Joe Pallugna THIS  issue of interest computations when a party litigant obtains a judgment from the court has confused many of our friends and neighbors. How do you compute interest rates? When shall it be computed to be compounded? There was this case wherein the defendant bonding company who guaranteed the payment of a loan with 14-percent agreed interest per annum and the principal borrower were adjudged to be liable to the creditor. The judgment became final and executory. Upon execution of the final judgment, the computation of how much sum should be executed again reached up to the Supreme Court, which then defined the rules to follow. This was the case of Tarcisio Calilung versus Paramount Insurance Corp., et al. (G.R. No. 195641, July 11, 2016), where the High Tribunal ruled that: “An elucidation on the concept of interest is appropriate at this juncture. The kinds of interest that may be imposed in a judgment are the monetary interest and the compensatory interest. In this regard, the Court has expounded in Siga-an v. Villanueva (G.R. No. 173227, Jan. 20, 2009, 576 SCRA 696): ‘Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by the courts as penalty or indemnity for damages. This is called compensatory interest. The right to interest arises only be virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest id demanded. Article 1956 of the Civil code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation therefor in writing is prohibited by law. There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 12 percent per annum may be imposed as indemnity for damages if no stipulation in the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point. All the same, the interest under these two instances may be imposed only as a penalty or damages for breach of contractual obligations. It cannot be charged as compensation for the use or forbearance of money. In other words, the two instances apply only to compensatory interest and not to monetary interest.’ The only interest to be collected from the respondents is the 14% per annum on the principal obligation of PhP718,750.00 from October 7, 1987 until full payment. There was no basis to the petitioner to claim compounded interest pursuant to Article 2212 of the Civil Code considering that the judgment did not include such obligation.” From this ruling, it is very clear that interest shall not be compounded if there is no express written agreement on it nor is it ordered by the court in its judgment. Otherwise stated, compounded interest can be imposed only if clearly ordered as a penalty or as damages for breach of contract. I hope this would help our neighbors and friends understand the real basis of interest computations and payments.   (Joe Pallugna is a lawyer based in Cagayan de Oro. E-mail: ajpallugna@gmail.com)