Woodchild Holdings, Inc. vs. Roxas Electric and Construction Company, Inc.

A corporate president's grant of a right of way and an option to purchase a portion of property not covered by the board resolution authorizing the sale is ultra vires and unenforceable against the corporation absent express or implied ratification, but the corporation remains liable for damages for its breach of a distinct contractual undertaking—specifically, the failure to evict squatters within the stipulated period—where such breach caused foreseeable pecuniary loss to the buyer.

Respondent Roxas Electric and Construction Company, Inc. (RECCI) owned two adjoining parcels of land in Antipolo, Rizal: Lot No. 491-A-3-B-1 covered by TCT No. 78085 and Lot No. 491-A-3-B-2 covered by TCT No. 78086. A portion of Lot No. 491-A-3-B-1 abutting Lot No. 491-A-3-B-2 served as a dirt road accessing Sumulong Highway. Petitioner Woodchild Holdings, Inc. (WHI) sought to purchase Lot No. 491-A-3-B-2 for warehouse construction and needed ingress and egress for its 45-foot container vans. The Corporation Code (BP 68) governs the authority of corporate officers to bind the corporation, requiring board authorization for the sale or encumbrance of corporate property.

RECCI, through its Board of Directors, passed a resolution on May 17, 1991 authorizing its president, Roberto B. Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of 7,213 square meters, at a price and on terms and conditions he deemed most reasonable and advantageous to the corporation, and to execute, sign, and deliver the pertinent sales documents and receive the proceeds. WHI, whose president was Jonathan Y. Dy, wanted to buy the lot for warehouse construction and needed access for its 45-foot container vans. In a letter dated June 21, 1991, Dy offered to buy the property at ₱1,000 per square meter or ₱7,213,000, with a provision that if the right of way proved insufficient for the buyer's purposes, the seller agreed to sell additional square meters from its current adjacent property to allow full access and use. Roxas indicated his acceptance on page 2 of the deed.

On July 1, 1991, Roxas and Dy executed a contract to sell for ₱7,213,000. On September 5, 1991, a Deed of Absolute Sale was executed for ₱5,000,000, containing stipulations granting WHI beneficial use of and a right of way from Sumulong Highway consisting of 25 square meters wide, plus an additional 25 square meters as a turning and maneuvering area from Lot No. 491-A-3-B-1, and providing that if the right of way was insufficient, the vendor agreed to sell additional square meters from its adjacent property. The deed also required the vendor to eject all squatters within two weeks from signing, failing which the vendee could cancel the sale and demand reimbursement with 36% interest per annum. Roxas signed the deed as president of RECCI.

WHI engaged Wimbeco Builder's, Inc. (WBI), which submitted a quotation on September 10, 1991 for ₱8,649,000 to construct the warehouse, with construction to start October 1, 1991 and turnover by February 29, 1992. Ponderosa Leather Goods Company, Inc. confirmed a lease agreement on September 16, 1991 for a 5,000-square-meter portion at ₱65 per square meter, requiring the warehouse to be ready before April 1, 1992. WBI could not commence construction on October 1, 1991 because squatters still occupied the property. The squatters were eventually evicted only after WHI wrote RECCI on April 15, 1992 demanding compliance. On March 31, 1992, WHI and WBI executed a letter-contract for construction at ₱11,804,160, reflecting increased costs. Construction began in April 1992, the building permit was issued on May 28, 1992, and the warehouse was completed and leased to Ponderosa on March 18, 1993 at ₱300,000 monthly for three years.

WHI complained to Roxas that RECCI vehicles were parked on the right-of-way area and discussed purchasing a 500-square-meter portion of Lot No. 491-A-3-B-1 as provided in the deed. Roxas promised to look into the matter but died soon thereafter. WHI wrote RECCI on April 15, 1992 reiterating its demand to purchase a portion of the adjacent lot and complaining about the failure to evict squatters. RECCI rejected the demand. WHI reiterated on May 29, 1992 but received no response. On June 17, 1992, WHI filed a complaint for specific performance and damages against RECCI with the RTC of Makati. RECCI denied authorizing Roxas to grant a right of way or agree to sell any portion of Lot No. 491-A-3-B-1, contending that the board resolution authorized only the sale of Lot No. 491-A-3-B-2 and that the assailed provisions were ultra vires and lacked the essential elements of a binding contract.

• Ultra Vires Ruling: Petitioner asserted that the CA erred in holding the deed of absolute sale ultra vires, contending that the May 17, 1991 board resolution authorized Roxas to grant a right of way and an option to buy a portion of the adjacent lot, and that RECCI was estopped from disowning Roxas's authority after allowing him to execute the deed and receiving the purchase price without objection.
• Validity of Right of Way Stipulations: Petitioner maintained that the stipulations granting beneficial use of the existing right of way plus 25 and 55 square meters were valid agreements binding both parties, having been accepted by Roxas on behalf of RECCI.
• No Disadvantage to Respondent: Petitioner argued that there was no factual basis for the CA's finding that the stipulations were disadvantageous to RECCI or that RECCI was deprived of property without due process.
• Due Process Violation: Petitioner contended that it was WHI, not RECCI, that was deprived of property without due process by the CA's decision.
• Cause of Construction Delay: Petitioner asserted that the delay in construction was caused by RECCI's failure to evict squatters as agreed in the deed of absolute sale, not by any fault of WHI.
• Entitlement to Damages: Petitioner argued that the CA erred in reversing the trial court's award of ₱5,568,000 in actual damages and unrealized income, as well as attorney's fees.

• Lack of Board Authorization: Respondent countered that Roxas was not authorized under the May 17, 1991 board resolution to impose a burden or grant a right of way over Lot No. 491-A-3-B-1, much less convey a portion thereof, as the resolution authorized only the sale of Lot No. 491-A-3-B-2.
• No Binding Agreement on Price and Area: Respondent argued that the petitioner could not enforce its right to buy a portion of the adjacent property because the deed contained no agreement on the price, specific portion, or area to be purchased, thus lacking the essential elements of a binding contract.
• Delay Due to Petitioner's Fault: Respondent asserted that the delay in warehouse construction was attributable to the petitioner's late filing of a building permit application, filed only on May 28, 1992.

• Authority of Corporate Officer: Whether the respondent is bound by the provisions in the deed of absolute sale granting the petitioner beneficial use and a right of way over a portion of Lot No. 491-A-3-B-1 and an option to buy a portion thereof, and whether such agreement is enforceable against the respondent.
• Squatter Eviction: Whether the respondent failed to eject the squatters on its property within two weeks from the execution of the deed of absolute sale.
• Liability for Damages: Whether the respondent is liable to the petitioner for damages.

• Authority of Corporate Officer: No. The provisions granting a right of way and an option to purchase a portion of Lot No. 491-A-3-B-1 were ultra vires and unenforceable against the respondent, the board resolution having authorized only the sale of Lot No. 491-A-3-B-2 and not the creation or conveyance of real rights over the adjacent lot.
• Squatter Eviction: Yes. The respondent failed to eject the squatters within the stipulated two-week period, and the squatters remained on the property until after the petitioner's demand letter of April 15, 1992.
• Liability for Damages: Yes. The respondent is liable for actual damages of ₱5,612,980 and attorney's fees of ₱100,000 for its breach of the contractual undertaking to evict squatters, which caused construction delays and lost rental income.

• Authority of Corporate Officer: Under Section 23 of the Corporation Code (BP 68), corporate powers are exercised by the board of directors, and a corporation acts only through its board or through officers or agents duly authorized. The general principles of agency govern the relationship between the corporation and its officers. Acts of corporate officers within the scope of their authority bind the corporation, but acts beyond that scope are unenforceable unless ratified expressly or tacitly (Article 1910, Civil Code). The May 17, 1991 board resolution authorized Roxas only to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 "at a price and on terms and conditions which he deems most reasonable and advantageous." It did not authorize him to grant a right of way over, or agree to sell a portion of, the adjacent Lot No. 491-A-3-B-1. Under Article 1878(12) of the Civil Code, a special power of attorney is required to create or convey real rights over immovable property, and Article 1358 requires that such contracts appear in a public document. Persons dealing with an assumed agent are bound to ascertain the nature and extent of authority, and the burden of proof lies on them. The petitioner failed to prove that the respondent authorized Roxas to grant the right of way or the option. Apparent authority was likewise unavailing, as it requires acts or conduct on the part of the principal justifying belief in the agency, knowledge by the principal, and reliance by the third person — none of which were established. Retention of the purchase price did not constitute implied ratification, because the respondent had an independent right to retain payment for the lot it actually sold, and ratification of an act requiring written authority must itself be in writing.

• Squatter Eviction: The respondent did not deny that it failed to evict the squatters within two weeks of the deed's execution on September 5, 1991. The squatters remained on the property when WHI wrote its demand letter on April 15, 1992, and were evicted only thereafter. The respondent's own amended answer attributed the delay to the petitioner's failure to secure a building permit, but the Court found that the petitioner could not reasonably have filed for a building permit while squatters still occupied the property. The delay in construction from October 1991 to April 1992 was thus directly attributable to the respondent's breach.

• Liability for Damages: Because the respondent failed to evict the squatters as contractually agreed, the petitioner's contractor could not commence construction at the original price of ₱8,649,000. The subsequent construction contract cost ₱11,804,160, including additional work of ₱1,441,500, resulting in a net increase of ₱1,712,980. Under Article 1170 of the Civil Code, those who contravene the tenor of their obligations are liable for damages. The respondent was also liable for ₱3,900,000 in unearned rental income from Ponderosa, under Articles 2200 and 2201, which comprehend not only the value of the loss suffered but also profits the obligee failed to obtain, as these were natural and probable consequences of the breach that the parties could have reasonably foreseen. The total award of actual damages was ₱5,612,980, plus ₱100,000 in attorney's fees.

• Corporate Authority and Agency — A corporation acts only through its board of directors or through officers or agents duly authorized by the board or by-laws. The general principles of agency govern the relation between the corporation and its officers. Acts of corporate officers within the scope of their authority bind the corporation; acts beyond that scope are unenforceable unless ratified expressly or tacitly, or the corporation is estopped from denying them. Persons dealing with an assumed agent bear the burden of ascertaining the nature and extent of the agent's authority.

• Apparent Authority Based on Estoppel — Apparent authority arises when (a) the principal knowingly permits the agent to hold himself out as having such authority, or (b) the principal clothes the agent with indicia of authority leading a reasonably prudent person to believe the agent has such authority. It requires proof of: (i) acts of the principal justifying belief in the agency; (ii) knowledge thereof by the principal; and (iii) reliance thereon by the third person consistent with ordinary care and prudence. Apparent power is determined by the acts of the principal, not the agent.

• Ratification of Unauthorized Acts — Ratification is based on waiver — the intentional relinquishment of a known right. For an act to constitute implied ratification, it must be inconsistent with any other hypothesis than that the principal approved and intended to adopt what was done. Ratification cannot be inferred from acts the principal has a right to do independently of the unauthorized act. If written authority is required to perform an act, ratification must also be in writing.

• Strict Construction of Powers of Attorney — Powers of attorney are generally construed strictly; courts will not infer or presume broad powers from deeds that do not sufficiently include the property or subject matter. The agent can neither go beyond nor beside the authority granted; the act done must be legally identical with that authorized.

• "Indubitably, a corporation may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law." — This passage articulates the foundational principle governing corporate authority and agency, establishing the framework for determining when a corporate officer's acts bind the corporation.

• "Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable against the corporation unless ratified by the corporation." — This states the controlling rule on ultra vires corporate contracts, directly linking Article 1910 of the Civil Code and Article 1403(1) to corporate transactions.

• "For an act of the principal to be considered as an implied ratification of an unauthorized act of an agent, such act must be inconsistent with any other hypothesis than that he approved and intended to adopt what had been done in his name." — This defines the standard for implied ratification, distinguishing acts that independently justify themselves from those that signal adoption of the unauthorized act.

• "The petitioner could not be expected to file its application for a building permit before April 1992 because the squatters were still occupying the property." — This finding resolves the causation issue on damages, establishing that the respondent's breach was the proximate cause of the construction delay and consequent losses.

• San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals, 296 SCRA 631 (1998) — Cited as controlling authority for the principle that a corporation is a juridical person separate from its stockholders, that corporate property may not be sold without board authorization, and that the general principles of agency govern the relation between the corporation and its officers.

• BA Finance Corporation vs. Court of Appeals, 211 SCRA 112 (1992) — Followed for the rule that persons dealing with an assumed agency are bound to ascertain the fact of agency and the nature and extent of authority, and that the burden of proof rests on them when either is controverted.

• Section 23, BP 68 (Corporation Code of the Philippines) — Provides that corporate powers shall be exercised, business conducted, and property controlled and held by the board of directors. Applied to establish that Roxas's authority was limited to what the board resolution conferred and could not extend to creating real rights over property not covered by the resolution.

• Article 1910, New Civil Code — States that the principal must comply with obligations contracted by the agent within the scope of authority, but is not bound by obligations wherein the agent exceeded power unless ratified expressly or tacitly. Applied to hold that Roxas's acts beyond the board resolution were unenforceable absent ratification.

• Article 1403(1), New Civil Code — Classifies as unenforceable contracts entered into in the name of another by one without authority or who has acted beyond powers, unless ratified. Applied to render the right-of-way and option provisions in the deed unenforceable against RECCI.

• Article 1878(12), New Civil Code — Requires a special power of attorney to create or convey real rights over immovable property. Applied to hold that the board resolution, which did not expressly authorize Roxas to grant a right of way or agree to sell a portion of the adjacent lot, was insufficient.

• Article 1358, New Civil Code — Requires that acts and contracts creating, transmitting, modifying, or extinguishing real rights over immovable property appear in a public document. Applied to underscore the formality required for the grant of a right of way and option to purchase.

• Article 1170, New Civil Code — Provides that those who contravene the tenor of their obligations are liable for damages. Applied to hold RECCI liable for its failure to evict squatters within the stipulated period.

• Articles 2200 and 2201, New Civil Code — Provide that indemnification for damages comprehends not only the value of the loss suffered but also profits the obligee failed to obtain, and that in contracts the obligor in good faith is liable for natural and probable consequences of the breach. Applied to award actual damages for increased construction costs and unearned rental income.

Puno, J. (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concurred.