State Investment House, Inc. vs. Court of Appeals

A judgment which has become final and executory may be clarified where the dispositive portion contains an ambiguity arising from an inadvertent omission or mistake, and the court may resort to the body of the decision and the pleadings to supply the omission. However, a debtor who is not in delay remains liable for regular or monetary interest until actual payment, because tender of payment without consignation does not extinguish the obligation to pay principal-cum-regular interest.

Petitioner State Investment House, Inc. ("State") is a financing corporation engaged in the business of extending loans and purchasing receivables. Respondent spouses Rafael and Refugio Aquino were borrowers who pledged shares of stock to secure their loan obligations with State. The dispute arose from a pledge agreement executed by the spouses to secure a specific loan account, and the subsequent disagreement over whether the pledge also covered a separate loan extended to third parties, the spouses Jose and Marcelina Aquino. The case also involves the application of the Civil Code provisions on mora, tender of payment, and consignation, as well as the rules on final and executory judgments.

On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain shares of stock to petitioner State Investment House, Inc. ("State") to secure a loan of P120,000.00 designated as Account No. IF-82-0631-AA. Prior to the execution of the pledge, respondent spouses, as an accommodation to and together with the spouses Jose and Marcelina Aquino, signed an agreement (Account No. IF-82-1379-AA) with State for the latter's purchase of receivables amounting to P375,000.00. When Account No. IF-82-0631-AA fell due, respondent spouses paid the same partly with their own funds and partly from the proceeds of another loan obtained also from State, designated as Account No. IF-82-0904-AA. This new loan was secured by the same pledge agreement executed in relation to Account No. IF-82-0631-AA.

When the new loan matured, State demanded payment. Respondents expressed willingness to pay, requesting that upon payment, the shares of stock pledged be released. State denied the request on the ground that the loan extended to the spouses Jose and Marcelina Aquino (Account No. IF-82-1379-AA) had remained unpaid. On 29 June 1984, Atty. Rolando Salonga sent respondent spouses a Notice of Notarial Sale stating that upon request of State and by virtue of the pledge agreement, he would sell at public auction the shares of stock pledged to State.

This prompted respondents to file a case before the Regional Trial Court of Quezon City alleging that the intended foreclosure sale was illegal because from the time the obligation under Account No. IF-82-0904-AA became due, they had been able and willing to pay the same, but State had insisted that respondents pay even the loan account of Jose and Marcelina Aquino which had not been secured by the pledge. They further alleged that their failure to pay their loan was excused because State itself had prevented the satisfaction of the obligation.

The trial court, in a decision dated 14 December 1984 rendered by Judge Willelmo Fortun, initially dismissed the complaint. Respondent spouses filed a motion for reconsideration praying for a new decision ordering State to release the shares upon payment of respondents' loan "without interest," as the latter had not been in delay in the performance of their obligation. State countered that the pledge executed by respondent spouses also covered the loan extended to Jose and Marcelina Aquino. Acting on the motion for reconsideration, Judge Fortun set aside his original decision and rendered a new judgment dated 29 January 1985, ordering State to immediately release the pledge and to deliver to respondents the share of stock "upon payment of the loan under Code No. 82-0904-AA."

On appeal, the Court of Appeals affirmed in toto the new decision of the trial court, holding that the loan extended to Jose and Marcelina Aquino, having been executed prior to the pledge, was not covered by the pledge which secured only loans executed subsequently. The decisions of the Court of Appeals and of Judge Fortun became final and executory. Upon remand of the records for execution, disagreement developed over the amount respondent spouses should pay to secure the release of the shares — State contending that respondents should also pay interest and respondents arguing they should not. Respondent spouses then filed a motion with the trial court to clarify the Fortun decision, praying that the phrase "upon payment of plaintiffs' loan" be clarified to mean payment of the principal amount of P110,000.00 alone, "without interest, penalties and other charges."

On 17 February 1989, the trial court, speaking through Judge Perlita Tria Tirona, rendered a decision purporting to clarify the decision of Judge Fortun and ruling that State shall release respondents' shares of stock upon payment by respondents of the principal of the loan as set forth in PN No. 82-0904-AA in the amount of P110,000.00, without interest, penalties and other charges. State appealed to the Court of Appeals; the appeal was dismissed. The Court of Appeals agreed with Judge Tirona that no interest need be paid and added that the clarificatory decision merely restated what had been provided for in the earlier Fortun decision. The motion for reconsideration filed by State was accordingly denied.

• No Ambiguity in the Fortun Decision: Petitioner State contended that no manifest ambiguity existed in the decision penned by Judge Fortun, and that the trial court through Judge Tirona erred in clarifying the decision of Judge Fortun.
• Substantial Amendment of a Final Judgment: Petitioner argued that the amendment sought to be introduced in the Fortun decision by respondents may not be made as the same was substantial in nature and the Fortun decision had become final.
• Entitlement to Interest: Petitioner State contended that respondents should also pay interest on the loan, including penalty interest, before the shares of stock could be released.

• No Liability for Interest: Respondent spouses argued that they should not be required to pay interest, penalties, and other charges, and that the phrase "upon payment of plaintiffs' loan" should be clarified to mean payment of the principal amount of P110,000.00 alone, "without interest, penalties and other charges."
• No Mora: Respondents maintained that they were not in delay in the performance of their obligation because their failure to pay was excused by State's own unjustified refusal to release the shares pledged to them.

• Clarification of Final Judgment: Whether the trial court, through Judge Tirona, validly clarified the final and executory decision of Judge Fortun to mean that respondents need only pay the principal amount without interest, penalties, and other charges.
• Liability for Interest: Whether respondent spouses, having been found not in delay, were liable for regular or monetary interest and penalty or compensatory interest on the loan under Account No. IF-82-0904-AA.
• Effect of Tender of Payment Without Consignation: Whether the written tender of payment made by respondent spouses, without consignation in court, suspended the accrual of regular or monetary interest.

• Clarification of Final Judgment: Yes, the trial court had authority to issue a clarificatory order even after the judgment had become final and executory, but the clarification made by Judge Tirona was erroneous. The Fortun decision was ambiguous or cryptic in its dispositive portion, and the Court itself clarified it to require payment of principal plus regular interest.
• Liability for Interest: No, respondent spouses were not liable for penalty or compensatory interest, but they remained liable for regular or monetary interest at seventeen percent (17%) per annum. Since the spouses were not in delay, they were properly liable only for the principal of P110,000.00 and regular interest, not the penalty interest of two percent (2%) per month.
• Effect of Tender of Payment Without Consignation: No, the written tender of payment alone, without consignation in court of the sum due, did not suspend the accruing of regular or monetary interest. Under Article 1256 of the Civil Code, tender of payment must be accompanied or followed by consignation to produce the effects of payment.

• Clarification of Final Judgment: The Court began by noting that the trial court asserted authority to issue the clarificatory order even though the judgment had become final and executory. Citing Reinsurance Company of the Orient, Inc. vs. Court of Appeals, the Court recognized that even a final and executory judgment may be clarified where the dispositive portion contains an error clearly clerical in nature or an ambiguity arising from inadvertent omission. The Court found that the Fortun decision was ambiguous in the sense that it was cryptic — Judge Fortun did not specify which components of the loan (principal, regular interest, or penalty interest) he was ordering respondent spouses to pay and which he was deleting. The Court reasoned that it could not assume Judge Fortun meant to grant the relief prayed for in all its parts, since he granted only P10,000.00 moral damages and P5,000.00 exemplary damages when respondents had asked for "at least P50,000.00" for each. The Court held that in these circumstances, it must assume that Judge Fortun meant to decide in accordance with law, and that he did not intend to grant respondent spouses relief to which they were not entitled under law.

• Liability for Interest: The Court held that since respondent spouses were not in delay, they were properly liable only for the principal of the loan (P110,000.00) and regular or monetary interest at seventeen percent (17%) per annum, but not for penalty or compensatory interest at two percent (2%) per month or twenty-four percent (24%) per annum. The Court cited Article 2209 of the Civil Code, which provides that if 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. The Court reasoned that the fact that the spouses were not in default did not mean they were relieved from payment of regular or monetary interest, because the regular interest continued to accrue under the terms of the promissory note until actual payment is effected. The payment of regular interest constitutes the price or cost of the use of money, and until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount.

• Effect of Tender of Payment Without Consignation: The Court cited Article 1256 of the Civil Code, which provides that 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. The Court held that where the creditor unjustly refuses to accept payment, the debtor desirous of being released from his obligation must comply with two conditions: (a) tender of payment; and (b) consignation of the sum due. Tender of payment must be accompanied or followed by consignation in order that the effects of payment may be produced. Citing Llamas vs. Abaya, the Court stressed that a written tender of payment alone, without consignation in court of the sum due, does not suspend the accruing of regular or monetary interest. In the instant case, respondent spouses made a written tender of payment but failed to consign in court the amount due at the time of maturity. The Court held that their obligation to pay principal-cum-regular or monetary interest was not extinguished by such tender of payment alone. For the spouses to continue in possession of the principal and to continue to use the same after maturity without payment of regular interest would constitute unjust enrichment at the expense of State, even though the spouses had not been guilty of mora.

• Clarification of Final and Executory Judgments — A judgment which has become final and executory may be clarified under certain circumstances. The dispositive portion of the judgment may contain an error clearly clerical in nature or an ambiguity arising from inadvertent omission, which error may be rectified or ambiguity clarified and the omission supplied by reference primarily to the body of the decision itself. Supplementary reference to the pleadings previously filed in the case may also be resorted to by way of corroboration of the existence of the error or of the ambiguity in the dispositive part of the judgment. In this case, the Court applied this doctrine to clarify the cryptic dispositive portion of Judge Fortun's decision, resorting to the body of the decision and the pleadings to determine the true intent of the judgment.

• Tender of Payment and Consignation — Under Article 1256 of the Civil Code, where the creditor unjustly refuses to accept payment, the debtor desirous of being released from his obligation must comply with two conditions: (a) tender of payment; and (b) consignation of the sum due. Tender of payment must be accompanied or followed by consignation in order that the effects of payment may be produced. A written tender of payment alone, without consignation in court of the sum due, does not suspend the accruing of regular or monetary interest. In this case, respondent spouses made a written tender of payment but failed to consign the amount due, and thus their obligation to pay principal-cum-regular interest was not extinguished.

• Regular Interest vs. Penalty Interest — The appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum of money is the payment of penalty interest at the rate agreed upon; in the absence of a stipulation of a particular rate of penalty interest, then the payment of additional interest at a rate equal to the regular monetary interest; and if no regular interest had been agreed upon, then payment of legal interest or six percent (6%) per annum. The payment of regular interest constitutes the price or cost of the use of money, and until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount. A debtor who is not in delay is relieved from penalty interest but remains liable for regular monetary interest.

• "Even a judgment which has become final and executory may be clarified under certain circumstances. The dispositive portion of the judgment may, for instance, contain an error clearly clerical in nature (perhaps best illustrated by an error in arithmetical computation) or an ambiguity arising from inadvertent omission, which error may be rectified or ambiguity clarified and the omission supplied by reference primarily to the body of the decision itself." — This passage from Reinsurance Company of the Orient, Inc. vs. Court of Appeals, quoted by the Court, establishes the doctrine allowing clarification of final and executory judgments and was the basis for the Court's authority to clarify the Fortun decision.

• "The fact that the respondent Aquino spouses were not in default did not mean that they, as a matter of law, were relieved from the payment not only of penalty or compensatory interest at the rate of twenty-four percent (24%) per annum but also of regular or monetary interest of seventeen percent (17%) per annum. The regular or monetary interest continued to accrue under the terms of the relevant promissory note until actual payment is effected." — This passage states the Court's core ruling that a debtor not in delay remains liable for regular interest, which constitutes the price or cost of the use of money.

• "Where the creditor unjustly refuses to accept payment, the debtor desirous of being released from his obligation must comply with two (2) conditions: (a) tender of payment; and (b) consignation of the sum due. Tender of payment must be accompanied or followed by consignation in order that the effects of payment may be produced." — This passage articulates the Court's application of Article 1256 of the Civil Code, requiring both tender of payment and consignation to extinguish the obligation and stop the accrual of interest.

• Reinsurance Company of the Orient, Inc. vs. Court of Appeals — Controlling precedent cited by the Court for the doctrine that a final and executory judgment may be clarified where the dispositive portion contains a clerical error or an ambiguity arising from inadvertent omission, with reference to the body of the decision and the pleadings.
• Locsin, et al. vs. Parades, et al. — Cited as an example where the Court allowed a final judgment to be clarified by supplying a word inadvertently omitted, which when supplied changed the literal import of the original phraseology.
• Filipino Legion Corporation vs. Court of Appeals, et al. — Cited for the principle that where there is ambiguity caused by an omission or mistake in the dispositive portion of a decision, the court may clarify such ambiguity by an amendment even after the judgment had become final.
• Republic Surety and Insurance Company, Inc. vs. Intermediate Appellate Court — Cited for the application of the doctrine of clarification, distinguishing between a clerical error and an inadvertent omission of a "logical follow-through" of something set forth in the body of the decision.
• Llamas vs. Abaya — Cited for the rule that a written tender of payment alone, without consignation in court of the sum due, does not suspend the accruing of regular or monetary interest.

• 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 six percent (6%) per annum. The Court applied this provision to determine that the appropriate measure for damages in case of delay is penalty interest, but that a debtor not in delay is not liable for such penalty interest.
• Article 1256, Civil Code — Provides that 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. The Court applied this provision to hold that respondent spouses' tender of payment without consignation did not extinguish their obligation to pay principal-cum-regular interest.

Fernan, C.J., Gutierrez, Jr., Bidin, and Davide, Jr., JJ., concurred.