People's Aircargo and Warehousing Co., Inc. v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioner, People's Aircargo and Warehousing Co., Inc. (PAIRCARGO), was organized in mid-1986. Its president, Antonio Punsalan Jr., solicited a proposal from private respondent Stefani Saño for consultancy services to prepare a feasibility study and documentation for PAIRCARGO's application for a license to operate a customs bonded warehouse. Saño submitted a letter-proposal dated October 17, 1986, for P350,000.00. Punsalan, as president, confirmed the agreement via a letter dated October 17, 1986, and paid Saño P100,000.00 as down payment. Saño completed the feasibility study, and PAIRCARGO paid the balance, albeit not according to the agreed schedule. Subsequently, on December 4, 1986, Punsalan requested another proposal from Saño for consultancy services, including the preparation of an operations manual and the conduct of a seminar, for P400,000.00 (the "Second Contract"). Saño prepared the operations manual, which was received by PAIRCARGO's vice president on January 10, 1987, and submitted to the Bureau of Customs, leading to the issuance of a license. Saño also conducted a training seminar for PAIRCARGO's employees in January 1987. Punsalan later sold his shares and resigned as president in 1987. Saño filed a collection suit on February 9, 1988, alleging unpaid services for the manual and seminar. Procedural History: The Regional Trial Court (RTC) awarded Saño P60,000.00, finding the Second Contract unenforceable or simulated but preventing unjust enrichment. The Court of Appeals (CA) modified the RTC decision, ordering PAIRCARGO to pay Saño P400,000.00, ruling that Punsalan had apparent authority and that the contract was valid and enforceable. The CA denied PAIRCARGO's motion for reconsideration. The Petition: PAIRCARGO filed a Petition for Review with the Supreme Court, imputing "grave abuse of discretion" to the CA for ruling that the Second Contract was binding despite the lack of board authority and for upholding its validity.
Issue(s)
Whether the president of petitioner-corporation had apparent authority to bind petitioner to the Second Contract. Whether the Second Contract was valid and not merely simulated.
Ruling
The petition is denied, and the assailed Decision of the Court of Appeals is affirmed. Petitioner is ordered to pay private respondent the amount of P400,000.00.
Ratio Decidendi
On the apparent authority of the corporate president: The general rule is that a corporation is bound by contracts entered into by its officers only when authorized by the board of directors. However, this rule admits exceptions. Apparent authority may be derived from the general manner in which the corporation holds out an officer as having the power to act, or from acquiescence in his acts of a particular nature. In this case, petitioner had previously allowed its president, Punsalan, to enter into the First Contract with private respondent without express board approval. This prior instance, coupled with the testimony of a major stockholder acknowledging Punsalan's authority and the subsequent payment for the services rendered under the First Contract, clothed Punsalan with apparent authority to execute the Second Contract. The corporation's acceptance of the benefits of the Second Contract, namely the operations manual and the seminar, further ratified the agreement, making it binding on petitioner despite any alleged lack of prior board resolution. On the validity and simulation of the Second Contract: The Court rejected petitioner's claim that the Second Contract was simulated or unenforceable. The "badges of fraud" cited by the trial court, such as the lack of down payment, delay in filing suit, alleged misspelling, and absence of a confirmation letter, were found to be insufficient to establish simulation. The lack of payment was deemed a defect in performance by petitioner, not a lack of consent. The delay in filing was within the prescriptive period for written contracts. A misspelling does not vitiate consent, and a confirmation letter is not essential for contract perfection. Petitioner's failure to implead Punsalan did not prove collusion, as petitioner could have filed a third-party claim. The Court reiterated that the legal presumption is always in favor of the validity of contracts, and a corporation that accepts the benefits of a transaction entered into without authority ratifies the agreement and is bound by it. The acts of receiving and using the operations manual, submitting it to the Bureau of Customs, and allowing the seminar demonstrated petitioner's consent to or ratification of the contract.
Main Doctrine
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.