BOARD OF DIRECTORS

Associated Bank v. Pronstroller

Brief background:
The Court notes that the March 18, 1993 Letter-Agreement was written on a paper
with petitioners letterhead. It was signed by Atty. Soluta with the conformity of
respondents. The authority of Atty. Soluta to act for and on behalf of petitioner was
not reflected in said letter or on a separate paper attached to it. Yet, petitioner
recognized Atty. Solutas authority to sign the same and, thus, acknowledged its
binding effect. On the other hand, the July 14, 1993 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 the same person with the conformity of the same respondents.
Again, nowhere in said letter did petitioner specifically authorize Atty. Soluta to sign
it for and on its behalf. This time, however, petitioner questioned the validity and
binding effect of the agreement, arguing that Atty. Soluta was not authorized to
modify the earlier terms of the contract and could not in any way bind the
petitioner.

General Rule, the Power and Responsibility to decide whether the Corporation
should enter into a Contract that will bind the Corporation is lodged in the
Board of Directors; Delegation of Powers by the B.O.D; Source of Authority of
officers, committees and agents;
o

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. The power and responsibility to decide whether the
corporation should enter into a contract that will bind the corporation is
lodged in the board of directors. However, just as a natural person may
authorize another to do certain acts for and on his behalf, the board
may validly delegate some of its functions and powers to officers,
committees and agents. The authority of such individuals to bind the
corporation is generally derived from law, corporate bylaws or
authorization from the board, either expressly or impliedly, by habit,
custom, or acquiescence, in the general course of business.

Authority of a corporate officer or agent in dealing with third persons may be

Actual or Apparent; Doctrine of Apparent Authority; Existence of Apparent
Authority may be ascertained through;
o

The authority of a corporate officer or agent in 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 the corporation holds out an officer or
agent as having the power to act, or in other words, the
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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, within or beyond the
scope of his ordinary powers.
Accordingly, the authority to act for and to 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, petitioner had previously allowed Atty.
Soluta 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 power to bind the
corporation.
Naturally, the third person has little or no information as to what
occurs in corporate meetings; and he 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. What transpires in the corporate board room is
entirely an internal matter. Hence, petitioner may not impute
negligence on the part of the respondents in failing to find out the
scope of Atty. Solutas authority. Indeed, the public has the right to rely
on the trustworthiness of bank officers and their acts.
XXX
We would like to emphasize that if a corporation knowingly permits its
officer, or any other agent, to perform acts within the scope of an
apparent authority, holding him out to the public as possessing power
to do those acts, the corporation will, as against any person who has
dealt in good faith with the corporation through such agent, be
estopped from denying such authority.
Petitioner further insists that specific performance is
because the Letter-Agreements had already been
agreement because of the breach committed by the
letter because of the new offer of the respondents
petitioner.

not available to respondents

rescinded --- the March 18
respondents; and the July 14
which was not approved by

Again, the argument is misplaced.

Basic is the rule that a contract constitutes the law between the parties.
Concededly, parties may validly stipulate the unilateral rescission of a contract. This
is usually in the form of a stipulation granting the seller the right to forfeit
installments or deposits made by the buyer in case of the latters failure to make full
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payment on the stipulated date. While the petitioner in the instant case may have
the right, under the March 18 agreement, to unilaterally rescind the contract in case
of respondents failure to comply with the terms of the contract, the execution of
the July 14 Agreement prevented petitioner from exercising the right to rescind. This
is so because there was in the first place, no breach of contract, as the date of full
payment had already been modified by the later agreement.
Neither can the July 14, 1993 agreement be considered abandoned by respondents
act of making a new offer, which was unfortunately rejected by petitioner. A careful
reading of the June 6, 1994 letter of respondents impels this Court to believe that
such offer was made only to demonstrate their capacity to purchase the subject
property. Besides, even if it was a valid new offer, they did so only due to the
fraudulent misrepresentation made by petitioner that their earlier contracts had
already been rescinded. Considering respondents capacity to pay and their
continuing interest in the subject property, to abandon their right to the contract
and to the property, absent any form of protection, is contrary to human nature. The
presumption that a person takes ordinary care of his concerns applies and remains
unrebutted. Obviously therefore, respondents made the new offer without
abandoning the previous contract. Since there was never a perfected new contract,
the July 14, 1993 agreement was still in effect and there was no abandonment to
speak of.