Facts

• Dieselman Freight Services Co. (the supposed principal) was the registered owner of a 2,094-square-metre commercial lot on E. Rodriguez Avenue, Pasig City. (No. 104, Barrio Ugong, under TCT No. 39849.)
• Manuel C. Cruz, Jr., a member of Dieselman's board of directors, issued a letter authorising one Cristeta N. Politan to look for a buyer for the lot at ₱3,000 per square metre. (10 May 1988, in a letter headed "Authority To Sell Real Estate," to a broker of CNP Real Estate Brokerage — ₱6,282,000.00 for the whole lot. The full digest spells her name Polintan.)
• Cruz held no written authority from the board to sell the property.
• Politan in turn authorised Felicisima Noble to sell the same lot. (19 May 1988; Noble was a broker of Noblehaus Realty and Marketing — so the chain ran board member → broker → sub-broker, none of them holding written authority from the board.)
• Noble offered it to petitioner AF Realty & Development, Inc. at ₱2,500 per square metre.
• AF Realty accepted and delivered a partial payment. (Zenaida Ranullo, AF Realty's board member and vice-president, accepted and issued a ₱300,000.00 check payable to Dieselman; Polintan signed an acknowledgement receipt for it. When AF Realty later asked for the board resolution, Polintan could produce only the title, tax papers and a photocopy of the articles of incorporation.)
• Dieselman, however, disowned the transaction and, on July 30, 1988, executed a Deed of Absolute Sale of the same property in favour of Midas Development Corporation, which paid ₱500,000 down and deposited the ₱5,300,000 balance in escrow. (Its board had resolved to sell to Midas as early as 27 May 1988, at ₱2,800.00 per square metre. On 2 August 1988 Dieselman's president Manuel F. Cruz, Sr. acknowledged AF Realty's ₱300,000.00 as "earnest money" but demanded ₱4,000.00 per square metre, and on 13 August 1988 he terminated the offer outright.)
• AF Realty sued for specific performance. (Civil Case No. 56278 before the RTC of Pasig City, Branch 160, against Dieselman and Cruz, Jr.; Midas was later allowed to intervene.)
• Trial court — the sale to AF Realty upheld. The trial court held that Cruz's acts bound Dieselman and upheld the sale to AF Realty.
• Court of Appeals — reversed; the sale to Midas sustained. The Court of Appeals reversed, ruling that the sale was never perfected because Cruz had no written authority, and it sustained the sale to Midas.

Issue

Ruling

Ratio

• Section 23 of the Corporation Code vests all corporate powers in the board of directors.
• A corporation may of course act through agents, but the authority to sell corporate real property must emanate from the board — ordinarily by resolution.
• Cruz, Jr. was but one director, and a single director, acting alone, has no power to bind the corporation.
• No board resolution authorising the sale was ever produced.

• Article 1874§ provides that when the sale of a piece of land or any interest therein is through an agent, the agent's authority shall be in writing; otherwise, the sale shall be void.
• Article 1878 (5)§ separately requires a special power of attorney for a contract transmitting ownership of an immovable for valuable consideration.
• Cruz's letter to Politan was not authority from Dieselman; it was the unauthorised act of a director.
• The defect was fatal at the very first link of the chain.

• The Court traced the chain: Cruz (no written board authority) → Politan → Noble → AF Realty.
• Since Cruz himself had nothing to give, Politan received nothing, and Noble could pass on nothing.
• No one in the chain could confer an authority greater than his own. The purported contract of sale therefore never came into existence — it was not merely unenforceable but void, and void contracts are not susceptible of ratification.

• Dieselman's conveyance to Midas was made by the corporation itself, through its authorised representatives and in the exercise of its corporate power.
• Being valid, and there being no prior valid sale to compete with it, Midas' title was upheld.
• AF Realty's remedy is against the persons who dealt with it without authority.

Doctrine

• Corporate agency. The board of directors exercises corporate powers; an individual director or officer binds the corporation only when the board has authorized him, and the authority must be shown.
• Article 1874§ is a rule of validity. Written authority is indispensable to a sale of land through an agent. Its absence makes the sale void, not merely unenforceable — and hence incapable of ratification.
• Nemo dat quod non habet, applied to authority. A sub-agent derives whatever power he has from his appointer. Where the first link in the chain lacks authority, every subsequent link is equally powerless, no matter how regular it appears.

Full Digest — Recitation Format

I. Gist and Central Doctrine

II. Chronological Narration of Material Facts and Procedural Events

1. Dieselman Freight Service Co., a domestic corporation, was the registered owner of a parcel of commercial lot consisting of 2,094 square metres located at 104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila, covered by Transfer Certificate of Title No. 39849 issued by the Registry of Deeds of the Province of Rizal.
2. On 10 May 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a letter denominated "Authority To Sell Real Estate" to Cristeta N. Polintan, a real estate broker of the CNP Real Estate Brokerage, authorizing her "to look for a buyer/buyers and negotiate the sale" of the lot at ₱3,000.00 per square metre, or a total of ₱6,282,000.00. Cruz, Jr. had no written authority from Dieselman to sell the lot.
3. On 19 May 1988, Cristeta Polintan, by letter, in turn authorized Felicisima ("Mimi") Noble, a real estate broker of Noblehaus Realty and Marketing, to sell the same lot.
4. On 27 May 1988, the board of Dieselman adopted a resolution authorizing the sale of the lot to Midas Development Corporation — a fact the Court of Appeals noted and this Court adopted.
5. Felicisima Noble offered the property for sale to AF Realty & Development, Inc. at ₱2,500.00 per square metre. Zenaida Ranullo, board member and vice-president of AF Realty, accepted the offer and issued a check for ₱300,000.00 payable to the order of Dieselman. Polintan received the check and signed an "Acknowledgement Receipt" indicating that the ₱300,000.00 represented partial payment of the property, refundable within two weeks should AF Realty disapprove Ranullo's action.
6. On 29 June 1988, AF Realty confirmed its intention to buy the lot. Ranullo then asked Polintan for the board resolution of Dieselman authorizing the sale. Polintan could produce only the original copy of TCT No. 39849, the tax declaration and tax receipt for the lot, and a photocopy of Dieselman's Articles of Incorporation. Ranullo herself later admitted in her testimony "that a board resolution from respondent Dieselman authorizing the sale is necessary to bind the latter in the transaction; and that respondent Cruz, Jr. has no such written authority," and that "despite demand, such written authority was not presented to her."
7. On 30 July 1988, Dieselman and Midas Development Corporation executed a Deed of Absolute Sale over the same property at an agreed price of ₱2,800.00 per square metre. Midas delivered ₱500,000.00 as down payment and deposited the balance of ₱5,300,000.00 in an escrow account with PCIBank.
8. On 2 August 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the ₱300,000.00 as "earnest money" but required AF Realty to finalize the sale at ₱4,000.00 per square metre. AF Realty replied that it had paid an initial down payment of ₱300,000.00 and was willing to pay the balance.
9. On 13 August 1988, Cruz, Sr. terminated the offer and demanded from AF Realty the return of the title earlier delivered by Polintan.
10. On 15 August 1988, a notice of lis pendens was annotated on the title at the instance of AF Realty — after the 30 July 1988 sale to Midas.
11. Claiming a perfected contract of sale§, 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., praying that Dieselman be ordered to execute and deliver a final deed of sale. Its amended complaint asked for ₱1,500,000.00 as compensatory damages, ₱400,000.00 as attorney's fees, and ₱500,000.00 as exemplary damages. In its answer, Dieselman alleged that there was no meeting of the minds and that it did not authorize any person to enter into such transaction on its behalf.
12. On 3 April 1989, Midas filed a Motion for Leave to Intervene, alleging that it had purchased the property and taken possession thereof so that Dieselman could not be compelled to convey to AF Realty. The trial court granted the motion.
13. After trial, the RTC held that the acts of Cruz, Jr. bound Dieselman; that the perfected contract of sale between Dieselman and AF Realty barred Midas' intervention; and that Midas acted in bad faith in paying ₱500,000.00 without seeing the title, the notarial report not having been submitted to the Clerk of Court of the Quezon City RTC and the ₱5,300,000.00 escrow deposit not having been established. It ordered Dieselman to execute and deliver the final deed of sale to AF Realty, to pay ₱50,000.00 attorney's fees and costs, and dismissed the counterclaim and the complaint in intervention.
14. All parties appealed. AF Realty assigned as error the denial of moral, compensatory and exemplary damages and the dismissal of its counterclaim against Midas; Dieselman and Midas assailed the finding of a perfected sale, Midas adding that it had acted in good faith.
15. On 10 December 1992, the Court of Appeals reversed, holding that since Cruz, Jr. was not authorized in writing by Dieselman, the sale was not perfected, and that the Deed of Absolute Sale in favour of Midas is valid, there being no bad faith. It declared Dieselman and Cruz, Jr. jointly and severally liable to AF Realty for ₱100,000.00 moral damages, ₱100,000.00 exemplary damages and ₱100,000.00 attorney's fees.
16. On 5 August 1993, acting on motions for reconsideration, the Court of Appeals promulgated an Amending Decision holding "that only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the damages and attorney's fees awarded therein, plus the amount of P300,000.00 unless, in the case of the said P300,000.00, the same is still deposited with the Court which should be restituted to plaintiffs."
17. On 16 January 2002, the Supreme Court rendered its Decision on the petition for review on certiorari, affirming with modification.

III. Arguments of the Parties

A. Petitioners (AF Realty & Development, Inc. and Zenaida R. Ranullo)

B. Respondents (Dieselman Freight Services, Co., Manuel C. Cruz, Jr., and Midas Development Corporation)

C. Common Ground / Stipulations

IV. Issues

A. Main Issue (Topic/Subtopic-Centered)

B. Secondary Issues

1. Whether Cruz, Jr., a mere member of the board, could confer upon Polintan, and Polintan upon Noble, an authority to sell corporate realty which Cruz, Jr. did not himself possess.
2. As between petitioner AF Realty and respondent Midas, who has a right over the subject lot — the Court's own statement of "[t]he focal issue for consideration."
3. Whether Midas purchased in bad faith.
4. Whether Cruz, Jr. should be held liable for moral and exemplary damages and attorney's fees for breach of contract.

C. Ancillary / Incidental Issues

V. Ruling / Disposition (Categorical, Issue-Mapped)

"WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby AFFIRMED with MODIFICATION in the sense that the award of damages and attorney's fees is deleted. Respondent Dieselman is ordered to return to petitioner AF Realty its partial payment of P300,000.00. Costs against petitioners.

SO ORDERED."

VI. Ratio Decidendi and Doctrines (Topic-Focused)

A. Ratio Decidendi (Decisive Reasoning)

• Step 1 — Corporate powers reside in the board, and may be delegated only by it. "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."
• The Court anchored these propositions on Citibank, N.A. v. Chua, Barretto v. La Previsora Filipina, and Mendezona v. Philippine Sugar Estates Development Co.
• Step 2 — The undisputed factual premise. "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."
• Step 3 — The chain fails link by link. "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."
• Step 4 — Characterisation of the transaction, and the choice of governing law. This is the pivotal move for the Topic/Subtopic.
• "Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes precedence."
• The Court supported the proposition that corporate agents are governed by the general law of agency by quoting Yao Ka Sin Trading v. Court of Appeals: "Since a corporation ... can act only through its officers and agents, all acts within the powers of said corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, 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."
• Step 5 — The codal text, reproduced by the Court. "Pertinently, Article 1874§ of the same Code provides: 'ART. 1874. When a sale of 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.'"
• Step 6 — Application: nullity. "Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by respondent Dieselman to sell its lot, the supposed contract is void."
• Step 7 — The consequence of nullity: no ratification (Article 1409§(7)). Answering AF Realty's ratification argument, the Court reproduced the provision: "'ART. 1409. The following contracts are inexistent and void from the very beginning: x x x (7) Those expressly prohibited or declared void by law. ... These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.'"
• Hence Cruz, Sr.'s 2 August 1988 acknowledgment of the ₱300,000.00 as "earnest money," and Dieselman's retention of it, availed AF Realty nothing on the contract — though it did ground the order of restitution in the fallo.
• Step 8 — The competing title. "Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable... the sale was authorized by a board resolution of respondent Dieselman dated May 27, 1988."
• The Court adopted the appellate court's treatment of the notarized deed as a public document "admissible as to the date and fact of its execution without further proof of its due execution and delivery" (citing Bael v. Intermediate Appellate Court and Joson v. Baltazar), and its holding that the later lis pendens "operated prospectively."
• Step 9 — Damages deleted, for the buyer's own knowledge. "It bears stressing that petitioner Zenaida Ranullo, board member and vice-president of petitioner AF Realty who accepted the offer to sell the property, admitted in her testimony that a board resolution from respondent Dieselman authorizing the sale is necessary to bind the latter in the transaction; and that respondent Cruz, Jr. has no such written authority. In fact, despite demand, such written authority was not presented to her. This notwithstanding, petitioner Ranullo tendered a partial payment for the unauthorized transaction. Clearly, respondent Cruz, Jr. should not be held liable for damages and attorney's fees."

B. Doctrines / Rules / Principles Laid Down

1. Where land is sold through an agent, the law on agency governs and Article 1874§ applies — the doctrinal takeaway for this Topic/Subtopic. Verbatim:

   "Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes precedence."

• And the provision as the Court reproduced it:

  "ART. 1874. When a sale of 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."

2. The sanction is nullity, and a void sale under Article 1874§ cannot be ratified (Article 1409§(7)). Verbatim:

   "Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not susceptible of ratification by clear mandate of Article 1409§ of the Civil Code."

• Acceptance of benefits — here, ₱300,000.00 received and acknowledged as "earnest money" by the corporation's own president — therefore does not validate the sale.

3. The written-authority requirement is not satisfied by sub-delegation from one who lacks it. "Cruz, Jr. could not confer on Polintan any authority which he himself did not have. Nemo dat quod non habet... [F]elicisima 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."
4. Corporate agents are governed by the general law of agency. Verbatim from Yao Ka Sin Trading v. Court of Appeals: "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."
5. Acts of an individual director do not bind the corporation absent valid delegation: "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" (Section 23, B.P. Blg. 68; now RCC Sec. 22).
6. A buyer who knows the written authority is wanting and pays anyway cannot recover damages — though he may recover what he paid, by way of restitution.
7. A notice of lis pendens operates prospectively and does not retroact to taint an earlier conveyance with bad faith.

C. Distinctions / Limitations / Qualifications

1. Void, not merely unenforceable — and the distinction is the whole point. Compare Article 1317, paragraph 2, under which a contract entered into in another's name without authority "shall be unenforceable, unless it is ratified." That route was unavailable here because Article 1874§ supplies a specific rule declaring the sale void, which engages Article 1409§(7) ("[t]hose expressly prohibited or declared void by law") and its command that "[t]hese contracts cannot be ratified." A student who answers a Week 2 problem on the sale of land by saying the contract is "unenforceable but ratifiable" has missed AF Realty.
2. The requirement runs to the authority, not to the contract of sale. Article 1874§ does not say the sale must be in writing (that is the office of the Statute of Frauds, Article 1403(2)(e), which makes it merely unenforceable). It says the agent's authority must be in writing, on pain of nullity of the sale.
3. The rule applies to "a piece of land or any interest therein." The subject here was a fee-simple sale, but the codal phrase reaches interests in land, which is why Article 1874§ is read together with Article 1878§(12) on special powers "to create or convey real rights over immovable property."
4. The holding is not that brokers may never be used. It is that whoever signs or binds must trace an unbroken chain of written authority back to the owner. Dieselman's own sale to Midas — through the same corporate machinery but with a board resolution dated 27 May 1988 — was upheld without difficulty.
5. Restitution survives nullity. The Court deleted damages but ordered Dieselman "to return to petitioner AF Realty its partial payment of P300,000.00," consistent with the principle that a void contract produces no obligations but leaves no one entitled to retain what was received under it.
6. The buyer's knowledge cut against the buyer, not the seller. Ranullo's admission that she knew a board resolution was necessary and was never given one is why the damages award against Cruz, Jr. was struck down. Compare the duty-of-inquiry line in Litonjua v. Eternit (Week 2).

D. Topic/Subtopic Integration (Mandatory)

• The classification is DIRECT, and AF Realty is the primary authority for Week 2(c) on Article 1874§.
• Three things make it controlling.
• First, the Court expressly chose the governing law: faced with a corporate seller, it could have rested on Section 23 of the Corporation Code alone, but instead held that "[i]nvolved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes precedence," and then reproduced Article 1874§ as the operative provision.
• That sentence is the one to quote when asked why the Civil Code, and not the corporation law, supplies the rule of decision.
• Second, it settles the consequence of non-compliance in the strongest available terms: not unenforceability but nullity, and therefore no ratification, "by clear mandate of Article 1409§," notwithstanding that the corporation's own president acknowledged the money as "earnest money" and the corporation kept it for years.
• Third, it shows how the requirement operates along a chain: a broker's authority is only as good as the authority of the person who gave it, so that the written-authority inquiry must be pressed all the way back to the board — "a spring cannot rise higher than its source." Read against [Angeles v.
• PNR (Week 2)](/agency-trust-partnership/week-02/angeles-v-philippine-national-railways), which supplies the general rule that "no form or method of execution is required for a valid power of attorney," AF Realty supplies the statutory exception that swallows the most examinable transaction in the syllabus.

VII. Separate Opinions