TITLE XIV – COMPROMISES AND ARBITRATIONS
ARTICLE 2034. There may be a compromise upon
CHAPTER 1. COMPROMISES
ARTICLE 2028. A compromise is a contract whereby
the parties, by making reciprocal concessions,
avoid a litigation or put an end to one already
commenced.
A. Characteristics of Compromise (BRONCAS)
1. Consensual
2. Reciprocal
3. Nominate
4. Onerous
5. Accessory, in the sense that a prior conflict is
presupposed
6. Binding, once accepted, unless there is no
vitiated consent
7. Principally a settlement of controversy, and
incidentally of a claim.
B. Kinds of Compromise
1. Judicial – to end a pending litigation
2. Extra-judicial – to prevent a litigation from
arising
ARTICLE 2029. The court shall endeavor to persuade
the litigants in a civil case to agree upon some fair
compromise.
ARTICLE 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. Sais rules of
court shall likewise provide for the appointment and
duties of amicable compounders.
ARTICLE 2031. The courts may mitigate the damages
to be paid by the losing party who has shown a
sincere desire for a compromise.
PROBLEM: X is indebted to Y in the amount of
P50,000.00 with the stipulation that the same shall
earn interest at 40% per annum, when X failed to
pay, Y sued him. In an effort to settle the case, X
offered to pay the principal but begged for the
reduction of the interest. Y refused so trial was
conducted. Can the judge reduce the rate of
interest?
A: Yes. The case falls squarely in that situation
contemplated under Article 2031 of the New Civil
Code. X’s offer to pay the principal and plea to
reduce the interest showed his sincere desire for a
compromise.
the civil liability arising from an offense; but such
compromise shall not extinguish the public action
of the legal penalty.
ARTICLE 2035. No compromise upon the following
questions shall be valid:
(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 the courts;
(6) Future legitime.
Any compromise upon any of the above-listed
subjects shall be VOID.
PROBLEM: X and Y entered into a compromise
agreement whereby X respected the ownership of
Y over a part of the creek (now a fishpond). Is the
agreement valid?
A: No, because that is contrary to public policy and
the law. (Maneclang v IAC, infra)
ADRIANO MANECLANG, ET. AL., v INTERMEDIATE
APPELLATE COURT, ET. AL.
GR No. L-66575, 30 September 1986
(Second Division, J. Fernan)
FACTS: Maneclang, et. al. filed before then CFI
Branch XI of Pangasinan a complaint for quieting of
title over a certain fishpond located within their
owned 4 parcels of land in Barrio Salomague,
Bugallon, Pangasinan, and annulment of two
resolutions of the Municipal Council of Bugallon,
Pangasinan. Complaint was dismissed upon the
court learning that the subject body of water is part
of a creek, public in nature and not subject to
private appropriation. The two resolutions for ocular
inspection and authorization of public bidding for
the lease of all ferries and fisheries are likewise
declared valid. IAC affirmed the lower court’s
decision. Maneclang, et. al. filed this petition for
review on certiorari. However, pending the same,
an amicable settlement (between Maneclang, et.
al. and the winning bidder) was submitted to the
Court praying that judgment be rendered
recognizing the ownership of petitioners over the
fishpond.
ISSUE: Whether the compromise agreement is valid.
RULING: No, the compromise agreement is not
valid.
The stipulations contained in the Compromise
Agreement partake of the nature of an
adjudication of ownership in favor of herein
petitioners of the fishpond in dispute, which x x x
was originally a creek forming a tributary of the
Agno River. Considering that as held in the case
of Mercado vs. Municipal President of
Macabebe, 59 Phil. 592 [1934], a creek x x x is a
property belonging to the public domain which is
not susceptible to private appropriation and
acquisitive prescription, x x x [Diego v. Court of
Appeals, 102 Phil. 494; Mangaldan v. Manaoag, 38
Phil. 4551; and considering further that neither the
mere construction of irrigation dikes by the National
Irrigation Administration which prevented the water
from flowing in and out of the subject fishpond, nor
its conversion into a fishpond, alter or change the
nature of the creek as a property of the public
domain, the Court finds the Compromise
Agreement null and void and of no legal effect, the
same being contrary to law and public policy.
ARTICLE 2036. 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.
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.
ARTICLE 2037. 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.
ARTICLE 2038. 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.
REMEMBER: ARTICLE 1330 states that “a contract
where consent is given through mistake, violence,
intimidation, undue influence, or fraud is VOIDABLE.
PROBLEM: A and B entered into a compromise
agreement. A week thereafter, B filed an action in
court seeking to annul the compromise agreement,
contending that it is one-sided. Is the action
proper?
A: No. Where the compromise is instituted and
carried through in good faith, the fact that there
was mistake as to law or fact, save in cases where
such mistake is mutual and correctible in equity,
cannot afford a basis for setting aside a
compromise. Compromises are favored without
regard to the nature of the controversy
compromise, and they cannot be set aside merely
because the event shows all the gains have been
on one side. (Asong v IAC, infra)
Juan Asong v Intermediate Appellate Court, Judge
Albaro Albano, Jr., and Severino Banasig
GR No. 74461, 12 May 1989
(First Division, J. Medialdea)
FACTS: Severino Banasig (Banasig) filed a case for
forcible entry and damages against Juan Asong
(Asong) with MTC of Barotac Viejo, Iloilo. Pending
said action, the parties submitted to the court an
amicable settlement containing, among others, an
agreement for the dismissal of their claim and
counterclaim for damages. MTC Judge Albaro
Albano, Jr. approved and rendered judgment
based on the settlement. Upon execution, Asong
refused to vacate one lot for which he was cited in
contempt. Later, he filed an action for recovery of
ownership and annulment of amicable settlement
and judgment before CFI Branch 4 of Iloilo City. CFI
dismissed said action declaring that the amicable
settlement has been voluntarily and freely entered
into and is valid and constitutes a bar to the
subsequent case for annulment. After denial of his
motion for reconsideration, Asong appealed to IAC
which affirmed the questioned decision. Hence, this
petition where Asong contends that the settlement
should be annulled on the ground of mistake.
ISSUE: Whether the amicable settlement was
voluntarily and freely entered into and fully
explained to petitioner.
RULING: The instant petition is devoid of merit.
x x x The evidence on record shows that Asong was
fully apprised of the legal consequences arising
from the amicable settlement. Aside from his
lawyer, Atty. Joelito Barrera who represented him in
the Municipal Court, a friend of Atty. Barrera, Atty.
Rex Salas who accidentally interrupted Barrera's
meeting with Asong and Banasig regarding the
amicable settlement at the former's law office and
Municipal Judge Albaro Albano before whom the
amicable settlement was submitted, explained the
terms thereof to Asong in the Hiligaynon dialect. We
fail to find any tinge of bias or improper motive on
their part to testify against Asong. x x x On the other
hand, Asong's vehement denial unsupported by
any contrary evidence cannot rebut the positive
testimonies of the aforesaid witnesses. (citations
omitted)
Moreover, We are not persuaded by Asong's
argument that the amicable settlement should be
voided because he did not gain anything from it x x
x. The appellate court correctly ruled against
Asong's supposition, as follows:
xxxx
In Berg vs. National City Bank of New
York, supra, the Supreme Court, speaking
through Mr. Justice Felix Bautista Angelo
opined:
x x x x [I]t is a general rule in this country
that compromise are to be favored,
without regard to the nature of the
controversy compromised, and
that they cannot be set aside because
the event shows all the gain to have
been on one side, and all the sacrifice
on the other, if the parties have acted in
good faith, and with a belief of the
actual existence of the rights which they
have respectively waived or
abandoned; and if a settlement be
made in regard to such subject, free
from fraud or mistake, whereby there is a
surrender or satisfaction, in whole or in
part, of a claim upon one side in
exchange for or in consideration of a
surrender or satisfaction of a claim in
whole or in part, or of something of
value upon the other, however baseless
may be the claim upon either side or
harsh the terms as to either of the
parties, the other cannot successfully
impeach the agreement in a court of
justice .... (Emphasis supplied). x x x
ARTICLE 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.

ARTICLE 2040. If after a litigation has been decided

by a final judgment, a compromise should e
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 greound for attacking a
compromise.

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.

CHAPTER 2. ARBITRATIONS

ARTICLE 2042. The same persons who may enter into

a compromise may submit their controversies to
one or more arbitrators for decision.

ARTICLE 2043. The provisions of the preceding

Chapter upon compromises shall also e applicable
to arbitrations.

ARTICLE 2044. Any stipulation that the arbitrators’

award or decision shall be final, is valid, without
prejudice to Articles 2038, 2039, and 2040.

ARTICLE 2045. Any clause giving one of the parties

power to choose more arbitrators than the other is
void and of no effect.

ARTICLE 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.

RA No. 876 is “The Arbitration Law,” which provides

for the appointment of arbitrators and the
procedure for arbitration in civil controversies, and
for other purposes.