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612 Phil. 447


[ G.R. No. 165116, August 04, 2009 ]




This resolves the petition for review on certiorari under Rule 45 of the Rules of Court, praying that the Decision[1] dated July 1, 2004 and Resolution[2] dated August 31, 2004 promulgated by the Court of Appeals (CA), be reversed and set aside.

The antecedent facts are as follows.

Petitioner and respondent are siblings. Their parents donated to petitioner an eight-door apartment located at 149 Santolan Road, Murphy, Quezon City, with the condition that during the parents' lifetime, they shall retain control over the property and petitioner shall be the administrator thereof.

In 1995, petitioner applied for a loan from PAG-IBIG Fund to finance the renovations on Unit H, of said apartment which she intended to use as her residence. Petitioner failed to obtain a loan from PAG-IBIG Fund, hence, respondent offered to extend a credit line to petitioner on the following conditions: (1) petitioner shall keep a record of all the advances; (2) petitioner shall start paying the loan upon the completion of the renovation; (3) upon completion of the renovation, a loan and mortgage agreement based on the amount of the advances made shall be executed by petitioner and respondent; and (4) the loan agreement shall contain comfortable terms and conditions which petitioner could have obtained from PAG-IBIG.[3]

Petitioner accepted respondent's offer of a credit line and work on the apartment units began. Renovations on Units B to G were completed, and the work has just started on Unit A when an altercation broke out between herein parties. In view of said conflict, respondent and petitioner, along with some family members, held a meeting in the house of their brother Genaro sometime in the second quarter of 1997. Respondent and petitioner entered into a new agreement whereby petitioner was to start making monthly payments on her loan. Upon respondent's demand, petitioner turned over to respondent all the records of the cash advances for the renovations. Subsequently, or from June to October of 1997, petitioner made monthly payments of P18,700.00, or a total of P93,500.00. Petitioner never denied the fact that she started making such monthly payments.

In October of 1997, a quarrel also occurred between respondent and another sister, Maricion, who was then defending the actions of petitioner. Because of said incident, they had a hearing at the Barangay. At said hearing, respondent had the occasion to remind petitioner of her monthly payment. Petitioner allegedly answered, "Kalimutan mo na ang pera mo wala tayong pinirmahan. Hindi ako natatakot sa 'yo!" Thereafter, petitioner left Unit H and could no longer be found. Petitioner being the owner of the apartments, renovations on Unit A were discontinued when her whereabouts could not be located. She also stopped making monthly payments and ignored the demand letter dated December 2, 1997 sent by respondent's counsel.

On February 2, 1998, respondent filed a Complaint against petitioner, demanding the latter to pay the former the net amount of P3,989,802.25 plus interest of 12% per annum from date of default.

At the pre-trial conference, the issues were narrowed down as follows:

  1. Whether or not a loan was duly constituted between the plaintiff and the defendant in connection with the improvements or renovations on apartment units A-H, which is in the name of the defendant [herein petitioner];

  2. Assuming that such a loan was duly constituted in favor of plaintiff [herein respondent], whether or not the same is already due and payable;

  3. Assuming that said loan is already due and demandable, whether or not it is to be paid out of the rental proceeds from the apartment units mentioned, presuming that such issue was raised in the Answer of the Defendant;

  4. Assuming that the said loan was duly constituted in favor of plaintiff [herein respondent], whether or not it is in the amount of P3,909,802.20 and whether or not it will earn legal interest at the rate of 12% per annum, compounded, as provided in Article 2212 of the Civil Code of the Philippines, from the date of the extrajudicial demand; and

  5. Whether or not the plaintiff [herein respondent] is entitled to the reliefs prayed for in his Complaint or whether or not it is the defendant [herein petitioner] who is entitled to the reliefs prayed for in her Answer with Counterclaim.[4]

On November 15, 2002, the Regional Trial Court (RTC) of Quezon City, Branch 82, rendered a Decision,[5] the dispositive portion of which reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter to pay the former the following:

  1. The sum of P3,989,802.25 with interest thereon at the legal rate of 12% per annum computed from the date of default until the whole obligation is fully paid;

  2. The sum of P50,000.00 as and by way of attorney's fees; and

  3. The cost of suit.


Petitioner appealed the foregoing RTC Decision to the CA, but on July 1, 2004, the Court of Appeals promulgated its Decision affirming in toto said RTC judgment. A motion for reconsideration of the CA Decision was denied per Resolution dated August 31, 2004.

Hence, this petition where petitioner alleges that:







The main issues in this case boil down to (1) whether petitioner's obligation is due and demandable; (2) whether respondent is entitled to attorney's fees; and (3) whether interest should be imposed on petitioner's indebtedness and, if in the affirmative, at what rate.

Petitioner does not deny that she obtained a loan from respondent. She, however, contends that the loan is not yet due and demandable because the suspensive condition - the completion of the renovation of the apartment units - has not yet been fulfilled. She also assails the award of attorney's fees to respondent as baseless.

For his part, respondent admits that initially, they agreed that payment of the loan shall be made upon completion of the renovations. However, respondent claims that during their meeting with some family members in the house of their brother Genaro sometime in the second quarter of 1997, he and petitioner entered into a new agreement whereby petitioner was to start making monthly payments on her loan, which she did from June to October of 1997. In respondent's view, there was a novation of the original agreement, and under the terms of their new agreement, petitioner's obligation was already due and demandable.

Respondent also maintains that when petitioner disappeared from the family compound without leaving information as to where she could be found, making it impossible to continue the renovations, petitioner thereby prevented the fulfillment of said condition. He claims that Article 1186 of the Civil Code, which provides that "the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment," is applicable to this case.

In his Comment to the present petition, respondent raised for the first time, the issue that the loan contract between him and petitioner is actually one with a period, not one with a suspensive condition. In his view, when petitioner began to make partial payments on the loan, the latter waived the benefit of the term, making the loan immediately demandable.

Respondent also believes that he is entitled to attorney's fees, as petitioner allegedly showed bad faith by absconding and compelling him to litigate.

The Court finds the petition unmeritorious.

It is undisputed that herein parties entered into a valid loan contract. The only question is, has petitioner's obligation become due and demandable? The Court resolves the question in the affirmative.

The evidence on record clearly shows that after renovation of seven out of the eight apartment units had been completed, petitioner and respondent agreed that the former shall already start making monthly payments on the loan even if renovation on the last unit (Unit A) was still pending. Genaro Tomimbang, the younger brother of herein parties, testified that a meeting was held among petitioner, respondent, himself and their eldest sister Maricion, sometime during the first or second quarter of 1997, wherein respondent demanded payment of the loan, and petitioner agreed to pay. Indeed, petitioner began to make monthly payments from June to October of 1997 totalling P93,500.00.[8] In fact, petitioner even admitted in her Answer with Counterclaim that she had "started to make payments to plaintiff [herein respondent] as the same was in accord with her commitment to pay whenever she was able; x x x ."[9]

Evidently, by virtue of the subsequent agreement, the parties mutually dispensed with the condition that petitioner shall only begin paying after the completion of all renovations. There was, in effect, a modificatory or partial novation, of petitioner's obligation. Article 1291 of the Civil Code provides, thus:

Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (Emphasis supplied)

In Iloilo Traders Finance, Inc. v. Heirs of Sps. Soriano,[10] the Court expounded on the nature of novation, to wit:

Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; x x x .

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a new valid obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.[11]

In Ong v. Bogñalbal,[12] the Court also stated, thus:

x x x the effect of novation may be partial or total. There is partial novation when there is only a modification or change in some principal conditions of the obligation. It is total, when the obligation is completely extinguished. Also, the term principal conditions in Article 1291 should be construed to include a change in the period to comply with the obligation. Such a change in the period would only be a partial novation since the period merely affects the performance, not the creation of the obligation.[13]

As can be gleaned from the foregoing, the aforementioned four essential elements and the requirement that there be total incompatibility between the old and new obligation, apply only to extinctive novation. In partial novation, only the terms and conditions of the obligation are altered, thus, the main obligation is not changed and it remains in force.

Petitioner stated in her Answer with Counterclaim[14] that she agreed and complied with respondent's demand for her to begin paying her loan, since she believed this was in accordance with her commitment to pay whenever she was able. Her partial performance of her obligation is unmistakable proof that indeed the original agreement between her and respondent had been novated by the deletion of the condition that payments shall be made only after completion of renovations. Hence, by her very own admission and partial performance of her obligation, there can be no other conclusion but that under the novated agreement, petitioner's obligation is already due and demandable.

With the foregoing finding that petitioner's obligation is due and demandable, there is no longer any need to discuss whether petitioner's disappearance from the family compound prevented the fulfillment of the original condition, necessitating application of Article 1186 of the Civil Code, or whether the obligation is one with a condition or a period.

As to attorney's fees, however, the award therefor cannot be allowed by the Court. It is an oft-repeated rule that the trial court is required to state the factual, legal or equitable justification for awarding attorney's fees.[15] The Court explained in Buñing v. Santos,[16] to wit:

x x x While Article 2208 of the Civil Code allows attorney's fees to be awarded if the claimant is compelled to litigate with third persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought, there must be a showing that the losing party acted willfully or in bad faith and practically compelled the claimant to litigate and incur litigation expenses. In view of the declared policy of the law that awards of attorney's fees are the exception rather than the rule, it is necessary for the trial court to make express findings of facts and law that would bring the case within the exception and justify the grant of such award. x x x.

Thus, the matter of attorney's fees cannot be touched upon only in the dispositive portion of the decision. The text itself must state the reasons why attorney's fees are being awarded. x x x [17]

In the above-quoted case, there was a finding that defendants therein had no intention of fulfilling their obligation in complete disregard of the plaintiff's right, and yet, the Court did not deem this as sufficient justification for the award of attorney's fees. Verily, in the present case, where it is understandable that some misunderstanding could arise as to when the obligation was indeed due and demandable, the Court must likewise disallow the award of attorney's fees.

We now come to a discussion of whether interest should be imposed on petitioner's indebtedness. In Royal Cargo Corp. v. DFS Sports Unlimited, Inc.,[18] the Court reiterated the settled rule on imposition of interest, thus:

As to computation of legal interest, the seminal ruling in Eastern Shipping Lines, Inc. v. Court of Appeals controls, to wit:

x x x x

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 an 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.

The foregoing rule on legal interest was explained in Sunga-Chan v. Court of Appeals,[19] in this wise:

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," with the application of both rates reckoned "from the time the complaint was filed until the [adjudged] amount is fully paid." 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."[20]

In accordance with the above ruling, since the obligation in this case involves a loan and there is no stipulation in writing as to interest due, the rate of interest shall be 12% per annum computed from the date of extrajudicial demand.

IN VIEW OF THE FOREGOING, the petition is AFFIRMED with the MODIFICATION that the award for attorney's fees is DELETED.


Ynares-Santiago, (Chairperson), Chico-Nazario, Velasco, Jr., and Nachura,  JJ., concur.

[1] Penned by Associate Justice Japar B. Dimaampao, with Associate Justices Josefina Guevara-Salonga and Edgardo F. Sundiam (now deceased), concurring; rollo, pp. 27-36.

[2] Id. at 37-38.

[3] Rollo, pp. 136, 156.

[4] Records, p. 153.

[5] Rollo, pp. 100-107.

[6] Id. at 107.

[7] Id. at 9-10.

[8] TSN, August 17, 1999, pp. 18-20.

[9] Record, p. 109. (Emphasis supplied).

[10] 452 Phil. 82 (2003).

[11] Id. at 89-90. (Emphasis supplied.)

[12] G.R. No. 149140, September 12, 2006, 501 SCRA 490.

[13] Id. at 508. (Emphasis supplied.)

[14] See note 8.

[15] Zacharias De los Santos v. Consuelo B. Papa, et al., G.R. No. 154427, May 8, 2009; Sebastian Siga-an v. Alicia Villanueva, G.R. No. 173227, January 20, 2009.

[16] G.R. No. 152544, September 19, 2006, 502 SCRA 315.

[17] Id. at 322-323. (Emphasis supplied.)

[18] G.R. No. 158621, December 10, 2008.

[19] G.R. No. 164401, June 25, 2008, 555 SCRA 275.

[20] Id. at 288.

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