Title
Woodchild Holdings, Inc. vs. Roxas Electric and Construction Co., Inc.
Case
G.R. No. 140667
Decision Date
Aug 12, 2004
RECCI sold land to WHI but failed to evict squatters, delaying construction. Court ruled RECCI liable for damages but voided unauthorized provisions in the sale.
compensation
delays
warehouse construction
A

Case Summary (G.R. No. 76607)

Factual Background

RECCI owned two contiguous parcels: TCT No. 78086 (7,213 sq.m.) and the adjoining TCT No. 78085. On May 17, 1991, RECCI’s board passed a resolution authorizing the corporation, through its president Roberto Roxas, to sell the 7,213-sq.m. property (TCT No. 78086) “at a price and on terms and conditions which he deems most reasonable and advantageous” and to execute the sale documents and receive proceeds. WHI offered to purchase TCT No. 78086 at P1,000/sq.m.; Roxas accepted and executed a contract to sell (July 1, 1991) and a Deed of Absolute Sale (September 5, 1991). The deed contained stipulations granting WHI the beneficial use of an existing right of way plus additional designated areas for ingress/egress and turning, and a term providing that if the right of way proved insufficient WHI could purchase additional square meters from the adjacent lot (TCT No. 78085), with a specific negotiated price later testified to by WHI’s representative. WHI contracted for construction of a warehouse, faced delay because of squatters occupying the property, later had the squatters evicted, and alleged increased construction cost and lost rental income due to the delay. WHI filed suit seeking specific performance (delivery of beneficial use/right of way and sale of additional area), annotation of title, damages (actual damages and unrealized income), and attorney’s fees.

Procedural History

WHI sued RECCI in the Regional Trial Court (Makati, Branch 57). The trial court found for WHI, ordering delivery of the benefical use and sale of 500 sq.m. at P1,000/sq.m., annotation on title, and awarding damages and attorney’s fees. RECCI appealed to the Court of Appeals (CA), which reversed and dismissed WHI’s complaint on grounds that Roxas lacked authority under the board resolution to grant a right of way over Lot No. 491-A-3-B-1 or to agree to sell a portion of that lot. WHI then sought review by the Supreme Court.

Issues Presented to the Supreme Court

The threshold issues identified and addressed by the Court were: (a) whether RECCI is bound by the deed provisions granting WHI beneficial use and a right of way over part of Lot No. 491-A-3-B-1 and by the option to purchase a portion thereof, and whether those agreements are enforceable against RECCI; (b) whether RECCI failed to eject squatters within the time stipulated in the deed; and (c) whether RECCI is liable to WHI for damages arising from the delay in construction and loss of rental income.

Legal Principles on Corporate Authority, Formalities and Ratification

The Court applied settled principles concerning corporate powers and agent authority. A corporation acts through its board of directors; corporate officers can bind the corporation only within the scope of authority granted by law, the articles, by-laws, or board resolution (BP Blg. 68, Sec. 23). Acts of corporate officers beyond their authority are not binding on the corporation unless the corporation expressly or tacitly ratifies them or is estopped from denying the officer’s authority (Art. 1910, New Civil Code). Where the contemplated act requires written authority (e.g., conveyance of real rights over immovable property), those dealing with the agent are charged with notice of that requirement and bear the burden of proving that the requisite written authority existed or that the principal ratified or is estopped from denying the authority. Special formalities apply to transactions affecting real rights: a special power of attorney is required to convey real rights over immovable property in certain enumerated instances (Art. 1878(12)), and contracts creating or transmitting real rights over immovable property must appear in a public document (Art. 1358). Apparent authority arises only where the principal’s acts or conduct reasonably induced the third party to believe the agent had the authority; the party asserting apparent authority must prove (a) acts of the principal justifying belief in the agency, (b) the principal’s knowledge of those acts, and (c) the party’s reliance consistent with ordinary care.

Application — Authority to Grant Right of Way or Sell Adjacent Lot

Applying the foregoing principles, the Court found that the May 17, 1991 board resolution authorized Roxas only to sell the 7,213-sq.m. property (TCT No. 78086) on terms he deemed reasonable and to execute documents and receive proceeds for that sale. The resolution did not specifically authorize Roxas to burden the adjacent lot (TCT No. 78085) with a right of way or to agree to sell part of that lot. Because the act of granting a right of way or selling a portion of an adjacent immovable required specific written authority and formalities, the general authorization to sell TCT No. 78086 could not be extended by implication to include creation of real rights over the adjacent lot. The Court concluded that the provisions in the deed of absolute sale purporting to grant a right of way over Lot No. 491-A-3-B-1 and an option to purchase part of that lot were ultra vires Roxas’s authority and therefore not binding on RECCI in the absence of ratification or estoppel.

Estoppel, Ratification and Receipt of Purchase Price

The Court rejected WHI’s argument that RECCI’s acceptance and retention of the P5,000,000 purchase price constituted implied ratification of Roxas’s unauthorized concessions as to the adjacent lot. The Court emphasized that for ratification to be implied the principal’s conduct must be inconsistent with any other hypothesis than approval, and where a writing is required to grant authority to perform a particular act, ratification must likewise be in writing. Moreover, apparent authority or estoppel cannot be invoked absent evidence of acts or conduct by the principal that induced reliance. The record lacked proof that RECCI had knowledge of and acquiesced to the specific terms in the deed affecting the adjacent lot; retention of the purchase price for the property actually sold (TCT No. 78086) was not, standing alone, inconsistent with nonratification or sufficient to establish estoppel.

Eviction of Squatters, Causation of Delay, and Damages

On the issue of damages, the Court found for WHI. The deed of absolute sale contained an undertaking by RECCI to eject all squatters and occupants within two weeks; RECCI failed to effect eviction within the agreed period. The presence of squatters prevented WHI’s contractor from commencing construction on the scheduled date and delayed WHI’s application for building permits. The delay resulted in increased construction costs under WHI’s subsequent construction contract and in loss of rental income from a pre-lease arrangement. Applying Article 1170 (liability for fraud, negligence or delay) and Articles 2200–2201 (compensable losses include unrealized profits that are natural and probable consequences of breach), the Court held RECCI liable for the difference between the original construction cost and t

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