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Case digest · Apparent authority and ratification
People’s Aircargo and Warehousing Co., Inc. vs. Court of Appeals
The president signed two consultancy contracts without board approval. The company paid the first, used the work from the second to get its license, then refused to pay.
Facts
Mid-1986
People’s Aircargo and Warehousing Co., Inc. was organized to operate a customs bonded warehouse at the old Manila International Airport. It needed a license from the Bureau of Customs.
October 1986
The First Contract: its president, Antonio Punsalan Jr., engaged Stefani Saño to prepare a feasibility study for P350,000. The majority stockholder initially objected, because another company had priced a similar proposal at only P15,000. The contract was entered into without board approval, yet the company paid the full price, although not on the agreed schedule.
December 4, 1986
The Second Contract: at Punsalan’s request, Saño proposed consultancy services, an operations manual and a seminar for employees, for P400,000. Punsalan signed his conformity. Again, there was no board approval.
January 1987
The company’s vice president received the operations manual, and Saño conducted a three-day seminar for its employees.
May 1987
The company submitted the manual to the Bureau of Customs and received a license to operate, becoming one of the three public customs bonded warehouses at the international airport.
1987–1988
Punsalan sold his shares and resigned as president in 1987. On February 9, 1988, Saño sued to collect. The company refused to pay, arguing that Punsalan had no authority to bind it.
The rulings below
The trial court found the Second Contract unenforceable or simulated, but awarded Saño P60,000 to prevent unjust enrichment. The Court of Appeals held the contract valid and binding and raised the award to P400,000.
Issue
Is a corporation bound by a contract its president signed without board approval, after it had allowed and paid for an earlier contract he signed the same way?
Ruling
Yes. The corporation was bound. The Court denied the petition and affirmed the Court of Appeals’ award of P400,000.
As a rule, only the board can bind a corporation. But the company let its president enter into the First Contract without board approval, did not repudiate it and paid it in full. That clothed him with apparent authority, so Saño could not be faulted for believing that the president’s conformity to the Second Contract also bound the company. One earlier act was enough: what counts is not the number of similar acts but whether the corporation vested the officer with the power to bind it. Even assuming the Second Contract was outside the president’s usual powers, the company ratified it by accepting its benefits: it accepted the manual, submitted it to the Bureau of Customs, allowed the seminar and obtained its license. The Court added that, absent a contrary charter or by-law provision, a president is presumed to have authority to act within the general objectives of the business and the scope of his usual duties. The circumstances the trial court relied on did not prove that the contract was simulated, and a price six times the alleged going rate did not invalidate it.
“Contracts entered into by a corporate president without express prior board approval bind the corporation, when such officer's apparent authority is established and when these contracts are ratified by the corporation.”
Doctrine
“The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation.” The exceptions come from the corporation’s own conduct. On apparent authority: “It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation.” On ratification: “A corporation, by accepting benefits of a transaction entered into without authority, has ratified the agreement and is, therefore, bound by it.”
Compare: not bound
In Yao Ka Sin Trading vs. Court of Appeals, G.R. No. 53820, June 15, 1992, which this decision cites, a letter-offer signed by the President and Chairman did not bind the company, because no similar earlier contracts were shown: “Besides, no evidence was adduced to show that Mr. Maglana had, in the past, entered into contracts similar to that of Exhibit "A" either with the petitioner or with other parties.”
Bar tip
A missing board resolution does not end the analysis. Ask whether the corporation’s own conduct gave the officer apparent authority, and whether it ratified the contract by accepting its benefits. Here, one earlier contract the company allowed and paid was enough for apparent authority, and using the manual to get its license was ratification.
Hear it explained
Apparent Authority, Podcast Ep. 4, at 3:06
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This digest is general legal information for education, not legal advice, and it is not a substitute for reading the decision. Quoted passages are taken word for word from the full text.