SPOUSES ANTONIO S. BILOG AND PRECIOSA BILOG, PETITIONERS, V. HON. PRESIDING JUDGE OF RTC BRANCH 78, CITY OF MALOLOS, BULACAN, FEEDMIX SPECIALIST, INC. II, REPRESENTED BY ACHILLE…

Bilog versus Feedmix Specialist

The Case

This is the case of Bilog versus Feedmix Specialist. The spouses Antonio and Preciosa Bilog, the petitioners, ask the Supreme Court to annul an order of the Regional Trial Court of Malolos City, Bulacan, Branch 78, which granted the motion for execution filed by their creditor, Feedmix Specialist, Incorporated II. The action is an original petition for certiorari under Rule 65. The case matters because it gathers in one place the whole law on compromise agreements: their nature as contracts, their transformation into judgments once approved by the court, their immediate executability, and the narrow, time-bound remedies of a party who claims that his consent was vitiated by fraud, mistake, or undue influence.

Procedural History

Feedmix filed a complaint for sum of money with preliminary attachment before the Regional Trial Court of Malolos City, Bulacan, Branch 78. The spouses Bilog did not file an answer. The parties then entered into a compromise agreement, which the trial court approved in a decision dated April 27, 2010. When the spouses Bilog failed to comply with its terms, Feedmix filed a motion for execution. The spouses Bilog opposed it, alleging fraud, mistake, and undue influence. The trial court granted the motion in an order dated November 12, 2013, holding that the decision had long become final and executory and that the proper remedies had not been pursued. The spouses Bilog went directly to the Supreme Court by petition for certiorari under Rule 65, seeking to nullify that order.

Facts

Feedmix is a domestic corporation engaged in the manufacture and sale of fish feeds. From June to August 2007, the spouses Bilog obtained credit from Feedmix and used it to buy fish feed for resale and for their tilapia breeding business. Feedmix delivered more or less 1,792 bags of fish feed. As payment, the spouses Bilog issued a check for 969,612 pesos. When Feedmix presented the check, it was dishonored because the account was closed. Demands for payment went unheeded.

On December 1, 2009, Feedmix, through its representative Achilles Arriaga, filed a complaint for sum of money with preliminary attachment. The spouses Bilog did not answer. On March 8, 2010, the parties entered into a compromise agreement. The spouses Bilog acknowledged their partial indebtedness of 969,612 pesos, part of a principal obligation of 2,648,829 pesos arising from bounced checks. They agreed to pay the 969,612 pesos in equal monthly installments over twenty-four months, starting March 26, 2010. To secure payment, they issued twenty-four postdated checks and executed a real estate mortgage over property in Laurel, Batangas. They further agreed that upon default, Feedmix would be entitled to execution on the unpaid amount, plus interest at 18 percent per annum, a surcharge of 1.5 percent a month, and attorney's fees of 25 percent of the total sum due. In the agreement itself, the spouses Bilog declared that its stipulations had been explained to them and that they fully understood their meaning and import, and that they had refused to be represented by counsel.

On April 27, 2010, the trial court rendered a decision approving the compromise agreement. The spouses Bilog failed to comply with its terms. On July 17, 2013, Feedmix filed a motion for execution. On October 4, 2013, the spouses Bilog filed a comment and opposition, alleging fraud, mistake, and undue influence in the execution of the agreement, and ambiguity in the total amount sought to be collected. They pointed out that the agreement and the mortgage indicated a total obligation of 2,648,829 pesos, while the complaint sought only 969,612 pesos, and a demand letter dated July 16, 2013 asked for 3,631,330 pesos and 3 centavos. The trial court granted the motion for execution, and the spouses Bilog brought the matter to the Supreme Court.

Issues

• Whether or not the trial court committed grave abuse of discretion in granting the motion for execution of the decision based on the compromise agreement.
• Whether or not the compromise agreement was executed through fraud, mistake, and undue influence, such that it may be set aside.
• Whether or not the opposition to the motion for execution was the proper remedy to assail a judgment based on a compromise agreement.

Applicable Provisions

Article 2038 of the New Civil Code provides:

Article 2038. A compromise in which there is mistake, fraud, violence, intimidation, undue influence, or falsity of documents, is subject to the provisions of article 1330 of this Code.

This is the provision the Court applies to the claim that the compromise agreement was vitiated, and it supplies the ground on which such an agreement may be annulled.

Article 1330 of the New Civil Code provides:

Article 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable.

This confirms that a vitiated compromise is voidable, not void, and so it stands unless annulled through the proper remedy within the proper period.

Section 3, Rule 131 of the Rules of Court provides:

Section 3. Disputable presumptions. — The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence: xxx xxx xxx (p) That private transactions have been fair and regular; xxx xxx xxx

The Court invokes this presumption to hold that the spouses Bilog's bare assertions cannot overcome the regularity of the compromise agreement they signed.

Ruling

On the first issue, the Court held that no grave abuse of discretion attended the order of the trial court. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. Once stamped with judicial imprimatur, the compromise agreement transcends its identity as a mere contract and becomes a judgment subject to execution in accordance with the Rules, bearing the force and effect of res judicata. The nonfulfillment of its terms justifies the issuance of a writ of execution, which becomes a ministerial duty of the court, enforceable by mandamus. A judgment rendered on the basis of a compromise is not appealable and is immediately executory, unless a motion is filed to set aside the compromise on the ground of fraud, mistake, or duress.

On the second issue, the Court held that the allegations of fraud, mistake, and undue influence were bare assertions bereft of clear and convincing proof. One who alleges fraud, deceit, or misrepresentation in the execution of a compromise agreement is bound to prove the same by full, clear, and convincing evidence, and not merely by a preponderance thereof. Bad faith and fraud are never presumed. The spouses Bilog failed to allege any specific act showing a vice of consent, and failed to overturn the presumption that private transactions have been fair and regular. Even granting that the terms were onerous or lopsided, that fact alone does not show vitiation of consent, for a compromise is not rendered invalid simply because it favors one party. The Court stressed that the spouses Bilog are highly educated professionals, Antonio being a dentist and Preciosa a businesswoman with a degree in Hotel and Restaurant Management, and that they themselves affirmed in the agreement that they fully comprehended its meaning and import. The Court added that the interest, surcharge, and attorney's fees in the agreement were the very same terms embodied in the sales and delivery invoices they had signed as early as 2007. Neither could they claim mistake from the absence of counsel, since parties may enter into a compromise agreement even without the intervention of their lawyer, and they had in fact refused counsel.

On the third issue, the Court held that the opposition to the motion for execution was not the proper remedy. Quoting its earlier ruling in Domingo Realty, the Court laid down the ladder of remedies:

If one of the parties claims that his consent was obtained through fraud, mistake, or duress, he must file a motion with the trial court that approved the compromise agreement to reconsider the judgment and nullify or set aside said contract on any of the said grounds for annulment of contract within 15 days from notice of judgment. Under Rule 37, said party can either file a motion for new trial or reconsideration.

If the fifteen-day period has lapsed, the aggrieved party may file a petition for relief from judgment under Rule 38 within sixty days after learning of the judgment, but not more than six months after it was entered. If the court denies the petition, the party cannot appeal from the denial, and the remedy is a special civil action for certiorari under Rule 65. The spouses Bilog did none of these. They waited three years after the decision had attained finality before assailing its terms through their opposition.

Doctrine

A compromise is a contract by which the parties, through reciprocal concessions, avoid or end a litigation. Once approved by the court, it becomes a judgment subject to execution, with the force and effect of res judicata, and it is not appealable and is immediately executory. Nonfulfillment of its terms makes the issuance of a writ of execution a ministerial duty of the court. Under Article 2038 in relation to Article 1330 of the New Civil Code, a compromise vitiated by mistake, fraud, violence, intimidation, undue influence, or falsity of documents is voidable, not void. The party alleging a vice of consent must prove it by full, clear, and convincing evidence, and cannot rely on the presumption of fraud, which is never presumed. The remedy is a motion for new trial or reconsideration within fifteen days from notice of judgment; after that period lapses, a petition for relief from judgment under Rule 38; and if that is denied, a petition for certiorari under Rule 65. An opposition to a motion for execution is not one of these remedies.

Disposition

The Supreme Court dismissed the petition for utter lack of merit, and the order of the trial court granting the motion for execution in favor of Feedmix stood.

Remember This

Memorize this line: a compromise agreement approved by the court becomes a judgment that is final, unappealable, and immediately executory, and it may be annulled for a vice of consent only through a motion for new trial or reconsideration, then relief from judgment, then certiorari. Examiners use this case to test the hierarchy of remedies against a compromise judgment and the clear and convincing standard of proof for fraud.