9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

168 SUPREME COURT REPORTS ANNOTATED

Cosmic Lumber Corporation vs. Court of Appeals

*
G.R. No. 114311. November 29, 1996.

COSMIC LUMBER CORPORATION, petitioner, vs.

COURT OF APPEALS and ISIDRO PEREZ, respondents.

Agency; Special Powers of Attorney; Compromise Agreements;

Sales; Pre-Trial; Ejectment; A special power of attorney for an
agent to institute any action in court to eject all persons in the
principal's lots so that the principal 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 is protective of the rights and interests of the
principal in the property, does not grant any power to the agent to
sell the subject property nor a portion thereof.—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

________________

* FIRST DIVISION.

169

VOL. 265, NOVEMBER 29, 1996 169

Cosmic Lumber Corporation vs. Court of Appeals

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
www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 1/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

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.

Same; Same; Same; Same; 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 action mentioned.—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. 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. 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. 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. 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.

170

170 SUPREME COURT REPORTS ANNOTATED

Cosmic Lumber Corporation vs. Court of Appeals

Same; Same; Same; Courts; Jurisdiction; The nullity of the

settlement between an agent and a third person impairs the
jurisdiction of the trial court to render its decision based on the
compromise agreement.—It is therefore clear that by selling to
respondent Perez a portion of petitioner's land through a

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 2/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

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. Antipodal to the opinion
expressed by respondent court in resolving petitioner's 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.

Actions; Courts; Judgments; Annulment of Judgments;

Pleadings and Practice; A party may now petition the Court of
Appeals to annul and set aside judgments of Regional Trial
Courts.—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. "Thus, the Intermediate
Appellant Court (now Court of Appeals) shall exercise wi wi wi wi
(2) Exclusive original jurisdiction over action for annulment of
judgments of the Regional Trial Courts wi wi wi 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. 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.

Same; Same; Same; Same; Fraud; Words and Phrases; 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.—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.

171

VOL. 265, NOVEMBER 29, 1996 171

Cosmic Lumber Corporation vs. Court of Appeals

Same; Same; Same; Same; Same; Same; Extrinsic fraud refers

to any fraudulent act of the prevailing party in the litigation which

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 3/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

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.—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. 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.

Agency; Fraud; Equity; When an agent is engaged in the

perpetration of a fraud upon his principal for his own extrinsic
benefit, he is not really acting for the principal but is really acting
for himself, entirely outside the scope of his agency—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.—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. The logical reason for this exception is that where
the agent is committing a fraud, it would be contrary to com-

172

172 SUPREME COURT REPORTS ANNOTATED

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 4/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

Cosmic Lumber Corporation vs. Court of Appeals

mon 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. 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 trascends the power
afforded him.

PETITION for review on certiorari of a decision of the

Court of Appeals.

The facts are stated in the opinion of the Court.

     Millora & Maningding Law Offices for petitioner.
     Manuel D. Ancheta for private respondent.

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-
infact—

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
1
rights and interest of the corporation
in the aforementioned lots.

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

________________

1 CA Rollo, p. 11.

173

VOL. 265, NOVEMBER 29, 1996 173

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 5/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

Cosmic Lumber Corporation vs. Court of Appeals

a portion of Lot No. 443 before the Regional 2Trial Court of

Dagupan, docketed as Civil Case No. D-7750.
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
3
expenses shall be shouldered by
the defendant.

On 27 November 1985 the "Compromise Agreement" was

approved by the trial 4court and judgment was rendered in
accordance therewith.
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 owner's 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 5
revive the
judgment, docketed as Civil Case No. D-10459.

________________

2 Assigned to Br. 44.

3 CA Rollo, p. 17.
4 Penned by Judge Crispin C. Laron; id., p. 19.
5 Assigned to Br. 42.

174

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 6/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

174 SUPREME COURT REPORTS ANNOTATED

Cosmic Lumber Corporation vs. Court of Appeals

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. D7750, and the General Manager 6
is not
the proper officer to encumber a corporate property.
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

________________

6 CA Rollo, pp.5-6.

175

VOL. 265, NOVEMBER 29, 1996 175

Cosmic Lumber Corporation vs. Court of Appeals
7
www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 7/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265
7
was shown to exist. It also denied the motion for
reconsideration filed by petitioner, discoursing that the
alleged nullity of the compromise judgment on the ground
that petitioner's attorney-in-fact Villamil-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
8
over the action nor does it amount to extrinsic
fraud.
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
VillamilEstrada 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

________________

7 Penned by Justice Minerva P. Gonzaga-Reyes with the concurrence of

Justices Santiago M. Kapunan and Eduardo G. Montenegro; Rollo, p. 43.
8 Rollo, p. 49.

176

176 SUPREME COURT REPORTS ANNOTATED

Cosmic Lumber Corporation vs. Court of Appeals

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 8/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

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 VillamilEstrada, 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 latter9 shall be in
writing; otherwise, the sale shall be void. 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 and10
conditions which are in the contract he did
execute. A special power of attorney is necessary to enter
into any contract by which the ownership of an immovable
is transmitted or acquired
11
either gratuitously or for a
valuable consideration. 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
12
a sale as a necessary ingredient of the
act mentioned. 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 13
power, no such construction
shall be given the document.

________________

9 Art. 1874, Civil Code of the Philippines.

10 Johnson v. Lennox, 55 Colo. 125, 133 N. 744.
11 Art. 1878, par. (5), Civil Code of the Philippines.
12 Strong v. Gutierrez Repide, 6 Phil. 680 (1906).
13 Liñan v. Puno, 31 Phil. 259 (1915).

177

VOL. 265, NOVEMBER 29, 1996 177

Cosmic Lumber Corporation vs. Court of Appeals

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 9/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

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. Antipodal to the opinion
expressed by respondent court in resolving petitioner's
motion for reconsideration, the nullity of the settlement
between VillamilEstrada and Perez impaired the
jurisdiction of the trial court to render its decision based on
the compromise agreement.
14
In Alviar v. Court of First
Instance of La Union, 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
15
This ruling was adopted in Jacinto v. Montesa, 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

________________

14 64 Phil. 301, 305-306 (1937).

15 No. L-23098, 28 February 1967, 19 SCRA 513, 518-519. See also
Quiban v. Butalid, G.R. No. 90974, 27 August 1990, 189 SCRA 107.

178

178 SUPREME COURT REPORTS ANNOTATED

Cosmic Lumber Corporation vs. Court of Appeals

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 10/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

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 the 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. VillamilEstrada 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 16
annul and
set aside judgments of Regional Trial Courts. "Thus, the
Intermediate Appellant 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
17
of due process of
law, or it has been obtained by fraud.

________________

16 Goldloop Properties, Inc. vs. Court of Appeals, G.R. No. 99431, 11

August 1992, 212 SCRA 498; Mercado v. Ubay, No. L36830, 24 July 1990,
187 SCRA 719; Gerardo v. De la Peña, G.R. No. 61527, 26 December
1990,192 SCRA 691.
17 Islamic Da 'Wah Council of the Philippines v. Court of Appeals, G.R.
No. 80892, 29 September 1989, 178 SCRA 178; Ramirez v. Court of
Appeals, G.R. No. 76366, 3 July 1990, 187 SCRA 153; Ruiz v. Court of
Appeals, G.R. No. 93454, 13 September 1991, 210 SCRA 577; Santos v.
Court of Appeals, G.R. No. 59771, 21 July 1993, 224 SCRA 673. See also
Parcon v. Court of Appeals, G.R. No. 85740, 9 November 1990,191 SCRA
284.

179

VOL. 265, NOVEMBER 29, 1996 179

Cosmic Lumber Corporation vs. Court of Appeals

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 11/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

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 court18 had no jurisdiction to render a judgment
based thereon.
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 petitioner's property was sold to the
deforciant, literally for a song. Thus completely kept
unaware of its agent's 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,

________________

18 See notes 14 and 15.

180

180 SUPREME COURT REPORTS ANNOTATED

Cosmic Lumber Corporation vs. Court of Appeals
www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 12/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

whereby the defeated party has been prevented from

exhibiting fully his side of the case19
by fraud or deception
practiced on him by his opponent 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
20
and open the case for a new and fair
hearing.
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 21
communicate to the
principal the facts in controversy. 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 really22 acting for himself, entirely outside the scope of
his agency.

________________

19 Macabingkil v. PHHC, No. L-29080, 17 August 1976, 72 SCRA 326,

343-344.
20 Id., p. 344 citing US v. Throckmorton, 25 L. Ed. 93, 95.
21 Mutual Life Ins. Co. v. Hilton Green, 241 US 613, 60 L. Ed. 1202.
22 Aetna Casualty and Surety Co. v. Local Bldg. and Loan Assoc., 19
P2d 612, 616.

181

VOL. 265, NOVEMBER 29, 1996 181

Cosmic Lumber Corporation vs. Court of Appeals

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 13/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

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
23
of his principal trascends the power afforded
him.
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.

          Padilla (Chairman), Vitug and Hermosisima, Jr.,

JJ., concur.
          Kapunan, J., No part, having participated in the
CA's decision.

Petition granted.

Notes.—An action for the nullification of a special

power of attorney and other documents based on an
allegation of forgery is not a "claim" under Sec. 6(c) of P.D.
902-A which provides for suspension of all actions for
claims against corporations, partnerships or associations
under management or receivership. (Finasia Investments
vs. Court of Appeals, 237 SCRA 446 [1994])
Where payment has been made to an agent, aside from
proving the existence of a Special Power of Attorney, it is
also necessary for evidence to be presented regarding the
nature

________________

23 Strong v. Strong, 36 A2d 410, 415.

182

182 SUPREME COURT REPORTS ANNOTATED

Municipality of Jimenez vs. Baz, Jr.

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 14/15
9/7/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 265

and extent of the alleged powers and authority granted to

the agent. (Philippine National Bank vs. Court of Appeals,
256 SCRA 44 [1996])

——o0o——

© Copyright 2019 Central Book Supply, Inc. All rights reserved.

www.central.com.ph/sfsreader/session/0000016d0c2fb40d4cdee1a0003600fb002c009e/t/?o=False 15/15