Peoples Aircargo v.

CA and Stefani Sao

employees. But meanwhile, Punsalan sold his shares in

petitioner-corporation and resigned as its president in 1987.

Facts:

Petitioner is a domestic corporation, organized in 1986 to

operate a customs bonded warehouse at the old Manila
International Airport in Pasay City (Before NAIA).
To get a license for petitioner from the Bureau of Customs
(BoC), Antonio Punsalan Jr., the corporation president, asked
a proposal from respondent Sao for the preparation of a
feasibility study on Oct. 17, 1986.
Sao gave a letter-proposal to Punsalan which was for 350k
which will be paid in partially by the petitioner. But Cheng
Yong, the majority stockholder of petitioner, objected to
Saos offer because another company priced a similar
proposal at only 15k. Nevertheless, Punsalan preferred Saos
services because of the latters membership in the task force,
which had strong ties with BoC. Hence, Punsalan pushed
through with Saos proposal. (This is now regarded as the
First Contract).
After completing the First Contract, on Dec. 4, 1986,
Punsalan subsequently made another letter-proposal which
was now priced at 400k (Now regarded as the Second
Contract). On January 10, 1987, Andy Villaceren, Vice
President of petitioner, received an operations manual
prepared by Sao as a result from the Second
Contract. Petitioner submitted this to the BoC so it could
start operating the bonded warehouse.
After getting a license to operate, petitioner became 1 of the
3 public customs bonded warehouses at the airport. Sao also
conducted, in the 3rd week of January 1987 in the warehouse
of petitioner, a 3-day training seminar for the latters

On February 9, 1988, Sao filed for collection against

petitioner alleging that he had prepared an operations manual
for petitioner, conducted a seminar-workshop for its
employees and delivered to it a computer program; but that,
despite demand, petitioner refused to pay him for his
services on the Second Contract.

Petitioner objected by alleging that the letter-proposal was

signed by Punsalan without authority, in collusion with Sao
in order to unlawfully get some money from petitioner
corporation, and despite his knowledge that a group of
employees of the company had been commissioned by the
board of directors to prepare an operations manual.
RTC declared the Second Contract unenforceable but made
petitioner liable for 60k as it got an operations manual from
respondent based on the contract. Hence, it applied solution
indebiti if petitioner wasnt made to pay. But Sao appealed.
CA reverses making the Second Contract valid. Punsalan
entered into the First Contract, which was similar to the
Second Contract. Thus, petitioner clothed Punsalan with
apparent authority to enter into the latter contract. It became
the practice of the petitioner-corporation to allow its
president to negotiate and execute contracts without prior
board approval, thus, te board itself, by its acts and through
acquiescence, practically laid aside the normal requirement
of prior express approval. Thus, making petitioner liable for
400k.
CA also noted that petitioner corporation didnt make an
appeal from the RTC ruling, thus, implying on the premise

that it was only made liable for 60k, as compared to the 400k
as stated in the contract.

Petitioner argues that a single isolated agreement prior to the

Second contract does not constitute corporate practice,
which Webster defines as frequent or customary action. It
cited Board of Liquidators v. Kalaw, in which the practice of
NACOCO allowing its general manager to negotiate and
execute contract in its copra trading activities for and on its
behalf,
without
prior
board
approval,
was inferred from 60 contracts not 1, which is unlikely in
their case.

SC counters saying that apparent authority may be

ascertained through:

Issue: WON Punsalan had authority to bind petitioner-corporation

even without prior board approval. YES
Held:

General rule is in the absence of authority from the board of

directors, no person, not even its officers, can validly bind a
corporation. A corporation has a separate and distinct
personality, thus, having powers authorized by law or
incident to its existence. It may act through its board of
directors pursuant to Sec. 23.

CA correctly ruled that the authority to bind a corporation

may be presumed from acts of recognition like wherein the
power was in fact exercised without any objection from its
board or shareholders.

Here, petitioner previously allowed Punsalan to enter into

the First Contract with Sao without a board resolution
expressly authorizing him nor did it object or make acts of
repudiation. Thus, it clothed Punsalan with apparent
authority to execute the Second contract. This was also
bolstered by the testimony of Yong, senior vice president,
treasurer and major stockholder of petitioner. He stated that
he objected to Saos over and preferred the lower priced
offer of another company but Punsalan said to Yong that he
was the president and he gets his way.

a. The general manner in which the corporation 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
b. The acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether within
or beyond the scope of his ordinary power. It requires
presentation of evidence of similar act(s) executed either
in its favor or in favor of other parties. It is not the
quantity of similar acts which establishes apparent
authority, but the vesting of a corporate officer with the
power to bind the corporation.

With regard to the validity of the contract, by accepting the

benefits of the contract and not repudiating Punsalans acts,
and especially when it submitted the operations manual to
BoC, petitioner ratified the Second Contract.