Cosmic Lumber Corporation vs. Court of Appeals

A judgment based on a compromise agreement entered into by an attorney-in-fact without authority to sell the principal's immovable property is void ab initio, and may be annulled on the ground that the trial court lacked jurisdiction to render it, as well as on the ground of extrinsic fraud where the agent deliberately concealed the compromise from the principal.

Cosmic Lumber Corporation owned Lots Nos. 9127 and 443, covered by TCT Nos. 37648 and 37649, which were occupied by third persons and squatters. Through its General Manager, the corporation executed a Special Power of Attorney on 28 January 1985 appointing Paz G. Villamil-Estrada as attorney-in-fact to institute ejectment actions against such occupants and, for that purpose, to appear at pre-trial and enter into stipulations of facts or compromise agreements "so far as it shall protect the rights and interest of the corporation in the aforementioned lots." The disposal of corporate property requires a board resolution of its directors, which was never obtained in connection with the subject transaction.

Cosmic Lumber Corporation, through its General Manager, executed a Special Power of Attorney on 28 January 1985 appointing Paz G. Villamil-Estrada as its attorney-in-fact. The SPA authorized Villamil-Estrada to institute court actions for the ejectment of third persons and squatters from Lots Nos. 9127 and 443, covered by TCT Nos. 37648 and 37649, and for that purpose to appear at pre-trial and enter into any stipulation of facts or compromise agreement "so far as it shall protect the rights and interest of the corporation in the aforementioned lots."

Pursuant to this authority, Villamil-Estrada filed an ejectment suit against Isidro Perez on 11 March 1985 before the Regional Trial Court of Dagupan City, docketed as Civil Case No. D-7750, seeking recovery of possession of a portion of Lot No. 443. On 25 November 1985, Villamil-Estrada entered into a Compromise Agreement with Perez. Under its terms, a relocation sketch plan showed that the area occupied by Perez, where his house was located, was 333 square meters on the easternmost part of Lot No. 443. To "buy peace," Perez paid Villamil-Estrada the sum of ₱26,640.00, computed at ₱80.00 per square meter. The agreement recognized Perez's ownership and possession over the 333-square-meter portion, with subdivision, registration, and incidental expenses to be shouldered by Perez. On 27 November 1985, the trial court approved the Compromise Agreement and rendered judgment in accordance with its terms.

Although the decision became final and executory, it was not executed within the five-year period from its finality, allegedly because petitioner failed to produce the owner's duplicate copy of TCT No. 37649 needed to segregate the sold portion from Lot No. 443. On 25 January 1993, Perez filed a complaint to revive the judgment, docketed as Civil Case No. D-10459. Petitioner asserts that it was only upon service of summons in the revival case that it learned of the compromise agreement. The corporation never received the ₱26,640.00 proceeds, and the sale price of ₱80.00 per square meter was far below the property's assessed value of ₱250.00 per square meter. No board resolution authorizing the sale of corporate property had been obtained, and the General Manager who executed the SPA was not the proper corporate officer to encumber corporate property.

Upon learning of the compromise, petitioner sought annulment of the trial court's decision before the Court of Appeals, arguing that the compromise agreement was void because the attorney-in-fact lacked authority to sell or dispose of corporate property. The Court of Appeals dismissed the petition on 29 October 1993, finding that none of the grounds for annulment — lack of jurisdiction, fraud, or illegality — was shown to exist. It likewise denied reconsideration on 10 March 1994, reasoning that the alleged nullity of the compromise judgment could be raised as a defense against its execution but not as a ground for annulment, since it did not affect the trial court's jurisdiction or amount to extrinsic fraud.

• Lack of Authority to Sell: Petitioner argued that the attorney-in-fact, Villamil-Estrada, did not possess the authority to dispose of, sell, encumber, or divest the corporation of ownership over its real property or any portion thereof. Her authority was confined to instituting and filing an ejectment case against squatters and causing their eviction.
• Limited Scope of Compromise Authority: While the SPA mentioned authority to enter into a compromise agreement, petitioner maintained that such authority was in connection with, and limited to, the eviction of squatters, in order that the corporation could take material possession of the entire lot. The explicit limitation required that any compromise protect the rights and interests of the corporation.
• Non-Receipt of Proceeds: Petitioner asserted that the ₱26,640.00 alluded to as consideration was never received by the corporation.
• Bad Faith of Private Respondent: Petitioner contended that private respondent acted in bad faith in executing the agreement, knowing fully well the want of authority of the attorney-in-fact to sell, encumber, or dispose of the corporation's real property.
• Absence of Board Resolution: The disposal of corporate property indispensably requires a board resolution of its directors, which was wanting in Civil Case No. D-7750, and the General Manager is not the proper officer to encumber corporate property.
• Void Judgment Subject to Annulment: Petitioner challenged the appellate court's verdict, arguing that the trial court's decision was void because the compromise agreement upon which it was based was void, and that such nullity impaired the trial court's jurisdiction.

• Proper Remedy is Defense in Execution: Respondent Court of Appeals reasoned that the alleged nullity of the compromise judgment on the ground that the attorney-in-fact was not authorized to sell may be raised as a defense in the execution of the compromise judgment, as it does not bind petitioner, but not as a ground for annulment of judgment.
• No Ground for Annulment Shown: Respondent court maintained that not one of the grounds for annulment — lack of jurisdiction, fraud, or illegality — was shown to exist, and accordingly dismissed the petition.

• Authority of Attorney-in-Fact: Whether the special power of attorney granted Villamil-Estrada the authority to sell or dispose of a portion of the corporation's immovable property.
• Validity of Compromise Agreement: Whether the compromise agreement entered into by the attorney-in-fact without authority to sell is void.
• Annulment of Judgment: Whether a judgment based on a void compromise agreement may be annulled on the ground of lack of jurisdiction and extrinsic fraud.
• Extrinsic Fraud: Whether the attorney-in-fact's deliberate concealment of the compromise agreement from her principal constitutes extrinsic fraud warranting annulment of judgment.

• Authority of Attorney-in-Fact: No. The SPA was explicit and exclusionary, confining Villamil-Estrada's authority to ejectment actions and compromise agreements protective of the corporation's rights — nowhere granting power to sell the property or any portion thereof.
• Validity of Compromise Agreement: Void. The sale was executed without the written authority required by Article 1874 of the Civil Code and without the special power of attorney required by Article 1878(5), rendering it void ipso jure, and the compromise agreement based thereon equally void.
• Annulment of Judgment: Yes. A judgment based on a void compromise agreement is itself void for want of jurisdiction, and may be annulled under Section 9(2) of B.P. Blg. 129; the proper remedy was the petition for annulment before the Court of Appeals, not a defense in execution proceedings.
• Extrinsic Fraud: Yes. The attorney-in-fact's deliberate concealment of the compromise from the corporation prevented it from presenting its case and constituted extrinsic or collateral fraud, independently warranting annulment.

• Authority of Attorney-in-Fact: The authority granted under the SPA was explicit and exclusionary: to institute ejectment actions so that the corporation could take material possession of the lots, and "for this purpose" to appear at pre-trial and enter into compromise agreements "but only insofar as this was protective of the rights and interests of petitioner in the property." Nowhere was Villamil-Estrada granted, expressly or impliedly, any power to sell the subject property or any portion thereof. A conferment of the power to sell could not be inferred from the authority "to enter into a compromise agreement" because of the explicit limitation that the compromise shall only protect the corporation's rights. Alienation by sale of an immovable cannot be deemed protective of the right to physically possess the same, especially when the land was sold at ₱80.00 per square meter, far below its assessed value of ₱250.00 per square meter, and the corporation never received the proceeds. Under Article 1874 of the Civil Code, when a sale of land is made through an agent, the agent's authority must be in writing; otherwise, the sale is void. Under Article 1878(5), a special power of attorney is necessary to enter into any contract by which ownership of an immovable is transmitted or acquired. The express mandate required by law must expressly mention a sale or include a sale as a necessary ingredient of the act mentioned. Any reasonable doubt that the language conveys such power must be resolved against the existence of that power.

• Validity of Compromise Agreement: Because Villamil-Estrada acted without or in obvious authority in selling a portion of the corporation's land through a compromise agreement, the sale was void ipso jure. The compromise agreement was consequently void as well. The judgment based on a void compromise was necessarily void. This principle was established in Alviar vs. Court of First Instance of La Union, where the Court held that a judgment based on a compromise not subscribed by the parties and executed by an attorney without special authority is null and void ab initio, and the court acquired no jurisdiction to render it. The ruling was adopted in Jacinto vs. Montesa, which declared that a judgment based on a compromise entered into by an attorney without specific authority from the client is void and may be impugned in any proceeding by the party against whom it is sought to be enforced.

• Annulment of Judgment: Under Section 9(2) of B.P. Blg. 129, the Court of Appeals exercises exclusive original jurisdiction over actions for annulment of judgments of Regional Trial Courts. A final and executory judgment may be annulled if it is void for want of jurisdiction or lack of due process, or if it was obtained by fraud. Emanating from a void compromise agreement, the trial court had no jurisdiction to render a judgment based thereon. The appellate court's suggestion that the nullity should be raised as a defense in execution was not legally feasible: petitioner could not question the compromise agreement in the action to revive the judgment since it was never a party to the compromise. Villamil-Estrada signed the agreement but could not legally bind the corporation because she lacked the special authority to sell required by Article 1878(5) of the Civil Code.

• Extrinsic Fraud: The conduct of attorney-in-fact Villamil-Estrada constituted extrinsic or collateral fraud. She deliberately concealed from the corporation that a compromise agreement had been forged resulting in the sale of a portion of the corporation's property "literally for a song." Kept completely unaware of the agent's artifice, the corporation was denied any opportunity to repudiate the settlement, and the judgment based thereon became final and executory. Extrinsic fraud refers to any fraudulent act of the prevailing party committed outside the trial, whereby the defeated party has been prevented from exhibiting fully his case. While the general rule charges the principal with knowledge of or notice to the agent received while acting as such, a well-established exception applies where the agent's conduct raises a clear presumption that she will not communicate the facts in controversy to the principal. When an agent is engaged in perpetrating a fraud upon the principal for her own exclusive benefit, she is not really acting for the principal but for herself, entirely outside the scope of her agency. The basic tenets of agency rest on justice, equity, and fair play, and an agent will not be permitted to pervert authority to personal advantage.

• Authority to Sell Immovable Property Through an Agent — Under Article 1874 of the Civil Code, when the sale of land or any interest therein is made through an agent, the agent's authority must be in writing; otherwise, the sale is void. Under Article 1878(5), a special power of attorney is necessary to enter into any contract by which ownership of an immovable is transmitted or acquired, whether gratuitously or for valuable consideration. The express mandate must expressly mention a sale or include a sale as a necessary ingredient of the act mentioned. Any reasonable doubt that the language conveys such power must be resolved against the existence of the power. In this case, the SPA's language was confined to ejectment and compromise protective of the corporation's interests, and could not be construed to include a power to sell.

• Void Judgment Based on Void Compromise Agreement — A judgment based on a compromise agreement entered into by an attorney or attorney-in-fact without specific authority from the principal is void ab initio. The court that renders such a judgment acquires no jurisdiction to do so, and the judgment is without legal efficacy and may be impugned in any proceeding by the party against whom it is sought to be enforced. The Court applied this doctrine to nullify the RTC decision that approved the compromise agreement executed by Villamil-Estrada without authority to sell.

• Annulment of Judgment — Grounds — Under Section 9(2) of B.P. Blg. 129, a final and executory judgment of an RTC may be annulled by the Court of Appeals on two grounds: (1) want of jurisdiction or lack of due process of law, or (2) extrinsic fraud. The Court found both grounds present: the void compromise deprived the trial court of jurisdiction, and the agent's concealment constituted extrinsic fraud.

• Extrinsic or Collateral Fraud — Extrinsic fraud refers to any fraudulent act of the prevailing party in litigation committed outside the trial, whereby the defeated party has been prevented from exhibiting fully his case by fraud or deception practiced on him by the opponent. It includes situations where an attorney fraudulently or without authority connives at defeat, or where a party is kept ignorant of the suit. The Court held that Villamil-Estrada's deliberate concealment of the compromise from the corporation constituted extrinsic fraud.

• Exception to the Rule on Imputed Knowledge of Agent — While the general rule charges the principal with knowledge of or notice to the agent received while acting as such, a well-established exception applies where the agent's conduct raises a clear presumption that she will not communicate the facts in controversy to the principal. When an agent is committing a fraud upon the principal for her own exclusive benefit, she is acting for herself, entirely outside the scope of her agency, and the principal is not chargeable with the agent's knowledge.

• "The authority granted Villamil-Estrada under the special power of attorney was explicit and exclusionary: for her to institute any action in court to eject all persons found on Lots Nos. 9127 and 443 so that petitioner could take material possession thereof, and for this purpose, to appear at the pre-trial and enter into any stipulation of facts and/or compromise agreement but only insofar as this was protective of the rights and interests of petitioner in the property." — This passage articulates the Court's interpretation of the SPA's scope, establishing that the authority to compromise was limited to protecting the corporation's interests and did not extend to alienation by sale.

• "It is therefore clear that by selling to respondent Perez a portion of petitioner's land through a compromise agreement, Villamil-Estrada acted without or in obvious authority. The sale ipso jure is consequently void. So is the compromise agreement. This being the case, the judgment based thereon is necessarily void." — This is the ratio decidendi: the chain of reasoning from lack of authority to void sale, void compromise, and void judgment.

• "Not all the legal semantics in the world can becloud the unassailable fact that petitioner was deceived and betrayed by its attorney-in-fact, Villamil-Estrada deliberately concealed from petitioner, her principal, that a compromise agreement had been forged with the end-result that a portion of petitioner's property was sold to the deforciant, literally for a song." — This passage characterizes the agent's conduct as extrinsic fraud, emphasizing the deliberate concealment that prevented the corporation from defending its interests.

• "Verily, when an agent is engaged in the perpetration of a fraud upon his principal for his own exclusive benefit, he is not really acting for the principal but is really acting for himself, entirely outside the scope of his agency." — This formulation of the exception to the imputed-knowledge rule is significant for agency law, explaining why the principal is not chargeable with the fraudulent agent's knowledge.

• Alviar vs. Court of First Instance of La Union, 64 Phil. 301 (1937) — Controlling precedent. The Court held that a judgment based on a compromise entered into by an attorney without special authority is null and void ab initio, the court acquiring no jurisdiction to render it. Applied directly to nullify the RTC decision based on the void compromise.
• Jacinto vs. Montesa, No. L-23098, 28 February 1967, 19 SCRA 513 — Followed. The Court declared that a judgment based on a compromise entered into by an attorney without specific authority is void and may be impugned in any proceeding; a petition for certiorari to quash execution is proper.
• Strong vs. Gutierrez Repide, 6 Phil. 680 (1906) — Cited for the proposition that the express mandate required by law to enable an appointee of an agency in general terms to sell must expressly mention a sale or include a sale as a necessary ingredient of the act mentioned.
• Liñan vs. Puno, 31 Phil. 259 (1915) — Cited for the rule that for a principal to confer upon an agent the right to sell real estate, the power of attorney must express the powers in clear and unmistakable language, and any reasonable doubt must be resolved against the existence of such power.
• Macabingkil vs. PHHC, No. L-29080, 17 August 1976, 72 SCRA 326 — Cited for the definition of extrinsic fraud as any fraudulent act of the prevailing party committed outside the trial, whereby the defeated party is prevented from exhibiting fully his case.

• Article 1874, Civil Code of the Philippines — Provides that when the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. Applied to hold that Villamil-Estrada's lack of written authority to sell rendered the sale void.
• Article 1878, paragraph (5), Civil Code of the Philippines — Requires a special power of attorney to enter into any contract by which the ownership of an immovable is transmitted or acquired, either gratuitously or for a valuable consideration. Applied to determine that the SPA did not confer the requisite special authority to sell.
• Section 9, paragraph (2), B.P. Blg. 129 — Grants the Court of Appeals exclusive original jurisdiction over actions for annulment of judgments of Regional Trial Courts, on grounds of want of jurisdiction, lack of due process, or extrinsic fraud. Applied to uphold the propriety of the petition for annulment before the Court of Appeals.

Padilla, Vitug, and Hermosisima, Jr., JJ., concurred. Kapunan, J., took no part.