Case Summary (G.R. No. L-22450)
Background of the Dispute and Contractual Arrangements
Kong Li Po, organized as a domestic corporation following Philippine law, published a Chinese newspaper. While formally governed by a board of directors and corporate officers including a president authorized to sign contracts, no explicit authority for a business manager to enter contracts was provided. An individual named C.C. Chen (or T.C. Chen) was appointed general business manager in 1919, and subsequently signed a contract with the plaintiffs to provide printing services to the newspaper at P580 per month commencing January 1, 1920, for three years. Plaintiffs worked under this contract until January 31, 1921, when they were dismissed by a new manager without stated cause. The dispute arose over whether their dismissal without just cause entitled them to full pay for the remaining contract term, valued at P20,880 in damages.
Defendant’s Special Defenses and Counterclaims
The defendant contended:
- C.C. Chen lacked authority to bind the corporation by contract.
- Plaintiffs caused delays in newspaper issuance resulting in P300 damages.
- Plaintiffs neglected to prepare extra pages for the January 1, 1921 issue, causing P110 in expenses.
- Plaintiffs failed to correct advertisement errors causing loss of P160.50.
- Plaintiffs refused certain job printing work, resulting in P150 damages.
Trial Court Findings and Evidence Presented
- The contract (Exhibit A) was signed by C.C. Chen as general manager and included a clause guaranteeing full payment upon dismissal without cause, even to the corporation’s detriment.
- The authenticity of Chen’s signature was challenged but ultimately upheld by the trial court based on preponderance of evidence.
- The court found that the contract was impliedly ratified by the corporation.
- Judgment was rendered in favor of plaintiffs with damages of P13,340 plus interest and costs.
Legal Issues on Appeal
- Whether C.C. Chen had actual or implied authority to execute the employment contract on behalf of the corporation.
- Whether the contract was ratified by the corporation.
- Validity and enforceability of a long-term contract executed by a general business manager lacking express authority.
- Sufficiency and effect of the defendant’s special defenses and counterclaims.
Court’s Discussion on Authority of Business Manager
The court affirmed the general rule that only the board of directors has the express power to bind a corporation by contract but acknowledged that implied authority may extend to officers or agents charged with general management of the business or a specific part thereof. A general manager typically has implied authority to hire agents or employees for usual and necessary tasks in the course of business, but employment contracts must be reasonable and customary in duration.
The court held that:
- Although Chen was the general business manager and had charge of printing matters, the contract's three-year term was unusually long and onerous, especially given the clause contemplating payment even if the corporation should become insolvent.
- Plaintiffs should have been aware that a single officer would not have implied authority to enter into such a burdensome long-term contract without corporate approval.
- Therefore, Chen lacked implied authority to bind the corporation to this contract.
Analysis on Ratification of Contract
- Ratification requires knowledge of the contract by those authorized to ratify (board of directors).
- The corporation president admitted seeing plaintiffs working but denied knowledge of the contract or that it was presented to the board.
- There was no evidence of the contract’s existence or terms being communicated to those with power to ratify.
- Consequently, no ratification was legally established.
Procedural Note on Admission by Failure to Deny Under Oath
The complaint was accompanied by a certified copy and translation of the contract. Under Section 103 of the Code of Civil Procedure, failure to deny the execution of the contract under oath constitutes an admission of its genuineness and the agent’s authority. However, both parties tried the case assuming this rule did not apply, and both introduced evidence accordingly without objection. The court declined to take up the technical procedural issue sua sponte to the detriment of fairness, ruling the matter on substantive evidence instead.
Defendant’s Counterclaims and Damages Claims
The court found that the defendant failed to establish the validity of its counterclaims concerning delays, neglect, or refusal to perform imposed duties by plaintiffs.
Final Judgment
The Supreme Court reversed the trial court’s judgment, absolved the defendant corporation from the complaint, and denied costs, holding that:
- The contract was not binding on the corporation due to lack of Chen’s implied authority to enter a long-term, onerous employment contract.
- There was no ratification by the corporation of the contract.
- Defendant’s counterclaims were unsupported by evidence.
Concurring Opinion Highlights
Justice Street concurred with the decision and elaborated that:
- The question of authority was properly raised by the defendant’s answer as a special defense.
- Supporting authorities establish that a general manager lacks authority to enter long-term employment contracts unless expressly authorized or held out with such power.
- The contract’s length (three years) was extraordinary and beyond usual implied authority.
- The decision is consistent with established jurisprudence limiting a manager’s power in contract duration.
Dissenting Opinion Summary
Justice Malcolm, joined by Justice Villamor, dissented strongly, arguing that:
- The defendant failed specifically u
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Case Syllabus (G.R. No. L-22450)
Case Overview and Procedural History
- The case involves a dispute between three plaintiffs, Yu Chuck, Mack Yueng, and Ding Moon, and the defendant "Kong Li Po," a domestic corporation in the Philippines engaged in publishing a Chinese newspaper.
- The plaintiffs entered into an employment contract purportedly signed by the business manager of Kong Li Po, agreeing to provide printing services for P580 per month starting January 1, 1920.
- The contract allegedly had a term of three years with a provision for full pay should the plaintiffs be discharged without just cause before term completion.
- Plaintiffs were discharged on January 31, 1921, without stated cause, leading to the present lawsuit claiming damages for early termination.
- The trial court rendered judgment in favor of the plaintiffs, awarding P13,340 with interest and costs.
- The defendant appealed, asserting multiple defenses, including lack of authority of the business manager to bind the corporation and counterclaims for damages resulting from alleged negligent acts by the plaintiffs.
Facts Regarding the Contract and Authority of the Business Manager
- Kong Li Po’s articles of incorporation and by-laws provided for a board of directors and officers, including a president authorized to sign contracts; no mention was made of a general or business manager.
- In 1919, C. C. Chen (also referenced as T. C. Chen or Chen Yu Man) was appointed general business manager.
- Chen entered into a contract with the plaintiffs for printing services at P580 per month, signed as “Manager of Kong Li Po.”
- The plaintiffs performed under the contract from January 1, 1920, to January 31, 1921.
- A new manager, Tan Tian Hong, dismissed the plaintiffs without stating reasons.
- Plaintiffs claimed that the dismissal was without just cause and sued for damages representing unpaid salary under the three-year contract.
Defendant’s Special Defenses and Counterclaims
- The defendant denied the contract’s validity, attacking Chen’s authority to bind the corporation.
- The defendant alleged five special defenses and counterclaims:
- Chen lacked authority to enter the employment contract.
- Plaintiffs intentionally delayed newspaper issuance causing P300 damages.
- Plaintiffs failed to prepare extra pages causing P110 in additional costs.
- Plaintiffs neglected to correct advertisement errors causing loss of P160.50 due to advertiser withdrawal.
- Plaintiffs refused to do certain job printing, causing P150 in damages.
- None of the counterclaims were sufficiently supported by evidence at trial.
Legal Issues Presented
- Central issues include:
- Whether C. C. Chen, as general business manager, had actual or implied authority to enter into a three-year employment contract binding the corporation.
- Whether the corporation ratified the contract.
- Whether the long term and onerous terms of the contract were reasonable or usual for a general manager’s authority.
- The applicability of rules on admitting genuineness and authority of an agent through failure to deny such in the defendant’s answer.
- The validity of the defendant’s counterclaims.
Court’s Findings and Reasoning on Authority and Ratification
- The trial court found the contract authentic and signed by Chen as general business manager.
- It also found that the contract was impliedly ratified by the defendant.
- The Supreme Court analyzed the authority of Chen in light of:
- Corporate law principles that the power to bind a corporation lies generally with the board of directors or those expressly authorized.
- A general manager may bind the corporation by making reasonable employment contracts usual and necessary in conducting the business or a part thereof.
- However, contracts of unusually long duration or that place onerous financial burdens (such as a three-year contract contemplating potential insolvency) exceed implied authority.
- The Court held that the three-year contract with the possibility of bankruptcy was unusually