JOANIE SURPOSA UY, G.R. No.

183965
Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
- versus - VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

Promulgated:
JOSE NGO CHUA,
Respondent. September 18, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

CHICO-NAZARIO, J.:

This is a Petition for Review under Rule 45 of the Rules of Court assailing the Resolution
dated 25 June 2008 of the Regional Trial Court (RTC) of Cebu City, Branch 24, which granted the
demurrer to evidence of respondent Jose Ngo Chua, resulting in the dismissal of Special Proceeding
No. 12562-CEB.

Petitioner Joanie Surposa Uy filed on 27 October 2003 before the RTC a Petition[1] for the
issuance of a decree of illegitimate filiation against respondent. The Complaint was docketed
as Special Proceeding No. 12562-CEB, assigned to RTC-Branch 24.

Petitioner alleged in her Complaint that respondent, who was then married, had an illicit
relationship with Irene Surposa (Irene). Respondent and Irene had two children, namely, petitioner
and her brother, Allan. Respondent attended to Irene when the latter was giving birth to petitioner on
27 April 1959, and instructed that petitioners birth certificate be filled out with the following names:
ALFREDO F. SURPOSA as father and IRENE DUCAY as mother. Actually, Alfredo F. Surposa was
the name of Irenes father, and Ducay was the maiden surname of Irenes mother. Respondent
financially supported petitioner and Allan. Respondent had consistently and regularly given petitioner
allowances before she got married. He also provided her with employment. When petitioner was still
in high school, respondent required her to work at the Cebu Liberty Lumber, a firm owned by his
family. She was later on able to work at the Gaisano- Borromeo Branch through respondents
efforts. Petitioner and Allan were introduced to each other and became known in the Chinese
community as respondents illegitimate children. During petitioners wedding, respondent sent his
brother Catalino Chua (Catalino) as his representative, and it was the latter who acted as father of
the bride. Respondents relatives even attended the baptism of petitioners daughter. [2]

In his Answer[3] to the Complaint, filed on 9 December 2003, respondent denied that he had
an illicit relationship with Irene, and that petitioner was his daughter. [4] Hearings then ensued during
which petitioner testified that respondent was the only father she knew; that he took care of all her
needs until she finished her college education; and that he came to visit her on special family
occasions. She also presented documentary evidence to prove her claim of illegitimate
filiation. Subsequently, on 27 March 2008, respondent filed a Demurrer to Evidence [5] on the ground
that the Decision dated 21 February 2000 of RTC-Branch 9 in Special Proceeding No. 8830-CEB
had already been barred by res judicata in Special Proceeding No. 12562-CEB before RTC-Branch
24.

It turned out that prior to instituting Special Proceeding No. 12562-CEB on 27 October 2003,
petitioner had already filed a similar Petition for the issuance of a decree of illegitimate affiliation
against respondent. It was docketed as Special Proceeding No. 8830-CEB, assigned to RTC-
Branch 9. Petitioner and respondent eventually entered into a Compromise Agreement in Special
Proceeding No. 8830-CEB, which was approved by RTC-Branch 9 in a Decision [6] dated 21 February
2000. The full contents of said Decision reads:

Under consideration is a Compromise Agreement filed by the parties

on February 18, 2000, praying that judgment be rendered in accordance therewith,
the terms and conditions of which follows:

1. Petitioner JOANIE SURPOSA UY declares, admits and

acknowledges that there is no blood relationship or filiation between
petitioner and her brother Allan on one hand and [herein respondent]
JOSE NGO CHUA on the other. This declaration, admission or
acknowledgement is concurred with petitioners brother Allan, who
although not a party to the case, hereby affixes his signature to this
pleading and also abides by the declaration herein.

2. As a gesture of goodwill and by way of settling petitioner

and her brothers (Allan) civil, monetary and similar claims but without
admitting any liability, [respondent] JOSE NGO CHUA hereby binds
himself to pay the petitioner the sum of TWO MILLION PESOS
(P2,000,000.00) and another TWO MILLION PESOS (P2,000,000.00)
to her brother, ALLAN SURPOSA. Petitioner and her brother hereby
acknowledge to have received in full the said compromise amount.

3. Petitioner and her brother (Allan) hereby declare that they

have absolutely no more claims, causes of action or demands against
[respondent] JOSE NGO CHUA, his heirs, successors and assigns
 and/or against the estate of Catalino Chua, his heirs, successors and
assigns and/or against all corporations, companies or business
enterprises including Cebu Liberty Lumber and Joe Lino Realty
Investment and Development Corporation where defendant JOSE
NGO CHUA or CATALINO NGO CHUA may have interest or
participation.

4. [Respondent] JOSE NGO CHUA hereby waives all

counterclaim or counter-demand with respect to the subject matter of
the present petition.

5. Pursuant to the foregoing, petitioner hereby asks for a

judgment for the permanent dismissal with prejudice of the captioned
petition. [Respondent] also asks for a judgment permanently
dismissing with prejudice his counterclaim.

Finding the said compromise agreement to be in order, the Court hereby

approves the same. Judgment is rendered in accordance with the provisions of the
compromise agreement. The parties are enjoined to comply with their respective
undertakings embodied in the agreement.[7]

With no appeal having been filed therefrom, the 21 February 2000 Decision of RTC-Branch 9
in Special Proceeding 8830-CEB was declared final and executory.

Petitioner filed on 15 April 2008 her Opposition[8] to respondents Demurrer to Evidence in

Special Proceeding No. 12562-CEB. Thereafter, RTC-Branch 24 issued its now assailed
Resolution dated 25 June 2008 in Special Proceeding No. 12562-CEB, granting respondents
Demurrer.

RTC-Branch 24 summarized the arguments of respondent and petitioner in the Demurrer

and Opposition, respectively, as follows:
This is to resolve the issues put across in the Demurrer to the Evidence
submitted to this Court; the Opposition thereto; the Comment on the Opposition and
the Rejoinder to the Comment.

xxxx

1. The instant case is barred by the principle of res judicata because there was a
judgment entered based on the Compromise Agreement approved by this
multiple-sala Court, branch 09, on the same issues and between the same
parties.

2. That such decision of Branch 09, having attained finality, is beyond review,
reversal or alteration by another Regional Trial Court and not even the
Supreme Court, no matter how erroneous.
 3. Judicial Admissions or admission in petitioners pleadings to the effect that there is
no blood relationship between petitioner and respondent, which is a
declaration against interest, are conclusive on her and she should not be
permitted to falsify.

4. That the Certificate of Live Birth showing that petitioners father is Alfredo Surposa
is a public document which is the evidence of the facts therein stated, unless
corrected by judicial order.

5. After receiving the benefits and concessions pursuant to their compromise

agreement, she is estopped from refuting on the effects thereof to the
prejudice of the [herein respondent].

The summary of the Opposition is in this wise:

1. That the illegitimate filiation of petitioner to respondent is established by the open,

and continuous possession of the status of an illegitimate child.

2. The Demurrer to the evidence cannot set up the affirmative grounds for a Motion
to Dismiss.

3. The question on the civil status, future support and future legitime can not be
subject to compromise.

4. The decision in the first case does not bar the filing of another action asking for the
same relief against the same defendant.[9]

Taking into consideration the aforementioned positions of the parties, RTC-Branch 24 held
that:

Looking at the issues from the viewpoint of a judge, this Court believes that its hands
are tied. Unless the Court of Appeals strikes down the Compromise Judgment
rendered by Branch 09 of the Regional Trial Court of Cebu City, this Court will not
attempt to vacate, much more annul, that Judgment issued by a co-equal court,
which had long become final and executory, and in fact executed.

This court upholds the Policy of Judicial Stability since to do otherwise would result in
patent abuse of judicial discretion amounting to lack of jurisdiction. The defense of
lack of jurisdiction cannot be waived. At any rate, such is brought forth in the
Affirmative Defenses of the Answer.

This Court, saddled with many cases, suffers the brunt of allowing herein case
involving same parties to re-litigate on the same issues already closed. [10]

In the end, RTC-Branch 24 decreed:

WHEREFORE, in view of the foregoing, the Demurrer to the Evidence is hereby

given due course, as the herein case is hereby ordered DISMISSED.[11]
 RTC-Branch 24 denied petitioners Motion for Reconsideration [12] in a Resolution[13] dated 29
July 2008.

Petitioner then filed the instant Petition raising the following issues for resolution of this
Court:

Whether or not the principle of res judicata is applicable to judgments

predicated upon a compromise agreement on cases enumerated in Article 2035 of
the Civil Code of the Philippines;

II

Whether or not the compromise agreement entered into by the parties herein before
the Regional Trial Court, Branch 09 of Cebu City effectively bars the filing of the
present case.[14]

At the outset, the Court notes that from the RTC Resolution granting respondents Demurrer
to Evidence, petitioner went directly to this Court for relief. This is only proper, given that petitioner is
raising pure questions of law in her instant Petition.

Section 1, Rule 45 of the Rules of Court provides:

SECTION 1. Filing of petition with Supreme Court. A party desiring to appeal

by certiorari from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law,
may file with the Supreme Court a verified petition for review on certiorari. The
petition shall raise only questions of law which must be distinctly set forth.

Clearly, a party may directly appeal to this Court from a decision or final order or resolution of
the trial court on pure questions of law. A question of law lies, on one hand, when the doubt or
difference arises as to what the law is on a certain set of facts; a question of fact exists, on the other
hand, when the doubt or difference arises as to the truth or falsehood of the alleged facts. Here, the
facts are not disputed; the controversy merely relates to the correct application of the law or
jurisprudence to the undisputed facts.[15]
 The central issue in this case is whether the Compromise Agreement entered into between
petitioner and respondent, duly approved by RTC-Branch 9 in its Decision dated 21 February
2000 in Special Proceeding No. 8830-CEB, constitutes res judicata in Special Proceeding No.
12562-CEB still pending before RTC-Branch 24.

The doctrine of res judicata is a rule that pervades every well- regulated system of
jurisprudence and is founded upon two grounds embodied in various maxims of the common law,
namely: (1) public policy and necessity, which makes it in the interest of the State that there should
be an end to litigation, interest reipublicae ut sit finis litium, and (2) the hardship of the individual that
he should be vexed twice for the same cause, nemo debet bis vexari pro eadem causa.[16]

For res judicata, to serve as an absolute bar to a subsequent action, the following requisites
must concur: (1) there must be a final judgment or order; (2) the court rendering it must have
jurisdiction over the subject matter and the parties; (3) it must be a judgment or order on the merits;
and (4) there must be, between the two cases, identity of parties, subject matter, and causes of
action.[17]

It is undeniable that Special Proceeding No. 8830-CEB, previously before RTC-Branch 9,

and Special Proceeding No. 12562-CEB, presently before RTC-Branch 24, were both actions for the
issuance of a decree of illegitimate filiation filed by petitioner against respondent. Hence, there is
apparent identity of parties, subject matter, and causes of action between the two cases. However,
the question arises as to whether the other elements of res judicata exist in this case.

The court rules in the negative.

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a

litigation or put an end to one already commenced. [18] In Estate of the late Jesus S. Yujuico v.
Republic,[19]the Court pronounced that a judicial compromise has the effect of res judicata. A
judgment based on a compromise agreement is a judgment on the merits.

It must be emphasized, though, that like any other contract, a compromise agreement must
comply with the requisites in Article 1318 of the Civil Code, to wit: (a) consent of the contracting
parties; (b) object certain that is the subject matter of the contract; and (c) cause of the obligation
that is established. And, like any other contract, the terms and conditions of a compromise
agreement must not be contrary to law, morals, good customs, public policy and public order. Any
compromise agreement that is contrary to law or public policy is null and void, and vests no rights in
and holds no obligation for any party. It produces no legal effect at all.[20]

In connection with the foregoing, the Court calls attention to Article 2035 of the Civil Code,
which states:

ART. 2035. No compromise upon the following questions shall be valid:

(1) The civil status of persons;

(2) The validity of a marriage or a legal separation;

(3) Any ground for legal separation;

(4) Future support;

(5) The jurisdiction of courts;

(6) Future legitime. (Emphases ours.)

The Compromise Agreement between petitioner and respondent, executed on 18 February

2000 and approved by RTC-Branch 9 in its Decision dated 21 February 2000 in Special Proceeding
No. 8830-CEB, obviously intended to settle the question of petitioners status and filiation, i.e.,
whether she is an illegitimate child of respondent. In exchange for petitioner and her brother Allan
acknowledging that they are not the children of respondent, respondent would pay petitioner and
Allan P2,000,000.00 each. Although unmentioned, it was a necessary consequence of said
Compromise Agreement that petitioner also waived away her rights to future support and future
legitime as an illegitimate child of respondent. Evidently, the Compromise Agreement dated 18
February 2000 between petitioner and respondent is covered by the prohibition under Article 2035 of
the Civil Code.

Advincula v. Advincula[21] has a factual background closely similar to the one at bar. Manuela
Advincula (Manuela) filed, before the Court of First Instance (CFI) of Iloilo, Civil Case No. 3553 for
acknowledgment and support, against Manuel Advincula (Manuel). On motion of both parties, said
case was dismissed. Not very long after, Manuela again instituted, before the same court, Civil Case
No. 5659 for acknowledgment and support, against Manuel. This Court declared that although Civil
Case No. 3553 ended in a compromise, it did not bar the subsequent filing by Manuela of Civil Case
No. 5659, asking for the same relief from Manuel. Civil Case No. 3553 was an action for
acknowledgement, affecting a persons civil status, which cannot be the subject of compromise.
 It is settled, then, in law and jurisprudence, that the status and filiation of a child cannot be
compromised. Public policy demands that there be no compromise on the status and filiation of a
child.[22]Paternity and filiation or the lack of the same, is a relationship that must be judicially
established, and it is for the Court to declare its existence or absence. It cannot be left to the will or
agreement of the parties.[23]

Being contrary to law and public policy, the Compromise Agreement dated 18 February
2000 between petitioner and respondent is void ab initio and vests no rights and creates no
obligations. It produces no legal effect at all. The void agreement cannot be rendered operative even
by the parties' alleged performance (partial or full) of their respective prestations. [24]

Neither can it be said that RTC-Branch 9, by approving the Compromise Agreement, in its
Decision dated 21 February 2000 in Special Proceeding No. 8830-CEB, already made said contract
valid and legal. Obviously, it would already be beyond the jurisdiction of RTC-Branch 9 to legalize
what is illegal. RTC-Branch 9 had no authority to approve and give effect to a Compromise
Agreement that was contrary to law and public policy, even if said contract was executed and
submitted for approval by both parties. RTC-Branch 9 would not be competent, under any
circumstances, to grant the approval of the said Compromise Agreement. No court can allow itself to
be used as a tool to circumvent the explicit prohibition under Article 2035 of the Civil Code. The
following quote in Francisco v. Zandueta[25] is relevant herein:

It is a universal rule of law that parties cannot, by consent, give a court, as

such, jurisdiction in a matter which is excluded by the laws of the land. In such a
case the question is not whether a competent court has obtained jurisdiction of a
party triable before it, but whether the court itself is competent under any
circumstances to adjudicate a claim against the defendant. And where there is want
of jurisdiction of the subject-matter, a judgment is void as to all persons, and consent
of parties can never impart to it the vitality which a valid judgment derives from the
sovereign state, the court being constituted, by express provision of law, as its agent
to pronounce its decrees in controversies between its people. (7 R. C. L., 1039.)

A judgment void for want of jurisdiction is no judgment at all. It cannot be the source of any
right or the creator of any obligation. All acts performed pursuant to it and all claims emanating from
it have no legal effect. Hence, it can never become final, and any writ of execution based on it is
void. It may be said to be a lawless thing that can be treated as an outlaw and slain on sight, or
ignored wherever and whenever it exhibits its head. [26]
 In sum, Special Proceeding No. 12562-CEB before RTC-Branch 24 is not barred by res
judicata, since RTC-Branch 9 had no jurisdiction to approve, in its Decision dated 21 February 2000
in Special Proceeding No. 8830-CEB, petitioner and respondents Compromise Agreement, which
was contrary to law and public policy; and, consequently, the Decision dated 21 February 2000 in
Special Proceeding No. 8830-CEB, being null and void for having been rendered by RTC-Branch 9
without jurisdiction, could not have attained finality or been considered a judgment on the merits.

Nevertheless, the Court must clarify that even though the Compromise Agreement between
petitioner and respondent is void for being contrary to law and public policy, the admission petitioner
made therein may still be appreciated against her in Special Proceeding No. 12562-CEB. RTC-
Branch 24 is only reminded that while petitioners admission may have evidentiary value, it does not,
by itself, conclusively establish the lack of filiation. [27]

Proceeding from its foregoing findings, the Court is remanding this case to the RTC-Branch
24 for the continuation of hearing on Special Proceedings No. 12562-CEB, more particularly, for
respondents presentation of evidence.

Although respondents pleading was captioned a Demurrer to Evidence, it was more

appropriately a Motion to Dismiss on the ground of res judicata.

Demurrer to Evidence is governed by Rule 33 of the Rules of Court, Section 1 of which is

reproduced in full below:
SECTION 1. Demurrer to evidence. After the plaintiff has completed the
presentation of his evidence, the defendant may move for dismissal on the ground
that upon the facts and the law the plaintiff has shown no right to relief. If his motion
is denied, he shall have the right to present evidence. If the motion is granted but on
appeal the order of dismissal is reversed he shall be deemed to have waived the
right to present evidence.

Demurrer to evidence authorizes a judgment on the merits of the case without the defendant
having to submit evidence on his part, as he would ordinarily have to do, if plaintiff's evidence shows
that he is not entitled to the relief sought. Demurrer, therefore, is an aid or instrument for the
expeditious termination of an action, similar to a motion to dismiss, which the court or tribunal may
either grant or deny.[28]

The Court has recently established some guidelines on when a demurrer to evidence should
be granted, thus:
 A demurrer to evidence may be issued when, upon the facts and the law, the
plaintiff has shown no right to relief. Where the plaintiff's evidence together with such
inferences and conclusions as may reasonably be drawn therefrom does not warrant
recovery against the defendant, a demurrer to evidence should be sustained. A
demurrer to evidence is likewise sustainable when, admitting every proven fact
favorable to the plaintiff and indulging in his favor all conclusions fairly and
reasonably inferable therefrom, the plaintiff has failed to make out one or more of the
material elements of his case, or when there is no evidence to support an allegation
necessary to his claim. It should be sustained where the plaintiff's evidence is prima
facie insufficient for a recovery.[29]

The essential question to be resolved in a demurrer to evidence is whether petitioner has

been able to show that she is entitled to her claim, and it is incumbent upon RTC-Branch 24 to make
such a determination. A perusal of the Resolution dated 25 June 2008 of RTC-Branch 24 in Special
Proceeding No. 12562-CEB shows that it is barren of any discussion on this matter. It did not take
into consideration any of the evidence presented by petitioner. RTC-Branch 24 dismissed Special
Proceedings No. 12562-CEB on the sole basis of res judicata, given the Decision dated 21 February
2000 of RTC-Branch 9 in Special Proceeding No. 8830-CEB, approving the Compromise Agreement
between petitioner and respondent. Hence, the Resolution dated 25 June 2008 of RTC-Branch 24
should be deemed as having dismissed Special Proceeding No. 12562-CEB on the ground of res
judicata rather than an adjudication on the merits of respondents demurrer to evidence. Necessarily,
the last line of Section 1, Rule 33 of the Rules of Court should not apply herein and respondent
should still be allowed to present evidence before RTC-Branch 24 in Special Proceedings No.
12562-CEB.
It must be kept in mind that substantial justice must prevail. When there is a strong showing
that grave miscarriage of justice would result from the strict application of the Rules, this Court will
not hesitate to relax the same in the interest of substantial justice. The Rules of Court were
conceived and promulgated to set forth guidelines in the dispensation of justice but not to bind and
chain the hand that dispenses it, for otherwise, courts will be mere slaves to or robots of technical
rules, shorn of judicial discretion. That is precisely why courts in rendering real justice have always
been, as they in fact ought to be, conscientiously guided by the norm that when on the balance,
technicalities take backseat against substantive rights, and not the other way around. [30]

WHEREFORE, premises considered, the Resolution dated 25 June 2008 of

the Regional Trial Court of Cebu City, Branch 24, in Special Proceeding No. 12562-CEB
is REVERSED and SET ASIDE.This case is ordered REMANDED to the said trial court for further
proceedings in accordance with the ruling of the Court herein. No costs.
SO ORDERED.

[G.R. No. 141273. May 17, 2005]

JOSE RIVERO, JESSIE RIVERO and AMALIA RIVERO, petitioners, vs. COURT OF APPEALS,
MARY JANE DY CHIAO*-DE GUZMAN, and BENITO DY CHIAO, JR., represented by his
uncle HENRY S. DY CHIAO, respondents.
CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-
G.R. SP No. 44261 annulling the decision of the Regional Trial Court (RTC) of Naga City, Branch 19,
in Civil Case No. RTC96-3612.

The Antecedents

On August 27, 1996, Benedick Arevalo filed a Complaint [2] against Mary Jane Dy Chiao-De
Guzman, Benito Dy Chiao, Jr., and Benson Dy Chiao, in the Regional Trial Court (RTC) of Naga City,
for compulsory recognition as the illegitimate child of their father, Benito Dy Chiao, Sr., and for the
administration and partition of his estate as he had died intestate on July 27, 1995. Since Benedick
was a minor, his natural mother and guardian ad litem, Shirley Arevalo, filed the complaint on his
behalf. Concepcion, Benito Sr.s wife, was not impleaded as she had died on July 7, 1995. The case
was docketed as Civil Case No. RTC ′96-3612 and raffled to Branch 19 of the court. [3]
Benedick, whose counsel was Atty. Amador L. Simando, made the following allegations in his
complaint:
During his lifetime, Benito Dy Chiao, Sr. was engaged in business, under the business name
Benito Commercial in Naga City. He courted Shirley Arevalo (Benedicks mother) in 1991, assuring
her of his sincere love, likewise promising that her college education would be financed and that she
would be provided with a better life. Blinded by his promises and assurances of his love for her,
Shirley agreed to an amorous relationship with Benito, Sr. True to his word, Benito, Sr. then provided
her with a residential house and lot located in Canaman, Camarines Sur, where they cohabited and
resided; he also financed her college education in midwifery. On October 5, 1995, Benedick Arevalo
Dy Chiao, Jr., the plaintiff, was born, the product of the amorous relationship, whom Benito, Sr.
acknowledged as his son. He also continued to give Shirley and their son financial and moral
support.
It was also alleged that the Dy Chiao siblings recognized Benedick as the illegitimate son of
their father. Moreover, when he died intestate, Benito, Sr. left behind residential lands and
commercial buildings worth P100,000,000.00, more or less; as such, there was a need for the
appointment of an administrator of the estate to preserve his (Benedicks) rights over the same
before its partition. It was prayed that upon the filing of the complaint, Benedicks mother be
appointed as his guardian ad litem, that an administrator of the estate of the deceased be appointed,
and that after due proceedings, judgment be rendered in favor of Benedick, as follows:

a. declaring the Plaintiff as the illegitimate son of the late Benito Dy Chiao.

b. ordering herein Defendants to recognize and acknowledge the Plaintiff as the illegitimate son of
the late Benito Dy Chiao.
c. ordering the Partition of the Estate of Benito Dy Chiao and distributing the same in favor of the
Defendants and herein Plaintiff in a manner provided for by law.

d. granting the Plaintiff such other reliefs as may be just and equitable under the law. [4]

In an answer to the complaint, Mary Jane, through counsel, for herself, and purportedly in
behalf of her brothers, denied the allegations that Shirley and her father had an amorous relationship
and that Benedick was the illegitimate son of their father for want of knowledge or information; the
allegation that they had recognized Benedick as the illegitimate son of their father was, likewise,
specifically denied. Finally, she alleged that the plaintiffs action was for a claim against the estate of
their father, which should be filed in an action for the settlement of the estate of their deceased
parents.[5]
On October 28, 1996, Benedick filed a Motion, [6] praying that the court order a mental
examination of the Dy Chiao brothers, who were patients at the Don Susano J. Rodriguez Mental
Hospital, and for the appointment of their sister as their guardian ad litem in the case. It was,
likewise, prayed that the director of the hospital be summoned to appear before the court to inform it
of the mental condition of the Dy Chiao brothers.
On December 6, 1996, Benedick filed a Motion [7] set for hearing on December 9, 1996,
reiterating his plea for the appointment of Mary Jane as guardian ad litem of her brothers. That same
day, however, the plaintiff, through counsel, filed a Compromise Agreement dated November 24,
1996, with the following signatories to the agreement: Shirley Arevalo, for the plaintiff and assisted
by counsel, Atty. Amador L. Simando; and Mary Jane Dy Chiao-De Guzman, assisted by counsel,
Atty. Adan Marcelo B. Botor, purportedly for and in behalf of her brothers.
Appended to the agreement was a photocopy of a Special Power of Attorney (SPA) [8] dated
September 20, 1995, notarized and certified by Atty. Edmundo L. Simando, purportedly signed by
the Dy Chiao brothers, who were then still confined in the hospital. Mary Jane was therein appointed
to be their attorney-in-fact, with the following powers:

1. To represent us in negotiations and be our representative with power to sign Agreements or

Contracts of Lease involving property and/or assets belonging to the estate of our late father Benito
Dy Chiao, Sr. while said estate is not yet settled between (sic) all heirs; as well as to collect rentals
and other money due to the estate by reason of said agreements or contracts;

2. To file or cause to be filed the necessary proceedings for the settlement of the estate of our late
father, and to ask for letters of administration in her favor as a next of kin or as someone selected by
us, next of kin, to be the administrator.

On December 13, 1996, the trial court approved the agreement and rendered judgment on the
basis thereof, quoted as follows:

Before this Court is a COMPROMISE AGREEMENT entered into by and between the parties in this
case which is herein below quoted, thus:

COMPROMISE AGREEMENT

Plaintiff and defendant Maryjane Dy Chiao-De Guzman duly assisted by their respective counsels
hereby submit the following Compromise Agreement:

1. That the defendant Maryjane Dy Chiao-De Guzman hereby recognizes the plaintiff as the
illegitimate son of her deceased father Benito Dy Chiao, Sr.;
2. That in full satisfaction and settlement of plaintiffs claim from the estate of the late Benito Dy
Chiao, Sr., defendant Maryjane Dy Chiao De Guzman for herself and in behalf of her brothers, who
are likewise defendants in this case, hereby agree and bind herself to pay the plaintiff the amount
of P6,000,000.00 which shall be taken from the estate of the late Benito Dy Chiao, Sr., which amount
shall be payable under the following terms and conditions:

a. The amount of P1,500,000.00 shall be payable upon signing of this Compromise Agreement;

b. The balance of P4,500,000.00 shall be payable within the period of one year from the date of
signing of this Compromise Agreement and for which the defendant Maryjane Dy Chiao-De Guzman
shall issue twelve (12) checks corresponding to the said balance in the amount of P375,000.00 per
check;

3. That the parties hereby waive other claims and counterclaims against each other;

4. That any violation of this Compromise Agreement shall render the same to be immediately
executory.

WHEREFORE, it is respectfully prayed of this Honorable Court that the foregoing Compromise
Agreement be approved and a decision be rendered in accordance therewith.

Naga City, Philippines, November 24, 1996.

(SGD.)
BENEDICK AREVALO MARYJANE DY CHIAO-DE GUZMAN
Plaintiff Defendant
represented by:
(SGD.)
SHIRLEY AREVALO
Natural Guardian & Guardian
Ad Litem
Assisted by:
(SGD.) (SGD.)
AMADOR L. SIMANDO ADAN MARCELO BOTOR
Counsel for the Plaintiff Counsel for the Defendants

WHEREFORE, finding the foregoing Compromise Agreement to be the law between the parties, not
being tainted with infirmities, irregularities, fraud and illegalities, and the same not being contrary to
law, public order, public policy, morals and good customs, JUDGMENT is hereby rendered
APPROVING the same.

Parties are hereby enjoined to faithfully abide by the terms and conditions of the foregoing
Compromise Agreement.

No pronouncement as to costs.

SO ORDERED.[9]

It appears that a copy of the decision was sent by registered mail to the Dy Chiao brothers to
the Benito Commercial Building, Naga City.
 On December 17, 1996, Mary Jane, through Atty. Simando, (the counsel for Benedick in Civil
Case No. RTC96-3612), filed a petition with the RTC for the settlement of the estate of her father
and for her appointment as administrator thereto. The case was docketed as Special Proceedings
No. RTC′96-684 and raffled to Branch 20 of the court; it was later transferred to Branch 19.
On April 3, 1997, Benedick filed a Motion for Execution, [10] of the Decision dated November 24,
1996, on the allegation that the defendants had failed to comply with their obligations under the
compromise agreement. The trial court granted the motion in an Order [11] dated April 7, 1997.
Conformably, it issued a Writ of Execution[12] for the enforcement of the said decision.
On April 18, 1997, Benedick terminated the services of Atty. Simando since he was Mary Janes
counsel in Special Proceedings No. 96-684.
On April 28, 1997, the sheriff issued a Notice of Sale on Execution of Real Property [13] over five
parcels of land titled under Benito Dy Chiao, Sr., including the improvements thereon.
The Dy Chiao brothers, represented by their uncle, Henry S. Dy Chiao, then filed with the CA a
Petition for Annulment of Judgment with Urgent Prayer for the Issuance of a Temporary Restraining
Order dated May 27, 1997, assailing the decision of the RTC in Civil Case No. RTC96-3612, as well
as the writ of execution issued pursuant thereto. The petition alleged that the Dy Chiao brothers had
no legal capacity to be sued because they were of unsound mind, which impelled their uncle Henry
to file a petition for guardianship over their person and property, now pending in the RTC of Naga
City, Branch 61, docketed as Special Proceedings No. RTC97-695. They did not authorize their
sister Mary Jane to execute any compromise agreement for and in their behalf; yet, in confabulation
with Benedicks counsel, she was able to secure a judgment based on a void compromise
agreement. It was further alleged that the Dy Chiao brothers were unaware of the complaint against
them and that they did not engage the services of the law firm of Botor, Hidalgo & Fernando
Associates to represent them as counsel in said cases. As such, the said counsel had no authority to
file the answer to the complaint for and in their behalf. It was further pointed out that less than a
month before the said compromise agreement was executed by their sister, she filed purportedly in
their behalf, on November 22, 1996, a petition for the settlement of the estate of their parents in the
RTC of Naga City, with the assistance of Atty. Simando (Benedicks counsel), as well as for the
issuance of letters of administration in her favor, docketed as Special Proceedings No. RTC96-684.
[14]
There was thus collusion between Mary Jane and Atty. Simando.
The Dy Chiao brothers, likewise, opposed the appointment of their sister as the administrator of
their parents estate.[15] The verification and certification of non-forum shopping in the petition was
signed by their uncle Henry as their representative.
On May 29, 1997, the CA issued a status quo order. However, before the said order was served
on Benedick, several lots covered by Transfer Certificate of Title (TCT) No. 16931 in the name of
Benito, Sr. had already been sold at public auction: Lot No. 3, to Jose Rivero for P6,400,000.00; Lot
No. 4 to Jessie Rivero for P7,600,000.00 and Lot No. 5, for P7,000,000.00, to Amalia Rivero.
Another property covered by TCT No. 5299 had also been sold to Consuelo Dy for P310,000.00.
[16]
The buyers at public auction had already remitted the amounts of P15,319,364.00
and P162,836.00 to the executing sheriffs,[17] who later remitted P5,711,164.00 to Benedick through
his mother, Shirley, in satisfaction of the decision, [18] and the remainder given to the Clerk of Court of
the RTC.
On June 3, 1997, Sheriffs Arthur S. Cledera and Arnel Jose A. Rubio executed a Provisional
Certificate of Sale[19] over the property to the buyers at public auction.
The Dy Chiao brothers, through their uncle Henry, then filed a motion for the issuance of a writ
of preliminary mandatory injunction with urgent prayer for the issuance of a temporary restraining
order, informing the CA of the recent developments in the case below. In a Resolution [20] dated July
14, 1997, the appellate court granted their plea for a writ of preliminary injunction upon the filing of
a P500,000.00 bond, directing as follows:

(a) the private respondents and/or the sheriffs of the respondent court to deposit before the Branch
Clerk of Court of the Regional Trial Court, Branch 19, Naga City, the proceeds of the public auction
sale held on June 3, 1997 and to submit to this Court within five (5) days from notice, proof of
compliance therewith;

(b) Sheriffs Arnel Jose Rubio and Arthur Cledera, through the respondent court, to refrain from
issuing any certificate of sale over the properties sold at the public auction sale conducted on the
aforementioned date;

(c) the respondent court to issue a notice of lis pendens on all the properties affected by [the] public
auction sale conducted on June 3, 1997 and cause its registration with the Register of Deeds
concerned within five (5) days from notice.

The sheriff was, likewise, directed to refrain and/or cease and desist from issuing/effecting any
further certificate of sale over the affected properties. [21] On August 15, 1997, the RTC issued an
Order[22] directing the Register of Deeds of Naga City to comply with the CA resolution.
Meantime, Benson died intestate on June 25, 1997. [23] His brother, Benito, Jr. then filed a Notice
of Death and Substitution, and thereafter, a Motion to Admit an Amended Petition to drop Benson as
petitioner, and the inclusion of his sister Mary Jane, as party respondent, as well as those who
participated in the public auction, namely, Jose Rivero, Jessie Rivero, Amalia Rivero and Consuelo
Dy. The CA granted the motion in a Resolution[24] dated January 14, 1998.
Thereafter, Atty. Botor, Mary Janes new counsel, filed an Entry of Appearance with Motion to
Dismiss,[25] alleging, inter alia, that an extrajudicial settlement between the heirs of the spouses Dy
Chiao had already been executed. Benito, Jr., represented by his uncle Henry, opposed the motion,
[26]
alleging that a dismissal grounded on the extrajudicial settlement alone was improper, since what
was being assailed was a decision of a court based on a compromise agreement involving one who
is not a party thereto, with third-party bidders acting in bad faith. In a Resolution [27] dated February
27, 1998, the CA directed Mary Jane to submit her reply to the opposition to the motion to dismiss
filed by Henry on behalf of Benito, Jr.
In her compliance and comment/manifestation, [28] Mary Jane declared that there appeared to be
a sound basis for the nullification of the assailed decision since the illegitimate filiation of Benedick
could not be the subject of a compromise agreement. She further alleged that the parties thereunder
did not recognize the validity of the compromise agreement, as in fact she and the petitioners were
exploring the possibility of modifying their extrajudicial settlement. [29]
Benedick, represented by his mother Shirley, presented before the appellate court an SPA dated
October 31, 1996 executed by Benito, Jr., prepared by Atty. Simando, authorizing Atty. Botor to enter
into a compromise agreement in the RTC.[30]
On March 31, 1999, the CA rendered judgment in favor of Benito, Jr., granting the petition and
nullifying the assailed decision and writ of execution issued by the RTC, including the sale at public
auction of the property of the deceased. The appellate court ruled that the RTC had no jurisdiction
over Benedicks action for recognition as the illegitimate son of Benito, Sr. and for the partition of his
estate. It further held that the filiation of a person could not be the subject of a compromise
agreement; hence, the RTC acted without jurisdiction in rendering judgment based thereon. It
concluded that the said compromise agreement was procured through extrinsic fraud.
The CA ordered the Clerk of Court of the RTC of Naga City to deliver to the trial court within ten
days from finality of said judgment, the amount of P15,482,200.00, together with all interests earned
therefrom, and to thereafter distribute the aggregate amount to the buyers of the said properties, in
proportion to the amounts they had paid. It also ordered Benedick, through his mother Shirley, to
turn over to the trial court, within ten days from finality of judgment, the amount of P5,711,164.00
received from Sheriffs Rubio and Cledera, together with all other amounts that she might have been
paid pursuant to the compromise agreement. This was, however, without prejudice to the buyers
right of recourse against Mary Jane, who was declared subsidiarily liable therefor. The RTC was,
likewise, directed to return to the buyers the aggregate amount in the same proportion as above
stated; thereafter, the properties would be delivered to the intestate estate of Benito, Sr. for proper
disposition by the intestate court.[31]
Jose Rivero, Jessie Rivero and Amalia Rivero filed a motion for the reconsideration of the
decision, on the following grounds:

I. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE COMPROMISE

AGREEMENT IS INVALID DUE TO EXTRINSIC FRAUD;

II. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE RESPONDENT
COURT ACTED WITHOUT JURISDICTION IN RENDERING THE ASSAILED JUDGMENT IN THIS
CASE;

III. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PUBLIC AUCTION
SALE CONDUCTED ON JUNE 2, 1997 WAS VOID; AND

IV. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PRIVATE RESPONDENTS
JOSE, JESSIE AND AMALIA, ALL SURNAMED RIVERO COULD NOT HAVE LEGALLY BECOME
THE OWNERS OF THE PROPERTIES SOLD AT THE PUBLIC AUCTION SALE.[32]

Upon the denial of their motion for reconsideration thereof, they filed the present petition for
review on certiorari.

The Present Petition

The petitioners raise the following issues: (1) whether or not Henry Dy Chiao had the authority
to file the amended petition for Benito Dy Chiao, Jr.; (2) whether or not the RTC had jurisdiction over
the action of Benedick Arevalo for recognition as the illegitimate son of the deceased Benito Dy
Chiao, Sr., as well as the action for partition and distribution of the latters estate; and (3) whether the
decision of the RTC based on the compromise agreement is null and void for extrinsic fraud and lack
of jurisdiction.[33]
On the first issue, the petitioners aver that the verification and certification of non-forum
shopping contained in the petition with the CA was executed by Henry; hence, it was he and not
Benson or Benito, Jr. who filed the petition. Moreover, Henry had no proof of his authority to file the
petition for and in behalf of the brothers. The petitioners assert that there was no need for Henry to
file the petition with the CA, since the Dy Chiao brothers had the legal capacity to do so, as admitted
by their counsel, and Henry himself. Moreover, there was no law mandating Henry to represent his
nephews in all actions which may redound to their benefit.
The petitioners point out that although Henry sought to remedy the situation by filing an
amended petition praying that he be appointed as guardian ad litem for the Dy Chiao brothers, the
CA did not take cognizance of the allegations in the petition. The CA was correct in so doing, since
the matter of whether one is incompetent should be threshed out in the guardianship proceedings,
Special Proceedings No. RTC97-695, and not in the CA via a petition to annul the judgment of the
RTC, where Benito, Jr. is also a party respondent.
On the other issues, the petitioners maintain that the CA erred in annulling the decision of the
RTC based on the compromise agreement on the ground of extrinsic fraud; the alleged fraud was
committed by Mary Jane as an incident to the trial. What the CA should have done was to dismiss
the petition, without prejudice to the rights of the Dy Chiao brothers to file an action against their
sister. The latter was herself a party to the compromise agreement and also a principal party to the
case; hence, was bound by it. As a matter of fact, the petitioners aver, Mary Jane was appointed by
her brothers as their attorney-in-fact to negotiate for and execute the compromise agreement in their
behalf.
The petitioners further assert that the RTC had jurisdiction over the petition filed by Benedick in
the RTC, and that the latters recourse was based on paragraph 1, Article 172 of the Family Code,
although his putative father, Benito Dy Chiao, Sr., was already dead when the complaint was filed.
The petitioners thus insist that the public auction sale conducted by the sheriff on the subject
properties was valid.
In her comment on the petition, Mary Jane avers that the decision of the CA holding that the
compromise agreement was vitiated by extrinsic fraud is correct. She claims that she was made to
sign the agreement, but was not informed of its intricacies. She insists that she does not have any
liability to Benedick in Civil Case No. RTC96-3612, despite her being a signatory to the said
agreement.
For his part, respondent Benito, Jr., through his uncle Henry, avers that the latters authority to
file the amended petition before the CA in their behalf was never questioned by the petitioners. He
asserts that the CA admitted the amended petition containing the prayer that his uncle Henry be
appointed as his guardian ad litem. Besides, the CA found that he and his brothers were not of
sound and disposing minds; hence, the need for a guardian ad litem in the person of his uncle. He
further alleges that the compromise agreement was the product of connivance between his sister
and Benedick, and their respective counsels. He further points out that Atty. Simando, Benedicks
counsel in the RTC, was likewise the counsel for Mary Jane when she filed her petition for letters of
administration in the RTC of Naga City on December 17, 1996. He further insists that the ruling of
the CA on the issues of extrinsic fraud and lack of jurisdiction of the RTC is in accord with law, and
that the decision based on the compromise agreement was null and void for lack of jurisdiction. [34]

The Ruling of the Court

The petition is denied for lack of merit.

On the first issue, we reject the petitioners contention that Henry was the petitioner who filed the
amended petition before the CA. As gleaned from said petition, the petitioners were Benito Dy
Chiao, Jr. and Benson Dy Chiao, represented by their uncle Henry S. Dy Chiao. Moreover, Henry
had the authority to file the amended petition and sign the requisite certification on non-forum
shopping when the CA admitted the amended petition and appointed him as guardian ad litem of his
nephews. This was in the January 14, 1998 Resolution of the CA, where the following findings were
made:

x x x We find the opposition to be devoid of merit, firstly because there is an obvious necessity to
amend the petition; and secondly, because the representation of an incompetent need not be by a
duly appointed judicial guardian. A guardian ad litem may be appointed by the court. In the instant
case, the members of this Court who conducted the several hearings herein, are convinced from an
observation of the petitioners that they are not of a sound or disposing mind. x x x [35]

In resolving whether to appoint a guardian ad litem for the respondent, the appellate court
needed only to determine whether the individual for whom a guardian was proposed was so
incapable of handling personal and financial affairs as to warrant the need for the appointment of a
temporary guardian. It only needed to make a finding that, based on clear and convincing evidence,
the respondent is incompetent and that it is more likely than not that his welfare requires the
immediate appointment of a temporary guardian. [36] A finding that the person for whom a guardian ad
litem is proposed is incapable of managing his own personal and financial affairs by reason of his
mental illness is enough.[37]
Guardians ad litem are considered officers of the court in a limited sense, and the office of such
guardian is to represent the interest of the incompetent or the minor. [38] Whether or not to appoint
a guardian ad litem for the petitioners is addressed to the sound discretion of the court where the
petition was filed, taking into account the best interest of the incompetent or the minor. [39] The court
has discretion in appointing a guardian ad litemthat will best promote the interest of justice. [40] The
appointment of a guardian ad litem is designed to assist the court in its determination of the
incompetents best interest.[41]
The records will show that no less than Benedick Arevalo sought the appointment of Mary Jane
Dy Chiao-De Guzman as guardian ad litem for respondent Benito Dy Chiao, Jr. and his brother,
Benson Dy Chiao, before the RTC in Civil Case No. RTC96-3612.
It must be stressed that the appellate court was not proscribed from appointing Henry
as guardian ad litem for the respondents, merely because of the pendency of his petition for
appointment as guardian over their person and property before Branch 61 of the RTC. Time was of
the essence; the RTC had issued a writ of execution for the enforcement of its decision based on the
compromise agreement; the plaintiff therein, Benedick Arevalo, was bent on enforcing the same, and
had in fact caused the sale of five parcels of land belonging to the estate of Benito, Sr. worth millions
of pesos. Indeed, the sheriff was able to sell at public auction prime real property of the estate of the
deceased for P20,000,000.00 before the status quo order of the CA reached him.
It goes without saying that the finding of the CA on the mental capacity of the respondents is
without prejudice to the outcome of the petition in Special Proceedings No. RTC97-695.
The petitioners claims that there was no factual basis for the appellate courts finding that the
respondents were incompetent cannot prevail. It must be stressed that the CA conducted a hearing
before arriving at the conclusion that respondent Benito, Jr. was incompetent. More importantly, such
claim involves a factual issue which cannot be raised before this Court under Rule 45 of the Rules of
Court.
On the issue of jurisdiction, case law has it that the jurisdiction of the tribunal over the nature
and subject matter of an action is to be determined by the allegations of the complaint, the law in
effect when the complaint was filed and the character of the relief prayed for by the plaintiff. The
caption of the complaint is not determinative of the nature of the action. If a court is authorized by
statute to entertain jurisdiction in a particular case only and undertakes to exercise jurisdiction in a
particular case to which the statute has no application, the judgment rendered is void . The lack of
statutory authority to make a particular judgment is akin to lack of subject-matter jurisdiction.[42]
The CA nullified the decision of the RTC on the ground, inter alia, that the filiation of Benedick
could not be the subject of a compromise, and that Mary Jane had no authority to execute the
compromise agreement for and in behalf of her brothers.
The petitioners, for their part, maintain that Mary Janes recognition of Benedick as the
illegitimate son of her father was not a compromise, but an affirmation of the allegations in the
complaint that the Dy Chiao siblings had, in effect, recognized him as the illegitimate son of their
deceased father. The petitioners posit that the admissions in the compromise agreement are likewise
binding on the Dy Chiao siblings.
The contention of the petitioners is bereft of merit. The Court finds and so holds that the
decision of the RTC based on the compromise agreement executed by Mary Jane is null and void.
Article 2035(1) of the New Civil Code provides that no compromise upon the civil status of
persons shall be valid. As such, paternity and filiation, or the lack of the same, is a relationship that
must be judicially established, and it is for the court to determine its existence or absence. It cannot
be left to the will or agreement of the parties.[43]
A compromise is a contract whereby parties, making reciprocal concerns, avoid litigation or put
an end to one already commenced.[44] Like any other contract, it must comply with the requisite
provisions in Article 1318 of the New Civil Code, to wit: (a) consent of the contracting parties; (b)
object certain which is the subject matter of the contract; and (c) cause of the obligation which is
established. Like any other contract, the terms and conditions of a compromise agreement must not
be contrary to law, morals, good customs, public policy and public order. [45] Any compromise
agreement which is contrary to law or public policy is null and void, and vests no rights and holds no
obligation to any party. It produces no legal effect at all. [46] Considering all these, there can be no
other conclusion than that the decision of the RTC on the basis of a compromise agreement where
Benedick was recognized as the illegitimate child of Benito, Sr. is null and void.
Article 1878 of the New Civil Code provides that an SPA is required for a compromise.
Furthermore, the power of attorney should expressly mention the action for which it is drawn; as
such, a compromise agreement executed by one in behalf of another, who is not duly authorized to
do so by the principal, is void and has no legal effect, and the judgment based on such compromise
agreement is null and void. [47] The judgment may thus be impugned and its execution may be
enjoined in any proceeding by the party against whom it is sought to be enforced. [48] A compromise
must be strictly construed and can include only those expressly or impliedly included therein. [49]
As previously stated, the Court is convinced that the compromise agreement signed by Mary
Jane and Benedick was a compromise relating to the latters filiation. Mary Jane recognized
Benedick as the illegitimate son of her deceased father, the consideration for which was the amount
of P6,000,000.00 to be taken from the estate, the waiver of other claims from the estate of the
deceased, and the waiver by the Dy Chiao siblings of their counterclaims against Benedick. This is
readily apparent, considering that the compromise agreement was executed despite the siblings
unequivocal allegations in their answer to the complaint filed only two months earlier, that Benedick
was merely an impostor:

11. That paragraph 11 is DENIED for the truth of the matter is that they have not recognized any
person or impostor who pretends having a filial relation with their deceased father by reason of
herein Defendants fathers incapacity to bear children or to engage in any carnal act considering the
age and physical state of their father at that time alluded to by the Plaintiff . [50]

To stress, the compromise agreement executed by Benedick and Mary Jane is null and void; as
such, the decision of the RTC based thereon is also without force and effect.
It is, likewise, plain as day that only Mary Jane recognized Benedick as the illegitimate son of
her deceased father

1. That the defendant Maryjane Dy Chiao-De Guzman hereby recognizes the plaintiff as the
illegitimate son of her deceased father Benito Dy Chiao, Sr. [51]
 Such recognition, however, is ineffectual, because under the law, the recognition must be made
personally by the putative parent and not by any brother, sister or relative. [52]
It is conceded that Mary Jane, in her behalf, and purportedly in behalf of her brothers, agreed
and bound herself to pay Benedick the amount of P6,000,000.00 to be taken from the estate of their
deceased father. However, a cursory reading of the SPA on record will show that the Dy Chiao
brothers did not authorize their sister to recognize Benedick as the illegitimate son of their father.
They could not have agreed to pay P6,000,000.00 to be taken from the estate, because they had
denied that Benedick was the illegitimate son of their father in their answer to the complaint.
On the assumption that the Dy Chiao brothers had signed the SPA on September 20, 1995, a
cursory reading of the compromise agreement will show that they did not specifically empower their
sister to enter into a compromise agreement with Benedick in Civil Case No. RTC96-3612. It bears
stressing that the SPA was executed as early as September 20, 1995, while the complaint was filed
with the RTC almost a year thereafter, or on August 27, 1996.
The trial court acted with precipitate and inordinate speed in approving the compromise
agreement. The records show that at about the time when it was executed by Mary Jane, her
brothers were patients at the Don Susano J. Rodriguez Mental Hospital, and Benedick had accused
her of being a spendthrift by reason of her alleged addiction to drugs. [53]
On his belief that the Dy Chiao brothers were incompetent, Benedick even filed a motion for the
appointment of a guardian ad litem for them, and for the examination of Mary Jane for drug
addiction, as follows:

WHEREFORE, it is most respectfully prayed of this Honorable Court that after hearing, an order be
issued, as follows:

1. Appointing a Special Administrator and/or Receiver over the Estate of Benito Dy Chiao [Sr.];

2. Appointing Guardian Ad Litem over the person of Defendants Benito, Jr. and Benson Dy-Chiao;

3. Ordering defendant Maryjane Dy Chiao to submit a medical examination by a medical expert on

drugs to be commissioned by the Honorable Court to determine whether or not said defendant is a
drug dependent.[54]

Indeed, Benedick filed a Motion on November 14, 1996, for the Dy Chiao siblings to appear
before the RTC at 8:30 a.m. of November 18, 1996. He, likewise, prayed that the Director of the Don
Susano J. Rodriguez Mental Hospital be directed to bring the clinical records of the brothers, which
the trial court granted per its Order dated November 12, 1996.[55]
Upon Mary Janes failure to appear for the hearing, Benedick even sought to have her cited in
contempt of court. Despite his charge that Mary Jane was a drug addict and a spendthrift, he,
nevertheless, prayed in his Motion dated December 5, 1996, that she be appointed the special
administratrix of the estate of Benito, Sr. and the guardian ad litem of her brothers, thus:

WHEREFORE, in light of all the foregoing considerations, it is most respectfully prayed of this
Honorable Court that Maryjane Dy Chiao- De Guzman be appointed as Special Administrator over
the Estate of the late Benito Dy Chiao, Sr., and as Guardian Ad Litem of defendants Benito, Jr., and
Benson Dy Chiao.[56]

Barely two weeks earlier, or on November 24, 1996, Mary Jane Dy Chiao-De Guzman (whom
Benedick branded as a spendthrift and a drug addict), executed the compromise agreement, not
only in her behalf, but also in behalf of her brothers, who were confined in the hospital and whom
Benedick considered as mentally incompetent, and needed a guardian ad litem. The trial court
ignored all the foregoing proceedings and approved the compromise agreement without bothering to
resolve the issue of whether the Dy Chiao brothers were indeed incompetent, and whether there
was a need to appoint a guardian ad litem for them.
What is so worrisome is that the counsel of the Dy Chiao siblings, Atty. Botor, did not even
bother to file any pleading in his clients behalf, relative to the motions filed by Benedick. Despite the
allegations that the Dy Chiao brothers were in the mental hospital and needed a guardian ad litem,
and that Mary Jane was a spendthrift and a drug addict, Atty. Botor still proceeded to sign the
compromise agreement as their counsel. More ominously, the said counsel knew that it was he who
had been empowered by the Dy Chiao brothers to compromise Civil Case No. RTC96-3612 (based
on the SPA dated October 31, 1996); yet, he still allowed Mary Jane to execute the same based on
an SPA dated September 20, 1995 notarized by no less than Benedicks counsel, Atty. Amador
Simando.
The Court is convinced that the compromise agreement was the handiwork of Atty. Simando,
because it was he who notarized the SPA dated September 20, 1995 purportedly executed by the
Dy Chiao brothers. He later became the counsel of Benedick against the Dy Chiao siblings in Civil
Case No. RTC96-3612. He signed the compromise agreement as Benedicks counsel, despite his
incessant claim that the brothers were incompetent and needed a guardian ad litem. Barely 11 days
after the execution of the compromise agreement, Atty. Simando filed a Petition for the Settlement of
the Estate of Benito Dy Chiao, Sr., this time as counsel of Mary Jane. It bears stressing that Mary
Jane was the defendant in Civil Case No. RTC96-3612, and that as counsel of Benedick, the plaintiff
in the said civil case, Atty. Simando had accused her of being a drug addict and a spendthrift. By
then of course, his client (Benedick) had already received P6,000,000.00 from the estate of his
alleged putative father.
Since the decision of the RTC is null and void, the writ of execution issued pursuant thereto and
the subsequent sale at public auction of the properties belonging to the estate of Benito Dy Chiao,
Sr. are null and void.
Considering our foregoing disquisitions, the Court no longer finds the need to still resolve the
other issues that were raised.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against
the petitioners.
SO ORDERED.

G.R. No. 153904 January 17, 2005

PNOC-EDC, NAZARIO VASQUEZ, President; MARCELINO TONGCO, Acting Manager Project

Operations & Manager, Project Development; JESUS QUEVENCO, JR., Resident Manager,
SNGP/PIPE; and REMEGIO B. CORNELIO, Human Resource Officer, SNGP-PIPE, petitioners,
vs.
FREDERICK V. ABELLA, respondent.

DECISION

CHICO-NAZARIO, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, with a prayer for the issuance of a writ of preliminary injunction and/or temporary
restraining order, seeking to set aside the Decision1 of the Court of Appeals dated 30 January 2002
in CA-G.R. SP No. 54484, which affirmed, with modification, the Decision2 of the National Labor
Relations Commission (NLRC), Fourth Division, Cebu City, dated 08 May 1998, reversing the
Decision3 of the Labor Arbiter dated 25 April 1997 in the consolidated cases RAB VII-07-0082-94-D
and RAB VII-08-0082-95-D.

Petitioner Philippine National Oil Company - Energy Development Corporation (PNOC-EDC) is a

government-owned and controlled corporation organized under the Corporation Code of the
Philippines, with Nazario Vasquez as its president; Marcelino M. Tongco, Acting Manager, Project
Development; Jesus Quevenco, Jr., Resident Manager, Southern Negros Geothermal Plant
(SNGP)/PIPE; and Remegio Cornelio, Human Resource Officer, SNGP/PIPE. Private respondent
Frederick V. Abella is an employee of the petitioner company, assigned as a Security Assistant.

The Facts of the Case

On 01 June 1989, herein private respondent Frederick V. Abella started working with herein
petitioner PNOC-EDC as a probationary Security Assistant at its SNGP in Ticala, Valencia, Negros
Oriental. Subsequently, he became a regular employee.

Less than one year later, or on 20 April 1990, Abella was informed that his employment with PNOC-
EDC would be terminated effective 21 May 1990, allegedly due to a company-wide reorganization
pursuant to its Manpower Reduction Program, wherein the position of Security Assistant at PNOC-
EDC SNGP had been abolished.

Aggrieved, Abella filed a case of illegal dismissal, and for actual, moral, and exemplary damages
with the NLRC, Regional Arbitration Branch No. VII at Dumaguete City, docketed as NLRC RAB VII-
05-364-90-D, against the PNOC-EDC and its officers.

After hearing the parties, Labor Arbiter Geoffrey P. Villahermosa rendered a Decision 4 dated 27
August 1991, holding that Abella was illegally dismissed as the company and its officers failed to
show a "clear scheme and convincing proof of reorganization," to wit:

WHEREFORE, premises considered judgment is hereby rendered ordering respondents to reinstate

complainant to his former position without loss of seniority rights and privileges; his backwages from
the time he was terminated on 21 May 1990 up to his actual reinstatement; his withheld second half
salary for the month of May 1990 in the amount of P4,291.17; moral damages amounting to
P30,000.00; exemplary damages for public good amounting to P20,000.00 and 10% attorney’s fees
from the total adjudicated claims.

The computation of the award of the complainant is hereto attached and forms as [an] integral part
hereof.

All other claims are dismissed.

An appeal was timely filed with the NLRC.

Meanwhile, with said appeal still pending in the NLRC, the labor arbiter issued an order 5 dated 20
November 1991, directing the company to "admit back to work or reinstate the complainant under
the same terms and conditions prevailing prior to his dismissal or separation or, at the option of the
employer, merely reinstated in the payroll."
Pursuant to the above order, Abella was reinstated in the payroll as a General Services Assistant
(PAL II), his original position of Security Assistant having been abolished by virtue of the company-
wide reorganization. According to the company, "the position is of the same level as Assistant
Security and had the same salary rate and benefits."6

On 11 February 1992, Abella, through counsel, wrote Quevenco, Resident Manager at the SNGP, to
protest his assignment in the payroll as General Services Assistant (PAL II). Subsequently, he was
again re-slotted in the payroll as a Pipeline Maintenance Foreman, which, according to the
petitioners, is another "position with the same salary and benefits"7 as another Security Assistant.
This "change" of position was classified as a lateral transfer.8

On 24 August 1992, Abella wrote9 petitioner Quevenco,10 to request that he (Abella) be physically
reinstated and allowed to perform security functions. He wrote:

Engr. Jesus M. Quevenco, Jr.

Resident Manager
PNOC Energy Development Corporation
Southern Negros Geothermal Project
Ticala, Valencia
Negros Oriental

Sir:

This is to officially inform you that despite my lawyer’s letter11 dated February 11, 1992, I am willing
to perform security functions at PNOC-Energy Development Corporation, Southern Negros
Geothermal Project.

In view of this, may I request adjustments/arrangements with our Head Office so I can immediately
assume duty at your convenience.

Very respectfully yours,

(Sgd.) FREDERICK V. ABELLA12

Said request was granted on 27 October 1992 when Abella was temporarily13 detailed as Security
Assistant at SNGP’s PAL II Development Project, Northern Cotabato. But on even date, he was also
concomitantly designated as Acting Security Officer for the entire SNGP due to the reassignment of
the incumbent Security Officer to the Northern Negros Geothermal Project of the
company.141awphi1.nét

On 03 November 1992, Abella wrote a letter, this time addressed to Vasquez, then Vice-President of
the company, to confirm that he had assumed his security functions; that he was open for
negotiations regarding his case; and, that he hoped that his appointment/work status would be
normalized.

On 15 December 1992, in a telegraphic message, Tongco informed Abella to immediately report to

Mindanao I Geothermal Plant (MIGP), Kidapawan, North Cotabato. In the same correspondence,
Tongco defined private respondent’s duties and functions and delimited the duration of his stay at
MIGP as temporary, or for about 3 months only.
Shortly thereafter, or on 28 January 1993, Abella and the company agreed to settle NLRC RAB Case
No. VII-05-364-90-D. Abella consequently received the amount of One Hundred Twenty-Four
Thousand Eight Hundred Twenty-Four Pesos and Thirty-One Centavos (P124,824.31) as settlement
of the said case and by virtue of the said agreement, both parties filed a Joint Motion to
Dismiss15 before the NLRC, viz:

JOINT MOTION TO DISMISS

COMES NOW herein parties to the entitled case, to this Honorable Commission respectfully state
that –

1. Complainant has offered and Respondent has accepted a proposal to settle the instant
case amicably;

2. The parties have agreed to shoulder their respective costs;

3. All other claims, damages, and causes of action arising out of the instant case are waived;

4. Consequently, the parties are no longer interested in pursuing and desire to dismiss the
case.

WHEREFORE, PREMISES CONSIDERED, it is hereby prayed that the instant case be

dismissed.16 (Emphasis supplied)

Acting on the Joint Motion to Dismiss, the NLRC issued a Resolution dated 22 February 1993,
granting the above motion dismissing the appeal earlier filed before it, the pertinent portions of which
read:

… Submitted before Us is a joint motion to dismiss the instant case dated February 1, 1993, filed by
both parties duly assisted by their respective counsel.

In view of the manifest intention of the parties to effect a settlement of the dispute between them and
it appearing that the terms of the instant motion is not contrary to law, morals, public order, and
public policy, the same is hereby granted. After all "Compromise being the essence of labor justice
should be honored."

WHEREFORE, in view of the foregoing, the instant joint motion to dismiss is hereby granted. The
appeal is hereby dismissed as prayed for by the parties. Let the records of this case be forwarded to
the Regional Arbitration Branch of origin for proper disposition. 17

An Entry of Finality of Judgment was subsequently entered in the books on 29 March 1993.

At this time, while carrying out security functions at MIGP, Kidapawan, North Cotabato, Abella’s
official item or position in the payroll was Maintenance Foreman, SNGP, Valencia, Negros Oriental.
Said state of affairs prompted the late Jerry T. Susas18 to write Tongco about it and to recommend
that "proper action be made in order to harmonize security-related support services at MIGP." 19

On 10 December 1993, Abella filed a motion for the issuance of a writ of execution of the decision
dated 27 August 1991, of the labor arbiter. Corollary to the said motion, he informed Quevenco of his
intention to report back to SNGP, Ticala, Valencia, Negros Oriental, his original assignment prior to
the filing of the 1991 case20 for illegal dismissal.
On 31 January 1994, Abella received a show cause memorandum dated 28 January 1994 for his
alleged absence without official leave (AWOL) and insubordination.

Responding to the above, Abella explained in a letter dated 02 February 1994 that his position
as SGS Maintenance is in complete contravention of the decision of the labor arbiter. 21

On 01 March 1994, despite the above response, Abella was nevertheless transferred to PNOC-EDC
Leyte-A Geothermal Project, as a Security Assistant,22 a position that was vacant at that time. Said
transfer was accompanied by a Transfer or Change of Position Form 23 showing Abella’s change of
official position from Pipeline Maintenance Foreman to Security Assistant to be a lateral transfer.

On 24 May 1994, Tongco sent Abella a radiogram message instructing him to present himself, this
time at the Mt. Labo Geothermal Project, Camarines Norte, as a Security Assistant. A second
message followed emphasizing the need for Abella to report at the said site not later than 25 May
1994. On 01 June 1994, Abella was once more instructed to report to the petitioner company’s Mt.
Labo Geothermal Project. Said order was again accompanied by a Transfer or Change of Position
Form24 stating the transfer of Abella as a Security Assistant from Leyte to Mt. Labo to be a lateral
transfer.

All the above-mentioned directives were disregarded or ignored.

In the intervening time, on 16 June 1994, the labor arbiter ruled on the motion for execution filed by
the complainant by issuing a Writ of Execution directing the Sheriff, NLRC, Cebu City, to proceed to
the premises of the company at Ticala, Valencia, Negros Oriental, to effect and to cause the
reinstatement of Abella either by physical or by payroll reinstatement. On 17 June 1994, Sheriff
Remegio B. Cornelio issued a certification that per attached pay slip, private respondent had been
reinstated in the payroll with PNOC-EDC.

In the meantime, for failing to heed the directives of his supervisors, Abella received another "show
cause" memorandum dated 14 July 1994, from Tongco, ordering him to explain in writing why no
disciplinary action should be taken against him for insubordination and for being AWOL.

Abella, in his reply25 dated 16 July 1994, countered that "he is not guilty of insubordination since he
was not reinstated to his former position as Security Assistant at Ticala, Valencia, Negros Oriental,
per Writ of Execution issued by the labor arbiter."

On 18 July 1994, claiming unfair and prejudicial treatment, Abella filed a complaint before the NLRC,
Sub-Regional Arbitration Branch No. VII, Dumaguete City, for unfair labor practice, illegal
suspension, nonpayment of mid-year bonus and 13th month pay for 1990 and 1991, claim for
hazard pay, and annual salary increase against the company and its officers, docketed as NLRC
Sub-RAB Case No. 07-0082-94-D.

Several months later, or on 06 October 1994, Abella received a notice 26 of disciplinary action of
Grave Suspension with Final Warning, dated 28 September 1994, against him.

In response, on 17 October 1994, Abella filed another complaint with the NLRC, against the
company and its officers, for unfair labor practice, illegal suspension, and nonpayment of wages with
damages, docketed as NLRC Sub-RAB Case No. 010-0123-94-D.

Nevertheless, Abella continued working at SNGP, Ticala, Valencia, Negros Oriental, until he was
accordingly notified of his termination for cause. Thereafter, he filed a third complaint with the NLRC
against the company and its officers, this time for unfair labor practice, illegal dismissal, and
nonpayment of wages, with prayer for reinstatement and payment of moral and exemplary damages
as well as attorney’s fees docketed as NLRC Sub-RAB Case No. 08-0082-95-D.

After hearing the parties, Labor Arbiter Geoffrey Villahermosa27 rendered a consolidated
Decision28 dated 25 April 1997, the dispositive portion of which states:

WEREFORE, in the light of the foregoing, judgment is hereby rendered declaring the respondents
not guilty of unfair labor practice and illegally dismissing the complainant, but however, as a measure
of social justice and due to the afore-cited Supreme Court Ruling, the respondents are directed to
pay the complainant his separation pay computed from June 1, 1989 to April 30, 1997 at one (1)
month pay for every year of service, . . .

In maintaining that Abella was not illegally dismissed, the labor arbiter opined that the records of the
case show that Abella was "reassigned from his position in Ticala, Valencia, Negros Oriental, to that
in Cotabato province by virtue of a memorandum issued by Tongco which Abella readily accepted
and agreed to said transfer," therefore there is no valid basis for the claim that he was not validly
reinstated.l^vvphi1.net Thus, the charges of insubordination and AWOL committed by Abella fall
squarely within the provision of Rule 26 of the petitioner company’s rules and regulations as
contained in the "PNOC Rules and Regulations on Discipline." Said rules provide for a penalty
ranging up to dismissal even for the first offense.

On appeal, the NLRC reversed and set aside the Decision29 of the labor arbiter and entered a new
one, viz:

WHEREFORE, as above-disquisitioned the decision appealed from is REVERSED and SET ASIDE
and a new one ENTERED finding the dismissal illegal, hence complainant should be ordered
reinstated to his former position as Security Assistant SNGP pursuant to the Decision of August 27,
1991 with full backwages from December 1, 1991 when he was illegally declared as AWOL up to his
actual reinstatement.

The NLRC found that Abella was illegally dismissed "considering that at bar, the parties had reached
a settlement without vacating the decision (of the labor arbiter dated 27 August 1991), then the
decision should be given its full force and effect," and as the "[r]ecords show that he was never
reinstated to his former position as admitted by the correspondence of J.T. Susas dated 25 March
1993, memorandum of complainant dated 17 September 1993 and letter of complainant’s counsel to
Engr. Quevenco, dated 03 January 1994." The tribunal further held that a "review of the facts and
circumstances of the case, we find that while the monetary consideration of the decision of 27
August 1991 has been satisfied the reinstatement aspect of the decision remained unsatisfied which
prompted counsel to file a motion for the issuance of [a] writ of execution." "The assignments of the
complainants (sic) to the various positions could not equate to full enforcement of the decision of 27
August 1991 considering that these positions were not his former position and his assumption to
these positions were under protest."

There being a timely motion for reconsideration, the Honorable Commission, in a Resolution 30 dated
14 June 1999, reversed itself insofar as the order for reinstatement and computation of backwages
were concerned. Instead, the Commission held that since Abella had already reached the retirement
age of sixty (60) years, reinstatement would no longer be possible. Necessarily, the computation of
backwages should only be from 01 December 1994 up to 15 January 1998. After 15 January 1998,
Abella should be given all the benefits due him under the retirement provision of the collective
bargaining agreement of the company.
With the denial of their motion for reconsideration, the company and its officers came to the Court of
Appeals viaa petition for certiorari under Rule 65 of the Revised Rules of Court and sought to nullify
the abovestated NLRC Decision dated 08 May 1998 and Resolution dated 14 June 1999.

On 27 February 2002, the appellate court promulgated the impugned Decision 31 dismissing the
petition for lack of merit, the dispositive portion of which states:

WHEREFORE, premises considered, the petition is DISMISSED for lack of merit. Accordingly, the
assailed decision and resolution of the NLRC, Fourth Division, Cebu City, are hereby AFFIRMED. No
pronouncement as to cost.

The company and its officers’ motion for reconsideration having been denied, the instant petition was
filed with the following assignment of errors:

I.

CONTRARY TO THE OPINION OF THE COURT OF APPEALS, IT IS NOT TRUE THAT THE
REINSTATEMENT OF RESPONDENT WAS NOT A FAITHFUL COMPLIANCE OF THE
PROVISIONS OF PARAGRAPH 3, ARTICLE 223 OF THE LABOR CODE.

II.

CONTRARY TO THE OPINION OF THE COURT OF APPEALS, THE JOINT MOTION TO DISMISS
SUBMITTED BY PETITIONERS AND RESPONDENT BEFORE THE FOURTH DIVISION OF THE
NATIONAL LABOR RELATIONS COMMISSION, CEBU CITY, SHOULD OPERATE TO DISMISS
THIS CASE IN ITS TOTALITY, AND NOT JUST THE APPEAL PENDING BEFORE THE SAID
DIVISION.

III.

CONTRARY TO THE OPINION OF THE COURT OF APPEALS, THERE IS CLEAR LEGAL AND
FACTUAL BASIS TO HOLD RESPONDENT GUILTY OF THE OFFENSES OF INSUBORDINATION
AND OF INFRACTION OF COMPANY RULES ON UNAUTHORIZED ABSENCES; HENCE, THE
TERMINATION OF RESPONDENT FROM EMPLOYMENT AFTER OBSERVANCE OF DUE
PROCESS WAS LEGAL.32

The Ruling of the Court

The first and second issues question the validity of the actual reinstatement of the private
respondent following the order of the Labor Arbiter Geoffrey P. Villahermosa in NLRC RAB VII-05-
364-90-D.

The issue of reinstatement is addressed by paragraph three of Article 223 of the Labor Code, to wit:

ART. 223. Appeal . . . .

In any event, the decision of the Labor Arbiter reinstating a dismissed or separated employee,
insofar as the reinstatement aspect is concerned, shall immediately be executory, even pending
appeal. The employee shall either be admitted back to work under the same terms and conditions
prevailing prior to his dismissal or separation or, at the option of the employer, merely reinstated in
the payroll. The posting of a bond by the employer shall not stay the execution for reinstatement
provided herein.

The above-stated provision of the Labor Code, however, must be read in conjunction with the
implementing rules and regulations of the said law. Sec. 4(a) of Rule 1, Book VI of the Rules and
Regulations Implementing the Labor Code, provides that:

SEC. 4. Reinstatement to former position. – (a) An employee who is separated from work without
just cause shall be reinstated to his former position, unless such position no longer exists at the time
of his reinstatement, in which case he shall be given a substantially equivalent position in the same
establishment without loss of seniority rights. [Emphasis supplied.]

Reinstatement presupposes that the previous position from which one had been removed still exists,
or that there is an unfilled position more or less of a similar nature as this previously occupied by the
employee.33

Accordingly, an employee who is separated from his employment on a false or nonexistent cause is
entitled to be reinstated to his former position because the separation is illegal. If the position is no
longer available for any other valid and justifiable reason, however, the reinstatement of the illegally
dismissed employee to his former position would neither be fair nor just. The law itself can not exact
compliance with what is impossible. Ad imposible tenetur.34 The employer’s remedy is to reinstate
the employee to a substantially equivalent position without loss of seniority rights as provided for
above.1a\^/phi1.net

In the case at bar, strictly applying the rules provided above, private respondent Abella should have
been reinstated back to his old position as a Security Assistant at the SNGP, Ticala, Valencia,
Negros Oriental. Or, at the very least, since the position of Security Assistant at Ticala, Valencia,
Negros Oriental, had been abolished as claimed by the petitioners, he should have been reinstated
to another position that is substantially equivalent to his former one. In reality, private respondent
Abella was first reinstated in the payroll, as a General Services Assistant and subsequently, as
a Pipeline Foreman, while he was actually discharging the functions of a Security Assistant. As
insisted by the petitioners, this situation was due to the fact that the original position of the private
respondent had already been abolished in the previous company-wide reorganization 35 in 1991.

But then, the private respondent was reslotted as Security Assistant when he was transferred to the
Leyte Geothermal Project. He was, thus, performing the functions of a Security Assistant and at the
same time occupying the official position of a Security Assistant though in a geographically different
location, when said position became vacant.

Be that as it may, notwithstanding the above disquisitions, the atypical circumstances in this case
capitulate against the outright application of the said rules. Whether or not the private respondent
was validly reinstated per Order of the Labor Arbiter dated 27 August 1991, in NLRC RAB VII-05-
364-90-D, is beside the point in view of the fact that the Joint Motion to Dismiss filed by the parties in
the earlier case contained a clause whereby the parties agreed that "[a]ll other claims, damages and
causes of action arising out of the instant case are waived."

Regrettably, the Court of Appeals and the NLRC have overlooked this very important fact.

The clause agreed to by the parties in the Joint Motion to Dismiss filed before the NLRC was in the
nature of a compromise agreement, i.e., "an agreement between two or more persons, who for
preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner
which they agree on, and which everyone of them prefers to the hope of gaining, balanced by the
danger of losing."36 Settlement of disputes by way of compromise, is an accepted, nay desirable and
encouraged practice in courts of law and administrative tribunals.37 Generally favored in law, such
agreement is a bilateral act or transaction that is binding on the contracting parties and is expressly
acknowledged by the Civil Code as a juridical agreement between them.

Prevailing case law provides that "a compromise once approved by final orders of the court has the
force of res judicata between the parties and should not be disturbed except for vices of consent or
forgery. Hence, ‘a decision on a compromise agreement is final and executory.’ Such agreement has
the force of law and is conclusive on the parties. It transcends its identity as a mere contract binding
only upon the parties thereto, as it becomes a judgment that is subject to execution in accordance
with the Rules. Judges therefore have the ministerial and mandatory duty to implement and enforce
it."38 (Underlining supplied.) Hence, compromise agreements duly approved by the courts are
considered the decisions in the particular cases they involve. 39

In the case at bar, when both parties agreed to waive "all other claims, damages and causes of
action" arising out of NLRC RAB VII-05-364-90-D, a compromise they entered into in good faith
absent any allegation otherwise, they did not only agree to dismiss the appeal pending before the
NLRC. Particularly, the private respondent also agreed to receive One Hundred Twenty-Four
Thousand Eight Hundred Twenty-Four Pesos and Thirty-One Centavos (P124,824.31), thus,
relinquishing his claim to the Decision40 dated 27 August 1991, rendered by the labor arbiter in his
favor. In return, the petitioner company, to put an end to the labor dispute, acquiesced to have its
appeal before the NLRC dismissed.

The waiver, executed by the private respondent and the petitioner company in which mutual
concessions were given and mutual benefits were derived, was approved and considered by the
NLRC when it promulgated its Order dated 22 February 1993, dismissing the appeal of the
petitioners. Conformably, to cite jurisprudence, the Compromise Agreement approved by the proper
authority became the decision in this particular case.

Settlements of this kind not only are recognized to be proper agreements but so encouraged as
well.41

Undoubtedly, the allegations of invalid reinstatement on the part of the petitioners are a mere
afterthought on private respondent’s part in a fascinating attempt to extricate himself from an
assignment that brought him to a far away place and caused him to be separated from his family.

It is well to note that even if each party agreed to something that neither might have actually wanted,
except for the peace that would be brought by the avoidance of a protracted litigation, still, the
agreement must govern their relations. If the agreement was voluntarily entered into and represents
a reasonable settlement, it is binding on the parties and may not later be disowned or conveniently
forgotten, simply because of a change of mind. It is only where there is clear proof that the waiver
was wangled from an unsuspecting or gullible person, or the terms of settlement are unconscionable
on its face, that the law will step in to annul the questionable transaction. But where it is shown that
the person making the waiver did so voluntarily, with full understanding of what he was doing, and
the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as
a valid and binding undertaking.42 In the case at bar, the Joint Motion to Dismiss was not only signed
by the private respondent, but by his counsel as well.

The resolution of the third issue hinges upon a determination of the validity of the orders directing
the transfer of the private respondent from one site to another.
In this jurisdiction, we recognize that management has wide latitude to regulate, according to his
own discretion and judgment, all aspects of employment, to the requirements of its business. 43 The
scope and limits of the exercise of management prerogative, however, should attain a state of
equilibrium when pitted against the constitutional right of labor to security of tenure.

Of relevant significance in the case at bar is the right of the employer to transfer employees in their
work station. We have previously held that it is the employer’s prerogative, based on its assessment
and perception of its employees’ qualifications, aptitudes and competence, to move them around in
the various areas of its business operations in order to ascertain where they will function with
maximum benefit of the company.44 This right flows from ownership and from the established rule
that labor (laws) do not authorize the substitution of judgment of the employer in the conduct of his
business, unless it is shown to be contrary to law, morals, or public policy. 45

The rationale behind this rule is that an employee’s right to security of tenure does not give him such
a vested right in his position as would deprive the company of its prerogative to change his
assignment or transfer him where he will be most useful.46 Especially so in this case where the
respondent was not appointed for a security assistant for a specified place but was only designated
therein. But of course, the managerial prerogative to transfer personnel must be exercised without
grave abuse of discretion --- not unnecessary, inconvenient nor prejudicial to the displaced
employee, meaning there is no demotion in rank or diminution of salary, benefits and other
privileges.

In this case, the private respondent was charged with insubordination for failing to heed the
directives of his superior transferring him from one site to another. The Court of Appeals negated
said charge and declared that when private respondent Abella failed to obey the orders of the
petitioners reinstating him to Leyte and Mt. Labo sites, said failure cannot give rise to insubordination
as private respondent Abella had the right to be reinstated under the same terms as and conditions
prevailing prior to his dismissal on 21 May 1990, especially so when the latter’s refusal was
premised on the fact that the labor arbiter had earlier issued a Writ of Execution ordering the
reinstatement of the private respondent to his former position at PNOC-EDC SNGP, Ticala, Valencia,
Negros Oriental.

We do not agree.

First and foremost, as discussed earlier, the order of the labor arbiter reinstating the private
respondent to his former position in SNGP had already been superseded by the agreement of both
parties to waive "[a]ll other claims, damages and causes of action arising out of the instant
case . . . ." Consequently, the writ issued by the labor arbiter executing the order of reinstatement
had no leg to stand on. Secondly, the law does not preclude the reinstatement of an employee, who
has been separated from work without just cause, to a substantially equivalent position in the same
establishment without loss of seniority rights, and with the same rank, salary and privileges, 47 if the
former position is no longer available. Therefore, the claim of lack of insubordination due to lack of
valid reinstatement must fail.

Insubordination or willful disobedience by an employee, to constitute a just cause for terminating his
employment, the orders, regulations, or instructions of the employer or representative must be:

1. reasonable and lawful;

2. sufficiently known to the employee; and

3. in connection with the duties which the employee has been engaged to discharge.
There is no doubt in this case that the assailed transfer orders fulfill the second and third elements
above-stated. Private respondent Abella was well informed of the orders of transfer and said orders
were well in connection with the security functions of the private respondent. It is only the issue of
reasonableness and lawfulness of said orders that have to be elucidated on.

The reasonableness and lawfulness of an order, regulation, or instruction depend on the

circumstances availing in each case. Reasonableness pertains to the kind or character of directives
and commands and to the manner in which they are made.48

The petitioners aver that the orders were well within their managerial prerogative to make and that
there was never any agreement that private respondent Abella had to be posted in a fixed place.

The appellate court, on the other hand, stated that its finding that the private respondent was not
guilty of insubordination and abandonment was based on the fact that the dismissal of private
respondent Abella was effected with bad faith, as it was intended to punish him for refusal to heed
his employer’s unreasonable orders.

The records of the present case fail to show any hint of truth to the declaration of the appellate court.

A thorough review of the records of the case shows that there is a valid reason behind the transfer of
the private respondent to MIGP in Kidapawan, North Cotabato. As stated in the telegraphic message
received by the private respondent,

DMD-15

DMK-22

DEC 15/92

TO: ABC / SEP CC EBP / JLA / FVA / MBP / BMO

FR: MMT

IN VIEW OF APO’S CRITICAL SECURITY SITUATION, AS DISCUSSED WITH EBP, FVABELLA

WILL BE ASSIGNED TO MIGP IMMEDIATELY TO STRENGTHEN OUR APO SECURITY
COVERAGE. … FVA, WILL HANDLE OVERALL STRATEGIC PLANNING. … PLS ADVISE FVA’S
EARLIEST TRAVEL TO MIGP. …

EMC49

Nothing in the above message alludes to any bad faith on the part of the petitioners. In truth, it is
quite apparent that the order of transfer of the private respondent from Negros Oriental to Northern
Cotabato was due to the exigencies of the state of affairs in the geothermal plants of the petitioner
company. Other internal messages50between the petitioner company’s officers and employees also
sustain the validity of the necessity and lack of bad faith in ordering the transfer of the private
respondent, to wit:

DMK-35

JAN. 06, 1993

 TO: JLA CC: FVA/MBP

FM: MMT CC: EBP

WITH FVA’S PRESENCE IN M1GP, I EXPECT THAT WE WILL ATTAIN FF. OBJECTIVES:

COMPLETE, FINALIZE AND PUT INTO EFFECT OUR CONTINGENCY PLANS, SECUTIRY
SOPS, ACCESS PROCEDURES AND CONDUCT QEKVTYXELI/NJETTQ.

2. EFFECTIVE COORDINATION BOTH WITH HIGHER KETEXYJM YVXBLJEXERQ

AND SITE LPPEARJQ.

3. EFFECTIVE MONITORING AND CONTROL OF OUR SECURITY PROVISIONS

I.E. DTVR ZVYJNQ, KETEXYJM.

4. IMPROVE RELATIONS WITH KETEXYJM.

5. ADDRESS CONCERNS OF OUR STAFF REGARDING QRAVJEXM ALCRJYZR. .

..

PLS. USE DAY 6 CODE.

2210H51

TO: JLA (KIDAP) FVA (DGTE) FR: MMT

CC: FCC (LABO) MBP (KIDAP)

AA. DUE TO THE ACCELERATED DRILLING AT LABO REQUIRING IMMEDIATE

SECURITY COORDINATION AND SETTING-UP, EFFECTIVE IMMEDIATELY FVABELLA IS
TRANSFERRED TO MT. LABO GEOTHERMAL PROJECT AS SECURITY ASSISTANT. . .

BB. TO RDO. OPERATOR SNGP PLS ENSURE MESSAGE IS SENT TO FVA.

CC. TO FVA, ADVISE ME TRAVEL DETAILS.52

TO: FVA (DGTE) FR: MMT

CC: FCC (LABO)

THE SITUATION AT LABO IS CRITICAL AND YOU HAVE TO BE THERE IMMEDIATELY. IT

IS IMPERATIVE THAT YOU TRAVEL IMMEDIATELY, NOT LATER THEN (sic) 25 MAY.
ADVISE TRAVEL DETAILS.53

By virtue of the characteristic or nature of the functions of security personnel, rotation and
reassignment from one place to another, depending on the security needs of the company, are well
within the job description of the private respondent.

As explained, the orders to the private respondent to report to the Leyte Geothermal Plant and, later
on, to the Mt. Labo site in Camarines Norte undeniably met the standards aforestated. What is more,
the private respondent, when he accepted the offer of employment with the petitioner company, was
aware that there was a possibility of a provincial assignment. When he accomplished his application
for employment,54 in answering the question: "Are you Willing To Accept A Provincial Assignment?"
the private respondent answered in the affirmative. Another irrefutable fact is that the records of the
case bear out that even before the first controversy55arose between the parties, the private
respondent had been reassigned to at least three (3) different locations. His first assignment with the
petitioner company was in Negros Oriental. A few months later, he was transferred to Camarines
Norte; then again to Negros Oriental in 1990. In fact, in a memorandum56 dated 24 January 1990,
the private respondent was one of the three security personnel directed to transfer from one
assignment to another.

Finally, it cannot be gainsaid that though the private respondent was assigned to perform security
functions at other different sites, he had been receiving the same salary and benefits due a security
personnel. Records even show that he was even accorded hazard pay for the duties and functions
he was currently executing.57

The Philippine Constitution, while inexorably committed towards the protection of the working class
from exploitation and unfair treatment, nevertheless mandates the policy of social justice so as to
strike a balance between an avowed predilection for labor, on the one hand, and the maintenance of
the legal rights of capital, the proverbial hen that lays the golden egg, on the other. Indeed, we
should not be unmindful of the legal norm that justice is in every case for the deserving, to be
dispensed with in the light of established facts, the applicable law, and existing jurisprudence. 58

WHEREFORE, premises considered, the petition is hereby GRANTED. The Decision dated 30
January 2002, of the Court of Appeals and its Resolution dated 29 May 2002, denying the
petitioners’ Motion for Reconsideration, are REVERSED and SET ASIDE. No costs.

SO ORDERED.