Apparent Authority: When Employers Are Liable for Employees' Acts

The Supreme Court recently reminded corporations that they cannot simply disown the unauthorized acts of their employees when those acts appear to be within the scope of their authority. In Eternal Gardens Memorial Park Corp. v. Perlas (G.R. No. 236126, September 7, 2020), the Court held a memorial park corporation solidarily liable with its employees and others for fraudulent land transactions, applying the doctrine of apparent authority.

The Case: A Fraudulent Sale of Burial Lots

Zenaida Boiser owned 24 burial lots in Eternal Gardens Memorial Park. After she died in 1999, her daughter Kathryn's former live-in partner, Michael Magpantay, allegedly sold these lots to spouses Claudio and Rosita Bonifacio. The problem: Zenaida could not have sold anything in 2000 because she was already dead.

The Boiser siblings discovered that Eternal Gardens employees, Noli Balbin and Leandro Resoles, processed the transfer and issued an acknowledgment receipt for the P2.2 million payment from the Bonifacios. Eternal Gardens later issued a certificate of ownership in the Bonifacios' names.

The Issue: Can a Company Disown Its Employees' Acts?

Eternal Gardens argued it should not be liable because Balbin and Resoles acted beyond their authority. As Assistant Operations Manager, Balbin's duties did not include selling memorial lots. The company insisted the employees acted "ultra vires" and that the doctrine of apparent authority should not apply.

The Ruling: Apparent Authority Binds the Principal

The Supreme Court denied Eternal Gardens' petition and affirmed the Court of Appeals' ruling. The Court explained that under the doctrine of apparent authority, acts and contracts of an agent within the apparent scope of authority bind the principal, even if no actual authority was given.

The key principle: the principal's liability extends to third persons who were led reasonably to believe by the principal's conduct that such authority exists.

By issuing the certificate of ownership to the Bonifacios, Eternal Gardens acknowledged its employees' authority to transact on its behalf. The company could not later deny that authority.

The Role of Estoppel

The Court anchored its ruling on estoppel (Article 1431, Civil Code). When a corporation knowingly permits an officer or agent to act within apparent authority, it holds that person out to the public as possessing the power to do those acts. The corporation is then estopped from denying the agent's authority against anyone who dealt with it in good faith.

The Bonifacios could not be blamed for believing Balbin and Resoles had authority to transact for Eternal Gardens.

The Duty to Verify Documents

Eternal Gardens also argued it merely performed its ministerial duty, relying on notarized documents. The Court rejected this defense. While notarization gives documents a presumption of regularity, this presumption can be rebutted. Eternal Gardens never bothered to verify the authenticity of the affidavit of loss and deed of assignment. Had it exercised caution, it could have easily detected the falsified documents.

Practical Takeaways

• Apparent authority can bind a company. Even if employees exceed their actual authority, a company may still be liable if its conduct led third parties to reasonably believe the employees had authority to act.
• Issuing documents can be an admission. When a company processes and issues certificates or receipts through its employees, it effectively holds those employees out as authorized agents.
• Presumptions can be rebutted. Notarized documents carry a presumption of regularity, but companies should verify suspicious transactions rather than rely on formalities.
• Companies have recourse against erring employees. Being held liable does not prevent a company from suing its own employees for fraud.
• Due diligence matters. A company that fails to supervise its employees or verify documents may be estopped from denying liability.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.