Doctrine of apparent authority
A depositor enters a bank, turns over cash, and is issued by the branch manager a time deposit certificate. In another case, a retiree was convinced by a bank manager to invest his retirement benefits also in time deposits, to be serviced by the manager herself on a personal basis, with no need for the retiree to go to the branch since the time deposit certificate and the renewals thereof will be personally hand-carried by the manager to the retiree’s residence. In a third case, a contractor needed a bond for his project and paid the premiums to the bank manager who then issued a bank guarantee in his favor.
The above examples are based on actual cases and the transactions described therein were all fraudulent. The funds were pocketed by the managers and never entered the books and vaults of the banks. The documents issued, although bearing the signatures of the officers concerned, were all spurious. These officers also absconded leaving the matter to be resolved between the banks and the victims. The victims claim that they dealt with the officers in good faith because the latter are recognized as representatives of the banks with authority to deal in these transactions.
I will not give a conclusion on whether the banks can be held liable since these cases could be the subject of pending legal proceedings thereby rendering the issues sub judice. However, I came across an interesting opinion of the Department of Justice many years ago stating that when a person turns over his money to a bank officer, he has no control or capacity to know what happens to his money afterwards. Whether or not the funds were booked and recorded is beyond his capability. It is reasonable for him to assume that there was due receipt by the bank, especially since he received documents signed by an officer of the bank. The gist of the opinion is that such person is entitled to legal protection.
The resolution of the above issues centers on the doctrine of apparent authority. This doctrine provides that a corporation will be estopped from denying its officer’s authority if it knowingly permits such officer to act within the scope of apparent authority and it holds him out to the public as possessing the power to do those acts. Although an officer or agent acts without, or in excess of, his actual authority, if he acts within the scope of an apparent authority with which the corporation has clothed him, by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority (TERP Construction Corporation vs. Banco Filipino Savings and Mortgage Bank, G.R. No. 221771, September 18, 2019).
I brought out the above cases to deliver the reality that these are risks to which banks are subject to and the magnitude thereof could also be uncertain. To the extent that banks can prevent or avoid such risks would redound also to the benefit of their clients by way of consumer protection and increased goodwill. Banks can therefore strengthen their anti-fraud measures like unannounced audits, forced leaves and rotation, strict dual controls and whistle-blowing. These preventive measures are definitely much better than fighting claims arising from fraud with no predictable results.
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The above comments are the personal views of the writer. His email address is dezunigajuan@gmail.com