Corporate Authority in Property Sales: Why Board Approval Matters in the Philippines

When a corporation sells real property in the Philippines, the buyer must verify that the person signing the contract actually has authority from the corporation's board of directors. A corporate treasurer who signs a land sale without board approval cannot bind the corporation — even if that treasurer is a major shareholder. The Supreme Court's decision in San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals illustrates this risk clearly and offers practical lessons for anyone transacting with corporations.

The Case: A Sale That Failed for Lack of Authority

In February 1989, San Juan Structural, through its president Andres Co, entered into an agreement to buy a parcel of land from Motorich Sales Corporation. The seller was represented by its treasurer, Nenita Lee Gruenberg. San Juan paid a ₱100,000 down payment and stood ready to pay the balance.

When the time came to complete the transfer, Motorich refused to honor the deal. The corporation claimed Gruenberg had no authority to sell corporate property without board approval. San Juan sued to compel the sale and claim damages.

The Regional Trial Court dismissed the complaint, finding no evidence of board authorization. The Court of Appeals affirmed, ordering Gruenberg to refund the down payment. The Supreme Court denied San Juan's petition and upheld the lower courts' rulings.

The Legal Framework: Corporations Act Through Their Boards

Philippine corporate law treats a corporation as a legal entity distinct from its stockholders. Under Section 23 of the Corporation Code (Batas Pambansa Blg. 68), all corporate powers are exercised by the board of directors, and all corporate property is controlled and held by the board. This means officers and agents can bind the corporation only to the extent of the authority the board grants them.

The Supreme Court in this case stated the principle plainly: a corporation may act only through its board of directors, or through officers or agents authorized by the bylaws or by a board resolution, in the normal course of business.

For land sales, the law is even stricter. Article 1874 of the Civil Code requires that when a sale of land is made through an agent, the agent's authority must be in writing; otherwise, the sale is void. A verbal assurance or an officer's title is never enough.

Why the Supreme Court Rejected the Buyer's Arguments

San Juan argued that Gruenberg's actions should bind Motorich because she and her husband owned a substantial portion of the corporation's shares. The Court was not persuaded. Ownership of shares does not equal authority to act for the corporation.

San Juan also invoked the doctrine of piercing the corporate veil, asking the Court to disregard Motorich's separate legal personality. The Court refused, noting there was no evidence that Motorich was used to perpetrate fraud or illegality. The corporate veil is not pierced merely because a stockholder is also an officer.

The Court also found no proof that Motorich ratified the sale after the fact. Without board authorization or ratification, the contract could not be enforced against the corporation.

Due Diligence Before Signing a Corporate Property Deal

This decision is a warning to buyers: an officer's title — whether Treasurer, President, or otherwise — is not proof of authority to sell corporate land. Before signing, take these steps:

• Demand a board resolution. Ask for a copy of the board resolution expressly authorizing the officer to enter into the specific transaction. For property sales, this is non-negotiable.
• Review the Articles of Incorporation and bylaws. These documents may define or limit officer powers and provide context for what the board has delegated.
• Verify directly with the corporation. A quick call or written inquiry to the corporate secretary can confirm whether the officer is authorized.
• Secure a Special Power of Attorney for land sales. Where an agent acts for the corporation, Article 1874 of the Civil Code requires written authority; without it, the sale is void.
• Engage counsel. A lawyer can review the documents and confirm that the transaction is sound before funds change hands.

Practical Takeaways

• Title alone is not authority. A corporate officer must have board approval to sell corporate assets, regardless of rank or shareholding.
• Board resolutions protect both sides. They give the buyer confidence and shield the corporation from unauthorized deals.
• Land sales require written authority. The Civil Code voids land sales made through agents without written authorization.
• The corporate veil is not easily pierced. Courts will disregard the corporate form only upon proof of fraud or misuse, not mere majority ownership.
• Recovery may be limited to refunds. Even when a sale fails, the buyer may recover payments made, but cannot compel the corporation to sell.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.