G.R. No. 126236 ; January 26, 2007
DOMINGO REALTY, INC. and AYALA STEEL MANUFACTURING CO., INC., Petitioners, vs. COURT OF APPEALS and ANTONIO M. ACERO, Respondents.

FACTS

Petitioner Domingo Realty filed a complaint for recovery of possession against respondent Antonio M. Acero over three parcels of land in Muntinlupa. Acero, who operated a hollow blocks factory on the land, claimed he was a lessee of his co-defendant, David Victorio, who asserted ownership. The parties, including another claimant Luis Recato Dy, subsequently entered into a Compromise Agreement. In the agreement, Acero and Dy admitted Domingo Realty’s ownership. Acero specifically undertook to vacate the portion he occupied and clear all structures within 60 days, failing which a writ of execution for demolition could be issued.
After the trial court approved the agreement and rendered a judgment based on it, a verification survey was conducted. The survey confirmed that Acero’s factory stood entirely on the land covered by Domingo Realty’s titles. When Acero failed to vacate, Domingo Realty moved for execution. Acero then filed a motion to nullify the Compromise Agreement, arguing it was void for being contrary to law, morals, and public policy because it allegedly compelled him to evict his own sublessees. The trial court denied his motion and ordered execution. The Court of Appeals, however, annulled the compromise judgment, ruling it was void for imposing illegal obligations.

ISSUE

Whether the Compromise Agreement, and the judgment based upon it, is valid and enforceable.

RULING

Yes, the Supreme Court reversed the Court of Appeals and reinstated the trial court’s decision. The legal logic is anchored on the principle that a compromise agreement is a contract binding on the parties, governed by the law on contracts. The Court found no legal basis for the appellate court’s conclusion that the agreement was void. Acero’s obligation to clear the property of structures erected by himself or by third parties “duly authorized” by him was a contractual undertaking he freely entered into. This stipulation did not violate law, morals, or public policy. It merely implemented his core commitment to deliver possession of the land to its recognized owner.
The Court emphasized that a compromise has the effect and authority of res judicata upon its judicial approval. Acero’s belated attempt to nullify it, based on an alleged duty to protect his sublessees, was an afterthought and a ploy to renege on his binding obligations. His failure to comply with the terms justified the issuance of the writ of execution. The Supreme Court held that the Court of Appeals erred in invalidating a contract that was not vitiated by any vice of consent or illegality, and which had already attained finality as a judgment.