Chuck v. Kong Li Po
REITERATIONFacts
The Antecedents: Plaintiffs, printers, entered into an agreement with C. C. Chen, the general business manager of the defendant Chinese newspaper "Kong Li Po," for printing services. The agreement, purportedly for three years from January 1, 1920, stipulated a monthly payment of P580 and provided for full pay for the unexpired term if discharged without just cause. Plaintiffs worked under this agreement until January 31, 1921, when they were discharged by a new manager. Procedural History: Plaintiffs filed an action for damages, alleging breach of contract and seeking P20,880 for the remaining term of their employment. The defendant denied the allegations and raised several special defenses and counterclaims, including lack of authority of C. C. Chen to execute the contract and alleged damages caused by the plaintiffs' negligence and delays. The Petition: The trial court found in favor of the plaintiffs, awarding P13,340. The defendant appealed, assigning numerous errors, primarily questioning the authority of C. C. Chen to bind the corporation and the ratification of the contract.
Issue(s)
Whether C. C. Chen, as general business manager, had the implied authority to bind the defendant corporation to a three-year employment contract. Whether the defendant corporation impliedly ratified the contract entered into by C. C. Chen. Whether the defendant's special defenses and counterclaims were sufficiently established.
Ruling
The Supreme Court reversed the judgment of the lower court, absolving the defendant corporation from the complaint. No costs were allowed.
Ratio Decidendi
On the implied authority of C. C. Chen to bind the corporation: The Court held that while a general business manager has implied authority to enter into reasonable and usual contracts of employment, the contract in question, with a term of three years and onerous conditions, could not be considered reasonable or usual. Such a contract, which expressly contemplated the possibility of the corporation's insolvency, was extraordinary and should have put the plaintiffs on inquiry regarding the manager's authority. The Court cited Corpus Juris for the principle that a manager cannot make contracts for a long future period, such as three years, unless expressly authorized or held out as having such authority, distinguishing between usual and extraordinary contracts. On the implied ratification of the contract: The Court found no sufficient evidence of implied ratification. The president's admission of seeing the plaintiffs work in the office was deemed insufficient, as he denied knowledge of the contract's existence and it was never presented to him or the board. For ratification, knowledge of the contract's existence must be brought home to the parties with authority to ratify, or circumstances from which such knowledge can be presumed. The Court emphasized that ratification by the president alone would not suffice; ratification by the board of directors was necessary. On the defendant's special defenses and counterclaims: The Court found that the defendant's counterclaims were not sufficiently established by the evidence presented during the trial. Therefore, these claims did not warrant a judgment in favor of the defendant.
Main Doctrine
A general business manager of a corporation has implied authority to enter into reasonable and usual contracts of employment, but not contracts of an unusually long or onerous nature, such as a three-year employment contract with conditions that could lead to the corporation's insolvency, unless expressly authorized or held out as having such authority. Implied ratification requires knowledge of the contract's existence by the parties with authority to ratify.