In a contract of sale, the obligation to pay stipulated interest arises only when there is a delay in payment. The Supreme Court in Chua Ping Hian v. Silverio Manas ruled that the buyer, Chua Ping Hian, was justified in withholding payment due to the seller’s, Silverio Manas, failure to completely deliver and install the agreed-upon equipment. Because of this justification, Chua Ping Hian was not considered to be in delay, and therefore, was not liable for the stipulated interest on the unpaid balance, preventing the imposition of additional financial burdens due to circumstances beyond his control.

Projector Promises: When Incomplete Delivery Excuses Payment Delay

The case revolves around a Contract of Sale between Chua Ping Hian, a cinema owner, and Silverio Manas, a supplier of movie equipment. Chua Ping Hian agreed to purchase five sets of Simplex Model XL movie projectors from Manas for his cinemas. However, Manas failed to deliver all five sets as agreed. Only four sets were delivered, and the fifth was a different brand, a Century projector, which was of lesser value. This incomplete delivery, coupled with issues regarding the installation of the equipment, led Chua Ping Hian to withhold the remaining balance of the payment. The central legal question is whether Chua Ping Hian’s refusal to pay the balance due to these issues constitutes a delay that would warrant the imposition of stipulated interest.

The Regional Trial Court (RTC) initially ruled in favor of Silverio Manas, ordering Chua Ping Hian to pay the unpaid balance plus stipulated interest. However, the Court of Appeals (CA) modified this decision, acknowledging that Manas failed to completely install the projectors and that some equipment was defective. The CA deducted the expenses incurred by Chua Ping Hian for the incomplete installation and defective equipment from the outstanding balance. Despite these modifications, the CA still imposed a 12% per annum interest from the date of extrajudicial demand, prompting Chua Ping Hian to elevate the case to the Supreme Court, contesting the imposition of the stipulated interest.

The Supreme Court (SC) emphasized that the obligation to pay stipulated interest arises only when the buyer is in delay. Quoting paragraph 6 of the Contract of Sale, the SC stated:

NON-PERFORMANCE OF OBLIGATION – In the event of failure by the BUYER to pay any installment of the herein agreed purchase price when such is already due, the BUYER shall be liable to pay an interest on the amount due at the rate of fourteen (14%) percent per annum.

The SC elucidated that Chua Ping Hian’s obligation to pay the balance was contingent upon Manas fulfilling his reciprocal obligation to deliver and completely install the agreed-upon equipment. In reciprocal obligations, as Civil Law Commentator, former CA Justice Eduardo P. Caguioa, explained, the performance of one party is conditioned on the simultaneous fulfillment by the other party. Caguioa states that a reciprocal obligation is where “each of the parties is a promissee of a prestation and promises another in return as a counterpart of equivalent of the other. x x x The most salient feature of this obligation is reciprocity.” This meant that neither party could claim delay if the other had not yet fulfilled their part of the agreement.

The SC found that Manas had indeed reneged on his obligations, justifying Chua Ping Hian’s refusal to pay the balance. The CA itself acknowledged that Manas did not deliver five sets of Simplex Model XL projectors as agreed, instead delivering a Century brand projector for the fifth set. Since the Century projector was worth significantly less, it could not be considered substantial compliance with the contract. The CA noted that Chua Ping Hian only accepted the Century projector because his cinemas were about to open, not because he agreed to substitute the Simplex model.

Further, the delivery was made after the agreed-upon date of January 15, 1998, breaching the terms of the contract. There was also no complete installation of the movie projector units as contemplated under the Contract of Sale. Because of these unfulfilled promises by Manas, Chua Ping Hian was justified in withholding payment of the balance, and thus, was not in delay.

The Supreme Court highlighted the fact that Manas himself, in a letter to Chua Ping Hian, made the payment of the remaining balance contingent upon Chua Ping Hian’s satisfactory assessment of the delivered and installed movie projector units. The letter stated:

Kindly inspect the whole projection systems of Cinemas 1, 2, 3, 4 and should you find them to your fullest satisfaction, please release the remaining balance (70%) of the Contract of Sale be paid and release (sic) to the undersigned.

Given that Chua Ping Hian was not satisfied due to the incomplete delivery, faulty installation, and defective components, he was justified in withholding the balance payment. The SC emphasized that “[petitioner] Ching had a valid reason for refusing payment until the issue of recoupement (sic) for breach of warranty was resolved.” Therefore, Chua Ping Hian could not be deemed in delay, and Manas was not entitled to the stipulated interest. The Supreme Court modified the CA’s decision, removing the stipulated interest. Legal interest at 6% per annum was instead imposed from the finality of the decision until full satisfaction.

FAQs

What was the key issue in this case?	The central issue was whether Chua Ping Hian was liable for stipulated interest due to his failure to pay the remaining balance of the contract, given that Manas did not fully comply with his obligations under the contract.
What was the agreement between Chua Ping Hian and Silverio Manas?	Chua Ping Hian agreed to purchase five sets of Simplex Model XL movie projectors from Silverio Manas. The contract outlined the payment terms, including a down payment and subsequent payments upon delivery and complete installation.
Why did Chua Ping Hian withhold the remaining balance?	Chua Ping Hian withheld the balance because Manas failed to deliver all five sets of Simplex Model XL projectors, delivered a Century brand projector as a substitute, and did not completely install the equipment as agreed.
What is a reciprocal obligation?	A reciprocal obligation is an agreement where the performance of one party is conditioned on the simultaneous fulfillment of the other party’s obligations. In this case, Chua Ping Hian’s obligation to pay was tied to Manas’ obligation to deliver and install the projectors.
What did the Court of Appeals initially decide?	The Court of Appeals initially ruled that Chua Ping Hian had to pay the remaining balance, but deducted expenses for incomplete installation and defective equipment. However, they still imposed a 12% per annum interest from the date of extrajudicial demand.
How did the Supreme Court modify the Court of Appeals’ decision?	The Supreme Court removed the stipulated interest, finding that Chua Ping Hian was not in delay because Manas had not fulfilled his contractual obligations. Instead, the Court imposed a legal interest of 6% per annum from the finality of the decision until full satisfaction.
What is the significance of the phrase “when such is already due” in the contract?	The phrase “when such is already due” signifies that the stipulated interest applies only when the buyer fails to pay an installment that is already due according to the terms of the contract. Since Manas did not fulfill his obligations, the payment was not yet due.
What was the effect of Manas’ letter to Chua Ping Hian regarding inspection and satisfaction?	Manas’ letter made the payment of the remaining balance contingent upon Chua Ping Hian’s satisfactory assessment of the delivered and installed movie projector units. Since Chua Ping Hian was not satisfied due to the various breaches of contract, he was justified in withholding payment.

The Supreme Court’s decision underscores the importance of fulfilling contractual obligations in reciprocal agreements. It serves as a reminder that the obligation to pay interest arises only when there is unjustified delay on the part of the buyer, and not when the seller themselves have failed to comply with their end of the bargain. This ruling protects buyers from unfair imposition of interest when they have valid reasons to withhold payment due to the seller’s breach of contract.

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: Chua Ping Hian v. Silverio Manas, G.R. No. 198867, October 16, 2019