Yao Ka Sin Trading vs Court of Appeals

209 SCRA 763 Business Organization Corporation Law Liability of Officers Apparent Authority
In 1973, Constancio Maglana, president of Prime White Cement Corporation, sent an offer letter to Yao
Ka Sin Trading. The offer states that Prime White is willing to sell 45,000 bags of cement at P24.30 per
bag. The offer letter was received by Yao Ka Sins manager, Henry Yao. Yao accepted the letter and
pursuant to the letter, he sent a check in the amount of P243,000.00 equivalent to the value of 10,000 bags
of cement. However, the Board of Directors of Prime White rejected the offer letter sent by Maglana but
it considered Yaos acceptance letter as a new contract offer hence the Board sent a letter to Yao telling
him that Prime White is instead willing to sell only 10,000 bags to Yao Ka Sin and that he has ten days to
reply; that if no reply is made by Yao then they will consider it as an acceptance and that thereafter Prime
White shall deposit the P243k check in its account and then deliver the cements to Yao Ka Sin. Henry
Yao never replied.
Later, Yao Ka Sin sued Prime White to compel the latter to comply with what Yao Ka Sin considered as
the true contract, i.e., 45,000 bags at P24.30 per bag. Prime White in its defense averred that although
Maglana is empowered to sign contracts in behalf of Prime White, such contracts are still subject to
approval by Prime Whites Board, and then it still requires further approval by the National Investment
and Development Corporation (NIDC), a government owned and controlled corporation because Prime
White is a subsidiary of NIDC.
Henry Yao asserts that the letter from Maglana is a binding contract because it was made under the
apparent authority of Maglana. The trial court ruled in favor of Yao Ka Sin. The Court of Appeals
reversed the trial court.
ISSUE: Whether or not the president of a corporation is clothed with apparent authority to enter into
binding contracts with third persons without the authority of the Board.
HELD: No. The Board may enter into contracts through the president. The president may only enter into
contracts upon authority of the Board. Hence, any agreement signed by the president is subject to
approval by the Board. Unlike a general manager (like the case of Francisco vs GSIS), the president has
no apparent authority to enter into binding contracts with third persons. Further, if indeed the by-laws of
Prime White did provide Maglana with apparent authority, this was not proven by Yao Ka Sin.
As a rule, 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. These are not present in
this case.
Also, the subsequent letter by Prime White to Yao Ka Sin is binding because Yao Ka Sins failure to
respond constitutes an acceptance, per stated in the letter itself which was not contested by Henry Yao
during trial.