Summary: Tio Khe Chio vs. Court of Appeals (GR 76101-02, 30 September 1991)

Tio Khe Chio vs. Court of Appeals
[GR 76101-02, 30 September 1991]
Third Division, Fernan (J): 4 concur

Facts: On 18 December 1978, Tio Khe Chio imported 1,000 bags of fishmeal valued at $36,000.30 from Agro Impex, S.A. Dallas, Texas, U.S.A. The goods were insured with Eastern Assurance and Surety Corporation (EASCO) and shipped on board the M/V Peskov, a vessel owned by Far Eastern Shipping Company. When the goods reached Manila on 28 January 1979, they were found to have been damaged by sea water which rendered the fishmeal useless. Tio filed a claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, Tio sued them before the then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed a counterclaim against the Tio for the recovery of P18,387.86 representing the unpaid insurance premiums. On 30 June 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to pay Tio solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums with interest at the legal rate from the filing of the complaint, the sum of P15,000.00 as attorney's fees and the costs. The judgment became final as to EASCO but the shipping company appealed to the Court of Appeals and was absolved from liability by the said court in AC-GR 00161, entitled "Tio Khe Chio vs. Eastern Assurance and Surety Corporation." The trial court, upon motion by Tio, issued a writ of execution against EASCO. The sheriff enforcing the writ reportedly fixed the legal rate of interest at 12%. EASCO moved to quash the writ alleging that the legal interest to be computed should be 6% per annum in accordance with Article 2209 of the Civil Code and not 12% as insisted upon by Tio's counsel. In its order of 30 July 1986, the trial court denied EASCO's motion. EASCO then filed a petition for certiorari and prohibition before the Court of Appeals. On 30 July 1986, the Appellate Court rendered judgment, setting aside the order dated 30 July 1986 in so far as it fixes the interest at 12% on the principal amount of P87,598.82 from the date of filing of the complaint until the full payment of the amount, and the interest that Tio was entitled to collect from EASCO was reduced to 6% per annum; without pronouncement as to costs. Tio filed the petition for certiorari and prohibition.

Issue [1]: Whether Sections 243 and 244, as to interest, apply in the present case.

Held [1]: NO. Section 243 of the Insurance Code provides that "the amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shell be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent." Section 244 of the aforementioned Code also provides that "In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured person by reason of such undeniable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment." Herein, there was no unjustified refusal or withholding of payment on Tio's claim. The aforecited sections of the Insurance Code are not pertinent to the case, as they apply only when the court finds an unreasonable delay or refusal in the payment of the claims.

Issue [2]: Whether the interest to be imposed on claims based on an insurance contract is 6% or 12%.

Held [2]: 6%. The legal rate of interest is 6% per annum. Circular 416 of the Central Bank which took effect on 29 July 1974 pursuant to Presidential Decree 116 (Usury Law) which raised the legal rate of interest from 6% to 12% cannot apply as the adjusted rate mentioned in the circular refers only to loans or forbearances of money, goods or credits and court judgments thereon but not to court judgments for damages arising from injury to persons and loss of property which does not involve a loan. On the other hand, in the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA 158, the Court declared that the legal rate of interest is 6% per annum, and not 12%, where a judgment award is based on an action for damages for personal injury, not use or forbearance of money, goods or credit. In the same vein, the Court held in GSIS vs. Court of Appeals, GR 52478, 30 October 1986, 145 SCRA 311, that the rates under the Usury Law (amended by PD 116) are applicable only to interest by way of compensation for the use or forbearance of money, interest by way of damages is governed by Article 2209 of the Civil Code. Clearly, the applicable law is Article 2209 of the Civil Code which reads "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 per cent per annum." And in the light of the fact that the contending parties did not allege the rate of interest stipulated in the insurance contract, the legal interest was properly pegged at 6%.

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