FRIAS V.

SAN DIEGO-SISON
Doctrine: 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. For a debtor to
continue in possession of the principal of the loan and to continue to
use the same after the 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.
Date: April 3, 2007
Ponente: Austria-Martinez, J.
Facts:
December 7, 1990: San Diego-Sison, the owner of a house and lot which
she acquired from IMRDC by virtue of deed of sale, entered into a
Memorandum of Agreement over the property with the following
terms:That for and in consideration of the sum of P3 Million received by
Frias from San-Diego Sison, they have agreed that:
1. That San Diego-Sison has a period of six months from the date of
execution of contract within which to notify Frias of her intention to
purchase the aforementioned parcel of land together with the
improvements thereon at the price of P6.4 Million. Upon notice to Frias
of San-Diego Sision's intention to purchase the same, San Diego-Sison
has a period of another six months within which to pay the remaining
balance of P3.4 Milion.
2. That prior to the six months period given to San Diego-Sison within
which to decide whether or not to purchase the property, Frias may still
offer the said property to other persons who may be interested to buy
the same provided that the amount of P3Million given to Frias by San
Diego-Sison shall be paid to the latter including interest based on
prevailing compounded bank interest plus the amount of the sale in
excess of P7 Million should the proerty be sold at a price more than P7
Million.
3. That in case Frias has no other buyer within the first six months from
the execution of the contract, no interest shall be charged by San
Diego-Sison on the P3 Million. However, in the event that on the sixth
month, San Diego-Sison would decide not to purchase the property,
Frias has a period of another six months within which to pay the sum of
P3 Million 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 San Diego-Sison 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.
Frias received from San Diego-Sison P2 Million in cash and one Million
which was stale due to the erroneous date. Frias then gave San DiegoSison the TCT (in the name of IMRDC) over the property and the Deed of
Sale over the property between Frias and IMRDC.

March 20, 1991: San Diego-Sison notified Frias thprugh a letter of its
decision not to purchase the property but Frias received the letter only on
June 11, 1991. The letter reminded Frias of their agreement that the P2
Million that Frias received from San Diego-Sison should be considered as a
loan payable within six months. Frias failed to pay the P2 Million.
Thus, San Diego-Sison filed a complaint for sum of money with preliminary
attachment against Frias. San Diego-Sison alleged that Frias tried ti
deprive her of the security for the loan (the subject property) by making a
false report of the loss of Frias' owner's copy of the TCT to the police
station, executing an affidavit of loss and by filing a petition for the
issuance of s new owner's duplicate copy of said title with RTC.
Frias' answer: The MOA was conceived by her lawyer who is also the
lawyer of San Diego-Sison; that she was asked to sign the MOA without
being given the chance to read the same; that she lost the brown
envelope which contained the TCT and the Deed of Sale; that the petition
for issuance of new owner's duplicate copy was filed on her behalf without
her knowledge; and 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.
RTC: Frias should pay San Diego Sison the sum of P2 Million plus interest
at the rate of 32 per cent per annum beginning Dec. 7, 1991 until fully
paid (compounded interest pursuant to MOA). RTC noted that Frias
employed fraudulent scheme by executing affidavit of loss despite
knowledge that the TCT and Deed of Sale were in San Diego-Sison's
possession.
CA: Modified RTC decision. The rate of interest was reduced from 32% to
25% per annum, effective June 7, 1991 until fully paid. Also, there was no
basis for Frias 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 the interest should commence on June 7, 1991 with compunded
bank interest prevailing at the time the P2 Million was considered as a
loan which was in June 1991; that the bank interest for loans secured by a
real estate mortgaged in 1991 ranged from 25% to 32% per annum as
certified to by Pridential bank; and that in fairness to Frias, only 25 %
should be charged.

ISSUE:/ HELD:
1. Whether or not the compounded bank interest should be limited to six
months as contained in the memorandum of agreement? NO. not limited to
six months.
2. Whether the interest rate should be 25% instead of 32%? 25% as held by
CA
RATIO:
1.
SC said that Frias is wrong in contending that the compounded bank
interest applis to the last six months only.
While CA's conclusion that "a loan always bears interest otherwise it is not
a loan" is wrong because a simple loan may be gratuitous or with a

stipulation to pay interest, CA is correct in awarding a 25% interest per

annum on the P2Million peso loan even beyond the second six months
stipulated period.
The contract is the law between the parties. The phrase "for the last six
months only" should be taken in the context of the entire agreement.
Thus, the correct interpretation as provided by CA is that there were 2
periods of six months in the agreement. The first six month period was
given to San Diego-Sison bto decide on whether she will purchase the
property. Thesecond six-month period was given to Frias to pay the P2
Million loan in the event that San Diego-Sison decided not to buy the
property in which case interest will be charged for the last six months only.
This means that no interest shall be charged while San Diego-Sison was
making up her mind whether to buy the property, but only for the second
period of six months after San Diego- Sison decided not to buy the
property. There is nothing in the agreement that suggests that interests
will be charged for six months only even if it takes Frias an eternity to pay
the loan.
The stipulation that the amount given shall bear compunded bank interest
for "the last six months" only was made on the logical and reasonable
expectation that such amount would be paid within the date stipulated.
Considering that Frias failed to pay the amount given which under the
MOA shall be considered 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. For a
debtor to continue in possession of the principal of the loan and
to continue to use the same after the 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.

2. In re interest rate, CA is correct in reducing the rate from 32% to 25%. Per
the certification issued by Prudential Bank, the interest rate for loans in 1991
ranged from 25% to 32% per annum.
In Bautista Pilar v. Devt Corp, SC upoheld the validity of 21% per annum
interest on a P142, 326.43 loan
In Garcia v. CA, SC sustained the agreement of the parties to a 24% per
annum interest on a P8.6M loan.
Thus, the interest rate of 25% per annum awarded by the CA to a P2Million
loan is fair and reasonable.