In a dispute between Multi Agri-Forest and Community Development Cooperative and its members, the Supreme Court affirmed the cooperative’s right to collect on unpaid loans. The Court clarified the jurisdiction of Municipal Trial Courts in Cities (MTCC) over collection cases, validated the authority of cooperative managers to file suits, and adjusted interest rates on the loans to align with prevailing legal standards. This decision underscores the importance of fulfilling contractual obligations and clarifies the procedural aspects of debt collection for cooperatives and their members, ensuring fairness and adherence to legal guidelines in financial transactions.

Cooperative Loans in Question: Can a Manager Sue Without Explicit Approval?

This case revolves around a credit cooperative, Multi Agri-Forest and Community Development Cooperative (formerly MAF Camarines Sur Employees Cooperative, Inc.), seeking to recover unpaid loans from several of its members. Lylith Fausto, Jonathan Fausto, Rico Alvia, Arsenia Tocloy, Lourdes Adolfo, and Anecita Mancita, as active members of the cooperative, obtained loans evidenced by separate promissory notes. When Lylith and Jonathan Fausto failed to meet their obligations, the cooperative, through its Acting Manager Ma. Lucila G. Nacario, initiated five separate complaints for Collection of Sum of Money before the Municipal Trial Court in Cities (MTCC) of Naga City. This action triggered a legal battle that questioned Nacario’s authority, the MTCC’s jurisdiction, and the fairness of the imposed interest rates.

The petitioners challenged the MTCC’s jurisdiction, arguing that the total amount of the claims exceeded the jurisdictional limit. They also questioned Nacario’s authority to file the complaints on behalf of the cooperative, citing the absence of a board resolution empowering her to do so at the time the complaints were filed. Further, they argued that the cooperative failed to resort to mediation or conciliation before filing the cases and that no demand or notice was sent to the co-makers of Lylith and Jonathan. The case eventually reached the Supreme Court, which was tasked to resolve these issues and determine the validity of the cooperative’s claims.

The Supreme Court addressed the jurisdictional question by clarifying the applicability of Republic Act (R.A.) No. 7691, which amended Section 33 of Batas Pambansa Bilang 129 (BP 129). This amendment increased the jurisdictional amount pertaining to the MTCC. Specifically, the Court cited Section 5 of R.A. No. 7691, which adjusted the jurisdictional amounts over time. For cases filed in 2000, the applicable jurisdictional amount was P200,000.00, exclusive of interests, surcharges, damages, attorney’s fees, and litigation costs. The Court emphasized that this amount pertains to the totality of claims between the parties embodied in the same complaint or to each of the several claims should they be contained in separate complaints. This clarification was crucial in determining whether the MTCC had the authority to hear the cases.

Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in civil cases. – Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts shall exercise:

(1) Exclusive original jurisdiction over civil actions and probate proceedings, testate and intestate, including the grant of provisional remedies in proper cases, where the value of the personal property, estate, or amount of the demand does not exceed One hundred thousand pesos (P100,000.00) or, in Metro Manila where such personal property, estate, or amount of the demand does not exceed Two hundred thousand pesos (P200,000.00) exclusive of interest damages of whatever kind, attorney’s fees, litigation expenses, and costs, the amount of which must be specifically alleged: Provided, That where there are several claims or causes of action between the same or different parties, embodied in the same complaint, the amount of the demand shall be the totality of the claims in all the causes of action, irrespective of whether the causes of action arose out of the same or different transactions [.]

The Court clarified that the “totality of claims” rule applies only when several claims or causes of action are embodied in the same complaint. In this case, since there were five separate complaints, each pertaining to a distinct claim not exceeding P200,000.00, the MTCC had jurisdiction over each case. The petitioners’ argument of aggregating the amounts of all claims was a misinterpretation of the jurisdictional rules. This ruling reinforces the principle that jurisdiction is determined on a per-complaint basis when separate actions are filed.

On the issue of Nacario’s authority, the petitioners argued that without a board resolution at the time of filing, she lacked the power to represent the cooperative. However, the Court noted that the Board of Directors (BOD) of the cooperative ratified Nacario’s actions through Resolution No. 47, Series of 2008. This resolution expressly recognized, ratified, and affirmed the filing of the complaints by Nacario as if they were fully authorized by the BOD. The Court referenced the principle of ratification, stating that a corporation may ratify the unauthorized act of its corporate officer, effectively substituting a prior authority.

Furthermore, the Court acknowledged instances where certain corporate officers can sign verifications and certifications without a board resolution, such as the Chairperson of the Board of Directors, the President of a corporation, or the General Manager. However, the primary basis for upholding Nacario’s authority was the subsequent ratification by the BOD, which cured any initial defect in her authority. This reaffirms the principle that a corporation can validate the actions of its officers retrospectively, provided it is done through a formal board resolution. This underscores the importance of ensuring proper authorization for legal actions taken on behalf of an organization.

Regarding the petitioners’ claim that the cooperative should have first resorted to mediation before the Cooperative Development Authority (CDA), the Court clarified that mediation is not a compulsory prerequisite to filing a case in court. Although Section 121 of the Cooperative Code expresses a preference for amicable settlement of disputes, it does not mandate mediation before seeking recourse in regular courts. The decision to mediate depends on the parties’ agreement, making the procedure optional rather than obligatory. This ruling clarifies that while amicable settlement is encouraged, it is not a mandatory step that invalidates a case directly filed in court.

The Court also addressed the issue of demand or notice to the co-makers of the loans. The petitioners argued that no notice or demand was sent to them, but the Court pointed out that the promissory notes signed by the petitioners contained a provision waiving the need for any notice or demand. Specifically, the notes stated that in case of default, the entire balance would become immediately due and payable without any notice or demand. This express waiver of notice meant that the cooperative was not required to send a demand letter before initiating legal action. This emphasizes the significance of clear contractual terms and the enforceability of waivers in promissory notes.

Moreover, the Court noted that the petitioners bound themselves jointly and severally liable with the principal debtor for the entire amount of the obligation. A solidary obligation means that each debtor is liable for the entire obligation. As co-makers, their liability was immediate and absolute, and the terms of the promissory notes, including the waiver of notice, applied to them equally. This reinforces the principle that co-makers in a solidary obligation are equally bound by the terms of the agreement, including waivers of notice.

Finally, the Supreme Court addressed the interest rates imposed on the loans. The Regional Trial Court (RTC) found the stipulated interest rates of 2.3% per month and a 2% surcharge per month to be excessive and unconscionable, amounting to 51.6% of the principal annually. Consequently, the RTC reduced the interest and surcharge to 1% per month or 12% per annum. The Supreme Court affirmed this reduction, citing numerous cases where iniquitous and unconscionable interest rates were deemed void and warranted the imposition of the legal interest rate. The Court then modified the rate of legal interest on the money judgment to conform to prevailing jurisprudence, referencing the ruling in Nacar v. Gallery Frames, et al.^[52]. The interest rate was reduced to six percent (6%) per annum, reflecting the current legal standard.

FAQs

What was the key issue in this case?	The key issue was whether the cooperative could collect on unpaid loans from its members, considering challenges to the court’s jurisdiction, the manager’s authority to file the case, and the imposed interest rates. The Supreme Court ultimately affirmed the cooperative’s right to collect, subject to adjustments in interest rates.
Did the MTCC have jurisdiction over the case?	Yes, the Supreme Court ruled that the MTCC had jurisdiction because each complaint pertained to a separate claim that did not exceed the jurisdictional amount of P200,000.00, as per Republic Act No. 7691. The “totality of claims” rule did not apply since the claims were filed as separate complaints.
Did the acting manager have the authority to file the complaints?	Initially, there was no explicit board resolution authorizing the manager. However, the Board of Directors later ratified her actions through a subsequent resolution, which the Supreme Court deemed sufficient to validate her authority.
Was mediation required before filing the case in court?	No, the Supreme Court clarified that mediation before the Cooperative Development Authority is not a mandatory requirement. While amicable settlement is encouraged, it is not a prerequisite for filing a case in court.
Were the co-makers entitled to a notice or demand?	No, the promissory notes contained a provision waiving the need for any notice or demand. Additionally, the co-makers were jointly and severally liable, meaning their obligation was immediate and absolute.
Were the interest rates imposed on the loans considered valid?	The Regional Trial Court found the original interest rates (2.3% per month and 2% surcharge per month) to be excessive and unconscionable. The Supreme Court affirmed the reduction of these rates to 1% per month or 12% per annum, aligning with legal standards.
What is the current legal interest rate after this ruling?	The Supreme Court modified the interest rate on the principal loans to six percent (6%) per annum, and the surcharge was also reduced to the prevailing legal rate of six percent (6%) per annum, in accordance with recent jurisprudence.
What is a solidary obligation?	A solidary obligation means that each debtor is liable for the entire obligation. In this case, as co-makers, the petitioners were jointly and severally liable with the principal debtor for the entire amount of the loan.

In conclusion, the Supreme Court’s decision in this case provides valuable clarity on the procedural and substantive aspects of debt collection for cooperatives. It underscores the importance of proper jurisdiction, authority, and adherence to legal interest rates. This case serves as a reminder of the enforceability of contractual obligations and the significance of clear contractual terms in financial transactions.

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: Fausto vs. Multi Agri-Forest, G.R. No. 213939, October 12, 2016