Santos Ventura Hocorma Foundation, Inc. vs.

Ernesto
V. Santos
G.R. No. 153004 (November 5, 2004)

FACTS:

On October 26, 1990, the parties executed a Compromise Agreement wherein Foundation shall
pay Santos P14.5 Million in the following manner: (a) P1.5 Million immediately upon the
execution of this agreement; and (b) the balance of P13 Million shall be paid, whether in lump
sum or in installments, at the discretion of the Foundation, within a period of not more than two
(2) years from the execution of this agreement.

In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of
the aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real
properties involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos,
leaving a balance of P13 million. Subsequently, petitioner SVHFI sold to Development
Exchange Livelihood Corporation two real properties, which were previously subjects of lis
pendens. Discovering the disposition made by the petitioner, respondent Santos sent a letter to
the petitioner demanding the payment of the remaining P13 million, which was ignored by the
latter. Respondent Santos sent another letter to petitioner inquiring when it would pay the
balance of P13 million. There was no response from petitioner. Consequently, respondent Santos
applied with the Regional Trial Court of Makati City for the issuance of a writ of execution.

On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and
Damages alleging delay on the part of SVHFI in paying the balance. They further alleged that
under the Compromise Agreement, the obligation became due on October 26, 1992, but payment
of the remaining balance was effected only on November 22, 1994. Thus, respondents prayed
that petitioner be ordered to pay legal interest on the obligation, penalty, attorney’s fees and costs
of litigation. SVHFI alleged that the legal interest on account of fault or delay was not due and
payable, considering that the obligation had been superseded by the compromise agreement.
Moreover, SVHFI argued that absent a stipulation, Santos must ask for judicial intervention for
purposes of fixing the period.

ISSUE:
Whether or not SVHFI incurred in delay based on the compromise agreement and thereby liable
for legal interest

RULING:

Yes. SVHFI is liable for legal interest as penalty on account of delay. The general rule is that a
compromise has upon the parties the effect and authority of res judicata, with respect to the
matter definitely stated therein, or which by implication from its terms should be deemed to have
been included therein. This holds true even if the agreement has not been judicially approved.
Article 1169 of the New Civil Code provides that those obliged to deliver or to do something
incur in delay from the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.

In order for the debtor to be in default, it is necessary that the following requisites be present: (1)
that the obligation be demandable and already liquidated; (2) that the debtor delays performance;
and (3) that the creditor requires the performance judicially or extrajudicially.

In the case at bar, the obligation was already due and demandable after the lapse of the two-year
period from the execution of the contract. The Compromise Agreement was entered into by the
parties on October 26, 1990. It was judicially approved on September 30, 1991. Applying
existing jurisprudence, the compromise agreement as a consensual contract became binding
between the parties upon its execution and not upon its court approval. From the time a
compromise is validly entered into, it becomes the source of the rights and obligations of the
parties thereto. Hence, the two-year period must be counted from October 26, 1990. Verily, the
petitioner is liable for damages for the delay in the performance of its obligation. This is
provided for in Article 1170 of the New Civil Code.