This case clarifies the scope of corporate authority, especially when agents act on behalf of a corporation. The Supreme Court emphasized that for a contract to be valid, the involved parties must have the authority to give consent. Specifically, the Court ruled that Ayala Land, Inc. (ALI) could not enforce a contract to sell land because the individuals who signed on behalf of E.M. Ramos & Sons, Inc. (EMRASON) lacked the proper authorization from EMRASON’s board. The decision highlights the importance of verifying an agent’s authority before entering into agreements with corporations, underscoring that companies are primarily bound by the decisions of their board of directors or authorized representatives. This ruling protects corporations from unauthorized actions while reminding third parties to exercise due diligence in their dealings.

Land Dispute: Did the Ramos Children Have Authority to Sell?

Ayala Land, Inc. (ALI) sought to purchase a large property in Dasmariñas, Cavite, owned by E.M. Ramos & Sons, Inc. (EMRASON). ALI negotiated with the Ramos children, believing they had the authority to represent EMRASON. A Contract to Sell was signed. However, EMRASON, through its president Emerito Ramos, Sr., later entered into a Letter-Agreement with ASB Realty Corporation (ASBRC) for the same property. ALI argued that the Ramos children had apparent authority to sell the property, based on a letter from Ramos, Sr. authorizing them to negotiate. EMRASON and ASBRC, however, contended that only Ramos, Sr. was authorized to sell, and the Letter-Agreement with ASBRC was valid. The central legal question was whether the Ramos children had the authority to bind EMRASON to the Contract to Sell with ALI.

The Regional Trial Court (RTC) declared the Contract to Sell void, a decision upheld by the Court of Appeals (CA). The Supreme Court (SC) affirmed these rulings, emphasizing that consent is an essential element of a valid contract. For corporations, consent is given through the board of directors. Without proper authorization from EMRASON’s board, the Ramos children could not validly bind the corporation to the Contract to Sell.

ALI argued that the Ramos children had apparent authority, relying on a letter from Ramos, Sr. This doctrine provides that a principal can be bound by the actions of an agent if the principal’s conduct leads a third party to reasonably believe that the agent has the authority to act. However, the Court found that the letter only authorized the Ramos children to negotiate, not to conclude a sale. This distinction is critical, as it clarifies the limits of the agent’s authority. It is a settled rule that persons dealing with an agent are bound at their peril to ascertain not only the fact of agency but also the nature and extent of the agent’s authority.

[U]nder 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.

Furthermore, the Court highlighted several formal defects in the Contract to Sell, indicating that ALI itself had doubts about the Ramos children’s authority. For instance, the contract lacked the names of EMRASON’s authorized representatives and their Community Tax Certificate numbers. These omissions further weakened ALI’s claim of good faith in dealing with the Ramos children. The court, therefore, stressed the importance of due diligence when transacting with an agent of a corporation.

In contrast, the Letter-Agreement between EMRASON and ASBRC was deemed valid. Ramos, Sr., as president of EMRASON, had the presumed authority to act within the scope of the corporation’s usual business objectives. Additionally, the EMRASON stockholders ratified the Letter-Agreement in a special meeting, further solidifying its validity. The Supreme Court referenced the case of People’s Aircargo Warehousing v. Court of Appeals, highlighting the authority of a corporate president:

Inasmuch as a corporate president is often given general supervision and control over corporate operations, the strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the realization that such officer has certain limited powers in the transaction of the usual and ordinary business of the corporation. In the absence of a charter or bylaw provision to the contrary, the president is presumed to have the authority to act within the domain of the general objectives of its business and within the scope of his or her usual duties.

ALI’s argument that Ramos, Sr. could not have attended the stockholders’ meeting was dismissed, as another meeting was held subsequently to ratify the Letter-Agreement. This illustrates the importance of adhering to corporate procedures to ensure the validity of contracts. Here’s a comparison of the two agreements at the heart of the case:

Contract to Sell (ALI & Ramos Children)	Letter-Agreement (EMRASON & ASBRC)
Signed by the Ramos children, who lacked explicit board authorization.	Signed by Emerito Ramos, Sr., EMRASON’s president, who had presumed authority.
Lacked formal documentation supporting the Ramos children’s authority.	Ratified by EMRASON stockholders in a special meeting.
Contained formal defects, raising doubts about the validity of the agreement.	The agreement was deemed valid and binding.

This case underscores the importance of corporate governance and the need for third parties to verify the authority of those acting on behalf of a corporation. It serves as a reminder that the doctrine of apparent authority has limits and does not excuse a party from conducting due diligence. Ultimately, this decision protects corporations from unauthorized actions, fostering stability and predictability in business transactions.

FAQs

What was the key issue in this case?	The central issue was whether the Ramos children had the authority to bind E.M. Ramos & Sons, Inc. (EMRASON) to a Contract to Sell with Ayala Land, Inc. (ALI). The court examined whether the Ramos children were authorized by EMRASON’s board of directors to enter into such an agreement.
What is the doctrine of apparent authority?	The doctrine of apparent authority states that a principal can be bound by the actions of an agent if the principal’s conduct leads a third party to reasonably believe the agent has the authority to act. However, the third party must exercise ordinary care and prudence in assuming the agent’s authority.
Why was the Contract to Sell declared void?	The Contract to Sell was declared void because the Ramos children lacked the proper authorization from EMRASON’s board of directors to sell the property. Without this authorization, they could not validly bind the corporation to the contract.
What is the role of a corporation’s board of directors in contracts?	The board of directors is the governing body that gives consent on behalf of a corporation. A corporation can only act through its board, which is responsible for deciding whether the corporation should enter into a contract.
Why was the Letter-Agreement between EMRASON and ASBRC considered valid?	The Letter-Agreement was considered valid because it was signed by Emerito Ramos, Sr., the president of EMRASON, who had the presumed authority to act within the scope of the corporation’s usual business objectives. Additionally, the stockholders ratified the agreement in a special meeting.
What is the significance of ratification in corporate contracts?	Ratification is the act of approving or confirming a prior act that was not originally authorized. In the context of corporate contracts, ratification by the board of directors or stockholders can validate an agreement that was initially entered into without proper authority.
What due diligence should be exercised when dealing with a corporation?	When dealing with a corporation, it is crucial to verify the authority of the individuals who are representing the corporation. This includes examining board resolutions, secretary’s certificates, and other relevant documents to ensure that the agent has the power to bind the corporation.
Can a corporate president always bind the corporation?	While a corporate president often has general supervision and control over corporate operations, their authority is not unlimited. The president is presumed to have the authority to act within the general objectives of the business and their usual duties, but this presumption can be rebutted by the corporation’s charter or bylaws.
What are the practical implications of this case for businesses?	This case highlights the importance of adhering to proper corporate governance procedures and verifying the authority of agents when entering into contracts with corporations. It emphasizes the need for due diligence to ensure that contracts are valid and enforceable.

In conclusion, the Ayala Land v. ASB Realty case provides valuable insights into the complexities of corporate authority and contractual obligations. By emphasizing the necessity of proper authorization and due diligence, the Supreme Court has reinforced the importance of sound corporate governance practices and the protection of corporate interests.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Ayala Land, Inc. v. ASB Realty Corporation, G.R. No. 210043, September 26, 2018