With regard to an award of interest in the concept of actual and compensatory damages, please state the guidelines regarding the manner of computing legal interest in the following situations:
[a) when the obligation is breached and it consists in the payment of a sum of money like a loan or forbearance of money; (2.5%)
[b] when the obligation does not constitute a loan or forbearance of money. (2.5%)
Consider the issuance of BSP-MB Circular No. 799, which became effective on July 1, 2013.
Suggested answer only. Not an official answer and not legal advice.
For (a), breached money loans without agreed interest earn legal interest from default. For (b), non-loans earn 6% interest once damages are established.
Under Nacar versus Gallery Frames and BSP-MB Circular 799, legal interest is 6% per annum effective July 1, 2013. Lacking stipulation, money loans earn 12% per annum legal interest until June 30, 2013, and 6% per annum from July 1, 2013, from default. Non-loans earn 6% interest from demand if liquidated, or from judgment if unliquidated.
Here, under (a), money obligations earn 12% per annum from default until June 30, 2013, and 6% per annum from July 1, 2013 until full payment. Under (b), non-loans earn 6% per annum from demand if certain, or from judgment date if unliquidated.
Therefore, (a) earns 12% then 6% from default, while (b) earns 6% from demand or judgment.
This is not an official scoring system and carries no weight with the Supreme Court or any bar review provider. It measures how much of the suggested answer's wording your response covers, not whether your reasoning is correct. For practice only.
Quick check
Under BSP-MB Circular No. 799, what is the effective legal interest rate for loans or forbearances of money starting July 1, 2013?
Effective July 1, 2013, BSP-MB Circular No. 799 reduced the legal interest rate for loans or forbearances from 12% to 6% per annum.
Prior to July 1, 2013, what was the rate of legal interest for a breached loan or forbearance of money without a stipulated interest rate?
Prior to July 1, 2013, the rate of legal interest for a loan or forbearance of money was 12% per annum.
Under Nacar v. Gallery Frames, from when does legal interest accrue for unliquidated non-forbearance claims for damages?
For unliquidated claims, legal interest accrues from the date of judgment when the amount of damages is established with certainty.
Once a court judgment awarding a sum of money becomes final and executory, what rate of legal interest applies until full satisfaction?
Under current guidelines, the total judgment award earns legal interest of 6% per annum from finality until full satisfaction.
If a loan obligation without stipulated interest was breached in 2010 and paid in 2015, how is legal interest computed?
Interest is computed at 12% per annum until June 30, 2013, and at 6% per annum from July 1, 2013 until full satisfaction.
Learn more about these topics
1. Legal Interest Rate
Under BSP-MB Circular No. 799, effective July 1, 2013, the rate of legal interest for a loan or forbearance of money, goods, or credits, as well as the rate of legal interest for judgments, was reduced from twelve percent (12%) to six percent (6%) per annum. Prior to July 1, 2013, the applicable legal interest rate for money loans or forbearances was twelve percent (12%) per annum under Central Bank Circular No. 416. Consequently, obligations that breached prior to July 1, 2013 earn interest at twelve percent until June 30, 2013, and six percent thereafter.
2. Forbearance of Money
Under the landmark ruling in Nacar v. Gallery Frames, when an obligation consisting of a loan or forbearance of money is breached without a stipulated rate of interest, the interest due shall be computed at the rate of legal interest. In the absence of an express stipulation, legal interest applies as compensatory damages from the time of extrajudicial or judicial demand. If the obligation was breached prior to July 1, 2013, legal interest is twelve percent per annum until June 30, 2013, and six percent per annum from July 1, 2013 until full satisfaction.
3. Non-Forbearance Obligations
Under Article 2209 of the Civil Code and the guidelines in Nacar v. Gallery Frames, 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 six percent (6%) per annum. If the demand is liquidated, interest accrues from judicial or extrajudicial demand. If unliquidated, interest runs from the date of judgment when the amount is quantified. Once the judgment becomes final, the total obligation earns six percent interest until full payment.