G.R. No. 175139 - Estores vs. Spouses Supangan

Case Summary (G.R. No. 175139)

Factual Background

On October 3, 1993, Hermojina Estores and Spouses Arturo and Laura Supangan executed a Conditional Deed of Sale for a parcel of land in Naic, Cavite for P4.7 million. The contract required the vendor to secure various Department of Agrarian Reform clearances, to inform the vendee of the status of DAR clearance, to relocate a house situated within the subject lot to a 300 square meter allocated area, and to complete partition and registration formalities. The parties agreed that, if the vendor failed to complete required documents within thirty days without sufficient reason or notice, the vendee could demand return of the downpayment. The Spupangans paid a total of P3,500,000 in staggered payments beginning October 1, 1993.

Pre‑trial Events and Demand

After almost seven years without completion of the agreed conditions, the Spupangans sent a letter dated September 27, 2000 demanding the return of P3,500,000 within fifteen days. Hermojina Estores acknowledged receipt and promised repayment within 120 days in a reply dated October 13, 2000; the vendee conditioned acceptance of that proposal on imposition of an interest of twelve percent compounded annually in a further communication dated October 20, 2000. When petitioner did not return the money, the Spupangans filed a complaint for sum of money in the RTC of Malabon.

Trial Pleadings and Pre‑Trial Agreement

In their complaint the Spupangans sought payment of P3,500,000 with twelve percent interest compounded annually from October 1, 1993, various categories of damages, attorneys fees and costs. Petitioner and Roberto U. Arias, sued as alleged agent, answered and asserted willingness to return the principal but denied entitlement to interest. At pre‑trial the parties agreed the only remaining issues were entitlement to legal interest, damages and attorneys fees.

Trial Proceedings and Failure to Present Defense Evidence

Trial commenced and the Spupangans presented evidence. The RTC set the defense presentation for September 3, 2003. Petitioner and Arias repeatedly failed to appear despite several postponements. The RTC deemed them to have waived the presentation of evidence and submitted the case for decision.

Ruling of the Regional Trial Court

On May 7, 2004 the RTC rendered judgment for the Spupangans ordering petitioner and Arias jointly and severally to pay the principal amount of P3,500,000 with interest at six percent compounded annually starting October 1, 1993, and attorneys fees of P50,000 plus twenty percent of the recoverable amount, and costs of suit. The RTC dismissed the compulsory counterclaim for lack of evidence.

Ruling of the Court of Appeals

On appeal the Court of Appeals affirmed the imposition of interest but held that interest should run at six percent per annum beginning from September 27, 2000 until full payment before finality, and, if the adjudged principal and interest remained unpaid after finality, the interest rate should be adjusted to twelve percent per annum from finality until full satisfaction. The CA also found that Arias could not be held solidarily liable as there was no showing he personally bound himself or exceeded authority. Finally, the CA reduced attorneys fees to P100,000 and ordered costs against petitioner. The CA denied petitioner’s motion for reconsideration on August 31, 2006.

Issue Presented to the Supreme Court

The sole issue before the Court was whether the imposition of interest and attorneys fees was proper, and if so, at what rate and from what date interest should be computed, and the proper quantum of attorneys fees.

Petitioner’s Contentions

Petitioner argued she was not bound to pay interest because the Conditional Deed of Sale provided only for return of the downpayment in case of breach and contained no stipulation for legal interest. She further contended that attorneys fees were unwarranted because the CA sustained her contention that twelve percent compounded annually was uncalled for, and therefore the Spupangans did not prevail sufficiently to justify attorneys fees.

Respondents’ Contentions

The Spupangans contended that interest was fair because petitioner used the P3,500,000 for her benefit and failed to return it despite demand, and that petitioner breached obligations to relocate the house and register the title. They asserted entitlement to attorneys fees because they were forced to litigate to recover money rightfully theirs and the amount awarded by the CA was smaller than filing costs they incurred.

Legal Framework and the Court’s Analytical Approach

The Court recognized that Article 2210 permits the allowance of interest upon damages for breach of contract in the discretion of the court. The applicable rate of interest ordinarily follows the parties’ stipulation; absent stipulation, Article 2209 prescribes twelve percent per annum when the obligation arises out of a loan or forbearance of money, goods or credits, and six percent in other cases. The Court examined authorities including Crismina Garments, Inc. v. Court of Appeals and Eastern Shipping Lines, Inc. v. Court of Appeals to define forbearance and to apply the guiding principles on accrual and computation of legal interest.

Supreme Court’s Determination on Interest

The Court found no dispute that petitioner was legally obligated to return P3,500,000 and that she was in default from the date of extrajudicial demand, September 27, 2000. The Court held that although the transaction was not a loan, the vendee’s parting with funds

Case Syllabus (G.R. No. 175139)

Parties and Procedural Posture

Hermojina Estores was the Petitioner in the Rule 45 petition challenging the Court of Appeals decision in CA-G.R. CV No. 83123.
Spouses Arturo and Laura Supangan were the Respondents and original buyers who filed the action to recover PHP 3,500,000 paid as downpayment.
The Regional Trial Court of Malabon, Branch 170 rendered the initial Decision in Civil Case No. 3201-MN that awarded principal, interest, and attorneys fees to the Respondents.
The Court of Appeals affirmed in part and modified the RTC ruling and denied reconsideration in its August 31, 2006 Resolution.
The Supreme Court resolved the present Petition for Review under Rule 45, Rules of Court and denied the petition with modifications to interest and attorneys fees.

Key Factual Allegations

The parties executed a Conditional Deed of Sale dated October 3, 1993 for a parcel in Naic, Cavite covered by TCT No. 98720 for PHP 4.7 million.
The contract required certain DAR clearances, relocation of an existing house to a 300 sq.m. area, preparation of documents for registration, and assured peaceful transfer of ownership.
Spouses Arturo and Laura Supangan paid an aggregate of PHP 3,500,000 in installments but alleged that Hermojina Estores failed to comply with contractual obligations referenced in paragraphs 4, 6, 7, 9 and 10.
The Respondents sent a demand letter dated September 27, 2000 for return of PHP 3,500,000 and the Petitioner acknowledged receipt and promised return within 120 days but failed to refund the amount.
Respondents sought interest at 12% compounded annually in correspondence dated October 20, 2000 and subsequently filed the complaint for sum of money and damages.

Procedural History

The RTC trial proceeded with evidence and the Petitioner and co-defendant Roberto U. Arias repeatedly failed to appear for presentation of their evidence and were deemed to have waived the same.
On May 7, 2004, the RTC rendered judgment for the Respondents ordering return of PHP 3,500,000 with interest at 6% per annum from October 1, 1993 and awarding attorneys fees in the amount of PHP 50,000 plus 20% of the recoverable amount.
The Petitioner appealed to the Court of Appeals, which on May 12, 2006 modified the RTC decision by computing 6% interest from September 27, 2000 until full payment before finality and by increasing post-finality interest to 12% per annum until satisfaction.
The CA reduced the attorneys fees award to PHP 100,000 and absolved Roberto U. Arias of solidary liability.
The Petitioner filed the present petition for review which the Supreme Court resolved on the sole issue of interest and attorneys fees.

Issues Presented

Whether interest may be imposed on the PHP 3,500,000 in the absence of an express stipulation in the Conditional Deed of Sale.
Whether the applicable rate of legal interest is six percent or twelve percent per annum and from what date interest should run.
Whether the Respondents are entitled to recover attorneys fees and the reasonable quantum of such fees.

Petitioner's Contentions

Hermojina Estores contended that she was not liable for interest because the contract provided only for the return of the downpayment in case of breach and contained no sti