Santos Ventura Hocorma Foundation Inc vs. Ernesto Santos and Riverland Inc.

November 5, 2004 Facts: Ernesto Santos and Santos Ventura Hocorma Foundation Inc (SVHFI) were the plaintiff and defendant, respectively, in several civil cases. On 26 October 1990, they executed a Compromise Agreement (CA) to end the pending litigations. Some of the terms of the agreement are as follows: 1. SVHFI shall pay Santos P14.5M, 1.5M of which shall be paid immediately upon execution of this agreement and 13M within a period of not more than two (2) years from the execution of the agreement

2. 3. 4.

If SVHFI does not pay the 13M within 2 years, it shall be paid with the land subject of lis pendens1 If SVHFI sells any of the lands subject of lis pendens, the proceeds will be partially devoted to the payment of the P13M Santos will dismiss the Civil Cases and lift the notices of lis pendens on the real properties

SVHFI paid the P1.5M while Santos moved for the dismissal of the civil cases. SVHFI sold 2 real properties previously subject to lis pendens. Upon discovering this, Santos sent a letter demanding the payment of the P13M. On 30 September 1991, the RTC of Makati approved the CA On October 28, 1992, Santos sent another letter inquiring when it would pay the P13M, which didnt get a response. Santos applied for a writ of execution of its CA. On March 1993, the Sherriff levied the real properties of SVHFI. Real properties in Pampanga (P12M in 1994) and Bacolod (1995) were auctioned and sold to Riverland Inc. Santos and Riverland filed a Complaint for Declaratory Relief and Damages alleging that there was delay in paying the balance of P13M. It was supposed to be paid October 26, 1992 but was actually paid on November 22, 1994. They pray that SVHFI pay legal interest, penalty, attorneys fees and costs of litigation. SVHFI says that petitioners have no cause of action because it fully paid its obligation and that the delay was due to its valid exercise of its rights to protect its interests as provided under the Rules. Also, SVHFI alleges that where a CA does not provide for a payment of interest, legal interest by way of penalty on account of delay shall not be due and payable considering that the obligation, on which the payment of legal interest is based on, has been superseded by the CA. Also, Santos is barred by res judicata from seeking legal interest because of the waiver clause in the CA. It also claims that the CA didnt fix a period within which the obligation will become due and demandable. Trial Court decided in favor of SVHFI but the Court of Appeals reversed the decision and decided in favor of Santos. Issue and Holding: Whether or not Santos is entitled to legal interest YES Ratio:
1

Latin for "suit pending."

On Compromise Agreements A compromise agreement is a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced. It is an agreement between two or more persons, who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone of them prefers in the hope of gaining, balance by the danger of losing. The general rule is that a compromise has upon the parties the effects and authority or 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. 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. The purpose of the compromise is precisely to replace and terminate controverted claims. On the Period The CA was entered into on October 26, 1990 and was judicially approved on September 30, 1991. It has the effect and authority of res judicata with respect to the matter stated therein even when it has not yet been judicially approved. Thus, it became binding upon its execution and not its court approval. The petitioner paid the initial P1.5M upon execution, which shows SVHFI acknowledged that the agreement was immediately executory. The Court finds that the terms and conditions of the compromise agreement as to the remaining balance of P13M are clear and ambiguous. The 2-year period must be counted from October 26, 1990, the date of execution of the CA. When Santos wrote a demand letter on October 28, 1992, the obligation was already due and demandable. By NCC 1169, SVHFI incurred delay when it failed to pay its due obligation after the demand was made.

In order for the debtor to be in default, there must be (1) an obligation that is demandable and already liquidated, (2) debtor delays performance (3) creditor requires the performance judicially or extra-judicially.

1.

In this case, the obligation was already due and demandable after the lapse of the 2-year period. When Santos wrote a demand letter, the obligation was already demandable and liquidated since SVHFI already knew how much it had to pay and when he should pay it. SVHFI delayed in the performance; settled the balance only on Feb 8, 1995. Demand letter sent on Oct 28, 1992 was an extra-judicial demand

2. 3.

SVHFI is liable for damages for the delay in the performance as provided for in NCC 1170. When the debtor knows the amount and period when he is to pay, interest as damages is generally allowed as a matter of right. In the absence of agreement, the legal rate of interest shall prevail (12% pa)