University of Mindanao v.

Bangko Sentral ng Pilipinas

GR No. 194964-65 January 11, 2016

Principles: Acts of an Officer that are not authorized by the Board of Directors/Trustees do not bind the corporation
unless the corporation ratifies the acts or holds the officer out as a person with authority to transact on its behalf.

Facts:

University of Mindanao is an Educational Institution. For the year 1982, its Board of Trustees was chaired by
Guillermo B. Torres. His wife, Dolores P. Torres, sat as University of Mindanao’s Assistant Treasurer.

Before 1982, Guillermo B. Torres incorporated and operated two(2) thrift banks: (1) First Iligan Savings & Loan
Association, Inc. (FISLAI); and (2) Davao Savings and Loan Association, Inc. (DSLAI).

Guillermo B. Torres chaired both thrift banks. He acted as FISLAI’s President, while his wife, Dolores P. Torres, acted
as DSLAI’s President and FISLAI’s Treasurer.

Bangko Sentral ng Pilipinas issued a P1.9 million standby emergency credit to FISLAI. The release standby emergency
credit was evidenced by three(3) promissory notes.

University of Mindanao’s VP for Finance, Saturnino Petalcorin, executed a deed of real estate mortgage over
University of Mindanao’s property in Cagayan de Oro City in favor of Bangko Sentral ng PIlipinas.

“The mortgage served as security for FISLAI’s P1.9 million loan”. It was allegedly executed on University of
Mindanao’s behalf.

As proof of his authority to execute a real estate mortgage for University of Mindanao, Saturnino Petalcorin showed
a Secretary’s Certificate.

FISLAI’s failed to recover from its losses and was liquidated on May 24, 1991.

On June 18, 1999, Bangko Sentral ng Pilipinas sent a letter to University of Mindanao, informing it that the bank
would foreclose its properties if FISLAI’s total outstanding obligation of P12,534,907.73 remained unpaid.

Gloria E. Detoya, denied that University of Mindanao’s properties were mortgaged. It also denied having received
any loan proceeds from Bangko Sentral Pilipinas.

Petitioner argues that the execution of the mortgage contract was ultra vires. As an Educational Institution, it may
not secure the loans of third persons. Securing loans of third persons is not among the purposes for which petitioner
was established.

Respondent argues that petitioner’s act of mortgaging its properties to guarantee FISLAI’s loans was consistent with
petitioner’s business interests, since petitioner was presumably a FISLAI shareholder whose officers and
shareholders interlock with FISLAI. Respondent points out that petitioner and its key officers held substantial shares
in FSLAI when DSLAI and FISLAI merged. Therefore, it was safe to assume that when the mortgages were executed in
1982, petitioner held substantial shares in FISLAI.

Petitioner argues that it did not authorize Saturnino Petalcorin to mortgage its properties on its behalf. There was no
Board Resolution to that effect. Thus, the mortgages executed by Saturnino Petalcorin were unenforceable.
Issues:

Whether Petitioner University of Mindanao is bound by the real estate mortgage contracts executed by Saturnino
Petalcorin.

Ruling:

Petitioner is correct.

Corporations are artificial entities granted legal personalities upon their creation by their incorporators in
accordance with law. Unlike natural persons, they have no inherent powers. Third persons dealing with corporations
cannot assume that corporations have powers. It is up to those persons dealing with corporations to determine their
competence as expressly defined by the law and their articles of incorporation.

A corporation may exercise its powers only within those definitions. Corporate acts that are outside those express
definitions under the law or articles of incorporation or those “committed outside the object for which a corporation
is created” are ultra vires.

The only exception to this rule is when acts are necessary and incidental to carry out a corporation’s purposes, and
to the exercise of powers conferred by the Corporation Code and under a corporation’s articles of incorporation.
This exception is specifically included in the general powers of a corporation under Section 36 of the Corporation
Code.

Montelibano, et al. v. Bacolod-Murcia Milling Co., Inc. stated the test to determine if a corporate act is in accordance
with its purposes:

It is a question, therefore, in each case, of the logical relation of the act to the corporate purpose expressed in the
charter. If that act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving
corporate ends, and is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and
fanciful sense, it may fairly be considered within the charter powers. The test to be applied is whether the act in
question is in direct and immediate furtherance of the corporation’s business, fairly incident to the express powers
and reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not.

Petitioner does not have the power to mortgage its properties in order to secure loans of other persons. As an
educational institution, it is limited to developing human capital through formal instruction. It is not a corporation
engaged in the business of securing loans of others.

Hiring professors, instructors, and personnel; acquiring equipment and real estate; establishing housing facilities for
personnel and students; hiring concessionaires; and other activities that can directly connected to the operations
and conduct of the education business may constitute the necessary and incidental acts of an educational institution.

Saturnino Petalcorin’s authority to transact on behalf of the petitioner cannot be presumed based on Secretary’s
Certificate, it should be supported by an actual Board meeting.
 Arturo Calubad v. Ricarcen Development Corporation
GR No. 202364 August 30, 2017

Principles: Doctrine of Apparent Authority: When a corporation intentionally or negligently clothes its agent with
apparent authority to act in its behalf, if it is estopped from denying its agent’s apparent authority as to innocent
third parties who dealt with this agent in good faith.

Facts:

Respondent Ricarcen Development Corporation is seeking the Annulment of a Real Estate Mortgage and
Extrajudicial Foreclosure of Mortgage and Sale with Damages against Marilyn Soliman and petitioner Arturo Calubad.

Respondent Ricarcen is a domestic family corporation engaged in real estate. Marilyn, than acting as the President of
Ricarcen, took out a P5 million and P2 million loan from petitioner Calubad. The loan was secured with a real estate
mortgage on 2 lots owned by respondent-corporation. To prove her authority, Marilyn presented a Board Resolution
and Secretary Certificate authorizing her to borrow money and use the parcel of land as security.

After Ricarcen failed to pay the loan, Calubad extrajudicially foreclosed the property and won as highest bidder in
the auction sale. After confirming the sale of the property, Ricarcen fired Marilyn. Respondent then filed a Complaint
for Annulment of a Real Estate Mortgage and Extrajudicial Foreclosure of Mortgage and Sale with Damages in the
RTC. It claimed that it never authorized Marilyn to obtain loans or use the property as collateral.

The RTC ruled in favor of Ricarcen. The failure of Marilyn to present an SPA should have put petitioner Calubad on
guard. Subsequently, the Court of Appeals dismissed Calubad’s appeal and affirmed the RTC decision.

Issues:

Whether or not respondent Ricarcen is estopped from denying the authority of its former president, Marilyn, from
entering into a contract of loan and mortgage with petitioner Calubad.

Ruling:

Yes, respondent is estopped from denying its agent’s action while contracting with third persons in good faith after
such agent has been given the apparent authority to do so. Based on law and jurisprudence, the two(2) types of
authorities conferred upon a corporate officer or agent in dealing with third persons are – actual authority and
apparent authority. Actual authority may be express, which is the power given to the agent by the corporation, or
implied, which is measured by the agent’s acts ratified or whose benefits are accepted by the corporation.

In contrast, apparent authority, which is applicable in this case, is based on the principle of estoppel. Under Art. 1431
of the Civil Code, an admission or representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon. The doctrine of apparent authority provides that even if
no actual authority has been conferred on an agent, his or her acts, as long as they are within his or her apparent
scope of authority, bind the principal. However, the principal’s liability is limited to third persons who are reasonably
led to believe that the agent was authorized to act for the principal due to the principal’s conduct. This is determined
by the acts of the principal which led the third party to believe that the agent was acting in behalf of the said
principal.

In this case, Ricarcen evidently gave Marilyn the scope of authority to act in its behalf. In particular, Ricarcen
received checks in its name for the loans and likewise paid and issued checks as payments for the monthly interests
of the mortgage loans. All checks received by Calubad from Ricarcen cleared.
Calubad, as an innocent third party dealing in good faith with Marilyn, should not be made to suffer because of
Ricarcen’s negligence in conducting its own business affairs.