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COSMIC LUMBER CORPORATION v. CA

## FACTS:

Cosmic Lumber Corporation appointed Paz G. Villamil-Estrada as its attorney-in-fact through a Special Power of Attorney to file an ejectment case against squatters on Lot Nos. 9127 and 443. Villamil-Estrada filed a case for ejectment against Isidro Perez, one of the squatters.

Subsequently, on November 25, 1985, Villamil-Estrada entered into a Compromise Agreement with Perez, wherein Perez agreed to pay P26,640.00 to buy peace with Cosmic Lumber Corporation and recognized ownership and possession of the portion of Lot No. 443 that he occupied.

The Compromise Agreement was approved by the trial court on November 27, 1985, and judgment was rendered accordingly.

However, the judgment was not executed within the 5-year period from its finality due to the petitioner's failure to produce the owner's duplicate copy of the title needed to segregate the portion sold to Perez.

Subsequently, Perez filed a complaint to revive the judgment in January 1993, and upon learning of the compromise agreement, Cosmic Lumber Corporation sought the annulment of the trial court's decision before the Court of Appeals.

The Court of Appeals dismissed the complaint, stating that the alleged nullity of the compromise agreement may be raised as a defense in the execution of the judgment, but not as a ground for annulment.

Cosmic Lumber Corporation argues that the compromise agreement is void because Villamil-Estrada did not have the authority to sell the property, as her authority was limited to filing the ejectment case against the squatters.

The Court agrees with Cosmic Lumber Corporation, stating that Villamil-Estrada's authority was explicitly limited to filing an ejectment case and entering into a compromise agreement insofar as it protects the rights and interests of Cosmic Lumber Corporation. The authority to sell the property cannot be inferred from the grant of authority to enter into a compromise agreement.

ISSUES

  1. Whether the attorney-in-fact, Paz G. Villamil-Estrada, had the authority under the Special Power of Attorney to enter into a compromise agreement that involved selling a portion of the corporation's property.

  2. Whether such a compromise agreement, if unauthorized, affects the validity of the trial court's judgment based thereon.

  3. Whether the conduct of Villamil-Estrada in entering the compromise agreement constituted extrinsic fraud sufficient to annul the judgment based on the said agreement.

RULING

  1. The Court found that the attorney-in-fact, Paz G. Villamil-Estrada, did not have authority under the Special Power of Attorney to sell any part of the corporation's property. The authority was explicitly limited to actions necessary for ejecting squatters and taking material possession of the property. The power to sell or dispose of any part of the property was neither expressly nor impliedly granted within the powers specified in the Special Power of Attorney.

  2. The unauthorized compromise agreement led to the trial court's judgment being declared void. A key principle of law is that an agent’s actions beyond their expressly granted authority are unbinding to the principal, unless ratified. Since the compromise involved selling property - an act beyond the scope of authority granted to Villamil-Estrada - the resulting court judgment based on this compromise was also void.

  3. The Court concurred that Villamil-Estrada’s act of entering into a compromise without authority and without notifying the principal (the corporation) constituted extrinsic fraud. This type of fraud prevents a fair contest in court by hindering the just representation or defense of a party's interests. Therefore, the judgment based on the fraudulent compromise was subject to annulment due to the extrinsic fraud which impaired the legal process.

PRINCIPLES

  1. Authority of Agent: An agent must act within the bounds of the authority given by the principal, and any act beyond such authority is unbinding to the principal unless ratified.

  2. Special Power of Attorney: A specific and unequivocal power of attorney is required for an agent to sell or otherwise dispose of real property owned by the principal. This must be expressed clearly and unmistakably.

  3. Void Contracts: Contracts or agreements entered into beyond the scope of authority granted by the principal are void.

  4. Extrinsic Fraud: Any fraudulent act by a party during litigation which prevents the other party from fully presenting their case or from having a fair trial, constitutes extrinsic fraud. Such fraud can serve as a basis to annul otherwise final judgments.

  5. Agency in Bad Faith: An agent engaging in acts that are in secret hostility to the principal's interests, especially for personal gain, exceeds the scope of his agency and such acts are considered void.

These rulings and principles reinforce the strict adherence to designated boundaries of authority in agency relationships, especially involving significant transactions like the sale of property, and uphold the importance of procedural fairness and the prevention of fraudulent practices in judicial processes.