G.R. No. 153004 (November 5, 2004)


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that the legal interest on account of fault or delay was not due and payable, considering that the obligation had been superseded by the compromise agreement.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.


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


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.

 * Case digest by Vera Nataa, LLB-1, Andres Bonifacio Law School, SY 2017-2018