Litonjua vs. Eternit Corporation

A corporation may only sell or convey its real properties through officers or agents duly authorized by corporate by-laws or specific board resolution; absent such written authority, any sale negotiated by a real estate broker or corporate officer is void and unenforceable against the corporation. Mere ownership by a parent company of majority shares in a subsidiary does not authorize the parent or its representatives to bind the subsidiary to a sale of its assets.

In 1986, due to political instability in the Philippines, Eteroutremer S.A. (ESAC), a Belgian corporation owning 90% of Eternit Corporation (EC), a Philippine manufacturing company, decided to dispose of EC's eight parcels of land in Mandaluyong City. ESAC's Committee for Asia instructed Michael Adams, an EC board member, to sell the properties. Adams engaged realtor Lauro Marquez to find buyers. Marquez offered the properties to petitioners Litonjua siblings for P27 million, leading to negotiations that spanned several months and involved EC's President and ESAC's Regional Director for Asia.

• Eternit Corporation (EC) was a Philippine corporation engaged in manufacturing roofing materials and pipe products, operating on eight parcels of land in Mandaluyong City with a total area of 47,233 square meters, registered under Far East Bank & Trust Company as trustee.
• Ninety percent (90%) of EC's shares were owned by Eteroutremer S.A. (ESAC), a Belgian corporation, with Jack Glanville serving as EC's President and General Manager and Claude Frederick Delsaux serving as ESAC's Regional Director for Asia.
• In 1986, due to political concerns, ESAC's Committee for Asia decided to dispose of EC's properties and instructed board member Michael Adams to sell the eight parcels of land.
• Adams engaged realtor Lauro G. Marquez, who offered the properties to petitioners Eduardo and Antonio Litonjua for P27,000,000.00 via letter dated September 12, 1986.
• The Litonjua siblings offered P20,000,000.00 cash, which Marquez relayed to Glanville, who then telexed Delsaux in Belgium for instructions.
• On February 12, 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."
• The Litonjua siblings accepted the counter-offer, deposited US$1,000,000.00 with Security Bank & Trust Company, and drafted an Escrow Agreement to expedite the sale.
• Following the improvement of the political situation after Corazon Aquino assumed the presidency, Glanville informed Marquez on May 7, 1987 that the Board had decided not to sell the properties.
• Delsaux confirmed this decision in a letter dated May 22, 1987, stating that the Committee for Asia had decided not to stop operations in Manila due to the stabilized political situation.
• The Litonjuas demanded damages for the aborted sale, which EC rejected, leading to the filing of the complaint for specific performance.

• Petitioners argued that a perfected contract of sale existed because they had accepted respondent EC's counter-offer before it was withdrawn, communicated through broker Marquez.
• They contended that Marquez acted merely as a broker/middleman, not as an agent requiring written authority under Article 1874 of the Civil Code, as his role was limited to bringing parties together.
• They asserted that Glanville (President and General Manager of EC) and Delsaux (Regional Director of ESAC) possessed actual or apparent authority to sell the properties, evidenced by their conduct in negotiating the sale over several months, making counter-offers, and failing to repudiate the transaction.
• They claimed that EC was estopped from denying the agents' authority because it knowingly permitted Glanville and Delsaux to hold themselves out as having power to sell, and petitioners acted in good faith by depositing the purchase price and preparing escrow agreements.

• Respondents argued that the issues raised were factual in nature and therefore proscribed by Rule 45 of the Rules of Court.
• They maintained that Marquez, Glanville, and Delsaux lacked written authority from EC's Board of Directors to sell the properties, which involved substantially all of EC's assets requiring board and stockholder approval under the Corporation Code.
• They asserted that Delsaux acted only for ESAC (the parent company), not for EC, and that ESAC's ownership of 90% of EC's stock did not merge their separate corporate personalities.
• They contended that no agency by estoppel was created because petitioners failed to prove reliance on any representation of authority made by EC prior to their actions.

• Procedural:
  • Whether the Supreme Court may review questions of fact regarding the existence and extent of authority of agents under Rule 45 of the Rules of Court.
• Substantive Issues:
  • Whether a perfected contract of sale was constituted between petitioners and respondent Eternit Corporation.
  • Whether real estate broker Lauro Marquez required written authority from the Board of Directors to negotiate the sale of immovable corporate property.
  • Whether Glanville and Delsaux possessed actual or apparent authority to bind Eternit Corporation to the sale.
  • Whether Eternit Corporation is estopped from denying the authority of its agents.

• Procedural:
  • The Supreme Court held that issues regarding the existence of agency, the extent of an agent's authority, and whether agency by estoppel was created are questions of fact that cannot be raised under Rule 45.
  • The Court found that none of the recognized exceptions applied (e.g., findings not supported by evidence, grave abuse of discretion, conflicting findings) and that the CA's findings were supported by evidence and law.
• Substantive:
  • No perfected contract of sale existed because the alleged agents (Marquez, Glanville, Delsaux) lacked authority to bind EC to the sale of its real properties.
  • Under Section 23 of the Corporation Code, corporate powers are exercised by the Board of Directors, and physical acts like selling real property require specific authorization by board resolution or by-laws.
  • Marquez was a special agent under Article 1874 of the Civil Code, and his authority to sell immovable property was required to be in writing; absent such written authority, any sale is void.
  • Glanville and Delsaux acted on behalf of ESAC (the parent company), not EC, and ESAC's 90% ownership of EC shares does not justify treating them as one corporation or authorize ESAC's representatives to bind EC without board resolution.
  • No agency by estoppel was established because petitioners failed to prove that EC manifested representation of the agents' authority or knowingly allowed them to assume such authority, and that petitioners relied on such representation to their detriment.
  • The burden of proving the fact and extent of an agent's authority lies upon the person dealing with the agent, which petitioners failed to discharge.

• Doctrine of Corporate Personality and Separate Juridical Existence — A corporation is a juridical person separate and distinct from its stockholders and parent company; mere ownership by a parent company of majority or even all shares of a subsidiary does not justify treating them as one entity. The parent and subsidiary retain their separate identities and the parent cannot bind the subsidiary without proper authorization.
• Authority of Corporate Agents and Board Action — Under Section 23 of the Corporation Code, corporate powers are exercised by the Board of Directors. Physical acts such as offering corporate property for sale or accepting counter-offers can only be performed by officers or agents duly authorized by corporate by-laws or specific board resolution. Absent such authorization, individual directors' declarations are not binding on the corporation.
• Special Power of Attorney for Immovables (Article 1874, Civil Code) — To create or convey real rights over immovable property, a special power of attorney is necessary. When a sale of land is made through an agent, the authority must be in writing; otherwise, the sale is void. A real estate broker negotiating the sale of real property is considered a special agent whose authority to sell must be in writing.
• Agency by Estoppel and Apparent Authority — For agency by estoppel to exist, three elements must concur: (1) the principal manifested a representation of the agent's authority or knowingly allowed the agent to assume such authority; (2) the third person relied in good faith on such representation; and (3) relying on such representation, the third person changed his position to his detriment. Reliance requires proof that the representation predated the action taken.
• Burden of Proof in Agency — Persons dealing with an assumed agent are bound at their peril to ascertain not only the fact of agency but also the nature and extent of authority. The burden of proof rests upon the person dealing with the agent to establish the agent's authority.

• "A corporation is a juridical person separate and distinct from its members or stockholders and is not affected by the personal rights, obligations and transactions of the latter."
• "Physical acts, like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property, can be performed by the corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board of directors."
• "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."
• "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."
• "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."

• Weathersby v. Gore, 556 F.2d 1247 (1977) — Cited for the principle that in the absence of express written terms creating an agency relationship, the existence of an agency is a question of fact.
• Cavic v. Grand Bahama Development Co., Ltd., 701 F.2d 879 (1983) — Cited for the principle that whether a person acted within the bounds of his apparent authority is a question of fact.
• Culaba v. Court of Appeals, G.R. No. 125862, April 15, 2004 — Cited regarding the conclusiveness of trial court findings affirmed by the CA absent specific exceptions.
• Litonjua v. Fernandez, G.R. No. 148116, April 14, 2004 — Cited for the principle that declarations of an agent alone are insufficient to establish the fact or extent of his authority, and for the burden of proof in agency relationships.
• Philippine National Bank v. Ritratto Group, Inc., G.R. No. 142306, July 31, 2001 — Cited for the doctrine that ownership of majority shares does not merge corporate personalities.
• Traders Royal Bank v. Court of Appeals, G.R. No. 78412, September 26, 1989 — Cited for the principle that corporate property is not the property of stockholders and may not be sold without express authority from the board of directors.
• San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, G.R. No. 129792, September 29, 1998 — Cited for the principle that general principles of agency govern the relation between corporation and its officers/agents.

• Rule 45, Rules of Court — Prohibits review of questions of fact in petitions for review on certiorari, except in recognized exceptions.
• Section 23, Batas Pambansa Bilang 68 (Corporation Code of the Philippines) — Provides that corporate powers are exercised by the Board of Directors.
• Section 36(7), Batas Pambansa Bilang 68 (Corporation Code of the Philippines) — Grants corporations the power to purchase, receive, take, grant, hold, convey, sell, lease, pledge, mortgage and deal with real and personal property.
• Article 1868, New Civil Code — Defines the contract of agency.
• Article 1869, New Civil Code — Provides that agency may be oral unless the law requires a specific form.
• Article 1870, New Civil Code — States that acceptance by the agent may be express or implied from his acts.
• Article 1874, New Civil Code — Requires written authority for an agent to sell immovable property; otherwise, the sale is void.
• Article 1878(12), New Civil Code — Enumerates acts requiring special power of attorney, including creating or conveying real rights over immovable property.