G.R. No. 212349 - Spouses Domasian vs. Demdam

Case Summary (G.R. No. 212349)

Facts of the Transaction

On October 30, 1995, petitioners obtained a loan of P75,000 from respondent. The parties stipulated interest at eight percent (8%) per month and agreed the loan would be paid on or before June 30, 1996. The petitioners defaulted when the debt matured. Despite demands, petitioners did not pay.

Complaint, Summons, and Default Proceedings

Respondent filed a complaint for collection on August 1, 2001, initially naming another defendant but later filing an amended complaint asserting a total claim of P489,000 (P75,000 principal + P414,000 accrued interest). Summons were issued August 15, 2001 and personal service was attempted at the petitioners’ former Novaliches address; the process server could not personally serve them because they had been living in Naga City for about two years. Petitioners failed to file an answer and respondent moved to declare them in default. The RTC granted the motion to declare defendants in default and allowed respondent to present evidence ex parte.

RTC Judgment; Lack of Notice and Petition for Relief

After respondent’s ex parte presentation, the RTC rendered an order on January 14, 2003, entering judgment for respondent awarding principal, accrued interest, moral and exemplary damages, attorney’s fees, and costs. The petitioners did not receive copies of the orders declaring default or the January 14, 2003 judgment. On June 6, 2006 the petitioners filed a Petition for Relief from Judgment before the RTC, alleging lack of proper service and other defects.

RTC’s Grant of Petition for Relief and Motion to Dismiss

The petitioners also filed a Motion to Dismiss asserting that the RTC lacked jurisdiction because the principal claimed was only P75,000, an amount within the jurisdiction of the Metropolitan Trial Court (MeTC). On September 30, 2008 the RTC granted the petition for relief, set aside the January 14, 2003 order for lack of jurisdiction, and dismissed the complaint. The RTC denied respondent’s motion for reconsideration on March 2, 2009.

Court of Appeals Proceeding and Ruling

Respondent appealed to the Court of Appeals by Notice of Appeal, raising three assignments of error: (1) RTC erred in giving due course to the petition for relief; (2) RTC erred in granting the Motion to Dismiss; and (3) RTC erred in finding it lacked jurisdiction over the monetary claim of P489,000. The CA, in a decision dated August 31, 2012, reversed the RTC, holding that the P489,000 claimed in the amended complaint was inclusive of monetary interest which was an inseparable component of the cause of action and therefore must be included in determining jurisdiction. The CA reinstated the RTC’s January 14, 2003 judgment.

Petition for Review and Procedural Issue on Mode of Appeal

Petitioners filed a Petition for Review on Certiorari with the Supreme Court. The Supreme Court observed that appeals to the CA that raise only questions of law must be dismissed under the Rules of Court (Section 2, Rule 50) and that appeals from RTC to CA raising only questions of law taken via Notice of Appeal are improper. The Court concluded the CA should not have taken cognizance of an appeal raising purely legal issues via Notice of Appeal and that the appeal to the CA should have been dismissed for being the wrong mode of appeal.

Supreme Court’s Assessment of the Jurisdictional Issue on the Merits

Despite the procedural error by the CA in entertaining the appeal, the Supreme Court examined the substantive jurisdictional issue on the merits and agreed with the CA’s substantive conclusion. The Court analyzed BP 129 Section 19(8) and R.A. No. 7691 adjustments and explained the phrase “exclusive of interest” must be interpreted in context by the ejusdem generis principle. The Court distinguished between monetary (conventional) interest and compensatory (penalty) interest: monetary interest is a primary and inseparable component of the principal obligation when agreed by the parties, whereas compensatory interest is akin to damages and thus incidental. Because the P414,000 represented contractual monetary interest determinable at filing, it had to be included in computing the jurisdictional amount. Applying the adjusted jurisdictional thresholds in effect in 2001, the total claim of P489,000 placed the action within RTC original jurisdiction.

Reliance on Precedent and Conclusion on Jurisdiction

The Supreme Court relied on prior jurisprudence (notably Gomez v. Montalban) holding that stipulated monetary interest, when part of the cause of action and determinable at filing, is included in assessing the jurisdictional amount. Accordingly, the Court affirmed that the RTC had jurisdiction over respondent’s claim despite the relatively small principal.

Determination on the Agreed Interest Rate and Its Adjustment

The Court found the agreed interest rate of eight percent (8%) per month unconscionable. Applying controlling precedent on unconscionable stipulated rates, the Court reduced the conventional rate to the legal rate prevailing when the loan was contracted in 1995, i.e., twelve percent (12%) per annum. The Court ordered that monetary interest on the principal P75,000 be computed at 12% per annum from the date of default (extrajudicial demand on June 30, 1996) until the finality of the ruling.

Interest on Interest, Post-Judgment and Legal Interest

The Court further ordered that the conventional interest itself shall earn compensatory/legal interest: interest on the monetary interest (i.e., interest on interest) at 12% per annum from judicial

Case Syllabus (G.R. No. 212349)

Parties and Nature of the Case

Petitioners: Spouses Sergio D. Domasian and Nenita F. Domasian.
Respondent: Manuel T. Demdam.
Nature of action below: Collection of sum of money arising from a loan agreement; collateral procedural attacks in the form of Petition for Relief from Judgment and motions asserting lack of jurisdiction.
Relief sought in Supreme Court: Petition for Review on Certiorari dated June 20, 2014 seeking reversal of the Court of Appeals Decision dated August 31, 2012 and Resolution dated April 22, 2014 in CA‑G.R. CV No. 93727.

Factual Antecedents (Loan, Terms, Default)

On October 30, 1995 petitioners obtained a loan from respondent in the principal amount of P75,000.00.
Contractual terms between the parties: interest at eight percent (8%) per month; maturity date agreed to be on or before June 30, 1996.
Petitioners failed to pay principal and accrued interest when the loan became due, despite several demands.

Respondent’s Complaint; Amount Claimed; Amended Complaint

On August 1, 2001 respondent filed a Complaint for collection of sum of money in the RTC of Pasay City (Civil Case No. 01‑1227), claiming principal of P75,000.00 and accrued interest amounting to P414,000.00, for a total prayer of P489,000.00.
On August 9, 2001 respondent filed an amended complaint dropping one co‑defendant (Gil D. DoniAa).

Service of Summons and Alleged Lack Thereof

Summons were issued August 15, 2001 and process served at Lot 15, Block 1, Senate Village, Bagumbong, Novaliches.
Process server failed to personally serve petitioners because petitioners were no longer residing at that address and had been staying in Naga City for almost two years.
Petitioners contend they did not receive copies of the RTC Orders dated January 23, 2002 (default declared) nor the January 14, 2003 judgment (default judgment).

Procedural Events at the RTC (Default, Ex Parte Evidence, Judgment)

Respondent filed Motion to Declare Defendants in Default dated November 8, 2001 due to petitioners’ failure to answer.
RTC declared defendants in default by Order dated January 23, 2002 and directed respondent to present evidence ex parte.
After ex parte evaluation RTC rendered an Order/Judgment dated January 14, 2003 ruling for respondent and ordering petitioners to pay principal, accrued interest, moral and exemplary damages, attorney’s fees, and costs.

Petition for Relief from Judgment; Motion to Dismiss for Lack of Jurisdiction

Petitioners, who did not receive the default orders, filed a Petition for Relief from Judgment before the RTC on June 6, 2006.
Respondent filed Answer to the petition on November 14, 2006 denying alleged facts and merits of the petition.
Petitioners filed Reply (November 30, 2006) stressing noncompliance with rules on service of summons and substituted service.
RTC set hearing for June 10, 2008 on the Petition for Relief from Judgment.
On June 6, 2008 petitioners also filed a Motion to Dismiss, arguing RTC lacked jurisdiction because the principal amount claimed (P75,000.00) fell within the jurisdiction of the Metropolitan Trial Court (MeTC).

RTC Decision Granting Petition for Relief; Dismissal for Lack of Jurisdiction

RTC issued Decision dated September 30, 2008 granting petitioners’ Petition for Relief from Judgment via the Motion to Dismiss and SET ASIDE the Order dated January 14, 2003 for lack of jurisdiction; the amended complaint was DISMISSED.
Respondent’s motion for reconsideration was denied by the RTC in its Order dated March 2, 2009.

Appeal to the Court of Appeals (CA) — Assignments of Error

Respondent appealed to the CA via Notice of Appeal, assigning errors:
- RTC erred in giving due course to the Petition for Relief from Judgment.
- RTC erred in granting petitioners’ Motion to Dismiss.
- RTC erred in ruling that it had no jurisdiction over respondent’s monetary claim of P489,000.00 (P75,000 principal + P414,000 accrued interest).

CA Decision and Reasoning (August 31, 2012)

CA rendered Decision dated August 31, 2012 granting respondent’s appeal.
CA’s core holding: the amount claimed in the amended complaint was P489,000.00 inclusive of interest; the interest component was “a primary and inseparable component of the cause of action,” determinable at the time of filing; therefore interest must be included in determining which court has jurisdiction. Using the aggregate P489,000.00, the CA concluded the RTC had jurisdiction and reinstated the RTC’s January 14, 2003 Order.
CA emphasized that excluding monetary interest for jurisdictional computation would be erroneous where such interest is contractual and ascertainable at filing.

CA Resolution on Reconsideration (April 22, 2014)

Petitioners’ motion for reconsideration before the CA was denied in the CA Resolution dated April 22, 2014.

Issues Raised in the Supreme Court Petition

Petitioners’ principal contentions included:
- CA erred by entertaining respondent’s appeal via Notice of Appeal because the issues raised were pure questions of law (thus the wrong mode of appeal).
- CA erred in not dismissing the appeal for lack of jurisdiction because the issues were questions of law.
- CA erred in its finding that interest is included in the determination of jurisdictional amount.

Supreme Court: Preliminary Observations on Mode of Appeal and CA’s Reception of Pure Questions of Law

The Court reiterated that the Court of Appeals should not take cognizance of appeals that raise purely questions of law and quoted pertinent provisions of Rule 41 (Section 2) on modes of appeal and Rule 50 (Section 2) on dismissal of improper appeals to the CA.
Cited Mandaue Realty & Resources Corp. v. Court of Appeals for the law distinguishing questions of law from questions of fact and the test for such distinction.
The Supreme Court agreed that the CA erred procedurally in giving due course to an appeal by Notice of Appeal when only questions of law were raised — an appeal raising purely legal issues should have been dismissed under Section 2, Rule 50 of the Rules of Court.

Supreme Court’s Decision to Uphold CA on Jurisdictional Issue — Statutory Text Considered

Despite the procedural impropriety in CA’s taking of the appeal, the Supreme Court, after reviewing parties’ submissions, upheld the CA’s substantive finding that the RTC had jurisdiction.
The Court examined and quoted Section 19(8) of Batas Pambansa Blg. 129 (BP 129) on RTC jurisdiction in civil cases and the exclusio