Terp Construction Corp. v. Banco Filipino Savings G.R. No.

221771, September 18, 2019

DOCTRINE: A corporation's repeated payment of an allegedly unauthorized obligation contracted by one

(1) of its officers effectively ratifies that corporate officer's allegedly unauthorized act.|

FACTS: Terp Construction planned to develop a housing project called the Margarita Eastville and a
condominium called Margarita Plaza and to finance the housing projects, Terp Construction, Home
Insurance Guaranty Corporation, and Planters Bank agreed to raise funds through the issuance of bonds
worth P400 million called the Margarita Bonds and entered into a Contract of Guaranty in which they
agreed that Terp Construction would sell the Margarita Bonds and convey the funds generated into an
asset pool named the Margarita Asset Pool Formation and Trust Agreement. Terp Construction began
constructing Margarita Eastville and Margarita Plaza. When the Margarita Bonds matured, the funds in
the asset pool were insufficient to pay the bond holders. Pursuant to the Contract of Guaranty, Planters
Bank conveyed the asset pool funds to Home Insurance Guaranty Corporation, which then paid Banco
Filipino interest earnings of 8.5% per year. Banco Filipino, however, sent Terp Construction a demand
letter dated January 31, 2001, alleging that it was entitled to a 15.5% interest on its investment and that
as of July 1, 2001, it was entitled to a 7% remaining unpaid interest of P18,104,431.33. Terp Construction
refused to pay the demanded interest. Petitioner filed a Complaint for declaration of nullity of interest,
damages, and attorney's fees against BancoFilipino. It alleged that it only agreed to pay the 7% additional
interest on the condition that all the asset pool funds would be released to Terp Construction for it to pay
the additional interest. However, it could not have paid the additional interest since the funds of the asset
pool were never released to it. The RTC issued a Decision in favor of Terp Construction and found that
there was no evidence to show that Terp Construction was obligated to pay the interest differentials, and
that the acts of Escalona, the senior VP, were not binding on the corporation since they were not ratified.
On October 16, 2014, the Court of Appeals rendered a Decision setting aside the RTC’s Decision and
ordered Terp Construction to pay Banco Filipino interest differentials of P18,104,431.33. Petitioner filed a
Motion for Reconsideration but was denied.

ISSUE: W/N the Court of Appeals erred in ruling that Terp Construction Corporation expressly agreed to
be bound to respondent BancoFilipino for additional interest in the bonds it purchased.

HELD: No. A corporation exercises its corporate powers through its board of directors. This power may
be validly delegated to its officers, committees, or agencies. The authority of the board of directors to
delegate its corporate powers may either be: (1) actual; or (2) apparent. Actual authority may be express
or implied. Express actual authority refers to the corporate powers expressly delegated by the board of
directors. Implied actual authority, on the other hand, "can be measured by his or her prior acts which
have been ratified by the corporation or whose benefits have been accepted by the corporation.
Petitioner's subsequent act of twice paying the additional interest Escalona committed during the term of
the Margarita Bonds is considered a ratification of Escalona's acts. Respondent relied on Escalona's
apparent authority to promise interest payments over and above the guaranteed 8.5%, considering that
Escalona was petitioner's then senior vice president. His apparent authority was further demonstrated by
petitioner paying respondent what Escalona promised during the Margarita Bonds' term. It should likewise
be noted that at the time this Petition was filed, Escalona signed the Verification and Certification as the
president of the corporation, signifying that petitioner did not consider his alleged unauthorized acts as
fatal to his continued involvement in corporate affairs. Wherefore, Petitioner is ordered to pay respondent
the amount of P18,104,431.33 with legal interest of 12% to be computed from January 31, 2001 until
June 30, 2013 and 6% from July 1, 2013 until its full satisfaction.