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If One Of The Parties Fails Or Refuses To Abide By The Compromise, The Other

Party May Either Enforce The Compromise Or Regard It As Rescinded And Insist
Upon His Original Demand…
Jerry obtained a loan from Crisanta, payable in one year, on February 1, 2001. As
collateral, Jerry gave his house and lot located at Bagumbong, Caloocan City. Jerry
failed to pay the loan, hence Crisanta filed a complaint against him before
the Lupong Tagapamayapa of Bgy. San Jose, Rodriguez, Rizal; the parties entered
into a Kasunduang Pag-aayoswherein Jerry agreed to pay his loan in instalments
of P2,000 each month, and in case the collateral is sold, for Jerry to pay the balance
of the loan. Still, Jerry paid to comply with the agreement, thus Crisanta sought,
and was given, a Certificate to File Action, which she used in filing a case for Sum
of Money against Jerry before the MeTC of Makati City. In his defense, Jerry
raised the issue of improper venue since she is a resident of Bagumbong, Caloocan,
while Jerry lived in San Mateo, Rizal. After trial, the MeTC ruled in favour of
Crisanta, and ordered Jerry to pay the principal amount owed plus interest. The
RTC upheld the MeTC decision, so Jerry elevated the case to the Court of Appeals,
alleging lack of improper venue, and novation, since the Kasunduang Pag-aayos
effectively novated the obligation. The Court of Appeals disagreed with him, but
dismissed the case, asseverating that the Kasunduang Pag-aayos had the force and
effect of a judgment which may be enforced by court action within 6 months from
execution; since more than 6 months had lapsed, Crisanta’s remedy was to file an
action for the execution of the Kasunduang Pag-aayos and not collection of sum of
money. Because of the dismissal, Crisanta elevated her case to the Supreme Court,
on the issue of whether or not collection of sum of money is the proper remedy,
and whether or not the CA should have ruled on the merits of the case rather than
remanding it to the lower court.
The Supreme Court:
Because the respondent failed to comply with the terms of theKasunduang Pagaayos, said agreement is deemed rescinded pursuant to Article 2041 of the New
Civil Code and the petitioner can insist on his original demand. Perforce, the
complaint for collection of sum of money is the proper remedy.

by operation of law. upon its perfection. which. as amended. however. but there shall be no execution except in compliance with a judicial compromise. has the force and effect of a final judgment. the proceedings are covered by the Local Government Code and the Katarungang Pambarangay Implementing Rules and Regulations. Being a by-product of mutual concessions and good faith of the parties. good morals. either under the first or the second remedy. instead of filing a collection case.[5] such amicable settlement or arbitration award may be enforced by execution by the Barangay Lupon within six (6) months from the date of settlement. Under the second remedy. is immediately executory insofar as it is not contrary to law. an amicable settlement has the force and effect of res judicata even if not judicially approved. the proceedings are governed by the Rules of Court. or by filing an action to enforce such settlement in the appropriate city or municipal court. viz: A compromise has upon the parties the effect and authority of res judicata.[3] It transcends being a mere contract binding only upon the parties thereto. good customs. It is true that an amicable settlement reached at the barangay conciliation proceedings. under Section 417 of the Local Government Code. The petitioner points out that the cause of action did not arise from the Kasunduang Pag-aayos but on the respondent’s breach of the original loan agreement. The Punong Barangay is called upon during the hearing to determine solely the fact of non-compliance of the terms of the settlement and to give the defaulting party another chance at voluntarily complying with his obligation under the settlement.The petitioner contends that the CA erred in ruling that she should have followed the procedure for enforcement of the amicable settlement as provided in the Revised Katarungang Pambarangay Law. is binding between the contracting parties and. like the Kasunduang Pag-aayos in this case. if beyond the six-month period. The cause of action is the amicable settlement itself. that enforcement by execution of the amicable settlement. Under the first remedy.[4] Thus. [2] This is in accord with the broad precept of Article 2037 of the Civil Code.[6] It must be emphasized.[1] This Court agrees with the petitioner. public order and public policy. is only applicable if the contracting parties have not repudiated such settlement within ten (10) days from . and is akin to a judgment that is subject to execution in accordance with the Rules.

for he may “regard” the compromise agreement already “rescinded”[8]. to “insist upon his original demand”. to enforce the compromise in accordance with the Local Government Code or Rules of Court as the case may be. the other party has two options. This is in accord with Article 2041 of the Civil Code. which speaks of “a cause of annulment or rescission of the compromise” and provides that “the compromise may be annulled or rescinded” for the cause therein specified. denotes that no action for rescission is required in said Article 2041. in this connection. and that the party aggrieved by the breach of a compromise agreement may. It ruled that Article 2041 does not require an action for rescission. thus suggesting an action for annulment or rescission. either expressly or impliedly. may just consider it already rescinded.the date thereof in accordance with Section 416 of the Local Government Code. Sycip. He need not seek a judicial declaration of rescission. as if there had never been any compromise agreement.[9] a party’s noncompliance with the amicable settlement paved the way for the application of Article 2041 under which the other party may either enforce the compromise. or the right to “demand” the rescission of a compromise. to wit: It is worthy of notice. not a “cause” for rescission. bring the suit contemplated or involved in his original demand. namely. by the breach of compromise agreement. Court of Appeals. unlike Article 2039 of the same Code. the other party may either enforce the compromise or regard it as rescinded and insist upon his original demand. If the amicable settlement is repudiated by one party. without bringing an action for rescission thereof. The language of this Article 2041. and the aggrieved party. or consider it as rescinded and insist upon his original demand. or to consider it rescinded and insist upon his original demand. if he chooses. but the authority. (emphasis supplied) As so well stated in the case of Chavez v. but. said Article 2041 confers upon the party concerned. To quote: . In the case of Leonor v. not only to “regard it as rescinded”. which qualifies the broad application of Article 2037. following the procedure laid out in the Revised Katarungang Pambarangay Law. particularly when contrasted with that of Article 2039. that. viz: If one of the parties fails or refuses to abide by the compromise.[7] the Supreme Court (SC) had the occasion to explain this provision of law. also.

5139-V-97 for recovery of unrealized profits and reimbursement of advance rentals. adjusting their respective positions in the hope of gaining balanced by the danger of losing. the mode of enforcement does not rule out the right of rescission under Art. 2041 of the Civil Code.00 because although he agreed to the amount in the “Kasunduan. although the “Kasunduan” executed by petitioner and respondent before the Office of the Barangay Captain had the force and effect of a final judgment of a court. The availability of the right of rescission is apparent from the wording of Sec. Respondent chose the latter option when he instituted Civil Case No. moral and exemplary damages. Thus. following the procedure laid out in the Revised Katarungang Pambarangay Law. thereby negating the very purpose for which it was executed. and attorney’s fees. and (b) an action in regular form. 2041 under which respondent may either enforce the compromise. Respondent was not limited to claiming P150.In the case at bar. which remedy is judicial. The use of the word “may” clearly makes the procedure provided in the Revised Katarungang Pambarangay Law directory or merely optional in nature. It is undisputed that herein petitioner did not. However.000. Such non-compliance may be construed as repudiation because it denotes that the respondent did not intend to be bound by the terms thereof. petitioner’s non-compliance paved the way for the application of Art.” respondent was only required to execute a waiver of all possible claims arising from the lease contract if petitioner fully complies with his obligations thereunder. the . if beyond that period. 417 itself which provides that the amicable settlement “may” be enforced by execution by the lupon within six (6) months from its date or by action in the appropriate city or municipal court. the respondent did not comply with the terms and conditions of the Kasunduang Pag-aayos. the Revised Katarungang Pambarangay Law provides for a twotiered mode of enforcement of an amicable settlement. or regard it as rescinded and insist upon his original demand.[10] (emphasis supplied and citations omitted) In the instant case. to wit: (a) by execution by the Punong Barangay which is quasi-judicial and summary in nature on mere motion of the party entitled thereto. Perforce.” it is axiomatic that a compromise settlement is not an admission of liability but merely a recognition that there is a dispute and an impending litigation which the parties hope to prevent by making reciprocal concessions. Under the “Kasunduan.

PETITIONER. January 25. G. In fact.R. The petitioner avers that the CA erred in remanding the case to the trial court for the enforcement of the Kasunduang Pag-aayos as it prolonged the process. it is error on the part of the CA to rule that enforcement by execution of said agreement is the appropriate remedy under the circumstances.[11]” Thus. Petition granted. in order to finally enforce her right to payment.petitioner has the option either to enforce the Kasunduang Pag-aayos. MONTANEZ. the petitioner insists that she should be allowed to ventilate her rights before this Court and not to repeat the same proceedings just to comply with the enforcement of the Kasunduang Pag-aayos. evidence abounds that the respondent has failed to comply with his loan obligation. As such. the Kasunduang Pag-aayos is the well nigh incontrovertible proof of the respondent’s indebtedness with the petitioner as it was executed precisely to give the respondent a second chance to make good on his undertaking. RESPONDENT. . 2012. justice demands that he must be held answerable therefor. the CA should have decided the case on the merits. in accordance with the provision of Article 2041 of the Civil Code. Considering that the Kasunduang Pag-aayos is deemed rescinded by the noncompliance of the respondent of the terms thereof. Having instituted an action for collection of sum of money. The fact that the petitioner opted to rescind the Kasunduang Pag-aayos means that she is insisting upon the undertaking of the respondent under the original loan contract. or to regard it as rescinded and insist upon his original demand. Pertinently. CRISANTA ALCARAZ MIGUEL. No. JERRY D. SECOND DIVISION. the petitioner obviously chose to rescind the Kasunduang Pag-aayos. remanding the case to the trial court for the enforcement of said agreement is clearly unwarranted.[12] The CA took off on the wrong premise that enforcement of the Kasunduang Pagaayos is the proper remedy. as an appeal before it. “thereby putting off the case in an indefinite pendency. 191336. and therefore erred in its conclusion that the case should be remanded to the trial court. and not prolong the determination of the issues by remanding it to the trial court. VS. Thus. And since the respondent still reneged in paying his indebtedness.

R. [1] Id. [6] Vidal v. — The amicable settlement or arbitration award may be enforced by execution by the [L]upon within six (6) months from the date of the settlement. Book III. No. [7] 111 Phil 859 (1961). 2004. Escueta.A. 468 Phil 1000 (2004). September 10. G. No. . [9] 493 Phil 945 (2005). ALA Industries Corporation. 26. G. at 20. at 865. 147349. Sandiganbayan. No. [8] Id. 226 SCRA 314. 463 Phil 314 (2003). 417. the settlement may be enforced by action in the proper city or municipal court. [12] Id.. Article 1306. Execution. Title One.108292. at 27. at 954-955. 1993. [4] Manila International Airport Authority (MIAA) v. After the lapse of such time. p.R. Chapter VII. [10] Id. [2] New Civil Code. 7160. 422 SCRA 603. [3] Republic v. 611 [5] R. February 13. Section. [11] Rollo.