Legal Interest

Fernando Langa

By Fernando Langa and Gilda Rivas

We can define INTEREST as the sum of money owed ​​to the creditor as compensation for the damage caused by the breach or late performance of an obligation; it is LEGAL when the rate is fixed by law; it is JUDICIAL when it is owed ​​from the filing of a complaint or from a prior intimation; it is COMPENSATORY when it is intended to repair the damage resulting from the definitive breach of an obligation or its defective performance; it is MORATORIUM when it is designed to repair the damage resulting from the delay in the fulfillment of an obligation.

In contractual civil liability, there is an applicable condemnation for damages by reason of non-compliance with the legal obligation or because of a delay in carrying it out1; similarly, obligations that are limited to the payment of a certain amount and damages that may result from delay in performance, only consist condemnation to the interests specified by law2.

In the contractual context, the imposition of interest was contemplated by the legislature in our legal system, stating that such compensation is limited to satisfy no more damage than that anticipated or foreseen by the contract3; this is why the condemnation of interest in the contractual scheme has the properties of legality, because it is covered by the Dominican Civil Code; threatening and/or moratorium, because it provides a penalty to the debtor for the delay or failure to fulfill an obligation; and compensatory and/or countervailing because it quantifies the damage done.

Our Supreme Court of Justice provides that Article 1153 of the Civil Code has an accurate and clear objective when it establishes that: “… the damages resulting from the delay in the fulfillment of an obligation that is limited to the payment of certain amount, may only be compensated with the condemnation of interests specified by law …. “; having as a clear and precise objective “to compensate the damage due to the delay suffered by the creditor to receive their money in a timely manner, by the condemnation of the legal interests on the amount due, by way of moratorium compensation4.

In extracontractual civil liability, the assessments of damages is more open, it is left up to the sovereign discretion of judges without the need of legal interest, therefore, the condemnation by the judge shall be assessed at the time of making a decision or render a judgment about it.

The application of the supplementary compensation was covered by Law 312 of July 1, 1919 and Article 1153 of the Civil Code, establishing by case law “that even if it is true that the default interest cannot be applied in matters related to tort, but only from the ruling that establishes the compensation credit, nothing precludes the judge to order the person liable to pay statutory interest on compensation, by way of reparation.”

Once Law 183-02 was promulgated on the Monetary and Financial Code, which repealed Law 312 regarding the legal interest, as well as all laws or regulations contradicting this law, our highest court stated: “… in this regard, the Court could not convict the appellants … to pay the legal interests of the amounts agreed to civil actors, since the law that served as base was repealed and consequently made the legal interest disappear, the Court… rendered its decision without there being a legal standard to support it … “5

The Supreme Court ends with a judgment dated 19 September 2012 6, by which it establishes a paradigm shift regarding compensatory interest, reasoning in its preamble as follows:

Whereas, that on that line of thought, it is important to note that Articles 90 and 91 of the Monetary and Financial Code repealed all provisions of Executive Order No. 312 of June 1st, 1919 regarding Legal Interest, and all provisions contrary to this Code; that Executive Order No. 312 fixed the legal interest in one percent (1%) per month, the same rate at which it also limited the conventional interest punishing the crime of usury; that in no way that legal provision regulated the power that the law had previously recognized to judges to establish compensatory interests when deciding over claims of this sort; that the current Monetary and Financial Code does not contain any provision on the subject;

Whereas, in this frame of mind and under the principle of full compensation governing civil liability, whosoever is responsible of damage is required to compensate the victim the entirety of the loss suffered at the time when the final judgment occurs, regardless of said damage being less at the time of the injurious act or at the time the action initiated against them; that the compensatory interest established by the judges is an application of the principle of full compensation as it is an indexing mechanism or monetary restatement of the amount of compensation that pursues its adaptation to the value of the currency at the time of payment”

Thus we conclude that full compensation is when the person liable for damage compensates the victim the injury at the time of the fault in full, allowing the judges a tool that pursues its suitability to the value of the currency at the time of payment of compensation, which is not more than the compensatory interest.

1 Article 1147, Dominican Civil Code

2 Article 1153, Dominican Civil Code

3 Article 1150, Dominican Civil Code

4 SCJ, Cámara reunidas, August 15, 2007