Sunga-Chan vs. Court of Appeals

Interest may not be imposed on unliquidated claims until the demand can be established with reasonable certainty; once the judgment awarding a sum of money becomes final and executory, the rate of legal interest shall be 12% per annum from such finality until satisfaction, the interim period being deemed equivalent to a forbearance of credit. The nature of an obligation arising from the unauthorized continuation of partnership business by two heirs imposes solidary liability, and the absolute community property of a spouse who misappropriated partnership assets is liable for the resulting judgment obligation.

In 1977, Lamberto T. Chua and Jacinto Sunga formed a partnership to engage in the marketing of liquefied petroleum gas, registered as a sole proprietorship under Jacinto's name for convenience, with the arrangement calling for equal sharing of net profits. After Jacinto's death in 1989, his widow Cecilia Sunga and married daughter Lilibeth Sunga-Chan continued the business without Chua's consent, giving rise to Chua's claims for accounting, winding up, and recovery of his partnership share. The spouses Sunga-Chan and Norberto Chan were married on February 4, 1992, after the effectivity of the Family Code, bringing their property relations under the regime of absolute community property.

In 1977, Lamberto T. Chua and Jacinto Sunga formed a partnership to engage in the marketing of liquefied petroleum gas. For convenience, the business — pursued under the name Shellite Gas Appliance Center (Shellite) — was registered as a sole proprietorship in Jacinto's name, although the partnership arrangement called for equal sharing of net profits. After Jacinto's death in 1989, his widow Cecilia Sunga and married daughter Lilibeth Sunga-Chan continued operating the business without Chua's consent. Chua's repeated demands for accounting and winding up went unheeded, prompting him to file on June 22, 1992 a Complaint for Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment, docketed as Civil Case No. S-494 before the RTC, Branch 11 in Sindangan, Zamboanga del Norte.

After trial, the RTC rendered judgment on October 7, 1997 finding for Chua. The decision directed petitioners to render an accounting of Shellite's properties, assets, income, and profits since Jacinto's death; to return and restitute any properties misapplied and converted to their own use; to pay Chua his one-half share and interest in the partnership; to pay earned but unreceived profits at PhP 35,000 per month from 1988 to May 30, 1992 with legal interest until fully paid; to wind up the partnership affairs; and to pay PhP 50,000 as moral and exemplary damages, PhP 25,000 as attorney's fees, and PhP 25,000 as litigation expenses. The RTC decision was upheld by the CA in CA-G.R. CV No. 58751 and by the Supreme Court in G.R. No. 143340, with the corresponding Entry of Judgment declaring the decision final and executory as of December 20, 2001.

Pursuant to the RTC's January 16, 2002 Order granting execution, an amended writ of execution issued. Chua moved to commission a CPA to undertake the accounting work, and later submitted an accounting report by CPA Cheryl A. Gahuman using the compounding-of-interest method, yielding an aggregate claim of PhP 14,277,344.94. The RTC admitted and approved this computation after petitioners failed to appear at the scheduled hearings on April 29 and 30, 2002. On September 24, 2002, petitioners submitted their own CPA-certified accounting report limiting Chua's entitlement to PhP 3,154,736.65. Chua submitted a revised computation applying simple interest, reducing his aggregate claim to PhP 8,733,644.75. By Resolution dated November 6, 2002, the RTC approved Chua's revised computation and rejected petitioners' report. Petitioners' motion for reconsideration was denied on January 7, 2003.

Petitioners elevated the matter to the CA via petition for certiorari under Rule 65, docketed as CA-G.R. SP No. 75688. The CA denied the petition on November 6, 2003, holding that petitioners had waived their right to object to Chua's computation by failing to appear at the scheduled hearings, that the 12% interest was proper as the unwarranted keeping of Chua's money constituted an involuntary loan and forbearance of money, and that petitioners' reiterative arguments were part of delaying tactics. The CA denied reconsideration on July 6, 2004. Meanwhile, the sheriff levied upon Sunga-Chan's property along Linao St., Paco, Manila, covered by TCT No. 208782, over which a building leased to PNB stood. At the auction sale, Chua emerged as the winning bidder with a tender of PhP 8 million. The RTC confirmed the sheriff's final deed of sale on April 11, 2005, ordered cancellation of TCT No. 208782, and granted a writ of possession in favor of Chua. The Supreme Court issued a TRO on May 31, 2005 enjoining enforcement of the writ of possession and the Notice to Vacate.

• Interest on Unliquidated Claims: Petitioners argued, citing Article 2213 of the Civil Code, that the RTC erred in imposing interest on unliquidated claims, including the PhP 250,000 goodwill valuation and the unreceived monthly profits of PhP 35,000 from 1988 to October 15, 1992. They contended that the imposable rate should only be 6% and computed from the finality of the RTC decision on December 20, 2001, rather than 12%.
• Unliquidated Partnership Share: Petitioners maintained that the value of Chua's one-half partnership share and interest had not been established with reasonable certainty in a judicial proceeding and was therefore an unliquidated claim upon which interest could not be imposed. They cited Eastern Shipping Lines, Inc. vs. Court of Appeals in ascribing error to the RTC for adding 12% per annum interest on the approved valuation of the one-half share of assets.
• Divisibility of Obligation: Petitioners contended that their liability under the RTC decision was divisible, not solidary, and accordingly impugned the implementation of the amended writ of execution, particularly the levy on the absolute community property of spouses Sunga-Chan and Norberto Chan. They argued for joint, rather than solidary, liability for all claims of Chua.
• Community Property Liability: Petitioners argued that the absolute community property of spouses Lilibeth Sunga-Chan and Norberto Chan could not lawfully be made to answer for Lilibeth Chan's liability under the judgment.

• Interest on Unliquidated Claims: Whether the RTC can impose interest on a final judgment of unliquidated claims, and if so, what rate and reckoning period properly apply.
• Nature of Obligation: Whether the sheriff can enforce the whole divisible obligation under judgment against only one defendant, or whether the obligation is solidary.
• Community Property Liability: Whether the absolute community of property of spouses Lilibeth Sunga-Chan and Norberto Chan can lawfully be made to answer for the liability of Lilibeth Chan under the judgment.

• Interest on Unliquidated Claims: Partly meritorious. Interest may not be imposed on unliquidated claims until the demand can be established with reasonable certainty; the 6% rate under Article 2209 applies to obligations not constituting loans or forbearance of money, while 12% applies from finality of judgment until satisfaction as the interim period is deemed equivalent to a forbearance of credit. Chua's share of partnership assets (exclusive of goodwill) was unliquidated until the RTC approved the accounting on October 15, 2002, and thus earned no interest; the unreceived profits bore 6% from judicial demand until finality, then 12% thereafter.
• Nature of Obligation: The obligation is solidary. Under Article 1207 of the Civil Code, the nature of the obligation requires solidarity because the acts complained of — the unauthorized continuation and management of the partnership business by both petitioners — are not severable, and it is impossible to quantify how much of the partnership assets or profits was misappropriated by each petitioner.
• Community Property Liability: Yes. The absolute community property is liable under Article 94 of the Family Code, as the use and appropriation of Shellite's assets by Sunga-Chan may reasonably be considered to have been used for the benefit of the community. The levied property is not among those exempt from execution under Section 13, Rule 39 of the Rules of Court.

• Interest on Unliquidated Claims: The Court applied the framework established in Eastern Shipping Lines, Inc. vs. Court of Appeals, which synthesized the rules on the imposition of interest. For obligations not constituting loans or forbearance of money, Article 2209 of the Civil Code prescribes 6% per annum, applicable when the demand can be established with reasonable certainty. No interest may be adjudged on unliquidated claims or damages until the demand can be established with reasonable certainty. Once the judgment awarding a sum of money becomes final and executory, the rate of legal interest shall be 12% per annum from such finality until satisfaction, the interim period being deemed equivalent to a forbearance of credit. Applying these rules: the PhP 35,000 monthly profits from January 1988 to May 30, 1992 were liquidated and bore 6% interest from the RTC rendition on October 7, 1997 until finality on December 20, 2001, then 12% thereafter. The PhP 250,000 goodwill, PhP 50,000 damages, PhP 25,000 attorney's fees, and PhP 25,000 litigation fees bore 12% from December 20, 2001. However, Chua's one-half share of the partnership assets (exclusive of goodwill), amounting to PhP 1,613,550, was an unliquidated claim until the RTC approved the accounting report on October 15, 2002 — the RTC's original decision itself recognized that the exact share could not be determined without the inventory and accounting process. No interest could therefore be added to this item. The Court rejected the CA's characterization of the partnership assets as a "liquidated claim" merely because ascertainable by mathematical computation, holding that the legal norm is "reasonably determinable," not merely mathematically computable. The total adjusted claim was PhP 5,529,392.52.

• Nature of Obligation: The Court held that petitioners' obligation was solidary under Article 1207 of the Civil Code, which provides that solidary liability exists when the law or the nature of the obligation requires solidarity. The continuance of the business and management of Shellite by both petitioners against Chua's will gave rise to a solidary obligation because the acts complained of were not severable in nature — it was impossible to draw the line between where one petitioner's liability ended and the other's began. The duty to render an accounting and inventory of partnership assets was indivisible, and Chua's right to receive his half interest proceeded from that indivisible obligation. Moreover, the impossibility of quantifying how much each petitioner misappropriated reinforced the need for solidary liability. Finally, petitioners' bad faith in resisting a legitimate claim made their obligation for damages and attorney's and litigation fees solidary.

• Community Property Liability: The Court found that the levy and sale of Sunga-Chan's property were valid. The property was not among those exempt from execution under Section 13, Rule 39 of the Rules of Court. Spouses Sunga-Chan and Norberto Chan were married on February 4, 1992, after the effectivity of the Family Code, bringing them under the regime of absolute community property. Under Article 94 of the Family Code, the absolute community is liable for debts and obligations contracted by one spouse with the consent of the other, or for obligations contracted by either spouse to the extent that the family may have benefited. The use and appropriation by Sunga-Chan of Shellite's assets after the business was discontinued on May 30, 1992 could reasonably be considered to have been used for the benefit of the community. The TRO issued on May 31, 2005 came after the auction sale and thus did not vitiate it. However, since Chua's adjusted claim was only PhP 5,529,392.52 while the auctioned property fetched PhP 8 million, Chua owed Sunga-Chan the excess of PhP 2,470,607.48.

• Eastern Shipping Lines Doctrine on Interest — The Supreme Court's framework for imposing legal interest, as synthesized in Eastern Shipping Lines, Inc. vs. Court of Appeals: (1) For loans or forbearance of money, the stipulated rate applies, or in its absence, 12% per annum from default; (2) For obligations not constituting loans or forbearance of money, 6% per annum may be imposed at the court's discretion, but no interest shall be adjudged on unliquidated claims until the demand can be established with reasonable certainty — when such certainty cannot be established at the time of demand, interest runs only from the date of judgment; (3) When the judgment awarding a sum of money becomes final and executory, the rate of legal interest shall be 12% per annum from such finality until satisfaction, the interim period being deemed equivalent to a forbearance of credit. In this case, the Court applied paragraph 2 to disallow interest on Chua's partnership asset share until the accounting was approved, and paragraph 3 to impose 12% from finality on all liquidated items.

• Solidary Liability by Nature of the Obligation — Under Article 1207 of the Civil Code, solidary liability exists not only when expressly stated or required by law, but also when the nature of the obligation requires solidarity. When the acts complained of are not severable and it is impossible to apportion liability among multiple obligors — as where two heirs jointly continued a partnership business and misappropriated assets whose individual shares cannot be quantified — the obligation is solidary by its nature.

• Liability of Absolute Community Property — Under Article 94 of the Family Code, the absolute community of property is liable for debts and obligations contracted by either spouse with the consent of the other, or contracted by one spouse without consent to the extent that the family may have benefited. The use and appropriation of partnership assets by one spouse may reasonably be presumed to have benefited the community, rendering the community property liable for the resulting judgment obligation.

• "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)." — This passage reproduces the Court's formulation of the Eastern Shipping Lines framework for interest on unliquidated claims, which was the controlling rule applied to disallow interest on Chua's partnership asset share until the accounting was approved.

• "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." — This is the third prong of the Eastern Shipping Lines doctrine, establishing that finality of judgment converts any monetary award into the equivalent of a forbearance of credit, triggering the 12% rate.

• "In fine, a liquidated claim cannot validly be asserted without accounting. In net effect, Chua's interest and share over the partnership asset, exclusive of the goodwill, assumed the nature of a liquidated claim only after the trial court, through its November 6, 2002 resolution, approved the assets inventory and accounting report on such assets." — This passage articulates the ratio decidendi for disallowing interest on the partnership asset share: the claim's liquidated character arose only upon judicial approval of the accounting, not upon the original demand or judgment.

• "The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each of the latter is bound to render, entire compliance with the prestation. There is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." — The Court's quotation of Article 1207 of the Civil Code, emphasizing the "nature of the obligation" clause as the basis for imposing solidary liability on petitioners whose acts of continuing the partnership business were indivisible.

• Eastern Shipping Lines, Inc. vs. Court of Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA 78 — Controlling precedent. The Court applied its synthesized framework for the imposition of legal interest — 12% for loans or forbearance of money, 6% for other obligations, and 12% from finality of judgment until satisfaction — to determine the proper interest rates and reckoning periods for each component of Chua's claim.
• Reformina vs. Tomol, Jr., No. L-59096, October 11, 1985, 139 SCRA 260 — Cited for the proposition that the 12% per annum legal interest under CB Circular No. 416 applies only to cases involving loan or forbearance of money, while Article 2209 of the Civil Code governs transactions involving payment of indemnities in the concept of damages arising from default in the performance of obligations in general.
• Florendo vs. Ruiz, G.R. No. 60225, May 8, 1992, 208 SCRA 542 — Cited within the Eastern Shipping Lines framework for the rule that the reckoning period for the commencement of legal interest runs from the time the complaint is filed until the adjudged amount is fully paid.

• Article 2213, Civil Code — Provides that interest cannot be recovered upon unliquidated claims or damages except when the demand can be established with reasonable certainty. Petitioners cited this provision to challenge the RTC's imposition of interest on unliquidated claims; the Court applied it to disallow interest on Chua's partnership asset share until the accounting was approved.
• 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, absent stipulation, shall be the legal interest of 6% per annum. The Court applied this provision to the unreceived profits, which constituted an obligation not involving a loan or forbearance of money.
• Article 1207, Civil Code — Provides that the concurrence of two or more debtors in one obligation does not imply that each is bound to render entire compliance, and that solidary liability exists only when the obligation expressly states, or when the law or the nature of the obligation requires solidarity. The Court relied on the "nature of the obligation" clause to impose solidary liability on petitioners.
• Article 94, Family Code — Provides that the absolute community of property is liable for debts and obligations contracted by both spouses, or by one spouse with the consent of the other, or by one spouse without consent to the extent that the family may have benefited. The Court applied this provision to hold the community property of spouses Sunga-Chan liable for the judgment obligation.
• Section 13, Rule 39, Rules of Court — Enumerates property exempt from execution. The Court noted that the levied property was not among those exempt, validating the levy and auction sale.
• CB Circular No. 416 — Prescribes the 12% per annum legal interest for loans or forbearance of money. The Court applied this rate to the monetary awards from the date of finality of the RTC decision until satisfaction.

Leonardo A. Quisumbing (Chairperson), Antonio T. Carpio, Dante O. Tinga, and Arturo D. Brion concurred with the decision. No separate concurring opinions were noted.