Title
Esguerra vs. Court of Appeals
Case
G.R. No. 119310
Decision Date
Feb 3, 1997
Julieta Esguerra contested the sale of Esguerra Building II by VECCI, claiming lack of consultation. The Supreme Court upheld the sale, ruling the compromise agreement authorized VECCI to sell without her consent, affirming corporate actions as valid.

Case Summary (G.R. No. 194143)

Key Dates and Procedural Posture

Complaint for administration of conjugal partnership or separation of property filed 29 June 1984; compromise agreement submitted and partial judgments rendered 11 January 1990; appellate and Supreme Court rulings on related rental entitlement (CA decision affirmed by the Supreme Court in G.R. No. 100441, 4 May 1992) addressed entitlement to rentals pending sale; Esguerra Building II was sold to Sureste (sale amount variously described in the record); petitioner moved to nullify the sale; trial court held the sale valid as to VECCI’s half but ineffectual and unenforceable as to petitioner’s one-half; the Court of Appeals reversed; petition to the Supreme Court followed.

Applicable Law (1987 Constitution; statutory and doctrinal sources)

  • 1987 Philippine Constitution as the applicable charter.
  • Civil Code provisions cited in the decision: Articles on agency and unauthorized acts (Article 1317(2), Article 1403(1)), Article 1900 regarding scope of agent’s authority as to third persons, and Articles on partition and sale of indivisible property (Arts. 496, 498).
  • Corporation Code, Section 40 — corporate disposition of all or substantially all property require board majority and two-thirds stockholders’ approval with notice.
  • Rules of Court: Rule 45 (appeal by certiorari to review errors of law or fact of appellate court) and Rule 65 (certiorari on grave abuse of discretion).
  • Doctrinal principles: finality and binding effect of judicially approved compromise agreements (res judicata between parties); estoppel; waiver of rights; effect of lis pendens on subsequent purchasers; standards for “without jurisdiction” and “grave abuse of discretion.”

Facts Established by the Courts

The parties entered into a compromise agreement that (i) listed several properties including Esguerra Buildings I and II, (ii) authorized VECCI to sell/alienate/transfer or otherwise dispose of the listed properties “in any lawful and convenient manner, and under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders,” and (iii) provided that after liquidation and payment of obligations, VECCI would remit to petitioner fifty percent of the net resulting balance. VECCI sold Building I with petitioner having been consulted; Building II was later sold to Sureste. Petitioner claimed she was not notified or consulted regarding terms of the Building II sale and sought nullification as to her one-half interest. VECCI relied on existing enabling board and stockholder resolutions (certified by its corporate secretary) authorizing disposition of all or substantially all assets. A notice of lis pendens had been annotated; Sureste filed a manifestation asserting petitioner had consented via the compromise agreement.

Issues Presented

  1. Whether VECCI’s sale of Esguerra Building II is unenforceable as to petitioner’s one-half share because the sale occurred without petitioner’s knowledge or consent and allegedly without proper corporate action.
  2. Whether the Court of Appeals acted without jurisdiction or with grave abuse of discretion in reversing the trial court’s partial invalidation (ineffectiveness) of the sale as to petitioner’s one-half share.

Court’s Analysis — Contractual Authorization and Effect of the Judicially-Approved Compromise Agreement

The Court emphasized that the compromise agreement, approved by the court, expressly authorized VECCI to sell the listed properties and to remit fifty percent of the net proceeds to petitioner. The agreement contained no express or implied requirement that VECCI consult petitioner before concluding any such sale. A judicially approved compromise, when valid and not tainted by vices of consent, has the force of res judicata between the parties and is binding and enforceable; parties are ordinarily bound by the terms they freely agreed to. Accordingly, petitioner’s later contention that the sale was unauthorized conflicts with the explicit authority she previously granted by signing the compromise agreement. The Court therefore found that VECCI’s sale, made pursuant to the compromise agreement, was within the parties’ agency arrangement and was not unenforceable on the ground of lack of petitioner’s consent.

Court’s Analysis — Effect of Agency Principles and Third-Party Reliance

Citing Article 1900 of the Civil Code, the Court held that, as to third persons, an act performed by an agent that falls within the written terms of the power of attorney (or the agency created by the compromise) is deemed within the agent’s authority, even if the agent may have exceeded limits as between principal and agent. Because the sale was executed in accordance with the judicially approved compromise, authorized by the parties and by the approving court, Sureste as purchaser could rely on the apparent authority and need not probe beyond the corporate secretary’s certification of the enabling resolutions. Allowing a purchaser to be required to investigate internal corporate proceedings or contest a facially regular certification would impede business transactions.

Court’s Analysis — Corporate Authority, Secretary’s Certification, and Section 40 Compliance

Petitioner contended the sale lacked proper corporate action under Section 40 of the Corporation Code because no actual board or stockholders’ meeting authorizing the specific sale was shown. The Court reviewed the trial court’s partial judgment and the corporate records: the enabling resolutions referenced in the compromise were existing resolutions dated 9 November 1989 — one by stockholders authorizing VECCI to sell or dispose of all or substantially all property with board discretion as to terms, and one by the board delegating authority to negotiate and sign sales. The corporate secretary’s certification of those resolutions was regular on its face and therefore sufficient for third-party reliance. The partial judicial approval did not require additional corporate resolutions. On that basis the Court concluded the sale satisfied Section 40’s requirements and was not ultra vires.

Court’s Analysis — Prior Consultation, Precedent, and Waiver of Rights

Petitioner argued that because she had been consulted in the sale of Building I, VECCI owed her the same consultation for Building II (and that failure to consult produced less favorable economic terms). The Court rejected this as creating a binding precedent contrary to the explicit terms of the compromise. Prior consultation, if it occurred, was a courtesy and not a contractual condition imposed by the compromise agreement. Further, petitioner had waived any right of first refusal or equivalent protection by not reserving such a right in the compromise. The Court reiterated that courts will not relieve parties from unwise bargains entered into with full consent and formalities.

Court’s Analysis — Notice of Lis Pendens and Effect on Purchaser

The Court recognized that the purchaser who acquires property with notice of an annotated lis pendens takes the title subject to the outcome of the pending litigation and stands in the shoes of the vendor as to the pending claim. Sureste’s purchase was thus subject to the annotated lis pendens and to judicial resolu

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