G.R. No. L-59519. July 20, 1982.
ADELA FRANCISCO, petitioner, vs. HON. ALFREDO M. GORGONIO, as Presiding Judge of the Court of First Instance of Rizal, Branch XXXV, Caloocan City, Deputy Sheriff Danilo P. Norberto, and Spouses Ching Siao and Lim O. Chu, respondents.

FACTS

The case originated from a contract of lease dated July 5, 1977, where petitioner Adela Francisco, through her daughter and attorney-in-fact Zenaida F. Boiser, agreed to lease a portion of a building to be constructed to respondent spouses. The lessees paid P150,000.00 as a deposit, with P30,000.00 designated as goodwill and the remainder as advance rentals. Paragraph 6 of the contract stipulated that if the parties failed to agree on the terms of the final lease contract, the lessor would refund the P150,000.00 deposit “in full with legal interest.” The parties failed to agree on the specific area to be leased. The lessor opted to rescind, tendering a refund, which the lessees refused. The lessees filed a complaint for specific performance but later shifted their claim to a demand for the refund plus interest.
The P150,000.00 was deposited in a bank on July 18, 1978, earning 14% interest per annum. The trial court, by order dated September 13, 1978, authorized the amount to remain on time deposit subject to the case’s outcome. On June 10, 1980, the lessees moved for its withdrawal plus interest. The court granted the motion, ordering the lessor to withdraw the amount plus “legal interests” and turn it over to the lessees. The principal was paid on August 29, 1980, but a dispute arose over the interest due.

ISSUE

Whether the respondent court acted with grave abuse of discretion in ordering the petitioner to pay interest on the P150,000.00 deposit at rates exceeding the legal interest stipulated in the contract.

RULING

No. The Supreme Court found no grave abuse of discretion. The legal logic is anchored on the explicit contractual stipulation and the nature of the obligation. Paragraph 6 of the agreement expressly bound the lessor to return the deposit “in full with legal interest” in case of disagreement on the final contract terms. This created a conventional obligation to pay interest from the time the cause of action arose, which was when the parties failed to agree. The contract did not specify when the interest would start to run, but the cause of action accrued at the latest upon the lessor’s election to rescind and tender payment, which was before the complaint was filed in May 1978.
The Court upheld the trial court’s computation, which differentiated the interest rates based on the applicable law at the time the obligation was incurred. The obligation arose from a contract in 1977. Under the Civil Code, the legal interest for loans or forbearance of money was 12% per annum only if so stipulated in writing; otherwise, it was 6%. However, Central Bank Circular No. 416, which took effect on July 29, 1974, set the legal interest rate at 12% per annum for loans or forbearance of money in the absence of stipulation. The Court applied this 12% rate, as the contract called for “legal interest,” and the obligation was a forbearance of money. The trial court’s modified order, which computed interest at 9% per annum from July 5, 1977, to September 13, 1978, and 12% thereafter until full payment, was deemed a proper interpretation and application of the contractual term “legal interest” in light