 |
|
|
| |
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 In the face of the foregoing guidelines, confusion still continued, in large part due to the vagueness of the phrase "forbearances of money, goods, or credits." It bears emphasis that although the phrase appears in several provisions of the Usury Law, it was not defined therein. Neither was it defined under the Civil Code. Conflicting interpretations of the In Eastern Shipping Lines, the Court, citing Black's Law Dictionary which, in tum, cited the case of Hafer v. Spaeth,43 held that a "forbearance, within the context of [the] Usury Law, [is] 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."44 In Food Terminal, Inc. v. Court of Appeals45 (Food Terminal), the Court, interpreting previous cases on the application of the 12% per annum interest rate, stated that the BSP 12% per annum prescribed rate "refer[red] to legal interest in a loan or forbearance of money, or to cases where money is transferred from one person to another and the obligation to return the same or a portion thereof is adjudged."46 On the other hand, the Court in Estores without reference as to its legal basis, held that the phrase "'forbearance of money, goods or credits' [was] 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."47 Confusion as to the precise scope and definition of the term "forbearance" has resulted, deliberately or by oversight, in various conflicting decisions as discussed below. a. Contracts of Sale, Service and/or In Pilipinas Bank the Court held that an action for collection of the purchase price pursuant to a contract of sale is not subject to the rates prescribed by the BSP as it does not involve a loan, forbearance of money, or judgment involving a loan or forbearance of money, 48 viz.:
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 contrast, the Court in Kabisig Real Wealth Dev., Inc. v. Young Builders Corporation53 applied the 12% per annum interest rate to an action for the payment of the value of services rendered and the supply of materials used in the renovation of a building.54 In Cabanting v. BPI Family Savings Bank, Inc., 55 the Court likewise applied the 12% per annum interest rate to a transaction involving an installment purchase of a motor vehicle. Similarly, the Court applied the 12% per annum interest rate (1) to a complaint for sum of money for amounts due from a service contract for the completion of metal works in Filinvest Alabang, Inc. v. Century Iron Works, Inc., 56 and (2) to the unpaid purchase price of bulk bags in NFF Industrial Corp. v. G & L Associated Brokerage. 57 It bears emphasis that the 12% per annum interest rate has also been applied to monetary claims awarded in labor disputes, such as the payment of 13th month pay and retirement benefits, 58 separation pay in lieu of reinstatement,59 and backwages.60 Therefore, it appears from the foregoing cases that claims arising from contracts of sale, contracts of service, and contracts of employment have been treated as forbearances of money although they do not fall within any of the jurisprudential definitions of what constitutes a forbearance of money. b. Just Compensation Although the Court previously held that the ESP-prescribed 12% per annum interest rate was inapplicable to sums due as just compensation in expropriation proceedings, 61 more recent jurisprudence has deliberately applied the 12% per annum interest rate. In Evergreen Manufacturing Corp. v. Republic, 62 the Court explained:
The delay in the payment of just compensation was considered a forbearance of money subject to the ESP-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. Parenthetically, while the owner's right to just compensation in eminent domain proceedings finds basis under the Constitution, the cause of action of the owner is still within the purview of Article 2209 of the Civil Code because it involves a delay in the payment of an obligation arising from law64 consisting of a sum of money without a stipulation of interest, there being no law that expressly prescribes the applicable interest rate. c. Returns, Refunds, Reimbursements In Pilipinas Bank and Remington Industrial Sales Corp. v. Maricalum Mining Corp., 65 the Court held that the 12% per annum interest rate was applicable ( 1) to the return of amounts taken pursuant to an execution pending appeal, but which was reduced during appeal; and (2) to garnished amounts arising from nullified orders, respectively. Similarly, in Estores, the Court held that a judgment requiring the return of payments made pursuant to an unfulfilled Conditional Deed of Sale was a forbearance of money subject to the 12% per annum interest rate. 66 In contrast, a judgment requiring a party to return an amount that was not legally due67 and an action for the return of amounts paid pursuant to an unfulfilled contract to sell were not considered forbearances and were subjected to the 6% per annum rate of interest. 68 It must be noted that the latter cases are similar to the quasi-contract of solutio indebiti under Article 2154 of the Civil Code, which provides that if something is received where there is no right to demand it, and it was delivered through mistake, the obligation to return it arises, in relation to Article 2163, which provides that it is presumed that there was mistake in the payment if something which had never been due or had already been paid was delivered. Since the obligations involved in such cases arise from guasi-contract69 consisting of delay in the payment of a sum of money without a stipulation of interest, there being no law that expressly prescribes the applicable interest rate, they are within the contemplation of Article 2209. As regards reimbursements, the Court, in International Container Terminal Services, Inc. v. FGU Insurance Corporation, 70 held that an insurance company's claim for reimbursement from a carrier for sums paid to the insured was not a loan or forbearance. Similarly, reimbursement under a cross-claim made by one solidary obligor against another was not considered a loan or forbearance. 71 However, in Dart Philippines, Inc. v. Spouses Calogcog,72 the Court held the petitioner therein liable to reimburse respondents for amounts the latter paid as salaries of persons engaged by the former and imposed the 12% per annum interest rate for loans and forbearances of money, goods, or credits.73 The foregoing cases unequivocally show that the term "forbearance" has been indiscriminately applied to any obligation involving the payment of a sum of money. This, I submit, is inaccurate. Given the historicity of the Usury Law, I submit that the scope and application of the phrase "forbearance of money, goods, or credits" must be given a limited construction, in light of the object and purpose of the Usury Law. The term "forbearance" must be The ponencia adopts the definition of forbearance in £stores, and holds that a forbearance has a separate meaning from a loan and should be construed to 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."74 As a result, the ponencia concludes that the same covers even a sale of goods on installment and a sale of anything on credit. 75 I completely disagree. The definition in £stores cites no legal bases. Contrary to the discussion in the ponencia, 76 the definition in £stores does not at all appear in Crismina Garments. In fact, Crismina Garments expressly adopted the definition in Eastern Shipping Lines that "a 'forbearance' in the context of the usury law is 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"'77 and thus, correctly concluded that "an action for the enforcement of an obligation for payment of money arising from a contract for a piece of work xx x was obviously not a forbearance of money, goods or credit."78 Instead, I subscribe to the well-reasoned conclusion in Reformina that:
Applying 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. As the Usury Law is of American origin, resort to American jurisprudence on the construction of the term "forbearance" is apropos. It has been held that "[i]nterest is the premium allowed by law for the use of money, while usury is the taking of more for its use than the law allows."80 In American jurisprudence, it is generally understood that "statutes are passed prohibiting usury, in order to protect needy and necessitous persons from the oppression of usurers, who are eager to take advantage of the distresses of others, and who violate the law only to complete their ruin."81 This is explained in Monk v. Goldstein, 82 viz.:
In 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 Several US cases define forbearance as "the giving of further time for the payment of a debt or an agreement not to enforce a claim at its due date."86 Similarly, it has been held that "[t]he term "forbearance" as used in the law of usury, signifies a contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to pay a loan or debt then due and payable."87 It occurs when "the collection of a mature obligation is postponed in return for some compensation,"88 i.e., interest. Like the US, Philippine Usury Law penalizes the taking of excessive interest89 for the loan or forbearance of money, goods, or credits in order to protect the needy from those who seek to exploit them. I believe usury statutes govern such kinds of situations because an opportunity to extort excessive interest in exchange for a reprieve from the immediate performance of a mature obligation is often present. I accordingly subscribe to the definition of forbearance provided in Eastern Shipping Lines and Crismina Garments, which adopted the definition90 in American jurisprudence that a '"forbearance' in the context of the usury law is a 'contractual obligation of a 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"'91 as it is the definition that is most in line with the nature and purpose of the Usury Law. Hence, I find that "forbearance" is no different from a loan and that the use of the conjunctive "or" precisely specifies this - meaning the word "loan" is not confined to a forbearance of only money, but also of goods or services. But even if "forbearance" is "separate from a loan" as the ponencia suggests, I believe that "forbearance" is or must be understood as akin to a loan and must involve (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, i.e., interest. Based on the foregoing disquisition, I therefore submit that not all obligations constituting the payment of a sum of money may be considered forbearances within the context of the Usury Law and within the authority of the BSP. The mere fact that there is delay or refusal to pay the sums due under a contract of sale, service, employment, lease, or insurance will not constitute a forbearance of money, goods, or credit. In such cases, the obligee or creditor does not actually agree or even acquiesce and is not contractually obliged to refrain from enforcing payment in exchange for interest, but merely fails to exact payment. Hence, the BSP prescribed rate cannot apply. Instead, the 6% per annum interest rate under the Civil Code should apply. In like manner, the fact that the payment of interest in case of delay is stipulated in a contract will not automatically transform an obligation into a forbearance. Thus, the presence of a provision on the payment of interest in case of delay in the payment of the purchase price in a contract to sell or of sale, or in the payment of rents under a lease contract, does not transform the sale or lease into a forbearance. In the same vein, a construction contract cannot be deemed a forbearance even if there is a stipulation on the payment of interest in case the party who engaged the services of the contractor does not pay the progress billings on time. The payment of interest in case of delay is in the nature of a penalty clause, 92 which parties may validly stipulate on in agreements involving both loans/forbearances and non-loans/non-forbearances. That said, should the parties in the aforementioned situations subsequently agree to extend the period for the performance of a due and demandable obligation in exchange for compensation, i.e., interest, a forbearance would then arise. 93 In this situation, the evils sought to be prevented by usury statutes, i.e., when obligors, desperate to obtain an extension for the performance of a due and demandable obligation, are placed in the power of obligees who may take advantage of this desperation in order to exact more interest that the law allows, would be present. Credit sales and sales on installment require additional analysis as their structure is admittedly similar to that of a forbearance, i.e., the seller agrees to an extended payment period often in exchange for a higher price. Fortunately, American and Philippine jurisprudence have resolved the issue with relative consistency and have held that sales on credit and sales on installments do not generally constitute loans or forbearances of money and do not fall within the ambit of the Usury Law under the "time-price doctrine." In construing the California Usury Law, which covered any loan or forbearance of any money, goods, or things in action, or on accounts after demand, the California Supreme Court explained:
Likewise, in Thomas v. Knickerbocker Operating Co., 95 the New York Supreme Court explained:
Philippine jurisprudence has adopted the same rule. In Delgado v. Alonso Duque Valgona97 (Delgado), the Court cited Hogg v. Ruffner98 and held:
Similarly, in Manila Trading & Supply Co. v. Tamaraw Plantation Co., 100 the Court explained:
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," 103 viz.:
In 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 ceilings 106 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 However, where the purchase price (or a portion thereof) arising from a sale or any other monetary obligation for that matter has become due and demandable, and the vendor or obligor subsequently agrees to extend the payment period in return for interest or some increased value, then a forbearance of money would then - and only then - exist and the compensation due for the extension given or for the use of money would be subject to usury laws (and the BSP-prescribed rate of interest). In such case, the additional amount agreed upon would properly constitute interest, as the same would be given in consideration for the additional time to "use" said money. This distinction was recognized in Delgado, which stated:
Having defined the scope and application of the term "forbearance," I now turn to the inaccuracies affecting Eastern Shipping Lines, Nacar and the ponencia. Analyzing Eastern Shipping Lines, Eastern Shipping Lines and Nacar: ( 1) inaccurately equate obligations consisting in the payment of a sum of money to loans or forbearances of money (see paragraph 1109 ); (2) imply that the rule on stipulated interest and applicability of Article 2212 of the Civil Code apply only when the obligation involves a loan or forbearance of money (see paragraph 1 in relation to paragraph 2110); and (3) erroneously state that a final and executory monetary judgment bears the BSP-prescribed rate of interest until full satisfaction because "the interim period" is equivalent to a forbearance of credit and regardless of the fact that parties may have stipulated on a different rate. 111 The first issue was already discussed in the previous section. As mentioned, the term "forbearance" must be construed in light of the Usury Law and its scope must be limited only to contractual obligations where the parties agree to refrain from enforcing payment of a due and demandable obligation in consideration for the payment of interest. Hence, contracts of sale or service, contracts of employment, just compensation and other monetary obligations are not loans or forbearances of money, goods, or credit even if the sums involved may be due and unpaid. As discussed, an agreement to extend the payment period of a due and demandable obligation in consideration for the payment of interest is immensely different from a failure to exact payment of the same. The former is a forbearance and is subject to the BSP-prescribed rate of interest while the latter is not. Nevertheless, delays in payment of an obligation constituting a sum of money will still incur interest at 6% per annum in accordance with Article 2209 of the Civil Code. The second issue squarely applies to the instant case, which involves a sale on credit with a penalty interest of 24% on all overdue accounts. While the obligation involves a sum of money, it is not a loan or forbearance of money. Hence, it is unclear under Eastern Shipping Lines whether paragraph 1 (loans/forbearances) or paragraph 2 (non-loans/non-forbearances) should apply. If paragraph 2 is applied, the guidelines suggest that "interest may be imposed at the discretion of the court at the rate of 6% per annum" even if the agreement expressly stipulated on an interest rate of 24% per annum. Also, there is no room to apply Article 2212 of the Civil Code even if stipulated interest may have already accrued as paragraph 1 in relation to paragraph 2 of the guidelines suggests that Article 2212 applies only to loans or forbearances of money. This, as earlier intimated, is inaccurate. It bears emphasis that parties are free to stipulate on the payment of interest under the principle of autonomy of contracts. 112 Hence, while a sale on installments, a sale on credit, or even the payment of rentals do not constitute loans or forbearances within the context of the Usury Law and the authority of the BSP, parties are not precluded from agreeing on the payment of interest at a certain rate. Further, should parties stipulate on the payment of interest, Article 2212113 should apply by operation of law to any amount of interest that has accrued at the time of judicial demand, even when the obligation does not constitute a loan or forbearance. On the third issue, while Eastern Shipping Lines accurately defined the term "forbearance" 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," 114 it nonetheless held that final and executory judgments involving the payment of any sum of money are forbearances of credit (see paragraph II.3 of the Eastern Shipping Lines and Nacar guidelines). 115 This portion I believe is erroneous as it is clearly beyond the definition given. Further, I concur with the ponencia that contrary to paragraph II.3 of Eastern Shipping Lines and Nacar, the stipulated interest rate should continue to accrue even after the finality of the decision as there is no legal basis for the reduction of stipulated interest at any time until full payment 116 unless the same is unconscionable or otherwise void. The parties' stipulated interest rate should apply from the date stipulated, if there be any, or from judicial or extra judicial demand until full payment of the amount or sum of money due. In view of the foregoing, a revision of the Eastern Shipping Lines and Nacar guidelines is certainly in order. My problem, however, with the ponencia is that in the process of revising said guidelines, the ponencia decimated long-standing legal principles and rules without sufficient explanation. The ponencia's revised guidelines holds:
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. As to the first erroneous statement, Article 2209 of the Civil Code is unequivocal that the indemnity for damages for delay in the payment of any sum of money shall be the payment of interest, viz.:
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. It is a threshold principle in statutory construction that where the law does not distinguish, courts may not distinguish. 121 It is not within the authority of courts, even the Supreme Court, to qualify words that the legislature did not, in its wisdom, choose to qualify. To hold otherwise would amount to judicial legislation and would violate the Constitutional principle of separation of powers. The phrase "loan or forbearance x x x where there is a debtor-creditor relationship" is extremely misleading. Firstly, it is basic that there are two parties in all types of civil obligations: an active subject known as the creditor or obligee, who can demand the fulfillment of the obligation and a passive subject known as the debtor or obligor, against whom the obligation is juridically demandable. 122 The qualification "where there is a debtor-creditor relationship" is thus nondescript and does not really afford an exact meaning to the term, "forbearance." Secondly, the existence of debtor-creditor or obligor-obligee relationship does not necessarily mean that a sum of money is involved in the case. It must be remembered that interest is the measure of damages for delay only when a sum of money is involved. 123 Thirdly, the existence of a debtor-creditor relationship does not identify the source of the obligation, making that qualifying phrase useless. The applicability of Article 2209 to all obligations consisting in the payment of a sum of money has been consistently recognized by the Supreme Court. 124 The Court, in Castelo v. Court of Appeals, 125 explained:
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:
Prior 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. Further, P.D. 116 was enacted to amend provisions in the Usury Law. 130 Hence, it may not reasonably be construed as an amendment, by implication at that, of the legal interest rate under the Civil Code, except in so far as said rate relates to usury, i.e., loans and forbearances and judgments involving the same. Any other interpretation would subject Section 1 of P.D. 116 to constitutional challenge under Section 26(1), Article VI of the Constitution which holds that "every bill passed by the Congress shall embrace only one subject which shall be expressed in the title." As to the third erroneous statement, suffice it to state that prevailing jurisprudence holds that "Article 2212 [of the Civil Code] contemplates the presence of stipulated interest x x x which has accrued when demand was judicially made. In cases where no monetary interest had been stipulated by the parties, no accrued monetary interest could further earn compensatory interest uponjudicial demand." 131 This rule goes as far back as the 1925 case of Zobel v. City of Manila, 132 where the Court held that Article 1109 of the Spanish Civil Code, the precursor of Article 2212, was "applicable only to obligations containing a stipulation for interest." 133 Notably, the ponencia entirely abandoned the aforementioned rule in paragraph 2134 of its revised guidelines without attempting to provide any explanation or justification for its position. How can there be accrued or past due interest if the contract does not stipulate a rate of interest? The interest on interest provision is justified on the ground that there is likewise delay in its payment. To underscore, the "accrued interest" or "interest due" under Article 2212 of the Civil Code refers to the unpaid stipulated interest due on an obligation consisting of a sum of money, which has accrued from the stipulated due date/extrajudicial demand up to judicial demand. It is this amount which bears interest either at the BSP-prescribed rate with respect to loans or forbearances or at the legal rate under Article 2209 for monetary obligations not constituting loans or forbearances. Finally, l find that the formulation of the ponencia's revised guidelines and the accompanying formulae leaves much to be desired: l. The ponencia's formula in paragraph 1, footnote 56(a)135 is based on an erroneous period. The 365 days equivalent of a year does not take into account the agreement of the parties, which may have provided for a different base period, and Section 31 of the Revised Administrative Code of 1987, which defines a "year" as "twelve calendar months." 136 The ponencia's formula under footnote 54(b)137 is likewise erroneous because it does not correctly reflect that the interest under Article 2212 of the Civil Code applies only to the amount of interest that has accrued from the stipulated due date/extrajudicial demand to judicial demand. 2. Paragraph 2 of the ponencia's guidelines also suffers from inaccuracies. First, the basis for applying compounded interest as expressly stipulated by law or regulation in the absence of stipulated interest was not provided. 138 In fact, compounding of interest is only allowed if there is agreement in that regard. 139 Second, the imposition of interest on interest, as mentioned is not warranted because there is no stipulation of interest. Third, the formula in paragraph 2, footnote 58(a) 140 suffers from the same inaccuracies as footnote 56(a) as the 365-day denominator is contrary to Section 31 of the Revised Administrative Code of 1987, which defines a "year" as "twelve calendar months." The same may be said of footnote 61(a). 141 3. Paragraph 3 of the ponencia, on the other hand, holds that interest on the unliquidated claims is to be reckoned from the date of the judgment of the trial court because it is at that point that the damages may be reasonably established. 142 Nevertheless, the ponencia imposes interest on the principal amount as finally adjudged. 143 It would seem that the ponencia itself recognizes that the amount awarded in the "judgment of the trial court" is not the liquidated claim implied in Article 2213 of the Civil Code. Rather, the liquidated claim implied refers to the amount "finally adjudged". Thus, interest should only commence to run from the time the unliquidated and unknown claim becomes final and executory, i.e., the amount finally adjudged, as it is at this point that unliquidated claims are established with reasonable certainty, thus liquidated. Further, as in the previous paragraph, the basis for applying compounded interest as expressly stipulated by law or regulation was not provided. Again, I express my strong disapproval for the careless disregard of the principle of stare decisis and the establishment of guidelines by judicial fiat instead of by judicial interpretation. In the process of recasting the guidelines, I discuss the foregoing issues and the relevant legal principles on the proper imposition of interest rates. A. Monetary Interest vis-a-vis As a starting point, the Court has held that "[t]here are two types of interest - monetary interest and compensatory interest. Interest as a compensation fixed by the parties for the use or forbearance of money is referred to as monetary interest, while interest that may be imposed by law or by courts as penalty or damages is referred to as compensatory interest. Right to interest therefore arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded." 144 a. Monetary Interest Monetary or conventional interest is the stipulated "cost of borrowing money" 145 or the "presumptive reasonable compensation for borrowed money." 146 It arises from contract for the use or forbearance of money. 147 By definition, this is the type of interest governed by usury laws. It is the type of interest often demanded in loans and forbearances of money. Section 1 of the Usury Law states:
Under the foregoing provision, it is evident that the BSP does not impose any specific interest rate on the contracting parties 148 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. i. Interest was intended but In Siga-an v. Villanueva, 151 the Court clarified that based on Article 1956152 of the Civil Code, the "payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing." 153 In conjunction with Section 1 of the Usury Law, the BSP-prescribed rate of interest therefore applies when (1) a written instrument contains an express stipulation for the payment of interest, but (2) the written instrument fails to specify a rate. 154 In Spouses Abella v. Spouses Abella155 (Spouses Abella), the Court held that the BSP-prescribed rate of interest at the time the parties executed their agreement would apply and that such rate would not be susceptible to shifts in the rate, viz.:
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. The Court has likewise applied the BSP-prescribed rate of interest in at least two other situations: (1) when the parties stipulate on the payment of interest but the rate thereof is void for being excessive, iniquitous, unconscionable, and/or exorbitant, 157 and (2) when the parties stipulate on the payment of interest but the stipulation thereof is void for violating the principle of mutuality of contracts. 158 I discuss these briefly below: ii. Unconscionable Interest As monetary or conventional interest arises from contract, the parties are free to stipulate on their preferred rate in accordance with the principle of autonomy of contracts. 159 In Spouses Abella, the Court explained however:
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." 161 In such instances, Isla v. Estorga162 explains "that only the unconscionable interest rate is nullified and deemed not written in the contract; whereas the parties' agreement on the payment of interest on the principal loan obligation subsists. It 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 is applied by the Court." 163 Applying Spouses Abella by analogy, the BSP-prescribed rate of interest at the time the parties executed their agreement would apply when the stipulated monetary rate of interest is unconscionable. Further, said rate would not be susceptible to future shifts should the BSP thereafter prescribe a different rate as the same is used as a surrogate for the parties' intent. iii. Mutuality of Contracts On the other hand, the Court, in Security Bank Corp. v. Spouses Mercado, 164 explained that stipulations allowing the unilateral modification of interest rates is likewise void for violating the principle of mutuality of contracts, viz.: 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. 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:
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. In sum, the BSP-prescribed rate applies to loans and forbearances of money, where the parties expressly stipulate for the payment of monetary interest, but: (1) the parties failed to provide a rate, (2) the rate provided was void for being unconscionable, or (3) the rate provided was void for violating the mutuality of contracts. I believe that the disquisition in Spouses Abella, i.e., that as a surrogate of the parties' intent, the BSP-prescribed rate at the time of the execution of the contract should persist regardless of any future shifts, is sound. To this, I add that interest at the BSP-prescribed rate shall accrue in accordance with the parties' agreement, or in the absence thereof, upon demand whether judicial or extrajudicial. I reiterate that, as a "surrogate" or "substitute" for the parties' intent, the ESP-prescribed rate of interest should apply until full payment of the loan or forbearance because the rates provided in Section 1 of the Usury Law in relation to Article 2209 of the Civil Code apply only "in the absence of express contract as to such rate." At this juncture, I note that in view of the limited definition of the term "forbearance" under the Usury Law, it is important to recognize that the parties may stipulate167 on the payment of interest even when a transaction does not involve a loan or forbearance. 168 For instance, interest may be imposed as part of the purchase price, to encourage cash sales, or to compensate the seller for the "time price differential" in a sale of goods on credit or a sale on installments. 169 Such stipulations should likewise be respected pursuant to the principle of autonomy of contracts 170 and the principle of obligatory force where "contracts have the force of law between the contracting parties [which] should be complied with in good faith." 171 In determining the validity, effect, remedies or defenses as to the same, the provisions on obligations and contracts or any other applicable law shall apply. b. Compensatory Interest In contrast with monetary or conventional interest, compensatory interest is the "[interest] that [may be] imposed by law or by the courts as penalty or indemnity for damages[[."172]] It is demandable by law under Article 2209 of the Civil Code "even in the absence of express stipulation, verbal or written, regarding payment of interest." 173 To recall, Article 2209 provides:
i. Article 2209 applies to As the provision unequivocally states and contrary to the baseless pronouncement in the ponencia, 174 the obligation to pay compensatory interest arises in all cases where there is delay in the payment of a sum of money, i.e., loans/forbearances or non-loans/non-forbearances. Article 2209 of the Civil Code grants the obligee or creditor a substantive right to recover interest as indemnity for the delay in the payment of any sum of money. 175 Hence, while sums due under contracts of sale, contracts of service, contracts of employment, just compensation arising from expropriation proceedings, insurance claims, contracts of lease, etc., do not constitute loans or forbearances of money, goods, or credits, and are not subject to the BSP-prescribed interest rate, 176 said obligations nevertheless incur interest under Article 2209 of the Civil Code at the legal rate of 6% per annum as a penalty or indemnity for delay or breach. 177 In contrast, the BSP-prescribed rate of interest, in the absence of stipulation, must be imposed as a penalty or indemnity for delay in the payment of any outstanding loan or forbearance because the Usury Law expressly authorizes the BSP to prescribe the "rate allowed in judgments" (i.e., compensatory interest rate) in litigations involving such loans and forbearances. 178 Again, I reiterate my disagreement with the conclusion reached by the ponencia that the "legal interest rate in Article 2209 of the Civil Code has been amended" by P .D. 116. While simple and expedient, it is contrary to established jurisprudence and the basic principles of statutory construction. In other words, Article 2209 covers monetary obligations involving both loans/forbearances and non-loans/non-forbearances in that interest in the form of indemnity will accrue when a debtor/obligor incurs in delay. They differ, however, as to the imposable rate of interest as the Usury Law expressly empowered the BSP to determine "the rate allowed in judgments" involving loans and forbearances of money, goods, or credits.179 Hence, when a debtor/obligor incurs delay in the payment of a sum arising from a loan or forbearance, compensatory interest shall be due under Article 2209 (which grants the creditor/obligee a substantive right to the payment of interest in the form of indemnity) in relation to Section 1 of the Usury Law (which provides for the imposable rate, i.e., the rate prescribed by the BSP as "the rate allowed in judgments" involving loans and forbearances). On the other hand, when a debtor incurs delay in the payment of a sum of money not constituting a loan or forbearance, compensatory interest shall be due under Article 2209 (which grants the creditor/obligee a substantive right to the payment of interest in the form of indemnity) at the 6% per annum legal rate (which provides the imposable rate in monetary obligations not constituting a loan or forbearance). Article 2209 and Section 1 of P.D. 116 are explicit, however, that the BSP-prescribed rate (in loans/forbearances) and the 6% per annum legal rate under Article 2209 (in non-loans/non-forbearances) apply only when there is no stipulation as to the rate. Hence, the parties may agree (and often do) on the imposition of penalty interest 180 in case of delay or breach. Such stipulations are valid provided only that they are not iniquitous or unconscionable. 181 In fact, "the New Civil Code permits an agreement upon a penalty apart from the monetary interest. If the parties stipulate this kind of agreement, the penalty does not include the monetary interest, and as such the two are different and distinct from each other and may be demanded separately." 182 Hence, in State Investment House, Inc. v. Court of Appeals, 183 the Court held:
In 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 compensatory damages on any stipulated interest that has accrued at the time of judicial demand, 185 I agree with the ponencia 186 that no other compounding of interest should accrue unless otherwise stipulated. 187 ii. Article 2212 applies to Finally, when parties stipulate on the payment of interest, Article 2212 will apply by operation of law to the stipulated amount that has accrued at the time of judicial demand, viz.:
In Hun Hyung Park v. Eung Won Choi, 188 the Court explained however that -
In view of the foregoing, the ponencia grossly erred in applying Article 2212 even to situations where there is no stipulated interest. 190 Further, like the differential treatment under Article 2209 with respect to the imposable rate of interest, the BSP-prescribed rate of interest must be imposed on any accrued interest under Article 2212 (even if it does not technically constitute a loan or forbearance) because the Usury Law likewise expressly authorizes the BSP to prescribe the "rate allowed in judgments" (i.e., compensatory interest rate) "in litigations involving such loans and forbearances." 191 In all other types of monetary obligations involving stipulated accrued interest however, the 6% per annum rate under the Civil Code applies. Summarizing the foregoing: If the parties stipulate on the payment of interest and the rate thereof - then the stipulated interest rate controls and should be applied, and not the BSP-prescribed rate (for loans/forbearances) nor the 6% per annum legal rate under Article 2209 (for non-loans/non-forbearances), unless the law otherwise provides. 192 In addition, any stipulated interest that has accrued at the time of judicial demand (i.e., the total stipulated amount of interest due computed in accordance with the parties' agreement up to judicial demand, or from extrajudicial demand up to judicial demand) should additionally earn interest under Article 2212 at the BSP-prescribed rate of interest (in loans/forbearances) or the 6% per annum legal rate under Article 2209 (in non-loans/non-forbearances involving sums of money), although the obligation may be silent on this point. If the parties do not stipulate on the payment of interest 193 - then the debtor will be liable for the payment of compensatory interest at the BSP-prescribed rate of interest (for loans/forbearances, pursuant to Article 2209 of the Civil Code in relation to the Usury Law, as amended) and the legal rate of 6% per annum (for non-loans/non-forbearances consisting of the payment of sums of money, pursuant to Article 2209 of the Civil Code). 194 However, no interest on interest may be imposed because "Article 2212 of the new Civil Code contemplates, and therefore applies, only when there exists stipulated or conventional interest." 195 iii. Reckoning Point and If the parties stipulate on the payment of interest - then the same will run in accordance with the parties' agreement, or in the absence thereof, from extrajudicial or judicial demand. 196 Further, the stipulated rate of interest shall continue to run until full payment, contrary to paragraph 3 of Nacar and Eastern Shipping Lines, because Article 2209 of the Civil Code and Section 1 of the Usury Law apply "in the absence of express contract as to such rate." On this matter, I agree with the ponencia that "unless the stipulated interest is excessive and unconscionable, there is no legal basis for the reduction of the stipulated interest at any time until full payment of the principal amount. The stipulated interest remains in force until the obligation is satisfied." 197 If the parties do not stipulate on the payment of interest - then compensatory interest at the BSP-prescribed rate of interest (for loans/forbearances; pursuant to Article 2209 of the Civil Code in relation to the Usury Law, as amended) or at the 6% per annum legal rate (for nonloans/non-forbearances involving sums of money, pursuant to Article 2209 of the Civil Code) will accrue from the time of delay, i.e., based on the parties' agreement, or from judicial or extrajudicial demand, 198 and should likewise continue to run until full payment. I submit that the interest imposed on the delay in the payment of an obligation should continue because the obligor's delay continues for as long as the amount due has not been fully paid. As to the reckoning point however, I find that the immediately preceding rule must be read in relation to Article 2213 of the Civil Code, which holds that "[i]nterest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." Hence, when the monetary claims are unliquidated and unknown, compensatory interest begins to run only from the date the decision becomes final and executory as it is only at that point where the claim is established with reasonable certainty. It must be remembered that delay can arise only with respect to liquidated sums. To be sure, I find no legal basis for the practice in Eastern Shipping Lines of lumping all sums due (including stipulated interest, compensatory interest and the interest under Article 2212) and imposing a singular interest rate after a decision becomes final and executory. I reiterate my position that the BSP-prescribed interest rate should not automatically apply to final and executory judgment awards (as provided in paragraph 3 of Eastern Shipping Lines and Nacar and as adopted by the ponencia 199) because it is not a forbearance of credit. The New York Supreme Court arrived at the same conclusion in Kay Lewis Enterprises v. Lewis-Marshall Joint Venture, 200 viz.:
As 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 However, once a judgment becomes final and executory, all previously unliquidated and unknown claims/damages are established with reasonable certainty - thus, already liquidated - and become due and demandable. Hence, said amounts should begin to earn interest not because the interim period is a forbearance of credit, but because the non-payment of a final and executory decision constitutes delay under Article 2209 of the Civil Code. Juan F. Nakpil & Sons v. Court of Appeals203 is unequivocal that "[i]t is delay in the payment of such final judgment, that will cause the imposition of the interest."204 Like the differential treatment under Article 2209 of the Civil Code as regards the imposable interest rates, the BSP-prescribed rate of interest must be imposed when previously unliquidated damages arising from loans/forbearances become final and executory because the Usury Law expressly authorizes the BSP to prescribe the "rate allowed in judgments" (i.e., compensatory interest rate) "in litigations involving such loans and forbearances." 205 As these unliquidated damages arose from litigations involving loans and forbearances, they fall within the scope of the BSPprescribed rate of interest. All other previously unliquidated damages arising from non-loans and non-forbearances should earn interest at 6% per annum from the time the judgment becomes final and executory until full payment. In sum, monetary awards that do not already earn stipulated interest or which could not previously earn compensatory interest as the same were unliquidated or unknown shall, when the judgment becomes final and executory, earn compensatory interest at the BSP-prescribed rate of interest (as part of the "rate allowed in judgments" in litigations involving loans/forbearances, pursuant to the Usury Law, as amended206 ) or at the legal rate of 6% per annum (in litigations that are not for loans/ forbearances pursuant to Article 2209 of the Civil Code) - from finality until full payment. I simplify all the foregoing rules in my proposed guidelines below. Guidelines on the Imposition of Interest I. Loans and Forbearances207 of Money, Goods, or Credit A. If the parties stipulate on the payment of interest and the rate thereof, the interest due shall be that which has been stipulated. 208 Such interest shall run in accordance with the parties' agreement,209 or in default thereof, from extrajudicial or judicial demand,210 and shall continue to run until full payment. Such stipulated interest shall, except as otherwise provided, be controlling and the BSP-prescribed compensatory interest rate will not apply. 211 In addition, any stipulated interest that has accrued at the time of judicial demand shall itself earn interest at the BSP-prescribed rate from judicial demand until full payment.212 (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 B. If the parties do not stipulate on the payment of interest, the indemnity for damages for delay shall be the payment of interest at the prevailing BSP-prescribed rate of interest 214 reckoned from the date of extrajudicial or judicial demand215 and shall continue to run until full payment. No interest on interest shall be due under Article 2212 of the Civil Code.216 C. Any other monetary award in relation to such loans or forbearances shall bear interest at the BSP-prescribed rate of interest from the time the decision becomes final and executory217 and shall continue to run until full payment. II. All Other Monetary Obligations Not Constituting Loans or Forbearances A. If the parties stipulate on the payment of interest and the rate thereof, the interest due shall be that which has been stipulated. 218 Such interest shall run in accordance with the parties' agreement,219 or in default thereof, from extrajudicial or judicial demand, 220 and shall continue to run until full payment. Such stipulated interest shall, except as otherwise provided, be controlling as the compensatory interest. 221 In addition, any stipulated interest that has accrued at the time of judicial demand shall itself earn interest from judicial demand until full payment at the 6% per annum legal rate provided under Article 2209 in relation to Article 2212 of the Civil Code.222 (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. B. If the parties do not stipulate on the payment of interest, the indemnity for damages for delay shall be the payment of interest at the 6% per annum legal rate under Article 2209 reckoned from the date of extrajudicial or judicial demand223 and shall continue to run until full payment. No interest on interest shall be due under Article 2212 of the Civil Code. 224 (i) However, interest upon unliquidated claims or damages cannot be recovered until the decision becomes final and executory. C. All other unliquidated monetary claims, damages, or awards in relation thereto (i.e., non-loans/non-forbearances) shall bear interest at the 6% legal rate under Article 2209 of the Civil Code from the time the decision becomes final and executory225 and shall continue to run until full payment. WHEREFORE, I vote that the Decision dated April 21, 2016 of the Court of Appeals be AFFIRMED with MODIFICATION, as follows: Petitioner Lara's Gifts & Decors, Inc. is ordered to pay respondent Midtown Industrial Sales, Inc. the following: 1. ONE MILLION TWO HUNDRED SIXTY-THREE THOUSAND ONE HUNDRED FOUR PESOS and 22/100 (₱1,263, 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. 2. 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. 3. The sum of FIFTY THOUSAND PESOS (₱50,000.00) 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. Footnotes 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). 4 Ponencia, p. 2. 5 Id. 6 Id. 7 Regional Trial Court, Branch 128, Caloocan City in Civil Case No. C-22007. 8 Ponencia, 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. 14 Ponencia, p. 17. 15 Id. at 12. 16 Id. at 13. 17 Reformina 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). 18 Ponencia, p. 18, paragraph 2. 19 Hun 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). 20 Ponencia, 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.
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). 35 Tio 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. 39 Eastern 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. 41 Nacar, supra note 3, at 281 -283. 42 Federal Builders, Inc. v. Foundation Specialists, Inc., 742 Phil. 433, 446-447 (2014); emphasis and underscoring supplied. 43 22 Wn.2d 378, 384 (1945). 44 Eastern 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). 47 Estores 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). 58 Beltran v. AMA Computer College-Biñan, G.R. No. 223795, April 3, 2019 p. 12. 59 Bigg's, Inc. v. Boncacas, G.R. Nos. 200487 & 200636, March 6, 2019, pp. 21-22. 60 Pardillo 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. 66 Estores v. Sps. Supangan, supra note 13, at 96-97. 67 Spouses 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). 71 JL Investment and Development, Inc., v. Tendon Philippines, Inc., 541 Phil. 82, 92 (2007). 72 613 Phil. 224 (2009). 73 Id. at 237-238. 74 Ponencia, p. 14, citing Crismina Garments, Inc. v. Court of Appeals, supra note 51. 75 Id. at 17. 76 Id. at 14. 77 Crismina Garments, Inc. v. Court of Appeals, supra note 51 at 709. 78 Id. at 706,709. 79 Reformina v. Tomol, Jr., supra note 17, at 479. 80 Monk v. Goldstein, 172 N.C. 516, 518 (1916). See also MacRackan v. Bank of Columbus, 164 N.C. 24, 26 (1913). 81 Wheaton 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. 86 Southwest Concrete Products v. Gosh Construction Corp., 51 Cal. 3d 701, 705 (1990). See also Thomas v. Knickerbocker Operating Co., 202 Misc. 286, 287 (1951). 87 Hafer v. Spaeth, supra note 43, at 384. 88 Cohn v. Marjorie's Gifts, Inc., 1973 U.S. App. LEXIS 7502. 89 The United States v. Constantino Tan Quingco Chua, 39 Phil. 552 (1919). 90 Eastern 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. 91 Crismina 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. 94 Southwest 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. 96 Thomas 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. 105 Estores 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). 108 Delgado, 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. 114 Eastern 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. 116 Ponencia, p. 11. 117 Id. at 17-19. Citations omitted. 118 Id. at 12. 119 Id. at 13. 120 Id. at 18, paragraph 2. 121 Amores 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. 124 Reformina v. Tomol, Jr., supra note 17; National Power Corp. v. Angas, supra note 17 125 Supra note 17. 126 Id. at 21. 127 Reformina 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'". 131 Isla 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. 134 Ponencia, 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. 136 Commissioner of Internal Revenue v. Primetown Property Group, Inc., 558 Phil. 182, 189 (2007). 137 Ponencia, 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. 140 Ponencia, pp. 18-19, footnote 58. 141 Id. at 19. 142 Id. 143 Id. 144 Hun 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). 145 Spouses 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." 153 Siga-an v. Villanueva, supra note 144, at 769. 154 Spouses Abella v. Spouses Abella, supra note 145, at 385. 155 Supra note 145. 156 Id. at 385-386. 157 Isla v. Estorga, supra note 19, at 5. 158 Security Bank Corporation v. Spouses Mercado, G.R. Nos. 192934 & 197010, June 27, 2018. 159 CIVIL CODE, Art. 1306. 160 Spouses Abella v. Spouses Abella, supra note 145, at 388. 161 Dio 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. 166 Isla 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. 169 Emata v. Intermediate Appellate Court, supra note 102, at 234. 170 CIVIL CODE, Art. 1306. 171 Id., Art. 1159. 172 Isla v. Estorga, supra note 19, at 5. 173 Siga-an v. Villanueva, supra note 144, at 772. 174 Ponencia, p. 12. 175 See Castelo v. Court of Appeals, supra note 17, at 21. 176 Reformina 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. 179 Reformina 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[.]" 182 Tan 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. 186 Ponencia, 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. 190 Ponencia, 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. 194 Siga-an v. Villanueva, supra note 144, at 772. 195 Hun 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. 197 Ponencia, 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. 206 Reformina 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. 213 Spouses 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. 216 Hun 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. 224 Hun Hyung Park v. Eung Won Choi, supra note 19. 225 See CIVIL CODE, Art. 2213 in relation to Art. 2209. The Lawphil Project - Arellano Law Foundation 
| |
