Handling Buyer Over‑Payment Claims After a Property Sale in the Philippines
A comprehensive legal guide
1. Overview
Over‑payment claims arise when a buyer discovers that money was remitted to the seller (or to the taxing authorities on the seller’s behalf) in excess of what was actually due under the deed of absolute sale, the parties’ escrow/closing schedule, or applicable transaction taxes and fees. Philippine law treats these situations under both contractual and quasi‑contractual rules, the most important of which is solutio indébiti (undue payment) in Articles 2154–2156 of the Civil Code. Depending on how and why the excess was paid, a buyer may proceed against the seller, an escrow agent, a developer, or even the Bureau of Internal Revenue (BIR) or a local treasurer to recover the excess.
2. Sources of Buyer Over‑Payments
| Common Scenario | Typical Root Cause | Recoverable From |
|---|---|---|
| Purchase‑price miscalculation | Spreadsheet or exchange‑rate error at signing | Seller |
| Duplicate payment to escrow | Bank’s auto‑debit plus manual deposit | Escrow agent or seller |
| Excess Documentary Stamp Tax (DST) / Capital Gains Tax (CGT) | Wrong zonal value or mistaken tax base | BIR (refund) |
| Over‑collected real‑property tax (RPT) | LGU assessed wrong fair‑market value | Local treasurer’s office |
| Hidden defects discovered after closing | Seller reimburses repair costs; can morph into over‑payment claim when cost is offset against price | Seller (under Art. 1561 et seq.) |
3. Legal Bases
Civil Code – Contract of Sale (Arts. 1458–1637) Price must be “certain” (Art. 1469). If the price ultimately agreed upon is lower than what was actually transferred to the seller, the excess becomes a debt the seller must return.
Solutio Indébiti (Arts. 2154–2156)
- Payment made through mistake of fact or law obliges the recipient to return it.
- A six‑year prescriptive period applies (Art. 1145 [2]), counted from discovery of the mistake, not from payment date.
Unjust Enrichment (Art. 22) “No one shall unjustly enrich himself at the expense of another.”
B.P. 129 as amended by R.A. 7691 (Judiciary Reorganization Act)
- Metropolitan/Municipal Trial Courts (MTC): Exclusive original jurisdiction over “all civil actions in which the demand… does not exceed ₱2 million” (currently adjusted amount).
- Regional Trial Courts (RTC): Above ₱2 million.
National Internal Revenue Code (NIRC), secs. 204(C) & 229
- Erroneously paid CGT, DST, expanded VAT, etc. may be refunded or credited within two years from date of payment.
Local Government Code (LGC), sec. 253
- Erroneous or illegal collection of local taxes (e.g., RPT) must be claimed within two years from date of payment, through written protest.
Alternative Dispute Resolution (ADR) Act of 2004
- Parties may commit to mediation or arbitration; common in condominium or subdivision projects.
4. Procedural Road‑Map for Buyers
| Stage | What to Do | Key Deadlines |
|---|---|---|
| A. Verify and document | Pull the signed deed, statement of account, official receipts, tax computations, and bank proofs of remittance. Prepare a reconciliation spreadsheet. | ASAP after suspicion arises |
| B. Send demand / Notice to Seller | A formal demand letter interrupts prescription (Art. 1155) and is required for attorney’s‑fee recovery. | Within 6‑year (civil) or 2‑year (tax) window |
| C. Barangay conciliation | Mandatory if parties reside in the same barangay and amount ≤ ₚ200 k (Lupong Tagapamayapa Law). | Within 15 days after demand if conciliation is required |
| D. File BIR / LGU refund claim | Use BIR Form 1914 for DST/CGT; attach notarised sworn declaration, proof of erroneous base, and tax payment docs. | 2 yrs from payment (NIRC 229) |
| E. Court action | For purely contractual/quasi‑contractual claims that are unresolved, file collection of sum of money or accion in personam. | 6 yrs (solutio indébiti) or 10 yrs (written contract) |
5. Evidentiary Requirements
- Proof of Payment: Official receipts, bank transaction logs, manager’s‑check stubs.
- Mistake or Error: Zonal‑value certifications, amended tax declarations, comparative price schedules, or accountant affidavits.
- Causal Link: Closing statements showing intended allocations vs. actual disbursements.
- Enrichment: Seller’s acknowledgment, BIR/treasurer certifications of tax receipt, escrow ledger.
6. Possible Seller Defences
- No mistake: Payment was deliberate (e.g., earnest‑money upgrade).
- Set‑off/Compensation (Arts. 1278–1290): Seller has an unpaid claim against buyer (e.g., unpaid association dues).
- Prescription: Buyer’s claim filed out of time.
- Estoppel / Laches: Buyer slept on rights despite clear records.
- Waiver: Deed contains a waiver clause knowingly and voluntarily signed (limited by Art. 6—public policy).
7. Role of Escrow Agents & Banks
Under BSP circulars and Manual of Regulations for Banks, escrow agents are fiduciaries. A bank that wrongfully releases or retains excess funds may itself be sued for breach of fiduciary duty or quasi‑delict (Art. 2176).
8. ADR vs. Litigation
| Factor | Mediation / Arbitration | Court Action |
|---|---|---|
| Speed | 30–90 days typical | 1–3 years (MTC/RTC) |
| Cost | Lower up‑front; fees shared | Filing fees (based on amount) + attorney’s fees |
| Enforceability | Arbitral awards enforceable under ADR Act | Court judgments enforceable via writ |
| Privacy | Confidential | Public |
9. Tax‑Specific Over‑Payment Remedies
CGT/DST:
- File with the BIR RDO that issued the Certificate Authorizing Registration (CAR).
- Submit written claim + notarised affidavit + CAR + proof of payment.
- BIR has 120 days to act; inaction is deemed denial, appealable to the Court of Tax Appeals (CTA) within 30 days.
Local Transfer Tax / RPT:
- Protest and claim refund with the local treasurer under LGC sec. 253.
- Appeal to the Local Board of Assessment Appeals, then to the CTA if denied.
10. Illustrative Supreme Court Cases
| Case | G.R. No. / Date | Take‑Away |
|---|---|---|
| Phoenix Assurance v. Macondray | L‑21283 (Jan 22 1966) | Solutio indébiti requires mistake and undue payment; good‑faith payer entitled to refund. |
| Carlos v. CA | 43839 (Apr 28 2000) | Over‑payment made at closing may be offset against subsequent seller liability for hidden defects. |
| Spouses Abalos v. Heirs of Galing | 158989 (Jun 19 2007) | Buyer can sue for sum of money independent of rescission if only excess price is sought. |
| Commissioner of Internal Revenue v. Team Sual Corp. | 244092 (Nov 3 2020) | Tax refund claims strictly follow two‑year period; equitable arguments cannot extend it. |
11. Practical Tips
For Buyers
- Use an escrow schedule that itemises exact peso amounts for price vs. taxes.
- Obtain BIR zonal‑value rulings and LGU assessment notices before paying.
- Keep digital copies of every receipt; prescription clock starts upon discovery, so document the date you found the error.
- Serve a demand letter early—it tolls prescription and signals seriousness.
- Consider mediation; sellers often prefer a quiet refund over litigation that delays title transfer to subsequent buyers.
For Sellers / Developers
- Reconcile the buyer’s proofs of payment against your accounting ledger within 30 days of closing.
- Refund legitimate excess promptly; interest may be imposed at 6 % p.a. (Bangko Sentral circulars + Art. 1167).
- If disputing, respond formally and offer ADR to avoid being tagged as in default (Art. 1169).
12. Conclusion
Over‑payment claims, though sometimes viewed as mere clerical oversights, are firmly grounded in Philippine civil and tax law. The combination of solutio indébiti, unjust enrichment principles, and tax‑refund statutes gives buyers a robust toolkit to recover excess funds—provided they act within the prescriptive windows and marshal clear evidence. Sellers, on the other hand, can mitigate exposure by maintaining transparent closing statements and addressing disputes promptly through ADR.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. For specific situations, consult a Philippine‑licensed real‑estate or taxation lawyer.