Here’s a landmark case on the Doctrine of APPARENT AUTHORITY. President of IVO entered into Speculative Contracts with SALFIC (take note) without securing the Board of Director’s approval.
I got no diagram, let’s see… so to illustrate you just picture an inverted triangle in your head. The acute angle on your left is the AGENT, which is the president of IVO. The angle on the right is your PRINCIPAL, the IVO’s board of directors. You go downward and you have the 3RD PARTY, Salfic.
Now here’s the basic rule in the Doctrine of Apparent Authority. If a corporation knowingly permits its officers/agent to act within the scope of apparent authority, then it holds him out to the public as possessing the power to do those acts, (gets? It’s simply giving him the capacity to act or perform all acts necessary in order to see the transaction be brought into its completion. Kunyare you sent your agent to close a deal therefore it is understood that you are not only giving him the power and authority to negotiate and to transact but also it is apparent that you are also giving him the authority to sign for how could he bring the transaction to its completion e kung di nya pipirmahan yun kontrata). So therefore since this is the case then it is understood that the corporation will be estopped from denying the agent’s authority pag nagkabulilyaso diba?
Now here’s what happened here…
Salfic is a French corporation engaged in international purchase, sale and trading of coconut oil. So apparently IVO sells coconut oil. Safic then placed purchase orders with IVO for 2,000 tons of crude coconut oil, valued at US$222.50 per ton, so roughly that would amount to what US$444.00+?
IVO however failed to deliver and, instead, offered a "wash out" settlement. Washout settlement meaning the coconut oil subject of the purchase contracts were to be "sold back" to IVO. Yet IVO wanted it to be sold at the prevailing price in the international market at the time of wash out. And IVO bound itself to pay to Safic the difference between the said prevailing price and the contract price of the 2,000 tons which amounted to US$293,500.00.
IVO however failed to pay this amount despite repeated oral and written demands. Salfic then goes to court and alleged that on eight occasions, it placed purchase orders with IVO for a total of 4,750 tons and prayed to collect from IVO an aggregate amount of US$391,593.62 and the US$293,500.00 difference between the contract price and the international market value, plus attorney's fees and litigation expenses.
So to make the long story short, nagkabulilyaso. E speculative contract eh. Parang stocks, di ka pa naglalabas ng pera nalulugi ka na, or the other way around, di ka pa nagdedeliver kumikita ka na. Biro mo laway lang puhunan mo, wala pa sayo products bayad na yung buyer, it’s like sort of a pre-selling thingie. And this is precisely the reason why the board of directors of IVO disapproved the president’s proposal in an earlier board meeting that the company engage in said practice. Sabi seguro ng board “patay tayo dyan mr. president pag di tayo nakadeliver dyan asunto aabutin naten for collection and damages” So yun nga nangyare, Salfic went to court for collection and damages.
Ang depensa ng IVO “Salfic has no legal capacity to sue since it is doing business in the Philippines without the required licenses”. And when pushed further IVO reveals that the subject contracts were speculative contracts entered into by IVO's President in contravention of the prohibition by the Board of Directors against engaging in speculative paper trading.
So nagkalaglagan ngayon.. sabi ng board “Wala namang board approval yang kontrata na yan eh, ni hindi nga dumaan sa minutes ng board ya eh!” (hahaha! may dialogue… LOL… ginagaya ko lang naman si Kim Wong, the junket operator of Soler Casino sa senate inquiry on the recent money laundering case… “Yes your honor.. O sabi ni Ms. Deguito boss okay na… 25 million papasok this morning… o sabi ko naman a ganun ba? O ipasok mo sa Soler... mga tanghali tumawag ule… o.. boss may papasok 55milliion… o sabe ko naman ule ah ganon? O ipasok sa Soler” HA HA HA!!! WTF) Boy.. if dialogues within dialogues are somehow construed as presumptions of regularity and the spontaneity in relaying facts in the witness stands are deemed evidence of accuracy I don’t know what would, LOL.
E kaso totoo. Evidence shows the board is actually oblivious, clueless about the said contract. And even truth to the matter is IVO doesn’t even have license from the Central Bank to engage in speculative contracts. And why didn’t they know? Because the president who was signatory to the contract never even submitted it to the board hence never recorded into the company’s books of corporation.
So this is a question of whether the act of the agent which is the president binds the principal which is the corporation against third party which is Salfic.
ISSUE:
So the question is can the corporation be held liable for the losses sustained on such contracts or would it be the president that should be held solidarily liable?
RULING:
Court held NO.
1. It is the Board and not the Officer that exercises corporate power. So the officer is merely an agent who acted beyond the scope of his authority.
Actually to tell you frankly the By-laws of IVO specifically stated that the president would have direct and active management of the business. A provision in the by-laws stated “conducting the same according to the orders, resolutions and instructions of the Board of Directors and according to his own discretion whenever and wherever the same is not expressly limited by such orders, resolutions and instructions”
But regarding this th court said that IVO president had no blanket authority to bind IVO to any contract. He must act according to the instructions of the Board of Directors. Even in instances when he was authorized to act according to his discretion, that discretion must not conflict with prior Board orders, resolutions and instructions.
2. There is no evidence that the board ratified the contracts.
Under Art. 1898 of the Civil Code:
“Acts of an agent beyond the scope of his authority do not bind the principal unless the latter ratifies the same expressly or impliedly.”
BTW TAKE NOTE: The Doctrine of Apparent Authority favors only those who deal in good faith. Meaning if the third person knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the principal's ratification.
So the court deemed Salfic has knowledge of the IVO president’s act of ultra vires since there were much ample time for Salfic to have obtained from the president prior authorization from the IVO board yet it didn’t do so.
Question therefore, is the Doctrine of Ratification applicable in this case? Answer, NO, because when the agent entered into speculative contracts the principal did not know, he did not secure the IVO board’s approval. He did not even submit the contracts to the board, hence there was nothing to be ratified.
Question, can Salfic rely on the Doctrine of Implied Agency? Answer, NO, because before the said controversial contract IVO did not enter into identical contracts with Salfic. So it’s a fairly new dealing. And if you deal with someone who just knocked on your door one sunny day, especially when it pertains to cash outlay it’s only logical that you investigate the agent’s background (not the personal background WTF are you talkin’ about!!.. you investigate if he is really being backed by the company he is saying he is.. otherwise you end up crying looted of your remaining money in your bank account watching the latest pyramid scam news on t.v.) You see the basis for agency is representation. This is what Villanueva is saying in his book “must discover upon his peril the authority of the agent”.
You see these doctrines are all under the Ultra Vires Doctrine. And if we say ultra vires then it presupposes that there is irregularity.
Question: Is there a way where an act of an agent in excess of his authority can bind the corporation?
Answer: Yes there is.
I think the teacher have clearly stated the remedies to ultra vires acts in this case. Stating 3 Doctrines that could override Art. 1898, where the agent may act without the authority of the board of directors and still may be considered binding the corporation. 1. The Doctrine of Estoppel, 2. The Doctrine of Ratification, and 3. The Doctrine of Apparent Authority.
I wonder if Implied Actual Authority can be considered remedy along prefecture of this 3 doctrines. Well if it’s Express Actual Authority then there’s no question with that right?, but let’s be reminded that implied actual authority is also in need of ratification. And if something is in need of ratification then it presupposes that there is presence of an irregularity. Therefore it is also based on prior acts which could be ratified or approved by the board right?. The mere acceptance of the benefits by the principal which was irregularly brought in by the agent is tacit proof of ratification. So in a way it could be a remedy right? I dunno it may come under the Doctrine of Ratification or.. looks like its probably the Doctrine of Implied Agency. Semantics always play the culprit to a lot of things.
So IVO wins this case.
