EN BANC
G.R. No. 225433, August 28, 2019
LARA'S GIFTS & DECORS, INC., PETITIONER, v. MIDTOWN INDUSTRIAL SALES, INC., RESPONDENT.
D E C I S I O N
CARPIO, J.:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff MIDTOWN INDUSTRIAL SALES, INC. and against the defendant LARA'S GIFTS [&] DECORS, INC. ordering the latter to pay the former the following amount:The trial court held that petitioner failed to prove that the deliveries made by respondent did not comply with the required specifications. Other than the self-serving denials of its witnesses, no other evidence was offered by petitioner to prove that the materials delivered were substandard. On the other hand, the amount of P1,263,104.22 claimed by respondent against petitioner was supported by the sales invoices and postdated checks. The trial court also held that the stipulated 24% interest per annum on overdue accounts is not unconscionable.
1. ONE MILLION TWO HUNDRED SIXTY THREE THOUSAND ONE HUNDRED FOUR PESOS and 22/100 (Php1,263,104.22) plus interest fixed at 24% per annum to be computed from February 5, 2008, the date of judicial demand, until the judgment obligation is fully paid.
2. The sum of FIFTY THOUSAND PESOS (Php50,000.00) as and by way of attorney's fees.
Finally, defendant is ordered to pay the cost of suit.
SO ORDERED.8
- WHETHER OR NOT MIDTOWN'S SALES INVOICES HAVE PROBATIVE VALUE, CONSIDERING THAT THEIR GENUINENESS, DUE EXECUTION AND AUTHENTICITY ARE NOT ESTABLISHED UNDER SECTION 20, RULE 132 OF THE RULES OF COURT.
- WHETHER OR NOT [LARA'S GIFTS & DECORS, INC.] IS IN DEFAULT OF ITS CONTRACTUAL OBLIGATIONS.
- WHETHER OR NOT ARTICLES 1192 AND 1283 OF THE CIVIL CODE ARE APPLICABLE IN THE PRESENT CASE.
- WHETHER OR NOT THE INTEREST RATE FIXED AT 24% PER ANNUM IS VOID.
- ASSUMING THAT THE INTEREST RATE OF 24% IS VALID, WHETHER OR NOT THE SAID RATE SHALL BE APPLIED ONLY UNTIL FINALITY OF JUDGMENT.9
Sec. 7. Action or defense based on document. - Whenever an action or defense is based upon a written instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect be set forth in the pleading.Section 10 of Rule 8 further describes how a specific denial should be made:
Sec. 8. How to contest such documents. - When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but the requirement of an oath does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused. (Emphasis supplied)
Sec. 10. Specific denial. - A defendant must specify each material allegation of fact the truth of which he does not admit and, whenever practicable, shall set forth the substance of the matters upon which he relies to support his denial. Where a defendant desires to deny only a part of an averment, he shall specify so much of it as is true and material and shall deny only the remainder. Where a defendant is without knowledge or information sufficient to form a belief as to the truth of a material averment made in the complaint, he shall so state, and this shall have the effect of a denial. (Emphasis supplied)In this case, petitioner did not state the facts or substance of the matters relied upon to support its denial of the due execution of the sales invoices As held m Sy-Quia v Marsman,11 "the Rules require that besides specifying the allegations of fact not admitted, the answer should set forth the matters relied upon m support of the denial; so that, in effect, the Rules are no longer satisfied with mere denials, even if specific, but demand that defendant manifest what he considers to be the true facts." The purpose of the specific denial is to compel the defendant to specify the allegations which he or she intends to disprove and disclose the matters relied upon to support such denial,12 thereby limiting the issues and avoiding unnecessary delays and surprises.13 Petitioner's general denial amounts to an admission of the genuineness and due execution of the sales invoices.
Art 1192 In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts fit cannot be determined which of the parties first violated the contract the same shall be deemed extinguished, and each shall bear his own damages.As previously discussed, petitioner failed to substantiate its claims that the materials delivered were substandard or of poor quality. Thus, petitioner cannot demand either a tempering of its liability or an offset of damages.
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.
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:However, if the rate of interest is stipulated, such stipulated interest shall apply and not the legal interest,23 provided the stipulated interest is not excessive and unconscionable.24The stipulated interest shall be applied until full payment of the obligation because that is the law between the parties.25 The legal interest only applies in the absence of stipulated interest. This is in accord with Article 2209 of the Civil Code, which states:
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:
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 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.
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 discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), 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 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 computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1,2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.22 (Emphasis supplied)
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 the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum. (Boldfacing and italicization supplied)Even BSP-MB Circular No. 799 expressly states that the legal interest applies only in the absence of stipulated interest in loan contracts. Circular No. 799 reads:
Clearly, Circular No. 799 will apply only in the absence of stipulated interest.CIRCULAR NO. 799
Series of 2013
Subject: Rate of interest in the absence of stipulation
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013. (Emphasis supplied)
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.Paragraph 3 above failed to qualify that for loans or forbearance of money, the prevailing legal interest should only apply in the absence of stipulated interest. The stipulated interest is the law between the parties and should apply from the time of extrajudicial or judicial demand until full payment.27 This omission resulted in several rulings of this Court, which imposed the stipulated interest on the adjudged amount until finality of the decision BUT applied the prevailing legal interest in lieu of the stipulated interest from finality of the decision until full payment of the obligation.28 This is in direct contravention of the law, particularly 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. Only in the absence of a stipulated interest will the legal interest be applied.
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:
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 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 12% 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.
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 discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) 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 court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount of [sic] finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.26 (Emphasis supplied)
Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.Under these articles, when the obligation, other than loans or forbearance of money, goods or credits, is breached, the court may in its discretion impose an interest on the damages awarded. The interest imposed in the discretion of the court will be the prevailing legal interest prescribed by the Bangko Sentral ng Pilipinas.
Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be adjudicated in the discretion of the court.
The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the contract provides that the seller (petitioner) must return the payment made by the buyer (respondent-spouses) if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as the seller (petitioner) has admitted this. Notwithstanding demand by the buyer (respondent-spouses), the seller (petitioner) has failed to return the money and should be considered in default from the time that demand was made on September 27, 2000.The Court further stressed in Reformina v. Judge Tomol, Jr.46 that Act No. 2655 or the Usury Law deals with "interest on (1) loans; (2) forbearance of any money, goods or credits; and (3) the rate allowed in judgments."47 The Court clarified that the term "judgments" refers to judgments in litigations involving loans or forbearance of any money, goods or credits.48 As declared in Eastern Shipping Lines, the "finality [of judgment] until its satisfaction xxx [is a] period being deemed to be by then an equivalent to a forbearance of credit"49or a forbearance of money. P.D. No. 116 amended Act No. 2655 or the Usury Law, as follows:
Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be considered as a forbearance of money which required payment of interest at the rate of 12%? We believe so.
In Crismina Garments, Inc. v. Court of Appeals, "forbearance" was defined as a "contractual obligation of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable." This definition describes a loan where a debtor is given a period within which to pay a loan or debt. In such case, "forbearance of money, goods or credits" will have no distinct definition from a loan. We believe, however, that the phrase "forbearance of money, goods or credits" is meant to have a separate meaning from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in the Civil Code. Forbearance of money, goods or credits should therefore refer to arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions. In this case, the respondent-spouses parted with their money even before the conditions were fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment of the conditions. They were deprived of the use of their money for the period pending fulfillment of the conditions and when those conditions were breached, they are entitled not only to the return of the principal amount paid, but also to compensation for the use of their money. And the compensation for the use of their money, absent any stipulation, should be the same rate of legal interest applicable to a loan since the use or deprivation of funds is similar to a loan.45 (Emphasis supplied)
SECTION 1. Section one of Act Numbered two thousand six hundred fifty-five is hereby amended to read as follows:Clearly, under the law and jurisprudence, the prevailing legal interest prescribed by the Bangko Sentral ng Pilipinas applies, in the absence of stipulated interest, on the following: (1) loans; (2) forbearance of any money, goods or credits; and (3) judgments in litigations involving loans or forbearance of money, goods or credits. It should be noted that under Section 1 of P.D. No. 116, the prevailing legal interest prescribed by the Bangko Sentral ng Pilipinas applies to "judgments" in the absence of stipulated interest."Sec. 1. The rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank of the Philippines for that purpose in accordance with the authority hereby granted."SECTION 2. The same Act is hereby amended by adding the following section immediately after section one thereof, which reads as follows:"Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rate of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to chance [sic] such rate or rates whenever warranted by prevailing economic and social conditions: Provided, That such changes shall not be made oftener than once every twelve months.xxxx
In the exercise of the authority herein granted, the Monetary Board may prescribe higher maximum rates for consumer loans or renewals thereof as well as loans made by pawnshops, finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform."
SECTION 7. Section five of the same Act is hereby amended to read as follows:"Sec. 5. In computing the interest on any obligation, promissory note or other instrument or contract, compound interest shall not be reckoned, except by agreement: Provided, That whatever compound interest is agreed upon, the effective rate of interest charged by the creditor shall not exceed the equivalent of the maximum rate prescribed by the Monetary Board, or, in default thereof, whenever the debt is judicially claimed, in which last case it shall draw six per centum per annum interest or such rate as may be prescribed by the Monetary Board. No person or corporation shall require interest to be paid in advance for a period of not more than one year: Provided, however, That whenever interest is paid in advance, the effective rate of interest charged by the creditor shall not exceed the equivalent of the maximum rate prescribed by the Monetary Board."xxxx (Boldfacing and italicization supplied)
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: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.62 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.
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,51provided it is not excessive and unconscionable, which, in the absence of a stipulated reckoning date,52shall be computed from default, i.e., from extrajudicial or judicial demand in accordance with Article 116953of 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 interest54at the prevailing rate prescribed by the Bangko Sentral ng Pilipinas,55from the time of judicial demand UNTIL FULL PAYMENT.56
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,57from the time of judicial demand UNTIL FULL PAYMENT.58
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.59No interest, however, shall be adjudged on unliquidated claims or damages until the demand can be established with reasonable certainty.60Accordingly, 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.61
Petitioner Lara's Gifts & Decors, Inc. is ordered to pay respondent Midtown Industrial Sales, Inc. the following:SO ORDERED.
1. ONE MILLION TWO HUNDRED SIXTY THREE THOUSAND ONE HUNDRED FOUR PESOS and 22/100 (P1,263,104.22) representing the principal amount plus stipulated interest at 24% per annum to be computed from 22 January 2008, the date of extrajudicial demand, until full payment.
2. Legal interest on the 24% per annum interest due on the principal amount accruing as of judicial demand, 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.
3. The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorney's fees, plus legal interest thereon at the rate of 6% per annum to be computed from the finality of this Decision until full payment.
4. Cost of the suit.
Very truly yours, (SGD) EDGAR O. ARICHETA Clerk of Court |
Endnotes:
1 Under Rule 45 of the 1997 Rules of Civil Procedure.
2Rollo, pp. 44-58. Penned by Associate Justice Stephen C. Cruz, with Associate Justices Jose C. Reyes, Jr. and Ramon Paul L. Hernando (now members of this Court) concurring.
3 Id. at 59-60.
4 Id. at 62-71. Penned by Judge Eleanor R. Kwong.
5 Exh. "DD" and Exh. "EE"; records, pp. 90-93.
6 Rollo, pp. 72-80.
7 Id. at 158-163.
8 Id. at 71.
9 Id. at 25-26.
10 Id. at 158-163. Paragraph 2 of Petitioner's Answer states: "It admits the allegations in paragraphs 4.1 and 5 only insofar as their existence but not their due execution as explained in the affirmative defenses below." The Answer refers to Paragraphs 4.1 and 5 of the Complaint which read:
4.1 Photocopies of the Sales Invoices covering said purchases are hereto attached and made an integral part hereof as ANNEXES "A", "A-1" to "A-51";
5. Said purchases are subject to the following terms and conditions, among others, as indicated in the cited Sales Invoices as follows:"24% interest per annum is to be charged on all accounts overdue xxx. The parties expressly agree that the venue of any legal action arising out of this transaction shall be in Caloocan City exclusively. xxx"11 131 Phil. 16, 20 (1968).
12Republic of the Phils. v. Sandiganbayan, 453 Phil. 1059 (2003).
13J. P. Juan & Sons, Inc. v. Lianga Industries, Inc., 139 Phil. 77, 83 (1969).
14Rollo, pp. 158, 160.
15Memita v. Masongsong, 551 Phil. 241 (2007).
16Rollo, pp. 81-132. Annexes "A" to "A-51."
17 636 Phil. 127 (2010).
18Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc., 613 Phil. 303 (2009); Bortikey v. AFP Retirement and Separation Benefits System, 513 Phil. 636 (2005); Garcia v. Court of Appeals, 249 Phil. 739 (1988).
19Spouses Villanueva v. Court of Appeals, 671 Phil. 467 (2011); Sps. Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, 544 Phil. 18 (2007).
20 304 Phil. 236 (1994).
21 716 Phil. 267 (2013).
22 Id. at 281-283.
23Isla v. Estorga, G.R. No. 233974, 2 July 2018; Security Bank and Trust Co. v. RTC-Makati, Br. 61, 331 Phil. 787 (1996).
24 In Asian Cathay Finance and Leasing Corp. v. Spouses Gravador [637 Phil. 504, 510-511 (2010)], this Court declared: "It is true that parties to a loan agreement have a wide latitude to stipulate on any interest rate in view of Central Bank Circular No. 905, series of 1982, which suspended the Usury Law ceiling on interest rate effective January 1, 1983. However, interest rates, whenever unconscionable, may be equitably reduced or even invalidated. In several cases, this Court had declared as null and void stipulations on interest and charges that were found excessive, iniquitous and unconscionable." See also Vitug v. Abuda, 776 Phil. 540 (2016); Spouses Silos v. Philippine National Bank, 738 Phil. 156 (2014).
25 Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.
26 Supra note 20, at 252-254.
27Asian Construction and Development Corporation v. Cathay Pacific Steel Corporation, supra note 17; Spouses Bautista v. Pilar Development Corp., 371 Phil. 533 (1999); Security Bank and Trust Co. v. RTC-Makati, Br. 61, supra note 23; Solid Homes, Inc. v. Court of Appeals, 252 Phil. 67 (1989).
28Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc., supra note 18; Spouses Suatengco v. Reyes, 594 Phil. 609 (2008); Gamboa Rodriguez Rivera & Co., Inc. v. Court of Appeals, 497 Phil. 399 (2005).
29 Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Articles 1308 and 1315 of the Civil Code provide:
30 Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (Emphasis supplied)
31 In Land Bank of the Philippines v. Rivera [705 Phil. 139, 150 (2013)], the Court applied "the rules under A.O. No. 13-94, A.O. No. 02-04 and A.O. 06-08[,] the formula to determine the increment of 6% interest per annum compounded annually xxx."
32 Section 5 of the Usury Law (Act No. 2655), as amended by Presidential Decree No. 116, provides: "In computing the interest on any obligation, promissory note or other instrument or contract, compound interest shall not be reckoned, except by agreement: Provided, That whenever compound interest is agreed upon, the effective rate of interest charged by the creditor shall not exceed the equivalent of the maximum rate prescribed by the Monetary Board, or, in default thereof, whenever the debt is judicially claimed, in which last case it shall draw six per centum per annum interest or such rate as may be prescribed by the Monetary Board. No person or corporation shall require interest to be paid in advance for a period of not more than one year: Provided, however, That whenever interest is paid in advance, the effective rate of interest charged by the creditor shall not exceed the equivalent of the maximum rate prescribed by the Monetary Board."
33 AN ACT FIXING THE RATES OF INTEREST UPON LOANS AND DECLARING THE EFFECT OF RECEIVING OR TAKING USURIOUS RATES, AND FOR OTHER PURPOSES.
34 Section 1 of Act No. 2655 states that [t]he rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per centum per annum.
35 AN ACT TO ORDAIN AND INSTITUTE THE CIVIL CODE OF THE PHILIPPINES.
36 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 the contrary, shall be the payment of the interest agreed upon, and in the absence thereof, the legal interest, which is six percent per annum.
37 In Piczon v. Piczon [158 Phil. 726 (1974)], involving the delay of the payment of a sum of money under a loan agreement, the Court applied Article 2209 of the Civil Code and held that appellees were liable for the stipulated interest of 12% per annum to be reckoned from the date stipulated by the parties under the loan agreement.
38 In Diego v. Fernando [109 Phil. 143 (1960)], involving a contract of loan with security, the Court held that appellant is liable to pay legal interest since Article 2209 of the Civil Code allows a a creditor, in the absence of stipulation as to payment of interest, legal interest from the time of the debtor's default. See also Vda. De Murciano v. Auditor General, 103 Phil. 907 (1958); Ruperto v. Kosca, 26 Phil. 227 (1913).
39 AMENDING FURTHER CERTAIN SECTIONS OF ACT NUMBERED TWO THOUSAND SIX HUNDRED FIFTY-FIVE, AS AMENDED, OTHERWISE KNOWN AS "THE USURY LAW."
40 Second Whereas Clause, P.D. No. 116.
41 Third Whereas Clause, P.D. No. 116.
42Land Bank of the Philippines v. West Bay Colleges, Inc., 808 Phil. 712 (2017); International Container Terminal Services, Inc. v. FGU Insurance Corporation, 604 Phil. 380 (2009); Crismina Garments, Inc. v. Court of Appeals, 363 Phil. 701 (1999).
43 686 Phil. 86 (2012).
44 363 Phil. 701 (1999).
45Estores v. Spouses Supangan, supra note 43, at 96-97.
46 223 Phil. 472 (1985).
47 Id. at 478.
48 Id. at 478-479.
49 Supra note 20, at 254.
50Odiamar v. Valencia, G.R. No. 213582, 12 September 2018 (Resolution); Isla v. Estorga, supra note 23; Federal Builders, Inc. v. Foundation Specialists, Inc., 742 Phil. 433 (2014); Estores v. Spouses Supangan, supra note 43; Crismina Garments, Inc. v. Court of Appeals, supra note 44; Philippine National Bank v. Court of Appeals, 331 Phil. 1079 (1996); Food Terminal Inc. v. Court of Appeals, 330 Phil. 903 (1996); Eastern Shipping Lines, Inc. v. Court of Appeals, supra note 20; Nacar v. Gallery Frames, supra note 21.
51 Article 1956 of the Civil Code states that "[n]o interest shall be due unless it has been expressly stipulated in writing."
52 In Firestone Tire and Rubber Co., (P.I.) v. Delgado and Dee [104 Phil. 920 (1958)], the Court upheld the ruling of the trial court that the stipulation of the parties on the reckoning date for the payment of interest is controlling. See also Piczon v. Piczon, [158 Phil. 726 (1974)].
53 ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
54 Article 2212 of the Civil Code states that "[i]nterest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point."
55 Per BSP-MB Circular No. 799, Series of 2013, effective 1 July 2013, the rate of interest in the absence of stipulation is six percent (6%) per annum.
56 The computation of interest under this paragraph may be expressed in the following formula:
a. Interest Due on Principal Amount
principal amount x stipulated interest x [number of days from stipulated reckoning date, extrajudicial or judicial demand to full payment] 365 days
= interest due on principal amount
b. Interest on Interest Due
principal amount x stipulated interest x legal interest x [number of days from judicial demand to full payment] 365 days
= interest on interest due
57 Per BSP-MB Circular No. 799, Series of 2013, effective 1 July 2013, the rate of interest in the absence of stipulation is six percent (6%) per annum.
58 The computation of interest under this paragraph may be expressed in the following formula:
a. Interest Due on Principal Amount
principal amount x legal interest x [number of days from extrajudicial or judicial demand to full payment] 365 days
= interest due on principal amount
b. Interest on Interest Due
principal amount x legal interest x legal interest x [number of days from judicial demand to full payment] 365 days
= interest on interest due
59 Articles 2210 and 2211 of the Civil Code provide:
Amount of claim or damages x legal interest x [no. of days from extrajudicial or judicial demand to full payment] | |
365 |
Amount of claim or damages x legal interest x [number of days from judicial determination of amount of claim or damages to full payment] | |
365 days |
The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid.6In Vitug v. Abuda,7 this Court acknowledged that parties are free to set the interest rate in their loan contract, considering the suspension of the Usury Law.8Nonetheless, we emphasized that the validity of the interest rate stipulated is granted under the assumption that: (1) there is parity between the parties; and (2) the interest rate is not unconscionable. We held:
The freedom to stipulate interest rates is granted under the assumption that we have a perfectly competitive market for loans where a borrower has many options from whom to borrow. It assumes that parties are on equal footing during bargaining and that neither of the parties has a relatively greater bargaining power to command a higher or lower interest rate. It assumes that the parties are equally in control of the interest rate and equally have options to accept or deny the other party's proposals. In other words, the freedom is granted based on the premise that parties arrive at interest rates that they are willing but are not compelled to take either by force of another person or by force of circumstances.No mutuality of contracts exists when parties are not on an equal footing in negotiating its terms.10 The interest rate stipulated is, thus, rendered void when it is skewed in favor of one (1) party over the other.
However, the premise is not always true. There are imperfections in the loan market. One party may have more bargaining power than the other. A borrower may be in need of funds more than a lender is in need of lending them. In that case, the lender has more commanding power to set the price of borrowing than the borrower has the freedom to negotiate for a lower interest rate.
Hence, there are instances when the state must step in to correct market imperfections resulting from unequal bargaining positions of the parties.
. . . .
In stipulating interest rates, parties must ensure that the rates are neither iniquitous nor unconscionable. Iniquitous or unconscionable interest rates are illegal and, therefore, void for being against public morals. The lifting of the ceiling on interest rates may not be read as "granting] lenders carte blanche [authority] to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets."9 (Citations omitted)
In this case, there was no urgency of the need for money on the part of Jocelyn, the debtor, which compelled her to enter into said loan transactions. She used the money from the loans to make advance payments for prospective clients of educational plans offered by her employer. In this way, her sales production would increase, thereby entitling her to 50% rebate on her sales. This is the reason why she did not mind the 6% to 7% monthly interest. Notably too, a business transaction of this nature between Jocelyn and Marilou continued for more than five years. Jocelyn religiously paid the agreed amount of interest until she ordered for stop payment on some of the checks issued to Marilou. The checks were in fact sufficiently funded when she ordered the stop payment and then filed a case questioning the imposition of a 6% to 7% interest rate for being allegedly iniquitous or unconscionable and, hence, contrary to morals.Thus, whether a stipulated interest rate is conscionable or unconscionable would depend on the parties' contexts and the circumstances in which the interest rate was applied.
It was clearly shown that before Jocelyn availed of said loans, she knew fully well that the same carried with it an interest rate of 6% to 7% per month, yet she did not complain. In fact, when she availed of said loans, an advance interest of 6% to 7% was already deducted from the loan amount, yet she never uttered a word of protest.
After years of benefiting from the proceeds of the loans bearing an interest rate of 6% to 7% per month and paying for the same, Jocelyn cannot now go to court to have the said interest rate annulled on the ground that it is excessive, iniquitous, unconscionable, exorbitant, and absolutely revolting to the conscience of man.19 (Emphasis supplied, citations omitted)
In determining whether the rate of interest is unconscionable, the mechanical application of pre-established floors would be wanting. The lowest rates that have previously been considered unconscionable need not be an impenetrable minimum. What is more crucial is a consideration of the parties' contexts. Moreover, interest rates must be appreciated in light of the fundamental nature of interest as compensation to the creditor for money lent to another, which he or she could otherwise have used for his or her own purposes at the time it was lent. It is not the default vehicle for predatory gain. As such, interest need only be reasonable. It ought not be a supine mechanism for the creditor's unjust enrichment at the expense of another.21We then proceeded to set this guiding parameter:
The legal rate of interest is the presumptive reasonable compensation for borrowed money. While parties are free to deviate from this, any deviation must be reasonable and fair. Any deviation that is far-removed is suspect. Thus, in cases where stipulated interest is more than twice the prevailing legal rate of interest, it is for the creditor to prove that this rate is required by prevailing market conditions.22 (Emphasis supplied)Thus, the maximum interest rate that will not cross the line of conscionability is "not more than twice the prevailing legal rate of interest." If the stipulated interest exceeds this standard, the creditor must show that the rate is necessary under current market conditions, or that the parties were on an equal footing when they stipulated on the interest rate.23
ARTICLE 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 the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum.Furthermore, under Article 2212, legal interest may be imposed on interest due, starting from the time of judicial demand:
ARTICLE 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. (Emphasis supplied)
ARTICLE 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. (Emphasis supplied)"Interest due" under Article 2212 refers to accrued stipulated or conventional interest. This was clarified in Hun Hyung Park v. Eung Won Choi:25
To be clear, however, Article 2212 of the Civil Code, which provides that "[i]nterest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point," does not apply because "interest due" in Article 2212 refers only to accrued interest. A look at the counterpart provision of Article 2212 of the new Civil Code, Article 1109 of the old Civil Code, supports this. It provides:In all the situations contemplated under Articles 2209, 2210, and 2212 of the Civil Code, interest is no longer imposed for the use of the lender's money. Instead, it takes the form of damages for either delay or breach of contract. Interest here is called compensatory interest.27Art. 1109. Accrued interest shall draw interest at the legal rate from the time the suit is filed for its recovery, even if the obligation should have been silent on this point.In interpreting the above provision of the old Civil Code, the Court in Zobel v. City of Manila, ruled that Article 1109 applies only to conventional obligations containing a stipulation on interest. Similarly, Article 2212 of the new Civil Code contemplates, and therefore applies, only when there exists stipulated or conventional interest.26 (Emphasis in the original, citations omitted)
In commercial transactions the provisions of the Code of Commerce shall govern.
Pawnshops and savings banks shall be governed by their special regulations. . . .
ARTICLE 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.This Court expounded on this in Ligutan v. Court of Appeals:29
ARTICLE 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.28
A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. Although a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with.In Ibarra v. Aveyro31 this Court held that if the penalty clause is so unconscionable that its enforcement constitutes "a repugnant spoliation and an iniquitous deprivation of property,"32 the courts can strike it down for being invalid.
The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court.30 (Citations omitted)
In a case previously decided by this Court which likewise involved private respondent M.B. Lending Corporation, and which is substantially on all fours with the one at bar, we decided to eliminate altogether the penalty interest for being excessive and unwarranted under the following rationalization:Meanwhile, this Court had previously ruled that compensatory interest fixed at 24% per annum by contracting parties is not excessive and unconscionable.36Upon the matter of penalty interest, we agree with the Court of Appeals that the economic impact of the penalty interest of three percent (3%) per month on total amount due but unpaid should be equitably reduced. The purpose for which the penalty interest is intended — that is, to punish the obligor — will have been sufficiently served by the effects of compounded interest. Under the exceptional circumstances in the case at bar, e.g., the original amount loaned was only P15,000.00; partial payment of P8,600.00 was made on due date; and the heavy (albeit still lawful) regular compensatory interest, the penalty interest stipulated in the parties' promissory note is iniquitous and unconscionable and may be equitably reduced further by eliminating such penalty interest altogether.Accordingly, the penalty interest of 3% per month being imposed on petitioner should similarly be eliminated.35 (Emphasis supplied, citation omitted)
WHEREFORE, the Court of Appeals Decision dated 21 April 2016, affirming the 27 January 2014 Decision of the Regional Trial Court, Branch 128, Caloocan City, is AFFIRMED with MODIFICATION, as follows:I concur with the ponencia as regards the application of interest with respect to items 1 and 3 of the dispositive portion above-quoted. I likewise agree that:Petitioner Lara's Gifts & Decors, Inc. is ordered to pay respondent Midtown Industrial Sales, Inc. the following:
- ONE MILLION TWO HUNDRED SIXTY[-]THREE THOUSAND ONE HUNDRED FOUR PESOS and 22/100 (P1,263,104.22) representing the principal amount plus stipulated interest at 24% per annum to be computed from 22 January 2008, the date of extrajudicial demand, until full payment.
- Legal interest on the 24% per annum interest due on the principal amount accruing as of judicial demand, 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.
- The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorney's fees, plus legal interest thereon at the rate of 6% per annum to be computed from the finality of this Decision until full payment.
- Cost of the suit.9
ARTICLE 1108. Should the obligation consist in the payment of a sum of money, if the debtor should become in default, the indemnity for losses and damages, in the absence of a stipulation to the contrary, shall consist in the payment of the interest agreed upon, or, should there be no agreement, in the payment of interest at the legal rate.In 1916 or during the American period, Act No. 265524 or the Usury Law was enacted. Said law pegged the rate of interest at 6% per annum. As worded, however, the 6% interest rate per annum was made applicable specifically, in the absence of agreement, to loans or forbearances of money, goods, or credits, and the rate allowed in judgments, viz.:
Until another rate is fixed by the Government, the legal rate of interest shall be six per cent per annum.
SECTION 1. The rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per centum per annum.In 1950, the Civil Code of the Philippines (Civil Code) was enacted, which adopted a provision similar to that found under the Spanish Civil Code. Under Article 2209, the legal interest rate was set at 6% per annum, viz.:
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 the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum. (1108)In 1973, the Usury Law was amended by P.D. 116 to allow the then Central Bank to modify the rate of interest in accordance with the existing economic conditions of the country.25 P.D. 116 stated:
WHEREAS, the interest rate, together with other monetary and credit policy instruments, performs a vital role in mobilizing domestic savings and attracting capital resources into preferred areas of investment;Section 1-a of the Usury Law was further amended by P.D. 858 and P.D. 1684 and it presently reads:
WHEREAS, the monetary authorities have recognized the need to amend the present Usury Law to allow for more flexible interest rate ceilings that would be more responsive to the requirements of changing economic conditions;
WHEREAS, the availability of adequate capital resources is, among other factors, a decisive element in the achievement of the declared objective of accelerating the growth of the national economy;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in me vested by the Constitution as Commander-in-Chief of the Armed Forces of the Philippines, and pursuant to Proclamation No. 1081, dated September 21, 1972, and General Order No. 1, dated September 22, 1972, as amended, and in order to effect the desired changes and reforms in the social, economic, and political structure of our society, do hereby order and decree the amendment of Act No. 2655 as amended, as follows:
SECTION 1. Section one of Act Numbered Two thousand six hundred fifty-five is hereby amended to read as follows:
"SECTION 1. The rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank of the Philippines for that purpose in accordance with the authority hereby granted."
SEC. 2. The same Act is hereby amended by adding the following section immediately after section one thereof, which reads as follows:
"SEC. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided, That such changes shall not be made oftener than once every twelve months.
"In the exercise of the authority herein granted, the Monetary Board may prescribe higher maximum rates for consumer loans or renewals thereof as well as such loans made by pawnshops, finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform." (Emphasis and underscoring supplied)
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided, That changes in such rate or rates may be effected gradually on scheduled dates announced in advance.It bears emphasis that the Usury Law did "not empower the Central Bank to fix the specific rate of interest to be charged for loans."26 It merely authorized the Monetary Board of the Central Banlc (now, BSP) to determine two separate matters: (1) the rate of interest for loans or forbearances of any money, goods, or credits and the rates allowed in judgments, in the absence of stipulation; and (2) the maximum allowable rates of interest that might be agreed upon by parties for loans or forbearances of any money, goods, or credits such as consumer loans, loans made by pawnshops, finance companies and other similar credit institutions, loans of financial intermediaries, and different types of borrowings, including deposits and deposit substitutes. Hence, contracting parties are free to fix the interest rate subject to the ceilings that the BSP may prescribe under Section 1-a27 and provided that the stipulated rate is not excessive, inordinate or unconscionable as determined by the Court.
In the exercise of the authority herein granted the Monetary Board may prescribe higher maximum rates for loans of low priority, such as consumer loans or renewals thereof as well as such loans made by pawnshops, finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board is also authorized to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries. (Emphasis and underscoring supplied)
xxx Act No. 2655 deals with interest on (1) loans; (2) forbearances of any money, goods, or credits; and (3) rate allowed in judgments.In National Power Corp. v. Angas31 (National Power Corporation), the Court reiterated Reformina and further explained the scope of the BSP-prescribed interest rates, as follows:
xxxx
The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. The Monetary Board may not tread on forbidden grounds. It cannot rewrite other laws. That function is vested solely with the legislative authority. It is axiomatic in legal hermeneutics that statutes should be construed as a whole and not as a series of disconnected articles and phrases. In the absence of a clear contrary intention, words and phrases in statutes should not be interpreted in isolation from one another. A word or phrase in a statute is always used in association with other words or phrases and its meaning may thus be modified or restricted by the latter.
Another formidable argument against the tenability of petitioners' stand are the whereases of P.D. No. 116 which brought about the grant of authority to the Central Bank and which reads thus —"WHEREAS, the interest rate, together with other monetary and credit policy instruments, performs a vital role in mobilizing domestic savings and attracting capital resources into preferred areas of investments;Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads —
WHEREAS, the monetary authorities have recognized the need to amend the present Usury Law to allow for more flexible interest rate ceilings that would be more responsive to the requirements of changing economic conditions;
WHEREAS, the availability of adequate capital resources is, among other factors, a decisive element in the achievement of the declared objective of accelerating the growth of the national economy.""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 the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum."The above provision remains untouched despite the grant of authority to the Central Bank by Act No. 2655, as amended. To make Central Bank Circular No. 416 applicable to any case other than those specifically provided for by the Usury Law will make the same of doubtful constitutionality since the Monetary Board will be exercising legislative functions which was beyond the intendment of P.D. No. 116.30 (Emphasis and underscoring supplied)
Central Bank Circular No. 416 reads:Pursuant to Reformina and National Power Corporation, it became necessary for the Court to determine whether an obligation to pay a sum of money constitutes a loan/forbearance of money, goods or credit in order to apply the appropriate interest rate (i.e., the BSP-prescribed interest for loans/forbearances when interest is intended but no rate was stipulated and for judgments involving loans/forbearances vis-a-vis the 6% per annum legal interest rate under Article 2209 for all other situations)."By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise known as the 'Usury Law,' the Monetary Board, in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve percent (12%) per annum."It is clear from the foregoing provision that the Central Bank circular applies only to loan or forbearance of money, goods or credits. This has already been settled in several cases decided by this Court. Private respondents, however, take exception to the inclusion of the term "judgments" in the said circular, claiming that such term refers to any judgment directing the payment of legal interest, which term includes the questioned judgment of the lower court in the case at bar.
Private respondents' contention is bereft of merit. The term "judgments" as used in Section 1 of the Usury Law, as well as in Central Bank Circular No. 416, should be interpreted to mean only judgments involving loan or forbearance of money, goods or credits, following the principle of ejusdem generis. Under this doctrine, where general terms follow the designation of particular things or classes of persons or subjects, the general term will be construed to comprehend those things or persons of the same class or of the same nature as those specifically enumerated (Crawford, Statutory Construction, p. 191; Go Tiaco vs. Union Ins. Society of Camilan, 40 Phil. 40; Mutuc vs. COMELEC, 36 SCRA 228).
The purpose of the rule on ejusdem generis is to give effect to both the particular and general words, by treating the particular words as indicating the class and the general words as including all that is embraced in said class, although not specifically named by the particular words. This is justified on the ground that if the lawmaking body intended the general terms to be used in their unrestricted sense, it would have not made an enumeration of particular subjects but would have used only general terms (2 Sutherland, Statutory Construction, 3rd ed., pp. 395-400).
Applying the said rule on statutory construction to Central Bank Circular No. 416, the general term "judgments" can refer only to judgments in cases involving loans or forbearance of any money, goods or credits. As significantly laid down by this Court in the case of Reformina vs. Tomol, 139 SCRA 260:
xxxx
Obviously, therefore. Art. 2209 of the Civil Code, and not Central Bank Circular No. 416, is the law applicable to the case at bar. Said law reads:"ART. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs a delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum."The Central Bank circular applies only to loan or forbearance of money, goods or credits and to judgments involving such loan or forbearance of money, goods or credits. This is evident not only from said circular but also from Presidential Decree No. 116, which amended Act No. 2655, otherwise known as the Usury Law. On the other hand, Art. 2209 of the Civil Code applies to transactions requiring the payment of indemnities as damages, in connection with any delay in the performance of the obligation arising therefrom other than those covering loan or forbearance of money, goods or credits.
In the case at bar, the transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
As for private respondents' argument that Central Bank Circular No. 416 impliedly repealed or modified Art. 2209 of the Civil Code, suffice it to state that repeals or even amendments by implication are not favored if two laws can be fairly reconciled. The Courts are slow to hold that one statute has repealed another by implication, and they will not make such an adjudication if they can refrain from doing so, or if they can arrive at another result by any construction which is just and reasonable. Besides, the courts will not enlarge the meaning of one act in order to decide that it repeals another by implication, nor will they adopt an interpretation leading to an adjudication of repeal by implication unless it is inevitable and a clear and explicit reason therefor can be adduced. (82 C.J.S. 479-486). In this case, Central Bank Circular No. 416 and Art. 2209 of the Civil Code contemplate different situations and apply to different transactions. In transactions involving loan or forbearance of money, goods or credits, as well as judgments relating to such loan or forbearance of money, goods or credits, the Central Bank circular applies. It is only in such transactions or judgments where the Presidential Decree allowed the Monetary Board to dip its fingers into. On the other hand, in cases requiring the payment of indemnities as damages, in connection with any delay in the performance of an obligation other than those involving loan or forbearance of money, goods or credits, Art. 2209 of the Civil Code applies. For the Court, this is the most fair, reasonable, and logical interpretation of the two laws. We do not see any conflict between Central Bank Circular No. 416 and Art. 2209 of the Civil Code or any reason to hold that the former has repealed the latter by implication.32 (Emphasis and underscoring supplied)
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.With the issuance of BSP-MB Resolution No. 796 dated May 16, 2013, the rate of interest for loans or forbearances of any money, goods or credits and the rate allowed in judgments relating to the foregoing, in the absence of an express contract as to such rate of interest, was reduced by the BSP pursuant to Section 1 of the Usury Law from 12% to 6% per annum effective July 1, 2013.40 Hence, the Court, in Nacar updated the rules provided in Eastern Shipping Lines as follows:
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:
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 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 12% 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.
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 discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) 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 court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount of finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.39 (Underscoring supplied)
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:In other words, for sums of money due after July 1, 2013 and until the BSP prescribes a rate of interest that will apply (in the absence of stipulation) for loans or forbearances higher or lower than 6% per annum pursuant to its authority under the Usury Law, there is no need at present to distinguish between an obligation consisting of a loan or forbearance of any money, goods, or credits under the Usury Law and any other monetary obligation, in that the interest rate of 6% per annum should be uniformly applied. Although loans or forbearances and obligations not constituting loans or forbearances are currently subject to the same 6% per annum interest rate pursuant to BSP-MB Resolution No. 796 and Article 2209 of the Civil Code, "the need to determine whether the obligation involved herein is a loan and forbearance of money nonetheless exists" as the new rate was not applied retroactively.42
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: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 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.And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.41
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 discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), 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 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 computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
Note that Circular No. 416,49 fixing the rate of interest at 12% per annum, deals with (1) loans; (2) forbearance of any money, goods or credit; and (3) judgments.In Crismina Garments, Inc. v. Court of Appeals51 (Crismina Garments), the Court applied the 6% per annum interest rate under Article 2209 of the Civil Code because the amount due arose from a contract for a piece of work, not from a loan or forbearance of money. Similarly, in Federal Builders, Inc. v. Foundation Specialists, Inc.,52 the Court likewise held that the 12% per annum interest rate was inapplicable to an action for the payment of construction services.
In Reformina v. Tomol, Jr., 139 SCRA 260 [1985], the Court held that the judgments spoken of and referred to in Circular No. 416 are "judgments in litigation involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not, within the ambit of the authority granted to the Central Bank."
Reformina was affirmed in Philippine Virginia Tobacco Administration v. Tensuan, 188 SCRA 628 [1990], which emphasized that the "judgments" contemplated in Circular No. 417 "are judgments involving said loans or forbearance only and not in judgments in litigation that have nothing to do with loans xxx."
We held that Circular No. 416 does not apply to judgments involving damages (Reformina v. Tomol, Jr., supra; Philippine Virginia Tobacco Administration v. Tensuan, supra) and compensation in expropriation proceedings (National Power Corporation v. Angas, 208 SCRA 542 [1992]). We also held that Circular No. 416 applies to judgments involving the payment of unliquidated cash advances to an employee by his employer (Villarica v. Court of Appeals, 123 SCRA 259 [1983]) and the return of money paid by a buyer of a leasehold right but which contract was voided due to the fault of the seller (Buisier v. Court of Appeals, 154 SCRA 438 [1987]).
What then is the nature of the judgment ordering petitioner to pay private respondent the amount of P2,300,000.00?
The said amount was a portion of the P7,776,335.69 which petitioner was obligated to pay Greatland as consideration for the sale of several parcels of land by Greatland to petitioner. The amount of P2,300,000.00 was assigned by Greatland in favor of private respondent. The said obligation therefore arose from a contract of purchase and sale and not from a contract of loan or mutuum. Hence, what is applicable is the rate of 6% per annum as provided in Article 2209 of the Civil Code of the Philippines and not the rate of 12% per annum as provided in Circular No. 416.50 (Underscoring supplied)
As explained by this Court in Apo Fruits Corporation v. Land Bank of the Philippines, the rationale for imposing interest on just compensation is to compensate the property owners for the income that they would have made if they had been properly compensated — meaning if they had been paid the full amount of just compensation — at the time of taking when they were deprived of their property. The Court held:The delay in the payment of just compensation was considered a forbearance of money subject to the BSP-prescribed interest rate of 12% per annum (and apparently within the purview of the Usury Law) although it did not fall within any of the definitions of forbearance provided in Eastern Shipping Lines, Food Terminal, or Estores.We recognized in Republic v. Court of Appeals the need for prompt payment and the necessity of the payment of interest to compensate for any delay in the payment of compensation for property already taken. We ruled in this case that:The delay in the payment of just compensation is a forbearance of money. As such, this is necessarily entitled to earn interest. The difference in the amount between the final amount as adjudged by the court and the initial payment made by the government — which is part and parcel of the just compensation due to the property owner — should earn legal interest as a forbearance of money. In Republic v. Mupas, we stated clearly:The constitutional limitation of "just compensation" is considered to be the sum equivalent to the market value of the property, broadly described to be the price fixed by the seller in open market in the usual and ordinary course of legal action and competition or the fair value of the property as between one who receives, and one who desires to sell, i[f] fixed at the time of the actual taking by the government. Thus, if property is taken for public use before compensation is deposited with the court having jurisdiction over the case, the final compensation must include interest[s] on its just value to be computed from the time the property is taken to the time when compensation is actually paid or deposited with the court. In fine, between the taking of the property and the actual payment, legal interest[s] accrue in order to place the owner in a position as good as (but not better than) the position he was in before the taking occurred.Aside from this ruling, Republic notably overturned the Court's previous ruling in National Power Corporation v. Angas which held that just compensation due for expropriated properties is not a loan or forbearance of money but indemnity for damages for the delay in payment; since the interest involved is in the nature of damages rather than earnings from loans, then Art. 2209 of the Civil Code, which fixes legal interest at 6%, shall apply.
In Republic, the Court recognized that the just compensation due to the landowners for their expropriated property amounted to an effective forbearance on the part of the State. Applying the Eastern Shipping Lines ruling, the Court fixed the applicable interest rate at 12% per annum, computed from the time the property was taken until the full amount of just compensation was paid, in order to eliminate the issue of the constant fluctuation and inflation of the value of the currency over time. xxxContrary to the Government's opinion, the interest award is not anchored either on the law of contracts or damages; it is based on the owner's constitutional right to just compensation. The difference in the amount between the final payment and the initial payment — in the interim or before the judgment on just compensation becomes final and executory — is not unliquidated damages which do not earn interest until the amount of damages is established with reasonable certainty. The difference between final and initial payments forms part of the just compensation that the property owner is entitled from the date of taking of the property.With respect to the amount of interest on the difference between the initial payment and final amount of just compensation as adjudged by the court, we have upheld in Eastern Shipping Lines, Inc. v. Court of Appeals, and in subsequent cases thereafter, the imposition of 12% interest rate from the time of taking when the property owner was deprived of the property, until 1 July 2013, when the legal interest on loans and forbearance of money was reduced from 12% to 6% per annum by BSP Circular No. 799. Accordingly, from 1 July 2013 onwards, the legal interest on the difference between the final amount and initial payment is 6% per annum.63 (Emphasis and underscoring supplied; emphasis in the original omitted)
Thus, when the taking of the property precedes the filing of the complaint for expropriation, the Court orders the condemnor to pay the full amount of just compensation from the date of taking whose interest shall likewise commence on the same date. The Court does not rule that the interest on just compensation shall commence [on] the date when the amount of just compensation becomes certain, e.g., from the promulgation of the Court's decision or the finality of the eminent domain case. xxx
xxx Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the [Usury Law] for it is not within the ambit of the authority granted to the Central Bank. The Monetary Board may not tread on forbidden grounds. It cannot rewrite other laws. That function is vested solely with the legislative authority. It is axiomatic in legal hermeneutics that statutes should be construed as a whole and not as a series of disconnected articles and phrases. In the absence of a clear contrary intention, words and phrases in statutes should not be interpreted in isolation from one another. A word or phrase in a statute is always used in association with other words or phrases and its meaning may thus be modified or restricted by the latter.79Applying the foregoing rationale, I submit that the phrase "forbearance of money, goods, or credits" must be construed in the narrow context of the Usury Law and in relation to the other provisions found therein. Hence, I find that the BSP has no authority (1) to prescribe interest rates in the absence of stipulation under Section 1 of the Usury Law or (2) to set interest rate ceilings under its Section 1-a, on any transaction that does not fall within the context of usury.
The test of usury is that there should be a contract for the forbearance of an existing indebtedness or a loan of money or, as otherwise expressed, a profit greater than the lawful rate of interest, intentionally exacted as a bonus for the loan of money, imposed upon the necessities of the borrower in a transaction where the treaty is for a loan and the money is to be returned at all events, which is a violation of the usury laws, it matters not what form or disguise it may assume. xxx "In order to constitute a usurious transaction, four requisites must appear: (1) There must be a loan, express or implied; (2) an understanding between the parties that the money lent shall be returned; (3) that for such loan a greater rate of interest than is allowed by law shall be paid or agreed to be paid, as the case may be; and (4) there must exist a corrupt intent to take more than the legal rate for the use of the money loaned. The text-writers declare that these rules are applicable everywhere and under the usury laws of every State, and that unless these four things concur in every transaction it is safe to say that no case of usury can be declared.83In Hogg v. Ruffner,84 the United States of America (US) Supreme Court explained that "[t]o constitute usury, there must either be a loan and a taking of usurious interest, or the taking of more than legal interest for the forbearance of a debt or sum of money due."85
xxx A loan of money is the delivery of a sum of money to another under a contract to return at some future time an equivalent amount. A forbearance of money is the giving of further time for the payment of a debt or an agreement not to enforce a claim at its due date. However, "[b]oth a loan of money and a forbearance are to be distinguished from a sale which is the 'transfer of property in a thing for a price in money.'" xxx In determining whether a transaction constitutes a loan or forbearance, we look to the substance rather than the form of the transaction. "In all such cases the issue is whether or not the bargain of the parties, assessed in light of all the circumstances and with a view to substance rather than form, has as its true object the hire of money at an excessive rate of interest."Likewise, in Thomas v. Knickerbocker Operating Co.,95 the New York Supreme Court explained:
There are many exceptions to the usury law. xxx One is the "time-price" doctrine. This doctrine applies when property is sold on credit as an advance over the cash price. In these circumstances, the seller finances the purchase of property by extending payments over time and charging a higher price for carrying the financing. This type of transaction, often called a bona fide credit sale, is not subject to the usury law because it does not involve a loan or forbearance. As explained in Verbeck: "'On principle and authority, the owner of property, whether real or personal, has a perfect right to name the price on which he is willing to sell, and to refuse to accede to any other. He may offer to sell at a designated price for cash or at a much higher price on credit, and a credit sale will not constitute usury however great the difference between the two prices, unless the buying and selling was a mere pretense. xxx'"94
The only issue to be determined is whether the credit service charge in excess of 6% on the unpaid cash balance renders the transaction usurious.Philippine jurisprudence has adopted the same rule. In Delgado v. Alonso Duque Valgona97 (Delgado), the Court cited Hogg v. Ruffner98 and held:
Usury is defined by the statute as the taking or receiving "any greater sum or greater value, for the loan or forbearance of any money, goods or things in action" than 6% per annum. xxx While the word "goods" is mentioned in the statute as the subject matter of a loan (which is apparently the reason for the plaintiffs' position in this matter) it has been held to apply only to the loan or forbearance of money.
To constitute a loan there must be a borrower and a lender and as intimated by the Court of Appeals in Stockwell v. Holmes (33 N. Y. 53), where there is no loan, there can be no usury; the term "forbearance" means the giving of additional time after the obligation becomes due and payable.
In the case at bar, the granting of time was a consideration for the sale without which the sale would not have been consummated. It is obvious that deferred payments in installment sales is not "forbearance" as defined in the statute. The price of merchandise can and does vary in cases where the seller exacts a larger sum when payments are made on credit. There are many business concerns which habitually charge less for standard merchandise simply because they deal on a cash basis only.
As a matter of fact there is no law which compels a sale at any fixed price. There are still many business establishments where prices are fixed on the principle of bargaining between seller and buyer and, of course, there will be even more bargaining where the price is not payable in immediate cash.
The plaintiffs urge upon the court that the charges made for the sale, in the case at the bar, are an "exorbitant exaction". There is nothinfi in the record of this case which would call for the exercise of any public policy to declare this transaction void or usurious. It is not the sale of any article which was subject to any price regulation nor was there any legal prohibition preventing the seller from contracting at the price fixed by it.
In the case of Meaker v. Fiero (145 N. Y. 165) the court says on page 170, It is a fundamental principle governing the law of usury that it must be founded on a loan or forbearance of money. If neither of these elements exists, there can be no usury, however unconscionable the contract may be. xxx
This certainly was not a transaction where a needy borrower came to a money lender and was compelled to borrow on lender's terms no matter how onerous. The usury statutes were framed for the benefit of such borrower and not for the purchase of goods on credit.
xxxx
The plaintiffs seek to make a distinction by showing that the sale on a time basis afforded the dealer a means to secure the unpaid cash price. While the credible evidence does not support a finding that there was a prior arrangement, from what was said in Brooks v. Avery (4 N. Y. 225) the buyer may agree that the seller's ability and arrangement to sell the contract and realize cash can be a condition precedent to the consummation of the sale, without rendering the transaction usurious.
xxxx
Judge Jewett continued: "The transaction between Williams and Samain, so far from being tainted with usury, is shown to be nothing more than the ordinary case of an owner of property, desirous to sell, making a difference in price between a sale for cash in hand and a sale on time; with the further caution, not to sell absolutely, till he ascertains that the security proposed to be taken for the price on time, will sell for a sum in cash equal to the sum he is willing to sell for being paid cash in hand; a caution that the owner has a legal right to exercise without being liable to have usury successfully imputed in the contract."
Since 1850, when the Court of Appeals in Brooks v. Avery (supra) laid down this principle, the courts of this State have adhered to the doctrine that the difference between the cash price and the time-selling price is not subject to the usury statutes. xxx96 (Emphasis and underscoring supplied; italics in the original)
"xxx it is manifest that if A propose[s] to sell to B a tract of land for $10,000 in cash, or for $20,000 payable in ten annual instalments, and if B prefers to pay the larger sum to gain time, the contract cannot be called usurious. A vendor may prefer $100 in hand to double the sum in expectancy, and a purchaser may prefer the greater price with the longer credit; and one who will not distinguish between things that differ, may say, with apparent truth, that B pays a hundred per cent for forbearance, and may assert that such a contract is usurious; but whatever truth there may be in the premises, the conclusion is manifestly erroneous. Such a contract has none of the characteristics of usury; it is not for the loan of money, or forbearance of debt." (Ruffner vs. Hogg, 1 Black [U. S.], 115; 17 L. ed., 38.)99Similarly, in Manila Trading & Supply Co. v. Tamaraw Plantation Co.,100 the Court explained:
The instant case is of a chattel mortgage given to secure payment for the agricultural implements sold by the plaintiff to the defendant. The transaction was carried out between the parties in good faith, and there is no proof that the contract of sale of agricultural effects, secured by a mortgage on the same goods, was executed as a loan of money. This being so, the parties may freely agree upon the price of the goods sold, and it cannot be said that the credit, greater than the cash, price, constitutes interest within the meaning of the Usury Law. The increase of the price, when the sale is on credit, serves not only to cover the expenses generally entailed by such transactions on credit, but also to encourage cash sales, so useful to commerce. It is up to the purchaser to decide which price he prefers in making the purchase. If he prefers to purchase for cash, he obtains a 5 per cent reduction of the price; if, on the contrary, he prefers to buy on credit, he cannot complain of the increase of the price demanded by the vendor.Again, in Emata v. Intermediate Appellate Court,102 the Court held that the amount added to the cash purchase price of a car when payable on installment is "commonly known as the "time price differential" and not interest within the meaning of the Usury Law,"103viz.:
In 27 R. C. L., p. 214, it is said: "On principle and authority, the owner of property, whether real or personal, has a perfect right to name the price on which he is willing to sell, and to refuse to accede to any other. He may offer to sell at a designated price for cash or at a much higher price on credit, and a credit sale will not constitute usury however great the difference between the two prices, unless the buying and selling was a mere pretense." And in 39 Cyc, p. 927, it is also established that: "A vendor may well fix upon his property one price for cash and another for credit, and the mere fact that the credit price exceeds the cost price by a greater percentage than is permitted by the usury laws is a matter of concern to the parties but not to the courts, barring evidence of bad faith. If the parties have acted in good faith such a transaction is not a loan, and not usurious."101
xxx The law is applicable only in case of a loan or forbearance of money, goods or credit which is not the case here. The transaction involved here being admittedly a conditional sale based on an installment plan and not a loan, it has been held that the alleged increase in the price of the article sold cannot be considered a mere pretext to cover a usurious loan. "The increase in price, when the sale is on credit serves not only to cover the expenses generally entailed by such transactions on credit, but also to encourage cash sales, so useful to commerce. It is up to the purchaser to decide which price he prefers in making the purchase xxx if on the contrary, he prefers to buy on credit, he cannot complain of the increase of the price demanded by the vendor."104In sum, bona fide credit sales and sales on installment, even when there is (1) a price differential between cash payments and credit payments or (2) a stipulation as to the payment of interest, do not constitute loans and forbearances of money in the context of the Usury Law and are thus beyond the scope of the authority granted to the BSP. To hold otherwise would subject credit sales and sales on installment (and other "arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions"105 for that matter) to interest rate ceilings106 and to criminal penalties for violations thereof, should the BSP opt to reinstate maximum allowable interest rates in the future. In any event, there are other legal provisions or statutes regulating the same.107
xxx Where the sale is made on a cash basis and for a cash price and the vendor forbears to require the cash payment agreed upon in consideration of the vendee's promising to pay at a future day a sum greater than such agreed cash value with lawful interest, in such case there is a forbearance to collect an existing debt, and the excessive charge therefor is usurious.108Having defined the scope and application of the term "forbearance," I now turn to the inaccuracies affecting Eastern Shipping Lines, Nacar and the ponencia.
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:As mentioned, I find the following statements to be manifestly lacking in legal bases and analyses: (1) Article 2209 of the Civil Code applies only to loans or forbearance of money, goods, or credit where there is a debtor-creditor relationship;118 (2) P.D. 116 impliedly repealed all laws prescribing the rate of legal interest in the absence of stipulated interest,119 and (3) Article 2212 of the Civil Code applies even to situations where there is no stipulated interest.120 In addition, the formulation of the guidelines and the accompanying formulae are erroneous and likewise lack legal basis.
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 [2211] 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.117
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 the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum. (Underscoring supplied)Evidently, Article 2209 does not distinguish between monetary obligations that arise from loans or forbearances of money, goods, or credit and monetary obligations that do not. The Article unequivocally covers ALL obligations that consist in the payment of a sum of money and it does not distinguish as to the particular source of the obligation. Thus, all the five sources of obligations under Article 1157 of the Civil Code — (1) law; (2) contracts; (3) quasi-contracts; (4) acts or omissions punished by law; and (5) quasi-delicts — are covered. What is paramount is that the obligation consists in the payment of a sum of money and that the debtor incurs delay in the payment thereof.
xxx Article 2209 governs transactions involving the payment of indemnity in the concept of damages arising from delay in the discharge of obligations consisting of the payment of a sum of money. The "obligation consisting in the payment of a sum of money" referred to in Article 2209 is not confined to a loan or forbearance of money. The Court has, for instance, consistently applied Article 2209 in the determination of the interest properly payable where there was default in the payment of the price or consideration under a contract of sale as in the case at bar. Article 2209 has also been applied by this Court in cases involving an action for damages for injury to persons and loss of property; to actions for damages arising from unpaid insurance claims; and an action involving the appropriate rate of interest on just compensation that is payable for expropriated lands.126 (Underscoring supplied)As to the second erroneous statement, I reiterate my position that the BSP-prescribed interest rate applies only to loans, forbearances, and judgments involving loans and forbearances.127 While the ponencia's approach simplifies the computation of interest, and is therefore convenient, it is, unfortunately, not in accord with the law and established jurisprudence. If the legislature had intended to repeal the 6% per annum legal rate of interest under Article 2209 of the Civil Code, it could have expressly so provided.128 In fact, this very issue was already resolved in National Power Corporation, where the Court held:
As for private respondents' argument that Central Bank Circular No. 416 impliedly repealed or modified Art. 2209 of the Civil Code, suffice it to state that repeals or even amendments by implication are not favored if two laws can be fairly reconciled. The Courts are slow to hold that one statute has repealed another by implication, and they will not make such an adjudication if they can refrain from doing so, or if they can arrive at another result by any construction which is just and reasonable. Besides, the courts will not enlarge the meaning of one act in order to decide that it repeals another by implication, nor will they adopt an interpretation leading to an adjudication of repeal by implication unless it is inevitable and a clear and explicit reason therefor can be adduced. (82 C.J.S. 479-486). In this case. Central Bank Circular No. 416 and Art. 2209 of the Civil Code contemplate different situations and apply to different transactions. In transactions involving loan or forbearance of money, goods or credits, as well as judgments relating to such loan or forbearance of money, goods or credits, the Central Bank circular applies. It is only in such transactions or judgments where the Presidential Decree allowed the Monetary Board to dip its fingers into. On the other hand, in cases requiring the payment of indemnities as damages, in connection with any delay in the performance of an obligation other than those involving loan or forbearance of money, goods or credits, Art. 2209 of the Civil Code applies. For the Court, this is the most fair, reasonable, and logical interpretation of the two laws. We do not see any conflict between Central Bank Circular No. 416 and Art. 2209 of the Civil Code or any reason to hold that the former has repealed the latter by implication.129Prior to Act No. 2655 or the Usury Law, the legal interest rate provided under Article 1108 of the Spanish Civil Code (the precursor of Article 2209 of the Civil Code), in the absence of a stipulated interest rate, applied to all obligations consisting of the payment of sums of money in case of delay. After the enactment of P.D. 116, the interest rate applicable to loans or forbearances of money, goods, or credits became subject to the BSP-prescribed rate. Evidently, Article 2209 and P.D. 116 can be construed together and can stand side by side because they are not entirely incompatible with each other.
Sec. 1. The rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank of the Philippines for that purpose in accordance with the authority hereby granted.Under the foregoing provision, it is evident that the BSP does not impose any specific interest rate on the contracting parties148 as "[t]he contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy."149 Rather, the BSP prescribes the rate of interest that will apply "in the absence of express contract as to such rate of interest."150 Hence, if interest is payable in a certain manner and at a certain rate, such stipulation is binding as the law between the parties and should generally prevail until full payment.
Applying this, the loan obtained by respondents from petitioners is deemed subjected to conventional interest at the rate of 12% per annum, the legal rate of interest at the time the parties executed their agreement. Moreover, should conventional [or monetary] interest still be due as of July 1, 2013, the rate of 12% per annum shall persist as the rate of conventional [or monetary] interest.In other words, when the parties expressly stipulate on the payment of interest but no rate of interest was specified, the BSP-prescribed rate of interest at the time the parties executed their agreement would apply as a substitute for the stipulated rate and would accrue until full payment.
This is so because interest in this respect is used as a surrogate for the parties' intent, as expressed as of the time of the execution of their contract. In this sense, the legal rate of interest is an affirmation of the contracting parties' intent; that is, by their contract's silence on a specific rate, the then prevailing legal rate of interest shall be the cost of borrowing money. This rate, which by their contract the parties have settled on, is deemed to persist regardless of shifts in the legal rate of interest. Stated otherwise, the legal rate of interest, when applied as conventional [or monetary] interest, shall always be the legal rate at the time the agreement was executed and shall not be susceptible to shifts in rate.156 (Underscoring supplied; emphasis and italics in the original)
In other words, even if the BSP removed interest rate ceilings in 1982 pursuant to its authority under Section 1-a of the Usury Law, the Court has time and again still held that "nothing in said Circular grants lenders carte blanche authority to impose interest rates which would result in the enslavement of their borrowers or to the hemorrhaging of their assets. [Hence, w]hile a stipulated rate of interest may not technically and necessarily be usurious under Circular No. 905, usury now being legally non-existent in our jurisdiction, nonetheless, said rate may be equitably reduced should the same be found to be iniquitous, unconscionable, and exorbitant, and hence, contrary to morals (contra bonos mores), if not against the law. What is iniquitous, unconscionable, and exorbitant shall depend upon the factual circumstances of each case."161The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man. It has no support in law, in principles of justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition as righteous and as one that may be sustained within the sphere of public or private morals.The imposition of an unconscionable interest rate is voidab initio for being "contrary to morals, and the law."160
The principle of mutuality of contracts is found in Article 1308 of the New Civil Code, which states that contracts must bind both contracting parties, and its validity or compliance cannot be left to the will of one of them. The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality. As such, any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Likewise, any stipulation regarding the validity or compliance of the contract that is potestative or is left solely to the will of one of the parties is invalid. This holds true not only as to the original terms of the contract but also to its modifications. Consequently, any change in a contract must be made with the consent of the contracting parties, and must be mutually agreed upon. Otherwise, it has no binding effect.Applying the rule on unconscionable interest rates by analogy, when interest rate stipulations violate the mutuality of contracts, "[i]t is as if the parties failed to specify the interest rate to be imposed on the principal amount, in which case the [BSP-prescribed] rate of interest prevailing at the time the agreement was entered into [should be] applied by the Court."166 Hence, the BSP-prescribed rate of interest at the time the parties executed their agreement would apply and such rate would not be susceptible to future shifts as the BSP-prescribed rate is used as a surrogate for the parties' intent.
Stipulations as to the payment of interest are subject to the principle of mutuality of contracts. As a principal condition and an important component in contracts of loan, interest rates are only allowed if agreed upon by express stipulation of the parties, and only when reduced into writing. Any change to it must be mutually agreed upon, or it produces no binding effect:Basic is the rule that there can be no contract in its true sense without the mutual assent of the parties. If this consent is absent on the part of one who contracts, the act has no more efficacy than if it had been done under duress or by a person of unsound mind. Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, the interest rate is undeniably always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it produces no binding effect. xxxThus, in several cases, we declared void stipulations that allowed for the unilateral modification of interest rates. In Philippine National Bank v. Court of Appeals, we disallowed the creditor-bank from increasing the stipulated interest rate at will for being violative of the principle of mutuality of contracts. We said:
xxxx
The same treatment is given to stipulations that give one party the unbridled discretion, without the conformity of the other, to increase the rate of interest notwithstanding the inclusion of a similar discretion to decrease it. In Philippine Savings Bank v. Castillo we declared void a stipulation that allows for both an increase or decrease of the interest rate, without subjecting the modification to the mutual agreement of the parties:
xxxx
We reiterated this in Juico v. China Banking Corporation, where we held that the lack of written notice and written consent of the borrowers made the interest proviso a one-sided imposition that does not have the force of law between the parties:
xxxx
In the case of Silos v. Philippine National Bank, we invalidated xxx provisions xxx [where] the method of fixing interest rates is based solely on the will of the bank. The method is "one-sided, indeterminate, and [based on] subjective criteria such as profitability, cost of money, bank costs, etc. xxx." It is "arbitrary for there is no fixed standard or margin above or below these considerations." More, it is worded in such a way that the borrower shall agree to whatever interest rate the bank fixes. Hence, the element of consent from or agreement by the borrower is completely lacking.165
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 the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. (Underscoring supplied)i. Article 2209 applies to delay in the payment of any monetary obligation
[T]he appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum or money, is the payment of [the stipulated] penalty interest at the rate agreed upon; and in the absence of a stipulation of a particular rate of penalty interest [i.e., when penalty interest was intended but no rate was stipulated], then the payment of additional interest at a rate equal to the regular monetary interest; and if no regular interest had been agreed upon, then payment of legal interest[.]184In sum, Article 2209 of the Civil Code and Section 1 of the Usury Law are unequivocal in that: should parties stipulate on the payment of interest, such stipulation should control for the payment of compensatory interest. Further, as Article 2212 already imposes compensatoiy damages on any stipulated interest that has accrued at the time of judicial demand,185 I agree with the ponencia186 that no other compounding of interest should accrue unless otherwise stipulated.187
ART. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.In Hun Hyung Park v. Eung Won Choi,188 the Court explained however that —
xxx "interest due" in Article 2212 refers only to accrued interest. A look at the counterpart provision of Article 2212 of the new Civil Code, Article 1109 of the old Civil Code, supports this. It provides:In view of the foregoing, the ponencia grossly erred in applying Article 2212 even to situations where there is no stipulated interest.190Art. 1109. Accrued interest shall draw interest at the legal rate from the time the suit is filed for its recovery, even if the obligation should have been silent on this point.In interpreting the above provision of the old Civil Code, the Court in Zobel v. City of Manila, ruled that Article 1109 applies only to conventional obligations containing a stipulation on interest. Similarly, Article 2212 of the new Civil Code contemplates, and therefore applies, only when there exists stipulated or conventional interest.189 (Underscoring supplied)
In commercial transactions the provisions of the Code of Commerce shall govern.
Pawnshops and savings banks shall be governed by their special regulations. (Emphasis and underscoring supplied)
In addition, the argument of the Attorney-General is most persuasive in that the terms of the statute restrict the new interest rates to a "loan or forbearance of any money, goods or things in action", and it is beyond dispute that a judgment, once rendered, is not a loan or forbearance although the judgment may be based upon a loan or forbearance (Ferris v. Hard, 135 N. Y. 354). While the recent case of Mandelino v. Fribourg (23 N. Y. 2d 145), referred to by the Attorney-General in his aforesaid opinion, is not directly in point, it does indicate that the Court of Appeals has adopted the rule of strict construction in defining "loan or forbearance" where interest rates are concerned.201As discussed, stipulated interest (monetary or penalty) and compensatory interest when liquidated and known begin to run in accordance with the parties' agreement, or in default thereof, upon extrajudicial demand or judicial demand and continue to run until full payment. All other unliquidated and unknown monetary awards (for instance, moral, exemplary damages, attorney's fees, etc.) may not earn interest at this point as the quantification of damages has not been reasonably ascertained.202
(i) | If the parties stipulate on the payment of interest but (1) no rate was specified or (2) a rate was specified but the same is void for being unconscionable or iniquitous, for violating the mutuality of contracts, or for any other reason, the prevailing BSP-prescribed rate of interest at the time the parties executed their agreement will apply as a surrogate for the parties' intent.213 |
(i) | In determining the validity, effect, remedies, or defenses applicable to the same, the provisions on obligations and contracts or any other applicable law shall apply. |
(i) | However, interest upon unliquidated claims or damages cannot be recovered until the decision becomes final and executory. |
Petitioner Lara's Gifts & Decors, Inc. is ordered to pay respondent Midtown Industrial Sales, Inc. the following:
- ONE MILLION TWO HUNDRED SIXTY-THREE THOUSAND ONE HUNDRED FOUR PESOS and 22/100 (P1,263,104.22) representing the principal obligation plus stipulated interest fixed at 24% per annum to be computed from January 22, 2008, the date of extrajudicial demand, until full payment.
- Legal interest at the rate of 6% per annum on the total 24% per annum interest that has accrued on the principal obligation during the period between extrajudicial demand and judicial demand, to be reckoned from the date of judicial demand on February 5, 2008 until full payment.
- The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorney's fees, plus legal interest thereon at the rate of 6% per annum, to be computed from the finality of this Decision until full payment.
- Cost of the suit.
Endnotes:
1 Article 2209 of the Civil Code uses the phrase "[i]f the obligation consists in the payment of a sum of money." (Emphasis supplied)
2 304 Phil. 236 (1994).
3 716 Phil. 267 (2013).
4Ponencia, p. 2.
5 Id.
6 Id.
7 Regional Trial Court, Branch 128, Caloocan City in Civil Case No. C-22007.
8Ponencia, p. 3.
9 Id. at 20-21.
10 Id. at 9.
11 Id. at 9-11.
12 Id. at 14-15.
13 686 Phil. 86 (2012), cited in Ponencia, p. 14.
14Ponencia, p. 17.
15 Id. at 12.
16 Id. at 13.
17Reformina v. Tomol, Jr., 223 Phil. 472 (1985); National Power Corporation v. Angas, 284-A Phil. 39 (1992); Castelo v. Court of Appeals, 314 Phil. 1 (1995).
18Ponencia, p. 18, paragraph 2.
19Hun Hyung Park v. Eung Won Choi, G.R. No. 220826, March 27, 2019; Isla v. Estorga, G.R. No. 233974, July 2, 2018; Zobel v. City of Manila, 47 Phil. 169 (1925).
20Ponencia, p. 10.
21 Id. at 15.
22 Id. at 17-19.
23 Approved on December 18, 1889.
24 AN ACT FIXING RATES OF INTEREST UPON LOANS AND DECLARING THE EFFECT OF RECEIVING OR TAKING USURIOUS RATES, AND FOR OTHER PURPOSES, February 24, 1916.
25 See Presidential Decree No. 116, Amending Act No. 2655, January 29, 1973.
Sec. 4-a. In the exercise of its authority to fix the maximum rate or rates of interest under this Act, the Monetary Board shall be guided by the following:
1. The existing economic conditions in the country and the general requirements of the national economy;
2. The supply of and demand for credit;
3. The rate of increase in the price levels; and
4. Such other relevant criteria as the Monetary Board may adopt.
26 Dissenting Opinion of Justice Plana in Reformina v. Tomol, Jr., supra note 17, at 481.
27 Notably, the interest rate ceilings were removed effective January 1, 1983 with the passage of Central Bank Circular No. (CB Circular) 905. In Advocates for Truth in Lending, Inc. v. Bangko Sentral Monetary Board, 701 Phil. 483, 488 (2013), the Court explained:
In its Resolution No. 2224 dated December 3, 1982, the CB-MB issued CB Circular No. 905, Series of 1982, effective on January 1, 1983. Section 1 of the Circular, under its General Provisions, removed the ceilings on interest rates on loans or forbearance of any money, goods or credits, to wit:Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended. (Underscoring and emphasis in the original)28 See Tio Khe Chio v. Court of Appeals, 279 Phil. 127, 130-131 (1991).
29 Supra note 17.
30 Id. at 478-480. The dissenting opinion of Justice Plana in Reformina states: "This section [Section 1] envisages two situations: (a) a loan or forbearance of money, goods or credit, where the parties agreed on the payment of interest but failed to fix the rate thereof; and (b) a litigation that has ended in a final judgment for the payment of money. In either case, the role of Section 1 is to fix the specific rate of interest or legal interest (6%) to be charged. It also impliedly delegates to the Central Bank the power to modify the said interest rate. Thus, the interest rate shall be 6% per annum or 'such rate as may be prescribed by the Monetary Board of the Central Bank xxx.'" Id. at 482.
31 Supra note 17.
32 Id. at 45-48.
33 279 Phil. 127 (1991).
34 296-A Phil. 260, 269-270 (1993).
35Tio Khe Chio v. Court of Appeals, supra note 33, at 131. See also Country Bankers Insurance Corp. v. Lianga Bay & Community Multi-Purpose Cooperative, Inc., 425 Phil. 511, 523 (2002).
36 In Philippine National Bank v. Court of Appeals, 331 Phil. 1079, 1083 (1996), the Court held that CB Circular No. 416 did not apply to a contract of sale, where the seller not receive full payment for her merchandise.
37 See Viloria v. Court of Appeals, 208 Phil. 193 (1983).
38 See Buisier v. Court of Appeals, No. L-45663, September 30, 1987, 154 SCRA 438.
39Eastern Shipping Lines, supra note 2, at 252-254.
40 BSP Circular No. 799, Series of 2013, RATE OF INTEREST IN THE ABSENCE OF STIPULATION, June 21, 2013.
41Nacar, supra note 3, at 281 -283.
42Federal Builders, Inc. v. Foundation Specialists, Inc., 742 Phil. 433, 446-447 (2014); emphasis and underscoring supplied.
43 22 Wn.2d 378, 384 (1945).
44Eastern Shipping Lines, Inc. v. Court of Appeals, supra note 2, at 251.
45 330 Phil. 903 (1996).
46 Id. at 907; see Pilipinas Bank, supra note 34, at 270 cited in Remington Industrial Sales Corp. v. Maricalum Mining Corp., 761 Phil. 284, 299 (2015).
47Estores v. Sps. Supangan, supra note 13, at 96-97.
48 See Pilipinas Bank, supra note 34, at 269-270; see also Philippine National Bank v. Court of Appeals, supra note 36, at 1083.
49 Circular No. 416 states: "By virtue of the authority granted to it under Section 1 of Act 2655, as amended, otherwise known as the 'Usury Law' the Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) per cent per annum. This Circular shall take effect immediately." See Pilipinas Bank, id. at 268-269.
50 Pilipinas Bank, id. at 269-270.
51 363 Phil. 701, 709 (1999).
52 Supra note 42, at 444, 448-449.
53 804 Phil. 389 (2017).
54 Id. at 397-399.
55 781 Phil. 164, 173 (2016).
56 775 Phil. 472 (2015).
57 750 Phil. 69 (2015).
58Beltran v. AMA Computer College-Biñan, G.R. No. 223795, April 3, 2019 p. 12.
59Bigg's, Inc. v. Boncacas, G.R. Nos. 200487 & 200636, March 6, 2019, pp. 21-22.
60Pardillo v. Bandojo, G.R. No. 224854, March 27, 2019, p. 14.
61 See National Power Corporation v. Angas, supra note 17.
62 G.R. Nos. 218628 & 218631, September 6, 2017, 839 SCRA 200.
63 Id. at 227-230.
64 Pursuant to Article 1157 of the Civil Code, obligations arise from law, among other sources.
65 Supra note 46.
66Estores v. Sps. Supangan, supra note 13, at 96-97.
67Spouses Lequin v. Spouses Vizconde, 618 Phil. 409, 427 (2009).
68 See ECE Realty and Development, Inc. v. Hernandez, 740 Phil. 789, 794-797 (2014).
69 Pursuant to Article 1157 of the Civil Code, obligations arise from quasi-contracts, among other sources.
70 604 Phil. 380, 381 (2009).
71JL Investment and Development, Inc., v. Tendon Philippines, Inc., 541 Phil. 82, 92 (2007).
72 613 Phil. 224 (2009).
73 Id. at 237-238.
74Ponencia, p. 14, citing Crismina Garments, Inc. v. Court of Appeals, supra note 51.
75 Id. at 17.
76 Id. at 14.
77Crismina Garments, Inc. v. Court of Appeals, supra note 51 at 709.
78 Id. at 706,709.
79Reformina v. Tomol, Jr., supra note 17, at 479.
80Monk v. Goldstein, 172 N.C. 516, 518 (1916). See also MacRackan v. Bank of Columbus, 164 N.C. 24, 26 (1913).
81Wheaton v. Hibbard, 20 Johns. 290, 293 (1822).
82 Supra note 80.
83 Id. at 517-519.
84 66 U.S. 115 (1862).
85 Id. at 118.
86Southwest Concrete Products v. Gosh Construction Corp., 51 Cal. 3d 701, 705 (1990). See also Thomas v. Knickerbocker Operating Co., 202 Misc. 286, 287 (1951).
87Hafer v. Spaeth, supra note 43, at 384.
88Cohn v. Marjorie's Gifts, Inc., 1973 U.S. App. LEXIS 7502.
89The United States v. Constantino Tan Quingco Chua, 39 Phil. 552 (1919).
90Eastern Shipping Lines, supra note 2, at 251, citing Black's Law Dictionary (1990 ed., 644) further citing the case of Hafer v. Spaeth, supra note 43, defines the word "forbearance" within the context of usury law as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable.
91Crismina Garments, Inc. v. Court of Appeals, supra note 51, at 709, citing Eastern Shipping Lines, Inc. v. Court of Appeals, id.
92 See CIVIL CODE, Art. 1226.
93 Applying the definition in Southwest Concrete Products v. Gosh Construction Corp., supra note 86. See also Thomas v. Knickerbocker Operating Co., supra note 86; Hafer v. Spaeth, supra note 43; Cohn v. Marjorie's Gifts, Inc., supra note 88; Eastern Shipping Lines, supra note 2; Crismina Garments, Inc. v. Court of Appeals, supra note 51.
94Southwest Concrete Products v. Gosh Construction Corp., supra note 86, 704-706; see also Ghirardo v. Antonioli, 8 Cal. 4th 791 (1994).
95 Supra note 86.
96Thomas v. Knickerbocker Operating Co., supra note 86, at 287-289. Citations omitted.
97 44 Phil. 739 (1923).
98 Supra note 84.
99 Id. at 743-744.
100 47 Phil. 513(1925).
101 Id. at 522-523.
102 256 Phil. 224 (1989).
103 Id. at 234.
104 Id.
105Estores v. Spouses Supangan, supra note 13, at 97; Ponencia, p. 14.
106 P.D. 116, Section 1-a, as amended.
107 See for instance, Articles 1484-1486 of the Civil Code (Recto Law), R.A. 6552 (Maceda Law), R.A. 7394 (Consumer Act of the Philippines) particularly regarding consumer credit transactions, and R.A, 7581 as amended (Price Act).
108Delgado, supra note 97, at 744.
109 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. Eastern Shipping Lines, supra note 2, at 252-253.
110 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. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) 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 court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount of finally adjudged. Id. at 253-254.111 When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Id. at 254.
112 CIVIL CODE, Art. 1306.
113 Id., Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.
114Eastern Shipping Lines, supra note 2, at 251.
115 When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to forbearance of credit. Id. at 254.
116Ponencia, p. 11.
117 Id. at 17-19. Citations omitted.
118 Id. at 12.
119 Id. at 13.
120 Id. at 18, paragraph 2.
121Amores v. House of Representatives Electoral Tribunal, 636 Phil. 600, 609 (2010).
122 Desiderio P. Jurado, COMMENTS AND JURISPRUDENCE ON OBLIGATIONS AND CONTRACTS, 1987 Ninth Edition, p. 2.
123 CIVIL CODE, Art. 2209.
124Reformina v. Tomol, Jr., supra note 17; National Power Corp. v. Angas, supra note 17
125 Supra note 17.
126 Id. at 21.
127Reformina v. Tomol, Jr., supra note 17, at 478-479.
128 See Quintero v. COA, 785 Phil. 953, 962 (1996).
129 National Power Corp. v. Angas, supra note 17, at 47-48.
130 P.D. 116 is entitled "AMENDING FURTHER CERTAIN SECTIONS OF ACT NUMBERED TWO THOUSAND SIX HUNDRED FIFTY-FIVE, AS AMENDED, OTHERWISE KNOWN AS 'THE USURY LAW'".
131Isla v. Estorga, supra note 19, at 7, citing David v. Court of Appeals, 375 Phil. 177, 185 (1999). Emphasis omitted.
132 Supra note 19.
133 Id. at 187. See also Hun Hyung Park v. Eung Won Choi, supra note 19, at 17.
134Ponencia, p. 18, paragraph 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 Bansko Sentral rig Pilipinas. from the time of judicial demand UNTIL FULL PAYMENT.
135 Id. at 18, footnote 56.
136Commissioner of Internal Revenue v. Primetown Property Group, Inc., 558 Phil. 182, 189 (2007).
137Ponencia, p. 18.
138 See id.
139 CIVIL CODE, Art. 1959. Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest.
140Ponencia, pp. 18-19, footnote 58.
141 Id. at 19.
142 Id.
143 Id.
144Hun Hyung Park v. Eung Won Choi, supra note 19, at 16; Isla v. Estorga, supra note 19 at 5; see also Siga-an v. Villanueva, 596 Phil. 760, 769 (2009).
145Spouses Abella v. Spouses Abella, 763 Phil. 372, 382 & 386 (2015).
146 Id. at 389.
147 See Hun Hyung Park v. Eung Won Choi, supra note 19; Article 1956 of the Civil Code which holds that "[n]o interest shall be due unless it has been expressly stipulated in writing."
148 Dissenting Opinion of Justice Plana in Reformina v. Tomol Jr., supra note 17
149 CIVIL CODE, Art. 1306.
150 P.D. 116, Sec. 1 and Civil Code, Art. 2209.
151 Supra note 144.
152 Civil Code, Art. 1956. "No interest shall be due unless it has been expressly stipulated in writing."
153Siga-an v. Villanueva, supra note 144, at 769.
154Spouses Abella v. Spouses Abella, supra note 145, at 385.
155 Supra note 145.
156 Id. at 385-386.
157Isla v. Estorga, supra note 19, at 5.
158Security Bank Corporation v. Spouses Mercado, G.R. Nos. 192934 & 197010, June 27, 2018.
159 CIVIL CODE, Art. 1306.
160Spouses Abella v. Spouses Abella, supra note 145, at 388.
161Dio v. Spouses Japor, 501 Phil. 469, 476 (2005).
162 Supra note 19.
163 Id. at 5; underscoring supplied; emphasis in the original omitted.
164 Supra note 158.
165 Id. at 12-15.
166Isla v. Estorga, supra note 19, at 5.
167 See for instance Civil Code, Article 1589. The vendee shall owe interest for the period between the delivery of the thing and the payment of the price, in the following three cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price.
168 See CIVIL CODE, Art. 1306.
169Emata v. Intermediate Appellate Court, supra note 102, at 234.
170 CIVIL CODE, Art. 1306.
171 Id., Art. 1159.
172Isla v. Estorga, supra note 19, at 5.
173Siga-an v. Villanueva, supra note 144, at 772.
174Ponencia, p. 12.
175 See Castelo v. Court of Appeals, supra note 17, at 21.
176Reformina v. Tomol, Jr., supra note 17, at 478-480; National Power Corp. v. Angas, supra note 17, at 47.
177 See Reformina v. Tomol, Jr., id. at 480; National Power Corp. v. Angas, id. at 48.
178 P.D. 116, Sec. 1 as interpreted by Reformina v. Tomol, Jr., id.
179Reformina v. Tomol, Jr., id. at 478-479; National Power Corp. v. Angas, supra note 17, at 45-46.
180 In this sense, penalty interest partakes of the nature of both monetary (in that it must be stipulated in writing and it is subject to the rule on unconscionable interest rates) and compensatory interest (in that it is imposed as a penalty for delay or breach of any kind of monetary obligation). The payment of interest as a penalty is expressly recognized under Article 1226 of the Civil Code, which however, may be equitably reduced by the courts under Article 2227 if found to be iniquitous or unconscionable.
181 CIVIL CODE, Art. 2227; Erma Industries, Inc. v. Security Bank Corp., G.R. No. 191274, December 6, 2017, 848 SCRA 34, 47 states: "Whether a penalty charge is reasonable or iniquitous is addressed to the sound discretion of the courts and determined according to the circumstances of the case. The reasonableness or unreasonableness of a penalty would depend on such factors as the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties[.]"
182Tan v. Court of Appeals, 419 Phil. 857, 865 (2001); italics supplied.
183 275 Phil. 433 (1991).
184 Id. at 444.
185 See Hun Hyung Park v. Eung Won Choi, supra note 19, at 16.
186Ponencia, pp. 11-12.
187 CIVIL CODE, Art. 1959. Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest. See also Civil Code, Article 2209.
188 Supra note 19.
189 Id. at 16-17.
190Ponencia, p. 18, paragraph 2.
191 P.D. 116, Section 1 as interpreted by Reformina v. Tomol, Jr., supra note 17, at 478-479.
192 CIVIL CODE, Art. 2209.
193 P.D. 116, Sec. 1 and CIVIL CODE, Article 2209.
194Siga-an v. Villanueva, supra note 144, at 772.
195Hun Hyung Park v. Eung Won Choi, supra note 19, at 17.
196 Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
197Ponencia, p. 11; emphasis omitted.
198 Id.
199 Id. at 15.
200 59 Misc. 2d 862 (1969)
201 Id. at 864.
202 See CIVIL CODE, Article 2213.
203 243 Phil. 489 (1988).
204 Id. at 498.
205 P.D. 116, Section 1 as interpreted by Reformina v. Tomol, Jr., supra note 17.
206Reformina v. Tomol, Jr., supra note 17.
207 A forbearance is (1) an agreement or contractual obligation (2) to refrain from enforcing payment or to extend the period for the payment of (3) an obligation that has become due and demandable, (4) in return for some compensation or interest.
208 CIVIL CODE, Art. 1159; P.D. 116, Sec. 1 in relation to CIVIL CODE, Art. 2209.
209 Id.
210 Id., Art. 1169.
211 P.D. 116, Sec. 1 in relation to CIVIL CODE, Art. 2209 which apply only "in the absence of agreement."
212 CIVIL CODE, Art. 2212; Isla v. Estorga, supra note 19.
213Spouses Abella v. Spouses Abella, supra note 145, at 386 in relation to Isla v. Estorga, id.
214 P.D. 116, Sec. 1 in relation to CIVIL CODE, Art. 2209 and Reformina v. Tomol, Jr., supra note 17.
215 CIVIL CODE, 1169.
216Hun Hyung Park v. Eung Won Choi, supra note 19.
217 CIVIL CODE, Art. 2213 in relation to Art. 2209 and Reformina v. Tomol, Jr., supra note 17.
218 Id., Arts. 1159 and 2209 which apply only "in the absence of agreement."
219 Id.
220 Id., Art. 1169.
221 Id., Arts. 1159 and 2209 which apply only "in the absence of agreement."
222 Id., Art. 2212 and Isla v. Estorga, supra note 19.
223 Id., Art. 1169.
224Hun Hyung Park v. Eung Won Choi, supra note 19.
225 See CIVIL CODE, Art. 2213 in relation to Art. 2209.