When Can an Agent Sell Your Property? The Limits of a Special Power of Attorney

The Supreme Court has long protected property owners from unauthorized sales by their agents. In Cosmic Lumber Corporation v. Court of Appeals (G.R. No. 114311, November 29, 1996), the Court laid down a clear rule: an agent's authority to act on your behalf is strictly limited to what the written power of attorney expressly states. If an agent sells property beyond that authority, the sale is void — and so is any court judgment based on it.

The Facts of the Case

Cosmic Lumber Corporation, through its General Manager, executed a Special Power of Attorney in favor of Paz G. Villamil-Estrada. The document authorized her to file an ejectment case against squatters occupying the corporation's lots, to appear at pre-trial, and to enter into a compromise agreement — but only "so far as it shall protect the rights and interest of the corporation."

Villamil-Estrada filed the ejectment case against Isidro Perez. Instead of merely evicting him, she entered into a compromise agreement that sold a 333-square-meter portion of the corporation's lot to Perez for P80.00 per square meter — far below the assessed value of P250.00 per square meter. The corporation never received the proceeds.

The trial court approved the compromise agreement and rendered judgment based on it. The corporation only learned of the sale years later when Perez filed a case to revive the judgment. The corporation then sought to annul the judgment before the Court of Appeals, arguing that the attorney-in-fact had no authority to sell its property.

The Issue

The central question was whether a special power of attorney authorizing an agent to file an ejectment case and enter into a compromise agreement for the protection of the principal's rights also authorized the agent to sell a portion of the principal's real property.

The Ruling

The Supreme Court ruled in favor of Cosmic Lumber Corporation. The authority granted to Villamil-Estrada was explicit and exclusionary — it was limited to ejecting squatters so the corporation could take material possession of its lots. Nowhere in the document was she given the power to sell the property or any portion of it.

The Court emphasized that a power to sell cannot be inferred from a general authority to enter into a compromise agreement. The grantor had expressly limited the compromise to one that would "protect the rights and interest of the corporation" — and selling land at a fraction of its value could hardly be considered protective of those rights.

The Legal Rules on an Agent's Authority to Sell

The decision restated fundamental rules under the Civil Code that every property owner should know:

• Article 1874: When the sale of a piece of land is made through an agent, the agent's authority must be in writing; otherwise, the sale is void.
• Article 1878, paragraph (5): A special power of attorney is necessary for an agent to enter into any contract by which ownership of an immovable is transmitted or acquired, whether gratuitously or for valuable consideration.
• The agent's power must be expressed in clear and unmistakable language. When there is any reasonable doubt that the language conveys the power to sell, no such construction shall be given to the document.
• The express mandate must mention a sale, or include a sale as a necessary ingredient of the act mentioned.

Why the Judgment Was Void

The Court held that because Villamil-Estrada acted without authority, the sale was void ipso jure. Consequently, the compromise agreement was void, and the judgment based on it was necessarily void as well. The Court rejected the Court of Appeals' view that the nullity could only be raised as a defense in execution proceedings — a party who was not privy to a void compromise cannot be expected to question it in a case to which it was never a party.

The Court also found that the attorney-in-fact's concealment of the transaction constituted extrinsic fraud, which is a valid ground for annulment of judgment. The general rule that a principal is bound by an agent's knowledge does not apply where the agent is committing a fraud on the principal for his or her own benefit.

Practical Takeaways

• A special power of attorney is strictly construed. An agent can only do what the document expressly authorizes. General phrases like "to protect the interests of the principal" do not include the power to sell real property.
• Never rely on an agent's word alone. Before buying property from someone acting as an agent, verify that the power of attorney expressly authorizes the sale. A buyer who relies on an unauthorized sale risks losing both the property and the money paid.
• A sale of land through an agent must be in writing. Under Article 1874 of the Civil Code, an oral authority to sell land is void.
• Corporate property requires a board resolution. An individual officer, even a General Manager, cannot dispose of corporate real property without proper board authorization.
• A void judgment can be attacked anytime. A judgment based on a void compromise agreement is itself void and may be annulled, even if it has become final and executory.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.