FEB 22-ADDITIONAL CASES The "first group" would consist of the cases of Reformina v.

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).

• Eastern Shipping Lines v. Court of Appeals, 234 SCRA 78, 1994 - EV 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).
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner, In the "first group", the basic issue focuses on the application of either the 6% (under the
vs. Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. discernible in these cases that there has been a consistent holding that the Central Bank
VITUG, J.: Circular imposing the 12% interest per annum applies only to loans or forbearance of money,
goods or credits, as well as to judgments involving such loan or forbearance of money,
Summary: 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
Two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS delay in the performance of obligations in general. Observe, too, that in these cases, a
EASTERN COMET" owned by defendant Eastern Shipping Lines. The shipment was insured under common time frame in the computation of the 6% interest per annum has been applied, i.e.,
respondent’s (Mercantile Insurance Company, Inc) Marine Insurance Policy No. 81/01177 for from the time the complaint is filed until the adjudged amount is fully paid.
P36,382,466.38.
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest
Upon arrival of the shipment in Manila, it was discharged unto the custody of defendant Metro Port per annum, depending on whether or not the amount involved is a loan or forbearance, on the one
Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which
to plaintiff. 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
Thereafter, Allied Brokerage Corp received the shipment from Metro Port, one drum opened and running of the legal interest.
without seal
Malayan held that the amount awarded should bear legal interest from the date of
Allied Brokerage Corp made deliveries of the shipment to the consignee's warehouse. The latter the decision of the court a quo, explaining that "if the suit were for damages, 'unliquidated
excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake and not known until definitely ascertained, assessed and determined by the courts after
proof,' then, interest 'should be from the date of the decision.'"
Respondent Mercantile 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 Petitioner American Express International v. IAC, introduced a different time frame for
Eastern(common carrier), Metro Port(arrastre operator) and Allied Brokerage(customs broker). reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision
Claims were presented against them who failed and refused to pay the same. until paid."

As a consequence of the losses sustained, Respondent Mercantile was compelled to pay the The Nakpil and Sons case ruled that 12% interest per annum should be imposed
consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated from the finality of the decision until the judgment amount is paid.
to all the rights of action of said consignee against Petitioner Eastern, Metro Port and Allied
Brokerage. 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,
(Court a quo & CA decision: amount of P19,032.95, with the present legal interest of 12% per depending on the equities of each case, on the award of interest. Nonetheless, it may not be
annum from October 1, 1982, the date of filing of this complaints, until fully paid) unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for
future guidance.
SC: (6% from the the decision of the court a quo)
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts
There is sufficient evidence that the shipment sustained damage while in the successive possession or quasi-delicts is breached, the contravenor can be held liable for damages. The
of Petitioner Eastern, Metro Port and Allied Brokerage. Accordingly, the liability imposed on Eastern provisions under Title XVIII on "Damages" of the Civil Code govern in determining the
Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are measure of recoverable damages.
others solidarily liable with it.
II. With regard particularly to an award of interest in the concept of actual and compensatory
It is over the issue of legal interest adjudged by the appellate court that deserves more than damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
just a passing remark.
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
The court cited several cases and classified them into two groups according to the similarity loan or forbearance of money, the interest due should be that which may have been
of the issues involved and the corresponding rulings rendered by the court. 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 Plaintiff contended that due to the losses/damage sustained by said drum, the consignee
annum to be computed from default, i.e., from judicial or extrajudicial demand under and suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims
subject to the provisions of Article 1169 of the Civil Code. were presented against defendants who failed and refused to pay the same.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
interest on the amount of damages awarded may be imposed at the discretion of the court at P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or the rights of action of said consignee against defendants (per "Form of Subrogation", "Release"
damages except when or until the demand can be established with reasonable certainty. and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
Accordingly, where the demand is established with reasonable certainty, the interest shall xxxxx
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 There were, to be sure, other factual issues that confronted both courts. Here, the appellate court
made, the interest shall begin to run only from the date the judgment of the court is made (at said:
which time the quantification of damages may be deemed to have been reasonably xxxx
ascertained). The actual base for the computation of legal interest shall, in any case, be on Defendants filed their respective answers, traversing the material allegations of the complaint
the amount finally adjudged. 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
3. When the judgment of the court awarding a sum of money becomes final and executory, damage/losses incurred after the shipment was incurred after the shipment was turned over
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject
shall be 12% per annum from such finality until its satisfaction, this interim period being shipment was discharged unto its custody, portion of the same was already in bad order (p.
deemed to be by then an equivalent to a forbearance of credit. 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
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due handling/delivery of the cargo to consignee in the same condition shipment was received by
computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT it.
(12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this From the evidence the court found the following:
decision until the payment thereof. 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
FACTS: whose respective custody, if determinable);
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed 3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial
facts that have led to the controversy are hereunder reproduced: Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).

xxxx As to the first issue, there can be no doubt that the shipment sustained losses/damages. The
This is an action against defendants shipping company, arrastre operator and broker-forwarder for two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But
paid the consignee the value of such losses/damages. when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it
excepted to one drum in bad order.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for Correspondingly, as to the second issue, it follows that the losses/damages were sustained
delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under while in the respective and/or successive custody and possession of defendants carrier
Bill of Lading No. YMA-8. The shipment was insured under plaintiff's Marine Insurance Policy (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident
No. 81/01177 for P36,382,466.38. 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,
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in
custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report
bad order, which damage was unknown to plaintiff. 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
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that
defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad when the drums reached the consignee, one drum was found with adulterated/faked contents. It is
Order Survey." Exh. D). 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
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods
shipment to the consignee's warehouse. The latter excepted to one drum which contained remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the
spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. warehouse of the carrier at the place of destination, until the consignee has been advised and has
10649, Exh. E). 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 In this decision, we have begun by saying that the questions raised by petitioner carrier are not all
on December 12, 1981 one drum was found "open". that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack
and thus held: to.
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally: The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the
1. The amount of P19,032.95, with the present legal interest of 12% per annum from October time the articles are surrendered to or unconditionally placed in the possession of, and received by,
1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern the carrier for transportation until delivered to, or until the lapse of a reasonable time for their
Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court
while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods
value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its
Section 6.01 of the Management Contract); failure to observe that diligence, and there need not be an express finding of negligence to hold it
2. P3,000.00 as attorney's fees, and liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro
3. Costs. Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when
B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage such presumption of fault is not observed but these cases, enumerated in Article 1734 of the Civil
Corporation. Code, are exclusive, not one of which can be applied to this case.
SO ORDERED. (p. 207, Record).
The question of charging both the carrier and the arrastre operator with the obligation of properly
Dissatisfied, defendant's recourse to US (Court of Appeals). delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
The appeal is devoid of merit. Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and
After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is the arrastre operator liable in solidum, thus:
correct. As there is sufficient evidence that the shipment sustained damage while in the successive The legal relationship between the consignee and the arrastre operator is akin to that of a
possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship
paid to the consignee. (pp. 87-89, Rollo.) between the consignee and the common carrier is similar to that of the consignee and the arrastre
The Court of Appeals thus affirmed in toto the judgment of the court a quo. operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the
xxxx 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
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good
discretion on the part of the appellate court when — condition to the consignee.
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE
OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
GRANTED IN THE QUESTIONED DECISION; broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption
OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court
THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE a quo and the appellate court, we take note, is that "there is sufficient evidence that the
RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED. shipment sustained damage while in the successive possession of appellants" (the herein
petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc.,
ISSUES: the sole petitioner in this case, is inevitable regardless of whether there are others solidarily
(a) WON a claim for damage sustained on a shipment of goods can be a solidary, or joint and liable with it.
several, liability of the common carrier, the arrastre operator and the customs broker? —YES
(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 It is over the issue of legal interest adjudged by the appellate court that deserves more than
rendered? —-from date of decision of court a quo just a passing remark.
(c) Whether the applicable rate of interest, referred to above, is twelve percent (12%) or six
percent (6%)? —-6% Let us first see a chronological recitation of the major rulings of this Court:

1. Malayan Insurance Co., Inc., vs. Manila Port Service (May 15, 1969)
HELD: 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 The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, decided on 15 May 1969,
decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu involved a suit for recovery of money arising out of short deliveries and pilferage of goods . In this
of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the
payment thereof. 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.
RATIO: 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 Coming to the case at bar, the decision herein sought to be executed is one rendered in
interest thereon from the date the complaint was filed on 28 December 1962 until full payment an Action for Damages for injury to persons and loss of property and does not involve any loan,
thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the much less forbearances of any money, goods or credits. As correctly argued by the private
appellants, this Court ruled: respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads
—
Interest upon an obligation which calls for the payment of money, absent a stipulation, is Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor
the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
The trial court opted for judicial demand as the starting point. payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be percent per annum.
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, L-6998, February 29, 1956, 3. Philippine Rabbit Bus Lines, Inc., v. Cruz (July 28, 1986)
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; The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, promulgated on 28
Lichauco v. Guzman, July 1986. The case was for damages occasioned by an injury to person and loss of property. The
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied) 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.
2. Reformina vs. Tomol (October 11, 1985) Relying on the Reformina v. Tomol case, this Court 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
The case of Reformina vs. Tomol, rendered on 11 October 1985, was for "Recovery of Damages until fully paid.
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 4. Nakpil and Sons vs. Court of Appeals
defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly In Nakpil and Sons vs. Court of Appeals, the trial court, in an action for the recovery of damages
and severally the following persons: 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
xxx xxx xxx legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ."
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which Save from the modification of the amount granted by the lower court, the Court of Appeals sustained
is the value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was
P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as decided, thus:
the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they WHEREFORE, the decision appealed from is hereby MODIFIED and considering the
are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from special and environmental circumstances of this case, we deem it reasonable to render a decision
the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the
defendants and third party plaintiffs. (Emphasis supplied.) 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
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building
sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid. (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND
When the appellate court's decision became final, the case was remanded to the lower court for (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this
execution, and this was when the trial court issued its assailed resolution which applied the 6% decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be
interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant
certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus — and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary A motion for reconsideration was filed by United Construction, contending that "the interest of twelve
Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the (12%) per cent per annum imposed on the total amount of the monetary award was in contravention
loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the of law." The Court ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases
absence of express contract as to such rate of interest, shall be twelve (12%) percent per annum. and, in its resolution of 15 April 1988, it explained:
This Circular shall take effect immediately. (Emphasis found in the text) —
There should be no dispute that the imposition of 12% interest pursuant to Central Bank
should have, instead, been applied. This Court ruled: 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
The judgments spoken of and referred to are judgments in litigations involving loans or loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143
forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant
to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the
coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment
xxx xxx xxx 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 . . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or
total sum, from the filing of the complaint until paid; in other words, as part of the judgment for credits but expropriation of certain parcels of land for a public purpose, the payment of which is
damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.) 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
5. American Express International, Inc., vs. Intermediate Appellate Court ( February 2, 1985) 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
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court court sought to be enforced in this case is interest by way of damages, and not by way of earnings
was a petition for review on certiorari from the decision, dated 27 February 1985, of the then from loans, etc. Art. 2209 of the Civil Code shall apply.
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 Concededly, there have been seeming variances in the above holdings. The cases can
and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of perhaps be classified into two groups according to the similarity of the issues involved and
judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the the corresponding rulings rendered by the court.
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 thus set aside the The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit
decision of the appellate court and rendered a new one, "ordering the petitioner to pay private Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas
respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six (1992).
(6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied) 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).
6. Florendo v. Ruiz (February 21, 1989)
In the "first group", the basic issue focuses on the application of either the 6% (under the
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz which arose from Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily
a breach of employment contract. For having been illegally dismissed, the petitioner was awarded by discernible in these cases that there has been a consistent holding that the Central Bank
the trial court moral and exemplary damages without, however, providing any legal interest thereon. Circular imposing the 12% interest per annum applies only to loans or forbearance of money,
When the decision was appealed to the Court of Appeals, the latter held: goods or credits, as well as to judgments involving such loan or forbearance of money,
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental goods or credits, and that the 6% interest under the Civil Code governs when the transaction
dated October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, involves the payment of indemnities in the concept of damage arising from the breach or a
except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts delay in the performance of obligations in general. Observe, too, that in these cases, a
stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of common time frame in the computation of the 6% interest per annum has been applied, i.e.,
compensatory damages, with interest at the legal rate from the date of the filing of the complaint until from the time the complaint is filed until the adjudged amount is fully paid.
fully paid (Emphasis supplied.)
The "second group", did not alter the pronounced rule on the application of the 6% or 12%
The petition for review to this Court was denied. The records were thereupon transmitted to the trial interest per annum, depending on whether or not the amount involved is a loan or
court, and an entry of judgment was made. The writ of execution issued by the trial court directed forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike,
that only compensatory damages should earn interest at 6% per annum from the date of the filing of however, the "first group" which remained consistent in holding that the running of the legal interest
the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for should be from the time of the filing of the complaint until fully paid, the "second group" varied on the
certiorari assailed the said order. This Court said: commencement of the running of the legal interest.
. . . , 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 Malayan held that the amount awarded should bear legal interest from the date of
not apply to actions based on a breach of employment contract like the case at bar. (Emphasis the decision of the court a quo, explaining that "if the suit were for damages, 'unliquidated
supplied) and not known until definitely ascertained, assessed and determined by the courts after
The Court reiterated that the 6% interest per annum on the damages should be computed proof,' then, interest 'should be from the date of the decision.'"
from the time the complaint was filed until the amount is fully paid.
American Express International v. IAC, introduced a different time frame for
7. National Power Corporation vs. Angas (May 8, 1992) reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision
until paid."
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas, decided on 08 May 1992, involved the expropriation of certain parcels of land. After The Nakpil and Sons case ruled that 12% interest per annum should be imposed
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to from the finality of the decision until the judgment amount is paid.
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 The ostensible discord is not difficult to explain. The factual circumstances may have called
per annum under the Civil Code, the Court declared: 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 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.

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.

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.

Note: walang application yung court. Not editor’s note (poison notes hahahha):
In this case since what is involved is a breach of an obligation not constituting a loan or forbearance
of money; thus, the interest to be applied is 6% per annum(applying the rule under II.2)

When will the interest begin to run?—-date of decision of the court a quo. Why? (applying the rule
under II.2 again) No interest shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. Here, certainty of the claim cannot be
so reasonably established at the time the demand was made; it was only at the date of judgement
of the court a quo that the quantification of damage was deemed to have been reasonably
ascertained, thus interest should only begin to run from the date of judgment/decision of the court a
quo.

Then apply the rule under II.3— 12% per annum from finality of the decision until full payment.
• Nacar v. Gallery Frames, 703 SCRA 439, 2013 – MARKO 1st Issue: 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,
G.R. No. 189871               August 13, 2013
and this is not a violation of the principle of immutability of final judgments. The finality of the illegal
dismissal decision becomes the reckoning point instead of the reinstatement that the law decrees. In
DARIO NACAR, PETITIONER, vs. GALLERY FRAMES AND/OR FELIPE BORDEY, allowing separation pay, the final decision effectively declares that the employment relationship
JR., RESPONDENTS. ended so that separation pay and backwages are to be computed up to that point.

Topic: Interest and The Usury Law (Act o. 2655, as amended) 2nd Issue: In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, the Court laid
down the guidelines regarding the manner of computing legal interest, to wit:
Editor’s Note: Magulo talaga yung facts. Focus lang sa 2nd issue.
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:
Summary: Petitioner Nacar filed a complaint for constructive dismissal before the NLRC against
respondents GF and Bordey, Jr. On October 15, 1998, the LA rendered a Decision in favor of
petitioner and found that he was dismissed from employment without a valid or just cause. Thus, 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
petitioner was awarded backwages and separation pay in lieu of reinstatement in the amount of forbearance of money, the interest due should be that which may have been stipulated in writing.
₱158,919.92. Respondents appealed to the NLRC, but it was denied. Decision of the LA sustained. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
The CA denied respondent’s appeal as well, so they then sought relief before the SC. Finding no the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
reversible error on the part of the CA, the SC denied the petition. An Entry of Judgment was later i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
issued certifying that the resolution became final and executory on May 27, 2002. On November 5, Civil Code.
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 SC on
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
May 27, 2002. Upon recomputation, the Computation and Examination Unit of the NLRC arrived at
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
an updated amount in the sum of ₱471,320.31. On December 2, 2002, a Writ of Execution  was
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
issued by the LA ordering the Sheriff to collect from respondents the total amount of ₱471,320.31.
until the demand can be established with reasonable certainty. Accordingly, where the demand is
Respondents filed a Motion to Quash Writ of Execution arguing, among other things, that since the
established with reasonable certainty, the interest shall begin to run from the time the claim is made
LA had already awarded separation pay and limited backwages, no more recomputation is required
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
to be made of the said awards. They claimed that after the decision becomes final and executory,
established at the time the demand is made, the interest shall begin to run only from the date the
the same cannot be altered or amended anymore. The LA denied respondent’s motion, but upon
judgment of the court is made (at which time the quantification of damages may be deemed to have
appeal, the NLRC ruled in favor of the respondents and ordered the recomputation of the judgment
been reasonably ascertained). The actual base for the computation of legal interest shall, in any
award. On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC
case, be on the amount finally adjudged.
to be final and executor. The judgment award of petitioner was reassessed to be in the total amount
of only ₱147,560.19. The LA issued an Alias Writ of Execution to satisfy the judgment award that
was due to petitioner in the amount of ₱147,560.19, which petitioner eventually received. Petitioner 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
then filed a Manifestation and Motion praying for the re-computation of the monetary award to of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
include the appropriate interests. The LA granted the motion, but only up to the amount of annum from such finality until its satisfaction, this interim period being deemed to be by then an
₱11,459.73. The LA held that it is the October 15, 1998 Decision that should be enforced equivalent to a forbearance of credit.
considering that it was the one that became final and executory. Both the NLRC and CA denied
petitioner’s appeal. Hence, the present case. In the case at bar, the petitioner argues that the
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No.
reckoning point for the computation of the backwages and separation pay should be on May 27,
796 dated May 16, 2013, approved the amendment of Section 2 of Circular No. 905, Series of 1982
2002 and not when the decision of the LA was rendered on October 15, 1998. Further, petitioner
and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the pertinent
posits that he is also entitled to the payment of interest from the finality of the decision until full
portion of which reads:
payment by the respondents. Respondents counter by arguing 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 The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions
award as computed by the LA in the total amount of ₱158,919.92 governing the rate of interest in the absence of stipulation in loan contracts, thereby amending
Section 2 of Circular No. 905, Series of 1982:
The two issues in this case are (1): WON the reckoning point for the computation of the backwages
and separation pay should be May 27, 2002, the date when the resolution of the SC was entered in Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the
the Book of Entries – YES; and (2) WON petitioner is entitled to payment of interest from the finality rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be
of the decision until full payment by the respondents – YES. six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and established with reasonable certainty, the interest shall begin to run from the time the claim is made
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably
Institutions are hereby amended accordingly. 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
This Circular shall take effect on 1 July 2013.
case, be on the amount finally adjudged.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
When the judgment of the court awarding a sum of money becomes final and executory, the rate of
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per
credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum - as
annum from such finality until its satisfaction, this interim period being deemed to be by then an
reflected in the case of Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations
equivalent to a forbearance of credit.
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 And, in addition to the above, judgments that have become final and executory prior to July 1, 2013,
could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six therein.
percent (6%) per annum shall be the prevailing rate of interest when applicable.
Facts:
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v.
Bangko Sentral Monetary Board, this Court affirmed the authority of the BSP-MB to set interest rates
PERALTA, J.:
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 Petitioner Dario Nacar filed a complaint for constructive dismissal before the NLRC against
by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC NCR Case No.
prescribe different maximum rate or rates for different types of borrowings, including deposits and 01-00519-97.
deposit substitutes, or loans of financial intermediaries."
On October 15, 1998, the LA rendered a Decision in favor of petitioner and found that he was
Nonetheless, with regard to those judgments that have become final and executory prior to July 1, dismissed from employment without a valid or just cause. Thus, petitioner was awarded
2013, said judgments shall not be disturbed and shall continue to be implemented applying the rate backwages and separation pay in lieu of reinstatement in the amount of ₱158,919.92.
of interest fixed therein.1awp++i1
LA: “With the foregoing, we find and so rule that respondents failed to discharge the burden of
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping showing that complainant was dismissed from employment for a just or valid cause. All the more, it is
Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows: clear from the records that complainant was never afforded due process before he was terminated.
As such, we are perforce constrained to grant complainant’s prayer for the payments of separation
pay in lieu of reinstatement to his former position, considering the strained relationship between the
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
parties, and his apparent reluctance to be reinstated, computed only up to promulgation of this
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII
decision as follows:
on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory Separation Pay Backwages
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
Date Hired = August 1990 Date Dismissed = January 24, 1997
Rate = P198/day Rate Per Day = P196.00
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or Date of Decision = Aug. 18, 1998 Date of Decision = Aug. 18, 1998
forbearance of money, the interest due should be that which may have been stipulated in writing. Length of Service = 8 yrs. & 1 month a) 1/24/97 to 2/5/98 = 12.36 mos.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In P198.00 x 26 days x 8 months = P41,18.00 P196.00/day x 12.36 mos. = P62,986.56
the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, b) 2/6/98 to 8/18/98 = 6.4 months
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Prevailing Rate per day = P62,986.00
Civil Code. P198.00 x 26 days x 6.4 mos. = P32,947.20

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the TOTAL = P95.993.76
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 WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive dismissal and are
until the demand can be established with reasonable certainty. Accordingly, where the demand is therefore, ordered:
To pay jointly and severally the complainant the amount of ₱62,986.56 representing his separation pay; 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
To pay jointly and severally the complainant the amount of ₱95,933.36 representing his backwages; and amount of only ₱147,560.19.

All other claims are hereby dismissed for lack of merit. 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,
SO ORDERED.” pending the final computation of his backwages and separation pay.

Respondents appealed to the NLRC, but it was dismissed for lack of merit in the On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the
Resolution5 dated February 29, 2000. Accordingly, the NLRC sustained the decision of the Labor judgment award that was due to petitioner in the amount of ₱147,560.19, which petitioner
Arbiter. Respondents filed a motion for reconsideration, but it was denied. eventually received.

Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, Petitioner then filed a Manifestation and Motion praying for the re-computation of the
2000, the CA issued a Resolution dismissing the petition. Respondents filed a Motion for monetary award to include the appropriate interests.
Reconsideration, but it was likewise denied in a Resolution dated May 8, 2001.
LA: On May 10, 2005, the Labor Arbiter issued an Order granting the motion, but only up to the
Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. amount of ₱11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that
Finding no reversible error on the part of the CA, this Court denied the petition in the should be enforced considering that it was the one that became final and executory. However,
Resolution dated April 17, 2002. 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 ₱158,919.92 that
should be executed. Thus, since petitioner already received ₱147,560.19, he is only entitled to
An Entry of Judgment was later issued certifying that the resolution became final and executory the balance of ₱11,459.73.
on May 27, 2002. The case was, thereafter, referred back to the Labor Arbiter. A pre-execution
conference was consequently scheduled, but respondents failed to appear.
NLRC: Denied the appeal of petitioner. MR likewise denied.
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 CA: Denied the petition. The CA opined that since petitioner no longer appealed the October 15,
of the Resolution of the Supreme Court on May 27, 2002. Upon recomputation, the Computation 1998 Decision of the Labor Arbiter, which already became final and executory, a belated correction
and Examination Unit of the NLRC arrived at an updated amount in the sum of ₱471,320.31. 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 MR, but the same was denied.
On December 2, 2002, a Writ of Execution was issued by the Labor Arbiter ordering the Sheriff
to collect from respondents the total amount of ₱471,320.31.
Hence, the petition assigning the lone error:
Respondents: Filed a Motion to Quash Writ of Execution arguing, among other things, that since the
Labor Arbiter awarded separation pay of ₱62,986.56 and limited backwages of ₱95,933.36, no I
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.  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
LA: Issued an Order denying respondent’s motion. Thus, an Alias Writ of Execution was issued on OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF
THE SAME DECISION.
January 14, 2003

1st ISSUE: WON the reckoning point for the computation of the backwages and separation pay
NLRC: Upon appeal, the NLRC ruled in favor of the respondents and ordered the recomputation of
should be May 27, 2002, the date when the resolution of the Supreme Court in GR No. 151332 was
the judgment award.
entered in the Book of Entries – YES.

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC
2nd ISSUE(related to topic): WON petitioner is entitled to payment of interest from the finality of the
to be final and executory. Consequently, another pre-execution conference was held, but
decision until full payment by the respondents – YES.
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 ₱471,320.31.
RULING: WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court
of Appeals in CA-G.R. SP No. 98591, and the Resolution dated October 9, 2009 are REVERSED
and SET ASIDE. Respondents are Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 In concrete terms, the question is whether a re-computation in the course of execution of the labor
up to May 27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and arbiter's original computation of the awards made, pegged as of the time the decision was rendered
executory; 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
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay
level.
per year of service; and

A source of misunderstanding in implementing the final decision in this case proceeds from the way
(3) interest of twelve percent (12%) per annum of the total monetary awards , computed from
the original labor arbiter framed his decision. The decision consists essentially of two parts.
May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full
satisfaction.
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
The LA is hereby ORDERED to make another recomputation of the total monetary benefits awarded
separation pay in lieu of reinstatement, backwages, attorney's fees, and legal interests.
and due to petitioner in accordance with this Decision.

The second part is the computation of the awards made. On its face, the computation the labor
RATIO:
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,
Petitioner: Argues that notwithstanding the fact that there was a computation of backwages in can, by its nature, be re-computed. This is the part, too, that the petitioner now posits should no
the Labor Arbiter’s decision, the same is not final until reinstatement is made or until finality longer be re-computed because the computation is already in the labor arbiter's decision that the CA
of the decision, in case of an award of separation pay. Petitioner maintains that considering that had affirmed. The public and private respondents, on the other hand, posit that a re-computation is
the October 15, 1998 decision of the Labor Arbiter did not become final and executory until the April necessary because the relief in an illegal dismissal decision goes all the way up to reinstatement if
17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries on reinstatement is to be made, or up to the finality of the decision, if separation pay is to be given in
May 27, 2002, the reckoning point for the computation of the backwages and separation pay lieu reinstatement.
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
That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken
from the finality of the decision until full payment by the respondents.
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
Respondents: On their part, respondents assert that since only separation pay and limited states:
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
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as
the decision clearly stated that the separation pay and backwages are "computed only up to
practicable, shall embody in any such decision or order the detailed and full amount awarded.
[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 ₱158,919.92. Respondents added that it was only during the execution proceedings that Clearly implied from this original computation is its currency up to the finality of the labor arbiter's
the petitioner questioned the award, long after the decision had become final and executory. decision. As we noted above, this implication is apparent from the terms of the computation itself,
Respondents contend that to allow the further recomputation of the backwages to be awarded to and no question would have arisen had the parties terminated the case and implemented the
petitioner at this point of the proceedings would substantially vary the decision of the Labor Arbiter decision at that point.
as it violates the rule on immutability of judgments.
However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of
The petition is meritorious. 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.
1st Issue:

The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of
timely filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority
Appeals (Sixth Division), wherein the issue submitted to the Court for resolution was the propriety of
in affirming the payment of 13th month pay and indemnity, lapsed to finality and was subsequently
the computation of the awards made, and whether this violated the principle of immutability of
returned to the labor arbiter of origin for execution.
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 It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the
awards up to the time of the finality of the judgment. Also in Session Delights, the dismissed original labor arbiter's decision, the implementing labor arbiter ordered the award re-computed; he
employee failed to appeal the decision of the labor arbiter. The Court clarified, thus: 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 2. When an obligation, not constituting a loan or forbearance of money, is breached, an
decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's interest on the amount of damages awarded may be imposed at the discretion of the court at
approved computation went beyond the finality of the CA decision (July 29, 2003) and the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
included as well the payment for awards the final CA decision had deleted - specifically, the damages except when or until the demand can be established with reasonable certainty.
proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision Accordingly, where the demand is established with reasonable certainty, the interest shall
now questioned in the present petition. 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
We see no error in the CA decision confirming that a re-computation is necessary as it
which time the quantification of damages may be deemed to have been reasonably
essentially considered the labor arbiter's original decision in accordance with its basic
ascertained). The actual base for the computation of legal interest shall, in any case, be on the
component parts as we discussed above. To reiterate, the first part contains the finding of
amount finally adjudged.
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 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
Consequently, from the above disquisitions, under the terms of the decision which is sought to
then an equivalent to a forbearance of credit.
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. A recomputation (or an original computation, if no previous Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No.
computation has been made) is a part of the law – specifically, Article 279 of the Labor Code and the 796 dated May 16, 2013, approved the amendment of Section 2 of Circular No. 905, Series of 1982
established jurisprudence on this provision – that is read into the decision. By the nature of an illegal and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the pertinent
dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of portion of which reads:
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
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions
implemented. The illegal dismissal ruling stands; only the computation of monetary
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending
consequences of this dismissal is affected, and this is not a violation of the principle of
Section 2 of Circular No. 905, Series of 1982:
immutability of final judgments.

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the
That the amount respondents shall now pay has greatly increased is a consequence that it cannot
rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be
avoid as it is the risk that it ran when it continued to seek recourses against the Labor Arbiter's
six percent (6%) per annum.
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 Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and
reckoning point instead of the reinstatement that the law decrees. In allowing separation pay, Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
the final decision effectively declares that the employment relationship ended so that Institutions are hereby amended accordingly.
separation pay and backwages are to be computed up to that point.
This Circular shall take effect on 1 July 2013.
2nd Issue(related to topic):
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. would govern the parties, the rate of legal interest for loans or forbearance of any money,
Court of Appeals, the Court laid down the guidelines regarding the manner of computing legal goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%)
interest, to wit: per annum - as reflected in the case of Eastern Shipping Lines 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 -
II. With regard particularly to an award of interest in the concept of actual and compensatory
but will now be six percent (6%) per annum effective July 1, 2013. It should be noted,
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
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,
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing
or forbearance of money, the interest due should be that which may have been stipulated in rate of interest when applicable.
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
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v.
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
Bangko Sentral Monetary Board, this Court affirmed the authority of the BSP-MB to set interest rates
provisions of Article 1169 of the Civil Code.
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
Lines 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.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on

the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except
when or until the demand can be established with reasonable 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.

When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013,
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.
• Abella v. Abella, 762 SCRA 221, 2015 - YODH
Hence, after making computations, the SC arrived at the conclusion that Abella 2 had made
G.R. No. 195166 overpayments in the amount of P3,379.17. And based on the principle of Solutio Indebiti, Abella 1
SPOUSES SALVADOR ABELLA AND ALMA ABELLA, Petitioners, vs. SPOUSES ROMEO was ordered to pay back to Abella 2 the overpayments.
ABELLA AND ANNIE ABELLA, Respondents.
DECISION
LEONEN, J.: FACTS: This resolves a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that judgment be rendered
reversing and setting aside the September 30, 2010 Decision 1 and the January 4, 2011 Resolution 2 of the Court of Appeals Nineteenth
Division in CA-G.R. CV No. 01388. The Petition also prays that respondents Spouses Romeo and Annie Abella be ordered to pay
SUMMARY: Spouses Romeo and Annie Abella (Abella 2) were able to obtain a loan of ₱500,000 petitioners Spouses Salvador and Alma Abella 2.5% monthly interest plus the remaining balance of the amount loaned.
from the petitioners spouses Salvador Abella (Abella 1). The loan had a stipulation that Abella 2
would pay interest on the loan. However, the rate of the said interest was not stipulated upon. The assailed September 30, 2010 Decision of the Court of Appeals reversed and set aside the December 28, 2005 Decision3 of the
Regional Trial Court, Branch 8, Kalibo, Aklan in Civil Case No. 6627. It directed petitioners to pay respondents P148,500.00 (plus
interest), which was the amount respondents supposedly overpaid. The assailed January 4, 2011 Resolution of the Court of Appeals
Abella 2 were consistently paying an interest rate of 2.5% per month despite the fact that the rate of denied petitioners’ Motion for Reconsideration.
interest was not stipulated upon. Abella 2 were able to pay an amount of ₱200,000 over the principal
The Regional Trial Court’s December 28, 2005 Decision ordered respondents to pay petitioners the supposedly unpaid loan balance
debt, leaving an unpaid balance of ₱300,000. of P300,000.00 plus the allegedly stipulated interest rate of 30% per annum, as well as litigation expenses and attorney’s fees. 4

Abella 2 allege that the contract that they entered with Abella 1 was not a contract of loan but rather On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a Complaint 5 for sum of
a joint venture between the two pairs of spouses. money and damages with prayer for preliminary attachment against respondents Spouses
Romeo and Annie Abella before the Regional Trial Court.
RTC ruled in favor of Abella 1, holding that the contract they entered was one of loan and not joint
venture and that Abella 2 should pay the unpaid balance of ₱300,000 with an interest rate of 30% Petitioners alleged that respondents obtained a loan from them in the amount of P500,000.00.
per annum. The loan was evidenced by an acknowledgment receipt dated March 22, 1999 and was payable
within one (1) year. Petitioners added that respondents were able to pay a total of P200,000.00
The CA modified the decision of the RTC, holding that Abella 2 is no longer liable to pay the unpaid — P100,000.00 paid on two separate occasions—leaving an unpaid balance of P300,000.00.7
amount of 300,000. Further, the CA deleted from the RTC’s decision the interest rate of 30%,
considering that Article 1956 of the Civil Code mandates that for a loan to earn interest, such must Respondents alleged that the amount involved did not pertain to a loan they obtained from
be stipulated in writing. petitioners but was part of the capital for a joint venture involving the lending of money.

Issues: Specifically, respondents claimed that they were approached by petitioners, who proposed that
WON the contract was a loan (Yes.) if respondents were to "undertake the management of whatever money [petitioners] would give
WON the loan should earn interest (Yes). At how much? (At 6% per annum or the legal interest rate) them, [petitioners] would get 2.5% a month with a 2.5% service fee to [respondents]." 10 

SC held that the document signed by both Abella spouses was indicative of a contract of loan. The The 2.5% that each party would be receiving represented their sharing of the 5% interest that the joint venture was
acknowledgement receipt made by Abella 2 reads: supposedly going to charge against its debtors. Respondents further alleged that the one year averred by
petitioners was not a deadline for payment but the term within which they were to return the money placed by
This is to acknowledge receipt of the Amount of Five Hundred Thousand (P500,000.00) Pesos petitioners should the joint venture prove to be not lucrative. Moreover, they claimed that the entire amount of
from Mrs. Alma R. Abella, payable within one (1) year from date hereof with interest. P500,000.00 was disposed of in accordance with their agreed terms and conditions and that petitioners terminated
the joint venture, prompting them to collect from the joint venture’s borrowers. They were, however, able to collect
The SC cited several decided cases that all state that when there has been a stipulation to pay only to the extent of P200,000.00; hence, the P300,000.00 balance remained unpaid. 11
interest, but the rate of the same has not been stipulated in writing, the loan is entitled to earn
interest but such rate should be based on the legal interest. The SC decisions had varied between In the Decision12 dated December 28, 2005, the Regional Trial Court ruled in favor of petitioners.
imposing a 12% interest rate or 6% interest rate. It noted that the terms of the acknowledgment receipt executed by respondents clearly showed
that: (a) respondents were indebted to the extent of P500,000.00; (b) this indebtedness was to
However, the SC based its decision on the case of Nacar v. Gallery Flames which held: be paid within one (1) year; and (c) the indebtedness was subject to interest.

Thus, the trial court concluded that respondents obtained a simple loan, although they later
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the invested its proceeds in a lending enterprise. The Regional Trial Court adjudged respondents
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in solidarily liable to petitioners. The dispositive portion of its Decision reads:
judgments shall no longer be twelve percent (12%) per annum — as reflected in the case of Eastern Shipping Lines
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 WHEREFORE, premises considered, judgment is hereby rendered:
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 1. Ordering the defendants jointly and severally to pay the plaintiffs the sum of P300,000.00 with interest at the rate of
shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the 30% per annum from the time the complaint was filed on July 31, 2002 until fully paid;
prevailing rate of interest when applicable
2. Ordering the defendants to pay the plaintiffs the sum of P2,227.50 as reimbursement for litigation expenses, and
another sum of P5,000.00 as attorney’s fees.
Therefore, Abella 1 was charging Abella 2 interest rates at 2.5% per month or 30% per annum when
it should have just been at the rate of 6% per annum.
 For lack of legal basis, plaintiffs’ claim for moral and exemplary damages has to be denied, and for lack In their Comment,28 respondents reiterate the Court of Appeals’ findings that no interest rate was
of merit the counter-claim is ordered dismissed. 14 ever stipulated by the parties and that interest was not due and demandable at the time they were
making interest payments.29
Motion for reconsideration denied.
In their Reply,30 petitioners argue that even though no interest rate was stipulated in the
CA ruled that while respondents had indeed entered into a simple loan with petitioners, acknowledgment receipt, the case fell under the exception to the Parol Evidence Rule. They also
respondents were no longer liable to pay the outstanding amount of P300,000.00. 16 argue that there exists convincing and sufficiently credible evidence to supplement the imperfection
of the acknowledgment receipt. 31
The Court of Appeals reasoned that the loan could not have earned interest, whether as
contractually stipulated interest or as interest in the concept of actual or compensatory damages. As ISSUES:
to the loan’s not having earned stipulated interest, the Court of Appeals anchored its ruling on 1. WON interest accrued on respondents’ loan from petitioners. If so, at what rate?
Article 1956 of the Civil Code, which requires interest to be stipulated in writing for it to be
due.17 The Court of Appeals noted that while the acknowledgement receipt showed that interest 2. WON petitioners are liable to reimburse respondents for the latter’s supposed excess
was to be charged, no particular interest rate was specified.18 Thus, at the time respondents payments and for interest.
were making interest payments of 2.5% per month, these interest payments were invalid for not
being properly stipulated by the parties. RULING: WHEREFORE, the assailed September 30, 2010 Decision and the January 4, 2011
Resolution of the Court of Appeals Nineteenth Division in CA-G.R. CV No. 01388 are SET
As to the loan’s not having earned interest in the concept of actual or compensatory damages, the ASIDE. Petitioners Spouses Salvador and Alma Abella are DIRECTED to jointly and severally
Court of Appeals, citing Eusebio-Calderon v. People, noted that interest in the concept of actual reimburse respondents Spouses Romeo and Annie Abella the amount of P3,379.17, which
or compensatory damages accrues only from the time that demand is made. It reasoned that respondents have overpaid. A legal interest of 6% per annum shall likewise be imposed on the total
since respondents received petitioners’ demand letter only on July 12, 2002, any interest in the judgment award from the finality of this Decision until its full satisfaction.
concept of actual or compensatory damages due should be reckoned only from then. Thus, the SO ORDERED.
payments for the 2.5% monthly interest made after the perfection of the loan in 1999 but before the
demand was made in 2002 were invalid.20
RATIO:
Since petitioners’ charging of interest was invalid, the Court of Appeals reasoned that all payments
respondents made by way of interest should be deemed payments for the principal amount of ON THE NATURE OF THE CONTRACT (LOAN)
P500,000.00.21
Respondents entered into a simple loan or mutuum, rather than a joint venture, with petitioners.
The Court of Appeals further noted that respondents made a total payment of P648,500.00, Respondents’ claims cannot prevail over the clear terms of the document attesting to the
which, as against the principal amount of P500,000.00, entailed an overpayment of P148,500.00. relation of the parties. "If the terms of a contract are clear and leave no doubt upon the intention of
Applying the principle of solutio indebiti, the Court of Appeals concluded that petitioners were liable the contracting parties, the literal meaning of its stipulations shall control." 32
to reimburse respondents for the overpaid amount of P148,500.00.22 The dispositive portion of the
assailed Court of Appeals Decision reads: Articles 1933 and 1953 of the Civil Code provide the guideposts that determine if a contractual
relation is one of simple loan or mutuum:
WHEREFORE, the Decision of the Regional Trial Court is hereby REVERSED and SET ASIDE, and a new one issued,
finding that the Spouses Salvador and Alma Abella are DIRECTED to jointly and severally pay Spouses Romeo and
Annie Abella the amount of P148,500.00, with interest of 6% interest (sic) per annum to be computed upon receipt of this Art. 1933. By the contract of loan, one of the parties delivers to another, either something not
decision, until full satisfaction thereof. Upon finality of this judgment, an interest as the rate of 12%  per annum, instead of consumable so that the latter may use the same for a certain time and return it, in which case the
6%, shall be imposed on the amount due, until full payment thereof.23 contract is called a commodatum; or money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall be paid , in which case the contract is
Motion for reconsideration denied. simply called a loan or mutuum.

PETITIONER’S CONTENTIONS: Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

They claim that the Court of Appeals erred in completely striking off interest despite
the parties’ written agreement stipulating it, as well as in ordering them to reimburse In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership
and pay interest to respondents. passes to the borrower.

Petitioners cite Article 1371 of the Civil Code,26 which calls for the consideration of the
contracting parties’ contemporaneous and subsequent acts in determining their true Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership
intention. Petitioners insist that respondents’ consistent payment of interest in the thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
year following the perfection of the loan showed that interest at 2.5% per month was
properly agreed upon despite its not having been expressly stated in the On March 22, 1999, respondents executed an acknowledgment receipt to petitioners, which states:
acknowledgment receipt. Furthermore, respondents admitted that interest was due on
the loan.27 Batan, Aklan
March 22, 1999
 This is to acknowledge receipt of the Amount of Five Hundred Thousand (P500,000.00) Pesos Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate
from Mrs. Alma R. Abella, payable within one (1) year from date hereof with interest. allowed in judgments, in the absence of an express contract as to such rate of interest,  shall be six
percent (6%) per annum.
Annie C. Abella (sgd.) Romeo M. Abella (sgd.) Section 2. In view of the above, 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 are
The text of the acknowledgment receipt is uncomplicated and straightforward. It attests to: hereby amended accordingly.
first, respondents’ receipt of the sum of P500,000.00 from petitioner Alma Abella; second,
respondents’ duty to pay back this amount within one (1) year from March 22, 1999; and third, This Circular shall take effect on 1 July 2013.
respondents’ duty to pay interest. Consistent with what typifies a simple loan, petitioners delivered Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
to respondents with the corresponding condition that respondents shall pay the same amount to would govern the parties, the rate of legal interest for loans or forbearance of any money, goods
petitioners within one (1) year. 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 Lines and Subsection X305.1 of the Manual of
ON THE DUTY TO PAY INTEREST (MERON) 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
Article 1956 of the Civil Code spells out the basic rule that "[n]o interest shall be due unless it 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%)
has been expressly stipulated in writing." 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. 42 
On the matter of interest, the text of the acknowledgment receipt is simple, plain, and unequivocal. It
attests to the contracting parties’ intent to subject to interest the loan extended by petitioners Nevertheless, both Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013
to respondents. The controversy stems from the acknowledgment receipt’s failure to state the and Nacar retain the definite and mandatory framing of the rule articulated in Eastern
exact rate of interest. Shipping, Security Bank, and Spouses Toring. Nacar even restates Eastern Shipping:

Jurisprudence is clear about the applicable interest rate if a written instrument fails to specify a rate. To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
In Spouses Toring v. Spouses Olan,35 this court clarified the effect of Article 1956 of the Civil Code Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows:
and noted that the legal rate of interest (then at 12%) is to apply: "In a loan or forbearance of
money, according to the Civil Code, the interest due should be that stipulated in writing, 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
and in the absence thereof, the rate  shall  be 12% per annum."36 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
Spouses Toring cites and restates (practically verbatim) what this court settled in Security Bank the absence of stipulation, the rate of interest   shall  be 6% per annum  to be computed from
and Trust Company v. Regional Trial Court of Makati: "In a loan or forbearance of money, the default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.43 (Emphasis supplied, citations omitted)
interest due should be that stipulated in writing, and  in the absence thereof, the rate   shall  be
12% per annum."37
Thus, it remains that where interest was stipulated in writing by the debtor and creditor in a simple
loan or mutuum, but no exact interest rate was mentioned, the legal rate of interest shall apply. At
Security Bank also refers to Eastern Shipping Lines, Inc. v. Court of Appeals, which, in turn, stated:38
present, this is 6% per annum, subject to Nacar’s qualification on prospective application.
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. Applying this, the loan obtained by respondents from petitioners is deemed subjected to
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.  In conventional interest at the rate of 12% per annum, the legal rate of interest at the time the
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, parties executed their agreement. Moreover, should conventional interest still be due as of
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil July 1, 2013, the rate of 12% per annum shall persist as the rate of conventional interest.
Code.39 
This is so because interest in this respect is used as a surrogate for the parties’ intent, as
The rule is not only definite; it is cast in mandatory language. From Eastern Shipping to Security Bank to Spouses
Toring, jurisprudence has repeatedly used the word "shall," a term that has long been settled to denote something imperative or expressed as of the time of the execution of their contract. In this sense, the legal rate of interest is
operating to impose a duty.40 Thus, the rule leaves no room for alternatives or otherwise does not allow for discretion. It requires the an affirmation of the contracting parties’ intent; that is, by their contract’s silence on a
application of the legal rate of interest. specific rate, the then prevailing legal rate of interest shall be the cost of borrowing money.
This rate, which by their contract the parties have settled on, is deemed to persist regardless of
Our intervening Decision in Nacar v. Gallery Frames41 recognized that the legal rate of interest shifts in the legal rate of interest. Stated otherwise, the legal rate of interest, when applied as
has been reduced to 6% per annum: conventional interest, shall always be the legal rate at the time the agreement was executed
and shall not be susceptible to shifts in rate.
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 2 of Circular No. 905, Series of 1982
and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the pertinent portion of
Petitioners, however, insist on conventional interest at the rate of 2.5% per month or 30% per
which reads: annum. They argue that the acknowledgment receipt fails to show the complete and accurate
intention of the contracting parties. They rely on Article 1371 of the Civil Code, which provides that
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions the contemporaneous and subsequent acts of the contracting parties shall be considered should
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section there be a need to ascertain their intent. 44 In addition, they claim that this case falls under the
2 of Circular No. 905, Series of 1982:
exceptions to the Parol Evidence Rule, as spelled out in Rule 130, Section 9 of the Revised Rules otherwise have used for his or her own purposes at the time it was lent. It is not the default vehicle
on Evidence.45 for predatory gain. As such, interest need only be reasonable. It ought not be a supine mechanism
for the creditor’s unjust enrichment at the expense of another.
It is a basic precept in legal interpretation and construction that a rule or provision that treats a
subject with specificity prevails over a rule or provision that treats a subject in general terms.46 Petitioners here insist upon the imposition of 2.5% monthly or 30% annual interest. Compounded at
this rate, respondents’ obligation would have more than doubled—increased to 219.7% of the
The rule spelled out in Security Bank and Spouses Toring is anchored on Article 1956 of the Civil principal—by the end of the third year after which the loan was contracted if the entire principal
Code and specifically governs simple loans or mutuum. Mutuum is a type of nominate contract that remained unpaid. By the end of the ninth year, it would have multiplied more than tenfold (or
is specifically recognized by the Civil Code and for which the Civil Code provides a specific set of increased to 1,060.45%). In 2015, this would have multiplied by more than 66 times (or increased to
governing rules: Articles 1953 to 1961. In contrast, Article 1371 is among the Civil Code provisions 6,654.17%). Thus, from an initial loan of only P500,000.00, respondents would be obliged to pay
generally dealing with contracts. As this case particularly involves a simple loan, the specific rule more than P33 million. This is grossly unfair, especially since up to the fourth year from when the
spelled out in Security Bank and Spouses Toring finds preferential application as against Article loan was obtained, respondents had been assiduously delivering payment. This reduces their best
1371. efforts to satisfy their obligation into a protracted servicing of a rapacious loan.

Contrary to petitioners’ assertions, there is no room for entertaining extraneous (or parol) evidence. The legal rate of interest is the presumptive reasonable compensation for borrowed money. While
In Spouses Bonifacio and Lucia Paras v. Kimwa Construction and Development Corporation,47 we parties are free to deviate from this, any deviation must be reasonable and fair. Any deviation that is
spelled out the requisites for the admission of parol evidence: far-removed is suspect. Thus, in cases where stipulated interest is more than twice the prevailing
legal rate of interest, it is for the creditor to prove that this rate is required by prevailing market
In sum, two (2) things must be established for parol evidence to be admitted: first, that the existence conditions. Here, petitioners have articulated no such justification.
of any of the four (4) exceptions has been put in issue in a party’s pleading or has not been objected
to by the adverse party; and second, that the parol evidence sought to be presented serves to form In sum, Article 1956 of the Civil Code, read in light of established jurisprudence, prevents the
the basis of the conclusion proposed by the presenting party.48 application of any interest rate other than that specifically provided for by the parties in their loan
document or, in lieu of it, the legal rate. Here, as the contracting parties failed to make a specific
The issue of admitting parol evidence is a matter that is proper to the trial, not the appellate, stage of stipulation, the legal rate must apply. Moreover, the rate that petitioners adverted to is
a case. Petitioners raised the issue of applying the exceptions to the Parol Evidence Rule only in the unconscionable. The conventional interest due on the principal amount loaned by respondents from
Reply they filed before this court. This is the last pleading that either of the parties has filed in the petitioners is held to be 12% per annum.
entire string of proceedings culminating in this Decision. It is, therefore, too late for petitioners to
harp on this rule. In any case, what is at issue is not admission of evidence per se, but the ACCRUED INTEREST OF THE UNPAID INTEREST
appreciation given to the evidence adduced by the parties. In the Petition they filed before this court,
petitioners themselves acknowledged that checks supposedly attesting to payment of monthly Apart from respondents’ liability for conventional interest at the rate of 12% per annum, outstanding
interest at the rate of 2.5% were admitted by the trial court (and marked as Exhibits "2," "3," "4," "5," conventional interest shall itself earn legal interest from the time judicial demand was made
"6," "7," and "8").49 What petitioners have an issue with is not the admission of these pieces of by petitioners, i.e., on July 31, 2002, when they filed their Complaint. This is consistent with Article
evidence but how these have not been appreciated in a manner consistent with the conclusions they 2212 of the Civil Code, which provides:
advance.
Art. 2212. Interest due shall earn legal interest from the time it is judicially
Even if it can be shown that the parties have agreed to monthly interest at the rate of 2.5%, this is demanded, although the obligation may be silent upon this point.
unconscionable. As emphasized in Castro v. Tan,50 the willingness of the parties to enter into a
relation involving an unconscionable interest rate is inconsequential to the validity of the stipulated So, too, Nacar states that "the interest due shall itself earn legal interest from the time it is judicially
rate: demanded."53

The imposition of an unconscionable rate of interest on a money debt, even if knowingly and Consistent with Nacar, as well as with our ruling in Rivera v. Spouses Chua,54 the interest due on
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an conventional interest shall be at the rate of 12% per annum from July 31, 2002 to June 30, 2013.
iniquitous deprivation of property, repulsive to the common sense of man. It has no support in law, in Thereafter, or starting July 1, 2013, this shall be at the rate of 6% per annum.
principles of justice, or in the human conscience nor is there any reason whatsoever which may
justify such imposition as righteous and as one that may be sustained within the sphere of public or RESPONDENTS OVERPAID INTEREST (Maraming Math)
private morals.51
We find that respondents made an overpayment in the amount of P3,379.17.
The imposition of an unconscionable interest rate is void ab initio for being "contrary to morals, and
the law."52 As acknowledged by petitioner Salvador Abella, respondents paid a total of P200,000.00, which was
charged against the principal amount of P500,000.00. The first payment of P100,000.00 was made
In determining whether the rate of interest is unconscionable, the mechanical application of pre- on June 30, 2001,55 while the second payment of P100,000.00 was made on December 30, 2001. 56
established floors would be wanting. The lowest rates that have previously been considered
unconscionable need not be an impenetrable minimum. What is more crucial is a consideration of The Court of Appeals’ September 30, 2010 Decision stated that respondents paid P6,000.00 in
the parties’ contexts. Moreover, interest rates must be appreciated in light of the fundamental nature March 1999.57
of interest as compensation to the creditor for money lent to another, which he or she could
The Pre-Trial Order dated December 2, 2002, stated that the parties admitted that "from the time By the end of the third year following the perfection of the loan, or as of March 21, 2002,
the principal sum of P500,000.00 was borrowed from [petitioners], [respondents] ha[d] been P338,777.60 was due from respondents. This consists of the outstanding principal of P302,480.00
religiously paying"59 what was supposedly interest "at the rate of 2.5% per month."60 and conventional interest of P36,297.60.

From March 22, 1999 to June 22, 2001 (before respondents’ payment of P100,000.00 on June 30, Within this third year, respondents paid a total of P320,000.00, as follows:
2001, which was deducted from the principal amount of P500,000.00), the 2.5% monthly "interest"
was pegged to the principal amount of P500,000.00. These monthly interests, thus, amounted to (a) Between March 22, 2001 and June 30, 2001, respondents completed three (3) monthly payments of P12,500.00
each, totaling P37,500.00.
P12,500.00 per month. Considering that the period from March 1999 to June 2001 spanned
twenty seven (27) months, respondents paid a total of P337,500.00.61 (b) On June 30, 2001, respondents paid P100,000.00, which was charged as principal payment.

(c) Between June 30, 2001 and December 30, 2001, respondents delivered monthly payments of P10,000.00 each. At
From June 22, 2001 up to December 22, 2001 (before respondents’ payment of another this point, the monthly payments no longer amounted to P12,500.00 each because the supposed monthly interest
P100,000.00 on December 30, 2001, which was deducted from the remaining principal amount of payments were pegged to the supposedly remaining principal of P400,000.00. Thus, during this period, they paid a total
P400,000.00), the 2.5% monthly "interest" was pegged to the remaining principal amount of of six (6) monthly payments totaling P60,000.00.
P400,000.00. These monthly interests, thus, amounted to P10,000.00 per month. Considering that (d) On December 30, 2001, respondents paid P100,000.00, which, like the June 30, 2001 payment, was charged against
this period spanned six (6) months, respondents paid a total of P60,000.00. 62 the principal.

(e) From the end of December 2002 to the end of February 2002, respondents delivered monthly payments of P7,500.00
From after December 22, 2001 up to June 2002 (when petitioners filed their Complaint), the 2.5% each. At this point, the supposed monthly interest payments were now pegged to the supposedly remaining principal of
monthly "interest" was pegged to the remaining principal amount of P300,000.00. These P300,000.00. Thus, during this period, they delivered three (3) monthly payments totaling P22,500.00.
monthly interests, thus, amounted to P7,500.00 per month. Considering that this period spanned six
(6) months, respondents paid a total of P45,000.00.63 Consistent with Article 1253 of the Civil Code, as respondents paid a total of P320,000.00 within
the third year, the conventional interest of P36,927.50 must be deemed fully paid and the
Applying these facts and the properly applicable interest rate (for conventional interest, 12% per remaining amount that respondents paid (i.e., P283,702.40) is to be charged against the principal.
annum; for interest on conventional interest, 12% per annum from July 31, 2002 up to June 30, 2013 This yields a balance of P18,777.60.
and 6% per annum henceforth), the following conclusions may be drawn:
By the end of the fourth year following the perfection of the loan, or as of March 21, 2003,
By the end of the first year following the perfection of the loan, or as of March 21, 2000, P560,000.00 P21,203.51 would have been due from respondents. This consists of: (a) the outstanding principal of
was due from respondents. This consisted of the principal of P500,000.00 and conventional interest P18,777.60, (b) conventional interest of P2,253.31, and (c) interest due on conventional interest
of P60,000.00. starting from July 31, 2002, the date of judicial demand, in the amount of P172.60. The last (i.e.,
interest on interest) must be pro-rated. There were only 233 days from July 31, 2002 (the date of
Within this first year, respondents made twelve (12) monthly payments totalling P150,000.00 judicial demand) to March 21, 2003 (the end of the fourth year); this left 63.83% of the fourth year,
(P12,500.00 each from April 1999 to March 2000). This was in addition to their initial payment of within which interest on interest might have accrued. Thus, the full annual interest on interest of 12%
P6,000.00 in March 1999. per annum could not have been completed, and only the proportional amount of 7.66% per annum
may be properly imposed for the remainder of the fourth year.
Application of payments must be in accordance with Article 1253 of the Civil Code, which reads:
From the end of March 2002 to June 2002, respondents delivered three (3) more monthly payments
Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have of P7,500.00 each. Thus, during this period, they delivered three (3) monthly payments totalling
been made until the interests have been covered. P22,500.00.

Thus, the payments respondents made must first be reckoned as interest payments. At this rate, however, payment would have been completed by respondents even before the end of
Thereafter, any excess payments shall be charged against the principal. As respondents paid a the fourth year. Thus, for precision, it is more appropriate to reckon the amounts due as
total of P156,000.00 within the first year, the conventional interest of P60,000.00 must be deemed against payments made on a monthly, rather than an annual, basis.
fully paid and the remaining amount that respondents paid (i.e., P96,000.00) is to be charged
against the principal. This yields a balance of P404,000.00. By the end of the second year following By April 21, 2002, _18,965.38 (i.e., remaining principal of P18,777.60 plus pro-rated monthly
the perfection of the loan, or as of March 21, 2001, P452,480.00 was due from respondents. This conventional interest at 1%, amounting to P187.78) would have been due from respondents.
consisted of the outstanding principal of P404,000.00 and conventional interest of P48,480.00. Deducting the monthly payment of P7,500.00 for the preceding month in a manner consistent with
Article 1253 of the Civil Code would yield a balance of P11,465.38.
Within this second year, respondents completed another round of twelve (12) monthly payments
totaling P150,000.00. By May 21, 2002, _11,580.03 (i.e., remaining principal of P11,465.38 plus pro-rated monthly
conventional interest at 1%, amounting to P114.65) would have been due from respondents.
Consistent with Article 1253 of the Civil Code, as respondents paid a total of P156,000.00 within the Deducting the monthly payment of P7,500.00 for the preceding month in a manner consistent with
second year, the conventional interest of P48,480.00 must be deemed fully paid and the remaining Article 1253 of the Civil Code would yield a balance of P4,080.03.
amount that respondents paid (i.e., P101,520.00) is to be charged against the principal. This yields a
balance of P302,480.00. By June 21, 2002, P4,120.83 (i.e., remaining principal of P4,080.03 plus pro-rated monthly
conventional interest at 1%, amounting to P40.80) would have been due from respondents.
Deducting the monthly payment of P7,500.00 for the preceding month in a manner consistent with
Article 1253 of the Civil Code would yield a negative balance of P3,379.17.

Thus, by June 21, 2002, respondents had not only fully paid the principal and all the conventional
interest that had accrued on their loan. By this date, they also overpaid P3,379.17. Moreover, while
hypothetically, interest on conventional interest would not have run from July 31, 2002, no such
interest accrued since there was no longer any conventional interest due from respondents by then.

SOLUTIO INDEBITI

As respondents made an overpayment, the principle of solutio indebiti as provided by Article 2154 of
the Civil Code64 applies. Article 2154 reads:

Article 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.

In Moreno-Lentfer v. Wolff,65 this court explained the application of solutio indebiti:

The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself
unjustly at the expense of another. It applies where (1) a payment is made when there exists no binding
relation between the payor, who has no duty to pay, and the person who received the payment, and (2)
the payment is made through mistake, and not through liberality or some other cause. 66

As respondents had already fully paid the principal and all conventional interest that had accrued,
they were no longer obliged to make further payments. Any further payment they made was only
because of a mistaken impression that they were still due. Accordingly, petitioners are now bound by
a quasi-contractual obligation to return any and all excess payments delivered by respondents.

Nacar provides that "[w]hen 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." 67 This applies to obligations arising from quasi-contracts such
as solutio indebiti.

Further, Article 2159 of the Civil Code provides:

Art. 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of
money is involved, or shall be liable for fruits received or which should have been received if
the thing produces fruits.

He shall furthermore be answerable for any loss or impairment of the thing from any cause, and
for damages to the person who delivered the thing, until it is recovered.

Consistent however, with our finding that the excess payment made by respondents were borne
out of a mere mistake that it was due, we find it in the better interest of equity to no longer hold
petitioners liable for interest arising from their quasi-contractual obligation.

Nevertheless, Nacar also provides:

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 6% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.68

Thus, interest at the rate of 6% per annum may be properly imposed on the total judgment
award. This shall be reckoned from the finality of this Decision until its full satisfaction.
• First Fil-Sin Lending Corp. v. Padillo, G.R. No.160533, January 12, 2005 - MONA On January 27, 2000, respondent filed an action for sum of money against herein petitioner
G.R. No. 160533             January 12, 2005 before the Regional Trial Court of Manila. Alleging that she only agreed to pay interest at the
FIRST FIL-SIN LENDING CORPORATION, petitioner,  vs. GLORIA D. PADILLO, respondent. rates of 4.5% and 5% per annum, respectively, for the two loans, and not 4.5% and 5% per
DECISION month, respondent sought to recover the amounts she allegedly paid in excess of her actual
YNARES-SANTIAGO, J. obligations.
   
Summary: Respondent Gloria D. Padillo obtained two (2) loans amounting to P500,000.00 EACH RTC:  On October 12, 2001, the trial court dismissed respondent’s complaint, and on the
(total of 1M) loan from petitioner First Fil-Sin Lending Corp. Respondent paid a total of P792,500.00 counterclaim, ordered her to pay petitioner P311,125.00 with legal interest from February 3, 1999
for the first loan and P775,000.00 for the second loan. Respondent Gloria Padillo filed an action for until fully paid plus 10% of the amount due as attorney’s fees and costs of the suit. The trial court
sum of money against herein petitioner alleging that she only agreed to pay interest at the rates of ruled that by issuing checks representing interest payments at 4.5% and 5% monthly interest rates,
4.5% and 5% per annum, respectively, for the two loans, and not 4.5% and 5% per month, as respondent is now estopped from questioning the provisions of the promissory notes.
expressly stated in the promissory notes and disclosure statements. Respondent sought to recover  
the amounts she allegedly paid in excess of her actual obligations. CA: On appeal, the Court of Appeals (CA) reversed and set aside the decision of the court a quo,
As to the penalty charges, petitioner argues that the 1% per day interest as agreed upon by the the dispositive portion of which reads:
parties is in line with their freedom to stipulate terms and conditions as they may deem proper, and IN VIEW OF ALL THE FOREGOING, the appealed decision is REVERSED and SET
thus a 12% per annum penalty in lieu of this would violate what is stated in their contract. ASIDE and a new one entered: (1) ordering First Fil-Sin Lending Corporation to return the
  amount of P114,000.00 to Gloria D. Padillo, and (2) deleting the award of attorney’s fees
ISSUES: WON respondent should only pay interest at the rates of 4.5% and 5% per annum – YES in favor of appellee. Other claims and counterclaims are dismissed for lack of sufficient
WON the penalty charge of 1% per day interest is unconscionable – YES causes. No pronouncement as to cost. SO ORDERED.
  The appellate court ruled that, based on the disclosure statements executed by
RULING: respondent, the interest rates should be imposed on a monthly basis but only for the 3-
Perusal of the promissory notes and the disclosure statements clearly and unambiguously provide month term of the loan. Thereafter, the legal interest rate will apply. The CA also found the
for interest rates of 4.5% per annum and 5% per annum, respectively. Nowhere was it stated that the penalty charges pegged at 1% per day of delay highly unconscionable as it would
interest rates shall be applied on a monthly basis. translate to 365% per annum. Thus, it was reduced to 1% per month or 12% per annum.
The lower court and the CA mistook the Loan Transactions Summary for the Disclosure Statement.  
The former was prepared exclusively by petitioner and merely summarizes the payments made by ISSUES: WON respondent should only pay interest at the rates of 4.5% and 5% per annum – YES
respondent and the income earned by petitioner. There was no mention of any interest rates and WON the penalty charge of 1% per day interest is unconscionable – YES
having been prepared exclusively by petitioner, the same is self serving. On the contrary, the  
Disclosure Statements were signed by both parties and categorically stated that interest rates were RULING: WHEREFORE, in view of the foregoing, the October 16, 2003 decision of the Court of
to be imposed annually, not monthly. Appeals in CA-G.R. CV No. 75183 is AFFIRMED with the MODIFICATION that the interest rates on
Notably, petitioner even admitted that it was solely responsible for the preparation of the loan the July 22, 1997 and September 7, 1997 loan obligations of respondent Gloria D. Padillo from
documents, and that it failed to correct the pro forma note "p.a." to "per month". Since the mistake is petitioner First Fil-Sin Lending Corporation be imposed and computed on a per annum basis, and
exclusively attributed to petitioner, the same should be charged against it. This unilateral mistake upon their respective maturities, the interest rate of 12% per annum shall be imposed until full
cannot be taken against respondent who merely affixed her signature on the pro forma loan payment. In addition, the penalty at the rate of 12% per annum shall be imposed on the outstanding
agreements. As between two parties to a written agreement, the party who gave rise to the mistake obligations from date of default until full payment. SO ORDERED.
or error in the provisions of the same is estopped from asserting a contrary intention to that  
contained therein. RATIO:
As regards the penalty charges, we agree with the CA in ruling that the 1% penalty per day of delay PETITIONER’S DEFENSE (First Fil-Sin RESPONDENT’S DEFENSE (Gloria Padillo)
is highly unconscionable. Lending)
Applying Article 1229 of the Civil Code, courts shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with, or if it is iniquitous or unconscionable. Petitioner maintains that the TC and the Respondent, on the other hand, avers that the interest
  CA are correct in ruling that the interest on the loans is per annum as expressly stated in the
FACTS: rates are to be imposed on a monthly and promissory notes and disclosure statements. The
On July 22, 1997, respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner not on a per annum basis. However, it provision as to annual interest rate is clear and requires
First Fil-Sin Lending Corp. On September 7, 1997, respondent obtained another P500,000.00 insists that the 4.5% and 5% monthly no room for interpretation. Respondent asserts that any
loan from petitioner. In both instances, respondent executed a promissory note and disclosure interest shall be imposed until the ambiguity in the promissory notes and disclosure
statement. outstanding obligations have been fully statements should not favor petitioner since the loan
  paid. documents were prepared by the latter.
For the first loan, respondent made 13 monthly interest payments of P22,500.00 each before she As to the penalty charges, petitioner  
settled the P500,000.00 outstanding principal obligation on February 2, 1999. As regards the second argues that the 12% per annum penalty
loan, respondent made 11 monthly interest payments of P25,000.00 each before paying the principal imposed by the CA in lieu of the 1% per
loan of P500,000.00 on February 2, 1999. In sum, respondent paid a total of P792,500.00 for the day as agreed upon by the parties
first loan and P775,000.00 for the second loan. violates their freedom to stipulate terms
  and conditions as they may deem proper.
 until the same has been fully paid on February 2, 1999. As decreed in Eastern Shipping Lines, Inc.
 
v. Court of Appeals, "in the absence of stipulation, the rate of interest shall be 12% per annum
Petitioner finally contends that the CA
to be computed from default."
erred in deleting the trial court’s award of
 
attorney’s fees arguing that the same is
As regards the penalty charges, we agree with the CA in ruling that the 1% penalty per day of
anchored on sound and legal ground.
delay is highly unconscionable.
Applying Article 1229 of the Civil Code, courts shall equitably reduce the penalty when the
  principal obligation has been partly or irregularly complied with, or if it is iniquitous or
We agree with respondent. unconscionable.
   
Perusal of the promissory notes and the disclosure statements pertinent to the July 22, 1997 With regard to the attorney’s fees, the CA correctly deleted the award in favor of petitioner since the
and September 7, 1997 loan obligations of respondent clearly and unambiguously provide for trial court’s decision does not reveal any explicit basis for such an award. Attorney’s fees are not
interest rates of 4.5% per annum and 5% per annum, respectively. Nowhere was it stated that automatically awarded to every winning litigant. It must be shown that any of the instances
the interest rates shall be applied on a monthly basis. enumerated under Art. 2208 of the Civil Code exists to justify the award thereof. Not one of such
  instances exists here. Besides, by filing the complaint, respondent was merely asserting her rights
Thus, when the terms of the agreement are clear and explicit that they do not justify an which, after due deliberations, proved to be lawful, proper and valid.
attempt to read into it any alleged intention of the parties, the terms are to be understood  
literally just as they appear on the face of the contract. It is only in instances when the
language of a contract is ambiguous or obscure that courts ought to apply certain
established rules of construction in order to ascertain the supposed intent of the parties.
However, these rules will not be used to make a new contract for the parties or to rewrite the old
one, even if the contract is inequitable or harsh. They are applied by the court merely to resolve
doubts and ambiguities within the framework of the agreement.
 
The lower court and the CA mistook the Loan Transactions Summary for the Disclosure
Statement. The former was prepared exclusively by petitioner and merely summarizes the
payments made by respondent and the income earned by petitioner. There was no mention of
any interest rates and having been prepared exclusively by petitioner, the same is self serving.
On the contrary, the Disclosure Statements were signed by both parties and categorically
stated that interest rates were to be imposed annually, not monthly.
 
As such, since the terms and conditions contained in the promissory notes and disclosure
statements are clear and unambiguous, the same must be given full force and effect. The expressed
intention of the parties as laid down on the loan documents controls.
 
Also, reformation cannot be resorted to as the documents have not been assailed on the
ground of mutual mistake. When a party sues on a written contract and no attempt is made to
show any vice therein, he cannot be allowed to lay claim for more than what its clear
stipulations accord. His omission cannot be arbitrarily supplied by the courts by what their own
notions of justice or equity may dictate.
 
Notably, petitioner even admitted that it was solely responsible for the preparation of the loan
documents, and that it failed to correct the pro forma note "p.a." to "per month". Since the
mistake is exclusively attributed to petitioner, the same should be charged against it . This
unilateral mistake cannot be taken against respondent who merely affixed her signature on the pro
forma loan agreements. As between two parties to a written agreement, the party who gave rise
to the mistake or error in the provisions of the same is estopped from asserting a contrary
intention to that contained therein. The checks issued by respondent do not clearly and
convincingly prove that the real intent of the parties is to apply the interest rates on a monthly basis.
Absent any proof of vice of consent, the promissory notes and disclosure statements remain the best
evidence to ascertain the real intent of the parties.
 
The same promissory note provides that "x x x any and all remaining amount due on the principal
upon maturity hereof shall earn interest at the rate of _____ from date of maturity until fully paid."
The CA thus properly imposed the legal interest of 12% per annum from the time the loans matured
• Integrated Realty Corp. v. PNB, G.R. No. 60705, June 28, 1989 - JESS - The facts and circumstances leading to the execution of the deed of assignment, as found by the court a
G.R. No. 60705. June 28, 1989. * quo and the respondent court, yield said conclusion that it is in fact a pledge.
INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners, vs. PHILIPPINE NATIONAL The deed of assignment has satisfied the requirements of a contract of pledge
BANK, OVERSEAS BANK OF MANILA and THE HON. COURT OF APPEALS, respondents. (1) that it be constituted to secure the fulfillment of a principal obligation;
G.R. No. 60907. June 28, 1989. *

(2) that the pledgor be the absolute owner of the thing pledged;
OVERSEAS BANK OF MANILA, petitioner, vs. COURT OF APPEALS, INTEGRATED REALTY (3) that the persons constituting the pledge have the free disposal of their property, and in the
CORPORATION, and RAUL L. SANTOS, respondents. absence thereof, that they be legally authorized for the purpose. 11 
Ponente: Regalado, J. - The further requirement that the thing pledged be placed in the possession of the creditor, or of a third
Legal interest in the nature of damages for non-compliance with an obligation to pay a sum of person by common agreement 12 was complied with by the execution of the deed of assignment in favor of
money is recoverable even if not expressly stipulated in writing PNB.
The bank’s obligation to pay interest on the deposit ceases the moment its operation is completely
suspended by the Central Bank - Santos, as assignor, made an express undertaking that he would remain liable for any outstanding
balance of his obligation should PNB be unable to actually receive/ collect the assigned sums
SUMMARY: resulting from any agreements, orders or decisions of the court or for any other cause whatsoever. The
Santos made a time deposit with OBM (P500,000 and 200,000) and was issued Certificate of Time term “for any cause whatsoever” is broad enough to include the situation involved in the present case.
Deposit.
- Feb 9 1967 – IRC, thru its President (defendant Santos), applied for a loan and/or credit line for On the 2nd issue: SC finds nothing illegal in the interest of 1 ½ % imposed by PNB pursuant to the
P700,000 with PNB resolution of its Board which presumably was done in accordance with ordinary banking procedures.
- Not only did IRC and Santos fail to overcome the presumption of regularity of business transactions, but
· Security for the said load was: Santos executed Deed of Assignment of 2 time deposits
they are likewise estopped from questioning the validity thereof for the 1 st time in this petition
in favor of PNB (OBM gave its conformity to the assignment)
· IRC also executed a Deed of Conformity to Loan Conditions On the 3rd issue: OBM not liable for interests on the time deposits of IRC & Santos from the time it ceased
PNB IRC & Santos Ramos & Sunico OBM operations until it resumed its business
- The OBM v. CA & Tapia: “xxx it should be deemed read into every contract of deposit with a bank
After due dates of the time deposit certificates, that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely
OBM did not pay PNB. suspended by the duly constituted authority, the Central Bank. xxx
Whatever be the juridical significance of the subsequent action of the Supreme Court, the stubborn fact
PNB Answer: remained that the petitioner was totally crippled from then on from earning the income needed to meet its
demanded Loan obligation of IRC obligations to its depositors. If such a situation cannot, strictly speaking, be legally denominated as ‘ force
payment was deemed paid with majeure,’ as maintained by private respondent, We hold it is a matter of simple equity that it be treated as
from IRC, the irrevocable such.””
Santos & assignment of the time - Note: OBM v CA & Tapia does not only apply where the bank is in state of liquidation
OBM. deposit certificates

3. Filed third party- Answer: Acknowledged the TDCs that it issued to MOST RELEVANT ON OUR TOPIC—
complaint against Ramos IRC & Santos have Santos, and admitting its failure to pay the same On the 4th issue: OBM should not reimburse IRC & Santos the entire amount they may be adjudged
(President of OBM) and no cause of action due to its distressed financial situation. to pay PNB because there is no privity of contract between OBM & PNB; OBM was never a party to
Sunico (Treasurer of against them said promissory notes [but OBM liable for interest as damages for failure and delay in payment
OBM) who allegedly because they As affirmative defenses: of its obligations which thereby compelled IRC & Santos to resort to courts)
received time deposits of received & signed > By reason of its state of insolvency its
Santos & issued the TDC as officers operations have been suspended by Central
- It appears that as early as April 1967, the financial situation of OBM had already caused
certificates therefor of OBM, that TDs Bank since Aug 1 1968
are recorded in > Time deposits ceased to earn interest from mounting concern in the Central Bank. However, it was only on July 31, 1968 when OBM was
subsidiary ledgers that date excluded from clearing with the CB under Monetary Board Resolution No. 1263. Subsequently, on
of the bank & are > It may not give preference to any depositor/ August 2, 1968, pursuant to Resolution No. 1290 of the CB, OBM’s operations were suspended.   16

‘civil liabilities of creditor

OBM’ > Payment of PNB’s claim is prohibited - Thus, when PNB demanded from OBM payment of the amounts due on the 2 time deposits which
matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to
· the faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in
SC: delay in the performance of its obligation, OBM should be held liable for damages.  When Santos
17

On the 1st issue: IRC and Santos should be held liable to PNB for the amount of the loan with the invested his money in time deposits with OBM, they entered into a contract of simple loan
corresponding interest thereon. or mutuum,  not a contract of deposit.
18

- Cited Lopez v. CA
- It would not have been necessary on the part of IRC & Santos to execute PN in favor of PNB if the - While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been
assignment of time deposits of Santos was really intended as an absolute conveyance. As noted by TC, it
expressly stipulated in writing, this applies only to interest for the use of money. It does not
is clear from Deed of Assignment that it was only by way of security; PM were executed after the execution
of Deed of Assignment and in the application for credit line, the time deposits were offered as collateral.
comprehend interest paid as damages.
- For all intents & purposes, the deed of assignment is actually a pledge.
- OBM contends that it had agreed to pay interest only up to the dates of maturity of the certificates
of time deposit and that respondent Santos is not entitled to interest after the maturity dates had
expired, unless the contracts are renewed. This is true with respect to the stipulated interest, but · Plaintiff demanded payment from defendants IRC and Raul L. Santos (Exhibit K) and from
the obligations consisting as they did in the payment of money, under Article 1108 of the Civil Code defendant OBM (Exhibit L).
he has the right to recover damages resulting from the default of OBM, and the measure of · Defendants IRC and Raul L. Santos replied that the obligation (loan) of defendant IRC
such damages is interest at the legal rate of 6% per annum on the amounts due and unpaid at the was deemed paid with the irrevocable assignment of the time deposit certificates (Exhibits
expiration of the periods respectively provided in the contracts. In fine, OBM is being required to 5-Santos, 6-Santos and 7-Santos).
pay such interest, not as interest income stipulated in the certificates of time deposit, but as
damages for failure and delay in the payment of its obligations which thereby compelled IRC
and Santos to resort to the courts PNB IRC & Santos Ramos & Sunico OBM

1. Filed complaint to Answer:

- The applicable rule is that legal interest, in the nature of damages for non-compliance with
collect from IRC &
an obligation to pay a sum of money, is recoverable from the date judicial or extrajudicial
Santos (P700,000 + PNB has no cause of
demand is made,  which latter mode of demand was made by PNB, after the maturity of the
interest + attorney’s action against them
20

certificates of time deposit, on March 1, 1968.  

fees) and impleaded because their obligation
21

The measure of such damages, there being no stipulation to the contrary, shall be the
OBM as a defendant to to PNB was fully paid/
payment of the interest agreed upon in the certificates of deposit  which is 6 1/2 %. Such
compel it to redeem & extinguished upon the
22

interest due or accrued shall further earn legal interest from the time of judicial demand.
pay to it Santos’ time ‘irrevocable assignment
deposit certificates with of the time deposit
interest and other costs certificates & that they
FACTS:
are not answerable for
In these petitions for review on certiorari, IRC & Santos (G.R. No. 60705), and OBM (G.R. No.
the insolvency of OBM
60907) appeal from the decision of the CA,  the decretal portion of which states:
1

“WHEREFORE, with the modification that appellee Overseas Bank of Manila is ordered to pay to the appellant
Raul Santos the sum of P700,000 due under the time deposit certificates Nos. 2308 and 2367 with 6 1/2 (sic) 2. Filed counterclaim for Answer:
interest per annum from date of issue until fully paid, the appealed decision is affirmed in all other respects.” damages against PNB
GR 60705 GR 60907 & cross-claim against Denied knowledge of
OBM the time deposit
Petitioners Integrated Realty Corporation (hereafter, IRC) Petitioner OBM challenges the > OBM acted certificates because the
and Raul L. Santos (hereafter, Santos) seek the dismissal decision of respondent court insofar as fraudulently in refusing alleged time deposit of
of the complaint filed by the Philippine National Bank it holds OBM liable for interest on the to pay the time deposit Santos’ ‘does not
(hereafter, PNB), or in the event that they be held liable time deposit with it of Santos certificates to PNB appear’ in its books of
thereunder, to revive and affirm that portion of the decision corresponding to the period of its resulting in the filing of account
of the TC ordering Overseas Bank of Manila (hereafter, closure by order of the Central Bank. suit against them by
OBM) to pay IRC and Santos whatever amounts the latter PNB (therefore, OBM
will pay to PNB, with interest from the date of payment. 2
should pay them
whatever amount they
may be ordered by court
- Under date 11 January 1967 defendant Raul L. Santos made a time deposit with defendant OBM in to pay PNB with
the amount of P500,000 (Exhibit-10 OBM) and was issued a Certificate of Time Deposit No. 2308 interest)
(Exhibit 1-Santos, Exhibit D).
- Under date 6 February 1967 defendant Raul L. Santos also made a time deposit with defendant 3. Filed third party- Answer:
OBM in the amount of P200,000 (Exhibit 11-OBM) and was issued certificate of Time Deposit No. complaint against
2367 (Exhibit 2-Santos, Exhibit E). Ramos (President of IRC & Santos have Acknowledged the
OBM) and Sunico no cause of action TDCs that it issued to
- Under date 9 February 1967 defendant IRC, thru its President—defendant Raul L. Santos, applied (Treasurer of OBM) who against them because Santos, and admitting
for a loan and/or credit line (Exhibit A) in the amount of P700,000 with plaintiff bank. allegedly received time they received & its failure to pay the
· To secure the said loan, defendant Raul L. Santos executed on August 11, 1967 a deposits of Santos & signed the TDC as same due to its
Deed of Assignment (Exhibit C) of the 2 time deposits (Exhibits 1-Santos and 2-Santos, issued certificates officers of OBM, that distressed financial
also Exhibits D and E) in favor of plaintiff. therefor TDs are recorded in situation.
· Defendant OBM gave its conformity to the assignment thru letter dated 11 August 1967 subsidiary ledgers of
(Exhibit F). the bank & are ‘civil As affirmative
liabilities of OBM’ defenses:
· On the same date, defendant IRC, thru its President Raul L. Santos, also executed a
> By reason of its state
Deed of Conformity to Loan Conditions (Exhibit G).
of insolvency its
operations have been
- The defendant OBM, after the due dates of the time deposit certificates, did not pay plaintiff
suspended by Central
PNB.
 WHEREFORE, judgment is hereby rendered, ordering:
Bank since Aug 1 1968
> Time deposits ceased
1. IRC and Raul L. Santos to pay PNB, jointly and severally, the total amount of P700,000,
to earn interest from
with interest thereon at the rate of 9% per annum from the maturity dates of the 2
that date
promissory notes on January 11 and February 6, 1968, respectively, plus one and 1 ½ %
> It may not give
additional interest per annum effective February 28, 1968 and additional penalty interest
preference to any
of 1% per annum of the said amount of P700,000 from the time of maturity of said loan
depositor/ creditor
up to the time the said amount of P700,000 is fully paid to PNB
> Payment of PNB’s
claim is prohibited
2. IRC and Raul L. Santos to pay solidarily PNB 10% of the amount of P700,000 as and for
TC judgment in favor of Appealed to CA Appealed to CA attorney’s fees.
PNB
3. OBM to pay IRC and Raul L. Santos the sum of P700,000 due under Time Deposit
Certificates Nos. 2308 and 2367, with interest thereon of 6 ½ % per annum from their
dates of issue on January 11, 1967 and February 6, 1967, respectively, until the same
Lower court: Rendered judgment for plaintiff (Jan 30 1976) are fully paid, except that no interest shall be paid during the entire period of actual
WHEREFORE, judgment is hereby rendered, ordering: cessation of operations by OBM;
1.The defendant IRC and Raul L. Santos to pay the plaintiff, jointly and solidarily, the total amount of
P700,000 plus interest at the rate of 9% per annum from maturity dates of the 2 promissory notes on January 4. OBM to pay IRC and Raul L. Santos 6 ½ % interest in the concept of damages on the
11 and February 6, 1968, respectively (Exhibits M and I), plus 1-1/ 2% additional interest effective February principal amounts of said certificates of time deposit from the date of extrajudicial
28, 1968 and additional penalty interest of 1% per annum of the said amount of P700,000 from the time of demand by PNB on March 1, 1968, plus legal interest of 6% on said interest from April 6,
maturity of said loan up to the time the said amount of P700,000 is actually paid to the plaintiff; The 1968, until full payment thereof, except during the entire period of actual cessation of
defendants to pay 10% of the amount of P700,000 as and for attorney’s fees;
2.The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L.
operations of said bank.
Santos whatever amounts the latter will pay to the plaintiff with interest from date of payment;
3.The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L. 5. OBM to pay IRC and Raul L. Santos P10,000 as and for attorney’s fees.
Santos the amount of P10,000.00 as and for attorney’s fees
4. The third-party complaint and cross-claim dismissed; RULING:
5. The defendant Overseas Bank of Manila to pay the costs. 1. WON the liability of IRC & Santos with PNB should be deemed to have been paid by virtue
SO ORDERED.’ of the deed of assignment made by the former in favor of PNB, which reads:
“KNOW ALL MEN BY THESE PRESENTS;
- IRC, Santos and OBM all appealed to the respondent CA. I, RAUL L. SANTOS, of legal age, Filipino, with residence and postal address at 661 Richmond St.,
Mandaluyong, Rizal for and in consideration of certain loans, overdrafts and other credit accommodations granted
CA: or those that may hereafter be granted to me/us by the PHILIPPINE NATIONAL BANK, have assigned, transferred
As stated in limine, on March 16, 1982 respondent court promulgated its appealed decision, with a and conveyed and by these presents, do hereby assign, transfer and convey by way of security unto said
modification and the deletion of that portion of the judgment of the TC ordering OBM to pay IRC and PHILIPPINE NATIONAL BANK its successors and assigns the following Certificates of Time Deposit issued by the
OVERSEAS BANK OF MANILA, its CONFORMITY issued on August 11, 1967, hereto enclosed as Annex ‘A,’ in
Santos whatever amounts they will pay to PNB with interest from the date of payment. favor of RAUL L. SANTOS and/or NORA S. SANTOS, in the aggregate sum of SEVEN HUNDRED THOUSAND
PESOS ONLY (P700,000.00), Philippine Currency, xxx.
- Therein defendants-appellants, through separate petitions, have brought the said decision to this x     x     x
Court for review. “It is also understood that the herein Assignor/s shall remain liable for any outstanding balance of his/their
obligation if the Bank is unable to actually receive or collect the above assigned sums, monies or properties
ISSUES: resulting from any agreements, orders or decisions of the court or for any other cause whatsoever.”
6

1. WON the liability of IRC & Santos with PNB should be deemed to have been paid by virtue of the
deed of assignment made by the former in favor of PNB (No)
We uphold respondent court on this score.
2. WON the interest of 1 ½ % imposed by PNB pursuant to the resolution of its Board was illegal
(No)

3. WON OBM should be held liable for interests on the time deposits of IRC & Santos from the time it
ceased operations until it resumed its business (No)

4. WON OBM should reimburse IRC & Santos for whatever amounts they may be adjudged to pay
PNB by way of compensation for damages incurred, pursuant to Art 1170 & 2201 of the Civil Code
(No)

HELD:
 - There are cogent reasons to conclude that the parties intended said deed of assignment to
complement the promissory notes. In declaring that the deed of assignment did not operate as
In Lopez vs. CA, et al.:
payment of the loan so as to extinguish the obligations of IRC and Santos with PNB, the TC
Petitioner Benito Lopez Prudential Bank & Trust Philippine American General advanced several valid bases:
Company Insurance Co., Inc. (Philamgen) “a. It is clear from the Deed of Assignment that it was only by way of security;
xxx
Petitioner Benito Lopez
obtained a loan for P20,000 “b. The promissory notes (Exhibits H and I) were executed on August 16, 1967. If defendants
from the Prudential Bank and IRC and Raul L. Santos, upon executing the Deed of Assignment on August 11, 1967 had
Trust Company. already paid their loan of P700,000. or otherwise extinguished the same, why were the
promissory notes made on August 16, 1967 still executed by IRC and signed by Raul L. Santos
On the same occasion, he When Lopez’ obligation as President?
executed a PN in favor of the matured without being settled,
bank and, in addition, he Philamgen caused the “c. In the application for a credit line (Exhibit A), the time deposits were offered as collateral.” 9

executed a surety bond in which transfer of the shares of

he, as principal, and Philamgen, stocks to its name in order - For all intents and purposes, the deed of assignment in this case is actually a pledge.
as surety, bound themselves that it may sell the same and Adverting again to the Court’s pronouncements in Lopez, supra, we quote therefrom:
jointly and severally in favor of apply the proceeds thereof in “The character of the transaction between the parties is to be determined by their intention, regardless of what
the bank for the payment of the payment of the loan to the bank. language was used or what the form of the transfer was. If it was intended to secure the payment of money, it
loan. must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though
a transfer, if regarded by itself, appears to have been absolute, its object and character might still be qualified
and explained by a contemporaneous writing declaring it to have been a deposit of the property as collateral
However, when no payment Thereafter, Philamgen filed an
security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to
was still made by the principal action to recover the amount make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not
debtor or surety, the bank filed of the loan against Lopez. discharged by the transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of
a complaint which compelled absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges
Philamgen to pay the bank. and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of
clear and unambiguous language or other circumstances excluding an intent to pledge.” 10

· TC: therein held that the obligation of Lopez was deemed paid when his shares of stocks - The facts and circumstances leading to the execution of the deed of assignment, as found by the
were transferred in the name of Philamgen. court a quo and the respondent court, yield said conclusion that it is in fact a pledge.
· CA: ruled that Lopez was still liable to Philamgen because, pending payment, Philamgen The deed of assignment has satisfied the requirements of a contract of pledge
was merely holding the stock as security for the payment of Lopez’ obligation. (4) that it be constituted to secure the fulfillment of a principal obligation;
· SC: Affirmed CA (5) that the pledgor be the absolute owner of the thing pledged;
“Notwithstanding the express terms of the ‘Stock Assignment Separate from Certificate’, (6) that the persons constituting the pledge have the free disposal of their property, and in the
however, We hold and rule that the transaction should not be regarded as an absolute conveyance in absence thereof, that they be legally authorized for the purpose.   11

view of the circumstances obtaining at the time of the execution thereof. - The further requirement that the thing pledged be placed in the possession of the creditor, or of a
“It should be remembered that on June 2, 1959, the day Lopez obtained a loan of P20,000
from Prudential Bank, Lopez executed a promissory note for P20,000, plus interest at the rate of ten
third person by common agreement  was complied with by the execution of the deed of assignment
12

(10%) per cent per annum, in favor of said Bank. He likewise posted a surety bond to secure his full and in favor of PNB.
faithful performance of his obligation under the promissory note with Philamgen as his surety. In return
for the undertaking of Philamgen under the surety bond, Lopez executed on the same day not only an - It must also be emphasized that Santos, as assignor, made an express undertaking that he would
indemnity agreement but also a stock assignment. remain liable for any outstanding balance of his obligation should PNB be unable to actually receive
“The indemnity agreement and stock assignment must be considered together as related or collect the assigned sums resulting from any agreements, orders or decisions of the court or for
transactions because in order to judge the intention of the contracting parties, their contemporaneous any other cause whatsoever. The term “for any cause whatsoever” is broad enough to include the
and subsequent acts shall be principally considered. (Article 1371, New Civil Code). Thus, considering
that the indemnity agreement connotes a continuing obligation of Lopez towards Philamgen while the
situation involved in the present case.
stock assignment indicates a complete discharge of the same obligation, the existence of the indemnity
agreement whereby Lopez had to pay a premium of P1,000 for a period of one year and agreed at all - Under the foregoing circumstances and considerations, the unavoidable conclusion is that IRC and
times to indemnify Philamgen of any and all kinds of losses which the latter might sustain by reason of it Santos should be held liable to PNB for the amount of the loan with the corresponding
becoming a surety, is inconsistent with the theory of an absolute sale for and in consideration of the interest thereon.
same undertaking of Philamgen. There would have been no necessity for the execution of the indemnity
agreement if the stock assignment was really intended as an absolute conveyance, xxx” 2. WON the interest of 1 ½ % imposed by PNB pursuant to the resolution of its Board was
illegal (No)
- Along the same vein, in the case at bar it would not have been necessary on the part of IRC
and Santos to execute promissory notes in favor of PNB if the assignment of the time We find nothing illegal in the interest of 1 ½ % imposed by PNB pursuant to the resolution of its
deposits of Santos was really intended as an absolute conveyance. Board which presumably was done in accordance with ordinary banking procedures.
- Not only did IRC and Santos fail to overcome the presumption of regularity of business
transactions, but they are likewise estopped from questioning the validity thereof for the first
time in this petition. There is nothing in the records to show that they raised this issue during the completely forbidding herein petitioner to do business preparatory to its liquidation was first restrained
trial by presenting countervailing evidence. What was merely touched upon during the proceedings and then nullified by this Supreme Court. In other words, as far as private respondent is concerned, it is
in the court below was the alleged lack of notice to them of the board resolution, but not the veracity the legal reason for cessation of operations, not the actual cessation thereof, that matters and is decisive
insofar as his right to the continued payment of the interest on his deposit during the period of cessation
or validity thereof. is concerned.
“In the light of the peculiar circumstances of this particular case, We disagree. It is Our considered
3. WON OBM should be held liable for interests on the time deposits of IRC & Santos from the view, after mature deliberation, that it is utterly unfair to award private respondent his prayer for payment
time it ceased operations until it resumed its business (No) of interest on his deposit during the period that petitioner bank was not allowed by the Central Bank to
operate.”
We have held in The Overseas Bank of Manila vs. CA and Tony D. Tapia,  that: 13

“It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay 4. WON OBM should reimburse IRC & Santos for whatever amounts they may be adjudged to
stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to pay PNB by way of compensation for damages incurred, pursuant to Art 1170 & 2201 of the
generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international Civil Code (No)
transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other
banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a
depository obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just
- It appears that as early as April 1967, the financial situation of OBM had already caused
conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic mounting concern in the Central Bank. 14

proposition. Consequently, it should be deemed read into every contract of deposit with a bank that the - On December 5, 1967, new directors and officers drafted from the Central Bank (CB) itself, the
obligation to pay interest on the deposit ceases the moment the operation of the bank is completely PNB and the DBP were elected and installed and they took over the management and control of the
suspended by the duly constituted authority, the Central Bank. Overseas Bank
“We consider it of trivial consequence that the stoppage of the bank’s operation by the Central Bank has - However, it was only on July 31, 1968 when OBM was excluded from clearing with the CB
been subsequently declared illegal by the Supreme Court, for before the Court’s order, the bank had no under Monetary Board Resolution No. 1263.
alternative under the law than to obey the orders of the Central Bank. Whatever be the juridical significance
of the subsequent action of the Supreme Court, the stubborn fact remained that the petitioner was totally
Subsequently, on August 2, 1968, pursuant to Resolution No. 1290 of the CB, OBM’s operations
crippled from then on from earning the income needed to meet its obligations to its depositors. If such a were suspended.   16

situation cannot, strictly speaking, be legally denominated as ‘ force majeure,’ as maintained by private - These CB resolutions were eventually annulled and set aside by this Court on October 4, 1971 in
respondent, We hold it is a matter of simple equity that it be treated as such.” the decision rendered in the herein cited case of Ramos

The Court further adjured that: - Thus, when PNB demanded from OBM payment of the amounts due on the 2 time deposits which
“Parenthetically, We may add for the guidance of those who might be concerned, and so that unnecessary matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to
litigations be avoided from further clogging the dockets of the courts, that in the light of the considerations the faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in
expounded in the above opinion, the same formula that exempts petitioner from the payment of interest to its delay in the performance of its obligation, OBM should be held liable for damages.  When 17

depositors during the whole period of factual stoppage of its operations by orders of the Central Bank,
modified in effect by the decision as well as the approval of a formula of rehabilitation by this Court, should
respondent Santos invested his money in time deposits with OBM, they entered into a contract of
be, as a matter of consistency, applicable or followed in respect to all other obligations of petitioner which simple loan or mutuum,  not a contract of deposit
18

could not be paid during the period of its actual complete closure.”
- While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been
We cannot accept the holding of the respondent CA that the above-cited decisions apply only expressly stipulated in writing, this applies only to interest for the use of money. It does not
where the bank is in a state of liquidation. comprehend interest paid as damages
- OBM contends that it had agreed to pay interest only up to the dates of maturity of the certificates
- In the very case aforecited, this issue was likewise raised and We resolved: of time deposit and that respondent Santos is not entitled to interest after the maturity dates had
“Thus, Our task is narrowed down to the resolution of the legal problem of whether or not, for purposes of expired, unless the contracts are renewed. This is true with respect to the stipulated interest, but
the payment of the interest here in question, stoppage of the operations of a bank by a legal order of the obligations consisting as they did in the payment of money, under Article 1108 of the Civil Code
liquidation may be equated with actual cessation of the bank’s operation, not different, factually speaking, he has the right to recover damages resulting from the default of OBM, and the measure of
in its effects, from legal liquidation the factual cessation having been ordered by the Central Bank. such damages is interest at the legal rate of 6% per annum on the amounts due and unpaid at the
“In the case of Chinese Grocer’s Association, et al. vs. American Apothecaries, 65 Phil. 395, this Court
held:
expiration of the periods respectively provided in the contracts. In fine, OBM is being required to
“As to the second assignment of error, this Court, in G.R. No. 43682, In re Liquidation of the pay such interest, not as interest income stipulated in the certificates of time deposit, but as
Mercantile Bank of China, Tan Tiong Tick, claimant and appellant, vs. American Apothecaries, C, et al., damages for failure and delay in the payment of its obligations which thereby compelled IRC
claimants and appellees, through Justice Imperial, held the following: and Santos to resort to the courts
‘4. The court held that the appellant is not entitled to charge interest on the amounts of his claims, and this is the object of
the second assignment of error. Upon this point a distinction must be made between the interest which the deposits should
earn from their existence until the bank ceased to operate, and that which they may earn from the time the bank’s - The applicable rule is that legal interest, in the nature of damages for non-compliance with
operations were stopped until the date of payment of the deposits. As to the first-class, we hold that it should be paid an obligation to pay a sum of money, is recoverable from the date judicial or extrajudicial
because such interest has been earned in the ordinary course of the bank’s business  and before the latter has been
1
demand is made,  which latter mode of demand was made by PNB, after the maturity of the
20

declared in a state of liquidation. Moreover, the bank being authorized by law to make use of the deposits with the
limitation stated, to invest the same in its business and other operations, it may be presumed that it bound itself to pay certificates of time deposit, on March 1, 1968.  The measure of such damages, there being no
21

interest to the depositors as in fact it paid interest prior to the dates of the said claims. As to the interest which may be stipulation to the contrary, shall be the payment of the interest agreed upon in the certificates
charged from the date the bank ceased to do business because it was declared in a state of liquidation, we hold that the of deposit  which is six and one-half percent (6-1/2%). Such interest due or accrued shall
22

said interest should not be paid.’

“The Court of Appeals considered this ruling inapplicable to the instant case, precisely because, as
further earn legal interest from the time of judicial demand
contended by private respondent, the said Apothecaries case had in fact in contemplation a valid order of
liquidation of the bank concerned, whereas here, the order of the Central Bank of August 13, 1968
We reject the proposition of IRC and Santos that OBM should reimburse them the entire
amount they may be adjudged to pay PNB.
- It must be noted that their liability to pay the various interests of 9% on the principal obligation, 1 ½
% additional interest and 1% penalty interest is an offshoot of their failure to pay under the terms of
the 2 promissory notes executed in favor V, 695. of PNB
- OBM was never a party to said promissory notes. There is, therefore, no privity of contract
between OBM and PNB which will justify the imposition of the aforesaid interests upon OBM whose
liability should be strictly confined to and within the provisions of the certificates of time deposit
involved in this case
- In fact, as noted by respondent court, when OBM assigned as error that portion of the judgment of
the court a quo requiring OBM to make the disputed reimbursement, IRC and Santos did not dispute
that objection of OBM. Besides, IRC and Santos are not without fault. They likewise acted in
bad faith when they refused to comply with their obligations under the promissory notes,
thus incurring liability for all damages reasonably attributable to the non-payment of said
obligations. 24
• Bataan Seedling Association, Inc. v. Republic of the Philippines, G.R. No. 141009, July 2, 2002 - Believing that petitioners failed to comply with their obligations under the contract,
ALVIN respondent sent a notice of cancellation dated July 31, 1992 to petitioner Carlos Valencia,
G.R. No. 141009. July 2, 2002 President of BSAI, asking the latter to show cause why the contract should not be terminated
BATAAN SEEDLING ASSOCIATION, INC. and CARLOS VALENCIA, petitioners, vs. REPUBLIC OF THE PHILIPPINES,
represented by the DEPARTMENT OF ENVIRONMENT and NATURAL RESOURCES, respondent. on the following grounds:
   
AUSTRIA-MARTINEZ, J.: "1. Willful violation of the material terms and conditions, stipulations and covenants of the Contract, to wit: a) The
association failed to fully plant/establish the whole 50-hectare contracted area during the first year of
Summary: BSAI entered into a contract with Republic, represented by the DENR for the operations as provided for in the Contract; b) The seedlings raised in the nursery were disposed of to other
reforestation of a forest land within a period of 3 years. BSAI undertook to report to DENR any event contractors and the seedlings left were practically overgrown indicating lack of proper care and
or condition which delays or may delay the project. With the contract was the release of mobilization maintenance; c) Inspite of the fact that a forest fire occurred sometime in Dec., 1991, no report was ever
fund but the fund was to be returned upon completion of the project or deducted from periodic made to the DENR in violation of Article 1.1.5 of the Contract; d) The Association even failed to submit to the
release of moneys to petitioner. Believing that BSAI failed to comply with their obligations, Republic DENR accomplishment reports and other relevant information required and expected from it.
sent a notice of cancellation. BSAI failed to respond to the notice, thus, Republic filed a complaint for  
damages against BSAI. The RTC held that Republic had sufficient grounds to cancel the contract "2. Abandonment of the project area. The PENRO/CENRO monitoring and Evaluation Team which inspected
the project area on Mar. 18, 25 and 31, 1992 reported that except for the family that actually resides in the
but saw no reason why the mobilization fund and the cash advances should be refunded or that bunkhouse, no laborers were observed at the project area during the time of the field inspections. Even you
BSAI are liable for liquidated damages. Both parties appealed to the CA, which affirmed the trial failed to show up despite written and verbal notices served to you. Finally, the photodocuments taken on the
court and that the balance of the fund should be returned with 12% interest.  plantation illustrates clearly the abandoned project area."
   
Is the order to refund the balance of the mobilization fund with a 12% interest per annum? Due to their failure to respond to the notice of cancellation, as well as return the mobilization
  fund, respondent filed a Complaint for Damages against petitioners, praying that the latter
The mobilization fund should be returned but not with a 12% interest per annum. Interest at the rate jointly and solidarily pay actual damages in the amount of ₱75,054.25 representing the portion of the
of 12% per annum is imposable if there is no stipulation in the contract. Herein subject contract does mobilization fund released to them, and ₱62,450.22 as the amount paid under the accomplishment
not contain any stipulation as to interest. However, the amount that is due the respondent does not bills, totaling ₱137,504.47. Respondent also sought liquidated damages equivalent to 0.1% of the
represent a loan or forbearance of money. The word "forbearance" is defined, within the context of total contract cost due to BSAI’s delay in the performance of its obligations, and exemplary damages
usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from in the amount of ₱50,000.00.
requiring borrower or debtor to repay loan or debt then due and payable.  
  In their Amended Answer, petitioners deny the allegations, arguing that: (1) the whole area
The contract between petitioner and respondent is a Community Based Reforestation Contract by was totally destroyed by a forest fire in Dec. 1991 without their fault and negligence, which
virtue of which petitioner undertook the reforestation of a fifty-hectare open/denuded forest land. The incident was duly reported to respondent, and (2) the cancellation was arbitrary.
amount of ₱56,290.69 due to respondent, represents the balance of the mobilization fund which  
petitioner is obliged to return because of its failure to fully comply with its undertaking to plant the RTC: The RTC of Quezon City, Branch 217, rendered its decision ordering petitioners to pay
entire area with seedlings within the period contracted for reforestation. Under the reforestation the amount of ₱50,000.00 as exemplary damages. The TC held that respondent had sufficient
contract, the fund released to petitioner was supposed to be returned to respondent upon completion grounds to cancel the contract but saw no reason why the "mobilization fund" and the
of the project or deducted from the periodic releases of money. Clearly therefrom, the amount of advance payments should be refunded, or that petitioners should be liable for liquidated
₱56,290.69 was neither a loan nor forbearance of money. damages. Not satisfied, both respondent and petitioners appealed the decision to the CA.
   
Thus, in the absence of stipulation, the legal interest is 6% per annum on the amount finally CA: The appellate court affirmed with modification the decision of the TC, adjudicating the
adjudged by the Court. In addition, the amount of ₱56,290.69 shall only earn 12% interest per balance of the mobilization fund refunded by petitioners in the amount of ₱56,290.69 with 12%
annum from date of finality of herein judgment. interest.Hence, the petition for review on certiorari.
   
Facts: Issue:
Petitioner Bataan Seedling Association, Inc. (BSAI for brevity) entered into a Community Based 1. WON the unilateral cancellation by the respondent of the Community-Based Reforestation
Reforestation Contract on Oct. 26, 1990 with the Republic of the Philippines, represented by Contract is invalid, being without factual and legal basis. (NO)
the DENR. Under said contract, BSAI, in consideration of the amount of P975,126.61, bound 2. WON the order to refund the amount of P56,290.69 with interest at the rate of 12% per annum,
itself to undertake the reforestation of a fifty-hectare open/denuded forest land in Barangay representing the balance of the mobilization fund, is palpably erroneous as being contrary to the
Liyang, Pilar, Bataan within a period of three (3) years. BSAI likewise undertook to report to facts. (YES)
the DENR any event or condition which delays or may delay or prevent completion of the  
work, and submit progress billings and accomplishment reports. Held:
  At the outset, it must be stated that the foregoing issues and the respective arguments in support thereof have
Concomitant with the contract is the Project Development Plan and the Approved Schedule been raised by the parties and passed upon by both the TC and the appellate court.
of Progress Payments detailing the annual cash flow and schedule of activities within the  
three-year period, and the Contract of Undertaking providing for the mobilization fund in the Petitioners deny that they were bound to fully plant the 50 hectares during the 1st year of the program as
their commitment under clause 1.1.9 of the Reforestation Contract was to "turn-over to the DENR at the
amount of ₱75,054.66. Said fund was allotted and released by respondent to enable BSAI to end of the third (3rd) year the contracted area of fifty hectares, fully planted and properly maintained."
start with the project, but the fund was to be returned to respondent upon completion of the  
project or deducted from the periodic release of moneys to petitioners. Petitioners also refute the finding that they abandoned the project area , arguing that the investigation
  conducted by the PENCO/CENRO Monitoring and Evaluation Team is suspect; and that its report ignored the fact
that a forest fire occurred sometime in Dec. 1991 destroying the plants and seedlings already introduced in the "THAT BATAAN SEEDLING ASSOCIATION, INCORPORATED x x x, for and in consideration of the sum of
area. Petitioners further claim that their failure to immediately report the fire and submit progress reports is Seventy Five Thousand Fifty four pesos and sixty six centavos (P75,054.66) representing advance payment
not a substantial breach of their undertaking to warrant the cancellation of the contract; and that they under said contract receipt of which is hereby acknowledge in full, as hereby bind ourselves;
cannot be made to refund the balance of the mobilization fund because these correspond to the work  
already done in the area. Finally, petitioners object to the award of exemplary damages for being without legal 3. To repay the amount advanced in accordance with the Contract of Reforestation and DENR Administration
and factual basis. order No. 14 Series of 1989 as amended;"
   
On the issue of WON respondent had sufficient basis to cancel the contract, both the trial and appellate The amount of ₱75,054.66 advanced to BSAI, represents 15% of ₱500,361.72, the contract cost for the 1st
courts found that there was basis for the cancellation. A perusal of the records of this case confirms such year. When initial payment was made by respondent to petitioners on Feb. 25, 1991, the amount of
finding. ₱18,763.56, or 1/4 of the mobilization fund, was deducted, leaving a balance of ₱56,290.69. Respondent
  thereafter made no deductions on the subsequent payments of the contract price remitted to petitioners.
True, under the reforestation contract, petitioners were to turn over at the end of the third year the project Hence, they remain liable on the balance of said fund in the amount of ₱56,290.69. We find no error
area fully planted and properly maintained. However, the Project Development Plan, appended and made committed by the Appellate Court on this matter.
integral part of the contract, specifically defines and details petitioners’ undertaking. Under the Plan, the  
following tasks were to be completed during the first year of the project: (1) survey and mapping of the whole fifty Nevertheless, the appellate court erred in imposing a 12% interest on the amount due . In Eastern Shipping
(50) hectares; (2) nursery operations for fast-growth, medium-growing, and slow-growth species; (3) plantation Lines, Inc. vs. CA, we enunciated the following rules:
establishment, including site preparation, spot hoeing, staking, holing, and planting and seed transporting of 83,333  
pieces, medium-sized seedlings and sucklers in planting holes; and (4) infrastructure work, including the "I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
development of footpath, graded trail, plantation road, bunkhouse and look-out tower.19 Spread out during the breached, the contravenor can be held liable for damages. The provisions under Title XVIII on ‘Damages’ of the
three-year period is the annual maintenance, protection, administration and supervision, and, monitoring and Civil Code govern in determining the measure of recoverable damages.
evaluation of the project area.  
  "II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
Clearly, based on said schedule, petitioners were to undertake the principal task of planting the fifty (50) the rate of interest, as well as the accrual thereof, is imposed, as follows:
hectare-project area during the 1st year of the project. What is to be carried out during the entire 3-year  
period is the maintenance and aftercare of the project site, and petitioners were to turn over the project at "1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
the end of the third year fully planted and established. Therefore, petitioners’ argument that they are not bound forbearance of money, the interest due should be that which may have been stipulated in writing.
to fully plant/establish the whole fifty (50) hectares during the 1st year of operations is without merit. 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,
Moreover, contrary to petitioners’ posture, there was a material breach of the contract warranting its i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
cancellation. `1 year after the commencement of the project or sometime in Dec., 1991, a fire razed the Civil Code.
reforestation area. As admitted by petitioners, they failed to inform respondent of said incident. Neither did  
they attempt to submit progress reports on the project, which duties were expressly required of them "2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
under the contract. Thus, the appellate court correctly observed, viz.: 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
"The Appellant BSAI unabashedly admitted failing to establish/plant the project area. Under Section 1.1.5 of the be established with reasonable certainty. Accordingly, where the demand is established with reasonable
Contract, the Appellant BSAI was obliged to report to the DENR any event or condition which delayed or may certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169,
delay the progress or prevent the completion, of the work under the time-table set forth under the contract or any Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the
relevant facts known to the Appellant BSAI. A fire in the area which gutted the improvements in contract area interest shall begin to run only from the date the judgment of the court is made (at which time the quantification
occurred in Dec., 1991. However, the Appellant BSAI never informed the DENR of said fire. Worse, the of damages may be deemed to have been reasonably ascertained). The actual base for the computation of
Appellant BSAI did not anymore conduct any replanting activities on the area, thus accounting, in part, legal interest shall, in any case, be on the amount finally adjudged.
for the failure of the said Appellant to submit periodic progress reports on its activities in said area. Even  
before the fire occurred, in Dec. 1991, the Appellant BSAI already failed to submit any periodic reports of "3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
progress of its activities in the area. This prompted the DENR to conduct an on the site inspection of the interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
subject project area. Indeed, Carlos Valencia and Hernani Salaya Jr., even ignored the requests of DENR for finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
them to be present during the said inspections. The DENR inspection team found and discovered that the credit."
Appellant BSAI failed to fully establish planting on the subject project area. Instead of planting the seedlings on  
the project area, the Appellant BSAI sold some of the seedlings because of its failure to pay the nursery owner, Interest at the rate of 12% per annum is imposable if there is no stipulation in the contract.
Anilao Satellite Nursery, located in Pilar, Bataan for said seedlings.”
Herein subject contract does not contain any stipulation as to interest. However, the amount
 
Petitioners attempt to trivialize their lapse, but the Court believes that this is not merely a slight or casual
that is due the respondent does not represent a loan or forbearance of money. The word
breach, but a substantial one giving sanction to the cancellation. Under Clause 4.1 of the contract, "forbearance" is defined, within the context of usury law, as a contractual obligation of lender
respondents "shall have the right to suspend, terminate or cancel" the contract upon petitioners’ or creditor to refrain, during given period of time, from requiring borrower or debtor to repay
substantial failure to fulfill their obligations, or a willful violation of the material conditions, stipulations loan or debt then due and payable.
and covenants thereof. It can be concluded from the tenor of said clause that the parties intended mandatory  
compliance with all the provisions of the contract. As stated previously, among such provisions requiring strict The contract between petitioner and respondent is a Community Based Reforestation
adherence are the submission of progress reports and the reporting of such event which may delay or prevent the Contract by virtue of which petitioner undertook the reforestation of a fifty-hectare
project. Hence, upon petitioners’ failure to comply with said obligations, respondent was well within its right to
cancel the contract by express grant of Clause 4.1.
open/denuded forest land. The amount of ₱56,290.69 due to respondent, represents the
  balance of the mobilization fund which petitioner is obliged to return because of its failure to
Anent the refund of the mobilization fund, the Contract of Undertaking signed by petitioners is explicit in fully comply with its undertaking to plant the entire area with seedlings within the period
this regard, to wit: contracted for reforestation. Under the reforestation contract, the fund released to petitioner
  was supposed to be returned to respondent upon completion of the project or deducted from
the periodic releases of money. Clearly therefrom, the amount of ₱56,290.69 was neither a
loan nor forbearance of money.
 
Thus, the above-quoted paragraph II, sub-paragraph 1, applies to the present case. In the
absence of stipulation, the legal interest is six percent (6%) per annum on the amount finally
adjudged by the Court.
 
In addition, under the above-quoted paragraph II, sub-paragraph 3, the amount of ₱56,290.69
shall earn 12% interest per annum from date of finality of herein judgment.
 
Finally, the Court finds the award of ₱50,000.00 as exemplary damages to be excessive and should
therefore be reduced to ₱20,000.00. Exemplary damages are imposed not to enrich one party or
impoverish another but to serve as a deterrent against or as a negative incentive to curb socially
deleterious actions.
 
WHEREFORE, the petition is partly GRANTED and the assailed Decision is AFFIRMED with the following
MODIFICATIONS:
1) The interest to be paid on the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine
Centavos (₱56,290.69) shall be at the rate of 6% per annum from the CA Decision dated Oct. 14, 1998. A twelve
percent (12% ) interest, in lieu of six percent (6%) shall be imposed upon finality of this decision, until full
payment thereof.
2) The award of exemplary damages is reduced from Fifty Thousand Pesos (₱50,000.00) to Twenty Thousand
Pesos (₱20,000.00).
• Catungal v. Hao, G.R. No. 134972, March 22, 2001 - RINA  
The MeTC of Parañaque proceeded with the trial of the ejectment cases. MeTC of
G.R. No. 134972   March 22, 2001 Parañaque: ordered Hao and all persons claiming rights under her to vacate the premises in
SPS. ERNESTO and MINA CATUNGAL, petitioners, vs. DORIS HAO, respondent. question and to pay the plaintiffs P20,000.00 a month from June 28, 1988, until she finally
  vacates the premises and to pay attorney's fees of P20,000.00. Petitioners filed a motion for
KAPUNAN, J.: clarificatory judgment on the ground that MeTC. Petitioners sought reconsideration. The MeTC
of Parañaque elevated the case to the RTC. RTC of Parañaque: modified decision of the
MeTC. Respondent sought a reconsideration but was denied. CA: MODIFIED by reducing the
SUMMARY: (needed yung medyo mahabang facts para maunderstand yung buong amount of rentals for both the second and third floors from P20,000.00 to P10,000.00 monthly.
case, madami kasing pasikot sikot na naganap) With this modification, the judgment below is AFFIRMED in all other respects. The CA
  resolved the parties' MR in favor of the respondent. It ruled that the MR filed by the
Timeline: petitioners before the MeTC was a prohibited pleading under the Rules of Summary
December 28 Galang leased a 3 storey building (in Quirino Ave, Paranaque) to BPI for a Procedure.
1972 period of 15 years (expiration: June 20, 1986)  
ISSUES:
During the BPI subleased ground floor to Hao 1.  W/N the CA is correct by using as basis for reducing the rental only the evidence
lease submitted by the parties and ignoring circumstances of which the RTC properly took judicial
notice. (NO)
August 24 1984 Galang & Hao executed contract of lease on 2 and 3 floor of bldg (4 years:
nd rd
2.  W/N the RTC had jurisdiction to modify the appealed judgment by increasing the
Aug 15 1984 – Aug 16, 1988) award of monthly rentals from P13,000 to P40,000. (YES)
 
August 15 1986 Sps Catungal bought the property from Galang RULING: WHEREFORE, judgment is hereby rendered in favor of petitioners by
REINSTATING the decision of the RTC, with modifications.
 
  Petitioners: posit that there should be a reinstatement of the decision of the RTC which fixed
Cases filed: the monthly rentals to be paid by Hao at the total of P40,000.00, effective after the lapse of the
original lease contract between respondent and the original owner of the building.
Civil Case No. 88- Complaint for Annulment of Sale with Damages filed by Hao (Hao  
491 (Makati RTC) invoked her Right of First Refusal purportedly based on Hao’s lease Respondent: insists on the ruling of the MeTC that the monthly rental rates of only P8,000.00
contract with Galang) for the first floor and P5,000.00 for each of the second and third floors should prevail.
 
Civil Cases Nos. Complaints for ejectment filed by the Spouses Catungal due to the fact
RTC correctly applied doctrine of judicial notice
7666 and 7667 that the lease agreement between BPI and Galang expired, and
 
(Paranaque MeTC) because of the expiration of the said lease agreements, Sps Catungal
We cannot allow the respondent to insist on the payment of a measly P8,000 for the rentals of
sent demand letters for Hao to vacate but these letters went unheeded,
the first floor of the property and P5,000.00 for each of the second and the third floors of the
causing the Sps to file said complaints
leased premises. The plaintiff in an ejectment case is entitled to damages caused by his loss
of the use and possession of the premises. Damages in the context of Section 17, Rule 70 of
Civil Case No. 90- Action for injunction filed by Hao to stop the Paranaque MeTC from
the 1997 Rules of Civil Procedure is limited to "rent" or fair rental value or the reasonable
758 (Makati RTC) proceeding pending the settlement of the issue of ownership raised in
compensation for the use and occupation of the property. What therefore constitutes the fair
Civil Case No. 88-491.
rental value in the case at bench?
 
  In ruling that the increased rental rates of P40,000.00 should be awarded the petitioners, the
Decisions: RTC based its decision on the doctrine of judicial notice, thus:
 
Makati Granted injunction and annulled sale between Galang and Sps. Catungal xxx the amount of rentals as laid down in the Clarificatory Order is inadequate if not
RTC unreasonable. The Court a quo misappreciated the nature of the property, its location and the
business practice in the vicinity and indeed committed an error in fixing the amount of
CA Reversed Makati RTC; complaints in Civil Cases Nos. 88-491 and 90-758 were rentals in the aforementioned Order. Said premises is situated along Quirino Avenue, a main
dismissed thoroughfare in Barangay Baclaran, Parañaque, Metro Manila, a fully developed commercial area
and the place where the famous shrine of the Mother of Perpetual Help stands.
SC denied Hao’s petition  
Finally, worth mentioning here as parallel is the ruling of the Supreme Court in the case of Manila be computed from default, i.e., from judicial or extrajudicial demand under
Bay Oub Corporation vs. CA citing Licmay vs. CA and Commander Realty Inc. v. CA, It reads as and subject to the provisions of Article 1169 of the Civil Code.
follows:  
  The back rentals in this case being equivalent to a loan or forbearance of money, the
It is worth stressing at this juncture that the trial court had the authority to fix the interest due thereon in 12% per annum from the time of extra-judicial demand on
reasonable value for the continued use and occupancy of the leased premises after September 27, 1988.
the termination of the lease contract, and that it was not bound by the stipulated
rental since it is equally settled that upon termination or expiration of the Contract of  
Lease, the rental stipulated therein may no longer be the reasonable value for the use and FACTS:
occupation of the premises as a result or by reason of the change or rise in values.
Moreover, the trial court can take judicial notice of the general increase in rentals of Timeline:
real estate especially of business establishments like the leased building owned by
the private respondents. December 28 Galang leased a 3 storey building (in Quirino Ave, Paranaque) to BPI for a
  1972 period of 15 years (expiration: June 20, 1986)
The RTC correctly applied and construed the legal concept of judicial notice in the case at
bench. Judicial knowledge may be defined as the cognizance of certain facts which a During the BPI subleased ground floor to Hao
judge under rules of legal procedure or otherwise may properly take or act upon without lease
proof because they are already known to him, or is assumed to have, by virtue of his
office. Judicial cognizance is taken only of those matters that are "commonly" known. The August 24 1984 Galang & Hao executed contract of lease on 2 and 3 floor of bldg (4 years:
nd rd

power of taking judicial notice is to be exercised by courts with caution; care must be taken Aug 15 1984 – Aug 16, 1988)
that the requisite notoriety exists; and every reasonable doubt on the subject should be
promptly resolved in the negative. Matters of judicial notice have three material requisites:
(1) the matter must be one of common and general knowledge; (2) it must be well and August 15 1986 Sps Catungal bought the property from Galang
authoritatively settled and not doubtful or uncertain; and (3) it must be known to be within the
limits of jurisdiction of the court.
 
The RTC rightly modified the rental award from P13,000.00 to P40,000.00, considering that it Cases filed:
is settled jurisprudence that courts may take judicial notice of the general increase in rentals of
lease contract renewals much more with business establishments. Civil Case No. 88- Complaint for Annulment of Sale with Damages filed by Hao (Hao
  491 (Makati RTC) invoked her Right of First Refusal purportedly based on Hao’s lease
The increased award of rentals ruled by the RTC is reasonable given the circumstances contract with Galang)
 
The CA failed to justify its reduction of the P40,000.00 fair rental value as determined by Civil Cases Nos. Complaints for ejectment filed by the Spouses Catungal due to the fact
the RTC. Neither has respondent shown that the rental pegged by the RTC is exorbitant 7666 and 7667 that the lease agreement between BPI and Galang expired, and
or unconscionable. This is because the burden of proof to show that the rental is (Paranaque MeTC) because of the expiration of the said lease agreements, Sps Catungal
unconscionable or exorbitant rests upon private respondent as the lessee. Here, sent demand letters for Hao to vacate but these letters went unheeded,
respondent neither discharged this burden when she omitted to present any evidence at all on causing the Sps to file said complaints
what she considers to be fair rental value, nor did she controvert the evidence submitted by
Civil Case No. 90- Action for injunction filed by Hao to stop the Paranaque MeTC from
petitioners by way of testimonies of the real estate broker and Mina Catungal.
758 (Makati RTC) proceeding pending the settlement of the issue of ownership raised in
 
Civil Case No. 88-491.
The Court also awards interest in favor of petitioners - TOPIC RELATED!!!!.
 
Eastern Shipping Lines, Inc. vs. Court of Appeals (guidelines in the award of interest):
  Decisions:
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 Makati Granted injunction and annulled sale between Galang and Sps. Catungal
thereof, is imposed, as follows: RTC
 
1. When the obligation is breached, and it consists in the payment of a sum CA Reversed Makati RTC; complaints in Civil Cases Nos. 88-491 and 90-758 were
of money, i.e., a loan or forbearance of money, the interest due should be dismissed
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 SC denied Hao’s petition
the absence of stipulation, the rate of interest shall be 12% per annum to
 detainer, 20 June 1988 (for the ground floor) and 15 August 1988 (for the second and third floors) of the
subject property until the time she vacated the premises on 7 January 1998;
2. Legal interest of 12% per annum on the foregoing sum from the date of notice of demand on 27
The MeTC of Parañaque, after the reversal of the decision for injunction, proceeded with September 1988 until fully paid;
the trial of the ejectment cases. 3. The sum of P20,000.00 as and for attorney's fees and;
4. The costs of suit.
MeTC of Parañaque: ordered Hao and all persons claiming rights under her to vacate the
premises in question and to pay the plaintiffs P20,000.00 a month from June 28, 1988, until There is no question that after the expiration of the lease contracts which Hao contracted
she finally vacates the premises and to pay attorney's fees of P20,000.00. with Galang and BPI, she lost her right to possess the property since, as early as the
actual expiration date of the lease contract, petitioners were not negligent in enforcing
Petitioners: filed a motion for clarificatory judgment on the ground that MeTC "only awarded their right of ownership over the property. While respondent was finally evicted from the
rent or compensation for the use of said property and attorney's fees for said ground floor and leased premises, the amount of monthly rentals which Hao should pay the petitioners
not the entire subject property. Compensation for the use of the subject property's second and remains to be resolved.
third floors and attorney's fees as prayed for in Civil Case No. 7767 were not awarded."
Petitioners: posit that there should be a reinstatement of the decision of the RTC which fixed
MeTC:  judgment is hereby rendered ordering Hao who is in actual possession of the property the monthly rentals to be paid by Hao at the total of P40,000.00, P20,000.00 for the occupancy
and all persons claiming rights under her to vacate the premises and to pay the plaintiffs of the first floor, and P10,000.00 each for the occupancy of the second and third floors of the
P8.000.00 a month in Civil Case No. 7666 for the use and occupancy of the first floor of the building, effective after the lapse of the original lease contract between respondent and the
premises in question from June 28. 1998 until she finally vacates the premises and to pay the original owner of the building.
plaintiff a rental of P5,000.00 a month in Civil Case No. 7667 from June 28 1988, until she
finally vacates the premises and to pay attorney's fees of P20,000.00. Respondent: insists on the ruling of the MeTC, which was reinstated by the CA, that the
monthly rental rates of only P8,000.00 for the first floor and P5,000.00 for each of the second
Petitioners sought reconsideration, praying that respondent be ordered to pay P20,000.00 and third floors should prevail.
monthly for the use and occupancy of the ground floor and P10,000.00 each monthly for the No lessor-lessee relationship between the parties
second and third floors. Respondent filed a notice of appeal.
At most, what we have is a forced lessor-lessee relationship inasmuch as the respondent,
Instead of resolving the motion for reconsideration, the MeTC of Parañaque elevated the case by way of detaining the property without the consent of petitioners, was in unlawful possession
to the RTC. of the property belonging to petitioner spouses.

RTC of Parañaque: modified decision of the MeTC. Respondent sought a reconsideration but RTC correctly applied doctrine of judicial notice
was denied. CA: MODIFIED by reducing the amount of rentals for both the second and third
floors from P20,000.00 to P10,000.00 monthly. With this modification, the judgment below is We cannot allow the respondent to insist on the payment of a measly P8,000 for the rentals of
AFFIRMED in all other respects. the first floor of the property and P5,000.00 for each of the second and the third floors of the
leased premises. The plaintiff in an ejectment case is entitled to damages caused by his loss
The parties filed their respective motions for reconsideration to the Court of Appeals.  The CA of the use and possession of the premises. Damages in the context of Section 17, Rule 70 of
resolved the parties' MR in favor of the respondent. It ruled that the MR filed by the the 1997 Rules of Civil Procedure is limited to "rent" or fair rental value or the reasonable
petitioners before the MeTC was a prohibited pleading under the Rules of Summary compensation for the use and occupation of the property. What therefore constitutes the fair
Procedure. rental value in the case at bench?

ISSUES: In ruling that the increased rental rates of P40,000.00 should be awarded the petitioners, the
1.  W/N the CA is correct by using as basis for reducing the rental only the evidence RTC based its decision on the doctrine of judicial notice, thus:
submitted by the parties and ignoring circumstances of which the RTC properly took judicial
notice. (NO) xxx the amount of rentals as laid down in the Clarificatory Order is inadequate if not
2.  W/N the RTC had jurisdiction to modify the appealed judgment by increasing the unreasonable.
award of monthly rentals from P13,000 to P40,000. (YES)
The Court a quo misappreciated the nature of the property, its location and the business
RULING: WHEREFORE, judgment is hereby rendered in favor of petitioners by practice in the vicinity and indeed committed an error in fixing the amount of rentals in the
REINSTATING the decision of the RTC, with modifications, and ordering respondent to further aforementioned Order. Said premises is situated along Quirino Avenue, a main thoroughfare in
Barangay Baclaran, Parañaque, Metro Manila, a fully developed commercial area and the place
PAY:
1. The sum of P27,000.00, corresponding to the difference between the P40,000.00 awarded by the RTC where the famous shrine of the Mother of Perpetual Help stands. xxx
and the P13,000.00 awarded by the MTC, as monthly arrears, computed from respondent's unlawful
Further, considering that the questioned property has three floors and strategically located along the what she considers to be fair rental value, nor did she controvert the evidence submitted by
main road and consistent with the prevailing rental rates in said business area which is between petitioners by way of testimonies of the real estate broker and Mina Catungal.
P20,000.00 and P30,000.00 as testified to by Divina Q. Roco, a real estate agent, this Court finds
the amount of P20,000.00/month for the ground floor and P10,000.00/month each for the second Sia v. CA:  xxx On the contrary, the records bear out that the P5,000.00 monthly rental is a
floor and third floor or a total of P40,000.00 monthly rentals as appropriate and reasonable rentals reasonable amount, considering that the subject lot is prime commercial real property whose value
for the use and occupation of said premises. has significantly increased and that P5,000.00 is within the range of prevailing rental rates in that
vicinity. Moreover, petitioner has not proffered controverting evidence to support what he believes to
Finally, worth mentioning here as parallel is the ruling of the Supreme Court in the case of Manila be the fair rental value of the leased building since the burden of proof to show that the rental
Bay Oub Corporation vs. CA citing Licmay vs. CA and Commander Realty Inc. v. CA, It reads as demanded is unconscionable or exorbitant rests upon the lessee. Thus, here and now we rule, that
follows: petitioner having failed to prove its claim of excessive rentals, the valuation made by the Regional
Trial Court, as affirmed by the respondent Court of Appeals, stands.
It is worth stressing at this juncture that the trial court had the authority to fix the
reasonable value for the continued use and occupancy of the leased premises after CA erred in holding that the MR filed by petitioners is a prohibited proceeding
the termination of the lease contract, and that it was not bound by the stipulated (procedural – skip)
rental since it is equally settled that upon termination or expiration of the Contract of
Lease, the rental stipulated therein may no longer be the reasonable value for the use and
occupation of the premises as a result or by reason of the change or rise in values. According to the CA, the MR filed by petitioners before the MeTC is a prohibited pleading
Moreover, the trial court can take judicial notice of the general increase in rentals of under the Rule on Summary Procedure and did not have any effect in stalling the running of
real estate especially of business establishments like the leased building owned by the period to appeal the decision nor could it be considered as notice of appeal and
the private respondents. consequently this affected the elevation of the case to the RTC. Not having appealed the case
to the RTC, the amended judgment of the MeTC fixing the rental rate at P13,000.00 is final
The RTC correctly applied and construed the legal concept of judicial notice in the case at and executory as far as petitioners are concerned.
bench. Judicial knowledge may be defined as the cognizance of certain facts which a
judge under rules of legal procedure or otherwise may properly take or act upon without We disagree. A reading of the order issued by the MeTC will show that said court
proof because they are already known to him, or is assumed to have, by virtue of his elevated the issue on the amount of rentals raised by the petitioner to the RTC because
office. Judicial cognizance is taken only of those matters that are "commonly" known. The the appeal of respondent had already been perfected, thus:
power of taking judicial notice is to be exercised by courts with caution; care must be taken
that the requisite notoriety exists; and every reasonable doubt on the subject should be Considering the Motion for Reconsideration of the Order of this Court and the Comment and
promptly resolved in the negative. Matters of judicial notice have three material requisites: Opposition thereto of the counsel for the defendant, the Court finds the said Motion for
(1) the matter must be one of common and general knowledge; (2) it must be well and Reconsideration should already be addressed to the RTC considering that whatever disposition that
authoritatively settled and not doubtful or uncertain; and (3) it must be known to be within the this Court will award will still be subject to the appeal taken by the defendant and considering further
limits of jurisdiction of the court. that the supersedeas bond posted by the defendant covered the increased rental.
In order that this case will be immediately forwarded to the RTC in view of the appeal of the
defendant, the Court deemed it wise not to act on the said motion for reconsideration and submit the
The RTC correctly took judicial notice of the nature of the leased property subject of the case matter to the Regional Trial Court who has the final say on whether the rental or the premises in
at bench based on its location and the commercial viability. The above quoted assessment by question will be raised or not.
the RTC of the Baclaran area is fairly grounded. The RTC also had factual basis in arriving at
the said conclusion, the same being based on testimonies of witnesses. It will be to the advantage of both parties that this Court refrain from acting on the said Motion for
The RTC rightly modified the rental award from P13,000.00 to P40,000.00, considering that it Reconsideration so as to expedite the remanding (sic) of this Court to the Regional Trial Court.
is settled jurisprudence that courts may take judicial notice of the general increase in rentals of
lease contract renewals much more with business establishments.
When the MeTC referred petitioners' motion to the RTC for its disposition, respondent
could have opposed such irregularity in the proceeding. This respondent failed to do.
The increased award of rentals ruled by the RTC is reasonable given the circumstances Respondent now insists that the petition should be denied on the ground that the MR filed
before the MeTC is a prohibited pleading and hence could not be treated as a notice of appeal.
We note that respondent was able to deny petitioners the benefits of their rightful ownership Respondent is precluded by estoppel from doing so. To grant respondent's prayer will not only
over the subject property for almost a decade. do injustice to the petitioners, but also it will make a mockery of the judicial process as it will
result in the nullity of the entire proceedings already had on a mere technicality, a practice
The CA failed to justify its reduction of the P40,000.00 fair rental value as determined by frowned upon by the Court.
the RTC. Neither has respondent shown that the rental pegged by the RTC is exorbitant
or unconscionable. This is because the burden of proof to show that the rental is The CA correctly observed that the "peculiar circumstances attendant to the ejectment cases
unconscionable or exorbitant rests upon private respondent as the lessee. Here, warrant departure" from the presumption that a party who did not interject an appeal is
respondent neither discharged this burden when she omitted to present any evidence at all on satisfied with the adjudication made by the lower court:
 As regard the issue on the propriety of the increase in the award of reconsideration of a final judgment is allowed. In the interest of substantial justice, in this
damages/rentals made by the RTC, the Court notes that, while respondent particular case, we rule that the MeTC did not err in treating the motion for
spouses did not formally appeal the decision in the ejectment cases, their reconsideration filed by petitioner as a notice of appeal.
motion for reconsideration assailing the clarificatory order reducing the
award of damages/ rentals was, by order of the MTC, referred to the RTC
Petitioners’ wanting to reinstate the RTC decision when they had already applied for a
for appropriate action.
writ of execution is not a case of unjust enrichment
In order to avoid further injustice to a lawful possessor, an immediate execution of a
Reason for such action is stated in the Order of May 7, 1997, thus:
judgment is mandated and the court's duty to order such execution is practically
ministerial. In City of Manila, et al. vs. CA, et al., We held that "Section 8 (now Section 19),
Neither petitioner nor respondent spouses assailed the above order. In fact, Rule 70, on execution pending appeal, also applies even if the plaintiff-lessor appeals where,
respondent spouses reiterated their claim, first ventilated in their motion for as in that case, judgment was rendered in favor of the lessor but it was not satisfied with the
reconsideration dated March 24, 1997, that the MTC grievously erred in finding
increased rentals granted by the trial court, hence the appeal xxx."
that plaintiffs-appellees are only entitled to a meager monthly rental of
P8,000.00 for the ground floor and P5,000.00 for the second and third floors.
As above discussed, the petitioners have long been deprived of the exercise of their
Hence, while the entrenched procedure in this jurisdiction is that a party who proprietary rights over the leased premises and the rightful amount of rentals at the rate of
has not himself appealed cannot obtain from the appellate court affirmative P40,000.00 a month. Consequently, petitioners are entitled to accrued monthly rentals of
relief other than those granted in the decision of the lower court, the peculiar P27,000.00, which is the difference between P40,000.00 awarded by the RTC and P13,000.00
circumstances attendant to the ejectment cases warrant a departure awarded by the MeTC and affirmed by the Court of Appeals. Said amount of P27,000.00
therefrom. The rule is premised on the presumption that a party who did not should rightly be the subject of another writ of execution being distinct from the subject
interpose an appeal is satisfied with the adjudication made by the lower court. of the first writ of execution filed by petitioners.
Respondent spouses assailed it in their motion for reconsideration which,
however, was referred to the RTC for appropriate action in view of the appeal The Court also awards interest in favor of petitioners- TOPIC RELATED!!!!.
taken by the petitioner. Clearly, the increase in the damages/rentals awarded by
the MTC was an issue the RTC could validly resolve in the ejectment cases.
Eastern Shipping Lines, Inc. vs. Court of Appeals (guidelines in the award of interest):
Respondent: argues that ejectment cases are tried under the Revised Rule on Summary
Procedure, hence, the MR filed by petitioners was a prohibited pleading and could not take the II With regard particularly to an award of interest in the concept of
place of the required notice of appeal. actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
The argument is misleading. Simply because the case was one for ejectment does not
automatically mean that the same was triable under the Rules of Summary Procedure. 1. When the obligation is breached, and it consists in the payment of a
At the time of the filing of the complaint by petitioner in 1989, said Rules provide: 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,
SECTION 1. SCOPE - THIS RULE SHALL GOVERN THE PROCEDURE IN the interest due shall itself earn legal interest from the time it is
THE METROPOLITAN TRIAL COURTS, THE. MUNICIPAL TRIAL COURTS, judicially demanded. In the absence of stipulation, the rate of interest
AND THE MUNICIPAL CIRCUIT TRIAL COURTS IN THE FOLLOWING shall be 12% per annum to be computed from default, i.e., from judicial
CASES: or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
A. CIVIL CASES:
The back rentals in this case being equivalent to a loan or forbearance of money,
(1) CASES OF FORCIBLE ENTRY AND UNLAWFUL DETAINER, EXCEPT the interest due thereon in 12% per annum from the time of extra-judicial demand
WHERE THE QUESTION OF OWNERSHIP IS INVOLVED, OR WHERE THE
on September 27, 1988.
DAMAGES OR UNPAID RENTALS SOUGHT TO BE RECOVERED BY THE
PLAINTIFF EXCEED P20,000.00 AT THE TIME OF THE FILING OF THE
COMPLAINT. 

In their complaint, petitioners prayed for rentals for the period covering June 1988 to April1989,
at a rate of P20,000 for the first floor alone, as well as P10,000.00 for attorney's fees.
Considering the amount of rentals and damages claimed by petitioners, said case
before the MeTC was not governed by the Rules on Summary Procedure. Said case was
governed by the ordinary rules where the general proposition is that the filing of a motion for