Title
Sonley vs. Anchor Savings Bank
Case
G.R. No. 205623
Decision Date
Aug 10, 2016
Sonley defaulted on payments under a Compromise Agreement after rescission of a Contract to Sell. SC upheld execution, rescission, and forfeiture of payments as rentals.
sonley
anchor savings bank
equicom savings bank
A

Case Summary (G.R. No. 208837)

Factual Antecedents and Contractual Framework

Petitioner filed, on March 13, 2009, a complaint for declaration of nullity of rescission of contract and damages before the RTC of Makati City, Branch 148, against Anchor. She alleged that on January 28, 2005, she agreed to purchase from Anchor a parcel of land of approximately 126.50 square meters located at Fairview, Quezon City, for the price of PHP 2,200,000.00. Under their Contract to Sell, petitioner was to pay PHP 200,000.00 as downpayment and PHP 2,000,000.00 in sixty (60) monthly installments of PHP 47,580.00.

Petitioner defaulted in paying the monthly obligations. Anchor rescinded the contract to sell, prompting petitioner’s claim that the rescission was null and void because she had already substantially paid her obligation. Anchor denied petitioner’s allegations and instead averred that the post-dated checks issued to cover the installments were dishonored when presented for payment, and that petitioner should not be allowed to benefit from her own fault while preventing Anchor from exercising its right to rescind.

After a pre-trial order, the parties entered into an amicable settlement and executed a Compromise Agreement, which the trial court approved through a judgment dated August 16, 2010. That judgment required petitioner to repurchase the subject property from Anchor for PHP 1,469,460.66 plus twelve percent (12%) interest per annum, reflecting the parties’ settlement terms and the RTC’s approval thereof. The RTC’s judgment expressly declared the decision immediately final and executory and ordered the parties to strictly comply with the compromise agreement.

Trial Court Action on Execution and the Assailed Order

Anchor later filed a Manifestation and Motion for Execution in the trial court, asserting that petitioner had not been paying the monthly installments as agreed and that the checks petitioner issued were again dishonored. Anchor prayed that the court issue a writ of execution ordering: (1) rescission of the contract to sell; (2) application of payments made by petitioner as rentals; and (3) immediate vacation of the property by petitioner.

On September 8, 2011, the RTC issued the assailed order granting Anchor’s motion for execution. The order directed that the RTC’s August 16, 2010 judgment be entered in the Book of Entries of Judgment as final and executory and that a writ of execution be issued to implement the judgment. The RTC reasoned that because petitioner failed to comply with the terms of the compromise agreement and because the August 16, 2010 judgment stated it was immediately final and executory, the decision should be reiterated as final and executory and executed as of right under Rule 39, Section 1 of the Rules of Court.

Petitioner’s Certiorari in the Court of Appeals and Its Denial

Petitioner filed a petition for certiorari before the Court of Appeals, docketed as CA-G.R. SP No. 122409, contending that the RTC had committed grave abuse of discretion in issuing the writ of execution. She argued that the August 16, 2010 judgment did not specifically authorize execution upon non-performance of obligations under the compromise agreement.

In its August 28, 2012 Decision, the CA denied the petition. The CA held that the dispute turned on whether a writ of execution could issue even if execution was not explicitly provided in the dispositive portion of the judgment based on the compromise agreement. It explained that a compromise is a contract with reciprocal concessions; once it is submitted to the court and judicially approved, it gains the force of judgment. The CA treated the compromise agreement as the determination of the controversy, with the force and effect of any judgment and enforceable through execution.

The CA also addressed petitioner’s reliance on a penalty clause. Petitioner maintained that, under the compromise agreement, Anchor was only entitled to payment of a five percent (5%) per month penalty charge upon default, and that execution was unwarranted. The CA rejected that argument because the penalty clause itself stated it was “without prejudice to the right of the defendant to rescind this Compromise Agreement” as provided under the contract to sell. The CA then quoted relevant portions of the Contract to Sell, particularly the provision that if the buyer failed to pay on due dates or if the seller concluded the buyer would be unable to pay, then the seller would be entitled as a matter of right to rescind. It also cited the provision on forfeiture of payments, which treated payments as rentals for use and occupancy and as liquidated damages and indemnification after rescission.

The CA further invoked the doctrine that once a compromise agreement is approved by a final order, it has the force of res judicata between the parties and should not be disturbed except for recognized grounds such as vices of consent or forgery. It emphasized that under Article 2041 of the Civil Code, if one party fails or refuses to abide by the compromise, the other may enforce it or treat it as rescinded and insist on the original demand. Applying the certiorari standard, the CA held that mere error was insufficient; grave abuse of discretion amounting to lack or excess of jurisdiction must be shown. It found no such grave abuse, noting that the RTC issued the assailed order only after petitioner voluntarily signed the compromise agreement and became bound by its terms.

The CA denied reconsideration on January 25, 2013, sustaining its earlier ruling that execution was warranted and that the RTC’s actions could not be deemed an evasion of duty or a refusal to perform a duty enjoined by law.

Issues Raised in the Supreme Court and the Parties’ Positions

Before the Supreme Court, petitioner reiterated the central contention that the RTC had no power to issue a writ of execution in Civil Case No. 09-217 because the issuance of execution was not authorized and specifically provided for in the August 16, 2010 judgment. She maintained that respondent was not entitled to execution since the compromise agreement did not specifically provide that in case of default, a writ of execution would issue. She also argued that respondent’s remedies were limited to charging penalties and/or rescission under the contract to sell, and that before execution could issue, respondent must first institute a separate action for rescission and secure a judicial declaration that the contract to sell was rescinded.

Respondent countered that petitioner admitted she was in default and had violated the compromise agreement. Respondent argued that rescission should follow as a matter of course under the terms of the agreement and the contract to sell. It further contended that the trial court’s approval of the compromise agreement formed part of the judgment that could be enforced by writ of execution, and that rescission under the agreement did not require a separate action. Respondent also maintained that petitioner failed to establish grave abuse of discretion, which was required for certiorari to prosper.

Legal Reasoning on Article 2041, the Nature of Compromise Agreements, and Execution

The Supreme Court denied the petition. It anchored its reasoning on Article 2041 of the Civil Code, which provides that if one party fails or refuses to abide by the compromise, the other may either enforce the compromise or regard it as rescinded and insist on the original demand. The Court adopted the interpretation that no action for rescission is required under Article 2041. The aggrieved party may, by the breach of the compromise, regard the compromise agreement as already rescinded and insist on the original demand without obtaining a judicial declaration.

The Court relied on Leonor v. Sycip for the proposition that Article 2041 does not confer a cause of rescission requiring a separate action, but rather authority to “regard” the compromise as rescinded and to insist upon the original demand. It also discussed Miguel v. Montanez as reiterating that no action for rescission is required.

The Court then analyzed the compromise agreement and the contract to sell. It quoted the compromise agreement’s penalty clause, which required petitioner, in case of failure to pay according to the schedule, to pay an additional penalty of five percent (5%) per month but expressly stated that such payment was without prejudice to the defendant’s right to rescind the compromise agreement under the contract to sell and pursuant to requirements under the law. It also quoted the contract to sell provision granting the seller the right as a matter of right to rescind upon the buyer’s failure to pay installments on due dates or similar default conditions.

Although the RTC and the CA did not itemize in the decision itself all remedies respondent sought, the Supreme Court observed that rescission and eviction were specifically prayed for in Anchor’s Manifestation and Motion for Execution, and petitioner had an opportunity to oppose the motion. The Court noted that in petitioner’s opposition, she admitted that she was in default and that she violated the compromise agreement by failing to make regular payments. It further held that the motion for execution, with prayers for rescission, application of payments as rental, and petitioner’s eviction, constituted sufficient notice. The Court concluded that the RTC could act because the facts and pleadings were within its cognizance and petitioner failed to proffer any defense.

The Supreme Court also reaffirmed the contractual and j

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