The agent is required to act within the scope of his authority. If the agent acts outside the scope of his power, his acts are ultra vires resulting in their nullity and they cannot be given any effect.
Sargasso Construction & Development Corporation v.
Philippine Ports Authority
G.R. No. 170530, 06 July 2010
Plaintiff Sargasso Construction & Development Corporation, Pick and Shovel, Inc., and Atlantic Erectors, Inc. formed a joint venture and were subsequently awarded by defendant Philippine Ports Authority the construction of Pier 2 and the rock causeway (R.C. Pier 2) for the port in San Fernando, La Union. The construction was for the development of Northwest Luzon Growth Quadrangle. Plaintiff offered to develop a reclamation project adjacent to Pier 2 as extra work for over Php36 Million. In response, defendant’s General Manager replied that it would grant the extra work if the cost is lowered to Php30,794,230.89. Plaintiff apparently agreed as afterwards a Notice of Award was issued by the General Manager over the reclamation project. However, defendant’s board of directors did not approve the award when it was presented by the general manager. Thus, plaintiff instituted this complaint for specific performance and damages against defendant.
HELD: Defendant was not liable. In the law on agency, “the agent must act within the scope of his authority to bind his principal. So long as the agent has authority, express or implied, the principal is bound by the acts of the agent on his behalf, whether or not the third person dealing with the agent believes that the agent has actual authority. Thus, all signatories in a contract should be clothed with authority to bind the parties they represent.” For a government contract, it is perfected “only upon approval by a competent authority, where such approval is required.”
As PPA’s corporate power flows from its board of directors, the office can only be bound with authority of the board. Plaintiff failed to present competent evidence that would establish that defendant’s general manager “possessed such actual authority delegated either by the Board of Directors, or by statutory provision. The authority of government officials to represent the government in any contract must proceed from an express provision of law or valid delegation of authority. Without such actual authority being possessed by PPA’s general manager, there could be no real consent, much less a perfected contract, to speak of.”
Best Legal Practices:
Secure board resolution from authorized representative of a corporation – When transacting with an authorized representative of a corporation or firm, secure the board resolution evidencing the authority and power granted to such person. As corporate powers are exercised by the board of directors, the proper legal document showing that the board authorized a representative is a board resolution.
Executive Committee resolution sufficient in lieu of board resolution – If an executive committee has been formed which is authorized to exercise certain powers of the board, a committee resolution will be sufficient in lieu of a board resolution as evidence of authority granted to a representative.
Secretary’s certificate sufficient for ordinary transactions – In commercial transactions, a secretary’s certificate is ordinarily considered acceptable as proof of authorization. This practice is borne out of convenience due to the difficulty of obtaining a board resolution requiring the signatures of the directors. By legal standards, a secretary’s certificate may suffer from infirmity as it is a document which simply states that the corporate secretary attests or certifies that a board resolution exists on a subject matter. If no such board resolution exists, the corporation cannot be held liable.
Obtain directors’ certificate for high level transactions – For high level transactions or those involving substantial amounts, it is best to obtain a directors’ certificate whereby all the required signatures of the directors will be reflected.
When more advantageous to principal
In acting within the scope of authority, the agent may do such acts as may be conducive to the accomplishment of the purpose other than what principal has specified. Consequently, the limits of the agent’s authority are not exceeded if it has been performed in a manner more advantageous to the principal than that specified by him.
When agent acts in his own name
If the agent acts in his own name, the principal has no right of action against the person with whom the agent has contracted. Conversely, the third person does not have any right of action against the principal. It is the agent who is directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal.
Agent not personally liable by default
The agent who acts in his capacity as such is not personally liable to the party with whom he contracts unless: (a) the agent expressly binds himself; or (b) the agent exceeds the limits of his authority without giving such party sufficient notice of his powers.
Best Legal Practices:
Agent to expressly declare in what capacity he/she is exercising when dealing with third party – The agent should expressly declare in what capacity, whether personal or as an agent, he/she is exercising when dealing with a third party.
When agent is not personally liable despite ultra vires
If the agent enters into a contract in the name of the principal and the agent acts in ultra vires in so doing, and the principal does not ratify such contract, it is void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. The agent is liable only if he undertook to secure the principal’s ratification.
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 Ibid. Article 1881.
 Ultra vires means acting outside the scope of one’s authority.
 Acebedo Optical Company, Inc., v. Court of Appeals, et al., 385 Phil. 956, 978.
 CIVIL CODE. Article 1881.
 Ibid. Paragraph 1, Article 1883.
 Ibid. Article 1897.
 Ibid. Article 1898.