G.R. Nos. 117018-19 and 117327 June 17, 1996
BENJAMIN D. YNSON, petitioner-appellant, vs. THE HON. COURT OF APPEALS; FELIPE YULIENCO and EMERITO M. SALVA, respondents-appellees. FELIPE YULIENCO and EMERITO M. SALVA, petitioners, vs. THE HONORABLE COURT OF APPEALS and BENJAMIN D. YNSON, respondents.

FACTS

Benjamin Ynson, President of PHESCO, Inc., and Felipe Yulienco, a stockholder and officer, had a management dispute. Yulienco and his lawyer, Emerito Salva, filed a petition with the Securities and Exchange Commission (SEC) alleging mismanagement by Ynson. Before Ynson could answer, the parties entered into a Compromise Agreement, which was subsequently approved by the SEC as a final judgment. The agreement stipulated that Yulienco and Salva would sell their shares to PHESCO at a fair market value to be determined by a mutually appointed appraiser, AEA Development Corporation, whose valuation would be “final, irrevocable and binding upon the parties and non-appealable.”
AEA subsequently fixed the share value. Ynson moved for execution of the judgment, tendering payment. Yulienco and Salva opposed, alleging fraud in the preparation of PHESCO’s financial statements, which were a basis for the appraisal, and sought to set aside the AEA report. The SEC Hearing Panel granted Ynson’s motion for execution. The SEC Commission En Banc reversed this, ordering a re-audit. The Court of Appeals then reinstated the Hearing Panel’s order for execution but modified it by requiring Ynson to deposit the total purchase price with the SEC in an interest-bearing account.

ISSUE

The core issue is whether the Compromise Judgment, based on an agreement declaring the appraiser’s valuation as final and non-appealable, can be set aside based on a subsequent allegation of fraud in the underlying financial statements.

RULING

The Supreme Court ruled in favor of enforcing the Compromise Agreement as judicially approved. A compromise agreement, once approved by the court, has the force of res judicata and is immediately executory. The legal logic is that the parties voluntarily entered into the agreement, which specifically designated AEA as the sole appraiser and made its determination final and binding. By agreeing to this term, Yulienco and Salva assumed the risk that the valuation might be unfavorable. An allegation of fraud in the preparation of the financial statements, which were available for scrutiny before the agreement was signed, does not constitute a vitiating consent element like fraud (dolo causante) that would nullify the contract. The alleged fraud, if any, was not employed by Ynson to induce them to sign the compromise; they entered into it freely to settle the dispute. Therefore, they are bound by its terms. The Court affirmed the Court of Appeals’ order for execution and the deposit of funds with the SEC, as this mechanism ensured the judgment’s implementation while safeguarding the sellers’ eventual receipt of payment.