FRIAS vs.

SAN DIEGO-SISON
GR No. 155223
April 4, 2007

FACTS:
Frias is the owner of a lot in Alabang, Mandaluyong she acquired from, Island
Master Realty and Development Corp. (IMRDC) by virtue of a deed of sale dated
Nov. 16, 1990. On Dec. 7, 1990, Frias and San Diego-Sison entered into a MOA
over the property for the consideration of 3M pesos. The terms of the MOA are
as follows: San Diego-Sison has 6 months from the date of the execution of the
contract to notify Frias of her intention to purchase the property with
improvements at 6.4 M pesos. Frias may still offer the property to other persons,
provided that the 3M pesos be paid to Sison, including interest based on
prevailing compounded bank interest plus the amount of sale in excess of 7M
pesos should the property be sold at a price greater than 7M pesos. But, if Frias
has no other buyer within 6 months from the contracts execution, no interest
shall be charged by San Diego-Sison on the 3M pesos. If San Diego-Sison decides
not to buy the property, Frias has 6 months to pay 3M pesos. The 3M pesos is
treated as a loan and the property is considered the security for the mortgage.
Upon notice of intention to purchase, San Diego-Sison has 6 months to pay the
remaining balance of 3.4M pesos. Frias received 3M pesos 2M pesos in cash
and 1M pesos in post-dated check dated Feb. 28, 1990. Frias gave San DiegoSispon the TCT and Deed of Absolute Sale, but the latter decided not to purchase
the property and notified the later through a letter dated March 20, 1991. Frias
received the letter on June 11, 1991 with the reminder that that the 2M pesos
San Diego-Sison paid earlier should be considered as a loan payable within 6
months. Frias defaulted and San Diego-Sison filed a complaint for sum of money
with preliminary attachment. San Diego-Sison averred that Frias tried to deprive
her of the security for the loan by making a false report of the loss of her owners
copy of TCT, executing an affidavit of loss and by filing a petition for the issuance
of a new owners duplicate copy. RTC issued a writ of preliminary attachment
upon the filing of a 2M bond. RTC found that Frias was under obligation to pay
Sison 2M with compounded interest pursuant to their MOA. RTC ordered Frias to
pay Sison : 2M pesos + 32% annual interest beginning December 7, 1991 until
fully paid, 70k pesos representing premiums paid by Sison on the attachment
bond with legal interest counted from the date of this decision until fully paid,
100k pesos moral, corrective, exemplary damages, and 100k pesos attorneys
fees plus cost of litigation. CA affirmed RTC with modification32% reduced to
25%.
CA said that there was no basis for Frias to say that the interest should be
charged for 6 months only. It said that a loan always bears interest; otherwise, it
is not a loan. The interest should commence on June 7, 1991 until fully paid, with
compounded bank interest prevailing at the time of June 1991, the 2M pesos was
considered as a loan (as certified by the bank).
RELEVANT ISSSUE:
WoN the compounded bank interest should be limited to 6 months as contained
in the MOA.

RULING:
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. 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 MOA executed between the parties 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. In
this case, the phrase "for the last six months only" should be taken in the context
of the entire agreement. Their agreement speaks of 2 periods of six months
each. The first six-month period was given to San Diego-Sison to make up her
mind whether or not to purchase Frias property. The second 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 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 San
Diego-Sison was making up her mind whether to buy the property, but only for
the second period of six months after she had decided not to buy the property.
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 Frias
failed to pay the amount given which under the MOA 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. 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.