Bautista vs. Pilar Development Corporation

G.R. No. 135046.  August 17, 1999

SPOUSES FLORANTE and LAARNI BAUTISTA, petitioners, vs. PILAR DEVELOPMENT CORPORATION, respondent.

D E C I S I O N

PUNO, J.:

This petition for review seeks to reverse and set aside the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 513631 which reversed the Decision of the Regional Trial Court, Makati, Branch 138 in Civil Case No. 17702.2

The following facts are uncontroverted.

In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and lot in Pilar Village, Las Pinas, Metro Manila.  To partially finance the purchase, they obtained from the Apex Mortgage & Loan Corporation (Apex) a loan in the amount of P100,180.00.  They executed a promissory note on December 22, 1978 obligating themselves, jointly and severally, to pay the "principal sum of P100,180.00 with interest rate of 12% and service charge of 3%" for a period of 240 months, or twenty years, from date, in monthly installments of P1,378.83.3 Late payments were to be charged a penalty of one and one-half per cent (1 1/2%) of the amount due.  In the same promissory note, petitioners authorized Apex to "increase the rate of interest and/or service charges" without notice to them in the event that a law, Presidential Decree or any Central Bank regulation should be enacted increasing the lawful rate of interest and service charges on the loan.4 Payment of the promissory note was secured by a second mortgage on the house and lot purchased by petitioners.5

Petitioner spouses failed to pay several installments.  On September 20, 1982, they executed another promissory note in favor of Apex.  This note was in the amount of P142,326.43 at the increased interest rate of twenty-one per cent (21%) per annum with no provision for service charge but with penalty charge of 1 1/2% for late payments.  Payment was to be made for a period of 196 months or 16.33 years in monthly installments of P2,576.68, inclusive of principal and interest.  Petitioner spouses also authorized Apex to "increase/decrease the rate of interest and/or service charges" on the note in the event any law or Central Bank regulation shall be passed increasing or decreasing the same.6

In November 1983, petitioner spouses again failed to pay the installments.  On June 6, 1984, Apex assigned the second promissory note to respondent Pilar Development Corporation without notice to petitioners.

On August 31, 1987, respondent corporation, as successor-in-interest of Apex, instituted against petitioner spouses Civil Case No. 17702 before the Regional Trial Court, Makati, Branch 138.  Respondent corporation sought to collect from petitioners the amount of P140,515.11 representing the unpaid balance of the principal debt from November 23, 1983, including interest at the rate of twenty-one per cent (21%) under the second promissory note, and 25% and 36% per annum in accordance with Central Bank Circular No. 905, series of 1982.  Respondent also sought payment of ten per cent (10%) of the amount due as attorney's fees.7

In their answer, petitioner spouses mainly contended that the terms of the second promissory note increasing the interest rate to 21% and the escalation clauses authorizing Apex to increase interest rates pursuant to any law or Central Bank regulation are null and void in the absence of a de-escalation clause in the same note.8

After pre-trial, both parties submitted the case for decision on the sole issue of the interest rate.

The trial court rendered judgment on September 22, 1995.  It ordered petitioner spouses to pay respondent corporation the sum of P140,515.11, with interest at the rate of 12% per annum, plus service charge, viz:

"WHEREFORE, judgment is hereby rendered as follows:

(a) Plaintiff is entitled to collect from the defendants the amount of P140,515.11 with interest at the rate of 12% per annum from November 23, 1983 until the amount is fully paid plus the stipulated service charge;

(b) Ordering defendants as joint and several obligors to pay plaintiff the amount stated in paragraph (a) hereof;

(c) Counterclaim is hereby dismissed.

No pronouncement as to costs.

SO ORDERED."9

Both parties appealed to the Court of Appeals.  In a Decision dated May 14, 1998, the appellate court reversed the trial court by applying the interest rate of 21% per annum, and adding attorney's fees of 10%.

  Thus:

"IN VIEW OF ALL THE FOREGOING, the appealed judgment is hereby REVERSED and SET ASIDE and a new one entered ordering the defendants to pay the plaintiffs the amount of P142,326.43, as principal with interest at the rate of 21% from November 23, 1983 until the amount is fully paid; the sum equivalent to 10% of the amount due as attorney's fees and the costs of this suit.

SO ORDERED." 10

Petitioner spouses moved for reconsideration.  In a Resolution dated August 18, 1998, the Court of Appeals denied the motion but reduced the principal amount of the obligation from P142,326.42 to P140,515.11.11

Hence this recourse.

Petitioner spouses claim that the Court of Appeals erred:

I

IN RULING THAT THE TWO (2) PROMISSORY NOTES EXECUTED BY THE PARTIES ARE INDEPENDENT OF EACH OTHER.

CONVERSELY, IN NOT RULING THAT THE SAID PROMISSORY NOTES CONSTITUTE A SINGLE-LOAN TRANSACTION.

II

IN RULING THAT THE APPLICABLE RATE OF INTEREST IS 21% PER ANNUM AS STIPULATED IN THE SECOND PROMISSORY NOTE.

CONVERSELY, IN NOT RULING THAT THE ESCALATION OF INTEREST RATE FROM 12% PER ANNUM (1ST PROMISSORY NOTE) TO 21% PER ANNUM (2ND PROMISSORY NOTE) IS UNLAWFUL.

III

IN RULING THAT 10% OF THE AMOUNT DUE IS AWARDABLE AS ATTORNEY'S FEES.

CONVERSELY, IN NOT RULING THAT THE AWARD OF 10% ATTORNEY'S FEES IS NOT PROPER UNDER THE CIRCUMSTANCES.

IV

IN RULING THAT NOTICE OF ASSIGNMENT OF CREDIT IS "POINTLESS AND UNSUSTAINABLE."

CONVERSELY, IN NOT RULING THAT NOTICE TO THE DEBTOR IS REQUIRED WHEN CREDIT IS ASSIGNED.

V

IN NOT RULING THAT UNDER THE CIRCUMSTANCES PETITIONERS ARE ENTITLED TO MORAL AND EXEMPLARY DAMAGES.12

The controversy in this petition involves the rate of interest respondent creditor is entitled to collect on petitioners' loan:  whether it be 12% under the promissory note of December 22, 1978, or 21% under the promissory note of September 20, 1982.

Petitioners claim that the interest rate of 12% per annum should be adjudged inasmuch as the two promissory notes constitute one transaction.  Allegedly, the first note defined the terms and conditions of the loan while the second note is merely an extension of and derives its existence from the former.  Hence, the second note is governed by the stipulations in the first note.13

The two promissory notes are identically entitled "Promissory Note with Authority to Assign Credit." The notes were prepared by Apex in standard form and consist of two (2) pages each.  Except for one or two stipulations, they contain the same provisions and the same blanks for the amount of the loan and other pertinent data subject of each note.  However, on the upper right portion of the second note, there appears a typewritten entry which reads:

"This cancels PN # A-387-78 dated December 22, 1978."14

Correspondingly, on the face of each page of the first promissory note, i.e., PN No. A-387-78 dated December 22, 1978, the word "Cancelled" is boldly stamped twice with the date "September 16, 1982" and a signature written in a space inside the letters of the word.15

The first promissory note was cancelled by the express terms of the second promissory note.  To cancel is to strike out, to revoke, rescind or abandon, to terminate.16 In fine, the first note was revoked and terminated.  Simply put, it was novated.  The extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first is a novation.17 Novation is made either by changing the object or principal conditions, referred to as an objective or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the creditor, which is known as subjective or personal novation.18 In both objective and subjective novation, a dual purpose is achieved-- an obligation is extinguished and a new one is created in lieu thereof.19 Novation may either be express, when the new obligation declares in unequivocal terms that the old obligation is extinguished; or implied, when the new obligation is on every point incompatible with the old one.20 Express novation takes place when the contracting parties expressly disclose that their object in making the new contract is to extinguish the old contract, otherwise the old contract remains in force and the new contract is merely added to it, and each gives rise to an obligation still in force.21

Novation has four (4) essential requisites:  (1) the existence of a previous valid obligation; (2) the agreement of all parties to the new contract; (3) the extinguishment of the old contract; and (4) the validity of the new one.22 In the instant case, all four requisites have been complied with.  The first promissory note was a valid and subsisting contract when petitioner spouses and Apex executed the second promissory note.  The second promissory note absorbed the unpaid principal and interest of P142,326.43 in the first note which amount became the principal debt therein, payable at a higher interest rate of 21% per annum.  Thus, the terms of the second promissory note provided for a higher principal, a higher interest rate, and a higher monthly amortization, all to be paid within a shorter period of 16.33 years.  These changes are substantial and constitute the principal conditions of the obligation.23 Both parties voluntarily accepted the terms of the second note; and also in the same note, they unequivocally stipulated to extinguish the first note.  Clearly, there was animus novandi, an express intention to novate.24 The first promissory note was cancelled and replaced by the second note.  This second note became the new contract governing the parties' obligations.

In their second assigned error, petitioners contend that in the second promissory note, the escalation of the interest rate from 12% to 21% per annum is unlawful and cannot be imposed for failure of the escalation provisions to include valid de-escalation clauses.  In the absence of de-escalation clauses, the Court of Appeals allegedly erred in applying Central Bank Circulars Nos. 705, 712 and 905 issued by the Monetary Board of the Central Bank of the Philippines.25

At the time the parties executed the first promissory note in 1978, the interest of 12% was the maximum rate fixed by the Usury Law for loans secured by a mortgage upon registered real estate.26 On December 1, 1979, the Monetary Board of the Central Bank of the Philippines27 issued Circular No. 705 which fixed the effective rate of interest on loan transactions with maturities of more than 730 days to twenty-one per cent (21%) per annum for both secured and unsecured loans.28 On January 28, 1980, The Monetary Board issued Circular No. 712 reiterating the effective interest rate of 21% on said loan transactions.29 On January 1, 1983, CB Circular No. 905, series of 1982, took effect.  This Circular declared that the rate of interest on any loan or forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured, "shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended."30 In short, Circular No. 905 removed the ceiling on interest rates for secured and unsecured loans, regardless of maturity.31

When the second promissory note was executed on September 20, 1982, Central Bank Circulars Nos. 705 and 712 were already in effect.  These Circulars fixed the effective interest rate for secured loan transactions with maturities of more than 730 days, i.e, two (2) years, at 21% per annum.  The interest rate of 21% provided in the second promissory note was therefore authorized under these Circulars.

The question of whether the escalation clauses in the second promissory note are valid is irrelevant.  Respondent corporation has signified that it is collecting petitioners' debt only at the fixed interest rate of 21% per annum, as expressly agreed upon in the second promissory note, not at the escalated rates authorized under the escalation clauses.32 The Court of Appeals therefore did not err in applying the interest rate of 21% to petitioner's loan under the second promissory note.

Neither did the Court of Appeals err in imposing attorney's fees of ten per cent (10%) on the amount due.  The award of attorney's fees is expressly stipulated in the fourth paragraph of the promissory note itself, viz:

"In case of non-payment of the amount of this note or any portion of it on demand when given due, or any other amount/s due on account of this note, the entire obligation shall become due and demandable, and if for the enforcement of the payment thereof, APEX MORTGAGE AND LOANS CORP. is constrained to entrust the case to its attorneys, I/We, jointly and severally, bind myself/ourselves to pay TEN (10%) per cent on the amount due on the note as attorney's fees, such amount in no case to be less than FIVE HUNDRED (P500.00) PESOS in addition to the legal fees and other incidental expenses."33

Petitioners' lack of bad faith in resisting imposition of the increased interest rate cannot serve to mitigate their liability for liquidated damages.  Petitioner Florante Bautista is a lawyer and he should have been aware of the effects of the stipulations in the second promissory note and the pertinent CB Circulars on his obligation.  At the same time, there is no showing that the amount of liquidated damages is iniquitous and unconscionable for this court to equitably reduce the same.34

Finally, the fact that petitioners were not notified of the assignment of their credit by Apex to herein respondent corporation is not material.  In the eighth paragraph of the second promissory note, petitioners expressly waived notice to any assignment of credit, viz:

"It is understood that APEX MORTGAGE AND LOANS CORPORATION has the right to assign this promissory note, or make use of it as collateral in favor of any third person whomsoever and this will constitute as an authority therefore waiver of notice of such action taken [sic]."35

The purpose of the notice is only to inform the debtor that from the date of the assignment, payment should be made to the assignee and not to the original creditor.36

IN VIEW WHEREOF, the petition is denied and the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 51363 are affirmed.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Kapunan, Pardo, and Ynares -Santiago, JJ., concur.

Garcia vs. Thio

FIRST DIVISION

CAROLYN M. GARCIA, G.R. No. 154878

Petitioner,

                                                          Present:

                                                          PUNO, C.J., Chairperson,

                          SANDOVAL-GUTIERREZ,

- v e r s u s -   CORONA, 

  AZCUNA and

                                                          GARCIA, JJ.

RICA MARIE S. THIO,

  Respondent.

Promulgated:

March 16, 2007

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

 D E C I S I O N

CORONA, J.:

Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August 20, 2002 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.    

Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check4 dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou Santiago.5  Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,0006 and P76,5007 on July 26,8 August 26, September 26 and October 26, 1995.    

In June 1995, respondent received from petitioner another crossed check9 dated June 29, 1995 in the amount of P500,000, also payable to the order of Marilou Santiago.10  Consequently, petitioner received from respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995.11   

According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and P500,000) when they fell due.  Thus, on February 22, 1996, petitioner filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a month from November 5, 1995, plus attorney’s fees and actual damages.12  

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.13  The amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November 5, 1995.14  The amount of this loan was covered by the second check. For both loans, no promissory note was executed since petitioner and respondent were close friends at the time.15  Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands.16

Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed checks to Santiago.17   She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate petitioner’s request that respondent use her own checks instead of Santiago’s.18 

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.19   It found that respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a monthly interest of 4%:20  

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of:

1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26, 1995 until fully paid;

2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.

3. P100,000.00 as and for attorney’s fees; and

4. P50,000.00 as and for actual damages.

For lack of merit, [respondent’s] counterclaim is perforce dismissed.

With costs against [respondent]. 

IT IS SO ORDERED.21

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties:  

A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money from her.  There is nothing in the record that shows that [respondent] received money from [petitioner].  What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of P500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner].  The checks received by [respondent], being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.

It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once—to one who has an account with the bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course.

Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law since the latter is not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto.  Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating the transactions between the former and [petitioner].

With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan that existed between the parties. x x x (emphasis supplied)22

Hence this petition.23

As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court.  However, this case falls under one of the exceptions, i.e., when the factual findings of the CA (which held that there were no contracts of loan between petitioner and respondent) and the RTC (which held that there were contracts of loan) are contradictory.24 

The petition is impressed with merit.

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract.25  This is evident in Art. 1934 of the Civil Code which provides:

An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.  (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount.26

It is undisputed that the checks were delivered to respondent.  However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago.  Thus the main question to be answered is: who borrowed money from petitioner — respondent or Santiago?  

Petitioner insists that it was upon respondent’s instruction that both checks were made payable to Santiago.27   She maintains that it was also upon respondent’s instruction that both checks were delivered to her (respondent) so that she could, in turn, deliver the same to Santiago.28  Furthermore, she argues that once respondent received the checks, the latter had possession and control of them such that she had the choice to either forward them to Santiago (who was already her debtor), to retain them or to return them to petitioner.29

We agree with petitioner.  Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another.30 Although respondent did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago.  

Several factors support this conclusion.  

First, respondent admitted that petitioner did not personally know Santiago.31 It was highly improbable that petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any written acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on the other hand, already had transactions with Santiago at that time.32

  

Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties’ list of witnesses) testified that respondent’s plan was for petitioner to lend her money at a monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a profit of 2%.33  This explained why respondent instructed petitioner to make the checks payable to Santiago.  Respondent has not shown any reason why Ruiz’ testimony should not be believed.  

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four months.34  According to respondent, she merely accommodated petitioner’s request for her to issue her own checks to cover the interest payments since petitioner was not personally acquainted with Santiago.35 She claimed, however, that Santiago would replace the checks with cash.36 Her explanation is simply incredible.  It is difficult to believe that respondent would put herself in a position where she would be compelled to pay interest, from her own funds, for loans she allegedly did not contract.   We declared in one case that:

In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself such as the common experience of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony except its conformity to our knowledge, observation, and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical cognizance.37      

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who was listed as one of her (Santiago’s) creditors.38  

Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.39 The presumption is that “evidence willfully suppressed would be adverse if produced.”40 Respondent was not able to overturn this presumption.

We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent liable for the principal amounts of the loans.

We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000 and P500,000 loans respectively.  There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code provides that “[n]o interest shall be due unless it has been expressly stipulated in writing.”  

Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code.  It is well-settled that:

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.41

Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21, 1995, the date when she received petitioner’s demand letter.42 From the finality of the decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a forbearance of credit.43

The award of actual damages in the amount of P50,000 and P100,000 attorney’s fees is deleted since the RTC decision did not explain the factual bases for these damages.

WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the amounts of US$100,000 and P500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The total amount due as of the date of finality will earn interest of 12% per annum until fully paid.  The award of actual damages and attorney’s fees is deleted.

SO ORDERED.

RENATO C. CORONA

Associate Justice

WE   CONCUR:

REYNATO S. PUNO

Chief Justice

Chairperson

ANGELINA SANDOVAL-GUTIERREZ 

Associate Justice             

ADOLFO S. AZCUNA

Associate Justice

CANCIO C. GARCIA

Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO

Chief Justice

Eastern Shipping Lines vs. Court of Appeals

GRN 97412  July 12, 1994.

EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. 

 PETITION for review of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Alojado & Garcia and Jimenea, Dala & Zaragoza for petitioner.

Zapa Law Office for private respondent.

VITUG, J.:

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced:

'This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the instirer-subrogee who paid the consigne the value of such losses/damages,

"On December 4, 1981, two Fiber drums of iboflavin were shipped from Yokohama, Japan for delivery vessel 'SS EASTERN COMET owned by defendant Eastern Shipping Lines, Inc. under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiffs Marine Insurance, Policy No. 81401177 for P36, 382, 466.38.

'Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc.

The latter excepted to one drum, said to be in bad order, which damage, was unknown to plaintiff.

"On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per 'Request for Bad Order Survey.' (Exh. D).

"On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per 'Bad Order Waybill' No. 10649, Exh. E).

"Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).

"As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per 'Form of Subrogation,"Release' and Philbanking check, Exhs. M, N, and O)." (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

"Defendants riled their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it.

"From the evidence the court found the following:

"'The issues are:

'1 . Whether or not the shipment sustained losses/damages;

'2. Whether or not these losses/damages were sustained.

while in the custody of defendants (in whose respectived,  if determinable);

'3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiffs pre-Trial Brief, Records, p.34; Allied's pre-Trial Brief, adapting plaintiffs Records, p. 38),'

'As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two, drums were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order.

'Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its 'Additional Survey Notes,' am considered. In the latter notes, it is stated that when the shipment was 'landed on vessel' to dock of Pier # 15, South Harbor, Manila on December 12, 1981,' it was observed that 'one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427.' The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact. Net unrecovered spillage was 15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the Turn-Over Survey of Bad Order Cargoes' (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found 'open.'

"and thus held:

'WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendant- to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIE value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6. 01 of the Management Contract);

2. P3,000.00 as attorney's fees, and 3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.

SO ORDERED.' (p. 207, Record).

'Dissatisfied, defendant's recourse to US. 'no appeal  is devoid of merit,

"After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee." (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court when I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LL433LE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PFRCENT FOR ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENTS CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 62 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service, Inc. vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 17341 of the Civil Code, are exclusive, not one of which can be applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to Art. 1734. Common carriers are responsible for the loss, destrution, or deterioration of the goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act ompetent public authority.

the consignee has, too, be passed upon by the Court. In Fireman's Fund Insurance, Co. vs. Metro Port Service, Inc. (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum, thus:

"The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Klan v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of the consignee and the arastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its, custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee."

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and neccessarily liable solidarily with the carrier, or viceversa, no,r that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of good,. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:

"Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point.

"But then upon the provisions of Article 2213 of the Civil Code, interest 'cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty! And as was held by this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof (Montilla c. Corporacion de P. P. Agustinos, 25 Phil. 447, Lichauco v, Guzman, 38 Phil. 302),' then, interest 'should be from the date of the decision."' (Italics supplied)

The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of Property." After trial, the lower court decreed:

"WHEREFORE, judgment is  hereby rendered in favor of the plaintifs and third pay defendants and against the defendants and third party plaintiffs as follows:

"Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons:

"(a) . . . . .

"x x x x x x "(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly lose suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P379,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs." (Italics supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus "By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall take effect immediately." (Italics found in the text)-

should have, instead, been applied. This Court6 ruled:

The judgment spoken of and reffered to are judgment in litigations involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgement which has nothing to do with, nor involving loans or surbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank.

"xxxx  xxx xxx "Coining to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads 'Art. 2209.-If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.'"

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz 7 promulgated on 28 July 1986. The case was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court8 modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising from the collapse of a building, ordered, inter alia, the "defendant United Construction Co., Inc. (one of the petitioners) x x x to pay the plaintiff, x x x, the bum of P989,335.68 with interest at the legal rate jrom November 29, 1968, the date of the filing of the complaint until full payment x x x." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus:

"WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception of attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (except Roman Ozaeta)." (Italics supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) percent per annum imposed on the total amount of the monetary award was in contravention of law." The Court10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:

"There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 x x x is applicable only in the following: (1) loans; (21 forbearance rqny money, moods or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will muse the imposition of the interest.

"It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the complaint until paid; in other words, as art of the judgment for damages. Clearly, they are not applicable to the instant case." (Italics supplied)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum. from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court" thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six (6%) percent interest thereon computed from the finality of this decision until paid." (Italics supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a breach of employment contract, For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held:

"WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendantappellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, With interest at the legal rate from the date of the filing of the complaint until fully paid." (Italics supplied)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said:

"x x x, it is to be noted that the Court of Appeals ordered the payment of interest 'at the legal rate' from the time of the filing of the complaint. x x x. Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of employment contract like the case at bar." (Italics supplied)

The Court reiferated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule an the matter. National Power Corporation vs. Angas,14 decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints foreminent domain,

are trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for their lands so expropriated "with legal interest thereon x x x until fully paid."

Again, in applying the 6% legal interest per annum under the Civil Code, the Court15 declared:

"x x x, Miss transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply."

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v. Intermediate Appellate Court (1988).

In the 'first group," the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annurn. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance16 of money, goods or credits,

on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance.

 I -. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts18 is breached, the contravenor can be held liable for damages.19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.20

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.21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.22 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 116923 of the Civil Code.

When an obligation, no constituting loans or forbearance of money is breached an interest on the amount of damages awarded may he imposed at the discretion of the court24 at the rate of 6% per a annum.25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainy.26 Accordingly, where the demand is established with reasonable certainty, the interest shah 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 maybe deemed to have been reasonably ascertain. 1). The actual  base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal  interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12%  per annum from such finality until its satisfaction on, this interim period being deemed to be by then an equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality or this decision until the payment thereof.

SO ORDERED.

Narvasa (C.J.), Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.

Mendoza, J., Took no part in deliberations.

Petition partly granted.

Sunga-Chan vs. Court of Appeals

SECOND DIVISION

LILIBETH SUNGA-CHAN and CECILIA SUNGA,

                      Petitioners,

         -  versus  -

THE HONORABLE COURT OF APPEALS; THE HONORABLE PRESIDING JUDGE, Regional Trial Court, Branch 11, Sindangan, Zamboanga Del Norte; THE REGIONAL TRIAL COURT SHERIFF, Branch 11, Sindangan, Zamboanga Del Norte; THE CLERK OF COURT OF MANILA, as Ex-Officio Sheriff; and LAMBERTO T. CHUA,

                      Respondents.

G.R. No. 164401

Present:

QUISUMBING, J., Chairperson, 

CARPIO MORALES,

TINGA,           

VELASCO, JR., and

BRION, JJ.

Promulgated:

June 25, 2008

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

D E C I S I O N

VELASCO, JR., J.:

The Case

Before us is a petition for review under Rule 45, seeking to nullify and set aside the Decision1 and Resolution dated November 6, 2003 and July 6, 2004, respectively, of the Court of Appeals (CA) in CA-G.R. SP No. 75688. The impugned CA Decision and Resolution denied the petition for certiorari interposed by petitioners assailing the Resolutions2 dated November 6, 2002 and January 7, 2003, respectively, of the Regional Trial Court (RTC), Branch 11 in Sindangan, Zamboanga Del Norte in Civil Case No. S-494, a suit for winding up of partnership affairs, accounting, and recovery of shares commenced thereat by respondent Lamberto T. Chua.

The Facts

In 1977, Chua and Jacinto Sunga formed a partnership to engage in the marketing of liquefied petroleum gas.  For convenience, the business, pursued under the name, Shellite Gas Appliance Center (Shellite), was registered as a sole proprietorship in the name of Jacinto, albeit the partnership arrangement called for equal sharing of the net profit.

After Jacinto’s death in 1989, his widow, petitioner Cecilia Sunga, and married daughter, petitioner Lilibeth Sunga-Chan, continued with the business without Chua’s consent. Chua’s subsequent repeated demands for accounting and winding up went unheeded, prompting him to file on June 22, 1992 a Complaint for Winding Up of a Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment, docketed as Civil Case No. S-494 of the RTC in Sindangan, Zamboanga del Norte and raffled to Branch 11 of the court.

After trial, the RTC rendered, on October 7, 1997, judgment finding for Chua, as plaintiff a quo. The RTC’s decision would subsequently be upheld by the CA in CA-G.R. CV No. 58751 and by this Court per its Decision dated August 15, 2001 in G.R. No. 143340.3  The corresponding Entry of Judgment4 would later issue declaring the October 7, 1997 RTC decision final and executory as of December 20, 2001. The fallo of the RTC’s decision reads:  

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows:

(1)  DIRECTING them to render an accounting in acceptable form under accounting procedures and standards of the properties, assets, income and profits of [Shellite] since the time of death of Jacinto L. Sunga, from whom they continued the business operations including all businesses derived from [Shellite]; submit an inventory, and appraisal of all these properties, assets, income, profits, etc. to the Court and to plaintiff for approval or disapproval;

(2)  ORDERING them to return and restitute to the partnership any and all properties, assets, income and profits they misapplied and converted to their own use and advantage that legally pertain to the plaintiff and account for the properties mentioned in pars. A and B on pages 4-5 of this petition as basis;

(3)  DIRECTING them to restitute and pay to the plaintiff ½ shares and interest of the plaintiff in the partnership of the listed properties, assets and good will in schedules A, B and C, on pages 4-5 of the petition;

(4)  ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership from 1988 to May 30, 1992, when the plaintiff learned of the closure of the store the sum of P35,000.00 per month, with legal rate of interest until fully paid;

(5)  ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law, after delivering to the plaintiff all the ½ interest, shares, participation and equity in the partnership, or the value thereof in money or money’s worth, if the properties are not physically divisible;

(6)  FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and exemplary damages; and,

(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney’s [fee] and P25,000.00 as litigation expenses.

NO special pronouncements as to COSTS.

SO ORDERED.5  (Emphasis supplied.)

Via an Order6 dated January 16, 2002, the RTC granted Chua’s motion for execution. Over a month later, the RTC, acting on another motion of Chua, issued an amended writ of execution.7

It seems, however, that the amended writ of execution could not be immediately implemented, for, in an omnibus motion of April 3, 2002, Chua, inter alia, asked the trial court to commission a certified public accountant (CPA) to undertake the accounting work and inventory of the partnership assets if petitioners refuse to do it within the time set by the court.  Chua later moved to withdraw his motion and instead ask the admission of an accounting report prepared by CPA Cheryl A. Gahuman. In the report under the heading, Computation of Claims,8 Chua’s aggregate claim, arrived at using the compounding-of-interest method, amounted to PhP 14,277,344.94. Subsequently, the RTC admitted and approved the computation of claims in view of petitioners’ failure and refusal, despite notice, to appear and submit an accounting report on the winding up of the partnership on the scheduled hearings on April 29 and 30, 2002.9

After another lengthy proceedings, petitioners, on September 24, 2002, submitted their own CPA-certified valuation and accounting report. In it, petitioners limited Chua’s entitlement from the winding up of partnership affairs to an aggregate amount of PhP 3,154,736.65 only.10  Chua, on the other hand, submitted a new computation,11 this time applying simple interest on the various items covered by his claim. Under this methodology, Chua’s aggregate claim went down to PhP 8,733,644.75.  

On November 6, 2002, the RTC issued a Resolution,12 rejecting the accounting report petitioners submitted, while approving the new computation of claims Chua submitted. The fallo of the resolution reads:   

WHEREFORE, premises considered, this Court resolves, as it is hereby resolved, that the Computation of Claims submitted by the plaintiff dated October 15, 2002 amounting to P8,733,644.75 be APPROVED in all respects as the final computation and accounting of the defendants’ liabilities in favor of the plaintiff in the above-captioned case, DISAPPROVING for the purpose, in its entirety, the computation and accounting filed by the defendants.

SO RESOLVED.13

Petitioners sought reconsideration, but their motion was denied by the RTC per its Resolution of January 7, 2003.14

In due time, petitioners went to the CA on a petition for certiorari15 under Rule 65, assailing the November 6, 2002 and January 7, 2003 resolutions of the RTC, the recourse docketed as CA-G.R. SP No. 75688.

The Ruling of the CA

As stated at the outset, the CA, in the herein assailed Decision of November 6, 2003, denied the petition for certiorari, thus: 

WHEREFORE, the foregoing considered, the Petition is hereby DENIED for lack of merit.

SO ORDERED.16

The CA predicated its denial action on the ensuing main premises:

1. Petitioners, by not appearing on the hearing dates, i.e., April 29 and 30, 2002, scheduled to consider Chua’s computation of claims, or rendering, as required, an accounting of the winding up of the partnership, are deemed to have waived their right to interpose any objection to the computation of claims thus submitted by Chua.  

2. The 12% interest added on the amounts due is proper as the unwarranted keeping by petitioners of Chua’s money passes as an involuntary loan and forbearance of money.

3. The reiterative arguments set forth in petitioners’ pleadings below were part of their delaying tactics.  Petitioners had come to the appellate court at least thrice and to this Court twice.  Petitioners had more than enough time to question the award and it is now too late in the day to change what had become final and executory.

Petitioners’ motion for reconsideration was rejected by the appellate court through the assailed Resolution17 dated July 6, 2004.  Therein, the CA explained that the imposition of the 12% interest for forbearance of credit or money was proper pursuant to paragraph 1 of the October 7, 1997 RTC decision, as the computation done by CPA Gahuman was made in “acceptable form under accounting procedures and standards of the properties, assets, income and profits of [Shellite].”18  Moreover, the CA ruled that the imposition of interest is not based on par. 3 of the October 7, 1997 RTC decision as the phrase “shares and interests” mentioned therein  refers not to an imposition of interest for use of money in a loan or credit, but to a legal share or right.  The appellate court also held that the imposition of interest on the partnership assets falls under par. 2 in relation to par. 1 of the final RTC decision as the restitution mentioned therein does not simply mean restoration but also reparation for the injury or damage committed against the rightful owner of the property.

Finally, the CA declared the partnership assets referred to in the final decision as “liquidated claim” since the claim of Chua is ascertainable by mathematical computation; therefore, interest is recoverable as an element of damage.

The Issues

Hence, the instant petition with petitioners raising the following issues for our consideration:

I.

Whether or not the Regional Trial Court can [impose] interest on a final judgment of unliquidated claims.

II.

Whether or not the Sheriff can enforce the whole divisible obligation under judgment only against one Defendant.

III.

Whether or not the absolute community of property of spouses Lilibeth Sunga Chan with her husband Norberto Chan can be lawfully made to answer for the liability of Lilibeth Chan under the judgment.19

Significant Intervening Events

In the meantime, pending resolution of the instant petition for review and even before the resolution by the CA of its CA-G.R. SP No. 75688, the following relevant events transpired:

1. Following the RTC’s approval of Chua’s computation of claims in the amount of PhP 8,733,644.75, the sheriff of Manila levied upon petitioner Sunga-Chan’s property located along Linao St., Paco, Manila, covered by Transfer Certificate of Title (TCT) No. 208782,20 over which a building leased to the Philippine National Bank (PNB) stood. In the auction sale of the levied lot, Chua, with a tender of PhP 8 million,21 emerged as the winning bidder.

2. On January 21, 2005, Chua moved for the issuance of a final deed of sale and a writ of possession. He also asked the RTC to order the Registry of Deeds of Manila to cancel TCT No. 208782 and to issue a new certificate. Despite petitioners’ opposition on the ground of prematurity, a final deed of sale22 was issued on February 16, 2005.

3. On February 18, 2005, Chua moved for the confirmation of the sheriff’s final deed of sale and for the issuance of an order for the cancellation of TCT No. 208782.  Petitioners again interposed an opposition in which they informed the RTC that this Court had already granted due course to their petition for review on January 31, 2005;

4. On April 11, 2005, the RTC, via a Resolution, confirmed the sheriff’s final deed of sale, ordered the Registry of Deeds of Manila to cancel TCT No. 208782, and granted a writ of possession23 in favor of Chua.

5. On May 3, 2005, petitioners filed before this Court a petition for the issuance of a temporary restraining order (TRO).  On May 24, 2005, the sheriff of Manila issued a Notice to Vacate24 against petitioners, compelling petitioners to repair to this Court anew for the resolution of their petition for a TRO.

6. On May 31, 2005, the Court issued a TRO,25 enjoining the RTC and the sheriff from enforcing the April 11, 2005 writ of possession and the May 24, 2005 Notice to Vacate.  Consequently, the RTC issued an Order26 on June 17, 2005, suspending the execution proceedings before it.

7. Owing to the clashing ownership claims over the leased Paco property, coupled with the filing of an unlawful detainer suit before the Metropolitan Trial Court (MeTC) in Manila against PNB, the Court, upon the bank’s motion, allowed, by Resolution27 dated April 26, 2006, the consignation of the monthly rentals with the MeTC hearing the ejectment case.

The Court’s Ruling

The petition is partly meritorious.

First Issue: Interest Proper in Forbearance of Credit

Petitioners, citing Article 221328 of the Civil Code, fault the trial court for imposing, in the execution of its final judgment, interests on what they considered as unliquidated claims.  Among these was the claim for goodwill upon which the RTC attached a monetary value of PhP 250,000.  Petitioners also question the imposition of 12% interest on the claimed monthly profits of PhP 35,000, reckoned from 1988 to October 15, 1992. To petitioners, the imposable rate should only be 6% and computed from the finality of the RTC’s underlying decision, i.e., from December 20, 2001.  

Third on the petitioners’ list of unliquidated claims is the yet-to-be established value of the one-half partnership share and interest adjudicated to Chua, which, they submit, must first be determined with reasonable certainty in a judicial proceeding. And in this regard, petitioners, citing Eastern Shipping Lines, Inc. v. Court of Appeals,29  would ascribe error on the RTC for adding  a 12% per annum interest on the approved valuation of the one-half share of the assets, inclusive of goodwill, due Chua.  

Petitioners are partly correct.

For clarity, we reproduce the summary valuations and accounting reports on the computation of claims certified to by the parties’ respective CPAs.  Chua claimed the following:

A 50% share on assets (exclusive of goodwill) at fair

market value (Schedule 1) P 1,613,550.00

B  50% share in the monetary value of goodwill

(P500,000 x 50%)    250,000.00

C  Legal interest on share of assets from June 1, 1992 to

Oct. 15, 2002 at 12% interest per year (Schedule 2)  2,008,869.75

D  Unreceived profits from 1988 to 1992 and its corresponding 

interest from Jan. 1, 1988 to Oct. 15, 2002

(Schedule 3)  4,761,225.00

E  Damages       50,000.00

F  Attorney’s fees       25,000.00

G  Litigation fees       25,000.00

TOTAL AMOUNT P  8,733,644.75

On the other hand, petitioners acknowledged the following to be due to Chua:

Total Assets – Schedule 1 P2,431,956.35

50% due to Lamberto Chua P1,215,978.16

Total Alleged Profit, Net of Payments Made, 

May 1992-Sch. 2  1,613,758.49

50% share in the monetary value of goodwill 

(500,000 x 50%)     250,000.00

Moral and Exemplary Damages       50,000.00

Attorney’s Fee       25,000.00

Litigation Fee       25,000.00

TOTAL AMOUNT P3,154,736.65

As may be recalled, the trial court admitted and approved Chua’s computation of claims amounting to PhP 8,733,644.75, but rejected that of petitioners, who came up with the figure of only PhP 3,154,736.65. We highlight the substantial differences in the accounting reports on the following items, to wit:  (1) the aggregate amount of the partnership assets bearing on the 50% share of Chua thereon; (2) interests added on Chua’s share of the assets; (3) amount of profits from 1988 through May 30, 1992, net of alleged payments made to Chua; and (4) interests added on the amount entered as profits.

 From the foregoing submitted valuation reports, there can be no dispute about the goodwill earned thru the years by Shellite. In fact, the parties, by their own judicial admissions, agreed on the monetary value, i.e., PhP 250,000, of this item. Clearly then, petitioners contradict themselves when they say that such amount of goodwill is without basis. Thus, the Court is loathed to disturb the trial court’s approval of the amount of        PhP 250,000, representing the monetary value of the goodwill, to be paid to Chua.

Neither is the Court inclined to interfere with the CA’s conclusion as to the total amount of the partnership profit, that is, PhP 1,855,000, generated for the period January 1988 through May 30, 1992, and the total partnership assets of PhP 3,227,100, 50% of which, or PhP 1,613,550,  pertains to  Chua as his share. To be sure, petitioners have not adduced adequate evidence to belie the above CA’s factual determination, confirmatory of the trial court’s own. Needless to stress, it is not the duty of the Court, not being a trier of facts, to analyze or weigh all over again the evidence or premises supportive of such determination, absent, as here, the most compelling and cogent reasons.

  

This brings us to the question of the propriety of the imposition of interest and, if proper, the imposable rate of interest applicable.

In Reformina v. Tomol, Jr.,30 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 of a 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.31

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies “when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general,”32 with the application of both rates reckoned “from the time the complaint was filed until the [adjudged] amount is fully paid.”33 In either instance, the reckoning period for the commencement of the running of the legal interest shall be subject to the condition “that the courts are vested with discretion, depending on the equities of each case, on the award of interest.”34

  

Otherwise formulated, the norm to be followed in the future on the rates and application thereof is:

I. – When an obligation, regardless of its source, 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 breached consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing.  Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.  In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2.  When an obligation not constituting loans 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.35

Guided by the foregoing rules, the award to Chua of the amount representing earned but unremitted profits, i.e.. PhP 35,000 monthly, from January 1988 until May 30, 1992, must earn interest at 6% per annum reckoned from October 7, 1997, the rendition date of the RTC decision, until December 20, 2001, when the said decision became final and executory.  Thereafter, the total of the monthly profits inclusive of the add on 6% interest shall earn 12% per annum reckoned from December 20, 2001 until fully paid, as the award for that item is considered to be, by then, equivalent to a forbearance of credit.  Likewise, the PhP 250,000 award, representing the goodwill value of the business, the award of PhP 50,000 for moral and exemplary damages, PhP 25,000 attorney’s fee, and PhP 25,000 litigation fee shall earn 12% per annum from December 20, 2001 until fully paid.  

Anent the impasse over the partnership assets, we are inclined to agree with petitioners’ assertion that Chua’s share and interest on such assets partake of an unliquidated claim which, until reasonably determined, shall not earn interest for him. As may be noted, the legal norm for interest to accrue is “reasonably determinable,” not, as Chua suggested and the CA declared, determinable by mathematical computation.  

The Court has certainly not lost sight of the fact that the October 7, 1997 RTC decision clearly directed petitioners to render an accounting, inventory, and appraisal of the partnership assets and then to wind up the partnership affairs by restituting and delivering to Chua his one-half share of the accounted partnership assets.  The directive itself is a recognition that the exact share and interest of Chua over the partnership cannot be determined with reasonable precision without going through with the inventory and accounting process. In fine, a liquidated claim cannot validly be asserted without accounting. In net effect, Chua’s interest and share over the partnership asset, exclusive of the goodwill, assumed the nature of a liquidated claim only after the trial court, through its November 6, 2002 resolution, approved the assets inventory and accounting report on such assets. 

Considering that Chua’s computation of claim, as approved by the trial court, was submitted only on October 15, 2002, no interest in his favor can be added to his share of the partnership assets. Consequently, the computation of claims of Chua should be as follows:

(1) 50% share on assets (exclusive of goodwill)

     at fair market value                                       PhP 1,613,550.00

(2) 50% share in the monetary value of goodwill

    (PhP 500,000 x 50%)                                     250,000.00

(3) 12% interest on share of goodwill from December

     20, 2001 to October 15, 2000

     [PhP 250,000 x 0.12 x 299/365 days]    24,575.34

(4) Unreceived profits from 1988 to May 30, 1992         1,855,000.00

(5) 6% interest on unreceived profits from January

     1, 1988 to December 20, 200136         1,360,362.50

(6) 12% interest on unreceived profits from December

     20, 2001 to October 15, 2002

     [PhP 3,215,362.50 x 12% x 299/365 days]  316,074.54

(7) Moral and exemplary damages    50,000.00

(8) Attorney’s fee          25,000.00

(9) Litigation fee          25,000.00

(10) 12% interest on moral and exemplary damages,

       attorney’s fee, and litigation fee from December

       20, 2001 to October 15, 2002

       [PhP 100,000 x 12% x 299/365 days]                9,830.14

TOTAL AMOUNT PhP 5,529,392.52

Second Issue: Petitioners’ Obligation Solidary

Petitioners, on the submission that their liability under the RTC decision is divisible, impugn the implementation of the amended writ of execution, particularly the levy on execution of the absolute community property of spouses petitioner Sunga-Chan and Norberto Chan. Joint, instead of solidary, liability for any and all claims of Chua is obviously petitioners’ thesis.

Under the circumstances surrounding the case, we hold that the obligation of petitioners is solidary for several reasons.

For one, the complaint of Chua for winding up of partnership affairs, accounting, appraisal, and recovery of shares and damages is clearly a suit to enforce a solidary or joint and several obligation on the part of petitioners.  As it were, the continuance of the business and management of Shellite by petitioners against the will of Chua gave rise to a solidary obligation, the acts complained of not being severable in nature. Indeed, it is well-nigh impossible to draw the line between when the liability of one petitioner ends and the liability of the other starts.  In this kind of situation, the law itself imposes solidary obligation. Art. 1207 of the Civil Code thus provides:

Art. 1207.  The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each of the latter is bound to render, entire compliance with the prestation.  There is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.  (Emphasis ours.)

Any suggestion that the obligation to undertake an inventory, render an accounting of partnership assets, and to wind up the partnership affairs is divisible ought to be dismissed.

For the other, the duty of petitioners to remit to Chua his half interest and share of the total partnership assets proceeds from petitioners’ indivisible obligation to render an accounting and inventory of such assets.  The need for the imposition of a solidary liability becomes all the more pronounced considering the impossibility of quantifying how much of the partnership assets or profits was misappropriated by each petitioner.

And for a third, petitioners’ obligation for the payment of damages and attorney’s and litigation fees ought to be solidary in nature, they having resisted in bad faith a legitimate claim and thus compelled Chua to litigate.

Third Issue: Community Property Liable

Primarily anchored as the last issue is the erroneous theory of divisibility of petitioners’ obligation and their joint liability therefor. The Court needs to dwell on it lengthily.

Given the solidary liability of petitioners to satisfy the judgment award, respondent sheriff cannot really be faulted for levying upon and then selling at public auction the property of petitioner Sunga-Chan to answer for the whole obligation of petitioners.  The fact that the levied parcel of land is a conjugal or community property, as the case may be, of spouses Norberto and Sunga-Chan does not per se vitiate the levy and the consequent sale of the property. Verily, said property is not among those exempted from execution under Section 13,37 Rule 39 of the Rules of Court.

And it cannot be overemphasized that the TRO issued by the Court on May 31, 2005 came after the auction sale in question.  

Parenthetically, the records show that spouses Sunga-Chan and Norberto were married on February 4, 1992, or after the effectivity of the Family Code on August 3, 1988. Withal, their absolute community property may be held liable for the obligations contracted by either spouse.  Specifically, Art. 94 of said Code pertinently provides:

Art. 94.  The absolute community of property shall be liable for:

(1)  x x x x

(2)  All debts and obligations contracted during the marriage by the designated administrator-spouse for the benefit of the community, or by both spouses, or by one spouse with the consent of the other.

(3)  Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have been benefited. (Emphasis ours.)

Absent any indication otherwise, the use and appropriation by petitioner Sunga-Chan of the assets of Shellite even after the business was discontinued on May 30, 1992 may reasonably be considered to have been used for her and her husband’s benefit.

It may be stressed at this juncture that Chua’s legitimate claim against petitioners, as readjusted in this disposition, amounts to only                     PhP 5,529,392.52, whereas Sunga-Chan’s auctioned property which Chua acquired, as the highest bidder, fetched a price of PhP 8 million.  In net effect, Chua owes petitioner Sunga-Chan the amount of PhP 2,470,607.48, representing the excess of the purchase price over his legitimate claims.

Following the auction, the corresponding certificate of sale dated January 15, 2004 was annotated on TCT No. 208782. On January 21, 2005, Chua moved for the issuance of a final deed of sale (1) to order the Registry of Deeds of Manila to cancel TCT No. 208782; (2) to issue a new TCT in his name; and (3) for the RTC to issue a writ of possession in his favor.  And as earlier stated, the RTC granted Chua’s motion, albeit the Court restrained the enforcement of the RTC’s package of orders via a TRO issued on May 31, 2005.  

Therefore, subject to the payment by Chua of PhP 2,470,607.48 to petitioner Sunga-Chan, we affirm the RTC’s April 11, 2005 resolution, confirming the sheriff’s final deed of sale of the levied property, ordering the Registry of Deeds of Manila to cancel TCT No. 208782, and issuing a writ of possession in favor of Chua. 

WHEREFORE, this petition is PARTLY GRANTED.  Accordingly, the assailed decision and resolution of the CA in CA-G.R. SP No. 75688 are hereby AFFIRMED with the following MODIFICATIONS: 

(1) The Resolutions dated November 6, 2002 and January 7, 2003 of the RTC, Branch 11 in Sindangan, Zamboanga Del Norte in Civil Case No. S-494, as effectively upheld by the CA, are AFFIRMED with the modification that the approved claim of respondent Chua is hereby corrected and adjusted to cover only the aggregate amount of PhP 5,529,392.52;  

(2) Subject to the payment by respondent Chua of PhP 2,470,607.48 to petitioner Sunga-Chan, the Resolution dated April 11, 2005 of the RTC, confirming the sheriff’s final deed of sale of the levied property, ordering the Registry of Deeds of Manila to cancel TCT No. 208782, and issuing a writ of possession in favor of respondent Chua, is AFFIRMED; and

The TRO issued by the Court on May 31, 2005 in the instant petition is LIFTED.

No pronouncement as to costs.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

       Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING

Associate Justice

Chairperson

 CONCHITA CARPIO MORALES DANTE O. TINGA

                     Associate Justice      Associate Justice

ARTURO D. BRION

Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING

   Associate Justice

       Chairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

        REYNATO S. PUNO

      Chief Justice