VICENTE ARRIETA, PLAINTIFF-APPELLEE, VS. MALAYAN SAWMILL COMPANY, MASINLOC SAWMILL COMPANY, SEE KIONG AND ONG LIAN KUAY, DEFENDANTS-APPELLANTS.

Appeal from an order of the Court of First Instance of Rizal, setting aside a decision thereof.

On November 25, 1963, Vicente Arrieta
filed, with said court, a complaint against Malayan Sawmill Company – herein­after
referred to as Malayan – Masinloc Sawmill Company –
hereinafter referred to as Masinloc – See Kiong and Ong Lian
Kuay, to collect a sum of money allegedly
representing the balance of the price of logs delivered by Arrieta
to Malayan – which, through alleged fraud on its part and on that of its co-defendants,
was dis­solved and its assets transferred to Masinloc,
to evade compliance with a given contract between plaintiff and Malayan; to
compel Malayan to take delivery of certain logs and comply with the terms and
conditions of said contract; and to recover damages.  After the issues had been joined, or on May 2, 1964, the parties submitted a
compromise agreement stipulating that:

“1.  The price per board foot of logs to be
delivered by the plaintiff to the defendants is P0.09 plus P0.09 (measurement
squared);

“2.  Defendants agree to make an advance payment of
P4,000.00 to the plaintiff upon the signing of this agreement, the same to be
deductible from the purchase price of
logs, to be hereafter delivered by the plaintiff to the defendants as herein
stipulated; provided, however, that should the defendants fail to take delivery
of good and marketable logs at the private road side to be designated by the
defendants, within the current logging season, or until June 30, 1964, the said
sum of P4,000.00 shall be deemed forfeited in favor of the plaintiff and the
defendants shall have no recourse therefor;

“3.  Payment for the logs delivered to the
defendants shall be payable on, a cash-and-carry basis, it being understood,
however, that no payment shall be due to the plaintiff for logs delivered and
accepted by the defendants until the aforesaid sum of P4,000.00 is fully covered;

“4.  The defendants agree to purchase all the good
and marketable logs which shall be delivered by the plaintiff from his
concession to the private road side to be designated by the defendants on or
before June 30, 1964, and thereafter, the contract dated January 3, 1962 and
marked Annex ‘B’ of the complaint in the above
case shall be considered rescinded and without force and effect;

“5.  It is understood and agreed that the
defendants shall be under no obligation to buy logs of the plaintiff which are not in the private road side to be
designated by the defendants on or before June 30, 1964, which, even if in said
place, are not acceptable to the defendants by reason of poor quality;

“6.  The plaintiff and the defendants agree to dis­miss
and waive any and all claims and counterclaims which one had or may have had
against the other, including those mentioned in the complaint in this case.

“WHEREFORE, it is respectfully prayed that the foregoing
stipulations of the parties be approved.”

On the same date, the
Court approved this agreement and rendered a decision in accordance therewith,
as well as enjoined the parties to comply with the terms and conditions
thereof, with­out pronouncement as to costs.

Soon later, or on May 23, 1964, plaintiff filed a motion to set aside said decision, upon the
ground, inter alia, that the de­fendants
had violated an unwritten “gentleman’s agreement,” allegedly made
simultaneously with the aforementioned compro­mise agreement and as part and
parcel thereof, but without any intention on the part of the defendants to
comply therewith, and that plaintiff‘s conformity to the
written compromise agreement had been secured by the defendants through fraud
and deceit on their part.  Despite
defendants’ opposition thereto, said motion was granted in an order dated May 30,
1964, which set
aside the decision of May 2, 1962 and set the case for trial on the
merits.  A motion for consideration of
said order having been denied, defendants interposed the present appeal.

They now allege:  1) that plaintiff’s motion of May 23, 1964
should not have been entertained, for, being based upon
compromise agreement, the aforementioned decision had forthwith become final
and executory; 2) that the lower court, accordingly,
had no jurisdiction to set aside said decision; 3) that plaintiff’s claim is
barred by the principle of res judicata; and 4) that, having re­ceived from the
defendants the sum of P4,000.00, in partial compliance with the compromise
agreement, plaintiff is in estoppel to demand the
setting aside of the decision based thereon.

At the outset, it should
be noted that, inasmuch as the decision of May 2, 1964 had been set aside by
the order of May 30, 1964 there is now no decision or order disposing finally
of the case; that the same is still pending trial on the merits; and that,
thereafter there shall be another decision, from which the defendants may
appeal, if they wish.  In other words,
said order of May 30, 1964 is interlocutory in nature and, as such, not
appealable, so that defendants’ appeal therefrom should not have been allowed.^[1]

Just the same, we have
gone over the records and found that the lower court has not erred in issuing
said order.  Plaintiff alleged in his
motion of May 23, 1964, that, during the negotiations preceding the compromise
agreement, plaintiff wanted from the defendants an undertaking to immediately
send their trucks to his concession for the purpose of hauling the logs he had
therein ready for delivery, and avoiding the deterioration
thereof; that, alleging that a written stipulation to this effect would subject
them to prosecution, for violation of the Anti-Dummy Act, defendants expressed
their reluctance to in­corporate a provision to this effect in the compromise
agreement; that the trial Judge, Hon. Damaso S. Tengco, then suggested that the aforementioned undertaking
be an unwritten “gentleman’s agreement which, if not complied with, would
justify the setting aside of the compromise agreement; that plaintiff acquiesced thereto, subject to
the understanding; and that, in violation thereof, defendants failed and
neglected to pick up the aforementioned logs.

Judge Tengco confirmed the truth of
these allegations, which the defendant did not deny – and, hence, impliedly
admitted – in their opposition, dated May
29, 1964, to plaintiff’s aforesaid motion.  Indeed, the defendants then limited
themselves to contending:  1) that the decision of May 2, 1964 had become final and executory immediately after its promulgation; and 2) that
plaintiff was barred by the principle of res judicata.  The
second part of this contention is, however, a mere consequence of the first,
for there can be no res judicata
if the decision on which it is based does not exist, by reason of its having
been set aside, apart from the fact that said principle cannot be invoked when
the decision relied upon is assailed – as it is, in the case at bar – upon the
ground of fraud.[1] Consequently, the issue boils
down to whether or not the aforemen­tioned decision has been validly set aside.

In this connection, it is well settled that, although a decision
rendered in pursuance of a compromise agreement is final and executory upon its ren­dition, said decision may be set
aside and the case reinstated to its status quo ante, when the
agreement is tainted with fraud, mistake or duress,[2] or one of the parties fails or refuses to
comply with it.  In the present case,
defendants have impliedly admitted the truth of plaintiff’s allegations
relative to the unwritten “gentleman’s agreement” which the former
had failed to ob­serve and the charge of fraud on their part, by not denying
said allegations in their opposition, dated May 29, 1964, to plaintiff’s motion
to set aside of May 23, 1964.  What is
more, Judge Tengco, who had a hand in the
aforementioned compromise agreement and in said “gentleman’s
agreement,” confirmed the veracity of said allegations.  Hence, it was not necessary that plaintiff’s
aforesaid motion be verified and supported by an affidavit of merits.

Defendants allege that
plaintiff cannot keep the P4,000.00 paid by the defendants in partial
satisfaction of the decision of May 2, 1960 and of the compromise agreement, and, at the
same time, have both set aside.  In this
connection, paragraph 2 of said agreement explicitly provides that said sum
shall be deemed forfeited to the plaintiff, “without any recourse” on
the part of the defendants, should they fail to take delivery of the logs therein
men­tioned “within the current logging season, or until, June 30,
1964.” It is not claimed that the defendants have taken delivery of said
logs on or before this date.  At any
rate, since the plaintiff has, in fact, chosen to rescind the aforementioned
compromise agreement, the lower court should declare, in the decision to be
rendered after due trial, the effect of the rescission upon said sum of
P4,000.00.

WHEREFORE, the appealed order of May 30,
1964 should be, as
it is hereby affirmed, with the costs of this instance against the defendants.

IT IS SO ORDERED.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Ruiz
Castro, Angeles, and Fernando, JJ., concur.

^[1]
Mendoza vs. Montesa, 90 Phil., 631; Manila Electric vs. Artiaga,
50 Phil., 114.

[1]
See Art. 2038, Civil Code of the Philippines and 30 Am. Jur.,
941-942; See, also, Manila Railroad v. Arzadon,
20 Phil. 452; Yboleon v. Sison,
59 Phil. 281; Saminiada v. Mata, 92 Phil. 426;
City of Manila v. Tarlac De­velopment Corp.,
L-24557, City of Manila v. Manila Lodge, L-24469, City of Manila v.
Army and Navy Club, L-24481, July 30, 1968.

[2]
De los Reyes v. Ugarte,
75 Phil. 505; Enrique v. Padilla, 77 Phil. 373.