Commercial Credit Corp. of Cagayan de Oro v.

CA, 2 January 1989

Facts:Sometime in 1978 Cagayan de Oro Coliseum, Inc. (herein private respondent)
executed a promissory note of P329, 852.54 payable in 36 monthly installments
secured by a real estate mortgage in favor of Commercial Credit Corporation of
Cagayan de Oro (herein petitioner). Upon the default of payment by the private
respondent, petitioner proceeded with the extrajudicial foreclosure of the real estate
mortgage in September, 1979. Subsequently 5 minority stockholders of private
respondent instituted a Special Civil Action before the CFI of Misamis Oriental
questioning whether or not respondent may execute real estate mortgage without their
consent. In due course, a compromise agreement was entered into the parties
concerned praying that the Court may render judgement in accordance with the said
agreement, stating: (1) there was a ratification and approval of the said loan and real
estate mortgage, issue of the special civil action becomes moot and academic; (2) that
the Cagayan de Oro Coliseum, Inc. through its Board of Directors and represented by
its President admits its total outstanding obligation to Commercial Credit Corporation of
Cagayan de Oro in the amount of P249,263.23 including P10,000 attorney's fees; (3)
that there was agreement to pay above obligation plus interest on diminishing balance
at 16% per annum; (4) that the respondent will pay the said obligation in monthly
installments of P11,000; (5) that failure of the respondent to do so will automatically be
ordered to pay in full, where overdue and unpaid installments shall incur a penalty
charge of 3% and another 5% for the outstanding balance plus attorney's fees; (6) that
petitioner agrees to withdraw its application of the extrajudicial foreclosure of the real
estate mortgage; and (7) that the parties waive in favor of each other all forms of
damages arising out, connected with and/or as a result of this action.
Private respondent failed to pay several installments amounting to P70,152.65,
petitioner then filed an ex-parte motion for issuance of a writ of execution which was
granted by the Court whereby a notice was issued subsequently. Private respondent
then filed for a motion of reconsideration which was not granted, the same then filed for
a special civil action in the CA to annul the said compromise-judgement alleging that the
trial court acted in serious violation of the law and/or in grave abuse of discretion. The

CA denies and dismisses the petition but changes the compromise judgment whereby
overdue and unpaid installments shall have .5% penalty charge per month and a 2% on
the outstanding balance. After several motion of reconsiderations filed by both parties,
the CA grants the petition in the sense that the said court reiterates its modification in
the compromise judgement and that the sale (writ of execution, notice of sale, public
auction sale and certificate of sale) of the real estate mortgage are declared null and
void.
Petition for certiorari was filed wherein the petitioner argues that CA committed
grave abuse of discretion when the compromise judgement was modified, wrongly
applied Art 1229 of the Civil Code, and committed changes even though upholding the
legality of such compromise judgment.
Issue:Whether or not CA may modify the compromise judgment founded by the same
courts to be lawful?
Held: No. Final and executory judgment cannot be modified or amended. A compromise
judgment should not be disturbed except for vices in consent or forgery. Article 1229 of
the Civil Code which provides, The Judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable. The foregoing provision of the law applies only to
obligations or contract, subject of a litigation, the condition being that the same has
been partly or irregularly complied with by the debtor. The provision also applies even if
there has been no performance, as long as the penalty is iniquituous or unconscionable.
It cannot apply to a final and executory judgment.
When the parties entered into the said compromise agreement and submitted the
same for the approval of the trial court, its terms and conditions must be the primordial
consideration why the parties voluntarily entered into the same. The trial court approved
it because it is lawful, and is not against public policy or morals. Hence upon upholding
the validity of the said compromise agreement, the CA has no authority to reduce the
penalty and attorney's fees therein stipulated which is the law between the parties and

is res judicata.
WHEREFORE, the petition is GRANTED. The decision of the respondent Court of
Appeals are hereby SET ASIDE and another judgment is hereby rendered affirming in
toto the compromise judgment of the trial court with costs against private respondent.