The Supreme Court, in this case, clarified that a corporation can be held liable for loans obtained by its officers, even without explicit authorization, if the corporation benefits from the transaction or acknowledges the debt. This ruling underscores the importance of due diligence in corporate governance and the potential for liability when a corporation benefits from unauthorized acts of its officers. It serves as a reminder that corporations cannot evade responsibility for financial benefits received, even if internal procedures were not strictly followed. The case emphasizes the principle of unjust enrichment, preventing corporations from enjoying the fruits of unauthorized transactions while disclaiming liability.

The Unpaid Loan: When Does a Corporation Become Responsible?

This case revolves around a loan obtained by Cesar A. Abillar, the former President and Chairman of the Board of First Corporation, from Eduardo M. Sacris. Sacris claimed that he extended loans totaling P2.2 million to First Corporation through Abillar between 1991 and 1997. Although the loans were not explicitly authorized by the corporation’s board, Sacris argued that First Corporation benefited from these funds. The central legal question is whether First Corporation can be held liable for these loans, despite the alleged lack of explicit authorization and potential irregularities in the loan documentation.

The petitioner, First Corporation, argued that it should not be held liable for the loans secured by its former president, Abillar, because the loans were neither authorized nor ratified by the corporation or its Board of Directors. They further contended that the documents presented by Sacris were irregular and did not sufficiently prove the existence of the loan agreement. The corporation also claimed that it did not benefit from the said loans, and thus, should not be held liable. However, both the Regional Trial Court (RTC) and the Court of Appeals (CA) ruled in favor of Sacris, finding that the evidence presented demonstrated that the loans were indeed extended to the corporation and that the corporation benefited from them.

The Supreme Court, in affirming the lower courts’ decisions, emphasized that it is not a trier of facts and will generally not overturn factual findings of the trial court, especially if affirmed by the appellate court. The Court found that the RTC and the CA’s decisions were supported by substantial evidence. This evidence included certifications and official receipts acknowledging the debt, check vouchers reflecting interest payments, and the corporation’s financial statements showing entries of “loans payable.” These pieces of evidence collectively demonstrated that First Corporation received the money from Sacris through Abillar and acknowledged the debt.

One critical aspect of the Court’s reasoning was the principle that a corporation can be held liable for the acts of its officers, even if those acts were not explicitly authorized, if the corporation benefits from those acts. This is based on the principle of **unjust enrichment**, which prevents a party from unjustly benefiting at the expense of another. The Court noted that First Corporation benefited from the loans extended by Sacris, as evidenced by the financial records and other documentary evidence. Therefore, it could not evade liability simply because the loans were not formally authorized.

The Court also addressed First Corporation’s argument that Abillar lacked the authority to borrow money on behalf of the corporation. While the corporation’s by-laws may have limited Abillar’s authority to merely signing negotiable instruments and contracts, the Court found that the evidence demonstrated that the corporation, in practice, allowed Abillar to manage its financial affairs and to secure loans. Furthermore, the Court pointed out that the corporation had acknowledged the debt through various documents, indicating that it had implicitly ratified Abillar’s actions.

The decision also highlights the importance of choosing the correct mode of appeal. First Corporation attempted to challenge the lower courts’ decisions through a Petition for Certiorari under Rule 65, arguing grave abuse of discretion. However, the Supreme Court noted that certiorari is an extraordinary remedy that is only available when there is a clear showing of grave abuse of discretion amounting to lack or excess of jurisdiction. In this case, the Court found that First Corporation was essentially seeking a review of the factual findings and evidence, which is not the proper scope of certiorari. The correct remedy would have been an appeal under Rule 45, which allows for a review of factual and legal errors.

The Court further explained the difference between an **error of judgment** and an **error of jurisdiction**. An error of judgment is one that the court may commit in the exercise of its jurisdiction and is not correctible by certiorari. An error of jurisdiction, on the other hand, is one where the court acts without or in excess of its jurisdiction, or with grave abuse of discretion, which is correctible by certiorari. In this case, the Court found that the alleged errors committed by the RTC and the CA were errors of judgment, not errors of jurisdiction, and thus, could not be remedied through certiorari.

The Court also rejected First Corporation’s attempt to have the Petition for Certiorari treated as an appeal under Rule 45. While the Court has, in some cases, treated a Petition for Certiorari as an appeal under Rule 45, it will only do so if the Petition was filed within the reglementary period for filing an appeal. In this case, First Corporation filed the Petition for Certiorari well beyond the 15-day period for filing an appeal, and thus, the Court declined to treat it as such.

The Supreme Court’s decision in this case serves as a cautionary tale for corporations and their officers. It highlights the importance of clear internal controls and authorization procedures to prevent unauthorized acts by officers. It also underscores the principle that a corporation cannot knowingly benefit from the unauthorized acts of its officers and then disclaim liability. This principle reinforces the need for ethical corporate governance and accountability.

The implications of this case extend beyond the specific facts at hand. It serves as a reminder that corporations must be diligent in overseeing the actions of their officers and in ensuring that they are not engaging in unauthorized transactions. Failure to do so can result in significant financial liability for the corporation. This case also reinforces the importance of choosing the correct legal remedy when challenging a lower court’s decision. Attempting to use certiorari as a substitute for an appeal can be fatal to a party’s case.

FAQs

What was the key issue in this case?	The key issue was whether First Corporation could be held liable for loans obtained by its former president, Cesar A. Abillar, without explicit authorization from the corporation’s board. The Court also addressed if the remedy used was correct to question the decision.
What is unjust enrichment?	Unjust enrichment is a legal principle that prevents a party from unfairly benefiting at the expense of another. In this case, the Court applied this principle to prevent First Corporation from benefiting from the loans obtained by Abillar without assuming the corresponding liability.
What is the difference between an error of judgment and an error of jurisdiction?	An error of judgment is an error that a court may commit in the exercise of its jurisdiction, while an error of jurisdiction occurs when a court acts without or in excess of its jurisdiction. Certiorari can only be used to correct errors of jurisdiction, not errors of judgment.
Why was the Petition for Certiorari dismissed?	The Petition for Certiorari was dismissed because First Corporation was essentially seeking a review of the factual findings and evidence, which is not the proper scope of certiorari. The correct remedy would have been an appeal under Rule 45.
What is the significance of the corporation’s financial statements in this case?	The corporation’s financial statements, which showed entries of “loans payable,” were used as evidence to demonstrate that First Corporation had acknowledged the debt owed to Sacris. This acknowledgement supported the Court’s finding that the corporation benefited from the loans.
Can a corporation be held liable for the unauthorized acts of its officers?	Yes, a corporation can be held liable for the unauthorized acts of its officers if the corporation benefits from those acts or ratifies the officer’s actions. In this case, First Corporation was held liable because it benefited from the loans obtained by Abillar.
What is the proper remedy for challenging a lower court’s decision?	The proper remedy for challenging a lower court’s decision depends on the nature of the alleged errors. If the errors are factual or legal, the proper remedy is an appeal under Rule 45. If the errors constitute grave abuse of discretion amounting to lack or excess of jurisdiction, the proper remedy is a Petition for Certiorari under Rule 65.
What evidence supported the court’s decision?	The court relied on certifications acknowledging the debt, check vouchers reflecting interest payments, and the corporation’s financial statements. This evidence demonstrated that First Corporation received the money from Sacris through Abillar and acknowledged the debt.

In conclusion, the Supreme Court’s decision in First Corporation v. Sacris serves as a crucial reminder of the principles of corporate liability and the importance of due diligence. Corporations must be vigilant in overseeing the actions of their officers and ensuring that they do not benefit from unauthorized transactions. Moreover, parties must carefully consider the appropriate legal remedies when challenging court decisions to avoid procedural pitfalls.

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: FIRST CORPORATION, VS. SACRIS, G.R. NO. 171989, July 04, 2007