Ece Realty and Development, Inc. v. Hernandez
REITERATIONFacts
The Antecedents: Haydyn Hernandez (respondent) entered into a Contract to Sell with EMIR Realty and Development Corporation (EMIR) and ECE Realty and Development Incorporated (ECE) for a 30-square meter condominium unit, Unit 808, in the "Harrison Mansion." The respondent made payments totaling P452,551.65, with the unit promised for occupancy by December 31, 1999. However, ECE and EMIR failed to deliver the unit by the agreed date. Furthermore, the respondent discovered the unit was only 26 square meters, not 30, prompting a request for a price reduction. Subsequently, the respondent learned that Unit 808 had been sold to a third party. The respondent initiated a complaint seeking specific performance, a price reduction, damages, and attorney's fees, or reimbursement of payments with interest if the unit was unavailable. Procedural History: The respondent filed a complaint before the Housing and Land Use Regulatory Board (HLURB) Regional Office. The HLURB ordered ECE and EMIR to reimburse the respondent P452,551.65 plus legal interest, and to pay damages and attorney's fees. ECE and EMIR appealed to the HLURB Board of Commissioners, which upheld the reimbursement but dropped EMIR as a defendant. ECE then appealed to the Office of the President (OP), which dismissed the appeal. ECE's motion for reconsideration was denied. Subsequently, ECE filed a petition for review with the Court of Appeals (CA), arguing against the rescission of the contract, the refund, and the award of damages and interest. The CA affirmed the OP's decision with modification, directing ECE to pay the respondent P452,551.65 plus 6% interest per annum from September 7, 2006, and 12% interest per annum from finality of judgment until full payment. The CA deleted the award for moral and exemplary damages but sustained attorney's fees. The Petition: ECE Realty and Development, Inc. filed a Petition for Review on Certiorari with the Supreme Court, reiterating its arguments from the Court of Appeals. ECE contended that the OP erred in affirming the rescission and refund order, arguing that the respondent did not seek rescission but only a price reduction due to the delay. ECE also argued that interest should only be imposed from the finality of the judgment and sought the deletion of damages and attorney's fees, asserting it did not act in bad faith and that the awards were excessive. The Supreme Court affirmed the CA decision with modification, reducing the interest rate from finality of judgment until full satisfaction to 6% per annum, aligning with recent monetary board resolutions.
Issue(s)
Whether the Court of Appeals erred in affirming the rescission of the contract to sell and the order to refund the respondent's payments with legal interest from the filing of the complaint. Whether the Court of Appeals erred in imposing interest from the filing of the complaint and in the award of damages and attorney's fees.
Ruling
The Supreme Court affirmed the Court of Appeals decision with modification, reducing the interest rate from finality of judgment until full satisfaction from 12% to 6% per annum. The Court ordered ECE Realty and Development, Inc. to pay respondent Haydyn Hernandez P452,551.65, plus 6% interest per annum from September 7, 2006, until finality of the judgment. From finality until full satisfaction, the total amount due, compounded with interest from September 7, 2006, shall likewise earn interest at 6% per annum until fully paid.
Ratio Decidendi
On the issue of rescission, refund, and interest: The Court affirmed the findings of the lower courts that ECE Realty and Development, Inc. (ECE) failed to deliver the condominium unit on the agreed date and that the unit's actual size was less than contracted. Citing Section 23 of Presidential Decree No. 957, the Court held that when a developer fails to develop the project according to approved plans and within the time limit, a buyer, after due notice, may desist from further payment and demand reimbursement of all amounts paid, with legal interest. The respondent had duly notified ECE of his suspension of payments due to the delayed delivery. The Court found that ECE's own evidence showed the unit was ready for inspection only in June 2002, more than two and a half years after the agreed delivery date. The Court agreed with the CA that the respondent was entitled to reimbursement of the amount paid plus legal interest from the filing of the complaint. On the imposition of interest rates and the award of damages and attorney's fees: The Court clarified the application of interest rates based on the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals. For obligations that are not loans or forbearance of money, goods, or credit, but involve payment of indemnities for damages arising from breach or delay, the legal interest rate is 6% per annum. This rate applies from the time of judicial or extrajudicial demand until the judgment becomes final and executory. The Court noted that the respondent's claim for reimbursement was established with reasonable certainty from the filing of the complaint on September 7, 2006. Therefore, the 6% interest should commence from that date. However, the Court modified the CA's ruling on the interest rate from finality until full satisfaction. While the CA imposed 12% per annum, the Court, citing Monetary Board Resolution No. 796 of the Bangko Sentral ng Pilipinas, held that the rate of interest for forbearance of credit from finality of judgment until satisfaction has reverted to 6% per annum. Thus, the total amount due, compounded with interest up to finality, shall earn 6% interest per annum until fully paid. The Court sustained the CA's deletion of moral and exemplary damages, finding that ECE did not act in bad faith. However, the Court upheld the award of P50,000.00 as attorney's fees, citing Article 2208(2) of the Civil Code. This provision allows for attorney's fees when the act or omission of the party compelled the other to litigate. ECE's failure to deliver the unit and subsequent sale to a third party necessitated the respondent's legal action to recover his payments, thus justifying the award of attorney's fees.
Main Doctrine
In cases involving damages arising from breach or delay in the performance of obligations, where no stipulation on interest exists, the legal interest rate is 6% per annum from the time of judicial or extrajudicial demand until finality of judgment. From finality until full satisfaction, the award is considered a forbearance of credit, and the interest rate is now 6% per annum, as per Monetary Board Resolution No. 796, superseding the previous 12% rate.