Legal Aspects of Charging Interest on Land Payments in the Philippines

Should new landowners charge interest on overdue payments?

The issue of whether new landowners can charge interest on overdue payments involves several legal considerations under Philippine law. Here's an overview of the relevant principles and regulations.

Contractual Obligations

In the Philippines, the Civil Code governs contracts and obligations. If there is an existing agreement between the buyer and the seller regarding the payment terms, including the imposition of interest on delayed payments, the new landowners are bound to respect and enforce these terms. Article 1956 of the Civil Code states that "no interest shall be due unless it has been expressly stipulated in writing."

Legal Interest Rate

If the contract does not specify the interest rate, the new landowners can still impose interest, but it must adhere to the legal interest rate. As per the Bangko Sentral ng Pilipinas (BSP) Circular No. 799, the legal interest rate is 6% per annum for loan or forbearance of money, goods, or credits, and 12% per annum for those arising from the default of an obligation not constituting a loan or forbearance of money, goods, or credits.

Moratory Interest

In the absence of a stipulated interest rate, the courts can award moratory interest. This type of interest is typically awarded to compensate the creditor for the delay in the performance of an obligation. The amount and the period for which it can be charged are at the discretion of the court, guided by the principles of fairness and equity.

New Buyer’s Right to Impose Interest

When a property is sold, the new owner inherits the rights and obligations attached to the property. This includes the right to collect any overdue payments and the authority to impose interest, provided it adheres to the stipulations of the original contract or the legal provisions governing interest rates.

Limitations and Prohibitions

While new landowners have the right to charge interest, it is important to note that any interest rate considered unconscionable or excessively high can be challenged in court. The Supreme Court of the Philippines has, in several cases, reduced exorbitant interest rates to more reasonable levels, in line with the principles of equity and good conscience.

Practical Considerations

For new landowners, it is advisable to:

1. Review the Original Contract: Ensure that any terms regarding interest on overdue payments are understood and enforced correctly.
2. Communicate with the Debtor: Provide clear and formal notice of the intent to impose interest on overdue payments.
3. Adhere to Legal Rates: Ensure that any interest charged complies with the legal rates stipulated by the BSP and other relevant laws.

By following these guidelines, new landowners can legally and fairly impose interest on overdue land payments while protecting their financial interests.