LITONJUA, JR. V.

ETERNIT CORPORATION, 490 SCRA 204 (2006)

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners, vs. ETERNIT

CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and
FAR EAST BANK & TRUST COMPANY, Respondents.

CALLEJO, SR., J.:

FACTS:
Glanville- President and General Manager of EC
Delsaux- Regional Director for Asia of ESAC
Adams- member of EC’s Board of Directors
Marquez- engaged by Adams as realtor/broker

Gist of arguments of the Plaintiff (Litonjua):

On appeal, Litonjuas argued that (1) the lower court erred in concluding that the real estate broker in
the instant case needed a written authority from appellee corporation and/or that said broker had no
such written authority; and (2) the lower court committed grave error of law in holding that appellee
corporation is not legally bound for specific performance and/or damages in the absence of an enabling
resolution of the board of directors." They averred that Marquez acted merely as a broker or go-
between and not as agent of the corporation; hence, it was not necessary for him to be empowered as
such by any written authority. They further claimed that an agency by estoppel was created when the
corporation clothed Marquez with apparent authority to negotiate for the sale of the properties.
However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected contract of
sale, which the corporation was obliged to consummate.

Gist of arguments of the Defendant (Corp):

EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were
Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale
involved substantially all of the corporation’s assets, it would necessarily need the authority from the
stockholders.

FACTS:
The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since
1950, it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing
operations were conducted on eight parcels of land with a total area of 47,233 square meters. The
properties, located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title
under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of
stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and
registered under the laws of Belgium.

Jack Glanville, an Australian citizen, was the General Manager and President of EC, while Claude
Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the Philippines and
wanted to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams,
a member of EC’s Board of Directors, to dispose of the eight parcels of land. Adams engaged the services
of realtor/broker Lauro G. Marquez so that the properties could be offered for sale to prospective
buyers. Glanville later showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua,
Jr. of the Litonjua & Company, Inc. In a Letter, Marquez declared that he was authorized to sell the
properties for P27,000,000.00 and that the terms of the sale were subject to negotiation.

The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville of
the Litonjua siblings’ offer and relayed the same to Delsaux in Belgium, but the latter did not respond.
On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to
the offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville
stating that, based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and
P2,500,000.00 to cover all existing obligations prior to final liquidation."

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted
the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26,
1987, confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated
that the Litonjua siblings would confirm full payment within 90 days after execution and preparation of
all documents of sale, together with the necessary governmental clearances.

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.

Meanwhile, with the assumption of Corazon C. Aquino as President of the Philippines, the political
situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising
that the sale would no longer proceed. Glanville followed it up with a Letter confirming that he had been
instructed by his principal to inform Marquez that "the decision has been taken at a Board Meeting not
to sell the properties on which Eternit Corporation is situated."

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for
damages they had suffered on account of the aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton
Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig.

RTC ruled in favor of Eternit Corporation and dismissed the complaint on the ground that there is no
valid and binding sale between the plaintiffs and said defendants. Since the authority of the
agents/realtors was not in writing, the sale is void and not merely unenforceable, and as such, could
not have been ratified by the principal. In any event, such ratification cannot be given any retroactive
effect.

CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article
1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority
from EC’s board of directors to bind such corporation to the sale of its properties. Delsaux, who was
merely the representative of ESAC (the majority stockholder of EC) had no authority to bind the latter.
The CA pointed out that Delsaux was not even a member of the board of directors of EC. Moreover, the
Litonjuas failed to prove that an agency by estoppel had been created between the parties.

ISSUE:
1. Whether CA erred in holding that there was no perfected contract of sale. - NO
2. Whether CA committed grave error of law in holding that Marquez needed a written authority
from respondent Eternit before the sale can be perfected. - NO
3. Whether CA erred in not holding that Glanville and Delsaux have the necessary authority to sell
the subject properties, or at the very least, were knowingly permitted by respondent Eternit to
do acts within the scope of an apparent authority, and thus held them out to the public as
possessing power to sell the said properties. - NO

RULING:
It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that
it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to
prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that their
counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be stressed
that when specific performance is sought of a contract made with an agent, the agency must be
established by clear, certain and specific proof.

Petitioners failed to adduce in evidence any resolution of the Board of Directors of respondent EC
empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its
behalf, the eight parcels of land owned by respondent EC including the improvements thereon. While it
is true that Petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party
to the transaction between them; hence, EC was not bound by such acceptance.

While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were
members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly
authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed
to bind EC to any agreement regarding the sale of the subject properties. Such board resolution is not
a mere formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC
owned 90% of the shares of stocks of respondent EC; however, the mere fact that a corporation owns
a majority of the shares of stocks of another, or even all of such shares of stocks, taken alone, will not
justify their being treated as one corporation.

The settled rule is that, persons dealing with an assumed agent are bound at their peril, and if they
would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to prove it. 46 In this case,
the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from
respondent EC.
A corporation is a juridical person separate and distinct from its members or stockholders and is not
affected by the personal rights, obligations and transactions of the latter. 25 It may act only through its
board of directors or, when authorized either by its by-laws or by its board resolution, through its
officers or agents in the normal course of business. The general principles of agency govern the relation
between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or
relevant provisions of law.

The property of a corporation, however, is not the property of the stockholders or members, and as
such, may not be sold without express authority from the board of directors. 27 Physical acts, like the
offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective
buyers of such properties and the execution of the deed of sale covering such property, can be
performed by the corporation only by officers or agents duly authorized for the purpose by corporate
by-laws or by specific acts of the board of directors. Absent such valid delegation/authorization, the
rule is that the declarations of an individual director relating to the affairs of the corporation, but not
in the course of, or connected with, the performance of authorized duties of such director, are not
binding on the corporation.
While a corporation may appoint agents to negotiate for the sale of its real properties, the final say
will have to be with the board of directors through its officers and agents as authorized by a board
resolution or by its by-laws. An unauthorized act of an officer of the corporation is not binding on it
unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real
property of a corporation by a person purporting to be an agent thereof but without written authority
from the corporation is null and void. The declarations of the agent alone are generally insufficient to
establish the fact or extent of his/her authority. Consent of both principal and agent is necessary to
create an agency. The principal must intend that the agent shall act for him; the agent must intend to
accept the authority and act on it, and the intention of the parties must find expression either in words
or conduct between them.

Agency may be oral unless the law requires a specific form. 35 However, to create or convey real rights
over immovable property, a special power of attorney is necessary. 36 Thus, when a sale of a piece of
land or any portion thereof is through an agent, the authority of the latter shall be in writing,
otherwise, the sale shall be void.

For an agency by estoppel to exist, the following must be established: (1) the principal manifested a
representation of the agent’s authority or knowlingly allowed the agent to assume such authority; (2)
the third person, in good faith, relied upon such representation; (3) relying upon such representation,
such third person has changed his position to his detriment.48 An agency by estoppel, which is similar
to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in
turn, needs proof that the representations predated the action taken in reliance. 49 Such proof is lacking
in this case. In their communications to the petitioners, Glanville and Delsaux positively and
unequivocally declared that they were acting for and in behalf of respondent ESAC.