G.R. No. 72703 November 13, 1992
CALTEX (PHILIPPINES), INC., petitioner, vs. THE INTERMEDIATE APPELLATE COURT and ASIA PACIFIC AIRWAYS, INC., respondents.

FACTS

On January 12, 1978, Asia Pacific Airways, Inc. (private respondent) entered into an agreement with Caltex (Philippines), Inc. (petitioner) for Caltex to supply its aviation fuel requirements for two years. As of June 30, 1980, Asia Pacific owed Caltex P4,072,682.13 for unpaid fuel. To settle this, Asia Pacific executed a Deed of Assignment dated July 31, 1980, assigning to Caltex its receivables or refunds of Special Fund Import Payments from the National Treasury to be applied as payment of the amount of P4,072,682.13 “as of June 30, 1980 plus applicable interest charges on overdue account and other avturbo fuel lifting and deliveries that assignor may from time to time receive from assignee.” On February 12, 1981, Treasury Warrant No. B04708613 for P5,475,294.00, representing the refund, was issued in favor of Caltex. Asia Pacific later demanded a refund of the excess amount. Caltex retained P510,550.63, claiming it represented interest and service charges at 18% per annum on the overdue account from June 1, 1980 to July 31, 1981. Asia Pacific filed a complaint to collect this sum. The trial court dismissed the complaint. The Intermediate Appellate Court (IAC) reversed the trial court, ordering Caltex to return P510,550.63 plus interest. Caltex filed an Urgent Motion for Extension of Time to File a Motion for Reconsideration of the IAC decision, which was filed within the extended period. The IAC denied the motions, citing the Habaluyas ruling that the 15-day period for filing a motion for reconsideration is non-extendible. Caltex filed the instant petition for certiorari.

ISSUE

1. Whether the Urgent Motion for Extension of Time to File a Motion for Reconsideration and the subsequent Motion for Reconsideration filed by petitioner may be validly granted.
2. Whether the Deed of Assignment constituted dacion en pago, totally extinguishing the obligation, such that no interest could be charged after its execution, and whether petitioner was authorized to deduct P510,550.63 as interest.

RULING

1. Yes. The Supreme Court, citing its resolution in Habaluyas Enterprises, Inc. vs. Japson, ruled that the prohibition against granting extensions of time to file a motion for new trial or reconsideration should be applied prospectively, beginning one month after the promulgation of the Habaluyas resolution on May 30, 1986. Since the IAC decision was promulgated on August 27, 1985, and Caltex filed its motions in September 1985, the strict rule was not yet in effect. Therefore, the IAC erred in denying the motions based on the new policy.
2. No, the Deed of Assignment did not constitute dacion en pago. The Supreme Court found that the Deed of Assignment did not meet all the requisites for dacion en pago, as it did not contain a clear agreement that the obligation was immediately extinguished by the assignment. The deed expressly stipulated that the assigned amount was to cover the principal “plus applicable interest charges on overdue account.” Furthermore, the contemporaneous and subsequent acts of the parties showed they did not intend total extinguishment without payment of interest. After the deed’s execution, Caltex continued to charge interest, and Asia Pacific, in a letter, requested that interest charges be limited to December 31, 1980 and the rate be reduced, implicitly acknowledging the obligation to pay interest. Under Article 1253 of the Civil Code, if a debt produces interest, payment of the principal is not deemed made until the interest is covered. Therefore, Caltex was legally authorized to deduct the amount for interest and service charges.
The Supreme Court SET ASIDE the decision of the Intermediate Appellate Court and REINSTATED the trial court’s decision dismissing the complaint.