AYALA LAND, INC, petitioner, vs. WILLIAM NAVARRO, ISAGANI NAVARRO, ILUMINADA LEGASPI, BELEN DOLLETON, FLORENTINO ARCIAGA, BARTOLOME PATUGA, DIONISIO IGNACIO, BERNARDINO ARGANA, …

Ayala Land versus Navarro

The Case

This is a petition for review on certiorari brought by Ayala Land, Incorporated against William Navarro and several other private respondents. The action below was one for annulment of titles, recovery of possession, and damages over several transfer certificates of title. Ayala Land asked the Supreme Court to reverse the Court of Appeals, which had upheld the trial court's orders allowing the respondents to litigate as pauper litigants and denying Ayala Land's motion to inhibit the presiding judge. The case matters for two reasons: it is a clean statement on the finality and res judicata effect of a compromise agreement approved by the court, and it illustrates how a pending appeal becomes moot and academic once the parties settle and the trial court approves their compromise.

Procedural History

The respondents filed their complaint for annulment of titles, recovery of possession, and damages with the Regional Trial Court of Makati City. Ayala Land moved to be substituted as party defendant on the ground that the original defendant corporation had merged with it, and also moved to dismiss. The respondents then filed an amended complaint impleading Ayala Land. The case was later re-raffled to a branch of the Regional Trial Court of Las Piñas, presided over by Judge Florentino Alumbres. That court granted the respondents' motion to litigate as pauper litigants and admitted their amended complaint. It later denied Ayala Land's consolidated motions for production of documents and to strike out the amended complaint for non-payment of docket fees, and it likewise denied Ayala Land's motion for inhibition.

Ayala Land then filed a petition for certiorari with the Court of Appeals, assailing the order allowing the respondents to litigate as paupers and the order denying inhibition. The Court of Appeals dismissed the petition for lack of merit, and it denied reconsideration. Ayala Land came to the Supreme Court by petition for review on certiorari. While the petition was pending, the parties executed a memorandum of agreement, later followed by an amendatory agreement, and the trial court rendered judgment approving the compromise. That development frames the Supreme Court's resolution.

Facts

In September 1993, the respondents sued the original defendant corporation over several transfer certificates of title. Ayala Land sought substitution on the ground that the defendant corporation had merged with it in 1991, and it also sought dismissal of the complaint. The respondents then filed an amended complaint impleading Ayala Land. The respondents moved to prosecute the action as pauper litigants, alleging that their individual gross income did not exceed 4,000 pesos a month. The trial court granted that motion and admitted the amended complaint.

During pre-trial, Ayala Land filed consolidated motions for production of documents and to strike out the amended complaint for non-payment of docket fees. The trial court denied these motions, and it also denied Ayala Land's motion for inhibition. Ayala Land challenged these rulings before the Court of Appeals, which dismissed the petition. Hence the present petition for review.

While the petition was pending, the parties executed a memorandum of agreement in May 1997, under which the respondents agreed to transfer their rights of ownership over the subject land to Ayala Land for 120,000,000 pesos. The agreement set aside 10,000,000 pesos as attorney's fees for the respondents' counsel, Attorney Hicoblino Catly. Counsel then claimed 30,000,000 pesos under his retainer agreement, being 25 percent of the total. The parties and counsel then executed an amendatory agreement adding 20,000,000 pesos to the earlier 10,000,000 pesos as attorney's fees, subject to the trial court's approval. The trial court approved the amendatory agreement and directed Ayala Land to release the additional 20,000,000 pesos to counsel. Both Ayala Land and the respondents then contested the reasonableness of the 30,000,000 pesos in attorney's fees.

Issues

• Whether or not the Court of Appeals erred in holding that the respondents are pauper litigants.
• Whether or not the Court of Appeals erred in sustaining the trial court's order denying Ayala Land's motion for inhibition.
• Whether or not the petition has been rendered moot and academic by the compromise agreement approved by the trial court.
• Whether or not the reasonableness of Attorney Catly's attorney's fees may be resolved by the Supreme Court in this petition.

Applicable Provisions

Article 2028 of the New Civil Code defines a compromise:

Article 2028. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced.

This definition anchors the Court's holding that the parties' agreement is a compromise that ended the litigation and rendered the petition moot.

Ruling

On the first two issues, the Court did not reach the merits. It held that the execution of the memorandum of agreement and the amendatory agreement, and the trial court's judgment approving the amendatory agreement, showed that the parties had resolved to settle their differences and put an end to the litigation. The Court reiterated that a compromise agreement, once approved by final order of the court, has the force of res judicata between the parties and should not be disturbed except for vices of consent or forgery. It quoted with approval the rule that once stamped with judicial imprimatur, a compromise becomes more than a mere contract binding upon the parties, and has the force and effect of any other judgment. By virtue of the trial court's judgment approving the amendatory agreement, the petition had become moot and academic.

On the attorney's fees, the Court held that the question of whether Attorney Catly's fee of 30,000,000 pesos is reasonable should be resolved by the trial court. The incident stemmed from counsel's motion for execution filed with the trial court, where Ayala Land had filed its opposition, and the matter was factual and raised before the Supreme Court only for the first time. The Court reiterated that issues or questions of fact cannot be raised for the first time on appeal.

Doctrine

A compromise agreement, once approved by final order of the court, has the force of res judicata between the parties and should not be disturbed except for vices of consent or forgery. Once stamped with judicial imprimatur, it becomes more than a mere contract binding upon the parties; having the sanction of the court and entered as its determination of the controversy, it has the force and effect of any other judgment. A petition pending before the Supreme Court is rendered moot and academic when the parties enter into a compromise that the trial court approves. Questions of fact, such as the reasonableness of attorney's fees, cannot be raised for the first time on appeal and should be resolved by the trial court where the incident arose.

Disposition

The petition was denied for being moot, and the records were remanded to the trial court to resolve with dispatch the propriety of Attorney Catly's attorney's fees of 30,000,000 pesos.

Remember This

Memorize this line: a compromise approved by final order of the court has the force of res judicata and the effect of any other judgment, and it renders a pending petition moot and academic. Examiners use this case to test the finality and conclusiveness of judicial compromises, and the rule that factual issues like the reasonableness of attorney's fees must first be raised in the trial court.