Case Summary (G.R. No. 114311)
Procedural History: Original Ejectment Action and Compromise
On 11 March 1985, Paz G. Villamil‑Estrada, acting under the written Special Power of Attorney, filed Civil Case No. D‑7750 in the Regional Trial Court (RTC) of Dagupan to eject Isidro Perez and recover possession of a portion of Lot No. 443. On 25 November 1985 Villamil‑Estrada entered into a Compromise Agreement with Perez recognizing Perez’s possession of a 333 sq. m. portion of Lot No. 443 in exchange for P26,640 (P80/sq. m.), with related subdivision and registration expenses to be borne by Perez. The RTC approved the Compromise Agreement on 27 November 1985 and rendered judgment accordingly.
Failure to Execute and Revival Proceeding
The compromise judgment became final and executory but was not executed within five years, allegedly because the corporate owner failed to produce the duplicate owner’s copy of Title No. 37649 needed to segregate the compromised portion. On 25 January 1993 Perez filed a complaint to revive the judgment (Civil Case No. D‑10459). Service of summons in the revival proceeding reportedly alerted Cosmic Lumber to the existence of the compromise agreement.
Petition to Annul: Grounds Alleged by Petitioner
Upon learning of the compromise, petitioner sought annulment of the RTC decision before the Court of Appeals asserting: (a) Villamil‑Estrada lacked authority to sell, encumber, or divest corporate property; (b) her authority was limited to instituting ejectment actions and effecting evictions of squatters so the corporation could take material possession; (c) the contested authority to “enter into a compromise agreement” was expressly limited to agreements protective of the corporation’s rights and interests, not to alienations; (d) the P26,640 consideration was never received by the corporation; (e) Perez acted in bad faith, knowing the attorney‑in‑fact lacked authority to sell; and (f) disposition of corporate property required a Board resolution, absent here, and the General Manager alone was not authorized to effect encumbrance or sale.
Court of Appeals Ruling and Its Rationale
The Court of Appeals dismissed the petition for annulment on 29 October 1993 and denied reconsideration, holding that petitioner had not established lack of jurisdiction, fraud, or illegality. The CA reasoned that the alleged nullity of the compromise because the attorney‑in‑fact lacked power to sell could be raised as a defense in an execution proceeding (i.e., the judgment did not bind petitioner) but did not constitute grounds for annulment because it did not affect the trial court’s jurisdiction nor constitute extrinsic fraud.
Supreme Court: Scope and Construction of the Special Power of Attorney
The Supreme Court found the authority granted to Villamil‑Estrada explicit and exclusionary: she was empowered to institute ejectment proceedings and to enter into stipulations or compromises only so far as they protected the corporation’s rights and interests and to enable the corporation to take material possession. Nowhere was she expressly or impliedly granted authority to sell or alienate any portion of the land. The Court underscored that the phrase “to enter into a compromise agreement” must be read in light of the explicit limiting language; a general grant to compromise does not, in such context, authorize alienation of immovable property.
Legal Requirements for Agent Authority to Sell Immovables
The Court reiterated established legal precepts: (1) an agent’s authority to sell real property must be conferred in writing and must be specific; (2) a special power of attorney is necessary to enter into any contract effecting transmission of ownership of immovables; (3) language enabling sale must expressly mention sale or include it as a necessary ingredient of the act authorized; and (4) any reasonable doubt as to whether the power of attorney confers authority to sell should be resolved against finding such authority. The Court therefore concluded Villamil‑Estrada acted without authority in effecting the sale by compromise and that the sale was void ab initio.
Effect of Void Compromise on Jurisdiction and Judgment
Because the compromise was void—entered into by an agent without the requisite special authority to sell—the resulting compromise judgment was likewise void. The Court rejected the Court of Appeals’ characterization that lack of authority was merely a defense in execution, holding instead that when a judgment is based on a compromise to which the principal was not a privy and which the agent lacked authority to bind, the judgment is null and void ab initio. Citing Alviar and Jacinto, the Court explained that a judgment rendered on a compromise entered into by an attorney or agent without specific authority does not bind the principal and that such a judgment may be impugned in any proceeding for its annulment or to restrain its execution.
Extrinsic Fraud Doctrine and Application to the Facts
The Supreme Court found the conduct of Villamil‑Estrada to constitute extrinsic fraud or collateral fraud. Extrinsic fraud occurs where the prevailing party’s conduct outside the trial prevents the defeated party from fully presenting its case or from contesting the matter—examples include keeping a party ignorant of proceedings, false promises of compromise, or an attorney’s collusion to defeat the client. The Court observed that Villamil‑Estrada deliberately concealed the compromise from her principal and sold a portion of corporate property for consideration far below assessed value, without remitting proceeds to the corporation. Under the recognized exception to the general rule imputing an agent’s knowledge to the principal, where the agent is engaged in fraud for personal benefit, the principal is not chargeable with the agent’s knowledge. The agent’s secret betrayal placed the corporation in the position of never having the opportunity to repudiate the settlement, thereby constituting extrinsic fraud that impaired procedural fairness and the court’s jurisdiction to render a binding judgment.
Jurisdictional Properly of the Annulment Action
The petition to annul the RTC decision filed with the Court of Appeals was p
Case Syllabus (G.R. No. 114311)
Case Citation and Panel
- Reported at 332 Phil. 948, First Division.
- G.R. No. 114311, decided November 29, 1996.
- Decision penned by Justice Bellosillo; concurrence by Padilla (Chairman), Vitug, and Hermosisima, Jr., JJ.
- Justice Kapunan took no part in the Court of Appeals' decision.
Parties
- Petitioner: Cosmic Lumber Corporation.
- Respondents: Court of Appeals and private respondent Isidro Perez.
- Attorney-in-fact central to the controversy: Paz G. Villamil-Estrada.
Source Documents and Titles Involved
- Special Power of Attorney executed 28 January 1985 by Cosmic Lumber Corporation through its General Manager.
- Real property referenced: Lots Nos. 9127 and 443, covered by Transfer Certificate of Title Nos. 37648 and 37649.
Factual Background — Power of Attorney and Initial Action
- On 28 January 1985 Cosmic Lumber Corporation, through its General Manager, executed a Special Power of Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact.
- The Special Power of Attorney authorized Villamil-Estrada "to initiate, institute and file any court action for the ejectment of third persons and/or squatters of the entire lot 9127 and 443 and covered by TCT Nos. 37648 and 37649, for the said squatters to remove their houses and vacate the premises in order that the corporation may take material possession of the entire lot, and for this purpose, to appear at the pre-trial conference and enter into any stipulation of facts and/or compromise agreement so far as it shall protect the rights and interest of the corporation in the aforementioned lots."
- By virtue of that power of attorney, on 11 March 1985 Villamil-Estrada instituted an ejectment action against Isidro Perez to recover possession of a portion of Lot No. 443, docketed as Civil Case No. D-7750 before the Regional Trial Court (RTC) of Dagupan.
Compromise Agreement — Terms and Trial Court Disposition
- On 25 November 1985 Villamil-Estrada entered into a "Compromise Agreement" with respondent Isidro Perez. The compromise, as recorded, provided:
- The area occupied by defendant where his house stood was 333 square meters on the easternmost part of Lot 443, per relocation sketch plan dated June 5, 1985 prepared by Engineer Rodolfo dela Cruz.
- To "buy peace" defendant would pay to plaintiff through the attorney-in-fact the sum of P26,640.00, computed at P80.00 per square meter.
- Plaintiff would "recognize ownership and possession of the defendant by virtue of this compromise agreement over said portion of 333 square m. of lot 443" located on the easternmost part as indicated in the annexed sketch.
- Defendant would shoulder expenses of subdivision, registration, and other incidental expenses.
- On 27 November 1985 the trial court approved the Compromise Agreement and rendered judgment in accordance therewith.
Post-Judgment Events — Non-Execution and Revival Proceeding
- The judgment approving the compromise became final and executory but was not executed within the five-year period from the date of its finality.
- The non-execution was allegedly due to petitioner's failure to produce the owner’s duplicate copy of Title No. 37649, which was needed to segregate from Lot No. 443 the portion allegedly sold by Villamil-Estrada to Perez.
- On 25 January 1993 respondent Perez filed a complaint to revive the judgment, docketed as Civil Case No. D-10459.
- Petitioner contends that it only learned of the Compromise Agreement when served with summons in Civil Case No. D-10459.
Grounds for Petitioner's Collateral Attack and Relief Sought in the Court of Appeals
- Upon learning of the Compromise Agreement, petitioner sought annulment of the RTC decision before the Court of Appeals, asserting the compromise and judgment were void on multiple grounds:
- (a) The attorney-in-fact did not have authority to dispose of, sell, encumber, or divest the corporation of its ownership over its real property or any portion thereof.
- (b) The attorney-in-fact’s authority was confined to instituting and filing ejectment cases against squatters and to cause their eviction.
- (c) Although the Special Power of Attorney mentioned authority to enter into a compromise agreement, such authority was in connection with and limited to eviction of squatters so that "the corporation may take material possession of the entire lot."
- (d) The alleged consideration of P26,640.00 was never received by the petitioner.
- (e) The private defendant acted in bad faith, knowing of the attorney-in-fact’s lack of authority to sell or dispose of corporate real property.
- (f) The disposal of corporate property requires a Board Resolution of the Directors, which was lacking, and the General Manager is not the proper officer to encumber corporate property.
Court of Appeals' Ruling and Rationale
- On 29 October 1993 the Court of Appeals dismissed petitioner’s complaint to annul the RTC judgment.
- The Court of Appeals found that petitioner failed to establish any of the grounds for annulment: lack of jurisdiction, fraud, or illegality.
- The court denied the motion for reconsideration and reasoned that the alleged nullity of the compromise judgment on the ground that Villamil-Estrada was not authorized to sell the property could be raised as a defense in the execution of the compromise judgment and did not constitute a ground for annulment because it did not affect the trial court's jurisdiction nor constitute extrinsic fraud.
Issues Presented to the Supreme Court
- Whether the Special Power of Attorney granted Villamil-Estrada