Interest and Loan

            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. (Eusebio-Calderon v. People, G.R. No. 158495, October 21, 2004, 441 SCRA 137; Eastern Shipping Lines, Inc. v. CA, G.R. No. 97412, July 12, 1994, 234 SCRA 78; Garcia v. Thio, G.R. No. 154878, March 16, 2007).

 INTEREST – LOAN

             Eastern Shipping teaches that, with respect to an award of interest in the concept of actual and compensatory damages, interest on the amount of damages awarded may be imposed at the discretion of the Court at the rate of 6% per annum for a breach of an obligation not constituting a loan or forbearance of money. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially. But when such certainty cannot be 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. (Eastern Shipping Lines, Inc. v. Court of Appeals, supra note 22 at 96, see also Biesterbos v. Court of Appeals, G.R. no. 152529, 22 September 2003, 411 SCRA 396, 406-407; Heirs of Ignacia Aguilar-Reyes v. Spouses Mijares, 457 Phil. 120, 140 (2003)).

             In Eastern Shipping, the Court went on to state that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the obligation was in the form of a loan or forbearance of money or otherwise, 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. (Eastern Shipping Lines, Inc. v. Court of Appeals, supra note 22. Reiterated in Almeda v. Cariño, 443 Phil. 182, 192 (2003); Biesterbos v. Court of Appeals, supra.; Vicente v. Planters Development Bank, 444 Phil. 309, 323-324 (2003); Solid Homes, Inc. v. IAC, et al., G.R. No. 74269; November 27, 2006).

 United Planters Sugar Milling, Inc. v. CA, et al., G.R. No. 126890

November 28, 2006

             (4) On the payment of interest, the 12% rate is applied only when the obligation breached consists in the payment of a sum of money, i.e., forbearance of money, in the absence of a stipulation. Otherwise the applicable rate is 6% per annum. Upon the finality of this ruling, the rate of interest shall be 12% per annum for the entire judgment, until its satisfaction.

 INTEREST – LOAN

             In Frias v. Flora San Diego-Sison, G.R. No. 155223, April 3, 2007, there was a contract of sale over a real property for P3,000,000.00. It was stipulated that the buyer has a period of six (6) months to notify the owner of his intention to buy, otherwise, the amount shall be considered as a loan payable within six (6) months. The prospective buyer did not decide to buy, hence, he notified the owner that the amount was considered as a loan payable within six (6) months. There was no payment despite demand, hence, a complaint for sum of money was filed. The provision referring to the two periods of six (6) months became the controversy. The CA interpreted the phrase thus:

            “Their agreement speaks of two (2) periods of six months each. The first six-month period was given to plaintiff-appellee (respondent) to make up her mind whether or not to purchase defendant-appellant’s (petitioner’s) property. The second six-month period was given to defendant-appellant to pay the P2 million loan in the event that plaintiff-appellee decided not to buy the subject property in which case interest will be charged “for the last six months only”, referring to the second six-month period. This means that no interest will be charged for the first six-month period while appellee was making up her mind whether to buy the property, but only for the second period of six months after the appellee had decided not to buy the property. This is the meaning of the phrase “for the last six months only”. Certainly, there is nothing in their agreement that suggests that interest will be charged for six months only even if it takes defendant-appellant an eternity to pay the loan.”

             The agreement that the amount given shall bear compounded bank interest for the last six months only, i.e., referring to the second six-month period, does not mean that interest will not longer be charged after the second six-month period since such stipulation was made on the logical and reasonable expectation that such amount would be paid within the date stipulated. Considering that petitioner failed to pay the amount given which under the Memorandum of Agreement shall be considered as a loan, the monetary interest for the last six months continued to accrue until actual payment of the loaned amount.

             The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount. (State Investment House, Inc. v. Court of Appeals, G.R. No. 90676, June 19, 1991, 198 SCRA 390, 398). It has been held that for a debtor to continue in possession of the principal of the loan and to continue to use the same after the maturity of the loan without payment of the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of the creditor.