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338 Phil. 930


[ G.R. No. 111858, May 14, 1997 ]



Assailed in this petition for review is the decision of the Court of Appeals dated September 14, 1993, rendered in CA-G.R. CV 34989, which affirmed in toto the award by the trial court of a sum of money with legal interest, liquidated damages and costs of suit in favor of private respondent PEOPLE's HOMESITE AND HOUSING CORPORATION (hereinafter, "PHHC).[1]

The records reveal that on December 21, 1964, PHHC sold twelve (12) parcels of land (the properties) in Parañaque, Rizal with an area of more or less one hundred (100) hectares and covered by Transfer Certificates of Title (TCTs) Nos. 118717, 118718, 118719, 118720, 118723, 118724, 118725, 118726, 118727, 118728, 118729, issued in the name of PHHC to petitioner for a consideration of P4.20 million, which amount was later reduced to P3.45 million when the former credited to the latter the sum of P750,000.00, representing payments by petitioner's predecessors-in-interest, the Better Living, Inc. and the Earthwealth (Phil.) Ltd., to PHHC. The contract stipulated, among other things, that the P3.45 million would be paid in the following manner:

"xxx                                                                          xxx                                                                                   xxx

2) Upon the execution and registration of this final Deed of Sale with Mortgage, the balance of P3,480,000.00[2] shall then be paid as follows:

a) P1,727,500.00 shall be paid upon the said signing and registration of this final Deed of Sale with Mortgage and the remaining balance thereafter shall be paid within 18 months from signing of this contract and in equal amortization as follows:

1. P574,166.68 within the first six (6) months;

2. P574,166.68 within the next six (6) months;

3. P574,166.68 within the last six (6) months of the term of payment.

xxx                                                                                                                                                                    xxx                                                                                         xxx"

The parties also agreed "that the failure on the part of the Tropical to pay the first amortization or installment as agreed upon will render immediately due and demandable the whole amount of the consideration herein, and the PHHC may thereafter foreclose its mortgage as hereinafter provided. In case of resort to court action to enforce its rights, the PHHC shall further be entitled to liquidated damages equivalent to 25% of the entire amount due, without need of proving actual damages, in addition to legal interests and other legal charges that may be found due the PHHC."[3]

Pursuant to their agreement, petitioner should have paid PHHC the amount of P1,727,500.00 upon registration of the Deed of Absolute Sale with Mortgage (the contract) with the Register of Deeds of Rizal on February 12, 1965 and the amount of P574,166.68 not later than July 12, 1965. Petitioner, however, only paid PHHC the amount of P150,000.00 on December 21, 1964, and the amount of P1,000,000.00 on April 20, 1965. Several other payments were later made but not in accordance with the manner of payment stipulated in the contract.

Despite these breaches, PHHC, suprisingly, never foreclosed its mortgage on the properties. Petitioner's continuing non-compliance with the terms of the contract, however, soon prompted PHHC to make a written demand dated September 23, 1965, requiring the former to pay and settle its account amounting to P1,151,666.68 at the time. This demand, however, apparently went unheeded as petitioner still failed to completely settle its account and fulfill its undertaking under the contract, although it made token payments from time to time. Thus, as of April 15, 1967 petitioner's account already totalled P1,866,454.12, inclusive of all interests which accrued up to August 4, 1966 and in the period from August 5, 1966 until April 15, 1967 as shown by Bill No. 53-67 dated April 1967, reproduced below:

Bill No. 53-67, April 12, 1967

To payment of balance of selling price of 1,000,000.0 sq. m. of Parañaque Property, per attached statement, as follows:
Selling price of 1,000,000.00 sq. m.
Less: Amounts paid by Earth-wealth & Better Living, Inc.
Amount transferred to Tropical Homes, Inc
Interest up to August 4, 1966
T o t a l
Less: Total paid
Selling price unpaid as of Aug. 4, 1966
Add: Interest accrued
(Aug. 5/66-April 15/67)
Total account as of April 15, 1967
NOTE: Daily interest @ 6% per annum on P1,791,646.73:


Petitioner proposed to settle said total account with its approved GSIS loan of P1,714,000.00, and with respect to the balance of P152,454.12, it offered as security two (2) time deposit certificates in the amount of P200,000.00 conditioned upon the release of the mortgage lien on its TCT No. 140829.

Upon PHHC's acceptance of this proposal, petitioner transferred its GSIS credit memo, whereby the proceeds of its GSIS loan in the amount of P1,714,000.00 were applied to its outstanding account with PHHC; Tropical then indorsed to PHHC Certificate of Time Deposit Nos. 2124 and 2146 issued by the Overseas Bank of Manila as security for the balance of P154,221.22; PHHC, in turn, released TCT No. 140829 from the mortgage. Thereafter, PHHC authorized petitioner to secure a surety bond to guarantee the payment of interest that may be found due upon adjudication by the then General Auditing Office.

When PHHC subsequently demanded payment of the remaining P154,221.22, however, petitioner objected, claiming that it had made an overpayment of P29,167.20 because it was not liable to pay interest on the unpaid balance of its account with PHHC, an allegation which was, of course, denied by the latter. With no settlement in sight, these conflicting claims eventually reached the Office of the Auditor General which, in a decision dated January 8, 1970, rejected PHHC's claim to further payment, as well as petitioner's claim for reimbursement or refund of alleged excess payments.[4]

Apparently dissatisfied with the decision, PHHC appealed to the Office of the President and successfully secured a favorable modification of the said ruling to the effect that its acceptance of the GSIS credit memo did not wipe out its claim against Tropical for accrued interests.[5] Despite denial of its motion for reconsideration and demand to pay by PHHC, however, petitioner obstinately refused to settle its obligation, prompting PHHC to file an action against petitioner on December 26, 1974, for collection of its credit, which it claimed had reached P216,951.23 as of January 31, 1974, in addition to legal interest on the principal sum of P154,221.22. Petitioner admitted all the factual allegations in PHHC's complaint except its liability for liquidated damages and the amount of P154,221.22, as well as the allegation that its unpaid account was already in the sum of P216,951.23. It argued that the passage of PHHC Board Resolution No. 801 FY 1965-1966 (the resolution) on April 14, 1966,[6] constituted an amendment of the contract as to the manner of payment and that it had the effect of a valid waiver on the part of PHHC to charge any accrued interest. As counterclaim, petitioner prayed for the payment of P29,169.20, representing the sum it had allegedly overpaid to PHHC.

After PHHC filed its Answer to petitioner's compulsory counterclaim, the Regional Trial Court of Quezon City, Branch 87, scheduled a pre-trial conference on May 8, 1975. On said date, PHHC's assistant general manager and counsel appeared while only petitioner's counsel attended. The latter presented a Special Power of Attorney (SPA) executed by his client, authorizing him "(t)o appear for and in its behalf in the above-captioned civil case in all circumstances where its appearance is required and to bind it in all said instances."[7] The trial court, however, was not satisfied with the sufficiency of the SPA and declared petitioner in default. Dismayed by the order of default, petitioner filed a special civil action for certiorari before this Court, questioning the trial court's alleged grave abuse of discretion. For unknown reasons, a decision granting the writ prayed for was finally rendered on February 24, 1989 or after fourteen (14) long years.[8]

Following this Court's directive, the trial judge scheduled the case for pre-trial. On March 6, 1990, the parties agreed to submit the case for judgment on the pleadings. Accordingly, after their respective Memoranda had been filed, the trial court rendered its decision[9] on August 21, 1991, the decretal portion of which states as follows:

"WHEREFORE, judgment is hereby rendered as prayed for in the complaint, ordering the defendant (1) to pay to the plaintiff the amount of P216,951.23, plus legal interest in the amount of P154,221.22, starting from February 1, 1974 until the time of full payment thereof; (2) to pay to the plaintiff liquidated damages equivalent to 25% of the said amount of P216,951.23 and the interest that have accrued up to the filing of the complaint; and to pay costs of suit.


Aggrieved by the decision of the court a quo, petitioner elevated its case to the Court of Appeals but met the same fate when the appellate court affirmed and virtually adopted the decision of the trial court.[10] Petitioner would now have this Court reverse the foregoing decisions.

We find no cogent reason to disagree with the decisions of the trial and appellate courts; hence, this petition must fail.

The core of petitioner's arguments is that the resolution constituted an abandonment or a waiver of legal interest which would otherwise accrue or might have accrued under the terms of the contract. Prescinding from this premise, petitioner logically computed its liability to PHHC sans interest. It argued that if the amount it had already paid (P1,765,169.20) were added to its GSIS loan of P1,714,000.00 which was credited to its account with PHHC, the balance would be P3,479,169.20 or P29,169.20 more than the agreed purchase price of P3,450,000.00, clearly an overpayment for which it is entitled to a refund.

Petitioner's flawed logic is devoid of any persuasive value. Contrary to its posture, the terms of the resolution are bereft of any categorical or even implicit indication that PHHC abandoned or otherwise waived its right to collect legal interest arising from default, as well as liquidated damages. The resolution simply states:

"RESOLVED, that in view of the sincere manifestation of the Tropical Homes, Inc. to meet its obligations with the PHHC in accordance with the conditions of the Contract perfected on December 21, 1964 between the Tropical Homes, Inc. and the PHHC, and because the PHHC is cognizant of the tight money situation, the following amendments in the aforesaid Contract as to the manner of payment, are herein incorporated:

1. That the PHHC accepts an increased partial payment of P250,000.00 from the Tropical Homes, Inc.

2. That the PHHC joins the Tropical Homes, Inc. in negotiating with the GSIS for a debit/credit of each other's account for the sum of P1,000,000.00; but it is understood that the responsibility of securing the GSIS approval remains with the Tropical Homes, Inc. and which approval must be secured within a period of ninety (90) days from date hereof.

3. That with respect to the outstanding balance still due to the PHHC, the PHHC hereby stipulates that the same be amortized in twelve (12) equal monthly installments, the first installment payment to begin on May 21, 1966."[11] (Underscoring supplied).

A careful reading of the above resolution discloses petitioner's continuing obligation under the contract. No new obligation was created by the resolution which could have superseded the original contract. Nowhere is there an explicit statement by PHHC of its intent to abandon or waive any interest accruing in its favor. Instead, what appears unmistakable on its face is the patent intention of PHHC to constitute the terms stated thereunder as mere amendments as regards the manner of payment which was to be incorporated in the original contract. By no stretch of the imagination can the terms be construed as an abandonment or waiver by respondent of payments still due to it.

Evidently the parties to the contract merely intended to restructure the payment scheme of the outstanding account still due and owing to PHHC. Payment of all accrued interests was no longer mentioned since these were already covered by the contract, as amended by the resolution. The contract provided that failure on the part of petitioner to pay the first amortization or installment shall, among other things, result in the liability to pay additional legal interest on the principal amount. This being the case, it would be superfluous to specify that the outstanding balance due includes accrued interests. The omission of accrued interests, contrary to petitioner's assertion, stresses the fact that PHHC had no intention of abandoning or waiving them; otherwise, it would have so stated in the resolution itself. Interest clauses are so vital in any contract providing for transfer of properties or monies that it would be reckless to hold that the mere failure to specifically include such item in an agreement ipso facto amounts to a waiver. A waiver, to be valid and effective, must in the first place be couched in clear and unequivocal terms which leave no doubt as to the intention of a person to give up a right or benefit which legally pertains to it. In the second place, a waiver may not casually be attributed to a person when the terms thereof do not explicitly and clearly prove an intent to abandon a right vested in such person.[12] These rules apply with equal force in the instant case.

Petitioner itself admitted in its Answer,[13] and reiterated in this petition,[14] that it failed to comply with its undertaking under the contract. Consequently, it cannot expect and theorize now that its only outstanding obligation is still the difference between the purchase price of P3.45 million and the sum of all payments it made to PHHC. On account of its multiple defaults and perennial breaches of the terms of its contract with PHHC, its obligation is no longer limited to the payment of the principal but includes payment of legal interest thereon, as punitive damages.[15] This is precisely the reason why we cannot agree with petitioner's posture that upon payment of a total of P1,765,169.20, it would now be obligated to pay only P1,684,830.00 or the balance of the purchase price which is P3.45 million. Petitioner's computation is, to say the least, basically self-serving and misleading, premised as it is on an erroneous assumption that what is only due to PHHC is just the principal amount and that accrual of legal interest permanently ceased upon passage of the resolution.

The amendment introduced by the resolution is a remedial measure on the part of PHHC to restructure the mode of payments by petitioner so that it could settle its outstanding obligation in spite of its delinquency in payment. What is actually sought to be amended is only that portion of the contract requiring petitioner to make a downpayment of P1,727,500.00 and to pay three (3) equal amortizations within a period of eighteen (18) months. Moreover, the mode of payment under the contract was impliedly amended by the parties upon PHHC's acceptance of petitioner’s proposal regarding the application of its GSIS loan to the credit balance. Had it been the true intention of PHHC to relinquish its right to the interests, it could have so declared in clear, explicit and unequivocal terms or in words which unmistakably reveal said intention. But, as earlier ruled, no such intent was evident or may even be surmised from the words of the resolution.

Neither can Tropical rely on novation in this particular case. The attendant facts do not make out a case of novation. Article 1292 of the Civil Code clearly provides that "(i)n order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and new obligations be on every point incompatible with each other."[16] In the case at bar, no new obligation was constituted which is intended to substitute the original contract. There is an outright confirmation of the obligation still owing by petitioner to respondent. There is likewise nothing in the resolution which expressly declares a substitution of contract or an incompatibility on every point between the resolution and the original contract. Liability for accrued interests and an amendment on the manner of payment are two entirely different things which are not at all inconsistent with each other. The first deals with a component or item of petitioner's liability irrespective of the manner in which that liability is to be extinguished, while the second determines how a liability under the contract, whether it be for payment of principal or interest, may be satisfied. They can stand together and even complement each other, notwithstanding a change in the mode of payment.

In light of the foregoing, PHHC's computation of petitioner's liability is well-supported. Since it is beyond cavil that petitioner defaulted several times in its payments prior to April 14, 1966, the date the resolution was passed, and that interest arising from default accrued in accordance with the contract, the resulting outstanding account has, of necessity, to be greater than the contracted obligation of P3.45 million, the cap thereon representing interest as shown by Bill No. 53-67. Such interest continued to accrue until April 14, 1966, as long as petitioner was in default. The resolution was a clear statement of the outstanding balance of petitioner as of April 14, 1966, which balance was composed of the principal amount and interest against which was credited the aggregate amount of P250,000.00 paid on April 18 and 19, 1966,[17] pursuant to the resolution. At this point, the running of interest on whatever balance was left after deducting the amount of P250,000.00 was suspended momentarily because a new schedule of payments was introduced to take the place of the original 18-month amortization period. It would only be upon default under the new schedule of payments that interest would resume running, in accordance with the original contract. But since it is not controverted that petitioner belatedly paid P65,000.00 on June 30, 1966, and paid only P30,000.00 on August 4, 1966, both of which were not in accordance with the new payment scheme, interest continued to run again up to April 15, 1967 when Bill No. 53-67 updated petitioner's liability, as there is no showing that petitioner ever made any subsequent payment from August 4, 1966. Thus, the running of the interest having resumed, petitioner's total liability ballooned to P1,866,454.12 as determined by the said bill. Deducting its approved GSIS loan of P1,714,000.00 from said amount leaves a remainder of P152,454.12. It is this latter amount which petitioner earlier acknowledged as its liability but which it now claims to have been fully paid upon crediting the amount of P1,714,000.00 pursuant to the terms of the resolution. Considering, however, petitioner's flawed interpretation of said resolution, liability to pay interest is in order and amply justified. This being the case, its claim for refund must likewise fail for lack of any legal basis.

Aside from legal interest, the other items prayed for in private respondent's Complaint should likewise be granted. This is necessarily so since the instant case is based on a judgment on the pleadings. Proof of allegations in the Complaint as well as the items prayed for is no longer required. This rule holds true in this particular case although it appears that petitioner "denied" its liability to pay the amount of P216,951.23 and legal interest of P154,221.22,[18] because the same was not actually a denial but rather an admission of a fact which it, however, intended to negate on the basis of its interpretation of the resolution. This is made apparent by the petitioner's use of the phrase "special and affirmative defenses" in its Answer. Under Section 5, Rule 6 of the Rules of Court, "an affirmative defense is an allegation of new matter which, while admitting the material allegations of the complaint, expressly or impliedly, would nevertheless prevent or bar recovery by the plaintiff." With the rejection of petitioner's theory, however, the same stands as a plain admission not covered by the affirmative defense relied upon. The following excerpt from Santiago v. Basilan Lumber Co.[19] is in point:

"As to the amount of damages awarded as a consequence of this violation of plaintiff's rights, the lower court based its award from the allegations and prayer contained in the complaint. The defendant, however, questions this award for the reason that, according to the defendant, the plaintiff, in moving for judgment on the pleadings, did not offer proof as to the truth of his own allegations with respect to the damages claimed by him, and gave no opportunity for the appellant to introduce evidence to refute his claims. We find this objection without merit. It appears that when the plaintiff moved to have the case decided on the pleadings, the defendant interposed no objection and has practically assented thereto. The defendant, therefore, is deemed to have admitted the allegations of fact of the complaint, so that there was no necessity for the plaintiff to submit evidence of his claim."

However, as a matter of clarification, we would like to draw attention to the later case of Eastern Shipping Lines, Inc. v. Court of Appeals.[20] In that case, we laid down the following 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."

Inasmuch as the case at bar involves an obligation arising from a contract of sale and not a loan or forbearance of money, we hold that the proper rate of legal interest is six percent (6%) per annum of the amount demanded. Such interest shall continue to run from the time of demand on February 1, 1974 in accordance with Article 1589 of the Civil Code,[21] until the finality of this decision. The phrase "continue to run," is used because prior to February 1, 1974, PHHC had been consistently imposing a six percent (6%) interest on the amount of P154,221.22 on account of default. Moreover, PHHC's claim for interest is liquidated. The amount claimed and the date of demand being both certain, to arrive at the liquidated amount would merely be a matter of mathematical computation. However, pursuant to our guidelines in Eastern, when the judgment of the court awarding a sum of money, as in this case, becomes final and executory, the rate of interest shall increase to twelve percent (12%) per annum from such finality until its satisfaction, this interim period being deemed to be equivalent to a forbearance of credit.

WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED with the modification that the rate of legal interest which shall apply is six percent (6%) per annum of the amount demanded from February 1, 1974, until the finality of this decision. After this decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction.

Regalado, (Chairman), Puno, Mendoza, and Torres, Jr., JJ., concur.

[1] Now the National Housing Authority (NHA).

[2] A typographical error considering that after deducting the amount of P750,000.00 from P4,200,000.00, the result is P3,450,000 and not P3,480.000.00.

[3] Records, p. 9.

[4] Records, p. 5.

[5] OP Decisions No. 643, January 4, 1974, Records, p.16.

[6] Records, p. 40.

[7] Records, p. 49.

[8] Tropical Homes, Inc. v. Hon. Onofre Villaluz and People's Homesite and Housing Corporation, G.R. No. L-40628, 170 SCRA 577 (1989).

[9] Records, pp. 150-160.

[10] Rollo, pp. 20-34.

[11] Records, p. 40.

[12] Gatchalian v. Delim, 203 SCRA 126 (1991).

[13] Records, p. 37.

[14] Rollo, pp. 10-11.

[15] Article 2209 of the Civil Code provides thus. "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." (Underscoring supplied).

[16] See Gaw v. Intermediate Appellate Court, 220 SCRA 405 (1993); Ajax Marketing & Development Corporation v. Court of Appeals, 248 SCRA 222 (1995); Nyco Sales Corporation v. BA Finance Corporation, 200 SCRA 637 (1991).

[17] Records, p. 18.

[18] Records, p. 37. Note that this latter amount is different from the remainder of P152,454.12 left after deducting P1,714,000.00 from P1,866,454.12. The discrepancy is explained by the fact that the amount of P154,221.22 was computed by PHHC on April 21, 1967 while the amount of P152,454.12 was computed only up to April 15, 1967 when interests for six (6) days accrued.

[19] 9 SCRA 349 (1963); see also Phil. Advertising Counselors, Inc. v. Revilla, 52 SCRA 246, 256 (1973).

[20] 234 SCRA 78 (1994).

[21] Article 1589 provides in part:

"Art. 1589. — The vendee shall owe interest for the period between the delivery of the thing and the payment of the price, x x x

xxx        xxx        xxx

(3) Should he be in default, from the time of judicial or extra-judicial demand for the payment of the price. (Underscoring supplied)

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