AF REALTY & DEVELOPMENT INC. VS.

DIESELMAN FREIGHT SERVICES

CO.
FACTS:
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" 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 letter 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. 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 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.
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.
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.
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.
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.
On July 30, 1988, Dieselman and Midas Development Corporation (Midas)
executed a Deed of Absolute Sale of the same 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.
ISSUE:
Whether there was a perfected contract of sale involving the Dieselman real
property in favor of AF Realty.
HELD:
No. 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. 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. 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.
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.
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.
SAN JUAN STRUCTURAL AND STEEL FABRICATORS vs. COURT OF
APPEALS
FACTS:
February 14 1989: San Juan Structural and Steel Fabricators, Inc.'s (San
Juan) entered into an agreement with Motorich Sales Corporation (Motorich)
for the transfer to it of a parcel of land containing an area of 414 square
meters.
San Juan paid the down payment of P100,000, the balance to be paid on or
before March 2, 1989.
March 1, 1989: Mr. Andres T. Co, president of San Juan, wrote a letter course
through Motorich's broker requesting for a computation of the balance to be
paid.
March 2, 1989: San Juan was ready with the amount corresponding to the
balance, covered by Metrobank Cashier's Check, payable to Motorich. They
were supposed to meet in the office of San Juan but Motorich's treasurer,
Nenita Lee Gruenberg, did not appear.
Motorich refused to execute the Transfer of Rights/Deed of Assignment which
is necessary to transfer the certificate of title.
ACL Development Corp. (ACL) is impleaded as a necessary party since
Transfer Certificate of Title No. (362909) 2876 is still in its name.
JNM Realty & Development Corp. (JNM) is impleaded as a necessary party in
view of the fact that it is the transferor of right in favor of Motorich.
April 6, 1989: ACL and Motorich entered into a Deed of Absolute Sale. The
Registry of Deeds of Quezon City issued a new title in the name of Motorich
Sales Corporation, represented by Nenita Lee Gruenberg and Reynaldo L.
Gruenberg, under Transfer Certificate of Title No. 3571. As a result of Nenita
Lee Gruenberg and Motorich's bad faith in refusing to execute a formal
Transfer of Rights/Deed of Assignment, San Juan suffered moral and nominal
damages of P500,000 and exemplary damages of P100,000.00 and P100,000
attorneys fees.
San Juan lost the opportunity to construct a residential building in the sum of
P100,000.00.
CA affirmed RTC for dismissing.
San Juan argues that the veil of corporate fiction of Motorich should be pierced
because it is a close corporation.
Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or
almost all or 99.866% to be accurate, of the subscribed capital stock" of
Motorich, San Juan argues that Gruenberg needed no authorization from the
board to enter into the subject contract.
Being solely owned by the Spouses Gruenberg, the company can treated as a
close corporation which can be bound by the acts of its principal stockholder
who needs no specific authority.
ISSUE:
Whether the Motorich is a close corp. which does not need to be bound by its
principal SH

HELD:
NO. Petition is hereby DENIED. Gruenberg, treasurer of Motorich, and Andres
Co signed the contract but that cannot bind Motorich, because it never
authorized or ratified such sale or even the receipt of the earnest money.
A corporation is a juridical person separate and distinct from its stockholders
or members.
San Juan failed to prove otherwise.
The document is a hand-written one, not a corporate receipt, and it bears only
Nenita Gruenberg's signature.
GR: acts of corporate officers within the scope of their authority are binding
on the corporation. But when these officers exceed their authority, their
actions "cannot bind the corporation, unless it has ratified such acts or is
estopped from disclaiming them.
Statutorily granted privilege of a corporate veil may be used only for legitimate
purposes
Utilized as a shield to commit fraud, illegality or inequity; defeat public
convenience; confuse legitimate issues; or serve as a mere alter ego or
business conduit of a person or an instrumentality, agency or adjunct of
another corporation - none here.
Sec. 96. Definition and Applicability of Title. — A close corporation, within the
meaning of this Code, is one whose articles of incorporation provide that: (1)
All of the corporation's issued stock of all classes, exclusive of treasury shares,
shall be held of record by not more than a specified number of persons, not
exceeding twenty (20); (2) All of the issued stock of all classes shall be subject
to one or more specified restrictions on transfer permitted by this Title; and
(3) The corporation shall not list in any stock exchange or make any public
offering of any of its stock of any class. Notwithstanding the foregoing, a
corporation shall be deemed not a close corporation when at least two-thirds
(2/3) of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this Code.
....
The articles of incorporation of Motorich Sales Corporation does not contain
any provision stated in Sec. 96.
Mere ownership by a single stockholder or by another corporation of all or
capital stock of a corporation is not of itself sufficient ground for disregarding
the separate corporate personalities.
A narrow distribution of ownership does not, by itself, make a close
corporation.
Even if veil is peice it will then be a sale of conjugal property which Nenita
alone could not have effected.
Gruenberg did not represent herself as authorized by Respondent Motorich
despite the receipt issued by the former specifically indicating that she was
signing on behalf of Motorich.
The amount paid as "earnest money" was not proven to have redounded to
the benefit of Motorich.
It was deposited with the account of Aren Commercial c/o Motorich.
Andres Co being a President of San Juan for more than 10 years cannot feign
ignorance of the scope of the authority of a corporate treasurer.
However, Nenita Gruenberg should be ordered to return to petitioner the
amount she received as earnest money, as "no one shall enrich himself at the
expense of another.
CLAUDIO DELOS REYES and LYDIA DELOS REYES vs.THE HON. COURT
OF APPEALS
FACTS:
Daluyong Gabriel together with his family was then residing in Mandaluyong,
Metro Manila, his sister Maria Rita Gabriel de Rey acted as administratrix of
the said parcel of land and took charge of collecting the rentals for those
portions which have been leased to certain tenants/lessees. One of these
lessees is LYDIA DE LOS REYES who by virtue of a Contract of Lease executed
on June 21, 1985 by and between Maria Rita G. de Rey as lessor and Lydia de
los Reyes as lessee, leased a portion of One Hundred Seventy Six (176) square
meters for a term of one year beginning June 15, 1985 renewable upon
agreement of the parties at the rental rate of Two Hundred (P200.00) pesos,
per month.
Sometime in 1985 Daluyong Gabriel sent his son Renato Gabriel to Tagum
reportedly with instructions to take over from Maria Rita G. de Rey as
administrator of the said parcel of land. Upon agreement of the parties, the
June 21, 1985 Contract of Lease covering the one hundred seventy-six square
meter portion of land was novated and replaced by a Contract of Lease
executed on September 26, 1985 by and between RENATO GABRIEL as Lessor
and Lydia de los Reyes as Lessee.
Sometime in November 1987, during the effectivity of the lease contract,
Lydia de los Reyes verbally agreed to buy two hundred fifty (250) square
meters (including the 176 square meters leased by her), and thereafter an
additional fifty (50) square meters or a total of three hundred (300) square
meters of Daluyong Gabriel's registered property, at three hundred pesos
(P300.00) per square meter or for a total amount of P90,000.00. Receipt of
the payment of the purchase price made in several installments by Lydia de
los Reyes was acknowledged by Renato Gabriel as evidenced by official
receipts issued and signed by him.
No deed of sale was executed covering the transaction. Purchaser Lydia de los
Reyes however proceeded with the construction of a two-storey commercial
building on the said 300 square meter lot after obtaining a building permit
from the Engineer's Office in Tagum.
Daluyong Gabriel, through his lawyer, sent a letter on August 30, 1989 to the
De los Reyes couple demanding that they cease and desist from continuing
with their construction and to immediately vacate the premises, asserting that
the construction was unauthorized and that their occupancy of the subject
portion was not covered by any lease agreement.
On September 20, 1989, spouses Claudio and Lydia de los Reyes through
counsel sent their letter reply explaining that the De los Reyeses are the
innocent party who entered into the lease agreement and subsequent sale of
subject portion of land in good faith and upon the assurance made by the
former administratrix, Maria Rita G. Rey, her nephew Tony Rey, Mrs. Fe S.
Gabriel and Mr. Daluyong Gabriel himself that Renato Gabriel is the new
administrator authorized to enter into such agreements involving the subject
property.
Dissatisfied with the explanation, Daluyong Gabriel commenced an action on
November 14, 1989 against spouses Claudio and Lydia de los Reyes for the
recovery of the subject portion of land before the Regional Trial Court.
ISSUE:
Whether or not the sale between the Spouses Delos Reyes and Reynato
Gabriel in the name of his deceased father is valid.
Held:
No. the contract of sale cannot be upheld, mainly because Renato Gabriel, as
vendor, did not have the legal capacity to enter and to give consent to the
agreement, he, being neither the authorized agent (of Daluyong Gabriel) nor
the owner of the property subject of the sale. It was pointed out that three
theories were advanced by appellees to prove that the transaction they had
with Renato concerning the sale of the portion in question was regular, valid
and enforceable. First theory is that Renato acted as the duly authorized
representative or agent of Daluyong. Second, that the portion in dispute was
already given to Renato as his share, hence, he validly sold the same to
appellees. And third, that the portion being litigated was part of Renato's
inheritance from the estate of her deceased mother which he validly disposed
of to appellees. These reasons, according to the appellate court, cannot go
together, or even complement each other, to establish the regularity, validity
or enforceability of the sale made by Renato. It could not be possible for
Renato to have acted in three different capacities — as agent, owner, and heir
— when he dealt with appellees, as the legal consequences for each situation
would be different.
Thus, it was incumbent upon appellees to explain what actually convinced
them to buy the land from Renato, and because they failed to do so, no proper
basis can be found to uphold the alleged sale made by Renato as it cannot be
determined with certainty in what capacity Renato acted. And even assuming
that he (Renato) already succeeded to whatever hereditary right or
participation he may have over the estate of his father, he is still considered
a co-owner with his two sisters of the subject property and that prior to its
partition, Renato cannot validly sell or alienate a specific or determinate part
of the property owned in common.
Renato Gabriel was neither the owner of the subject property nor a duly
designated agent of the registered owner (Daluyong Gabriel) authorized to
sell subject property in his behalf, and there was also no sufficient evidence
adduced to show that Daluyong Gabriel subsequently ratified Renato's act. In
this connection it must be pointed out that pursuant to Article 1874 of the Civil
Code, when the 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. In other words, for want of capacity (to give consent) on the part of
Renato Gabriel, the oral contract of sale lacks one of the essential requisites
for its validity prescribed under Article 1318, supra and is therefore null and
void ab initio.
COSMIC LUMBER CORPORATION vs.CA and PEREZ
FACTS:
Cosmic Lumber Corporation through its General Manager executed on 28
January 1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada
as attorney-in-fact among others to initiate, institute and file any court action
for the ejectment of third persons and/or squatters of the entire lot 9127 and
443 and covered by TCT Nos. 37648 and 37649, for the said squatters to
remove their houses and vacate the premises in order that the corporation
may take material possession of the entire lot, and for this purpose, to appear
at the pre-trial conference and enter into any stipulation of facts and or
compromise agreement so far as it shall protect the rights and interest of the
corporation in the aforementioned lots.
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney,
instituted an action for the ejectment of private respondent Isidro Perez and
recover the possession of a portion of Lot No. 443.
On November 25, 1985 Villamil-Estrada entered into a Compromise
Agreement with respondent Perez and on November 27, 1985 the
"Compromise Agreement" was approved by the trial court and judgment was
rendered in accordance the terms. Although the decision became final and
executory, it was not executed within the 5-year period from date of its finality
allegedly due to the failure of petitioner to produce the owner's duplicate copy
of Title No. 37649 needed to segregate from Lot No. 443 which is the portion
sold by the attorney-in-fact, Paz G. Villamil-Estrada, to private respondent
under the compromise agreement. Thus, on January 25, 1993 respondent filed
a complaint to revive the judgment, docketed as Civil Case No. D-10459
Petitioner asserts that it was only when the summons in Civil Case No. D-
10459 for the revival of judgment was served upon it that it came to know of
the compromise agreement entered into between Paz G. Villamil-Estrada and
respondent Isidro Perez upon which the trial court based its decision of 26 July
1993 in Civil Case No. D-7750. Forthwith, upon learning of the fraudulent
transaction, petitioner sought annulment of the decision of the trial court
before respondent Court of Appeals on the ground that the compromise
agreement was void.
ISSUE:
Whether Villamil-Estrada exceeded her authority as specified in the SPA.
HELD:
Yes. The authority granted Villamil-Estrada under the special power of
attorney was explicit and exclusionary. The alienation by sale of an immovable
certainly cannot be deemed protective of the right of petitioner more so when
the land was being sold for a price of P80.00 per square meter, much less
than its assessed value of P250.00 per square meter, which was not even
received by the corporation.
When the sale of a piece of land or any interest thereon is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void.
Thus the authority of an agent to execute a contract for the sale of real estate
must be conferred in writing and must give him specific authority. A special
power of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either gratuitously or
for a valuable consideration. The express mandate required by law to enable
an appointee of an agency (couched) in general terms to sell must be one that
expressly mentions a sale or that includes a sale as a necessary ingredient of
the act mentioned. For the principal to confer the right upon an agent to sell
real estate, a power of attorney must so express the powers of the agent in
clear and unmistakable language. When there is any reasonable doubt that
the language so used conveys such power, no such construction shall be given
the document. It is therefore clear that by selling to respondent Perez a
portion of petitioner's land through a compromise agreement, Villamil-Estrada
acted without or in obvious authority. The sale ipso jure is consequently void.
So is the compromise agreement. This being the case, the judgment based
thereon is necessarily void. Antipodal to the opinion expressed by respondent
court in resolving petitioner's motion for reconsideration, the nullity of the
settlement between Villamil-Estrada and Perez impaired the jurisdiction of the
trial court to render its decision based on the compromise agreement. In Alviar
v. Court of First Instance of La Union, the Court held --“As the judgment in
question is null and void ab initio, it is evident that the court acquired no
jurisdiction to render it, much less to order the execution thereof . . .”
Verily, when an agent is engaged in the perpetration of a fraud upon his
principal for his own exclusive benefit, he is not really acting for the principal
but is really acting for himself, entirely outside the scope of his agency.
Indeed, the basic tenets of agency rest on the highest considerations of
justice, equity and fair play, and an agent will not be permitted to pervert his
authority to his own personal advantage, and his act in secret hostility to the
interests of his principal transcends the power afforded him. WHEREFORE, the
petition is GRANTED.