This Supreme Court case clarifies that a final and executory judgment cannot be modified to include compounded interest if the original judgment did not explicitly decree it. This principle, known as the immutability of judgments, ensures that court decisions are final and binding. The ruling underscores the importance of clearly specifying all terms, including interest calculations, in the initial judgment to avoid disputes during the execution phase. It means that parties cannot seek to add new terms or benefits, such as compounded interest, after the judgment becomes final.

Interest on Interest: Can a Final Judgment Be Modified?

The case of Tarcisio S. Calilung v. Paramount Insurance Corporation arose from a dispute over the execution of a judgment. Calilung sought to recover compounded interest on a debt that had been decreed in a final and executory decision. The trial court, however, ruled against the recovery of compounded interest because the final judgment did not explicitly provide for it. This prompted Calilung to appeal directly to the Supreme Court, questioning whether Article 2212 of the Civil Code and the ruling in Eastern Shipping Lines v. Court of Appeals allowed for compounded interest, even if not expressly stated in the judgment.

The factual backdrop of the case began in 1987 when Calilung commissioned Renato Punzalan, President of RP Technical Services, Inc. (RPTSI), to buy shares of stock worth P1,000,000.00 from RPTSI. Instead of a direct purchase, Calilung invested P718,750.00 to finance a Shell Station Project undertaken by RPTSI. Punzalan, on behalf of RPTSI, executed a promissory note in favor of Calilung for the investment amount, bearing a 14% annual interest, payable by April 9, 1988. Paramount Insurance Corporation guaranteed the payment of the promissory note through a surety bond. However, RPTSI failed to pay the amount stated in the promissory note when it fell due, leading Calilung to file a complaint for sum of money against RPTSI and Paramount.

The Regional Trial Court (RTC) ruled in favor of Calilung, ordering RPTSI and Paramount to pay the principal amount with interest, attorney’s fees, and costs. The Court of Appeals (CA) affirmed the RTC’s decision in toto. The Supreme Court upheld the CA’s judgment in a resolution dated March 16, 2005, which became final and executory on July 19, 2005. However, during the execution phase, a dispute arose over whether the interest on the judgment debt should be compounded. Calilung argued that Article 2212 of the Civil Code mandated the compounding of interest, while Paramount contended that the final judgment did not provide for it, and therefore, it could not be imposed.

The core issue before the Supreme Court was whether compounded interest could be recovered on the judgment debt, considering that the final and executory decision did not decree the compounding of interest. The petitioner, Calilung, anchored his argument on Article 2212 of the Civil Code, which states:

“Article 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.”

Calilung contended that this provision, along with the rules set in Eastern Shipping Lines v. Court of Appeals, justified the compounding of interest on the judgment award. He argued that the obligation of the respondents was a loan or forbearance of money, making the compounding of interest applicable. Paramount, on the other hand, argued that its obligation arose solely from a surety bond and was neither a loan nor a forbearance of money. They insisted that the Eastern Shipping ruling and Article 2212 of the Civil Code did not apply because the suretyship was distinct from the loan contract between Calilung and RPTSI. Furthermore, Paramount contended that compounding the interest would violate the principle of immutability of judgments.

In resolving the issue, the Supreme Court emphasized the principle of immutability of judgments. The Court reiterated that once a judgment becomes final and executory, it is immutable and can no longer be modified or disturbed. The Court underscored the importance of this principle for public policy and sound practice, stating that litigation must come to an end at some definite time. The Court cited Siga-an v. Villanueva to elucidate on the concept of interest, differentiating between monetary interest and compensatory interest:

“Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory interest. The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded.”

The Court clarified that monetary interest must be expressly stipulated in writing, while compensatory interest may be imposed by law as a penalty for breach of contractual obligations. However, the Court emphasized that neither type of interest could be imposed in a manner that would alter a final and executory judgment. Applying these principles, the Supreme Court held that the only interest to be collected from the respondents was the 14% per annum on the principal obligation of P718,750.00, reckoned from October 7, 1987, until full payment. The Court found no basis for Calilung’s claim for compounded interest because the judgment did not include such an obligation.

The Court stated that neither the RTC nor any other court, including the Supreme Court, could apply Article 2212 of the Civil Code to justify the compounding of interest because doing so would infringe upon the immutability of the judgment. The execution must conform to, and not vary from, the decree in the final and immutable judgment. The ruling underscores that while interest may be due on a principal obligation, any claim for compounded interest must be explicitly stated in the court’s decision to be enforceable.

Moreover, the Court noted that the respondents’ obligation to pay the 14% interest per annum was joint and several. This meant that Calilung, as the creditor, could proceed against any one of the solidary debtors or some or all of them simultaneously, as provided under Article 1216 of the Civil Code. The demand made against one debtor would not be an obstacle to subsequent demands against the others until the debt was fully collected. The Court’s decision clarified that while the surety’s obligation is linked to the principal debtor’s obligation, the surety’s liability is determined by the terms of the surety bond and the judgment, which must be strictly adhered to during execution.

FAQs

What was the key issue in this case?	The key issue was whether a final and executory judgment could be modified to include compounded interest when the original judgment did not explicitly decree it. The petitioner argued that Article 2212 of the Civil Code allowed for compounded interest, while the respondent contended that doing so would violate the immutability of judgments.
What is the principle of immutability of judgments?	The principle of immutability of judgments means that once a judgment becomes final and executory, it can no longer be modified or altered. This principle is grounded on public policy and the need for litigation to come to an end at some point.
What is the difference between monetary interest and compensatory interest?	Monetary interest is a compensation fixed by the parties for the use or forbearance of money, and it must be expressly stipulated in writing. Compensatory interest is imposed by law or by courts as a penalty or indemnity for damages.
Can interest due earn legal interest from the time it is judicially demanded?	Yes, Article 2212 of the Civil Code states that interest due shall earn legal interest from the time it is judicially demanded, even if the obligation is silent on this point. However, this principle cannot be applied to modify a final and executory judgment.
What was the basis of the respondent’s obligation in this case?	The respondent’s obligation arose from a surety bond it issued, guaranteeing the payment of a promissory note executed by RP Technical Services, Inc. in favor of Tarcisio S. Calilung. The surety bond ensured that the debt would be paid.
What does it mean for an obligation to be joint and several?	When an obligation is joint and several, the creditor can proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one debtor does not prevent subsequent demands against the others until the debt is fully collected.
What was the ruling of the Supreme Court in this case?	The Supreme Court denied the petition for review and affirmed the trial court’s orders, ruling that the only interest to be collected from the respondents was 14% per annum from October 7, 1987, until full payment. The Court held that compounded interest could not be imposed because the final judgment did not decree it.
What is the significance of the Eastern Shipping Lines case in relation to interest rates?	The Eastern Shipping Lines case provides guidelines on the imposition of legal interest rates in the absence of stipulated interest. However, its principles cannot be applied to modify a final and executory judgment that does not explicitly provide for such interest.

In conclusion, the Supreme Court’s decision in Calilung v. Paramount Insurance Corporation serves as a clear reminder of the importance of the principle of immutability of judgments. The ruling reinforces that final and executory judgments cannot be altered, and any claims for compounded interest must be explicitly stated in the court’s decision to be enforceable. This ensures that judgments are binding and that parties can rely on their finality.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Tarcisio S. Calilung v. Paramount Insurance Corporation, G.R. No. 195641, July 11, 2016