BANCO DE ORO UNIBANK, INC., PLAINTIFF-APPELLEE, VS. RONALD C. ROSALES, DEFENDANT-APPELLANT.

Banco de Oro Unibank versus Rosales

The Case

This is a simple but instructive case about the binding force of a compromise agreement reached during court-annexed mediation. Banco de Oro Unibank, Incorporated, the plaintiff, sued Ronald C. Rosales, the defendant, to collect a sum of money. On appeal, the parties were referred to mediation, and they settled. The question that reached the Supreme Court is whether the settlement they signed should stand as the judgment of the case. The case matters because it shows how a compromise agreement, once approved by the court, becomes more than a private promise: it becomes a judgment that the parties are bound to obey in good faith.

Procedural History

The bank filed a complaint for collection of a sum of money against Rosales. The trial court rendered a decision in favor of the bank, and Rosales appealed to the Court of Appeals. While the case was pending before the Court of Appeals, and pursuant to that court's ongoing mediation program, the case was referred to the Philippine Mediation Center of the Court of Appeals for mediation. On May 2, 2014, the appellate court mediator submitted a Mediator's Report stating that the parties had reached a successful settlement, and attached to that report was the parties' Compromise Agreement, also dated May 2, 2014. The Court of Appeals then rendered judgment approving and adopting the terms of the Compromise Agreement, enjoining the parties to abide by it in good faith, and declaring the case closed and terminated. The matter thereafter reached the Supreme Court, which resolved it in light of the approved settlement.

Facts

The bank sued Rosales to collect an unpaid obligation. The trial court ruled for the bank, and Rosales elevated the matter to the Court of Appeals. While the appeal was pending, the Court of Appeals referred the case to mediation under its ongoing mediation program.

Mediation succeeded. On May 2, 2014, the mediator reported a successful settlement, and the parties signed a Compromise Agreement of the same date. In it, Rosales admitted that he was indebted to the bank in the amount of one million eighty-six thousand five hundred ninety-one pesos and fifty-seven centavos. He undertook to pay that amount through over-the-counter payments at any branch of the bank, under a specified promissory note, without need of demand and notice, following a schedule of installments that began at five thousand pesos and gradually increased over the years, ending with a final payment of four hundred eighty-six thousand five hundred ninety-one pesos and fifty-seven centavos.

The agreement provided that, except as to the amount and manner of payment, the contracts executed by the defendant, which were the bases of the complaint, would continue to remain in force for as long as the obligation was not paid in full. It further provided that in case of default, the plaintiff would be entitled to immediate execution for the payment of the entire obligation, with six percent legal interest per annum and a six percent late penalty fee per annum. It also provided that the plaintiff's acceptance of incomplete and delayed payments would not be considered as extending the term of the obligation nor as a modification, alteration, or novation of its conditions.

Issues

• Whether or not the Compromise Agreement entered into by the parties during mediation before the Court of Appeals may be approved and adopted as the judgment of the court.
• Whether or not the terms of the Compromise Agreement are contrary to law, morals, good customs, public order, or public policy.
• Whether or not the parties are bound to abide by the approved Compromise Agreement in good faith.

Applicable Provisions

The Court of Appeals applied Section 1(b) of Rule VII of the 2009 Internal Rules of the Court of Appeals, which governs the entry of judgment upon approval of a compromise, and provides:

Let entry of judgment be issued pursuant to Section 1(b), Rule VII, 2009 Internal Rules of the Court of Appeals.

This provision bears on the case because it is the procedural authority for treating the approved compromise as a final judgment that closes and terminates the case.

Ruling

On the first issue, the Court of Appeals approved and adopted the terms of the Compromise Agreement dated May 2, 2014, and enjoined the parties to abide by the same in good faith. It held that the case was thereby considered closed and terminated, and directed that entry of judgment be issued pursuant to Section 1(b), Rule VII of the 2009 Internal Rules of the Court of Appeals.

On the second issue, the Court of Appeals found that the terms of the Compromise Agreement were not contrary to law, morals, good customs, public order, or public policy. Its ruling rested on that express finding:

It appearing that the terms of the foregoing Compromise Agreement are not contrary to law, morals, good customs, public order or public policy, the Court approves the same and the parties are enjoined to abide by the same in good faith.

On the third issue, having approved the agreement, the Court of Appeals enjoined the parties to abide by it in good faith, so that the settlement operates as a binding judgment and not a mere private arrangement.

Doctrine

A compromise agreement entered into by the parties during court-annexed mediation, once found not contrary to law, morals, good customs, public order, or public policy, is approved and adopted by the court as its judgment. From that approval, the parties are bound to abide by the agreement in good faith, and the case is considered closed and terminated. The approved compromise carries the force of a judgment, so that its terms, including any stipulation on default, interest, and penalty, govern the rights of the parties. This doctrine ties directly to the requirement that entry of judgment issue under Section 1(b), Rule VII of the 2009 Internal Rules of the Court of Appeals.

Disposition

The Court of Appeals approved and adopted the terms of the Compromise Agreement dated May 2, 2014, enjoined the parties to abide by it in good faith, and declared the case closed and terminated, with entry of judgment to issue.

Remember This

The single line worth memorizing is that a compromise agreement approved by the court becomes the judgment of the case, binding the parties in good faith. Examiners like to use this case to test the effect of a judicially approved compromise and the finality that attaches once the court adopts its terms.