Sheryl G. Borbon Obligations and Contracts Atty.

Marietta Turingan

MEMORANDUM OF LAW

RIZAL BANKING CORPORATION vs. ALFA RTW MANUFACTURING CORPORATION,. Et. Al G.R No. 133877 November 14, 2001 LEGAL ISSUE; In computing and determining the payment of interest, when shall the interest rate commence? ANSWER 1. 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. 2. 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 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. 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.. STATEMENT OF FACTS;

ALFA RTW applied a four separate (4) letters of credit to RCBC which was granted by the petitioner. When the obligation upon said commercial documents became due, the plaintiff demanded payment from the defendant. Petitioner brought this action in RTC where the trial court render a favorable judgment to the plaintiff, ordering the defendants to pay the plaintiff, jointly and severally P18,961,372.43, Philippine currency, inclusive of interest, service charges, litigation expenses and attorneys fee, with interest thereon at the legal rate from February 15,1988 until fully paid. And on appeal the Court of Appeal affirmed with modification the RTC decision. That instead of P18,961,372.43 all the defendant are hereby ordered to pay jointly and severally to plaintiff the amount of P3,060,406.25 inclusive of stipulated interest, service charges, litigation expenses and attorneys fees with interest thereon at the legal rate from February 15, 1988 until fully paid. HELD; The appellate court made a reversible error when it ruled that only P P3,060,406.25 should be awarded to RCBC. The CA also disregarded the stipulated contract of loan between the parties specifically those pertaining to the agreed interest rate, service charges and the penalties in case of breach thereof. The obligation between the parties is arising from a letter of credit-trust receipt transaction. In contracts contained in trust receipts the contracting parties may establish agreements, terms and conditions they may deem advisable, provided they are not contrary to law, morals or public order. Here the contracting parties themselves agreed the interest, charges and penalties to be imposed in case of breached but nonetheless the appellate court awarded the sum of P3,060,406.25 as it was the amount prayed for in the complaint, and also failed to consider that the complaint was filed on March 12, 1982 a year after the execution of the trust receipts. CONCLUSION; Obligations arising from contracts have the force of law between the contracting parties and should be complied with good faith. And Article 1309 of the Civil Code says; the contracting parties may establish such stipulation, clauses terms and conditions they may deem convenient, provided they are not contrary to law, morals good customs and public order, or public policy. The court may only sets an agreement if the contract is contrary to laws etc.