Monday, December 7, 2009

Corporate Responsibility and Apparent Authority: Where the buck stops.

Little birdies are again abuzz with reports from the “nest” that multinational corporate giant is again up to its old tricks. It seems that this big bully, er, company, is very fond of “washing its hands” off any situation that gets a bit too sticky for its comfort. Will they ever change?

Before the aggrieved parties accept the company’s attempt at distancing itself from the situation, perhaps they should ask themselves the following questions about “Apparent Authority.”

What is Apparent Authority?

Apparent authority is a term used in the law of agency to describe a situation in which a principal leads a third party to believe that an agent has authority to bind the principal, even where the agent lacks the actual authority to bind the principal. In such circumstances, the law will hold the principal liable for the acts of the agent, out of fairness to the third party. There must be some act or some knowing omission on the part of the principal - if the agent alone acts to give the third party this false impression, then the principal is not bound. However, the principal will be bound if the agent so acts in the presence of the principal, and the principal stands silently and says nothing to dissuade the third party from believing that the agent has the authority to bind the principal.

Little birdie asks:

Does this mean that if a high-placed employee/agent of a corporation orders corporation’s business partners to give preferential discounts to appointed wholesalers and promises that the business partners can claim the expenses of the discounts from the corporation that he or she has APPARENT AUTHORITY?

If said employee/agent has APPARENT AUTHORITY, what is the extent of the corporation’s liability to its business partners? Is the corporation legally bound to honor the expenses claimed by the business partners?

Perhaps, to best answer these questions, we need to take a look at actual legal cases where the ruling was in favor of aggrieved parties that were forced in detrimental situations as a result of the doctrine or APPARENT AUTHORITY (or ESTOPPEL).

1.) [G.R. No. 126297, February 11, 2008] PROFESSIONAL SERVICES, INC., Petitioner, vs. THE COURT OF APPEALS and NATIVIDAD and ENRIQUE AGANA, Respondents,

“It must be stressed that under the doctrine of apparent authority, the question in every case is whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question."

2.) (LINTONJUA, JR. et al. vs. ETERNIT CORPORATION et al., G.R. No. 144805 June 8, 2006)

Agency by Estoppel, Elements. For an agency by estoppel to exist, the following must be established:

(1) the principal manifested a representation of the agent's authority or knowingly allowed the agent to assume such authority;

(2) the third person, in good faith, relied upon such representation;

(3) relying upon such representation, such third person has changed his position to his detriment. An agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance. Such proof is lacking in this case. In their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC.




While the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in its board of directors, subject to the articles of incorporation, by-laws, or relevant provisions of law, yet, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees, or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate by-laws, or authorization from the board, either expressly or impliedly by habit, custom, or acquiescence in the general course of business.[31] 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 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, whether within or beyond the scope of his ordinary powers.[32]

FFR wonders when BIG BULLY will ever learn? What will it take for BIG BULLY to take responsibility for the acts of its employees?

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