Case Summary (G.R. No. 51570)
Agreements and Financial Structure of the Margarita Project
Terp Construction, Home Insurance Guaranty Corporation, and Planters Development Bank agreed to finance Terp’s housing and condominium projects by issuing P400 million of securities called Margarita Project Participation Certificates (Margarita Bonds). Terp would sell the bonds and place proceeds into a Margarita Asset Pool Formation and Trust Agreement. Planters Bank served as trustee and custodian of the asset pool, with obligation to pay interest and redeem bonds at maturity. Home Insurance Guaranty Corporation guaranteed payment of principal at maturity plus 8.5% interest per annum.
Purchase by Banco Filipino and Alleged Additional Interest Promises
Banco Filipino purchased Margarita Bonds totaling P100 million. Respondent relied on two letters issued by Escalona (Feb. 3, 1997; Apr. 8, 1997) in which Terp — through Escalona as Senior Vice President — committed to pay yields higher than the guaranteed 8.5% (statements reflecting commitments to 16.5% and 15.5% in the letters as reproduced in the record). Banco Filipino sought payment of interest beyond the guaranteed 8.5% on the basis of these written communications.
Project Failure, Asset Pool Shortfall, and Guarantor Payment
After the 1997 economic crisis, Terp Construction was unable to complete the projects and realized insufficient revenues. Upon maturity of the bonds, the asset pool lacked sufficient funds to satisfy bondholders; Planters Bank conveyed the available asset pool funds to Home Insurance Guaranty Corporation, which then paid bondholders the guaranteed 8.5% interest only. The insufficiency of the asset pool is an essential factual backdrop to the dispute over additional interest differentials.
Demand for Interest Differentials and Terp’s Refusal
Banco Filipino sent a demand letter dated January 31, 2001 asserting entitlement to higher yields (15.5% and 16.5% for particular client-held bonds) and claiming unpaid interest differentials amounting to P18,104,431.33 (identified as seven percent remaining unpaid interest as of July 1, 2001). Terp Construction refused to pay the demanded differential.
Pleadings: Claims and Defenses
Terp sought judicial declaration nullifying the additional interest obligation, damages, and attorney’s fees, asserting that any agreement to pay additional interest was conditional upon release of asset pool funds to Terp — a condition that was never satisfied. Terp also contended that Escalona lacked authority to bind the corporation in making the purported commitments and that its later payments of additional interest were erroneous and thus do not amount to ratification. Banco Filipino countered that it was induced to purchase the bonds by Escalona’s letters, that Terp in fact paid the additional interest twice during the bonds’ term (constituting ratification), and that Terp’s mismanagement left only a small portion (P39 million) of the raised funds actually used for the projects, aggravating its claim for unpaid differentials.
Trial Court Ruling
The Regional Trial Court (May 29, 2010) ruled in favor of Terp Construction. The RTC found no evidence establishing Terp’s obligation to pay the claimed interest differentials and concluded that Escalona’s acts were not binding on the corporation because they had not been ratified.
Court of Appeals Decision and Reasoning
The Court of Appeals (October 16, 2014) reversed the RTC and ordered Terp to pay the interest differentials of P18,104,431.33. The CA found both parties agreed that Terp would pay additional interest beyond the guaranteed 8.5% and rejected Terp’s asserted conditional obligation (release of asset pool funds) because the condition was not mentioned in the Escalona letters. The CA also held that Terp ratified Escalona’s commitments by paying the additional interest twice during the bond term, and it found Escalona possessed apparent authority as Senior Vice President to make such commitments, binding the corporation vis-à-vis a third party who relied in good faith.
Issues Presented to the Supreme Court
Two principal issues were presented: (1) whether factual findings could be reviewed under Rule 45 given apparent conflicts between the RTC and the CA; and (2) whether Terp was bound to pay the additional interest differentials as found by the CA, considering Terp’s defenses that the letters were unauthorized negotiation offers and subsequent payments were erroneous or conditioned.
Rule 45 Scope and Exceptions — Supreme Court Analysis
The Supreme Court reiterated the general rule that Rule 45 certiorari is limited to questions of law and that it will not disturb factual findings of lower courts if supported by substantial evidence. It reviewed recognized exceptions (from Medina v. Mayor Asistio, Jr.) that permit factual review — e.g., findings grounded on speculation, manifestly mistaken inferences, grave abuse of discretion, conflicting findings, findings without specific evidentiary citations, among others — but stressed that a petitioner must demonstrate and prove that an exception applies (citing Pascual v. Burgos). The Court held that mere disagreement between the RTC and the CA did not by itself satisfy the exceptions and that the CA, as a trier of facts, may properly make contrary findings when supported by substantial evidence.
Corporate Authority, Ratification, and Apparent Authority — Supreme Court Analysis
The Court analyzed corporate power principles: corporate powers are exercised through the board of directors and may be delegated; authority to bind a corporation derives from law, bylaws, express board authorization, or implied authority by habit, custom, or acquiescence. The Court distinguished actual authority (express or implied) and apparent authority. It explained that implied actual authority may be shown by prior acts ratified by the corporation or acceptance of their benefits. The Court concluded that Terp’s twice paying the additional interest constituted ratification of Escalona’s commitments, converting his unauthorized acts into obligations binding on the co
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Procedural History
- Case originated from a Complaint filed by Terp Construction Corporation (petitioner) seeking declaration of nullity of interest, damages, and attorney's fees against Banco Filipino Savings and Mortgage Bank (respondent).
- Regional Trial Court (RTC) issued a Decision on May 29, 2010 in favor of Terp Construction, finding no evidence that Terp Construction was obligated to pay interest differentials and that acts of Senior Vice President Alberto Escalona were not binding on the corporation because they were not ratified.
- Banco Filipino appealed to the Court of Appeals (CA). On October 16, 2014, the CA reversed the RTC and ordered Terp Construction to pay interest differentials of P18,104,431.33.
- Terp Construction filed a Motion for Reconsideration before the CA; the motion was denied in a Resolution dated December 9, 2015.
- Terp Construction filed a Petition for Review on Certiorari under Rule 45 before the Supreme Court (G.R. No. 221771). The petition attacked the CA Decision and Resolution.
- The Supreme Court, in a Decision penned by Justice Leonen (Third Division) on September 18, 2019, denied the Petition and affirmed the CA ruling, ordering payment with specified interest rates and further interest from finality.
Facts
- In 1995 Terp Construction planned to develop a housing project (Margarita Eastville) and a condominium (Margarita Plaza).
- To finance the projects, Terp Construction, Home Insurance Guaranty Corporation, and Planters Development Bank agreed to raise funds through issuance of Margarita Project Participation Certificates (Margarita Bonds) worth P400 million.
- Parties entered into a Contract of Guaranty and an asset-pool arrangement called the Margarita Asset Pool Formation and Trust Agreement, with Planters Bank as trustee/custodian and Home Insurance Guaranty Corporation as guarantor.
- Home Insurance Guaranty Corporation guaranteed payment to investors of bond value at maturity plus 8.5% interest per year.
- Banco Filipino purchased Margarita Bonds for P100 million.
- Terp Construction Senior Vice President Alberto Escalona sent letters dated February 3, 1997 and April 8, 1997 to Banco Filipino containing commitments regarding higher yields (16.5% and 15.5%) for certain investments.
- Terp Construction began construction, but after the 1997 economic crisis it suffered unrealized income and could not proceed; funds in asset pool were insufficient at bond maturity.
- Planters Bank conveyed asset pool funds to Home Insurance Guaranty Corporation pursuant to the Contract of Guaranty; Home Insurance paid Banco Filipino 8.5% per annum.
- Banco Filipino sent a demand letter dated January 31, 2001 claiming entitlement to 15.5% interest and asserting an unpaid remaining interest of P18,104,431.33 as of July 1, 2001.
- Terp Construction refused to pay and alleged it only agreed to pay the additional seven percent (7%) on condition that asset pool funds would be released to it, which never occurred.
- Banco Filipino alleged inducement to buy bonds based on Escalona’s letters, alleged Terp Construction previously paid additional interest twice during the bonds’ holding period, and conducted an investigation revealing that only P39 million of the P400 million raised was used for the projects.
- As of November 30, 2001, Banco Filipino claimed unpaid interest differentials amounted to P29,932,827.71 (allegation by Banco Filipino in pleadings).
Contractual Structure and Financial Arrangements
- Margarita Bonds: P400 million total issuance to finance Margarita Eastville and Margarita Plaza.
- Margarita Asset Pool Formation and Trust Agreement: funds raised from bond sales were to be conveyed into an asset pool; Planters Bank served as trustee and custodian.
- Planters Bank’s obligation: to pay interest and redeem bonds at maturity as trustee.
- Home Insurance Guaranty Corporation’s role: guarantor obligated to pay bondholders value at maturity plus guaranteed 8.5% interest per annum.
- Banco Filipino’s investment: purchased P100 million in Margarita Bonds.
- Dispute centered on alleged additional interest over and above guaranteed 8.5% and whether Terp Construction was bound to pay interest differentials.
Letters by Alberto Escalona (Key Documentary Evidence)
- February 3, 1997 letter excerpt (as reproduced in CA Decision): “We hereby commit a guaranteed floor rate of 16.5% as project proponent. This would commit us to pay the differential interest earnings to be paid by Planters Development Bank as Trustee every 182 days from purchase date of period of three (3) years until maturity date....”
- April 8, 1997 letter excerpt (as reproduced in CA Decision): “Terp Construction commit (sic) that the yield to you for this investment is 15.5%. The difference between the yield approved by the Project Governing Board will be paid for by, Terp Construction Corp.”
- These letters were relied upon by Banco Filipino to demonstrate Terp Construction’s commitment to pay yields higher than 8.5%.
- Terp Construction contended the letters were unauthorized offers during negotiations and not binding; it also asserted any payments it made were erroneous and did not ratify Escalona’s acts.
Parties’ Claims and Positions
- Terp Construction (Petitioner):
- Contended no written contract existed obligating payment beyond 8.5%.
- Argued Escalona lacked authority to bind the corporation; his letters were unauthorized offers in negotiation.
- Maintained that erroneous payments of additional interest (if any) cannot be construed as ratification because the corporation was never obligated to begin with.
- Asserted that its case should be reviewable under Rule 45 exceptions due to alleged conflicting factual findings.
- Emphasized tha