Estate of Litton v Mendoza and CA

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 fi led 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.;

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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 fav our 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 v ery 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

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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;