Extent of Power of Board of Directors of a Corporation in the Philippines
Can a corporation be held liable for a multimillion-peso contract executed solely by its president—without prior board approval—if it accepted the benefits of that contract?
PEOPLE'S AIRCARGO AND WAREHOUSING CO.,
INC. vs. COURT OF APPEALS and STEFANI SAÑO
G.R. No. 117847, October 7, 1998
FACTS OF THE CASE
People’s Aircargo and Warehousing Co.,
Inc. (PAIRCARGO), a domestic corporation, was organized to operate a customs
bonded warehouse. Its president, Antonio Punsalan Jr., engaged the services of
Stefani Saño—an industrial engineering consultant and former Customs task force
member—for the preparation of a feasibility study needed to secure a license
from the Bureau of Customs. This engagement was formalized in a letter-proposal
dated October 17, 1986 (the "First Contract"), with a total service
fee of ₱350,000,
paid in tranches, and ultimately completed and paid in full.
Later, on December 4, 1986, Punsalan
entered into another agreement with Saño (the "Second Contract") for
the preparation of an operations manual and a training seminar
for PAIRCARGO employees. The service fee was ₱400,000,
similarly payable in installments. Although PAIRCARGO never paid the amount due
under the Second Contract, it fully used the operations manual (which was
approved by the Bureau of Customs) and allowed the seminar to take place in its
warehouse.
Saño later joined the Bureau of Customs
but demanded payment from PAIRCARGO in 1988. When PAIRCARGO refused, claiming
that Punsalan had no authority from the board to bind the corporation, Saño
filed a collection suit. PAIRCARGO denied that any such services were rendered
and alleged collusion between Punsalan and Saño.
The Regional Trial Court of Pasay
City (Branch 110) ruled that the Second Contract was unenforceable or
simulated but still awarded ₱60,000
to Saño under the principle of unjust enrichment.
On appeal, the Court of
Appeals reversed the RTC, declaring the Second Contract valid and
enforceable. It emphasized that Punsalan, by virtue of his apparent authority
and the corporation’s acquiescence to his past similar actions (e.g., the First
Contract), effectively bound the corporation. It ordered PAIRCARGO to pay the
full ₱400,000.
PAIRCARGO elevated the case to the
Supreme Court, arguing that its president had no actual authority and that the
Second Contract was a simulated or fraudulent document.
PRIMARY ISSUE BEFORE THE SUPREME COURT
Whether a contract executed by a
corporate president without prior board approval is binding upon the
corporation, when the officer has apparent authority and the corporation has
accepted the benefits of the contract.
DECISION OF THE SUPREME COURT
The Supreme Court affirmed the Court
of Appeals.
The Court held that while corporate
powers are normally exercised by the board of directors, a corporate
officer—such as a president—may bind the corporation when he is clothed
with apparent authority, which can arise from past practices or the
corporation’s own representations and acquiescence.
Here, the Court found that PAIRCARGO
allowed its president to enter into similar contracts (as with the First
Contract) without objection or formal board approval. More importantly,
PAIRCARGO accepted and benefited from the operations manual and seminar.
These acts constituted ratification and estoppel, making the
corporation liable under the Second Contract.
The alleged "badges of fraud"
cited by the RTC did not constitute simulation or fraud under the law. The
Court emphasized that performance and benefit acceptance override the lack
of formal authority, especially when the corporate officer’s actions were
later ratified by silence or inaction.
DISPOSITIVE PORTION
“WHEREFORE, the petition is
hereby DENIED and the assailed Decision AFFIRMED. Costs against
petitioner. SO ORDERED.”
Should corporations be allowed to escape
liability for contracts their own officers executed, when the company later
accepted and used the benefits of those contracts?
IMPORTANT DOCTRINES QUOTED IN THE
DECISION:
- “A
corporate officer or agent may represent and bind the corporation... to
the extent that authority to do so has been conferred upon him...
including such powers as may be implied from the powers intentionally
conferred, powers added by custom and usage, and such apparent powers as
the corporation has caused persons dealing with the officer or agent to
believe that it has conferred.”
- (Yao
Ka Sin Trading v. Court of Appeals)
- Apparent
authority arises not only from corporate practice but also from
acquiescence and representation.
- “A
corporation, by accepting benefits of a transaction entered into without
authority, has ratified the agreement and is, therefore, bound by it.”
- Ratification
can occur even without prior authority, if the corporation later accepts
benefits from the contract.
- “The
legal presumption is always in favor of the validity of contracts.”
- Simulation
must be clearly proven and not merely based on suspicions or
inconsistencies.
CLASSIFICATION:
CIVIL LAW
– Focuses on the law on contracts, agency, corporate authority,
and ratification under the Civil Code and Corporation Code of the
Philippines.
From <https://chatgpt.com/g/g-ipZC0xKZ1-case-digest/c/684a8a60-9480-800a-b7a0-438037843b28>
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📚 🎓
For Law Students, Bar Reviewees, and Legal Enthusiasts
Welcome to this legal educational content where we explore
an important Supreme Court jurisprudence:
People’s Aircargo and Warehousing Co., Inc. vs. Court of
Appeals and Stefani Saño
G.R. No. 117847 | Promulgated: October 7, 1998
This case delves into a vital issue in Civil Law,
specifically in Corporation Law and Contract Law. The central legal
question is:
Can a corporate president bind a corporation to a
contract without prior board approval when the corporation accepted and
benefited from the contract?
The Supreme Court affirmed the ruling of the Court of
Appeals: Yes, the corporation is bound by the contract due to the apparent
authority of its president and the corporation’s ratification by accepting
the benefits of the agreement.
This video discusses key doctrines from this case—designed
to aid law students and bar takers in recalling and mastering
core principles relevant to contracts, agency, and corporate obligations.
🔥 Should
corporations be allowed to deny liability on contracts their own officers
executed—after receiving all the benefits—just because board approval was not
formally obtained?
⚖️ 10 IMPORTANT DOCTRINES FROM
THE CASE (Based on G.R. No. 117847, Oct. 7, 1998)
- Apparent
Authority Doctrine
If a corporation holds out an officer as having authority, it is estopped from denying such authority (p. 22–23). - Ratification
by Acceptance of Benefits
Even without formal board approval, a contract becomes binding if the corporation accepts the benefits. (p. 32) - Presumption
of Validity of Contracts
Contracts are presumed valid; the burden of proving simulation or fraud lies with the claimant. (p. 42) - Corporate
Acts through Acquiescence
A single prior act may establish apparent authority when the corporation fails to object. (p. 28) - Authority
Need Not Be Express
Authority of a corporate officer may arise from custom, habit, or the course of dealing. (p. 25) - Role
of the President in Corporate Dealings
The president is presumed to have authority in matters within the ordinary course of business. (p. 31) - Estoppel
Against Corporation
A corporation is estopped from denying authority if it knowingly allowed an officer to act on its behalf. (p. 30) - No
Confirmation Letter Needed to Validate a Contract
Lack of a confirmation letter does not invalidate a perfected contract. (p. 39) - Misspellings
and Clerical Errors Don't Invalidate Consent
Clerical errors in names do not prove absence of consent or fraud. (p. 39) - Delayed
Demand Doesn’t Invalidate Legal Right
A delayed legal claim is valid if it is still within the prescriptive period under the Civil Code (10 years for written contracts). (p. 38)
❗ Disclaimer:
This is an educational video made using premium AI
technology. While every effort has been made to ensure accuracy, this
content does not guarantee legal infallibility. For actual legal advice,
consult a licensed Philippine lawyer.
💬 FREQUENTLY ASKED
QUESTIONS:
Q1: What is "apparent authority"?
A: It’s when a corporation’s conduct leads others to
believe an officer has authority, even if not formally granted.
Q2: Can a single past transaction justify apparent
authority?
A: Yes, especially if the corporation benefitted from
it and did not object (see p. 28).
Q3: What happens if a board didn’t approve the contract?
A: If the corporation ratified it by accepting
benefits, it becomes binding (p. 32).
Q4: Is a written demand necessary to enforce a contract?
A: Not always. Delays in demand don’t bar action if
it’s within the 10-year prescription (p. 38).
Q5: What if the contract is overpriced?
A: Mere inadequacy of price doesn’t invalidate a
contract unless there is fraud or undue influence (p. 39).
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From <https://chatgpt.com/g/g-ipZC0xKZ1-case-digest/c/684a8a60-9480-800a-b7a0-438037843b28>
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