Piczon vs. Piczon

Where a contract expressly stipulates the date from which stipulated interest shall commence, interest is payable from that date and not from the time the debtor is placed in default by judicial or extrajudicial demand. A party's liability as guarantor rather than surety is governed by the express terms of the contract; the word "guarantor" may not be disregarded to impose the heavier liability of a surety.

Esteban Piczon was the president, controlling stockholder, and incorporator of Sosing-Lobos & Co., Inc., a corporation then in the process of registration with the Securities and Exchange Commission. He contracted a loan of P12,500 from another corporation, Piczon and Co., Inc., to serve as surety cash deposit for the SEC registration of Sosing-Lobos & Co., Inc. The right of action under the loan agreement was subsequently transferred, through a mutual quit-claim and amicable settlement (Annex "B"), to the heirs of Alejandro Piczon — Consuelo P. Piczon, Ruben O. Piczon, and Aida P. Alcantara — who became the plaintiffs-appellants.

On September 28, 1956, Esteban Piczon, acting in his capacity as president and controlling stockholder of Sosing-Lobos & Co., Inc., and simultaneously as guarantor, executed a loan agreement (Annex "A") whereby he contracted a loan of P12,500 from Piczon and Co., Inc. The loan was intended to serve as surety cash deposit for the registration of Sosing-Lobos & Co., Inc. with the Securities and Exchange Commission. The agreement expressly stipulated that Esteban Piczon undertook to "return or pay the same amount with Twelve Per Cent (12%) interest per annum, commencing from the date of execution hereof" to Piczon and Co., Inc., as soon as the incorporation papers were duly registered and the certificate of incorporation issued.

Subsequently, through a document entitled "Mutual Quit Claims, Cessions and Amicable Settlement" (Annex "B"), the right of action of Piczon and Co., Inc. under Annex "A" was transferred to the heirs of Alejandro Piczon — Consuelo P. Piczon, Ruben O. Piczon, and Aida P. Alcantara — who thereafter instituted Civil Case No. 5156 in the Court of First Instance of Samar against Esteban Piczon and Sosing-Lobos & Co., Inc.

At the pre-trial held on August 22, 1967, the parties stipulated that defendants admitted the due execution of Annexes "A" and "B," and that Sosing-Lobos & Co., Inc. bound itself to pay the plaintiffs P12,500 on or before October 31, 1967, together with interest as the court may determine. The parties agreed that the remaining issues were purely legal: first, whether the 12% interest should commence from August 6, 1964, when plaintiffs made the first demand, or from August 29, 1956, when the obligation became due and demandable; and second, whether Esteban Piczon was liable as a guarantor or as a surety.

The trial court rendered judgment sentencing Sosing-Lobos & Co., Inc. as principal and Esteban Piczon as guarantor to pay P12,500 with 12% interest from August 6, 1964 until full payment, plus costs. The plaintiffs-appellants appealed, assigning error in the commencement date of interest, the characterization of Esteban Piczon as guarantor rather than surety, and the failure to adjudicate damages in their favor.

• Commencement of Interest: Plaintiffs-appellants argued that the trial court erred in ordering payment of 12% interest from August 6, 1964 only, instead of from September 28, 1956, when Annex "A" was duly executed, the agreement having expressly stipulated that interest would commence from the date of its execution.
• Nature of Liability: Plaintiffs-appellants maintained that Esteban Piczon should be held liable as a surety and not merely as a guarantor, contending that because Sosing-Lobos & Co., Inc. did not yet exist as a corporation at the time of the agreement, Piczon necessarily must have bound himself as an insurer.
• Damages: Plaintiffs-appellants argued that the trial court erred in not adjudicating damages in their favor, including legal interest upon the stipulated interest due, as part of the relief just and equitable in the premises.

• Commencement of Interest: Defendants-appellees contended that the reference in Article 2209 of the Civil Code to delay incurred by the debtor refers to delay as defined in Article 1169, which requires judicial or extrajudicial demand, and that interest should therefore commence only from the date of demand, August 6, 1964.
• Nature of Liability: Defendants-appellees argued that Esteban Piczon was liable only as a guarantor, the contract having expressly used the word "guarantor," and that under the pre-trial order, appellants had accepted the express assumption of liability by Sosing-Lobos & Co., Inc., thereby modifying their original posture that Piczon bound himself as insurer.

• Commencement of Stipulated Interest: Whether the 12% stipulated interest on the P12,500 loan should commence from September 28, 1956, the date of execution of the loan agreement, or from August 6, 1964, the date of first demand.
• Guarantor vs. Surety: Whether Esteban Piczon is liable as a guarantor or as a surety under the terms of Annex "A."
• Damages and Interest on Interest: Whether damages, including legal interest upon stipulated interest due, should be adjudicated in favor of the plaintiffs-appellants.

• Commencement of Stipulated Interest: Yes. The stipulated 12% interest must commence from September 28, 1956, the date of execution of Annex "A," the agreement having expressly provided that interest would run "from the date of execution hereof." Where the contract stipulates from what time interest will be counted, that stipulated time controls.

• Guarantor vs. Surety: No. Esteban Piczon is liable only as a guarantor. A guaranty must be express under Article 2055 of the Civil Code, and the contract itself used the word "guarantor"; it would be violative of law to impose surety liability when the agreement expressly designates the party as guarantor.

• Damages and Interest on Interest: No. The prayer for legal interest upon interest due under Article 2212 of the Civil Code was not pleaded in the court below and cannot be deemed included in a general prayer for "any other relief just and equitable," especially where the pre-trial order did not enumerate it among the issues to be resolved.

• Commencement of Stipulated Interest: Article 2209 of the Civil Code provides that when the obligation consists in the payment of a sum of money and the debtor incurs in delay, the indemnity for damages shall be the payment of the interest agreed upon. Appellees contended that "delay" under Article 2209 refers to delay as defined in Article 1169, which requires judicial or extrajudicial demand. This contention was rejected. In Quiroz vs. Tan Guinlay, 5 Phil. 675, the Court held that the article on delay (then Article 1100 of the Old Civil Code) is applicable only when the obligation is to do something other than the payment of money. In Firestone Tire & Rubber Co. (P.I.) vs. Delgado, 104 Phil. 920, the Court squarely ruled that if the contract stipulates from what time interest will be counted, said stipulated time controls, and interest is payable from such time. Annex "A" expressly provided that the 12% interest would commence "from the date of execution hereof," which was September 28, 1956. The trial court should have adhered to the terms of the agreement. Were the contrary rule adopted, there would be no basis for Article 2212 of the Civil Code, which provides that interest due shall earn legal interest from the time it is judicially demanded, even if the obligation is silent on the point — implying that stipulated interest accrues independently of judicial demand.

• Guarantor vs. Surety: Under the terms of Annex "A," Esteban Piczon expressly bound himself only as "guarantor." Article 2055 of the Civil Code requires that a guaranty must be express. There were no circumstances in the record from which it could be deduced that his liability was that of a surety. It would be violative of law to consider a party bound as a surety when the very word used in the agreement is "guarantor." Moreover, under the pre-trial order, appellants had accepted the express assumption of liability by Sosing-Lobos & Co., Inc. for the payment of the obligation, thereby modifying their original posture that because the corporation did not yet exist at the time of the agreement, Piczon must have bound himself as insurer.

• Damages and Interest on Interest: Appellants' prayer for legal interest upon interest due from the filing of the complaint, under Article 2212 of the Civil Code, could no longer be entertained because it was not made an issue in the pleadings in the court below. A general prayer for "any other relief just and equitable in the premises" was insufficient to encompass such a substantial matter, particularly where the pre-trial order did not mention it in the enumeration of issues to be resolved. Appellees had no opportunity to meet the issue squarely at the pre-trial.

• Stipulated Interest Controls Over General Rule on Delay — Where a contract expressly stipulates the date from which interest shall commence, that stipulation controls, and interest is payable from the stipulated date, not from the date of judicial or extrajudicial demand. Article 1169 of the Civil Code, which defines delay as occurring upon judicial or extrajudicial demand, applies to obligations to do or deliver something other than the payment of money, not to monetary obligations where the parties have agreed on when interest begins to accrue. The Court applied this doctrine by holding that the 12% interest in Annex "A" commenced from September 28, 1956, the date of execution, as expressly stipulated.

• Guaranty Must Be Express — Under Article 2055 of the Civil Code, a guaranty must be express and cannot be presumed. A party cannot be held liable as a surety when the contract expressly designates him as a "guarantor." The Court applied this by affirming Esteban Piczon's liability as guarantor only, there being no circumstances justifying the imposition of surety liability.

• Issues Must Be Raised in the Pleadings — A claim for legal interest upon interest due under Article 2212 of the Civil Code cannot be entertained on appeal if it was not pleaded or raised as an issue in the court below. A general prayer for "any other relief just and equitable" does not suffice to include such a substantial matter, especially where the pre-trial order does not enumerate it among the issues.

• "if the contract stipulates from what time interest will be counted, said stipulated time controls, and, therefore interest is payable from such time, and not from the date of the filing of the complaint" — This passage, drawn from Firestone Tire & Rubber Co. (P.I.) vs. Delgado, articulates the controlling rule that contractual stipulations on the commencement of interest prevail over the general default rules on delay, and forms the ratio decidendi for the modification of the trial court's judgment.

• "A guaranty must be express, (Article 2055, Civil Code) and it would be violative of the law to consider a party to be bound as a surety when the very word used in the agreement is 'guarantor.'" — This passage defines the doctrinal boundary between guaranty and surety, anchoring the Court's refusal to upgrade Esteban Piczon's liability beyond what the contract expressly provided.

• "Were that not the law, there would be no basis for the provision of Article 2212 of the Civil Code providing that '(I)nterest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.'" — This passage explains the logical interdependence between the rule on stipulated interest and Article 2212, demonstrating that the latter presupposes the former: if stipulated interest did not accrue independently of demand, Article 2212 would be superfluous.

• Quiroz vs. Tan Guinlay, 5 Phil. 675 — Followed. The Court relied on this case for the proposition that the provision on delay (then Article 1100 of the Old Civil Code, now Article 1169) is applicable only when the obligation is to do something other than the payment of money, thereby undermining appellees' contention that demand was necessary to trigger stipulated interest on a monetary obligation.

• Firestone Tire & Rubber Co. (P.I.) vs. Delgado, 104 Phil. 920 — Followed as controlling authority. The Court squarely applied its ruling that where the contract stipulates from what time interest will be counted, the stipulated time controls, and interest is payable from such time rather than from the date of filing of the complaint.

• Article 2209, Civil Code — Provides that 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 of 6% per annum. Applied to uphold the parties' stipulated 12% interest, with the Court clarifying that "delay" in this context does not require demand where the contract fixes the commencement date of interest.

• Article 1169, Civil Code — Defines delay as occurring when the obligee judicially or extrajudicially demands fulfillment of the obligation, with exceptions where demand is not necessary. Appellees invoked this provision to argue that interest should run only from demand, but the Court held it inapplicable to monetary obligations where the contract stipulates the commencement of interest.

• Article 2055, Civil Code — Provides that a guaranty must be express and cannot be presumed. Applied to affirm that Esteban Piczon's liability was that of a guarantor only, the contract having expressly used the word "guarantor."

• Article 2212, Civil Code — Provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. The Court cited this provision to support the logical foundation of the rule on stipulated interest, but declined to apply it to appellants' benefit because the claim was not pleaded in the court below.

Fernando (Chairman), Antonio, Fernandez, and Aquino, JJ., concurred.