Short answer. At the current market price of the goods at the place of payment on the day payment falls due. Article 1958 says interest payable in kind is appraised at the current price of the products or goods at the time and place of payment — not at the price prevailing when the loan was first made.
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 →
Interest need not be paid in money
A simple loan of money or fungible goods can carry interest, and that interest does not have to take the form of cash. Parties sometimes agree that the lender is compensated in produce or goods — so many sacks of palay, a quantity of harvest, a measure of some commodity. The moment interest is expressed that way, a valuation question follows: goods have a market price that moves, so the parties need a fixed rule for converting the agreed quantity into a value. Article 1958 supplies that rule and removes the argument from the moment of payment.
The reference point is payment, not the loan date
The article is specific about which moment governs: 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. The value is read off the market as it stands when the debtor pays, in the place where he pays. This means price movements between the day the loan was taken and the day it is settled fall on the debtor if the goods have risen and benefit him if they have fallen; the parties agreed on a quantity of goods, and the market on payment day sets what that quantity is worth.
"Current price" and "place of payment"
Both terms carry weight. "Current price" is the prevailing market price for that product or good, not a figure the parties recall from earlier or one side's preferred valuation. "Place of payment" anchors the appraisal to a particular market, which matters where a commodity trades at different levels in different localities. To apply the rule cleanly, the parties should be able to identify the market or reference used and the date payment was due, since those two facts together fix the value the goods stand in for and leave little room for later dispute.
What the rule does and does not settle
Article 1958 answers only how interest in kind is valued; it does not by itself make the interest due. Interest is owed only where it was expressly stipulated in writing, so a lender who never put an interest term in writing cannot invoke this appraisal rule to conjure one. Where interest was properly agreed and simply expressed in goods, this provision does the arithmetic. Keep the loan document, the description of the goods and the agreed place of payment together; between them they let anyone compute the value the same way the Code directs.
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 →