Mar Santos vs. V.C. Development Corporation

A compromise agreement that bears the essential requisites of a valid contract and has been fully performed by both parties must be judicially approved, and courts may not disregard it on the basis of perceived formal defects that do not go into the validity of the contract when none of the parties assails its due execution.

Sometime in 1990, Santos, doing business as Total Land Management, Inc., and V.C. Development entered into an agreement for the sale of the latter's lots in Violago Homes Batasan, Quezon City. Santos was to sell the lots under various housing packages, construct homes thereon, and assist buyers in securing mortgages with United Savings Bank. V.C. Development's titles were encumbered by a prior mortgage with the AFP-RSBS, which caused delays in releasing the titles to the bank and ultimately prevented the loan proceeds from being disbursed.

Sometime in 1990, Santos and V.C. Development entered into an agreement for the sale of the latter's lots in Violago Homes Batasan, Quezon City. Under the arrangement, Santos would sell the lots under various housing packages, construct homes thereon, and assist the buyers in securing mortgages with United Savings Bank. Santos solicited prospective buyers, including Anacleto Quibuyen and Ana Maria Male, and assisted them in obtaining housing loans. As a condition for releasing the loan proceeds, United Savings required the submission of the owner's duplicate copies of the titles and the construction of houses over the lots. Believing the transactions would proceed smoothly, Santos began construction of 10 houses in Violago Homes.

Unfortunately, V.C. Development failed to promptly submit the titles to United Savings because of its previous mortgage with the AFP-RSBS. It was only on January 15, 1991 that V.C. Development released TCT No. 309980 and TCT No. 309985, the titles for the properties purchased by Quibuyen and Male, respectively. These were delivered to Santos, who was tasked to deliver them to United Savings. Moreover, V.C. Development failed to complete the subdivision amenities, causing United Savings to refuse to release the loan proceeds. The buyers withdrew their reservation fees and down payments and filed complaints against V.C. Development before the HLURB. In turn, V.C. Development demanded the return of the owner's duplicate copies of the two titles. Santos refused, holding them as security for the construction expenses he had advanced. V.C. Development then filed a complaint for specific performance with damages against Santos.

The RTC rendered judgment on October 4, 2007 in favor of V.C. Development, finding that an implied trust was created between the parties and ordering Santos to return both titles. The RTC ruled that Santos could not hold the titles as security for his construction expenses because the construction agreement was between him and the buyers, not V.C. Development. Santos appealed to the CA, and the case was referred to the Philippine Mediation Center.

On July 9, 2010, a mediation conference was held between Santos and V.C. Development, the latter represented by Assistant Vice President Beatriz Q. Sayson. The parties executed a Compromise Agreement with three terms: V.C. Development would refund ₱11,000.00 to buyer Male and ₱7,000.00 to buyer Quibuyen through Santos; within 30 days, V.C. Development would execute an instrument assigning all its rights and interests in the property covered by TCT No. 309985 to Santos; and Santos would return the owner's duplicate of TCT No. 309980 to V.C. Development. In compliance, V.C. Development handed two checks to Santos for the buyers' refunds, and Santos returned the owner's duplicate of TCT No. 309980. On August 2, 2010, V.C. Development's President Oscar I. Violago and Santos executed a Deed of Absolute Sale transferring the property covered by TCT No. 309985 to Santos as payment for the construction expenses.

However, on September 3, 2010, the CA noted that AVP Sayson was not the named authorized representative in the Secretary's Certificate and required V.C. Development to manifest conformity within 10 days, warning that failure to comply would be deemed assent to AVP Sayson's authority. V.C. Development failed to file the required manifestation. The CA then proceeded to rule on the merits, rendering its January 4, 2012 Decision affirming the RTC and ordering Santos to return both titles. Santos filed a Manifestation and Motion stating that the parties had substantially complied with the Compromise Agreement and praying for judgment based thereon. The CA's subsequent resolutions requiring V.C. Development to comment were unserved with a postal notation "RTS-Moved Out." V.C. Development failed to file a Comment or Opposition. On February 11, 2014, the CA denied Santos's Motion and Manifestation, holding that absent clear proof of AVP Sayson's authority, the Compromise Agreement could not be approved. Santos alleged that despite the Deed of Absolute Sale, V.C. Development failed to effect a full transfer of ownership over TCT No. 309985 in his name.

• Validity of the Compromise Agreement: Santos maintained that the Compromise Agreement was validly executed and that V.C. Development never contested the authority of AVP Sayson to sign on its behalf.
• Acquiescence Through Performance: Santos argued that V.C. Development's acts following the signing of the Compromise Agreement — issuing checks for the buyers' refunds and executing a Deed of Absolute Sale over the property covered by TCT No. 309985 — indicated its acquiescence thereto.
• Deemed Assent Under CA Resolution: Santos pointed out that pursuant to the CA's September 3, 2010 Resolution, V.C. Development's failure to submit a Comment should have been regarded as its conformity to the Compromise Agreement.
• Vested Rights: Santos posited that the issuance of the assailed CA Decision and Resolution might impede compliance with the terms of the Compromise Agreement and disturb the vested rights acquired therefrom.
• Incomplete Transfer: Santos alleged that despite the execution of the Deed of Absolute Sale, V.C. Development failed to fully transfer title over the property covered by TCT No. 309985 in his name.

• Admission of Validity: V.C. Development admitted the validity of the Compromise Agreement and stated that its officers had fully and faithfully complied with the undertakings therein.
• Vested Rights: V.C. Development agreed that the Compromise Agreement had created obligations and vested rights, and that a decision on the merits might threaten to disturb the peace between the parties.
• Non-Receipt of CA Resolutions: V.C. Development's counsel manifested that the firm did not receive copies of the CA Resolutions because, at the time they were sent, the firm was undergoing structural changes in its name, composition, and address, and the records had been archived as it was believed the dispute had been resolved in view of the Compromise Agreement.

• Validity and Approval of the Compromise Agreement: Whether the CA erred in failing to render a judgment according to the Compromise Agreement dated July 9, 2010.

• Validity and Approval of the Compromise Agreement: Yes. The CA erred in disregarding the Compromise Agreement, which was validly executed and fully performed by both parties, and whose due execution was never questioned by either party. The perceived defect in the signatory's authority was cured by V.C. Development's performance of its undertakings and its failure to file the required manifestation, which the CA's own resolution had deemed as assent.

• Validity and Approval of the Compromise Agreement: A compromise agreement is a contract whereby parties, by making reciprocal concessions, avoid or put an end to litigation. As with all contracts, it must possess the essential requisites under Article 1318 of the Civil Code — consent, object certain, and cause — and its terms must not be contrary to law, morals, good customs, public policy, and public order. In this case, both parties acknowledged the existence and validity of the Compromise Agreement, and their acts following its execution clearly manifested their assent. V.C. Development complied with its commitment to refund the payments made by Male and Quibuyen and transferred the rights and interests over TCT No. 309985 to Santos through a Deed of Absolute Sale signed by no less than its President Violago. Santos, in turn, returned the owner's duplicate of TCT No. 309980. Compliance occurred as early as July 9, 2010 and August 2, 2010 — more than one and a half years before the CA's assailed Decision and Resolution. Neither party questioned the due execution of the Compromise Agreement. The CA erred in disregarding it on account of V.C. Development's failure to file a Comment or Manifestation affirming AVP Sayson's authority, because the CA's own September 3, 2010 Resolution had stated that such failure would be deemed assent to AVP Sayson's authority. This alone warranted approval. Moreover, V.C. Development's actual compliance with the terms of the Compromise Agreement undeniably proved its ratification of AVP Sayson's authority. The CA unnecessarily focused on formal defects that did not go into the validity of the parties' contract, particularly when none of the parties assailed its due execution. Applying the doctrine in Paraiso Intl. Properties, Inc. vs. Court of Appeals, the Court found that the CA gravely abused its discretion in disapproving the Compromise Agreement for perceived formal defects. Since the Compromise Agreement was valid and not contrary to law, morals, good customs, and public policy, judicial approval was in order. A remand was deemed unnecessary because the Court was in a position to resolve the dispute, and a remand would only prolong the case and thwart justice.

• Nature and Essential Requisites of a Compromise Agreement — A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. It must bear the essential requisites under Article 1318 of the Civil Code: (i) consent of the contracting parties; (ii) object certain which is the subject matter of the contract; and (iii) cause of the obligation which is established. Its terms and conditions must not be contrary to law, morals, good customs, public policy, and public order. The Court applied these requisites to find the Compromise Agreement validly executed, as both parties gave consent, the object and cause were certain, and the terms were not contrary to law or public policy.

• Judicial Approval of Compromise Agreements — If a compromise agreement is found to be in order and not contrary to law, morals, good customs, and public policy, its judicial approval is in order. Once approved by final order of the court, it has the force of res judicata between the parties and will not be disturbed except for vices of consent or forgery. The Court approved the July 9, 2010 Compromise Agreement and rendered judgment in conformity with its terms.

• Formal Defects Do Not Invalidate a Compromise Agreement When Unchallenged by the Parties — Courts should not focus on defects in the form of a compromise agreement when these flaws in formality do not go into the validity of the parties' contract, and more importantly, when none of the parties assails its due execution. The absence of a specific date or a perceived defect in the signatory's authority does not adversely affect the agreement if the parties' consent is otherwise manifested through performance. The Court applied this principle to hold that the CA erred in disregarding the Compromise Agreement on account of AVP Sayson's lack of listed authority in the Secretary's Certificate.

• Remedies for Non-Fulfillment of a Compromise Agreement — If one of the parties fails or refuses to abide by the compromise, the other party may either enforce the compromise by a writ of execution, or regard it as rescinded and insist upon his original demand. Non-fulfillment of the terms of the compromise justifies execution. The Court noted that Santos alleged V.C. Development failed to fully transfer title over TCT No. 309985, and held that the prerogative of which course to pursue rests on Santos.

• "In the instant case, the appellate court gravely abused its discretion in disapproving the compromise agreement for the simple reason that respondent did not comply with the CA's resolutions requiring it to explain the apparent formal defects in the agreement. The Court notes that the appellate court unnecessarily focused its attention on the defects in the form of the compromise agreement when these flaws in formality do not go into the validity of the parties' contract, and, more importantly, when none of the parties assails its due execution." — This passage, quoted from Paraiso Intl. Properties, Inc. vs. Court of Appeals, articulates the controlling doctrine that formal defects in a compromise agreement cannot defeat its validity when the parties do not question its due execution, and forms the ratio decidendi for the Court's reversal of the CA.

• "In fine, courts shall not thwart the parties' efforts at reaching a compromise. It is certainly not the office of the court to meddle with concessions that parties have freely agreed to, absent any showing that they are contrary to law, morals, good customs, public order or public policy." — This passage states the Court's overarching principle governing judicial treatment of compromise agreements and underscores the policy rationale for approving the agreement in this case.

• Paraiso Intl. Properties, Inc. vs. Court of Appeals, et al., 574 Phil. 597 (2008) — Controlling precedent. The Court relied on this case to hold that the CA committed grave abuse of discretion in disapproving a compromise agreement on account of perceived formal defects. The Court quoted its ruling that formal defects do not go into the validity of the contract when none of the parties assails its due execution, and applied the same reasoning to approve the Compromise Agreement directly rather than remanding the case.
• Malvar vs. Kraft Foods Phils., Inc., et al., 717 Phil. 427 (2013) — Followed. The Court cited this case for the proposition that a valid compromise agreement, if found to be in order and not contrary to law, morals, good customs, and public policy, is subject to judicial approval, and once approved by final order of the court, has the force of res judicata between the parties.
• Viesca vs. Gilinsky, 553 Phil. 498 (2007) — Cited for the general proposition that the settlement of disputes before the courts is always encouraged to achieve speedy and impartial justice and declog the court's dockets.
• Anacleto vs. Van Twest, 393 Phil. 616 (2000) — Cited for the essential requisites of a contract under Article 1318 of the Civil Code as applied to compromise agreements.
• Uy vs. Chua, 616 Phil. 768 (2009) — Cited for the requirement that the terms and conditions of a compromise agreement must not be contrary to law, morals, good customs, public policy, and public order.
• Santos vs. Santos, G.R. No. 214593, July 17, 2019 — Cited for the proposition that a remand is unnecessary when the Court is in a position to resolve the dispute and a remand would only prolong the case and thwart justice.

• Article 2028, Civil Code — Defines a compromise as "a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced." Applied to characterize the July 9, 2010 Compromise Agreement between Santos and V.C. Development.
• Article 2029, Civil Code — Impresses upon courts the duty to "endeavor to persuade the litigants in a civil case to agree upon some fair compromise." Cited as the statutory basis for the Court's policy of encouraging amicable settlement.
• Article 1318, Civil Code — Enumerates the essential requisites of a contract: (i) consent of the contracting parties; (ii) object certain which is the subject matter of the contract; and (iii) cause of the obligation which is established. Applied to determine the validity of the Compromise Agreement.
• Article 2037, Civil Code — Provides that a compromise agreement approved by final order of the court has the force of res judicata between the parties. Cited through Malvar vs. Kraft Foods Phils., Inc. in support of judicial approval.
• Article 2038, Civil Code — Provides that a compromise agreement will not be disturbed except for vices of consent or forgery. Cited through Malvar vs. Kraft Foods Phils., Inc. in support of judicial approval.

Leonen (Chairperson), Gesmundo, Carandang, and Zalameda, JJ., concurred.