Calilung v. Paramount Insurance Corp.
REITERATIONFacts
The Antecedents: Tarcisio S. Calilung (petitioner) proposed to buy shares worth P1,000,000.00 from RP Technical Services, Inc. (RPTSI). Instead, he agreed to invest P718,750.00 to finance a Shell Station Project, with the remaining balance to be invested. On October 9, 1987, Renato Punzalan, on behalf of RPTSI, executed a promissory note in favor of Calilung for P718,750.00 with 14% interest per annum, payable on or before April 9, 1988. Paramount Insurance Corporation (Paramount) guaranteed this note under a surety bond. Punzalan and Jose Manalo, Jr. executed an indemnity agreement with Paramount. RPTSI failed to pay Calilung, leading him to file a complaint for sum of money against RPTSI and Paramount. Paramount filed a third-party complaint against RPTSI and its officers for reimbursement. The defense raised by RPTSI, Paramount, Punzalan, and Manalo, Jr. included denial of authorization, lack of profit, novation of the surety bond, and simulation of the contract. Procedural History: The Regional Trial Court (RTC), Branch 154, Pasig City, ruled in favor of Calilung, ordering RPTSI and Paramount jointly and severally to pay P718,750.00 with 14% interest per annum from October 7, 1987, until fully paid, plus attorney's fees and costs. Paramount was also ordered to reimburse Calilung for any amount it paid. The Court of Appeals (CA) affirmed the RTC decision in toto. The Supreme Court, in a resolution dated March 16, 2005, upheld the CA's decision, finding that factual issues regarding the validity of the promissory note were beyond the scope of a petition for review on certiorari. This resolution became final and executory on July 19, 2005. The Petition: During the execution stage, Calilung sought compounded interest pursuant to Article 2212 of the Civil Code. The RTC issued three orders: (1) denying compounded interest, holding that the final judgment did not decree it and that the obligation was not a loan or forbearance of money; (2) granting compounded interest upon reconsideration, finding that Paramount's suretyship ripened into a loan obligation upon default of the principal debtor; and (3) reverting to the denial of compounded interest, citing the immutability of judgments and the absence of such a decree in the final decision. Calilung appealed the third order.
Issue(s)
Whether the petitioner is entitled to compounded interest on the judgment debt pursuant to Article 2212 of the Civil Code, and whether awarding compounded interest would violate the doctrine of immutability of judgments. Whether the obligation of Paramount Insurance Corporation, arising from a surety bond, constitutes a loan or forbearance of money for the purpose of applying Article 2212 of the Civil Code.
Ruling
The petition is denied. The orders dated July 28, 2009, and February 10, 2011, of the Regional Trial Court, Branch 154, Pasig City, are affirmed. The Court directs the RTC to forthwith issue the writ of execution to enforce the final and executory judgment in accordance with its decree. The petitioner is ordered to pay the costs of suit.
Ratio Decidendi
On the entitlement to compounded interest and violation of immutability of judgments: The Court reiterated the principle that upon finality, a judgment becomes immutable and can no longer be modified or disturbed. The execution of a judgment must conform to, and not vary from, the decree in the final and immutable judgment. In this case, the final and executory judgment decreed the payment of P718,750.00 with 14% per annum interest from October 7, 1987, until full payment, plus attorney's fees and costs. The judgment did not include any provision for compounded interest. Therefore, awarding compounded interest during the execution stage would constitute a modification of the final judgment, violating the doctrine of immutability of judgments. The RTC correctly reverted to its initial stance in its third order, setting aside its second order that had allowed compounding. On whether the obligation is a loan or forbearance of money: The Court clarified that while Paramount's obligation arose from a surety bond that guaranteed the loan obligation of RPTSI to Calilung, Paramount's liability as a surety is distinct from a direct loan or forbearance of money. The obligation of Paramount was to answer for the debt of RPTSI should the latter default. The Supreme Court has held that Article 2212 of the Civil Code, which allows interest due to earn legal interest from the time it is judicially demanded, applies only when the obligation breached is for the payment of a sum of money, i.e., a loan or forbearance of money. The obligation of Paramount, as a surety, did not directly fall under this classification, even though it stemmed from a loan default. The interest to be collected remains the simple interest of 14% per annum as stipulated and decreed in the final judgment.
Main Doctrine
The execution of a final and executory judgment must conform to, and not vary from, the decree in the judgment. Compounded interest cannot be awarded if the final judgment did not explicitly decree it, as doing so would violate the immutability of judgments. The obligation arising from a surety bond, while securing a loan, is distinct from a loan or forbearance of money for the purpose of applying rules on compounded interest under Article 2212 of the Civil Code.