Ayala Land, Inc. vs. ASB Realty Corporation and E.M. Ramos & Sons, Inc.

A Contract to Sell executed by corporate officers who lack specific board authority to sell corporate property is void and unenforceable against the corporation, even if the officers were previously authorized to negotiate terms; the burden rests upon the third party to ascertain not merely the fact of agency but the nature and extent of the agent's authority, and failure to do so precludes recovery based on apparent authority.

EMRASON, a domestic corporation, owned a 372-hectare property in Dasmariñas, Cavite. ALI, engaged in real estate development, negotiated with EMRASON's officers for the property's acquisition. Simultaneously, ASBRC pursued acquisition of the same property. The dispute arose from competing claims of contractual rights over the property based on instruments executed by different EMRASON representatives.

• Nature of the Parties: ALI and ASBRC are domestic corporations engaged in real estate development. EMRASON is a domestic corporation organized to manage a 372-hectare property in Dasmariñas, Cavite (Dasmariñas Property).
• The Contract to Sell: On May 18, 1994, ALI entered into a Contract to Sell with the Ramos children (Emerita B. Ramos, Jr., Januario B. Ramos, Josefa R. de la Rama, Victoria R. Tanjuatco, Horacia de la Rama, and Teofilo Tanjuatco III) whereby ALI agreed to purchase the Dasmariñas Property. ALI alleged that EMRASON, through its President Ramos, Sr., had previously acknowledged in an August 3, 1993 letter that Ramos, Jr. and Antonio were authorized to negotiate the joint venture.
• The Letter-Agreement: On May 21, 1994, EMRASON, through Ramos, Sr. and Antonio, executed a Letter-Agreement with ASBRC for the same Dasmariñas Property. This was accompanied by a Real Estate Mortgage executed on May 22, 1994. Prior thereto, on May 17, 1994, EMRASON's Board of Directors approved the Letter-Agreement and authorized Ramos, Sr. and Antonio to sign it, which approval was ratified by stockholders on the same date.
• Formal Defects in Contract to Sell: The Contract to Sell between ALI and the Ramos children contained material blanks: the first page left blank the space for EMRASON's authorized representatives; page eighteen provided blank spaces for EMRASON signatories while ALI's attorneys-in-fact were typewritten; and the acknowledgment page omitted the names and Community Tax Certificate Numbers of EMRASON's signatories.
• Procedural Posture: Upon learning of the Contract to Sell and its annotation on the Transfer Certificates of Title, ASBRC and EMRASON filed a complaint for nullification of the Contract to Sell and cancellation of the annotations.

• Apparent Authority of the Ramos Children: ALI maintained that the August 3, 1993 letter from Ramos, Sr. constituted clear confirmation that the Ramos children possessed authority and capacity to close the sale, satisfying the requisites for apparent authority under Woodchild Holdings, Inc. v. Roxas Electric and Construction Company, Inc.
• Precedence of Contract to Sell: ALI argued that the Contract to Sell dated May 18, 1994 pre-dated the Letter-Agreement dated May 21, 1994, and that the latter carried no board authority at inception.
• Bad Faith of EMRASON: ALI contended that EMRASON acted in bad faith by disavowing the authority previously granted to the Ramos children, causing damage to ALI, and that the RTC and CA erred in dismissing ALI's compulsory counterclaim and cross-claim.

• Lack of Corporate Authority: Respondents countered that the Ramos children failed to present board resolutions, secretary's certificates, or written documents proving EMRASON's conferral of authority to sell; the August 3, 1993 letter limited the Ramos children to negotiating terms only.
• Presidential Authority and Ratification: Respondents argued that Ramos, Sr., as EMRASON President, possessed apparent authority to execute the Letter-Agreement under People's Aircargo and Warehousing Company, Inc. v. Court of Appeals, and that the May 17, 1994 stockholders' meeting ratified the transaction, curing any defect.
• ALI's Lack of Good Faith: Respondents asserted that ALI knew or should have known of the Ramos children's lack of authority, evidenced by ALI's letters addressed solely to Ramos, Sr. seeking his acceptance and approval, and by the formal defects in the Contract to Sell indicating ALI's awareness of the authority deficiency.

• Authority to Sell: Whether the Ramos children possessed actual or apparent authority to execute the Contract to Sell on behalf of EMRASON.
• Validity of Letter-Agreement: Whether the Letter-Agreement between EMRASON and ASBRC was valid and enforceable despite the prior Contract to Sell.
• Good Faith and Due Diligence: Whether ALI acted in good faith and exercised due diligence in ascertaining the authority of the Ramos children.

• Authority to Sell: The Ramos children lacked authority to bind EMRASON. The August 3, 1993 letter authorized them merely to "collaborate and continue negotiating and discussing" terms, not to execute a Contract to Sell; construing this as unlimited authority would unduly stretch the document's meaning. Persons dealing with an assumed agent are bound at their peril to ascertain the nature and extent of authority, and the burden of proof rests upon them to establish it.
• Validity of Letter-Agreement: The Letter-Agreement was valid and enforceable. Ramos, Sr., as EMRASON President, possessed apparent authority to enter into contracts within the scope of the corporation's business under People's Aircargo. The authority was corroborated by the May 17, 1994 board and stockholders' approval and the subsequent March 6, 1995 ratification. The quantity of similar acts is not required to establish apparent authority; the vesting of power to bind the corporation suffices.
• Good Faith and Due Diligence: ALI failed to exercise ordinary prudence. The formal defects in the Contract to Sell—blank spaces for EMRASON representatives, lack of typewritten names, and omission of Community Tax Certificate Numbers—demonstrated ALI's knowledge or doubt regarding the Ramos children's lack of authority. ALI's prior correspondence addressed to Ramos, Sr. as Chairman further negated claims of good faith reliance on the Ramos children's authority.

• Apparent Authority/Ostensible Agency — A species of estoppel under Article 1431 of the Civil Code where a principal, by voluntary act or omission, places an agent in a situation where a person of ordinary prudence is justified in presuming the agent has authority to perform a particular act. Requisites include: (a) acts of the principal justifying belief in the agency; (b) knowledge thereof by the principal sought to be held; and (c) reliance by the third party consistent with ordinary care and prudence. The doctrine does not apply where the third party fails to ascertain the nature and extent of authority despite available means of verification.
• Presidential Authority — A corporate president is presumed to have authority to act within the domain of the general objectives of the business and within the scope of usual duties. A party dealing with the president is entitled to assume authority to enter contracts within corporate powers that do not violate statute or public policy. Apparent authority is established not by quantity of similar acts but by the vesting of corporate power to bind.
• Corporate Authority Requirements — A corporation acts only through its Board of Directors; no officer can validly bind the corporation without board authority. Acts beyond the scope of authority are void unless ratified expressly or by estoppel.

• "Under the doctrine of apparent authority, the question in every case is whether the principal has by his [/her] voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question."
• "It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of the agent's authority, and in case either is controverted, the burden of proof is upon them to establish it."
• "It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation."
• "A perusal of the said letter which was described to be its 'best and final offer', would readily show that the same [was] solely addressed to Emerito Ramos, Sr., seeking his acceptance and approval. If defendant ALI honestly believe[d] that Emerito Ramos, Jr. and Antonio Ramos [were] fully authorized by EMRASON to execute the Contract to Sell surely defendant ALI would not have bothered to seek the acceptance and approval of Emerito Ramos, Sr."

• Professional Services, Inc. v. Court of Appeals, 568 Phil. 158 (2008) — Cited for the definition of apparent authority.
• Woodchild Holdings, Inc. v. Roxas Electric and Construction Company, Inc., 479 Phil. 896 (2004) — Cited for the requisites of apparent authority; distinguished because ALI failed to prove the Ramos children had authority to sell as opposed to merely negotiate.
• People's Aircargo and Warehousing Company, Inc. v. Court of Appeals, 357 Phil. 850 (1998) — Controlling precedent establishing that a corporate president has presumed authority to act within the general objectives of the business; followed in upholding Ramos, Sr.'s authority.
• First Philippine Holdings Corporation v. Trans Middle East (Phils.) Equities, Inc., 622 Phil. 623 (2009) — Cited for the principle that a juridical entity acts through its Board of Directors.
• Banate v. Philippine Countryside Rural Bank (Liloan, Cebu), Inc., 639 Phil. 35 (2010) — Cited for the rule that persons dealing with agents are bound at their peril to ascertain the nature and extent of authority.

• Article 1431, Civil Code — Estoppel through admission or representation; basis for the doctrine of apparent authority.
• Article 1318, Civil Code — Essential requisites of contracts; lack of consent (through unauthorized agents) renders a contract void.

Leonardo-De Castro, C.J., Bersamin, and Tijam, JJ.