G.R. No. 126745 July 26, 1999
ARMED FORCES OF THE PHILIPPINES MUTUAL BENEFIT ASSOCIATION, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS and EBR REALTY, INC., respondents.

FACTS

EBR Realty, Inc. (EBRRI) entered into contracts with B.E. Ritz Mansion International Corporation for the purchase of an office building and condominium units. Due to B.E. Ritz’s failure to complete construction, EBRRI filed a case with the Housing and Land Use Regulatory Board (HLURB) for rescission and damages. Meanwhile, EBRRI assigned its rights and interests in the properties to petitioner Armed Forces of the Philippines Mutual Benefit Association, Inc. (AFPMBAI) as security. AFPMBAI later filed a separate civil case against several defendants, including B.E. Ritz and EBRRI, to recover funds. The HLURB subsequently ruled in favor of EBRRI, ordering the rescission of the condominium contracts and the execution of a deed of sale for the building, resulting in a net monetary obligation from B.E. Ritz to EBRRI.
In the civil case, AFPMBAI and B.E. Ritz entered into a compromise agreement without the participation of EBRRI. The agreement required B.E. Ritz to pay AFPMBAI and to sell the very building (Building E) that was the subject of the HLURB decision in favor of EBRRI. The trial court approved this compromise and rendered a partial judgment. EBRRI moved to set aside this partial judgment, arguing it was prejudiced as a party to the case, but its motion was denied. EBRRI then appealed this denial to the Court of Appeals via a petition for review.

ISSUE

Whether the Court of Appeals correctly entertained EBRRI’s petition for review challenging the trial court’s order that denied its motion to set aside a partial judgment based on a compromise agreement to which it was not a party.

RULING

Yes, the Court of Appeals acted correctly. The Supreme Court affirmed that EBRRI, as a formal party-defendant in the civil case, had the legal standing to challenge the partial judgment. A compromise agreement, under Article 2038 of the Civil Code, cannot prejudice third persons. The compromise between AFPMBAI and B.E. Ritz directly affected EBRRI’s rights, as it mandated the sale of Building E—the same property the HLURB had ordered conveyed to EBRRI. This created a clear conflict between the two decisions and potentially deprived EBRRI of its vested rights. Consequently, EBRRI was an aggrieved party entitled to seek relief.
The proper remedy from the denial of a motion to set aside a judgment based on a compromise is an appeal, not a petition for certiorari, as the error alleged is one of judgment, not jurisdiction. The Court of Appeals properly treated EBRRI’s petition as an appeal under Rule 41 of the Rules of Court. Furthermore, AFPMBAI was not denied due process; it was given full opportunity to be heard when it filed a motion for reconsideration with the Court of Appeals and submitted arguments opposing EBRRI’s position. The petition was therefore denied, and the Decision of the Court of Appeals was affirmed.