Interest on Installment Payments: When Does the Clock Stop Ticking

When a buyer misses installment payments on a house and lot, interest starts to accrue. But when does that interest stop? A common misconception is that telling the seller "I am ready to pay" is enough to freeze the interest clock. The Supreme Court, in Spouses Bonrostro v. Spouses Luna (G.R. No. 172346, July 24, 2013), clarified that a mere expression of willingness to pay—without actual payment or a proper legal deposit—does not stop interest from running.

The Case: A Contract to Sell Gone Sour

In 1992, Constancia Luna bought a house and lot from Bliss Development Corporation under a Contract to Sell. A year later, she sold the same property to Lourdes Bonrostro under another Contract to Sell. The price was ₱1,250,000.00, payable in installments: ₱200,000.00 down payment, ₱300,000.00 by April 30, 1993, ₱330,000.00 by July 31, 1993, and the balance through monthly amortizations to Bliss.

The contract stated that if the ₱300,000.00 installment was not paid on time, a 2% monthly interest would start on May 1, 1993. Bonrostro paid only the down payment. She failed to pay the subsequent installments. When the Lunas sued for rescission, Bonrostro argued she was ready and willing to pay, pointing to a November 24, 1993 letter expressing her desire to settle the balance.

The Issue: Does a Letter Stop Interest?

The central question was whether Bonrostro's letter—and her claimed readiness to pay—suspended the accrual of interest on the unpaid installments. The Supreme Court said no.

The Ruling: Tender of Payment Requires More Than Words

The Court distinguished between a mere expression of intent and a valid tender of payment. Under Philippine law, tender of payment is the manifestation by the debtor of a desire to comply with an obligation. But tender alone produces no legal effect. To stop interest, the debtor must follow through with consignation—depositing the amount due with the proper court after the creditor refuses payment.

The Court cited civilist Arturo Tolentino: interest is suspended only when the tender is accompanied by the means of payment and followed by a prompt attempt to consign the amount in court. In this case, Bonrostro's letter merely stated her willingness to pay. It was not accompanied by the money, and she never resorted to consignation. Her assumption that notice alone would excuse her from interest was wrong.

Interest on the Amortizations to Bliss

Bonrostro also argued that she should not pay interest on the ₱214,492.62 that the Lunas paid to Bliss on her behalf. She claimed Constancia had instructed Bliss not to accept payments from her, invoking Article 1186 of the Civil Code, which deems a condition fulfilled when the obligor voluntarily prevents its fulfillment.

The Court rejected this argument. Article 1186 requires two elements: (1) intent to prevent fulfillment, and (2) actual prevention. While Constancia did write to Bliss, there was no proof that Bliss actually refused payments from Bonrostro. In fact, Bonrostro had made only one payment to Bliss—seven months after taking possession—and unpaid amortizations remained outstanding. The Lunas were forced to pay Bliss to avoid cancellation of the original contract, and they were entitled to reimbursement with interest.

Practical Takeaways

• A letter saying "I am ready to pay" does not stop interest. To suspend interest, a buyer must actually pay or, if the seller refuses, deposit the amount in court through consignation.
• Tender of payment and consignation go together. Without consignation, a tender of payment produces no legal effect.
• Interest runs from the date of default until full payment. The contract's stipulated interest rate applies; if none is stipulated, the legal rate applies.
• Article 1186 requires actual prevention. A mere instruction to a third party not to accept payment is not enough—there must be proof that the instruction was followed and actually blocked the payment.
• In a contract to sell, non-payment is not a breach warranting rescission. It is a failure of a suspensive condition, governed by the Maceda Law (R.A. No. 6552) for installment sales of real property.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.