This is the Week 2 re-angle of a case first assigned in Week 1. The Week 1 digest is anchored on Week 1(d) — the elements of agency, where the operative holding is that a corporate principal's consent must come from its board and that a board resolution is "a condition sine qua non." This page treats the separate sub-holding assigned for Week 2(b): the Court's separately captioned rejection of agency by estoppel. The facts are the same; the issue, ratio, and quoted lines are not.

Facts

• Eternit Corporation (EC) (the supposed principal) owned eight parcels of land in Mandaluyong City totalling 47,233 square meters. Ninety percent of its shares were held by the Belgian Eteroutremer S.A. (ESAC). (The lots were titled in the name of Far East Bank & Trust Company as trustee; EC had manufactured roofing materials and pipe products on them since 1950.)
• In 1986, with the Philippine political situation unsettled, the ESAC group considered winding down its Philippine operations. (ESAC's Committee for Asia instructed Michael Adams, a member of EC's board, to dispose of the eight lots, and it was Adams who engaged the broker.)
• Through broker Lauro G. Marquez (the supposed agent) — who wrote on 12 September 1986 declaring that he was authorized to sell — the property was offered to petitioners Eduardo and Antonio Litonjua (the third persons). (His asking price was ₱27,000,000.00, "subject to negotiation"; the Litonjua brothers offered ₱20,000,000.00 cash.)
• Negotiations ran for months among Marquez, EC's General Manager Jack Glanville, Adams — Michael Adams, a member of EC's board of directors — and ESAC's Regional Director for Asia Claude Frederick Delsaux.
• On 12 February 1987 a counter-offer of US$1,000,000.00 plus ₱2,500,000.00 issued; petitioners accepted on 26 February 1987 and deposited the dollar amount in escrow. (Delsaux telexed the figure as the "Belgian/Swiss decision," to cover "all existing obligations prior to final liquidation"; the deposit was with Security Bank & Trust Company, Ermita Branch, against a promise of full payment within 90 days of the documents being readied.)
• In May 1987, the political situation having stabilized, the group decided not to sell.
• Petitioners sued for specific performance and damages.
• Trial court — complaint dismissed. The trial court dismissed the complaint.
• Court of Appeals — affirmed. The Court of Appeals affirmed, finding no written authority from EC's board.
• Before the Supreme Court — the fallback argument. Petitioners' fallback was estoppel: EC, they argued, could not now deny a principal-agency relationship after months of negotiation, an accepted counter-offer, an escrow deposit, and no repudiation until May 1987.
• But in every one of their communications, Glanville and Delsaux had declared that they were acting for and in behalf of ESAC — not EC.

Issue

Ruling

Ratio

• "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."

• The manifestation must come from the principal sought to be bound.
• Here none ever did: "In their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC."
• The chain of authority ran from Adams and Glanville to Delsaux, and from Delsaux to ESAC's Committee for Asia and board — never to EC.
• The counter-offer itself "emanated only from the 'Belgian/Swiss decision.'"
• Nor could petitioners "feign ignorance of the absence of any regular and valid authority of respondent EC."

• "A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agent's statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence and prudence."
• 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."
• Petitioners failed to discharge that burden.

• "The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority."
• That disposed of Marquez's testimony and of his 12 September 1986 letter claiming authority to sell.
• Where specific performance is sought on a contract made with an agent, "the agency must be established by clear, certain and specific proof."

• "A real estate broker … 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."
• Marquez had in fact acted as petitioners' agent, accepting "for and in behalf of the petitioners."

• "The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification."

Doctrine

• Agency by estoppel — three elements plus a timing requirement. Manifestation by the principal; good-faith reliance; detrimental change of position — and the representation must have predated the reliance.
• The manifestation must issue from the principal sought to be bound§. An agent's declaration that he acts for another principal is the opposite of a representation by this one. Neither Art. 1873§ nor Art. 1911§ operates on the agent's say-so or on the third person's own assumption.
• Duty of inquiry; peril of the third person. One dealing with an assumed agent must ascertain both the fact and the extent of the authority, and bears the burden of proving them.
• Broker's authority. Authority to find a purchaser is not authority to sell or to bind the owner.
• Recite this as a REJECTED case. The Court did not hold that months of negotiation, an accepted counter-offer and a million-dollar escrow deposit create an apparent authority. It held the opposite.

Full Digest — Recitation Format

I. Gist and Central Doctrine

II. Chronological Narration of Material Facts and Procedural Events

1. Since 1950, the Eternit Corporation, a corporation duly organized and registered 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 with a total area of 47,233 square meters, located in Mandaluyong City, Metro Manila, covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 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, organized and registered under the laws of Belgium. Jack Glanville, an Australian citizen, was General Manager and President of EC; Claude Frederick Delsaux was Regional Director for Asia of ESAC. Both had their offices in Belgium.
2. 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.
3. By Letter dated 12 September 1986, Marquez offered the parcels of land and improvements to Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc., declaring "that he was authorized to sell the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation." Eduardo Litonjua, Jr. responded; Marquez showed the property to him and to his brother Antonio K. Litonjua; and the Litonjua siblings offered to buy the property for ₱20,000,000.00 cash.
4. Marquez apprised Glanville of the offer and relayed it to Delsaux in Belgium, who did not respond.
5. On 28 October 1986, Glanville telexed Delsaux in Belgium inquiring on his position or counter-proposal. Delsaux was unable to reply immediately because, as petitioners themselves admitted in their Memorandum, he had to wait for confirmation from ESAC.
6. On 12 February 1987, 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, and Litonjua, Jr. accepted the counterproposal.
7. By Letter dated 26 February 1987, Marquez conferred with Glanville and confirmed — as the Court later found, "for and in behalf of the petitioners" — that the Litonjua siblings had accepted Delsaux's counter-proposal, and 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 the Security Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.
8. By telex dated 22 April 1987, Glanville informed Delsaux that he had met with the buyer, who had given him the impression that "he is prepared to press for a satisfactory conclusion to the sale," and emphasized that the buyers were concerned about incurring bank commitment fees because of the prolonged inaction.
9. With the assumption of Corazon C. Aquino as President of the Republic, the political situation in the Philippines improved. Marquez received a telephone call from Glanville advising that the sale would no longer proceed.
10. By Letter dated 7 May 1987, Glanville confirmed 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."
11. By letter dated 22 May 1987 addressed to Marquez, Delsaux confirmed "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, "[c]onsidering [the] new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines," had "decided not to stop our operations in Manila," production having "started again last week." A copy was furnished to J. Glanville of Eternit Corp.
12. When apprised of this development, the Litonjuas, through counsel, wrote EC demanding payment for damages suffered on account of the aborted sale. EC rejected the demand.
13. 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, docketed as 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 being the controlling stockholders of EC.
14. In their answer, EC and ESAC alleged that ESAC, not doing business in the Philippines, could not be subject to the jurisdiction of Philippine courts; 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 telex of 28 October 1986 was his own personal making, not binding on EC.
15. On 3 July 1995, the trial court rendered judgment for defendants, dismissing the amended complaint "on the ground that there is no valid and binding sale between the plaintiffs and said defendants," dismissing the complaint against Far East Bank and Trust Company for lack of cause of action, and dismissing the counterclaim for lack of merit. It declared 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; that plaintiffs could not assume that defendants had agreed to sell without clear authorization through board and stockholder resolutions; and that the supposed sale involved substantially all the assets of EC.
16. The Litonjuas appealed to the Court of Appeals (CA-G.R. CV No. 51022), assigning error in the ruling that the broker needed written authority and in the holding that EC was not bound absent an enabling board resolution. They averred that Marquez acted merely as a broker or go-between and not as agent, so no written authority was needed, and that an agency by estoppel was created when the corporation clothed Marquez with apparent authority to negotiate for the sale.
17. On 16 June 2000, the CA affirmed. It ruled that Marquez, a real estate broker, was a special agent within the purview of Article 1874§; that under Section 23 of the Corporation Code he needed special authority from EC's board to bind it; that Delsaux, merely the representative of the majority stockholder ESAC and not even a member of EC's board, had no authority to bind EC; and that "the Litonjuas failed to prove that an agency by estoppel had been created between the parties." The motion for reconsideration was denied.
18. On 8 June 2006, the Supreme Court rendered its Decision on the petition for review on certiorari, denying it for lack of merit.

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

1. Whether or not the questions raised — the existence of an agency, its boundaries, and whether an agency by estoppel was created — are questions of fact beyond the office of a Rule 45 petition.
2. Whether or not a perfected contract of sale of the eight parcels of land arose from petitioners' acceptance of the 12 February 1987 counter-offer.
3. Whether or not Marquez, Glanville and Delsaux were duly authorized agents§ of EC — which turns on the necessity of a board resolution§ under Section 23 of Batas Pambansa Blg. 68 (the Corporation Code) and on the writing requirement of Article 1874§. (This is the Week 1(d) issue; see the Week 1 note.)
4. Whether or not a real estate broker's authority to find a purchaser includes authority to sell and to bind the owner.
5. Whether or not EC ratified the transactions between petitioners and ESAC through Glanville, Delsaux and Marquez.

C. Ancillary / Incidental Issues

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

"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 — Who bears the burden as against the principal. Before reaching estoppel, the Court fixed the burden on the party asserting the outward appearance: "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, with a heightened standard: "when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof."
• Step 2 — The codal chain the Court laid down. The Court set out the governing provisions in sequence, each footnoted to its article: agency defined (Article 1868, footnote 32)
• "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"
• Implied agency and implied acceptance (Article 1870, footnote 34)
• "Agency may be oral unless the law requires a specific form" (Article 1869, par. 2, footnote 35)
• "However, to create or convey real rights over immovable property, a special power of attorney is necessary" (Article 1878(12), footnote 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" (Article 1874§, footnote 37).
• Step 3 — The named test for agency by estoppel, stated element by element. "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."
• The Court anchored this on Carolina-Georgia Carpet and Textiles, Inc. v. Pelloni, 370 So. 2d 450 (1979) (footnote 48).
• Step 4 — The added temporal requirement. "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."
• Step 5 — Mapping the elements to the facts. Element (1) — manifestation by the principal: NOT MET, and this is decisive.
• "In their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC."
• The Court had already traced the chain of authority: "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."
• The 12 February 1987 counter-offer itself "emanated only from the 'Belgian/Swiss decision,' and not the entire management or Board of Directors of respondent ESAC."
• No representation therefore ever issued from EC, the corporation sought to be bound.
• Element (2) — good-faith reliance on a representation by the principal: not reached as to EC, there being no such representation.
• And independently undercut by the Court's holding that "[t]he petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale."
• Element (3) — detrimental change of position: the escrow deposit is not discussed as curing the failure of element (1)
• The Court's conclusion is unqualified — "Such proof is lacking in this case."
• Step 6 — The correlative duty of the third person. "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."
• And: "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. In this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC."
• Step 7 — The declarations of the agent cannot supply the deficiency. "The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority."
• This disposes of petitioners' first item of evidence — Marquez's own testimony that Glanville chose him to sell — and of his 12 September 1986 letter "declar[ing] that he was authorized to sell the properties."
• Step 8 — The broker's limited office. "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."
• The Court added the finding that "Marquez acted not only as real estate broker for the petitioners but also as their agent," his 26 February 1987 letter having confirmed acceptance "for and in behalf of the petitioners."
• Step 9 — No ratification. "The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification."
• Step 10 — The corporate-consent reasoning (Week 1 issue, summarised for context). Under Section 23 of Batas Pambansa Blg. 68, corporate powers are exercised by the board.
• Under Section 36(7) a corporation may deal with real property subject to legal and constitutional limits.
• "[t]he 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"
• And "[p]hysical acts, like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer ... 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."
• Hence the board resolution is "a condition sine qua non."

B. Doctrines / Rules / Principles Laid Down

1. Elements of agency by estoppel — the doctrinal takeaway for this Topic/Subtopic. 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 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."

2. Reliance must be on a representation that predated it. Verbatim:

   "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."

3. A representation made for another principal is not a representation by the principal sought to be bound. Verbatim:

   "In their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC."

4. Duty of diligence and peril of the third person dealing with an assumed agent. Verbatim:

   "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."

• And:

  "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."

5. The agent's own declarations prove nothing against the principal. "The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority."
6. Standard of proof where specific performance is sought. "[W]hen specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof" (citing Blair v. Sheridan, 10 S.E. 414 (1889)).
7. A broker's authority to find a purchaser is not an authority to sell. "[A]n authority to find a purchaser of real property does not include an authority to sell."
8. Form requirements engaged (Week 2(c) chain, stated here by the Court itself). "Agency may be oral unless the law requires a specific form" (Article 1869, par. 2); "to create or convey real rights over immovable property, a special power of attorney is necessary" (Article 1878(12)); "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§).
9. Corporate consent (Section 23 and Section 36, B.P. Blg. 68; now RCC Secs. 22 and 35). "Such board resolution is not a mere formality but is a condition sine qua non to bind respondent EC." "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."
10. Majority shareholding does not merge personalities. "[T]he 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."

C. Distinctions / Limitations / Qualifications

1. This is a REJECTED case and must be recited as such. The Court did not find an agency by estoppel and did not hold that months of negotiation, a counter-offer, an accepted counter-offer, and a million-dollar escrow deposit sufficed to create one. It held the opposite. A recitation that cites Litonjua as authority for apparent authority binding a principal inverts the holding.
2. What failed was element (1), not elements (2) or (3). This is the precise point of the case for Week 2(b). Petitioners had reliance in abundance; what they lacked was a manifestation traceable to EC. Estoppel under Article 1873§'s logic — and under Article 1911§'s "allowed the latter to act as though he had full powers" — runs against the principal who spoke or tolerated, not against a principal whose name was merely invoked by others.
3. The Court never cited Article 1873§ or Article 1911§. Its estoppel test is drawn from Carolina-Georgia Carpet and Textiles, Inc. v. Pelloni and its diligence rule from Hill v. Delta Loan and Finance Company and the Litonjua v. Fernandez / Culaba / BA Finance line. Any equation of this test with Article 1873§ is a pedagogical inference and is labelled as such; it is not the Court's own statement.
4. The identity of the principal was the trap. ESAC and EC are distinct juridical persons. Petitioners' acceptance bound no one to convey, because their counterparty in fact (ESAC, through the "Belgian/Swiss decision") did not own the land and their counterparty in law (EC) never manifested anything. Where two corporations stand in a parent-subsidiary relation, a third person must ascertain which of them his supposed agent purports to represent.
5. Marquez's dual role limits any argument from his conduct. The Court found he "acted not only as real estate broker for the petitioners but also as their agent." A third person cannot bootstrap an appearance of authority out of the conduct of his own agent.
6. The finding is one of fact, made below and merely reviewed here. The CA had already ruled that "the Litonjuas failed to prove that an agency by estoppel had been created between the parties," and the Supreme Court sustained it as conclusive absent any of the ten recognized Rule 45 exceptions. The case is therefore authority on the elements and burden, and only illustratively on the sufficiency of any given quantum of evidence.

D. Topic/Subtopic Integration (Mandatory)

• The classification is REJECTED, and that is exactly why the case earns its place under Week 2(b).
• Subtopic (b) asks what it takes for an agency to be perfected as against third persons — the province of Article 1873§, under which a principal's own special information or public advertisement makes another "a duly authorized agent" as to those informed, and of Article 1911§, under which a principal who "allowed the latter to act as though he had full powers" answers solidarily.
• Both provisions locate the operative act in the principal.
• Litonjua is the case that isolates that requirement by removing everything else: the third persons here were in good faith, relied heavily, and changed position to the tune of a US$1,000,000.00 escrow deposit — and still lost, because element (1) failed.
• The lesson for recitation is therefore a boundary lesson: reliance, however reasonable and however costly, does not perfect an agency as to third persons unless the appearance relied upon was created or knowingly tolerated by the person sought to be bound.
• Two corollaries follow, both quotable.
• First, "[t]he declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority" — so Marquez's letter announcing that "he was authorized to sell" proved nothing against EC.
• Second, the risk is placed on the third person by an affirmative duty: he "must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority," and is "bound at [his] peril" to ascertain "not only the fact of agency but also the nature and extent of authority." Read against [Silva v.
• Lo](/agency-trust-partnership/week-02/silva-v-lo), the pair frames the whole of subtopic (b): in Silva the principal had spoken and then fell silent, and was bound.
• In Litonjua the principal never spoke at all, and was not.

VII. Separate Opinions