Bobie Rose V. Frias vs Flora San Diego-Sison

Posted: April 12, 2017 in case digests, civil law, torts
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Bobie Rose V. Frias vs Flora San Diego-Sison

GR No. 155223, April 4, 2007

 

FACTS:

 

Bobie Rose Frias owns a house and lot acquired from Island Masters Reality and Development Corporation (IMRDC) through a Deed of Sale and covered by transfer certificate of title (TCT) in the name of IRMDC.

 

Frias, as the First Party, and Dra. Flora San Diego-Sison as the Second Party, entered into a Memorandum of Agreement (MOA) over the property with the following terms and conditions:

 

“xxx for and in consideration of the sum of P3,000,000.00 receipt of which is hereby acknowledged by the FIRST PARTY from the SECOND PARTY, the parties have agreed as follows:

 

  1. That the SECOND PARTY has a period of 6 months from the date of the execution of this contract xxx to notify the FIRST PARTY of her intention to purchase xxx at a price of P6,400,000.00 xxx another six months within which to pay the remaining balance of P3.4 million.
  2. xxx
  3. That in case the FIRST PARTY has no other buyer within the first six months from the six months from the execution of this contract, no interest shall be charged by the SECOND PARTY on the P3million however, in the event that on the sixth month the SECOND PARTY would decide not to purchase the aforementioned property, the FIRST PARTY has a period of another six months within which to pay the sum of P3 million pesos provided that the said amount shall earn compounded bank interest for the last six months only. Under this circumstance, the amount of P3 million given by the SECOND PARTY shall be treated as a loan and the property shall be considered as the security for the mortgage which can be enforced in accordance with law.”

 

Frias received from San Diego-Sison P2million cash and P1million post-dated check dated February 28, 1990, instead of 1991, which rendered the check stale. Frias then gave  the TCT in the name of IRMDC and the Deed of Absolute Sale over the property between Frias and IRMDC.

 

San Diego-Sison decided not to purchase the property and informed Frias through a letter reminding of the agreement that the amount  of P2Million be considered as a loan payable within 6 months. However, Frias failed to pay San Diego-Sison who later filed a complaint for sum of money with preliminary attachment. Also, San Diego-Sison averred that Frias tried to deprive her of the security for the loan when Frias made a false report of the loss of her owner’s copy of the TCT and be issued a new owner’s duplicate copy of said title.

 

The trial court ordered Frias to pay San Diego-Sison the sum of P2million plus interest at the rate of 32% per annum beginning December 7, 1991 due to the compounded interest stipulated in the MOA. The appellate court affirmed the trial court’s decision but modified the rate of interest from 32% to 25% effective June 7, 1991 when the interest rate prevailing in 1991 ranged from 25% to 32% per annum and that the P2Million was considered as a loan in June 1991.

 

Frias argued that the interest rate was contrary to the MOA because it provided that if San Diego-Sison would decide not to purchase the property, Frias has the period of another six  months to pay the loan with compounded bank interest for the last six months only.

 

 

ISSUES:

 

  • Whether the compounded bank interest should be limited to 6 months only as stipulated in the contract.

 

  • Whether CA committed error in awarding 25% interest per annum on the 2million peso loan even beyond the second 6 months stipulated period.

 

  • Whether San Diego-Sison is entitled to moral damages.

 

HELD:

 

 

  • The Court said that the phrase “for the last six months only” should be taken in the context of the entire agreement. It agreed with CA’s interpretation of the phrase:

 

“Their agreement speaks of two periods of six months each. The first six- month period was given to plaintiff-appellee (respondent) to make up her mind whether or not to purchase defendant-appellant’s (petitioner’s) property.  The second six-month period was given to defendant-appellant to pay the P2 million loan in the event that plaintiff-appellee decided not to buy the subject property in which case interest will be charged “for the last six months only”, referring to the second six-month period.  This means that no interest will be charged for the first six-month period while appellee was making up her mind whether to buy the property, but only for the second period of six months after appellee  had decided not to buy the property.  This is the meaning of the phrase “for the last six months only”. Certainly, there is nothing in their agreement that suggests that interest will be charged for six months only even if it takes defendant-appellant an eternity to pay the loan.”

 

Having considered it as a loan, the monetary interest for the last six months continued to accrue until actual payment of the loaned amount.

 

The court further explained why interest must be paid:

 

“ The payment of regular interest constitutes the price or cost of the use of money and thus, until principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount.  It has been held that for a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of the creditor.”

 

  • The Court found no error in awarding 25% interest per annum on the P2Million loan even beyond the six months stipulated period. “The general rule is that if the terms of an agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail. It is further required that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.” Besides, Frias and San Diego-Sison agreed and as stipulated in the contract that the loaned amount shall earn compounded bank interests.

 

Yes. The court agreed with “the findings of the trial court and the CA that petitioner’s act of trying to deprive respondent of the security of her loan by executing an affidavit of loss of the title and instituting a petition for the issuance of a new owner’s duplicate copy of TCT No. 168173 entitles respondent to moral damages. Moral damages may be awarded in culpa contractual or breach of contract cases when the defendant acted fraudulently or in bad faith. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong.  It partakes of the nature of fraud.” Xxx “Petitioner’s actuation would have deprived respondent of the security for her loan were it not for respondent’s timely filing of a petition for relief whereby the RTC set aside its previous order granting the issuance of new title.  Thus, the award of moral damages is in order

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