TITLE XIV – COMPROMISES AND Code.
X’s offer to pay the principal and plea to
ARBITRATIONS
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
reduce the interest showed his sincere desire for
a compromise.
ARTICLE 2034. There may be a compromise
upon 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.