AF Realty & Development, Inc. v. Dieselman Freight Services, Co.
REITERATIONFacts
The Antecedents: Dieselman Freight Service Co. (Dieselman) is the registered owner of a commercial lot. Manuel C. Cruz, Jr., a director of Dieselman, issued an "Authority To Sell Real Estate" to real estate broker Cristeta N. Polintan, authorizing her to sell the lot at P3,000.00 per square meter. Cruz, Jr. had no written authority from Dieselman. Polintan, in turn, authorized Felicisima Noble to sell the same lot. Noble offered the property to AF Realty & Development, Inc. (AF Realty) at P2,500.00 per square meter. Zenaida Ranullo, VP of AF Realty, accepted the offer and issued a P300,000.00 check payable to Dieselman. Polintan received the check as partial payment, refundable within two weeks if AF Realty disapproved Ranullo's action. AF Realty confirmed its intention to buy, but Polintan could only provide the title, tax declaration, and a photocopy of Dieselman's Articles of Incorporation, not a board resolution authorizing the sale. Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the P300,000.00 as "earnest money" but demanded P4,000.00 per square meter. AF Realty agreed to pay the balance. However, Cruz, Sr. terminated the offer and demanded the return of the title. Meanwhile, Dieselman executed a Deed of Absolute Sale of the same property to Midas Development Corporation (Midas) for P2,800.00 per square meter, with Midas paying P500,000.00 as down payment and depositing the balance in escrow. Procedural History: AF Realty filed a complaint for specific performance against Dieselman and Cruz, Jr., praying for the execution of a final deed of sale and damages. Midas intervened, alleging it purchased the property and took possession. The Regional Trial Court (RTC) ruled in favor of AF Realty, holding that Cruz, Jr.'s acts bound Dieselman, thus perfecting a sale between them, which barred Midas' intervention. The RTC also found Midas to have acted in bad faith. On appeal, the Court of Appeals (CA) reversed the RTC's decision, holding that the sale to AF Realty was not perfected because Cruz, Jr. lacked written authority. The CA found the sale to Midas valid, with no bad faith on Midas' part. The CA initially awarded damages and attorney's fees to AF Realty against Dieselman and Cruz, Jr., but later amended its decision to hold only Cruz, Jr. liable for damages and attorney's fees, plus the P300,000.00 partial payment. AF Realty filed a petition for review on certiorari with the Supreme Court. The Petition: AF Realty assails the CA's decision, arguing that the CA committed errors of law.
Issue(s)
Whether a perfected contract of sale exists between AF Realty and Dieselman. Whether the sale of the subject lot to Midas is valid. Whether Cruz, Jr. is liable for damages and attorney's fees.
Ruling
The Supreme Court affirmed the Court of Appeals' decision with modification, deleting the award of damages and attorney's fees against Cruz, Jr. and ordering Dieselman to return the P300,000.00 partial payment to AF Realty.
Ratio Decidendi
On the existence of a perfected contract of sale between AF Realty and Dieselman: The Court held that no perfected contract of sale existed between AF Realty and Dieselman. This is because the sale of land through an agent requires the agent's authority to be in writing, as mandated by Article 1874 of the Civil Code. In this case, Manuel C. Cruz, Jr., who purportedly authorized the sale, had no written authority from the board of directors of Dieselman. Consequently, he could not confer any authority to Cristeta Polintan, who in turn could not authorize Felicisima Noble. The acts of these individuals, therefore, could not bind Dieselman. The Court emphasized that a corporation acts through its board of directors, and any contract must be made by the board or by a duly authorized agent. Since Cruz, Jr. lacked the requisite written authority, the purported sale was void from the beginning and could not be ratified, pursuant to Article 1409 of the Civil Code. The acceptance of the P300,000.00 as partial payment did not constitute ratification of a void contract. On the validity of the sale of the subject lot to Midas: The Court affirmed the validity of the sale between Dieselman and Midas. The records showed that this sale was authorized by a board resolution of Dieselman dated May 27, 1988. Furthermore, the Court found no bad faith on the part of Midas. The notice of lis pendens was annotated on the property's title after the sale to Midas, and such subsequent annotation operates prospectively and does not prove bad faith. The Deed of Absolute Sale between Dieselman and Midas was a public document, duly acknowledged before a notary public, and was admissible as proof of its execution and date. The Court found no strong evidence to prove defects or lack of consent in its execution. On the liability of Cruz, Jr. for damages and attorney's fees: The Court deleted the award of damages and attorney's fees against Cruz, Jr. The Court noted that Zenaida Ranullo, VP of AF Realty, admitted that a board resolution from Dieselman was necessary to bind the company and that Cruz, Jr. had no such written authority. Despite this knowledge, Ranullo proceeded with the partial payment. Therefore, Cruz, Jr. should not be held liable for damages and attorney's fees, as AF Realty proceeded with the transaction despite the apparent lack of authority. The Court ordered Dieselman to return the P300,000.00 partial payment to AF Realty.
Main Doctrine
A sale of a piece of land or any interest therein through an agent is void if the agent's authority is not in writing, and such void contract cannot be ratified.