BURGUNDY REALTY CORP., PETITIONER, VS. DANIELA P. BELLA, GERONIMO BELLA, JR., AND RODRIGO P. BELLA, RESPONDENTS.

Burgundy Realty versus Bella

The Case

This is a petition for review on certiorari brought by Burgundy Realty Corporation against Daniela Bella, Geronimo Bella, Junior, and Rodrigo Bella, arising from a complaint for specific performance, damages, and mandatory injunction concerning a joint venture for the development of a condominium project on two adjoining parcels of land in Manila City. The Bellas contributed the land; Burgundy Realty contributed its expertise in development, construction, marketing, and sale. The case matters because it gathers in one decision the doctrines of apparent authority of a corporate officer, estoppel against the corporation, the effect of a defective notarization, and the rule that a Rule 45 petition may be resolved on facts when the findings below are conflicting.

Procedural History

The Bellas filed their complaint for specific performance, damages, and mandatory injunction with prayer for a temporary restraining order and writ of preliminary injunction before the Regional Trial Court of Makati City. The case was initially raffled to one branch, which issued a temporary restraining order and later a writ of preliminary injunction against Burgundy Realty. The trial court later issued a separate judgment confirming Daniela Bella's ownership of seven residential units. Over the objection of Burgundy Realty, the trial court admitted the amended complaint, and the Court of Appeals affirmed that admission in a separate certiorari proceeding. The case was eventually re-raffled to Branch 65 of the Regional Trial Court of Makati City, which, after Burgundy Realty was declared to have waived its right to present evidence, rendered judgment in favor of the Bellas, ordering payment of 229,293,328.55 pesos as the value of their share, plus 20,000,000 pesos in attorney's fees and litigation expenses. Burgundy Realty appealed. The Court of Appeals denied the appeal and affirmed with modification, raising the monetary award to 299,293,328.55 pesos, with interest at six percent per annum from finality until full payment, and denied reconsideration. Hence, the petition for review on certiorari before the Supreme Court.

Facts

Daniela Bella and Geronimo Bella, Senior, were the registered owners of two adjoining parcels of land in Manila City with a combined area of 1,129.50 square meters. On December 6, 1996, the spouses and Burgundy Realty, through its president Rogelio Serafica, signed a Joint Venture Agreement for the development of the land into a condominium project. Under that first agreement, the owner's share was seven residential units with a total area of 229.24 square meters, and the developer's share was the remaining units.

On June 21, 2000, the Bellas, represented by their children Geronimo, Junior, and Rodrigo, sent a Confirmation Letter to Burgundy Realty, signed by Serafica for the corporation, stipulating that the owner's share would be two and one-half times the lot area, or a total usable area of 2,823.75 square meters, plus twelve ground level parking spaces, and that the Confirmation Letter would prevail over the Joint Venture Agreement in case of inconsistency. In April 2003, Burgundy Realty turned over to the Bellas seven condominium certificates of title in the name of Daniela. In March 2004, the Bellas demanded additional units as compensation for unrealized profits due to delay, and Burgundy Realty refused. After further demands went unheeded, the Bellas filed suit in July 2004.

In their amended complaint, the Bellas attached a second Joint Venture Agreement, also dated December 6, 1996, which carried the same two and one-half times lot area share and a larger cash advance. Burgundy Realty insisted that Serafica had no board authority to sign the Confirmation Letter or the second agreement, and that the two agreements novated each other. The trial court and the Court of Appeals both ruled for the Bellas.

Issues

• Whether or not Serafica was clothed with apparent authority to transact with the Bellas and bind Burgundy Realty.
• Whether or not novation took place in any of the joint venture agreements.
• Whether or not the Court of Appeals correctly affirmed the award of a sum of money in lieu of delivery of the condominium units, and further increased the award from 229,293,328.55 pesos to 299,293,328.55 pesos.
• Whether or not the Bellas are entitled to the award of attorney's fees.

Applicable Provisions

Section 23 of the then Corporation Code provides:

Section 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 until their successors are elected and qualified.

This is the baseline rule: corporate powers belong to the board, so that no officer may bind the corporation without authority, subject only to the doctrine of apparent authority.

Section 20, Rule 132 of the Rules of Court provides:

Before any private document offered as authentic is received in evidence, its due execution and authenticity must be proved either: (a) by anyone who saw the document executed or written; or (b) by evidence of the genuineness of the signature or handwriting of the maker.

This governs the two joint venture agreements once their defective notarization reduces them to private documents.

Ruling

On the first issue, the Court held that while corporate powers are exercised by the board of directors, and no person, not even an officer, can validly bind a corporation without board authority, the doctrine of apparent authority applies. Under that doctrine, a corporate officer may bind the corporation to the extent that authority has been conferred upon him, including such apparent powers as the corporation has caused persons dealing with him to believe it conferred. Apparent authority may be shown by the general manner in which the corporation holds out the officer as having power to act, or by its acquiescence in his acts of a particular nature with actual or constructive knowledge. The Court found that Burgundy Realty clothed Serafica with apparent authority through a series of letters he signed as president, and that the corporation is estopped to deny that apparent authority as against innocent third persons dealing in good faith.

On the second issue, the Court upheld the finding that there was no novation. The first agreement was merely a relatively simulated contract, and the parties actually intended to be bound by the stipulations of the second.

On the third issue, the Court sustained the award of a sum of money in lieu of delivery, and the increase to 299,293,328.55 pesos, since the records showed that this was the proven value of the Bellas' undelivered share.

On the fourth issue, the Court likewise sustained the award of attorney's fees.

The Court also noted that the defective notarization of both agreements merely stripped them of their public character and reduced them to private instruments, which did not affect their validity since their existence and due execution were not disputed.

Doctrine

First, a corporation acts only through its board of directors, and no officer may bind it without authority. Second, by way of exception, the doctrine of apparent authority binds the corporation where it has held out its officer as having power to act, or has acquiesced in his acts with knowledge, and the corporation is estopped to deny that authority against innocent third persons in good faith. Third, a defective notarization does not invalidate a document; it merely reduces it to a private document, and where existence and due execution are admitted, validity is unaffected. Fourth, a Rule 45 petition is generally limited to errors of law, but the Court may review facts when the findings of the lower courts are conflicting.

Disposition

The petition was denied, and the decision of the Court of Appeals was affirmed, with Burgundy Realty bound to pay the Bellas the value of their share in the condominium project.

Remember This

Memorize this line: a corporation that clothes its officer with apparent authority is estopped to deny that authority against innocent third persons dealing in good faith. Examiners use this case to test apparent authority and corporate estoppel, and the rule that defective notarization reduces a document to a private instrument without destroying its validity.