G.R. No.
L-20240 December 31, 1965 The aggregate amount due as principal of the five loans in question, computed
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.
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 It is the stand of the appellee that the Ballantyne scale of values should be applied
unconstitutional; but in that case this Court ruled that the moratorium laws had as of the time the obligation was incurred, and that was in June 1943. This stand of
suspended the prescriptive period until May 18, 1953. This ruling was categorically the appellee was upheld by the lower court; and the decision of the lower court is
reiterated in the decision in the case of Manila Motors vs. Flores, L-9396, August 16, supported by the ruling of this Court in the case of Hilado vs. De la Costa (G.R. No.
1956. It follows, therefore, that the prescriptive period in the case now before US L-150, April 30, 1949; 46 O.G. 5472), which states:
was suspended from November 18,1944, when Executive Orders Nos. 25 and 32
were declared unconstitutional by this Court. Computed accordingly, the ... Contracts stipulating for payments presumably in Japanese war notes may be
prescriptive period was suspended for 8 years and 6 months. By the appellant's own enforced in our Courts after the liberation to the extent of the just obligation of the
admission, the cause of action on the five promissory notes in question arose on contracting parties and, as said notes have become worthless, in order that justice
June 1, 1944. The complaint in the present case was filed on January 17, 1961, or may be done and the party entitled to be paid can recover their actual value in
after a period of 16 years, 6 months and 16 days when the cause of action arose. If Philippine Currency, what the debtor or defendant bank should return or pay is the
the prescriptive period was not interrupted by the moratorium laws, the action value of the Japanese military notes in relation to the peso in Philippine Currency
would have prescribed already; but, as We have stated, the prescriptive period was obtaining on the date when and at the place where the obligation was incurred
suspended by the moratorium laws for a period of 8 years and 6 months. If we unless the parties had agreed otherwise. ... . (italics supplied)
deduct the period of suspension (8 years and 6 months) from the period that
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs
elapsed from the time the cause of action arose to the time when the complaint
against the appellant. Inasmuch as the appellant Jose Grijaldo died during the
was filed (16 years, 6 months and 16 days) there remains a period of 8 years and 16
pendency of this appeal, his estate must answer in the execution of the judgment in
days. In other words, the prescriptive period ran for only 8 years and 16 days. There
the present case.
still remained a period of one year, 11 months and 14 days of the prescriptive
period when the complaint was filed. Bengzon, C.J., Concepcion, Barrera, Regala, Bautista Angelo, Reyes, J.B.L.,
Makalintal and Bengzon, J.P., JJ., concur.
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.
PEDRO MARTINEZ, plaintiff-appellee,
vs.
ANTONINO RAMOS, in his own behalf and as administrator of the estate of his
father Julian Ramos, defendant-appellant and ALEJANDRA RAMOS, defendant-
appellee.
P. Joya Admana for appellant.
No appearance for appellees.
ARELLANO, C. J.:
On May 2, 1900, Antonino Ramos signed an obligation to the following effect in
favor of Pedro Martinez:1awphil.net
I hereby declare to be a fact that by order of my father, Julian Ramos, I have
received from Pedro Martinez one thousand nine hundred pesos ($1,900) as a loan
without interest, which I will return within three years, and I sign. — Manila, May 2,
1900. — (Sgd.) Antonino Ramos.
Antonino Ramos was appointed judicial administrator of the estate of his deceased
father, Julian Ramos, and against him as such, and personally, in that special
proceeding, Pedro Martinez filed suit for the fulfillment of that obligation, for
Antonino Ramos alleged that by order of his father he had contracted it, and that
subsequently he had transferred to some of his coheirs the business started with
the money. But the committee of appraisal of the estate, in its report rendered on
February 9, 1912, decided that this was not a debt against the estate, but against
the heirs who had acknowledged it when presented to them. On March 7 of the
same year Antonino Ramos appealed from the decision of the committee; suit was
instituted in the Court of First Instance of Batangas and carried forward to
judgment whereby he was sentenced to pay to the plaintiff the sum of 1,450 pesos
Mexican currency, reduced to its equivalent in conant at the rate of 30 per cent, the
final rate fixed for the official exchange of the former money with the latter, with
legal interest from the filing of the complaint until total payment, and the costs, the
estate of the deceased Julian Ramos being absolved from the complaint. A sum paid
on account was deducted in the judgment from the total of the obligation.
Antonino Ramos appealed from this judgment and alleges here as the sole
assignment of error the fact that the trial court regarded the obligation in question
as a personal one of the appellant's, attempting to base it on acts that occurred
apparently, subsequent to the loan, whereby the borrower transferred to his
parents the business in which had been invested the money received as an
accommodation or loan from the lender, and on the fact that all or some of his
coheirs had acknowledged such sum as a debt of the testamentary administration
of said parents of Antonino Ramos and coheirs. But such assignment of error cannot
be sustained.
One who receives as a loan money or other fungible thing, acquires ownership
thereof and is bound to return to his creditor an equal amount of the same kind and
quality. (Civil Code, art. 1753.)
In the instrument of obligation Antonino Ramos says:
I have received from Pedro Martinez one thousand nine hundred pesos as a loan
without interest, which I will return within three years, and I sign.
The contract consists in that Antonino, and nobody else, will return to Pedro
Martinez in the time stipulated the 1,900 pesos; and the allegations set up are of no
avail against the wording of the contents of the instrument.1awphil.net
Obligation arising from contracts have legal force between the contracting parties
and must be fullfilled in accordance with their stipulations. (Civil Code, art. 1091.)
Contracts that may have been made subsequent to the one under consideration,
either between Antonio Ramos and his parents or between himself and his coheirs,
wherein the lender Pedro Martinez has not intervened, cannot be alleged against
the plaintiff Pedro Martinez, on the principle that the force of the law of contrast
cannot be extended to parties who do not intervene therein.
The judgment appealed from is affirmed, with the costs against the appellant.
Torres, Johnson, Carson, Moreland, Trent and Araullo, JJ., concur.
G.R. No. L-38745 August 6, 1975
LUCIA TAN, plaintiff-appellee,
vs.
ARADOR VALDEHUEZA and REDICULO VALDEHUEZA, defendants-appellants.
Alaric P. Acosta for plaintiff-appellee.
Lorenzo P. de Guzman for defendants-appellants.
CASTRO, J.:
This appeal was certified to this Court by the Court of Appeals as involving
questions purely of law.
The decision a quo was rendered by the Court of First Instance of Misamis
Occidental (Branch I) in an action instituted by the plaintiff-appellee Lucia Tan
against the defendants-appellants Arador Valdehueza and Rediculo Valdehueza
(docketed as civil case 2574) for (a) declaration of ownership and recovery of
possession of the parcel of land described in the first cause of action of the
complaint, and (b) consolidation of ownership of two portions of another parcel of
(unregistered) land described in the second cause of action of the complaint,
purportedly sold to the plaintiff in two separate deeds of pacto de retro.
After the issues were joined, the parties submitted the following stipulation of
facts:
1. That parties admit the legal capacity of plaintiff to sue; that defendants herein,
Arador, Rediculo, Pacita, Concepcion and Rosario, all surnamed Valdehueza, are
brothers and sisters; that the answer filed by Arador and Rediculo stand as the
answer of Pacita, Concepcion and Rosario.
2. That the parties admit the identity of the land in the first cause of action.
3. That the parcel of land described in the first cause of action was the subject
matter of the public auction sale held on May 6, 1955 at the Capitol Building in
Oroquieta, Misamis Occidental, wherein the plaintiff was the highest bidder and as
such a Certificate of Sale was executed by MR. VICENTE D. ROA who was then the
Ex-Officio Provincial Sheriff in favor of LUCIA TAN the herein plaintiff. Due to the
failure of defendant Arador Valdehueza to redeem the said land within the period
of one year as being provided by law, MR. VICENTE D. ROA who was then the Ex-
Officio Provincial Sheriff executed an ABSOLUTE DEED OF SALE in favor of the
plaintiff LUCIA TAN.
A copy of the NOTICE OF SHERIFFS SALE is hereby marked as 'Annex A', the
CERTIFICATE OF SALE is marked as 'Annex B' and the ABSOLUTE DEED OF SALE is
hereby marked as Annex C and all of which are made as integral parts of this
stipulation of facts.
4. That the party-plaintiff is the same plaintiff in Civil Case No. 2002; that the parties
defendants Arador, Rediculo and Pacita, all Valdehueza were the same parties-
defendants in the same said Civil Case No. 2002; the complaint in Civil Case No.
2002 to be marked as Exhibit 1; the answer as Exhibit 2 and the order dated May
22, 1963 as Exhibit 3, and said exhibits are made integral part of this stipulation.
5. That defendants ARADOR VALDEHUEZA and REDICULO VALDEHUEZA have
executed two documents of DEED OF PACTO DE RETRO SALE in favor of the plaintiff
herein, LUCIA TAN of two portions of a parcel of land which is described in the
second cause of action with the total amount of ONE THOUSAND FIVE HUNDRED
PESOS (P1,500.00), Philippine Currency, copies of said documents are marked as
'Annex D' and Annex E', respectively and made as integral parts of this stipulation of
facts.
6. That from the execution of the Deed of Sale with right to repurchase mentioned
in the second cause of action, defendants Arador Valdehueza and Rediculo
Valdehueza remained in the possession of the land; that land taxes to the said land
were paid by the same said defendants.
Civil case 2002 referred to in stipulation of fact no. 4 was a complaint for injunction
filed by Tan on July 24, 1957 against the Valdehuezas, to enjoin them "from
entering the above-described parcel of land and gathering the nuts therein ...." This
complaint and the counterclaim were subsequently dismissed for failure of the
parties "to seek for the immediate trial thereof, thus evincing lack of interest on
their part to proceed with the case. 1
The Deed of Pacto de Retro referred to in stipulation of fact no. 5 as "Annex D"
(dated August 5, 1955) was not registered in the Registry of Deeds, while the Deed
of Pacto de Retro referred to as "Annex E" (dated March 15, 1955) was registered.
On the basis of the stipulation of facts and the annexes, the trial court rendered
judgment, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff:
1. Declaring Lucia Tan the absolute owner of the property described in the first
cause of action of the amended complaint; and ordering the herein defendants not
to encroach and molest her in the exercise of her proprietary rights; and, from
which property they must be dispossessed;
2. Ordering the defendants, Arador Valdehueza and Rediculo Valdehueza jointly and
severally to pay to the plaintiff, Lucia Tan, on Annex 'E' the amount of P1,200, with
legal interest of 6% as of August 15, 1966, within 90 days to be deposited with the
Office of the Court within 90 days from the date of service of this decision, and that
in default of such payment the property shall be sold in accordance with the Rules
of Court for the release of the mortgage debt, plus costs;
3. And as regards the land covered by deed of pacto de retro annex 'D', the herein
defendants Arador Valdehueza and Rediculo Valdehueza are hereby ordered to pay
the plaintiff the amount of P300 with legal interest of 6% from August 15, 1966, the
said land serving as guaranty of the said amount of payment;
4. Sentencing the defendants Arador Valdehueza and Rediculo Valdehueza to pay
jointly and severally to the herein plaintiff Lucia Tan the amount of 1,000.00 as
attorney's fees; and .
5. To pay the costs of the proceedings.
The Valdehuezas appealed, assigning the following errors:
That the lower court erred in failing to adjudge on the first cause of action that
there exists res judicata; and
That the lower court erred in making a finding on the second cause of action that
the transactions between the parties were simple loan, instead, it should be
declared as equitable mortgage.
We affirm in part and modify in part.
1. Relying on Section 3 of Rule 17 of the Rules of Court which pertinently provides
that a dismissal for failure to prosecute "shall have the effect of an adjudication
upon the merits," the Valdehuezas submit that the dismissal of civil case 2002
operated, upon the principle of res judicata, as a bar to the first cause of action in
civil case 2574. We rule that this contention is untenable as the causes of action in
the two cases are not identical. Case 2002 was for injunction against the entry into
and the gathering of nuts from the land, while case 2574 seeks to "remove any
doubt or cloud of the plaintiff's ownership ..." (Amended complaint, Rec. on App., p.
27), with a prayer for declaration of ownership and recovery of possession.
Applying the test of absence of inconsistency between prior and subsequent
judgments, 2 we hold that the failure of Tan, in case 2002, to secure an injunction
against the Valdehuezas to prevent them from entering the land and gathering nuts
is not inconsistent with her being adjudged, in case 2574, as owner of the land with
right to recover possession thereof. Case 2002 involved only the possession of the
land and the fruits thereof, while case 2574 involves ownership of the land, with
possession as a mere attribute of ownership. The judgment in the first case could
not and did not encompass the judgment in the second, although the second
judgment would encompass the first. Moreover, the new Civil Code provides that
suitors in actions to quiet title "need not be in possession of said property. 3
2. The trial court treated the registered deed of pacto de retro as an equitable
mortgage but considered the unregistered deed of pacto de retro "as a mere case
of simple loan, secured by the property thus sold under pacto de retro," on the
ground that no suit lies to foreclose an unregistered mortgage. It would appear that
the trial judge had not updated himself on law and jurisprudence; he cited, in
support of his ruling, article 1875 of the old Civil Code and decisions of this Court
circa 1910 and 1912.
Under article 1875 of the Civil Code of 1889, registration was a necessary requisite
for the validity of a mortgage even as between the parties, but under article 2125 of
the new Civil Code (in effect since August 30,1950), this is no longer so. 4
If the instrument is not recorded, the mortgage is nonetheless binding between the
parties. (Article 2125, 2nd sentence).
The Valdehuezas having remained in possession of the land and the realty taxes
having been paid by them, the contracts which purported to be pacto de
retro transactions are presumed to be equitable mortgages, 5 whether registered or
not, there being no third parties involved.
3. The Valdehuezas claim that their answer to the complaint of the plaintiff affirmed
that they remained in possession of the land and gave the proceeds of the harvest
to the plaintiff; it is thus argued that they would suffer double prejudice if they are
to pay legal interest on the amounts stated in the pacto de retro contracts, as the
lower court has directed, and that therefore the court should have ordered
evidence to be adduced on the harvest.

The record does not support this claim. Nowhere in the original and the amended
complaints is an allegation of delivery to the plaintiff of the harvest from the land
involved in the second cause of action. Hence, the defendants' answer had none to
affirm.

In submitting their stipulation of facts, the parties prayed "for its approval
and maybe made the basis of the decision of this Honorable Court. " (emphasis
supplied) This, the court did. It cannot therefore be faulted for not receiving
evidence on who profited from the harvest.

4. The imposition of legal interest on the amounts subject of the equitable

mortgages, P1,200 and P300, respectively, is without legal basis, for, "No interest
shall be due unless it has been expressly stipulated in writing." (Article 1956, new
Civil Code) Furthermore, the plaintiff did not pray for such interest; her thesis was a
consolidation of ownership, which was properly rejected, the contracts being
equitable mortgages.

With the definitive resolution of the rights of the parties as discussed above, we
find it needless to pass upon the plaintiffs petition for receivership. Should the
circumstances so warrant, she may address the said petition to the court a quo.

ACCORDINGLY, the judgment a quo is hereby modified, as follows: (a) the amounts
of P1,200 and P300 mentioned in Annexes E and D shall bear interest at six percent
per annum from the finality of this decision; and (b) the parcel of land covered by
Annex D shall be treated in the same manner as that covered by Annex E, should
the defendants fail to pay to the plaintiff the sum of P300 within 90 days from the
finality of this decision. In all other respects the judgment is affirmed. No costs.

Makalintal, C.J., Makasiar, Esguerra and Muñoz Palma, JJ., concur.

Teehankee, J., is on leave.

Martin, J., took no part.

G.R. No. L-47878 July 24, 1942
GIL JARDENIL, plaintiff-appellant,
vs.
HEFTI SOLAS (alias HEPTI SOLAS, JEPTI SOLAS), defendant-appellee.
Eleuterio J. Gustilo for appellant.
Jose C. Robles for appellee.
MORAN, J.:
This is an action for foreclosure of mortgage. The only question raised in this appeal
is: Is defendant-appellee bound to pay the stipulated interest only up to the date of
maturity as fixed in the promissory note, or up to the date payment is effected?
This question is, in our opinion controlled by the express stipulation of the parties.
Paragraph 4 of the mortgage deed recites:
Que en consideracion a dicha suma aun por pagar de DOS MIL CUATROCIENTOS
PESOS (P2,4000.00), moneda filipina, que el Sr. Hepti Solas se compromete a pagar
al Sr. Jardenil en o antes del dia treintaiuno (31) de marzo de mil novecientos
treintaicuarto (1934), con los intereses de dicha suma al tipo de doce por ciento
(12%) anual a partir desde fecha hasta el dia de su vencimiento o sea treintaiuno
(31) de marzo de mil novecientos treintaicuatro (1934), por la presente, el Sr. Hepti
Solas cede y traspasa, por via de primera hipoteca, a favor del Sr. Jardenil, sus
herederos y causahabientes, la parcela de terreno descrita en el parrafo primero
(1.º) de esta escritura.
Defendant-appellee has, therefore, clearly agreed to pay interest only up to the
date of maturity, or until March 31, 1934. As the contract is silent as to whether
after that date, in the event of non-payment, the debtor would continue to pay
interest, we cannot in law, indulge in any presumption as to such interest;
otherwise, we would be imposing upon the debtor an obligation that the parties
have not chosen to agree upon. Article 1755 of the Civil Code provides that
"interest shall be due only when it has been expressly stipulated." (Emphasis
supplied.)
A writing must be interpreted according to the legal meaning of its language
(section 286, Act No. 190, now section 58, Rule 123), and only when the wording of
the written instrument appears to be contrary to the evident intention of the
parties that such intention must prevail. (Article 1281, Civil Code.) There is nothing
in the mortgage deed to show that the terms employed by the parties thereto are
at war with their evident intent. On the contrary the act of the mortgage of granting
to the mortgagor on the same date of execution of the deed of mortgage, an
extension of one year from the date of maturity within which to make payment,
without making any mention of any interest which the mortgagor should pay during
the additional period (see Exhibit B attached to the complaint), indicates that the
true intention of the parties was that no interest should be paid during the period
of grace. What reason the parties may have therefor, we need not here seek to
explore.
Neither has either of the parties shown that, by mutual mistake, the deed of
mortgage fails to express their agreement, for if such mistake existed, plaintiff
would have undoubtedly adduced evidence to establish it and asked that the deed
be reformed accordingly, under the parcel-evidence rule.
We hold therefore, that as the contract is clear and unmistakable and the terms
employed therein have not been shown to belie or otherwise fail to express the
true intention of the parties and that the deed has not been assailed on the ground
of mutual mistake which would require its reformation, same should be given its
full force and effect. When a party sues on a written contract and no attempt is
made to show any vice therein, he cannot be allowed to lay any claim more than
what its clear stipulations accord. His omission, to which the law attaches a definite
warning as an in the instant case, cannot by the courts be arbitrarily supplied by
what their own notions of justice or equity may dictate.
Plaintiff is, therefore, entitled only to the stipulated interest of 12 per cent on the
loan of P2, 400 from November 8, 1932 to March 31, 1934. And it being a fact that
extra judicial demands have been made which we may assume to have been so
made on the expiration of the year of grace, he shall be entitled to legal interest
upon the principal and the accrued interest from April 1, 1935, until full payment.
Thus modified judgment is affirmed, with costs against appellant.
Yulo, C.J., Ozaeta and Bocobo, JJ., concur.
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:
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:
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 PARTY’s 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.
x x x x.6
Petitioner received from respondent two million pesos in cash and one million
pesos in a post-dated check dated February 28, 1990, instead of 1991, which
rendered said check stale.7 Petitioner then gave respondent TCT No. 168173 in the
name of IMRDC and the Deed of Absolute Sale over the property between
petitioner and IMRDC.
Respondent decided not to purchase the property and notified petitioner through a
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 report 11 of the loss of her
owner’s copy of TCT No. 168173 to the Tagig Police Station on June 3, 1991,
executing an affidavit of loss and by filing a petition12 for the issuance of a new
owner’s duplicate copy of said title with the RTC of Makati, Branch 142; that the
petition was granted in an Order13 dated August 31, 1991; that said Order was
subsequently set aside in an Order dated April 10, 1992 14where the RTC Makati
granted respondent’s petition for relief from judgment due to the fact that
respondent is in possession of the owner’s duplicate copy of TCT No. 168173, and
ordered the provincial public prosecutor to conduct an investigation of petitioner
for perjury and false testimony. Respondent prayed for the ex-parte issuance of a
writ of preliminary attachment and payment of two million pesos with interest at
36% per annum from December 7, 1991, P100,000.00 moral, corrective and
exemplary damages and P200,000.00 for attorney’s fees.
In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a
writ of preliminary attachment upon the filing of a bond in the amount of two
million pesos.15
Petitioner filed an Amended Answer16 alleging that the Memorandum of Agreement
was conceived and arranged by her lawyer, Atty. Carmelita Lozada, who is also
respondent’s lawyer; that she was asked to sign the agreement without being given
the chance to read the same; that the title to the property and the Deed of Sale
between her and the IMRDC were entrusted to Atty. Lozada for safekeeping and
were never turned over to respondent as there was no consummated sale yet; that
out of the two million pesos cash paid, Atty. Lozada took the one million pesos
which has not been returned, thus petitioner had filed a civil case against her; that
she was never informed of respondent’s decision not to purchase the property
within the six month period fixed in the agreement; that when she demanded the
return of TCT No. 168173 and the Deed of Sale between her and the IMRDC from
Atty. Lozada, the latter gave her these documents in a brown envelope on May 5,
1991 which her secretary placed in her attache case; that the envelope together
with her other personal things were lost when her car was forcibly opened the
following day; that she sought the help of Atty. Lozada who advised her to secure a
police report, to execute an affidavit of loss and to get the services of another
lawyer to file a petition for the issuance of an owner’s duplicate copy; that the
petition for the issuance of a new owner’s duplicate copy was filed on her behalf
without her knowledge and neither did she sign the petition nor testify in court as
falsely claimed for she was abroad; that she was a victim of the manipulations of
Atty. Lozada and respondent as shown by the filing of criminal charges for perjury
and false testimony against her; that no interest could be due as there was no valid
mortgage over the property as the principal obligation is vitiated with fraud and
deception. She prayed for the dismissal of the complaint, counter-claim for
damages and attorney’s fees.
Trial on the merits ensued. On January 31, 1996, the RTC issued a decision, 17 the
dispositive portion of which reads:
WHEREFORE, judgment is hereby RENDERED:
1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at
the rate of thirty two (32%) per cent per annum beginning December 7, 1991 until
fully paid.
2) Ordering defendant to pay plaintiff the sum of 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.
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 attorney’s 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 owner’s duplicate
title knowing the same was in respondent’s possession, entitled respondent to
moral damages; and that petitioner’s bare denial cannot be accorded credence
because her testimony and that of her witness did not appear to be credible.
The RTC further found that petitioner admitted that she received from respondent
the two million pesos in cash but the fact that petitioner gave the one million pesos
to Atty. Lozada was without respondent’s knowledge thus it is not binding on
respondent; that respondent had also proven that in 1993, she initially paid the
sum of 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.
Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA
affirmed the RTC decision with modification, the dispositive portion of which reads:
WHEREFORE, premises considered, the decision appealed from is MODIFIED in the
sense that the rate of interest is reduced from 32% to 25% per annum, effective
June 7, 1991 until fully paid.19
The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as
her commission and partly as a loan; respondent did not replace the mistakenly
dated check of one million pesos because she had decided not to buy the property
and petitioner knew of her decision as early as April 1991; the award of moral
damages was warranted since even granting petitioner had no hand in the filing of
the petition for the issuance of an owner’s copy, she executed an affidavit of loss of
TCT No. 168173 when she knew all along that said title was in respondent’s
possession; petitioner’s claim that she thought the title was lost when the brown
envelope given to her by Atty. Lozada was stolen from her car was hollow; that such
deceitful conduct caused respondent serious anxiety and emotional distress.
The CA concluded that there was no basis for petitioner to say that the interest
should be charged for six months only and no more; that a loan always bears
interest otherwise it is not a loan; that interest should commence on June 7,
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.
Petitioner’s motion for reconsideration was denied by the CA in a Resolution dated
September 11, 2002.
Hence the instant Petition for Review on Certiorari filed by petitioner raising the
following issues:
(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO
SIX (6) MONTHS AS CONTAINED IN THE MEMORANDUM OF AGREEMENT.
(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.
(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY DAMAGES
AND ATTORNEY’S FEES IS PROPER EVEN IF NOT MENTIONED IN THE TEXT OF THE
DECISION.22
Petitioner contends that the interest, whether at 32% per annum awarded by the
trial court or at 25% per annum as modified by the CA which should run from June
7, 1991 until fully paid, is contrary to the parties’ Memorandum of Agreement; that
the agreement provides that if respondent would decide not to purchase the
property, petitioner has the period of another six months to pay the loan with
compounded bank interest for the last six months only; that the CA’s ruling that a
loan always bears interest otherwise it is not a loan is contrary to Art. 1956 of the
New Civil Code which provides that no interest shall be due unless it has been
expressly stipulated in writing.
We are not persuaded.
While the CA’s conclusion, that a loan always bears interest otherwise it is not a
loan, is flawed since a simple loan may be gratuitous or with a stipulation to pay
interest,23 we find no error committed by the CA in awarding a 25% interest per
annum on the two-million peso loan even beyond the second six months stipulated
period.
The Memorandum of Agreement executed between the petitioner and respondent
on December 7, 1990 is the law between the parties. In resolving an issue based
upon a contract, we must first examine the contract itself, especially the provisions
thereof which are relevant to the controversy.24 The general rule is that if the terms
of an agreement are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations shall prevail. 25 It is further required
that the various stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken jointly.26
In this case, the phrase "for the last six months only" should be taken in the context
of the entire agreement. We agree with and adopt the CA’s interpretation of the
phrase in this wise:
Their agreement speaks of two (2) periods of six months each. The first six-month
period was given to plaintiff-appellee (respondent) to make up her mind whether or
not to purchase defendant-appellant’s (petitioner's) property. The second six-
month period was given to defendant-appellant to pay the P2 million loan in the
event that plaintiff-appellee decided not to buy the subject property in which case
interest will be charged "for the last six months only", referring to the second six-
month period. This means that no interest will be charged for the first six-month
period while appellee was making up her mind whether to buy the property, but
only for the second period of six months after appellee had decided not to buy the
property. This is the meaning of the phrase "for the last six months only". Certainly,
there is nothing in their agreement that suggests that interest will be charged for six
months only even if it takes defendant-appellant an eternity to pay the loan.27
The agreement that the amount given shall bear compounded bank interest for the
last six months only, i.e., referring to the second six-month period, does not mean
that interest will no longer be charged after the second six-month period since such
stipulation was made on the logical and reasonable expectation that such amount
would be paid within the date stipulated. Considering that petitioner failed to pay
the amount given which under the Memorandum of Agreement shall be considered
as a loan, the monetary interest for the last six months continued to accrue until
actual payment of the loaned amount.
The payment of regular interest constitutes the price or cost of the use of money
and thus, until the principal sum due is returned to the creditor, regular interest
continues to accrue since the debtor continues to use such principal amount. 28 It
has been held that for a debtor to continue in possession of the principal of the loan
and to continue to use the same after maturity of the loan without payment of the
monetary interest, would constitute unjust enrichment on the part of the debtor at
the expense of the creditor.29
Petitioner and respondent stipulated that the loaned amount shall earn
compounded bank interests, and per the certification issued by Prudential Bank, the
interest rate for loans in 1991 ranged from 25% to 32% per annum. The CA reduced
the interest rate to 25% instead of the 32% awarded by the trial court which
petitioner no longer assailed.1awphi1.nét
In Bautista v. Pilar Development Corp.,30 we upheld the validity of a 21% per annum
interest on a 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 since petitioner was acquitted in the case for
perjury and false testimony filed by respondent against her.
We are not persuaded.
Article 31 of the Civil Code provides that when the civil action is based on an
obligation not arising from the act or omission complained of as a felony, such civil
action may proceed independently of the criminal proceedings and regardless of
the result of the latter.32
While petitioner was acquitted in the false testimony and perjury cases filed by
respondent against her, those actions are entirely distinct from the collection of
sum of money with damages filed by respondent against petitioner.
We agree with the findings of the trial court and the CA that petitioner’s act of
trying to deprive respondent of the security of her loan by executing an affidavit of
loss of the title and instituting a petition for the issuance of a new owner’s duplicate
copy of TCT No. 168173 entitles respondent to moral damages.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 owner’s copy of the title to the
property, the Deed of Sale between petitioner and IMRDC, the certificate of
occupancy, and the certificate of the Secretary of the IMRDC who signed the Deed
of Sale.34 However, notwithstanding that all those documents were in respondent’s
possession, petitioner executed an affidavit of loss that the owner’s copy of the title
and the Deed of Sale were lost.
Although petitioner testified that her execution of the affidavit of loss was due to
the fact that she was of the belief that since she had demanded from Atty. Lozada
the return of the title, she thought that the brown envelope with markings which
Atty. Lozada gave her on May 5, 1991 already contained the title and the Deed of
Sale as those documents were in the same brown envelope which she gave to Atty.
Lozada prior to the transaction with respondent.35 Such statement remained a bare
statement. It was not proven at all since Atty. Lozada had not taken the stand to
corroborate her claim. In fact, even petitioner’s own witness, Benilda Ynfante
(Ynfante), was not able to establish petitioner's claim that the title was returned by
Atty. Lozada in view of Ynfante's testimony that after the brown envelope was
given to petitioner, the latter passed it on to her and she placed it in petitioner’s
attaché case36 and did not bother to look at the envelope.37
It is clear therefrom that petitioner’s execution of the affidavit of loss became the
basis of the filing of the petition with the RTC for the issuance of new owner’s
duplicate copy of TCT No. 168173. Petitioner’s actuation would have deprived
respondent of the security for her loan were it not for respondent’s timely filing of a
petition for relief whereby the RTC set aside its previous order granting the issuance
of new title. Thus, the award of moral damages is in order.
WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the
Resolution dated September 11, 2002 of the Court of Appeals in CA-G.R. CV No.
52839 are AFFIRMED with MODIFICATION that the award of attorney’s fees
is DELETED.
No pronouncement as to costs.
SO ORDERED.

The entitlement to moral damages having been established, the award of

exemplary damages is proper.38Exemplary damages may be imposed upon
petitioner by way of example or correction for the public good.39 The RTC awarded
the amount of 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 attorney’s fees because the trial
court’s decision did not explain the findings of facts and law to justify the award of
attorney’s fees as the same was mentioned only in the dispositive portion of the
RTC decision.

We agree.

Article 220841 of the New Civil Code enumerates the instances where such may be
awarded and, in all cases, it must be reasonable, just and equitable if the same
were to be granted.42 Attorney's fees as part of damages are not meant to enrich
the winning party at the expense of the losing litigant. They are not awarded every
time a party prevails in a suit because of the policy that no premium should be
placed on the right to litigate.43 The award of attorney's fees is the exception rather
than the general rule. As such, it is necessary for the trial court to make findings of
facts and law that would bring the case within the exception and justify the grant of
such award. The matter of attorney's fees cannot be mentioned only in the
dispositive portion of the decision.44 They must be clearly explained and justified by
the trial court in the body of its decision. On appeal, the CA is precluded from
supplementing the bases for awarding attorney’s fees when the trial court failed to
discuss in its Decision the reasons for awarding the same. Consequently, the award
of attorney's fees should be deleted.
ARWOOD INDUSTRIES, INC., petitioner, vs. D.M. CONSUNJI, INC., respondent.
DECISION
CORONA, J .:
This is a petition for review of the decision[1] dated November 12, 1999 of the Court
of Appeals, which affirmed, with modification, the decision [2]dated April 1, 1997 of
the Regional Trial Court, Branch 153, Pasig City in Civil Case No. 63489.
The core issue of this petition is the propriety of the imposition of two percent (2%)
interest on the amount adjudged by the trial court and later affirmed by the Court
of Appeals in favor of respondent D.M. Consunji, Inc. and against petitioner Arwood
Industries, Inc.
The factual backdrop of this case is as follows:
Petitioner and respondent, as owner and contractor, respectively, entered into a
Civil, Structural and Architectural Works Agreement[3](Agreement) dated February
6, 1989 for the construction of petitioner's Westwood Condominium at No. 23
Eisenhower St., Greenhills, San Juan, Metro Manila. The contract price for the
condominium project aggregated P20,800,000.00.
Despite the completion of the condominium project, the amount of P962,434.78
remained unpaid by petitioner. Repeated demands by respondent for petitioner to
pay went unheeded.
Thus, on August 13, 1993, respondent, as plaintiff in Civil Case No. 63489 filed its
complaint[4] for the recovery of the balance of the contract price and for damages
against petitioner.
Respondent specifically prayed for the payment of the (a) amount of P962,434.78
with interest of 2% per month or a fraction thereof, from November 1990 up to the
time of payment; (b) the amount of P250,000 as attorney's fees and litigation
expenses; (c) amount of P150,000 as exemplary damages and (d) costs of suit.[5]
After trial, the court below resolved to grant the relief prayed for by respondent,
thus:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
defendant ordering the latter to pay the former the following:
(1) the sum of P962,434.78 representing the balance of contract price with interest
at 2% per month from November 1990 up to the time of payment;
(2) the amount of P150,000.00 as attorney's fees; and
(3) Cost(s) of suit.
SO ORDERED.[6]
Petitioner appealed to the Court of Appeals, particularly opposing the finding of the
trial court with regard to the imposition of the monetary interest of 2% per month
on the adjudicated amount.
The Court of Appeals upheld the trial court despite dauntless demurring by
petitioner. Respondent court found basis in Article 6.03 of the Agreement
concerning the imposition of the 2% interest, which reads:
Payment shall be made by the OWNER to the CONTRACTOR within fifteen (15)
calendar days after receipt of the Construction Manager's Certificate. In the event
OWNER delays the payments (i.e. beyond the stipulated time) to the CONTRACTOR
of monthly progress billings, the CONTRACTOR shall have the option to either
suspend the works on the Project until such payments have been remitted by the
OWNER or continue the work but the OWNER shall be required to pay the interest
at a rate of two (2%) percent per month or the fraction thereof in days of the
amount due for payment by the OWNER. The same interest shall be added to the
billing of the following month. Furthermore, the progress payments shall be
reduced by a portion of the downpayment made by the OWNER corresponding to
the value of the work completed.[7]
Respondent court, however, modified the decision of the trial court by deleting the
award of attorney's fees for the following reasons:
Finally, defendant-appellant argues that the court a quo erred in awarding
attorneys fees because the same was not mentioned in the body of the decision.
On this ultimate point, We agree.
In the case of Del Rosario vs. Court of Appeals (267 SCRA 158, 175), the Supreme
Court held that:
Finally, like the adjudication of actual or compensatory damages, the award of
attorneys fees must be deleted. The matter was dealt with only in the dispositive
portion of the Trial Courts decision. Since the judgment does not say why attorneys
fees were awarded, there is no basis for such award, which should consequently be
removed. So did this Court rule, for instance, in Scott Consultants and Resource
Development Corp., Inc. et al. (242 SCRA 393, 406):
It is settled that the award of attorneys fees is the exception rather than the rule
and counsels fees are not to be awarded every time a party wins. The power of the
court to award attorneys fees under Article 2208 of the Civil Code demands factual,
legal, and equitable justification; its basis cannot be left to speculation or
conjecture. Where granted, the court must explicitly state in the body of the
decision, and not only in the dispositive portion thereof, the legal reason for the
award of attorneys fees.[8]
Petitioner moved to reconsider, unsuccessfully.
Hence, this petition for review. The only issue is the correctness of imposing a 2%
per month interest on the award of P962,434.78.
Petitioner argues that the trial court's decision has no basis in imposing the 2%
interest per month. Although the Agreement contained a provision with regard to
the interest, this provision was not mentioned by the trial court in awarding interest
in the dispositive portion. This provision of the Agreement does not apply to the
claim of respondent but refers to the monthly progress billings. The amount
of P962,434.78 is not a monthly progress billing and should not therefore be subject
to interest.
Furthermore, the pre-trial order of the trial court dated February 4, 1994 did not
include interest as one of the issues to be resolved and determined during the trial;
the parties agreed that the main issue was
x x x whether or not defendant is liable to pay the balance of P964,434.78 as stated
in the Complaint.[9]
Thus, the trial court erroneously disposed of the issue on payment of interest.
Petitioner points to the error of the Court of Appeals in basing its decision (on the
issue of interest) on Article 6.03 of the Agreement. It reasons that while there was a
formal offer of the Agreement and its sub-markings, the provision on interest was
neither sub-marked nor formally offered in evidence.[10] Hence, the imposition of
interest is wanting in basis as it is not even explicitly alleged in the complaint before
the trial court.
Petitioner's stance hardly deserves this Court's attention.
The Agreement or the contract between the parties is the formal expression of the
parties rights, duties and obligations. It is the best evidence of the intention of the
parties. Thus, when the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be, between the
parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement.[11]
Consequently, upon the fulfillment by respondent of its obligation to complete the
construction project, petitioner had the correlative duty to pay for respondents
services. However, petitioner refused to pay the balance of the contract price. From
the moment respondent completed the construction of the condominium project
and petitioner refused to pay in full, there was delay on the part of petitioner. This
delay was never disputed.
Delay in the performance of an obligation is looked upon with disfavor because,
when a party to a contract incurs delay, the other party who performs his part of
the contract suffers damages thereby. Dilationes in lege sunt idiosae.[12] Obviously,
respondent suffered damages brought about by the failure of petitioner to comply
with its obligation on time. And, sans elaboration of the matter at hand, damages
take the form of interest.Accordingly, the appropriate measure of damages in this
case is the payment of interest at the rate agreed upon, which is 2% interest for
every month of delay.
It must be noted that the Agreement provided the contractor, respondent in this
case, two options in case of delay in monthly payments, to wit: a) suspend work on
the project until payment is remitted by the owner or b) continue the work but the
owner shall be required to pay interest at a rate of two percent (2%) per month or a
fraction thereof. Evidently, respondent chose the latter option, as the condominium
project was in fact already completed. The payment of the 2% monthly interest,
therefore, cannot be jettisoned overboard.
Since the Agreement stands as the law between the parties,[13] this Court cannot
ignore the existence of such provision providing for a penalty for every months
delay. Facta legem facunt inter partes.[14] Neither can petitioner impugn the
Agreement to which it willingly gave its consent. From the moment petitioner gave
its consent, it was bound not only to fulfill what was expressly stipulated in the
Agreement but also all the consequences which, according to their nature, may be
in keeping with good faith, usage and law.[15] Petitioners attempt to mitigate its
liability to respondent should thus fail.
As a last-ditch effort to evade liability, petitioner argues that the amount
of P962,434.78 claimed by respondent and later awarded by the lower courts does
not refer to monthly progress billings, the delayed payment of which would earn
interest at 2% per month.
We disagree.
Petitioner appears confused by a semantics problem. Monthly progress billings
certainly form part of the contract price. If the amount claimed by respondent is not
the monthly progress billings provided in the contract, what then does such amount
represent? Petitioner has not in point of fact convincingly supplied an answer to
this query. Neither has petitioner shown any effort to clarify the meaning of
monthly progress billings to support its position. This leaves us no choice but to
agree with respondent that the phrase monthly progress billings refers to a portion
of the contract price payable by the owner (petitioner) of the project to the
contractor (respondent) based on the percentage of completion of the project or on
work accomplished at a particular stage. It refers to that portion of the contract
price still to be paid as work progresses, after the downpayment is made.[16]
This definition is, indeed, not without basis. Articles 6.02 and 6.03 of the
Agreement, which respectively provides that the (b)alance shall be paid in monthly
progress payments based on actual value of the work accomplished [17] and that the
progress payments shall be reduced by a portion of the downpayment made by the
OWNER corresponding to the value of the work completed give sense to
respondents interpretation of monthly progress billings.
Even supposing that petitioner has a different definition of monthly progress
billings, it must nonetheless be interpreted in favor of herein respondent because
Article 6.03 of the Agreement, which gives respondent the options in case of
petitioners default in payment, was obviously stipulated for respondents benefit.[18]
Thus, respondent correctly contends that the amount claimed, which is part of the
contract price, would not have accumulated had petitioner been diligent in the
monthly payment of the work accomplished by respondent.
Respondents claim, it must be noted, includes payment of the sum
of P962,474.78, exclusive of damages. The Complaint of plaintiff-respondent prayed
for the amount of P962,474.78 exclusive of damages. Petitioner had all the
opportunity to squarely meet the issue on interest at the pre-trial as it was deemed
included in the phrase exclusive of damages. The appeal to the respondent court on
the matter of interest was, therefore, a belated effort to object to the contents of
the Agreement. Petitioner cannot resort to this sneaky scheme. Objection to
evidence cannot be raised for the first time on appeal; when a party desires the
court to reject the evidence offered, he must so state in the form of
objection. Without such objection, he cannot raise the question for the first time on
appeal.[19] And, since there was no timely objection to the contents of the
Agreement, the Agreement and its contents form part of the evidence of the
case. All the parties to the case, therefore, are considered bound by any favorable
or unfavorable effects resulting from the evidence.[20]
Needless to state, it is not indispensable that Article 6.03 of the Agreement be sub-
marked and formally offered in evidence during the pre-trial before said provision
may take effect. For one, the provision on the payment of monthly interest is
included in the Agreement, the existence and validity of which, to reiterate, were
not objected to by petitioner. For another, the payment of interest as penalty is a
necessary consequence of petitioners failure to exercise diligence in the discharge
of its obligation under the contract.
Moreover, even assuming that there was a default of stipulation or agreement on
interest, respondent may still recover on the basis of the general provision of law,
which is Article 2209 of the Civil Code, thus:
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 percent per annum.
Article 2209 of the Civil Code, as abovementioned, specifies the appropriate
measure of damages where the obligation breached consisted of the payment of
sum of money. Article 2209 was, in extent, explicated by the Court in State
Investment House, Inc. vs. Court of Appeals, [21] which provides:
The appropriate measure for damages in case of delay in discharging an obligation
consisting of the payment of a sum of money, is the payment of penalty interest
at the rate agreed upon; and in the absence of a stipulation of a particular rate of
penalty interest, then the payment of additional interest at a rate equal to the
regular monetary interest; and if no regular interest had been agreed upon, then
payment of legal interest or six percent (6%) per annum.[22]

Hence, even in the absence of a stipulation on interest, under Article 2209 of the
Civil Code, respondent would still be entitled to recover the balance of the contract
price with interest. Respondent court, therefore, correctly interpreted the terms of
the agreement which provides that the OWNER shall be required to pay the interest
at a rate of two percent (2%) per month or the fraction thereof in days of the
amount due for payment by the OWNER.

We, therefore, find no basis to alter the findings of the Court of Appeals affirming
the decision of the trial court.

WHEREFORE, the petition is hereby DENIED.

SO ORDERED.
G.R. No. L-33582 March 30, 1982 payment out of its funds after the bank had become insolvent. It was further
claimed that a judgment in favor of respondent would create a preference in favor
THE OVERSEAS BANK OF MANILA, petitioner, of a particular creditor to the prejudice of other creditors and/or depositors of
vs. petitioner bank.
VICENTE CORDERO and COURT OF APPEALS, respondents.
After pre-trial, petitioner filed on November 29, 1968, a motion to dismiss,
reiterating the same defenses raised in its answer. Finding the same unmeritorious,
the lower court denied the motion and proceeded with the trial on the merits. In
ESCOLIN, J.:
due time, the lower court rendered the aforesaid decision. Dissatisfied, petitioner
Again, We are confronted with another case involving the Overseas Bank of Manila, appealed to the Court of Appeals, which affirmed the decision of the lower court.
filed by one of its depositors.
Hence, this petition for review on certiorari.
This is a petition for review on certiorari of the decision of the Court of Appeals
The issues raised in this petition are quite novel. Petitioner stands firm on its
which affirmed the judgment of the Court of First Instance of Manila, holding
contentions that the suit filed by respondent Cordero for recovery of his time
petitioner bank liable to respondent Vicente Cordero in the amount of P80,000.00
deposit is barred or abated by the state of insolvency of petitioner as found by the
representing the latter's time deposit with petitioner, plus interest thereon at 6%
Monetary Board of the Central Bank of the Philippines; and that the judgment
per annum until fully paid, and costs.
rendered in favor of respondent would in effect create a preference in his favor to
On July 20, 1967, private respondent opened a one-year time deposit with the prejudice of other creditors of the bank.
petitioner bank in the amount of P80,000.00 to mature on July 20, 1968 with
Certain supervening events, however, have rendered these issues moot and
interest at the rate of 6% per annum. However, due to its distressed financial
academic. The first of these supervening events is the letter of Julian Cordero,
condition, petitioner was unable to pay Cordero his said time deposit together with
brother and attorney-in-fact of respondent Vicente Cordero, addressed to the
the interest. To enforce payment, Cordero instituted an action in the Court of First
Commercial Bank of Manila (Combank), successor of petitioner Overseas Bank of
Instance of Manila.
Manila. In this letter dated February 13, 1981, copy of which was furnished this
Petitioner, in its answer, raised as special defense the finding by the Monetary Court, it appears that respondent Cordero had received from the Philippine Deposit
Board of its state of insolvency. It cited the Resolution of August 1, 1968 of the Insurance Company the amount of P10,000.00.
Monetary Board which authorized petitioner's board of directors to suspend all its
The second is a Manifestation by the same Julian Cordero dated July 3, 1981,
operations, and the Resolution of August 13, 1968 of the same Board, ordering the
acknowledging receipt of the sum of P73,840.00. Said Manifestation is in the nature
Superintendent of Banks to take over the assets of petitioner for purposes of
of a quitclaim, pertinent portions of which We quote:
liquidation.
I, the undersigned acting for and in behalf of my brother Vicente R. Cordero who
Petitioner contended that although the Resolution of August 13, 1968 was then
resides in Canada and by virtue of a Special Power of Attorney issued by Vicente
pending review before the Supreme Court, 1 it effectively barred or abated the
Romero, our Consul General in Vancouver, Canada, xerox copy attached, do hereby
action of respondent for even if judgment be ultimately rendered in favor of
manifest to this honorable court that we have decided to waive all and any
Cordero, satisfaction thereof would not be possible in view of the restriction
damages that may be awarded to the above-mentioned case and we hereby also
imposed by the Monetary Board, prohibiting petitioner from issuing manager's and
agree to accept the amount of Seventy Three Thousand Eight Hundred Forty Pesos
cashier's checks and the provisions of Section 85 of Rep. Act 337, otherwise known
(P73,840.00) representing the principal and interest as computed by the
as the General Banking Act, forbidding its directors and officers from making any
Commercial Bank of Manila. We also agree to hold free and harmless the
Commercial Bank of Manila against any claim by any third party or any suit that may
arise against this agreement of payment.
... We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos
(P73,840.00) with our full satisfaction. ...
When asked to comment on this Manifestation, counsel for Combank filed on
August 12, 1981 a Comment confirming and ratifying the same, particularly the
portions which state:
We also agree to hold free and harmless the Commercial Bank any third party or
any suit that may arise against this agreement of payment, and
We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos
(P73,840.00) with our full satisfaction.
However, upon further examination, this Court noted the absence of the alleged
special power of attorney executed by private respondent in favor of Julian
Cordero. When directed to produce the same, Julian Cordero submitted the
following explanatory Comment, to which was attached the special power of
attorney executed by respondent Vicente Cordero:
3. This manifestation (referring to the Manifestation of July 3, 1981) applies only to
third party claims, suit and other damages. It does not mean waiving the interest it
should earn while the bank is closed and also the attorney's fees as decided by the
lower court. It is very clear. I did not waive the attorney's fees because it belongs to
our attorney and interest because it belongs to us and we are entitled to it.
Thus, with the principal claim of respondent having been satisfied, the only
remaining issue to be determined is whether respondent is entitled to (1) interest
on his time deposit during the period that petitioner was closed and (2) to
attorney's fees.
We find the answer to be in the negative.
The pronouncement made by this Court, per Justice Barredo, in the recent case
of Overseas Bank of Manila vs. Court of Appeals 2 is explicit and categorical. We
quote:
It is a matter of common knowledge which we take judicial notice of, that what
enables a bank to pay stipulated interest on money deposited with it is that thru
the other aspects of its operation, it is able to generate funds to cover the payment
of such interest. Unless a bank can lend money, engage in international
transactions, acquire foreclosed mortgaged properties or their proceeds and
generally engage in other banking and financing activities, from which it can derive
income, it is inconceivable how it can carry on as a depository obligated to pay
stipulated interest. ... Consequently, it should be deemed read into every contract
of deposit with a bank that the obligation to pay interest on the deposit ceases the
moment the operation of the bank is completely suspended by the duly constituted
authority, the Central Bank.
We consider it of trivial consequence that the stoppage of the bank's operations by
the Central Bank has been subsequently declared illegal by the Supreme Court, for
before the Court's order, the bank had no alternative under the law than to obey
the orders of the Central Bank. Whatever be the juridical significance of the
subsequent action of the Supreme Court, the stubborn fact remained that the
petitioner was totally crippled from then on from earning the income needed to
meet its obligations to its depositors. If such a situation cannot, strictly speaking be
legally denominated as "force majeure" as maintained by private respondent, We
hold it is a matter of simple equity that it be treated as such.
And concluding, this Court stated:
Parenthetically, We may add for the guidance of those who might be concerned
and so that unnecessary litigations may be avoided from further clogging the
dockets of the courts that in the light of the consideration expounded in the above
opinion, the same formula that exempts petitioner from the payment of interest to
its depositors during the whole period of factual stoppage of its operations by
orders of the Central Bank, modified in effect by the decision as well as the approval
of a formula of rehabilitation by this Court, should be, as a matter of consistency,
applicable or followed in respect to all other obligations of petitioner which could
not be paid during the period of its actual complete closure.
Neither can respondent Cordero recover attorney's fees. The trial court found that
herein petitioner's refusal to pay was not due to a wilful and dishonest refusal to
comply with its obligation but to restrictions imposed by the Central Bank. 3 Since
respondent did not appeal from this decision, he is now barred from contesting the
same.
WHEREFORE, that portion of the lower court's decision ordering petitioner to pay
interest on Cordero's time deposit is set aside. It appearing that the amount of the
latter's time deposit had been fully paid, this case is hereby dismissed. No costs.

SO ORDERED.

Barredo (Chairman), Aquino, Concepcion, Jr., De Castro and Ericta, JJ., concur.

Abad Santos, J., is on leave.

G.R. No. L-29352 July 22, 1985
EMERITO M. RAMOS, et al., petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, respondents; COMMERCIAL BANK OF
MANILA, intervenor.
RESOLUTION
TEEHANKEE, J.:
Pending final determination is respondent Central Bank's motion for
reconsideration dated December 28, 1982 of the Court's Resolution of October 19,
1982 which ruled "applying the Tapia ruling as reaffirmed by the Court in the
subsequent cases cited above OBM vs. Vicente Cordero, 113 SCRA 303 (March 30,
1982), per Escolin, J.; OBM vs. Julian Cordero, 113 SCRA 778 (April 27, 1982), per
Barredo, J.) that the bank is not liable for interest on the Central Bank loans and
advances during the period of its closure from August 21 1968 to January 8, 1981."
In the Tapia ruling (105 SCRA 49, June 11, 1981), the Court held that "the obligation
to pay interest on the deposit ceases the moment the operation of the bank is
completely suspended by the duly constituted authority, the Central Bank," and
that "for the guidance of those who might be concerned, and so that unnecessary
litigations may be avoided from further clogging the dockets of the courts, that in
the light of the considerations expounded in the above opinion, the same formula
that exempts petitioner from the payment of interest to its depositors during the
whole period of factual stoppage of its operations by orders of the Central Bank,
modified in effect by the decision as well as the approval of a formula of
rehabilitation by this Court, should be, as a matter of consistency, applicable or
followed in respect to all other obligations of petitioner which could not be paid
during the period of its actual complete closure."
The parties have been extensively heard on the pending incident through their
various pleadings and in oral argument on October 23, 1984 as well as in their
memoranda in amplification of oral argument.
Respondents have failed to adduce any cogent argument to persuade the Court to
reconsider its Resolution at bar that the Tapia ruling as reaffirmed by the aforecited
cases is fully applicable to the non-payment of interest, during the period of the
bank's forcible closure, on loans and advances made by respondent Central Bank.
Respondent Central Bank itself when it was then managing the Overseas Bank of
Manila (now Commercial Bank of Manila) under a holding trust agreement, held the
same position in Idelfonso D. Yap vs. OBM and CB (CA-G.R. No. 48887-R) wherein it
argued in its brief that "(I)n a suit against the receiver of a national bank for money
loaned to the Bank while it was a going concern, it was error to permit plaintiff to
recover interest on the loan after the bank's suspension" (citing Zollman Banks and
Banking). In Pablo R. Roman et al vs. Central Bank (CA-G.R. No. 49144-R, October
18, 1973, per then Court of Appeals Justice Hermogenes Concepcion, Jr.), the
appellate court by final judgment affirmed the trial court's judgment ordering
appellant Central Bank to condone all interests on Central Bank loans to the
Republic Bank, as well as penalties imposed on it which would be tantamount "to
force the Republic Bank to liquidate as an insolvent." It should be further noted that
the respondent Central Bank when called upon to deal with commercial banks and
extend to them emergency loans and advances, deals with them not as an ordinary
creditor engaged in business, but as the ultimate monetary authority of
government charged with the supervision and preservation of the banking system.
A significant development of the case also is set forth in the manifestation dated
October 19, 1984 of Government Corporate Counsel and general counsel of the
COMBANK Manuel M. Lazaro confirming inter alia that "(T)he Government Service
Insurance System (GSIS) has acquired ownership of 99.93% of the outstanding
capital stock of COMBANK," and urging resolution at the earliest time possible of
the sole issue raised in respondent Central Bank's motion for reconsideration of the
Resolution of October 19, 1982 that "applying the Tapia ruling as reaffirmed by the
Court in subsequent cases, COMBANK is not liable for interest on CB loans and
advances during the period of its closure from August 2, 1968 to January 8, 1981 "
(Record, Vol. V, p. 2261). In his earlier petition for early resolution, Government
Corporate Counsel Manuel M. Lazaro had likewise urged that "(T)he raison d' etre
of the Honorable Court's Resolution of October 19, 1982 is but a re- affirmation of
the ruling laid down and firmly established in previous decisions that have long
become final, notably OBM vs. Tapia, 105 SCRA 49 (June 11, 1981), OBM vs. Vicente
Cordero and Court of Appeals, 113 SCRA 303 (Mar. 30, 1982), and OBM vs. Court of
Appeals and Julian R. Cordero, 113 SCRA 778 (April 27, 1982)" (idem, p. 2242).
Government Corporate Counsel Lazaro in his aforecited manifestation removes any
and all doubts as to the propriety of the Court having rendered its Resolution of
October 19, 1982 pursuant to the bank's motion for a clarificatory ruling in the
present case made pursuant to the express agreement between the bank and the
respondent Central Bank then under Governor Jaime Laya. As stated in the
Resolution itself, "the bank's letter of July 1, 1981 invoking the Tapia ruling was
precisely the subject of the Central Bank's reply of November 12, 1981 above
quoted, agreeing anew that the Central Bank and the Combank seek a clarificatory
ruling from the Supreme Court on the applicability of the Tapia ruling to the case at
bar with both parties ultimately agreeing to 'abide by any clarificatory ruling which
the Supreme Court may render on the matter" (Record, Vol. IV, pp. 1993-1994). The
COMBANK in its said manifestation makes of record that it has likewise entered into
an agreement with its sister government banking institution, the Philippine National
Bank, that "both banks have agreed to abide by the final resolution of this
Honorable Court on the CB's pending Motion for Reconsideration," and that
"COMBANK is represented in the above-captioned case by its General Counsel, the
Government Corporate Counsel who is also the legal counsel for the PNB and
whose services were recently retained by CB in connection with the controversy
involving Banco Filipino and Governor Jose B. Fernandez, Jr." This certainly makes
moot any previous doubts raised during the oral argument that then Central Bank
Governor Jaime Laya may not have had the authority to enter into such agreement.

The Court's Resolution of October 19, 1982 manifestly redounds to the benefit of
another government institution, the GSIS, which has acquired 99.93% of the
outstanding capital stock of the COMBANK and to the preservation of the banking
system. It is time to write finis to this case which had its beginnings long ago when
the original judgment of October 4, 1971 was rendered against the Central Bank, as
succinctly stated by the now Chief Justice in his "[concurrence] in the result
primarily on the ground that respondent's arbitrary and improvident exercise of its
asserted power in the premises is violative of due process" (Ramos vs. Central Bank,
41 SCRA 565).

ACCORDINGLY, the Court Resolved to DENY with finality respondent Central Bank's
motion for reconsideration, for lack of necessary votes.

Fernando, C.J., Concepcion, Jr., De la Fuente and Alampay, JJ., concur.

Makasiar, Escolin and Cuevas, JJ., took no part.

Relova, J., I concur in Justice Aquino's dissent.

Gutierrez, Jr., J., I join Justice Aquino in his dissent.

G.R. No. L-33205 August 31, 1987
LIRAG TEXTILE MILLS, INC., and BASILIO L. LIRAG, petitioners,
vs.
SOCIAL SECURITY SYSTEM, and HON. PACIFICO DE CASTRO, respondents.
FERNAN, J.:
This is an appeal by certiorari involving purely questions of law from the decision
rendered by respondent judge in Civil Case No. Q-12275 entitled "Social Security
System versus Lirag Textile Mills, Inc. and Basilio L. Lirag."
The antecedent facts, as stipulated by the parties during the trial, are as follows:
1. That on September 4, 1961, the plaintiff [herein respondent Social Security
System] and the defendants [herein petitioners] Lirag Textile Mills, Inc. and Basilio
Lirag entered into a Purchase Agreement under which the plaintiff agreed to
purchase from the said defendant preferred shares of stock worth ONE MILLION
PESOS [P1,000,000.00] subject to the conditions set forth in such agreement;...
2. That pursuant to the Purchase Agreement of September 4, 1961, the plaintiff, on
January 31, 1962, paid the defendant Lirag Textile Mills, Inc. the sum of FIVE
HUNDRED THOUSAND PESOS [P500,000.00] for which the said defendant issued to
plaintiff 5,000 preferred shares with a par value of one hundred pesos [P10000] per
share as evidenced by stock Certificate No. 128, ...
3. That further in pursuance of the Purchase Agreement of September 4, 1961, the
plaintiff paid to the Lirag Textile Mills, Inc. the sum of FIVE UNDRED THOUSAND
PESOS [P500,000.00] for which the said defendant issued to plaintiff 5,000
preferred shares with a par value of one hundred pesos [P100.00] per share as
evidenced by Stock Certificate No. 139, ...
4. That in accordance with paragraph 3 of the Purchase Agreement of September 4,
1961 which provides for the repurchase by the Lirag Textile Mills, Inc. of the shares
of stock at regular intervals of one year beginning with the 4th year following the
date of issue, Stock Certificates Nos. 128 and 139 were to be repurchased by the
Lirag Textile Mills, Inc. thus:
CERT. No. AMOUNT DATE OF REDEMPTION
128 P100,000.00 February 14, 1965
100,000.00 February 14, 1966
100,000.00 February 14, 1967
100,000.00 February 14, 1968
100,000.00 February 14, 1969
139 P100,000.00 July 3, 1966
100,000.00 July 3,1967
100,000.00 July 3,1968
100,000.00 July 3, 1969
100,000.00 July 3,1970
5. That to guarantee the redemption of the stocks purchased by the plaintiff, the
payment of dividends, as well as the other obligations of the Lirag Textile Mills, Inc.,
defendants Basilio L. Lirag signed the Purchase Agreement of September 4, 1961
not only as president of the defendant corporation, but also as surety so that
should the Lirag Textile Mills, Inc. fail to perform any of its obligations in the said
Purchase Agreement, the surety shall immediately pay to the vendee the amounts
then outstanding pursuant to Condition No. 4, to wit:
To guarantee the redemption of the stocks herein purchased, the payment of the
dividends, as well as other obligations of the VENDOR herein, the SURETY hereby
binds himself jointly and severally liable with the VENDOR so that should the
VENDOR fail to perform any of its obligations hereunder, the SURETY shall
immediately pay to the VENDEE the amounts then outstanding. '
6. That defendant corporation failed to redeem certificates of Stock Nos. 128 and
139 by payment of the amounts mentioned in paragraph 4 above;
7. That the Lirag Textile Mills, lnc. has not paid dividends in the amounts and within
the period set forth in paragraph 10 of the complaint;*
8. That letters of demands have been sent by the plaintiff to the defendant to
redeem the foregoing stock certificates and pay the dividends set forth in
paragraph 10 of the complaint, but the Lirag Textile Mills, Inc. has not made such
redemption nor made such dividend payments;
9. That defendant Basilio L. Lirag likewise received letters of demand from the
plaintiff requiring him to make good his obligation as surety;
10. That notwithstanding such letters of demand to the defendant Basilio L. Lirag,
Stock Certificates Nos. 128 and 139 issued to plaintiff are still unredeemed and no
dividends have been paid on said stock certificates;
11. That paragraph 5 of the Purchase Agreement provides that should the Lirag
Textile Mills, Inc. fail to effect any of the redemptions stipulated therein, the entire
obligation shall immediately become due and demandable and the Lirag Textile
Mills, Inc., shall, furthermore, be liable to the plaintiff in an amount equivalent to
twelve per cent [12%] of the amount then outstanding as liquidated damages;
12. That the failure of the Lirag Textile Mills, Inc. to redeem the foregoing
certificates of stock and pay dividends thereon were due to financial reverses, to
wit:
[a] Unrestrained smuggling into the country of textiles from the United States and
other countries;
[b] Unrestricted entry of supposed remmants which competed with textiles of
domestic produce to the disadvantage and economic prejudice of the latter;
[c] Scarcity of money and the unavailability of financing facilities;
[d] Payment of interest on matured loans extended to defendant corporation;
[e] Construction of the Montalban plant of the defendant corporation financed
largely through reparation benefits;
[f] Labor problems occasioned by the fact that the defendant company is financial
(sic) unable to improve, in a substantial way, the economic plight of its workers as a
result of which two costly strikes had occurred, one in 1965 and another in 1968;
and
[g] The occurrence of a fire which destroyed more than 1 million worth of raw
cotton, paralyzed operations partially, increased overhead costs and wiped out any
expected profits that year;
13. That it has been the policy of the plaintiff to be represented in the board of
directors of the corporation or entity which has obtained financial assistance from
the System be it in terms of loans, mortgages or equity investments. Thus, pursuant
to paragraph 6 of the Purchase Agreement of September 4, 1961 which provides as
follows:
The VENDEE shall be allowed to have a representative in the Board of Directors of
the VENDOR with the right to participate in the discussions and to vote therein;
14. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan were each issued
one common share of stock as a qualifying share to their election to the Board of
Directors of the Lirag Textiles Mills, Inc.;
15. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan, during their
respective tenure as member of the Board of Directors of the Lirag Textile Mills, Inc.
attended the meetings of the said Board, received per diems for their attendance
therein in the same manner and in the same amount as any other member of the
Board of Directors, participated in the deliberations therein and freely exercised
their right to vote in such meetings. However, the per diems received by the SSS
representative do not go to the coffers of the System but personally to the
representative in the said board of directors. 1
For failure of Lirag Textile Mills, Inc. and Basilio L. Lirag to comply with the terms of
the Purchase Agreement, the SSS filed an action for specific performance and
damages before the then Court of First Instance of Rizal, Quezon City, praying that
therein defendants Lirag Textile Mills, Inc. and Basilio L. Lirag be adjudged liable for
[1] the entire obligation of P1M which became due and demandable upon
defendants' failure to repurchase the stocks as scheduled; [21 dividends in the
amount of P220,000.00; [31 liquidated damages in an amount equivalent to twelve
percent (12%) of the amount then outstanding; [4] exemplary damages in the
amount of P100,000.00 and [5] attorney's fees of P20,000.00.
Lirag Textile Mills, Inc. and Basilio L. Lirag moved for the dismissal of the complaint,
but were denied the relief sought. Thus, they filed their answer with counterclaim,
denying the existence of any obligation on their part to redeem the preferred
stocks, on the ground that the SSS became and still is a preferred stockholder of the
corporation so that redemption of the shares purchased depended upon the
financial ability of said corporation. Insofar as defendant Basilio Lirag is concerned,
it was alleged that his liability arises only if the corporation is liable and does not
perform its obligations under the Purchase Agreement. They further contended
that no liability on their part has arisen because of the financial condition of the
corporation upon which such liability was made to depend, particularly the non-
realization of any profit or earned surplus. Thus, the other claims for dividends,
liquidated damages and exemplary damages are allegedly without basis.
After entering into the Stipulation of Facts above-quoted, the parties filed their
respective memoranda and submitted the case for decision.
The lower court, ruling that the purchase agreement was a debt instrument,
decided in favor of SSS and sentenced Lirag Textile Mills, Inc. and Basilio L. Lirag to
pay SSS jointly and severally P1,000,000.00 plus legal interest until the said amount
is fully paid; P220,000.00 representing the 8% per annum dividends on the
preferred shares plus legal interest up to the time of actual payment; P146,400.00
as liquidated damages; and P10,000.00 as attorney's fees. The counterclaim of Lirag
Textile Mills, Inc. and Basilio L. Lirag was dismissed.
Hence, this petition.
Petitioners assign the following errors:
1. The trial court erred in deciding that the Purchase Agreement is a debt
instrument;
2. Respondent judge erred in holding petitioner corporation liable for the payment
of the 8% preferred and cumulative dividends on the preferred shares since the
purchase agreement provides that said dividends shall be paid from the net profits
and earned surplus of petitioner corporation and respondent SSS has admitted that
due to losses sustained since -1964, no dividends had been and can be declared by
petitioner corporation;
3. Respondent judge erred in sentencing petitioners to pay P146,400.00 in
liquidated damages;
4. Respondent judge erred in sentencing petitioners to pay P10,000.00 by way of
attorney's fees;
5. Respondent judge erred in sentencing petitioners to pay interest from the time of
firing the complaint u to the time of full payment both on the P1,000,000.00
invested by respondent SSS in petitioner's corporation and on the P220,000.00
which the SSS claims as dividends due on its investments;
6. Respondent judge erred in holding that petitioner Lirag is liable to redeem the
P1,000,000.00 worth of preferred shares purchased by respondent SSS from
petitioner corporation and the 8% cumulative dividend, it appearing that Lirag was
merely a surety and not an insurer of the obligation;
7. Respondent judge erred in dismissing the counterclaim of petitioners.
The fundamental issue in this case is whether or not the Purchase Agreement
entered into by petitioners and respondent SSS is a debt instrument.
Petitioners claim that respondent SSS merely became and still is a preferred
stockholder of the petitioner corporation, the redemption of the shares purchased
by said respondent being dependent upon the financial ability of petitioner
corporation. Petitioner corporation, thus, has no obligation to redeem the
preferred stocks.
On the other hand, respondent SSS claims that the Purchase Agreement is a debt
instrument, imposing upon the petitioners the obligation to pay the amount owed,
and creating as between them the relation of creditor and debtor, not that of a
stockholder and a corporation.
We uphold the lower court's finding that the Purchase Agreement is, indeed, a debt
instrument. Its terms and conditions unmistakably show that the parties intended
the repurchase of the preferred shares on the respective scheduled dates to be an
absolute obligation which does not depend upon the financial ability of petitioner
corporation. This absolute obligation on the part of petitioner corporation is made
manifest by the fact that a surety was required to see to it that the obligation is
fulfilled in the event of the principal debtor's inability to do so. The unconditional
undertaking of petitioner corporation to redeem the preferred shares at the
specified dates constitutes a debt which is defined "as an obligation to pay
money at some fixed future time, or at a time which becomes definite and fixed by
acts of either party and which they expressly or impliedly, agree to perform in the
contract. 2
A stockholder sinks or swims with the corporation and there is no obligation to
return the value of his shares by means of repurchase if the corporation incurs
losses and financial reverses, much less guarantee such repurchase through a
surety.
As private respondent rightly contends, if the parties intended it [SSS] to be merely
a stockholder of petitioner corporation, it would have been sufficient that Preferred
Certificates Nos. 128 and 139 were issued in its name as the preferred certificates
contained all the rights of a stockholder as well as certain obligations on the part of
petitioner corporation. However, the parties did in fact execute the Purchase
Agreement, at the same time that the petitioner corporation issued its preferred
stock to the respondent SSS. The Purchase Agreement serves to define the rights
and obligations of the parties and to establish firmly the liability of petitioners in
case of breach of contract. The Certificates of Preferred Stock serve as additional
evidence of the agreement between the parties, though the precise terms and
conditions thereof must be read together with, and regarded as qualified by the
terms and conditions of the Purchase Agreement.
The rights given by the Purchase Agreement to respondent SSS are rights not
enjoyed by ordinary stockholders. This fact could only lead to the conclusion made
by the trial court that:
The aforementioned rights specially stipulated for the benefit of the plaintiff
[respondent SSS] suggest eloquently an intention on the part of the plaintiff
[respondent SSS] to facilitate a loan to the defendant corporation upon the latter's
request. In order to afford protection to the plaintiff which otherwise is provided by
means of collaterals, as the plaintiff exacts in its grants of loans in its ordinary
transactions of this kind, as it is looked upon more as a lending institution rather
than as an investing agency, the purchase agreement supplied these protective
rights which would otherwise be furnished by collaterals to the loan. Thus, the
membership in the board is to have a watchdog in the operation of the business of
the corporation, so as to insure against mismanagement which may result in losses
not entirely unavoidable since payment for purposes of redemption as well as the
dividends is expressly stipulated to come from profits and/or surplus. Such a right is
never exacted by an ordinary stockholder merely investing in the corporation. 3
Moreover, the Purchase Agreement provided that failure on the part of petitioner
to repurchase the preferred shares on the scheduled due dates renders the entire
obligation due and demandable, with petitioner in such eventuality liable to pay
12% of the then outstanding obligation as liquidated damages. These features of
the Purchase Agreement, taken collectively, clearly show the intent of the parties to
be bound therein as debtor and creditor, and not as corporation and stockholder.
Petitioners' contention that it is beyond the power and competence of petitioner
corporation to redeem the preferred shares or pay the accrued dividends due to
financial reverses can not serve as legal justification for their failure to perform
under the Purchase Agreement. The Purchase Agreement constitutes the law
between the parties and obligations arising ex contractu must be fulfilled in
accordance with the stipulations. 4 Besides, it was precisely this eventuality that was
sought to be avoided when respondent SSS required a surety for the obligation.
Thus, it follows that petitioner Basilio L. Lirag cannot deny liability for petitioner
corporation's default. As surety, Basilio L. Lirag is bound immediately to pay
respondent SSS the amount then outstanding.
The obligation of a surety differs from that of a guarantor in that the surety insures
the debt, whereas the guarantor merely insures solvency of the debtor; and the
surety undertakes to pay if the principal does not pay, whereas a guarantor merely
binds itself to pay if the principal is unable to pay. 5
On the liability of petitioners to pay 8% cumulative dividend, We agree with the
observation of the lower court that the dividends stipulated by the parties served
evidently as interests. 6 The amount thereof was fixed at 8% per annum and was
not made to depend upon or to fluctuate with the amount of profits or surplus
realized, a clear indication that the parties intended to give a sure and fixed
earnings on the principal loan. The fact that the dividends were supposed to be paid
out of net profits and earned surplus, of which there were none, does not excuse
petitioners from the payment thereof, again for the reason that the undertaking of
petitioner Basilio L. Lirag as surety, included the payment of dividends and other
obligations then outstanding.
The award of the sum of P146,400.00 in liquidated damages representing 12% of
the amount then outstanding is correct, considering that petitioners in the
stipulation of facts admitted having failed to fulfill their obligations under the
Purchase Agreement. The grant of liquidated damages in the amount stated is
expressly provided for in the Purchase Agreement in case of contractual breach.
The pronouncement of the lower court for the payment of interests on both the
unredeemed shares and unpaid dividends is also in order. Per stipulation of facts,
petitioners did not deny the fact of non-payment of dividends nor their failure to
purchase the preferred shares. Since these involve sums of money which are
overdue, they are bound to earn legal interest from the time of demand, in this
case, judicial, i.e., the time of filing the action.
Petitioner Basilio L. Lirag is precluded from denying his liability under the- Purchase
Agreement. After his firm representation to "pay immediately to the VENDEE the
amounts then outstanding" evidencing his commitment as SURETY, he is estopped
from denying the same. His signature in the agreement carries with it the official
imprimatur as petitioner corporation's president, in his personal capacity as
majority stockholder, as surety and as solidary obligor. The essence of his obligation
as surety is to pay immediately without qualification whatsoever if petitioner
corporation does not pay. To have another interpretation of petitioner Lirag's
liability as surety would violate the integrity of the Purchase Agreement as well as
the clear and unmistakable intent of the parties to the same.

WHEREFORE, the decision in Civil Case No. Q-12275 entitled "Social Security System
vs. Lirag Textile Mills, Inc. and Basilio L. Lirag" is hereby affirmed in toto. Costs
against petitioners.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.

G.R. No. L-43579 June 14, 1938
JOSUE SONCUYA, plaintiff-appellant,
vs.
JUAN AZARRAGA, ET AL., defendants-appellants.
Gervasio Diaz, Joaquin Azarraga, Sumulong Lavidez and Sumulong, and Laurel,
Del Rosario and Sabido for defendants and appellants.
Joseu Soncuya in his own behalf.
DIAZ, J.:
This case is now before us on appeal from the Court of First Instance of Capiz. After
trial, the plaintiff filed a second amended complaint, which the lower court at first
refused to consider, but later on admitted after it was convinced that the allowance
thereof was proper in order to make the allegations conform to the established
facts. This was done without the defendants interposing any exception,
notwithstanding that they had previously opposed the admission of the
amendment. They not afterwards and not now, in their brief on appeal, question
the aforesaid amendment.
It appears from the allegations of the complaint thus amended that the plaintiff has
four causes of action. Under the first cause he seeks to recover from the defendants
the sum of P118,635.68 as damages, which he alleges to have been caused by the
defendants in fraudulently depriving him of the possession of four parcels of land
with a total area of 296 hectares, 58 ares and 92 centares, which they, with
knowledge that said real properties belonged to him exclusively, registered in their
names in the registry of property and mortgaged in favor of "Hijos de I. de la Rama"
to pay a certain obligation which they had contracted with the Panay Municipal
Cadastre. Under the second cause, plaintiff seeks to recover P6,080 as the supposed
value of the heads of cattle belonging to him, which the tenants of the defendants
had slaughtered. Under the third cause, he seeks payment of the sum of P5,575 as
the supposed value of 1,115 coconut trees which he had planted on the four parcels
of land in question. Under the fourth and last cause of action, plaintiff prays that
the defendants surnamed Azarraga, with the exception of Joaquin Azarraga, be
ordered to make up to 123 hectares, 13 ares and 99 centares the land which the
latter had sold to him, because plaintiff did not take possession of the land, except
a portion thereof, having an area of 72 hectares, 83 ares and 5 centares. In other
words, the defendants should deliver to the plaintiff an additional 50 hectares , 30
ares and 94 centares inasmuch as the participation of said Joaquin Azarraga in the
estate left to him and his brothers, his co-defendants herein, by their common
grandfather, Juan Azarraga y Galvez, which Joaquin Azarraga sold to plaintiff, had
that area according to the deed of partition, executed by all of them, and the plan
of said estate which was subsequently drawn up.
In their answer of February 26, 1931, the defendants Azarraga interposed a general
denial of each and all the allegations of the plaintiff's complaint, excepting those
relating the following special defenses; First, that the complaint does not allege
facts constituting causes of action; second, that the plaintiff and his predecessor in
interest were negligent in failing to inscribe in the office of the register of deeds the
supposed encumbrances in their favor over the lands in question, granting that said
encumbrances had ever existed; third, that the plaintiff knew and was personally
informed that the lands aforesaid would be surveyed at their instance and inscribed
in their names as their own property, but that he did nothing to defend or protect
his rights either during the pendency of the proceedings for the registration of the
lands in question or during the period prescribed by law after the issuance of a
decree and title, within which the validity of the same may be assailed; fourth, that
at the time of filing their application for registration as well as of the issuance of the
decree ordering the inscription in their names in the registry of property of the
lands in question, they were the sole owners of the same, and that admitting for
the sake of argument the theory of the plaintiff that he had a right to said lands, it
was nothing more than an expectation that he would be someday their owner; fifth,
that the plaintiff had no right to apply for or obtain from the court a writ of
preliminary injunction, wherefore, that obtained was illegal; and sixth, that the right
of action of the plaintiff, if any, had prescribed.
The defendants Azarraga further alleged the following counterclaims:
(a) That plaintiff is liable to them in damages in the sum of P100,000 because while
the contract which the defendants had entered into with Leodegario Azarraga was
still in force, the plaintiff took possession of their lands not covered by the said
contract; that he set loose therein his cattle, utilizing the same as grazing ground in
a negligent manner and without taking the necessary steps to avoid damages to
their plantations; that notwithstanding repeated requests, the plaintiff refused to
fence the lands in which he had set loose his animals, thereby causing damages and
destruction to their plantations; that the animals belonging to the plaintiff not only
destroyed and damaged the coconut, palay and corn plantation existing already on
the lands before said animals were brought thereto, but also destroyed their farms
and plantations on their enclosed lands; that all this was due to the neglect and
carelessness of the plaintiff; that by reason of his refusal to enclosed the lands
converted into grazing grounds, the defendants were unable to derive any benefits
from their lands or to sell or rent them to those who desire to do so.
(b) That the plaintiff is further liable and should be sentenced to pay them in
damages the sum of P 15,000 for having caused the annotation in the
corresponding registry of the book of the office of the register of deeds of the
Province of Capiz of a notice of lis pendens not only with regard to the 150 hectares,
48 ares and 50 centares which he claims in his complaint, but also with regard to
the whole area of 246 hectares, 27 ares and 98 centares, described in the original
certificate of title No. 9785 issued in the name of the defendants; that as a result of
this act of the plaintiff, they could not enter into any transactions over that
unquestioned portion of the land to which said title relates.
(c) That the plaintiff is likewise liable and the defendants pray that he should be
sentenced to pay them the sum of P30,000 also in damages, for having sought and
secured the issuance of an order of preliminary attachment of their properties
described in certificates of title No. 9804 and 10361.
(d) That the plaintiff is liable and should be sentenced to pay them in damages the
sum of P10,000 for having asked and secured from the court on February 7, 1931 a
writ of preliminary injunction in the same case, thereby preventing the defendants
from exercising acts of ownership not only on the four parcels in questions, but also
on all the other lands belonging to them.
(e) That in case it is adjudged that the lands in controversy had been improperly
inscribed by the defendants in their names in the registry of property, they pray
that the plaintiff be ordered to reimburse them in the sum of P5,000 which
represent the taxes paid by them on said lands, plus interest from the dates said
taxes were paid;
(f) The defendants lastly pray that upon the dissolution of the writ of preliminary
injunction issued against them on the date above-stated and the cancellation of the
annotation of said writ in the corresponding book of the office of the register of
deeds of Capiz, the plaintiff be sentenced to pay the costs of the suit.
"Hijos de I. de la Rama" and Panay Municipal Cadastre were included in the
complaint only for the purpose of enjoining the former from increasing to P25,000
the credit it had extend to the defendants Azarraga, who had already obtained
P16,000 on a mortgage of the lands in questions executed by them in its favor; and
of restraining the latter from collecting from said loan of P25,000, extended by
"Hijos de I. de la Rama" to the defendants, the credit which it claims to have against
them under a contract whereby they bound themselves to provide it with funds to
carry on the enterprise for which it has been organized.
"Hijos de I. de la Rama" showed very little interest in the case, for, according to the
lower court, it merely filed an answer with a general denial.
Panay Municipal Cadastre, in its answer, denied all the allegations of the complaint
in so far as it might be affected thereby, and alleged as special defense that the
plaintiff had no right to ask for, and much less obtain, a writ of preliminary
injunction against it. It further alleged as a counterclaim that the said plaintiff has
become liable to it in damages in the sum of P15,000, plus P5,000, plus P5,000
every month, beginning February 7, 1931, because the plaintiff prevented if from
receiving from the defendants Azarraga or from "Hijos de I. de la Rama" the sums
which they had bound themselves to deliver under a contract which they had
executed on September 20, 1929. After trial, the court rendered judgment as
follows:
Wherefore, the defendants Juan, Jose, Salvador, Joaquin, Emilio, Luis, Rosario, Julio,
all surnamed Azarraga, are hereby sentenced to pay the plaintiff, jointly and
severally, the sum of P24,627.98, with legal interest from November 10, 1926, as
damages because they fraudulently deprived the plaintiff of his lands in Bay-ang,
and likewise to pay the plaintiff, jointly and severally, the sum of P5,575 with legal
interest from November 10, 1926, representing the value of 1,115 coconut trees as
improvements on said lands, and, with the exception of Joaquin Azarraga, to pay
the plaintiff, jointly and severally, the sum of P5,030.94 with interest at the legal
rate from November 10, 1926 for eviction and warranty.
In case the defendants Azarraga have no unencumbered properties or can not
redeem the mortgage over their properties, with which to satisfy the indemnity for
damages, the payment of said indemnity shall be charged against the bond of the
sureties, who secured the lifting of the attachment on the properties of the
defendants.
The writ of preliminary injunction issued in this case on February 7, 1931 against
the defendants Azarraga, Hijos de I. de la Rama and Panay Municipal Cadastre is
hereby made final, with the exception of that portion which enjoins Hijos de I. de la
Rama from delivering to the defendants surnamed Azarraga and Panay Municipal
Cadastre more than the sum of P16,000, which had already been delivered, and
which likewise enjoins the latter from demanding from said entity more than the
above-mentioned sum of P16,000, which portion is hereby declared dissolved.
The plaintiff is absolved from the counterclaims interposed by the defendants
Azarraga and by the Panay Municipal Cadastre. The defendants Azarraga and by the
Panay Municipal Cadastre. The defendants Azarraga shall pay the costs.
From the foregoing judgment the defendants as well as the plaintiff appealed, and
in their respective briefs they assign the following errors;
ASSIGNMENTS OF ERROR OF THE DEFENDANTS
I. The trial court erred in holding that the true nature of the stipulation between
Attorney Leodegario Azarraga and the heirs of Don Juan and the heirs of Don Juan
Azarraga y Galvez as contained in the plan of partition Exhibit "A" is one of cession
of property in payment of a debt known in Spanish law as "dacion en pago."
II. the trial court erred in not holding that the stipulation between Attorney
Leodegario Azarraga and the heirs of the deceased Juan Azarraga y Galvez to the
effect that the lands were to become the property of Attorney Leodegario Azarraga
in case the defendants failed to pay his fees within five years and that during this
period the said attorney had the usufruct and possession of the lands, as contained
in Exhibit "A", is one of pacto comisorio, which is prohibited by article 1884 of the
Civil Code.
III. The trial court erred in finding that the three parcels of land in question, lots
Nos. 81, 82, and 83, were sold by Attorney Leodegario Azarraga to the plaintiff
herein.
IV. The trial court erred in not holding that the right established by Attorney
Leodegario Azarraga by virtue of Exhibit "A" and transferred to the plaintiff is at
most an attorney's lien over the properties in question and that the action of the
plaintiff as transferee of this lien should be to compel the defendants to recognize it
as a lien.
V. The trial court erred in holding that the defendants procured the registration of
the lands in question by fraudulent means.
VI. The trial court erred in not holding that the plaintiff, having no real right over
the lands in question, the omission of his name from the application is not
fraudulent and not fatal to the registration of the lands.
VII. The trial court erred in not holding that the plaintiff, being a mere usufructuary
of the lands in question for a limited period of time by grace of the owners, was not
entitled to be mentioned in the application for registration and to be notified
personally of its proceedings.
VIII. The trial court erred in not holding that the plaintiff had been negligent in not
asking for the review of the decree within one year, and in not holding that the
plaintiff purposely allowed the one-year period, within which he could petition for
review of the decree, to elapse in order that he might have a cause of action for
damages against the defendants.
IX. The trial court erred in permitting the plaintiff to prove the market value of the
lands in question although there was absolutely no allegation to that effect in the
complaint notwithstanding the objection thereto and the exception taken by the
defendants.
X. The trial court erred in not holding that Joaquin Azarraga has not intervened in
the registration of the lands in question, he being only a coowner pro indiviso and
as such has not been guilty of fraud in connection with the registration of the lands.
XI. The trial court erred in not holding that the plaintiff had no real right over the
land referred to in Exhibit 'E' in view of the fact that the said document had not
been registered.
XII. The trial court erred in holding that the land referred to in Exhibit "E" contains
an area of 164 hectares instead of 63 hectares only.
XIII. the trial court erred in finding that the total area of lots 81, 82, and 83, which
are the subject matter of the "pactum commissorium" between Attorney
Leodegario Azarraga and the defendants, is 243 hectares instead of 87 hectares
only.
XIV. The trial court erred in sentencing the defendants to pay to the plaintiff the
sum of P35,233.92 and in not absolving them from the complaint.
XV. The trial court erred in disallowing all the five counterclaims of the defendants
amounting to P58,000.
ASSIGNMENTS OF ERROR OF THE PLAINTIFF
(a) The lower court erred in not finding that the market value of the lands in
litigation in 1926 was P118,635.68;
(b) The lower court erred in not sentencing the defendants to pay the plaintiff the
sum of P6,080 as indemnity for the wrongful slaughter of his animals; and
(c) The lower court erred in not sentencing the defendants to pay the plaintiff,
jointly and severally, the sum of P13,290.68 as indemnity, plus legal interest from
November 10, 1926.
The salient facts established at the trial which may serve as a basis for an intelligent
discussion of the questions raised by the parties and for a proper decision of the
same, may be briefly stated as follows:
By reason of the proceedings had in case No. 11489 of the Court of First Instance of
Manila, entitled "Testate Estate of the Deceased Juan Azarraga y Galvez", the
defendants surnamed Azarraga became indebted to Attorney Leodegario Azarraga,
who represented them in said case, for attorney's fees, which on October 21, 1919
the court, which took cognizance of the case, fixed at P3,000 (Exhibit B).
The defendants Azarraga had previously agreed among themselves to pay Attorney
Leodegario Azarraga attorney's fees in the manner set out in Exhibit A, which they
executed on January 20, 1919 and approved by the court on August 29, of the same
year. (Exhibit C.) The pertinent part of the aforesaid Exhibit A reads as follows:
The parties also agree that the parcels of land located in Bay-ang, New Washington,
Capiz, P. I., which are enumerated in the inventory of this partition as Nos. 81, 82
and 83, are specially mortgaged and subject to the payment of the fees of said
attorney of the testate estate, which fees shall be fixed by the court, and said
attorney may hold said lands under no obligation to pay any rent until his fees shall
have been fully paid: Provided, however, that if, at the end of the period of five
years from the date of the approval of this project of partition, said parties shall not
have been able to pay in full the fees of said attorney, then said parcels of land,
Nos. 81, 82 and 83, located in Bay-ang, shall be definitely adjudicated to said
attorney, Mr. Leodegario Azarraga, as his property, in payment of his fees, and all
sums which he may have received from time to time from the interested parties in
these testate proceedings, within the said period, shall be returned to said
parties: Provided, further, that in case said interested parties in the testate
proceedings shall be able to pay in full the fees of the attorney for the estate before
the expiration of said period of five years, then said parcels of land situated in Bay-
ang shall continue in the possession of said attorney for an additional period of
three years from the date of the last payment in the event that said attorney may
have kept livestock in said lands.
About nine months after the court approved Exhibit A, or to be exact, on June 9,
1920, which was long before the expiration of the period of five years within which
the defendants Azarraga were bound to pay Attorney Leodegario Azarraga his fees,
which had been fixed at P3,000, said attorney decided to sell and did sell to the
plaintiff his credit against the defendants for the sum of P2,500 with all the rights
inherent therein in accordance with the agreements and stipulations appearing in
said document (Exhibit C). One of said agreement was that Attorney Leodegario
Azarraga would take possession of the said parcels of land and, occupy the same, if
he so desired, without paying any rent or annuity, until fees shall have been fully
paid. Said parcels were identical with lots Nos. 81, 82 and 83 described in paragraph
II of the plaintiff's second amended complaint.
When the plaintiff became the creditor of the defendants Azarraga by virtue of the
sale and cession which Attorney Azarraga had made in his favor of the rights which
said attorney had under Exhibit A, he allowed the defendants an extension of a few
years over the five years with in which they would have to pay him his credit, or up
to February 16, 1926, but with the express condition that they would pay him
interest at the rate of 12 per cent per annum, from August 30, 1924 (Exhibit 5). This
term was later extended to April 26, 1926 on the request of the defendants, but
also with the condition that they would pay the plaintiff the same interest of 12 per
cent. (Exhibits l and M.) The plaintiff granted another extension to expire on
October 31, 1928, but subject to the condition that instead of seven thousand and
odd pesos, which undoubtedly referred to the interest of 12 per cent per annum
charged the defendants, they should pay him P12,000 (Exhibit 2). In said two
amounts of P7,000 and P12,000 the sum of P4,000 which the plaintiff had given to
the defendant Joaquin Azarraga and which will be dealt with further in detail, was
included.
Aside from the above transactions between the plaintiff and the defendants
Azarraga, one of the latter, Joaquin Azarraga, executed in favor of the former, the
deed known as Exhibit E of the record and dated October 14, 1922, by which he
sold to the plaintiff, for the sum of P4,000, his portion of the inheritance in the
testate estate of the late Juan Azarraga y Galvez, consisting of an undivided tract of
land containing an estimated area of 63 hectares and located in Bay-ang Chico, New
Washington, Capiz. It is further stated therein that the period of redemption would
be five years to be counted from February 16, 1921, which was later extended to
April 26, 1926. In granting him this extension, the plaintiff imposed on Joaquin
Azarraga the condition that he should pay him interest at the rate of 12 per cent
from the expiration of the first term (Exhibit M; par. III of the second amended
complaint of plaintiff; and page 5 of the brief of the plaintiff as appellant). A second
extension was further granted, but under the condition that he should, together
with his brothers, pay the plaintiff instead of seven thousand and odd pesos,
representing the interest referred to in the preceding paragraph, in which the
P3,000 mentioned in Exhibit A were included, P12,000 (Exhibit 20. The deed
referred to was never annotated or inscribed in any register in the office of the
register of deeds of said province.
By virtue of the transfer made to him by Joaquin Azarraga and also of the terms
conditions enumerated in said Exhibit A, the plaintiff took possession of practically
the whole land of the defendants Azarraga, located in Bay-ang, placing therein
livestock from the month of August, 1920 and in the same year built sheepfolds
therein, besides erecting some wire fences. When the plaintiff took possession of
part of the land in question in August, 1920 and another part thereof in February,
1922, after the execution in his favor of the deed of transfer, which is a clarification
of Exhibit E, he found fruit-bearing and young coconut trees, the latter being more
numerous. In 1925, 1926 and 1927, Joaquin Azarraga, either by himself or his
laborers, planted therein hundreds of coconut trees of which but a few hundreds,
as we the case with the old ones, remained on account of the long droughts or
other causes. There is nothing definite in the record to show the exact number of
animals which the plaintiff had brought to Bay-ang or the cause of the death of
some of them. It seems that some had been wounded, by whom it is not known,
much less it is known whether they were wounded by men of the defendants
Azarraga. The plaintiff himself has not spoken with certainly; his statements on this
point are mere conjectures uncorroborated by anybody or anything (transcript of
stenographic notes, pages 145-147). There have been also no exact accounts as to
whether the animals of the plaintiff where those which destroyed the coconut trees
planted on the land by Joaquin Azarraga during the years 1925, 1926 and 1927
above-mentioned, or were the animals of other persons.
Sometimes in May, 1928, the plaintiff went to the house of the defendants Joaquin
Azarraga to collect not only his credit against all the defendants Azarraga, but also
the special credit which, according to him, he had against Joaquin Azarraga. And on
October 9, 1928, he addressed a letter to each and every one of the defendants
including Joaquin Azarraga whom he expressly mentioned therein, and, among
other things, told them that:
Last May, Messrs. Salvador and Joaquin came to an agreement with me whereby
they were to redeem the land in Bay-ang for seven thousand and odd pesos las
September, and in default thereof to transfer in my name the Torrens title of the
portion belonging to me; but until now neither of these has been done.
For this reason and in view of the fact that you have not stated in the Torrens title
of the land in Bay-ang when you applied for the same, the two encumbrances
thereon in my favor, I am compelled by this omission, which is a clear disregard of
my rights, to seek redress therefor in the courts, if you refuse the same to me.
Therefore, if you desire to redeem the land, you may do so for the sum of twelve
thousand pesos (P12,000) until the 31st of this month of October; but should you
not wish to redeem it, then in order to avoid the inconvenience of a law suit, I
would request that on the same day or prior thereto that you shall have at least
submitted to the court your motion praying for an order approving the segregation
and transfer of the portion of said land which belongs to me, together with the
corresponding plan, namely, that corresponding to the land which shall be in my
name in the Torrens title. In the understanding that if said date, October 31st,
arrives, and you have not done anything either one way or the other, then through
your own fault, I would be compelled to resort to the courts to ask protection of my
rights before I lose them, urging the court to order you to pay me by reason of such
fraudulent omission a sum more than double the amount above-mentioned.
(Exhibit 2.)
The land in Bay-ang to which the above-transcribed letters refers is the same land
made up by the four parcels mentioned in paragraph II of the second amended
complaint of the plaintiff, as parcels 81, 82, 83 and that having an area of 63
hectares.
Between the date of the execution of the document Exhibit A (January 20, 1919)
and the date of said letter Exhibit 2 (October 9, 1928), the defendants secured the
inscription in the registry of property and the issuance in their favor of the
corresponding certificate of title of the lands described in original certificate of title
No. 9785, by virtue of the decree of registration of October 27, 1925 (Exhibit Q). Of
this fact the plaintiff had full knowledge by reason of the letter dated July 9, 1924,
which was sent to him by the defendant Juan Azarraga, wherein the latter, besides
asking for an extension of three years, informed him (plaintiff) of the registration
proceedings which were then going on. (Exhibit 1.) The plaintiff did not then nor
thereafter take any step to oppose the same, or to ask at least for the revision of
the decree of registration, which was issued later, within the period of one year
prescribed by law. To this letter, the plaintiff replied on the 30th of the same month
and year, stating, among other things:
Now that I am somewhat relieved from the pressure of work, I am writing to inform
you that, although I need cash to meet my pressing financial obligations, your
requests have compelled me to grant you, as administrator the undivided
properties of the Azarraga brothers, an extension of the term for the payment of
the credit which encumbers the land in Bay-ang, and, consequently, of the
redemption of the same, up to February 16, 1926. Said land and its encumbrances
are described in the deed of sale of the said credit with all the rights inherent
therein, executed by Mr. Leodegario Azarraga in favor of the undersigned on July 9,
1920.
As the granting of this extension is causing me a real sacrifice and a great financial
strain, in justice and equity, I also ask from you, as administrator of the undivided
properties of the Azarraga brothers, the lucrum cessans so that from August 30,
1924 the aforesaid credit of P3,000 shall earn 12 per cent annual interest.
This letter will serve you as evidence of the granting of the extension of the term for
redemption of the said land in Bay-ang and, therefore, there is no necessity for
executing another document to that effect. (Exhibit 5.)
At the time of the filing of the original complaint, plaintiff simultaneously asked for
and obtained on February 7, 1931, upon posting a bond in the amount of P2,000, a
writ of preliminary injunction against the defendants (Exh. 15), and in due time
caused the annotation in the office of the register of deeds of the Province of Capiz
of a notice of lis pendens not only with regard to the portion having an area of 150
hectares, 48 ares and 50 centares of the lands of the defendants Azarraga, but also
with regard to the whole area of 246 hectares, 27 ares and 98 centares described in
original certificate of title No. 9785.
The plaintiff also secured from the Court of First Instance a preliminary attachment
of the properties of the defendants, described in certificates of title No. 9804 and
10351, on February 5, 1929 (Exhibit R); and the same was annotated in the registry
of property in the same month. Seven months after, or on September 9, of said
year, the aforementioned attachment was lifted by order of September 7, 1929
(Exhibit X) upon the filing of a bond required by the court in the sum of P12,500 by
the interested parties. Said bond having been filed by the defendants, the court, on
the same day, ordered the cancellation of the notice of lis pendens annotated in the
office of the register of deeds and the inscription of all the necessary annotations.
(Exhibit Y.)
As clearly proven as the foregoing are the facts that the defendant "Hijos de I. de la
Rama" entered into a contract with its co-defendants Azarraga for the purpose of
granting them a credit of P25,000, having delivered to them on different occasions
after the execution by said defendants of a deed of mortgage Exhibit 16 in its favor
on September 20, 1929, as part of the aforementioned sum, the total amount of
P16,000. The Azarragas needed said amount for carrying on the business for which
the defendant Panay Municipal Cadastre, Inc., had been organized, as set forth in
said Exhibit 16 and clarified in Exhibit 17.
By virtue of the writ of injunction issued by the lower court on February 7, 1931,
enjoining the defendants Azarraga and the Panay Municipal Cadastre from
obtaining from their co-defendant "Hijos de I. de la Rama" another loan, arise from
the P16,000 which they had previously obtained (Exhibit 14), said defendant "Hijos
de I. de la Rama" did not extend the credit, which it had opened to its co-
defendants, to P25,000 as required by the contracts Exhibits 16 and 17 above-
referred to. In connection with the issuance of the writ of preliminary injunction,
the following facts must be mentioned: After the plaintiff commenced the present
case against the defendants Azarraga on January 28, 1929 by means of his original
complaint, he instituted another action against them, which was civil case No. 2643,
for the purpose of obtaining a writ of injunction to prevent them from securing the
aforementioned loan of P25,000 from "Hijos de I. de la Rama". This latter case
reached this court on certiorari filed on March 22, 1930. As its sole object was the
issuance of a writ of preliminary injunction, this court, reiterating once more the
ruling that said remedy is purely subsidiary available only in aid of the right sought
to be enforced in the action wherein the same is issued, and that a separate action
to secure the same does not lie as it would permit of multiplicity of suits with the
consequent needless expenses (Panay Municipal Cadastre vs. Garduño and
Soncuya, 55 Phil., 574, 578), granted the certiorari prayed for on January 22, 1931,
thus setting aside the writ of preliminary injunction issued by the court of Capiz on
October 21, 1929, hence, it was in being for not more than one year, three months
and one day.
The writ of preliminary injunction subsequently issued on February 7, 1931, has
remained in force up to the present, as the lower court declared in its judgment
that it shall be final with respect to the P9,000 still owing from "Hijos de I, de la
Rama" on account of the loan which it had agreed to extend to the other
defendants.
The works for which the Panay Municipal Cadastre had been organized were begun
in October, 1929. According to the testimony of Gaspar Ferraren, for all the work
which they intended of Gaspar Ferraren, for all the work which they intended to
undertake, they needed a capital of not more than P40,000 to make a gross profit
of P100,000. Of this estimated capital they invested the P16,000, obtained from
"Hijos de I. de la Rama", which immediately yielded a return of P6,000. He also
stated that the Panay Municipal Cadastre completed half of its works with only the
capital obtained from "Hijos de I. de la Rama" (P16,000), plus its first profit of
P6,000 and that it made a profit of P24,277.15 meaning thereby that with the
aforemention P16,000 it obtained P30,277. 15, or a net profit of P14,277.15.
Another fact which has been clearly established by the testimony of the plaintiff
himself is that he decided to sell all the animals which he had placed on the land in
question because he became discouraged by the destruction of said animals by the
tenants of the defendants Azarraga. This fact, however, has been established not by
competent evidence, but by hearsay testimony, which was of course timely
objected to; and, although he testified in the same breath that he had still some
cattle there, he could not state their exact number, but limited himself to saying "I
cannot tell whether there were fifty of them." (Transcript, page 14.)
In his subsequent dealings with the defendants Azarraga, including Joaquin
Azarraga, as in his pleadings and testimony, the plaintiff, in referring to the amount
of P2,700 or P3,000, the value of the credit which he had purchased from Attorney
Leodegario Azarraga, and to that of P4,000 which he gave to Joaquin Azarraga on
the date and under the circumstances stated in Exhibit E, he alluded to, and
considered them as his "credit". Thus, on page 176 of the transcript of the
stenographic notes, he said: ". . . land mortgaged to me . . .;" and on pages 192 and
194 of said transcript, he also said: "Now I am not collecting the credit; I am
collecting the damages. Although they may have sold that property to me for P1, if
its commercial value has increased after they have deprive me of the same, I should
collect from them such value;" and ". . . I want so say again that what I am collecting
now is not the credit which I have against them, but the damages they have caused
me by depriving me of the property."
The facts of the case being as above set out, the questions raised by the parties in
their respective assignments of error, should now be considered. In fact, the most
important or those discussed in the first fourteen errors attributed by the
defendants to the lower court, and in the first and last errors, which plaintiff, in
turn, assigned, may be reduced to the following:
I. Was the contract entered into by-the Azarraga brothers, the defendants herein,
with Attorney Leodegario Azarraga from whom the plaintiff derived his right, a sale
with pacto de retro, or an assignment in payment of a debt, or was it an antichresis
partaking of the nature of what was anciently known as pacto comisorio, or a
mortgage, or was it merely a loan with real estate security?
II. Was the contract executed by the defendant Joaquin Azarraga, on the one hand,
and the plaintiff, on the other, embodied in Exhibit E, a sale with pacto de retro or
simply a loan with real estate security?
The first question offers no difficulty if account is taken of the established facts and
the conduct of the interested parties after the expiration of the term of five years
fixed in Exhibit A. When the plaintiff extended the period to February 16, 1926
within which the defendants Azarraga could pay him his credit, but imposed on
them the condition that they pay him 12 per cent annual interest from August 30,
1924 on the principal of P3,000 (Exh. 5) and gave them another extension up to
April 26, 1926, under the same conditions as regard interest (Exh. M), what perhaps
could have been considered as a antichresis or pacto comisorio — not an
assignment in payment of a debt, or a sale with pacto de retro because there is
nothing in Exhibit A to indicate that such was the intention of the defendants
Azarraga or, at least, that they bound themselves to deliver the land in question to
the plaintiff and that the latter should pay them the value thereof; and because
there was what may be considered the resolutory condition of five years — was
converted into a simple loan by the decisive circumstance that plaintiff chose to
collect thereafter, and the obligors agreed to pay him, 12 per cent annual interest.
It is only in contracts of loan, with or without guaranty, that interest may be
demanded (articles 1108, 1740, 1755, 1868, 1876, and 1881 of the Civil Code. As a
matter of fact, the contract embodied in Exhibit A was novated by Exhibits 5 and M,
and the plaintiff wanted to have it novated for the third time by means of Exhibit 2.
It does not appear of record, however, that the defendants Azarraga ever assented
to the latter novation. Perhaps, their refusal to agree to the same was due to the
fact that the plaintiff wanted to raise their old obligation (P3,000 or P2,700 of all
the Azarraga brothers, plus P4,000 which Joaquin Azarraga alone owed, which two
accounts both the plaintiff and the defendants considered as amounting to P7,000,
exclusive of the annual interest of 12 per cent) to the round sum of P12,000. From
all this it may easily be inferred that the obligation which the defendants had
imposed upon themselves by Exhibit A had ceased to exist and became a simple
loan with security, if so desired, of the lands in question, but without prejudice to
third parties as neither Exhibit A nor the deed of assignment Exhibit C, executed by
Leodegario Azarraga in favor of the plaintiff, was inscribed in the registry of deeds.
There is also no difficulty in disposing of the second question, considering the
various novations which, as has been said, had taken place and had been extended
not only to the Azarraga brothers with respect to their obligation of P3,000 or
P2,700, but also to the defendant Joaquin Azarraga as regard his personal debt of
P4,000. We must not lose sight of the fact that the plaintiff never considered the
contract entered into by him with Joaquin Azarraga as, strictly speaking, a sale
with pacto de retro. And if he had ever considered it as such, it is, nevertheless, true
that he novated it on February 16, 1926, considering it from the time on as a simple
loan, inasmuch as on that date he began to charge the said defendant 12 per cent
annual interest with the latter's assent and confirmity. This clearly appears in
Exhibit M which must be considered together with paragraphs 7 and 8 of Exhibit E,
as the plaintiff himself does in his brief (brief for the plaintiff as appellant, pages 4
and 5), because the term of five years to which said Exhibit E refers and which
should have expired on February 16, 1926 was extended by the said plaintiff, by
Exhibit M, up to April 26, 1926 under the aforementioned condition that he should
be paid 12 per cent annual interest.
Consequently, the contention of the defendants that the plaintiff did not and could
never receive the lands in question as an assignment in payment of a debt, and
much less did he acquire them by purchase with pacto de retro, is well taken. It
must also be noted that at no time did the plaintiff claim any rights of dominion
over the lands since he did not even intimate to the defendants, either directly or
indirectly, that for their failure to pay him his credit within the time provided
therefor, he become the absolute owner thereof. Notwithstanding the fact that all
the extensions he had given defendants had expired, he did not, even only for tax
declaration purposes, declare the lands as his property. Having reached this
conclusion, it is needless to state that the plaintiff has no right to the various sums
which he seeks in his complaint and to which he refers in the first and last errors
assigned by him. If, as has been shown, he never became the owner of the lands in
question, he can neither claim payment of the value of the same nor ask to be
indemnified for the deprivation of their possession. The plaintiff, moreover, has no
reason to complain that his lien, if his right over said lands could be termed as such,
was not annotated in the certificate of title which the defendants Azarraga had
obtained, or that the latter did not ask that it be stated therein that the lands to
which it refers are charged with his credit against them; inasmuch as he was himself
negligent in that he did not ask the court, while the registration case relating to said
lands was being heard, for the annotation of what he considered necessary to
protect his rights, and in not seeking the revision of modification of the decree of
registration within the period of one year provided for the purpose.
As to the fifteenth error attributed to the lower court by the defendants Azarraga,
we hold that, in view of the established facts above-related, they have failed to
show satisfactorily that they have any right under all or any of their several
counterclaims. If the coconut trees planted by Joaquin Azarraga on a portion of the
land in question were indeed lost or destroyed, it was due more to his own
negligence than to the of the plaintiff; for he well knew on planting them in 1925,
1926 and 1927 that the plaintiff maintained therein, with his (Joaquin Azarraga's)
approval, livestock which might destroy them, and he did not take the necessary
precautions against such occurrence. This is, of course, upon the supposition that
his coconut plantations died by reason of the devastation caused by the animals of
the plaintiff. The preponderance of the evidence, however, has shown that they
died on account of the drought alone.
We likewise hold that the issuance of the writs of preliminary injunction and
attachment at the instance of the plaintiff did not prejudice the defendants,
inasmuch as there is no competent evidence of record to the contrary. On the other
hand, there is evidence to show that from the loan which the defendants Azarraga
had obtained from "Hijos de I. de la Rama" they derived a net profit of P14,277.15
within the short period of one year and a few months.
There is no support for the contention of the defendants that they suffered
damages by reason of the preliminary attachment ordered by the lower court
because they were unable to sell one of their houses to the Calibo Institute for the
price agreed upon by them and said entity. The record shows that they lost nothing
because the Calibo Institute is at present occupying a portion of said house and
they may, if they so desire, sell it even now to the occupant. It does not appear, on
the other hand, that the latter desisted from buying it on finding a better building.
As to the second error assigned by the plaintiff, it suffices to recall that the
established facts do not show that the tenants of the defendants were responsible
for the killing and wounding of the animals belonging to him or that said tenants
acted upon the instigation of the defendants. Consequently, the plaintiff's claim to
this effect is entirely without merit.

In view of all the foregoing and in resume, we hold that the plaintiff alone has the
right (1) to recover from the defendants Azarraga, by virtue of the assignment and
sale made to him by Attorney Leodegario Azarraga of the latters' credit of P2,700
against the said defendants, the aforesaid sum plus interest at the rate of 12 per
cent per annum from August 30, 1924; (2) to recover from the defendant Joaquin
Azarraga, in particular, the sum of P4,000 plus interest at the rate of 12 per cent per
annum from April 26, 1926. We also hold that the defendants are not entitled to
anything under their counterclaims.

Wherefore, reversing the appealed judgment,

(a) All the defendants are hereby sentenced to pay jointly the sum of P2,700 to the
plaintiff, with 12 per cent annual interest from August 30, 1924 until said sum is
fully paid; ;and

(b) The defendant Joaquin Azarraga is sentenced to pay the plaintiff the sum of
P4,000 plus interest at the rate of 12 per cent per annum from April 26, 1926, until
fully paid.

The plaintiff is absolved from defendants' counterclaims and the writ of preliminary
injunction issued by the lower court on February 7, 1931, is hereby dissolved. There
is no special pronouncement as to costs. So ordered.

Avanceña, C.J., Villa-Real, Abad Santos, Imperial and Concepcion, JJ., concur.
G.R. No. L-6313 May 14, 1954
THE ROYAL SHIRT FACTORY, INC., plaintiff-appellee,
vs.
CO BON TIC, defendant-appellant.
Quisumbing, Sycip, Quisumbing and Salazar for appellant.
Ramirez and Ortigas for appellee.
MONTEMAYOR, J.:
The present appeal involves an action originally brought in the Municipal Court of
Manila by the plaintiff, the ROYAL SHIRT COURT, INC., to recover from defendant
CO BON TIC the sum of P1,422 said to represent the balance of the purchase price
of 350 pairs of "Balleteenas" shoes at P7 a pair, with interest at 12 per cent per
annum from August 27, 1948, and 25 per cent of said sum as attorney's fees, and
costs.
The principal issues in the Municipal Court was the nature of the sale of the 350
pairs of shoes by plaintiff to defendant — whether it was an outright sale as
contended by the plaintiff, or a sale merely on consignment as claimed by the
defendant who wanted to return the shoes not yet sold by him. There was also
involved the question of the amount already paid by the defendant to the plaintiff.
The Municipal Court held that the contract was of sale on consignment; that of the
350 pairs of shoes consigned, 207 pairs were sold at the rate of P8 a pair,
amounting to a total of P1,656; and that defendant had paid the sum of P1,028 to
plaintiff on account of the purchase price of the shoes sold, excluding the amount
of P420, value of Check No. 790264 issued by defendant as payment but returned
to him by the plaintiff and not replaced with cash. Judgment was rendered
sentencing the defendant to pay plaintiff the sum of P628 with interest thereon at
the legal rate from the date of the filing of the complaint, and to return to plaintiff
the 143 pairs of shoes still unsold, unless he preferred to retain and pay for them at
the rate of P8 a pair within a period of fifteen days from receipt of a copy of the
decision.
The defendant appealed from the judgment to the Court of First Instance of Manila,
and after trial, the appellate court held that the transaction involved was one of
outright sale at P7 per pair of shoes, sales tax included, the court accepting the
version given by the plaintiff to the effect that on the basis of the order slip (Exhibit
A), the defendant had 9 days from delivery of the shoes to make his choice of the
two alternatives, that is to consider the sale of the 350 pairs of shoes closed at the
flat rate of P7 per pair, sales tax included, or, at the expiration of 9 days to pay for
the shoes sold at P8 per pair, and to return the remaining unsold ones to plaintiff;
and that, inasmuch as defendant, at the expiration of the 9 days stipulated, failed to
return the shoes, and actually began making partial payments on account of the
purchase price agreed upon, the transaction in the nature of a straight sale, was
considered closed. The court also found as did the Municipal Court that the amount
of P420 represented by Check No. 790624 was never replaced or exchanged for
cash by the defendant upon its return to him, and consequently, it may not be
considered as part payment.
Judgment was rendered in favor of the plaintiff and against the defendant and the
latter was ordered to pay to the former the sum of P1,422, the unpaid balance of
the sales price of 350 pairs of shoes in question, with interest on the amount due at
the rate of 12 per cent per annum from August 27, 1948 until final payment plus
the amount of 25 per cent of the same sum for attorney's fees as stipulated, and
costs. After failing to get a reconsideration of the judgment, the defendant
appealed the case to the Court of Appeals which Tribunal after the submission of
the briefs for both parties, and acting upon a motion filed by counsel for the
appellant that the case be certified to the Supreme Court for the reason that the
question raised in his first and second assignment of errors involved the jurisdiction
of the trial court, granted the same and certified the appeal to us for final
determination pursuant to Section 17, par. 2 (3) of Republic Act. 296.
Under the first and second assignment of errors, the defendant raises the question
of jurisdiction of the Court of First Instance of Manila in reviewing and passing upon
the issues already passed upon and decided by the Municipal Court but not
appealed from by plaintiff. It is the theory of the appellant that as for instance,
when the Municipal Court found that the transaction between plaintiff and
defendant was a sale on consignment and plaintiff failed to appeal from that
decision, that part of the judgment became final as to him (plaintiff), and should be
regarded as res adjudicata, and that the Court of First Instance in the exercise of its
appellate not original jurisdiction may not review and pass upon the same question
or issue, and that in so doing it exceeded its appellate jurisdiction. Defendant
further contends and cites authorities in support of his contention that regardless
of the provisions of Rule 40, section 9, of the Rules of Court whose provisions are to
the effect that a perfected appeal from a decision of the justice of the peace or the
municipal court shall operate to vacate the said judgment and shall stand for
trial de novo upon its merits in accordance with the regular procedure in that court
as though the same had never been tried before and had been originally
commenced there, an appeal brings up for review only that which was decided
against the appellant so that that part of the judgment favorable to him is not
reviewable if the other party does not appeal; that a party who has not appealed a
judgment cannot assail it, neither can he ask for a judgment more favorable to him
than that rendered in the court below; that the party who has not appealed a
judgment signifies his acceptance of the correctness of the said judgment, and that
in the appeal his position is merely defensive and he may only refute appellant's
assignment of errors and sustain the judgment of the trial court.
The above contention of appellant might possibly hold with regards to appeals from
judgments of Courts of First Instance to the Court of Appeals or to the Supreme
Court in that one cannot seek further remedy or relief in the appeal not taken by
him than that granted him by the trial court, unless of course, the appellate
court motu proprio takes cognizance of palpable errors committed by the trial court
and proceeds to correct the same even if the correction favors the appellee (Section
5, Rule 53, Rules of Court). However, we have a special legal provision governing an
appeal from justice of the peace or municipal courts to Courts of First Instance, the
very Rule 40, section 9, of the Rules of Court cited by defendant-appellant. Such
appeal serves to vacate the judgment appealed from and the action will stand for
trial de novo upon its merits as though the same had never been tried before and
had been originally commenced in the Court of First Instance. The Court of First
Instance will try the case without regard to the proof presented in the Justice of the
Peace or Municipal Court or the conclusions arrived by said court. The Court of First
Instance will not affirm, reverse, or modify the rulings or the judgment appealed
from for the simple reason that there is no ruling or judgment to affirm, reverse or
modify because all the proceedings had in the justice of the peace or municipal
court, including the judgment, do not in contemplation of law exist, having been
vacated; and the only instance when said judgment appealed from is revived in
when the appeal is withdrawn or dismissed (Crisostomo vs. Director of Prisons. 41
Phil., 368; Colegio de San Jose vs. Sison, 56 Phil., 344, 351; Lizo vs. Carandang 2 Off.
Gaz., 302, March 1943; Co Tiamco vs. Diaz,* 42 Off. Gaz., 1169, 1231; Lichauco vs.
Guash, 42 Off. Gaz., 1863, 1865; Rule 40, Sec. 9, Rules of Court). From all this it is
evident that the contention of the appellant is untenable; and that any and all
issues involved in a case originating in an inferior court, whether or not passed
upon by said court and whether or not appealed upon by any or both parties, are
thrown open and may be passed upon by the Court of First Instance when the case
is appealed to it. Consequently, the Court of First Instance of Manila had jurisdiction
and authority to rule on the issue as to the nature of the transaction between
plaintiff and defendants as to the sale of the shoes. Now, was it an absolute sale or
a sale on consignment?
Exhibit A of the plaintiff which was accepted, admitted and considered by the Court
of First Instance of Manila is an order slip which lists down and classifies the 350
shoes in question according to color, and contains the following condition of the
sale in the handwriting of Mr. Chebat, the agent of the plaintiff who sold the shoes
to the defendant —
CONDICION (Terms)
Al cabo de 9 dias, pagar todo a razon de P7 al par, o pagar lo vendido a P8 el par.
Explaining said condition, Mr. Chebat testifying, said that it meant that the
defendant could either consider the sale as one on consignment, sell as many shoes
as he could at any price, pay for them at P8 a pair and at the end of nine days return
the shoes unsold to the plaintiff, or, consider the sale of the 350 shoes as absolute
at P7 a pair; and that since the defendant did not return any of the shoes at the
expiration of 9 days he must be held to have chosen the second alternative, namely,
that he bought the whole stock of shoes at P7 a pair. It will be noted, however, that
Exhibit "A" was never accepted much less signed by the defendant or his sales
manager Mr. Bernardo Geronimo, and therefore, cannot bind the defendant and so
is but a self-serving evidence which should not have been admitted and considered
by the trial court.
Disregarding Exhibit "A", the nature of the transaction must be judged by other
evidence, including the conduct of the parties at the time of making the contract
and subsequent thereto (Art. 1282 of the old Civil Code and Art. 1371 of the new
Civil Code). Exhibit "B" of the plaintiff is an invoice of the same 350 pairs of shoes
whose price including sales tax is listed as P2,450. It was evidently not only
accepted by the defendant but on it he noted down in his own handwriting the
different partial payments of P500, P528 and lastly of the controversial P420 by
check. It will also be noticed that the defendant in making said notations of
payment considered the full purchase price of the 350 pairs of shoes at P7.00 or
P2,450, and it was against said total that he had been making the payments, putting
down the balance after each payment. For instance, after paying P500 on account,
he put P1,950 as balance, and after paying another P528, he put down as balance
P1,422. In other words, he obviously accepted the straight sale to him on credit of
the whole 350 pairs of shoes for P2,450 and made partial payments on account
thereof. In making said partial payments, he made no mention whatsoever of the (Exhibit "A") and the invoice (Exhibit "B") both of the plaintiff. Anyway, neither did
number of shoes sold by him and the number of shoes remaining unsold, which he the defendant sign Exhibit "B". If we hold defendant bound by Exhibit "B" at all, it is
should have done had the sale been on the consignment basis. On the other hand, because of his tacit acceptance of the total value of 350 pairs of shoes and by his
he merely mentioned the balance of the purchase price after deducting the several notation against it of his partial payments. We do not think it fair for him to be
partial payments made by him. Furthermore, if the sale had been on consignment, bound also by the printed terms of the conditions of sale. Moreover, we find under
a stipulation as to the period of time for the return of the unsold shoes should have said printed form the clause in pencil: "as agreed with Mr. Chebat." We may even
been made; but evidently that had not been done and defendant kept the shoes say that said clause in handwriting may be considered as having overruled what was
unsold more or less indefinitely, but giving the same excuse that he could not printed as to the rate of interest and the attorney's fees. We therefore hold that the
return them to the plaintiff because he did not know where to return them. The defendant should only pay 6 per cent interest on the amount due him from the
plaintiff Royal Shirt Factory, Inc., is quite well-known. Is has a store at the Escolta date of the filing of the complaint, with costs, and nothing for attorney's fees. It is
and according to the invoice (Exhibit B), it is an importer, wholesaler and also interesting to note that this was the same ruling of the Municipal Court on this
manufacturer, and it could not have been hard, much less impossible for the point.
defendant to return the shoes unsold by him had the transaction really been a sale
on consignment. So, on this issue of the nature of the transaction between the With the above modification, the decision appealed from is hereby affirmed, with
parties, we agree with the trial court that it was a straight sale at the rate of P7 per costs.
pair of shoes.
Paras, C.J., Pablo, Bengzon, Reyes, Jugo, Bautista Angelo, Labrador, and Concepcion,
As regards Check No. 790264 of the China Banking Corporation, Exhibit F, in the JJ., concur.
amount of P420 with which defendant attempted to make another partial payment
as appears in Exhibit 'B', both parties agree that since the check was postdated, it
was returned by the plaintiff to the defendant who however claims that he replaced
it with cash. This was stoutly denied by plaintiff. After a careful review of the
evidence, we agree with the trial court that the preponderance thereof is to the
effect that the amount of said check of P420 was never replaced by the defendant.
It is also interesting to note that the Municipal Court of Manila where this issue was
first considered, came to the same conclusion that the defendant never replaced
the amount of this check in cash.

The decision appealed from the sentences the defendant to pay to the plaintiff
P1,422 with interest at 12 percent per annum from August 27, 1948, plus 25 per
cent of the same sum for attorney's fees, besides costs. This rate of interest and the
25 per cent for attorney's fees appears in Exhibit "B" in printed form as terms or
conditions. In Exhibit "A", the order slip, the conditions of sale also printed provide
for 20 per cent only as attorney's fees and no rate of interest in case of litigation.
Had the defendant signed Exhibit "A", which he did not, he would have been bound
by it and would be liable to 20 per cent of any amount due from him, but because
of the absence of stipulation as to the rate of interest he would be paying only the
legal rate of 6 per cent per annum. There is no explanation of this difference in
conditions of sale about rate of interest and attorney's fees found in the order slip
G.R. No. L-25704 April 24, 1968
ANGEL JOSE WAREHOUSING CO., INC., plaintiff-appellee,
vs.
CHELDA ENTERPRISES and DAVID SYJUECO, defendants-appellants.
Luis A. Guerrero for plaintiff-appellee.
Burgos and Sarte for defendants-appellants.
BENGZON, J.P., J.:
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.
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.
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.
With costs against the defendants.1äwphï1.ñët
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?
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.
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.
Great reliance is made by appellants on Art. 1411 of the New Civil Code which
states:
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 — 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.)
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.
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.
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.
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:
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."
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.
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 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.
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.
It results that the appellant's second assignment of error is well taken, and the
compound interest must be eliminated from the judgment. With 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.

Avanceña, C.J., Malcolm, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ.,
concur.
JESUS T. DAVID, petitioner, vs. THE COURT OF APPEALS, HON. EDGARDO P. CRUZ, of the Decision dated October 31, 1979, as amended by the Order dated June 20,
MELCHOR P. PEA, and VALENTIN AFABLE, JR., respondents. 1980.

DECISION Upon petitioners motion, respondent Judge issued an Alias Writ of Execution by
virtue of which respondent Sheriff Melchor P. Pea conducted a public
QUISUMBING, J.: auction.Sheriff Pea informed the petitioner that the total amount of the judgment is
P270,940.52. The amount included a computation of simple interest. Petitioner,
This is a petition for review, under Rule 45 of the Rules of Court, seeking the
however, claimed that the judgment award should be P3,027,238.50, because the
reversal of the Decision dated May 30, 1994, of the Court of Appeals, Ninth
amount due ought to be based on compounded interest.
Division, in CA-G.R. SP No. 32782.
Although the auctioned properties were sold to the petitioner, Sheriff Pea did not
The parties do not dispute the facts in this case. The dispute concerns only the
issue the Certificate of Sale because there was an excess in the bid price in the
execution of the Decision of the Regional Trial Court of Manila, Branch 27, in Civil
amount of P2,941,524.47, which the petitioner failed to pay despite notice. This
Case No. 94781, dated October 31, 1979, as amended by an Order dated June 20,
excess was computed by the Sheriff on the basis of petitioners bid price of
1980.
P3,027,238.50 minus the amount of P270,940.52 computed in the judgment award.
The Regional Trial Court of Manila, Branch 27, with Judge Ricardo Diaz, then
On May 18, 1993, petitioner filed a Motion praying that respondent Judge Cruz
presiding, issued a writ of attachment over real properties covered by TCT Nos.
issue an order directing respondent Sheriff Pea to prepare and execute a certificate
80718 and 10289 of private respondents. In his Decision dated October 31, 1979,
of sale in favor of the petitioner, placing therein the amount of the judgment as
Judge Diaz ordered private respondent Afable to pay petitioner P66,500.00 plus
P3,027,238.50, the amount he bid during the auction which he won. His reason is
interest from July 24, 1974, until fully paid, plus P5,000.00 as attorneys fees, and to
that compound interest, which is allowed by Article 2212 of the Civil Code, should
pay the costs of suit.
apply in this case.
On June 20, 1980, however, Judge Diaz issued an Order amending said Decision, so
On July 5, 1993, respondent Judge issued an Order denying petitioners Motion
that the legal rate of interest should be computed from January 4, 1966, instead of
dated May 18, 1993, which pertinently states:
from July 24, 1974. The amended Decision in the decretal portion reads:
In accordance with CB Circular No. 416 and as construed in Reformina vs.
WHEREFORE, judgment is hereby rendered against the defendant, Valentin Afable
Tomol (139 SCRA 260), legal interest on P66,500.00 corresponds to 6% per annum
Jr., ordering him to pay to the plaintiff the sum of P66,500.00 plus the legal rate of
for the period January 4, 1966 to July 28, 1974 and 12% per annum from July 29,
interest thereon from January 4, 1966 up to the time the same is fully paid plus the
1974 up to April 26, 1993, amounting to P34,180.92 and P149,582.32, respectively,
amount of P5,000.00 as and for attorneys fees and to pay the costs of the suit.
or a grand total of P183,763.24.
ordering the private respondent Afable to pay the petitioner the sum of P66,500.00
plus the legal rate of interest thereon from July 24, 1974, plus the amount of Conformably with the Sheriffs Computation of Interest dated April 26, 1993 and
P5,000.00 as attorneys fees and to pay the costs of suit[1] (Emphasis ours.) Supplemental Report dated June 14, 1993, the judgment as of April 26, 1993
amounted to P271,039.84, broken down as follows:
Respondent Afable appealed to the Court of Appeals and then to the Supreme
Court. In both instances, the decision of the lower court was affirmed. Entries of Principal P 66,500.00
judgment were made and the record of the case was remanded to Branch 27,
presided at that time by respondent Judge Edgardo P. Cruz, for the final execution Interest 183,763.24

Attorneys fees 5,000.00

Publication expenses 15,500.00
Costs of suit 276.60
Total P271,039.84
Considering that plaintiffs P3,027,238.50 bid exceeds the amount of his judgment,
then he is not entitled to a certificate of sale without paying the excess in the sum
of P2,756,198.66 (Secs. 22 and 23 Rule 39, Rules of Court). And since plaintiff did
not pay the excess, then the sale did not materialize and the sheriff may again sell
the property to the highest bidder (Sec. 22, Rule 39, id.).[2]
On August 11, 1993, petitioner moved for reconsideration of the Order dated July 5,
1993, reiterating his Motion dated May 18, 1993.
On November 17, 1993, respondent Judge issued his Order denying the petitioners
motion for reconsideration.
Petitioner elevated said Orders to the Court of Appeals in a petition for certiorari,
prohibition and mandamus. However, respondent appellate court dismissed the
petition in a Decision dated May 30, 1994. Pertinent portions of said decision reads:
. . . In this case, the records show that no interest was stipulated by the parties. In
the promissory note denominated as Compromise Agreement signed by private
respondent which was duly accepted by petitioner, no interest was mentioned. In
his complaint, petitioner merely prayed that defendant be ordered to pay
plaintiff the sum of P66,500.00 with interest thereon at the legal rate from the
date of filing of the complaint until fully paid. Clearly, there was no accrued
conventional interest which could further earn interest when plaintiff-appellant
made his judicial demand, thus, the respondent court awarded x x x the sum of
P66,500.00 plus the legal rate of interest thereon x x x.
Further the Supreme Court in the same case [Referring to Philippine American
Accident Insurance Company, Inc. vs. the Hon. Jose P. Flores and Concordia G.
Navalta, 97 SCRA 811; Rollo, p.9.] stressed that when the judgment ordered
payment of simple legal interest only and nothing said about payment of compound
interest, said interest should not be compounded. In this case, the decretal portion
is clearly worded, that is, the legal rate of interest thereon from January 4, 1966. No
mention or reference was made regarding compound interest. Ergo, the judgment
award must be computed as simple legal interest only. (Emphasis ours.)
Foregoing considered, We find no grave abuse of discretion amounting to lack or
excess of jurisdiction committed by public respondent judge in issuing the assailed
orders
WHEREFORE, the petition is DENIED due course and is hereby DISMISSED.
SO ORDERED. [3]
Petitioner now comes before the Court, claiming the appellate court committed the
following errors in the abovecited decision:
First Assigned Error
THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT ARTICLE 2212 OF
THE CIVIL CODE APPLIES ONLY WHERE THE PARTIES TO AN OBLIGATION
STIPULATED OR AGREED TO PAY COMPOUNDED INTEREST.
Second Assigned Error
THE RESPONDENT COURT OF APPEALS ERRED IN CONFUSING LEGAL INTEREST (AS
DISTINGUISHED FROM CONSENSUAL INTEREST) WITH SIMPLE INTEREST, JUST AS IT
ALSO ERRED IN CONFUSING THE INTEREST ON THE PRINCIPAL WITH INTEREST ON
THE INTEREST.
Third Assigned Error
THE RESPONDENT COURT OF APPEALS ERRED IN REFUSING TO APPLY THE SIMPLE
MANDATE OF ARTICLE 2212 OF THE CIVIL CODE TO THE CASE AT BAR.
Fourth Assigned Error
THE RESPONDENT COURT OF APPEALS ERRED IN PROMULGATING ITS DECISION
WHICH IS CLEARLY CONTRARY TO LAW.
Essentially, we find that the issue here is whether respondent appellate court erred
in affirming respondent Judges order for the payment of simple interest only rather
than compounded interest.
Petitioner insists that in computing the interest due of the P66,500.00, interest
should be computed at 6% on the principal sum of P66,500.00 pursuant to Article
2209 and then interest on the legal interest should also be computed in accordance
with the language of Article 2212 of the Civil Code.[4] In his view, said article meant
compound interest.
However, this Court has already interpreted Article 2212, and defined the standards
for its application in Philippine American Accident Insurance vs. Flores, 97 SCRA
811. As therein held, Article 2212 contemplates the presence of stipulated or
conventional interest which has accrued when demand was judicially made. In
cases where no interest had been stipulated by the parties, as in the case
of Philippine American Accident Insurance, no accrued conventional interest could
further earn interest upon judicial demand.[5]
In the said case, we further held that when the judgment sought to be executed
ordered the payment of simple legal interest only and said nothing about payment
of compound interest, but the respondent judge orders payment of compound
interest, then, he goes beyond the confines of a judgment which had become
final.Thus:
The judgment which was sought to be executed ordered the payment of simple
legal interest only. It said nothing about the payment of compound
interest.Accordingly, when the respondent judge ordered the payment of
compound interest he went beyond the confines of his own judgment which had
been affirmed by the Court of Appeals and which had become final. Fundamental is
the rule that execution must conform to that ordained or decreed in the dispositive
part of the decision. Likewise, a court can not, except for clerical errors or omissions
amend a judgment that has become final (Jabon et. al. vs. Alo, et al., 91 Phil. 750
[1952]; Robles vs. Timario, et al., 107 Phil. 809 [1960]; Collector of Internal Revenue
vs. Gutierrez, et al., 108 Phil 215[1960]; Ablaza vs. Sycip, et al., 110 Phil 4 [1060].)
Private respondent invokes Sec.5 of the Usury Law . . . as well as Art.2212 of the
Civil Code which stipulates: Interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent upon this point. Both
legal provisions are in applicable (sic) for they contemplate the presence of
stipulated or conventional interest which has accrued when demand was
judicially made. (Sunico v. Ramirez, 14 Phil. 500 [1909]; Salvador vs. Palencia, 25
Phil. 661 [1913]; Bachrach vs. Golingco, 39 Phil 912 [1919]; Robinson vs.
Sackermann, 46 Phil. 539 [1924]; Philippine Engineering Co. vs. Green, 48 Phil. 466
[1925]; and Cu Unjieng vs. Mabalacat Sugar Co., 54 Phil. 916 [1930].) ... In other
words, there was no accrued conventional interests which could further earn
interest upon judicial demand.
Note that in the case now before us, the Court of Appeals made the factual finding
that . . . no interest was stipulated by the parties. In the promissory note
denominated as Compromise Agreement signed by the private respondent which
was duly accepted by petitioner no interest was mentioned. In his complaint,
petitioner merely prayed that defendant be ordered to pay plaintiff the sum of
P66,500.00 with interest thereon at the legal rate from the date of the filing of the
complaint until fully paid.[6] Clearly here the Philippine American Accident
Insurance ruling applies.
Petitioner also alleges that when the case was remanded to the trial court,
respondent Judge, abused his discretion when he modified the Decision and
amended its dispositive portion. He argues that when a decision has become final
and executory, the court may no longer amend, revoke, nor alter the dispositive
portion, and the only power of the court is to order its execution.
But the rule that once a judgment has become final and executory, it is the
ministerial duty of the courts to order its execution is not absolute. It admits of
certain exceptions.[7] One exception is that where facts and/or events transpire
after a decision has become executory, which facts and/or events present a
supervening cause or reason which renders the final and executory decision of the
court no longer enforceable.[8] Under the law, the court may modify or alter a
judgment even after the same has become executory whenever circumstances
transpire rendering its execution unjust and inequitable, as where certain facts and
circumstances justifying or requiring such modification or alteration transpired after
the judgment has become final and executory.[9]
We earlier held that a case, in which an execution order has been issued, is
still pending, so that all proceedings on the execution are still proceedings in the
suit.[10] In the present case, after the case was remanded to the lower court,
petitioner filed a motion for the issuance of an alias Writ of Execution. The motion
was only finally resolved on July 5, 1993. When Central Bank Circular No. 416 took
effect on July 29, 1974, the suit was still pending. Hence, when respondent Judge
ordered the computation of legal interest for the execution of the amended
October 31,1979 order, he correctly took judicial notice of the Courts
pronouncement in Reformina vs. Tomol, Jr., 139 SCRA 260.
In Reformina, the Court applied Central Bank Circular No. 416 which took effect on
July 29,1974, pursuant to P.D. 116, amending Act. 2655 (Usury Law) and raising the
legal rate of interest from 6% to 12% per annum. Respondent Judge
followed Reformina and did not err in modifying the Order of October 31, 1979. The
passage of the Central Bank Circular No. 416 was a supervening event which
happened after the decision had become executory. Had respondent Judge failed to
order the assailed amendment, the result would have been iniquitous. Hence, here,
no error nor grave abuse of discretion could be ascribed to respondent Judges
order dated June 30, 1980. Likewise, respondent appellate court could not be
faulted for affirming said order of respondent Judge.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals
dated May 30, 1994, in CA-G.R. SP NO. 32782 is hereby AFFIRMED.The records of
the case are ordered remanded to the Regional Trial Court of Manila, Branch 27, for
execution of the Decision in due course.

Costs against petitioner.

SO ORDERED.

Mendoza, Buena, and De Leon Jr., JJ., concur.

Bellosillo, J., (Chairman), on official leave.

[G.R. No. 48389. July 27, 1942.]
CLEOFE VELEZ, Plaintiff-Appellant, v. MAXIMO BALZARZA and FLAVIA
MABILIN, Defendants-Appellees.
Mariano H. de Joya, Domingo Veloso and Teogenes Velez, for Appellant.
Jose M. Espina and Eufrosino Limbaco, for Appellees.
justice upon which judicial discretion draws whenever the statutory laws are
inadequate because they do not speak or do so with a confused voice.
3. ID.; PAYMENT OF INTEREST MUST BE EXPRESSLY STIPULATED. — No interest is
due unless it is expressly stipulated (article 1755, Civil Code). As under the contract
the lender took possession of the lands and reaped the fruits thereof, it must have
been thought by the parties that it was unfair to make the borrower pay interest in
addition.

SYLLABUS

1. CONTRACT OF LOAN; OBLIGATION OF LENDER TO RETURN EXCESS PAYMENTS;

ARTICLE 1895 OF THE CIVIL CODE. — The liability of plaintiff to return the excess DECISION
payments is in keeping with article 1895 of the Civil Code which provides that,
"When something is received which there is no right to collect, and which by
mistake has been unduly delivered, the obligation to restore it arises." The two
requisites are present: (1) there is no right to collect these excess sums; and (2) the BOCOBO, J.:
amounts have been paid through mistake by defendants. Such mistake is shown by
the fact that the parties in their contracts never intended that either rents or
interest should be paid, and by the further fact that when these payments were
made, they were intended by defendants to be applied to the principal, but they
On November 16, 1937, plaintiff in an amended complaint prayed for the return of
overpaid the amounts loaned to them.
certain parcels of land which she alleged had been sold by defendants to plaintiff’s
deceased husband, Ramon Neri San Jose, with right of repurchase. She further
2. ID.; ID.; ID.; QUASI-CONTRACT OF "SOLUTIO INDEBITI" ; ENRICHMENT OF ONE AT
alleged that defendants had remained in possession of said land under a contract of
THE EXPENSE OF ANOTHER. — Article 1895 of the Civil Code, which determines the
lease, but that for over two years defendants had not paid the agreed rentals. In
quasi-contract of solutio indebiti, is one of the concrete manifestations of the
paragraph 4 of the complaint, she stated that "in the distribution of the estate of
ancient principle that no one shall enrich himself unjustly at the expense of
the deceased Ramon Neri San Jose who died on November 7, 1932, duly approved
another. In the Roman Law Digest the maxim was formulated thus: "Jure naturae
by this Honorable Court, the said lands were adjudicated as share of the herein
acquum est, neminem cum alterius detrimento et injuria fieri locupletiorem." And
plaintiff." In their amended answer, defendants alleged that the real agreement
the Partidas declared: "Ninguno non deue enriquecerse tortizeramente con daño
was a loan secured by a mortgage of those lands; and that whereas the amount
de otro." Such axiom has grown through the centuries in legislation, in the science
borrowed was only P2,400, defendants had however already paid P4,420.88.
of law and in court decisions. The lawmaker has found it one of the helpful guides in
Defendants therefore prayed for the return of the excess, or P2,029.88.
framing statutes and codes. Thus, it is unfolded in many articles scattered in the
Spanish Civil Code. (See for example, articles 360, 361, 464, 647, 648, 797, 1158,
At the trial, the parties agreed to the following stipulation of facts: that plaintiff has
1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-honored aphorism
a right to bring this suit; that the real question involved is the collection of a debt;
has also been adopted by jurists in their study of the conflict of rights. It has been
that defendants admit having executed Exhibits A to E; that plaintiff admits
accepted by the courts, which have not hesitated to apply it when the exigencies of
defendants have made the payments according to the receipts marked as Exhibits 1
right and equity demanded its assertion. It is a part of that affluent reservoir of
to 22; and that the lands described in the above-mentioned documents have been
given as a security for the payment of the obligation of defendants.
The trial court found that the total amount loaned on various dates by the deceased
Neri to the defendants, was P3,067; that defendants paid P4,429.88, of which
P3,997.25 was received by Neri and P432.63 by plaintiff; that these payments were
not made by way of interests or rents, but as payments for the principal; that
defendants overpaid the amount of P1,362.88. The court below exonerated
defendants from the complaint and ordered plaintiff to return to defendants the
sum of P432.63 which she, plaintiff, had received from defendants although said
amount was not due, applying article 1895 of the Civil Code. As for the amount
received by deceased Neri, the court held that the same not having been presented
before the committee on appraisal and claims during the administration of the
estate of said Neri, defendants are not entitled to its return. Plaintiff appealed from
the judgment.
It is necessary to inquire into the contractual relations between Neri and
defendants. Exhibit A, dated December 24, 1927, purports to be a sale of four
parcels of land for the price of P600, with a right of repurchase within three years.
Exhibit D, dated March 16, 1928, likewise purports to be a sale of three parcels of
land for P400, with a right of repurchase within three years. Each of these two
contracts has the following stipulation: "El comprador Ramon Neri San Jose toma
posesión de las fincas vendidas, y él sera quien cosechara todos los productos que
dan o puedan dar las fincas aqui vendidas durante el plazo de retracto y puede
hacer y ejercitar todos los actos de dominio con tal que no esté en pugna con el
derecho de recompra de los vendedores." (In Exhibit D the last words of this clause
are "del vendedor" because only defendant Balzarza signed the contract.) Exhibits
B, C, and E are contracts of loan, dated respectively, December 24, 1927; February
2, 1928; and February 6, 1930, for various amounts, from Neri to defendants. Each
of these three documents recites that defendants received a certain amount from
Neri; that on November 23, 1927, defendants sold three parcels of land to Neri; and
that defendants have promised to Neri that upon return of the amount mentioned
in said document of November 23, 1927, defendants will return the sum borrowed
by means of the present contract.
Evidently all these five loans appearing in Exhibits A to E were secured by the
mortgage of the seven parcels of land mentioned in Exhibits A and D. These
transactions being loans, according to the stipulation of facts, the question is
whether the payments were intended to be applied to the principal, as contended
by defendants, or were considered as either rents or interests, upon the theory
advanced by plaintiff.
The payments could not have been intended as rents because in accordance with a
clause in the contract, Neri took possession of the lands and collected the fruits
thereof. The creditor having enjoyed the beneficial use of the lands delivered as
security for the loan, it appears to have been the intention of the parties that the
creditor should be compensated thereby. Furthermore, in none of the contracts
offered in evidence is there any promise made by defendants to pay rents. It would
have been strange for such a clause to appear in Exhibits A and D wherein it was
stipulated that the creditor took possession of the lands and would reap the fruits
of the same. It is true that in the receipts signed by Neri and by plaintiff these
payments are called rents. But these receipts have been prepared by Neri and by
plaintiff, and defendants in their ignorance did not look into the wording, being
merely satisfied that they were proofs of payment.
If these payments were not rents, plaintiff-appellant maintains they must have
been interests. Neither is this contention tenable because no interest is due unless
it is expressly stipulated. (Article 1755, Civil Code.) Moreover, as under the contract
the lender took possession of the lands and reaped the fruits thereof, it must have
been thought by the parties that it was unfair to make the borrower pay interest in
addition. It is also significant that the borrower paid a total of P1,143.50 up to
August 5, 1929 (a period of 1 year, 8 months and 13 days from the initial loan) when
the debt up to that date was only P2,100. If such amount of P1,143.50 was collected
as interest, then out and out usury was committed by the lender, which cannot be
presumed.
Counsel for appellant argues that as the deceased Ramon Neri San Jose "was
publicly known as a money lender" the parties must have had in mind the payment
of interests. However, the alleged occupation of said Neri does not appear in the
stipulation of facts or anywhere else in the evidence. But even if that fact appeared
in the record, it would not constitute sufficient compliance with the requisite of
article 1755 of the Civil Code that interest must be expressly stipulated.
In Guzman v. Balarag (11 Phil., 503, 508-509 [year 1908]), the plaintiff therein
loaned P1,500 to defendant who mortgaged his house and lot. Plaintiff took
possession of the premises and collected rents from third persons. It was claimed
by the plaintiff that these rents received by him should be applied to the payment
of interest. But this Court held otherwise, saying:jgc:chanrobles.com.ph
"If the debtor Pascual Balarag is only under the obligation to pay the creditor,
Guzman, the 1,500 pesos received as a loan, without interest, upon permitting the
latter to collect the rent of property owned by the debtor and keep the amounts so
collected, it must be assumed that it was in order to provide for the refund of the
debt arising from the loan. It is not possible to apply the money except in
settlement of the debt, unless the allegations of the debtor be disproven; the
record does not contain any proof of the contrary allegation to the effect that it was
stipulated that the rent collected should be applied to the payment of interest, and
the allegation of the defendant debtor is all the more convincing and irrefutable,
inasmuch as it has not in any way been demonstrated that interest on the loan was
stipulated."cralaw virtua1aw library
Therefore, the trial court was right in finding that these payments were applied to
the principal.
At this juncture, article 1756 of the Civil Code comes into view. It provides that,
"The borrower who has paid interests without their being stipulated, cannot
recover them nor apply them to the principal." It seems plausible to argue that
although the parties originally intended no interest when the loans were made,
nevertheless if defendants wished to pay and did pay interest, according to said
article 1756 they can neither recover the amounts nor apply them to the principal.
However, the trial court found as a fact that "los pagos hechos no fueron ni en
concepto de intereses ni de alquileres, sino como pagos del capital." ("the
payments made were not either by way of interests nor of rents but as payments
for the principal.") The court further found that "the question would have been
different if the defendants had admitted, or if it had been proved that the
payments made by the defendants were by way of interest."cralaw virtua1aw
library
The liability of plaintiff to return the excess payments is in keeping with article 1895
of the Civil Code which provides that, "when something is received which there is
no right to collect, and which by mistake has been unduly delivered, the obligation
to restore it arises." The two requisites are present: (1) there is no right to collect
these excess sums; and (2) the amounts have been paid through mistake by
defendants. Such mistake is shown by the fact that the parties in their contracts
never intended that either rents or interest should be paid, and by the further fact
that when these payments were made, they were intended by defendants to be
applied to the principal, but they overpaid the amounts loaned to them.
Article 1895 of the Civil Code above quoted, is therefore applicable. This legal
provision, which determines the quasi-contract of solutio indebiti, is one of the
concrete manifestations of the ancient principle that no one shall enrich himself
unjustly at the expense of another. In the Roman Law Digest the maxim was
formulated thus: "Jure naturae acquum est, neminem cum alterius detrimento et
injuria fieri locupletiorem." And the Partidas declared: "Ninguno non deue
enriquecerse tortizeramente con daño de otro." Such axiom has grown through the
centuries in legislation, in the science of law and in court decisions. The lawmaker
has found it one of the helpful guides in framing statutes and codes. Thus, it is
unfolded in many articles scattered in the Spanish Civil Code. (See for example,
articles 360, 361, 464, 647, 648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895,
Civil Code.) This time-honored aphorism has also been adopted by jurists in their
study of the conflict of rights. It has been accepted by the courts, which have not
hesitated to apply it when the exigencies of right and equity demanded its
assertion. It is a part of that affluent reservoir of justice upon which judicial
discretion draws whenever the statutory laws are inadequate because they do not
speak or do so with a confused voice.
As for the amount to be returned by plaintiff, the trial court held that plaintiff
should return only the excess sum she actually received (P432.63) but not the
overpayment made to the deceased Neri. If the defendants had appealed from the
latter phase of the judgment, perhaps the application of section 749 of the Code of
Civil Procedure (now Rule 89, section 5 of the new Rules of Court) might have been
studied. Under that provision, contingent claims which become absolute after the
settlement of the estate of a deceased person may be enforced proportionately
against the distributees of the estate, and in the instant case this claim against Neri
did not become absolute till the discovery of the mistake, after the distribution of
his estate. But defendants not having appealed, this aspect of the case will not be
passed upon.
Wherefore, the judgment appealed from is affirmed, with costs against the
appellant. So ordered.
Yulo, C.J., Moran, Ozaeta and Paras, JJ., concur.