SECOND DIVISION

 

ROLANDO LIMPO,                                 G.R. No. 144732

                             Petitioner,

                                                                   Present:

 

                                                                             PUNO, J., Chairperson,

          - versus -                                                    SANDOVAL-GUTIERREZ,*

                                                                             CORONA,**

                                                                             AZCUNA, and

                                                                             GARCIA, JJ.

COURT OF APPEALS and

SECURITY BANK AND                          Promulgated:

TRUST COMPANY,

                             Respondents.                         February 13, 2006

x-----------------------------------------------------------------------------------------x

 

DECISION

 

AZCUNA, J.:

 

For consideration in this petition for review are the resolutions of the Court of Appeals in CA-G.R. CV No. 45821 dated April 5, 2000 and August 30, 2000, respectively.

 

Both parties have accepted the factual account narrated by the Court of Appeals[1] and have identically quoted the portion of the assailed decision pertaining thereto in their memoranda. Accordingly, the Court adopts said findings, which are reproduced as follows:

 

On November 11, 1980, plaintiff Security Bank & Trust Company filed a complaint for a Sum of Money with the Regional Trial Court of Pasig, Branch 158 entitled “Security Bank & Trust Company, plaintiff, - versus – Miguel F. Uy, Brigitte E. Uy and Rolando Limpo, defendants[.]” Plaintiff Bank sought to recover the outstanding balance of a promissory note executed by the defendants.

 

On February 1, 1983, defendants-spouses Miguel F. Uy and Brigitte Uy entered into a Compromise Agreement with plaintiff bank. On March 22, 1983, the trial court rendered decision, reproducing therein the pertinent provisions of the Compromise Agreement as follows:

 

“1.       Defendant spouses admit liability to the plaintiff the said amount of P38,833.44 as of January 12, 1983;

 

2.                  Defendant spouses agree to pay the plaintiff the said amount of P38,833.44 with interest at the rate of 20% per annum with aforesaid interest rate computed based on declining balance, from January 12, 1983 in the following manner:

 

a)                  P4,644.00 on or before March 14, 1983 of which P500.00 shall be applied as attorney’s fee; P144.00 the cost of suit, and the remaining balance to the outstanding loan obligation;

 

b)                 P4,000.00 each on or before the 15th day of each month commencing April 1983 until June 1, 1983;

 

c)                  P1,500.00 on or before the 15th day of each month commencing July 1983 until the balance and accruing interest thereon is fully paid.

 

3.                  In case of failure to pay any installment when due, the whole balance shall become due and payable, without necessity of demand and defendant spouses shall be assessed a default penalty of 3% per month until the obligation is fully paid. Moreover, plaintiff shall be entitled to a writ of execution upon ex-parte motion.” (RTC Decision, p. 1)

 

When defendants failed to comply with the terms and conditions of the compromise agreement, plaintiff bank, on November 27, 1984, filed an Ex-Parte Motion for the Issuance of Writ of Execution. The motion not having been acted upon, plaintiff bank, on July 22, 1992, filed a complaint for Revival of Judgment.

 

The defendant-spouses, in their Answer, alleged as their defense laches, for failure of plaintiff bank to enforce its rights for more than eight (8) years. Defendant Limpo, on the other hand, alleged that “he is not obligated to pay any amount to plaintiff under the said compromise agreement which was entered into only by and between plaintiff and defendant spouses Miguel F. Uy and Brigitte E. Uy without his knowledge and consent.” (Records, p. 31)

 

On February 5, 1993, plaintiff bank filed a Motion for Judgment on the Pleadings alleging that defendants spouses’ Answer failed to tender genuine issues.  On April 20, 1993, the trial court issued an order against defendants spouses ordering them to pay plaintiff bank the amount of P38,833.44 with interest at the rate of 20% per annum computed from January 12, 1983 until the amount is fully paid. Defendant-spouses appealed this decision to the Court of Appeals, but said appeal was ordered dismissed by this Court’s Special Fifth Division for defendants spouses’ abuse of the extensions of time granted them, pursuant to Section 1 (f) of Rule 50 of the Rules of Court (Rollo, p. 84).

 

Meanwhile, on June 30, 1993, defendant Limpo filed a Manifestation and Motion praying for the dismissal of the complaint on the ground that the judgment sought to be revived did not include defendant Limpo. After responsive pleadings were filed by the parties, the trial court issued an Order dated November 3, 1993 dismissing the complaint against defendant Limpo. This Order was reiterated by the trial court in the Order dated April 19, 1994 which likewise dismissed defendant Limpo’s compulsory counterclaim.

 

Not satisfied with the Order of the trial court, plaintiff bank filed the appeal at bench.

 

Plaintiff-appellant Security Bank & Trust Company assails the Order of the trial court on the basis of the sole assigned error, to wit:

 

“THE LOWER COURT ERRED IN DISMISSING THE INSTANT COMPLAINT AGAINST DEFENDANT-APPELLANT ROLANDO LIMPO.” (Appellant’s Brief, p. 3)

 

At first, the Court of Appeals dismissed the appeal holding that the Compromise Agreement had superseded the promissory note executed between the payee Security Bank & Trust Company (the Bank) and the makers spouses Miguel F. Uy and Brigitte E. Uy (spouses Uy) and Rolando Limpo (Limpo). Limpo, inasmuch as he was never a party to the new agreement, was held to be not bound by its terms and, therefore, was no longer obligated to the Bank. Upon the Bank’s motion for reconsideration, however, the Court of Appeals reversed itself and ordered the continuation of proceedings in Civil Case No. 62226 against Limpo.

 

In this petition, Limpo presents the following issues to be resolved:[2]

 

1.         Whether Rolando Limpo is bound under the Compromise Agreement entered into by Security Bank Corporation and defendants Miguel Uy and Brigitte Uy. 

 

2.                  Whether Rolando Limpo is liable to Security Bank Corporation under the trial court’s judgment dated March 22, 1983 which was based on the Compromise Agreement entered into by Security Bank and the defendants Miguel Uy and Brigitte Uy.

 

3.                  Whether the action by Security Bank against Rolando Limpo, as co-maker of defendants Miguel Uy and Brigitte Uy, [was] already barred by prescription when the action for revival of judgment was filed on July 22, 1992.

 

 

Anent the first two issues, Limpo takes for the negative. He maintains that the Compromise Agreement was executed without his participation and so the trial court’s judgment based on compromise, by obvious consequence, did not and could not have included him as a judgment debtor. Under this circumstance, there would be no basis to include him as a defendant in a complaint for revival of judgment.

 

With respect to the second issue, Limpo answers in the affirmative. He avers that an action based on the promissory note, being a written contract, prescribes in ten years. Continuing from this premise, he computes that the right of action under the promissory note accrued when it became due and demandable on September 19, 1979 and was suspended upon institution of the action to collect on the note on November 11, 1980. By then, one year, one month and twenty-three days had elapsed. The period began to run again on March 22, 1983, when the judgment approving the Compromise Agreement was issued, and was tolled upon the filing of the complaint for revival of judgment on July 22, 1992. This next interval adds up to approximately nine years and four months. Add this to the first interval, the total period that had run would already be ten years and five months, making any suit on the promissory note barred by prescription.

 

The Court finds the petition meritorious.

 

It is settled that a compromise agreement cannot bind persons who are not parties to it.[3]  This rule is based on Article 1311(1) of the Civil Code which provides that “contracts take effect only between the parties, their assigns and heirs x x x.”  The sound reason for the exclusion of non-parties to an agreement is the absence of a vinculum or juridical tie which is the efficient cause for the establishment of an obligation. In the Compromise Agreement that was presented to the trial court, there is no question that only the spouses Uy and the Bank were parties. Limpo did not participate in its execution and there was no reference to him in any of its provisions. He cannot be bound by the Compromise Agreement.

 

What happens then if the court approves a compromise agreement that fails to include all of the defendants? In approving a compromise agreement, no court can impose upon the parties a judgment different from their real agreement or against the very terms and conditions of the amicable settlement entered into.[4] The principle of autonomy of contracts must be respected.[5] These being said, considering that the Compromise Agreement imposed no obligation upon Limpo, it follows that the judgment rendered by the Regional Trial Court (RTC) of Pasig, based on the Compromise Agreement, could likewise not impose any obligation upon him. The duty of the court is confined to the interpretation of the agreement that the contracting parties have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain.[6] Consequently, the contention of Limpo is correct. The terms and conditions set forth in the Compromise Agreement, as approved by the court, are controlling[7] and, therefore, there is no basis to include him in reviving the judgment.

 

However, there remains the question of whether the Bank may still continue the proceedings against Limpo in Civil Case No. 62226, as concluded by the Court of Appeals.

 

The Court of Appeals gives the following reason: 

 

x x x If the spouses Uy would become insolvent and could not pay their obligation under the Compromise Agreement, the SBTC [the Bank] could collect the whole amount of the obligation from defendant Rolando Limpo. A judgment, therefore, against Rolando Limpo would not be incompatible with the existence of the Compromise Agreement for in such a situation SBTC could exercise its option to secure execution of judgment against either or both the Uys and Limpo. The only limitation is that SBTC could not collect more than the total amount of indebtedness.

 

 

The sound reasoning of the Court of Appeals as to the liabilities of a solidary debtor is correct. However, it failed to consider two important incidents that make this case distinct: 1) a judgment had been rendered excluding Limpo; and 2) such judgment had become final.

 

A compromise agreement once approved by order of the court becomes immediately final and executory with the force of res judicata.[8]  The court’s sanction imbues it with the same effect as any other judgment.[9]  No doubt that as to the spouses Uy, there was a clear declaration of liability. Debate arises with respect to Limpo who was never mentioned in both the agreement and the judgment despite that fact that he was impleaded as a defendant. How should this omission affect him?

 

Judicial precedent as to the implication of a judgment approving a compromise agreement that fails to expressly mention or include all the defendants is found in Bopis v. Provincial Sheriff of Camarines Norte,[10] the facts of which are akin to those of this case.  There, four defendants, Camino, Eco, Guadalupe and Bopis, were sued by the plaintiff for recovery of possession of real property. Later, a compromise agreement was executed among Camino, Eco and the plaintiff, whereby Camino and Eco agreed to pay the plaintiff a sum of money. The compromise agreement was later approved by the trial court. Camino and Eco, however, failed to pay the entire amount and, as a result, a writ of execution was issued against all four defendants. Guadalupe and Bopis questioned their inclusion in the writ of execution since the judgment approving the agreement did not include them. This Court found their contention meritorious and declared the writ of execution null and void with respect to Guadalupe and Bopis.  Quoting from the Decision:

 

As will be seen, only Rufina Camino and Pasto Eco were adjudged to pay Alfonso Ortega the amount of P140.00 on February 28, 1951. Although they were included as party defendants, the spouses Fermin Bopis and Emilia Guadalupe were not ordered to pay Alfonso Ortega. Obviously, they were absolved from liability. Accordingly, as to them, there was nothing to execute since they have been absolved from liability.

 

 

The Court, in that case, ostensibly concluded that a decision that fails to expressly mention the liability of one of the defendants will be taken to mean that he has been absolved in that case. From this pronouncement, the failure to mention Limpo in the judgment of the RTC of Pasig will correspondingly mean his absence of liability to the Bank. As this implied declaration became final with the approval of the Compromise Agreement, the Court of Appeals’ instructions to continue the proceedings against Limpo in Civil Case No. 62226 amount to an alteration of a matter that is already res judicata.

 

Since Limpo is no longer liable to the Bank, the issue of prescription is not necessary to resolve.

 

WHEREFORE, the resolutions of the Court of Appeals dated April 5, 2000 and August 30, 2000 in CA-G.R. CV No. 45821 are hereby REVERSED and SET ASIDE. Rolando Limpo is ordered DROPPED as a defendant in Civil Case No. 62226. No pronouncement as to costs.

 

SO ORDERED.

 

 

                                                                   ADOLFO S. AZCUNA

                                                                         Associate Justice

 

 

WE CONCUR:

 

 

 

 

REYNATO S. PUNO

Associate Justice

Chairperson

 

 

 

                   (On Sick Leave)                                             (On Leave)

ANGELINA SANDOVAL-GUTIERREZ                RENATO C. CORONA

                  Associate Justice                                           Associate Justice

 

 

 

CANCIO C. GARCIA

Associate Justice

 

 

 

ATTESTATION

 

          I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

REYNATO S. PUNO

Associate Justice

Chairperson, Second Division

 

 

CERTIFICATION

 

          Pursuant to Section 13, Article VIII of the Constitution and the Division Chairman’s Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

ARTEMIO V. PANGANIBAN

Chief Justice


*              On Sick Leave.

**             On Leave.

[1]               Court of Appeals decision, dated August 14, 1996, Rollo, p. 26.

[2]               Petitioner’s Memorandum, Rollo, p. 131.

[3]               Banzagales v. Galman, G.R. No. 46717, May 21, 1993, 222 SCRA 350.

[4]               Phil. Bank of Communications v. Echiverri, No. L-41795, August 29, 1980, 99 SCRA 508.

[5]               Manila International Airport Authority v. ALA Industries Corporation, G.R. No. 147349, February 13, 2004, 442 SCRA 603.

[6]               Cuizon v. Court of Appeals, G.R. No. 102096, August 22, 1996, 260 SCRA 645.

[7]               University of the East v. Secretary of Labor and Employment, G.R. Nos. 93310-12, November 21, 1991, 204 SCRA 254.

[8]               Esguerra v. Court of Appeals, G.R. No. 119310, February 3, 1997, 267 SCRA 380.

[9]               Abarintos v. Court of Appeals, G.R. No. 113070, September 30, 1999, 315 SCRA 550.

[10]             No. L-29838, March 18, 1983, 121 SCRA 28.