In this case, the Supreme Court addressed the conditions under which a corporation’s separate legal identity can be disregarded, imposing solidary liability on its officers for corporate debts. The Court affirmed the decision of the Court of Appeals (CA), holding both Lapulapu Foundation, Inc. and its President, Elias Q. Tan, jointly and solidarily liable for loan obligations obtained by Tan on behalf of the Foundation. This ruling clarifies the application of the doctrine of piercing the corporate veil, emphasizing that corporate officers cannot use the corporate entity to shield themselves from liabilities arising from their actions, especially when they have acted beyond their authority or for their personal benefit.

When a Signature Binds Both Person and Corporation: The Case of Lapulapu Foundation’s Loans

This case revolves around loans obtained from Allied Banking Corporation by Elias Q. Tan, acting as President of Lapulapu Foundation, Inc. The bank sought to recover P493,566.61, plus interests and charges, from both Tan and the Foundation. The central legal question is whether Tan and the Foundation should be held jointly and solidarily liable for these loans, considering the arguments that Tan acted in his personal capacity and that the Foundation did not authorize or benefit from the transactions.

The factual backdrop involves four promissory notes issued in 1977, with Tan signing in his capacity as President of the Lapulapu Foundation. While Tan admitted obtaining the loans, he contended they were personal and intended to be paid from his shares in Lapulapu Industries Corporation. He further claimed an agreement with the bank for annual renewal of the loans. The Foundation, on the other hand, denied any liability, asserting that Tan acted without authorization and for his own benefit. The Regional Trial Court ruled in favor of Allied Banking Corporation, holding both Tan and the Foundation jointly and solidarily liable, a decision affirmed with modification by the Court of Appeals.

The Supreme Court addressed the issue of whether the loans were due and demandable despite the petitioners’ denial of receiving demand letters. The Court affirmed the appellate court’s finding, citing the presumption that mails are properly delivered and received. The presentation of registry return cards during the trial established that demand letters were sent and received, and the petitioners failed to provide sufficient evidence to rebut this presumption. As the Court noted, “There is no showing that the addresses on the registry return cards were wrong. It is the petitioners’ burden to overcome the presumptions by sufficient evidence…”

The court examined the evidence to determine whether the petitioners should be held jointly and solidarily liable for the loans. The promissory notes clearly indicated that Tan signed “in his official and personal capacity,” binding both himself and the Foundation. Additional documents, such as the application for credit accommodation and signature cards for accounts in the Foundation’s name, further supported this conclusion. The Supreme Court found Tan’s claim that he signed blank loan documents to be incredulous, given his experience as a businessman. The Court relied on documentary evidence and the established business practices in affirming the contractual obligations.

Furthermore, the Court upheld the application of the parol evidence rule, which states that when an agreement has been reduced to writing, the terms are considered to contain all the agreed-upon terms. Section 9, Rule 130 of the Revised Rules of Court provides:

“When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors-in-interest, no evidence of such terms other than the contents of the written agreement.”

The promissory notes contained explicit maturity dates, and there was no mention of an agreement for annual renewal or payment from Tan’s shares in Lapulapu Industries Corp. Thus, the Court rejected Tan’s attempt to introduce evidence of an unwritten agreement to contradict the terms of the promissory notes. The Court recognized that parol evidence is generally not admissible to vary, contradict, or defeat the operation of a valid contract unless there is fraud or mistake, which was not alleged in this case.

The Supreme Court also upheld the CA’s application of the doctrine of piercing the corporate veil. This doctrine allows the court to disregard the separate legal personality of a corporation when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime. The CA correctly found that the Foundation had given Tan ostensible authority to deal with the bank, as evidenced by the Secretary’s Certificate. The Supreme Court emphasized that “if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts…” Consequently, the Foundation was estopped from denying Tan’s authority to obtain the loans.

The Court underscored that Tan had represented himself as the President of Lapulapu Foundation, opened bank accounts in its name, and submitted a notarized Secretary’s Certificate attesting to his authority. The Court of Appeals quoted from the Secretary’s Certificate:

[Tan] has been authorized, inter alia, to sign for and in behalf of the Lapulapu Foundation any and all checks, drafts or other orders with respect to the bank; to transact business with the Bank, negotiate loans, agreements, obligations, promissory notes and other commercial documents; and to initially obtain a loan for P100,000.00 from any bank

Therefore, holding both Tan and the Foundation jointly and solidarily liable was justified due to Tan’s apparent authority and the Foundation’s implicit endorsement of his actions. The Court’s decision underscores the importance of adhering to established legal principles, such as the parol evidence rule and the doctrine of piercing the corporate veil, in ensuring fairness and accountability in commercial transactions.

Building on this principle, the Court’s decision is a reminder that those acting on behalf of a corporation must do so within the bounds of their authority and in a manner that does not mislead or prejudice third parties. The ruling reinforces the importance of due diligence and clear documentation in loan transactions, highlighting that written agreements will generally prevail over unwritten understandings. Ultimately, this case provides valuable guidance for businesses, lenders, and individuals involved in corporate governance and finance, underscoring the need for transparency, accountability, and adherence to legal principles.

FAQs

What was the key issue in this case?	The key issue was whether Elias Q. Tan and Lapulapu Foundation, Inc., could be held jointly and solidarily liable for loan obligations Tan obtained on behalf of the Foundation.
What is the doctrine of piercing the corporate veil?	The doctrine of piercing the corporate veil allows a court to disregard the separate legal personality of a corporation when it is used to commit fraud, justify a wrong, or circumvent the law.
What is the parol evidence rule?	The parol evidence rule states that when the terms of an agreement have been put in writing, that writing is considered to contain all the agreed-upon terms, and no other evidence can be admitted to vary or contradict it.
Why did the Court reject Tan’s claim of an unwritten agreement?	The Court rejected Tan’s claim because it violated the parol evidence rule. The promissory notes were the written agreement, and there was no mention of the alleged agreement for annual renewal or payment from his shares.
How did the Court determine that the demand letters were received?	The Court relied on the presumption that mails are properly delivered and received, supported by the registry return cards presented during the trial, which the petitioners failed to adequately rebut.
What evidence showed Tan had authority to act for the Foundation?	The Secretary’s Certificate authorized Tan to transact business with the bank, negotiate loans, and sign promissory notes on behalf of the Lapulapu Foundation, Inc.
What does ‘joint and solidary liability’ mean?	Joint and solidary liability means that each debtor is liable for the entire amount of the debt. The creditor can demand full payment from any one of them.
Can a corporation be held liable for the actions of its officers?	Yes, a corporation can be held liable for the actions of its officers if the officer acted within the scope of their authority, or if the corporation knowingly permitted the officer to act with apparent authority.

This case serves as a significant precedent for establishing corporate accountability and the limits of the corporate veil. It reiterates the principle that individuals cannot hide behind a corporate entity to evade personal responsibility for obligations they have undertaken, particularly when acting with apparent authority. This decision provides important guidance for businesses and financial institutions in evaluating the scope of corporate and individual liabilities.

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: LAPULAPU FOUNDATION, INC. VS. COURT OF APPEALS, G.R. No. 126006, January 29, 2004