G.R. No. L-21213 & L-21214 March 28, 1968
HEIRS OF GABRIEL ZARI and HEIRS OF HERMENEGILDO CONCEPCION, plaintiffs-appellees, vs. JOSE R. SANTOS, defendant-appellant.

FACTS

In 1934, Juan Fuentes purchased a parcel of land from Ortigas, Madrigal y Cia. On August 5, 1934, Fuentes entered into two contracts, denominated as sub-contracts of lease but found to be contracts of conditional sale, with Hermenegildo Concepcion and Gabriel Zari, each covering a 5,000-square-meter portion of the land. Before mid-June 1941, Fuentes assigned all his rights and interests over the whole land to Jose R. Santos, who expressly bound himself to respect the contracts with Concepcion and Zari. Santos later paid the balance to Ortigas, Madrigal y Cia, and a deed of absolute sale was executed in his favor, with a new title issued in his name. Santos then refused to honor the rights of Concepcion and Zari, leading to two complaints filed against him in October 1941 (Civil Cases 8273 and 8275). On January 24, 1943, during the pendency of the cases, separate compromise agreements were executed, wherein the heirs of Concepcion and Zari would no longer pay the balance of installments, and the sums already paid would represent the purchase price for smaller portions of the land. The suits were dismissed. Plaintiffs sought to implement the compromise, but Santos refused to comply. Consequently, plaintiffs filed new suits (Civil Cases 802 and 878) to enforce their original claims under the old contracts with Fuentes. One case was dismissed, and the other was remanded for trial. The heirs of Concepcion then filed Civil Case 1769, and Zari amended his complaint in Civil Case 802, both specifically praying for rescission of the compromise agreement and revival of their original claims. The two cases were jointly heard.

ISSUE

Whether a compromise agreement, executed before the effectivity of the new Civil Code, which led to the dismissal of litigation, may be rescinded by the party plaintiffs under Article 2041 of the new Civil Code, to pave the way for the enforcement of their original demand.

RULING

Yes. The Supreme Court affirmed the trial court’s decision, rescinding the compromise agreement and recognizing the plaintiffs’ rights under their original contracts with Fuentes. The Court held that Article 2041 of the new Civil Code, which provides that if one party fails to abide by a compromise, the other may either enforce it or regard it as rescinded and insist upon the original demand, applies to compromises executed before the Code’s effectivity when the breach occurs after such effectivity. The Court ruled that the right to rescind under Article 2041 is a remedial, procedural right that can be given retroactive effect, as it does not impair vested rights. Since Santos’s refusal to comply with the compromise occurred in 1948, after the new Civil Code took effect, the plaintiffs could avail themselves of the remedy of rescission provided by Article 2041. The Court further held that the previous Supreme Court decision in the Concepcion case, which stated that their recourse was to enforce the compromise, did not constitute res judicata on the issue of rescission, as that issue was not raised or litigated in the prior case.