Short answer. Under Article 1958 of the Civil Code, when interest is payable in kind — such as in rice or other produce — its value is determined using the current market price of that product at the time and place where payment falls due. The price at the moment of payment, not when the loan was made, governs.
What the law says
In the determination of the interest, if it is payable in kind, its value shall be appraised at the current price of the products or goods at the time and place of payment.
Civil Code, Article 1958 — Interest Payable in Kind. Read the full provision →
The rule on valuing in-kind interest
Article 1958 of the Civil Code provides: "In the determination of the interest, if it is payable in kind, its value shall be appraised at the current price of the products or goods at the time and place of payment." This rule resolves what might otherwise be an ambiguous situation. When a loan agreement calls for interest to be paid in rice, grain, or any other commodity rather than money, the parties need a way to establish the monetary equivalent — whether for comparison to usury limits, for conversion if the borrower pays cash instead, or for enforcement of the obligation in court. Article 1958 answers that by anchoring the valuation to the market at the time and place payment is due.
Why the time and place of payment matter
The choice of valuation date — the moment of payment, not the moment the loan was made — is deliberate. Commodity prices fluctuate significantly over time. If the interest were valued at the price when the loan was signed, a borrower could be underpaid or overpaid depending on whether prices rose or fell. Using the current price at the time payment falls due ties the valuation to the actual market at the relevant moment, giving the creditor the fair market value of the interest it is owed. The place of payment also matters: prices differ by locality, and the article uses the market at the specific place where payment is to be made, not some general or national price.
Practical implications for the borrower
If you borrowed money and agreed to pay interest in rice, the amount of rice you owe each period is set by the loan agreement. What Article 1958 governs is how that rice-interest is valued — which matters if, for example, you want to pay the equivalent amount in cash instead, or if there is a dispute about whether the interest is excessive. The law values the rice at the going rate in your area on the day payment is due. If prices are low that day, the monetary equivalent of your rice-interest is lower; if prices are high, it is higher. The obligation in kind stays constant; the monetary equivalent moves with the market.
When valuation disputes arise
Disputes can arise when the parties disagree on what the current price actually was at the time and place of payment — particularly in areas without a transparent published market price. In that situation, the question of fact would be which price prevailed in the relevant local market at the relevant time, provable through invoices, receipts, public market records, or testimony from local traders. Article 1958 points to the current local price as the standard; establishing that price in a contested case requires the same evidence used to prove any commercial fact in litigation.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Fernando Gabatin, et al. vs. Land Bank of the Philippines, G.R. No. 148223, November 25, 2004 — read the decision on LawPhil →
- Spouses Benito Baysa and Victoria Baysa vs. Spouses Fidel Plantilla and Susan Plantilla, etc, G.R. No. 159271, July 13, 2015 — read the decision on LawPhil →
- Land Bank of the Philippines vs. Manuel O. Gallego, Jr., et al, G.R. No. 173226, January 20, 2009 — read the decision on LawPhil →