G.R. No.

L-20240
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20240

December 31, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSE GRIJALDO, defendant-appellant.
Office of the Solicitor General for plaintiff-appellee.
Isabelo P. Samson for defendant-appellant.
ZALDIVAR, J.:
In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank
of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per
annum, compounded quarterly. These loans are evidenced by five promissory notes executed by
the appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1, 1943, P600.00; on June
3, 1943, P159.11; on June 18, 1943, P22.86; on August 9, 1943,P300.00; on August 13, 1943,
P200.00, all notes without due dates, but because the loans were due one year after they were
incurred. To secure the payment of the loans the appellant executed a chattel mortgage on the
standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros
Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for
in the Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank of
Taiwan, Ltd. were vested in the Government of the United States. Pursuant to the Philippine
Property Act of 1946 of the United States, these assets, including the loans in question, were
subsequently transferred to the Republic of the Philippines by the Government of the United
States under Transfer Agreement dated July 20, 1954. These assets were among the properties
that were placed under the administration of the Board of Liquidators created under Executive
Order No. 372, dated November 24, 1950, and in accordance with Republic Acts Nos. 8 and 477
and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman
of the Board of Liquidators, made a written extrajudicial demand upon the appellant for the

payment of the account in question. The record shows that the appellant had actually received the
written demand for payment, but he failed to pay.
The aggregate amount due as principal of the five loans in question, computed under the
Ballantyne scale of values as of the time that the loans were incurred in 1943, was P889.64; and
the interest due thereon at the rate of 6% per annum compounded quarterly, computed as of
December 31, 1959 was P2,377.23.
On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of
Hinigaran, Negros Occidental, to collect from the appellant the unpaid account in question. The
Justice of the Peace Of Hinigaran, after hearing, dismissed the case on the ground that the action
had prescribed. The appellee appealed to the Court of First Instance of Negros Occidental and on
March 26, 1962 the court a quo rendered a decision ordering the appellant to pay the appellee the
sum of P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum
compounded quarterly from the date of the filing of the complaint until full payment was made.
The appellant was also ordered to pay the sum equivalent to 10% of the amount due as attorney's
fees and costs.
The appellant appealed directly to this Court. During the pendency of this appeal the appellant
Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a resolution of May 13,
1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who
are the legal heirs of Jose Grijaldo to appear and be substituted as appellants in accordance with
Section 17 of Rule 3 of the Rules of Court.
In the present appeal the appellant contends: (1) that the appellee has no cause of action against
the appellant; (2) that if the appellee has a cause of action at all, that action had prescribed; and
(3) that the lower court erred in ordering the appellant to pay the amount of P2,377.23.
In discussing the first point of contention, the appellant maintains that the appellee has no privity
of contract with the appellant. It is claimed that the transaction between the Taiwan Bank, Ltd.
and the appellant, so that the appellee, Republic of the Philippines, could not legally bring action
against the appellant for the enforcement of the obligation involved in said transaction. This
contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original creditor and the
transaction between the appellant and the Bank of Taiwan was a private contract of loan.
However, pursuant to the Trading with the Enemy Act, as amended, and Executive Order No.
9095 of the United States; and under Vesting Order No. P-4, dated January 21, 1946, the
properties of the Bank of Taiwan, Ltd., an entity which was declared to be under the jurisdiction
of the enemy country (Japan), were vested in the United States Government and the Republic of
the Philippines, the assets of the Bank of Taiwan, Ltd. were transferred to and vested in the
Republic of the Philippines. The successive transfer of the rights over the loans in question from
the Bank of Taiwan, Ltd. to the United States Government, and from the United States
Government to the government of the Republic of the Philippines, made the Republic of the
Philippines the successor of the rights, title and interest in said loans, thereby creating a privity of
contract between the appellee and the appellant. In defining the word "privy" this Court, in a
case, said:

The word "privy" denotes the idea of succession ... hence an assignee of a credit,
and one subrogated to it, etc. will be privies; in short, he who by succession is
placed in the position of one of those who contracted the judicial relation and
executed the private document and appears to be substituting him in the personal
rights and obligation is a privy (Alpurto vs. Perez, 38 Phil. 785, 790).
The United States of America acting as a belligerent sovereign power seized the assets of the
Bank of Taiwan, Ltd. which belonged to an enemy country. The confiscation of the assets of the
Bank of Taiwan, Ltd. being an involuntary act of war, and sanctioned by international law, the
United States succeeded to the rights and interests of said Bank of Taiwan, Ltd. over the assets of
said bank. As successor in interest in, and transferee of, the property rights of the United States
of America over the loans in question, the Republic of the Philippines had thereby become a
privy to the original contracts of loan between the Bank of Taiwan, Ltd. and the appellant. It
follows, therefore, that the Republic of the Philippines has a legal right to bring the present
action against the appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the appellee has no cause of
action, that because the loans were secured by a chattel mortgage on the standing crops on a land
owned by him and these crops were lost or destroyed through enemy action his obligation to pay
the loans was thereby extinguished. This argument is untenable. The terms of the promissory
notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan, Ltd.
do not support the claim of appellant. The obligation of the appellant under the five promissory
notes was not to deliver a determinate thing namely, the crops to be harvested from his land, or
the value of the crops that would be harvested from his land. Rather, his obligation was to pay a
generic thing the amount of money representing the total sum of the five loans, with interest.
The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts
of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to
another ... money or other consumable thing upon the condition that the same amount of the
same kind and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant
under the five promissory notes evidencing the loans in questions is to pay the value thereof; that
is, to deliver a sum of money a clear case of an obligation to deliver, a generic thing. Article
1263 of the Civil Code provides:
In an obligation to deliver a generic thing, the loss or destruction of anything of
the same kind does not extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a security for the
fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the
crops did not extinguish his obligation to pay, because the account could still be paid from other
sources aside from the mortgaged crops.
In his second point of contention, the appellant maintains that the action of the appellee had
prescribed. The appellant points out that the loans became due on June 1, 1944; and when the
complaint was filed on January 17,1961 a period of more than 16 years had already elapsed
far beyond the period of ten years when an action based on a written contract should be brought
to court.

This contention of the appellant has no merit. Firstly, it should be considered that the complaint
in the present case was brought by the Republic of the Philippines not as a nominal party but in
the exercise of its sovereign functions, to protect the interests of the State over a public property.
Under paragraph 4 of Article 1108 of the Civil Code prescription, both acquisitive and extinctive,
does not run against the State. This Court has held that the statute of limitations does not run
against the right of action of the Government of the Philippines (Government of the Philippine
Islands vs. Monte de Piedad, etc., 35 Phil. 738-751).Secondly, the running of the period of
prescription of the action to collect the loan from the appellant was interrupted by the
moratorium laws (Executive Orders No. 25, dated November 18, 1944; Executive Order No. 32.
dated March 10, 1945; and Republic Act No. 342, approved on July 26, 1948). The loan in
question, as evidenced by the five promissory notes, were incurred in the year 1943, or during
the period of Japanese occupation of the Philippines. This case is squarely covered by Executive
Order No. 25, which became effective on November 18, 1944, providing for the suspension of
payments of debts incurred after December 31, 1941. The period of prescription was, therefore,
suspended beginning November 18, 1944. This Court, in the case of Rutter vs. Esteban (L-3708,
May 18, 1953, 93 Phil. 68), declared on May 18, 1953 that the Moratorium Laws, R.A. No. 342
and Executive Orders Nos. 25 and 32, are unconstitutional; but in that case this Court ruled that
the moratorium laws had suspended the prescriptive period until May 18, 1953. This ruling was
categorically reiterated in the decision in the case of Manila Motors vs. Flores, L-9396, August
16, 1956. It follows, therefore, that the prescriptive period in the case now before US was
suspended from November 18,1944, when Executive Orders Nos. 25 and 32 were declared
unconstitutional by this Court. Computed accordingly, the prescriptive period was suspended for
8 years and 6 months. By the appellant's own admission, the cause of action on the five
promissory notes in question arose on June 1, 1944. The complaint in the present case was filed
on January 17, 1961, or after a period of 16 years, 6 months and 16 days when the cause of
action arose. If the prescriptive period was not interrupted by the moratorium laws, the action
would have prescribed already; but, as We have stated, the prescriptive period was suspended by
the moratorium laws for a period of 8 years and 6 months. If we deduct the period of suspension
(8 years and 6 months) from the period that elapsed from the time the cause of action arose to the
time when the complaint was filed (16 years, 6 months and 16 days) there remains a period of 8
years and 16 days. In other words, the prescriptive period ran for only 8 years and 16 days. There
still remained a period of one year, 11 months and 14 days of the prescriptive period when the
complaint was filed.
In his third point of contention the appellant maintains that the lower court erred in ordering him
to pay the amount of P2,377.23. It is claimed by the appellant that it was error on the part of the
lower court to apply the Ballantyne Scale of values in evaluating the Japanese war notes as of
June 1943 when the loans were incurred, because what should be done is to evaluate the loans on
the basis of the Ballantyne Scale as of the time the loans became due, and that was in June 1944.
This contention of the appellant is also without merit.
The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of
December 31, 1959, plus interest rate of 6% per annum compounded quarterly from the date of
the filing of the complaint. The sum total of the five loans obtained by the appellant from the
Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed under the Ballantyne
Scale of values as of June 1943, this sum of P1,281.97 in Japanese war notes in June 1943 is

equivalent to P889.64 in genuine Philippine currency which was considered the aggregate
amount due as principal of the five loans, and the amount of P2,377.23 as of December 31, 1959
was arrived at after computing the interest on the principal sum of P889.64 compounded
quarterly from the time the obligations were incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of values should be applied as of the time
the obligation was incurred, and that was in June 1943. This stand of the appellee was upheld by
the lower court; and the decision of the lower court is supported by the ruling of this Court in the
case of Hilado vs. De la Costa (G.R. No. L-150, April 30, 1949; 46 O.G. 5472), which states:
... Contracts stipulating for payments presumably in Japanese war notes may be
enforced in our Courts after the liberation to the extent of the just obligation of the
contracting parties and, as said notes have become worthless, in order that justice
may be done and the party entitled to be paid can recover their actual value in
Philippine Currency, what the debtor or defendant bank should return or pay is
the value of the Japanese military notes in relation to the peso in Philippine
Currency obtaining on the date when and at the place where the obligation was
incurred unless the parties had agreed otherwise. ... . (italics supplied)
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs against the
appellant. Inasmuch as the appellant Jose Grijaldo died during the pendency of this appeal, his
estate must answer in the execution of the judgment in the present case.
Bengzon, C.J., Concepcion, Barrera, Regala, Bautista Angelo, Reyes, J.B.L., Makalintal and
Bengzon, J.P., JJ., concur.
The Lawphil Project - Arellano Law Foundation

REPUBLIC vs GRIJALDO, GR L-20240

Facts

Appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan
These loans are evidenced by five promissory notes executed by the appellant in favor of
the Bank of Taiwan
To secure the payment of the loans the appellant executed a chattel mortgage on the
standing crops on his land
the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government
of the United States
Pursuant to the Philippine Property Act of 1946 of the United States, these assets,
including the loans in question, were subsequently transferred to the Republic of the
Philippines by the Government of the United States under Transfer Agreement dated July
20, 1954
the appellee, Republic of the Philippines, represented by the Chairman of the Board of
Liquidators, made a written extrajudicial demand upon the appellant for the payment of
the account in question.
the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros
Occidental, to collect from the appellant the unpaid account in question
the court a quo rendered a decision ordering the appellant to pay the appellee the sum of
P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum
compounded quarterly

Issue:

In the present appeal the appellant contends: (1) that the appellee has no cause of action
against the appellant; (2) that if the appellee has a cause of action at all, that action had
prescribed; and (3) that the lower court erred in ordering the appellant to pay the amount
of P2,377.23.

Held:

This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original
creditor and the transaction between the appellant and the Bank of Taiwan was a private
contract of loan.
The successive transfer of the rights over the loans in question from the Bank of Taiwan,
Ltd. to the United States Government, and from the United States Government to the
government of the Republic of the Philippines, made the Republic of the Philippines the
successor of the rights, title and interest in said loans, thereby creating a privity of
contract between the appellee and the appellant.

The word "privy" denotes the idea of succession ... hence an assignee of a credit, and one
subrogated to it, etc. will be privies
The United States of America acting as a belligerent sovereign power seized the assets of
the Bank of Taiwan, Ltd. which belonged to an enemy country.
the Republic of the Philippines had thereby become a privy to the original contracts of
loan between the Bank of Taiwan, Ltd. and the appellant.
the loans were secured by a chattel mortgage on the standing crops on a land owned by
him and these crops were lost or destroyed through enemy action his obligation to pay the
loans was thereby extinguished. This argument is untenable. The terms of the promissory
notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan,
Ltd. do not support the claim of appellant
The obligation of the appellant under the five promissory notes was not to deliver a
determinate thing namely, the crops to be harvested from his land, or the value of the
crops that would be harvested from his land. Rather, his obligation was to pay a generic
thing the amount of money representing the total sum of the five loans, with interest.
of simple loan of sums of money. "By a contract of (simple) loan, one of the parties
delivers to another ... money or other consumable thing upon the condition that the same
amount of the same kind and quality shall be paid."
In an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a security
for the fulfillment of appellant's obligation covered by the five promissory notes, and the
loss of the crops did not extinguish his obligation to pay, because the account could still
be paid from other sources aside from the mortgaged crops.
This contention of the appellant is also without merit.
The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of
December 31, 1959, plus interest rate of 6% per annum compounded quarterly from the
date of the filing of the complaint.
The decision appealed from is affirmed, with costs against the appellant.
His estate must answer in the execution of the judgment in the present case.

Maria Soledad Tomimbang vs Atty. Jose Tomimbang

This resolves the petition for review on certiorari under Rule 45 of the Rules of Court, praying that the
Decision[1] dated July 1, 2004 and Resolution[2] dated August 31, 2004promulgated by the Court of
Appeals (CA), be reversed and set aside.

The antecedent facts are as follows.

Petitioner and respondent are siblings. Their parents donated to petitioner an eight-door apartment located
at 149 Santolan Road, Murphy, Quezon City, with the condition that during the parents' lifetime, they
shall retain control over the property and petitioner shall be the administrator thereof.
In 1995, petitioner applied for a loan from PAG-IBIG Fund to finance the renovations on Unit H, of said
apartment which she intended to use as her residence. Petitioner failed to obtain a loan from PAG-IBIG
Fund, hence, respondent offered to extend a credit line to petitioner on the following conditions: (1)
petitioner shall keep a record of all the advances; (2) petitioner shall start paying the loan upon the
completion of the renovation; (3) upon completion of the renovation, a loan and mortgage agreement
based on the amount of the advances made shall be executed by petitioner and respondent; and (4) the
loan agreement shall contain comfortable terms and conditions which petitioner could have obtained from
PAG-IBIG.[3]

Petitioner accepted respondent's offer of a credit line and work on the apartment units began. Renovations
on Units B to G were completed, and the work has just started on Unit A when an altercation broke out
between herein parties. In view of said conflict, respondent and petitioner, along with some family
members, held a meeting in the house of their brother Genaro sometime in the second quarter of
1997. Respondent and petitioner entered into a new agreement whereby petitioner was to start making
monthly payments on her loan. Upon respondent's demand, petitioner turned over to respondent all the
records of the cash advances for the renovations. Subsequently, or from June to October of 1997,
petitioner made monthly payments of P18,700.00, or a total of P93,500.00. Petitioner never denied the
fact that she started making such monthly payments.

In October of 1997, a quarrel also occurred between respondent and another sister, Maricion, who was
then defending the actions of petitioner. Because of said incident, they had a hearing at the Barangay. At
said hearing, respondent had the occasion to remind petitioner of her monthly payment. Petitioner
allegedly answered, Kalimutan mo na ang pera mo wala tayong pinirmahan. Hindi ako natatakot sa
'yo! Thereafter, petitioner left Unit H and could no longer be found. Petitioner being the owner of the
apartments, renovations on Unit A were discontinued when her whereabouts could not be located. She

also stopped making monthly payments and ignored the demand letter dated December 2, 1997 sent by
respondent's counsel.

On February 2, 1998, respondent filed a Complaint against petitioner, demanding the latter to pay the
former the net amount of P3,989,802.25 plus interest of 12% per annum from date of default.

At the pre-trial conference, the issues were narrowed down as follows:

1.
Whether or not a loan was duly constituted between the plaintiff and the defendant in connection
with the improvements or renovations on apartment units A-H, which is in the name of the defendant
[herein petitioner];

2.
Assuming that such a loan was duly constituted in favor of plaintiff [herein respondent], whether or
not the same is already due and payable;

3.
Assuming that said loan is already due and demandable, whether or not it is to be paid out of the
rental proceeds from the apartment units mentioned, presuming that such issue was raised in the Answer
of the Defendant;

4.
Assuming that the said loan was duly constituted in favor of plaintiff [herein respondent], whether
or not it is in the amount of P3,909,802.20 and whether or not it will earn legal interest at the rate of 12%
per annum, compounded, as provided in Article 2212 of the Civil Code of the Philippines, from the date
of the extrajudicial demand; and

5.
Whether or not the plaintiff [herein respondent] is entitled to the reliefs prayed for in his Complaint
or whether or not it is the defendant [herein petitioner] who is entitled to the reliefs prayed for in her
Answer with Counterclaim.[4]
On November 15, 2002, the Regional Trial Court (RTC) of Quezon City, Branch 82, rendered a Decision,
[5]
the dispositive portion of which reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendant ordering the latter to pay the former the following:

1.
The sum of P3,989,802.25 with interest thereon at the legal rate of 12% per annum computed from
the date of default until the whole obligation is fully paid;

2.

The sum of P50,000.00 as and by way of attorney's fees; and

3.

The cost of suit.

SO ORDERED.[6]

Petitioner appealed the foregoing RTC Decision to the CA, but on July 1, 2004, the Court of Appeals
promulgated its Decision affirming in toto said RTC judgment. A motion for reconsideration of the CA
Decision was denied per Resolution dated August 31, 2004.

Hence, this petition where petitioner alleges that:

I.

THE COURT OF APPEALS ACTED NOT IN ACCORD WITH LAW AND APPLICABLE
JURISPRUDENCE OF THE SUPREME COURT WHEN IT AFFIRMED THELOWER COURT'S
FINDING THAT THE LOAN BETWEEN PETITIONER AND RESPONDENT IS ALREADY DUE
AND DEMANDABLE.

II.

THE COURT OF APPEALS ERRED BY DEPARTING FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS OF AFFIRMING THE DUE AND DEMANDABILITY OF
THE LOAN CONTRARY TO THE EVIDENCE PRESENTED IN THE LOWER COURT AND
SANCTIONING SUCH DEPARTURE BY THE LOWER COURT IN THE INSTANT CASE.

III.

THE COURT OF APPEALS ERRED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS OF AFFIRMING THE AWARD OF ATTORNEY'S FEES TO THE RESPONDENT
WITHOUT ANY BASIS AND SANCTIONING SUCH DEPARTURE BY THE LOWER COURT IN
THE INSTANT CASE.[7]

The main issues in this case boil down to (1) whether petitioner's obligation is due and demandable; (2)
whether respondent is entitled to attorney's fees; and (3) whether interest should be imposed on
petitioner's indebtedness and, if in the affirmative, at what rate.

Petitioner does not deny that she obtained a loan from respondent. She, however, contends that the loan is
not yet due and demandable because the suspensive condition the completion of the renovation of the
apartment units - has not yet been fulfilled. She also assails the award of attorney's fees to respondent as
baseless.

For his part, respondent admits that initially, they agreed that payment of the loan shall be made upon
completion of the renovations. However, respondent claims that during their meeting with some family
members in the house of their brother Genaro sometime in the second quarter of 1997, he and petitioner
entered into a new agreement whereby petitioner was to start making monthly payments on her loan,
which she did from June to October of 1997. In respondent's view, there was a novation of the original
agreement, and under the terms of their new agreement, petitioner's obligation was already due and
demandable.

Respondent also maintains that when petitioner disappeared from the family compound without leaving
information as to where she could be found, making it impossible to continue the renovations, petitioner
thereby prevented the fulfillment of said condition. He claims that Article 1186 of the Civil Code, which
provides that the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment,
is applicable to this case.

In his Comment to the present petition, respondent raised for the first time, the issue that the loan contract
between him and petitioner is actually one with a period, not one with a suspensive condition. In his view,
when petitioner began to make partial payments on the loan, the latter waived the benefit of the term,
making the loan immediately demandable.

Respondent also believes that he is entitled to attorney's fees, as petitioner allegedly showed bad faith by
absconding and compelling him to litigate.

The Court finds the petition unmeritorious.

It is undisputed that herein parties entered into a valid loan contract. The only question is, has petitioner's
obligation become due and demandable? The Court resolves the question in the affirmative.

The evidence on record clearly shows that after renovation of seven out of the eight apartment units had
been completed, petitioner and respondent agreed that the former shall already start making monthly
payments on the loan even if renovation on the last unit (Unit A) was still pending. Genaro Tomimbang,
the younger brother of herein parties, testified that a meeting was held among petitioner, respondent,
himself and their eldest sister Maricion, sometime during the first or second quarter of 1997, wherein
respondent demanded payment of the loan, and petitioner agreed to pay. Indeed, petitioner began to make
monthly payments from June to October of 1997 totalling P93,500.00.[8] In fact, petitioner even admitted
in her Answer with Counterclaim that she had started to make payments to plaintiff [herein
respondent] as the same was in accord with her commitment to pay whenever she was able; x x x .[9]

Evidently, by virtue of the subsequent agreement, the parties mutually dispensed with the condition that
petitioner shall only begin paying after the completion of all renovations.There was, in effect, a
modificatory or partial novation, of petitioner's obligation. Article 1291 of the Civil Code provides, thus:

Art. 1291. Obligations may be modified by:

(1)

Changing their object or principal conditions;

(2)

Substituting the person of the debtor;

(3)

Subrogating a third person in the rights of the creditor. (Emphasis supplied)

In Iloilo Traders Finance, Inc. v. Heirs of Sps. Soriano,[10] the Court expounded on the nature of novation,
to wit:

Novation may either be extinctive or modificatory, much being dependent on the nature of the change
and the intention of the parties. Extinctive novation is never presumed; there must be an express intention
to novate; x x x .

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and,
second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential
requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3)
the extinguishment of the old obligation; and (4) the birth of a new valid obligation. Novation is merely
modificatory where the change brought about by any subsequent agreement is merely incidental to
the main obligation (e.g., a change in interest rates or an extension of time to pay); in this instance,
the new agreement will not have the effect of extinguishing the first but would merely supplement it
or supplant some but not all of its provisions.[11]

In Ong v. Bogalbal,[12] the Court also stated, thus:

x x x the effect of novation may be partial or total. There is partial novation when there is only a
modification or change in some principal conditions of the obligation. It is total, when the obligation is
completely extinguished. Also, the term principal conditions in Article 1291 should be construed to
include a change in the period to comply with the obligation. Such a change in the period would only be a
partial novation since the period merely affects the performance, not the creation of the obligation. [13]

As can be gleaned from the foregoing, the aforementioned four essential elements and the requirement
that there be total incompatibility between the old and new obligation, apply only to extinctive
novation. In partial novation, only the terms and conditions of the obligation are altered, thus, the main
obligation is not changed and it remains in force.

Petitioner stated in her Answer with Counterclaim [14] that she agreed and complied with respondent's
demand for her to begin paying her loan, since she believed this was in accordance with her commitment
to pay whenever she was able. Her partial performance of her obligation is unmistakable proof that indeed
the original agreement between her and respondent had been novated by the deletion of the condition that
payments shall be made only after completion of renovations. Hence, by her very own admission and
partial performance of her obligation, there can be no other conclusion but that under the novated
agreement, petitioner's obligation is already due and demandable.

With the foregoing finding that petitioner's obligation is due and demandable, there is no longer any need
to discuss whether petitioner's disappearance from the family compound prevented the fulfillment of the
original condition, necessitating application of Article 1186 of the Civil Code, or whether the obligation is
one with a condition or a period.

As to attorney's fees, however, the award therefor cannot be allowed by the Court. It is an oft-repeated
rule that the trial court is required to state the factual, legal or equitable justification for awarding
attorney's fees.[15] The Court explained in Buing v. Santos,[16] to wit:

x x x While Article 2208 of the Civil Code allows attorney's fees to be awarded if the claimant is
compelled to litigate with third persons or to incur expenses to protect his interest by reason of an
unjustified act or omission of the party from whom it is sought, there must be a showing that the losing
party acted willfully or in bad faith and practically compelled the claimant to litigate and incur
litigation expenses. In view of the declared policy of the law that awards of attorney's fees are the
exception rather than the rule, it is necessary for the trial court to make express findings of facts
and law that would bring the case within the exception and justify the grant of such award. x x x.

Thus, the matter of attorney's fees cannot be touched upon only in the dispositive portion of the
decision. The text itself must state the reasons why attorney's fees are being awarded. x xx [17]
In the above-quoted case, there was a finding that defendants therein had no intention of fulfilling their
obligation in complete disregard of the plaintiffs right, and yet, the Court did not deem this as sufficient
justification for the award of attorney's fees. Verily, in the present case, where it is understandable that
some misunderstanding could arise as to when the obligation was indeed due and demandable, the Court
must likewise disallow the award of attorney's fees.

We now come to a discussion of whether interest should be imposed on petitioner's

indebtedness. In Royal Cargo Corp. v. DFS Sports Unlimited, Inc.,[18] the Court reiterated the settled rule
on imposition of interest, thus:

As to computation of legal interest, the seminal ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals controls, to wit:
xxxx

II.
With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1.
When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3.
When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

The foregoing rule on legal interest was explained in Sunga-Chan v. Court of Appeals,[19] in this wise:

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the
applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only to
loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code
applies when the transaction involves the payment of indemnities in the concept of damage arising from
the breach or a delay in the performance of obligations in general, with the application of both rates
reckoned from the time the complaint was filed until the [adjudged] amount is fully paid. In either
instance, the reckoning period for the commencement of the running of the legal interest shall be subject
to the condition that the courts are vested with discretion, depending on the equities of each case, on the
award of interest.[20]

In accordance with the above ruling, since the obligation in this case involves a loan and there is no
stipulation in writing as to interest due, the rate of interest shall be 12% per annum computed from the
date of extrajudicial demand.

Facts:

Maria Soledad Tomimbang herein the petitioner was an heir to a certain property, when repairs
and improvements were deemed necessary she opted to borrow money from her brother Jose
Tomimbang the respondent. Their agreement was that her obligation to pay would become due
and demandable upon completion of the renovations. Upon her failure to pay, respondent filed
for suit, the lower courts ruling in his favor. Hence the petition.
Issues: Whether petitioner's obligation is due and demandable, and was due.
The lower courts did not err in their decision to grant respondent the loan that was owed him.

The respondent claims that there was in fact a novation on their agreement, and that the
obligation was due and demandable the moment that she became a hindrance to the
obligation, and having lost the benefit of her term upon making partial payments.

Whether respondent is entitled to attorney's fees; No. The courts found no reason why the
respondent should be allowed the benefit of attorneys fees. Whether interest should be
imposed on petitioner's indebtedness and, if in the affirmative, at what rate. The answer
was in the case above. 12% per annum, computed from the date of the extrajudicial
demand.