AF Realty & Development, Inc. vs. Dieselman Freight Services, Co.

A sale of a piece of land or any interest therein effected through an agent is void if the agent's authority is not in writing, and such void contract cannot be ratified by acceptance of benefits. The authority must emanate from the principal — here, the corporate board — and a director who himself lacks authority cannot confer any upon sub-agents.

Dieselman Freight Service Co. is a domestic corporation and the registered owner of a 2,094-square-meter commercial lot in Pasig City, covered by Transfer Certificate of Title No. 39849. Manuel C. Cruz, Jr. sat on Dieselman's board of directors, while Manuel F. Cruz, Sr. served as its president. AF Realty & Development, Inc. is a corporation whose board member and vice-president, Zenaida Ranullo, negotiated to purchase the property. Midas Development Corporation is a third party that subsequently bought the same lot from Dieselman. The dispute centers on whether Cruz, Jr.'s unilateral authorization to brokers to find a buyer could bind Dieselman in a contract of sale, and which of the two buyers — AF Realty or Midas — has the superior right over the property.

Dieselman Freight Service Co. is a domestic corporation and the registered owner of a 2,094-square-meter commercial lot located at 104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, covered by Transfer Certificate of Title No. 39849. On May 10, 1988, Manuel C. Cruz, Jr., a member of Dieselman's board of directors, issued a letter denominated "Authority To Sell Real Estate" to Cristeta N. Polintan, a real estate broker of CNP Real Estate Brokerage, authorizing her to look for 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. had no written authority from Dieselman to sell the lot. In turn, Polintan, through a letter dated May 19, 1988, authorized Felicisima Noble to sell the same lot.

Felicisima Noble then offered the property to AF Realty & Development, Inc. at P2,500.00 per square meter. 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" indicating that the P300,000.00 represented partial payment of the property but was refundable within two weeks should AF Realty disapprove Ranullo's action. On June 29, 1988, AF Realty confirmed its intention to buy the lot, and Ranullo asked Polintan for the board resolution of Dieselman authorizing the sale. Polintan could only provide the original copy of TCT No. 39849, the tax declaration and tax receipt, and a photocopy of Dieselman's Articles of Incorporation.

On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per square meter. AF Realty replied that it had paid an initial down payment and was willing to pay the balance. However, on August 13, 1988, Cruz, Sr. terminated the offer and demanded the return of the title earlier delivered by Polintan.

Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation executed a Deed of Absolute Sale of the same property at P2,800.00 per square meter. Midas delivered P500,000.00 as down payment and deposited the balance of P5,300,000.00 in an escrow account with PCIBank. The sale to Midas was authorized by a board resolution of Dieselman dated May 27, 1988. On August 15, 1988, AF Realty annotated a notice of lis pendens on the title of the property.

Claiming a perfected contract of sale, AF Realty filed a complaint for specific performance against Dieselman and Cruz, Jr. with the RTC of Pasig City, praying that Dieselman be ordered to execute and deliver a final deed of sale in its favor, and seeking compensatory, exemplary, and moral damages, as well as attorney's fees. Midas filed a motion for leave to intervene, alleging it had purchased the property and taken possession thereof. The trial court granted the motion and eventually ruled in favor of AF Realty, declaring a perfected contract and ordering Dieselman to execute the deed of sale. The Court of Appeals reversed, holding that the sale to AF Realty was void for lack of written authority and that the sale to Midas was valid. The appellate court initially awarded damages against Dieselman and Cruz, Jr. jointly and severally, but on reconsideration modified the award to hold only Cruz, Jr. liable, plus restitution of the P300,000.00.

• Ratification by Acceptance of Benefits: Petitioner AF Realty maintained that the sale of land by an unauthorized agent may be ratified where there is acceptance of the benefits involved, arguing that the receipt by Cruz, Jr. of the P300,000.00 as partial payment effectively bound Dieselman.
• Right Over the Property: Petitioner asserted that a perfected contract of sale existed between AF Realty and Dieselman, entitling AF Realty to specific performance and the conveyance of the subject lot.

• No Meeting of the Minds: Respondent Dieselman alleged that there was no meeting of the minds between the parties on the sale of the property and that it did not authorize any person to enter into such a transaction on its behalf.
• Validity of Sale to Midas: Respondent Midas averred that it validly purchased the property from Dieselman and that it was not in bad faith when it bought the lot, the notice of lis pendens having been annotated only after the sale was executed.
• No Damages Against Cruz, Jr.: Respondent Cruz, Jr. should not be held liable for damages, as AF Realty's own vice-president admitted she knew no written board authority existed for the transaction.

• Authority of Agent: Whether the sale of Dieselman's lot to AF Realty was valid despite Cruz, Jr. lacking written authority from the corporate board to sell the property or to appoint sub-agents.
• Ratification: Whether the acceptance of the P300,000.00 partial payment constituted ratification of the void sale.
• Validity of Sale to Midas: Whether the sale of the same property to Midas Development Corporation was valid and whether Midas acted in bad faith.
• Award of Damages: Whether Cruz, Jr. should be held liable for moral and exemplary damages and attorney's fees.

• Authority of Agent: No. The sale was void because Cruz, Jr. had no written authority from Dieselman's board of directors, and he could not confer authority upon Polintan or Noble that he himself did not possess.
• Ratification: No. A sale of land through an agent without written authority is void under Article 1874 of the Civil Code, and void contracts cannot be ratified under Article 1409.
• Validity of Sale to Midas: Yes. The sale to Midas was valid, having been authorized by a board resolution dated May 27, 1988, and executed on July 30, 1988, before the annotation of lis pendens on August 15, 1988.
• Award of Damages: No. The award of damages and attorney's fees was deleted because AF Realty's vice-president admitted she knew Cruz, Jr. lacked written authority yet still tendered the partial payment.

• Authority of Agent: Under Section 23 of the Corporation Code, corporate powers are exercised by the board of directors, which may delegate functions to officers or agents. Absent valid delegation, the declarations of an individual director not made in the course of authorized duties are not binding on the corporation. Cruz, Jr. had no written authority from Dieselman's board to sell the lot or to appoint others for that purpose. By the principle of nemo dat quod non habet, he could not confer upon Polintan any authority he himself lacked, and Polintan could not in turn authorize Noble. The collective acts of Cruz, Jr., Polintan, and Noble thus could not bind Dieselman.

• Ratification: The case involves a sale of land through an agent, so the law on agency under the Civil Code governs. Article 1874 expressly requires that the authority of an agent in a sale of a piece of land be in writing; otherwise, the sale is void. Because the authority was not in writing, the sale was void ab initio. Under Article 1409(7), contracts expressly prohibited or declared void by law are inexistent and void from the beginning and cannot be ratified. The acceptance of the P300,000.00 partial payment could not operate as ratification of a void contract.

• Validity of Sale to Midas: The sale to Midas was authorized by a board resolution of Dieselman dated May 27, 1988, and the Deed of Absolute Sale was executed on July 30, 1988. The notice of lis pendens was annotated on the title only on August 15, 1988, subsequent to the sale. A subsequently registered notice of lis pendens operates prospectively and does not retroact to make the prior sale a conveyance in bad faith. The notarized deed of sale is a public document, admissible as to the date and fact of its execution without further proof, and the evidence to overcome its presumption of regularity must be strong, not merely preponderant.

• Award of Damages: Ranullo, AF Realty's vice-president, admitted in her testimony that a board resolution from Dieselman authorizing the sale was necessary to bind the corporation and that Cruz, Jr. had no such written authority. Despite this knowledge and despite demand, the written authority was never presented, yet she still tendered the partial payment. Given AF Realty's awareness of the lack of authority, Cruz, Jr. could not be held to have acted in bad faith warranting an award of damages and attorney's fees.

• Nemo dat quod non habet — No one can give what one does not have. Applied to corporate agency: a director who lacks authority from the corporate board cannot confer authority upon an agent, and that agent cannot in turn confer authority upon a sub-agent. The collective acts of unauthorized persons cannot bind the corporation.

• Written Authority in Sale of Land Through an Agent (Article 1874, Civil Code) — When a sale of a 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. The requisites are: (1) the transaction is a sale of land or any interest therein; (2) it is effected through an agent; and (3) the agent's authority must be in writing. Absent any of these, the sale is void.

• Void Contracts Not Susceptible of Ratification (Article 1409, Civil Code) — Contracts expressly prohibited or declared void by law are inexistent and void from the very beginning and cannot be ratified. Neither can the right to set up the defense of illegality be waived. A void sale of land through an unauthorized agent cannot be cured by acceptance of benefits or any subsequent act of ratification.

• Corporate Agency Principles — A corporation acts through its board of directors or duly authorized agents. The same general principles of agency that govern relations between natural persons govern the officers or agents of a corporation in respect to their power to act for the corporation. Agents of a corporation are subject to the same rules, liabilities, and incapacities as agents of individuals.

• "When a sale of a 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." — This is the text of Article 1874 of the Civil Code, the controlling provision that renders the sale to AF Realty void for lack of written authority from the corporate board.

• "These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived." — This passage from Article 1409 of the Civil Code establishes that void contracts — including a sale of land through an unauthorized agent — are not susceptible of ratification, defeating AF Realty's argument that acceptance of the P300,000.00 partial payment bound Dieselman.

• "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." — This passage from the Court of Appeals' ratiocination, adopted by the Supreme Court, articulates the principle that unauthorized agents cannot transmit authority they do not possess, binding neither the corporation nor the principal.

• Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763 (1992) — Cited as controlling authority for the proposition that the same general principles of agency governing natural persons govern corporate officers and agents in their power to act for the corporation, and that corporate agents are subject to the same rules, liabilities, and incapacities as agents of individuals.

• Citibank, N.A. vs. Chua, 220 SCRA 75 (1993) — Cited for the rule that 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.

• Baretto vs. La Previsora Filipina, 57 Phil. 649 (1932) — Cited in support of the principle that corporate powers are exercised by the board of directors or duly authorized agents.

• Mendezona vs. Philippine Sugar Estates Development Co., 41 Phil. 475 (1921) — Cited for the rule that declarations of an individual director relating to corporate affairs, but not made in the course of authorized duties, are not binding on the corporation.

• Article 1874, Civil Code — Requires that when a sale of a 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. Applied to hold that Cruz, Jr.'s lack of written authority from Dieselman's board rendered the sale to AF Realty void.

• Article 1409, Civil Code — Declares that contracts expressly prohibited or declared void by law are inexistent and void from the very beginning and cannot be ratified. Applied to bar AF Realty's argument that the void sale was ratifiable by acceptance of benefits.

• Section 23, Corporation Code — Provides that the corporate powers of all corporations shall be exercised by the board of directors. Applied to establish that Cruz, Jr., as an individual director, could not bind Dieselman without board authorization.

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