Estate of Litton v Mendoza and CA | 1998
1. 1963, CMB Products (with Mendoza as president)
offered to sell textile cotton materials to the Bernal
spouses (engaged in manufacture of embroidery,
garments and cotton materials);
- For this purpose, Mendoza introduced the spouses
to Alfonso Tan;
2. The spouses purchased on credit from Tan cotton
materials (80k);
- Mendoza guaranteed the payment of the debt;
3. Tan then delivered the cotton materials to the
spouses;
4. In view of the arrangement, CBM Products (thru
Mendoza) asked for and received a post-dated check
(Feb 20, 1964) for the payment of the spouses’ debt;
- It was understood that Mendoza will retain the
check until the cotton materials are finally
manufactured into garments, after which
Mendoza will sell the finished products for the
spouses;
5. Meanwhile, the check matured without having been
cashed so Mendoza demanded for another check
without a date;
6. Feb. 28, 1964, Mendoza issued two checks in favour
of Tan (worth 80k);
- He told the spouses of the same and told them
they are indebted to him and asked the spouses
to sign an instrument whereby Mendoza assigned
the said amount to Insular Products, Inc.;
7. Tan had the two checks discounted but were later
returned with words ‘stop payment’;
- It appears it was ordered by Mendoza for failure
of the spouses to deposit sufficient funds for the
check issued by the spouses in his favour;
8. Tan sued Mendoza while the spouses brought an
action for interpleader for not knowing whom to pay;
- Pendente lite, Tan assigned in favour of Littion, Sr
his litigatious credit (in action of spouses) against
Mendoza, duly submitted to the court, with notice
to the parties;
9. TC ordered Mendoza to pay Tan 76k;
- CA affirmed (1977);
10. Meanwhile, in 1971, Mendoza entered into
Compromise Agreement with Tan wherein the latter
recognized that his claims against Mendoza had been
settled and because of that, both waives any claim
against the other; with a provision that it no way
affects Tan’s right to go against the spouses;
11. 1977 (after CA’s decision), Mendoza filed MFR saying
that there was the compromise agreement which
absolved him from liability;
- Tan opposed this saying the Compromise
agreement was null and void because of the deed
of assignment executed in favour of Litton, Sr.;
he says that with such, he has no more right to
alienate said credit;
12. CA then approved the compromise agreement:
- It said that the assignment was by way of
securing only his obligation to Litton, Sr.;
- Thus, Tan retained possession and dominion over
the credit (2085);
- Although considered as a litigatious credit, such
may be validly alienated by Tan; such alienation
is subject to the remedies of Litton under 6 of CC
whereby, the assignment if proven prejudicial to
Litton, may entitle Littion to pursue his remedies
against Tan;
- The alienation of a litigatious credit is further
subject to the debtor’s right of redemption under
1634;
W/N compromise valid. No.
Ratio:
1. Purpose of compromise: to replace and terminate
controverted claims; once approved, it has the force
of res judicata (except for vices of consent or
forgery);
- Petitioner seeks to set aside the compromise
agreement since prior thereto, Tan executed a
deed of assignment in favour of Littion, Sr.
involving the same litigated credit;
2. Compromise Agreement set aside:
- Fact that assignment was done by way of
securing Tan’s obligation in favour of Littion, Sr.
does not affect the resolution of the matter;
- Validity of pledge/guaranty in favour of Liiton has
not been questioned;
Deed of assignment fulfils the requirements of a valid
pledge or mortgage;
- Although Tan may validly alienate the litigatious
credit (1634), it does not give him (assignor/Tan)
absolute right to indiscriminately dispose of the
thing;
- Said provision (1634) should be read in
consonance with 2097; although the
pledgee/assignee (Litton, Sr.) did not become
ipso facto become the creditor of Mendoza, the
pledge being invalid, the incorporeal right
assigned by Tan in favour of Mendoza can only be
alienated by Tan with due notice to and consent
of Litton, Sr. or his duly authorized
representative;
- To allow it would render nugatory the very
purpose of a pledge or an assignment of credit;
- Also, under 1634, the debtor has the
corresponding obligation to reimburse the
assignee, for the price he paid or for the value
given as consideration for the deed of
assignment; failing here, the compromise
agreement does not bind the assignee;
Notes:
- From the very beginning, Mendoza was, from the
very beginning, aware of the deed of assignment;
as it was submitted to the court where CBM was
one of the defendants;
- Having such knowledge, Mendoza is estopped
from entering into the compromise agreement
 involving the same litigate credit without notice to
and consent of the assignee;
- Mendoza acted in bad faith and in connivance
with assignor Tan to defraud Littion, Sr. in
entering in the compromise agreement;