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### Facts
1. **Initial Loan Transaction (February 1994)**:
– Cebu Mactan Members Center, Inc. (CMMCI), through its President and Chairman Mitsumasa Sugimoto, secured a loan amounting to P6,500,000 from Masahiro Tsukahara.
– As payment for this loan, Sugimoto issued seven postdated checks on behalf of CMMCI to Tsukahara, dated between May 6, 1994, and December 25, 1995.
2. **Subsequent Loan Transaction (April 1994)**:
– CMMCI obtained an additional loan of P10,000,000.
– Sugimoto signed a promissory note for the sum, binding himself both in his capacity as CMMCI President and personally, payable by August 30, 1996, with an 18% interest per annum.
3. **Loan Utilization**:
– Tsukahara claimed the total loan amount of P16,500,000 was utilized for enhancing CMMCI’s beach resort, including infrastructure and salaries.
4. **Loan Non-Fulfillment & Legal Action**:
– The postdated checks were dishonored when presented for payment.
– After failed collection attempts, Tsukahara filed a case for the collection of the loan against CMMCI and Sugimoto.
5. **CMMCI’s Response**:
– CMMCI denied corporate liability, arguing that the loans were Sugimoto’s personal ventures and contended that corporate borrowing requires a Board of Directors’ resolution.
6. **Regional Trial Court (RTC) Decision (September 24, 1999)**:
– RTC ruled in favor of Tsukahara, ordering CMMCI and Sugimoto to pay P6,500,000 with legal interest and P10,000,000 with an 18% interest per annum from April 13, 1994, along with attorney’s fees of P150,000.
7. **Court of Appeals Decision (July 29, 2003)**:
– The Court of Appeals affirmed RTC’s decision, maintaining CMMCI’s liability.
8. **Petition to the Supreme Court**:
– CMMCI filed a petition for review with the Supreme Court.
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### Issues
1. **Corporate Authority**:
– Whether the CMMCI is liable for the loan obligations contracted by its President, Sugimoto, without an explicit resolution from the CMMCI Board of Directors.
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### Court’s Decision
1. **CMMCI’s Liability**:
– The Supreme Court upheld the absence of merit in CMMCI’s petition, affirming its liability for the loans contracted by Sugimoto.
2. **Board of Directors’ Authority & Delegation**:
– The Court applied Section 23 of the Corporation Code of the Philippines, indicating that corporate actions are generally conducted through the board of directors.
– However, corporations can and do delegate authorities to specific officers, which in this case included powers vested within the corporate by-laws.
3. **Specific Corporate By-Law Provisions**:
– CMMCI’s by-laws explicitly empowered its President to borrow money, execute contracts, and sign promissory notes and checks on behalf of the corporation.
– These by-laws provisions established adequate authority for Sugimoto to undertake the loan transactions without requiring separate board resolutions.
4. **Estoppel & Binding Nature of Corporate By-Laws**:
– The Court ruled that CMMCI is estopped from repudiating Sugimoto’s authority since the by-laws vested him with explicit powers to borrow money on behalf of the corporation.
– Corporate by-laws align in legal effect with the entity’s charter, binding the corporation, its directors, and its officers.
### Doctrine
– **Corporate Authority and By-Laws**:
– As established in this case, corporate officers can exercise specific powers, such as borrowing money and executing contractual agreements if explicitly granted by corporate by-laws. These powers do not necessitate separate board resolutions unless the by-laws or specific statutory provisions require otherwise.
### Class Notes
– **Corporate Authority (Sec. 23, Corporation Code of the Philippines)**:
– “The corporate powers of all corporations shall be exercised by the board of directors.”
– Corporate by-laws can explicitly grant specific powers to officers without the need for board resolution per transaction.
– Delegation of authority can be express or implied by practices or usage.
– **Estoppel**:
– The principle prevents a corporation from denying its officers’ authority if said authority aligns with authorized delegation or corporate by-laws.
### Historical Background
– **Governance and Legal Framework**:
– This case underscores the importance of corporate governance principles under Philippine corporate law, specifically the delegation of authority within corporate structures.
– The case serves as a landmark for clarifying how corporate by-laws and board resolutions interplay in corporate liabilities and authorities, reflecting a matured legal framework guiding corporate affairs in the Philippines.
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