CASE DIGEST: Liam Law v. Olympic Sawmill

LIAM LAW, plaintiff-appellee, vs. OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-appellants.

G.R. No. L-30771               |              May 28, 1984

PONENTE: Melencio-Herrera

DOCTRINE(S): Nature of Liquidated damages

FACTS:

On or about Sept. 7, 1957, plaintiff loaned P10,000.00, without interest, to defendant partnership Elino Lee Chi, as the managing partner. The loan became ultimately due on Jan. 31, 1960, but was not paid on that date, with the debtors asking for an extension of 3 mos., or up to April 30, 1960.

On March 17, 1960, the parties executed another loan document. Payment of the P10,000.00 was extended to April 30,1960, but the obligation was increased by P6,000.00.

Defendants again failed to pay their obligation by April 30, 1960 and, on Sept. 23, 1960, plaintiff instituted this collection case. Defendants admitted the P10,000.00 principal obligation but claimed that the additional P6,000.00 constituted usurious interest.

On June 26, 1961, the Trial Court rendered decision ordering defendants to pay plaintiff “the amount of P10,000.00 plus the further sum of P6,000.00 by way of liquidated damages… with legal rate of interest on both amounts from April 30, 1960.”

ISSUE(S):

Whether or not the P6,000.00 obligation is usurious and therefor illegal.

RULING:

WHEREFORE, the appealed judgment is hereby affirmed.

RATIO:

Under Art. 1354 of the Civil Code, in regards to the agreement of the parties relative to the P6,000.00 obligation, “it is presumed that it exists and is lawful, unless the debtor proves the contrary.” No evidentiary hearing having been held, it has been concluded that defendants had not proven that the P6,000.00 obligation was illegal. Confirming the Trial Court’s finding the SC viewed the P6,000.00 obligation as liquidated damages suffered by plaintiff, as of March 17, 1960, representing loss of interest income, attorney’s fees and incidentals.

The main thrust of defendants’ appeal is the allegation in their Answer that the P6,000.00 constituted usurious interest. They insist the claim of usury should have been deemed admitted by plaintiff as it was “not denied specifically under oath.”

The said provision envisages a complaint filed against an entity which has committed usury, for they recovery of the usurious interest paid. In that case, if the entity sued shall not file its answer under oath denying the allegation of usury. The provision does not apply to a case, as in the present, where it is the defendant, not the plaintiff, who is alleging usury.

Moreover, for sometime now, usury has been legally nonexistent. Interest can now be charged as lender and borrower may agree upon. The Rules of Court in regards to allegations of usury, procedural in nature, should be considered repealed with retroactive effect.