G.R. No.

111448 January 16, 2002

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners,

SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari assailing the Decision dated December 10, 1992 and the Resolution
(Amending Decision) dated August 5, 1993 of the Court of Appeals in CA-G.R. CV No. 30133.

Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a registered
owner of a parcel of commercial lot consisting of 2,094 square meters, located at 104 E. Rodriguez
Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is covered by Transfer Certificate of
Title No. 39849 issued by the Registry of Deeds of the Province of Rizal.1

On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a
letter denominated as "Authority To Sell Real Estate"2 to Cristeta N. Polintan, a real estate broker of
the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers and
negotiate the sale" of the lot at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr.
has no written authority from Dieselman to sell the lot.

In turn, Cristeta Polintan, through a letter3 dated May 19, 1988, authorized Felicisima ("Mimi")
Noble4 to sell the same lot.

Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at
P2,500.00 per square meter.5 Zenaida Ranullo, board member and vice-president of AF Realty,
accepted the offer and issued a check in the amount of P300,000.00 payable to the order of
Dieselman. Polintan received the check and signed an "Acknowledgement Receipt"6 indicating that
the amount of P300,000.00 represents the partial payment of the property but refundable within two
weeks should AF Realty disapprove Ranullo's action on the matter.

On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan
for the board resolution of Dieselman authorizing the sale of the property. However, Polintan could
only give Ranullo the original copy of TCT No. 39849, the tax declaration and tax receipt for the lot,
and a photocopy of the Articles of Incorporation of Dieselman.7

On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said
P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per square
meter.8 AF Realty replied that it has paid an initial down payment of P300,000.00 and is willing to pay
the balance.9

However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the
return of the title of the lot earlier delivered by Polintan.10

Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional
Trial Court, Branch 160, Pasig City a complaint for specific performance (Civil Case No. 56278)
against Dieselman and Cruz, Jr.. The complaint prays that Dieselman be ordered to execute and
deliver a final deed of sale in favor of AF Realty.11 In its amended complaint,12 AF Realty asked for
payment of P1,500,000.00 as compensatory damages; P400,000.00 as attorney's fees; and
P500,000.00 as exemplary damages.

In its answer, Dieselman alleged that there was no meeting of the minds between the parties in the
sale of the property and that it did not authorize any person to enter into such transaction on its
behalf.

Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed a
Deed of Absolute Sale13 of the same property. The agreed price was P2,800.00 per square meter.
Midas delivered to Dieselman P500,000.00 as down payment and deposited the balance of
P5,300,000.00 in escrow account with the PCIBank.

Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave to
Intervene in Civil Case No. 56278. Midas alleged that it has purchased the property and took
possession thereof, hence Dieselman cannot be compelled to sell and convey it to AF Realty. The
trial court granted Midas' motion.

After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr. bound
Dieselman in the sale of the lot to AF Realty.14 Consequently, the perfected contract of sale between
Dieselman and AF Realty bars Midas' intervention. The trial court also held that Midas acted in bad
faith when it initially paid Dieselman P500,000.00 even without seeing the latter's title to the property.
Moreover, the notarial report of the sale was not submitted to the Clerk of Court of the Quezon City
RTC and the balance of P5,300,000.00 purportedly deposited in escrow by Midas with a bank was
not established.1âwphi1.nêt

The dispositive portion of the trial court's Decision reads:

"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to

"The counterclaim of defendants is necessarily dismissed.

"The counterclaim and/or the complaint in intervention are likewise dismissed

"SO ORDERED."15

Dissatisfied, all the parties appealed to the Court of Appeals.

AF Realty alleged that the trial court erred in not holding Dieselman liable for moral, compensatory
and exemplary damages, and in dismissing its counterclaim against Midas.

Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a contract
of sale between Dieselman and AF Realty was perfected. Midas further averred that there was no
bad faith on its part when it purchased the lot from Dieselman.

In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the trial
court holding that since Cruz, Jr. was not authorized in writing by Dieselman to sell the subject
property to AF Realty, the sale was not perfected; and that the Deed of Absolute Sale between
Dieselman and Midas is valid, there being no bad faith on the part of the latter. The Court of Appeals
then declared Dieselman and Cruz, Jr. jointly and severally liable to AF Realty for P100,000.00 as
moral damages; P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees.16

On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the parties,
promulgated an Amending Decision, the dispositive portion of which reads:

"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the
sense that only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the
damages and attorney's fees awarded therein, plus the amount of P300,000.00 unless, in
the case of the said P300,000.00, the same is still deposited with the Court which should be
restituted to plaintiffs.

"SO ORDERED."17

AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals
committed errors of law.

The focal issue for consideration by this Court is who between petitioner AF Realty and respondent
Midas has a right over the subject lot.

The Court of Appeals, in reversing the judgment of the trial court, made the following ratiocination:

"From the foregoing scenario, the fact that the board of directors of Dieselman never
authorized, verbally and in writing, Cruz, Jr. to sell the property in question or to look for
buyers and negotiate the sale of the subject property is undeniable.

"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate
the sale of the subject property, it should be noted that Cruz, Jr. could not confer on Polintan
any authority which he himself did not have. Nemo dat quod non habet. In the same manner,
Felicisima Noble could not have possessed authority broader in scope, being a mere
extension of Polintan's purported authority, for it is a legal truism in our jurisdiction that a
spring cannot rise higher than its source. Succinctly stated, the alleged sale of the subject
property was effected through persons who were absolutely without any authority
whatsoever from Dieselman.

"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial
payment of the purchase price of the subject property is equally untenable. The sale of land
through an agent without any written authority is void.

xxx xxx xxx

"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas,
the records bear out that Midas purchased the same from Dieselman on 30 July 1988. The
notice of lis pendens was subsequently annotated on the title of the property by plaintiffs on
15 August 1988. However, this subsequent annotation of the notice of lis pendens certainly
operated prospectively and did not retroact to make the previous sale of the property to
Midas a conveyance in bad faith. A subsequently registered notice of lis pendens surely is
not proof of bad faith. It must therefore be borne in mind that the 30 July 1988 deed of sale
between Midas and Dieselman is a document duly certified by notary public under his hand
and seal. x x x. Such a deed of sale being public document acknowledged before a notary
 public is admissible as to the date and fact of its execution without further proof of its due
execution and delivery (Bael vs. Intermediate Appellate Court, 169 SCRA617; Joson vs.
Baltazar, 194 SCRA 114) and to prove the defects and lack of consent in the execution
thereof, the evidence must be strong and not merely preponderant x x x."18

We agree with the Court of Appeals.

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations
shall be exercised by the board of directors. Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its
functions to individual officers or agents appointed by it.19 Thus, contracts or acts of a corporation
must be made either by the board of directors or by a corporate agent duly authorized by the
board.20 Absent such valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are held not binding on the corporation.21

In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the board
of directors of respondent Dieselman to sell or to negotiate the sale of the lot, much less to appoint
other persons for the same purpose. Respondent Cruz, Jr.'s lack of such authority precludes him
from conferring any authority to Polintan involving the subject realty. Necessarily, neither could
Polintan authorize Felicisima Noble. Clearly, the collective acts of respondent Cruz, Jr., Polintan and
Noble cannot bind Dieselman in the purported contract of sale.

Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified where,
as here, there is acceptance of the benefits involved. In this case the receipt by respondent Cruz, Jr.
from AF Realty of the P300,000.00 as partial payment of the lot effectively binds respondent
Dieselman.22

We are not persuaded.

Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil
Code takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals:23

"Since a corporation, such as the private respondent, can act only through its officers and
agents, all acts within the powers of said corporation may be performed by agents of its
selection; and, except so far as limitations or restrictions may be imposed by special
charter, by-law, or statutory provisions, the same general principles of law which govern
the relation of agency for a natural person govern the officer or agent of a corporation,
of whatever status or rank, in respect to his power to act for the corporation; and
agents when once appointed, or members acting in their stead, are subject to thesame
rules, liabilities, and incapacities as are agents of individuals and private persons."
(Emphasis supplied)

Pertinently, Article 1874 of the same Code provides:

"ART. 1874. When a sale of piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void."
(Emphasis supplied)

Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized
by respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not
susceptible of ratification by clear mandate of Article 1409 of the Civil Code, thus:
 "ART. 1409. The following contracts are inexistent and void from the very beginning:

xxx

(7) Those expressly prohibited or declared void by law.

"These contracts cannot be ratified. Neither can the right to set up the defense of illegality
be waived." (Emphasis supplied)

Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable.
As aptly noted by the Court of Appeals,24 the sale was authorized by a board resolution of respondent
Dieselman dated May 27, 1988. 1âwphi1.nêt

The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of
petitioner AF Realty and against respondent Cruz, Jr.. The award was made by reason of a breach
of contract imputable to respondent Cruz, Jr. for having acted in bad faith. We are no persuaded. It
bears stressing that petitioner Zenaida Ranullo, board member and vice-president of petitioner AF
Realty who accepted the offer to sell the property, admitted in her testimony25 that a board resolution
from respondent Dieselman authorizing the sale is necessary to bind the latter in the transaction;
and that respondent Cruz, Jr. has no such written authority. In fact, despite demand, such written
authority was not presented to her.26 This notwithstanding, petitioner Ranullo tendered a partial
payment for the unauthorized transaction. Clearly, respondent Cruz, Jr. should not be held liable for
damages and attorney's fees.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED withMODIFICATION in the sense that the award of damages and attorney's fees
is deleted. Respondent Dieselman is ordered to return to petitioner AF Realty its partial payment of
P300,000.00. Costs against petitioners.

SO ORDERED.

Melo, Vitug, Panganiban, and Carpio, JJ., concur.

Footnote

1
Rollo, p. 129.

2
Exhibit "J," Records of RTC, p. 112.

3
Exhibit "I," ibid, p. 111.

4
A real estate broker of Noblehaus Realty and Marketing.

5
Exhibit "A", ibid., p. 102.

6
Exhibit "C", ibid., p. 104.
7
Transcript of Stenographic Notes (TSN), December 7, 1988, p. 18.

8
Exhibit "F", Records of RTC, p. 107.

9
Exhibit "G", ibid., p.108.

10
Exhibit "4", ibid., p. 242.

11
Records of RTC, p. 6.

12
Ibid., pp. 11-17.

13
Exhibit "M", ibid., p. 193.

14
Rollo, pp. 13-15.

15
Ibid, pp. 17-18.

16
Rollo, pp. 51-71.

17
Ibid., pp.15-16.

18
Ibid. pp. 12-13.

19
Citibank, N.A. vs. Chua, 220 SCRA 75 (1993).

20
Baretto vs. La Previsora Filipina, 57 Phil. 649 (1932).

21
Mendezona vs. Philippine Sugar Estates Development Co., 41 Phil. 475 (1921).

22
Rollo, pp. 22 and 24.

23
209 SCRA 763 (1992).

24
See assailed Resolution (Amending Decision) dated August 5, 1993, p. 12; Rollo, p. 84.

25
TSN, December 7, 1988, pp. 18-20; pp. 53-54.

26
Ibid.