Doctrine on Interest on Final Judgments

ECE REALTY and DEVELOPMENT, INC. v. HERNANDEZ (G.R. No. 212689,

August 6, 2014):

Article 2209 of the New Civil Code provides that "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
per cent per annum." There is no doubt that ECE incurred in delay in delivering the
subject condominium unit, for which reason the trial court was justified in awarding
interest to the respondent from the filing of his complaint. There being no stipulation as to
interest, under Article 2209 the imposable rate is six percent (6%) by way of damages,
following the guidelines laid down in the landmark case of Eastern Shipping Lines v.
Court of Appeals:16

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:

1. 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.

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 courtat 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 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 finally adjudged.

3. When the judgment of the 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 a forbearance of credit.17

As further clarified in Sunga-Chan, et al. v. Court of Appeals, et al.:18

In Reformina v. Judge Tomol, Jr., the Court held that the legal interest at 12% per annum
under Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving the
loan or forbearance of money. And for transactions involving payment of indemnities
in the concept of damages arising from default in the performance of obligations in
general and/or for money judgment not involving a loan or forbearance of money,
goods, or credit, the governing provision is Art. 2209 of the Civil Code prescribing a
yearly 6% interest.
The term "forbearance," within the context of usury law, has been described as a
contractual obligation of a lender or creditor to refrain, during a given period of time,
from requiring the borrower or debtor to repay the loan or debt then due and payable.

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if
proper, and the applicable rate, as follows: The 12% per annum rate under CB
CircularNo. 416 shall apply only to loans or forbearance of money, goods, or credits, as
well as to judgments involving such loan or forbearance of money, goods, or credit, while
the 6%per annumunder Art. 2209 of the Civil Code applies "when the transaction
involves the payment ofindemnities in the concept of damage arising from the breach or a
delay in the performance of obligations in general," with the application ofboth rates
reckoned "from the time the complaint was filed until the [adjudged] amount is fully
paid." In either instance, the reckoning period for the commencement of the running of
the legal interest shall besubject to the condition "that the courts are vested with
discretion, depending on the equities of each case, on the award of interest."19 (Emphasis
ours)

Thus, from the finality of the judgment awarding a sum of money until it is satisfied,
the award shall be considered a forbearance of credit, regardless of whether the
award in fact pertained to one.20 Pursuant to Central Bank Circular No. 416 issued on
July 29, 1974, in the absence of written stipulation the interest rate to be imposed in
judgments involving a forbearance of credit was twelve percent (12%) per annum, up
from six percent (6%) under Article 2209 of the Civil Code.1âwphi1 This was reiterated
in Central Bank Circular No. 905, which suspended the effectivity of the Usury Law
beginning on January 1, 1983.
But since July 1, 2013, the rate of twelve percent (12%) per annum from finality of the
judgment until satisfaction has been brought back to six percent (6%). Section 1 of
Resolution No. 796 of the Monetary Board of the Bangko Sentral ng Pilipinas dated May
16, 2013 provides: "The rate of interest for the loan or forbearance of any money, goods
or credits and the rate allowed in judgments, in the absence of an express contract as to
such rate of interest, shall be six percent (6%) per annum." Thus, the rate of interest to be
imposed from finality of judgments is now back at six percent (6%), the rate provided in
Article 2209 of the Civil Code.
Nacar Doctrine
The rate of interest due on the obligation must be reduced in view of Nacar v. Gallery
Frames:
In view, however, of the promulgation by this court of the decision dated August 13,
2013 in Nacar v. Gallery Frames, the rate of interest due on the obligation must be
modified from 12% per annum to 6% per annum from the time of demand.
Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of Appeals,
and we have laid down the following guidelines with regard to the rate of legal interest:

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern
Shipping Linesare accordingly modified to embody 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 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:

1. 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 6% 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.

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 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 finally adjudged.

3. When the judgment of the 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.

And, in addition to the above, judgments that have become final and executory prior to
July 1, 2013, shall not be disturbed and shall continue to be implemented applying the
rate of interest fixed therein.

Effect when an Award of a Sum of Money that is not a loan or forbearance of

money becomes Final and Executory
Once this judgment becomes final and executory, the award equates to a loan or
forbearance of money and from such time, the legal rate of interest begins to apply.
BERNAL vs VILLAFLOR (G.R. No. 213617, April 18, 2018)
Forbearance of money, meaning

The term "forbearance," within the context of usury law, has been described as a
contractual obligation of a lender or creditor to refrain, during a given period of
time, from requiring the borrower or debtor to repay the loan or debt then due and
payable.

Prospective Application of the Doctrine

It should be noted, however, that the new rate could only be applied prospectively and
not retroactively. Consequently, the twelve percent (12%) per annum legal interest shall
apply only until June 30, 2013. Come July 1, 2013, the new rate of six percent (6%) per
annum shall be the prevailing rate of interest when applicable. Thus, the need to
determine whether the obligation involved herein is a loanand forbearance of money
nonetheless exists.