LARA'S GIFTS & DECORS, INC., petitioner vs. MIDTOWN INDUSTRIAL SALES, INC., Respondent, GR No. 225433, August 28, 2019

 

Doctrine:      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.      

Facts:

Petitioner purchased from respondent various industrial and construction materials, this purchased was covered by a 60 days credit with a condition of 24% interest per annum that would be charged on all accounts overdue as stated in the sales invoice. Upon maturity of the credit, the petitioner paid its obligation by two checks, but checks were dishonored due to insufficient fund.

Meanwhile, the respondent sent demand letter for the settlement of the obligation, it turned no avail. Thereafter. The respondent filed a complaint for sum of Money with prayer for the attachment against the petitioner.

In his Answer, the petitioner argued that in his counterclaim that the product of the Respondent is substandard and that the finished product of the petitioner was rejected by its client because of poor quality. However, despite of the contentions, the Trial Court rendered its decision in favor of Respondent in which the CA affirmed such decision on the ground that the 24% of interest was agreed upon by the parties and that the same had been stated in the sales invoice.

Issue:           Whether or not the 24% of interest stated in the sales invoice is valid? 

Held:            In deciding this case, the Court laydown a guideline as to the payment of interest in cases of loan, forbearance of money, good and credit.

One of those guidelines is that when there is written stipulation between the parties, such rate of interest agreed upon by them shall be applied.  The legal interest as contemplated from the Civil Code be applied only in the absence of stipulation.

In this case, according to the Court, it is clear from the sales invoice which was agreed by the parties that the 24% interest per annum would be charged for all the account overdue.

Therefore, according to the court, the stipulated interest shall be applied until full payment of the obligation because that is the law between the parties.

 

In details, the court declared that:

1.    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.

2.    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:

a)    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.

b)    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.

c)    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.

Paragraph 3 above failed to qualify that for loans or forbearance of money, the prevailing legal interest should only apply in the absence of stipulated interest. The stipulated interest is the law between the parties and should apply from the time of extrajudicial or judicial demand until full payment. This omission resulted in several rulings of this Court, which imposed the stipulated interest on the adjudged amount until finality of the decision BUT applied the prevailing legal interest in lieu of the stipulated interest from finality of the decision until full payment of the obligation. This is in direct contravention of the law, particularly Article 2209 of the Civil Code, which mandates that when a debtor incurs a delay in obligations to pay a sum of money, the indemnity for damages shall be the payment of the interest agreed upon. Only in the absence of a stipulated interest will the legal interest be applied.