SMITH BELL v.

CA
**Topic on Evidence: Offer or Compromise
G.R. No. L-56294             May 20, 1991
SMITH BELL AND COMPANY (PHILIPPINES), INC. and TOKYO MARINE AND FIRE
INSURANCE CO., INC., petitioners, vs. THE COURT OF APPEALS and CARLOS A. GO
THONG AND CO., respondents.
FELICIANO, J.:
FACTS:
In the early morning of May 3, 1970, M/V Don Carlos, an inter-island vessel owned and operated
by private respondent Go Thong was sailing south bound for Cebu, when it collided with M/S Yotai
Maru, a merchant vessel of Japanese registry which was approaching the port of Manila coming in from
Kobe, Japan. The bow of the Don Carlos rammed the left side of the Yotai Maru inflicting a gaping hole
through which seawater rushed in and flooded the hatch, damaging all the cargo stowed therein.
The consignees of the damaged cargo got paid by their insurance companies. In turn, the
insurance companies commenced actions against private respondent Go Thong for damages sustained by
the various shipments.
Two cases were filed before the CFI of Manila (now RTC). In both cases, Don Carlos was found
negligent, thus ordered to pay damages to the insurance companies. The first case (Smith Bell and
Sumitomo Insurance v. Go Thong) decided by Judge Fernandez of Branch 3 reached the SC which ruled
in finality that negligence was with the officers and crew of Don Carlos. The decision was penned by
Judge Reyes. Two years after the Reyes decision, the second case (Smith Bell and Tokyo Insurance v. Go
Thong) presided over by Judge Cuevas of Branch 4 reached the CA and penned by Judge Sison who
found Yotai Maru at fault in the collision.
Hence, the insurance companies appealed the CA decision to the Supreme Court.
ISSUE:
Whether or not the CA was in serious and reversible error in accepting Go Thong's defense that
the question of fault on the part of the Yotai Maru had been settled by the compromise agreement
between the owner of the Yotai Maru and Go Thong as owner of the Don Carlos.
HELD:
Yes. The SC found that res judicata is present in this case and that the main issue of determining
who is at fault is already well-settled in Reyes decision.
Res judicata is present because the cause of action is the same in the two cases (same right of
cargo owners to the safety and integrity of their cargo had been violated by the same casualty – the
ramming of the Yotai Maru by the Don Carlos) and the judgments in both cases were final judgments on
the merits rendered by the two divisions of the Court of Appeals and by the Supreme Court. The absence
of identity of subject matter, there being substantial identity of parties and identity of cause of action will
not preclude the application of res judicata. The Reyes decision that became final two years prior the
Sison decision affirmed the findings of the two judges of the trial court Don Carlos had been negligent
and that its negligence was the sole proximate cause of the collision and of the resulting damages.
Applying the rule of conclusiveness of judgment (one of the two aspects of res judicata), the question of
which vessel had been negligent in the collision between the two (2) vessels, had long been settled by this
Court and could no longer be relitigated in C.A.-G.R. No. 61206- R (Cuevas case).
Furthermore, the compromise agreement entered into between Sanyo Shipping Company (owner
of Yotai Maru") and private respondent Go Thong Go as owner of the "Don Carlos," did not effectively
settle that Yoyai Maru had been at fault, as claimed by private respondent Go Tong. Nowhere in the
compromise agreement did the owner of the "Yotai Maru " admit or concede that the "Yotai Maru" had
been at fault in the collision. The familiar rule is that "an offer of compromise is not an admission that
anything is due, and is not admissible in evidence against the person making the offer." 
A compromise is an agreement between two (2) or more persons who, in order to forestall or put
an end to a law suit, adjust their differences by mutual consent, an adjustment which everyone of them
prefers to the hope of gaining more, balanced by the danger of losing more. An offer to compromise does
not, in legal contemplation, involve an admission on the part of a defendant that he is legally liable, nor
on the part of a plaintiff that his claim or demand is groundless or even doubtful, since the compromise is
arrived at precisely with a view to avoiding further controversy and saving the expenses of litigation. It is
of the very nature of an offer of compromise that it is made tentatively, hypothetically and in
contemplation of mutual concessions. The above rule on compromises is anchored on public policy of the
most insistent and basic kind; that the incidence of litigation should be reduced and its duration shortened
to the maximum extent feasible.