AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners, vs.
  the rule is that the declarations of an individual director relating to the affairs of the
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS  corporation, but not in the course of, or connected with, the performance of authorized duties
DEVELOPMENT CORPORATION, respondents.  of such director, are held not binding on the corporation.
FACTS: Dieselman Freight Services Co. is the registered owner of a commercial lot and
Manuel C. Cruz, Jr. is a member of its board of directors. Although Cruz has no written
authority from Dieselman to sell the lot, he issued a letter authorizing Cristeta N. Politan to
look for a buyer at P3,000.00 per square meter or P6,282,000.00. Politan, in turn, authorized
Felicisima Noble to sell the same lot. Noble then offered the lot to AF Realty & Development,
Inc. at P2,500.00 per square meter. Zenaida Ranullo, a board member and vice-president of
AF Realty, accepted the offer and issued a check in the amount of P330,000.00 payable to
Dieselman. Cruz, as president of Dieselman, acknowledged receipt of the check only as
earnest money and required AF Realty to finalize the sale at P4,000.00 per square meter.
Later on, Cruz terminated the offer and demanded the return of the title of the lot earlier
delivered. AF Realty, claiming that the contract was already perfected, filed a complaint for
specific performance against Dieselman and Cruz. Meanwhile, Dieselman and Midas
Development Corporation executed a deed of absolute sale of the same property at an agreed
price of P2,800.00 per square meter and thereafter filed a motion for leave to intervene in the
case. After trial, the lower court held that the acts of Cruz bound Dieselman in the sale of the
lot to AF Realty. Consequently, the perfected contract of sale between Dieselman and AF
Realty barred Midas's intervention. Dissatisfied, all parties appealed to the Court of Appeals.
The Court of Appeals reversed the decision of the trial court. It held that since Cruz was not
authorized in writing to sell the subject property to AF Realty, the sale was not perfected. It
also held that the Deed of Absolute Sale between Dieselman and Midas is valid. Hence,
petitioner filed the instant petition. The focal issue for consideration by the Supreme Court is
who between petitioner AF Realty and respondent Midas has a right over the subject lot.
The decision of the Court of Appeals was affirmed by the Supreme Court. According to the
Court, considering that respondent Cruz, Polintan and Noble 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 the Civil Code. On the other hand, the
validity of the sale of the subject lot to respondent Midas was unquestionable. The sale was
authorized by the board resolution of respondent Dieselman.
ISSUE: who between petitioner AF Realty and respondent Midas has a right over the subject
lot.
1. COMMERCIAL LAW; CORPORATION CODE; CORPORATE POWERS OF ALL
CORPORATIONS SHALL BE EXERCISED BY THE BOARD OF DIRECTORS; RATIONALE.
— 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,
2. CIVIL LAW; AGENCY; SALE OF LAND THROUGH AN AGENT REQUIRES AUTHORITY
TO BE IN WRITING; EFFECT OF ABSENCE THEREOF; CASE AT BAR. — Involved in this
case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes
precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals: "Since a
corporation, such as the private respondent, 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, of members
acting in their stead, are subject to the same rules, liabilities, and incapacities as are agents of
individuals and private persons." 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." 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, thus: "ART. 1409.
The following contracts are inexistent and void from the very beginning: . . . (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." Upon the other hand, the validity of the
sale of the subject lot to respondent Midas is unquestionable. As aptly noted by the Court of
Appeals, the sale was authorized by a board resolution of respondent Dieselman dated May
27, 1988.
BENEDICTO HORNILLA and ATTY. FEDERICO D. RICAFORT, complainants, vs. ATTY. 
ERNESTO S. SALUNAT, respondent. 
Benedicto Hornilla and Federico Ricafort were members of the Philippine Public School
Teachers Association (PPSTA). In 1997, they accused the Board of Directors of PPSTA of
unlawfully spending the funds of PPSTA. However, since the PPSTA was not initiating a
complaint against the Board of Directors, the two then filed a suit on behalf of PPSTA against
the Board of PPSTA.
In the said suit, the Board of Directors were represented by Atty. Ernesto Salunat. Hornilla et
al were against the legal representation being made by Salunat for and on behalf of the Board
of Directors because of the fact that Salunat is part of the ASSA Law Offices. And the ASSA
Law Offices happen to be the retained law firm of the PPSTA. In short, Hornilla et al alleged
that there is conflict of interests.
ISSUE: ​Whether or not there is conflict of interest.
HELD: ​Yes. The suit filed by Hornilla et al against the Board of PPSTA is a derivative suit.
Where corporate directors have committed a breach of trust either by their frauds, ultra vires
acts, or negligence, and the corporation is unable or unwilling to institute suit to remedy the
wrong, a stockholder (in this case a member because PPSTA is non-stock) may sue on behalf
of himself and other stockholders and for the benefit of the corporation, to bring about a
redress of the wrong done directly to the corporation and indirectly to the stockholders. In
such a case, even though it was the members who filed the case and not the corporation
itself, the real party in interest is still the corporation (PPSTA) and the suing members (Hornilla
et al) are only the nominal party.
Therefore, since it is the corporation suing, Salunat cannot represent the Board Members of
PPSTA because he is a member of ASSA Law Office which is the retained law firm of PPSTA.
Surely, there is conflict of interest in him representing the Board while his law office represents
the corporation. Salunat was admonished by the Supreme Court.
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.   , petitioner, vs. COURT OF  the particular officer or agent, and such apparent powers as the corporation has
APPEALS,  MOTORICH  SALES  CORPORATION,  NENITA  LEE  GRUENBERG,  ACL  caused persons dealing with the officer or agent to believe that it has conferred.
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents.  Furthermore, persons dealing with an assumed agent, whether the assumed agency
 
Facts:  San Juan Structural and Steel Fabricators entered into an agreement with Motorich
Sales Corporation through Nenita Gruenberg, corporate treasurer of Motorich, for the transfer
to the former a parcel of land upon a P100,000 earnest money, balance to be payable within
March 2, 1989. Upon payment of the earnest money, and on March 1, 1989, San Juan
allegedly asked to be submitted a computation of the balance due to Motorich. The latter,
despite repeated demands, refused to execute the Deed of Assignment of the land. San Juan
discovered that Motorich entered into a Deed of Absolute Sale of the land to ACL
Development Corporation. Hence, San Juan filed a complaint with the RTC. On the other
hand, Motorich contends that since Nenita Gruenberg was only the treasurer of said
corporation, and that its president, Reynaldo Gruenberg, did not sign the agreement entered
into by San Juan and Motorich, the treasurer’s signature was inadequate to bind Motorich to
the agreement. Furthermore, Nenita contended that since San Juan was not able to pay
within the stipulated period, no deed of assignment could be made. The deed was agreed to
be executed only after receipt of the cash payment, and since according to Nenita, no cash
payment was made on the due date, no deed could have been executed.
RTC dismissed the case holding that Nenita Gruenberg was not authorized by Motorich to
enter into said contract with San Juan, and that a majority vote of the BoD was necessary to
sell assets of the corporation in accordance with Sec. 40 of the Corporation Code. CA
affirmed this decision. Hence, this petition with SC.
Issues:​
(1) Whether or not there was a valid contract existing between San Juan and Motorich.
(2) Whether or not the veil of corporate fiction could be pierced.
 
Held:​
1. No. The contract entered into between Nenita and San Juan cannot bind Motorich,
because the latter never authorized nor ratified such sale. 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
and may not be sold by them without express authorization from the corporation’s
BoD. This is in accordance with Sec. 23 of the Corporation Code. Indubitably, a
corporation can only act through its BoD 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 AoI, by laws, or relevant
provisions of law. A corporate officer or agent may represent and bind the
corporation in transactions with 3rd persons to the extent that the authority to do so
has been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the
particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually pertaining to
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. Unless duly authorized, a treasurer, whose powers are limited, cannot
bind the corporation in a sale of its assets. In the case at bar, San Juan had the
responsibility of ascertaining the extent of Nenita’s authority to represent the
corporation. Selling is obviously foreign to a corporate treasurer’s function. Neither
was real estate sale shown to be a normal business activity of Motorich. The
primary purpose of said corporation is marketing, distribution, import and export
relating to a general merchandising business. Unmistakably, its treasurer is not
cloaked with actual or apparent authority to buy or sell real property, an activity
which falls way beyond the scope of her general authority. Acts of corporate officers
within the scope of their authority are binding on the corporation. But when these
officers exceed their authority, their actions cannot bind the corporation, unless it
has ratified such acts or is estopped from disclaiming them.
2. No. San Juan argues that the veil of corporate fiction should be pierced because
the spouses Reynaldo and Nenita Gruenberg own 99.96% of the subscribed capital
stock, they needed no authorization from the BoD to enter into the said contract.
The veil can only be disregarded when it is utilized as a shield to commit fraud,
illegality or inequity, defeat public convenience, confuse legitimate issues, or serve
as a mere alter ego or business conduit of a person or an instrumentality, agency or
adjunct of another corporation. Hence, the question of piercing the veil becomes a
matter of proof. In the case at bar, SC found no reason to pierce the veil. San Juan
failed to establish that said corporation was formed for the purpose of shielding any
fraudulent act of its officers and stockholders.
CEBU MACTAN MEMBERS CENTER, INC., petitioner, vs. MASAHIRO TSUKAHARA,  d. Execute on behalf of the company all contracts and agreements which the said company
respondent​.
FACTS: Cebu Mactan Members Center, Inc. (CMMCI) denied the borrowing obtain by its
President and Chairman of the Board (Mitsumasa Sugimoto) from Masahiro Tsukahara.
CMMCI claimed that the loans obtained by the CMMCI President were his personal loans.
CMMCI also contended that if the loans were those of CMMCI, the same should have been
supported by resolutions issued by CMMCI’s board of directors.
It appears that on February 1994, the CMMCI President, purportedly on behalf of CMMCI,
obtained a loan amounting to P6,500,000 from Tsukahara. As payment for the loan, CMMCI
issued seven postdated checks of CMMCI payable to Tsukahara. On 13 April 1994, Sugimoto,
again purportedly on behalf of CMCI, obtained another loan amounting to P10,000,000 from
Tsukahara. Sugimoto executed and signed a promissory note in his capacity as CMMCI
President and Chairman, as well as in his personal capacity.
Upon maturity, the seven checks were presented for payment by Tsukahara, but the same
were dishonored by PNB, the drawee bank. After several failed attempts to collect the loan
amount totaling P16,500,000, Tsukahara filed a case for collection of sum of money against
CMMCI and Sugimoto with the Regional Trial Court.
Tsukahara alleged that the amount of P16,500,000 was used by CMMCI for the improvement
of its beach resort, which included the construction of a wave fence, the purchase of
airconditioners and curtains, and the provision of salaries of resort employees. He also
asserted that Sugimoto, as the President of CMMCI, “has the power to borrow money for said
corporation by any legal means whatsoever and to sign, endorse and deliver all checks and
promissory notes on behalf of the corporation.” The Regional Trial Court ruled in favor of
Tsukahara. The Court of Appeals affirmed. The Supreme Court agreed.
ISSUE: Can a corporation be bound by an act of its officer even without a board resolution
providing for the same?
RULING: The Supreme Court ruled that the CMMCI President is given the power under
CMMCI’s by-laws to borrow money, execute contracts, and sign and indorse checks and
promissory notes, in the name and on behalf of CMMCI.
ARTICLE III
Officers
2. President. The President shall be elected by the Board of Directors from their own
number. He shall have the following powers and duties . . .
c. Borrow money for the company by any legal means whatsoever, including the
arrangement of letters of credit and overdrafts with any and all banking institutions;
may enter into;
e. Sign, indorse, and deliver all checks, drafts, bill of exchange, promissory notes and orders
of payment of sum of money in the name and on behalf of the corporation
With such powers expressly conferred under the corporate by-laws, the Supreme Court ruled
that the CMMCI president, in exercising such powers, need not secure a resolution from the
company’s board of directors: “Thus, given the president’s express powers under the
CMMCI’s by-laws, Sugimoto, as the president of CMMCI, was more than equipped to enter
into loan transactions on CMMCI’s behalf. Accordingly, the loans obtained by Sugimoto from
Tsukahara on behalf of CMMCI are valid and binding against the latter, and CMMCI may be
held liable to pay such loans.
VIOLETA BANATE et. al. vs. PHILIPPINE COUNTRYSIDE RURAL BANK 
GR 163825, 13 July 2010 
FACTS:  ​Sometime in November 1997 the spouses Maglasang and the spouses Cortel asked
PCRB’s permission to sell the properties which they mortgaged with the bank. They likewise
requested that the said properties be released from the mortgage since the two other loans
were adequately secured by the other mortgages. The spouses Maglasang and the spouses
Cortel claimed that the PCRB, acting through its Branch Manager, Pancrasio Mondigo,
verbally agreed to their request but required first the full payment of the subject loan. They
thereafter sold to petitioner Violeta Banate the subject properties for P1,750,000.00 and used
the amount to pay the subject loan with PCRB. After settling the subject loan, PCRB gave the
owner’s duplicate certificate of title of Lot 12868-H-3-C to Banate, who was able to secure a
new title in her name. It, however, carried the mortgage lien in favor of PCRB, prompting the
petitioners to request from PCRB a Deed of Release of Mortgage. As PCRB refused to
comply with the petitioners’ request, the petitioners instituted an action for specific
performance before the RTC to compel PCRB to execute the release deed. Accordingly,
PCRB claimed that full payment of the three loans, obtained by the spouses Maglasang, was
necessary before any of the mortgages could be released; the settlement of the subject loan
merely constituted partial payment of the total obligation. Thus, the payment does not
authorize the release of the subject properties from the mortgage lien.  
 
ISSUE: Whether or not Mondigo, as branch manager of PCRB, has the authority to modify
the original mortgage contract on behalf of the company.
 
RULING: NO. ​He is not authorized to modify the mortgage contract that would in effect cause
novation. Under the doctrine of apparent authority, acts and contracts of the agent, as are
within the apparent scope of the authority conferred on him, although no actual authority to do
such acts or to make such contracts has been conferred, bind the principal. The principal’s
liability, however, is limited only to third persons who have been led reasonably to believe by
the conduct of the principal that such actual authority exists, although none was given. In
other words, apparent authority is determined only by the acts of the principal and not by the
acts of the agent. There can be no apparent authority of an agent without acts or conduct on
the part of the principal; such acts or conduct must have been known and relied upon in good
faith as a result of the exercise of reasonable prudence by a third party as claimant, and such
acts or conduct must have produced a change of position to the third party’s detriment. ​In the
present case, the decision of the trial court was utterly silent on the manner by which PCRB,
as supposed principal, has “clothed” or “held out” its branch manager as having the power to
enter into an agreement, as claimed by petitioners. No proof of the course of business,
usages and practices of the bank about, or knowledge that the board had or is presumed to
have of, its responsible officers’ acts regarding bank branch affairs, was ever adduced to
establish the branch manager’s apparent authority to verbally alter the terms of mortgage
contracts. Neither was there any allegation, much less proof, that PCRB ratified Mondigo’s act
or is estopped to make a contrary claim.