Case Digest (G.R. No. 126745)
Facts:
The case involves the Armed Forces of the Philippines Mutual Benefit Association, Inc. (AFPMBAI) as the petitioner and the Court of Appeals and EBR Realty, Inc. (EBRRI) as the respondents. The events leading to this case began when B.E. Ritz Mansion International Corporation (B.E. Ritz) entered into a contract with EBRRI to sell an office building, known as Building E, for P22,050,000.00. EBRRI paid P17,640,000.00, leaving a balance of P4,410,000.00 due upon completion of the building. In July 1991, B.E. Ritz demanded payment of the remaining balance, but instead, EBRRI filed a complaint against B.E. Ritz before the Housing and Land Use Regulatory Board (HLURB) for specific performance and damages, citing B.E. Ritz's failure to complete the construction on time.
On August 10, 1991, EBRRI assigned its rights in Building E and ten condominium units to AFPMBAI as security for a loan. Subsequently, AFPMBAI filed a case against several parties, including B.E. Ritz, in the Re...
Case Digest (G.R. No. 126745)
Facts:
Background of the Case
Parties Involved:
- Petitioner: Armed Forces of the Philippines Mutual Benefit Association, Inc. (AFPMBAI).
- Respondents: EBR Realty, Inc. (EBRRI) and the Court of Appeals.
- Other entities involved: B.E. Ritz Mansion International Corporation (B.E. Ritz) and Eurotrust Capital Corporation (Eurotrust).
Real Estate Transactions:
- B.E. Ritz contracted to sell an office building (Building E) to EBRRI for P22,050,000.00. EBRRI paid P17,640,000.00, leaving a balance of P4,410,000.00.
- B.E. Ritz and EBRRI also executed contracts for the sale of ten condominium units in Pasig City, for which EBRRI paid P20,415,682.75.
Dispute Before HLURB:
- In July 1991, B.E. Ritz demanded payment of the P4,410,000.00 balance from EBRRI. Instead, EBRRI filed a complaint with the Housing and Land Use Regulatory Board (HLURB) for specific performance and/or rescission, citing B.E. Ritz's failure to complete Building E and the condominium units on time. EBRRI sought a refund of payments made plus damages.
Assignment of Rights:
- On August 10, 1991, EBRRI and Eurotrust executed a deed of assignment, transferring EBRRI's rights in Building E and the condominium units to AFPMBAI as security.
Civil Case Filed by AFPMBAI:
- On January 27, 1992, AFPMBAI filed Civil Case No. Q-92-11198 against Eurotrust and others to recover treasury notes and payments totaling P108,157,637.72. The complaint was later amended to include EBRRI and B.E. Ritz as defendants.
HLURB Decision:
- On November 19, 1993, the HLURB rescinded the contracts for the condominium units and ordered B.E. Ritz to execute a deed of absolute sale for Building E in favor of EBRRI. The HLURB also ordered B.E. Ritz to refund EBRRI P16,005,682.72 after deducting the balance owed by EBRRI.
Compromise Agreement:
- On December 13, 1994, AFPMBAI and B.E. Ritz entered into a compromise agreement, wherein B.E. Ritz agreed to pay AFPMBAI P20,000,000.00 and sell Building E, with P10,000,000.00 from the sale proceeds going to AFPMBAI. The agreement also lifted the writ of attachment on B.E. Ritz's assets except Building E.
Partial Judgment:
- On March 15, 1995, the trial court approved the compromise agreement and rendered a partial judgment, lifting the writ of attachment on all properties except Building E. EBRRI was not notified of the compromise agreement or the partial judgment.
EBRRI's Motion to Set Aside Judgment:
- Upon learning of the compromise agreement, EBRRI filed a motion to set aside the partial judgment, arguing that the agreement violated Article 1381 of the Civil Code (contracts involving things under litigation) and was fraudulent under Article 1387(2) (fraudulent conveyance).
Trial Court's Denial:
- The trial court denied EBRRI's motion, ruling that the compromise agreement was valid and did not affect EBRRI, as it was not a party to the agreement.
Court of Appeals Decision:
- The Court of Appeals reversed the trial court's decision, holding that the compromise agreement was rescissible as to Building E because it was executed after an adverse HLURB decision against B.E. Ritz.
Issue:
- Whether the order of the trial court denying EBRRI's motion to set aside the partial judgment based on the compromise agreement is appealable to the Court of Appeals via a petition for review on certiorari.
- Whether the compromise agreement between AFPMBAI and B.E. Ritz is rescissible as to Building E, given the HLURB decision in favor of EBRRI.
- Whether EBRRI, as a non-party to the compromise agreement, can collaterally attack the agreement or must file a separate action for rescission.
- Whether AFPMBAI was denied due process when the Court of Appeals ruled on the petition without its comment.
Ruling:
The Supreme Court denied AFPMBAI's petition for review on certiorari and affirmed the decision of the Court of Appeals. The Court held that:
- The trial court's order denying EBRRI's motion to set aside the partial judgment was a final order, making a petition for review on certiorari under Rule 45 the proper remedy.
- The compromise agreement was rescissible as to Building E because it was executed after an adverse HLURB decision, creating a presumption of fraud under Article 1381 of the Civil Code.
- EBRRI, as a non-party to the compromise agreement, could collaterally attack the agreement in the same proceedings without filing a separate action for rescission.
- AFPMBAI was not denied due process, as it had the opportunity to file a motion for reconsideration and reply to EBRRI's opposition.
Ratio:
Finality of Compromise Agreements:
- A compromise agreement, once approved by the court, is immediately executory and has the effect of res judicata. However, non-parties to the agreement who are adversely affected may seek to set aside the judgment through a motion or appeal.
Rescission of Compromise Agreements:
- A compromise agreement involving property under litigation is rescissible if entered into without the knowledge and approval of the litigants or competent judicial authority. The agreement between AFPMBAI and B.E. Ritz was rescissible as to Building E because it was executed after an adverse HLURB decision, creating a presumption of fraud.
Collateral Attack on Compromise Agreements:
- A non-party to a compromise agreement may collaterally attack the agreement in the same proceedings if it directly affects their rights, without the need for a separate action for rescission.
Due Process:
- AFPMBAI was not denied due process, as it had the opportunity to file a motion for reconsideration and reply to EBRRI's opposition, fulfilling the requirements of procedural fairness.
Conclusion:
The Supreme Court upheld the Court of Appeals' decision, ruling that the compromise agreement was rescissible as to Building E and that EBRRI, as a non-party, could collaterally attack the agreement. The Court emphasized the importance of protecting the rights of non-parties to compromise agreements and ensuring procedural fairness.