RULES ON INTEREST By Prof. Eduardo A. Labitag Two Concepts on Payment of Interest: a. __ Interest for use of money, goods or credit for forbearance of money, goods or credit. b. Interest as damages for breach or default ie. for loan or forbearance of money Interest for use of money, goods or credit aa ye a. If no stipulation re: payment of interest. No interest for use or forbearance (Article 1956 CC) A If there is express stipulation (which must be in writing to be valid) for payment of interest, but no rate of interest is mentioned - interest shall be 12% per annum. See 2. Monetary Board Circular 905 (December 10, 1982) c. If there is stipulation in writing and rate of interest is agreed upon (including commissions, premiums, fees and other charges) such interest shall not be subject to ceiling prescribed under the Usury law (Sec. 1, MB 905) Interest as damages for breach of obligation to pay or default in payment of loan, etc. No stipulation as to interest for use of Money ~ In case of default, loan or forbearance shall earn legal interest ~ at rate of 12% percent per annum from date of judicial or extrajudicial demand, subject to Art. 1169 CC.If rate of interest stipulated, e.g. 24% per annum, then the Joan, plus stipulated interest, shall earn 12% per annum from date of judicial demand (Art. 2212 CC) In obligation not consisting of a loan or forbearance of money is breached, e.g. obligation to give to do or not to do Interest may be imposed at the discretion of court at the rate of 6% per annum No interest adjudged on unliquidated claims or damages, until demand can be established with reasonable certainty. After thus established with reasonable certainty, interest of 6% per annum shall begin to run from date of judicial or extrajudicial demand. But if obligation cannot be established with reasonable certainty at time of demand, 6% per annum interest begin to run only from date of judgment ~ on amount finally adjudged by court. When judgment of court awarding money becomes final and executory, money judgment is A, B & C (above), shall earn 12% per annum from finality of judgment until full payment — money judgment shall be considered as a forbearance of credit. a) (2) Eastern Shipping Lines v. CA (1994) Justice Vitug, ponente Obligations with a penal clause, penalty substitutes for indemnity for damages, if no stipulation to the contrary Damages on top of penal clause (above), shall be paid if obligor refuses to pay. The penalty or is guilty of fraud in fulfillment of obligation (Art. 1226 CC) = 000 -