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SECOND DIVISION

[G.R. No. 159411. March 18, 2005]


TEODORO I. CHAVEZ, petitioner, vs. HON. COURT OF APPEALS and
JACINTO S. TRILLANA, respondents.
DECISION
PUNO, J.:
Assailed in this petition for review is the Decision dated April 2, 2003[1] of
the Court of Appeals in CA-G.R. CV No. 59023[2] which modified the
Decision dated December 15, 1997 of the Regional Trial Court (RTC) of
Valenzuela City, Branch 172, in Civil Case No. 5139-V-97, as well as its
Resolution dated August 8, 2003[3] which denied petitioners motion for
reconsideration.
The antecedent facts are as follows:
In October 1994, petitioner Teodoro Chavez and respondent Jacinto
Trillana entered into a contract of lease[4] 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 (P2,240,000.00) pesos, of which one million (P1,000,000.00)
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 (P344,000.00) 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 FORTYEIGHT THOUSAND (P448,000.00) 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 FORTYEIGHT THOUSAND (P448,000.00) 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.
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 P150,000.00 kay G. Trillana bilang sukli sa
natitirang panahon ng buwisan.
Ngunit kung maibibigay ni G. Chavez ang halagang P100,000.00 bago
sumapit o pagsapit ng ika-23 ng Setyembre, taong kasalukuyan, to ay
nangangahulugan ng buong kabayaran at hindi P150,000.00.
Kung sakali at hindi maibigay ang P100,000.00 ang magiging kabayaran
ay mananatiling P150,000.00 na may paraan ng pagbabayad ng
sumusunod:
Ang P50,000.00 ay ibibigay bago sumapit o pagsapit ng ika-31 ng Oktubre
1996 at ang balanseng P100,000.00 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 P150,000.00 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) P300,000.00 as reimbursement for rentals of the
leased premises corresponding to the unexpired portion of the lease
contract; (b) P500,000.00 as unrealized profits; (c) P200,000.00 as moral
damages; (d) P200,000.00 as exemplary damages; and, (e) P100,000.00
as attorneys fees plus P1,000.00 for each court appearance of
respondents counsel.
Petitioner filed his answer but failed to submit the required pretrial brief
and to attend the pretrial conference. On October 21, 1997, respondent
was allowed to present his evidence ex-parte before the Acting Branch
Clerk of Court.[5] On the basis thereof, a decision was rendered on

December 15, 1997[6] in favor of respondent, the dispositive portion of


which reads:
WHEREFORE, judgment is hereby rendered as follows:
(1) Ordering the defendant to reimburse to the plaintiff the sum of
P300,000.00 representing rental payment of the leased premises for the
unused period of lease;
(2) Ordering the defendant to pay plaintiff the sum of P500,000.00
representing unrealized profit as a result of the unlawful deprivation by
the defendant of the possession of the subject premises;
(3) Ordering the defendant to pay plaintiff the sum of P200,000.00 as
moral damages;
(4) Ordering the defendant to pay plaintiff the sum of P200,000.00 as
exemplary damages; and
(5) Ordering the defendant to pay plaintiff the sum of P100,000.00 as and
for attorneys fees, plus costs of suit.
Petitioner appealed to the Court of Appeals which modified the decision of
the trial court by deleting the award of P500,000.00 for unrealized profits
for lack of basis, and by reducing the award for attorneys fees to
P50,000.00.[7] Petitioners motion for reconsideration was denied. Hence,
this petition for review.
Petitioner contends that the Court of Appeals erred in ruling that the RTC
of Valenzuela City had jurisdiction over the action filed by respondent
considering that the subject matter thereof, his alleged violation of the
lease contract with respondent, was already amicably settled before the
Office of the Barangay Captain of Taliptip, Bulacan, Bulacan. Petitioner
argued that respondent should have followed the procedure for
enforcement of the amicable settlement as provided for in the
Revised Katarungang Pambarangay Law. Assuming arguendo that
the RTC had jurisdiction, it cannot award more than the amount stipulated
in the Kasunduan which is P150,000.00. In any event, no factual or legal
basis existed for the reimbursement of alleged advance rentals for the
unexpired portion of the lease contract as well as for moral and exemplary
damages, and attorneys fees.
Indeed, the Revised Katarungang Pambarangay Law[8] provides that an
amicable settlement reached after barangay conciliation proceedings has
the force and effect of a final judgment of a court if not repudiated or a
petition to nullify the same is filed before the proper city or municipal
court within ten (10) days from its date.[9] It further provides that the
settlement may be enforced by execution by the lupong tagapamayapa
within six (6) months from its date, or by action in the appropriate city or

municipal court, if beyond the six-month period.[10] This special provision


follows the general precept enunciated in 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.
Thus, we have held that a compromise agreement which is not contrary to
law, public order, public policy, morals or good customs is a valid contract
which is the law between the parties themselves.[11] It has upon them
the effect and authority of res judicata even if not judicially approved,[12]
and cannot be lightly set aside or disturbed except for vices of consent
and forgery.[13]
However, in Heirs of Zari, et al. v. Santos,[14] we clarified that the broad
precept enunciated in Art. 2037 is qualified by Art. 2041 of the same
Code, which provides:
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.
We explained, viz:
[B]efore the onset of the new Civil Code, there was no right to rescind
compromise agreements. Where a party violated the terms of a
compromise agreement, the only recourse open to the other party was to
enforce the terms thereof.
When the new Civil Code came into being, its Article 2041 x x x created
for the first time the right of rescission. That provision gives to the
aggrieved party the right to either enforce the compromise or regard it as
rescinded and insist upon his original demand. Article 2041 should
obviously be deemed to qualify the broad precept enunciated in Article
2037 that [a] compromise has upon the parties the effect and authority of
res judicata. (underscoring ours)
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 rescinded[16] by the breach thereof of the other
party.
Thus, in Morales v. National Labor Relations Commission[17] we upheld
the National Labor Relations Commission when it heeded the original
demand of four (4) workers for reinstatement upon their employers failure
to comply with its obligation to pay their monetary benefits within the

period prescribed under the amicable settlement. We reiterated the rule


that 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 upon the other partys failure or refusal to abide by the
compromise. We also recognized the options in Mabale v. Apalisok,[18]
Canonizado v. Benitez,[19] and Ramnani v. Court of Appeals,[20] to name
a few cases.
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. 417[22] 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
directory[23] 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, petitioners noncompliance 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 attorneys fees.
Respondent was not limited to claiming P150,000.00 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 litigation[24] 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.
Having affirmed the RTCs jurisdiction over the action filed by respondent,
we now resolve petitioners remaining contention. Petitioner contends that
no factual or legal basis exists for the reimbursement of alleged advance
rentals, moral and exemplary damages, and attorneys fees awarded by
the court a quo and the Court of Appeals.

The rule is that actual damages cannot be presumed, but must be proved
with a reasonable degree of certainty.[27] In the case at bar, we agree
with petitioner that no competent proof was presented to prove that
respondent had paid P300,000.00 as advance rentals for the unexpired
period of the lease contract. On the contrary, the lease contract itself
provided that the remaining rentals of P448,000.00 shall be paid 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 P448,000.00.
Respondent filed his complaint on February 7, 1997. No receipt or other
competent proof, aside from respondents self-serving assertion, was
presented to prove that respondent paid the rentals which were not yet
due. No proof was even presented by respondent to show that he had
already paid P1,000,000.00 upon signing of the lease contract, as
stipulated therein. Petitioner, in paragraphs 2 and 7 of his answer,[28]
specifically denied that respondent did so. Courts must base actual
damages suffered upon competent proof and on the best obtainable
evidence of the actual amount thereof.[29]
As to moral damages, Art. 2220 of the Civil Code provides that same may
be awarded in breaches of contract where the defendant acted
fraudulently or in bad faith. In the case at bar, respondent alleged that
petitioner made unauthorized repairs in the leased premises and ousted
his personnel therefrom despite their valid and subsisting lease
agreement. Petitioner alleged, by way of defense, that he undertook the
repairs because respondent abandoned the leased premises and left it in
a state of disrepair. However, petitioner presented no evidence to prove
his allegation, as he did not attend the pretrial conference and was
consequently declared in default. What remains undisputed therefore is
that petitioner had a valid and subsisting lease contract with respondent
which he refused to honor by giving back possession of the leased
premises to respondent. We therefore sustain the conclusion of both the
trial court and the Court of Appeals that an award of moral damages is
justified under the circumstances. We likewise sustain the award for
exemplary damages considering petitioners propensity not to honor his
contractual obligations, first under the lease contract and second, under
the amicable settlement executed before the Office of the Barangay
Captain. Since respondent was compelled to litigate and incur expenses to
protect his interest on account of petitioners refusal to comply with his
contractual obligations,[30] the award of attorneys fees has to be
sustained.
IN VIEW WHEREOF, the petition is PARTIALLY GRANTED. The assailed
Decision dated April 2, 2003 of the Court of Appeals in CA-G.R. CV No.
59023 is modified by deleting the award of P300,000.00 as
reimbursement of advance rentals. The assailed Decision is AFFIRMED in
all other respects.
SO ORDERED.

Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

DFA v. Falcon
Facts:
DFA and BCA entered into an agreement for the implementation of
machine readable passport and visa project. A Build-Operate-Transfer Agreement
(BOT Agreement) between DFA and PPC was signed. The BOT Agreement was
later amended to include the following changes. An Assignment Agreement was
executed by BCA and PPC whereby BCA assigned its rights arising from the
Amended BOT Agreement to PPC. DFA and BCA impute breach of the Amended
BOT Agreement against each other. DFA: Delay of project is due to the
submission of deficient documents as well as intervening issues regarding BCAs
financial incapacity. BCA: DFA failed to perform its reciprocal obligation to issue
to BCA a certificate of acceptance of Phase 1 within 14 days which was required
by the Amended BOT. Furthermore, it alleged that every new appointee to the
position of DFA secretary wanted to review the award to BCA thats why it took 3

years for DFA to issue said Certificate. DFA sent a Notice of Termination to BCA
and PPC due to their alleged failure to submit proof of financial capability to
complete the entire MRP/V Project in accordance with the financial warranty
under Section 5.02(A) of the Amended BOT Agreement. DFA likewise demanded
for liquidated damages. BCA sent a letter to the DFA demanding that it
immediately reconsider and revoke its previous notice of termination, otherwise,
BCA would be compelled to declare the DFA in default pursuant to the Amended
BOT Agreement. When the DFA failed to respond to said letter, BCA issued its
own Notice of Default against the DFA, stating that if the default is not remedied
within 90 days, BCA will be constrained to terminate the MRP/V Project and hold
the DFA liable for damages. BCA filed its Request for Arbitration with the
Philippine Dispute Resolution Center (PDRCI) pursuant to Section 19.02 of the
Amended BOT Agreement. Thereafter, the DFA and the BSP entered into a
Memorandum of Agreement for the latter to provide the former passports
compliant with international standards. The BSP then solicited bids for the
supply, delivery, installation and commissioning of a system for the production of
Electronic Passport Booklets or ePassports Thus, BCA filed a Petition for Interim
Relief under Section 28 of the Alternative Dispute Resolution Act of 2004 (R.A.
No. 9285), with the Regional Trial Court (RTC) of Pasig praying for the issuance of
TRO restraining DFA and BSP from awarding a new contract to implement the
Project or if such contract has been awarded, from implementing such projects.
DFA filed an Opposition (to the Application for Temporary Restraining Order
and/or Writ of Preliminary Injunction alleging that: 1} BCA has no cause of
action: MRP/V is not the same as the contract with BSP which is for the supply of
electronic passports. 2} RTC is prohibited from issuing a TRO pursuant to
RA 8975.The trial court ordered the issuance of the TRO. DFA filed an MR. BCAs
application for preliminary injunction was granted by trial court. DFA and BSP
filed the instant Petition for Certiorari and prohibition with a prayer for issuance
of TRO and/or a writ of preliminary injunction, imputing GAD on the trial court
when it granted interim relief to BCA and issued the WPI.
Issue:
Whether or not the RTC can grant interim or provisional relief to parties in
arbitration case prior to the constitution of arbitral tribunal.

Ruling: Yes. We note that under Section 28, Republic Act No. 9285 or the
Alternative Dispute Resolution Act of 2004, [76] the grant of an interim
measure of protection by the proper court before the constitution of an
arbitral tribunal is allowed Republic Act No. 9285 is a general law
applicable to all matters and controversies to be resolved through
alternative dispute resolution methods. This law allows a Regional Trial
Court to grant interim or provisional relief, including preliminary
injunction, to parties in an arbitration case prior to the constitution of the
arbitral tribunal. This general statute, however, must give way to a special
law governing national government projects, Republic Act No. 8975 which

prohibits courts, except the Supreme Court, from issuing TROs and writs of
preliminary injunction in cases involving national government projects.
However, as discussed above, the prohibition in Republic Act No.
8975 is inoperative in this case, since petitioners failed to prove that the
e-Passport Project is national government project as defined therein. Thus,
the trial court had jurisdiction to issue a writ of preliminary injunction
against the e-Passport Project.