Catungal vs Hao, GR No. 134972, 22 March 2001, 355 SCRA 29

FACTS

            The original owner Aniana Galang, leased a 3-storey building in Parañaque to BPI in 1972. During the lease period, BPI subleased the ground floor to Doris Hao. In 1984, Galang and Hao executed a lease contract on the 2nd and 3rd floors of the building. 2 years later, spouses Catungal bought the property from Galang. Upon expiration of the lease agreements, Catungal demanded Hao to vacate the building. The demand was unheeded so petitioners filed for ejectment before the MeTC, which ordered Hao to vacate the premises and pay P20,000 until she finally vacates. Petitioners moved for clarificatory or amended judgment on the ground that lthough MeTC ordered defendant to vacate, it only awarded rent or compensation for the use of said property for the ground floor and not for the entire subject property. the MeTC amended the judgment but petitioners moved for reconsideration praing that respondent be ordered to pay P20,000 pm for the use and occupancy of the ground floor and P10,000 pm for the 2nd and 3rd floors. The case was referred to RTC which affirmed the decision. On appeal to the CA, the latter reduced the P20,000 to P8,000 and the P10,000 each to P5,000 each.

 ISSUE

            Whether or not the RTC decision should be reinstated

HELD

            Yes. The plaintiff in an ejectment case is entitled to damages caused by his loss of the use and possession of the premises.

Banco Filipino vs CA

FACTS

            Elsa and Calvin Arcilla secured, on 3 occassions, loan from petitioner as evidenced by promissory note. REM was also executed. Under said deeds, Banco Filipino may increase rate of interest on said loans, within the limits allowed by law. at that time, under Usury Law, the maximum rate of interest for loans secured by REM was 12% pa. later, the Central bank issued Circular No. 494 provinding for the maximum interest of 19%pa.

meanwhile, Skyli Builders, thru President Calvin Arcilla secured loans from BPI with FGU Insurance as surety. Banco Filipino issued an account statement with 17% pa as interest. The Arcillas filed for annulment of the loan contracts because the rate of interests charged were usurious.

 ISSUE

            Whether or not respondents are entitled to refund of the alleged interest overpayments.

 HELD

            Yes. Private respondents aver that they are entitled to the refund inasmuch as the escalation clause incorporated in the loan contracts do not have a corresponding de-escalation clause and is therefore, illegal.

             In Banco Filipino Savings & Mortgage Bank vs Navarro, the Court ruled that Central Bank Circular 494, although it has the force and effect of law, is not a law and is not the law contemplated by the parties which authorizes the petitioner to unilaterally raise the interest rate of loan. The reliance on the circular was without any legal basis.

Consolidated Bank vs CA, GR No. 114286, 19 April 2001, 356 SCRA 671

24FEB

FACTS

Continental Cement Corp obtained from Consolidated Bank letter of credit used to purchased 500,000 liters of bunker fuel oil. Respondent Corporation made a marginal deposit to petitioner. A trust receipt was executed by respondent corporation, with respondent Gregory Lim as signatory. Claiming that respondents failed to turn over the goods or proceeds, petitioner filed a complaint for sum of money before the RTC of Manila. In their answer, respondents aver that the transaction was a simple loan and not a trust receipt one, and tht the amount claimed by petitioner did not take into account payments already made by them. The court dismissed the complaint, CA affirmed the same.

ISSUE

Whether or not the marginal deposit should not be deducted outright from the amount of the letter of credit.

HELD

No. petitioner argues that the marginal deposit should be considered only after computing the principal plus accrued interest and other charges. It could be onerous to compute interest and other charges on the face value of the letter of credit which a bank issued, without first crediting or setting off the marginal deposit which the borrower paid to it-compensation is proper and should take effect by operation of law because the requisited in Art. 1279 are present and should extinguish both debts to the concurrent amount. Unjust enrichment.

 

Mendoza vs. Court of Appeals (359 SCRA 438)

FACTS:

Respondent was granted by respondent Philippine National Bank  (PNB) credit line and Letter of Credit/Trust Receipt (LC/TR) line. As security for the credit accommodations and for those which may thereinafter be granted, petitioner mortgaged to respondent PNB some of his properties. Petitioner later requested for loan restructuring and issued promissory notes, which he failed to comply. Respondent PNB extra-judicially foreclosed the real and chattel mortgages, and the mortgaged properties were sold at public auction to respondent PNB, as highest bidder. Petitioner filed a case in the RTC contending that foreclosure is illegal invoking promissory estoppel, and secured favorable judgment. The decision of RTC was reversed by the Court of Appeals.

ISSUE:

Whether or not the foreclosure of petitioner’s real estate and chattel mortgages were legal and valid as opposed to promissory estoppel.

RULING:

YES. First, there was no promissory estoppel as the promise (of respondent bank) must be plain and unambiguous and sufficiently specific. Second, there was no meeting of the minds leading to another contract, hence loan was not restructured. Third, promissory notes petitioner issued were valid. Fourth, stipulation in the mortgage, extending its scope and effect to after-acquired property is valid and binding after the correct and valid process of extra-judicial foreclosure. Finally, record showed that petitioner did not even

attempt to tender any redemption price during the one-year redemption period.

First Metro vs Este del Sol,, GR No. 141811, 15 November 2001, 369 SCRA 99

24FEB

FACTS

            FMIC granted Este del Sol a loan to finance a sports/resort complex in Montalban, Rizal. Under the agreement, the interest was 16% pa based on the diminishing balance. In case of default, an acceleration clause was provided and the amount due is subject to 20% one-time penalty on the amount due and such amount shall bear interest at the highest rate permitted by law. respondent executed a REM, individual continuing suretyship and an underwriting agreement whereby FMIC shall underwrite the public offering of one P120,000 common shares of respondent’s capital stock for one-time underwriting fee of P200,000. For failure to pay its obligation, FMIC caused the foreclosure of the REM. At the public auction, FIC was the highest bidder. Petitioner filed to collect for alleged deficiency balance against respondents since it failed to collect from the sureties, plus interest at 21% pa. the trial court ruled in favor of FMIC. Respondents appealed before the CA which held that the fees provided for in the Underwriting and Consultacy Agreements were mere subterfuges to camouflage the excessively usurious interest charged. The CA ordered FMIC to reimburse petitioner representing what is ue to petitioner and what is due to respondent.

 ISSUE

            Whether or not the interests are lawful

 HELD

            No. an apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly unrelated contract for the payment by the borrower for the lender’s services which re of little value or which are not in fact to be rendered. Article 1957 clearly provides: contracts and stipulations, under any cloak or device whatever, intended to circumvent the law agaistn usury shall be void. The borrower may recover in accordance with the laws on usury.

Frias v. San Diego-Sison

BOBIE ROSE FRIAS v. FLORA SAN DIEGO-SISON 

2007 / Austria-Martinez

On 7 Dec 1990, Bobie Rose Frias and Dr. Flora San-Diego Sison entered into a MOA over Frias’property

MOA consideration is 3M

Sison has 6 months from the date of contract’s execution to notify Frias of her intention to purchase the property with the improvements at 6.4M

Prior to this 6 month period, Frias may still offer the property to other persons, provided that 3M shall be paid to Sison including interest based on prevailing compounded bank interest + amount of sale in excess of 7M [should the property be sold at a price greater than 7M]

In case Frias has no other buyer within 6 months from the contract’s execution, no interest shall be charged by Sison on the 3M

In the event that on the 6th month, Sison would decide not to purchase the property, Frias has 6 months to pay 3M (amount shall earncompounded bank interest for the last 6 months only)

3M treated as a loan and the property considered as the security for the mortgage

Upon notice of intention to purchase, Sison has 6 months to pay the balance of 3.4M (6.4M less 3M MOA consideration)

Frias received from Sison 3M (2M in cash; 1M post-dated check dated February 28, 1990, instead of 1991, which rendered the check stale). Frias gave Sison the TCT and the Deed of Absolute Sale over the property. Sison decided not to purchase the property, so she notified Frias through a letter dated March 20, 1991 [Frias received it only on June 11, 1991], and Sison reminded Frias of their agreement that the 2M Sison paid should be considered as a loan payable within 6 months. Frias failed to pay this amount.Sison filed a complaint for sum of money with preliminary attachment. Sison averred that Frias tried to deprive her of the security for the loan by making a false report of the loss of her owner’s copy of TCT, executing an affidavit of loss and by filing a petition[1] for the issuance of a new owner’s

duplicate copy. RTC issued a writ of preliminary attachment upon the filing of a 2M bond.

RTC found that Frias was under obligation to pay Sison 2M with compounded interestpursuant to their MOA. RTC ordered Frias to pay Sison: 

2M + 32% annual interest beginning December 7, 1991 until fully paid

70k representing premiums paid by Sison on the attachment bond with legal interest counted from the date of this decision until fully paid

100k moral, corrective, exemplary damages [liable for moral damages because of Frias’ fraudulent scheme]

100k attorney’s fees + cost of litigation

CA affirmed RTC with modification—32% reduced to 25%. CA said that there was no basis for Frias to say that the interest should be charged for 6 months only. It said that a loan always bears interest; otherwise, it is not a loan. The interest should commence on June 7, 1991 until fully paid, with compounded bank interest prevailing at the time [June 1991] the 2M was considered as a loan (as certified by the bank). 

ISSUES & HOLDING – Ratio only discusses topic of INTEREST (as per syllabus) 

WON compounded bank interest should be limited to 6 months as contained in the MOA.NO 

WON Sison is entitled to moral damages. YES 

WON the grant of attorney’s fees is proper, even if not mentioned in the body of the decision. NO

CA committed no error in awarding an annual 25% interest on the 2M even beyond the 6-month stipulated period. In this case, the phrase "for the last six months only" should be taken in the context of the entire agreement.

SC notes that the agreement speaks of two (2) periods of 6 months each (see FACTS—words in bold & underline). No interest will be charged for the 1st 6-month period [while Sison was making up her mind], but only for the 2nd 6-month period after Sison decided not to buy the property. There is nothing in the MOA that suggests that interest will be charged for 6 months only even if it takes forever for Frias to pay the loan.

The payment of regular interest constitutes the price or cost of the use of money, and until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount. For a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest constitutes unjust enrichment on the part of the debtor at the expense of the creditor.

CA DECISION AND RESOLUTION AFFIRMED WITH MODIFICATION—Award of attorney’s fees deleted

Ligutan vs. CA G.R#138677

Facts: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissorynote binding themselves, jointly and severally, with an interest of 15.189% per annum upon maturityand to pay a penalty of 5% every month on the outstanding principal and interest in case of default and

also a 10% attorney’s fees if the matter were indorsed to a lawyer for collection.

 The obligation matured, the petitioners were not able to settle the obligation; The bank gave anextension, still the same happened. Since the petitioners still defaulted, the former filed a complaint forrecovery of the due amount.

Issue: Whether the interest and penalty charge imposed by private respondent bank on petitioners’ loan

are manifestly exorbitant, iniquitous and unconscionable?Ruling: The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. Although a court may not atliberty ignore the freedom of the parties to agree on such terms and conditions as they see fit thatcontravene neither law nor morals, good

customs, public order or public policy, a stipulated penalty,nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if theprincipal obligation has been partly or irregularly complied with.The question of whether a penalty is reasonable or iniquitous can be partly subjective and partlyobjective. 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 itsconsequences, the supervening realities, the standing and relationship of the parties, and the like, theapplication of which, by and large, is addressed to the sound discretion of the court.The CA exercised good judgment in reducing the stipulated penalty interest from 5% to 3% a month. It

was also been held that the 15.189% per annum stipulated interest and the 10% attorney’s is reasonable

and not excessive. The interest prescribed in loan financing arrangements is a fundamental part of thebanking business and the core of a bank's existence.

Eastern Shipping vs CA Credit Digest

Eastern Shipping vs CA

GR No. 97412, 12 July 1994

234 SCRA 78

FACTS

            Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as insured with a marine policy. Upon arrival in Manila unto the custody of metro Port Service, which excepted to one drum, said to be in bad order and which damage was unknown the Mercantile Insurance Company. Allied Brokerage Corporation received the shipment from Metro, one drum opened and without seal. Allied delivered the shipment to the consignee’s warehouse. The latter excepted to one drum which contained spillages while the rest of the contents was adulterated/fake. As consequence of the loss, the insurance company paid the consignee, so that it became subrogated to all the rights of action of consignee against the

defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance company filed before the trial court. The trial court ruled in favor of plaintiff an ordered defendants to pay the former with present legal interest of 12% per annum from the date of the filing of the complaint. On appeal by defendants, the appellate court denied the same and affirmed in toto the decision of the trial court.

ISSUE

(1)   Whether the applicable rate of legal interest is 12% or 6%.

(2)   Whether the payment of legal interest on the award for loss or damage is to be computed from the time the complaint is filed from the date the decision appealed from is rendered.

HELD

(1)           The Court held that the legal interest is 6% computed from the decision of the court a quo. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damaes awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.

When the judgment of the court awarding a sum of money becomes final and executor, the rate of legal interest shall be 12% per annum from such finality until satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of money.

The interest due shall be 12% PA to be computed fro default, J or EJD.

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

(3)   The Court held that it should be computed from the decision rendered by the court a quo.

Siga-an v. Villanueva (2009)Chico-Nazario, J.Facts:

Alicia Villanueva filed a complaint against Sebastian Sigaan bec she wants a return of her money (the excess interest shepaid). Events according to her:

o

Sigaan, the comptroller of the Phillipine Navy, offered to loan money to her. She accepted because she needed

capital for her office supply business venture. She currently supplies office mat’l and equipment to the Phil

Navy.

o

She agrees to the loan of P540k. Loan was not in writing and there was no stipulation as to payment of interest.

o

She issues a check worth P500; as partial payment. 2 months later, she issues another check worth P200k.

o

Sigaan (who now received P700k from Villanueva) said the excess money Villanueva paid would be applied asinterest. But Sigaan still kept pestering her for additional interest and threatened to block her transactions with

the Phil Navy if she won’t comply. Fearing this, she paid additional amounts totalling to P1.2m.

She asked for areceipt but was told that there was no need bec they had mutual trust and confidence.

o

She then consulted a lawyer who told her that Sigaan could not validly collect interest because there was noagreement of interest. She demands from Sigaan the return of the P660k.

According to Sigaan, however:

o

He did not offer to loan but was instead propositioned by Villanueva and insists that there was no overpayment,as that there was a promissory note by Villanueva admitting to having borrowed P1.24m.

o

As payment, Villanueva issued 6 postdated checks. Only 1 was honoured. He filed criminal cases againstVillanueva (BP 22). In this BP 22 case, Sigaan claims that Villanueva, in her testimony, admitted to havingagreed to a 7% interest. This should be an exception (to the rule that interests should be in writing) because itwould be unfair since Villanueva already admits to the interest.

o

Also Villanueva was already estopped from complaining because she was given several times to settle her obligation but failed.

RTC says: there was overpayment. Villanu

eva’s obligation only amounted to P540k because there was no interest

agreement. CA affirmed.Issue: Was there overpayment? What about interest?Held: [Yes. Sigaan should return the excess amounts.] [No interest to be paid by Villanueva. However, Sigaan should pay intereston the amounts he should refund Villanueva.]Ratio:

SC defines interest: monetary and compensatory:

o

Monetary interest: Interest is a COMPENSATION fixed by the PARTIES for the use or forbearance of money.

o

Compensatory: Interest imposed by LAW or by COURTS as PENALTY or INDEMNITY.

The right to interest arises only:1. By a contract; or 2. By virtue of damages for delay or failure to pay the principal loanRE: Interest should be stipulated in writing

NCC 1956: Refers to monetary interest and mandates that no interest shall be due unless stipulated in writing. So, it isallowed only when the following concur:1. If there was express stipulation for interest payment2. AND if the agreement was in writing

In this case, the parties did not agree. As explained by Villanueva, the presented promissory note was in her handwritingbecause Sigaan told her to copy it and she did because she feared the threats of Sigaan to block her deals with the PhilNavy. (this was not rebutted by Sigaan so the SC believed this explanation)

o

Clearly, there was NO CONSENT to the payment of interest, she was coerced.RE: Exceptions

 

Sigaan’s claim that

Villanueva admitting to the interest should be an exception, SC says: In the BP22 case, Villanueva didnot declare to have made an express stipulation in writing as to the interest. There instances in which interest may beimposed in the absence of stipulation, verbal or written, are:1. NCC 2209: If obligation consists in payment of sum of money, no stipulation on interest, and debtor incurs delay= legal interest 12% per annum2. NCC 2212: interest due shall earn legal interest from the time it is judicially demanded

Under those 2 instances, interest MAY be imposed only as PENALTY or damages for breach of CONTRACTUALobligations and NOT for compensation for the use or forbearance of money.

o

MEANING: those 2 are only applicable to COMPENSATORY interests and not to monetary interest.

o

This case involves a claim for monetary interest. Compensatory is not chargeable because it was not proventhat Villanueva defaulted in paying the loan.RE: Solutio indebiti (NCC 2154: 1. if something is received where there is no right to demand it and 2. it was delivered throughmistake, the obligation to return it arises)

Principle: no one shall enrich himself unjustly at expense of another 

RE: Interest payment

Eastern Shipping v. CA:

o

when an obligation NOT constituting a loan or forbearance of money is breached, interest on amount of damages may be imposed at the rate of 6% per annum.

o

When judgment awarding a sum of money becomes final and executory, legal interest (whether loan/forbearance or money or not) shall be 12% per annum from finality

o

The INTERIM period is deemed a forbearance of credit

 

Sigaan’s obligation arises from

a quasi-contract of solutio indebitu and NOT from a loan or forbearance of money. So:

o

 

6%

per annum should be imposed on the amount to be refunded (as well as to the damages and atty fees)

from time of extra judicial demand (March 3, 1998) up to finality

.

o

Amount shall become

12% per annum from finality

of decision

up to its satisfaction

Nacar vs gallery frames

Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar alleged that he was dismissed without cause by Gallery Frames on January 24, 1997. On October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence the Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and separation pay.

Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed the decision of the Labor Arbiter and the decision became final on May 27, 2002.

After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he alleged that his backwages should be computed from the time of his illegal dismissal (January 24, 1997) until the finality of the SC decision (May 27, 2002) with interest. The LA denied the motion as he ruled that the reckoning point of the computation should only be from the time Nacar was illegally dismissed )January 24, 1997) until the decision of the LA (October 15, 1998). The LA reasoned that the said date should be the reckoning point because Nacar did not appeal hence as to him, that decision became final and executory.

ISSUE: Whether or not the Labor Arbiter is correct.

HELD: No. There are two parts of a decision when it comes to illegal dismissal cases (referring to cases where the dismissed employee wins, or loses but wins on appeal). The first part is the ruling that the employee was illegally dismissed. This is immediately final even if the employer appeals – but will be reversed if employer wins on appeal. The second part is the ruling on the award of backwages and/or separation pay. For backwages, it will be computed from the date of illegal dismissal until the date of the decision of the Labor Arbiter. But if the employer appeals, then the end date shall be extended until the day when the appellate court’s decision shall become final. Hence, as a consequence, the liability of the employer, if he loses on appeal,

will increase – this is just but a risk that the employer cannot avoid when it continued to seek recourses against the Labor Arbiter’s decision. This is also in accordance with Article 279 of the Labor Code.

Anent the issue of award interest in the form of actual or compensatory damages, the Supreme Court ruled that the old case of Eastern Shipping Lines vs CA is already modified by the promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796 which lowered the legal rate of interest from 12% to 6%. Specifically, the rules on interest are now as follows:

1. Monetary Obligations ex. Loans:

a. If stipulated in writing:

a.1. shall run from date of judicial demand (filing of the case)

a.2. rate of interest shall be that amount stipulated

b. If not stipulated in writing

b.1. shall run from date of default (either failure to pay upon extra-judicial demand or upon judicial demand whichever is appropriate and subject to the provisions of Article 1169 of the Civil Code)

b.2. rate of interest shall be 6% per annum

2.    Non-Monetary Obligations (such as the case at bar)

a. If already liquidated, rate of interest shall be 6% per annum, demandable from date of judicial or extra-judicial      demand (Art. 1169, Civil Code)

b. If unliquidated, no interest

Except: When later on established with certainty. Interest shall still be 6% per annum demandable from the date of judgment because such on such date, it is already deemed that the amount of damages is already ascertained.

3. Compounded Interest

- This is applicable to both monetary and non-monetary obligations

- 6% per annum computed against award of damages (interest) granted by the court. To be computed from the date when the court’s decision becomes final and executory until the award is fully satisfied by the losing party.

4. The 6% per annum rate of legal interest shall be applied prospectively:

- Final and executory judgments awarding damages prior to July 1, 2013 shall apply the 12% rate;

- Final and executory judgments awarding damages on or after July 1, 2013 shall apply the 12% rate for unpaid obligations until June 30, 2013; unpaid obligations with respect to said judgments on or after July 1, 2013 shall still incur the 6% rate.

Breach of contract; when 12% interest p.a. applies - G.R. No. 175139

G.R. No. 175139

"x x x.

The interest at the rate of 12% is applicable in the instant case.

Anent the interest rate, the general rule is that the applicable rate of interest “shall be computed in accordance with the stipulation of the parties.”[31]   Absent any stipulation, the applicable rate of interest shall be 12% per annum “when the obligation arises out of a loan or a forbearance of money, goods or credits.  In other cases, it shall be six percent (6%).”[32]  In this case, the parties did not stipulate as to the applicable rate of interest.  The only question remaining therefore is whether the 6% as provided under Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due.

The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale.  However, the contract provides that the seller (petitioner) must return the

payment made by the buyer (respondent-spouses) if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as the seller (petitioner) has admitted this.  Notwithstanding demand by the buyer (respondent-spouses),  the  seller (petitioner)  has  failed  to  return  the money and

should be considered in default from the time that demand was made on September 27, 2000.

Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be considered as a forbearance of money which required payment of interest at the rate of 12%?  We believe so.

In Crismina Garments, Inc. v. Court of Appeals,[33] “forbearance” was defined as a “contractual obligation of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable.” This definition describes a loan where a debtor is given a period within which to pay a loan or debt.  In such case, “forbearance of money, goods or credits” will have no distinct definition from a loan.  We believe however, that the phrase “forbearance of money, goods or credits” is meant to have a separate meaning from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in the Civil Code.[34]  Forbearance of money, goods or credits should therefore refer to arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions. In this case, the respondent-spouses parted with their money even before the conditions were fulfilled.  They have therefore allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment of the conditions.  They were deprived of the use of their money for the period pending fulfillment of the conditions and when those conditions were breached, they are entitled not only to the return of the principal amount paid, but also to compensation for the use of their money.  And the compensation for the use of their money, absent any stipulation, should be the same rate of legal interest applicable to a loan since the use or deprivation of funds is similar to a loan.

Petitioner’s unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts to forbearance of money which can be considered as an involuntary loan.  Thus, the applicable rate of interest is 12% per annum.  In Eastern Shipping Lines, Inc. v. Court of Appeals,[35]cited in Crismina Garments, Inc. v. Court of Appeals,[36]  the Court suggested the following guidelines:

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 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.[37] 

Eastern Shipping Lines, Inc. v. Court of Appeals[38]and its predecessor case,Reformina v. Tongol[39] both involved torts cases and hence, there was no forbearance of money, goods, or credits.  Further, the amount claimed (i.e., damages) could not be established with reasonable certainty at the time the claim was made.  Hence, we arrived at a different ruling in those cases.

Since the date of demand which is September 27, 2000 was satisfactorily established during trial, then the interest rate of 12% should be reckoned from said date of demand until the principal amount and the interest thereon is fully satisfied.