GR 91334; (February, 1991) (Digest)
G.R. No. 91334 ; February 7, 1991
INVESTOR FINANCE CORPORATION, petitioner, vs. COURT OF APPEALS, RICHMANN TRACTORS, INC., RICARDO B. PAJARILLAGA, ELLA P. PAJARILLAGA, JOHN DOE, RICHARD DOE and PETER DOE, respondents.
FACTS
Private respondents Richmann Tractors, Inc. and the Pajarillaga spouses obtained financing from petitioner Investors’ Finance Corporation (FNCB Finance) using their construction equipment as collateral. The transaction was structured as a lease agreement, making FNCB appear as the owner and the respondents as lessees obligated to pay monthly amortizations. Respondents defaulted, prompting FNCB to file a replevin case (Civil Case No. 29671). Upon service of the writ, respondent Ricardo Pajarillaga, in a state of panic, entered into a Compromise Agreement acknowledging a joint indebtedness of P1,097,023.52 and FNCB’s ownership of the equipment. This agreement was approved as a judgment by compromise.
Subsequently, respondents filed a separate case (Civil Case No. Q-26754) to annul the compromise judgment, alleging extrinsic fraud, claiming they were coerced into signing and that they had actually overpaid their obligations. The Quezon City trial court annulled the compromise agreement and awarded respondents approximately P5 million in damages. The Court of Appeals affirmed this decision and dismissed FNCB’s counterclaim for the unpaid credit.
ISSUE
Whether the Court of Appeals erred in affirming the annulment of the compromise judgment and in dismissing FNCB’s counterclaim for the recovery of the unpaid loan.
RULING
Yes. The Supreme Court reversed the Court of Appeals. The compromise agreement constituted a judicial admission by the respondents of their indebtedness, which is binding under Section 2, Rule 129 of the Rules of Court and cannot be contradicted unless shown to be made through palpable mistake. The respondents failed to prove such a mistake or that they had fully paid, much less overpaid, their obligations. The evidence they presented, consisting of unmarked and unidentified checks, did not conclusively demonstrate payment for the specific accounts in question. Therefore, the annulment of the compromise judgment based on extrinsic fraud was erroneous. The transaction was properly characterized as a loan with chattel mortgage. The Court ordered the private respondents to pay FNCB the sum of P1,046,606.58 with interest and authorized foreclosure of the chattel mortgage upon default. The award of damages to the respondents was set aside.