Reformina vs. Tomol, Jr.

Central Bank Circular No. 416, which increased the legal interest rate to twelve percent (12%) per annum, applies only to judgments in litigations involving loans or forbearance of any money, goods, or credits. Any other kind of monetary judgment that has nothing to do with, nor involves, loans or forbearance of money, goods, or credits does not fall within the coverage of the said law, and remains subject to the six percent (6%) legal interest under Article 2209 of the Civil Code.

Petitioners Pacita F. Reformina and the Heirs of Francisco Reformina were plaintiffs in Civil Case No. R-11279, an action for recovery of damages for injury to person and loss of property, filed before the then Court of First Instance of Cebu. Private respondents Shell Refining Company (Phils.), Inc. and Michael, Incorporated were the defendants in that case. The dispute over the applicable interest rate arose during execution of the final judgment, when petitioners claimed twelve percent (12%) per annum under Central Bank Circular No. 416, while private respondents insisted on six percent (6%) under Article 2209 of the New Civil Code in relation to Articles 2210 and 2211 thereof.

Petitioners Pacita F. Reformina and the Heirs of Francisco Reformina were the plaintiffs in Civil Case No. R-11279, an action for recovery of damages for injury to person and loss of property, filed before the then Court of First Instance of Cebu. Private respondents Shell Refining Company (Phils.), Inc. and Michael, Incorporated were the defendants in that case. On June 7, 1972, judgment was rendered in favor of the plaintiffs, ordering the defendants to pay jointly and severally, among others, the sum of P131,084.00 representing the value of the boat F B Pacita III together with its accessories, fishing gear and equipment, minus P80,000.00 for insurance recovered, and P10,000.00 a month as estimated monthly loss suffered as a result of the fire of May 6, 1969, "with legal interest from the filing of the complaint until paid," plus attorney's fees of P5,000.00.

On appeal, the Court of Appeals modified the trial court's judgment on May 26, 1980, ordering the defendants-appellants to pay P100,000.00 with legal interest from the filing of the complaint until paid as compensatory and moral damages, and P41,000.00 compensation for the value of the lost boat with legal interest from the filing of the complaint until fully paid, with solidary liability. The decision became final on October 24, 1980, and the case was remanded to the lower court for execution.

The controversy arose during the computation of the "legal interest" decreed in the judgment sought to be executed. Petitioners claimed that the legal interest should be at the rate of twelve percent (12%) per annum, invoking Central Bank of the Philippines Circular No. 416, which provides 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 (12%) per cent per annum." Private respondents, on the other hand, insisted that the legal interest should be at the rate of six percent (6%) per annum only, pursuant to Article 2209 of the New Civil Code in relation to Articles 2210 and 2211 thereof.

On September 8, 1981, respondent Judge issued a Resolution holding that "by legal interest is meant six (6%) percent as provided for by Article 2209 of the Civil Code," and ordered the issuance of a writ of execution. Petitioners' motion for reconsideration was denied, prompting them to file the instant petition before the Supreme Court.

• Applicability of Central Bank Circular No. 416: Petitioners argued that Central Bank Circular No. 416, which prescribes twelve percent (12%) per annum as the rate of interest "allowed in judgments" in the absence of express contract, includes the judgment sought to be executed in this case, because it is covered by the phrase "the rate allowed in judgments in the absence of express contract as to such rate of interest" in the circular.
• Scope of the Circular: Petitioners maintained that the judgments referred to under the law cover all kinds of monetary judgments, not merely those involving loans or forbearance of money, goods, or credits.

• Applicability of Article 2209 of the Civil Code: Private respondents insisted that the legal interest should be at the rate of six percent (6%) per annum only, pursuant to and by authority of Article 2209 of the New Civil Code in relation to Articles 2210 and 2211 thereof.
• Limited Scope of the Usury Law: Private respondents argued that the law applicable to the case is Article 2209 of the New Civil Code, since the decision sought to be executed is one rendered in an action for damages for injury to persons and loss of property, which does not involve any loan, much less forbearance of any money, goods, or credits.

• Applicability of Central Bank Circular No. 416: Whether Central Bank Circular No. 416, which increased the legal interest rate to twelve percent (12%) per annum, applies to the judgment sought to be executed in this case, which was rendered in an action for recovery of damages for injury to person and loss of property.
• Proper Rate of Legal Interest: Whether the legal interest on the judgment should be at the rate of twelve percent (12%) per annum pursuant to Central Bank Circular No. 416, or at the rate of six percent (6%) per annum pursuant to Article 2209 of the Civil Code.

• Applicability of Central Bank Circular No. 416: No. Central Bank Circular No. 416 applies only to judgments in litigations involving loans or forbearance of any money, goods, or credits. The judgment sought to be executed in this case was rendered in an action for damages for injury to persons and loss of property, which does not involve any loan or forbearance, and therefore does not fall within the coverage of the circular.
• Proper Rate of Legal Interest: Six percent (6%) per annum. The law applicable to the case is Article 2209 of the New Civil Code, which provides that in the absence of stipulation, the legal interest is six percent (6%) per annum. The petition was dismissed with costs against petitioners.

• Applicability of Central Bank Circular No. 416: The Court ruled that Central Bank Circular No. 416 was issued pursuant to the authority granted to the Central Bank by P.D. No. 116, which amended Act No. 2655, otherwise known as the Usury Law. The amendment authorized the Monetary Board to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods, or credits. The Court noted that Act No. 2655 deals with interest on (1) loans; (2) forbearances of any money, goods, or credits; and (3) rate allowed in judgments. The Court held that 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 involves, 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, as that function is vested solely with the legislative authority. The Court applied the principle that statutes should be construed as a whole and not as a series of disconnected articles and phrases, and that 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.
• Proper Rate of Legal Interest: The Court held that the decision 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 forbearance 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 provides that 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 Court further held that 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.

• Limited Application of Central Bank Circular No. 416 — Central Bank Circular No. 416, which increased the legal interest rate to twelve percent (12%) per annum, applies only to judgments in litigations involving loans or forbearance of any money, goods, or credits. Any other kind of monetary judgment that has nothing to do with, nor involves, loans or forbearance of 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, as that function is vested solely with the legislative authority.
• Statutory Construction — Statutes Construed as a Whole — 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. The Court applied this principle to interpret the phrase "rate allowed in judgments" in the Usury Law as referring only to judgments in litigations involving loans or forbearance of money, goods, or credits.
• Legal Interest Under Article 2209 of the Civil Code — 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 (6%) per annum. This provision remains untouched despite the grant of authority to the Central Bank by Act No. 2655, as amended.

• "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." — This passage articulates the ratio decidendi of the case, defining the limited scope of Central Bank Circular No. 416 and the authority of the Monetary Board under the Usury Law.
• "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." — This passage states the canon of statutory construction applied by the Court to interpret the phrase "rate allowed in judgments" in the Usury Law in relation to the other provisions of the law.
• "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." — This passage explains the constitutional dimension of the Court's ruling, emphasizing that the Monetary Board cannot exercise legislative functions beyond the authority granted by P.D. No. 116.

• Lu Do & Lu Ym Corp. vs. Central Bank, 108 Phil. 566 — Cited as authority for the principle that 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. The Court relied on this case in construing the Usury Law as a whole.

• Article 2209, Civil Code — Provides that 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 (6%) per annum. The Court applied this provision to the judgment in the action for damages, holding that the six percent rate governs.
• Section 1, Act No. 2655 (Usury Law), as amended by P.D. No. 116 — Authorizes the Monetary Board 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. The Court interpreted this provision as limiting the authority of the Monetary Board to matters involving loans or forbearance, not to all kinds of monetary judgments.
• Central Bank Circular No. 416, dated July 29, 1974 — Prescribes 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. The Court held that this circular applies only to judgments in litigations involving loans or forbearance of money, goods, or credits.

Justices Concepcion, Jr., Abad Santos, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente, Alampay, and Patajo concurred. Justice Aquino concurred in the result. Chief Justice Makasiar concurred with a separate opinion by Justice Plana. Justice Teehankee concurred with Justice Plana's separate opinion.

• Justice Plana (concurring and dissenting) — Justice Plana expressed the view that Central Bank Circular 416 increased the rate of interest allowed in judgments from 6% to 12% per annum, and that the validity of the circular had not been previously challenged in this Court. He argued that the Central Bank's authority to change the legal interest rate is not premised on Section 1-a of Act No. 2655, as inserted by Presidential Decree 116, because that provision merely grants the power to prescribe the maximum interest rate, leaving it to the contracting parties to determine the specific rate within the allowable limit. He further argued that Section 1 of the Usury Law, which fixes the specific rate of interest or legal interest, impliedly delegates to the Central Bank the power to modify the said interest rate, and that this delegation is absolute and unqualified, with no guideline or limitation imposed on the Central Bank. He concluded that the Central Bank's authority to change the legal rate of interest allowed in judgments is constitutionally defective, as it constitutes a total abdication of legislative power, and that this vice also affects its authority to change the legal interest of 6% per annum as to loans and forbearance of money, goods, or credits. He suggested that it is imperative to enact a law either increasing the legal interest to a realistic level or supplying the deficiencies of the Usury Law.