Agro Food and Processing Corp. v. Vitarich Corporation

A corporation is estopped from denying the authority of its officer to amend a contract where the corporation knowingly permits the officer to act within the scope of apparent authority, holds him out to the public as possessing such power, and acquiesces to the amendments through its conduct—such as preparing billings reflecting the changes, failing to protest for an extended period, and accepting benefits arising therefrom.

Agro Food and Processing Corp. operated a chicken dressing plant in Bulacan. Vitarich Corporation engaged Agro to dress chickens supplied by Vitarich for a fee under a Toll Agreement executed on October 5, 1995, simultaneously with a Memorandum of Agreement (MOA) wherein Vitarich offered to purchase Agro's dressing plant. Following Vitarich's payment of a P20 million deposit under the MOA and its subsequent unsuccessful attempt to purchase the plant, the parties agreed that the deposit would be repaid through deductions of 15% from weekly toll fees. During the execution of these agreements, Vitarich also supplied live broiler chickens to Agro on credit.

• Execution of Agreements: On October 5, 1995, Agro and Vitarich executed a Memorandum of Agreement (MOA) for the potential sale of Agro's chicken dressing plant and a Toll Agreement under which Agro agreed to dress chickens supplied by Vitarich for specified fees (Php 7.50/kg for fresh chilled and neckless; Php 5.50/kg for gallantina).
• Deposit and Repayment Arrangement: Vitarich paid Agro P20 million as deposit under the MOA. When Agro did not accept Vitarich's offer to purchase the plant, the parties agreed that the deposit would be repaid through deductions of 15% from weekly toll fee billings.
• Verbal Amendments to Toll Fees: From 1996 to 1997, the parties allegedly entered into three verbal amendments reducing the toll fees: first to Php 6.75/kg (fresh chilled/neckless) and Php 4.95/kg (gallantina); second to Php 6.05/kg (fresh chilled/neckless) and Php 4.55/kg (gallantina); and third to Php 5.75/kg for both categories. These amendments were allegedly implemented by Agro's Finance Manager, Chito del Castillo.
• Billing Practices: Agro prepared and submitted 89 weekly billings to Vitarich over approximately two years reflecting these reduced rates. The percentage deducted from the billings toward the P20 million deposit was also correspondingly reduced from 15% to 10%, and later to 7.5%.
• Demand and Response: Upon receipt of Vitarich's demand letters requiring payment of the alleged deficiency on the deposit, Agro did not protest the amended rates or question del Castillo's authority, raising the issue of lack of authority only in its amended Answer to the complaint.
• Live Broiler Transactions: Concurrently, Vitarich sold live broiler chickens to Agro on credit, resulting in a separate account between the parties.

• Apparent Authority: Agro argued that the Court of Appeals erroneously applied the doctrine of apparent authority, which is determined by the acts of the principal (Agro) and not by the acts of the agent (del Castillo). Since the appellate court relied solely on del Castillo's testimony and the weekly billings he prepared—rather than on Agro's own conduct—it committed reversible error in finding apparent authority.
• Parol Evidence Rule: Agro maintained that Vitarich was barred from proving the existence of the verbal amendments to the original Toll Agreement pursuant to the parol evidence rule, as the written contract had not been altered, modified, or revoked by a subsequent written instrument.

• Apparent Authority Established: Vitarich countered that the doctrine of apparent authority was correctly applied, citing Agro's conduct in preparing over 89 weekly billings reflecting the amended rates, its failure to contest the payment of such billings for two years, and its silence regarding del Castillo's authority despite receipt of demand letters. The totality of Agro's acts demonstrated acquiescence to the amendments and clothed del Castillo with apparent authority.
• Exception to Parol Evidence Rule: Vitarich argued that the parol evidence rule did not apply because the issue of the verbal amendments was properly raised in its Amended Complaint, placing the existence of such agreements in issue and thus falling within the recognized exception to the rule.

• Apparent Authority: Whether the Court of Appeals erred in applying the doctrine of apparent authority to bind Agro to the verbal amendments to the Toll Agreement implemented by its Finance Manager without express board authorization.
• Parol Evidence Rule: Whether the Court of Appeals erred in holding that the existence of the verbal amendments was not barred by the parol evidence rule.

• Apparent Authority: The doctrine of apparent authority was properly applied. Apparent authority is determined by the acts of the principal, not the agent, and exists where a corporation knowingly permits an officer to act within the scope of apparent authority and holds him out to the public as possessing such power. Agro clothed del Castillo with apparent authority through its conduct: preparing 89 weekly billings reflecting the reduced rates over two years; failing to protest the amendments despite receipt of demand letters; and accepting benefits arising from the amendments, including extended repayment terms for the P20 million deposit (due to reduced percentage deductions) and increased profits from adjusted gallantina prices. When a corporation intentionally or negligently clothes its officer with apparent authority, it is estopped from denying such authority as to innocent third parties who dealt with the officer in good faith.
• Parol Evidence Rule: The parol evidence rule did not bar proof of the verbal amendments. The issue of the amendments was raised in Vitarich's Amended Complaint, thereby placing the existence of such agreements in issue and bringing the matter within the exception to the parol evidence rule.

• Doctrine of Apparent Authority (Ostensible Authority) — Apparent authority is determined by the acts of the principal, not by the acts of the agent. A corporation is estopped from denying an officer's authority if it knowingly permits the officer to act within the scope of apparent authority and holds him out to the public as possessing the power to do those acts. The existence of apparent authority may be ascertained through: (1) the general manner in which the corporation holds out an officer or agent as having the apparent authority to act in general; and (2) the corporation's acquiescence in the officer's acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. When a corporation intentionally or negligently clothes its officer with apparent authority to act in its behalf, it is estopped from denying its officer's apparent authority as to innocent third parties who dealt with this officer in good faith.
• Exception to the Parol Evidence Rule — The parol evidence rule does not apply where the issue is whether a contract was in fact executed or where the existence of a separate oral agreement is put in issue by the pleadings.

• "apparent authority is determined by the acts of the principal and not by the acts of the agent" — Articulates the fundamental principle that the principal's conduct, not the agent's assertions, establishes apparent authority.
• "a corporation [is] estopped from denying the [officer's] authority if it knowingly permits [such officer] 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" — Defines the basis for estoppel under the doctrine of apparent authority.
• "When a corporation intentionally or negligently clothes its officer with apparent authority to act in its behalf, it is estopped from denying its officer's apparent authority as to innocent third parties who dealt with this officer in good faith." — Emphasizes the equitable basis for binding the corporation to the officer's acts.
• "the existence of apparent authority may be ascertained not only through the 'general manner in which the corporation holds out an officer or agent as having the apparent authority to act in general', but also through the corporation's 'acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers'" — Expands the modes of establishing apparent authority to include specific acquiescence with knowledge.

• Calubad v. Ricarcen Development Corp., 817 Phil. 509 (2017) — Cited for the principle that apparent authority is determined by the acts of the principal and not by the acts of the agent.
• Georg v. Holy Trinity College, Inc., 790 Phil. 631 (2016) — Cited for the definition of apparent authority and the corporation's estoppel from denying an officer's authority when it knowingly permits such officer to act within the scope of apparent authority.
• Philippine Realty and Holdings Corp. v. Ley Construction and Development Corp., 667 Phil. 32 (2011) — Cited for the proposition that apparent authority may be ascertained through the corporation's acquiescence in an officer's acts with actual or constructive knowledge.
• Yao Ka Sin Trading v. Court of Appeals, 285 Phil. 345 (1992) — Cited for the principle that a corporation is estopped from denying its officer's apparent authority as to innocent third parties who dealt with the officer in good faith.

• Section 9, Rule 130, Rules of Court (Parol Evidence Rule) — Implicitly referenced regarding the admission of evidence of verbal agreements when the existence of such agreements is put in issue by the pleadings.

Leonen, J. (Chairperson), Inting, J., Delos Santos, J., and Rosario, J.