Mactan-Cebu International Airport Authority vs.

Tudtud
G.R. No. 174012| Date: November 15, 2008 | PONENTE: J. Velasco, Jr.
DOCTRINE: Delay -According to Article 1169 of the New Civil Code, default
[arising from delay] begins from the moment creditor demands performance of
an obligation. In the case of an extra-judicial demand, it begins at the time of
communication of said demand.
Since the petitioner Foundation failed to pay its due after the demand of
Riverland was made, the petitioner is liable for damages for the delay in the
performance of its obligation, as provided for in Article 1170 of the New Civil
Code, since Riverland was deprived of funds it was entitled to as per the
Compromise Agreement.

ARTICLE 1170, NCC: Those who in the performance of their obligations are guilty
of fraud, negligence, or delay and those who in any manner contravene the tenor
thereof are liable for damages.

FACTS:
o [SUMMARY] Basically, the Foundation owed Riverland P13M in debt out of a total of
P14.5M. It took them more than 2 years (when the Compromise Agreement said it
should not exceed 2 years from the execution of Agreement) to pay. Riverland is now
suing for declaratory relief and damages for legal interest on the amount paid (aside
from attorney's fees, etc.)
o Petitioner Santos ("Foundation", to distinguish it from the other Santos) and
Respondent Santos ("Riverland") entered into a Compromise Agreement, wherein
they agreed to settle amicably all the civil cases they filed against each other.
o In said Agreement, the Foundation agrees to pay Riverland a total of P14.5M in the
following manner:
a. 1.5M upon the execution of the Agreement;
b. The balance of P13M shall be paid within a period of not more than 2 years
from the execution of the Agreement. If the foundation fails to pay the whole
or any part of the balance, the same shall be paid with the corresponding portion
of the real properties and land subject of the civil cases and covered by notices of
lis pendes.
c. All pending civil cases before the trial court and Court Appeals shall be dismissed
and withdrawn upon receipt of the P1.5M;
d. In the event that the Foundation sells any of the subject properties, part of the
proceeds shall be for the payment of the balance;
e. Failure to comply with any of the terms of the Agreement shall automatically
entitle the aggrieved party to a writ of execution for the enforcement of the
Agreement.
o Foundation paid with provisions a) and c). Riverland discovered that the Foundation
sold 2 real properties previously the subject of lis pendens (meaning: a pending legal
action, or a formal notice of this), without giving a part of the proceeds to the debt
they owed to Riverland.
o Riverland then sent a demand letter to Foundation for the payment of the P13M.
(Since Foundation was able to sell 2 properties already, they should have had the
money to pay the rest of their debt of P13M.)
o RTC of Makati approved the said Compromise Agreement mentioned earlier.
o Foundation still wouldn't pay, so Riverland applied for writ of execution which was
granted. This led to the levying of real properties of the Foundation, which was
formerly the subject of lis pendens.

o
o

In the auction of Foundation's properties, the highest bidder was always

Riverland.
Riverland filed a complaint for declaratory relief and damages because:
There was a delay in the P13M payment (supposed to be due on Oct. 26,
1992, but it was only paid on Nov. 22, 1994),
Foundation should pay legal interest on the obligation (Agreement stated not more
than 2 years from Agreement's execution), along with the penalty, attorney's fees,
costs and that the sales of the properties be declared final and not subject to legal
redemption.
This was countered by the Foundation, which said that Riverland had NO cause of
action and the obligation was already fully paid.
RTC dismissed Riverland's complaints; CA reversed RTC and ordered Foundation to
pay.

ISSUE, HELD AND RATIO DECIDENDI:

1) WON Riverland is entitled to legal interest?
YES. Though the petitioner Foundation contends that the said Compromise Agreement
did not provide for a period within which the obligation to pay the P13M will be due, the
SC held that the Agreement as a consensual contract became binding between
Santos and the Foundation upon its execution on October 26, 1990, and not upon
its court approval on September 30, 1991.
Pursuant to their Agreement, the Foundation agreed to pay the balance of 13M within a
period of not more than 2 years from the execution of the Agreement. The two-year
period must be counted from October 26, 1990, the date of its execution.
When Santos sent a demand letter on October 28, 1992, the obligation was already
due and demandable. And when the Foundation failed to pay its due obligation after
the demand was made, delay sets in.
o Article 1169 of the New Civil Code provides:
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.
o Delay as used in this article is synonymous to default or mora which means
delay in the fulfillment of obligations. It is the non-fulfillment of the
obligation with respect to time. 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:
o (1) the obligation to pay the balance became demandable on October 26,
1992, when the two-year period ended. The obligation was already
liquidated because the debtor (Foundation) knows how much its actual
indebtedness to Rivelrand;
o (2) The Foundation delayed in the performance. It was only able to settle
the balance on February 8, 1995, which was more than two-years from extrajudicial demand;
o (3) The demand letter sent by Riverland on October 28, 1992 constituted
the extra-judicial demand.
The petitioner Foundation is liable for damages for the delay in the performance
of its obligation, as provided for in Article 1170 of the New Civil Code, since
Riverland was deprived of funds it was entitled to as per the Compromise
Agreement.

Goal of compensation: Riverland is to be compensated for the loss of

the use of funds; this is in the form of interest.

The legal interest for loan as forbearance of money is 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code

RULING: Petition DENIED for LACK OF MERIT. Decision and resolution of CA affirmed.
Costs against petitioner.
_________________________________________________________________________