Grave abuse

If an agreement has no date, is it valid? Is notarization a requirement for the assignment of shares of stocks? These are the questions answered in this case between two real estate companies (PIP Inc. and PHLC). Also explained here is the meaning of grave abuse of discretion.

The agreement involved here is a six-page undated Compromise Agreement submitted to the Court of Appeals (CA) amicably settling all the cases pending in said Court and the Regional Trial Court (RTC) between PIP and PHLC. Signing for PIP was Mr. Sato, the representative of the outgoing management while J.A. Luciano signed for PHLC by way of initials. The representative of the new management of PIP, Mr. Noda and Mr. Nando also signed the agreement. There are numerical notations beside their respective signatures indicating the dates they affixed their signatures.

The parties also submitted to the CA a two-page undated Deed of Assignment executed by Mr. Sato as representative of the outgoing management of PIP transferring to Mr. Noda and Mr. Nando all the shares of stocks, paid up, subscription rights and interests therein, as well as the authority given to Sato to represent the company. Also affixing their signatures as assignees and representatives of the new management were Noda and Nando. Significantly the acknowledgment portion in the Deed of Assignment had been crossed out.

Further submitted to the CA as annexes B and C of the Compromise Agreement were the respective Secretary’s Certificate of PIP and PHLC Corporate Secretary confirming that their respective board authorized Sato and J.A. Luciano to sign the said agreement.

Perceptive of the apparent formal defects, the CA directed PHLC to inform the court why the Compromise Agreement and the Deed of Assignment were undated; and why the acknowledgment in the Deed of Assignment was crossed out.

As two years passed without any compliance to its directive, the CA disapproved the Compromise Agreement and its annex “A”, the Deed of Assignment, for PHLC’s failure to comply with its directive. Was the CA correct?

No. The absence of a specific date does not adversely affect the agreement considering that the date of execution is not an essential element of a contract. A compromise agreement is essentially a contract perfected by mere consent, the latter being manifested by the meeting of the offer and acceptance upon the thing and the cause which constitute the contract. The CA should have allowed greater laxity in scrutinizing the compromise agreement, not only because the absence of a specific date is a mere formal defect but also because the signatories to the said agreement indicated beside their signatures the date when they signed. These signatories are also sufficiently authorized by their respective board of directors.

The crossing out of the acknowledgment portion in the Deed of Assignment attached to the agreement is of no moment precisely because the notarization of the deed or even its execution is not a requirement for the valid transfer of the shares of stocks. Again the date is not essential for its validity. In any case the execution of the deed of assignment and its annexation to the compromise agreement are a superfluity because PIP’s board of directors had authorized Sato to enter into said agreement and even the representatives of the new management signed the same.

Hence the CA acted with grave abuse of discretion when it disapproved the compromise agreement just because the PHLC did not comply with its resolution requiring it to explain the apparent formal defects. The CA unnecessarily focused its attention on the formal defects of the agreement when these flaws do not go into the validity of the contract and more importantly when none of the parties assails its due execution. There is grave abuse of discretion where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility and so patent and gross as to amount to an evasion of a positive duty enjoined by law or to act at all in contemplation of said law (Paraiso International Properties vs. Court of Appeals, G.R. 15342, April 16, 2008). 

 Note: Books containing compilation of my articles on Labor Law and Criminal Law (Vols. I and II) are now available. Call tel. 7249445.

*      *      *

E-mail at: [email protected]