2/13/2017 G.R.No.

191336

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.:

BeforethisCourtisaPetitionforReviewonCertiorariunderRule45oftheRulesofCourt.PetitionerCrisantaAlcarazMiguel
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BeforethisCourtisaPetitionforReviewonCertiorariunderRule45oftheRulesofCourt.PetitionerCrisantaAlcarazMiguel
[1] [2]
(Miguel)seeksthereversalandsettingasideoftheSeptember17,2009Decision andFebruary11,2010Resolution ofthe
CourtofAppeals(CA)inCAG.R.SPNo.100544,entitledJerryD.Montanezv.CrisantaAlcarazMiguel.

AntecedentFacts

On February 1, 2001, respondent Jerry Montanez (Montanez) secured a loan of One Hundred FortyThree Thousand Eight
HundredSixtyFourPesos(P143,864.00),payableinone(1)year,oruntilFebruary1,2002,fromthepetitioner.Therespondent
gaveascollateralthereforhishouseandlotlocatedatBlock39Lot39Phase3,PalmeraSpring,Bagumbong,CaloocanCity.

Due to the respondents 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 Pagaayos wherein the
respondentagreedtopayhisloanininstallmentsintheamountofTwoThousandPesos(P2,000.00)permonth,andintheevent
thehouseandlotgivenascollateralissold,therespondentwouldsettlethebalanceoftheloaninfull.However,therespondent
stillfailedtopay,andonDecember13,2004,theLupongTagapamayapaissuedacertificationtofileactionincourtinfavorof
thepetitioner.

OnApril7,2005,thepetitionerfiledbeforetheMetropolitanTrialCourt(MeTC)ofMakatiCity,Branch66,acomplaint
[3]
for Collection of Sum of Money. In his Answer with Counterclaim, the respondent raised the defense of improper venue
consideringthatthepetitionerwasaresidentofBagumbong,CaloocanCitywhilehelivedinSanMateo,Rizal.

[4]
Aftertrial,onAugust16,2006,theMeTCrenderedaDecision, whichdisposesasfollows:

WHEREFORE, premises considered[,] judgment is hereby rendered ordering defendant Jerry D. Montanez to pay plaintiff the
following:

1.Theamountof[Php147,893.00]representingtheobligationwithlegalrateofinterestfromFebruary1,2002whichwas
thedateoftheloanmaturityuntiltheaccountisfullypaid
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thedateoftheloanmaturityuntiltheaccountisfullypaid

2.TheamountofPhp10,000.00asandbywayofattorneysfeesandthecosts.

[5]
SOORDERED.


OnappealtotheRegionalTrialCourt(RTC)ofMakatiCity,Branch146,therespondentraisedthesameissuescitedinhis
[6]
Answer.InitsMarch14,2007Decision, theRTCaffirmedtheMeTCDecision,disposingasfollows:

WHEREFORE,findingnocogentreasontodisturbthefindingsofthecourtaquo,theappealisherebyDISMISSED,andthe
DECISIONappealedfromisherebyAFFIRMEDinitsentiretyforbeinginaccordancewithlawandevidence.

[7]
SOORDERED.


Dissatisfied,therespondentappealedtotheCAraisingtwoissues,namely,(1)whetherornotvenuewasimproperlylaid,
and (2) whether or not the Kasunduang Pagaayos effectively novated the loan agreement. On September 17, 2009, the CA
renderedtheassailedDecision,disposingasfollows:

WHEREFORE,premisesconsidered,thepetitionisherebyGRANTED.TheappealedDecisiondatedMarch14,2007ofthe
Regional Trial Court (RTC) of Makati City, Branch 146, is REVERSED and SET ASIDE. A new judgment is entered dismissing
respondents complaint for collection of sum of money, without prejudice to her right to file the necessary action to enforce the
KasunduangPagaayos.

[8]
SOORDERED.


Anenttheissueofwhetherornotthereisnovationoftheloan
contract,theCAruledinthenegative.Itratiocinatedasfollows:

JudgingfromthetermsoftheKasunduangPagaayos,itisclearthatnonovationoftheoldobligationhastakenplace.Contrary
topetitionersassertion,therewasnoreductionofthetermorperiodoriginallystipulated.Theoriginalperiodinthefirstagreementisone
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(1)yeartobecountedfromFebruary1,2001,oruntilJanuary31,2002.WhenthecomplaintwasfiledbeforethebarangayonFebruary
2003,theperiodoftheoriginalagreementhadlongexpiredwithoutcomplianceonthepartofpetitioner.Hence,therewasnothingto
reduceorextend.Therewasonlyachangeinthetermsofpaymentwhichisnotincompatiblewiththeoldagreement.Inotherwords,the
[9]
KasunduangPagaayosmerelysupplementedtheoldagreement.


TheCAwentonsayingthatsincethepartiesenteredintoaKasunduangPagaayosbeforetheLuponngBarangay, such
settlementhastheforceandeffectofacourtjudgment,whichmaybeenforcedbyexecutionwithinsix(6)monthsfromthedate
[10]
ofsettlementbytheLuponngBarangay,orbycourtactionafterthelapseofsuchtime. Consideringthatmorethansix(6)
months had elapsed from the date of settlement, the CA ruled that the remedy of the petitioner was to file an action for the
[11]
executionoftheKasunduangPagaayos in court and not for collection of sum of money. Consequently, the CA deemed it
[12]
unnecessarytoresolvetheissueonvenue.

ThepetitionernowcomestothisCourt.

Issues

(1)Whetherornotacomplaintforsumofmoneyistheproperremedyforthepetitioner,notwithstandingtheKasunduang
[13]
Pagaayos and


(2)WhetherornottheCAshouldhavedecidedthecaseonthemerits
[14]
ratherthanremandthecasefortheenforcementoftheKasunduangPagaayos.

OurRuling

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BecausetherespondentfailedtocomplywiththetermsoftheKasunduangPagaayos,
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
collectionofsumofmoneyistheproperremedy.


The petitioner contends that the CA erred in ruling that she should have followed the procedure for enforcement of the
amicablesettlementasprovidedintheRevisedKatarungangPambarangayLaw,insteadoffilingacollectioncase.Thepetitioner
pointsoutthatthecauseofactiondidnotarisefromtheKasunduangPagaayosbutontherespondentsbreachoftheoriginalloan
[15]
agreement.

ThisCourtagreeswiththepetitioner.

It is true that an amicable settlement reached at the barangay conciliation proceedings, like the Kasunduang Pagaayos in this
case,isbindingbetweenthecontractingpartiesand,uponitsperfection,isimmediatelyexecutoryinsofarasitisnotcontraryto
law,goodmorals,good
[16]
customs,publicorderandpublicpolicy. ThisisinaccordwiththebroadpreceptofArticle2037oftheCivilCode,viz:

Acompromisehasuponthepartiestheeffectandauthorityofresjudicatabutthereshallbenoexecutionexceptincompliance
withajudicialcompromise.


Beingabyproductofmutualconcessionsandgoodfaithoftheparties,anamicablesettlementhastheforceandeffectof
[17]
resjudicataevenifnotjudiciallyapproved. Ittranscendsbeingamerecontractbindingonlyuponthepartiesthereto,andis
[18]
akintoajudgmentthatissubjecttoexecutioninaccordancewiththeRules. Thus,underSection417oftheLocalGovernment

[19]
Code, such amicable settlement or arbitration award may be enforced by execution by the Barangay Lupon within six (6)
monthsfromthedateofsettlement,orbyfilinganactiontoenforcesuchsettlementintheappropriatecityormunicipalcourt,if
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monthsfromthedateofsettlement,orbyfilinganactiontoenforcesuchsettlementintheappropriatecityormunicipalcourt,if
beyondthesixmonthperiod.

Under the first remedy, the proceedings are covered by the Local Government Code and the Katarungang Pambarangay
ImplementingRulesandRegulations.ThePunongBarangayiscalleduponduringthehearingtodeterminesolelythefactofnon
compliance of the terms of the settlement and to give the defaulting party another chance at voluntarily complying with his
obligationunderthesettlement.Underthesecondremedy,theproceedingsaregovernedbytheRulesofCourt,asamended.The
[20]
causeofactionistheamicablesettlementitself,which,byoperationoflaw,hastheforceandeffectofafinaljudgment.

It must be emphasized, however, that enforcement by execution of the amicable settlement, either under the first or the
secondremedy,isonlyapplicableifthecontractingpartieshavenotrepudiatedsuchsettlementwithinten(10)daysfromthedate
thereofinaccordancewithSection416oftheLocalGovernmentCode.Iftheamicablesettlementisrepudiatedbyoneparty,either
expressly or impliedly, the other party has two options, namely, to enforce the compromise in accordance with the Local
GovernmentCodeorRulesofCourtasthecasemaybe,ortoconsideritrescindedandinsistuponhisoriginaldemand.Thisisin
accordwithArticle2041oftheCivilCode,whichqualifiesthebroadapplicationofArticle2037,viz:

Ifoneofthepartiesfailsorrefusestoabidebythecompromise,theotherpartymayeitherenforcethecompromiseorregardit
asrescindedandinsistuponhisoriginaldemand.


[21]
InthecaseofLeonorv.Sycip, theSupremeCourt(SC)hadtheoccasiontoexplainthisprovisionoflaw.Itruledthat
Article2041doesnotrequireanactionforrescission,andtheaggrievedparty,bythebreachofcompromiseagreement,mayjust
consideritalreadyrescinded,towit:

Itisworthyofnotice,inthisconnection,that,unlikeArticle2039ofthesameCode,whichspeaksof"acauseofannulmentor
rescissionofthecompromise" and provides that "the compromise maybeannulledorrescinded" for the cause therein specified, thus
suggestinganactionforannulmentorrescission,saidArticle2041confersuponthepartyconcerned,nota"cause"forrescission,orthe
rightto"demand"therescissionofacompromise,buttheauthority,notonlyto"regarditas
rescinded",but,also,to"insistuponhisoriginaldemand".ThelanguageofthisArticle2041,particularlywhencontrastedwiththat
ofArticle2039,denotesthatnoactionforrescissionisrequiredinsaidArticle2041,andthatthepartyaggrievedbythebreachof
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acompromiseagreementmay,ifhechooses,bringthesuitcontemplatedorinvolvedinhisoriginaldemand,asiftherehadnever
been any compromise agreement, without bringing an action for rescission thereof. He need not seek a judicial declaration of
[22]
rescission,forhemay"regard"thecompromiseagreementalready"rescinded". (emphasissupplied)


[23]
As so well stated in the case of Chavez v. Court of Appeals, a party's noncompliance with the amicable settlement
pavedthewayfortheapplicationofArticle2041underwhichtheotherpartymayeitherenforcethecompromise,followingthe
procedurelaidoutintheRevisedKatarungangPambarangayLaw,orconsideritasrescindedandinsistuponhisoriginaldemand.
Toquote:

Inthecaseatbar,theRevisedKatarungangPambarangayLawprovidesforatwotieredmodeofenforcementofanamicable
settlement,towit:(a)byexecutionbythePunongBarangaywhichisquasijudicialandsummaryinnatureonmeremotionoftheparty
entitledtheretoand(b)anactioninregularform,whichremedyisjudicial.However,themodeofenforcementdoesnotruleouttheright
ofrescissionunderArt.2041oftheCivilCode.TheavailabilityoftherightofrescissionisapparentfromthewordingofSec.417itself
whichprovidesthattheamicablesettlement"may"beenforcedbyexecutionbytheluponwithinsix(6)monthsfromitsdateorbyaction
intheappropriatecityormunicipalcourt,ifbeyondthatperiod.Theuseoftheword"may"clearlymakestheprocedureprovidedinthe
RevisedKatarungangPambarangayLawdirectoryormerelyoptionalinnature.

Thus,althoughthe"Kasunduan"executedbypetitionerandrespondentbeforetheOfficeoftheBarangayCaptainhadthe
forceandeffectofafinaljudgmentofacourt,petitioner'snoncompliancepavedthewayfortheapplicationofArt.2041under
whichrespondentmayeitherenforcethecompromise,followingtheprocedurelaidoutintheRevisedKatarungangPambarangay
Law,orregarditasrescindedandinsistuponhisoriginaldemand.RespondentchosethelatteroptionwhenheinstitutedCivil
CaseNo.5139V97forrecoveryofunrealizedprofitsandreimbursementofadvancerentals,moralandexemplarydamages,and
attorney'sfees.RespondentwasnotlimitedtoclaimingP150,000.00becausealthoughheagreedtotheamountinthe"Kasunduan,"itis
axiomaticthatacompromisesettlementisnotanadmissionofliabilitybutmerelyarecognitionthatthereisadisputeandanimpending
litigationwhichthepartieshopetopreventbymakingreciprocalconcessions,adjustingtheirrespectivepositionsinthehopeofgaining
balancedbythedangeroflosing.Underthe"Kasunduan,"respondentwasonlyrequiredtoexecuteawaiverofallpossibleclaimsarising
[24]
from the lease contract if petitioner fully complies with his obligations thereunder. It is undisputed that herein petitioner did not.
(emphasissuppliedandcitationsomitted)

Intheinstantcase,therespondentdidnotcomplywiththetermsandconditionsoftheKasunduangPagaayos.Suchnon
compliancemaybeconstruedasrepudiationbecauseitdenotesthattherespondentdidnotintendtobeboundbythetermsthereof,
thereby negating the very purpose for which it was executed. Perforce, the petitioner has the option either to enforce the
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Kasunduang Pagaayos, or to regard it as rescinded and insist upon his original demand, in accordance with the provision of
Article 2041 of the Civil Code. Having instituted an action for collection of sum of money, the petitioner obviously chose to
rescind the Kasunduang Pagaayos. As such, it is error on the part of the CA to rule that enforcement by execution of said
agreementistheappropriateremedyunderthecircumstances.

Considering that the Kasunduang Pagaayos is deemed rescinded by the non
compliance of the respondent of the terms thereof, remanding the case to the trial
courtfortheenforcementofsaidagreementisclearlyunwarranted.


ThepetitioneraversthattheCAerredinremandingthecasetothe
trial court for the enforcement of the Kasunduang Pagaayos as it prolonged the process, thereby putting off the case in an
[25]
indefinitependency. Thus,thepetitionerinsiststhatsheshouldbeallowedtoventilateherrightsbeforethisCourtandnotto
repeatthesameproceedingsjusttocomplywiththeenforcementoftheKasunduangPagaayos, in order to finally enforce her
[26]
righttopayment.

TheCAtookoffonthewrongpremisethatenforcementoftheKasunduangPagaayosistheproperremedy,andtherefore
erred in its conclusion that the case should be remanded to the trial court. The fact that the petitioner opted to rescind the
KasunduangPagaayosmeansthatsheisinsistingupontheundertakingoftherespondentundertheoriginalloancontract.Thus,
the CA should have decided the case on the merits, as an appeal before it, and not prolong the determination of the issues by
remandingittothetrialcourt.Pertinently,evidenceaboundsthattherespondenthasfailedtocomplywithhisloanobligation.In
fact,theKasunduangPagaayosisthewellnighincontrovertibleproofoftherespondentsindebtednesswiththepetitionerasit

wasexecutedpreciselytogivetherespondentasecondchancetomakegoodonhisundertaking.Andsincetherespondentstill
renegedinpayinghisindebtedness,justicedemandsthathemustbeheldanswerabletherefor.

WHEREFORE,thepetitionisGRANTED.TheassaileddecisionoftheCourtofAppealsisSETASIDEandtheDecision
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WHEREFORE,thepetitionisGRANTED.TheassaileddecisionoftheCourtofAppealsisSETASIDEandtheDecision
oftheRegionalTrialCourt,Branch146,MakatiCity,datedMarch14,2007isREINSTATED.

SOORDERED.



BIENVENIDOL.REYES
AssociateJustice


WECONCUR:




ANTONIOT.CARPIO
AssociateJustice




JOSEPORTUGALPEREZ MARIALOURDESP.A.SERENO
AssociateJustice AssociateJustice




ESTELAM.PERLASBERNABE
AssociateJustice



ATTESTATION
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2/13/2017
ATTESTATION
G.R.No.191336

IattestthattheconclusionsintheaboveDecisionhadbeenreachedinconsultationbeforethecasewasassignedtothewriterof
theopinionoftheCourtsDivision.



ANTONIOT.CARPIO
AssociateJustice
Chairperson,SecondDivision

CERTIFICATION

PursuanttoSection13,ArticleVIIIoftheConstitutionandtheDivisionChairperson'sAttestation,Icertifythattheconclusionsin
the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts
Division.




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.
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[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,February13,2004,422SCRA603,611.
[19]
R.A.No.7160,BookIII,TitleOne,ChapterVII,Section,417.Execution.Theamicablesettlementorarbitrationawardmaybeenforcedbyexecutionbythe[L]uponwithinsix
(6)monthsfromthedateofthesettlement.Afterthelapseofsuchtime,thesettlementmaybeenforcedbyactioninthepropercityormunicipalcourt.
[20]
Vidalv.Escueta,463Phil314(2003).
[21]
111Phil859(1961).
[22]
Id.at865.
[23]
493Phil945(2005).
[24]
Id.at954955.
[25]
Rollo,p.26.
[26]
Id.at27.

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