BA Finance Corporation vs. Court of Appeals

A corporation is not bound by a guaranty issued by its officer unless the officer's authority to issue the guaranty is express; a third party dealing with an assumed agent bears the burden of proving the fact and extent of that authority, and estoppel requires clear proof of the corporation's notice or ratification.

Traders Royal Bank extended credit to Renato Gaytano, doing business as Gebbs International, with the Gaytano spouses acting as sureties. BA Finance Corporation became involved because its credit administrator, Philip H. Wong, issued a letter purporting to guarantee the loan. The dispute therefore turned on whether a corporate officer's act could bind BA Finance to a guaranty and whether the corporation could be estopped from denying that authority.

On December 17, 1980, Renato Gaytano, doing business under the name Gebbs International, applied for and was granted a loan by Traders Royal Bank in the amount of P60,000.00. As security for payment, the Gaytano spouses executed a deed of suretyship whereby they agreed to pay jointly and severally to the bank the amount of the loan including interests, penalty, and other bank charges.

In a letter dated December 5, 1980 addressed to Traders Royal Bank, Philip H. Wong, as credit administrator of BA Finance Corporation, for and in behalf of the latter, undertook to guarantee the loan of the Gaytano spouses. The letter stated that BA Finance unconditionally guaranteed full payment in peso value of the accommodation upon non-payment by the subject up to a maximum amount of P60,000.00.

Partial payments were made on the loan, leaving an unpaid balance of P85,807.25. Since the Gaytano spouses refused to pay their obligation, Traders Royal Bank filed with the trial court a complaint for sum of money against the Gaytano spouses and BA Finance Corporation as alternative defendant. The Gaytano spouses did not present evidence for their defense. BA Finance Corporation, on the other hand, raised the defense of lack of authority of its credit administrator to bind the corporation.

• Ultra Vires and Lack of Corporate Power: Petitioner argued that the letter-guaranty was ultra vires and unenforceable because BA Finance Corporation was not empowered by its articles of incorporation and by-laws to issue guaranties.
• Lack of Authority of Credit Administrator: Petitioner maintained that the letter-guaranty was issued by an employee beyond the scope of his authority, as the credit administrator had no power to bind the corporation.
• No Estoppel: Petitioner argued that it was not estopped from denying authority because it had no knowledge or notice of the letter-guaranty; the credit administrator's claim of an audit was unsupported by any audit report or record of the transaction in the office files.
• Counterclaim: Petitioner assigned as error the failure to award relief on its counterclaim.

• Meaning of "Contingent Commitment": Respondent bank contended that the phrase "contingent commitment" in the memorandum given to the credit administrator meant guarantees, thereby authorizing him to issue the letter-guaranty.
• Authority of Credit Administrator: Respondent bank relied on the credit administrator's testimony that he had authority to issue guarantees, as deduced from the wording of the memorandum on his lending authority.

• Authority to Issue Guaranty: Whether BA Finance Corporation is liable under the letter-guaranty issued by its credit administrator despite the absence of express authority to issue guarantees.
• Estoppel: Whether BA Finance Corporation is estopped from denying the credit administrator's authority by reason of its failure to cancel or disallow the guaranty.

• Authority to Issue Guaranty: No. The credit administrator had no express authority to issue a guaranty binding BA Finance Corporation; the bank failed to prove the fact and extent of his authority, and guaranty is not presumed but must be expressed.
• Estoppel: No. Estoppel was not established because there was no clear proof that the guaranty entered BA Finance's records or that the corporation had notice of and ratified the transaction.

• Authority to Issue Guaranty: The rule applied was that persons dealing with an assumed agent, whether general or special, are bound at their peril to ascertain not only the fact of agency but also the nature and extent of authority; if either is controverted, the burden of proof is on them. Respondent bank therefore had to prove that Wong acted within the authority given by BA Finance. The only evidence was Wong's testimony and the memorandum on lending authority. Although the memorandum delegated lending limits and mentioned "contingent commitments," nothing in it expressly vested the credit administrator with power to issue guarantees. The phrase "contingent commitment" did not mean guarantees. Authority of an agent cannot be inferred from vague or general words; guaranty is not presumed, must be expressed, and cannot be extended beyond its specified limits. The Court cited Bank of Philippine Islands vs. Coster, where a power of attorney to loan money did not authorize the husband to make his wife liable as surety for a third person's debt. Wong's testimony that he had entered into similar guaranty transactions in the past lacked credence because he failed to show documents or records of those transactions. His representation alone could not prove his authority. His actuation was understandable because an agent who exceeds his authority is personally liable for damages. Thus, BA Finance was not bound.
• Estoppel: The Court found no factual basis for the Court of Appeals' conclusion that BA Finance was estopped by its failure to cancel or disallow the guaranty. Respondent bank had not shown any evidence, aside from Wong's testimony, that the disputed guaranty was entered into the official records or files of BA Finance, which would show notice or knowledge on the corporation's part and its consequent ratification. In the absence of clear proof, it would be unfair to hold BA Finance guilty of estoppel in allowing its credit administrator to act as though he had power to guarantee.

• Agency — Burden of Proving Authority — Persons dealing with an assumed agent, whether the assumed agency be general or special, are bound at their peril if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority; if either is controverted, the burden of proof is upon them to establish it. The Court applied this rule to place on Traders Royal Bank the burden of proving that BA Finance's credit administrator had authority to issue the guaranty.
• Guaranty Must Be Express — A power of attorney or authority of an agent should not be inferred from vague or general words; guaranty is not presumed, it must be expressed and cannot be extended beyond its specified limits. The Court held that the memorandum's reference to "contingent commitments" did not expressly authorize the credit administrator to issue guarantees.
• Agent Exceeding Authority — An agent who exceeds his authority is personally liable for damages. The Court used this rule to discount Wong's testimony claiming past guaranty transactions, since he had an interest in avoiding personal liability.
• Estoppel Against Corporation — A corporation cannot be estopped from denying an officer's authority absent clear proof that the transaction was entered into its official records or files showing notice or knowledge and ratification. The Court found no such proof, so BA Finance was not estopped by its failure to cancel or disallow the guaranty.

• "It is a settled rule that persons dealing with an assumed agent, whether the assumed agency be a general or special one are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19)." — The passage states the burden-of-proof rule for holding a principal liable on an assumed agent's act, which the Court applied to Traders Royal Bank.
• "It has been held that a power of attorney or authority of an agent should not be inferred from the use of vague or general words. Guaranty is not presumed, it must be expressed and cannot be extended beyond its specified limits (Director v. Sing Juco, 53 Phil. 205)." — This is the Court's canonical formulation that a guaranty must be expressly authorized, used to reject the bank's reliance on the phrase "contingent commitment."
• "The representation of one who acts as agent cannot by itself serve as proof of his authority to act as agent or of the extent of his authority as agent (Velasco v. La Urbana, 58 Phil. 681)." — The Court cited this to reject Wong's own testimony as sufficient proof of his authority to bind BA Finance.
• "In the absence of clear proof, it would be unfair to hold petitioner corporation guilty of estoppel in allowing its credit administrator to act as though the latter had power to guarantee." — This states the Court's reason for rejecting the Court of Appeals' estoppel ruling.

• Harry Keeler vs. Rodriguez, 4 Phil. 19 — Cited for the rule that persons dealing with an assumed agent must ascertain the fact and extent of authority and bear the burden of proving it.
• Director vs. Sing Juco, 53 Phil. 205 — Cited for the rule that an agent's authority cannot be inferred from vague or general words and that guaranty must be expressly conferred.
• Bank of Philippine Islands vs. Coster, 47 Phil. 594 — Cited to illustrate that a power of attorney to loan money did not authorize the agent to make the principal liable as surety for a third person's debt.
• Velasco vs. La Urbana, 58 Phil. 681 — Cited for the rule that an agent's own representation cannot by itself prove his authority or its extent.
• National Power Corporation vs. National Merchandising Corporation, Nos. L-33819 and L-33897, October 23, 1982, 117 SCRA 789 — Cited for the rule that an agent who exceeds his authority is personally liable for damages.

Cruz, Griño-Aquino, and Bellosillo, JJ., concurred.