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Case digest · Authority of corporate officers
Yao Ka Sin Trading vs. Court of Appeals
The company’s President and Chairman signed a firm offer to sell 45,000 bags of white cement and a receipt for a P243,000 down payment. Twenty-three days later, the board disapproved it.
Facts
June 7, 1973
Constancio B. Maglana, President and Chairman of the Board of Prime White Cement Corporation, signed a “firm offer” to sell 45,000 bags of white cement to Yao Ka Sin Trading, with an option to renew under the same price, terms and conditions. The buyer’s manager signed his conformity, and Maglana signed a receipt for a P243,000 down payment.
The company’s rules
Its by-laws let the board contract through the president, who signs for the corporation. Its evidence showed that no contract could be signed by the president without prior board approval, given only after the contract passed through the comptroller and the legal counsel. A general manager had the active and direct management of the business.
June 30, 1973
At a meeting in Cebu City, 23 days after the signing, the board disapproved the letter-offer. It treated the P243,000 as payment for 10,000 bags under a separate contract.
July 5, 1973
The company wrote Yao Ka Sin Trading about the disapproval and issued a Delivery Order and an Official Receipt for 10,000 bags and P243,000. The buyer accepted the Delivery and Official Receipts without protest.
1973–1974
The company maintained that it had committed only 10,000 bags. The buyer insisted on the full quantity and exercised its option, and on March 4, 1974, it sued for specific performance.
The rulings below
The trial court ruled for the buyer and ordered delivery of 45,000 bags, with damages. The Court of Appeals reversed, dismissed the complaint and ordered the buyer to pay exemplary damages and attorney’s fees.
Issue
Was the corporation bound by a letter-offer signed by its President and Chairman, which its board later disapproved?
Ruling
No. The corporation was not bound. The Court affirmed the decision of the Court of Appeals.
The by-laws did not give the president authority to enter into contracts for the corporation independently of the board; that power was the board’s alone, and the president only signed for it. Presumed authority did not apply either: a general manager ran the business, and no evidence was presented that Maglana had entered into similar contracts before. The buyer had the burden of proving that the corporation clothed him with apparent authority, for example through similar earlier acts, and it failed to do so. The letter-offer was therefore an unenforceable contract under Article 1317 of the Civil Code. It was never ratified: the board disapproved it, and the buyer in fact agreed to a new transaction for only 10,000 bags. The option to renew fell with it. On a procedural point, the Court held that a sole proprietorship has no juridical personality and cannot sue, and deemed Yao Ka Sin himself the plaintiff and petitioner.
“It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. Maglana with the apparent power to execute Exhibit "A" or any similar contract. This could have been easily done by evidence of similar acts executed either in its favor or in favor of other parties. Petitioner miserably failed to do that.”
Doctrine
The power to enter into contracts is lodged in the board. Of the by-law provisions letting the board contract through the president, and the president sign for the corporation, the Court said: “Both powers presuppose a prior act of the corporation exercised through the Board of Directors. No greater power can be implied from such express, but limited, delegated authority.” Apparent authority must come from the corporation’s own acts, and the party relying on it must prove it. Without authority or ratification, the contract is unenforceable under Article 1317 of the Civil Code.
Compare: bound
In People’s Aircargo and Warehousing Co., Inc. vs. Court of Appeals, G.R. No. 117847, October 7, 1998, the corporation was bound because it had allowed and paid an earlier contract its president signed without board approval: “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.”
Bar tip
A title is not authority. Even a President and Chairman needs a board act, a by-law grant or proof that the corporation held him out through similar acts. The party dealing with the officer carries the burden of proving apparent authority.
Hear it explained
Apparent Authority, Podcast Ep. 4, at 5:33
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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.