Terp Construction v. Banco Filipino
REITERATIONFacts
The Antecedents: Terp Construction Corporation (Terp Construction) planned housing and condominium projects, financed through the issuance of Margarita Bonds worth P400 million. A Contract of Guaranty was executed among Terp Construction, Home Insurance Guaranty Corporation, and Planters Development Bank (Planters Bank). Planters Bank was the trustee for the Margarita Asset Pool Formation and Trust Agreement, responsible for paying interests and redeeming bonds. Home Insurance Guaranty Corporation was the guarantor, obligated to pay investors 8.5% annual interest. Banco Filipino Savings and Mortgage Bank (Banco Filipino) purchased P100 million worth of Margarita Bonds. Banco Filipino sought additional interest beyond the guaranteed 8.5% per annum, based on letters from Terp Construction's Senior Vice President, Alberto Escalona (Escalona), dated February 3, 1997, and April 8, 1997, which committed to higher interest rates (15.5% and 16.5%). Terp Construction faced financial difficulties after the 1997 economic crisis, leading to insufficient funds in the asset pool upon bond maturity. Home Insurance Guaranty Corporation paid bondholders 8.5% interest. Banco Filipino, however, demanded the difference, claiming entitlement to 15.5% interest and asserting P18,104,431.33 in unpaid interest differentials as of July 1, 2001. Terp Construction refused, alleging the additional interest payment was conditional on the release of asset pool funds, which never occurred. Banco Filipino countered that Terp Construction had paid the additional interest twice during the bonds' holding period and that the company misused bond proceeds. Procedural History: The Regional Trial Court (RTC) ruled in favor of Terp Construction, finding no evidence of obligation for interest differentials and that Escalona's acts were not binding as they were not ratified. Banco Filipino appealed to the Court of Appeals (CA). The CA reversed the RTC, ordering Terp Construction to pay the interest differentials, finding that Escalona's letters constituted a commitment to pay higher interest and that Terp Construction ratified these acts by making payments twice. The CA also found the obligation to pay additional interest to be pure, not conditional. Terp Construction's motion for reconsideration was denied. The Petition: Terp Construction filed a Petition for Review on Certiorari with the Supreme Court, arguing that the CA erred in reversing the RTC's factual findings, that there was no written contract for additional interest, that Escalona's acts were unauthorized, and that erroneous payments did not constitute ratification. Banco Filipino argued that conflicting factual findings do not automatically warrant review and that there was overwhelming evidence of Terp Construction's commitment and ratification.
Issue(s)
Whether the Court of Appeals erred in reversing the factual findings of the Regional Trial Court. Whether Terp Construction Corporation is liable for the payment of interest differentials beyond the guaranteed 8.5% per annum. Whether the acts of Senior Vice President Alberto Escalona in committing to higher interest rates were binding on Terp Construction Corporation. Whether Terp Construction Corporation ratified the alleged unauthorized acts of its Senior Vice President.
Ruling
The Petition is denied. Terp Construction Corporation is ordered to pay Banco Filipino Savings and Mortgage Bank the amount of P18,104,431.33 with legal interest.
Ratio Decidendi
On the issue of whether the Court of Appeals erred in reversing the factual findings of the Regional Trial Court: The Court reiterated that as a general rule, only questions of law may be brought before it under Rule 45 of the Rules of Court, and factual findings of lower courts are binding if supported by substantial evidence. While conflicting findings between the RTC and CA are an exception, the party claiming such exception must demonstrate and prove why a review of factual findings is necessary. The Court found that the CA, as a trier of facts, had factual findings supported by substantial evidence, and mere disagreement with the RTC was not sufficient reason for review. The CA's reversal of the RTC's factual findings was not a sufficient ground to warrant the Supreme Court's review in this instance, as the CA's findings were borne out by the record. On the issue of whether Terp Construction Corporation is liable for the payment of interest differentials beyond the guaranteed 8.5% per annum and whether the acts of Senior Vice President Alberto Escalona were binding: The Court found that Terp Construction, through its Senior Vice President Escalona, had categorically committed to pay interest over and above the guaranteed 8.5% per annum. This commitment was evidenced by the letters dated February 3, 1997, and April 8, 1997, which stated specific higher interest rates (16.5% and 15.5%) and committed Terp Construction to pay the differential interest. The Court noted that Terp Construction did not deny making these payments twice during the Margarita Bonds' holding period. The Court held that corporations exercise powers through their board of directors, which can delegate authority to officers. Such authority can be actual (express or implied) or apparent. The subsequent act of twice paying the additional interest was considered a ratification of Escalona's acts, binding the corporation. The Court rejected the defense that these were "erroneous payments" as corporations are bound by their own errors. On the issue of whether the acts of Senior Vice President Alberto Escalona in committing to higher interest rates were binding on Terp Construction Corporation: The Court found that corporations exercise powers through their board of directors, which can delegate authority to officers. Such authority can be actual (express or implied) or apparent. The subsequent act of twice paying the additional interest was considered a ratification of Escalona's acts, binding the corporation. The Court rejected the defense that these were "erroneous payments" as corporations are bound by their own errors. On the issue of whether Terp Construction Corporation ratified the alleged unauthorized acts of its Senior Vice President: The Court affirmed that Terp Construction's act of twice paying the additional interest committed by Escalona constituted ratification of his acts. This ratification could be express or implied. Implied actual authority arises from prior acts ratified by the corporation or whose benefits have been accepted. Furthermore, Escalona possessed apparent authority. Apparent authority exists when a corporation clothes an officer with the power to act, or acquiesces in his acts, and a third party deals with him in good faith, relying on such apparent authority. The Court found that Banco Filipino relied on Escalona's apparent authority as Senior Vice President, and this was further demonstrated by Terp Construction's subsequent payments of the promised additional interests. The Court also noted that Escalona continued to hold significant positions within the corporation, even signing as president later, indicating that his alleged unauthorized acts were not considered fatal to his corporate involvement.
Main Doctrine
A corporation's repeated payment of an allegedly unauthorized obligation contracted by one of its officers effectively ratifies that corporate officer's allegedly unauthorized act, and such acts may also be binding under the principle of apparent authority.