CIVIL CODE PROVISIONS ON

ALTERNATIVE DISPUTE RESOLUTION

ARTICLES 2028-2046

Members
Zenon Rachiel Alenton, Alexis Enriquez,
Llana Marie Masiga, Leslie Respicio,
Rujaen Varon, Melissa Nikolai Ansaldo
 INTRODUCTION:
Alternative Dispute Resolution, although a fairly new subject in the study and practice of law in
the Philippines, has become an indispensible and effective means to address problems as
regards clogged dockets and drawn out trials. The continued study of Alternative Dispute
Resolution and its promotion and propagation paved the way for less adversarial and more
conclusive modes of addressing issues between parties. This report aims to thoroughly discuss
the provisions provided in the Civil Code of the Philippines pertaining to Compromise and
Arbitration, specifically Articles 2028-2041 on Compromise and Articles 2042-2046 on
Arbitration.

Title XIV COMPROMISES OR ARBITRARTIONS

Chapter 1 COMPROMISES

Art 2028. A compromise is a contract whereby the parties, by making reciprocal concessions,
avoid a litigation or put an end to one already commenced.
The essence of Compromise according to the Code of Commission, the element of “reciprocal
concessions” is the very heart and life of every compromise. These keywords are defined below
as:
1. Reciprocal- is interchanged, given, or owed to each other
2. Concession- is the act or an instance of conceding (as by granting something as a right,
accepting something as true, or acknowledging defeat).
3. Litigation- an action brought in court to enforce a particular right. The act or process of
bringing a lawsuit in and of itself; a judicial contest; any dispute.

The Characteristics of a Compromise are the following: (NO CRABS)

1. Consensual
2. Reciprocal
3. Nominate
4. Onerous
5. Accessory (in the sense that a prior conflict is presupposed)
6. Binding (upon acceptance of the parties)
7. Settlement of a controversy principally

There are two (2) kinds of Compromises provided under the Civil Code and they are: (JE)
1. Judicial (to end a pending litigation)
2. Extrajudicial (to prevent litigation from arising)

An agreement is not really a compromise when:

“The "compromise agreement" submitted to the court and incorporated in its decision
contained nothing more than a recognition of the obligations of appellants lessees under the
facts disclosed in their pleadings, in conformity with existing law. It was not a true compromise,
the essence of which resides in reciprocal concessions (Civil Code of the Philippines, Art. 2028).
Consequently, the rules on the need of special authority for an attorney to effectuate a
compromise are not opposite and are totally inapplicable. That the stipulation was labeled
"compromise" does not make it one in fact.” JULIA DE LA MERCED, ET AL. v. THE ROMAN
CATHOLIC ARCHBISHOP OF MANILA, ET AL. G.R. No. L-24614. August 17, 1967

CASES

“Jurisprudence in a lone line of decisions has established without question that compromise
agreements reached by the parties in a case and filed before either the Court of Appeals or the
Supreme Court, have been approved and/or sustained by this Court. Thus, it has been held that
a compromise may supersede all agreements and proceedings that had previously taken place
and may constitute a final and definite settlement of the controversies by and between the
parties. From the time a compromise is validly entered into, it becomes the source of the rights
and obligations of the parties thereto, the purpose of a compromise being precisely to replace
and terminate controverted claims (Article 2028, Civil Code). A compromise has upon the
parties the effect and authority of res judicata, and is enforceable by execution upon approval
by the court (Article 2037, Civil Code; Republic v. Estenzo, 25 SCRA 122 [1968]).” LANDOIL
RESOURCES CORPORATION., ET AL. v.HON. JUSTICES RICARDO TENSUAN., ET AL., G.R. No. 77733
December 20, 1988

“The agreement entered into by the company and the union, moreover, was in the nature of a
compromise agreement, i.e., "an agreement between two or more persons, who for preventing
or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which
they agree on, and which everyone of them prefers to the hope of gaining, balanced by the
danger of losing." [29] Thus, in the agreement, each party made concessions in favor of the other
to avoid a protracted litigation. While we do not abandon the rule that "unfair labor practice
acts are beyond and outside the sphere of compromises," [30] the agreement herein was
voluntarily entered into and represents a reasonable settlement, thus it binds the
parties.”[31]REFORMIST UNION OF R. B. LINER, INC., ET AL., v. NATIONAL LABOR RELATIONS
COMMISSION., ET AL., G.R. No. 120482. January 27,1997

Art 2029. The court shall endeavor to persuade the litigants in a civil case to agree upon same
fair compromise.
Litigation must, if possible, be avoided or minimized that is why this provision essentially
becomes the duty of the court.
An Attorney may also come into a Compromise in behalf of his/her client. The Rules of Court
require a “special authority’ before an attorney can compromise in behalf of his client. The
authority may be in writing, or may be oral.

Art. 2030. Every civil action or proceeding shall be suspended:

(1) If willingness to discuss a possible compromise is expressed by one or both parties; or
(2) If it appears that one of the parties, before the commencement of the action or proceeding,
offered to discuss a possible compromise but the other party refused the offer.
The duration and terms of the suspension of the civil action or proceeding and similar matters
shall be governed by such provisions of the rules of court as the Supreme Court shall
promulgate. Said rules of court shall likewise provide for the appointment and duties of
amicable compounders. (n)
Suspension of Civil Action or Proceeding
Revised Rules of Court provides for a mode the suspension of Civil Actions when there can be a
possible compromise. In fact, the Revised Rules of Court mentions the fact that no attempt has
been made to arrive at a compromise as one ground to dismiss. (Rev Rules of Court, Rule 16)
The General Rule is in cases where the law allows a compromise, the fact that an attempt to
arrive at one has been made should be stated in the complaint otherwise, the complaint can be
dismissed. Although Postponements are allowed, they are discouraged as they serve as means
to delay resolution and ultimately defeats the purpose of Alternative Dispute Resolution.
Article 2030 does not include offers to arbitrate but only refers only to a compromise, upon
terms that the court can ascertain and determine as reasonable. A distinction between the two
must be made because compromise could dispense with a trial, while an arbitration could
merely prolong the case, since the arbiter’s decision is still appealable.

Art. 2031. The courts may mitigate the damages to be paid by the losing party who has shown a
sincere desire for a compromise. (n)

Art. 2032. The court’s approval is necessary in compromises entered into by guardians, parents,
absentee’s representatives, and administrators or executors of decedents’ estates.
This article provides for other rules that govern the facilitation of Compromises as provided
below:

1) An agent needs a special power to compromise. (Art 1878, CC)

2) If an attorney is not authorized by the client, he cannot compromise his client’s claim. Unless,
the client fails to repudiate promptly the act after knowing of it, in which case the client will be
in estoppel.
3) Art 225 of the Family Code, does not give the widow the authority as the legal administratix
to compromise the children under parental authority claims for indemnity arising from the from
their father’s death.

Art 2033. Juridical persons may compromise only in the form and with the requisites which may
be necessary to alienate their property.

RULES FOR COMPROMISE ENTERED INTO BY JURIDICAL PERSONS

a. A corporation may compromise thru authority granted by the Board of Directors.
b. The Municipal Council can also compromise provided that the legal requirements
for the alienation of property are complied with, and provided further that the
provincial approves the compromises.

Art 2034. There may be a compromise upon the civil liability arising from an offense, but such
compromise shall not extinguish the public action for the imposition of the legal penalty.

Generally, there is no Compromise on Criminal Aspects of an issue. If a crime has been

committed, there can be a compromise only on the civil liability but not on the criminal liability
of the accused. When Compromise is allowed in some crimes, a similar situation may transpire
in the cases such as crimes against chastity and violations of the Internal Revenue Code.
However, the general rule stands that the criminal aspect of an issue cannot be compromised
because social and public interest demands the punishment of the offender. But in Civil Cases,, a
compromise must be entered into before or during litigation, and never after final judgment.

CASES
A compromise during litigation may also come in the form of a “confession of judgment.” In the
case of Republic v Marcelo B. Garay L-21416, Dec. 31, 1965 , the Supreme Court held that
“The lower court’s decision should be affirmed for the “confession of judgement,” under the
fact stated, partook the nature of a compromise. In consideration of Garay’s admission of
deliquency and the Commissioner’s willingness to allow payment on installments, both parties
had agreed to put an end to the litigation, through the rendition of judgment incorporating said
stipulations. The decision appealed from is one based on a compromise agreement.”

Dasalla, Sr. v. CFI GR 51461, April 26, 1991

HELD: A compromise on the civil aspect of a case is valid even if it turns out to be unsatisfactory
to either or both of the parties. Express condonation by the offended has the effect of waiving
civil liability with regard to the interest of the injured party. It is true that the minimum amount
of compensatory damages for death that may be awarded to plaintiff at the time of the death of
his son is P12,000. However, for reasons stated in the “Sinumpaang Salaysay,” plaintiff
voluntarily released defendant from his civil obligations.

Compromise in Criminal Tax Cases

In criminal tax case, the compromise entered into between the taxpayer and the Commissioner
must be made PRIOR to the filing of the information in court.
Before the compromise reaches the office of the prosecutor, the prosecutor’s consent is NOT
required after it reaches the office of the prosecutor, but PRIOR to the filing of the information
in court; the consent of prosecutor is required. After the filing of the information in court, there
can be NO COMPROMISE, with or without the consent of the prosecutor.

Art 2035. No compromise upon the following questions:

(1) The civil status of persons;
(2) The validity of a marriage or a legal separation;
(3) Any ground for legal separation;
(4) Future support
(5) The jurisdiction of courts;
(6) Future legitime.

CIVIL STATUS
Civil status is a term used mostly by government bodies or organizations to show a person's
status as a citizen. These may include your marriage, birth or death status and records. When a
Compromise is entered regarding CIVIL STATUS, it is considered VOID.
 MARRIAGE/LEGAL SEPARATION
Marriage is a special contract of permanent union between a man and a woman entered into in
accordance with law for the establishment of conjugal and family life. It is the foundation of the
family and an inviolable social institution whose nature, consequences, and incidents are
governed by law and not subject to stipulation, except that marriage settlements may fix the
property relations during the marriage within the limits provided by this Code. (52a) – Article 1,
Family Code

Legal separation is a decree from the court permitting the husband and the wife to live
separately from each other.

A petition for legal separation may be filed on any of the following grounds:
(1) Repeated physical violence or grossly abusive conduct directed against the
petitioner, a common child, or a child of the petitioner;
(2) Physical violence or moral pressure to compel the petitioner to change religious
or political affiliation;
(3) Attempt of respondent to corrupt or induce the petitioner, a common child, or a
child of the petitioner, to engage in prostitution, or connivance in such
corruption or inducement;
(4) Final judgment sentencing the respondent to imprisonment of more than six
years, even if pardoned;
(5) Drug addiction or habitual alcoholism of the respondent;
(6) Lesbianism or homosexuality of the respondent;
(7) Contracting by the respondent of a subsequent bigamous marriage, whether in
the Philippines or abroad;
(8) Sexual infidelity or perversion;
(9) Attempt by the respondent against the life of the petitioner; or
(10) Abandonment of petitioner by respondent without justifiable cause for
more than one year.
For purposes of this Article, the term "child" shall include a child by nature or by adoption. (9a)
– Article 55, Family Code

JURISDICTION OF COURTS
Refers to the power of a court to hear and determine a case. Jurisdiction of courts over the
subject matter cannot be considered by the parties. Upon the other hand, parties cannot be
depriving a court of its jurisdiction.

As provided for by Article 2036 of the Civil Code,

“A compromise comprises only those objects which are definitely stated therein, or which by
necessary implication from its terms should be deemed to have been included in the same.”

Thus, the compromise only deals with two things, first, those objects definitely stated therein,
and second, those included implicitly- according to the terms stated (Art. 2036 par. 1). In the
case of Ferrer vs Ignacio, 39 Phil 446, the parties entered into a compromise agreement wherein
petitioners bound themselves to pay and redeem the parcels of land which was subject of the
auction and respondent spouses then bound themselves to cooperate with all the means in
their power in redeeming the said lands. The controversy arose when redemption of these lots
is now legally impossible because some of the lots were sold in an absolute sale and as to the
other lots; the right to redeem had already been extinguished. Petitioners argue that it was the
obligation of the respondents to effect the redemption and since they failed to do so, they in
fact violated their obligation to. The Supreme Court held that it can be seen in the agreement
that it was the petitioners who bound themselves to make the redemption and that the
respondents only bound themselves to cooperate with the petitioners towards its purpose. It is
sufficient for the respondent that she use all the means in her power and is not required that
this cooperation on her part will result precisely in the redemption of said lands. They only
required the respondent’s cooperation in effecting the redemption. It further held that taking
into account the fact that the case treats of a compromise agreement whereby the parties have
out an end to litigation, and that this class of contracts is to be strictly interpreted, and must be
understood as only including matters specifically determined therein or which by necessary
inference from its wording must be deemed included.

Further, in the case of International Hotel Corp., et al vs Hon. Elias Asuncion,L-39669, March 10,
1975, the Supreme court held that a court cannot include in a compromise judgment terms
which have not been agreed upon between the parties except if the same are required by law
or by the Rules to be included or are necessary consequences of the stipulations. This grave
abuse of discretion can be corrected by certiorari.

Article 2036 of the Civil Code provides that,

“A general renunciation of rights is understood to refer only to those that are connected with
the dispute which was the subject of the compromise.”
Even if the renunciation is general, it is understood to refer only to rights connected with the
dispute involved, and not to other rights (Paras). Therefore, in a decided case by the Supreme
Court, it held that renunciation of the lessee of possession does not mean waiver of right of
redemption granted by another agreement (Vitug Dimatulac vs Coronel, 40 Phil 686).

Article 2037 of the Civil Code provides that,

“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.”
In the case of Sajona vs Sheriff, L-5603, August 24, 1954, the Supreme Court held that a
compromise, being a contract, has the effect of res judicata only if there has been no vitiated
consent. A judgement of compromise has the effect of res judicata on the parties and should
not be disturbed except for vices of consent or forgery.

Furthermore, if a compromise is approved by the court, a stipulation therein is considered a

court order, and if not complied with, the non-performance may be considered contempt of
court (Marquez vs Marquez 73 Phil 74). Therefore, it is not merely a contract which may be
enforced by ordinary action for specific performance, but is a part and parcel of the judgement
and may therefore be enforced as such, by writ of execution (Tria vs Lirag, L-13994, April 29,
1961).

It must be remembered that judgement on compromise is not generally appealable and may
therefore be immediately executory, unless a motion is filed to set aside the error on the ground
of vitiated consent, in which case an appeal may be taken from a court order denying the
motion to set aside the compromise (Master Tours and Travel Corp. vs Court of Appeals, 219
SCRA 321, 1993). The reason for such is that when the parties entered into a compromise
agreement to end a pending litigation, such action constitutes an implicit waiver of the right to
appeal against the decision.

A judgement on compromise is void when it is entered into by an attorney without specific

authority from the client. Such judgement may be impugned, and its execution restrained in any
proceeding by the party against whom it is sought to be enforced (Jacinto vs Montesa, L-23098,
February 28, 1967).

When the writ of execution is issued to enforce as judgement based on a compromise

agreement, the writ cannot be enforced against the person who although a party to a case, was
not a party to the agreement (Bobis vs Provincial Sheriff of Camarines Norte, Gr. No. 29838,
March 18, 1983). Also, in the case of Rodriguez vs. Alikpala (June 25, 1974), the parties i n the
compromise agreement and third parties were sureties. All the parties to the compromise,
including the sureties, who were not original parties to the case, asked for the approval of the
compromise. Later when a judgment based on such compromise was rendered and when the
defendants failed to comply with its provisions, a motion for execution was filed, and granted,
against the defendants and the sureties. The sureties now complain, alleging that the writ of
execution cannot be issued against their properties because they were not parties to the case.
The Supreme Court held that the writ can also be issued against their properties because they
had joined the others in asking for a judgment on compromise, and they are therefore now in
estoppel.

As provided for by Article 2038 of the Civil Code,

“A compromise in which there is mistake, fraud, violence, intimidation, undue influence, or
falsity of documents, is subject to the provisions of Article 1330 of this Code.
However, one of the parties cannot set up a mistake of fact as against the other if the latter, by
virtue of the compromise has withdrawn from a litigation already commenced.”

Article 1330 of the Civil Code further provides that,

“A contract where consent is given through mistake, violence or intimidation, undue influence or
fraud is voidable”
When consent is vitiated through any of the vices of consent mentioned in the article, the
agreement may be annulled upon proof of the alleged vitiated consent. Thus, if a party consents
to a compromise because of an erroneous, report submitted to the court, the agreement may
be set aside even if the compromise was approved by the court (Saminiada vs Mata, 92 Phil
426). However, in case where there exist an invalid stipulation in the compromise agreement
entered into by the parties, such invalid stipulations does not render void the whole agreement
if it is independent of the rest of the terms and can be separated therefrom without doing
violence to the manifest intention of the parties (Velayo vs Court of Appeals, et al. 107 Phil 587).

Art. 2039. When the parties compromise generally on all differences which they might have with
each other, the discovery of documents referring to one or more but not to all of the questions
settled shall not itself be a cause for annulment or rescission of the compromise, unless said
documents have been concealed by one of the parties.
But the compromise may be annulled or rescinded if it refers only to one thing to which one of
the parties has no right, as shown by the newly-discovered documents.

Effect of Discovery of Documents Referring to Matters Compromised Upon

(a) The first paragraph refers to a compromise on ALL differences; the second, to a compromise
on one thing. The effect of the discovery of the documents is set forth in the Article.

Art. 2040. If after a litigation has been decided by a final judgment, a compromise should be
agreed upon, either or both parties being unaware of the existence of the final judgment, the
compromise may be rescinded.
Ignorance of a judgment which may be revoked or set aside is not a valid ground for attacking a
compromise.

(1) Compromise Entered Into in Ignorance of a Final Judgment

A compromise in a case like this may be RESCINDED. The ignorance of the judgment may have
been on the part of one party or on the part of both parties.

(2) Reason for Allowing a Rescission

Here, there was no more need for the compromise in view of the existence of the fi nal
judgments. (See Rovero v.
Amparo, et al., 91 Phil. 228).

(3) Effect of Appeal

If a judgment is rendered but appealed, there can in the meantime be a compromise.

Art. 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.

(1) Effect if Compromise Agreement Is Not Fulfilled

(a) enforce the compromise;

CASES

City of Zamboanga v. Mandi (GR 86760, Apr. 30, 1991)

FACTS: Petitioner City of Zamboanga lodged a Complaint for Eminent Domain against spouses
Julian over a lot situated in Zamboanga City. The expropriation was intended for the expansion
of the Pasonanca Park and for other public purposes. The Sangguniang Panglunsod adopted a
resolution on May 13, 1987 authorizing the OIC Mayor to enter into a compromise agreement
for the acquisition of the lot for P3.00 per square meter subject to the approval of the Supreme
Court. On Jun. 4, 1987, the Agreement was signed and on the same date, the parties filed with
the Supreme Court a motion to approve compromise agreement. On Jan. 6, 1988,
notwithstanding the non-approval yet of the compromise agreement by the Supreme Court, the
Sangguniang Panglunsod authorized the OIC Mayor to sign for and on behalf of the City the
Deed of Sale covering the acquisition by the City of the lot at P3.00 per square meter. The
resolution did not impose any condition of prior approval by the Supreme Court. And so it was
that pursuant to the authorization granted, the Deed was signed by the parties on Jan. 11, 1988
for and in consideration of P170,595 at P3.00 per square meter. On Mar. 21, 1988, on the
ground that the City was reneging on the Compromise Agreement, Julian instituted before the
RTC a petition for mandamus praying that the City be made to comply with the agreement
“particularly to pay Julian P170,595 for the purchases of the lot.”

RULING: The Supreme Court found the writ of mandamus properly issued and dismissed the
City’s petition and held that it is true that in its resolution of May 13, 1987, the City had
authorized the execution of the Compromise Agreement and the Deed of Sale “subject to the
approval of the Supreme Court.’’ However, the subsequent acts of the parties clearly show that
the City was no longer insisting on the suspensive condition. Thus, with the Judge’s decision
“immediately after the filing of notice of appeal to the Supreme Court, the OIC Mayor
negotiated for the purchase of the subject at P3.00 per square meter “to prevent a lengthy
litigation at the Supreme Court and where respondent City also paying the same price of P3.00
to other adjoining lot owners.” Julian thereupon accepted the City’s offer. Further, the
subsequent Sangguniang Panglunsod resolution did away with that condition. To cap it all, the
Deed was signed by the parties fully cognizant that such approval had not been obtained. By
virtue of the settlement thus arrived at, Julian abandoned his appeal to the Supreme Court and
withdrew from a pending litigation. All these developments transpired before the entry of the
Appellate Court. Judgment was made on Jan. 26, 1988. To all intents and purposes, new rights
and obligations as between the parties had been created of their own volition.

There was an animus novandi and an obvious intent to supersede the previous agreement in
the Eminent Domain case. With this the decision must be deemed to have been novated by the
parties themselves, with the result that the original decision had lost force and effect. The
finality of the appellate court decision which was unknown to the parties at the time of
settlement, neither produced any legal effect since the appeal had effectively been withdrawn.
There was no longer any lower court decision that could be the subject of an appeal. The City
maintains that it was not aware of the abandonment of the appeal for which reason it entered
into the compromise. This is not accurate since it was made known that the dismissal of the
appeal was being made as a reciprocal concession for the settlement. Besides, under Art. 2038
of the Civil Code, “one of the parties can not set up mistake of fact against the other if the latter,
by virtue of the compromise has withdrawn from a litigation already commenced.” It may be
conceded that the City was unaware that the judgment in the Eminent Domain case had
attained finality. Ignorance of a judgment is not a valid ground for attacking a compromise. The
course of action should have been an action for rescission which has not been availed of here.
Art. 2040 of the Civil Code explicitly provided: “If after a litigation has been decided by a final
judgment, a compromise should be agreed upon, either or both parties being unaware of the
existence of the final judgment, the compromise may be rescinded.” Ignorance of a judgment
which may be revoked or set aside is not a valid ground for attacking a compromise. Julian was
well within his right in seeking the enforcement of the compromise through a petition for
mandamus on the strength of Art. 2041 of the Civil Code, providing that: “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.”

Barreras, et al. v. Hon. Garcia, et al. (L-44715-16, Jan. 26, 1989)

FACTS: Spouses Timan filed two complaints for illegal detainer separately against the petitioners
Erlinda Barreras together with her unknown husband and Dolores Millan. The two complaints
allege that the private respondent and his spouse are the lawful owners of a two-storey leased
by petitioner Erlinda Barreras with her unknown husband and Dolores Millan, respectively. After
they were informed that their lease would expire on June 30, 1975, petitioners requested for an
extension until July 31, 1975, free of charge. However, for failure of the petitioners to comply
with the verbal agreement to vacate the leased premises as promised on July 31, 1975, the
private respondent and his wife, through counsel, sent the petitioners two demand letters to
vacate. Again, the petitioners failed to comply.

At the hearing of these cases, two identical Compromise Agreements were submitted by the
parties, assisted by their respective counsels, and approved by the respondent judge. The
Compromise Agreements read:

1. That the plaintiffs hereby allow the defendants to continue to occupy the premises
described in the complaint until May 31, 1976;
2. That in consideration of this Compromise Agreement defendant will pay the plaintiffs the
amount of P250.00 a month beginning the month of September, 1975 as monthly rent for the
reasonable use of the same, payable on or before the 10th day of each month;
 3. That defendants will vacate the premises described in the complaint on May 31, 1976 and
restore possession thereof to the plaintiffs;
4. That any violation of this agreement will entitle the plaintiffs to ask the Court for a writ of
execution.

RULING: While the approval of the compromise agreement by the court dismisses the case, or
considers it closed, the law, however, anticipates situations wherein the parties refuse to comply
with the terms of a compromise agreement. Clearly, therefore, when a party fails or refuses to
abide by the compromise, the other party may either enforce the compromise by a writ of
execution, or regard it as rescinded and insist upon his original demand. Non-fulfillment of the
terms of the compromise justifies execution.

(2) No Necessity for Judicial Rescission

Under this Article, there is no necessity for a judicial declaration of rescission, for the party
aggrieved may “regard” the compromise agreement as already “rescinded.” (Leonor v. Sycip, L-
14220, Apr. 29, 1961).

(3) No Rescission After Benefi ts are Enjoyed

Republic v. Sandiganbayan (49 SCAD 45 1993)

The Court has consistently ruled that a party to a compromise cannot ask for a rescission after it
has enjoyed its benefits.

Chapter 2 ARBITRATION
Arbitration in relation to the Civil Code of the Philippines

Art. 2042: The same parties expressed compromise agreement may also avail arbitrations for
decision through Alternative Dispute Resolution (Sec 2, RA 876)

“Arbitration means a voluntary dispute resolution process in which one or more arbitrators,
appointed in accordance with the agreement of the parties, or rules promulgated pursuant to
this Act, resolve a dispute by rendering an award (RA 9285)In arbitration an independent,
impartial third party hears both sides in a dispute and makes a decision to resolve it. In most
cases the arbitrator's decision is legally binding on both sides, so it is not possible to go to court
if you are unhappy with the decision. Arbitration is in many ways an alternative form of court
with procedural rules which govern issues such as disclosure of documents and evidence. But
arbitration is private rather than public. Hearings are less formal than court hearings, and some
forms of arbitration do not involve hearings but are decided on the basis of documents only.”

The difference between Arbitration and a Compromise is, a third party gives the solution in
Arbitration, while in a Compromise, the decision is arrived at by the parties concerned.

CASES
(Civil Code of the Philippines, Annotated, Paras)

Mindanao Portland Cement Corp. vs. McDonough (L-23390, April 24, 1967)
Facts: In a contract, there was a provision requiring arbitration in case of certain disputes
concerning materials, plans, etc. after a particular dispute, one party went to court to compel
the other to submit the matter to arbitrators.
Issue: May the court decide the dispute on the merits?
Held: No. All it can do, in this summary proceeding to enforce the arbitration proviso, is to
determine whether or not the parties should really go to the arbitrators. Arguments on the
merits must not be addressed to the court, but to the arbitrators.

Bengson vs. Chan (L-27283, July 29, 1977)

Facts: In a contract for the construction of a condominium building, it was expressly agreed that
should there be any dispute, a board of arbitrators must first be resorted to before taking any
judicial action. The owner went to court because the building was not finished on time, but
there was no prior resort to arbitration.
Issue: Will the case now be dismissed?
Held: No. The case will not be dismissed, although there was no prior resort to arbitration. This
is so because under the arbitration law, in a case like this, what the court should do is to refer
the matter to the arbitrators who are supposed to be selected by the parties.

Allied Banking Corp. vs. CA & BPI (G.R. No. 123871, Aug. 31, 1998)
Facts: By participating in the clearing operations of the Philippine Clearing House Corporation
(PCHC), petitioner agreed to submit disputes of this nature to arbitration.
Issue: Can pCHC invoke the jurisdiction of the trial courts without prior recourse to the PCHC
Arbitration Committee?
Held: No. Having given its free and voluntary consent to the arbitration clause, petitioner
cannot unilaterally take it back according to its whim. In the world of commerce, especially in
the field of banking, the promised word is crucial. Once given, it may no longer be broken.
Arbitration as an alternative method of dispute resolution is encouraged by the Supreme Court.
Aside from unclogging judicial dockets, it also hastens solutions especially of commercial
disputes.

Art. 2043 The provisions of the preceding Chapter upon compromises shall also be applicable to
arbitrations.

Art. 2044 Any stipulation that the arbitrators’ award or decision shall be final, is valid, without
prejudice to Articles 2038, 2039, and 2040.

Arbitrator’s award is deemed final and valid when it is stipulated

The following are exceptions referring to the following Articles:
a. Art. 2038: - if there is vitiated consent
b. Art. 2039: - when there is concealment
c. Art. 2040: - effects on the final judgement; compromise may be rescinded

Art. 2045: Any clause giving one of the parties power to choose more arbitrators than the other
is void and of no effect.
Provides for the Limitations of Arbitrators and ensures the fairness and quality of the
proceedings.
Art. 2046: The appointment of arbitrators and the procedure for arbitration shall be governed
by the provisions of such rules of court as the Supreme Court shall promulgate.

The Rules of court shall govern in appointment and procedure of arbitrations.