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Martinez, Krizzy Gayle C.

Assigned Year: 2002

Civil Law Exam (Topic Interest)

Question and Answer

Carlos sues Dino for (a) collection on a promissory note for a loan, with no agreementon interest, on which Dino defaulted, and (b) damages caused by Dino on his (Carlos)priceless Michelangelo painting on which Dino is liable on the promissory note andawards damages to Carlos for the damaged painting, with interests for both awards.What rates of interest may the court impose with respect to both awards? Explain. (5%)

Rate of 12% will apply on the collection of money or promissory note and 6% with

respect to the damages to the painting.

Art. 1956 provides that No interest shall be due unless it has been expressly stipulated.

However this law is subject to two exceptions the first exception is Indemnity for

Damages which presupposes that when the debtor is in delay he is liable to pay legal

interest (12%/ 6%) as indemnity for damages even in the absence of stipulation to pay

interest. Central Bank Circular No. 416 fixes the legal rate interest at 12% per annum,

deals with 1) loans 2) Forbearance of money goods or credits and 3) judgments

involving such loans or forbearance, in the absence of express agreements as such rate

of interest . The Supreme Court held that If the exact rate is not mentioned, the legal

interest rate of 12% shall be payable (Security Bank & Trust Co. vs RTC Makati, 263

SCRA 483 [1996]. And the second exception is Interest accruing from unpaid interest.

However Under Article 2209, if the obligation arises from other sources (e.g. sale) or by

way of damages arising from injury to persons or loss of property which does not

involve a loan, what is applicable is the rate of 6% annually and not the rate of 12%

provided by the Central Bank Circular No. 416.

Consequently applying the foregoing in the case at bar, with respect to the collection ofmoney or promissory note, it being a forbearance of money, the legal rate of interest forhaving defaulted on the payment of 12% will apply. With respect to the damages to thepainting, it is 6% from the time of the final demand up to the time of finality of judgmentuntil judgment credit is fully paid. The court considers the latter as a forbearance ofmoney. (Eastern Shipping Lines, Inc. v. CA, 234 SCRA 78 [1994]; Art 2210 and 2211,CC)

MULTIPLE CHOICE QUESTIONS

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in the case where the adverse party is a Juridical Body, the redemption period providedby law is only 3 months.

Consequently, the position of the bank with respect to the real estate mortgage over the

land and building owned by the borrower, Primetime Corporation, a juridical body, theperiod of redemption is only three (3) months, which period already expired. Hence theborrower could no longer redeem it. And as to the real estate mortgage over theresidential house and lot owned by Mr. Timbol, the period of redemption is one (1) yearfrom the date of registration of the certificate of sale, which period has not yet expired inthis case and hence, he still has the right to redeem it by paying the amount same asthe purchase price.

MULTIPLE CHOICE QUESTIONS

Primetime Corporation (the Borrower) obtained a P10 Million, five-year term loan fromUniversal Bank (the Bank) in 1996. As security for the loan and as required by theBank, the Borrower gave the following collateral security in favor of the Bank: 1) a realestate mortgage over the land and building owned by the Borrower and located inQuezon City; 2) the joint and several promissory note of Pr. Primo Timbol, thePresident of the Borrower; and 3) a real estate mortgage over the residential house andlot owned by Mr. Timbol, also located in Quezon City. Because of business reverses,neither the Borrower nor Mr. Timbol was able to pay the loan. In June 2001, the Bankextra judicially foreclosed the two real estate mortgages, with the Bank as the onlybidder in the foreclosure sale. On September 16, 2001, the certificates of sale of the twoproperties in favor of the Bank were registered with the Register of Deeds of QuezonCity. Ten months later, both the Borrower and Mr. Timbol were able to raise sufficientfunds to redeem their respective properties from the Bank, but the Bank refused topermit redemption on the ground that the period for redemption had already expired,so that the Bank now has absolute ownership of both properties. The Borrower and Mr.Timbol came to you today, September 15, 2002, to find out if the position of the Bank iscorrect. What would be your answer?

a) They can no longer redeem both of the properties. Because the period ofredemption has expired

b) They can still recover both the land and building and the residential house andlot

c) The residential house and lot but not the land and building, can still be recoveredd) The land and building but not the residential house and lot can still be recovered

Answer: C