conscience".

Hence, the trial court applied "the

MEDEL VS CA provision of the New [Civil] Code" that the "legal
G.R. No. 131622 November 27, 1988 rate of interest for loan or forbearance of money,
goods or credit is 12% per annum."
FACTS:
CA:
 it ruled that since Usury Law having become
Servando Franco and Leticia Medel obtained the following
'legally inexistent' with the promulgation by the
loans from Veronica Gonzales, who was engaged in the money
Central Bank in 1982 of Circular No. 905, the
lending business under the name "Gonzales Credit
lender and borrower could agree on any interest
Enterprises":
that may be charged on the loan.
 Thus, the promissory note, which consolidated all
 November 7, 1985
the 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
 The Court of Appeals further held that "the
retained P3,000.00, as advance interest for one
imposition of 'an additional amount equivalent to
month at 6% per month. A promissory note for
1% 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".
 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repealed by Central Bank Circular No. 905?)
 June 11, 1986
o P300,000.00, maturing in one month, secured by a
RULING:
real estate mortgage over a property belonging to
The court held that the stipulated rate of interest at 5.5% per
Yaptinchay, who issued a special power of
month on the P500,000.00 loan is excessive, iniquitous,
attorney in favor of Leticia Medel, authorizing her
unconscionable and exorbitant.
to execute the mortgage. Only the sum of
P275.000.00, was given to them out of the
However, the court did NOT consider the rate "USURIOUS"
proceeds of the loan. A promissory note was
because this Court has consistently held that:
executed.
Circular No. 905 of the Central Bank, adopted on
However, they failed to pay all the loans on their respective 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 Security Bank and Trust Company vs. Regional Trial Court
in the amount of P60,000.00, bringing their indebtedness to a of Makati, Branch 61:
total of P500,000.00, payable on August 23, 1986. In the
promissory note, it stated that if they fail to pay any the Court held that CB Circular No. 905 "did not
amortization or of its 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 "a Central Bank Circular can not repeal a law. Only a law can
accrued 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 "by virtue of CB Circular 905, the Usury Law has
indebtedness including its interests and penalties. been rendered ineffective". "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as
This prompted Veronica filed with the Regional Trial Court a lender 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
(RELEVANT PART) annum, stipulated upon by the parties in the promissory note
Medel argued that the interest rate is excessive at 5.5% per iniquitous or unconscionable, and, hence, contrary to morals, if
month with additional service charge of 2% per annum, and not against 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

 It ruled that although the Usury Law had been 12% per annum, and an additional 1% a month penalty charge
repealed, the interest charged by the plaintiffs on the as liquidated damages may be more reasonable.
loans was unconscionable and "revolting to the
Ma’am’s discussion: This is a very important case. This was the G.R. No. 189871 August 13, 2013
case that discussed that Usury Law is now legally non-existent by
virtue of Circular No. 905. Please differentiate it with Central Bank
Circular No. 799 which reinstated the 6% interest therein. FACTS:
Petitioner Dario Nacar filed a complaint for constructive
dismissal before the Arbitration Branch of the National Labor
In this case, it was stated here that the 5.5% interest rate per month
Relations Commission (NLRC) against respondents Gallery
is actually unconscionable. We will discuss in the next few cases
what the court deems iniquitous and unconscionable. So 5.5% per Frames (GF) and/or Felipe Bordey, Jr.
month, that would be 66% per 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)

NACAR VS GALLERY FRAMES

ISSUE: from judicial or extrajudicial demand under and subject
1. W/N the re-computation is valid. YES (legal basis is to the provisions of Article 1169 of the Civil Code.
labor code etc if nasa full text kaya di ko na
masyado gifocus) 2. When an obligation, not constituting a loan or
2. What is the applicable interest rate forbearance of money, is breached,
(essentially: computation of appropriate interests) an interest on the amount of damages awarded
may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be
DISPOSITIVE: Respondents are Ordered to Pay adjudged on unliquidated claims or damages except
petitioner: when or until the demand can be established with
(3) interest of twelve percent (12%) per annum of the reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall
total monetary awards, computed from May 27, 2002 to
begin to run from the time the claim is made judicially or
June 30, 2013 and six percent (6%) per annum from
extrajudicially (Art. 1169, Civil Code) but when such
July 1, 2013 until their full satisfaction. certainty cannot be so 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
Petitioner’s Contention:
which time the quantification of damages may be
 He is also entitled to the payment of interest deemed to have been reasonably ascertained). The
from the finality of the decision (May 27, 2002) actual base for the computation of legal interest shall, in
until full payment by the respondents. any case, be on the amount finally adjudged.
 considering that the October 15, 1998 decision of
the Labor Arbiter did not become final and 3. When the judgment of the court awarding a sum
executory until the April 17, 2002 Resolution of the of money becomes final and executory, the rate of
Supreme Court in G.R. No. 151332 was entered in legal interest, whether the case falls under paragraph 1
the Book of Entries on May 27, 2002, the reckoning or paragraph 2, above, shall be 12% per annum from
point for the computation of the backwages and such finality until its satisfaction, this interim period
separation pay should be on May 27, 2002 and not being deemed to be by then an equivalent to a
forbearance of credit.
when the decision of the Labor Arbiter was
rendered on October 15, 1998.
MA’AMS NOTES
Respondent’s contention: Recently, however, the Bangko Sentral ng Pilipinas Monetary
 since only separation pay and limited backwages Board (BSP-MB), in its Resolution No. 796 dated May 16,
were awarded to petitioner by the October 15, 1998 2013, approved the amendment of Section 2 of Circular No.
decision of the Labor Arbiter, no more 905, Series of 1982 and, accordingly, issued Circular No. 799,
recomputation is required to be made of said awards Series of 2013, effective July 1, 2013, the pertinent portion of
 Respondents insist that since the decision clearly which reads:
stated that the separation pay and backwages are
"computed only up to [the] promulgation of this
decision," and considering that petitioner no SECTION 2 OF RESOLUTION CIRCULAR NO. 799
longer appealed the decision, petitioner is only CIRCULAR NO. NO 796 SERIES OF 2013
entitled to the award as computed by the Labor 905, SERIES OF DATED MAY EFFECTIVE JULY 1,
1982 16, 2013 2013
Arbiter in the total amount of ₱158,919.92.
Respondents added that it was only during the
execution proceedings that the petitioner
questioned the award, long after the decision had The Monetary Board, in its Resolution No. 796 dated
become final and executory. 16 May 2013, approved the following revisions
governing the rate of interest in the absence of
RULING: stipulation in loan contracts, thereby AMENDING
SECTION 2 OF CIRCULAR NO. 905, SERIES OF 1982:
(gidiscuss ng court ang legality ng re-computation ng
separation pay, backwages habang nagatakbo ang pero Section 1. The rate of interest for the loan or
gifocus ko lang ang ruling sa computation ng legal interest) forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an
Finally, ANENT THE PAYMENT OF LEGAL INTEREST. express contract as to such rate of interest SHALL BE
In the landmark case of Eastern Shipping Lines, Inc. v. Court SIX PERCENT (6%) PER ANNUM.
of Appeals,32 the Court laid down the guidelines regarding the
manner of computing legal interest, to wit: Section 2. In view of the above, Subsection X305.1 of
the Manual of Regulations for Banks and Sections
II. With regard particularly to an award of interest in the 4305Q.1, 4305S.3 and 4303P.1 of the Manual of
concept of actual and compensatory damages, the rate of Regulations for Non-Bank Financial Institutions are
interest, as well as the accrual thereof, is imposed, as hereby amended accordingly.
follows:
This Circular shall take effect on 1 July 2013.
1. When the obligation is breached, and it consists
in the payment of a sum of money, i.e., a loan or Application to the case:
forbearance of money, the interest due should be:
that which may have been stipulated in Thus, from the foregoing, IN THE ABSENCE OF AN
writing. EXPRESS STIPULATION AS TO THE RATE OF INTEREST
THAT WOULD GOVERN THE PARTIES, the rate of legal
Furthermore, the interest due shall itself earn legal interest for loans or forbearance of any money, goods or
interest from the time it is judicially demanded. In
credits and the rate allowed in judgments shall no longer
the absence of stipulation, the rate of interest shall be
be twelve percent (12%) per annum - as reflected
12% per annum to be computed from default, i.e.,
in the case of Eastern Shipping Lines and Subsection X305.1
of the Manual of Regulations for Banks and Sections 4305Q.1, an interest on the amount of damages awarded may be
4305S.3 and 4303P.1 of the Manual of Regulations for Non- imposed at the discretion of the court at the rate of 6%
Bank Financial Institutions, before its amendment by BSP-MB per annum.
Circular No. 799 - BUT WILL NOW BE SIX PERCENT (6%)
PER ANNUM EFFECTIVE JULY 1, 2013. No interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand can
(HIGHLIGHTED BY MAAM ALONA NA PROSPECTIVE) be established with reasonable certainty.
It should be noted, nonetheless, that the new rate
Accordingly, where the demand is established with
could only be applied prospectively and not reasonable certainty, the interest shall begin to run from
retroactively. Consequently, the twelve percent (12%) per the time the claim is made judicially or extrajudicially
annum legal interest shall apply only until June 30, 2013. (Art. 1169, Civil Code), but when such certainty cannot
Come July 1, 2013 the new rate of six percent (6%) per annum be so reasonably established at the time the demand is
shall be the prevailing rate of interest when applicable. made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the
Corollarily, in the recent case of Advocates for Truth in quantification of damages may be deemed to have been
Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral reasonably ascertained). The actual base for the
Monetary Board, computation of legal interest shall, in any case, be on the
amount finally adjudged.
this Court affirmed the authority of the BSP-MB to set When the judgment of the court awarding a sum of
interest rates and to issue and enforce Circulars when it money becomes final and executory, the rate of legal
ruled that "the BSP-MB may prescribe the maximum interest, whether the case falls under paragraph 1 or
rate or rates of interest for all loans or renewals paragraph 2, above, shall be 6% per annum from such
thereof or the forbearance of any money, goods finality until its satisfaction, this interim period being
or credits, including those for loans of low deemed to be by then an equivalent to a forbearance of
priority such as consumer loans, as well as such credit.
loans made by pawnshops, finance companies and
similar credit institutions. AND, IN ADDITION TO THE ABOVE, JUDGMENTS
THAT HAVE BECOME FINAL AND EXECUTORY PRIOR
It even authorizes the BSP-MB to prescribe TO JULY 1, 2013, SHALL NOT BE DISTURBED AND
different maximum rate or rates for different types of SHALL CONTINUE TO BE IMPLEMENTED APPLYING
THE RATE OF INTEREST FIXED THEREIN.
borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries."
DISPOSITIVE: Respondents are Ordered to Pay
Nonetheless, with regard to those judgments that have petitioner:
become final and executory prior to July 1, 2013, said (3) interest of twelve percent (12%) per annum of the
judgments shall not be disturbed and shall continue to total monetary awards, computed from May 27, 2002 to
be implemented applying the rate of interest fixed June 30, 2013 and six percent (6%) per annum from
therein July 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,
  The trial court also held that the stipulated 24%
interest per annum on overdue accounts is not
unconscionable.
LARA’S GIFTS & DECORS VS MIDTOWN
G.R. No. 225433 August 28, 2019

CA:
FACTS:  On the 24% interest per annum imposed, the Court
of Appeals found implausible petitioner's claim
Petitioner Lara's Gifts & Decors, Inc. (petitioner) is engaged in (Lara’s gifts) that it was placed in a
the business of manufacturing, selling, and exporting handicraft disadvantageous position. Petitioner could not have
products. On the other hand, respondent Midtown Industrial been cheated or misled into agreeing to the 24%
Sales, Inc. (respondent) is engaged in the business of selling interest rate per annum that was stated in the sales
industrial and construction materials, and petitioner is one of invoices.
respondent's customers.  Petitioner, an established company with numerous
transactions with respondent prior to the purchases
Respondent alleged that from January 2007 up to December made in 2007, could have negotiated with
2007, petitioner purchased from respondent various industrial respondent for more favorable terms.
and construction materials in the total amount of  SINCE THE 24% INTEREST RATE PER
P1,263,104.22. ANNUM WAS STIPULATED IN WRITING, the
Court of Appeals held that such rate should be
TERMS: The purchases were on a sixty (60)-day credit term, applied considering that petitioner has not
with the condition that 24% INTEREST PER ANNUM shown that it was placed at a disadvantage in its
would be charged on all accounts overdue, as stated in the sales contractual relation with respondent.
invoices.
ISSUE:
Petitioner paid for its purchases by issuing several Chinabank I. Whether or not the interest rate FIXED at 24% per
postdated checks in favor of respondent. However, when annum is void. YES
respondent deposited the Chinabank checks on their maturity II. Assuming that the interest rate of 24% is valid,
dates, the checks bounced. whether or not the said rate shall be applied only
until finality of judgment YES
After repeated demands from respondent, petitioner replaced DISPOSITIVE
the bounced checks with new postdated Export and Industry 1. (P1,263,104.22) representing the principal
Bank checks. However, when respondent deposited the
amount plus stipulated interest at 24% per
replacement checks on their maturity dates, the checks were
annum to be computed from 22 January 2008,
likewise dishonored for being "Drawn Against Insufficient
the date of extrajudicial demand, until full
Funds," and subsequently, for "Account Closed."
payment.
Respondent sent a demand letter informing petitioner of the
bounced checks and demanding that petitioner settle its 2. Legal interest on the 24% per annum interest
accounts. Still petitioner failed to pay, prompting respondent due on the principal amount accruing as of judicial
to file a Complaint for Sum of Money with Prayer for demand, at the rate of 12% per annum from
Attachment against petitioner. 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
Petitioner admitted that from January 2007 to December 2007,
petitioner purchased from respondent, on a 60-day credit term, payment.
various industrial and construction materials in the total
amount of P1,263,104.22. However, petitioner claimed that
most of the deliveries made were substandard and of poor RULING:
quality. Petitioner alleged that the checks it issued for payment (with regards sa issue sa admissibility of the sales invoices kay
were not for value because not all of the materials delivered by civ pro ang legal basis so di ko nlng gisali)
respondent were received in good order and condition. Thus,
when petitioner used the raw materials, the finished product (SIDE ISSUE)Default in the Contractual
allegedly did not pass the standards required by petitioner's Obligations
buyers from the United States (US) who rejected the products. Articles 1192 and 1283 of the Civil Code read:
Art 1192 In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably
Furthermore, due to the economic recession in the US, tempered by the courts fit cannot be determined which of the
subsequent orders made by petitioner's US buyers were parties first violated the contract the same shall be deemed
canceled. Petitioner claimed that on a fire razed its factory and extinguished, and each shall bear his own damages.
office, destroying its equipment, machineries, and inventories,
including those rejected by the US buyers. 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
RTC: by proving his right to said damages and the amount thereof.
 Ordered Lara’s gifts to pay (Php1,263,104.22) plus
interest fixed at 24% per annum to be computed petitioner failed to substantiate its claims that the materials
from February 5, 2008, the date of judicial delivered were substandard or of poor quality. Thus, petitioner
demand, until the judgment obligation is fully cannot demand either a tempering of its liability or an offset of
paid. damages.
 under and subject to the provisions of Article 1169 of the
Civil Code.

2. 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
Validity of the 24% Interest Rate discretion of the court at the rate of 6% per annum.

In Asian Construction and Development Corporation v. No interest, however, shall be adjudged on unliquidated
Cathay Pacific Steel Corporation, claims or damages, except when or until the demand can
the Court upheld the validity of interest rate fixed at 24% per be established with reasonable certainty.
annum that was expressly stipulated in the sales invoices. The
Court held that petitioner construction company is presumed Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from
to have full knowledge of the terms and conditions of the
the time the claim is made judicially or extrajudicially
contract and that by not objecting to the stipulations in the (Art. 1169, Civil Code), but when such certainty cannot
sales invoice, it also bound itself to pay not only the stated be so reasonably established at the time the demand is
selling price but also the interest of 24%  per annum on overdue made, the interest shall begin to run only from the date
accounts and the 25% of the unpaid invoice for attorney's fees. the 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
In the present case, petitioner, which has been doing business computation of legal interest shall, in any case, be on the
since 1990 and has been purchasing various materials from amount finally adjudged.
respondent since 2004, CANNOT CLAIM TO HAVE BEEN
3. When the judgment of the court awarding a sum
MISLED INTO AGREEING TO THE 24% INTEREST RATE
of money becomes FINAL AND EXECUTORY, the rate
which was expressly stated in the sales invoices. Besides, this of legal interest, whether the case falls under paragraph
Court has already ruled in several cases that an interest rate of 1 or paragraph 2, above, shall be 6% per annum from
24% per annum AGREED UPON between the parties is valid such finality until its satisfaction, this interim period
and binding and not excessive and unconscionable. Thus, the being deemed to be by then an equivalent to a
stipulated 24% interest per annum is binding on petitioner. forbearance of credit.

Imposition of Legal Interest AND, IN ADDITION TO THE ABOVE, JUDGMENTS

THAT HAVE BECOME FINAL AND EXECUTORY PRIOR
The rates of interest stated in the guidelines on the imposition TO JULY 1, 2013, SHALL NOT BE DISTURBED AND
of interests, as laid down in the landmark case of Eastern SHALL CONTINUE TO BE IMPLEMENTED APPLYING
Shipping Lines, Inc. v. Court of Appeals20 have already been THE RATE OF INTEREST FIXED THEREIN.
modified in Bangko Sentral ng Pilipinas Monetary Board
(BSP-MB) Circular No. 799, Series of 2013, which reduced the However, IF THE RATE OF INTEREST IS
rate of legal interest from twelve percent (12%) per annum to STIPULATED, such stipulated interest shall apply and not
six percent (6%) per annum. the legal interest, provided the stipulated interest is not
excessive and unconscionable.
The modified guidelines are detailed in the 2013 case of Nacar The stipulated interest shall be applied until full payment
v. Gallery Frames, thus: of the obligation because that is the law between the parties.
The legal interest only applies in the absence of stipulated
To recapitulate and for future guidance, the guidelines laid interest. This is in accord with Article 2209 of the Civil Code,
down in the case of Eastern Shipping Lines are which states:
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
I. When an obligation, regardless of its source, i.e., indemnity for damages, there being no stipulation
law, contracts, quasi-contracts, delicts or quasi- to the contrary, shall be the payment of the
delicts is breached, the contravenor can be held liable interest agreed upon, and in the absence of
for damages. The provisions under Title XVIII on stipulation, the legal interest, which is six
"Damages" of the Civil Code govern in determining the percent per annum. (Boldfacing and italicization
measure of recoverable damages. supplied)

II. With regard particularly to an award of interest

Even BSP-MB Circular No. 799 expressly states that the legal
in the concept of actual and compensatory
interest applies ONLY IN THE ABSENCE OF
damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows: STIPULATED INTEREST in loan contracts. Circular No.
799 reads:
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, the interest due should be that CIRCULAR NO. 799
Series of 2013
WHICH MAY HAVE BEEN STIPULATED IN
WRITING. Subject: Rate of interest in the absence of
stipulation
Furthermore, the interest due shall itself earn legal
interest from the time it is JUDICIALLY DEMANDED. In The Monetary Board, in its Resolution No. 796 dated 16
the absence of stipulation, THE RATE OF INTEREST May 2013, approved the following revisions governing
SHALL BE 6% PER ANNUM TO BE COMPUTED FROM the rate of interest in the absence of stipulation in loan
DEFAULT, i.e., from judicial or extrajudicial demand contracts, thereby amending Section 2 of Circular No.
905, Series of 1982:
 (Why daw need iamend)
Section 1. The rate of interest for the loan or Paragraph 3 above failed to qualify that for loans or
forbearance of any money, goods or credits and the rate forbearance of money, the prevailing legal interest should
allowed in judgments, in the absence of an express only apply in the absence of stipulated interest.
contract as to such rate of interest, shall be six
percent (6%) per annum. The stipulated interest is the law between the parties and
should apply from the time of extrajudicial or judicial
Section 2. In view of the above, Subsection X305.1 of
demand until full payment.
the Manual of Regulations for Banks and Sections
This omission resulted in several rulings of this Court, which
4305Q.1, 4305S.3 and 4303P.1 of the Manual of
Regulations for Non-Bank Financial Institutions are imposed the stipulated interest on the adjudged amount until
hereby amended accordingly. finality of the decision BUT applied the prevailing legal
interest in lieu of the stipulated interest from finality of the
This Circular shall take effect on 1 July decision until full payment of the obligation.
2013. (Emphasis supplied) THIS IS IN DIRECT CONTRAVENTION OF THE LAW ,
particularly ARTICLE 2209 OF THE CIVIL CODE,
Clearly, Circular No. 799 will apply only in the absence of which mandates that when a debtor incurs a delay in
stipulated interest. obligations to pay a sum of money, the indemnity for damages
shall be the payment of the interest agreed upon. Only in the
In Eastern Shipping Lines, which first laid down the guidelines absence of a stipulated interest will the legal interest be
on the computation of legal interest, the Court declared: applied.

I. When an obligation, regardless of its source, i.e., law, To repeat, the stipulated interest is the law between the parties,
contracts, quasi-contracts, delicts or quasi-delicts is and should be applied until full payment of the obligation.
breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on "Damages" Article 1159 of the Civil Code provides that
of the Civil Code govern in determining the measure of "[o]bligations arising from contracts have the force of law
recoverable damages. between the contracting parties and should be complied
with in good faith."
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 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: stipulations as they may deem convenient, provided they are
that which may have been stipulated in not contrary to law, morals, good customs, public order, or
writing. public policy, and the parties are bound to fulfill what has been
expressly stipulated.
Furthermore, the interest due shall itself earn legal Thus, unless the stipulated interest is excessive and
interest from the time it is judicially demanded. In
unconscionable, there is no legal basis for the reduction of
the absence of stipulation, the rate of interest shall be
the stipulated interest at any time until full payment of the
12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject principal amount. The stipulated interest remains in force
to the provisions of Article 1169 of the Civil Code. until the obligation is satisfied. In the absence of stipulated
interest, the prevailing legal interest prescribed by the Bangko
2. When an obligation, not constituting a loan or Sentral ng Pilipinas shallapply.
forbearance of money, is breached,
an interest on the amount of damages awarded Moreover, there should be no compounding of interest,
may be imposed at the discretion of the court at the whether stipulated or legal, unless compounding is expressly
rate of 6% per annum. agreed upon in writing by the parties or mandated by law or
No interest, however, shall be adjudged on regulation. Section 5 of the Usury Law, as amended, expressly
unliquidated claims or damages except when or until the provides that compounded interest "shall not be reckoned,
demand can be established with reasonable certainty.
except by agreement." Being more burdensome than simple
Accordingly, where the demand is established with
interest, compounded interest must be expressly stipulated by
reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially the parties or mandated by law or regulation.
(Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is Articles 2210 and 2211 of the Civil Code
made, the interest shall begin to run only from the date Apply to Obligations Other Than Loans
the judgment of the court is made (at which time the
quantification of damages may be deemed to have been
or Forbearance of Money, Goods or
reasonably ascertained). The actual base for the Credits
computation of legal interest shall, in any case, be on the
amount finally adjudged. Articles 2210 and 2211 of the Civil Code provide:

3. When the judgment of the court awarding a sum

of money becomes final and executory, the rate of Art. 2210. Interest may, in the discretion of the court,
legal interest, whether the case falls under paragraph 1 be allowed upon damages awarded for breach of
or paragraph 2, above, shall be 12% per annum from contract.
such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a Art. 2211. In crimes and quasi-delicts, interest as a part
forbearance of credit. of the damages may, in a proper case, be adjudicated in
the discretion of the court.
 requirements of changing economic conditions, and that "the
Under these articles, when the obligation, other than loans or availability of adequate capital resources is, among other
forbearance of money, goods or credits, is breached, the factors, a decisive element in the achievement of the declared
court may in its discretion impose an interest on the damages objective of accelerating the growth of the national
awarded. The interest imposed in the discretion of the court economy."
will be the prevailing legal interest prescribed by the Bangko Thus, PD. No. 116 AMENDED ALL LAWS, INCLUDING
Sentral ngPilipinas. ARTICLE 2209 OF THE CIVIL CODE, prescribing the rate
of legal interest to allow the Bangko Sentral ng Pilipinas to
In contrast, Article 2209 of the Civil Code is applicable only calibrate the legal interest rate to meet changing economic
to loans or forbearance of money, goods or credit which arise conditions and to accelerate the growth of the national
out of "obligations consisting in the payment of a sum of economy.
money, and the debtor incurs in delay," and thus where there
is a debtor-creditor relationship. If PD. No. 116 did not amend Article 2209, then all
"obligations consisting in the payment of a sum of money,"
Articles 2210 and 2211 refer to obligations that do not involve which is the all-encompassing coverage of Article 2209
the payment of a sum of money and there is no debtor-creditor applying to all loans or forbearance of money, goods, credits or
relationship. Moreover, the payment of interest in Article 2209 judgments, would still be subject to the fixed 6% legal interest
is mandatory, while the payment of interest in Articles 2210 rate.
and 2211 is discretionary on the court.
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
Amended economy.

ACT NO. 2655 OR THE USURY LAW (1916) Thus, the legal interest referred to in Article 2209 of the Civil
fixed the legal interest at 6% per annum for Code is now 6% per annum or as may be fixed by the
loans, forbearance of money, goods, credits or Monetary Board of the Bangko Sentral ng Pilipinas
judgments. This legal interest applied in the pursuant to the Usury Law, as amended by PD116.
absence of stipulated interest.
Forbearance of Money, Goods or
REPUBLIC ACT NO. 386, THE CIVIL CODE OF THE Credits
PHILIPPINES EMBODYING ARTICLE 2209 (1949)
Article 2209 of the Civil Code declared that the "forbearance of money, goods or credits" is meant to
legal interest in obligations to pay a sum of have a separate meaning from a loan, otherwise there
money is 6% per annum when the debtor would have been no need to add that phrase as a loan is
incurs in delay. already sufficiently defined in the Civil Code.

Forbearance of money, goods or credits should therefore

Article 2209 applies to loans and forbearance of refer to arrangements other than loan agreements,
money, goods or credits. This legal interest will where a person acquiesces to the temporary use of his
apply in the absence of stipulated interest. money, goods or credits pending happening of certain
events or fulfillment of certain conditions
PRESIDENTIAL DECREE NO. 116 (1973)
amended the Usury Law and fixed the legal
To summarize, the guidelines on the imposition of
interest for loans, forbearance of money,
interest as provided in Eastern Shipping
goods, credits or judgments at 6% per
Lines and Nacar are further modified for clarity
annum "or such rate as may be prescribed
and uniformity, as follows:
by the Monetary Board of the Central Bank
of the Philippines." This legal interest applies
in the absence of stipulated interest. With regard to an award of interest in the concept
of actual and compensatory damages, the rate of
SECTION 11 OF P.D. NO. 116 STATES: "ALL interest, as well as the accrual thereof, is
ACTS AND PARTS OF ACTS INCONSISTENT imposed, as follows:
WITH THE PROVISIONS OF THIS DECREE
ARE HEREBY REPEALED. 1. When the obligation is breached, and it
This repealing clause applied to Acts, consists in the payment of a sum of
Commonwealth Acts, and Republic Acts, money, i.e., a loan or forbearance of money,
including Article 2209 of Republic Act No. 386 goods, credits or judgments, the interest due
(Civil Code of the Philippines). When P.D. No. shall be that which is stipulated by the parties in
116 says "[a]ll Acts and parts of Acts," it does writing, provided it is not excessive and
not mean only Act No. 2655 (Usury Law) unconscionable, which, in the absence of a
but all other Acts, without exception. stipulated reckoning date, shall be computed
from default, i.e., from extrajudicial or
P.D. No. 116 was obviously intended to amend all laws judicial demand in accordance with Article
prescribing the rate of legal interest in the absence of 1169 of the Civil Code, UNTIL FULL
stipulated interest. The Whereas clauses of P.D. No. 116 state PAYMENT, without compounding any interest
that "the monetary authorities have recognized the need to unless compounded interest is expressly
amend the present Usury Law to allow for more flexible stipulated by the parties, by law or regulation.
interest rate ceilings that would be more responsive to the
Interest due on the principal amount accruing Since there was an EXTRAJUDICIAL DEMAND before the
as of judicial demand shall SEPARATELY earn legal complaint was filed, interest on the amount due begins to run
interest at the prevailing rate prescribed by not from the filing of the complaint but from the date of
the Bangko Sentral ng Pilipinas, from the time such extrajudicial demand.
Thus, the unpaid principal obligation of P1,263,104.22 shall
of judicial demand UNTIL FULL PAYMENT.
earn the stipulated interest of 24% per annum from the date of
extrajudicial demand on 22 January 2008 until full payment.
2. In the absence of stipulated interest, in a
loan or forbearance of money, goods, credits Furthermore, IN ACCORDANCE WITH ARTICLE 2212
or judgments, the rate of interest on the OF THE CIVIL CODE, the 24% interest per annum due on
principal amount shall be the prevailing legal the principal amount accruing as of the judicial demand shall
interest prescribed by the Bangko Sentral ng earn legal interest at the rate of 12% per annum from the date
Pilipinas, which shall be computed from of judicial demand on 5 February 2008 until 30 June 2013, and
default, i.e., from extrajudicial or judicial thereafter at the rate of 6% per annum from 1 July 2013 until
demand in accordance with Article 1169 of full payment. From the date of judicial demand on 5 February
2008 until 30 June 2013, the prevailing rate of legal interest
the Civil Code, UNTIL FULL PAYMENT, was 12% per annum. The 6% per annum legal interest
without compounding any interest unless prescribed under BSP-MB Circular No. 799 took effect on 1
compounded interest is expressly stipulated by July 2013 and could only be applied prospectively. 64 The
law or regulation. 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
Interest due on the principal amount accruing full payment.
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.58
DISPOSITIVE
3. When the obligation, not constituting a 1. (P1,263,104.22) representing the
loan or forbearance of money, goods, credits
or judgments, is breached, an interest on the principal amount plus stipulated
amount of damages awarded may be imposed in interest at 24% per annum to be
the discretion of the court at the prevailing computed from 22 January 2008, the
legal interest prescribed by the Bangko
Sentral ng Pilipinas, pursuant to Articles 2210 date of extrajudicial demand, until full
and 2011 of the Civil Code. payment.
No interest, however, shall be adjudged on
unliquidated claims or damages until the demand
can be established with reasonable certainty
2. Legal interest on the 24% per
annum interest due on the principal
Accordingly, where the amount of the claim or amount accruing as of judicial
damages is established with reasonable certainty,
the PREVAILING LEGAL INTEREST shall begin
demand, at the rate of 12% per
to run from the time the claim is made annum from the date of judicial
extrajudicially or judicially (Art. 1169, Civil Code) demand on 5 February 2008 until 30
UNTIL FULL PAYMENT, but when such certainty June 2013, and thereafter at the rate
cannot be so reasonably established at the time
the demand is made, the interest shall begin to of 6% per annum from 1 July 2013
run only from the date of the judgment of until full payment.
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.