University of Mindanao v. Bangko Sentral Pilipinas
REITERATIONFacts
The Antecedents: Petitioner, University of Mindanao, Inc. (UM), an educational institution, had properties mortgaged by its Vice President for Finance, Saturnino Petalcorin, to respondent, Bangko Sentral ng Pilipinas (BSP), as security for loans granted to First Iligan Savings & Loan Association, Inc. (FISLAI) and Davao Savings and Loan Association, Inc. (DSLAI), thrift banks incorporated and operated by UM's Chairman Guillermo B. Torres and his wife, Dolores P. Torres, who was also UM's Assistant Treasurer. The mortgages were allegedly authorized by a Secretary's Certificate and an excerpt from the minutes of a board meeting, both certified by UM's Corporate Secretary, Aurora de Leon. UM denied authorizing these mortgages and claimed the properties were not used to secure any loans. Procedural History: The Regional Trial Courts (RTCs) of Cagayan de Oro City and Iligan City ruled in favor of UM, nullifying the mortgage contracts, finding that Petalcorin lacked authority and the supporting documents were fictitious or irregular. The Court of Appeals (CA) reversed these decisions, holding that UM was bound by the mortgages due to apparent authority, good faith reliance by BSP on the notarized Secretary's Certificate, constructive notice from annotations on the titles, and implied ratification due to UM's inaction. UM filed a Petition for Review on Certiorari. The Petition: The Supreme Court was asked to resolve whether BSP's action to foreclose had prescribed and whether UM was bound by the mortgage contracts executed by Petalcorin.
Issue(s)
Whether respondent Bangko Sentral ng Pilipinas’ action to foreclose the mortgaged properties had already prescribed. Whether petitioner University of Mindanao is bound by the real estate mortgage contracts executed by Saturnino Petalcorin.
Ruling
The Supreme Court granted the Petition, reversed the Court of Appeals' Decision, and reinstated the Regional Trial Courts' Decisions. The Court ruled that the mortgage contracts were unenforceable against the University of Mindanao because they were executed without proper authority and were ultra vires. The Court also found that the action to foreclose had not prescribed.
Ratio Decidendi
On the issue of prescription: The Court held that the action to foreclose had not prescribed. Prescription for actions on mortgages is ten (10) years from the time they may be brought, which is upon default in payment. The prescriptive period runs from the date of demand, or from the due date if demand is unnecessary. In this case, the loans were extended, and the demand for payment was made in 1999, leading to the filing of the complaint in the same year. The running of the prescriptive period was interrupted by the demand letter and the subsequent filing of the complaints. Therefore, the action was filed within the ten-year prescriptive period. On the issue of whether petitioner University of Mindanao is bound by the real estate mortgage contracts executed by Saturnino Petalcorin: The Court ruled that UM was not bound by the mortgage contracts. The Court found that the execution of the mortgage contracts was an ultra vires act because securing loans for third parties was not within the corporate purposes of UM as an educational institution. The Court emphasized that corporate powers are limited by law and the articles of incorporation, and acts outside these are unenforceable unless ratified or necessary and incidental to corporate purposes. The Court found no evidence of ratification by UM, as it denied knowledge of the mortgages and did not receive any loan proceeds. The Court also rejected the argument of apparent authority, as the basis for such authority (the Secretary's Certificate and board resolution excerpt) was found to be simulated and unsupported by an actual board meeting. The Court noted that the notarization of the Secretary's Certificate did not validate an otherwise unauthorized act, especially when evidence contradicted its authenticity. Furthermore, the Court held that the knowledge of UM's officers, Guillermo and Dolores Torres, who were also officers of the thrift banks, could not be imputed to UM because they were acting in their capacity for the banks, not for UM, when they acquired knowledge of the transactions. The annotations on the titles were also deemed constructive notice only to third parties, not to the registered owner. The Court stressed that banks are held to a higher degree of diligence and cannot rely on assumptions, especially when their own witness admitted the lack of a board resolution authorizing the mortgage.
Main Doctrine
Acts of a corporate officer that are not authorized by the board of directors/trustees do not bind the corporation unless the corporation ratifies the acts or holds the officer out as a person with authority to transact on its behalf. Furthermore, a corporation's act of mortgaging its properties to secure the loans of a third party is ultra vires if it is not necessary and incidental to its corporate purposes, and such act cannot be ratified or be deemed to have apparent authority if the underlying documents are found to be simulated or unauthorized.