Title
Citibank, N.A. vs. Chua
Case
G.R. No. 102300
Decision Date
Mar 17, 1993
Citibank challenged a default order, arguing its by-laws and special powers of attorney authorized legal representation. The Supreme Court ruled in Citibank's favor, annulling the default and remanding the case.
board resolution
authority
agent
A

Case Summary (G.R. No. 102300)

Factual Background

Spouses Cresencio and Zenaida Velez alleged that petitioner extended to them a revolving accommodation arrangement beginning on September 4, 1985, by which petitioner purportedly purchased and exchanged the Velezes’ checks for petitioner’s manager’s checks on a daily basis up to March 11, 1986, and that petitioner later refused to honor six checks on March 11, 1986 amounting to P3,095,000.00, despite prior restructuring negotiations and a tendered but refused P75,000.00 check as a sign of good faith. CITIBANK, N.A. presented a contrary account, alleging that Cresencio Velez habitually deposited unfunded personal checks which he had falsely represented as funded, obtained immediate credit or manager’s checks by bank officers’ accommodation, and thereafter used those manager’s checks to fund accounts in other banks; petitioner alleged that on March 11, 1986 Velez deposited unfunded checks totaling P3,095,000.00, withdrew P3,244,000.00 in manager’s checks and thereafter absconded, causing the deposited checks to bounce.

Trial Court Proceedings

Petitioner filed a criminal complaint against private respondents on August 19, 1986 for violations under Batas Pambansa Blg. 22 and six counts of estafa under Article 315 par. 2(d), and the investigating fiscal recommended filing of information on April 28, 1988. Civil Case No. CEB-4751 proceeded in the Regional Trial Court of Cebu, Branch 10, and was set for pre-trial on March 30, 1990, with petitioner required to submit a pre-trial brief three days prior; petitioner filed its brief on March 30, 1990 and presented a special power of attorney executed by a Citibank officer to its counsel at the pre-trial. Private respondents orally moved to declare petitioner in default for lack of proper authorization, prompting petitioner to file oppositions and to submit additional instruments, including a general power of attorney executed by William W. Ferguson in favor of Citibank employees and subsequent special powers of attorney naming specific employees as delegates. Despite those submissions, the trial court issued an order declaring petitioner in default on August 15, 1990 on the ground that no Board resolution authorizing the delegation was shown and that the power of attorney did not comply with corporate formalities and Rule 20 requirements.

Court of Appeals Ruling

Petitioner sought relief from the Court of Appeals by certiorari, prohibition and mandamus, but the Court of Appeals dismissed the petition on June 26, 1991. The Court of Appeals held that petitioner admitted it did not present a Board resolution appointing its counsel as attorney-in-fact; that petitioner’s by-laws were not approved by the Securities and Exchange Commission as required by Sec. 46 of the Corporation Code; and that the chain of instruments—general power of attorney to Ferguson and his delegation to counsel or nonemployee delegates—failed to constitute the required special power of attorney at pre-trial because it did not show explicit authority to represent and enter into compromise as required by Article 1878, paragraph 3 and Section 1(a), Rule 20, Rules of Court.

Issues Presented

The Supreme Court framed two primary issues: first, whether a board resolution of the corporation is always necessary to grant authority to an agent to represent the corporation in court; and second, whether petitioner’s foreign-origin by-laws, submitted in connection with its license to do business in the Philippines, were effective and could serve as a source of authority for delegation of representation without a Board resolution.

Parties’ Contentions

CITIBANK, N.A. contended that no board resolution was necessary because its by-laws expressly empowered its Executing Officer and Secretary Pro-Tem to delegate authority to a designated bank officer, here William W. Ferguson, and that Ferguson’s delegation to counsel or employees thus derived from valid by-law authority; petitioner further argued that the Court of Appeals erred in holding the by-laws ineffective for lack of SEC approval because the SEC’s issuance of a license to transact business in the Philippines amounted to satisfaction and de facto approval of the foreign corporation’s by-laws under Sec. 125 and Sec. 126 of the Corporation Code. Private respondents maintained that corporate powers are vested in the Board by Sec. 23 and that the by-laws were ineffective because they were not approved by the SEC as required by Sec. 46, so that no valid special power of attorney was shown for pre-trial representation or compromise.

Legal Basis and Reasoning

The Court recognized the general rule that corporate powers are vested in the board of directors under Sec. 23 of the Corporation Code, but it explained that corporate powers may be exercised by officers when authorized by statute, the articles of incorporation, the by-laws or by board action; Sec. 25 and Sec. 47 were cited to show that by-laws may prescribe officers’ duties and confer authority. The Court applied basic agency principles that express authority carries necessary implied powers and that an officer may delegate when the by-laws so permit. It found that petitioner’s by-laws, as manifested in the general power of attorney to Ferguson, expressly authorized Ferguson to represent the bank in all judicial proceedings (paragraph XVII) and to substitute or delegate his authority in whole or in part to employees (paragraph XXI), and that Ferguson validly delegated to J.P. Garcia & Associates and later to named Citibank employees. On the question of effectivity of foreign-origin by-laws, the Court construed Sec. 46 as applying to corporations formed under the Code and thus to domestic corporations, not to foreign corporations; it held that Sec. 125 required submission of certified articles and by-laws by foreign applicants and Sec. 126 authorized the SEC to issue a license only upon satisfaction of statutory requirements, so that issuance of the license evidenced the SEC’s satisfaction with, and therefore effective approval of, the foreign corporation’s by-laws. The Court further held that the special powers of attorney submitted satisfied Rule 138, Sec. 23 and were sufficiently explicit to permit counsel to enter into amicable settlement and compromise within defined parameters; it relied on prior decisions, including Tropical Homes, Inc. vs. Villaluz, to support that comprehensive powers in a power of attorney include authority to appear and bind the principal at pre-trial. Finally, the Court reiterated the settled admonition against precipitate orders of default, citing Leyte vs. Cusi, Jr., noting that default should be reserved for clear, obstinate refusal or inordinate neglect and that petitioner had demonstrated diligence by prese

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