G.R. No. 153004. November 5, 2004. SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner, vs. ERNESTO V. SANTOS and RIVERLAND, INC., respondents.
FACTS:

Petitioner Santos Ventura Hocorma Foundation, Inc. (SVHFI) and respondent Ernesto V. Santos executed a Compromise Agreement on October 26, 1990, to settle their multiple pending litigations. Under the agreement, SVHFI was obligated to pay Santos P14.5 million: P1.5 million immediately and the P13 million balance, at its discretion, within two years. A critical provision stated that if SVHFI failed to pay the balance within two years, payment could only be made “in the form of land” from properties previously under lis pendens. Santos complied by dismissing the cases and lifting the lis pendens. SVHFI paid the initial P1.5 million but sold two of the subject properties without applying the proceeds to the debt.
The compromise was judicially approved. After the two-year period lapsed on October 26, 1992, with the balance unpaid, Santos made a formal demand on October 28, 1992. SVHFI ignored the demand and engaged in protracted legal maneuvers to obstruct the execution of the judgment. Consequently, SVHFI’s properties were levied and auctioned in 1994 and 1995, with respondent Riverland, Inc. as the winning bidder. Santos and Riverland then filed a complaint seeking payment of legal interest on the delayed obligation and a declaration that the auction sales were final.

ISSUE

Whether petitioner SVHFI is liable for legal interest due to its delay in paying the monetary obligation under the Compromise Agreement.

RULING

Yes, SVHFI is liable for legal interest. The Supreme Court affirmed the Court of Appeals’ decision. The Compromise Agreement created a reciprocal obligation. SVHFI’s primary obligation was to pay the P13 million balance within two years, with the alternative mode of payment in land arising only upon default after that period. By selling the subject properties and failing to pay the balance by October 26, 1992, SVHFI was in delay (mora solvendi).
The Court emphasized that a compromise agreement has the force of res judicata and is immediately executory. SVHFI’s subsequent legal tactics to hinder the execution of the final judgment constituted a contravention of the agreement’s tenor and amounted to delay in performance. The extrajudicial demand letter of October 28, 1992, was valid and effectively placed SVHFI in default. Under Article 1170 of the Civil Code, a debtor in delay is liable for damages. The deprivation of the use of money to which Santos was entitled warrants compensation in the form of interest. In the absence of a stipulated interest rate, the legal rate of 12% per annum for loans or forbearance of money applies, computed from the date of extrajudicial demand on October 28, 1992, until full payment.