• Verbal agreement insufficient to prove condonation of interest on a loan

    Persida Acosta

    Persida Acosta

    Dear PAO,
    I borrowed a huge sum from my former boss who also became my friend. I gave him the title to my property as collateral for the loan that I took from him. I paid off my debt to him except for the interest we agreed on that was approximately P90,000.00. It was my former boss’ accountant who received the checks I gave as payment for the debt because at the time he was in Hong Kong.

    When he came back, I told him that I have already paid the loan except for the interest. He asked his accountant to show him the records of my debt and then he said that I no longer have to pay the interest due. These were all verbal arrangements and there was no record of our meeting. Will this hold in court? After that meeting, I left without being able to ask for my title back.

    Up to now he has my title. I already wrote him three letters requesting the release of my title but to no avail. I heard that he had an annotation on my title. Can I use our verbal agreement in court to prove that I no longer have obligations to him?


    Dear RRP,
    Contracts are perfected by the mere consent of the parties thereto. This is true whether the contract is expressly made or implicitly done. From the moment the contract is perfected, the parties thereto are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law (Article 1315, New Civil Code of the Philippines).

    There, however, must be proof or evidence to substantiate the existence of a contract. For express contracts, the actual written agreement of the parties serves as proof thereof. On the other hand, the demeanor of the parties and such other circumstantial evidence may establish implicit contracts.

    In the situation which you have presented, it appears that what transpired between you and your former boss is an implied condonation or remission of monetary obligation considering that, according to your letter, he verbally waived his demand for you to pay the sum of ninety thousand pesos (P90,000.00), which represents the unpaid interest of the loan that you took from him. But the more important issue to be addressed is whether your verbal agreement complies with what the law provides. It bears stressing that condonation or remission of obligation is recognized under our law. Nevertheless, it is crucial that it be done gratuitously and with the acceptance by the obligor. (Article 1270, Ibid.) The essential elements of remission are as follows: “(1) There must be an agreement; (2) The parties must be capacitated and must give their consent; (3) There must be a subject matter; (4) The cause or consideration must be liberality; (5) The obligation remitted must have been demandable at the time of remission; (6) The remission must not be inofficious; (7) Formalities of a donation are required in the case of express remission; (8) Waivers or remissions are not to be presumed generally. They must be clearly and convincingly shown, either by express stipulation, or by acts admitting of no other reasonable explanation (Arrieta vs. NARIC, L-15645, January 31, 1964).” (Civil Code of the Philippines Annotated, Fourteenth Edition, 2000, Edgardo L. Paras, pages 446-447)

    Applying the foregoing in your situation, we are inclined to state that your bare allegations that your former boss condoned your obligation may not suffice in court to establish the fact that you no longer have monetary obligations. There must still be acts that would clearly and convincingly prove that he is no longer interested in the payment of the interest. Articles 1271 and Article 1272 of the Civil Code provide situations that may establish implicit condonation or remission:

    “Article 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter. x x x

    Article 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved.”

    Given the fact that your title is still with your former boss and he sought the annotation of his claim at the back of your title further negates the fact that he has indeed condoned you for the payment of the interest mentioned.

    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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