G.R. No.
L-59519 July 20, 1982 by the Lessee in favor of the Lessor upon signing of this
ADELA FRANCISCO, petitioner,
vs.
HON. ALFREDO M. GORGONIO, as Presiding Judge of the Court of
First Instance of Rizal, Branch XXXV, Caloocan City, Deputy Sherif
Danilo P. Norberto, and Spouses Ching Siao and Lim O.
Chu, respondents.
Napoleon M. Malimas for petitioner.
Antonio P. Coronel for respondents.
BARREDO, J.:
Petition for certiorari seeking the setting aside of the orders of respondent
court of August 15, 1980, November 7, 1980, March 2, 1981, October 27,
1981 and December 16, 1981, particularly insofar as said orders require
petitioner to pay interest at the rates stated therein in addition to the
amount of P150,000.00 which has already been paid to private
respondents.
The case below stemmed from a contract of lease entered into on July 5,
1977 between Zenaida F. Boiser "representing her parents, spouses Luis F.
Francisco and Adela Blas Francisco" (p. 26, Record) 1 of a piece of land one
hundred thirty-five square meters, more or less, situated at No. 691 (Old)
Rizal Avenue Extension, Caloocan City, with the following pertinent
provisions:
1. That the amount of ONE HUNDRED FIFTY THOUSAND
PESOS (Pl50,000.00), Philippine Currency, shall be deposited
agreement;
2. That out of the deposit of P150,000.00, the amount of
P30,000.00 equivalent to twenty per cent (20%) of said
deposit shall represent the goodwill of the store space;
3. That the monthly rental shall be THREE THOUSAND
SEVEN HUNDRED FIFTY PESOS (P3,750.00), Philippine
Currency, and the amount of P2,500.00 shall be deducted
against the aforesaid deposit and the amount of P1,250.00
shall be in postdated monthly checks for 12 months. It is
understood and agreed that the monthly rental aforesaid
shall begin upon final occupancy of said store space by the
Lessee;
4. That the proposed building shall be constructed and to be
finished by the Lessor within 6 months from execution of
this agreement:
5. That the terms of the lease contract shall be ten (10)
years from execution hereof, to be renewed for a 5-year
period upon agreement of both parties, subject however for
a reasonable increase of monthly rental after five (5) years
from execution hereof;
6. That in case the parties hereof will not agree as to the
conditions and terms to be set up in the final contract of
lease, then the Lessor agrees to return and refund the
amount of P150,000.00 as deposit in full with legal interest
to the Lessee and this agreement shall be considered null
and void and without force and effect, if however, it is the
Lessee who will back out from this agreement, then the
amount of P30,000.00 shall be forfeited.
On May 30, 1978, private respondents filed a complaint, Civil Case No. C-
6935, precisely the case below, against Zenaida F. Boiser, as attorney-in-
fact of the spouses Luis F. Francisco and Adela Francisco, alleging that in
spite of their having paid the P120,000.00 advanced rentals and
P30,000.00 goodwill stipulated in the agreement, and the promise of said
defendant to deliver to them the leased premises within six months from
the signing of the contract, she failed to do so without any legal
justification, and instead was about to turn over possession thereof to
Ginza Telamart, and, therefore, prayed thus:
WHEREFORE, in view of all the foregoing it is most
respectfully prayed as a preliminary matter that a writ 6f
preliminary prohibitory injunction be issued by this court
pending the final termination of this case ordering
defendant to desist from awarding the leased premises to
another and that after due hearing judgment be rendered:
1. Making preliminary prohibitory injunction
final and permanent;
2. That plaintiff be entitled to the described
leased portion of the building and ordering
defendant to deliver the same;
3. Ordering defendant to pay an amount
reasonably assessed by the Honorable Court
for moral damages;
4. Ordering the defendant to pay actual
damage as may be proven, plus legal interest;
5. And further ordering defendant to pay the
sum of P15,000.00 as and for attorney's fees.
Plaintiffs herein further pray for such other reliefs and
remedies just and equitable in the premises. (Pp. 24-25,
Record)
After being summoned, on June 29, 1978, defendant Boiser (who was the
only one served with summons) filed her answer alleging and praying:
10. That the agreement to lease was subject to the following
conditions:
(a) the resolutory condition contained in
paragraph 6 thereof quoted in paragraph 2 of
this answer;
(b) the specific area of the building to be
constructed was still to be agreed upon and it
was not provided in the agreement what
specific area of the building was to be leased
by plaintiff;
11. That plaintiff and defendant could not agree on the
specific area of the new building to be leased, the choice of
which was made difficult by the fact that the frontage as
required by the city government; consequently, defendant
opted to consider the agreement null and void and of no
force and effect; that defendant tendered payment to
plaintiff before the complaint was filed of the sum of
P150,000.00 with interest at the legal rate as provided in
paragraph 6 of the agreement, which tender of payment
was refused by the plaintiff;
12. That defendant is ready, willing and able to refund or
reimburse the amount of P150,000.00 with interest at the
legal rate as provided in paragraph 6 of the agreement;
And as counterclaim, defendant respectfully alleges:
13. That defendant reiterates the foregoing allegations to
form integral part of this counterclaim;
14. That defendant is lawfully entitled to consider the
agreement null and void and of no force and effect and to
make a consignation of the amount of P150,000.00 with
interest at the legal rate under paragraph 6 of the
agreement and to be released from any further liability
thereon;
15. That due to the unfounded suit filed by plaintiff,
defendant has been compelled to litigate to protect her
interest and avail of the services of counsel at an agreed fee
of P5,000.00.
WHEREFORE, it is respectfully prayed:
1. That the prayer for a writ of preliminary injunction
contained in the complaint be denied and the temporary
restraining order be set aside;
2. After trial, that judgment be rendered dismissing the
complaint for lack of merit;
3. On the counterclaim, that the Agreement dated July 5,
1977 between plaintiff and defendant be declared null and
void and of no force and effect pursuant to paragraph 6
thereof, that the consignation of the amount of P150,000.00
with interest at the legal rate from July 5, 1977 until its
deposit in court be accepted by the court; and that
defendant be declared released from any further liability or
obligation under the said Agreement;
4. Likewise on the counterclaim, that plaintiff be ordered to
pay defendant attorney's fees in the amount of P5,000.00,
such expenses of litigation as may be proven, and to pay
the costs, if any.
Defendant respectfully prays for such other relief as the
court may deem just and proper in the premises. (Pp. 29-31,
Record)
Evidently, the court a quo must have issued the restraining order prayed
for in private respondent's complaint, for on July 24, 1978, defendant
Boiser filed a motion praying:
1. That the restraining order contained in the order of June
26, 1978 be lifted and set aside; and
2. That plaintiff be allowed to deposit with the clerk of court,
or with such other depository as the court may determine,
the sum of Pl50,000.00 subject to the disposition of the
court in its judgment. (Page 33, Record.)
Acting on the foregoing motion, on August 10, 1978 Judge Alberto Q. Ubay,
who was then still the judge in charge of the case, issued the following
order:
OR
D E
R
The "Omnibus Motion" filed by defendant, thru counsel, on
July 25, 1978, is hereby GRANTED, it appearing from the
records of this case and from the testimony of plaintiff Ching
Siao that when on June 26, 1978 the Court issued a
restraining order requiting defendant "to desist and refrain
 from awarding the leased premises to Ginza Telamart", the
premises in question had already been leased to the said
Ginza Telamart and has been actually occupied by it,
contrary to the allegation and contention of the herein
plaintiffs. Hence, the continuance of said restraining order is
no longer justified.
As regards the consignment of the sum of P150,000.00, the
Court believes that no valid reason has been advanced by
plaintiffs why the same should not be accepted or granted,
subject to the outcome of this case on the merits and
subject to the orders of this Court.
WHEREFORE, the restraining order issued by the Court
dated June 26, 1978, is hereby lifted and set aside; and the
defendant Zenaida F. Boiser is hereby authorized to deposit
with the Clerk of Court the sum of P150,000.00 subject to
the disposition of the Court, as may be provided in the
decision to be rendered in this case.
SO ORDERED. (Page, 35, Record.)
However, on August 22, 1978, the following motion appears to have been
filed by defendant:
NOW COMES defendant, by undersigned counsel, and to the
Court respectfully moves for a partial reconsideration of the
Order of August 10, 1978 insofar as said Order states that:
... the defendant Zenaida F. Boiser is hereby
authorized to deposit with the Clerk of Court
the sum of P150,000.00 subject to the
disposition of the court, as may be provided in
the decision to be rendered in this case.
on the following grounds:
1. That as early as July 18, 1978, Adela B. Francisco, one of
defendant's principals (who is also defendant's mother) had
deposited with the Associated Citizen's Bank, Sangandaan
Branch, the amount of P150,000.00 intended to be refunded
to plaintiffs, as provided in paragraph 6 of the Agreement of
July 5, 1977 (Annex "A" of the Complaint);
2. That the said deposit earns interest of l4% per annum;
3. That the said Adela Blas Francisco, as signified by her
conformity to this motion, is willing to keep the said deposit
and make it subject to the disposition of this court, as may
be provided in the decision to be rendered in this case:
4. That no prejudice would be caused to plaintiffs under the
foregoing arrangement; on the other hand, it will earn for
the parties interest at 14% per annum until disposed of
under the judgment of this court;
5. That as evidence of the deposit alleged in paragraph 1
hereof, there is attached to this motion a xerox copy of a
certificate of time deposit issued by the Associated Citizens
Bank, Sangandaan Branch, as Annex "A" hereof.
WHEREFORE, it is respectfully prayed that the portion of the
Order dated August 10, 1978 quoted in the opening
paragraph of this motion be amended to read as follows:
... that the defendant Zenaida F. Boiser is
hereby authorized to deposit in the name of
Adela B. Francisco, one of the principals in
entering into contract with plaintiffs, the sum
 of P150,000.00 with the Associated Citizens
Bank, Sangandaan Branch, subject to the
disposition of the court, as may be provided in
the decision to be rendered in this case.
Quezon City for Caloocan City, August 22, 1978.
(SGD.) ANACLETO
S. MAGNO
Attorney for the
Defendant
113 Mendez,
Baesa
Quezon City
WITH MY CONFORMITY:
ADELA B. FRANCISCO (Pp. 38-39, Record.)
Consequently, Judge Ubay ordered on September 13, 1978 that:
ORDER
Acting on the "Motion for Reconsideration", dated August
22, 1978 and filed by counsel for defendants, the Court,
after a careful consideration of the grounds stated therein,
as well as the arguments advanced by counsel for plaintiff,
is of the opinion that the said motion should be, as it is
hereby, GRANTED.
WHEREFORE, the Order of this Court dated August 10, 1978
is hereby amended to read as follows:
that the defendant Zenaida F. Boiser is hereby
authorized to deposit in the name of Adela S.
Francisco, one of her principals, in entering
into contract with the Associated Citizens
Bank, Sangandaan Branch, subject to the
disposition of the Court, as may be provided
in the decision to be rendered in this case,
amount shall be made without an order from
the Court. (sic)
SO ORDERED. (Page 41, Record.)
Apparently, as a counter-move, respondents filed on June 10, 1980, a
Motion to Withdraw Deposit, asking the court that:
WHEREFORE, premises considered, it is respectfully so
prayed that Lim O. Chu be snowed to withdraw the
P150,000.00 previously deposited in bank upon order of this
Honorable Court, plus legal rate of interest (14% per anum)
from July 5, 1977, the date of the contract, Annex "A" of
complaint. (Page 43, Record.)
Acting on this motion, on August 15, 1980, the now respondent judge who
had replaced Judge Ubay, after the latter retired, issued an order
pertinently ordering that:
Considering the foregoing antecedents and subsequent
developments in this case and in the broad interest of
justice and equity, this Court hereby grants said motion of
the plaintiffs to withdraw from the Associated Citizens Bank,
Caloocan City Branch, the amount of P150,000.00 plus the
legal interests accruing thereon deposited in the name of
the defendant Adela B. Francisco by way of refund to
plaintiffs spouses Ching Siao and Lim O. Chu and hereby
orders the said bank and defendant Zenaida Boiser and/or
Adela B. Francisco in whose name said amount had been
 deposited to comply with this Order, directing Zenaida
Boiser and/or Adela Francisco to withdraw from said bank
the amount of P150,000.00, together with all the interests
due thereon, and further to turn over said amount to the
plaintiffs spouses within five (5) days from receipt of this
Order.
Meanwhile and brushing aside legal technicalities raised by
the parties, this Court will hold in abeyance resolution on
other matters raised in the pleadings of the parties (Motion
to Withdraw Deposit and Opposition to Withdrawal of
Rentals) until such further steps that may be henceforth be
taken by the parties-litigants in this case in the prosecution
of their respective side of this case. (Pp. 45-46, Record.)
This order was followed by another dated November 7, 1980, portions of
which read:
The delivery of the principal amount of P150,000.00 to the
plaintiffs now being a fait accompli what remains now to be
resolved by this Court is the amount of the interest to be
paid the plaintiffs. The defendants maintain that it should be
the legal rate of six (6%) percent per annum while the
plaintiffs claim their legal rate of interest should be twelve
percent (12 %) per annum.
Before resolving this issue, this Court finds it illuminating
that the subject amount of P150,000.00 as admitted by the
Associated Citizens Bank through their counsel, Atty. Teresita
L. Nuguid in her Manifestation filed with this Court on
September 3, 1980, was deposited by defendant Adela B.
Francisco thru her attorney-in-fact, Zenaida F. Boiser in the
form of time deposit (Account No. 7270, ACB). Hence, this
Court can take judicial notice of the fact that as time deposit
said amount of P150,000.00 earned aggregate interest far
above the legal rates of 12% and 14% per annum allowed
by law. Furthermore, as can be seen from Annex "A" of said
Manifestation of the Associated Citizens Bank, defendant
Adela B. Francisco made an assignment of said time deposit
in favor of Engr. Laureano R. Arcadio and no doubt the said
ban profited from the interest by reason of the time deposit
far and above said legal rates.
Said interest derived by the defendants by virtue of said
time deposit is of no moment in this case and what is
controlling as heretofore stated is the agreement not
contrary to law, morals and public policy between the
parties which in this case is and should be the legal rate of
interest which is twelve percent (12%) per annum computed
from the date of the aforesaid Agreement executed on July
5, 1977 and to deny the plaintiffs that the rate of interest
due them (12%) would amount to allowing a party to enrich
himself at the expense of the other. It cannot also be said
that defendants- depositor suffered losses by reason of
making such time deposit because the difference between
the legal rates of interest and the aggregate interests in
time deposits is substantial.
WHEREFORE, premises considered, the defendants Adela B.
Francisco and/or Zenaida F. Boiser, is hereby ordered:
1. to pay the plaintiffs the legal rate of interest of twelve
percent (12%) per annum on the deposit of P150,000.00
computed from July 5, 1977 (date when Agreement was
executed) up to September 13, 1978 when the money was
deposited with the Associated Citizens Bank on Time
Deposit pursuant to the Order of then Presiding Judge, the
Hon. Alberto Q. Ubay; and
 2. to pay the plaintiffs the legal rate of interest of twelve
percent (12%) per annum on the deposit of P150,000.00
from September 13, 1978 (date when money was deposited
with the Bank) up to August 29, 1980, when the said
deposited money was refunded to the plaintiffs. (Pp. 48-50,
Record.)
And on March 2, 1981, again respondent judge ordered:
Before this Court is plaintiffs' Motion for Execution of the
Order dated November 7, 1980, to which the defendants file
their opposition with Motion for Reconsideration on January
29, 1981, and as a rejoinder the plaintiffs filed their
Opposition to Defendants' Motion for Reconsideration on
February 13, 1981.
Brushing aside all legal technicalities and niceties of the law
raised by the respective counsels in their respective
pleadings, this Court has to resolve the issue as to the
proper rate of legal interest due to the plaintiffs and to
reckon the period from which said interest should run in
consonance with the antecedent facts and circumstances of
this case in the broad interest of justice and equity.
This Court observes that the parties in the prosecution of
their respective claims are motivated with a desire to get
the maximum of what is due him on the one hand and the
desire of the other to give the least or minimum of what he
is bound to pay. At first blush considering that the bone of
contention revolves in the determination of the proper rate
of interest and the period to be covered, the issue seems
inconsequential but considering the amount involved which
is to the tune of P150,000.00 the respective positions taken
by the parties in the instant case is quite understandable.
Hence, this Court will resolve the issue on the basis of the
time-honored legal dictum that "no one shall enrich himself
at the expense of another" in conjunction with the facts and
circumstances of this case in the broad interest of justice
and equity.
Premises considered, this Court hereby reconsiders its Order
dated November 7, 1980 and hereby orders the defendants
Adela B. Francisco and/or Zenaida F. Boiser:
1. To pay the plaintiffs the legal rate of interest of nine (9%)
percent per annum on the deposit of P 150,000.00
computed from July 5, 1977 (date of execution of
Agreement) up to September 13, 1978 when the money was
deposited with the Associated Citizens Bank on Time
Deposit pursuant to the Order of then Presiding Judge of this
Court, Hon. Alberto Q. Ubay; and
2. To pay the plaintiffs the legal rate of interest of twelve
(12%) percent per annum on the deposit of P150,000.00
from September 13, 1978 (date when money was deposited
with the Bank) up to August 29, 1980 (date of refund of the
money to the plaintiffs). (Pp. 51-53, Record)
On July 31, 1981, petitioner filed a motion to quash the writ of execution
issued pursuant to the above order, contending that she was not properly
made a party to the case, since the defendant was her daughter Zenaida
F. Boiser. On October 27, 1981, respondent judge denied said motion
holding that said movant had by certain actuations related to the case
vitually submitted her person to its jurisdiction although she was not
properly made a party thereto. On October 16, 1981, respondent denied
petitioner's motion for reconsideration, hence the instant petition before
Us.
From a reading of the pleadings of both parties and looking at the case as
a whole, We feel that somehow both counsel have centered, even with
vehemence, on two points, which could be off-tangent, namely: (1)
petitioner insists that the lower court had not acquired jurisdiction over her
person and (2) respondents, for their part, maintain that they should be
paid interest.
As far as petitioner is concerned, she evidently overlooks the fact that the
record reveals that she gave her express conformity to the motion of
defendant Boiser dated August 22, 1978, We have quoted earlier. Although
technically, her contention is correct that she is not a party to the case
below, she voluntarily formally manifested to the court "her conformity to
this motion (of defendant Boiser) (and) is willing to keep the said deposit
(made by her on July 18, 1978 in her own name in the Associated Citizens
Bank, Sangandaan Branch) and make it subject to the disposition of this
court, as may be provided in the decision to be rendered in this case."
Under this circumstance, her being a party or not in the case has become
immaterial. The fact is that she bound herself to an obligation with the
court and the respondents, albeit, in this connection, it is very clear that
her obligation is premised on the "decision to be rendered in this case"
exclusively. And that decision has not materialized, hence she has nothing
to answer for.
On the other hand, the insistence of respondents to recover interests on
the P150,000.00, can hardly have any legal basis, as things developed
when they first demanded from defendant Boiser compliance with the
agreement. According to the answer filed by said defendant, it is alleged
therein, and this allegation has not been denied by respondents, "that
defendant tendered payment to the plaintiff before the complaint was filed
(on May 30, 1978) of the sum of P150,000.00 with interest at the legal rate
as provided in paragraph 6 of the agreement, which tender of payment
was refused by the plaintiffs." On this score, We hold to be well taken the
following posture of defendant Boiser, which, of course, benefits equally
her mother:
DAMAGES CANNOT BE AWARDED WITHOUT PRIOR
DETERMINATION OF THE MERITS OF THE CASE. IN ANY
EVENT, DEFENDANT BOISER HAVING TENDERED THE
AMOUNT, DAMAGES CANNOT BE ADJUDGED AGAINST HER
The award for interests in an action for the recovery of a
sum of money partakes of a nature of an award for
damages. Thus, Article 2209 of the Civil Code provides:
Art. 2209. If the obligation consists in the
payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages,
there being no stipulation to the contrary,
shall be the payment of the interest agreed
upon, and in the absence of stipulation, the
legal interest, which is six percent per annum.
Clearly, the indemnity for interest on a monetary obligation
attaches only when the obligor incurs delay, that is, when he
is in default, it being a fundamental principle of law that:
Those obliged to deliver or to do something
incur in delay from the time the obligee
judicially or extrajudicially demands from
them the fulfillment of their obligation. (Art.
1169, Civil Code.)
In the case at bar, it is not disputed that no demands,
judicial or extrajudicial, were made by private respondents
on defendant Boiser for the return of the amount of
P150,000.00. There could not have been any because of the
nature of the action filed by private respondents, which is
for specific performance. Hence, there is no delay of the
latter's obligation, assuming that she be eventually required
in the decision of the Court to return the same. Upon the
contrary, it was private respondents who were in mora
accipiende from the time defendant Boiser tendered and
consigned the amount in Court.
Art. 1256. If the creditor to whom tender of
payment has been made refuses without just
cause to accept, the debtor shall be released
from the responsibility by the consignation of
the thing or sum done.(Art. 1256, Civil Code).
Tender and consignation having been properly made by
defendant Boiser, she should therefore be released from
paying the interests on the sum so deposited.
In Gregorio Araneta, Inc. vs. Tuazon de Paterno, et al., 91
Phil. 786, it was held that tender of payment alone suspends
the running of the interest on the obligation. Thus
The matter of the suspension of the running
of interest on the loan is governed by
principles which regard reality rather than
technicality, substance rather than form.
Good faith of the offeror or ability to make
good the offer should in simple justice excuse
the debtor from paying interest after the offer
was rejected. A debtor cannot be consider
delinquent who offered checks backed by
sufficient deposit or ready to pay cash it the
creditor chose that means of payment.
Technical defects of the offer cannot be
adduced to destroy its effects when the
objection to accept the payment was based
on entirely different grounds. Thus, although
the defective consignation made by the
debtor did not discharge the mortgage debt,
the running of interest on the loan is
suspended by the offer and tender of
payment. (Pp. 17-18, Record.)
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of
petitioner absolving her from the payment of the interests claimed by
respondents beyond the date when defendant Boiser made her tender,
not-only because the decision on the merits contemplated in her
obligation aforementioned and on which her conformity to defendant
Boiser's motion of August 22, 1978 was based has not materialized
because respondents opted to get their money back instead of insisting on
being given possession of the premises; which was the original nature of
their action, 2 but also because, in consequence of Boiser's tender to
return the P150,000.00 prior to the filing of the respondents' complaint,
and the refusal of the latter to accept the same, no obligation to pay any
interest could attach after the tender was made. In other words, defendant
Boiser and/or petitioner should pay 12% interest only from January 5,
1978, that is, six months after the signing of the contract 3 up to, at the
latest, May 30, 1978, when the respondents' complaint was filed, roughly a
little less than four months.
No costs.
Concepcion, Jr., Guerrero, Abad Santos, De Castro and Escolin, JJ., concur.
Separate Opinions
AQUINO, J., dissenting:
I dissent. Lim O. Chu, as lessee, deposited on July 5, 1977 with Adela Blas
Francisco, the lessor, through her daughter, Zenaida Francisco Boiser, the
sum of P150,000 to cover the rentals and goodwill for the lease to Lim O.
Chu of Adela B. Francisco's 135- square-meter lot located at 691 Rizal
Avenue Extension, Caloocan City.
It was stipulated that if the lease is not consummated Adela B. Francisc
would return to Lim O. Chu the P150,000 "in full with legal interest". The
lease was not consummated. Adela did not deliver possession of the lot to
Lim O. Chu.
On June 1, 1978 Lim O. Chu sued Zenaida F. Boiser, as attorney- in-fact of
her parents, for specific performance and damages. In her answer dated
June 29, 1978 Zenaida alleged that before Lim O. Chu filed his complaint
she tendered to him the sum of P150,000 with legal rate of interest but he
refused to accept the amount.
Zenaida prayed that the lease be declared void and that the consignation
of the sum of P150,000 with legal rate of interest from July 5, 1977 "until
its deposit in court be accepted by the court" (p. 31, Rollo).
Thus, at the beginning, Lim O. Chu was insisting on specific performance
while Zenaida F. Boiser wanted to rescind the lease and return the
P150,000 to Lim O. Chu with legal rate of interest as agreed upon between
them in paragraph 6 of the lease contract.
It should be recalled that the said amount was paid to Zenaida's mother,
Adela Blas Francisco, on July 5, 1977 but it was only on July 18,1978 or
after she was sued by Lim O. Chu that the said amount was deposited in
the Sangandaan Branch of the Associated Citizens Bank with interest
at 14% per annum. On September 13, 1978, the said amount was placed
on time deposit.
The trial court in its order of September 13, 1978 granted the motion of
Zenaida F. Boiser and her mother Adela B. Francisco that the said amount
remain on time deposit in the bank (instead of being consigned in court)
subject to the outcome of the case.
In the meantime, Lim O. Chu had changed his mind about specific
performance and became interested in getting hold of the P150,000.
About twenty months after the trial court had authorized the deposit of
that amount in the bank, or on June 10, 1980, Lim O. Chu filed a motion for
the withdrawal of that amount from the bank plus 14% interest a year
from July 5, 1977.
The trial court in its order of August 15, 1980 granted the motion and
allowed Lim O. Chu to withdraw the P150,000 from the bank "plus legal
interests accruing thereon" and directed Zenaida and her mother within
five days from notice "to withdraw from said bank the amount of
P150,000, together with all the interests due thereon" and "to turn over
the said amount to" Lim O. Chu.
That sum of P150,000 was paid to Lim O. Chu by Zenaida on August 29,
1980 but without the accrued interests. She did not comply fully with the
trial court's order of August 15, 1980. Thus, a controversy arose as to the
amount of interests that should be paid to Lim O. Chu.
In its order of November 7, 1980, the trial court ordered Adela B. Francisco
and Zenaida to pay Lim O. Chu 12% interest a year on the said amount
from July 5, 1977 up to August 29, 1980 when it was returned to Lim O.
Chu. Zenaida F. Boiser and her mother filed a motion for the
reconsideration of that order.
The trial court in its order of March 2, 1981 modified its prior order. It held
that Adela and Zenaida should pay Lim O. Chu 9% interest a year on the
P150,000 from July 5, 1977 up to September 13, 1978, when the said
amount was placed on time deposit, and 12% interest a year from
September 13, 1978 up to August 29, 1980 when the amount was With the foregoing, we find and so rule that respondents failed to
returned to Lim O. Chu. That order of March 2,1981 became final and discharge the burden of showing that complainant was dismissed from
executory. employment for a just or valid cause. All the more, it is clear from the
records that complainant was never afforded due process before he was
terminated. As such, we are perforce constrained to grant complainants
I vote for the enforcement of that order. It is dictated by elementary justice prayer for the payments of separation pay in lieu of reinstatement to his
and is in consonance with the agreement of the parties. Mrs. Boiser and former position, considering the strained relationship between the parties,
her mother had an along manifested a desire to pay the legal rate of and his apparent reluctance to be reinstated, computed only up to
interest on the amount of P150,000 which, having been deposited in the promulgation of this decision as follows:
bank, actually earned interest.
SEPARATION PAY
G.R. No. 189871 August 13, 2013
Date Hired = August 1990
DARIO NACAR, PETITIONER, Rate = P198/day
vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS. Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
DECISION
P198.00 x 26 days x 8 months = P41,184.00
PERALTA, J.: BACKWAGES

This is a petition for review on certiorari assailing the Decision 1 dated Date Dismissed = January 24, 1997
September 23, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 98591, Rate per day = P196.00
and the Resolution2 dated October 9, 2009 denying petitioners motion for
reconsideration. Date of Decisions = Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
The factual antecedents are undisputed.
P196.00/day x 12.36 mos. = P62,986.56
Petitioner Dario Nacar filed a complaint for constructive dismissal before
b) 2/6/98 to 8/18/98 = 6.4 months
the Arbitration Branch of the National Labor Relations Commission (NLRC)
against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., Prevailing Rate per day = P62,986.00
docketed as NLRC NCR Case No. 01-00519-97.
P198.00 x 26 days x 6.4 mos. = P32,947.20
3
On October 15, 1998, the Labor Arbiter rendered a Decision in favor of TOTAL = P95.933.76
petitioner and found that he was dismissed from employment without a
valid or just cause. Thus, petitioner was awarded backwages and
separation pay in lieu of reinstatement in the amount of P158,919.92. The xxxx
dispositive portion of the decision, reads:
WHEREFORE, premises considered, judgment is hereby rendered finding
respondents guilty of constructive dismissal and are therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two
thousand nine hundred eighty-six pesos and 56/100 (P62,986.56) Pesos
representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five
thousand nine hundred thirty-three and 36/100 (P95,933.36) representing
his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit
in the Resolution5 dated February 29, 2000. Accordingly, the NLRC
sustained the decision of the Labor Arbiter. Respondents filed a motion for
reconsideration, but it was denied.6
Dissatisfied, respondents filed a Petition for Review on Certiorari before the
CA. On August 24, 2000, the CA issued a Resolution dismissing the
petition. Respondents filed a Motion for Reconsideration, but it was
likewise denied in a Resolution dated May 8, 2001.7
Respondents then sought relief before the Supreme Court, docketed as
G.R. No. 151332. Finding no reversible error on the part of the CA, this
Court denied the petition in the Resolution dated April 17, 2002. 8
An Entry of Judgment was later issued certifying that the resolution
became final and executory on May 27, 2002. 9The case was, thereafter,
referred back to the Labor Arbiter. A pre-execution conference was
consequently scheduled, but respondents failed to appear. 10
On November 5, 2002, petitioner filed a Motion for Correct Computation,
praying that his backwages be computed from the date of his dismissal on
January 24, 1997 up to the finality of the Resolution of the Supreme Court
on May 27, 2002.11 Upon recomputation, the Computation and
Examination Unit of the NLRC arrived at an updated amount in the sum
of P471,320.31.12
On December 2, 2002, a Writ of Execution 13 was issued by the Labor
Arbiter ordering the Sheriff to collect from respondents the total amount
of P471,320.31. Respondents filed a Motion to Quash Writ of Execution,
arguing, among other things, that since the Labor Arbiter awarded
separation pay of P62,986.56 and limited backwages of P95,933.36, no
more recomputation is required to be made of the said awards. They
claimed that after the decision becomes final and executory, the same
cannot be altered or amended anymore. 14 On January 13, 2003, the Labor
Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of
Execution16 was issued on January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003
issued a Resolution17 granting the appeal in favor of the respondents and
ordered the recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the
Resolution of the NLRC to be final and executory. Consequently, another
pre-execution conference was held, but respondents failed to appear on
time. Meanwhile, petitioner moved that an Alias Writ of Execution be
issued to enforce the earlier recomputed judgment award in the sum
of P471,320.31.18
The records of the case were again forwarded to the Computation and
Examination Unit for recomputation, where the judgment award of
petitioner was reassessed to be in the total amount of only P147,560.19.
Petitioner then moved that a writ of execution be issued ordering
respondents to pay him the original amount as determined by the Labor
Arbiter in his Decision dated October 15, 1998, pending the final
computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to
satisfy the judgment award that was due to petitioner in the amount
of P147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-
computation of the monetary award to include the appropriate interests. 19
On May 10, 2005, the Labor Arbiter issued an Order 20 granting the motion,
but only up to the amount of P11,459.73. The Labor Arbiter reasoned that
it is the October 15, 1998 Decision that should be enforced considering
that it was the one that became final and executory. However, the Labor
Arbiter reasoned that since the decision states that the separation pay and
backwages are computed only up to the promulgation of the said decision,
it is the amount of P158,919.92 that should be executed. Thus, since
petitioner already received P147,560.19, he is only entitled to the balance
of P11,459.73.
Petitioner then appealed before the NLRC, 21 which appeal was denied by
the NLRC in its Resolution22 dated September 27, 2006. Petitioner filed a
Motion for Reconsideration, but it was likewise denied in the
Resolution23dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-
G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision 24 denying the
petition. The CA opined that since petitioner no longer appealed the
October 15, 1998 Decision of the Labor Arbiter, which already became
final and executory, a belated correction thereof is no longer allowed. The
CA stated that there is nothing left to be done except to enforce the said
judgment. Consequently, it can no longer be modified in any respect,
except to correct clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the
Resolution25 dated October 9, 2009.
Hence, the petition assigning the lone error:
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED, COMMITTED GRAVE ABUSE OF DISCRETION AND DECIDED
CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF
THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF
LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE
OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT
TO AN OPINION EXPRESSED IN THE BODY OF THE SAME DECISION. 26
Petitioner argues that notwithstanding the fact that there was a
computation of backwages in the Labor Arbiters decision, the same is not
final until reinstatement is made or until finality of the decision, in case of
an award of separation pay. Petitioner maintains that considering that the
October 15, 1998 decision of the Labor Arbiter did not become final and
executory until the April 17, 2002 Resolution of the Supreme Court in G.R.
No. 151332 was entered in the Book of Entries on May 27, 2002, the
reckoning point for the computation of the backwages and separation pay
should be on May 27, 2002 and not when the decision of the Labor Arbiter
was rendered on October 15, 1998. Further, petitioner posits that he is
also entitled to the payment of interest from the finality of the decision
until full payment by the respondents.
On their part, respondents assert that since only separation pay and
limited backwages were awarded to petitioner by the October 15, 1998
decision of the Labor Arbiter, no more recomputation is required to be
made of said awards. Respondents insist that since the decision clearly
stated that the separation pay and backwages are "computed only up to
[the] promulgation of this decision," and considering that petitioner no
longer appealed the decision, petitioner is only entitled to the award as
computed by the Labor Arbiter in the total amount of P158,919.92.
Respondents added that it was only during the execution proceedings that
the petitioner questioned the award, long after the decision had become
final and executory. Respondents contend that to allow the further
recomputation of the backwages to be awarded to petitioner at this point
of the proceedings would substantially vary the decision of the Labor
Arbiter as it violates the rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and
Fast Foods v. Court of Appeals (Sixth Division), 27 wherein the issue
submitted to the Court for resolution was the propriety of the computation
of the awards made, and whether this violated the principle of
immutability of judgment. Like in the present case, it was a distinct feature
of the judgment of the Labor Arbiter in the above-cited case that the
decision already provided for the computation of the payable separation
pay and backwages due and did not further order the computation of the
monetary awards up to the time of the finality of the judgment. Also in
Session Delights, the dismissed employee failed to appeal the decision of
the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course
of execution of the labor arbiter's original computation of the awards
made, pegged as of the time the decision was rendered and confirmed
with modification by a final CA decision, is legally proper. The question is
posed, given that the petitioner did not immediately pay the awards stated
in the original labor arbiter's decision; it delayed payment because it
continued with the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this
case proceeds from the way the original labor arbiter framed his decision.
The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because
it has been confirmed with finality. This is the finding of the illegality of the
dismissal and the awards of separation pay in lieu of reinstatement,
backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made. On its face, the
computation the labor arbiter made shows that it was time-bound as can
be seen from the figures used in the computation. This part, being merely
a computation of what the first part of the decision established and
declared, can, by its nature, be re-computed. This is the part, too, that the
petitioner now posits should no longer be re-computed because the
computation is already in the labor arbiter's decision that the CA had
affirmed. The public and private respondents, on the other hand, posit that
a re-computation is necessary because the relief in an illegal dismissal
decision goes all the way up to reinstatement if reinstatement is to be
made, or up to the finality of the decision, if separation pay is to be given
in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an
illegal dismissal had taken place, also made a computation of the award, is
understandable in light of Section 3, Rule VIII of the then NLRC Rules of
Procedure which requires that a computation be made. This Section in part
states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all
events, as far as practicable, shall embody in any such decision or order
the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the
finality of the labor arbiter's decision. As we noted above, this implication
is apparent from the terms of the computation itself, and no question
would have arisen had the parties terminated the case and implemented
the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all
counts - i.e., on the finding of illegality as well as on all the consequent
awards made. Hence, the petitioner appealed the case to the NLRC which,
in turn, affirmed the labor arbiter's decision. By law, the NLRC decision is
final, reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on
jurisdictional grounds through a timely filed Rule 65 petition for certiorari.
The CA decision, finding that NLRC exceeded its authority in affirming the
payment of 13th month pay and indemnity, lapsed to finality and was
subsequently returned to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal
dismissal portion of the original labor arbiter's decision, the implementing
labor arbiter ordered the award re-computed; he apparently read the
figures originally ordered to be paid to be the computation due had the
case been terminated and implemented at the labor arbiter's level. Thus,
the labor arbiter re-computed the award to include the separation pay and
the backwages due up to the finality of the CA decision that fully
terminated the case on the merits. Unfortunately, the labor arbiter's
approved computation went beyond the finality of the CA decision (July 29,
2003) and included as well the payment for awards the final CA decision
had deleted - specifically, the proportionate 13th month pay and the
indemnity awards. Hence, the CA issued the decision now questioned in
the present petition.
We see no error in the CA decision confirming that a re-computation is
necessary as it essentially considered the labor arbiter's original decision
in accordance with its basic component parts as we discussed above. To
reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or
monetary consequences of the illegal dismissal, computed as of the time
of the labor arbiter's original decision.28
Consequently, from the above disquisitions, under the terms of the
decision which is sought to be executed by the petitioner, no essential
change is made by a recomputation as this step is a necessary
consequence that flows from the nature of the illegality of dismissal
declared by the Labor Arbiter in that decision. 29 A recomputation (or an
original computation, if no previous computation has been made) is a part
of the law specifically, Article 279 of the Labor Code and the established
jurisprudence on this provision that is read into the decision. By the
nature of an illegal dismissal case, the reliefs continue to add up until full
satisfaction, as expressed under Article 279 of the Labor Code. The
recomputation of the consequences of illegal dismissal upon execution of
the decision does not constitute an alteration or amendment of the final
decision being implemented. The illegal dismissal ruling stands; only the
computation of monetary consequences of this dismissal is affected, and
this is not a violation of the principle of immutability of final judgments. 30
That the amount respondents shall now pay has greatly increased is a
consequence that it cannot avoid as it is the risk that it ran when it
continued to seek recourses against the Labor Arbiter's decision. Article
279 provides for the consequences of illegal dismissal in no uncertain
terms, qualified only by jurisprudence in its interpretation of when
separation pay in lieu of reinstatement is allowed. When that happens, the
finality of the illegal dismissal decision becomes the reckoning point
instead of the reinstatement that the law decrees. In allowing separation
pay, the final decision effectively declares that the employment
relationship ended so that separation pay and backwages are to be
computed up to that point.31
Finally, anent the payment of legal interest. In the landmark case of
Eastern Shipping Lines, Inc. v. Court of Appeals, 32 the Court laid down the
guidelines regarding the manner of computing legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12%
per annum from such finality until its satisfaction, this interim
 period being deemed to be by then an equivalent to a forbearance
of credit.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-
MB), in its Resolution No. 796 dated May 16, 2013, approved the
amendment of Section 234 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799, 35 Series of 2013, effective July 1,
2013, the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013,
approved the following revisions governing the rate of interest in the
absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per
annum.
Section 2. In view of the above, Subsection X305.1 36 of the Manual of
Regulations for Banks and Sections 4305Q.1,37 4305S.338 and 4303P.139 of
the Manual of Regulations for Non-Bank Financial Institutions are hereby
amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the
rate of interest that would govern the parties, the rate of legal interest for
loans or forbearance of any money, goods or credits and the rate allowed
in judgments shall no longer be twelve percent (12%) per annum - as
reflected in the case of Eastern Shipping Lines40 and Subsection X305.1 of
the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and
4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions,
before its amendment by BSP-MB Circular No. 799 - but will now be six
percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the new
rate of six percent (6%) per annum shall be the prevailing rate of interest
when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and
Eduardo B. Olaguer v. Bangko Sentral Monetary Board, 41 this Court
affirmed the authority of the BSP-MB to set interest rates and to issue and
enforce Circulars when it ruled that "the BSP-MB may prescribe the
maximum rate or rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for loans of
low priority such as consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum rate or rates for
different types of borrowings, including deposits and deposit substitutes,
or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and
executory prior to July 1, 2013, said judgments shall not be disturbed and
shall continue to be implemented applying the rate of interest fixed
therein.1awp++i1
To recapitulate and for future guidance, the guidelines laid down in the
case of Eastern Shipping Lines42 are accordingly modified to embody BSP-
MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the
measure of recoverable damages.1wphi1
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded.
In the absence of stipulation, the rate of interest shall be 6% per annum to (2) separation pay computed from August 1990 up to May 27, 2002
be computed from default, i.e., from judicial or extrajudicial demand under at the rate of one month pay per year of service; and
and subject to the provisions of Article 1169 of the Civil Code.
(3) interest of twelve percent (12%) per annum of the total
When an obligation, not constituting a loan or forbearance of money, is monetary awards, computed from May 27, 2002 to June 30, 2013
breached, an interest on the amount of damages awarded may be and six percent (6%) per annum from July 1, 2013 until their full
imposed at the discretion of the court at the rate of 6% per annum. No satisfaction.
interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable The Labor Arbiter is hereby ORDERED to make another recomputation of
certainty. Accordingly, where the demand is established with reasonable the total monetary benefits awarded and due to petitioner in accordance
certainty, the interest shall begin to run from the time the claim is made with this Decision.
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is made, the SO ORDERED.
interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation .R. No. 90676 June 19, 1991
of legal interest shall, in any case, be on the amount finally adjudged.
STATE INVESTMENT HOUSE, INC., petitioner,
When the judgment of the court awarding a sum of money becomes final vs.
and executory, the rate of legal interest, whether the case falls under THE HONORABLE COURT OF APPEALS, HON. JUDGE PERLITA J. TRIA
paragraph 1 or paragraph 2, above, shall be 6% per annum from such TIRONA, Presiding Judge of the Regional Trial Court of Quezon
finality until its satisfaction, this interim period being deemed to be by City, Branch CII and SPS. RAFAEL and REFUGIO
then an equivalent to a forbearance of credit. AQUINO, respondents.

And, in addition to the above, judgments that have become final and Padilla Law Office for petitioner.
executory prior to July 1, 2013, shall not be disturbed and shall continue to Rodolfo T. Galing and Chaves, Hechanova & Lim Law Offices for private
be implemented applying the rate of interest fixed therein. respondents.

WHEREFORE, premises considered, the Decision dated September 23,

2008 of the Court of Appeals in CA-G.R. SP No. 98591, and the Resolution
dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are
Ordered to Pay petitioner: FELICIANO, J.:

(1) backwages computed from the time petitioner was illegally
dismissed on January 24, 1997 up to May 27, 2002, when the
Resolution of this Court in G.R. No. 151332 became final and
executory;
On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged
certain shares of stock to petitioner State Investment House, Inc. ("State")
in order to secure a loan of P120,000.00 designated as Account No. IF-82-
0631-AA. Prior to the execution of the pledge, respondent-spouses, as an
accommodation to and together with the spouses Jose and Marcelina
Aquino, signed an agreement (Account No. IF-82-1379-AA) with petitioner
State for the latter's purchase of receivables amounting to P375,000.00.
When Account No. IF-82-0631-AA fell due, respondent spouses paid the
same partly with their own funds and partly from the proceeds of another
loan which they obtained also from petitioner State designated as Account
No. IF-82-0904-AA. This new loan was secured by the same pledge
agreement executed in relation to Account No. IF-820631-AA. When the
new loan matured, State demanded payment. Respondents expressed
willingness to pay, requesting that upon payment, the shares of stock
pledged be released. Petitioner State denied the request on the ground
that the loan which it had extended to the spouses Jose and Marcelina
Aquino (Account No. IF-82-1379- AA) had remained unpaid.
On 29 June 1984, Atty. Rolando Salonga sent to respondent spouses a
Notice of Notarial Sale stating that upon request of State and by virtue of
the pledge agreement, he would sell at public auction the shares of stock
pledged to State. This prompted respondents to file a case before the
Regional Trial Court of Quezon City alleging that the intended foreclosure
sale was illegal because from the time the obligation under Account No. IF-
82-0904-AA became due, they had been able and willing to pay the same,
but petitioner had insisted that respondents pay even the loan account of
Jose and Marcelina Aquino which had not been secured by the pledge. It
was further alleged that their failure to pay their loan (Account No. IF-82-
0904-AA) was excused because the petitioner State itself had prevented
the satisfaction of the obligation.
The trial court, in a decision dated 14 December 1984 rendered by Judge
Willelmo Fortun, initially dismissed the complaint. Respondent spouses
filed a motion for reconsideration praying for a new decision ordering
petitioner State to release the shares upon payment of respondents' loan
"without interest," as the latter had not been in delay in the performance
of their obligation. State countered that the pledge executed by
respondent spouses also covered the loan extended to Jose and Marcelina
Aquino, which too should be paid before the shares may be released.
Acting on the motion for reconsideration, Judge Fortun set aside his
original decision and rendered a new judgment dated 29 January 1985,
ordering State to immediately release the pledge and to deliver to
respondents the share of stock "upon payment of the loan under Code No.
82-0904-AA."
On appeal, the Court of Appeals affirmed in toto the new decision of the
trial court, holding that the loan extended to Jose and Marcelina Aquino,
having been executed prior to the pledge was not covered by the pledge
which secured only loans executed subsequently. Thus, upon payment of
the loan under Code No. IF-0904-AA, the shares of stock should be
released. The decisions of the Court of Appeals and of Judge Fortun
became final and executory.
Upon remand of the records of the case to the trial court for execution,
there developed disagreement over the amount which respondent spouses
Rafael and Refugio Aquino should pay to secure the release of the shares
of stock petitioner State contending that respondents should also pay
interest and respondents arguing they should not. Respondent spouses
then filed a motion with the trial court to clarify the Fortun decision
praying that an order issue clarifying the phrase "upon payment of
plaintiffs' loan" to mean upon payment of plaintiff' loan in the principal
amount of P110,000.00 alone, "without interest, penalties and other
charges."
On 17 February 1989, the trial court, speaking this time through Judge
Perlita Tria Tirona, rendered a decision purporting to clarify the decision of
Judge Fortun and ruling that petitioner State shall release respondents'
shares of stock upon payment by respondents of the principal of the loan
as set forth in PN No. 82-0904-AA in the amount of P110,000.00, without
interest, penalties and other charges.
Petitioner State appealed Judge Tirona's decision to the Court of Appeals;
the appeal was dismissed. The Court of Appeals agreed with Judge Tirona
that no interest need be paid and added that the clarificatory (Tirona)
decision of the trial court merely restated what had been provided for in
the earlier (Fortun) decision; that the Tirona decision did not go beyond
what had been adjudged in the earlier decision. The motion for
reconsideration filed by petitioner was accordingly denied.
Hence, this Petition for Review contending that no manifest ambiguity
existed in the decision penned by Judge Fortun; that the trial court through
Judge Tirona, erred in clarifying the decision of Judge Fortun; and that the
amendment sought to be introduced in the Fortun decision by respondents
may not be made as the same was substantial in nature and the Fortun
decision had become final.
We begin by noting that the trial court has asserted authority to issue the
clarificatory order in respect of the decision of Judge Fortun, even though
that judgment had become final and executory. In Reinsurance Company
of the Orient, Inc. v. Court of Appeals, 1 this Court had occasion to deal with
the applicable doctrine to some extent:
- - - [E]ven a judgment which has become final and executory may
be clarified under certain circumstances. The dispositive portion of
the judgment may, for instance, contain an error clearly clerical in
nature (perhaps best illustrated by an error in arithmetical
computation) or an ambiguity arising from inadvertent omission,
which error may be rectified or ambiguity clarified and the omission
supplied by reference primarily to the body of the decision itself
Supplementary reference to the pleadings previously filed in the
case may also be resorted to by way of corroboration of the
existence of the error or of the ambiguity in the dispositive part of
the judgment. In Locsin, et al. v. Parades, et al., this Court allowed
a judgment which had become final and executory to be clarified by
supplying a word which had been inadvertently omitted and which,
when supplied, in effect changed the literal import of the original
phraseology:
. . . it clearly appears from the allegations of the complaint,
the promissory note reproduced therein and made a part
thereof, the prayer and the conclusions of fact and of law
contained in the decision of the respondent judge, that the
obligation contracted by the petitioners is joint and several
and that the parties as well as the trial judge so understood
it. Under the juridical rule that the judgment should be in
accordance with the allegations, the evidence and the
conclusions of fact and law, the dispositive part of the
judgment under consideration should have ordered that the
debt be paid 'severally' and in omitting the word or adverb
'severally' inadvertently, said judgment became ambiguous.
This ambiguity may be clarified at any time after the
decision is rendered and even after it had become final (34
Corpus Juris, 235, 326). This respondent judge did not,
therefore, exceed his jurisdiction in clarifying the dispositive
part of the judgment by supplying the omission. (Emphasis
supplied)
In Filipino Legion Corporation vs. Court of Appeals, et al., the applicable
principle was set out in the following terms:
[W]here there is ambiguity caused by an omission or mistake in the
dispositive portion of a decision, the court may clarify such ambiguity by
an amendment even after the judgment had become final, and for this
purpose it may resort to the pleadings filed by the parties, the court's
findings of facts and conclusions of law as expressed in the body of the
decision. (Emphasis supplied)
In Republic Surety and Insurance Company, Inc. v. Intermediate Appellate
Court, the Court, in applying the above doctrine, said:
. . . We clarify, in other words, what we did affirm. That is involved here is
not what is ordinarily regarded as a clerical error in the dispositive part of
the decision of the Court of First Instance, . . . At the same time, what is
involved here is not a correction of an erroneous judgment or dispositive
portion of a judgment. What we believe is involved here is in the nature of
an inadvertent omission on the part of the Court of First Instance (which
should have been noticed by private respondents' counsel who had
prepared the complaint), of what might be described as a logical follow-
through of something set forth both in the body of the decision and in the
dispositive portion thereof; the inevitable follow-through, or translation
into, operational or behavioral terms, of the annulment of the Deed of Sale
with Assumption of Mortgage, from which petitioners' title or claim of title
embodied in TCT 133153 flows. (Emphasis supplied) 2 (Underscoring in the
original; citations omitted)
The question we must resolve is thus whether or not there is an ambiguity
or clerical error or inadvertent omission in the dispositive portion of the
decision of Judge Fortun which may be legitimately clarified by referring to
the body of the decision and perhaps even the pleadings filed before him.
The decision of Judge Fortun disposing of the motion for reconsideration
filed by respondent spouses Rafael and Refugio Aquino consisted basically
of quoting practically the whole motion for reconsideration. In its
dispositive portion, Judge Fortun's decision stated:
WHEREFORE, plaintiffs "Motion for Reconsideration" dated January
3, 1985, is granted and the decision of this Court dated December
14, 1984 is hereby revoked and set aside and another judgment is
hereby rendered in favor of plaintiffs as follows:
(1) Ordering defendants to immediately release the pledge on, and
to deliver to plaintiffs, the shares of stocks enumerated and
described in paragraph 4 of plaintiffs' complaint dated July 17,
1984, upon payment of plaintiffs loan under Code No. 82-0904-AA
to defendants;
(2) Ordering defendant State Investment House, Inc. to pay to
plaintiffs P10,000.00 as moral damages, P5,000.00 as exemplary
damages, P6,000.00 as attorney's fees, plus costs;
(3) Dismissing defendants' counterclaim, for lack of merit and
making the preliminary injunction permanent.
SO ORDERED.3
Judge Fortun evidently meant to act favorably on the motion for
reconsideration of the respondent Aquino spouses and in effect accepted
respondent spouses' argument that they
had not incurred mora considering that their failure to pay PN No. IF82-
0904-AA on time had been due to petitioner State's unjustified refusal to
release the shares pledged to it. It is not, however, clear to what precise
extent Judge Fortun meant to grant the motion for reconsideration. The
promissory note in Account No. IF-82-0904-AA had three (3) components:
(a) principal of the loan in the amount of P110,000.00; (b) regular interest
in the amount of seventeen percent (17%) per annum; and (c) additional
or penalty interest in case of non-payment at maturity, at the rate of two
percent (2%) per month or twenty-four percent (24%) per annum. In the
dispositive part of his resolution, Judge Fortun did not specify which of
these components of the loan he was ordering respondent spouses to pay
and which component or components he was in effect deleting. We cannot
assume that Judge Fortun meant to grant the relief prayed for by
respondent spouses in all its parts. For one thing, respondent spouses in
their motion for reconsideration asked for "at least P50,000.00" for moral
damages and "at least P50,000.00" for exemplary damages, as well as
P20,000.00 by way of attorney's fees and litigation expenses. Judge Fortun
granted respondent spouses only P10,000.00 as moral damages and
P5,000.00 as exemplary damages, plus P6,000.00 as attorney's fees and
costs. For another, respondent spouses asked Judge Fortun to order the
release of the shares pledged "upon payment of [respondent spouses']
loan under Code No. 82-0904-AA without interest, as plaintiffs were not in
delay in accordance with Article 69 of the New Civil Code " (Emphasis
supplied). In other words, respondent spouses did not themselves become
very clear what they were asking Judge Fortun to grant them; they did not
apparently distinguish between regular interest or "monetary interest" in
the amount of seventeen percent (17%) per annum and penalty charges or
"compensatory interest" in the amount of two percent (2%) per month or
twenty-four percent (24%) per annum.
It thus appears that the Fortun decision was ambiguous in the sense that it
was cryptic. We believe that in these circumstances, we must assume that
Judge Fortun meant to decide in accordance with law, that we cannot fairly
assume that Judge Fortun was grossly ignorant of the law, or that he
intended to grant the respondent spouses relief to which they were not
entitled under law. Thus, the ultimate question which arises is: if
respondent Aquino spouses were not in delay, what should they have been
held liable for in accordance with law?
We believe and so hold that since respondent Aquino spouses were held
not to have been in delay, they were properly liable only for: (a) the
principal of the loan or P110,000.00; and (b) regular or monetary interest
in the amount of seventeen percent (17%) per annum. They
were not liable for penalty or compensatory interest, fixed by the
promissory note in Account No. IF-82-0904-AA at two percent (2%) per
month or twenty-four (24%) per annum. It must be stressed in this
connection that under Article 2209 of the Civil Code which provides that
. . . [i]f the obligation consists in the payment of a sum of money,
and the debtor incurs in delay. the indemnity for damages, there
being no stimulation to the contrary. shall be the payment of the
 interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum.
the appropriate measure for damages in case of delay in discharging an
obligation consisting of the payment of a sum or 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.4
The fact that the respondent Aquino spouses were not in default
did not mean that they, as a matter of law, were relieved from the
payment not only of penalty or compensatory interest at the rate of
twenty-four percent (24%) per annum but also of regular or monetary
interest of seventeen percent (17%) per annum. The regular or monetary
interest continued to accrue under the terms of the relevant promissory
note until actual payment is effected. 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. The
relevant rule is set out in Article 1256 of the Civil Code which provides as
follows:
Art. 1256. If the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or sum
due.
Consignation alone shall produce the same effect in the following
cases:
(1) When the creditor is absent or unknown, or does not appear at
the place of payment;
(2) When he is incapacitated to receive the payment at the time it
is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (Emphasis
supplied)
Where the creditor unjustly refuses to accept payment, the debtor
desirous of being released from his obligation must comply with two (2)
conditions: (a) tender of payment; and (b) consignation of the sum due.
Tender of payment must be accompanied or followed by consignation in
order that the effects of payment may be produced. Thus, in Llamas v.
Abaya,5 the Supreme Court stressed that a written tender of payment
alone, without consignation in court of the sum due, does not suspend the
accruing of regular or monetary interest.
In the instant case, respondent spouses Aquino, while they are properly
regarded as having made a written tender of payment to petitioner State,
failed to consign in court the amount due at the time of the maturity of
Account No. IF-820904-AA. It follows that their obligation to pay principal-
cum-regular or monetary interest under the terms and conditions of
Account No. IF-82-0904-AA was not extinguished by such tender of
payment alone.
For the respondent spouses to continue in possession of the principal of
the loan amounting to P110,000.00 and to continue to use the same after
maturity of the loan without payment of regular or monetary interest,
would constitute unjust enrichment on the part of the respondent spouses
at the expense of petitioner State even though the spouses had not been
guilty of mora. It is precisely this unjust enrichment which Article 1256 of
the Civil Code prevents by requiring, in addition to tender of payment, the
consignation of the amount due in court which amount would thereafter be
deposited by the Clerk of Court in a bank and earn interest to which the
creditor would be entitled.
WHEREFORE, the Petition for Review is hereby GRANTED DUE COURSE.
The Decision of the Court of Appeals dated 30 August 1989 in C.A.-G.R. No.
17954 and the Decision of the Regional Trial Court dated 17 February 1989
in Civil Case No. Q-42188 are hereby REVERSED and SET ASIDE. The
dispositive portion of the decision of Judge Fortun is hereby clarified so as
to read as follows:
(1) Ordering defendants to immediately release the pledge and to deliver
to the plaintiff spouses Rafael and Refugio Aquino the shares of stock
enumerated and described in paragraph 4 of said spouses' complaint
dated 17 July 1984, upon full payment of the amount of P110,000.00 plus
seventeen percent (17%) per annum regular interest computed from the
time of maturity of the plaintiffs' loan (Account No. IF-82-0904-AA) and
until full payment of such principal and interest to defendants;
(2) Ordering defendant State Investment House, Inc. to pay to the plaintiff
spouses Rafael and Refugio Aquino P10,000.00 as moral damages,
P5,000.00 as exemplary damages, P6,000.00 as attorney's fees, plus
costs; and
(3) Dismissing defendants' counterclaim for lack of merit and making the
preliminary injunction permanent."
No pronouncement as to costs.
SO ORDERED.
G.R. No. 76101-02 September 30, 1991
TIO KHE CHIO, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and EASTERN ASSURANCE
AND SURETY CORPORATION, respondents.
Rodolfo M. Morelos for petitioner.
Ferrer, Mariano, Sangalang & Gatdula for private respondent.
FERNAN, C.J.:p
The issue in this petition for certiorari and prohibition is the legal rate of
interest to be imposed in actions for damages arising from unpaid
insurance claims. Petitioner Tio Khe Chio claims that it should be twelve
(12%) per cent pursuant to Articles 243 and 244 of the Insurance Code
while private respondent Eastern Assurance and Surety Corporation
(EASCO) claims that it should be six (6%) per cent under Article 2209 of
the Civil Code.
The facts are as follows: On December 18, 1978, petitioner Tio Khe Chio
imported one thousand (1,000) bags of fishmeal valued at $36,000.30
from Agro Impex, U.S.A. Dallas, Texas, U.S.A. The goods were insured with
respondent EASCO and shipped on board the M/V Peskov, a vessel owned
by Far Eastern Shipping Company. When the goods reached Manila on
January 28, 1979, they were found to have been damaged by sea water
which rendered the fishmeal useless. Petitioner filed a claim with EASCO
and Far Eastern Shipping. Both refused to pay. Whereupon, petitioner sued
them before the then Court of First Instance of Cebu, Branch II for
damages. EASCO, as the insurer, filed a counterclaim against the
petitioner for the recovery of P18,387.86 representing the unpaid
insurance premiums.
On June 30, 1982, the trial court rendered judgment ordering EASCO and
Far Eastern Shipping to pay petitioner solidarily the sum of P105,986.68
less the amount of P18,387.86 for unpaid premiums with interest at the
legal rate from the filing of the complaint, the sum of P15,000.00 as
attorney's fees and the costs. 1
The judgment became final as to EASCO but the shipping company
appealed to the Court of Appeals and was absolved from liability by the
said court in AC-G.R. No. 00161, entitled "Tio Khe Chio vs. Eastern
Assurance and Surety Corporation."
The trial court, upon motion by petitioner, issued a writ of execution
against EASCO. The sheriff enforcing the writ reportedly fixed the legal
rate of interest at twelve (12%). Respondent EASCO moved to quash the
writ alleging that the legal interest to be computed should be six (6%) per
cent per annum in accordance with Article 2209 of the Civil Code and not
twelve (12%) per cent as insisted upon by petitioner's counsel. In its order
of July 30, 1986, the trial court denied EASCO's motion. EASCO then filed a
petition for certiorari and prohibition before the Court of Appeals.
On July 30, 1986, the Appellate Court rendered the assailed judgment, the
dispositive part of which states:
WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far
as it fixes the interest at 12% on the principal amount of P87,598.82 from
the date of filing of the complaint until the full payment of the amount,
and the interest that the private respondent is entitled to collect from the
petitioner is hereby reduced to 6% per annum.
No pronouncement as to costs. 2 finding as to whether the payment of the claim of the
In disputing the aforesaid decision of the Court of Appeals, petitioner
maintains that not only is it unjust and unfair but it is also contrary to the
correct interpretation of the fixing of interest rates under Sections 243 and
244 of the Insurance Code. And since petitioner's claims is based on an
insurance contract, then it is the Insurance Code which must govern and
not the Civil Code.
We rule for respondent EASCO. The legal rate of interest in the case at bar
is six (6%) per annum as correctly held by the Appellate Court.
Section 243 of the Insurance Code provides:
The amount of any loss or damage for which an insurer may
be liable, under any policy other than life insurance policy,
shall be paid within thirty days after proof of loss is received
by the insurer and ascertainment of the loss or damage is
made either by agreement between the insured and the
insurer or by arbitration; but if such ascertainment is not
had or made within sixty days after such receipt by the
insurer of the proof of loss, then the loss or damage shall be
paid within ninety days after such receipt. Refusal or failure
to pay the loss or damage within the time prescribed herein
will entitle the assured to collect interest on the proceeds of
the policy for the duration of the delay at the rate of twice
the ceiling prescribed by the Monetary Board, unless such
failure or refusal to pay is based on the ground that the
claim is fraudulent.
Section 244 of the aforementioned Code also provides:
In case of any litigation for the enforcement of any policy or
contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a
insured has been unreasonably denied or withheld; and in
the affirmative case, the insurance company shall be
adjudged to pay damages which shall consist of attorney's
fees and other expenses incurred by the insured person by
reason of such undeniable denial or withholding of payment
plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the insured, from the
date following the time prescribed in section two hundred
forty-two or in section two hundred forty-three, as the case
may be, until the claim is fully satisfied; Provided, That the
failure to pay any such claim within the time prescribed in
said sections shall be considered prima facie evidence of
unreasonable delay in payment.
In the case at bar, the Court of Appeals made no finding that there was an
unjustified refusal or withholding of payment on petitioner's claim. In fact,
respondent court had this to say on EASCO's refusal to settle the claim of
petitioner:
... EASCO's refusal to settle the claim to Tio Khe Chio was
based on some ground which, while not sufficient to free it
from liability under its policy, nevertheless is sufficient to
negate any assertion that in refusing to pay, it acted
unjustifiably.
xxx xxx xxx
The case posed some genuine issues of interpretation of the
terms of the policy as to which persons may honestly differ.
This is the reason the trial court did not say EASCO's refusal
was unjustified. 3
Simply put, the aforecited sections of the Insurance Code are not pertinent
to the instant case. They apply only when the court finds an unreasonable
delay or refusal in the payment of the claims.
Neither does Circular No. 416 of the Central Bank which took effect on July
29, 1974 pursuant to Presidential Decree No. 116 (Usury Law) which raised
the legal rate of interest from six (6%) to twelve (12%) per cent apply to
the case at bar as by the petitioner. The adjusted rate mentioned in the
circular refers only to loans or forbearances of money, goods or credits and
court judgments thereon but not to court judgments for damages arising
from injury to persons and loss of property which does not involve a loan. 4
In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017,
July 28, 1986, 143 SCRA 158, the Court declared that the legal rate of
interest is six (6%) per cent per annum, and not twelve (12%) per cent,
where a judgment award is based on an action for damages for personal
injury, not use or forbearance of money, goods or credit. In the same vein,
the Court held in GSIS vs. Court of Appeals, G.R. No. 52478, October 30,
1986, 145 SCRA 311, that the rates under the Usury Law (amended by P.D.
116) are applicable only to interest by way of compensation for the use or
forbearance of money, interest by way of damages is governed by Article
2209 of the Civil Code.
Clearly, the applicable law is Article 2209 of the Civil Code which reads:
If the obligation consists in the payment of a sum of money
and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the
payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six per cent per
annum.
And in the light of the fact that the contending parties did not allege the
rate of interest stipulated in the insurance contract, the legal interest was
properly pegged by the Appellate Court at six (6%) per cent.
WHEREFORE, in view of the foregoing, the petition is DENIED for lack of
merit.
SO ORDERED.
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,
INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for
damage sustained on a shipment of goods can be a solidary, or joint and
several, liability of the common carrier, the arrastre operator and the
customs broker; (b) whether the payment of legal interest on an award for
loss or damage is to be computed from the time the complaint is filed or
from the date the decision appealed from is rendered; and (c) whether the
applicable rate of interest, referred to above, is twelve percent (12%) or
six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the
antecedent and undisputed facts that have led to the controversy are
hereunder reproduced:
This is an action against defendants shipping company,
arrastre operator and broker-forwarder for damages
sustained by a shipment while in defendants' custody, filed
by the insurer-subrogee who paid the consignee the value of
such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were
shipped from Yokohama, Japan for delivery vessel "SS
EASTERN COMET" owned by defendant Eastern Shipping
Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under
plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.
There were, to be sure, other factual issues that confronted both courts.
Here, the appellate court said:
Upon arrival of the shipment in Manila on December 12,
1981, it was discharged unto the custody of defendant
Metro Port Service, Inc. The latter excepted to one drum,
said to be in bad order, which damage was unknown to
plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation
received the shipment from defendant Metro Port Service,
Inc., one drum opened and without seal (per "Request for
Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage
Corporation made deliveries of the shipment to the
consignee's warehouse. The latter excepted to one drum
which contained spillages, while the rest of the contents was
adulterated/fake (per "Bad Order Waybill" No. 10649, Exh.
E).
Plaintiff contended that due to the losses/damage sustained
by said drum, the consignee suffered losses totaling
P19,032.95, due to the fault and negligence of defendants.
Claims were presented against defendants who failed and
refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was
compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became
subrogated to all the rights of action of said consignee
against defendants (per "Form of Subrogation", "Release"
and Philbanking check, Exhs. M, N, and O). (pp. 85-
86, Rollo.)
Defendants filed their respective answers, traversing the
material allegations of the complaint contending that: As for
defendant Eastern Shipping it alleged that the shipment was
discharged in good order from the vessel unto the custody
of Metro Port Service so that any damage/losses incurred
after the shipment was incurred after the shipment was
turned over to the latter, is no longer its liability (p. 17,
Record); Metroport averred that although subject shipment
was discharged unto its custody, portion of the same was
already in bad order (p. 11, Record); Allied Brokerage
alleged that plaintiff has no cause of action against it, not
having negligent or at fault for the shipment was already in
damage and bad order condition when received by it, but
nonetheless, it still exercised extra ordinary care and
diligence in the handling/delivery of the cargo to consignee
in the same condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained
losses/damages;
2. Whether or not these losses/damages were
sustained while in the custody of defendants
(in whose respective custody, if
determinable);
3. Whether or not defendant(s) should be held
liable for the losses/damages (see plaintiff's
pre-Trial Brief, Records, p. 34; Allied's pre-Trial
Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt
that the shipment sustained losses/damages.
The two drums were shipped in good order
and condition, as clearly shown by the Bill of
Lading and Commercial Invoice which do not
indicate any damages drum that was shipped
(Exhs. B and C). But when on December 12,
1981 the shipment was delivered to
defendant Metro Port Service, Inc., it excepted
to one drum in bad order.
Correspondingly, as to the second issue, it
follows that the losses/damages were
sustained while in the respective and/or
successive custody and possession of
defendants carrier (Eastern), arrastre operator
(Metro Port) and broker (Allied Brokerage).
This becomes evident when the Marine Cargo
Survey Report (Exh. G), with its "Additional
Survey Notes", are considered. In the latter
notes, it is stated that when the shipment was
"landed on vessel" to dock of Pier # 15, South
Harbor, Manila on December 12, 1981, it was
observed that "one (1) fiber drum (was) in
damaged condition, covered by the vessel's
Agent's Bad Order Tally Sheet No. 86427."
The report further states that when defendant
Allied Brokerage withdrew the shipment from
defendant arrastre operator's custody on
January 7, 1982, one drum was found opened
without seal, cello bag partly torn but
contents intact. Net unrecovered spillages
was
15 kgs. The report went on to state that when
the drums reached the consignee, one drum
 was found with adulterated/faked contents. It
is obvious, therefore, that these
losses/damages occurred before the shipment
reached the consignee while under the
successive custodies of defendants. Under
Art. 1737 of the New Civil Code, the common
carrier's duty to observe extraordinary
diligence in the vigilance of goods remains in
full force and effect even if the goods are
temporarily unloaded and stored in transit in
the warehouse of the carrier at the place of
destination, until the consignee has been
advised and has had reasonable opportunity
to remove or dispose of the goods (Art. 1738,
NCC). Defendant Eastern Shipping's own
exhibit, the "Turn-Over Survey of Bad Order
Cargoes" (Exhs. 3-Eastern) states that on
December 12, 1981 one drum was found
"open".
and thus held:
WHEREFORE, PREMISES CONSIDERED,
judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the
present legal interest of 12% per annum from
October 1, 1982, the date of filing of this
complaints, until fully paid (the liability of
defendant Eastern Shipping, Inc. shall not
exceed US$500 per case or the CIF value of
the loss, whichever is lesser, while the liability
of defendant Metro Port Service, Inc. shall be
to the extent of the actual invoice value of
each package, crate box or container in no
case to exceed P5,000.00 each, pursuant to
Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims
and crossclaim of
defendant/cross-claimant Allied
Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find
that the conclusion drawn therefrom is correct. As there is
sufficient evidence that the shipment sustained damage
while in the successive possession of appellants, and
therefore they are liable to the appellee, as subrogee for the
amount it paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes
error and grave abuse of discretion on the part of the appellate court when
 I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY
LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS
BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS
GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF
PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE
OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE
DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF
SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM
BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by
petitioner carrier are not all that novel. Indeed, we do have a fairly good
number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the
shipment of goods lasts from the time the articles are surrendered to or
unconditionally placed in the possession of, and received by, the carrier for
transportation until delivered to, or until the lapse of a reasonable time for
their acceptance by, the person entitled to receive them (Arts. 1736-1738,
Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar
Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or
arrive in damaged condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an express finding
of negligence to hold it liable (Art. 1735, Civil Code; Philippine National
Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court
of Appeals, 131 SCRA 365). There are, of course, exceptional cases when
such presumption of fault is not observed but these cases, enumerated in
Article 1734 1 of the Civil Code, are exclusive, not one of which can be
applied to this case.
The question of charging both the carrier and the arrastre operator with
the obligation of properly delivering the goods to the consignee has, too,
been passed upon by the Court. In Fireman's Fund Insurance vs. Metro
Port Services (182 SCRA 455), we have explained, in holding the carrier
and the arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the
arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5
[1967]. The relationship between the consignee and the
common carrier is similar to that of the consignee and the
arrastre operator (Northern Motors, Inc. v. Prince Line, et al.,
107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE
to take good care of the goods that are in its custody and to
deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with the
obligation to deliver the goods in good condition to the
consignee.
We do not, of course, imply by the above pronouncement that the arrastre
operator and the customs broker are themselves always and necessarily
liable solidarily with the carrier, or vice-versa, nor that attendant facts in a
given case may not vary the rule. The instant petition has been brought
solely by Eastern Shipping Lines, which, being the carrier and not having
been able to rebut the presumption of fault, is, in any event, to be held
liable in this particular case. A factual finding of both the court a quo and
the appellate court, we take note, is that "there is sufficient evidence that
the shipment sustained damage while in the successive possession of
appellants" (the herein petitioner among them). Accordingly, the liability
imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that
deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money
arising out of short deliveries and pilferage of goods. In this case, appellee
Malayan Insurance (the plaintiff in the lower court) averred in its complaint
that the total amount of its claim for the value of the undelivered goods
amounted to P3,947.20. This demand, however, was neither established in
its totality nor definitely ascertained. In the stipulation of facts later
entered into by the parties, in lieu of proof, the amount of P1,447.51 was
agreed upon. The trial court rendered judgment ordering the appellants
(defendants) Manila Port Service and Manila Railroad Company to pay
appellee Malayan Insurance the sum of P1,447.51 with legal interest
thereon from the date the complaint was filed on 28 December 1962 until
full payment thereof. The appellants then assailed, inter alia, the award of
legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of
money, absent a stipulation, is the legal rate. Such interest
normally is allowable from the date of demand, judicial or
extrajudicial. The trial court opted for judicial demand as the
starting point.
But then upon the provisions of Article 2213 of the Civil
Code, interest "cannot be recovered upon unliquidated
claims or damages, except when the demand can be
established with reasonable certainty." And as was held by
this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if
the suit were for damages, "unliquidated and not known
until definitely ascertained, assessed and determined by the
courts after proof (Montilla c. Corporacion de P.P. Agustinos,
25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the
decision." (Emphasis supplied)
The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for
"Recovery of Damages for Injury to Person and Loss of Property." After
trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and third party defendants and against the
defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and
Michael, Incorporated to pay jointly and severally the
following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the
sum of P131,084.00 which is the value of the boat F B Pacita
III together with its accessories, fishing gear and equipment
minus P80,000.00 which is the value of the insurance
recovered and the amount of P10,000.00 a month as the
estimated monthly loss suffered by them as a result of the
fire of May 6, 1969 up to the time they are actually paid or
already the total sum of P370,000.00 as of June 4, 1972 with
legal interest from the filing of the complaint until paid and
to pay attorney's fees of P5,000.00 with costs against
defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount
of damages awarded but sustained the trial court in adjudging legal
interest from the filing of the complaint until fully paid. When the
appellate court's decision became final, the case was remanded to
the lower court for execution, and this was when the trial court
issued its assailed resolution which applied the 6% interest per
annum prescribed in Article 2209 of the Civil Code. In their petition
for review on certiorari, the petitioners contended that Central
Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of
Act 2655, as amended, Monetary Board in its Resolution No.
1622 dated July 29, 1974, has prescribed that the rate of
interest for the loan, or forbearance of any money, goods, or
credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve
(12%) percent per annum. This Circular shall take effect
immediately. (Emphasis found in the text)
should have, instead, been applied. This Court 6 ruled:
The judgments spoken of and referred to are judgments in
litigations involving loans or forbearance of any money,
goods or credits. Any other kind of monetary judgment
which has nothing to do with, nor involving loans or
forbearance of any money, goods or credits does not fall
within the coverage of the said law for it is not within the
ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be
executed is one rendered in an Action for Damages for injury
to persons and loss of property and does not involve any
loan, much less forbearances of any money, goods or
credits. As correctly argued by the private respondents, the
law applicable to the said case is Article 2209 of the New
Civil Code which reads
Art. 2209. If the obligation consists in the
payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages,
there being no stipulation to the contrary,
shall be the payment of interest agreed upon,
and in the absence of stipulation, the legal
interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc.,
v. Cruz, 7 promulgated on 28 July 1986. The case was for damages
occasioned by an injury to person and loss of property. The trial court
awarded private respondent Pedro Manabat actual and compensatory
damages in the amount of P72,500.00 with legal interest thereon from the
filing of the complaint until fully paid. Relying on the Reformina
v. Tomol case, this Court 8 modified the interest award from 12% to 6%
interest per annum but sustained the time computation thereof, i.e., from
the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for
the recovery of damages arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the
petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the
legal rate from November 29, 1968, the date of the filing of the complaint
until full payment . . . ." Save from the modification of the amount granted
by the lower court, the Court of Appeals sustained the trial court's
decision. When taken to this Court for review, the case, on 03 October
1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby
MODIFIED and considering the special and environmental
circumstances of this case, we deem it reasonable to render
a decision imposing, as We do hereby impose, upon the
defendant and the third-party defendants (with the
exception of Roman Ozaeta) a solidary (Art. 1723, Civil
Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of
 FIVE MILLION (P5,000,000.00) Pesos to cover all damages
(with the exception to attorney's fees) occasioned by the
loss of the building (including interest charges and lost
rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney's fees, the total
sum being payable upon the finality of this decision. Upon
failure to pay on such finality, twelve (12%) per cent interest
per annum shall be imposed upon aforementioned amounts
from finality until paid. Solidary costs against the defendant
and third-party defendants (Except Roman Ozaeta).
(Emphasis supplied)
A motion for reconsideration was filed by United Construction,
contending that "the interest of twelve (12%) per cent per
annum imposed on the total amount of the monetary award was in
contravention of law." The Court 10 ruled out the applicability of the
Reformina and Philippine Rabbit Bus Lines cases and, in its
resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12%
interest pursuant to Central Bank Circular No. 416 . . . is
applicable only in the following: (1) loans; (2) forbearance of
any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to
judgments involving loans or forbearance of any money,
goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz,
143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA
260 [1985]). It is true that in the instant case, there is
neither a loan or a forbearance, but then no interest is
actually imposed provided the sums referred to in the
judgment are paid upon the finality of the judgment. It is
delay in the payment of such final judgment, that will cause
the imposition of the interest.
It will be noted that in the cases already adverted to, the
rate of interest is imposed on the total sum, from the filing
of the complaint until paid; in other words, as part of the
judgment for damages. Clearly, they are not applicable to
the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc.,
vs. Intermediate Appellate Court 11 was a petition for review
on certiorari from the decision, dated 27 February 1985, of the then
Intermediate Appellate Court reducing the amount of moral and exemplary
damages awarded by the trial court, to P240,000.00 and P100,000.00,
respectively, and its resolution, dated 29 April 1985, restoring the amount
of damages awarded by the trial court, i.e., P2,000,000.00 as moral
damages and P400,000.00 as exemplary damages with interest thereon at
12% per annum from notice of judgment, plus costs of suit. In a decision of
09 November 1988, this Court, while recognizing the right of the private
respondent to recover damages, held the award, however, for moral
damages by the trial court, later sustained by the IAC, to be inconceivably
large. The Court 12 thus set aside the decision of the appellate court and
rendered a new one, "ordering the petitioner to pay private respondent the
sum of One Hundred Thousand (P100,000.00) Pesos as moral damages,
with
six (6%) percent interest thereon computed from the finality of this
decision until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo
v. Ruiz 13 which arose from a breach of employment contract. For having
been illegally dismissed, the petitioner was awarded by the trial court
moral and exemplary damages without, however, providing any legal
interest thereon. When the decision was appealed to the Court of Appeals,
the latter held:
WHEREFORE, except as modified hereinabove the decision
of the CFI of Negros Oriental dated October 31, 1972 is
affirmed in all respects, with the modification that
 defendants-appellants, except defendant-appellant Merton
Munn, are ordered to pay, jointly and severally, the amounts
stated in the dispositive portion of the decision, including
the sum of P1,400.00 in concept of compensatory damages,
with interest at the legal rate from the date of the filing of
the complaint until fully paid (Emphasis supplied.)
The petition for review to this Court was denied. The records were
thereupon transmitted to the trial court, and an entry of judgment
was made. The writ of execution issued by the trial court directed
that only compensatory damages should earn interest at 6% per
annum from the date of the filing of the complaint. Ascribing grave
abuse of discretion on the part of the trial judge, a petition
for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the
payment of interest "at the legal rate" from the time of the
filing of the complaint. . . Said circular [Central Bank Circular
No. 416] does not apply to actions based on a breach of
employment contract like the case at bar. (Emphasis
supplied)
The Court reiterated that the 6% interest per annum on the
damages should be computed from the time the complaint was
filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the
matter. National Power Corporation vs. Angas, 14decided on 08 May 1992,
involved the expropriation of certain parcels of land. After conducting a
hearing on the complaints for eminent domain, the trial court ordered the
petitioner to pay the private respondents certain sums of money as just
compensation for their lands so expropriated "with legal interest
thereon . . . until fully paid." Again, in applying the 6% legal interest per
annum under the Civil Code, the Court 15 declared:
. . . , (T)he transaction involved is clearly not a loan or
forbearance of money, goods or credits but expropriation of
certain parcels of land for a public purpose, the payment of
which is without stipulation regarding interest, and the
interest adjudged by the trial court is in the nature of
indemnity for damages. The legal interest required to be
paid on the amount of just compensation for the properties
expropriated is manifestly in the form of indemnity for
damages for the delay in the payment thereof. Therefore,
since the kind of interest involved in the joint judgment of
the lower court sought to be enforced in this case is interest
by way of damages, and not by way of earnings from loans,
etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings.
The cases can perhaps be classified into two groups according to the
similarity of the issues involved and the corresponding rulings rendered by
the court. The "first group" would consist of the cases of Reformina
v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group"
would be Malayan Insurance Company v. Manila Port Service (1969),
Nakpil and Sons v. Court of Appeals (1988), and American Express
International v. Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the
6% (under the Civil Code) or 12% (under the Central Bank Circular)
interest per annum. It is easily discernible in these cases that there has
been a consistent holding that the Central Bank Circular imposing the 12%
interest per annum applies only to loans or forbearance 16 of money, goods
or credits, as well as to judgments involving such loan or forbearance of
money, goods or credits, and that the 6% interest under the Civil Code
governs when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance
of obligations in general. Observe, too, that in these cases, a common time
frame in the computation of the 6% interest per annum has been
applied, i.e., from the time the complaint is filed until the adjudged
amount is fully paid.
The "second group", did not alter the pronounced rule on the application of
the 6% or 12% interest per annum, 17depending on whether or not the
amount involved is a loan or forbearance, on the one hand, or one of
indemnity for damage, on the other hand. Unlike, however, the "first
group" which remained consistent in holding that the running of the legal
interest should be from the time of the filing of the complaint until fully
paid, the "second group" varied on the commencement of the running of
the legal interest.
Malayan held that the amount awarded should bear legal interest from the
date of the decision of the court a quo, explaining that "if the suit were for
damages, 'unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof,' then, interest 'should
be from the date of the decision.'" American Express International
v. IAC, introduced a different time frame for reckoning the 6% interest by
ordering it to be "computed from the finality of (the) decision until paid."
The Nakpil and Sons case ruled that 12% interest per annum should be
imposed from the finality of the decision until the judgment amount is
paid.
The ostensible discord is not difficult to explain. The factual circumstances
may have called for different applications, guided by the rule that the
courts are vested with discretion, depending on the equities of each case,
on the award of interest. Nonetheless, it may not be unwise, by way of
clarification and reconciliation, to suggest the following rules of thumb for
future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts 18 is breached, the contravenor can be
held liable for damages. 19 The provisions under Title XVIII on "Damages"
of the Civil Code govern in determining the measure of recoverable
damages. 20
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. 21 Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. 22 In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article
1169 23 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court 24 at the rate of 6% per annum. 25 No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. 26 Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is
AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX
PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest,
in lieu of SIX PERCENT (6%), shall be imposed on such amount upon
finality of this decision until the payment thereof.
SO ORDERED.
G.R. No. 79552 November 29, 1988
EVELYN J. SANGRADOR, joined by her husband RODRIGO
SANGRADOR, SR., petitioners,
vs.
SPOUSES FRANCISCO VALDERRAMA and TERESITA M.
VALDERRAMA, respondents.
Enrique G. Arguelles for petitioners.
Rex Suiza Castillon for respondents.
PADILLA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of
Appeals in CA-G.R. CV No. 08813, dated 13 August 1987, which modified
the decision 2 of the Regional Trial Court of Iloilo City, Branch XXIII, in Civil
Case No. 16210, entitled "Evelyn J. Sangrador, joined by her husband,
Rodrigo Sangrador, Plaintiffs, versus Spouses Francisco Valderrama and
Teresita Valderrama, Defendants."
The factual background of the case is narrated in the decision of the Court
of Appeals as follows:
On April 11, 1983 the defendants-spouses Francisco and
Teresita Valderrama obtained a P500,000 loan from Manuel
Asencio payable on or before April 12, 1984, and secured by
a real estate mortgage on their house and lot (actually 3
lots) in front of the Jaro Plaza in Iloilo City (Exh. 9).
Foreseeing that they would not be able to pay the loan and
redeem their property upon maturity of the loan, the
defendants scouted around for money-lenders who would be
willing to lend them money with which to pay off their
mortgage to Asencio.
Through the help of a loan broker, Wilson Jesena, they were
able to obtain on April 6, 1984 a P1,000,000 loan from the
plaintiff Teresita Sangrador, who is an aunt of Jesena, on the
security of the same property which they redeemed from
Asencio. The loan is evidenced by the following promissory
note (Exh. B) dated April 6, 1 984 providing for the payment
of P1,400,000 to the creditor eight months after date'.
FOR VALUE RECEIVED, we jointly and severally
promise to pay EVELYN J. SANGRADOR, or
order, at her address at No. 2 Locsin Street,
Molo, Iloilo City, Philippines, the sum of ONE
MILLION FOUR HUNDRED THOUSAND PESOS
(P1,400,000.00) Philippine Currency, EIGHT
 (8) MONTHS after date without need of Cadastral Survey of Jaro, covered by TCT Nos. T-41719,
demand. T41721 and T-41720, respectively, of the Registry of Deeds
for the City of Iloilo, together with the improvements
Should we default in the payment of the obligation or in the thereon.
manner of performance thereof and it shall become
necessary to enforce and collect on this note by or through In case of judicial execution of this obligation or any part
an attorney, the makers shall jointly and severally pay thereof, the debtors waive all their rights under the
TWENTY (20) PER CENTUM of the amount due, principal and provisions of Rule 39, Sec. 12, of the Rules of Court.
interest and charges then unpaid, which in no case shall be
less than P1,000.00. EXECUTED in the City of Iloilo, Philippines, on this 6th day of
April 1984.
The makers hereby submit to the jurisdiction of the
Municipal Trial Court of Iloilo or the Regional Trial Court of (SGD) TERESITA MONTINOLA-VALDERRAMA
Iloilo, Sixth Judicial Region, Iloilo City, as the case may be, in Maker
the event of litigation arising from this note.
(SGD) FRANCISCO VALDERRAMA
The makers of this note, jointly and severally undertake that Maker
in the event that an extraordinary inflation of the Philippine
Peso should supervene between now and eight (8) months Signed in the presence of.
after date, then the value of the Philippine Peso at the time
of the establishment of this obligation, shall be the basis of (illegible) (illegible)
payment pursuant to Art. 1250 of the Civil Code of the (Exh. B)
Philippines, and for this purpose, we hereby acknowledge
the official exchange rate of the Philippine Peso to the US The debtors allege that the amount actually received by
Dollar at P14.002 to $1. The corresponding adjustment in them was only P1,000,000 the disposition of which was
the value of the Philippine Peso shall be made in the event itemized by the broker, Wilson Jesena a, on a memo pad of
that at the time of the maturity of this obligation, the rate of "Jesena Realty" as follows:
exchange will have changed as a result of the supervening
inflation. We further agree that the official rate of exchange From the desk of:
as set by the Central Bank of the Philippines for private
transactions, shall be the basis of this adjustment. REALTOR WILSON G. Jesena, Jr.
President & Gen. Manager
This note is secured by a Real Estate Mortgage over three
(3) parcels of residential land, Lots 700, 701 and 750, of the EXPENSES
P625,000.00Manuel Asencio (SGD) FRANCISCO (SGD) TERESITA MONTINOLA-
50,000.00Commission Boy VALDERRAMA VALDERRAMA
4,000.00Atty. Arguelles
13,398.69Transfer fees (Exh. 2)
Register of Deeds and B.I.R.
Plaintiff Evelyn Sangrador made a list of the expenses
P692,398.69 chargeable to the debtors (Exh. 5) and submitted it to them
P1,000,000.00 (22 t.s.n., May 7, 1985). Payment of Atty. Arguelles'
692,398.69 attorney's fees was duly acknowledged by him (Exh. 8).
P307,601.40 Balance (Exh. 1) Jesena issued the following receipt to the defendants for his
5% commission in procuring the loan for them;
Accordingly, a Prudential Bank Cashier's check for P625,000
was issued by Sangrador to Asencio to redeem the RECEIPT
defendants' property from him. A receipt for that check was
issued by the Valderramas to the plaintiff as follows: Received from Spouses Francisco Valderrama
and Teresita Montinola Valderrama the
RECEIPT amount of FIFTY THOUSAND PESOS
(P50,000.00) representing commission for my
Date April 6, 1984 efforts and expertise in effecting the
procurement of a loan from a financier for the
Received from EVELYN JESENA SANGRADOR amount of ONE MILLION PESOS
the amount of SIX HUNDRED TWENTY FIVE (P1,000,000.00).
THOUSAND PESOS (625,000.00)
Bank Prudential Bank Cashier's Check No. (SGD) REALTOR WILSON JESENA, JR.
14937. The balance of THREE HUNDRED REB License No. 3441-R
SEVENTY FIVE THOUSAND PESOS
(P375,000.00) is to be paid to the (Exh. 3)
undersigned after deducting all expenses
incurred in payment of real estate taxes, The balance of P307,601.40 was paid to the defendants by
attorney's fees, commission, Bureau of means of another Prudential Bank check for which the
Internal Revenue fees and Register of Deeds corresponding receipt (Exh. 4) was also signed by the
fees. All expenses are to be supported by mortgagors:
receipts.
RECEIPT
April 7, 1984
Received from EVELYN J. SANGRADOR the amount of THREE
HUNDRED SEVEN THOUSAND SIX HUNDRED ONE PESOS
AND FORTY CENTAVOS (P307,601.40) representing full
payment per Promissory Note dated April 6,1984.
the expenses of P67,398.69 itemized in Jesena's and her
lists (Exhs. 1 and 5), the check of P625,000 for Asencio and
the check of P307,601.40 which she issued to the
defendants for the balance of the loan, she gave to the
defendants the amount of P400,000 in cash for which no
receipt was issued by them.

(SGD) FRANCISCO (SGD) TERESITA MONTINOLA- On the other hand Francisco Valderrama testified that he
VALDERRAMA VALDERRAMA thought all along that the promissory note (Exh. B) and deed
of real estate mortgage (Exh. A) provided for a loan of only
Paid byPrudential Bank Chk. P1 million since that was the amount which they borrowed
#144358-2April 7, 1984 P307,601.40 and received from the plaintiffs. He allegedly did not notice
c/o #0033-00022-0 paid byEvelyn J. Sangrador that both documents provided for a loan of P1,400,000.

(Exh. 4) After the trial, the court rendered judgment on November 7,

Evelyn Sangrador admitted that the receipts (Exhs. 2 and 4)
were issued to her by the defendants (14, 21 t.s.n., May 7,
1985).
When the defendants failed to pay the sum of P1,400,000
stated in the promissory note on December 6, 1984 despite
the plaintiffs' written demands (Exhs. C and D) a complaint
for judicial foreclosure of the real estate mortgage was filed
against them on December 21, 1984.
(Exh. G).
The defendants in their answer denied that the loan was
P1,400,000. They alleged that it was only P1,000,000.00 and
that the additional P400,000 represented usurious interest.
At the trial, the plaintiff testified that the sum of P1,400,000
was received by the defendants. She alleged that besides
1985 binding the debtors to the terms of the promissory
note and mortgage deed. 3
The dispositive part of the trial court's judgment reads as
follows:
WHEREFORE, in the light of the foregoing, considerations
and findings of this Court, judgment is hereby rendered:
1) Directing the foreclosure of the Deeds of Real Estate
Mortgage (Exh. 'A');
2) Ordering the defendants to pay the mortgage obligation
in the amount of P1,400,000.00 plus the sum of
P569,718.61 pursuant to the escalation clause contained in
paragraph 14 of the Deed of Real Estate Mortgage; to pay
attorney's fees equivalent to twenty (20%) percentum of the
total indebtedness including costs, plus 12% interest per
annum from December 18,1984 until fully paid, all of which
 shall be paid into Court within 90 days from date of the
service of the order;
3) In default of such payment, ordering the mortgaged
properties to be sold at public auction to realize the
mortgage debt and costs.
SO ORDERED. 4
Private respondents, defendants in the trial court, appealed to the Court of
Appeals, where the appeal was docketed as CA G.R. CV No. 08813. On 12
August 1987, respondent Court of Appeals promulgated its
decision 5modifying the decision of the trial court, the dispositive part of
which reads, as follows:
WHEREFORE, the appealed decision is hereby modified by
ordering the defendants, within (90) days from date of
service of this decision, to pay to the plaintiffs the principal
loan of P1,000,000 with 12% interest per annum from April
6,1984 until fully paid, P50,000 as attorney's fees, and the
costs of this suit. In default of such payment, the mortgaged
property shall be sold at public auction to realize the sums
due to plaintiffs under this judgment.
SO ORDERED. 6
Hence, the present petition for review on certiorari of the decision of the
Court of Appeals. Petitioners present the following
ASSIGNMENT OF ERRORS
1. FIRST ASSIGNED ERROR:
THE HONORABLE COURT OF APPEALS ERRED
IN NULLIFYING THE ESCALATION CLAUSE AS
FOUND BY THE TRIAL COURT ORDERING THE
PAYMENT BY RESPONDENTS OF THE SUM OF
P569,718.61.
2. SECOND ASSIGNED ERROR:
THE HONORABLE COURT OF APPEALS ERRED
IN FINDING THE PRINCIPAL LOAN TO BE IN THE
SUM OF P1,000,000.00 INSTEAD OF
P1,400,000.00 AS FOUND BY THE LOWER
COURT.
3. THIRD ASSIGNED ERROR:
THE HONORABLE COURT OF APPEALS ERRED
IN REDUCING PETITIONER'S AWARD OF
ATTORNEY'S FEES TO P50,000.00 INSTEAD OF
20% OF THE TOTAL INDEBTEDNESS AS FOUND
BY THE TRIAL COURT. 7
The pivotal issue to be resolved in this case is whether or not the loan
obtained by private respondents from petitioners was in the amount of
P1,400,000.00 or P1,000,000.00 only.
In resolving this issue, the Court of Appeals in its decision under review,
held:
After carefully reviewing the evidence, We are convinced
that the trial court erred in finding that the loan was
P1,400,000 as stated in the promissory note (Exh. B) and
deed of mortgage. Like the trial court, We do not believe
defendant Valderrama's allegation that he did not notice
 that the amount stated in the promissory note was
P1,400,000, instead of only P1,000,000, until demands for
payment were sent to him by the plaintiffs' counsel. But
neither do We believe the plaintiff Evelyn Sangrador's
allegation that besides the sum of P1,000,000 admittedly
received by the defendants and evidenced by checks and
receipts, she also gave them P400,000.00 in cash without
receipt. This is a case, therefore, where both parties
prevaricated.
The documentary evidence preponderantly proves that the
loan was only P1,000,000, not P1,400,000. The checks and
receipts and the broker's computations found in Exhibit 'l'
show clearly that the loan was only P1,000,000. Even the
broker's P50,000 commission was computed on the basis of
5% of P1 million. The circumstance that the alleged
payment of P400,000 in cash to the debtors is not
evidenced by a receipt, is conclusive proof that it was not a
part of the loan. The loan was only P1 million.
Obviously, the P400,000 that was added to the principal
represents a hidden interest charge for the promissory note
contains no express provision fixing the rate of interest on
the loan. 8
Petitioners assail the foregoing findings and conclusions of the Court of
Appeals, contending that the amount of the loan as clearly and expressly
stated in the Deed of Real Estate Mortgage 9 and the Promissory Note, 10 is
P1,400,000.00 and not P1,000,000.00 only.
Because the findings of the trial court and the Court of Appeals differ on
this crucial factual issue, we have carefully reviewed and examined the
evidence. The finding of the Court of Appeals that the loan is in the
amount of P1,000,000.00 only is supported by substantial evidence.
The Promissory Note (Exh- B) and the Deed of Real Estate Mortgage (Exh.
A) executed by the respondents in favor of the petitioners indeed state
that the loan is in the amount of P1,400,000.00. However, the other
documents executed by the parties contemporaneously with said
Promissory Note and Deed of Real Estate Mortgage clearly show that the
actual loan, i.e. the amount received by respondents, was only
P1,000,000.00. Thus, for the payment made by the petitioners for the
account of the respondents to Manuel Asencio, thereby releasing the
mortgage on the property, so that it could in turn be mortgaged to the
petitioners, the respondents signed a receipt in favor of the petitioners in
the amount of P625,000.00 (Exh. 2). The respondents executed another
receipt in favor of the petitioners for the amount of P307,601.40,"
representing full payment per promissory note dated 6 April 1984" (Exh.
4). The broker who arranged for the loan signed a receipt in favor of the
respondents for the amount of P50,000.00 representing his commission in
effecting the loan "for the amount of P1,000,000.00" (Exh. 3).<re||
an1w> The attorney who assisted in the transaction was paid
attorney's fees in the amount of P4,000.00 (Exh. 8). The petitioners
submitted a list of expenses chargeable to the respondents, totalling
P13,398.69 covering transfer fees, expenses in the Register of Deeds and
payments to the BIR (Exh. 5). All told, the loan of P1,000,000.00 obtained
by the respondents from the petitioners was applied or used in the
following manner at the time the loan was obtained:
P625,00.00 to pay Manuel Asencio (first creditor)
50,000.00 to pay Wilson Jesena (for broker's commission)
4,000.00 to pay Atty. Enrique Arguelles (for attorney's
fees)
13,398.69 to pay transfer fees and other expenses in
Register of Deeds and BIR
307,601.40 to pay respondents as balance of the loan
P1,000,000.09 TOTAL
The above itemization tallies with the breakdown of the proceeds of the
loan, made by the loan broker Wilson Jesena (Exh. 1).
Petitioners contend that over and above the P1,000,000.00, the amount of
P400,000.00 was delivered by them to the respondents in cash and that
this delivery was not evidenced by a receipt because, anyway, said
amount (P400,000.00) is already included in the statement of the loan
amount in the promissory note and the deed of real estate mortgage,
which is P1,400,000.00. We find this contention to be quite incredible, to
say the least. It is contrary to ordinary human experience. Normally, in
delivering a hefty sum like P400,000.00 in cash, one would require some
sort of receipt or acknowledgment from the recipient.
Moreover, if petitioners were careful enough to require from the
respondents the separate receipts above-mentioned, there was no reason
why they would not require another receipt from the respondents for said
amount of P400,000.00. And if, as petitioners now allege, they did not
anymore require a receipt for the P400,000.00 allegedly delivered by them
in cash to the respondents because the loan amount stated in the
promissory note and the real estate mortgage already included said
amount of P400,000.00, then, by the same reasoning, there was no need
for requiring the other separate receipts abovementionedas the amounts
they referred to were already a part of the loan amount stated in the
promissory note and real estate mortgageand yet, said separate receipts
were required by petitioners of the respondents.
In short, we agree with the finding of the Court of Appeals that the
disputed amount of P400,000.00 was a hidden interest that the petitioners
had required the respondents to pay at the maturity of the loan, but said
amount of P400,000.00 was not received by or delivered to the
respondents. This conclusion is strengthened by the fact that the
promissory note and the deed of real estate mortgage (Exhs. B and A),
strangely enough, do not contain any express stipulation on interest, or
rate of interest, when the loan involved therein is in the substantial
amount of allegedly P1,400,000.00.
Petitioners may conceivably argue that, granting that the disputed amount
of P400,000.00 is interest on the loan of P1,000,000.00, yet, in line with
this Court's decision in Liam Law vs. Oriental Sawmill Co., et al., 11 there is
no longer any ceiling on interest or interest rates on loans. This may be so
in a situation where the parties openly and expressly agree on a specific
rate of interest to accrue on the loan but, as the Court of Appeals in its
decision under review correctly pointed out, in the case at bar, no interest
rate is expressly stipulated in the promissory note and deed of real estate
mortgage. Circular No. 905 of the Central Bank dated 10 December 1982
provides:
Section 1. The rate of interest, including commissions,
premiums, fees and other charges on a loan or forbearance
of any money, goods, or credits, regardless of maturity and
whether secured or unsecured, that may be charged or
collected by any person, whether natural or juridical, shall
not be subject to any ceiling prescribed under or pursuant to
the Usury law, as amended.
Section 2. The rate of interest for the loan or forbearance of
any money, goods or credits and the rate allowed in
judgments, in the absence of express contract as to such
rate of interest, shall continue to be twelve per cent (1 2%)
per annum. (Emphasis supplied)
The rate of interest for loans or forbearance of money, in the absence of
express contract as to such rate of interest, shall continue therefore to be
twelve per cent (12%) per annum. 12
Accordingly, the loan of P1,000,000.00 in the instant case should earn a
twelve per cent (12%) interest per annum computed from 6 April 1984
when the loan was obtained by the respondents from the petitioners until
paid.
Petitioners also impugn the Court of Appeals in nullifying the escalation
clause in the Deed of Real Estate Mortgage and Promissory Note. Under
such escalation clause, sustained by the trial court, the amount of
P569,718.61 was awarded to herein petitioners by way of adjustment of
the loan of P1,400,000.00 after the eight (8) month period of the loan. 13
The Deed of Real Estate Mortgage provides, among others, as follows:
14. That in the event that an extra-ordinary inflation of the
Philippine peso should supervene, it is hereby stipulated
that the value of the currency at the time of the
establishment of the obligation shall be the basis of
payment pursuant to Art. 1250 of the New Civil Code of the
Philippines. For this purpose, MORTGAGORS hereby
recognize the official exchange rate of the Philippine Peso to
the US dollar at 14.002 to one. The corresponding
adjustment in the value of the Philippine Peso shall be made
should at the time of the maturity of this obligation, the rate
of exchange will have changed as a result of the
supervening inflation. It is further agreed that the official
rate of exchange as set by the Central Bank for private
transactions shall be the basis of this adjustment. (Emphasis
supplied).
A cursory reading of the aforequoted provision of the Deed of Real Estate
Mortgage (similar stipulation is contained in the Promissory Note) shows
that the escalation clause takes effect "in the event that an extraordinary
inflation of the Philippine Peso should supervene," between the date the
loan was granted and the date of its maturity, in which case, the value of
the (peso) currency at the time of the establishment of the obligation shall
be the basis of payment. To give meaning to the "value of the currency at
the time of the establishment of the obligation," the parties agreed that on
6 April 1984 (date of loan), the exchange rate of the peso to the US dollar
was 14.002 to one.
Consequently, under the aforesaid escalation clause, "(t)he corresponding
adjustment in the value of the Philippine Peso" at the maturity of the
obligation crucially depends upon the supervening of an extraordinary
inflation in the sense contemplated in Article 1250 of the Civil Code of the
Philippines. 14
In Filipino Pipe and Foundry Corporation vs. National Waterworks and
Sewerage Authority, 15 this Court held:
Extraordinary inflation exists when 'there is a decrease or
increase in the purchasing power of the Philippine currency
which is unusual or beyond the common fluctuation in the
value of said currency, and such decrease or increase could
not have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the
establishment of the obligation. (Tolentino Commentaries
and Jurisprudence on the Civil Code Vol. IV, p. 284.)
An example of extraordinary inflation is the following
description of what happened to the deutschmark in 1920:
More recently, in the 1920's Germany
experience a case of hyper-inflation. In early
1921, the value of the German mark was 4.2
to the U.S. dollar. By May of the same year, it
had stumbled to 62 to the U.S. dollar. And as
prices went up rapidly, so that by October
1923, it had reached 4.2 trillion to the U.S.
dollar! (Bernardo M. Villegas & Victor R. Abola,
Economics, An Introduction [Third Edition].
As reported, "prices were going up every week, then every
day, then every hour. Women were paid several times a day
so that they could rush out and exchange their money for
 something of value before what little purchasing power was
left dissolved in their hands. Some workers tried to beat the
constantly rising prices by throwing their money out of the
windows to their waiting wives, who would rush to unload
the nearly worthless paper. A postage stamp cost millions of
marks and a loaf of bread, billions," (Sidney Rutberg, "The
Money Baloon" New York; Simon and Schuster, 1975, p. 19,
cited in Economics, An Introduction by Villegas & Abola, 3rd
Ed.)
While appellant's voluminous records and statistics proved
that there has been a decline in the purchasing power of the
Philippine peso, this downward fall of the currency cannot be
considered "extraordinary." It is simply a universal trend that
has not spared our country. 16
Since petitioners failed to prove the supervening of extraordinary inflation
between 6 April 1984 and 7 December 1984no proofs were presented on
how much, for instance, the price index of goods and services had risen
during the intervening periodan extraordinary inflation cannot be
assumed; consequently, there is no reason or basis, legal or factual, for
adjusting the value of the Philippine Peso in the settlement of respondents'
obligation.
Finally, the Court of Appeals did not commit any error in reducing the
award of attorney's fees to P50,000.00. The contractual provision for
attorney's fees may be modified by the courts in the exercise of their
sound judicial discretion. 17
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals
dated 12 August 1987 is AFFIRMED. With costs against petitioners.
SO ORDERED.