THIRD DIVISION

[G.R. No. 125778. June 10, 2003.]

INTER-ASIA INVESTMENTS INDUSTRIES, INC. , petitioner, vs . COURT

OF APPEALS and ASIA INDUSTRIES, INC. , respondents.

People's Law Office for petitioner.

Castillo Laman Tan Pantaleon & San Jose for private respondent.

SYNOPSIS

Petitioner corporation assailed the decision of the CA and the lower court, holding it
liable to pay a sum of money plus interest to private respondent corporation, as a
consequence of a Letter-Proposal dated January 24, 1980 signed by its president, with
regard to the sale of petitioner's shares of stock of FARMACOR, INC., to the private
respondent corporation. Petitioner argued that the letter-proposal of its president has no
legal force and effect against it as it was not authorized by its board of directors.
On appeal, the Supreme Court held petitioner liable to pay a sum of money plus
interest to the private respondent because the January 24, 1980 letter signed by
petitioner's president is valid and binding. An o cer of a corporation authorized to
purchase the stock of another corporation has the implied power to perform all other
obligations arising therefrom, such as payment of the shares of stock. By allowing its
president to sign the Agreement on its behalf, petitioner clothed him with apparent
capacity to perform all acts which are expressly, impliedly and inherently stated therein.
The Court, however, deleted the award of attorney's fees because it was bereft of factual,
legal and equitable basis.

SYLLABUS

1.CORPORATION LAW; CORPORATION CODE; CORPORATE OFFICERS; ULTRA VIRES

ACT; CORPORATE OFFICER AUTHORIZED TO PURCHASE STOCK HAD IMPLIED POWER TO
PERFORM ALL ACTS ARISING THEREFROM; CASE AT BAR. — An o cer of a corporation
who is authorized to purchase the stock of another corporation has the implied power to
perform all other obligations arising therefrom, such as payment of the shares of stock. By
allowing its president to sign the Agreement on its behalf, petitioner clothed him with
apparent capacity to perform all acts which are expressly, impliedly and inherently stated
therein.
2.CIVIL LAW; DAMAGES; AWARD OF ATTORNEY'S FEES MUST HAVE FACTUAL,
LEGAL AND EQUITABLE BASIS; CASE AT BAR. — The Court nds well-taken the petitioner's
assigned error on the award of attorney's fees which, it argues, is bereft of factual, legal
and equitable justification. cSDIHT

DECISION

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 CARPIO MORALES , J : p

The present petition for review on certiorari assails the Court of Appeals Decision 1
of January 25, 1996 and Resolution 2 of July 11, 1996. STcHEI

The material facts of the case are as follows:

On September 1, 1978, Inter-Asia Industries, Inc. (petitioner), by a Stock Purchase
Agreement 3 (the Agreement), sold to Asia Industries, Inc. (private respondent) for and in
consideration of the sum of P19,500,000.00 all its right, title and interest in and to all the
outstanding shares of stock of FARMACOR, INC. (FARMACOR). 4 The Agreement was
signed by Leonides P. Gonzales and Jesus J. Vergara, presidents of petitioner and private
respondent, respectively. 5
Under paragraph 7 of the Agreement, petitioner as seller made warranties and
representations among which were "(iv.) [t]he audited nancial statements of FARMACOR
at and for the year ended December 31, 1977 . . . and the audited nancial statements of
FARMACOR as of September 30, 1978 being prepared by S[ycip,] G[orres,] V[elayo and Co.]
. . . fairly present or will present the nancial position of FARMACOR and the results of its
operations as of said respective dates; said nancial statements show or will show all
liabilities and commitments of FARMACOR, direct or contingent, as of said respective
dates . . ."; and "(v.) [t]he Minimum Guaranteed Net Worth of FARMACOR as of September
30, 1978 shall be Twelve Million Pesos (P12,000,000.00)." 6
The Agreement was later amended with respect to the "Closing Date," originally set
up at 10:00 a.m. of September 30, 1978, which was moved to October 31, 1978, and to the
mode of payment of the purchase price. 7
The Agreement, as amended, provided that pending submission by SGV of
FARMACOR's audited nancial statements as of October 31, 1978, private respondent
may retain the sum of P7,500,000.00 out of the stipulated purchase price of
P19,500,000.00; that from this retained amount of P7,500,000.00, private respondent may
deduct any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00; 8 and that
if the amount retained is not su cient to make up for the de ciency in the Minimum
Guaranteed Net Worth, petitioner shall pay the difference within 5 days from date of
receipt of the audited financial statements. 9
Respondent paid petitioner a total amount of P12,000,000.00: P5,000,000.00 upon
the signing of the Agreement, and P7,000,000.00 on November 2, 1978. 1 0
From the STATEMENT OF INCOME AND DEFICIT attached to the nancial report 1 1
dated November 28, 1978 submitted by SGV, it appears that FARMACOR had, for the ten
months ended October 31, 1978, a de cit of P11,244,225.00. 1 2 Since the stockholder's
equity amounted to P10,000,000.00, FARMACOR had a net worth de ciency of
P1,244,225.00. The guaranteed net worth shortfall thus amounted to P13,244,225.00 after
adding the net worth de ciency of P1,244,225.00 to the Minimum Guaranteed Net Worth
of P12,000,000.00.
The adjusted contract price, therefore, amounted to P6,225,775.00 which is the
difference between the contract price of P19,500,000.00 and the shortfall in the
guaranteed net worth of P13,224,225.00. Private respondent having already paid
petitioner P12,000,000.00, it was entitled to a refund of P5,744,225.00.
Petitioner thereafter proposed, by letter 1 3 of January 24, 1980, signed by its
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 president, that private respondent's claim for refund be reduced to P4,093,993.00, it
promising to pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII)
superstructures in the amount of P759,570.00. To the proposal respondent agreed.
Petitioner, however, welched on its promise. Petitioner's total liability thus stood at
P4,853,503.00 (P4,093,993.00 plus P759,570.00) 1 4 exclusive of interest. 1 5
On April 5, 1983, private respondent led a complaint 1 6 against petitioner with the
Regional Trial Court of Makati, one of two causes of action of which was for the recovery
of above-said amount of P4,853,503.00 1 7 plus interest.
Denying private respondent's claim, petitioner countered that private respondent
failed to pay the balance of the purchase price and accordingly set up a counterclaim.
Finding for private respondent, the trial court rendered on November 27, 1991 a
Decision, 1 8 the dispositive portion of which reads:
WHEREFORE, judgment is rendered in favor of plaintiff and against
defendant (a) ordering the latter to pay to the former the sum of P4,853,503.00 1 9
plus interest thereon at the legal rate from the ling of the complaint until fully
paid, the sum of P30,000.00 as attorney's fees and the costs of suit; and (b)
dismissing the counterclaim.
SO ORDERED.

On appeal to the Court of Appeals, petitioner raised the following errors:

THE TRIAL COURT ERRED IN HOLDING THE DEFENDANT LIABLE UNDER THE
FIRST CAUSE OF ACTION PLEADED BY THE PLAINTIFF.

THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES AND IN DISMISSING

THE COUNTERCLAIM.

THE TRIAL COURT ERRED IN RENDERING JUDGMENT IN FAVOR OF THE

PLAINTIFF, THE ALLEGED BREACH OF WARRANTIES AND REPRESENTATION
NOT HAVING BEEN SHOWN, MUCH LESS ESTABLISHED BY THE PLAINTIFF. 2 0

By Decision of January 25, 1996, the Court of Appeals a rmed the trial court's
decision. Petitioner's motion for reconsideration of the decision having been denied by the
Court of Appeals by Resolution of July 11, 1996, the present petition for review on
certiorari was filed, assigning the following errors:
I
THE RESPONDENT COURT ERRED IN NOT HOLDING THAT THE LETTER OF THE
PRESIDENT OF THE PETITIONER IS NOT BINDING ON THE PETITIONER BEING
ULTRA VIRES .
II
THE LETTER CAN NOT BE AN ADMISSION AND WAIVER OF THE PETITIONER AS
A CORPORATION.

III
THE RESPONDENT COURT ERRED IN NOT DECLARING THAT THERE IS NO
BREACH OF WARRANTIES AND REPRESENTATION AS ALLEGED BY THE
PRIVATE RESPONDENT.
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 IV
THE RESPONDENT COURT ERRED IN ORDERING THE PETITIONER TO PAY
ATTORNEY'S FEES AND IN SUSTAINING THE DISMISSAL OF THE
COUNTERCLAIM. 1 8 (Italics in the original) SITCcE

Petitioner argues that the January 24, 1980 letter-proposal (for the reduction of
private respondent's claim for refund upon petitioner's promise to pay the cost of
NOCOSII superstructures in the amount of P759,570.00) which was signed by its
president has no legal force and effect against it as it was not authorized by its board of
directors, it citing the Corporation Law which provides that unless the act of the president
is authorized by the board of directors, the same is not binding on it.
This Court is not persuaded.
The January 24, 1980 letter signed by petitioner's president is valid and binding. The
case of People's Aircargo and Warehousing Co., Inc. v. Court of Appeals 1 9 instructs:
The general rule is that, in the absence of authority from the board of directors, no person,
not even its o cers, can validly bind a corporation . A corporation is a juridical person, separate
and distinct from its stockholders and members, "having . . . powers, attributes and properties
expressly authorized by law or incident to its existence."
Being a juridical entity, a corporation may act through its board of
directors, which exercises almost all corporate powers, lays down all corporate
business policies and is responsible for the e ciency of management, as
provided in Section 23 of the Corporation Code of the Philippines:

SEC. 23.The Board of Directors or Trustees . — Unless otherwise provided in

this Code, the corporate powers of all corporations formed under this Code shall
be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees . . ..

Under this provision, the power and responsibility to decide whether the
corporation should enter into a contract that will bind the corporation is lodged in
the board, subject to the articles of incorporation, bylaws, or relevant provisions of
law. However, just as a natural person may authorize another to do certain acts
for and on his behalf, the board of directors may validly delegate some of its
functions and powers to o cers, committees or agents . The authority of such
individuals to bind the corporation is generally derived from law, corporate bylaws
or authorization from the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business, viz:
A corporate o cer or agent may represent and bind the corporation in
transactions with third persons to the extent that [the] authority to do so has been
conferred upon him, and this includes powers as, in the usual course of the
particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually pertaining
to the particular o cer or agent, and such apparent powers as the corporation
has caused person dealing with the o cer or agent to believe that it has
conferred.
xxx xxx xxx

[A]pparent authority is derived not merely from practice. Its existence may
be ascertained through (1) the general manner in which the corporation holds out
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 an o cer or agent as having the power to act or, in other words the apparent
authority to act in general, with which it clothes him; or (2) the acquiescence in his
acts of a particular nature, with actual or constructive knowledge thereof, within
or beyond the scope of his ordinary powers. It requires presentation of evidence of
similar acts executed either in its favor or in favor of other parties. 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.

. . . (Italics and underscoring supplied)

As correctly argued by private respondent, an o cer of a corporation who is

authorized to purchase the stock of another corporation has the implied power to perform
all other obligations arising therefrom, such as payment of the shares of stock. By allowing
its president to sign the Agreement on its behalf, petitioner clothed him with apparent
capacity to perform all acts which are expressly, impliedly and inherently stated therein. 2 1
Petitioner further argues that when the Agreement was executed on September 1,
1978, its nancial statements were extensively examined and accepted as correct by
private respondent, hence, it cannot later be disproved "by resorting to some scheme such
as future nancial auditing;" 2 2 and that it should not be bound by the SGV Report because
it is self-serving and biased, SGV having been hired solely by private respondent, and the
alleged shortfall of FARMACOR occurred only after the execution of the Agreement. IaDcTC

This Court is not persuaded either.

The pertinent provisions of the Agreement read:
7.Warranties and Representations — (a) SELLER warrants and represents
as follows:
xxx xxx xxx
(iv)The audited nancial statements of FARMACOR as at and for the year ended
December 31, 1977 and the audited nancial statements of FARMACOR as
at September 30, 1978 being prepared by SGV pursuant to paragraph 6(b)
fairly present or will present the nancial position of FARMACOR and the
results of its operations as of said respective dates; said nancial
statements show or will show all liabilities and commitments of
FARMACOR, direct or contingent, as of said respective dates ; and the
receivables set forth in said nancial statements are fully due and
collectible, free and clear of any set-offs, defenses, claims and other
impediments to their collectibility.
(v)The Minimum Guaranteed Net Worth of FARMACOR as of September 30, 1978
shall be Twelve Million Pesos (P12,000,000.00), Philippine Currency.
. . . (Underscoring in the original; italics supplied) 2 3

True, private respondent accepted as correct the nancial statements submitted to

it when the Agreement was executed on September 1, 1978. But petitioner expressly
warranted that the SGV Reports "fairly present or will present the nancial position of
FARMACOR." By such warranty, petitioner is estopped from claiming that the SGV Reports
are self-serving and biased.
As to the claim that the shortfall occurred after the execution of the Agreement, the
declaration of Emmanuel de Asis, supervisor in the Accounting Division of SGV and head of
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 the team which conducted the auditing of FARMACOR, that the period covered by the audit
was from January to October 1978 shows that the period before the Agreement was
entered into (on September 1, 1978) was covered. 2 4
As to petitioner's assigned error on the award of attorney's fees which, it argues, is
bereft of factual, legal and equitable justification, this Court finds the same well-taken.
On the matter of attorney's fees, it is an accepted doctrine that the award
thereof as an item of damages is the exception rather than the rule, and counsel's
fees are not to be awarded every time a party wins a suit. The power of the court
to award attorney's fees under Article 2208 of the Civil Code demands factual,
legal and equitable justi cation, without which the award is a conclusion without
a premise, its basis being improperly left to speculation and conjecture. In all
events, the court must explicitly state in the text of the decision, and not only in
the decretal portion thereof, the legal reason for the award of attorney's fees. 2 5
. . . (Underscoring and italics supplied; citations omitted)

WHEREFORE, the instant petition is PARTLY GRANTED. The assailed decision of the
Court of Appeals a rming that of the trial court is modi ed in that the award of attorney's
fees in favor of private respondent is deleted. The decision is affirmed in other respects.
SO ORDERED.
Puno, Panganiban, Sandoval-Gutierrez and Corona, JJ., concur.

Footnotes
1.Rollo at 29—42.

2.Id. at 44—45.
3.Records at 9—23.
4.Id. at 10—11.
5.Id. at 22.
6.Id. at 16—17.

7.Exhibits "G-1", "G-2", "G-3"; Records at 586—593.

8.Ibid.
9.Records at 12.
10.Rollo at 12 and 82.
11.Records at 322—327.

12.Id. at 324—325.
13.Exhibit "G-6"; Records at 598—604.
14.P4,853,503.00 is the amount prayed for in the complaint but it is noted that the total amount
of these figures is P4,853,563.00.
15.Id. at 13; Records at 4.
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 16.Records at 1—25.

17.See footnote 14.

18.Id. at 757—760.
19.See footnote 14. Plaintiff did not move to reconsider the amount adjudged to it.
20.Rollo at 14.
18.Id. at 15.

19.297 SCRA 170 (1998).

21.Rollo at 92—93.
22.Id. at 21.
23.Records at 17—18.

24.Transcript of Stenographic Notes, July 27, 1988 at 5.

25.Central Azucarera de Bais v. CA, 188 SCRA 328 (1990).

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