This case clarifies that when a co-owner consents to a judicially-approved compromise agreement allowing a corporation to sell property, they cannot later contest the sale as unenforceable simply because they weren’t consulted on the specific terms. The Supreme Court emphasized that such agreements, once approved, have the force of law and bind all parties, preventing them from unilaterally imposing additional conditions not initially agreed upon. This ruling reinforces the importance of carefully considering the implications of compromise agreements and upholding the principle of contractual obligation.

The Esguerra Building Sale: Can a Co-owner Contest a Judicially-Approved Compromise?

The legal battle revolves around Julieta Esguerra’s attempt to invalidate the sale of Esguerra Building II by V. Esguerra Construction Co., Inc. (VECCI) to Sureste Properties, Inc. Julieta, a co-owner of the property, argued that the sale was unenforceable because she was not consulted on the terms and conditions, despite a prior compromise agreement. This agreement, approved by the court, authorized VECCI to sell the property. The core legal question is whether Julieta’s lack of consultation invalidated the sale, given the existing compromise agreement and VECCI’s corporate authority. Did VECCI have the right to dispose of the property, or did Julieta’s co-ownership give her the right to refuse?

The Supreme Court anchored its decision on the **principle of contractual obligation** and the binding nature of judicially-approved compromise agreements. The Court emphasized that Julieta had freely and voluntarily entered into the compromise agreement, which explicitly authorized VECCI to sell the properties listed, including Esguerra Building II. According to the Court, nothing in the agreement required VECCI to consult Julieta before concluding any sale. To reinforce the binding nature of contracts, the Court cited Article 1900 of the Civil Code:

“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 reasoned that Sureste Properties, Inc., as a third party, was entitled to rely on the compromise agreement and VECCI’s apparent authority to sell the property. The certification from VECCI’s Corporate Secretary regarding the resolutions authorizing the sale was deemed sufficient, and Sureste was not obligated to conduct further investigations. Building on this principle, the Court also rejected Julieta’s argument that VECCI’s prior consultation with her during the sale of Esguerra Building I set a binding precedent.

The Court reasoned that the mere fact of prior consultation did not alter the terms of the compromise agreement, which remained the governing document. Once approved by the court, a compromise agreement has the force of **res judicata**, meaning it is final and binding on the parties. The Court also noted that parties cannot be relieved from the consequences of an unwise contract freely entered into with full awareness of its terms. The argument that the sale of Esguerra Building II should have been more lucrative was similarly dismissed.

Addressing Julieta’s invocation of her right of first refusal, the Court stated that this right was effectively waived when she entered into the compromise agreement. The agreement necessitated the sale of the co-owned properties and the distribution of proceeds, thus resulting in its partition. The Court argued that the petitioner should have ensured that it was written in the compromise agreement if the petitioner wanted to retain that right. To bolster VECCI’s authority, the Court cited the resolution of the stockholders and the board of directors authorizing the sale of the corporation’s assets. The Court said the Corporate Secretary’s certification of these resolutions was sufficient for Sureste Properties, Inc. to rely on, and the Court said that it did not have to investigate the truth of the facts.

The Court addressed Julieta’s argument that Sureste Properties, Inc. was bound by the notice of lis pendens annotated on the property title. The Court acknowledged that the purchase was subject to the outcome of the litigation and that Sureste was deemed notified of the compromise agreement’s terms. Building on this principle, the Court found that the notice did not imply that the sale required Julieta’s prior consent. The Court also affirmed that its prior decisions recognizing Julieta’s one-half ownership of the building did not invalidate VECCI’s authority to sell the property under the compromise agreement.

The appellate court acted within its jurisdiction when it reversed the trial court’s decision. The Court emphasized that Rule 45 of the Rules of Court authorizes review based on reversible errors, not grave abuse of discretion, which is addressed under Rule 65. In conclusion, the Supreme Court upheld the Court of Appeals’ decision, finding no reversible error and emphasizing the binding nature of the judicially-approved compromise agreement. The Court reasoned that the trial court was guilty of grave abuse of discretion for adding a new term.

FAQs

What was the key issue in this case?	The central issue was whether a co-owner could contest a sale of property authorized by a judicially-approved compromise agreement, arguing lack of consultation despite having consented to the agreement’s terms.
What did the compromise agreement state?	The compromise agreement authorized VECCI to sell specific properties, including Esguerra Building II, with a provision for distributing a percentage of the proceeds to Julieta Esguerra.
Did the agreement require VECCI to consult Julieta before the sale?	No, the compromise agreement did not include a requirement for VECCI to consult Julieta Esguerra before selling the properties listed in the agreement.
Why did Julieta Esguerra claim the sale was unenforceable?	Julieta Esguerra argued that the sale was unenforceable because she was not consulted on the terms and conditions, and that the sale was unfair given the potential valuation of the property.
What is the legal significance of a judicially-approved compromise agreement?	A judicially-approved compromise agreement has the force of res judicata, making it final and binding on the parties and preventing them from relitigating the issues covered in the agreement.
What did the Court say about Sureste’s responsibility to investigate VECCI’s authority?	The Court stated that Sureste Properties, Inc. was entitled to rely on the Corporate Secretary’s certification of VECCI’s resolutions and was not required to conduct further investigations into the validity of VECCI’s corporate actions.
How did the Court address the prior sale of Esguerra Building I?	The Court found that the prior consultation in the sale of Esguerra Building I did not set a binding precedent and did not alter the terms of the compromise agreement governing the sale of Esguerra Building II.
Did the notice of lis pendens affect the outcome of the case?	The notice of lis pendens made the sale subject to the outcome of the litigation, but did not imply that the sale required Julieta Esguerra’s prior consent, as the compromise agreement was the governing document.

The Supreme Court’s decision underscores the importance of carefully considering the terms and implications of compromise agreements before entering into them. Once approved by the court, these agreements become legally binding and enforceable, limiting the ability of parties to later challenge or modify their provisions based on claims of lack of consultation or unfairness.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: JULIETA V. ESGUERRA v. COURT OF APPEALS and SURESTE PROPERTIES, INC., G.R. No. 119310, February 03, 1997