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RepublicofthePhilippines

SupremeCourt
Manila



SECONDDIVISION

CRISANTAALCARAZMIGUEL, G.R.No.191336
Petitioner,
Present:

CARPIO,J.,
versus Chairperson,
PEREZ,
SERENO,
REYES,and
PERLASBERNABE,JJ.

JERRYD.MONTANEZ, Promulgated:
Respondent.
January25,2012

xx

DECISION

REYES,J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court.
PetitionerCrisantaAlcarazMiguel(Miguel)seeksthereversalandsettingasideoftheSeptember
[1] [2]
17,2009Decision andFebruary11,2010Resolution oftheCourtofAppeals(CA)inCA
G.R.SPNo.100544,entitledJerryD.Montanezv.CrisantaAlcarazMiguel.

AntecedentFacts

On February 1, 2001, respondent Jerry Montanez (Montanez) secured a loan of One Hundred
On February 1, 2001, respondent Jerry Montanez (Montanez) secured a loan of One Hundred
FortyThreeThousandEightHundredSixtyFourPesos(P143,864.00),payableinone(1)year,or
untilFebruary1,2002,fromthepetitioner.Therespondentgaveascollateralthereforhishouse
andlotlocatedatBlock39Lot39Phase3,PalmeraSpring,Bagumbong,CaloocanCity.

Duetotherespondentsfailuretopaytheloan,thepetitionerfiledacomplaintagainstthe
respondentbeforetheLupongTagapamayapaofBarangaySanJose,Rodriguez,Rizal.Theparties
entered into a Kasunduang Pagaayos wherein the respondent agreed to pay his loan in
installments in the amount ofTwo Thousand Pesos (P2,000.00) per month, and in the event the
houseandlotgivenascollateralissold,therespondentwouldsettlethebalanceoftheloaninfull.
However, the respondent still failed to pay, and on December 13, 2004, the Lupong
Tagapamayapaissuedacertificationtofileactionincourtinfavorofthepetitioner.

OnApril7,2005,thepetitionerfiledbeforetheMetropolitanTrialCourt(MeTC)ofMakati
City,Branch66,acomplaintforCollectionofSumofMoney.InhisAnswerwithCounterclaim,
[3]
the respondent raised the defense of improper venue considering that the petitioner was a
residentofBagumbong,CaloocanCitywhilehelivedinSanMateo,Rizal.

[4]
After trial, on August 16, 2006, the MeTC rendered a Decision, which disposes as
follows:

WHEREFORE,premisesconsidered[,]judgmentisherebyrenderedorderingdefendantJerryD.
Montaneztopayplaintiffthefollowing:

1. The amount of [Php147,893.00] representing the obligation with legal rate of
interestfromFebruary1,2002whichwasthedateoftheloanmaturityuntilthe
accountisfullypaid

2.TheamountofPhp10,000.00asandbywayofattorneysfeesandthecosts.

[5]
SOORDERED.


On appeal to the Regional Trial Court (RTC) of Makati City, Branch 146, the respondent
[6]
raisedthesameissuescitedinhisAnswer.InitsMarch14,2007Decision, theRTCaffirmed
theMeTCDecision,disposingasfollows:

WHEREFORE, finding no cogent reason to disturb the findings of the court a quo, the
appeal is hereby DISMISSED, and the DECISION appealed from is hereby AFFIRMED in its
entiretyforbeinginaccordancewithlawandevidence.
entiretyforbeinginaccordancewithlawandevidence.

[7]
SOORDERED.


Dissatisfied,therespondentappealedtotheCAraisingtwoissues,namely,(1)whetheror
not venue was improperly laid, and (2) whether or not the Kasunduang Pagaayos effectively
novated the loan agreement. On September 17, 2009, the CA rendered the assailed Decision,
disposingasfollows:

WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed
DecisiondatedMarch14,2007oftheRegionalTrialCourt(RTC)ofMakatiCity,Branch146,is
REVERSEDandSETASIDE.Anewjudgmentisentereddismissingrespondentscomplaintfor
collectionofsumofmoney,withoutprejudicetoherrighttofilethenecessaryactiontoenforcethe
KasunduangPagaayos.

[8]
SOORDERED.


Anenttheissueofwhetherornotthereisnovationoftheloan
contract,theCAruledinthenegative.Itratiocinatedasfollows:

JudgingfromthetermsoftheKasunduangPagaayos,itisclearthatnonovationoftheold
obligationhastakenplace.Contrarytopetitionersassertion,therewasnoreductionofthetermor
periodoriginallystipulated.Theoriginalperiodinthefirstagreementisone(1)yeartobecounted
from February 1, 2001, or until January 31, 2002. When the complaint was filed before the
barangay on February 2003, the period of the original agreement had long expired without
complianceonthepartofpetitioner.Hence,therewasnothingtoreduceorextend.Therewasonly
achangeinthetermsofpaymentwhichisnotincompatiblewiththeoldagreement.Inotherwords,
[9]
theKasunduangPagaayosmerelysupplementedtheoldagreement.


TheCAwentonsayingthatsincethepartiesenteredintoaKasunduangPagaayosbefore
theLuponngBarangay,suchsettlementhastheforceandeffectofacourtjudgment,whichmay
be enforced by execution within six (6) months from the date of settlement by the Lupon ng
[10]
Barangay,orbycourtactionafterthelapseofsuchtime. Consideringthatmorethansix(6)
monthshadelapsedfromthedateofsettlement,theCAruledthattheremedyofthepetitionerwas
tofileanactionfortheexecutionoftheKasunduangPagaayosincourtandnotforcollectionof
[11] [12]
sumofmoney. Consequently,theCAdeemeditunnecessarytoresolvetheissueonvenue.

ThepetitionernowcomestothisCourt.

Issues
Issues

(1)Whetherornotacomplaintforsumofmoneyistheproperremedyforthepetitioner,
[13]
notwithstandingtheKasunduangPagaayos and


(2)WhetherornottheCAshouldhavedecidedthecaseonthemerits
[14]
ratherthanremandthecasefortheenforcementoftheKasunduangPagaayos.

OurRuling

Becausetherespondentfailedtocomplywiththeterms
oftheKasunduangPagaayos,saidagreementisdeemed
rescinded pursuant to Article 2041 of the New Civil
Code and the petitioner can insist on his original
demand.Perforce,thecomplaintforcollectionofsumof
moneyistheproperremedy.

The petitioner contends that the CA erred in ruling that she should have followed the
procedure for enforcement of the amicable settlement as provided in the Revised Katarungang
PambarangayLaw,insteadoffilingacollectioncase.Thepetitionerpointsoutthatthecauseof
actiondidnotarisefromtheKasunduangPagaayosbutontherespondentsbreachoftheoriginal
[15]
loanagreement.

ThisCourtagreeswiththepetitioner.

It is true that an amicable settlement reached at the barangay conciliation proceedings, like the
Kasunduang Pagaayos in this case, is binding between the contracting parties and, upon its
perfection,isimmediatelyexecutoryinsofarasitisnotcontrarytolaw,goodmorals,good
[16]
customs, public order and public policy. This is in accord with the broad precept of Article
2037oftheCivilCode,viz:

Acompromisehasuponthepartiestheeffectandauthorityofresjudicatabutthereshallbe
noexecutionexceptincompliancewithajudicialcompromise.


Being a byproduct of mutual concessions and good faith of the parties, an amicable
Being a byproduct of mutual concessions and good faith of the parties, an amicable
[17]
settlementhastheforceandeffectofresjudicataevenifnotjudiciallyapproved. Ittranscends
being a mere contract binding only upon the parties thereto, and is akin to a judgment that is
[18]
subject to execution in accordance with the Rules. Thus, under Section 417 of the Local
[19]
Government Code, such amicable settlement or arbitration award may be enforced by
executionbytheBarangayLuponwithinsix(6)monthsfromthedateofsettlement,orbyfilingan
action to enforce such settlement in the appropriate city or municipal court, if beyond the six
monthperiod.

Underthefirstremedy,theproceedingsarecoveredbytheLocalGovernmentCodeandthe
KatarungangPambarangayImplementingRulesandRegulations.ThePunongBarangayiscalled
upon during the hearing to determine solely the fact of noncompliance 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. The cause of action is the amicable settlement itself, which, by
[20]
operationoflaw,hastheforceandeffectofafinaljudgment.

Itmustbeemphasized,however,thatenforcementbyexecutionoftheamicablesettlement,
either under the first or the second remedy, is only applicable if the contracting parties have not
repudiatedsuchsettlementwithinten(10)daysfromthedatethereofinaccordancewithSection
416oftheLocalGovernmentCode.Iftheamicablesettlementisrepudiatedbyoneparty,either
expressly or impliedly, the other party has two options, namely, to enforce the compromise in
accordancewiththeLocalGovernmentCodeorRulesofCourtasthecasemaybe,ortoconsider
itrescindedandinsistuponhisoriginaldemand.ThisisinaccordwithArticle2041oftheCivil
Code,whichqualifiesthebroadapplicationofArticle2037,viz:

Ifoneofthepartiesfailsorrefusestoabidebythecompromise,theotherpartymayeither
enforcethecompromiseorregarditasrescindedandinsistuponhisoriginaldemand.


[21]
InthecaseofLeonorv.Sycip, theSupremeCourt(SC)hadtheoccasiontoexplainthis
provision of law. It ruled that Article 2041 does not require an action for rescission, and the
aggrievedparty,bythebreachofcompromiseagreement,mayjustconsideritalreadyrescinded,
towit:

Itisworthyofnotice,inthisconnection,that,unlikeArticle2039ofthesameCode,which
speaks of "a cause of annulment or rescission of the compromise" and provides that "the
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"forrescission,ortherightto"demand"therescissionofacompromise,buttheauthority,
notonlyto"regarditas
rescinded", but, also, to "insist upon his original demand". The language of this Article 2041,
particularlywhencontrastedwiththatofArticle2039,denotesthatnoactionforrescissionis
required in said Article 2041, and that the party aggrieved by the breach of a compromise
agreementmay,ifhechooses,bringthesuitcontemplatedorinvolvedinhisoriginaldemand,
as if there had never been any compromise agreement, without bringing an action for
rescissionthereof.Heneednotseekajudicialdeclarationofrescission,forhemay"regard"
[22]
thecompromiseagreementalready"rescinded". (emphasissupplied)


[23]
AssowellstatedinthecaseofChavezv.CourtofAppeals, aparty'snoncompliance
withtheamicablesettlementpavedthewayfortheapplicationofArticle2041underwhichthe
other party may either enforce the compromise, following the procedure laid out in the Revised
KatarungangPambarangayLaw,orconsideritasrescindedandinsistuponhisoriginaldemand.
Toquote:

In the case at bar, the Revised Katarungang Pambarangay Law provides for a twotiered
modeofenforcementofanamicablesettlement,towit:(a)byexecutionbythePunongBarangay
whichisquasijudicialandsummaryinnatureonmeremotionofthepartyentitledtheretoand(b)
an action in regular form, which remedy is judicial. However, the mode of enforcement does not
rule out the right of rescission under Art. 2041 of the CivilCode. The availability of the right of
rescission is apparent from the wording of Sec. 417 itself which provides that the amicable
settlement"may"beenforcedbyexecutionbytheluponwithinsix(6)monthsfromitsdateorby
actionintheappropriatecityormunicipalcourt,ifbeyondthatperiod.Theuseoftheword"may"
clearlymakestheprocedureprovidedintheRevisedKatarungangPambarangayLawdirectoryor
merelyoptionalinnature.

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 noncompliance paved the way for the application of Art. 2041 under which
respondentmayeitherenforcethecompromise,followingtheprocedurelaidoutintheRevised
KatarungangPambarangayLaw,orregarditasrescindedandinsistuponhisoriginaldemand.
RespondentchosethelatteroptionwhenheinstitutedCivilCaseNo.5139V97forrecoveryof
unrealizedprofitsandreimbursementofadvancerentals,moralandexemplarydamages,and
attorney'sfees.RespondentwasnotlimitedtoclaimingP150,000.00becausealthoughheagreedto
theamountinthe"Kasunduan,"itisaxiomaticthatacompromisesettlementisnotanadmissionof
liabilitybutmerelyarecognitionthatthereisadisputeandanimpendinglitigationwhichtheparties
hopetopreventbymakingreciprocalconcessions,adjustingtheirrespectivepositionsinthehopeof
gainingbalancedbythedangeroflosing.Underthe"Kasunduan,"respondentwasonlyrequiredto
execute a waiver of all possible claims arising from the lease contract if petitioner fully complies

[24]
with his obligations thereunder. It is undisputed that herein petitioner did not. (emphasis
suppliedandcitationsomitted)


In the instant case, the respondent did not comply with the terms and conditions of the
KasunduangPagaayos.Suchnoncompliancemaybeconstruedasrepudiationbecauseitdenotes
KasunduangPagaayos.Suchnoncompliancemaybeconstruedasrepudiationbecauseitdenotes
that the respondent did not intend to be bound by the terms thereof, thereby negating the very
purpose for which it was executed. Perforce, the petitioner has the option either to enforce the
Kasunduang Pagaayos, or to regard it as rescinded and insist upon his original demand, in
accordancewiththeprovisionofArticle2041oftheCivilCode.Havinginstitutedanactionfor
collectionofsumofmoney,thepetitionerobviouslychosetorescindtheKasunduangPagaayos.
Assuch,itiserroronthepartoftheCAtorulethatenforcementbyexecutionofsaidagreementis
theappropriateremedyunderthecircumstances.

Considering that the Kasunduang Pagaayos is deemed
rescinded by the noncompliance of the respondent of
thetermsthereof,remandingthecasetothetrialcourt
for the enforcement of said agreement is clearly
unwarranted.

ThepetitioneraversthattheCAerredinremandingthecasetothe
trialcourtfortheenforcementoftheKasunduangPagaayosasitprolongedtheprocess,thereby
[25]
puttingoffthecaseinanindefinitependency. Thus, the petitioner insists that she should be
allowed to ventilate her rights before this Court and not to repeat the same proceedings just to
complywiththeenforcementoftheKasunduangPagaayos,inordertofinallyenforceherrightto
[26]
payment.

TheCAtookoffonthewrongpremisethatenforcementofthe Kasunduang Pagaayos is
theproperremedy,andthereforeerredinitsconclusionthatthecaseshouldberemandedtothe
trialcourt.ThefactthatthepetitioneroptedtorescindtheKasunduangPagaayosmeansthatshe
isinsistingupontheundertakingoftherespondentundertheoriginalloancontract.Thus,theCA
should have decided the case on the merits, as an appeal before it, and not prolong the
determinationoftheissuesbyremandingittothetrialcourt.Pertinently,evidenceaboundsthatthe
respondenthasfailedtocomplywithhisloanobligation.Infact,theKasunduangPagaayosisthe
well nigh incontrovertible proof of the respondents indebtedness with the petitioner as it was
executedpreciselytogivetherespondentasecondchancetomakegoodonhisundertaking.And
sincetherespondentstillrenegedinpayinghisindebtedness,justicedemandsthathemustbeheld
answerabletherefor.

WHEREFORE,thepetitionisGRANTED.TheassaileddecisionoftheCourtofAppeals
is SET ASIDE and the Decision of the Regional Trial Court, Branch 146, Makati City, dated
March14,2007isREINSTATED.
March14,2007isREINSTATED.

SOORDERED.



BIENVENIDOL.REYES
AssociateJustice

WECONCUR:

ANTONIOT.CARPIO
AssociateJustice




JOSEPORTUGALPEREZ MARIALOURDESP.A.SERENO
AssociateJustice AssociateJustice




ESTELAM.PERLASBERNABE
AssociateJustice



ATTESTATION

IattestthattheconclusionsintheaboveDecisionhadbeenreachedinconsultationbeforethecase
wasassignedtothewriteroftheopinionoftheCourtsDivision.

ANTONIOT.CARPIO
AssociateJustice
Chairperson,SecondDivision

CERTIFICATION

PursuanttoSection13,ArticleVIIIoftheConstitutionandtheDivisionChairperson'sAttestation,
PursuanttoSection13,ArticleVIIIoftheConstitutionandtheDivisionChairperson'sAttestation,
I certify that the conclusions in the above Decision had been reached in consultation before the
casewasassignedtothewriteroftheopinionoftheCourtsDivision.

RENATOC.CORONA
ChiefJustice

AdditionalMemberinlieuofAssociateJusticeArturoD.BrionperSpecialOrderNo.1174datedJanuary9,2012.
[1]
PennedbyAssociateJusticeRosalindaAsuncionVicente,withAssociateJusticesNormandieB.PizarroandRicardoR.Rosario,
concurringrollo,pp.3745.
[2]
Id.at3435.
[3]
Id.at6369.
[4]
Id.at7074.
[5]
Id.at73.
[6]
Id.at7577.
[7]
Id.at77.
[8]
Id.at45.
[9]
Id.at41.
[10]
Id.at42.
[11]
Id.at43.
[12]
Id.at44.
[13]
Id.at13.
[14]
Id.at14.
[15]
Id.at20.
[16]
NewCivilCode,Article1306.
[17]
Republicv.Sandiganbayan,G.R.No.108292,September10,1993,,226SCRA314468Phil1000(2004).
[18]
ManilaInternationalAirportAuthority(MIAA)v.ALAIndustriesCorporation,G.R.No.147349,February13,2004,422SCRA
603,611.
[19]
R.A.No.7160,BookIII,TitleOne,ChapterVII,Section,417.Execution.Theamicablesettlementorarbitrationawardmaybe
enforcedbyexecutionbythe[L]uponwithinsix(6)monthsfromthedateofthesettlement.Afterthelapseofsuchtime,thesettlement
maybeenforcedbyactioninthepropercityormunicipalcourt.
[20]
Vidalv.Escueta,463Phil314(2003).
[21]
111Phil859(1961).
[22]
Id.at865.
[23]
493Phil945(2005).
[24]
Id.at954955.
[25]
Rollo,p.26.
[25]
Rollo,p.26.
[26]
Id.at27.