San Miguel Brewery, Inc. vs. Lifetime Enterprise, Inc.

& The House of Insurance,

Inc.
FACTS:
Eliseo A. Arandia, Jr., gereal manager of the Lifetime Enterprise, Inc., applied in behalf of said
corporation for a credit line in the purchase of beer products with the San Miguel Brewery,
Inc., which the application was approved on the same date by the latter corporation thru its
assistant vice-president, Luis A. Fernandez. The credit line is secured by a security bond
executed by Arandia, in his capacity as general manager of the Lifetime Enterprise, Inc., as
principal, and The House of Insurance, Inc. as surety, in which bond the aforesaid parties
bound themselves jointly and severally liable for credit purchase that the principal might
make with the San Miguel Brewery, Inc. to the extent of P20,000.00.
Arandia authorized one Manuel Upao to sign sales order or purchase order or any other
order forms of the San Miguel Brewery, Inc. Pursuant to said authority, Upao ordered and
received in the morning of that day, from the brewery companys plant, beer products
valued at P200.00. Then another delivery of beer products was made, which were valued at
P8,000.00, received by Arandia himself. Subsequent thereto, further deliveries were made
thru Upao, namely beer products worth P10,000.00 and P1,8000.00 worth of beer.
The brewery company, thru its assistant vice-president, informed Lifetime Enterprise, Inc.
that it had an outstanding account in the aggregate sum of P20,000.00 representing the
price of the beer products delivered to it on credit and requesting that the said amount be
paid as it was already overdue. Having failed to receive any reply to the demand letters, the
brewery company sent its collector, Alfeo Aguila, to the offices of the Lifetime Enterprise,
Inc., but in all these occasions, no payment was made as Arandia was always out of office.
Consequently, the brewery company, instituted in the Court of First Instance of Manila the
instant action for collection against the Lifetime Enterprise, Inc., as principal, and the House
of Insurance, Inc., as surety.
The House of Insurance, Inc. admitted the genuineness and due execution of the surety
bond but claimed lack of knowledge or information as regards the delivery of beer products
by plaintiff to its co-defendant, Lifetime Enterprise, Inc., and the latters failure to comply
with its obligation. For its part, defendant Lifetime Enterprise, Inc. disclaimed liability to
plaintiff, asserting that its general manager, Eliseo A. Arandia, Jr. acted beyond the scope of
his authority in entering into the transactions in question.
The trial court ruled in favor of the plaintiff, San Miguel Brewery, Inc.
Only defendant Lifetime Enterprise, Inc. appealed from the trial courts judgement.
ISSUE: Whether or not appellant corporation is bound by said contracts
RULING: NO.
Under the by-laws of appellant corporation, the power to execute on behalf of the
corporation all contracts and agreements which said corporation may enter into and
agreements which said corporation upon its president. Upon the other hand, its general
manager is vested with direct and active management of the business and operations of

the company, conducting the same according to the orders, resolutions and instructions of
the Board of Directors and the President, and according to his own discretion whenever and
wherever the same is not expressly limited by such order, resolution and instructions.
Clearly, therefore, under these provisions of appellants by-laws, Eliseo A. Arandia, Jr., had no
express powers or authority to enter into the contracts in question, the power to do so being
conferred upon the president. And the record does not show either that he was authorized
by the Board of Directors or the President to execute said contracts in behalf of appellant
corporation.
Be that as it may, the lack of express power or authority in the general manager to enter
into the contracts in question is not the decisive factor that is determinative of the binding
effect of such contracts upon appellant corporation. For, under the theory of implied
authority, an officer or agent of a private corporation, entrusted with the general
management and control of its business and affairs, implied or apparent authority to so acts
or make any contracts in its behalf falling within the scope of the ordinary and usual
business of the company, and limitations and restrictions placed upon his express or implied
authority, of which persons dealing with him have neither actual nor constructive notice, will
not serve to restrict such powers to the prejudice of innocent third persons. However, the
theory of implied authority in a general manager of a corporation will be sustained only
where the subject matter of his act is something that arises in the conduct of the ordinary
business of the corporation.
Consequently, a contract executed by a general manager of a corporation, apparently within
the course and scope of his duties and powers and in line of the companys business, is
prima facie binding on the company, without authorization from the board of directors,
irrespective of what the express authority of such an agent may be, and this is especially
true where he has executed similar contracts before without objection. But it is the
undisputed rule that a corporation is not bound by any agreement of its general manager or
superintendent if it is not shown to be within the scope of his express or implied authority
and is not in the course of the ordinary business of the corporation. Accordingly, whether a
particular contract made by a general manager is within his implied powers depends on
whether its execution is reasonably necessary to, and customary and usual in, the
performance of the duties to be discharged by managers.
The test, therefore, seems to be whether the act is within the scope of the ordinary
business of the corporation. If it is, then, as already stated, the manager has power. On the
other hand, his authority does not extend to any matters or transactions which are not
properly incident to the management of the ordinary business.
In the instant case, there is no showing whatever that appellant corporation is, or has ever
been, engaged in the liquor or similar business. x x x There is evidence to prove that at the
time the contracts in question were executed by its general manager, appellant corporation
was engaged in the embroidery business and acting as general agent of its, co-defendant,
The House of Insurance, Inc., which is presumably an insurance company. Such being the
case, the purchase of beer products in large scale can hardly be considered as necessary to,
and customary and usual in, the performance of the duties to be discharged by appellants
general manager, or within the scope of the ordinary business of appellant corporation.
Consequently, it cannot validly be argued that said transaction falls within the implied or
apparent authority of said general manager so as to be a prima facie binding upon appellant

corporation, especially sp because it is not even pretended that he (the general manager)
had, previous to the transaction in issue, entered into similar contracts with appellee
corporation, in which eventuality, the latter corporation could reasonably maintain that it
has been misled into believing that appellants general manager is clothed with authority to
execute such contract.
In the light of foregoing considerations, the conclusion is irresistible that appellant
corporation cannot be held liable to appellee corporation for the value of the beer products
purchased on credit by its general manager, Eliseo A. Arandia, Jr. Having acted without
proper authority from appellant corporation in making the purchase, Arandia is liable
therefor in his personal capacity, but since he is not a party to this case, no judgment can be
had against him. Appellee corporation may, nevertheless, enforce the lower courts
judgment against defendant The House of Insurance, Inc., which did not appeal therefrom.