G.R. No. 142236 . September 27, 2006.
FILIPRO, INC., petitioner, vs. PERMANENT SAVINGS & LOAN BANK thru its duly appointed receiver/liquidator, MR. ARNULFO B. AURELLANO of the Central Bank of the Philippines, respondents.

FACTS

Petitioner Filipro, Inc. filed a complaint for damages against Philippine Banking Corporation (Philbank) for clearing an altered check. Philbank filed a third-party complaint against Allied Banking Corporation (Allied Bank), which in turn filed a fourth-party complaint against respondent Permanent Savings and Loan Bank for reimbursement. The trial court declared respondent bank in default for failure to appear at pre-trial. A partial decision was rendered holding respondent liable to Allied Bank. Although the default order was later lifted solely to allow cross-examination, respondent’s representatives repeatedly failed to appear, leading the court to reiterate the default and deem the partial decision final.
Subsequently, Filipro, Philbank, and Allied Bank entered into a compromise agreement, which the trial court approved. The agreement stipulated that Allied Bank would directly pay Filipro P547,000, sourced from the judgment credit it held against respondent bank pursuant to the final partial decision. Respondent bank, then under receivership, moved to compel Filipro and Philbank to remit the funds to its receiver, arguing the compromise agreement unlawfully disposed of assets under receivership.

ISSUE

Whether the Court of Appeals erred in ordering petitioner Filipro, Inc. to remit the P547,000 to the receiver of respondent bank, despite a final and executory partial judgment against respondent bank in favor of Allied Bank, which was the source of the payment under the approved compromise agreement.

RULING

The Supreme Court ruled in favor of petitioner Filipro. The legal logic centers on the finality of judgments and the effect of a default declaration. The partial decision dated July 2, 1986, which ordered respondent bank to reimburse Allied Bank, had long become final and executory due to respondent’s failure to appeal or seek timely reconsideration. A final judgment is immutable and unalterable.
The subsequent compromise agreement among Filipro, Philbank, and Allied Bank, approved by the trial court, merely executed this final judgment. Allied Bank’s payment to Filipro was drawn from its judgment credit against respondent bank, a legitimate act. Crucially, respondent bank had been declared in default. A party in default loses its standing in court; it cannot participate, adduce evidence, or be entitled to notices of proceedings. Therefore, respondent bank could not validly assail the compromise agreement to which it was not a party, as it had forfeited its right to be heard. The Court of Appeals’ order for Filipro to remit the funds to the receiver improperly modified a final judgment and disregarded the legal consequences of default. The Supreme Court deleted that portion of the appellate court’s decision.