Prisma Construction & Development Corporation and Rogelio S. Pantaleon Vs Arthur F. Menchavez G.R. No. 160545 March 9, 2010 Facts

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and
ROGELIO S. PANTALEON vs ARTHUR F. MENCHAVEZ

G.R. No. 160545; March 9, 2010
FACTS:
December 8, 1993, Pantaleon, President and Chairman of the Board of
PRISMA, obtained a P1M loan from the respondent, with monthly interest of
P40,000.00 payable for 6 months, or a total obligation of P1,240,000.00
payable within 6 mos. To secure the payment of the loan, Pantaleon issued a
promissory. Pantaleon signed the promissory note in his personal capacity
and as duly authorized by the Board of Directors of PRISMA. The petitioners
failed to completely pay the loan within the 6-month period.
As of January 4, 1997, respondent found that the petitioners still had an
outstanding balance of P1,364,151.00, to which respondent applied a 4%
monthly interest.
On August 28, 1997, respondent filed a complaint for sum of money to enforce
the unpaid balance, plus 4% monthly interest. In their Answer, the petitioners
admitted the loan of P1,240,000.00, but denied the stipulation on the 4%
monthly interest, arguing that the interest was not provided in the promissory
note. Pantaleon also denied that he made himself personally liable and that he
made representations that the loan would be repaid within six (6) months.
RTC found that the respondent issued a check for P1M in favor of the
petitioners for a loan that would earn an interest of 4% or P40,000.00 per
month, or a total of P240,000.00 for a 6-month period. RTC ordered the
petitioners to jointly and severally pay the respondent the amount of
P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully
paid.
Petitioners appealed to CA insisting that there was no express stipulation on

the 4% monthly interest. CA favored respondent but noted that the interest of
4% per month, or 48% per annum, was unreasonable and should be reduced
to 12% per annum. MR denied hence this petition.
ISSUE:
Whether the parties agreed to the 4% monthly interest on the loan. If so, does
the rate of interest apply to the 6-month payment period only or until full
payment of the loan?
RULING:
Petition is meritorious. Interest due should be stipulated in writing; otherwise,
12% per annum
Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. When the
terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations governs. Courts have
no authority to alter the contract by construction or to make a new contract for
the parties; a court’s duty is confined to the interpretation of the contract the
parties made for themselves without regard to its wisdom or folly, as the court
cannot supply material stipulations or read into the contract words the
contract does not contain. It is only when the contract is vague and ambiguous
that courts are permitted to resort to the interpretation of its terms to
determine the parties’ intent.
In the present case, the respondent issued a check for P1M. In turn, Pantaleon,
in his personal capacity and as authorized by the Board, executed the
promissory note. Thus, the P1M loan shall be payable within 6 months. The
loan shall earn an interest of P40,000.00 per month, for a total obligation of
P1,240,000.00 for the six-month period. We note that this agreed sum can be
computed at 4% interest per month, but no such rate of interest was stipulated
in the promissory note; rather a fixed sum equivalent to this rate was agreed
upon.
Article 1956 of the Civil Code specifically mandates that “no interest shall be
due unless it has been expressly stipulated in writing.” The payment of interest
in loans or forbearance of money is allowed only if: (1) there was an express
stipulation for the payment of interest; and (2) the agreement for the payment
of interest was reduced in writing. The concurrence of the two conditions is
required for the payment of interest at a stipulated rate. The collection of
interest without any stipulation in writing is prohibited by law.
The interest of P40,000.00 per month corresponds only to the six-month

period of the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by
the parties in the promissory note. Thereafter, the interest on the loan should
be at the legal interest rate of 12% per annum.
When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
The facts show that the parties agreed to the payment of a specific sum of
money of P40,000.00 per month for six months, not to a 4% rate of interest
payable within a 6-month period.
No issue on the excessiveness of the stipulated amount of P40,000.00 per

month was ever put in issue by the petitioners; they only assailed the
application of a 4% interest rate, since it was not agreed upon.
It is a familiar doctrine in obligations and contracts that the parties are bound
by the stipulations, clauses, terms and conditions they have agreed to, which is
the law between them, the only limitation being that these stipulations,
clauses, terms and conditions are not contrary to law, morals, public order or
public policy. The payment of the specific sum of money of P40,000.00 per
month was voluntarily agreed upon by the petitioners and the respondent.
There is nothing from the records and, in fact, there is no allegation showing
that petitioners were victims of fraud when they entered into the agreement
with the respondent.
Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per
month for a period of 6 months, for a total principal and interest amount of
P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply.
The amounts already paid by the petitioners during the pendency of the suit,
amounting toP1,228,772.00 as of February 12, 1999, should be deducted from
the total amount due, computed as indicated above. We remand the case to
the trial court for the actual computation of the total amount due.
WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET

ASIDE the Decision CA
FROM ATTY DAAN^^

In 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained a ₱1,000,000.00
loan from the respondent, with a monthly interest of ₱40,000.00 payable for six months. To secure
the payment of the loan, Pantaleon issued a promissory note and six (6) postdated checks
corresponding to the schedule of payments. Pantaleon signed the promissory note in his personal
capacity, and as duly authorized by the Board of Directors of PRISMA. The petitioners failed to
completely pay the loan within the stipulated six (6)-month period. Thus, the respondent filed a
complaint for sum of money with the RTC. In their Answer, the petitioners admitted the loan but
denied the stipulation on the 4% monthly interest, arguing that the interest was not provided in the
promissory note. The RTC observed that PRISMA was a one-man corporation of Pantaleon and
used this circumstance to justify the piercing of the veil of corporate fiction. It then ordered the
petitioners to jointly and severally pay the respondent. The CA affirmed the RTC’s finding that
PRISMA was a mere instrumentality of Pantaleon that justified the piercing of the veil of corporate
fiction. Thus, the CA modified the RTC Decision by imposing a 12% per annum interest, computed
from the filing of the complaint until finality of judgment, and thereafter, 12% from finality until fully
paid. Hence, the present petition.
ISSUE:
Whether or not it was warranted for the lower courts to pierce the corporate veil of PRISMA
RULING:
We find it unfounded and unwarranted for the lower courts to pierce the corporate veil of PRISMA.
The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when
the separate and distinct corporate personality defeats public convenience, as when the corporate
fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud cases, or when the
corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter
ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation. In the absence of malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally liable for corporate liabilities.
In the present case, we see no competent and convincing evidence of any wrongful, fraudulent or
unlawful act on the part of PRISMA to justify piercing its corporate veil. While Pantaleon denied
personal liability in his Answer, he made himself accountable in the promissory note "in his personal
capacity and as authorized by the Board Resolution" of PRISMA. With this statement of personal
liability and in the absence of any representation on the part of PRISMA that the obligation is all its
own because of its separate corporate identity, we see no occasion to consider piercing the
corporate veil as material to the case.

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PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and

ROGELIO S. PANTALEON vs ARTHUR F. MENCHAVEZ

Petitioners appealed to CA insisting that there was no express stipulation on

The interest of P40,000.00 per month corresponds only to the six-month

When the obligation is breached, and it consists in the payment of a sum of

No issue on the excessiveness of the stipulated amount of P40,000.00 per

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET

FROM ATTY DAAN^^

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