Dimapanat, Nur-Hussein L. Atty.

Porfirio Panganiban
CREDIT TRANSACTIONS WEDNESDAY / (6:30-9:30PM)

1. Governing rules on the payment of loan:

It depends on the object of the contract of loan.

Money – governed by Arts. 1249 and 1250, NCC
General rule is that the payment shall be made in the currency stipulated.
Exemptions: If not, that currency which is legal tender in the Philippines.

In case of extraordinary inflation – value of the currency at the time of the creation of the
obligation.

Consumable or fungible thing – debtor or borrower shall pay another thing of the same
kind, quality and quantity even if it should change in value. If cannot be done, the value of
the thing at the time of its perfection (delivery) shall be the basis of the payment of the
loan.

2. Yes, there would be liability on the part of the debtor, if there was no stipulation or written
agreement for application of interest in a loan.

A. Indemnity for damages – The debtor in delay is liable to pay legal interest as
indemnity for damages even without a stipulation for the payment of interest.

Where to base the rate of damages:

i. Rate in the penalty clause agreed upon by the parties;
ii. If there is no penalty clause, additional interest based on the regular
interest rate of the loan; and
iii. If there is no regular interest, additional interest is equivalent to the
legal interest rate (6%).

B. Interest accruing from unpaid interest – Interest due shall earn interest from the
time it is judicially demanded although the obligation may be silent on this point.

3. Basis of the right of interest of the Creditor:

“Article 2209 of the 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 percent per annum.”

4. Interest is a compensation allowed by law or fixed by the parties for the loan or forbearance of
money, goods or credits.

General rule is that no interest shall be due unless it is stipulated in writing. (Art. 1956,
NCC)
Exemption: In case of interest on damages or indemnity for damages, it need not be in
writing.

Basis of the right to interest

It only arises by reason of the contract (stipulation in writing) or by reason of delay or
failure to pay principal on which interest is demanded. If the obligation consists of the
payment of a sum of money, and the debtor incurs delay, the indemnity for damages shall
be the payment of legal interest.

5. No, there can be no interest in equitable mortgage.

 Interest could not be collected on equitable mortgage because the same is not stipulated in
writing.

6. Yes, unstipulated interest that has been paid can be recovered. If the debtor pays unstipulated
interest by mistake, he may recover, since this is a case of solutio indebiti or undue payment.

But if the debtor voluntarily pays interest because of some moral obligation, he cannot later
recover. The obligation to return the interest is a natural obligation.

7. No, interest cannot be adjudged on unliquidated claims. General rule is No but unless the same
can be established with reasonable certainty.

8. Classes of Interest:
1. Simple – interest which is paid for the use of the money, at a certain rate stipulated in
writing by the parties.
2. Compound – interest which is imposed upon accrued interest, that is, the interest due
and unpaid.

3. Legal – that interest which the law directs to be paid in the absence of any agreement as
to the rate.

9. When Monetary interest and compensatory interest can be applied:

(a) Monetary Interest refers to the compensation set by the parties for the use or
forbearance of money. No such interest shall be due unless it has been expressly
stipulated in writing.

Monetary interest must be expressly stipulated in writing and it must be lawful. (Art.
1956, NCC) It is payable on the delay of the use of the money

(b) Compensatory Interest refers to the penalty or indemnity for damages imposed by
law or by the courts.

The debtor in delay is liable to pay legal interest (6% or 12%) as indemnity for damages
even in the absence of stipulation for the payment interest. Such interest as indemnity
for damages is payable only in case of default or non‐performance of contract.

10. The basis for interest rate for compensatory interest refers to the interest mentioned in Central
Bank Circular 416 and Articles 2209 of the Civil Code which provides:

I. (a) Loans; (b) Forbearance of money, goods and credits; (c)

Judgement involving such loan or forbearance, in the absence of
express agreement as to such rate of interest. During the interim
period from the date of judgment until actual payment. (d)
Pursuant to P.D. No. 116 amending Act No. 2655 (Usury Law),
the Central Bank of the Philippines issued Circular No. 416
raising the legal rate of interest from 6% to 12% per annum; and
(e) In the absence of a stipulation as to interest, the loan due will
now earn interest at the legal rate of 12% per annum

II. Article 2209 of the 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
percent per annum.
11. Forbearance signifies the contractual obligation of the creditor to forbear during a given
period of time to require the debtor payment of an existing debt then due and payable. Such
forbearance of giving time for the payment of a debt is, in substance, a loan

12. Compounding interest is the addition of interest to the principal sum of a loan or deposit, or
in other words, interest on interest. It is the result of reinvesting interest, rather than paying it
out, so that interest in the next period is then earned on the principal sum plus previously
accumulated interest.

13. Accrued Interest refers to interest that has accumulated but has not been paid yet.

Yes, accrued interest can earn compound interest, which must be in writing.

14. The General Rule on earning of compound interest on accrued interest is:

Accrued interest shall not earn interest, except when (a) judicially demanded; and (b) there
is an Express Stipulation (also called as Compounding Interest), where the parties agree
that accrued interest shall be added to the principal and the resulting total amount shall earn
interest. Moreover, a stipulation as to compounding interest must be in writing.

15. Usury Law is a regulation governing the amount of interest that can be charged on a
loan. Moreover, specifically target the practice of charging excessively high rates on loans by
setting caps on the maximum amount of interest that can be levied. This law is designed to
protect consumers.

The interest ceilings set by the Usury Law are no longer in force, it has been held that PD
No. 1684 and CB Circular No. 905 merely allow contracting parties to stipulate freely on
any adjustment in the interest rate on a loan or forbearance of money but do not authorize
a unilateral increase of the interest rate by one party without the other's consent.

16. The said 6% per annum is considered a Usurious rate.

The legal rate of interest provided for under the Usury Law, as now implemented by Circular
No. 799, applies to (a) loans, (b) forbearances and (c) judgments involving loans or
forbearances, just compensation and insurance claims.