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G.R. No. 150350 August 22, 2006

KOJI YASUMA, Petitioner,

vs.HEIRS OF CECILIO S. DE VILLA and EASTCORDILLERA MINING CORPORATION,Respondents.

D E C I S I O N

CORONA, J.:

This is a petition for review on certiorari1 of a

decision2 of the Court of Appeals (CA) dated

October 18, 2001 in CA-G.R. CV No. 61755.

The antecedent facts follow.

On September 15, 1988, October 21, 1988 andDecember 5, 1988, Cecilio S. de Villa obtainedloans from petitioner Koji Yasuma in the amountsof P1,100,000, P100,000 and P100,000,respectively, for the total amount of P1.3 million.These loans were evidenced by three promissorynotes signed by de Villa as borrower. The lastpromissory note in the amount of P1,300,000cancelled the first two notes.

The loans were initially secured by threeseparate real estate mortgages on a parcel ofland with Transfer Certificate of Title No. 176575in the name of respondent East Cordillera MiningCorporation. The deeds of mortgage wereexecuted on the dates the loans were obtained,signed by de Villa as president of respondentcorporation. The third real estate mortgage latercancelled the first two.

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For failure of de Villa to pay, petitioner filed acollection suit in the Regional Trial Court ofMakati City, Branch 148 (RTC-Br. 148) against

de Villa and respondent corporation.

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The RTC-Br. 148 declared de Villa and respondentcorporation in default and resolved the case infavor of petitioner. On appeal, however, the

judgment of RTC-Br. 148 was annulled on theground of improper service of summons.

5 Thus,

the case was remanded for retrial.

During the pendency of the case in the RTC-Br.148, de Villa died. Petitioner consequentlyamended the complaint and impleaded the heirsof de Villa as defendants.

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After the case was re-heard, the RTC of MakatiCity, Branch 139 (RTC-Br. 139) rendered

judgment on November 13, 1998 in favor of

petitioner and against respondent corporation. Itordered respondent corporation to pay petitionerP1.3 million plus legal interest, attorneys fees,liquidated damages and costs of suit. Thecomplaint was dismissed against respondentheirs.

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On appeal, the CA reversed and set aside thedecision of RTC-Br. 139. It held that the loan waspersonal to de Villa and that the mortgage wasnull and void for lack of authority from thecorporation.

Petitioner is now before this Court with thefollowing assignment of errors:

1. THE [CA], WITH ALL DUE RESPECT,COMMITTED PALPABLE AND REVERSIBLEERROR OF LAW WHEN IT DECLARED THATTHE CORPORATION DID NOT RATIFY THE

ACT OF ITS PRESIDENT IN OBTAININGLOANS FROM PETITIONER DESPITE ITS

ADMISSION THAT IT RECEIVED THE MONEYOF THE PETITIONER.

2. THE [CA], WITH ALL DUE RESPECT,

COMMITTED PALPABLE AND REVERSIBLEERROR OF LAW WHEN IT TOTALLYDISREGARDED THE ADMITTED FACTS ANDISSUES AGREED UPON BY THE PARTIES

AND APPROVED BY THE TRIAL COURTDURING THE PRE-TRIAL.

3. THE [CA], WITH ALL DUE RESPECT,COMMITTED PALPABLE AND REVERSIBLEERROR OF LAW WHEN IT SET ASIDE THEREAL ESTATE MORTGAGE AND THE AWARDOF ATTORNEYS FEES, 10% LIQUIDATEDDAMAGES AND THE COSTS OF SUIT.

4. THE [CA], WITH ALL DUE RESPECT,COMMITTED PALPABLE AND REVERSIBLEERROR OF LAW WHEN IT SET ASIDE THE

AWARD OF INTEREST BY WAY OF DAMAGESIN FAVOR OF PETITIONER.

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The issues to be resolved are the following:

1) whether the loans were personal liabilities ofde Villa or debts of respondent corporation and

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[p]resident and the [petitioner] as in fact therewas a misrepresentation made to the [respondentcorporation], to the effect that the money was an

investment and not a loan. The allegedinvestment is actually a personal loan of Ceciliode Villa.

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Petitioners contention has no merit. There wasno showing that respondent corporation everauthorized de Villa to obtain the loans on itsbehalf. The notes did not show that de Villa actedon behalf of the corporation. Actually, thecorporation would not have figured in thetransaction at all had it not been for its admissionthat it received the amount of P1.3 million. Ascould be gleaned from the promissory notes, it

was a stranger to the transaction.

Thus, we conclude that petitioner himself did notconsider the corporation to be his debtor for if hereally knew that de Villa was obtaining the loanon behalf of the corporation, then why did heallow the notes to reflect only the personal liabilityof de Villa?

21 Even the demand letters of

petitioner were personally addressed to de Villaand not to respondent corporation.

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Undoubtedly, petitioner dealt with de Villa purelyin his personal capacity.

Respondent corporation could not have ratifiedthe act of de Villa because there was no proofthat it knew that he took out a loan on its behalf.

As stated earlier, ratification is a voluntary choicethat is knowingly made. The corporation couldnot have ratified an act it had no knowledge of:

xxx xxx xxx

Ordinarily, the principal must have full knowledgeat the time of ratification of all the material factsand circumstances relating to the unauthorizedact of the person who assumed to act as agent.

Thus, if material facts were suppressed orunknown, there can be no valid ratification .

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The fact that the corporation admitted receivingthe proceeds of the loan did not amount toratification of the loan. It accepted the amountfrom de Villa, its president at that time, in goodfaith. Good faith is always presumed.

24Petitioner

did not show that the corporation acted in badfaith.

It follows that respondent corporation was notliable for the subsequent loss of the money whichit accepted as an investment. It could not be

faulted for not knowing that it was the proceedsof a loan obtained by de Villa. It was under noobligation to check the source of the investmentswhich went into its coffers. As long as theinvestment was used for legitimate corporatepurposes, the investor bore the risk of loss.

Therefore, on the first issue, the loan waspersonal to de Villa. There was no basis to holdthe corporation liable since there was noauthority, express, implied or apparent, given tode Villa to borrow money from petitioner. Neitherwas there any subsequent ratification of his act.

Was the Mortgage Valid or Void?

Petitioner insists that the mortgage executed byde Villa, as president of the corporation, wasratified by the latter since the mortgage was anaccessory contract of the loan.

25We disagree.

A special power of attorney is necessary tocreate or convey real rights over immovableproperty.

26 Furthermore, the special power of

attorney must appear in a public document.27

Inthe absence of a special power of attorney in

favor of de Villa as president of the corporation,no valid mortgage could have been executed byhim.

28Since the mortgage was void, it could not

be ratified.

Petitioner cannot blame anyone but himself. Hedid not check if the person he was dealing withhad the authority to mortgage the property beingoffered as collateral.

Given that the loan and mortgage were notbinding on respondent corporation, the lattercannot be held liable for interest, attorneys fees

and liquidated damages arising from the loan.

Personal Liability of De Villa

The liability arising from the loan was the soleindebtedness of de Villa (or of his estate after hisdeath). Petitioner vigorously sought to makerespondent corporation liable but exerted noeffort at all to argue for the liability of respondentheirs. The trial court correctly dismissed the caseagainst the latter. Petitioners remedy now is to

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file a money claim in the settlement proceedingsof de Villas estate, if not too late, as indicated in

Rule 8629

of the Rules of Court.

WHEREFORE, the petition is hereby DENIED.The October 18, 2001 decision of the Court of

Appeals in CA-G.R. CV No. 61755 isAFFIRMED.

Costs against petitioner.

SO ORDERED.