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THIRD DIVISION

[G.R. No. 131622. November 27, 1998]

LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO


FRANCO, petitioners, vs. COURT OF APPEALS, SPOUSES
VERONICA R. GONZALES and DANILO G. GONZALES, JR., doing
lending business under the trade name and style "GONZALES
CREDIT ENTERPRISES", respondents.

DECISION
PARDO, J.:

The case before the Court is a petition for review on certiorari, under Rule 45 of the
Revised Rules of Court, seeking to set aside the decision of the Court of Appeals, [1] and its
resolution denying reconsideration,[2] the dispositive portion of which decision reads as follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED
such that defendants are hereby ordered to pay the plaintiff: the sum
of P500,000.00, plus 5.5% per month interest and 2% service charge
per annum effective July 23, 1986, plus 1% per month of the total
amount due and demandable as penalty charges effective August 23,
1986, until the entire amount is fully paid.
"The award to the plaintiff of P50,000.00 as attorney's fees is
affirmed. And so is the imposition of costs against the defendants.

SO ORDERED."[3]

The Court required the respondents to comment on the petition,[4] which was filed on April 3,
1998,[5] and the petitioners to reply thereto, which was filed on May 29, 1998.[6] We now resolve
to give due course to the petition and decide the case.
The facts of the case, as found by the Court of Appeals in its decision, which are considered
binding and conclusive on the parties herein, as the appeal is limited to questions of law, are as
follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia)
obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money
lending business under the name "Gonzales Credit Enterprises", in the amount of P50,000.00,
payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she
retained P3,000.00, as advance interest for one month at 6% per month. Servado and Leticia
executed a promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the
amount of P90,000.00, payable in two months, at 6% interest per month. They executed a
promissory note to evidence the loan, maturing on January 19, 1986. They received
only P84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the
amount of P300,000.00, maturing in one month, secured by a real estate mortgage over a
property belonging to Leticia Makalintal Yaptinchay, who issued a special power of attorney in
favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a
promissory note in favor of Veronica to pay the sum of P300,000.00, after a month, or on July
11, 1986. However, only the sum of P275,000.00, was given to them out of the proceeds of the
loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel,
consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica
another loan in the amount of P60,000.00, bringing their indebtedness to a total of P500,000.00,
payable on August 23, 1986. The executed a promissory note, reading as follows:

"Baliwag, Bulacan July 23, 1986


"Maturity Date August 23, 1986

"P500,000.00
"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the
order of VERONICA R. GONZALES doing business in the business style of
GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to
Danilo G. Gonzales, Jr., of Baliwag Bulacan, the sum of PESOS ........ FIVE
HUNDRED THOUSAND ..... (P500,000.00) Philippine
Currency with interest thereonat the rate of 5.5 PER CENT per month plus 2
% service charge per annum from date hereof until fully paid according to the
amortization schedule contained herein. (Underscoring supplied)
"Payment will be made in full at the maturity date.
"Should I/WE fail to pay any amortization or portion hereof when due, all the
other installments together with all interest accrued shall immediately be due
and payable and I/WE hereby agree to pay
an additional amount equivalent to one per cent (1%) per month of the amount 
due and demandable as penalty charges in the form of liquidated damages unti
l fully paid; and the
further sum ofTWENTY FIVE PER CENT (25%) thereon in full, without
deductions as Attorney's Fee whether actually incurred or not, of the total
amount due and demandable, exclusive of costs and judicial or extra judicial
expenses. (Underscoring supplied)
"I, WE further agree that in the event the present rate of interest on loan is
increased by law or the Central Bank of the Philippines, the holder shall have
the option to apply and collect the increased interest charges without notice
although the original interest have already been collected wholly or partially
unless the contrary is required by law.
"It is also a special condition of this contract that the parties herein agree that
the amount of peso-obligation under this agreement is based on the present
value of peso, and if there be any change in the value thereof, due to
extraordinary inflation or deflation, or any other cause or reason, then the
peso-obligation herein contracted shall be adjusted in accordance with the
value of the peso then prevailing at the time of the complete fulfillment of
obligation.
"Demand and notice of dishonor waived. Holder may accept partial payments
and grant renewals of this note or extension of payments, reserving rights
against each and all indorsers and all parties to this note.
"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the
debtors waive all his/their rights under the provisions of Section 12, Rule 39,
of the Revised Rules of Court."
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus
interests and penalties, evidenced by the above-quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales,
filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for
collection of the full amount of the loan including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando
alleged that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr.
Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and actually received
the amount and benefited therefrom; that the loan was secured by a real estate mortgage executed
in favor of the plaintiffs, and that he (Servando Franco) signed the promissory note only as a
witness.
In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged
that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the
plaintiffs over a parcel of real estate situated in San Juan, Batangas; that the interest rate is
excessive at 5.5% per month with additional service charge of 2% per annum, and penalty charge
of 1% per month; that the stipulation for attorney's fees of 25% ofthe amount due is
unconscionable, illegal and excessive, and that substantial payments made were applied to
interest, penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness of the four
promissory notes had been duly proved, and ruled that although the Usury Law had been
repealed, the interest charged by the plaintiffs on the loans was unconscionable and "revolting to
the conscience". Hence, the trial court applied "the provision of the New [Civil] Code" that the
"legal rate of interest for loan or forbearance of money, goods or credit is 12% per annum."[7]
Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive
portion of which reads as follows:

"WHEREFORE, premises considered, judgment is hereby rendered, as follows:

"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally,
to pay plaintiffs the amount of P47,000.00 plus 12% interest per annum from
November 7, 1985 and 1% per month as penalty, until the entire amount is paid in
full.

"2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs,


jointly and severally the amount of P84,000.00 with 12% interest per annum and 1%
per cent per month as penalty from November 19,1985 until the whole amount is fully
paid;

"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount
of P285,000.00 plus 12% interest per annum and 1% per month as penalty from July
11, 1986, until the whole amount is fully paid;

"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount
of P50,000.00 as attorney's fees;

"5. All counterclaims are hereby dismissed.

"With costs against the defendants."[8]

In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all
the unpaid loans of the defendants, is the law that governs the parties. They further argued that
Circular No. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of
money, goods or credit at 12% per annum, applies only in the absence of a stipulation on interest
rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury
Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of
Circular No. 905, the lender and borrower could agree on any interest that may be charged on the
loan".[9] The Court of Appeals further held that "the imposition of 'an additional amount
equivalent to 1% per month of the amount due and demandable as penalty charges in the form of
liquidated damages until fully paid' was allowed by law".[10]
Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing
that of the Regional Trial Court, disposing as follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED
such that defendants are hereby ordered to pay the plaintiffs the sum
of P500,000.00, plus 5.5% per month interest and 2% service charge
per annum effective July 23, 1986, plus 1% per month of the total
amount due and demandable as penalty charges effective August 24,
1986, until the entire amount is fully paid.
"The award to the plaintiffs of P50,000.00 as attorney's fees is
affirmed. And so is the imposition of costs against the defendants.
"SO OREDERED."[11]
On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said
decision. By resolution dated November 25, 1997, the Court of Appeals denied the motion.[12]
Hence, defendants interposed the present recourse via  petition for review on certiorari.[13]
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the
question presented is whether or not the stipulated rate of interest at 5.5% per month on the loan
in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious. In other words,
is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905,
adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D.
No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month on
the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant.13 However, we can
not consider the rate "usurious" because this Court has consistently held that Circulr No. 905 of
the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings
prescribed by the Usury Law[14] and that the Usury Law is now "legally inexistent".[15]
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 [16] the
Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but
simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank Circular can
not repeal a law. Only a law can repeal another law."[17] In the recent case of Florendo vs. Court
of Appeals[18], the Court reiterated the ruling that "by virtue of CB Circular 905, the Usury Law
has been rendered ineffective". "Usury has been legally non-existent in our jurisdiction. Interest
can now be charged as lender and borrower may agree upon."[19]
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by
the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals
("contra bonos mores"), if not against the law.[20] The stipulation is void.[21] The courts shall
reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable.[22]
Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather,
we agree with the trial court that, under the circumstances, interest at 12% per annum, and an
additional 1% a month penalty charge as liquidated damages may be more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court
of Appeals promulgated on March 21, 1997, and its resolution dated November 25,
1997. Instead, we render judgment REVIVING and AFFIRMING the decision dated December
9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No.
134-M-90, involving the same parties.
No pronouncement as to costs in this instance
SO ORDERED.
Narvasa, C.J. (Chairman), Romero, Kapunan, and Purisima, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 183272               October 15, 2014

SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, 


vs.
SANDRA TAN KIT and The Estate of the Deceased NORBERTO TAN KIT, respondents.

DECISION

DEL CASTILLO, J.:

The Court of Appeals' (CA) imposition of 12o/o interest on the ₱13,080.93 premium refund is the
only matter in question in this case.

This Petition for Review on Certiorari  assails the October 17, 2007 Decision  of CA in CA-GR. CV
1 2

No. 86923, which, among others, imposed a 12% per annum rate of interest reckoned from the time
of death of the insured until fully paid, on the premium to be reimbursed by petitioner Sun Life of
Canada (Philippines), Inc. (petitioner) to respondents Sandra Tan Kit (respondent Tan Kit) and the
Estate of the Deceased Norberto Tan Kit (respondent estate). Likewise assailed in this Petition is the
CA's June 12, 2008 Resolution  denying petitioner's Motion for Reconsideration of the said Decision.
3

Factual Antecedents

Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit (Norberto), whose
application for a life insurance policy,  with face value of ₱300,000.00, was granted by petitioner on
4

October 28, 1999. On February 19, 2001, or within the two-year contestability period,  Norberto died
5

of disseminated gastric carcinoma. Consequently, respondent Tan Kit filed a claim under the subject
6

policy.

In a Letter  dated September 3, 2001, petitioner denied respondent Tan Kit’s claim on account of
7

Norberto’s failure to fully and faithfully disclose in his insurance application certain material and
relevant information about his health and smoking history. Specifically, Norberto answered "No" to
the question inquiring whether he had smoked cigarettes or cigars within the last 12 months prior to
filling out said application.  However, the medical report of Dr. Anna Chua (Dr. Chua), one of the
8

several physicians that Norberto consulted for his illness, reveals that he was a smoker and had only
stopped smoking in August 1999. According to petitioner, its underwriters would not have approved
Norberto’s application for life insurance had they been given the correct information. Believing that
the policy is null and void, petitioner opined that its liability is limited to the refund of all the premiums
paid. Accordingly, it enclosed in the said letter a check for ₱13,080.93 representing the premium
refund.

In a letter  dated September 13, 2001, respondent Tan Kit refused to accept the check and insisted
9

on the payment of the insurance proceeds.


On October 4, 2002, petitioner filed a Complaint  for Rescission of Insurance Contract before the
10

Regional Trial Court (RTC) of Makati City.

Ruling of the Regional Trial Court

In its November 30, 2005 Decision,  the RTC noted that petitioner’s physician, Dr. Charity Salvador
11

(Dr. Salvador), conducted medical examination on Norberto. Moreover, petitioner’s agent, Irma Joy
E. Javelosa (Javelosa), answered "NO" to the question "Are you aware of anything about the life to
be insured’s lifestyle, hazardous sports, habits, medical history, or any risk factor that would have an
adverse effect on insurability?" in her Agent’s Report. Javelosa also already knew Norberto two
years prior to the approval of the latter’s application for insurance. The RTC concluded that
petitioner, through the above-mentioned circumstances, had already cleared Norberto of any
misrepresentation that he may have committed. The RTC also opined that the affidavit of Dr. Chua,
presented as part of petitioner’s evidence and which confirmed the fact that the insured was a
smoker and only stopped smoking a year ago [1999], is hearsay since Dr. Chua did not testify in
court. Further, since Norberto had a subsisting insurance policy with petitioner during his application
for insurance subject of this case, it was incumbent upon petitioner to ascertain the health condition
of Norberto considering the additional burden that it was assuming. Lastly, petitioner did not comply
with the requirements for rescission of insurance contract as held in Philamcare Health Systems,
Inc. v. Court of Appeals.  Thus, the dispositive portion of the RTC Decision:
12

WHEREFORE, in view of the foregoing considerations, this court hereby finds in favor of the
[respondents and] against the [petitioner], hence it hereby orders the [petitioner] to pay the
[respondent], Sandra Tan Kit, the sum of Philippine Pesos: THREE HUNDRED THOUSAND
(₱300,000.00), representing the face value of the insurance policy with interest at six percent (6%)
per annum from October 4, 2002 until fully paid.

Cost de oficio.

SO ORDERED. 13

Petitioner moved for reconsideration,  but was denied in an Order15 dated February 15, 2006.
14

Hence, petitioner appealed to the CA.

Ruling of the Court of Appeals

On appeal, the CA reversed and set aside the RTC’s ruling in its Decision16 dated October 17,
2007.

From the records, the CA found that prior to his death, Norberto had consulted two physicians, Dr.
Chua on August 19, 2000, and Dr. John Ledesma (Dr. Ledesma) on December 28, 2000, to whom
he confided that he had stopped smoking only in 1999. At the time therefore that he applied for
insurance policy on October 28, 1999, there is no truth to his claim that he did not smoke cigarettes
within 12 months prior to the said application. The CA thus held that Norberto is guilty of
concealment which misled petitioner in forming its estimates of the risks of the insurance policy. This
gave petitioner the right to rescind the insurance contract which it properly exercised in this case.

In addition, the CA held that the content of Norberto’s medical records are deemed admitted by
respondents since they failed to deny the same despite having received from petitioner a Request
for Admission pursuant to Rule 26 of the Rules of Court.  And since an admission is in the nature of
17
evidence the legal effects of which form part of the records, the CA discredited the RTC’s ruling that
the subject medical records and the affidavits executed by Norberto’s physicians attesting to the
truth of the same were hearsay.

The dispositive portion of the CA Decision reads:

WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the appealed
Decision REVERSED and SET ASIDE, and in lieu thereof, a judgment is hereby rendered
GRANTING the complaint a quo.

Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of ₱13,080.93 representing


the [premium] paid by the insured with interest at the rate of 12% per annum from the time of the
death of the insured until fully paid.

SO ORDERED. 18

The parties filed their separate motions for reconsideration.  While respondents questioned the
19

factual and legal bases of the CA Decision, petitioner, on the other hand, assailed the imposition of
interest on the premium ordered refunded to respondents.

However, the appellate court denied the motions in its June 12, 2008 Resolution,  viz:
20

WHEREFORE, the foregoing considered, the separate motions for reconsideration filed by the
[petitioner] and the [respondents] are hereby DENIED.

SO ORDERED. 21

Only petitioner appealed to this Court through the present Petition for Review on Certiorari.

Issue

The sole issue in this case is whether petitioner is liable to pay interest on the premium to be
refunded to respondents.

The Parties’ Arguments

Petitioner argues that no interest should have been imposed on the premium to be refunded
because the CA Decision does not provide any legal or factual basis therefor; that petitioner directly
and timely tendered to respondents an amount representing the premium refund but they rejected it
since they opted to pursue their claim for the proceeds of the insurance policy; that respondents
should bear the consequence of their unsound decision of rejecting the refund tendered to them;
and, that petitioner is not guilty of delay or of invalid or unjust rescission as to make it liable for
interest. Hence, following the ruling in Tio Khe Chio v. Court of Appeals,  no interest can be
22

assessed against petitioner.

Respondents, on the other hand, contend that the reimbursement of premium is clearly a money
obligation or one that arises from forbearance of money, hence, the imposition of 12% interest per
annum is just, proper and supported by jurisprudence. While they admit that they refused the tender
of payment of the premium refund, they aver that they only did so because they did not want to
abandon their claim for the proceeds of the insurance policy. In any case, what petitioner should
have done under the circumstances was to consign the amount of payment in court during the
pendency of the case.

Our Ruling

Tio Khe Chio is not applicable in this case.

Petitioner avers that Tio Khe Chio, albeit pertaining to marine insurance, is instructive on the issue of
payment of interest.  There, the Court pointed to Sections 243 and 244 of the Insurance Code which
1âwphi1

explicitly provide for payment of interest when there is unjustified refusal or withholding of payment
of the claim by the insurer,   and to Article 2209  of the New Civil Code which likewise provides for
23 24

payment of interest when the debtor is in delay.

The Court finds, however, that Tio Khe Chio is not applicable here as it deals with payment of
interest on the insurance proceeds in which the claim therefor was either unreasonably denied or
withheld or the insurer incurred delay in the payment thereof. In this case, what is involved is an
order for petitioner to refund to respondents the insurance premium paid by Norberto as a
consequence of the rescission of the insurance contract on account of the latter’s concealment of
material information in his insurance application. Moreover, petitioner did not unreasonably deny or
withhold the insurance proceeds as it was satisfactorily established that Norberto was guilty of
concealment.

Nature of interest imposed by the CA

There are two kinds of interest – monetary and compensatory.

"Monetary interest refers to the compensation set by the parties for the use or forbearance of
money."  No such interest shall be due unless it has been expressly stipulated in writing.  "On the
25 26

other hand, compensatory interest refers to the penalty or indemnity for damages imposed by law or
by the courts."  The interest mentioned in Articles 2209 and 2212 of the Civil Code applies to
27 28

compensatory interest. 29

Clearly and contrary to respondents’ assertion, the interest imposed by the CA is not monetary
interest because aside from the fact that there is no use or forbearance of money involved in this
case, the subject interest was not one which was agreed upon by the parties in writing. This being
the case and judging from the tenor of the CA, to wit:

Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of ₱13,080.93 representing


the [premium] paid by the insured with interest at the rate of 12% per annum from time of death of
the insured until fully paid. 30

there can be no other conclusion than that the interest imposed by the appellate court is in the
nature of compensatory interest.

The CA incorrectly imposed compensatory interest on the premium refund reckoned from the time of
death of the insured until fully paid

As a form of damages, compensatory interest is due only if the obligor is proven to have failed to
comply with his obligation. 31
In this case, it is undisputed that simultaneous to its giving of notice to respondents that it was
rescinding the policy due to concealment, petitioner tendered the refund of premium by attaching to
the said notice a check representing the amount of refund. However, respondents refused to accept
the same since they were seeking for the release of the proceeds of the policy. Because of this
discord, petitioner filed for judicial rescission of the contract. Petitioner, after receiving an adverse
judgment from the RTC, appealed to the CA. And as may be recalled, the appellate court found
Norberto guilty of concealment and thus upheld the rescission of the insurance contract and
consequently decreed the obligation of petitioner to return to respondents the premium paid by
Norberto. Moreover, we find that petitioner did not incur delay or unjustifiably deny the claim.

Based on the foregoing, we find that petitioner properly complied with its obligation under the law
and contract. Hence, it should not be made liable to pay compensatory interest.

Considering the prevailing circumstances of the case, we hereby direct petitioner to reimburse the
premium paid within 15 days from date of finality of this Decision. If petitioner fails to pay within the
said period, then the amount shall be deemed equivalent to a forbearance of credit.  In such a case,
32

the rate of interest shall be 6% per annum. 33

WHEREFORE, the assailed October 17, 2007 Decision of the Court of Appeals in CA-G.R. CV No.
86923 is MODIFIED in that petitioner Sun Life of Canada (Philippines), Inc. is ordered to reimburse
to respondents Sandra Tan Kit and the Estate of the Deceased Norberto Tan Kit the sum of
~13,080.93 representing the premium paid by the insured within fifteen (15) days from date of finality
of this Decision. If the amount is not reimbursed within said period, the same shall earn interest of
6% per annum until fully paid.

SO ORDERED.
THIRD DIVISION

[G.R. No. 125944. June 29, 2001]

SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners,


vs. JOSE AVELINO SALAZAR, respondent.

DECISION
SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, of the decision of the Court of Appeals in CA-G.R. CV No.
37899, affirming the decision of the Regional Trial Court, Branch 16, Malolos,
Bulacan, in Civil Case No. 375-M-91, Spouses Danilo and Ursula Solangon vs. Jose
Avelino Salazar for annulment of mortgage. The dispositive portion of the RTC
decision reads:

WHEREFORE, judgment is hereby rendered against the plaintiffs in favor of the


defendant Salazar, as follows:

1. Ordering the dismissal of the complaint;


2. Ordering the dissolution of the preliminary injunction issued on July 8, 1991;
3. Ordering the plaintiffs to pay the defendant the amount of P10,000.00 by way of attorneys
fees; and
4. To pay the costs.

SO ORDERED.[1]

The facts as summarized by the Court of Appeals in its decision being challenged
are:

On August 22, 1986, the plaintiffs-appellants executed a deed or real estate mortgage
in which they mortgaged a parcel of land situated in Sta. Maria, Bulacan, in favor
of the defendant-appellee, to secure payment of a loan of P60,000.00 payable within a
period of four (4) months, with interest thereon at the rate of 6% per month (Exh. B).

On May 27, 1987, the plaintiffs-appellants executed a deed of real estate mortgage in
which they mortgaged the same parcel of land to the defendant-appellee, to secure
payment of a loan of P136,512.00, payable within a period of one (1) year, with
interest thereon at the legal rate (Exh. 1).

On December 29, 1990, the plaintiffs-appellants executed a deed of real estate


mortgage in which they mortgaged the same parcel of land in favor of defendant-
appellee, to secure payment of a loan in the amount of P230,000.00 payable within a
period of four (4) months, with interest thereon at the legal rate (Exh. 2, Exh. C).

This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the
mortgaged property. They alleged that they obtained only one loan form the
defendant-appellee, and that was for the amount of P60,000.00, the payment of which
was secured by the first of the above-mentioned mortgages. The subsequent
mortgages were merely continuations of the first one, which is null and void because
it provided for unconscionable rate of interest. Moreover, the defendant-appellee
assured them that he will not foreclose the mortgage as long as they pay the stipulated
interest upon maturity or within a reasonable time thereafter. They have already paid
the defendant-appellee P78,000.00 and tendered P47,000.00 more, but the latter has
initiated foreclosure proceedings for their alleged failure to pay the loan P230,000.00
plus interest.

On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the
above-described mortgages were executed to secure three separate loans of
P60,000.00 P136,512.00 and P230,000.00, and that the first two loans were paid, but
the last one was not. He denied having represented that he will not foreclose the
mortgage as long as the plaintiffs-appellants pay interest.

In their petition, spouses Danilo and Ursula Solangon ascribe to the Court of
Appeals the following errors:

1. The Court of Appeals erred in holding that three (3) mortgage contracts were
executed by the parties instead of one (1);

2. The Court of Appeals erred in ruling that a loan obligation secured by a real estate
mortgage with an interest of 72% per cent per annum or 6% per month is not
unconscionable;

4. The Court of Appeals erred in holding that the loan of P136,512.00 HAS NOT
BEEN PAID when the mortgagee himself states in his ANSWER that the same was
already paid; and

5. The Court of Appeals erred in not resolving the SPECIFIC ISSUES raised by the
appellants.
In his comment, respondent Jose Avelino Salazar avers that the petition should
not be given due course as it raises questions of facts which are not allowed in a
petition for review on certiorari.
We find no merit in the instant petition.
The core of the present controversy is the validity of the third contract of
mortgage which was foreclosed.
Petitioners contend that they obtained from respondent Avelino Salazar only one
(1) loan in the amount of P60,000.00 secured by the first mortgage of August
1986. According to them, they signed the third mortgage contract in view of
respondents assurance that the same will not be foreclosed. The trial court, which is in
the best position to evaluate the evidence presented before it, did not give credence to
petitioners corroborated testimony and ruled:

The testimony is improbable. The real estate mortgage was signed not only by Ursula
Solangon but also by her husband including the Promissory Note appended to
it. Signing a document without knowing its contents is contrary to common
experience. The uncorroborated testimony of Ursula Solangon cannot be given
weight.[2]

Petitioners likewise insist that, contrary to the finding of the Court of appeals,
they had paid the amount of P136,512.00, or the second loan. In fact, such payment
was confirmed by respondent Salazar in his answer to their complaint.
It is readily apparent that petitioners are raising issues of fact in this petition. In a
petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended,
only questions of law may be raised and they must be distinctly set forth. The settled
rule is that findings of fact of the lower courts (including the Court of Appeals) are
final and conclusive and will not be reviewed on appeal except: (1) when the
conclusion is a finding grounded entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken, absurd or impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of facts are conflicting; (6) when the Court of Appeals, in
making its findings, went beyond the issues of the case and such findings are contrary
to the admission of both appellant and appellee; (6) when the findings of the Court of
Appeals are contrary to those of the trial court; and (7) when the findings of fact are
conclusions without citation of specific evidence on which they are based. [3]
None of these instances are extant in the present case.
Parenthetically, petitioners are questioning the rate of interest involved here. They
maintain that the Court of Appeals erred in decreeing that the stipulated interest rate
of 72% per annum or 6% per month is not unconscionable.
The Court of Appeals, in sustaining the stipulated interest rate, ratiocinated that
since the Usury Law had been repealed by Central Bank Circular No. 905 there is no
more maximum rate of interest and the rate will just depend on the mutual agreement
of the parties. Obviously, this was in consonance with our ruling in Liam Law v.
Olympic Sawmill Co.[4]
The factual circumstances of the present case require the application of a different
jurisprudential instruction. While the Usury Law ceiling on interest rates was lifted by
C.B. Circular No. 905, nothing in the said circular grants lenders carte
blanche authority to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets. [5] In Medel v. Court of Appeals,
[6]
 this court had the occasion to rule on this question - whether or not the stipulated
rate of interest at 5.5% per month on a loan amounting to P500,000.00 is
usurious. While decreeing that the aforementioned interest was not usurious, this
Court held that the same must be equitably reduced for
being iniquitous, unconscionable and exorbitant, thus:

We agree with petitioners that the stipulated rate of interest at 5.5% per month
on the P500,000.00 loan is excessive, iniquitous, unconscionable and
exorbitant. However, we can not consider the rate usurious because this Court has
consistently held that Circular No. 905 of the Central Bank, adopted on December 22,
1982, has expressly removed the interest ceilings prescribed by the Usury Law and
that the Usury Law is now legally inexistent.

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61
the Court held that CB Circular No. 905 did not repeal nor in any way amend the
Usury Law but simply suspended the latters effectivity. Indeed, we have held that a
Central Bank Circular can not repeal a law. Only a law can repeal another law. In the
recent case of Florendo v. Court of Appeals, the Court reiterated the ruling that by
virtue of CB Circular 905, the Usury Law has been rendered ineffective. Usury Law
has been legally non-existent in our jurisdiction. Interest can now be charged as lender
and borrower may agree upon.

Nevertheless, we find the interest at 5.5 % per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or
unconscionable, and hence, contrary to morals (contra bonos mores), if not
against the law. The stipulation is void. The courts shall reduce equitably
liquidated damages, whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable. (Emphasis supplied)

In the case at bench, petitioners stand on a worse situation. They are required to


pay the stipulated interest rate of 6% per month or 72% per annum which is
definitely outrageous and inordinate. Surely, it is more consonant with justice that the
said interest rate be reduced equitably. An interest of 12% per annum is deemed fair
and reasonable.
WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED
subject to the MODIFICATION that the interest rate of 72% per annum is ordered
reduced to 12 % per annum.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 194507               September 8, 2014

FEDERAL BUILDERS, INC., Petitioner, 


vs.
FOUNDATION SPECIALISTS, INC., Respondent,

x-----------------------x

G.R. No. 194621

FOUNDATION SPECIALISTS, INC., Petitioner, 


vs.
FEDERAL BUILDERS, INC., Respondent.

DECISION

PERALTA, J.:

Before the Court are two consolidated cases, namely: (1) Petition for review on certiorari under Rule
45 of the Rules of Court, docketed as G.R. No. 194507, filed by Federal Builders, Inc., assailing the
Decision  and Resolution, dated July 15, 2010 and November 23, 2010, respectively, of the Court of
1 2

Appeals (CA) in CA-G.R. CV No. 70849, which affirmed with modification the Decision  dated May 3,
3

2001 of the Regional Trial Court (RTC) in Civil Case No. 92-075; and (2) Petition for review on
certiorari under Rule 45 of the Rules of Court,docketed as G.R. No. 194621, filed by Foundation
Specialists, Inc., assailing the same Decision  and Resolution,  dated July 15, 2010 and November
4 5

23, 2010,respectively, of the CA in CA- G.R. CV No. 70849, which affirmed with modification the
Decision  dated May 3, 2001 of the RTC in Civil Case No. 92-075.
6

The antecedent facts are as follows:

On August 20, 1990, Federal Builders, Inc. (FBI) entered into an agreement with Foundation
Specialists, Inc. (FSI) whereby the latter, as subcontractor, undertook the construction of the
diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza located at Salcedo Village,
Makati City (the Project), for a total contract price of Seven Million Four Hundred Thousand Pesos
(₱7,400,000.00).  Under the agreement,  FBI was to pay a downpayment equivalent to twenty
7 8

percent (20%) of the contract price and the balance, through a progress billing every fifteen (15)
days, payable not later than one (1) week from presentation of the billing.

On January 9, 1992, FSI filed a complaint for Sum of Money against FBI before the RTC of Makati
City seeking to collect the amount of One Million Six Hundred Thirty-Five Thousand Two Hundred
Seventy-Eight Pesos and Ninety-One Centavos (₱1,635,278.91), representing Billings No. 3 and 4,
with accrued interest from August 1, 1991 plus moral and exemplary damages with attorney’s
fees.  In its complaint,FSI alleged that FBI refused to pay said amount despite demand and
9

itscompletion of ninety-seven percent (97%) of the contracted works.


In its Answer with Counterclaim, FBI claimed that FSI completed only eighty-five percent (85%) of
the contracted works, failing to finish the diaphragm wall and component works in accordance with
the plans and specifications and abandoning the jobsite. FBI maintains that because of FSI’s
inadequacy, its schedule in finishing the Project has been delayed resulting in the Project owner’s
deferment of its own progress billings.  It further interposed counterclaims for amounts it spent for
10

the remedial works on the alleged defects in FSI’s work.

On May 3, 2001, after evaluating the evidence of both parties, the RTC ruled in favor of FSI, the
dispositive portion of its Decision reads:

WHEREFORE, on the basis of the foregoing, judgment is rendered ordering defendant to pay
plaintiff the following:

1. The sum of ₱1,024,600.00 representing billings 3 and 4, less the amount of ₱33,354.40
plus 12% legal interest from August 30, 1991;

2. The sum of ₱279,585.00 representing the cost of undelivered cement;

3. The sum of ₱200,000.00 as attorney’s fees; and

4. The cost of suit.

Defendant’s counterclaim is deniedfor lack of factual and legal basis.

SO ORDERED. 11

On appeal, the CA affirmed the Decision of the lower court, but deleted the sum of ₱279,585.00
representing the cost of undelivered cement and reduced the award of attorney’s fees to
₱50,000.00. In its Decision  dated July 15, 2010, the CA explained that FSI failed to substantiate
12

how and in what manner it incurred the cost of cement by stressing that its claim was not supported
by actual receipts. Also, it found that while the trial court did not err in awarding attorney’s fees, the
same should be reduced for being unconscionable and excessive. On FBI’s rejection of the 12%
annual interest rate on the amount of Billings 3 and 4, the CA ruled that the lower court did not err in
imposing the same in the following wise:

x x x The rule is well-settled that when an obligation is breached, and it consists in the payment of a
sum of money, the interest due shall itself earn legal interest from the time it is judicially demanded
(BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation, 429 SCRA 30). When there
is no rate of interest stipulated, such as in the present case, the legal rate of interest shall be
imposed, pursuant to Article 2209 of the New Civil Code. In the absence of a stipulated interest rate
on a loan due, the legal rate of interest shall be 12% per annum. 13

Both parties filed separate Motions for Reconsideration assailing different portions of the
CADecision, but to no avail.  Undaunted, they subsequently elevated their claims withthis Court via
14

petitions for review on certiorari.

On the one hand, FSI asserted that the CA should not have deleted the sum of ₱279,585.00
representing the cost of undelivered cement and reduced the award of attorney’s fees to
₱50,000.00, since it was an undisputed fact that FBI failed to deliver the agreed quantity of cement.
On the other hand, FBI faulted the CA for affirming the decision of the lower court insofar as the
award of the sum representing Billings 3 and 4, the interest imposed thereon, and the rejection of his
counterclaim were concerned. In a Resolution  dated February 21, 2011, however, this Court
15

denied, with finality, the petition filed by FSI in G.R. No. 194621 for having been filed late.

Hence, the present petition filed byFBI in G.R. No. 194507 invoking the following arguments:

I.

THE COURT OF APPEALS COMMITTED A CLEAR, REVERSABLE ERROR WHEN IT


AFFIRMED THE TRIAL COURT’S JUDGMENT THAT FEDERAL BUILDERS, INC. WAS
LIABLE TO PAY THE BALANCE OF ₱1,024,600.00 LESS THE AMOUNT OF ₱33,354.40
NOTWITHSTANDING THAT THE DIAPHRAGM WALL CONSTRUCTED BY FOUNDATION
SPECIALIST, INC. WAS CONCEDEDLY DEFECTIVE AND OUT-OF-SPECIFICATIONS
AND THAT PETITIONER HAD TO REDO IT AT ITS OWN EXPENSE.

II.

THE COURT OF APPEALS COMMITTED SERIOUS, REVERSABLE ERROR WHEN IT


IMPOSED THE 12% LEGAL INTEREST FROM AUGUST 30, 1991 ON THE DISPUTED
CLAIM OF ₱1,024,600.00 LESS THE AMOUNT OF ₱33,354.40 DESPITE THE FACT THAT
THERE WAS NO STIPULATION IN THE AGREEMENT OF THE PARTIES WITH REGARD
TO INTEREST AND DESPITE THE FACT THAT THEIR AGREEMENT WAS NOT A "LOAN
OR FORBEARANCE OF MONEY."

III.

THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS REVERSABLE ERROR


WHEN IT DISMISSED THE COUNTERCLAIM OF PETITIONER NOTWITHSTANDING
OVERWHELMING EVIDENCE SUPPORTING ITS CLAIM OF ₱8,582,756.29 AS ACTUAL
DAMAGES.

The petition is partly meritorious.

We agree with the courts below and reject FBI’s first and third arguments. Well-entrenched in
jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the
appellate court, are accorded the highest degree of respectand considered conclusive between the
parties, save for the following exceptional and meritorious circumstances: (1) when the factual
findings of the appellate court and the trial court are contradictory; (2) whenthe findings of the trial
court are grounded entirely on speculation, surmises or conjectures; (3) when the lower court’s
inference from its factual findings is manifestly mistaken, absurd or impossible; (4) when there is
grave abuse of discretion in the appreciation of facts; (5) when the findings of the appellate court go
beyond the issues of the case, or fail to notice certain relevant facts which, if properly considered,
will justify a different conclusion; (6) when there is a misappreciation of facts; (7) when the findings of
fact are themselves conflicting; and (8) when the findings of fact are conclusions without mention of
the specific evidence on which they are based, are premised on the absence of evidence, or are
contradicted by evidence on record. 16

None of the aforementioned exceptions are present herein. In the assailed Decision, the RTC
meticulouslydiscussed the obligations of each party, the degree of their compliance therewith, as
well as their respective shortcomings, all of which were properly substantiated with the
corresponding documentary and testimonial evidence.
Under the construction agreement, FSI’s scope of workconsisted in (1) the construction of the guide
walls, diaphragm walls, and capping beam; and (2) the installation of steel props.  As the lower
17

courts aptly observed from the records at hand, FSI had, indeed, completed ninety-seven percent
(97%) of its contracted works and the non-completion of the remaining three percent (3%), as well
as the alleged defects in the said works, are actually attributable to FBI’s own fault such as, but not
limited to, the failure to deliver the needed cement as agreed upon in the contract, to wit:

On March 8, 1991, plaintiff had finished the construction of the guide wall and diaphragm wall (Exh.
"R") but had not yet constructed the capping beam as of April 22, 1991 for defendant’s failure to
deliver the needed cement in accordance with their agreement(Exhibit "I"). The diaphragm wall had
likewise been concrete tested and was found to have conformed with the required design strength
(Exh. "R").

Subsequently, plaintiff was paid the aggregate amount of ₱5,814,000.00. But as of May 30, 1991,
plaintiff’s billings numbers 3 and 4 had remained unpaid (Exhs. "L", "M", and "M-1").

xxxx

On the misaligned diaphragm wall from top to bottom and inbetween panels, plaintiff explained thatin
the excavation of the soil where the rebar cages are lowered and later poured with concrete cement,
the characteristics of the soil is not the same or homogenous all throughout. Because of this
property of the soil,in the process of excavation, it may erode in some places that may cause spaces
that the cement may fill or occupy which would naturally cause bulges, protrusions and misalignment
in the concrete cast into the excavated ground(tsn., June 1, 2000, pp 14-18). This, in fact was
anticipated when the agreement was executed and included as provision 6.4 thereof.

The construction of the diaphragm wall panel by panel caused misalignment and the chipping off of
the portions misaligned is considered a matter of course. Defendant, as the main contractor of the
project, has the responsibility of chopping or chipping off of bulges(tsn., ibid, pp 20-21). Wrong
location of rebar dowels was anticipated by both contractor and subcontractor as the latter submitted
a plan called "Detail of Sheer Connectors" (Exh "T") which was approved.The plan provided two
alternatives by which the wrong location of rebar dowels may be remedied. Hence, defendant, aware
of the possibility of inaccurate location of these bars, cannot therefore ascribe the same to the
plaintiff as defective work.

Construction of the capping beam required the use of cement. Records, however, show that from
September 14, 1990 up to May 30, 1991 (Exhs. "B" to "L"), plaintiff had repeatedly requested
defendant to deliver cement. Finally, on April 22, 1991, plaintiff notified defendant of its inability to
construct the capping beam for the latter’s failure to deliver the cement as provided in their
agreement(Exh. "I"). Although records show that there was mention of revision of design, there was
no evidence presented to show such revision required less amount of cement than what was agreed
on by plaintiff and defendant.

The seventh phase of the construction of the diaphragm wall is the construction of the steel props
which could be installed only after the soil has been excavated by the main contractor. When
defendant directed plaintiff to install the props, the latter requested for a site inspection to determine
if the excavation of the soil was finished up to the 4th level basement. Plaintiff, however, did not
receive any response.It later learned that defendant had contracted out that portion of work to
another sub-contractor (Exhs. "O" and "P"). Nevertheless, plaintiff informed defendant of its
willingness to execute that portion of its work.18
It is clear from the foregoing that contrary to the allegations of FBI, FSI had indeed completed its
assigned obligations, with the exception of certain assigned tasks, which was due to the failure of
FBI to fulfil its end of the bargain.

It can similarly be deduced that the defects FBI complained of, such as the misaligned diaphragm
wall and the erroneous location of the rebar dowels, were not only anticipated by the parties, having
stipulated alternative plans to remedy the same, but more importantly, are also attributable to the
very actions of FBI. Accordingly, considering that the alleged defects in FSI’s contracted works were
not so much due to the fault or negligence of the FSI, but were satisfactorily proven to be caused by
FBI’s own acts, FBI’s claim of ₱8,582,756.29 representing the cost of the measures it undertook to
rectify the alleged defects must necessarily fail. In fact, as the lower court noted, at the time when
FBI had evaluated FSI’s works, it did not categorically pose any objection thereto, viz:

Defendant admitted that it had paid ₱6 million based on its evaluation of plaintiff’s accomplishments
(tsn., Sept. 28, 2000, p. 17) and its payment was made without objection on plaintiff’s works, the
majority of which were for the accomplishments in the construction of the diaphragm wall (tsn., ibid,
p. 70).

xxxx

While there is no evidence to show the scope of work for these billings, it is safe to assume that
these were also works in the construction of the diaphragm wall considering that as of May 16, 1991,
plaintiff had only the installation of the steel props and welding works to complete (Exh. "H"). If
defendant was able to evaluate the work finished by plaintiff the majority of which was the
construction of the diaphragm wall and paid it about ₱6 million as accomplishment, there was no
reason why it could not evaluate plaintiff’s works covered by billings 3 and 4.In other words,
defendants did nothave to excavate in order to determine and evaluate plaintiff’s works. Hence,
defendant’s refusal to pay was not justified and the alleged defects of the diaphragm wall (tsn, Sept.
28, 2000, p. 17) which it claims to have discovered only after January 1992 were mere
afterthoughts.19

Thus, in the absence of any record to otherwise prove FSI’s neglect in the fulfilment of its obligations
under the contract, this Court shall refrain from reversing the findings of the courts below, which are
fully supported by and deducible from, the evidence on record. Indeed, FBI failed to present any
evidence to justify its refusal to pay FSI for the works it was contracted to perform. As such, We do
not see any reason to deviate from the assailed rulings.

Anent FBI’s second assignment of error, however, We find merit in the argument that the 12%
interest rateis inapplicable, since this case does not involve a loan or forbearance ofmoney. In the
landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals,  We laid down the following
20

guidelines in computing legal interest:

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

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article1169 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. 21

In line, however, with the recent circular of the Monetary Board of the Bangko Sentral ng Pilipinas
(BSP-MB) No. 799, we have modified the guidelines in Nacar v. Gallery Frames,  as follows:
22

I. When an obligation, regardless of itssource, i.e., law, contracts, quasicontracts, delicts or


quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.

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

1. When the obligation is breached, and it consists in the payment of a sum of


money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 6% per annumto 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 6% per annumfrom such finality
until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013,
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.
23

It should be noted, however, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only until
June 30, 2013. Come July 1, 2013, the new rate of six percent (6%) per annum shall be the
prevailing rate of interest when applicable. Thus, the need to determine whether the obligation
involved herein is a loanand forbearance of money nonetheless exists.

In S.C. Megaworld Construction and Development Corporation v. Engr. Parada,  We clarified the
24

meaning of obligations constituting loans or forbearance of money in the following wise:

As further clarified in the case of Sunga-Chan v. CA, a loan or forbearance of money, goods or credit
describes a contractual obligation whereby a lender or creditor has refrained during a given period
from requiring the borrower or debtor to repay the loan or debt then due and payable. Thus:

In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Central
Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or forbearance of
money. And for transactions involving payment of indemnities in the concept of damages arising
from default in the performance of obligations in general and/or for money judgment not involving a
loan or forbearance of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code
prescribing a yearly 6% interest. Art. 2209 pertinently provides:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent
per annum.

The term "forbearance," within the context of usury law, has been described as a contractual
obligation ofa lender or creditor to refrain, during a given period of time, from requiring the borrower
or debtor to repay the loan or debt then due and payable. 25

Forbearance of money, goods or credits, therefore, refers to arrangements other than loan
agreements, where a person acquiesces to the temporary use of his money, goods orcredits
pending the happening of certain events or fulfilment of certain conditions.  Consequently, if those
26

conditions are breached, said person is entitled not only to the return of the principal amount paid,
but also to compensation for the use of his money which would be the same rateof legal interest
applicable to a loan since the use or deprivation of funds therein is similar to a loan.27

This case, however, does not involve an acquiescence to the temporary use of a party’s money but
a performance of a particular service, specifically the construction of the diaphragm wall, capping
beam, and guide walls of the Trafalgar Plaza.

A review of similar jurisprudence would tell us that this Court had repeatedly recognized this
distinction and awarded interest at a rate of 6% on actual or compensatory damages arising from a
breach not only of construction contracts,  such as the one subject ofthis case, but also of contracts
28

wherein one of the parties reneged on its obligation to perform messengerial services,  deliver 29

certain quantities of molasses,  undertake the reforestation of a denuded forest land,  as well as
30 31

breaches of contracts of carriage,  and trucking agreements.  We have explained therein that the
32 33

reason behind such is that said contracts do not partake of loans or forbearance of money but are
more in the nature of contracts of service.
Thus, in the absence of any stipulation as to interest in the agreement between the parties herein,
the matter of interest award arising from the dispute in this case would actually fall under the second
paragraph of the above-quoted guidelines inthe landmark case of Eastern Shipping Lines, which
necessitates the imposition of interestat the rate of 6%, instead of the 12% imposed by the courts
below.

The 6% interest rate shall further be imposed from the finality of the judgment herein until
satisfaction thereof, in light of our recent ruling in Nacar v. Gallery Frames.
34

Note, however, that contrary to FBI’sassertion, We find no error in the RTC’s ruling that the interest
shall begin to run from August 30, 1991 as this is the date when FSI extrajudicially made its claim
against FBI through a letter demanding payment for its services. 35

In view of the foregoing, therefore, We find no compelling reason to disturb the factual findings of the
RTC and the CA, which are fully supported by and deducible from, the evidence on record, insofar
as the sum representing Billings 3 and 4 is concerned. As to the rate of interest due thereon,
however, We note that the same should be reduced to 6% per annum considering the fact that the
obligation involved herein does not partake of a loan or forbearance of money.

WHEREFORE, premises considered, the instant petition is DENIED. The Decision and Resolution,
dated July 15, 2010 and November 23, 2010, respectively, of the Court of Appeals in CA-G.R. CV
No. 70849 are hereby AFFIRMED with MODIFICATION. Federal Builders, Inc. is ORDERED to pay
Foundation Specialists, Inc. the sum of Pl ,024,600.00 representing billings 3 and 4, less the amount
of ₱33,354.40, plus interest at six percent (6%) per annum reckoned from August 30, 1991 until full
payment thereof.

SO ORDERED.