provision of the New [Civil] Code" that the "legal

MEDEL VS CA rate of interest for loan or forbearance of money,

G.R. No. 131622 November 27, 1988 goods or credit is 12% per annum."

CA:
FACTS:
Ø it ruled that since Usury Law having become 'legally
inexistent' with the promulgation by the Central
Servando Franco and Leticia Medel obtained the following loans Bank in 1982 of Circular No. 905, the lender and
from Veronica Gonzales, who was engaged in the money
borrower could agree on any interest that may be
lending business under the name "Gonzales Credit Enterprises": charged on the loan.
Ø Thus, the promissory note, which consolidated all the
Ø November 7, 1985
unpaid loans of the defendants, is the law that
o P50,000.00, payable in two months. Only governs the parties.
P47,000.00 was received by the borrowers, as she Ø The Court of Appeals further held that "the
retained P3,000.00, as advance interest for one
imposition of 'an additional amount equivalent to 1%
month at 6% per month. A promissory note for per month of the amount due and demandable as
P50,000.00 was executed. penalty charges in the form of liquidated damages
until fully paid' was allowed by law".
Ø November 19, 1985
o P90,000.00, payable in two months, at 6% interest ISSUE:
per month. They executed a promissory note to
Whether or not the interest rate, additional service charge,
evidence the loan, maturing on Janaury 19, 1986. penalty charge, and attorney's fees are excessive and
They received only P84,000.00, out of the unconscionable. –YES.
proceeds of the loan.
(In other words, is the Usury Law still effective, or has it been
repealed by Central Bank Circular No. 905?)
Ø June 11, 1986
o P300,000.00, maturing in one month, secured by a
real estate mortgage over a property belonging to RULING:
Yaptinchay, who issued a special power of The court held that the stipulated rate of interest at 5.5% per
attorney in favor of Leticia Medel, authorizing her month on the P500,000.00 loan is excessive, iniquitous,
to execute the mortgage. Only the sum of unconscionable and exorbitant.
P275.000.00, was given to them out of the
proceeds of the loan. A promissory note was However, the court did NOT consider the rate "USURIOUS"
executed. because this Court has consistently held that:

However, they failed to pay all the loans on their respective Circular No. 905 of the Central Bank, adopted on
December 22, 1982, has EXPRESSLY REMOVED the
maturities.
interest ceilings prescribed by the Usury Law and that the
Usury Law is now "legally inexistent".
So, they decided to consolidate all their previous unpaid loans
totaling P440,000.00, and sought from Veronica another loan in
In Security Bank and Trust Company vs. Regional Trial Court
the amount of P60,000.00, bringing their indebtedness to a total
of Makati, Branch 61:
of P500,000.00, payable on August 23, 1986. In the promissory
note, it stated that if they fail to pay any amortization or of its
the Court held that CB Circular No. 905 "did not
portion when due:
repeal nor in anyway amend the Usury Law but simply
suspended the latter's effectivity." Indeed, we have held that
• All the other installments together with all interest accrued
"a Central Bank Circular can not repeal a law. Only a law can
shall immediately be due and payable.
repeal another law."
• To pay an additional amount equivalent to 1% per
month of the amount due and demandable as penalty
In the recent case of Florendo vs. Court of Appeals,
charges until fully paid. the Court reiterated the ruling that:
On maturity of the loan, they again failed to pay the indebtedness
"by virtue of CB Circular 905, the Usury Law has
including its interests and penalties. been rendered ineffective". "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as lender
This prompted Veronica filed with the Regional Trial Court a
and borrower MAY AGREE UPON."
complaint for collection of the full amount of the
loan including interests and other charges. Application to the case:
Nevertheless, the interest at 5.5% per month, or 66% per annum,
(RELEVANT PART) stipulated upon by the parties in the promissory note iniquitous
Medel argued that the interest rate is excessive at 5.5% per or unconscionable, and, hence, contrary to morals, if not against
month with additional service charge of 2% per annum, and the law. Therefore, the stipulation is void.
penalty charge of 1% per month. That the stipulation for
attorney's fees of 25% of the amount due is unconscionable, Also, the court shall reduce equitably the liquidated damages,
illegal and excessive, and that substantial payments made were whether intended as an indemnity or a penalty if they are
applied to interest, penalties and other charges iniquitous or unconscionable.
RTC: The court decided that, under the circumstances, interest at 12%
Ø It ruled that although the Usury Law had been per annum, and an additional 1% a month penalty charge as
repealed, the interest charged by the plaintiffs on the liquidated damages may be more reasonable.
loans was unconscionable and "revolting to the
conscience". Hence, the trial court applied "the
Ma’am’s discussion: This is a very important case. This was the
case that discussed that Usury Law is now legally non-existent NACAR VS GALLERY FRAMES
by virtue of Circular No. 905. Please differentiate it with Central G.R. No. 189871 August 13, 2013
Bank Circular No. 799 which reinstated the 6% interest therein.
FACTS:
In this case, it was stated here that the 5.5% interest rate per Petitioner Dario Nacar filed a complaint for constructive
month is actually unconscionable. We will discuss in the next dismissal before the Arbitration Branch of the National Labor
few cases what the court deems iniquitous and Relations Commission (NLRC) against respondents Gallery
unconscionable. So 5.5% per month, that would be 66% per Frames (GF) and/or Felipe Bordey, Jr.
year. Ang allowable per year is 12% which means 1% per
month.
On October 15, 1998, the Labor Arbiter rendered a
Decision3 in favor of petitioner and found that he was dismissed
from employment without a valid or just cause. Thus, petitioner
was awarded backwages and separation pay in lieu of
reinstatement in the amount of ₱158,919.92.

All the subsequent appeals made by the respondents were

denied. An Entry of Judgment was later issued certifying that the
resolution became final and executory on May 27, 2002.

On November 5, 2002, petitioner filed a Motion for Correct

Computation, praying that his backwages be computed from the
date of his dismissal on January 24, 1997 up to the finality of
the Resolution of the Supreme Court on May 27, 2002. Upon
recomputation, the Computation and Examination Unit of the
NLRC arrived at an updated amount in the sum of ₱471,320.31.

Respondents filed a Motion to Quash Writ of Execution,

arguing, among other things, that since the Labor Arbiter
awarded separation pay of ₱62,986.56 and limited backwages of
₱95,933.36, no more recomputation is required to be made of
the said awards. They claimed that after the decision becomes
final and executory, the same cannot be altered or amended
anymore.

The records of the case were again forwarded to the

Computation and Examination Unit for recomputation, where
the judgment award of petitioner was reassessed to be in the total
amount of only ₱147,560.19.

Petitioner then moved that a writ of execution be issued ordering

respondents to pay him the original amount as determined by the
Labor Arbiter in his Decision dated October 15, 1998,
pending the final computation of his backwages and separation
pay.

Petitioner also filed a Manifestation and Motion praying for the

re-computation of the monetary award to include the
APPROPRIATE INTERESTS.

SHORTER VERSION OF FACTS: Nacar here filed a case

(constructive dismissal) against Gallery Frames before the
NLRC. The NLRC ruled that there was constructive dismissal
hence, Nacar was awarded ₱158,900.00 constituting back
wages and separation pay. The subsequent appeals of Gallery
Frames was denied by the NLRC. Hence, this decision of the
NLRC became final and executory on May 2002.

Nacar filed for re-computation of his award money before the

NLRC, and the NLRC here recomputed and adjusted the
amount to ₱471,000.00. Gallery Frames appealed and said
that since the decision was already final end executory, the
said amount could not be adjusted anymore. The NLRC
recomputed the amount to ₱147,000.00. So Nacar here
contested and said that the original recomputed amount of
₱471,000.00 should be paid to him. ( KZ NOTE: PERO AND
OCT 15, 1998 DECISION KAY P158K LANG)
ISSUE:
1. W/N the re-computation is valid. YES (legal basis is 2. When an obligation, not constituting a loan or
labor code etc if nasa full text kaya di ko na forbearance of money, is breached,
masyado gifocus) an interest on the amount of damages awarded
2. What is the applicable interest rate may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be
(essentially: computation of appropriate interests)
adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable
DISPOSITIVE: Respondents are Ordered to Pay certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run
petitioner:
from the time the claim is made judicially or extrajudicially
(3) interest of twelve percent (12%) per annum of the
(Art. 1169, Civil Code) but when such certainty cannot be
total monetary awards, computed from May 27, 2002 to so reasonably established at the time the demand is made,
June 30, 2013 and six percent (6%) per annum from July the interest shall begin to run only from the date the
1, 2013 until their full satisfaction. judgment of the court is made (at which time the
quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the
Petitioner’s Contention: computation of legal interest shall, in any case, be on the
Ø He is also entitled to the payment of interest from amount finally adjudged.
the finality of the decision (May 27, 2002) until full
payment by the respondents. 3. When the judgment of the court awarding a sum
Ø considering that the October 15, 1998 decision of the of money becomes final and executory, the rate of
Labor Arbiter did not become final and executory legal interest, whether the case falls under paragraph 1
until the April 17, 2002 Resolution of the Supreme or paragraph 2, above, shall be 12% per annum from
Court in G.R. No. 151332 was entered in the Book of such finality until its satisfaction, this interim period being
Entries on May 27, 2002, the reckoning point for the deemed to be by then an equivalent to a forbearance of
computation of the backwages and separation pay credit.
should be on May 27, 2002 and not when the
decision of the Labor Arbiter was rendered on Recently, however, the Bangko Sentral ng Pilipinas Monetary
October 15, 1998. Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013,
approved the amendment of Section 2 of Circular No. 905,
Respondent’s contention: Series of 1982 and, accordingly, issued Circular No. 799, Series
Ø since only separation pay and limited backwages of 2013, effective July 1, 2013, the pertinent portion of which
were awarded to petitioner by the October 15, 1998 reads:
decision of the Labor Arbiter, no more
recomputation is required to be made of said awards
Ø Respondents insist that since the decision clearly SECTION 2 OF RESOLUTION CIRCULAR NO. 799
stated that the separation pay and backwages are CIRCULAR NO. NO 796 SERIES OF 2013
"computed only up to [the] promulgation of this 905, SERIES OF DATED MAY EFFECTIVE JULY 1,
1982 16, 2013 2013
decision," and considering that petitioner no
longer appealed the decision, petitioner is only
entitled to the award as computed by the Labor
Arbiter in the total amount of ₱158,919.92. The Monetary Board, in its Resolution No. 796 dated
Respondents added that it was only during the 16 May 2013, approved the following revisions
execution proceedings that the petitioner questioned governing the rate of interest in the absence of stipulation
the award, long after the decision had become final in loan contracts, thereby AMENDING SECTION 2 OF
CIRCULAR NO. 905, SERIES OF 1982:
and executory.
Section 1. The rate of interest for the loan or forbearance
RULING: of any money, goods or credits and the rate allowed in
(gidiscuss ng court ang legality ng re-computation ng judgments, in the absence of an express contract as to
separation pay, backwages habang nagatakbo ang pero gifocus such rate of interest SHALL BE SIX PERCENT (6%) PER
ko lang ang ruling sa computation ng legal interest) ANNUM.
Section 2. In view of the above, Subsection X305.1 of the
Finally, ANENT THE PAYMENT OF LEGAL INTEREST. Manual of Regulations for Banks and Sections 4305Q.1,
In the landmark case of Eastern Shipping Lines, Inc. v. Court of 4305S.3 and 4303P.1 of the Manual of Regulations for
Appeals,32 the Court laid down the guidelines regarding the Non-Bank Financial Institutions are hereby amended
manner of computing legal interest, to wit: accordingly.

This Circular shall take effect on 1 July 2013.

II. With regard particularly 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 Application to the case:
follows:
Thus, from the foregoing, IN THE ABSENCE OF AN EXPRESS
1. When the obligation is breached, and it consists STIPULATION AS TO THE RATE OF INTEREST THAT
in the payment of a sum of money, i.e., a loan or WOULD GOVERN THE PARTIES, the rate of legal interest for
forbearance of money, the interest due should be: loans or forbearance of any money, goods or credits and the rate
that which may have been stipulated in writing. allowed in judgments shall no longer be twelve
percent (12%) per annum - as reflected in the case of
Furthermore, the interest due shall itself earn legal
Eastern Shipping Lines and Subsection X305.1 of the Manual of
interest from the time it is judicially demanded. In the
Regulations for Banks and Sections 4305Q.1, 4305S.3 and
absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from
4303P.1 of the Manual of Regulations for Non-Bank Financial
judicial or extrajudicial demand under and subject to the Institutions, before its amendment by BSP-MB Circular No. 799
provisions of Article 1169 of the Civil Code.
- BUT WILL NOW BE SIX PERCENT (6%) PER ANNUM No interest, however, shall be adjudged on unliquidated
EFFECTIVE JULY 1, 2013. claims or damages, except when or until the demand can
be established with reasonable certainty.
(HIGHLIGHTED BY MAAM ALONA NA PROSPECTIVE)
Accordingly, where the demand is established with
It should be noted, nonetheless, that the new rate could
reasonable certainty, the interest shall begin to run from
only be applied prospectively and not the time the claim is made judicially or extrajudicially (Art.
retroactively. Consequently, the twelve percent (12%) per 1169, Civil Code), but when such certainty cannot be so
annum legal interest shall apply only until June 30, 2013. Come reasonably established at the time the demand is made,
July 1, 2013 the new rate of six percent (6%) per annum shall be the interest shall begin to run only from the date the
the prevailing rate of interest when applicable. judgment of the court is made (at which time the
quantification of damages may be deemed to have been
Corollarily, in the recent case of Advocates for Truth in Lending, reasonably ascertained). The actual base for the
Inc. and Eduardo B. Olaguer v. Bangko Sentral Monetary computation of legal interest shall, in any case, be on the
Board, amount finally adjudged.

When the judgment of the court awarding a sum of money

this Court affirmed the authority of the BSP-MB to set
becomes final and executory, the rate of legal interest,
interest rates and to issue and enforce Circulars when it ruled whether the case falls under paragraph 1 or paragraph 2,
that "the BSP-MB may prescribe the maximum rate or above, shall be 6% per annum from such finality until its
rates of interest for all loans or renewals thereof or the satisfaction, this interim period being deemed to be by
forbearance of any money, goods or credits, including then an equivalent to a forbearance of credit.
those for loans of low priority such as consumer loans,
as well as such loans made by pawnshops, finance AND, IN ADDITION TO THE ABOVE, JUDGMENTS
companies and similar credit institutions. THAT HAVE BECOME FINAL AND EXECUTORY PRIOR
TO JULY 1, 2013, SHALL NOT BE DISTURBED AND
It even authorizes the BSP-MB to prescribe SHALL CONTINUE TO BE IMPLEMENTED APPLYING
different maximum rate or rates for different types of THE RATE OF INTEREST FIXED THEREIN.
borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries."
DISPOSITIVE: Respondents are Ordered to Pay
petitioner:
Nonetheless, with regard to those judgments that have (3) interest of twelve percent (12%) per annum of the
become final and executory prior to July 1, 2013, said total monetary awards, computed from May 27, 2002 to
judgments shall not be disturbed and shall continue to be June 30, 2013 and six percent (6%) per annum from July
implemented applying the rate of interest fixed therein 1, 2013 until their full satisfaction.

To recapitulate and for future guidance, the guidelines laid down

in the case of Eastern Shipping Lines are ACCORDINGLY
MODIFIED to embody BSP-MB Circular No. 799, as
follows:

I. When an obligation, regardless of its source, i.e.,

law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable
for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages.

II. With regard particularly 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:

When the obligation is breached, and it consists in

the payment of a sum of money, i.e., a loan or
forbearance of money,
the interest due should be that which may have been
stipulated in writing.

Furthermore, the interest due shall itself earn legal

interest from the time it is JUDICIALLY DEMANDED. In the
absence of stipulation, THE RATE OF INTEREST SHALL
BE 6% PER ANNUM TO BE COMPUTED FROM
DEFAULT, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the
Civil Code.

When an obligation, not constituting a loan or

forbearance of money, is breached,
an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6%
per annum.
 CA:
LARA’S GIFTS AND DECORS VS MIDTOWN Ø On the 24% interest per annum imposed, the Court
G.R. No. 225433 August 28, 2019 of Appeals found implausible petitioner's claim
(Lara’s gifts) that it was placed in a disadvantageous
position. Petitioner could not have been cheated or
FACTS:
misled into agreeing to the 24% interest rate per
annum that was stated in the sales invoices.
Petitioner Lara's Gifts & Decors, Inc. (petitioner) is engaged in Ø Petitioner, an established company with numerous
the business of manufacturing, selling, and exporting handicraft
transactions with respondent prior to the purchases
products. On the other hand, respondent Midtown Industrial made in 2007, could have negotiated with
Sales, Inc. (respondent) is engaged in the business of selling respondent for more favorable terms.
industrial and construction materials, and petitioner is one of
Ø SINCE THE 24% INTEREST RATE PER
respondent's customers. ANNUM WAS STIPULATED IN WRITING, the
Court of Appeals held that such rate should be
Respondent alleged that from January 2007 up to December
applied considering that petitioner has not shown
2007, petitioner purchased from respondent various industrial that it was placed at a disadvantage in its
and construction materials in the total amount of P1,263,104.22. contractual relation with respondent.
TERMS: The purchases were on a sixty (60)-day credit term, ISSUE:
with the condition that 24% INTEREST PER ANNUM would I. Whether or not the interest rate FIXED at 24% per
be charged on all accounts overdue, as stated in the sales
annum is void. YES
invoices. II. Assuming that the interest rate of 24% is valid,
whether or not the said rate shall be applied only until
Petitioner paid for its purchases by issuing several Chinabank
finality of judgment
postdated checks in favor of respondent. However, when
respondent deposited the Chinabank checks on their maturity RULING:
dates, the checks bounced.
(with regards sa issue sa admissibility of the sales invoices kay
civ pro ang legal basis so di ko nlng gisali)
After repeated demands from respondent, petitioner replaced the
bounced checks with new postdated Export and Industry Bank
(SIDE ISSUE)Default in the Contractual
checks. However, when respondent deposited the replacement
Obligations
checks on their maturity dates, the checks were likewise
dishonored for being "Drawn Against Insufficient Funds," Articles 1192 and 1283 of the Civil Code read:
and subsequently, for "Account Closed." Art 1192 In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably
Respondent sent a demand letter informing petitioner of the tempered by the courts fit cannot be determined which of the
bounced checks and demanding that petitioner settle its parties first violated the contract the same shall be deemed
accounts. Still petitioner failed to pay, prompting respondent extinguished, and each shall bear his own damages.
to file a Complaint for Sum of Money with Prayer for Attachment
against petitioner. Art 1283 If one of the parties to a suit over an obligation has a
claim for damages against the other, the former may set it off by
proving his right to said damages and the amount thereof.
Petitioner admitted that from January 2007 to December 2007,
petitioner purchased from respondent, on a 60-day credit term, petitioner failed to substantiate its claims that the materials
various industrial and construction materials in the total amount delivered were substandard or of poor quality. Thus, petitioner
of P1,263,104.22. However, petitioner claimed that most of the cannot demand either a tempering of its liability or an offset of
deliveries made were substandard and of poor quality. Petitioner damages.
alleged that the checks it issued for payment were not for value
because not all of the materials delivered by respondent were
received in good order and condition. Thus, when petitioner used Validity of the 24% Interest Rate
the raw materials, the finished product allegedly did not pass the
standards required by petitioner's buyers from the United States In Asian Construction and Development Corporation v. Cathay
(US) who rejected the products. Pacific Steel Corporation,

the Court upheld the validity of interest rate fixed at 24% per
Furthermore, due to the economic recession in the US, annum that was expressly stipulated in the sales invoices. The
subsequent orders made by petitioner's US buyers were Court held that petitioner construction company is presumed to
canceled. Petitioner claimed that on a fire razed its factory and have full knowledge of the terms and conditions of the
office, destroying its equipment, machineries, and inventories, contract and that by not objecting to the stipulations in the
including those rejected by the US buyers. sales invoice, it also bound itself to pay not only the stated
selling price but also the interest of 24% per annum on overdue
RTC: accounts and the 25% of the unpaid invoice for attorney's fees.
Ø Ordered Lara’s gifts to pay (Php1,263,104.22) plus
interest fixed at 24% per annum to be computed from
February 5, 2008, the date of judicial demand, In the present case, petitioner, which has been doing business
until the judgment obligation is fully paid. since 1990 and has been purchasing various materials from
Ø The trial court also held that the stipulated 24% respondent since 2004, CANNOT CLAIM TO HAVE BEEN
interest per annum on overdue accounts is not MISLED INTO AGREEING TO THE 24% INTEREST RATE
unconscionable. which was expressly stated in the sales invoices. Besides, this
Court has already ruled in several cases that an interest rate of
24% per annum AGREED UPON between the parties is valid
and binding and not excessive and unconscionable. Thus, the
stipulated 24% interest per annum is binding on petitioner. AND, IN ADDITION TO THE ABOVE, JUDGMENTS
THAT HAVE BECOME FINAL AND EXECUTORY PRIOR
TO JULY 1, 2013, SHALL NOT BE DISTURBED AND
Imposition of Legal Interest SHALL CONTINUE TO BE IMPLEMENTED APPLYING
The rates of interest stated in the guidelines on the imposition of THE RATE OF INTEREST FIXED THEREIN.
interests, as laid down in the landmark case of Eastern Shipping
Lines, Inc. v. Court of Appeals20 have already been modified However, IF THE RATE OF INTEREST IS STIPULATED,
in Bangko Sentral ng Pilipinas Monetary Board (BSP-MB) such stipulated interest shall apply and not the legal
Circular No. 799, Series of 2013, which reduced the rate of legal interest, provided the stipulated interest is not excessive and
interest from twelve percent (12%) per annum to six percent unconscionable.
(6%) per annum.
The stipulated interest shall be applied until full payment of
The modified guidelines are detailed in the 2013 case of Nacar the obligation because that is the law between the parties.
v. Gallery Frames, thus: The legal interest only applies in the absence of stipulated
interest. This is in accord with Article 2209 of the Civil Code,
To recapitulate and for future guidance, the guidelines laid down which states:
in the case of Eastern Shipping Lines are ACCORDINGLY
MODIFIED to embody BSP-MB Circular No. 799, as
follows: Art 2209. 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
I. When an obligation, regardless of its source, i.e., the contrary, shall be the payment of the interest
law, contracts, quasi-contracts, delicts or quasi-
agreed upon, and in the absence of stipulation, the legal
delicts is breached, the contravenor can be held liable
interest, which is six percent per annum. (Boldfacing
for damages. The provisions under Title XVIII on
and italicization supplied)
"Damages" of the Civil Code govern in determining the
measure of recoverable damages.
Even BSP-MB Circular No. 799 expressly states that the legal
II. With regard particularly to an award of interest in interest applies ONLY IN THE ABSENCE OF
the concept of actual and compensatory damages, STIPULATED INTEREST in loan contracts. Circular No. 799
the rate of interest, as well as the accrual thereof, is reads:
imposed, as follows:
CIRCULAR NO. 799
1. When the obligation is breached, and it consists Series of 2013
in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that Subject: Rate of interest in the absence of stipulation
WHICH MAY HAVE BEEN STIPULATED IN
WRITING. The Monetary Board, in its Resolution No. 796 dated 16
May 2013, approved the following revisions governing the
Furthermore, the interest due shall itself earn legal rate of interest in the absence of stipulation in loan
interest from the time it is JUDICIALLY DEMANDED. In the contracts, thereby amending Section 2 of Circular No. 905,
absence of stipulation, THE RATE OF INTEREST SHALL Series of 1982:
BE 6% PER ANNUM TO BE COMPUTED FROM
DEFAULT, i.e., from judicial or extrajudicial demand Section 1. The rate of interest for the loan or forbearance
under and subject to the provisions of Article 1169 of the of any money, goods or credits and the rate allowed in
Civil Code. judgments, in the absence of an express contract as
to such rate of interest, shall be six percent (6%) per
2. When an obligation, not constituting a loan or annum.
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the Section 2. In view of the above, Subsection X305.1 of the
discretion of the court at the rate of 6% per annum. Manual of Regulations for Banks and Sections 4305Q.1,
4305S.3 and 4303P.1 of the Manual of Regulations for
No interest, however, shall be adjudged on unliquidated Non-Bank Financial Institutions are hereby amended
claims or damages, except when or until the demand can accordingly.
be established with reasonable certainty.
This Circular shall take effect on 1 July
Accordingly, where the demand is established with 2013. (Emphasis supplied)
reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art.
Clearly, Circular No. 799 will apply only in the absence of
1169, Civil Code), but when such certainty cannot be so
stipulated interest.
reasonably established at the time the demand is made,
the interest shall begin to run only from the date the
judgment of the court is made (at which time the In Eastern Shipping Lines, which first laid down the guidelines
quantification of damages may be deemed to have been on the computation of legal interest, the Court declared:
reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the I. When an obligation, regardless of its source, i.e., law,
amount finally adjudged. contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages.
3. When the judgment of the court awarding a sum The provisions under Title XVIII on "Damages" of the Civil
of money becomes FINAL AND EXECUTORY, the rate Code govern in determining the measure of recoverable
of legal interest, whether the case falls under paragraph 1 damages.
or paragraph 2, above, shall be 6% per annum from
such finality until its satisfaction, this interim period II. With regard particularly to an award of interest in the
being deemed to be by then an equivalent to a forbearance concept of actual and compensatory damages, the rate of
of credit.
interest, as well as the accrual thereof, is imposed, as Article 1956 of the Civil Code also states that "[n]o
follows: interest shall be due unless it has been expressly
stipulated in writing."
1. When the obligation is breached, and it consists
in the payment of a sum of money, i.e., a loan or
Furthermore, the contracting parties may establish such
forbearance of money, the interest due should be:
that which may have been stipulated in writing.
stipulations as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public
Furthermore, the interest due shall itself earn legal policy,29 and the parties are bound to fulfill what has been
interest from the time it is judicially demanded. In the expressly stipulated.
absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from Thus, unless the stipulated interest is excessive and
judicial or extrajudicial demand under and subject to the unconscionable, there is no legal basis for the reduction of
provisions of Article 1169 of the Civil Code. the stipulated interest at any time until full payment of the
principal amount. The stipulated interest remains in force until
2. When an obligation, not constituting a loan or the obligation is satisfied. In the absence of stipulated interest,
forbearance of money, is breached, the prevailing legal interest prescribed by the Bangko Sentral ng
an interest on the amount of damages awarded
Pilipinas shallapply.
may be imposed at the discretion of the court at the rate
of 6% per annum.
No interest, however, shall be adjudged on Moreover, there should be no compounding of interest, whether
unliquidated claims or damages except when or until the stipulated or legal, unless compounding is expressly agreed upon
demand can be established with reasonable certainty. in writing by the parties or mandated by law or regulation.
Accordingly, where the demand is established with Section 5 of the Usury Law, as amended, expressly provides that
reasonable certainty, the interest shall begin to run from compounded interest "shall not be reckoned, except by
the time the claim is made judicially or extrajudicially (Art. agreement." Being more burdensome than simple interest,
1169, Civil Code) but when such certainty cannot be so compounded interest must be expressly stipulated by the parties
reasonably established at the time the demand is made, or mandated by law or regulation.
the interest shall begin to run only from the date the
judgment of the court is made (at which time the
quantification of damages may be deemed to have been
Articles 2210 and 2211 of the Civil Code
reasonably ascertained). The actual base for the Apply to Obligations Other Than Loans or
computation of legal interest shall, in any case, be on the Forbearance of Money, Goods or Credits
amount finally adjudged.

3. When the judgment of the court awarding a sum Articles 2210 and 2211 of the Civil Code provide:
of money becomes final and executory, the rate of
Art. 2210. Interest may, in the discretion of the court, be
legal interest, whether the case falls under paragraph 1
allowed upon damages awarded for breach of contract.
or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being
Art. 2211. In crimes and quasi-delicts, interest as a part
deemed to be by then an equivalent to a forbearance of
of the damages may, in a proper case, be adjudicated in
credit.
the discretion of the court.

(Why daw need iamend)

Under these articles, when the obligation, other than loans or
Paragraph 3 above failed to qualify that for loans or
forbearance of money, goods or credits, is breached, the court
forbearance of money, the prevailing legal interest should
may in its discretion impose an interest on the damages
only apply in the absence of stipulated interest.
awarded. The interest imposed in the discretion of the court will
be the prevailing legal interest prescribed by the Bangko Sentral
The stipulated interest is the law between the parties and
ngPilipinas.
should apply from the time of extrajudicial or judicial
demand until full payment.
In contrast, Article 2209 of the Civil Code is applicable only to
loans or forbearance of money, goods or credit which arise out
This omission resulted in several rulings of this Court, which
of "obligations consisting in the payment of a sum of money,
imposed the stipulated interest on the adjudged amount until
and the debtor incurs in delay," and thus where there is a
finality of the decision BUT applied the prevailing legal interest
debtor-creditor relationship.
in lieu of the stipulated interest from finality of the decision until
full payment of the obligation.
Articles 2210 and 2211 refer to obligations that do not involve
the payment of a sum of money and there is no debtor-creditor
THIS IS IN DIRECT CONTRAVENTION OF THE LAW,
relationship. Moreover, the payment of interest in Article 2209
particularly ARTICLE 2209 OF THE CIVIL CODE, which
is mandatory, while the payment of interest in Articles 2210
mandates that when a debtor incurs a delay in obligations to pay
and 2211 is discretionary on the court.
a sum of money, the indemnity for damages shall be the payment
of the interest agreed upon. Only in the absence of a stipulated
interest will the legal interest be applied.

To repeat, the stipulated interest is the law between the parties,

and should be applied until full payment of the obligation.

Article 1159 of the Civil Code provides that "[o]bligations

arising from contracts have the force of law between the
contracting parties and should be complied with in good
faith."
The Legal Interest Rate in Article This would prevent the Bangko Sentral ng Pilipinas from
calibrating the legal interest to meet changing economic
2209 of the Civil Code Has Been conditions and to accelerate the growth of the national economy.
Amended
Thus, the legal interest referred to in Article 2209 of the Civil
ACT NO. 2655 OR THE USURY LAW (1916) Code is now 6% per annum or as may be fixed by the
fixed the legal interest at 6% per annum for Monetary Board of the Bangko Sentral ng Pilipinas
pursuant to the Usury Law, as amended by PD116.
loans, forbearance of money, goods, credits or
judgments. This legal interest applied in the
absence of stipulated interest. Forbearance of Money, Goods or
Credits
REPUBLIC ACT NO. 386, THE CIVIL CODE OF THE "forbearance of money, goods or credits" is meant to have
PHILIPPINES EMBODYING ARTICLE 2209 (1949) a separate meaning from a loan, otherwise there would
Article 2209 of the Civil Code declared that the have been no need to add that phrase as a loan is already
legal interest in obligations to pay a sum of sufficiently defined in the Civil Code.
money is 6% per annum when the debtor
Forbearance of money, goods or credits should therefore
incurs in delay. refer to arrangements other than loan agreements, where
a person acquiesces to the temporary use of his money,
Article 2209 applies to loans and forbearance of goods or credits pending happening of certain events or
money, goods or credits. This legal interest will fulfillment of certain conditions
apply in the absence of stipulated interest.
To summarize, the guidelines on the imposition of
PRESIDENTIAL DECREE NO. 116 (1973)
interest as provided in Eastern Shipping
amended the Usury Law and fixed the legal
Lines and Nacar are further modified for clarity
interest for loans, forbearance of money, goods,
and uniformity, as follows:
credits or judgments at 6% per annum "or such
rate as may be prescribed by the Monetary
With regard to an award of interest in the concept
Board of the Central Bank of the
Philippines." This legal interest applies in the of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed,
absence of stipulated interest.
as follows:
SECTION 11 OF P.D. NO. 116 STATES: "ALL
1. When the obligation is breached, and it
ACTS AND PARTS OF ACTS INCONSISTENT
consists in the payment of a sum of
WITH THE PROVISIONS OF THIS DECREE
money, i.e., a loan or forbearance of money,
ARE HEREBY REPEALED.
goods, credits or judgments, the interest due
This repealing clause applied to Acts,
shall be that which is stipulated by the parties in
Commonwealth Acts, and Republic Acts,
writing, provided it is not excessive and
including Article 2209 of Republic Act No. 386
unconscionable, which, in the absence of a
(Civil Code of the Philippines). When P.D. No.
stipulated reckoning date, shall be computed from
116 says "[a]ll Acts and parts of Acts," it does
default, i.e., from extrajudicial or judicial demand
not mean only Act No. 2655 (Usury Law)
in accordance with Article 1169 of the Civil Code,
but all other Acts, without exception.
UNTIL FULL PAYMENT, without compounding any
interest unless compounded interest is expressly
P.D. No. 116 was obviously intended to amend all laws
prescribing the rate of legal interest in the absence of stipulated by the parties, by law or regulation.
stipulated interest. The Whereas clauses of P.D. No. 116 state Interest due on the principal amount accruing as of
that "the monetary authorities have recognized the need to judicial demand shall SEPARATELY earn legal
amend the present Usury Law to allow for more flexible interest interest54at the prevailing rate prescribed by
rate ceilings that would be more responsive to the the Bangko Sentral ng Pilipinas,55from the time of
requirements of changing economic conditions, and that "the judicial demand UNTIL FULL PAYMENT.56
availability of adequate capital resources is, among other factors,
a decisive element in the achievement of the declared objective 2. In the absence of stipulated interest, in a
of accelerating the growth of the national economy." loan or forbearance of money, goods, credits
or judgments, the rate of interest on the principal
Thus, PD. No. 116 AMENDED ALL LAWS, INCLUDING amount shall be the prevailing legal interest
ARTICLE 2209 OF THE CIVIL CODE, prescribing the rate prescribed by the Bangko Sentral ng Pilipinas,
of legal interest to allow the Bangko Sentral ng Pilipinas to which shall be computed from default, i.e., from
calibrate the legal interest rate to meet changing economic
conditions and to accelerate the growth of the national economy. extrajudicial or judicial demand in
accordance with Article 1169 of the Civil
If PD. No. 116 did not amend Article 2209, then all "obligations Code, UNTIL FULL PAYMENT, without
consisting in the payment of a sum of money," which is the compounding any interest unless compounded
all-encompassing coverage of Article 2209 applying to all loans interest is expressly stipulated by law or regulation.
or forbearance of money, goods, credits or judgments, would Interest due on the principal amount accruing as of
still be subject to the fixed 6% legal interest rate.
judicial demand shall SEPARATELY earn legal
interest at the prevailing rate prescribed by
the Bangko Sentral ng Pilipinas,57from the time of
judicial demand UNTIL FULL PAYMENT.58 DISPOSITIVE
3. When the obligation, not constituting a
1. (P1,263,104.22) representing the
loan or forbearance of money, goods, credits principal amount plus stipulated
or judgments, is breached, an interest on the interest at 24% per annum to be
amount of damages awarded may be imposed in
the discretion of the court at the prevailing legal
computed from 22 January 2008, the
interest prescribed by the Bangko Sentral ng date of extrajudicial demand, until full
Pilipinas, pursuant to Articles 2210 and 2011 of the payment.
Civil Code.

No interest, however, shall be adjudged on 2. Legal interest on the 24% per

unliquidated claims or damages until the demand annum interest due on the principal
can be established with reasonable certainty amount accruing as of judicial demand,
Accordingly, where the amount of the claim or at the rate of 12% per annum from
damages is established with reasonable certainty, the date of judicial demand on 5
the prevailing legal interest shall begin to run from February 2008 until 30 June 2013, and
the time the claim is made extrajudicially or
judicially (Art. 1169, Civil Code) UNTIL FULL thereafter at the rate of 6% per
PAYMENT, but when such certainty cannot be so annum from 1 July 2013 until full
reasonably established at the time the demand is payment.
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.

Application to the case:

This case involves a forbearance of credit wherein petitioner was

granted a 60-day credit term on its purchases, with the condition
that a 24% interest per annum would be charged on all accounts
overdue.

Since there was an EXTRAJUDICIAL DEMAND before the

complaint was filed, interest on the amount due begins to run
not from the filing of the complaint but from the date of such
extrajudicial demand.

Thus, the unpaid principal obligation of P1,263,104.22 shall

earn the stipulated interest of 24% per annum from the date of
extrajudicial demand on 22 January 2008 until full payment.

Furthermore, IN ACCORDANCE WITH ARTICLE

221263 OF THE CIVIL CODE, the 24% interest per
annum due on the principal amount accruing as of the judicial
demand shall earn legal interest at the rate of 12% per
annum from the date of judicial demand on 5 February 2008
until 30 June 2013, and thereafter at the rate of 6% per
annum from 1 July 2013 until full payment. From the date of
judicial demand on 5 February 2008 until 30 June 2013, the
prevailing rate of legal interest was 12% per annum. The 6% per
annum legal interest prescribed under BSP-MB Circular No. 799
took effect on 1 July 2013 and could only be applied
prospectively.64 The P50,000.00 attorney's fees shall also earn
legal interest at the rate of 6% per annum from the finality of this
Decision until full payment.