GR L 30771; (May, 1984) (Digest)
G.R. No. L-30771 May 28, 1984
LIAM LAW, plaintiff-appellee, vs. OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-appellants.
FACTS
Plaintiff Liam Law loaned defendants Olympic Sawmill Co. and its managing partner Elino Lee Chi the amount of P10,000.00 without interest, ultimately due on January 31, 1960. The debtors failed to pay and requested an extension. On March 17, 1960, the parties executed a new agreement extending the payment deadline to April 30, 1960, but increasing the principal obligation by P6,000.00. This additional sum was stipulated to answer for attorney’s fees, legal interest, and other costs.
Defendants again failed to pay by the extended deadline. Plaintiff filed a collection case, admitting the P10,000.00 principal but contesting the P6,000.00 as usurious interest. The trial court, after both parties filed motions for summary judgment, rendered a decision ordering defendants to pay the P10,000.00 plus the P6,000.00 as liquidated damages, with legal interest from April 30, 1960. Defendants appealed, arguing the P6,000.00 constituted usury and that plaintiff’s failure to deny the usury allegation under oath warranted its admission.
ISSUE
Whether the additional P6,000.00 obligation constitutes usurious interest, and whether the procedural rule requiring an answer under oath to an allegation of usury is applicable.
RULING
The Supreme Court affirmed the trial court’s decision. On the substantive issue, the Court upheld the P6,000.00 as valid liquidated damages. Under Article 1354 of the Civil Code, contracts are presumed lawful unless the debtor proves otherwise. In a summary judgment proceeding with no evidentiary hearing, defendants failed to present proof that the amount was illegal. The stipulation was properly construed as covering loss of interest income, attorney’s fees, and incidentals.
On the procedural issue, the Court ruled that Section 9 of the Usury Law, requiring an answer under oath to a complaint alleging usury, is inapplicable. That provision applies when a plaintiff sues to recover usurious interest already paid; it does not govern a situation where the defendant raises usury as a defense in a collection case. Furthermore, the Court noted that usury had been legally non-existent since the issuance of Central Bank Circular No. 905, which removed interest ceilings. Consequently, procedural rules pertaining to allegations of usury, being procedural, are deemed repealed retroactively and do not bar the enforcement of the stipulated amount.