Case Summary (G.R. No. L-30771)
Petitioners
Defendants-Appellants, Olympic Sawmill Co. and Elino Lee Chi, contest the trial court’s award of P6,000.00 as liquidated damages, arguing it is usurious interest.
Respondent
Plaintiff-Appellee, Liam Law, seeks to recover the P10,000.00 principal plus P6,000.00 agreed-upon additional obligation and interest.
Key Dates
• September 7, 1957: Initial P10,000.00 loan granted without interest, due January 31, 1960
• January 31, 1960: Debtors request three-month extension to April 30, 1960
• March 17, 1960: New agreement extending maturity to April 30, 1960, and adding P6,000.00 for attorney’s fees, legal interest, and related costs
• April 30, 1960: Defendants fail to pay extended obligation
• September 23, 1960: Collection suit filed; writ of attachment issued same day
• January 18, 1961: Trial court allows simultaneous summary-judgment motions
• June 26, 1961: Trial court grants summary judgment for plaintiff
• May 28, 1984: Supreme Court decision
Applicable Law
• Civil Code (1930), Article 1354 – Presumption of the validity of stipulated obligations unless the debtor proves illegality
• Usury Law (Act No. 2655), Section 9 – Requirement that defendants allege usury under oath in an answer, else usury is deemed admitted
• Rule 9, Section 1, Rules of Court – Corresponding procedural rule on usury allegations
• Central Bank Circular No. 905 (1982) – Abolished usury ceiling, allowing parties to agree on interest rates
Factual Background
Liam Law advanced P10,000.00 to Olympic Sawmill Co. and its managing partner, Elino Lee Chi, payable January 31, 1960. When the debtors requested a three-month extension, the parties executed a March 17, 1960 agreement extending maturity to April 30, 1960, and adding P6,000.00 “by way of attorney’s fees, legal interest, and other costs.” Defendants again defaulted, prompting the filing of a collection suit on September 23, 1960.
Procedural History
Upon suit commencement, the trial court issued a writ of attachment on defendants’ real and personal properties. The parties were directed to file cross-motions for summary judgment in January and February 1961. On June 26, 1961, the trial court granted plaintiff’s motion, ordering payment of P10,000.00 plus P6,000.00 as liquidated damages, with legal interest from April 30, 1960. Defendants appealed that judgment to the Court of Appeals, which transferred the case to the Supreme Court due to the purely legal issues presented.
Issue on Appeal
Whether the additional P6,000.00 obligation constitutes lawful liquidated damages or whether it is usurious interest that should be invalidated.
Presumption of Validity Under Article 1354
Article 1354 of the Civil Code presumes the existence and legality of stipulated obligations, placing the burden on the debtor to prove otherwise. No evidentiary hearing was held on usury; thus, defendants failed to overcome the presumption that the P6,000.00 was validly agreed upon.
Usury Claim and Section 9 of the Usury Law
Defendants argued that the P6,000.00 was usurious interest. They relied on Section 9 of Act No. 2655, which requires a party sued for usury to file a sworn denial of usurious allegations or be deemed to admit them. The Court held that Section 9 applies only to defendants in suits brought to recover unlawfully charged interest, not to situations where a defendant alleges usury against a plaintiff’s claim. Moreover, by 1982 (and by extension retroactively), usury ceilings had been abolished by Central Bank C
...continue readingCase Syllabus (G.R. No. L-30771)
Facts of the Case
- On September 7, 1957, plaintiff Liam Law loaned ₱10,000.00 (no interest) to Olympic Sawmill Co. and Elino Lee Chi (managing partner).
- The original maturity date was January 31, 1960; debtors requested an extension to April 30, 1960.
- On March 17, 1960, parties executed a new loan agreement:
- Extended payment of the ₱10,000.00 principal to April 30, 1960.
- Added ₱6,000.00 “to answer for attorney’s fees, legal interest, and other costs” as part of the principal obligation.
- Defendants failed to pay by April 30, 1960.
- On September 23, 1960, plaintiff filed a collection case; defendants admitted the ₱10,000.00 but alleged the additional ₱6,000.00 was usurious interest.
- The same day, the trial court issued a writ of attachment on defendants’ real and personal properties in Karanglan, Nueva Ecija.
Procedural History
- Trial Court (Court of First Instance, Bulacan):
- Focused initially on attachment proceedings.
- On January 18, 1961, allowed both parties to file motions for summary judgment.
- Plaintiff filed on January 31, 1961; defendants on February 2, 1961.
- On June 26, 1961, rendered judgment ordering payment of ₱10,000.00 plus ₱6,000.00 as liquidated damages, with legal interest on both sums from April 30, 1960.
- Court of Appeals:
- Originally received the appeal but endorsed it to the Supreme Court, noting the issue was one of law.
- Supreme Court (May 28, 1984):
- Took up the appeal under G.R. No. L-30771 and