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ESTORES V.

SPOUSES SUPANGAN, (2012)


(Compensatory, Penalty or Indemnity Interest)
*Forbearance of money
ISSUE: Whether it is proper to impose interest for an obligation that does not involve a loan
or forbearance of money in the absence of stipulation of the parties.
HELD:
YES. Interest may be imposed even in the absence of stipulation in the contract.
Article 2210 of the Civil Code expressly provides that [i]nterest may, in the discretion of the
court, be allowed upon damages awarded for breach of contract. In this case, there is no
question that petitioner is legally obligated to return the P3.5 million because of her failure to
fulfill the obligation under the Conditional Deed of Sale, despite demand. Petitioner enjoyed
the use of the money from the time it was given to her until now. Thus, she is already in default
of her obligation from the date of demand.
Forbearance is defined as a contractual obligation of lender or creditor to refrain during a
given period of time, from requiring the borrower or debtor to repay a loan or debt then due
and payable. This definition describes a loan where a debtor is given a period within which to
pay a loan or debt. In such case, forbearance of money, goods or credits will have no distinct
definition from a loan. We believe however, that the phrase forbearance of money, goods or
credits is meant to have a separate meaning from a loan, otherwise there would have been no
need to add that phrase as a loan is already sufficiently defined in the Civil Code.
Forbearance of money, goods or credits should therefore refer to arrangements other
than loan agreements, where a person acquiesces to the temporary use of his money, goods or
credits pending happening of certain events or fulfillment of certain conditions.
In this case, the respondent-spouses parted with their money even before the conditions were
fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to use
their money pending fulfillment of the conditions. They were deprived of the use of their
money for the period pending fulfillment of the conditions and when those conditions were
breached, they are entitled not only to the return of the principal amount paid, but also to
compensation for the use of their money. And the compensation for the use of their money,
absent any stipulation, should be the same rate of legal interest applicable to a loan since the use
or deprivation of funds is similar to a loan.
Facts:
1. In Oct. 1993, Hermojina Estores and Spouses Supangan entered into a Conditional
Deed of Sale where Estores offered to sell, and Spouses offered to buy a parcel of
land in Cavite for P4.7M.
2. After almost 7 years and despite the payment of P3.5M by the Spouses, Estores still
failed to comply with her obligation to handle the peaceful transfer of ownership as
stated in 5 provisions in the contract.

3. In a letter in 2000, Spouses demanded the return of the amount within 15 days from
receipt
4. In reply, Estores promised to return the same within 120 days
5. Spouses agreed but imposed an interest of 12% annually
6. Estores still failed despite demands
7. Spouses filed a complaint with the RTC against Estores and Roberto Arias (allegedly
acted as Estores agent)
8. In Answer, Estores said they were willing to pay the principal amount but without
the interest as it was not agreed upon
a. That since the Conditional Deed of Sale provided only for the return of the
downpayment in case of breach, they cant be liable for legal interest as well
9. RTC ruled saying that the Spouses are entitled to the interest but only at 6% per
annum and also entitled to attys fees
10. On appeal, CA said that the issue to resolve is
a. whether it is proper to impose interest for an obligation that does not involve a
loan or forbearance of money in the absence of stipulation of the parties
11. CA affirmed RTC
a. That interest should start on date of formal demand by Spouses to return the
money not when contract was executed as stated by the RTC
b. That Arias not be solidarily liable as he acted as agent only and did not
expressly bind himself or exceeded his authority
12.Estores contends:
a. Not bound to pay interest because the deed only provided for the return of the
downpayment in case of failure to comply with her obligations
b. That atty fees not proper because both RTC and CA sustained her contention
that 12% interest was uncalled for so it showed that Spouses did not win
13.Spouses contend:
a. It is only fair that interest be imposed because Estores failed to return the
amount upon demand and used the money for her benefit
b. Estores failed to relocate the house outside the perimeter of the subject lot and
complete the necessary documents
c. As to the fees, they claim that they were forced to litigate when Estores
unjustly held the amount
Issue:
Is the imposition of interest and attorneys fees is proper? YES
Interest based on Art 2209 of CC (6%) or under Central Bank Circular 416 (12%)? 12%
Held:
Interest may be imposed even in the absence of stipulation in the contract.
Article 2210 of the Civil Code expressly provides that [i]nterest may, in the discretion of
the court, be allowed upon damages awarded for breach of contract.
Estores failed on her obligations despite demand.

o She admitted that the conditions were not fulfilled and was willing to return
the full amount of P3.5M but hasnt done so
o She is now in default
The interest at the rate of 12% is applicable in the instant case.
Gen Rule: the applicable interest rate shall be computed in accordance with the
stipulation of the parties
Exc: if no stipulation, applicable rate of interest shall be 12% per annum
o When obligation arises out of a loan or forbearance of money, goods or credits
In other cases, it shall be 6%
In this case, no stipulation was made
Contract involved in this case is not a loan but a Conditional Deed of
Sale.
o No question that the obligations were not met and the return of
money not made
Even if transaction was a Conditional Deed of Sale, the stipulation
governing the return of the money can be considered as a forbearance of
money which requires 12% interest
In Crismina Garments, Inc. v. Court of Appeals, Forbearance-- contractual obligation
of lender or creditor to refrain during a given period of time, from requiring the borrower
or debtor to repay a loan or debt then due and payable.
o In such case, forbearance of money, goods or credits will have no distinct
definition from a loan.
o however, the phrase forbearance of money, goods or credits is meant to have a
separate meaning from a loan, otherwise there would have been no need to add that
phrase as a loan is already sufficiently defined in the Civil Code
o Forbearance of money, goods or credits should therefore refer to arrangements
other than loan agreements, where a person acquiesces to the temporary use of his
money, goods or credits pending happening of certain events or fulfillment of
certain conditions.
Estores unwarranted withholding of the money amounts to forbearance of money which
can be considered as an involuntary loan so rate is 12% starting in Sept. 2000
The award of attorneys fees is warranted.
no doubt that the Spouses were forced to litigate to protect their interest, i.e., to recover
their money. The amount of P50,000.00 more appropriate