Philippine National Bank v. CA

G.R. No. 123643 (October 30, 1996)

SC set 6% interest on breach of contract judgments, rising to 12% until fully paid.

Facts:

The Province of Isabela issued several checks to Lyndon Pharmaceuticals Laboratories, operated by Dr. Erlinda G. Ibarrola, as payment for medicines. These checks were delivered to agents who were supposed to turn them over to Ibarrola. However, 23 checks amounting to P98,691.90 were appropriated by the agents after negotiating them with the Philippine National Bank (PNB). Due to the failure to receive the full payment, Ibarrola filed a complaint on November 6, 1974, against the Province of Isabela, its Treasurer, the two agents, and PNB, seeking a sum of money and damages, which was docketed as Civil Case 4226-P.

On September 29, 1987, the Regional Trial Court (RTC) ruled that all defendants, except the deceased Treasurer, were jointly and severally liable to pay Ibarrola the amount of P98,691.90 with interest from the date of the complaint until fully paid. PNB appealed the decision, but both the Court of Appeals (CA) and the Supreme Court denied the appeal without specifying the applicable legal interest rate. The judgment became final and executory on November 26, 1993.

During the execution of the judgment, the sheriff computed the interest at 12%, which PNB contested, arguing it should be 6%. Ibarrola sought clarification from the RTC, which on August 4, 1994, ordered that the interest rate was 12%. PNB's direct appeal to the Supreme Court was referred to the CA, which affirmed the RTC's order.

Legal Issues:

  1. What is the applicable legal rate of interest in an action for damages: 6% as per Article 2209 of the New Civil Code or 12% as per Central Bank Circular 416?
  2. Should the interest be computed from the filing of the complaint until fully paid?

Arguments:

  • Petitioner (PNB): PNB argued that the applicable interest rate should be 6% per annum as provided in Article 2209 of the New Civil Code, asserting that the case does not involve a loan or forbearance of money but rather a breach of contract for the sale of goods. They contended that the RTC's judgment did not specify the interest rate, and thus the legal rate should apply.

  • Respondent (Ibarrola): Ibarrola maintained that the interest rate should be 12% per annum as per Central Bank Circular 416, which applies to monetary judgments. She argued that the RTC's decision was clear in its intent to impose this rate, and the clarification issued by the RTC was valid.

Court's Decision and Legal Reasoning:

The Supreme Court reversed the CA's decision, ruling that the applicable interest rate is 6% per annum, as the obligation arose from a contract of sale and not from a loan or forbearance of money. The Court referenced the case of Eastern Shipping Lines, Inc. v. CA, which established that when an obligation is breached and does not involve a loan, the interest rate is 6% per annum. The Court clarified that the interest should be computed from the filing of the complaint until the judgment becomes final and executory.

Once the judgment became final, the Court noted that the interim period until payment is equivalent to forbearance of credit, thus justifying the imposition of a 12% interest rate from the date the judgment became final until fully satisfied. The Court emphasized that the base for the computation of interest should be the amount adjudged (P98,691.90).

Significant Legal Principles Established:

  1. The applicable interest rate for damages arising from a breach of contract of sale is 6% per annum, as per Article 2209 of the New Civil Code, unless the obligation involves a loan or forbearance of money.
  2. In cases where a judgment becomes final and the amount remains unpaid, the interest rate shifts to 12% per annum from the date of finality until full payment is made.