Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank Insurance Co.

G.R. No. 189563. April 7, 2014

MAIN TOPIC – Interest

FACTS

• One Virtual purchased from Gilat various telecommunications equipment at a total purchase price of US$2,128,250.00. To ensure the prompt payment of this amount, it obtained defendant UCPB General Insurance Co., Inc.’s surety bond in favor of Gilat.
• GILAT shipped and delivered to One Virtual the purchased products and equipment for which payment was secured by the surety bond.

• One Virtual failed to pay GILAT in accordance with the payment schedule.  GILAT wrote the surety defendant UCPB, a demand letter  for payment but no part of the amount set forth in this demand has been paid to date by either One Virtual or defendant UCPB.
• Gilat filed a Complaint against respondent UCPB General Insurance Co., Inc., to recover the amounts supposedly covered by the surety bond, plus interests and expenses.
• Anent the issue of interests, petitioner alleges that it deserves to be paid legal interest of 12% per annum petitioner alleges that it deserves to be paid legal interest of 12% per annum from the time of its first demand because of the latter’s delay in discharging its monetary obligation.
• RTC stated that interests may only accrue when the delay or the refusal of a party to pay is without any justifiable cause. In this case, respondent’s failure to heed the demand was due to the advice of One Virtual that petitioner allegedly breached its undertakings as stated in the Purchase Agreement.
• The CA, however, made no pronouncement on this matter.

ISSUE

• Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by respondent of its obligation under the Suretyship Agreement.

HELD

• YES. Article 2209 of the Civil Code is clear: “if an obligation consists in the payment of a sum of money, and the debtor incurs a delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest.” 

• Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation, and the latter fails to comply. Having held that a surety upon demand fails to pay, it can be held liable for interest, even if in thus paying, its liability becomes more than the principal obligation. The increased liability is not because of the contract, but because of the default and the necessity of judicial collection.
• As to the issue of when interest must accrue, our Civil Code is explicit in stating that it accrues from the time judicial or extrajudicial demand is made on the surety. This ruling is in accordance with the provisions of Article 1169 of the Civil Code and of the settled rule that where there has been an extrajudicial demand before an action for performance was filed, interest on the amount due begins to run, not from the date of the filing of the complaint, but from the date of that extrajudicial demand.

DISPOSITIVE PORTION 

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No. 89263 are REVERSED. The Decision of the Regional Trial Court, Branch 141, Makati City is REINSTATED, with MODIFICATION insofar as the award of legal interest is concerned. Respondent is hereby ordered to pay legal interest at the rate of 6% per annum from 5 June 2000 until the satisfaction of its obligation under the Suretyship Contract and Purchase Agreement.

SO ORDERED.

DOCTRINE

Interest, as a form of indemnity, may be awarded to a creditor for the delay incurred by a debtor in the payment of the latter’s obligation, provided that the delay is inexcusable.