CONSOLACION P. CHAVEZ, CONNIE P. CHAVEZ, CARLA HORTENSIA C. ADELANTAR, CARMELA P.

CHAVEZ, CRESENTE P. CHAVEZ, JR., and CECILIA C. GIBE, herein represented by ATTORNEY-IN-FACT
CARLA P. CHAVEZ, Petitioners, vs.

MAYBANK PHILIPPINES, INC., Respondent.

G.R. No. 242852; July 29, 2019; PERLAS-BERNABE, J.; SECOND DIVISION

Nature of the Action: Maybank Philippines, Inc. filed a Petition for Issuance of a Writ of Possession
before the RTC praying for them to be placed in possession of the subject property, being the highest
bidder in the foreclosure sale and as owner.

Facts: Spouses Chavez obtained a loan from respondent for the construction of a commercial building.
As collateral therefor, they mortgaged the land on which the building was to be erected covered by TCT
No. T-177235 (subject property) of the RD-Iloilo. Unfortunately, Spouses Chavez defaulted in the
payment of their loan, prompting respondent to extrajudicially foreclose the mortgage on the subject
property. Maybank emerged as the highest bidder at the public auction and was thereafter issued a
Certificate of Sale at Public Auction which was registered with the RD-Iloilo subject to Spouses Chavez's
right of redemption.

Meanwhile, Spouses Chavez filed an action for the nullification of the extrajudicial foreclosure
proceedings docketed as Civil Case No. 0236. During the pre-trial stage of Civil Case No. 0236, the parties
entered into a Compromise Agreement dated December 13, 2012 by virtue of which respondent
allowed petitioners to buy back the subject property for the consideration of forty million pesos
(₱40,000,000.00) payable in installments, notwithstanding the expiration of the redemption period.

The Compromise Agreement shall be final and executory and that no other case of the same nature shall
be filed or any petition or injunction filed, arising from the same issues and by the same parties;

In view of the execution of the Compromise Agreement, the RTC dismissed Civil Case No. 0236.
Unfortunately, petitioners defaulted in the payment of their obligation under the Compromise
Agreement. This prompted respondents to enter into a Deed of Promise to Sell with J.E. TICO Realty
Corporation (J.E. TICO Realty) and to file a Petition for Issuance of a Writ of Possession before the RTC,
docketed as Cadastral Case No. 15-0608. Respondent prayed that it be placed in possession of the
subject property, being the highest bidder in the foreclosure sale and as owner thereof.

Petitioners opposed the petition, arguing that the Compromise Agreement was a contract of sale which
transferred to them the ownership of the subject property. Therefore, possession thereof cannot be
summarily awarded to respondent, considering that their interest is adverse to that of a mortgagor-
debtor.

The RTC deemed it necessary to first look into the nature of the Compromise Agreement, i.e., whether it
was a deed of sale or some other contract. The resolution of these issues therefore requires the
reception of evidence.
The CA held that the parties did not intend to extinguish their mortgagor-mortgagee relationship, as
extant in paragraph 5 of the Compromise Agreement where respondent reserved its right to
immediately possess the subject property should petitioners default in any of their payments.

In their petition, petitioners maintain that respondent can no longer demand immediate possession of
the subject property through an ex-parte motion for the issuance of a writ of possession, in light of the
execution of the Compromise Agreement which, they aver, constitutes a "new contract" and a "new
legal relationship" between the parties on the thesis that the nature of the transaction embraced
therein involves a sale of the subject property. Respondent refutes petitioners' stance, insisting that the
Compromise Agreement was simply what it is - a compromise entered between the parties designed to
put an end to litigation, non-compliance therewith being a ground to rescind the compromise.
Moreover, the mortgagor-mortgagee regime between the parties was never extinguished, as
respondent never transferred ownership of the subject property to petitioners upon the execution of
the Compromise Agreement.

Issue: Whether or not the compromise agreement entered by the parties extinguished the original
mortgage contract

Ruling: No, the compromise agreement did not create a new legal relationship among the parties as the
condition in the said compromise agreement was not fulfilled by the petitioners.

The nature of the Compromise Agreement

Article 2028 of the Civil Code defines a "compromise agreement" as a contract whereby the parties
make reciprocal concessions in order to avoid litigation or put an end to one already commenced. If
judicially approved, it becomes more than a binding contract; it is a determination of a controversy and
has the force 18

and effect of a judgment. To have the force of law between the parties, a compromise agreement must
comply with the requisites and principles of contracts. Thus, it must have the following elements: (1) the
consent of the parties to the compromise; (2) an object certain that is the subject matter of the
compromise; and (3) the cause of the obligation that is established. While compromise agreements are
generally favored and encouraged by the courts, it must be proved that they were voluntarily, freely,
and intelligently entered into by the parties, who had full knowledge of the judgment. Hence, a
compromise agreement, once approved, has the effect of res judicata between the parties and should
not be disturbed except for vices of consent, forgery, fraud, misrepresentation, and coercion.

In this case, it is undisputed that after the extrajudicial foreclosure of the subject property and the
consolidation of title in the name of respondent, and during the pendency of Civil Case No. 0236 for
nullification of the extrajudicial foreclosure proceedings filed by petitioners against respondent, the
parties entered into a Compromise Agreement whereby petitioners were given the opportunity to "buy
back" the subject property despite the lapse of the one-year period for redemption. Unfortunately,
petitioners defaulted in their obligations under the Compromise Agreement - an allegation that, the
Court notes, petitioners never denied. Further, as the CA correctly pointed out, the terms and conditions
of the Compromise Agreement are legally binding upon the parties having been executed without any
vice of consent, forgery, fraud, misrepresentation, or coercion.

The stipulations of the Compromise Agreement, particularly paragraphs (5) and (6) thereof, clearly show
the right of respondent to rescind the same and to immediately secure a writ of possession over the
subject property. This course of action/option on the part of respondent finds support under Article
2041 of the Civil Code, which recognizes the right of an aggrieved party to either (1) enforce the
compromise by a writ of execution or (2) regard it as rescinded and insist upon his original demand,
upon the other party's failure or refusal to abide by the compromise.

Indeed, the Court has acknowledged the option to rescind a compromise agreement due to non-
compliance with its terms, as explained in Chavez v. Court of Appeals:

However, in Heirs of Zari, et al. v. Santos, we clarified that the broad precept enunciated in Art. 2037 is
qualified by Art. 2041 of the same Code, which provides:

If one of the parties fails or refuses to abide by the compromise, the other party may either enforce the
compromise or regard it as rescinded and insist upon his original demand.

We explained, viz. :

[B]efore the onset of the new Civil Code, there was no right to rescind compromise agreements. Where
a party violated the terms of a compromise agreement, the only recourse open to the other party was to
enforce the terms thereof.

When the new Civil Code came into being, its Article 2041 x x x created for the first time the right of
rescission. That provision gives to the aggrieved party the right to "either enforce the compromise or
regard it as rescinded and insist upon his original demand." Article 2041 should obviously be deemed to
qualify the broad precept enunciated in Article 2037 that "[a] compromise has upon the parties the
effect and authority of res judicata.

In exercising the second option under Art. 2041, the aggrieved party may, if he chooses, bring the suit
contemplated or involved in his original demand, as if there had never been any compromise
agreement, without bringing an action for rescission. This is because he may regard the compromise as
already rescinded by the breach thereof of the other party.

In this regard, the Court must reject petitioners' stapce that the "buy back" transaction embraced in the
Compromise Agreement was in the nature of a sale and that upon the execution thereof, the parties
were deemed to have entered into a new legal relation, citing the doctrine enunciated in the case of
Philippine National Bank v. Spouses Pimentel (PNB case) to bolster their argument.