G.R. No. 173227 January 20, 2009
Sebastian Siga-an, Petitioner, vs. Alicia Villanueva, Respondent.

FACTS

Respondent Alicia Villanueva, a businesswoman supplying the Philippine Navy Office (PNO), filed a complaint for sum of money against petitioner Sebastian Siga-an, a military officer and comptroller of the PNO. Respondent alleged that in 1992, petitioner offered and she accepted a loan of ₱540,000.00 to finance her business. The loan agreement was not reduced in writing, and there was no stipulation for the payment of interest. Respondent issued checks totaling ₱700,000.00 as payment, with petitioner applying the ₱160,000.00 excess as interest. Petitioner then demanded additional interest, threatening to block her PNO transactions if she refused. Fearing such repercussions, respondent made further payments in cash and checks, bringing the total paid to ₱1,200,000.00. Upon legal advice that no interest was due absent a written stipulation, respondent demanded the return of the ₱660,000.00 excess. Petitioner ignored the demand.
Petitioner denied offering a loan, claiming respondent requested it. He asserted that after full payment of the first loan, respondent obtained another loan and later executed a promissory note dated September 12, 1994, acknowledging an obligation of ₱1,240,000.00 inclusive of interest, and issued postdated checks as guarantee. When some checks bounced, he filed criminal cases under Batas Pambansa Blg. 22. Petitioner argued respondent was estopped from denying the interest due.
The Regional Trial Court (RTC) ruled for respondent, ordering petitioner to refund ₱660,000.00 under the principle of solutio indebiti, plus damages, attorney’s fees, and costs. The Court of Appeals affirmed the RTC decision in toto.

ISSUE

1. Whether the RTC and the Court of Appeals erred in ruling that no interest was due to petitioner.
2. Whether the RTC and the Court of Appeals erred in applying the principle of solutio indebiti.

RULING

The Supreme Court DENIED the petition and AFFIRMED the assailed Court of Appeals Decision.
1. On the issue of interest: The Court held that no monetary interest was due. Under Article 1956 of the Civil Code, monetary interest is only due if: (a) there is an express stipulation for its payment, and (b) the agreement is reduced in writing. Both conditions must concur. Here, there was no express stipulation for interest in the original loan agreement, and no convincing proof of a subsequent written agreement. The promissory note presented by petitioner was not a valid written stipulation, as respondent testified she was coerced into copying it under threat of having her PNO transactions blocked. This testimony was unrebutted. Therefore, petitioner could not validly collect interest.
2. On the application of solutio indebiti: The Court held the principle was correctly applied. Solutio indebiti applies when a payment is made when no debt is due, under a mistake of fact or law. Here, respondent paid amounts beyond the principal loan of ₱540,000.00 based on the mistaken belief, induced by petitioner’s threats and lack of legal knowledge, that she was obligated to pay interest. Since no interest was legally due, these excess payments were made by mistake. Petitioner, who received something not rightfully due him, is obligated to return it under Article 2154 of the Civil Code.
The awards for moral damages (for petitioner’s coercion causing respondent sleepless nights and wounded feelings), exemplary damages (by way of example for the public good), attorney’s fees, and legal interest were also upheld as justified.