Inter-Asia Investments Industries, Inc. v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioner Inter-Asia Investments Industries, Inc. (Inter-Asia) sold all its shares in FARMACOR, INC. (FARMACOR) to private respondent Asia Industries, Inc. (Asia Industries) for P19,500,000.00 via a Stock Purchase Agreement. The agreement contained warranties and representations by Inter-Asia, including that FARMACOR's audited financial statements would fairly present its financial position and that its Minimum Guaranteed Net Worth as of September 30, 1978, would be P12,000,000.00. The agreement was amended, allowing Asia Industries to retain P7,500,000.00 of the purchase price pending submission of audited financial statements, from which it could deduct any shortfall in the Minimum Guaranteed Net Worth. Asia Industries paid P12,000,000.00. An SGV report dated November 28, 1978, revealed a net worth deficiency of P1,244,225.00, resulting in a total shortfall of P13,244,225.00. This adjusted the contract price to P6,225,775.00, entitling Asia Industries to a refund of P5,744,225.00. Inter-Asia proposed by letter dated January 24, 1980, to reduce the refund claim to P4,093,993.00 and pay the cost of certain superstructures amounting to P759,570.00, for a total liability of P4,853,503.00, exclusive of interest. Asia Industries agreed to the proposal, but Inter-Asia failed to pay. Procedural History: Asia Industries filed a complaint against Inter-Asia for recovery of P4,853,503.00 plus interest. Inter-Asia denied the claim and set up a counterclaim. The Regional Trial Court (RTC) ruled in favor of Asia Industries, ordering Inter-Asia to pay P4,853,503.00 plus interest, attorney's fees, and costs, and dismissing the counterclaim. On appeal, the Court of Appeals (CA) affirmed the RTC decision. Inter-Asia's motion for reconsideration was denied. The Petition: Inter-Asia filed a petition for review on certiorari with the Supreme Court, assailing the CA decision and resolution, raising issues regarding the binding effect of the letter-proposal signed by its president, the validity of the warranties and representations, and the award of attorney's fees and dismissal of its counterclaim.
Issue(s)
Whether the January 24, 1980 letter-proposal signed by petitioner's president is binding on petitioner despite the absence of a board resolution authorizing it. Whether the respondent court erred in holding that there was a breach of warranties and representations. Whether the award of attorney's fees and the dismissal of the counterclaim were proper.
Ruling
The petition is PARTLY GRANTED. The assailed decision of the Court of Appeals is modified by deleting the award of attorney's fees. The decision is affirmed in all other respects.
Ratio Decidendi
On the binding effect of the January 24, 1980 letter-proposal: The Supreme Court held that the letter signed by petitioner's president is valid and binding. While the general rule is that a corporation can only act through its board of directors, the board may delegate powers to its officers. Apparent authority, which binds the corporation, can be established not only by express delegation but also by the board's acquiescence in the officer's acts of a particular nature, with actual or constructive knowledge thereof. By allowing its president to sign the Stock Purchase Agreement, petitioner clothed him with apparent capacity to perform acts inherently stated therein, including subsequent agreements related to the transaction. The Court cited People's Aircargo and Warehousing Co., Inc. v. Court of Appeals to support the principle of apparent authority derived from the general manner in which the corporation holds out an officer or agent as having the power to act, or from acquiescence in his acts. On the breach of warranties and representations: The Court found that there was a breach of warranties and representations. Petitioner expressly warranted that the SGV Reports would "fairly present or will present the financial position of FARMACOR." This warranty estops petitioner from claiming that the SGV Reports are self-serving and biased. Furthermore, the audit period covered by SGV, from January to October 1978, included the period before the Agreement was entered into on September 1, 1978, thus refuting petitioner's claim that the shortfall occurred only after the execution of the Agreement. The warranty regarding the Minimum Guaranteed Net Worth was also clearly breached, as indicated by the SGV report. On the award of attorney's fees and dismissal of the counterclaim: The Court found the petitioner's assigned error regarding the award of attorney's fees to be well-taken. It reiterated the doctrine that the award of attorney's fees requires factual, legal, and equitable justification, and the court must explicitly state the legal reason for the award in the body of the decision, not just in the dispositive portion. Since the RTC decision did not provide such explicit justification, the award of attorney's fees was deleted. The dismissal of the counterclaim was affirmed as it was not specifically challenged on substantive grounds in the petition.
Main Doctrine
A corporate officer's apparent authority to bind the corporation can be established not only by express delegation but also by the board's acquiescence in the officer's acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of ordinary powers, evidenced by similar acts executed in the past.