This Supreme Court decision clarifies when a corporation is bound by the actions of its president, even without explicit authorization. The Court ruled that Holy Trinity College was liable for a loan secured by its president, Sister Teresita Medalle, because she acted with apparent authority, and the college benefited from her actions. This means that schools and other organizations must carefully manage the authority they grant to their leaders and be aware that their actions can create legal obligations for the institution.

Holy Trinity’s Debt: Can a School Be Held Responsible for a Nun’s Agreement?

This case revolves around a debt incurred by the Holy Trinity College Grand Chorale and Dance Company (the Group) for a European tour in 2001. Benjie Georg, through her travel agency, advanced the payment for the Group’s international airplane tickets based on a Memorandum of Agreement with Deed of Assignment (MOA). The MOA was executed between Georg, represented by Atty. Benjamin Belarmino, Jr., the Group, represented by Sister Teresita Medalle, the President of Holy Trinity College, and S.C. Roque Foundation. When the promised funding from the foundation did not materialize, Georg sued Holy Trinity College to recover the amount advanced. The central legal question is whether Holy Trinity College is liable for the debt incurred by the Group, based on the actions of its president, Sister Medalle.

The Regional Trial Court (RTC) initially ruled in favor of Georg, finding Holy Trinity College jointly and severally liable for the debt. The RTC reasoned that Sister Medalle acted in her capacity as President of Holy Trinity College when she signed the MOA. The Court of Appeals (CA) reversed this decision, holding that Holy Trinity College was not a party to the MOA and that Sister Medalle lacked the authority to bind the college. The Supreme Court, however, disagreed with the CA’s assessment.

The Supreme Court emphasized the importance of **consent** in contract law, citing Article 1318 of the New Civil Code, which states that a contract requires the consent of the contracting parties, an object certain, and a cause of the obligation. While the respondent argued that Sister Medalle’s consent may have been vitiated, ultimately the SC found that there was no proof that Sister Medalle’s consent was obtained through fraud or that she was incapacitated when she affixed her thumbmark to the MOA. The Court noted the absence of certification from the Notary Public stating that the witness, Sr. Medalle, was sworn to by him and that the deposition is a true record of the testimony given by Sr. Medalle, which further supports the claim of the petitioner. The Court added, even assuming she had a stroke, respondent did not present any evidence to show that her mental faculty was impaired by her illness.

The Court then turned to the issue of authority. The Supreme Court explained the doctrine of **apparent authority**, which provides that a corporation is estopped from denying an agent’s authority if it knowingly permits the agent to act within the scope of an apparent authority and holds them out to the public as possessing the power to do those acts. The court stated that:

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.

To determine whether apparent authority exists, the Court considers (1) the general manner in which the corporation holds out an officer or agent as having the power to act, or (2) the acquiescence in the officer’s acts of a particular nature, with actual or constructive knowledge thereof. In this case, the Court found that Sister Medalle, as President of Holy Trinity College, had been given sufficient authority to act on behalf of the college.

The Court highlighted that Sister Medalle formed and organized the Group. The SC stated that:

With the foregoing, the [c]ourt is convinced that the indeed the Holy Trinity College Grand Chorale and Dance Company do not have a life of its own and merely derive its creation, existence and continued operation or performance at the hands of the school administration. Without the decision of the school administration, the said Chorale and Dance Company is completely inoperative.

She had been giving financial support to the Group in her capacity as President, and the Board of Trustees never questioned the existence and activities of the Group. Therefore, any agreement or contract entered into by Sister Medalle as President of Holy Trinity College relating to the Group was deemed to have the consent and approval of the college. Here lies the most important question, was it authorized? Even with a lack of a board resolution to prove authorization, the existence of apparent authority can be ascertained.

The Supreme Court has consistently held that corporations are bound by the actions of their agents, even if those agents exceed their express authority, as long as they act within the scope of their apparent authority. Building on this principle, the Court emphasized that Holy Trinity College had created the impression that Sister Medalle had the authority to act on its behalf. By allowing her to form and manage the Group, and by failing to object to her actions, the college had led third parties, like Georg, to reasonably believe that she had the authority to enter into contracts on its behalf.

Building on this principle, the Court emphasized that Holy Trinity College had created the impression that Sister Medalle had the authority to act on its behalf. By allowing her to form and manage the Group, and by failing to object to her actions, the college had led third parties, like Georg, to reasonably believe that she had the authority to enter into contracts on its behalf. If the school’s Board of Trustees never contested the standing of the Dance and Chorale Group and had in fact lent its support in the form of sponsoring uniforms or freely allowed the school premises to be used by the group for their practice sessions.

The High Court ruled that the appellate court erred by absolving the college from liability while affirming the decision of the trial court. Citing snippets of Sr. Navarro’s testimony to prove that the Board of Trustees, the administration, as well as the congregation to which they belong have consented or ratified the actions of Sr. Medalle. This decision serves as a reminder to corporations to carefully define the scope of authority granted to their officers and agents. It also underscores the importance of actively monitoring and controlling the actions of those agents to avoid being bound by unauthorized contracts or agreements.

FAQs

What was the key issue in this case?	The key issue was whether Holy Trinity College was liable for a loan obtained by its president, Sister Teresita Medalle, for the Holy Trinity College Grand Chorale and Dance Company’s European tour. The court needed to determine if Sister Medalle had the authority to bind the college to the loan agreement.
What is the doctrine of apparent authority?	The doctrine of apparent authority states that a corporation can be held liable for the actions of its agent, even if the agent exceeds their actual authority, if the corporation creates the impression that the agent has the authority to act on its behalf. This is especially true if the corporation knowingly permits the agent to act as if they had such power.
How did the Court define “consent” in relation to this case?	The Court reiterated that consent is an essential element of a valid contract. While consent can be vitiated by mistake, violence, intimidation, undue influence, or fraud, the Court found that Sister Medalle’s consent was freely given and informed, therefore valid.
What evidence supported the claim that Sister Medalle had apparent authority?	Evidence showed that Sister Medalle organized and managed the Holy Trinity College Grand Chorale and Dance Company, secured funding for the group, and oversaw its activities with the knowledge and implicit approval of the college’s Board of Trustees. This created the impression that she acted with the college’s authority.
Why did the Supreme Court reverse the Court of Appeals’ decision?	The Supreme Court reversed the Court of Appeals because it found that Sister Medalle acted with apparent authority and that Holy Trinity College had created the impression that she had the authority to bind the college. Also, the Board of Trustees did not contest the Dance and Chorale group and had supported them over the years.
What is the practical implication of this ruling for corporations?	This ruling highlights the importance of carefully defining the scope of authority granted to corporate officers and agents. Corporations must also actively monitor and control the actions of their agents to avoid being bound by unauthorized contracts or agreements.
What is an ultra vires act?	An **ultra vires** act is an action taken by a corporation or its officers that exceeds the corporation’s legal powers or authority. The respondent invoked this, the MOA executed was null and void for being ultra vires, but the Petitioner cited the doctrine of apparent authority.
How is the ruling in this case important to the education sector?	This ruling stresses how education institutions must exercise care in managing actions of their presidents and other officers, and need to acknowledge that their actions can create legal obligations for the institution. Failing to manage authority may lead to potential legal liabilities.

This decision underscores the importance of clear communication and well-defined roles within organizations. It also emphasizes the need for corporations to be aware of the potential legal consequences of their agents’ actions and to take steps to prevent unauthorized agreements. For corporations it is important to have a board resolution to avoid a party from entering into a contract on behalf of the business.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: BENJIE B. GEORG VS. HOLY TRINITY COLLEGE, INC., G.R. No. 190408, July 20, 2016