G.R. No. 176973 , February 25, 2015
DAVID M. DAVID, Petitioner, vs. FEDERICO M. PARAGAS, JR., Respondent.

FACTS

Petitioner David M. David, respondent Federico M. Paragas, Jr., and Severo Henry G. Lobrin were partners in Olympia International, Ltd. (Olympia), a Hong Kong corporation. Olympia acted as the exclusive general agent in Hong Kong for Philam Plans Inc. (PPI) and launched a “Pares-Pares” program. David was the authorized signatory for Olympia’s RCBC accounts in the Philippines, through which funds from Hong Kong, including premiums and cash equivalents for bonus points, were remitted. A dispute arose when Lobrin discovered that David failed to remit to PPI the 30% cash equivalent of the bonus points, and that only ₱19,302,902.13 remained of the ₱82,978,543.00 remitted. The Olympia Board removed David as a director and instructed RCBC to prohibit transactions on the accounts. David was also prevented from traveling due to a watch-list order. David filed a complaint for Declaratory Relief, Sum of Money and Damages before the RTC against Paragas, Lobrin, and others. Paragas and Lobrin filed answers with compulsory counterclaims. David, Lobrin, and Olympia (represented by Lobrin as attorney-in-fact) entered into a Compromise Agreement, wherein Olympia waived its rights to the trust funds in RCBC and Equitable PCI Bank pertaining to planholders’ benefits, and agreed to withdraw its counterclaims. David and Lobrin filed a Joint Omnibus Motion to inform the RTC of the compromise. The RTC admitted David’s supplemental complaint and approved the compromise agreement. Paragas challenged this approval, arguing he was not a party to the compromise and his rights were prejudiced. The Court of Appeals nullified the RTC’s approval of the compromise agreement.

ISSUE

Whether the Regional Trial Court validly approved the Compromise Agreement between David M. David and Olympia International, Ltd. (represented by Henry G. Lobrin), which affected the rights of respondent Federico M. Paragas, Jr., a non-party to the agreement.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Court of Appeals’ decision. The RTC’s approval of the compromise agreement was invalid. The compromise agreement sought to settle claims that were the subject of compulsory counterclaims filed by Paragas and Lobrin in their personal capacities. Paragas was not a signatory to the compromise and did not consent to it. The agreement effectively dismissed Paragas’s personal counterclaims without his consent, violating his right to due process. The Court held that a compromise agreement requires the consent of all parties involved. The claims of Olympia as a corporation are separate from the personal claims of its shareholders/directors. Since Olympia was not formally impleaded as a party in the case, the judicial determination of its rights through the compromise would affect the rights of its shareholder, Paragas, without due process. The compromise could not validly extinguish Paragas’s personal claims.