Litonjua, Jr. v. Eternit Corp.

d. Elements of a contract of agency

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Case DigestWeek 1 - Nature, Objective & Kinds of Agency

Litonjua, Jr. v. Eternit Corp.

G.R. No. 144805 · June 8, 2006 · Supreme Court

d. Elements of a contract of agency

Petitioner: Eduardo V. Litonjua, Jr. and Antonio K. LitonjuaRespondent: Eternit Corporation, Eteroutremer S.A. Corporation, and Far East Bank & Trust Company

Gist

Brothers negotiating to buy a corporation's Metro Manila land through the Belgian parent's officers thought they had a deal. The Court held there was none: no board resolution or written authority ever empowered anyone to sell the land, so no contract was perfected and Article 1874 rendered any such sale void.

Core Doctrine

A corporation acts only through its board of directors and duly authorized agents. When the sale of land is made through an agent, the agent's authority must be in writing, otherwise the sale is void (Art. 1874) — and a special power of attorney is required (Art. 1878). Neither the agent's own representations nor the third person's belief can supply the missing written authority.

Facts

Eternit Corporation (EC), a Philippine corporation, owned eight parcels of land in Mandaluyong on which its manufacturing operations stood. Ninety percent of its shares were held by Eteroutremer S.A. Corporation (ESAC), a Belgian corporation. (The lots ran to 47,233 square metres and were titled in the name of Far East Bank & Trust Company as trustee; EC had made roofing materials and pipe products there since 1950.)
In 1986, amid the political turmoil in the Philippines, ESAC's management in Belgium decided to dispose of the Philippine properties. (ESAC's Committee for Asia instructed Michael Adams, a member of EC's board of directors, to dispose of the eight lots, and it was Adams who engaged the broker.)
Jack Glanville, EC's General Manager (and President), and Claude Frederick Delsaux, ESAC's Regional Director for Asia, took part in the effort. (Both held office in Belgium; Delsaux was not a member of EC's board at all.)
Through a realtor, Marquez, the property was offered to petitioners Eduardo and Antonio Litonjua, who made an offer of ₱20 million, later raised to ₱20 million cash. (Lauro G. Marquez wrote Eduardo Litonjua, Jr. on 12 September 1986 declaring that he was authorized to sell, at an asking price of ₱27,000,000.00. Note: the full digest records a single offer of ₱20,000,000.00 cash, not a raised one.)
Delsaux sent a telex indicating that ESAC's board would accept US$1,000,000 plus ₱2,500,000 to cover taxes and fees, and the Litonjuas responded accepting. (Telexed 12 February 1987 as the "Belgian/Swiss decision"; the acceptance was confirmed in writing on 26 February 1987, and the Litonjuas deposited the US$1,000,000.00 with Security Bank & Trust Company, Ermita Branch, and drafted an escrow agreement.)
The political situation then stabilized, and ESAC decided not to sell. (Glanville wrote Marquez on 7 May 1987 that the board had decided not to sell, and Delsaux confirmed officially on 22 May 1987 that with the situation settled after Marcos' departure the group would not stop its Manila operations after all.)
The Litonjuas sued for specific performance and damages, insisting that a binding contract of sale had been perfected through EC's and ESAC's authorized agents. (Civil Case No. 54887 before the RTC of Pasig City, against EC, ESAC and Far East Bank & Trust Company; EC and ESAC answered that neither the board nor the stockholders ever approved a sale or authorised Marquez.)
Regional Trial Court — complaint dismissed. The Regional Trial Court dismissed the complaint.
Court of Appeals — affirmed. The Court of Appeals affirmed, holding that Glanville, Delsaux and Marquez had no written authority from EC's board to sell the properties.

Issue

Whether Glanville, Delsaux, and Marquez were duly authorized agents of Eternit Corporation empowered to sell its land, such that a contract of sale was perfected.

Ruling

No. The Supreme Court affirmed the dismissal. No written authority to sell was ever shown; no contract of sale was perfected, and any sale made under such circumstances would in any event be void.

Ratio

1. A Corporation Acts Through Its Board

A corporation is a juridical person with a personality separate from its stockholders and officers.
It can act only through its board of directors, or through officers and agents the board authorizes.
The general principles of agency govern the relation between a corporation and its officers or agents, subject to the Corporation Code and the by-laws.
Absent a board resolution, no officer — however senior — can bind the corporation to the sale of its real property.
That ESAC owned 90% of EC did not merge the two: they remained distinct juridical persons.

2. Article 1874: The Authority Must Be in Writing

Article 1874 is categorical — when a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.
Article 1878 (5) reinforces this by requiring a special power of attorney to enter into any contract by which the ownership of an immovable is transmitted or acquired for a valuable consideration.
The petitioners produced no board resolution, no secretary's certificate, and no written power of attorney.
The telexes and correspondence exchanged showed persons relaying the principal's position, not persons empowered to conclude the sale.

3. The Agent's Representations Cannot Establish His Own Authority

The Court reiterated that agency must be proved by the party alleging it, and that the declarations of the agent alone are insufficient to establish the fact or extent of his authority.
Persons dealing with a supposed agent are put on inquiry: they must ascertain not merely the fact of the agency but its nature and extent, and they are chargeable with knowledge of any limitations a reasonable inquiry would have disclosed.

4. No Meeting of Minds, Hence No Perfected Sale

Even setting the writing requirement aside, the exchanges revealed continuing negotiation over price and terms rather than an absolute acceptance of a definite offer.
A contract of sale is perfected only upon a meeting of minds on the object and the price. There was none.

Doctrine

Corporate authority. The power to dispose of corporate real property resides in the board of directors; officers bind the corporation only when the board has authorized them, and the authority must be shown.
Article 1874 makes the sale void, not merely unenforceable. For sales of land through an agent, written authority is an element of validity, not a mere evidentiary requirement.
Duty of inquiry. A third person dealing with an agent must ascertain the existence and scope of the authority; he cannot rely on the agent's own assertions, and he bears the loss if the authority proves wanting.

Full Digest — Recitation Format

Full-length digest in the format required by the course digest prompt.

Classification: REJECTED · Ponente: Callejo, Sr., J. (First Division) · G.R. No. 144805, 8 June 2006

TOPIC/SUBTOPIC FOCUS: Week 1 — Nature, Objective, & Kinds of Agency: (d) Elements of a contract of agency. (This case is also assigned in Week 2(b) and (c) on perfection of agency as it affects third persons and the written-authority requirement for the sale of land under Article 1874.)

TOPIC DOCTRINE CAPSULE. Under Article 1868, agency requires the concurrence of consent of both principal and agent: "[t]he 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." Where the alleged principal is a corporation, the consent must emanate from the entity authorized by law to express corporate will — the board of directors under Section 23 of the Corporation Code (Batas Pambansa Blg. 68). Agency may be express or implied (Article 1869, Article 1870) and may generally be oral (Article 1869, par. 2), but to create or convey real rights over immovable property a special power of attorney is necessary (Article 1878(12)), and where a sale of land is through an agent the agent's authority must be in writing, otherwise the sale is void (Article 1874). Agency by estoppel requires proof of (1) the principal's manifestation or knowing acquiescence in the agent's assumption of authority, (2) the third person's good-faith reliance thereon, and (3) a change of position to his detriment.

I. Gist and Central Doctrine

This case is REJECTED as to the assigned Topic/Subtopic: the Court holds that no contract of agency arose between Eternit Corporation (EC) and the persons who negotiated the sale of its eight parcels of land, because the consent of the principal — which for a corporation must be expressed through a board resolution — was never given. The controversy arose from protracted 1986–1987 negotiations, conducted through realtor/broker Lauro G. Marquez, Jack Glanville (EC's President and General Manager) and Claude Frederick Delsaux (Regional Director for Asia of EC's Belgian majority stockholder, Eteroutremer S.A. or ESAC), for the sale of EC's Mandaluyong properties to the Litonjua brothers; when ESAC's Committee for Asia decided not to proceed after the political situation improved, the Litonjuas sued for specific performance and damages. The Supreme Court DENIED the petition for lack of merit and affirmed the Court of Appeals, which had affirmed the Regional Trial Court's dismissal of the amended complaint. The single central doctrine dominant to the Topic/Subtopic is that "[c]onsent of both principal and agent is necessary to create an agency," and where the alleged principal is a corporation, a board resolution granting such authority "is not a mere formality but is a condition sine qua non to bind respondent EC." A subordinate but closely related holding — that any sale of corporate real property by a purported agent without written authority is null and void under Article 1874 — is treated below as a secondary issue, as is the rejection of agency by estoppel.

II. Chronological Narration of Material Facts and Procedural Events

Since 1950, Eternit Corporation (EC), a corporation organized under Philippine laws, had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were conducted on eight parcels of land in Mandaluyong City with a total area of 47,233 square meters, covered by Transfer Certificates of Title Nos. 451117 to 451122, 451124 and 451125 in the name of Far East Bank & Trust Company, as trustee. Ninety percent of EC's shares of stock were owned by Eteroutremer S.A. Corporation (ESAC), a Belgian corporation. Jack Glanville, an Australian citizen, was EC's General Manager and President; Claude Frederick Delsaux was ESAC's Regional Director for Asia. Both had their offices in Belgium.
In 1986, ESAC's management, concerned about the political situation in the Philippines, wanted to stop operations in the country. ESAC's Committee for Asia 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. Glanville later showed the properties to Marquez.
On 12 September 1986, Marquez wrote Eduardo B. Litonjua, Jr. of Litonjua & Company, Inc., declaring that he was authorized to sell the properties for ₱27,000,000.00 and that the terms of sale were subject to negotiation. Marquez showed the property to Eduardo Litonjua, Jr. and his brother Antonio K. Litonjua, who offered to buy for ₱20,000,000.00 cash. Marquez apprised Glanville of the offer and relayed it to Delsaux in Belgium, who did not respond.
On 28 October 1986, Glanville telexed Delsaux in Belgium inquiring on his position or counterproposal.
On 12 February 1987, Delsaux telexed 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. a copy, and Litonjua, Jr. accepted the counterproposal.
On 26 February 1987, Marquez conferred with Glanville and confirmed by letter that the Litonjua siblings had accepted the counter-proposal, adding that they 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 US$1,000,000.00 with Security Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.
On 22 April 1987, Glanville telexed Delsaux that he had met with the buyer, who gave him the impression that "he is prepared to press for a satisfactory conclusion to the sale," and emphasized the buyers' concern over bank commitment fees arising from the prolonged inaction.
With the assumption of Corazon C. Aquino as President, the political situation improved. Marquez received a telephone call from Glanville advising that the sale would no longer proceed.
On 7 May 1987, Glanville wrote Marquez confirming that he had been instructed by his principal to inform him that "the decision has been taken at a Board Meeting not to sell the properties on which Eternit Corporation is situated."
On 22 May 1987, Delsaux wrote Marquez confirming officially that "our Group has decided not to proceed with the sale of the land which was proposed to you," explaining that the Committee for Asia, considering the new political situation since the departure of Mr. Marcos and a certain stabilization in the Philippines, "has decided not to stop our operations in Manila."
The Litonjuas, through counsel, demanded payment of damages from EC, which rejected the demand.
The Litonjuas filed a complaint for specific performance and damages against EC, Far East Bank & Trust Company, and ESAC in the RTC of Pasig City (Civil Case No. 54887). An amended complaint substituted Eterton Multi-Resources Corporation for EC and impleaded Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio as additional defendants on account of their purchase of ESAC shares and their status as controlling stockholders of EC.
In their answer, EC and ESAC alleged that ESAC, not doing business in the Philippines, cannot be subject to Philippine jurisdiction; that the Board and stockholders of EC never approved any resolution to sell the properties nor authorized Marquez to sell them; and that Glanville's 28 October 1986 telex was his own personal making which did not bind EC.
On 1 June 1997, Glanville and Delsaux negotiated the sale of 90% of the shares of stock of EC to Ruperto Tan — a fact later invoked by petitioners as evidence of their authority.
On 3 July 1995, the trial court rendered judgment dismissing the amended complaint, its fallo reading: "WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants. The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action. The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also dismissed for lack of merit." The court held that since the authority of the agents/realtors was not in writing, the sale is void and not merely unenforceable, and could not have been ratified by the principal, nor could ratification be given retroactive effect; and that the supposed sale involved substantially all of EC's assets, which would result in the eventual total cessation of its operations.
The Litonjuas appealed to the Court of Appeals (CA-G.R. CV No. 51022), assigning as errors the rulings that the broker needed written authority and that the corporation was not bound absent an enabling board resolution. They averred that Marquez acted merely as a broker or go-between and not as agent, and that an agency by estoppel was created when the corporation clothed Marquez with apparent authority.
On 16 June 2000, the Court of Appeals affirmed the RTC, holding that Marquez, a real estate broker, was a special agent within the purview of Article 1874 who needed special authority from EC's board under Section 23 of the Corporation Code; that Delsaux, merely the representative of majority stockholder ESAC and not even a member of EC's board, had no authority to bind EC; and that no agency by estoppel was proven. The appellate court subsequently denied the motion for reconsideration.
On 8 June 2006, the Supreme Court rendered its Decision on the Petition for Review on Certiorari.

III. Arguments of the Parties

A. Petitioners (Eduardo V. Litonjua, Jr. and Antonio K. Litonjua)

Petitioners maintained that there was a perfected contract of sale of the parcels of land and improvements for "US$1,000,000.00 plus ₱2,500,000.00 to cover obligations prior to final liquidation," they having accepted EC's counter-offer before it was withdrawn, with acceptance made known through Marquez.

On the issue tied to the Topic/Subtopic, they asserted that no written authority from EC's Board was needed for Marquez to act validly, because as broker he "was not an ordinary agent" — his authority being "of a special and limited character in most respects," his only job being "to look for a buyer and to bring together the parties to the transaction," and he not being authorized to sell or to make a binding contract for EC; hence Article 1874 does not apply. They posited that Glanville, as President and General Manager of EC, and Delsaux, as Managing Director for ESAC Asia, had the necessary authority to sell or at least had been allowed by EC to hold themselves out to the public as having such power, and identified seven items of evidence: Marquez's testimony that Glanville chose him to sell the properties; the several months' duration of the negotiations; the counter-offer made by Eternit through Glanville; petitioners' good faith in accepting; the deposit of US$1,000,000.00 and the drafted escrow agreement; Glanville's telex asking when the parties "WILL IMPLEMENT ACTION TO BUY AND SELL"; and Exhibits "G" and "H" showing the rejection by Glanville and Delsaux. They insisted that it is incongruous to make and then reject a counter-offer unless authorized to do so, and pressed agency by estoppel and apparent authority. In subsequent pleadings they added that Glanville and Delsaux's negotiation on 1 June 1997 for the sale of 90% of EC's shares to Ruperto Tan evidenced their authority, and that given their positions and ESAC's 90% ownership, "a formal resolution of the Board of Directors would be a mere ceremonial formality."

B. Respondents (Eternit Corporation / Eterton Multi-Resources Corporation, Eteroutremer S.A., and Far East Bank & Trust Company)

Respondents averred that the issues raised are factual and hence proscribed by Rule 45. On the merits, they maintained that Glanville, Delsaux and Marquez had no authority from the stockholders of EC or its Board of Directors to offer the properties for sale to petitioners or to anyone; that ESAC, not doing business in the Philippines, is not subject to Philippine jurisdiction; that EC's Board and stockholders never approved any resolution to sell the properties nor authorized Marquez to do so; that Glanville's telex was his own personal making which did not bind EC; and that since the sale involved substantially all of the corporation's assets, authority from the stockholders would necessarily be required.

C. Common Ground / Stipulations

The decision expressly records petitioners' own admission, in their Memorandum, that "Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC" — an admission the Court used to show that Delsaux himself did not act on his own authority. The contents of the 12 February 1987 telex, the 7 May 1987 Glanville letter and the 22 May 1987 Delsaux letter are likewise undisputed and reproduced in the decision.

IV. Issues

A. Main Issue (Topic/Subtopic-Centered)

Whether or not a contract of agency was constituted between Eternit Corporation as principal and Marquez, Glanville or Delsaux as agents for the offer and sale of EC's eight parcels of land — that is, whether the element of the principal's consent under Article 1868 was established, given that no resolution of EC's Board of Directors empowering any of them was adduced in evidence, and given that Adams, Glanville and Delsaux acted on the authority of ESAC's Committee for Asia, Board of Directors, and Belgian/Swiss management rather than of EC.

B. Secondary Issues

Whether or not, assuming Marquez acted merely as a real estate broker, he could bind EC to a contract of sale without written authority under Article 1874.
Whether or not an agency by estoppel was created between EC and Glanville or Delsaux.
Whether or not EC ratified the transactions between petitioners and ESAC through Glanville, Delsaux and Marquez.
Whether or not there was a perfected contract of sale between petitioners and EC.

C. Ancillary / Incidental Issues

Whether or not the issues raised are factual and therefore beyond the ambit of a Rule 45 petition. The Court resolved this affirmatively as to their character, but proceeded to review the records and found that the case falls under none of the ten recognized exceptions permitting factual review.

V. Ruling / Disposition (Categorical, Issue-Mapped)

MAIN ISSUE — NO. No agency was constituted. 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." "[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."

SECONDARY ISSUE 1 — NO. "[A]n authority to find a purchaser of real property does not include an authority to sell." "A real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale." Moreover, "[a]ny 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."

SECONDARY ISSUE 2 — NO. "Equally barren of merit is petitioners' contention that respondent EC is estopped to deny the existence of a principal-agency relationship between it and Glanville or Delsaux." The required proof of reliance predating the action taken in reliance "is lacking in this case," and "Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC."

SECONDARY ISSUE 3 — NO. "Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification."

SECONDARY ISSUE 4 — NO. "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."

ANCILLARY ISSUE — FACTUAL, AND NO EXCEPTION APPLIES. "We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls under any of the foregoing exceptions."

DISPOSITIVE PORTION (VERBATIM):

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners. SO ORDERED.

VI. Ratio Decidendi and Doctrines (Topic-Focused)

A. Ratio Decidendi (Decisive Reasoning)

Step 1 — The Court characterizes the existence of agency as a question of fact. "Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In the absence of express written terms creating the relationship of an agency, the existence of an agency is a fact question. Whether an agency by estoppel was created or whether a person acted within the bounds of his apparent authority, and whether the principal is estopped to deny the apparent authority of its agent are, likewise, questions of fact."
Step 2 — The Court allocates the burden of proof and states the standard. "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."
And, critically: "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."
The Court adds the settled rule: "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."
Step 3 — The Court identifies the organ competent to give corporate consent, quoting Section 23 of the Corporation Code. The Court reproduces Section 23 of Batas Pambansa Bilang 68 in full: "The Board of Directors or Trustees. — Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees ...."
It also quotes Section 36(7) on the corporate power to deal with real property, and holds: "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."
It follows that "[p]hysical 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."

Renumbering note (added, not a substitution into the quoted text): the decision predates the Revised Corporation Code (R.A. No. 11232, effective 2019) and correctly cites the old Corporation Code (B.P. Blg. 68). Old Section 23 on the board of directors or trustees is now RCC Section 22; old Section 36 on corporate powers and capacity is now RCC Section 35; old Section 40 on the sale of all or substantially all corporate assets is now RCC Section 39. The decision's own citations are reproduced above exactly as written.

Step 4 — The Court states the element of mutual consent under Article 1868 and its modes of expression. "By the contract of agency, a person binds himself to render some service or to do something in representation on behalf of another, with the consent or authority of the latter. 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."
The Court then supplies the modes: "An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure to repudiate the agency knowing that another person is acting on his behalf without authority. Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances" (citing Article 1870).
And the formal rule: "Agency may be oral unless the law requires a specific form" (Article 1869, par. 2).
"However, to create or convey real rights over immovable property, a special power of attorney is necessary" (Article 1878(12)).
"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" (Article 1874).
Step 5 — Element-by-element application. Consent of the principal (EC) — NOT ESTABLISHED: no board resolution was adduced.
The evidence in fact shows that "Adams and Glanville acted on the authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia, the Board of Directors of respondent ESAC, and the Belgian/Swiss component of the management of respondent ESAC."
Delsaux's 12 February 1987 offer "emanated only from the 'Belgian/Swiss decision,' and not the entire management or Board of Directors of respondent ESAC."
Petitioners' own Memorandum admitted that Delsaux had to await confirmation from ESAC.
The corporate-veil argument — rejected: "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 Ruperto Tan transaction — rejected: "The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners' claim that he had likewise been authorized by respondent EC to sell the parcels of land."
Step 6 — Marquez's status is resolved, and it does not help petitioners. "It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the improvements thereon. However, we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties."
Even as broker, "an authority to find a purchaser of real property does not include an authority to sell."
Step 7 — Agency by estoppel is tested element by element and fails. "For an agency by estoppel to exist, the following must be established: (1) the principal manifested a representation of the agent's authority or knowingly 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. 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. 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."
Element (1) therefore fails as to EC, and elements (2) and (3) fail for want of proof of reliance on any representation by EC predating petitioners' actions.
Step 8 — Ratification fails. "The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification."
Step 9 — The Court restates the nature of the agency relation and the duty of the third person. "It bears stressing that in an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court" (citing Orient Air Services v. CA).
And: "A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority."

B. Doctrines / Rules / Principles Laid Down

Mutual consent as the constitutive element of agency (Article 1868) — the doctrinal takeaway for this Topic/Subtopic. Verbatim:

"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."
Corporate consent must come from the board; a board resolution is a condition sine qua non (Section 23, Corporation Code; now RCC Sec. 22). Verbatim:

"[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."

And: "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."

Nullity of a sale of corporate land by an agent without written authority (Article 1874; Article 1878(12)). Verbatim:

"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."
Standard and burden of proof. Verbatim: "when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof"; and "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."
Broker distinguished from agent authorized to sell. Verbatim:

"A real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell."
Elements of agency by estoppel. Verbatim:

"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 [sic] 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."

With the added evidentiary requirement: "requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance."

Separate juridical personality; majority stock ownership does not fuse two corporations. Verbatim: "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."
Extension of the principal's personality requires the principal's consent. Verbatim: "in an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court."

C. Distinctions / Limitations / Qualifications

This is a REJECTED case as to agency and must be recited as such. The Court did not find an agency and then hold it unexercised; it held that no agency with EC ever arose. Nothing in the decision supports the proposition that prolonged negotiations, a counter-offer, or the officers' senior positions can substitute for the principal's consent.
The Court expressly distinguished the two corporations. Whatever authority Glanville, Adams and Delsaux possessed ran from ESAC, not from EC. Petitioners' acceptance bound them to ESAC's counter-offer, but "respondent EC was not a party to the transaction between them; hence, EC was not bound by such acceptance." The case therefore turns on which principal, not merely on whether a principal existed.
The general rule that agency may be oral (Article 1869, par. 2) is expressly qualified: it holds "unless the law requires a specific form," and the sale of land through an agent requires written authority on pain of nullity (Article 1874), while creation or conveyance of real rights requires a special power of attorney (Article 1878(12)).
The characterization of Marquez cuts both ways and is expressly limited: he "acted not only as real estate broker for the petitioners but also as their agent" — that is, as petitioners' agent, not EC's. A broker's authority to find a purchaser does not include authority to sell.
Ratification is likewise limited by the corporate-organ rule: implied ratification cannot arise from the conduct of individual officers where "[t]he transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC."
The Court's factual-review discussion limits the case's precedential reach on the facts: it reviewed the record only to confirm that none of the ten recognized exceptions to the rule against factual review under Rule 45 applied.

D. Topic/Subtopic Integration (Mandatory)

The classification is REJECTED.
For subtopic (d), Litonjua is the corporate counterpart of [Bordador v.
Luz](/agency-trust-partnership/week-01/bordador-v-luz): both hold that the first element — consent or authority of the principal — is indispensable and unsubstitutable, but Litonjua adds the institutional dimension that where the principal is a juridical person, the law prescribes who may give that consent.
A corporation acts through its board (Corporation Code Sec. 23, now RCC Sec. 22)
Therefore the consent element of Article 1868 is satisfied, in the corporate setting, only by a board resolution or by by-law authority — "not a mere formality but ... a condition sine qua non."
The decision is also the cleanest Week 1 illustration that the four elements must be tested against the specific alleged principal: Glanville and Delsaux plainly consented to act, and plainly acted representatively, but for ESAC, so that as against EC the second and third elements are also unsatisfied.
Finally, the case anticipates the Week 2 material by supplying the codal chain — Article 1869 par. 2 (oral agency as the rule), Article 1878(12) (special power for real rights), and Article 1874 (writing required for sale of land, else void) — and by reducing the estoppel escape route to a three-element test that petitioners could not satisfy.

VII. Separate Opinions

None. The Decision was penned by Callejo, Sr., J., with Panganiban, C.J., Austria-Martinez and Chico-Nazario, JJ., concurring; Ynares-Santiago, J., on leave. No separate concurring or dissenting opinion appears in the record.

Cited Laws & Provisions

Every statute, rule, and issuance the decision turns on — the text as written, and the work it does in this case.

Civil Code

Article 1874, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 1 (Nature, Form and Kinds of Agency)

When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. (n)

Why it is cited here

The provision that decides the case, and one of the few in the agency title carrying an express sanction of nullity: "When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void."

Three features repay attention. The requirement attaches to the authority, not to the sale — the deed may be perfectly formal and still fail because the agent's mandate was oral. The consequence is void, not unenforceable, so it cannot be cured by ratification after the fact or by partial performance. And it covers "any interest therein," so it is not confined to outright transfers.

Set against Article 1869's rule that agency may be oral "unless the law requires a specific form," this is that exception. Everything the general article permits — implication from conduct, from silence, from failure to repudiate — is unavailable here.

Hence the holding. Neither the supposed agent's own representations nor the buyer's honest belief can supply written authority, because the statute does not ask what anyone believed.

Civil Code

Article 1878, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 1 (Nature, Form and Kinds of Agency)

Special powers of attorney are necessary in the following cases:

(1) To make such payments as are not usually considered as acts of administration;

(2) To effect novations which put an end to obligations already in existence at the time the agency was constituted;

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired;

(4) To waive any obligation gratuitously;

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

(6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration;

(8) To lease any real property to another person for more than one year;

(9) To bind the principal to render some service without compensation;

(10) To bind the principal in a contract of partnership;

(11) To obligate the principal as a guarantor or surety;

(12) To create or convey real rights over immovable property;

(13) To accept or repudiate an inheritance;

(14) To ratify or recognize obligations contracted before the agency;

(15) Any other act of strict dominion. (n)

Why it is cited here

The second requirement, working alongside the first and often confused with it.

Paragraph (5) requires a special power of attorney "[t]o enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration." So a general authority to manage or to negotiate is not enough, however broadly worded.

Keep the two articles distinct, because a problem can fail either test. Article 1874 is about the form of the authority — it must be written. Article 1878 is about its scope — it must specifically extend to the disposition of the immovable. A written but general power fails Article 1878; a specific but oral one fails Article 1874. A sale of land through an agent needs authority that is both written and special.

Civil Code

Article 1317, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title II (Contracts), Chapter 1 (General Provisions)

No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. (1259a)

Why it is cited here

The general rule behind both, and the reason a corporation's board matters here.

"No one may contract in the name of another without being authorized by the latter," and a contract so entered into "shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed."

A corporation acts only through its board and the agents the board authorises, so officers or brokers negotiating a sale of corporate land are within this article — and without board authority they are contracting in the name of another without being authorised.

Note the difference in consequence, which is the sharpest point of comparison in this case. Article 1317 makes an unauthorised contract unenforceable and ratifiable. Article 1874 makes a land sale through an agent without written authority void, and a void contract cannot be ratified. The special rule is the harsher one, and it is the one that governs.

Related notes: Article 1868 · Article 1869 · Article 1870 · Article 1874 · Article 1878 · Article 1317 · Corporation Code · Revised Corporation Code · Elements of Agency · Agency by Estoppel · Apparent Authority · Broker · Doctrine of Separate Juridical Personality · Bordador v. Luz · Rallos v. Felix Go Chan · AF Realty v. Dieselman · Orient Air Services v. CA

Source: Litonjua, Jr. v. Eternit Corporation, G.R. No. 144805, 8 June 2006

Cited laws & provisions

Article 1874, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 1 (Nature, Form and Kinds of Agency)

When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. (n)

Why it is cited here

Hence the holding. Neither the supposed agent's own representations nor the buyer's honest belief can supply written authority, because the statute does not ask what anyone believed.

Full entry below ↓

Article 1878, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 1 (Nature, Form and Kinds of Agency)

Special powers of attorney are necessary in the following cases:

(1) To make such payments as are not usually considered as acts of administration;

(2) To effect novations which put an end to obligations already in existence at the time the agency was constituted;

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired;

(4) To waive any obligation gratuitously;

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

(6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration;

(8) To lease any real property to another person for more than one year;

(9) To bind the principal to render some service without compensation;

(10) To bind the principal in a contract of partnership;

(11) To obligate the principal as a guarantor or surety;

(12) To create or convey real rights over immovable property;

(13) To accept or repudiate an inheritance;

(14) To ratify or recognize obligations contracted before the agency;

(15) Any other act of strict dominion. (n)

Why it is cited here

The second requirement, working alongside the first and often confused with it.

Full entry below ↓

Article 1317, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title II (Contracts), Chapter 1 (General Provisions)

No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

Why it is cited here

The general rule behind both, and the reason a corporation's board matters here.

Full entry below ↓

Facts

Eternit Corporation (EC), a Philippine corporation, owned eight parcels of land in Mandaluyong on which its manufacturing operations stood. Ninety percent of its shares were held by Eteroutremer S.A. Corporation (ESAC), a Belgian corporation. (The lots ran to 47,233 square metres and were titled in the name of Far East Bank & Trust Company as trustee; EC had made roofing materials and pipe products there since 1950.)
In 1986, amid the political turmoil in the Philippines, ESAC's management in Belgium decided to dispose of the Philippine properties. (ESAC's Committee for Asia instructed Michael Adams, a member of EC's board of directors, to dispose of the eight lots, and it was Adams who engaged the broker.)
Jack Glanville, EC's General Manager (and President), and Claude Frederick Delsaux, ESAC's Regional Director for Asia, took part in the effort. (Both held office in Belgium; Delsaux was not a member of EC's board at all.)
Through a realtor, Marquez, the property was offered to petitioners Eduardo and Antonio Litonjua, who made an offer of ₱20 million, later raised to ₱20 million cash. (Lauro G. Marquez wrote Eduardo Litonjua, Jr. on 12 September 1986 declaring that he was authorized to sell, at an asking price of ₱27,000,000.00. Note: the full digest records a single offer of ₱20,000,000.00 cash, not a raised one.)
Delsaux sent a telex indicating that ESAC's board would accept US$1,000,000 plus ₱2,500,000 to cover taxes and fees, and the Litonjuas responded accepting. (Telexed 12 February 1987 as the "Belgian/Swiss decision"; the acceptance was confirmed in writing on 26 February 1987, and the Litonjuas deposited the US$1,000,000.00 with Security Bank & Trust Company, Ermita Branch, and drafted an escrow agreement.)
The political situation then stabilized, and ESAC decided not to sell. (Glanville wrote Marquez on 7 May 1987 that the board had decided not to sell, and Delsaux confirmed officially on 22 May 1987 that with the situation settled after Marcos' departure the group would not stop its Manila operations after all.)
The Litonjuas sued for specific performance and damages, insisting that a binding contract of sale had been perfected through EC's and ESAC's authorized agents. (Civil Case No. 54887 before the RTC of Pasig City, against EC, ESAC and Far East Bank & Trust Company; EC and ESAC answered that neither the board nor the stockholders ever approved a sale or authorised Marquez.)
Regional Trial Court — complaint dismissed. The Regional Trial Court dismissed the complaint.
Court of Appeals — affirmed. The Court of Appeals affirmed, holding that Glanville, Delsaux and Marquez had no written authority from EC's board to sell the properties.

Issue

Whether Glanville, Delsaux, and Marquez were duly authorized agents of Eternit Corporation empowered to sell its land, such that a contract of sale was perfected.

Ruling

Ratio

1. A Corporation Acts Through Its Board

A corporation is a juridical person with a personality separate from its stockholders and officers.
It can act only through its board of directors, or through officers and agents the board authorizes.
The general principles of agency govern the relation between a corporation and its officers or agents, subject to the Corporation Code and the by-laws.
Absent a board resolution, no officer — however senior — can bind the corporation to the sale of its real property.
That ESAC owned 90% of EC did not merge the two: they remained distinct juridical persons.

2. Article 1874: The Authority Must Be in Writing

Article 1874 is categorical — when a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.
Article 1878 (5) reinforces this by requiring a special power of attorney to enter into any contract by which the ownership of an immovable is transmitted or acquired for a valuable consideration.
The petitioners produced no board resolution, no secretary's certificate, and no written power of attorney.
The telexes and correspondence exchanged showed persons relaying the principal's position, not persons empowered to conclude the sale.

3. The Agent's Representations Cannot Establish His Own Authority

The Court reiterated that agency must be proved by the party alleging it, and that the declarations of the agent alone are insufficient to establish the fact or extent of his authority.
Persons dealing with a supposed agent are put on inquiry: they must ascertain not merely the fact of the agency but its nature and extent, and they are chargeable with knowledge of any limitations a reasonable inquiry would have disclosed.

4. No Meeting of Minds, Hence No Perfected Sale

Even setting the writing requirement aside, the exchanges revealed continuing negotiation over price and terms rather than an absolute acceptance of a definite offer.
A contract of sale is perfected only upon a meeting of minds on the object and the price. There was none.

Doctrine

Corporate authority. The power to dispose of corporate real property resides in the board of directors; officers bind the corporation only when the board has authorized them, and the authority must be shown.
Article 1874 makes the sale void, not merely unenforceable. For sales of land through an agent, written authority is an element of validity, not a mere evidentiary requirement.
Duty of inquiry. A third person dealing with an agent must ascertain the existence and scope of the authority; he cannot rely on the agent's own assertions, and he bears the loss if the authority proves wanting.

Full Digest — Recitation Format

Full-length digest in the format required by the course digest prompt.

Classification: REJECTED · Ponente: Callejo, Sr., J. (First Division) · G.R. No. 144805, 8 June 2006

I. Gist and Central Doctrine

II. Chronological Narration of Material Facts and Procedural Events

Since 1950, Eternit Corporation (EC), a corporation organized under Philippine laws, had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were conducted on eight parcels of land in Mandaluyong City with a total area of 47,233 square meters, covered by Transfer Certificates of Title Nos. 451117 to 451122, 451124 and 451125 in the name of Far East Bank & Trust Company, as trustee. Ninety percent of EC's shares of stock were owned by Eteroutremer S.A. Corporation (ESAC), a Belgian corporation. Jack Glanville, an Australian citizen, was EC's General Manager and President; Claude Frederick Delsaux was ESAC's Regional Director for Asia. Both had their offices in Belgium.
In 1986, ESAC's management, concerned about the political situation in the Philippines, wanted to stop operations in the country. ESAC's Committee for Asia 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. Glanville later showed the properties to Marquez.
On 12 September 1986, Marquez wrote Eduardo B. Litonjua, Jr. of Litonjua & Company, Inc., declaring that he was authorized to sell the properties for ₱27,000,000.00 and that the terms of sale were subject to negotiation. Marquez showed the property to Eduardo Litonjua, Jr. and his brother Antonio K. Litonjua, who offered to buy for ₱20,000,000.00 cash. Marquez apprised Glanville of the offer and relayed it to Delsaux in Belgium, who did not respond.
On 28 October 1986, Glanville telexed Delsaux in Belgium inquiring on his position or counterproposal.
On 12 February 1987, Delsaux telexed 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. a copy, and Litonjua, Jr. accepted the counterproposal.
On 26 February 1987, Marquez conferred with Glanville and confirmed by letter that the Litonjua siblings had accepted the counter-proposal, adding that they 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 US$1,000,000.00 with Security Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.
On 22 April 1987, Glanville telexed Delsaux that he had met with the buyer, who gave him the impression that "he is prepared to press for a satisfactory conclusion to the sale," and emphasized the buyers' concern over bank commitment fees arising from the prolonged inaction.
With the assumption of Corazon C. Aquino as President, the political situation improved. Marquez received a telephone call from Glanville advising that the sale would no longer proceed.
On 7 May 1987, Glanville wrote Marquez confirming that he had been instructed by his principal to inform him that "the decision has been taken at a Board Meeting not to sell the properties on which Eternit Corporation is situated."
On 22 May 1987, Delsaux wrote Marquez confirming officially that "our Group has decided not to proceed with the sale of the land which was proposed to you," explaining that the Committee for Asia, considering the new political situation since the departure of Mr. Marcos and a certain stabilization in the Philippines, "has decided not to stop our operations in Manila."
The Litonjuas, through counsel, demanded payment of damages from EC, which rejected the demand.
The Litonjuas filed a complaint for specific performance and damages against EC, Far East Bank & Trust Company, and ESAC in the RTC of Pasig City (Civil Case No. 54887). An amended complaint substituted Eterton Multi-Resources Corporation for EC and impleaded Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio as additional defendants on account of their purchase of ESAC shares and their status as controlling stockholders of EC.
In their answer, EC and ESAC alleged that ESAC, not doing business in the Philippines, cannot be subject to Philippine jurisdiction; that the Board and stockholders of EC never approved any resolution to sell the properties nor authorized Marquez to sell them; and that Glanville's 28 October 1986 telex was his own personal making which did not bind EC.
On 1 June 1997, Glanville and Delsaux negotiated the sale of 90% of the shares of stock of EC to Ruperto Tan — a fact later invoked by petitioners as evidence of their authority.
On 3 July 1995, the trial court rendered judgment dismissing the amended complaint, its fallo reading: "WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants. The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action. The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also dismissed for lack of merit." The court held that since the authority of the agents/realtors was not in writing, the sale is void and not merely unenforceable, and could not have been ratified by the principal, nor could ratification be given retroactive effect; and that the supposed sale involved substantially all of EC's assets, which would result in the eventual total cessation of its operations.
The Litonjuas appealed to the Court of Appeals (CA-G.R. CV No. 51022), assigning as errors the rulings that the broker needed written authority and that the corporation was not bound absent an enabling board resolution. They averred that Marquez acted merely as a broker or go-between and not as agent, and that an agency by estoppel was created when the corporation clothed Marquez with apparent authority.
On 16 June 2000, the Court of Appeals affirmed the RTC, holding that Marquez, a real estate broker, was a special agent within the purview of Article 1874 who needed special authority from EC's board under Section 23 of the Corporation Code; that Delsaux, merely the representative of majority stockholder ESAC and not even a member of EC's board, had no authority to bind EC; and that no agency by estoppel was proven. The appellate court subsequently denied the motion for reconsideration.
On 8 June 2006, the Supreme Court rendered its Decision on the Petition for Review on Certiorari.

III. Arguments of the Parties

A. Petitioners (Eduardo V. Litonjua, Jr. and Antonio K. Litonjua)

B. Respondents (Eternit Corporation / Eterton Multi-Resources Corporation, Eteroutremer S.A., and Far East Bank & Trust Company)

C. Common Ground / Stipulations

IV. Issues

A. Main Issue (Topic/Subtopic-Centered)

B. Secondary Issues

Whether or not, assuming Marquez acted merely as a real estate broker, he could bind EC to a contract of sale without written authority under Article 1874.
Whether or not an agency by estoppel was created between EC and Glanville or Delsaux.
Whether or not EC ratified the transactions between petitioners and ESAC through Glanville, Delsaux and Marquez.
Whether or not there was a perfected contract of sale between petitioners and EC.

C. Ancillary / Incidental Issues

V. Ruling / Disposition (Categorical, Issue-Mapped)

DISPOSITIVE PORTION (VERBATIM):

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners. SO ORDERED.

VI. Ratio Decidendi and Doctrines (Topic-Focused)

A. Ratio Decidendi (Decisive Reasoning)

Step 1 — The Court characterizes the existence of agency as a question of fact. "Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In the absence of express written terms creating the relationship of an agency, the existence of an agency is a fact question. Whether an agency by estoppel was created or whether a person acted within the bounds of his apparent authority, and whether the principal is estopped to deny the apparent authority of its agent are, likewise, questions of fact."
Step 2 — The Court allocates the burden of proof and states the standard. "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."
And, critically: "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."
The Court adds the settled rule: "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."
Step 3 — The Court identifies the organ competent to give corporate consent, quoting Section 23 of the Corporation Code. The Court reproduces Section 23 of Batas Pambansa Bilang 68 in full: "The Board of Directors or Trustees. — Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees ...."
It also quotes Section 36(7) on the corporate power to deal with real property, and holds: "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."
It follows that "[p]hysical 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."

Renumbering note (added, not a substitution into the quoted text): the decision predates the Revised Corporation Code (R.A. No. 11232, effective 2019) and correctly cites the old Corporation Code (B.P. Blg. 68). Old Section 23 on the board of directors or trustees is now RCC Section 22; old Section 36 on corporate powers and capacity is now RCC Section 35; old Section 40 on the sale of all or substantially all corporate assets is now RCC Section 39. The decision's own citations are reproduced above exactly as written.

Step 4 — The Court states the element of mutual consent under Article 1868 and its modes of expression. "By the contract of agency, a person binds himself to render some service or to do something in representation on behalf of another, with the consent or authority of the latter. 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."
The Court then supplies the modes: "An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure to repudiate the agency knowing that another person is acting on his behalf without authority. Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances" (citing Article 1870).
And the formal rule: "Agency may be oral unless the law requires a specific form" (Article 1869, par. 2).
"However, to create or convey real rights over immovable property, a special power of attorney is necessary" (Article 1878(12)).
"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" (Article 1874).
Step 5 — Element-by-element application. Consent of the principal (EC) — NOT ESTABLISHED: no board resolution was adduced.
The evidence in fact shows that "Adams and Glanville acted on the authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia, the Board of Directors of respondent ESAC, and the Belgian/Swiss component of the management of respondent ESAC."
Delsaux's 12 February 1987 offer "emanated only from the 'Belgian/Swiss decision,' and not the entire management or Board of Directors of respondent ESAC."
Petitioners' own Memorandum admitted that Delsaux had to await confirmation from ESAC.
The corporate-veil argument — rejected: "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 Ruperto Tan transaction — rejected: "The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners' claim that he had likewise been authorized by respondent EC to sell the parcels of land."
Step 6 — Marquez's status is resolved, and it does not help petitioners. "It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the improvements thereon. However, we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties."
Even as broker, "an authority to find a purchaser of real property does not include an authority to sell."
Step 7 — Agency by estoppel is tested element by element and fails. "For an agency by estoppel to exist, the following must be established: (1) the principal manifested a representation of the agent's authority or knowingly 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. 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. 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."
Element (1) therefore fails as to EC, and elements (2) and (3) fail for want of proof of reliance on any representation by EC predating petitioners' actions.
Step 8 — Ratification fails. "The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification."
Step 9 — The Court restates the nature of the agency relation and the duty of the third person. "It bears stressing that in an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court" (citing Orient Air Services v. CA).
And: "A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority."

B. Doctrines / Rules / Principles Laid Down

Mutual consent as the constitutive element of agency (Article 1868) — the doctrinal takeaway for this Topic/Subtopic. Verbatim:

"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."
Corporate consent must come from the board; a board resolution is a condition sine qua non (Section 23, Corporation Code; now RCC Sec. 22). Verbatim:

"[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."

And: "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."

Nullity of a sale of corporate land by an agent without written authority (Article 1874; Article 1878(12)). Verbatim:

"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."
Standard and burden of proof. Verbatim: "when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof"; and "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."
Broker distinguished from agent authorized to sell. Verbatim:

"A real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell."
Elements of agency by estoppel. Verbatim:

"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 [sic] 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."

With the added evidentiary requirement: "requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance."

Separate juridical personality; majority stock ownership does not fuse two corporations. Verbatim: "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."
Extension of the principal's personality requires the principal's consent. Verbatim: "in an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court."

C. Distinctions / Limitations / Qualifications

This is a REJECTED case as to agency and must be recited as such. The Court did not find an agency and then hold it unexercised; it held that no agency with EC ever arose. Nothing in the decision supports the proposition that prolonged negotiations, a counter-offer, or the officers' senior positions can substitute for the principal's consent.
The Court expressly distinguished the two corporations. Whatever authority Glanville, Adams and Delsaux possessed ran from ESAC, not from EC. Petitioners' acceptance bound them to ESAC's counter-offer, but "respondent EC was not a party to the transaction between them; hence, EC was not bound by such acceptance." The case therefore turns on which principal, not merely on whether a principal existed.
The general rule that agency may be oral (Article 1869, par. 2) is expressly qualified: it holds "unless the law requires a specific form," and the sale of land through an agent requires written authority on pain of nullity (Article 1874), while creation or conveyance of real rights requires a special power of attorney (Article 1878(12)).
The characterization of Marquez cuts both ways and is expressly limited: he "acted not only as real estate broker for the petitioners but also as their agent" — that is, as petitioners' agent, not EC's. A broker's authority to find a purchaser does not include authority to sell.
Ratification is likewise limited by the corporate-organ rule: implied ratification cannot arise from the conduct of individual officers where "[t]he transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC."
The Court's factual-review discussion limits the case's precedential reach on the facts: it reviewed the record only to confirm that none of the ten recognized exceptions to the rule against factual review under Rule 45 applied.

D. Topic/Subtopic Integration (Mandatory)

The classification is REJECTED.
For subtopic (d), Litonjua is the corporate counterpart of [Bordador v.
Luz](/agency-trust-partnership/week-01/bordador-v-luz): both hold that the first element — consent or authority of the principal — is indispensable and unsubstitutable, but Litonjua adds the institutional dimension that where the principal is a juridical person, the law prescribes who may give that consent.
A corporation acts through its board (Corporation Code Sec. 23, now RCC Sec. 22)
Therefore the consent element of Article 1868 is satisfied, in the corporate setting, only by a board resolution or by by-law authority — "not a mere formality but ... a condition sine qua non."
The decision is also the cleanest Week 1 illustration that the four elements must be tested against the specific alleged principal: Glanville and Delsaux plainly consented to act, and plainly acted representatively, but for ESAC, so that as against EC the second and third elements are also unsatisfied.
Finally, the case anticipates the Week 2 material by supplying the codal chain — Article 1869 par. 2 (oral agency as the rule), Article 1878(12) (special power for real rights), and Article 1874 (writing required for sale of land, else void) — and by reducing the estoppel escape route to a three-element test that petitioners could not satisfy.