G.R. No. L-9312; October 31, 1957
ERNEST BERG, plaintiff-appellant, vs. NATIONAL CITY BANK OF NEW YORK, defendant-appellant.

FACTS

In 1941, the Red Star Stores, Inc. was indebted to the National City Bank of New York (the Bank), guaranteed by Ernest Berg (plaintiff) and his brother. During the Japanese occupation, the Bank of Taiwan required payment, and plaintiff paid the obligation in full. After liberation, the Bank reopened and requested liquidation of the prewar obligation. On November 1, 1945, plaintiff informed the Bank he had settled with the Bank of Taiwan, but Bank officials stated they could not regard such payment as discharging the obligation and requested payment. Plaintiff acknowledged the indebtedness but wanted to consult lawyers regarding the validity of wartime payments. On February 1, 1946, plaintiff offered to compromise by paying the indebtedness if the Bank forewent interest. This was approved, and on February 15, 1946, plaintiff signed an acknowledgment of the debt and an agreement for its liquidation. On March 23, 1946, due to a delay in selling his property, plaintiff executed a note and pledged 3,300 shares of Filipinas Compania de Seguros as security. On March 12, 1946, the Court of First Instance of Manila decided Hia Pia vs. China Banking Corporation, holding wartime payments to the Bank of Taiwan did not discharge obligations, but on April 9, 1948, the Supreme Court reversed this, holding such payments valid (Haw Pia case). On June 22, 1946, plaintiff made a partial payment and received a 30-day extension. On July 31, 1946, plaintiff authorized the Bank to sell the pledged shares to settle the balance, which was done. On September 27, 1948, after the Supreme Court’s Haw Pia decision, plaintiff demanded repayment from the Bank, claiming the wartime payment was valid. The Bank refused, stating the case had been compromised. Plaintiff filed an action to recover the amount paid plus damages, alleging the Bank used deceit, fraud, threat, and intimidation to force the compromise. The Bank denied the allegations, asserting the payment resulted from a valid compromise. The trial court ordered the Bank to repay the amount with interest. Both parties appealed.

ISSUE

Whether the compromise agreement entered into by the parties on February 15, 1946, is valid and binding, thereby precluding plaintiff from recovering the amount paid to the Bank.

RULING

Yes, the compromise agreement is valid and binding. The Supreme Court reversed the trial court’s decision. The agreement, confirmed in a letter dated February 15, 1946, wherein plaintiff acknowledged the indebtedness and agreed to pay it in full in exchange for the Bank waiving interest, constituted a compromise to avoid a potential lawsuit at a time when the validity of the wartime payment was still uncertain. A compromise settles a controversy and is binding on the parties, having the authority of res judicata. The Court found plaintiff’s allegations of deceit, fraud, threat, or intimidation unfounded. The Bank’s insistence on payment, based on its belief that the wartime payment was invalid, and its request for plaintiff to seek other banking facilities if unwilling to pay, did not constitute intimidation as defined by law (a reasonable and well-grounded fear of imminent and serious injury). The compromise was entered into voluntarily and is valid. Therefore, plaintiff is not entitled to recover the payment made.