ASSET POOL A (SPV-AMC), INC., PETITIONER, VS. CLARK DEVELOPMENT CORPORATION, RESPONDENT.

Asset Pool A versus Clark Development Corporation

The Case

This is a petition for review brought by Asset Pool A, the transferee and successor-in-interest of the secured creditors of Mondragon Leisure and Resorts Corporation, against Clark Development Corporation. Asset Pool A had sued to compel Clark Development Corporation to include the secured creditors' claims in the documents for the bidding and privatization of the Mimosa Leisure Estate. The case matters for two reasons: it shows how a compromise agreement ends a pending appeal, and it gathers in one place the Civil Code rules on compromise — that it is a contract of reciprocal concessions, that it has the effect and authority of res judicata, and that it requires judicial approval before it may be executed.

Procedural History

Asset Pool A filed an action for specific performance and damages before the Regional Trial Court, Branch 62, in Angeles City, Pampanga. The trial court issued an order on June 24, 2008. Asset Pool A then filed a petition for certiorari in the Court of Appeals, which dismissed the petition in a decision promulgated on September 4, 2012. The Court of Appeals also denied Asset Pool A's motion for reconsideration in a resolution promulgated on February 7, 2013. Asset Pool A appealed to the Supreme Court by petition for review. While the appeal was pending, Clark Development Corporation announced a new public bidding for the privatization of the Mimosa Leisure Estate and issued its 2015 Terms of Reference. The Supreme Court issued a temporary restraining order on October 21, 2015, enjoining Clark Development Corporation from implementing the 2015 Terms of Reference or from proceeding with the disposal of the estate. On November 6, 2015, the parties filed an urgent joint motion asking the Court to render judgment based on a compromise agreement and to lift the temporary restraining order.

Facts

United Coconut Planters Bank and Metropolitan Bank and Trust Company were the secured creditors of Mondragon Leisure and Resorts Corporation, which borrowed for its working capital in developing and operating the Tourism Estate Phase One, later known as the Mimosa Leisure Estate. Asset Pool A became the transferee and successor-in-interest of these secured creditors.

Asset Pool A brought an action for specific performance and damages to compel Clark Development Corporation, the government-owned and controlled corporation holding the estate, to include the secured creditors' claims in the documents attendant to the bidding for the privatization of the estate. The trial court ruled against it, the Court of Appeals dismissed its petition for certiorari, and the matter reached the Supreme Court on appeal.

During the pendency of the appeal, Clark Development Corporation announced on August 19, 2015 that the privatization would again be open for public bidding, with bids initially scheduled for October 13, 2015 and later moved to October 27, 2015. The Court restrained the bidding. The parties then chose to settle. Their compromise agreement obliged Clark Development Corporation to pay Asset Pool A 277.413 million pesos, representing the secured creditor's 12.5 percent share in the gross gaming revenues of the Regency Casino up to June 30, 2015; to release 765 million pesos to Asset Pool A from the proceeds of a successful privatization; and to continue the revenue share until the lease with a winning bidder is signed. In exchange, Asset Pool A waived, consolidated, and assigned in favor of Clark Development Corporation all its derivative rights, privileges, interests, and obligations over the estate, and both parties waived all other claims and counterclaims and undertook to withdraw their cases with prejudice.

Issues

• Whether or not the compromise agreement dated November 6, 2015 may be approved by the Supreme Court and made the basis of judgment in the pending appeal.
• Whether or not the compromise agreement is valid and binding, considering that the parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
• Whether or not the temporary restraining order issued on October 21, 2015 should be lifted upon approval of the compromise.

Applicable Provisions

Article 2028 of the Civil Code defines compromise:

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

This is the provision the Court uses to characterize the agreement between the parties and to test whether it may be approved.

Article 2029 of the Civil Code provides:

The court shall endeavor to persuade the parties in a civil case to agree upon some fair compromise.

This is the authority the Court invokes for encouraging and accepting a settlement even at the stage of a pending appeal.

Article 1306 of the Civil Code provides:

The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

This is the measure of the validity of the terms the parties stipulated in their agreement.

Article 2037 of the Civil Code provides:

A compromise has upon the parties the effect and authority of res judicata, but there shall be no execution except in compliance with a judicial compromise.

This is why the Court must approve the agreement and render judgment in accordance with its terms before it may be enforced.

Ruling

On the first issue, the Court granted the joint motion and approved the compromise agreement, rendering judgment in accordance with its terms and stipulations. The Court held that a compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. It noted that under Article 2029 of the Civil Code the court shall endeavor to persuade the parties in a civil case to agree upon some fair compromise, and that such means of dispute settlement is an accepted, even desirable and encouraged, practice in courts of law and administrative tribunals.

On the second issue, the Court upheld the validity of the agreement. It reasoned that the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided such stipulations, clauses, terms and conditions are not contrary to law, morals, good customs, public order, or public policy. It further held that once the parties have entered into a compromise, their agreement has the effect and authority of res judicata, but there shall be no execution except in compliance with a judicial compromise. Hence, the Court approved the agreement and enjoined the parties to comply with its terms and stipulations in utmost good faith.

On the third issue, the Court lifted and set aside the temporary restraining order issued on October 21, 2015, since the settlement had removed the need to restrain the bidding, and dismissed the appeal without pronouncement on costs of suit.

Doctrine

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Once the parties have entered into a compromise, their agreement has the effect and authority of res judicata, but there shall be no execution except in compliance with a judicial compromise. Courts are directed to endeavor to persuade the parties in a civil case to agree upon some fair compromise, and compromise is an accepted, even desirable and encouraged, practice in courts of law and administrative tribunals. A compromise approved by the court in a pending appeal ends the litigation and binds the parties to comply with its terms in utmost good faith.

Disposition

The Court approved the compromise agreement dated November 6, 2015, rendered judgment in accordance with its terms and stipulations, enjoined the parties to comply with them in utmost good faith, lifted and set aside the temporary restraining order issued on October 21, 2015, and dismissed the appeal without pronouncement on costs of suit.

Remember This

Memorize the rule that a compromise has upon the parties the effect and authority of res judicata, but there shall be no execution except in compliance with a judicial compromise. Examiners use this case to test the definition of compromise under Article 2028, the effect of a judicially approved compromise on a pending appeal, and the requirement of judicial approval before execution.