G.R. No. 129234. November 20, 2001
THERMPHIL, INC., petitioner, vs. COURT OF APPEALS and CASTELLANO ICE PLANT AND COLD STORAGE, INC., respondents.
FACTS
Petitioner Thermophil filed a complaint for specific performance and damages against respondent Castellano to collect payment for construction services. Instead of filing an answer, respondent submitted a compromise agreement admitting the material allegations and requesting 23 days to pay, stipulating that failure would entitle petitioner to a writ of execution. The trial court approved this agreement and rendered judgment based on it. Subsequently, respondent filed a motion to annul the compromise agreement, alleging it was executed on the understanding that liability was limited to the principal obligation and interest, excluding damages and attorney’s fees. The trial court rescinded the compromise agreement, finding it did not express the parties’ true intention. Later, petitioner was declared non-suited for failure to appear at a pre-trial conference, and its complaint was dismissed. The trial court then rendered a decision rescinding the parties’ contract and ordering petitioner to pay respondent interest and attorney’s fees. The Court of Appeals affirmed with modification, ordering petitioner to return a partial payment of P131,000.00.
ISSUE
Whether the Court of Appeals erred in: (1) sustaining the trial court’s declaration of petitioner as non-suited; (2) nullifying the compromise agreement; and (3) ordering the rescission of the main contract and the return of partial payment.
RULING
The Supreme Court granted the petition. First, the trial court’s order declaring petitioner non-suited was set aside. The power to dismiss on this ground must be based on a want of due diligence, and the rules may be suspended to serve the ends of justice. Petitioner’s failure to appear, supported by a medical certificate, did not warrant a non-suit. Second, while a judicial compromise is generally final and executory, it may be set aside on grounds like mistake or vitiated consent. The trial court correctly found the agreement did not embody the true intent, as respondent understood it excluded damages and attorney’s fees. However, third, the appellate court erred in ordering the rescission of the main construction contract and the return of the P131,000.00 partial payment. Rescission was not a relief prayed for in the pleadings. More importantly, rescission is permitted only for a substantial and fundamental breach that defeats the contract’s object. Here, petitioner had performed 90% of its obligations, and any remaining breach was not substantial. Respondent’s own counterclaim sought to consign payment, which is inconsistent with seeking rescission. The case was remanded to the trial court for further proceedings.
