Interest on Loans Should Be in Writing: Relevant Legal Stipulations in the Philippines

In the Philippines, loans are governed by the Civil Code, and when it comes to interest, the law is particularly clear: interest on a loan must be stipulated in writing. This principle is crucial to understanding your obligations and rights when borrowing or lending money. If you're wondering whether you need to pay interest on a loan when it wasn't put in writing, the answer is rooted in these legal provisions.

Legal Stipulations: Civil Code of the Philippines

The Civil Code of the Philippines, specifically Articles 1956 and 1961, governs loans and interests. These articles are clear on the conditions under which interest can be charged on a loan.

- Article 1956: "No interest shall be due unless it has been expressly stipulated in writing."

  This means that if the interest rate on a loan was not agreed upon in writing, the borrower cannot be compelled to pay any interest. Even if both parties verbally agreed to an interest rate, without a written contract, the law will not enforce the interest. Only the principal amount of the loan must be repaid.

- Article 1961: This article emphasizes that loans are essentially gratuitous (free of interest) unless the contrary is clearly stated and agreed upon in writing.

- Article 1959: This also applies when pre-existing loans are modified. If a loan initially didn't include interest but is later renegotiated to add interest, the modification must also be in writing to be enforceable.

These laws protect borrowers from excessive and unfair interest rates, ensuring that interest is only charged when it is properly documented.

Do You Have to Pay Interest if the Loan Was Not in Writing?

If no written agreement specifies the interest rate, you are not legally obligated to pay interest on that loan. The lender can only recover the principal amount that was borrowed. This legal protection exists to prevent abuses where verbal agreements about high-interest rates might lead to unjust obligations for the borrower.

However, it's important to note a few caveats:

- Mutual Trust and Negotiation: In informal lending scenarios where trust exists between the lender and borrower, verbal agreements may be common, but these are not legally binding in terms of interest. While the lender might expect some form of goodwill interest, it is up to the borrower whether or not to pay it.

- Customary Business Practices: In some businesses, informal interest agreements might occur. Even so, to ensure enforceability, business lenders still draft formal contracts that specify the interest rate to avoid any ambiguity.

Practical Implications: Always Have a Written Contract

The legal principle that interest must be in writing not only safeguards the borrower from potential exploitation but also ensures transparency between the two parties involved in the transaction. Both borrowers and lenders should adhere to the following:

1. Create a Loan Agreement: Whether you're borrowing from a bank, a family member, or a friend, having a written loan agreement ensures clarity. The agreement should outline the amount borrowed, the interest rate, the payment schedule, and any other relevant terms.

2. Document Any Amendments: If any changes are made to the loan terms, especially regarding interest, the amendment should also be documented in writing. This protects both parties and ensures the terms remain enforceable by law.

3. Consult a Lawyer: If you're lending or borrowing large sums of money, consulting a lawyer to draft or review the loan contract is a wise step. Legal professionals can ensure that all necessary stipulations, including interest, are clearly stated to avoid disputes.

Conclusion

In the Philippines, interest on loans must be stipulated in writing to be legally binding. If the interest rate was not written down, the borrower is not obligated to pay any interest. This stipulation in the Civil Code protects individuals from unfair lending practices and ensures that all parties are clear about their obligations. Whether you are a borrower or lender, always make sure your loan agreements are well-documented to avoid legal complications down the road.

The benefits and privileges of senior citizens in the Philippines

What are the Filipino senior citizens' benefits granted under existing laws and regulations.

Republic Act (RA) 9994, also known as the Expanded Senior Citizens Act of 2010, grants Filipinos ages 60 years and above the following benefits and privileges:

Entitlement to priority in queues: The law requires the creation of express lanes in establishments, or for senior citizens to be given priority in queues to prevent them from waiting for extended periods.

Twenty-percent discount on the following goods or services:

1. Medicines and vaccines including those for influenza and pneumococcal diseases, and other essential medical supplies.

2. Professional fees of physicians, whether in hospitals, clinics or home health care services, including those of other licensed professional health workers providing health care services as endorsed by private hospitals or employed through home health care employment agencies.

3. Medical and dental services, including diagnostics and laboratory tests, whether such services are rendered in private hospitals, medical facilities, outpatient clinics and home health services.

4. Transportation such as fares on public land transportation, including buses, jeepneys, taxis, public rail services, as well as to air and sea travel within the Philippines.

5. Accommodation and recreational services when staying in hotels, dining in restaurants, or using recreational facilities like cinemas, theaters and concert halls. In some municipalities, senior citizens are entitled to free entrance fees to theaters and parking areas.

6. Funeral and burial services for the death of the senior citizen, which covers the purchase of casket or urn, embalming, hospital morgue, transport of the body to intended burial site in the place of origin but shall exclude obituary publication and the cost of the memorial lot.

The VAT exemption on the foregoing sale of goods and services to senior citizens has also been codified in the National Internal Revenue Code (Tax Code), pursuant to RA 19063, the Tax Reform for Acceleration and Inclusion or the Train Act.

RA 9994 also grants senior citizens a 5-percent discount on utility bills, for consumption that does not exceed 10 kilowatt-hour for electricity and 30 cubic meters for water. The utility accounts must be under the senior citizen's name.

Other benefits

Other benefits include:

(a) exemptions from training fees for socioeconomic programs,

(b) free medical and dental services in all government hospitals and clinics, including diagnostics and laboratory tests,

(c) free vaccinations against the influenza virus and pneumococcal disease for indigent senior citizens,

(d) a monthly stipend in the amount of P1,000 and (e) death benefit assistance of at least P2,000 to the nearest surviving relative of a deceased senior citizen.

Interestingly, RA 9994 also provides educational assistance to senior citizens who wish to pursue post-secondary, tertiary or vocational education, whether in a public or private school, through scholarships, financial aid, subsidies and other incentives. This includes learning materials such as books and uniforms. Thus, it is never too late for senior citizens to go back to school and earn a diploma.

RA 9994 further mandates the continuation of benefits to senior citizens from the Government Service Insurance System, Social Security System and Pag-IBIG "to the extent practicable and feasible."

Another law, RA 10645, provides that all senior citizens are automatically covered by PhilHealth, even if they have not made prior contributions.

These laws reflect the government's commitment to protecting and enhancing the welfare of senior citizens in the Philippines. However, there was a question as to whether or not the mandate of all those benefits, which in the end are shouldered by the establishments providing the aforementioned services and goods, are constitutional.

The establishments granting the 20-percent discounts are entitled to claim the same as income tax deductions, not as tax credits. Unlike a tax credit, a tax deduction does not offer full reimbursement of the senior citizen discounts granted. As such, it raised the question whether the state, in promoting the health and welfare of a special group of citizens, can impose upon private establishments the burden of partly subsidizing a government program.

In several decisions, the Supreme Court has ruled that the grant of 20-percent discount and the tax deduction scheme is a valid exercise of the police power of the state. The Supreme Court also recognized that the duty to care for the elderly and the disabled lies not only upon the state but also on the community and even private entities.

Source: Business World

Civil forfeiture bill filed

House leaders filed a bill on Thursday, November 7, that seeks to transfer ownership of illegally acquired land and properties by foreign nationals to the government. 

Members of the House Quad Committee proposed House Bill 11403, or the Civil Forfeiture Act, in light of their suspicions that foreign nationals have unlawfully acquired several hectares of Philippine land by obtaining Filipino citizenship through fraudulent means.

Rep. Robert Ace Barbers (Surigao del Norte, 2nd District), overall chairman of the joint committee, said in an ambush interview that the bill is necessary to emphasize that foreign nationals are prohibited by the 1987 Constitution from having full ownership of Philippine land.

“When we discovered this, we found that they had also purchased a lot of questionable land because they are not Filipinos.… It should be clear that [foreign nationals] cannot acquire 100% of properties here,” he said in Filipino.

This aligns with Section 2 of Article XII, which stipulates that foreign ownership of corporations in certain industries is limited to a maximum of 40%.

It is also necessary to prevent seized land and properties from being sold while they are still under investigation, Barbers added.

The mega panel has been investigating the illegal operations of offshore scam hubs, or POGOs, in the country. Criminal activities, such as human trafficking and the illegal drug trade, have allegedly been uncovered in these establishments.

On October 21, the House Quad Comm handed over the documents it gathered related to the land ownership of Chinese nationals to the Office of the Solicitor General (OSG), urging the latter to probe these land titles.

Where will forfeited properties go?

Section 10 of the proposed legislation required agricultural land acquired through civil forfeiture proceedings to be distributed to qualified farmers.

Meanwhile, seized non-agricultural land must be allocated for use in schools, hospitals and other social welfare establishments.

Alternatively, non-agricultural land may be donated to the local government unit where it is located for the development of social service facilities.

The bill also cites Sections 7 and 8 of Article XII, which outlines that private lands can only be transferred to qualified individuals or entities, particularly Filipino citizens. 

Should Filipinos born in the country lose their citizenship, they may still acquire private lands within the limitations set by the law.  

Section 3 of the proposed Civil Forfeiture Act clarifies that any transfer of real estate property to a foreign national who is not legally qualified to own land in the Philippines is considered “null and void,” making the transfer legally invalid. 

Section 4 further establishes the presumption that any real estate acquired by a foreign national in the country is unlawfully acquired unless the foreign national can prove a legal exception.

According to the bill’s explanatory note, reinforcing existing laws prohibiting foreign land ownership strengthens their enforcement in addressing and eliminating corrupt practices, such as using late birth registration to circumvent the constitution.

This is the third bill filed by the House Quad Committee in response to its inquiry findings, following the first two bills that criminalize extrajudicial killings and ban POGOs in the country.

Source: Philstar