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RepublicofthePhilippines
SUPREMECOURT
Manila
FIRSTDIVISION
G.R.No.L49120June30,1988
ESTATEOFGEORGELITTON,petitioner,
vs.
CIRIACOB.MENDOZAandCOURTOFAPPEALS,respondents.
RubenG.BalaforrespondentMendoza.

GANCAYCO,J.:
This petition for review presents two (2) main issues, to wit: (1) Can a plaintiff in a case, who had previously
assignedinfavorofhiscreditorhislitigatedcreditinsaidcase,byadeedofassignmentwhichwasdulysubmitted
to the court, validly enter into a compromise agreement thereafter releasing the defendant therein from his claim
withoutnoticetohisassignee?and(2)Willsuchpreviousknowledgeonthepartofthedefendantoftheassignment
madebytheplaintiffestopsaiddefendantfrominvokingsaidcompromiseasagroundfordismissaloftheaction
againsthim?
ThepresentcasestemmedfromCivilCaseNo.Q83031entitled"AlfonsoTanvs.CiriacoB.Mendoza,"anactionforthe
collectionofasumofmoneyrepresentingthevalueoftwo(2)checkswhichplaintiffTanclaimstohavebeendeliveredtohim
bydefendantMendoza,privaterespondentherein,bywayofguarantywithacommission.

The record discloses that the Bernal spouses 2 are engaged in the manufacture of embroidery, garments and cotton
materials.SometimeinSeptember1963,C.B.M.Products,3withMendozaaspresident,offeredtoselltotheBernalstextile
cotton materials and, for this purpose, Mendoza introduced the Bernals to Alfonso Tan. Thus, the Bernals purchased on
creditfromTansomecottonmaterialsworthP80,796.62,paymentofwhichwasguaranteedbyMendoza.Thereupon,Tan
delivered the said cotton materials to the Bernals. In view of the said arrangement, on November 1963, C.B.M. Products,
throughMendoza,askedandreceivedfromtheBernalsPBTCCheckNo.626405forP80,796.62datedFebruary20,1964
with the understanding that the said check will remain in the possession of Mendoza until the cotton materials are finally
manufactured into garments after which time Mendoza will sell the finished products for the Bernals. Meanwhile, the said
checkmaturedwithouthavingbeencashedandMendozademandedtheissuanceofanothercheck 4inthesameamount
withoutadate.

Ontheotherhand,onFebruary28,1964,defendantMendozaissuedtwo(2)PNBchecks5infavorofTaninthetotal
amountofP80,796.62.HeinformedtheBernalsofthesameandtoldthemthattheyareindebtedtohimandaskedthelatter
tosignaninstrumentwherebyMendozaassignedthesaidamounttoInsularProductsInc.Tanhadthetwochecksissuedby
Mendozadiscountedinabank.However,thesaidcheckswerelaterreturnedtoTanwiththewordsstamped"stoppayment"
whichappearstohavebeenorderedbyMendozaforfailureoftheBernalstodepositsufficientfundsforthecheckthatthe
BernalsissuedinfavorofMendoza.

Hence,asadvertedtoabove,TanbroughtanactionagainstMendozadocketedasCivilCaseNo.Q83036whilethe
Bernals brought an action for interpleader docketed as Civil Case No. 56850 7 for not knowing whom to pay. While both
actions were pending resolution by the trial court, on March 20, 1966, Tan assigned in favor of George Litton, Sr. his
litigatiouscredit *inCivilCaseNo.56850againstMendoza,dulysubmittedtothecourt,withnoticetotheparties. 8Thedeedofassignmentwas
framedinthefollowingtenor:

DEEDOFASSIGNMENT
I,ALFONSOTAN,ofage,Chinese,marriedtoUYCHAYUA,residingatNo.6Kanlaon,QuezonCity,
doingbusinessunderthenameandstyleALTACOMMERCIALbywayofsecuringorguaranteeingmy
obligation to Mr. GEORGE LITTON, SR., do by these presents CEDE, ASSIGN, TRANSFER AND
CONVEYuntothesaidMr.GEORGELITTON,SR.,myclaimagainstC.B.M.Products,Inc.,personally

guaranteedbyMr.CiriacoB.Mendoza,intheamountofEightyThousandSevenHundredNinetySix
Pesos and Sixtytwo centavos (P 80,796.62) the balance of which, in principal, and excluding,
interests,costs,damagesandattorney'sfeesnowstandsatP76,000.00,P4,796.62,havingalready
beenreceivedbytheassignoronDecember23,1965,pursuanttotheorderofthecourtinCivilCase
No. 56850, C.F.I., Manila, authorizing Alfonso Tan to withdraw the amount of P 4,796.62 then on
deposit with the court. All rights, and interests in said net amount, plus interests and costs, and less
attorney'sfees,incasetheamountallowedthereforbelessthantheamountsclaimedinthereliefin
CivilCase56850(C.F.I.,Manila)andQ8503(C.F.I.,QuezonCity)arebythesepresentscoveredby
thisassignment.
I further undertake to hold in trust any and all amounts which may hereafter be realized from the
aforementioned cases for the ASSIGNEE, Mr. GEORGE LITTON, SR., and to turn over to him such
amountsinapplicationtomyliabilitytohim,ashisinterestmaythenshow,andIfurtherundertaketo
cooperatetowardsthesuccessfulprosecutionoftheaforementionedcasesmakingavailablemyself,as
witnessorotherwise,aswellasanyandalldocumentstheretoappertaining....9
After due trial, the lower court ruled that the said PNB checks were issued by Mendoza in favor of Tan for a
commissioninthesumofP4,847.79andheldMendozaliableasadrawerwhoseliabilityisprimaryandnotmerely
asanindorserandthusdirectedMendozatopayTanthesumofP76,000.00,thesumstilldue,plusdamagesand
attorney'sfees.10
MendozaseasonablyfiledanappealwiththeCourtofAppeals,docktedasC.A.G.R.No.41900R,arguinginthe
mainthathisliabilityisoneofanaccommodationpartyandnotasadrawer.
OnJanuary27,1977,theCourtofAppealsrenderedadecisionaffirmingintotothedecisionofthelowercourt.11
Meanwhile, on February 2, 1971, pending the resolution of the said appeal, Mendoza entered into a compromise
agreementwithTanwhereinthelatteracknowledgedthatallhisclaimsagainstMendozahadbeensettledandthat
byreasonofsaidsettlementbothpartiesmutuallywaive,releaseandquitwhateverclaim,rightorcauseofaction
onemayhaveagainsttheother,withaprovisionthatthesaidcompromiseagreementshallnotinanywayaffectthe
rightofTantoenforcebyappropriateactionhisclaimsagainsttheBernalspouses.12
OnFebruary25,1977,MendozafiledamotionforreconsiderationprayingthatthedecisionofJanuary27,1977be
setaside,principallyanchoreduponthegroundthatacompromiseagreementwasenteredintobetweenhimand
Tan which in effect released Mendoza from liability. Tan filed an opposition to this motion claiming that the
compromiseagreementisnullandvoidashewasnotproperlyrepresentedbyhiscounselofrecordAtty.Quiogue,
andwasinsteadrepresentedbyacertainAtty.Laberinto,andprincipallybecauseofthedeedofassignmentthathe
executedinfavorofGeorgeLitton,Sr.allegingthatwithsuch,hehasnomorerighttoalienatesaidcredit.
While the case was still pending reconsideration by the respondent court, Tan, the assignor, died leaving no
propertieswhatevertosatisfytheclaimoftheestateofthelateGeorgeLitton,Sr.
In its Resolution dated August 30, 1977, 13the respondent court set aside its decision and approved the compromise
agreement.

AstothefirstgroundinvokedbyTan,nowdeceased,therespondentcourtruledthatthenoninterventionofTan's
counselofrecordinthecompromiseagreementdoesnotaffectthevalidityofthesettlementonthegroundthatthe
clienthadanundoubtedrighttocompromiseasuitwithouttheinterventionofhislawyer,citingArovs.Nanawa.14
Astothesecondground,respondentcourtruledasfollows:
...itisrelevanttonotethatParagraph1ofthedeedofassignmentstatesthatthecession,assignment,
transfer,bondconveyancebyAlfonsoTanwasonlybywayofsecuring,orguaranteeinghisobligation
toGEORGELITTON,SR.
Hence,AlfonsoTanretainedpossessionanddominionofthecredit(Par.2,Art.2085,CivilCode).
"Evenconsideredasalitigationscredit,"whichindeedcharacterizedtheclaimshereinofAlfonsoTan,
suchcreditmaybevalidlyalienatedbyTan(Art.1634.CivilCode).
Such alienation is subject to the remedies of Litton under Article 6 of the Civil Code, whereby the
waiver, release, or quitclaim made by plaintiffappellee Alfonso Tan in favor of defendantappellant
Ciriaco B. Mendoza, if proven prejudicial to George Litton, Sr. as assignee under the deed of
assignment,mayentitleLittontopursuehisremediesagainstTan.
Thealienationofalitigatiouscreditisfurthersubjecttothedebtor'srightofredemptionunderArticle
1634oftheCivilCode.

As mentioned earlier, the assignor Tan died pending resolution of the motion for reconsideration. The estate of
GeorgeLitton,Sr.,petitionerherein,asrepresentedbyJamesLitton,sonofGeorgeLitton,Sr.andadministrator15
oftheformer'sestate,isnowappealingthesaidresolutiontothisCourtasassigneeoftheamountsuedinCivilCaseNo.Q
8303,inrelationtoCivilCaseNo.56850.

Beforeresolvingthemainissuesaforementioned,thequestionoflegalpersonalityofhereinpetitionertobringthe
instantpetitionforreview,mustberesolved.
Asarule,thepartiesinanappealthroughareviewoncertiorariarethesameoriginalpartiestothecase. 16Ifafter
therenditionofjudgmenttheoriginalpartydies,heshouldbesubstitutedbyhissuccessorininterest.Inthiscase,itisnot
disputedthatnopropersubstitutionofpartieswasdone.Thisnotwithstanding,theCourtsoholdsthatthesamecannotand
willnotmateriallyaffectthelegalrightofhereinpetitionerininstitutingtheinstantpetitioninviewofthetenorofthedeedof
assignment, particularly paragraph two thereof 17wherein the assignor, Tan, assumed the responsibility to prosecute the
caseandtoturnovertotheassigneewhateveramountsmayberealizedintheprosecutionofthesuit.

WenotethatprivaterespondentmovedforthedismissaloftheappealwithoutnotifyingtheestateofGeorgeLitton,
Sr. whereas the former was fully aware of the fact that the said estate is an assignee of Tan's right in the case
litigated.18Hence,ifhereinpetitionerfailedtoobservethepropersubstitutionofpartieswhenAlfonsoTandiedduringthe
pendencyofprivaterespondent'smotionforreconsideration,nooneistoblamebutprivaterespondenthimself.Moreover,
therightofthepetitionertobringthepresentpetitioniswellwithintheconceptofarealpartyininterestinthesubjectmatter
oftheaction.Wellsettledistherulethatarealpartyininterestisapartyentitledtotheavailsofthesuitorthepartywho
wouldbeinjuredbythejudgment.19Weseethepetitionerwellwithinthelattercategory.

Hence, as the assignee and successorininterest of Tan, petitioner has the personality to bring this petition in
substitutionofTan.
Now,theresolutionofthemainissues.
Thepurposeofacompromisebeingtoreplaceandterminatecontrovertedclaims, 20courtsencouragethesame.A
compromise once approved by final order of the court has the force of res judicata between parties and should not be
disturbedexceptforvicesofconsentorforgery.21

Inthiscase,petitionerseekstosetasidethesaidcompromiseonthegroundthatpreviousthereto,Tanexecuteda
deedofassignmentinfavorofGeorgeLitton,Sr.involvingthesamelitigatedcredit.
Weruleforthepetitioner.ThefactthatthedeedofassignmentwasdonebywayofsecuringorguaranteeingTan's
obligationinfavorofGeorgeLitton,Sr.,asobservedbytheappellatecourt,willnotinanywayaltertheresolutionon
thematter.ThevalidityoftheguarantyorpledgeinfavorofLittonhasnotbeenquestioned.Ourexaminationofthe
deedofassignmentshowsthatitfulfillstherequisitesofavalidpledgeormortgage.22AlthoughitistruethatTanmay
validlyalienatethelitigatiouscreditasruledbytheappellatecourt,citingArticle1634oftheCivilCode,saidprovisionshould
notbetakentomeanasagrantofanabsoluterightonthepartoftheassignorTantoindiscriminatelydisposeofthethingor
the right given as security. The Court rules that the said provision should be read in consonance with Article 2097 of the
samecode.23Althoughthepledgeeortheassignee,Litton,Sr.didnotipsofactobecomethecreditorofprivaterespondent
Mendoza,thepledgebeingvalid,theincorporealrightassignedbyTaninfavoroftheformercanonlybealienatedbythe
latterwithduenoticetoandconsentofLitton,Sr.orhisdulyauthorizedrepresentative.Toallowtheassignortodisposeofor
alienate the security without notice and consent of the assignee will render nugatory the very purpose of a pledge or an
assignmentofcredit.

Moreover,underArticle1634, 24thedebtorhasacorrespondingobligationtoreimbursetheassignee,Litton,Sr.forthe
pricehepaidorforthevaluegivenasconsiderationforthedeedofassignment.Failinginthis,thealienationofthelitigated
creditmadebyTaninfavorofprivaterespondentbywayofacompromiseagreementdoesnotbindtheassignee,petitioner
herein.

Indeed,apainstakingreviewoftherecordofthecaserevealsthatprivaterespondenthas,fromtheverybeginning,
beenfullyawareofthedeedofassignmentexecutedbyTaninfavorofLitton,Sr.assaiddeedwasdulysubmitted
toBranchXIofthethenCourtofFirstInstanceofManilainCivilCaseNo.56850(inrelationtoCivilCaseNo.Q
8303) where C.B.M. Products is one of the defendants and the parties were notified through their counsel. 25As
earliermentioned,privaterespondenthereinisthepresidentofC.B.M.Products,hence,hiscontentionthatheisnotaware
of the said deed of assignment deserves scant consideration from the Court. Petitioner pointed out at the same time that
privaterespondenttogetherwithhiscounselwereservedwithacopyofthedeedofassignmentwhichallegationremains
uncontroverted.Havingsuchknowledgethereof,privaterespondentisestoppedfromenteringintoacompromiseagreement
involvingthesamelitigatedcreditwithoutnoticetoandconsentoftheassignee,petitionerherein.Moreso,inthelightofthe
factthatnoreimbursementhaseverbeenmadeinfavoroftheassigneeasrequiredunderArticle1634.Privaterespondent
acted in bad faith and in connivance with assignor Tan so as to defraud the petitioner in entering into the compromise
agreement.

WHEREFORE,thepetitionisGRANTED.TheassailedresolutionoftherespondentcourtdatedAugust30,1977is
hereby SET ASIDE, the said compromise agreement being null and void, and a new one is hereby rendered
reinstating its decision dated January 27, 1977, affirming in toto the decision of the lower court. This decision is
immediatelyexecutory.Nomotionforextensionoftimetofileamotionforreconsiderationwillbegranted.
SOORDERED.
Narvasa,CruzandGrioAquino,JJ,concur.

Footnotes
1CourtofFirstInstanceofManila,BranchXI.
2PlaintiffsInterpleader,CivilCaseNo.56850.
3DefendantinCivilCaseNos.8303&56850.
4PBTCCheckNo.927581C.
5ForP75,948.83&P4,847.79,respectively.
6Supra.
7RamonP.Bernalvs.C.B.M.Products,etal.
*Thisisnowthesubjectofthispetition.
8Page92,RolloManifestationfiledbyGeorgeLitton,Sr.datedSeptember1,1966.
9Pages3132,Rollo.
10DecisionofDecember2,1967.
11PennedbyJusticeRamonC.Fernandez.
12Pages3031,Rollo.
13PennedbyJusticeRicardoC.PunoandconcurredintobyJusticesPacificoP.deCastroandDelfin
F1.Batacan,pages2936,Rollo.
1427SCRA1090(1969).
15HewasappointedasadministratoroftheestateofthelateGeorgeLitton,Sr.onAugust7,1978in
SpecialProceedingsNo.8833,lettersofadministrationofwhichwasissuedonAugust10,1978.
16Page471,Volume2,Moran,CommentsontheRulesofCourt,1979ed.
17Supra.
18Infra.
19Salongavs.WarnerBarnes&Co.,Ltd.,88Phil.125,131(1951).
20Republicvs.Estenzo,21SCRA122(1968).
21Aranetavs.Perez,7SCRA923(1963)Republicvs.Estenzo,supraVda.deCorpuzvs.Phodaca
Ambrosio,32SCRA279(1970).
22Article2085,CivilCode.
23Article2097.Withtheconsentofthepledgee,thethingpledgedmaybealienatedbythepledgoror
owner,subjecttothepledge.Theownershipofthethingpledgedistransmittedtothevendeeor
transfereeassoonasthepledgeeconsentstothealienation,butthelattershallcontinuein
possession.
24Article1634.Whenacreditorotherincorporealrightinlitigationissold,thedebtorshallhavearight
toextinguishitbyreimbursingtheassigneeforthepricethelatterpaidtherefor,thejudicialcosts

incurredbyhim,andtheinterestonthepricefromthedayonwhichthesamewaspaid.Acreditor
otherincorporealrightshallbeconsideredinlitigationfromthetimethecomplaintconcerningthesame
isanswered.Thedebtormayexercisehisrightwithinthirtydaysfromthedatetheassigneedemands
paymentfromhim.
25Annex"Al"tocomplianceofcounselforpetitionerpage92,Rollo.
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