Spouses Salvador Abella and Alma Abella vs.

Spouses Romeo Abella and Annie Abella

G.R. No. 195166, 8 July 2015
Leonen, J.

Facts
• Respondents Spouses Romeo and Annie Abella (respondents) obtained a loan from petitioners
Spouses Salvador and Alma Abella (petitioners) in the amount of P500,000.00 and payable within
one (1) year. The loan was evidenced by an acknowledgment receipt dated 22 March 1999.
• Respondents were able to pay a total of P200,000.00 - P100,000.00 paid on 30 June 2001 and
another P100,000.00 paid on 30 December 2001 - leaving an unpaid balance of P300,000.00.
• On 31 July 2002, petitioners filed a complaint for sum of money and damages with prayer for
preliminary attachment against respondents before the Regional Trial Court (RTC), Branch 8, Kalibo,
Aklan.
• In their answer, respondents alleged that the amount involved did not pertain to a loan they obtained
from the petitioners. The alleged that it was, instead, part of the capital for a joint venture involving
the lending of money.
• Respondents claimed that petitioners proposed that if respondents were to undertake the
management of whatever money petitioners would give them, petitioners would get 2.5% a
month while respondents would get 2.5% service fee. The 2.5% that each party would be
receiving represented their sharing of the 5% interest that the joint venture was supposedly
going to charge against its debtors
• Respondents also claimed that the entire P500,000.00 was disposed of in accordance with
their terms and conditions and that when the petitioners terminated the joint venture, they
were prompted to collect from the joint venture’s borrowers but they were only able to get
P200,000.00 therefore leaving a balance of P300,000.00
• On 28 December 2005, the RTC ruled in favor of petitioners. The RTC concluded that the
respondents obtained a simple loan, although they later invested its proceeds in a lending enterprise.
• The RTC noted that the terms of the acknowledgment receipt executed by the respondents
clearly show that the respondents were indebted to the extent of P500,000.00 because the
indebtedness was to be paid within one (1) year and the indebtedness was subject to
interest.The RTC held the respondents solidarily liable and ordered them to pay petitioners
the supposedly unpaid balance of P300,000.00 plus the allegedly stipulated interest rate of
30% per annum, litigation expenses, and attorney’s fees.
• On 30 September 2010 the Court of Appeals (CA) reversed and set aside the decision of the RTC.
The CA ruled that while the respondents indeed entered into a simple loan with petitioners, they were
no longer liable to pay the outstanding amount of P300,000.00.
• The CA reasoned that the loan could not have earned interest because Article 1956 of the
Civil Code requires that interest be stipulated in writing for it to be due. In this case, while the
acknowledgment showed interest was to be charged, no interest rate was specified.
• The CA held that since the charging of interest was invalid, all the payments of the
respondents made by way of interest should be deemed payment for the principal amount of
P500,000.00. Since the respondents made a total payment of P648,500.00 against the
principal amount of P500,000.00, they entailed an overpayment of P148,500.00.

• In applying the principle of solutio indebiti, the CA directed petitioners to pay respondents
P148,500.00 (plus interest), which was the amount respondents supposedly overpaid. The CA denied
petitioners’ Motion for Reconsideration. Hence, this petition.
Issues and Rulings

I. Did respondents enter into a simple loan or mutuum?

Yes, respondents entered into a simple loan or mutuum and not a joint venture.

Article 1933 of the Civil Code provides a guidepost to determine if a contractual relation is a simple loan
or mutuum. Article 1933 states:

Art. 1933. By the contract of loan, one of the parties delivers to another, either something
not consumable so that the latter may use the same for a certain time and return it, in which case
the contract is called a commodatum; or money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall be paid, in which case the contract is
simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower.

Furthermore, Article 1953 of the Civil Code provides:

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality

In the case at bar, the acknowledgement receipt provided by the respondents attests to the following:
first, respondents’ receipt of P500,000.00 from petitioner; second, respondents’ duty to pay back the
amount within one (1) year from 22 March 1999; and third, respondents’ duty to pay interest. Consistent
with what constitutes a loan, petitioners delivered to the respondents P500,000.00 with the corresponding
condition that the respondents will pay back the same amount within one (1) year.

Hence, based on the straightforward text of the acknowledgment receipt and the delivery of the
petitioners, the respondents entered into a simple loan or mutuum.

II. If respondents entered into a simple loan or mutum, did interest accrue on the loan? If so, at
what rate?

Yes, conventional interest (i.e. interest as the cost of borrowing money) accrued on the loan at 12% per
annum.

Article 1956 of the Civil code states the rule that, “no interest shall be due unless it has been expressly
stipulated in writing.” In the case at bar, the text of the acknowledgment receipt is simple. It attests to the
contracting parties’ intent to subject interest the on the subject loan. However, the acknowledgement
receipt did not state the rate of interest.
In the cases of Spouses Toring v. Spouses Olan1 and Security Bank and Trust Company v. Regional
Trial Court of Makati, Branch 612, the Supreme Court held that,

1
589 Phil. 362; 568 SCRA 376 (2008) [Per J. Quisumbing, Second Division]
2
331 Phil. 787
 “In a loan or forbearance of money, according to the Civil Code, the interest due should be that
stipulated in writing, and in the absence thereof, the rate shall be 12% per annum.”

However, in Nacar v. Gallery Frames, the legal rate of interest has been reduced to 6% per annum3
Furthermore, The Monetary Board, in its Resolution No. 796 dated 16 May 2013, provides:

“Section 1. The rate of interest for the loan or forbearance of any money, goods or credits
and the rate allowed in judgments, in the absence of an express contract as to such rate of
interest, shall be six percent (6%) per annum.”

Therefore, the Supreme Court held that in the absence of an express stipulation as to the rate of interest
that would govern the parties, the rate of legal interest for loans, etc. shall be six percent (6%) per annum.
However, it noted that, pursuant to the Monetary Board Resolution No. 796, the new 6% rate could only
be applied prospectively and not retroactively.

“Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30,
2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of
interest when applicable.”

In the case at bar, the loan was obtained by the respondents on 22 March 1999 and at that time, the
legal rate of interest was 12%. Hence, the loan is subject to 12% interest. Furthermore, the Court held
that should the interest still be due as of 1 July 2013, the rate of 12% per annum shall persist since the
legal rate of interest, when applied as conventional interest, shall always be the legal rate at the time the
agreement was executed and shall not be susceptible in shifts in rate.

Furthermore, the conventional interest of 12% per annum shall itself earn interest from the time judicial
demand is made by the petitioners. Art. 2212 of the Civil Code provides,

“Interest due shall earn legal interest from the time it is judicially demanded, although the obligation
may be silent upon this point. So, too, Nacar states that “the interest due shall itself earn legal interest
from the time it is judicially demanded.”

In the case at bar, judicial demand was made by petitioners on 31 July 2002. Hence, the interest due on
conventional interest shall be 12% per annum from 31 July 2002 to 30 June 2013 and shall be at the the
rate of 6% thereafter.

III. Are petitioners are liable to reimburse respondents from the latter’s supposed excess
payments and for interest?

Yes, the petitioners are liable to reimburse the respondents from the latter’s supposed excess payments
and for interest. In the case at bar, the parties admitted that from the time the principal sum of
P500,000.00 was borrowed, the respondents have been religiously paying what was supposedly interest
at 2.5% per month. By 21 June 2002, respondents respondents had not only fully paid the principal and
all the conventional interest that had accrued on their loan. By this date, they also overpaid P3,379.17.
Therefore, the Court held that petitioners are now bound by a quasi-contractual obligation to return any

3
G.R. No. 189871, August 13, 2013, 703 SCRA 439
and all excess payments delivered by respondents. The Court directed petitioners to reimburse jointly
the amount of P3,379.17, which respondents have overpaid.