MAR-BAY & COMPANY, INC., PETITIONER, VS. M. G. SUNTAY TRADING CO., INC. AND THE HONORABLE COURT OF APPEALS, RESPONDENTS.

Mar-Bay and Company versus M. G. Suntay Trading

The Case

This is a petition for review brought to the Supreme Court by Mar-Bay and Company, Inc., against M. G. Suntay Trading Co., Inc. and the Court of Appeals. The dispute concerns a sum of money held by the Development Bank of the Philippines, which the Supreme Court had earlier placed under restraining orders. What makes this case worth studying is not a contested ruling on the merits but the way the parties ended their litigation: they executed a compromise agreement and asked the Court to approve it. The decision is therefore a compact lesson on judicial approval of compromises, on the requisites for a valid settlement between corporations, and on how a pending petition becomes moot and academic once the parties settle.

Procedural History

The dispute between the parties had two fronts. On one front, M. G. Suntay Trading Co., Inc. sued Mar-Bay and Company, Inc. in the Court of First Instance of Quezon City, in a civil case decided by Judge Lino Añover. That case was decided in favor of M. G. Suntay Trading, and it was then pending appeal on the merits before the Court of Appeals.

On the other front, Mar-Bay and Company, Inc. filed the present petition for review before the Supreme Court. In the course of that proceeding, the Supreme Court issued restraining orders directed to the Development Bank of the Philippines, first on September 12, 1980, covering 1.5 million pesos in loan proceeds, and again on September 19, 1980, covering 4 million pesos in loan proceeds. While the petition was pending, the parties executed a compromise agreement on October 14, 1981, acknowledged on October 27, 1981, and submitted it to the Court. They followed it with a joint manifestation and motion asking that the agreement be approved and judgment be rendered in accordance with its terms. The case thus reached the Supreme Court as a pending petition for review that the parties themselves asked the Court to resolve by approving their settlement.

Facts

Mar-Bay and Company, Inc., acting through its President, Agustin Tanco, and M. G. Suntay Trading Co., Inc., acting through its President, Manolita G. Suntay, were locked in litigation over mutual claims. A substantial sum, 5.5 million pesos in loan proceeds, was being held by the Development Bank of the Philippines and retained under the restraining orders of the Supreme Court.

Rather than continue the fight, the two corporations executed a compromise agreement on October 14, 1981, duly acknowledged on October 27, 1981. Under its terms, the parties agreed to the withdrawal and release of the 5.5 million pesos. From that amount, Mar-Bay would collect 4.5 million pesos and M. G. Suntay Trading would collect 1 million pesos from the Development Bank. Mar-Bay undertook to post a 2 million peso surety bond in favor of M. G. Suntay Trading to answer for any failure to comply with its undertaking to pay rentals for the twenty-year period from 1977 to 1997, payable in two equal installments without interest. The parties also agreed to the dismissal of the petition, to abide by whatever judgment the Court of Appeals would render in the civil case on appeal, and to waive further appeal to the Supreme Court.

The parties then filed a joint manifestation and motion reiterating their request for approval of the compromise, including the guarantee of a personal bond of 500,000 pesos executed by Agustin Tanco, the lifting of the restraining orders, and the dismissal of the petition.

Issues

• Whether or not the compromise agreement entered into by the parties may be approved by the Supreme Court.
• Whether or not the compromise agreement is proper and duly authorized by the corporations.
• Whether or not the pending petition should be dismissed as moot and academic in view of the compromise.

Applicable Provisions

The decision does not quote any statutory provision. It rests instead on the established standard for approving compromises, which the Court states in its own words: a compromise may be approved where its terms and conditions are not contrary to law, morals, good custom, public order and public policy. The Court applied that standard when it declared:

Accordingly, We approve the same since the terms and conditions are not contrary to law, morals, good custom, public order and public policy.

This standard bears directly on the case because it is the test the Court used to decide whether to give the compromise the force of judgment.

Ruling

On the first issue, the Court approved the compromise agreement. It found the agreement proper, and it expressly held that the terms and conditions are not contrary to law, morals, good custom, public order and public policy. The Court then enjoined the parties to comply strictly, faithfully and honestly, in all good faith, with the terms, conditions and stipulations contained in the agreement.

On the second issue, the Court found that the compromise was duly authorized, confirmed and ratified by the Board of Directors of both corporations, as attested by their Corporate Secretaries. The authority of the corporate officers who signed was therefore established, and the agreement bound the corporations.

On the third issue, the Court lifted the restraining orders it had issued on September 12, 1980 and September 19, 1980. It directed the Development Bank of the Philippines to pay Mar-Bay and Company, Inc., through its President, Agustin Tanco, the sum of 4.5 million pesos, and to pay M. G. Suntay Trading Co., Inc., through its President, Manolita G. Suntay, the sum of 1 million pesos, both from the 5.5 million pesos in loan proceeds previously restrained. Having thus settled the matter, the Court dismissed the petition, the same having been rendered moot and academic.

Doctrine

A compromise agreement submitted to the Supreme Court may be approved where its terms and conditions are not contrary to law, morals, good custom, public order and public policy. Once approved, it is binding on the parties, who may be enjoined to comply strictly, faithfully and honestly, in all good faith, with its terms.

For a compromise entered into by corporations, the agreement must be shown to be duly authorized, confirmed and ratified by the Board of Directors of each corporation, as attested by their Corporate Secretaries. Authority of the signing officers is thus an essential element of a valid corporate compromise.

Where the parties settle their dispute and ask the Court to approve the compromise, the pending petition is rendered moot and academic and must be dismissed. The settlement replaces the litigation, and the Court gives it the force of judgment.

Disposition

The Supreme Court approved the compromise agreement, lifted the restraining orders, directed the Development Bank of the Philippines to pay 4.5 million pesos to Mar-Bay and Company, Inc. and 1 million pesos to M. G. Suntay Trading Co., Inc., and dismissed the petition as moot and academic, with no costs.

Remember This

The single line worth memorizing is that a compromise is approved when its terms are not contrary to law, morals, good custom, public order and public policy, and that a corporate compromise must be duly authorized and ratified by the Board of Directors. Examiners like to use this case on the requisites for judicial approval of compromises and on the effect of a settlement in rendering a pending petition moot and academic.