Case Digest: Lara’s Gifts & Decors, Inc. v. Midtown Industrial Sales, Inc., G.R. No. 225433, August 28, 2019

RELATED TOPIC: Modifying the imposition of interest as provided in Nacar v. Gallery Frames 

FACTS: Lara’s Gifts & Decors, Inc. acquired various industrial and construction materials from Midtown Industrial Sales, Inc. on a 60-day credit term, totaling ₱1,263,104.22, with a 24% annual interest on overdue accounts. Petitioner attempted to pay using multiple postdated checks from Chinabank, but these checks bounced upon deposit. The petitioner then issued replacement checks, which were also dishonored, first for “Drawn Against Insufficient Funds” and later for “Account Closed.” Despite receiving a demand letter on January 22, 2008, petitioner did not make the payment, leading respondent to file a Complaint for Sum of Money with a Prayer for Attachment on February 5, 2008.

ISSUES: 

1. Whether or not the interest rate fixed at 24% per annum is void. 
2. Assuming that the interest rate of 24% is valid, whether or not said rate shall be applied only until the finality of judgment. 

DECISION: 

1. In the present case, petitioner, which has been doing business since 1990 and has been purchasing various materials from respondent since 2004, cannot claim to have been misled into agreeing to the 24% interest rate which was expressly stated in the sales invoices. Besides, this Court has already ruled in several cases that an interest rate of 24% per annum agreed upon between the parties is valid and binding18 and not excessive and unconscionable. Thus, the stipulated 24% interest per annum is binding on petitioner. 

2. The rate shall be applied until full payment of obligation, and not until finality of judgment.  

When the obligation is breached, and it consists of the payment of a sum of money, i.e, a loan or forbearance of money, goods, credits, or judgments, the interest due shall be that which is stipulated by the parties in writing, provided it is not excessive and unconscionable, which, in the absence of a stipulated reckoning date, shall be computed from default, i.e., from extrajudicial or judicial demand in accordance with Article 1169 of the Civil Code, UNTIL FULL PAYMENT. 

This case involves a forbearance of credit wherein petitioner was granted a 60-day credit term on its purchases, with the condition that a 24% interest per annum would be charged on all accounts overdue. Since there was an extrajudicial demand before the complaint was filed, interest on the amount due begins to run not from the filing of the complaint but from the date of such extrajudicial demand. Thus, the unpaid principal obligation of P1,263,104.22 shall earn the stipulated interest of 24% per annum from the date of extrajudicial demand on January 22, 2008, until full payment. 

Read the full case here.