22. WOODCHILD HOLDINGS INC. VS.

ROXAS ELECTRIC AND CONSTRUCTION

COMPANY INC., GR No. 140667, August 12, 2004
Petitioner: Session: 9
Woodchild Holdings Inc.
Topic: Corporate Officers
Respondent:
Roxas Electric and Construction
Company Inc.
FACTS: RULING:
Respondent Roxas Electric and
Construction Company was the owner of No.
two parcels of land, identified as Lot No.
491-A-3-B-1 covered by Transfer
Certificate of Title (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
which abutted Lot No. 491-A-3-B-2 was a
dirt road accessing to the Sumulong
Highway, Antipolo, Rizal.

At a special meeting on May 17, 1991, the

respondent’s Board of Directors
approved a resolution authorizing the
corporation, through 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
under such terms and conditions which
he deemed most reasonable and
advantageous to the corporation; and to
execute, sign and deliver the pertinent
sales documents and receive the proceeds
of the sale for and on behalf of the
company.

Petitioner Woodchild Holdings, Inc.

(WHI) wanted to buy Lot No. 491-A-3-B-
2 covered by TCT No. 78086 on which it
planned to construct its warehouse
building, and a portion of the adjoining
lot, Lot No. 491-A-3-B-1, so that its 45-foot
container van would be able to readily
enter or leave the property. In a Letter to
Roxas dated June 21, 1991, WHI President
Jonathan Y. Dy offered to buy Lot No.
491-A-3-B-2 under stated terms and
conditions for P1,000 per square meter or
at the price of P7,213,000.

Roxas indicated his acceptance of the

offer on page 2 of the deed. Less than a
month later or on July 1, 1991, Roxas, as
President of RECCI, as vendor, and Dy,
as President of WHI, as vendee, executed
a contract to sell in which RECCI bound
and obliged itself to sell to Dy Lot No.
491-A-3-B-2 covered by TCT No. 78086
for P7,213,000. On September 5, 1991, a
Deed of Absolute Sale in favor of WHI
was issued, under which Lot No. 491-A-
3-B-2 covered by TCT No. 78086 was sold
for P5,000,000, receipt of which was
acknowledged by Roxas.

On September 10, 1991, the Wimbeco

Builder’s, Inc. (WBI) submitted its
quotation for P8,649,000 to WHI for the
construction of the warehouse building
on a portion of the property with an area
of 5,088 square meters. WBI proposed to
start the project on October 1, 1991 and to
turn over the building to WHI on
February 29, 1992.

In a Letter dated September 16, 1991,

Ponderosa Leather Goods Company, Inc.
confirmed its lease agreement with WHI
of a 5,000-square-meter portion of the
warehouse yet to be constructed at the
rental rate of P65 per square meter.
Ponderosa emphasized the need for the
warehouse to be ready for occupancy
before April 1, 1992. WHI accepted the
offer. However, WBI failed to commence
the construction of the warehouse in
October 1, 1991 as planned because of the
presence of squatters in the property and
suggested a renegotiation of the contract
after the squatters shall have been
evicted. Subsequently, the squatters were
evicted from the property.

On March 31, 1992, WHI and WBI

executed a Letter-Contract for the
construction of the warehouse building
for P11,804,160.13 The contractor started
construction in April 1992 even before the
building officials of Antipolo City issued
a building permit on May 28, 1992. After
the warehouse was finished, WHI issued
on March 21, 1993 a certificate of
occupancy by the building official.
Earlier, or on March 18, 1993, WHI, as
lessor, and Ponderosa, as lessee, executed
a contract of lease over a portion of the
property for a monthly rental of P300,000
for a period of three years from March 1,
1993 up to February 28, 1996.

In the meantime, WHI complained to

Roberto Roxas that the vehicles of RECCI
were parked on a portion of the property
over which WHI had been granted a right
of way. Roxas promised to look into the
matter. Dy and Roxas discussed the need
of the WHI to buy a 500-square-meter
portion of Lot No. 491-A-3-B-1 covered
by TCT No. 78085 as provided for in the
deed of absolute sale. However, Roxas
died soon thereafter. On April 15, 1992,
the WHI wrote the RECCI, reiterating its
verbal requests to purchase a portion of
the said lot as provided for in the deed of
absolute sale, and complained about the
latter’s failure to eject the squatters within
the three-month period agreed upon in
the said deed.

The WHI demanded that the RECCI sell a

portion of Lot No. 491-A-3-B-1 covered
by TCT No. 78085 for its beneficial use
within 72 hours from notice thereof,
otherwise the appropriate action would
be filed against it. RECCI rejected the
demand of WHI. WHI reiterated its
demand in a Letter dated May 29, 1992.
There was no response from RECCI.

The WHI demanded that the RECCI sell a

portion of Lot No. 491-A-3-B-1 covered
by TCT No. 78085 for its beneficial use
within 72 hours from notice thereof,
otherwise the appropriate action would
be filed against it. RECCI rejected the
demand of WHI. WHI reiterated its
demand in a Letter dated May 29, 1992.
There was no response from RECCI.

On June 17, 1992, the WHI filed a

complaint against the RECCI with the
Regional Trial Court of Makati, for
specific performance and damages.

In its answer to the complaint, the RECCI

alleged that it never authorized its former
president, Roberto Roxas, to grant the
beneficial use of any portion of Lot No.
491-A-3-B-1, nor agreed to sell any
portion thereof or create a lien or burden
thereon. It alleged that, under the
Resolution approved on May 17, 1991, it
merely authorized Roxas to sell Lot No.
491-A-3-B-2 covered by TCT No. 78086.
As such, the grant of a right of way and
the agreement to sell a portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085 in
the said deed are ultra vires. The RECCI
further alleged that the provision therein
that it would sell a portion of Lot No.
491-A-3-B-1 to the WHI lacked the
essential elements of a binding
contract.17

In its amended answer to the complaint,

the RECCI alleged that the delay in the
construction of its warehouse building
was due to the failure of the WHI’s
contractor to secure a building permit
thereon.18
During the trial, Dy testified that he told
Roxas that the petitioner was buying a
portion of Lot No. 491-A-3-B-1 consisting
of an area of 500 square meters, for the
price of P1,000 per square meter.

On November 11, 1996, the trial court

rendered judgment in favor of the WHI.
The trial court ruled that the RECCI was
estopped from disowning the apparent
authority of Roxas under the May 17,
1991 Resolution of its Board of Directors.
The court reasoned that to do so would
prejudice the WHI which transacted with
Roxas in good faith, believing that he had
the authority to bind the WHI relating to
the easement of right of way, as well as
the right to purchase a portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085.

The RECCI appealed the decision to the

CA, which rendered a decision on
November 9, 1999 reversing that of the
trial court, and ordering the dismissal of
the complaint. The CA ruled that, under
the resolution of the Board of Directors of
the RECCI, Roxas was merely authorized
to sell Lot No. 491-A-3-B-2 covered by
TCT No. 78086, but not to grant right of
way in favor of the WHI over a portion of
Lot No. 491-A-3-B-1, or to grant an option
to the petitioner to buy a portion thereof.
The appellate court also ruled that the
grant of a right of way and an option to
the respondent were so lopsided in favor
of the respondent because the latter was
authorized to fix the location as well as
the price of the portion of its property to
be sold to the respondent. Hence, such
provisions contained in the deed of
absolute sale were not binding on the
RECCI. The appellate court ruled that the
delay in the construction of WHI’s
warehouse was due to its fault.
 ISSUES:
(a) Whether or not the respondent is bound by the provisions in the deed of
absolute sale granting to the petitioner beneficial use and a right of way over a
portion of Lot
No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to
the petitioner to buy a portion thereof, and, if so, whether such agreement is
enforceable against the respondent;

(b) Whether or not the respondent failed to eject the squatters on its property
within two weeks from the execution of the deed of absolute sale; and, (c) whether
the respondent is liable to the petitioner for damages.
RATIONALE:
In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,21 we held that:

A corporation is a juridical person separate and distinct from its stockholders or

members. Accordingly, the property of the corporation is not the property of its
stockholders or members and may not be sold by the stockholders or members
without express authorization from the corporation's board of directors. Section 23 of
BP 68, otherwise known as the Corporation Code of the Philippines, provides:

"SEC. 23. The Board of Directors or Trustees. - Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled and
held by the board of directors or trustees to be elected from among the holders of
stocks, or where there is no stock, from among the members of the corporation, who
shall hold office for one (1) year and until their successors are elected and qualified."

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. - 22

Generally, the acts of the corporate officers within the scope of their authority are
binding on the corporation. However, under Article 1910 of the New Civil Code, acts
done by such officers beyond the scope of their authority cannot bind the corporation
unless it has ratified such acts expressly or tacitly, or is estopped from denying them:

Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.

Thus, contracts entered into by corporate officers beyond the scope of authority are
 unenforceable against the corporation unless ratified by the corporation.23

In BA Finance Corporation v. Court of Appeals,24 we also ruled that persons dealing

with an assumed agency, whether the assumed agency be a general or special one, are
bound at their peril, if they would hold the principal liable, to ascertain not only the
fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.

In this case, the respondent denied authorizing its then president Roberto B. Roxas to
sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a lien or
burden thereon. The petitioner was thus burdened to prove that the respondent so
authorized Roxas to sell the same and to create a lien thereon.

Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors of
the respondent, which is worded as follows:

RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell to
any interested buyer, its 7,213-sq.-meter property at the Sumulong Highway,
Antipolo, Rizal, covered by Transfer Certificate of Title No. N-78086, at a price and on
terms and conditions which he deems most reasonable and advantageous to the
corporation;

FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the corporation,

be, as he is hereby authorized to execute, sign and deliver the pertinent sales
documents and receive the proceeds of sale for and on behalf of the company.25

Evidently, Roxas was not specifically authorized under the said resolution to grant a
right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree
to sell to the petitioner a portion thereof. The authority of Roxas, under the resolution,
to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the authority to
sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights
thereon. Neither may such authority be implied from the authority granted to Roxas
to sell Lot No. 491-A-3-B-2 to the petitioner "on such terms and conditions which he
deems most reasonable and advantageous." Under paragraph 12, Article 1878 of the
New Civil Code, a special power of attorney is required to convey real rights over
immovable property.26 Article 1358 of the New Civil Code requires that contracts
which have for their object the creation of real rights over immovable property must
appear in a public document.27 The petitioner cannot feign ignorance of the need for
Roxas to have been specifically authorized in writing by the Board of Directors to be
able to validly grant a right of way and agree to sell a portion of Lot No. 491-A-3-B-1.
The rule is that if the act of the agent is one which requires authority in writing, those
dealing with him are charged with notice of that fact.28

Powers of attorney are generally construed strictly and courts will not infer or
presume broad powers from deeds which do not sufficiently include property or
 subject under which the agent is to deal.29 The general rule is that the power of
attorney must be pursued within legal strictures, and the agent can neither go beyond
it; nor beside it. The act done must be legally identical with that authorized to be
done.30 In sum, then, the consent of the respondent to the assailed provisions in the
deed of absolute sale was not obtained; hence, the assailed provisions are not binding
on it.

We reject the petitioner's submission that, in allowing Roxas to execute the contract to
sell and the deed of absolute sale and failing to reject or disapprove the same, the
respondent thereby gave him apparent authority to grant a right of way over Lot No.
491-A-3-B-1 and to grant an option for the respondent to sell a portion thereof to the
petitioner. Absent estoppel or ratification, apparent authority cannot remedy the lack
of the written power required under the statement of frauds.31 In addition, the
petitioner's fallacy is its wrong assumption of the unproved premise that the
respondent had full knowledge of all the terms and conditions contained in the deed
of absolute sale when Roxas executed it.

It bears stressing that apparent authority is based on estoppel and can arise from two
instances: first, the principal may knowingly permit the agent to so hold himself out
as having such authority, and in this way, the principal becomes estopped to claim
that the agent does not have such authority; second, the principal may so clothe the
agent with the indicia of authority as to lead a reasonably prudent person to believe
that he actually has such authority.32 There can be no apparent authority of an agent
without acts or conduct on the part of the principal and such acts or conduct of the
principal must have been known and relied upon in good faith and as a result of the
exercise of reasonable prudence by a third person as claimant and such must have
produced a change of position to its detriment. The apparent power of an agent is to
be determined by the acts of the principal and not by the acts of the agent.33

For the principle of apparent authority to apply, the petitioner was burdened to prove
the following: (a) the acts of the respondent justifying belief in the agency by the
petitioner; (b) knowledge thereof by the respondent which is sought to be held; and,
(c) reliance thereon by the petitioner consistent with ordinary care and prudence.34 In
this case, there is no evidence on record of specific acts made by the respondent35
showing or indicating that it had full knowledge of any representations made by
Roxas to the petitioner that the respondent had authorized him to grant to the
respondent an option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085, or to create a burden or lien thereon, or that the respondent allowed him to do
so.

The petitioner's contention that by receiving and retaining the P5,000,000 purchase
price of Lot No. 491-A-3-B-2, the respondent effectively and impliedly ratified the
grant of a right of way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to the
petitioner an option to sell a portion thereof, is barren of merit. It bears stressing that
the respondent sold Lot No. 491-A-3-B-2 to the petitioner, and the latter had taken
 possession of the property. As such, the respondent had the right to retain the
P5,000,000, the purchase price of the property it had sold to the petitioner. 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.36 Ratification is
based on waiver - the intentional relinquishment of a known right. Ratification cannot
be inferred from acts that a principal has a right to do independently of the
unauthorized act of the agent. Moreover, if a writing is required to grant an authority
to do a particular act, ratification of that act must also be in writing.37 Since the
respondent had not ratified the unauthorized acts of Roxas, the same are
unenforceable.38 Hence, by the respondent's retention of the amount, it cannot
thereby be implied that it had ratified the unauthorized acts of its agent, Roberto
Roxas.

On the last issue, the petitioner contends that the CA erred in dismissing its
complaint for damages against the respondent on its finding that the delay in the
construction of its warehouse was due to its (petitioner's) fault. The petitioner asserts
that the CA should have affirmed the ruling of the trial court that the respondent
failed to cause the eviction of the squatters from the property on or before September
29, 1991; hence, was liable for P5,660,000. The respondent, for its part, asserts that the
delay in the construction of the petitioner's warehouse was due to its late filing of an
application for a building permit, only on May 28, 1992.

The petitioner's contention is meritorious. The respondent does not deny that it failed
to cause the eviction of the squatters on or before September 29, 1991. Indeed, the
respondent does not deny the fact that when the petitioner wrote the respondent
demanding that the latter cause the eviction of the squatters on April 15, 1992, the
latter were still in the premises. It was only after receiving the said letter in April 1992
that the respondent caused the eviction of the squatters, which thus cleared the way
for the petitioner's contractor to commence the construction of its warehouse and
secure the appropriate building permit therefor.

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. Because of the
respondent's failure to cause their eviction as agreed upon, the petitioner's contractor
failed to commence the construction of the warehouse in October 1991 for the agreed
price of P8,649,000. In the meantime, costs of construction materials spiraled. Under
the construction contract entered into between the petitioner and the contractor, the
petitioner was obliged to pay P11,804,160,39 including the additional work costing
P1,441,500, or a net increase of P1,712,980.40 The respondent is liable for the
difference between the original cost of construction and the increase thereon,
conformably to Article 1170 of the New Civil Code