LEGAL MEMO

RE: LIABILITY OF CORPORATION FOR ACTS OF EMPLOYEES

DATE: May 8, 2020

While the query given is to determine the liability of the employer for acts of its
employees, it is submitted that the rules and principles on liability of the corporation for the acts
of its agents and employees apply insofar as the employer is a corporation.

Under Section 23 of the Corporation Code, corporate powers are exercised by the Board
of Directors. Thus, in the absence of authority from the board of directors, no person, not even
its officers, can validly bind a corporation.1

Be that as it may, the Board of Directors may validly delegate some of its functions and
powers to its officers, committees or agents and representatives such as its employees. 2 This
authority and power, according to the Supreme Court, includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the particular business,
are incidental to, or may be implied from, the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the particular officer or agent. 3

More, the relationship between a corporation and its representatives is governed by the
general principles of agency, particularly Article 1317 of the Civil Code which provides that
there must be authority from the principal before anyone can act in his or her name. 4

Following these rules, the general rule is that without authority from the board of
directors or trustees, the acts of a person – including those of the corporation’s directors,
trustees, shareholders, or officers – executed on behalf of the corporation are not binding on the
corporation.5

This general rule, however, is subject to exceptions.

The first is even though a person, or in this case, the corporation, did not give another
person authority to act on its behalf, the action may be enforced against him or her if it is shown
that he or she ratified it. 6 This exception is based on Article 1910 of the Civil Code stating that
the principal is not bound by obligations entered by the agent in excess of its authority except
when the principal ratifies it expressly or tacitly.7

The second exception is the application of the doctrine of apparent authority. The
doctrine of apparent authority provides that a corporation will be estopped from denying the
agent’s authority if it knowingly permits one of its officers or any other agent to act within the
scope of an apparent authority, and it holds him out to the public as possessing the power to do
those acts.8 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. 9
Simply put, this means 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

1
Banate, et al. v. PCRB, G.R. No. 163825, July 13, 2010.
2
Id.
3
Peoples Aircargo and Warehousing Co., Inc. v. CA, G.R. No. 117847, October 7, 1998.
4
University of Mindanao, Inc. v. BSP, et al., G.R. No. 194964-65, January 11, 2016.
5
Id.
6
Id.
7
Id.
8
Advance Paper Corporation v. Arma Traders Corporation, et al., G.R. No. 176897, December 11, 2013.
9
Peoples Aircargo and Warehousing Co., Inc. v. CA, supra.
good faith with the corporation through such agent, be estopped from denying such authority. 10
It must be stressed, however, that there can be no apparent authority and the corporation
cannot be estopped from denying the binding affect of an act when there is no evidence
pointing to similar acts and other circumstances that can be interpreted as the corporation
holding out a representative as having authority to contract on its behalf. 11

These two exceptions, however, are again, subject to an exception. This means that while
there may have been express or implied ratification by the corporation or there was apparent
authority, the corporation is still not bound. This exception to the exception is when the third
person knows that the representative was acting beyond his power or authority, the corporation
cannot be held liable for the acts of such representative. 12

10
Games and Garments Developers, Inc., G.R. No. 181426, July 13, 2005.
11
University of Mindanao, Inc. v. BSP, et al., supra.
12
Cervantes v. CA and PAL, G.R. No. 125138, March 2, 1999.