No one shall enrich himself unjustly at the expense of another

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Persida Acosta

Dear PAO,
I borrowed money from my neighbor in the amount of P20,000.00 without any agreement as to the payment of interest, and without executing any written contract. I was able to pay the loan after two months but my neighbor demanded that I pay interest of five percent a month. I heeded and accordingly paid the interest. I just want to know if it was proper for my neighbor to demand that I pay the interest.
Thank you, and God bless.
Elpidio

Dear Elpidio,
Obligation to pay interest shall only be due when the same has been expressly stipulated in writing. Article 1956 of the Civil Code is clear:

“Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.” (Emphasis supplied)
Considering that no written contract of loan was ever executed between you and your neighbor, it consequently shows that no written stipulation regarding the payment of interest was made. Thus, your neighbor had no right to demand the payment of interest with respect to your loan and should therefore return the interest you paid pursuant to Article 1960 of the Civil Code, which reads:

“Art. 1960. If the borrower pays interest when there has been no stipulation therefor, the provisions of this Code concerning solutio indebiti, or natural obligations, shall be applied, as the case may be.” (Emphasis supplied)
In Siga-an vs. Villanueva (G.R. No. 173227, January 20, 2009, citing Moreo-Lentfer v. Wolff, G.R. No. 152317, 10 November 2004, 441 SCRA 584, 591 and Velez v. Balzarza, 73 Phil. 630, 632 1942), the Supreme Court, through former Associate Justice Minita Chico-Nazario, explained:


“Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor relationship is created under a quasi-contract whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake, and the person who has no right to receive such payment becomes obligated to return the same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense of another. The principle of solutio indebiti applies where (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. We have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest.

It was duly established that respondent paid interest to petitioner. Respondent was under no duty to make such payment because there was no express stipulation in writing to that effect. There was no binding relation between petitioner and respondent regarding the payment of interest. The payment was clearly a mistake.

Since petitioner received something when there was no right to demand it, he has an obligation to return it.” (Emphasis supplied)

Verily, your neighbor had no right to demand the payment of any interest and should therefore return the amount you paid as interest to your loan based on the principle of solutio indebiti.

We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net.

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