G.R. No. 225433 (2019) - Caguioa

CONCURRING AND DISSENTING OPINION

CAGUIOA, J.:

The proper application of the confusing laws and jurisprudence on 1) the imposable interest rate, i.e., the 12% rate of interest per annum previously prescribed by the then Central Bank of the Philippines (Central Bank), now Bangko Sentral ng Pilipinas (BSP) pursuant to Act No. 2655, as amended (Usury Law) vis-a-vis the 6% legal interest rate per annum imposed as compensatory interest under Article 2209 of the Civil Code, and 2) the periods covered by the same, has long plagued the Bench and the Bar.

As discussed below, I see the issue to arise, in large part, from the scope and interpretation of the phrase "forbearance of any money, goods, or credits, and the rate allowed in judgments," which is found in the Usury Law but not in Article 2209, 1 when read in conjunction with the guidelines pronounced in Eastern Shipping Lines, Inc. v. Court of Appeals2 (Eastern Shipping Lines) and Nacar v. Gallery Frames3 (Nacar).

Although, at present, both the interest rate set by the BSP and that pegged by the Civil Code are at 6% per annum, I find that an extended discussion on the matter is warranted considering that: (1) there are still pending disputes occurring prior to July 1, 2013 where the 12% interest rate per annum was imposed on obligations not constituting loans and forbearances of money, goods, and credit; and (2) the BSP may opt, in the future, to again change the prescribed interest rate and to impose interest rate ceilings on loans and forbearances of money, goods, and credit. Based on the facts stated in the ponencia, petitioner purchased from respondent various industrial and construction materials in the total amount of ₱1,263,104.22 from January 2007 up to December 2007.4 These purchases, as stated in the sales invoices, were on a 60-day credit term with the condition that 24% interest per annum would be charged on all overdue accounts.5 After the checks bounced, and despite repeated demands, petitioner failed to pay the amounts due. 6 After trial, the RTC 7 granted the complaint and ordered petitioner to pay (1) ₱1,263,104.22 plus interest at 24% per annum from the date of judicial demand until the judgment is fully paid, and (2) ₱50,000.00 by way of attorney's fees. 8 The CA affirmed the decision of the RTC.

The ponencia modified the interest rates and held:

WHEREFORE, the Court of Appeals Decision dated 21 April 2016, affirming the 27 January 2014 Decision of the Regional Trial Court, Branch 128, Caloocan City, is AFFIRMED with MODIFICATION, as follows:

Petitioner Lara's Gifts & Decors, Inc. is ordered to pay respondent Midtown Industrial Sales, Inc. the following:

1. ONE MILLION TWO HUNDRED SIXTY[-]THREE THOUSAND ONE HUNDRED FOUR PESOS and 22/100 (₱1,263,104.22) representing the principal amount plus stipulated interest at 24% per annum to be computed from 22 January 2008, the date of extrajudicial demand, until full payment.

2. Legal interest on the 24% per annum interest due on the principal amount accruing as of judicial demand, at the rate of 12% per annum from the date of judicial demand on 5 February 2008 until 30 June 2013, and thereafter at the rate of 6% per annum from 1 July 2013 until full payment.

3. The sum of FIFTY THOUSAND PESOS (₱50,000.00) as attorney's fees, plus legal interest thereon at the rate of 6% per annum to be computed from the finality of this Decision until full payment.

4. Cost of the suit.9

I concur with the ponencia as regards the application of interest with respect to items 1 and 3 of the dispositive portion above-quoted. I likewise agree that:

However, I disagree with:

I discuss the foregoing points in the course of my analysis on the proper interpretation and application of interest rates under the Civil Code in relation to the Usury Law below.

Overview: BSP-Prescrihed Interest
Rates under the Usury Law vis-a-vis
6% Per Annum Legal Interest Rate
under Article 2209 of the Civil Code

Under the Spanish Civil Code of 1889,23 the legal interest rate for defaulting on obligations consisting "in the payment of a sum of money" was pegged, in the absence of agreement, at 6% per annum unless otherwise fixed by the government, viz.:

ARTICLE 1108. Should the obligation consist in the payment of a sum of money, if the debtor should become in default, the indemnity for losses and damages, in the absence of a stipulation to the contrary, shall consist in the payment of the interest agreed upon, or, should there be no agreement, in the payment of interest at the legal rate.

Until another rate is fixed by the Government, the legal rate of interest shall be six per cent per annum.

In 1916 or during the American period, Act No. 265524 or the Usury Law was enacted. Said law pegged the rate of interest at 6% per annum. As worded, however, the 6% interest rate per annum was made applicable specifically, in the absence of agreement, to loans or forbearances of money, goods, or credits, and the rate allowed in judgments, viz.:

SECTION 1. The rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per centum per annum.

In 1950, the Civil Code of the Philippines (Civil Code) was enacted, which adopted a provision similar to that found under the Spanish Civil Code. Under Article 2209, the legal interest rate was set at 6% per annum, viz.:

ART. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum. (1108)

In 1973, the Usury Law was amended by P.D. 116 to allow the then Central Bank to modify the rate of interest in accordance with the existing economic conditions of the country. 25 P.D. 116 stated:

WHEREAS, the interest rate, together with other monetary and credit policy instruments, performs a vital role in mobilizing domestic savings and attracting capital resources into preferred areas of investment;

WHEREAS, the monetary authorities have recognized the need to amend the present Usury Law to allow for more flexible interest rate ceilings that would be more responsive to the requirements of changing economic conditions;

WHEREAS, the availability of adequate capital resources is, among other factors, a decisive element in the achievement of the declared objective of accelerating the growth of the national economy;

NOW, THEREFORE, I, FERDINANDE. MARCOS, President of the Philippines, by virtue of the powers in me vested by the Constitution as Commander-in-Chief of the Armed Forces of the Philippines, and pursuant to Proclamation No. 1081, dated September 21, 1972, and General Order No. 1, dated September 22, 1972, as amended, and in order to effect the desired changes and reforms in the social, economic, and political structure of our society, do hereby order and decree the amendment of Act No. 2655 as amended, as follows:

"SECTION 1. The rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank of the Philippines for that purpose in accordance with the authority hereby granted."

SEC. 2. The same Act is hereby amended by adding the following section immediately after section one thereof, which reads as follows:

"SEC. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided, That such changes shall not be made oftener than once every twelve months.

"In the exercise of the authority herein granted, the Monetary Board may prescribe higher maximum rates for consumer loans or renewals thereof as well as such loans made by pawnshops, finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform." (Emphasis and underscoring supplied)

Section 1-a of the Usury Law was further amended by P.D. 858 and P.D. 1684 and it presently reads:

Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided, That changes in such rate or rates may be effected gradually on scheduled dates announced in advance.

In the exercise of the authority herein granted the Monetary Board may prescribe higher maximum rates for loans of low priority, such as consumer loans or renewals thereof as well as such loans made by pawnshops, finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board is also authorized to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries. (Emphasis and underscoring supplied)

It bears emphasis that the Usury Law did "not empower the Central Bank to fix the specific rate of interest to be charged for loans. "26 It merely authorized the Monetary Board of the Central Bank (now, BSP) to determine two separate matters: (1) the rate of interest for loans or forbearances of any money, goods, or credits and the rates allowed in judgments, in the absence of stipulation; and (2) the maximum allowable rates of interest that might be agreed upon by parties for loans or forbearances of any money, goods, or credits such as consumer loans, loans made by pawnshops, finance companies and other similar credit institutions, loans of financial intermediaries, and different types of borrowings, including deposits and deposit substitutes. Hence, contracting parties are free to fix the interest rate subject to the ceilings that the BSP may prescribe under Section l-a27 and provided that the stipulated rate is not excessive, inordinate or unconscionable as determined by the Court.

Acting on the authority conferred by Act No. 2655, as amended by P.D. 116, the then Central Bank raised the interest rate under Section 1 of the Usury Law (i.e., the applicable rate when interest was intended but no rate was stipulated, referred to as the BSP-prescribed rate of interest) from 6% to 12% per annum in 1974 through CB Circular 416.28 As a result of this change, several disputes arose regarding the scope and application of the 12% rate per annum.

In the oft-cited case of Reformina v. Tomol, Jr. 29 (Reformina), the Court en bane held that the increased 12% per annum rate of interest was not applicable to an action for damages for injury to persons and loss of property as it did not constitute a judgment involving a loan or forbearance of money, goods or credit, viz.:

x x x Act No. 2655 deals with interest on (1) loans; (2) forbearances of any money, goods, or credits; and (3) rate allowed in judgments.

x x x x

The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. The Monetary Board may not tread on forbidden grounds. It cannot rewrite other laws. That function is vested solely with the legislative authority. It is axiomatic in legal hermeneutics that statutes should be construed as a whole and not as a series of disconnected articles and phrases. In the absence of a clear contrary intention, words and phrases in statutes should not be interpreted in isolation from one another. A word or phrase in a statute is always used in association with other words or phrases and its meaning may thus be modified or restricted by the latter.

Another formidable argument against the tenability of petitioners' stand are the whereases of P.D. No. 116 which brought about the grant of authority to the Central Bank and which reads thus -

"WHEREAS, the interest rate, together with other monetary and credit policy instruments, performs a vital role in mobilizing domestic savings and attracting capital resources into preferred areas of investments;

WHEREAS, the monetary authorities have recognized the need to amend the present Usury Law to allow for more flexible interest rate ceilings that would be more responsive to the requirements of changing economic conditions;

WHEREAS, the availability of adequate capital resources is, among other factors, a decisive element in the achievement of the declared objective of accelerating the growth of the national economy."

Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads-

"Art. 2209. - If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum."

The above provision remains untouched despite the grant of authority to the Central Bank by Act No. 2655, as amended. To make Central Bank Circular No. 416 applicable to any case other than those specifically provided for by the Usury Law will make the same of doubtful constitutionality since the Monetary Board will be exercising legislative functions which was beyond the intendment of P.D. No. 116.30 (Emphasis and underscoring supplied)

In National Power Corp. v. Angas31 (National Power Corporation), the Court reiterated Reformina and further explained the scope of the BSP-prescribed interest rates, as follows:

Central Bank Circular No. 416 reads:

"By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise known as the 'Usury Law,' the Monetary Board, in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve percent (12%) per annum."

It is clear from the foregoing provision that the Central Bank circular applies only to loan or forbearance of money, goods or credits. This has already been settled in several cases decided by this Court. Private respondents, however, take exception to the inclusion of the term "judgments" in the said circular, claiming that such term refers to any judgment directing the payment of legal interest, which term includes the questioned judgment of the lower court in the case at bar.

Private respondents' contention is bereft of merit. The term "judgments" as used in Section 1 of the Usury Law, as well as in Central Bank Circular No. 416, should be interpreted to mean only judgments involving loan or forbearance of money, goods or credits, following the principle of ejusdem generis. Under this doctrine, where general terms follow the designation of particular things or classes of persons or subjects, the general term will be construed to comprehend those things or persons of the same class or of the same nature as those specifically enumerated (Crawford, Statutory Construction, p. 191; Go Tiaco vs. Union Ins. Society of Camilan, 40 Phil. 40; Mutuc vs. COMELEC, 36 SCRA 228).

The purpose of the rule on ejusdem generis is to give effect to both the particular and general words, by treating the particular words as indicating the class and the general words as including all that is embraced in said class, although not specifically named by the particular words. This is justified on the ground that if the lawmaking body intended the general terms to be used in their unrestricted sense, it would have not made an enumeration of particular subjects but would have used only general terms (2 Sutherland, Statutory Construction, 3rd ed., pp. 395-400).

Applying the said rule on statutory construction to Central Bank Circular No. 416, the general term "judgments" can refer only to judgments in cases involving loans or forbearance of any money, goods or credits. As significantly laid down by this Court in the case of Reformina vs. Tomol, 139 SCRA 260:

xxxx

Obviously, therefore, Art. 2209 of the Civil Code, and not Central Bank Circular No. 416, is the law applicable to the case at bar. Said law reads:

"ART. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs a delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum."

The Central Bank circular applies only to loan or forbearance of money, goods or credits and to judgments involving such loan or forbearance of money, goods or credits. This is evident not only from said circular but also from Presidential Decree No. 116, which amended Act No. 2655, otherwise known as the Usury Law. On the other hand, Art. 2209 of the Civil Code applies to transactions requiring the payment of indemnities as damages, in connection with any delay in the performance of the obligation arising therefrom other than those covering loan or forbearance of money, goods or credits.

In the case at bar, the transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.

As for private respondents' argument that Central Bank Circular No. 416 impliedly repealed or modified Art. 2209 of the Civil Code, suffice it to state that repeals or even amendments by implication are not favored if two laws can be fairly reconciled. The Courts are slow to hold that one statute has repealed another by implication, and they will not make such an adjudication if they can refrain from doing so, or if they can arrive at another result by any construction which is just and reasonable. Besides, the courts will not enlarge the meaning of one act in order to decide that it repeals another by implication, nor will they adopt an interpretation leading to an adjudication of repeal by implication unless it is inevitable and a clear and explicit reason therefor can be adduced. (82 C.J.S. 479-486). In this case, Central Bank Circular No. 416 and Art. 2209 of the Civil Code contemplate different situations and apply to different transactions. In transactions involving loan or forbearance of money, goods or credits, as well as judgments relating to such loan or forbearance of money, goods or credits, the Central Bank circular applies. It is only in such transactions or judgments where the Presidential Decree allowed the Monetary Board to dip its fingers into. On the other hand, in cases requiring the payment of indemnities as damages, in connection with any delay in the performance of an obligation other than those involving loan or forbearance of money, goods or credits, Art. 2209 of the Civil Code applies. For the Court, this is the most fair, reasonable, and logical interpretation of the two laws. We do not see any conflict between Central Bank Circular No. 416 and Art. 2209 of the Civil Code or any reason to hold that the former has repealed the latter by implication.32 (Emphasis and underscoring supplied)

Pursuant to Reformina and National Power Corporation, it became necessary for the Court to determine whether an obligation to pay a sum of money constitutes a loan/forbearance of money, goods or credit in order to apply the appropriate interest rate (i.e., the BSP-prescribed interest for loans/forbearances when interest is intended but no rate was stipulated and for judgments involving loans/forbearances vis-a-vis the 6% per annum legal interest rate under Article 2209 for all other situations). Thus, in Tio Khe Chio v. Court of Appeals33 and Pilipinas Bank v. Court of Appeals, 34 (Pilipinas Bank) the Court held that the BSP-prescribed rate did not apply to actions for unpaid insurance claims35 and to contracts of sale, respectively, as they did not involve loans or forbearances of money, goods, or credit.36 On the other hand, the 12% per annum interest rate under CB Circular 416 was held to be applicable to judgments involving the payment of unliquidated cash advances to an employee by his employer37 and to the return of money paid by a buyer of a leasehold right but which contract was voided due to the fault of the seller.38 In Eastern Shipping Lines, the Court attempted to reconcile the various provisions under the Civil Code vis-a-vis Act No. 2655, as amended, by providing guidelines for the imposition of interest rates. Under said guidelines, a distinction was made between loans and forbearances of money, goods, or credit, and judgments involving the same (paragraph II. I, which called for the application of the BSP-prescribed rate), and all other monetary awards (paragraph 11.2, which called for the application of Article 2209 of the Civil Code). Eastern Shipping Lines likewise imposed a singular rate on the total unpaid monetary award as of the finality of the judgment, regardless of whether the sum due involved a loan or forbearance, as the interim period was deemed to be a forbearance of credit (paragraph II.3), viz.:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. 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.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount of finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.39 (Underscoring supplied)

With the issuance of BSP-MB Resolution No. 796 dated May 16, 2013, the rate of interest for loans or forbearances of any money, goods or credits and the rate allowed in judgments relating to the foregoing, in the absence of an express contract as to such rate of interest, was reduced by the BSP pursuant to Section 1 of the Usury Law from 12% to 6% per annum effective July 1, 2013. 40 Hence, the Court, in Nacar updated the rules provided in Eastern Shipping Lines as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. 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 6% 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.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.41