G.R. No. 159411.
March 18, 2005
TEODORO I. CHAVEZ, Petitioners,
vs.
HON. COURT OF APPEALS and JACINTO S. TRILLANA, Respondents.
DECISION
PUNO, J.:
Assailed in this petition for review is the Decision dated April 2, 2003 1 of the Court of
Appeals in CA-G.R. CV No. 59023 2 which modified the Decision dated December 15,
1997 of the Regional Trial Court (RTC) of Valenzuela City, Branch 172, in Civil Case No.
5139-V-97, as well as its Resolution dated August 8, 20033 which denied petitioner’s
motion for reconsideration.
The antecedent facts are as follows:
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
thousand (₱2,240,000.00) pesos, of which one million (₱1,000,000.00) pesos was to be
paid upon signing of the contract. The balance was payable as follows:
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 (₱344,000.00)
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.
c. That, the LESSEE, shall pay the amount of FOUR HUNDRED FORTY-EIGHT
THOUSAND (₱448,000.00) 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 (₱448,000.00) 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 petitioner.
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.:
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
₱150,000.00 kay G. Trillana bilang sukli sa natitirang panahon ng buwisan.
Ngunit kung maibibigay ni G. Chavez ang halagang ₱100,000.00 bago sumapit o
pagsapit ng ika-23 ng Setyembre, taong kasalukuyan, ‘to ay nangangahulugan ng buong
kabayaran at hindi ₱150,000.00.
Kung sakali at hindi maibigay ang ₱100,000.00 ang magiging kabayaran ay mananatiling
₱150,000.00 na may paraan ng pagbabayad ng sumusunod:
Ang ₱50,000.00 ay ibibigay bago sumapit o pagsapit ng ika-31 ng Oktubre 1996 at ang
balanseng ₱100,000.00 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 ₱150,000.00 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) ₱300,000.00 as reimbursement for
rentals of the leased premises corresponding to the unexpired portion of the lease
contract; (b) ₱500,000.00 as unrealized profits; (c) ₱200,000.00 as moral damages; (d)
₱200,000.00 as exemplary damages; and, (e) ₱100,000.00 as attorney’s fees plus
₱1,000.00 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
evidence 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) Ordering the defendant to reimburse to the plaintiff the sum of ₱300,000.00
representing rental payment of the leased premises for the unused period of lease;
(2) Ordering the defendant to pay plaintiff the sum of ₱500,000.00 representing
unrealized profit as a result of the unlawful deprivation by the defendant of the
possession of the subject premises;
(3) Ordering the defendant to pay plaintiff the sum of ₱200,000.00 as moral damages;
(4) Ordering the defendant to pay plaintiff the sum of ₱200,000.00 as exemplary
damages; and
(5) Ordering the defendant to pay plaintiff the sum of ₱100,000.00 as and for attorney’s
fees, plus costs of suit.
Petitioner appealed to the Court of Appeals which modified the decision of the trial court
by deleting the award of ₱500,000.00 for unrealized profits for lack of basis, and by
reducing the award for attorney’s fees to ₱50,000.00. 7 Petitioner’s motion for
reconsideration was denied. Hence, this petition for review.
Petitioner contends that the Court of Appeals erred in ruling that the RTC of Valenzuela
City had jurisdiction over the action filed by respondent considering that the subject
matter thereof, his alleged violation of the lease contract with respondent, was already
amicably settled before the Office of the Barangay Captain of Taliptip, Bulacan, Bulacan.
Petitioner argued that respondent should have followed the procedure for enforcement of
the amicable settlement as provided for in the Revised Katarungang Pambarangay
Law. Assuming arguendo that the RTC had jurisdiction, it cannot award more than the
amount stipulated in the "Kasunduan" which is ₱150,000.00. In any event, no factual or
legal basis existed for the reimbursement of alleged advance rentals for the unexpired
portion of the lease contract as well as for moral and exemplary damages, and attorney’s
fees.
Indeed, the Revised Katarungang Pambarangay Law8 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. 9 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.10 This special provision follows the general precept enunciated in
Article 2037 of the Civil Code, viz.:
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.
Thus, 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.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. (underscoring 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 rescission. 15 This is because
he may regard the compromise as already rescinded16 by the breach thereof of the other
party.
Thus, in Morales v. National Labor Relations Commission 17 we upheld the National
Labor Relations Commission when it heeded the original demand of four (4) workers for
reinstatement upon their employer’s failure to comply with its obligation to pay their
monetary benefits within the period prescribed under the amicable settlement. We
reiterated the rule that the aggrieved party may either (1) enforce the compromise by a
writ of execution, or (2) regard it as rescinded and so insist upon his original demand
upon the other party’s failure or refusal to abide by the compromise. We also recognized
the options in Mabale v. Apalisok,18 Canonizado v. Benitez,19 and Ramnani v. Court of
Appeals,20 to name a few cases.
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; and (b) an action in regular form, which remedy is
judicial.21 However, the mode of enforcement does not rule out the right of rescission
under Art. 2041 of the 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 ₱150,000.00 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.
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 ₱300,000.00 as
advance rentals for the unexpired period of the lease contract. On the contrary, the lease
contract itself provided that the remaining rentals of ₱448,000.00 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 ₱448,000.00." 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 ₱1,000,000.00 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.
Petitioner 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 ₱300,000.00 as reimbursement of advance rentals. The assailed
Decision is AFFIRMED in all other respects.
SO ORDERED.
Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concu
