Question # 1:

What is Compromise?

Answer # 1

Article 2028 of the New Civil Code provides, a compromise is a contract whereby the parties, by
making reciprocal concessions, avoid a litigation or put an end to one already commenced.

Question # 2

What are the characteristics of Compromise Agreement?

Answer # 2

Compromise Agreement as a contract has the following characteristics:

1. Obligatory Force of Contracts - Article 1159 NCC. Obligations arising from contracts have
the force of law between the contracting parties and should be complied with in good faith.

2. Mutuality- Article 1308 NCC. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.

3. Autonomy- Article 1306 NCC. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary
to law, morals, good customs, public order, or public policy.

4. Relativity- Article 1311 NCC. Contracts take effect only between the contracting parties,
their assigns and heirs.

5. Consensuality- Article 1315 NCC- Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law. Exception: Real Contracts (e.g. deposit, pledge and
commodatum) are not perfected until the delivery of the object of the obligation.

Question # 3

What are the remedies in case of non-compliance of compromise?

Jayson C. Malero
 Answer # 3

Article 2041 of the Civil Code Provides that 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compromise, the other party may either enforce the compromise or regard it as rescinded and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.

Question # 4

Do you need to file rescission of Contract?

Answer # 4

There is no need to file rescission of contract because Article 2041 provides that if the party
insist upon his original demand it is regarded as rescinded. The rationale here is to save the time
of the contracting parties in settling their dispute.

Question # 5

Can the judgment on compromise that has become final be appealable?

Answer # 5

No. The Compromise Agreement that has become final constitutes a basic waiver of the
contracting parties.

Question # 6

In a case of informal settlers, some of the defendants for ejectment executed compromise
agreement with the complainant that they agreed to vacate the property for some of money.
The court then issued judgment based on Compromise. But your client as one of the informal
settlers, does not have knowledge on the execution of the compromise. Is your client bound by
the compromise? If not, what are his remedies?

Answer # 6

No. It is basic in law that a compromise agreement, as a contract, is binding only upon the
parties to the compromise, and not upon non-parties. This is the doctrine of relativity of
contracts under Article 1311 of the New Civil Code. Consistent with this principle, a judgment
based entirely on a compromise agreement is binding only on the parties to the compromise the
court approved, and not upon the parties who did not take part in the compromise agreement
and in the proceedings leading to its submission and approval by the court. Otherwise stated, a
court judgment made solely on the basis of a compromise agreement binds only the parties to

Jayson C. Malero
 the compromise, and cannot bind a party litigant who did not take part in the compromise
agreement.

The remedy of the party who did not take part in the compromise is to file the necessary Motion
to Set Aside Judgment based on compromise under Rule 38 for being entered through fraud,
accident, mistake or excusable negligence.

In case, the Motion to Set Aside Judgment based on compromise is denied by the court, then
the party may file petition for review under Rule 45 Petition for review on Certiorari base on
Fraud, Accident, Mistake and Excusable Negligence or under Rule 65 Special Civil Action on
Certiorari on purely question of law.

Question # 7

B sued A for sum of money claiming that A never paid any rent on the property owned by B. A
could not present the receipts of his payments because of the fire that broke out in his house
burning everything including the receipts of his payment. The court ruled in favor of B. Before
the execution of the claim A and B compromised. But a week after, A discovered some of
receipts inside the steel cabinet in his office. The total receipts amounted to 80 % of the money
claims. A now wants to rescind the compromise contending that it was entered by mistake
because he taught all the receipts were burned. Is A correct?

Answer # 7

No. Article 2039 of the New Civil Code provides that 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 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.

In this case, there was no concealment of the documents by one of the parties nor it refer only
to one thing to which one of the parties has no right.

Question # 8

What happen to a compromise agreement entered into by a person without authority?

Answer # 8

Jayson C. Malero
 Article 1317 of the New Civil Code provides that, A contract entered into in the name of another
by one who has no authority or legal representation, or who has acted beyond his powers, shall
be unenforceable.

Question # 9

How it then be ratified?

Answer # 9

Article 1317 of the New Civil Code provides that the contract entered into in the name of
another by one who has no authority or legal representation or who has acted beyond his
powers is ratified expressly or impliedly by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.

Question # 10

Can there be compromise agreement after final judgment?

Answer # 10

Yes. There is no justification to disallow a compromise agreement, solely because it was entered
into after final judgment. The validity of the agreement is determined by compliance with the
requisites and principles of contracts, not by when it was entered into.

In one case the court upheld the right to compromise prior to the execution of a final judgment.
The Court ruled that the final judgment had been novated and superseded by a compromise
agreement.

Art. 2040 of the New Civil Code provides, that If after a litigation has been decided by a final
judgment, a compromise should be agreed upon, either or both parties being unaware of the
existence of the final judgment, the compromise may be rescinded.

It is evident from the quoted paragraph that such an agreement is not prohibited or void or
voidable. Instead, a remedy to impugn the contract, which is an action for rescission, is declared
available. (Magbanua et. al vs. Uy)

Question # 11

Is entering into a compromise agreement an admission of liability?

Answer # 11

Jayson C. Malero
 For Civil cases, No. Section 27, Article 130 of the Rules of Court provides that in civil cases, an
offer of compromise is not an admission of any liability, and is not admissible in evidence against
the offeror because the intention of the law is to encourage compromise in civil cases.

For Criminal case, Section 27, Article 130 of the Rules of Court provides that except those
involving quasi (criminal negligence) or those allowed by law to be compromised, an offer of
compromise by the accused may be received in evidence as an implied admission of guilt.

Question # 12

How about offer to pay or the payment of medical, hospital or other expenses occasioned by an
injury?

Answer # 12

Section 27, Article 130 of the Rules of Court provides that an offer to pay or the payment of
medical, hospital or other expenses occasioned by an injury Is not admissible in evidence as
proof of civil or criminal liability for the injury.

Question # 13

Petitioner and respondent entered into a judicial compromise agreement. Interestingly enough,
the only points of disagreement are Clause II(b) of the Compromise Judgment which pertains to
the overnight visits of Louis Maxwell with respondent and the last paragraph of the same clause
regarding the appointment of the child’s accompanying guardian.

Clause II(b) states that "(t)he child shall be allowed to spend the night with the father once a
week." The sentence seems simple enough to be understood by a layman. Petitioner claims that
the parties did not specify the day and time of the week when private respondent could enjoy
the overnight company of Louis Maxwell in order to give the parties "some flexibility" and to
give them the opportunity to arrange the schedule themselves. But the parties have
overstretched the indeterminate language of said provision. Indeed, the parties have been at
odds over the interpretation and implementation of this plain provision of the Compromise
Judgment and this could have caused much confusion in the mind of the young Louis Maxwell
who had to be brought from one place to another at such unholy hours of the night only to be
awakened from deep slumber in the early hours of the morning to be taken to another place.

The doctrine of immutability of judgments bars courts from modifying decisions that have
already attained finality, even if the purpose of the modification is to correct errors of fact or
law. Is the doctrine of immutability of the judgment based on compromise applies in this case?

Jayson C. Malero
 Answer # 13

No. In this regard, the rule on immutability for purposes of execution does not attach to a
judgment that is materially equivocal or which suffers from either patent or latent ambiguity.

To obviate further discord between them and to preclude their recourse to the trial court every
time one of them perceives a violation committed by the other of Clause II(b) of the
Compromise Judgment.

A remand of this case is necessary to allow the parties themselves to resolve the matter
regarding the implementation of Clause II(b) of the Compromise Judgment and the trial court to
be on guard and ensure that the parties would lay out in concrete, specific details the terms of
their agreement as to this specific matter as well of the appointment of Louis Maxwell’s
accompanying guardian. (Viesca vs. Gilinsky)

Question # 14

On December 4, 1973, the parties submitted to the Municipal Court an amicable settlement, as
follows:

1. That the defendant recognizes the ownership and possession of the plaintiff over Lot Nos.
2925 and 2654 of the Barotac Viejo Cadastre, Case 3;

2. The plaintiff recognizes that the boundary of the two (2) aforementioned lots which are his, in
relation to the adjoining land of the defendant starts from a point on 'Iniam' tree on the
northern side going across another 'Iniam' tree on the other end;

3. Parties agree for dismissal of their claim and counterclaim on damages. (Exhibit "C", p. 5,
Records)

On December 5, 1973, the Municipal Court approved the amicable settlement and rendered
judgment based thereon (Exhibit "D", p. 6, Records).

On March 6, 1975, Asong filed a complaint before the Court of First Instance (now Regional Trial
Court), Branch 4, at Iloilo City, against Judge Albaro Albano, Jr. and Banasig for recovery of
ownership and annulment of amicable settlement and judgment. He averred, inter alia, that he
is illiterate; that as such, he did not understand the contents of the amicable settlement; that he
had no intention of giving up his right over Lot No. 2925 and 2654 but only with respect to Lot
2653; and that he discovered the defective agreement only on November 26, 1974 when he was
cited for contempt by Judge Albano, Jr. for his refusal to vacate Lot Nos. 2925 and 2654.

Jayson C. Malero
 Petitioner Asong contends that the amicable settlement should be annulled on the ground of
mistake. He asserts that he is illiterate; that he was persuaded by his lawyer to enter into an
amicable settlement with Banasig without fully informing him of the legal implications thereof;
that "the effect of the amicable settlement (was) worse than a confession of judgment for under
(it) he not only relinquishes possession but also recognizes the ownership of private respondent
over the two lots subject of the forcible entry case thus the same would constitute a bar to a
case for recovery of ownership as well.

Is Petitioner Asong correct?

Answer # 14

No. It is a general rule in this country that compromise are to be favored, without regard to the
nature of the controversy compromised, and that they cannot be set aside because the event
shows all the gain to have been on one side, and all the sacrifice on the other, if the parties have
acted in good faith, and with a belief of the actual existence of the rights which they have
respectively waived or abandoned; and if a settlement be made in regard to such subject, free
from fraud or mistake, whereby there is a surrender or satisfaction, in whole or in part, of a
claim upon one side in exchange for or in consideration of a surrender or satisfaction of a claim
in whole or in part, or of something of value upon the other, however baseless may be the claim
upon either side or harsh the terms as to either of the parties, the other cannot successfully
impeach the agreement in a court of justice.

the pleading entitled 'Confession of Judgment', ... partook of the nature of a compromise for, in
consideration of defendant's recognition of his obligation and the Commissioner's willingness to
allow its payment on installments, both had agreed to put an end to the litigation, through the
rendition of a judgment incorporating said stipulations. (Asong vs. IAC)

Question # 15

Is a compromise agreement without judicial approval valid? Is it indispensable that the

compromise agreement must have the conformity of all the parties to the case.

Answer # 15

Yes. A compromise is a concensual contract. As such it is perfected upon the meeting of the
minds of the parties to the contract. And from that moment not only does it become binding
upon the parties, it also has upon them the effect and authority of res judicata.

If the compromise, upon its perfection, has the effect of res judicata with respect to petitioners
(See Civil Code, Art. 2037), then it operates as a bar to their pursuing further their claim against
respondents. There was no necessity, therefore, to require the consent of respondents (who at

Jayson C. Malero
 the time no longer retained any interest in the property) since with petitioners estopped by the
contract, there would be no more claimants against whom the respondents would have to
defend themselves. (Mayuga vs. CA)

Question # 16

May a co-owner contest as unenforceable a sale of a real property listed in and sold pursuant to
the terms of a judicially-approved compromise agreement but without the knowledge of such
co-owner? Is the corporate secretary's certification of the shareholders' and directors resolution
authorizing such sale sufficient, or does the buyer need to go behind such certification and
investigate further the truth and veracity thereof?

Answer # 16

No. The sale of Esguerra Building II by VECCI to private respondent Sureste Properties, Inc. is
valid. The sale was expressly and clearly authorized under the judicially-approved compromise
agreement freely consented to and voluntarily signed by petitioner Julieta Esguerra. Thus,
petitioner's contention that the sale is unenforceable as to her share for being unauthorized is
plainly incongruous with the express authority granted by the compromise agreement to VECCI,
which specified no condition that the latter shall first consult with the former prior to selling any
of the properties listed there.

The compromise agreement entered between private respondent (Julieta Esguerra) and VECCI,
which was approved by the court, expressly provides, among others, that the latter shall sell or
otherwise dispose of certain properties, among them, Esguerra Bldgs. I and II, and fifty (50%)
percent of the net proceeds thereof to be given to the former. Pursuant to said agreement,
VECCI sold the buildings. . . .

xxx xxx xxx

. . . The compromise agreement expressly authorizes VECCI to sell the subject properties, with
the only condition that the sale be in a lawful and convenient manner and under the terms and
conditions recited in the enabling resolutions of its Board of Directors and stockholders. There is
nothing in the said agreement requiring VECCI to consult the private respondent (Julieta
Esguerra) before any sale (can be concluded). Thus, when VECCI sold the property to (Sureste
Properties, Inc.) as agreed upon, it need not consult the private respondent. (Esguerra vs. CA)

Question # 16

Respondent Salamanca filed a complaint for partition against her siblings, Antonio, Elena
(deceased, now represented by her husband, Jose Lopez), and Adoracion (deceased, now

Jayson C. Malero
 represented by heirs, petitioner Nestor and Francisco Gadrinab) before the Regional Trial Court
of Manila.

All parties claimed their respective shares in the property. They also claimed shares in the
rentals collected from one of the units of a duplex apartment on the property.

Upon being referred to mediation, the parties entered into a compromise agreement.
On April 10, 2003, the Regional Trial Court approved the compromise agreement. Based on the
entry of judgment, the case became final and executory on April 10, 2003.

Nestor Gadrinab filed a motion for execution of the compromise agreement. He demanded his
one-fourth share in the accumulated rentals. During the hearing on the motion for execution,
the parties agreed that the rentals shall be divided only into three since Nestor had already been
occupying one of the duplex units. The parties also agreed that Antonio Talao would shoulder
Nestor’s share, equivalent to one-fourth of the rental amount.

The portion of the duplex that Nestor refused to vacate, remained unsold.

Because of the attitude of her co-heirs, respondent Salamanca moved for the physical partition
of the property before the Regional Trial Court of Manila. She prayed for the physical partition
of the property instead of having it sold.

Nestor and Francisco Gadrinab opposed the motion. They contended that the judgment on the
compromise agreement had already become final and executory and had the effect of res
judicata. Antonio Talao and Jose Lopez did not object to the motion for physical partition.

Is the contention of Nestor and Francisco correct?

Answer # 16

Yes. Respondent Salamanca filed two actions for physical partition. The two parties settled the
first action through a judicial compromise agreement. The same respondent filed the second
action after she had determined that her co-heirs were not being cooperative in complying with
the compromise agreement.

In a compromise agreement, the parties freely enter into stipulations. "[A] judgment based on a
compromise agreement is a judgment on the merits" of the case. It has the effect of res judicata.
These principles are impressed both in our law and jurisprudence.

Thus, Article 2037 of the Civil Code provides:

Jayson C. Malero
 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 a judicial compromise. (Gabrinab vs.
Salamanca)

Question # 17

On October 10, 1987, petitioners executed a Deed of Sale with Right to Repurchase in favor of
private respondents, involving a residential house located at No. 346 Algeciras St., Sampaloc,
Manila. Due to serious financial and business reverses, petitioners were not able to redeem the
property within four months as agreed upon.

On October 24, 1989, private respondents filed a complaint for ejectment in the Metropolitan
Trial Court of the City of Manila, docketed as Civil Case No. 130352-CV against petitioners.

On December 27, 1989, the parties, assisted by their counsels, executed a compromise
agreement. In an order dated March 15, 1990, the Metropolitan Trial Court approved the
compromise agreement.

That defendants [petitioners herein] agree to pay plaintiffs [private respondents herein] in the
amounts and on the dates specifically indicated.

That failure on the part of the defendants to pay three (3) consecutive payments, plaintiffs will
be entitled to a writ of execution, unless the parties agree to extend the period of entitlement to
a writ of execution in writing to be submitted and/or approved by this Honorable Court; . . .
(Rollo, p. 53).

On April 15, 1990, private respondents filed a motion for execution on the ground that
petitioners failed to pay the first three installments stipulated in the compromise agreement, to
wit: P50,000.00 on January 31, 1990; P10,000.00 on February 28, 1990; and P10,000.00 on
March 31, 1990.

The Regional Trial Court issued the assailed resolution commanding the Metropolitan Trial Court
to issue a writ of execution of the decision approving the compromise agreement in Civil Case
No. 130352-CV.

In compliance with the said resolution, the Metropolitan Trial Court issued an order dated
March 27, 1991 directing the issuance of a writ of execution to enforce the compromise
agreement entered into by the parties.

On April 11, 1991, a "Sheriffs' Notice to Voluntarily Vacate the Premises" was served on
petitioner.

Jayson C. Malero
 Petitioners then filed a petition for certiorari with a prayer for the issuance of a temporary
restraining order and a writ of injunction with the Court of Appeals.

Would the petition for certiorari praying for TRO on notice to vacate prosper?

Answer # 17

Yes. When the parties entered into a compromise agreement, the original action for ejectment
was set aside and the action was changed to a monetary obligation.

A perusal of the compromise agreement signed by the parties and approved by the inferior
court merely provided that in case the defendants (petitioners herein) failed to pay three
monthly installments, the plaintiffs (private respondents herein) would be entitled to a writ of
execution, without specifying what the subject of execution would be. Said agreement did not
state that petitioners would be evicted from the premises subject of the suit in case of any
default in complying with their obligation thereunder.

A judgment is the foundation of a writ of execution which draws its vitality therefrom
(Monaghon v. Monaghon, 25 Ohio St. 325). An officer issuing a writ of execution is required to
look to the judgment for his immediate authority (Sydnor v. Roberts, 12 Tex. 598).

An execution must conform to and be warranted by the judgment on which it was issued
(Francisco, The Revised Rules of Court 641 [1966]; Kramer v. Montgomery, 206 Okla.190, 242 p.
2d 414 [1952]). There should not be a substantial variance between the judgment and the writ
of execution (Avery v. Lewis, 10 Vt. 332). Thus, an execution is fatally defective if the judgment
was for a sum of money and the writ of execution was for the sale of mortgaged property (Bank
of Philippine Islands v. Green, 48 Phil. 284 [1925]).

As petitioners' obligation under the compromise agreement as approved by the court was
monetary in nature, private respondents can avail only of the writ of execution provided in
Section 15, Rule 39 of the Revised Rules of Court, and not that provided in Section 13. (Abinujar
vs. CA)

Question # 18

In its Resolution6 dated May 31, 2001, the NLRC declared that the 31 complainants were
illegally dismissed and that there was no basis for the implementation of petitioner's
retrenchment program. The NLRC noted that the following circumstances belied PJI's claim that
it had incurred losses: (1) office renovations were made as evidenced by numerous purchase
orders; (2) certain employees were granted merit increases; and (3) a Christmas party for
employees was held at a plush hotel. It also observed that PJI's executives refused to forego
their quarterly bonuses if the Union members refused to forego theirs.

Jayson C. Malero
 Thus, the NLRC declared that the retrenchment of 31 employees was illegal and ordered their
reinstatement "to their former position without loss of seniority rights and other benefits, with
payment of unpaid salaries, bonuses and backwages from the date of dismissal up to the actual
date of reinstatement plus 10% of the total monetary award as attorney's fees." PJI was
adjudged liable in the total amount of P6,447,008.57.7

Thereafter, the parties executed a Compromise Agreement8 dated July 9, 2001, where PJI
undertook to reinstate the 31 complainant-employees effective July 1, 2001 without loss of
seniority rights and benefits; 17 of them who were previously retrenched were agreed to be
given full and complete payment of their respective monetary claims, while 14 others would be
paid their monetary claims minus what they received by way of separation pay. The agreement
stated that the parties entered the agreement "[i]n a sincere effort at peace and reconciliation
as well as to jointly establish a new era in labor management relations marked by mutual trust,
cooperation and assistance, enhanced by open, constant and sincere communication with a
view of advancing the interest of both the company and its employees." The compromise
agreement was submitted to the NLRC for approval. All the employees mentioned in the
agreement and in the NLRC Resolution affixed their signatures thereon. They likewise signed the
Joint Manifesto and Declaration of Mutual Support and Cooperation9 which had also been
submitted for the consideration of the labor tribunal.

In the meantime, however, the Union filed another Notice of Strike on July 1, 2002, premised on
the following claims such as the outright dismissal of 29 employees.

1. Whether an NLRC Resolution, which includes a pronouncement that the members of a

union had been illegally dismissed, is abandoned or rendered "moot and academic" by a
compromise agreement subsequently entered into between the dismissed employees and
the employer?
2. Whether such a compromise agreement constitutes res judicata to a new complaint later
filed by other union members-employees, not parties to the agreement, who likewise claim
to have been illegally dismissed?

Answer # 17

The nature of a compromise is spelled out in Article 2028 of the New Civil Code: it is "a contract whereby
the parties, by making reciprocal concessions, avoid litigation or put an end to one already
commenced." Parties to a compromise are motivated by "the hope of gaining, balanced by the dangers
of losing."26 It contemplates mutual concessions and mutual gains to avoid the expenses of litigation,
or, when litigation has already begun, to end it because of the uncertainty of the result.27 Article 227 of
the Labor Code of the Philippines authorizes compromise agreements voluntarily agreed upon by the
parties, in conformity with the basic policy of the State "to promote and emphasize the primacy of free

Jayson C. Malero
collective bargaining and negotiations, including voluntary arbitration, mediation and conciliation, as
modes of settling labor or industrial disputes."28 As the Court

held in Reformist Union of R.B. Liner, Inc. v. NLRC,29 the provision "bestows finality to unvitiated
compromise agreements," particularly if there is no allegation that either party did not comply with
what was incumbent upon them under the agreement. The provision reads:

ART. 227 Compromise Agreements. – Any compromise settlement, including those involving labor
standard laws, voluntarily agreed upon by the parties with the assistance of the Bureau or the regional
office of the Department of Labor, shall be final and binding upon the parties. The National Labor
Relations Commission or any court shall not assume jurisdiction over issues involved therein except in
case of noncompliance thereof or if there is prima facie evidence that the settlement was obtained
through fraud, misrepresentation, or coercion.

Thus, a judgment rendered in accordance with a compromise agreement is not appealable, and is
immediately executory unless a motion is filed to set aside the agreement on the ground of fraud,
mistake, or duress, in which case an appeal may be taken against the order denying the motion.30
Under Article 2037 of the Civil Code, "a compromise has upon the parties the effect and authority of res
judicata," even when effected without judicial approval; and under the principle of res judicata, an issue
which had already been laid to rest by the parties themselves can no longer be relitigated. (PJI vs. NLRC)

Question # 18

On February 1, 2001, respondent Jerry Montanez (Montanez) secured a loan of One Hundred Forty-
Three Thousand Eight Hundred Sixty-Four Pesos (₱143,864.00), payable in one (1) year, or until February
1, 2002, from the petitioner. The respondent gave as collateral therefor his house and lot located at
Block 39 Lot 39 Phase 3, Palmera Spring, Bagumbong, Caloocan City.

Due to the respondent’s failure to pay the loan, the petitioner filed a complaint against the respondent
before the Lupong Tagapamayapa of Barangay San Jose, Rodriguez, Rizal. The parties entered into a
Kasunduang Pag-aayos wherein the respondent agreed to pay his loan in installments in the amount of
Two Thousand Pesos (₱2,000.00) per month, and in the event the house and lot given as collateral is
sold, the respondent would settle the balance of the loan in full. However, the respondent still failed to
pay, and on December 13, 2004, the Lupong Tagapamayapa issued a certification to file action in court
in favor of the petitioner.

Jayson C. Malero
On April 7, 2005, the petitioner filed before the Metropolitan Trial Court (MeTC) of Makati City, Branch
66, a complaint for Collection of Sum of Money. In his Answer with Counterclaim,3 the respondent
raised the defense of improper venue considering that the petitioner was a resident of Bagumbong,
Caloocan City while he lived in San Mateo, Rizal.

Whether or not the Kasunduang Pag-aayos effectively novated the loan agreement?

Answer # 18

No. Because the respondent failed to comply with the terms of the Kasunduang Pag-aayos, 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.

It is true that an amicable settlement reached at the barangay conciliation proceedings, like the
Kasunduang Pag-aayos in this case, is binding between the contracting parties and, upon its perfection,
is immediately executory insofar as it is not contrary to law, good morals, good customs, public order
and public policy.16 This is in accord with the broad precept of Article 2037 of the Civil Code, viz:

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

Being a by-product of mutual concessions and good faith of the parties, an amicable settlement has the
force and effect of res judicata even if not judicially approved.17 It transcends being a mere contract
binding only upon the parties thereto, and is akin to a judgment that is subject to execution in
accordance with the Rules.18 Thus, under Section 417 of the Local Government Code,19 such amicable
settlement or arbitration award may be enforced by execution by the Barangay Lupon within six (6)
months from the date of settlement, or by filing an action to enforce such settlement in the appropriate
city or municipal court, if beyond the six-month period.

Under the first remedy, the proceedings are covered by the Local Government Code and the
Katarungang Pambarangay Implementing Rules and Regulations. 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. Under the second remedy, the proceedings are governed by the Rules of Court, as amended.

Jayson C. Malero
The cause of action is the amicable settlement itself, which, by operation of law, has the force and effect
of a final judgment.20

It must be emphasized, however, that enforcement by execution of the amicable settlement, either
under the first or the second remedy, is only applicable if the contracting parties have not repudiated
such settlement within ten (10) days from the date thereof in accordance with Section 416 of the Local
Government Code. If the amicable settlement is repudiated by one party, either expressly or impliedly,
the other party has two options, namely, to enforce the compromise in accordance with the Local
Government Code or Rules of Court as the case may be, or to consider it rescinded and insist upon his
original demand. This is in accord with Article 2041 of the Civil Code, which qualifies the broad
application of Article 2037, viz:

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.

In the case of Leonor v. Sycip,21 the Supreme Court (SC) had the occasion to explain this provision of
law. It ruled that Article 2041 does not require an action for rescission, and the aggrieved party, by the
breach of compromise agreement, may just consider it already rescinded, to wit:

It is worthy of notice, in this connection, that, unlike Article 2039 of the same 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, thus suggesting an action for annulment or
rescission, said Article 2041 confers upon the party concerned, not a "cause" for rescission, or the right
to "demand" the rescission of a compromise, but the authority, not only to "regard it as rescinded", but,
also, to "insist upon his original demand". The language of this Article 2041, particularly when
contrasted with that of Article 2039, denotes that no action for rescission is required in said Article 2041,
and that the party aggrieved by the breach of a compromise agreement 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 thereof. He need not seek a judicial declaration of
rescission, for he may "regard" the compromise agreement already "rescinded".22 (emphasis supplied)

Question # 19

Petitioners Inutan, Carte, Ayson, Cabarle, Jamili, Hular, Azucena, Tunog, Bernal, Estre, Sagun, and
Ledesma were employees of respondent Napar, a recruitment agency owned and managed by

Jayson C. Malero
respondent Lacsamana. Napar assigned petitioners at respondent Jonas, a corporation engaged in the
manufacture of various food products with respondent Young as its President, to work as factory
workers, machine operator, quality control inspector, selector, mixer, and warehouseman.

Sometime in September of 2002, petitioners and other co-workers (complainants) filed before the
Arbitration Branch of the NLRC three separate complaints for wage differentials, 13th month pay,
overtime pay, holiday pay, premium pay for holiday and rest day, service incentive leave pay, and
unpaid emergency cost of living allowance (ECOLA) against respondents, docketed as NLRC NCR Case
Nos. 09-76698-2002, 09-08152-2002, and 09-08046-2002, which complaints were consolidated before
Labor Arbiter Jaime M. Reyno (LA Reyno).

On January 13, 2003, complainants and respondents entered into a Joint Compromise Agreement[7]
which reads:

JOINT COMPROMISE AGREEMENT

COMPLAINANTS and the RESPONDENTS, through their' respective counsel, respectfully submit the
following Compromise Agreement.

WHEREAS, the parties (except Susana Larga) deciding to finally write "finis" to the instant case, have
agreed to settle the instant case and to enter into a Compromise Agreement.

NOW THEREFORE, for and in consideration of the terms and conditions herein below stipulated, the
parties do hereby agree:

That the complainants should be considered regular employees of Napar Contracting and Allied Services
reckoned from their date of hire and are entitled to all the benefits under the law due to regular
employees;

That the complainants shall be re-assigned by Napar Contracting and Allied Services and shall ensure
that they will be given work within forty five days (45) or until February 26,2002;

Jayson C. Malero
That in case Napar Contracting and Allied Services failed to re assign or provide them work,
complainants shall be reinstated in their payroll or be given their salary equivalent to the existing
minimum wage x x x;

That the complainants shall each receive the amount of SEVEN THOUSAND PESOS as payment for their
monetary claims and which amount shall be considered in any future litigation;

That upon signing of this agreement and compliance with the stipulations herein provided, the cases
shall be deemed and considered fully and completely satisfied and the complainants hereby release,
remiss and forever discharge the herein respondents, from any and all claims arising from the above
cases;

The parties herein respectfully pray unto this Honorable Commission to approve this Compromise
Agreement and thereafter an Order be issued declaring the judgment in the above-entitled cases fully
and completely satisfied.

In an Order[9] dated January 16, 2003, LA Reyno approved the Joint Compromise Agreement, enjoined
the parties to fully comply with its terms and dismissed the case without prejudice.

In accordance with the Joint Compromise Agreement, complainants, on several instances, reported to
Napar. They were paid P7,000.00 each as part of the agreement but were required by Napar; (1) to
submit their respective bio-data/resume and several documents such as Police Clearance, NBI
Clearance, Barangay Clearance, Mayor's Permit, Health Certificate, drug test results, community tax
certificate, eye test results and medical/physical examination results; (2) to attend orientation seminars;
(3) to undergo series of interviews; and (4) to take and pass qualifying examinations, before they could
be posted to their new assignments. These requirements, according to Napar, are needed to properly
assess complainants' skills for new placement with the agency's other clients.

Complainants failed to fully comply, hence they were not given new assignments.

Sensing Napar's insincerity in discharging its obligation in reassigning them, complainants filed anew
before the Arbitration Branch of the NLRC four separate Complaints[10] for illegal dismissal, non-
payment of 13th month pay, wage differentials, overtime pay, service incentive leave pay, holiday pay,
premium pay for holiday and rest day, and moral and exemplary damages against respondents,
docketed as NLRC NCR Case Nos. 00-0505557-2003, 00-05-06187-2003, 00-05-06605-2003,[11] and 00-
07-07792-2003. These complaints were consolidated.

In their Position Paper,[12] complainants averred that Napar's failure to reinstate or provide them work
without any condition, in consonance with the terms of the Joint Compromise Agreement, constitutes
illegal constructive dismissal. They prayed for backwages plus separation pay in lieu of reinstatement.

Respondents, in their Position Paper,[13] claimed that they have fulfilled their obligation under the
agreement when Napar required complainants to report for work, to submit documentary

Jayson C. Malero
requirements, to undergo seminars and training, and to pass qualifying exams. They contended that
complainants were the ones who violated the agreement when they refused to comply with the
foregoing requirements in order to assess their working capabilities and skills for their next posting. As
such, they were deemed to have waived their right to be reassigned. They argued that complainants
should not have filed new complaints but should have instead moved for the execution of the Joint
Compromise Agreement.

Is Napar correct in its contention?

Answer # 19

No. Article 2041 confers upon the party concerned the authority, not only to regard the compromise
agreement as rescinded but also, to insist upon his original demand. We find that petitioners validly
exercised this option as there was breach and non-compliance of the Joint Compromise Agreement by
respondents.

It is undisputed that Napar failed to reassign and provide work to petitioners. Napar, however, puts the
blame on petitioners for their alleged deliberate refusal to comply with the requirements for
reassignment to other clients. Napar claims that the imposition of these so-called "reassessment
procedures" will efficiently guide them on where to assign petitioners; it likewise posits that it is a valid
exercise of its management prerogative to assign workers to their principal employer.

Respondents' non-compliance with the strict terms of the Joint Compromise Agreement of reassigning
petitioners and ensuring that they will be given work within the required time constitutes repudiation of
the agreement. As such, the agreement is considered rescinded in accordance with Article 2041 of the
Civil Code. Petitioners properly chose to rescind the compromise agreement and exercised the option of
filing anew their complaints, pursuant to Art. 2041. It was error on the part of the CA to deny petitioners
the right of rescission. (Inutan et. al. vs. NAPAR)

Question # 20

In 1941, shortly before the outbreak of the war, the Red Star Stores, Inc. was indebted to the National
City Bank of New York, Manila Branch, hereinafter called the Bank, in the amount of $19,956.75
representing certain import bills purchased by said Bank. This obligation was guaranteed by Ernest Berg,
hereinafter referred to as plaintiff, and by his brother, Alfred Berg. During the Japanese occupation, the
Bank of Taiwan required the Red Stars Stores, Inc. to liquidate its obligation and, accordingly, plaintiff
paid the same in full.

After liberation, the Bank reopened and established a department to revise all prewar accounts and take
such steps as may be necessary to recover them. This department sent a letter to the Red Star Stores,
Inc. requesting it to indicate the steps it wanted to take to liquidate its or war obligation. On November

Jayson C. Malero
1, 1945, plaintiff contacted the officials of the Bank telling them that he had already settled the account
with the Bank of Taiwan during the Japanese occupation, but said officials intimated that they could not
regard such payment as discharging the obligation and requested that it be paid. Plaintiff acknowledged
his indebtedness and agree to pay the same but stated that he desired to consult first his lawyers as to
the possible effect of the cases then pending on the validity of wartime payments in Japanese military
note. Subsequently, on February 1, 1946, plaintiff informed the Bank that he was willing to compromise
his case by paying the indebtedness provided the Bank forego its claim as to interest. This offer was
approved and on February 15, 1946, plaintiff signed an acknowledgment of the debt and an agreement
relative to its liquidation (Exhibit I). On March 23, 1946, plaintiff informed the Bank that, as the sale of
his real property had been delayed, he would not be able to make payment as agreed upon, but that, in
the meantime, he would execute a note and a pledge placing as security the 3,300 shares of Filipinas
Compania de Seguros registered in his name. This was done and the agreement was subsequently
executed.

On March 12, 1946, the Court of First Instance of Manila decide the case of Hia Pia vs. China Banking
Corporation holding that payments made in Japanese military currency to the Bank of Taiwan did not
operate to discharge the obligations, but on April 9, 1948, the decision was reversed by the Supreme
Court holding said payments to be valid (G.R. No. L-554) *. On June 22, 1946, having been advised that
his note was falling due, plaintiff made a partial payment of P4,913.50 and was given an extension of 30
days to pay the balance. On July 21, 1946, a second notice was given plaintiff for the payment of the
balance, and on July 31, plaintiff sent a letter authorizing the Bank to sell the shares he had pledge to
secure his debt and to deposit the balance, if any, in his personal account. This was done thereby
liquidating the account of plaintiff.

On September 27, 1948, plaintiff demanded from the Bank the repayment of the money paid by him
relying on the decision of the Supreme Court in the Haw Pia case. The Bank replied that the case of the
plaintiff had been compromised and can no longer be reopened. Whereupon on April 13, 1949, plaintiff
commenced the present action to recover the amount paid, plus the sum of P33,000 as damages.

Plaintiff insists that the compromise is null and void as the same has been extorted from him by the
officials of the Bank through deceit, fraud and intimidation. That the officials of the Bank intimidated to
him that unless the account is settled, the Bank would bring an action against him or against his brother,
Alfred Berg; that it would not extend any further credit facilities to him or his business enterprises; and
that it would make use of its influence to prevent him from engaging in business in the Philippines.

Is the bank correct that the case of the plaintiff had been compromised and can no longer be reopened?

Answer # 19

Yes. it is a general rule in this country, that compromises are to be favored, without regard to the nature
of the controversy compromised, and that they cannot be set aside because the event shows all the gain
to have been on one side, and all the sacrifice on the other, if the parties have acted in good faith, and
with a belief of the actual existence of the rights which they have respectively waived or abandoned;
and if a settlement be made in regard to such subject, free from fraud or mistake, whereby there is a

Jayson C. Malero
surrender or satisfaction, in whole or in part, or of something of value, upon the other, however
baseless may be the claim upon either side or harsh the terms as to either of the parties, the other
cannot successfully impeach the agreement in a court of justice . . . where the compromise is instituted
and carried through in good faith, the fact that there was a mistake as to the laws or as to the facts,
except in certain cases where the mistake was mutual and correctable as such in equity, cannot afford a
basis for setting a compromise aside or defending against a suit brought thereon . . . Furthermore, and
as following the rule stated, 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.

It is a practice followed not only by banks but even individuals to demand payment of their accounts
with the threat upon failure to do so an action would be instituted in court. Such a threat is proper
within the realm of the law as a means to enforce collection. Such a threat cannot constitute duress
even if the claim proves to be unfounded so long as the creditor believes that it was his right to do so.

Question # 20

In October 1994, petitioner Teodoro Chavez and respondent Jacinto Trillana entered into a contract of
lease4 whereby the former leased to the latter his fishpond at Sitio Pariahan, Taliptip, Bulacan, Bulacan,
for a term of six (6) years commencing from October 23, 1994 to October 23, 2000. The rental for the
whole term was two million two hundred forty thousand (₱2,240,000.00) pesos, of which one million
(₱1,000,000.00) pesos was to be paid upon signing of the contract. The balance was payable as follows:

b. That, after six (6) months and/or, on or before one (1) year from the date of signing this contract, the
amount of THREE HUNDRED FORTY-FOUR THOUSAND (₱344,000.00) pesos shall be paid on April 23,
1995 and/or, on or before October 23, 1995 shall be paid by the LESSEE to the LESSOR.

c. That, the LESSEE, shall pay the amount of FOUR HUNDRED FORTY-EIGHT THOUSAND (₱448,000.00)
pesos x x x to the LESSOR on April 23, 1997 and/or, on or before October 23, 1997, and on April 23, 1998
and/or, on or before October 23, 1998 the amount of FOUR HUNDRED FORTY-EIGHT THOUSAND
(₱448,000.00) pesos x x x.

Paragraph 5 of the contract further provided that respondent shall undertake all construction and
preservation of improvements in the fishpond that may be destroyed during the period of the lease, at
his expense, without reimbursement from petitioner.

Jayson C. Malero
In August 1996, a powerful typhoon hit the country which damaged the subject fishpond. Respondent
did not immediately undertake the necessary repairs as the water level was still high. Three (3) weeks
later, respondent was informed by a barangay councilor that major repairs were being undertaken in
the fishpond with the use of a crane. Respondent found out that the repairs were at the instance of
petitioner who had grown impatient with his delay in commencing the work.

In September 1996, respondent filed a complaint before the Office of the Barangay Captain of Taliptip,
Bulacan, Bulacan. He complained about the unauthorized repairs undertaken by petitioner, the ouster of
his personnel from the leased premises and its unlawful taking by petitioner despite their valid and
subsisting lease contract. After conciliation proceedings, an agreement was reached, viz.:

KASUNDUAN

Napagkasunduan ngayong araw na ‘to ika-17 ng Setyembre ng nagpabuwis – Teodoro Chavez at

bumubuwis na si G. Jay Trillana na ibabalik ni G. Chavez ang halagang ₱150,000.00 kay G. Trillana bilang
sukli sa natitirang panahon ng buwisan.

Ngunit kung maibibigay ni G. Chavez ang halagang ₱100,000.00 bago sumapit o pagsapit ng ika-23 ng
Setyembre, taong kasalukuyan, ‘to ay nangangahulugan ng buong kabayaran at hindi ₱150,000.00.

Kung sakali at hindi maibigay ang ₱100,000.00 ang magiging kabayaran ay mananatiling ₱150,000.00 na
may paraan ng pagbabayad ng sumusunod:

Ang ₱50,000.00 ay ibibigay bago sumapit o pagsapit ng ika-31 ng Oktubre 1996 at ang balanseng
₱100,000.00 ay ibibigay sa loob ng isang taon subalit magbibigay ng promissory note si G. Chavez at
kung mabubuwisang ang kanyang palaisdaan ay ibibigay lahat ni G. Chavez ang buong ₱150,000.00 sa
lalong madaling panahon.

Kung magkakaroon ng sapat at total na kabayaran si G. Chavez kay G. Trillana ang huli ay lalagda sa
kasulatan bilang waiver o walang anumang paghahabol sa nabanggit na buwisan.

Alleging non-compliance by petitioner with their lease contract and the foregoing "Kasunduan,"
respondent filed a complaint on February 7, 1997 against petitioner before the RTC of Valenzuela City,
docketed as Civil Case No. 5139-V-97. Respondent prayed that the following amounts be awarded him,
viz.: (a) ₱300,000.00 as reimbursement for rentals of the leased premises corresponding to the
unexpired portion of the lease contract; (b) ₱500,000.00 as unrealized profits; (c) ₱200,000.00 as moral
damages; (d) ₱200,000.00 as exemplary damages; and, (e) ₱100,000.00 as attorney’s fees plus
₱1,000.00 for each court appearance of respondent’s counsel.

Jayson C. Malero
Petitioner argued that respondent should have followed the procedure for enforcement of the amicable
settlement as provided for in the Revised Katarungang Pambarangay Law.

Is Petitioner correct?

Answer # 20

No. In exercising the second option under Art. 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.15 This is because he may regard the compromise
as already rescinded16 by the breach thereof of the other party.

In the case at bar, the Revised Katarungang Pambarangay Law provides for a two-tiered mode of
enforcement of an amicable settlement, 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; and (b) an action in regular
form, which remedy is judicial.21 However, the mode of enforcement does not rule out the right of
rescission under Art. 2041 of the Civil Code. The availability of the right of rescission is apparent from
the wording of Sec. 41722 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, if beyond that period. The use of the word "may" clearly makes the procedure provided
in the Revised Katarungang Pambarangay Law directory23 or merely optional in nature.

Thus, 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, petitioner’s non-compliance
paved the way for the application of Art. 2041 under which respondent may either enforce the
compromise, following the procedure laid out in the Revised Katarungang Pambarangay Law, or regard
it as rescinded and insist upon his original demand. Respondent chose the latter option when he
instituted Civil Case No. 5139-V-97 for recovery of unrealized profits and reimbursement of advance
rentals, moral and exemplary damages, and attorney’s fees. Respondent was not limited to claiming
₱150,000.00 because although he agreed to the amount in the "Kasunduan," 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 litigation24 which the parties hope to prevent by making reciprocal concessions,
adjusting their respective positions in the hope of gaining balanced by the danger of losing.25 Under the
"Kasunduan," 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.26 It is undisputed that herein
petitioner did not. (Chavez vs. CA)

Question # 21

On July 11, 1955, plaintiff Domingo E. Leonor and defendant Francisco Sycip entered into a contract,
whereby the former leased to the latter a two-story building located at No. 1728-D Taft Avenue, interior,
Pasay City, for a period of two years, beginning from August 1, 1955, at a monthly rental of P350.00.
From July to October, 1956, Sycip failed to pay the corresponding rentals in view of which, on October
12, 1956, Leonor instituted against him, in the municipal court of Pasay City, Civil Case No. 1972 thereof,

Jayson C. Malero
for unlawful detainer. Inasmuch as, on October 19, 1956, one Napoleon A. Coronado agreed to
guarantee the payment of the rentals due from Sycip by assigning to Leonor his (Coronado's) rights
under a deed of chattel mortgage executed, prior thereto, by Sycip in his (Coronado's) favor, on
November 10, 1956, Leonor moved for the dismissal of said case No. 1972, which was granted on
November 12, 1956.

As Sycip kept on defaulting in the payment of rentals, Leonor requested the Sheriff of Pasay City, on
February 11, 1957, to cause the personal property subject to said chattel mortgage to be foreclosed
extrajudicially, as stipulated in the contract, but this provision thereof could not be enforced because
Sycip refused to surrender' said property to the sheriff. Hence, on March 7, 1957, Leonor again sued
Sycip in the municipal court of Pasay City for unlawful detainer (Civil Case No. 2067), to eject him from
the leased premises and collect the rentals from July, 1956 to March, 1957. On the date set for the
hearing of the case, Leonor introduced his evidence, after which Sycip waived his right to introduce
evidence and submitted the case for decision, which was rendered on May 24, 1957. It sentenced Sycip
to vacate said premises and to pay Leonor P3,800 as rentals due up to said date, with interest thereon at
the legal rate from the institution of the case, as well as the rentals that may fall due thereafter, at the
rate of P350 a month, until the premises shall have been vacated, in addition to P150 as attorney's fees,
and the costs of the proceedings.

On May 27, 1957, Sycip filed notice of appeal from this decision. Pending perfection of the appeal, or on
May 28, 1957, plaintiff moved for the immediate execution of said decision, which was granted on June
1, 1957. Pursuant to the writ of execution accordingly issued, the Sheriff of Pasay City sold at public
auction, on July 8, 1957, certain properties of Sycip for the sum of P3,500. Deducting this sum from the
amount then due from Sycip under the appealed decision, or P4,495.60, plus the expenses of execution,
amounting P327.00, there remained a balance of P1,322.60 still due from him. Moreover, Sycip's
ejectment took place on July 13, 1957. When the appealed case was heard in the Court of First Instance
of Rizal (Civil Case No. 1756-P), Sycip maintained that it should be dismiss upon the ground:

I. That the claim set forth in the complaint has be released;

II. That the Assignment of Chattel Mortgage which dismissed the first action (Civil Case No. 1792) a
compromise agreement that had upon the parties the effect and authority of Res-Judicata;

III. That the second action, the case at bar, (Civil Case No. 2067) cannot be taken to mean as a rescission
of the compromise agreement.

Is defendant Sycip correct?

Answer # 21

No. Contrary to defendant's pretense, plaintiff could not have sued Coronado for, by virtue of his
aforementioned assignment, the latter merely yielded his preferred lien in favor of plaintiff herein, and
did not assume any responsibility for defendant's obligation in favor of plaintiff herein. Besides, having

Jayson C. Malero
violated the chattel mortgage contract, by refusing to deliver the mortgaged property to the sheriff, for
purposes of the extra-judicial foreclosure, to which the defendant had explicitly agreed in the deed of
chattel mortgage, he may not require the plaintiff to adhere thereto (Art. 1191,, Civil Code of the Phil.).
Again, owing to the breach of the compromise agreement between the parties, resulting, not only from
defendant's refusal to deliver the mortgaged property to the sheriff, but, also, from his failure to pay, on
or before December 31, 1956, the sum P2,450, due on October 6, 1956, plaintiff has, under Article 2041
of the Civil Code of the Philippines, the right eigth to "enforce the compromise or regard it as rescinded
a insist upon his original demand".

It is worthy of notice, in this connection, that, unlike Article 2039 of the same 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, thus suggesting an action for annulment or
rescission, said Article 2041 confers up the party concerned, not a "cause" for rescission, or t right to
"demand" the rescission, of a compromise, but the authority, not only to "regard it as rescinded", but,
also, to "insist upon his original demand". The language this Article 2041, particularly when contrasted
with that of Article 2039, denotes that no action for rescission required in said Article 2041, and that the
party aggrieved by the breach of a compromise agreement may, if he choose 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 thereof. He need not seek a judicial declaration of
rescission, he may "regard" the compromise agreement already rescinded".

Any other view would lead, insofar as the parties here are concerned, to a splitting of plaintiff's cause of
action Indeed, to seek a rescission of the compromise, an action would have to be brought in the court
of first instance, such action is incapable of pecuniary estimation, where the unlawful detainer case
would have to be filed with municipal court. Moreover, if the right of action for unlawful detainer would
be subordinated to the action for rescission of the compromise agreement, then the latter would be a
prejudicial question and the proceedings the former would have to be suspended until the final
disposition of the action for rescission. The summary naturalization of the remedy of unlawful detainer
would thus be completely defeated or destroyed. Surely, the framers of Article 2041 of the Civil Code of
the Philippines could not have intended such result. The case of Bas Vda. de Concepcion v. Santos, L-
3585 (July 9, 1951), cited in appellant's brief, involved a compromise made on January 24, 1943, years
before the approval of said Code, and, hence, it is not in point.

In the light of the foregoing, defendant's theory to the effect that plaintiff's complaint in the present
case contains no allegations to warrant rescission of their compromise agreement is pointless, an action
for rescission being unnecessary.

Jayson C. Malero
Defendant brands the decision of the Court of First Instance of Rizal as vague and erroneous because it
sentences him to pay the plaintiff back rentals, at the rate of P350.00 a month, from July 13, 1956 until
such time as he (defendant) shall have vacated the leased premises, whereas the record on appeal
shows that he had been ejected from said premises on July 13, 1957, or prior to the rendition of said
decision on March 29, 1958. This fact does 'not retract, however, from the precision and accuracy of said
decision, for, pursuant thereto, he shall pay rentals, at the aforementioned rate, from July 13, 1956 to
July 13, 1957. (Leonor vs. Sycip)

Question # 22

on March 13, 2009, the petitioner5 filed a Complaint6 for declaration of nullity of rescission of contract
and damages in the trial court7 against x x x Anchor Savings Bank ("Anchor"), a thrift banking institution
organized and existing under the laws of the Philippines [whose] business name x x x was [later]
changed to Equicom Savings Bank x x x

In the said complaint, petitioner alleged that, on January 28, 2005, she agreed to purchase a real
property from [Anchor] for the sum of x x x Php2,200,000.00 x x x. The said real property pertained to a
parcel of land that had been foreclosed by [Anchor] with an area of x x x 126.50 square meters x x x
located at Fairview, Quezon City ("subject property"). Pursuant to the said agreement, the parties
entered into a Contract to Sell8 whereby the petitioner agreed to pay the amount of x x x
Php200,000.00 x x x as downpayment x x x with the balance of x x x Php2,000,000.00 x x x payable in
sixty (60) monthly installments amounting to x x x Php47,580.00 x x x.

Petitioner, however, defaulted in paying her monthly obligations x x x which prompted [Anchor] to
rescind the contract to sell x x x. In filing the complaint x x x petitioner averred that the rescission of the
contract to sell was null and void because she had already substantially paid her obligation to the bank.

In its Answer[,] 9 [Anchor] denied the allegations that were made by the petitioner in her complaint. On
the contrary, it contended that the post-dated checks which were issued by the petitioner in its favor
covering the monthly installments for the purchase of the subject property were all dishonored by the
drawee bank when they were presented for payment. Thus, [Anchor] averred that petitioner should not
be allowed to benefit from her own fault and prevent [Anchor] from exercising its right to rescind their
contract to sell.

Jayson C. Malero
Subsequently, after the issuance of a Pre-Trial Order by the trial court, the parties agreed to an amicable
settlement and entered into a Compromise Agreement.10 On the basis thereof, the trial court rendered
a Judgment11 x x x on August 16, 2010 whereby the petitioner agreed to repurchase the subject
property from [Anchor] for the amount of x x x Php1,469,460.66 x x x plus x x x 12% x x x interest per
annum.

However, [Anchor] later on filed a Manifestation and Motion for Execution12 in the trial court claiming
that petitioner had not been paying the agreed monthly installments in accordance with the
compromise agreement. Moreover, it averred that all the checks which the petitioner issued to pay her
obligations were again dishonored. Thus, [Anchor] prayed that a writ of execution be issued by the trial
court in its favor ordering: (1) that the contract to sell that was entered into between the parties be
rescinded; (2) that [Anchor] be allowed to apply all the payments that were made to it by the petitioner
as rentals; and (3) that petitioner immediately vacate the subject property.

petitioner argues that respondent is not entitled to execution as the Compromise Agreement does not
specifically provide that in case of default, a writ of execution may issue; that the only remedies
available to respondent are to charge penalties and/or rescind the agreement as provided for under the
Contract to Sell; and that before a writ of execution may issue, respondent must first institute an action
for rescission and secure a judicial declaration that the Contract to Sell is rescinded, which was not done
in this case.

Is the petitioner correct?

Answer # 22

No. Under Article 2041 of the Civil Code, "(i)f 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." "The language of this Article 2041 x x x denotes that no action for rescission
is required x x x, and that the party aggrieved by the breach of a compromise agreement 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 thereof. He need not seek a judicial
declaration of rescission, for he may ‘regard’ the compromise agreement already ‘rescinded’."

Petitioner may be right in arguing that respondent has the option to proceed with the sale and charge
corresponding penalties instead, pursuant to the stipulations in the Contract to Sell; however,
respondent chose to rescind the same, an option which it is equally entitled to by contract and under
the law,25 and thus evict petitioner from the premises. Respondent must have thought that if past
actions were a gauge, petitioner was no longer in a position to honor her obligations under the Contract
to Sell. Respondent’s claim is straightforward: it seeks rescission and eviction, with whatever amount
paid by petitioner to be applied as rental for the use and occupation of the subject property as agreed
upon. Going by what is on record, it would appear that petitioner paid the total amount of
₱497,412.76,26 while she has been occupying the property, a 126.5-square meter parcel of land with

Jayson C. Malero
improvements thereon located at Timex Street, West Fairview, Quezon City, as her residence since
2007.27 In effect, petitioner would have paid a measly sum as aggregate rent for her stay therein, which
is more than just for her. (Sonley vs. Anchor Saving Bank)

Question # 23

.E. Ritz Mansion International Corporation ("B.E. Ritz"), a corporation involved in real estate projects,
contracted to sell to private respondent EBR Realty, Inc. ("EBRRI"), an office building, also
identified as Building E, still then under construction along E. Rodriguez Avenue, Bagong Bayan,
Quezon City, for P22,050,000.00. EBRRI paid B.E. Ritz the aggregate sum of P17,640,000.00
leaving a balance of P4,410,000.00 payable upon the completion and turnover of the building to
EBRRI. The two firms additionally executed contracts to sell covering ten condominium units,
still then under construction, at the Phoenix Subdivision in Pasig City for which purchase EBRRI
paid to B.E. Ritz the sum of P20,415,682.75. In July 1991, B.E. Ritz demanded from EBRRI the
payment of the P4,410,000.00 balance in its purchase of Building E. Instead of paying the
amount, EBRRI filed a complaint, docketed HLRB Case No. REM-120992-5304, before the
Housing and Land Use Regulatory Board ("HLURB") for specific performance and/or rescission
plus damages against B.E. Ritz premised on the latter's failure to finish the construction of
Building E on the date agreed upon for its completion. EBRRI also sought to rescind the
contracts to sell over the ten condominium units in the Phoenix Subdivision for a similar failure
on the part of B.E. Ritz to timely complete the construction thereof. EBRRI prayed for the refund
of the amounts paid buy it to B.E. Ritz plus damages and interests.1âwphi1.nêt

Meanwhile, on 10 August 1991, EBRRI and Eurotrust Capital Corportion ("Eurotrust"), allegedly
with the prior consent of B.E. Ritz, executed a deed of assignment whereby EBRRI assigned and
conveyed to petitioner Armed Forces of the Philippines Mutual Benefit Association, Inc.
("AFPMBAI"), by way of security, all rights, interests and participation 1 in Building E and the
condominium units at the Phoenix Subdivision.

On 27 January 1992, AFPMBAI instituted Civil Case No. Q-92-11198 against Eurotrust, Elsa B.
Reyes, Digna Blanca, Fernando C. Francisco and Maria Cristina C. Cornista with the Regional Trial
Court of Quezon City, seeking to recover from the defendants treasury notes worth
P73,000,000.00 and the payment of P35,157,637.72 plus interest, attorney's fees and litigation
expenses. Later, the complaint was amended to include EBRRI and B.E. Ritz party defendants
and to pray for the issuance of a writ of preliminary attachment.

In a decision, dated 19 November 1993, in HLRB Case No. REM-120992-5304, Housing and Land
Use Arbiter Teresita R. Alferez declared rescinded the contracts to sell covering the ten
condominium units and ordered B.E. Ritz to execute a deed of absolute sale of Building E in
favor of EBRRI. Arbiter Alferez held that EBRRI's obligation to B.E. Ritz in the amount of

Jayson C. Malero
 P4,410,000.00, the balance of the purchase price of Building E, should simply be deducted from
the obligation of B.E. Ritz to refund the P20,415,682.75 sum remitted to it by EBRRI under the
rescinded contracts to sell (covering the ten condominium units) or, in fine, a net amount of
P16,005,682.72 still to be paid by B.E. Ritz to EBRRI.

In Civil Case No. Q-92-11198, the trial court issued on 11 July 1994 a writ of attachment levying
the assets of B.E. Ritz that included Building E and the ten condominium units. On 13 December
1994, petitioner AFPMBAI and B.E. Ritz entered into a compromise agreement.

Answer # 23

A compromise agreement is a contract whereby the parties make reciprocal concessions in

order to resolve their differences and thus avoid a litigation or to put an end to one already
commenced. 13 Aptly, it is also described as 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. 14 The compromise may thus be either extrjudicial
(to avoid a litigation) or judicial (to put to an end a litigation).

Like any other contract, an extrajudicial compromise agreement is not excepted from rules and
principles of a contract. It is a consensual contract, perfected by mere consent, the latter being
manifested by the meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract. 15 It may be either perfectly valid or defective if it suffers from
any impediment that, depending on the nature of its flaw, could render it void, unenforeceable,
voidable or rescissible.

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, 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. 16 It has the effect and authority of res judicata, 17 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.
18 A judicial compromise is likewise circumscribed by the rules of procedure.

Adjective law governing judicial compromises annunciate that once approved by the court, a
judicial compromise is not appealable and it thereby becomes immediately executory 19 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 fulfillment by the parties of
their respective obligations thereunder. The reason for the rule, said the Court in Domingo vs.
Court of Appeals, 20 is that when both parties so enter into the agreement to put to a close a

Jayson C. Malero
 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" 21 against that decision. The order approving a compromise agreement thus becomes a
final act, and it forms part and parcel of the judgment that can be enforced by a writ of
execution 22 unless otherwise enjoined by a restraining order.

Where there are, along with the parties to the compromise, 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. A motion to set aside the judgment to the extent he
might feel aggrieved, or might justifiably fear to be at risk by acquiescence 23 unless timely
invoked, is such a remedy. A denial of the motion to set aside the judgment 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 judgment, 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. 24 That appeal notwithstanding, the main case still subsists 25 allowing him to have
continued locus standi.

Supreme Court Circular No. 2-90, dated March 9, 1990, states that an appeal from a judgment
rendered in a civil or criminal action by the Regional Trial Court in the exercise of its original
jurisdiction shall be by a writ of error or ordinary appeal 26 in which questions of law and of
facts may be raised. Where a party desires to only bring up issues of law, appellant may avail
himself of Section 1, Rule 45, of the Rules of Court. That rule provides that a party desiring to
appeal by certiorari from the judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Courts or other courts whenever authorized by law, may file
with this Court a verified petition for review on certiorari. The petition shall raise only questions
of law that must be distinctly set forth therein. The Circular provides, however, that although
submission of issues of fact in an appeal by certiorari taken to this Court from the Regional Trial
Court is ordinarily proscribed, this Court nonetheless retains the option in the exercise of its
sound discretion, taking into account the attendant circumstances, either to take cognizance of
and decide such issues or to refer the case to the Court of Appeals for determination. 27 The
Court opted accordingly by referring G.R. No. 121988 to the Court of Appeals.

About the insistence of petitioner AFPMBAI that EBRRI may not attack the compromise
agreement collaterally but should have filed a separate action for rescission, it must be pointed
out that the compromise is directly related to the case still then pending before the trial court,
certainly a proper venue for the assailed incident. The general aim of adjective law is to facilitate
the application of justice to the rival claims of contending parties, bearing always in mind that
procedural rules are created not to hinder or delay but to facilitate and promote the
administration of justice. 28 It is far better to dispose of the case on the merits which is a
primordial end rather than on a technicality, 29 if it be the case, that may result in injustice. The

Jayson C. Malero
 principles against multiplicity of suits may also be rightly invoked by EBRRI. In the considered
view of the Court, the compromise agreement must not be held to thwart, by its very rationale
for being, the full resolution of the case among EBRRI, AFPMBAI and B.E. Ritz or to unduly
disturb the final disposition of the case among them.

No trenchant reason could possibly sustain the claim of AFPMBAI that its right to due process
had been violated. When the petition in G.R. No. 121988 was instituted, a motion to dismiss the
case was forthwith filed by AFPMBAI. The motion, along with the petition, was referred to the
Court of Appeals pursuant to the Resolution of 27 November 1995 of the Court. AFPMBAI
likewise filed a motion for reconsideration of the decision of the appellate court and, after
private respondent EBRRI had submitted an opposition to that motion for reconsideration,
AFPMBAI filed its reply thereto. 30 It would be improper to claim a deprivation of due process
"where a party [had been] given the chance to be heard [on its] motion for reconsideration." 31
The motion for reconsideration undoubtedly gave AFPMBAI full opportunity to submit to the
Court of Appeals its side of the controversy. The opportunity to be heard was given, and
AFPMBAI indeed had made use of that opportunity.(AFPMBAI vs. CA)

Question # 24

Private respondents are the children of Gregorio Valdez. In 1948, Gregorio Valdez sold the
subject land to petitioners. The absolute deed of sale was subsequently annotated at the back of
OCT No. 48824 as Entry No. 377847. It is the contention of private respondents that as early as
1977, petitioners no longer owned subject land as they had renounced their rights thereto as
evidenced by a compromise agreement dated 02 June 1977.

Sometime in 1991, Gregorio Valdez died. Private respondents allege that immediately after the
death of their father, petitioners disturbed their possession of subject land by cultivating the
same and by enclosing it with a fence. As petitioners did not heed their demands to vacate, they
were constrained to file a case for Quieting of Title, Ownership, Possession plus Damages with
prayer for Writ of Preliminary Injunction.

Petitioners, in their Answer with Counterclaim, maintain that they remain owners of the subject
land as the compromise agreement being relied upon by private respondents refers to another
piece of land. Thus, they argue that the compromise agreement constitutes a cloud on their
title. They prayed, among other things, for the quieting of their title and that they be adjudged
lawful owners of the subject land.

The trial court believed petitioners. It sided with petitioners by declaring them owners of the
subject land by virtue of the absolute deed of sale dated 06 January 1948. The dispositive
portion of its decision reads:

Jayson C. Malero
 WHEREFORE, premises considered, judgment is hereby rendered in favor of the defendants and
against the plaintiffs and declaring the defendants to be the lawful owners of the land in
question.5

The Court of Appeals reversed the trial court’s ruling. It held that the land renounced by
petitioners was the subject land and that it was made in favor of Gregorio Valdez.
The compromise agreement was entered into between petitioners and a certain Felipe Cabero
in connection with petitioners’ application for registration of a piece of untitled land adjacent to
the subject land filed with the Court of First Instance of Pangasinan in LRC Case No. U-843. This
untitled land was purchased by petitioners from a certain Alejandro Alcantara.8 Apparently,
Cabero was the actual occupant of the southern portion of this land, thus, he opposed
petitioners’ application for registration. Petitioners explained that the southern portion
occupied by Cabero was purchased by Cabero from Gregorio Valdez who sold it by mistake as he
(Valdez) thought that the land he was selling was part of his titled land.

Petitioners’ version

To save himself from the quagmire he created, Gregorio Valdez entreated upon petitioners to
give up the southern portion of their untitled land in exchange for Cabero’s withdrawal of his
opposition to petitioners’ application for registration. Petitioners agreed. Thus, during the
pendency of the land registration proceedings, petitioners and Cabero entered into a
compromise agreement. The agreement was written in English. Its contents were not translated
into Ilocano for petitioners but they did not mind as they were represented by their counsel.
The signatories to the said agreement were petitioners, Cabero and their respective counsels.
Petitioners, being unlettered, were not aware that the property they were renouncing under the
compromise agreement was the subject property as, definitely, this was not their intention.
Thus, they argued that the compromise agreement contained a false cause and that they gave
their consent thereto by mistake.

Whether or not petitioner can enforce a compromise agreement to which she was not a party?

No. it was ruled that appellant is not entitled to enforce a compromise agreement to which he
was not a party and that as to its effect and scope, it has been determined in the sense that its
effectivity if at all, is limited to the parties thereto and those mentioned in the exhibits (J.M.
Tuason & Co., Inc. v. Aguirre, 7 SCRA 112 [1963]). It was reiterated later that a compromise
agreement cannot bind persons who are not parties thereto (Guerrero v. C.A., 29 SCRA 791
[1969]).

Consequently, Gregorio Valdez not being a party to the compromise agreement, his heirs
(private respondents) cannot sue for its performance.

Jayson C. Malero
 Contrary to the position taken by private respondents, the reference to their father, Gregorio
Valdez, seems to us to be a mere description of the land being renounced. Nothing in the
compromise agreement would suggest that the renunciation of the subject land was to be made
in Gregorio Valdez’s favor. Verily, for this Court to interpret the stipulation as conferring some
right to a third person (i.e., stipulation pour autrui), the following requisites must concur:

1. There must be a stipulation in favor of a third person;

2. The stipulation in favor of a third person should be a part, not the whole, of the contract;

3. The contracting parties must have clearly and deliberately conferred a favor upon a third
person, not a mere incidental benefit or interest;

4. The third person must have communicated his acceptance to the obligor before its
revocation; and

5. Neither of the contracting parties bears the legal representation or authorization of the third
party.18

To constitute a valid stipulation pour autrie, it must be the purpose and intent of the stipulating
parties to benefit the third person, and it is not sufficient that the third person may be
incidentally benefited by the stipulation.19 In herein case, from the testimony of petitioner
Segundo Ramos who is undoubtedly a party to the compromise agreement, and from the rest of
the evidence on hand, any benefit which accrued to private respondents’ father was merely
incidental.

Question # 24

petitioner and herein private respondent are spouses who once had a blissful married life and
out of which were blessed to have a son. However, their once sugar coated romance turned
bitter when petitioner discovered that private respondent was having illicit sexual affair with her
paramour, which thus, prompted the petitioner to file a case of adultery against private
respondent and the latter’s paramour. Consequently, both the private respondent and her
paramour were convicted of the crime charged and were sentenced to suffer an imprisonment
ranging from one (1) year, eight (8) months, minimum of prision correccional as minimum
penalty, to three (3) years, six (6) months and twenty one (21) days, medium of prision
correccional as maximum penalty.

Thereafter, private respondent, through counsel, filed a Petition for Declaration of Nullity of
Marriage, Dissolution and Liquidation of Conjugal Partnership of Gains and Damages on June 15,
2001 with the Regional Trial Court, Branch 3 of Nabunturan, Compostela Valley, docketed as
Civil Case No. 656, imputing psychological incapacity on the part of the petitioner.

Jayson C. Malero
 During the pre-trial of the said case, petitioner and private respondent entered into a
COMPROMISE AGREEMENT in the following terms, to wit:

1. In partial settlement of the conjugal partnership of gains, the parties agree to the following:

a. ₱500,000.00 of the money deposited in the bank jointly in the name of the spouses shall be
withdrawn and deposited in favor and in trust of their common child, Neil Maquilan, with the
deposit in the joint account of the parties.

The balance of such deposit, which presently stands at ₱1,318,043.36, shall be withdrawn and
divided equally by the parties;

b. The store that is now being occupied by the plaintiff shall be allotted to her while the bodega
shall be for the defendant. The defendant shall be paid the sum of ₱50,000.00 as his share in the
stocks of the store in full settlement thereof.

The plaintiff shall be allowed to occupy the bodega until the time the owner of the lot on which
it stands shall construct a building thereon;

c. The motorcycles shall be divided between them such that the Kawasaki shall be owned by the
plaintiff while the Honda Dream shall be for the defendant;

d. The passenger jeep shall be for the plaintiff who shall pay the defendant the sum of
₱75,000.00 as his share thereon and in full settlement thereof;

e. The house and lot shall be to the common child.

2. This settlement is only partial, i.e., without prejudice to the litigation of other conjugal
properties that have not been mentioned;

xxxx

The said Compromise Agreement was given judicial imprimatur by the respondent judge in the
assailed Judgment On Compromise Agreement, which was erroneously dated January 2, 2002.2

However, petitioner filed an Omnibus Motion dated January 15, 2002, praying for the
repudiation of the Compromise Agreement and the reconsideration of the Judgment on
Compromise Agreement by the respondent judge on the grounds that his previous lawyer did
not intelligently and judiciously apprise him of the consequential effects of the Compromise
Agreement.

Jayson C. Malero
 WHETHER OR NOT A COMPROMISE AGREEMENT ENTERED INTO BY SPOUSES, ONE OF WHOM
WAS CONVICTED OF ADULTERY, GIVING THE CONVICTED SPOUSE A SHARE IN THE CONJUGAL
PROPERTY, VALID AND LEGAL?

Answer # 24

The contention that the Compromise Agreement is tantamount to a circumvention of the law
prohibiting the guilty spouse from sharing in the conjugal properties is misplaced. Existing law
and jurisprudence do not impose such disqualification.

Under Article 143 of the Family Code, separation of property may be effected voluntarily or for
sufficient cause, subject to judicial approval. The questioned Compromise Agreement which was
judicially approved is exactly such a separation of property allowed under the law. This
conclusion holds true even if the proceedings for the declaration of nullity of marriage was still
pending. However, the Court must stress that this voluntary separation of property is subject to
the rights of all creditors of the conjugal partnership of gains and other persons with pecuniary
interest pursuant to Article 136 of the Family Code.

Second. Petitioner’s claim that since the proceedings before the RTC were void in the absence of
the participation of the provincial prosecutor or solicitor, the voluntary separation made during
the pendency of the case is also void. The proceedings pertaining to the Compromise
Agreement involved the conjugal properties of the spouses. The settlement had no relation to
the questions surrounding the validity of their marriage. Nor did the settlement amount to a
collusion between the parties.

Neither could it be said that the petitioner was not intelligently and judiciously informed of the
consequential effects of the compromise agreement, and that, on this basis, he may repudiate
the Compromise Agreement. The argument of the petitioner that he was not duly informed by
his previous counsel about the legal effects of the voluntary settlement is not convincing.
Mistake or vitiation of consent, as now claimed by the petitioner as his basis for repudiating the
settlement, could hardly be said to be evident. In Salonga v. Court of Appeals,12 this Court held:

[I]t is well-settled that the negligence of counsel binds the client. This is based on the rule that
any act performed by a lawyer within the scope of his general or implied authority is regarded as
an act of his client. Consequently, the mistake or negligence of petitioners' counsel may result in
the rendition of an unfavorable judgment against them. (Maquilan vs. Maquilan)

Question # 25

On November 11, 1980, plaintiff Security Bank & Trust Company filed a complaint for a Sum of
Money with the Regional Trial Court of Pasig, Branch 158 entitled "Security Bank & Trust
Company, plaintiff, - versus – Miguel F. Uy, Brigitte E. Uy and Rolando Limpo, defendants[.]"

Jayson C. Malero
 Plaintiff Bank sought to recover the outstanding balance of a promissory note executed by the
defendants.

On February 1, 1983, defendants-spouses Miguel F. Uy and Brigitte Uy entered into a

Compromise Agreement with plaintiff bank. On March 22, 1983, the trial court rendered
decision, reproducing therein the pertinent provisions of the Compromise Agreement as
follows:

"1. Defendant spouses admit liability to the plaintiff the said amount of ₱38,833.44 as of January
12, 1983;

2. Defendant spouses agree to pay the plaintiff the said amount of ₱38,833.44 with interest at
the rate of 20% per annum with aforesaid interest rate computed based on declining balance,
from January 12, 1983 in the following manner:

a) ₱4,644.00 on or before March 14, 1983 of which ₱500.00 shall be applied as attorney’s fee;
₱144.00 the cost of suit, and the remaining balance to the outstanding loan obligation;

b) ₱4,000.00 each on or before the 15th day of each month commencing April 1983 until June 1,
1983;

c) ₱1,500.00 on or before the 15th day of each month commencing July 1983 until the balance
and accruing interest thereon is fully paid.

3. In case of failure to pay any installment when due, the whole balance shall become due and
payable, without necessity of demand and defendant spouses shall be assessed a default
penalty of 3% per month until the obligation is fully paid. Moreover, plaintiff shall be entitled to
a writ of execution upon ex-parte motion." (RTC Decision, p. 1)

When defendants failed to comply with the terms and conditions of the compromise
agreement, plaintiff bank, on November 27, 1984, filed an Ex-Parte Motion for the Issuance of
Writ of Execution. The motion not having been acted upon, plaintiff bank, on July 22, 1992, filed
a complaint for Revival of Judgment.

The defendant-spouses, in their Answer, alleged as their defense laches, for failure of plaintiff
bank to enforce its rights for more than eight (8) years. Defendant Limpo, on the other hand,
alleged that "he is not obligated to pay any amount to plaintiff under the said compromise
agreement which was entered into only by and between plaintiff and defendant spouses Miguel
F. Uy and Brigitte E. Uy without his knowledge and consent." (Records, p. 31)

1. Whether Rolando Limpo is bound under the Compromise Agreement entered into by
Security Bank Corporation and defendants Miguel Uy and Brigitte Uy.

Jayson C. Malero
 2. Whether Rolando Limpo is liable to Security Bank Corporation under the trial court’s
judgment dated March 22, 1983 which was based on the Compromise Agreement entered
into by Security Bank and the defendants Miguel Uy and Brigitte Uy.

Answer # 25

It is settled that a compromise agreement cannot bind persons who are not parties to it.3 This rule is
based on Article 1311(1) of the Civil Code which provides that "contracts take effect only between the
parties, their assigns and heirs x x x." The sound reason for the exclusion of non-parties to an agreement
is the absence of a vinculum or juridical tie which is the efficient cause for the establishment of an
obligation. In the Compromise Agreement that was presented to the trial court, there is no question
that only the spouses Uy and the Bank were parties. Limpo did not participate in its execution and there
was no reference to him in any of its provisions. He cannot be bound by the Compromise Agreement.

What happens then if the court approves a compromise agreement that fails to include all of the
defendants? In approving a compromise agreement, no court can impose upon the parties a judgment
different from their real agreement or against the very terms and conditions of the amicable settlement
entered into.4 The principle of autonomy of contracts must be respected.5 These being said, considering
that the Compromise Agreement imposed no obligation upon Limpo, it follows that the judgment
rendered by the Regional Trial Court (RTC) of Pasig, based on the Compromise Agreement, could
likewise not impose any obligation upon him. The duty of the court is confined to the interpretation of
the agreement that the contracting parties have made for themselves without regard to its wisdom or
folly as the court cannot supply material stipulations or read into the contract words which it does not
contain.6 Consequently, the contention of Limpo is correct. The terms and conditions set forth in the
Compromise Agreement, as approved by the court, are controlling7 and, therefore, there is no basis to
include him in reviving the judgment. ( Limpo vs. CA)

Question # 26

Petitioners sued herein private respondents for partition of the lots inherited by both parties from their
deceased father; respondents however moved to dismiss on the ground that some years before a final
and executory judgment (based on a compromise agreement) involving the same parties, same subject
matter, and same causes of action had already been rendered by a court of competent jurisdiction and
that therefore the doctrine of res judicata clearly bars the present case; petitioners contend that said
judgment is void because the compromise agreement had been signed in their behalf by their lawyer
who had not been authorized by them to enter into such agreement, consequently there can be no res
judicata.

Are the petitioners correct?

Answer # 26

Jayson C. Malero
No. The compromise agreement is not void but merely unenforceable. The petitioners by their silence
for sixteen (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;
ergo, the requisites of res judicata being all present, the principle applies to the instant case. (Bumanlag
vs. Silvino)

Revisiting Republic Act 9285: Salient Features of International Commercial Arbitration and Challenges

Section 2 of the Republic Act 9285 declares as follows:

It is hereby declared [that] the policy of the State [is] to actively promote party autonomy in the
resolution of disputes or the freedom of the party to make their own arrangements to resolve their
disputes. To this end, the State shall encourage and actively promote the use of Alternative Dispute
Resolution (ADR) as an important means to achieve speedy and impartial justice and declog court
dockets. As such, the State shall provide means for the use of ADR as an efficient tool and an alternative
procedure for the resolution of appropriate cases. Likewise, the State shall enlist active private sector
participation in the settlement of disputes through ADR. This Act shall be without prejudice to the
adoption by the Supreme Court of any ADR system, such as mediation, conciliation, arbitration or any
combination thereof as a means achieving speedy and efficient means of resolving cases pending before
all courts in the Philippines which shall be governed by such rules as the Supreme Court may approve
from time to time.”[1]

The Republic Act No. 9285, otherwise known as the Alternative Dispute Resolution Act of 2004 (ADR
Law), may be considered a major breakthrough in the Philippine court system, benefitting not only
Filipinos in and out of the country, but also aliens who desire to achieve justice in the domestic courts.

The ADR Law responds to numerous calls to address the perennial issues bombarding the Philippine
court system, such as the clogging of court dockets, expensive litigation fees, slow-paced judicial
proceedings and the rigid and adversarial system of courts.

Court dockets are seriously congested due to indiscriminate filing of cases and delayed case resolutions
because of inefficiency, incompetence, sloth or laziness, corruption or conflict of interests of court
officials.[2]

According to Eduardo Ceniza (2005), a simple collection case may take as much as two years before it is
decided by the trial court and another one or two years before it is finally decided on appeal. The more

Jayson C. Malero
complex commercial cases can remain in litigation for up to five or more years. The availability of
appeals, frivolous or otherwise, at different levels of the court hierarchy also contributes to undue delay
in the disposition of cases. As a consequence to slow-paced resolution of these cases, the litigation cost
in terms of legal fees and other expenses become disproportionately high.[3]

Thus, in the Philippines, according to Ceniza, it is not unusual for judges to handle more than 500 cases.
And this number will continuously escalate unless measures are adopted that dispose of cases through a
systematic and sustained judicial reform program.

Moreover, the ADR Law addresses the indispensable effects of globalization on commercial transactions,
such as the expansion of international trade and foreign investment,[4] which require domestic laws to
adopt alternative means of dispute resolution applicable and friendly to commerce.

With globalization and technological advancements, there is an unceasing growth of international

commercial transactions, which as a consequence, leads to the increase in the number of commercial
disputes arising from such transactions. It must be recognized that parties involved in these transactions
have varied nationalities and their business offices are located in different countries. Moreover, the
transactions among these parties occur across borders.

Given these, when disputes arise, parties tend to choose the forum that best satisfies their interests and
desires. Thus, there arises a need for measures that would regulate these transactions and which are
equally satisfying to the parties. The ADR Law addresses this need in the Philippines.

Thus, in the words of Leslie Chew (2006), the law “seeks to revamp and to introduce into the Philippines
for the first time, specific laws which would cover the law relating to alternative dispute resolution
including international commercial arbitration.”[5]

However, this law had been long overdue. In 1953, the Philippine Congress enacted Republic Act No.
876, otherwise known as the Arbitration Law, which made arbitration as an inexpensive, speedy and
amicable method of settling disputes and as a means of avoiding litigation. Then the Philippines became
a signatory to the United Nations Convention on the Recognition and the Enforcement of Foreign
Arbitral Awards of 1958 or the New York Convention on June 10, 1958 and the said Convention was
ratified nine years after. It was only 50 years after the passage of the Arbitration Law that Republic Act
9285 was enacted,[6] reinforcing not only the provisions of the Arbitration Law, but also the country’s

Jayson C. Malero
adherence to the New York Convention. The Alternative Dispute Resolution Act of 2004 was the
consolidated version of Senate Bill No. 2671 and House Bill No. 5654, and was signed by President Gloria
Macapagal-Arroyo on April 2, 2004.[7]

Though the Alternative Dispute Resolution Act of 2004 pertains to a number of processes or procedures
used to resolve a dispute or controversy, other than by adjudication of a presiding judge of a court or an
officer of a government agency, namely arbitration, mediation, conciliation, early neutral evaluation,
mini-trial, or any combination thereof, this paper will focus only on the salient features of the law
pertaining to international commercial arbitration, recent trends and challenges.

R.A. 9285 AND THE MODEL LAW: CONVERGENCE?

The UNCITRAL Model Law on International Commercial Arbitration (“The Model Law”) was adopted by
the United Nations Commission on International Trade Law (UNCITRAL) on June 21, 1985. The Model
Law constitutes a sound basis for the desired harmonization and improvement of the national laws. It
covers all stages of the arbitral process from the arbitration agreement to the recognition and
enforcement of the arbitral awards and reflects a worldwide consensus on the principles and important
issues of international arbitration practice. Since its adoption by UNCITRAL, the Model Law has come to
represent the accepted international legislative standard for a modern arbitration law and a significant
number of jurisdictions have enacted arbitration legislation based on the Model Law.[8]

The Model Law attempts to address the considerable disparities and inadequacies of national laws of
arbitration. It sets a standard for those countries which are still about to legislate their own arbitration
laws. They are encouraged to make few or slight changes as much as possible when incorporating the
Model Law into their legal systems. And for those with established arbitration laws, the Model Law
serves as guide as they amend their laws to conform to the provisions of the Model Law. Given these,
foreign parties become more confident in engaging in international commercial transactions, knowing
that there is an international effort to adopt the Model Law in the national laws of these countries.

In the Philippines, the Republic Act 9285 incorporated the UNCITRAL Model Law, as evidenced by
Sections 19 and 20 of Chapter 4 of the latter law.

“CHAPTER 4: INTERNATIONAL COMMERCIAL ARBITRATION

Jayson C. Malero
SEC. 19. Adoption of the Model Law on International Commercial Arbitration. – International
commercial arbitration shall be governed by the Model Law on International Commercial Arbitration
(the “Model Law”) adopted by the United Nations Commission on International Trade Law on June 21,
1985 (United Nations Document A/40/17) and recommended for enactment by the General Assembly in
Resolution No. 40/72 approved on December 11, 1985, copy of which is hereto attached as Appendix
“A”.

SEC. 20. Interpretation of Model Law. – In interpreting the Model Law, regard shall be had to its
international origin and to the need for uniformity in its interpretation and resort may be made to the
travaux preparatories and the report of the Secretary General of the United Nations Commission on
International Trade Law dated March 25, 1985 entitled, “International Commercial Arbitration:
Analytical Commentary on Draft Trade identified by reference number A/CN. 9/264.”[9]

Indeed, the adoption of the Model Law as the law on international commercial arbitration has opened
the doors for the Philippines to be to be a seat for international commercial arbitration. Thus, it can now
be said that the Philippines has become an arbitration-friendly country.

As Eduardo Ceniza (2005) claims, the international commercial arbitration cannot avoid the incidence
and influence of national law. For one thing, arbitration cannot take place totally without reference to
its venue and, necessarily, the national law of the venue. The lex arbitri will certainly have an influence,
if not a direct bearing, upon the procedural and other administrative aspects of the arbitration. For
another thing, arbitrators do not have power over individuals or institutions who do not submit
themselves to the jurisdiction of the arbitral tribunal. Thus, to bind third parties, for instance, to interim
measures of protection, resort to the national court for assistance becomes unavoidable. Therefore,
while international commercial arbitration may operate quite independently of national law, the
national law of the place of arbitration will always be somewhere in the background. Indeed, national
law provides the contextual framework in which all international commercial arbitration take place.[10]

Based on the above, since the ADR Law finds its roots in the Model Law, then the convergence between
the two is indeed well-pronounced.

SALIENT FEATURES AND CHALLENGES

Jayson C. Malero
Arbitration, as the law defines, is the voluntary dispute resolution process in which one or more
arbitrators, appointed in accordance with the agreement of the parties, or rules promulgated pursuant
to this Act, resolve a dispute by rendering an award.[11] In arbitration, parties have freedom to choose
the arbitrators who will compose the tribunal, and the procedures and the substantive law that would
govern the proceedings.

On the other hand, commercial arbitration becomes such “if it covers matters arising from all
relationships of a commercial nature, whether contractual or not.”[12] These relationships are
enumerated by the law under the same provision.

In discussing the salient features of the law pertaining to international commercial arbitration, attention
must be had on the Chapter 4 of the ADR Law.

A. Interpretation of the Act

The law provides that in interpreting R.A. No. 9285, the courts are directed to give due regard to the
policy of favoring arbitration. “Where action is commenced by or against multiple parties, one or more
of whom are parties to an arbitration agreement, the court shall refer to arbitration those parties who
are bound by the arbitration agreement although the civil action may continue as to those who are not
bound by such arbitration agreement.”[13]

The provision provides what the court should do when confronted with an action involving parties to an
arbitration agreement. As the law prescribes, arbitration should be favored. Thus, cases involving parties
bound by the arbitration agreement should be referred to arbitration proceedings. Arbitration
agreements cannot be defeated by impleading or joining either as plaintiff or defendant a person who
was not a party to the arbitration agreement.

Chew (2006) declared that “couple this provision with the Declaration of Policy (favoring ADR) in Section
2 of the Act, the intent of the legislators to favor arbitration including international commercial
arbitration is not in doubt. The edict requiring the court to have “due regard” to the state policy is
admirable and in this writer’s view timely. Even in jurisdictions where arbitration law may be said to
have developed to a mature state, judges frequently need to be reminded of the place for arbitration
within the State’s legal system. In a state like the Philippines where it is perhaps not unfair to say that

Jayson C. Malero
the practice of international commercial arbitration is still nascent, it is useful to remind the courts as to
the role and position of arbitration (italicized supplanted).”[14]

B. Legal Representation in International Arbitration

Section 22 provides that “in international arbitration conducted in the Philippines, a party may be
presented by any person of his choice. Provided, that such representative, unless admitted to the
practice of law in the Philippines, shall not be authorized to appear as counsel in any Philippine court, or
any other quasi-judicial body whether or not such appearance is in relation to the arbitration in which
he appears.”[15]

Consistent with the Philippines’ intention to be an international commercial arbitration center, this
provision allows foreign lawyers, though not admitted to practice law in the territory of the seat of the
arbitration, to represent a party before the international arbitral tribunal. Such foreign lawyers fall
within the scope of “any person” and any interpretation to the contrary would defeat the spirit of the
law.

Chew (2006) made an interesting point about this provision:

“It has been noted above that this provision is commendable. This, perhaps, requires some clarification.
It is sometimes thought by States that any national law which permits lawyers who are not called to
practice in the local territory would tantamount to a surrender of sovereignty and perhaps more aptly
tantamount to opening the flood-gates to foreign lawyers to the detriment of the local bar. It is
submitted that that is a fallacy. Firstly, by enacting a provision like Section 22 of the Republic Act, the
Philippines does not in any way surrender control of the practice of law. The permission given to foreign
lawyers to ‘practice’ by appearing before international commercial arbitration is limited by its definition.
Secondly, by permitting foreign counsel representation, the Philippines immediately reassures foreign
parties, more to the point, foreign investors that they will, in international commercial arbitration
conducted in the Philippines, have access to counsel of their choice even if such counsel are foreign
lawyers. This is an important matter for foreigners who are engaged in a dispute in a foreign territory.
Finally, foreign counsel appearing in the Philippines will invariably require assistance of local counsel. It
is not to be forgotten that in every arbitration, the lex arbitri as opposed to the substantive law of the
transaction, which parties are disputing over, will be the national law. In this case the law of the
Philippines. No foreign counsel would be foolhardy enough to purport to act on Philippine law and
would therefore rely on local counsel. This, it is submitted, creates a welcome ‘spin-off’ for the local bar

Jayson C. Malero
who will have a new dimension to their practice in the Philippines, that of participating in international
commercial arbitration.”

To summarize the above-quoted, allowing foreign lawyers to represent a party before an international
arbitral tribunal does not tantamount to a surrender of sovereignty and in fact would be more beneficial
not only to the image of the Philippines as an international commercial arbitration center, but also to
the local bar as it exposed them to a new dimension of practice of law.

C. Confidentiality of Proceedings

Section 23 of the ADR Law expressly declares arbitration proceedings, including the records, evidence,
and arbitral award, to be confidential and shall not be published except (1) with the consent of the
parties, or (2) for the limited purpose of disclosing to the court of relevant documents in cases where
resort to the court is allowed herein.[16]

Absent in the Republic Act No. 876 or Philippine Arbitration Law, this provision is highly welcomed by
businessmen who want to settle their commercial disputes unnoticed by the general public and to
safeguard their trade secrets and strategies.

At the same time, the provision sets out the grounds in which the courts “may issue a protective order
to prevent or prohibit disclosure of documents or information containing secret processes,
developments, research and other information where it is shown that the applicant shall be materially
prejudiced by an authorized disclosure thereof.”

D. Referral to Arbitration

The ADR Law provides that “a court before which an action is brought in a matter which is the subject
matter of an arbitration agreement shall, if at least one party so requests not later that the pre-trial
conference, or upon the request of both parties thereafter, refer the parties to arbitration unless it finds
that the arbitration agreement is null and void, inoperative or incapable of being performed.”[17]

Jayson C. Malero
As Chew observed, the language of Section 24 is based on Article 8(1) of the Model law. Since the
language used here follows Article 8(1), the intention behind the section must be to provide mandatory
stay in circumstances which fall within the ambit of Section. This is evident from the use of the use of
the phrase “A court…shall…refer the parties to arbitration unless…”

It must also be noted that under the above-quoted provision, referral is dependent on the requests. The
latter can only be done in two ways: first, request made by at least on party not late than the pre-trial
conference, and second, request made both parties after the pre-trial conference. Now, absent these
requests, the court cannot refer the parties to arbitration except upon the court’s finding that the
arbitration agreement is null and void, inoperative or incapable of being performed.

E. Appointing Authority

The ADR Law defines “appointing authority” as used in the Model Law, which refers to “the person or
institution named in the arbitration agreement as the appointing authority; or the regular arbitration
arbitration institution under whose rules the arbitration is agreed to be conducted. Where the parties
have agreed to submit their dispute to institutional arbitration rules, and unless they have agreed to a
different procedure, they shall be deemed to have agreed to procedure under such arbitration rules for
the selection and appointment of arbitrators. In ad hoc arbitration, the default appointment of an
arbitrator shall be made by the National President of the Integrated Bar of the Philippines (IBP) or his
duly authorized representative.”

There is nothing controversial in this provision except that the National President of the IBP or his duly
authorized representative, as appointing authority, must be wary about exercising such authority. It
must be exercised with wisdom and under the principles of independence, impartiality or neutrality, and
transparency. It must be recognized the human decision-making is highly prone to prejudice and the
appointing authority must ensure that the arbitration practice in the Philippines is ran by competent and
credible arbitrators.

Thus, for Chew, “it is therefore necessary for the Philippines to monitor international perceptions
towards its designation of the President of the local bar as the appointing authority. Certainly one of the
criticisms would be that it gives rise to perception that local arbitrators or practitioners have the
advantage when it comes to the appointment of arbitrators by default. It is not suggested that the mere
designation of the President of the local bar gives rise to any real concern of a preference for locals but
perception is all important in international or transboundary disputes. For these reasons, many centers

Jayson C. Malero
which tout themselves as being international designate independent parties (independent in the sense
that there is no perceived link to the local bar or other local establishment) as the appointing
authority.”[18]

F. Place and Venue of Arbitration

Section 30 of the ADR Law provides that “the parties are free to agree on the place of arbitration. Failing
such agreement, the place of arbitration shall be in Metro Manila, unless the arbitral tribunal, having
regard to the circumstances of the case, including the convenience of the parties shall decide on a
different place of arbitration.”[19]

It is widely recognized that in international commercial arbitration, parties may agree to conduct the
arbitration proceedings in a place that guarantees impartiality or neutrality. However, when parties fail
to agree, resort is had to the tribunal having regard to circumstances of the case and convenience of the
parties. In addition, the law also provides that absent any agreement between the parties and any
decision of the tribunal as the venue, the place or venue of arbitration shall be in Metro Manila.

Leslie Chew (2006) asserted that the express fixation of the place of arbitration in Metro Manila in case
there is absence of parties agreeing or the arbitral tribunal appointing the place of arbitration “may have
been necessitated by the vastness and ‘sprawling’ nature of the islands that make up the Philippines. In
line with party autonomy, the provision does not however affect the parties’ ability to agree to meet
anywhere however far-flung in the archipelago or elsewhere outside the Philippines. To that extent, the
provision is curious.”[20]

G. Interim and Provisional Measures of Protection

The ADR Law expanded the powers of the arbitrators and defined clearly the role of courts, as well as
the arbitral tribunal, in the issuance and enforcement of interim/conservatory measures.

Courts are permitted, as a rule, to grant interim and provisional reliefs during the pendency of arbitral
proceedings. It is also recognized that arbitral tribunals are authorized authority to grant interim
measures such as preliminary injunction, appointment of receivers, detention, preservation and
inspection of property, among others. Even granting that both the courts and the arbitral tribunal are

Jayson C. Malero
given the same power, parties cannot avail of these simultaneously. Court has only authority to grant
interim measures “to the extent that the arbitral tribunal has no power to act or is unable to act
effectively.” The law does not provide for concurrent power of the courts and the arbitral tribunal to
grant interim measure of protection.[21] The court must exercise this power sparingly, giving way or
precedence to the exercise thereof by the arbitral tribunal .

The ADR Act provides in Section 28, paragraph (a) that: “It is not incompatible with an arbitration
agreement for a party, before constitution of the arbitral tribunal, to request from a Court an interim
measure of protection and for the Court to grant such measure. After constitution of the arbitral
tribunal and during arbitral proceedings, a request for an interim measure of protection, or modification
thereof, may be made with the arbitral tribunal or to the extent that the arbitral tribunal has no power
to act or is unable to act effectively, the request may be made with the Court.”

Section 29 appear to extend and widen the scope of powers found in Section 28 although it is more a
case of an elaboration of the powers set out in Section 28. Section 29 specifically refers to the granting
of preliminary injunctions but includes also the power to appoint a receiver, powers of detention and
preservation and inspection of property, which is the subject matter of the arbitration. Helpfully,
Section 29 makes clear that a party may seek the court’s assistance in enforcing the interim orders of an
arbitral tribunal.[22]

However, as also pointed out by Leslie Chew, though the law is clear that resort may be had to the
courts for “assistance” in implementing or enforcing an interim measure granted by the arbitral tribunal,
the law is silent whether orders and directions of an arbitral tribunal may be enforced in the same
manner as any order or direction of a court. This matter, which is still awaiting for judicial interpretation
by the Supreme Court, should have been spelled out clearly in the law.

H. Confirmation of Domestic Arbitral Award

The ADR Law expressly provides that the Philippine Arbitration Law shall continuously govern domestic
arbitration. It must be noted that a domestic arbitral award is not self-executory. To convert a
domestic arbitral award into an enforceable judgment, the winning party has to file with the courts a
petition for confirmation of the arbitral award within thirty (30) days from receipt of the arbitral award.
The court should, as a matter of course, grant the petition, unless there are grounds to vacate the
award.

Jayson C. Malero
The Philippine Arbitration Law likewise provides that domestic arbitral awards may be vacated only on a
few limited grounds. And the ADR Law expressly declares that any ground other than the grounds
specified under the law for vacating a domestic arbitral award “shall be disregarded.[23]”

These provisions reinforce the validity and legal existence of the the Philippine Arbitration Law, as the
law applicable to domestic arbitration.

I. Recognition and Enforcement of Foreign Arbitral Award

Perhaps, what makes arbitration is so attractive and is considered the best alternative in the
international setting is the provision on recognition and enforcement of foreign arbitral award.

Section 42 of the ADR Law provides that the New York Convention shall govern the recognition and
enforcement of arbitral awards covered by the said Convention. In addition, it provides that the
recognition and enforcement of such arbitral awards shall be filed with regional trial court in accordance
with the rules of procedure to be promulgated by the Supreme Court. Moreover, the applicant is
required to establish that the country in which foreign arbitration award was made is a party to the New
York Convention.[24]

Under this provision, arbitral awards in International Commercial Arbitration are readily enforced
pursuant to the New York Convention of 1958 unlike in other foreign judgments. Participant countries to
the Convention are obliged to enforce arbitral awards as if they were made domestically, subject to
limited grounds on which enforcement may be refused. These grounds are those enumerated under
Article V of the New York Convention. These grounds must be borne in mind by judges in order to avoid
unlimited interference by the courts, thereby fulfilling its pronouncement that arbitration is encouraged
in this jurisdiction.

Attention must also be given to Section 43, which actually deals with the recognition and enforcement
of non-New York convention awards. Unlike Section 42, this section gives consideration and attends to
the recognition of non-New York Convention awards, which must be in accordance with the procedural
rules to be promulgated by the Supreme Court. However, the provision refers to international comity
and reciprocity as grounds for the recognition of such awards.

Jayson C. Malero
Another provision worth discussing is Section 44, which distinguishes a foreign arbitral award from a
foreign judgment. It is widely known that foreign judgments are generally not enforceable in other
jurisdictions except in cases of reciprocity and comity. On the other hand, arbitral awards are more
readily enforceable. The law provides that a party applying for the enforcement of the arbitral award
only needs to file with the Regional Trial Court the original or duly authenticated copy of the award and
the arbitration agreement. The law also provides that “a foreign arbitral award, when confirmed by the
RTC, shall be enforced in the same manner as final and executory decisions of courts of law of the
Philippines.[25]

Indeed, this provision highlights the rationale why arbitration is considered the preferred alternative in
the international setting.

CONCLUSION

The enactment of the Alternative Dispute Resolution Act of 2004 (Republic Act No. 9285), adopting the
provisions of the Model Law, has paved the way to make Philippines one of the international
commercial arbitration in Asia. The law was indeed adopted not only to address the perennial problems
besetting the Philippines courts system like the clogged court dockets, slow-paced litigation process, and
costly litigation, but also to adjudicate international disputes arising from the increasing number of
international commercial transactions. More importantly, the law was adopted to pave the way for
transacting parties to make their own arrangements in settling their disputes without seeking the
intervention of the courts.

Indeed, the ADR Law has made promises and being a relatively new law, with its Implementing Rules
and Regulation promulgated in the late 2000s, there is more to expect in its implementation by
competent and credible arbitrators and arbitration institutions and in the interpretation of its provisions
by the Supreme Court. Indeed, its implementation is still in its initial stage.

There is a need to introduce arbitration to the general public as an alternative method of dispute
resolution. Millions of Filipinos may, until now, have little awareness of arbitration as an alternative
method of dispute resolution. And that is the reason why every time they engage in a dispute, it is
almost automatic to them to file a case in court. Thus, efforts must be made to make it well-known and
widely-practiced.

Jayson C. Malero
To encourage foreign parties to resort to arbitration in the Philippines, the courts must provide minimal
“assistance” to the arbitration proceedings. Unbridled intervention of the courts in arbitration
proceedings will consequently prevent parties from resorting to arbitration and preclude foreign parties
from choosing the Philippines as venue for arbitration.

Finally, as an international commercial arbitration center, Philippines has long way to go. Efforts must be
exerted by the government to improve the image of the Philippines and to promote it as the seat of
international commercial arbitration in Asia. The government must show that Philippines is highly
conducive to international commercial arbitration by showing to them that Philippines highly values
transparency, neutrality and impartiality, and independence of judgment, and that only competent,
conscientious and credible arbitrators are appointed to handle arbitration proceedings.

Singapore and Hongkong may be ahead for now, but once the ADR centers in the Philippines have been
fully equipped, who knows Philippines might be the premiere center for international commercial
arbitration not only in Asia but also of the world?

[1] Republic Act No. 9285

[2] Alfredo Tadiar, “Unclogging the Court Dockets”. http://dirp4.pids.gov.ph/ris/taps/tapspp9926.pdf

[3] Eduardo Ceniza, International Commercial Arbitration: Its Relevance in the Philippines (2005).
http://www.pdrci.org/web1/art003.html

[4] Victor P. Lazatin & Patricia Ann T. Prodigalidad, Arbitration in the Philippines (2006)

[5] Leslie Chew, The New Philippine Arbitration Law – Some Preliminary Observations. Journal of the
Integrated Bar of the Philippines, Vol. 32, No. 1 (3rd and 4th Quarters of 2005 and 1st Quarter of 2006).

[6] Victor P. Lazatin & Patricia Ann T. Prodigalidad, Arbitration in the Philippines (2006)

Jayson C. Malero
[7] Leslie Chew, The New Philippine Arbitration Law – Some Preliminary Observations.

[8] Explanatory Note by the UNCITRAL secretariat of the 1985 Model Law on International Commercial
Arbitration as amended in 2006.

[9] See Korea Technologies Co., Ltd. vs. Alberto Lerma, G.R. No. 143581, 7 January 2008.

[10] Eduardo Ceniza, International Commercial Arbitration: Its Relevance in the Philippines (2005).
http://www.pdrci.org/web1/art003.html

[11] Section 3 (d), Republic Act No. 9285

[12] Section 21, Republic Act No. 9285

[13] Section 25, Republic Act No. 9285

[14] Leslie Chew, The New Philippine Arbitration Law – Some Preliminary Observations.

[15] Section 22, Republic Act No. 9285

[16] Section 23, Republic Act No. 9285

[17] Section 24, Republic Act No. 9285

[18] Leslie Chew, The New Philippine Arbitration Law – Some Preliminary Observations.

Jayson C. Malero
[19] Section 30, Republic Act No. 9285

[20] Leslie Chew, The New Philippine Arbitration Law – Some Preliminary Observations.

[21] Section 28, Republic Act No. 9285

[22] Leslie Chew, The New Philippine Arbitration Law – Some Preliminary Observations.

[23] Section 40-41, Republic Act No. 9285

[24] Section 42, Republic Act No. 9285

[25] Section 44, Republic Act No. 9285

Jayson C. Malero