Questions:

1. What is a compromise?

2. What are the question/issues

that cannot be compromised?
COMPROMISES AND
ARBITRATIONS
Article 2031 Civil Code:
The Courts may mitigate the
damages to be paid by the
losing party who has shown a
sincere desire for a
compromise.
 ESTRELLA PALMARES vs. CA and MB LENDING
CORPORATION
 GR.No.126490 March 31,1998

 Facts: Petitioner is a co-maker for a loan obtained by spouses

debtor from MB Lending Corporation. She binds herself to
be jointly and severally liable with the principal debtors in
case the latters default in the payment of the loan.the
principal debtors failed to pay their loan. MB Lending
proceeded to collect against her. She offered some
compromise in the payment of loan.

 Held: The Supreme Court has deleted the penalty interest of

3% from the decision of the CA and reduced attorney’s fees
from 25% of the stipulated amount to P10,000.00.
Article 2035. No compromise upon the following questions
shall be valid:
1.The civil status of the persons;
2.The validity of a marriage or a legal separation;
3.Any ground for legal seaparation;
4.Future support;
5.The jurisdiction of courts;
6.Future legitime.
It is worthy to mention that in some rural
Barangays of the Philippines, the local
people look upon the Barangay Chairman as
“can-do-it-all” authority. Thus, legally
married couples seek “acknowledgement”
from the Barangay Chairman that they will
now separate from each other and thus, are
no longer “husband and wife” in the eyes of
the people of the Barangay. They prepare
some sort of documents purposely as a legal
document that they are now free to “marry”
or co-habit with another and that the other
spouse will not disturb, interfere, meddle,
or file a case or is also free to do the same.
NOTE: This is a form of
COMPROMISE but is not allowed
by law.
Article 2041. 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regard it as rescinded and insist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.
 MIGUEL vs. MONTANEZ January 25,
2012 GR 191336
Facts: On February 1, 2001 respondent Jerry Montanez secured
a loan of Php 143,864.00, payable in one 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 Phase3, Caloocan City.
Due to respondent’s failure to pay the loan, petitioner filed a
complaint against the respondent before the Lupong
Tagapamayapa of Barangay Rizal. The parties entered into a
Kasunduang Pag-aayos wherein the respondent agreed to
pay his loan in instalments in the amount of P2,000.00 per
month, and in the event that 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 favour of the petitioner.
On April 7, 2005, the petitioner filed before the MeTC
of Makati City for Collection of Sum of Money.
MeTC rendered a decision ordering defendant to
pay the plaintiff and on appeal to the RTC it
affirmed the decision of the lower court.

Dissatisfied the responden appealed to the CA and

the appellate court reversed the decision of the RTC.
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 months from the date of settlement by the
Lupon ng Barangay, or by a court action after the lapse
of such time. Considering that more than six 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 money.
Issue: 1. Whether or not the complaint for sum of
money is the proper remedy notwithstanding
the Kasunduang Pag-aayos;

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.
Held: 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. Having instituted an
action for collection of sum of money, the petitioner
obviously chose to rescind the the Kasunduan. 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 thereof, remanding the case to the trial
court for the enforcement of said judgmentnis clearly
unwarranted.

In the case of Leonor v. Sycip, the Supreme Court ruled

that Article 2041 does not require for rescission , and
the aggrieved party, by the breach of compromise
agreement, may just consider it already rescinded.
SEPARABILITY OF ARBITRATION AGREEMENT
FROM THE MAIN CONTRACT

The Special ADR Rule recognize the principle of

separability of the arbitration clause, which means
that said clause shall be treated as an agreement
independent of the other terms of the contract of
which it forms part. A decision that the contract is
null and void shall not entail ipso jure the invalidity of
the arbitration clause.
 Cargill Philippines, Inc. Vs. Fernando Regala
Trading, Inc. GR No. 175404, 1/31/2011
Facts: San Fernando Regala Trading (Regala) filed
before the RTC a complaint for rescission of contract
with damages against Cargill Phil,Inc. In its
complaint, San Fernando Regala alleged that it was
engaged in the buying and selling molasses and that
Cargill was one of its suppliers. Regala Trading alleged
that it purchased from Cargill, and the latter had
agreed to sell 12,000 tons of cane blackstrap molasses
from Thailand. After Regala delivered the letter of
credit, it claimed that Cargill failed to comply with its
obligations under the contract which includes an
arbitration clause.
Cargill moved to dismiss/suspend proceeding
citing arbitration clause. Regala argued that
since was seeking rescission of the contract, it
was in effect repudiating the contract which
included the arbitration clause. Further it
argued that rescission constitutes a judicial
issue which requires the exercise of judicial
function and cannot be the subject of
arbitration.
Issue: Whether or not the case should be brought to arbitration
despite the fact that the main case is for rescission of the
contract.

Held: The Supreme Court held that the provision to submit to

arbitration any dispute arising between the parties is part of the
contract and is itself a contract. The arbitration agreement is to
be treated as a separate agreement and does not automatically
terminate when the contract of which it is a part, comes to an
end. A contrary would suggest that a party’s mere repudiation
of the main contract is sufficient to avoid arbitration and that
exactly the situation that the separability clause sought to
avoid.