Yao Ka Sin Trading v. CA

TOPICS:

single proprietorship v. corporation;

all functions emanate from the BOD, unless those which are delegated to certain individuals for practicality;

constitution covers the illegal acts (even if not in the AOI)

FACTS:

Constancio Maglana, President and Chairman of the Board of Prime White Cement Corporation (PWCC) presented a letter-offer to Yao Ka Sin Trading through its manager, Henry Yao. 

The letter-offer regarding the sale of 45,000 bags of prime white cement was accepted by YKS. However, after its signing, the Board of Directors of PWCC disapproved the same. PWCC informed YKS regarding the disapproval. 

Notwithstanding the issue regarding the letter-offer, PWCC delivered only 10,000 bags of white cement to YKS under a new and separate contract (not as what was stated in the letter-offer). 

PWCC only committed the delivery of 10,000 bags but YKS insisted on the delivery of 45,000 bags.

YKS filed a Specific Performance with Damages against PWCC. In the Answer, PWCC alleged that YKS has no legal personality to sue; the letter-offer was rejected by its BoD, hence it was never consummated, but instead only agreed to sell 10,000 bags of white cement under a separate contract. 

RTC Decision:

Defendant was ordered to complete the delivery of 45,000 bags. Under the By-Laws of PWCC, the President (Maglana) was granted by the BoD to enter into an agreement or contract. Such contract or agreement is not be subject to the ratification of the BoD, but subject only to the declared objects and purpose of the corporation and existing laws. Hence, it was validly entered. 

CA Decision:

CA reversed the decision. The letter-offer was rejected by PWCC’s BOD. Maglana and Yao entered an unauthorized contract as Maglana was not authorized by the BoD nor was his action ratified by the BoD. Nowhere in the AOI nor By-Laws was he empowered to enter into a contract. Having no cause of action, YKS is not entitled to any relief. 

ISSUE:

I. WON Plaintiff Henry Yao has the capacity to sue on behalf of YKS. - No

II. WON the letter-offer is binding with the respondent. - No

RULING:

I.  

No, Henry Yao lacks the capacity to sue.

Under the law, only natural or juridical persons or entities authorized by law may be parties in a civil action and sole proprietorship is neither a natural person nor a juridical person. A sole proprietorship as a form of business organization conducted for profit by a single individual, and requires the proprietor or owner thereof to secure licenses and permits, register the business name, and pay taxes to the national government. It does not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an action in court. 

Here, Henry Yao filed the complaint being the manager of Yao Ka Sin Trading, which is a sole proprietorship. Hence, the proper party should be Yao Ka Sin, whose personality is not separate nor distinct from the sole proprietorship. 

Therefore, Henry Yao has no capacity to sue and Yao Ka Sin should be impleaded as a complainant.

II.

No, the letter-offer did not bind the respondent.

Under the law, a corporation can act only through its officers and agents who can bind the corporation in transactions with third persons to the extent of the authority conferred upon them. Based on PWCC’s By-Laws, the President can execute and sign for and in behalf of the corporation all contracts and agreements which the corporation may enter. The power to execute and sign presupposes a prior act of the corporation through the BoD. 

In this case, Mr. Maglana, the President of PWCC, entered into a contract with YKS for the corporation independently from the BOD or without prior Board approval. Maglana also failed to prove that he has the apparent authority to execute the contract.

Therefore, the contract was not binding with PWCC.

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The petitioner agreed to a new transaction after receiving the notification and accepted without any protest the delivery covering 10,000 bags.