ZOMER DEVELOPMENT COMPANY, INC., petitioner, vs.

security for the payment of obligations of third parties; and that

INTERNATIONAL EXCHANGE BANK and SHERIFF IV ARTHUR Amparo and Zosa were authorized to mortgage its properties
R. CABIGON, respondents. to secure only a P60,000,000 term loan and one credit facility
of Prime Aggregates.
In the meantime, the RTC to which the civil case was re-raffled
FACTS: On August 25, 1997, the Board of Directors of Zomer after the Presiding Judge of Branch 9 inhibited himself in the
Development Company, Inc. (petitioner) approved a resolution case, dismissed petitioner's Third Amended Complaint.
authorizing it to apply for and obtain a credit line with Petitioner appealed this Order to the Court of Appeals.
respondent International Exchange Bank (IEB) in the amount
of P60,000,000 as well as temporary excesses or permanent The CA denied due course the petition certiorari as it found that
increases thereon as may be approved by IEB from time to time. the trial court committed no grave abuse of discretion in
The Board of Directors also authorized petitioner to assign, denying petitioner's prayer for preliminary injunction. It
pledge, or mortgage its properties as security for this brushed aside petitioner's arguments that the real estate
credit line; and to secure and guarantee the term loan and mortgage was ultra vires and that Amparo and Zosa were only
other credit facility of IDHI Prime Aggregates Corporation authorized to mortgage petitioner's properties to secure the
(Prime Aggregates) with IEB. P60,000,000 term loan and one credit facility of Prime
Prime Aggregates obtained on August 26, 1997 a term loan Aggregates.
from IEB in the amount of P60,000,000. On September 2, 1997, Hence, the present petition for review.
petitioner ZOMER, through its Treasurer Amparo Zosa
(Amparo) and its General Manager Manuel Zosa, Jr. (Zosa), Respondents, in their Comment, move for the dismissal of the
executed a real estate mortgage covering three parcels of land petition for being moot and academic, alleging that:
(the real estate mortgage) in favor of IEB to secure:
[petitioner's] principal action for annulment of
1. The payment of all loans, overdrafts, credit real estate mortgage was dismissed by the trial
lines and other credit facilities or court and that said action is now on appeal with
accommodations obtained or hereinafter the Court of Appeals . . .
obtained by the MORTGAGOR and/or by IDHI
Prime Aggregates Corporation (hereinafter And that petitioner's] mortgaged properties
referred to as DEBTOR) were foreclosed by [IEB]. In fact, as the highest
bidder in the said foreclosure sale and in view of
2. The payment of all interests, charges, the passage of the new General Banking Law
penalties, reimbursements and other obligations (which allows banks to consolidate its [sic] title
owing by the MORTGAGOR and/or DEBTOR to within a shorter period if the mortgagor of a
the MORTGAGEE whether direct or indirect, foreclosed property is a corporation), iBank had
principal or secondary; absolute or contingent as consolidated its title on the mortgaged
appearing in the accounts, books and records of properties.
the MORTGAGEE.
The records show that, indeed, petitioner's mortgaged
3. The payment of all obligations of the properties were already foreclosed, as shown by the Certificate
MORTGAGOR and/or DEBTOR of whatever kind of Sale issued by Cabigon on November 19, 2001. And they also
or nature whether such obligations have been show that ownership of the lands-subject of the real estate
contracted before, during, or after the mortgage had been consolidated and transfer certificates of
constitution of [the] MORTGAGE. title had been issued in IEB's name. It is on this score that the
Court finds petitioner's prayer for a writ of preliminary
xxx xxx xxx injunction moot and academic. This leaves it unnecessary for
the Court to still dwell on petitioner's argument that it was not,
under its By-Laws, empowered to mortgage its properties to
secure the obligation of a third party. IN ANY EVENT, the Court
Prime Aggregates subsequently obtained several loans from finds well-taken the appellate court's following disposition of
IEB from September 1997 until September 1998. such argument:

Prime Aggregates failed to settle its outstanding obligation We do agree that the Petitioner, under its "By-
which stood at P90,267,854.96 and US$211,547.12, drawing Laws", is not empowered to mortgage its
IEB to file a petition for extra-judicial foreclosure of mortgage properties as a security for the payment of the
before the RTC.
obligations of third parties. This is on the general
Respondent Sheriff IV Cabigon having issued a Notice of Extra- premise that the properties of a corporation are
Judicial Foreclosure and Sale, petitioner filed a complaintfor regarded as held in trust for the payment of
Injunction with application for writ of preliminary corporate creditors and not for the creditors of
injunction/temporary restraining order before the RTC, third parties. However, the Petitioner is not
alleging that the real estate mortgage was null and void because proscribed from mortgaging its properties as
Amparo and Zosa were authorized to execute it to secure only security for the payment of obligations of
one obligation of Prime Aggregates. Petitioner thus prayed that
third parties.
the court declare the real estate mortgage and its extrajudicial
foreclosure sale as null and void, and for writ of preliminary
injunction/TRO.

The RTC denied petitioner's prayer for a writ of preliminary ISSUE: Can a corporation mortgage its properties as a
injunction. security for the payment of obligations of third parties?

Petitioner assailed the trial court's orders denying its prayer for
the issuance of a writ of preliminary injunction before the Court
of Appeals via certiorari, alleging, in the main, that the real HELD: Yes. We agree with the Respondent Court.
estate mortgage it executed was null and void for being ultra
vires as it was not empowered to mortgage its properties as
The Petitioner's shrill incantations that the "Resolution", securities for the payment of the credit and loan
approved by its Board of Directors, authorizing its Treasurer availments of Prime Aggregates from the Private
and General Manager to execute a "Real Estate Mortgage" as Respondent on the basis of the "Resolution"
security for the payment of the account of Prime Aggregates, a approved by its Board of Directors. As our
sister corporation, is not for its best interest, is a "puzzlement" . Supreme Court declared, rati cation and/or
. . . Since when is a private corporation, going to the aid of a sister approval by the corporation of the acts of its
corporation, not for the best interest of both corporation? For in agents/officers may be ascertained through . . .
doing so, the two (2) corporations are enhancing, boosting and the acquiescence in his acts of a particular
promoting a common interest, the interest of "family" having nature, with actual or constructive thereof,
ownership of both corporations. In the second place, Courts are whether within or beyond the scope of his
loathe to overturn decisions of the management of a corporation ordinary powers. ETaSDc
in the conduct of its business via its Board of Directors . . . .
xxx xxx xxx As it was, the Petitioner nally awoke from its
slumber when the Private
There is no evidence on record that the "Real Respondent led its "Petition" for the extra-
Estate Mortgage" was executed by the Petitioner judicial foreclosure of the "Real
and the Private Respondent to prejudice Estate Mortgage", with the Sheriff, and assailed
corporate creditors of the Petitioner or will the authority of its Board of
result in the infringement of the trust fund Directors to approve the said "Resolution" and of
doctrine or hamper the continuous business its Treasurer and General Manager to execute
operation of the Petitioner or that the Prime the deed and brand the said "Resolution" and the
Aggregates was insolvent or incapable of paying said deed as "ultra vires" and hence, not binding
the Private Respondent. Indeed, the latter on the Petitioner, and hurried off to the
approved Prime Aggregates' loan availments and Respondent Court and prayed for injunctive
credit facilities after its investigation of the relief. Before then, the Petitioner maintained a
nancial capability of Prime Aggregates and its stoic silence and adopted a "hands off" stance.
capacity to pay its account to the Private We nd the Petitioner's stance grossly
respondent. 29 TaDAHE inequitable. We must take heed and pay
obeisance to the equity rule that if one maintains
xxx xxx xxx silence when, in conscience he ought to speak,
equity will debar him from speaking when, in
[U]nder the "Resolution" of the Board of
conscience, he ought to remain silent. He who
Directors, it authorized its Treasurer and
remains silent when he ought to speak cannot be
General Manager to execute a "Real Estate
heard to speak when he ought to be silent. More,
Mortgage" over its properties as security for the
the transactions between the Petitioner and the
"term loan and credit facility" of Prime
Private Respondent over its properties are
Aggregates. The maximum amounts of such term
neither malum in se or
loan and credit facility were not xed in the
malum prohibitum. Hence, the Petitioner cannot
"Resolution". The term "credit facility" is a broad
hide behind the cloak of "ultra vires" for a
term in credit business transactions to denote
defense.
loans, pledges, mortgages, trust receipt
transactions and credit agreements. And then, xxx xxx xxx
again, such term loan and/or credit facility may
be granted, by the Private Respondent, in favor The plea of "ultra vires" will not be allowed to prevail,
of Prime Aggregates, in trenches or in staggered whether interposed for or against a corporation, when it
basis, each disbursement evidenced by separate will not advance justice but, on the contrary, will
agreements depending upon the needs of Prime
accomplish a legal wrong to the prejudice of another who
Aggregates for the establishment of its sand and
acted in good faith.
gravel plant and port facilities and the purchase
of equipments and machinery for said project. WHEREFORE, the petition is DISMISSED.
Hence, the "Long Term Agreements" and "Credit
Agreements" executed by Prime Aggregates and
the Private Respondent, with the Petitioner's
properties, as collateral therefore, were
envisaged in the terms "term loan and credit
facility" in the "Resolution" of the Board of
Directors of the Petitioner.

The intention of the Members of the Board of

Directors of the Petitioner, in approving the
"Resolution", may be ascertained . . . also from
the contemporaneous and subsequent acts of the
Petitioner, the Private Respondent and Prime
Aggregates. Given the factual milieu in the
present recourse, as found and declared by the
Respondent Court, there can be no equivocation
that, indeed the Petitioner conformed to and rati
ed, and hence, is bound by the execution, by its
Treasurer and General Manager, of the "Real
Estate Mortgage" in favor of the Private
respondent, with its properties used as