8/19/2016

G.R. No. L-59096

TodayisFriday,August19,2016

RepublicofthePhilippines
SUPREMECOURT
Manila
ENBANC
G.R.No.L59096October11,1985
PACITAF.REFORMINAandHEIRSOFFRANCISCOREFORMINA,petitioners,
vs.
THEHONORABLEVALERIANOP.TOMOL,JR.,asJudgeoftheCourtofFirstInstance,BranchXI,CEBU
CITY,SHELLREFININGCOMPANY(PHILS.),INC.,andMICHAEL,INCORPORATED,respondents.
MateoCanonoyforpetitioners.
ReynaldoA.Pineda,Reyes,Santayana,TayaoandPicasoLawOfficeforrespondentShell.
MarceloFernan&AssociatesforrespondentMichael,Inc.

CUEVAS,J.:
Howmuch,bywayoflegalinterest,shouldajudgmentdebtorpaythejudgmentcreditoristheissueraisedbythe
REFORMINAS(hereinpetitioners)inthisPetitionforReviewoncertiorarioftheResolutionoftheHon.respondent
JudgeValerianoP.Tomol,Jr.ofthethenCourtofFirstInstanceofCebuBranchXI,issuedinCivilCaseNo.
R11279,anactionforRecoveryofDamagesforinjurytoPersonandLossofProperty.
ThedispositiveportionoftheassailedResolutionreadsasfollows
Inlight(sic)oftheforegoing,theconsideredviewherethatbylegalinterestismeantsix(6%)percent
asprovidedforbyArticle2209oftheCivilCode.Letawritofexecutionbeissued.
SOORDERED.1
Petitioners'motionforthereconsiderationofthequestionedResolutionhavingbeendenied,theynowcomebefore
Us through the instant petition praying for the setting aside of the said Resolution and for a declaration that the
judgmentintheirfavorshouldbearlegalinterestattherateoftwelve(12%)percentperannumpursuanttoCentral
BankCircularNo.416datedJuly29,1974.
Hereunderarethepertinentantecedents:
OnJune7,1972,judgmentwasrenderedbytheCourtofFirstinstanceofCebuinCivilCaseNo.R11279, 2the
dispositiveportionofwhichreads

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and
againstthedefendantsandthirdpartyplaintiffsasfollows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the
followingpersons:
(a)...
xxxxxxxxx
(g)PlaintiffsPacitaF.ReforminaandFranciscoReforminathesumofP131,084.00whichisthevalue
oftheboatFBPacitaIlltogetherwithitsaccessories,fishinggearandequipmentminusP80,000.00
whichisthevalueoftheinsurancerecoveredandtheamountofP10,000.00amonthastheestimated
monthlylosssufferedbythemasaresultofthefireofMay6,1969uptothetimetheyareactuallypaid
or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the
http://www.lawphil.net/judjuris/juri1985/oct1985/gr_l59096_1985.html

1/6

8/19/2016

G.R. No. L-59096

complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third
partyplaintiffs.
OnappealtothethenCourtofAppeals,thetrialcourt'sjudgmentwasmodifiedtoreadsasfollows
WHEREFORE.thejudgmentappealedfromismodifiedsuchthatdefendantsappellantsShellRefining
Co. (Phils.), Inc. and Michael, Incorporated are hereby ordered to pay ... The two (2) defendants
appellantsarealsodirectedtopayP100,000.00withlegalinterestsfromthefilingofthecomplaintuntil
paidascompensatoryandmoraldamagesandP41,000.00compensationforthevalueofthelostboat
withlegalinterestfromthefilingofthecomplaintuntilfullypaidtoPacitaF.Reforminaandtheheirsof
FranciscoReformina.Theliabilityofthetwodefendantsforantheawardsissolidary.
xxxxxxxxx
Exceptasmodifiedabove,therestofthejudgmentappealedfromisaffirmed.Thedefendantsappellantsshallpay
costs in favor of the plaintiffs. Appellants Shell and Michael and third party defendant Anita L. Abellanosa shall
shouldertheirrespectivecosts.
SOORDERED.3
The said decision having become final on October 24, 1980, the case was remanded to the lower court for
execution and this is where the controversy started. In the computation of the "legal interest" decreed in the
judgment sought to be executed, petitioners claim that the "legal interest" should be at the rate of twelve (12%)
percentperannum,invokinginsupportoftheiraforesaidsubmission,CentralBankofthePhilippinesCircularNo.
416.Upontheotherhand,privaterespondentsinsistthatsaidlegalinterestshouldbeattherateofsix(6%)percent
perannumonly,pursuanttoandbyauthorityofArticle2209oftheNewCivilCodeinrelationtoArticles2210and
2211thereof.
Insupportoftheirstand,petitionerscontendthatCentralBankCircularNo.416whichprovides
ByvirtueoftheauthoritygrantedtoitunderSection1ofAct2655,asamended,otherwiseknownas
the "Usury Law" the Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed
thattherateofinterestfortheloanorforbearanceofanymoney,goods,orcreditsandtherateallowed
injudgments,intheabsenceofexpresscontractastosuchrateofinterest,shallbetwelve(12%)per
centperannum.ThisCircularshalltakeeffectimmediately.(Italicssupplied)
includesthejudgmentsoughttobeexecutedinthiscase,becauseitiscoveredbythephrase2ndtherateallowed
injudgmentsintheabsenceofexpresscontractastosuchrateofinterest..."intheaforequotedcircular.
Thepetitionisdevoidofmerit.Consequently,itsdismissalisinorder.
Central Bank Circular No. 416 which took effect on July 29, 1974 was issued and promulgated by the Monetary
Board pursuant to the authority granted to the Central Bank by P.D. No. 116, which amended Act No. 2655,
otherwiseknownastheUsuryLaw.Theamendmentfromwhichsaidauthorityemanatedreadsasfollows
Section 1a. 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
changesuchrateorrateswheneverwarrantedbyprevailingeconomicandsocialconditions:Provided,
Thatsuchchangesshallnotbemadeoftenerthanonceeverytwelvemonths.
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
companiesandothersimilarcreditinstitutionsalthoughtheratesprescribedfortheseinstitutionsneed
notnecessarilybeuniform.(Italicssupplied)
Acting pursuant to this grant of authority, the Monetary Board increased the rate of legal interest from that of six
(6%)percentperannumoriginallyallowedunderSectionIofActNo.2655totwelve(12%)percentperannum.
ItwillbenotedthatActNo.2655dealswithintereston(1)loans(2)forbearancesofanymoney,goods,orcredits
and(3)rateallowedinjudgments.
The issue now iswhat kind of judgment is referred to under the said law. Petitioners maintain that it covers all
kindsofmonetaryjudgment.
Thecontentionisdevoidofmerit.
ThejudgmentsspokenofandreferredtoareJudgmentsinlitigationsinvolvingloansorforbearanceofany'money,
goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or
http://www.lawphil.net/judjuris/juri1985/oct1985/gr_l59096_1985.html

2/6

8/19/2016

G.R. No. L-59096

forbearanceofanymoney,goodsorcreditsdoesnotfallwithinthecoverageofthesaidlawforitisnotwithinthe
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
isolationfromoneanother. 4Awordorphraseinastatuteisalwaysusedinassociationwithotherwordsorphrasesand
itsmeaningmaythusbemodifiedorrestrictedbythelatter.5

Another formidable argument against the tenability of petitioners' stand are the whereases of PD No. 116 which
broughtaboutthegrantofauthoritytotheCentralBankandwhichreadsthus
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,themonetaryauthoritieshaverecognizedtheneedtoamendthepresentUsury.Lawtoallowformore
flexibleinterestrateceilingsthatwouldbemoreresponsivetotherequirementsofchangingeconomicconditions
WHEREAS, the availability of adequate capital resources is, among other factors, a decisive element in the
achievementofthedeclaredobjectiveofacceleratingthegrowthofthenationaleconomy.
Comingtothecaseatbar,thedecisionhereinsoughttobeexecutedisonerenderedinanActionforDamagesfor
injurytopersonsandlossofpropertyanddoesnotinvolveanyloan,muchlessforbearancesofanymoney,goods
orcredits.Ascorrectlyarguedbytheprivaterespondents,thelawapplicabletothesaidcaseisArticle2209ofthe
NewCivilCodewhichreads
Art.2209.Iftheobligationconsistsinthepaymentofasumofmoney,andthedebtorincursindelay,
theindemnityfordamages,therebeingnostipulationtothecontrary,shallbethepaymentofinterest
agreedupon,andintheabsenceofstipulation,thelegalinterestwhichissixpercentperannum.
The above provision remains untouched despite the grant of authority to the Central Bank by Act No. 2655, as
amended.TomakeCentralBankCircularNo.416applicabletoanycaseotherthanthosespecificallyprovidedfor
by the Usury Law will make the same of doubtful constitutionality since the Monetary Board will be exercising
legislativefunctionswhichwasbeyondtheintendmentofP.D.No.116.
INVIEWOFTHEFOREGOINGCONSIDERATIONS,andfindingtheinstantpetitiontobewithoutmerit,thesameis
herebyDISMISSEDwithcostsagainstpetitioners.
SOORDERED.
Concepcion,Jr.,AbadSantos,MelencioHerrera,Escolin,Relova,Gutierrez,Jr.,DelaFuente,AlampayandPatajo,
JJ.,concur.
Makasiar,CJ.,withseparateopinionofJusticePlana.
Aquino,J.,concursintheresult.

SeparateOpinions

PLANA,J.,concurringanddissenting:
1. Central Bank Circular 416 dated July 29, 1974 increased the rate of interest allowed in judgments from 6% to
12%perannum.Tomyaknowledge,beforetheinstantcase,thavalidityofCBCircular416hadnotbeenchallenged
in this Court. In Viloria vs. Court of Appeals, 123 SCRA 259, it was assumed that the Central Bank w as llegally
authorizedtoissuethesaidCircular.Theonlyissuethereraisedwaswhethertheincreaseininterestratecouldbe
givenretrospectiveoperation.
2.1donotbelievetheCentralBankauthorityhereinquestionispremisedonSection1aofActNo.2655(Usury
Law),asinsertedbyPresidentialDecree116.Thecitedsectionreads:
Sec.1a.TheMonetaryBoardisherebyauthorizedtoprescribethemaximumrateorratesofinterest
fortheloanorrenewalthereofortheforbearanceofanymoney,goodsorcredits,andtochangesuch
http://www.lawphil.net/judjuris/juri1985/oct1985/gr_l59096_1985.html

3/6

8/19/2016

G.R. No. L-59096

rate or rates whenever warranted by prevailing economic and social conditions: Provided, That such
changesshallnotbemadeoftenerthanonceeverytwelvemonths.
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
companiesandothersimilarcreditinstitutionsalthoughtheratesprescribedfortheseinstitutionsneed
notnecessarilybeuniform.
TheabovelawdoesnotempowertheCentralBanktofixthespecificrateofinteresttobechargedfor
loans.Itmerelygrantsthepowertoprescribethemaximuminterestrate,leavingittothecontracting
partiestodeterminewithintheallowablelimitwhatpreciselytheinterestratewillbe.InotherWords,
the provision presupposes that the parties to the loan agreement are free to fix the interest rate, the
ceilingprescribedbytheCentralBankoperatingmerelytorestricttheparties'freedomtostipulate.So
viewed, Sec. 1a cannot include a provision on interest to be allowed in judgments, which is not the
subjectofcontractualstipulationsandthereforecannotlogicallybemadesubjecttointerest(ceiling),
whichisallthatSec.1acovers.NotethatCentralBankCircular416itselfinvokesasthebasisforits
issuanceSec.1,ratherthanSec.1a,oftheUsuryLaw.
3.Bypurposeandoperativeeffect,Sec.1oftheUsuryLawisdifferentfromSec.1a.
Section1.Therateofinterestfortheloanorforbearanceofanymoney,goods,orcreditsandtherate
allowedinjudgments,in the absence of express contract as to such rate of interest, shall be six per
centumperannumorsuchrateasmaybeprescribedbytheMonetaryBoardoftheCentralBankof
thePhilippinesforthatpurposeinaccordancewiththeauthorityherebygranted.(Italicssupplied
Thissectionenvisagestwosituations:(a)aloanorforbearanceofmoney,goodsorcredit,wherethe
partiesagreedonthepaymentofinterestbutfailedtofixtheratethereofand(b)alitigationthathas
endedinafinaljudgmentforthepaymentofmoney.Ineithercase,theroleofSection1istofixthe
specificrateofinterestorlegalinterest(6%)tobecharged.ItalsoimpliedlydelegatestotheCentral
Bankthepowertomodifythesaidinterestrate.Thus,theinterestrateshallbe6%perannumor"such
rateasmaybeprescribedbytheMonetaryBoardoftheCentralBank..."
4.TheauthoritytochangethelegalinterestthathasbeendelegatedtotheCentralBankunderthequotedSection1
isabsoluteandunqualified.ItistruethatSection1saysthattherateofinterestshallbe6%perannumor"such
rateasmaybeprescribedbytheMonetaryBoardoftheCentralBank...inaccordancewiththeauthorityhereby
granted."Butneitherinthesaidsectionnorinanyothersectionofthelawisthereaguidelineorlimitationimposed
ontheCentralBank.Thedeterminationofwhattheapplicableinterestrateshallbe,asdistinguishedfrominterest
rateceiling,iscompletelylefttothejudgmentoftheCentralBank.Inshort,thereisatotalabdicationoflegislative
power,whichrendersthedelegationvoid.
5. Under the view taken above, it is unnecessary to make a distinction between judgments in litigations involving
loansandjudgmentsinlitigationsthathavenothingtodowithloans.
6. I conclude that the Central Bank authority to change the legal rate of interest allowed in judgments is
constitutionallydefectiveandincidentally,thisvicealsoaffectsitsauthoritytochangethelegalinterestof6%per
annumastoloansandforbearanceofmoney,goodsorcredits,asenvisagedinSection1oftheUsuryLaw.Ifthis
conclusion be correct, it is imperative to enact a law either increasing the legal interest to a realistic level or
supplyingthedeficienciesoftheUsuryLawwhichrenderthedelegationofpowerthereinconstitutionallydefective.
Teehankee,J.,concur.

SeparateOpinions
PLANA,J.,concurringanddissenting:
1.CentralBankCircular416datedJuly29,1974increasedtherateofinterestallowedinjudgmentsfrom6%to
12%perannum.Tomyaknowledge,beforetheinstantcase,thavalidityofCBCircular416hadnotbeenchallenged
inthisCourt.InViloriavs.CourtofAppeals,123SCRA259,itwasassumedthattheCentralBankwasllegally
authorizedtoissuethesaidCircular.Theonlyissuethereraisedwaswhethertheincreaseininterestratecouldbe
givenretrospectiveoperation.
2.1donotbelievetheCentralBankauthorityhereinquestionispremisedonSection1aofActNo.2655(Usury
Law),asinsertedbyPresidentialDecree116.Thecitedsectionreads:

http://www.lawphil.net/judjuris/juri1985/oct1985/gr_l59096_1985.html

4/6

8/19/2016

G.R. No. L-59096

Sec.1a.TheMonetaryBoardisherebyauthorizedtoprescribethemaximumrateorratesofinterest
fortheloanorrenewalthereofortheforbearanceofanymoney,goodsorcredits,andtochangesuch
rateorrateswheneverwarrantedbyprevailingeconomicandsocialconditions:Provided,Thatsuch
changesshallnotbemadeoftenerthanonceeverytwelvemonths.
Intheexerciseoftheauthorityhereingranted,theMonetaryBoardmayprescribehighermaximum
ratesforconsumerloansorrenewalsthereofaswellassuchloansmadebypawnshops,finance
companiesandothersimilarcreditinstitutionsalthoughtheratesprescribedfortheseinstitutionsneed
notnecessarilybeuniform.
TheabovelawdoesnotempowertheCentralBanktofixthespecificrateofinteresttobechargedfor
loans.Itmerelygrantsthepowertoprescribethemaximuminterestrate,leavingittothecontracting
partiestodeterminewithintheallowablelimitwhatpreciselytheinterestratewillbe.InotherWords,
theprovisionpresupposesthatthepartiestotheloanagreementarefreetofixtheinterestrate,the
ceilingprescribedbytheCentralBankoperatingmerelytorestricttheparties'freedomtostipulate.So
viewed,Sec.1acannotincludeaprovisiononinteresttobeallowedinjudgments,whichisnotthe
subjectofcontractualstipulationsandthereforecannotlogicallybemadesubjecttointerest(ceiling),
whichisallthatSec.1acovers.NotethatCentralBankCircular416itselfinvokesasthebasisforits
issuanceSec.1,ratherthanSec.1a,oftheUsuryLaw.
3.Bypurposeandoperativeeffect,Sec.1oftheUsuryLawisdifferentfromSec.1a.
Section1.Therateofinterestfortheloanorforbearanceofanymoney,goods,orcreditsandtherate
allowedinjudgments,intheabsenceofexpresscontractastosuchrateofinterest,shallbesixper
centumperannumorsuchrateasmaybeprescribedbytheMonetaryBoardoftheCentralBankof
thePhilippinesforthatpurposeinaccordancewiththeauthorityherebygranted.(Italicssupplied
Thissectionenvisagestwosituations:(a)aloanorforbearanceofmoney,goodsorcredit,wherethe
partiesagreedonthepaymentofinterestbutfailedtofixtheratethereofand(b)alitigationthathas
endedinafinaljudgmentforthepaymentofmoney.Ineithercase,theroleofSection1istofixthe
specificrateofinterestorlegalinterest(6%)tobecharged.ItalsoimpliedlydelegatestotheCentral
Bankthepowertomodifythesaidinterestrate.Thus,theinterestrateshallbe6%perannumor"such
rateasmaybeprescribedbytheMonetaryBoardoftheCentralBank..."
4.TheauthoritytochangethelegalinterestthathasbeendelegatedtotheCentralBankunderthequotedSection1
isabsoluteandunqualified.ItistruethatSection1saysthattherateofinterestshallbe6%perannumor"such
rateasmaybeprescribedbytheMonetaryBoardoftheCentralBank...inaccordancewiththeauthorityhereby
granted."Butneitherinthesaidsectionnorinanyothersectionofthelawisthereaguidelineorlimitationimposed
ontheCentralBank.Thedeterminationofwhattheapplicableinterestrateshallbe,asdistinguishedfrominterest
rateceiling,iscompletelylefttothejudgmentoftheCentralBank.Inshort,thereisatotalabdicationoflegislative
power,whichrendersthedelegationvoid.
5.Undertheviewtakenabove,itisunnecessarytomakeadistinctionbetweenjudgmentsinlitigationsinvolving
loansandjudgmentsinlitigationsthathavenothingtodowithloans.
6.IconcludethattheCentralBankauthoritytochangethelegalrateofinterestallowedinjudgmentsis
constitutionallydefectiveandincidentally,thisvicealsoaffectsitsauthoritytochangethelegalinterestof6%per
annumastoloansandforbearanceofmoney,goodsorcredits,asenvisagedinSection1oftheUsuryLaw.Ifthis
conclusionbecorrect,itisimperativetoenactalaweitherincreasingthelegalinteresttoarealisticlevelor
supplyingthedeficienciesoftheUsuryLawwhichrenderthedelegationofpowerthereinconstitutionallydefective.
Teehankee,J.,concur.

Footnotes
1ResolutiondatedSeptember8,1981inCivilCaseNo.R11279,Annex"D",Petition.
2Anactionfortherecoverofdamagesduetolossorinjurytopersonorproperty
3DecisiondatedMay26,1980oftheCourtofAppeals.
4Crawford,StatutoryConstrued,940Ed.IV,page69.
5LuDo&LuYmCorp.vs.CentralBank,108Phil.566.
http://www.lawphil.net/judjuris/juri1985/oct1985/gr_l59096_1985.html

5/6

8/19/2016

G.R. No. L-59096

TheLawphilProjectArellanoLawFoundation

http://www.lawphil.net/judjuris/juri1985/oct1985/gr_l59096_1985.html

6/6