AF Realty v.

Dieselman
G.R. No. 111448 January 16, 2002 Sandoval-Gutierrez, J.
petitioners AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO
respondents DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS
DEVELOPMENT CORPORATION
summary Board member sold parcel of land without written authority from the board of directors to do
so. The Court held that absent written authorization from the board of directors, a corporation
may not be bound by transactions entered into by unauthorized persons or their agents.

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 the same rules, liabilities, and incapacities as are agents of individuals and
private persons.

facts of the case

On May 10, 1988, Manuel Cruz, Jr., a member of the board of directors of Dieselman issued a letter denominated as
Authority to Sell Real Estate to Criseta N. Polintan. Through this letter, authority was supposedly granted to Polintan to
look for a buyer for a parcel of land at the price of 3000php per sq. mits aggregate value amounted to 6,282,000php. Of
importance is the fact that Cruz, Jr. has no written authority from Dieselman to sell the lot.

Polintan, through another letter, authorized Felicisima Noble to sell the same lot. In turn, Noble offered the lot for sale
to AF realty at 2500php per sq. m. AF accepted the offer and issued a check in the amount of 300,000php payable to
Dieselman for which an acknowledgment receipts was issued. On June 29, 1988, AF confirmed its intention to purchase
the lot and asked Polintan for the for the board resolution that authorized the sale of the said property. Polintan gave AF
the TCT, tax declaration and receipts, and photocopy of the Article of Incorporation of Dieselman.

On August 2, 1988, Manuel Cruz, Sr. (junior yung kanina), president of Dieselman acknowledged the advanced
payment of AF as earnest money but raised the price to 4,000php per sq. m. Again, AF expressed its desire to purchase
the lot notwithstanding the higher purchase price. However, on August 13, 1988, Cruz, Sr. terminated the offer and
demanded the return of the titles issued to AF Realty. In response, AF filed a case for specific performance against
Dieselman, alleging that a perfected contract of sale existed between the two parties. Also, AF sought the award of
damages. As defense, Dieselman averred that there was no meeting of the minds between the parties as regards the sale
of property because it did not authorize any person to enter into such a transaction on its behalf.

On July 30, 1988, Dieselman sold that property under dispute to Midas Development Corporation and executed a
deed of absolute sale in their favor at the rate of 2,800php per sq. m. Following this transaction, Midas sought to intervene
in the legal dispute between Dieselman and AF because it claimed that it had purchased the property and had taken
possession thereof. Their motion to intervene was granted.

Trial Court = Dieselman is bound by the actions of Cruz, Jr. A perfected contract of sale existed between the two parties
and Midas acted in bad faith when it purchased the property without examining Dieselmans title thereto.

CA = reversed the decision of the TC and held that since Cruz, Jr. was not authorized in writing by Diesleman to sell the
subject property, then the latter could not be bound by any transaction entered into by the former. The contract of sale
between Dieselaman and Midas is valid because the same was not attended to by bad faith. However, it held Cruz, Jr.
liable to AF for damages in the amount of 300,000php.

issue
WON Dieselman could be held liable for the transaction entered into by Cruz, Jr. NO

ratio
What should be remembered in this case is that Cruz, Jr. was not given any authority by Dieselman to sell the
disputed property. Given that he did not have authority, then Polintan and Noble who were merely authorized by Cruz
Jr. did not possess any authority to sell the land. Passing upon the issue of ratification, the Court said that it did not

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matter that Dieselman accepted the 300,000php earnest money; such an act did not amount to a ratification of the contract.
It could not be ratified because under the Civil Code, a sale of land by an agent with no written authority to do the same
is void. Void contracts cannot be ratified.

As regards the issue of bad faith concerning Midas, it became apparent that the notice of lis pendens was annotated
on the title after it had already entered into the contract of sale with Dieselman. Hence, it had no way of knowing that the
property it bought wss the subject of a legal dispute. Further, the sale to Midas was authorized by a board resolution.

Under the Corporation Code, the powers of a corporation may only be exercised by its board of director or by an
agent duly appointed by the same. In the case at bar, the board of directors of Dieselman never imparted authority to
Cruz, Jr. for the purpose of selling the subject property. Being that he had no written authority from the board to sell the
land, his acts and the acts of his agents (Polintan and Noble) cannot bind Dieselman.

With regard to the award of damages, the Court struck down the award of such on the basis of the fact that Ranullo,
the board member and vice-president of AF who entered into the contract of sale with Cruz Jr. proceeded with the
transaction despite the absence of a board resolution that empowered the latter to sell the property in the first place.
Given that she pursued the transaction despite such a glaring irregularity made the award of damages in her favor
untenable.

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