FBI vs FSI

(2 petitions for review on certiorari of one and the same CA decision)

Facts:
- FBI subcontracted FSI for the construction of the Trafalgar Plaza in Makati.
- Both parties agree on a DP of 20% with progress billing for the remaining balance.
- For failing to pay bills 3 and 4, FSI filed a complaint for a sum of money,
contending that it finished 97% of the work
- In its Answer with CC, FBI claimed that FSI completed
only 85% of the contracted works,
failing to finish the diaphragm wall and component works in accordance with
the plans and specifications and abandoning the jobsite;
that it incurred amounts to perform remedial work
- RTC Ruling: In favor of FSI
asking FBI to pay billings 3 and 4 with 12% legal interest,
pay cost of undelivered cement, attys fees and cost of suit
- CA Ruling: Affirmed RTC
but deleted cost of undelivered cement for FSI failed to substantiate how it
incurred cost of cement when the same is not supported by actual receipts
and reduced attys fees since theyre unconscionable
- FSI: When the obligation to pay a sum of money is breached, the interest due shall
earn legal interest at the stipulated rate from the time it is judicially demanded; if
no stipulated interest, rate is at 12% (Art 2209, NCC)
- Both parties filed MR, to no avail, so filed pets. for review on certiorari to SC
- FSI: it is undisputed that FBI failed to deliver the agreed quantity of cement so CA
erred in deleting award for cost of undelivered cement
- FBI: CA erred in awarding sum representing Bills 3 and 4 with interest
- FSI, denied for late filing. FBI petition subsists
Issues:
1. W/N FBI is liable to pay the balance of construction contract considering that
the diaphragm wall was defective and was needed to be reconstructed at
FBIs expense
2. W/N 12% legal interest is applicable when the obligation is not loan or
forbearance of money
Ruling:
1. Yes. FBI failed to present any evidence to justify its refusal to pay FSI for the
works it was contracted to perform. There is no sufficient reason to reverse
the decisions of the lower courts. FBI was able to evaluate the works of FSI,
and yet paid amount of 6M. There was no prior complaint on the part of FBI.
The failure of FSI to fulfill some of the agreed obligations is the failure of FBI
to perform their part of that obligation.
2. Not applicable. The obligation does not consist of payment of forbearance of
money or loan.

Former Rule:
a. When the obligation to pay a sum of money is breached, the interest
due shall earn legal interest at the stipulated rate from the time it is
judicially demanded; if no stipulated interest, rate is at 12% from the
date of default (from date of judicial or extrajudicial demand) subject
to Art 1169, NCC (note: 3 circumstances when demand is not
necessary otherwise provided, designation of time is controlling
motive for the contract, obligors performance)
b. For non-loan obligations, interest is 6% per annum, except when
claim is unliquidated in which case, interest runs from the time claim is
established. When demanded but not substantiated, interest runs from
the date of judgment, and amount is that finally adjudged. Then if it
becomes final and executory, then legal interest begins to run at 12%.
Modified Rule (2013, Nacar v. Gallery Frames):
For interest in actual or compensatory damages:
a. For payment of sum of money (forbearance/loan) that stipulated; in the
absence of stipulation: 6% per annum from default (judicial/EJ demand)
under Art 1169, NCC
b. For non-loan obligations, 6% per annum; on unliquidated claims, no
interest except beginning the time they are ascertained; if demanded but
not substantiated, interest runs from date of judgment, based on the
amount adjudged.
c. Final and executory decisions on award of money: 6% per annum from
finality until satisfied.
Note: decisions that attained finality prior to this case law shall be
undisturbed
Obilgations consisting of loan or forbearance of money:
a. Loan is a contract where obligor or creditor has refrained to require an
obligor to repay credit or loan then due and payable, during a period of
time.
b. Forbearance of money, goods or credits, therefore, refers to arrangements
other than loan agreements, where a person acquiesces to the temporary
use of his money, goods or credits pending the happening of certain
events or fulfilment of certain conditions.
RULES:
I.
12% interest applies only in cases of loan/forbearance of money.
II.
BUT for money judgment NOT involving forbearance/loan; and for
damages resulting from default in performance of obligation, Art 2209,
NCC applies, 6% per annum
This case does not involve forbearance of money so interest should be at 6%
per annum beginning from FSIs date of extrajudicial demand through a
letter, even 6% per annum after the finality of judgment.