Compromises ART.

2028-2041, NEW CIVIL CODE

ABREA | APOSTOL | ARISTOZA | DAYOT | HITOSIS | RADAM | YANO

watchmen
definition
A compromise is a contract whereby the parties, by making reciprocal concessions,
avoid a litigation or put an end to one already commenced. (1809a)

2028
 2028
A compromise is a contract whereby the parties, by making reciprocal
concessions,
a. avoid a litigation; or
b. put an end to one already commenced.
CEBU INTERNATIONAL FINANCE CORP v. COURT OF APPEALS: The stipulations of a
compromise agreement can only be enforceable to the parties of a contract.

MAGBANUA v. UY: A compromise agreement must comply with the requisites and
principles of contracts to have the force of law between the parties:
1. The mutual consent of the parties to the compromise;
2. An object certain that is the subject matter of compromise; and
3. The cause of the obligation that is established.
PHILIPPINE NATIONAL OIL COMPANY-ENERGY DEVELOPMENT CORPORATION v. ABELLA:
Settlement of disputes by way of compromise, is an accepted, desirable and
encouraged practice in courts of law and administrative tribunals.

LAND BANK OF THE PHILIPPINES v. HEIRS OF SPOUSES JORJA RIGOR SORIANO AND
MAGIN SORIANO: The terms and conditions of a compromise must not be contrary to
law, morals, good customs, public policy and public order.

CHU v. CUNANAN: The Court emphasized that a compromise agreement may

include other objects by necessary implication, other than which was
specifically stated therein.
coverage and effect
A compromise comprises only those objects which are definitely stated therein, or
which by necessary implication from its terms should be deemed to have been
included in the same.

A general renunciation of rights is understood to refer only to those that are

connected with the dispute which was the subject of the compromise. (1815)

2036
 2036
Part 1
[contemplates what comprise a compromise agreement]
1. Objects which are definitely stated therein; or
2. Which by necessary implication from its terms should be deemed to have
been included in the same.
Part 2
A general renunciation of rights
1. Understood to refer only to those that are connected with the dispute
● Which was the subject of the compromise.
General Rule:
A compromise has upon the parties the effect and authority of res judicata.

Exception:
There shall be no execution except in compliance with a judicial compromise.

2037
 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.
(1816)
REPUBLIC v. FLORENDO: A compromise agreement executed by the parties, even
while an appeal is pending before the court, is valid. When a compromise
agreement is given judicial approval, it becomes more than a contract binding
upon the parties.

Id.: A compromise agreement remains valid even if there is already a final and
executory judgment.

TRIA v. LIRAG: A compromise agreement approved by the court and

incorporated into the court’s decision is part and parcel of the judgment
and may be enforced by writ of execution.
role of the court
The court shall endeavor to persuade the litigants in a civil case to agree upon
some fair compromise. (n)

2029
 2029
● The Court shall endeavor:
○ To persuade the litigants in a civil case
■ To agree upon some fair compromise
SANCHEZ v. COURT OF APPEALS: Compromise agreements are not only allowed, but
encouraged by the Civil Code.

QUIROS v. ARJONA: Compromises, even those which do not need judicial approval,
are encouraged by the Civil Code.

JESLAVA v. BAUTISTA: Compromises are not limited to cases that are about to be
filed or are pending before the court, and may be effected at any time during the
proceedings.

Id.: Article 2040 implies that a compromise agreement may be effected

after judgement.
FIRST PHILIPPINE HOLDINGS CORPORATION v. SANDIGANBAYAN:
The court will not set aside a compromise agreement unless:
● The controversy cannot be the subject of a compromise agreement, according
to Article 2035 of the Civil Code;
● It is contrary to law, morals, good customs, public order, or public policy; or
● The compromise is tainted with infirmity, irregularity, fraud, or illegality.
Rules of Court
Section 2(a), Rule 18
Nature and purpose. — The pre-trial is mandatory. The court shall consider:
(a) The possibility of an amicable settlement or of a submission to alternative
modes of dispute resolution; xxx

Section 1(a), Rule 48

Preliminary conference. — At any time during the pendency of a case, the court may
call the parties and their counsel to a preliminary conference.
(a) To consider the possibility of an amicable settlement, except when the case is
not allowed by law to be compromised xxx
The courts may mitigate the damages to be paid by the losing party who has
shown a sincere desire for a compromise. (n)

2031
 2031
● The courts :
○ May mitigate the damages to be paid
■ By the losing party
■ Who has shown a sincere desire for compromise.
PHILIPPINE BANK OF COMMUNICATIONS v. ECHIVERRI: Article 2031 was enacted
pursuant to the Civil Code policy of encouraging settlements.

OSMEÑA v. COMMISSION ON AUDIT: The mitigation of damages in Article 2031, as

well as the suspension of civil proceedings in Article 2030, are provisions meant to
implement Article 2029.
 The court's approval is necessary in compromises entered into by guardians,
parents, absentee's representatives, and administrators or executors of decedent's
estates. (1810a)

2032
 2032
● The court’s approval is necessary
○ In compromises entered into by
■ Guardians,
■ Parents,
■ Absentee’s representatives, and
■ Administrators or executors of decedents’ estates.
PHILIPPINE BANK OF COMMUNICATIONS v. ECHIVERRI: Only the compromises in
Article 2032 require the approval of the court. In other instances, party-litigants
have merely asked the court to dismiss the case without submitting their
compromise agreement for judicial approval. (Note: The Court may still approve
Compromise agreements in general)

SANCHEZ v. COURT OF APPEALS: In a compromise agreement entered into by

guardians of minors, the issue of validity must be raised at the first instance, not
on reconsideration.
Old Spanish Civil Code Provisions
Article 1810: The same rules shall apply to settle in respect of the property and
rights of children subject to parental authority as apply to their disposal.

Article 1811: The guardian may not settle in respect of the rights of the person
under his care save in the manner provided in the present Code.

*The New Civil Code adds the requirement of judicial approval for Absentee’s
representatives, and Administrators or Executors of Decedents’ Estates.
when civil action suspended
 Every civil action or proceeding shall be suspended:

(1) If willingness to discuss a possible compromise is expressed by one or

both parties; or

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

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

2030
appointment and duties of amicable compounders. (n)
 2030
PART 1
[contemplates 2 scenarios where a civil action will be suspended]
1. If one or both parties are willing to discuss a possible compromise and such
willingness is expressed
2. If , before commencement of action/proceeding, one of the parties wanted a
compromise but other party refused

PART 2
Rules of Court shall:
1. Govern duration and terms of the suspension
2. Provide for appointment and duties of amicable compounders
Why a provision for compromises?
State policy: actively promote freedom of parties to make arrangements for the
resolution of their disputes

Code of Professional Responsibility: Rule 1.04 “lawyer shall encourage their

clients to avoid, end or settle a controversy if it will admit of a fair settlement”

Chua Lao v. Macapugay: Court explains that the Civil Code not only defines and
authorizes compromises, it in fact encourages them in civil actions.
Said rules of court shall likewise provide for the appointment and duties of amicable
compounders.
What are “amicable compounders”?
● Code does not provide a definition.

Ballentine’s Law Dictionary and Black’s Law Dictionary: amicable compounders are
one of the two types of arbitrators

Padilla offers the commentary that amicable compounders assist the court and the
parties in reaching a “fair compromise”.

As such, it may be inferred that amicable compounders are arbitrators, in charge of

guiding the parties to reaching a settlement should suspension occur.
Proof of Compromise
Tamayo v. People: The Court stated that it is “incumbent upon petitioner to prove
that [a compromise has been agreed upon].”

Claim for existence must be proven by clear and convincing evidence.

juridical persons
Juridical persons may compromise only in the form and with the requisites which
may be necessary to alienate their property. (1812a)

2033
 2033
Juridical persons may compromise
● But only regards their property
Versus the old Spanish Civil Code Provision

Article 1812. Corporations which have a juridical personality may only

compromise in the manner and with the requisites necessary in order to alienate
their property.

Revision did away with the word “corporation”, only to refer to “juridical persons”,
thereby expanding the recipients of the grant of the ability to compromise
Who are “juridical persons”?
Article 44 of the Civil Code specifies who falls under the term “juridical persons”:
1. The State and its political subdivisions;
2. Other corporations, institutions and entities for public interest or purpose,
created by law; their personality begins as soon as they have been constituted
according to law;
3. Corporations, partnerships and associations for private interest or purpose to
which the law grants a juridical personality, separate and distinct from that of
each shareholder, partner or member. (35a)
Who within the juridical entity?
Corporation Code: the board of directors

General Rule: only duly authorized officers or agents of a juridical person can enter
into compromises and such a power can be granted, expressly or impliedly
(Vicente v. Geraldez)

Exception: corporation ratifies unauthorized act

effect on criminal action
There may be a compromise upon the civil liability arising from an offense; but
such compromise shall not extinguish the public action for the imposition of the
legal penalty. (1813).

2034
 2034
There may be a compromise:
● Upon civil liability arising from an offense

Such compromise:
● Shall not extinguish the public action for the imposition of the legal penalty.
 2034
Triggers:
1. A person is civilly liable for an offense
2. Offended parties and offender seek to compromise on the civil liability

Effects:
1. Compromise extinguishes civil liability;
2. But does not affect criminal liability.
Trinidad v Ombudsman
TRINIDAD v. MARCELO: It is a firmly recognized rule, however, that criminal
liability cannot be the subject of a compromise. For a criminal case is committed
against the People, and the offended party may not waive or extinguish the
criminal liability that the law imposes for its commission. And that explains why a
compromise is not one of the grounds prescribed by the Revised Penal Code for the
extinction of criminal liability.
Concepts
Criminality is not affected by compromise or novation.
People v. Nery

A public criminal action has, for its object, the punishment of the offender.
Hyatt Industrial Manufacturing Corp. v. Asia Dynamic Electrix Corp. and Court of Appeals

It is the social and public interest that all crimes be punished.

Tolentino

Even if the offended party expressly waives indemnification, it is the duty of the
prosecutor to bring criminal charges.
People v. Caruncho
Exceptions
Tolentino and Paras: Sec. 204, par. (A) of the Tax Code. The provision gives the
Commissioner the option to compromise the payment of internal revenue tax
when the following circumstances are present:
1. A reasonable doubt as to the validity of the claim against the taxpayer exists;
2. The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax.

Padilla: Art. 344 of the Revised Penal Code. The provision may bar the institution
of a criminal prosecution upon the offended party’s consent, pardon, or
condonation.
invalid compromises
No compromise upon the following questions shall be valid:
1. The civil status of persons;
2. The validity of a marriage or a legal separation;
3. Any ground for legal separation;
4. Future support;
5. The jurisdiction of courts;
6. Future legitime. (1814a)

2035
No compromise upon the following questions shall be valid:
1. The civil status of persons;
2. The validity of a marriage or a legal separation;
3. Any ground for legal separation;
4. Future support;
5. The jurisdiction of courts;
6. Future legitime. (1814a)

2035
No compromise upon the following questions shall be valid:
1. The civil status of persons;
2. The validity of a marriage or a legal separation;
3. Any ground for legal separation;
4. Future support;
5. The jurisdiction of courts;
6. Future legitime. (1814a)

2035
 2035
Compromises on the following questions are invalid:
Civil Status, and Future Legitime
The law prohibits the recognition or denial of a person’s civil status, as to their
legitimacy, parentage, marriage, or judicial declaration of death, where it is in
consideration of some price, prestation or concession by the other party.

Compromise agreements shall not be valid if they consider, as their subject, the
civil status of persons.

In the same way, a future legitime, as it remains to be an issue of filiation, shall not
be subject to compromise agreements as well.
LAJOM v. VIOLA: A possible objection to the promise of the defendants to give the
plaintiff (allegedly a co-heir of defendants) his share in the estate as an
acknowledged natural child is that such agreement may run counter to article
2035.
● Here having been, in accordance with the allegations in the complaint, no
controversy over the condition of the plaintiff as acknowledged natural child,
the agreement between the plaintiff and defendants alleged in the complaint,
if shown at the trial, is not a compromise at all.
Future Support
The law prohibits a compromise on future legal support.
WAINWRIGHT-VERSOZA v. VERSOZA: Applying Art. 2035, the Supreme Court held
that a compromise agreement which has as its subject future support, shall be
invalid. In this case, there was a discussion on “earnest efforts” under Art. 222 as
ground used by the lower court in deciding against the plaintiff.

On the contrary, the Supreme Court held that such “earnest efforts” requirement
would be absurd because forcing such requirement will only lead to a compromise,
which is prohibited by Art. 2035.
Marriage and Legal Separation
The law prohibits a compromise on the validity of a marriage or legal separation.
MENDOZA v. CA: This was a complaint for support against the husband who moved
to the United states for further studies. The Supreme Court held that the complaint
is valid because Art. 222 does not apply, as it is subject to limitations under Art.
2035 which lists circumstances wherein a compromise is considered in valid. The
Court states, “…in attacking the validity of the marriage of plaintiff-respondent to
defendant-petitioner, poses a non-compromisable issue… Since no valid
compromise is possible on these issues, a showing of previous efforts to
compromise them would be superfluous.”
Jurisdiction of Courts
Jurisdiction cannot be conferred upon the court by consent of the parties; nor can
an express agreement deprive a court of jurisdiction conferred upon it by law
NEPOMUCENO v. CARLOS: The question is one of the jurisdiction of the court over
the settlement of the estate of a deceased person. Such jurisdiction cannot be
conferred by consent of the parties. If, as a matter of law, there was, in 1901, no
judicial proceeding pending in court for the settlement of this estate, then the
parties could not, even by their express consent, confer such jurisdiction.
Other Matters
The list under Art. 2035 is not exhaustive.

UY v. CHUA: “RTC-Branch 9 had no authority to approve and give effect to a

Compromise Agreement that was contrary to law and public policy, even if said
contract was executed and submitted for approval by both parties.” Thus, the
limitation also stands against and invalidates compromise agreements considered
contrary to law and public policy.
when voidable
 A compromise in which there is mistake, fraud, violence, intimidation, undue
influence, or falsity of documents, is subject to the provisions of Article 1330 of this
Code.

However, one of parties cannot set up a mistake of fact as against the other if the
latter, by virtue of the compromise, has withdrawn from a litigation already
commenced. (1817a)

2038
When voidable?
General Rule:
An offer to compromise once accepted becomes binding upon the parties and a
judgment thereon becomes immediately executory. (De Los Reyes vs. De Ugarte, 75
Phil. 505)

Exception: (Art. 2038, par. 1)

A compromise in which there is mistake, fraud, violence, intimidation, undue
influence, or falsity of documents, is subject to the provisions of Article 1330; “a
contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable”.
MABALE v. APALISOK: “A compromise has upon the parties the effect and authority
of res judicata.” A judicial compromise may be enforced by writ of execution.
However, a compromise in which there is mistake, fraud, violence, intimidation,
undue influence, or falsity of documents may be annulled If a party 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.
Art 2038, par 2.
Exception to When Compromises are voidable:

An exception to when compromises are voidable is where one of parties cannot set
up a mistake of fact as against the other if the latter, by virtue of the compromise,
has withdrawn from a litigation already commenced.
BOBIS v. PROVINCIAL SHERIFF OF CAMARINES NORTE: The judgment rendered in
Civil Case No. 273 was based upon a compromise agreement of the parties. In the
case of Yboleon vs. Sison, this Court ruled that “a judge or court, which sets aside a
judgment rendered upon consent of the parties and based on a compromise
entered into by them, which is converted into such judgment, cannot amend or set
it aside without the consent of said parties, or without first having declared in an
incidental preliminary hearing that such compromise is vitiated by any of the
grounds for nullity enumerated in Article 1817 (now Art. 2038) of the Civil Code.”
Since the modification and amendment of the judgment was made unilaterally in
the writ of execution, without any preliminary hearing, it was unjustified.
According to Tolentino (In relation with Art. 1330)

In determining whether consent is vitiated by any of the circumstances mentioned

in this article, courts are given a wide latitude in weighing the facts or
circumstances in a given cse and in deciding in favor of what they believe to have
actually occurred, considering the age, physical infirmity, intelligence,
relationship, and the conduct of the parties at the time of making the contract and
subsequent thereto, irrespective of whether the contract is in a public or private
writing
Necessary Proof
The necessary proof required is when, defect or lack of valid consent in order to
make the contract voidable, must be established by full, clear, and convincing
evidence, and not merely by a preponderance thereof.
annulment or recession
 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

2039
documents.
 2039
Applicable when:
1. Where a compromise was agreed upon generally on all differences, where after
said compromise;
2. There was a discovery of new documents pertaining to one or more questions
regarding the questions settled but not to all.

General effect:
Discovery shall not by itself be a cause for annulment of the compromise.
 2039
Two grounds with the effect of annulment or recession:

1. When the newly discovered documents have been concealed by one of the
parties;
2. When the compromise refers only to one thing to which one of the parties has
no right, as shown by the newly-discovered documents.
compromise after judgment
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.

Ignorance of a judgment which may be revoked or set aside is not a valid ground
for attacking a compromise . (1819a)

2040
 2040
● There was a litigation
● The litigation was decided by final judgment
● A compromise agreed was agreed upon by the parties
● At least one of the parties was unaware of the existence of the final judgment

Effect: Said compromise may be rescinded (paragraph 1).

Exemption: A judgment, which may be revoked or set aside, is not a valid ground
for attacking a compromise (paragraph 2).
Rationale for the article
Rovero v. Amparo: It was held that a compromise agreement entered into after a
final judgment may be rescinded because it is no longer necessary since the rights
of the parties are already settled and there are no more disputes to compromise.

Magbanua v. Uy: The law allows a party to rescind a compromise agreement

because it could have been entered into in ignorance of the fact that there was
already a final judgment.
Precursor of the article
Article 1819 of the Old Civil Code:

“If, after a lawsuit is resolved by a final judgement, a settlement should be reached

because one of the parties should be unaware of the existence of such final
judgement, such party may request rescission of the settlement. Unawareness of a
judgement which may be revoked does not constitute grounds to challenge the
settlement.
Validity of the compromise agreement after judgement

A compromise is not limited to cases that are about to be filed or those that are
already pending in courts. Even the compromise agreements entered by the
parties after a final judgement are valid because Article 2040 impliedly allowed
such agreements (Jesalva v. Bautista)
Validity of the compromise agreement after judgement
Jesalva case contradicting the Rovero case? – NO.

“It is argued that the parties to a case may enter into a compromise about even a final judgment rendered
by a court, and it is contended . . . that the reappraisal ordered by the Commissioner of Customs and
sanctioned by the Department of Finance was authorized by Section 1369 of the [Revised Administrative
Code]. The contention may be correct as regards private parties who are the owners of the
property subject-matter of the litigation, and who are therefore free to do with what they own
or what is awarded to them, as they please, even to the extent of renouncing the award, or
condoning the obligation imposed by the judgment on the adverse party. Not so, however, in
the present case. Here, the Commissioner of Customs is not a private party and is not the owner of the
money involved in the ne based on the original appraisal. He is a mere agent of the Government and acts as
a trustee of the money or property in his hands or coming thereto by virtue of a favorable judgment. Unless
expressly authorized by his principal or by law, he is not authorized to accept anything different
from or anything less than what is adjudicated in favor of the Government." (Bold types
supplied)
Validity of the compromise agreement after judgement

Other cases involving compromise agreements that were entered into after final
judgement:

Northern Lines, Inc. v Court of Tax Appeals: It was held that that the right to
compromise after final and executory judgments may be allowed as long as such
rights were exercised by the proper party litigants.

Palanca v. Court of Industrial Relations: A compromise agreement entered after a

final judgement was sustained by the Court as it found no evidence that there is
fraud or that the agreement was contrary to law, morals, good customs, public
order, or public policy.
Magbanua v. Uy
Validity of the compromise agreement after judgement

MAGBANUA v. UY

Summary: The parties executed a compromise agreement after the ruling in Uy v

NLRC became final and executory. Petitioner questions the validity of the
compromise agreement. The SC held that a final and executory judgment of a case
could be subject to compromise settlement.

Doctrine: 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:
1. consent of the parties to the compromise
2. an object certain that is the subject matter of the compromise
3. the cause of the obligation that is established.
Validity of the compromise agreement after judgement

Cases involving compromise agreements that were entered into other than after
the final judgement:

Pfleider v. Republic: a compromise agreement of both parties which was entered

into after the case was submitted for decision on appeal was approved by the Court
and the rendered judgement was made in accordance therewith.

Artuyo v. Azaña: a compromise agreement that was reached after the case was
appealed by the defendant was also authorized by the Court and used it as a basis
for its decision.
Validity of the compromise agreement after judgement

The law and jurisprudence allows the parties to enter into compromise agreement
at anytime, provided that:
● it sufficiently complies to the requisites of the contract
● it is not against law, morals, good customs, public order, or public policy.
● it is entered into by the proper party litigants.
Effects of the compromise agreement after judgement

Advantages

For the defeated litigant: a compromise agreement the liability arising from a
judgement may be reduced

For the prevailing party: the risk that he will be deprived of his winnings because
the unscrupulous mechanisms meant to delay or evade the execution of a final
judgment will be avoided since the compromise agreement already assures his
receipt of the payment.
Effects of the compromise agreement after judgement

Novation

Novation as a means of extinguishing an obligation, is done by changing the

object or principal condition of an obligation, substituting the person of the
debtor, or surrogating a third person in the exercise of the rights of the creditor.

Jurisprudence states that a compromise of a final judgment is not automatic as it

only operates as a novation of the judgment obligation when it satisfies either of
these two requisites: 1) the substitution is unequivocally declared; 2) the old and
the new obligations are incompatible on every point.
in case of breach
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. (n)

2041
 2041
Trigger:
● If one of the parties fails or refuses to abide by the compromise

Effects:
● Aggrieved party may:
○ Enforce the compromise agreement, OR
○ Regard the compromise agreement as rescinded and insist upon his
original demand
Chavez v. Court of Appeals
CHAVEZ v. CA: “If the other part breached or failed to abide by the compromise
agreement, the aggrieved party may either (1) enforce the compromise by a writ of
execution, or (2) regard it as rescinded and so insist upon his original demand.”
LEONOR v. SYCIP: “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.”
PASAY CITY GOVERNMENT v. CFI: “It is clear from the language of the law,
specifically Article 2041 of the New Civil Code that one of the parties to a
compromise has two options: 1) to enforce the compromise; or 2) to rescind the
same and insist upon his original demand. The respondent-appellee in the case
herein before Us wants to avail of both of these options. This cannot be done. The
respondent-appellee cannot ask for rescission of the compromise agreement after
it has already enjoyed the first option of enforcing the compromise.”
PROVINCE OF CEBU v. TORRES: “Art. 2041 of the Civil Code applies only when there
has been no substantial compliance with the compromise agreement.”
thank you