loans.
• Apex Investment and Financing Corporation v. Intermediate Appellate Court — Cited for the rule that special power of attorney is necessary to mortgage immovable property.

• Batas Pambansa Blg. 68 (Corporation Code), Section 23 — Corporate powers exercised by Board of Directors
• Civil Code, Article 1358(1) — Requirement that special power of attorney to create/convey real rights over immovables must appear in a public instrument
• Civil Code, Article 1878(7) — Enumeration of acts requiring special power of attorney, including borrowing money
• Civil Code, Article 1878(12) — Enumeration of acts requiring special power of attorney, including creating/conveying real rights over immovable property
• Civil Code, Articles 1898 and 1910 — Rules on ratification of unauthorized acts of agents
• Rules of Court, Rule 86, Section 5 — Procedure for filing money claims against a decedent's estate

• N/A (Puno, Sandoval-Gutierrez, and Garcia, JJ., concur with no separate opinions; Azcuna, J., on official business)