In the "first group", the basic issue focuses on the application of either the 6% (under the

FEB 22-ADDITIONAL CASES Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily
discernible in these cases that there has been a consistent holding that the Central Bank
Circular imposing the 12% interest per annum applies only to loans or forbearance of money,
• Eastern Shipping Lines v. Court of Appeals, 234 SCRA 78, 1994 - EV
goods or credits, as well as to judgments involving such loan or forbearance of money,
G.R. No. 97412 July 12, 1994
goods or credits, and that the 6% interest under the Civil Code governs when the transaction
EASTERN SHIPPING LINES, INC., petitioner,
involves the payment of indemnities in the concept of damage arising from the breach or a
vs.
delay in the performance of obligations in general. Observe, too, that in these cases, a
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
common time frame in the computation of the 6% interest per annum has been applied, i.e.,
VITUG, J.:
from the time the complaint is filed until the adjudged amount is fully paid.
Summary:
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest
per annum, depending on whether or not the amount involved is a loan or forbearance, on the one
Two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS
hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which
EASTERN COMET" owned by defendant Eastern Shipping Lines. The shipment was insured under
remained consistent in holding that the running of the legal interest should be from the time of the
respondent’s (Mercantile Insurance Company, Inc) Marine Insurance Policy No. 81/01177 for
filing of the complaint until fully paid, the "second group" varied on the commencement of the
P36,382,466.38.
running of the legal interest.
Upon arrival of the shipment in Manila, it was discharged unto the custody of defendant Metro Port
Malayan held that the amount awarded should bear legal interest from the date of
Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown
the decision of the court a quo, explaining that "if the suit were for damages, 'unliquidated
to plaintiff.
and not known until definitely ascertained, assessed and determined by the courts after
proof,' then, interest 'should be from the date of the decision.'"
Thereafter, Allied Brokerage Corp received the shipment from Metro Port, one drum opened and
without seal
American Express International v . IAC, introduced a different time frame for
reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision
Allied Brokerage Corp made deliveries of the shipment to the consignee's warehouse. The latter
until paid."
excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake
The Nakpil and Sons case ruled that 12% interest per annum should be imposed
Respondent Mercantile contended that due to the losses/damage sustained by said drum, the
from the finality of the decision until the judgment amount is paid.
consignee suffered losses totaling P19,032.95, due to the fault and negligence of Petitioner
Eastern(common carrier), Metro Port(arrastre operator) and Allied Brokerage(customs broker).
The ostensible discord is not difficult to explain. The factual circumstances may have called
Claims were presented against them who failed and refused to pay the same.
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
As a consequence of the losses sustained, Respondent Mercantile was compelled to pay the
unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for
consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated
future guidance.
to all the rights of action of said consignee against Petitioner Eastern, Metro Port and Allied
Brokerage.
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
(Court a quo & CA decision: amount of P19,032.95, with the present legal interest of 12% per
provisions under Title XVIII on "Damages" of the Civil Code govern in determining the
annum from October 1, 1982, the date of filing of this complaints, until fully paid)
measure of recoverable damages.
SC: (6% from the the decision of the court a quo)
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:
There is sufficient evidence that the shipment sustained damage while in the successive possession
of Petitioner Eastern, Metro Port and Allied Brokerage. Accordingly, the liability imposed on Eastern
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are
loan or forbearance of money, the interest due should be that which may have been
others solidarily liable with it.
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
It is over the issue of legal interest adjudged by the appellate court that deserves more than
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
just a passing remark.
subject to the provisions of Article 1169 of the Civil Code.
The court cited several cases and classified them into two groups according to the similarity
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
of the issues involved and the corresponding rulings rendered by the court.
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
The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus
damages except when or until the demand can be established with reasonable certainty.
Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992).
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)
In the "second group" would be Malayan Insurance Company v. Manila Port Service (1969), Nakpil
but when such certainty cannot be so reasonably established at the time the demand is
and Sons v. Court of Appeals (1988), and American Express International v. Intermediate Appellate
made, the interest shall begin to run only from the date the judgment of the court is made (at
Court (1988).
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.
FACTS:
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed
facts that have led to the controversy are hereunder reproduced:
xxxx
This is an action against defendants shipping company, arrastre operator and broker-forwarder for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who
paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for
delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under
Bill of Lading No. YMA-8. The shipment was insured under plaintiff's Marine Insurance Policy
No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the
custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in
bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from
defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad
Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the
shipment to the consignee's warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No.
10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee
suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims
were presented against defendants who failed and refused to pay the same.
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all
the rights of action of said consignee against defendants (per "Form of Subrogation", "Release"
and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
xxxxx
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court
said:
xxxx
Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was
discharged in good order from the vessel unto the custody of Metro Port Service so that any
damage/losses incurred after the shipment was incurred after the shipment was turned over
to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject
shipment was discharged unto its custody, portion of the same was already in bad order (p.
11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not
having negligent or at fault for the shipment was already in damage and bad order condition
when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same condition shipment was received by
it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of defendants (in
whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial
Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained losses/damages. The
two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and
Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But
when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it
excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages were sustained
while in the respective and/or successive custody and possession of defendants carrier
(Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident
when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered.
In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15,
South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in
damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report
further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre
operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly
torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that
when the drums reached the consignee, one drum was found with adulterated/faked contents. It is
obvious, therefore, that these losses/damages occurred before the shipment reached the
consignee while under the successive custodies of defendants. Under Art. 1737 of the New
Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods
remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the
warehouse of the carrier at the place of destination, until the consignee has been advised and has
had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern
Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that
on December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per annum from October
1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser,
while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice
value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to
Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage
Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US (Court of Appeals).
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is
correct. As there is sufficient evidence that the shipment sustained damage while in the successive
possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it
paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court a quo.
xxxx
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of
discretion on the part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE
OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS
GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT
SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE
OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF
THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE
RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
ISSUES:
(a) WON a claim for damage sustained on a shipment of goods can be a solidary, or joint and
several, liability of the common carrier, the arrastre operator and the customs broker? —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
rendered? —-from date of decision of court a quo
(c) Whether the applicable rate of interest, referred to above, is twelve percent (12%) or six
percent (6%)? —-6%
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
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.
RATIO:
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all
that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack
to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the
time the articles are surrendered to or unconditionally placed in the possession of, and received by,
the carrier for transportation until delivered to, or until the lapse of a reasonable time for their
acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court
of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods
shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an express finding of negligence to hold it
liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro
Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when
such presumption of fault is not observed but these cases, enumerated in Article 1734 of the Civil
Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and
the arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship
between the consignee and the common carrier is similar to that of the consignee and the arrastre
operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good
condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption
of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court
a quo and the appellate court, we take note, is that "there is sufficient evidence that the
shipment sustained damage while in the successive possession of appellants" (the herein
petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc.,
the sole petitioner in this case, is inevitable regardless of whether there are others solidarily
liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than
just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
1. Malayan Insurance Co., Inc., vs. Manila Port Service (May 15, 1969)
The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, decided on 15 May 1969,
involved a suit for recovery of money arising out of short deliveries and pilferage of goods . In this
case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the
total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This
demand, however, was neither established in its totality nor definitely ascertained. In the stipulation
of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon.
The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and
Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal
interest thereon from the date the complaint was filed on 28 December 1962 until full payment
thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the
appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is
the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial.
The trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be
recovered upon unliquidated claims or damages, except when the demand can be established with
reasonable certainty." And as was held by this Court in Rivera vs. Perez, L-6998, February 29, 1956,
if the suit were for damages, "unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447;
Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)
2. Reformina vs. Tomol (October 11, 1985)
The case of Reformina vs. Tomol, rendered on 11 October 1985, was for "Recovery of Damages
for Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party
defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly
and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which
is the value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus
P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as
the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they
are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from
the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against
defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but
sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid.
When the appellate court's decision became final, the case was remanded to the lower court for
execution, and this was when the trial court issued its assailed resolution which applied the 6%
interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on
certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary
Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the
loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall be twelve (12%) percent per annum.
This Circular shall take effect immediately. (Emphasis found in the text) —
should have, instead, been applied. This Court ruled:
The judgments spoken of and referred to are judgments in litigations involving loans or
forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing
to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the
coverage of the said law for it is not within the ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in
an Action for Damages for injury to persons and loss of property and does not involve any loan,
much less forbearances of any money, goods or credits. As correctly argued by the private
respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads
— and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of
Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six
percent per annum.
3. Philippine Rabbit Bus Lines, Inc., v. Cruz (July 28, 1986)
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, promulgated on 28
July 1986. The case was for damages occasioned by an injury to person and loss of property. The
trial court awarded private respondent Pedro Manabat actual and compensatory damages in the
amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid.
Relying on the Reformina v. Tomol case, this Court modified the interest award from 12% to 6%
interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint
until fully paid.
4. Nakpil and Sons vs. Court of Appeals
In Nakpil and Sons vs. Court of Appeals, the trial court, in an action for the recovery of damages
arising from the collapse of a building, ordered, inter alia, the "defendant United Construction Co.,
Inc. (one of the petitioners) . . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the
legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ."
Save from the modification of the amount granted by the lower court, the Court of Appeals sustained
the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was
decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the
special and environmental circumstances of this case, we deem it reasonable to render a decision
imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the
exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos
to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this
decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be
imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant
and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of twelve
(12%) per cent per annum imposed on the total amount of the monetary award was in contravention
of law." The Court ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases
and, in its resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to Central Bank
Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money,
goods or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments involving
loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143
SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant
case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the
sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment
of such final judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on the
total sum, from the filing of the complaint until paid; in other words, as part of the judgment for
damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.)
5. American Express International, Inc., vs. Intermediate Appellate Court ( February 2, 1985)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court
was a petition for review on certiorari from the decision, dated 27 February 1985, of the then
Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the
trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985,
restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages
judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the
right of the private respondent to recover damages, held the award, however, for moral damages by
the trial court, later sustained by the IAC, to be inconceivably large. The Court thus set aside the
decision of the appellate court and rendered a new one, "ordering the petitioner to pay private
respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six
(6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)
6. Florendo v. Ruiz (February 21, 1989)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz which arose from
a breach of employment contract. For having been illegally dismissed, the petitioner was awarded by
the trial court moral and exemplary damages without, however, providing any legal interest thereon.
When the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental
dated October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants,
except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts
stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of
compensatory damages, with interest at the legal rate from the date of the filing of the complaint until
fully paid (Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the trial
court, and an entry of judgment was made. The writ of execution issued by the trial court directed
that only compensatory damages should earn interest at 6% per annum from the date of the filing of
the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for
certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal
rate" from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does
not apply to actions based on a breach of employment contract like the case at bar. (Emphasis
supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed
from the time the complaint was filed until the amount is fully paid.
7. National Power Corporation vs. Angas (May 8, 1992)
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
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to
pay the private respondents certain sums of money as just compensation for their lands so
expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest
per annum under the Civil Code, the Court declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or
credits but expropriation of certain parcels of land for a public purpose, the payment of which is
without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of
indemnity for damages. The legal interest required to be paid on the amount of just compensation for
the properties expropriated is manifestly in the form of indemnity for damages for the delay in the
payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower
court sought to be enforced in this case is interest by way of damages, and not by way of earnings
from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can
perhaps be classified into two groups according to the similarity of the issues involved and
the corresponding rulings rendered by the court.
The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit
Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas
(1992).
In the "second group" would be Malayan Insurance Company v. Manila Port Service (1969),
Nakpil and Sons v. Court of Appeals (1988), and American Express International v.
Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the
Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily
discernible in these cases that there has been a consistent holding that the Central Bank
Circular imposing the 12% interest per annum applies only to loans or forbearance of money,
goods or credits, as well as to judgments involving such loan or forbearance of money,
goods or credits, and that the 6% interest under the Civil Code governs when the transaction
involves the payment of indemnities in the concept of damage arising from the breach or a
delay in the performance of obligations in general. Observe, too, that in these cases, a
common time frame in the computation of the 6% interest per annum has been applied, i.e.,
from the time the complaint is filed until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12%
interest per annum, depending on whether or not the amount involved is a loan or
forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike,
however, the "first group" which remained consistent in holding that the running of the legal interest
should be from the time of the filing of the complaint until fully paid, the "second group" varied on the
commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of
the decision of the court a quo, explaining that "if the suit were for damages, 'unliquidated
and not known until definitely ascertained, assessed and determined by the courts after
proof,' then, interest 'should be from the date of the decision.'"
American Express International v . IAC, introduced a different time frame for
reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision
until paid."
The Nakpil and Sons case ruled that 12% interest per annum should be imposed
from the finality of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called
for different applications, guided by the rule that the courts are vested with discretion,
depending on the equities of each case, on the award of interest. Nonetheless, it may not be
unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for
future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts
or quasi-delicts 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
G.R. No. 189871               August 13, 2013
DARIO NACAR, PETITIONER, vs. GALLERY FRAMES AND/OR FELIPE BORDEY,
JR., RESPONDENTS.
Topic: Interest and The Usury Law (Act o. 2655, as amended)
nd
Editor’s Note: Magulo talaga yung facts. Focus lang sa 2 issue.
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,
petitioner was awarded backwages and separation pay in lieu of reinstatement in the amount of
₱158,919.92. Respondents appealed to the NLRC, but it was denied. Decision of the LA sustained.
The CA denied respondent’s appeal as well, so they then sought relief before the SC. Finding no
reversible error on the part of the CA, the SC denied the petition. An Entry of Judgment was later
issued certifying that the resolution became final and executory on May 27, 2002. On November 5,
2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed
from the date of his dismissal on January 24, 1997 up to the finality of the Resolution of the SC on
May 27, 2002. Upon recomputation, the Computation and Examination Unit of the NLRC arrived at
an updated amount in the sum of ₱471,320.31. On December 2, 2002, a Writ of Execution  was
issued by the LA ordering the Sheriff to collect from respondents the total amount of ₱471,320.31.
Respondents filed a Motion to Quash Writ of Execution arguing, among other things, that since the
LA had already awarded separation pay and limited backwages, no more recomputation is required
to be made of the said awards. They claimed that after the decision becomes final and executory,
the same cannot be altered or amended anymore. The LA denied respondent’s motion, but upon
appeal, the NLRC ruled in favor of the respondents and ordered the recomputation of the judgment
award. On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC
to be final and 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
then filed a Manifestation and Motion praying for the re-computation of the monetary award to
include the appropriate interests. The LA granted the motion, but only up to the amount of
₱11,459.73. The LA held that it is the October 15, 1998 Decision that should be enforced
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
reckoning point for the computation of the backwages and separation pay should be on May 27,
2002 and not when the decision of the LA was rendered on October 15, 1998. Further, petitioner
posits that he is also entitled to the payment of interest from the finality of the decision until full
payment by the respondents. 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
award as computed by the LA in the total amount of ₱158,919.92
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
the Book of Entries – YES; and (2) WON petitioner is entitled to payment of interest from the finality
of the decision until full payment by the respondents – YES.
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,
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
allowing separation pay, the final decision effectively declares that the employment relationship
ended so that separation pay and backwages are to be computed up to that point.
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:
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.
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 which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending
Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be
six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 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 hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or
credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum - as
reflected in the case of Eastern Shipping 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 will now be six
percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate
could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%)
per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six
percent (6%) per annum shall be the prevailing rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v.
Bangko Sentral Monetary Board, this Court affirmed the authority of the BSP-MB to set interest rates
and to issue and enforce Circulars when it ruled that "the BSP-MB may prescribe the maximum rate
or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or
credits, including those for loans of low priority such as consumer loans, as well as such loans made
by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to
prescribe different maximum rate or rates for different types of borrowings, including deposits and
deposit substitutes, or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to July 1, Facts:
2013, said judgments shall not be disturbed and shall continue to be implemented applying the rate
of interest fixed therein.1awp++i1 PERALTA, J.:

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Petitioner Dario Nacar filed a complaint for constructive dismissal before the NLRC against
Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows: respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC NCR Case No.
01-00519-97.
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 October 15, 1998, the LA rendered a Decision in favor of petitioner and found that he was
on "Damages" of the Civil Code govern in determining the measure of recoverable damages. dismissed from employment without a valid or just cause. Thus, petitioner was awarded
backwages and separation pay in lieu of reinstatement in the amount of ₱158,919.92.
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: LA: “With the foregoing, we find and so rule that respondents failed to discharge the burden of
showing that complainant was dismissed from employment for a just or valid cause. All the more, it is
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or clear from the records that complainant was never afforded due process before he was terminated.
forbearance of money, the interest due should be that which may have been stipulated in writing. As such, we are perforce constrained to grant complainant’s prayer for the payments of separation
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In pay in lieu of reinstatement to his former position, considering the strained relationship between the
the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, parties, and his apparent reluctance to be reinstated, computed only up to promulgation of this
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the decision as follows:
Civil Code.
Separation Pay Backwages
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 Date Hired = August 1990 Date Dismissed = January 24, 1997
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 Rate = P198/day Rate Per Day = P196.00
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 Date of Decision = Aug. 18, 1998 Date of Decision = Aug. 18, 1998
judgment of the court is made (at which time the quantification of damages may be deemed to have Length of Service = 8 yrs. & 1 month a) 1/24/97 to 2/5/98 = 12.36 mos.
been reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged. P198.00 x 26 days x 8 months = P41,18.00 P196.00/day x 12.36 mos. = P62,986.56
When the judgment of the court awarding a sum of money becomes final and executory, the rate of b) 2/6/98 to 8/18/98 = 6.4 months
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 Prevailing Rate per day = P62,986.00
equivalent to a forbearance of credit. P198.00 x 26 days x 6.4 mos. = P32,947.20
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. TOTAL = P95.993.76
WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive dismissal and are
therefore, ordered:

To pay jointly and severally the complainant the amount of ₱62,986.56 representing his separation pay;

To pay jointly and severally the complainant the amount of ₱95,933.36 representing his backwages; and

All other claims are hereby dismissed for lack of merit.

SO ORDERED.”

Respondents appealed to the NLRC, but it was dismissed for lack of merit in the
Resolution5 dated February 29, 2000. Accordingly, the NLRC sustained the decision of the Labor
Arbiter. Respondents filed a motion for reconsideration, but it was denied.
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24,
2000, the CA issued a Resolution dismissing the petition. Respondents filed a Motion for
Reconsideration, but it was likewise denied in a Resolution dated May 8, 2001.
Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332.
Finding no reversible error on the part of the CA, this Court denied the petition in the
Resolution dated April 17, 2002.
An Entry of Judgment was later issued certifying that the resolution became final and executory
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.
On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his
backwages be computed from the date of his dismissal on January 24, 1997 up to the finality
of the Resolution of the Supreme Court on May 27, 2002. Upon recomputation, the Computation
and Examination Unit of the NLRC arrived at an updated amount in the sum of ₱471,320.31.
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.
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
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.  (2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay
LA: Issued an Order denying respondent’s motion. Thus, an Alias Writ of Execution was issued on
January 14, 2003
NLRC: Upon appeal, the NLRC ruled in favor of the respondents and ordered the recomputation of
the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC
to be final and executory. Consequently, another pre-execution conference was held, but
respondents failed to appear on time. Meanwhile, petitioner moved that an Alias Writ of Execution be
issued to enforce the earlier recomputed judgment award in the sum of ₱471,320.31.
The records of the case were again forwarded to the Computation and Examination Unit for
recomputation, where the judgment award of petitioner was reassessed to be in the total
amount of only ₱147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the
original amount as determined by the Labor Arbiter in his Decision dated October 15, 1998,
pending the final computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the
judgment award that was due to petitioner in the amount of ₱147,560.19, which petitioner
eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the
monetary award to include the appropriate interests.
LA: On May 10, 2005, the Labor Arbiter issued an Order granting the motion, but only up to the
amount of ₱11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that
should be enforced considering that it was the one that became final and executory. However,
the Labor Arbiter reasoned that since the decision states that the separation pay and backwages are
computed only up to the promulgation of the said decision, it is the amount of ₱158,919.92 that
should be executed. Thus, since petitioner already received ₱147,560.19, he is only entitled to
the balance of ₱11,459.73.
NLRC: Denied the appeal of petitioner. MR likewise denied.
CA: Denied the petition. The CA opined that since petitioner no longer appealed the October 15,
1998 Decision of the Labor Arbiter, which already became final and executory, a belated correction
thereof is no longer allowed. The CA stated that there is nothing left to be done except to enforce the
said judgment. Consequently, it can no longer be modified in any respect, except to correct clerical
errors or mistakes. Petitioner filed a MR, but the same was denied.
Hence, the petition assigning the lone error:
I employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF
DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC WHICH,
IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE
OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF
THE SAME DECISION.
1st ISSUE: 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 Supreme Court in GR No. 151332 was
entered in the Book of Entries – YES.
2nd ISSUE(related to topic): WON petitioner is entitled to payment of interest from the finality of the
decision until full payment by the respondents – YES.
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
up to May 27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and
executory;
per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards , computed from
May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full
satisfaction.
The LA is hereby ORDERED to make another recomputation of the total monetary benefits awarded
and due to petitioner in accordance with this Decision.
RATIO:
Petitioner: Argues that notwithstanding the fact that there was a computation of backwages in
the Labor Arbiter’s decision, the same is not final until reinstatement is made or until finality
of the decision, in case of an award of separation pay. Petitioner maintains that considering that
the October 15, 1998 decision of the Labor Arbiter did not become final and executory until the April
17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries on
May 27, 2002, the reckoning point for the computation of the backwages and separation pay
should be on May 27, 2002 and not when the decision of the Labor Arbiter was rendered on
October 15, 1998. Further, petitioner posits that he is also entitled to the payment of interest
from the finality of the decision until full payment by the respondents.
Respondents: On their part, respondents assert that since only separation pay and limited
backwages were awarded to petitioner by the October 15, 1998 decision of the Labor Arbiter,
no more recomputation is required to be made of said awards. Respondents insist that since
the decision clearly stated that the separation pay and backwages are "computed only up to
[the] promulgation of this decision," and considering that petitioner no longer appealed the
decision, petitioner is only entitled to the award as computed by the Labor Arbiter in the total
amount of ₱158,919.92. Respondents added that it was only during the execution proceedings that
the petitioner questioned the award, long after the decision had become final and executory.
Respondents contend that to allow the further recomputation of the backwages to be awarded to
petitioner at this point of the proceedings would substantially vary the decision of the Labor Arbiter
as it violates the rule on immutability of judgments.
The petition is meritorious.
1st Issue:
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of
Appeals (Sixth Division), wherein the issue submitted to the Court for resolution was the propriety of
the computation of the awards made, and whether this violated the principle of immutability of
judgment. Like in the present case, it was a distinct feature of the judgment of the Labor Arbiter in
the above-cited case that the decision already provided for the computation of the payable
separation pay and backwages due and did not further order the computation of the monetary
awards up to the time of the finality of the judgment. Also in Session Delights, the dismissed
In concrete terms, the question is whether a re-computation in the course of execution of the labor
arbiter's original computation of the awards made, pegged as of the time the decision was rendered
and confirmed with modification by a final CA decision, is legally proper. The question is posed,
given that the petitioner did not immediately pay the awards stated in the original labor arbiter's
decision; it delayed payment because it continued with the litigation until final judgment at the CA
level.
A source of misunderstanding in implementing the final decision in this case proceeds from the way
the original labor arbiter framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been
confirmed with finality. This is the finding of the illegality of the dismissal and the awards of
separation pay in lieu of reinstatement, backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made. On its face, the computation the labor
arbiter made shows that it was time-bound as can be seen from the figures used in the computation.
This part, being merely a computation of what the first part of the decision established and declared,
can, by its nature, be re-computed. This is the part, too, that the petitioner now posits should no
longer be re-computed because the computation is already in the labor arbiter's decision that the CA
had affirmed. The public and private respondents, on the other hand, posit that a re-computation is
necessary because the relief in an illegal dismissal decision goes all the way up to reinstatement if
reinstatement is to be made, or up to the finality of the decision, if separation pay is to be given in
lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken
place, also made a computation of the award, is understandable in light of Section 3, Rule VIII of the
then NLRC Rules of Procedure which requires that a computation be made. This Section in part
states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as
practicable, shall embody in any such decision or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the labor arbiter's
decision. As we noted above, this implication is apparent from the terms of the computation itself,
and no question would have arisen had the parties terminated the case and implemented the
decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of
illegality as well as on all the consequent awards made. Hence, the petitioner appealed the case to
the NLRC which, in turn, affirmed the labor arbiter's decision. By law, the NLRC decision is final,
reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a
timely filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority
in affirming the payment of 13th month pay and indemnity, lapsed to finality and was subsequently
returned to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the
original labor arbiter's decision, the implementing labor arbiter ordered the award re-computed; he
apparently read the figures originally ordered to be paid to be the computation due had the case
been terminated and implemented at the labor arbiter's level. Thus, the labor arbiter re-computed
the award to include the separation pay and the backwages due up to the finality of the CA
decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's
approved computation went beyond the finality of the CA decision (July 29, 2003) and
included as well the payment for awards the final CA decision had deleted - specifically, the
proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision
now questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as it
essentially considered the labor arbiter's original decision in accordance with its basic
component parts as we discussed above. To reiterate, the first part contains the finding of
illegality and its monetary consequences; the second part is the computation of the awards
or monetary consequences of the illegal dismissal, computed as of the time of the labor
arbiter's original decision.28
Consequently, from the above disquisitions, under the terms of the decision which is sought to
be executed by the petitioner, no essential change is made by a recomputation as this step is
a necessary consequence that flows from the nature of the illegality of dismissal declared by
the Labor Arbiter in that decision. A recomputation (or an original computation, if no previous
computation has been made) is a part of the law – specifically, Article 279 of the Labor Code and the
established jurisprudence on this provision – that is read into the decision. By the nature of an illegal
dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of
the Labor Code. The recomputation of the consequences of illegal dismissal upon execution
of the decision does not constitute an alteration or amendment of the final decision being
implemented. The illegal dismissal ruling stands; only the computation of monetary
consequences of this dismissal is affected, and this is not a violation of the principle of
immutability of final judgments.
That the amount respondents shall now pay has greatly increased is a consequence that it cannot
avoid as it is the risk that it ran when it continued to seek recourses against the Labor Arbiter's
decision. Article 279 provides for the consequences of illegal dismissal in no uncertain terms,
qualified only by jurisprudence in its interpretation of when separation pay in lieu of reinstatement is
allowed. When that happens, the finality of the illegal dismissal decision becomes the
reckoning point instead of the reinstatement that the law decrees. In allowing separation pay,
the final decision effectively declares that the employment relationship ended so that
separation pay and backwages are to be computed up to that point.
2nd Issue(related to topic):
Finally, anent the payment of legal interest. 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:
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.
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 which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending
Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be
six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 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 hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money,
goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%)
per annum - as reflected in the case of Eastern Shipping 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 will now be six percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not retroactively.
Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30,
2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing
rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v.
Bangko Sentral Monetary Board, this Court affirmed the authority of the BSP-MB to set interest rates
and to issue and enforce Circulars when it ruled that "the BSP-MB may prescribe the maximum rate
or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or
credits, including those for loans of low priority such as consumer loans, as well as such loans made
by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to
prescribe different maximum rate or rates for different types of borrowings, including deposits and
deposit substitutes, or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to
July 1, 2013, said judgments shall not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.1awp++i1
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
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.
• Abella v. Abella, 762 SCRA 221, 2015 - YODH
G.R. No. 195166
SPOUSES SALVADOR ABELLA AND ALMA ABELLA, Petitioners, vs. SPOUSES ROMEO
ABELLA AND ANNIE ABELLA, Respondents.
DECISION
LEONEN, J.:
SUMMARY: Spouses Romeo and Annie Abella (Abella 2) were able to obtain a loan of ₱500,000
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.
Abella 2 were consistently paying an interest rate of 2.5% per month despite the fact that the rate of
interest was not stipulated upon. Abella 2 were able to pay an amount of ₱200,000 over the principal
debt, leaving an unpaid balance of ₱300,000.
Abella 2 allege that the contract that they entered with Abella 1 was not a contract of loan but rather
a joint venture between the two pairs of spouses.
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%
per annum.
The CA modified the decision of the RTC, holding that Abella 2 is no longer liable to pay the unpaid
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
be stipulated in writing.
Issues:
WON the contract was a loan (Yes.)
WON the loan should earn interest (Yes). At how much? (At 6% per annum or the legal interest rate)
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.
SC held that the document signed by both Abella spouses was indicative of a contract of loan. The
acknowledgement receipt made by Abella 2 reads:
This is to acknowledge receipt of the Amount of Five Hundred Thousand (P500,000.00) Pesos
from Mrs. Alma R. Abella, payable within one (1) year from date hereof with interest.
The SC cited several decided cases that all state that when there has been a stipulation to pay
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
imposing a 12% interest rate or 6% interest rate.
However, the SC based its decision on the case of Nacar v. Gallery Flames which held:
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum — as reflected in the case of Eastern Shipping 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
will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could
only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal interest
shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the
prevailing rate of interest when applicable
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.
Hence, after making computations, the SC arrived at the conclusion that Abella 2 had made
overpayments in the amount of P3,379.17. And based on the principle of Solutio Indebiti, Abella 1
was ordered to pay back to Abella 2 the overpayments.
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
petitioners Spouses Salvador and Alma Abella 2.5% monthly interest plus the remaining balance of the amount loaned.
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
denied petitioners’ Motion for Reconsideration.
The Regional Trial Court’s December 28, 2005 Decision ordered respondents to pay petitioners the supposedly unpaid loan balance
of P300,000.00 plus the allegedly stipulated interest rate of 30% per annum, as well as litigation expenses and attorney’s fees. 4
On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a Complaint 5 for sum of
money and damages with prayer for preliminary attachment against respondents Spouses
Romeo and Annie Abella before the Regional Trial Court.
Petitioners alleged that respondents obtained a loan from them in the amount of P500,000.00.
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
— P100,000.00 paid on two separate occasions—leaving an unpaid balance of P300,000.00.7
Respondents alleged that the amount involved did not pertain to a loan they obtained from
petitioners but was part of the capital for a joint venture involving the lending of money.
Specifically, respondents claimed that they were approached by petitioners, who proposed that
if respondents were to "undertake the management of whatever money [petitioners] would give
them, [petitioners] would get 2.5% a month with a 2.5% service fee to [respondents]." 10  decision, until full satisfaction thereof. Upon finality of this judgment, an interest as the rate of 12%  per annum, instead of
The 2.5% that each party would be receiving represented their sharing of the 5% interest that the joint venture was
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
petitioners should the joint venture prove to be not lucrative. Moreover, they claimed that the entire amount of
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
only to the extent of P200,000.00; hence, the P300,000.00 balance remained unpaid. 11
In the Decision12 dated December 28, 2005, the Regional Trial Court ruled in favor of petitioners.
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
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
invested its proceeds in a lending enterprise. The Regional Trial Court adjudged respondents
solidarily liable to petitioners. The dispositive portion of its Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering the defendants jointly and severally to pay the plaintiffs the sum of P300,000.00 with interest at the rate of
30% per annum from the time the complaint was filed on July 31, 2002 until fully paid;
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.
For lack of legal basis, plaintiffs’ claim for moral and exemplary damages has to be denied, and for lack
of merit the counter-claim is ordered dismissed. 14
Motion for reconsideration denied.
CA ruled that while respondents had indeed entered into a simple loan with petitioners,
respondents were no longer liable to pay the outstanding amount of P300,000.00. 16
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
to the loan’s not having earned stipulated interest, the Court of Appeals anchored its ruling on
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
was to be charged, no particular interest rate was specified.18 Thus, at the time respondents
were making interest payments of 2.5% per month, these interest payments were invalid for not
being properly stipulated by the parties.
As to the loan’s not having earned interest in the concept of actual or compensatory damages, the
Court of Appeals, citing Eusebio-Calderon v. People, noted that interest in the concept of actual
or compensatory damages accrues only from the time that demand is made. It reasoned that
since respondents received petitioners’ demand letter only on July 12, 2002, any interest in the
concept of actual or compensatory damages due should be reckoned only from then. Thus, the
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
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
P500,000.00.21
The Court of Appeals further noted that respondents made a total payment of P648,500.00,
which, as against the principal amount of P500,000.00, entailed an overpayment of P148,500.00.
Applying the principle of solutio indebiti, the Court of Appeals concluded that petitioners were liable
to reimburse respondents for the overpaid amount of P148,500.00.22 The dispositive portion of the
assailed Court of Appeals Decision reads:
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
6%, shall be imposed on the amount due, until full payment thereof.23
Motion for reconsideration denied.
PETITIONER’S CONTENTIONS:
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
and pay interest to respondents.
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
intention. Petitioners insist that respondents’ consistent payment of interest in the
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
acknowledgment receipt. Furthermore, respondents admitted that interest was due on
the loan.27
In their Comment,28 respondents reiterate the Court of Appeals’ findings that no interest rate was
ever stipulated by the parties and that interest was not due and demandable at the time they were
making interest payments.29
In their Reply,30 petitioners argue that even though no interest rate was stipulated in the
acknowledgment receipt, the case fell under the exception to the Parol Evidence Rule. They also
argue that there exists convincing and sufficiently credible evidence to supplement the imperfection
of the acknowledgment receipt. 31
ISSUES:
1. WON interest accrued on respondents’ loan from petitioners. If so, at what rate?
2. WON petitioners are liable to reimburse respondents for the latter’s supposed excess
payments and for interest.
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
ASIDE. Petitioners Spouses Salvador and Alma Abella are DIRECTED to jointly and severally
reimburse respondents Spouses Romeo and Annie Abella the amount of P3,379.17, which
respondents have overpaid. A legal interest of 6% per annum shall likewise be imposed on the total
judgment award from the finality of this Decision until its full satisfaction.
SO ORDERED.
RATIO:
ON THE NATURE OF THE CONTRACT (LOAN)
Respondents entered into a simple loan or mutuum, rather than a joint venture, with petitioners.
Respondents’ claims cannot prevail over the clear terms of the document attesting to the
relation of the parties. "If the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall control." 32
Articles 1933 and 1953 of the Civil Code provide the guideposts that determine if a contractual
relation is one of simple loan or mutuum:
Art. 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case the
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
simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower.
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
On March 22, 1999, respondents executed an acknowledgment receipt to petitioners, which states:
Batan, Aklan
March 22, 1999
This is to acknowledge receipt of the Amount of Five Hundred Thousand (P500,000.00) Pesos
from Mrs. Alma R. Abella, payable within one (1) year from date hereof with interest.
Annie C. Abella (sgd.) Romeo M. Abella (sgd.)
The text of the acknowledgment receipt is uncomplicated and straightforward. It attests to:
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,
respondents’ duty to pay interest. Consistent with what typifies a simple loan, petitioners delivered
to respondents with the corresponding condition that respondents shall pay the same amount to
petitioners within one (1) year.
ON THE DUTY TO PAY INTEREST (MERON)
Article 1956 of the Civil Code spells out the basic rule that "[n]o interest shall be due unless it
has been expressly stipulated in writing."
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
to respondents. The controversy stems from the acknowledgment receipt’s failure to state the
exact rate of interest.
Jurisprudence is clear about the applicable interest rate if a written instrument fails to specify a rate.
In Spouses Toring v. Spouses Olan,35 this court clarified the effect of Article 1956 of the Civil Code
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,
and in the absence thereof, the rate  shall  be 12% per annum."36
Spouses Toring cites and restates (practically verbatim) what this court settled in Security Bank
and Trust Company v. Regional Trial Court of Makati: "In a loan or forbearance of money, the
interest due should be that stipulated in writing, and  in the absence thereof, the rate   shall  be
12% per annum."37
Security Bank also refers to Eastern Shipping Lines, Inc. v. Court of Appeals, which, in turn, stated:38
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.39 
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
operating to impose a duty.40 Thus, the rule leaves no room for alternatives or otherwise does not allow for discretion. It requires the
application of the legal rate of interest.
Our intervening Decision in Nacar v. Gallery Frames41 recognized that the legal rate of interest
has been reduced to 6% per annum:
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
which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section
2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of an express contract as to such rate of interest,  shall be six
percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 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
hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods
or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per
annum — as reflected in the case of Eastern Shipping 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 will now
be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new
rate could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%)
per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six
percent (6%) per annum shall be the prevailing rate of interest when applicable. 42 
Nevertheless, both Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013
and Nacar retain the definite and mandatory framing of the rule articulated in Eastern
Shipping, Security Bank, and Spouses Toring. Nacar even restates Eastern Shipping:
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:
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 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.43 (Emphasis supplied, citations omitted)

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
present, this is 6% per annum, subject to Nacar’s qualification on prospective application.
Applying this, the loan obtained by respondents from petitioners is deemed subjected to
conventional interest at the rate of 12% per annum, the legal rate of interest at the time the
parties executed their agreement. Moreover, should conventional interest still be due as of
July 1, 2013, the rate of 12% per annum shall persist as the rate of conventional interest.
This is so because interest in this respect is used as a surrogate for the parties’ intent, as
expressed as of the time of the execution of their contract. In this sense, the legal rate of interest is
an affirmation of the contracting parties’ intent; that is, by their contract’s silence on a
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
shifts in the legal rate of interest. Stated otherwise, the legal rate of interest, when applied as
conventional interest, shall always be the legal rate at the time the agreement was executed
and shall not be susceptible to shifts in rate.
Petitioners, however, insist on conventional interest at the rate of 2.5% per month or 30% per
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 contemporaneous and subsequent acts of the contracting parties shall be considered should
there be a need to ascertain their intent. 44 In addition, they claim that this case falls under the
exceptions to the Parol Evidence Rule, as spelled out in Rule 130, Section 9 of the Revised Rules
on Evidence.45
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
The rule spelled out in Security Bank and Spouses Toring is anchored on Article 1956 of the Civil
Code and specifically governs simple loans or mutuum. Mutuum is a type of nominate contract that
is specifically recognized by the Civil Code and for which the Civil Code provides a specific set of
governing rules: Articles 1953 to 1961. In contrast, Article 1371 is among the Civil Code provisions
generally dealing with contracts. As this case particularly involves a simple loan, the specific rule
spelled out in Security Bank and Spouses Toring finds preferential application as against Article
1371.
Contrary to petitioners’ assertions, there is no room for entertaining extraneous (or parol) evidence.
In Spouses Bonifacio and Lucia Paras v. Kimwa Construction and Development Corporation,47 we
spelled out the requisites for the admission of parol evidence:
In sum, two (2) things must be established for parol evidence to be admitted: first, that the existence
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
the basis of the conclusion proposed by the presenting party.48
The issue of admitting parol evidence is a matter that is proper to the trial, not the appellate, stage of
a case. Petitioners raised the issue of applying the exceptions to the Parol Evidence Rule only in the
Reply they filed before this court. This is the last pleading that either of the parties has filed in the
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
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
interest at the rate of 2.5% were admitted by the trial court (and marked as Exhibits "2," "3," "4," "5,"
"6," "7," and "8").49 What petitioners have an issue with is not the admission of these pieces of
evidence but how these have not been appreciated in a manner consistent with the conclusions they
advance.
Even if it can be shown that the parties have agreed to monthly interest at the rate of 2.5%, this is
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
rate:
The imposition of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an
iniquitous deprivation of property, repulsive to the common sense of man. It has no support in law, in
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
private morals.51
The imposition of an unconscionable interest rate is void ab initio for being "contrary to morals, and
the law."52
In determining whether the rate of interest is unconscionable, the mechanical application of pre-
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 parties’ contexts. Moreover, interest rates must be appreciated in light of the fundamental nature
of interest as compensation to the creditor for money lent to another, which he or she could
otherwise have used for his or her own purposes at the time it was lent. It is not the default vehicle
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.
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
principal—by the end of the third year after which the loan was contracted if the entire principal
remained unpaid. By the end of the ninth year, it would have multiplied more than tenfold (or
increased to 1,060.45%). In 2015, this would have multiplied by more than 66 times (or increased to
6,654.17%). Thus, from an initial loan of only P500,000.00, respondents would be obliged to pay
more than P33 million. This is grossly unfair, especially since up to the fourth year from when the
loan was obtained, respondents had been assiduously delivering payment. This reduces their best
efforts to satisfy their obligation into a protracted servicing of a rapacious loan.
The legal rate of interest is the presumptive reasonable compensation for borrowed money. While
parties are free to deviate from this, any deviation must be reasonable and fair. Any deviation that is
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
conditions. Here, petitioners have articulated no such justification.
In sum, Article 1956 of the Civil Code, read in light of established jurisprudence, prevents the
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
stipulation, the legal rate must apply. Moreover, the rate that petitioners adverted to is
unconscionable. The conventional interest due on the principal amount loaned by respondents from
petitioners is held to be 12% per annum.
ACCRUED INTEREST OF THE UNPAID INTEREST
Apart from respondents’ liability for conventional interest at the rate of 12% per annum, outstanding
conventional interest shall itself earn legal interest from the time judicial demand was made
by petitioners, i.e., on July 31, 2002, when they filed their Complaint. This is consistent with Article
2212 of the Civil Code, which provides:
Art. 2212. Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.
So, too, Nacar states that "the interest due shall itself earn legal interest from the time it is judicially
demanded."53
Consistent with Nacar, as well as with our ruling in Rivera v. Spouses Chua,54 the interest due on
conventional interest shall be at the rate of 12% per annum from July 31, 2002 to June 30, 2013.
Thereafter, or starting July 1, 2013, this shall be at the rate of 6% per annum.

RESPONDENTS OVERPAID INTEREST (Maraming Math)
We find that respondents made an overpayment in the amount of P3,379.17.
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
on June 30, 2001,55 while the second payment of P100,000.00 was made on December 30, 2001. 56
The Court of Appeals’ September 30, 2010 Decision stated that respondents paid P6,000.00 in
March 1999.57
The Pre-Trial Order dated December 2, 2002, stated that the parties admitted that "from the time
the principal sum of P500,000.00 was borrowed from [petitioners], [respondents] ha[d] been
religiously paying"59 what was supposedly interest "at the rate of 2.5% per month."60
From March 22, 1999 to June 22, 2001 (before respondents’ payment of P100,000.00 on June 30,
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
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
From June 22, 2001 up to December 22, 2001 (before respondents’ payment of another
P100,000.00 on December 30, 2001, which was deducted from the remaining principal amount of
P400,000.00), the 2.5% monthly "interest" was pegged to the remaining principal amount of
P400,000.00. These monthly interests, thus, amounted to P10,000.00 per month. Considering that
this period spanned six (6) months, respondents paid a total of P60,000.00. 62
From after December 22, 2001 up to June 2002 (when petitioners filed their Complaint), the 2.5%
monthly "interest" was pegged to the remaining principal amount of P300,000.00. These
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
Applying these facts and the properly applicable interest rate (for conventional interest, 12% per
annum; for interest on conventional interest, 12% per annum from July 31, 2002 up to June 30, 2013
and 6% per annum henceforth), the following conclusions may be drawn:
By the end of the first year following the perfection of the loan, or as of March 21, 2000, P560,000.00
was due from respondents. This consisted of the principal of P500,000.00 and conventional interest
of P60,000.00.
Within this first year, respondents made twelve (12) monthly payments totalling P150,000.00
(P12,500.00 each from April 1999 to March 2000). This was in addition to their initial payment of
P6,000.00 in March 1999.
Application of payments must be in accordance with Article 1253 of the Civil Code, which reads:
Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have
been made until the interests have been covered.
Thus, the payments respondents made must first be reckoned as interest payments.
Thereafter, any excess payments shall be charged against the principal. As respondents paid a
total of P156,000.00 within the first year, the conventional interest of P60,000.00 must be deemed
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
the perfection of the loan, or as of March 21, 2001, P452,480.00 was due from respondents. This
consisted of the outstanding principal of P404,000.00 and conventional interest of P48,480.00.
Within this second year, respondents completed another round of twelve (12) monthly payments
totaling P150,000.00.
Consistent with Article 1253 of the Civil Code, as respondents paid a total of P156,000.00 within the
second year, the conventional interest of P48,480.00 must be deemed fully paid and the remaining
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 the end of the third year following the perfection of the loan, or as of March 21, 2002,
P338,777.60 was due from respondents. This consists of the outstanding principal of P302,480.00
and conventional interest of P36,297.60.
Within this third year, respondents paid a total of P320,000.00, as follows:
(a) Between March 22, 2001 and June 30, 2001, respondents completed three (3) monthly payments of P12,500.00
each, totaling P37,500.00.
(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
this point, the monthly payments no longer amounted to P12,500.00 each because the supposed monthly interest
payments were pegged to the supposedly remaining principal of P400,000.00. Thus, during this period, they paid a total
of six (6) monthly payments totaling P60,000.00.
(d) On December 30, 2001, respondents paid P100,000.00, which, like the June 30, 2001 payment, was charged against
the principal.
(e) From the end of December 2002 to the end of February 2002, respondents delivered monthly payments of P7,500.00
each. At this point, the supposed monthly interest payments were now pegged to the supposedly remaining principal of
P300,000.00. Thus, during this period, they delivered three (3) monthly payments totaling P22,500.00.
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
remaining amount that respondents paid (i.e., P283,702.40) is to be charged against the principal.
This yields a balance of P18,777.60.
By the end of the fourth year following the perfection of the loan, or as of March 21, 2003,
P21,203.51 would have been due from respondents. This consists of: (a) the outstanding principal of
P18,777.60, (b) conventional interest of P2,253.31, and (c) interest due on conventional interest
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
judicial demand) to March 21, 2003 (the end of the fourth year); this left 63.83% of the fourth year,
within which interest on interest might have accrued. Thus, the full annual interest on interest of 12%
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.
From the end of March 2002 to June 2002, respondents delivered three (3) more monthly payments
of P7,500.00 each. Thus, during this period, they delivered three (3) monthly payments totalling
P22,500.00.
At this rate, however, payment would have been completed by respondents even before the end of
the fourth year. Thus, for precision, it is more appropriate to reckon the amounts due as
against payments made on a monthly, rather than an annual, basis.
By April 21, 2002, _18,965.38 (i.e., remaining principal of P18,777.60 plus pro-rated monthly
conventional interest at 1%, amounting to P187.78) 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 balance of P11,465.38.
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.
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 P4,080.03.
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
• First Fil-Sin Lending Corp. v. Padillo, G.R. No.160533, January 12, 2005 - MONA
G.R. No. 160533             January 12, 2005
FIRST FIL-SIN LENDING CORPORATION, petitioner,  vs. GLORIA D. PADILLO, respondent.
DECISION
YNARES-SANTIAGO, J.
 
Summary: Respondent Gloria D. Padillo obtained two (2) loans amounting to P500,000.00 EACH
(total of 1M) loan from petitioner First Fil-Sin Lending Corp. Respondent paid a total of P792,500.00
for the first loan and P775,000.00 for the second loan. Respondent Gloria Padillo filed an action for
sum of money against herein petitioner alleging that she only agreed to pay interest at the rates of
4.5% and 5% per annum, respectively, for the two loans, and not 4.5% and 5% per month, as
expressly stated in the promissory notes and disclosure statements. Respondent sought to recover
the amounts she allegedly paid in excess of her actual obligations.
As to the penalty charges, petitioner argues that the 1% per day interest as agreed upon by the
parties is in line with their freedom to stipulate terms and conditions as they may deem proper, and
thus a 12% per annum penalty in lieu of this would violate what is stated in their contract.
 
ISSUES: WON respondent should only pay interest at the rates of 4.5% and 5% per annum – YES
WON the penalty charge of 1% per day interest is unconscionable – YES
 
RULING:
Perusal of the promissory notes and the disclosure statements clearly and unambiguously provide
for interest rates of 4.5% per annum and 5% per annum, respectively. Nowhere was it stated that the
interest rates shall be applied on a monthly basis.
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.
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
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.
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.
As regards the penalty charges, we agree with the CA in ruling that the 1% penalty per day of 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 unconscionable.
 
FACTS:
On July 22, 1997, respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner
First Fil-Sin Lending Corp. On September 7, 1997, respondent obtained another P500,000.00
loan from petitioner. In both instances, respondent executed a promissory note and disclosure
statement.
 
For the first loan, respondent made 13 monthly interest payments of P22,500.00 each before she
settled the P500,000.00 outstanding principal obligation on February 2, 1999. As regards the second
loan, respondent made 11 monthly interest payments of P25,000.00 each before paying the principal
loan of P500,000.00 on February 2, 1999. In sum, respondent paid a total of P792,500.00 for the
first loan and P775,000.00 for the second loan.
 
On January 27, 2000, respondent filed an action for sum of money against herein petitioner
before the Regional Trial Court of Manila. Alleging that she only agreed to pay interest at the
rates of 4.5% and 5% per annum, respectively, for the two loans, and not 4.5% and 5% per
month, respondent sought to recover the amounts she allegedly paid in excess of her actual
obligations.
 
RTC:  On October 12, 2001, the trial court dismissed respondent’s complaint, and on the
counterclaim, ordered her to pay petitioner P311,125.00 with legal interest from February 3, 1999
until fully paid plus 10% of the amount due as attorney’s fees and costs of the suit. The trial court
ruled that by issuing checks representing interest payments at 4.5% and 5% monthly interest rates,
respondent is now estopped from questioning the provisions of the promissory notes.
 
CA: On appeal, the Court of Appeals (CA) reversed and set aside the decision of the court a quo, Thus, when the terms of the agreement are clear and explicit that they do not justify an
the dispositive portion of which reads: attempt to read into it any alleged intention of the parties, the terms are to be understood
IN VIEW OF ALL THE FOREGOING, the appealed decision is REVERSED and SET literally just as they appear on the face of the contract. It is only in instances when the
ASIDE and a new one entered: (1) ordering First Fil-Sin Lending Corporation to return the language of a contract is ambiguous or obscure that courts ought to apply certain
amount of P114,000.00 to Gloria D. Padillo, and (2) deleting the award of attorney’s fees established rules of construction in order to ascertain the supposed intent of the parties.
in favor of appellee. Other claims and counterclaims are dismissed for lack of sufficient However, these rules will not be used to make a new contract for the parties or to rewrite the old
causes. No pronouncement as to cost. SO ORDERED. one, even if the contract is inequitable or harsh. They are applied by the court merely to resolve
The appellate court ruled that, based on the disclosure statements executed by doubts and ambiguities within the framework of the agreement.
respondent, the interest rates should be imposed on a monthly basis but only for the 3-  
month term of the loan. Thereafter, the legal interest rate will apply. The CA also found the The lower court and the CA mistook the Loan Transactions Summary for the Disclosure
penalty charges pegged at 1% per day of delay highly unconscionable as it would Statement. The former was prepared exclusively by petitioner and merely summarizes the
translate to 365% per annum. Thus, it was reduced to 1% per month or 12% per annum. 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.
ISSUES: WON respondent should only pay interest at the rates of 4.5% and 5% per annum – YES On the contrary, the Disclosure Statements were signed by both parties and categorically
WON the penalty charge of 1% per day interest is unconscionable – YES stated that interest rates were to be imposed annually, not monthly.
   
RULING: WHEREFORE, in view of the foregoing, the October 16, 2003 decision of the Court of As such, since the terms and conditions contained in the promissory notes and disclosure
Appeals in CA-G.R. CV No. 75183 is AFFIRMED with the MODIFICATION that the interest rates on statements are clear and unambiguous, the same must be given full force and effect. The expressed
the July 22, 1997 and September 7, 1997 loan obligations of respondent Gloria D. Padillo from intention of the parties as laid down on the loan documents controls.
petitioner First Fil-Sin Lending Corporation be imposed and computed on a per annum basis, and  
upon their respective maturities, the interest rate of 12% per annum shall be imposed until full Also, reformation cannot be resorted to as the documents have not been assailed on the
payment. In addition, the penalty at the rate of 12% per annum shall be imposed on the outstanding ground of mutual mistake. When a party sues on a written contract and no attempt is made to
obligations from date of default until full payment. SO ORDERED. 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
RATIO: notions of justice or equity may dictate.
 
PETITIONER’S DEFENSE (First Fil-Sin RESPONDENT’S DEFENSE (Gloria Padillo) Notably, petitioner even admitted that it was solely responsible for the preparation of the loan
Lending) 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
Petitioner maintains that the TC and the Respondent, on the other hand, avers that the interest unilateral mistake cannot be taken against respondent who merely affixed her signature on the pro
CA are correct in ruling that the interest on the loans is per annum as expressly stated in the forma loan agreements. As between two parties to a written agreement, the party who gave rise
rates are to be imposed on a monthly promissory notes and disclosure statements. The to the mistake or error in the provisions of the same is estopped from asserting a contrary
and not on a per annum basis. However, provision as to annual interest rate is clear and requires intention to that contained therein. The checks issued by respondent do not clearly and
it insists that the 4.5% and 5% monthly no room for interpretation. Respondent asserts that any convincingly prove that the real intent of the parties is to apply the interest rates on a monthly basis.
interest shall be imposed until the ambiguity in the promissory notes and disclosure Absent any proof of vice of consent, the promissory notes and disclosure statements remain the best
outstanding obligations have been fully statements should not favor petitioner since the loan evidence to ascertain the real intent of the parties.
paid. documents were prepared by the latter.  
As to the penalty charges, petitioner   The same promissory note provides that "x x x any and all remaining amount due on the principal
argues that the 12% per annum penalty upon maturity hereof shall earn interest at the rate of _____ from date of maturity until fully paid."
imposed by the CA in lieu of the 1% per The CA thus properly imposed the legal interest of 12% per annum from the time the loans matured
day as agreed upon by the parties until the same has been fully paid on February 2, 1999. As decreed in Eastern Shipping Lines, Inc.
violates their freedom to stipulate terms v. Court of Appeals, "in the absence of stipulation, the rate of interest shall be 12% per annum
and conditions as they may deem to be computed from default."
proper.  
  As regards the penalty charges, we agree with the CA in ruling that the 1% penalty per day of
Petitioner finally contends that the CA delay is highly unconscionable.
erred in deleting the trial court’s award of Applying Article 1229 of the Civil Code, courts shall equitably reduce the penalty when the
attorney’s fees arguing that the same is principal obligation has been partly or irregularly complied with, or if it is iniquitous or
anchored on sound and legal ground. unconscionable.
 
 
With regard to the attorney’s fees, the CA correctly deleted the award in favor of petitioner since the
We agree with respondent.
trial court’s decision does not reveal any explicit basis for such an award. Attorney’s fees are not
 
automatically awarded to every winning litigant. It must be shown that any of the instances
Perusal of the promissory notes and the disclosure statements pertinent to the July 22, 1997
enumerated under Art. 2208 of the Civil Code exists to justify the award thereof. Not one of such
and September 7, 1997 loan obligations of respondent clearly and unambiguously provide for
instances exists here. Besides, by filing the complaint, respondent was merely asserting her rights
interest rates of 4.5% per annum and 5% per annum, respectively. Nowhere was it stated that
which, after due deliberations, proved to be lawful, proper and valid.
the interest rates shall be applied on a monthly basis.
   
• Integrated Realty Corp. v. PNB, G.R. No. 60705, June 28, 1989 - JESS G.R. No. 60907. June 28, 1989. *

G.R. No. 60705. June 28, 1989. *

OVERSEAS BANK OF MANILA, petitioner, vs. COURT OF APPEALS, INTEGRATED REALTY
INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners, vs. PHILIPPINE NATIONAL CORPORATION, and RAUL L. SANTOS, respondents.
BANK, OVERSEAS BANK OF MANILA and THE HON. COURT OF APPEALS, respondents. Ponente: Regalado, J.
Legal interest in the nature of damages for non-compliance with an obligation to pay a sum of - Not only did IRC and Santos fail to overcome the presumption of regularity of business transactions, but
money is recoverable even if not expressly stipulated in writing they are likewise estopped from questioning the validity thereof for the 1 st time in this petition
The bank’s obligation to pay interest on the deposit ceases the moment its operation is completely
suspended by the Central Bank On the 3rd issue: OBM not liable for interests on the time deposits of IRC & Santos from the time it ceased
operations until it resumed its business
SUMMARY: - The OBM v. CA & Tapia: “xxx it should be deemed read into every contract of deposit with a bank
Santos made a time deposit with OBM (P500,000 and 200,000) and was issued Certificate of Time that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely
suspended by the duly constituted authority, the Central Bank. xxx
Deposit.
Whatever be the juridical significance of the subsequent action of the Supreme Court, the stubborn fact
- Feb 9 1967 – IRC, thru its President (defendant Santos), applied for a loan and/or credit line for remained that the petitioner was totally crippled from then on from earning the income needed to meet its
P700,000 with PNB obligations to its depositors. If such a situation cannot, strictly speaking, be legally denominated as ‘force
 Security for the said load was: Santos executed Deed of Assignment of 2 time deposits majeure,’ as maintained by private respondent, We hold it is a matter of simple equity that it be treated as
in favor of PNB (OBM gave its conformity to the assignment) such.””
 IRC also executed a Deed of Conformity to Loan Conditions - Note: OBM v CA & Tapia does not only apply where the bank is in state of liquidation
PNB IRC & Santos Ramos & Sunico OBM
After due dates of the time deposit certificates, MOST RELEVANT ON OUR TOPIC—
OBM did not pay PNB. On the 4th issue: OBM should not reimburse IRC & Santos the entire amount they may be adjudged
PNB Answer: to pay PNB because there is no privity of contract between OBM & PNB; OBM was never a party to
demanded Loan obligation of IRC
payment was deemed paid with
said promissory notes [but OBM liable for interest as damages for failure and delay in payment
from IRC, the irrevocable of its obligations which thereby compelled IRC & Santos to resort to courts)
Santos & assignment of the time
OBM. deposit certificates - It appears that as early as April 1967, the financial situation of OBM had already caused
mounting concern in the Central Bank. However, it was only on July 31, 1968 when OBM was
3. Filed third party- Answer: Acknowledged the TDCs that it issued to excluded from clearing with the CB under Monetary Board Resolution No. 1263. Subsequently, on
complaint against IRC & Santos have Santos, and admitting its failure to pay the August 2, 1968, pursuant to Resolution No. 1290 of the CB, OBM’s operations were suspended.   16

Ramos (President of no cause of action same due to its distressed financial situation.
OBM) and Sunico against them
(Treasurer of OBM) who because they As affirmative defenses: - Thus, when PNB demanded from OBM payment of the amounts due on the 2 time deposits which
allegedly received time received & signed > By reason of its state of insolvency its matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to
deposits of Santos & the TDC as officers operations have been suspended by Central the faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in
issued certificates of OBM, that TDs Bank since Aug 1 1968 delay in the performance of its obligation, OBM should be held liable for damages.  When Santos 17

therefor are recorded in > Time deposits ceased to earn interest from invested his money in time deposits with OBM, they entered into a contract of simple loan
subsidiary ledgers that date or mutuum,  not a contract of deposit.
18

of the bank & are > It may not give preference to any depositor/
‘civil liabilities of creditor
OBM’ > Payment of PNB’s claim is prohibited
SC:
On the 1st issue: IRC and Santos should be held liable to PNB for the amount of the loan with the
corresponding interest thereon.
- 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
assignment of time deposits of Santos was really intended as an absolute conveyance. As noted by TC, it
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.
- For all intents & purposes, the deed of assignment is actually a pledge.
- The facts and circumstances leading to the execution of the deed of assignment, as found by the court a
quo and the respondent court, yield said conclusion that it is in fact a pledge.
The deed of assignment has satisfied the requirements of a contract of pledge
(1) that it be constituted to secure the fulfillment of a principal obligation;
(2) that the pledgor be the absolute owner of the thing pledged;
(3) that the persons constituting the pledge have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the purpose. 11  demand is made,  which latter mode of demand was made by PNB, after the maturity of the
- While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been
expressly stipulated in writing, this applies only to interest for the use of money. It does not
comprehend interest paid as damages.
- 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
the obligations consisting as they did in the payment of money, under Article 1108 of the Civil Code
he has the right to recover damages resulting from the default of OBM, and the measure of
such damages is interest at the legal rate of 6% per annum on the amounts due and unpaid at the
expiration of the periods respectively provided in the contracts. In fine, OBM is being required to
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
- The applicable rule is that legal interest, in the nature of damages for non-compliance with
an obligation to pay a sum of money, is recoverable from the date judicial or extrajudicial
20

- The further requirement that the thing pledged be placed in the possession of the creditor, or of a third certificates of time deposit, on March 1, 1968.   21

person by common agreement 12 was complied with by the execution of the deed of assignment in favor of The measure of such damages, there being no stipulation to the contrary, shall be the
PNB. payment of the interest agreed upon in the certificates of deposit  which is 6 1/2 %. Such
22

interest due or accrued shall further earn legal interest from the time of judicial demand.
- 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
resulting from any agreements, orders or decisions of the court or for any other cause whatsoever. The
FACTS:
term “for any cause whatsoever” is broad enough to include the situation involved in the present case.
In these petitions for review on certiorari, IRC & Santos (G.R. No. 60705), and OBM (G.R. No.
On the 2nd issue: SC finds nothing illegal in the interest of 1 ½ % imposed by PNB pursuant to the 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
resolution of its Board which presumably was done in accordance with ordinary banking procedures.
Raul Santos the sum of P700,000 due under the time deposit certificates Nos. 2308 and 2367 with 6 1/2 (sic)
interest per annum from date of issue until fully paid, the appealed decision is affirmed in all other respects.”
 GR 60705 GR 60907 whatever amount they
Petitioners Integrated Realty Corporation (hereafter, IRC) Petitioner OBM challenges the may be ordered by
and Raul L. Santos (hereafter, Santos) seek the dismissal decision of respondent court insofar court to pay PNB with
of the complaint filed by the Philippine National Bank as it holds OBM liable for interest on interest)
(hereafter, PNB), or in the event that they be held liable the time deposit with it of Santos 3. Filed third party- Answer:
thereunder, to revive and affirm that portion of the decision corresponding to the period of its complaint against
of the TC ordering Overseas Bank of Manila (hereafter, closure by order of the Central Bank. Ramos (President of IRC & Santos have Acknowledged the
OBM) to pay IRC and Santos whatever amounts the latter OBM) and Sunico no cause of action TDCs that it issued to
will pay to PNB, with interest from the date of payment.2
(Treasurer of OBM) against them Santos, and admitting
who allegedly received because they its failure to pay the
- Under date 11 January 1967 defendant Raul L. Santos made a time deposit with defendant OBM in time deposits of Santos received & signed same due to its
the amount of P500,000 (Exhibit-10 OBM) and was issued a Certificate of Time Deposit No. 2308 & issued certificates the TDC as officers distressed financial
(Exhibit 1-Santos, Exhibit D). therefor of OBM, that TDs are situation.
- Under date 6 February 1967 defendant Raul L. Santos also made a time deposit with defendant recorded in
OBM in the amount of P200,000 (Exhibit 11-OBM) and was issued certificate of Time Deposit No. subsidiary ledgers of As affirmative
2367 (Exhibit 2-Santos, Exhibit E). the bank & are ‘civil defenses:
liabilities of OBM’ > By reason of its state
- Under date 9 February 1967 defendant IRC, thru its President—defendant Raul L. Santos, applied of insolvency its
for a loan and/or credit line (Exhibit A) in the amount of P700,000 with plaintiff bank. operations have been
 To secure the said loan, defendant Raul L. Santos executed on August 11, 1967 a suspended by Central
Deed of Assignment (Exhibit C) of the 2 time deposits (Exhibits 1-Santos and 2-Santos, Bank since Aug 1
also Exhibits D and E) in favor of plaintiff. 1968
 Defendant OBM gave its conformity to the assignment thru letter dated 11 August 1967 > Time deposits
(Exhibit F). ceased to earn interest
 On the same date, defendant IRC, thru its President Raul L. Santos, also executed a from that date
Deed of Conformity to Loan Conditions (Exhibit G). > It may not give
preference to any
- The defendant OBM, after the due dates of the time deposit certificates, did not pay plaintiff depositor/ creditor
PNB. > Payment of PNB’s
 Plaintiff demanded payment from defendants IRC and Raul L. Santos (Exhibit K) and from claim is prohibited
defendant OBM (Exhibit L). TC judgment in favor Appealed to CA Appealed to CA
 Defendants IRC and Raul L. Santos replied that the obligation (loan) of defendant IRC of PNB
was deemed paid with the irrevocable assignment of the time deposit certificates (Exhibits
5-Santos, 6-Santos and 7-Santos). Lower court: Rendered judgment for plaintiff (Jan 30 1976)
WHEREFORE, judgment is hereby rendered, ordering:
PNB IRC & Santos Ramos & Sunico 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
1. Filed complaint to Answer:
11 and February 6, 1968, respectively (Exhibits M and I), plus 1-1/ 2% additional interest effective February
collect from IRC & 28, 1968 and additional penalty interest of 1% per annum of the said amount of P700,000 from the time of
Santos (P700,000 + PNB has no cause of maturity of said loan up to the time the said amount of P700,000 is actually paid to the plaintiff; The
interest + attorney’s action against them defendants to pay 10% of the amount of P700,000 as and for attorney’s fees;
fees) and impleaded because their 2.The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L.
OBM as a defendant obligation to PNB was Santos whatever amounts the latter will pay to the plaintiff with interest from date of payment;
to compel it to redeem fully paid/ extinguished 3.The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L.
Santos the amount of P10,000.00 as and for attorney’s fees
& pay to it Santos’ upon the ‘irrevocable
4. The third-party complaint and cross-claim dismissed;
time deposit assignment of the time 5. The defendant Overseas Bank of Manila to pay the costs.
certificates with deposit certificates & SO ORDERED.’
interest and other that they are not - IRC, Santos and OBM all appealed to the respondent CA.
costs answerable for the
insolvency of OBM CA:
2. Filed counterclaim Answer: As stated in limine, on March 16, 1982 respondent court promulgated its appealed decision, with a
for damages against modification and the deletion of that portion of the judgment of the TC ordering OBM to pay IRC and
PNB & cross-claim Denied knowledge of Santos whatever amounts they will pay to PNB with interest from the date of payment.
against OBM the time deposit
> OBM acted certificates because - Therein defendants-appellants, through separate petitions, have brought the said decision to this
fraudulently in refusing the alleged time Court for review.
to pay the time deposit deposit of Santos’
certificates to PNB ‘does not appear’ in its ISSUES:
resulting in the filing of books of account 1. WON the liability of IRC & Santos with PNB should be deemed to have been paid by virtue of the
suit against them by deed of assignment made by the former in favor of PNB (No)
PNB (therefore, OBM
should pay them
2. WON the interest of 1 ½ % imposed by PNB pursuant to the resolution of its Board was illegal In Lopez vs. CA, et al.:
(No) Petitioner Benito Lopez Prudential Bank & Trust Philippine American General
Company Insurance Co., Inc.
3. WON OBM should be held liable for interests on the time deposits of IRC & Santos from the time it (Philamgen)
ceased operations until it resumed its business (No) Petitioner Benito Lopez
obtained a loan for P20,000
4. WON OBM should reimburse IRC & Santos for whatever amounts they may be adjudged to pay from the Prudential Bank and
PNB by way of compensation for damages incurred, pursuant to Art 1170 & 2201 of the Civil Code Trust Company.
(No) On the same occasion, he When Lopez’ obligation
executed a PN in favor of the matured without being settled,
HELD: bank and, in addition, he Philamgen caused the
WHEREFORE, judgment is hereby rendered, ordering: executed a surety bond in transfer of the shares of
which he, as principal, and stocks to its name in order
1. IRC and Raul L. Santos to pay PNB, jointly and severally, the total amount of P700,000, Philamgen, as surety, bound that it may sell the same and
with interest thereon at the rate of 9% per annum from the maturity dates of the 2 themselves jointly and apply the proceeds thereof in
promissory notes on January 11 and February 6, 1968, respectively, plus one and 1 ½ % severally in favor of the bank payment of the loan to the
additional interest per annum effective February 28, 1968 and additional penalty interest for the payment of the loan. bank.
of 1% per annum of the said amount of P700,000 from the time of maturity of said loan
up to the time the said amount of P700,000 is fully paid to PNB
However, when no payment Thereafter, Philamgen filed
was still made by the principal an action to recover the
2. IRC and Raul L. Santos to pay solidarily PNB 10% of the amount of P700,000 as and for
debtor or surety, the bank filed amount of the loan against
attorney’s fees.
a complaint which compelled Lopez.
Philamgen to pay the bank.
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  TC: therein held that the obligation of Lopez was deemed paid when his shares of stocks
dates of issue on January 11, 1967 and February 6, 1967, respectively, until the same were transferred in the name of Philamgen.
are fully paid, except that no interest shall be paid during the entire period of actual  CA: ruled that Lopez was still liable to Philamgen because, pending payment, Philamgen
cessation of operations by OBM; was merely holding the stock as security for the payment of Lopez’ obligation.
 SC: Affirmed CA
“Notwithstanding the express terms of the ‘Stock Assignment Separate from Certificate’,
4. OBM to pay IRC and Raul L. Santos 6 ½ % interest in the concept of damages on the
however, We hold and rule that the transaction should not be regarded as an absolute conveyance in
principal amounts of said certificates of time deposit from the date of extrajudicial view of the circumstances obtaining at the time of the execution thereof.
demand by PNB on March 1, 1968, plus legal interest of 6% on said interest from April 6, “It should be remembered that on June 2, 1959, the day Lopez obtained a loan of P20,000
1968, until full payment thereof, except during the entire period of actual cessation of from Prudential Bank, Lopez executed a promissory note for P20,000, plus interest at the rate of ten
operations of said bank. (10%) per cent per annum, in favor of said Bank. He likewise posted a surety bond to secure his full and
faithful performance of his obligation under the promissory note with Philamgen as his surety. In return
5. OBM to pay IRC and Raul L. Santos P10,000 as and for attorney’s fees. for the undertaking of Philamgen under the surety bond, Lopez executed on the same day not only an
indemnity agreement but also a stock assignment.
“The indemnity agreement and stock assignment must be considered together as related
RULING: transactions because in order to judge the intention of the contracting parties, their contemporaneous
1. WON the liability of IRC & Santos with PNB should be deemed to have been paid by virtue and subsequent acts shall be principally considered. (Article 1371, New Civil Code). Thus, considering
of the deed of assignment made by the former in favor of PNB, which reads: that the indemnity agreement connotes a continuing obligation of Lopez towards Philamgen while the
“KNOW ALL MEN BY THESE PRESENTS; stock assignment indicates a complete discharge of the same obligation, the existence of the indemnity
I, RAUL L. SANTOS, of legal age, Filipino, with residence and postal address at 661 Richmond St., agreement whereby Lopez had to pay a premium of P1,000 for a period of one year and agreed at all
Mandaluyong, Rizal for and in consideration of certain loans, overdrafts and other credit accommodations granted times to indemnify Philamgen of any and all kinds of losses which the latter might sustain by reason of it
or those that may hereafter be granted to me/us by the PHILIPPINE NATIONAL BANK, have assigned, transferred becoming a surety, is inconsistent with the theory of an absolute sale for and in consideration of the
and conveyed and by these presents, do hereby assign, transfer and convey by way of security unto said same undertaking of Philamgen. There would have been no necessity for the execution of the indemnity
PHILIPPINE NATIONAL BANK its successors and assigns the following Certificates of Time Deposit issued by the agreement if the stock assignment was really intended as an absolute conveyance, xxx”
OVERSEAS BANK OF MANILA, its CONFORMITY issued on August 11, 1967, hereto enclosed as Annex ‘A,’ in
favor of RAUL L. SANTOS and/or NORA S. SANTOS, in the aggregate sum of SEVEN HUNDRED THOUSAND - Along the same vein, in the case at bar it would not have been necessary on the part of IRC
PESOS ONLY (P700,000.00), Philippine Currency, xxx.
and Santos to execute promissory notes in favor of PNB if the assignment of the time
x     x     x
“It is also understood that the herein Assignor/s shall remain liable for any outstanding balance of his/their deposits of Santos was really intended as an absolute conveyance.
obligation if the Bank is unable to actually receive or collect the above assigned sums, monies or properties
resulting from any agreements, orders or decisions of the court or for any other cause whatsoever.”
6 - 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
We uphold respondent court on this score. payment of the loan so as to extinguish the obligations of IRC and Santos with PNB, the TC
advanced several valid bases:
“a. It is clear from the Deed of Assignment that it was only by way of security;
xxx

“b. The promissory notes (Exhibits H and I) were executed on August 16, 1967. If defendants
IRC and Raul L. Santos, upon executing the Deed of Assignment on August 11, 1967 had
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
as President?
“c. In the application for a credit line (Exhibit A), the time deposits were offered as collateral.”
proposition. Consequently, it should be deemed read into every contract of deposit with a bank that the
obligation to pay interest on the deposit ceases the moment the operation of the bank is completely
suspended by the duly constituted authority, the Central Bank.
“We consider it of trivial consequence that the stoppage of the bank’s operation by the Central Bank has
9

- For all intents and purposes, the deed of assignment in this case is actually a pledge.
Adverting again to the Court’s pronouncements in Lopez, supra, we quote therefrom:
“The character of the transaction between the parties is to be determined by their intention, regardless of what
language was used or what the form of the transfer was. If it was intended to secure the payment of money, it
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
security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not
discharged by the transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of
absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges
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
been subsequently declared illegal by the Supreme Court, for before the Court’s order, the bank had no
alternative under the law than to obey the orders of the Central Bank. Whatever be the juridical significance
of the subsequent action of the Supreme Court, the stubborn fact remained that the petitioner was totally
crippled from then on from earning the income needed to meet its obligations to its depositors. If such a
situation cannot, strictly speaking, be legally denominated as ‘force majeure,’ as maintained by private
respondent, We hold it is a matter of simple equity that it be treated as such.”
The Court further adjured that:
“Parenthetically, We may add for the guidance of those who might be concerned, and so that unnecessary
litigations be avoided from further clogging the dockets of the courts, that in the light of the considerations
expounded in the above opinion, the same formula that exempts petitioner from the payment of interest to its
depositors during the whole period of factual stoppage of its operations by orders of the Central Bank,
modified in effect by the decision as well as the approval of a formula of rehabilitation by this Court, should
be, as a matter of consistency, applicable or followed in respect to all other obligations of petitioner which

could not be paid during the period of its actual complete closure.”

- The facts and circumstances leading to the execution of the deed of assignment, as found by the
court a quo and the respondent court, yield said conclusion that it is in fact a pledge.
The deed of assignment has satisfied the requirements of a contract of pledge
(4) that it be constituted to secure the fulfillment of a principal obligation;
(5) that the pledgor be the absolute owner of the thing pledged;
(6) that the persons constituting the pledge have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the purpose.   11
We cannot accept the holding of the respondent CA that the above-cited decisions apply only
where the bank is in a state of liquidation.
- In the very case aforecited, this issue was likewise raised and We resolved:
“Thus, Our task is narrowed down to the resolution of the legal problem of whether or not, for purposes of
the payment of the interest here in question, stoppage of the operations of a bank by a legal order of
liquidation may be equated with actual cessation of the bank’s operation, not different, factually speaking,

- The further requirement that the thing pledged be placed in the possession of the creditor, or of a
third person by common agreement  was complied with by the execution of the deed of assignment
12
in favor of PNB.
- It must also be emphasized that 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
or collect the assigned sums resulting from any agreements, orders or decisions of the court or for
any other cause whatsoever. The term “for any cause whatsoever” is broad enough to include the
situation involved in the present case.
in its effects, from legal liquidation the factual cessation having been ordered by the Central Bank.
“In the case of Chinese Grocer’s Association, et al. vs. American Apothecaries, 65 Phil. 395, this Court
held:
“As to the second assignment of error, this Court, in G.R. No. 43682, In re Liquidation of the
Mercantile Bank of China, Tan Tiong Tick, claimant and appellant, vs. American Apothecaries, C, et al.,
claimants and appellees, through Justice Imperial, held the following:
‘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
operations were stopped until the date of payment of the deposits. As to the first-class, we hold that it should be paid
because such interest has been earned in the ordinary course of the bank’s business  and before the latter has been
1

- Under the foregoing circumstances and considerations, the unavoidable conclusion is that IRC and
Santos should be held liable to PNB for the amount of the loan with the corresponding
interest thereon.
2. WON the interest of 1 ½ % imposed by PNB pursuant to the resolution of its Board was
illegal (No)
We find nothing illegal in the interest of 1 ½ % imposed by PNB pursuant to the 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 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
trial by presenting countervailing evidence. What was merely touched upon during the proceedings
in the court below was the alleged lack of notice to them of the board resolution, but not the veracity
or validity thereof.
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)
We have held in The Overseas Bank of Manila vs. CA and Tony D. Tapia,  that: 13
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
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
charged from the date the bank ceased to do business because it was declared in a state of liquidation, we hold that the
said interest should not be paid.’
“The Court of Appeals considered this ruling inapplicable to the instant case, precisely because, as
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
completely forbidding herein petitioner to do business preparatory to its liquidation was first restrained
and then nullified by this Supreme Court. In other words, as far as private respondent is concerned, it is
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
is concerned.
“In the light of the peculiar circumstances of this particular case, We disagree. It is Our considered
view, after mature deliberation, that it is utterly unfair to award private respondent his prayer for payment
of interest on his deposit during the period that petitioner bank was not allowed by the Central Bank to
operate.”
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)
- It appears that as early as April 1967, the financial situation of OBM had already caused
mounting concern in the Central Bank. 14

“It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay
stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to
generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international
transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other
banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a
depository obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just
conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic
- On December 5, 1967, new directors and officers drafted from the Central Bank (CB) itself, the
PNB and the DBP were elected and installed and they took over the management and control of the
Overseas Bank
- However, it was only on July 31, 1968 when OBM was excluded from clearing with the CB
under Monetary Board Resolution No. 1263.
Subsequently, on August 2, 1968, pursuant to Resolution No. 1290 of the CB, OBM’s operations
were suspended.   16
- These CB resolutions were eventually annulled and set aside by this Court on October 4, 1971 in
the decision rendered in the herein cited case of Ramos
- 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
delay in the performance of its obligation, OBM should be held liable for damages.  When 17
respondent Santos invested his money in time deposits with OBM, they entered into a contract of
simple loan or mutuum,  not a contract of deposit
18
- While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been
expressly stipulated in writing, this applies only to interest for the use of money. It does not
comprehend interest paid as damages
- 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
the obligations consisting as they did in the payment of money, under Article 1108 of the Civil Code
he has the right to recover damages resulting from the default of OBM, and the measure of
such damages is interest at the legal rate of 6% per annum on the amounts due and unpaid at the
expiration of the periods respectively provided in the contracts. In fine, OBM is being required to
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
• Bataan Seedling Association, Inc. v. Republic of the Philippines, G.R. No. 141009, July 2, 2002 -
ALVIN
G.R. No. 141009. July 2, 2002
BATAAN SEEDLING ASSOCIATION, INC. and CARLOS VALENCIA, petitioners, vs. REPUBLIC OF THE PHILIPPINES,
represented by the DEPARTMENT OF ENVIRONMENT and NATURAL RESOURCES, respondent.
 
AUSTRIA-MARTINEZ, J.:
Summary: BSAI entered into a contract with Republic, represented by the DENR for the
reforestation of a forest land within a period of 3 years. BSAI undertook to report to DENR any event
or condition which delays or may delay the project. With the contract was the release of mobilization
fund but the fund was to be returned upon completion of the project or deducted from periodic
release of moneys to petitioner. Believing that BSAI failed to comply with their obligations, Republic
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
but saw no reason why the mobilization fund and the cash advances should be refunded or that
BSAI are liable for liquidated damages. Both parties appealed to the CA, which affirmed the trial
court and that the balance of the fund should be returned with 12% interest.  three-year period, and the Contract of Undertaking providing for the mobilization fund in the
 
Is the order to refund the balance of the mobilization fund with a 12% interest per annum?
 
The mobilization fund should be returned but not with a 12% interest per annum. Interest at the rate
of 12% per annum is imposable if there is no stipulation in the contract. Herein subject contract does
not contain any stipulation as to interest. However, the amount that is due the respondent does not
represent a loan or forbearance of money. The word "forbearance" is defined, within the context of
usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from
requiring borrower or debtor to repay loan or debt then due and payable.
 
The contract between petitioner and respondent is a Community Based Reforestation Contract by
virtue of which petitioner undertook the reforestation of a fifty-hectare 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 fully comply with its undertaking to plant the
entire area with seedlings within the period 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.
- The applicable rule is that legal interest, in the nature of damages for non-compliance with
an obligation to pay a sum of money, is recoverable from the date judicial or extrajudicial
demand is made,  which latter mode of demand was made by PNB, after the maturity of the
20
certificates of time deposit, on March 1, 1968.  The measure of such damages, there being no
21
stipulation to the contrary, shall be the payment of the interest agreed upon in the certificates
of deposit  which is six and one-half percent (6-1/2%). Such interest due or accrued shall
22
further earn legal interest from the time of judicial demand
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
Thus, in the absence of stipulation, the legal interest is 6% per annum on the amount finally
adjudged by the Court. In addition, the amount of ₱56,290.69 shall only earn 12% interest per
annum from date of finality of herein judgment.
 
Facts:
Petitioner Bataan Seedling Association, Inc. (BSAI for brevity) entered into a Community Based
Reforestation Contract on Oct. 26, 1990 with the Republic of the Philippines, represented by
the DENR. Under said contract, BSAI, in consideration of the amount of P975,126.61, bound
itself to undertake the reforestation of a fifty-hectare open/denuded forest land in Barangay
Liyang, Pilar, Bataan within a period of three (3) years. BSAI likewise undertook to report to
the DENR any event or condition which delays or may delay or prevent completion of the
work, and submit progress billings and accomplishment reports.
 
Concomitant with the contract is the Project Development Plan and the Approved Schedule
of Progress Payments detailing the annual cash flow and schedule of activities within the
amount of ₱75,054.66. Said fund was allotted and released by respondent to enable BSAI to
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.
 
Believing that petitioners failed to comply with their obligations under the contract,
respondent sent a notice of cancellation dated July 31, 1992 to petitioner Carlos Valencia,
President of BSAI, asking the latter to show cause why the contract should not be terminated
on the following grounds:
 
"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
operations as provided for in the Contract; b) The seedlings raised in the nursery were disposed of to other
contractors and the seedlings left were practically overgrown indicating lack of proper care and
maintenance; c) Inspite of the fact that a forest fire occurred sometime in Dec., 1991, no report was ever
made to the DENR in violation of Article 1.1.5 of the Contract; d) The Association even failed to submit to the
DENR accomplishment reports and other relevant information required and expected from it.
 
"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
bunkhouse, no laborers were observed at the project area during the time of the field inspections. Even you
 failed to show up despite written and verbal notices served to you. Finally, the photodocuments taken on the
plantation illustrates clearly the abandoned project area."
 
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
jointly and solidarily pay actual damages in the amount of ₱75,054.25 representing the portion of the
mobilization fund released to them, and ₱62,450.22 as the amount paid under the accomplishment
bills, totaling ₱137,504.47. Respondent also sought liquidated damages equivalent to 0.1% of the
total contract cost due to BSAI’s delay in the performance of its obligations, and exemplary damages
in the amount of ₱50,000.00.
 
In their Amended Answer, petitioners deny the allegations, arguing that: (1) the whole area
was totally destroyed by a forest fire in Dec. 1991 without their fault and negligence, which
incident was duly reported to respondent, and (2) the cancellation was arbitrary.
 
RTC: The RTC of Quezon City, Branch 217, rendered its decision ordering petitioners to pay
the amount of ₱50,000.00 as exemplary damages. The TC held that respondent had sufficient
grounds to cancel the contract but saw no reason why the "mobilization fund" and the
advance payments should be refunded, or that petitioners should be liable for liquidated
damages. Not satisfied, both respondent and petitioners appealed the decision to the CA.
 
CA: The appellate court affirmed with modification the decision of the TC, adjudicating the
balance of the mobilization fund refunded by petitioners in the amount of ₱56,290.69 with 12%
interest.Hence, the petition for review on certiorari.
 
Issue:
1. WON the unilateral cancellation by the respondent of the Community-Based Reforestation
Contract is invalid, being without factual and legal basis. (NO)
2. WON the order to refund the amount of P56,290.69 with interest at the rate of 12% per annum,
representing the balance of the mobilization fund, is palpably erroneous as being contrary to the
facts. (YES)
 
Held:
At the outset, it must be stated that the foregoing issues and the respective arguments in support thereof have
been raised by the parties and passed upon by both the TC and the appellate court.
 
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
end of the third (3rd) year the contracted area of fifty hectares, fully planted and properly maintained."
 
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
area. Petitioners further claim that their failure to immediately report the fire and submit progress reports is
not a substantial breach of their undertaking to warrant the cancellation of the contract; and that they
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
and factual basis.
 
On the issue of WON respondent had sufficient basis to cancel the contract, both the trial and appellate
courts found that there was basis for the cancellation. A perusal of the records of this case confirms such
finding.
 
True, under the reforestation contract, petitioners were to turn over at the end of the third year the project
area fully planted and properly maintained. However, the Project Development Plan, appended and made
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
(50) hectares; (2) nursery operations for fast-growth, medium-growing, and slow-growth species; (3) plantation
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
development of footpath, graded trail, plantation road, bunkhouse and look-out tower.19 Spread out during the
three-year period is the annual maintenance, protection, administration and supervision, and, monitoring and
evaluation of the project area.
 
Clearly, based on said schedule, petitioners were to undertake the principal task of planting the fifty (50)
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
the end of the third year fully planted and established. Therefore, petitioners’ argument that they are not bound
to fully plant/establish the whole fifty (50) hectares during the 1st year of operations is without merit.
 
Moreover, contrary to petitioners’ posture, there was a material breach of the contract warranting its
cancellation. `1 year after the commencement of the project or sometime in Dec., 1991, a fire razed the
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
under the contract. Thus, the appellate court correctly observed, viz.:
 
"The Appellant BSAI unabashedly admitted failing to establish/plant the project area. Under Section 1.1.5 of the
Contract, the Appellant BSAI was obliged to report to the DENR any event or condition which delayed or may
delay the progress or prevent the completion, of the work under the time-table set forth under the contract or any
relevant facts known to the Appellant BSAI. A fire in the area which gutted the improvements in contract area
occurred in Dec., 1991. However, the Appellant BSAI never informed the DENR of said fire. Worse, the
Appellant BSAI did not anymore conduct any replanting activities on the area, thus accounting, in part,
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
progress of its activities in the area. This prompted the DENR to conduct an on the site inspection of the
subject project area. Indeed, Carlos Valencia and Hernani Salaya Jr., even ignored the requests of DENR for
them to be present during the said inspections. The DENR inspection team found and discovered that the
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,
Anilao Satellite Nursery, located in Pilar, Bataan for said seedlings.”
 
Petitioners attempt to trivialize their lapse, but the Court believes that this is not merely a slight or casual
breach, but a substantial one giving sanction to the cancellation. Under Clause 4.1 of the contract,
respondents "shall have the right to suspend, terminate or cancel" the contract upon petitioners’
substantial failure to fulfill their obligations, or a willful violation of the material conditions, stipulations
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
adherence are the submission of progress reports and the reporting of such event which may delay or prevent the
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.
 
Anent the refund of the mobilization fund, the Contract of Undertaking signed by petitioners is explicit in
this regard, to wit:
 
"THAT BATAAN SEEDLING ASSOCIATION, INCORPORATED x x x, for and in consideration of the sum of
Seventy Five Thousand Fifty four pesos and sixty six centavos (P75,054.66) representing advance payment
under said contract receipt of which is hereby acknowledge in full, as hereby bind ourselves;
 
3. To repay the amount advanced in accordance with the Contract of Reforestation and DENR Administration
order No. 14 Series of 1989 as amended;"
 
The amount of ₱75,054.66 advanced to BSAI, represents 15% of ₱500,361.72, the contract cost for the 1st
year. When initial payment was made by respondent to petitioners on Feb. 25, 1991, the amount of
₱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.
Hence, they remain liable on the balance of said fund in the amount of ₱56,290.69. We find no error
committed by the Appellate Court on this matter.
 
Nevertheless, the appellate court erred in imposing a 12% interest on the amount due . In Eastern Shipping
Lines, Inc. vs. CA, we enunciated the following rules:
 
"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 contracted for reforestation. Under the reforestation contract, the fund released to petitioner
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No was supposed to be returned to respondent upon completion of the project or deducted from
interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can the periodic releases of money. Clearly therefrom, the amount of ₱56,290.69 was neither a
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,
loan nor forbearance of money.
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 Thus, the above-quoted paragraph II, sub-paragraph 1, applies to the present case. In the
of damages may be deemed to have been reasonably ascertained). The actual base for the computation of absence of stipulation, the legal interest is six percent (6%) per annum on the amount finally
legal interest shall, in any case, be on the amount finally adjudged. adjudged by the Court.
   
"3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal In addition, under the above-quoted paragraph II, sub-paragraph 3, the amount of ₱56,290.69
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
shall earn 12% interest per annum from date of finality of herein judgment.
credit."  
  Finally, the Court finds the award of ₱50,000.00 as exemplary damages to be excessive and should
Interest at the rate of 12% per annum is imposable if there is no stipulation in the contract. therefore be reduced to ₱20,000.00. Exemplary damages are imposed not to enrich one party or
Herein subject contract does not contain any stipulation as to interest. However, the amount impoverish another but to serve as a deterrent against or as a negative incentive to curb socially
that is due the respondent does not represent a loan or forbearance of money. The word deleterious actions.
"forbearance" is defined, within the context of usury law, as a contractual obligation of lender  
or creditor to refrain, during given period of time, from requiring borrower or debtor to repay WHEREFORE, the petition is partly GRANTED and the assailed Decision is AFFIRMED with the following
MODIFICATIONS:
loan or debt then due and payable. 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
The contract between petitioner and respondent is a Community Based Reforestation percent (12% ) interest, in lieu of six percent (6%) shall be imposed upon finality of this decision, until full
Contract by virtue of which petitioner undertook the reforestation of a fifty-hectare payment thereof.
open/denuded forest land. The amount of ₱56,290.69 due to respondent, represents the 2) The award of exemplary damages is reduced from Fifty Thousand Pesos (₱50,000.00) to Twenty Thousand
balance of the mobilization fund which petitioner is obliged to return because of its failure to Pesos (₱20,000.00).
fully comply with its undertaking to plant the entire area with seedlings within the period
• Catungal v. Hao, G.R. No. 134972, March 22, 2001 - RINA
(Paranaque MeTC) because of the expiration of the said lease agreements, Sps Catungal
sent demand letters for Hao to vacate but these letters went unheeded,
G.R. No. 134972   March 22, 2001 causing the Sps to file said complaints
SPS. ERNESTO and MINA CATUNGAL, petitioners, vs. DORIS HAO, respondent.
  Civil Case No. 90- Action for injunction filed by Hao to stop the Paranaque MeTC from
KAPUNAN, J.: 758 (Makati RTC) proceeding pending the settlement of the issue of ownership raised in
Civil Case No. 88-491.
SUMMARY: (needed yung medyo mahabang facts para maunderstand yung buong
case, madami kasing pasikot sikot na naganap)  
  Decisions:
Timeline: Makati Granted injunction and annulled sale between Galang and Sps. Catungal
December 28 Galang leased a 3 storey building (in Quirino Ave, Paranaque) to BPI for a RTC
1972 period of 15 years (expiration: June 20, 1986)
CA Reversed Makati RTC; complaints in Civil Cases Nos. 88-491 and 90-758 were
During the BPI subleased ground floor to Hao dismissed
lease
SC denied Hao’s petition
August 24 Galang & Hao executed contract of lease on 2 and 3 floor of bldg (4 years:
nd rd
 
1984 Aug 15 1984 – Aug 16, 1988) The MeTC of Parañaque proceeded with the trial of the ejectment cases. MeTC of
Parañaque: ordered Hao and all persons claiming rights under her to vacate the premises in
August 15 Sps Catungal bought the property from Galang question and to pay the plaintiffs P20,000.00 a month from June 28, 1988, until she finally
1986 vacates the premises and to pay attorney's fees of P20,000.00. Petitioners filed a motion for
  clarificatory judgment on the ground that MeTC. Petitioners sought reconsideration. The MeTC
Cases filed: 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
Civil Case No. 88- Complaint for Annulment of Sale with Damages filed by Hao (Hao amount of rentals for both the second and third floors from P20,000.00 to P10,000.00 monthly.
491 (Makati RTC) invoked her Right of First Refusal purportedly based on Hao’s lease With this modification, the judgment below is AFFIRMED in all other respects. The CA
contract with Galang) resolved the parties' MR in favor of the respondent. It ruled that the MR filed by the
petitioners before the MeTC was a prohibited pleading under the Rules of Summary
Civil Cases Nos. Complaints for ejectment filed by the Spouses Catungal due to the fact Procedure.
7666 and 7667 that the lease agreement between BPI and Galang expired, and  
ISSUES:
1.  W/N the CA is correct by using as basis for reducing the rental only the evidence submitted by
the parties and ignoring circumstances of which the RTC properly took judicial notice. (NO)
2.  W/N the RTC had jurisdiction to modify the appealed judgment by increasing the award of
monthly rentals from P13,000 to P40,000. (YES)
 
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
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.
 
Respondent: insists on the ruling of the MeTC that the monthly rental rates of only P8,000.00
for the first floor and P5,000.00 for each of the second and third floors should prevail.
 
RTC correctly applied doctrine of judicial notice
We cannot allow the respondent to insist on the payment of a measly P8,000 for the rentals of
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
of the use and possession of the premises. Damages in the context of Section 17, Rule 70 of
the 1997 Rules of Civil Procedure is limited to "rent" or fair rental value or the reasonable
compensation for the use and occupation of the property. What therefore constitutes the fair
rental value in the case at bench?
In ruling that the increased rental rates of P40,000.00 should be awarded the petitioners, the
RTC based its decision on the doctrine of judicial notice, thus:
 
xxx the amount of rentals as laid down in the Clarificatory Order is inadequate if not
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
rentals in the 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 where the famous shrine of the Mother of Perpetual Help stands.
Finally, worth mentioning here as parallel is the ruling of the Supreme Court in the case of Manila
Bay Oub Corporation vs. CA citing Licmay vs. CA and Commander Realty Inc. v. CA, It reads as
follows:
 
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
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
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
real estate especially of business establishments like the leased building owned by
the private respondents.
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
judge under rules of legal procedure or otherwise may properly take or act upon without
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
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
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
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
is settled jurisprudence that courts may take judicial notice of the general increase in rentals of
lease contract renewals much more with business establishments.
 
The increased award of rentals ruled by the RTC is reasonable given the circumstances
 
The CA failed to justify its reduction of the P40,000.00 fair rental value as determined by
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
unconscionable or exorbitant rests upon private respondent as the lessee. Here,
respondent neither discharged this burden when she omitted to present any evidence at all on
what she considers to be fair rental value, nor did she controvert the evidence submitted by
petitioners by way of testimonies of the real estate broker and Mina Catungal.
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):
 
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.
 
The back rentals in this case being equivalent to a loan or forbearance of money, the
interest due thereon in 12% per annum from the time of extra-judicial demand on
September 27, 1988.
 
FACTS:
Timeline:
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)
During the BPI subleased ground floor to Hao
lease
August 24 Galang & Hao executed contract of lease on 2 and 3 floor of bldg (4 years:
nd rd
1984 Aug 15 1984 – Aug 16, 1988)
August 15 Sps Catungal bought the property from Galang
1986
Cases filed:
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
contract with Galang)
Civil Cases Nos. Complaints for ejectment filed by the Spouses Catungal due to the fact
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
1.  W/N the CA is correct by using as basis for reducing the rental only the evidence submitted by
sent demand letters for Hao to vacate but these letters went unheeded,
causing the Sps to file said complaints
2.  W/N the RTC had jurisdiction to modify the appealed judgment by increasing the award of
Civil Case No. 90- Action for injunction filed by Hao to stop the Paranaque MeTC from
758 (Makati RTC) proceeding pending the settlement of the issue of ownership raised in
Civil Case No. 88-491.
Decisions:
Makati Granted injunction and annulled sale between Galang and Sps. Catungal
RTC
CA Reversed Makati RTC; complaints in Civil Cases Nos. 88-491 and 90-758 were
dismissed
SC denied Hao’s petition
The MeTC of Parañaque, after the reversal of the decision for injunction, proceeded with
the trial of the ejectment cases.
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
she finally vacates the premises and to pay attorney's fees of P20,000.00.
Petitioners: filed a motion for clarificatory judgment on the ground that MeTC "only awarded
rent or compensation for the use of said property and attorney's fees for said ground floor and
not the entire subject property. Compensation for the use of the subject property's second and
third floors and attorney's fees as prayed for in Civil Case No. 7767 were not awarded."
MeTC:  judgment is hereby rendered ordering Hao who is in actual possession of the property
and all persons claiming rights under her to vacate the premises and to pay the plaintiffs
P8.000.00 a month in Civil Case No. 7666 for the use and occupancy of the first floor of the
premises in question from June 28. 1998 until she finally vacates the premises and to pay the
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.
Petitioners sought reconsideration, praying that respondent be ordered to pay P20,000.00
monthly for the use and occupancy of the ground floor and P10,000.00 each monthly for the
second and third floors. Respondent filed a notice of appeal.
Instead of resolving the motion for 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 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
AFFIRMED in all other respects.
The parties filed their respective motions for reconsideration to the Court of Appeals.  The CA
resolved the parties' MR in favor of the respondent. It ruled that the MR filed by the
petitioners before the MeTC was a prohibited pleading under the Rules of Summary
Procedure.
ISSUES:
the parties and ignoring circumstances of which the RTC properly took judicial notice. (NO)
monthly rentals from P13,000 to P40,000. (YES)
RULING: WHEREFORE, judgment is hereby rendered in favor of petitioners by
REINSTATING the decision of the RTC, with modifications, and ordering respondent to further
PAY:
1. The sum of P27,000.00, corresponding to the difference between the P40,000.00 awarded by the RTC
and the P13,000.00 awarded by the MTC, as monthly arrears, computed from respondent's unlawful
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
September 1988 until fully paid;
3. The sum of P20,000.00 as and for attorney's fees and;
4. The costs of suit.
There is no question that after the expiration of the lease contracts which Hao contracted
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
their right of ownership over the property. While respondent was finally evicted from the
leased premises, the amount of monthly rentals which Hao should pay the petitioners
remains to be resolved.
Petitioners: posit that there should be a reinstatement of the decision of the RTC which fixed
the monthly rentals to be paid by Hao at the total of P40,000.00, P20,000.00 for the occupancy
of the first floor, and P10,000.00 each for the occupancy of the second and third floors of the
building, effective after the lapse of the original lease contract between respondent and the
original owner of the building.
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
and third floors should prevail.
No lessor-lessee relationship between the parties
At most, what we have is a forced lessor-lessee relationship inasmuch as the respondent,
by way of detaining the property without the consent of petitioners, was in unlawful possession
of the property belonging to petitioner spouses.
RTC correctly applied doctrine of judicial notice
We cannot allow the respondent to insist on the payment of a measly P8,000 for the rentals of
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
of the use and possession of the premises. Damages in the context of Section 17, Rule 70 of
the 1997 Rules of Civil Procedure is limited to "rent" or fair rental value or the reasonable
compensation for the use and occupation of the property. What therefore constitutes the fair
rental value in the case at bench?
In ruling that the increased rental rates of P40,000.00 should be awarded the petitioners, the
RTC based its decision on the doctrine of judicial notice, thus:

xxx the amount of rentals as laid down in the Clarificatory Order is inadequate if not
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 rentals in the
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
where the famous shrine of the Mother of Perpetual Help stands. xxx
Further, considering that the questioned property has three floors and strategically located along the
main road and consistent with the prevailing rental rates in said business area which is between
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
floor and third floor or a total of P40,000.00 monthly rentals as appropriate and reasonable rentals
for the use and occupation of said premises.
Finally, worth mentioning here as parallel is the ruling of the Supreme Court in the case of Manila
Bay Oub Corporation vs. CA citing Licmay vs. CA and Commander Realty Inc. v. CA, It reads as
follows:
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
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
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
real estate especially of business establishments like the leased building owned by
the private respondents.
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
judge under rules of legal procedure or otherwise may properly take or act upon without
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
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
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
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 correctly took judicial notice of the nature of the leased property subject of the case
at bench based on its location and the commercial viability. The above quoted assessment by
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.
The RTC rightly modified the rental award from P13,000.00 to P40,000.00, considering that it
is settled jurisprudence that courts may take judicial notice of the general increase in rentals of
lease contract renewals much more with business establishments.
The increased award of rentals ruled by the RTC is reasonable given the circumstances
We note that respondent was able to deny petitioners the benefits of their rightful ownership
over the subject property for almost a decade.
The CA failed to justify its reduction of the P40,000.00 fair rental value as determined by
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
unconscionable or exorbitant rests upon private respondent as the lessee. Here,
respondent neither discharged this burden when she omitted to present any evidence at all on
what she considers to be fair rental value, nor did she controvert the evidence submitted by
petitioners by way of testimonies of the real estate broker and Mina Catungal.
Sia v. CA:  xxx On the contrary, the records bear out that the P5,000.00 monthly rental is a
reasonable amount, considering that the subject lot is prime commercial real property whose value
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
be the fair rental value of the leased building since the burden of proof to show that the rental
demanded is unconscionable or exorbitant rests upon the lessee. Thus, here and now we rule, that
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.
CA erred in holding that the MR filed by petitioners is a prohibited proceeding
(procedural – skip)
According to the CA, the MR filed by petitioners before the MeTC is a prohibited pleading
under the Rule on Summary Procedure and did not have any effect in stalling the running of
the period to appeal the decision nor could it be considered as notice of appeal and
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
and executory as far as petitioners are concerned.
We disagree. A reading of the order issued by the MeTC will show that said court
elevated the issue on the amount of rentals raised by the petitioner to the RTC because
the appeal of respondent had already been perfected, thus:
Considering the Motion for Reconsideration of the Order of this Court and the Comment and
Opposition thereto of the counsel for the defendant, the Court finds the said Motion for
Reconsideration should already be addressed to the RTC considering that whatever disposition that
this Court will award will still be subject to the appeal taken by the defendant and considering further
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
matter to the Regional Trial Court who has the final say on whether the rental or the premises in
question will be raised or not.
It will be to the advantage of both parties that this Court refrain from acting on the said Motion for
Reconsideration so as to expedite the remanding (sic) of this Court to the Regional Trial Court.
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.
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.
Respondent is precluded by estoppel from doing so. To grant respondent's prayer will not only
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
frowned upon by the Court.
The CA correctly observed that the "peculiar circumstances attendant to the ejectment cases
warrant departure" from the presumption that a party who did not interject an appeal is
satisfied with the adjudication made by the lower court:
 As regard the issue on the propriety of the increase in the award of
damages/rentals made by the RTC, the Court notes that, while respondent
spouses did not formally appeal the decision in the ejectment cases, their
motion for reconsideration assailing the clarificatory order reducing the
award of damages/ rentals was, by order of the MTC, referred to the RTC
for appropriate action.
In order to avoid further injustice to a lawful possessor, an immediate execution of a
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),
Rule 70, on execution pending appeal, also applies even if the plaintiff-lessor appeals where,
as in that case, judgment was rendered in favor of the lessor but it was not satisfied with the
increased rentals granted by the trial court, hence the appeal xxx."

Reason for such action is stated in the Order of May 7, 1997, thus:
Neither petitioner nor respondent spouses assailed the above order. In fact,
respondent spouses reiterated their claim, first ventilated in their motion for
reconsideration dated March 24, 1997, that the MTC grievously erred in finding
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.
Hence, while the entrenched procedure in this jurisdiction is that a party who
has not himself appealed cannot obtain from the appellate court affirmative
relief other than those granted in the decision of the lower court, the peculiar
circumstances attendant to the ejectment cases warrant a departure
therefrom. The rule is premised on the presumption that a party who did not
interpose an appeal is satisfied with the adjudication made by the lower court.
Respondent spouses assailed it in their motion for reconsideration which,
however, was referred to the RTC for appropriate action in view of the appeal
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.
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
place of the required notice of appeal.
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.
At the time of the filing of the complaint by petitioner in 1989, said Rules provide:
As above discussed, the petitioners have long been deprived of the exercise of their
proprietary rights over the leased premises and the rightful amount of rentals at the rate of
P40,000.00 a month. Consequently, petitioners are entitled to accrued monthly rentals of
P27,000.00, which is the difference between P40,000.00 awarded by the RTC and P13,000.00
awarded by the MeTC and affirmed by the Court of Appeals. Said amount of P27,000.00
should rightly be the subject of another writ of execution being distinct from the subject
of the first writ of execution filed by petitioners.
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):
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.

SECTION 1. SCOPE - THIS RULE SHALL GOVERN THE PROCEDURE IN The back rentals in this case being equivalent to a loan or forbearance of money,
THE METROPOLITAN TRIAL COURTS, THE. MUNICIPAL TRIAL COURTS, the interest due thereon in 12% per annum from the time of extra-judicial demand
AND THE MUNICIPAL CIRCUIT TRIAL COURTS IN THE FOLLOWING on September 27, 1988.
CASES:

A. CIVIL CASES:

(1) CASES OF FORCIBLE ENTRY AND UNLAWFUL DETAINER, EXCEPT

WHERE THE QUESTION OF OWNERSHIP IS INVOLVED, OR WHERE THE
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
reconsideration of a final judgment is allowed. In the interest of substantial justice, in this
particular case, we rule that the MeTC did not err in treating the motion for
reconsideration filed by petitioner as a notice of appeal.

Petitioners’ wanting to reinstate the RTC decision when they had already applied for a
writ of execution is not a case of unjust enrichment