Art, 1956 CIVIL CODE OF THE PHILIPPINES (10) Computations for Compensatory Damages As already stated, this is interest not imposed for the use of the money, but to serve as penalty or damages for the breach of contractual obligations. This kind of interest need not be stipulated in writing, for the law gives the rate (6% per annum) in the absence of agreement as to the penalty, (Art. 2209, Civil Code). In the following examples, legal interest was computed at 6% per annum. Note however that today the legal rate is 12% per annum. The examples must, therefore, be amended correspondingly. Examples: (a) B borrowed from C P1,000,000 for one year. No interest was agreed upon in writing. At the end of one year, C demanded payment, but B was unable or refused to pay. After two more years, B was ready to pay. In addition to the principal sum of P1,000,000, how much interest, if any, must B pay? ANS.: B is not liable for interest for the use of the money (since this was not stipulated in writing) BUT he is liable for interest in view of his default, as a punish- ment or penalty by way of damages for his breach of the contract. Please note that there is default after a demand is made (either judicially or extra-judicially). (Art. 1169, Civil Code). The interest here given as penalty is 6% per annum — since there was no stipulation as to the penalty. (Art, 2209, Civil Code). B has been in default for two years (counted from the demand). Hence, he is liable for interest (6%) for two years: 6% of P1,000,000 = P60,000 per year, P60,000 times 2 (years) = P120,000. ‘This is the interest that he must pay. (Ibid.) (b) B borrowed from C P1,000,000 for two (2) years. It was agreed in writing that interest would be 6% per annum At the end of two years, C made an extrajudicial demand, but B was unable or refused to pay. At the end of three (3) MORE years, B was ready to pay. How much all in all must B pay? 904CIVIL CODE OF THE PHILIPPINE Art, 1956 ANS.: Here B must pay: 1) __ the principal (P1,000,000) 2) interest for the use of the money (6% per year — for a total of 5 years, since from the time he borrowed up to the time of payment, 5 years have elapsed). 3) interest as penalty for the default (6% per year for a period of three [3] years — since he has been in default for 3 years). Computation: 1) Principal — P1,000,000 2) Moratory interest — — P300,000 (P60,000 a year times 5 years) 3) Compensatory — P 180,000 (P60,000 a year times 3 years P1,480,000 (Total sum to be paid.) [NOTE: In the problem given, no interest is charged on the accrued interest — interest that has accumulated up to the time demand is made because here the demand was only extrajudicial. If the demand had been judicial, there would have been an additional interest on the ac- crued interest. The law says that “interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.” (Art. 2212, Civil Code).] Example: B borrowed from C P1,000,000 for two (2) years. It was agreed in writing that interest would be 6% per annum, At the end of two years, C made a JUDICIAL demand (a court action was instituted). At the end of three (3) MORE years, B was ready to pay. How much all must B pay?Art. 1956 CIVIL CODE OF THE PHILIPPINES ANS.: B must pay: 1) the prineipal 2) moratory interest 3) compensatory 4) additional compensatory interest on the interest due or accrued Total Sum (11) Some Cases 1,000,000 P 300,000 P 180,000 P 21,600 1,501,600 (60,000 a year for 6 years use of the money) (P60,000 a year of default) (at the time judicial demand, inter- est for two years was already due P20,000. The ac- crued interest it- self earns interest from judicial de- P7,200 a year. P7,200 times 3 years = P21,600). Nakpil and Sons, et al. v. CA GR 47861, Resolution on Motion for Reconsideration FACTS: In a decision of the Supreme Court, finding the architect and the contractor liable for gross negligenoe (equiva lent to bad faith) in effecting the plans and construction of a building, imposed upon defendants a solidary indemnity in favor of the plaintiff. The court added that “upon failure to pay on such finality, twelve percent (12%) interest per annum shall be imposed upon aforementioned amounts from finality until paid.” On motion for reconsideration, the defendants alleged that the interest of 12% per annum imposed on the total amount of the monetary award contravenes the law, since there is neither loan nor forbearance. Denying the motion for reconsideration, the Supreme Court — 906