Apparent authority

The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. However, just as a natural person may authorize another to do certain acts for and in his behalf, the board may validly delegate some of its powers and functions to an officer or agent. This authority may be actual or apparent. This case illustrates an “apparent authority”.

The case involved a house and lot in a plush subdivision owned by the spouses Vega which was mortgaged to and subsequently foreclosed by a bank (UOB) for failure to pay the loan.

After title was already acquired by UOB, the spouses Vega still commenced an action to annul the mortgage and foreclosure sale. UOB on the other hand asked for a writ of possession. While the writ was granted by the lower court, the spouses still questioned said ruling in the appellate court.

Pending the resolution of said cases, UOB already advertised the subject property for sale to interested buyers. Responding to the advertisement, the spouses Prado offered to purchase the property through UOB’s vice president and corporate secretary, Atty. Salva. The bank accepted the said offer, so a letter agreement was executed, on March 18, 1993. The said letter-agreement was written on a paper with the bank’s letterhead and signed by Atty. Salva with the conformity of the spouses Prado wherein the latter agreed to deposit P750,000 and the balance of P6,750,000 to be deposited in escrow within 90 days. The authority of Atty. Salva to act for and in behalf of UOB was not reflected in said letter or on a separate paper attached to it.

Prior to the expiration of the 90-day period, the spouses Prado requested that the balance of the purchase price be made payable only upon resolution of the pending case. So on July 14, 1993, the spouses Prado and Atty. Salva executed another letter-agreement allowing the former to pay the balance of the purchase price upon receipt of the final order of the court and or delivery of the property to them free of occupants. This letter was written on the same type of paper with the same letterhead and of the same form as the earlier letter. It was also signed by Atty. Salva with the conformity of the spouses Prado. Again, nowhere in said letter did UOB specifically authorize Atty. Salva to sign for and in its behalf.

In early 1994, UOB was reorganized and Atty. Salva was relieved of his responsibilities. Atty. Ibay who took over his position reviewed the records of outstanding accounts and discovered that the spouses Prado failed to deposit the balance of the purchase price. He likewise found that the spouses requested for extension so he submitted said request to the Asset Recovery and Remedial Management Committee (ARRMC) for approval. But the latter disapproved said request.

So Atty. Ibay informed the spouses that their request for extension was disapproved, and in view of their breach of contract, UOB was rescinding the same and forfeiting their deposit. When the spouses showed the July 14, 1993 letter-agreement signed by Atty. Salva granting them an extension, the UOB through Atty. Ibay claimed that the letter was a mistake and that Atty. Salva was not authorized to give such extension. Was the bank correct?

No. The authority of a corporate officer or agent dealing with third persons may be actual or apparent. The doctrine of “apparent authority” with special reference to banks had long been recognized in this jurisdiction. Apparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which corporations holds out an officer or agent as having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, beyond the scope of his ordinary powers.

Accordingly, the authority to act for and bind a corporation may be presumed from acts of recognition in other instances, wherein the power was exercised without any objection from its board or shareholders. Undoubtedly, the bank had previously allowed Atty. Salva to enter into the first agreement without a board resolution expressly authorizing him; thus, it had clothed him with apparent authority to modify the same via the second letter agreement. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the powers to bind a corporation.

Naturally, a third person has little or no information as to what occurs in corporate meetings; and must necessarily rely upon the external manifestations of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law. Indeed, the public has the right to rely on the trustworthiness of bank officers and their acts. Hence UOB may not impute negligence on the part of the spouses Prado in failing to find out the scope of Atty. Salva’s authority (Associated Bank etc. vs. Spouses Pronstroller, G.R. 148444, July 14, 2008).

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