G.R. No.

225433

August 28, 2019

LARA'S GIFTS & DECORS, INC., Petitioner

vs.
MIDTOWN INDUSTRIAL SALES, INC., Respondent

FACTS:

Lara's Gift and Decors, Inc. specializes in producing, vending, and exporting handmade
items. Conversely, Midtown Industrial Sales, Inc. focuses on retailing industrial and
construction supplies, with Lara's Gift and Decors, Inc. being among its clientele.

Midtown Industrial Sales, Inc. claims that between January 2007 and December 2007, Lara's
Gift and Decors, Inc. bought a variety of industrial and construction materials totaling
P1,263,104.22. These purchases were made on a sixty (60)-day credit basis, with the
understanding that accounts overdue would incur a 24% annual interest charge, as specified
in the sales invoices. Lara's Gift and Decors, Inc. settled its purchases by issuing multiple
Chinabank postdated checks. However, these checks bounced upon maturity. Despite
repeated requests, Lara's Gift and Decors, Inc. replaced the bounced checks with new
postdated Export and Industry Bank checks. Unfortunately, these checks were also
dishonored due to insufficient funds and subsequently, account closure. Midtown Industrial
Sales, Inc. sent a demand letter dated January 21, 2008, which Lara's Gift and Decors, Inc.
received the following day. Nevertheless, Lara's Gift and Decors, Inc. failed to make
payment, prompting Midtown Industrial Sales, Inc. to file a complaint for a sum of money
with a prayer for attachment against Lara's Gift and Decors, Inc. on February 5, 2008.

In its response, Lara's Gift and Decors, Inc. acknowledged the purchases but contended that
most of the deliveries were substandard and of poor quality. The trial court ruled in favor of
Midtown Industrial Sales, Inc., ordering Lara's Gift and Decors, Inc. to pay the amount of
P1,263,104.22 plus 24% per annum interest from February 5, 2008, the date of judicial
demand, until the obligation is fully settled, along with attorney's fees and costs of the suit.
The trial court determined that Lara's Gift and Decors, Inc. failed to demonstrate that the
deliveries did not meet the required specifications, while Midtown Industrial Sales, Inc.'s
claim of P1,263,104.22 was supported by sales invoices and postdated checks. Additionally,
the trial court deemed the agreed 24% interest per annum on overdue accounts as not
unconscionable.

The Court of Appeals upheld the trial court's decision. Regarding the imposed 24% interest
per annum, the Court of Appeals found Lara's Gift and Decors, Inc.'s argument implausible,
stating that it could have negotiated for more favorable terms given its previous transactions
with Midtown Industrial Sales, Inc.

ISSUES:

1. Whether or not the interest rate fixed at 24% per annum is void.

2. Assuming that the interest rate of 24% is valid, whether or not the said rate shall be
applied only until finality of judgment.

HELD:
1. Yes. The Court held that Lara’s Gifts & Decors, which has been doing business since
1990 and has been purchasing various materials from Midtown since 2004, cannot claim to
have been misled into agreeing to the 24% interest rate which was expressly stated in the
sales invoices. The Court has already ruled in several cases that an interest rate of 24% per
annum agreed upon by the parties is valid and binding, and not excessive and
unconscionable.

2. The guidelines regarding the imposition of interest, as provided in Eastern Shipping Lines
and Nacar, are revised as follows:

In cases of breach involving the payment of a sum of money, the interest due shall be
determined by the agreement between the parties in writing, ensuring it remains within
reasonable limits. If no specific reckoning date is stated, interest will be calculated from
default until full payment. Legal interest shall accrue separately from the time of judicial
demand until full payment, at the prevailing rate set by the Bangko Sentral ng Pilipinas. In
the absence of specified interest, the prevailing legal interest rate prescribed by the Bangko
Sentral ng Pilipinas shall apply from default until full payment. Legal interest shall accrue
separately from the time of judicial demand until full payment. For obligations not constituting
a loan or forbearance of money, goods, credits, or judgments, interest on damages may be
imposed at the discretion of the court at the prevailing legal interest rate set by the Bangko
Sentral ng Pilipinas. Interest shall begin to accrue from the time the claim is made
extrajudicially or judicially until full payment, based on the principal amount finally adjudged,
without compounding unless expressly stipulated by law or regulation. In the specific case of
Lara’s Gifts & Decors, which received a 60-day credit term with a 24% annual interest rate
on overdue accounts, interest begins accruing from the date of extrajudicial demand, not
from the filing of the complaint. The outstanding principal obligation shall accrue the
agreed-upon interest rate until full payment, with subsequent application of legal interest
rates as prescribed by BSP-MB Circ. No. 799.

DOCTRINE:
When the obligation is breached, and it consists in the payment of a sum of money (a loan or
forbearance of money, goods, credits, or judgments, the interest due shall be which is
stipulated by the parties in writing, provided it is not excessive and unconscionable, which in
the absence of a stipulated reckoning date, shall be computed from default (i.e., from
extrajudicial or judicial demand in accordance with Article 1169 of the Civil Code) UNTIL
FULL PAYMENT, without compounding any interest unless compounded interest is expressly
stipulated by the parties, by law or regulation. Interest due on the principal amount accruing
as of judicial demand shall SEPARATELY earn legal interest at the prevailing rate prescribed
by the Bangko Sentral ng Pilipinas, from the time of judicial demand UNTIL FULL PAYMENT.

2. In the absence of stipulated interest, in a loan or forbearance of money, goods, credits, or

judgments, the rate of interest on the principal amount shall be the prevailing legal interest
prescribed by the Bangko Sentral ng Pilipinas, which shall be computed from default (i.e.,
from extrajudicial or judicial demand in accordance with Article 1169 of the Civil Code)
UNTIL FULL PAYMENT, without compounding any interest unless compounded interest is
expressly stipulated by law or regulation. Interest due on the principal amount accruing as of
judicial demand shall SEPARATELY earn legal interest at the prevailing rate prescribed by
the Bangko Sentral ng Pilipinas, from the time of judicial demand UNTIL FULL PAYMENT.

3. When the obligation, not constituting a loan or forbearance of money, goods, credits, or
judgments, is breached, an interest on the amount of damages awarded may be imposed in
the discretion of the court at the prevailing legal interest prescribed by the Bangko Sentral ng
Pilipinas, pursuant to Articles 2210 and 2011 of the Civil Code. No interest, however, shall be
adjudged on unliquidated claims or damages until the demand can be established with
reasonable certainty. Accordingly, where the amount of the claim or damages is established
with reasonable certainty, the prevailing legal interest shall begin to run from the time the
claim is made extrajudicially or judicially (Art. 1169) UNTIL FULL PAYMENT, 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 of the judgment of the trial court (at which time the
quantification of damages may be deemed to have been reasonably ascertained) UNTIL
FULL PAYMENT. The actual base for the computation of the interest shall, in any case, be
on the principal amount finally adjudged, without compounding any interest unless
compounded interest is expressly stipulated by law or regulation.