The Supreme Court clarified the extent of a corporation president’s authority to act on behalf of the corporation without explicit board approval. The Court held that a president can act within the scope of their usual duties and the general objectives of the business, particularly in routine matters. This means that actions like sending demand letters for unpaid rent, which are part of day-to-day operations, don’t always require a formal board resolution, streamlining business processes and affirming the president’s role in managing corporate affairs.

Lease Dispute: Did the President Overstep or Act Within Bounds?

Colegio Medico-Farmaceutico de Filipinas, Inc. (petitioner) sought to eject Lily Lim (respondent) from a property it owned. The dispute arose after the expiration of a lease agreement. The petitioner argued that the respondent failed to pay rent and refused to vacate the premises. The respondent countered that there was a longer lease term agreed upon and that the demand to vacate was invalid. At the heart of the legal battle was whether the president of the Colegio Medico-Farmaceutico had the authority to issue a demand letter to vacate without a specific resolution from the Board of Directors.

The Metropolitan Trial Court (MeTC) initially dismissed the case, pointing out that the demand letter sent by the petitioner’s president, Dr. Virgilio C. Del Castillo, lacked proof of authorization from the Board. The MeTC emphasized the demand letter’s crucial role in establishing jurisdiction in eviction cases. On appeal, the Regional Trial Court (RTC) reversed this decision, asserting that the president’s actions were part of the ordinary course of business and were later ratified by a Board Resolution. This divergence in opinion highlights the complex interplay between corporate governance and the authority of corporate officers.

The case then reached the Court of Appeals (CA), which sided with the respondent. The CA emphasized the necessity of attaching the Board Resolution to the complaint, deeming its absence a critical flaw. This ruling underscored a strict interpretation of the requirements for corporate action in legal proceedings. Undeterred, the petitioner elevated the case to the Supreme Court, seeking to overturn the CA’s decision and reinstate the RTC’s order for the respondent to vacate the property and settle outstanding dues. The core legal question before the Supreme Court was whether the president of a corporation inherently possesses the power to issue a demand letter without explicit board authorization.

The Supreme Court addressed the central issue by clarifying the extent of a corporate president’s authority. The Court acknowledged that corporations typically act through their board of directors, but it also recognized exceptions. Citing People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals, 351 Phil. 850, 866 (1998), the Court emphasized that, “[i]n the absence of a charter or by[-]law provision to the contrary, the president is presumed to have the authority to act within the domain of the general objectives of its business and within the scope of his or her usual duties.”

This pronouncement established that a president’s actions, especially those within the routine of the corporation’s business, are presumed valid even without explicit board approval. The Court differentiated this from acts requiring specific board resolutions, reinforcing the idea that not all corporate actions necessitate formal board directives. Building on this principle, the Court examined whether the demand letter in this case fell within the president’s usual duties.

The Supreme Court determined that the demand letter issued by the president was indeed within the scope of his authority. The Court noted that sending demand letters for unpaid rentals and requesting tenants to vacate premises are part of the ordinary course of business for a corporation that owns property. The Court also cited Article IV, Section 2 of the By-laws of petitioner which gives the President the power to “Exercise general [supervision], control and direction of the business and affairs of the Colegio;” and “Execute in behalf of the Colegio, bonds, mortgages, and all other contracts and agreements which the Colegio may enter into”.

Furthermore, the Court addressed the issue of ratification. Even if the president’s action was initially unauthorized, the subsequent Board Resolution authorizing the filing of the ejectment case effectively ratified the president’s earlier action. Ratification occurs when the corporation, through its board, approves or acknowledges an action taken by an officer, thereby validating the action as if it were initially authorized. This legal principle underscores the importance of corporate oversight and the ability of the board to correct or affirm actions taken by its officers.

Having established the validity of the demand letter, the Supreme Court turned to the requisites for an unlawful detainer case. An unlawful detainer action requires the following: (1) a lease contract, express or implied; (2) expiration or termination of the lease; (3) withholding possession after the lease expires; (4) a written demand to pay rent or comply with the lease terms and vacate the premises; and (5) filing the action within one year from the last demand. In this case, the Court found that all elements were present, justifying the ejectment of the respondent from the property.

The Court then focused on the issue of compensation for the use of the property. The Supreme Court adjusted the amount of reasonable compensation for the use of the property to P55,000.00 per month, as stipulated in the original Contract of Lease, correcting the RTC’s initial award of P50,000.00. The Court also clarified that the award of actual damages would accrue interest at 12% per annum from the date of extrajudicial demand (March 5, 2008) to June 30, 2013, and thereafter at 6% per annum until full satisfaction. This adjustment reflects the Court’s adherence to contractual stipulations and prevailing legal interest rates.

This case underscores the importance of understanding the scope of authority granted to corporate officers. It also highlights the necessity of proper documentation and adherence to procedural requirements in legal actions. While a president generally has the authority to act within the ordinary course of business, it is always prudent to secure board approval for significant or unusual actions. For clarity, the ruling in this case serves as a guide for corporations and their officers in navigating the complexities of corporate governance and legal compliance.

FAQs

What was the key issue in this case?	The key issue was whether the president of a corporation needed a specific board resolution to issue a demand letter for unpaid rent and to vacate a property.
What did the Supreme Court rule?	The Supreme Court ruled that the president could act within the scope of their usual duties, like issuing demand letters, without needing explicit board approval.
What are the elements of an unlawful detainer case?	The elements include a lease contract, expiration of the lease, withholding possession after expiration, a written demand to vacate, and filing the action within one year of the demand.
What is ratification in corporate law?	Ratification is when a corporation, through its board, approves or acknowledges an action taken by an officer, validating it as if it were initially authorized.
Why was the Board Resolution important in this case?	Although not initially required, the subsequent Board Resolution authorizing the filing of the case ratified the president’s earlier demand letter.
What was the amount of reasonable compensation set by the court?	The Supreme Court set the reasonable compensation at P55,000.00 per month, as stipulated in the original Contract of Lease.
What interest rates apply to the award of actual damages?	The award of actual damages accrues interest at 12% per annum from March 5, 2008, to June 30, 2013, and thereafter at 6% per annum until full satisfaction.
Does this ruling mean a corporation president can always act without board approval?	No, the president can only act without board approval within the scope of their usual duties and the general objectives of the business. Significant or unusual actions may still require board approval.

In conclusion, this case clarifies the scope of authority a corporate president possesses, particularly in the context of routine business operations. It reinforces the principle that presidents can act on behalf of the corporation without explicit board approval when acting within their usual duties and the corporation’s general objectives. Understanding these principles is vital for effective corporate governance and compliance.

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: Colegio Medico-Farmaceutico de Filipinas, Inc. v. Lily Lim, G.R. No. 212034, July 02, 2018