SECOND DIVISION

CRISANTA ALCARAZ MIGUEL vs JERRY D. MONTANEZ,

G.R. No. 191336 January 25, 2012

DECISION

REYES, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court.
Petitioner Crisanta Alcara !i"uel #!i"uel$ see%s the reversal and settin" aside of the &e'te()er 1*,
200+ ,ecision
-1.
and /e)ruary 11, 2010 Resolution
-2.
of the Court of A''eals #CA$ in CA01.R. &P 2o.
100544, entitled Jerry D. Montanez v. Crisanta Alcaraz Miguel.

Ant!"nt #$!ts

3n /e)ruary 1, 2001, res'ondent Jerry !ontane #!ontane$ secured a loan of 3ne 4undred
/orty05hree 5housand 6i"ht 4undred &i7ty0/our Pesos #P148,9:4.00$, 'aya)le in one #1$ year, or until
/e)ruary 1, 2002, fro( the 'etitioner. 5he res'ondent "ave as collateral therefor his house and lot located
at Bloc% 8+ ;ot 8+ Phase 8, Pal(era &'rin", Ba"u()on", Caloocan City.

,ue to the res'ondent<s failure to 'ay the loan, the 'etitioner filed a co('laint a"ainst the
res'ondent )efore the Lupong Tagapamayapa of Barangay &an Jose, Rodri"ue, Rial. 5he 'arties
entered into a Kasunduang ag!aayos wherein the res'ondent a"reed to 'ay his loan in install(ents in the
a(ount of 5wo 5housand Pesos #P2,000.00$ 'er (onth, and in the event the house and lot "iven as
collateral is sold, the res'ondent would settle the )alance of the loan in full. 4owever, the res'ondent still
failed to 'ay, and on ,ece()er 18, 2004, the Lupong Tagapamayapa issued a certification to file action in
court in favor of the 'etitioner.

3n A'ril *, 2005, the 'etitioner filed )efore the !etro'olitan 5rial Court #!e5C$ of !a%ati City,
Branch ::, a co('laint for Collection of &u( of !oney. =n his Answer with Counterclai(,
-8.
the
res'ondent raised the defense of i('ro'er venue considerin" that the 'etitioner was a resident of
Ba"u()on", Caloocan City while he lived in &an !ateo, Rial.

After trial, on Au"ust 1:, 200:, the !e5C rendered a ,ecision,
-4.
which dis'oses as follows>

%&ERE#ORE, 're(ises considered-,. ?ud"(ent is here)y rendered orderin"
defendant J''( D. Mont$n) to 'ay 'laintiff the followin">

1. 5he a(ount of -Ph'14*,9+8.00. re'resentin" the o)li"ation with le"al
rate of interest fro( /e)ruary 1, 2002 which was the date of the
loan (aturity until the account is fully 'aid@

2. 5he a(ount of Ph'10,000.00 as and )y way of attorney<s fees@ and
the costs.

&3 3R,6R6,.
-5.


3n a''eal to the Re"ional 5rial Court #R5C$ of !a%ati City, Branch 14:, the res'ondent raised
the sa(e issues cited in his Answer. =n its !arch 14, 200* ,ecision,
-:.
the R5C affir(ed the !e5C
,ecision, dis'osin" as follows>

A46R6/3R6, findin" no co"ent reason to distur) the findin"s of the court a
"uo, the a''eal is here)y ,=&!=&&6,, and the ,6C=&=32 a''ealed fro( is here)y
A//=R!6, in its entirety for )ein" in accordance with law and evidence.

&3 3R,6R6,.
-*.


,issatisfied, the res'ondent a''ealed to the CA raisin" two issues, na(ely, #1$ whether or not
venue was i('ro'erly laid, and #2$ whether or not theKasunduang ag!aayos effectively novated the loan
a"ree(ent. 3n &e'te()er 1*, 200+, the CA rendered the assailed ,ecision, dis'osin" as follows>

%&ERE#ORE, 're(ises considered, the 'etition is here)y GRANTED. 5he
a''ealed ,ecision dated !arch 14, 200* of the Re"ional 5rial Court #R5C$
of !a%ati City, Branch 14:, is REVERSED $n" SET ASIDE. A new ?ud"(ent is
entered dis(issin" res'ondent<s co('laint for collection of su( of (oney, without
're?udice to her ri"ht to file the necessary action to enforce the Kasunduang ag!aayos.

SO ORDERED.
-9.


Anent the issue of whether or not there is novation of the loan
contract, the CA ruled in the ne"ative. =t ratiocinated as follows>

Jud"in" fro( the ter(s of the Kasunduang ag!aayos, it is clear that no novation
of the old o)li"ation has ta%en 'lace. Contrary to 'etitioner<s assertion, there was no
reduction of the ter( or 'eriod ori"inally sti'ulated. 5he ori"inal 'eriod in the first
a"ree(ent is one #1$ year to )e counted fro( /e)ruary 1, 2001, or until January 81, 2002.
Ahen the co('laint was filed )efore the #arangay on /e)ruary 2008, the 'eriod of the
ori"inal a"ree(ent had lon" e7'ired without co('liance on the 'art of 'etitioner. 4ence,
there was nothin" to reduce or e7tend. 5here was only a chan"e in the ter(s of 'ay(ent
which is not inco('ati)le with the old a"ree(ent. =n other words, the Kasunduang ag!
aayos (erely su''le(ented the old a"ree(ent.
-+.


5he CA went on sayin" that since the 'arties entered into a Kasunduang ag!aayos )efore
the Lupon ng Barangay, such settle(ent has the force and effect of a court ?ud"(ent, which (ay )e
enforced )y e7ecution within si7 #:$ (onths fro( the date of settle(ent )y the Lupon ng Barangay, or )y
court action after the la'se of such ti(e.
-10.
Considerin" that (ore than si7 #:$ (onths had ela'sed fro(
the date of settle(ent, the CA ruled that the re(edy of the 'etitioner was to file an action for the
e7ecution of the Kasunduang ag!aayos in court and not for collection of su( of (oney.
-11.
ConseBuently, the CA dee(ed it unnecessary to resolve the issue on venue.
-12.

5he 'etitioner now co(es to this Court.

Iss*s

#1$ Ahether or not a co('laint for su( of (oney is the 'ro'er re(edy for the 'etitioner,
notwithstandin" the Kasunduang ag!aayos@
-18.
and


#2$ Ahether or not the CA should have decided the case on the (erits
rather than re(and the case for the enforce(ent of the Kasunduang ag!aayos.
-14.

O*' R*+,n-

.!$*s t/ 's0on"nt 1$,+" to !o20+( 3,t/ t/ t'2s o1 t/ Kasunduang Pag-aayos, s$,"
$-'2nt ,s "2" 's!,n"" 0*'s*$nt to A't,!+ 4561 o1 t/ N3 C,v,+ Co" $n" t/ 0t,t,on'
!$n ,ns,st on /,s o',-,n$+ "2$n". 7'1o'!, t/ !o20+$,nt 1o' !o++!t,on o1 s*2 o1 2on( ,s t/
0'o0' '2"(.


5he 'etitioner contends that the CA erred in rulin" that she should have followed the 'rocedure
for enforce(ent of the a(ica)le settle(ent as 'rovided in the$evised Katarungang am#arangay La%,
instead of filin" a collection case. 5he 'etitioner 'oints out that the cause of action did not arise fro(
the Kasunduang ag!aayos )ut on the res'ondent<s )reach of the ori"inal loan a"ree(ent.
-15.

5his Court a"rees with the 'etitioner.

=t is true that an a(ica)le settle(ent reached at the #arangay conciliation 'roceedin"s, li%e
the Kasunduang ag!aayos in this case, is )indin" )etween the contractin" 'arties and, u'on its
'erfection, is i((ediately e7ecutory insofar as it is not contrary to law, "ood (orals, "ood
custo(s, 'u)lic order and 'u)lic 'olicy.
-1:.
5his is in accord with the )road 'rece't of Article 208* of the
Civil Code, viz>

A co('ro(ise has u'on the 'arties the effect and authority of res &udicata@ )ut
there shall )e no e7ecution e7ce't in co('liance with a ?udicial co('ro(ise.


Bein" a )y0'roduct of (utual concessions and "ood faith of the 'arties, an a(ica)le settle(ent
has the force and effect of res &udicata even if not ?udicially a''roved.
-1*.
=t transcends )ein" a (ere
contract )indin" only u'on the 'arties thereto, and is a%in to a ?ud"(ent that is su)?ect to e7ecution in
accordance with the Rules.
-19.
5hus, under &ection 41* of the ;ocal 1overn(ent Code,
-1+.
such a(ica)le
settle(ent or ar)itration award (ay )e enforced )y e7ecution )y the Barangay Lupon within si7 #:$
(onths fro( the date of settle(ent, or )y filin" an action to enforce such settle(ent in the a''ro'riate city
or (unici'al court, if )eyond the si70(onth 'eriod.

Cnder the first re(edy, the 'roceedin"s are covered )y the ;ocal 1overn(ent Code and
the Katarungang am#arangay =('le(entin" Rules and Re"ulations. 5he unong Barangay is called
u'on durin" the hearin" to deter(ine solely the fact of non0co('liance of the ter(s of the settle(ent and
to "ive the defaultin" 'arty another chance at voluntarily co('lyin" with his o)li"ation under the
settle(ent. Cnder the second re(edy, the 'roceedin"s are "overned )y the Rules of Court, as a(ended.
5he cause of action is the a(ica)le settle(ent itself, which, )y o'eration of law, has the force and effect
of a final ?ud"(ent.
-20.

=t (ust )e e('hasied, however, that enforce(ent )y e7ecution of the a(ica)le settle(ent, either
under the first or the second re(edy, is only a''lica)le if the contractin" 'arties have not re'udiated such
settle(ent within ten #10$ days fro( the date thereof in accordance with &ection 41: of the ;ocal
1overn(ent Code. =f the a(ica)le settle(ent is re'udiated )y one 'arty, either e7'ressly or i('liedly, the
other 'arty has two o'tions, na(ely, to enforce the co('ro(ise in accordance with the ;ocal 1overn(ent
Code or Rules of Court as the case (ay )e, or to consider it rescinded and insist u'on his ori"inal de(and.
5his is in accord with Article 2041 of the Civil Code, which Bualifies the )road a''lication of Article
208*, viz>

=f one of the 'arties fails or refuses to a)ide )y the co('ro(ise, the other 'arty
(ay either enforce the co('ro(ise or re"ard it as rescinded and insist u'on his ori"inal
de(and.


=n the case of Leonor v. 'ycip,
-21.
the &u're(e Court #&C$ had the occasion to e7'lain this
'rovision of law. =t ruled that Article 2041 does not reBuire an action for rescission, and the a""rieved
'arty, )y the )reach of co('ro(ise a"ree(ent, (ay ?ust consider it already rescinded, to wit>

=t is worthy of notice, in this connection, that, unli%e Article 208+ of the sa(e
Code, which s'ea%s of Da cause of annul(ent or rescission of the co('ro(iseD and
'rovides that Dthe co('ro(ise (ay #e annulled or rescindedD for the cause therein
s'ecified, thus su""estin" an action for annul(ent or rescission, said Article 2041 confers
u'on the 'arty concerned, not a DcauseD for rescission, or the ri"ht to Dde(andD the
rescission of a co('ro(ise, )ut the authority, not only to Dre"ard it as
rescindedD, )ut, also, to Dinsist u'on his ori"inal de(andD. T/ +$n-*$- o1 t/,s A't,!+
4561, 0$'t,!*+$'+( 3/n !ont'$st" 3,t/ t/$t o1 A't,!+ 4539, "nots t/$t no $!t,on
1o' 's!,ss,on ,s '8*,'" ,n s$," A't,!+ 4561, $n" t/$t t/ 0$'t( $--',v" 9( t/
9'$!/ o1 $ !o20'o2,s $-'2nt 2$(, ,1 / !/ooss, 9',n- t/ s*,t !ont20+$t"
o' ,nvo+v" ,n /,s o',-,n$+ "2$n", $s ,1 t/' /$" nv' 9n $n( !o20'o2,s
$-'2nt, 3,t/o*t 9',n-,n- $n $!t,on 1o' 's!,ss,on t/'o1. & n" not s: $
;*",!,$+ "!+$'$t,on o1 's!,ss,on, 1o' / 2$( <'-$'"< t/ !o20'o2,s $-'2nt
$+'$"( <'s!,n""<.
-22.
#e('hasis su''lied$


As so well stated in the case of C(avez v. Court o) Appeals,
-28.
a 'artyEs non0co('liance with the
a(ica)le settle(ent 'aved the way for the a''lication of Article 2041 under which the other 'arty (ay
either enforce the co('ro(ise, followin" the 'rocedure laid out in the $evised Katarungang
am#arangay La%, or consider it as rescinded and insist u'on his ori"inal de(and. 5o Buote>

=n the case at )ar, the $evised Katarungang am#arangay La% 'rovides for a
two0tiered (ode of enforce(ent of an a(ica)le settle(ent, to wit> #a$ )y e7ecution )y
the unong Barangay which is Buasi0?udicial and su((ary in nature on (ere (otion of
the 'arty entitled thereto@ and #)$ an action in re"ular for(, which re(edy is ?udicial.
4owever, the (ode of enforce(ent does not rule out the ri"ht of rescission under Art.
2041 of the Civil Code. 5he availa)ility of the ri"ht of rescission is a''arent fro( the
wordin" of &ec. 41* itself which 'rovides that the a(ica)le settle(ent DmayD )e enforced
)y e7ecution )y the lupon within si7 #:$ (onths fro( its date or )y action in the
a''ro'riate city or (unici'al court, if )eyond that 'eriod. 5he use of the word DmayD
clearly (a%es the 'rocedure 'rovided in the $evised Katarungang am#arangay
La% directory or (erely o'tional in nature.

T/*s, $+t/o*-/ t/ <Kasunduan< =!*t" 9( 0t,t,on' $n" 's0on"nt
91o' t/ O11,! o1 t/ Barangay C$0t$,n /$" t/ 1o'! $n" 11!t o1 $ 1,n$+
;*"-2nt o1 $ !o*'t, 0t,t,on'>s non?!o20+,$n! 0$v" t/ 3$( 1o' t/ $00+,!$t,on
o1 A't. 4561 *n"' 3/,!/ 's0on"nt 2$( ,t/' n1o'! t/ !o20'o2,s, 1o++o3,n-
t/ 0'o!"*' +$," o*t ,n t/ Revised Katarungang Pambarangay Law, o' '-$'" ,t $s
's!,n"" $n" ,ns,st *0on /,s o',-,n$+ "2$n". Rs0on"nt !/os t/ +$tt' o0t,on
3/n / ,nst,t*t" C,v,+ C$s No. @139?V?9A 1o' '!ov'( o1 *n'$+,)" 0'o1,ts $n"
',29*'s2nt o1 $"v$n! 'nt$+s, 2o'$+ $n" =20+$'( "$2$-s, $n" $tto'n(>s
1s. Res'ondent was not li(ited to clai(in" P150,000.00 )ecause althou"h he a"reed to
the a(ount in the DKasunduan,D it is a7io(atic that a co('ro(ise settle(ent is not an
ad(ission of lia)ility )ut (erely a reco"nition that there is a dis'ute and an i('endin"
liti"ation which the 'arties ho'e to 'revent )y (a%in" reci'rocal concessions, ad?ustin"
their res'ective 'ositions in the ho'e of "ainin" )alanced )y the dan"er of losin". Cnder
the DKasunduan,D res'ondent was only reBuired to e7ecute a waiver of all 'ossi)le clai(s
arisin" fro( the lease contract if 'etitioner fully co('lies with his o)li"ations thereunder.
=t is undis'uted that herein 'etitioner did not.
-24.
#e('hasis su''lied and citations o(itted$


=n the instant case, the res'ondent did not co('ly with the ter(s and conditions of
the Kasunduang ag!aayos. &uch non0co('liance (ay )e construed as re'udiation )ecause it denotes
that the res'ondent did not intend to )e )ound )y the ter(s thereof, there)y ne"atin" the very 'ur'ose for
which it was e7ecuted. Perforce, the 'etitioner has the o'tion either to enforce the Kasunduang ag!
aayos* or to re"ard it as rescinded and insist u'on his ori"inal de(and, in accordance with the 'rovision of
Article 2041 of the Civil Code. 4avin" instituted an action for collection of su( of (oney, the 'etitioner
o)viously chose to rescind theKasunduang ag!aayos. As such, it is error on the 'art of the CA to rule
that enforce(ent )y e7ecution of said a"ree(ent is the a''ro'riate re(edy under the circu(stances.

Cons,"',n- t/$t t/ Kasunduang Pag-aayos ,s "2" 's!,n"" 9( t/ non?!o20+,$n! o1 t/
's0on"nt o1 t/ t'2s t/'o1, '2$n",n- t/ !$s to t/ t',$+ !o*'t 1o' t/ n1o'!2nt o1 s$,"
$-'2nt ,s !+$'+( *n3$''$nt".


5he 'etitioner avers that the CA erred in re(andin" the case to the
trial court for the enforce(ent of the Kasunduang ag!aayos as it 'rolon"ed the 'rocess, Fthere)y 'uttin"
off the case in an indefinite 'endency.G
-25.
5hus, the 'etitioner insists that she should )e allowed to
ventilate her ri"hts )efore this Court and not to re'eat the sa(e 'roceedin"s ?ust to co('ly with the
enforce(ent of theKasunduang ag!aayos* in order to finally enforce her ri"ht to 'ay(ent.
-2:.

5he CA too% off on the wron" 're(ise that enforce(ent of the Kasunduang ag!aayos is the
'ro'er re(edy, and therefore erred in its conclusion that the case should )e re(anded to the trial court.
5he fact that the 'etitioner o'ted to rescind the Kasunduang ag!aayos (eans that she is insistin" u'on
the underta%in" of the res'ondent under the ori"inal loan contract. 5hus, the CA should have decided the
case on the (erits, as an a''eal )efore it, and not 'rolon" the deter(ination of the issues )y re(andin" it
to the trial court. Pertinently, evidence a)ounds that the res'ondent has failed to co('ly with his loan
o)li"ation. =n fact, the Kasunduang ag!aayos is the well ni"h incontroverti)le 'roof of the res'ondent<s
inde)tedness with the 'etitioner as it was e7ecuted 'recisely to "ive the res'ondent a second chance to
(a%e "ood on his underta%in". And since the res'ondent still rene"ed in 'ayin" his inde)tedness, ?ustice
de(ands that he (ust )e held answera)le therefor.

%&ERE#ORE, the 'etition is GRANTED. 5he assailed decision of the Court of A''eals
is SET ASIDE and the ,ecision of the Re"ional 5rial Court, Branch 14:, !a%ati City, dated !arch 14,
200* is REINSTATED.

SO ORDERED.