[G.R. No. 114311.

November 29, 1996]

COSMIC LUMBER CORPORATION, petitioner, vs. COURT OF

APPEALS and ISIDRO PEREZ, respondents.

DECISION
BELLOSILLO, J.:

COSMIC LUMBER CORPORATION through its General Manager

executed on 28 January 1985 a Special Power of Attorney appointing Paz G.
Villamil-Estrada as attorney-in-fact -
x x x 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.[1]
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of
attorney, instituted an action for the ejectment of private respondent Isidro
Perez and recover the possession of a portion of Lot No. 443 before the
Regional Trial Court of Dagupan, docketed as Civil Case No. D-7750.[2]
On 25 November 1985 Villamil-Estrada entered into a Compromise
Agreement with respondent Perez, the terms of which follow:
1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer
Rodolfo dela Cruz the area at present occupied by defendant wherein his
house is located is 333 square meters on the easternmost part of lot 443 and
which portion has been occupied by defendant for several years now;
2. That to buy peace said defendant pays unto the plaintiff through herein
attorney-in-fact the sum of P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the defendant
by virtue of this compromise agreement over said portion of 333 square m. of
lot 443 which portion will be located on the easternmost part as indicated in
the sketch as annex A;
 4. Whatever expenses of subdivision, registration, and other incidental
expenses shall be shouldered by the defendant.[3]
On 27 November 1985 the Compromise Agreement was approved by the
trial court and judgment was rendered in accordance therewith.[4]
Although the decision became final and executory it was not executed
within the 5-year period from date of its finality allegedly due to the failure of
petitioner to produce the owners duplicate copy of Title No. 37649 needed to
segregate from Lot No. 443 the portion sold by the attorney-in-fact, Paz G.
Villamil-Estrada, to private respondent under the compromise
agreement. Thus on 25 January 1993 respondent filed a complaint to revive
the judgment, docketed as Civil Case No. D-10459.[5]
Petitioner asserts that it was only when the summons in Civil Case No. D-
10459 for the revival of judgment was served upon it that it came to know of
the compromise agreement entered into between Paz G. Villamil-Estrada and
respondent Isidro Perez upon which the trial court based its decision of 26
July 1993 in Civil Case No. D-7750. Forthwith, upon learning of the fraudulent
transaction, petitioner sought annulment of the decision of the trial court
before respondent Court of Appeals on the ground that the compromise
agreement was void because: (a) the attorney-in-fact did not have the
authority to dispose of, sell, encumber or divest the plaintiff of its ownership
over its real property or any portion thereof; (b) the authority of the attorney-in-
fact was confined to the institution and filing of an ejectment case against third
persons/squatters on the property of the plaintiff, and to cause their eviction
therefrom; (c) while the special power of attorney made mention of an
authority to enter into a compromise agreement, such authority was in
connection with, and limited to, the eviction of third persons/squatters thereat,
in order that the corporation may take material possession of the entire lot; (d)
the amount of P26,640.00 alluded to as alleged consideration of said
agreement was never received by the plaintiff; (e) the private defendant acted
in bad faith in the execution of said agreement knowing fully well the want of
authority of the attorney-in-fact to sell, encumber or dispose of the real
property of plaintiff; and, (f) the disposal of a corporate property indispensably
requires a Board Resolution of its Directors, a fact which is wanting in said
Civil Case No. D-7750, and the General Manager is not the proper officer to
encumber a corporate property.[6]
On 29 October 1993 respondent court dismissed the complaint on the
basis of its finding that not one of the grounds for annulment, namely, lack of
jurisdiction, fraud or illegality was shown to exist.[7] It also denied the motion
for reconsideration filed by petitioner, discoursing that the alleged nullity of the
compromise judgment on the ground that petitioners attorney in fact Villamit-
Estrada was not authorized to sell the subject property 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 because it does not
affect the jurisdiction of the trial court over the action nor does it amount to
extrinsic fraud.[8]
Petitioner challenges this verdict. It argues that the decision of the trial
court is void because the compromise agreement upon which it was based is
void. Attorney-in-fact Villamil-Estrada did not possess the authority to sell or
was she armed with a Board Resolution authorizing the sale of its
property. She was merely empowered to enter into a compromise agreement
in the recovery suit she was authorized to file against persons squatting on
Lot No. 443, such authority being expressly confined to the ejectment of third
persons or squatters of x x x lot x x x (No.) 443 x x x 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 x x x x
We agree with petitioner. 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. Nowhere in this authorization was
Villamil-Estrada granted expressly or impliedly any power to sell the subject
property nor a portion thereof. Neither can a conferment of the power to sell
be validly inferred from the specific authority to enter into a compromise
agreement because of the explicit limitation fixed by the grantor that the
compromise entered into shall only be so far as it shall protect the rights and
interest of the corporation in the aforementioned lots. In the context of the
specific investiture of powers to Villamil-Estrada, alienation by sale of an
immovable certainly cannot be deemed protective of the right of petitioner to
physically possess the same, more so when the land was being sold for a
price of P80.00 per square meter, very much less than its assessed value
of P250.00 per square meter, and considering further that petitioner never
received the proceeds of the sale.
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.[9] Thus the authority of an agent to execute a contract for the sale of real
estate must be conferred in writing and must give him specific authority, either
to conduct the general business of the principal or to execute a binding
contract containing terms and conditions which are in the contract he did
execute.[10] A special power of attorney is necessary to enter into any contract
by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration.[11] The express mandate required
by law to enable an appointee of an agency (couched) in general terms to sell
must be one that expressly mentions a sale or that includes a sale as a
necessary ingredient of the act mentioned.[12] For the principal to confer the
right upon an agent to sell real estate, a power of attorney must so express
the powers of the agent in clear and unmistakable language. When there is
any reasonable doubt that the language so used conveys such power, no
such construction shall be given the document.[13]
It is therefore clear that by selling to respondent Perez a portion of
petitioners land through a compromise agreement, Villamil-Estrada acted
without or in obvious authority. The saleipso jure is consequently void. So is
the compromise agreement. This being the case, the judgment based thereon
is necessarily void. Antipodal to the opinion expressed by respondent court in
resolving petitioners motion for reconsideration, the nullity of the settlement
between Villamil-Estrada and Perez impaired the jurisdiction of the trial court
to render its decision based on the compromise agreement. In Alviar v. Court
of First Instance of La Union,[14] the Court held -
x x x x this court does not hesitate to hold that the judgment in question is null
and void ab initio. It is not binding upon and cannot be executed against the
petitioners. It is evident that the compromise upon which the judgment was
based was not subscribed by them x x x x Neither could Attorney Ortega bind
them validly in the compromise because he had no special authority x x x x
As the judgment in question is null and void ab initio, it is evident that the
court acquired no jurisdiction to render it, much less to order the execution
thereof x x x
x x x x A judgment, which is null and void ab initio, rendered by a court
without jurisdiction to do so, is without legal efficacy and may properly be
impugned in any proceeding by the party against whom it is sought to be
enforced x x x x
This ruling was adopted in Jacinto v. Montesa,[15] by Mr. Justice J.B.L.
Reyes, a much-respected authority on civil law, where the Court declared that
a judgment based on a compromise entered into by an attorney without
specific authority from the client is void. Such judgment may be impugned and
its execution restrained in any proceeding by the party against whom it is
sought to be enforced. The Court also observed that a defendant against
whom a judgment based on a compromise is sought to be enforced may file a
petition for certiorari to quash the execution. He could not move to have the
compromise set aside and then appeal from the order of denial since he was
not a party to the compromise. Thus it would appear that the obiter of the
appellate court that the alleged nullity of the compromise agreement should
be raised as a defense against its enforcement is not legally
feasible. Petitioner could not be in a position to question the compromise
agreement in the action to revive the compromise judgment since it was never
privy to such agreement. Villamil-Estrada who signed the compromise
agreement may have been the attorney-in-fact but she could not legally bind
petitioner thereto as she was not entrusted with a special authority to sell the
land, as required in Art. 1878, par. (5), of the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now
petition the Court of Appeals to annul and set aside judgments of Regional
Trial Courts.[16] Thus, the Intermediate Appellate Court (now Court of Appeals)
shall exercise x x x x (2) Exclusive original jurisdiction over action for
annulment of judgments of the Regional Trial Courts x x x x However, certain
requisites must first be established before a final and executory judgment can
be the subject of an action for annulment. It must either be void for want of
jurisdiction or for lack of due process of law, or it has been obtained by
fraud.[17]
Conformably with law and the above-cited authorities, the petition to annul
the decision of the trial court in Civil Case No. D-7750 before the Court of
Appeals was proper. Emanating as it did from a void compromise agreement,
the trial court had no jurisdiction to render a judgment based thereon.[18]
It would also appear, and quite contrary to the finding of the appellate
court that the highly reprehensible conduct of attorney-in-fact Villamil-Estrada
in Civil Case No. 7750 constituted an extrinsic or collateral fraud by reason of
which the judgment rendered thereon should have been struck down. 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 petitioners
property was sold to the deforciant, literally for a song. Thus completely kept
unaware of its agents artifice, petitioner was not accorded even a fighting
chance to repudiate the settlement so much so that the judgment based
thereon became final and executory.
For sure, the Court of Appeals restricted the concept of fraudulent acts
within too narrow limits. Fraud may assume different shapes and be
committed in as many different ways and here lies the danger of attempting to
define fraud. For man in his ingenuity and fertile imagination will always
contrive new schemes to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg.
129, where it is one the effect of which prevents a party from hearing a trial, or
real contest, or from presenting all of his case to the court, or where it
operates upon matters, not pertaining to the judgment itself, but to the manner
in which it was procured so that there is not a fair submission of the
controversy. In other words, extrinsic fraud refers to any fraudulent act of the
prevailing party in the litigation which is committed outside of the trial of the
case, whereby the defeated party has been prevented from exhibiting fully his
side of the case by fraud or deception practiced on him by his
opponent.[19] Fraud is extrinsic where the unsuccessful party has been
prevented from exhibiting fully his case, by fraud or deception practiced on
him by his opponent, as by keeping him away from court, a false promise of a
compromise; or where the defendant never had knowledge of the suit, being
kept in ignorance by the acts of the plaintiff; or where an attorney fraudulently
or without authority connives at his defeat; these and similar cases which
show that there has never been a real contest in the trial or hearing of the
case are reasons for which a new suit may be sustained to set aside and
annul the former judgment and open the case for a new and fair hearing.[20]
It may be argued that petitioner knew of the compromise agreement since
the principal is chargeable with and bound by the knowledge of or notice to his
agent received while the agent was acting as such. But the general rule is
intended to protect those who exercise good faith and not as a shield for
unfair dealing. Hence there is a well-established exception to the general rule
as where the conduct and dealings of the agent are such as to raise a clear
presumption that he will not communicate to the principal the facts in
controversy.[21] The logical reason for this exception is that where the agent is
committing a fraud, it would be contrary to common sense to presume or to
expect that he would communicate the facts to the principal.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.[22] Indeed, the basic tenets of
agency rest on the highest considerations of justice, equity and fair play, and
an agent will not be permitted to pervert his authority to his own personal
advantage, and his act in secret hostility to the interests of his principal
transcends the power afforded him.[23]
WHEREFORE, the petition is GRANTED. The decision and resolution of
respondent Court of Appeals dated 29 October 1993 and 10 March 1994,
respectively, as well as the decision of the Regional Trial Court of Dagupan
City in Civil Case No. D-7750 dated 27 November 1985, are NULLIFIED and
SET ASIDE. The Compromise Agreement entered into between Attorney-in-
fact Paz G. Villamil-Estrada and respondent Isidro Perez is declared
VOID. This is without prejudice to the right of petitioner to pursue its complaint
against private respondent Isidro Perez in Civil Case No. D-7750 for the
recovery of possession of a portion of Lot No. 443.
SO ORDERED.