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G.R. No. 212689, August 11, 2014 - ECE REALTY AND DEVELOPMENT, INC., Petitioner, v. HAYDYN HERNANDEZ,, Respondent.

G.R. No. 212689, August 11, 2014 - ECE REALTY AND DEVELOPMENT, INC., Petitioner, v. HAYDYN HERNANDEZ,, Respondent.

PHILIPPINE SUPREME COURT DECISIONS

THIRD DIVISION

G.R. No. 212689, August 11, 2014

ECE REALTY AND DEVELOPMENT, INC., Petitioner, v. HAYDYN HERNANDEZ,, Respondent.

R E S O L U T I O N

REYES, J.:

This is a Petition for Review on Certiorari1 from the Decision2 dated November 4, 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 120738, which affirmed with modification the Decision3 dated January 10, 2011 of the Office of the President (OP) in O.P. Case Number 09-D-152, entitled, “The Housing and Land Use Regulatory Board and Haydyn Hernandez v. ECE Realty and Development Corporation.” The fallo of the appellate court’s decision reads:chanRoblesvirtualLawlibrary

We AFFIRM the assailed Decision of the Office of the President in O.P. Case Number 09-D-152, with MODIFICATION: We DIRECT petitioner ECE REALTY AND DEVELOPMENT INC., to pay respondent Haydyn Hernandez, the amount of [?]452,551.65 (representing the total amount respondent Hernandez paid petitioner ECE), plus 6% interest per annum starting 07 September 2006, and 12% interest per annum from the time the judgment becomes final and executor[y], until fully paid.

IT IS SO ORDERED.4chanrobleslaw

On September 7, 2006, Haydyn Hernandez (respondent) filed a Complaint for specific performance, with damages, against Emir Realty and Development Corporation (EMIR) and ECE Realty and Development Incorporated (ECE) before the Housing and Land Use Regulatory Board Expanded National Capital Region Field Office (HLURB-Regional Office). The respondent alleged that ECE and EMIR, engaged in condominium development and marketing, respectively, sold to him a 30-square meter condominium unit in the “Harrison Mansion” described as Unit 808, Building B, Phase 1 (Unit 808).  On July 22, 1997 the respondent paid the reservation fee of P35,000.00, and on August 2, 1997 he paid P104,063.65 to complete the downpayment.5  In the parties’ Contract to Sell6 dated November 5, 1997, EMIR and ECE promised that Unit 808 would be ready for occupancy by December 31, 1999.

EMIR and ECE failed to deliver Unit 808 to the respondent on December 31, 1999, by which date he had already paid a total of P452,551.65.  Moreover, the respondent discovered that Unit 808 contained only 26 sq m, not 30 sq m as contracted, thus, he asked for a corresponding reduction in the price by P120,000.00, based on the price per sq m of P30,000.00.  Instead, EMIR and ECE demanded that he settle all his amortizations in arrears with interest.  Sometime in 2005, the respondent learned that EMIR and ECE had sold Unit 808 to a third party.7cralawred

The respondent in his complaint in the HLURB asked that EMIR and ECE be ordered to accept his payment of the balance of the price of Unit 808, less P120,000.00, without interest; and to pay him moral damages of P500,000.00, actual damages of P100,000.00, exemplary damages of P100,000.00, and attorney’s fees of P50,000.00 plus P2,000.00 per appearance fee.  If Unit 808 is no longer available, the respondent asked that EMIR and ECE reimburse him the amount of P452,551.65 he paid, plus legal interest.8cralawred

In their Answer with Counterclaim, EMIR and ECE sought to dismiss the complaint for lack of cause of action, and to drop EMIR as defendant because it has no contractual relations with the respondent.9  They alleged  that the respondent unjustifiably refused to accept the turn-over of Unit 808, that he was duly given a Grace Period Notice10 that he was in arrears in his monthly amortizations, but the respondent let the said period lapse without settling his past-due amortizations.  Thus, ECE was compelled to cancel his contract to sell, invoking Republic Act No. 6552 (An Act to provide protection to buyers of Real Estate on Installment Payments).  EMIR and ECE also sought exemplary damages, attorney’s fees, and litigation expenses.

On May 12, 2008, the HLURB-Regional Office ordered EMIR and ECE to reimburse the respondent the amount of P452,551.65, plus legal interest, from the filing of the complaint, and to pay the respondent P50,000.00 as moral damages, P50,000.00 as attorney’s fees, and P50,000.00 as exemplary damages.11cralawred

EMIR and ECE appealed to the HLURB Board of Commissioners, which in its Decision12 dated January 23, 2009 upheld the HLURB-Regional Office but dropped EMIR as defendant.

ECE appealed to the OP, but the OP in its Decision13 dated January 10, 2011 dismissed ECE’s appeal.  On July 5, 2011, the OP denied ECE’s motion for reconsideration.

On petition for review to the CA, ECE argued that the OP erred in affirming the rescission of the parties’ contract to sell and the order to refund the respondent’s payments with legal interest from filing of the complaint, along with the award of moral and exemplary damages and attorney’s fees to the respondent.  ECE pointed out that the respondent did not ask for rescission and refund on account of the delay in the delivery of Unit 808, but only for a reduction in the price.  It further argued that interest may be imposed only from finality of judgment.  Insisting that it was not in bad faith, ECE sought the deletion of the award for damages and attorney’s fees, saying also that they are excessive.

In upholding the OP, the CA cited Section 23 of Presidential Decree (P.D.) No.  957 (Regulating the Sale of Subdivision Lots and Condominiums, Providing for Penalties for Violations Thereof), which reads:chanRoblesvirtualLawlibrary

Sec. 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate.

The CA found that the respondent duly notified ECE that he was suspending his subsequent amortizations because of the delayed delivery of Unit 808.  The CA then ruled that under P.D. No. 957, when the owner of the subdivision or condominium fails to develop the same according to the plan within the period agreed, the buyer, after notifying the owner, may desist from paying the balance, and may demand the reimbursement of all that he has paid.  ECE failed to deliver Unit 808 on or before December 31, 1999, even as the said unit measured only 26 sq m, not 30 sq m as agreed.  As also found by the CA, by ECE’s own evidence Unit 808 was ready for inspection only on June 28, 2002, or two and a half years after the agreed date of delivery.  But the CA deleted the award of moral and exemplary damages, finding that ECE did not act in bad faith, while sustaining the award of P50,000.00 as attorney’s fees pursuant to Article 2208 (2) of the Civil Code, since ECE’s act or omission compelled the respondent to litigate.

On the imposition of six percent (6%) interest, the appellate court cites Eastern Shipping Lines, Inc. v. Court of Appeals14 and in Fil-Estate Properties, Inc. v. Spouses Go,15 the amount to be refunded being neither a loan nor a forbearance of money, goods or credit.

On petition to this Court, the petitioner ECE reiterated all the arguments it proffered before the CA.

Our Ruling

We resolve to affirm the CA decision with modification, by reducing the interest imposable after finality from twelve percent (12%) to six percent (6%).

Article 2209 of the New Civil Code provides that “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.”  There is no doubt that ECE incurred in delay in delivering the subject condominium unit, for which reason the trial court was justified in awarding interest to the respondent from the filing of his complaint.  There being no stipulation as to interest, under Article 2209 the imposable rate is six percent (6%) by way of damages, following the guidelines laid down in the landmark case of Eastern Shipping Lines v. Court of Appeals:16cralawred

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.17

As further clarified in Sunga-Chan, et al. v. Court of Appeals, et al.:18cralawred

In Reformina v. Judge Tomol, Jr., the Court held that the legal interest at 12% per annum under Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or forbearance of money.  And for transactions involving payment of indemnities in the concept of damages arising from default in the performance of obligations in general and/or for money judgment not involving a loan or forbearance of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides:chanRoblesvirtualLawlibrary

Art. 2209.  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.

The term “forbearance,” within the context of usury law, has been described as a contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due and payable.

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.”19 (Emphasis ours)

Thus, from the finality of the judgment awarding a sum of money until it is satisfied, the award shall be considered a forbearance of credit, regardless of whether the award in fact pertained to one.20  Pursuant to Central Bank Circular No. 416 issued on July 29, 1974, in the absence of written stipulation the interest rate to be imposed in judgments involving a forbearance of credit was twelve percent (12%) per annum, up from six percent (6%) under Article 2209 of the Civil Code.  This was reiterated in Central Bank Circular No. 905, which suspended the effectivity of the Usury Law beginning on January 1, 1983.

But since July 1, 2013, the rate of twelve percent (12%) per annum from finality of the judgment until satisfaction has been brought back to six percent (6%).  Section 1 of Resolution No. 796 of the Monetary Board of the Bangko Sentral ng Pilipinas dated May 16, 2013 provides: “The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.”  Thus, the rate of interest to be imposed from finality of judgments is now back at six percent (6%), the rate provided in Article 2209 of the Civil Code.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 120738 is AFFIRMED with MODIFICATION.  Petitioner ECE Realty and Development, Inc. is hereby ordered to pay respondent Haydyn Hernandez the amount of P452,551.65 representing the total amount he paid to petitioner ECE Realty and Development Incorporated, plus six percent (6%) interest per annum from September 7, 2006 until finality hereof by way of actual and compensatory damages.  From finality until full satisfaction, the total amount due now compounded with interest due from September 7, 2006 up to finality, shall likewise earn interest at six percent (6%) per annum until fully paid.

SO ORDERED.

Sereno, C.J., Chairperson, Bersamin,* Villarama, Jr., and Mendoza,**JJ., concur.

Endnotes:


* Acting working chairperson per Special Order No. 1741 dated July 31, 2014 vice Associate Justice Teresita J. Leonardo-De Castro.

** Acting member per Special Order No. 1738 dated July 31, 2014 vice Associate Justice Teresita J. Leonardo-De Castro.

1Rollo, pp. 9-25.

2 Penned by Associate Justice Nina G. Antonio-Valenzuela, with Associate Justices Isaias P. Dicdican and Michael P. Elbinias, concurring; rollo, pp. 43-52.

3 Id. at 71-73.

4 Id. at 11.

5 Id. at 44.

6 Id. at 89-90.

7 Id. at 44.

8 Id. at 45.

9 Id. at 45.

10 Id. at 94.

11 Id. at 46.

12 Id. at 79-83.

13 Id. at 75-77.

14 G..R. No. 97412, July 12, 1994, 234 SCRA 78.

15 557 Phil. 377 (2007).

16 Supra note 14.

17 Id. at 95-97.

18 578 Phil. 262 (2008).

19 Id. at 276-277.

20Penta Capital Finance Corporation v. Bay, G.R. No. 162100, January 18, 2012, 663 SCRA 192, 213.
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