INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP.

(INIMACO), petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, (Fourth

Division) Cebu City, and ENRIQUE SULIT, SOCORRO MAHINAY, ESMERALDO
PEGARIDO, TITA BACUSMO, GINO NIERE, VIRGINIA BACUS, ROBERTO NEMENZO,
DARIO GO, and ROBERTO ALEGARBES, respondents.

DECISION

BUENA, J.:

This is a petition for certiorari assailing the Resolution dated September 4, 1991 issued by
the National Labor Relations Commission in RAB-VII-0711-84 on the alleged ground that
it committed a grave abuse of discretion amounting to lack of jurisdiction in upholding the
Alias Writ of Execution issued by the Labor Arbiter which deviated from the dispositive
portion of the Decision dated March 10, 1987, thereby holding that the liability of the six
respondents in the case below is solidary despite the absence of the word "solidary" in the
dispositive portion of the Decision, when their liability should merely be joint. S-jcj

The factual antecedents are undisputed: Supr-eme

In September 1984, private respondent Enrique Sulit, Socorro Mahinay, Esmeraldo

Pegarido, Tita Bacusmo, Gino Niere, Virginia Bacus, Roberto Nemenzo, Dariogo, and
Roberto Alegarbes filed a complaint with the Department of Labor and Employment,
Regional Arbitration Branch No. VII in Cebu City against Filipinas Carbon Mining
Corporation, Gerardo Sicat, Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and
petitioner Industrial Management Development Corporation (INIMACO), for payment of
separation pay and unpaid wages. Sc-jj

In a Decision dated March 10, 1987, Labor Arbiter Bonifacio B. Tumamak held that:

"RESPONSIVE, to all the foregoing, judgment is hereby entered, ordering

respondents Filipinas Carbon and Mining Corp. Gerardo Sicat, Antonio
Gonzales/Industrial Management Development Corp. (INIMACO), Chiu Chin
Gin and Lo Kuan Chin, to pay complainants Enrique Sulit, the total award of
P82,800.00; ESMERALDO PEGARIDO the full award of P19,565.00; Roberto
Nemenzo the total sum of P29,623.60 and DARIO GO the total award of
P6,599.71, or the total aggregate award of ONE HUNDRED THIRTY-EIGHT
THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS AND 31/100
(P138,588.31) to be deposited with this Commission within ten (10) days from
receipt of this Decision for appropriate disposition. All other claims are hereby
Dismiss (sic) for lack of merit. Jjs-c

"SO ORDERED.

"Cebu City, Philippines.

"10 March 1987."0 [1]

No appeal was filed within the reglementary period thus, the above Decision became final
and executory. On June 16, 1987, the Labor Arbiter issued a writ of execution but it was
returned unsatisfied. On August 26, 1987, the Labor Arbiter issued an Alias Writ of
Execution which ordered thus: Ed-pm-is

"NOW THEREFORE, by virtue of the powers vested in me by law, you are

hereby commanded to proceed to the premises of respondents Antonio
Gonzales/Industrial Management Development Corporation (INIMACO)
situated at Barangay Lahug, Cebu City, in front of La Curacha
Restaurant, and/or to Filipinas Carbon and Mining corporation and Gerardo
Sicat at 4th Floor Universal RE-Bldg. 106 Paseo de Roxas, Legaspi Village,
Makati Metro Manila and at Philippine National Bank, Escolta, Manila
respectively, and collect the aggregate award of ONE HUNDRED THIRTY-
EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS AND THIRTY
ONE CENTAVOS (P138,588.31) and thereafter turn over said amount to
complainants ENRIQUE SULIT, ESMERALDO PEGARIDO, ROBERTO
NEMENZO AND DARIO GO or to this Office for appropriate disposition.
Should you fail to collect the said sum in cash, you are hereby authorized to
cause the satisfaction of the same on the movable or immovable property(s)
of respondents not exempt from execution. You are to return this writ sixty (6)
(sic) days from your receipt hereof, together with your corresponding report.

"You may collect your legal expenses from the respondents as provided for by
law.

"SO ORDERED." [2]

On September 3, 1987, petitioner filed a "Motion to Quash Alias Writ of Execution and Set
Aside Decision," alleging among others that the alias writ of execution altered and
[3]

changed the tenor of the decision by changing the liability of therein respondents from
joint to solidary, by the insertion of the words "AND/OR" between "Antonio
Gonzales/Industrial Management Development Corporation and Filipinas Carbon and
Mining Corporation, et al." However, in an order dated September 14, 1987, the Labor
Arbiter denied the motion. Mis-oedp

On October 2, 1987, petitioner appealed the Labor Arbiters Order dated September 14,
[4]

1987 to the respondent NLRC. Mis-edp

The respondent NLRC dismissed the appeal in a Decision dated August 31, 1988, the
[5]

pertinent portions of which read:

"In matters affecting labor rights and labor justice, we have always adopted
the liberal approach which favors the exercise of labor rights and which is
beneficial to labor as a means to give full meaning and import to the
constitutional mandate to afford protection to labor. Considering the factual
circumstances in this case, there is no doubt in our mind that the respondents
herein are called upon to pay, jointly and severally, the claims of the
 complainants as was the latters prayers. Inasmuch as respondents herein
never controverted the claims of the complainants below, there is no reason
why complainants prayer should not be granted. Further, in line with the
powers granted to the Commission under Article 218 (c) of the Labor code, to
waive any error, defect or irregularity whether in substance or in form in a
proceeding before Us, We hold that the Writ of Execution be given due course
in all respects." Ed-p

On July 31, 1989, petitioner filed a "Motion To Compel Sheriff To Accept Payment Of
P23,198.05 Representing One Sixth Pro Rata Share of Respondent INIMACO As Full and
Final Satisfaction of Judgment As to Said Respondent." The private respondents
[6]

opposed the motion. In an Order dated August 15, 1989, the Labor Arbiter denied the
[7]

motion ruling thus:

"WHEREFORE, responsive to the foregoing respondent INIMACOs Motions

are hereby DENIED. The Sheriff of this Office is order (sic) to accept
INIMACOs tender payment (sic) of the sum of P23,198.05, as partial
satisfaction of the judgment and to proceed with the enforcement of the Alias
Writ of Execution of the levied properties, now issued by this Office, for the full
and final satisfaction of the monetary award granted in the instant case.

"SO ORDERED." Ed-psc

Petitioner appealed the above Order of the Labor Arbiter but this was again dismissed by
the respondent NLRC in its Resolution dated September 4, 1991 which held that:
[8]

"The arguments of respondent on the finality of the dispositive portion of the

decision in this case is beside the point. What is important is that the
Commission has ruled that the Writ of Execution issued by the Labor Arbiter in
this case is proper. It is not really correct to say that said Writ of Execution
varied the terms of the judgment. At most, considering the nature of labor
proceedings there was, an ambiguity in said dispositive portion which was
subsequently clarified by the Labor Arbiter and the Commission in the
incidents which were initiated by INIMACO itself. By sheer technicality and
unfounded assertions, INIMACO would now reopen the issue which was
already resolved against it. It is not in keeping with the established rules of
practice and procedure to allow this attempt of INIMACO to delay the final
disposition of this case.

"WHEREFORE, in view of all the foregoing, this appeal is DISMISSED and

the Order appealed from is hereby AFFIRMED. Sce-dp

"With double costs against appellant."

Dissatisfied with the foregoing, petitioner filed the instant case, alleging that the
respondent NLRC committed grave abuse of discretion in affirming the Order of the Labor
Arbiter dated August 15, 1989, which declared the liability of petitioner to be solidary.
The only issue in this petition is whether petitioners liability pursuant to the Decision of the
Labor Arbiter dated March 10, 1987, is solidary or not. Calrs-pped

Upon careful examination of the pleadings filed by the parties, the Court finds that
petitioner INIMACOs liability is not solidary but merely joint and that the respondent NLRC
acted with grave abuse of discretion in upholding the Labor Arbiters Alias Writ of
Execution and subsequent Orders to the effect that petitioners liability is solidary.

A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation. In a joint
[9]

obligation each obligor answers only for a part of the whole liability and to each obligee
belongs only a part of the correlative rights. [10]

Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a
[11]

solidary liability only when the obligation expressly so states, when the law so provides or
when the nature of the obligation so requires. [12]

In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The
said fallo expressly states the following respondents therein as liable, namely: Filipinas
Carbon and Mining Corporation, Gerardo Sicat, Antonio Gonzales, Industrial Management
Development Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor
can it be inferred therefrom that the liability of the six (6) respondents in the case below is
solidary, thus their liability should merely be joint.

Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not

provided in a judgment that the defendants are liable to pay jointly and severally a certain
sum of money, none of them may be compelled to satisfy in full said judgment. In Oriental
Commercial Co. vs. Abeto and Mabanag this Court held:
[13]

"It is of no consequence that, under the contract of suretyship executed by the

parties, the obligation contracted by the sureties was joint and several in
character. The final judgment, which superseded the action for the
enforcement of said contract, declared the obligation to be merely joint, and
the same cannot be executed otherwise." [14]

Granting that the Labor Arbiter has committed a mistake in failing to indicate in the
dispositive portion that the liability of respondents therein is solidary, the correction --
which is substantial -- can no longer be allowed in this case because the judgment has
already become final and executory. Scc-alr

It is an elementary principle of procedure that the resolution of the court in a given issue
as embodied in the dispositive part of a decision or order is the controlling factor as to
settlement of rights of the parties. Once a decision or order becomes final and executory,
[15]

it is removed from the power or jurisdiction of the court which rendered it to further alter or
amend it. It thereby becomes immutable and unalterable and any amendment or
[16]

alteration which substantially affects a final and executory judgment is null and void for
lack of jurisdiction, including the entire proceedings held for that purpose. An order of
[17]
execution which varies the tenor of the judgment or exceeds the terms thereof is a
nullity.
[18]

None of the parties in the case before the Labor Arbiter appealed the Decision dated
March 10, 1987, hence the same became final and executory. It was, therefore, removed
from the jurisdiction of the Labor Arbiter or the NLRC to further alter or amend it. Thus, the
proceedings held for the purpose of amending or altering the dispositive portion of the said
decision are null and void for lack of jurisdiction. Also, the Alias Writ of Execution is null
and void because it varied the tenor of the judgment in that it sought to enforce the final
judgment against "Antonio Gonzales/Industrial Management Development Corp.
(INIMACO) and/or Filipinas Carbon and Mining Corp. and Gerardo Sicat," which makes
the liability solidary. Ca-lrsc

WHEREFORE, the petition is hereby GRANTED. The Resolution dated September 4,

1991 of the respondent National Labor Relations is hereby declared NULL and VOID. The
liability of the respondents in RAB-VII-0711-84 pursuant to the Decision of the Labor
Arbiter dated March 10, 1987 should be, as it is hereby, considered joint and petitioners
payment which has been accepted considered as full satisfaction of its liability, without
prejudice to the enforcement of the award, against the other five (5) respondents in the
said case. Sppedsc
SALVADOR P. ESCAO G. R. No. 151953
and MARIO M. SILOS,
Petitioners,
Present:
QUISUMBING,
- versus - Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
RAFAEL ORTIGAS, JR., VELASCO, JR., JJ.
Respondent.
Promulgated:

June 29, 2007

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

DECISION

TINGA, J.:

The main contention raised in this petition is that petitioners are not under obligation to
reimburse respondent, a claim that can be easily debunked. The more perplexing question is
whether this obligation to repay is solidary, as contended by respondent and the lower courts, or
merely joint as argued by petitioners.

On 28 April 1980, Private Development Corporation of the Philippines (PDCP)[1]entered

into a loan agreement with Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to make
available and lend to Falcon the amount of US$320,000.00, for specific purposes and subject to
certain terms and conditions.[2] On the same day, three stockholders-officers of Falcon, namely:
respondent Rafael Ortigas, Jr. (Ortigas), George A. Scholey and George T. Scholey executed an
Assumption of Solidary Liability whereby they agreed to assume in [their] individual capacity,
solidary liability with [Falcon] for the due and punctual payment of the loan contracted by Falcon
with PDCP.[3] In the meantime, two separate guaranties were executed to guarantee the payment
of the same loan by other stockholders and officers of Falcon, acting in their personal and
individual capacities. One Guaranty[4]was executed by petitioner Salvador Escao (Escao), while
the other[5] by petitioner Mario M. Silos (Silos), Ricardo C. Silverio (Silverio), Carlos L.
Inductivo (Inductivo) and Joaquin J. Rodriguez (Rodriguez).

Two years later, an agreement developed to cede control of Falcon to Escao, Silos and
Joseph M. Matti (Matti). Thus, contracts were executed whereby Ortigas, George A. Scholey,
Inductivo and the heirs of then already deceased George T. Scholey assigned their shares of stock
in Falcon to Escao, Silos and Matti.[6] Part of the consideration that induced the sale of stock was
a desire by Ortigas, et al., to relieve themselves of all liability arising from their previous joint
and several undertakings with Falcon, including those related to the loan with PDCP. Thus, an
Undertaking dated 11 June 1982 was executed by the concerned parties,[7] namely: with Escao,
Silos and Matti identified in the document as SURETIES, on one hand, and Ortigas, Inductivo
and the Scholeys as OBLIGORS, on the other. The Undertaking reads in part:

3. That whether or not SURETIES are able to immediately cause PDCP and PAIC to
release OBLIGORS from their said guarantees [sic], SURETIES hereby
irrevocably agree and undertake to assume all of OBLIGORs said guarantees
[sic] to PDCP and PAIC under the following terms and conditions:

a. Upon receipt by any of [the] OBLIGORS of any demand from PDCP

and/or PAIC for the payment of FALCONs obligations with it, any of [the]
OBLIGORS shall immediately inform SURETIES thereof so that the
latter can timely take appropriate measures;

b. Should suit be impleaded by PDCP and/or PAIC against any and/or all
of OBLIGORS for collection of said loans and/or credit facilities,
SURETIES agree to defend OBLIGORS at their own expense, without
prejudice to any and/or all of OBLIGORS impleading SURETIES therein
for contribution, indemnity, subrogation or other relief in respect to any
of the claims of PDCP and/or PAIC; and

c. In the event that any of [the] OBLIGORS is for any reason made
to pay any amount to PDCP and/or PAIC, SURETIES shall reimburse
OBLIGORS for said amount/s within seven (7) calendar days from such
payment;

4. OBLIGORS hereby waive in favor of SURETIES any and all fees which may
be due from FALCON arising out of, or in connection with, their said guarantees[sic].[8]

Falcon eventually availed of the sum of US$178,655.59 from the credit line extended by
PDCP. It would also execute a Deed of Chattel Mortgage over its personal properties to further
secure the loan. However, Falcon subsequently defaulted in its payments. After PDCP foreclosed
on the chattel mortgage, there remained a subsisting deficiency of P5,031,004.07, which Falcon
did not satisfy despite demand.[9]

On 28 April 1989, in order to recover the indebtedness, PDCP filed a complaint for sum of
money with the Regional Trial Court of Makati (RTC) against Falcon, Ortigas, Escao, Silos,
Silverio and Inductivo. The case was docketed as Civil Case No. 89-5128. For his part, Ortigas
filed together with his answer a cross-claim against his co-defendants Falcon, Escao and Silos,
and also manifested his intent to file a third-party complaint against the Scholeys and
Matti.[10] The cross-claim lodged against Escao and Silos was predicated on the 1982
Undertaking, wherein they agreed to assume the liabilities of Ortigas with respect to the PDCP
loan.

Escao, Ortigas and Silos each sought to seek a settlement with PDCP. The first to come to
terms with PDCP was Escao, who in December of 1993, entered into a compromise agreement
whereby he agreed to pay the bank P1,000,000.00. In exchange, PDCP waived or assigned in
favor of Escao one-third (1/3) of its entire claim in the complaint against all of the other
defendants in the case.[11] The compromise agreement was approved by the RTC in a
Judgment[12] dated 6 January 1994.

Then on 24 February 1994, Ortigas entered into his own compromise agreement[13]with
PDCP, allegedly without the knowledge of Escao, Matti and Silos. Thereby, Ortigas agreed to
pay PDCP P1,300,000.00 as full satisfaction of the PDCPs claim against Ortigas,[14] in exchange
for PDCPs release of Ortigas from any liability or claim arising from the Falcon loan agreement,
and a renunciation of its claims against Ortigas.

In 1995, Silos and PDCP entered into a Partial Compromise Agreement whereby he agreed
to pay P500,000.00 in exchange for PDCPs waiver of its claims against him.[15]

In the meantime, after having settled with PDCP, Ortigas pursued his claims against Escao,
Silos and Matti, on the basis of the 1982 Undertaking. He initiated a third-party complaint against
Matti and Silos,[16] while he maintained his cross-claim against Escao. In 1995, Ortigas filed a
motion for Summary Judgment in his favor against Escao, Silos and Matti. On 5 October 1995,
the RTC issued the Summary Judgment, ordering Escao, Silos and Matti to pay Ortigas, jointly
and severally, the amount of P1,300,000.00, as well as P20,000.00 in attorneys fees.[17] The trial
court ratiocinated that none of the third-party defendants disputed the 1982 Undertaking, and that
the mere denials of defendants with respect to non-compliance of Ortigas of the terms and
conditions of the Undertaking, unaccompanied by any substantial fact which would be admissible
in evidence at a hearing, are not sufficient to raise genuine issues of fact necessary to defeat a
motion for summary judgment, even if such facts were raised in the pleadings.[18] In an Order
dated 7 March 1996, the trial court denied the motion for reconsideration of the Summary
Judgment and awarded Ortigas legal interest of 12% per annum to be computed from 28 February
1994.[19]

From the Summary Judgment, recourse was had by way of appeal to the Court of Appeals.
Escao and Silos appealed jointly while Matti appealed by his lonesome. In a Decision[20] dated 23
January 2002, the Court of Appeals dismissed the appeals and affirmed the Summary Judgment.
The appellate court found that the RTC did not err in rendering the summary judgment since the
three appellants did not effectively deny their execution of the 1982 Undertaking. The special
defenses that were raised, payment and excussion, were characterized by the Court of Appeals as
appear[ing] to be merely sham in the light of the pleadings and supporting documents and
affidavits.[21] Thus, it was concluded that there was no genuine issue that would still require the
rigors of trial, and that the appealed judgment was decided on the bases of the undisputed and
established facts of the case.

Hence, the present petition for review filed by Escao and Silos.[22] Two main issues are
raised. First, petitioners dispute that they are liable to Ortigas on the basis of the 1982
Undertaking, a document which they do not disavow and have in fact annexed to their petition.
Second, on the assumption that they are liable to Ortigas under the 1982 Undertaking, petitioners
argue that they are jointly liable only, and not solidarily. Further assuming that they are liable,
petitioners also submit that they are not liable for interest and if at all, the proper interest rate is
6% and not 12%.

Interestingly, petitioners do not challenge, whether in their petition or their memorandum

before the Court, the appropriateness of the summary judgment as a relief favorable to Ortigas.
Under Section 3, Rule 35 of the 1997 Rules of Civil Procedure, summary judgment may avail if
the pleadings, supporting affidavits, depositions and admissions on file show that, except as to
the amount of damages, there is no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law. Petitioner have not attempted to demonstrate before
us that there existed a genuine issue as to any material fact that would preclude summary
judgment. Thus, we affirm with ease the common rulings of the lower courts that summary
judgment is an appropriate recourse in this case.

The vital issue actually raised before us is whether petitioners were correctly held liable to
Ortigas on the basis of the 1982 Undertaking in this Summary Judgment. An examination of the
document reveals several clauses that make it clear that the agreement was brought forth by the
desire of Ortigas, Inductivo and the Scholeys to be released from their liability under the loan
agreement which release was, in turn, part of the consideration for the assignment of their shares
in Falcon to petitioners and Matti. The whereas clauses manifest that Ortigas had bound himself
with Falcon for the payment of the loan with PDCP, and that amongst the consideration for
OBLIGORS and/or their principals aforesaid selling is SURETIES relieving OBLIGORS of any
and all liability arising from their said joint and several undertakings with FALCON.[23] Most
crucial is the clause in Paragraph 3 of the Undertaking wherein petitioners irrevocably agree and
undertake to assume all of OBLIGORs said guarantees [sic] to PDCP x x x under the following
terms and conditions.[24]

At the same time, it is clear that the assumption by petitioners of Ortigass guarantees [sic]
to PDCP is governed by stipulated terms and conditions as set forth in sub-paragraphs (a) to (c)
of Paragraph 3. First, upon receipt by any of OBLIGORS of any demand from PDCP for the
payment of Falcons obligations with it, any of OBLIGORS was to immediately inform
SURETIES thereof so that the latter can timely take appropriate measures. Second, should any
and/or all of OBLIGORS be impleaded by PDCP in a suit for collection of its loan, SURETIES
agree[d] to defend OBLIGORS at their own expense, without prejudice to any and/or all of
OBLIGORS impleading SURETIES therein for contribution, indemnity, subrogation or other
relief[25] in respect to any of the claims of PDCP. Third, if any of the OBLIGORS is for any reason
made to pay any amount to [PDCP], SURETIES [were to] reimburse OBLIGORS for said
amount/s within seven (7) calendar days from such payment.[26]

Petitioners claim that, contrary to paragraph 3(c) of the Undertaking, Ortigas was not made
to pay PDCP the amount now sought to be reimbursed, as Ortigas voluntarily paid PDCP the
amount of P1.3 Million as an amicable settlement of the claims posed by the bank against him.
However, the subject clause in paragraph 3(c) actually reads [i]n the event that any of OBLIGORS
is for any reason made to pay any amount to PDCP x x x[27] As pointed out by Ortigas, the
phrase for any reason reasonably includes any extra-judicial settlement of obligation such as what
Ortigas had undertaken to pay to PDCP, as it is indeed obvious that the phrase was incorporated
in the clause to render the eventual payment adverted to therein unlimited and unqualified.

The interpretation posed by petitioners would have held water had the Undertaking made
clear that the right of Ortigas to seek reimbursement accrued only after he had delivered payment
to PDCP as a consequence of a final and executory judgment. On the contrary, the clear intent of
the Undertaking was for petitioners and Matti to relieve the burden on Ortigas and his fellow
OBLIGORS as soon as possible, and not only after Ortigas had been subjected to a final and
executory adverse judgment.

Paragraph 1 of the Undertaking enjoins petitioners to exert all efforts to cause PDCP x x x
to within a reasonable time release all the OBLIGORS x x x from their guarantees [sic] to PDCP
x x x[28] In the event that Ortigas and his fellow OBLIGORS could not be released from their
guaranties, paragraph 2 commits petitioners and Matti to cause the Board of Directors of Falcon
to make a call on its stockholders for the payment of their unpaid subscriptions and to pledge or
assign such payments to Ortigas, et al., as security for whatever amounts the latter may be held
liable under their guaranties. In addition, paragraph 1 also makes clear that nothing in the
Undertaking shall prevent OBLIGORS, or any one of them, from themselves negotiating with
PDCP x x x for the release of their said guarantees [sic].[29]

There is no argument to support petitioners position on the import of the phrase made to
pay in the Undertaking, other than an unduly literalist reading that is clearly inconsistent with the
thrust of the document. Under the Civil Code, the various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all of them
taken jointly.[30] Likewise applicable is the provision that if some stipulation of any contract
should admit of several meanings, it shall be understood as bearing that import which is most
adequate to render it effectual.[31] As a means to effect the general intent of the document to
relieve Ortigas from liability to PDCP, it is his interpretation, not that of petitioners, that holds
sway with this Court.

Neither do petitioners impress us of the non-fulfillment of any of the other conditions set
in paragraph 3, as they claim. Following the general assertion in the petition that Ortigas violated
the terms of the Undertaking, petitioners add that Ortigas paid PDCP BANK the amount of P1.3
million without petitioners ESCANO and SILOSs knowledge and consent.[32] Paragraph 3(a) of
the Undertaking does impose a requirement that any of the OBLIGORS shall immediately inform
SURETIES if they received any demand for payment of FALCONs obligations to PDCP, but that
requirement is reasoned so that the [SURETIES] can timely take appropriate
measures[33] presumably to settle the obligation without having to burden the OBLIGORS. This
notice requirement in paragraph 3(a) is markedly way off from the suggestion of petitioners that
Ortigas, after already having been impleaded as a defendant in the collection suit, was obliged
under the 1982 Undertaking to notify them before settling with PDCP.

The other arguments petitioners have offered to escape liability to Ortigas are similarly
weak.

Petitioners impugn Ortigas for having settled with PDCP in the first place. They note that
Ortigas had, in his answer, denied any liability to PDCP and had alleged that he signed the
Assumption of Solidary Liability not in his personal capacity, but as an officer of Falcon.
However, such position, according to petitioners, could not be justified since Ortigas later
voluntarily paid PDCP the amount of P1.3 Million. Such circumstances, according to petitioners,
amounted to estoppel on the part of Ortigas.

Even as we entertain this argument at depth, its premises are still erroneous. The Partial
Compromise Agreement between PDCP and Ortigas expressly stipulated that Ortigass offer to
pay PDCP was conditioned without [Ortigass] admitting liability to plaintiff PDCP Banks
complaint, and to terminate and dismiss the said case as against Ortigas solely.[34] Petitioners
profess it is unthinkable for Ortigas to have voluntarily paid PDCP without admitting his
liability,[35] yet such contention based on assumption cannot supersede the literal terms of the
Partial Compromise Agreement.

Petitioners further observe that Ortigas made the payment to PDCP after he had already
assigned his obligation to petitioners through the 1982 Undertaking. Yet the fact is PDCP did
pursue a judicial claim against Ortigas notwithstanding the Undertaking he executed with
petitioners. Not being a party to such Undertaking, PDCP was not precluded by a contract from
pursuing its claim against Ortigas based on the original Assumption of Solidary Liability.

At the same time, the Undertaking did not preclude Ortigas from relieving his distress
through a settlement with the creditor bank. Indeed, paragraph 1 of the Undertaking expressly
states that nothing herein shall prevent OBLIGORS, or any one of them, from themselves
negotiating with PDCP x x x for the release of their said guarantees [sic].[36] Simply put, the
Undertaking did not bar Ortigas from pursuing his own settlement with PDCP. Neither did the
Undertaking bar Ortigas from recovering from petitioners whatever amount he may have paid
PDCP through his own settlement. The stipulation that if Ortigas was for any reason made to pay
any amount to PDCP[,] x x x SURETIES shall reimburse OBLIGORS for said amount/s within
seven (7) calendar days from such payment[37] makes it clear that petitioners remain liable to
reimburse Ortigas for the sums he paid PDCP.

We now turn to the set of arguments posed by petitioners, in the alternative, that is, on the
assumption that they are indeed liable.

Petitioners submit that they could only be held jointly, not solidarily, liable to Ortigas,
claiming that the Undertaking did not provide for express solidarity. They cite Article 1207 of
the New Civil Code, which states in part that [t]here is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity.

Ortigas in turn argues that petitioners, as well as Matti, are jointly and severally liable for
the Undertaking, as the language used in the agreement clearly shows that it is a surety
agreement[38] between the obligors (Ortigas group) and the sureties (Escao group). Ortigas points
out that the Undertaking uses the word SURETIES although the document, in describing the
parties. It is further contended that the principal objective of the parties in executing the
Undertaking cannot be attained unless petitioners are solidarily liable because the total loan
obligation can not be paid or settled to free or release the OBLIGORS if one or any of the
SURETIES default from their obligation in the Undertaking.[39]

In case, there is a concurrence of two or more creditors or of two or more debtors in one
and the same obligation, Article 1207 of the Civil Code states that among them, [t]here is a
solidary liability only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity. Article 1210 supplies further caution against the broad
interpretation of solidarity by providing: The indivisibility of an obligation does not necessarily
give rise to solidarity. Nor does solidarity of itself imply indivisibility.

These Civil Code provisions establish that in case of concurrence of two or more creditors
or of two or more debtors in one and the same obligation, and in the absence of express and
indubitable terms characterizing the obligation as solidary, the presumption is that the obligation
is only joint. It thus becomes incumbent upon the party alleging that the obligation is indeed
solidary in character to prove such fact with a preponderance of evidence.

The Undertaking does not contain any express stipulation that the petitioners agreed to bind
themselves jointly and severally in their obligations to the Ortigas group, or any such terms to
that effect. Hence, such obligation established in the Undertaking is presumed only to be joint.
Ortigas, as the party alleging that the obligation is in fact solidary, bears the burden to overcome
the presumption of jointness of obligations. We rule and so hold that he failed to discharge such
burden.

Ortigas places primary reliance on the fact that the petitioners and Matti identified
themselves in the Undertaking as SURETIES, a term repeated no less than thirteen (13) times in
the document. Ortigas claims that such manner of identification sufficiently establishes that the
obligation of petitioners to him was joint and solidary in nature.

The term surety has a specific meaning under our Civil Code. Article 2047 provides the
statutory definition of a surety agreement, thus:

Art. 2047. By guaranty a person, called the guarantor, binds himself to the
creditor to fulfill the obligation of the principal debtor in case the latter should fail to
do so.

If a person binds himself solidarily with the principal debtor, the provisions of
Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract
is called a suretyship. [Emphasis supplied][40]

As provided in Article 2047 in a surety agreement the surety undertakes to be bound

solidarily with the principal debtor. Thus, a surety agreement is an ancillary contract as it
presupposes the existence of a principal contract. It appears that Ortigass argument rests solely
on the solidary nature of the obligation of the surety under Article 2047. In tandem with the
nomenclature SURETIES accorded to petitioners and Matti in the Undertaking, however, this
argument can only be viable if the obligations established in the undertaking do partake of the
nature of a suretyship as defined under Article 2047 in the first place. That clearly is not the case
here, notwithstanding the use of the nomenclature SURETIES in the Undertaking.

Again, as indicated by Article 2047, a suretyship requires a principal debtor to whom the
surety is solidarily bound by way of an ancillary obligation of segregate identity from the
obligation between the principal debtor and the creditor. The suretyship does bind the surety to
the creditor, inasmuch as the latter is vested with the right to proceed against the former to collect
the credit in lieu of proceeding against the principal debtor for the same obligation.[41] At the same
time, there is also a legal tie created between the surety and the principal debtor to which the
creditor is not privy or party to. The moment the surety fully answers to the creditor for the
obligation created by the principal debtor, such obligation is extinguished.[42] At the same time,
the surety may seek reimbursement from the principal debtor for the amount paid, for the surety
does in fact become subrogated to all the rights and remedies of the creditor.[43]

Note that Article 2047 itself specifically calls for the application of the provisions on joint
and solidary obligations to suretyship contracts.[44] Article 1217 of the Civil Code thus comes into
play, recognizing the right of reimbursement from a co-debtor (the principal debtor, in case of
suretyship) in favor of the one who paid (i.e., the surety).[45]However, a significant distinction
still lies between a joint and several debtor, on one hand, and a surety on the other. Solidarity
signifies that the creditor can compel any one of the joint and several debtors or the surety alone
to answer for the entirety of the principal debt. The difference lies in the respective faculties of
the joint and several debtor and the surety to seek reimbursement for the sums they paid out to
the creditor.

Dr. Tolentino explains the differences between a solidary co-debtor and a surety:

A guarantor who binds himself in solidum with the principal debtor under the provisions
of the second paragraph does not become a solidary co-debtor to all intents and
purposes. There is a difference between a solidary co-debtor and a fiador in
solidum (surety). The latter, outside of the liability he assumes to pay the debt
before the property of the principal debtor has been exhausted, retains all the
other rights, actions and benefits which pertain to him by reason of the fiansa;
while a solidary co-debtor has no other rights than those bestowed upon him in
Section 4, Chapter 3, Title I, Book IV of the Civil Code.

The second paragraph of [Article 2047] is practically equivalent to the contract

of suretyship. The civil law suretyship is, accordingly, nearly synonymous with the
common law guaranty; and the civil law relationship existing between the co-debtors
liable in solidum is similar to the common law suretyship.[46]

In the case of joint and several debtors, Article 1217 makes plain that the solidary debtor
who effected the payment to the creditor may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. Such solidary debtor will
not be able to recover from the co-debtors the full amount already paid to the creditor, because
the right to recovery extends only to the proportional share of the other co-debtors, and not as to
the particular proportional share of the solidary debtor who already paid. In contrast, even as the
surety is solidarily bound with the principal debtor to the creditor, the surety who does pay the
creditor has the right to recover the full amount paid, and not just any proportional share, from
the principal debtor or debtors. Such right to full reimbursement falls within the other rights,
actions and benefits which pertain to the surety by reason of the subsidiary obligation assumed
by the surety.

What is the source of this right to full reimbursement by the surety? We find the right under
Article 2066 of the Civil Code, which assures that [t]he guarantor who pays for a debtor must be
indemnified by the latter, such indemnity comprising of, among others, the total amount of the
debt.[47] Further, Article 2067 of the Civil Code likewise establishes that [t]he guarantor who pays
is subrogated by virtue thereof to all the rights which the creditor had against the debtor.[48]

Articles 2066 and 2067 explicitly pertain to guarantors, and one might argue that the provisions
should not extend to sureties, especially in light of the qualifier in Article 2047 that the provisions
on joint and several obligations should apply to sureties. We reject that argument, and instead
adopt Dr. Tolentinos observation that [t]he reference in the second paragraph of [Article 2047] to
the provisions of Section 4, Chapter 3, Title I, Book IV, on solidary or several obligations,
however, does not mean that suretyship is withdrawn from the applicable provisions governing
guaranty.[49] For if that were not the implication, there would be no material difference between
the surety as defined under Article 2047 and the joint and several debtors, for both classes of
obligors would be governed by exactly the same rules and limitations.

Accordingly, the rights to indemnification and subrogation as established and granted to

the guarantor by Articles 2066 and 2067 extend as well to sureties as defined under Article 2047.
These rights granted to the surety who pays materially differ from those granted under Article
1217 to the solidary debtor who pays, since the indemnification that pertains to the latter extends
only [to] the share which corresponds to each [co-debtor]. It is for this reason that the Court
cannot accord the conclusion that because petitioners are identified in the Undertaking as
SURETIES, they are consequently joint and severally liable to Ortigas.

In order for the conclusion espoused by Ortigas to hold, in light of the general presumption
favoring joint liability, the Court would have to be satisfied that among the petitioners and Matti,
there is one or some of them who stand as the principal debtor to Ortigas and another as surety
who has the right to full reimbursement from the principal debtor or debtors. No suggestion is
made by the parties that such is the case, and certainly the Undertaking is not revelatory of such
intention. If the Court were to give full fruition to the use of the term SURETIES as conclusive
indication of the existence of a surety agreement that in turn gives rise to a solidary obligation to
pay Ortigas, the necessary implication would be to lay down a corresponding set of rights and
obligations as between the SURETIES which petitioners and Matti did not clearly intend.

It is not impossible that as between Escao, Silos and Matti, there was an agreement whereby
in the event that Ortigas were to seek reimbursement from them per the terms of the Undertaking,
one of them was to act as surety and to pay Ortigas in full, subject to his right to full
reimbursement from the other two obligors. In such case, there would have been, in fact, a surety
agreement which evinces a solidary obligation in favor of Ortigas. Yet if there was indeed such
an agreement, it does not appear on the record. More consequentially, no such intention is
reflected in the Undertaking itself, the very document that creates the conditional obligation that
petitioners and Matti reimburse Ortigas should he be made to pay PDCP. The mere utilization of
the term SURETIES could not work to such effect, especially as it does not appear who exactly
is the principal debtor whose obligation is assured or guaranteed by the surety.

Ortigas further argues that the nature of the Undertaking requires solidary obligation of the
Sureties, since the Undertaking expressly seeks to reliev[e] obligors of any and all liability arising
from their said joint and several undertaking with [F]alcon, and for the sureties to irrevocably
agree and undertake to assume all of obligors said guarantees to PDCP.[50] We do not doubt that
a finding of solidary liability among the petitioners works to the benefit of Ortigas in the
facilitation of these goals, yet the Undertaking itself contains no stipulation or clause that
establishes petitioners obligation to Ortigas as solidary. Moreover, the aims adverted to by Ortigas
do not by themselves establish that the nature of the obligation requires solidarity. Even if the
liability of petitioners and Matti were adjudged as merely joint, the full relief and reimbursement
of Ortigas arising from his payment to PDCP would still be accomplished through the complete
execution of such a judgment.

Petitioners further claim that they are not liable for attorneys fees since the Undertaking
contained no such stipulation for attorneys fees, and that the situation did not fall under the
instances under Article 2208 of the Civil Code where attorneys fees are recoverable in the absence
of stipulation.

We disagree. As Ortigas points out, the acts or omissions of the petitioners led to his being
impleaded in the suit filed by PDCP. The Undertaking was precisely executed as a means to
obtain the release of Ortigas and the Scholeys from their previous obligations as sureties of
Falcon, especially considering that they were already divesting their shares in the corporation.
Specific provisions in the Undertaking obligate petitioners to work for the release of Ortigas from
his surety agreements with Falcon. Specific provisions likewise mandate the immediate
repayment of Ortigas should he still be made to pay PDCP by reason of the guaranty agreements
from which he was ostensibly to be released through the efforts of petitioners. None of these
provisions were complied with by petitioners, and Article 2208(2) precisely allows for the
recovery of attorneys fees [w]hen the defendants act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest.
 Finally, petitioners claim that they should not be liable for interest since the Undertaking
does not contain any stipulation for interest, and assuming that they are liable, that the rate of
interest should not be 12% per annum, as adjudged by the RTC.

The seminal ruling in Eastern Shipping Lines, Inc. v. Court of Appeals[51] set forth the rules
with respect to the manner of computing legal interest:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-

contracts, 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
12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time 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.[52]

Since what was the constituted in the Undertaking consisted of a payment in a sum of
money, the rate of interest thereon shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand. The interest rate imposed by the RTC is thus proper.
However, the computation should be reckoned from judicial or extrajudicial demand. Per records,
there is no indication that Ortigas made any extrajudicial demand to petitioners and Matti after
he paid PDCP, but on 14 March 1994, Ortigas made a judicial demand when he filed a Third-
Party Complaint praying that petitioners and Matti be made to reimburse him for the payments
made to PDCP. It is the filing of this Third Party Complaint on 14 March 1994 that should be
considered as the date of judicial demand from which the computation of interest should be
reckoned.[53] Since the RTC held that interest should be computed from 28 February 1994, the
appropriate redefinition should be made.

WHEREFORE, the Petition is GRANTED in PART. The Order of the Regional Trial Court
dated 5 October 1995 is MODIFIED by declaring that petitioners and Joseph M. Matti are only
jointly liable, not jointly and severally, to respondent Rafael Ortigas, Jr. in the amount
of P1,300,000.00. The Order of the Regional Trial Court dated 7 March 1996 is MODIFIED in
that the legal interest of 12% per annum on the amount of P1,300,000.00 is to be computed
from 14 March 1994, the date of judicial demand, and not from 28 February 1994 as directed in
the Order of the lower court. The assailed rulings are affirmed in all other respects. Costs against
petitioners.
LILIBETH SUNGA-CHAN and G.R. No. 164401
CECILIA SUNGA,
Petitioners,

- versus - Present:

THE HONORABLE COURT OF QUISUMBING, J.,

APPEALS; THE HONORABLE Chairperson,
PRESIDING JUDGE, Regional CARPIO MORALES,
Trial Court, Branch 11, Sindangan, TINGA,
Zamboanga Del Norte; THE VELASCO, JR., and
REGIONAL TRIAL COURT BRION, JJ.
SHERIFF, Branch 11, Sindangan,
Zamboanga Del Norte; THE
CLERK OF COURT OF MANILA,
as Ex-Officio Sheriff; and
LAMBERTO T. CHUA, Promulgated:
Respondents.
June 25, 2008
x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

The Case

Before us is a petition for review under Rule 45, seeking to nullify and set aside the
Decision[1] 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 Resolutions[2] 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, ShelliteGas 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 Jacintos death in 1989, his widow, petitioner Cecilia Sunga, and married daughter,
petitioner Lilibeth Sunga-Chan, continued with the business without Chuas consent. Chuas
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 RTCs 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 Judgment[4] would later issue declaring the October 7, 1997 RTC decision
final and executory as of December 20, 2001. The fallo of the RTCs 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 allproperties,
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 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 interest, shares, participation and
equity in the partnership, or the value thereof in money or moneys 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 attorneys [fee] and
P25,000.00 as litigation expenses.

NO special pronouncements as to COSTS.

 SO ORDERED.[5] (Emphasis supplied.)

Via an Order[6] dated January 16, 2002, the RTC granted Chuas 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] Chuas 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 Chuas 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, Chuas 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 certiorari[15] 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 Chuas 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 Chuas 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 Resolution[17] 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 RTCs approval of Chuas computation of claims in the amount of PhP
8,733,644.75, the sheriff of Manila levied upon petitioner Sunga-Chans 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 sale[22] was issued on February 16, 2005.
3. On February 18, 2005, Chua moved for the confirmation of the sheriffs 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 sheriffs final deed of sale,
ordered the Registry of Deeds of Manila to cancel TCT No. 208782, and granted a writ of
possession[23] 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
Vacate[24] 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 Order[26] 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 banks motion, allowed, by Resolution[27] dated April 26, 2006, the
consignation of the monthly rentals with the MeTC hearing the ejectment case.

The Courts Ruling

The petition is partly meritorious.

First Issue: Interest Proper in Forbearance of Credit

Petitioners, citing Article 2213[28] 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 RTCs 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 Attorneys 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
Attorneys 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 Chuas 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 Chuas 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 courts 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 CAs 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 CAs factual determination, confirmatory of the trial courts 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
attorneys 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 Chuas 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, Chuas 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 Chuas 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, 2001[36] 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) Attorneys fee 25,000.00

(9) Litigation fee 25,000.00

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

attorneys 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 attorneys 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 husbands benefit.

It may be stressed at this juncture that Chuas legitimate claim against petitioners, as
readjusted in this disposition, amounts to only PhP 5,529,392.52, whereas Sunga-Chans
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 Chuas motion, albeit the Court restrained the enforcement of the RTCs
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 RTCs April 11, 2005 resolution, confirming the sheriffs 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 sheriffs 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.

G.R. No. 147561 June 22, 2006

STRONGHOLD INSURANCE COMPANY, INC., Petitioner,

vs.
REPUBLIC-ASAHI GLASS CORPORATION, Respondent.

DECISION

PANGANIBAN, CJ:

Asurety company’s liability under the performance bond it issues is solidary. The death of the principal obligor does
not, as a rule, extinguish the obligation and the solidary nature of that liability.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the March 13, 2001
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 41630. The assailed Decision disposed as follows:

"WHEREFORE, the Order dated January 28, 1993 issued by the lower court is REVERSED and SET ASIDE. Let
the records of the instant case be REMANDED to the lower court for the reception of evidence of all parties."3

The Facts

The facts of the case are narrated by the CA in this wise:

"On May 24, 1989, [respondent] Republic-Asahi Glass Corporation (Republic-Asahi) entered into a contract with x x
x Jose D. Santos, Jr., the proprietor of JDS Construction (JDS), for the construction of roadways and a drainage
system in Republic-Asahi’s compound in Barrio Pinagbuhatan, Pasig City, where [respondent] was to pay x x x JDS
five million three hundred thousand pesos (P5,300,000.00) inclusive of value added tax for said construction, which
was supposed to be completed within a period of two hundred forty (240) days beginning May 8, 1989. In order ‘to
guarantee the faithful and satisfactory performance of its undertakings’ x x x JDS, shall post a performance bond of
seven hundred ninety five thousand pesos (P795,000.00). x x x JDS executed, jointly and severally with [petitioner]
Stronghold Insurance Co., Inc. (SICI) Performance Bond No. SICI-25849/g(13)9769.

"On May 23, 1989, [respondent] paid to x x x JDS seven hundred ninety five thousand pesos (P795,000.00) by way
of downpayment.

"Two progress billings dated August 14, 1989 and September 15, 1989, for the total amount of two hundred seventy
four thousand six hundred twenty one pesos and one centavo (P274,621.01) were submitted by x x x JDS to
[respondent], which the latter paid. According to [respondent], these two progress billings accounted for only 7.301%
of the work supposed to be undertaken by x x x JDS under the terms of the contract.

"Several times prior to November of 1989, [respondent’s] engineers called the attention of x x x JDS to the alleged
alarmingly slow pace of the construction, which resulted in the fear that the construction will not be finished within
the stipulated 240-day period. However, said reminders went unheeded by x x x JDS.

"On November 24, 1989, dissatisfied with the progress of the work undertaken by x x x JDS, [respondent] Republic-
Asahi extrajudicially rescinded the contract pursuant to Article XIII of said contract, and wrote a letter to x x x JDS
informing the latter of such rescission. Such rescission, according to Article XV of the contract shall not be construed
as a waiver of [respondent’s] right to recover damages from x x x JDS and the latter’s sureties.

"[Respondent] alleged that, as a result of x x x JDS’s failure to comply with the provisions of the contract, which
resulted in the said contract’s rescission, it had to hire another contractor to finish the project, for which it incurred an
additional expense of three million two hundred fifty six thousand, eight hundred seventy four pesos
(P3,256,874.00).
"On January 6, 1990, [respondent] sent a letter to [petitioner] SICI filing its claim under the bond for not less
than P795,000.00. On March 22, 1991, [respondent] again sent another letter reiterating its demand for payment
under the aforementioned bond. Both letters allegedly went unheeded.

"[Respondent] then filed [a] complaint against x x x JDS and SICI. It sought from x x x JDS payment
of P3,256,874.00 representing the additional expenses incurred by [respondent] for the completion of the project
using another contractor, and from x x x JDS and SICI, jointly and severally, payment of P750,000.00 as damages
in accordance with the performance bond; exemplary damages in the amount of P100,000.00 and attorney’s fees in
the amount of at least P100,000.00.

"According to the Sheriff’s Return dated June 14, 1991, submitted to the lower court by Deputy Sheriff Rene R.
Salvador, summons were duly served on defendant-appellee SICI. However, x x x Jose D. Santos, Jr. died the
previous year (1990), and x x x JDS Construction was no longer at its address at 2nd Floor, Room 208-A, San
Buena Bldg. Cor. Pioneer St., Pasig, Metro Manila, and its whereabouts were unknown.

"On July 10, 1991, [petitioner] SICI filed its answer, alleging that the [respondent’s] money claims against [petitioner
and JDS] have been extinguished by the death of Jose D. Santos, Jr. Even if this were not the case, [petitioner] SICI
had been released from its liability under the performance bond because there was no liquidation, with the active
participation and/or involvement, pursuant to procedural due process, of herein surety and contractor Jose D.
Santos, Jr., hence, there was no ascertainment of the corresponding liabilities of Santos and SICI under the
performance bond. At this point in time, said liquidation was impossible because of the death of Santos, who as
such can no longer participate in any liquidation. The unilateral liquidation on the party (sic) of [respondent] of the
work accomplishments did not bind SICI for being violative of procedural due process. The claim of [respondent] for
the forfeiture of the performance bond in the amount of P795,000.00 had no factual and legal basis, as payment of
said bond was conditioned on the payment of damages which [respondent] may sustain in the event x x x JDS failed
to complete the contracted works. [Respondent] can no longer prove its claim for damages in view of the death of
Santos. SICI was not informed by [respondent] of the death of Santos. SICI was not informed by [respondent] of the
unilateral rescission of its contract with JDS, thus SICI was deprived of its right to protect its interests as surety
under the performance bond, and therefore it was released from all liability. SICI was likewise denied due process
when it was not notified of plaintiff-appellant’s process of determining and fixing the amount to be spent in the
completion of the unfinished project. The procedure contained in Article XV of the contract is against public policy in
that it denies SICI the right to procedural due process. Finally, SICI alleged that [respondent] deviated from the
terms and conditions of the contract without the written consent of SICI, thus the latter was released from all liability.
SICI also prayed for the award of P59,750.00 as attorney’s fees, and P5,000.00 as litigation expenses.

"On August 16, 1991, the lower court issued an order dismissing the complaint of [respondent] against x x x JDS
and SICI, on the ground that the claim against JDS did not survive the death of its sole proprietor, Jose D. Santos,
Jr. The dispositive portion of the [O]rder reads as follows:

‘ACCORDINGLY, the complaint against the defendants Jose D. Santos, Jr., doing business under trade and style,
‘JDS Construction’ and Stronghold Insurance Company, Inc. is ordered DISMISSED.

‘SO ORDERED.’

"On September 4, 1991, [respondent] filed a Motion for Reconsideration seeking reconsideration of the lower court’s
August 16, 1991 order dismissing its complaint. [Petitioner] SICI field its ‘Comment and/or Opposition to the Motion
for Reconsideration.’ On October 15, 1991, the lower court issued an Order, the dispositive portion of which reads
as follows:

‘WHEREFORE, premises considered, the Motion for Reconsideration is hereby given due course. The Order dated
16 August 1991 for the dismissal of the case against Stronghold Insurance Company, Inc., is reconsidered and
hereby reinstated (sic). However, the case against defendant Jose D. Santos, Jr. (deceased) remains undisturbed.

‘Motion for Preliminary hearing and Manifestation with Motion filed by [Stronghold] Insurance Company Inc., are set
for hearing on November 7, 1991 at 2:00 o’clock in the afternoon.

‘SO ORDERED.’
"On June 4, 1992, [petitioner] SICI filed its ‘Memorandum for Bondsman/Defendant SICI (Re: Effect of Death of
defendant Jose D. Santos, Jr.)’ reiterating its prayer for the dismissal of [respondent’s] complaint.

"On January 28, 1993, the lower court issued the assailed Order reconsidering its Order dated October 15, 1991,
and ordered the case, insofar as SICI is concerned, dismissed. [Respondent] filed its motion for reconsideration
which was opposed by [petitioner] SICI. On April 16, 1993, the lower court denied [respondent’s] motion for
reconsideration. x x x."4

Ruling of the Court of Appeals

The CA ruled that SICI’s obligation under the surety agreement was not extinguished by the death of Jose D.
Santos, Jr. Consequently, Republic-Asahi could still go after SICI for the bond.

The appellate court also found that the lower court had erred in pronouncing that the performance of the Contract in
question had become impossible by respondent’s act of rescission. The Contract was rescinded because of the
dissatisfaction of respondent with the slow pace of work and pursuant to Article XIII of its Contract with JDS.

The CA ruled that "[p]erformance of the [C]ontract was impossible, not because of [respondent’s] fault, but because
of the fault of JDS Construction and Jose D. Santos, Jr. for failure on their part to make satisfactory progress on the
project, which amounted to non-performance of the same. x x x [P]ursuant to the [S]urety [C]ontract, SICI is liable
for the non-performance of said [C]ontract on the part of JDS Construction."5

Hence, this Petition.6

Issue

Petitioner states the issue for the Court’s consideration in the following manner:

"Death is a defense of Santos’ heirs which Stronghold could also adopt as its defense against obligee’s claim."7

More precisely, the issue is whether petitioner’s liability under the performance bond was automatically extinguished
by the death of Santos, the principal.

The Court’s Ruling

The Petition has no merit.

Sole Issue:

Effect of Death on the Surety’s Liability

Petitioner contends that the death of Santos, the bond principal, extinguished his liability under the surety bond.
Consequently, it says, it is automatically released from any liability under the bond.

As a general rule, the death of either the creditor or the debtor does not extinguish the obligation.8 Obligations are
transmissible to the heirs, except when the transmission is prevented by the law, the stipulations of the parties, or
the nature of the obligation.9 Only obligations that are personal10 or are identified with the persons themselves are
extinguished by death.11

Section 5 of Rule 8612 of the Rules of Court expressly allows the prosecution of money claims arising from a
contract against the estate of a deceased debtor. Evidently, those claims are not actually extinguished.13 What is
extinguished is only the obligee’s action or suit filed before the court, which is not then acting as a probate court.14

In the present case, whatever monetary liabilities or obligations Santos had under his contracts with respondent
were not intransmissible by their nature, by stipulation, or by provision of law. Hence, his death did not result in the
extinguishment of those obligations or liabilities, which merely passed on to his estate.15 Death is not a defense that
he or his estate can set up to wipe out the obligations under the performance bond. Consequently, petitioner as
surety cannot use his death to escape its monetary obligation under its performance bond.

The liability of petitioner is contractual in nature, because it executed a performance bond worded as follows:

"KNOW ALL MEN BY THESE PRESENTS:

"That we, JDS CONSTRUCTION of 208-A San Buena Building, contractor, of Shaw Blvd., Pasig, MM Philippines,
as principal and the STRONGHOLD INSURANCE COMPANY, INC. a corporation duly organized and existing under
and by virtue of the laws of the Philippines with head office at Makati, as Surety, are held and firmly bound unto the
REPUBLIC ASAHI GLASS CORPORATION and to any individual, firm, partnership, corporation or association
supplying the principal with labor or materials in the penal sum of SEVEN HUNDRED NINETY FIVE THOUSAND
(P795,000.00), Philippine Currency, for the payment of which sum, well and truly to be made, we bind ourselves, our
heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents.

"The CONDITIONS OF THIS OBLIGATION are as follows;

"WHEREAS the above bounden principal on the ___ day of __________, 19__ entered into a contract with the
REPUBLIC ASAHI GLASS CORPORATION represented by _________________, to fully and faithfully. Comply
with the site preparation works road and drainage system of Philippine Float Plant at Pinagbuhatan, Pasig, Metro
Manila.

"WHEREAS, the liability of the Surety Company under this bond shall in no case exceed the sum of PESOS SEVEN
HUNDRED NINETY FIVE THOUSAND (P795,000.00) Philippine Currency, inclusive of interest, attorney’s fee, and
other damages, and shall not be liable for any advances of the obligee to the principal.

"WHEREAS, said contract requires the said principal to give a good and sufficient bond in the above-stated sum to
secure the full and faithfull performance on its part of said contract, and the satisfaction of obligations for materials
used and labor employed upon the work;

"NOW THEREFORE, if the principal shall perform well and truly and fulfill all the undertakings, covenants, terms,
conditions, and agreements of said contract during the original term of said contract and any extension thereof that
may be granted by the obligee, with notice to the surety and during the life of any guaranty required under the
contract, and shall also perform well and truly and fulfill all the undertakings, covenants, terms, conditions, and
agreements of any and all duly authorized modifications of said contract that may hereinafter be made, without
notice to the surety except when such modifications increase the contract price; and such principal contractor or his
or its sub-contractors shall promptly make payment to any individual, firm, partnership, corporation or association
supplying the principal of its sub-contractors with labor and materials in the prosecution of the work provided for in
the said contract, then, this obligation shall be null and void; otherwise it shall remain in full force and effect. Any
extension of the period of time which may be granted by the obligee to the contractor shall be considered as given,
and any modifications of said contract shall be considered as authorized, with the express consent of the Surety.

"The right of any individual, firm, partnership, corporation or association supplying the contractor with labor or
materials for the prosecution of the work hereinbefore stated, to institute action on the penal bond, pursuant to the
provision of Act No. 3688, is hereby acknowledge and confirmed."16

As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code, which provides as follows:

"Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.

"If a person binds himself solidarily with the principal debtor, the provisions of Section 4,17 Chapter 3, Title I of this
Book shall be observed. In such case the contract is called a suretyship."

xxxxxxxxx
"Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously.
The demand made against one of them shall not be an obstacle to those which may subsequently be directed
against the others, so long as the debt has not been fully collected."

Elucidating on these provisions, the Court in Garcia v. Court of Appeals18 stated thus:

"x x x. The surety’s obligation is not an original and direct one for the performance of his own act, but merely
accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety
is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is
said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. x x x."19

Under the law and jurisprudence, respondent may sue, separately or together, the principal debtor and the petitioner
herein, in view of the solidary nature of their liability. The death of the principal debtor will not work to convert,
decrease or nullify the substantive right of the solidary creditor. Evidently, despite the death of the principal debtor,
respondent may still sue petitioner alone, in accordance with the solidary nature of the latter’s liability under the
performance bond.

WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals AFFIRMED. Costs against
petitioner.
 FILINVEST LAND, INC., G.R. No.138980
P e t i t i o n e r,
Present:

PUNO,
- versus - Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA and
HON. COURT OF APPEALS, CHICO-NAZARIO, JJ.
PHILIPPINE AMERICAN
GENERAL INSURANCE
COMPANY, and PACIFIC Promulgated:
EQUIPMENT CORPORATION,
R e s p o n d e n t s. September 20, 2005
x--------------------------------------------------x

DECISION

CHICO-NAZARIO, J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals dated 27
May 1999 affirming the dismissal by the Regional Trial Court of Makati, Branch 65,[2] of the
complaint for damages filed by Filinvest Land, Inc. (Filinvest) against herein private respondents
Pacific Equipment Corporation (Pecorp) and Philippine American General Insurance Company.

The essential facts of the case, as recounted by the trial court, are as follows:

On 26 April 1978, Filinvest Land, Inc. (FILINVEST, for brevity), a corporation

engaged in the development and sale of residential subdivisions, awarded to defendant
Pacific Equipment Corporation (PACIFIC, for brevity) the development of its residential
subdivisions consisting of two (2) parcels of land located at Payatas, Quezon City, the
terms and conditions of which are contained in an Agreement. (Annex A, Complaint). To
guarantee its faithful compliance and pursuant to the agreement, defendant Pacific posted
two (2) Surety Bonds in favor of plaintiff which were issued by defendant Philippine
American General Insurance (PHILAMGEN, for brevity). (Annexes B and C, Complaint).

Notwithstanding three extensions granted by plaintiff to defendant Pacific, the latter

failed to finish the contracted works. (Annexes G, I and K, Complaint). On 16 October
1979, plaintiff wrote defendant Pacific advising the latter of its intention to takeover the
project and to hold said defendant liable for all damages which it had incurred and will
incur to finish the project. (Annex L, Complaint).

On 26 October 1979, plaintiff submitted its claim against defendant Philamgen

under its performance and guarantee bond (Annex M, Complaint) but Philamgen refused
to acknowledge its liability for the simple reason that its principal, defendant Pacific,
refused to acknowledge liability therefore. Hence, this action.

In defense, defendant Pacific claims that its failure to finish the contracted work was
due to inclement weather and the fact that several items of finished work and change order
which plaintiff refused to accept and pay for caused the disruption of work. Since the
contractual relation between plaintiff and defendant Pacific created a reciprocal obligation,
the failure of the plaintiff to pay its progressing bills estops it from demanding fulfillment
of what is incumbent upon defendant Pacific. The acquiescence by plaintiff in granting
three extensions to defendant Pacific is likewise a waiver of the formers right to claim any
damages for the delay. Further, the unilateral and voluntary action of plaintiff in preventing
defendant Pacific from completing the work has relieved the latter from the obligation of
completing the same.

On the other hand, Philamgen contends that the various amendments made on the
principal contract and the deviations in the implementation thereof which were resorted to
by plaintiff and co-defendant Pacific without its (defendant Philamgens) written consent
thereto, have automatically released the latter from any or all liability within the purview
and contemplation of the coverage of the surety bonds it has issued. Upon agreement of
the parties to appoint a commissioner to assist the court in resolving the issues confronting
the parties, on 7 July 1981, an order was issued by then Presiding Judge Segundo M. Zosa
naming Architect Antonio Dimalanta as Court Commissioner from among the nominees
submitted by the parties to conduct an ocular inspection and to determine the amount of
work accomplished by the defendant Pacific and the amount of work done by plaintiff to
complete the project.

On 28 November 1984, the Court received the findings made by the Court
Commissioner. In arriving at his findings, the Commissioner used the construction
documents pertaining to the project as basis. According to him, no better basis in the work
done or undone could be made other than the contract billings and payments made by both
parties as there was no proper procedure followed in terminating the contract, lack of
inventory of work accomplished, absence of appropriate record of work progress (logbook)
and inadequate documentation and system of construction management.

Based on the billings of defendant Pacific and the payments made by plaintiff, the
work accomplished by the former amounted to P11,788,282.40 with the exception of the
last billing (which was not acted upon or processed by plaintiff) in the amount
of P844,396.42. The total amount of work left to be accomplished by plaintiff was based
on the original contract amount less value of work accomplished by defendant Pacific in
the amount of P681,717.58 (12,470,000-11,788,282.42).

As regards the alleged repairs made by plaintiff on the construction deficiencies, the
Court Commissioner found no sufficient basis to justify the same. On the other hand, he
 found the additional work done by defendant Pacific in the amount of P477,000.00 to be
in order.

On 01 April 1985, plaintiff filed its objections to the Commissioners Resolution on

the following grounds:

a) Failure of the commissioner to conduct a joint survey which according to

the latter is indispensable to arrive at an equitable and fair resolution of the issues between
the parties;

b) The cost estimates of the commissioner were based on pure conjectures and
contrary to the evidence; and,

c) The commissioner made conclusions of law which were beyond his

assignment or capabilities.

In its comment, defendant Pacific alleged that the failure to conduct joint survey
was due to plaintiffs refusal to cooperate. In fact, it was defendant Pacific who initiated the
idea of conducting a joint survey and inventory dating back 27 November 1983. And even
assuming that a joint survey were conducted, it would have been an exercise in futility
because all physical traces of the actual conditions then obtaining at the time relevant to
the case had already been obliterated by plaintiff.

On 15 August 1990, a Motion for Judgment Based on the Commissioners

Resolution was filed by defendant Pacific.

On 11 October 1990, plaintiff filed its opposition thereto which was but a rehash of
objections to the commissioners report earlier filed by said plaintiff.[3]

On the basis of the commissioners report, the trial court dismissed Filinvests complaint as
well as Pecorps counterclaim. It held:

In resolving this case, the court observes that the appointment of a Commissioner
was a joint undertaking among the parties. The findings of facts of the Commissioner
should therefore not only be conclusive but final among the parties. The court therefore
agrees with the commissioners findings with respect to

1. Cost to repair deficiency or defect P532,324.02

2. Unpaid balance of work done by defendant - P1,939,191.67
3. Additional work/change order (due to defendant) P475,000.00

The unpaid balance due defendant therefore is P1,939,191.67. To this amount

should be added additional work performed by defendant at plaintiffs instance in the sum
of P475,000.00. And from this total of P2,414,191.67 should be deducted the sum
of P532,324.01 which is the cost to repair the deficiency or defect in the work done by
 defendant. The commissioner arrived at the figure of P532,324.01 by getting the average
between plaintiffs claim of P758,080.37 and defendants allegation of P306,567.67. The
amount due to defendant per the commissioners report is therefore P1,881,867.66.

Although the said amount of P1,881,867.66 would be owing to defendant Pacific,

the fact remains that said defendant was in delay since April 25, 1979. The third extension
agreement of September 15, 1979 is very clear in this regard. The pertinent paragraphs
read:

a) You will complete all the unfinished works not later than Oct. 15, 1979.
It is agreed and understood that this date shall DEFINITELY be the LAST
and FINAL extension & there will be no further extension for any cause
whatsoever.

b) We are willing to waive all penalties for delay which have accrued since
April 25, 1979 provided that you are able to finish all the items of the
contracted works as per revised CPM; otherwise you shall continue to be
liable to pay the penalty up to the time that all the contracted works shall
have been actually finished, in addition to other damages which we may
suffer by reason of the delays incurred.

Defendant Pacific therefore became liable for delay when it did not finish the project on
the date agreed on October 15, 1979. The court however, finds the claim of P3,990,000.00
in the form of penalty by reason of delay (P15,000.00/day from April 25, 1979 to Jan. 15,
1980) to be excessive. A forfeiture of the amount due defendant from plaintiff appears to
be a reasonable penalty for the delay in finishing the project considering the amount of
work already performed and the fact that plaintiff consented to three prior extensions.

The foregoing considered, this case is dismissed. The counterclaim is likewise dismissed.

No Costs.[4]

The Court of Appeals, finding no reversible error in the appealed decision, affirmed the
same.

Hence, the instant petition grounded solely on the issue of whether or not the liquidated
damages agreed upon by the parties should be reduced considering that: (a) time is of the essence
of the contract; (b) the liquidated damages was fixed by the parties to serve not only as penalty
in case Pecorp fails to fulfill its obligation on time, but also as indemnity for actual and anticipated
damages which Filinvest may suffer by reason of such failure; and (c) the total liquidated damages
sought is only 32% of the total contract price, and the same was freely and voluntarily agreed
upon by the parties.

At the outset, it should be stressed that as only the issue of liquidated damages has been
elevated to this Court, petitioner Filinvest is deemed to have acquiesced to the other matters taken
up by the courts below. Section 1, Rule 45 of the 1997 Rules of Court states in no uncertain terms
that this Courts jurisdiction in petitions for review on certiorari is limited to questions of law
which must be distinctly set forth.[5] By assigning only one legal issue, Filinvest has effectively
cordoned off any discussion into the factual issue raised before the Court of Appeals.[6] In effect,
Filinvest has yielded to the decision of the Court of Appeals, affirming that of the trial court, in
deferring to the factual findings of the commissioner assigned to the parties case. Besides, as a
general rule, factual matters cannot be raised in a petition for review on certiorari. This Court at
this stage is limited to reviewing errors of law that may have been committed by the lower
courts.[7] We do not perceive here any of the exceptions to this rule; hence, we are restrained from
conducting further scrutiny of the findings of fact made by the trial court which have been
affirmed by the Court of Appeals. Verily, factual findings of the trial court, especially when
affirmed by the Court of Appeals, are binding and conclusive on the Supreme Court.[8] Thus, it is
settled that:

(a) Based on Pecorps billings and the payments made by Filinvest, the balance of
work to be accomplished by Pecorp amounts to P681,717.58 representing
5.47% of the contract work. This means to say that Pecorp, at the time of the
termination of its contract, accomplished 94.53% of the contract work;

(b) The unpaid balance of work done by Pecorp amounts to P1,939,191.67;

(c) The additional work/change order due Pecorp amounts to P475,000.00;

(d) The cost to repair deficiency or defect, which is for the account of Pecorp,
is P532,324.02; and

(e) The total amount due Pecorp is P1,881,867.66.

Coming now to the main matter, Filinvest argues that the penalty in its entirety should be
respected as it was a product of mutual agreement and it represents only 32% of
the P12,470,000.00 contract price, thus, not shocking and unconscionable under the
circumstances. Moreover, the penalty was fixed to provide for actual or anticipated liquidated
damages and not simply to ensure compliance with the terms of the contract; hence, pursuant
to Laureano v. Kilayco,[9] courts should be slow in exercising the authority conferred by Art. 1229
of the Civil Code.

We are not swayed.

There is no question that the penalty of P15,000.00 per day of delay was mutually agreed
upon by the parties and that the same is sanctioned by law. A penal clause is an accessory
undertaking to assume greater liability in case of breach.[10] It is attached to an obligation in order
to insure performance[11] and has a double function: (1) to provide for liquidated damages, and
(2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the
event of breach.[12] Article 1226 of the Civil Code states:

Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance, if there is
no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to
pay the penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.

As a general rule, courts are not at liberty to ignore the freedom of the parties to agree on
such terms and conditions as they see fit as long as they are not contrary to law, morals, good
customs, public order or public policy.[13] Nevertheless, courts may equitably reduce a stipulated
penalty in the contract in two instances: (1) if the principal obligation has been partly or
irregularly complied; and (2) even if there has been no compliance if the penalty is iniquitous or
unconscionable in accordance with Article 1229 of the Civil Code which provides:
 Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.

In herein case, the trial court ruled that the penalty charge for delay pegged at P15,000.00
per day of delay in the aggregate amount of P3,990,000.00 -- was excessive and accordingly
reduced it to P1,881,867.66 considering the amount of work already performed and the fact that
[Filinvest] consented to three (3) prior extensions. The Court of Appeals affirmed the ruling but
added as well that the penalty was unconscionable as the construction was already not far from
completion. Said the Court of Appeals:

Turning now to plaintiffs appeal, We likewise agree with the trial court that a
penalty interest of P15,000.00 per day of delay as liquidated damages or P3,990,000.00
(representing 32% penalty of the P12,470,000.00 contract price) is unconscionable
considering that the construction was already not far from completion. Penalty interests are
in the nature of liquidated damages and may be equitably reduced by the courts if they are
iniquitous or unconscionable (Garcia v. Court of Appeals, 167 SCRA 815, Lambert v. Fox,
26 Phil. 588). The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable (Art. 1229, New Civil Code). Moreover, plaintiffs right to indemnity due
to defendants delay has been cancelled by its obligations to the latter consisting of unpaid
works.

This Court finds no fault in the cost estimates of the court-appointed commissioner
as to the cost to repair deficiency or defect in the works which was based on the average
between plaintiffs claim of P758,080.37 and defendants P306,567.67 considering the
following factors: that plaintiff did not follow the standard practice of joint survey upon
take over to establish work already accomplished, balance of work per contract still to be
done, and estimate and inventory of repair (Exhibit H). As for the cost to finish the
remaining works, plaintiffs estimates were brushed aside by the commissioner on the
reasoned observation that plaintiffs cost estimate for work (to be) done by the plaintiff to
complete the project is based on a contract awarded to another contractor (JPT), the nature
and magnitude of which appears to be inconsistent with the basic contract between
defendant PECORP and plaintiff FILINVEST.[14]

We are hamstrung to reverse the Court of Appeals as it is rudimentary that the application
of Article 1229 is essentially addressed to the sound discretion of the court.[15]As it is settled that
the project was already 94.53% complete and that Filinvest did agree to extend the period for
completion of the project, which extensions Filinvest included in computing the amount of the
penalty, the reduction thereof is clearly warranted.
Filinvest, however, hammers on the case of Laureano v. Kilayco,[16] decided in 1915, which
cautions courts to distinguish between two kinds of penalty clauses in order to better apply their
authority in reducing the amount recoverable. We held therein that:

. . . [I]n any case wherein there has been a partial or irregular compliance with the
provisions in a contract for special indemnification in the event of failure to comply with
its terms, courts will rigidly apply the doctrine of strict construction against the
enforcement in its entirety of the indemnification, where it is clear from the terms of
the contract that the amount or character of the indemnity is fixed without regard to the
probable damages which might be anticipated as a result of a breach of the terms of the
contract; or, in other words, where the indemnity provided for is essentially a mere penalty
having for its principal object the enforcement of compliance with the contract. But the
courts will be slow in exercising the jurisdiction conferred upon them in article
1154[17] so as to modify the terms of an agreed upon indemnification where it appears that
in fixing such indemnification the parties had in mind a fair and reasonable compensation
for actual damages anticipated as a result of a breach of the contract, or, in other words,
where the principal purpose of the indemnification agreed upon appears to have been to
provide for the payment of actual anticipated and liquidated damages rather than the
penalization of a breach of the contract. (Emphases supplied)

Filinvest contends that the subject penalty clause falls under the second type, i.e., the
principal purpose for its inclusion was to provide for payment of actual anticipated and liquidated
damages rather than the penalization of a breach of the contract. Thus, Filinvest argues that had
Pecorp completed the project on time, it (Filinvest) could have sold the lots sooner and earned its
projected income that would have been used for its other projects.

Unfortunately for Filinvest, the above-quoted doctrine is inapplicable to herein case. The
Supreme Court in Laureano instructed that a distinction between a penalty clause imposed
essentially as penalty in case of breach and a penalty clause imposed as indemnity for damages
should be made in cases where there has been neither partial nor irregular compliance with the
terms of the contract. In cases where there has been partial or irregular compliance, as in this
case, there will be no substantial difference between a penalty and liquidated damages insofar as
legal results are concerned.[18] The distinction is thus more apparent than real especially in the
light of certain provisions of the Civil Code of the Philippines which provides in Articles 2226
and Article 2227 thereof:

Art. 2226. Liquidated damages are those agreed upon by the parties to a contract to
be paid in case of breach thereof.

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall

be equitably reduced if they are iniquitous or unconscionable.

Thus, we lamented in one case that (t)here is no justification for the Civil Code to make an
apparent distinction between a penalty and liquidated damages because the settled rule is that
there is no difference between penalty and liquidated damages insofar as legal results are
concerned and that either may be recovered without the necessity of proving actual damages and
both may be reduced when proper.[19]

Finally, Filinvest advances the argument that while it may be true that courts may mitigate the
amount of liquidated damages agreed upon by the parties on the basis of the extent of the work
done, this contemplates a situation where the full amount of damages is payable in case of total
breach of contract. In the instant case, as the penalty clause was agreed upon to answer for delay
in the completion of the project considering that time is of the essence, the parties thus clearly
contemplated the payment of accumulated liquidated damages despite, and precisely because of,
partial performance.[20] In effect, it is Filinvests position that the first part of Article 1229 on
partial performance should not apply precisely because, in all likelihood, the penalty clause would
kick in in situations where Pecorp had already begun work but could not finish it on time, thus, it
is being penalized for delay in its completion.

The above argument, albeit sound,[21] is insufficient to reverse the ruling of the Court of Appeals.
It must be remembered that the Court of Appeals not only held that the penalty should be reduced
because there was partial compliance but categorically stated as well that the penalty was
unconscionable. Otherwise stated, the Court of Appeals affirmed the reduction of the penalty not
simply because there was partial compliance per se on the part of Pecorp with what was
incumbent upon it but, more fundamentally, because it deemed the penalty unconscionable in the
light of Pecorps 94.53% completion rate.
In Ligutan v. Court of Appeals,[22] we pointed out that the question of whether a penalty is
reasonable or iniquitous can be partly subjective and partly objective as its resolution would
depend on such factors as, but not necessarily confined to, the type, extent and purpose of the
penalty, the nature of the obligation, the mode of breach and its consequences, the supervening
realities, the standing and relationship of the parties, and the like, the application of which, by
and large, is addressed to the sound discretion of the court.[23]

In herein case, there has been substantial compliance in good faith on the part of Pecorp which
renders unconscionable the application of the full force of the penalty especially if we consider
that in 1979 the amount of P15,000.00 as penalty for delay per day was quite steep indeed.
Nothing in the records suggests that Pecorps delay in the performance of 5.47% of the contract
was due to it having acted negligently or in bad faith. Finally, we factor in the fact that Filinvest
is not free of blame either as it likewise failed to do that which was incumbent upon it, i.e., it
failed to pay Pecorp for work actually performed by the latter in the total amount
of P1,881,867.66. Thus, all things considered, we find no reversible error in the Court of Appeals
exercise of discretion in the instant case.

Before we write finis to this legal contest that had spanned across two and a half decades,
we take note of Pecorps own grievance. From its Comment and Memorandum, Pecorp, likewise,
seeks affirmative relief from this Court by praying that not only should the instant case be
dismissed for lack of merit, but that Filinvest should likewise be made to pay what the Court
Commissioner found was due defendant in the total amount of P2,976,663.65 plus 12% interest
from 1979 until full payment thereof plus attorneys fees.[24] Pecorp, however, cannot recover that
which it seeks as we had already denied, in a Resolution dated 21 June 2000, its own petition for
review of the 27 May 1999 decision of the Court of Appeals. Thus, as far as Pecorp is concerned,
the ruling of the Court of Appeals has already attained finality and can no longer be disturbed.
 WHEREFORE, premises considered, the Decision of the Court of Appeals dated 27 May
1999 is AFFIRMED. No pronouncement as to costs.

DORIE ABESA NICOLAS, G.R. No. 158026
Petitioner,
Present:
PUNO, C.J., Chairperson,
CARPIO,
*
- versus - CORONA,
AZCUNA, and
LEONARDO-DE CASTRO, JJ.

DEL-NACIA CORPORATION, Promulgated:

Respondent. April 23, 2008

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

DECISION

PUNO, C.J.:

This case arose from a complaint for unfair business practice[1] filed by petitioner Dorie Abesa
Nicolas (Mrs. Nicolas) against respondent Del-Nacia Corporation (Del-Nacia) before the
Housing and Land Use Regulatory Board (HLURB).

On February 20, 1988, the spouses Armando Nicolas and Dorie Abesa Nicolas (Spouses
Nicolas) and Del-Nacia entered into a Land Purchase Agreement[2] (Agreement) for the sale by
the latter to the former of a parcel of land, covered by Transfer Certificate of Title No. 233702,
consisting of 10,000 square meters, situated at Lot No. 3-B-4, Del Nacia Ville No. 5, San Jose
del Monte, Bulacan.

The relevant parts of the Agreement are:

(1) The PURCHASER agrees to pay to the OWNER upon execution of this Contract
the sum of FORTY THOUSAND PESOS (P40,000) as first payment on account of the
purchase price and agrees to pay the balance of FIVE HUNDRED TEN THOUSAND
PESOS (P510,000) at the office of the OWNER in the City of Quezon, Philippines, or
such other office as the OWNER may designate in 120 equal monthly installment of
NINE THOUSAND ONE HUNDRED EIGHTY NINE AND 45/100 PESOS
(P9,189.45) interest being included on successive monthly balance at 18% per annum,
and payments to be made on the _____ day of each month thereafter beginning April
20, 1988.

xxxx
 (5) In the event that any of the payments as stipulated be not paid when, where,
and as the same become due; it is agreed that sums in arrears shall bear interest at the
rate of EIGHTEEN (18%) per centum per annum payable monthly from the date on
which said sums is due and payable.

(6) If any such payment or payments shall continue in arrears for more than sixty-days,
or if the PURCHASER shall violate any of the conditions herein set forth then the entire
unpaid balance due under this contract, with any interest which may have attached shall
at once become due and payable and shall bear interest at the rate of TWELVE (12%)
per centum per annum until paid, and in such case, the PURCHASER further agrees to
pay to the OWNER a sum equal to ten (10%) per centum of the amount due as attorneys
fees.[3]

Under the Agreement, the ownership of the land remains with Del-Nacia until full payment of
the stipulated purchase price under the following terms and conditions:
(3) Title to said parcel of land shall remain in the name of the OWNER until complete
payment by the PURCHASER of all obligations herein stipulated, at which time the
OWNER agree to execute a final deed of sale in favor of the PURCHASER and cause
the issuance of a certificate of title in the name of the latter, free from liens and
encumbrances except those provided in the Land Registration Act, those imposed by
the authorities, and those contained in Clauses (10) and (16) of this
agreement. Registration fees and documentary stamps of the deed of sale shall be paid
by the PURCHASER.

(4) Only the PURCHASER shall be deemed for all legal purposes to take possession of
the parcel of land upon payment of the down payment provided, however, that his/her
possession under this section shall be only that of a tenant or lessee, and subject to
ejectment proceedings during all the period of this agreement.
xxxx
(7) In case the PURCHASER fails to comply with any conditions of this contract
and/or to pay any payments herein agreed upon, the PURCHASER shall be granted a
period or periods of grace which in no case shall exceed (60) days to be counted from
the condition breached ought to be complied with or the said payments ought have been
made, during which period of grace the PURCHASER must comply with the said
condition or satisfy all due monetary obligations including those which correspond to
the period of grace. OTHERWISE, the Contract shall be automatically cancelled and
rescinded and of no force and effect, and as a consequence therefore, the OWNER may
dispose of the parcels of land covered by this Contract in favor of other persons, as if
this Contract had never been entered into. In case of such cancellation of this Contract
all amounts paid in accordance with this agreement, together with all the improvements
introduced in the premises, shall be considered as rents for the use and occupation of
the abovementioned premises and as payments for the damages suffered on the
OWNER on account of the failure of the PURCHASER to fulfill his part of this
Contract and the PURCHASER hereby renounces all his rights to demand or reclaim
the return of the same and further obligates himself to peacefully vacate the premises
 and deliver the same to the OWNER; PROVIDED, HOWEVER, that any consideration,
concession, tolerance or relaxation of provisions shall not be interpreted as a
renunciation on the part of OWNER of any rights granted in this Contract.[4]

Upon signing of the Agreement, the Spouses Nicolas paid the down payment
of P40,000.Thereupon, the Spouses Nicolas took possession of the land, and for several months
thereafter, paid on or before the 20th of each month, the monthly amortizations.[5]

Unfortunately, however, Armando Nicolas died shortly after the signing of the Agreement and
Mrs. Nicolas began to falter in her payments. As found by Arbiter Jose A. Atencio, Jr. (HLURB
Arbiter) of the Office of Appeals, Adjudication and Legal Affairs (OAAL), HLURB Region III,
the records of Del-Nacia indicate that Mrs. Nicolas is delinquent in her monthly amortization for
the following months: November 1988; March 1989; May 1989; June 1989-July 1989; September
1989; October 1989; November 1989-December 1989; February 1990-September 1990; October
1990-November 1990; December 1990-April 1991. The last payment of Mrs. Nicolas was made
on July 19, 1991.[6]

Del-Nacia sent Mrs. Nicolas notice to pay her arrearages with a grace period of sixty (60) days
within which to make payment but to no avail. Del-Nacia then caused the notarial cancellation of
the Agreement on December 3, 1991.[7]

Subsequently, Del-Nacia verbally informed Mrs. Nicolas to get the cash surrender value of
her payment at its office. However, Mrs. Nicolas did not claim the same. Del-Nacia prepared a
check in the amount of P270,651.88 representing the cash surrender value of Mrs. Nicolass
payment and sent it to her by registered mail. The check was received by Mrs. Nicolas and until
now it remains in her possession.[8]

On February 23, 1993, Mrs. Nicolas filed a Complaint[9] against Del-Nacia before the
HLURB. On December 15, 1994, the HLURB Arbiter rendered a Decision[10] (Arbiter Decision)
with the following disposition:
PREMISES considered, judgment is hereby rendered as follows:
a. Declaring the notarial cancellation of the contract on December 3, 1991 as null
and void.
b. Ordering respondent to fortwith furnish complainant accounting of the paid
and unpaid amortizations including interests and penalty interests and other stipulated
fees or charges covering the period or delinquent payments, as a consequence of the
latters default stating clearly and specifically the bases as stated in the contract and for
the complainant to pay her unpaid obligations within forty five (45) days from receipt
of the said computation/accounting.
c. Ordering the same respondent to execute the pertinent deed in favor of the
complainant within fifteen (15) days from receipt of complainants full payment under
 paragraph b aforementioned and thereafter to deliver to the latter the Transfer
Certificate of Title of the lot in question.
d. Remedies provided under R.A. 6552 and other legal remedies may be resorted
to, at the option of the respondent, if complainant fails or refuses to pay within the
period provided under paragraph b.
So Ordered.[11]

Mrs. Nicolas sought review of the Arbiter Decision by the HLURB Board of Commissions
(HLURB Board) on the following assignment of errors:
FIRST ASSIGNMENT OF ERROR
THE HON. ARBITER ERRED IN ORDERING THE INCLUSION OF INTERESTS,
PENALTY INTERESTS AND OTHER STIPULATED FEES OR CHARGES IN THE
UNILATERAL COMPUTATION TO BE MADE BY THE RESPONDENT-
APPELLEE AS THE UNPAID OBLIGATION OF COMPLAINANT-APPELLANT.

SECOND ASSIGNMENT OF ERROR

THE HON. ARBITER ERRED IN ORDERING THE COMPLAINANT-
APPELLANT TO PAY HER SUPPOSED UNPAID OBLIGATION BASED UPON
THE UNILATERAL COMPUTATION OF RESPONDENT-APPELLEE WITHIN
FORTY FIVE (45) DAYS FROM RECEIPT OF SAID
COMPUTATION/ACCOUNTING.

THIRD ASSIGNMENT OF ERROR

THE HON. ARBITER ERRED IN GIVING RESPONDENT-APPELLEE THE
RIGHT TO RESORT TO REMEDIES PROVIDED UNDER R.A. 6552 AND
OTHER LEGAL REMEDIES.

FOURTH ASSIGNMENT OF ERROR

THE HON. ARBITER ERRED IN NOT AWARDING ATTORNEYS FEES IN THE
SUM OF P50,000.00 TO COMPLAINANT-APPELLANT.

FIFTH ASSIGNMENT OF ERROR

THE HON. ARBITER ERRED IN NOT GRANTING THE PRAYER OF
COMPLAINANT-APPELLANT IN HER COMPLAINT.[12]

The HLURB Board was partly receptive of the appeal and, on December 1, 1995, it handed down
a Decision[13] (HLURB Board Decision) adjudging that:
WHEREFORE, in light of the foregoing premises, we hereby MODIFY the
Decision dated 15 December 1994 of the Office a Quo, insofar as paragraph (b) of the
dispositive portion is concerned and an additional paragraph e, to wit:
 (b) Ordering complainant to pay respondent within sixty (60) days from receipt
hereof the amount of one hundred seventy three thousand nine hundred fifty
seven pesos and 29/1000 (P173,957.29) representing the remaining balance of
the installment purchase price of the land inclusive of legal interests at the rate
of twelve percent (12%) per annum.

(e) Ordering respondent to pay this Board the amount of ten thousand (P10,000) as
an administrative fine for violation of Section 5 of P.D. 957 within thirty (30)
days from finality hereof.

SO ORDERED. Quezon City.[14]

Del-Nacia filed a Motion for Reconsideration[15] and a Supplement to Motion for

Reconsideration.[16] Meanwhile, Mrs. Nicolas filed a motion for the consignment of P173,957.29,
representing the balance of the purchase price of the land as found by the HLURB Board.

On June 21, 1996, the HLURB Board resolved to deny Del-Nacias motion for reconsideration
and ordered Mrs. Nicolas to deposit with it for safekeeping the amount indicated in its Decision
until Del-Nacia is willing to accept the same.[17]

Consequently, Del-Nacia appealed to the Office of the President which, however, was dismissed
by its Decision dated March 4, 1998 (O.P. Original Decision).[18] Upon motion for
reconsideration, however, the Office of the President, in a Resolution dated January 5,
2001[19] (O.P. Resolution), set aside the O.P. Original Decision and affirmed
the ArbiterDecision in toto.

Unsuccessful in her bid at overturning the O.P. Resolution, Mrs. Nicolas filed a Petition for
Review[20] with the Court of Appeals (CA) docketed as CA-G.R. SP No. 68407. The CA initially
dismissed her petition for failing to comply with the procedural requirements of Section 6(c) of
Rule 43 of the Revised Rules of Court.[21] Mrs. Nicolas filed an omnibus motion praying that the
CA reconsider and set aside the dismissal of her petition and to admit her amended
petition.[22] The CA then required Del-Nacia to submit its comment to the petition.[23]

On January 23, 2003, the CA rendered its Decision,[24] affirming the O.P. Resolution, to wit:
WHEREFORE, finding no flaw in the appealed O.P. Resolution, the same is hereby
AFFIRMED in toto, with costs against Mrs. Nicolas.

SO ORDERED.

The Motion for Reconsideration[25] filed by Mrs. Nicolas was denied by the CA in its Resolution
dated April 29, 2003.[26]
 Hence, this Petition for Review on Certiorari[27], raising the lone issue of:
WHETHER OR NOT complainant (now petitioner) is bound to pay the interests,
penalty interests and other stipulated charges based on the unilateral accounting or
computation made by respondent.[28]

The instant petition prays that the O.P. Original Decision, which affirmed the HLURB
Board Decision, be reinstated by this Court.

In its Comment, Del-Nacia argues that the instant petition be denied for the following
reasons: (1) failure to comply with section 4, Rule 45, and (2) failure to advance any special
reason that would warrant the exercise by this Court of its discretionary power of review.

Before discussing the merits of the case, we shall first discuss its procedural aspect.

Del-Nacia urges this Court to dismiss the instant petition for failing to attach material
portions of the records of the case that will support the same as required under Section 6 of Rule
46 of the Revised Rules of Court, such as, for instance, copies of her own pleadings filed before
the proceedings below.[29] It appears that the Agreement of the parties, subject of the dispute, was
not attached to the petition. Nevertheless, since the Agreement and the other documents that were
not attached to the petition are already part of the records of this case, and could easily be referred
to by this Court if necessary, a dismissal of the instant petition purely on technical grounds is not
warranted. Indeed, the Court has, in past cases, granted relief in favor of the petitioner despite
this procedural infirmity.[30] Thus, we explained the rationale behind the Courts liberal stance as
follows:
We must stress that cases should be determined on the merits, after all parties
have been given full opportunity to ventilate their causes and defenses, rather than on
technicalities or procedural imperfections. In that way, the ends of justice would be
served better. Rules of procedure are mere tools designed to expedite the decision or
resolution of cases and other matters pending in court. A strict and rigid application of
rules, resulting in technicalities that tend to frustrate rather than promote substantial
justice, must be avoided. In fact, Section 6 of Rule 1 states that the Rules shall be
liberally construed in order to promote their objective of ensuring the just, speedy and
inexpensive disposition of every action and
[31]
proceeding.

Now on the merits of the case. The issue is whether Mrs. Nicolas is liable to pay interests,
penalty interests and other stipulated charges to Del-Nacia.

We rule in the affirmative.

Mrs. Nicolas contends that based on the payments she already made, she has overpaid the
purchase price due under the Agreement.[32] She assails the application of her payments made by
Del-Nacia since the latter applied the bulk of her payments to interest rather than the
principal.[33] According to her, therefore, the penalties, interests and surcharges being collected
by Del-Nacia have no basis in fact or in law.[34] In this regard, she urges this Court to affirm the
HLURB Board Decision[35] which reads:
Cursory reading of the abovementioned document reveal that there is indeed no specific
date indicated, as to when complainant should pay her monthly installments. It is clear
that that the space provided for in Paragraph 1 of said document for the date or day of
the month on which payment is to be made has been left blank.

Considering that the Land Purchase Agreement is a pro-forma document prepared by

respondent, any ambiguity therein should be interpreted in favor of the complainant.

On the basis of the foregoing, we find that complainant did not incur any delay, hence,
the imposition of surcharges and penalty interests are unjustified.[36]

According to Del-Nacia, however, Mrs. Nicolas disregarded paying the regular rate of interest,
overdue interest and penalty interest which were voluntarily agreed upon under paragraphs (1),
(5) and (6), respectively, of their Agreement.[37] Del-Nacia contends that the records clearly
establish that Mrs. Nicolas was in delay in her payments of the monthly amortizations and she
has not disputed the same.[38]

As found by the HLURB Arbiter, the records of Del-Nacia shows that Mrs. Nicolas incurred
delay in the payment of her monthly amortizations.[39] It is a well-settled rule that factual findings
of administrative agencies are conclusive and binding on the Court when supported by substantial
evidence. We agree with the O.P. Resolution,[40] which was adopted and affirmed by the
CA, to wit:
Appellants [Del-Nacia] submission, however, that appellee [Mrs. Nicolas] incurred
delay in the manner of payment of her monthly installment obligations is impressed
with merit.The Housing Arbiter, in his evaluation as trier of facts of appellees records
of payment, was of the same view. Under #1 of the basic purchase agreement, supra,
appellee undertook to pay 120 equal monthly installments of P9,189.45, payments to be
made on the __ day of each month thereafter beginning April 20, 1988. A fair
understanding of this provision would simply mean that payment should be made
effected every 20th day of each month following April 20, 1988. Based on the records,
one can safely presume that the same was fully understood by appellee, as she had
repeatedly paid her monthly amortization on the 20th day of each, or a few days
thereafter. Neither did she question the interest imposed by appellant for her payments
made after the 20th. Be that as it may, this Office is at a loss to understand the HLURBs
conclusion about appellee not having defaulted in her installment payments. The
explanation given by the HLURB Proper why it considered appellee not to have been
 in delay, i. e., because no specific date [ is] indicated [in the purchase agreement] as
to when complainant should pay her monthly installments adding that the space
provided for . . . the date or day of the month which payment is to be made has been left
blank, strikes this Office as too simplistic to be accorded cogency. The adverted fact of
a space in blank is of no moment for, to reiterate, the agreement was for appellee to
[the] pay the balance (P510,000.00) of the purchase price in 120 equal monthly
installments, the installment period to start from April 20, 1988. The use of the
phrase 120 equal monthly installments and thereafter beginning April 20, 1988 can
mean only one thing that after April 20, 1988, the monthly installment is to fall due and
be payable on the 20th day of the succeeding months. The explanation adverted to above
of the HLURB, if pursued to its logical conclusion, would virtually allow appellee to
perpetually withhold installment payment without risk of being considered in
default. The absurdity of this explanation needs no belaboring.[41]

Clearly, under paragraphs (1), (5) and (6) of the Agreement, supra, Mrs. Nicolas was bound
to pay regular interest, and in case of delay, overdue interest and penalty. It cannot be
overemphasized that a contract is the law between the parties,[42] and courts have no choice but
to enforce such contract so long as they are not contrary to law, morals, good customs or public
policy.[43]

In this connection, a stipulation for the payment of interest and penalty apart from interest in case
of delay is not contrary to law, moral, good customs or public policy. To be sure, the same is
sanctioned by the following provisions of the Civil Code:
Article 1956. No interest shall be due unless it has been expressly stipulated in writing.
Article 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of non-compliance, if there
is no stipulation to the contrary.

Article 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 x x x.

In Bachrach Motor Company v. Espiritu,[44] the Court ruled that the Civil Code permits
the agreement upon a penalty apart from the interest. Should there be such an agreement, the
penalty does not include the interest, and as such the two are different and distinct things which
may be demanded separately. The same principle was reiterated in Equitable Banking Corp. v.
Liwanag et al.,[45] where this Court held that the stipulation about payment of such additional
rate partakes of the nature of a penalty clause, which is sanctioned by law.

On Mrs. Nicolas contention that she should not pay interest and the other charges based on
the unilateral accounting or computation made by Del-Nacia, a perusal of the formula[46] for the
computation of regular interest, overdue interest and penalty interest used by Del-Nacia reveal
that the same is in accord with the provisions of the Agreement and cannot be said to have been
unilaterally imposed by Del-Nacia.
Moreover, the case of Relucio v. Brillante-Garfin (Relucio),[47] involves similar facts to the case
at bar where we ruled as follows:
Examination of the record shows that the questioned Contract to Buy and Sell
the subdivision lots provided for payment by private respondent of the sum of P200.00
as downpayment, and that "the balance [of P10,600.00] shall be paid in 180 monthly
installments at P89.45 per month, including interest rate at six percent (6%) per annum,
until the purchase price is fully paid." This stipulation clearly specified that an interest
charge of six percent (6%) per annum was included in the monthly installment price:
private respondent could not have helped noticing that P89.45 multiplied by 180
monthly installments equals P16,101.00, and not P10,600.00. The contract price of
P10,800.00 may thus be seen to be the cash price of the subdivision lots, that is, the
amount payable if the price of the lots were to be paid in cash and in full at the execution
of the contract; it is not the amount that the vendor will have received in the aggregate
after fifteen (15) years if the vendee shall have religiously paid the monthly
installments. The installment price, upon the other hand, of the subdivision lots the sum
total of the monthly installments (i.e., P16,101.00) typically, as in the instant case, has
an interest component which compensates the vendor for waiting fifteen (15) years
before receiving the total principal amount of P10,600.00. Economically or financially,
P10,600.00 delivered in full today is simply worth much more than a long series of
small payments totalling, after fifteen (15) years, P10,600.00. For the vendor, upon
receiving the full cash price, could have deposited that amount in a bank, for instance,
and earned interest income which at six percent (6%) per year and for fifteen (15) years,
would precisely total P5,501.00 (the difference between the installment price of
P16,101.00 and the cash price of P10,600.00 ) To suppose, as private respondent argues,
that mere prompt payment of the monthly installments as they fell due would obviate
application of the interest charge of six percent (6%) per annum, is to ignore that simple
economic fact. That economic fact is, of course, recognized by law, which authorizes
the payment of interest when contractually stipulated for by the parties or when implied
in recognized commercial custom or usage.

Vendor and vendee are legally free to stipulate for the payment of either the
cash price of a subdivision lot or its installment price. Should the vendee opt to
purchase a subdivision lot via the installment payment system, he is in effect
paying interest on the cash price, whether the fact and rate of such interest
payment is disclosed in the contract or not. The contract for the purchase and sale
of a piece of land on the installment payment system in the case at bar is not only
quite lawful; it also reflects a very wide spread usage or custom in our present day
commercial life.[48]
In Relucio, the Court also sustained the sellers theory of declining balance whereby the seller
credited a bigger sum of the monthly amortization to interest rather than the principal, such that
in [During] the succeeding monthly payments, however, as the outstanding balance on the
principal gradually declined, the interest component (in absolute terms) correspondingly fell
while the component credited to the principal increased proportionately, thus amortizing the
balance of the principal purchase price as that balance gradually declined.[49]

In the same vein, an examination of the application of Mrs. Nicolas payments by Del-Nacia in
the table[50] the latter prepared as reflected in the records of the case, shows that the same is in
accord with the theory of declining balance which was affirmed by this Court in Relucio.

Given the foregoing, it appears that the only dilemma which Mrs. Nicolas currently finds
herself in is that the obligations which she voluntary
undertook under the Agreement turned out to be more onerous than what she expected.Doctrinal
is the rule that courts may not extricate parties from the necessary consequences of their
acts.[51] That the terms of a contract turn out to be financially disadvantageous to them will not
relieve them of their obligations therein.[52]

IN VIEW WHEREOF, the petition is DISMISSED. The decision of the Court of Appeals
is affirmed. Costs against the petitioner.