Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 26085

August 12, 1927

SEVERINO TOLENTINO and POTENCIANA MANIO, plaintiffsappellants,

vs.
BENITO GONZALEZ SY CHIAM, defendants-appellee.
Araneta and Zaragoza for appellants.
Eusebio Orense for appelle.
JOHNSON, J.:
PRINCIPAL QUESTIONS PRESENTED BY THE APPEAL
The principal questions presented by this appeal are:
(a) Is the contract in question a pacto de retro or a mortgage?
(b) Under a pacto de retro, when the vendor becomes a tenant of
the purchaser and agrees to pay a certain amount per month as
rent, may such rent render such a contract usurious when the
amount paid as rent, computed upon the purchase price,
amounts to a higher rate of interest upon said amount than that
allowed by law?
(c)
May the contract in the present case may be modified
by parol evidence?
ANTECEDENT FACTS

Sometime prior to the 28th day of November, 1922, the appellants

purchased of the Luzon Rice Mills, Inc., a piece or parcel of land with
the camarin located thereon, situated in the municipality of Tarlac of
the Province of Tarlac for the price of P25,000, promising to pay
therefor in three installments. The first installment of P2,000 was due
on or before the 2d day of May, 1921; the second installment of P8,000
was due on or before 31st day of May, 1921; the balance of P15,000 at
12 per cent interest was due and payable on or about the 30th day of
November, 1922. One of the conditions of that contract of purchase was
that on failure of the purchaser (plaintiffs and appellants) to pay the
balance of said purchase price or any of the installments on the date
agreed upon, the property bought would revert to the original owner.
The payments due on the 2d and 31st of May, 1921, amounting to
P10,000 were paid so far as the record shows upon the due dates. The
balance of P15,000 due on said contract of purchase was paid on or
about the 1st day of December, 1922, in the manner which will be
explained below. On the date when the balance of P15,000 with interest
was paid, the vendor of said property had issued to the purchasers
transfer certificate of title to said property, No. 528. Said transfer
certificate of title (No. 528) was transfer certificate of title from No. 40,
which shows that said land was originally registered in the name of the
vendor on the 7th day of November, 1913.
PRESENT FACTS
On the 7th day of November, 1922 the representative of the vendor of
the property in question wrote a letter to the appellant Potenciana
Manio (Exhibit A, p. 50), notifying the latter that if the balance of said
indebtedness was not paid, an action would be brought for the purpose
of recovering the property, together with damages for non compliance
with the condition of the contract of purchase. The pertinent parts of
said letter read as follows:
Sirvase notar que de no estar liquidada esta cuenta el dia
30 del corriente, procederemos judicialmente contra Vd.
para reclamar la devolucion del camarin y los daos y

perjuicios ocasionados a la compaia por su

incumplimiento al contrato.
Somos de Vd. atentos y S. S.
SMITH, BELL & CO., LTD.
By (Sgd.) F. I. HIGHAM

Sepan todos por la presente:

Que nosotros, los conyuges Severino Tolentino y
Potenciana Manio, ambos mayores de edad, residentes
en el Municipio de Calumpit, Provincia de Bulacan,
propietarios y transeuntes en esta Ciudad de Manila, de
una parte, y de otra, Benito Gonzalez Sy Chiam, mayor
de edad, casado con Maria Santiago, comerciante y
vecinos de esta Ciudad de Manila.

Treasurer.
MANIFESTAMOS Y HACEMOS CONSTAR:
General Managers
LUZON RICE MILLS INC.
According to Exhibits B and D, which represent the account rendered
by the vendor, there was due and payable upon said contract of
purchase on the 30th day of November, 1922, the sum P16,965.09.
Upon receiving the letter of the vendor of said property of November 7,
1922, the purchasers, the appellants herein, realizing that they would be
unable to pay the balance due, began to make an effort to borrow
money with which to pay the balance due, began to make an effort to
borrow money with which to pay the balance of their indebtedness on
the purchase price of the property involved. Finally an application was
made to the defendant for a loan for the purpose of satisfying their
indebtedness to the vendor of said property. After some negotiations the
defendants agreed to loan the plaintiffs to loan the plaintiffs the sum of
P17,500 upon condition that the plaintiffs execute and deliver to him a
pacto de retro of said property.
In accordance with that agreement the defendant paid to the plaintiffs
by means of a check the sum of P16,965.09. The defendant, in addition
to said amount paid by check, delivered to the plaintiffs the sum of
P354.91 together with the sum of P180 which the plaintiffs paid to the
attorneys for drafting said contract of pacto de retro, making a total
paid by the defendant to the plaintiffs and for the plaintiffs of P17,500
upon the execution and delivery of said contract. Said contracts was
dated the 28th day of November, 1922, and is in the words and figures
following:

Primero. Que nosotros, Severino Tolentino y Potenciano

Manio, por y en consideracion a la cantidad de diecisiete
mil quinientos pesos (P17,500) moneda filipina, que en
este acto hemos recibido a nuestra entera satisfaccion de
Don Benito Gonzalez Sy Chiam, cedemos, vendemos y
traspasamos a favor de dicho Don Benito Gonzalez Sy
Chiam, sus herederos y causahabientes, una finca que,
segun el Certificado de Transferencia de Titulo No. 40
expedido por el Registrador de Titulos de la Provincia de
Tarlac a favor de "Luzon Rice Mills Company Limited"
que al incorporarse se donomino y se denomina "Luzon
Rice Mills Inc.," y que esta corporacion nos ha
transferido en venta absoluta, se describe como sigue:
Un terreno (lote No. 1) con las mejoras existentes en el
mismo, situado en el Municipio de Tarlac. Linda por el
O. y N. con propiedad de Manuel Urquico; por el E. con
propiedad de la Manila Railroad Co.; y por el S. con un
camino. Partiendo de un punto marcado 1 en el plano,
cuyo punto se halla al N. 41 gds. 17' E.859.42 m. del
mojon de localizacion No. 2 de la Oficina de Terrenos en
Tarlac; y desde dicho punto 1 N. 81 gds. 31' O., 77 m. al
punto 2; desde este punto N. 4 gds. 22' E.; 54.70 m. al
punto 3; desde este punto S. 86 gds. 17' E.; 69.25 m. al
punto 4; desde este punto S. 2 gds. 42' E., 61.48 m. al
punto de partida; midiendo una extension superficcial de
cuatro mil doscientos diez y seis metros cuadrados

(4,216) mas o menos. Todos los puntos nombrados se

hallan marcados en el plano y sobre el terreno los puntos
1 y 2 estan determinados por mojones de P. L. S. de 20 x
20 x 70 centimetros y los puntos 3 y 4 por mojones del
P. L. S. B. L.: la orientacion seguida es la verdadera,
siendo la declinacion magnetica de 0 gds. 45' E. y la
fecha de la medicion, 1. de febrero de 1913.
Segundo. Que es condicion de esta venta la de que si en
el plazo de cinco (5) aos contados desde el dia 1. de
diciembre de 1922, devolvemos al expresado Don
Benito Gonzalez Sy Chiam el referido precio de
diecisiete mil quinientos pesos (P17,500) queda obligado
dicho Sr. Benito Gonzalez y Chiam a retrovendernos la
finca arriba descrita; pero si transcurre dicho plazo de
cinco aos sin ejercitar el derecho de retracto que nos
hemos reservado, entonces quedara esta venta absoluta e
irrevocable.
Tercero. Que durante el expresado termino del retracto
tendremos en arrendamiento la finca arriba descrita,
sujeto a condiciones siguientes:
(a) El alquiler que nos obligamos a pagar por
mensualidades vencidas a Don Benito Gonzalez
Sy Chiam y en su domicilio, era de trescientos
setenta y cinco pesos (P375) moneda filipina,
cada mes.
(b) El amillaramiento de la finca arrendada sera
por cuenta de dicho Don Benito Gonzalez Sy
Chiam, asi como tambien la prima del seguro
contra incendios, si el conviniera al referido Sr.
Benito Gonzalez Sy Chiam asegurar dicha finca.
(c) La falta de pago del alquiler aqui estipulado
por dos meses consecutivos dara lugar a la
terminacion de este arrendamieno y a la perdida
del derecho de retracto que nos hemos reservado,

como si naturalmente hubiera expirado el

termino para ello, pudiendo en su virtud dicho Sr.
Gonzalez Sy Chiam tomar posesion de la finca y
desahuciarnos de la misma.
Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez
otorgo que acepto esta escritura en los precisos terminos
en que la dejan otorgada los conyuges Severino
Tolentino y Potenciana Manio.
En testimonio de todo lo cual, firmamos la presente de
nuestra mano en Manila, por cuadruplicado en Manila,
hoy a 28 de noviembre de 1922.
(Fdo.) SEVERINO TOLENTINO
(Fda.) POTENCIANA MANIO
(Fdo.) BENITO GONZALEZ SY CHIAM
Firmado en presencia de:
(Fdos.) MOISES M. BUHAIN
B. S. BANAAG
An examination of said contract of sale with reference to the first
question above, shows clearly that it is a pacto de retro and not a
mortgage. There is no pretension on the part of the appellant that said
contract, standing alone, is a mortgage. The pertinent language of the
contract is:
Segundo. Que es condicion de esta venta la de que si en el plazo
de cinco (5) aos contados desde el dia 1. de diciembre de
1922, devolvemos al expresado Don Benito Gonzales Sy Chiam
el referido precio de diecisiete mil quinientos pesos (P17,500)
queda obligado dicho Sr. Benito Gonzales Sy Chiam a
retrovendornos la finca arriba descrita; pero si transcurre dicho

plazo de cinco (5) aos sin ejercitar al derecho de retracto que

nos hemos reservado, entonces quedara esta venta absoluta e
irrevocable.
Language cannot be clearer. The purpose of the contract is expressed
clearly in said quotation that there can certainly be not doubt as to the
purpose of the plaintiff to sell the property in question, reserving the
right only to repurchase the same. The intention to sell with the right to
repurchase cannot be more clearly expressed.

a sale whenever the interpretation of such a contract justifies that

conclusion. There must be something, however, in the language of the
contract or in the conduct of the parties which shows clearly and
beyond doubt that they intended the contract to be a "mortgage" and not
a pacto de retro. (International Banking Corporation vs. Martinez, 10
Phil., 252; Padilla vs. Linsangan, 19 Phil., 65; Cumagun vs. Alingay, 19
Phil., 415; Olino vs. Medina, 13 Phil., 379; Manalo vs. Gueco, 42 Phil.,
925; Velazquez vs. Teodoro, 46 Phil., 757; Villa vs. Santiago, 38 Phil.,
157.)

It will be noted from a reading of said sale of pacto de retro, that the
vendor, recognizing the absolute sale of the property, entered into a
contract with the purchaser by virtue of which she became the "tenant"
of the purchaser. That contract of rent appears in said quoted document
above as follows:

We are not unmindful of the fact that sales with pacto de retro are not
favored and that the court will not construe an instrument to one of sale
with pacto de retro, with the stringent and onerous effect which
follows, unless the terms of the document and the surrounding
circumstances require it.

Tercero. Que durante el expresado termino del retracto

tendremos en arrendamiento la finca arriba descrita, sujeto a
condiciones siguientes:
(a) El alquiler que nos obligamos a pagar por mensualidades
vencidas a Don Benito Gonzalez Sy Chiam y en su domicilio,
sera de trescientos setenta y cinco pesos (P375) moneda filipina,
cada mes.
(b) El amillaramiento de la finca arrendada sera por cuenta de
dicho Don Benito Gonzalez Sy Chiam, asi como tambien la
prima del seguro contra incendios, si le conviniera al referido
Sr. Benito Gonzalez Sy Chiam asegurar dicha finca.
From the foregoing, we are driven to the following conclusions: First,
that the contract of pacto de retro is an absolute sale of the property
with the right to repurchase and not a mortgage; and, second, that by
virtue of the said contract the vendor became the tenant of the
purchaser, under the conditions mentioned in paragraph 3 of said
contact quoted above.
It has been the uniform theory of this court, due to the severity of a
contract of pacto de retro, to declare the same to be a mortgage and not

While it is general rule that parol evidence is not admissible for the
purpose of varying the terms of a contract, but when an issue is
squarely presented that a contract does not express the intention of the
parties, courts will, when a proper foundation is laid therefor, hear
evidence for the purpose of ascertaining the true intention of the parties.
In the present case the plaintiffs allege in their complaint that the
contract in question is a pacto de retro. They admit that they signed it.
They admit they sold the property in question with the right to
repurchase it. The terms of the contract quoted by the plaintiffs to the
defendant was a "sale" with pacto de retro, and the plaintiffs have
shown no circumstance whatever which would justify us in construing
said contract to be a mere "loan" with guaranty. In every case in which
this court has construed a contract to be a mortgage or a loan instead of
a sale with pacto de retro, it has done so, either because the terms of
such contract were incompatible or inconsistent with the theory that
said contract was one of purchase and sale. (Olino vs. Medina, supra;
Padilla vs. Linsangan, supra; Manlagnit vs. Dy Puico, 34 Phil., 325;
Rodriguez vs. Pamintuan and De Jesus, 37 Phil., 876.)
In the case of Padilla vs. Linsangan the term employed in the contract
to indicate the nature of the conveyance of the land was "pledged"
instead of "sold". In the case of Manlagnit vs. Dy Puico, while the

vendor used to the terms "sale and transfer with the right to
repurchase," yet in said contract he described himself as a "debtor" the
purchaser as a "creditor" and the contract as a "mortgage". In the case
of Rodriguez vs. Pamintuan and De Jesus the person who executed the
instrument, purporting on its face to be a deed of sale of certain parcels
of land, had merely acted under a power of attorney from the owner of
said land, "authorizing him to borrow money in such amount and upon
such terms and conditions as he might deem proper, and to secure
payment of the loan by a mortgage." In the case of Villa vs. Santiago
(38 Phil., 157), although a contract purporting to be a deed of sale was
executed, the supposed vendor remained in possession of the land and
invested the money he had obtained from the supposed vendee in
making improvements thereon, which fact justified the court in holding
that the transaction was a mere loan and not a sale. In the case of
Cuyugan vs. Santos (39 Phil., 970), the purchaser accepted partial
payments from the vendor, and such acceptance of partial payments is
absolutely incompatible with the idea of irrevocability of the title of
ownership of the purchaser at the expiration of the term stipulated in
the original contract for the exercise of the right of repurchase."
Referring again to the right of the parties to vary the terms of written
contract, we quote from the dissenting opinion of Chief Justice
Cayetano S. Arellano in the case of Government of the Philippine
Islands vs. Philippine Sugar Estates Development Co., which case was
appealed to the Supreme Court of the United States and the contention
of the Chief Justice in his dissenting opinion was affirmed and the
decision of the Supreme Court of the Philippine Islands was reversed.
(See decision of the Supreme Court of the United States, June 3, 1918.)1
The Chief Justice said in discussing that question:
According to article 1282 of the Civil Code, in order to judge of the
intention of the contracting parties, consideration must chiefly be paid
to those acts executed by said parties which are contemporary with and
subsequent to the contract. And according to article 1283, however
general the terms of a contract may be, they must not be held to include
things and cases different from those with regard to which the
interested parties agreed to contract. "The Supreme Court of the
Philippine Islands held the parol evidence was admissible in that case to
vary the terms of the contract between the Government of the

Philippine Islands and the Philippine Sugar Estates Development Co. In

the course of the opinion of the Supreme Court of the United States Mr.
Justice Brandeis, speaking for the court, said:
It is well settled that courts of equity will reform a written
contract where, owing to mutual mistake, the language used
therein did not fully or accurately express the agreement and
intention of the parties. The fact that interpretation or
construction of a contract presents a question of law and that,
therefore, the mistake was one of law is not a bar to granting
relief. . . . This court is always disposed to accept the
construction which the highest court of a territory or possession
has placed upon a local statute. But that disposition may not be
yielded to where the lower court has clearly erred. Here the
construction adopted was rested upon a clearly erroneous
assumption as to an established rule of equity. . . . The burden of
proof resting upon the appellant cannot be satisfied by mere
preponderance of the evidence. It is settled that relief by way of
reformation will not be granted unless the proof of mutual
mistake be of the clearest and most satisfactory character.
The evidence introduced by the appellant in the present case does not
meet with that stringent requirement. There is not a word, a phrase, a
sentence or a paragraph in the entire record, which justifies this court in
holding that the said contract of pacto de retro is a mortgage and not a
sale with the right to repurchase. Article 1281 of the Civil Code
provides: "If the terms of a contract are clear and leave no doubt as to
the intention of the contracting parties, the literal sense of its
stipulations shall be followed." Article 1282 provides: "in order to
judge as to the intention of the contracting parties, attention must be
paid principally to their conduct at the time of making the contract and
subsequently thereto."
We cannot thereto conclude this branch of our discussion of the
question involved, without quoting from that very well reasoned
decision of the late Chief Justice Arellano, one of the greatest jurists of
his time. He said, in discussing the question whether or not the contract,
in the case of Lichauco vs. Berenguer (20 Phil., 12), was a pacto de
retro or a mortgage:

The public instrument, Exhibit C, in part reads as follows: "Don

Macarion Berenguer declares and states that he is the proprietor
in fee simple of two parcels of fallow unappropriated crown
land situated within the district of his pueblo. The first has an
area of 73 quiones, 8 balitas and 8 loanes, located in the sitio
of Batasan, and its boundaries are, etc., etc. The second is in the
sitio of Panantaglay, barrio of Calumpang has as area of 73
hectares, 22 ares, and 6 centares, and is bounded on the north,
etc., etc."
In the executory part of the said instrument, it is stated:
'That under condition of right to repurchase (pacto de
retro) he sells the said properties to the aforementioned
Doa Cornelia Laochangco for P4,000 and upon the
following conditions: First, the sale stipulated shall be
for the period of two years, counting from this date,
within which time the deponent shall be entitled to
repurchase the land sold upon payment of its price;
second, the lands sold shall, during the term of the
present contract, be held in lease by the undersigned
who shall pay, as rental therefor, the sum of 400 pesos
per annum, or the equivalent in sugar at the option of the
vendor; third, all the fruits of the said lands shall be
deposited in the sugar depository of the vendee, situated
in the district of Quiapo of this city, and the value of
which shall be applied on account of the price of this
sale; fourth, the deponent acknowledges that he has
received from the vendor the purchase price of P4,000
already paid, and in legal tender currency of this country
. . .; fifth, all the taxes which may be assessed against the
lands surveyed by competent authority, shall be payable
by and constitute a charge against the vendor; sixth, if,
through any unusual event, such as flood, tempest, etc.,
the properties hereinbefore enumerated should be
destroyed, wholly or in part, it shall be incumbent upon
the vendor to repair the damage thereto at his own
expense and to put them into a good state of cultivation,
and should he fail to do so he binds himself to give to

the vendee other lands of the same area, quality and

value.'
xxx

xxx

xxx

The opponent maintained, and his theory was accepted by the

trial court, that Berenguer's contract with Laochangco was not
one of sale with right of repurchase, but merely one of loan
secured by those properties, and, consequently, that the
ownership of the lands in questions could not have been
conveyed to Laochangco, inasmuch as it continued to be held by
Berenguer, as well as their possession, which he had not ceased
to enjoy.
Such a theory is, as argued by the appellant, erroneous. The
instrument executed by Macario Berenguer, the text of which
has been transcribed in this decision, is very clear. Berenguer's
heirs may not go counter to the literal tenor of the obligation,
the exact expression of the consent of the contracting contained
in the instrument, Exhibit C. Not because the lands may have
continued in possession of the vendor, not because the latter
may have assumed the payment of the taxes on such properties,
nor yet because the same party may have bound himself to
substitute by another any one of the properties which might be
destroyed, does the contract cease to be what it is, as set forth in
detail in the public instrument. The vendor continued in the
possession of the lands, not as the owner thereof as before their
sale, but as the lessee which he became after its consummation,
by virtue of a contract executed in his favor by the vendee in the
deed itself, Exhibit C. Right of ownership is not implied by the
circumstance of the lessee's assuming the responsibility of the
payment is of the taxes on the property leased, for their payment
is not peculiarly incumbent upon the owner, nor is such right
implied by the obligation to substitute the thing sold for another
while in his possession under lease, since that obligation came
from him and he continues under another character in its
possessiona reason why he guarantees its integrity and
obligates himself to return the thing even in a case of force
majeure. Such liability, as a general rule, is foreign to contracts

of lease and, if required, is exorbitant, but possible and lawful, if

voluntarily agreed to and such agreement does not on this
account involve any sign of ownership, nor other meaning than
the will to impose upon oneself scrupulous diligence in the care
of a thing belonging to another.
The purchase and sale, once consummated, is a contract which
by its nature transfers the ownership and other rights in the thing
sold. A pacto de retro, or sale with right to repurchase, is
nothing but a personal right stipulated between the vendee and
the vendor, to the end that the latter may again acquire the
ownership of the thing alienated.

based upon the value of the property, amounted to usury. Usury,

generally speaking, may be defined as contracting for or receiving
something in excess of the amount allowed by law for the loan or
forbearance of moneythe taking of more interest for the use of money
than the law allows. It seems that the taking of interest for the loan of
money, at least the taking of excessive interest has been regarded with
abhorrence from the earliest times. (Dunham vs. Gould, 16 Johnson [N.
Y.], 367.) During the middle ages the people of England, and especially
the English Church, entertained the opinion, then, current in Europe,
that the taking of any interest for the loan of money was a detestable
vice, hateful to man and contrary to the laws of God. (3 Coke's
Institute, 150; Tayler on Usury, 44.)

It is true, very true indeed, that the sale with right of repurchase
is employed as a method of loan; it is likewise true that in
practice many cases occur where the consummation of a pacto
de retro sale means the financial ruin of a person; it is also,
unquestionable that in pacto de retro sales very important
interests often intervene, in the form of the price of the lease of
the thing sold, which is stipulated as an additional covenant.
(Manresa, Civil Code, p. 274.)

Chancellor Kent, in the case of Dunham vs. Gould, supra, said: "If we
look back upon history, we shall find that there is scarcely any people,
ancient or modern, that have not had usury laws. . . . The Romans,
through the greater part of their history, had the deepest abhorrence of
usury. . . . It will be deemed a little singular, that the same voice against
usury should have been raised in the laws of China, in the Hindu
institutes of Menu, in the Koran of Mahomet, and perhaps, we may say,
in the laws of all nations that we know of, whether Greek or Barbarian."

But in the present case, unlike others heard by this court, there
is no proof that the sale with right of repurchase, made by
Berenguer in favor of Laonchangco is rather a mortgage to
secure a loan.

The collection of a rate of interest higher than that allowed by law is

condemned by the Philippine Legislature (Acts Nos. 2655, 2662 and
2992). But is it unlawful for the owner of a property to enter into a
contract with the tenant for the payment of a specific amount of rent for
the use and occupation of said property, even though the amount paid as
"rent," based upon the value of the property, might exceed the rate of
interest allowed by law? That question has never been decided in this
jurisdiction. It is one of first impression. No cases have been found in
this jurisdiction answering that question. Act No. 2655 is "An Act
fixing rates of interest upon 'loans' and declaring the effect of receiving
or taking usurious rates."

We come now to a discussion of the second question presented above,

and that is, stating the same in another form: May a tenant charge his
landlord with a violation of the Usury Law upon the ground that the
amount of rent he pays, based upon the real value of the property,
amounts to a usurious rate of interest? When the vendor of property
under a pacto de retro rents the property and agrees to pay a rental
value for the property during the period of his right to repurchase, he
thereby becomes a "tenant" and in all respects stands in the same
relation with the purchaser as a tenant under any other contract of lease.
The appellant contends that the rental price paid during the period of
the existence of the right to repurchase, or the sum of P375 per month,

It will be noted that said statute imposes a penalty upon a "loan" or

forbearance of any money, goods, chattels or credits, etc. The central
idea of said statute is to prohibit a rate of interest on "loans." A contract
of "loan," is very different contract from that of "rent". A "loan," as that
term is used in the statute, signifies the giving of a sum of money,

goods or credits to another, with a promise to repay, but not a promise

to return the same thing. To "loan," in general parlance, is to deliver to
another for temporary use, on condition that the thing or its equivalent
be returned; or to deliver for temporary use on condition that an
equivalent in kind shall be returned with a compensation for its use.
The word "loan," however, as used in the statute, has a technical
meaning. It never means the return of the same thing. It means the
return of an equivalent only, but never the same thing loaned. A "loan"
has been properly defined as an advance payment of money, goods or
credits upon a contract or stipulation to repay, not to return, the thing
loaned at some future day in accordance with the terms of the contract.
Under the contract of "loan," as used in said statute, the moment the
contract is completed the money, goods or chattels given cease to be the
property of the former owner and becomes the property of the obligor
to be used according to his own will, unless the contract itself expressly
provides for a special or specific use of the same. At all events, the
money, goods or chattels, the moment the contract is executed, cease to
be the property of the former owner and becomes the absolute property
of the obligor.
A contract of "loan" differs materially from a contract of "rent." In a
contract of "rent" the owner of the property does not lose his
ownership. He simply loses his control over the property rented during
the period of the contract. In a contract of "loan" the thing loaned
becomes the property of the obligor. In a contract of "rent" the thing
still remains the property of the lessor. He simply loses control of the
same in a limited way during the period of the contract of "rent" or
lease. In a contract of "rent" the relation between the contractors is that
of landlord and tenant. In a contract of "loan" of money, goods, chattels
or credits, the relation between the parties is that of obligor and obligee.
"Rent" may be defined as the compensation either in money, provisions,
chattels, or labor, received by the owner of the soil from the occupant
thereof. It is defined as the return or compensation for the possession of
some corporeal inheritance, and is a profit issuing out of lands or
tenements, in return for their use. It is that, which is to paid for the use
of land, whether in money, labor or other thing agreed upon. A contract
of "rent" is a contract by which one of the parties delivers to the other
some nonconsumable thing, in order that the latter may use it during a
certain period and return it to the former; whereas a contract of "loan",

as that word is used in the statute, signifies the delivery of money or

other consumable things upon condition of returning an equivalent
amount of the same kind or quantity, in which cases it is called merely
a "loan." In the case of a contract of "rent," under the civil law, it is
called a "commodatum."
From the foregoing it will be seen that there is a while distinction
between a contract of "loan," as that word is used in the statute, and a
contract of "rent" even though those words are used in ordinary
parlance as interchangeable terms.
The value of money, goods or credits is easily ascertained while the
amount of rent to be paid for the use and occupation of the property
may depend upon a thousand different conditions; as for example, farm
lands of exactly equal productive capacity and of the same physical
value may have a different rental value, depending upon location, prices
of commodities, proximity to the market, etc. Houses may have a
different rental value due to location, conditions of business, general
prosperity or depression, adaptability to particular purposes, even
though they have exactly the same original cost. A store on the Escolta,
in the center of business, constructed exactly like a store located outside
of the business center, will have a much higher rental value than the
other. Two places of business located in different sections of the city
may be constructed exactly on the same architectural plan and yet one,
due to particular location or adaptability to a particular business which
the lessor desires to conduct, may have a very much higher rental value
than one not so located and not so well adapted to the particular
business. A very cheap building on the carnival ground may rent for
more money, due to the particular circumstances and surroundings, than
a much more valuable property located elsewhere. It will thus be seen
that the rent to be paid for the use and occupation of property is not
necessarily fixed upon the value of the property. The amount of rent is
fixed, based upon a thousand different conditions and may or may not
have any direct reference to the value of the property rented. To hold
that "usury" can be based upon the comparative actual rental value and
the actual value of the property, is to subject every landlord to an
annoyance not contemplated by the law, and would create a very great
disturbance in every business or rural community. We cannot bring

ourselves to believe that the Legislature contemplated any such

disturbance in the equilibrium of the business of the country.

judgment appealed from should be and is hereby affirmed, with costs.

So ordered.

In the present case the property in question was sold. It was an absolute
sale with the right only to repurchase. During the period of redemption
the purchaser was the absolute owner of the property. During the period
of redemption the vendor was not the owner of the property. During the
period of redemption the vendor was a tenant of the purchaser. During
the period of redemption the relation which existed between the vendor
and the vendee was that of landlord and tenant. That relation can only
be terminated by a repurchase of the property by the vendor in
accordance with the terms of the said contract. The contract was one of
rent. The contract was not a loan, as that word is used in Act No. 2655.

Avancea, C. J., Street, Villamor, Romualdez and Villa-Real, JJ.,

concur.

As obnoxious as contracts of pacto de retro are, yet nevertheless, the

courts have no right to make contracts for parties. They made their own
contract in the present case. There is not a word, a phrase, a sentence or
paragraph, which in the slightest way indicates that the parties to the
contract in question did not intend to sell the property in question
absolutely, simply with the right to repurchase. People who make their
own beds must lie thereon.
What has been said above with reference to the right to modify
contracts by parol evidence, sufficiently answers the third questions
presented above. The language of the contract is explicit, clear,
unambiguous and beyond question. It expresses the exact intention of
the parties at the time it was made. There is not a word, a phrase, a
sentence or paragraph found in said contract which needs explanation.
The parties thereto entered into said contract with the full
understanding of its terms and should not now be permitted to change
or modify it by parol evidence.
With reference to the improvements made upon said property by the
plaintiffs during the life of the contract, Exhibit C, there is hereby
reserved to the plaintiffs the right to exercise in a separate action the
right guaranteed to them under article 361 of the Civil Code.
For all of the foregoing reasons, we are fully persuaded from the facts
of the record, in relation with the law applicable thereto, that the

Separate Opinions
MALCOLM, J., dissenting:
I regret to have to dissent from the comprehensive majority decision. I
stand squarely on the proposition that the contract executed by the
parties was merely a clever device to cover up the payment of usurious
interest. The fact that the document purports to be a true sale with right
of repurchase means nothing. The fact that the instrument includes a
contract of lease on the property whereby the lessees as vendors
apparently bind themselves to pay rent at the rate of P375 per month
and whereby "Default in the payment of the rent agreed for two
consecutive months will terminate this lease and will forfeit our right of
repurchase, as though the term had expired naturally" does mean
something, and taken together with the oral testimony is indicative of a
subterfuge hiding a usurious loan. (Usury Law, Act No. 2655, sec. 7, as
amended; Padilla vs. Linsangan [1911], 19 Phil., 65; U. S. vs. Tan
Quingco Chua [1919], 39 Phil., 552; Russel vs. Southard [1851], 53 U.
S., 139 Monagas vs. Albertucci y Alvarez [1914], 235 U. S., 81; 10
Manresa, Codigo Civil Espaol, 3rd ed., p. 318.) The transaction should
be considered as in the nature of an equitable mortgage. My vote is for
a modification of the judgment of the trial court.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-46240

November 3, 1939

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffsappellants,

vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.

IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her
certain furniture which she lent him for his use. She appealed from the
judgment of the Court of First Instance of Manila which ordered that
the defendant return to her the three has heaters and the four electric
lamps found in the possession of the Sheriff of said city, that she call
for the other furniture from the said sheriff of Manila at her own
expense, and that the fees which the Sheriff may charge for the deposit
of the furniture be paid pro rata by both parties, without
pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the
latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936,
upon the novation of the contract of lease between the plaintiff and the
defendant, the former gratuitously granted to the latter the use of the
furniture described in the third paragraph of the stipulation of facts,
subject to the condition that the defendant would return them to the

plaintiff upon the latter's demand. The plaintiff sold the property to
Maria Lopez and Rosario Lopez and on September 14, 1936, these
three notified the defendant of the conveyance, giving him sixty days to
vacate the premises under one of the clauses of the contract of lease.
There after the plaintiff required the defendant to return all the furniture
transferred to him for them in the house where they were found. On
November 5, 1936, the defendant, through another person, wrote to
the plaintiff reiterating that she may call for the furniture in the ground
floor of the house. On the 7th of the same month, the defendant wrote
another letter to the plaintiff informing her that he could not give up the
three gas heaters and the four electric lamps because he would use them
until the 15th of the same month when the lease in due to expire. The
plaintiff refused to get the furniture in view of the fact that the
defendant had declined to make delivery of all of them. On
November 15th, before vacating the house, the defendant deposited
with the Sheriff all the furniture belonging to the plaintiff and they are
now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in
the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court
incorrectly applied the law: in holding that they violated the contract by
not calling for all the furniture on November 5, 1936, when the
defendant placed them at their disposal; in not ordering the defendant to
pay them the value of the furniture in case they are not delivered; in
holding that they should get all the furniture from the Sheriff at their
expenses; in ordering them to pay-half of the expenses claimed by the
Sheriff for the deposit of the furniture; in ruling that both parties should
pay their respective legal expenses or the costs; and in denying pay
their respective legal expenses or the costs; and in denying the motions
for reconsideration and new trial. To dispose of the case, it is only
necessary to decide whether the defendant complied with his obligation
to return the furniture upon the plaintiff's demand; whether the latter is
bound to bear the deposit fees thereof, and whether she is entitled to the
costs of litigation.lawphi1.net

The contract entered into between the parties is one of commadatum,

because under it the plaintiff gratuitously granted the use of the
furniture to the defendant, reserving for herself the ownership thereof;
by this contract the defendant bound himself to return the furniture to
the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit
A; articles 1740, paragraph 1, and 1741 of the Civil Code). The
obligation voluntarily assumed by the defendant to return the furniture
upon the plaintiff's demand, means that he should return all of them to
the plaintiff at the latter's residence or house. The defendant did not
comply with this obligation when he merely placed them at the disposal
of the plaintiff, retaining for his benefit the three gas heaters and the
four eletric lamps. The provisions of article 1169 of the Civil Code
cited by counsel for the parties are not squarely applicable. The trial
court, therefore, erred when it came to the legal conclusion that the
plaintiff failed to comply with her obligation to get the furniture when
they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture
to the plaintiff, upon the latter's demand, the Court could not legally
compel her to bear the expenses occasioned by the deposit of the
furniture at the defendant's behest. The latter, as bailee, was not entitled
to place the furniture on deposit; nor was the plaintiff under a duty to
accept the offer to return the furniture, because the defendant wanted to
retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is
entitled to the payment thereof by the defendant in case of his inability
to return some of the furniture because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to nor admitted the
correctness of the said value. Should the defendant fail to deliver some
of the furniture, the value thereof should be latter determined by the
trial Court through evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant because
the plaintiff is the prevailing party (section 487 of the Code of Civil
Procedure). The defendant was the one who breached the contract of

commodatum, and without any reason he refused to return and deliver

all the furniture upon the plaintiff's demand. In these circumstances, it
is just and equitable that he pay the legal expenses and other judicial
costs which the plaintiff would not have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to
return and deliver to the plaintiff, in the residence to return and deliver
to the plaintiff, in the residence or house of the latter, all the furniture
described in paragraph 3 of the stipulation of facts Exhibit A. The
expenses which may be occasioned by the delivery to and deposit of the
furniture with the Sheriff shall be for the account of the defendant. the
defendant shall pay the costs in both instances. So ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-20240

December 31, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSE GRIJALDO, defendant-appellant.
Office of the Solicitor General for plaintiff-appellee.
Isabelo P. Samson for defendant-appellant.
ZALDIVAR, J.:
In the year 1943 appellant Jose Grijaldo obtained five loans from the
branch office of the Bank of Taiwan, Ltd. in Bacolod City, in the total
sum of P1,281.97 with interest at the rate of 6% per annum,
compounded quarterly. These loans are evidenced by five promissory
notes executed by the appellant in favor of the Bank of Taiwan, Ltd., as
follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June
18, 1943, P22.86; on August 9, 1943,P300.00; on August 13, 1943,
P200.00, all notes without due dates, but because the loans were due
one year after they were incurred. To secure the payment of the loans
the appellant executed a chattel mortgage on the standing crops on his
land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros
Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under
the authority provided for in the Trading with the Enemy Act, as
amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were
vested in the Government of the United States. Pursuant to the
Philippine Property Act of 1946 of the United States, these assets,
including the loans in question, were subsequently transferred to the

Republic of the Philippines by the Government of the United States

under Transfer Agreement dated July 20, 1954. These assets were
among the properties that were placed under the administration of the
Board of Liquidators created under Executive Order No. 372, dated
November 24, 1950, and in accordance with Republic Acts Nos. 8 and
477 and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines,
represented by the Chairman of the Board of Liquidators, made a
written extrajudicial demand upon the appellant for the payment of the
account in question. The record shows that the appellant had actually
received the written demand for payment, but he failed to pay.
The aggregate amount due as principal of the five loans in question,
computed under the Ballantyne scale of values as of the time that the
loans were incurred in 1943, was P889.64; and the interest due thereon
at the rate of 6% per annum compounded quarterly, computed as of
December 31, 1959 was P2,377.23.
On January 17, 1961 the appellee filed a complaint in the Justice of the
Peace Court of Hinigaran, Negros Occidental, to collect from the
appellant the unpaid account in question. The Justice of the Peace Of
Hinigaran, after hearing, dismissed the case on the ground that the
action had prescribed. The appellee appealed to the Court of First
Instance of Negros Occidental and on March 26, 1962 the court a quo
rendered a decision ordering the appellant to pay the appellee the sum
of P2,377.23 as of December 31, 1959, plus interest at the rate of 6%
per annum compounded quarterly from the date of the filing of the
complaint until full payment was made. The appellant was also ordered
to pay the sum equivalent to 10% of the amount due as attorney's fees
and costs.
The appellant appealed directly to this Court. During the pendency of
this appeal the appellant Jose Grijaldo died. Upon motion by the
Solicitor General this Court, in a resolution of May 13, 1963, required
Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L.

Aguilar, who are the legal heirs of Jose Grijaldo to appear and be
substituted as appellants in accordance with Section 17 of Rule 3 of the
Rules of Court.
In the present appeal the appellant contends: (1) that the appellee has no
cause of action against the appellant; (2) that if the appellee has a cause
of action at all, that action had prescribed; and (3) that the lower court
erred in ordering the appellant to pay the amount of P2,377.23.
In discussing the first point of contention, the appellant maintains that
the appellee has no privity of contract with the appellant. It is claimed
that the transaction between the Taiwan Bank, Ltd. and the appellant, so
that the appellee, Republic of the Philippines, could not legally bring
action against the appellant for the enforcement of the obligation
involved in said transaction. This contention has no merit. It is true that
the Bank of Taiwan, Ltd. was the original creditor and the transaction
between the appellant and the Bank of Taiwan was a private contract of
loan. However, pursuant to the Trading with the Enemy Act, as
amended, and Executive Order No. 9095 of the United States; and
under Vesting Order No. P-4, dated January 21, 1946, the properties of
the Bank of Taiwan, Ltd., an entity which was declared to be under the
jurisdiction of the enemy country (Japan), were vested in the United
States Government and the Republic of the Philippines, the assets of the
Bank of Taiwan, Ltd. were transferred to and vested in the Republic of
the Philippines. The successive transfer of the rights over the loans in
question from the Bank of Taiwan, Ltd. to the United States
Government, and from the United States Government to the
government of the Republic of the Philippines, made the Republic of
the Philippines the successor of the rights, title and interest in said
loans, thereby creating a privity of contract between the appellee and
the appellant. In defining the word "privy" this Court, in a case, said:
The word "privy" denotes the idea of succession ... hence an
assignee of a credit, and one subrogated to it, etc. will be
privies; in short, he who by succession is placed in the position
of one of those who contracted the judicial relation and

executed the private document and appears to be substituting

him in the personal rights and obligation is a privy (Alpurto vs.
Perez, 38 Phil. 785, 790).
The United States of America acting as a belligerent sovereign power
seized the assets of the Bank of Taiwan, Ltd. which belonged to an
enemy country. The confiscation of the assets of the Bank of Taiwan,
Ltd. being an involuntary act of war, and sanctioned by international
law, the United States succeeded to the rights and interests of said Bank
of Taiwan, Ltd. over the assets of said bank. As successor in interest in,
and transferee of, the property rights of the United States of America
over the loans in question, the Republic of the Philippines had thereby
become a privy to the original contracts of loan between the Bank of
Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic
of the Philippines has a legal right to bring the present action against
the appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the
appellee has no cause of action, that because the loans were secured by
a chattel mortgage on the standing crops on a land owned by him and
these crops were lost or destroyed through enemy action his obligation
to pay the loans was thereby extinguished. This argument is untenable.
The terms of the promissory notes and the chattel mortgage that the
appellant executed in favor of the Bank of Taiwan, Ltd. do not support
the claim of appellant. The obligation of the appellant under the five
promissory notes was not to deliver a determinate thing namely, the
crops to be harvested from his land, or the value of the crops that would
be harvested from his land. Rather, his obligation was to pay a generic
thing the amount of money representing the total sum of the five
loans, with interest. The transaction between the appellant and the Bank
of Taiwan, Ltd. was a series of five contracts of simple loan of sums of
money. "By a contract of (simple) loan, one of the parties delivers to
another ... money or other consumable thing upon the condition that the
same amount of the same kind and quality shall be paid." (Article 1933,
Civil Code) The obligation of the appellant under the five promissory
notes evidencing the loans in questions is to pay the value thereof; that

is, to deliver a sum of money a clear case of an obligation to deliver,

a generic thing. Article 1263 of the Civil Code provides:
In an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the
obligation.
The chattel mortgage on the crops growing on appellant's land simply
stood as a security for the fulfillment of appellant's obligation covered
by the five promissory notes, and the loss of the crops did not
extinguish his obligation to pay, because the account could still be paid
from other sources aside from the mortgaged crops.
In his second point of contention, the appellant maintains that the action
of the appellee had prescribed. The appellant points out that the loans
became due on June 1, 1944; and when the complaint was filed on
January 17,1961 a period of more than 16 years had already elapsed
far beyond the period of ten years when an action based on a written
contract should be brought to court.
This contention of the appellant has no merit. Firstly, it should be
considered that the complaint in the present case was brought by the
Republic of the Philippines not as a nominal party but in the exercise of
its sovereign functions, to protect the interests of the State over a public
property. Under paragraph 4 of Article 1108 of the Civil Code
prescription, both acquisitive and extinctive, does not run against the
State. This Court has held that the statute of limitations does not run
against the right of action of the Government of the Philippines
(Government of the Philippine Islands vs. Monte de Piedad, etc., 35
Phil. 738-751).Secondly, the running of the period of prescription of the
action to collect the loan from the appellant was interrupted by the
moratorium laws (Executive Orders No. 25, dated November 18, 1944;
Executive Order No. 32. dated March 10, 1945; and Republic Act No.
342, approved on July 26, 1948). The loan in question, as evidenced by
the five promissory notes, were incurred in the year 1943, or during the
period of Japanese occupation of the Philippines. This case is squarely

covered by Executive Order No. 25, which became effective on

November 18, 1944, providing for the suspension of payments of debts
incurred after December 31, 1941. The period of prescription was,
therefore, suspended beginning November 18, 1944. This Court, in the
case of Rutter vs. Esteban (L-3708, May 18, 1953, 93 Phil. 68),
declared on May 18, 1953 that the Moratorium Laws, R.A. No. 342 and
Executive Orders Nos. 25 and 32, are unconstitutional; but in that case
this Court ruled that the moratorium laws had suspended the
prescriptive period until May 18, 1953. This ruling was categorically
reiterated in the decision in the case of Manila Motors vs. Flores, L9396, August 16, 1956. It follows, therefore, that the prescriptive period
in the case now before US was suspended from November 18,1944,
when Executive Orders Nos. 25 and 32 were declared unconstitutional
by this Court. Computed accordingly, the prescriptive period was
suspended for 8 years and 6 months. By the appellant's own admission,
the cause of action on the five promissory notes in question arose on
June 1, 1944. The complaint in the present case was filed on January
17, 1961, or after a period of 16 years, 6 months and 16 days when the
cause of action arose. If the prescriptive period was not interrupted by
the moratorium laws, the action would have prescribed already; but, as
We have stated, the prescriptive period was suspended by the
moratorium laws for a period of 8 years and 6 months. If we deduct the
period of suspension (8 years and 6 months) from the period that
elapsed from the time the cause of action arose to the time when the
complaint was filed (16 years, 6 months and 16 days) there remains a
period of 8 years and 16 days. In other words, the prescriptive period
ran for only 8 years and 16 days. There still remained a period of one
year, 11 months and 14 days of the prescriptive period when the
complaint was filed.
In his third point of contention the appellant maintains that the lower
court erred in ordering him to pay the amount of P2,377.23. It is
claimed by the appellant that it was error on the part of the lower court
to apply the Ballantyne Scale of values in evaluating the Japanese war
notes as of June 1943 when the loans were incurred, because what
should be done is to evaluate the loans on the basis of the Ballantyne

Scale as of the time the loans became due, and that was in June 1944.
This contention of the appellant is also without merit.
The decision of the court a quo ordered the appellant to pay the sum of
P2,377.23 as of December 31, 1959, plus interest rate of 6% per annum
compounded quarterly from the date of the filing of the complaint. The
sum total of the five loans obtained by the appellant from the Bank of
Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed under the
Ballantyne Scale of values as of June 1943, this sum of P1,281.97 in
Japanese war notes in June 1943 is equivalent to P889.64 in genuine
Philippine currency which was considered the aggregate amount due as
principal of the five loans, and the amount of P2,377.23 as of December
31, 1959 was arrived at after computing the interest on the principal
sum of P889.64 compounded quarterly from the time the obligations
were incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of values should
be applied as of the time the obligation was incurred, and that was in
June 1943. This stand of the appellee was upheld by the lower court;
and the decision of the lower court is supported by the ruling of this
Court in the case of Hilado vs. De la Costa (G.R. No. L-150, April 30,
1949; 46 O.G. 5472), which states:
... Contracts stipulating for payments presumably in Japanese
war notes may be enforced in our Courts after the liberation to
the extent of the just obligation of the contracting parties and, as
said notes have become worthless, in order that justice may be
done and the party entitled to be paid can recover their actual
value in Philippine Currency, what the debtor or defendant
bank should return or pay is the value of the Japanese military
notes in relation to the peso in Philippine Currency obtaining
on the date when and at the place where the obligation was
incurred unless the parties had agreed otherwise. ... . (italics
supplied)

IN VIEW OF THE FOREGOING, the decision appealed from is

affirmed, with costs against the appellant. Inasmuch as the appellant
Jose Grijaldo died during the pendency of this appeal, his estate must
answer in the execution of the judgment in the present case.

Republic of the Philippines

SUPREME COURT
Manila

NOW, THEREFORE, for and in consideration of the sum of THREE

MILLION PESOS (P3,000,000.00) receipt of which is hereby
acknowledged by the FIRST PARTY from the SECOND PARTY, the
parties have agreed as follows:

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 Decision1 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 Agreement5 over the property with the following
terms:

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 (P6,400,000.00). Upon
notice to the FIRST PARTY of the SECOND PARTYs
intention to purchase the same, the latter has a period of another
six months within which to pay the remaining balance of P3.4
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 P3,000,000.00 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
P7,000,000.00 should the property be sold at a price more than
P7 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 P3 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.

two million pesos with interest at 36% per annum from December 7,
1991, P100,000.00 moral, corrective and exemplary damages and
P200,000.00 for attorneys fees.

x x x x.6

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 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 letter8 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 complaint10 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
owners copy of TCT No. 168173 to the Tagig Police Station on June 3,
1991, executing an affidavit of loss and by filing a petition12 for the
issuance of a new owners duplicate copy of said title with the RTC of
Makati, Branch 142; that the petition was granted in an Order13 dated
August 31, 1991; that said Order was subsequently set aside in an Order
dated April 10, 199214 where the RTC Makati granted respondents
petition for relief from judgment due to the fact that respondent is in
possession of the owners 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

Petitioner filed an Amended Answer16 alleging that the Memorandum of

Agreement was conceived and arranged by her lawyer, Atty. Carmelita
Lozada, who is also respondents 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 respondents 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 owners duplicate copy; that the petition
for the issuance of a new owners 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 attorneys 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:

knowledge thus it is not binding on respondent; that respondent had

also proven that in 1993, she initially paid the sum of P30,000.00 as
premium for the issuance of the attachment bond, P20,000.00 for its
renewal in 1994, and P20,000.00 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.

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.

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:

2) Ordering defendant to pay plaintiff the sum of P70,000.00

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

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

3) Ordering defendant to pay plaintiff the sum of P100,000.00

by way of moral, corrective and exemplary damages.
4) Ordering defendant to pay plaintiff attorneys fees of
P100,000.00 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 owners duplicate title knowing the same
was in respondents possession, entitled respondent to moral damages;
and that petitioners 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 respondents

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 owners copy, she executed an affidavit
of loss of TCT No. 168173 when she knew all along that said title was
in respondents possession; petitioners 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, 199120 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.
Petitioners 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 ATTORNEYS 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 CAs 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 CAs 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 CAs
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-appellants
(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 sixmonth 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.

since petitioner was acquitted in the case for perjury and false
testimony filed by respondent against her.

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

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.

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.nt
In Bautista v. Pilar Development Corp.,30 we upheld the validity of a
21% per annum interest on a P142,326.43 loan. In Garcia v. Court of
Appeals,31 we sustained the agreement of the parties to a 24% per
annum interest on an P8,649,250.00 loan. Thus, the interest rate of 25%
per annum awarded by the CA to a P2 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

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

We agree with the findings of the trial court and the CA that petitioners
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 owners duplicate copy of TCT No. 168173 entitles
respondent to moral damages.1a\^/phi1.net Moral damages may be
awarded in culpa contractual or breach of contract cases 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 owners 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 respondents possession, petitioner executed an

affidavit of loss that the owners 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
petitioners 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 petitioners
attach case36 and did not bother to look at the envelope.37
It is clear therefrom that petitioners execution of the affidavit of loss
became the basis of the filing of the petition with the RTC for the
issuance of new owners duplicate copy of TCT No. 168173.
Petitioners actuation would have deprived respondent of the security
for her loan were it not for respondents 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.38 Exemplary damages may be imposed
upon petitioner by way of example or correction for the public good.39
The RTC awarded the amount of P100,000.00 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 attorneys fees because

the trial courts decision did not explain the findings of facts and law to
justify the award of attorneys 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 attorneys 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 attorneys fees is DELETED.
No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-25704

April 24, 1968

ANGEL JOSE WAREHOUSING CO., INC., plaintiff-appellee,

vs.
CHELDA ENTERPRISES and DAVID SYJUECO, defendantsappellants.
Luis A. Guerrero for plaintiff-appellee.
Burgos and Sarte for defendants-appellants.
BENGZON, J.P., J.:

Plaintiff filed on June 25, 1964 an answer to the counterclaim,

specifically denying under oath the allegations of usury.
After trial, decision was rendered, on November 10, 1965. The court
found that there remained due from defendants an unpaid principal
amount of P20,287.50; that plaintiff charged usurious interests, of
which P1,048.15 had actually been deducted in advance by plaintiff
from the loan; that said amount of P1,048.15 should therefore be
deducted from the unpaid principal of P20,287.50, leaving a balance of
P19,247.351 still payable to the plaintiff. Said court held that
notwithstanding the usurious interests charged, plaintiff is not barred
from collecting the principal of the loan or its balance of P19,247.35.
Accordingly, it stated, in the dispositive portion of the decision, thus:
WHEREFORE, judgment is hereby rendered, ordering the
defendant partnership to pay to the plaintiff the amount of
P19,247.35, with legal interest thereon from May 29, 1964 until
paid, plus an additional sum of P2,000.00 as damages for
attorney's fee; and, in case the assets of defendant partnership be
insufficient to satisfy this judgment in full, ordering the
defendant David Syjueco to pay to the plaintiff one-half (1/2) of
the unsatisfied portion of this judgment.

Plaintiff corporation filed suit in the Court of First Instance of Manila

on May 29, 1964 against the partnership Chelda Enterprises and David
Syjueco, its capitalist partner, for recovery of alleged unpaid loans in
the total amount of P20,880.00, with legal interest from the filing of the
complaint, plus attorney's fees of P5,000.00. Alleging that post dated
checks issued by defendants to pay said account were dishonored, that
defendants' industrial partner, Chellaram I. Mohinani, had left the
country, and that defendants have removed or disposed of their
property, or are about to do so, with intent to defraud their creditors,
preliminary attachment was also sought.

Appealing directly to Us, defendants raise two questions of law: (1) In a

loan with usurious interest, may the creditor recover the principal of the
loan? (2) Should attorney's fees be awarded in plaintiff's favor?

Answering, defendants averred that they obtained four loans from

plaintiff in the total amount of P26,500.00, of which P5,620.00 had
been paid, leaving a balance of P20,880.00; that plaintiff charged and
deducted from the loan usurious interests thereon, at rates of 2% and
2.5% per month, and, consequently, plaintiff has no cause of action
against defendants and should not be permitted to recover under the
law. A counterclaim for P2,000.00 attorney's fees was interposed.

To refute the lower court's decision which is based on the doctrine laid
down by this Court in Lopez v. El Hogar Filipino, 47 Phil. 249, holding
that a contract of loan with usurious interest is valid as to the loan but
void as to the usurious interest, appellants argue that in light of the New
Civil Code provisions said doctrine no longer applies. In support
thereof, they cite the case decided by the Court of Appeals in Sebastian
v. Bautista, 58 O.G. No. 15, p. 3146.

With costs against the defendants.1wph1.t

The Sebastian case was an action for recovery of a parcel of land. The
Court of First Instance therein decided in plaintiff's favor, on the ground
that the so-called sale with pacto de retro of said land was in fact only
an equitable mortgage. In affirming the trial court, the writer of the
opinion of the Court of Appeals went further to state the view that the
loan secured by said mortgage was usurious in nature, and, thus, totally
void. Such reasoning of the writer, however, was not concurred in by
the other members of the Court, who concurred in the result and voted
for affirmance on the grounds stated by the trial court. Furthermore, the
affirmance of the existence of equitable mortgage necessarily implies
the existence of a valid contract of loan, because the former is an
accessory contract to the latter.

the New Civil Code provisions must be upheld as against the Usury
Law, under which a loan with usurious interest is not totally void,
because of Article 1961 of the New Civil Code, that: "Usurious
contracts shall be governed by the Usury Law and other special laws,
so far as they are not inconsistent with this Code." (Emphasis ours.)

Great reliance is made by appellants on Art. 1411 of the New Civil

Code which states:

True, as stated in Article 1411 of the New Civil Code, the rule of pari
delicto applies where a contract's nullity proceeds from illegality of the
cause or object of said contract.

Art. 1411. When the nullity proceeds from the illegality of the
cause or object of the contract, and the act constitutes criminal
offense, both parties being in pari delicto, they shall have no
action against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relative to the
disposal of effects or instruments of a crime shall be applicable
to the things or the price of the contract.
This rule shall be applicable when only one of the parties is
guilty; but the innocent one may claim what he has given, and
shall not be bound to comply with his promise.
Since, according to the appellants, a usurious loan is void due to
illegality of cause or object, the rule of pari delicto expressed in Article
1411, supra, applies, so that neither party can bring action against each
other. Said rule, however, appellants add, is modified as to the
borrower, by express provision of the law (Art. 1413, New Civil Code),
allowing the borrower to recover interest paid in excess of the interest
allowed by the Usury Law. As to the lender, no exception is made to the
rule; hence, he cannot recover on the contract. So they continue

We do not agree with such reasoning. Article 1411 of the New Civil
Code is not new; it is the same as Article 1305 of the Old Civil Code.
Therefore, said provision is no warrant for departing from previous
interpretation that, as provided in the Usury Law (Act No. 2655, as
amended), a loan with usurious interest is not totally void only as to the
interest.

However, appellants fail to consider that a contract of loan with

usurious interest consists of principal and accessory stipulations; the
principal one is to pay the debt; the accessory stipulation is to pay
interest thereon.2
And said two stipulations are divisible in the sense that the former can
still stand without the latter. Article 1273, Civil Code, attests to this:
"The renunciation of the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to
payment of interest likewise renders a nullity the legal terms as to
payments of the principal debt. Article 1420 of the New Civil Code
provides in this regard: "In case of a divisible contract, if the illegal
terms can be separated from the legal ones, the latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the
debtor to pay the principal debt, which is the cause of the contract
(Article 1350, Civil Code), is not illegal. The illegality lies only as to

the prestation to pay the stipulated interest; hence, being separable, the
latter only should be deemed void, since it is the only one that is illegal.
Neither is there a conflict between the New Civil Code and the Usury
Law. Under the latter, in Sec. 6, any person who for a loan shall have
paid a higher rate or greater sum or value than is allowed in said law,
may recover the whole interest paid. The New Civil Code, in Article
1413 states: "Interest paid in excess of the interest allowed by the usury
laws may be recovered by the debtor, with interest thereon from the
date of payment." Article 1413, in speaking of "interest paid in excess
of the interest allowed by the usury laws" means the whole usurious
interest; that is, in a loan of P1,000, with interest of P20% per annum
P200 for one year, if the borrower pays said P200, the whole P200 is
the usurious interest, not just that part thereof in excess of the interest
allowed by law. It is in this case that the law does not allow division.
The whole stipulation as to interest is void, since payment of said
interest is the cause or object and said interest is illegal. The only
change effected, therefore, by Article 1413, New Civil Code, is not to
provide for the recovery of the interest paid in excess of that allowed by
law, which the Usury Law already provided for, but to add that the
same can be recovered "with interest thereon from the date of payment."
The foregoing interpretation is reached with the philosophy of usury
legislation in mind; to discourage stipulations on usurious interest, said
stipulations are treated as wholly void, so that the loan becomes one
without stipulation as to payment of interest. It should not, however, be
interpreted to mean forfeiture even of the principal, for this would
unjustly enrich the borrower at the expense of the lender. Furthermore,
penal sanctions are available against a usurious lender, as a further
deterrence to usury.
The principal debt remaining without stipulation for payment of interest
can thus be recovered by judicial action. And in case of such demand,
and the debtor incurs in delay, the debt earns interest from the date of
the demand (in this case from the filing of the complaint). Such interest
is not due to stipulation, for there was none, the same being void.

Rather, it is due to the general provision of law that in obligations to

pay money, where the debtor incurs in delay, he has to pay interest by
way of damages (Art. 2209, Civil Code). The court a quo therefore, did
not err in ordering defendants to pay the principal debt with interest
thereon at the legal rate, from the date of filing of the complaint.
As regards, however, the attorney's fees, the court a quo stated no basis
for its award, beyond saying that as a result of defendants' refusal to
pay the amount of P19,247.35 notwithstanding repeated demands,
plaintiff was obliged to retain the services of counsel. The rule as to
attorney's fees is that the same are not recoverable, in the absence of
stipulation. Several exceptions to this rule are provided (Art. 2208,
Civil Code). Unless shown to fall under an exception, the act of
plaintiff in engaging counsel's services due to refusal of defendants to
pay his demand, does not justify award of attorney's fees (Estate of
Buan v. Camaganacan, L-21569, Feb. 28, 1966). Defendants, moreover,
had reason to resist the claim, since there was yet no definite ruling of
this Court on the point of law involved herein in light of the New Civil
Code. Said award should therefore be deleted.
WHEREFORE, with the modification that the award of attorney's fees
in plaintiff's favor is deleted therefrom, and the correction of the clerical
error as to the principal still recoverable, from P19,247.35 to
P19,239.35, the appealed judgment is hereby affirmed. No costs. So
ordered.
Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and
Fernando, JJ., concur.
Zaldivar, J., took no part.
Concepcion, C.J., is on leave.
Footnotes
1

Should be P19,239.35.

"Art. 1933. By the contract of loan, one of the parties delivers

to another, either something not consumable so that the latter
may use the same for a certain time and return it, in which case
the contract is called a commodatum; or money or other
consumable thing, upon the condition that the same amount of
the same kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum.
"Commodatum is essentially gratuitous.
"Simple loan may be gratuitous or with a stipulation to
pay interest.
"In commodatum the bailor retains the ownership of the
thing loaned, while in simple loan, ownership passes to
the borrower."
Republic of the Philippines
SUPREME COURT
Manila

"Art. 1953. A person who receives a loan of money or

any other fungible thing acquires the ownership thereof,
and is bound to pay to the creditor an equal amount of
the same kind and quality."

EN BANC
G.R. No. L-32644

October 4, 1930

CU UNJIENG E HIJOS, plaintiff-appelle,

vs.
THE MABALACAT SUGAR CO., ET AL., defendants.
THE MABALACAT SUGAR CO., appellant.
Romeo Mercado for appellant.
Araneta and Zaragoza for plaintiff-appellee.
Duran and Lim for defendant-appellee Siuliong and Co.

STREET, J.:

This action was instituted in the Court of First Instance of Pampanga by

Cu Unjieng e Hijos, for the purpose of recovering from the Mabalacat
Sugar Company an indebtedness amounting to more than P163,00, with
interest, and to foreclose a mortgage given by the debtor to secure the
same, as well as to recover stipulated attorney's fee and the sum of
P1,206, paid by the plaintiff for insurance upon the mortgaged property,
with incidental relief. In the complaint Siuliong & Co., Inc., was joined
as defendant, as a surety of the Mabalacat Sugar Company, and as
having a third mortgage on the mortgaged property. The Philippine
National Bank was also joined by reason of its interest as second
mortgagee of the land covered by the mortgage to the plaintiff. After
the cause had been brought to issue by the answers of the several
defendants, the cause was heard and judgment rendered, the dispositive
portion of the decision being as follows:
Por las consideraciones expuestas, el Juzgado condena a The
Mabalacat Sugar Company a pagar a la demandante la suma de
P163,534.73, con sus intereses de 12 por ciento al ano,
compuestos mensualmente desde el 1. de mayo de 1929.
Tambien se le condena a pagar a dicha demandante la suma de
P2,412 por las primas de seguros abonadas por esta, con sus
intereses de 12 por ciento al ano, compuestos tambien
mensualmente desde el 15 de mayo de 1928, mas la de P7,500
por honorarios de abogados y las costas del juicio. Y si esta
deuda no se pagare dentro del plazo de tres meses, se ejecutaran
los bienes hipotecados de acuerdo con la ley.
Si del producto de la venta hubiese algun remanente, este se
destinara al pago del credito del Banco Nacional, o sea de
P32,704.69, con sus intereses de 9 por ciento al ano desde el 7
de junio de 1929, sin perjuicio de la orden de ejecucion que
pudiera expedirse en el asundo No. 26435 del Juzgado de
Primera Instancia de Manila.
Se condena ademas a The Mabalacat Sugar Company al pago de
la suma de P3,205.78 reclamada por Siuliong & Co., con sus

intereses de 9 por ciento al ano desde el 29 de julio de 1926

hasta su completo pago, ordenandola que rinda cuentas del
azucar por ella producido y pague la comision correspondiente
bajo la base de 5 por ciento de su valor, descontandose, desde
luego, las cantidades ya pagadas.
Se absuelve de la demanda de Cu Unjieng e Hijos a Siuliong &
Co., Inc.1awph!l.net
From this judgment the defendant, the Mabalacat Sugar Company,
appealed.
The first point assigned as error has relation to the question whether the
action was prematurely stated. In this connection we note that the
mortgage executed by the Mabalacat Sugar Company contains, in
paragraph 5, a provision to the effect that non-compliance on the part of
the mortgage debtor with any of the obligations assumed in virtue of
this contract will cause the entire debt to become due and give occasion
for the foreclosure of the mortgage. The debtor party failed to comply
with the obligation, imposed upon it in the mortgage, to pay the
mortgage debt in the stipulated installments at the time specified in the
contract. It results that the creditor was justified in treating the entire
mortgage debt as having been accelerated by such failure of the debtor
in paying the installments.
It appears, however, that on or about October 20, 1928, the mortgage
creditor, Cu Unjieng e Hijos, agreed to extend the time for payment of
the mortgage indebtedness until June 30, 1929, with certain interim
payments to be made upon specified dates prior to the contemplated
final liquidation of the whole indebtedness. But the debtor party failed
to make the interim payments due on February 25, 1929, March 25,
1929, and April 25, 1929, and failed altogether to pay the balance due,
according to the terms of this extension, on June 30, 1929.
Notwithstanding the failure of the debtor to comply with the terms of
this extension, it is insisted for the appellant that this agreement for the
extension of the time of payment had the effect of abrogating the

stipulation of the original contract with respect to the acceleration of the

maturity of the debt by non-compliance with the terms of the mortgage.
As the trial court pointed out, this contention is untenable. The
agreement to extend the time of payment was voluntary and without
consideration so far as the creditor is concerned; and the failure of the
debtor to comply with the terms of the extension justified the creditor in
treating it as of no effect. The first error is therefore without merit.
The second error is directed to the propriety of the interest charges
made by the plaintiff in estimating the amount of the indebtedness. In
this connection we note that, under the second clause of the mortgage,
interest should be calculated upon the indebtedness at the rate of 12 per
cent per annum. In the same clause, but in a separate paragraph, there is
another provision with respect to the payment of interest expressed in
Spanish in the following words:

on the capital is concerned. The provision quoted merely requires the

debtor to pay interest monthly at the end of each month, such interest to
be computed upon the capital of the loan not already paid. Clearly this
provision does not justify the charging of compound interest upon the
interest accruing upon the capital monthly. It is true that in subsections
(a), (b) and (c) of article IV of the mortgage, it is stipulated that the
interest can be thus computed upon sums which the creditor would have
to pay out (a) to maintain insurance upon the mortgaged property, (b) to
pay the land tax upon the same property, and (c) upon disbursements
that might be made by the mortgagee to maintain the property in good
condition. But the chief thing is that interest cannot be thus
accumulated on unpaid interest accruing upon the capital of the debt.

It is well settled that, under article 1109 of the Civil Code, as well as
under section 5 of the Usury Law (Act No. 2655), the parties may
stipulate that interest shall be compounded; and rests for the
computation of compound interest can certainly be made monthly, as
well as quarterly, semiannually, or annually. But in the absence of
express stipulation for the accumulation of compound interest, no
interest can be collected upon interest until the debt is judicially
claimed, and then the rate at which interest upon accrued interest must
be computed is fixed at 6 per cent per annum.

The trial court was of the opinion that interest could be so charged,
because of the Exhibit 1 of the Mabalacat Sugar Company, which the
court considered as an interpretation by the parties to the contract and a
recognition by the debtor of the propriety of compounding the interest
earned by the capital. But the exhibit referred to is merely a receipt
showing that the sum of P256.28 was, on March 19, 1928, paid by the
debtor to the plaintiff as interest upon interest. But where interest is
improperly charged, at an unlawful rate, the mere voluntary payment of
it to the creditor by the debtor is not binding. Such payment, in the case
before us, was usurious, being in excess of 12 per cent which is allowed
to be charged, under section 2 of the Usury Law, when a debt is secured
by mortgage upon real property. The Exhibit 1 therefore adds no
support to the contention of the plaintiff that interest upon interest can
be accumulated in the manner adopter by the creditor in this case. The
point here ruled is in exact conformity with the decision of this court in
Bachrach Garage and Taxicab Co. vs. Golingco (39 Phil., 192), where
this court held that interest cannot be allowed in the absence of
stipulation, or in default thereof, except when the debt is judicially
claimed; and when the debt is judicially claimed, the interest upon the
interest can only be computed at the rate of 6 per cent per annum.

In the present case, however, the language which we have quoted above
does not justify the charging of interest upon interest, so far as interest

It results that the appellant's second assignment of error is well taken,

and the compound interest must be eliminated from the judgment. With

Los intereses seran pagados mensualmente a fin de cada mes,

computados teniendo en cuenta el capital del prestamo aun no
pagado.
Translated into English this provision reads substantially as follows:
"Interest, to be computed upon the still unpaid capital of the loan, shall
be paid monthly, at the end of each month."

respect to the amount improperly charged, we accept the estimate

submitted by the president and manager of the Mabalacat Sugar
Company, who says that the amount improperly included in the
computation made by the plaintiff's bookkeeper is P879.84, in addition
to the amount of P256.28 covered by Exhibit 1 of the Mabalacat Sugar
Company. But the plaintiff creditor had the right to charge interest, in
the manner adopted by it, upon insurance premiums which it had paid
out; and if any discrepancy of importance is discoverable by the
plaintiff in the result here reached, it will be at liberty to submit a
revised computation in this court, upon motion for reconsideration,
wherein interest shall be computed in accordance with this opinion, that
is to say, that no accumulation of interest will be permitted at monthly
intervals, as regards the capital of the debt, but such unpaid interest
shall draw interest at the rate of 6 per cent from the date of the
institution of the action.
In the third assignment of error the appellant complains, as excessive,
of the attorney's fees allowed by the court in accordance with
stipulation in the mortgage. The allowance made on the principal debt
was around 4 per cent, and about the same upon the fee allowed to the
bank. Under the circumstances we think the debtor has no just cause for
complaint upon this score.
The fourth assignment of error complains of the failure of the trial court
to permit an amendment to be filed by the debtor to its answer, the
application therefore having been made on the day when the cause had
been set for trial, with notice that the period was non-extendible. The
point was a matter in the discretion of the court, and no abuse of
discretion is shown.
From what has been stated, it follows that the appealed judgment must
be modified by deducting the sum of P1,136.12 from the principal debt,
so that the amount of said indebtedness shall be P162,398.61, with
interest at 12 per cent per annum, from May 1, 1929. In other respects
the judgment will be affirmed, and it is so ordered, with cost against the
appellant.

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 "TurnOver 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

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, are exclusive, not

one of which can be applied to this case.

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 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, 2 decided 3 on 15 May 1969, involved a suit for recovery of money
arising out of short 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, 4 L-6998, February 29, 1956, if the suit were for
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, 5 rendered on 11 October 1985, was for
"Recovery of Damages for 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 6 ruled:
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, 7
promulgated on 28 July 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 8 modified the
interest award from 12% to 6% interest per 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, 9 the trial court, in an action for the
recovery of damages 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 10 ruled out the applicability of 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 11 was 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 12 thus set aside the 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 13 which arose from 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 defendantsappellants, 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, 14 decided on 08 May 1992, involved the
expropriation of certain parcels of land. After 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 15
declared:
. . . , (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 16 of money, goods or credits, as well as
to 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, 17 depending on whether or not the amount
involved is a loan or forbearance, on 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, quasicontracts, delicts or quasi-delicts 18 is breached, the contravenor can be held
liable for damages. 19 The provisions under Title 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. 21 Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. 22 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 23 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 24 at the rate of 6% per annum. 25 No interest,
however, shall be adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable certainty. 26
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.
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.

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;

9 160 SCRA 334.

(2) Contracts;
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.

(3) Quasi-contracts;

11 167 SCRA 209.

(5) Qausi-delicts."

(4) Acts or omissions punished by law; and

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 Grio-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.

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.

13 170 SCRA 461.

21 Art. 1956. No interest shall be due unless it has been

expressly stipulated in writing.

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

20 Art. 2195. The provisions of this Title (on Damages) shall

be respectively applicable to all obligations mentioned in
article 1157.

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

DECISION

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

obligor has rendered it beyond his power to perform.

DEL CASTILLO, J.:

"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."

This resolves the petition for review on certiorari under Rule 45 of the
Rules of Court, praying that the Decision1 dated July 1, 2004 and
Resolution2 dated August 31, 2004 promulgated by the Court of
Appeals (CA), be reversed and set aside.

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.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 165116

MARIA SOLEDAD TOMIMBANG, Petitioner,

vs.
ATTY. JOSE TOMIMBANG, Respondent.

August 4, 2009

The antecedent facts are as follows.

Petitioner and respondent are siblings. Their parents donated to
petitioner an eight-door apartment located at 149 Santolan Road,
Murphy, Quezon City, with the condition that during the parents'
lifetime, they shall retain control over the property and petitioner shall
be the administrator thereof.
In 1995, petitioner applied for a loan from PAG-IBIG Fund to finance
the renovations on Unit H, of said apartment which she intended to use
as her residence. Petitioner failed to obtain a loan from PAG-IBIG
Fund, hence, respondent offered to extend a credit line to petitioner on
the following conditions: (1) petitioner shall keep a record of all the
advances; (2) petitioner shall start paying the loan upon the completion
of the renovation; (3) upon completion of the renovation, a loan and
mortgage agreement based on the amount of the advances made shall
be executed by petitioner and respondent; and (4) the loan agreement
shall contain comfortable terms and conditions which petitioner could
have obtained from PAG-IBIG.3
Petitioner accepted respondent's offer of a credit line and work on the
apartment units began. Renovations on Units B to G were completed,
and the work has just started on Unit A when an altercation broke out

between herein parties. In view of said conflict, respondent and

petitioner, along with some family members, held a meeting in the
house of their brother Genaro sometime in the second quarter of 1997.
Respondent and petitioner entered into a new agreement whereby
petitioner was to start making monthly payments on her loan. Upon
respondent's demand, petitioner turned over to respondent all the
records of the cash advances for the renovations. Subsequently, or from
June to October of 1997, petitioner made monthly payments of
P18,700.00, or a total of P93,500.00. Petitioner never denied the fact
that she started making such monthly payments.
In October of 1997, a quarrel also occurred between respondent and
another sister, Maricion, who was then defending the actions of
petitioner. Because of said incident, they had a hearing at the Barangay.
At said hearing, respondent had the occasion to remind petitioner of her
monthly payment. Petitioner allegedly answered, "Kalimutan mo na
ang pera mo wala tayong pinirmahan. Hindi ako natatakot sa 'yo!"
Thereafter, petitioner left Unit H and could no longer be found.
Petitioner being the owner of the apartments, renovations on Unit A
were discontinued when her whereabouts could not be located. She also
stopped making monthly payments and ignored the demand letter dated
December 2, 1997 sent by respondent's counsel.
On February 2, 1998, respondent filed a Complaint against petitioner,
demanding the latter to pay the former the net amount of P3,989,802.25
plus interest of 12% per annum from date of default.
At the pre-trial conference, the issues were narrowed down as follows:
1. Whether or not a loan was duly constituted between the
plaintiff and the defendant in connection with the improvements
or renovations on apartment units A-H, which is in the name of
the defendant [herein petitioner];

2. Assuming that such a loan was duly constituted in favor of

plaintiff [herein respondent], whether or not the same is already
due and payable;
3. Assuming that said loan is already due and demandable,
whether or not it is to be paid out of the rental proceeds from the
apartment units mentioned, presuming that such issue was
raised in the Answer of the Defendant;
4. Assuming that the said loan was duly constituted in favor of
plaintiff [herein respondent], whether or not it is in the amount
of P3,909,802.20 and whether or not it will earn legal interest at
the rate of 12% per annum, compounded, as provided in Article
2212 of the Civil Code of the Philippines, from the date of the
extrajudicial demand; and
5. Whether or not the plaintiff [herein respondent] is entitled to
the reliefs prayed for in his Complaint or whether or not it is the
defendant [herein petitioner] who is entitled to the reliefs prayed
for in her Answer with Counterclaim.4
On November 15, 2002, the Regional Trial Court (RTC) of Quezon
City, Branch 82, rendered a Decision,5 the dispositive portion of which
reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendant ordering the latter to pay
the former the following:
1. The sum of P3,989,802.25 with interest thereon at the legal
rate of 12% per annum computed from the date of default until
the whole obligation is fully paid;
2. The sum of P50,000.00 as and by way of attorney's fees; and
3. The cost of suit.

SO ORDERED.6
Petitioner appealed the foregoing RTC Decision to the CA, but on July
1, 2004, the Court of Appeals promulgated its Decision affirming in
toto said RTC judgment. A motion for reconsideration of the CA
Decision was denied per Resolution dated August 31, 2004.
Hence, this petition where petitioner alleges that:
I.
THE COURT OF APPEALS ACTED NOT IN ACCORD
WITH LAW AND APPLICABLE JURISPRUDENCE OF THE
SUPREME COURT WHEN IT AFFIRMED THE LOWER
COURT'S FINDING THAT THE LOAN BETWEEN
PETITIONER AND RESPONDENT IS ALREADY DUE AND
DEMANDABLE.
II.
THE COURT OF APPEALS ERRED BY DEPARTING FROM
THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS OF AFFIRMING THE DUE AND
DEMANDABILITY OF THE LOAN CONTRARY TO THE
EVIDENCE PRESENTED IN THE LOWER COURT AND
SANCTIONING SUCH DEPARTURE BY THE LOWER
COURT IN THE INSTANT CASE.
III.
THE COURT OF APPEALS ERRED FROM THE ACCEPTED
AND USUAL COURSE OF JUDICIAL PROCEEDINGS OF
AFFIRMING THE AWARD OF ATTORNEY'S FEES TO THE
RESPONDENT WITHOUT ANY BASIS AND
SANCTIONING SUCH DEPARTURE BY THE LOWER
COURT IN THE INSTANT CASE.7

The main issues in this case boil down to (1) whether petitioner's
obligation is due and demandable; (2) whether respondent is entitled to
attorney's fees; and (3) whether interest should be imposed on
petitioner's indebtedness and, if in the affirmative, at what rate.
Petitioner does not deny that she obtained a loan from respondent. She,
however, contends that the loan is not yet due and demandable because
the suspensive condition the completion of the renovation of the
apartment units - has not yet been fulfilled. She also assails the award
of attorney's fees to respondent as baseless.
For his part, respondent admits that initially, they agreed that payment
of the loan shall be made upon completion of the renovations. However,
respondent claims that during their meeting with some family members
in the house of their brother Genaro sometime in the second quarter of
1997, he and petitioner entered into a new agreement whereby
petitioner was to start making monthly payments on her loan, which she
did from June to October of 1997. In respondent's view, there was a
novation of the original agreement, and under the terms of their new
agreement, petitioner's obligation was already due and demandable.
Respondent also maintains that when petitioner disappeared from the
family compound without leaving information as to where she could be
found, making it impossible to continue the renovations, petitioner
thereby prevented the fulfillment of said condition. He claims that
Article 1186 of the Civil Code, which provides that "the condition shall
be deemed fulfilled when the obligor voluntarily prevents its
fulfillment," is applicable to this case.
In his Comment to the present petition, respondent raised for the first
time, the issue that the loan contract between him and petitioner is
actually one with a period, not one with a suspensive condition. In his
view, when petitioner began to make partial payments on the loan, the
latter waived the benefit of the term, making the loan immediately
demandable.

Respondent also believes that he is entitled to attorney's fees, as

petitioner allegedly showed bad faith by absconding and compelling
him to litigate.
The Court finds the petition unmeritorious.
It is undisputed that herein parties entered into a valid loan contract.
The only question is, has petitioner's obligation become due and
demandable? The Court resolves the question in the affirmative.
The evidence on record clearly shows that after renovation of seven out
of the eight apartment units had been completed, petitioner and
respondent agreed that the former shall already start making monthly
payments on the loan even if renovation on the last unit (Unit A) was
still pending. Genaro Tomimbang, the younger brother of herein parties,
testified that a meeting was held among petitioner, respondent, himself
and their eldest sister Maricion, sometime during the first or second
quarter of 1997, wherein respondent demanded payment of the loan,
and petitioner agreed to pay. Indeed, petitioner began to make monthly
payments from June to October of 1997 totalling P93,500.00.8 In fact,
petitioner even admitted in her Answer with Counterclaim that she had
"started to make payments to plaintiff [herein respondent] as the
same was in accord with her commitment to pay whenever she was
able; x x x ."9

(3) Subrogating a third person in the rights of the creditor.

(Emphasis supplied)
In Iloilo Traders Finance, Inc. v. Heirs of Sps. Soriano,10 the Court
expounded on the nature of novation, to wit:
Novation may either be extinctive or modificatory, much being
dependent on the nature of the change and the intention of the parties.
Extinctive novation is never presumed; there must be an express
intention to novate; x x x .
An extinctive novation would thus have the twin effects of, first,
extinguishing an existing obligation and, second, creating a new one in
its stead. This kind of novation presupposes a confluence of four
essential requisites: (1) a previous valid obligation; (2) an agreement of
all parties concerned to a new contract; (3) the extinguishment of the
old obligation; and (4) the birth of a new valid obligation. Novation is
merely modificatory where the change brought about by any
subsequent agreement is merely incidental to the main obligation
(e.g., a change in interest rates or an extension of time to pay); in
this instance, the new agreement will not have the effect of
extinguishing the first but would merely supplement it or supplant
some but not all of its provisions.11
In Ong v. Bogalbal,12 the Court also stated, thus:

Evidently, by virtue of the subsequent agreement, the parties mutually

dispensed with the condition that petitioner shall only begin paying
after the completion of all renovations. There was, in effect, a
modificatory or partial novation, of petitioner's obligation. Article 1291
of the Civil Code provides, thus:
Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;

x x x the effect of novation may be partial or total. There is partial

novation when there is only a modification or change in some principal
conditions of the obligation. It is total, when the obligation is
completely extinguished. Also, the term principal conditions in Article
1291 should be construed to include a change in the period to comply
with the obligation. Such a change in the period would only be a partial
novation since the period merely affects the performance, not the
creation of the obligation.13

As can be gleaned from the foregoing, the aforementioned four

essential elements and the requirement that there be total
incompatibility between the old and new obligation, apply only to
extinctive novation. In partial novation, only the terms and conditions
of the obligation are altered, thus, the main obligation is not changed
and it remains in force.
14

Petitioner stated in her Answer with Counterclaim that she agreed and
complied with respondent's demand for her to begin paying her loan,
since she believed this was in accordance with her commitment to pay
whenever she was able. Her partial performance of her obligation is
unmistakable proof that indeed the original agreement between her and
respondent had been novated by the deletion of the condition that
payments shall be made only after completion of renovations. Hence,
by her very own admission and partial performance of her obligation,
there can be no other conclusion but that under the novated agreement,
petitioner's obligation is already due and demandable.
With the foregoing finding that petitioner's obligation is due and
demandable, there is no longer any need to discuss whether petitioner's
disappearance from the family compound prevented the fulfillment of
the original condition, necessitating application of Article 1186 of the
Civil Code, or whether the obligation is one with a condition or a
period.1awphil
As to attorney's fees, however, the award therefor cannot be allowed by
the Court. It is an oft-repeated rule that the trial court is required to state
the factual, legal or equitable justification for awarding attorney's fees.15
The Court explained in Buing v. Santos,16 to wit:
x x x While Article 2208 of the Civil Code allows attorney's fees to be
awarded if the claimant is compelled to litigate with third persons or to
incur expenses to protect his interest by reason of an unjustified act or
omission of the party from whom it is sought, there must be a showing
that the losing party acted willfully or in bad faith and practically
compelled the claimant to litigate and incur litigation expenses. In

view of the declared policy of the law that awards of attorney's fees
are the exception rather than the rule, it is necessary for the trial
court to make express findings of facts and law that would bring
the case within the exception and justify the grant of such award. x
x x.
Thus, the matter of attorney's fees cannot be touched upon only in the
dispositive portion of the decision. The text itself must state the reasons
why attorney's fees are being awarded. x x x 17
In the above-quoted case, there was a finding that defendants therein
had no intention of fulfilling their obligation in complete disregard of
the plaintiffs right, and yet, the Court did not deem this as sufficient
justification for the award of attorney's fees. Verily, in the present case,
where it is understandable that some misunderstanding could arise as to
when the obligation was indeed due and demandable, the Court must
likewise disallow the award of attorney's fees.
We now come to a discussion of whether interest should be imposed on
petitioner's indebtedness. In Royal Cargo Corp. v. DFS Sports
Unlimited, Inc.,18 the Court reiterated the settled rule on imposition of
interest, thus:
As to computation of legal interest, the seminal ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals controls, to wit:
_ftnx x x x
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 an 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.
The foregoing rule on legal interest was explained in Sunga-Chan v.
Court of Appeals,19 in this wise:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of
interest, if proper, and the applicable rate, as follows: The 12% 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."20
In accordance with the above ruling, since the obligation in this case
involves a loan and there is no stipulation in writing as to interest due,
the rate of interest shall be 12% per annum computed from the date of
extrajudicial demand.
IN VIEW OF THE FOREGOING, the petition is AFFIRMED with
the MODIFICATION that the award for attorney's fees is DELETED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 126890

March 9, 2010

UNITED PLANTERS SUGAR MILLING CO., INC. (UPSUMCO),

Petitioner,
vs.
THE HONORABLE COURT OF APPEALS, PHILIPPINE
NATIONAL BANK (PNB) and ASSET PRIVATIZATION TRUST

(APT), AS TRUSTEE OF THE REPUBLIC OF THE

PHILIPPINES Respondents.
RESOLUTION
PERALTA, J.:
For consideration is the Motion for Reconsideration of petitioner
United Planters Sugar Milling Company, Inc. (UPSUMCO) seeking to
reverse and set aside the Resolution of the Court dated April 2, 2009
which granted both Second Motions for Reconsideration filed by
respondents Privatization and Management Office (PMO), formerly
Asset Privatization Trust (APT), and Philippine National Bank (PNB),
and reinstated the Decision of the Court of Appeals dated February 29,
1996 which, in turn, reversed and set aside the Decision of the Regional
Trial Court, Branch 45, Bais, Negros Oriental. The dispositive portion
of the CA Decision reads:
WHEREFORE, the appealed decision is hereby set aside and judgment
is herein rendered declaring that the subject Deed of Assignment has
not condoned all of UPSUMCOs obligations to APT as assignee of
PNB.
To determine how much APT is entitled to recover on its counterclaim,
it is required to render an accounting before the Regional Trial Court on
the total payments made by UPSUMCO on its obligations including the
following amounts:
(1) The sum seized from it by APT whether in cash or in kind
(from UPSUMCOs bank deposits as well as sugar and molasses
proceeds):
(2) The total obligations covered by the following documents:
(a) Credit agreement dated November 05, 1974 (Exh.
"1," Record p. 528); and

(b)
(c) The Restructuring Agreements dated (i) June 24,
1982, (ii) December 10, 1982, and (3) May 9, 1984 and
(3) The P450,000,000.00 proceeds of the foreclosure
Should there be any deficiency due APT after deducting the foregoing
amounts from UPSUMCOs total obligation in the amount of
(P2,137,076,433.15), the latter is hereby ordered to pay the same.
However, if after such deduction there should be any excess payment,
the same should be turned over to UPSUMCO.
The Regional Trial Court is hereby directed to receive APTs
accounting and thereafter, to render the proper disposal of this case in
accordance with the foregoing findings and disposition.
Costs against appellees.
SO ORDERED.
Petitioner prefaces its arguments that it is the aggrieved party, not the
government as represented by respondent APT (now the PMO), as its
deposits with respondent PNB were taken without its prior knowledge
and that it was reluctant to give assent to the desire of the government
to forego redemption of its assets by reason of uncontested foreclosure.
Facts showed that in 1974, petitioner, engaged in the business of
milling sugar, obtained "takeoff loans" from respondent PNB to
finance the construction of a sugar milling plant which were covered by
a Credit Agreement dated November 5, 1974. The said loans were
thrice restructured through Restructuring Agreements dated June 24,
1982, December 10, 1982, and May 9, 1984. The takeoff loans were
secured by a real estate mortgage over two parcels of land where the
milling plant stood and chattel mortgages over certain machineries and
equipment. Also included in the condition for the takeoff loans,

petitioner agreed to "open and/or maintain a deposit account with

[respondent PNB] and the bank is authorized at its option to apply to
the payment of any unpaid obligations of the client any/and all monies,
securities which may be in its hands on deposit."
From 1984 to 1987, petitioner contracted another set of loans from
respondent PNB, denominated as "operational loans," for the purpose
of financing its operations, which also contained setoff clauses relative
to the application of payments from petitioners bank accounts. They
were likewise secured by pledge contracts whereby petitioner assigned
to respondent PNB all its sugar produce for the latter to sell and apply
the proceeds to satisfy the indebtedness arising from the operational
loans.
Later, respondent APT and petitioner agreed to an "uncontested" or
"friendly foreclosure" of the mortgaged assets, in exchange for
petitioners waiver of its right of redemption. On July 28, 1987,
respondent PNB (as mortgagee) and respondent APT (as assignee and
transferee of PNBs rights, titles and interests) filed a Petition for
Extrajudicial Foreclosure Sale with the Ex-Officio Regional Sheriff of
Dumaguete City, seeking to foreclose on the real estate and chattel
mortgages which were executed to secure the takeoff loans. The
foreclosure sale was conducted on August 27, 1987 whereby
respondent APT purchased the auctioned properties for
P450,000,000.00.
Seven (7) days after the foreclosure sale, or on September 3, 1987,
petitioner executed a Deed of Assignment assigned to respondent APT
its right to redeem the foreclosed properties, in exchange for or in
consideration of respondent APT "condoning any deficiency amount it
may be entitled to recover from the Petitioner under the Credit
Agreement dated November 5, 1974, and the Restructuring
Agreements[s] dated June 24 and December 10, 1982, and May 9,
1984, respectively, executed between [UPSUMCO] and PNB" On
the same day, the Board of Directors of petitioner approved the Board

Resolution authorizing Joaquin Montenegro, its President, to enter into

said Deed of Assignment.1avvphi1
Despite the Deed of Assignment, petitioner filed a complaint on March
10, 1989 for sum of money and damages against respondents PNB and
APT before the Regional Trial Court (RTC) of Bais City alleging
therein that respondents had illegally appropriated funds belonging to
petitioner, through the following means: (1) withdrawals made from the
bank accounts opened by petitioner beginning August 27, 1987 until
February 12, 1990; (2) the application of the proceeds from the sale of
the sugar of petitioner beginning August 27, 1987 until December 4,
1987; (3) the payment from the funds of petitioner with respondent
PNB for the operating expenses of the sugar mill after September 3,
1987, allegedly upon the instruction of respondent APT and with the
consent of respondent PNB.
The RTC rendered judgment in favor of the petitioner. On appeal, the
CA reversed and set aside the RTC Decision and ruled that only the
"takeoff" loans and not the operational loans were condoned by the
Deed of Assignment. In a Decision dated November 28, 2006 and
Resolution dated July 11, 2007, the Court (Third Division) reversed and
set aside the CA Decision. The case was thereafter referred to the Court
en banc which reversed the ruling of the Third Division.
In its Motion for Reconsideration, petitioner raises the following
grounds:
1. The order of the Honorable Court En Banc reinstating the
decision of the Honorable Court of Appeals would be
inconsistent with the facts of the case and the findings of this
Honorable Court.
2. There is no valid ground to conclude that APT has still the
right to the deposit of UPSUMCO after the August 27, 1987
friendly foreclosure, and the withdrawal of P80,200,806.41 as

payment could be applied either as repayment on the Take-off

Loans or for the Operational Loans.

(1) Trust Receipts dated August 26, 1987; February 5, 1987; and
July 10, 1987;

3. The findings that the condonation took effect only after the
execution of the Deed of Assignment hence upholds the validity
of APTs taking of the deposit of P80,200,806.41 in
UPSUMCOs PNB account as payment of the deficiency is
without basis.

(2) Deed of Assignment By Way of Payment dated November

16, 1984 (Exh. 3 [PNB]; Exh. 12 [APT]; Record, p. 545);
(3) Two (2) documents of Pledge both dated February 19, 1987;
(4) Sugar Quedans (Exh. 13 to 16; Record, pp 548 to 551);

4. The admission of the case by Honorable Court En Banc after

the denial of the Second Division of the Second Motion for
Reconsideration and the referral of the case to the Honorable
Court En Banc appear not to be in accordance with the Rules of
Procedure.

(5) Credit Agreements dated February 19, 1987 (Exhs. "2"

[PNB] & "4" [APT]; Record, pp. 541-544) and April 29, 1987
(Exh. "11" [APT]; Record, pp. 314-317).
(6) Promissory Notes dated February 20, 1987 (Exh. "17";
Record, p. 573); March 2, 1987 (Exh. "18"; Record, p. 574);
March 3, 1987 (Exh. "19"; Record, p. 575); March 27, 1987;
(Exh. "20"; Record, p. 576); March 30, 1987(Exh. "21"; Record,
p. 577); April 7, 1987 (Exh. "22"; Record, p. 578); May 22,
1987 (Exh. "23"; Record, p. 579); and July 30, 1987 (Exh. "24";
record p. 580).

5. The basis for admission of the case to the Honorable Court

En Banc are belated issues which have no other purpose but to
give apparent reasons for the elevation of the case.
6. There is no legal basis for the withdrawals of UPSUMCOs
deposit on the ground of conventional compensation.
7. Since the amount of P17,773,185.24 could not be the subject
of conventional compensation, it should be returned to
petitioner immediately by respondents.
After a careful review of the arguments in the petitioners motion for
reconsideration, the Court finds the same to be mere rehash of the main
points already set forth in the Courts En Banc Resolution of April 2,
2009 and, hence, denies the same for lack of merit. The pertinent
portions of the decision read as follows:
The rulings of the lower courts, as well as the petition itself, are not
clear as to the amount extended by way of takeoff loans by PNB to
UPSUMCO. However, the Court of Appeals did enumerate the
following transactions consisting of the operational loans, to wit:

On 27 February 1987, through a Deed of Transfer, PNB assigned to the

Government its "rights" titles and interests over UPSUMCO, among
several other assets. The Deed of Transfer acknowledged that said
assignment was being undertaken "in compliance with Presidential
Proclamation No. 50." The Government subsequently transferred these
"rights" titles and interests" over UPSUMCO to respondent Asset and
Privatization Trust (APT), [now PMO].
xxxx
This much is clear. The Deed of Assignment condoned only the take-off
loans, and not the operational loans. The Deed of Assignment in its
operative part provides, thus:

That United Planter[s] Sugar Milling Co., Inc. (the "Corporation")

pursuant to a resolution passed by its board of Directors on September
3, 1087, and confirmed by the Corporations stockholders in a
stockholders Meeting held on the same (date), for and in consideration
of the Asset Privatization Trust ("APT") condoning any deficiency
amount it may be entitled to recover from the Corporation under the
Credit Agreement dated November 5, 1974 and the Restructuring
Agreement[s] dated June 24, and December 10, 1982, and May 9, 1984,
respectively, executed between the Corporation and the Philippine
National Bank ("PNB"), which financial claims have been assigned to
APT, through the National Government, by PNB, hereby irrevocably
sells, assigns and transfer to APT its right to redeem the foreclosed real
properties covered by Transfer Certificates of Titles Nos. T-16700 and
T-16701.
IN WITNESS WHEREOF, the Corporation has caused this instrument
to be executed on its behalf by Mr. Joaquin S. Montenegro, thereunto
duly authorized, this 3rd day of September, 1997.
xxxx
This notwithstanding, the RTC Decision was based on the premise that
all of UPSUMCOs loans were condoned in the Deed of Assignment. In
contrast, the Court of Appeals acknowledged that only the take-off
loans were condoned, and thus ruled that APT was entitled to have the
funds from UPSUMCOSs accounts transferred to its own account "to
the extent of UPSUMCOs remaining obligation, less the amount
condoned in the Deed of Assignment and the 450,000,000.00 proceeds
of the foreclosure."
The challenged acts of respondents all occurred on or after 27
August 1987, the day of the execution sale. UPSUMCO argues that
after that date, respondents no longer had the right to collect
monies from the PNB bank accounts which UPSUMCO had opened
and maintained as collateral for its operational take-off loans.
UPSUMCO is wrong. After 27 August 1987, there were at least two

causes for the application of payments from UPSUMCOs PNB

accounts. The first was for the repayment of the operational loans,
which were never condoned. The second was for the repayment of
the take-off loans which APT could obtain until 3 September 1987,
the day the condonation took effect.
The error of the Courts earlier rulings, particularly the Resolution
dated 11 July 2007, was in assuming that the non-condonation of the
operational loans was immaterial to the application of payments made
in favor of APT from UPSUMCOSs PNB accounts that occurred after
27 August 1987. For as long as there remained outstanding obligations
due to APT (as PNBs successor-in-interest), APT would be entitled to
apply payments from the bank accounts of PNB. That right had been
granted in favor of PNB, whether on account of the take-off loans or the
operational loans.
Petitioner filed with the RTC the complaint which alleged that "among
the conditions of the friendly foreclosure are: (A) That all the accounts
of [United Planters] are condoned, including the JSS notes at the time
of the public bidding." It was incumbent on petitioner, not respondents,
to prove that particular allegation in its complaint. Was petitioner able
to establish that among the conditions of the "friendly foreclosure was
that "all its accounts are condoned"? It did not, as it is now agreed by
all that only the take-off loans were condoned.
This point is material, since the 2007 Resolution negated the findings
that only the take-off loans were condoned by faulting respondents for
failing to establish that there remained outstanding operational loans on
which APT could apply payments from UPSUMCOs bank accounts.
By the very language of the Deed of Assignment, it was evident that
UPSUMCOs allegation in its complaint that all of its accounts were
condoned was not proven. Even if neither PNB nor APT had filed an
answer, there would have been no basis in fact for the trial court to
conclude that all of UPSUMCOs loans were condoned (as the RTC in
this case did), or issue reliefs as if all the loans were condoned (as the
2007 Resolution did).

As noted earlier, APT had the right to apply payments from

UPSUMCOs bank accounts, by virtue of the terms of the operational
loan agreements. Considering that UPSUMCO was spectacularly
unable to repay the take-off loans it had earlier transacted, it simply
beggars belief to assume that it had fully paid its operational loans.
Moreover, APT had the right to obtain payment of the operational loans
by simply applying payments from UPSUMCOs bank accounts,
without need of filing an action for collection with the courts. The bank
accounts were established precisely to afford PNB (and later APT)
extrajudicial and legal means to obtain repayment of UPSUMCOs
outstanding loans without hassle.

The earlier rulings of the Court were predicated on a finding that there
was a "friendly foreclosure" agreement between APT and UPSUMCO,
whereby APT agreed to condone all of UPSUMCOs outstanding
obligations in exchange for UPSUMCOs waiver of its right to redeem
the foreclosed property. However, no such agreement to the effect was
ever committed to writing or presented in evidence. The written
agreement actually set forth was not as contended by UPSUMCO. For
one, not all of the outstanding loans were condoned by APT since the
take-off loans were left extant. For another, the agreement itself did not
indicate any date of effectivity other than the date of the execution of
the agreement, namely 3 September 1987.

B.

It is argued that the use of the word "any" in "any deficiency amount"
sufficiently establishes the retroactive nature of the condonation. The
argument hardly convinces. The phrase "any deficiency amount" could
refer not only to the remaining deficiency amount after the 27 August
foreclosure sale, but also the remaining deficiency amount as of 3
September 1987, when the Deed of Assignment was executed and after
APT had exercised its right as creditor to apply payments from
petitioners PNB accounts. The Deed of Assignment was not cast in
intractably precise terms, and both interpretations can certainly be
accommodated.

There is no question that the Deed of Assignment condoned the

outstanding take-off loans of UPSUMCO due then to APT. The Deed of
Assignment was executed on 3 September 1987 as was the UPSUMCO
Board Resolution authorizing its President to sign the Deed of
Assignment. However, despite the absence of any terms to that effect in
the Deed of Assignment, it is UPSUMCOs position that the
condonation actually had retroacted to 27 August 1987. The previous
rulings of the Court unfortunately upheld that position.
It is easy to see why UPSUMCO would pose such an argument. It
appears that between 27 August 1987 and 3 September 1987. APT
applied payments from UPSOMCOs bank accounts in the amount of
around 80 Million Pesos. UPSUMCO obviously desires the return of
the said amount. But again, under the terms of the loan arguments, APT
as successor-in-interest of PNB, had the right to seize any amounts
deposited in UPSUMCOS bank accounts as long as UPSUMCO
remained indebted under the loan agreements. Since UPSUMCO was
released from its take-off loans only on 3 September 1987, as indicated
in the Deed of Assignment, then APTs application of payments is
perfectly legal.

It is in that context that the question of parol evidence comes into play.
The parol evidence rule states that generally, when the terms of an
agreement have been reduced into writing, it is considered as
containing all the terms agreed upon and there can be no evidence of
such terms other than the contents of the written agreement. Assuming
that the Deed of Assignment failed to accurately reflect an intent of the
parties to retroact the effect of condonation to the date of the
foreclosure sale, none of the parties, particularly UPSUMCO, availed
of its right to seek the reformation of the instrument to the end that such
true intention may be expressed. As there is nothing in the text of Deed
of Assignment that clearly gives retroactive effect to the condonation,
the parol evidence rule generally bars any other evidence of such terms

other than the contents of the written agreement, such as evidence that
the said Deed had retroactive effect.
It is argued that under Section 9, Rule 130, a party may present
evidence to modify, explain or add to the terms of the written
agreement if it is put in issue in the pleading, "[t]he failure of the
written agreement to express the true intent and the agreement of the
parties thereto."
Petitioner did not exactly state in its Amended Complaint that the
condonation effected in the Deed of Assignment had retroacted to the
date of the foreclosure sale. What petitioner contented in its amended
complaint was that the Deed of Assignment "released and discharged
plaintiff from any and all obligations due the defendant PNB and
defendant APT," that "after the foreclosure by PNB/APT plaintiff is
entitled to all the funds it deposited or being held by PNB in all its
branches," and that "among the conditions of the friendly foreclosure
are that all the accounts of the plaintiff are condoned." It remains
unclear whether petitioner had indeed alleged in its Amended
Complaint that the Deed of Assignment executed on 3 September1987
had retroacted effect as of the foreclosure sale, or on 27 August 1987. If
petitioner were truly mindful to invoke the exception to the parol
evidence rule and intent on claiming that the condonation had such
retroactive effect, it should have employed more precise language to the
effect in their original and amended complaints.
xxxx
The right of respondent PNB to set-off payments from UPSUMCO
arose from conventional compensation rather than legal compensation,
even if all the requisites for legal compensation were present between
those two parties. The determinative factor is the mutual agreement
between PNB and UPSUMCO to set-off payments. Even without an
express agreement stipulating compensation, PNB and UPSUMCO
would have been entitled to set-off of payments, as the legal requisites
for compensation under Article 1279 were present.

As soon as PNB assigned its credit to APT, the mutual creditor-debtor

relation between PNB and UPSUMCO ceased to exist. However, PNB
and UPSUMCO had agreed to a conventional compensation, a
relationship which does not require the presence of all the requisites
under Article 1279. And PNB too had assigned all its rights as creditor
to APT, including its rights under conventional compensation. The
absence of the mutual creditor-debtor relation between the new creditor
APT and UPSUMCO cannot negate the conventional compensation.
Accordingly, APT, as the assignee of credit of PNB, had the right to setoff the outstanding obligations of UPSUMCO on the basis of
conventional compensation before the condonation took effect on 3
September 1987.
V.
The conclusions are clear. First. Between 27 August to 3 September
1987, APT had the right to apply payments from UPSUMCOs bank
accounts maintained with PNB as repayment for the take-off loans
and/or the operational loans. Considering that as of 30 June 1987, the
total indebtedness of UPSUMCO as to the take-off loans amounted to
P2,137,076,433.15, and because the foreclosed properties were sold
during the execution sale for only 450 Million Pesos, it is safe to
conclude that the total amount of P80,200,806.41 debited from
UPSUMCOs bank accounts from 27 August to 3 September 1987 was
very well less than the then outstanding indebtedness for the take-off
loans. It was only on 3 September 1987 that the take-off loans were
condoned by APT, which lost only on that date too the right to apply
payments from UPSUMCOS bank accounts to pay the take-off loans.
Second. After 3 September 1987, APT retained the right to apply
payments from the bank accounts of UPSUMCO with PNB to answer
for the outstanding indebtedness under the operational loan agreements.
It appears that the amount of P17,773,185.24 was debited from
UPSUMCOs bank accounts after 3 September. At the same time, it
remains unclear what were the amounts of outstanding indebtedness

under the operational loans at the various points after 3 September 1987
when the bank accounts of UPSUMCO were debited.
The Court of Appeals ordered the remand of the case to the trial court,
on the premise that it was unclear how much APT was entitled to
recover by way of counterclaim. It is clear that the amount claimed by
APT by way of counterclaim over 1.6 Billion Pesos is over and
beyond what it can possibly be entitled to, since it is clear that the takeoff loans were actually condoned as of 3 September 1987. At the same
time, APT was still entitled to repayment of UPSUMCOs operational
loans. It is not clear to what extent, if at all, the amounts debited from
UPSUMCOs bank accounts after 3 September 1987 covered
UPSUMCOs outstanding indebtedness under the operational loans.
Said amounts could be insufficient, just enough, or over and beyond
what UPSUMCO actually owed, in which case the petitioner should be
entitled to that excess amount debited after 3 September 1987. Because
it is not evident from the voluminous records what was the outstanding
balance of the operational loans at the various times post-September 3
UPSUMCOs bank accounts were debited, the remand ordered by the
Court of Appeal is ultimately the wisest and fairest recourse.1
Petitioner insists that the Court should not have taken cognizance of the
respondents second motions for reconsideration with the prayer that
the case be referred to the Court en banc as the same appear not to be in
accordance with the rules.
Generally, under Section 3 of the Courts Circular No. 2-89, effective
March 1, 1989, the referral to the Court en banc of cases assigned to a
Division is to be denied on the ground that the Court en banc is not an
Appellate Court to which decisions or resolutions of a Division may be
appealed. Moreover, a second motion for reconsideration of a judgment
or final resolution shall not be entertained for being a prohibited
pleading under Section 2, Rule 52, in relation to Section 4, Rule 56 of
the Rules of Court, except for extraordinarily persuasive reasons and
only after an express leave shall have first been obtained.2 Accordingly,
the Court, in the exercise of its sound discretion, determines the issues

which are of transcendental importance, as in the present case, which

necessitates it to accept the referral of a Division case before it and the
grant of a second motion for reconsideration.
In sum, the Resolution of the Court En Banc reinstating the Decision of
the CA categorically ruled that only its takeoff loans, not the
operational loans, were condoned by the Deed of Assignment dated
September 3, 1987. The Deed of Assignment expressly stipulated the
particular loan agreements which were covered therein. As such,
respondent APT was entitled to have the funds from petitioners savings
accounts with respondent PNB transferred to its own account, to the
extent of petitioners remaining obligations under the operational loans,
less the amount condoned in the Deed of Assignment and the
P450,000,000.00 proceeds of the foreclosure. As the En Banc
Resolution explained, respondent APT had a right to go after the bank
deposits of petitioner, in its capacity as the creditor of the latter.
Likewise, respondent PNB had the right to apply the proceeds of the
sale of petitioners sugar and molasses, in satisfaction of petitioners
obligations. Respondent PNB never waived these rights and the same
were transferred to respondent APT (now PMO) by virtue of the Deed
of Transfer executed between them. Moreover, there was no
conventional subrogation since such requires the consent of the original
parties and of the third persons and there was no evidence that the
consent of petitioner (as debtor) was secured when respondent PNB
assigned its rights to respondent APT, and that the assignment by
respondent PNB to respondent APT arose by mandate of law and not by
the volition of the parties. Accordingly, the remand of the case to the
RTC for computation of the parties remaining outstanding balances
was proper.
The doctrine of stare decisis et no quieta movere3 or principle of
adherence to precedents does not apply to the present case so as to bar
the Court en banc from taking cognizance over the case which rectified
the disposition of the case and reversed and set aside the Decision
rendered by a Division thereof.

WHEREFORE, the Motion for Reconsideration filed by petitioner

United Planters Sugar Milling Company, Inc. (UPSUMCO) is
DENIED WITH FINALITY for lack of merit.

DECISION
VELASCO, JR., J.:

SO ORDERED.

The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court seeking to reverse and set aside the June 30, 2006
Decision1 of the Court of Appeals (CA) and its November 21, 2006
Resolution2 denying petitioners motion for reconsideration.
The Facts
Petitioner Ileana Macalinao was an approved cardholder of BPI
Mastercard, one of the credit card facilities of respondent Bank of the
Philippine Islands (BPI).3 Petitioner Macalinao made some purchases
through the use of the said credit card and defaulted in paying for said
purchases. She subsequently received a letter dated January 5, 2004
from respondent BPI, demanding payment of the amount of one
hundred forty-one thousand five hundred eighteen pesos and thirty-four
centavos (PhP 141,518.34), as follows:
Statement
Date

Previous
Balance

Purchases
(Payments)

10/27/2002 94,843.70
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 175490

September 17, 2009

ILEANA DR. MACALINAO, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.

Penalty Finance
Interest Charges

Balance
Due

559.72

3,061.99 98,456.41

11/27/2002 98,465.41

(15,000)

2,885.61 86,351.02

12/31/2002 86,351.02

30,308.80

259.05

2,806.41 119,752.28

1/27/2003

119,752.28

618.23

3,891.07 124,234.58

2/27/2003

124,234.58

990.93

4,037.62 129,263.13

3/27/2003

129,263.13 (18,000.00)

298.72

3,616.05 115,177.90

4/27/2003

115,177.90

644.26

3,743.28 119,565.44

5/27/2003

119,565.44 (10,000.00)

402.95

3,571.71 113,540.10

6/29/2003

113,540.10 8,362.50

323.57

3,607.32 118,833.49

(7,000.00)

7/27/2003

118,833.49

608.07

3,862.09 123,375.65

8/27/2003

123,375.65

1,050.2
0

4,009.71 128,435.56

9/28/2003

128,435.56

1,435.5
1

4,174.16 134,045.23

10/28/2003
11/28/2003
12/28/2003
1/27/2004

141,518.34

8,491.1
0

4,599.34 154,608.78

Under the Terms and Conditions Governing the Issuance and Use of the
BPI Credit and BPI Mastercard, the charges or balance thereof
remaining unpaid after the payment due date indicated on the monthly
Statement of Accounts shall bear interest at the rate of 3% per month
and an additional penalty fee equivalent to another 3% per month.
Particularly:
8. PAYMENT OF CHARGES BCC shall furnish the Cardholder a
monthly Statement of Account (SOA) and the Cardholder agrees that
all charges made through the use of the CARD shall be paid by the
Cardholder as stated in the SOA on or before the last day for payment,
which is twenty (20) days from the date of the said SOA, and such
payment due date may be changed to an earlier date if the Cardholders
account is considered overdue and/or with balances in excess of the
approved credit limit, or to such other date as may be deemed proper by
the CARD issuer with notice to the Cardholder on the same monthly
SOA. If the last day fall on a Saturday, Sunday or a holiday, the last day
for the payment automatically becomes the last working day prior to
said payment date. However, notwithstanding the absence or lack of
proof of service of the SOA of the Cardholder, the latter shall pay any
and all charges made through the use of the CARD within thirty (30)
days from date or dates thereof. Failure of the Cardholder to pay the
charges made through the CARD within the payment period as stated in
the SOA or within thirty (30) days from actual date or dates of purchase
whichever occur earlier, shall render him in default without the
necessity of demand from BCC, which the Cardholder expressly
waives. The charges or balance thereof remaining unpaid after the
payment due date indicated on the monthly Statement of Accounts shall
bear interest at the rate of 3% per month for BPI Express Credit, BPI
Gold Mastercard and an additional penalty fee equivalent to another 3%

of the amount due for every month or a fraction of a months delay.

PROVIDED that if there occurs any change on the prevailing market
rates, BCC shall have the option to adjust the rate of interest and/or
penalty fee due on the outstanding obligation with prior notice to the
cardholder. The Cardholder hereby authorizes BCC to correspondingly
increase the rate of such interest [in] the event of changes in the
prevailing market rates, and to charge additional service fees as may be
deemed necessary in order to maintain its service to the Cardholder. A
CARD with outstanding balance unpaid after thirty (30) days from
original billing statement date shall automatically be suspended, and
those with accounts unpaid after ninety (90) days from said original
billing/statement date shall automatically be cancel (sic), without
prejudice to BCCs right to suspend or cancel any card anytime and for
whatever reason. In case of default in his obligation as provided herein,
Cardholder shall surrender his/her card to BCC and in addition to the
interest and penalty charges aforementioned , pay the following
liquidated damages and/or fees (a) a collection fee of 25% of the
amount due if the account is referred to a collection agency or attorney;
(b) service fee for every dishonored check issued by the cardholder in
payment of his account without prejudice, however, to BCCs right of
considering Cardholders account, and (c) a final fee equivalent to 25%
of the unpaid balance, exclusive of litigation expenses and judicial cost,
if the payment of the account is enforced though court action. Venue of
all civil suits to enforce this Agreement or any other suit directly or
indirectly arising from the relationship between the parties as
established herein, whether arising from crimes, negligence or breach
thereof, shall be in the process of courts of the City of Makati or in
other courts at the option of BCC.4 (Emphasis supplied.)1avvphi1
For failure of petitioner Macalinao to settle her obligations, respondent
BPI filed with the Metropolitan Trial Court (MeTC) of Makati City a
complaint for a sum of money against her and her husband, Danilo SJ.
Macalinao. This was raffled to Branch 66 of the MeTC and was
docketed as Civil Case No. 84462 entitled Bank of the Philippine
Islands vs. Spouses Ileana Dr. Macalinao and Danilo SJ. Macalinao.5
In said complaint, respondent BPI prayed for the payment of the
amount of one hundred fifty-four thousand six hundred eight pesos and
seventy-eight centavos (PhP 154,608.78) plus 3.25% finance charges

and late payment charges equivalent to 6% of the amount due from

February 29, 2004 and an amount equivalent to 25% of the total amount
due as attorneys fees, and of the cost of suit.6
After the summons and a copy of the complaint were served upon
petitioner Macalinao and her husband, they failed to file their Answer.7
Thus, respondent BPI moved that judgment be rendered in accordance
with Section 6 of the Rule on Summary Procedure.8 This was granted in
an Order dated June 16, 2004.9 Thereafter, respondent BPI submitted its
documentary evidence.101avvphi1

In any event, the sum of P141,518.34 adjudged by the trial court

appeared to be the result of a recomputation at the reduced rate of 2%
per month. Note that the total amount sought by the plaintiff-appellee
was P154,608.75 exclusive of finance charge of 3.25% per month and
late payment charge of 6% per month.
WHEREFORE, the appealed decision is hereby affirmed in toto.
No pronouncement as to costs.
SO ORDERED.12

In its Decision dated August 2, 2004, the MeTC ruled in favor of

respondent BPI and ordered petitioner Macalinao and her husband to
pay the amount of PhP 141,518.34 plus interest and penalty charges of
2% per month, to wit:
WHEREFORE, finding merit in the allegations of the complaint
supported by documentary evidence, judgment is hereby rendered in
favor of the plaintiff, Bank of the Philippine Islands and against
defendant-spouses Ileana DR Macalinao and Danilo SJ Macalinao by
ordering the latter to pay the former jointly and severally the following:
1. The amount of PESOS: ONE HUNDRED FORTY ONE
THOUSAND FIVE HUNDRED EIGHTEEN AND 34/100
(P141,518.34) plus interest and penalty charges of 2% per
month from January 05, 2004 until fully paid;

Unconvinced, petitioner Macalinao filed a petition for review with the

CA, which was docketed as CA-G.R. SP No. 92031. The CA affirmed
with modification the Decision of the RTC:
WHEREFORE, the appealed decision is AFFIRMED but MODIFIED
with respect to the total amount due and interest rate. Accordingly,
petitioners are jointly and severally ordered to pay respondent Bank of
the Philippine Islands the following:
1. The amount of One Hundred Twenty Six Thousand Seven
Hundred Six Pesos and Seventy Centavos plus interest and
penalty charges of 3% per month from January 5, 2004 until
fully paid;
2. P10,000.00 as and by way of attorneys fees; and

2. P10,000.00 as and by way of attorneys fees; and

3. Cost of Suit.
3. Cost of suit.
SO ORDERED.

11

Only petitioner Macalinao and her husband appealed to the Regional

Trial Court (RTC) of Makati City, their recourse docketed as Civil Case
No. 04-1153. In its Decision dated October 14, 2004, the RTC affirmed
in toto the decision of the MeTC and held:

SO ORDERED.13
Although sued jointly with her husband, petitioner Macalinao was the
only one who filed the petition before the CA since her husband already
passed away on October 18, 2005.14
In its assailed decision, the CA held that the amount of PhP 141,518.34
(the amount sought to be satisfied in the demand letter of respondent

BPI) is clearly not the result of the re-computation at the reduced

interest rate as previous higher interest rates were already incorporated
in the said amount. Thus, the said amount should not be made as basis
in computing the total obligation of petitioner Macalinao. Further, the
CA also emphasized that respondent BPI should not compound the
interest in the instant case absent a stipulation to that effect. The CA
also held, however, that the MeTC erred in modifying the amount of
interest rate from 3% monthly to only 2% considering that petitioner
Macalinao freely availed herself of the credit card facility offered by
respondent BPI to the general public. It explained that contracts of
adhesion are not invalid per se and are not entirely prohibited.
Petitioner Macalinaos motion for reconsideration was denied by the
CA in its Resolution dated November 21, 2006. Hence, petitioner
Macalinao is now before this Court with the following assigned errors:
I.
THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%,
SHOULD BE UPHELD SINCE THE STIPULATED RATE OF
INTEREST WAS UNCONSCIONABLE AND INIQUITOUS, AND
THUS ILLEGAL.
II.
THE COURT OF APPEALS ARBITRARILY MODIFIED THE
REDUCED RATE OF INTEREST FROM 2% TO 3%, CONTRARY
TO THE TENOR OF ITS OWN DECISION.
III.
THE COURT A QUO, INSTEAD OF PROCEEDING WITH A
RECOMPUTATION, SHOULD HAVE DISMISSED THE CASE FOR
FAILURE OF RESPONDENT BPI TO PROVE THE CORRECT
AMOUNT OF PETITIONERS OBLIGATION, OR IN THE
ALTERNATIVE, REMANDED THE CASE TO THE LOWER
COURT FOR RESPONDENT BPI TO PRESENT PROOF OF THE
CORRECT AMOUNT THEREOF.

Our Ruling
The petition is partly meritorious.
The Interest Rate and Penalty Charge of 3% Per Month or 36%
Per Annum Should Be Reduced to 2% Per Month or 24% Per
Annum
In its Complaint, respondent BPI originally imposed the interest and
penalty charges at the rate of 9.25% per month or 111% per annum.
This was declared as unconscionable by the lower courts for being
clearly excessive, and was thus reduced to 2% per month or 24% per
annum. On appeal, the CA modified the rate of interest and penalty
charge and increased them to 3% per month or 36% per annum based
on the Terms and Conditions Governing the Issuance and Use of the
BPI Credit Card, which governs the transaction between petitioner
Macalinao and respondent BPI.
In the instant petition, Macalinao claims that the interest rate and
penalty charge of 3% per month imposed by the CA is iniquitous as the
same translates to 36% per annum or thrice the legal rate of interest.15
On the other hand, respondent BPI asserts that said interest rate and
penalty charge are reasonable as the same are based on the Terms and
Conditions Governing the Issuance and Use of the BPI Credit Card.16
We find for petitioner. We are of the opinion that the interest rate and
penalty charge of 3% per month should be equitably reduced to 2% per
month or 24% per annum.
Indeed, in the Terms and Conditions Governing the Issuance and Use of
the BPI Credit Card, there was a stipulation on the 3% interest rate.
Nevertheless, it should be noted that this is not the first time that this
Court has considered the interest rate of 36% per annum as excessive
and unconscionable. We held in Chua vs. Timan:17
The stipulated interest rates of 7% and 5% per month imposed on
respondents loans must be equitably reduced to 1% per month or 12%
per annum. We need not unsettle the principle we had affirmed in a
plethora of cases that stipulated interest rates of 3% per month and

higher are excessive, iniquitous, unconscionable and exorbitant. Such

stipulations are void for being contrary to morals, if not against the law.
While C.B. Circular No. 905-82, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and
unsecured loans, regardless of maturity, nothing in the said circular
could possibly be read as granting carte blanche authority to lenders to
raise interest rates to levels which would either enslave their borrowers
or lead to a hemorrhaging of their assets. (Emphasis supplied.)
Since the stipulation on the interest rate is void, it is as if there was no
express contract thereon. Hence, courts may reduce the interest rate as
reason and equity demand.18
The same is true with respect to the penalty charge. Notably, under the
Terms and Conditions Governing the Issuance and Use of the BPI
Credit Card, it was also stated therein that respondent BPI shall impose
an additional penalty charge of 3% per month. Pertinently, Article 1229
of the Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.
In exercising this power to determine what is iniquitous and
unconscionable, courts must consider the circumstances of each case
since what may be iniquitous and unconscionable in one may be totally
just and equitable in another.19
In the instant case, the records would reveal that petitioner Macalinao
made partial payments to respondent BPI, as indicated in her Billing
Statements.20 Further, the stipulated penalty charge of 3% per month or
36% per annum, in addition to regular interests, is indeed iniquitous and
unconscionable.
Thus, under the circumstances, the Court finds it equitable to reduce the
interest rate pegged by the CA at 1.5% monthly to 1% monthly and
penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a

total of 2% per month or 24% per annum in line with the prevailing
jurisprudence and in accordance with Art. 1229 of the Civil Code.
There Is No Basis for the Dismissal of the Case,
Much Less a Remand of the Same for Further Reception of
Evidence
Petitioner Macalinao claims that the basis of the re-computation of the
CA, that is, the amount of PhP 94,843.70 stated on the October 27,
2002 Statement of Account, was not the amount of the principal
obligation. Thus, this allegedly necessitates a re-examination of the
evidence presented by the parties. For this reason, petitioner Macalinao
further contends that the dismissal of the case or its remand to the lower
court would be a more appropriate disposition of the case.
Such contention is untenable. Based on the records, the summons and a
copy of the complaint were served upon petitioner Macalinao and her
husband on May 4, 2004. Nevertheless, they failed to file their Answer
despite such service. Thus, respondent BPI moved that judgment be
rendered accordingly.21 Consequently, a decision was rendered by the
MeTC on the basis of the evidence submitted by respondent BPI. This
is in consonance with Sec. 6 of the Revised Rule on Summary
Procedure, which states:
Sec. 6. Effect of failure to answer. Should the defendant fail to
answer the complaint within the period above provided, the court, motu
proprio, or on motion of the plaintiff, shall render judgment as may be
warranted by the facts alleged in the complaint and limited to what is
prayed for therein: Provided, however, that the court may in its
discretion reduce the amount of damages and attorneys fees claimed
for being excessive or otherwise unconscionable. This is without
prejudice to the applicability of Section 3(c), Rule 10 of the Rules of
Court, if there are two or more defendants. (As amended by the 1997
Rules of Civil Procedure; emphasis supplied.)
Considering the foregoing rule, respondent BPI should not be made to
suffer for petitioner Macalinaos failure to file an answer and
concomitantly, to allow the latter to submit additional evidence by

dismissing or remanding the case for further reception of evidence.

Significantly, petitioner Macalinao herself admitted the existence of her
obligation to respondent BPI, albeit with reservation as to the principal
amount. Thus, a dismissal of the case would cause great injustice to
respondent BPI. Similarly, a remand of the case for further reception of
evidence would unduly prolong the proceedings of the instant case and
render inutile the proceedings conducted before the lower courts.
Significantly, the CA correctly used the beginning balance of PhP
94,843.70 as basis for the re-computation of the interest considering
that this was the first amount which appeared on the Statement of
Account of petitioner Macalinao. There is no other amount on which
the re-computation could be based, as can be gathered from the
evidence on record. Furthermore, barring a showing that the factual
findings complained of are totally devoid of support in the record or
that they are so glaringly erroneous as to constitute serious abuse of
discretion, such findings must stand, for this Court is not expected or
required to examine or contrast the evidence submitted by the parties.22
In view of the ruling that only 1% monthly interest and 1% penalty
charge can be applied to the beginning balance of PhP 94,843.70, this
Court finds the following computation more appropriate:
Statement
Date

Previous
Balance

Purchases
(Payments)

10/27/2002 94,843.70

Balance

Interest
(1%)

Penalty
Charge
(1%)

6/29/2003

82,152.50

7/27/2003

83,515.00

835.15

835.15

85,18

83,515.00

83,515.00

835.15

835.15

85,18

8/27/2003

83,515.00

83,515.00

835.15

835.15

85,18

9/28/2003

83,515.00

83,515.00

835.15

835.15

85,18

10/28/2003 83,515.00

83,515.00

835.15

835.15

85,18

11/28/2003 83,515.00

83,515.00

835.15

835.15

85,18

12/28/2003 83,515.00

83,515.00

835.15

835.15

85,18

1/27/2004

83,515.00

835.15

835.15

85,18

83,515.00

14,397.26 14,397.26 112,3

WHEREFORE, the petition is PARTLY GRANTED. The CA Decision

dated June 30, 2006 in CA-G.R. SP No. 92031 is hereby MODIFIED
with respect to the total amount due, interest rate, and penalty charge.
Accordingly, petitioner Macalinao is ordered to pay respondent BPI the
following:
(1) The amount of one hundred twelve thousand three hundred
Total Amountnine pesos and fifty-two centavos (PhP 112,309.52) plus interest
Due for the and penalty charges of 2% per month from January 5, 2004 until
fully paid;

948.44

948.44

96,740.58

798.44

798.44

81,440.58

(15,000)

79,843.70

12/31/2002 79,843.70

30,308.80

110,152.50 1,101.53

1,101.53

83,515.00

TOTAL

94,843.70

11/27/2002 94,843.70

(2) PhP 10,000 as and by way of attorneys fees; and

(3) Cost of suit.

1/27/2003

110,152.50

110,152.50 1,101.53

1,101.53

112,355.56
SO ORDERED.
112,355.56

2/27/2003

110,152.50

110,152.50 1,101.53

1,101.53

112,355.56

3/27/2003

110,152.50 (18,000.00)

92,152.50

921.53

921.53

93,995.56

4/27/2003

92,152.50

92,152.50

921.53

921.53

93,995.56

5/27/2003

92,152.50

82,152.50

821.53

821.53

83,795.56

(10,000.00)

8,362.50
(7,000.00)

This is a petition for review on certiorari assailing the Decision1 dated

September 23, 2008 of the Court of Appeals (CA) in CA-G.R. SP No.
98591, and the Resolution2 dated October 9, 2009 denying petitioners
motion for reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for constructive dismissal
before the Arbitration Branch of the National Labor Relations
Commission (NLRC) against respondents Gallery Frames (GF) and/or
Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.
On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor
of petitioner and found that he was dismissed from employment
without a valid or just cause. Thus, petitioner was awarded backwages
and separation pay in lieu of reinstatement in the amount of
P158,919.92. The dispositive portion of the decision, reads:

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 189871

August 13, 2013

DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR.,
RESPONDENTS.
DECISION
PERALTA, J.:

With the foregoing, we find and so rule that respondents failed to

discharge the burden of showing that complainant was dismissed from
employment for a just or valid cause. All the more, it is clear from the
records that complainant was never afforded due process before he was
terminated. As such, we are perforce constrained to grant complainants
prayer for the payments of separation pay in lieu of reinstatement to his
former position, considering the strained relationship between the
parties, and his apparent reluctance to be reinstated, computed only up
to promulgation of this decision as follows:
SEPARATION PAY
Date Hired

August 1990

Rate

P198/day

Date of Decision

Aug. 18, 1998

Length of Service

8 yrs. & 1 month

P198.00 x 26 days x 8 months = P41,184.00

BACKWAGES

Date Dismissed

January 24, 1997

Rate per day

P196.00

Date of Decisions

Aug. 18, 1998

a) 1/24/97 to 2/5/98 = 12.36 mos.

P196.00/day x 12.36 mos.

= P62,986.56

b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day

= P62,986.00

P198.00 x 26 days x 6.4 mos.

= P32,947.20

T O TAL

= P95.933.76
xxxx

WHEREFORE, premises considered, judgment is hereby rendered

finding respondents guilty of constructive dismissal and are therefore,
ordered:
To pay jointly and severally the complainant the amount of sixty-two
thousand nine hundred eighty-six pesos and 56/100 (P62,986.56) Pesos
representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic)
five thousand nine hundred thirty-three and 36/100 (P95,933.36)
representing his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of
merit in the Resolution5 dated February 29, 2000. Accordingly, the
NLRC sustained the decision of the Labor Arbiter. Respondents filed a
motion for reconsideration, but it was denied.6

Dissatisfied, respondents filed a Petition for Review on Certiorari

before the CA. On August 24, 2000, the CA issued a Resolution
dismissing the petition. Respondents filed a Motion for
Reconsideration, but it was likewise denied in a Resolution dated May
8, 2001.7
Respondents then sought relief before the Supreme Court, docketed as
G.R. No. 151332. Finding no reversible error on the part of the CA, this
Court denied the petition in the Resolution dated April 17, 2002.8
An Entry of Judgment was later issued certifying that the resolution
became final and executory on May 27, 2002.9 The case was, thereafter,
referred back to the Labor Arbiter. A pre-execution conference was
consequently scheduled, but respondents failed to appear.10
On November 5, 2002, petitioner filed a Motion for Correct
Computation, praying that his backwages be computed from the date of
his dismissal on January 24, 1997 up to the finality of the Resolution of
the Supreme Court on May 27, 2002.11 Upon recomputation, the
Computation and Examination Unit of the NLRC arrived at an updated
amount in the sum of P471,320.31.12
On December 2, 2002, a Writ of Execution13 was issued by the Labor
Arbiter ordering the Sheriff to collect from respondents the total
amount of P471,320.31. Respondents filed a Motion to Quash Writ of
Execution, arguing, among other things, that since the Labor Arbiter
awarded separation pay of P62,986.56 and limited backwages of
P95,933.36, no more recomputation is required to be made of the said
awards. They claimed that after the decision becomes final and
executory, the same cannot be altered or amended anymore.14 On
January 13, 2003, the Labor Arbiter issued an Order15 denying the
motion. Thus, an Alias Writ of Execution16 was issued on January 14,
2003.
Respondents again appealed before the NLRC, which on June 30, 2003
issued a Resolution17 granting the appeal in favor of the respondents
and ordered the recomputation of the judgment award.

On August 20, 2003, an Entry of Judgment was issued declaring the

Resolution of the NLRC to be final and executory. Consequently,
another pre-execution conference was held, but respondents failed to
appear on time. Meanwhile, petitioner moved that an Alias Writ of
Execution be issued to enforce the earlier recomputed judgment award
in the sum of P471,320.31.18
The records of the case were again forwarded to the Computation and
Examination Unit for recomputation, where the judgment award of
petitioner was reassessed to be in the total amount of only P147,560.19.
Petitioner then moved that a writ of execution be issued ordering
respondents to pay him the original amount as determined by the Labor
Arbiter in his Decision dated October 15, 1998, pending the final
computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of
Execution to satisfy the judgment award that was due to petitioner in
the amount of P147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the recomputation of the monetary award to include the appropriate
interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the
motion, but only up to the amount of P11,459.73. The Labor Arbiter
reasoned that it is the October 15, 1998 Decision that should be
enforced considering that it was the one that became final and
executory. However, the Labor Arbiter reasoned that since the decision
states that the separation pay and backwages are computed only up to
the promulgation of the said decision, it is the amount of P158,919.92
that should be executed. Thus, since petitioner already received
P147,560.19, he is only entitled to the balance of P11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied
by the NLRC in its Resolution22 dated September 27, 2006. Petitioner
filed a Motion for Reconsideration, but it was likewise denied in the
Resolution23 dated January 31, 2007.

Aggrieved, petitioner then sought recourse before the CA, docketed as

CA-G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision24 denying the
petition. The CA opined that since petitioner no longer appealed the
October 15, 1998 Decision of the Labor Arbiter, which already became
final and executory, a belated correction thereof is no longer allowed.
The CA stated that there is nothing left to be done except to enforce the
said judgment. Consequently, it can no longer be modified in any
respect, except to correct clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the
Resolution25 dated October 9, 2009.
Hence, the petition assigning the lone error:
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF
DISCRETION AND DECIDED CONTRARY TO LAW IN
UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC
WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF
LABOR ARBITER MAGAT MAKING THE DISPOSITIVE
PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR
ARBITER LUSTRIA SUBSERVIENT TO AN OPINION
EXPRESSED IN THE BODY OF THE SAME DECISION.26
Petitioner argues that notwithstanding the fact that there was a
computation of backwages in the Labor Arbiters decision, the same is
not final until reinstatement is made or until finality of the decision, in
case of an award of separation pay. Petitioner maintains that
considering that the October 15, 1998 decision of the Labor Arbiter did
not become final and executory until the April 17, 2002 Resolution of
the Supreme Court in G.R. No. 151332 was entered in the Book of
Entries on May 27, 2002, the reckoning point for the computation of
the backwages and separation pay should be on May 27, 2002 and not
when the decision of the Labor Arbiter was rendered on October 15,
1998. Further, petitioner posits that he is also entitled to the payment of

interest from the finality of the decision until full payment by the
respondents.

payment because it continued with the litigation until final judgment at

the CA level.

On their part, respondents assert that since only separation pay and
limited backwages were awarded to petitioner by the October 15, 1998
decision of the Labor Arbiter, no more recomputation is required to be
made of said awards. Respondents insist that since the decision clearly
stated that the separation pay and backwages are "computed only up to
[the] promulgation of this decision," and considering that petitioner no
longer appealed the decision, petitioner is only entitled to the award as
computed by the Labor Arbiter in the total amount of P158,919.92.
Respondents added that it was only during the execution proceedings
that the petitioner questioned the award, long after the decision had
become final and executory. Respondents contend that to allow the
further recomputation of the backwages to be awarded to petitioner at
this point of the proceedings would substantially vary the decision of
the Labor Arbiter as it violates the rule on immutability of judgments.

A source of misunderstanding in implementing the final decision in this

case proceeds from the way the original labor arbiter framed his
decision. The decision consists essentially of two parts.

The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream
and Fast Foods v. Court of Appeals (Sixth Division),27 wherein the issue
submitted to the Court for resolution was the propriety of the
computation of the awards made, and whether this violated the
principle of immutability of judgment. Like in the present case, it was a
distinct feature of the judgment of the Labor Arbiter in the above-cited
case that the decision already provided for the computation of the
payable separation pay and backwages due and did not further order the
computation of the monetary awards up to the time of the finality of the
judgment. Also in Session Delights, the dismissed employee failed to
appeal the decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the
course of execution of the labor arbiter's original computation of the
awards made, pegged as of the time the decision was rendered and
confirmed with modification by a final CA decision, is legally proper.
The question is posed, given that the petitioner did not immediately pay
the awards stated in the original labor arbiter's decision; it delayed

The first is that part of the decision that cannot now be disputed
because it has been confirmed with finality. This is the finding of the
illegality of the dismissal and the awards of separation pay in lieu of
reinstatement, backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made. On its face, the
computation the labor arbiter made shows that it was time-bound as can
be seen from the figures used in the computation. This part, being
merely a computation of what the first part of the decision established
and declared, can, by its nature, be re-computed. This is the part, too,
that the petitioner now posits should no longer be re-computed because
the computation is already in the labor arbiter's decision that the CA
had affirmed. The public and private respondents, on the other hand,
posit that a re-computation is necessary because the relief in an illegal
dismissal decision goes all the way up to reinstatement if reinstatement
is to be made, or up to the finality of the decision, if separation pay is to
be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an
illegal dismissal had taken place, also made a computation of the
award, is understandable in light of Section 3, Rule VIII of the then
NLRC Rules of Procedure which requires that a computation be made.
This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and
at all events, as far as practicable, shall embody in any such decision or
order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the
finality of the labor arbiter's decision. As we noted above, this
implication is apparent from the terms of the computation itself, and no

question would have arisen had the parties terminated the case and
implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all
counts - i.e., on the finding of illegality as well as on all the consequent
awards made. Hence, the petitioner appealed the case to the NLRC
which, in turn, affirmed the labor arbiter's decision. By law, the NLRC
decision is final, reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on
jurisdictional grounds through a timely filed Rule 65 petition for
certiorari. The CA decision, finding that NLRC exceeded its authority
in affirming the payment of 13th month pay and indemnity, lapsed to
finality and was subsequently returned to the labor arbiter of origin for
execution.
It was at this point that the present case arose. Focusing on the core
illegal dismissal portion of the original labor arbiter's decision, the
implementing labor arbiter ordered the award re-computed; he
apparently read the figures originally ordered to be paid to be the
computation due had the case been terminated and implemented at the
labor arbiter's level. Thus, the labor arbiter re-computed the award to
include the separation pay and the backwages due up to the finality of
the CA decision that fully terminated the case on the merits.
Unfortunately, the labor arbiter's approved computation went beyond
the finality of the CA decision (July 29, 2003) and included as well the
payment for awards the final CA decision had deleted - specifically, the
proportionate 13th month pay and the indemnity awards. Hence, the CA
issued the decision now questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is
necessary as it essentially considered the labor arbiter's original
decision in accordance with its basic component parts as we discussed
above. To reiterate, the first part contains the finding of illegality and its
monetary consequences; the second part is the computation of the
awards or monetary consequences of the illegal dismissal, computed as
of the time of the labor arbiter's original decision.28

Consequently, from the above disquisitions, under the terms of the

decision which is sought to be executed by the petitioner, no essential
change is made by a recomputation as this step is a necessary
consequence that flows from the nature of the illegality of dismissal
declared by the Labor Arbiter in that decision.29 A recomputation (or an
original computation, if no previous computation has been made) is a
part of the law specifically, Article 279 of the Labor Code and the
established jurisprudence on this provision that is read into the
decision. By the nature of an illegal dismissal case, the reliefs continue
to add up until full satisfaction, as expressed under Article 279 of the
Labor Code. The recomputation of the consequences of illegal
dismissal upon execution of the decision does not constitute an
alteration or amendment of the final decision being implemented. The
illegal dismissal ruling stands; only the computation of monetary
consequences of this dismissal is affected, and this is not a violation of
the principle of immutability of final judgments.30
That the amount respondents shall now pay has greatly increased is a
consequence that it cannot avoid as it is the risk that it ran when it
continued to seek recourses against the Labor Arbiter's decision. Article
279 provides for the consequences of illegal dismissal in no uncertain
terms, qualified only by jurisprudence in its interpretation of when
separation pay in lieu of reinstatement is allowed. When that happens,
the finality of the illegal dismissal decision becomes the reckoning
point instead of the reinstatement that the law decrees. In allowing
separation pay, the final decision effectively declares that the
employment relationship ended so that separation pay and backwages
are to be computed up to that point.31
Finally, anent the payment of legal interest. In the landmark case of
Eastern Shipping Lines, Inc. v. Court of Appeals,32 the Court laid down
the guidelines regarding the manner of computing legal interest, 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.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board
(BSP-MB), in its Resolution No. 796 dated May 16, 2013, approved the
amendment of Section 234 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799,35 Series of 2013, effective July 1,
2013, the pertinent portion of which reads:

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 X305.136 of the Manual of
Regulations for Banks and Sections 4305Q.1,37 4305S.338 and 4303P.139
of the Manual of Regulations for Non-Bank Financial Institutions are
hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from 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 Lines40 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.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc.
and Eduardo B. Olaguer v. Bangko Sentral Monetary Board,41 this
Court affirmed the authority of the BSP-MB to set interest rates and to
issue and enforce Circulars when it ruled that "the BSP-MB may
prescribe the maximum rate or rates of interest for all loans or renewals
thereof or the forbearance of any money, goods or credits, including

those for loans of low priority such as consumer loans, as well as such
loans made by pawnshops, finance companies and similar credit
institutions. It even authorizes the BSP-MB to prescribe different
maximum rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and
executory prior to July 1, 2013, said judgments shall not be disturbed
and shall continue to be implemented applying the rate of interest fixed
therein.1awp++i1

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.

To recapitulate and for future guidance, the guidelines laid down in the
case of Eastern Shipping Lines42 are accordingly modified to embody
BSP-MB Circular No. 799, as follows:

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.

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.1wphi1

And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed therein.

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:
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.
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

WHEREFORE, premises considered, the Decision dated September 23,

2008 of the Court of Appeals in CA-G.R. SP No. 98591, and the
Resolution dated October 9, 2009 are REVERSED and SET ASIDE.
Respondents are Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was illegally
dismissed on January 24, 1997 up to May 27, 2002, when the
Resolution of this Court in G.R. No. 151332 became final and
executory;
(2) separation pay computed from August 1990 up to May 27,
2002 at the rate of one month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total
monetary awards, computed from May 27, 2002 to June 30,
2013 and six percent (6%) per annum from July 1, 2013 until
their full satisfaction.

The Labor Arbiter is hereby ORDERED to make another recomputation

of the total monetary benefits awarded and due to petitioner in
accordance with this Decision.
SO ORDERED.