University of San Jose-Recoletos

School of Law
Magallanes Street, Cebu City

Group 3 Assignment

Submitted by:

Cal, Jezreel Minelle P

Canonigo, Elizabeth M.
Canoy, Catherine H.
Carriaga, Marcelle Antonette A.
Clamonte, Eric
Colong, Aleijah Ummiessalam A.

Submitted to:
Atty. Christian A. Fernandez
 1. COMPARISON OF THE RULINGS BETWEEN
EASTERN SHIPPING VS. CA AND
NACAR VS. GALLERY FRAMES
WITH EXAMPLES & ILLUSTRATIONS
By: Clamonte, Eric and Colong, Aleijah Ummiessalam

EASTERN SHIPPING VS NACAR VS GALLERY REMARKS:

CA
G.R. No. 97412, July 12,
1994
Supreme Court’s suggested
rule of thumb for future
guidance:
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:
FRAMES
GR No.. 189871, August 13,
2013
The guidelines laid down in
the case of Eastern Shipping
lines vs. CA were accordingly
modified by BSP-MB Circular
No, 799 as follows: 
I. When an obligation,
regardless of its source, i.e.,
law, contracts, quasi-
contracts, delicts or quasi-
delicts is breached, the The same.
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 EXAMPLE::
an award of interest in the
concept of actual and ACTUAL DAMAGES:
compensatory damages, the Amount of computation for illegal
rate of interest, as well as the dismissal of employment claim.
accrual thereof, is imposed, as
follows: COMPENSATORY DAMAGES:
Interest of amount of judgment of the
Court from its finality until the time of its
full satisfaction.

1. When the obligation is  1. When the obligation is EXAMPLE:

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
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.,
In a contract of loan with a principal of
P10,000.00, it is stipulated that it has
an acceleration clause and straight
interest rate of 1% per month payable
monthly within 10 monthly instalments
and that is due every end of the month.
Hence, the monthly due of the
borrower is P1,100.00 (P1,000.00 as
instalment for the principal and
P100.00 as monthly interest).
If the borrower defaulted his monthly
payment on the sixth month, the
amount due is P5,500.00 (P5,000.00
from default, i.e., from
judicial or extrajudicial
demand under and subject
to the provisions of Article
1169 of the Civil Code.
Note: Art. 1169 “No demand, no delay” – those obliged to
deliver or to do something incur in delay from the time the
oblige judicially or extrajudicially demands from them the
fulfillment of their obligation.
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 3. When the judgment of the
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.
for the remaining balance of the
principal plus P500.00 ).
If there is a final court judgment
because of such default, the amount
due of P5,500.00 shall earn an interest
of 12% per annum up to the date of
finality of such court judgment. Such
12% per annum interest is
applicable only up to June 30, 2013.
Starting July 1, 2013 up to the
present, the applicable interest is
6% (as per BSP-MB resolution no.
796).
The same.
EXAMPLE:
After Juan’s several demands towards
Pedro for property damage claim of
P100,000.00 went unheeded, Juan
filed a suit against Pedro.
If the court grants the monetary award
of P100,000.00, an interest of 6% per
annum shall be added to P100,000.00
from the date Juan made the legal
demand up to the finality of such court
judgment.
If for example, Juan sued Pedro for
property damage but did not specified
the amount of his claim, the 6% per
annum shall commenced at the date
the court ascertained the amount of
claim, up to its finality of judgment.
EXAMPLE:
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.
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.
A judgment was rendered by the court
of P200,000.00 as actual damages and
compensatory damages, and such
judgment become final and executory.
If the date of finality of such judgment
is before July 1, 2013, the P200,000.00
shall earn an interest of 12% per
annum from the finality of that
judgment up to June 30, 2013 and an
interest of 6% per annum from July
1, 2013 up to its full satisfaction.

If the date of finality of such judgment

is July 1, 2013 onwards, the
P200,000.00 shall earn an interest of
6% per annum up to its full
satisfaction (as per BSP-MB
resolution no. 796).

ISSUE: ISUUE:
Whether the Whether or not the
applicable rate of petitioner is also
interest in after the entitled to the payment
determination of the of interest from the
amount of claim is finality of the decision
twelve percent (12%) until full payment by the
or six percent (6%). respondents.
RULING: RULING:
The appealed The respondents are
decision is ordered to pay
AFFIRMED with the petitioner of interest of
MODIFICATION that TWELVE PERCENT
the legal interest to (12%) per annum of the
be paid is SIX total monetary awards,
PERCENT (6%) on computed from May 27,
the amount due 2002 to June 30, 2013
computed from the and SIX PERCENT
decision, dated 03 (6%) per annum from
February 1988, of the July 1, 2013 until their
court a quo. A full satisfaction.
TWELVE PERCENT
(12%) interest, in
lieu of SIX
PERCENT (6%),
shall be imposed
on such amount
upon Finality of this
decision until the
payment thereof.
 
 Eastern Shipping Lines, Inc. vs. CA and Mercantile Insurance Company, Inc.
G.R. No. 97412, July 12, 1994
ILLUSTRATION:

RULING OF EASTERN INTEREST COMPUTATION

SHIPPING CASE:

The appealed decision is

AFFIRMED with the
MODIFICATION that the legal 6% per annum interest 12% per annum interest
interest to be paid is Six
Percent (6%) on the amount
due computed from the February 3, 1988 Finality of Until full
decision, dated 03 February the payment by
Decision of the RTC
1988, of the court a quo. A on the amount due decision respondents
Twelve Percent (12%) interest, computed from the of the SC.
in lieu of Six Percent (6%), shall decision, dated
be imposed on such amount February 3, 1988, of
upon Finality of this decision the court a quo.
until the payment thereof.

Dario Nacar vs. Gallery Frames and/or Felipe Bordey, Jr.

G.R. No. 189871, August 13, 2013
ILLUSTRATION:

RULING OF NACAR CASE: BACKWAGES AND SEPARATION FEE COMPUTATION

The respondents are

ordered to pay petitioner Jan. 24, 1997 May 27, 2002
of interest of Twelve Date of petitioner’s Entry of Judgment was issued certifying
Percent (12%) per annum illegal dismissal. that the SC resolution in G.R. No. 151332
of the total monetary became final and executory.
awards, computed from
May 27, 2002 to June 30,
INTEREST COMPUTATION
2013 and Six Percent (6%)
per annum from July 1, 12% per annum interest 6% per annum interest
2013 until their full
satisfaction. May 27, 2002 June 30, July 1, 2013 Until full
2013 payment by
Upon recomputation, BSP-MB
respondents
amount updated to resolution no.
₱471,320.31 from 796 took effect
the previous reducing the
computation of the interest rate to
labor arbiter of 6%.
₱158,919.92.

2. Relate the rulings of UCPB vs Beluso and Espiritu vs Landrito (Foreclosure)

Prepared by: Cal, Jezreel Minelle P.
ANNULMENT OF THE FORECLOSURE SALE VALID CONCEPT:
Grounds for the annulment of a foreclosure sale
1. There was fraud, collusion, accident, mutual mistake, breach of trust or misconduct
by the purchaser
2. The sale was not fairly and regularly conducted
3. The price was inadequate and the inadequacy was so great so as to shock the
conscience of the court

UCPB vs Beluso Espiritu vs Landrito

Sps. Beluso’s allegations: since they had
the right to refuse payment of an
excessive demand on their account, they
cannot be said to be in default for
refusing to pay. The enforcement of such
illegal demand through foreclosure of
mortgage should be voided.
Sps. Landrito, represented by their son
Zoilo Landrito’s allegations: Spouses
Espiritu, as creditors and mortgagees,
"imposed interest rates that are shocking
to one’s moral senses", such interest led
to the foreclosure of their property due to
failure to pay.

UCPB’s allegations: None of the grounds Sps. Espiritu’s allegations: The parties
for annulment of a foreclosure sale is had agreed on the interest and charges
present in this case. The annulment of imposed in connection with the loan, thus,
the foreclosure proceedings and the the foreclosure on the property was valid
certificates of sale were mooted by the due to failure of Sps. Landrito to pay.
subsequent issuance of new certificates
of title in UCPB’s name. The spouses’
action for annulment of foreclosure
constitutes a collateral attack on the
bank’s certificates of title, which is
proscribed by the Property Registration
Decree (PD 1529, Section 48).

SC’s holding: UCPB IS CORRECT. SC’s holding: ZOILO LANDRITO IS

PROCEEDINGS VALID.
It was already found by the SC that there
was a valid demand upon the spouses.
Despite the demand being excessive, the
spouses are considered in default with
respect to the proper amount of their
obligation to UCPB; hence, the
mortgaged property may be foreclosed.
The proceeds of such foreclosure sale
should be applied to the extent of the
amounts to which UCPB is rightfully
entitled
CORRECT. PROCEEDING INVALID.
The previous demand for payment of the
amount of ₱874,125.00 cannot be
considered as a valid demand for
payment. The foreclosure proceedings
cannot be considered valid since the total
amount of the indebtedness during the
foreclosure proceedings which included
interest and was nullified by the Court for
being excessive, iniquitous and
exorbitant.

Ratio: Excess amount in such a Ratio: Foreclosure is void if amount

demand does not nullify the demand demanded is more than what is due.
itself, which is valid with respect to the
proper amount.

3. What is the effect of the Bayanihan Act to the interest during the pandemic?
Prepared by: Canoy, Catherine
All unpaid loan balances continue to incur interest day by day, and consistent
with the Bayanihan We Heal as One Act (Bayanihan 1) and Bayanihan We
Recover as One Act (Bayanihan 2), accrued interest still applies. This is not a
form of late fee nor interest on interest penalty. Accrued Interest is the loan interest
incurred during the payment extension and grace period. The interest that will accrue
during the mandatory grace period will be computed based on your outstanding
principal using the existing interest rate of your loan.

The accrued interest may be paid either:

• one (1) time on your next due date, or
• may be spread out for the remaining term of the loan.

Bayanihan Act 1:
Bayanihan to Heal as One Act (Republic Act 11469)
On 23 March 2020, President Rodrigo Duterte signed Republic Act 11469 or
“Bayanihan to Heal as One Act” or “Bayanihan Act 1” into law declaring a national
health emergency throughout the Philippines as a result of the COVID-19 situation. The
law authorized the President to adopt temporary emergency measures in order to
respond to the crisis brought about by the pandemic. 

In accordance with Section 4(aa) of Republic Act No. 11469, or “Bayanihan Act 1”, the
President shall have the power to direct all banks, quasibanks, financing companies,
lending companies, and other financial institutions, public and private, to implement a
grace period for a minimum of thirty (30) days for the payment of all loans falling due
within the ECQ Period. In line with this, the Department of Finance (DOF) issued the
Implementing Rules and Regulations (IRR) of Section 4(aa) of the Bayanihan to Heal
As One Act for the implementation of the mandatory grace period.

In this regard, from the INITIAL thirty (30) day grace period, there will be
an ADDITIONAL thirty (30) day grace period for every due date within the ECQ
period.

For example:

 Due Date based on the Original Schedule : 28 March 2020

 Initial 30-day grace period : 27 April 2020

Due to ECQ (16 March to 15 April 2020)

 Additional 30-day grace period : 27 May 2020

Due to extension of ECQ (16 April to 15 May 2020)

 Additional 30-day grace period : 26 June 2020

Due to MECQ (16 May to 31 May 2020)

 New Due Date : 26 June 2020

Bayanihan Act 1:
Bayanihan to Heal as One Act (Republic Act 11469)
The mandatory grace period extends the deadline for the payment of loans with
principal and/or interest falling due within the ECQ Period. It aims to give borrowers
more time to raise the funds needed to repay their loans and to allow them to prioritize
their needs amid the pandemic. It provides that all covered loans with maturity date of
the principal and/or interest, including amortizations, within the ECQ Period shall be
given a mandatory thirty (30)-day grace period, without incurring interest on interest,
penalties, fees, and other charges.
Insofar as the Securities and Exchange Commission (SEC) is concerned, the IRR of
Section 4(aa) of the Bayanihan to Heal As One Act covers financing companies (FCs),
lending companies (LCs), and microfinance NGOs (MF-NGOs). It also covers loans that
were obtained through online lending applications/platforms that are owned and
operated by registered FCs and LCs.

Bayanihan Act 2:
Bayanihan to Recover as One Act (Republic Act No. 11494)
On September 11, 2020, President Rodrigo R. Duterte signed into law Republic Act No.
11494, entitled “An Act Providing for COVID-19 Response and Recovery Interventions
and Providing Mechanisms to Accelerate the Recovery and Bolster the Resiliency of the
Philippine Economy, Providing Funds Therefor, and for other Purposes” or “Bayanihan
Act 2”. It took effect on September 15, 2020 and will be enforced until December 19,
2020. The aims to further mitigate the economic losses and enhance the financial
stability of the country amidst the COVID-19 pandemic. 

Similar to Bayanihan 1, this allows borrowers to apply a one-time 60-day payment

extension on all their qualified loans for amortizations falling within the cover period of
September 15 to December 31, 2020 which in effect extends their loan maturity. To
explain this better, if you avail of the grace period prior to your September due date, all
your due dates from September to December 2020 will be moved by 60 days. This
means, you will resume paying your amortization for the covered period beginning
November 2020. Loan interest during the grace period or accrued interest still applies
and will be collected staggered up to December 31, 2020.

Sample Computation of the Principal and Accrued Interest

Under Different Scenarios
Scenario 1: Principal and interest fall due during the ECQ Period Borrower X took out a
loan from an online lending application on 16 March 2020 amounting to Five Thousand
Pesos (Php 5,000.00) with an interest rate of three percent (3%) per month. The said
loan is payable in thirty (30) days, or until 15 April 2020, which falls under the ECQ
Period. Following the IRR, Borrower X shall be given a 30-day grace period, or until 15
May 2020 to pay the loan, without incurring interest on interest, penalties, fees and
other charges. In view of the foregoing, Borrower X will need to pay in the following
manner: 

If Borrower X pays on 15 May 2020:

Scenario 2: Interest accrued during ECQ period to be paid in lump sum (installment
loan) On 09 February 2020, Borrower X took out a loan from XYZ Lending Company
through its online lending application amounting to Thirty Thousand Pesos (Php
30,000.00) with an interest rate of three percent (3%) per month or a monthly
amortization of Ten Thousand Pesos (Php 10,000.00) and equivalent monthly interest
based on outstanding balance. The loan is payable in three (3) months, or until 09 May
2020. Following the IRR, XYZ Lending Company shall give Borrower X a thirty (30)-day
grace period for the loan. Thus, the loan will be due on 09 June 2020. 

In view of the foregoing, Borrower X will need to pay in the following manner:

Scenario 3: Interest accrued during ECQ period to be paid on a staggered basis over
the remaining term of the loan (installment loan) We consider the same set of facts as in
Scenario 2, but in this case, the borrower opts to pay the accrued interest on a
staggered basis over the remaining term of the loan, Borrower X will need to pay in the
following manner: 
4. PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S.
PANTALEON
VS
ARTHUR F. MENCHAVEZ

G.R. No. 160545 March 9, 2010

Digested by: Canonigo, Elizabeth M.

Ponente: ARTURO D. BRION

Topic: Civil Law; Credit Transactions; Loan; Interest

PRINCIPLES:

1. General Rule: Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith. When the
terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations governs. In such cases,
courts have no authority to alter the contract by construction or to make a new
contract for the parties.

Exception: It is only when the contract is vague and ambiguous that courts are
permitted to resort to the interpretation of its terms to determine the parties’
intent.

2. Article 1956 of the Civil Code states that “No interest shall be due unless it has
been expressly stipulated in writing.”

FACTS:

Pantaleon, the President and Chairman of the Board of PRISMA, obtained a

₱1,000,000.00 loan from the respondent (Arthur Menchavez), with a monthly interest of
₱40,000.00 payable for six months, or a total obligation of ₱1,240,000.00 to be paid
within six (6) months.

To secure the payment of the loan, Pantaleon issued a promissory note that states:

I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION TWO

HUNDRED FORTY THOUSAND PESOS (P1,240,000), Philippine Currency, from Mr.
Arthur F. Menchavez, representing a six-month loan payable according to the following
schedule:

January 8, 1994 …………………. ₱40,000.00

February 8, 1994 ………………... ₱40,000.00
March 8, 1994 …………………... ₱40,000.00
April 8, 1994 ……………………. ₱40,000.00
May 8, 1994 …………………….. ₱40,000.00
June 8, 1994 ………………… ₱1,040,000.00

The checks corresponding to the above amounts are hereby acknowledged and six (6)
postdated checks corresponding to the schedule of payments. Pantaleon signed the
promissory note in his personal capacity, and as duly authorized by the Board of
Directors of PRISMA. The petitioners failed to completely pay the loan within the
stipulated six (6)-month period.

As of January 4, 1997, the petitioners had already paid a total of ₱1,108,772.00.

However, the respondent found that the petitioners still had an outstanding balance of
₱1,364,151.00 as of the same date, to which it applied a 4% monthly interest.

Thus, the respondent filed a complaint for sum of money with the RTC to enforce the
unpaid balance, plus 4% monthly interest, attorney’s fees, and costs of suit.

The RTC rendered a decision in favour of Menchavez applying the 4% per month
interest on the unpaid balance from the demand of payment until the full payment.

The petitioners elevated the case to CA. The court found that there was indeed a 4%
per month interest on the loan but it was unreasonable and should be reduced to 12%
per annum. Thus, the CA modified the RTC Decision by imposing a 12% per annum
interest, computed from the filing of the complaint until finality of judgment, and
thereafter, 12% from finality until fully paid. The petitioner’s motion for reconsideration
was dismissed by CA.

ISSUES:

1. Whether or not the parties agreed to the 4% monthly interest on the loan.
2. If so, whether or not does the rate of interest apply to the 6-month payment
period only or until full payment of the loan.

RULINGS:

1. No.

Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. When the terms of a contract
are clear and leave no doubt as to the intention of the contracting parties, the
literal meaning of its stipulations governs. In such cases, courts have no authority
to alter the contract by construction or to make a new contract for the parties; a
court's duty is confined to the interpretation of the contract the parties made for
themselves without regard to its wisdom or folly, as the court cannot supply
material stipulations or read into the contract words the contract does not
contain. It is only when the contract is vague and ambiguous that courts are
permitted to resort to the interpretation of its terms to determine the parties’
intent.

In the present case, the respondent issued a check for ₱1,000,000.00. In turn,
Pantaleon, in his personal capacity and as authorized by the Board, executed the
promissory note quoted above. Thus, the ₱1,000,000.00 loan shall be payable
within six (6) months, or from January 8, 1994 up to June 8, 1994. During this
period, the loan shall earn an interest of ₱40,000.00 per month, for a total
obligation of ₱1,240,000.00 for the six-month period. We note that this agreed
sum can be computed at 4% interest per month, but no such rate of interest
was stipulated in the promissory note; rather a fixed sum equivalent to this
rate was agreed upon.
 Thus, the RTC and the CA misappreciated the facts of the case; they erred in
finding that the parties agreed to a 4% interest, compounded by the application of
this interest beyond the promissory note’s six (6)-month period. The facts show
that the parties agreed to the payment of a specific sum of money of
₱40,000.00 per month for six months, not to a 4% rate of interest payable within
a six (6)-month period.

2. It only applies to the 6-month period.

Article 1956 of the Civil Code specifically mandates that "no interest shall be due
unless it has been expressly stipulated in writing." Under this provision, the
payment of interest in loans or forbearance of money 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. The concurrence of the two
conditions is required for the payment of interest at a stipulated rate.

Applying this provision, we find that the interest of ₱40,000.00 per month
corresponds only to the six (6)-month period of the loan, or from January 8, 1994
to June 8, 1994, as agreed upon by the parties in the promissory note.
Thereafter, the interest on the loan should be at the legal interest rate of 12% per
annum, consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals.

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."

5. LIABILITY FOR INTEREST EVEN IN THE ABSENCE OF STIPULATION

GENERAL RULE
ART 1956. NO INTEREST SHALL BE DUE UNLESS IT HAS BEEN EXPRESSLY
STIPULATED IN WRITING
EXCEPTIONS
 INDEMNITY FOR DAMAGES –

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.

ARTICLE 2209 does not only apply to loans or forbearances. It includes:

 Default in the payment of price or consideration under a contract of sale;
  An action for damages for injury to persons and loss of property; and
 Action for unpaid insurance claims
EXAMPLE
1. A borrowed P100,000 at 10% interest per annum. On due date, A failed to pay.
Therefore, A is liable to pay the interest agreed upon as damages and not for
the use of money.

2. A borrowed P100, 000 at 10% per annum with a penalty interest of 5% per
annum. On due date, A fails to pay and pays a year after. How much should A
pay?

A should pay the principal + interest on the loan + penalty interest

= 100, 000 + 10, 000 + 5,000
=115, 000

10, 000 as compensatory interest for 1 year and 5, 000 as indemnity for
damages for the one year delay.

3. A borrowed 100, 000 with no interest. On due date, A failed to pay. How much
should a pay?

Borrower should pay the principal + 6% of the principal = 106, 000.

The penalty interest is 6% since there is no interest on the loan nor penalty
interest stipulated.

 INTEREST ACCRUING FROM UNPAID INTEREST –

ART 2212. INTEREST STIPULATED SHALL EARN INTEREST FROM THE

TIME IT IS JUDICIALLY DEMANDED, ALTHOUGH THE OBLIGATION MAY BE
SILENT UPON THIS POINT.

This is only applicable where interest has been stipulated by the parties. It considers
stipulated interest which has accrued when demand was judicially made. If no interest
had been stipulated by the parties, no accrued conventional interest could further earn
interest upon judicial demand.
EXAMPLE
If the interest was judicially demanded six months after A incurred in delay, the
interest due shall earn legal interest from that time until payment is made.

*Interest due shall be computed as (10, 000 + 5,000)

Where the court’s judgement which did not provide for the payment of interest has
become final, no interest may be awarded.