Authority to Contract on Behalf of Another, A1317 Civil Code

1. Concept

Article 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. (1259a)

a. General rule: Unenforceable contract

Regal Films, Inc. v. Concepion, G.R. No. 139532, August 9, 2001, Per Vitug, J.:

• In this instance, the addendum was flatly rejected by respondent on the theses (a) that he did not give his consent thereto nor authorized anyone to enter into the agreement, and (b) that it contained provisions grossly disadvantageous to him. The outright rejection of the addendum made known to the other ended the offer. When respondent later filed his Manifestation, stating that he was, after all, willing to honor the addendum, there was nothing to still accept.

• Verily, consent could be given not only by the part himself but by anyone duly authorized and acting for and in his behalf. But by respondent’s own admission, the addendum was entered into without his knowledge and consent. A contract entered into in the name of another by one who ostensibly might have but who, in reality, had no real authority or legal representation, or who, having such authority, acted beyond his powers, would be unenforceable. The addendum, let us then assume, resulted in an unenforceable contract, might it not then be susceptible to ratification by the person on whose behalf it was executed? The answer would obviously be in the affirmative; however, that ratification should be made before its revocation by the other contracting party. The adamant refusal of respondent to accept the terms of the addendum constrained petitioner, during the preliminary conference held on 23 June 1995, to instead express its willingness to release respondent from his contracts prayed for in his complaint and to thereby forego the rejected addendum. Respondent’s subsequent attempt to ratify the addendum came much too late for, by then, the addendum had already been deemed revoked by petitioner.

Filipinas (Pre-Fab Bldg.) Systems, Inc. v. MRT Development Corporation, G.R. Nos. 167829-30, November 13, 2007, Per Velasco, JR., J.:

• Here, David Sampson was clearly authorized to issue change orders. The relationship between MRTDC as the owner, PIJV as the PMT, and David Sampson as the Project Manager is embodied in Sections 1.02, 1.03 and 1.05 of the General Conditions of the Bid Documents.

• Evidently, David Sampson was the representative or agent of PIJV who was engaged as the Project Manager by MRTDC. However, the relationship between MRTDC and PIJV cannot be strictly characterized as a contract of agency. The practice in the construction industry is that the Project Manager exercises discretion on technical matters involving the construction work, such as change orders. This is because owners of the Project are oftentimes not technically suited to oversee the construction work and hire professional project managers precisely to oversee the day-to-day operations on the construction site and to exercise professional judgment when expedient.

• This is the reason why the PMT and the Project Manager were authorized under Art. 20.07, par. (a) of the General Conditions of the Bid Documents to modify the Contract Work. It may thus be concluded that the PMT and consequently the Project Manager were authorized by the owner to modify the Contract or the Project Specifications.

b. Exception: Ratified

Ratification means that one under no disability voluntarily adopts and gives sanction to some unauthorized act or defective proceeding, which without his sanction would not be binding on him. It is this voluntary choice, knowingly made, which amounts to a ratification of what was theretofore unauthorized, and becomes the authorized act of the party so making the ratification. Once ratified, expressly or impliedly such as when the person knowingly received benefits from it, the contract is cleansed from all its defects from the moment it was constituted, as it has a retroactive effect. (Neri v. Heirs of Hadji Yuosp Uy, G.R. No. 194366, October 10, 2012, Per Perlas-Bernabe, J.)

While the general rule is one cannot be bound to a contract entered into by another person, there are exceptions, such as when the contracting person was authorized to enter a contract on behalf of another, or when such contract was ratified, as enunciated in [Article 1317 of the] Civil Code. (Calubad v. Ricarcen Development Corporation, G.R. No. 202364, August 30, 2017, Per Leonen, J.)

1). Express

Neri v. Heirs of Hadji Yuosp Uy, G.R. No. 194366, October 10, 2012, Per Perlas-Bernabe, J.:

• Records, however, show that Rosa had ratified the extrajudicial settlement of the estate with absolute deed of sale. In Napoleon and Rosa’s Manifestation before the RTC dated July 11, 1997,they stated:

“Concerning the sale of our parcel of land executed by our father, Enrique Neri concurred in and conformed to by us and our other two sisters and brother (the other plaintiffs), in favor of Hadji Yusop Uy and his spouse Hadja Julpa Uy on July 7, 1979, we both confirmed that the same was voluntary and freely made by all of us and therefore the sale was absolutely valid and enforceable as far as we all plaintiffs in this case are concerned;” (Underscoring supplied)

•  In their June 30, 1997 Joint-Affidavit, Napoleon and Rosa also alleged:

“That we are surprised that our names are included in this case since we do not have any intention to file a case against Hadji Yusop Uy and Julpha Ibrahim Uy and their family and we respect and acknowledge the validity of the Extra-Judicial Settlement of the Estate with Absolute Deed of Sale dated July 7, 1979;” (Underscoring supplied)

• Clearly, the foregoing statements constitutedratification of the settlement of the estate and the subsequent sale, thus, purging all the defects existing at the time of its execution and legitimizing the conveyance of Rosa’s 1/16 share in the estate of Anunciacion to spouses Uy. The same, however, is not true with respect to Douglas for lack of evidence showing ratification.

2) Implied

Ravago Equipment Rentals, Inc. v. CA, G.R. No. 121313, April 10, 1997, Per Padilla, J.:

• Ravago presented the alleged rental contract with Alcolex, a summary of accounts prepared by its employee, a certain Nicia Ramos, a demand letter addressed to Alcolex signed by Ravago’s counsel, Atty. Larry Iguidez as well as a five (5) page itemized version of the above-mentioned statement of account.

• Respondent Alcolex cannot assail the enforceability of the rental contract on the ground that Edgardo Chua, who signed the contract for Alcolex, had no authority to bind the corporation. The Court of Appeals correctly held that the contract, assuming that Edgardo Chua had no authority to sign for Alcolex, was impliedly ratified when the generator subject of the contract was used by Alcolex for its operations. 

San Miguel Foods, Inc. v. Magtuto, G.R. No. 225007, July 24, 2019, Per Carpio, J.:

• SMFI cannot assail the unenforceability of the agreement entered into between Magtuto and Vinoya on the ground that Vinoya had no authority to bind the corporation. The contract, assuming that Vinoya had no authority to sign for SMFI, was impliedly ratified when the- broiler chicks subject of the contract were delivered by SMFI, together with the feeds, medicines and materials, until the grown chickens were harvested by SMFI. This occurred not only once but five times over the course of nine months. 

• In Prime White Cement Corp. v. IAC, we held that implied ratification may take various forms – like silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom.

• Also, Magtuto had full faith that Vinoya had authority to deal with him as a chick grower for several reasons: (1) Vinoya, together with Ogilvie, attended the gathering of Swift Foods, Inc. broiler chick growers before Swift Foods, Inc. closed down its operations in 2002 and both gave a presentation as official representatives of SMFI who were there to scout for new partners in the chick growing business; (2) Vinoya, as SMFI’s veterinarian and production supervisor in charge of facility inspection, fieldwork, and technical assistance, was the one who directly dealt with Magtuto as a chick grower; (3) Magtuto was shown by Vinoya a standard Broiler Chicken Contract Growing Agreement of SMFI and even if they did not execute one, Magtuto agreed to be bound by the same terms and conditions; and (4) Magtuto posted a ₱72,000 cash bond, equivalent to two consecutive grows, in order to guarantee faithful performance of his obligations as a grower.

• Thus, SMFI cannot deny that Vinoya does not have any authority to transact with Magtuto since SMFI delivered day-old chicks to Magtuto for almost a year; administered the growth of the chicks for 30-35 days by providing feeds, medicines and technical support; harvested the grown chickens; and finally paid Magtuto for growing said chicks. In every step of the process, Magtuto signed and received several documents and materials from SMFI. These transactions were competently proven during trial with both parties supplying the proper documentation such as delivery receipts, trust receipts, receiving slips, flock records, cash receipts, and liquidation statements. SMFI delivered broiler chicks to Magtuto five times and neither SMFI nor Magtuto had objected to the arrangement until the fifth delivery when SMFI was short of 4,000 broiler chicks.

Coronel v. Constantino, G.R. No. 121069, February 7, 2003, Per Austria-Martinez, J.:

• The three sons of Emilia did not ratify the sale.

• No evidence was presented to show that the three brothers were aware of the sale made by their mother. Unaware of such sale, Catalino, Ceferino and Benjamin could not be considered as having voluntarily remained silent and knowingly chose not to file an action for the annulment of the sale. Their alleged silence and inaction may not be interpreted as an act of ratification on their part.

• We also find no concrete evidence to show that Ceferino, Catalino and Benjamin benefited from the sale. It is true that private respondent Constantino testified that Benjamin took money from Jess Santos but this is mere allegation on the part of Constantino. No other evidence was presented to support such allegation. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under our Rules of Court. Neither do the records show that Benjamin admitted having received money from Jess Santos. Even granting that Benjamin indeed received money from Santos, Constantino’s testimony does not show that the amount received was part of the consideration for the sale of the subject property.

2. Authority of Corporate Officer/Agent

Two types of authority of a corporate officer/agent when dealing with third persons:

1) Actual authority

2) Apparent authority

[L]aw and jurisprudence recognize actual authority and apparent authority as the two (2) types of authorities conferred upon a corporate officer or agent in dealing with third persons. (Calubad v. Ricarcen Development Corporation, G.R. No. 202364, August 30, 2017, Per Leonen, J.)

a. Actual authority

Actual authority can either be express or implied. Express actual authority refers to the power delegated to the agent by the corporation, while an agent’s implied authority can be measured by his or her prior acts which have been ratified by the corporation or whose benefits have been accepted by the corporation. (Calubad v. Ricarcen Development Corporation, supra.)

Yao Ka Sin Trading v. CA, G.R. No. L-53820, June 15, 1992, Per Davide, JR., J.:

• Since a corporation, such as the private respondent, can act only through its officers and agents, “all acts within the powers of said corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of individuals and private persons.” Moreover, “… a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred.

• While there can be no question that Mr. Maglana was an officer — the President and Chairman — of private respondent corporation at the time he signed Exhibit “A”, the above provisions of said private respondent’s By-Laws do not in any way confer upon the President the authority to enter into contracts for the corporation independently, of the Board of Directors. That power is exclusively lodged in the latter. Nevertheless, to expedite or facilitate the execution of the contract, only the President — and not all the members of the Board, or so much thereof as are required for the act — shall sign it for the corporation. This is the import of the words through the president in Exhibit “8-A” and the clear intent of the power of the chairman “to execute and sign for and in behalf of the corporation all contracts and agreements which the corporation may enter into” in Exhibit “I-1”. Both powers presuppose a prior act of the corporation exercised through the Board of Directors. No greater power can be implied from such express, but limited, delegated authority. Neither can it be logically claimed that any power greater than that expressly conferred is inherent in Mr. Maglana’s position as president and chairman of the corporation.

• Although there is authority “that if the president is given general control and supervision over the affairs of the corporation, it will be presumed that he has authority to make contract and do acts within the course of its ordinary business,” We find such inapplicable in this case. We note that the private corporation has a general manager who, under its By-Laws has, inter alia, the following powers: “(a) to have the active and direct management of the business and operation of the corporation, conducting the same accordingly to the order, directives or resolutions of the Board of Directors or of the president.” It goes without saying then that Mr. Maglana did not have a direct and active and in the management of the business and operations of the corporation. Besides, no evidence was adduced to show that Mr. Maglana had, in the past, entered into contracts similar to that of Exhibit “A” either with the petitioner or with other parties.

• Petitioner’s last refuge then is his alternative proposition, namely, that private respondent had clothed Mr. Maglana with the apparent power to act for it and had caused persons dealing with it to believe that he was conferred with such power. The rule is of course settled that “[a]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for a considerable time.” Also, “if a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that such apparent authority in real, as to innocent third persons dealing in good faith with such officers or agents.” This “apparent authority may result from (1) the general manner, by which the corporation holds out an officer or agent as having power to act or, in other words, the apparent authority with which it clothes him to act in general or (2) acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or without the scope of his ordinary powers.

• It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. Maglana with the apparent power to execute Exhibit “A” or any similar contract. This could have been easily done by evidence of similar acts executed either in its favor or in favor of other parties. Petitioner miserably failed to do that. Upon the other hand, private respondent’s evidence overwhelmingly shows that no contract can be signed by the president without first being approved by the Board of Directors; such approval may only be given after the contract passes through, at least, the comptroller, who is the NIDC representative, and the legal counsel.

b. Apparent authority

[A]pparent authority is based on the principle of estoppel. (Calubad v. Ricarcen Development Corporation, supra.)

The doctrine of apparent authority provides that even if no actual authority has been conferred on an agent, his or her acts, as long as they are within his or her apparent scope of authority, bind the principal. However, the principal’s liability is limited to third persons who are reasonably led to believe that the agent was authorized to act for the principal due to the principal’s conduct. (Ibid.)

Calubad v. Ricarcen Development Corporation, G.R. No. 202364, August 30, 2017, Per Leonen, J.:

• Apparent authority is determined by the acts of the principal and not by the acts of the agent.84 Thus, it is incumbent upon Calubad to prove how Ricarcen’s acts led him to believe that Marilyn was duly authorized to represent it.

• As the former president of Ricarcen, it was within Marilyn’s scope of authority to act for and enter into contracts in Ricarcen’s behalf. Her broad authority from Ricarcen can be seen with how the corporate secretary entrusted her with blank yet signed sheets of paper to be used at her discretion.85 She also had possession of the owner’s duplicate copy of the land title covering the property mortgaged to Calubad, further proving her authority from Ricarcen.

• The records show that on October 15, 2001, Calubad drew and issued two (2) checks payable to Ricarcen representing the loan proceeds for the first mortgage. The first check was Equitable PCI Bank check number 0024416 for P2,920,000.00 and the second check was Equitable PCI Bank check number 0000461 for P600,000.00. Both checks were deposited in Ricarcen ‘s bank account with Banco de Oro, Banawe Branch, and were honored by the drawee bank.

• On December 6, 2001, Marilyn negotiated for an additional P1,000,000.00 loan with Calubad, under the same terms and conditions.

• From December 15, 2001 to April 15, 2002, Ricarcen paid and issued several checks payable to Calubad, which he claimed were the monthly interest payments of the mortgage loans.

• For the additional loan of P2,000,000.00 obtained on May 8, 2002, Ricarcen again issued several Banco de Oro checks dated June 15, 2002 to December 6, 2002 as payments for this loan and its monthly interest. These checks were made to Calubad’s order and were drawn by either Erlinda or Elizabeth with Marilyn.

• However, Banco de Oro check number 0082424 dated June 15, 2002 for P120,000.00, Banco de Oro check number 0082425 dated July 15, 2002 for P120,000.00, and Banco de Oro check number 0082426 dated August 15, 2002 for P120,000 were all dishonored by the drawee bank for insufficiency of funds.

• Calubad states that he no longer deposited the following checks from Ricarcen upon Marilyn’s request, since she claimed that Ricarcen’s funds were by then insufficient to pay the issued checks…

• Calubad could not be faulted for continuing to transact with Marilyn, even agreeing to give out additional loans, because Ricarcen clearly clothed her with apparent authority. Likewise, it reasonably appeared that Ricarcen’s officers knew of the mortgage contracts entered into by Marilyn in Ricarcen’s behalf as proven by the issued Banco De Oro checks as payments for the monthly interest and the principal loan.

• Ricarcen claimed that it never granted Marilyn authority to transact with Calubad or use the Quezon City property as collateral for the loans, but its actuations say otherwise. It appears as if Ricarcen and its officers gravely erred in putting too much trust in Marilyn. However, Calubad, as an innocent third party dealing in good faith with Marilyn, should not be made to suffer because of Ricarcen’s negligence in conducting its own business affairs.