Litonjua v. Eternit Corporation
REITERATIONFacts
The Antecedents: Eternit Corporation (EC), a Philippine entity engaged in manufacturing, owned eight parcels of land in Mandaluyong City. Ninety percent of EC's shares were owned by Eteroutremer S.A. Corporation (ESAC), a Belgian corporation. Due to concerns about the political situation in the Philippines, ESAC, through its Committee for Asia, decided to cease operations and dispose of the properties. Michael Adams, a member of EC's Board of Directors, was tasked with selling the lands and engaged the services of realtor Lauro G. Marquez. Marquez subsequently offered the properties to Eduardo B. Litonjua, Jr. and Antonio K. Litonjua (the Litonjuas). Procedural History: The Litonjuas offered to purchase the properties for P20,000,000.00 cash. After a series of communications between EC's General Manager Jack Glanville and ESAC's Regional Director Claude Frederick Delsaux, a counter-offer was made: US$1,000,000.00 plus P2,500,000.00 to cover existing obligations. The Litonjuas accepted this counter-offer, and Marquez confirmed the acceptance. However, EC later decided not to proceed with the sale, citing an improved political situation and a decision to continue operations. The Litonjuas then filed a complaint for specific performance and damages against EC, ESAC, and Far East Bank & Trust Company. The Regional Trial Court (RTC) dismissed the complaint, finding no valid and binding sale due to lack of written authority for the agents. The Court of Appeals (CA) affirmed the RTC's decision, holding that the real estate broker needed special written authority and that Delsaux, as a representative of ESAC, lacked authority to bind EC. The CA also found no agency by estoppel. The Litonjuas' motion for reconsideration was denied. The Petition: The petitioners, the Litonjuas, seek review of the CA's decision through a Petition for Review on Certiorari under Rule 45 of the Rules of Court. They argue that the CA erred in holding that there was no perfected contract of sale, that Marquez needed written authority from EC, and that Glanville and Delsaux lacked the authority to sell or were not clothed with apparent authority. Petitioners contend that a perfected contract of sale existed, that Marquez acted as a broker and not an agent requiring written authority, and that Glanville and Delsaux possessed apparent authority to sell the properties, evidenced by their actions and communications, including the counter-offer and the subsequent rejection of their own offer. They assert that EC is estopped from denying the agency relationship and that the sale involved less than all corporate assets, thus not requiring stockholder approval.
Issue(s)
Whether a perfected contract of sale existed between the petitioners and respondent Eternit Corporation. Whether real estate broker Lauro G. Marquez needed written authority from respondent Eternit Corporation's Board of Directors to bind it to the sale. Whether Jack Glanville and Claude Frederick Delsaux possessed the necessary authority, or at least apparent authority, to sell the subject properties on behalf of respondent Eternit Corporation. Whether respondent Eternit Corporation is estopped from denying the agency relationship with Glanville and Delsaux.
Ruling
The petition is denied for lack of merit. The Court affirmed the decision of the Court of Appeals, upholding the dismissal of the complaint for specific performance and damages. The Court found no perfected contract of sale and no valid agency to bind Eternit Corporation to the transaction.
Ratio Decidendi
On the existence of a perfected contract of sale: The Court held that no perfected contract of sale existed. While there were negotiations and a counter-offer, the ultimate decision to sell corporate property, especially one involving substantially all its assets, requires formal authorization from the Board of Directors. The communications between Glanville, Delsaux, and Marquez, and the subsequent acceptance by the Litonjua siblings, did not constitute a binding agreement because the individuals involved lacked the proper authority to bind Eternit Corporation. The Court emphasized that the "Belgian/Swiss decision" cited by Delsaux did not emanate from the Board of Directors of Eternit Corporation, which is the entity empowered to dispose of its assets. Therefore, the acceptance of the counter-offer by the petitioners did not create a perfected contract binding on Eternit Corporation. The Court reiterated that corporate powers are vested in the Board of Directors. The sale of corporate property, especially substantially all of its assets, requires the express authority of the Board of Directors, as provided under Section 36 of the Corporation Code. The Court emphasized that a corporation is a distinct legal entity, separate from its stockholders. The mere ownership of a majority of shares by one corporation in another does not merge their identities or grant the parent company's officers the power to dispose of the subsidiary's assets without proper corporate authorization from the subsidiary's board. Thus, the transaction, even if agreed upon by ESAC, did not bind Eternit Corporation without its Board's approval. On the necessity of written authority for the real estate broker: The Court affirmed the CA's ruling that Lauro G. Marquez, as a real estate broker, was a special agent requiring special authority from the Board of Directors of Eternit Corporation to bind it to the sale of its properties, pursuant to Article 1874 of the Civil Code and Section 23 of the Corporation Code. The Court clarified that a broker's authority is generally limited to finding a purchaser and does not include the power to execute a contract of sale or bind the principal to the transaction. Petitioners failed to present any written authority granted by the Board of Directors to Marquez. Consequently, any purported agreement entered into by Marquez on behalf of Eternit Corporation was void. On the authority of Glanville and Delsaux: The Court found that Glanville and Delsaux lacked the authority to sell the subject properties on behalf of Eternit Corporation. While Glanville was the President and General Manager, and Delsaux was a director of ESAC (the majority stockholder), their actions were primarily on behalf of ESAC, not Eternit Corporation. The Court stressed that corporate powers are exercised by the Board of Directors, and any act to sell corporate property requires a board resolution. The fact that ESAC owned 90% of EC's shares did not automatically grant its officers the power to dispose of EC's assets. The communications and negotiations initiated by Glanville and Delsaux were not supported by any board resolution from Eternit Corporation authorizing them to sell the properties. Therefore, they could not bind the corporation to the sale. On agency by estoppel and apparent authority: The Court rejected the petitioners' claim of agency by estoppel or apparent authority. For such doctrines to apply, there must be a manifestation of authority by the principal and good faith reliance by the third party. The Court noted that in their communications, Glanville and Delsaux explicitly stated they were acting for ESAC. The petitioners failed to prove that Eternit Corporation knowingly allowed Glanville or Delsaux to assume such authority or that they relied in good faith on any representation of authority from Eternit Corporation itself. The burden of proof was on the petitioners to establish the agency and the extent of authority, which they failed to do. The Court reiterated that persons dealing with an assumed agent are bound at their peril to ascertain the agent's authority.
Main Doctrine
A corporation can only act through its board of directors or authorized officers/agents. An unauthorized act of an officer or agent is not binding on the corporation unless ratified. For the sale of corporate real property, a written authority from the board of directors is generally required, and a real estate broker needs special authority to bind the corporation to a sale.