TERP CONSTRUCTION CORPORATION v. BANCO FILIPINO SAVINGS AND MORTGAGE BANK

TERP CONSTRUCTION CORPORATION,v.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK
Facts:
This Court resolves a Petition for Review on Certiorari assailing the Decision and

Resolution of the Court of Appeals, which reversed and set aside the Regional Trial
Court Decision and ordered Terp Construction Corporation (Terp Construciton) to pay
Banco Filipino Savings and Mortgage Bank (Banco Filipino) interest differentials of
P18,104,431.33.
Sometime in 1995, Terp Construction planned to develop a housing project called the
Margarita Eastville and a condominium called Margarita Plaza. To finance the projects,
Terp Construction, Home Insurance Guaranty Corporation, and Planters Development
Bank (Planters Bank) agreed to raise funds through the issuance of bonds worth P400
million called the Margarita Project Participation Certificates (Margarita Bonds).
The three (3) companies entered into a Contract of Guaranty in which 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. Banco Filipino purchased Margarita Bonds
for P100 million. It asked for additional interest other than the guaranteed 8.5% per
annum. Terp Construction began constructing Margarita Eastville and Margarita Plaza.
When the Margarita Bonds matured, the funds in the asset pool were insufficient to pay
the bond holders. Pursuant to the Contract of Guaranty, Planters Bank conveyed the
asset pool funds to Home Insurance Guaranty Corporation, which then paid Banco
Filipino interest earnings of 8.5% per year. Banco Filipino, however, sent Terp
Construction a demand letter dated January 31, 2001, alleging that it was entitled to a
15.5% interest on its investment. Then, Terp Corporation filed a complaint for the
nullity of interest, damages, and attorney's fees against Banco Filipino. The RTC issued
a Decision in favor of Terp Construction. On appeal, the CA reversed the decision of the
RTC, finding Terp Corpation was not obligated to pay additional interest, since it was
never mentioned and found unmeritorious Terp Construction's defense that the letters
were unauthorized acts of Escalona, its then senior vice president, since his acts were
ratified when Terp Construction paid interest differentials twice to Banco Filipino during
the Margarita Bonds' holding period.
Issue:
Whether or not the Court of Appeals erred in ruling that petitioner Terp Construction
Corporation expressly agreed to be bound to respondent Banco Filipino Savings
Mortgage Bank for additional interest in the bonds it purchased.
Ruling:
The Supreme Court finds the petition to be without merit.
Petitioner disavows this obligation and contends that it was merely an unauthorized
offer made by one (1) of its officers during the negotiation stage of a contract.
Petitioner, however, does not deny that it paid respondent the additional interest during
the Margarita Bonds' holding period, not just once, but twice.
A corporation exercises its corporate powers through its board of directors. This power
may be validly delegated to its officers, committees, or agencies. "The authority of such
individuals to bind the corporation is generally derived from law, corporate bylaws or
authorization from the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business.
The authority of the board of directors to delegate its corporate powers may either be:
(1) actual; or (2) apparent.45
Actual authority may be express or implied. Express actual authority refers to the
corporate powers expressly delegated by the board of directors. Implied actual
authority, on the other hand, "can be measured by his or her prior acts which have
been ratified by the corporation or whose benefits have been accepted by the
corporation."
Petitioner's subsequent act of twice paying the additional interest Escalona committed
to during the term of the Margarita Bonds is considered a ratification of Escalona's acts.
Petitioner's only defense that they were "erroneous payment[s]" 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 petitioner. In Yao Ka

Sin Trading v. Court of Appeals:
The rule is of course settled that "[a]lthough 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 corporation is bound thereby in favor of a person who
deals with him in good faith in reliance on 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." 49
Apparent authority is ascertained through:
(1) the general manner by which the corporation holds out 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.50 (Citation omitted)
Here, respondent relied on Escalona's apparent authority to promise interest payments

over and above the guaranteed 8.5%, considering that Escalona was petitioner's then
senior vice president. His apparent authority was further demonstrated by petitioner
paying respondent what Escalona promised during the Margarita Bonds' term.
It should likewise be noted that at the time this Petition was filed, Escalona signed the
Verification and Certification as the president of the corporation, signifying that
petitioner did not consider his alleged unauthorized acts as fatal to his continued
involvement in corporate affairs.

TERP CONSTRUCTION CORPORATION v. BANCO FILIPINO SAVINGS AND MORTGAGE BANK

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TERP CONSTRUCTION CORPORATION,v.

BANCO FILIPINO SAVINGS AND MORTGAGE BANK

This Court resolves a Petition for Review on Certiorari assailing the Decision and

The Supreme Court finds the petition to be without merit.

Escalona likewise had apparent authority to transact on behalf of petitioner. In Yao Ka

Apparent authority is ascertained through:

Here, respondent relied on Escalona's apparent authority to promise interest payments

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