Philippines – Do You Still Have Interest?

2 April 2021
 

This is the fifth time that I am writing on this topic. Hence, the title. It is in response to various questions from readers and taking into account the fairly recent Supreme Court pronouncement in Lara’s Gifts & Decors, Inc. vs. Midtown Industrial Sales, Inc. (G.R. No. 225433, August 28, 2019).
 

In this case, the Supreme Court en banc clarified that the stipulated interest is the law between the parties, and should be applied until full payment of the obligation. This is in accordance with Article 2209 of the Civil Code which mandates that when a debtor incurs a delay in obligations to pay a sum of money, the indemnity for damages shall be the payment of the interest agreed upon. Unless the stipulated interest is excessive and unconscionable, there is no legal basis for the reduction of the stipulated interest at any time until full payment of the principal amount. The stipulated interest remains in force until the obligation is satisfied. In the absence of stipulated interest, the prevailing legal interest prescribed by the Bangko Sentral ng Pilipinas shall apply.
 

Thus, when the judgment of the court awarding a sum of money becomes final and executory, the stipulated interest, provided the same is not excessive and unconscionable, shall be applied until full payment of the obligation because that is the law between the parties.
 

The Supreme Court thus modified the guidelines on the imposition of interest in Eastern Shipping Lines, Inc. vs. Court of Appeals[1] and Nacar vs. Gallery Frames,[2] as follows:
 

With regard to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
 

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, goods, credits or judgments, the interest due shall be that which is stipulated by the parties in writing, provided it is not excessive and unconscionable, which, in the absence of a stipulated reckoning date, shall be computed from default, i.e., from extrajudicial or judicial demand in accordance with Article 1169 of the Civil Code, UNTIL FULL PAYMENT, without compounding any interest unless compounded interest is expressly stipulated by the parties, by law or regulation. Interest due on the principal amount accruing as of judicial demand shall SEPARATELY earn legal interest at the prevailing rate prescribed by the Bangko Sentral ng Pilipinas, from the time of judicial demand UNTIL FULL PAYMENT.
 

2. In the absence of stipulated interest, in a loan or forbearance of money, goods, credits or judgments, the rate of interest on the principal amount shall be the prevailing legal interest prescribed by the Bangko Sentral ng Pilipinas, which shall be computed from default, i.e., from extrajudicial or judicial demand in accordance with Article 1169 of the Civil Code, UNTIL FULL PAYMENT, without compounding any interest unless compounded interest is expressly stipulated by law or regulation. Interest due on the principal amount accruing as of judicial demand shall SEPARATELY earn legal interest at the prevailing rate prescribed by the Bangko Sentral ng Pilipinas, from the time of judicial demand UNTIL FULL PAYMENT.

3. When the obligation, not constituting a loan or forbearance of money, goods, credits or judgments, is breached, an interest on the amount of damages awarded may be imposed in the discretion of the court at the prevailing legal interest prescribed by the Bangko Sentral ng Pilipinas, pursuant to Articles 2210 and 2011 of the Civil Code. No interest, however, shall be adjudged on unliquidated claims or damages until the demand can be established with reasonable certainty. Accordingly, where the amount of the claim or damages is established with reasonable certainty, the prevailing legal interest shall begin to run from the time the claim is made extrajudicially or judicially (Art. 1169, Civil Code) UNTIL FULL PAYMENT, but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the trial court (at which time the quantification of damages may be deemed to have been reasonably ascertained) UNTIL FULL PAYMENT. The actual base for the computation of the interest shall, in any case, be on the principal amount finally adjudged, without compounding any interest unless compounded interest is expressly stipulated by law or regulation.
 

Some say lawyers are great in logic but poor in numbers. Well, if you find semblance of truth in it, here is my advice. For application of the legal principles, consult a lawyer. But for computation of figures, get an accountant, or an accountant-lawyer, or a law firm with accountants.
 

First published on The Daily Tribune.
 

 

For further information, please contact:

 

nilo.divina@divinalaw.com