Liam Law V Olympic Sawmill

FIRST DIVISION
[G.R. No. L-30771. May 28, 1984.]
LIAM LAW, plaintiff-appellee, vs. OLYMPIC SAWMILL CO. and

ELINO LEE CHI, defendants-appellants.
Felizardo S.M. de Guzman for plaintiff-appellee.

Mariano M. de Joya for defendants-appellants.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PRESUMPTION OF

EXISTENCE AND LEGALITY OF OBLIGATIONS; MUST BE OVERCOME BY
PROOF; CASE AT BAR. — Under Article 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 to be concluded that
defendants had not proven that the P6,000.00 obligation was illegal.
Confirming the Trial Court's finding, we view 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.
2. MERCANTILE LAW; USURY LAW; REQUIRES DEFENDANT TO
SPECIFICALLY DENY, UNDER OATH, ALLEGATION OF USURY; REQUIREMENT
DOES NOT APPLY WHERE IT IS THE DEFENDANT, NOT THE PLAINTIFF, WHO
ALLEGES USURY; CASE AT BAR. — 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 the plaintiff as it was "not denied specifically and under oath" pursuant to
Section 1, Rule 9 of the Rules of Court and Section 9 of the Usury Law (Act
2655). The foregoing provision envisages a complaint filed against an entity
which has committed usury, for the 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 defendant shall be deemed to have admitted the
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.
3. ID.; ID.; USURY, AT PRESENT, IS LEGALLY NON-EXISTENT, — For
sometime now, usury has been legally non-existent. Interest can now be
charged as lender and borrower may agree upon (Central Bank Circular No.
905, Series of 1982, 78 Off. Gaz. 7336). The Rules of Court in regards to
allegations of usury, procedural in nature, should be considered repealed
with retroactive effect.
DECISION
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MELENCIO-HERRERA, J : p
This is an appeal by defendants from a Decision rendered by the then

Court of First Instance of Bulacan. The appeal was originally taken to the
then Court of Appeals, which endorsed it to this instance stating that the
issue involved was one of law. cdrep
It appears that on or about September 7, 1957, plaintiff loaned

P10,000.00, without interest, to defendant partnership and defendant Elino
Lee Chi, as the managing partner. The loan became ultimately due on
January 31, 1960, but was not paid on that date, with the debtors asking for
an extension of three months, 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 as follows:
"That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine
currency shall form part of the principal obligation to answer for
attorney's fees, legal interest, and other cost incident thereto to be
paid unto the creditor and his successors in interest upon the
termination of this agreement."
Defendants again failed to pay their obligation by April 30, 1960 and,
on September 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.
Upon application of plaintiff, the Trial Court issued, on the same date of
September 23, 1960, a writ of Attachment on real and personal properties of
defendants located at Karanglan, Nueva Ecija. After the Writ of Attachment
was implemented, proceedings before the Trial Court versed principally in
regards to the attachment. cdrep
On January 18, 1961, an Order was issued by the Trial Court stating
that "after considering the manifestation of both counsel in Chambers, the
Court hereby allows both parties to simultaneously submit a Motion for
Summary Judgment. 1 The plaintiff filed his Motion for Summary Judgment on
January 31, 1961, while defendants filed theirs on February 2, 1961. 2
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." It is from this judgment that defendants
have appealed.
We have decided to affirm.
Under Article 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 to be concluded that defendants had not proven
that the P6,000.00 obligation was illegal. Confirming the Trial Court's finding,
we view 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. LLpr
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 and under oath". 3
Section 9 of the Usury Law (Act 2655) provided:
"SEC. 9. The person or corporation sued shall file its answer
in writing under oath to any complaint brought or filed against said
person or corporation before a competent court to recover the money
or other personal or real property, seeds or agricultural products,
charged or received in violation of the provisions of this Act. The lack of
taking an oath to an answer to a complaint will mean the admission of
the facts contained in the latter."
The foregoing provision envisages a complaint filed against an entity

which has committed usury, for the 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 defendant shall be deemed to have admitted the
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. LLphil
Moreover, for sometime now, usury has been legally non-existent.

Interest can now be charged as lender and borrower may agree upon. 4 The
Rules of Court in regards to allegations of usury, procedural in nature, should
be considered repealed with retroactive effect.
"Statutes regulating the procedure of the courts will be construed
as applicable to actions pending and undetermined at the time of their
passage. Procedural laws are retrospective in that sense and to that
extent." 5
". . . Section 24(d), Republic Act No. 876, known as the
Arbitration Law, which took effect on 19 December 1953, and may be
retroactively applied to the case at bar because it is procedural in
nature . . ." 6
WHEREFORE, the appealed judgment is hereby affirmed, without

pronouncement as to costs.
SO ORDERED.
Teehankee, Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ ., concur.
Footnotes
1. p. 81, Record on Appeal.
2. p. 116, ibid.
3. Section, Rule 9.
4. "SECTION 1. The rate of interest, including commissions, premiums, fees and
other charges, on a loan or forbearance of any money, goods, or credits,
regardless of maturity and whether secured or unsecured, that may be
charged or collected by any person whether natural or judicial, shall not be
subject to any ceiling prescribed under or pursuant to the Usury Law, as
amended." (Central Bank Circular No. 905, Series of 1982, 78 Off. Gaz.
7336).
5. People vs. Sumilang, 77 Phil, 764 (1946).
6. De Lopez, et al. vs. Vda. de Fajardo, et al., 101 Phil., pp. 1104, 1109 (1957).

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FIRST DIVISION

[G.R. No. L-30771. May 28, 1984.]

LIAM LAW, plaintiff-appellee, vs. OLYMPIC SAWMILL CO. and

Felizardo S.M. de Guzman for plaintiff-appellee.

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PRESUMPTION OF

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This is an appeal by defendants from a Decision rendered by the then

It appears that on or about September 7, 1957, plaintiﬀ loaned

The main thrust of defendants' appeal is the allegation in their Answer

The foregoing provision envisages a complaint ﬁled against an entity

Moreover, for sometime now, usury has been legally non-existent.

WHEREFORE, the appealed judgment is hereby aﬃrmed, without

1. p. 81, Record on Appeal.

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