G.R. No. 173227. January 20, 2009.

*
SEBASTIAN SIGA-AN, petitioner, vs. ALICIA VILLANUEVA, respondent.

CHICO-NAZARIO, J.:

Facts: Respondent was a businesswoman engaged in supplying office materials and equipments to the
Philippine Navy Office (PNO) located at Taguig City, while petitioner was a military officer and
comptroller of the PNO from 1991 to 1996. Sometime in 1992, petitioner approached her inside the PNO
and offered to loan her the amount of P540,000.00. The loan agreement was not reduced in writing. Also,
there was no stipulation as to the payment of interest for the loan.

On 31 August 1993, respondent issued a check worth P500,000.00 as partial payment of the loan. On 31
October 1993, she issued another check for P200,000.00 as payment of the remaining balance of the loan.
The excess of P160,000 would be applied as interest. Dissatisfied, petitioner pestered and threatened her
to pay additional interest. Thus, she paid additional amounts in cash and checks as interests for the loan
which sums up to P1,200,000.00.

In the petitioners version, he admitted that the total amount of borrowed amount is P1,240,000 with
interest and that respondent issued 6 postdated checks amounting to that amount but upon presentment to
the bank, only one check was honored. He demanded for settlement of her obligation but the latter failed
to do so. So, he filed for criminal cases of BP 22 against the respondent.

RTC held that there was overpayment because there was no interest agreed upon. CA affirmed.

Issue: Whether or not interest was due to the petitioner

Ruling: No. Compensatory interest is not chargeable in the instant case because it was not duly proven
that respondent defaulted in paying the loan and no interest was due on the loan because there was no
written agreement as regards payment of interest.

Article 1956 of the Civil Code refers to monetary interest, specifically mandates that no interest
shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing
provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the
payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The
concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held
that collection of interest without any stipulation therefor in writing is prohibited by law.

Analysis: Interest is a compensation fixed by the parties for the use or forbearance of money. This is
referred to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity
for damages. This is called compensatory interest. The right to interest arises only by virtue of a contract
or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded.
Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as
monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for
damages. This is called compensatory interest.18 The right to interest arises only by virtue of a contract
or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded.19

Article 1956 of the Civil Code, which refers to monetary interest,20 specifically mandates that no
interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the
foregoing provision, payment of monetary interest is allowed only if: (1) there was an express stipulation
for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing.
The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have
held that collection of interest without any stipulation therefor in writing is prohibited by law

There are instances in which an interest may be imposed even in the absence of express stipulation,
verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the
obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of
12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest
was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal
interest from the time it is judicially demanded, although the obligation may be silent on this point.

All the same, the interest under these two instances may be imposed only as a penalty or damages for
breach of contractual obligations. It cannot be charged as a compensation for the use or forbearance of
money. In other words, the two instances apply only to compensatory interest and not to monetary
interest.29 The case at bar involves petitioner’s claim for monetary interest.

Further, said compensatory interest is not chargeable in the instant case because it was not duly proven
that respondent defaulted in paying the loan. Also, as earlier found, no interest was due on the loan
because there was no written agreement as regards payment of interest.

Apropos the second assigned error, petitioner argues that the principle of solutio indebiti does not apply
to the instant case. Thus, he cannot be compelled to return the alleged excess amount paid by
respondent as interest.30

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.31 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.32 We have held that the principle of solutio
indebiti applies in case of erroneous payment of undue interest.33

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 as regards 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.

It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither
was there convincing proof of written agreement between the two regarding the payment of interest.
Respondent testified that although she accepted petitioner’s offer of loan amounting to ₱540,000.00,
there was, nonetheless, no verbal or written agreement for her to pay interest on the loan.22

As earlier stated, petitioner filed five (5) criminal cases for violation of Batas Pambansa Blg. 22 against
respondent. In the said cases, the MeTC found respondent guilty of violating Batas Pambansa Blg. 22 for
issuing five dishonored checks to petitioner. Nonetheless, respondent’s conviction therein does not
affect our ruling in the instant case. The two checks, subject matter of this case, totaling ₱700,000.00
which respondent claimed as payment of the ₱540,000.00 worth of loan, were not among the five
checks found to be dishonored or bounced in the five criminal cases. Further, the MeTC found that
respondent made an overpayment of the loan by reason of the interest which the latter paid to
petitioner.39

Article 2217 of the Civil Code provides that moral damages may be recovered if the party underwent
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation and similar injury. Respondent testified that she experienced sleepless
nights and wounded feelings when petitioner refused to return the amount paid as interest despite her
repeated demands. Hence, the award of moral damages is justified. However, its corresponding amount
of ₱300,000.00, as fixed by the RTC and the Court of Appeals, is exorbitant and should be equitably
reduced. Article 2216 of the Civil Code instructs that assessment of damages is left to the discretion of
the court according to the circumstances of each case. This discretion is limited by the principle that the
amount awarded should not be palpably excessive as to indicate that it was the result of prejudice or
corruption on the part of the trial court.40 To our mind, the amount of ₱150,000.00 as moral damages is
fair, reasonable, and proportionate to the injury suffered by respondent.

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages
may be imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he
pestered respondent to pay interest and threatened to block her transactions with the PNO if she would
not pay interest. This forced respondent to pay interest despite lack of agreement thereto. Thus, the
award of exemplary damages is appropriate. The amount of ₱50,000.00 imposed as exemplary damages
by the RTC and the Court is fitting so as to deter petitioner and other lenders from committing similar
and other serious wrongdoings.41
Conclusion: WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the
following MODIFICATIONS: (1) the amount of P335,000.00 as refundable amount of interest; (2) the
amount of P150,000.00 imposed as moral; (3) an interest of 6% per annum is imposed on the
P335,000.00, on the damages awarded and on the attorney’s fees to be computed from the time of the
extrajudicial demand on 3 March 1998 up to the finality of this Decision; and (4) an interest of 12% per
annum is also imposed from the finality of this Decision up to its satisfaction.
G.R. No. 90027. March 3, 1993.*
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs. THE HONORABLE COURT OF
APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

DAVIDE, JR., J.:

Facts: Petitioner and Spouses Pugao entered into an agreement to whereby the former purchased from the
latter two (2) parcels of land for a consideration of P350,625.00. Among the terms and conditions of the
agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land were that the
titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the
owner's copies of the certificates of titles shall be deposited in a safety deposit box of any bank.

Petitioner and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank
and Trust Company. For this purpose, both signed a contract of lease. Thereafter, a certain Mrs. Margarita
Ramos offered to buy from the petitioner the two (2) lots. Mrs. Ramos demanded the execution of a deed
of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre,
accompanied by the Pugaos, then proceeded to the respondent Bank to open the safety deposit box and
get the certificates of title. However, when opened in the presence of the Bank's representative, the box
yielded no such certificates.

Trial court dismissed the complaints. CA affirmed.

Issue: Whether or not the contractual relation between a commercial bank and another party in a contract
of rent of a safety deposit box with respect to its contents placed by the latter one of bailor and bailee or
one of lessor and lessee?

Ruling: In the instant case, the respondent Bank's exoneration cannot, contrary to the holding of the
Court of Appeals, be based on or proceed from a characterization of the impugned contract as a contract
of lease, but rather on the fact that no competent proof was presented to show that respondent Bank was
aware of the agreement between the petitioner and the Pugaos to the effect that the certificates of title
were withdrawable from the safety deposit box only upon both parties' joint signatures, and that no
evidence was submitted to reveal that the loss of the certificates of title was due to the fraud or negligence
of the respondent Bank. This in turn flows from this Court's determination that the contract involved was
one of deposit. Since both the petitioner and the Pugaos agreed that each should have one (1) renter's key,
it was obvious that either of them could ask the Bank for access to the safety deposit box and, with the
use of such key and the Bank's own guard key, could open the said box, without the other renter being
present.

Analysis: ART. 1972. The depositary is obliged to keep the thing safely and to return it, when required,
to the depositor, or to his heirs and successors, or to the person who may have been designated in the
contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed by
the provisions of Title l of this Book. If the deposit is gratuitous, this fact shall be taken into account in
determining the degree of care that the depositary must observe."

Conclusion: The petition for review is denied for lack of merit