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TITLE XIV – COMPROMISES AND ARBITRATIONS

CHAPTER 1 - COMPROMISES

Article 2028

Defines a compromise agreement as A contract whereby the parties make reciprocal concessions in
order to avoid litigation or put an end to one already commenced.

If a compromise agreement is judicially approved – it becomes more than a binding contract; it has the
force and effect of a judgement; it has the effect of res judicata between the parties, even if not judicially
approved, and should not be disturbed except for vices of consent, forgery, fraud, misrepresentation, and
coercion.

A compromise agreement which is not contrary to law, public order, public policy, morals or good customs
is a valid contract whish is the law between the parties themselves.

A judgement upon compromise is not appealable, immediately executory and can be enforced by a writ
of execution.

A compromise agreement between employers and workers have often been upheld as valid and accepted
as a desirable means of settling disputes.1

Article 2029

The court shall endeavor to persuade the litigants in a civil case to agree upon some fair compromise

In civil cases only, criminal cases cannot be compromised except with regards to its civil liability aspect

Article 2030 - when shall a civil action be suspended

Every civil action or proceeding shall be suspended:

1.) If willingness to discuss a possible compromise is expressed by one or both parties; OR

2.) If it appears that one of the parties, before the commencement of the action or proceeding,
offered to discuss a possible compromise but the other party refused the offer.

The duration and terms of the suspension of the civil action or proceeding and similar matters shall be
governed by such provisions of the rules of court as the Supreme Court shall promulgate.

Said rules of court shall likewise provide for the appointment and duties of amicable compounders

Article 2031

The courts may mitigate the damages to be paid by the losing party who has shown a sincere desire for
a compromise.

The case had already terminated

Article 2032

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The court’s approval is necessary in compromises entered into by guardians, parents, absentee’s
representatives, and administrators or executors of decedent’s estates

Article 2033

Judicial persons may compromise only in the form and within the requisites which may be necessary to
alienate their property.

Article 2034

There may be a compromise upon the civil liability arising from an offense; but such compromise shall
not extinguish the public action for the imposition of the legal penalty.

Article 2035 – when compromise is not valid; cannot be a subject of a compromise

No compromise upon the following questions shall be valid:

1.) The civil status of persons; - because it is conferred by law

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

Article 2036 – what comprises a compromise

A compromise comprises only those objects which are definitely stated therein, or which by necessary
implication from its terms should be deemed to have been included in the same.

A general renunciation of rights is understood to refer only to those that are connected with the dispute
which was the subject of the compromise.

Article 2037

A compromise has upon the parties the effect and authority of res judicata; but there shall be no
execution except in compliance with the judicial compromise.

Article 2038

A compromise in which there is mistake, fraud, violence, intimidation, undue influence, or falsity of
documents, is subject to the provisions of Article 1330 of this code.

However, one

Article 1330 – A contract where consent is given through mistake, violence, intimidation, undue influence
or fraud is voidable.

Article 2039

When the parties compromise generally on all differences which they might have with each other, the
discovery of documents, referring to one or more but not to all of the questions settled shall not itself
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be a cause for annulment or rescission of the compromise, unless said documents have been concealed
by one of the parties.

But the compromise may be annulled or rescinded if it refers only to one thing to which one of the
parties has no right, as shown by the newly discovered documents.

Article 2040

If after a litigation has been decided by a final judgement, a compromise should be agreed upon, either
or both parties being unaware of the existence of the final judgement, the compromise may be
rescinded – there is a final judgement of litigation

Ignorance of a judgement which may be revoked or set aside is not a valid ground for attacking a
compromise – if judgement can be set aside, ignorance of it is not a valid ground for attacking the
compromise

Article 2041

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

Consequences for failure or refusal to abide by the compromise

Rights of an aggrieved party (upon the other party’s failure or refusal to abide by the compromise)

1.) Enforce a compromise by a writ of execution, OR

2.) Regard it as rescinded and insist upon his original demand

In exercising the 2nd option under article 2041, the aggrieved party may, if he chooses, bring the suit
contemplated or involved in his original demand, as if there had never been any compromise agreement,
without bringing an action for rescission. This is because he may regard the compromise as already
rescinded by the breach thereof of the other party.

He need not seek a judicial declaration of rescission, for he may “regard” the compromise agreement
already “rescinded”

CHAPTER 2 - ARBITRATIONS

Article 2042

The same persons who may enter into a compromise may submit their controversies to one or more
arbitrators for decision

Article 2043

The provisions of the preceding chapter upon compromises shall also be applicable to arbitrations

Article 2044

Any stipulation that the arbitrators’ award or decision shall be final, is valid, without prejudice to
Articles 2038, 2039, 2040.
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Article 2045

Any clause giving one of the parties’ power to choose more arbitrators than the other is void and of no
effect

Article 2046

The appointment of arbitrators and the procedure for arbitration shall be governed by the provisions
of such rules of court as the Supreme Court shall promulgate

Other points:

 A compromise of conflicting claims asserted in good faith will not be disturbed because by a
subsequent judicial decision in an analogous case it appears that one party had no rights to
forego.2
 Revised Katarungang Pambarangay Law

An amicable settlement reached after barangay conciliation proceedings has the force and
effect of a final judgement of a court if not repudiated or a petition to nullify the same is filed before
the proper city or municipal court within 10 days from its date.

The settlement may be enforced by execution by the lupong tagapamayapa within 6 months
from its date, or by action in the appropriate city or municipal court, if beyond the 6 month period.

2 tiered mode of enforcement of an amicable settlement:

1.) By execution by the Punong Barangay which is quasi-judicial and summary in nature
no mere motion of the party entitled thereto;
2.) An action in regular form, which remedy is judicial.

However, the mode of enforcement does not rule out the right of rescission under Article
2041. The availability of the right of rescission is apparent from the wording of sec 417 itself which
provides that the amicable settlement “may” be enforced by execution by the lupon within 6
months from its date or by action in the appropriate city or municipal court, if beyond that period.

 A compromise agreement transcends its identity as a mere contract binding only upon the parties
thereto as it becomes a judgement that is subject to execution in accordance with the Rules of
Court.
 A non-party to a compromise agreement could ask for its rescission by reason of injury or
prejudice that said person might suffer as a result of an execution of the judgement based on that
compromise agreement.
 A compromise agreement is an agreement between two or more persons, who, for the purpose
of preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the
manner which they agree on, and which each party prefers over the hope of gaining but balanced
by the danger of losing.
 A compromise agreement that is basically intended to resolve a matter already under litigation is
what would normally be termed a judicial compromise. Once stamped with judicial imprimatur,

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it becomes more than a mere contract binding upon the parties; having the sanction of the court
and entered as its determination of the controversy, it has the force and effect of any other
judgment. It has the effect and authority of res judicata, although no execution may issue until it
would have received the corresponding approval of the court where the litigation pends and its
compliance with the terms of the agreement is thereupon decreed. A judicial compromise is
likewise circumscribed by the rules of procedure.
 Once approved by the court, a judicial compromise is not appealable and it thereby becomes
immediately executory but this rule must be understood to refer and apply only to those who are
bound by the compromise and, on the assumption that they are the only parties to the case, the
litigation comes to an end except only as regards to its compliance and the fulfilment by the
parties of their respective obligations thereunder.
o Reason for this rule - > when both parties so enter into the agreement to put to a close a
pending litigation between them and ask that a decision be rendered in conformity
therewith, it would only be “natural to presume that such action constitutes an implicit
waiver of the right to appeal” against the decision. The order approving a compromise
agreement thus becomes a final act, and it forms part and parcel of the judgement that
can be enforced by a writ of executions unless otherwise enjoined by a restraining order.
 A compromise agreement (which subsequently was embodied in a judgement by compromise)
where the agreement was signed (on behalf of the parties thereto) by a lawyer who did so without
authorization if said party or client.
o Such compromise agreement is merely unenforceable (not void) and may therefore be
ratified by said party expressly or implicitly
o The compromise agreement is not void but merely unenforceable. The petitioners by
their silence for 16 years and by their overt acts of exchanging or bartering some of the
lots awarded to them with some of the lots of the private respondents have doubtless
ratified the act of their attorney.
 Other persons involved in the litigation who have not taken part in concluding the compromise
agreement but are adversely affected or feel prejudiced thereby, should not be precluded from
invoking in the same proceedings an adequate relief therefor.
o A motion to set aside the judgement to the extent he might feel aggrieved, or might
unjustifiably fear to be at risk by acquiescence unless timely invoked, is such a remedy.
o A denial of the motion to set aside the judgement on the compromise agreement opens
the door for its possible elevation to a higher court. If the motion is denied, he may
considering the special finality feature of the compromise judgement, albeit partial, and
its susceptibility to execution, take an appeal from the order of denial under Rule 45 or
even, when circumstances particularly warrant, the extraordinary remedy prescribed in
Rule 65, of the Rules of court. That appeal notwithstanding, the main case still subsists
allowing him to have continued locus standi.