SOLID HOMES, INC. AND V.V. SOLIVEN REALTY CORPORATION, PETITIONERS, VS. HON. INTERMEDIATE APPELLATE COURT, BENJAMIN V. ZABAT AND LUNINGNING ZABAT, RESPONDENTS.

Solid Homes versus Intermediate Appellate Court

The Case

This is a consolidated review of two related rulings arising from a failed subdivision lot purchase. Solid Homes, Incorporated and V.V. Soliven Realty Corporation, the developer and the seller of lots in the Greenheights Newton Subdivision in Antipolo, Rizal, are the petitioners against the Intermediate Appellate Court and the spouses Benjamin and Luningning Zabat, the buyers. The spouses had sued for rescission of contract with damages after the developer sold the two lots they most wanted to third parties. The case matters for two reasons: it fixes the correct rate of interest on a money judgment that does not arise from a loan, and it clarifies when a trial court may order partial execution of the unappealed portion of a decision while an appeal on a remaining issue is still pending.

Procedural History

The spouses Zabat filed an action for specific performance or rescission of contract with damages before the then Court of First Instance of Rizal, Branch 15. On the last day of August 1979, the trial court ruled for the spouses, ordering the return of fifteen thousand nine hundred thirty eight pesos with interest at the legal rate from the eleventh of February 1976, plus actual, moral and exemplary damages and attorney's fees. The petitioners appealed to the then Intermediate Appellate Court, which affirmed with modification: it ordered the return of sixteen thousand four hundred thirty eight pesos with interest at twelve percent per annum from the date of first demand, the eleventh of May 1976, reduced moral damages to ten thousand pesos, and withdrew the actual damages. The petitioners then came to the Supreme Court by petition for review, questioning only the twelve percent interest rate.

Meanwhile, the spouses moved for partial execution of judgment before the Regional Trial Court of Makati, Branch 132, to which the case had been transferred. The trial court granted the motion, reasoning that the only issue still pending before the Supreme Court was the rate of interest, all other matters having become final. The Court of Appeals first reversed, but on motion for reconsideration issued an amended decision granting partial execution. That amended decision is the subject of the second petition.

Facts

In January 1976, a broker introduced the spouses Zabat to lots in the Greenheights subdivision. The broker represented Lot Number 1 of Block 8 as having two hundred ninety six square meters, Lot Number 2 as two hundred forty square meters, and Lot Number 3 as two hundred ninety six square meters. The spouses agreed to buy Lot Number 1, and because they wanted to turn all three adjacent lots into a family compound, they also expressed their desire to buy Lots Number 2 and 3. The price of Lot Number 1 was fifty three thousand two hundred eighty pesos, with a down payment of twenty percent, or ten thousand six hundred fifty six pesos, part in cash and the remainder to be offset by the value of galvanized iron sheets the spouses would deliver.

On the twenty ninth of January 1976, the spouses delivered galvanized iron sheets worth fourteen thousand two hundred ninety one pesos and sixty centavos, and Benjamin Zabat signed and delivered the reservation agreements for all three lots, keeping a personal copy. Because the sheets were worth more than the down payment for Lot Number 1, the seller applied the excess to the down payments for Lots Number 2 and 3. Yet on the second of March 1976, the developer sold Lots Number 2 and 3 to third parties, claiming the reservation applications for those lots were submitted late.

The spouses learned of the sale only in May 1976. On the eleventh of May 1976, Benjamin Zabat wrote the petitioners declaring his intention to rescind, because the purchase of Lots Number 2 and 3 was the principal consideration for buying Lot Number 1. The petitioners answered that the applications were late. The spouses then sued.

Issues

• Whether or not the Intermediate Appellate Court erred in imposing interest at twelve percent per annum on the principal obligation of sixteen thousand four hundred thirty eight pesos.
• Whether or not the trial court properly granted partial execution of the judgment pending appeal, while the rate of interest remained under review.

Applicable Provisions

Section 9 of Rule 41 of the 1964 Rules of Court, on the effect of a perfected appeal, provides:

Sec. 9. When appeal deemed perfected; effect thereof. —If the notice of appeal, the appeal bond and the record on appeal have been filed in due time, the appeal is deemed perfected upon the approval of the record on appeal and of the appeal bond other than a cash bond, and thereafter the trial court loses its jurisdiction over the case, except to issue orders for the protection and preservation of the rights of the parties which do not involve any matter litigated by the appeal, to approve compromises offered by the parties prior to the transmittal of the record on appeal to the appellate court, and to permit the prosecution of pauper's appeals.

This provision supplies the exception that allowed the trial court to order partial execution of the unappealed portions of the judgment.

Ruling

On the first issue, the Court held that the twelve percent rate was incompatible with its settled doctrine. Where the obligation does not constitute a loan or forbearance of money, the interest in the concept of actual and compensatory damages is six percent per annum. The Court applied its guidelines from Eastern Shipping Lines: no interest on unliquidated claims until the demand is established with reasonable certainty, and where it is so established, interest runs from the time the claim is made judicially or extrajudicially. Since the obligation here was not a loan or forbearance of credit, only six percent should be imposed, running from the date of first demand, the eleventh of May 1976. The Court added that once the judgment awarding a sum of money becomes final and executory, the legal interest becomes twelve percent per annum from such finality until satisfaction, that interim period being deemed by then an equivalent to a forbearance of credit.

On the second issue, the Court held that partial execution was proper. It distinguished its earlier rulings: Alcober applied the general rule that a perfected appeal divests the trial court of jurisdiction, while Baldisimo applied the exception for orders protecting and preserving the rights of the parties that do not involve any matter litigated by the appeal. Here, save for the rate of interest, the award of sixteen thousand four hundred thirty eight pesos plus ten thousand pesos in moral damages had become final and executory. Those aspects were no longer litigated in the appeal, so the trial court could proceed with their execution.

Doctrine

First, the rate of interest on a money obligation that does not arise from a loan or forbearance of money is six percent per annum, in the concept of actual and compensatory damages, running from the date the claim is made judicially or extrajudicially where the demand is established with reasonable certainty. Second, once the judgment becomes final and executory, the rate becomes twelve percent per annum until satisfaction, the interim period being deemed an equivalent of a forbearance of credit. Third, under the exception in Section 9 of Rule 41, a trial court retains power to order execution of the portions of a judgment that have become final and are not litigated in the appeal, even while other issues remain pending review.

Disposition

The first petition was granted in part, modifying the interest to six percent per annum from the eleventh of May 1976 until the decision on the principal became final, and twelve percent thereafter until full payment; the second petition was denied and the amended decision of the Court of Appeals affirming partial execution was upheld.

Remember This

Memorize the two-tier interest rule: six percent on the obligation before finality, twelve percent after finality until satisfaction. Examiners use this case to test the interest-rate doctrine and the exception allowing partial execution of the unappealed portion of a judgment.