VOL.

202, SEPTEMBER 30, 1991 119

Tio Khe Chio vs. Court of Appeals

*
G.R. Nos. 76101-02. September 30, 1991.

TIO KHE CHIO, petitioner, vs. THE HONORABLE

COURT OF APPEALS and EASTERN ASSURANCE AND
SURETY CORPORATION, respondents.

Civil Law; Interest; The legal rate of interest in the case at bar
is six (6%) per cent per annum as correctly held by the Appellate
Court.—We rule for respondent EASCO. The legal rate of interest
in the case at bar is six (6%) per cent per annum as correctly held
by the Appellate Court.
Same; Same; Sections 243 and 244 of the Insurance Code
apply only when the court finds an unreasonable delay or refusal
in the payment of the claims.—SimpIy put, the aforecited sections
of the Insurance Code are not pertinent to the instant case. They
apply only when the court finds an unreasonable delay or refusal
in the payment of the claims.
Same; Same; The adjusted rate mentioned in Circular No. 416
of the Central Bank refers only to loans or for bearances 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.—Neither does Circular
No. 416 of the Central Bank which took effect on July 29, 1974
pursuant to Presidential Decree No. 116 (Usury Law) which
raised the legal rate of interest from six (6%) to twelve (12%) per
cent apply to the case at bar as contended by the petitioner. 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.

_______________

* THIRD DIVISION.

120

120 SUPREME COURT REPORTS ANNOTATED

Tio Khe Chio vs. Court of Appeals

Same; Same; Same; Rates under the Usury Law 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.—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 six (6%) per cent per
annum, and not twelve (12%) per cent, 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 G.R. No. 52478, October 30,
1986, 145 SCRA 311, that the rates under the Usury Law
(amended by P.D. 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.

PETITION for certiorari and prohibition to review the

judgment of the Court of Appeals.
The facts are stated in the opinion of the Court.
     Rodolfo M. Morelos for petitioner,
          Ferrer, Mariano, Sangalang & Gatdula for private
respondent.

FERNAN, C.J.:

The issue in this petition for certiorari and prohibition is

the legal rate of interest to be imposed in actions for
damages arising from unpaid insurance claims. Petitioner
Tio Khe Chio claims that it should be twelve (12%) per cent
pursuant to Articles 243 and 244 of the Insurance Code
while private respondent Eastern Assurance and Surety
Corporation (EASCO) claims that it should be six (6%) per
cent under Article 2209 of the Civil Code.
The facts are as follows: On December 18, 1978,
petitioner Tio Khe Chio imported one thousand (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
respondent EASCO and shipped on board the M/V Peskov,
a vessel owned by Far Eastern Shipping Company. When
the goods reached Manila on January 28, 1979, they were
found to have been damaged by sea water which rendered
the fishmeal useless. Petitioner filed a claim with EASCO
and Far Eastern Shipping. Both refused to pay.
Whereupon, petitioner sued them before the then Court of

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VOL. 202, SEPTEMBER 30, 1991 121

Tio Khe Chio vs. Court of Appeals

First Instance of Cebu, Branch II for damages. EASCO, as

the insurer, filed a counterclaim against the petitioner for
the recovery of P1 8,387.86 representing the unpaid
insurance premiums.
On June 30, 1982, the trial court rendered judgment
ordering EASCO and Far Eastern Shipping to pay
petitioner 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,
1
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-G.R. No.
00161, entitled "Tio Khe Chio vs. Eastern Assurance and
Surety Corporation."
The trial court, upon motion by petitioner, issued a writ
of execution against EASCO. The sheriff enforcing the writ
reportedly fixed the legal rate of interest at twelve (12%).
Respondent EASCO moved to quash the writ alleging that
the legal interest to be computed should be six (6%) per
cent per annum in accordance with Article 2209 of the Civil
Code and not twelve (12%) per cent as insisted upon by
petitioner's counsel. In its order of July 30, 1986, the trial
court denied EASCO's motion. EASCO then filed a petition
for certiorari and prohibition before the Court of Appeals.
On July 30, 1986, the Appellate Court rendered the
assailed judgment, the dispositive part of which states:

WHEREFORE, the order dated July 30, 1986 is hereby SET

ASIDE 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 the private
respondent is entitled to collect from the petitioner is hereby
reduced to 6% per annum. 2
No pronouncement as to costs."

In disputing the aforesaid decision of the Court of Appeals,

petitioner maintains that not only is it unjust and unfair
but it

_______________

1 Rollo, p. 45.
2 Rollo, p. 11.

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122 SUPREME COURT REPORTS ANNOTATED

Tio Khe Chio vs. Court of Appeals

is also contrary to the correct interpretation of the fixing of

interest rates under Sections 243 and 244 of the Insurance
Code. And since petitioner's claims is based on an
insurance contract, then it is the Insurance Code which
must govern and not the Civil Code.
We rule for respondent EASCO. The legal rate of
interest in the case at bar is six (6%) per annum as
correctly held by the Appellate Court.
Section 243 of the Insurance Code provides:

"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 shall 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:

"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"

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VOL. 202, SEPTEMBER 30, 1991 123

Tio Khe Chio vs. Court of Appeals

In the case at bar, the Court of Appeals made no finding

that there was an unjustified refusal or withholding of
payment on petitioner's claim. In fact, respondent court
had this to say on EASCO's refusal to settle the claim of
petitioner:

"x x x. EASCO's refusal to settle the claim to Tio Khe Chio was
based on some ground which, while not sufficient to free it from
liability under its policy, nevertheless is sufficient to negate any
assertion that in refusing to pay, it acted unjustifiably.
"x x x      x x x      x x x      x x x.
'The case posed some genuine issues of interpretation of the
terms of the policy as to which persons may honestly differ. This
is the reason 3
the trial court did not say EASCO's refusal was
unjustified."

Simply put, the aforecited sections of the Insurance Code

are not pertinent to the instant case. They apply only when
the court finds an unreasonable delay or refusal in the
payment of the claims.
Neither does Circular No. 416 of the Central Bank
which took effect on July 29, 1974 pursuant to Presidential
Decree No. 116 (Usury Law) which raised the legal rate of
interest from six (6%) to twelve (12%) per cent apply to the
case at bar as contended by the petitioner, 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 4persons and loss of property which
does not involve a loan.
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 six (6%) per cent
per annum, and not twelve (12%) per cent, 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, G.R. No. 52478, October 30, 1986, 145 SCRA
311, that the rates under the Usury Law (amended by P.D.
116) are applicable only to inter-

_______________

3 Rollo, pp. 9,11.

4 Reformina vs. Tomol, Jr., G.R. No. 59096, October 11, 1985, 139
SCRA 260.

124

124 SUPREME COURT REPORTS ANNOTATED

 Tio Khe Chio vs. Court of Appeals

est 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 by the
Appellate Court at six (6%) per cent.
WHEREFORE, in view of the foregoing, the petition is
DENIED for lack of merit.
SO ORDERED.

     Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ.,

concur.

Petition denied.

Note.—The proper rate of interest in this case is 12%

per annum which is the rate expressly agreed upon by the
parties in their agreement. (Solid Homes Inc. vs. Court of
Appeals, 170 SCRA 63.)

——o0o——

125

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