Arwood v DMCI State Investment House v Court of Appeals

Arwood and DMCI entered into a construction agreement in relation to the former’s Private respondents, Malonjao failed to pay its obligation to SIHI which led the
condominium project. Upon completion of the project, Arwood failed to settle its foreclosure of the mortgaged properties of the former. The outstanding balance of
unpaid balance of around P900K. Pursuant to clause 6.03 of the agreement, the lower Malonjaos at the time or foreclosure was around 6M but the properties were only
court awarded 2% interest per month on the adjudicated amount. The dispute in this sold for 4M. Thus, SIHI is claiming for deficiency payment and a penalty charge of 3%
case was the propriety of the award of 2% interest. on the principal obligation as a result of default.

Arwood argues that the award of 2% interest has no legal basis since there is no The Court of Appeals disallowed the claim for deficiency on the finding that the
contractual stipulation to that effect. They claimed that Clause 6.03 only refers to the iniquitous penalty chargers upon the principal amount was, in the first place, the
“monthly progress billings” and not the unpaid account upon completion. The Court reason that the obligation of Malanjaos ballooned to such exorbitant amount. SIHI
did not give credence to the said argument, stating that the monthly progress billings appealed the decision claiming that while the Court has the authority to reduce the
represents the contract price itself. Hence, Arwood cannot claim that the contract penalty clause, it cannot altogether delete the payment of penalty charges stipulated
price and the monthly progress billings are two distinct obligation. Thus, the in the contract.
remaining balance on contract price is also covered under Clause 6.03. Additionally,
the Court said that assuming that there is indeed no stipulation in the contract that The Court disagreed with the petitioner. Upon examination of the fact, it was found
imposes interest over delayed payment, Art 2209 of the Civil Code will govern. that initially, the obligation of Malanjaos were only for 2M. However, due to the
excessive interest rate of 3% per month, it amounted to P4.8M over two years. That
Under Art 2209 of the Civil Code, in case of delay in the discharging an obligation for amount, although the court deems iniquitous was not questioned anymore. But to
payment of money, the obligee is entitled to the payment of interest rate as stated allow SIHI to recover more by virtue of the penalty clause is unwarranted. SIHI is
in the penalty clause. In the absence of such agreement, then the interest will be trying to claim 6M as payment of principal and interest which is three times the
based on the regular monetary interest. And if no regular interest had been agreed amount of original investment.
upon, then legal interest of 6% per annum.
Thus, when the Court deleted the penalty charge of 3% from the time of foreclosure,
it acted within the spirit of Art 1229. While the Court recognizes the right of the
parties to enter into contracts and are expected to comply with the terms and
obligations, this rule is not absolute. The Court allowed to temper interest rates when
necessary.
Exemplary Damages Nawasa v Catolico
Exemplary damages are punitive or vindictive damages by the Courts pursuant to This case was instituted by the Province of Misamis Oriental seeking to recover from
public policy and as a form of deterrent of deleterious acts of the offending party. It NAWASA the possession, administration, operation and control of the Waterworks
is awarded by way of example or correction for the public good and may be recovered System taken over by the latter pursuant to RA 1393. The respondent judge in
in contractual obligations if the defendant acted in wanton, fraudulent, reckless, rendering the decision ordered for the return of the said waterwork system as well
oppressive and malevolent manner. as payment of P50,000, as temperate, punitive and exemplary damages.

Conditions when exemplary damages may be awarded The Supreme Court in this case deleted the award of exemplary damages. It stated
(1) Imposed by way of example in addition to compensatory damages (Art that the award of P50,000 by way of damages was not justified because NAWASA
2229); took over the waterworks system by virtue of RA 1383 which at the time was
• Art 2229 explicitly states that exemplary damages are awarded assumed to be constitutional. Thus, there was no bad faith in the acts of NAWASA as
only in addition to moral, temperate, compensatory or liquidated to allow the award of exemplary damages.
damages.
• Art 2230-2232 enumerates instances when exemplary damages Octot v Ybanez
may be awarded: Petitioner, a security guard in the Regional Health Office of Cebu City, was summarily
o Criminal cases – when there are one or more aggravating dismissed from the service pursuant to Presidential Decree No. 6 directing heads of
circumstances (Art 2230) departments of the government to weed out undesirable employees, especially
o Quasi-delicts – when there is gross negligence (Art 2231) those who were facing charges and were notoriously undesirable. Petitioner, at that
o Contracts and quasi-contracts – when there is WFROM time, had a judgment of conviction for libel pending appeal. when his acquittal was
behavior. obtained, he sought reinstatement. His request was granted and was notified that he
• Stipulations renouncing exemplary damages in advanced are null should fill documents for his new appointment, however, instead of complying he
and void (Art 2235) filed an action for mandamus praying for reinstatement with backwages and
(2) Cannot be recovered as a matter of right (Art 2233); compensatory, exemplary and moral damages.
• The award depends upon discretion of the courts
(3) Awarded only after the claimants right has been established (Art 2234); On the issue of exemplary damages, the Court held that Exemplary damages are not
• In contracts and quasi-contracts – generally recoverable in a special civil action for mandamus unless the defendant
o While the amount of damages need not be proved, the patently acted with vindictiveness or wantonness and not in the exercise of honest
plaintiff must allege and prove that the defendant acted judgment. The claim for exemplary damages must presuppose the existence of the
in WFROM manner; circumstances enumerated in Articles 2231 and 2232 of the Civil Code.
o In case there is an agreement on liquidated damages, the
plaintiff must show that he would be entitled to moral, In this case there is no bad faith since respondent officials were not motivated by ill
compensatory or temperate damages if it were not for the will or personal malice in dismissing petitioner but only by their desire to comply with
stipulation on liquidated damages. the mandates of Presidential Decree No. 6. The defendant also did not act in wanton,
(4) The defendant must act in bad faith/gross negligence or done with wanton, fraudulent, reckless, oppressive or malevolent manner. Hence, the claim for
fraudulent, reckless, oppressive and malevolent manner. exemplary damages has no basis.