G.R. No.

175139 April 18, 2012

HERMOJINA ESTORES, Petitioner, vs. SPOUSES ARTURO and LAURA SUPANGAN, Respondents.

DECISION

DEL CASTILLO, J.:

The only issue posed before us is the propriety of the imposition of interest and attorneys fees.

Assailed in this Petition for Review1 filed under Rule 45 of the Rules of Court is the May 12, 2006 Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 83123, the dispositive portion of which reads:

WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (6%) per annum, computed from September 27, 2000 until its full payment before finality of the judgment. If the adjudged principal and the interest (or any part thereof) remain unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per annum, computed from the time the judgment becomes final and executory until it is

fully satisfied. The award of attorneys fees is hereby reduced to P100,000.00. Costs against the defendantsappellants.

SO ORDERED.3

Also assailed is the August 31, 2006 Resolution4 denying the motion for reconsideration.

Factual Antecedents

On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan entered into a Conditional Deed of Sale5 whereby petitioner offered to sell, and respondent-spouses offered to buy, a parcel of land covered by Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum ofP4.7 million. The parties likewise stipulated, among others, to wit:

xxxx

1. Vendor will secure approved clearance from DAR requirements of which are (sic):

a) Letter request

b) Title

c) Tax Declaration

d) Affidavit of Aggregate Landholding Vendor/Vendee

e) Certification Vendor/Vendee

from

the

Provl.

Assessors

as

to

Landholdings

of

f) Affidavit of Non-Tenancy

g) Deed of Absolute Sale

xxxx

4. Vendee shall be informed as to the status of DAR clearance within 10 days upon signing of the documents.

xxxx

6. Regarding the house located within the perimeter of the subject [lot] owned by spouses [Magbago], said house shall be moved outside the perimeter of this subject property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts the responsibility of seeing to it that such agreement is carried out before full payment of the sale is made by vendee.

7. If and after the vendor has completed all necessary documents for registration of the title and the vendee fails to complete payment as per agreement, a forfeiture fee of 25% or downpayment, shall be applied. However, if the vendor fails to complete necessary documents within thirty days without any sufficient reason, or without informing the vendee of its status, vendee has the right to demand return of full amount of down payment.

xxxx

9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall be informed immediately of its approval by the LRC.

10. The vendor assures the vendee of a peaceful transfer of ownership.

xxxx6

After almost seven years from the time of the execution of the contract and notwithstanding payment of P3.5 million on the part of respondent-spouses, petitioner still failed to comply with her obligation as expressly provided in paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a letter7 dated September 27, 2000, respondent-spouses demanded the return of the amount of P3.5 million within 15 days from receipt of the letter. In reply,8 petitioner acknowledged receipt of the P3.5 million and promised to return the same within 120 days. Respondent-spouses were amenable to the proposal provided an interest of 12% compounded annually shall be imposed on the P3.5 million.9 When petitioner still failed to return the amount despite demand, respondent-spouses were constrained to file a Complaint10 for sum of money before the Regional Trial Court (RTC) of Malabon against herein petitioner as well as Roberto U. Arias (Arias) who allegedly acted as

petitioners agent. The case was docketed as Civil Case No. 3201-MN and raffled off to Branch 170. In their complaint, respondent-spouses prayed that petitioner and Arias be ordered to:

1. Pay the principal amount of P3,500,000.00 plus interest of 12% compounded annually starting October 1, 1993 or an estimated amount of P8,558,591.65;

2. Pay the following items of damages:

a) Moral damages in the amount of P100,000.00;

b) Actual damages in the amount of P100,000.00;

c) Exemplary damages in the amount of P100,000.00;

d) [Attorneys] fee in the amount of P50,000.00 plus 20% of recoverable amount from the [petitioner].

e) [C]ost of suit.11

In their Answer with Counterclaim,12 petitioner and Arias averred that they are willing to return the principal

amount of P3.5 million but without any interest as the same was not agreed upon. In their Pre-Trial Brief,13 they

reiterated that the only remaining issue between the parties is the imposition of interest. They argued that since the Conditional Deed of Sale provided only for the return of the downpayment in case of breach, they cannot be held liable to pay legal interest as well.14

In its Pre-Trial Order15 dated June 29, 2001, the RTC noted that "the parties agreed that the principal amount of 3.5 million pesos should be returned to the [respondent-spouses] by the [petitioner] and the issue remaining [is] whether x x x [respondent-spouses] are entitled to legal interest thereon, damages and attorneys fees."16

Trial ensued thereafter. After the presentation of the respondent-spouses evidence, the trial court set the presentation of Arias and petitioners evidence on September 3, 2003.17 However, despite several postponements, petitioner and Arias failed to appear hence they were deemed to have waived the presentation of their evidence. Consequently, the case was deemed submitted for decision.18

Ruling of the Regional Trial Court

On May 7, 2004, the RTC rendered its Decision19 finding respondent-spouses entitled to interest but only at the rate of 6% per annum and not 12% as prayed by them.20 It also found respondent-spouses entitled to

attorneys fees as they were compelled to litigate to protect their interest.21

The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent-spouses] and ordering the [petitioner and Roberto Arias] to jointly and severally:

1. Pay [respondent-spouses] the principal amount of Three Million Five Hundred Thousand pesos (P3,500,000.00) with an interest of 6% compounded annually starting October 1, 1993 and attorneys fee in the amount of Fifty Thousand pesos (P50,000.00) plus 20% of the recoverable amount from the defendants and cost of the suit.

The Compulsory Counter Claim is hereby dismissed for lack of factual evidence.

SO ORDERED.22

Ruling of the Court of Appeals

Aggrieved, petitioner and Arias filed their notice of appeal.23 The CA noted that the only issue submitted for its

resolution is "whether it is proper to impose interest for an obligation that does not involve a loan or forbearance of money in the absence of stipulation of the parties."24

On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of the RTC finding the imposition of 6% interest proper.25 However, the same shall start to run only from September 27, 2000 when respondentspouses formally demanded the return of their money and not from October 1993 when the contract was executed as held by the RTC. The CA also modified the RTCs ruling as regards the liability of Arias. It held that Arias could not be held solidarily liable with petitioner because he merely acted as agent of the latter. Moreover, there was no showing that he expressly bound himself to be personally liable or that he exceeded the limits of his authority. More importantly, there was even no showing that Arias was authorized to act as agent of petitioner.26Anent the award of attorneys fees, the CA found the award by the trial court (P50,000.00 plus 20% of the recoverable amount) excessive27 and thus reduced the same to P100,000.00.28

The dispositive portion of the CA Decision reads:

WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (6%) per annum,

computed from September 27, 2000 until its full payment before finality of the judgment. If the adjudged principal and the interest (or any part thereof) remain[s] unpaid thereafter, the interest rate shall be adjusted to

twelve percent (12%) per annum, computed from the time the judgment becomes final and executory until it is fully satisfied. The award of attorneys fees is hereby reduced to P100,000.00. Costs against the [petitioner].

SO ORDERED.29

Petitioner moved for reconsideration which was denied in the August 31, 2006 Resolution of the CA.

Hence, this petition raising the sole issue of whether the imposition of interest and attorneys fees is proper.

Petitioners Arguments

Petitioner insists that she is not bound to pay interest on the P3.5 million because the Conditional Deed of Sale only provided for the return of the downpayment in case of failure to comply with her obligations. Petitioner also argues that the award of attorneys fees in favor of the respondent-spouses is unwarranted because it cannot be said that the latter won over the former since the CA even sustained her contention that the imposition of 12% interest compounded annually is totally uncalled for.

Respondent-spouses Arguments

Respondent-spouses aver that it is only fair that interest be imposed on the amount they paid considering that petitioner failed to return the amount upon demand and had been using the P3.5 million for her benefit. Moreover, it is undisputed that petitioner failed to perform her obligations to relocate the house outside the perimeter of the subject property and to complete the necessary documents. As regards the attorneys fees, they claim that they are entitled to the same because they were forced to litigate when petitioner unjustly withheld the amount. Besides, the amount awarded by the CA is even smaller compared to the filing fees they paid.

Our Ruling

The petition lacks merit.

Interest may be imposed even in the absence of stipulation in the contract.

We sustain the ruling of both the RTC and the CA that it is proper to impose interest notwithstanding the absence of stipulation in the contract. Article 2210 of the Civil Code expressly provides that "[i]nterest may, in

the discretion of the court, be allowed upon damages awarded for breach of contract." In this case, there is no question that petitioner is legally obligated to return the P3.5 million because of her failure to fulfill the obligation under the Conditional Deed of Sale, despite demand. She has in fact admitted that the conditions were not fulfilled and that she was willing to return the full amount of P3.5 million but has not actually done so. Petitioner enjoyed the use of the money from the time it was given to her30 until now. Thus, she is already in default of her obligation from the date of demand, i.e., on September 27, 2000.

The interest at the rate of 12% is applicable in the instant case.

Anent the interest rate, the general rule is that the applicable rate of interest "shall be computed in accordance with the stipulation of the parties."31 Absent any stipulation, the applicable rate of interest shall be 12% per annum "when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%)."32 In this case, the parties did not stipulate as to the applicable rate of interest. The only question remaining therefore is whether the 6% as provided under Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due.

The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the contract provides that the seller (petitioner) must return the payment made by the buyer (respondent-spouses) if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as the seller

(petitioner) has admitted this. (respondent-spouses), the seller

Notwithstanding

demand

by

the

buyer

(petitioner) has failed to return the money and

should be considered in default from the time that demand was made on September 27, 2000.

Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be considered as a forbearance of money which required payment of interest at the rate of 12%? We believe so.

In Crismina Garments, Inc. v. Court of Appeals,33 "forbearance" was defined as a "contractual obligation of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debtthen due and payable." This definition describes a loan where a debtor is given a period within which to pay a loan or debt. In such case, "forbearance of money, goods or credits" will have no distinct definition from a loan. We believe however, that the phrase "forbearance of money, goods or credits" is meant to have a separate meaning from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in the Civil Code.34 Forbearance of money, goods or credits should therefore refer

to arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions. In this case, the respondent-spouses parted with their money even before the conditions were fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment of the conditions. They were deprived of the use of their money for the period pending fulfillment of the conditions and when those conditions were breached, they are entitled not only to the return of the principal amount paid, but also to compensation for the use of their money. And the compensation for the use of their money, absent any stipulation, should be the same rate of legal interest applicable to a loan since the use or deprivation of funds is similar to a loan.

Petitioners unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts to forbearance of money which can be considered as an involuntary loan. Thus, the applicable rate of interest is 12% per annum. In Eastern Shipping Lines, Inc. v. Court of Appeals,35cited in Crismina Garments, Inc. v. Court of Appeals,36 the Court suggested the following guidelines:

I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasidelicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages.

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.37

Eastern Shipping Lines, Inc. v. Court of Appeals38and its predecessor case, Reformina v. Tongol39 both involved torts cases and hence, there was no forbearance of money, goods, or credits. Further, the amount claimed (i.e., damages) could not be established with reasonable certainty at the time the claim was made. Hence, we arrived at a different ruling in those cases.

Since the date of demand which is September 27, 2000 was satisfactorily established during trial, then the interest rate of 12% should be reckoned from said date of demand until the principal amount and the interest thereon is fully satisfied.1wphi1

The award of attorneys fees is warranted.

Under Article 2208 of the Civil Code, attorneys fees may be recovered:

xxxx

(2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

xxxx

(11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered.

In all cases, the attorneys fees and expenses of litigation must be reasonable.

Considering the circumstances of the instant case, we find respondent-spouses entitled to recover attorneys fees. There is no doubt that they were forced to litigate to protect their interest, i.e., to recover their money. However, we find the amount of P50,000.00 more appropriate in line with the policy enunciated in Article 2208 of the Civil Code that the award of attorneys fees must always be reasonable.

WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court of Appeals in CAG.R. CV No. 83123 is AFFIRMED with MODIFICATIONS that the rate of interest shall be twelve percent (12%)

per annum, computed from September 27, 2000 until fully satisfied. The award of attorneys fees is further reduced to P50,000.00.

SO ORDERED.

G.R. No. 133877 November 14, 2001

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. ALFA RTW MANUFACTURING CORPORATION, BA FINANCE CORPORATION, NORTH AMERICAN GARMENTS CORPORATION, JOHNNY TENG, RAMON LEE, ANTONIO LACDAO, RAMON LUY and ALFA INTEGRATED TEXTILE MILLS, respondents.

SANDOVAL-GUTIERREZ, J.:

Petitioner for review on certiorari assailing the decision of the Court of Appeals in CA-G.R. C.V. no. 42293.

On March 12, 1982, Rizal Banking Corporation (RCBC) filed with the Regional Trial Court of Makati, Branch 145, Civil Case No. 2624 for a sum of money against Alfa RTW Manufacturing Corporation, Johnny Teng, Ramon Lee, Antonio Lacdao, Ramon Luy and Alfa Integrated Textile Mills. Asserting a superior right over the property involved in the suit, North Atlantic Garments Corporation filed a complaint in intervention. BA Finance Corporation, claiming as mortgagee of the same property, filed an answer in intervention. After hearing, the

trial court rendered judgment on August 19, 1991, the dispositive portion1 of which reads:

"WHEREFORE, judgment is rendered in favor of plaintiff as follows:

1. Ordering all defendants to pay, jointly and severally, to plaintiff the amount of Eighteen Million Nine Hundred Sixty-one Thousand Three Hundred Seventy-two Pesos and Fortythree Centavos (P18,961,372.43), Philippine Currency, (inclusive of interest, service charges, litigation expenses and attorneys fees), with interest thereon at the legal rate from February 15, 1988 until fully paid. The proceeds from the sale of defendant Alfas ready to wear apparel, in the sum of P73,133.70, should be deducted from the principal obligation of P18,961,372.43;

2. Declaring that the respective liens of intervenors BA Finance Corporation and North American Garments Corporation over the properties attached by the sheriff are inferior to that of plaintiff.

3. Ordering defendants and intervenors to pay the proportionate costs.

"SO ORDERED."

On appeal, the Court of Appeals affirmed with modification2 the RTC decision, thus:

"WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED, with the modification that instead of P18,961,372.43, all the defendants are hereby ordered to pay, jointly and severally to plaintiff the amount of P3,060,406.25, Philippine Currency, inclusive of stipulated interest, service charges, litigation expenses and attorneys fees, with interest thereon at the legal rate from February 15, 1988, until fully paid.

"All other disquisitions of the trial court are hereby AFFIRMED.

"SO ORDERED."

In this petition, RCBC questions the Court of Appeals decision insofar as it modified the RTC decision by decreasing the award in its favor from P18,961.372.43 to P3,060,406.25. In assailing the Court of Appeals decision, petitioner RCBC raises a question of law, that is, whether or not the Court of Appeals can deviate from the provisions of the contract between the parties, which contract is the law between them.

The facts as summarized by the Court of Appeals are:

"From the records of the case, it appears that defendant Alfa RTW Manufacturing Corporation (Alfa RTW), on separate instances, had applied for and was granted by the plaintiff Rizal Commercial Banking Corporation (RCBC) four Letters of Credit (RO-80/2487, RO-80/2789, RO-80/D-1795 and RO81/D-1800 marked as Exhibits "A", "D", "G", and "J", respectively) to facilitate its purchase of raw materials for its garments business. Upon such letters of credit, corresponding bills of exchange (Exhibits "B", "E", "H", and "K") of various amounts were drawn, and charged to the account of said defendants.

The defendant Alfa RTW, in turn, had executed four Trust Receipts (Exhibits "C", "F", "I" and "L"), stipulating that it had received in trust for the plaintiff bank the goods and merchandise described therein, and which were purchased with the drawings upon the letters of credit.

When the obligations upon the said commercial documents became due, the plaintiff demanded payment of the defendants undertakings, citing two documents allegedly executed by the individual defendants Johnny Teng, Ramon Lee, Antonio D. Lacdao and Ramon Uy and Alfa Integrated Textile

Mills Inc. (Alfa ITM), labeled Comprehensive Surety Agreements (Exhibits "N" and "M") dated September 8, 1978 and October 10, 1979.

Under such Comprehensive Surety Agreements, it was essentially agreed that for and in consideration of any existing indebtedness to plaintiff bank of defendant Alfa RTW and/or in order to induce the plaintiff bank at any time thereafter to make loans or advances or increases thereof or to extend credit in any other manner to or for the account of defendant, Alfa ITM and the signatory officers agreed to guarantee in joint and several capacity the punctual payment at maturity to plaintiff bank of any and all such indebtedness and/or other obligations and also any and all indebtedness of every kind which was then or may thereafter become due or owing to plaintiff bank by the defendant Alfa RTW, together with any and all expenses of collection, etc., provided, however, that the liability of individual defendants and defendant Alfa Integrated Textile Mills, Inc. thereunder shall not exceed the sum of P4,000,000.00 and P7,500,000.00 and such interest as may accrue thereon and expenses as may be incurred by plaintiff bank. (p. 4, Complaint)"

Petitioner RCBC contends that the Court of Appeals erred in awarding to it the minimal sum of P3,060,406.25 instead of P18,961,372.43 granted by the trial court.

The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of Appeals via Rule 45 of the 1997 Rules of Civil Procedure, as amended, is limited to reviewing errors of law. Findings of fact of the latter court are conclusive, except in a number of instances. In Siguan vs. Lim3 this Court enumerated those instances when the factual findings of the Court of Appeals are not deemed conclusive, to wit: (1) when the conclusion is a finding grounded entirely on speculations, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both the appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and

contradicted by the evidence on record.

In the case at bar, exception No. 6 is present. Here, the Court of Appeals made findings "contrary to the admissions" of the parties. We refer to the terms and conditions agreed upon by petitioner RCBC and respondent borrowers in the Trust Receipts4 and the Comprehensive Surety Agreements.5

Significantly, the validity of those contracts is not being questioned. It follows that the very terms and conditions of the same contracts become the law between the parties.

Herein lies the reversible error on the part of the Court of Appeals. When it ruled that only P3,060,406.25 should be awarded to petitioner RCBC, the Appellate Court disregarded the parties stipulations in their

contracts of loan, more specifically, those pertaining to the agreed (1) interest rates, (2) service charges and (3) penalties in case of any breach thereof.6 Indeed, the Court of Appeals failed to apply this time-honored doctrine:

"That which is agreed to in a contract is the law between the parties. Thus, obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith."7

"The Court cannot vary the terms and conditions therein stipulated unless such stipulation is contrary to law, morals, good customs, public order or public policy."8

In relation to the determination and computation of interest payments, this Court, in Eastern Shipping Lines, Inc. vs. Court of Appeals,9 through Mr. Justice Jose C. Vitug, held:

"The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of

clarification and reconciliation, to suggest the following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasidelicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

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.." (Emphasis

supplied).

The case now before us involves an obligation arising from a letter of credittrust receipt transaction. Under this arrangement, a bank extends to a borrower a loan covered by the letter of credit, with the trust receipt as security of the loan.10 A trust receipt is "a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise,

and who may not be able to acquire credit except thru utilization, as collateral, of the merchandise imported or purchased."11

In contracts contained in trust receipts, the contracting parties may establish agreements, terms and conditions they may deem advisable, provided they are not contrary to law, morals or public order.12 In the case at bar, there are specific amounts of interest, service charges and penalties agreed upon by the parties. Pertinent provisions in the four (4) trust receipts (TR. No. 1909, TR. No. 1932, TR. No. 1732, and TR No. 2065)13 read:

"All obligations of the undersigned under this Trust Receipt shall bear interest at the rate of sixteen per centum (16%) per annum plus service charge of two per centum (2%) per annum from the date of the execution of this Trust Receipt until paid. It is expressly agreed and understood that regardless of the maturity date hereof, I/we hereby authorize the said Bank to correspondingly increase the interest of this Trust Receipt to the extent allowed by law without notice to me/us whenever the Central Bank of the Philippines raises the interest on borrowings of Banks or the interest provided for in the Usury Law, or whenever, in the sole judgment of the holder of this Trust Receipt is warranted by the increase in

money market rates or by similar events.

Without prejudice to the criminal action that may be brought by the Bank against the entrustee by reason of default or breach of this Trust Receipt, I/we agree to pay a penalty and/or liquidated damages equivalent to six per centum (6%) per annum of the amount due and unpaid.

In the event of the bringing of any action or suit by you or any default of the undersigned hereunder: I/we shall on demand pay you reasonable attorneys and other fees and cost of collection, which shall in no case be less than ten per centum (10%) of the value of the property and the amount involved by the action or suit.

If there are two or more signatories on this Trust Receipt, our obligations hereunder shall in all cases be joint and several."

Applying the above-quoted rules of thumb in the computation of interest, as enunciated by this Court in Eastern Shipping Lines, Inc.,14 the principal amount of loans corresponding to each trust receipt must earn an interest at the rate of sixteen percent (16%) per annum15 with the stipulated service charge of two percent (2%) per

annum on the loan principal or the outstanding balance thereof,16 from the date of execution until finality of this Decision.17 A penalty of six percent (6%) per annum of the amount due and unpaid must also be imposed computed from the date of demand (in this case on March 9, 1982),18 until finality of Judgment.19 The interest of 16% percent per annum, as long as unpaid, also earns interest, computed from the date of the filing of the complaint (March 12, 1982) until finality of this Courts Decision.20 From such date of finality, the total unpaid amount (principal + interest + service charge + penalty + interest on the interest) computed shall earn interest of 12% per annum until satisfied.1wphi1.nt

The Court of Appeals awarded only the sum of P3,060,406.25 as it was the amount prayed for in the complaint. The Appellate Court, however, failed to consider that the complaint was filed on March 12, 1982, or just a year after the execution of the trust receipts. The computed interests then, the service charge, the penalty and the attorneys fees corresponded only to one year. The interest on the interest could not have been computed then since the finality of judgment could not yet be ascertained. Significantly, from the filing of the complaint on March 12, 1982 up to the time the Appellate Courts decision was promulgated, on May 14, 1998, there had been a lapse of sixteen years. The computed interest in 1982 would no longer be true in 1998.

What the Appellate Court should have done then was to compute the total amount due in accordance with the rules of thumb laid down by this Court in Eastern Shipping Lines, Inc.,21 the resulting formula of which is as follows:

TOTAL AMOUNT DUE = principal + interest + service charge + penalty + interest on interest

Interest = principal x 16 % per annum x no. of years from date of execution until finality of judgment

Service charge = principal x 2% per annum x no. of years from date of execution until finality of judgment

Penalty = principal x 6% per annum x no. of years from demand (March 9, 1982) until finality of judgment

Interest on interest = Interest computed as of the filing of the complaint (March 12, 1982) x 12% x no. of years until finality of judgment

Attorneys fees is 10% of the total amount computed as of finality of judgment

Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid.

The total amount due corresponding to each of the four (4) contracts of loan may be easily determined by the trial court through a simple mathematical computation based on the formula specified above. Mathematics is an exact science, the application of which needs no further proof from the parties.

WHEREFORE, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is MODIFIED in the sense that the award to petitioner RCBC of P3,060,406.25 is SET ASIDE and substituted with an amount to be computed by the trial court, upon finality of this Decision, in accordance with the formula indicated above.

SO ORDERED.