Ignacio Vicente, et al. vs. Ambrosio M. Geraldez

A compromise agreement entered into by counsel without special authority from the client is void, and a corporation may compromise only in the form and with the requisites necessary to alienate its property. The authority to compromise a corporate claim is vested in the Board of Directors and may be delegated only expressly or by reasonable implication; absent such authority, the agreement is legally ineffectual, and the court may properly set aside a judgment based thereon.

The private respondent, Hi Cement Corporation, acquired Placer Lease Contract No. V-90 from the Banahaw Shale Mining Association, covering two mining claims (Red Star VIII & IX) with a combined area of about fifty-one hectares, for a period of twenty-five years commencing from August 1, 1960. Within the limits of Placer Mining Claim Red Star VIII were three parcels of land claimed by the petitioners Juan Bernabe, Ignacio Vicente, and Moises Angeles. The dispute concerned the conflict between the corporation's mining claims and the landowners' claims of ownership over portions of the land covered by the mining claims.

On September 9, 1967, Hi Cement Corporation filed a complaint for injunction and damages with the Court of First Instance of Bulacan against Juan Bernabe, Ignacio Vicente, and Moises Angeles. The plaintiff alleged that it had acquired Placer Lease Contract No. V-90 from the Banahaw Shale Mining Association under a deed of sale and transfer registered with the Office of the Mining Recorder of Bulacan on November 4, 1965 and approved by the Secretary of Agriculture and Natural Resources on December 15, 1965. The lease covered two mining claims (Red Star VIII & IX) with a combined area of about fifty-one hectares, and within the limits of Placer Mining Claim Red Star VIII were three parcels of land claimed by the defendants. The plaintiff alleged that the defendants refused to allow its workers to enter the area for exploration and development, threatened its workers with bodily harm, and caused the plaintiff irreparable damages, for which it prayed for preliminary and permanent injunctions and damages of P200,000.00.

On September 12, 1967, the trial court issued a restraining order and required the defendants to file their answers, which contained denials, special and affirmative defenses, and counter-claims. On September 30, 1967, the trial court directed the issuance of a writ of preliminary mandatory injunction upon the plaintiff's posting of a P100,000.00 bond, and named a Commissioner from the Office of the District Engineer of Bulacan to relocate the boundaries of the mining claims. The Commissioner submitted his report on November 24, 1967, finding that the properties of Moises Angeles (34,984 square meters), Ignacio Vicente (32,619 square meters), and Juan Bernabe (57,539 square meters) were totally or partially covered by the plaintiff's claims. The court approved the report on December 14, 1967 with the conformity of all parties.

The plaintiff filed an amended complaint on October 21, 1968, stating the correct areas of the defendants' lands and adding allegations that at pre-trial the defendants Angeles and Vicente declared their willingness to sell their properties for P10.00 per square meter, and that defendant Bernabe was estopped from claiming acts of usurpation. The counsels of the parties then conferred on the possibility of terminating the case by compromise, and on January 30, 1969, they executed and submitted a Compromise Agreement providing that the plaintiff would buy and the defendants would sell their respective properties, that the court would authorize the parties to appoint commissioners, and that the parties would abide by the decision of the court based on the findings of the commissioners. The trial court approved the agreement on the same date.

Pursuant to the agreement, the trial court appointed commissioners on February 26, 1969. On September 15, 1969, Commissioner Liberato Barrameda submitted a Consolidated Report recommending unit prices: P12.00 per square meter for Bernabe's property; for Vicente, P12.00 per square meter for 60% (mineral land) and P8.00 per square meter for 40% (riceland); and P8.00 per square meter for Angeles' riceland. The individual reports of the commissioners varied widely, with the plaintiff's commissioner recommending P0.60 per square meter for Bernabe's property and the defendant's commissioner recommending P50.00 per square meter.

On October 21, 1969, Atty. Francisco Ventura, one of the plaintiff's lawyers, filed a manifestation stating that he had sent a copy of the Compromise Agreement to Mr. Antonio Diokno, President of the corporation, requesting confirmation, and that Mr. Diokno replied that the Board could not waive its right to appeal and that the compromise agreement required the express approval of the Board of Directors to be binding. On November 5, 1969, defendant Bernabe filed an answer to the manifestation, praying the court to disregard it on grounds including that the court had inquired whether the lawyers were authorized to enter into the compromise and the plaintiff's lawyers answered in the affirmative, and that Atty. Cardenas, one of the signatories, was an executive official of the corporation.

On March 13, 1970, the trial court rendered a decision reproducing the Compromise Agreement and extensively quoting the Consolidated Report, ordering the plaintiff to pay the defendants P15.00 per square meter for the subject properties. The defendants filed motions for execution, which were granted on April 14, 1970. The plaintiff filed a motion for reconsideration and then a motion for new trial on April 22, 1970, on the ground that the decision was null and void because the Compromise Agreement was void for want of special authority by the plaintiff's lawyers. On April 24, 1970, the court set aside its Order of April 14, 1970, and on May 18, 1970, it set aside its decision of March 13, 1970, denied the defendants' motions for execution, and set a pre-trial conference. The defendants' motions for reconsideration were denied on July 18, 1970.

• Special Authority: Petitioners claimed that private respondent's attorneys admitted twice in open court on January 30, 1969, that they were authorized to compromise their client's case, which fact was never denied by the said lawyers in any of the pleadings filed by them in the case.
• Tacit Ratification: Petitioners insisted that there was tacit ratification on the part of the corporation because it nominated Mr. Larry Marquez as its commissioner pursuant to the agreement, paid his services therefor, and Atty. Florentino V. Cardenas, respondent corporation's administrative manager, not only did not object but even affixed his signature to the agreement.
• Estoppel: Petitioners argued that respondent corporation, having represented through its lawyers to the court and to petitioners that said lawyers had authority to bind the corporation and having induced by such representations the petitioners to sign the compromise agreement, is now estopped from questioning the same.

• Lack of Special Authority: Respondent corporation argued that the Compromise Agreement was null and void for want of a special authority by the plaintiff's lawyers to enter into the agreement, as required by Article 1878 of the Civil Code and Section 23, Rule 138 of the Rules of Court.
• Repudiation: Respondent corporation alleged that the Compromise Agreement had been repudiated by the corporation through its Vice President, as earlier manifested by the plaintiff, and that the Board of Directors could not waive its right to appeal.
• Denial of Representation: In its "Reply to Defendant Bernabe's Answer Dated November 8, 1969," respondent's counsels categorically denied that they ever represented to the court that they were authorized to enter into a compromise.

• Jurisdiction and Grave Abuse of Discretion: Whether the respondent court, in setting aside its decision of March 13, 1970 and denying the motions for execution of said decision, had acted without or in excess of its jurisdiction or with grave abuse of discretion.
• Validity of the Compromise Agreement: Whether the Compromise Agreement dated January 30, 1969 was void for lack of special authority from the corporate client to its lawyers.
• Ratification: Whether the corporation ratified the Compromise Agreement through its nomination of a commissioner and the signature of its administrative manager.
• Estoppel: Whether the corporation was estopped from questioning the Compromise Agreement.

• Jurisdiction and Grave Abuse of Discretion: No. The respondent court did not act without or in excess of its jurisdiction or with grave abuse of discretion in setting aside its decision of March 13, 1970 and denying the motions for execution, because the Compromise Agreement was void for lack of special authority.
• Validity of the Compromise Agreement: The Compromise Agreement was void. Attorneys cannot, without special authority, compromise their clients' litigation, and the lawyers of respondent corporation had not submitted to the court any written authority from their client to enter into a compromise.
• Ratification: No. There was no tacit ratification by the corporation, as there was no proof that the governing body had knowledge of the contents of the compromise agreement before September 1, 1969, and the administrative manager had no authority to ratify.
• Estoppel: No. Petitioners did not demonstrate any act or declaration of the corporation amounting to false representation or concealment of material facts calculated to mislead them.

• Jurisdiction and Grave Abuse of Discretion: The Court held that the trial court did not act without or in excess of jurisdiction or with grave abuse of discretion. The Court reasoned that special powers of attorney are necessary to compromise and to renounce the right to appeal from a judgment, citing Article 1878 of the Civil Code and Section 23, Rule 138 of the Rules of Court. The Compromise Agreement was signed only by the lawyers for the petitioners and by the lawyers for the private respondent corporation, and it was not disputed that the lawyers of respondent corporation had not submitted to the Court any written authority from their client to enter into a compromise. The Court cited its ruling in Home Insurance Company vs. United States Lines Co. that the Rules require a special authority for attorneys to compromise the litigation of their clients, and while the Rules do not state that the special authority be in writing, the court has every reason to expect that, if not in writing, the same be duly established by evidence other than the self-serving assertion of counsel himself.

• Validity of the Compromise Agreement: The Court held that the law specifically requires that juridical persons may compromise only in the form and with the requisites which may be necessary to alienate their property, citing Article 2033 of the New Civil Code. Under the corporation law, the power to compromise or settle claims in favor of or against the corporation is ordinarily and primarily committed to the Board of Directors. This power may be delegated either expressly or impliedly to other corporate officials or agents. The Court found that petitioners' claim that private respondent's attorneys admitted in open court that they were authorized to compromise was unsupported by evidence, as the complete transcripts of stenographic notes taken at the proceedings on January 30, 1969 were before the Court and nowhere did it appear therein that respondent corporation's lawyers ever made such a representation. Even assuming arguendo that they did, such a self-serving assertion cannot properly be the basis for the conclusion that the respondent corporation had in fact authorized its lawyers to compromise the litigation.

• Ratification: The Court found the petitioners' argument of tacit ratification infirm in its assumption that Atty. Cardenas as administrative manager had authority to bind the corporation or to compromise the case. Whatever authority the officers or agents of a corporation may have is derived from the board of directors, or other governing body, unless conferred by the charter of the corporation. No provision of the charter and by-laws of the corporation or any resolution or any other act of the board of directors had been cited from which the Court could reasonably infer that the administrative manager had been granted expressly or impliedly the power to bind the corporation or the authority to compromise the case. As regards the nomination of Mr. Marquez as commissioner, counsel for respondent corporation explained that Atty. Cardenas, apparently on his own, submitted the same to the court, and there was no iota of proof that at the time of the submission the respondent corporation knew of the contents of the compromise agreement. In order to ratify the unauthorized act of an agent and make it binding on the corporation, it must be shown that the governing body or officer authorized to ratify had full and complete knowledge of all the material facts connected with the transaction to which it relates. Ratification can never be made on the part of the corporation by the same persons who wrongfully assume the power to make the contract.

• Estoppel: The Court found petitioners' invocation of estoppel equally inapposite. Except for those made by Attys. Ventura, Cardenas and Magpantay, petitioners did not demonstrate any act or declaration of the corporation amounting to false representation or concealment of material facts calculated to mislead them. The acts or conduct for which the corporation may be liable under the doctrine of estoppel must be those of the corporation, its governing body or authorized officers, and not those of the purported agent who is himself responsible for the misrepresentation.

• Special Authority to Compromise — Under Article 1878 of the Civil Code and Section 23, Rule 138 of the Rules of Court, attorneys cannot, without special authority, compromise their clients' litigation. The Court applied this doctrine to hold that a compromise agreement signed only by lawyers, without written authority from the corporate client, is void. While the Rules do not require the special authority to be in writing, the court has every reason to expect that, if not in writing, the same be duly established by evidence other than the self-serving assertion of counsel himself.

• Corporate Authority to Compromise — Under Article 2033 of the New Civil Code, juridical persons may compromise only in the form and with the requisites which may be necessary to alienate their property. The power to compromise or settle claims in favor of or against a corporation is ordinarily and primarily committed to the Board of Directors, and may be delegated either expressly or impliedly to other corporate officials or agents. A corporate officer's power as an agent of the corporation must be sought from the statute, the charter, the by-laws, or in a delegation of authority to such officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business.

• Ratification of Unauthorized Acts — In order to ratify the unauthorized act of an agent and make it binding on the corporation, it must be shown that the governing body or officer authorized to ratify had full and complete knowledge of all the material facts connected with the transaction to which it relates. Ratification can never be made on the part of the corporation by the same persons who wrongfully assume the power to make the contract; the ratification must be by the officer or governing body having authority to make such contract and must be with full knowledge.

• Estoppel Against a Corporation — The acts or conduct for which a corporation may be liable under the doctrine of estoppel must be those of the corporation, its governing body or authorized officers, and not those of the purported agent who is himself responsible for the misrepresentation.

• "Special powers of attorney are necessary, among other cases, in the following: to compromise and to renounce the right to appeal from a judgment. Attorneys have authority to bind their clients in any case by any agreement in relation thereto made in writing, and in taking appeals, and in all matters of ordinary judicial procedure, but they cannot, without special authority, compromise their clients' litigation, or receive anything in discharge of their clients' claims but the full amount in cash." — This passage states the controlling rule on the necessity of special authority for attorneys to compromise their clients' litigation, forming the basis of the Court's holding that the Compromise Agreement was void.

• "The law specifically requires that 'juridical persons may compromise only in the form and with the requisites which may be necessary to alienate their property.' Under the corporation law the power to compromise or settle claims in favor of or against the corporation is ordinarily and primarily committed to the Board of Directors." — This passage establishes the doctrine that a corporation's power to compromise is vested in its Board of Directors, and that the corporation may compromise only with the formal requisites necessary to alienate its property.

• "In order to ratify the unauthorized act of an agent and make it binding on the corporation, it must he shown that the governing body or officer authorized to ratify had full and complete knowledge of all the material facts connected with the transaction to which it relates." — This passage defines the requisites for ratification of an unauthorized act by a corporation, requiring full and complete knowledge by the governing body or officer authorized to ratify.

• "The acts or conduct for which the corporation may be liable under the doctrine of estoppel must be those of the corporation, its governing body or authorized officers, and not those of the purported agent who is himself responsible for the misrepresentation." — This passage limits the application of estoppel against a corporation to acts of the corporation itself, its governing body, or authorized officers, excluding the acts of a purported agent.

• Home Insurance Company vs. United States Lines Co., L-25593, November 15, 1967, 21 SCRA 863 — Cited as controlling authority for the proposition that the Rules require a special authority for attorneys to compromise the litigation of their clients, and that while the Rules do not state that the special authority be in writing, the court has every reason to expect that, if not in writing, the same be duly established by evidence other than the self-serving assertion of counsel himself.
• Board of Liquidators vs. Kalaw, L-18805, August 14, 1967, 20 SCRA 987 — Cited for the proposition that a corporation is bound by the act of an officer or agent only to the extent that the power to do the act has been conferred upon him expressly by the charter, by-laws or action of the stockholders or directors, or can be implied from powers expressly conferred.

• Article 1878, Civil Code — Provides that special powers of attorney are necessary to compromise and to renounce the right to appeal from a judgment. The Court applied this provision to hold that the lawyers of respondent corporation lacked the special authority required to enter into the Compromise Agreement.
• Section 23, Rule 138, Rules of Court — Provides that attorneys have authority to bind their clients in any case by any agreement in relation thereto made in writing, and in taking appeals, and in all matters of ordinary judicial procedure, but they cannot, without special authority, compromise their clients' litigation. The Court applied this rule to find the Compromise Agreement void.
• Article 2033, New Civil Code — Provides that juridical persons may compromise only in the form and with the requisites which may be necessary to alienate their property. The Court applied this provision to require that the corporation's Board of Directors must authorize the compromise.

Makalintal, Acting C.J., Castro, Teehankee, Barredo, Makasiar, and Esguerra, JJ., concurred. Zaldivar, J., was on leave. Fernando, J., did not take part.