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PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION v. RICARDO P. TENSUAN

FACTS:

In this case, the legal issue is whether Central Bank Circular No. 416, which prescribes a 12% per annum interest rate, is applicable to the decision of the respondent court in Civil Case No. 11973. The case involves private respondents, who are farmers' cooperatives, and the Central Cooperative Exchange, Inc. (CCE). Under a management contract, CCE obligated itself to procure, redry, and service Virginia Tobacco for the petitioner. However, a fire destroyed the tobacco shipments of private respondents in the redrying plant of CCE. Petitioner failed to pay the price of the burned tobacco, leading private respondents to file a case against petitioner. After trial, petitioner was ordered to pay private respondents the total amount of P1,036,717.09, plus legal interest from December 29, 1970, until fully paid. The funds of petitioner deposited at the Philippine National Bank were garnished by the Sheriff of Quezon City to satisfy the judgment in favor of private respondents. Petitioner disagreed with the computation of the interest of 12% per annum based on Central Bank Circular No. 416 and insisted on the application of the 6% legal rate of interest under Article 2209 of the Civil Code. Private respondents filed a motion praying for the issuance of an order fixing the legal rate of interest at 12% per annum. The respondent judge issued an order granting interest at 6% per annum until August 12, 1974, and 12% per annum thereafter until fully paid. The petitioner appealed this decision, arguing that Central Bank Circular No. 416 does not apply to their case, and that the applicable interest rate is 6% based on Article 2209 of the Civil Code. The court held that Central Bank Circular No. 416 does not apply to judgments that do not involve loans or forbearance of money, goods, or credits. Thus, the interest rate applicable in this case is 6% per annum under Article 2209 of the Civil Code. The court modified the order of the respondent judge to reflect the 6% interest rate.

ISSUES:

  1. Whether Central Bank Circular No. 416, which prescribes a 12% per annum interest rate, is applicable to the decision of the respondent court in the case.

  2. Whether Art. 2209 of the Civil Code, which prescribes a 6% per annum interest rate, is applicable to the case.

RULING:

  1. Central Bank Circular No. 416 is not applicable to the case. The circular applies only to loans or forbearance of money, goods, or credits and court judgments thereon. The case at hand does not involve a loan or forbearance of money, therefore the circular cannot be applied.

  2. Art. 2209 of the Civil Code is applicable to the case. The transaction in the case was a contract of sale wherein there was default in the payment of the price, and interest was awarded as a result. The interest awarded in this case is not within the contemplation of the Usury Law, and therefore Art. 2209 applies.

PRINCIPLES:

  • Central Bank Circular No. 416 applies only to loans or forbearance of money, goods, or credits and court judgments thereon.

  • Art. 2209 of the Civil Code applies to the payment of interest on obligations consisting of the payment of a sum of money, in the absence of stipulation to the contrary.