Case Digest on Obligations and Contracts: Compromise Agreement - Adriatico Consortium, Inc. et al., v. Land Bank of the Philippines G.R. No. 187838

Adriatico Consortium, Inc. et al., v. Land Bank of the Philippines

G.R. No. 187838, December 23, 2009

Facts:

Respondent Land Bank approved the application of William Siy, the former president of ACI, for a credit line of P200M. A Mortgage Trust Indenture (MTI) was created to secure the loan. The MTI was amended to include J.V. Williams Realty and Development Corporation (JVWRDC), a majority-owned corporation of Siy, as borrower. It was later discovered that Siy did not remit ACI’s payments of the loan. Land Bank obliged petitioners ACI and PRC, with Benito Cu-Uy-Gam, ACI’s new president, to pay the maturing obligations of JVWRDC. Petitioners then filed a Petition for Declaration of Nullity, Specific Performance, Injunction, and Damages with Prayer for a TRO against Land Bank and Siy with the RTC of Manila.

The parties entered into a Partial Compromise Agreement wherein ACI agreed, among others, to pay and actually paid to Land Bank the amount of loan plus interests. The said Agreement was approved by the RTC. Land Bank, however, informed ACI that the JVWRDC loans were included in a sealed-bid public auction of Land Bank Non-Performing Assets under the Special Purpose Vehicle Act. Petitioners filed a Motion for Execution before the RTC stating that Land Bank violated Section 5 of the Partial Compromise Agreement, which provides that the parties agree “to suspend all actions against each other x x x”. The RTC granted petitioners’ Motions and issued the corresponding Writ of Execution and Writ of Preliminary Injunction. Land Bank filed a Petition for Certiorari and Prohibition with Prayer for TRO and/or Preliminary Injunction before the CA arguing that the sale of the MPCs is not prohibited by the Agreement. The CA granted the petition and found that the compromise agreement sought to prohibit only legal actions.

Issue: Whether or not the act of Land Bank in selling the receivables violated the Partial Compromise Agreement, specifically Section 5.

Ruling:

Yes. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. In the construction or interpretation of a compromise agreement, the Court is guided by the fundamental and cardinal rule that the intention of the parties is to be ascertained from the contract and effect should be given to that intention. Likewise, it must be construed so as to give effect to all the provisions of the contract. Evidently, had the parties intended to limit the application of Sec. 5 to legal actions only, they would have written a specific word or phrase to pertain to legal actions and not just the word “actions” alone.

A contract must be interpreted from the language of the contract itself according to its plain and ordinary meaning. In the case at bar, the word “action” should be defined according to its plain and ordinary meaning, i.e., as the process of doing something; conduct or behavior; a thing done. It is not limited to actions before a court or a judicial proceeding. Therefore, the only logical conclusion that can be derived from the use of the word “action” in Sec. 5 is that the parties intentionally used it in its plain and ordinary sense and did not limit it to mean any specific legal term.

Furthermore, Sec. 5 of the Partial Compromise Agreement speaks of cooperation between the parties to determine the person or persons ultimately liable. By selling the receivables, Land Bank did not cooperate with petitioners. Thus, it can be safely concluded that the act of Land Bank is a clear and patent violation of Sec. 5 of the Partial Compromise Agreement.