HEIRS OF GABRIEL ZARI AND HEIRS OF HERMENEGILDO CONCEPCION, PLAINTIFFS-APPELLEES, VS. JOSE R. SANTOS, DEFENDANT-APPELLLANT.

Heirs of Zari versus Santos

The Case

This is a consolidated appeal of two civil cases from the Court of First Instance of Rizal, decided by the Supreme Court in March 1969. The plaintiffs are the heirs of Gabriel Zari and the heirs of Hermenegildo Concepcion, who sued Jose R. Santos to rescind the compromise agreements they had entered into with him and to enforce their original claims over two portions of a parcel of land in Marikina, Rizal. The case matters because it is the leading authority on the retroactive application of Article 2041 of the Civil Code, the provision that for the first time gave an aggrieved party the right to rescind a compromise, and on how the transitory provisions of the Civil Code treat a continuing refusal to abide by a compromise.

Procedural History

The Concepcion heirs and Zari first sued Santos in the Court of First Instance of Rizal in October 1941, and those cases were dismissed after the parties executed compromise agreements in January 1943. When Santos refused to comply, the plaintiffs filed fresh suits in 1949 to enforce their original claims. The Concepcion suit was dismissed on the ground of the prior compromise, and the Supreme Court affirmed that dismissal in 1951, holding that the remedy was to enforce the compromise by a new appropriate action. The Zari suit was dismissed for failure of counsel to appear, but the Court of Appeals remanded it for trial on the merits in April 1952.

The Concepcion heirs then filed a new complaint in June 1952 asking for rescission of the compromise and reviving their original claim, and Zari amended his complaint in March 1953 to pray for the same relief. The two cases were jointly heard, and on May 3, 1962 the trial court rendered judgment for the plaintiffs, rescinding the compromise, recognizing their rights under the 1934 contracts, declaring them owners of their respective portions upon payment of the balances of their installments, and ordering Santos to execute the deeds of sale. Santos appealed directly to the Supreme Court on a question of law.

Facts

Before August 1934, Juan Fuentes bought on installments from Ortigas, Madrigal y Cia a parcel of land in Barrio Bagong Ilog, Marikina, Rizal. On August 5, 1934, Fuentes entered into two contracts with Hermenegildo Concepcion and Gabriel Zari, each covering one third of the land, or 5,000 square meters. Although styled sub-contracts of lease, the trial court found them to be contracts of conditional sale, under which each buyer was to pay 1,600 pesos in monthly installments, and upon full payment Fuentes was obliged to transfer full ownership of the parcel.

In June 1941, Fuentes assigned all his rights over the land to Jose R. Santos, who expressly bound himself in the deed to respect and recognize the contracts of sale with Zari and Concepcion. Santos then paid the balance of the price to Ortigas, Madrigal y Cia and obtained a new Torrens title in his own name. Thereafter he refused to honor the rights of Concepcion and Zari, who sued him in October 1941.

In January 1943, the parties executed compromise agreements. The plaintiffs would stop paying the unpaid installments; the amounts already paid would represent the purchase price of smaller portions, 1,762 square meters for the Concepcions and 1,854 square meters for Zari; the plaintiffs would cause a resurvey; Santos would then convey those portions in absolute sale; and the plaintiffs would procure the dismissal of their suits. The cases were dismissed, but when the plaintiffs completed the survey and demanded the deeds of sale, Santos refused, claiming he had sold no land to them. He continued to refuse even after the Civil Code took effect.

Issues

• Whether or not a compromise agreement executed before the effectivity of the Civil Code may be rescinded under Article 2041 of that Code upon the debtor's refusal to abide by it.
• Whether or not the plaintiffs' new right of rescission impairs a vested or acquired right of the defendant.
• Whether or not the earlier decision of the Supreme Court in the Concepcion case bars the present claims.

Applicable Provisions

Article 2041 of the Civil Code 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.

This is the very right the plaintiffs invoke, and it is the provision that created rescission of compromises for the first time.

Article 2037 of the Civil Code provides in part:

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.

The Court uses this to show that the compromise here was not judicial, since it was not incorporated in a judgment that may be executed.

Article 2252 of the Civil Code provides:

Changes made and new provisions and rules laid down by this Code which may prejudice or impair vested or acquired rights in accordance with the old legislation shall have no retroactive effect.

This is the general rule on retroactivity that the Court must reconcile with the new right of rescission.

Article 2253 of the Civil Code provides in part:

If a right should be declared for the first time in this Code, it shall be effective at once, even though the act or event which gives rise thereto may have been done or may have occurred under the prior legislation, provided said new right does not prejudice or impair any vested or acquired right of the same origin.

This governs the new right of rescission, subject only to the condition that no vested right of the same origin is impaired.

Article 2257 of the Civil Code provides in part:

If a continuous or repeated act or omission was commenced before the beginning of the effectivity of this Code, and the same subsists or is maintained or repeated after this body of laws has become operative, the sanction or penalty prescribed in this Code shall be applied, even though the previous laws may not have provided any sanction or penalty therefor.

This is the provision the Court finds controlling, because Santos continued his refusal after the Code took effect.

Article 2254 of the Civil Code provides:

No vested or acquired right can arise from acts or omissions which are against the law or which infringe the rights of others.

This reinforces the ruling that Santos acquired no vested right from his own violation of the compromise.

Ruling

On the first issue, the Court held that the plaintiffs may rescind. Before the Civil Code there was no right to rescind a compromise; the only remedy was to enforce it. Article 2041 created that right for the first time, and it qualifies the rule in Article 2037 that a compromise has the effect of res judicata.

On the second issue, the Court held that no vested or acquired right of Santos is impaired. A vested right is one that has become fixed and established and is no longer open to doubt or controversy, as distinguished from a right that is expectant or contingent. Santos's right under the compromise was to have the suits dismissed and the claims released, but that right was not absolute; it carried the condition that he execute the deeds of sale. Because he never did so, his right of release never vested unconditionally, and the plaintiffs' claims remained.

On the third issue, the Court held that the earlier decision is no bar. It was decided under the old Code; it recognized the remedy of enforcing the compromise; and it could not have envisioned the continuing violation that persisted after the new Code took effect. The Court also relied on Article 2257, since Santos's continuous refusal after the Code became operative brought his omission within the sanction of the new law.

Doctrine

Under Article 2041 of the Civil Code, if one party fails or refuses to abide by a compromise, the other may either enforce the compromise or regard it as rescinded and insist upon his original demand. This right of rescission, declared for the first time in the Civil Code, is effective at once under Article 2253 even as to compromises executed before the Code, provided it does not impair a vested or acquired right of the same origin. A right under a compromise that carries an unperformed condition is not vested; and under Article 2254, no vested right can arise from acts or omissions that violate the law or infringe the rights of others. Finally, under Article 2257, a continuous refusal to abide by a compromise that subsists after the Code became operative subjects the debtor to the new sanction of rescission.

Disposition

The Supreme Court affirmed the judgment of the trial court, rescinding the compromise agreements and recognizing the plaintiffs' rights under their original contracts upon payment of the balances of their installments.

Remember This

The one line to memorize: a compromise may be rescinded under Article 2041, and a refusal that continues after the Civil Code took effect brings the debtor within the sanction of Article 2257. Examiners use this case to test the retroactivity of the Civil Code and the meaning of a vested right.