FIRST DIVISION

G.R. No. 184458, January 14, 2015

RODRIGO RIVERA, Petitioner, v. SPOUSES SALVADOR CHUA AND S.

VIOLETA CHUA, Respondents.

[G.R. NO. 184472]

SPS. SALVADOR CHUA AND VIOLETA S. CHUA, Petitioners, v. RODRIGO

RIVERA, Respondent.

DECISION

PEREZ, J.:

Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the
Rules of Court assailing the Decision1 of the Court of Appeals in CA-G.R. SP No.
90609 which affirmed with modification the separate rulings of the Manila City trial
courts, the Regional Trial Court, Branch 17 in Civil Case No. 02-105256 2 and the
Metropolitan Trial Court (MeTC), Branch 30, in Civil Case No. 163661, 3 a case for
collection of a sum of money due a promissory note . While all three (3) lower courts
upheld the validity and authenticity of the promissory note as duly signed by the
obligor, Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the appellate court
modified the trial courts’ consistent awards: (1) the stipulated interest rate of sixty
percent (60%) reduced to twelve percent (12%) per annum computed from the date of
judicial or extrajudicial demand, and (2) reinstatement of the award of attorney’s fees
also in a reduced amount of P50,000.00.

In G.R. No. 184458, Rivera persists in his contention that there was no valid
promissory note and questions the entire ruling of the lower courts. On the other hand,
petitioners in G.R. No. 184472, Spouses Salvador and Violeta Chua (Spouses Chua),
take exception to the appellate court’s reduction of the stipulated interest rate of sixty
percent (60%) to twelve percent (12%) per annum.

We proceed to the facts.

The parties were friends of long standing having known each other since 1973: Rivera
and Salvador are kumpadres, the former is the godfather of the Spouses Chua’s son.

On 24 February 1995, Rivera obtained a loan from the Spouses

Chua:chanroblesvirtuallawlibrary
 PROMISSORY NOTE

120,000.00

FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay

spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the sum
of One Hundred Twenty Thousand Philippine Currency (P120,000.00)
on December 31, 1995.

It is agreed and understood that failure on my part to pay the amount of

(P120,000.00) One Hundred Twenty Thousand Pesos on December 31,
1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%)
interest monthly from the date of default until the entire obligation is
fully paid for.

Should this note be referred to a lawyer for collection, I agree to pay

the further sum equivalent to twenty percent (20%) of the total amount
due and payable as and for attorney’s fees which in no case shall be
less than P5,000.00 and to pay in addition the cost of suit and other
incidental litigation expense.

Any action which may arise in connection with this note shall be
brought in the proper Court of the City of Manila.

Manila, February 24, 1995[.]

(SGD.) RODRIGO RIVERA4

In October 1998, almost three years from the date of payment stipulated in the
promissory note, Rivera, as partial payment for the loan, issued and delivered to the
Spouses Chua, as payee, a check numbered 012467, dated 30 December 1998, drawn
against Rivera’s current account with the Philippine Commercial International Bank
(PCIB) in the amount of P25,000.00.

On 21 December 1998, the Spouses Chua received another check presumably issued
by Rivera, likewise drawn against Rivera’s PCIB current account, numbered 013224,
duly signed and dated, but blank as to payee and amount. Ostensibly, as per
understanding by the parties, PCIB Check No. 013224 was issued in the amount of
P133,454.00 with “cash” as payee. Purportedly, both checks were simply partial
payment for Rivera’s loan in the principal amount of P120,000.00.

Upon presentment for payment, the two checks were dishonored for the reason
“account closed.”
As of 31 May 1999, the amount due the Spouses Chua was pegged at P366,000.00
covering the principal of P120,000.00 plus five percent (5%) interest per month from
1 January 1996 to 31 May 1999.

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera
to no avail. Because of Rivera’s unjustified refusal to pay, the Spouses Chua were
constrained to file a suit on 11 June 1999. The case was raffled before the MeTC,
Branch 30, Manila and docketed as Civil Case No. 163661.

In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never
executed the subject Promissory Note; (2) in all instances when he obtained a loan
from the Spouses Chua, the loans were always covered by a security; (3) at the time
of the filing of the complaint, he still had an existing indebtedness to the Spouses
Chua, secured by a real estate mortgage, but not yet in default; (4) PCIB Check No.
132224 signed by him which he delivered to the Spouses Chua on 21 December 1998,
should have been issued in the amount of only P1,300.00, representing the amount he
received from the Spouses Chua’s saleslady; (5) contrary to the supposed agreement,
the Spouses Chua presented the check for payment in the amount of P133,454.00; and
(6) there was no demand for payment of the amount of P120,000.00 prior to the
encashment of PCIB Check No. 0132224. 5chanRoblesvirtualLawlibrary

In the main, Rivera claimed forgery of the subject Promissory Note and denied his
indebtedness thereunder.

The MeTC summarized the testimonies of both parties’ respective

witnesses:chanroblesvirtuallawlibrary

[The spouses Chua’s] evidence include[s] documentary evidence and

oral evidence (consisting of the testimonies of [the spouses] Chua and
NBI Senior Documents Examiner Antonio Magbojos). x x x

xxxx

Witness Magbojos enumerated his credentials as follows: joined the

NBI (1987); NBI document examiner (1989); NBI Senior Document
Examiner (1994 to the date he testified); registered criminologist;
graduate of 18th Basic Training Course [i]n Questioned Document
Examination conducted by the NBI; twice attended a seminar on US
Dollar Counterfeit Detection conducted by the US Embassy in Manila;
attended a seminar on Effective Methodology in Teaching and
Instructional design conducted by the NBI Academy; seminar lecturer
on Questioned Documents, Signature Verification and/or Detection;
had examined more than a hundred thousand questioned documents at
 the time he testified.

Upon [order of the MeTC], Mr. Magbojos examined the purported

signature of [Rivera] appearing in the Promissory Note and compared
the signature thereon with the specimen signatures of [Rivera]
appearing on several documents. After a thorough study, examination,
and comparison of the signature on the questioned document
(Promissory Note) and the specimen signatures on the documents
submitted to him, he concluded that the questioned signature appearing
in the Promissory Note and the specimen signatures of [Rivera]
appearing on the other documents submitted were written by one and
the same person. In connection with his findings, Magbojos prepared
Questioned Documents Report No. 712-1000 dated 8 January 2001,
with the following conclusion: “The questioned and the standard
specimen signatures RODGRIGO RIVERA were written by one and
the same person.”

[Rivera] testified as follows: he and [respondent] Salvador are

“kumpadres;” in May 1998, he obtained a loan from [respondent]
Salvador and executed a real estate mortgage over a parcel of land in
favor of [respondent Salvador] as collateral; aside from this loan, in
October, 1998 he borrowed P25,000.00 from Salvador and issued
PCIB Check No. 126407 dated 30 December 1998; he expressly
denied execution of the Promissory Note dated 24 February 1995 and
alleged that the signature appearing thereon was not his signature;
[respondent Salvador’s] claim that PCIB Check No. 0132224 was
partial payment for the Promissory Note was not true, the truth being
that he delivered the check to [respondent Salvador] with the space for
amount left blank as he and [respondent] Salvador had agreed that the
latter was to fill it in with the amount of ?1,300.00 which amount he
owed [the spouses Chua]; however, on 29 December 1998
[respondent] Salvador called him and told him that he had written
P133,454.00 instead of P1,300.00; x x x. To rebut the testimony of
NBI Senior Document Examiner Magbojos, [Rivera] reiterated his
averment that the signature appearing on the Promissory Note was not
his signature and that he did not execute the Promissory Note.6

After trial, the MeTC ruled in favor of the Spouses Chua:chanroblesvirtuallawlibrary

WHEREFORE, [Rivera] is required to pay [the spouses Chua]:

P120,000.00 plus stipulated interest at the rate of 5% per month from 1
January 1996, and legal interest at the rate of 12% percent per annum
from 11 June 1999, as actual and compensatory damages; 20% of the
whole amount due as attorney’s fees.7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the
MeTC, but deleted the award of attorney’s fees to the Spouses
Chua:chanroblesvirtuallawlibrary

WHEREFORE, except as to the amount of attorney’s fees which is

hereby deleted, the rest of the Decision dated October 21, 2002 is
hereby AFFIRMED.8

Both trial courts found the Promissory Note as authentic and validly bore the
signature of Rivera.

Undaunted, Rivera appealed to the Court of Appeals which affirmed Rivera’s liability
under the Promissory Note, reduced the imposition of interest on the loan from 60%
to 12% per annum, and reinstated the award of attorney’s fees in favor of the Spouses
Chua:chanroblesvirtuallawlibrary

WHEREFORE, the judgment appealed from is hereby AFFIRMED,

subject to the MODIFICATION that the interest rate of 60% per
annum is hereby reduced to 12% per annum and the award of
attorney’s fees is reinstated at the reduced amount of P50,000.00 Costs
against [Rivera].9

Hence, these consolidated petitions for review on certiorari of Rivera in G.R. No.
184458 and the Spouses Chua in G.R. No. 184472, respectively raising the following
issues:chanroblesvirtuallawlibrary

A. In G.R. No. 184458

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS

ERRED IN UPHOLDING THE RULING OF THE RTC AND
M[e]TC THAT THERE WAS A VALID PROMISSORY NOTE
EXECUTED BY [RIVERA].

2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS

ERRED IN HOLDING THAT DEMAND IS NO LONGER
NECESSARY AND IN APPLYING THE PROVISIONS OF THE
NEGOTIABLE INSTRUMENTS LAW.

3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS

ERRED IN AWARDING ATTORNEY’S FEES DESPITE THE
FACT THAT THE SAME HAS NO BASIS IN FACT AND IN LAW
AND DESPITE THE FACT THAT [THE SPOUSES CHUA] DID
NOT APPEAL FROM THE DECISION OF THE RTC DELETING
 THE AWARD OF ATTORNEY’S
10
FEES. chanRoblesvirtualLawlibrary

B. In G.R. No. 184472

[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS

COMMITTED GROSS LEGAL ERROR WHEN IT MODIFIED THE
APPEALED JUDGMENT BY REDUCING THE INTEREST RATE
FROM 60% PER ANNUM TO 12% PER ANNUM IN SPITE OF
THE FACT THAT RIVERA NEVER RAISED IN HIS ANSWER
THE DEFENSE THAT THE SAID STIPULATED RATE OF
INTEREST IS EXORBITANT, UNCONSCIONABLE,
UNREASONABLE, INEQUITABLE, ILLEGAL, IMMORAL OR
VOID.11

As early as 15 December 2008, we already disposed of G.R. No. 184472 and denied
the petition, via a Minute Resolution, for failure to sufficiently show any reversible
error in the ruling of the appellate court specifically concerning the correct rate of
interest on Rivera’s indebtedness under the Promissory
Note.12chanRoblesvirtualLawlibrary

On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.

Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera
questioning the entire ruling of the Court of Appeals in CA-G.R. SP No. 90609.

Rivera continues to deny that he executed the Promissory Note; he claims that given
his friendship with the Spouses Chua who were money lenders, he has been able to
maintain a loan account with them. However, each of these loan transactions was
respectively “secured by checks or sufficient collateral.”

Rivera points out that the Spouses Chua “never demanded payment for the loan nor
interest thereof (sic) from [Rivera] for almost four (4) years from the time of the
alleged default in payment [i.e., after December 31,
1995].”13chanRoblesvirtualLawlibrary

On the issue of the supposed forgery of the promissory note, we are not inclined to
depart from the lower courts’ uniform rulings that Rivera indeed signed it.

Rivera offers no evidence for his asseveration that his signature on the promissory
note was forged, only that the signature is not his and varies from his usual signature.
He likewise makes a confusing defense of having previously obtained loans from the
Spouses Chua who were money lenders and who had allowed him a period of “almost
four (4) years” before demanding payment of the loan under the Promissory Note.
First, we cannot give credence to such a naked claim of forgery over the testimony of
the National Bureau of Investigation (NBI) handwriting expert on the integrity of the
promissory note.

On that score, the appellate court aptly disabled Rivera’s

contention:chanroblesvirtuallawlibrary

[Rivera] failed to adduce clear and convincing evidence that the

signature on the promissory note is a forgery. The fact of forgery
cannot be presumed but must be proved by clear, positive and
convincing evidence. Mere variance of signatures cannot be considered
as conclusive proof that the same was forged. Save for the denial of
Rivera that the signature on the note was not his, there is nothing in the
records to support his claim of forgery. And while it is true that resort
to experts is not mandatory or indispensable to the examination of
alleged forged documents, the opinions of handwriting experts are
nevertheless helpful in the court’s determination of a document’s
authenticity.

To be sure, a bare denial will not suffice to overcome the positive

value of the promissory note and the testimony of the NBI witness. In
fact, even a perfunctory comparison of the signatures offered in
evidence would lead to the conclusion that the signatures were made
by one and the same person.

It is a basic rule in civil cases that the party having the burden of proof
must establish his case by preponderance of evidence, which simply
means “evidence which is of greater weight, or more convincing than
that which is offered in opposition to it.”

Evaluating the evidence on record, we are convinced that [the Spouses

Chua] have established a prima facie case in their favor, hence, the
burden of evidence has shifted to [Rivera] to prove his allegation of
forgery. Unfortunately for [Rivera], he failed to substantiate his
defense.14

Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respect and are considered conclusive between the parties.15 A review of such findings
by this Court is not warranted except upon a showing of highly meritorious
circumstances, such as: (1) when the findings of a trial court are grounded entirely on
speculation, surmises or conjectures; (2) when a lower court's inference from its
factual findings is manifestly mistaken, absurd or impossible; (3) when there is grave
abuse of discretion in the appreciation of facts; (4) when the findings of the appellate
court go beyond the issues of the case, or fail to notice certain relevant facts which, if
properly considered, will justify a different conclusion; (5) when there is a
misappreciation of facts; (6) when the findings of fact are conclusions without
mention of the specific evidence on which they are based, are premised on the
absence of evidence, or are contradicted by evidence on record.16 None of these
exceptions obtains in this instance. There is no reason to depart from the separate
factual findings of the three (3) lower courts on the validity of Rivera’s signature
reflected in the Promissory Note.

Indeed, Rivera had the burden of proving the material allegations which he sets up in
his Answer to the plaintiff’s claim or cause of action, upon which issue is joined,
whether they relate to the whole case or only to certain issues in the
case.17chanRoblesvirtualLawlibrary

In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the
testimony of a handwriting expert from the NBI. While it is true that resort to experts
is not mandatory or indispensable to the examination or the comparison of
handwriting, the trial courts in this case, on its own, using the handwriting expert
testimony only as an aid, found the disputed document
valid.18chanRoblesvirtualLawlibrary

Hence, the MeTC ruled that:chanroblesvirtuallawlibrary

[Rivera] executed the Promissory Note after consideration of the

following: categorical statement of [respondent] Salvador that [Rivera]
signed the Promissory Note before him, in his ([Rivera’s]) house; the
conclusion of NBI Senior Documents Examiner that the questioned
signature (appearing on the Promissory Note) and standard specimen
signatures “Rodrigo Rivera” “were written by one and the same
person”; actual view at the hearing of the enlarged photographs of the
questioned signature and the standard specimen signatures.19

Specifically, Rivera insists that: “[i]f that promissory note indeed exists, it is beyond
logic for a money lender to extend another loan on May 4, 1998 secured by a real
estate mortgage, when he was already in default and has not been paying any interest
for a loan incurred in February 1995.”20chanRoblesvirtualLawlibrary

We disagree.

It is likewise likely that precisely because of the long standing friendship of the
parties as “kumpadres,” Rivera was allowed another loan, albeit this time secured by a
real estate mortgage, which will cover Rivera’s loan should Rivera fail to pay. There
is nothing inconsistent with the Spouses Chua’s two (2) and successive loan
accommodations to Rivera: one, secured by a real estate mortgage and the other,
secured by only a Promissory Note.

Also completely plausible is that given the relationship between the parties, Rivera
was allowed a substantial amount of time before the Spouses Chua demanded
payment of the obligation due under the Promissory Note.

In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of forgery
and a discordant defense to assail the authenticity and validity of the Promissory Note.
Although the burden of proof rested on the Spouses Chua having instituted the civil
case and after they established a prima facie case against Rivera, the burden of
evidence shifted to the latter to establish his defense.21 Consequently, Rivera failed to
discharge the burden of evidence, refute the existence of the Promissory Note duly
signed by him and subsequently, that he did not fail to pay his obligation thereunder.
On the whole, there was no question left on where the respective evidence of the
parties preponderated—in favor of plaintiffs, the Spouses Chua.

Rivera next argues that even assuming the validity of the Promissory Note, demand
was still necessary in order to charge him liable thereunder. Rivera argues that it was
grave error on the part of the appellate court to apply Section 70 of the Negotiable
Instruments Law (NIL).22chanRoblesvirtualLawlibrary

We agree that the subject promissory note is not a negotiable instrument and the
provisions of the NIL do not apply to this case. Section 1 of the NIL requires the
concurrence of the following elements to be a negotiable
instrument:chanroblesvirtuallawlibrary

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named
or otherwise indicated therein with reasonable certainty.

On the other hand, Section 184 of the NIL defines what negotiable promissory note
is:chanroblesvirtuallawlibrary

SECTION 184. Promissory Note, Defined. – A negotiable promissory

note within the meaning of this Act is an unconditional promise in
writing made by one person to another, signed by the maker, engaging
to pay on demand, or at a fixed or determinable future time, a sum
 certain in money to order or to bearer. Where a note is drawn to the
maker’s own order, it is not complete until indorsed by him.

The Promissory Note in this case is made out to specific persons, herein respondents,
the Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as
payees.

However, even if Rivera’s Promissory Note is not a negotiable instrument and

therefore outside the coverage of Section 70 of the NIL which provides that
presentment for payment is not necessary to charge the person liable on the
instrument, Rivera is still liable under the terms of the Promissory Note that he issued.

The Promissory Note is unequivocal about the date when the obligation falls due and
becomes demandable—31 December 1995. As of 1 January 1996, Rivera had already
incurred in delay when he failed to pay the amount of P120,000.00 due to the Spouses
Chua on 31 December 1995 under the Promissory Note.

Article 1169 of the Civil Code explicitly provides:chanroblesvirtuallawlibrary

Art. 1169. Those obliged to deliver or to do something incur in delay

from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order

that delay may exist:
(1) When the obligation or the law expressly so declare;
or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment
of the contract; or
(3) When demand would be useless, as when the obligor
has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins. (Emphasis supplied)

There are four instances when demand is not necessary to constitute the debtor in
default: (1) when there is an express stipulation to that effect; (2) where the law so
provides; (3) when the period is the controlling motive or the principal inducement for
the creation of the obligation; and (4) where demand would be useless. In the first two
paragraphs, it is not sufficient that the law or obligation fixes a date for performance;
it must further state expressly that after the period lapses, default will commence.

We refer to the clause in the Promissory Note containing the stipulation of

interest:chanroblesvirtuallawlibrary

It is agreed and understood that failure on my part to pay the amount of

(P120,000.00) One Hundred Twenty Thousand Pesos on December 31,
1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%)
interest monthly from the date of default until the entire obligation is
fully paid for.23

which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the
“date of default” until the entire obligation is fully paid for. The parties evidently
agreed that the maturity of the obligation at a date certain, 31 December 1995, will
give rise to the obligation to pay interest. The Promissory Note expressly provided
that after 31 December 1995, default commences and the stipulation on payment of
interest starts.

The date of default under the Promissory Note is 1 January 1996, the day following
31 December 1995, the due date of the obligation. On that date, Rivera became liable
for the stipulated interest which the Promissory Note says is equivalent to 5% a
month. In sum, until 31 December 1995, demand was not necessary before Rivera
could be held liable for the principal amount of P120,000.00. Thereafter, on 1 January
1996, upon default, Rivera became liable to pay the Spouses Chua damages, in the
form of stipulated interest.

The liability for damages of those who default, including those who are guilty of
delay, in the performance of their obligations is laid down on Article 117024 of the
Civil Code.

Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an

indemnity for damages when the obligor incurs in delay: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 percent per annum. (Emphasis supplied)

Article 2209 is specifically applicable in this instance where: (1) the obligation is for a
sum of money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or
before 31 December 1995; and (3) the Promissory Note provides for an indemnity for
damages upon default of Rivera which is the payment of a 5% monthly interest from
the date of default.
We do not consider the stipulation on payment of interest in this case as a penal clause
although Rivera, as obligor, assumed to pay additional 5% monthly interest on the
principal amount of P120,000.00 upon default.

Article 1226 of the Civil Code provides:chanroblesvirtuallawlibrary

Art. 1226. In obligations with a penal clause, the penalty shall

substitute the indemnity for damages and the payment of interests in
case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in

accordance with the provisions of this Code.

The penal clause is generally undertaken to insure performance and works as either,
or both, punishment and reparation. It is an exception to the general rules on recovery
of losses and damages. As an exception to the general rule, a penal clause must be
specifically set forth in the obligation.25chanRoblesvirtualLawlibrary

In high relief, the stipulation in the Promissory Note is designated as payment of

interest, not as a penal clause, and is simply an indemnity for damages incurred by the
Spouses Chua because Rivera defaulted in the payment of the amount of P120,000.00.
The measure of damages for the Rivera’s delay is limited to the interest stipulated in
the Promissory Note. In apt instances, in default of stipulation, the interest is that
provided by law.26chanRoblesvirtualLawlibrary

In this instance, the parties stipulated that in case of default, Rivera will pay interest at
the rate of 5% a month or 60% per annum. On this score, the appellate court
ruled:chanroblesvirtuallawlibrary

It bears emphasizing that the undertaking based on the note clearly

states the date of payment to be 31 December 1995. Given this
circumstance, demand by the creditor is no longer necessary in order
that delay may exist since the contract itself already expressly so
declares. The mere failure of [Spouses Chua] to immediately demand
or collect payment of the value of the note does not exonerate [Rivera]
from his liability therefrom. Verily, the trial court committed no
reversible error when it imposed interest from 1 January 1996 on the
ratiocination that [Spouses Chua] were relieved from making demand
under Article 1169 of the Civil Code.

xxxx
 As observed by [Rivera], the stipulated interest of 5% per month or
60% per annum in addition to legal interests and attorney’s fees is,
indeed, highly iniquitous and unreasonable. Stipulated interest rates are
illegal if they are unconscionable and the Court is allowed to temper
interest rates when necessary. Since the interest rate agreed upon is
void, the parties are considered to have no stipulation regarding the
interest rate, thus, the rate of interest should be 12% per annum
computed from the date of judicial or extrajudicial demand.
[27
chanRoblesvirtualLawlibrary

The appellate court found the 5% a month or 60% per annum interest rate, on top of
the legal interest and attorney’s fees, steep, tantamount to it being illegal, iniquitous
and unconscionable.

Significantly, the issue on payment of interest has been squarely disposed of in G.R.
No. 184472 denying the petition of the Spouses Chua for failure to sufficiently show
any reversible error in the ruling of the appellate court, specifically the reduction of
the interest rate imposed on Rivera’s indebtedness under the Promissory Note.
Ultimately, the denial of the petition in G.R. No. 184472 is res judicata in its concept
of “bar by prior judgment” on whether the Court of Appeals correctly reduced the
interest rate stipulated in the Promissory Note.

Res judicata applies in the concept of “bar by prior judgment” if the following
requisites concur: (1) the former judgment or order must be final; (2) the judgment or
order must be on the merits; (3) the decision must have been rendered by a court
having jurisdiction over the subject matter and the parties; and (4) there must be,
between the first and the second action, identity of parties, of subject matter and of
causes of action.28chanRoblesvirtualLawlibrary

In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of
parties and subject matter raising specifically errors in the Decision of the Court of
Appeals. Where the Court of Appeals’ disposition on the propriety of the reduction of
the interest rate was raised by the Spouses Chua in G.R. No. 184472, our ruling
thereon affirming the Court of Appeals is a “bar by prior judgment.”

At the time interest accrued from 1 January 1996, the date of default under the
Promissory Note, the then prevailing rate of legal interest was 12% per annum under
Central Bank (CB) Circular No. 416 in cases involving the loan or forbearance of
money.29 Thus, the legal interest accruing from the Promissory Note is 12% per
annum from the date of default on 1 January 1996.

However, the 12% per annum rate of legal interest is only applicable until 30 June
2013, before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular
No. 799, Series of 2013 reducing the rate of legal interest to 6% per annum. Pursuant
to our ruling in Nacar v. Gallery Frames,30 BSP Circular No. 799 is prospectively
applied from 1 July 2013. In short, the applicable rate of legal interest from 1 January
1996, the date when Rivera defaulted, to date when this Decision becomes final and
executor is divided into two periods reflecting two rates of legal interest: (1) 12% per
annum from 1 January 1996 to 30 June 2013; and (2) 6% per annum FROM 1 July
2013 to date when this Decision becomes final and executory.

As for the legal interest accruing from 11 June 1999, when judicial demand was
made, to the date when this Decision becomes final and executory, such is likewise
divided into two periods: (1) 12% per annum from 11 June 1999, the date of judicial
demand to 30 June 2013; and (2) 6% per annum from 1 July 2013 to date when this
Decision becomes final and executor.31 We base this imposition of interest on interest
due earning legal interest on Article 2212 of the Civil Code which provides that
“interest due shall earn legal interest from the time it is judicially demanded, although
the obligation may be silent on this point.”

From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera to
the Spouses Chua could already be determined with reasonable certainty given the
wording of the Promissory Note.32chanRoblesvirtualLawlibrary

We cite our recent ruling in Nacar v. Gallery Frames:33chanRoblesvirtualLawlibrary

I. When an obligation, regardless of its source, i.e., law, contracts,

quasi-contracts, delicts or quasi-delicts 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:ChanRoblesVirtualawlibrary

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 6% 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 6%
per annum from such finality until its
satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of
credit.

And, in addition to the above, judgments that

have become final and executory prior to July 1,
2013, shall not be disturbed and shall continue
to be implemented applying the rate of interest
fixed therein. (Emphasis supplied)

On the reinstatement of the award of attorney’s fees based on the stipulation in the
Promissory Note, we agree with the reduction thereof but not the ratiocination of the
appellate court that the attorney’s fees are in the nature of liquidated damages or
penalty. The interest imposed in the Promissory Note already answers as liquidated
damages for Rivera’s default in paying his obligation. We award attorney’s fees,
albeit in a reduced amount, in recognition that the Spouses Chua were compelled to
litigate and incurred expenses to protect their interests.34 Thus, the award of
P50,000.00 as attorney’s fees is proper.
For clarity and to obviate confusion, we chart the breakdown of the total amount
owed by Rivera to the Spouses Chua:chanroblesvirtuallawlibrary

Face value of
the Stipulated Interest A Interest due earning Attorney’s Total
Promissory &B legal interest A & B fees Amount
Note
A. June 11, 1999
A. January 1, 1996 to
(date of judicial
June 30, 2013
February 24, demand) to June 30,
1995 to 2013 Wholesale
B. July 1 2013 to date
December 31, B. July 1, 2013 to amount
when this Decision
1995 date when this
becomes final and
Decision becomes
executory
final and executory
A. 12 % per annum on A. 12% per annum
the principal amount on the total amount Total
of P120,000.00 of column 2 amount of
P120,000.00 P50,000.00
B. 6% per annum on B. 6% per annum on Columns
the principal amount the total amount of 1-4
of P120,000.00 column 235

The total amount owing to the Spouses Chua set forth in this Decision shall further
earn legal interest at the rate of 6% per annum computed from its finality until full
payment thereof, the interim period being deemed to be a forbearance of
credit.chanrobleslaw

WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the
Court of Appeals in CA-G.R. SP No. 90609 is MODIFIED. Petitioner Rodrigo Rivera
is ordered to pay respondents Spouse Salvador and Violeta Chua the
following:chanroblesvirtuallawlibrary

(1) the principal amount of P120,000.00;

legal interest of 12% per annum of the principal amount of P120,000.00
(2)
reckoned from 1 January 1996 until 30 June 2013;
legal interest of 6% per annum of the principal amount of P120,000.00
(3)
form 1 July 2013 to date when this Decision becomes final and executory;
12% per annum applied to the total of paragraphs 2 and 3 from 11 June
(4) 1999, date of judicial demand, to 30 June 2013, as interest due earning
legal interest;
(5) 6% per annum applied to the total amount of paragraphs 2 and 3 from 1
July 2013 to date when this Decision becomes final and executor, as
 interest due earning legal interest;
(6) Attorney’s fees in the amount of P50,000.00; and
6% per annum interest on the total of the monetary awards from the
(7)
finality of this Decision until full payment thereof.
Costs against petitioner Rodrigo Rivera.

SO ORDERED.cralawlawlibrary

Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin, and Perlas-Bernabe, JJ.,

concur.

Endnotes:

1
Rollo in G.R. No. 184458, pp. 52-62; Penned by Associate Justice
Ricardo R. Rosario with Associate Justices Mariano C. Del Castillo
(now a member of this Court) and Arcangelita Romilla-Lontok
concurring.

2
Id. at 152-156; Penned by Presiding Judge Eduardo B. Peralta, Jr.

3
Rollo in G.R. No. 184472, pp. 52-56; Penned by Presiding Judge Nina
G. Antonio-Valenzuela.

4
Rollo in G.R. No. 184458, p. 76.

5
Id. at 53-54.

6
Rollo in G.R. No. 184472, pp. 53-54.

7
Id. at 56.

8
Id. at 61.

9
Rollo in G.R. No. 184458, p. 62.

10
Id. at 29.

11
Rollo in G.R. No. 184472, p. 13

12
Id. at p. 103.

13
Rollo in G.R. No. 184458, p. 32.
14
Id. at 58-59.

15
Siain Enterprises v. Cupertino Realty Corp., G.R. No. 170782, 22
June 2009, 590 SCRA 435, 445.

16
Durban Apartments Corporation v. Pioneer Insurance and Surety
Corporation, G.R. No. 179419, 12 January 2011, 639 SCRA 441, 449.

17
Francisco, Evidence, (3rd Ed. 1996), p. 385.

18
Lorzano v. Tabayag, Jr., G.R. No. 189647, 6 February 2012, 665
SCRA 38, 47.

19
Rollo in G.R. No. 184458, p. 113.

20
Id. at 33.

21
De Leon v. Bank of the Philippine Islands, G.R. No. 184565, 20
November 2013.

22
Sec. 70. Effect of want of demand on principal debtor. - Presentment
for payment is not necessary in order to charge the person primarily
liable on the instrument; but if the instrument is, by its terms, payable
at a special place, and he is able and willing to pay it there at maturity,
such ability and willingness are equivalent to a tender of payment upon
his part. But except as herein otherwise provided, presentment for
payment is necessary in order to charge the drawer and indorsers.

23
Rollo in G.R. No. 184472, p. 76.

24
Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.

25
4 Tolentino, Civil Code of the Philippines, p. 260.

26
5 Tolentino, Civil Code of the Philippines, pp. 649-650.

27
Rollo in G.R. No. 184458, pp. 59-61.

28
Agustin v. Sps. Delos Santos, 596 Phil. 630, 642-643 (2009).

29
See Eastern Shipping Lines v. Court of Appeals, G.R. No. 97412, 12
July 1994, 234 SCRA 78.

30
G.R. No. 189871, 13 August 2013.

31
BSP Circular No. 799, Series of 2013 amending BSP Circular No.
905, Series of 1982.

Section 1. 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 contracts as to such rate or interest, shall be six percent
(6%) per annum. visited 11 May 2014.

32
Article 2213 of the Civil Code: Interest cannot be recovered upon
unliquidated claims or damages except when the demand can be
established with reasonable certainty.

33
Supra note 30.

34
Article 2208 of the CIVIL CODE: In the absence of stipulation,
attorney’s fees, and expenses of litigation, other than judicial costs,
cannot be recovered, except:
xxxx
(2) when the defendant’s act or omission has compelled
the plaintiff to litigate with third persons or to incur
expenses to protect his interest;
xxxx
35
Based on Article 2212 of the Civil Code: Interest due shall earn legal
interest from the time it is judicially demanded, although the obligation
may be silent upon this point.