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Corporation Law Jurisprudence · Podcast Episode 4 · 14:02
Apparent Authority: Walang Board Resolution, Bound Ba?
When is a corporation bound by a contract its officer signed without a board resolution?
A new company’s president hired the same consultant twice without a board resolution. The company used the work to get its bonded-warehouse license, then refused to pay. Atty. Jeric Dave Gallardo and Sweet Zel Grace Porras walk through four Supreme Court decisions on apparent authority and ratification, and why they came out differently.
Four cases, two answers
Same question. Different facts. Different results.
The rule
As a rule, only the board can bind a corporation. Without its authority, not even the president can.
The corporation is still bound if the officer had actual authority, if its own conduct gave the officer apparent authority, or if it ratified the contract. Without any of the three, the contract is unenforceable against it.
Recap
- The board holds the corporate powers (Sec. 22, Revised Corporation Code), not the president.
- The corporation is still bound if the officer had actual authority, apparent authority arising from the corporation’s own conduct, or if the corporation ratified the contract.
- Whoever dealt with the officer must prove apparent authority. And accepting a payment that was owed anyway is not ratification.
Bar tip
When asked whether a corporation is bound by a contract its president signed without a board resolution, start with Sec. 22: the board holds the corporate powers. Then ask three questions: actual authority, apparent authority, ratification. If none is present, the contract is unenforceable against the corporation under Article 1317 of the Civil Code. Cite People’s Aircargo for bound, and Yao Ka Sin for not bound.
The law
Revised Corporation Code (R.A. No. 11232) and Civil Code
“Unless otherwise provided in this Code, the board of directors or trustees shall exercise the corporate powers, conduct all business, and control all properties of the corporation.”R.A. No. 11232, Sec. 22, first paragraph (formerly Sec. 23, B.P. Blg. 68)
“No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.”Civil Code, Art. 1317, first paragraph
“A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party.”Civil Code, Art. 1317, second paragraph
Revised Corporation Code (SC E-Library) · Signed copy (Official Gazette) · Civil Code (LawPhil)
Chapters
- 0:00Cold open: no board resolution. Can the corporation refuse?
- 1:18Who holds the power? Sec. 22 and the three ways a corporation is bound
- 3:06Case 1: People’s Aircargo vs. Court of Appeals (bound)
- 5:33Case 2: Yao Ka Sin Trading vs. Court of Appeals (not bound)
- 7:47Case 3A: Francisco vs. GSIS (bound)
- 9:57Case 3B: Woodchild Holdings vs. Roxas Electric (not bound on the added terms)
- 11:16Why the different results? Three questions
- 12:32Recap and bar tip
Cases cited
Full text on LawPhil. Where we have written a case digest, the card opens it.
Next episode
Ultra vires: approved by the board and signed by the president, but outside the powers of the corporation itself. Is it valid?
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