Pua Casim & Co. vs. W. Neumark & Co.

A corporation is bound by a loan obtained by its general business manager who, though not expressly authorized by the board of directors, is clothed with apparent authority to borrow, provided the amount borrowed does not exceed the ordinary requirements of the business. The authority to borrow is implied from the circumstances of the case, particularly where the officer is the president, principal stockholder, and general manager who appears to be "almost the whole corporation."

The plaintiff, Pua Casim & Co., was a creditor that extended a loan to the defendant corporation, W. Neumark & Co. The defendant was a corporation whose president, principal stockholder, and general business manager was W. Neumark. The dispute concerned whether Neumark had authority to bind the corporation to the loan, given that the board of directors had not expressly authorized him to borrow money on the corporation's behalf. The general rule in corporation law is that a business manager or other officer has no implied power to borrow money for the corporation, but this rule is subject to exceptions depending on the circumstances of each case.

On or about January 20, 1922, the defendant corporation, W. Neumark & Co., represented by its president and principal stockholder, W. Neumark, borrowed P15,000 from the plaintiff, Pua Casim & Co. The loan was delivered to the defendant by means of a check drawn in favor of the defendant against the plaintiff's account in the China Banking Corporation. The check was deposited with the Bank of the Philippine Islands, and the amount was credited to the defendant on its current account.

The defendant's answer was a general denial, together with a special defense that W. Neumark had never been authorized by the defendant corporation to borrow money for its account from the plaintiff to the amount of P15,000, and that the defendant had never received nor made use of the sum alleged to have been so borrowed. The evidence showed that Neumark was the principal stockholder, the president, and the general business manager of the defendant corporation. On behalf of the corporation, he solicited the loan from the plaintiff and was given the plaintiff's check in favor of the corporation for P15,000, which check he endorsed in his capacity as president of the corporation and deposited to the corporation's account.

It was conceded that Neumark was not expressly authorized by the board of directors to borrow the money in question. It appeared, however, that a large part of the amount deposited was diverted by Neumark to his own use, but this did not alter the fact that the money was borrowed for the corporation and was placed in its possession. The record contained ample indications that the corporation was in need of funds to carry on its business, and it did not appear that the amount borrowed was disproportionate to the volume of the business. The plaintiff admitted having received P5,000 from the corporation on account of the loan.

• Liability of the Corporation: The appellant assigned as error that the court below erred in holding the defendant responsible for the payment of the money borrowed by Neumark, arguing that Neumark had never been authorized by the defendant corporation to borrow money for its account.
• Amount of Recovery: The appellant assigned as error that the court below erred in giving the plaintiff judgment for P15,000 with interest and costs, apparently on the ground that the amount should have been reduced.

N/A — The decision does not recount the appellee's arguments beyond the allegations in the complaint.

• Implied Authority to Borrow: Whether the defendant corporation is liable for the loan obtained by its president and general manager, W. Neumark, notwithstanding the absence of express authorization from the board of directors.
• Amount of Recovery: Whether the plaintiff was entitled to recover the full P15,000 with interest and costs, given the plaintiff's admission of receiving P5,000 on account of the loan.

• Implied Authority to Borrow: Yes. The corporation was bound by the loan because Neumark, as president, general manager, and principal stockholder, was clothed with apparent authority to borrow, and the amount borrowed did not exceed the ordinary requirements of the business, making the authority implied.
• Amount of Recovery: No. The plaintiff was not entitled to the full P15,000 because the plaintiff admitted receiving P5,000 from the corporation on account of the loan; the recovery was reduced to P10,000 with legal interest from October 30, 1922, and with costs.

• Implied Authority to Borrow: The Court acknowledged the general rule that a business manager or other officer of a corporation has no implied power to borrow money on its behalf. However, the Court noted that much depends upon the circumstances of each particular case, and the rule is subject to important exceptions. Where a general business manager of a corporation is clothed with apparent authority to borrow, and the amount borrowed does not exceed the ordinary requirements of the business, the authority is implied and the corporation is bound. In this case, the record showed ample indications that the corporation was in need of funds to carry on its business, and the amount borrowed was not disproportionate to the volume of the business. As president, general manager, and principal stockholder, Neumark appeared, in a sense, to be almost the whole corporation and was clothed with apparent authority to do everything necessary for the conduct of its business. The Court held that in these circumstances, Neumark must be held to have been impliedly authorized to borrow the money. The fact that Neumark diverted a large part of the amount to his own use did not alter the fact that the money was borrowed for the corporation and was placed in its possession.
• Amount of Recovery: The Court found the second assignment of error well taken because the plaintiff admitted having received P5,000 from the corporation on account of the loan. Accordingly, the judgment was modified by reducing the amount of recovery to P10,000, with interest at the legal rate from October 30, 1922, and with the costs.

• Implied Authority of Corporate Officers to Borrow — A business manager or other officer of a corporation has no implied power to borrow money on its behalf, but this general rule is subject to exceptions. Where a general business manager is clothed with apparent authority to borrow, and the amount borrowed does not exceed the ordinary requirements of the business, the authority is implied and the corporation is bound. The Court applied this doctrine by finding that Neumark, as president, general manager, and principal stockholder, was clothed with apparent authority, the corporation was in need of funds, and the amount borrowed was not disproportionate to the volume of business.

• "It is conceded that Neumark was not expressly authorized by the board of directors to borrow the money in question and the general rule is that a business manager or other officer of a corporation has no implied power to borrow money on its behalf. But much depends upon the circumstances of each particular case and the rule stated is subject to important exceptions." — This passage articulates the general rule and its exception, forming the basis of the Court's analysis on implied authority.
• "Thus, where a general business manager of a corporation is clothed with apparent authority to borrow and the amount borrowed does not exceed the ordinary requirements of the business, it has often been held that the authority is implied and that the corporation is bound." — This is the canonical formulation of the doctrine of implied authority to borrow, which the Court applied to the facts of the case.
• "As president, general manager and principal stock holder Neumark appeared, in a sense, to be almost the whole corporation and was clothed with apparent authority to do everything necessary for the conduct of its business. In these circumstances he must held to have been impliedly authorized to borrow the money her in question." — This passage states the Court's application of the doctrine to the specific facts, emphasizing Neumark's dominant role in the corporation.

• G. V. B. Mining Co. vs. First National Bank of Hailey, 95 Fed., 23 — Cited as authority for the proposition that a general business manager clothed with apparent authority to borrow binds the corporation when the amount does not exceed ordinary business requirements.
• Matson vs. Alley, 141 Ill., 284 — Cited in support of the exception to the general rule against implied authority to borrow.
• Topeka Primary Association University of Builders vs. Martin, 39 Kan., 750 — Cited in support of the exception to the general rule.
• Africa vs. Duluth News Tribune Co., 82 Minn., 283 — Cited in support of the exception to the general rule.
• Rosemond vs. Northwestern Autographic Register Co., 62 Minn., 374 — Cited in support of the exception to the general rule.
• Helena National Bank vs. Rocky Mountain Telegraph Co., 20 Mont., 379 — Cited in support of the exception to the general rule.
• Fensterer vs. Pressure Lighting Co., 149 N. Y. S., 49 — Cited in support of the exception to the general rule.
• Clark vs. Freeport Clays etc., Co., 52 Pa. Super., 1 — Cited in support of the exception to the general rule.

N/A — The decision does not cite any specific constitutional provisions, statutes, codal articles, or procedural rules.

Johnson, Street, Malcolm, Avanceña, Villamor, and Romualdez, JJ., concurred.

N/A — No dissenting opinions are noted in the decision.