Esguerra vs. Court of Appeals

A judicially-approved compromise agreement has the force of res judicata and is the law between the parties; absent an express reservation, a co-owner who authorizes a corporation to sell her share in a property cannot later assail the sale as unenforceable for want of her consent, and a third-party buyer may rely on the corporate secretary’s certification of the enabling board and stockholder resolutions without further inquiry.

Petitioner Julieta V. Esguerra filed a complaint for administration of conjugal partnership or separation of property against her husband Vicente Esguerra, Jr., later impleading V. Esguerra Construction Co., Inc. (VECCI) and other family corporations. The parties reached a compromise agreement which was approved by the Regional Trial Court of Makati in two partial judgments dated January 11, 1990. The agreement required VECCI to sell several listed real properties, including Esguerra Building II at 104 Amorsolo Street, Legaspi Village, Makati, and to remit fifty percent of the net proceeds to petitioner. After a dispute over rentals from Esguerra Building II pending its sale was resolved by the Supreme Court in G.R. No. 100441, affirming petitioner’s right to half the rentals as a co-owner, VECCI sold Esguerra Building II to respondent Sureste Properties, Inc. without consulting petitioner. Petitioner then sought to nullify the sale.

• Nature of the Action: Julieta Esguerra sued her husband Vicente for administration of conjugal partnership or separation of property. She later impleaded V. Esguerra Construction Co., Inc. (VECCI) and other family corporations. The case was eventually settled through a compromise agreement.

• The Compromise Agreement and Partial Judgments: The compromise agreement between Julieta Esguerra and VECCI, approved by the trial court on 11 January 1990, provided that VECCI would sell, alienate, or dispose of six listed real properties — including Esguerra Building II at 104 Amorsolo Street, Legaspi Village, Makati — “under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders.” After sale and payment of corporate obligations, VECCI would remit to Julieta fifty percent of the net balance. The partial judgment approving the agreement incorporated enabling resolutions dated 9 November 1989: a stockholders’ resolution authorizing VECCI to sell all or substantially all its assets upon terms and consideration the board might deem expedient; and a board resolution authorizing sale at the highest available prices, with President Vicente B. Esguerra, Jr. empowered to negotiate, contract, execute, and sign for the corporation.

• Prior Sale of Esguerra Building I: VECCI sold Esguerra Building I, distributing net proceeds according to the compromise. Julieta Esguerra was consulted on the terms of that sale; she raised no objection.

• Rental Dispute and Acknowledged Co-Ownership: Pending the sale of Esguerra Building II, Julieta demanded half the rentals. The trial court granted her motion; the Court of Appeals and the Supreme Court (G.R. No. 100441, 4 May 1992) upheld her entitlement, recognizing her as the acknowledged owner of one-half of the building.

• Sale of Esguerra Building II to Sureste: Without consulting Julieta, VECCI sold Esguerra Building II to Sureste Properties, Inc. for P160,000,000.00, paying a five percent broker’s commission. Julieta later offered to purchase her one-half share for P80,000,000.00, which was not accepted.

• Notice of Lis Pendens: A notice of lis pendens was annotated on the certificate of title of Esguerra Building II.

• Motion to Nullify and Trial Court’s Ruling: On 17 June 1993, Julieta moved to nullify the sale, arguing that VECCI was not the absolute owner and she had not been notified or consulted on its terms. After Sureste’s manifestation and a hearing, the RTC issued its 1 February 1994 order declaring the sale unenforceable as to Julieta’s one-half share, reasoning that she had not been consulted on the terms and conditions. It enjoined Sureste from pursuing actions against her tenants and maintained the lis pendens annotation.

• Appellate Reversal: The Court of Appeals set aside that order, holding that the compromise agreement contained no consultation requirement; Julieta’s consent to the agreement empowered VECCI to sell without further approval; and the trial court gravely abused its discretion by adding a condition.

• Lack of Proper Corporate Action: Petitioner contended that no actual shareholders’ or directors’ meeting was held to approve the enabling resolutions referred to in the compromise agreement; thus, the sale was not made “under the terms and conditions recited in the enabling resolutions” and failed to comply with Section 40 of the Corporation Code.

• Violation of Compromise Agreement and Co-Ownership Rights: Petitioner maintained that as an acknowledged one-half owner, her knowledge and consent were necessary for a valid sale of her share, and the sale concluded without consulting her violated the compromise agreement, rendering it unenforceable under Articles 1317 and 1403 of the Civil Code.

• Binding Precedent from Prior Sale: Petitioner argued that VECCI’s consultation with her on the terms of the sale of Esguerra Building I established a binding precedent, imposing an obligation to consult her on the subsequent sale of Esguerra Building II.

• Right of First Refusal: Petitioner claimed that her offer to purchase her one-half share for P80,000,000.00 was ignored, denying her a right of first refusal and resulting in a sale at less-than-optimal terms, including an excessive broker’s commission.

• Purchaser Pendente Lite with Notice of Lis Pendens: Petitioner argued that Sureste, as a buyer with notice of lis pendens, was deemed notified of all incidents of the case, including the alleged condition that the sale could be made only with her prior consent.

• Express Authority Under the Compromise Agreement: Sureste Properties, Inc. maintained that the compromise agreement expressly authorized VECCI to sell the properties, with no requirement that Julieta Esguerra be consulted before a sale could be concluded; her consent was given when she signed the agreement.

• Sufficiency of the Corporate Secretary’s Certification: Sureste argued that it relied on the Corporate Secretary’s Certification of the board and stockholders’ resolutions authorizing the sale, and as a third party it had no duty to go beyond the certification to investigate the veracity of the facts stated therein.

• Waiver of Right of First Refusal: Sureste countered that petitioner had waived any right of first refusal by not reserving it in the compromise agreement, and that her own offer valued the entire building at only P150,000,000.00 — less than the P160,000,000.00 paid by Sureste, which was the highest market offer after two and a half years.

• Grave Abuse of Discretion by the Trial Court: Sureste contended that the trial court acted with grave abuse of discretion in effectively rewriting the compromise agreement by adding a prior-consultation condition.

• Unenforceability of the Sale: Whether the sale of Esguerra Building II by VECCI to Sureste Properties, Inc. is unenforceable as to petitioner’s one-half share because she was not consulted on its terms and conditions.

• Effect of Prior Consultation: Whether VECCI’s consultation with petitioner on the sale of Esguerra Building I created a binding precedent requiring consultation for the subsequent sale of Esguerra Building II.

• Right of First Refusal: Whether petitioner’s right of first refusal was violated when her offer to purchase her half was ignored.

• Validity of Corporate Action: Whether VECCI’s sale complied with the condition in the compromise agreement requiring enabling board and stockholder resolutions, and with Section 40 of the Corporation Code.

• Effect of Lis Pendens: Whether Sureste, as a purchaser pendente lite with notice of lis pendens, was bound by a requirement of prior consent not expressed in the compromise agreement.

• Jurisdiction and Grave Abuse of Discretion: Whether the Court of Appeals acted without jurisdiction or with grave abuse of discretion in reversing the trial court’s order.

• Unenforceability of the Sale: The sale was entirely valid and enforceable. The compromise agreement expressly authorized VECCI to sell the properties in a lawful and convenient manner, without any requirement that petitioner be consulted beforehand. Under Article 1900 of the Civil Code, as far as third persons are concerned, “an act is deemed to have been performed within the scope of the agent’s authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent.” Thus, Sureste was entitled to rely on the written terms of the authority granted in the judicially-approved agreement.

• Effect of Prior Consultation: No binding precedent was created. A judicially-approved compromise agreement has the force of res judicata and is the law between the parties; its terms cannot be varied by a prior extra-contractual practice of consultation, which at most constituted a voluntary courtesy. Courts may not impose a judgment different from the compromise agreement absent vices of consent or forgery.

• Right of First Refusal: The right of first refusal was waived. All rights, including a right of first refusal, may be waived under Article 6 of the Civil Code. By entering into the compromise agreement without expressly reserving such a right, petitioner voluntarily relinquished it. The judicial compromise operated as a partition of co-owned property, authorizing sale and distribution of proceeds without a preemptive right in favor of one co-owner.

• Validity of Corporate Action: The sale was a valid exercise of corporate power. The enabling resolutions incorporated in the partial judgment were those dated 9 November 1989 authorizing the sale. The Corporate Secretary’s Certification of these resolutions was regular on its face, and Sureste had no duty to investigate further. Moreover, petitioner was estopped from challenging the validity of the corporate action because she did not raise the same objection in connection with the prior sales of other properties, including Esguerra Building I, which were consummated under identical resolutions and certification.

• Effect of Lis Pendens: A notice of lis pendens subjects the buyer to the outcome of the pending suit but does not import substantive conditions not found in the litigation. Sureste’s purchase remained subject to the final resolution of this case, but the compromise agreement contained no requirement of prior consent; thus, the lis pendens could not create such a requirement.

• Jurisdiction and Grave Abuse of Discretion: The Court of Appeals acted with jurisdiction and without grave abuse of discretion. Its decision correctly applied the law and jurisprudence. The trial court, not the appellate court, committed grave abuse of discretion by adding a prior-consultation condition to the compromise agreement. Additionally, under Rule 45, only reversible errors — not grave abuse of discretion — may be reviewed; petitioner availed of Rule 45 and could not simultaneously invoke Rule 65.

• Compromise Agreement as Res Judicata — A compromise agreement approved by final orders of the court has the force of res judicata between the parties and should not be disturbed except for vices of consent or forgery. The decision on a compromise is final and executory, and courts may not impose a judgment different from its terms.

• Article 1900, Civil Code: Apparent Authority — As to third persons, an act is deemed performed within the scope of an agent’s authority if it is within the terms of the power of attorney as written, even if the agent has exceeded internal limits. This protects third parties who rely on the written authority.

• Waiver of Rights (Article 6, Civil Code) — Rights, including a right of first refusal, may be waived. A party who enters into a compromise agreement authorizing the sale of co-owned property without expressly reserving a preemptive right waives that right.

• Corporate Secretary’s Certification — A third party dealing with a corporation may rely on a corporate secretary’s certification of board and stockholder resolutions that is regular on its face, without being required to investigate the truth of the facts stated therein. To hold otherwise would unduly hamper corporate business transactions.

• Lis Pendens — A notice of lis pendens binds a purchaser to the result of the pending litigation but does not subject the buyer to conditions not contained in the legal instruments governing the dispute.

• Grave Abuse of Discretion Defined — “Grave abuse of discretion” implies a capricious and whimsical exercise of judgment equivalent to lack of jurisdiction, where power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and must be so patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform the duty enjoined.

• “So far as third persons are concerned, an act is deemed to have been performed within the scope of the agent’s authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent.” — The Court applied Article 1900 of the Civil Code to hold that Sureste could rely on the written authority in the compromise agreement without examining any internal understanding between petitioner and VECCI.

• “A compromise once approved by final orders of the court has the force of res judicata between the parties and should not be disturbed except for vices of consent or forgery.” — This underscored the binding effect of the judicially-approved compromise, precluding petitioner from importing an extra-contractual condition of prior consultation.

• “It is a long established doctrine that the law does not relieve a party from the effects of an unwise, foolish, or disastrous contract, entered into with all the required formalities and with full awareness of what he was doing. Courts have no power to relieve parties from obligations voluntarily assumed, simply because their contracts turned out to be disastrous deals or unwise investments.” — The Court rejected the argument that better terms could have been obtained had she been consulted.

• “Courts as a rule may not impose upon the parties a judgment different from their compromise agreement. It would be an abuse of discretion.” — This passage confirmed that the trial court’s insertion of a consultation requirement constituted grave abuse of discretion.

• Republic vs. Sandiganbayan, 226 SCRA 314 (1993) — Cited for the principle that a compromise agreement has the force of res judicata and should not be disturbed except for vices of consent or forgery, and that the law does not relieve a party from an unwise contract.

• Casal vs. Concepcion, Jr., 243 SCRA 369 (1995) — Used to support the rule that a decision on a compromise agreement is final and executory.

• Alafriz vs. Nable, 72 Phil. 278 (1941) — Provided the definition of “without jurisdiction” and “grave abuse of discretion” applied in determining that the Court of Appeals did not act with grave abuse of discretion.

• G.R. No. 100441 (4 May 1992, Supreme Court) — The earlier decision in the same dispute, which recognized petitioner’s one-half ownership for purposes of rental entitlement. The Court clarified that the ruling was limited to the rental issue and did not question VECCI’s authority to sell under the compromise agreement.

• Article 1403(1), Civil Code — Defines unenforceable contracts as those entered into in the name of another without authority. Applied to conclude that VECCI had express authority and the sale was not unenforceable.

• Article 1317(2), Civil Code — Echoed the rule on unenforceable contracts due to lack of authority. The Court found the provision inapplicable to the authorized sale.

• Article 1900, Civil Code — Provides that a third party may treat an agent’s act as within authority if it falls within the written terms of the power of attorney. This protected Sureste’s reliance on the compromise agreement.

• Article 6, Civil Code — Rights may be waived. Applied to hold that petitioner waived her right of first refusal by not reserving it.

• Articles 496 and 498, Civil Code — Partition may be made by agreement or judicial proceedings; when a co-owned thing is indivisible, it shall be sold and proceeds distributed. The Court noted that the compromise operated as a partition.

• Section 40, Corporation Code — Governs sale of all or substantially all corporate assets, requiring board majority vote and stockholder approval by at least two-thirds. The Court found compliance through the 1989 resolutions and noted petitioner’s estoppel.

• Rule 45 and Rule 65, Rules of Court — Rule 45 petitions are limited to reversible errors, not grave abuse of discretion; the Court refused to treat the petition as one under Rule 65.

Narvasa, C.J., Davide, Jr., Melo, and Francisco, JJ., concurred.