G.R. No. 97873 August 12, 1993
PILIPINAS BANK, petitioner, vs. THE HONORABLE COURT OF APPEALS, and LILIA R. ECHAUS, respondents.

FACTS

Private respondent Lilia R. Echaus filed a complaint against petitioner Pilipinas Bank and its president for collection of a sum of money. The complaint alleged that Greatland Realty Corporation executed a “Dacion en Pago” with the bank, conveying parcels of land for a consideration, and assigned P2,300,000.00 of that consideration to Echaus. The bank refused to pay. The trial court ruled in favor of Echaus, awarding her P2,300,000.00 plus legal interest, actual, moral, exemplary, and nominal damages, attorney’s fees, and costs. The bank appealed. During the appeal, the trial court granted Echaus’s motion for execution pending appeal. The Court of Appeals modified this order, limiting the execution to P5,517,707.00 and deferring execution of moral, exemplary, and nominal damages. The Supreme Court affirmed this modification. The bank complied, issuing checks totaling P5,517,707.00. Later, the Court of Appeals rendered a final decision in the main case, modifying the trial court’s judgment. It ordered the bank to pay Echaus P2,300,000.00 with legal interest from July 24, 1981, P100,000.00 in moral damages, P25,000.00 in exemplary damages, and attorney’s fees equivalent to 10% of the principal. This decision became final. The bank then moved for a refund of the excess payment (P1,898,623.67) it had made under the advance execution. A dispute arose over the applicable legal interest rate on the P2,300,000.00 award. Echaus claimed 12% per annum under Central Bank Circular No. 416, while the bank argued for 6% under Article 2209 of the Civil Code. The trial court ordered the refund but fixed the interest at 12%. Echaus filed a Motion for Clarification with the Court of Appeals, which ruled that the legal interest on the P2,300,000.00 should be 12% per annum, denied compounding interest and payment of bond premium as cost, stated the surety bond could be released after satisfaction of the decision, and left attorney’s fees distribution for separate proceedings. The bank appealed this resolution.

ISSUE

1. What is the applicable legal rate of interest on the principal award of P2,300,000.00?
2. What is the applicable interest rate on the excess amount (P1,898,623.67) to be refunded by private respondent to petitioner?
3. When should the surety bond posted for the execution pending appeal be released?

RULING

1. The applicable legal rate of interest on the principal award of P2,300,000.00 is six percent (6%) per annum under Article 2209 of the Civil Code. The Supreme Court held that the obligation arose from a contract of purchase and sale (the Dacion en Pago), not from a loan or forbearance of money. Therefore, Central Bank Circular No. 416, which prescribes a 12% interest rate for loans or forbearance, does not apply.
2. The applicable interest rate on the excess amount (P1,898,623.67) to be refunded by private respondent to petitioner is twelve percent (12%) per annum under Central Bank Circular No. 416. The Court ruled that the advance payment made under execution pending appeal created an obligation for Echaus to return the excess, which constitutes a forbearance of money. Therefore, the 12% interest rate applies to this refund obligation.
3. The surety bond should be released only after private respondent has fully refunded the overpayment to petitioner. The Court found the Court of Appeals’ ruling (“upon the finality and satisfaction of the decision”) to be clear in requiring full refund before release.
The petition was GRANTED. The Resolution of the Court of Appeals was MODIFIED: (1) the P2,300,000.00 shall earn interest at 6% per annum, and (2) the refund of P1,898,623.67 shall earn interest at 12% per annum. Costs were imposed against private respondent.