STATE INVESTMENT HOUSE INC., PETITIONER, VS. THE HONORABLE COURT OF APPEALS, HON. JUDGE PERLITA J. TRIA TIRONA, PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF QUEZON CITY, BRANC…

State Investment House versus Court of Appeals

The Case

This is a petition for review filed by State Investment House, Inc. against the Court of Appeals and the spouses Rafael and Refugio Aquino. The dispute began as a complaint by the Aquino spouses to stop the foreclosure of their pledged shares of stock. It matters because the Supreme Court uses it to explain two things every examinee must know: when a final and executory judgment may still be clarified, and what a debtor owes when he is not in delay but has not consigned the amount due.

Procedural History

The Aquino spouses filed a complaint before the Regional Trial Court of Quezon City, alleging that the intended notarial sale of their pledged shares was illegal. The trial court, through Judge Willelmo Fortun, first dismissed the complaint. On motion for reconsideration, Judge Fortun set aside his original decision and rendered a new judgment ordering State Investment House to release the pledge and deliver the shares upon payment of the loan under the account designated as Code Number 82-0904-AA.

State Investment House appealed, and the Court of Appeals affirmed the new decision in full. Both the Fortun decision and the appellate affirmance became final and executory. When the records were remanded for execution, the parties disagreed on whether interest should be paid. The trial court, this time through Judge Perlita Tria Tirona, issued a clarificatory decision holding that the shares should be released upon payment of the principal of 110,000 pesos, without interest, penalties, and other charges. State Investment House appealed, and the Court of Appeals dismissed the appeal and denied reconsideration. Hence, this petition for review before the Supreme Court.

Facts

In April 1982, the spouses Rafael and Refugio Aquino pledged shares of stock to State Investment House to secure a loan of 120,000 pesos. Before that pledge was executed, the same spouses, as an accommodation to and together with the spouses Jose and Marcelina Aquino, had signed an agreement covering State Investment House's purchase of receivables amounting to 375,000 pesos.

When the first loan fell due, the Aquino spouses paid it partly from their own funds and partly from the proceeds of a new loan from State Investment House, secured by the same pledge. When the new loan matured, State Investment House demanded payment. The spouses offered to pay and asked that the pledged shares be released, but State Investment House refused, insisting that the unpaid loan of Jose and Marcelina Aquino be paid first.

A notice of notarial sale was then sent to the spouses, prompting them to sue. They alleged that the foreclosure was illegal because they had always been able and willing to pay their own loan, and that their failure to pay was excused because the creditor itself had prevented satisfaction of the obligation.

Issues

• Whether or not the trial court, through Judge Tirona, could validly clarify the decision of Judge Fortun even after that judgment had become final and executory.
• Whether or not the Fortun decision contained an ambiguity or inadvertent omission in its dispositive portion that could be clarified by reference to the body of the decision and the pleadings.
• Whether or not the Aquino spouses, having been held not to be in delay, are still liable for regular or monetary interest.

Applicable Provisions

Article 2209 of the Civil Code provides:

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 per cent per annum.

This fixes the measure of damages for delay, which the Court uses to distinguish penalty interest from regular interest.

Article 1256 of the Civil Code provides:

If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.

This is the provision the Court applies to hold that a mere tender of payment, without consignation, does not stop regular interest from accruing.

Ruling

On the first issue, the Court held that even a judgment which has become final and executory may be clarified under certain circumstances, such as a clerical error or an ambiguity arising from inadvertent omission, by reference primarily to the body of the decision and, for corroboration, to the pleadings. The trial court therefore did not exceed its authority in issuing the clarificatory order.

On the second issue, the Court found that the Fortun decision was ambiguous, indeed cryptic. The promissory note had three components: principal of 110,000 pesos, regular interest at seventeen percent per annum, and penalty interest at two percent per month or twenty-four percent per annum. The dispositive portion did not specify which components were being ordered paid. The Court held that since the spouses were not in delay, they were liable only for the principal and the regular interest, not for penalty interest.

On the third issue, the Court held that the spouses remained liable for regular interest. They made a written tender of payment but failed to consign the amount due in court. The Court quoted the rule that tender of payment must be accompanied or followed by consignation in order that the effects of payment may be produced. To allow them to keep and use the principal without paying regular interest would be unjust enrichment.

Doctrine

A final and executory judgment may still be clarified where the dispositive portion contains a clerical error or an ambiguity caused by inadvertent omission, and the court may resort to the body of the decision and the pleadings to supply the omission.

A debtor who is not in delay is not liable for penalty or compensatory interest, but remains liable for the principal and regular or monetary interest, which is the price for the use of money.

Tender of payment alone does not suspend the accruing of regular interest; consignation of the sum due is also required under Article 1256 of the Civil Code.

Disposition

The petition was granted; the Court reversed the decisions of the Court of Appeals and the trial court, and clarified the Fortun decision to require payment of the principal plus seventeen percent per annum regular interest before release of the pledged shares.

Remember This

Memorize this line: a final judgment may be clarified but not substantially amended, and tender without consignation does not stop regular interest. Examiners use this case on the finality of judgments and on the consequences of tender of payment without consignation.