University of the Philippines College of Law | Commercial Law Review | Dean Divina

Topic in Syllabus Revised Corporation Code; corporate powers; how exercised; by Board of Directors
Case Name Terp Construction Corp. v. Banco Filipino Savings and Mortgage Bank
Case No. & Date G.R. No. 221771, 18 September 2019
Ponente J. Leonen

RELEVANT FACTS

1. Terp Construction planned to develop a housing project called Margarita Eastville and a condominium called
Margarita Plaza.
2. To finance the projects, Terp Construction, Home Insurance Guaranty Corporation, and Planters Development
Bank agreed to raise funds through the issuance of bonds worth P400M called the Margarita Project
Participation Certificates (Margarita Bonds).
3. The three companies entered into a Contract of Guaranty, 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. Planters Bank, as trustee, would be the custodian of the assets in the asset pool with the
corresponding obligation to pay the interests and redeem the bonds at maturity. Home Insurance Guaranty
Corporation, as guarantor, would pay investors the value of the bond at maturity plus 8.5% interest per year.
4. Banco Filipino purchased Margarita Bonds for P100M and asked for additional interest other than the
guaranteed 8.5% per annum, based on the letters written by Terp Construction Senior Vice President Alberto
Escalona (Escalona).
5. Terp Construction began constructing Margarita Eastville and Margarita Plaza. After the economic crisis in 1997,
it suffered unrealized income, hence it could not proceed with the construction. When the Margarita Bonds
matured, the funds in the asset pool were insufficient to pay the bond holders.
6. Banco Filipino sent a demand letter to Terp Construction alleging that it was entitled to a 15.5% interest. The
latter, however refused to pay the demanded interest.
7. Terp Construction filed a Complaint for declaration of nullity of interest, etc. against Banco Filipino, alleging that
it only agreed to pay 7% additional interest in the condition that all the asset pool funds would be released to
Terp Construction. Bank Filioino, on the other hand, alleged that it was induced into buying the Margarita Bonds
after Terp Construction, through its senior vice president’s letter, committed to pay 15.5% interest.
8. RTC ruled in favor of Terp Construction. CA set aside the RTC decision.

Issue Ratio
W/N Terp YES
Construction
expressly agreed The authority of the board of directors to delegate its corporate powers may either be: (1) actual
to be bound to or (2) apparent. Actual authority may be express or implied. Express actual authority, on the
Banco Filipino for other hand, “can be measured by his or her prior acts which have been ratified by the corporation
additional or whose benefits have been accepted by he corporation.”
interest in the
bonds it Terp Construction’s consequent act of twice paying additional interest Escalona committed to
purchased. during the term of the Margarita Bonds is considered a ratification of Escalona’s acts. Terp
Construction’s only defense that there were “erroneous payments” since it never obligated itself
from the start cannot stand. Corporations are bound by errors of their own making.

Escalona likewise had apparent authority to transact on behalf of Terp Construction. In Yao Ka Sin
Trading v. Court of Appeals:
The rule is of course settled that "although an officer or agent acts without, or in excess of, his
actual authority if he acts within the scope of an apparent authority with which the corporation
has clothed him by holding him out or permitting him to appear as having such authority, the
coporation is bound thereby in favor of a person who deals with him in good faith in reliance on
 University of the Philippines College of Law | Commercial Law Review | Dean Divina
such apparent authority, as where an officer is allowed to exercise a particular authority with
respect to the business, or a particular branch of its continuously and publicly, for a considerable
time.

Apparent authority is ascertained through:

(1) the general manner by which the corporation holds an officer or agent as having power to act
or, in other words, the apparent authority with which it clothes him to act in general, or
(2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, whether within or without the scope of his ordinary powers.

Here, Banco Filipino relied on Escalona’s apparent authority to promise interest payments over
and above the guaranteed 8.5% considering that Escalona was Terp Construction’s then senior
vice president. His apparent authority was further demonstrated by Terp Construction paying
Banco Filipino what Escalona promised during the Margarita Bond term.

Ruling / Dispositive Portion:

WHEREFORE, the Petition is DENIED.