G.R. No. 111448 - AF Realty and Development, Inc. vs. Dieselman Freight Services Co.

Dieselman Freight Services, Co. is a domestic corporation and the registered owner of a commercial lot located at 104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila.
The property is documented by Transfer Certificate of Title No. 39849 issued by the Registry of Deeds of the Province of Rizal.
Petitioner AF Realty & Development, Inc., represented by board member and vice-president Zenaida R. Ranullo, is involved in the dispute over the subject property.
Respondents include Dieselman Freight Services, Co., Manuel C. Cruz, Jr. (a member of Dieselman’s board of directors), and Midas Development Corporation.

On May 10, 1988, Manuel C. Cruz, Jr. issued a letter titled “Authority To Sell Real Estate” to Cristeta N. Polintan, authorizing her "to look for a buyer/buyers and negotiate the sale" of the lot at a price of P3,000.00 per square meter.
Crucially, Cruz, Jr. did not have any written authorization from Dieselman to sell the property.
Through Polintan’s subsequent letter dated May 19, 1988, Felicisima Noble was further authorized to sell the same property, effectively extending an unauthorized chain of delegation.

Felicisima Noble offered the property to AF Realty at a lower price of P2,500.00 per square meter.
Zenaida Ranullo, acting on behalf of AF Realty, accepted this offer and issued a check for P300,000.00 as partial payment.
Polintan provided an "Acknowledgement Receipt" indicating that the P300,000.00 was partial payment but refundable within two weeks if AF Realty disapproved of Ranullo’s actions.
On June 29, 1988, AF Realty confirmed its intent to purchase the lot and requested the board resolution of Dieselman authorizing the sale.
Polintan was unable to produce such board resolution, instead giving Ranullo a copy of TCT No. 39849, the tax declaration, tax receipt, and a photocopy of Dieselman's Articles of Incorporation.
On August 2, 1988, Manuel F. Cruz, Sr., Dieselman’s president, acknowledged the receipt of the P300,000.00 as “earnest money” but stipulated that the sale be finalized at a revised price of P4,000.00 per square meter.
AF Realty maintained that it had already paid a down payment and was willing to pay the balance, but on August 13, 1988, Manuel F. Cruz, Sr. terminated the offer and demanded the return of the lot’s title already delivered by Polintan.
Claiming that a perfected contract of sale existed, AF Realty filed a complaint for specific performance along with claims for compensatory, attorney’s, and exemplary damages.

On July 30, 1988, Dieselman, along with Midas Development Corporation, executed a Deed of Absolute Sale for the subject property at P2,800.00 per square meter.
Midas made a down payment of P500,000.00 and purportedly deposited the balance of P5,300,000.00 in an escrow account with PCIBank.
In light of the conflicting transactions, Midas moved to intervene in the AF Realty case on April 3, 1989, asserting its purchase rights and possession of the property.
The trial court granted Midas’ motion for intervention.

It held that the acts of Cruz, Jr. had bound Dieselman in the sale to AF Realty.
Midas’ intervention was barred as the contract of sale with AF Realty was deemed perfected.
The RTC ordered Dieselman to execute and deliver a final deed of sale to AF Realty and awarded attorney’s fees.

AF Realty argued that the RTC erred in not awarding additional damages and in dismissing its counterclaim against Midas.
Dieselman and Midas contended that the sale to AF Realty was not perfected due to the lack of written authorization from the board.

Since Cruz, Jr. was not authorized in writing by Dieselman, no perfected contract existed between Dieselman and AF Realty.
The Deed of Absolute Sale between Dieselman and Midas was valid.
Dieselman and Cruz, Jr. were held jointly and severally liable to AF Realty for nominal damages.

The amendment limited liability only to Manuel Cruz, Jr. and modified the award, specifically deleting the monetary award of P300,000.00 if still deposited, which was to be restituted to AF Realty.

Petitioner AF Realty filed a petition for review on certiorari before the Supreme Court, challenging the CA’s ruling.

The primary issue for the Supreme Court’s consideration was the determination of which party—AF Realty or Midas—held a right over the subject property.
The analysis involved assessing the authority of Dieselman’s agents and the validity of the respective sale transactions.

Whether the unauthorized acts of Manuel C. Cruz, Jr. in attempting to sell the property, and his subsequent delegation of authority to Polintan and Noble, can bind Dieselman in a purported contract with AF Realty.

Did the absence of proper written authorization from Dieselman’s board of directors render the contract with AF Realty void?
Does the receipt of a partial payment (P300,000.00) constitute ratification of an otherwise void sale by accepting the benefits of an unauthorized transaction?

The validity and effect of the Deed of Absolute Sale entered into by Dieselman and Midas on July 30, 1988.

Was the sale to Midas authorized by Dieselman’s board resolution?
What is the significance of the timely and properly notarized Deed of Absolute Sale in establishing Midas’ superior right over the property?

Whether Dieselman can be compelled to complete the sale to AF Realty despite evidence to the contrary.
Whether Manuel Cruz, Jr. should be held liable for damages for his unauthorized actions.
The appropriateness of awarding damages and attorney’s fees against Cruz, Jr. versus holding Dieselman bound by the actions of its agents.