GR 45569; (March, 1938) (Digest)
G.R. No. 45569; March 31, 1938
PEDRO DE JESUS, Bank Commissioner in his capacity as Liquidator and Receiver of the Mercantile Bank of China, plaintiff-appellee, vs. GONZALO C. GO QUIOLAY, defendant-appellant.
FACTS
The Bank Commissioner, as liquidator of the Mercantile Bank of China, filed an action to foreclose a real estate mortgage executed by Gonzalo C. Go Quiolay to secure his indebtedness. During the pendency of the case, the parties entered into a compromise agreement. The defendant initially presented a deed (Exhibit A) purporting to convey the mortgaged properties in full payment of his entire indebtedness, but the plaintiff refused to sign it. The parties later executed a final deed (Exhibit B) on March 7, 1935, which stipulated that the conveyance of properties and credits was in part settlement of the indebtedness, releasing the defendant from liability only up to P60,000, and required the defendant to pay P2,000 for attorney’s fees. The deed was made subject to court approval, which was obtained, and it was registered. The defendant paid only P1,000 of the P2,000. The trial court initially dismissed the complaint but later reversed itself and ordered the defendant to pay the full debt. The defendant appealed.
ISSUE
The main issues are: (1) Whether Exhibit A (the initial deed) is valid; (2) Whether Exhibit B (the final deed) is valid and reflects the true intention of the parties; and (3) The legal effect of Exhibit B.
RULING
The Supreme Court reversed the trial court’s decision. It held:
1. Exhibit A is not valid because it was never signed or accepted by the plaintiff.
2. Exhibit B is valid and binding as a compromise agreement. It accurately reflects the parties’ true intention that the conveyance was only a partial settlement of the indebtedness, covering only P60,000, and not full payment. As a compromise, it has the force of res judicata between the parties.
3. The legal effect of Exhibit B is that it is a conditional compromise. All conditions for its effectiveness had been fulfilled (court approval and registration) except the defendant’s full payment of the P2,000 attorney’s fee. Since the defendant paid only P1,000, he is obligated to pay the remaining P1,000. Upon such payment, he would be entitled to the dismissal of the foreclosure action. The Court clarified that its decision does not adjudicate the balance of the defendant’s indebtedness beyond the P60,000 covered by the compromise. The defendant’s cross-complaint was dismissed.
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