G.R. No. 191336. January 25, 2012.

CRISANTA ALCARAZ MIGUEL, petitioner, vs. JERRY D.

MONTANEZ, respondent.

Civil Law; Compromise Agreements; Amicable Settlements;

Barangay Conciliation; An amicable settlement reached at the
barangay conciliation proceedings, is binding between the
contracting parties and, upon its perfection, is immediately
executory insofar as it is not contrary to law, good morals, good
customs, public order and public policy.—It is true that an
amicable settlement reached at the barangay conciliation
proceedings, like the Kasunduang Pag-aayos in this case, is
binding between the contracting parties and, upon its perfection,
is immediately executory insofar as it is not contrary to law, good
morals, good customs, public order and public policy. This is in
accord with the broad precept of 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. Being a by-product of
mutual concessions and good faith of the parties, an amicable
settlement has the force and effect of res judicata even if not
judicially approved. It transcends being a mere contract binding
only upon the parties thereto, and is akin to a judgment that is
subject to execution in accordance with the Rules. Thus, under
Section 417 of the Local Government Code, such amicable
settlement or arbitration award may be enforced by execution by
the Barangay Lupon within six (6) months from the date of
settlement, or by filing an action to enforce such settlement in the
appropriate city or municipal court, if beyond the six-month
period.
Same; Same; Same; Same; If the amicable settlement is
repudiated by one party, either expressly or impliedly, the other
party has two options, namely, to enforce the compromise in
accordance with the Local Government Code or Rules of Court as
the case may be, or to consider it rescinded and insist upon his
original demand.—It must be emphasized, however, that
enforcement by execution of the amicable settlement, either under
the first or the second remedy, is only applicable if the contracting
parties have not repudiated such settlement within ten (10) days
from the date thereof in accordance with Section 416 of the Local
Government Code. If the amicable settlement is repudiated by one
party, either expressly or impliedly, the other party has two
options, namely, to enforce the compromise in accordance with
 _______________

* SECOND DIVISION.

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346 SUPREME COURT REPORTS ANNOTATED

Miguel vs. Montanez

the Local Government Code or Rules of Court as the case may be,
or to consider it rescinded and insist upon his original demand.
This is in accord with Article 2041 of the Civil Code, which
qualifies the broad application of Article 2037, viz.: 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.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
   The facts are stated in the opinion of the Court.
  Arellano Law Firm for petitioner.
  Calberto M. Caballero for respondent.

REYES, J.:
Before this Court is a Petition for Review on Certiorari
under Rule 45 of the Rules of Court. Petitioner Crisanta
Alcaraz Miguel (Miguel) seeks the reversal and setting
aside of the September 17, 2009 Decision1 and February 11,
2010 Resolution2 of the Court of Appeals (CA) in CA-G.R.
SP No. 100544, entitled “Jerry D. Montanez v. Crisanta
Alcaraz Miguel.”

Antecedent Facts

On February 1, 2001, respondent Jerry Montanez

(Montanez) secured a loan of One Hundred Forty-Three
Thousand Eight Hundred Sixty-Four Pesos (P143,864.00),
payable in one (1) year, or until February 1, 2002, from the
petitioner. The respondent gave as collateral therefor his
house and lot located at Block 39 Lot 39 Phase 3, Palmera
Spring, Bagumbong, Caloocan City.
Due to the respondent’s failure to pay the loan, the
petitioner filed a complaint against the respondent before
the Lupong Tagapama-

_______________
1  Penned by Associate Justice Rosalinda Asuncion-Vicente, with
Associate Justices Normandie B. Pizarro and Ricardo R. Rosario,
concurring; Rollo, pp. 37-45.
2 Id., at pp. 34-35.
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VOL. 664, JANUARY 25, 2012 347

Miguel vs. Montanez

yapa of Barangay San Jose, Rodriguez, Rizal. The parties

entered into a Kasunduang Pag-aayos wherein the
respondent agreed to pay his loan in installments in the
amount of Two Thousand Pesos (P2,000.00) per month, and
in the event the house and lot given as collateral is sold,
the respondent would settle the balance of the loan in full.
However, the respondent still failed to pay, and on
December 13, 2004, the Lupong Tagapamayapa issued a
certification to file action in court in favor of the petitioner.
On April 7, 2005, the petitioner filed before the
Metropolitan Trial Court (MeTC) of Makati City, Branch
66, a complaint for Collection of Sum of Money. In his
Answer with Counterclaim,3 the respondent raised the
defense of improper venue considering that the petitioner
was a resident of Bagumbong, Caloocan City while he lived
in San Mateo, Rizal.After trial, on August 16, 2006, the
MeTC rendered a Decision,4 which disposes as follows:

“WHEREFORE, premises considered[,] judgment is hereby rendered

ordering defendant Jerry D. Montanez to pay plaintiff the following:
1. The amount of [Php147,893.00] representing the obligation with
legal rate of interest from February 1, 2002 which was the date of
the loan maturity until the account is fully paid;
2. The amount of Php10,000.00 as and by way of attorney’s fees; and
the costs.
SO ORDERED.” 5

On appeal to the Regional Trial Court (RTC) of Makati

City, Branch 146, the respondent raised the same issues
cited in his Answer. In its March 14, 2007 Decision,6 the
RTC affirmed the MeTC Decision, disposing as follows:

_______________
3 Id., at pp. 63-69.
4 Id., at pp. 70-74.
5 Id., at p. 73.
6 Id., at pp. 75-77.

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348 SUPREME COURT REPORTS ANNOTATED

Miguel vs. Montanez

“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
entirety for being in accordance with law and evidence.
SO ORDERED.”7

Dissatisfied, the respondent appealed to the CA raising

two issues, namely, (1) whether or not venue was
improperly laid, and (2) whether or not the Kasunduang
Pag-aayos effectively novated the loan agreement. On
September 17, 2009, the CA rendered the assailed
Decision, disposing as follows:

“WHEREFORE, premises considered, the petition is hereby

GRANTED. The appealed Decision dated March 14, 2007 of the
Regional Trial Court (RTC) of Makati City, Branch 146, is
REVERSED and SET ASIDE. A new judgment is entered
dismissing respondent’s complaint for collection of sum of money,
without prejudice to her right to file the necessary action to
enforce the Kasunduang Pag-aayos.
SO ORDERED.”8

Anent the issue of whether or not there is novation of

the loan contract, the CA ruled in the negative. It
ratiocinated as follows:

“Judging from the terms of the Kasunduang Pag-aayos, it is

clear that no novation of the old obligation has taken place.
Contrary to petitioner’s assertion, there was no reduction of the
term or period originally stipulated. The original period in the
first agreement is one (1) year to be counted 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 compliance on the part of
petitioner. Hence, there was nothing to reduce or extend. There
was only a change in the terms of payment which is not
incompatible with the old agreement. In other words, the
Kasunduang Pag-aayos merely supplemented the old
agreement.”9

_______________
7 Id., at p. 77.
8 Id., at p. 45.
9 Id., at p. 41.

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VOL. 664, JANUARY 25, 2012 349

Miguel vs. Montanez

The CA went on saying that since the parties entered

into a Kasunduang Pag-aayos before the Lupon ng
Barangay, such settlement has the force and effect of a
court judgment, which may be enforced by execution within
six (6) months from the date of settlement by the Lupon ng
Barangay, or by court action after the lapse of such time.10
Considering that more than six (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 execution of
the Kasunduang Pag-aayos in court and not for collection of
sum of money.11 Consequently, the CA deemed it
unnecessary to resolve the issue on venue.12
The petitioner now comes to this Court.

Issues

(1) Whether or not a complaint for sum of money is the

proper remedy for the petitioner, notwithstanding the
Kasunduang Pag-aayos;13 and
(2) Whether or not the CA should have decided the
case on the merits rather than remand the case for the
enforcement of the Kasunduang Pag-aayos.14

Our Ruling

Because the respondent failed to comply with

the terms of the Kasunduang Pag-aayos, 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 collection of sum
of money is the proper remedy.

_______________
10 Id., at p. 42.
11 Id., at p. 43.
12 Id., at p. 44.
13 Id., at p. 13.
14 Id., at p. 14.

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350 SUPREME COURT REPORTS ANNOTATED

Miguel vs. Montanez

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 Pambarangay Law, instead of filing a
collection case. The petitioner points out that the cause of
action did not arise from the Kasunduang Pag-aayos but on
the respondent’s breach of the original loan agreement.15
This Court agrees with the petitioner.
It is true that an amicable settlement reached at the
barangay conciliation proceedings, like the Kasunduang
Pag-aayos in this case, is binding between the contracting
parties and, upon its perfection, is immediately executory
insofar as it is not contrary to law, good morals, good
customs, public order and public policy.16 This is in accord
with the broad precept of 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.”

Being a by-product of mutual concessions and good faith

of the parties, an amicable settlement has the force and
effect of res judicata even if not judicially approved.17 It
transcends being a mere contract binding only upon the
parties thereto, and is akin to a judgment that is subject to
execution in accordance with the Rules.18 Thus, under
Section 417 of the Local Government Code,19 such amicable
settlement or arbitration award may be enforced by
execution by the Barangay Lupon within six (6) months
from the date of settlement,

_______________
15 Id., at p. 20.
16 New Civil Code, Article 1306.
17 Republic v. Sandiganbayan, G.R. No. 108292, September 10, 1993,
226 SCRA 314; Quiros v. Arjona, 468 Phil. 1000; 425 SCRA 57 (2004).
18  Manila International Airport Authority (MIAA) v. ALA Industries
Corporation, G.R. No. 147349, February 13, 2004, 422 SCRA 603, 611.
19  R.A. No. 7160, Book III, Title One, Chapter VII, Section, 417.
Execution.—The amicable settlement or arbitration award may be
enforced by execution by the [L]upon within six (6) months from the date
of the settlement. After the lapse of such time, the settlement may be
enforced by action in the proper city or municipal court.

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Miguel vs. Montanez

or by filing an action to enforce such settlement in the

appropriate city or municipal court, if beyond the six-
month period.
Under the first remedy, the proceedings are covered by
the Local Government Code and the Katarungang
Pambarangay Implementing Rules and Regulations. The
Punong Barangay is called upon during the hearing to
determine solely the fact of non-compliance 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
operation of law, has the force and effect of a final
judgment.20
It must be emphasized, however, that enforcement by
execution of the amicable settlement, either under the first
or the second remedy, is only applicable if the contracting
parties have not repudiated such settlement within ten (10)
days from the date thereof in accordance with Section 416
of the Local Government Code. If the amicable settlement
is repudiated by one party, either expressly or impliedly,
the other party has two options, namely, to enforce the
compromise in accordance with the Local Government Code
or Rules of Court as the case may be, or to consider it
rescinded and insist upon his original demand. This is in
accord with Article 2041 of the Civil Code, which qualifies
the broad application of Article 2037, viz.:

“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.”

In the case of Leonor v. Sycip,21 the Supreme Court (SC)

had the occasion to explain this provision of law. It ruled
that Article 2041 does not require an action for rescission,
and the aggrieved party, by the breach of compromise
agreement, may just consider it already rescinded, to wit:

_______________
20 Vidal v. Escueta, 463 Phil. 314; 417 SCRA 617 (2003).
21 111 Phil. 859; 1 SCRA 1215 (1961).

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352 SUPREME COURT REPORTS ANNOTATED

Miguel vs. Montanez

It is worthy of notice, in this connection, that, unlike Article

2039 of the same Code, which 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” for
rescission, or the right to “demand” the rescission of a
compromise, but the authority, not only to “regard it as
rescinded”, but, also, to “insist upon his original demand”. 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. He need not seek a judicial declaration
of rescission, for he may “regard” the compromise
agreement already “rescinded”.22 (emphasis supplied)

As so well stated in the case of Chavez v. Court of

Appeals,23 a party’s non-compliance with the amicable
settlement paved the way for the application of Article
2041 under which the other party may either enforce the
compromise, following the procedure laid out in the Revised
Katarungang Pambarangay Law, or consider it as
rescinded and insist upon his original demand. To quote:

“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. 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 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 or merely optional in nature.

_______________
22 Id., at p. 865; p. 1220.
23 493 Phil. 945; 453 SCRA 843 (2005).

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Miguel vs. Montanez

  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 non-compliance 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
attorney’s 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 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. 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. It is undisputed that herein petitioner did not.”24
(emphasis supplied and citations omitted)

In the instant case, the respondent did not comply with

the terms and conditions of the Kasunduang Pag-aayos.
Such non-compliance may be construed as repudiation
because it denotes 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 Pag-
aayos, 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 Pag-aayos. As such, it is error on
the part of the CA to rule that enforcement by execution of
said agreement is the appropriate remedy under the
circumstances.
Considering that the Kasunduang Pag-
aayos is deemed rescinded by the non-
compliance of the respondent of the terms

_______________
24 Id., at pp. 954-955; pp. 851-852.

354

354 SUPREME COURT REPORTS ANNOTATED

Miguel vs. Montanez

thereof, remanding the case to the trial

court for the enforcement of said agree-
ment is clearly unwarranted.
The petitioner avers that the CA erred in remanding the
case to the trial court for the enforcement of the
Kasunduang Pag-aayos as it prolonged the process,
“thereby putting off the case in an indefinite pendency.”25
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 comply with the enforcement of
the Kasunduang Pag-aayos, in order to finally enforce her
right to payment.26
 The CA took off on the wrong premise that enforcement
of the Kasunduang Pag-aayos is the proper remedy, and
therefore erred in its conclusion that the case should be
remanded to the trial court. The fact that the petitioner
opted to rescind the Kasunduang Pag-aayos means that
she is insisting upon the undertaking of the respondent
under the original loan contract. 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 remanding it
to the trial court. Pertinently, evidence abounds that the
respondent has failed to comply with his loan obligation. In
fact, the Kasunduang Pag-aayos is the well nigh
incontrovertible proof of the respondent’s indebtedness
with the petitioner as it was executed precisely to give the
respondent a second chance to make good on his
undertaking. And since the respondent still reneged in
paying his indebtedness, justice demands that he must be
held answerable therefor.
WHEREFORE, the petition is GRANTED. The assailed
decision of the Court of Appeals is SET ASIDE and the
Decision of the Regional Trial Court, Branch 146, Makati
City, dated March 14, 2007 is REINSTATED.

_______________
25 Rollo, p. 26.
26 Id., at p. 27.

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Miguel vs. Montanez

SO ORDERED.

Carpio (Chairperson), Perez, Sereno and Perlas-

Bernabe,** JJ., concur.

Petition granted, judgment and resolution set aside.

Note.—A detainer suit is premature if it fails to exhaust

all administrative remedies, such as compliance with
Section 412 of the Local Government Code on the need for
prior barangay conciliation proceedings. (Villadar, Jr. vs.
Zabala, 545 SCRA 325 [2008])

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