G.R. No. 195166 July 8, 2015
Spouses Salvador Abella and Alma Abella, Petitioners, vs. Spouses Romeo Abella and Annie Abella, Respondents.

FACTS

Petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of money and damages against respondents Spouses Romeo and Annie Abella before the Regional Trial Court (RTC). Petitioners alleged that respondents obtained a loan of P500,000.00 from them, evidenced by an acknowledgment receipt dated March 22, 1999, payable within one year. Respondents had paid P200,000.00, leaving an unpaid balance of P300,000.00. Respondents, in their Answer, claimed the amount was not a loan but capital for a joint venture for a money-lending business, where petitioners would receive 2.5% monthly interest and respondents a 2.5% service fee. The RTC ruled in favor of petitioners, finding a simple loan and ordering respondents to pay the P300,000.00 balance with 30% annual interest from the filing of the complaint, plus litigation expenses and attorney’s fees. The Court of Appeals (CA) reversed the RTC, finding that while a simple loan existed, no valid interest rate was stipulated in writing. The CA held that the 2.5% monthly interest payments made by respondents before any judicial or extrajudicial demand were invalid and should be applied to the principal. Since respondents had paid a total of P648,500.00 against the P500,000.00 principal, there was an overpayment of P148,500.00. Applying solutio indebiti, the CA ordered petitioners to reimburse respondents this amount with interest. Petitioners filed a Petition for Review.

ISSUE

1. Whether interest accrued on respondents’ loan from petitioners, and if so, at what rate.
2. Whether petitioners are liable to reimburse respondents for supposed excess payments and for interest.

RULING

1. On the accrual of interest: The Supreme Court held that the contract was a simple loan or mutuum, as clearly evidenced by the acknowledgment receipt stating the receipt of P500,000.00, payable within one year “with interest.” However, for conventional interest to be due, Article 1956 of the Civil Code requires it to be stipulated in writing. The acknowledgment receipt did not specify an interest rate. While petitioners argued that the parties’ contemporaneous acts (i.e., respondents’ payment of 2.5% monthly interest) showed a meeting of minds on the rate, the Court ruled that the Parol Evidence Rule prohibits the introduction of extrinsic evidence to vary the terms of a written agreement when its terms are clear. The receipt’s failure to state a rate was not an imperfection that could be supplemented by extrinsic evidence, as the terms were unambiguous. Therefore, no conventional interest was validly stipulated. Consequently, the 2.5% monthly interest payments made by respondents prior to any demand were not due and could not be considered as interest payments.
2. On reimbursement and liability for interest: The Court ruled that petitioners are not liable to reimburse respondents under the principle of solutio indebiti. Solutio indebiti applies when something is received without right to demand it and it was unduly delivered through mistake. Here, respondents’ payments were made voluntarily and with knowledge of the facts (they knew the receipt did not specify a rate). There was no mistake that would warrant reimbursement. The payments made by respondents, absent a valid stipulation on interest, should be considered as payments to the principal obligation. The total payments of P648,500.00 exceeded the principal of P500,000.00. However, the Court modified the CA’s computation. The proper application is that payments should first be applied to the principal. Since the principal was extinguished by overpayment, petitioners have no right to collect the alleged P300,000.00 balance. Instead, respondents are entitled to the return of the excess payment of P148,500.00. Following Nacar v. Gallery Frames, the monetary award shall earn legal interest at 6% per annum from the date of the CA decision (September 30, 2010) until its finality. Upon finality of judgment, the interest rate shall be 12% per annum (now 6% per annum under Bangko Sentral Circular No. 799, effective July 1, 2013) until full satisfaction. The Court affirmed the CA’s reversal of the RTC but modified the basis for the reimbursement, denying it under solutio indebiti but granting it as a return of excess payment, with the appropriate interest rates applied.