Case Digest on Obligations and Contracts: Compromise Agreement - National Commercial Bank of Saudi Arabia vs. Court of Appeals and Philippine Banking Corporation G.R. No. 124267

National Commercial Bank of Saudi Arabia vs. Court of Appeals and Philippine Banking Corporation

G.R. No. 124267, January 17, 2005

Facts:

In its 2003 decision, the Supreme Court set aside the decision of the Court of Appeals and declared respondent Philippine Banking Corporation’s motion for reconsideration of the Regional Trial Court’s decision as pro forma due to lack of notice and hearing.

Philippine Banking Corporation filed a motion for reconsideration of the said decision, and the Supreme Court by resolution gave due course to the motion, and since the subject controversy between Philippine Banking Corporation and petitioner National Bank of Saudi Arabia had long been pending in the courts for more than nineteen years, the Court ordered the trial court and the Court of Appeals to elevate all the records of the case so that a final resolution thereon could be rendered by the Supreme Court.

After the parties have filed their respective memoranda, they decided to end their longstanding litigation and submitted to the Court a joint motion for approval of an undated compromise agreement. Therein, the parties agreed to the full, complete and final settlement of their respective claims and obligations, with Metrobank (successor of Philippine Banking Corporation) obliging itself to pay National Bank of Saudi Arabia and the latter binding itself to forever and unconditionally release and discharge the former from all claims, causes of action or any sum of money subject of their controversy.

Ruling:

Parties may stipulate or enter into agreements provided that the terms thereof are not contrary to law, morals, good custom, public order or public policy.

Under Art. 1306 of the Civil Code, contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. Thus, a compromise agreement whereby the parties make reciprocal concessions to resolve their differences to thereby put an end to litigation is binding on the contracting parties and is expressly acknowledged as a juridical agreement between them. To have a force of res judicata, however, the compromise agreement must be approved by a final order of the court.

To be valid, the compromise agreement must be based on real claims and actually agreed upon in good faith. Both conditions are present in this case. In clear, categorical language, each of the parties have manifested their desire, by forging the Compromise Agreement, to abbreviate the legal battle and settle the case amicably to both their satisfaction. As the Agreement is not contrary to law, public order, public policy, morals or good customs, it was approved.