Interest: 6% vs. 12%

In the event that a party breaches his obligation to the other contracting party, what rate of interest can he expect to be held liable for? In Maria Soledad Tomimbang vs. Atty. Jose Tomimbang,  G.R. No. 165116, August 4, 2009, the Supreme Court reminds us when the rate of 6% per annum applies and when the rate of 12% per annum applies.

In Tomimbang, the respondent gave a loan to the petitioner (his sibling). However, the petitioner stopped making monthly repayments on the loan. The regional trial court and the Court of Appeals ruled that the petitioner must pay interest on the indebtedness at the rate of 12% per annum. The Supreme Court agreed.

The Supreme Court reiterated its ruling in the 1994 case of Eastern Shipping, Inc. vs. Court of Appeals, 234 SCRA 78, 95-96 (1994). The holding can be summarized as follows:

1.         Loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit

(a)      Parties agreed on interest payable

If the parties agreed on the interest payable, the interest due is what has been stipulated upon by the parties. Pursuant to Article 1856 of the Civil Code, the agreed interest must have been expressly stipulated in writing.

Under Article 2212 of the Civil Code, the interest due shall itself earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.

(b)     Parties did not agree on interest payable

In the absence of stipulation between the parties on the rate of interest payable, the rate of interest will be 12% per annum to be computed from default, i.e., from the judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2.      Obligations not involving loans or forbearance of money (or judgments related thereto)

If the obligation breached does not consist in the payment of a sum of loaned money, the court, in its discretion, may impose interest on the amount of damages awarded at the rate of 6% per annum (see Civil Code, art. 2209). However, no interest can 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.       Court judgment

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.

Since the obligation in Tomimbang involves a loan and there is no stipulation in writing as to interest due, the Supreme Court ruled that the rate of interest shall be 12% per annum computed from the date of extrajudicial demand.