Case Summary (G.R. No. 251636)
Procedural History
UM filed complaints in July 1999 to nullify and cancel both mortgages, denying any authority vested in Petalcorin, lack of loan proceeds, and UM’s incapacity as an educational institution to secure third-party indebtedness. The RTCs in Cagayan de Oro and Iligan City (2001) ruled that Petalcorin acted without board authority, that the Secretary’s Certificate and alleged minutes were fictitious and unnumbered, and declared the mortgages void under Civil Code Article 1403(1). BSP appealed. In December 2009, the CA reversed, finding Petalcorin had apparent authority under the notarized Secretary’s Certificate, UM’s implied ratification, constructive notice via annotations, and that BSP’s foreclosure action had not prescribed. CA lifted preliminary injunctions in December 2010. UM then filed a Petition for Review on Certiorari before the Supreme Court.
Issue 1: Prescription of Foreclosure Action
Prescription is governed by Civil Code Arts. 1142, 1144, 1150 and runs ten years from when an action on a mortgage may be brought—i.e., upon default and demand (Arts. 1169, 1193). Here, original loan maturities were repeatedly extended until 1990, making the obligation due only then. BSP’s demand letter in June 1999 interrupted prescription (Art. 1155) and UM’s complaints were filed the following month. Whether prescription runs from the date of demand or from an earlier due date (under exceptions for unwarranted demand) BSP’s action fell well within the ten-year period under the Civil Code.
Issue 2: Corporate Authority and Ultra Vires Doctrine
UM, an educational institution, may exercise only those corporate powers granted by its articles of incorporation and the Corporation Code (Sec. 36). Mortgaging its real estate to secure third-party loans is neither an express nor necessary incident to its educational purpose. Under the ultra vires doctrine (Corp. Code Sec. 45), any act beyond these powers is voidable unless ratified. UM’s articles empower it to deal in real estate only for its educational operations, not to secure another entity’s indebtedness.
Requirement of Board Authority and Agency Principles
Section 23 of the Corporation Code mandates that corporate acts be authorized by UM’s Board of Trustees. No valid board resolution authorizing Petalcorin to mortgage UM’s properties was ever approved. The Secretary’s Certificate and purported minutes were fabricated, as established by the testimony of UM’s Corporate Secretary and Petalcorin himself. Under Civil Code Art. 1317 and Art. 1403(1), contracts executed without authority are unenforceable against the corporation unless ratified.
Ratification and Estoppel Analysis
Ratification (Arts. 1392–96, 1910–11) may render an unauthorized act valid if the principal, with knowledge of all facts, adopt it expressly or tacitly. Here, UM neither received loan proceeds nor undertook any act implying confirmation of the mortgages. The Torres spouses’ knowledge of FISLAI’s transactions cannot be imputed to UM since they acted for the banks, not UM, and UM’s authorized bodies never ratified the mortgages.
BSP’s Good-Faith Reliance and Duty of Diligence
While apparent authority and estoppel may bind a corporation if it holds out representatives as empowered, UM never did so through genuine corporate acts. BSP knew Petalcorin lacked board authorization, yet failed to investigate further. As a banking institution “impressed with public interest,” BSP owed the highest diligence in verifying Petalcorin’s powers. Its neglect precludes good
Case Syllabus (G.R. No. 251636)
Facts of the Case
- In 1982, University of Mindanao’s Board of Trustees was chaired by Guillermo B. Torres; his wife, Dolores P. Torres, served as Assistant Treasurer of the University.
- Prior to 1982, the Torres spouses incorporated and operated two thrift banks: First Iligan Savings & Loan Association, Inc. (FISLAI) and Davao Savings and Loan Association, Inc. (DSLAI). Guillermo B. Torres was President of FISLAI; Dolores P. Torres was President of DSLAI and Treasurer of FISLAI.
- Bangko Sentral ng Pilipinas (BSP) extended a P1.9 million standby emergency credit to FISLAI in three tranches—P500,000 on February 8, 1982; P600,000 on April 7, 1982; P800,000 on May 4, 1982—evidenced by promissory notes signed by Guillermo B. Torres and co-signed by either Dolores P. Torres or FISLAI’s Special Assistant to the President, Edmundo G. Ramos, Jr.
- On May 25, 1982, Saturnino R. Petalcorin, UM’s Vice President for Finance, executed a deed of real estate mortgage over UM’s Cagayan de Oro City property (TCT No. T-14345) in favor of BSP, allegedly to secure FISLAI’s P1.9 million loan.
- Petalcorin presented a Secretary’s Certificate dated April 13, 1982 and an excerpt of purported minutes of a March 30, 1982 board meeting, both certified by Corporate Secretary Aurora de Leon, as proof of his authority. The minutes allegedly authorized Petalcorin “to mortgage real estate properties … to serve as security for the credit facility of First Iligan Savings and Loan Association.”
- The Cagayan de Oro mortgage was annotated on TCT No. T-14345 on June 25, 1982, along with Aurora de Leon’s certification.
- On October 21, 1982, BSP granted FISLAI an additional P620,700 loan, evidenced by a promissory note signed by Guillermo B. Torres and Edmundo G. Ramos.
- On November 5, 1982, Petalcorin executed further mortgages over two Iligan City properties (TCT Nos. T-15696 and T-15697) in favor of BSP as additional security for FISLAI’s loans; these annotations appeared on titles on January 17–18, 1983, and on tax declarations for the Iligan properties.
- BSP later extended emergency advances to DSLAI in May 1983 (P1,633,900) and August 1984 (P6,489,000). In January 1985, FISLAI, DSLAI and Land Bank entered into a rehabilitation agreement, including a merger of FISLAI into DSLAI (later MSLAI).
- MSLAI was liquidated on May 24, 1991. BSP notified UM on June 18, 1999 that it would foreclose UM’s mortgaged properties if the outstanding obligation of P12,534,907.73 remained unpaid.
- UM denied the mortgages and loan proceeds in its July 1999 reply, and on July 16, 1999 filed Complaints for nullification and cancellation of mortgages in the Regional Trial Courts (RTCs) of