WARNER, BARNES & CO., LTD., PLAINTIFF AND APPELLANT, VS. EDMUNDO YASAY, ET AL., DEFENDANTS AND APPELLEES.

Sometime in October, 1940, Edmundo Yasay purchased on credit from
Warner, Barnes & Co., Ltd. fertilizer valued at P8,320.25, payable
during the milling season of the 1941-42 sugar crop, with 8% annual
interest compounded quarterly. To secure the payment of this
obligation, Yasay executed a deed of chattel mortgage hypothecating
2,368 piculs of sugar of the crop year 1941-42 Of the Haciendas
“Libertad” and “Pangulayan”. The obligation was still unpaid when the
war broke out, and the indebtedness had amounted to P9,500.49 as of
April 30, 1942. The sugar mortgaged was lost in the war before it could
be sold to pay for the obligation for which it was given as security.

After the war, Warner, Barnes & Co., Ltd. made repeated demands
upon Edmundo Yasay to pay the obligation in question, but the
obligation was not paid. Whereupon, on September 20, 1954, Warner,
Barnes & Co., Ltd. filed against Yasay Civil Case No. 3171 in the
Court of First Instance of Negros Occidental, for the collection of the
obligation in question, which had reached the amount of P16,388.08
including accrued interests, plus 8% annual interest from September 1,
1954, plus 20% of the total indebtedness as attorney’s fees.

In his answer to the complaint, defendant Yasay claimed that he
contracted the obligation sued upon not in his personal capacity but as
manager of Araneta Bros., a general co-partnership which was then
leasing Haciendas “Libertad” and “Pangulayan”. Consequently, plaintiff
Warner, Barnes & Co., Ltd. amended its complaint to include as
co-defendants former members of the dissolved partnership Araneta
Bros., and increasing the principal demand to P17,602.67.

On
May 15, 1957, the court below rendered judgment sentencing defendants
Edmundo Yasay, et al., to pay said plaintiff the sum of P9,500.49 with
interest at 8% per annum from the date of the filing of the second
amended complaint, April 26, 1956, plus 20% of the total amount due as
attorney’s fees and expenses of litigation. From this judgment,
plaintiff Warner, Barnes & Co., Ltd. appealed to this Court against
that part thereof exempting defendants from the payment of interests
except from the date of the filing of the second amended complaint.

The reasons of the court a quo
in not holding defendants-appellees liable for the payment of interests
on the principal claim except from the date of the filing of the second
amended complaint were explained thus:

“However,
all things considered, taking into view Exhibit ’10’, letter of the
plaintiff dated March 8, 1953 and signed by F. A. Whitney, wherein the
willingness was expressed not only to waive accrued interest and accept
the principal amount of P9,500.49 in full settlement of the plaintiff’s
claim but also to allow payment by installments over a period of even
three years; and remembering further that this case could not have been
filed sooner without the fault of any of the parties; the court feels
that it would be in consonance with equity not to charge the defendants
interest at least up to the filing of the second amended complaint.”

It is appellant’s contention, however, that neither its letter Exhibit
10, nor the fact that this action could not have been filed sooner
without the fault of the parties because of the Moratorium Law,
justifies the conclusion of the trial court that it would be
inequitable to make defendants-appellees pay the accrued interests due
on their obligation except from the date of the filing of the second
amended complaint.

We find merit in the appeal.

Firstly, as to the letter Exhibit “10”, the same reads:

“The
Company is still agreeable to make a compromise settlement with you.
That is, if the account can be adjusted by not later than March 31,
1953, the accrued interests will be waived, and the principal amount of
P9,500.49 will be accepted in full settlement; and moreover, if it is
necessary, the account may be paid by installments over a period of
time, say two or three years, with interests at 6%, per annum.”

“* * * The compromise offer made herein will stand good until March 31, 1953.”

As correctly pointed out by appellant, the above offer to condone
interest due was made in consideration of an early settlement of the
principal obligation; that is, the offer was subject to the condition
that defendants-appellees either liquidate the account not later than
March 31, 1953, or pay the same in installments over a period of two or
three years at 6% per annum interest. The fact that the obligation in
question has remained unpaid up to this time shows that the offer to
waive interests was not at all accepted by the debtors or, having been
initially accepted, did not become effective for failure of the debtors
to comply with the condition of payment in consideration for which the
offer was made. In either case, the offer to waive interests did not
become binding upon appellant, and the latter has the perfect right to
enforce the obligation in its original tenor, namely, with 8% annual
interest compounded quarterly until paid.

As for the effect
of the Moratorium Law on the right of appellant to collect interests
that had accrued on the obligation in question during the effectivity
of said law, again appellant is correct in arguing that under our
doctrine in De Guzman vs. Fernando, 90 Phil., 251, said law did not have the effect of condoning these interests. In said case, we ruled:

“Interpreting the effect of moratorium law on a monetary obligation, this Court in a recent case said:

‘The law on debt moratorium does not condone debts or the payment of
obligations, it merely suspends collection and payment. The right to
such suspension may be invoked by the debtor; but he may also waive or
renounce it.’ (Araneta vs. Marta Ciu Vda. de Samson, 85 Phil., 142; 47 Off. Gaz., 2849.

It, therefore, appears that the moratorium law has merely the effect of
suspending the collection or payment of the obligation. It does not
condone the debt. Inasmuch as the interest is but an accessory to the
obligation, the same must be deemed affected in the same manner. The
accessory follows the principal. The moratorium order is couched in
clear terms. It says that the enforcement of the payment of a debt or
other monetary obligation ‘is temporarily suspended pending action by
the Commonwealth Government.’ When the law is clear there is no room
for interpretation.”

If appellees had
wanted to avoid liability for all the interests that had fallen due on
their debt to appellant during the time that the Moratorium Law was in
effect, they could have renounced the benefits of said law and pay the
obligation, or, in the very least, paid the interests as they accrued.
Not having done either, they are legally bound to pay not only the
principal obligation but all interests that had fallen due thereon
pursuant to the terms of their contract with appellant.

As
neither the letter Exhibit “10” nor the debt moratorium law operated to
excuse or exempt appellees from their contractual obligation to pay
appellant all the interests that had accrued on the obligation in
question, appellees should abide by their obligation voluntarily
assumed to pay said interests.

Considering, however, that no
bad faith is imputed to the debtors; that payment could not be made
during the war years, even if the debtor had so desired, because the
creditor was a British company and an enemy vis a vis the
belligerent occupant of the Islands at the time; that the creditor was
indirectly benefited by the debtor’s inaction, thereby avoiding payment
in military scrip; and that both under Article 1172 of the new Civil
Code and Article 1103 of the old Code, the Courts have power to
regulate or moderate the liability arising from negligence of a debtor,
we think it equitable to reduce the interest by eliminating that which
accrued during the war years, as well as to limit the attorneys’ fees
to 10% of the total amount of the judgment, this case presenting no
unusual difficulty.

Wherefore, the judgment appealed from is
modified in the sense that in addition to the P9,500.49 already
awarded, appellees are ordered to pay the stipulated rate at 8%
interest per annum on said amount of P9,500.49, from and after August
6, 1945 until full payment, plus 10% of the total judgment as
attorneys’ fees. Costs against defendants-appellees.

Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and Gutierrez David, JJ., concur.