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...

Facts:

Background of the Transactions

• B.E. Ritz Mansion International Corporation (“B.E. Ritz”), a real estate developer, entered into contracts to sell Building E and ten condominium units to EBR Realty, Inc. (“EBRRI”).
• The purchase of Building E was for P22,050,000.00, of which EBRRI paid P17,640,000.00, leaving a balance of P4,410,000.00 payable upon completion and turnover of the building.
• Additionally, contracts to sell for the condominium units were executed, with EBRRI having paid P20,415,682.75.
• In July 1991, when B.E. Ritz demanded the balance for Building E, EBRRI instead filed a complaint before the HLURB for specific performance/rescission and damages, alleging the developer’s failure to complete Building E on time.

Assignment and Subsequent Litigation

• On August 10, 1991, allegedly with B.E. Ritz’s prior consent, EBRRI and Eurotrust Capital Corporation executed a deed of assignment, assigning all rights, interests, and participation in Building E and the condominium units to the petitioner Armed Forces of the Philippines Mutual Benefit Association, Inc. (“AFPMBAI”).
• AFPMBAI later instituted Civil Case No. Q-92-11198 to recover treasury notes and sums, which had been amended to include EBRRI and B.E. Ritz as party defendants.
• The HLURB rendered a decision on November 19, 1993 (HLRB Case No. REM-120992-5304), rescinding the contracts to sell for the condominium units and directing B.E. Ritz to execute a deed of absolute sale of Building E, with a net refund calculation resulting in P16,005,682.72 due to EBRRI.

The Compromise Agreement and Its Terms

• On December 13, 1994, AFPMBAI and B.E. Ritz entered into a compromise agreement which included:
• An acknowledgment by B.E. Ritz regarding borrowed funds from Eurotrust Capital Corporation and related parties, including an estimate that approximately P24,000,000.00 had come from AFPMBAI.
• B.E. Ritz’s commitment to return the amount received from Eurotrust that belonged to AFPMBAI and to be absolved from any indebtedness in relation to those funds.
• Specific financial undertakings where B.E. Ritz, along with its financiers, agreed to jointly and severally pay AFP-MBAI P20,000,000.00 – secured by a promissory note and a check – and to sell Building E to pay AFP-MBAI an additional P10,000,000.00 from the sale proceeds.
• Conditions precedent, such as issuance of the promissory note within 45 days, and the stipulation that failure to comply would render the agreement ineffective.
• A provision whereby upon execution of the agreement, AFPMBAI would file a motion for partial judgment and for the lifting of the writ of attachment on all properties except Building E.
• AFPMBAI subsequently waived its interest over the ten condominium units and other properties in favor of B.E. Ritz.
• On March 14, 1995, a joint omnibus motion was filed by AFPMBAI and B.E. Ritz, seeking the court’s approval of the compromise agreement and partial lifting of the writ of attachment.

Trial Court and Motion to Set Aside

• On March 15, 1995, the trial court rendered a “partial decision” approving the compromise agreement and lifted the writ of attachment on all assets of B.E. Ritz except on Building E.
• EBRRI, not being a party to the compromise agreement and not notified of the decision, later filed a motion to set aside the judgment as it pertained to Building E.
• EBRRI argued that Building E was subject to ongoing litigation before the HLURB pursuant to its November 19, 1993 decision.
• It maintained that the inclusion of Building E in the compromise agreement violated paragraph 4 of Article 1381 of the Civil Code (pertaining to contracts involving things under litigation) and that it was in fraud of creditors under Article 1387(2).

Appeal and Further Developments

• The trial court denied EBRRI’s motion to set aside the judgment, noting that a judgment based on a compromise agreement is immediately executory unless set aside for fraud, mistake, or duress.
• EBRRI filed a petition for review on certiorari (G.R. No. 121988) challenging the trial court’s denial of its motion, while AFPMBAI moved to dismiss the petition.
• The Court of Appeals, in its decision dated May 29, 1996, set aside the trial court’s order insofar as it covered Building E, holding that:
• The order was final in that it had adjudicated substantial rights and left little to be done except its implementation.
• A non-party to a compromise agreement (EBRRI) may seek relief by asking for rescission if adverse prejudice or injury is shown.
• The inclusion of Building E in the compromise agreement, rendered after an adverse decision against B.E. Ritz in the HLURB case, gave rise to a presumption of fraud and rescissibility under Article 1381.

Proceedings Before the Supreme Court

• AFPMBAI again opposed the petition for review, raising issues regarding the proper mode of appeal under the Rules of Court (i.e., whether Rule 45 or Rule 65 should apply) and alleging a violation of its due process rights for not being given an opportunity to file comments.
• AFPMBAI also contended that if the compromise agreement was rescissible, EBRRI should have filed a separate action for rescission rather than attacking it collaterally.
• The petition for review was thus reviewed by the Supreme Court in light of the ruling of the Court of Appeals.

Issue:

Procedural and Appellate Issues

• Whether an order of the Regional Trial Court denying a motion to set aside a partial judgment based on a compromise agreement is appealable by a non-party to the compromise on a petition for review on certiorari.
• Whether the use of Rule 45 (petitions for review on certiorari) is proper in light of the interlocutory nature of the Regional Trial Court’s order and notwithstanding the issues raised by AFPMBAI regarding Circular No. 2-90.

Substantive Issues Regarding the Compromise Agreement

• Whether the compromise agreement covering Building E is rescissible on account of:
• The inclusion of Building E—a property still subject to a prior HLURB decision—thus violating paragraph 4 of Article 1381 of the Civil Code.
• The possibility that its execution constituted fraud against creditors under Article 1387(2) of the Civil Code.
• Whether a non-party, such as EBRRI, is entitled to seek rescission of a compromise judgment with respect to Building E, given its adverse interest and the fact that it was not a party to the compromise agreement.
• Whether AFPMBAI’s due process rights were violated by not being allowed to comment on the petition for review on certiorari.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)