84 Parisma vs. Menchavez

4/11/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 614
SO ORDERED.
Carpio (Chairperson), Brion, Abad and Perez, JJ.,

concur.
Petition granted, judgment and resolution reversed and

set aside.
Note.—Criteria to determine the existence of “Labor-

only” contracting. (Mandaue Galleon Trade, Inc. vs.
Andales, 548 SCRA 17 [2008])
——o0o——
G.R. No. 160545. March 9, 2010.*
PRISMA CONSTRUCTION & DEVELOPMENT

CORPORATION and ROGELIO S. PANTALEON,
petitioners, vs. ARTHUR F. MENCHAVEZ, respondent.
Civil Law; Contracts; Interpretation of Contracts; 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; 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.—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. In such
cases, courts have no authority to alter the contract by
construction or to make a new contract for the parties; a court’s
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
_______________
* SECOND DIVISION.
591
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VOL. 614, March 9, 2010 591
Prisma Construction & Development Corporation vs. Menchavez
contract is vague and ambiguous that courts are permitted to

resort to the interpretation of its terms to determine the parties’
intent.
Same; Same; Interest Rates; Two conditions for the payment
of interest in loans of forbearance of money; Collection of interest
without any stipulation in writing is prohibited by law.—Article
1956 of the Civil Code specifically mandates that “no interest
shall be due unless it has been expressly stipulated in writing.”
Under this provision, 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. Thus, we held in Tan v. Valdehueza, 66 SCRA 61
(1975) and Ching v. Nicdao, 522 SCRA 316 (2007) that collection
of interest without any stipulation in writing is prohibited by law.
Same; Same; 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 stipulation, clauses,
terms and conditions are not contrary to law, morals, public order
or public policy.—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.
Corporation Law; Doctrine of Piercing the Corporate Veil;
Three instances when the doctrine applies; In the absence of
malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally
liable for corporate liabilities.—The doctrine of piercing the
corporate veil applies only in three (3) basic instances, namely: a)
when the separate and distinct corporate personality defeats
public convenience, as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; b) in fraud cases,
or when the corporate entity is used to justify
592
592 SUPREME COURT REPORTS ANNOTATED
a wrong, protect a fraud, or defend a crime; or c) is used in alter

ego cases, i.e., where a corporation is essentially a farce, since it is
a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs so
conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation. In the absence of
malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally
liable for corporate liabilities.
PETITION for review on certiorari of the decision and

resolution of the Court of Appeals Former Ninth
Division.
The facts are stated in the opinion of the Court.
Cordova, Perez and Rigoroso Law Offices for
petitioners.
Yulo & Bello Law Offices for respondent.
BRION, J.:
We resolve in this Decision the petition for review on
certiorari1 filed by petitioners Prisma Construction &
Development Corporation (PRISMA) and Rogelio S.
Pantaleon (Pantaleon) (collectively, petitioners) who seek to
reverse and set aside the Decision2 dated May 5, 2003 and
the Resolution3 dated October 22, 2003 of the Former
Ninth Division of the Court of Appeals (CA) in CA-G.R. CV
No. 69627. The assailed CA Decision affirmed the Decision
of the Regional Trial Court (RTC), Branch 73, Antipolo City
in Civil Case No. 97-4552 that held the petitioners liable
for payment of P3,526,117.00 to respondent Arthur F.
Menchavez (respondent), but modified the interest rate
from 4% per month to 12% per annum, computed from the
filing of the complaint to full payment. The assailed CA
Resolution denied the petitioners’ Motion for
Reconsideration.
_______________
1 Filed under Rule 45 of the 1997 Rules of Civil Procedure.

2 Penned by Associate Justice Jose L. Sabio, Jr. (retired), with
Associate Justice B.A. Adefuin-De La Cruz (retired) and Associate Justice
Hakim S. Abdulwahid concurring. See Rollo, pp. 29-38.
3 Id., at pp. 52-53.
593
VOL. 614, March 9, 2010 593

Prisma Construction ### Development Corporation vs.
Menchavez
Factual Background
The facts of the case, gathered from the records, are
briefly summarized below.
On December 8, 1993, Pantaleon, the President and
Chairman of the Board of PRISMA, obtained a
P1,000,000.004 loan from the respondent, with a
monthly interest of P40,000.00 payable for six
months, or a total obligation of P1,240,000.00 to be paid
within six (6) months,5 under the following schedule of
payments:
January 8, 1994.......................P40,000.00
February 8, 1994......................P40,000.00
March 8, 1994..........................P40,000.00
April 8, 1994.............................P40,000.00
May 8, 1994............................. P40,000.00
June 8, 1994....................... P1,040,000.006
Total P1,240,000.00
To secure the payment of the loan, Pantaleon issued a

promissory note7 that states:
“I, Rogelio S. Pantaleon, hereby acknowledge the receipt of

ONE MILLION TWO HUNDRED FORTY THOUSAND PESOS
(P1,240,000), Philippine Currency, from Mr. Arthur F.
Menchavez, representing a six-month loan payable according to
the following schedule:
January 8, 1994.........................P40,000.00
February 8, 1994........................P40,000.00
_______________
4 Exhibit “A,” Folder II, Exhibits “A” to “E” and Submarkings (for the Plaintiff),
p. 1; TSN, Testimony of Arthur F. Menchavez, April 12, 1999, pp. 2-4.
5 TSN, Testimony of Arthur F. Menchavez, April 12, 1999, pp. 9-10.
6 Original Records, p. 8.
7 Exhibit “C,” Folder II, Exhibits “A” to “E” and Submarkings (for the Plaintiff),
p. 5.
594

March 8, 1994............................P40,000.00
April 8, 1994.............................. P40,000.00
May 8, 1994................................P40,000.00
June 8, 1994............................P1,040,000.00
The checks corresponding to the above amounts are hereby
acknowledged.8
and six (6) postdated checks corresponding to the schedule

of payments. Pantaleon signed the promissory note in his
personal capacity,9 and as duly authorized by the Board of
Directors of PRISMA.10 The petitioners failed to completely
pay the loan within the stipulated six (6)-month period.
From September 8, 1994 to January 4, 1997, the
petitioners paid the following amounts to the respondent:
September 8, 1994..................P320,000.00
October 8, 1995......................P600,000.00
November 8, 1995..................P158,772.00
January 4, 1997.....................P 30,000.0011
As of January 4, 1997, the petitioners had already paid a

total of P1,108,772.00. However, the respondent found that
the petitioners still had an outstanding balance of
P1,364,151.00 as of January 4, 1997, to which it applied a
4% monthly interest.12 Thus, on August 28, 1997, the
respondent filed a complaint for sum of money with the
RTC to enforce the unpaid balance, plus 4% monthly
interest, P30,000.00 in attorney’s fees, P1,000.00 per court
appearance and costs of suit.13
_______________
9 Ibid.
10 Exhibit “B,” Folder II, Exhibits “A” to “E” and Submarkings (for the
Plaintiff), p. 2.
11 Exhibit “E,” Folder II, Exhibits “A” to “E” and Submarkings (for the
Plaintiff), p. 2.
12 Ibid.
13 Original Records, pp. 1-7.
595
VOL. 614, March 9, 2010 595

Menchavez
In their Answer dated October 6, 1998, 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.14
The RTC Ruling
The RTC rendered a Decision on October 27, 2000

finding that the respondent issued a check for
P1,000,000.00 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. It noted that the
petitioners made several payments amounting to
P1,228,772.00, but they were still indebted to the
respondent for P3,526,117.00 as of February 11,15 1999
after considering the 4% monthly interest. The RTC
observed that PRISMA was a one-man corporation of
Pantaleon and used this circumstance to justify the
piercing of the veil of corporate fiction. Thus, the 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.16
The petitioners elevated the case to the CA via an
ordinary appeal under Rule 41 of the Rules of Court,
insisting that there was no express stipulation on the 4%
monthly interest.
The CA Ruling
The CA decided the appeal on May 5, 2003. The CA

found that the parties agreed to a 4% monthly interest
principally based on the board resolution that authorized
Pantaleon to
_______________

14 Id., at pp. 29-31.
15 The date of the last payment made by the petitioners should be
“February 12, 1999,” per Exhibit “E,” Folder II, Exhibits “A” to “E” and
Submarkings (for the Plaintiff), p. 2.
16 Id., at pp. 99-106.
596

Menchavez
transact a loan with an approved interest of not more

than 4% per month. The appellate court, however, noted
that the interest of 4% per month, or 48% per annum, was
unreasonable and should be reduced to 12% per annum.
The CA affirmed the RTC’s finding that PRISMA was a
mere instrumentality of Pantaleon that justified the
piercing of the veil of corporate fiction. Thus, the CA
modified the RTC Decision by imposing a 12% per annum
interest, computed from the filing of the complaint until
finality of judgment, and thereafter, 12% from finality until
fully paid.17
After the CA’s denial18 of their motion for
reconsideration,19 the petitioners filed the present petition
for review on certiorari under Rule 45 of the Rules of Court.
The Petition
The petitioners submit that the CA mistakenly relied on

their board resolution to conclude that the parties agreed to
a 4% monthly interest because the board resolution was not
an evidence of a loan or forbearance of money, but merely
an authorization for Pantaleon to perform certain acts,
including the power to enter into a contract of loan. The
expressed mandate of Article 1956 of the Civil Code is that
interest due should be stipulated in writing, and no such
stipulation exists. Even assuming that the loan is subject
to 4% monthly interest, the interest covers the six (6)-
month period only and cannot be interpreted to apply
beyond it. The petitioners also point out the glaring
inconsistency in the CA Decision, which reduced the
interest from 4% per month or 48% per annum to 12% per
annum, but failed to consider that the amount of
P3,526,117.00 that the RTC ordered them to pay includes
the compounded 4% monthly interest.
_______________
17 Supra note 2.
18 Resolution of October 22, 2003; Rollo, pp. 52-53.
19 Id., at pp. 43-60.
597
VOL. 614, March 9, 2010 597
Prisma Construction & Development Corporation vs.

Menchavez
The Case for the Respondent
The respondent counters that the CA correctly ruled

that the loan is subject to a 4% monthly interest because
the board resolution is attached to, and an integral part of,
the promissory note based on which the petitioners
obtained the loan. The respondent further contends that
the petitioners are estopped from assailing the 4% monthly
interest, since they agreed to pay the 4% monthly interest
on the principal amount under the promissory note and the
board resolution.
The Issue
The core issue boils down to 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?
Our Ruling
We find the petition 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.20 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.21 In
such cases, courts have no authority to alter the contract by
construction or to make a new contract for the parties; a
court’s duty is confined to the interpretation of the contract
the parties made
_______________
20 Article 1159, Civil Code; Dumlao v. Marlon Realty Corporation, G.R.

131491, August 17, 2007, 530 SCRA 427, 430.
21 Article 1370, Civil Code.
598

Menchavez
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.22 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
P1,000,000.00.23 In turn, Pantaleon, in his personal
capacity and as authorized by the Board, executed the
promissory note quoted above. Thus, the P1,000,000.00
loan shall be payable within six (6) months, or from
January 8, 1994 up to June 8, 1994. During this period, 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.” Under this provision, 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. Thus, we held in Tan v. Valdehueza24 and
Ching v. Nicdao25 that collection of interest without any
stipulation in writing is prohibited by law.
_______________
22 Cuison v. Court of Appeals, G.R. No. 102096, August 22, 1996, 260
SCRA 645, 667.
23 Exhibit “A,” Folder II, Exhibits “A” to “E” and Submarkings (for the
Plaintiff), p. 1; TSN, Testimony of Arthur F. Menchavez, April 12, 1999,
pp. 2-4.
24 160 Phil. 760, 767; 66 SCRA 61, 66 (1975).
25 G.R. No. 141181, April 27, 2007, 522 SCRA 316, 361.
599
VOL. 614, March 9, 2010 599

Menchavez
Applying this provision, we find that the interest of

P40,000.00 per month corresponds only to the six (6)-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, consistent with our ruling
in Eastern Shipping Lines, Inc. v. Court of Appeals:26
“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.” (Emphasis supplied)
We reiterated this ruling in Security Bank and Trust Co.

v. RTC-Makati, Br. 61,27 Sulit v. Court of Appeals,28
Crismina Garments, Inc. v. Court of Appeals,29 Eastern
Assurance and Surety Corporation v. Court of Appeals,30
Sps. Catungal v. Hao,31 Yong v. Tiu,32 and Sps. Barrera v.
Sps. Lorenzo.33 Thus, the RTC and the CA misappreciated
the facts of the case; they erred in finding that the parties
agreed to a 4% interest, compounded by the application of
this interest beyond the promissory note’s six (6)-month
period. 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 six (6)-month period.
_______________
26 G.R. No. 97412, July 12, 1994, 234 SCRA 78.

27 331 Phil. 787; 263 SCRA 483 (1996).
28 335 Phil. 914; 268 SCRA 441 (1997).
29 363 Phil. 701; 304 SCRA 356 (1999).
30 379 Phil. 84; 322 SCRA 73 (2000).
31 407 Phil. 309; 355 SCRA 29 (2001).
32 426 Phil. 331; 375 SCRA 614 (2002).
33 438 Phil. 42; 389 SCRA 329 (2002).
600

Menchavez
Medel v. Court of Appeals

not applicable
The CA misapplied Medel v. Court of Appeals34 in
finding that a 4% interest per month was unconscionable.
In Medel, the debtors in a P500,000.00 loan were
required to pay an interest of 5.5% per month, a service
charge of 2% per annum, and a penalty charge of 1% per
month, plus attorney’s fee equivalent to 25% of the amount
due, until the loan is fully paid. Taken in conjunction with
the stipulated service charge and penalty, we found the
interest rate of 5.5% to be excessive, iniquitous,
unconscionable, exorbitant and hence, contrary to morals,
thereby rendering the stipulation null and void.
Applying Medel, we invalidated and reduced the
stipulated interest in Spouses Solangon v. Salazar35 of 6%
per month or 72% per annum interest on a P60,000.00 loan;
in Ruiz v. Court of Appeals,36 of 3% per month or 36% per
annum interest on a P3,000,000.00 loan; in Imperial v.
Jaucian,37 of 16% per month or 192% per annum interest
on a P320,000.00 loan; in Arrofo v. Quiño,38 of 7% interest
per month or 84% per annum interest on a P15,000.00 loan;
in Bulos, Jr. v. Yasuma,39 of 4% per month or 48% per
annum interest on a P2,500,000.00 loan; and in Chua v.
Timan,40 of 7% and 5% per month for loans totalling
P964,000.00. We note that in all these cases, the terms of
the loans were open-ended; the stipulated interest rates
were applied for an indefinite period.
Medel finds no application in the present case where no
other stipulation exists for the payment of any extra
amount
_______________
34 359 Phil. 820; 299 SCRA 481 (1998).

35 412 Phil. 816; 360 SCRA 379 (2001).
36 449 Phil. 419; 401 SCRA 410(2003).
37 471 Phil. 484; 427 SCRA 517 (2004).
38 490 Phil. 179; 449 SCRA 284 (2005).
39 G.R. No. 139290, May 19, 2006, 490 SCRA 1.
40 G.R. No. 170452, August 13, 2008, 562 SCRA 146.
601
VOL. 614, March 9, 2010 601

Menchavez
except a specific sum of P40,000.00 per month on the

principal of a loan payable within six months. Additionally,
no issue on the excessiveness of the stipulated amount of
P40,000.00 per month was ever put in issue by the
petitioners;41 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.42 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
P1,000,000.00 shall earn P40,000.00 per month for a period
of six (6) months, or from December 8, 1993 to June 8,
1994, 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 to
P1,228,772.00 as of February 12, 1999,43 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.
_______________
41 See Sps. Pascual v. Ramos, 433 Phil. 449; 384 SCRA 105 (2002).
42 Barredo v. Leaño, G.R. No. 156627, June 4, 2004, 431 SCRA 106,
113-114; Odyssey Park, Inc. v. Court of Appeals, 345 Phil. 475, 485; 280
SCRA 253, 261 (2001).
43 Supra note 14.
602

Menchavez
Doctrine of Estoppel not applicable

The respondent submits that the petitioners are
estopped from disputing the 4% monthly interest beyond
the six-month stipulated period, since they agreed to pay
this interest on the principal amount under the promissory

note and the board resolution.
We disagree with the respondent’s contention.
We cannot apply the doctrine of estoppel in the present
case since the facts and circumstances, as established by
the record, negate its application. Under the promissory
note,44 what the petitioners agreed to was the payment of a
specific sum of P40,000.00 per month for six months—
not a 4% rate of interest per month for six (6) months
—on a loan whose principal is P1,000,000.00, for the
total amount of P1,240,000.00. Thus, no reason exists to
place the petitioners in estoppel, barring them from raising
their present defenses against a 4% per month interest
after the six-month period of the agreement. The board
resolution,45 on the other hand, simply authorizes
Pantaleon to contract for a loan with a monthly interest of
not more than 4%. This resolution merely embodies the
extent of Pantaleon’s authority to contract and does not
create any right or obligation except as between Pantaleon
and the board. Again, no cause exists to place the
petitioners in estoppel.
Piercing the corporate veil unfounded
We find it unfounded and unwarranted for the lower
courts to pierce the corporate veil of PRISMA.
The doctrine of piercing the corporate veil applies only
in three (3) basic instances, namely: a) when the separate
and
_______________
45 Exhibit “B,” Folder II, Exhibits “A” to “E” and Submarkings (for the
Plaintiff), p. 2.
603
VOL. 614, March 9, 2010 603

Menchavez
distinct corporate personality defeats public convenience,

as when the corporate fiction is used as a vehicle for the
evasion of an existing obligation; b) in fraud cases, or when
the corporate entity is used to justify a wrong, protect a
fraud, or defend a crime; or c) is used in alter ego cases, i.e.,
where a corporation is essentially a farce, since it is a mere
alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs so
conducted as to make it merely an instrumentality, agency,

conduit or adjunct of another corporation.46 In the absence
of malice, bad faith, or a specific provision of law making a
corporate officer liable, such corporate officer cannot be
made personally liable for corporate liabilities.47
In the present case, we see no competent and convincing
evidence of any wrongful, fraudulent or unlawful act on the
part of PRISMA to justify piercing its corporate veil. While
Pantaleon denied personal liability in his Answer, he made
himself accountable in the promissory note “in his personal
capacity and as authorized by the Board Resolution” of
PRISMA.48 With this statement of personal liability and in
the absence of any representation on the part of PRISMA
that the obligation is all its own because of its separate
corporate identity, we see no occasion to consider piercing
the corporate veil as material to the case.
WHEREFORE, in light of all the foregoing, we hereby
REVERSE and SET ASIDE the Decision dated May 5, 2003
of the Court of Appeals in CA-G.R. CV No. 69627. The
petitioners’ loan of P1,000,000.00 shall bear interest of
P40,000.00
_______________
46 General Credit Corporation v. Alsons Development and Investment

Corporation, G.R. No. 154975, January 29, 2007, 513 SCRA 225, 235, 238,
239; PNB v. Ritratto Group, Inc., 414 Phil. 494, 505; 362 SCRA 216, 226
(2001).
47 McLeod v. National Labor Relations Commission, G.R. No. 146667,
January 23, 2007, 512 SCRA 222, 253.
48 Exhibit “C,” Folder II, Exhibits “A” to “E” and Submarkings (for the
Plaintiff), p. 5.
604

Menchavez
per month for six (6) months from December 8, 1993 as

indicated in the promissory note. Any portion of this loan,
unpaid as of the end of the six-month payment period, shall
thereafter bear interest at 12% per annum. The total
amount due and unpaid, including accrued interests, shall
bear interest at 12% per annum from the finality of this
Decision. Let this case be REMANDED to the Regional
Trial Court, Branch 73, Antipolo City for the proper
computation of the amount due as herein directed, with
due regard to the payments the petitioners have already

remitted. Costs against the respondent.
SO ORDERED.
Nachura,** Del Castillo, Abad and Perez, JJ., concur.
Judgment reversed and set aside.
Note.—Jurisprudence empowers courts to equitably

reduce interest rates. (Land Bank of the Philippines vs.
David, 563 SCRA 172 [2008])
——o0o——
_______________
** Designated additional Member of the Second Division in lieu of

Associate Justice Antonio T. Carpio per Raffle dated March 1, 2010.
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4/11/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 614

Carpio (Chairperson), Brion, Abad and Perez, JJ.,

Petition granted, judgment and resolution reversed and

Note.—Criteria to determine the existence of “Labor-

G.R. No. 160545. March 9, 2010.*

PRISMA CONSTRUCTION & DEVELOPMENT

Civil Law; Contracts; Interpretation of Contracts; When the

VOL. 614, March 9, 2010 591

Prisma Construction & Development Corporation vs. Menchavez

contract is vague and ambiguous that courts are permitted to

592 SUPREME COURT REPORTS ANNOTATED

Prisma Construction & Development Corporation vs. Menchavez

a wrong, protect a fraud, or defend a crime; or c) is used in alter

PETITION for review on certiorari of the decision and

1 Filed under Rule 45 of the 1997 Rules of Civil Procedure.

3 Id., at pp. 52-53.

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To secure the payment of the loan, Pantaleon issued a

“I, Rogelio S. Pantaleon, hereby acknowledge the receipt of

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and six (6) postdated checks corresponding to the schedule

As of January 4, 1997, the petitioners had already paid a

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In their Answer dated October 6, 1998, the petitioners

The RTC Ruling

The RTC rendered a Decision on October 27, 2000

The CA decided the appeal on May 5, 2003. The CA

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transact a loan with an approved interest of not more

The petitioners submit that the CA mistakenly relied on

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Prisma Construction & Development Corporation vs.

The Case for the Respondent

The respondent counters that the CA correctly ruled

The core issue boils down to whether the parties agreed

We find the petition meritorious.

20 Article 1159, Civil Code; Dumlao v. Marlon Realty Corporation, G.R.

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for themselves without regard to its wisdom or folly, as the

VOL. 614, March 9, 2010 599

Applying this provision, we find that the interest of

“When the obligation is breached, and it consists in the payment

We reiterated this ruling in Security Bank and Trust Co.

26 G.R. No. 97412, July 12, 1994, 234 SCRA 78.

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Medel v. Court of Appeals

34 359 Phil. 820; 299 SCRA 481 (1998).

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except a specific sum of P40,000.00 per month on the

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Doctrine of Estoppel not applicable

this interest on the principal amount under the promissory

VOL. 614, March 9, 2010 603

distinct corporate personality defeats public convenience,

conducted as to make it merely an instrumentality, agency,

46 General Credit Corporation v. Alsons Development and Investment

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per month for six (6) months from December 8, 1993 as

due regard to the payments the petitioners have already

Nachura,** Del Castillo, Abad and Perez, JJ., concur.

Judgment reversed and set aside.

Note.—Jurisprudence empowers courts to equitably

** Designated additional Member of the Second Division in lieu of

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