G.R. No. 159411. March 18, 2005.
* and cannot be lightly set aside or disturbed except for vices of
TEODORO I. CHAVEZ, petitioner, vs. HON. COURT OF
APPEALS and JACINTO S. TRILLANA, respondents.
Remedial Law; Revised Katarungang Pambarangay Law;
Settlements; 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; 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.—The Revised
Katarungang Pambarangay Law 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. 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. This special provision
follows the general precept enunciated in Article 2037 of the
Civil Code.
Same; Same; Same; A compromise agreement has the effect
and authority of res judicata even if not judicially approved,
and cannot be lightly set aside or disturbed except for vices of
consent and forgery.—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. It has upon them the effect
and authority of res judicata even if not judicially approved,
consent and forgery.
Same; Same; Same; The broad precept enunciated in Art. 2037
is qualified by Art. 2041.—In Heirs of Zari, et al. v. Santos, 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
_______________
*
SECOND DIVISION.
844
844 SUPREME COURT REPORTS ANNOTATED
Chavez vs. Court of Appeals
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either enforce the compromise or regard it as rescinded and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.
Same; Same; Same; 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; The mode of
enforcement does not rule out the right of rescis-sion under
Art. 2041 of the Civil Code.—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; VOL. 453, MARCH 18, 2005 845
and (b) an action in regular form, which remedy is judicial. Chavez vs. Court of Appeals
However, the mode of enforcement does not rule out the right
of rescission under Art. 2041 of the Civil Code. The
and an impending litigation which the parties hope to prevent
availability of the right of rescission is apparent from the
by making reciprocal concessions, adjusting their respective
wording of Sec. 417 itself which provides that the amicable
positions in the hope of gaining balanced by the danger of
settlement “may” be enforced by execution by the lupon within
losing. Under the “Kasunduan,” respondent was only required
six (6) months from its date or by action in the appropriate city
to execute a waiver of all possible claims arising from the lease
or municipal court, if beyond that period. The use of the word
contract if petitioner fully complies with his obligations
“may” clearly makes the procedure provided in the Revised
thereunder. It is undisputed that herein petitioner did not.
Katarungang Pambarangay Law directory or merely optional
in nature.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
Same; Same; Same; It is axiomatic that a compromise
settlement is not an admission of liability but merely a
The facts are stated in the opinion of the Court.
recognition that there is a dispute and an impending
litigation.—Although the “Kasunduan” executed by petitioner
and respondent before the Office of the Barangay Captain had Benito P. Fabie for petitioner.
the force and effect of a final judgment of a court, petitioner’s
non-compliance paved the way for the application of Art. 2041 Edgardo V. Cruz for respondent.
under which respondent may either enforce the compromise,
following the procedure laid out in the Revised Katarungang PUNO, J.:
Pambarangay Law, or regard it as rescinded and insist upon his
original demand. Respondent chose the latter option when he Assailed in this petition for review is the Decision dated April
instituted Civil Case No. 5139-V-97 for recovery of unrealized 2, 20031 of the Court of Appeals in CA-G.R. CV No. 590232
profits and reimbursement of advance rentals, moral and which modified the Decision dated December 15, 1997 of the
exemplary damages, and attorney’s fees. Respondent was not Regional Trial Court (RTC) of Valenzuela City, Branch 172, in
limited to claiming P150,000.00 because although he agreed to Civil Case No. 5139-V-97, as well as its Resolution dated
the amount in the “Kasunduan,” it is axiomatic that a August 8, 20033 which denied petitioner’s motion for
compromise settlement is not an admission of liability but reconsideration.
merely a recognition that there is a dispute
The antecedent facts are as follows:
845
In October 1994, petitioner Teodoro Chavez and respondent
Jacinto Trillana entered into a contract of lease4 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
_______________
1
Rollo, pp. 28-35.
2
Entitled “Jacinto S. Trillana, plaintiff-appellee, v. Teodoro
Chavez, defendant-appellant.”
3 petitioner.
Rollo, pp. 37-38.
4
Entitled “Contract of Lease of Fishpond,” Id., pp. 46-50;
Original Records, pp. 8-12.
846
846 SUPREME COURT REPORTS ANNOTATED
Chavez vs. Court of Appeals
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:
1. 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.
2. c. That, the LESSEE, shall pay the amount of FOUR
HUNDRED FORTY-EIGHT 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 FORTY-EIGHT
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
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.:
847
VOL. 453, MARCH 18, 2005 847
Chavez vs. Court of Appeals
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 attorney’s fees plus
P1,000.00 for each court appearance of respondent’s 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 evi-
848
848 SUPREME COURT REPORTS ANNOTATED
Chavez vs. Court of Appeals
dence ex-parte before the Acting Branch Clerk of Court.5 On
the basis thereof, a decision was rendered on December 15,
19976 in favor of respondent, the dispositive portion of which
reads:
“WHEREFORE, judgment is hereby rendered as follows:
1. (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. (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 VOL. 453, MARCH 18, 2005 849
possession of the subject premises; Chavez vs. Court of Appeals
3. (3) Ordering the defendant to pay plaintiff the sum of
P200,000.00 as moral damages;
tioner argued that respondent should have followed the
4. (4) Ordering the defendant to pay plaintiff the sum of
procedure for enforcement of the amicable settlement as
P200,000.00 as exemplary damages; and
provided for in the Revised Katarungang Pambarangay Law.
5. (5) Ordering the defendant to pay plaintiff the sum of
Assuming arguendo that the RTC had jurisdiction, it cannot
P100,000.00 as and for attorney’s fees, plus costs of
award more than the amount stipulated in the “Kasunduan”
suit.”
which is P150,000.00. In any event, no factual or legal basis
existed for the reimbursement of alleged advance rentals for the
Petitioner appealed to the Court of Appeals which modified the
unexpired portion of the lease contract as well as for moral and
decision of the trial court by deleting the award of P500,000.00
exemplary damages, and attorney’s fees.
for unrealized profits for lack of basis, and by reducing the
award for attorney’s fees to P50,000.00.7 Petitioner’s motion
Indeed, the Revised Katarungang Pambarangay Law8 provides
for reconsideration was denied. Hence, this petition for review.
that an amicable settlement reached after barangay conciliation
proceedings has the force and effect of a final judgment of a
Petitioner contends that the Court of Appeals erred in ruling
court if not repudiated or a petition to nullify the same is filed
that the RTC of Valenzuela City had jurisdiction over the
before the proper city or municipal court within ten (10) days
action filed by respondent considering that the subject matter
from its date.9 It further provides that the settlement may be
thereof, his alleged violation of the lease contract with
enforced by execution by the lupong tagapamayapa within six
respondent, was already amicably settled before the Office of
(6) months from its date, or by action in the appropriate city or
the Barangay Captain of Taliptip, Bulacan, Bulacan. Peti-
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.:
5
Order dated October 21, 1997 issued by Judge Floro P. Alejo,
A compromise has upon the parties the effect and authority of
RTC of Valenzuela City, Branch 172; Original Records, p. 46.
res judicata; but there shall be no execution except in
6 compliance with a judicial compromise.
Rollo, pp. 58-59; Original Records, pp. 50-51.
7 Thus, we have held that a compromise agreement which is not
Supra at Note 1.
contrary to law, public order, public policy, morals or good
customs is a valid contract which is the law between the par-
849
_______________
8
Codified in Sections 399-422, Chapter VII, Title One, Book
III, and Sec. 515, Title One, Book IV of Republic Act No.
7160, otherwise known as the Local Government Code of
1991.
9
Section 416, Chapter VII, Title One, Book III of R.A. No.
7160.
10
Section 417, Chapter VII, Title One, Book III of R.A. No.
7160. See Vidal v. Escueta, 417 SCRA 617 (2003).
850
850 SUPREME COURT REPORTS ANNOTATED
Chavez vs. Court of Appeals
ties 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. (italics 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 rescis-
_______________
11
Pasay City Government v. CFI of Manila, Br. X, 132 SCRA
156 (1984), citing Municipal Board of Cabanatuan City v.
Samahang Magsasaka, Inc., 62 SCRA 435 (1975).
12
Vda. de Guilas v. David, 23 SCRA 762 (1968).
13
Binamira v. Ogan-Occena, 148 SCRA 677 (1987).
14
137 Phil. 79; 27 SCRA 651 (1969).
851
 15
VOL. 453, MARCH 18, 2005 851 Leonor v. Sycip, 1 SCRA 1215 (1961). See also Iloilo
Chavez vs. Court of Appeals Traders Finance, Inc. v. Heirs of Oscar Soriano, Jr., 404
SCRA 67 (2003), citing Diongzon v. Court of Appeals, 321
SCRA 477 (1999).
sion.15 This is because he may regard the compromise as
already rescinded16 by the breach thereof of the other party. 16
Leonor v. Sycip, supra.
Thus, in Morales v. National Labor Relations Commission17 17
241 SCRA 103 (1995).
we upheld the National Labor Relations Commission when it
heeded the original demand of four (4) workers for 18
88 SCRA 234 (1979).
reinstatement upon their employer’s failure to comply with its
obligation to pay their monetary benefits within the period 19
127 SCRA 610 (1984).
prescribed under the amicable settlement. We reiterated the
rule that the aggrieved party may either (1) enforce the 20
360 SCRA 645 (2001).
compromise by a writ of execution, or (2) regard it as rescinded
and so insist upon his original demand upon the other party’s 21
See Vidal v. Escueta, supra.
failure or refusal to abide by the compromise. We also
recognized the options in Mabale v. Apalisok,18 Canonizado v. 22
The amicable settlement or arbitration award may be
Benitez,19 and Ramnani v. Court of Appeals,20 to name a few
enforced by execution by the lupon within six (6) months from
cases.
the date of the settlement. After the lapse of such time, the
settlement may be enforced by action in the appropriate city or
In the case at bar, the Revised Katarungang Pambarangay Law
municipal court.
provides for a two-tiered mode of enforcement of an amicable
settlement, to wit: (a) by execution by the Punong Barangay
852
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 852 SUPREME COURT REPORTS ANNOTATED
does not rule out the right of rescission under Art. 2041 of the Chavez vs. Court of Appeals
Civil Code. The availability of the right of rescission is
apparent from the wording of Sec. 41722 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 directory23 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, 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
litigation24 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.
_______________
23
Maceda, Jr. v. Moreman Builders Co., Inc., 203 SCRA 293
(1991).
24
Servicewide Specialists, Inc. v. Court of Appeals, 257 SCRA
643 (1996).
25
Genova v. De Castro, 407 SCRA 165 (2003).
26
The last paragraph of the “Kasunduan” specifically reads:
“Kung magkakaroon ng sapat at total na kabayaran si G.
Chavez kay
853
VOL. 453, MARCH 18, 2005 853
Chavez vs. Court of Appeals
Having affirmed the RTC’s jurisdiction over the action filed by
respondent, we now resolve petitioner’s remaining contention.
Petitioner contends that no factual or legal basis exists for the
reimbursement of alleged advance rentals, moral and
exemplary damages, and attorney’s 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
respondent’s 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. Peti-
_______________
G. Trillana ang huli ay lalagda sa kasulatan bilang waiver o
walang anumang paghahabol sa nabanggit na buwisan.”
27
Chan v. Maceda, Jr., 402 SCRA 352 (2003).
28
Original Records, pp. 22-23.
29
Id.
854
854 SUPREME COURT REPORTS ANNOTATED
Chavez vs. Court of Appeals
tioner 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
petitioner’s 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 petitioner’s refusal to
comply with his contractual obligations,30 the award of
attorney’s 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.