Republic v.

Sandiganbayan
G.R. No. 166859, G.R. No. 169203, G.R. No. 180702, April 12, 2011
FACTS:

The Republic commenced Civil Case No. 0033 in the Sandiganbayan by complaint, impleading
as defendants respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and 59 individual defendants.
Cojuangco allegedly purchased a block of 33,000,000 shares of SMC stock through the 14
holding companies owned by the CIIF Oil Mills. For this reason, the block of 33,133,266 shares of
SMC stock shall be referred to as the CIIF block of shares.

Contention of the Republic of the Philippines:

That Cojuangco is the undisputed "coconut king" with unlimited powers to deal with the
coconut levy funds, who took undue advantage of his association, influence and connection,
acting in unlawful concert with Defendants Ferdinand E. Marcos, misused coconut levy funds
to buy out majority of the outstanding shares of stock of San Miguel Corporation.

Defendants Eduardo Cojuangco, Jr., and ACCRA law offices plotted, devised, schemed,
conspired and confederated with each other in setting up, through the use of coconut levy
funds, the financial and corporate framework and structures that led to the establishment of
UCPB, UNICOM, COCOLIFE, COCOMARK. CIC, and more than twenty other coconut levyfunded corporations, including the acquisition of San Miguel Corporation shares and its
institutionalization through presidential directives of the coconut monopoly.

Ruling of the Sandiganbayan:

Amended Complaint in Civil Case No. 0033-F was dismissed for failure of plaintiff to prove by
preponderance of evidence its causes of action against defendants with respect to the twenty
percent (20%) outstanding shares of stock of San Miguel Corporation registered in
defendants names

Republic of the Philippines appealed the case to the Supreme Court invoking that coconut levy
funds are public funds. The SMC shares, which were acquired by respondents Cojuangco, Jr.
and the Cojuangco companies with the use of coconut levy funds in violation of respondent
Cojuangco, Jr.s fiduciary obligation are, necessarily, public in character and should be
reconveyed to the government.

ISSUE:

Whether Respondent Cojuangco Jr. used the coconut levy funds to acquire SMC shares in
violation of the his fiduciary obligation as a public officer.

Ruling of the Supreme Court:

Cojuangco violated no fiduciary duties
It does not suffice, as in this case, that the respondent is or was a government official or
employee during the administration of former Pres. Marcos. There must be a prima facie showing that the

respondent unlawfully accumulated wealth by virtue of his close association or relation with former Pres.
Marcos and/or his wife.
Republics burden to establish by preponderance of evidence that respondents SMC shares had
been illegally acquired with coconut-levy funds was not discharged.
The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee
using trust funds to purchase, or a person acquiring property through mistake or fraud), and Section 31 of
the Corporation Code (like a director or trustee willfully and knowingly voting for or assenting to patently
unlawful acts of the corporation, among others) require factual foundations to be first laid out in
appropriate judicial proceedings. Hence, concluding that Cojuangco breached fiduciary duties as an
officer and member of the Board of Directors of the UCPB without competent evidence thereon would be
unwarranted and unreasonable.
Thus, the Sandiganbayan could not fairly find that Cojuangco had committed breach of any
fiduciary duties as an officer and member of the Board of Directors of the UCPB. For one, the Amended
Complaint contained no clear factual allegation on which to predicate the application of Articles 1455 and
1456 of the Civil Code, and Section 31 of the Corporation Code. Although the trust relationship
supposedly arose from Cojuangcos being an officer and member of the Board of Directors of the UCPB,
the link between this alleged fact and the borrowings or advances was not established. Nor was there
evidence on the loans or borrowings, their amounts, the approving authority, etc. As trial court, the
Sandiganbayan could not presume his breach of fiduciary duties without evidence showing so, for fraud
or breach of trust is never presumed, but must be alleged and proved.
The thrust of the Republic that the funds were borrowed or lent might even preclude any
consequent trust implication but is more inclined to be a contract of loan. To say that a relationship is
fiduciary when existing laws do not provide for such requires evidence that confidence is reposed by one
party in another who exercises dominion and influence. Absent any special facts and circumstances
proving a higher degree of responsibility, any dealings between a lender and borrower are not fiduciary in
nature.
DISPOSITION:
The Court DISMISSES the petitions for certiorari and, AFFIRMS the decision promulgated by the
Sandiganbayan on November 28, 2007 in Civil Case No. 0033-F.
The Court declares that the block of shares in San Miguel Corporation in the names of
respondents Cojuangco, et al. subject of Civil Case No. 0033-F is the exclusive property of Cojuangco, et
al. as registered owners.

[G.R. No. 184698, January 21, 2013]

SPOUSES ALBERTO AND SUSAN CASTRO, Petitioners, v. AMPARO PALENZUELA, FOR
HERSELF AND AS AUTHORIZED REPRESENTATIVE OF VIRGINIA ABELLO, GERARDO
ANTONIO ABELLO, ALBERTO DEL ROSARIO, INGEBORG REGINA DEL ROSARIO,
HANS DEL ROSARIO, MARGARET DEL ROSARIO ISLETA, ENRIQUE PALENZUELA
AND CARLOS MIGUEL PALENZUELA, Respondents.

DECISION
DEL CASTILLO, J.:
A demand letter presented in evidence by a lessee to prove a lesser liability for unpaid
rentals than that awarded by the trial court constitutes an admission of liability to the extent
of such lesser amount.
This Petition for Review on Certiorari1 assails the January 29, 2008 Decision2 of the Court of
Appeals (CA) which dismissed the appeal in CA-G.R. CV No. 86925, and its September 15,
2008 Resolution3 denying petitioners Motion for Reconsideration.
Factual Antecedents
Respondents Amparo Palenzuela, Virginia Abello, Gerardo Antonio Abello, Alberto Del
Rosario, Ingeborg Regina Del Rosario, Hans Del Rosario, Margaret Del Rosario Isleta,
Enrique Palenzuela and Carlos Miguel Palenzuela own several fishponds in Bulacan, Bulacan
totaling 72 hectares.4 In March 1994, respondents, through their duly appointed attorneyin-fact and co-respondent Amparo Palenzuela, leased out these fishponds to petitioners,
spouses Alberto and Susan Castro. The lease was to be for five years, or from March 1,
1994 up to June 30, 1999.5 The Contract of Lease6 of the parties provided for the following
salient provisions:
1. For the entire duration of the lease, the Castro spouses shall pay a total consideration of
P14,126,600.00,7 via postdated checks8 and according to the following schedule:
a. Upon signing of the lease agreement, petitioners shall pay P842,300.00 for the lease
period March 1, 1994 to June 30, 1994;9
b. On or before June 1, 1994, petitioners shall pay P2,520,000.00 for the one-year
lease period July 1, 1994 to June 30, 1995;10
c. On or before June 1, 1995, petitioners shall pay P2,520,000.00 for the one-year
lease period July 1, 1995 to June 30, 1996;11
d. On or before June 1, 1996, petitioners shall pay P2,520,000.00 for the one-year
lease period July 1, 1996 to June 30, 1997;12
e. On or before June 1, 1997, petitioners shall pay P2,796,000.00 for the one-year
lease period July 1, 1997 to June 30, 1998;13 and
f.

On or before June 1, 1998, petitioners shall pay P2,928,300.00 for the one-year
lease period July 1, 1998 to June 30, 1999.14

2. Petitioners committed to pay respondents the amount of P500,000.00 in five yearly

installments from June 1, 1994. The amount represents arrears of the previous lessee,
which petitioners agreed to assume;15
3. Petitioners shall exercise extraordinary care and diligence in the maintenance of the
leased premises, with the obligation to maintain in good order, repair and condition, among

others, two warehouses found thereon;16

4. Necessary repairs,17 licenses, permits, and other fees18 necessary and incidental to the
operation of the fishpond shall be for petitioners account;
5. Petitioners shall not sublease the premises to third parties;19 and,
6. Should respondents be constrained to file suit against petitioners on account of the lease,
the latter agrees to pay liquidated damages in the amount of P1,000,000.00, 25% as
attorneys fees, and costs of the suit.20
The lease expired on June 30, 1999, but petitioners did not vacate and continued to occupy
and operate the fishponds until August 11, 1999, or an additional 41 days beyond the
contract expiration date.
Previously, or on July 22, 1999, respondents sent a letter21 to petitioners declaring the latter
as trespassers and demanding the settlement of the latters outstanding obligations,
including rent for petitioners continued stay within the premises, in the amount of
P378,451.00, broken down as follows:
Unpaid balance as of May 31, 1999 for the fifth
year of the lease
Accrued interest from May 31, 1999 to July 31,
1999 at 16%
Trespassing fee for the whole month of July
1999

P111,082.00
23,344.00
244,025.0022
P378,451.00

Total owed to the Lessors

Petitioners are in actual receipt of this letter.23
On June 8, 2000,24 respondents instituted Civil Case No. Q-00-41011 for collection of a sum
of money with damages in the Regional Trial Court (RTC) of Quezon City, Branch 215,
claiming that petitioners committed violations of their lease agreement non-payment of
rents as stipulated, subletting the fishponds, failure to maintain the warehouses, and refusal
to vacate the premises on expiration of the lease which caused respondents to incur actual
and liquidated damages and other expenses in the respective amounts of P570,101.0025 for
unpaid rent, P275,430.0026 for unpaid additional rent for petitioners one-month extended
stay beyond the contract date, and P2,000,000.0027 for expenses incurred in restoring and
repairing their damaged warehouses. In addition, respondents prayed to be awarded moral
and exemplary damages, attorneys fees, and costs of litigation.28
For failure to file their Answer, petitioners were declared in default,29 and on August 16,
2000, during the presentation of evidence for the plaintiffs, respondent Amparo Palenzuela
testified, detailing petitioners several violations of the lease contract; petitioners failure to
maintain the warehouses in good condition; their unauthorized subleasing of the premises
to one Cynthia Reyes; their failure to pay the license fees, permits and other fees; their
extended stay for 41 days, or until August 11, 1999 despite expiration of the lease on June
30, 1999; and petitioners unpaid rents in the aggregate amount of P863,796.00, interest
included.30
During said proceedings, respondents presented in evidence a statement of
account31 detailing petitioners outstanding obligations as of July 31, 1999.

In a subsequent Order,32 the trial court, on petitioners motion, lifted its previous Order of
default, and the latter were given the opportunity to cross-examine respondents witnesses
which they failed to do. Moreover, they also failed to attend subsequent scheduled
hearings. The trial court thus declared the forfeiture, on waiver, of petitioners rights to
cross-examine and present their evidence, and considered the case submitted for decision
based solely on respondents evidence.33 However, on petitioners motion,34the trial court
again reconsidered, and scheduled the presentation of their evidence on October 5, 2001. 35
However, petitioners moved to reset the October 5, 2001 hearing. 36 After several
postponements, the trial was reset to April 11, 2002.37 On said date, the testimony of the
first witness for the defense, petitioner Alberto Castro, was taken and completed. Crossexamination was scheduled on May 30, 2002,38 but was rescheduled to be taken on August
21, 2002.39
On August 21, 2002, petitioners once more failed to appear; the trial court, in an Order 40 of
even date, decreed that petitioner Alberto Castros testimony be stricken off the record and
declared the case submitted for decision. Petitioners moved for
reconsideration;41 respondents opposed,42 noting that for more than two years and in spite
of several opportunities afforded them, petitioners have been unable to participate in the
proceedings and present their evidence. The trial court did not reconsider.43
Petitioners took issue in the CA via Petition for Certiorari,44 but the appellate court, in a
February 18, 2004 Decision,45 sustained the trial court and declared that no grave abuse of
discretion was committed when it ordered the striking out of petitioner Alberto Castros
testimony and the termination of trial.
Petitioners next filed a Motion to Inhibit46 claiming that they could not obtain justice and a
fair trial from the presiding judge. In her April 21, 2003 Order,47 Judge Ma. Luisa QuijanoPadilla voluntarily inhibited herself from trying the case. She stressed, however, that she
was doing so only in order that the probity and objectivity of the court could be maintained,
but not because petitioners grounds for seeking inhibition are meritorious.
The case was then re-raffled to Branch 85 of the Quezon City RTC, which required the
parties to submit memoranda.48 While respondents submitted theirs, petitioners did not.
Ruling of the Regional Trial Court
On January 31, 2005, the trial court issued its Decision,49 decreeing as follows:
WHEREFORE, judgment is hereby rendered ordering the defendants, jointly and severally,
to pay plaintiffs the following:
1. Eight Hundred Sixty-three Thousand Seven Hundred Ninety Six Pesos (P863,796.00),
by way of actual or compensatory damages;
2. Fifty Thousand Pesos (P50,000.00), by way of moral damages;
3. Fifty Thousand Pesos (P50,000.00), by way of exemplary damages;
4. The amount equivalent to twenty-five (25%) percent of the total amount recoverable
herein by plaintiffs, by way of attorneys fees; and

5. Costs of suit.
SO ORDERED.50
The trial court held that petitioners violated the terms of the lease: 51 petitioners failed to
pay rent on time,52 the warehouses were shown to be in damaged condition,53 and they
overstayed beyond the contract period.54 However, respondents failed to prove the actual
amount of their pecuniary losses in regard to the damaged warehouses, which entitles them
merely to nominal damages.55 As to moral damages, the trial court held that because
petitioners acted in gross and wanton disregard of their contractual obligations, respondents
are entitled to such damages, as well as attorneys fees as stipulated at 25% of the total
amount recoverable.56
With respect to petitioners, the trial court said that although they claim to have paid all their
obligations in full, no evidence to such effect has been presented,57 for the precise reason
that they failed to participate in the proceedings on their own account.
Both parties moved for reconsideration. Respondents prayed that petitioners be made
additionally liable for liquidated damages and P2,000,000.00 as compensation for the
restoration of the damaged warehouses.58
Petitioners, in their Verified Motion for Reconsideration,59 argued that the evidence is not
sufficient to warrant a finding of liability on their part, and the award is excessive. They
claimed that they should not be made to pay additional rent for their unauthorized stay
beyond the lease expiration date, or from July 1 to August 11, 1999, because the lease
agreement did not provide for such. Likewise, they claimed that, as represented by
respondents themselves in their July 22, 1999 demand letter,60 which they annexed to their
Verified Motion for Reconsideration and was presented to the court for the first time,
petitioners outstanding obligation, including back rentals, interest, and the supposed onemonth additional rent, was pegged at a mere P378,451.00; thus, the judgment award of
P863,796.00 is excessive and illegal. Petitioners added that there is no factual basis for the
award of moral and exemplary damages. Thus, they prayed that the Decision be
reconsidered and that the Complaint be dismissed.
In a January 30, 2006 Omnibus Order,61 the trial court declined to reconsider. Only
petitioners went up to the CA on appeal.
Ruling of the Court of Appeals
In the CA, petitioners maintained that the Decision is erroneous and the awards excessive,
echoing their previous argument below that the lease agreement did not authorize
respondents to charge additional rents for their extended stay and interest on delayed
rental payments. They added that respondents are not entitled to moral and exemplary
damages and attorneys fees. Finally, they bemoaned the trial courts act of resolving their
Verified Motion for Reconsideration of the Decision without conducting oral arguments.
The CA, however, was unconvinced. It held that the preponderance of evidence,62 which
remained uncontroverted by petitioners, points to the fact that petitioners indeed failed to
pay rent in full, considering that their postdated checks bounced upon presentment, 63 and
their unauthorized extended stay from July 1 until August 11, 1999.64 It added that
petitioners were undeniably guilty of violating several provisions of the lease agreement, as
it has also been shown that they failed to pay rent on time and illegally subleased the
property to one Cynthia Reyes, who even made direct payments of rentals to respondents

on several occasions.65
On petitioners argument that respondents are not entitled to additional rent for petitioners
extended stay beyond the lease expiration date, the CA held that the respondents are in
fact authorized to collect whatever damages they may have incurred by reason of the
lease,66 citing Section 16 of the lease agreement which provides as follows:
SECTION 16. TERMINATION OR CANCELLATION OF THE LEASE. Any delay in or violation,
failure or refusal of the LESSEE to perform and comply with any of the obligations stipulated
hereunder shall automatically give an absolute right to the LESSORS to cancel, terminate or
otherwise rescind this Contract of Lease. x x x.
xxxx
The above provisions shall, however, be without prejudice to any right of claim by
the LESSORS against the LESSEE for whatever damages which may be incurred or
assessed under this Contract of Lease.67 (Emphasis supplied)
The CA found no error in the award of moral and exemplary damages, noting that
petitioners violations of the lease agreement compelled respondents to litigate and endure
unreasonable delays, sleepless nights, mental anguish, and serious anxiety.68 As for
attorneys fees, the CA sustained the trial courts award of 25%, saying that such stipulation
may be justified under Article 2208 of the Civil Code.69 Since respondents were compelled
to incur expenses to protect their interests as a result of petitioners acts and omissions,
they should be allowed to collect the stipulated attorneys fees.70
Finally, the CA held that the matter of conducting further oral arguments on a partys Motion
for Reconsideration rests upon the sound discretion of the court. Because petitioners
Verified Motion for Reconsideration is a mere reiteration of their defenses which they raised
all throughout the proceedings below, conducting a hearing on the motion would have been
a mere superfluity.71
The CA thus dismissed the petitioners appeal and sustained in toto the January 31, 2005
decision of the trial court.72 Their Motion for Reconsideration73 was denied as well, through
the questioned September 15, 2008 Resolution.74
Issues
The instant Petition thus raises the following issues:
A
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT CALLING THE TRIAL
COURT TO TASK FOR REFUSING TO RECEIVE EVIDENCE IN SUPPORT OF THE VERIFIED
MOTION FOR RECONSIDERATION OF PETITIONERS ON THE GROUND THAT THE AWARD OF
DAMAGES IS EXCESSIVE.
B
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT DISCERNING THE
INTERNAL FACTUAL INCONSISTENCIES OF THE FINDINGS OF THE TRIAL COURT AS WELL
AS THE LACK OF LEGAL BASIS THEREOF, VIS--VIS THE CLAIM OF UNPAID RENT AND

INTEREST, IN CLEAR DISREGARD OF THE PRONOUNCEMENTS OF THIS HONORABLE COURT

IN MARTIN V. COURT OF APPEALS.
C
THERE IS SIMILARLY NO BASIS FOR THE AWARD OF MORAL AND EXEMPLARY DAMAGES,
AND THE HONORABLE COURT OF APPEALS WAS IN GRIEVOUS ERROR IN SUSTAINING THE
TRIAL COURT IN CLEAR DISREGARD OF THIS HONORABLE COURTS PRONOUNCEMENTS
INABS-CBN BROADCASTING CORPORATION V. COURT OF APPEALS. 75
Petitioners Arguments
Petitioners pray for the setting aside of the questioned Decision and Resolution of the CA, as
well as the dismissal of respondents Complaint, claiming that they have in fact settled all
their obligations to respondents.
Petitioners first claim that they should have been given the opportunity to present evidence
during proceedings covering their Verified Motion for Reconsideration of the trial courts
Decision, invoking Section 1, Rule 37 of the Rules of Court76 which allows them to question
the trial courts Decision on the ground that the damages awarded are excessive or that the
evidence is insufficient to justify the Decision.77
Petitioners direct the Courts attention to respondents July 22, 1999 demand
letter78 indicating that their outstanding obligation was only P378,451.00, which thus
renders excessive the award of P863,796.00.
Petitioners next insist that the lease agreement did not authorize respondents to charge
additional rents for their July 1 to August 11, 1999 extended stay,79 which thus renders
without legal or factual basis and excessive the award of P863,796.00.80 If at all, the basis
for computation thereof should be the immediately preceding monthly rental of
P244,025.00.81 Nor is the imposition of interest allowed under the agreement. Petitioners
concede that in the absence of stipulation as to interest, respondents are entitled only to
6% annual interest as indemnity for damages,82 pursuant to Article 2209 of the Civil Code.83
On the issue of petitioners contract violations, it is claimed that petitioners are not guilty of
subleasing the property to one Cynthia Reyes (Reyes). They argue that although Reyes paid
a portion of the rentals, this may not be taken as sufficient proof of the existence of a
sublease agreement between them; and even assuming that a sublease agreement indeed
existed between them, such arrangement was condoned by respondents when they
accepted payments of rents made directly to them by Reyes.84
Regarding damages and attorneys fees, petitioners maintain that there could not have been
delay in the payment of rentals as to warrant the award of moral damages, since they have
paid the rents in full; their supposed liability was only for the additional rent incurred for
their extended stay. Petitioners proceed to argue that if only respondents had exercised
their option allowed under the lease agreement to forcibly evict petitioners from the
premises, then they would not have incurred the damages they claim to be entitled to. As
for the award of exemplary damages and attorneys fees, petitioners find no factual and
legal bases for the grant thereof. Since they did not act with malice or bad faith in all
matters relative to the lease, respondents should not be entitled thereto.85
Respondents Arguments

In their Comment,86 respondents insist that petitioners committed several violations of the
lease agreement,87 specifically: for their failure to pay the rents on time,88 for subleasing the
property to Reyes,89 for neglecting to maintain the warehouses which resulted in their
damaged condition after the lease,90 for refusing to vacate the premises upon the expiration
of the lease,91 and for their neglect and refusal to pay the required fishpond license and
permit fees imposed by the municipality of Bulacan.92 Respondents add that for these
violations, they incurred actual damages and suffered moral damages, which further entitles
them to exemplary damages and attorneys fees as stipulated in the lease agreement. 93
Respondents insist that far from being excessive, the trial courts award is instead
insufficient, considering the damages suffered as a result of the petitioners neglect to
maintain the premises, specifically the warehouses, as agreed.
Respondents maintain that in the event of expiration of the lease period and the lessee
maintains himself within the premises, the law authorizes the collection of rentals on a
month-to-month or year-to-year basis,94 citing Articles 1670 and 1687 of the Civil Code.95
Thus, even if the lease agreement with petitioners failed to provide for a stipulation covering
lease extension, the obligation to pay rent is not extinguished by the expiration of the lease
on June 30, 1999.96
Respondents further claim that interest should be paid at 12% per annum, and not merely
6%, on the outstanding obligation.97
Our Ruling
While this Court is not a trier of facts, it appears that both the trial court and the CA have
misappreciated the facts and the evidence; rectification is thus in order, if justice is to be
properly served.
But first, on the procedural issue raised, the Court cannot subscribe to petitioners argument
that they had a right to a hearing on their motion for reconsideration. The trial court may
not be faulted for denying what it could have perceived was another of petitioners delaying
tactics, given how they acted throughout the proceedings. It may have been a baffling
situation for the trial court to find itself suddenly confronted with petitioners zeal in
presenting their case, at such a late stage, when they have repeatedly waived such right
during the trial of the case. Indeed, it possessed sufficient discretion to grant or deny the
hearing sought for their motion for reconsideration; under the circumstances, the Court
finds that such discretion was exercised soundly. Besides, as will be seen, the evidence is
ample and clear enough to warrant judgment outside of a hearing.
Both courts erred in finding that there are outstanding rents owing to the respondents in the
amount of P863,796.00. Attention must be called to respondents July 22, 1999 demand
letter.98 The letter, which appears to have been handwritten and signed by Amparo
Palenzuela herself, makes a demand upon petitioners to pay the total amount of
P378,451.00 which respondents claim constitutes what is owing to them as of July 31, 1999
by way of unpaid rentals (P111,082.00); additional rent for the whole duration of
petitioners stay on the premises beyond the contract date, or for the whole of July 1999
(P244,025.00); and interest from May 31, 1999 up to July 31, 1999 (P23,344.00). This
letter belies the claim that petitioners owed respondents a greater amount by way of unpaid
rents. Even though it is not newly-discovered evidence, it is material; indeed, petitioners
could not have presented it during trial because they were declared in default.
Of this amount P378,451.00 petitioners admit to paying nothing. Thus, for petitioners,

this is their admitted liability.

The Court notes further that respondents do not even dispute petitioners argument that the
amount of P863,796.00 actually represented rentals being claimed for their one-month
extended stay on the premises, which to them is excessive. This argument of the
petitioners finds support in the direct testimony of respondents witness, Amparo
Palenzuela, thus
Q
A

x x x Madam Witness, you mentioned x x x that the defendants have outstanding

obligation to you. Can you tell the Court how much is the outstanding obligation to
you of the defendants with respect to their occupation of your fishponds?
Up to July 31, 2000,99 Mr. Castros obligation is P863,796.00.

Q
A

Can you briefly explain to the Court how you came about this figure?
Actually this is what he owes for back lease that he has not paid including interest.
This one is supposedly for overstaying of one month. We did not charge him 41
days, we are only charging him one month and that is the total.100

Q
A

With respect to this P863,796.00 this is the total as of July?

July 31.

Q
A

2000?101
Thats right.

Q
A

And this pertains to unpaid rent and interest thereof?

Thats right.

Q
A

The stipulated interest thereof?

Thats right.

Q
A

And with respect to damages which you expect to incur is not yet included in this?
Yes.

Q
A

And the unpaid municipal fees are also not included in this?
Not included but they have been paid.102 (Emphasis supplied)

Indeed, respondents do not deny that this amount of P863,796.00 is what they are actually
charging petitioners for one months extended use of their fishponds. If this is so, then it is
truly excessive, considering that for the immediately preceding month the whole of June
1999 it costs only P244,025.00103 for the petitioners to rent the same property. The trial
court may have been impelled to accept respondents own computation104 of what they
believed was due from petitioners on account of the fact that at that time, petitioners were
declared in default and could not cross-examine the respondents witness. But the fact
remains that the July 22, 1999 demand letter105 clearly sets forth in detail what appears to
be the true, accurate and reasonable amount of petitioners outstanding obligation. If this
document were a forgery, respondents would have vehemently objected to its presentation
at the very first opportunity. Yet they did not. Such document could thus be considered
and given weight. [T]he omission x x x to rebut that which would have naturally invited
an immediate, pervasive and stiff opposition x x x create[s] an adverse inference that either
the controverting [evidence] x x x presented x x x will only prejudice its case, or that the
uncontroverted evidence indeed speaks of the truth.106
As for petitioners submission that respondents were not authorized to charge additional

rent for their extended stay, this issue should be deemed settled by their very reliance on
the July 22, 1999 demand letter,107 where a charge for additional rent for their extended
stay in the amount of P244,025.00 is included. By adopting the letter as their own evidence
in seeking a reduction in the award of unpaid rent, petitioners are considered to have
admitted liability for additional rent as stated therein, in the amount of P244,025.00.
Petitioners may not simultaneously accept and reject the demand letter; this would go
against the rules of fair play. Besides, respondents are correct in saying that when the
lease expired on June 30, 1999 and petitioners continued enjoying the premises without
objection from the respondents, an implied new lease was created pursuant to Article 1670
of the Civil Code, which placed upon petitioners the obligation to pay additional rent.
On the matter of interest, the proper rate is not 6% as petitioners argue, but 12% per
annum, collected from the time of extrajudicial demand on July 22, 1999. Back rentals in
this case are equivalent to a loan or forbearance of money.108
On the issue of moral and exemplary damages, the Court finds no reason to disturb the trial
and appellate courts award in this regard. Petitioners have not been exactly above-board in
dealing with respondents. They have been found guilty of several violations of the
agreement, and not just one. They incurred delay in their payments, and their check
payments bounced, for one; for another, they subleased the premises to Reyes, in blatant
disregard of the express prohibition in the lease agreement; thirdly, they refused to honor
their obligation, as stipulated under the lease agreement, to pay the fishpond license and
other permit fees and; finally, they refused to vacate the premises after the expiration of
the lease.
Even though respondents received payments directly from the sublessee Reyes, this could
not erase the fact that petitioners are guilty of subleasing the fishponds to her.
Respondents may have been compelled to accept payment from Reyes only because
petitioners have been remiss in honoring their obligation to pay rent.
Bad faith means breach of a known duty through some motive or interest or ill will.109 By
refusing to honor their solemn obligations under the lease, and instead unduly profiting from
these violations, petitioners are guilty of bad faith. Moral damages may be awarded when
the breach of contract is attended with bad faith.110 Exemplary damages may [also] be
awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner x x x. [And] since the
award of exemplary damages is proper in this case, attorneys fees and costs of the suit
may also be recovered,111 as stipulated in the lease agreement.
WHEREFORE, premises considered, the Petition is DENIED. The January 29, 2008
Decision of the Court of Appeals in CA-G.R. CV No. 86925 which affirmed in toto the January
31, 2005 Decision of the Regional Trial Court of Quezon City, Branch 85 in Civil Case No. Q00-41011 is AFFIRMED with theMODIFICATION that the actual and compensatory
damages are reduced to P378,451.00, the same to earn legal interest at the rate of twelve
percent (12%) per annum from July 22, 1999 until fully paid.
SO ORDERED.

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S.

PANTALEON vs ARTHUR F. MENCHAVEZ
G.R. No. 160545; March 9, 2010

FACTS:
December 8, 1993, Pantaleon, President and Chairman of the Board of PRISMA, obtained a P1M loan
from the respondent, with monthly interest of P40,000.00 payable for 6 months, or a total obligation of
P1,240,000.00 payable within 6 mos. To secure the payment of the loan, Pantaleon issued a promissory.
Pantaleon signed the promissory note in his personal capacity and as duly authorized by the Board of
Directors of PRISMA. The petitioners failed to completely pay the loan within the 6-month period.

As of January 4, 1997, respondent found that the petitioners still had an outstanding balance of
P1,364,151.00, to which respondent applied a 4% monthly interest.

On August 28, 1997, respondent filed a complaint for sum of money to enforce the unpaid balance, plus
4% monthly interest. In their Answer, the petitioners admitted the loan of P1,240,000.00, but denied the
stipulation on the 4% monthly interest, arguing that the interest was not provided in the promissory note.
Pantaleon also denied that he made himself personally liable and that he made representations that the
loan would be repaid within six (6) months.

RTC found that the respondent issued a check for P1M in favor of the petitioners for a loan that would
earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month period. RTC
ordered the petitioners to jointly and severally pay the respondent the amount of P3,526,117.00 plus 4%
per month interest from February 11, 1999 until fully paid.

Petitioners appealed to CA insisting that there was no express stipulation on the 4% monthly interest. CA
favored respondent but noted that the interest of 4% per month, or 48% per annum, was unreasonable
and should be reduced to 12% per annum. MR denied hence this petition.

ISSUE:
Whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest apply to
the 6-month payment period only or until full payment of the loan?

RULING:
Petition is meritorious. Interest due should be stipulated in writing; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith. When the terms of a contract are clear and leave no doubt as to the intention
of the contracting parties, the literal meaning of its stipulations governs. Courts have no authority to alter
the contract by construction or to make a new contract for the parties; a courts duty is confined to the
interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the
court cannot supply material stipulations or read into the contract words the contract does not contain. It
is only when the contract is vague and ambiguous that courts are permitted to resort to the interpretation
of its terms to determine the parties intent.

In the present case, the respondent issued a check for P1M. In turn, Pantaleon, in his personal capacity
and as authorized by the Board, executed the promissory note. Thus, the P1M loan shall be payable within
6 months. The loan shall earn an interest of P40,000.00 per month, for a total obligation of
P1,240,000.00 for the six-month period. We note that this agreed sum can be computed at 4% interest
per month, but no such rate of interest was stipulated in the promissory note; rather a fixed sum
equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that no interest shall be due unless it has been
expressly stipulated in writing. The payment of interest in loans or forbearance of money is allowed only
if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment
of interest was reduced in writing. The concurrence of the two conditions is required for the payment of
interest at a stipulated rate. The collection of interest without any stipulation in writing is prohibited by
law.

The interest of P40,000.00 per month corresponds only to the six-month period of the loan, or from
January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the
interest on the loan should be at the legal interest rate of 12% per annum.

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 facts show that the parties agreed to the payment of a specific sum of money of P40,000.00 per
month for six months, not to a 4% rate of interest payable within a 6-month period.

No issue on the excessiveness of the stipulated amount of P40,000.00 per month was ever put in issue by
the petitioners; they only assailed the application of a 4% interest rate, since it was not agreed upon.

It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses,
terms and conditions they have agreed to, which is the law between them, the only limitation being that
these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public

policy. The payment of the specific sum of money of P40,000.00 per month was voluntarily agreed upon
by the petitioners and the respondent. There is nothing from the records and, in fact, there is no allegation
showing that petitioners were victims of fraud when they entered into the agreement with the respondent.

Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per month for a period of 6
months, for a total principal and interest amount of P1,240,000.00. Thereafter, interest at the rate of 12%
per annum shall apply. The amounts already paid by the petitioners during the pendency of the suit,
amounting toP1,228,772.00 as of February 12, 1999, should be deducted from the total amount due,
computed as indicated above. We remand the case to the trial court for the actual computation of the total
amount due.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the Decision CA

S.C. Megaworld Construction and Development Corporation

(petitioner) bought electrical lighting materials from Genlite Industries,
a sole proprietorship owned by Engineer Luis U. Parada (respondent), for its Read-Rite project in
Canlubang, Laguna. The petitioner was
unable to pay for the above purchase on due date, but blamed it on
its failure to collect under its sub-contract with the Enviro Kleen
Technologies, Inc. (Enviro Kleen). It was however able to persuade
Enviro Kleen to agree to settle its above purchase, but after paying
the respondent P250,000.00 on June 2, 1999,4 Enviro Kleen stopped
making further payments, leaving an outstanding balance of
P816,627.00. It also ignored the various demands of the respondent,
who then filed a suit in the RTC. The petitioner in its answer denied liability, claiming that it was
released from its indebtedness to the respondent by reason of the
novation of their contract, which, it reasoned, took place when the latter
accepted the partial payment of Enviro Kleen in its behalf, and thereby
acquiesced to the substitution of Enviro Kleen as the new debtor in the
petitioners place.
On appeal to the CA, the petitioner maintained that the trial
court erred in ruling that no novation of the contract took place
through the substitution of Enviro Kleen as the new debto
ISSUES:
NOVATION

REAL PARTY IN INTEREST ~ GENTILE? PARADA?

Novation is a mode of extinguishing an obligation by changing its
objects or principal obligations, by substituting a new debtor in place of the
old one, or by subrogating a third person to the rights of the creditor.27 It is
the substitution of a new contract, debt, or obligation for an existing one
between the same or different parties.28 Article 1293 of the Civil Code
defines novation as follows:
Art. 1293. Novation which consists in substituting a new debtor in
the place of the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him rights mentioned in Articles 1236
and 1237.
Thus, in order to change the person of the debtor, the former
debtor must be expressly released from the obligation, and the third
person or new debtor must assume the formers place in the
contractual relation.29 Article 1293 speaks of substitution of the debtor,
which may either be in the form of expromision or delegacion, as
seems to be the case here. In both cases, the old debtor must be
released from the obligation, otherwise, there is no valid novation. As
explained in Garcia30:
In general, there are two modes of substituting the person of the
debtor: (1) expromision and (2) delegacion. In expromision, the initiative
for the change does not come fromand may even be made without the
knowledge ofthe debtor, since it consists of a third persons assumption
of the obligation. As such, it logically requires the consent of the third
person and the creditor. In delegacion, the debtor offers, and the creditor
accepts, a third person who consents to the substitution and assumes the
obligation; thus, the consent of these three persons are necessary. Both
modes of substitution by the debtor require the consent of the creditor.31
(Citations omitted)
From the circumstances obtaining below, we can infer no clear and
unequivocal consent by the respondent to the release of the petitioner from
the obligation to pay the cost of the lighting materials. In fact, from the
letters of the respondent to Enviro Kleen, it can be said that he retained his
option to go after the petitioner if Enviro Kleen failed to settle the
petitioners debt. As the trial court held:
The fact that Enviro Kleen Technologies, Inc. made payments to
the [respondent] and the latter accepted it does not ipso facto result in
novation. Novation to be given its legal effect requires that the creditor
should consent to the substitution of a new debtor and the old debtor be
released from its obligation (Art. 1293, New Civil Code). A reading of the
letters dated 14 April 1999 (Exh. 1) and dated 16 June 1999 (Exh[s]. 4 &
4-a) sent by the [respondent] to Enviro Kleen Technologies, Inc. clearly
shows that there was nothing therein that would evince that the
[respondent] has consented to the exchange of the person of the debtor
from the [petitioner] to Enviro Kleen Technologies, Inc.
The settled rule is that novation is never presumed,33 but must
be clearly and unequivocally shown.34
It appears from the recital of facts in the trial courts decision that the
respondent demanded interest of two percent (2%) per month upon the
balance of the purchase price of P816,627.00, from judicial demand until
full payment. There is then an obvious clerical error committed in the fallo

of the trial courts decision, for it incorrectly ordered the defendant therein
to pay the sum equivalent to twenty percent (20%) per month of the
principal obligation due from date of judicial demand until fully paid as and
for interest.42
A clerical mistake is one which is visible to the eyes or obvious to the
understanding; an error made by a clerk or a transcriber; a mistake in
copying or writing.43 The Latin maxims Error placitandi aequitatem non
tollit (A clerical error does not take away equity), and Error scribentis
nocere non debit (An error made by a clerk ought not to injure; a clerical
error may be corrected) are apt in this case.44 Viewed against the landmark
case of Medel v. CA45, an award of interest of 20% per month on the amount
due is clearly excessive and iniquitous. It could not have been the intention
of the trial court, not to mention that it is way beyond what the plaintiff had
prayed for below.
Article 2209 of the Civil Code provides that [i]f the obligation
consists in the payment of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon, and in the absence of stipulation,
the legal interest, which is six percent per annum. Pursuant to the said
provision, then, since there is no finding of a stipulation by the parties as to
the imposition of interest, only the amount of 12% per annum47 may be
awarded by the court by way of damages in its discretion, not two percent
(2%) per month, following the guidelines laid down in the landmark case of
Eastern Shipping Lines v. Court of Appeals,

SECOND DIVISION
G.R. No. 183360, September 08, 2014
ROLANDO C. DE LA PAZ,*, Petitioner, v. L & J DEVELOPMENT COMPANY, Respondent.
DECISION
DEL CASTILLO, J.:
No interest shall be due unless it has been expressly stipulated in writing.1cralawred
This is a Petition for Review on Certiorari2 assailing the February 27, 2008 Decision3 of the
Court of Appeals (CA) in CA-G.R. SP No. 100094, which reversed and set aside the
Decision4 dated April 19, 2007 of the Regional Trial Court (RTC), Branch 192, Marikina City
in Civil Case No. 06-1145-MK. The said RTC Decision affirmed in all respects the
Decision5 dated June 30, 2006 of the Metropolitan Trial Court (MeTC), Branch 75, Marikina
City in Civil Case No. 05-7755, which ordered respondent L & J Development Company
(L&J) to pay petitioner Architect Rolando C. De La Paz (Rolando) its principal obligation of
P350,000.00, plus 12% interest per annum reckoned from the filing of the Complaint until
full payment of the obligation.
Likewise assailed is the CAs June 6, 2008 Resolution6 which denied Rolandos Motion for
Reconsideration.

Factual Antecedents
On December 27, 2000, Rolando lent P350,000.00 without any security to L&J, a property
developer with Atty. Esteban Salonga (Atty. Salonga) as its President and General Manager.
The loan, with no specified maturity date, carried a 6% monthly interest, i.e., P21,000.00.
From December 2000 to August 2003, L&J paid Rolando a total of
P576,000.007 representing interest charges.
As L&J failed to pay despite repeated demands, Rolando filed a Complaint8 for Collection of
Sum of Money with Damages against L&J and Atty. Salonga in his personal capacity before
the MeTC, docketed as Civil Case No. 05-7755. Rolando alleged, among others, that L&Js
debt as of January 2005, inclusive of the monthly interest, stood at P772,000.00; that the
6% monthly interest was upon Atty. Salongas suggestion; and, that the latter tricked him
into parting with his money without the loan transaction being reduced into writing.
In their Answer,9 L&J and Atty. Salonga denied Rolandos allegations. While they
acknowledged the loan as a corporate debt, they claimed that the failure to pay the same
was due to a fortuitous event, that is, the financial difficulties brought about by the
economic crisis. They further argued that Rolando cannot enforce the 6% monthly interest
for being unconscionable and shocking to the morals. Hence, the payments already made
should be applied to the P350,000.00 principal loan.
During trial, Rolando testified that he had no communication with Atty. Salonga prior to the
loan transaction but knew him as a lawyer, a son of a former Senator, and the owner of L&J
which developed Brentwood Subdivision in Antipolo where his associate Nilo Velasco (Nilo)
lives. When Nilo told him that Atty. Salonga and L&J needed money to finish their projects,
he agreed to lend them money. He personally met with Atty. Salonga and their meeting
was cordial.
He narrated that when L&J was in the process of borrowing the P350,000.00 from him, it
was Arlene San Juan (Arlene), the secretary/treasurer of L&J, who negotiated the terms and
conditions thereof. She said that the money was to finance L&Js housing project. Rolando
claimed that it was not he who demanded for the 6% monthly interest. It was L&J and Atty.
Salonga, through Arlene, who insisted on paying the said interest as they asserted that the
loan was only a short-term one.
Ruling of the Metropolitan Trial Court
The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly interest. In so ruling,
it ratiocinated that since L&J agreed thereto and voluntarily paid the interest at such rate
from 2000 to 2003, it is already estopped from impugning the same. Nonetheless, for
reasons of equity, the said court reduced the interest rate to 12% per annum on the
remaining principal obligation of P350,000.00. With regard to Rolandos prayer for moral
damages, the MeTC denied the same as it found no malice or bad faith on the part of L&J in
not paying the obligation. It likewise relieved Atty. Salonga of any liability as it found that
he merely acted in his official capacity in obtaining the loan. The MeTC disposed of the case
as follows:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff,
Arch. Rolando C. Dela Paz, and against the defendant, L & J Development Co., Inc., as
follows:ChanRoblesVirtualawlibrary
a) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Three

Hundred Fifty Thousand Pesos (P350,000.00) representing the principal obligation, plus
interest at the legal rate of 12% per annum to be computed from January 20, 2005, the
date of the filing of the complaint, until the whole obligation is fully paid;
b) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Five
Thousand Pesos (P5,000.00) as and for attorneys fees; and
c) to pay the costs of this suit.
SO ORDERED.11cralawred
Ruling of the Regional Trial Court
L&J appealed to the RTC. It asserted in its appeal memorandum12 that from December 2000
to March 2003, it paid monthly interest of P21,000.00 based on the agreed-upon interest
rate of 6% monthly and from April 2003 to August 2003, interest payments in various
amounts.13 The total of interest payments made amounts to P576,000.00 an amount
which is even more than the principal obligation of P350,000.00
L&J insisted that the 6% monthly interest rate is unconscionable and immoral. Hence, the
12% per annum legal interest should have been applied from the time of the constitution of
the obligation. At 12% per annum interest rate, it asserted that the amount of interest it
ought to pay from December 2000 to March 2003 and from April 2003 to August 2003, only
amounts to P105,000.00. If this amount is deducted from the total interest payments
already made, which is P576,000.00, the amount of P471,000.00 appears to have been paid
over and above what is due. Applying the rule on compensation, the principal loan of
P350,000.00 should be set-off against the P471,000.00, resulting in the complete payment
of the principal loan.
Unconvinced, the RTC, in its April 19, 2007 Decision,14 affirmed the MeTC
Decision, viz:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, the Decision appealed from is hereby AFFIRMED in all
respects, with costs against the appellant.
SO ORDERED.15
Ruling of the Court of Appeals
Undaunted, L&J went to the CA and echoed its arguments and proposed computation as
proffered before the RTC.
In a Decision16 dated February 27, 2008, the CA reversed and set aside the RTC Decision.
The CA stressed that the parties failed to stipulate in writing the imposition of interest on
the loan. Hence, no interest shall be due thereon pursuant to Article 1956 of the Civil
Code.17 And even if payment of interest has been stipulated in writing, the 6% monthly
interest is still outrightly illegal and unconscionable because it is contrary to morals, if not
against the law. Being void, this cannot be ratified and may be set up by the debtor as
defense. For these reasons, Rolando cannot collect any interest even if L&J offered to pay
interest. Consequently, he has to return all the interest payments of P576,000.00 to L&J.
Considering further that Rolando and L&J thereby became creditor and debtor of each other,

the CA applied the principle of legal compensation under Article 1279 of the Civil Code.18
Accordingly, it set off the principal loan of P350,000.00 against the P576,000.00 total
interest payments made, leaving an excess of P226,000.00, which the CA ordered Rolando
to pay L&J plus interest. Thus:ChanRoblesVirtualawlibrary
WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and SET ASIDE.
CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is ordered to pay to the
petitioner the amount of P226,000.00, plus interest of 12% per annum from the finality of
this decision.
Costs of suit to be paid by respondent Dela Paz.
SO ORDERED.19
In his Motion for Reconsideration,20 Rolando argued that the circumstances exempt both the
application of Article 1956 and of jurisprudence holding that a 6% monthly interest is
unconscionable, unreasonable, and exorbitant. He alleged that Atty. Salonga, a lawyer,
should have taken it upon himself to have the loan and the stipulated rate of interest
documented but, by way of legal maneuver, Atty. Salonga, whom he fully trusted and relied
upon, tricked him into believing that the undocumented and uncollateralized loan was within
legal bounds. Had Atty. Salonga told him that the stipulated interest should be in writing,
he would have readily assented.
Furthermore, Rolando insisted that the 6% monthly interest rate could not be
unconscionable as in the first place, the interest was not imposed by the creditor but was in
fact offered by the borrower, who also dictated all the terms of the loan. He stressed that in
cases where interest rates were declared unconscionable, those meant to be protected by
such declaration are helpless borrowers which is not the case here.
Still, the CA denied Rolandos motion in its Resolution21 of June 6, 2008.
Hence, this Petition.
The Parties Arguments
Rolando argues that the 6% monthly interest rate should not have been invalidated because
Atty. Salonga took advantage of his legal knowledge to hoodwink him into believing that no
document was necessary to reflect the interest rate. Moreover, the cases anent
unconscionable interest rates that the CA relied upon involve lenders who imposed the
excessive rates, which are totally different from the case at bench where it is the borrower
who decided on the high interest rate. This case does not fall under a scenario that
enslaves the borrower or that leads to the hemorrhaging of his assets that the courts seek
to prevent.
L&J, in controverting Rolandos arguments, contends that the interest rate is subject of
negotiation and is agreed upon by both parties, not by the borrower alone. Furthermore,
jurisprudence has nullified interest rates on loans of 3% per month and higher as these
rates are contrary to morals and public interest. And while Rolando raises bad faith on Atty.
Salongas part, L&J avers that such issue is a question of fact, a matter that cannot be
raised under Rule 45.
Issue

The Courts determination of whether to uphold the judgment of the CA that the principal
loan is deemed paid is dependent on the validity of the monthly interest rate imposed. And
in determining such validity, the Court must necessarily delve into matters regarding a) the
form of the agreement of interest under the law and b) the alleged unconscionability of the
interest rate.
Our Ruling
The Petition is devoid of merit.
The lack of a written stipulation
to pay interest on the loaned amount
disallows a creditor from charging
monetary interest.
Under Article 1956 of the Civil Code, no interest shall be due unless it has been expressly
stipulated in writing. Jurisprudence on the matter also holds that for interest to be due and
payable, two conditions must concur: a) express stipulation for the payment of interest; and
b) the agreement to pay interest is reduced in writing.
Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no
interest is due. The collection of interest without any stipulation in writing is prohibited by
law.22cralawred
But Rolando asserts that his situation deserves an exception to the application of Article
1956. He blames Atty. Salonga for the lack of a written document, claiming that said lawyer
used his legal knowledge to dupe him. Rolando thus imputes bad faith on the part of L&J
and Atty. Salonga. The Court, however, finds no deception on the part of L&J and Atty.
Salonga. For one, despite the lack of a document stipulating the payment of interest, L&J
nevertheless devotedly paid interests on the loan. It only stopped when it suffered from
financial difficulties that prevented it from continuously paying the 6% monthly rate. For
another, regardless of Atty. Salongas profession, Rolando who is an architect and an
educated man himself could have been a more reasonably prudent person under the
circumstances. To top it all, he admitted that he had no prior communication with Atty.
Salonga. Despite Atty. Salonga being a complete stranger, he immediately trusted him and
lent his company P350,000.00, a significant amount. Moreover, as the creditor, he could
have requested or required that all the terms and conditions of the loan agreement, which
include the payment of interest, be put down in writing to ensure that he and L&J are on the
same page. Rolando had a choice of not acceding and to insist that their contract be put in
written form as this will favor and safeguard him as a lender. Unfortunately, he did not. It
must be stressed that [c]ourts cannot follow one every step of his life and extricate him
from bad bargains, protect him from unwise investments, relieve him from one-sided
contracts, or annul the effects of foolish acts. Courts cannot constitute themselves
guardians of persons who are not legally incompetent.23cralawred
It may be raised that L&J is estopped from questioning the interest rate considering that it
has been paying Rolando interest at such rate for more than two and a half years. In fact,
in its pleadings before the MeTC and the RTC, L&J merely prayed for the reduction of
interest from 6% monthly to 1% monthly or 12% per annum. However, in Ching v.
Nicdao,24 the daily payments of the debtor to the lender were considered as payment of the
principal amount of the loan because Article 1956 was not complied with. This was
notwithstanding the debtors admission that the payments made were for the interests due.

The Court categorically stated therein that [e]stoppel cannot give validity to an act that is
prohibited by law or one that is against public policy.
Even if the payment of interest has been
reduced in writing, a 6% monthly interest rate
on a loan is unconscionable, regardless of who
between the parties proposed the rate.
Indeed at present, usury has been legally non-existent in view of the suspension of the
Usury Law25 by Central Bank Circular No. 905 s. 1982.26 Even so, not all interest rates
levied upon loans are permitted by the courts as they have the power to equitably reduce
unreasonable interest rates. In Trade & Investment Development Corporation of the
Philippines v. Roblett Industrial Construction Corporation,27we
said:ChanRoblesVirtualawlibrary
While the Court recognizes the right of the parties to enter into contracts and who are
expected to comply with their terms and obligations, this rule is not absolute. Stipulated
interest rates are illegal if they are unconscionable and the Court is allowed to temper
interest rates when necessary. In exercising this vested power to determine what is
iniquitous and unconscionable, the Court must consider the circumstances of each case.
What may be iniquitous and unconscionable in one case, may be just in another. x x x28
Time and again, it has been ruled in a plethora of cases that stipulated interest rates of 3%
per month and higher, are excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against the law.29 The Court,
however, stresses that these rates shall be invalidated and shall be reduced only in cases
where the terms of the loans are open-ended, and where the interest rates are applied for
an indefinite period. Hence, the imposition of a specific sum of P40,000.00 a month for six
months on a P1,000,000.00 loan is not considered unconscionable.30 In the case at bench,
there is no specified period as to the payment of the loan. Hence, levying 6% monthly or
72% interest per annum is definitely outrageous and inordinate.31cralawred
The situation that it was the debtor who insisted on the interest rate will not exempt
Rolando from a ruling that the rate is void. As this Court cited in Asian Cathay Finance and
Leasing Corporation v. Gravador,32 [t]he 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.33 Indeed, voluntariness does not make the stipulation on [an
unconscionable] interest valid.34cralawred
As exhaustibly discussed, no monetary interest is due Rolando pursuant to Article 1956.
The CA thus correctly adjudged that the excess interest payments made by L&J should be
applied to its principal loan. As computed by the CA, Rolando is bound to return the excess
payment of P226,000.00 to L&J following the principle of solutio indebiti.35cralawred
However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect on July 1,
2013,36 the interest imposed by the CA must be accordingly modified. The P226,000.00
which Rolando is ordered to pay L&J shall earn an interest of 6% per annum from the
finality of this Decision.
WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals in CA-G.R. SP
No. 100094 is hereby AFFIRMED with modification that petitioner Rolando C. De La Paz
is ordered to pay respondent L&J Development Company the amount of P226,000.00, plus

interest of 6% per annum from the finality of this Decision until fully paid.
SO ORDERED.cralawlaw

Eastern Shipping vs CA
GR No. 97412, 12 July 1994
234 SCRA 78
FACTS
Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as insured
with a marine policy. Upon arrival in Manila unto the custody of metro Port Service, which excepted to one
drum, said to be in bad order and which damage was unknown the Mercantile Insurance Company. Allied
Brokerage Corporation received the shipment from Metro, one drum opened and without seal. Allied
delivered the shipment to the consignees warehouse. The latter excepted to one drum which contained
spillages while the rest of the contents was adulterated/fake. As consequence of the loss, the insurance
company paid the consignee, so that it became subrogated to all the rights of action of consignee against
the defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance company filed before
the trial court. The trial court ruled in favor of plaintiff an ordered defendants to pay the former with
present legal interest of 12% per annum from the date of the filing of the complaint. On appeal by
defendants, the appellate court denied the same and affirmed in toto the decision of the trial court.
ISSUE
(1) Whether the applicable rate of legal interest is 12% or 6%.
(2) Whether the payment of legal interest on the award for loss or damage is to be computed from the time
the complaint is filed from the date the decision appealed from is rendered.
HELD
(1)

The Court held that the legal interest is 6% computed from the decision of the court a

quo. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damaes awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty.
When the judgment of the court awarding a sum of money becomes final and executor, the
rate of legal interest shall be 12% per annum from such finality until satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of money.
The interest due shall be 12% PA to be computed fro default, J or EJD.

(2)

From the date the judgment is made. Where the demand is established with reasonable

certainty, the interest shall begin to run from the time the claim is made judicially or EJ but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shll begin to
run only from the date of judgment of the court is made.

(3) The Court held that it should be computed from the decision rendered by the court a quo.
[G.R. No. 117501. July 8, 1997]
SOLID HOMES, INC., petitioner, vs. HON. COURT OF APPEALS, STATE FINANCING CENTER, INC.,
and REGISTER OF DEEDS FOR RIZAL, respondents.
DECISION
PANGANIBAN, J.:
Is the failure to annotate the vendor a retros right of repurchase in the certificates of title of the real
estate properties subject of dacion en pago conclusive evidence of the vendee a retros malice and bad
faith, entitling the former to damages? In a sale with pacto de retro, is the repurchase price limited by
Article 1616 of the Civil Code?
These are the basic questions raised in this petition for review on certiorari under Rule 45 of the
Rules of Court assailing the Court of Appeals[1] Decision[2] promulgated on April 25, 1994 and
Resolution[3] of September 26, 1994 in CA-G.R. CV No. 39154, affirming the decision [4] of the Regional
Trial Court of Pasig, Branch 157 in Civil Case No. 51214. The said RTC decision sustained the validity of
the subject dacion en pago agreement and declared the same as a true sale with right of repurchase.
The Facts
The facts of the case as narrated by the trial court and reproduced in the assailed Decision of the
Court of Appeals are undisputed by the parties. These are the relevant portions:
It appears that on June 4, 1979, Solid Homes executed in favor of State Financing (Center, Inc.) a Real Estate
Mortgage (Exhibit 3) on its properties embraced in Transfer Certificate of Title No. 9633 (Exhibit 9) and Transfer
Certificate of Title No. (492194) -11938 (Exhibit 8) of the Registry of Deeds in Pasig, Metro Manila, in order to
secure the payment of a loan of P10,000,000.00 which the former obtained from the latter. A year after, Solid Homes
applied for and was granted an additional loan of P1,511,270.03 by State Financing, and to secure its payment, Solid
Homes executed the Amendment to Real Estate Mortgage dated June 4, 1980 (Exhibit 4) whereby the credits
secured by the first mortgage on the abovementioned properties were increased from P10,000,000.00
to P11,511,270.03. Sometime thereafter, Solid Homes obtained additional credits and financing facilities from State
Financing in the sum of P1,499,811,97, and to secure its payment, Solid Homes executed in favor of State Financing
the Amendment to Real Estate Mortgage dated March 5, 1982 (Exhibit 5) whereby the mortgage executed on its
properties on June 4, 1979 was again amended so that the loans or credits secured thereby were further increased
from P11,511,270.03 to P13,011,082.00.

When the loan obligations abovementioned became due and payable, State Financing made repeated demands upon
Solid Homes for the payment thereof, but the latter failed to do so. So, on December 16, 1982, State Financing filed
a petition for extrajudicial foreclosure of the mortgages abovementioned with the Provincial Sheriff of Rizal, who,
in pursuance of the petition, issued a Notice of Sheriffs Sale dated February 4, 1983 (Exhibit 6), whereby the
mortgaged properties of Solid Homes and the improvements existing thereon, including the V.V. Soliven Towers II
Building, were set for public auction sale on March 7, 1983 in order to satisfy the full amount of Solid Homes
mortgage indebtedness, the interest thereon, and the fees and expenses incidental to the foreclosure proceedings.
Before the scheduled public auction sale x x x, the mortgagor Solid Homes made representations and induced State
Financing to forego with the foreclosure of the real estate mortgages referred to above. By reason thereof, State
Financing agreed to suspend the foreclosure of the mortgaged properties, subject to the terms and conditions they
agreed upon, and in pursuance of their said agreement, they executed a document entitled MEMORANDUM OF
AGREEMENT/DACION EN PAGO (Memorandum) dated February 28, 1983 (Exhibits C and 7) x x x. Among
the terms and conditions that said parties agreed upon were x x x:
1. (Solid Homes) acknowledges that it has an outstanding obligation due and payable to (State Financing)
and binds and obligates to pay (State Financing) the totality of its outstanding obligation in the
amount of P14,225,178.40, within one hundred eighty (180) days from date of signing of this
instrument. However, it is understood and agreed that the principal obligation of P14,225,178.40
shall earn interest at the rate of 14% per annum and penalty of 16% per annum counted from
March 01, 1983 until fully paid.
2. The parties agree that should (Solid Homes) be able to pay (State Financing) an amount equivalent to
sixty per centum (60%) of the principal obligation, or the amount of P8,535,107.04, within the
first one hundred eighty (180) days, (State Financing) shall allow the remaining obligation of
(Solid Homes) to be restructured at a rate of interest to be mutually agreed between the parties.
3. It is hereby understood and agreed that in the event (Solid Homes) fails to comply with the provisions
of the preceding paragraphs, within the said period of one hundred eighty (180) days, this
document shall automatically operate to be an instrument of dacion en pago without the need of
executing any document to such an effect and (Solid Homes) hereby obligates and binds itself to
transfer, convey and assign to (State Financing), by way of dacion en pago, its heirs, successors
and assigns, and (State Financing) does hereby accept the conveyance and transfer of the abovedescribed real properties, including all the improvements thereon, free from all liens and
encumbrances, in full payment of the outstanding indebtedness of (Solid Homes) to (State
Financing) x x x.
xxxxxxxxx
6. (State Financing) hereby grants (Solid Homes) the right to repurchase the aforesaid real properties,
including the condominium units and other improvements thereon, within ten (10) months counted
from and after the one hundred eighty (180) days from date of signing hereof at an agreed price
of P14,225,178.40, or as reduced pursuant to par. 5 (d), plus all cost of money equivalent to 30%
per annum, registration fees, real estate and documentary stamp taxes and other incidental
expenses incurred by (State Financing) in the transfer and registration of its ownership via dacion
en pago x x x.
xxx xxx xxx

Subsequently, Solid Homes failed to pay State Financing an amount equivalent to 60% (or P8,535,107.04) of the
principal obligation of P14,225,178.40 within 180 days from the signing of the (Memorandum) on February 28,
1983, as provided under paragraph 2 of the said document. Hence, and in pursuance of paragraph 3 thereof which
provided that this document shall automatically operate to be an instrument of dacion en pago without the need of
executing any document to such an effect x x x(,) State Financing registered the said (Memorandum) with the
Register of Deeds in Pasig, Metro Manila on September 15, 1983. Consequently, the said Register of Deeds
cancelled TCT No. 9633 and TCT No. (492194) 11938 in the name of Solid Homes which were the subject matter of
the (Memorandum) abovementioned, and in lieu thereof, the said office issued Transfer Certificate of Title No.
40533 (Exhibits J and 11) and Transfer Certificate of Title No. 40534 (Exhibits K and 12) in the name of State
Financing. x x x
In a letter dated October 11, 1983 (Exhibit 16), State Financing informed Solid Homes of the transfer in its name of
the titles to all the properties subject matter of the (Memorandum) and demanded among other things, that Solid
Homes turn over to State Financing the possession of the V.V. Soliven Towers II Building erected on two of the said
properties. Solid Homes replied with a letter dated October 14, 1983, (Exhibit 20) asking for a period of ten (10)
days within which to categorize its position on the matter; and in a subsequent letter dated October 24, 1983, Solid
Homes made known to State Financing its position that the (Memorandum) is null and void because the essence
thereof is that State Financing, as mortgagee creditor, would be able to appropriate unto itself the properties
mortgaged by Solid Homes which is in contravention of Article 2088 of the Civil Code. State Financing then sent to
Solid Homes another letter dated November 3, 1983 (Exhibit 17), whereby it pointed out that Art. 2088 of the Civil
Code is not applicable to the (Memorandum) they have executed, and also reiterated its previous demand that Solid
Homes turn over to it the possession of the V.V. Soliven Towers II Building within five (5) days, but Solid Homes
did not comply with the said demand.
x x x and within that period of repurchase, Solid Homes wrote to State Financing a letter dated April 30, 1984
containing its proposal for repayment schemes under terms and conditions indicated therein for the repurchase of the
properties referred to. In reply to said letter, State Financing sent a letter dated May 17, 1984 (Exhibit 18) advising
Solid Homes that State Financings management was not amenable to its proposal, and that by way of granting it
some concessions, said management made a counter-proposal requiring Solid Homes to make an initial payment
of P10 million until 22 May 1984 and the balance payable within the remaining period to repurchase the properties
as provided for under the (Memorandum) x x x. Thereafter, a number of conferences were held among the corporate
officers of both companies wherein they discussed the payment arrangement of Solid Homes outstanding obligation,
x x x. In a letter dated June 7, 1984 (Exhibit 19), State Financing reiterated the counter-proposal in its previous letter
dated May 17, 1984 to Solid Homes as a way of making good its account, and at the same time reminded Solid
Homes that it has until 27 June 1984 to exercise its right to repurchase the properties pursuant to the terms and
conditions of the (Memorandum), otherwise, it will have to vacate and turn over the possession of said properties to
State Financing. In return, Solid Homes sent to State Financing a letter dated June 18, 1984 (Exhibits N and 22)
containing a copy of the written offer made by C.L. Alma Jose & Sons, Inc. (Exhibits M and 22-A) to avail of Solid
Homes right to repurchase the V.V. Soliven Towers II pursuant to the terms of the Dacion En Pago. The letter also
contained a request that the repurchase period under said Dacion En Pago which will expire on June 27, 1984 be
extended by sixty (60) days to enable Solid Homes to comply with the conditions in the offer of Alma Jose & Sons,
Inc. referred to, and thereafter, to avail of the one year period to pay the balance based on the verbal commitment of
State Financings President. x x x
However, on June 26, 1984, a day before the expiry date of its right to repurchase the properties involved in the
(Memorandum) on June 27, 1984, Solid Homes filed the present action against defendants State Financing and the
Register of Deeds for Metro Manila District II (Pasig), seeking the annulment of said (Memorandum) and the
consequent reinstatement of the mortgages over the same properties; x x x[5]

As earlier stated, the trial court held that the Memorandum of Agreement/Dacion En Pago executed
by the parties was valid and binding, and that the registration of said instrument in the Register of Deeds
was in accordance with law and the agreement of the parties. It disposed of the case thus:
WHEREFORE, this Court hereby renders judgment, as follows:
1. Declaring that the Memorandum of Agreement/Dacion En Pago entered into by and between plaintiff Solid
Homes and defendant State Financing on February 28, 1983 is a valid and binding document which does not violate
the prohibition against pactum commisorium under Art. 2088 of the Civil Code;
2. Declaring that the said Memorandum of Agreement/Dacion En Pago is a true sale with right of repurchase, and
not an equitable mortgage;
3. Declaring that the registration of the said Memorandum of Agreement/Dacion En Pago with the defendant
Register of Deeds in Pasig, Metro Manila by defendant State Financing on September 15, 1983 is in accordance
with law and the agreement of the parties in the said document; but the annotation of the said document by the said
Register of Deeds on the certificates of title over the properties subject of the Memorandum of Agreement/Dacion
En Pago without any mention of the right of repurchase and the period thereof, is improper, and said Register of
Deeds cancellation of the certificates of title in the name of Solid Homes over the properties referred to and issuance
of new titles in lieu thereof in the name of State Financing - during the period of repurchase and without any judicial
order - is in violation of Art. 1607 of the Civil Code, which renders said titles null and void;
4. Ordering the defendant State Financing to surrender to the defendant Register of Deeds in Pasig, Metro Manila
for the cancellation thereof, all the certificates of title issued in its name over the properties subject of the
Memorandum of Agreement/Dacion En Pago, including those titles covering the fully paid condominium units and
the substitute collateral submitted in exchange for said condominium units;
5. Ordering the said defendant Register of Deeds to cancel all the titles in the name of State Financing referred to
and to reinstate the former titles over the same properties in the name of Solid Homes, with the proper annotation
thereon of the Memorandum of Agreement/Dacion En Pago together with the right of repurchase and the period
thereof - as provided in said document - and to return the said reinstated former titles (owners copies) in the name of
Solid Homes to State Financing;
6. Ordering the defendant State Financing to release to plaintiff Solid Homes all the certificates of title over the fully
paid condominium units in the name of Solid Homes, free from all liens and encumbrances by releasing the
mortgage thereon;
7. Granting the plaintiff Solid Homes the opportunity to exercise its right to repurchase the properties subject of the
Memorandum of Agreement/Dacion En Pago within thirty (30) days from the finality of this Decision, by paying to
defendant State Financing the agreed price ofP14,225,178.40 plus all cost of money equivalent to 30% (interest of
14% and penalty of 16% from March 1, 1983) per annum, registration fees, real estate and documentary stamp taxes
and other incidental expenses incurred by State Financing in the transfer and registration of its ownership via the
Dacion En Pago, as provided in the said document and in pursuance of Articles 1606 and 1616 of the Civil Code;
and
8. Ordering the defendant Register of Deeds in Pasig, Metro Manila - should plaintiff Solid Homes fail to exercise
the abovementioned right to repurchase within 30 days from the finality of this judgment - to record the
consolidation of ownership in State Financing over the properties subject of the Memorandum of Agreement/Dacion

En Pago in the Registry of Property, in pursuance of this Order, but excluding therefrom the fully paid condominium
units and their corresponding titles to be released by State Financing.
For lack of merit, the respective claims of both parties for damages, attorneys fees, expenses of litigation and costs
of suit are hereby denied.[6]
Both parties appealed from the trial courts decision. Solid Homes raised a lone question contesting
the denial of its claim for damages. Such damages allegedly resulted from the bad faith and malice of
State Financing in deliberately failing to annotate Solid Homes right to repurchase the subject properties
in the formers consolidated titles thereto. As a result of the non-annotation, Solid Homes claimed to have
been prevented from generating funds from prospective buyers to enable it to comply with the Agreement
and to redeem the subject properties.
State Financing, on the other hand, assigned three errors against the RTC decision: (1) granting
Solid Homes a period of thirty (30) days from finality of the judgment within which to exercise its right of
repurchase; (2) ordering Solid Homes to pay only 30% per annum as interest and penalty on the principal
obligation, rather than reasonable rental value from the time possession of the properties was illegally
withheld from State Financing; and (3) failing to order the immediate turnover of the possession of the
properties to State Financing as the purchaser a retro from whom no repurchase has been made.
As to the lone issue raised by Solid Homes, the Court of Appeals agreed with the trial court that the
failure to annotate the right of repurchase of the vendor a retro is not by itself an indication of bad faith or
malice. State Financing was not legally bound to cause its annotation, and Solid Homes could have taken
steps to protect its own interests. The evidence shows that after such registration and transfer of titles,
State Financing willingly negotiated with Solid Homes to enable the latter to exercise its right to
repurchase the subject properties,[7] an act that negates bad faith.
Anent the first error assigned by State Financing, Respondent Court likewise upheld the trial court in
applying Article 1606, paragraph 3[8] of the Civil Code. Solid Homes was not in bad faith in filing the
complaint for the declaration of nullity of the Memorandum of Agreement/Dacion En Pago. There is
statutory basis for petitioners claim that an equitable mortgage existed since it believed that (1) the price
of P14 million was grossly inadequate, considering that the building alone was allegedly built at a cost
of P60 million in 1979 and the lot was valued at P5,000.00 per square meter and (2) it remained in
possession of the subject properties.[9] Furthermore, Article 1607[10] of the Civil Code abolished automatic
consolidation of ownership in the vendee a retro upon expiration of the redemption period by requiring the
vendee to institute an action for consolidation where the vendor a retro may be duly heard. If the vendee
succeeds in proving that the transaction was indeed a pacto de retro, the vendor is still given a period of
thirty days from the finality of the judgment within which to repurchase the property.[11]
Respondent Court also affirmed the trial courts imposition of the 30% interest per annum on top of
the redemption price in accordance with paragraph 6 of the parties Memorandum of Agreement. [12]
However, Respondent Court of Appeals ruled favorably on State Financings last assigned error by
ordering Solid Homes to deliver possession of the subject properties to the private respondent, citing
jurisprudence that in a sale with pacto de retro, the vendee shall immediately acquire title over and
possession of the real property sold, subject only to the vendors right of redemption. [13] The full text of the
dispositive portion of the assailed Decision is as follows:

WHEREFORE, the judgment appealed from is affirmed with the modification that plaintiff Solid Homes is further
ordered to deliver the possession of the subject property to State Financing. [14]
The two opposing parties filed their respective motions for reconsideration of the assailed
Decision. Both were denied by said Court for lack of merit. Both parties thereafter filed separate petitions
for review before this Court. In a minute Resolution[15] dated December 5, 1994, this Court (Third Division)
denied State Financing Centers petition because of its failure to show that a reversible error was
committed by the appellate court. Its motion for reconsideration of said resolution was likewise denied for
lack of merit. This case disposes only of the petition filed by Solid Homes, Inc.
Issues
In its petition, Solid Homes repeats its arguments before the Court of Appeals. It claims damages
allegedly arising from the non-annotation of its right of repurchase in the consolidated titles issued to
private respondent. Petitioner reiterates its attack against the inclusion of 30% interest per annum as part
of the redemption price. It asserts that Article 1616 of the Civil Code authorizes only the return of the (1)
price of the sale, (2) expenses of the contract and any other legitimate payments by reason of the sale
and (3) necessary and useful expenses made on the thing sold. Considering that the transfer of titles was
null and void, it was thus erroneous to charge petitioner the registration fees, documentary stamp taxes
and other incidental expenses incurred by State Financing in the transfer and registration of the subject
properties via the dacion en pago. Lastly, petitioner argues that there is no need for the immediate
turnover of the properties to State Financing since the same was not stipulated under their Agreement,
and the latters rights were amply protected by the issuance of new certificates of title in its name.
The Courts Ruling
First Issue: Damages
To resolve the issue of damages, an examination of factual circumstances would be necessary, a
task that is clearly beyond this Courts dominion. It is elementary that in petitions for review on certiorari,
only questions of law may be brought by the parties and passed upon by this Court. Findings of fact of
lower courts are deemed conclusive and binding upon the Supreme Court except when the findings are
grounded on speculation, surmises or conjectures; when the inference made is manifestly mistaken,
absurd or impossible; when there is grave abuse of discretion in the appreciation of facts; when the
factual findings of the trial and appellate courts are conflicting; when the Court of Appeals, in making its
findings, has gone beyond the issues of the case and such findings are contrary to the admissions of both
appellant and appellee;[16] when the judgment of the appellate court is premised on a misapprehension of
facts or when it has failed to notice certain relevant facts which, if properly considered, will justify a
different conclusion; when the findings of fact are conclusions without citation of specific evidence upon
which they are based; and when findings of fact of the Court of Appeals are premised on the absence of
evidence but are contradicted by the evidence on record. [17]
The petitioner has not shown any -- and indeed the Court finds none -- of the above-mentioned
exceptions to warrant a departure from the general rule.
In fact, petitioner has not even bothered to support with evidence its claim for actual, moral and
punitive/nominal damages as well as exemplary damages and attorneys fees. It is basic that the claim for
these damages must each be independently identified and justified; such claims cannot be dealt with in

the aggregate, since they are neither kindred or analogous terms nor governed by a coincident set of
rules.[18]
The trial court found, and the Court of Appeals affirmed, that petitioners claim for actual damages
was baseless. Solid Homes utterly failed to prove that respondent corporation had maliciously and in bad
faith caused the non-annotation of petitioners right of repurchase so as to prevent the latter from
exercising such right. On the contrary, it is admitted by both parties that State Financing informed
petitioner of the registration with the Register of Deeds of Pasig of their Memorandum of
Agreement/Dacion en Pago and the issuance of new certificates of title in the name of the respondent
corporation. Petitioner exchanged communications and held conferences with private respondent in order
to draw a mutually acceptable payment arrangement for the formers repurchase of the subject
properties. A written offer from another corporation alleging willingness to avail itself of petitioners right of
repurchase was even attached to one of these communications. Clearly, petitioner was not prejudiced by
the non-annotation of such right in the certificates of titles issued in the name of State Financing. Besides,
as the Court of Appeals noted, it was not the function of respondent corporation to cause said
annotation. It was equally the responsibility of petitioner to protect its own rights by making sure that its
right of repurchase was indeed annotated in the consolidated titles of private respondent.
The only legal transgression of State Financing was its failure to observe the proper procedure in
effecting the consolidation of the titles in its name. But this does not automatically entitle the petitioner to
damages absent convincing proof of malice and bad faith [19] on the part of private respondent and actual
damages suffered by petitioner as a direct and probable consequence thereof. In fact, the evidence
proffered by petitioner consist of mere conjectures and speculations with no factual
moorings. Furthermore, such transgression was addressed by the lower courts when they nullified the
consolidation of ownership over the subject properties in the name of respondent corporation, because it
had been effected in contravention of the provisions of Article 1607 [20] of the Civil Code. Such rulings are
consistent with law and jurisprudence.
Neither can moral damages be awarded to petitioner. Time and again, we have held that a
corporation -- being an artificial person which has no feelings, emotions or senses, and which cannot
experience physical suffering or mental anguish -- is not entitled to moral damages. [21]
While the amount of exemplary damages need not be proved, petitioner must show that he is entitled
to moral or actual damages;[22] but the converse obtains in the instant case. Award of attorneys fees is
likewise not warranted when moral and exemplary damages are eliminated and entitlement thereto is not
demonstrated by the claimant.[23]
Lastly, (n)ominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him. [24] As elaborated above and in the decisions of the
two lower courts, no right of petitioner was violated or invaded by respondent corporation.
Second Issue: Redemption Price
Another fundamental principle of procedural law precludes higher courts from entertaining matters
neither alleged in the pleadings nor raised during the proceedings below, but ventilated for the first time
only in a motion for reconsideration or on appeal. [25] On appeal, only errors specifically assigned and

properly argued in the brief will be considered, with the exception of those affecting jurisdiction over the
subject matter as well as plain and clerical errors.[26]
As stated earlier, the single issue raised by petitioner in its appeal of the RTC decision to the Court of
Appeals concerned only the denial of its claim for damages. Petitioner succinctly stated such issue in its
brief as follows:
I. LONE ASSIGNMENT OF ERROR
The trial court erred in that after having found that the registration of the Memorandum of Agreement/Dacion en
Pago on September 15, 1983 [and the consequent cancellation of the titles of plaintiff-appellant Solid Homes, Inc.
and issuance in lieu thereof of titles to defendant-appellant State Financing Center, Inc. (SFCI)] was null and void
because of failure to duly annotate the right to repurchase granted to plaintiff-appellant Solid Homes, Inc. under par.
6 thereof still then subsisting up to June 28, 1984 and the failure to comply with the provisions of Art. 1607, Civil
Code x x x
I[t] nonetheless did not rule that such irregular registration unduly deprived plaintiff-appellant Solid Homes, Inc. of
its right of repurchase and that it further erred in not having declared that defendant-appellant SFCI liable in favor of
said plaintiff-appellant for damages.[27]
Petitioner is thus barred from raising a new issue in its appeal before this Court. Nevertheless, in the
interest of substantial justice, we now resolve the additional question posed with respect to the
composition of the redemption price prescribed by the trial court and affirmed by the Court of Appeals, as
follows:
7. Granting the plaintiff Solid Homes the opportunity to exercise its right to repurchase the properties x x x by
paying to defendant State Financing the agreed price of P14,225,178.40 plus all cost of money equivalent to 30%
(interest of 14% and penalty of 16% from March 1, 1983) per annum, registration fees, real estate and documentary
stamp taxes and other incidental expenses incurred by State Financing in the transfer and registration of its
ownership via the Dacion En Pago, as provided in the said document and in pursuance of Articles 1606 and 1616 of
the Civil Code;[28]
Petitioner argues that such total redemption price is in contravention of Art. 1616 of the Civil
Code. We do not, however, find said legal provision to be restrictive or exclusive, barring additional
amounts that the parties may agree upon. Said provision should be construed together with Art. 1601 of
the same Code which provides as follows:
Art. 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold,
with the obligation to comply with the provisions of article 1616 and other stipulations which may have been agreed
upon. (emphasis supplied)
It is clear, therefore, that the provisions of Art. 1601 require petitioner to comply with x x x the other
stipulations of the Memorandum of Agreement/Dacion en Pago it freely entered into with private
respondent. The said Memorandums provision on redemption states:
6. The FIRST PARTY (State Financing) hereby grants the SECOND PARTY (Solid Homes) the right to repurchase
the aforesaid real properties, including the condominium units and other improvements thereon, within ten (10)
months counted from and after the one hundred eighty (180) days from date of signing hereof at an agreed price

of P14,225,178.40, or as reduced pursuant to par. 5 (d), plus all cost of money equivalent to 30% per annum,
registration fees, real estate and documentary stamp taxes and other incidental expenses incurred by the FIRST
PARTY (State Financing) in the transfer and registration of its ownership via dacion en pago x x x[29] (underscoring
supplied)
Contracts have the force of law between the contracting parties who may establish such stipulations,
clauses, terms and conditions as they may want, subject only to the limitation that their agreements are
not contrary to law, morals, customs, public policy or public order [30] -- and the above-quoted provision of
the Memorandum does not appear to be so.
Petitioner, however, is right in its observation that the Court of Appeals inclusion of registration fees,
real estate and documentary stamp taxes and other incidental expenses incurred by State Financing in
the transfer and registration of its ownership (of the subject properties) via dacion en pago was vague, if
not erroneous, considering that such transfer and issuance of the new titles were null and void. Thus, the
redemption price shall include only those expenses relating to the registration of the dacion en pago, but
not the registration and other expenses incurred in the issuance of new certificates of title in the name of
State Financing.
Possession of the Subject Properties During the Redemption Period
The Court of Appeals Decision modified that of the trial court only insofar as it ordered petitioner to
deliver possession of the subject properties to State Financing, the vendee a retro. We find no legal error
in this holding. In a contract of sale withpacto de retro, the vendee has a right to the immediate
possession of the property sold, unless otherwise agreed upon. It is basic that in a pacto de retro sale, the
title and ownership of the property sold are immediately vested in the vendee a retro, subject only to the
resolutory condition of repurchase by the vendor a retro within the stipulated period.[31]
WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED with
the MODIFICATION that the redemption price shall not include the registration and other expenses
incurred by State Financing Center, Inc. in the issuance of new certificates of title in its name, as this was
done without the proper judicial order required under Article 1607 of the Civil Code.
SO ORDERED.

FIRST DIVISION
G.R. No. 147791

September 8, 2006

CONSTRUCTION DEVELOPMENT CORPORATION OF THE

PHILIPPINES, petitioner,
vs.
REBECCA G. ESTRELLA, RACHEL E. FLETCHER, PHILIPPINE PHOENIX SURETY
& INSURANCE INC., BATANGAS LAGUNA TAYABAS BUS CO., and WILFREDO
DATINGUINOO, respondents.

DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the March 29, 2001 Decision 1 of the Court of Appeals in
CA-G.R. CV No. 46896, which affirmed with modification the February 9, 1993
Decision2 of the Regional Trial Court of Manila, Branch 13, in Civil Case No. R-82-2137,
finding Batangas Laguna Tayabas Bus Co. (BLTB) and Construction Development
Corporation of the Philippines (CDCP) liable for damages.
The antecedent facts are as follows:
On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter,
Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus bound for Pasay City.
However, they never reached their destination because their bus was rammed from
behind by a tractor-truck of CDCP in the South Expressway. The strong impact pushed
forward their seats and pinned their knees to the seats in front of them. They regained
consciousness only when rescuers created a hole in the bus and extricated their legs
from under the seats. They were brought to the Makati Medical Center where the
doctors diagnosed their injuries to be as follows:
Medical Certificate of Rebecca Estrella
Fracture, left tibia mid 3rd
Lacerated wound, chin
Contusions with abrasions, left lower leg
Fracture, 6th and 7th ribs, right3
Medical Certificate of Rachel Fletcher
Extensive lacerated wounds, right leg posterior aspect popliteal area
and antero-lateral aspect mid lower leg with severance of muscles.
Partial amputation BK left leg with severance of gastro-soleus and
antero-lateral compartment of lower leg.
Fracture, open comminuted, both tibial4
Thereafter, respondents filed a Complaint5 for damages against CDCP, BLTB, Espiridion
Payunan, Jr. and Wilfredo Datinguinoo before the Regional Trial Court of Manila,
Branch 13. They alleged (1) that Payunan, Jr. and Datinguinoo, who were the drivers of
CDCP and BLTB buses, respectively, were negligent and did not obey traffic laws; (2)
that BLTB and CDCP did not exercise the diligence of a good father of a family in the
selection and supervision of their employees; (3) that BLTB allowed its bus to operate
knowing that it lacked proper maintenance thus exposing its passengers to grave
danger; (4) that they suffered actual damages amounting to P250,000.00 for Estrella
and P300,000.00 for Fletcher; (5) that they suffered physical discomfort, serious anxiety,
fright and mental anguish, besmirched reputation and wounded feelings, moral shock,

and lifelong social humiliation; (6) that defendants failed to act with justice, give
respondents their due, observe honesty and good faith which entitles them to claim for
exemplary damage; and (7) that they are entitled to a reasonable amount of attorney's
fees and litigation expenses.
CDCP filed its Answer6 which was later amended to include a third-party complaint
against Philippine Phoenix Surety and Insurance, Inc. (Phoenix). 7
On February 9, 1993, the trial court rendered a decision finding CDCP and BLTB and
their employees liable for damages, the dispositive portion of which, states:
WHEREFORE, judgment is rendered:
In the Complaint
1. In favor of the plaintiffs and against the defendants BLTB, Wilfredo
Datinguinoo, Construction and Development Corporation of the Philippines (now
PNCC) and Espiridion Payunan, Jr., ordering said defendants, jointly and
severally to pay the plaintiffs the sum of P79,254.43 as actual damages and to
pay the sum of P10,000.00 as attorney's fees or a total of P89,254.43;
2. In addition, defendant Construction and Development Corporation of the
Philippines and defendant Espiridion Payunan, Jr., shall pay the plaintiffs the
amount of Fifty Thousand (P50,000.00) Pesos to plaintiff Rachel Fletcher and
Twenty Five Thousand (P25,000.00) Pesos to plaintiff Rebecca Estrella;
3. On the counterclaim of BLTB Co. and Wilfredo Datinguinoo
Dismissing the counterclaim;
4. On the crossclaim against Construction and Development Corporation of the
Philippines (now PNCC) and Espiridion Payunan, Jr.
Dismissing the crossclaim;
5. On the counterclaim of Construction and Development Corporation of the
Philippines (now PNCC)
Dismissing the counterclaim;
6. On the crossclaim against BLTB
Dismissing the crossclaim;

7. On the Third Party Complaint by Construction and Development Corporation

of the Philippines against Philippine Phoenix Surety and Insurance, Incorporated

Dismissing the Third Party Complaint.

SO ORDERED.8
The trial court held that BLTB, as a common carrier, was bound to observe
extraordinary diligence in the vigilance over the safety of its passengers. It must carry
the passengers safely as far as human care and foresight provide, using the utmost
diligence of very cautious persons, with a due regard for all the circumstances. Thus,
where a passenger dies or is injured, the carrier is presumed to have been at fault or
has acted negligently. BLTB's inability to carry respondents to their destination gave rise
to an action for breach of contract of carriage while its failure to rebut the presumption of
negligence made it liable to respondents for the breach. 9
Regarding CDCP, the trial court found that the tractor-truck it owned bumped the BLTB
bus from behind. Evidence showed that CDCP's driver was reckless and driving very
fast at the time of the incident. The gross negligence of its driver raised the presumption
that CDCP was negligent either in the selection or in the supervision of its employees
which it failed to rebut thus making it and its driver liable to respondents. 10
Unsatisfied with the award of damages and attorney's fees by the trial court,
respondents moved that the decision be reconsidered but was denied. Respondents
elevated the case11 to the Court of Appeals which affirmed the decision of the trial court
but modified the amount of damages, the dispositive portion of which provides:
WHEREFORE, the assailed decision dated October 7, 1993 of the Regional Trial
Court, Branch 13, Manila is hereby AFFIRMED with the following
MODIFICATION:
1. The interest of six (6) percent per annum on the actual damages of
P79,354.43 should commence to run from the time the judicial demand was
made or from the filing of the complaint on February 4, 1980;
2. Thirty (30) percent of the total amount recovered is hereby awarded as
attorney's fees;
3. Defendants-appellants Construction and Development Corporation of the
Philippines (now PNCC) and Espiridion Payunan, Jr. are ordered to pay plaintiffappellants Rebecca Estrella and Rachel Fletcher the amount of Twenty
Thousand (P20,000.00) each as exemplary damages and P80,000.00 by way of
moral damages to Rachel Fletcher.
SO ORDERED.12

The Court of Appeals held that the actual or compensatory damage sought by
respondents for the injuries they sustained in the form of hospital bills were already
liquidated and were ascertained. Accordingly, the 6% interest per annum should
commence to run from the time the judicial demand was made or from the filing of the
complaint and not from the date of judgment. The Court of Appeals also awarded
attorney's fees equivalent to 30% of the total amount recovered based on the retainer
agreement of the parties. The appellate court also held that respondents are entitled to
exemplary and moral damages. Finally, it affirmed the ruling of the trial court that the
claim of CDCP against Phoenix had already prescribed.
Hence, this petition raising the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT
HOLDING RESPONDENTS BLTB AND/OR ITS DRIVER WILFREDO
DATINGUINOO SOLELY LIABLE FOR THE DAMAGES SUSTAINED BY
HEREIN RESPONDENTS FLETCHER AND ESTRELLA.
II
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN
AWARDING EXCESSIVE OR UNFOUNDED DAMAGES, ATTORNEY'S FEES
AND LEGAL INTEREST TO RESPONDENTS FLETCHER AND ESTRELLA.
III
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT
HOLDING RESPONDENT PHOENIX LIABLE UNDER ITS INSURANCE POLICY
ON THE GROUND OF PRESCRIPTION.
The issues for resolution are as follows: (1) whether BLTB and its driver Wilfredo
Datinguinoo are solely liable for the damages sustained by respondents; (2) whether the
damages, attorney's fees and legal interest awarded by the CA are excessive and
unfounded; (3) whether CDCP can recover under its insurance policy from Phoenix.
Petitioner contends that since it was made solidarily liable with BLTB for actual
damages and attorney's fees in paragraph 1 of the trial court's decision, then it should
no longer be held liable to pay the amounts stated in paragraph 2 of the same decision.
Petitioner claims that the liability for actual damages and attorney's fees is based on
culpa contractual, thus, only BLTB should be held liable. As regards paragraph 2 of the
trial court's decision, petitioner claims that it is ambiguous and arbitrary because the
dispositive portion did not state the basis and nature of such award.
Respondents, on the other hand, argue that petitioner is also at fault, hence, it was
properly joined as a party. There may be an action arising out of one incident where

questions of fact are common to all. Thus, the cause of action based on culpa
aquiliana in the civil suit they filed against it was valid.
The petition lacks merit.
The case filed by respondents against petitioner is an action for culpa aquiliana or
quasi-delict under Article 2176 of the Civil Code. 13 In this regard, Article 2180 provides
that the obligation imposed by Article 2176 is demandable for the acts or omissions of
those persons for whom one is responsible. Consequently, an action based on quasidelict may be instituted against the employer for an employee's act or omission. The
liability for the negligent conduct of the subordinate is direct and primary, but is subject
to the defense of due diligence in the selection and supervision of the employee. 14 In the
instant case, the trial court found that petitioner failed to prove that it exercised the
diligence of a good father of a family in the selection and supervision of Payunan, Jr.
The trial court and the Court of Appeals found petitioner solidarily liable with BLTB for
the actual damages suffered by respondents because of the injuries they sustained. It
was established that Payunan, Jr. was driving recklessly because of the skid marks as
shown in the sketch of the police investigator.
It is well-settled in Fabre, Jr. v. Court of Appeals,15 that the owner of the other vehicle
which collided with a common carrier is solidarily liable to the injured passenger of the
same. We held, thus:
The same rule of liability was applied in situations where the negligence of the
driver of the bus on which plaintiff was riding concurred with the negligence of a
third party who was the driver of another vehicle, thus causing an accident.
In Anuran v. Buo, Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate
Court, and Metro Manila Transit Corporation v. Court of Appeals, the bus
company, its driver, the operator of the other vehicle and the driver of the
vehicle were jointly and severally held liable to the injured passenger or the
latter's heirs. The basis of this allocation of liability was explained in Viluan v.
Court of Appeals, thus:
Nor should it make any difference that the liability of petitioner [bus owner]
springs from contract while that of respondents [owner and driver of other
vehicle] arises from quasi-delict. As early as 1913, we already ruled in
Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to
the negligence of the driver of the bus on which he was riding and of the driver of
another vehicle, the drivers as well as the owners of the two vehicles are jointly
and severally liable for damages. x x x
xxxx
As in the case of BLTB, private respondents in this case and her co-plaintiffs did
not stake out their claim against the carrier and the driver exclusively on one

theory, much less on that of breach of contract alone.After all, it was permitted
for them to allege alternative causes of action and join as many parties as
may be liable on such causes of action so long as private respondent and
her co-plaintiffs do not recover twice for the same injury. What is clear from
the cases is the intent of the plaintiff there to recover from both the carrier and
the driver, thus justifying the holding that the carrier and the driver were jointly
and severally liable because their separate and distinct acts concurred to
produce the same injury.16(Emphasis supplied)
In a "joint" obligation, each obligor answers only for a part of the whole liability; in a
"solidary" or "joint and several" obligation, the relationship between the active and the
passive subjects is so close that each of them must comply with or demand the
fulfillment of the whole obligation. In Lafarge Cement v. Continental Cement
Corporation,17we reiterated that joint tort feasors are jointly and severally liable for the
tort which they commit. Citing Worcester v. Ocampo,18 we held that:
x x x The difficulty in the contention of the appellants is that they fail to recognize
that the basis of the present action is tort. They fail to recognize the universal
doctrine that each joint tort feasor is not only individually liable for the tort in
which he participates, but is also jointly liable with his tort feasors. x x x
It may be stated as a general rule that joint tort feasors are all the persons who
command, instigate, promote, encourage, advise, countenance, cooperate in, aid
or abet the commission of a tort, or who approve of it after it is done, if done for
their benefit. They are each liable as principals, to the same extent and in the
same manner as if they had performed the wrongful act themselves. x x x
Joint tort feasors are jointly and severally liable for the tort which they commit.
The persons injured may sue all of them or any number less than all. Each is
liable for the whole damages caused by all, and all together are jointly liable for
the whole damage. It is no defense for one sued alone, that the others who
participated in the wrongful act are not joined with him as defendants; nor is it
any excuse for him that his participation in the tort was insignificant as compared
to that of the others. x x x
Joint tort feasors are not liable pro rata. The damages can not be apportioned
among them, except among themselves. They cannot insist upon an
apportionment, for the purpose of each paying an aliquot part. They are jointly
and severally liable for the whole amount. x x x
A payment in full for the damage done, by one of the joint tort feasors, of course
satisfies any claim which might exist against the others. There can be but
satisfaction. The release of one of the joint tort feasors by agreement generally
operates to discharge all. x x x

Of course the court during trial may find that some of the alleged tort feasors are
liable and that others are not liable. The courts may release some for lack of
evidence while condemning others of the alleged tort feasors. And this is true
even though they are charged jointly and severally.19
Petitioner's claim that paragraph 2 of the dispositive portion of the trial court's decision
is ambiguous and arbitrary and also entitles respondents to recover twice is without
basis. In the body of the trial court's decision, it was clearly stated that petitioner and its
driver Payunan, Jr., are jointly and solidarily liable for moral damages in the amount of
P50,000.00 to respondent Fletcher and P25,000.00 to respondent Estrella. 20 Moreover,
there could be no double recovery because the award in paragraph 2 is for moral
damages while the award in paragraph 1 is for actual damages and attorney's fees.
Petitioner next claims that the damages, attorney's fees, and legal interest awarded by
the Court of Appeals are excessive.
Moral damages may be recovered in quasi-delicts causing physical injuries. 21 The award
of moral damages in favor of Fletcher and Estrella in the amount of P80,000.00 must be
reduced since prevailing jurisprudence fixed the same at P50,000.00. 22 While moral
damages are not intended to enrich the plaintiff at the expense of the defendant, the
award should nonetheless be commensurate to the suffering inflicted. 23
The Court of Appeals correctly awarded respondents exemplary damages in the amount
of P20,000.00 each. Exemplary damages may be awarded in addition to moral and
compensatory damages.24 Article 2231 of the Civil Code also states that in quasi-delicts,
exemplary damages may be granted if the defendant acted with gross negligence. 25 In
this case, petitioner's driver was driving recklessly at the time its truck rammed the
BLTB bus. Petitioner, who has direct and primary liability for the negligent conduct of its
subordinates, was also found negligent in the selection and supervision of its
employees. In Del Rosario v. Court of Appeals,26 we held, thus:
ART. 2229 of the Civil Code also provides that such damages may be imposed,
by way of example or correction for the public good. While exemplary damages
cannot be recovered as a matter of right, they need not be proved, although
plaintiff must show that he is entitled to moral, temperate or compensatory
damages before the court may consider the question of whether or not
exemplary damages should be awarded. Exemplary Damages are imposed not
to enrich one party or impoverish another but to serve as a deterrent against or
as a negative incentive to curb socially deleterious actions.
Regarding attorney's fees, we held in Traders Royal Bank Employees UnionIndependent v. National Labor Relations Commission, 27 that:
There are two commonly accepted concepts of attorney's fees, the so-called
ordinary and extraordinary. In its ordinary concept, an attorney's fee is the
reasonable compensation paid to a lawyer by his client for the legal services he

has rendered to the latter. The basis of this compensation is the fact of his
employment by and his agreement with the client.
In its extraordinary concept, an attorney's fee is an indemnity for damages
ordered by the court to be paid by the losing party in a litigation. The basis
of this is any of the cases provided by law where such award can be made, such
as those authorized in Article 2208, Civil Code, and is payable not to the lawyer
but to the client, unless they have agreed that the award shall pertain to the
lawyer as additional compensation or as part thereof. 28 (Emphasis supplied)
In the instant case, the Court of Appeals correctly awarded attorney's fees and other
expenses of litigation as they may be recovered as actual or compensatory damages
when exemplary damages are awarded; when the defendant acted in gross and evident
bad faith in refusing to satisfy the plaintiff's valid, just and demandable claim; and in any
other case where the court deems it just and equitable that attorney's fees and
expenses of litigation should be recovered.29
Regarding the imposition of legal interest at the rate of 6% from the time of the filing of
the complaint, we held inEastern Shipping Lines, Inc. v. Court of Appeals,30 that when an
obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts is breached, the contravenor can be held liable for payment of interest in the
concept of actual and compensatory damages,31 subject to the following rules, to wit
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. 32 (Emphasis supplied)
Accordingly, the legal interest of 6% shall begin to run on February 9, 1993 when the
trial court rendered judgment and not on February 4, 1980 when the complaint was
filed. This is because at the time of the filing of the complaint, the amount of the
damages to which plaintiffs may be entitled remains unliquidated and unknown, until it is
definitely ascertained, assessed and determined by the court and only upon
presentation of proof thereon.33 From the time the judgment becomes final and
executory, the interest rate shall be 12% until its satisfaction.
Anent the last issue of whether petitioner can recover under its insurance policy from
Phoenix, we affirm the findings of both the trial court and the Court of Appeals, thus:
As regards the liability of Phoenix, the court a quo correctly ruled that defendantappellant CDCP's claim against Phoenix already prescribed pursuant to Section
384 of P.D. 612, as amended, which provides:
Any person having any claim upon the policy issued pursuant to this
chapter shall, without any unnecessary delay, present to the insurance
company concerned a written notice of claim setting forth the nature,
extent and duration of the injuries sustained as certified by a duly licensed
physician. Notice of claim must be filed within six months from date of the
accident, otherwise, the claim shall be deemed waived. Action or suit for
recovery of damage due to loss or injury must be brought in proper cases,
with the Commissioner or Courts within one year from denial of the claim,
otherwise, the claimant's right of action shall prescribe. (As amended by
PD 1814, BP 874.)34
The law is clear and leaves no room for interpretation. A written notice of claim must be
filed within six months from the date of the accident. Since petitioner never made any
claim within six months from the date of the accident, its claim has already prescribed.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 46896 dated March 29, 2001, which modified the Decision of the
Regional Trial Court of Manila, Branch 13, in Civil Case No. R-82-2137, is AFFIRMED
with the MODIFICATIONS that petitioner is held jointly and severally liable to pay (1)
actual damages in the amount of P79,354.43; (2) moral damages in the amount of
P50,000.00 each for Rachel Fletcher and Rebecca Estrella; (3) exemplary damages in
the amount of P20,000.00 each for Rebecca Estrella and Rachel Fletcher; and (4) thirty
percent (30%) of the total amount recovered as attorney's fees. The total amount
adjudged shall earn interest at the rate of 6% per annum from the date of judgment of
the trial court until finality of this judgment. From the time this Decision becomes final
and executory and the judgment amount remains unsatisfied, the same shall earn
interest at the rate of 12% per annum until its satisfaction.

SO ORDERED.