A compromise is a contract whereby the parties make reciprocal concession to avoid a litigation or to end one already commenced, [Article 2028, new Civil Code]. They agree to adjust their differences disregarding the possible gain in litigation and keeping in mind that such gain is balanced by the danger of losing. A compromise is either extrajudicial – to prevent litigation or judicial – to end a litigation. It must not be contrary to law, morals, good customs and public policy; and must have been freely and intelligently executed by and between the parties. To have the force of law between the parties, it must comply with the requisites and principles of contracts. It has the effect and the authority of a final judgment [res judicata] once entered into.
Apparently, once the case is terminated by final judgment, the rights of the parties are settled. As such, there are no more disputes that can be compromised. May parties still compromise after judgment?
The validity of a compromise notwithstanding a final judgment is not novel. In Jesalva v. Bautista, it upheld a compromise agreement that covered cases pending trial, on appeal and with final judgment. The law impliedly allowed such agreements; there was no limitation as to when these should be entered into. In Gatchalian v. Arlegui, it upheld the right to compromise prior to the execution of a final judgment. The Court ruled that final judgment had been novated and superseded by a compromise agreement. In Northern Lines, Inc. v. Court of Tax Appeals, it allowed compromise of final and executory judgment, as long as such right was exercised by the proper party litigants.
Clearly, compromise is allowed even after judgment. But what if the compromise is less than what the judgment has awarded? This issue was tackled by our Honorable Supreme Court in Abad, et. al. v. San Roque Metals, Inc., G.R. 255368, uploaded on November 14, 2024. In this case, 35 employees sued San Roque Metals, Inc. [SRMI] and Prudential Customs Brokerage Services, Inc. [PCBSI] – a labor contractor – for illegal dismissal. The case reached the Supreme Court ordering them to pay the employees backwages and separation pay. Later, twelve employees signed separate compromise contracts agreeing to settle their backwages on reduced percentage ranging 5% to 23% that were awarded to them. The Executive Labor Arbiter, in pre-execution conference, made a note on the last page of each contract that it is without prejudice to the final computation. He also treated the compromise sum as advances, not full payment of the backwages and separation pay awarded. PCBSI and SRMI opposed it, arguing that the employees have already accepted the settlement and they continue to be employees of SRMI. Thus, they questioned the ELA’s ruling to the National Labor Relations Commission. The NLRC denied it, voiding the compromise as amounts were unreasonable. On appeal, the Court of Appeals ruled for the validity of the compromise, since the employees voluntarily agreed. The employees appealed.
The Supreme Court ruled that the compromise agreement must be closely scrutinized in labor cases for they are considered as quitclaim. This is because employees waive their rights in favor of employers. As such, the law looks upon it with disfavor and is frowned upon for being contrary to public policy. To determine if a quitclaim via compromise agreement is valid, the following must be present: [1] the employee voluntarily signs it; [2] there is no fraud or deceit; [3] the amount in the quitclaim is credible and reasonable and [4] not contrary to law, public order, public policy, morals or good customs. The absence of any of these elements will make the quitclaim as compromise invalid.
The amount for the compromise agreement, even when coupled with the employees’ continued employment by SRMI, are not reasonable.
The tabulated amounts represent a small portion – ranging from 5.20% to 23.42% – of what the employees will receive in the final judgment. There is no exact percentage that determines the reasonableness of monetary consideration in quitclaims and compromise agreements since it is determined on a case-to-case basis rather than through a mathematical precision. In Castillon v. Magsaysay Mitsue Osk Marine Inc., the employees received 30% to 37% of what they are legally entitled and it was declared unreasonable. Thus, the CA ruling was reversed as the amount of settlement are significantly lower than the awarded backwages and separation pay thereby making them unreasonable.
