In 1977, four loans from Allied Banking Corporation which is enclosed by four promissory notes amounting P100, 000 each was acquired by Elias Q. Tan, then President of Lapu-lapu Foundation, Inc. The bank was inhibited to file with the Regional Trial Court of Cebu City, Branch 15, a protest in looking for payment by Tan and the foundation, jointly and solely, of the sum of P493, 566.61 representing their attorney’s fees and costs, loan obligation, penalty charges, exclusive of interests. For the reason that as of January 23, 1979, Tan and the foundation were not able to pay the whole obligation with a total of P493, 566.61 and regardless of the demands made on them by the Bank.
The foundation denied of acquiring the indebtedness from the Bank as their answer to the complaint. They said that the loans were obtained by Tan in his personal capacity, for his own use and benefit and on the strength of the personal information he provided the Bank. The Foundation upheld that it never gave Tan authorization to co-sign in his place as its President any promissory note and that the Bank is fully aware that the loans contracted were made in Tan’s personal capacity and for his own personal use and benefit and that the Foundation never benefitted, directly or indirectly in any way or manner, thereof.
The Foundation then interjected a cross-claim against Tan declaring that he, going beyond his authority, should be solely liable for the said loans, and a counterclaim against the Bank for damages and attorney’s fees. For Tan’s part, he admitted that he committed the loans from the Bank in his personal capacity. The parties, however, agreed that the loans were to be paid from the proceeds of Tan’s shares of common stocks in the Lapu-Lapu Industries Corporation which is a real estate firm.
The loans were covered by promissory notes which were automatically rekindled every year at an amount which includes the unpaid interest, until the time that Tan would be able to pay the same amount from the proceeds of his abovementioned shares. According to Tan, the employee of the Bank required him to attach two signatures on every promissory note, giving him guarantee that the loan documents would be filled out in accordance with their agreement. Yet, after he signed and delivered the loan documents to the Bank, these were filled out not in accord with their agreement, wherein the Foundation was included as party. Further, previous to its filling of the complaint, the Bank made no claim on him.
After the trial, the court handed over judgment. First, obliged Tan and the Foundation to pay jointly and solely to the Bank the principal obligation for the four promissory notes in the amount of P 493, 566.61 which includes all their charges included in the same, with 14% interest per annum, computed from January 24, 1979 until the same are fully paid, with an additional 2% service charges and 1% monthly penalty charges. Second, the court obliged Tan and the Foundation to pay jointly and solely, attorney’s fees in the equivalent amount of 25% of the total amount due from them on the promissory notes, including all charges and lastly, both Tan and the Foundation are obliged to pay jointly and solely proceedings expenses of P 1,000.00 plus costs of the suit. The CA supported with modification the judgment of the court by deleting the award of attorney’s fees in the favor of the Bank so that there will be no bias. The petition for review on certiorari was filed by Tan and the Foundation.
ISSUE: 1. Whether Tan and the foundation should be held jointly and solely liable.
2. Whether the foundation gave Tan an apparent authority to deal with the Bank.
1. As it is in the doctrine of corporate entity, the court did not make a mistake in holding Tan and the Foundation jointly and solely liable. Given these circumstances – Tan representing himself as the President of Lapu-Lapu Foundation Inc., Tan opening a savings account and a current account in the name of the corporation, signing the application form as well as the necessary sample signature cards twice for himself and the Foundation, and Tan submitting a notarized Secretary’s Certificate from the corporation, attesting that he has been authorized to sign for and in behalf of the Lapu-Lapu Foundation any and all checks, drafts or other orders with respect to the Bank; to perform business with the Bank, negotiate loans, agreement, obligations, promissory notes and other commercial documents; and to initially acquire a loan of P100, 000.00 from any bank – Tan and the Foundation cannot hide under the corporate veil. Because of the transactions Tan entered on the behalf of the Foundation, the Foundation is deemed liable.
2. According to the Secretary’s Certificate, Tan, the President, was given supposed and clear authority by the Foundation to, among other things, deal with the Bank. For that reason, the Foundation is prohibited from questioning the authority of Tan to attain the subject loans from the respondent Bank. Since it is a known doctrine that if a corporation knowingly allows one of its officers, or any other agents, to act within the scope of a noticeable authority, and holds him out to the public as someone who holds the power to do those acts, the corporation is prohibited from denying the agent’s authority.