ACCRUED INTEREST CASES

1.)

Republic of the Philippines

Supreme Court
Baguio City

FIRST DIVISION
HERMOJINA ESTORES, G.R. No. 175139
Petitioner,
Present:

CORONA, C.J., Chairperson,

- versus - LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.
SPOUSES ARTURO and
LAURA SUPANGAN, Promulgated:
Respondents. April 18, 2012
x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

The only issue posed before us is the propriety of the imposition of interest and
attorneys fees.

Assailed in this Petition for Review[1] filed under Rule 45 of the Rules of Court is the
May 12, 2006 Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No. 83123, the
dispositive portion of which reads:
 WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall
be six percent (6%) per annum, computed from September 27, 2000 until its full payment
before finality of the judgment. If the adjudged principal and the interest (or any part
thereof) remain unpaid thereafter, the interest rate shall be adjusted to twelve percent
(12%) per annum, computed from the time the judgment becomes final and executory
until it is fully satisfied. The award of attorneys fees is hereby reduced
to P100,000.00. Costs against the defendants-appellants.

SO ORDERED.[3]
Also assailed is the August 31, 2006 Resolution [4] denying the motion for
reconsideration.

Factual Antecedents

On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and

Laura Supangan entered into a Conditional Deed of Sale[5] whereby petitioner offered to
sell, and respondent-spouses offered to buy, a parcel of land covered by Transfer
Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum of P4.7
million. The parties likewise stipulated, among others, to wit:

xxxx

1. Vendor will secure approved clearance from DAR requirements of which are (sic):
a) Letter request
b) Title
c) Tax Declaration
d) Affidavit of Aggregate Landholding Vendor/Vendee
e) Certification from the Provl. Assessors as to Landholdings of Vendor/Vendee
f) Affidavit of Non-Tenancy
g) Deed of Absolute Sale

xxxx

4. Vendee shall be informed as to the status of DAR clearance within 10 days upon
signing of the documents.

xxxx

6. Regarding the house located within the perimeter of the subject [lot] owned by spouses
[Magbago], said house shall be moved outside the perimeter of this subject property
to the 300 sq. m. area allocated for [it]. Vendor hereby accepts the responsibility of
seeing to it that such agreement is carried out before full payment of the sale is made
by vendee.
 7. If and after the vendor has completed all necessary documents for registration of the
title and the vendee fails to complete payment as per agreement, a forfeiture fee of
25% or downpayment, shall be applied. However, if the vendor fails to complete
necessary documents within thirty days without any sufficient reason, or without
informing the vendee of its status, vendee has the right to demand return of full
amount of down payment.

xxxx

9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee
shall be informed immediately of its approval by the LRC.

10. The vendor assures the vendee of a peaceful transfer of ownership.

x x x x [6]

After almost seven years from the time of the execution of the contract and
notwithstanding payment of P3.5 million on the part of respondent-spouses, petitioner
still failed to comply with her obligation as expressly provided in paragraphs 4, 6, 7, 9
and 10 of the contract. Hence, in a letter[7] dated September 27, 2000, respondent-spouses
demanded the return of the amount of P3.5 million within 15 days from receipt of the
letter. In reply,[8] petitioner acknowledged receipt of the P3.5 million and promised to
return the same within 120 days. Respondent-spouses were amenable to the proposal
provided an interest of 12% compounded annually shall be imposed on the P3.5 million.
[9]
When petitioner still failed to return the amount despite demand, respondent-spouses
were constrained to file a Complaint[10] for sum of money before the Regional Trial Court
(RTC) of Malabon against herein petitioner as well as Roberto U. Arias (Arias) who
allegedly acted as petitioners agent. The case was docketed as Civil Case No. 3201-MN
and raffled off to Branch 170. In their complaint, respondent-spouses prayed that
petitioner and Arias be ordered to:

1. Pay the principal amount of P3,500,000.00 plus interest of 12%

compounded annually starting October 1, 1993 or an estimated amount
of P8,558,591.65;

2. Pay the following items of damages:

a) Moral damages in the amount of P100,000.00;

 b) Actual damages in the amount of P100,000.00;
c) Exemplary damages in the amount of P100,000.00;
d) [Attorneys] fee in the amount of P50,000.00 plus 20% of recoverable
amount from the [petitioner].
e) [C]ost of suit.[11]

In their Answer with Counterclaim,[12] petitioner and Arias averred that they are
willing to return the principal amount of P3.5 million but without any interest as the same
was not agreed upon. In their Pre-Trial Brief,[13] they reiterated that the only remaining
issue between the parties is the imposition of interest. They argued that since the
Conditional Deed of Sale provided only for the return of the downpayment in case of
breach, they cannot be held liable to pay legal interest as well.[14]

In its Pre-Trial Order[15] dated June 29, 2001, the RTC noted that the parties agreed
that the principal amount of 3.5 million pesos should be returned to the [respondent-
spouses] by the [petitioner] and the issue remaining [is] whether x x x [respondent-
spouses] are entitled to legal interest thereon, damages and attorneys fees.[16]

Trial ensued thereafter. After the presentation of the respondent-spouses evidence,

the trial court set the presentation of Arias and petitioners evidence on September 3,
2003.[17] However, despite several postponements, petitioner and Arias failed to appear
hence they were deemed to have waived the presentation of their
evidence. Consequently, the case was deemed submitted for decision.[18]

Ruling of the Regional Trial Court

On May 7, 2004, the RTC rendered its Decision[19] finding respondent-spouses entitled to
interest but only at the rate of 6% per annum and not 12% as prayed by them. [20] It also
found respondent-spouses entitled to attorneys fees as they were compelled to litigate to
protect their interest.[21]

The dispositive portion of the RTC Decision reads:

 WHEREFORE, premises considered, judgment is hereby rendered in favor of
the [respondent-spouses] and ordering the [petitioner and Roberto Arias] to jointly and
severally:

1. Pay [respondent-spouses] the principal amount of Three Million Five

Hundred Thousand pesos (P3,500,000.00) with an interest of 6% compounded annually
starting October 1, 1993 and attorneys fee in the amount of Fifty Thousand pesos
(P50,000.00) plus 20% of the recoverable amount from the defendants and cost of the
suit.

The Compulsory Counter Claim is hereby dismissed for lack of factual evidence.

SO ORDERED.[22]

Ruling of the Court of Appeals

Aggrieved, petitioner and Arias filed their notice of appeal.[23] The CA noted that the only
issue submitted for its resolution is whether it is proper to impose interest for an
obligation that does not involve a loan or forbearance of money in the absence of
stipulation of the parties.[24]

On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of
the RTC finding the imposition of 6% interest proper.[25] However, the same shall start to
run only from September 27, 2000 when respondent-spouses formally demanded the
return of their money and not from October 1993 when the contract was executed as held
by the RTC. The CA also modified the RTCs ruling as regards the liability of Arias. It
held that Arias could not be held solidarily liable with petitioner because he merely acted
as agent of the latter. Moreover, there was no showing that he expressly bound himself to
be personally liable or that he exceeded the limits of his authority. More importantly,
there was even no showing that Arias was authorized to act as agent of petitioner.
[26]
Anent the award of attorneys fees, the CA found the award by the trial court
(P50,000.00 plus 20% of the recoverable amount) excessive [27] and thus reduced the
same to P100,000.00.[28]
The dispositive portion of the CA Decision reads:

WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six
percent (6%) per annum, computed from September 27, 2000 until its full payment
before finality of the judgment. If the adjudged principal and the interest (or any part
 thereof) remain[s] unpaid thereafter, the interest rate shall be adjusted to twelve percent
(12%) per annum, computed from the time the judgment becomes final and executory
until it is fully satisfied. The award of attorneys fees is hereby reduced
to P100,000.00. Costs against the [petitioner].

SO ORDERED.[29]

Petitioner moved for reconsideration which was denied in the August 31, 2006
Resolution of the CA.

Hence, this petition raising the sole issue of whether the imposition of interest and
attorneys fees is proper.

Petitioners Arguments

Petitioner insists that she is not bound to pay interest on the P3.5 million because the
Conditional Deed of Sale only provided for the return of the downpayment in case of
failure to comply with her obligations. Petitioner also argues that the award of attorneys
fees in favor of the respondent-spouses is unwarranted because it cannot be said that the
latter won over the former since the CA even sustained her contention that the imposition
of 12% interest compounded annually is totally uncalled for.

Respondent-spouses Arguments

Respondent-spouses aver that it is only fair that interest be imposed on the amount they
paid considering that petitioner failed to return the amount upon demand and had been
using the P3.5 million for her benefit. Moreover, it is undisputed that petitioner failed to
perform her obligations to relocate the house outside the perimeter of the subject property
and to complete the necessary documents. As regards the attorneys fees, they claim that
they are entitled to the same because they were forced to litigate when petitioner unjustly
withheld the amount. Besides, the amount awarded by the CA is even smaller compared
to the filing fees they paid.

Our Ruling

The petition lacks merit.

Interest may be imposed even in the
absence of stipulation in the contract.

We sustain the ruling of both the RTC and the CA that it is proper to impose
interest notwithstanding the absence of stipulation in the contract. Article 2210 of the
Civil Code expressly provides that [i]nterest may, in the discretion of the court, be
allowed upon damages awarded for breach of contract. In this case, there is no question
that petitioner is legally obligated to return the P3.5 million because of her failure to
fulfill the obligation under the Conditional Deed of Sale, despite demand. She has in fact
admitted that the conditions were not fulfilled and that she was willing to return the full
amount of P3.5 million but has not actually done so. Petitioner enjoyed the use of the
money from the time it was given to her [30] until now. Thus, she is already in default of
her obligation from the date of demand, i.e., on September 27, 2000.

The interest at the rate of 12% is

applicable in the instant case.

Anent the interest rate, the general rule is that the applicable rate of interest shall
be computed in accordance with the stipulation of the parties. [31] Absent any stipulation,
the applicable rate of interest shall be 12% per annum when the obligation arises out of a
loan or a forbearance of money, goods or credits. In other cases, it shall be six percent
(6%).[32] In this case, the parties did not stipulate as to the applicable rate of interest. The
only question remaining therefore is whether the 6% as provided under Article 2209 of
the Civil Code, or 12% under Central Bank Circular No. 416, is due.

The contract involved in this case is admittedly not a loan but a Conditional Deed
of Sale. However, the contract provides that the seller (petitioner) must return the
payment made by the buyer (respondent-spouses) if the conditions are not
fulfilled. There is no question that they have in fact, not been fulfilled as the seller
(petitioner) has admitted this.Notwithstanding demand by the buyer (respondent-
spouses), the seller (petitioner) has failed to return the money and
should be considered in default from the time that demand was made on September 27,
2000.

Even if the transaction involved a Conditional Deed of Sale, can the stipulation
governing the return of the money be considered as a forbearance of money which
required payment of interest at the rate of 12%? We believe so.

In Crismina Garments, Inc. v. Court of Appeals, [33] forbearance was defined as a

contractual obligation of lender or creditor to refrain during a given period of time, from
requiring the borrower or debtor to repay a loan or debt then due and payable. This
definition describes a loan where a debtor is given a period within which to pay a loan or
debt.In such case, forbearance of money, goods or credits will have no distinct definition
from a loan. We believe however, that the phrase forbearance of money, goods or credits
is meant to have a separate meaning from a loan, otherwise there would have been no
need to add that phrase as a loan is already sufficiently defined in the Civil Code.
[34]
Forbearance of money, goods or credits should therefore refer to arrangements other
than loan agreements, where a person acquiesces to the temporary use of his money,
goods or credits pending happening of certain events or fulfillment of certain
conditions. In this case, the respondent-spouses parted with their money even before the
conditions were fulfilled. They have therefore allowed or granted forbearance to the
seller (petitioner) to use their money pending fulfillment of the conditions. They were
deprived of the use of their money for the period pending fulfillment of the conditions
and when those conditions were breached, they are entitled not only to the return of the
principal amount paid, but also to compensation for the use of their money. And the
compensation for the use of their money, absent any stipulation, should be the same rate
of legal interest applicable to a loan since the use or deprivation of funds is similar to a
loan.

Petitioners unwarranted withholding of the money which rightfully pertains to

respondent-spouses amounts to forbearance of money which can be considered as an
involuntary loan. Thus, the applicable rate of interest is 12% per annum. In Eastern
Shipping Lines, Inc. v. Court of Appeals, [35]cited in Crismina Garments, Inc. v. Court of
Appeals,[36] the Court suggested the following guidelines:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-

contracts, delicts or quasi-delicts is breached, the contravenor can be held
 liable for damages. The provisions under Title XVIII on Damages of the
Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of

actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment

of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 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.

2. When an obligation, not constituting a loan or forbearance of money,

is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of
the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.

3. When the judgment of the court awarding a sum of money becomes

final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.[37]

Eastern Shipping Lines, Inc. v. Court of Appeals [38]and its predecessor

case, Reformina v. Tongol[39] both involved torts cases and hence, there was no
forbearance of money, goods, or credits. Further, the amount claimed (i.e., damages)
could not be established with reasonable certainty at the time the claim was made. Hence,
we arrived at a different ruling in those cases.
 Since the date of demand which is September 27, 2000 was satisfactorily
established during trial, then the interest rate of 12% should be reckoned from said date
of demand until the principal amount and the interest thereon is fully satisfied.

The award of attorneys fees is

warranted.

Under Article 2208 of the Civil Code, attorneys fees may be recovered:

xxxx

(2) When the defendants act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

xxxx

(11) In any other case where the court deems it just and equitable that attorneys fees
and expenses of litigation should be recovered.

In all cases, the attorneys fees and expenses of litigation must be reasonable.
Considering the circumstances of the instant case, we find respondent-spouses
entitled to recover attorneys fees. There is no doubt that they were forced to litigate to
protect their interest, i.e., to recover their money. However, we find the amount
of P50,000.00 more appropriate in line with the policy enunciated in Article 2208 of the
Civil Code that the award of attorneys fees must always be reasonable.

WHEREFORE, the Petition for Review is DENIED. The May 12, 2006
Decision of the Court of Appeals in CA-G.R. CV No. 83123
is AFFIRMED with MODIFICATIONS that the rate of interest shall be twelve
percent (12%) per annum, computed from September 27, 2000 until fully satisfied. The
award of attorneys fees is further reduced to P50,000.00.

SO ORDERED.

MARIANO C. DEL CASTILLO

 Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN

Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

C E R T I FI CAT I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
 Chief Justice

2.
Today is Friday, December 28, 2018
Top of Form

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,

vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

Zapa Law Office for private respondent.

VITUG, J.:

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a
shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre
operator and the customs broker; (b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or from the date the decision
appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is
twelve percent (12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed
facts that have led to the controversy are hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and

broker-forwarder for damages sustained by a shipment while in defendants'
custody, filed by the insurer-subrogee who paid the consignee the value of
such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from

Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by
defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine
Insurance Policy No. 81/01177 for P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was

discharged unto the custody of defendant Metro Port Service, Inc. The latter
excepted to one drum, said to be in bad order, which damage was unknown
to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the

shipment from defendant Metro Port Service, Inc., one drum opened and
without seal (per "Request for Bad Order Survey." Exh. D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made

deliveries of the shipment to the consignee's warehouse. The latter excepted
to one drum which contained spillages, while the rest of the contents was
adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum,

the consignee suffered losses totaling P19,032.95, due to the fault and
negligence of defendants. Claims were presented against defendants who
failed and refused to pay the same (Exhs. H, I, J, K, L).

As a consequence of the losses sustained, plaintiff was compelled to pay the

consignee P19,032.95 under the aforestated marine insurance policy, so that
it became subrogated to all the rights of action of said consignee against
defendants (per "Form of Subrogation", "Release" and Philbanking check,
Exhs. M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court
said:

Defendants filed their respective answers, traversing the material allegations

of the complaint contending that: As for defendant Eastern Shipping it alleged
that the shipment was discharged in good order from the vessel unto the
custody of Metro Port Service so that any damage/losses incurred after the
shipment was incurred after the shipment was turned over to the latter, is no
longer its liability (p. 17, Record); Metroport averred that although subject
shipment was discharged unto its custody, portion of the same was already in
bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause
of action against it, not having negligent or at fault for the shipment was
already in damage and bad order condition when received by it, but
nonetheless, it still exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same condition shipment
was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained

while in the custody of defendants (in whose respective
custody, if determinable);

3. Whether or not defendant(s) should be held liable for the

losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34;
Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).

As to the first issue, there can be no doubt that the shipment

sustained losses/damages. The two drums were shipped in
good order and condition, as clearly shown by the Bill of
Lading and Commercial Invoice which do not indicate any
damages drum that was shipped (Exhs. B and C). But when
on December 12, 1981 the shipment was delivered to
defendant Metro Port Service, Inc., it excepted to one drum in
bad order.

Correspondingly, as to the second issue, it follows that the

losses/damages were sustained while in the respective
and/or successive custody and possession of defendants
carrier (Eastern), arrastre operator (Metro Port) and broker
(Allied Brokerage). This becomes evident when the Marine
Cargo Survey Report (Exh. G), with its "Additional Survey
Notes", are considered. In the latter notes, it is stated that
when the shipment was "landed on vessel" to dock of Pier #
15, South Harbor, Manila on December 12, 1981, it was
observed that "one (1) fiber drum (was) in damaged
condition, covered by the vessel's Agent's Bad Order Tally
Sheet No. 86427." The report further states that when
defendant Allied Brokerage withdrew the shipment from
defendant arrastre operator's custody on January 7, 1982,
one drum was found opened without seal, cello bag partly
torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums
reached the consignee, one drum was found with
adulterated/faked contents. It is obvious, therefore, that these
losses/damages occurred before the shipment reached the
consignee while under the successive custodies of
defendants. Under Art. 1737 of the New Civil Code, the
common carrier's duty to observe extraordinary diligence in
 the vigilance of goods remains in full force and effect even if
the goods are temporarily unloaded and stored in transit in
the warehouse of the carrier at the place of destination, until
the consignee has been advised and has had reasonable
opportunity to remove or dispose of the goods (Art. 1738,
NCC). Defendant Eastern Shipping's own exhibit, the "Turn-
Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states
that on December 12, 1981 one drum was found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is

hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest

of 12% per annum from October 1, 1982, the date of filing of
this complaints, until fully paid (the liability of defendant
Eastern Shipping, Inc. shall not exceed US$500 per case or
the CIF value of the loss, whichever is lesser, while the
liability of defendant Metro Port Service, Inc. shall be to the
extent of the actual invoice value of each package, crate box
or container in no case to exceed P5,000.00 each, pursuant
to Section 6.01 of the Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and

crossclaim of defendant/cross-claimant Allied
Brokerage Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion
drawn therefrom is correct. As there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants, and
therefore they are liable to the appellee, as subrogee for the amount it paid to
the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court
a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of
discretion on the part of the appellate court when —

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE

WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE
CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE

RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING
OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE
TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM,
PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all
that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack
to.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the
time the articles are surrendered to or unconditionally placed in the possession of, and received by,
the carrier for transportation until delivered to, or until the lapse of a reasonable time for their
acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of
Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped
either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express finding of negligence to hold it liable (Art.
1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port
Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such
presumption of fault is not observed but these cases, enumerated in Article 1734 of the Civil Code,
1

are exclusive, not one of which can be applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and
the arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is
akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad
Co., 19 SCRA 5 [1967]. The relationship between the consignee and the
common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is
the duty of the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE and
the CARRIER are therefore charged with the obligation to deliver the goods
in good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption
of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a
quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants" (the herein petitioner among
them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this
case, is inevitable regardless of whether there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a
passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service, decided on 15 May 1969, involved a suit for recovery of money arising out of short
2 3

deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower
court) averred in its complaint that the total amount of its claim for the value of the undelivered goods
amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely
ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of
P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants)
Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of
P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962
until full payment thereof. The appellants then assailed, inter alia, the award of legal interest. In
sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the date
of demand, judicial or extrajudicial. The trial court opted for judicial demand
as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest
"cannot be recovered upon unliquidated claims or damages, except when the
demand can be established with reasonable certainty." And as was held by
this Court in Rivera vs. Perez, L-6998, February 29, 1956, if the suit were for
4

damages, "unliquidated and not known until definitely ascertained, assessed

and determined by the courts after proof (Montilla c. Corporacion de
P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision."
(Emphasis supplied)

The case of Reformina vs. Tomol, rendered on 11 October 1985, was for "Recovery of Damages for
5

Injury to Person and Loss of Property." After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third

party defendants and against the defendants and third party plaintiffs as
follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated
to pay jointly and severally the following persons:
 xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of

P131,084.00 which is the value of the boat F B Pacita III together with its
accessories, fishing gear and equipment minus P80,000.00 which is the
value of the insurance recovered and the amount of P10,000.00 a month as
the estimated monthly loss suffered by them as a result of the fire of May 6,
1969 up to the time they are actually paid or already the total sum of
P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs
against defendants and third party plaintiffs. (Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages
awarded but sustained the trial court in adjudging legal interest from the filing of the
complaint until fully paid. When the appellate court's decision became final, the case
was remanded to the lower court for execution, and this was when the trial court
issued its assailed resolution which applied the 6% interest per annum prescribed in
Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners
contended that Central Bank Circular
No. 416, providing thus —

By virtue of the authority granted to it under Section 1 of Act 2655, as

amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974,
has prescribed that the rate of interest for the loan, or forbearance of any
money, goods, or credits and the rate allowed in judgments, in the absence
of express contract as to such rate of interest, shall be twelve (12%)
percent per annum. This Circular shall take effect immediately. (Emphasis
found in the text) —

should have, instead, been applied. This Court ruled:

6

The judgments spoken of and referred to are judgments in litigations

involving loans or forbearance of any money, goods or credits. Any other kind
of monetary judgment which has nothing to do with, nor involving loans or
forbearance of any money, goods or credits does not fall within the coverage
of the said law for it is not within the ambit of the authority granted to the
Central Bank.

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons and loss of property
and does not involve any loan, much less forbearances of any money, goods
or credits. As correctly argued by the private respondents, the law applicable
to the said case is Article 2209 of the New Civil Code which reads —

Art. 2209. — If the obligation consists in the payment of a

sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall
be the payment of interest agreed upon, and in the absence
of stipulation, the legal interest which is six percent per
 annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, promulgated on 28 July
7

1986. The case was for damages occasioned by an injury to person and loss of property. The trial
court awarded private respondent Pedro Manabat actual and compensatory damages in the amount
of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on
the Reformina v. Tomol case, this Court modified the interest award from 12% to 6% interest per
8

annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully
paid.

In Nakpil and Sons vs. Court of Appeals, the trial court, in an action for the recovery of damages
9

arising from the collapse of a building, ordered,

inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November
29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of
the amount granted by the lower court, the Court of Appeals sustained the trial court's decision.
When taken to this Court for review, the case, on 03 October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and

considering the special and environmental circumstances of this case, we
deem it reasonable to render a decision imposing, as We do hereby impose,
upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception to attorney's
fees) occasioned by the loss of the building (including interest charges and
lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00)
Pesos as and for attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such finality, twelve (12%) per
cent interest per annum shall be imposed upon aforementioned amounts
from finality until paid. Solidary costs against the defendant and third-party
defendants (Except Roman Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the
interest of twelve (12%) per cent per annum imposed on the total amount of the
monetary award was in contravention of law." The Court ruled out the applicability of
10

the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April
1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant to

Central Bank Circular No. 416 . . . is applicable only in the following: (1)
loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments
involving loans or forbearance of any money, goods or credits. (Philippine
Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is
neither a loan or a forbearance, but then no interest is actually imposed
provided the sums referred to in the judgment are paid upon the finality of the
judgment. It is delay in the payment of such final judgment, that will cause
the imposition of the interest.
 It will be noted that in the cases already adverted to, the rate of interest is
imposed on the total sum, from the filing of the complaint until paid; in other
words, as part of the judgment for damages. Clearly, they are not applicable
to the instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court was 11

a petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate
Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the
amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and
P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of
judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the
right of the private respondent to recover damages, held the award, however, for moral damages by
the trial court, later sustained by the IAC, to be inconceivably large. The Court thus set aside the
12

decision of the appellate court and rendered a new one, "ordering the petitioner to pay private
respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz which arose from
13

a breach of employment contract. For having been illegally dismissed, the petitioner was awarded by
the trial court moral and exemplary damages without, however, providing any legal interest thereon.
When the decision was appealed to the Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of

Negros Oriental dated October 31, 1972 is affirmed in all respects, with the
modification that defendants-appellants, except defendant-appellant Merton
Munn, are ordered to pay, jointly and severally, the amounts stated in the
dispositive portion of the decision, including the sum of P1,400.00 in concept
of compensatory damages, with interest at the legal rate from the date of the
filing of the complaint until fully paid(Emphasis supplied.)

The petition for review to this Court was denied. The records were thereupon
transmitted to the trial court, and an entry of judgment was made. The writ of
execution issued by the trial court directed that only compensatory damages should
earn interest at 6% per annum from the date of the filing of the complaint. Ascribing
grave abuse of discretion on the part of the trial judge, a petition
for certiorari assailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of

interest "at the legal rate" from the time of the filing of the complaint. . . Said
circular [Central Bank Circular No. 416] does not apply to actions based on a
breach of employment contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest per annum on the damages should be
computed from the time the complaint was filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas, decided on 08 May 1992, involved the expropriation of certain parcels of land. After
14

conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to
pay the private respondents certain sums of money as just compensation for their lands so
expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal
interest per annum under the Civil Code, the Court declared:
15

. . . , (T)he transaction involved is clearly not a loan or forbearance of money,

goods or credits but expropriation of certain parcels of land for a public
purpose, the payment of which is without stipulation regarding interest, and
the interest adjudged by the trial court is in the nature of indemnity for
damages. The legal interest required to be paid on the amount of just
compensation for the properties expropriated is manifestly in the form of
indemnity for damages for the delay in the payment thereof. Therefore, since
the kind of interest involved in the joint judgment of the lower court sought to
be enforced in this case is interest by way of damages, and not by way of
earnings from loans, etc. Art. 2209 of the Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding
rulings rendered by the court. The "first group" would consist of the cases of Reformina
v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan
Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v.Intermediate Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code)
or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases
that there has been a consistent holding that the Central Bank Circular imposing the 12%
interest per annum applies only to loans or forbearance of money, goods or credits, as well as to
16

judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest
under the Civil Code governs when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations in general.
Observe, too, that in these cases, a common time frame in the computation of the 6% interest per
annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully
paid.

The "second group", did not alter the pronounced rule on the application of the 6% or 12%
interest per annum, depending on whether or not the amount involved is a loan or forbearance, on
17

the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group"
which remained consistent in holding that the running of the legal interest should be from the time of
the filing of the complaint until fully paid, the "second group" varied on the commencement of the
running of the legal interest.

Malayan held that the amount awarded should bear legal interest from the date of the decision of the
court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the
date of the decision.'" American Express International v. IAC, introduced a different time frame for
reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid."
The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of
the decision until the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for
different applications, guided by the rule that the courts are vested with discretion, depending on the
equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of
clarification and reconciliation, to suggest the following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title
18 19

XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
21

demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
22

computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions
of Article 1169 of the Civil Code.
23

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on

the amount of damages awarded may be imposed at the discretion of the court at the rate of 24

6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except
25

when or until the demand can be established with reasonable certainty. Accordingly, where the
26

demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may be deemed
to have been reasonably ascertained). The actual base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due
computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT
(6%), shall be imposed on such amount upon finality of this decision until the payment thereof.

SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero,
Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.

Mendoza, J., took no part.

#Footnotes

1 Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following
causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or

calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the

containers;

(5) Order or act of competent public authority.

2 28 SCRA 65.

3 Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L.

Reyes, Arsenio Dizon, Querube Makalintal, Calixto Zaldivar, Enrique
Fernando, Francisco Capistrano, Claudio Teehankee and Antonio Barredo,
Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on
official leave.

4 The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-
6998,
29 February 1956," 98 Phil. 516.

5 139 SCRA 260, 265.

6 Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes

Concepcion, Jr., Vicente Abad Santos, Ameurfina Melencio-Herrera, Venicio
Escolin, Lorenzo Relova, Hugo Gutierrez, Jr., Buenaventura de la Fuente,
Nestor Alampay and Lino Patajo. Justice Ramon Aquino concurred in the
result. Justice Efren Plana filed a concurring and dissenting opinion,
concurred in by Justice Claudio Teehankee while Chief Justice Felix
Makasiar concurred with the separate opinion of Justice Plana.

7 143 SCRA 158.

8 Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in

by Justices Pedro Yap, Ameurfina Melencio-Herrera, Isagani A. Cruz and
Edgardo Paras.

9 160 SCRA 334.

10 Penned by Justice Edgardo Paras, with the concurrence of Justices

Marcelo Fernan, Teodoro Padilla, Abdulwahid Bidin, and Irene Cortes. Justice
Hugo Gutierrez, Jr., took no part because he was the ponente in the Court of
Appeals.
11 167 SCRA 209.

12 Rendered per curiam with the concurrence of then Chief Justice Marcelo
Fernan, Justices Andres Narvasa, Isagani A. Cruz, Emilio Gancayco, Teodoro
Padilla, Abdulwahid Bidin, Abraham Sarmiento, Irene Cortes, Carolina Griño-
Aquino, Leo Medialdea and Florenz Regalado. Justices Ameurfina Melencio-
Herrera and Hugo Gutierrez, Jr., took no part because they did not participate
in the deliberations. Justices Edgardo Paras and Florentino Feliciano also
took no part.

13 170 SCRA 461.

14 208 SCRA 542.

15 Penned by Justice Edgardo Paras with the concurrence of Justices

Ameurfina Melencio-Herrera, Teodoro Padilla, Florenz Regalado and Rodolfo
Nocon.

16 Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v. Spaeth,
22 Wash. 2d 378, 156 P.2d 408, 411 defines the word forbearance, within the
context of usury law, as a contractual obligation of lender or creditor to
refrain, during given period of time, from requiring borrower or debtor to
repay loan or debt then due and payable.

17 In the case of Malayan Insurance, the application of the 6% and 12%

interest per annum has no bearing considering that this case was decided
upon before the issuance of Circular No. 416 by the Central Bank.

18 Art. 1157. Obligations arise from.

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Qausi-delicts."

19 Art. 1170. 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.

20 Art. 2195. The provisions of this Title (on Damages) shall be respectively
applicable to all obligations mentioned in article 1157.

21 Art. 1956. No interest shall be due unless it has been expressly stipulated
 in writing.

22 Art. 2212. Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.

23 Art. 1169. 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.

"However, the demand by the creditor shall not be necessary in order

that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or

(3) When demand would be useless, as when the obligor has

rendered it beyond his power to perform.

"In reciprocal obligations, neither party incurs in delay if the other

does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins."

24 Art. 2210. Interest may, in the discretion of the court, be allowed upon
damages awarded for breach of contract.

Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may,
in a proper case, be adjudicated in the discretion of the court.

25 Art. 2209. If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest, which is six per cent per
annum.

26 Art. 2213. Interest cannot be recovered upon unliquidated claims or

damages, except when the demand can be established with reasonable
certainty.

The Lawphil Project - Arellano Law Foundation

3.

FIRST DIVISION

[G. R. NO. 152529. September 22, 2003]

SPS. HENDRIK BIESTERBOS and ALICIA S.

BIESTERBOS, petitioners, vs. HON. COURT OF APPEALS and
EFREN E. BARTOLOME, respondents.

DECISION
VITUG, J.:

On 18 April 1992, private respondent Efren E. Bartolome entered into a Contract to

Sell with petitioners, the spouses Hendrik and Alice Biesterbos, in which Bartolome
agreed to sell to the spouses Biesterbos one (1) unit of a duplex residential house and
lot with an area of three hundred forty-five (345) square meters, more or less, situated
at Crestwood Court Subdivision, Bakakeng Norte, Baguio City, for Two Million
(P2,000,000.00) Pesos. The property was, at the time of the agreement, mortgaged to
the Philippine National Bank (PNB). The contract to sell provided, among other
stipulations, that -

1. The BUYER shall pay to the OWNER the sum of One Million Pesos
(P1,000,000.00), Philippine Currency, as downpayment upon signing of this Contract
to Sell; the balance of One Million Pesos shall be paid by the BUYER to the OWNER
on or before July 30, 1992;

2. The OWNER upon receipt of the downpayment will cause without delay and at his
own expenses, the following:

2.1 Immediate transfer of possession of the townhouse, the subject of this contract to
sell;

2.2 Installation of a water tank with a capacity of not less than 1,000 liters;

2.3 Partition or segregation of the lot area in accordance with the designated
boundaries and corners indicated in the lot plan and to obtain a separate certificate of
title to the property subject of this contract to sell;

2.4 Construction of another driveway for the use of the other unit of the Duplex to
insure the BUYER will have an exclusive use of the existing driveway;

2.5 Fabrication and/or installation of a movable partition to be located between the

living and dining area of the house.

3. The OWNER will execute a Deed of Absolute Sale in favor of the BUYER upon
payment by the latter of the balance of One Million Pesos to the former; the OWNER
will also deliver the Transfer Certificate of Title to the BUYER free from all liens and
encumbrances;

4. The OWNER will facilitate the transfer of ownership to the property into the name
of the BUYER by paying the capital gains tax, Documentary and Science stamps,
including the real estate tax for the current year; the BUYER on the other hand will
shoulder the cost of transfer, registration and documentation fee;

5. That the OWNER, in addition to the sale of the house and lot subject of this
contract, will advance for the BUYER the cost of the adjacent vacant lot belonging to
his brother at an agreed price of SIX HUNDRED THOUSAND (P600,000.00)
PESOS, Philippine Currency; the lot being Lot B-1-H consisting of Four Hundred
(400) Square Meters and covered by Transfer Certificate of Title No. T-44549 of the
Registry of Deeds of Baguio City;
6. The BUYER shall reimburse to the OWNER, the Six Hundred Thousand Pesos
including the cost of transfer, documentation and registration fee, within a reasonable
time or on/or before July 30, 1992, after ownership of the lot is transferred into the
name of the BUYER. [1]

On 23 April 1992, respondent received, by way of a downpayment, the amount of

P972,486.00 from petitioners. Conformably with paragraph 5 of the agreement,
respondent advanced for and in behalf of petitioners the sum of P600,000.00 for the
purchase by the latter of an adjacent lot owned by respondents brother. In turn, the
couple obligated themselves to reimburse respondent for the amount thus advanced.
Petitioners failed to pay the amounts due and owing to respondent under the
contract as so agreed. Nevertheless, on 05 August 1992, respondent received from
petitioners the amount of P319,612.65; subsequent payments were also made by
petitioners to respondent. Thus -
1) Sept. 11, 1992 - 348,849.43 but actually received on
Sept. 15, 1992
2) Oct. 10, 1992 - 345,259.36 but actually received on
Oct. 12, 1992
3) Feb. 9, 1993 - 50,000.00
4) March 23, 1993 - 10,000.00 but actually received on
Mar. 24, 1993
5) March 30, 1993 - 30,000.00 paid by defendant-appellants
at PNB
6) April 6, 1993 - 5,000.00 as evidenced by Exh. 5
of Original Records
789,108.79
========

Plus payments made on the following dates:

April 17, 1992 - 972,486.80

July 30, 1992 - 319,612.65
TOTAL PAYMENT MADE P2,081,208.24 [2]

===========

Several demands were made by respondent for the full settlement by petitioners of
their due obligation. In a letter, dated 20 December 1992, allegedly addressed to the
Baguio residence of petitioners, respondent demanded the payment of the still unpaid
balance of P710,713.16. On 24 March 1993, respondent claimed to have sent another
letter to petitioners with the summary of the amounts due and payable, totaling
P718,407.92, inclusive of -
Banks Interest and Bank charges

From 01 August to 13 October 1992 - P94,021.80

Accrued Interest and Bank charges

from 14 October 1992 to 30 March

1993 - P64,694.36

Cost of Maintenance and Caretaker - P 3,000.00 [3]

On 18 May 1993, respondent reiterated his demand and informed petitioners that,
because of the delay, respondent had to pay additional interests on his bank loan
thereby increasing to P918,407.92 the sum due from petitioners. Except for this letter of
18 May 1993, petitioners denied having received any other demand-letter from
respondent.
In a letter of 03 July 1993, petitioners, through counsel, informed respondent that
they had deposited the amount of P521,691.76, In Trust For Mr. Efren Bartolome, at the
PNB branch in Baguio City, and that the money could be withdrawn by him at anytime
during banking hours. Apparently not satisfied with the arrangement made with the
bank, respondent, on 09 July 1993, filed a complaint for specific performance and
damages against petitioners before the Regional Trial Court of Baguio City,
specifically praying thusly:

WHEREFORE, premises considered, it is respectfully prayed of the Honorable Court,

after due notice and hearing to render judgment in favor of the plaintiff and against the
defendants, ordering the defendants jointly and severally to:

1. Comply with their obligations and pay unto the plaintiff the following:

a. P556,691.76 representing the balance unpaid arising out of the contract to sell plus
interest until fully paid;
b. P158,716.16 representing losses/damages actually incurred and paid to the bank;
c. P2,900.00 representing the cost of transfer of the other lot plus P3,000.00
representing maintenance cost and caretaker of the duplex house and lot;
d. P100,000.00 as moral damages; P100,000.00 as exemplary damages;
e. P100,000.00 as attorneys fees plus P500.00 every hearing as appearance fees; and
f. P20,000.00 as litigation expenses plus the cost of this suit.

2. Plaintiff further prays for such reliefs just and equitable in the premises. [4]
 In their answer, petitioners contended that respondent had failed to comply with his
obligations in accordance with the contract to sell such as, among other things, the
immediate transfer of possession of the property and the construction and installation of
a driveway. Petitioners also asserted that Alicia Biesterbos had paid respondent the
following amounts even after the agreed period of 30 July 1992, to wit:
1) 17 April 1992 - P972,486.80
2) 30 July 1992 - P319,612.65
3) 11 September 1992 - P348,849.43
4) 10 October 1992 - P355,259.36
5) 09 February1993 - P 50,000.00
6) 23 March 1993 - P 10,000.00
7) 30 March 1993 - P 30,000.00
8) 06 April 1993 - P 5,000.00
Total Payments Made - P2,081,208.24[5]
Petitioners claimed that the deadline for the payment of the balance of the due
obligation was novated when private respondent continued to receive payments even
beyond the 30th July 1992 deadline, and that they, being unaware of the loan obligation
to the Philippine National Bank, should not be held liable for any alleged bank charges
and interests. Petitioners prayed that the consignation of the amount of P521,691.76,
representing what they averred to be the amount due from them under the contract to
sell, be meanwhile approved by the trial court and respondent be made to transfer to
them the absolute ownership of the property.
On 21 July 1994, the trial court issued an order denying the prayer for consignation
for lack of merit. In time, the Regional Trial Court, Branch 7, of Baguio City finally
rendered its decision, it adjudged:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

(a) Declaring defendants Biesterbos to have complied with their obligation under the
contract to sell with respect to the townhouse and lot;

(b) Ordering plaintiff Bartolome to execute the corresponding deed of sale transferring
the townhouse and lot to the defendants Biesterbos;

(c) Ordering the plaintiff Bartolome to deliver the Transfer Certificate of Title to the
defendants-buyers Biesterbos free from all liens and encumbrances as committed by
him in the contract to sell;

(d) Ordering the defendants Biesterbos to reimburse to the plaintiff P518,791.60

representing the balance of the P600,000.00 which the latter had advanced to the
owner of the adjacent lot;
(e) Ordering the defendants to pay the plaintiff P2,900.00 which represents the cost of
the transfer of the other adjacent lot, which amount is admitted in the defendants
pleading (answer);

(f) Denying the claim of the defendants for the refund of P300,000.00 alleged
overpayment for lack of merit;

(g) Denying the claims for damages by both parties for lack of merit;

(h) Costs of the suit to be shared by the contending parties. [6]

Still feeling aggrieved, respondent appealed the case to the Court of Appeals. On
22 February 2000, the appellate court rendered a decision affirming that of the trial court
except insofar as the latter had ordered the payment of interest on P518,791.76
representing the balance of the P600,000.00 which the latter (Bartolome) had advanced
for petitioners as payment to the owner of the adjacent lot, with an interest of 12% per
annum from the time the defendants-appellees defaulted in their payment up to the time
of the filing of the complaint being in the nature of a contract of loan. In its resolution of
[7]

21 December 2001, the Court of Appeals granted the motion for reconsideration of
respondent and ordered that the interest of 12% per annum awarded to him should be
paid from the time of default until full payment of the principal.
Petitioners, in their petition for review before this Court, would now question the
interest payment decreed by the Court of Appeals, contending that

(a) The Court of Appeals committed grave abuse of discretion and error in law, as it
violated the provisions of Art. 2209 of the New Civil Code, when it ordered herein
petitioners to pay 12% interest per annum of the amount of P518,791.76, when no
such or any interest was agreed upon by the parties; and

(b) The Court of Appeals committed grave abuse of discretion and error in law when
it ruled that the running of the period to pay such 12% interest per annum is from the
time of default until full payment of the principal despite the fact that there was a
valid tender of payment made by the petitioners even before the filing of the
complaint. [8]

The trial court and the appellate court correctly concluded that the agreement between
the parties insofar as it had obligated (a) respondent to advance for the buyer
(petitioners) the cost of the adjacent vacant lot belonging to his (respondents) brother at
an agreed price of Six Hundred Thousand (P600,000.00) Pesos, and (b) petitioners to,
in turn, reimburse to respondent the Six Hundred Thousand Pesos, including the cost of
transfer, documentation and registration fee, within a reasonable time or on/or before
July 30, 1992, after ownership of the lot is transferred to petitioners, was in the nature
[9]

of a contract of loan or a forbearance. While the trial court and the appellate court did
[10]

not make any categorical statement as to when an initial demand was made by
respondent, the parties, however, agreed at the pre-trial conference in the trial court to
stipulate on the authenticity of the demand-letter of 18 May 1993 sent to petitioners by
Atty. George Florendo (respondents counsel). The Court would here then consider such
date, absent any contrary showing, as the demand to occasion default. [11]

In their letter of 03 July 1993, likewise included among the stipulation of facts of the
parties during the pre-trial conference, petitioners, through counsel, informed
respondent that the former had deposited the amount of P521,691.76 In Trust For Mr.
Efren Bartolome at the PNB, Session Road, Baguio City, which sum could be withdrawn
by respondent at anytime during banking hours. While such a procedure did not strictly
constitute a valid tender of payment and consignation, still, it could be considered an
[12]

act of good faith on the part of petitioners to fully settle their obligation. Equity and
justice would demand that such an act, placing at the disposal of respondent the
deposited sum, should have the effect of suspending the running of the interest on said
outstanding amount. In Gregorio Araneta, Inc. vs. De Paterno and Vidal, this Court [13]

said:

The matter of the suspension of the running of interest on the loan is governed by principles
which regard reality rather than technicality, substance rather than form. Good faith of the offeror
or ability to make good the offer should in simple justice excuse the debtor from paying interest
after the offer was rejected. A debtor cannot be considered delinquent who offered checks backed
by sufficient deposit or ready to pay cash if the creditor chose that means of payment. Technical
defects of the offer cannot be adduced to destroy its effects when the objection to accept the
payment was based on entirely different grounds. Thus, although the defective consignation
made by the debtor did not discharge the mortgage debt, the running of interest on the loan is
suspended by the offer and tender of payment.

With regard the payment of interest, the ruling of this Court in Eastern Shipping
Lines, Inc. vs. Court of Appeals should be worthwhile reiterating for guidance. Thus -
[14]

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on Damages of the Civil Code govern in
determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 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.

2. When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit. [15]

WHEREFORE, the petition is partly GRANTED. The questioned decision and

resolution of the appellate court are hereby AFFIRMED with MODIFICATION, i.e., that
the legal interest to be paid on the principal amount of P518,791.76 is TWELVE
PERCENT (12%) per annum which shall commence from 18 May 1993 when
extrajudicial demand was made on petitioners up until 03 July 1993 when petitioners
notified respondent that the amount of P521,691.76 had been deposited in his name
with the Philippine National Bank withdrawable by him at any time during banking
hours. Another 12% interest per annum shall be paid on the amount due and owing as
of, and from, the date of finality of this decision until full payment would have actually
been made. No costs.
SO ORDERED.
Davide, C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

[1]
Rollo, pp. 32-33.
[2]
Rollo, p. 43.
[3]
Rollo, p. 44.
[4]
Rollo, p. 21.
[5]
Rollo, p. 22.
[6]
Rollo, p. 38.
[7]
Rollo, p. 62.
[8]
Rollo, p. 11.
[9]
Rollo, p. 33.
[10]
A loan (mutuum) means the delivery by one party and the receipt by the other party of a given sum of
money or other consumable thing upon an agreement, express or implied, to repay the same
amount of the same kind and quality with or without interest (Comments of Cases on Credit
Transactions, De Leon, 1995 Edition).
[11]
Art. 1169. 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.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. (Civil Code)
[12]
Tender of payment involves a positive and unconditional act by the obligor of offering legal tender
currency as payment to the obligee for the formers obligation and demanding that the latter
accept the same (Roman Catholic Bishop of Malolos, Inc. vs. IAC, 191 SCRA 411).
Tender of payment is the definitive act of offering the creditor that is due him or her, together with the
demand that the creditor accept the same (Far East Bank & Trust Co. vs. Diaz Realty, Inc., 363
SCRA 659).
[13]
91 Phil. 786.
[14]
234 SCRA 78.
[15]
At pp. 95-97.
4.
Today is Friday, December 28, 2018
Top of Form

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 155223 April 4, 2007

BOBIE ROSE V. FRIAS, represented by her Attorney-in-fact, MARIE F. FUJITA, Petitioner,

vs.
FLORA SAN DIEGO-SISON, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias represented by her
Attorney-in-fact, Marie Regine F. Fujita (petitioner) seeking to annul the Decision 1 dated June 18,
2002 and the Resolution2 dated September 11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No.
52839.

Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala Alabang,
Muntinlupa, Metro Manila, which she acquired from Island Masters Realty and Development
Corporation (IMRDC) by virtue of a Deed of Sale dated Nov. 16, 1990. 3 The property is covered by
TCT No. 168173 of the Register of Deeds of Makati in the name of IMRDC.4

On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-Sison
(respondent), as the SECOND PARTY, entered into a Memorandum of Agreement 5 over the property
with the following terms:

NOW, THEREFORE, for and in consideration of the sum of THREE MILLION PESOS
(₱3,000,000.00) receipt of which is hereby acknowledged by the FIRST PARTY from the SECOND
PARTY, the parties have agreed as follows:
 1. That the SECOND PARTY has a period of Six (6) months from the date of the
execution of this contract within which to notify the FIRST PARTY of her intention to
purchase the aforementioned parcel of land together within (sic) the improvements
thereon at the price of SIX MILLION FOUR HUNDRED THOUSAND PESOS
(₱6,400,000.00). Upon notice to the FIRST PARTY of the SECOND PARTY’s
intention to purchase the same, the latter has a period of another six months within
which to pay the remaining balance of ₱3.4 million.

2. That prior to the six months period given to the SECOND PARTY within which to
decide whether or not to purchase the above-mentioned property, the FIRST PARTY
may still offer the said property to other persons who may be interested to buy the
same provided that the amount of ₱3,000,000.00 given to the FIRST PARTY BY THE
SECOND PARTY shall be paid to the latter including interest based on prevailing
compounded bank interest plus the amount of the sale in excess of ₱7,000,000.00
should the property be sold at a price more than ₱7 million.

3. That in case the FIRST PARTY has no other buyer within the first six months from
the execution of this contract, no interest shall be charged by the SECOND PARTY
on the P3 million however, in the event that on the sixth month the SECOND PARTY
would decide not to purchase the aforementioned property, the FIRST PARTY has a
period of another six months within which to pay the sum of ₱3 million pesos
provided that the said amount shall earn compounded bank interest for the last six
months only. Under this circumstance, the amount of P3 million given by the
SECOND PARTY shall be treated as [a] loan and the property shall be considered as
the security for the mortgage which can be enforced in accordance with law.

x x x x.6

Petitioner received from respondent two million pesos in cash and one million pesos in a post-dated
check dated February 28, 1990, instead of 1991, which rendered said check stale. 7 Petitioner then
gave respondent TCT No. 168173 in the name of IMRDC and the Deed of Absolute Sale over the
property between petitioner and IMRDC.

Respondent decided not to purchase the property and notified petitioner through a letter 8 dated
March 20, 1991, which petitioner received only on June 11, 1991, 9 reminding petitioner of their
agreement that the amount of two million pesos which petitioner received from respondent should be
considered as a loan payable within six months. Petitioner subsequently failed to pay respondent the
amount of two million pesos.

On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila, a complaint 10 for
sum of money with preliminary attachment against petitioner. The case was docketed as Civil Case
No. 93-65367 and raffled to Branch 30. Respondent alleged the foregoing facts and in addition
thereto averred that petitioner tried to deprive her of the security for the loan by making a false
report11 of the loss of her owner’s copy of TCT No. 168173 to the Tagig Police Station on June 3,
1991, executing an affidavit of loss and by filing a petition 12 for the issuance of a new owner’s
duplicate copy of said title with the RTC of Makati, Branch 142; that the petition was granted in an
Order13dated August 31, 1991; that said Order was subsequently set aside in an Order dated April
10, 199214 where the RTC Makati granted respondent’s petition for relief from judgment due to the
fact that respondent is in possession of the owner’s duplicate copy of TCT No. 168173, and ordered
the provincial public prosecutor to conduct an investigation of petitioner for perjury and false
testimony. Respondent prayed for the ex-parte issuance of a writ of preliminary attachment and
payment of two million pesos with interest at 36% per annum from December 7, 1991, ₱100,000.00
moral, corrective and exemplary damages and ₱200,000.00 for attorney’s fees.

In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a writ of
preliminary attachment upon the filing of a bond in the amount of two million pesos. 15

Petitioner filed an Amended Answer16 alleging that the Memorandum of Agreement was conceived
and arranged by her lawyer, Atty. Carmelita Lozada, who is also respondent’s lawyer; that she was
asked to sign the agreement without being given the chance to read the same; that the title to the
property and the Deed of Sale between her and the IMRDC were entrusted to Atty. Lozada for
safekeeping and were never turned over to respondent as there was no consummated sale yet; that
out of the two million pesos cash paid, Atty. Lozada took the one million pesos which has not been
returned, thus petitioner had filed a civil case against her; that she was never informed of
respondent’s decision not to purchase the property within the six month period fixed in the
agreement; that when she demanded the return of TCT No. 168173 and the Deed of Sale between
her and the IMRDC from Atty. Lozada, the latter gave her these documents in a brown envelope on
May 5, 1991 which her secretary placed in her attache case; that the envelope together with her
other personal things were lost when her car was forcibly opened the following day; that she sought
the help of Atty. Lozada who advised her to secure a police report, to execute an affidavit of loss and
to get the services of another lawyer to file a petition for the issuance of an owner’s duplicate copy;
that the petition for the issuance of a new owner’s duplicate copy was filed on her behalf without her
knowledge and neither did she sign the petition nor testify in court as falsely claimed for she was
abroad; that she was a victim of the manipulations of Atty. Lozada and respondent as shown by the
filing of criminal charges for perjury and false testimony against her; that no interest could be due as
there was no valid mortgage over the property as the principal obligation is vitiated with fraud and
deception. She prayed for the dismissal of the complaint, counter-claim for damages and attorney’s
fees.

Trial on the merits ensued. On January 31, 1996, the RTC issued a decision, 17 the dispositive portion
of which reads:

WHEREFORE, judgment is hereby RENDERED:

1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at
the rate of thirty two (32%) per cent per annum beginning December 7, 1991 until
fully paid.

2) Ordering defendant to pay plaintiff the sum of ₱70,000.00 representing premiums

paid by plaintiff on the attachment bond with legal interest thereon counted from the
date of this decision until fully paid.

3) Ordering defendant to pay plaintiff the sum of ₱100,000.00 by way of moral,

corrective and exemplary damages.

4) Ordering defendant to pay plaintiff attorney’s fees of ₱100,000.00 plus cost of

litigation.18

The RTC found that petitioner was under obligation to pay respondent the amount of two million
pesos with compounded interest pursuant to their Memorandum of Agreement; that the fraudulent
scheme employed by petitioner to deprive respondent of her only security to her loaned money when
petitioner executed an affidavit of loss and instituted a petition for the issuance of an owner’s
duplicate title knowing the same was in respondent’s possession, entitled respondent to moral
damages; and that petitioner’s bare denial cannot be accorded credence because her testimony and
that of her witness did not appear to be credible.

The RTC further found that petitioner admitted that she received from respondent the two million
pesos in cash but the fact that petitioner gave the one million pesos to Atty. Lozada was without
respondent’s knowledge thus it is not binding on respondent; that respondent had also proven that in
1993, she initially paid the sum of ₱30,000.00 as premium for the issuance of the attachment bond,
₱20,000.00 for its renewal in 1994, and ₱20,000.00 for the renewal in 1995, thus plaintiff should be
reimbursed considering that she was compelled to go to court and ask for a writ of preliminary
attachment to protect her rights under the agreement.

Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA affirmed the RTC
decision with modification, the dispositive portion of which reads:

WHEREFORE, premises considered, the decision appealed from is MODIFIED in the sense that the
rate of interest is reduced from 32% to 25% per annum, effective June 7, 1991 until fully paid. 19

The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as her commission
and partly as a loan; respondent did not replace the mistakenly dated check of one million pesos
because she had decided not to buy the property and petitioner knew of her decision as early as
April 1991; the award of moral damages was warranted since even granting petitioner had no hand
in the filing of the petition for the issuance of an owner’s copy, she executed an affidavit of loss of
TCT No. 168173 when she knew all along that said title was in respondent’s possession; petitioner’s
claim that she thought the title was lost when the brown envelope given to her by Atty. Lozada was
stolen from her car was hollow; that such deceitful conduct caused respondent serious anxiety and
emotional distress.

The CA concluded that there was no basis for petitioner to say that the interest should be charged
for six months only and no more; that a loan always bears interest otherwise it is not a loan; that
interest should commence on June 7, 1991 20 with compounded bank interest prevailing at the time
the two million was considered as a loan which was in June 1991; that the bank interest rate for
loans secured by a real estate mortgage in 1991 ranged from 25% to 32% per annum as certified to
by Prudential Bank,21 that in fairness to petitioner, the rate to be charged should be 25% only.

Petitioner’s motion for reconsideration was denied by the CA in a Resolution dated September 11,
2002.

Hence the instant Petition for Review on Certiorari filed by petitioner raising the following issues:

(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE

LIMITED TO SIX (6) MONTHS AS CONTAINED IN THE MEMORANDUM OF
AGREEMENT.

(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.

(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY

DAMAGES AND ATTORNEY’S FEES IS PROPER EVEN IF NOT MENTIONED IN
 THE TEXT OF THE DECISION.22

Petitioner contends that the interest, whether at 32% per annum awarded by the trial court or at 25%
per annum as modified by the CA which should run from June 7, 1991 until fully paid, is contrary to
the parties’ Memorandum of Agreement; that the agreement provides that if respondent would
decide not to purchase the property, petitioner has the period of another six months to pay the loan
with compounded bank interest for the last six months only; that the CA’s ruling that a loan always
bears interest otherwise it is not a loan is contrary to Art. 1956 of the New Civil Code which provides
that no interest shall be due unless it has been expressly stipulated in writing.

We are not persuaded.

While the CA’s conclusion, that a loan always bears interest otherwise it is not a loan, is flawed since
a simple loan may be gratuitous or with a stipulation to pay interest, 23 we find no error committed by
the CA in awarding a 25% interest per annum on the two-million peso loan even beyond the second
six months stipulated period.

The Memorandum of Agreement executed between the petitioner and respondent on December 7,
1990 is the law between the parties. In resolving an issue based upon a contract, we must first
examine the contract itself, especially the provisions thereof which are relevant to the
controversy.24 The general rule is that if the terms of an agreement are clear and leave no doubt as
to the intention of the contracting parties, the literal meaning of its stipulations shall prevail. 25 It is
further required that the various stipulations of a contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from all of them taken jointly. 26

In this case, the phrase "for the last six months only" should be taken in the context of the entire
agreement. We agree with and adopt the CA’s interpretation of the phrase in this wise:

Their agreement speaks of two (2) periods of six months each. The first six-month period was given
to plaintiff-appellee (respondent) to make up her mind whether or not to purchase defendant-
appellant’s (petitioner's) property. The second six-month period was given to defendant-appellant to
pay the P2 million loan in the event that plaintiff-appellee decided not to buy the subject property in
which case interest will be charged "for the last six months only", referring to the second six-month
period. This means that no interest will be charged for the first six-month period while appellee was
making up her mind whether to buy the property, but only for the second period of six months after
appellee had decided not to buy the property. This is the meaning of the phrase "for the last six
months only". Certainly, there is nothing in their agreement that suggests that interest will be
charged for six months only even if it takes defendant-appellant an eternity to pay the loan. 27

The agreement that the amount given shall bear compounded bank interest for the last six months
only, i.e., referring to the second six-month period, does not mean that interest will no longer be
charged after the second six-month period since such stipulation was made on the logical and
reasonable expectation that such amount would be paid within the date stipulated. Considering that
petitioner failed to pay the amount given which under the Memorandum of Agreement shall be
considered as a loan, the monetary interest for the last six months continued to accrue until actual
payment of the loaned amount.

The payment of regular interest constitutes the price or cost of the use of money and thus, until the
principal sum due is returned to the creditor, regular interest continues to accrue since the debtor
continues to use such principal amount.28 It has been held that for a debtor to continue in possession
of the principal of the loan and to continue to use the same after maturity of the loan without
payment of the monetary interest, would constitute unjust enrichment on the part of the debtor at the
expense of the creditor.29

Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests,
and per the certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from
25% to 32% per annum. The CA reduced the interest rate to 25% instead of the 32% awarded by the
trial court which petitioner no longer assailed.
1awphi1.nét

In Bautista v. Pilar Development Corp.,30 we upheld the validity of a 21% per annum interest on a
₱142,326.43 loan. In Garcia v. Court of Appeals,31 we sustained the agreement of the parties to a
24% per annum interest on an ₱8,649,250.00 loan. Thus, the interest rate of 25% per annum
awarded by the CA to a ₱2 million loan is fair and reasonable.

Petitioner next claims that moral damages were awarded on the erroneous finding that she used a
fraudulent scheme to deprive respondent of her security for the loan; that such finding is baseless
since petitioner was acquitted in the case for perjury and false testimony filed by respondent against
her.

We are not persuaded.

Article 31 of the Civil Code provides that when the civil action is based on an obligation not arising
from the act or omission complained of as a felony, such civil action may proceed independently of
the criminal proceedings and regardless of the result of the latter. 32

While petitioner was acquitted in the false testimony and perjury cases filed by respondent against
her, those actions are entirely distinct from the collection of sum of money with damages filed by
respondent against petitioner.

We agree with the findings of the trial court and the CA that petitioner’s act of trying to deprive
respondent of the security of her loan by executing an affidavit of loss of the title and instituting a
petition for the issuance of a new owner’s duplicate copy of TCT No. 168173 entitles respondent to
moral damages. Moral damages may be awarded in culpa contractual or breach of contract cases
1a\^/phi1.net

when the defendant acted fraudulently or in bad faith. Bad faith does not simply connote bad
judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing
of wrong. It partakes of the nature of fraud.33

The Memorandum of Agreement provides that in the event that respondent opts not to buy the
property, the money given by respondent to petitioner shall be treated as a loan and the property
shall be considered as the security for the mortgage. It was testified to by respondent that after they
executed the agreement on December 7, 1990, petitioner gave her the owner’s copy of the title to
the property, the Deed of Sale between petitioner and IMRDC, the certificate of occupancy, and the
certificate of the Secretary of the IMRDC who signed the Deed of Sale. 34 However, notwithstanding
that all those documents were in respondent’s possession, petitioner executed an affidavit of loss
that the owner’s copy of the title and the Deed of Sale were lost.

Although petitioner testified that her execution of the affidavit of loss was due to the fact that she was
of the belief that since she had demanded from Atty. Lozada the return of the title, she thought that
the brown envelope with markings which Atty. Lozada gave her on May 5, 1991 already contained
the title and the Deed of Sale as those documents were in the same brown envelope which she gave
to Atty. Lozada prior to the transaction with respondent. 35 Such statement remained a bare
statement. It was not proven at all since Atty. Lozada had not taken the stand to corroborate her
claim. In fact, even petitioner’s own witness, Benilda Ynfante (Ynfante), was not able to establish
petitioner's claim that the title was returned by Atty. Lozada in view of Ynfante's testimony that after
the brown envelope was given to petitioner, the latter passed it on to her and she placed it in
petitioner’s attaché case36and did not bother to look at the envelope. 37

It is clear therefrom that petitioner’s execution of the affidavit of loss became the basis of the filing of
the petition with the RTC for the issuance of new owner’s duplicate copy of TCT No. 168173.
Petitioner’s actuation would have deprived respondent of the security for her loan were it not for
respondent’s timely filing of a petition for relief whereby the RTC set aside its previous order granting
the issuance of new title. Thus, the award of moral damages is in order.

The entitlement to moral damages having been established, the award of exemplary damages is
proper.38Exemplary damages may be imposed upon petitioner by way of example or correction for
the public good.39 The RTC awarded the amount of ₱100,000.00 as moral and exemplary damages.
While the award of moral and exemplary damages in an aggregate amount may not be the usual
way of awarding said damages,40 no error has been committed by CA. There is no question that
respondent is entitled to moral and exemplary damages.

Petitioner argues that the CA erred in awarding attorney’s fees because the trial court’s decision did
not explain the findings of facts and law to justify the award of attorney’s fees as the same was
mentioned only in the dispositive portion of the RTC decision.

We agree.

Article 220841 of the New Civil Code enumerates the instances where such may be awarded and, in
all cases, it must be reasonable, just and equitable if the same were to be granted. 42 Attorney's fees
as part of damages are not meant to enrich the winning party at the expense of the losing litigant.
They are not awarded every time a party prevails in a suit because of the policy that no premium
should be placed on the right to litigate. 43 The award of attorney's fees is the exception rather than
the general rule. As such, it is necessary for the trial court to make findings of facts and law that
would bring the case within the exception and justify the grant of such award. The matter of
attorney's fees cannot be mentioned only in the dispositive portion of the decision. 44 They must be
clearly explained and justified by the trial court in the body of its decision. On appeal, the CA is
precluded from supplementing the bases for awarding attorney’s fees when the trial court failed to
discuss in its Decision the reasons for awarding the same. Consequently, the award of attorney's
fees should be deleted.

WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the Resolution
dated September 11, 2002 of the Court of Appeals in CA-G.R. CV No. 52839 are AFFIRMED with
MODIFICATION that the award of attorney’s fees is DELETED.

No pronouncement as to costs.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice
WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

ROMEO J. CALLEJO, SR. MINITA V. CHICO-NAZARIO

Associate Justice Asscociate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

ATT E STATI O N

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it
is hereby certified that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

1
CA rollo, pp. 134-144; Penned by Justice Wenceslao I. Agnir, Jr. (retired), concurred
in by Justices B.A. Adefuin-de la Cruz (retired) and Regalado E. Maambong.

2
Id. at 164-165.

3
Records, pp. 15-16. Exhibit "C".

4
Id. at 13-14; Exhibit "B".

5
Id. at 9-11; Exhibit "A".

6
Id. at 9-10.

7
Respondent did not correct or replace the post-dated check. Records also do not
show that petitioner demanded its correction or replacement.
8
Id. at 17, Annex "D".

9
Exhibit "D-1", folder of exhibits.

10
Records, pp. 3-8.

11
Id. at 18, Annex "E".

12
Id. at 20-22; Docketed as LRC Case No. M-2282; Annex "G".

13
Id. at 23-24; Penned by Judge Salvador P. de Guzman, Jr.; Annex "H".

14
Id. at 25-27; Annex "I".

15
Id. at 28. Per Judge Rosalio G. dela Rosa.

16
Id. at 130-141.

17
Id. at 286-292; Branch 30, Penned by Judge Senecio O. Ortile.

18
Id. at 292.

19
CA rollo, p. 165.

20
The date when the second six-month period commences under the Memorandum
of Agreement dated December 7, 1990.

21
Exhibit "L", folder of exhibits.

22
Rollo, p. 14.

23
Civil Code, Article 1933.

Milwaukee Industries Corporation v. Pampanga III Electric Cooperative, Inc., G.R.

24

No. 152569, May 31, 2004, 430 SCRA 389, 396.

25
Civil Code, Article 1370.

26
Civil Code, Article 1374.

27
CA rollo, p. 164-165.

28
State Investment House, Inc. v. Court of Appeals, G.R. No. 90676, June 19, 1991,
198 SCRA 390, 398.

29
State Investment House, Inc. v. Court of Appeals, supra note 28, at 399.
30
371 Phil. 533, 544 (1999).

31
G.R. Nos. L-82282-83, November 24, 1988, 167 SCRA 815, 830.

32
Gorospe v. Nolasco, 114 Phil. 614, 618 (1962).

33
Abando v. Lozada, G.R. No. 82564, October 13, 1989, 178 SCRA 509, 516,
citing Board of Liquidators v. Kalaw, G.R. No. L-18805, August 14, 1967, 20 SCRA
987, 1007.

34
TSN, July 17, 1995, p. 5.

35
TSN, August 21, 1995, pp. 7-10.

36
TSN, October 2, 1995, p. 10.

37
Id. at 16.

38
Bert Osmeña & Associates, Inc. v. Court of Appeals, 205 Phil. 328, 334
(1983); Kapoe v. Masa, 219 Phil. 204, 208 (1985).

39
Civil Code, Article 2229.

40
Philippine Airlines, Inc. v. Court of Appeals, G.R. Nos. 50504-05, August 13, 1990,
188 SCRA 461, 474.

41
ART. 2208. In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the

plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff's plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and
skilled workers;

(8) In actions for indemnity under workmen's compensation and employer's

 liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be

reasonable.

42
Citibank, N.A. v. Cabamongan, G.R. No. 146918, May 2, 2006, 488 SCRA 517,
535-536.

Id. citing Country Bankers Insurance Corporation v. Lianga Bay and Community
43

Multi-purpose Cooperative, Inc. 425 Phil. 511, 525 (2002); Ibaan Rural Bank, Inc. v.
Court of Appeals, 378 Phil. 707, 714 (1999).

Samatra v. Vda. de Pariñas, 431 Phil. 255, 267 (2002); Development Bank of the
44

Philippines v. Court of Appeals, 330 Phil. 801, 810 (1996).

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 SECOND DIVISION

APRIL 18, 2018

G.R. No. 213617

ARCH. EUSEBIO B. BERNAL, DOING BUSINESS UNDER THE NAME AND STYLE
CONTEMPORARY BUILDERS, Petitioner
vs
DR. VIVENCIO VILLAFLOR and DRA. GREGORIA VILLAFLOR, Respondents

RESOLUTION

REYES, JR., J.:

Before the Court is a petition for review filed under Rule 45 of the Rules of Court by Architect
Eusebio B. Bernal (petitioner), doing business under the name and style Contemporary Builders, to
assail the Decision dated February 14, 2014 and Resolution dated July 21, 2014 of the Court of
1 2

Appeals (CA) in CA-G.R. CV No. 93172 insofar as it declared Dr. Vivencio Villaflor and Dra. Gregoria
Villaflor (respondents) liable for interests on a monetary award of ₱1,710,271.21 at a rate of only six
percent (6%) per annum, to be counted from the date of finality of judgment until full satisfaction.

The Antecedents

On January 28, 2009, the Regional Trial Court (RTC), Branch 41 of Dagupan City rendered its
Decision in Civil Case No. 98-02678-D, which was an action for sum of money with damages
instituted by the petitioner against the respondents. Petitioner demanded from the respondents the
payment of ₱3,241,800.00, representing sums allegedly left unpaid in relation to the construction of
the Medical Arts Building in Caranglaan District, Dagupan City for which the respondents obtained
the expertise and services of the petitioner sometime in 1995. The dispositive portion of the RTC
decision reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the [respondents] to pay [petitioner] the amount of Two Million Eight Hundred Forty Eight
Thousand Pesos (Php2,848,000.00) plus interest thereon at the legal rate from March 4, 2008 until
the amount is fully paid;

2. Ordering the [respondents] to pay [petitioner] the amount of Php200,000.00 as and for attorney's
fees;

3. Dismissing all other claims and counterclaims for lack of basis.

No pronouncement as to cost.

SO ORDERED. 3

Dissatisfied, the respondents appealed the RTC's decision to the CA via CA-G.R. CV. No. 93172. On
February 14, 2014, the CA rendered its Decision that modified the RTC's Decision by further
reducing the total award. The fallo of the CA decision reads:
We MODIFY the Decision dated 28 January 2009 of the [RTC], Branch 41, Dagupan City, in Civil
Case No. 98-02678-D, as follows: 1) we ORDER the [respondents] to pay [petitioner] the amount of
₱1,710,271.21, plus legal interest x x x at the rate of six percent (6%) per annum, computed from the
finality of the judgment until full satisfaction;

2) we AFFIRM the award of Php200,000.00, as attorney's fees, in favor of [petitioner]; 3)

we AFFIRM the dismissal of the [respondents'] counterclaims.

IT IS SO ORDERED. 4

For the CA, it was clear that the respondents had an unpaid obligation to the petitioner for the
construction of the Medical Arts Building and the 18 change orders that were effected in relation
thereto. The trial court's award was however reduced by the appellate court given the following
findings:

During the proceedings before the RTC, [petitioner] was able to prove that the total cost of the 18
change orders was Php9,836,505.32. We find it necessary, however, to fix the total cost of the 18
change orders to the amount claimed in the Complaint, i.e., Php9,796,816.94.

In the same wise, we cannot allow the amount of Php271,915.99 (Item C, items which were found
on the building but were not billed by the [petitioner]) to be credited, since this was never alleged,
nor prayed for by the [petitioner] in the Complaint.

It was also erroneous for the RTC to use the amount of Php 13,528,200.00, as the total amount of
payment made by the [respondents] to the [petitioner]. The complaint alleged that the sum of Php
17,596,816.94 represents that total construction cost of the Medical Arts Building under the original
Agreement (Php7,800,000.00) and the 18 change orders (Php9,796,816.94). The Complaint also
alleged that after the payments made to the [petitioner], the remaining balance of the [respondents]
is the sum of Php3,241,800. x x x Thus, the correct amount of total payments made by the
[respondents] should be Php14,355,016.94.

Thus, the total balance due to the [petitioner] should be Php 1,710,271.21 x x x. 5

Following the Court's ruling in Nacar vs. Gallery Frames and/or Bordey, Jr., the CA also changed the
rate and reckoning date of the interest on the award, as it declared that the principal amount of
₱l,710,271.21 shall earn interest at the rate of 6% per annum from date of finality of the judgment
until full satisfaction.

Feeling aggrieved, petitioner filed the instant petition for review, but limits his question on the manner
by which the interest should be determined. Petitioner argues that the interest should be computed
at the rate of 6% per annum from the time of either the last extrajudicial demand on July 5, 1998 or
judicial demand on November 16, 1998, plus 12% per annum interest from the date of judgment until
full payment.

The Court's Ruling

The Court partially grants the petition.

In Eastern Shipping Lines, Inc. vs. Court of Appeals, the Court made the following pronouncement,
6
which was intended to be the guidelines in the proper determination of awards of interest:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthem1ore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 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.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit. (Emphasis supplied)
7

In this case, the award of interest is discretionary on the part of the court. The petitioner's original
1âwphi1

demand does not equate to a loan or forbearance of money but pertains to the cost of construction
and services, the amount of which has not yet been determined with certainty even up to the time of
the complaint's filing with the RTC. Petitioner's original claim was in fact thereafter limited by the
RTC after a consideration of the evidence presented during trial, and ultimately further reduced by
the CA. The uncertainty was brought about by the numerous change orders that happened while the
subject Medical Arts Building was being constructed. Clearly, at the time of the petitioner's judicial
and extrajudicial demands, the amount of the respondents' obligation remained uncertain.

It is material that the respondents' liability was reasonably ascertained only at the time the CA
rendered its Decision on February 14, 2014. The amount of the award, specifically ₱l,710,271.21,
was no longer questioned in petitioner's motion for reconsideration with the CA, or in his petition for
review before this Court. In light of the pronouncement in Eastern Shipping that in such cases,
interest shall begin to run from the time the quantification of damages had been reasonably
ascertained, the CA decision should then be modified, but only in that the interest of 6%
per annum on the award of ₱1,710,271.21 shall be reckoned from the time of the CA Decision's
promulgation on February 14, 2014.

Petitioner cannot validly invoke the Court's ruling in Republic of the Phils. vs. De Guzman wherein
8

interest was reckoned from demand, because unlike in this case, the unpaid obligation
in Republic was clear and uncontested even from the time that the extrajudicial demand was made.

Once this judgment becomes final and executory, the award equates to a loan or forbearance of
money and from such time, the legal rate of interest begins to apply. Petitioner's insistence on an
increase in the interest rate from such time to 12% per annum is erroneous; his reference to
jurisprudence prior to 2013 is misplaced. In Circular No. 799 issued on June 21, 2013 by the Bangko
Sentral ng Pilipinas, the legal rate of interest on loans and forbearance of money was reduced from
12% to 6% per annum from the time of the circular's effectivity on July 1, 2013. 9

WHEREFORE, the petition is PARTLY GRANTED. The Court of Appeals' Decision dated February
14, 2014 and Resolution dated July 21, 2014 in CA-G.R. CV No. 93172 are MODIFIED in that the
award of ₱1,710,271.21 in favor of petitioner Arch. Eusebio B. Bernal shall earn interest at the rate
of 6% per annum from the date of the Court of Appeals Decision's promulgation on February 14,
2014, until full payment.

SO ORDERED.

ANDRES B. REYES, JR.

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Acting Chief Justice
Chairperson

DIOSDADO M. PERALTA ESTELA M. PERLAS-BERNABE

Associate Justice Associate Justice

ALFREDO BENJAMIN S. CAGUIOA

Associate Justice

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation,
I certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T.CARPIO
Acting Chief Justice

Footnotes

*
Acting Chief Justice per Special Order No. 2539, dated February 28, 2018.

1
Penned by Associate Justice Nina G. Antonio-Valenzuela, with Associate Justices
Vicente S.E. Veloso and Jane Aurora C. Lantion concurring; rollo, pp. 35-59.

2
Id. at 61-62.
 3
Issued by Judge Emma M. Torio; id. at 88.

4
Id. at 58.

5
Id. at 47-48.

6
Eastern Shipping lines, Inc. v. Hon. Court of Appeals, 304 Phil. 236 (1994).

7
Id. at 252-254.

8
667 Phil. 229, 251 (2011).

9
See Nacar v. Gallery Frames, 716 Phil. 267, 281 (2013).

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THIRD DIVISION

February 29, 2016

G.R. No. 198434

HEIRS OF LEANDRO NATIVIDAD AND JULIANA V. NATIVIDAD, Petitioners,

vs.
JUANA MAURICIO-NATIVIDAD, and SPOUSES JEAN NATIVIDAD CRUZ AND JERRY
CRUZ, Respondents.

DECISION

PERALTA, J.:

Challenged in the present petition for review on certiorari are the Decision and Resolution of the
1 2

Court of Appeals (CA), dated February 7, 2011 and August 25, 2011, respectively, in CA-G.R. CV
No. 92840. The assailed CA Decision modified the Decision of the Regional Trial Court (RTC) of San
Mateo, Rizal, Branch 75, in Civil Case No. 1637-02-SM, while the CA Resolution denied petitioners'
motion for reconsideration.

The present petition arose from an action for specific performance and/or recovery of sum of money
filed against herein respondents by the spouses Leandro Natividad (Leandro) and Juliana
Natividad (Juliana), who are the predecessors of herein petitioners.

In their Complaint, Leandro and Juliana alleged that sometime in 1974, Sergio
Natividad (Sergio), husband of respondent Juana Mauricio-Natividad (Juana) and father of
respondent Jean Natividad-Cruz (Jean), obtained a loan from the Development Bank of t.he
Philippines (DBP). As security for the loan, Sergio mortgaged two parcels of land, one of which is co-
owned and registered in his name and that of his siblings namely, Leandro, Domingo and Adoracion.
This property is covered by Original Certificate of Title (OCT) No. 5980. Sergio's siblings executed a
Special Power of Attorney authorizing him to mortgage the said property. The other mortgaged
parcel of land, covered by OCT No. 10271, was registered in the name of Sergio and Juana.
Subsequently, Sergio died without being able to pay his obligations with DBP. Since the loan was
nearing its maturity and the mortgaged properties were in danger of being foreclosed, Leandro paid
Sergio's loan obligations. Considering that respondents were unable to reimburse Leandro for the
advances he made in Sergio's favor, respondents agreed that Sergio's share in the lot which he co-
owned with his siblings and the other parcel of land in the name of Sergio and Juana, shall be
assigned in favor of Leandro ahd Juliana. Leandro's and Sergio's brother, Domingo, was tasked to
facilitate the transfer of ownership of the subject properties in favor of Leandro ·and Juliana.
However, Domingo died without being able to cause such transfer. Subsequently, despite demands
and several follow-ups made by petitioners, respondents failed and refused to honor their
undertaking.

Respondents filed their Answer denying the allegations in the complaint and raising the following
defenses: (1) respondents are not parties to the contract between Sergio and DBP; (2) there is
neither verbal nor written agreement between petitioners and respondents that the latter shall
reimburse whatever payment was made by the former or their predecessor-in-interest; (3) Jean was
only a minor during the execution of the alleged agreement and is not a party thereto; (4) that
whatever liability or obligation of respondents is already barred by prescription, laches and estoppel;
(5) that the complaint states no cause of action as respondents are not duty-bound to reimburse
whatever alleged payments were made by petitioners; and (6) there is no contract between the
parties to the effect that respondents are under obligation to transfer ownership in petitioners' favor
as reimbursement for the alleged payments made by petitioners to DBP.

Respondents waived their right to present evidence arid they merely filed their memorandum. Also,
during pendency" of the trial, Leandro died and was substituted by his heirs, herein petitioners.
On November. 4, 2008, the RTC rendered its Decision in favor of petitioners, the dispositive portion
of which reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Defendants Juana Mauricio [Vda.] de Natividad and Jean Natividad-Cruz

are ordered to effect the transfer of title in OCT No. 5980 with respect to the
undivided share of the late Sergio Natividad; and in OCT No. 10271 both of
the Registry of Deeds of the Province of Rizal in favor of plaintiff Juliana [V
da.] de Natividad and the Heirs of the late Leandro Natividad.

2. Defendants to pay jointly and severally, attorney's fees in the sum of Thirty
Thousand Pesos (P30,000.00); and cost of suit.

SO ORDERED. 3

Aggrieved by the RTC Decision, respondents filed an Appeal with the CA.

On February 7, 2011, the CA promulgated its questioned Decision, disposing as follows:

WHEREFORE, the appeal is PARTLY GRANTED. The Decision dated November 4, 2008 is
hereby MODIFIED in that defendants-appellants Juana Mauricio-Natividad and Jean Natividad-Cruz
are ordered instead to reimburse plaintiffs-appellees Juliana Natividad and the heirs of the late
Leandro Natividad the amount of P162,514.88 representing the amount of the loan obligation paid to
the Development Bank of the Philippines, plus legal interest of 12% per annum computed from June
23, 2001 until finality of the judgment, the total amount of which shall be to the extent only of
defendants-appellants' successional rights in the mortgaged properties and Juana's conjugal share
in [the] property covered by OCT No. 10271. The award of attorney's fees and cost of suit
are AFFIRMED.

SO ORDERED. 4

Petitioners filed a Motion for Partial Reconsideration, while respondents filed their own Motion for
Reconsideration, both of which, however, were denied by the CA in its assailed Resolution dated
August 25, 2011.

Hence, the instant petition based on the following grounds:

I. WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS' RULING

THAT THE VERBAL AGREEMENT TO CONVEY THE PROPERTY SHARES
OF SERGIO NATIVIDAD IN THE PAYMENT OF HIS OBLIGATION IS
COVERED BY THE STATUTE OF FRAUDS DESPITE THE FACT THAT IT
HAS BEEN PARTIALLY EXECUTED, IS CONTRARY TO'EXISTING
JURISPRUDENCE.

II. WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS ERRED

IN RULING THAT THE INTEREST ON THE UNPAID LOAN .OBLIGATION
SHOULD BE IMPOSED ONLY ON JUNE 23, 2001, DATE OF THE DEMAND
FOR PAYMENT INSTEAD OF SEPTEMBER 23, 1994, WHEN THE PARTIES
VERBALLY AGREED TO CONVEY THEIR PROPERTY RIGHTS WITH THE
 EXECUTION OF THE EXTRAJUDICIAL SETTLEMENT OF ESTATE OF
SERGIO NATIVIDAD. 5

Petitioners, insist that there was a verbal agreement between respondents and Leandro, their
predecessor-in-interest, wherein the subject properties shall be assigned to the latter as
reimbursement for the payments he made in Sergio's favor. To support this contention, petitioners
relied heavily on the Extrajudicial Settlement Among Heirs, which was executed by respondents to
prove that there was indeed such an agreement and that such a Settlement is evidence of the partial
execution of the said agreement. The provisions of the said Settlement are as follows:

EXTRAJUDICIAL SETTLEMENT AMONG HEIRS

KNOW ALL MEN BY THESE PRESENTS:

This EXTRAJUDICIAL SETTLEMENT, made and entered into by and among:

JUAN M. NATIVIDAD, widow; JEAN N. CRUZ, married to JERRY CRUZ; JOSELITO M. NATIVIDAD,
single, all of legal age, Filipino citizens, and residents of Malanday, San Mateo, Rizal

WITNESSETH

That the above-named parties, is the legitimate wife and children and sole heirs of the deceased
SERGIO NATIVIDAD, who died in San Mateo, Rizal on May 31, 1981;

That the said deceased, at the time of his death, left certain real estate properties located at San
Mateo, Rizal, and Montalban, Rizal, more particularly described as follows:

a. A whole portion of a parcel of land (Plan Psu-295655, L.R. Case No. Q-29,
L.R.C. Record No. N-295___ , situated in the Barrio of Malanday, Municipality
of San Mateo, Province of Rizal, containing an area of TWO HUNDRED
EIGHT (208) SQUARE METERS, more or less, and covered by OCT
NO. 10271.

b. A one-fourth (1/4) share in the parcel of land situated in Guinayang, San

Mateo, Rizal, containing an area of 2,742 square meters, covered by OCT
No. 10493.

c. A one-fourth (1/4) share in the parcel of land situated in San Jose,

Montalban, Rizal, containing an area of 4,775 square meters, and covered by
OCT No. ON-403.

d. A one-fourth (1/4) share in the parcel of land situated in Cambal, San

Mateo, Rizal, containing an area of 13,456 square meters, and covered by
OCT No. 5980.

That no other personal properties are involved in this extrajudicial settlement.

That to the best knowledge and information of the parties hereto, the said deceased left certain
obligations amounting to P175,000.00 representing loan obligations with the Development Bank of
the Philippines.
That a notice of this extrajudicial settlement had been published once a week for three consecutive
weeks in ___________ a newspaper of general circulation in_______, as certified by the said
newspaper hereto attached as Annex "A";

That the parties hereto being all of legal age and with full civil capacity to contract, hereby by these
presents agree to divide and adjudicate, as they hereby divide and adjudicate, among themselves
the above-described real estate property in equal shares and interest.

IN WITNESS WHEREOF, the parties have signed this document on this 2nd day of September, 1994
in San Mateo, Rizal, Philippines.

xxx 6

After a careful reading of the abovequoted Extra judicial Settlement Among Heirs, the Court agrees
with the CA that there is nothing in the said document which would indicate that respondents agreed
to the effect that the subject properties shall be transferred in the name of Leandro as
reimbursement for his payment of Syrgio's loan obligations with the DBP. On the contrary, the
second to the last paragraph of the said Settlement clearly shows that herein respondents, as heirs
of Sergio, have divided the subject properties exclusively among themselves.

There is no competent evidence to prove the verbal agreement being claimed by respondents. Aside
from the subject Extrajudicial Settlement Among Heirs, the self-serving claims of Leandro on the
witness stand, as well as the cash voucher, which supposedly represented payment of P8,000.00
7

given to Atty. Domingo Natividad for the expenses in transferring the title of the subject properties in
Leandro's favor, would hardly count as competent evidence in the eyes of the law. Respondents'
claim of the existence of a verbal agreement between them, on one hand, and petitioners'
predecessors-in-interest, on the other, remains to be mere allegation. It is an age-old rule in civil
cases that he who alleges a fact has the burden of proving it and a mere allegation is not evidence. 8

In relation to petitioners' contention that the subject verbal agreement actually existed, they reiterate
their contention that the conveyance of the subject properties in their favor is not covered by the
Statute of Frauds because they claim that respondents' execution of the Extrajudicial Settlement
Among Heirs constitutes partial execution of their alleged agreement.

The Court does not agree.

Suffice it to say that there is no partial execution of any contract, whatsoever, because petitioners
failed to prove, in the first place, that there was a verbal agreement that was entered into.

Even granting that such an agreement existed, the CA did not commit any en-or in ruling that the
assignment of the shares of Sergio in the subject properties in petitioners' favor as payment of
Sergio's obligation cannot be enforced if there is no written contract to such effect. Under the Statute
of Frauds , an agreement to convey real properties shall be unenforceable by action in the absence
9

of a written note or memorandum thereof and subscribed by the party charged or by his agent. As
earlier discussed, the pieces of evidence presented by petitioners, consisting of respondents'
acknowledgment of Sergio's loan obligations with DBP as embodied in the Extrajudicial Settlement
Among Heirs, as well as the cash voucher which allegedly represents payment for taxes and transfer
of title in petitioners' name do not serve as written notes or memoranda of the alleged verbal
agreement.
The foregoing, notwithstanding, the Court finds it proper to reiterate the CA ruling that, in any case,
since respondents had already acknowledged that Sergio had, in fact, incurred loan obligations with
the DBP, they are liable to reimburse the amount paid by Leandro for the payment of the said
obligation even if such payment was made without their knowledge or consent.

Article 1236 of the Civil Code clearly provides that:

The creditor is not bound to accept payment or performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor. (Emphasis supplied)

Neither can respondents evade liability by arguing that they were not parties to the contract between
Sergio and the DBP. As earlier stated, the fact remains that, in the Extrajudicial Settlement Among
Heirs, respondents clearly acknowledged Sergio's loan obligations with the DBP. Being Sergio's
heirs, they succeed not only to the rights of Sergio but also to his obligations.

The following provisions of the Civil Code are clear on this matter, to wit:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to
the extent of the value of the inheritance, of a person are transmitted through his death to another or
others either by will or by operation of law.

Art. 776. The inheritance includes all the property, rights and obligations of a person which are not
extinguished by his death.

Art. 781. The inheritance of a person includes not only the property and the transmissible rights and
obligations existing at the time of his death, but also those which have accrued thereto since the
opening of the succession.

In the present case, respondents, being heirs of Sergio, are now liable to settle his transmissible
obligations, which include the amount due to petitioners, prior to the distribution of the remainder of
Sergio's estate to them, in accordance with Section 1, Rule 90 of the Rules of Court.
10

As to when the interest on the sum due from respondents should be reckoned, the Court finds no
error in the ruling of the CA that such interest should be computed from June 23, 2001, the date
when petitioners made a written demand for the payment of respondents' obligation. There is no
11

merit in petitioners' contention that the reckoning date should have been September 23, 1994, the
date when respondents executed the Extrajudicial Settlement Among Heirs, because there is
nothing therein to prove that petitioners, at that time, made a demand for reimbursement.

However, the rate of interest should be modified in view of the issuance of Circular No. 799, Series
of 2013 by the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB). The said Circular reduced
the "rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed
in judgments, in the absence of an express contract as to such rate of interest," from twelve percent
(12%) to six percent (6%) per annum. The Circular was made effective on July 1, 2013. Hence,
under the modified guidelines in the imposition of interest, as laid down in the case of Nacar v.
Gallery Frames, this Court held that:
12

xxxx

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 6% 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.

2. When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit. (Emphasis supplied)

xxx 13

The Court explained that:

[F]rom the foregoing, in the absence of an express stipulation as to the rate of interest that would
govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits
and the rate allowed in judgments shall no longer be twelve percent (12%) per annum - as reflected
in the case of Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations for
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank
Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but will now be six
percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate
could only be applied prospectively and not retroactively. Consequently, the twelve percent
(12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013, the new rate
of six percent (6%) per annum shall be the prevailing rate of interest when applicable. 14

Thus, in accordance with the above ruling, the rate of interest on the principal amount due to
petitioners shall be 12% from June 23, 2001, the date when petitioners made a demand for
payment, to June 30, 2013. From July 1, 2013, the effective date of BSP-MB Circular No. 799, until
full satisfaction of the monetary award, the rate of interest shall be 6%.

WHEREFORE, the instant petition is DENIED. The Decision and Resolution of the Court of Appeals,
dated February 7, 2011 and August 25, 2011, respectively, in CA-G.R. CV No. 92840
are AFFIRMED with MODIFICATION by ORDERING respondents to pay petitioners, in addition to
the principal amount of P162,514.88, interest thereon at the rate of twelve percent (12%) per
annum, computed from June 23, 2001 to June 30, 2013, and six percent (6%) per annum from July
1, 2013 until full satisfaction of the judgment award.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

JOSE PORTUGAL PEREZ BIENVENIDO L. REYES

Associate Justice Associate Justice

FRANCIS H. JARDELEZA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice
Footnotes

1
Penned by Associate Justice Rosmari D. Carandang, with Associate Justices
Ramon R. Garcia and Manuel M: Barrios, concurring. Annex "A" to Petition, rollo, pp.
51-69.

2
Rollo, pp. 70-73.

3
Id. at 121.

4
Id. at. 67-68. (Emphasis in the original)

5
Id. at 40.

6
Id. at 102-103.

7
Id. at 98.

8
Dantis v. Maghinang, Jr., GR. No. 191696, April 10, 2013, 695 SCRA 599, 608-609.

9
Civil Code, Art. 1403.

10
Section I. When order for distribution of residue made. - When the debts, funeral
charges, and expenses of administration, the allowance to the widow, and
inheritance tax, if any, chargeable to the estate in accordance with law, have been
paid, the court, on the application of the executor or administrator, or of a person
interested in the estate, and after hearing upon notice, shall assign the residue of the
estate to the persons entitled to the same, naming them and the proportions, or
parts, to which each is entitled, and such persons may demand and recover their
respective shares from the executor or administrator, or any other person having the
same in his possession. If there is a controversy before the court as to who are the
lawful heirs of the deceased person or as to the distributive shares to which each
person is entitled under the law, the controversy shall be heard and decided as in
ordinary cases.

No distribution shall be allowed until the payment of the obligations

abovementioned has been made or provided for, unless the distributees, or
any of them, give a bond, in a sum to be fixed by the court, conditioned for
the payment of said obligations within such time as the court directs.

11
See rollo, p. 101.

12
GR. No. 189871, August 13, 2013, 703 SCRA 439.

13
Nacar v. Gallery Frames, supra, at 457-458.

14
Id. at 456. (Italics in the original)
The Lawphil Project - Arellano Law Foundation

7.
Today is Friday, December 28, 2018
Top of Form

THIRD DIVISION

February 29, 2016

G.R. No. 198434

HEIRS OF LEANDRO NATIVIDAD AND JULIANA V. NATIVIDAD, Petitioners,

vs.
JUANA MAURICIO-NATIVIDAD, and SPOUSES JEAN NATIVIDAD CRUZ AND JERRY
CRUZ, Respondents.

DECISION

PERALTA, J.:

Challenged in the present petition for review on certiorari are the Decision and Resolution of the
1 2

Court of Appeals (CA), dated February 7, 2011 and August 25, 2011, respectively, in CA-G.R. CV
No. 92840. The assailed CA Decision modified the Decision of the Regional Trial Court (RTC) of San
Mateo, Rizal, Branch 75, in Civil Case No. 1637-02-SM, while the CA Resolution denied petitioners'
motion for reconsideration.

The present petition arose from an action for specific performance and/or recovery of sum of money
filed against herein respondents by the spouses Leandro Natividad (Leandro) and Juliana
Natividad (Juliana), who are the predecessors of herein petitioners.

In their Complaint, Leandro and Juliana alleged that sometime in 1974, Sergio
Natividad (Sergio), husband of respondent Juana Mauricio-Natividad (Juana) and father of
respondent Jean Natividad-Cruz (Jean), obtained a loan from the Development Bank of t.he
Philippines (DBP). As security for the loan, Sergio mortgaged two parcels of land, one of which is co-
owned and registered in his name and that of his siblings namely, Leandro, Domingo and Adoracion.
This property is covered by Original Certificate of Title (OCT) No. 5980. Sergio's siblings executed a
Special Power of Attorney authorizing him to mortgage the said property. The other mortgaged
parcel of land, covered by OCT No. 10271, was registered in the name of Sergio and Juana.
Subsequently, Sergio died without being able to pay his obligations with DBP. Since the loan was
nearing its maturity and the mortgaged properties were in danger of being foreclosed, Leandro paid
Sergio's loan obligations. Considering that respondents were unable to reimburse Leandro for the
advances he made in Sergio's favor, respondents agreed that Sergio's share in the lot which he co-
owned with his siblings and the other parcel of land in the name of Sergio and Juana, shall be
assigned in favor of Leandro ahd Juliana. Leandro's and Sergio's brother, Domingo, was tasked to
facilitate the transfer of ownership of the subject properties in favor of Leandro ·and Juliana.
However, Domingo died without being able to cause such transfer. Subsequently, despite demands
and several follow-ups made by petitioners, respondents failed and refused to honor their
undertaking.

Respondents filed their Answer denying the allegations in the complaint and raising the following
defenses: (1) respondents are not parties to the contract between Sergio and DBP; (2) there is
neither verbal nor written agreement between petitioners and respondents that the latter shall
reimburse whatever payment was made by the former or their predecessor-in-interest; (3) Jean was
only a minor during the execution of the alleged agreement and is not a party thereto; (4) that
whatever liability or obligation of respondents is already barred by prescription, laches and estoppel;
(5) that the complaint states no cause of action as respondents are not duty-bound to reimburse
whatever alleged payments were made by petitioners; and (6) there is no contract between the
parties to the effect that respondents are under obligation to transfer ownership in petitioners' favor
as reimbursement for the alleged payments made by petitioners to DBP.

Respondents waived their right to present evidence arid they merely filed their memorandum. Also,
during pendency" of the trial, Leandro died and was substituted by his heirs, herein petitioners.

On November. 4, 2008, the RTC rendered its Decision in favor of petitioners, the dispositive portion
of which reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Defendants Juana Mauricio [Vda.] de Natividad and Jean Natividad-Cruz

are ordered to effect the transfer of title in OCT No. 5980 with respect to the
undivided share of the late Sergio Natividad; and in OCT No. 10271 both of
the Registry of Deeds of the Province of Rizal in favor of plaintiff Juliana [V
da.] de Natividad and the Heirs of the late Leandro Natividad.

2. Defendants to pay jointly and severally, attorney's fees in the sum of Thirty
Thousand Pesos (P30,000.00); and cost of suit.
SO ORDERED. 3

Aggrieved by the RTC Decision, respondents filed an Appeal with the CA.

On February 7, 2011, the CA promulgated its questioned Decision, disposing as follows:

WHEREFORE, the appeal is PARTLY GRANTED. The Decision dated November 4, 2008 is
hereby MODIFIED in that defendants-appellants Juana Mauricio-Natividad and Jean Natividad-Cruz
are ordered instead to reimburse plaintiffs-appellees Juliana Natividad and the heirs of the late
Leandro Natividad the amount of P162,514.88 representing the amount of the loan obligation paid to
the Development Bank of the Philippines, plus legal interest of 12% per annum computed from June
23, 2001 until finality of the judgment, the total amount of which shall be to the extent only of
defendants-appellants' successional rights in the mortgaged properties and Juana's conjugal share
in [the] property covered by OCT No. 10271. The award of attorney's fees and cost of suit
are AFFIRMED.

SO ORDERED. 4

Petitioners filed a Motion for Partial Reconsideration, while respondents filed their own Motion for
Reconsideration, both of which, however, were denied by the CA in its assailed Resolution dated
August 25, 2011.

Hence, the instant petition based on the following grounds:

I. WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS' RULING

THAT THE VERBAL AGREEMENT TO CONVEY THE PROPERTY SHARES
OF SERGIO NATIVIDAD IN THE PAYMENT OF HIS OBLIGATION IS
COVERED BY THE STATUTE OF FRAUDS DESPITE THE FACT THAT IT
HAS BEEN PARTIALLY EXECUTED, IS CONTRARY TO'EXISTING
JURISPRUDENCE.

II. WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS ERRED

IN RULING THAT THE INTEREST ON THE UNPAID LOAN .OBLIGATION
SHOULD BE IMPOSED ONLY ON JUNE 23, 2001, DATE OF THE DEMAND
FOR PAYMENT INSTEAD OF SEPTEMBER 23, 1994, WHEN THE PARTIES
VERBALLY AGREED TO CONVEY THEIR PROPERTY RIGHTS WITH THE
EXECUTION OF THE EXTRAJUDICIAL SETTLEMENT OF ESTATE OF
SERGIO NATIVIDAD. 5

Petitioners, insist that there was a verbal agreement between respondents and Leandro, their
predecessor-in-interest, wherein the subject properties shall be assigned to the latter as
reimbursement for the payments he made in Sergio's favor. To support this contention, petitioners
relied heavily on the Extrajudicial Settlement Among Heirs, which was executed by respondents to
prove that there was indeed such an agreement and that such a Settlement is evidence of the partial
execution of the said agreement. The provisions of the said Settlement are as follows:

EXTRAJUDICIAL SETTLEMENT AMONG HEIRS

KNOW ALL MEN BY THESE PRESENTS:

This EXTRAJUDICIAL SETTLEMENT, made and entered into by and among:

JUAN M. NATIVIDAD, widow; JEAN N. CRUZ, married to JERRY CRUZ; JOSELITO M. NATIVIDAD,
single, all of legal age, Filipino citizens, and residents of Malanday, San Mateo, Rizal

WITNESSETH

That the above-named parties, is the legitimate wife and children and sole heirs of the deceased
SERGIO NATIVIDAD, who died in San Mateo, Rizal on May 31, 1981;

That the said deceased, at the time of his death, left certain real estate properties located at San
Mateo, Rizal, and Montalban, Rizal, more particularly described as follows:

a. A whole portion of a parcel of land (Plan Psu-295655, L.R. Case No. Q-29,
L.R.C. Record No. N-295___ , situated in the Barrio of Malanday, Municipality
of San Mateo, Province of Rizal, containing an area of TWO HUNDRED
EIGHT (208) SQUARE METERS, more or less, and covered by OCT
NO. 10271.

b. A one-fourth (1/4) share in the parcel of land situated in Guinayang, San

Mateo, Rizal, containing an area of 2,742 square meters, covered by OCT
No. 10493.

c. A one-fourth (1/4) share in the parcel of land situated in San Jose,

Montalban, Rizal, containing an area of 4,775 square meters, and covered by
OCT No. ON-403.

d. A one-fourth (1/4) share in the parcel of land situated in Cambal, San

Mateo, Rizal, containing an area of 13,456 square meters, and covered by
OCT No. 5980.

That no other personal properties are involved in this extrajudicial settlement.

That to the best knowledge and information of the parties hereto, the said deceased left certain
obligations amounting to P175,000.00 representing loan obligations with the Development Bank of
the Philippines.

That a notice of this extrajudicial settlement had been published once a week for three consecutive
weeks in ___________ a newspaper of general circulation in_______, as certified by the said
newspaper hereto attached as Annex "A";

That the parties hereto being all of legal age and with full civil capacity to contract, hereby by these
presents agree to divide and adjudicate, as they hereby divide and adjudicate, among themselves
the above-described real estate property in equal shares and interest.

IN WITNESS WHEREOF, the parties have signed this document on this 2nd day of September, 1994
in San Mateo, Rizal, Philippines.
xxx 6

After a careful reading of the abovequoted Extra judicial Settlement Among Heirs, the Court agrees
with the CA that there is nothing in the said document which would indicate that respondents agreed
to the effect that the subject properties shall be transferred in the name of Leandro as
reimbursement for his payment of Syrgio's loan obligations with the DBP. On the contrary, the
second to the last paragraph of the said Settlement clearly shows that herein respondents, as heirs
of Sergio, have divided the subject properties exclusively among themselves.

There is no competent evidence to prove the verbal agreement being claimed by respondents. Aside
from the subject Extrajudicial Settlement Among Heirs, the self-serving claims of Leandro on the
witness stand, as well as the cash voucher, which supposedly represented payment of P8,000.00
7

given to Atty. Domingo Natividad for the expenses in transferring the title of the subject properties in
Leandro's favor, would hardly count as competent evidence in the eyes of the law. Respondents'
claim of the existence of a verbal agreement between them, on one hand, and petitioners'
predecessors-in-interest, on the other, remains to be mere allegation. It is an age-old rule in civil
cases that he who alleges a fact has the burden of proving it and a mere allegation is not evidence. 8

In relation to petitioners' contention that the subject verbal agreement actually existed, they reiterate
their contention that the conveyance of the subject properties in their favor is not covered by the
Statute of Frauds because they claim that respondents' execution of the Extrajudicial Settlement
Among Heirs constitutes partial execution of their alleged agreement.

The Court does not agree.

Suffice it to say that there is no partial execution of any contract, whatsoever, because petitioners
failed to prove, in the first place, that there was a verbal agreement that was entered into.

Even granting that such an agreement existed, the CA did not commit any en-or in ruling that the
assignment of the shares of Sergio in the subject properties in petitioners' favor as payment of
Sergio's obligation cannot be enforced if there is no written contract to such effect. Under the Statute
of Frauds , an agreement to convey real properties shall be unenforceable by action in the absence
9

of a written note or memorandum thereof and subscribed by the party charged or by his agent. As
earlier discussed, the pieces of evidence presented by petitioners, consisting of respondents'
acknowledgment of Sergio's loan obligations with DBP as embodied in the Extrajudicial Settlement
Among Heirs, as well as the cash voucher which allegedly represents payment for taxes and transfer
of title in petitioners' name do not serve as written notes or memoranda of the alleged verbal
agreement.

The foregoing, notwithstanding, the Court finds it proper to reiterate the CA ruling that, in any case,
since respondents had already acknowledged that Sergio had, in fact, incurred loan obligations with
the DBP, they are liable to reimburse the amount paid by Leandro for the payment of the said
obligation even if such payment was made without their knowledge or consent.

Article 1236 of the Civil Code clearly provides that:

The creditor is not bound to accept payment or performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor. (Emphasis supplied)

Neither can respondents evade liability by arguing that they were not parties to the contract between
Sergio and the DBP. As earlier stated, the fact remains that, in the Extrajudicial Settlement Among
Heirs, respondents clearly acknowledged Sergio's loan obligations with the DBP. Being Sergio's
heirs, they succeed not only to the rights of Sergio but also to his obligations.

The following provisions of the Civil Code are clear on this matter, to wit:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to
the extent of the value of the inheritance, of a person are transmitted through his death to another or
others either by will or by operation of law.

Art. 776. The inheritance includes all the property, rights and obligations of a person which are not
extinguished by his death.

Art. 781. The inheritance of a person includes not only the property and the transmissible rights and
obligations existing at the time of his death, but also those which have accrued thereto since the
opening of the succession.

In the present case, respondents, being heirs of Sergio, are now liable to settle his transmissible
obligations, which include the amount due to petitioners, prior to the distribution of the remainder of
Sergio's estate to them, in accordance with Section 1, Rule 90 of the Rules of Court.
10

As to when the interest on the sum due from respondents should be reckoned, the Court finds no
error in the ruling of the CA that such interest should be computed from June 23, 2001, the date
when petitioners made a written demand for the payment of respondents' obligation. There is no
11

merit in petitioners' contention that the reckoning date should have been September 23, 1994, the
date when respondents executed the Extrajudicial Settlement Among Heirs, because there is
nothing therein to prove that petitioners, at that time, made a demand for reimbursement.

However, the rate of interest should be modified in view of the issuance of Circular No. 799, Series
of 2013 by the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB). The said Circular reduced
the "rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed
in judgments, in the absence of an express contract as to such rate of interest," from twelve percent
(12%) to six percent (6%) per annum. The Circular was made effective on July 1, 2013. Hence,
under the modified guidelines in the imposition of interest, as laid down in the case of Nacar v.
Gallery Frames, this Court held that:
12

xxxx

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 6% 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.

2. When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit. (Emphasis supplied)

xxx 13

The Court explained that:

[F]rom the foregoing, in the absence of an express stipulation as to the rate of interest that would
govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits
and the rate allowed in judgments shall no longer be twelve percent (12%) per annum - as reflected
in the case of Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations for
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank
Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but will now be six
percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate
could only be applied prospectively and not retroactively. Consequently, the twelve percent
(12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013, the new rate
of six percent (6%) per annum shall be the prevailing rate of interest when applicable.14

Thus, in accordance with the above ruling, the rate of interest on the principal amount due to
petitioners shall be 12% from June 23, 2001, the date when petitioners made a demand for
payment, to June 30, 2013. From July 1, 2013, the effective date of BSP-MB Circular No. 799, until
full satisfaction of the monetary award, the rate of interest shall be 6%.

WHEREFORE, the instant petition is DENIED. The Decision and Resolution of the Court of Appeals,
dated February 7, 2011 and August 25, 2011, respectively, in CA-G.R. CV No. 92840
are AFFIRMED with MODIFICATION by ORDERING respondents to pay petitioners, in addition to
the principal amount of P162,514.88, interest thereon at the rate of twelve percent (12%) per
annum, computed from June 23, 2001 to June 30, 2013, and six percent (6%) per annum from July
1, 2013 until full satisfaction of the judgment award.
SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

JOSE PORTUGAL PEREZ BIENVENIDO L. REYES

Associate Justice Associate Justice

FRANCIS H. JARDELEZA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes

1
Penned by Associate Justice Rosmari D. Carandang, with Associate Justices
Ramon R. Garcia and Manuel M: Barrios, concurring. Annex "A" to Petition, rollo, pp.
51-69.

2
Rollo, pp. 70-73.

3
Id. at 121.
 4
Id. at. 67-68. (Emphasis in the original)

5
Id. at 40.

6
Id. at 102-103.

7
Id. at 98.

8
Dantis v. Maghinang, Jr., GR. No. 191696, April 10, 2013, 695 SCRA 599, 608-609.

9
Civil Code, Art. 1403.

10
Section I. When order for distribution of residue made. - When the debts, funeral
charges, and expenses of administration, the allowance to the widow, and
inheritance tax, if any, chargeable to the estate in accordance with law, have been
paid, the court, on the application of the executor or administrator, or of a person
interested in the estate, and after hearing upon notice, shall assign the residue of the
estate to the persons entitled to the same, naming them and the proportions, or
parts, to which each is entitled, and such persons may demand and recover their
respective shares from the executor or administrator, or any other person having the
same in his possession. If there is a controversy before the court as to who are the
lawful heirs of the deceased person or as to the distributive shares to which each
person is entitled under the law, the controversy shall be heard and decided as in
ordinary cases.

No distribution shall be allowed until the payment of the obligations

abovementioned has been made or provided for, unless the distributees, or
any of them, give a bond, in a sum to be fixed by the court, conditioned for
the payment of said obligations within such time as the court directs.

11
See rollo, p. 101.

12
GR. No. 189871, August 13, 2013, 703 SCRA 439.

13
Nacar v. Gallery Frames, supra, at 457-458.

14
Id. at 456. (Italics in the original)

The Lawphil Project - Arellano Law Foundation

8.
Today is Friday, December 28, 2018
 Top of Form

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 183804 September 11, 2013

S.C. MEGAWORLD CONSTRUCTION and DEVELOPMENT CORPORATION, Petitioner,

vs.
ENGR. LUIS U. PARADA, represented by ENGR. LEONARDO A. PARADA of GENLITE
INDUSTRIES,Respondent.

DECISION

REYES, J.:

Before us on appeal by certiorari1 is the Decision2 dated April 30, 2008 of the Court of Appeals (CA)
in CA-G.R. CV No. 83811 which upheld the Decision3 dated May 8, 2004 of the Regional Trial Court
(RTC) of Quezon City, Branch 100, in Civil Case No. Q-01-45212.

Factual Antecedents

S.C. Megaworld Construction and Development Corporation (petitioner) bought electrical lighting
materials from Gentile Industries, a sole proprietorship owned by Engineer Luis U. Parada
(respondent), for its Read-Rite project in Canlubang, Laguna. The petitioner was unable to pay for
the above purchase on due date, but blamed it on its failure to collect under its sub-contract with the
Enviro KleenTechnologies, Inc. (Enviro Kleen). It was however able to persuade Enviro Kleen to
agree to settle its above purchase, but after paying the respondent ₱250,000.00 on June 2,
1999,4 Enviro Kleen stopped making further payments, leaving an outstanding balance of
₱816,627.00. It also ignored the various demands of the respondent, who then filed a suit in the
RTC, docketed as Civil Case No.Q-01-45212, to collect from the petitioner the said balance, plus
damages, costs and expenses, as summarized in the RTC’s decision, as follows:

The petitioner in its answer denied liability, claiming that it was released from its indebtedness to the
respondent by reason of the novation of their contract, which, it reasoned, took place when the latter
accepted the partial payment of Enviro Kleen in its behalf, and thereby acquiesced to the substitution
of Enviro Kleen as the new debtor in the petitioner’s place. After trial, the RTC rendered
judgment6 on May 28, 2004 in favor of the respondent, the fallo of which reads, as follows:

WHEREFORE, judgment is hereby rendered for the respondent. The petitioner is hereby ordered to
pay the respondent the following:
 A. the sum of ₱816,627.00 representing the principal obligation due;

B. the sum equivalent to twenty percent (20%)per month of the principal obligation
due from date of judicial demand until fully paid as and for interest; and

C. the sum equivalent to twenty-five percent (25%) of the principal sum due as and
for attorney’s fees and other costs of suits. The compulsory counterclaim interposed
by the petitioner is hereby ordered dismissed for lack of merit.

SO ORDERED.7 (Emphasis supplied)

On appeal to the CA, the petitioner maintained that the trial court erred in ruling that no novation of
the contract took place through the substitution of Enviro Kleen as the new debtor. But for the first
time, it further argued that the trial court should have dismissed the complaint for failure of the
respondent to implead Genlite Industries as "a proper party in interest", as provided in Section 2 of
Rule 3 of the 1997 Rules of Civil Procedure. The said section provides:

SEC. 2. Parties in interest. — A real party in interest is the party who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise
authorized by law or these Rules, every action must be prosecuted or defended in the name of the
real party in interest.

In Section 1(g) of Rule 16 of the Rules of Court, it is also provided that the defendant may move to
dismiss the suit on the ground that it was not brought in the name of or against the real party in
interest, with the effect that the complaint is then deemed to state no cause of action.

In dismissing the appeal, the CA noted that the petitioner in its answer below raised only the defense
of novation, and that at no stage in the proceedings did it raise the question of whether the suit was
brought in the name of the real party in interest. Moreover, the appellate court found from the sales
invoices and receipts that the respondent is the sole proprietor of Genlite Industries, and therefore
the real party-plaintiff. Said the CA:

Settled is the rule that litigants cannot raise an issue for the first time on appeal as this would
contravene the basic rules of fair play and justice.

In any event, there is no question that respondent Engr.Luis U. Parada is the proprietor of Genlite
Industries, as shown on the sales invoice and delivery receipts. There is also no question that a
special power of attorney was executed by respondent Engr.Luis U. Parada in favor of Engr.
Leonardo A. Parada authorizingthe latter to file a complaint against the petitioner. 8 (Citations omitted)

The petitioner also contended that a binding novation of the purchase contract between the parties
took place when the respondent accepted the partial payment of Enviro Kleen of ₱250,000.00 in its
behalf, and thus acquiesced to the substitution by Enviro Kleen of the petitioner as the new debtor.
But the CA noted that there is nothing in the two (2) letters of the respondent to Enviro Kleen, dated
April 14, 1999 and June 16, 1999, which would imply that he consented to the alleged novation, and,
particularly, that he intended to release the petitioner from its primary obligation to pay him for its
purchase of lighting materials. The appellate court cited the RTC’s finding 9 that the respondent
informed Enviro Kleen in his first letter that he had served notice to the petitioner that he would take
legal action against it for its overdue account, and that he retained his option to pull out the lighting
materials and charge the petitioner for any damage they might sustain during the pull-out:

Respondent x x x has served notice to the petitioner that unless the overdue account is paid, the
matter will be referred to its lawyers and there may be a pull-out of the delivered lighting fixtures. It
was likewise stated therein that incidental damages that may result to the structure in the course of
the pull-out will be to the account of the petitioner. 10

The CA concurred with the RTC that by retaining his option to seek satisfaction from the petitioner,
any acquiescence which the respondent had made was limited to merely accepting Enviro Kleen as
an additional debtor from whom he could demand payment, but without releasing the petitioner as
the principal debtor from its debt to him.

On motion for reconsideration,11 the petitioner raised for the first time the issue of the validity of the
verification and certification of non-forum shopping attached to the complaint. On July 18, 2008, the
CA denied the said motion for lack of merit.12

Petition for Review in the Supreme Court

In this petition, the petitioner insists, firstly, that the complaint should have been dismissed outright
by the trial court for an invalid non-forum shopping certification; and, secondly, that the appellate
court erred in not declaring that there was a novation of the contract between the parties through
substitution of the debtor, which resulted in the release of the petitioner from its obligation to pay the
respondent the amount of its purchase.13

Our Ruling

The petition is devoid of merit.

The verification and certification of

non-forum shopping in the
complaint is not a jurisdictional but
a formal requirement, and any
objection as to non-compliance
therewith should be raised in the
proceedings below and not for the
first time on appeal.

"It is well-settled that no question will be entertained on appeal unless it has been raised in the
proceedings below. Points of law, theories, issues and arguments not brought to the attention of the
lower court, administrative agency or quasi-judicial body, need not be considered by are viewing
court, as they cannot be raised for the first time at that late stage. Basic considerations of fairness
and due process impel this rule. Any issue raised for the first time on appeal is barred by estoppel." 14

Through a Special Power of Attorney (SPA), the respondent authorized Engr. Leonardo A. Parada
(Leonardo), the eldest of his three children, to perform the following acts in his behalf: a) to file a
complaint against the petitioner for sum of money with damages; and b) to testify in the trial thereof
and sign all papers and documents related thereto, with full powers to enter into stipulation and
compromise.15 Incidentally, the respondent, a widower, died of cardio-pulmonary arrest on January
21,2009,16 survived by his legitimate children, namely, Leonardo, Luis, Jr., and Lalaine, all surnamed
Parada. They have since substituted him in this petition, per the Resolution of the Supreme Court
dated September 2, 2009.17 Also, on July 23, 2009, Luis, Jr. and Lalaine Parada executed an SPA
authorizing their brother Leonardo to represent them in the instant petition. 18

In the verification and certification of non-forum shopping attached to the complaint in Civil Case No.
Q01-45212, Leonardo as attorney-in-fact of his father acknowledged as follows:

xxxx

That I/we am/are the Plaintiff in the above-captioned case;

That I/we have caused the preparation of this Complaint;

That I/we have read the same and that all the allegations therein are true and correct to the best of
my/our knowledge;

x x x x.19

In this petition, the petitioner reiterates its argument before the CA that the above verification is
invalid, since the SPA executed by the respondent did not specifically include an authority for
Leonardo to sign the verification and certification of non-forum shopping, thus rendering the
complaint defective for violation of Sections 4 and 5 of Rule 7. The said sections provide, as follows:

Sec. 4. Verification. — A pleading is verified by an affidavit that the affiant has read the pleading and
that the allegations therein are true and correct of his personal knowledge or based on authentic
records.

Sec. 5. Certification against forum shopping. –– The plaintiff or principal party shall certify under oath
in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification
annexed thereto and simultaneously filed therewith: (a) that he has not thereto fore commenced any
action or filed any claim involving the same issues in any court, or tribunal x x x and, to the best of
his knowledge, no such other action or claim is pending therein; (b) if there is such other pending
action or claim, a complete statement of the present status thereof; and (c) if he should thereafter
learn that the same or similar action or claim has been filed or is pending, he shall report that fact x x
x to the court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion and after hearing.

The petitioner’s argument is untenable. The petitioner failed to reckon that any objection as to
compliance with the requirement of verification in the complaint should have been raised in the
proceedings below, and not in the appellate court for the first time. 20 In KILUSAN-OLALIA v. CA,21 it
was held that verification is a formal, not a jurisdictional requisite:

We have emphasized, time and again, that verification is a formal, not a jurisdictional requisite, as it
is mainly intended to secure an assurance that the allegations therein made are done in good faith
or are true and correct and not mere speculation. The Court may order the correction of the
pleading, if not verified, or act on the unverified pleading if the attending circumstances are such that
a strict compliance with the rule may be dispensed with in order that the ends of justice may be
served.
Further, in rendering justice, courts have always been, as they ought to be, conscientiously guided
by the norm that on the balance, technicalities take a backseat vis-à-vis substantive rights, and not
the other way around. x x x.22(Citations omitted)

In Young v. John Keng Seng,23 it was also held that the question of forum shopping cannot be raised
in the CA and in the Supreme Court, since such an issue must be raised at the earliest opportunity in
a motion to dismiss or a similar pleading. The high court even warned that "invoking it in the later
stages of the proceedings or on appeal may result in the dismissal of the action x x x." 24

Moreover, granting that Leonardo has no personal knowledge of the transaction subject of the
complaint below, Section 4 of Rule 7 provides that the verification need not be based on the verifier’s
personal knowledge but even only on authentic records. Sales invoices, statements of accounts,
receipts and collection letters for the balance of the amount still due to the respondent from the
petitioner are such records. There is clearly substantial compliance by the respondent’s attorney-in-
fact with the requirement of verification.

Lastly, it is well-settled that a strict compliance with the rules may be dispensed with in order that the
ends of substantial justice may be served.25 It is clear that the present controversy must be resolved
on its merits, lest for a technical oversight the respondent should be deprived of what is justly due
him.

A sole proprietorship has no

juridical personality separate and
distinct from that of its owner, and
need not be impleaded as a party-
plaintiff in a civil case.

On the question of whether Genlite Industries should have been impleaded as a party-plaintiff,
Section 1 of Rule 3 of the Rules of Court provides that only natural or juridical persons or entities
authorized by law may be parties in a civil case. Article 44 of the New Civil Code enumerates who
are juridical persons:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose, created
by law; their personality begins as soon as they have been constituted according to
law;

(3) Corporations, partnerships and associations for private interest or purpose to

which the law grants a juridical personality, separate and distinct from that of each
shareholder, partner or member.

Genlite Industries is merely the DTI-registered trade name or style of the respondent by which he
conducted his business. As such, it does not exist as a separate entity apart from its owner, and
therefore it has no separate juridical personality to sue or be sued. 26 As the sole proprietor of Genlite
Industries, there is no question that the respondent is the real party in interest who stood to be
directly benefited or injured by the judgment in the complaint below. There is then no necessity for
Genlite Industries to be impleaded as a party-plaintiff, since the complaint was already filed in the
name of its proprietor, Engr. Luis U. Parada. To heed the petitioner’s sophistic reasoning is to permit
a dubious technicality to frustrate the ends of substantial justice.

Novation is never presumed but

must be clearly and unequivocally
shown.

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by

substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the
creditor.27 It is "the substitution of a new contract, debt, or obligation for an existing one between the
same or different parties."28 Article 1293 of the Civil Code defines novation as follows:

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may
be made even without the knowledge or against the will of the latter, but not without the consent of
the creditor. Payment by the new debtor gives him rights mentioned in Articles 1236and 1237.

Thus, in order to change the person of the debtor, the former debtor must be expressly released
from the obligation, and the third person or new debtor must assume the former’s place in the
contractual relation.29 Article 1293 speaks of substitution of the debtor, which may either be in the
form of expromision or delegacion, as seems to be the case here. In both cases, the old debtor must
be released from the obligation, otherwise, there is no valid novation. As explained in Garcia 30:

In general, there are two modes of substituting the person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the change does not come from—and may even be
made without the knowledge of—the debtor, since it consists of a third person’s assumption of the
obligation. As such, it logically requires the consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three persons are necessary.
Both modes of substitution by the debtor require the consent of the creditor. 31 (Citations omitted)

From the circumstances obtaining below, we can infer no clear and unequivocal consent by the
respondent to the release of the petitioner from the obligation to pay the cost of the lighting
materials. In fact, from the letters of the respondent to Enviro Kleen, it can be said that he retained
his option to go after the petitioner if Enviro Kleen failed to settle the petitioner’s debt. As the trial
court held:

The fact that Enviro Kleen Technologies, Inc. made payments to the respondent and the latter
accepted it does not ipso facto result innovation. Novation to be given its legal effect requires that
the creditor should consent to the substitution of a new debtor and the old debtor be released from
its obligation (Art. 1293, New Civil Code). A reading of the letters dated 14 April 1999 (Exh. 1) and
dated 16 June 1999 (Exhs. 4 &4-a) sent by the respondent to Enviro Kleen Technologies, Inc. clearly
shows that there was nothing therein that would evince that the[respondent] has consented to the
exchange of the person of the debtor from the petitioner to Enviro Kleen Technologies, Inc.

xxxx

Notably in Exh. 1, albeit addressed to Enviro Kleen Technologies, Inc., the respondent expressly
stated that it has served notice to the petitioner that unless the overdue account is paid, the matter
will be referred to its lawyers and there may be a pull-out of the delivered lighting fixtures. It was
likewise stated therein that incident damages that may result to the structure in the course of the
pull-out will be to the account of the petitioner.

It is evident from the two (2) aforesaid letters that there is no indication of the respondent’s intention
to release the petitioner from its obligation to pay and to transfer it to Enviro Kleen Technologies, Inc.
The acquiescence of Enviro Kleen Technologies, Inc. to assume the obligation of the petitioner to
pay the unpaid balance of [P]816,627.00 to the respondent when there is clearly no agreement to
release the petitioner will result merely to the addition of debtors and not novation. Hence, the
creditor can still enforce the obligation against the original debtor x x x. A fact which points strongly
to the conclusion that the respondent did not assent to the substitution of Enviro Kleen Technologies,
Inc. as the new debtor is the present action instituted by the respondent against the petitioner for the
fulfillment of its obligation. A mere recital that the respondent has agreed or consented to the
substitution of the debtor is not sufficient to establish the fact that there was a novation. x x x. 32

The settled rule is that novation is never presumed,33 but must be clearly and unequivocally
shown.34 In order for a new agreement to supersede the old one, the parties to a contract must
expressly agree that they are abrogating their old contract in favor of a new one. 35 Thus, the mere
substitution of debtors will not result innovation,36 and the fact that the creditor accepts payments
from a third person, who has assumed the obligation, will result merely in the addition of debtors and
not novation, and the creditor may enforce the obligation against both debtors. 37 If there is no
agreement as to solidarity, the first and new debtors are considered obligated jointly. 38 As explained
in Reyes v. CA39:

The consent of the creditor to a novation by change of debtor is as indispensable as the creditor’s
consent in conventional subrogation in order that a novation shall legally take place. The mere
circumstance of AFP-MBAI receiving payments from respondent Eleazar who acquiesced to assume
the obligation of petitioner under the contract of sale of securities, when there is clearly no
agreement to release petitioner from her responsibility, does not constitute novation. At most, it only
creates a juridical relation of co-debtorship or surety ship on the part of respondent Eleazar to the
contractual obligation of petitioner to AFP-MBAI and the latter can still enforce the obligation against
the petitioner. In Ajax Marketing and Development Corporation vs. Court of Appeals which is relevant
in the instant case, we stated that —

"In the same vein, to effect a subjective novation by a change in the person of the debtor, it is
necessary that the old debtor be released expressly from the obligation, and the third person or new
debtor assumes his place in the relation. There is no novation without such release as the third
person who has assumed the debtor’s obligation becomes merely a co-debtor or surety. xxx.
Novation arising from a purported change in the person of the debtor must be clear and express
xxx."

In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the
Roman Law jurisprudence, the principle – novatio non praesumitur — that novation is never
presumed. At bottom, for novation to be a jural reality, its animus must be ever present, debitum pro
debito — basically extinguishing the old obligation for the new one. 40 (Citation omitted)

The trial court found that the respondent never agreed to release the petitioner from its obligation,
and this conclusion was upheld by the CA. We generally accord utmost respect and great weight to
factual findings of the trial court and the CA, unless there appears in the record some fact or
circumstance of weight and influence which has been overlooked, or the significance of which has
been misinterpreted, that if considered would have affected the result of the case. 41 We find no such
oversight in the appreciation of the facts below, nor such a misinterpretation thereof, as would
otherwise provide a clear and unequivocal showing that a novation has occurred in the contract
between the parties resulting in the release of the petitioner.

Pursuant to Article 2209 of the

Civil Code, except as provided
under Central Bank Circular
No. 905, and now under Bangko
Sentral ng Pilipinas Circular
No. 799, which took effect on
July 1, 2013, the respondent may
be awarded interest of six percent
(6%) of the judgment amount by
way of actual and compensatory
damages.

It appears from the recital of facts in the trial court’s decision that the respondent demanded interest
of two percent (2%) per month upon the balance of the purchase price of ₱816,627.00, from judicial
demand until full payment. There is then an obvious clerical error committed in the fallo of the trial
court’s decision, for it incorrectly ordered the defendant there into pay "the sum equivalent to twenty
percent (20%) per month of the principal obligation due from date of judicial demand until fully paid
as and for interest."42

A clerical mistake is one which is visible to the eyes or obvious to the understanding; an error made
by a clerk or a transcriber; a mistake in copying or writing. 43 The Latin maxims Error placitandi
aequitatem non tollit ("A clerical error does not take away equity"), and Error scribentis nocere non
debit ("An error made by a clerk ought not to injure; a clerical error may be corrected") are apt in this
case.44 Viewed against the landmark case of Medel v. CA45, an award of interest of 20% per month
on the amount due is clearly excessive and iniquitous. It could not have been the intention of the trial
court, not to mention that it is way beyond what the plaintiff had prayed for below.

It is settled that other than in the case of judgments which are void ab initio for lack of jurisdiction, or
which are null and void per se, and thus may be questioned at any time, when a decision is final,
even the court which issued it can no longer alter or modify it, except to correct clerical errors or
mistakes.46

The foregoing notwithstanding, of more important consideration in the case before us is the fact that
it is nowhere stated in the trial court’s decision that the parties had in fact stipulated an interest on
the amount due to the respondent. Even granting that there was such an agreement, there is no
finding by the trial court that the parties stipulated that the outstanding debt of the petitioner would be
subject to two percent (2%) monthly interest. The most that the decision discloses is that the
respondent demanded a monthly interest of 2% on the amount outstanding.

Article 2209 of the Civil Code provides that "if the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six percent per annum." Pursuant to the said provision, then, since there is no
finding of a stipulation by the parties as to the imposition of interest, only the amount of 12% per
annum47 may be awarded by the court by way of damages in its discretion, not two percent(2%) per
month, following the guidelines laid down in the landmark case of Eastern Shipping Lines v. Court of
Appeals,48 to wit:

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 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.

2. When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably
ascertained).The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.49 (Citations omitted)

As further clarified in the case of Sunga-Chan v. CA, 50 a loan or forbearance of money, goods or
credit describes a contractual obligation whereby a lender or creditor has refrained during a given
period from requiring the borrower or debtor to repay the loan or debt then due and payable. 51 Thus:

In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Central
Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or forbearance of
money. And for transactions involving payment of indemnities in the concept of damages arising from
default in the performance of obligations in general and/or for money judgment not involving a loan
or forbearance of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code
prescribing a yearly 6% interest. Art. 2209 pertinently provides:

"Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent
per annum."

The term "forbearance," within the context of usury law, has been described as a contractual
obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower
or debtor to repay the loan or debt then due and payable.

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the
applicable rate, as follows: The12% per annum rate under CB Circular No. 416 shall apply only to
loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code
applies "when the transaction involves the payment of indemnities in the concept of damage arising
from the breach or a delay in the performance of obligations in general," with the application of both
rates reckoned "from the time the complaint was filed until the adjudged amount is fully paid." In
either instance, the reckoning period for the commencement of the running of the legal interest shall
be subject to the condition "that the courts are vested with discretion, depending on the equities of
each case, on the award of interest."52 (Citations omitted and emphasis ours)

Pursuant, then, to Central Bank Circular No. 416, issued on July 29,1974, 53 in the absence of a
written stipulation, the interest rate to be imposed in judgments involving a forbearance of credit shall
be 12% per annum, up from 6% under Article 2209 of the Civil Code. This was reiterated in Central
Bank Circular No. 905, which suspended the effectivity of the Usury Law from January 1, 1983. 54 But
if the judgment refers to payment of interest as damages arising from a breach or delay in general,
the applicable interest rate is 6% per annum, following Article 2209 of the Civil Code. 55 Both interest
rates apply from judicial or extrajudicial demand until finality of the judgment. But from the finality of
the judgment awarding a sum of money until it is satisfied, the award shall be considered a
forbearance of credit, regardless of whether the award in fact pertained to one, and therefore during
this period, the interest rate of 12% per annum for forbearance of money shall apply. 56

But notice must be taken that in Resolution No. 796 dated May 16,2013, the Monetary Board of the
Bangko Sentral ng Pilipinas approved the revision of the interest rate to be imposed for the loan or
forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest. Thus, under BSP Circular No.799, issued on June 21,
2013 and effective on July 1, 2013, the said rate of interest is now back at six percent (6%), viz:

BANGKO SENTRAL NG PILIPINAS

OFFICE OF THE GOVERNOR

CIRCULAR NO. 799

Series of 2013

Subject: Rate of interest in the absence of stipulation

The monetary Board, in its Resolution No. 796 dated 16 May 2013,approved the following revisions
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending
Section 2 of Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per
annum.

Section 2. In view of the above, Subsection X305.1 of the Manual of

Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions are hereby
amended accordingly.
This Circular shall take effect on 1 July 2013.

FOR THE MONETARY BOARD:

DIWA C. GUINIGUNDO
Officer-In-Charge

The award of attorney’s fees is not proper.

Other than to say that the petitioner "unjustifiably failed and refused to pay the respondent," the trial
court did not state in the body of its decision the factual or legal basis for its award of attorney’s fees
to the respondent, as required under Article 2208 of the New Civil Code, for which reason we have
resolved to delete the same. The rule is settled that the trial court must state the factual, legal or
equitable justification for its award of attorney’s fees. 57Indeed, the matter of attorney’s fees cannot be
stated only in the dispositive portion, but the reasons must be stated in the body of the court’s
decision.58 This failure or oversight of the trial court cannot even be supplied by the CA. As concisely
explained in Frias v. San Diego-Sison59:

Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all
cases, it must be reasonable, just and equitable if the same were to be granted. Attorney’s fees as
part of damages are not meant to enrich the winning party at the expense of the losing litigant. They
are not awarded every time a party prevails in a suit because of the policy that no premium should
be placed on the right to litigate. The award of attorney’s fees is the exception rather than the
general rule. As such, it is necessary for the trial court to make findings of facts and law that would
bring the case within the exception and justify the grant of such award. The matter of attorney’s fees
cannot be mentioned only in the dispositive portion of the decision. They must be clearly explained
and justified by the trial court in the body of its decision. On appeal, the CA is precluded from
supplementing the bases for awarding attorney’s fees when the trial court failed to discuss in its
Decision the reasons for awarding the same. Consequently, the award of attorney’s fees should be
1âwphi1

deleted.60 (Citations omitted)

WHEREFORE, premises considered, the Decision dated April 30, 2008 of the Court of Appeals in
CA-G.R. CV No. 83811 is AFFIRMED with MODIFICATION. Petitioner S.C. Megaworld Construction
and Development Corporation is ordered to pay respondent Engr. Luis A. Parada, represented by
Engr. Leonardo A. Parada, the principal amount due of ₱816,627.00, plus interest at twelve percent
(12%) per annum, reckoned from judicial demand until June 30, 2013, and six percent (6%) per an
own from July 1, 2013 until finality hereof, by way of actual and compensatory damages. Thereafter,
the principal amount due as adjusted by interest shall likewise earn interest at six percent (6%) per
annum until fully paid. The award of attorney's fees is DELETED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice
 Chairperson

TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN

Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

C E RTI F I CATI O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes

1
Rollo, pp. 11-32.

2
Penned by Associate Justice Fernanda Lampas Peralta, with Associate Justices
Edgardo P. Cruz and Apolinario D. Bruselas, Jr., concurring; id. at 33-44.

3
Penned by Judge Marie Christine A. Jacob; id. at 71-74.

4
Id. at 69.

5
Id. at 71-72.

6
Id. at 71-74.

7
Id. at 73-74.

8
Id. at 38.

9
Id. at 73.

10
Id.

11
Id. at 47-56.

12
Id. at 45.
13
Id. at 17.

14
Besana v. Mayor, G.R. No. 153837, July 21, 2010, 625 SCRA 203, 214, citing
Jacot v. Dal, G.R. No. 179848, November 27, 2008, 572 SCRA 295, 311, and
Villaranda v. Villaranda, 467 Phil. 1089, 1098(2004).

15
Rollo, p. 62.

16
Id. at 119.

17
Id. at 125-126.

18
Id. at 120-121.

19
Id. at 66.

20
Gadit v. Atty. Feliciano, Sr., et al., 161 Phil. 507, 510 (1976).

21
555 Phil. 42 (2007).

22
Id. at 57.

23
446 Phil. 823 (2003).

24
Id. at 826.

25
Supra note 21, at 57.

26
Berman Memorial Park, Inc. v. Cheng, 497 Phil. 441, 451-452 (2005).

Garcia v. Llamas, 462 Phil. 779, 788 (2003); Agro Conglomerates, Inc. v. CA, 401
27

Phil. 644, 655(2000).

28
Riser Air-conditioning Services Corp., v. Confield Construction Development Corp.,
481 Phil. 822,835 (2004).

29
Philippine Savings Bank v. Sps. Manalac, Jr., 496 Phil. 671, 689 (2005).

30
Supra note 27.

31
Id. at 300.

32
Rollo, pp. 72-73.

33
Ajax Marketing & Development Corporation v. CA, 318 Phil. 268 (1995); Goñi v.
CA, 228 Phil. 222, 232 (1986); California Bus Lines, Inc. v. State Investment House,
Inc., 463 Phil. 689, 702 (2003).
34
Mercantile Insurance Co., Inc., v. CA, 273 Phil. 415, 423 (1991).

35
CIVIL CODE OF THE PHILIPPINES, Article 1292; Idolor v. CA, 404 Phil. 220, 228
(2001).

36
Servicewide Specialists, Inc. v. Intermediate Appellate Court, 255 Phil. 787, 800
(1989).

Id., citing Staight v. Haskell, 49 Phil. 614 (1926); Testate Estate of Mota v. Serra, 47
37

Phil. 464(1925); E.C. McCullough & Co. v. Veloso and Serna, 46 Phil. 1 (1924);
Pacific Commercial Co. v. Sotto, 34Phil. 237 (1916).

38
Id., citing Lopez v. CA, et al., 200 Phil. 150, 166 (1982); Duñgo v. Lopena, et al.,
116 Phil. 1305,1314 (1962).

39
332 Phil. 40 (1996).

40
Id. at 55-56.

41
San Sebastian College v. CA, 274 Phil. 414, 421 (1991).

42
Rollo, p. 74.

43
Black v. Republic of the Philippines, 104 Phil. 848, 849 (1958); Beduya v. Republic,
120 Phil. 114,116 (1964).

44
Ingson v. Olaybar, 52 Phil. 395, 398 (1928).

45
359 Phil. 820 (1998).

46
Heirs of Remigio Tan v. Intermediate Appellate Court, 246 Phil. 756, 764 (1988);
Vda. de Emnas v. Emnas, 184 Phil. 419, 424 (1980); Maramba v. Lozano, 126 Phil.
833, 837 (1967).

47
Now reduced to 6% under BSP Circular No. 799 which took effect on July 1, 2013.

48
G.R. No. 97412, July 12, 1994, 234 SCRA 78.

49
Id. at 95-97.

50
G.R. No. 164401, June 25, 2008, 555 SCRA 275.

51
Id. 287-288.

52
Id.

53
July 29, 1974
 CENTRAL BANK CIRCULAR NO. 416

By virtue of the authority granted to it under Section 1 of Act No. 2655, as

amended, otherwise known as the "Usury Law," the Monetary Board, in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of
interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of express contract as to such rate
of interest, shall be twelve per cent (12%) per annum. This Circular shall take
effect immediately.

(SGD.) G. S. LICAROS
Governor

54
Section 2. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of express contract as to
such rate of interest, shall continue to be twelve per cent (12%) per annum.

55
Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.

Penta Capital Finance Corporation v. Bay, G.R. No. 162100, January 18, 2012, 663
56

SCRA 192, 213.

Philippine Airlines, Incorporated v. CA, G.R. No. 123238, September 22, 2008, 566
57

SCRA 124,138.

58
Buñing v. Santos, 533 Phil. 610, 617 (2006).

59
549 Phil. 49 (2007).

60
Id. at 63-65.

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