Employee Liability for Cooperative Loan Overpayment in the Philippines
A comprehensive doctrinal and practical guide
1. Context: How Cooperative Lending Works in the Workplace
Legal basis for cooperatives – Republic Act (RA) 6938 (Cooperative Code of 1990) as amended by RA 9520 (Philippine Cooperative Code of 2008) grants primary cooperatives—often organized by employees in one company—the power to extend credit to their members (Arts. 23-24, 69 & 70, RA 9520).
Loan mechanism – Payroll deduction is the most common mode of amortization. It relies on a memorandum of agreement among three parties: the cooperative, the employer-payroll officer, and the employee-member.
Overpayment scenario – “Overpayment” may mean:
- the cooperative released more cash than the approved loan (disbursement error), or
- the employer deducted too much from wages after the loan has been fully settled (deduction error).
2. Primary Doctrinal Anchors
| Source | Key provision | Relevance |
|---|---|---|
| Civil Code | Art. 2154-2155 (Solutio Indebiti) | One who receives something not due to him must return it; good-faith recipient owes no interest until in default. |
| Art. 22 (Unjust Enrichment) | No one shall unjustly enrich himself at the expense of another. | |
| Art. 1278-1290 (Compensation/Set-off) | Mutual obligations, e.g., pending loan shares vs. overpayment, may be automatically offset if requisites are present. | |
| Art. 1145(2) | Actions upon a quasi-contract prescribe in six (6) years. | |
| Labor Code (PD 442, renumbered) | Art. 113(a)(3) & DOLE D.O. 195-18 | Deductions are allowed for coop loans and to correct wage overpayments, provided there is written authorization or a prior error. |
| Cooperative Code (RA 9520) | Art. 70 & IRR Rule 7 | Members are liable for debts they owe to the cooperative; directors/officers can pursue judicial action for collection. |
| Revised Penal Code | Art. 315(1)(b) & Art. 310 | Willful misappropriation or refusal to return overpaid funds with intent to defraud may constitute estafa or qualified theft. |
3. Civil Liability of the Employee-Member
| Situation | Liability | Interest / Surcharges | Prescription |
|---|---|---|---|
| Employee receives an amount larger than the approved loan and notices the error immediately | Return or endorse the excess; no moral or punitive damages. | No legal interest if in good faith and returns promptly. | 6 years (from demand) for civil action. |
| Employee remains silent and spends the excess | Still obliged to return under solutio indebiti; now in bad faith after formal demand. | 6% p.a. legal interest (Art. 2209 Civil Code) from date of demand; coop by-laws may impose surcharges. | 6 years for civil recovery; 15 years for estafa (prescription runs from discovery). |
| Payroll continues to deduct after loan is fully paid | Coop must refund the over-deduction (reverse solutio indebiti). Employer may be subsidiarily liable if negligent. | Legal interest once employer is in default after demand. | 6 years against coop/employer; employee may file money claim before DOLE or NLRC within 3 years under Art. 306 Labor Code (for wage-related claims). |
Key points
- No need to show fault. Solutio indebiti is a quasi-contract; liability exists even without negligence or fraud.
- Compensation. If the employee still owes a separate coop loan or has unpaid share subscriptions, the overpayment may be set-off, but written consent or board resolution is advisable to avoid violating Art. 113 Labor Code.
- Demand requirement. The Civil Code’s default and interest rules hinge on when the cooperative makes a judicial or extrajudicial demand.
4. Administrative & Internal Remedies
- Demand letter by the credit committee or treasurer, detailing the excess and mode of restitution.
- Board resolution approving set-off from future dividends/patronage refunds or upcoming salary deductions.
- Show-cause notice if employee contests liability—may escalate to cooperative’s Conciliation-Mediation Committee per Art. 137-138, RA 9520.
- Small-claims suit (≤ ₱400,000) in the first-level courts under A.M. 08-8-7-SC, or regular civil action.
- Labor money claim before the NLRC or DOLE Regional Office if over-deduction pertains to wages. The cooperative may implead the employer for indemnity.
5. Criminal Exposure (When Does It Exist?)
| Element (Estafa, Art. 315 RPC) | How it arises in overpayment |
|---|---|
| 1. Received money in trust | Loan proceeds delivered on condition of repayment; excess treated as property received in trust. |
| 2. Misappropriation or conversion | Employee knowingly spends excess & refuses to return. |
| 3. Damage to cooperative | Financial loss equal to unreturned amount. |
| 4. Demand | Formal demand letter is critical evidence of misappropriation. |
If the employee acted out of ignorance and immediately offers restitution, criminal intent is negated; only civil liability subsists.
6. Employer / Payroll Officer Liability
- Vicarious liability – If error is in payroll deduction, the employer may be liable to reimburse the employee and then recover from the cooperative (or vice-versa) based on their agency agreement.
- Negligence leading to loss – Payroll personnel may face administrative sanctions under company code of conduct and may need to indemnify the cooperative for proven losses.
- DOLE compliance – Unauthorized deductions can trigger DOLE orders to refund wages and administrative fines (₱40,000-₱100,000 under D.O. 195-18).
7. Relevant Jurisprudence & Analogous Rulings
| Case | G.R. No. | Ratio (analogous) |
|---|---|---|
| GSIS v. Court of Appeals | 101576, Feb 26 1992 | Pensioner ordered to return pension overpayment; solutio indebiti applies even if overpayment was GSIS’s error. |
| Prudential Bank v. Intermediate Appellate Court | 74886, Dec 8 1986 | Overpaid manager’s checks recoverable; recipient in good faith still liable to return. |
| People v. Isip (estafa) | 133223-24, Apr 19 2001 | Retention of mistakenly delivered funds after demand establishes deceit. |
| COA Decision re: Payroll Overpayment, DepEd Region IV-A | COA-CP Case 2019-335 | Employees must refund salary differentials unduly received; good faith is immaterial in solutio indebiti. |
(No Supreme Court case yet squarely on employee-cooperative overpayment, but the above lines of authority are consistently applied.)
8. Prescriptive Periods at a Glance
| Cause of action | Period | Counting |
|---|---|---|
| Civil action (quasi-contract) | 6 years | From date of demand. |
| Small claims suit | Same 6 years | From demand. |
| Labor money claim | 3 years | From accrual of over-deduction. |
| Criminal estafa | 15 years (if > ₱40,000) | From discovery of offense. |
| Administrative case vs. coop officer | 5 years under RA 9520 IRR | From commission/omission. |
9. Practical Compliance Checklist for Cooperatives & Employers
- Automated reconciliation – Cross-verify approved loan vs. actual disbursement before release.
- Cut-off alert – Payroll system should auto-stop deductions when balance hits zero.
- Acknowledgment receipt – Employee signs net-of-charges loan voucher specifying principal, interest, and exact amount released.
- Prompt written demand – Send within 15 days of discovering overpayment to avoid argument of condonation.
- Board policy on set-off – Express authorization in by-laws or approved board policy; secure separate employee consent when offsetting wages.
- Insurance or bond – Some co-ops obtain fidelity insurance covering fraudulent or negligent disbursement.
- Internal audit – Semi-annual spot audit of loan ledgers and payroll deduction schedules.
10. Key Take-Aways
- Liability is automatic under solutio indebiti; intention is irrelevant to the duty to return.
- Good-faith recipients avoid interest and criminal prosecution if they promptly restitute.
- Cooperatives must act decisively—in six years the civil claim prescribes.
- Employers must respect Art. 113 Labor Code; deductions to recoup over-releases are lawful if to correct an error but still require transparency and due process.
- Criminal liability ensues only upon wrongful retention after demand, evidencing deceit or conversion.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Laws and jurisprudence are cited as of July 5 2025. For specific situations, consult a Philippine lawyer or the Cooperative Development Authority (CDA).