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Supreme Court: Charging interest on interest on a debt is unlawful
Supreme Court: Charging interest on interest on a debt is unlawful
Charging interest on interest of a debt is unlawful. This was stated in the Supreme Court’s decision that established a unified judicial practice regarding the calculation of default interest on debts.
It was noted that the legal dispute concerned the plaintiff’s claim for additional default interest due to the defendant’s failure to repay a monetary debt on time. Specifically, the plaintiff demanded that default interest be recalculated on the total amount formed by combining the principal debt and previously accrued interest as determined by earlier court decisions.
The court of first instance rejected the claim, and the appellate court agreed with this position. Subsequently, the case was reviewed by the Supreme Court on the cassation appeals of both parties.
The decision emphasized that, according to Articles 445.7 and 449 of the Civil Code, default interest should only be calculated on the unpaid principal debt and only up to the day the debt is repaid. Adding interest previously awarded by court decisions to the principal debt and recalculating default interest on this total amount constitutes “interest on interest,” which is prohibited by law.
The Supreme Court noted that the legal nature of interest does not change when it is awarded by a court decision, and it does not become part of the principal debt. Demanding additional interest on such interest claims disproportionately worsens the debtor’s situation and contradicts the principle of fairness.
It was also noted that the authority of the cassation instance is not to re-examine the factual circumstances of the case, but to verify whether the lower courts correctly applied the substantive and procedural law. In this regard, the legal assessment of the evidence and conclusions reached by the appellate court were considered well-founded.
Accordingly, the Supreme Court dismissed the cassation appeals and upheld the decision of the appellate court without any changes.
Charging interest on interest of a debt is unlawful. This was stated in the Supreme Court’s decision that established a unified judicial practice regarding the calculation of default interest on debts.
It was noted that the legal dispute concerned the plaintiff’s claim for additional default interest due to the defendant’s failure to repay a monetary debt on time. Specifically, the plaintiff demanded that default interest be recalculated on the total amount formed by combining the principal debt and previously accrued interest as determined by earlier court decisions.
The court of first instance rejected the claim, and the appellate court agreed with this position. Subsequently, the case was reviewed by the Supreme Court on the cassation appeals of both parties.
The decision emphasized that, according to Articles 445.7 and 449 of the Civil Code, default interest should only be calculated on the unpaid principal debt and only up to the day the debt is repaid. Adding interest previously awarded by court decisions to the principal debt and recalculating default interest on this total amount constitutes “interest on interest,” which is prohibited by law.
The Supreme Court noted that the legal nature of interest does not change when it is awarded by a court decision, and it does not become part of the principal debt. Demanding additional interest on such interest claims disproportionately worsens the debtor’s situation and contradicts the principle of fairness.
It was also noted that the authority of the cassation instance is not to re-examine the factual circumstances of the case, but to verify whether the lower courts correctly applied the substantive and procedural law. In this regard, the legal assessment of the evidence and conclusions reached by the appellate court were considered well-founded.
Accordingly, the Supreme Court dismissed the cassation appeals and upheld the decision of the appellate court without any changes.