In Koji Yasuma v. Heirs of Cecilio S. De Villa and East Cordillera Mining Corporation, the Supreme Court ruled that a corporation is not liable for loans obtained by its president without express authority, even if the corporation received the loan proceeds. This case underscores the importance of demonstrating clear corporate authorization for any debt incurred on behalf of a corporation.

Did East Cordillera Mining Ratify a Loan It Didn’t Authorize?

Koji Yasuma sought to recover loans from the Heirs of Cecilio S. de Villa and East Cordillera Mining Corporation. These loans, totaling P1.3 million, were initially secured by real estate mortgages on land owned by the corporation and were personally signed by de Villa. However, de Villa later died. Yasuma sought payment from the company, arguing that because East Cordillera Mining Corporation received the loan money, the act of securing the loans was effectively ratified.

The court looked at the dynamics between corporate officers and the entities they represent, particularly the necessity for explicit authorization. The court cited Section 23 of the Corporation Code of the Philippines, underscoring how a corporation, as a distinct legal entity, operates through its board of directors, which has control over business operations and assets:

Sec. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees …

According to the general principles of agency, relationships between corporations and their agents require a special power of attorney, particularly for borrowing money, as outlined in Aguenza v. Metropolitan Bank & Trust Co. This ensures clear, formal consent. Because no formal authority was ever conferred to de Villa, the court needed to determine if ratification, or the principal voluntarily adopting an unauthorized action by its agent, was implied. In this case, it was not.

Although East Cordillera Mining Corporation admitted to receiving the P1.3 million, they also stipulated that it was received as an investment to a losing business venture that failed due to natural disasters that were no fault of the company. The Supreme Court concluded that East Cordillera Mining Corporation couldn’t have intentionally adopted something they didn’t know was happening in the first place:

Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification.

The Supreme Court then held that the company was not liable, because the loan was obtained without proper authority and the real estate mortgages signed by de Villa were not valid without a special power of attorney. Therefore, the liabilities were deemed the debts of de Villa personally.

FAQs

What was the key issue in this case?	The central issue was whether East Cordillera Mining Corporation was liable for a loan obtained by its president, Cecilio de Villa, without express corporate authorization.
Why did Koji Yasuma sue East Cordillera Mining?	Yasuma sued to recover loan amounts evidenced by promissory notes signed by de Villa, who initially secured the loans with mortgages on the corporation’s property.
What did the Court of Appeals decide?	The Court of Appeals reversed the lower court’s decision, finding that the loans were personal to de Villa and the mortgages were invalid due to lack of corporate authority.
What is the significance of Section 23 of the Corporation Code?	Section 23 emphasizes that the board of directors manages the powers, business, and property of a corporation, requiring that individual officers must be authorized to act on behalf of the company.
What is a special power of attorney, and why is it important here?	A special power of attorney grants specific authority to an agent. It is required for corporate officers borrowing money to ensure clear authorization and protection of corporate interests.
What does ratification mean in this context?	Ratification is when a principal approves an unauthorized act performed by an agent. For valid ratification, the principal must have full knowledge of all relevant facts.
Why was there no ratification in this case?	The Supreme Court found no ratification because East Cordillera Mining Corporation did not have full knowledge that de Villa took out the loan on their behalf, so the investment proceeds were accepted in good faith.
Who is liable for the loan if not the corporation?	Since the debt was deemed personal, the liability for the loan rests with the estate of Cecilio de Villa, with the avenue of a money claim available to the creditor.

This case underscores the necessity for clarity in corporate governance, particularly concerning debt acquisition and ratification of unauthorized actions. It serves as a critical reminder for creditors to verify an agent’s power to act for the company. As shown in this case, doing so helps mitigate the risk of non-payment and protects both the creditor and the corporation from potential liabilities arising from unauthorized transactions.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Koji Yasuma v. Heirs of Cecilio S. De Villa and East Cordillera Mining Corporation, G.R. NO. 150350, August 22, 2006