Haystack: Liam Law vs. Olympic Sawmill (GR L-30771, 28 May 1984)

Liam Law vs. Olympic Sawmill
[G.R. No. L-30771. May 28, 1984.]
First Division, Melencio-Herrera (J): 5 concur

Facts: On 7 September 1957, Liam Law (hereafter, “Liam”) loaned P10,000.00, without interest, to Olympic Sawmill Co. (a partnership) and Elino Lee Chi, as the latter’s managing partner (Olympic Sawmill and Lee Chi, hereafter “defendants”). The loan became ultimately due on 31 January 1960, but was not paid on that date, with the debtors asking for an extension of 3 months, or up to 30 April 1960. On 17 March 1960, the parties executed another loan document. Payment of the P10,000.00 was extended to 30 April 1960, but the obligation was increased by P6,000 which formed 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. The defendants again failed to pay their obligation by 30 April 1960.

On 23 September 1960, Liam instituted the collection case before the Court of First Instance of Bulacan. The defendants admitted the P10,000.00 principal obligation, but claimed that the additional P6,000.00 constituted usurious interest. Upon Liam’s application, the Trial Court issued 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. On 18 January 1961, an Order was issued by the Trial Court allowing both parties to simultaneously submit a Motion for Summary Judgment. Liam filed his Motion for Summary Judgment on 31 January 1961, while defendants filed theirs on 2 February 1961. On 26 June 1961, the Trial Court rendered decision ordering defendants to pay Liam "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 30 April 1960." The defendants appealed before the then court of Appeals, which endorsed it to the Supreme Court stating that the issue involved was one of law.

The Supreme Court affirmed the appealed judgment; without pronouncement as to costs.

1. P6,000 obligation presumed lawful unless the debtor proves the contrary
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. The Court viewed the P6,000.00 obligation as liquidated damages suffered by Liam, as of 17 March 1960, representing loss of interest income, attorney's fees and incidentals.

2. Section 9 of the Usury Law (Act 2655)
Section 9 of the Usury Law provides that “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."

3. Section 9 of the Usury Law does not apply as defendant, not plaintiff, is the one alleging usury
Section 9 of the Usury Law 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 where it is the defendant, not the plaintiff, who is alleging usury.

4. Usury now legally non-existent
For sometime now, usury has been legally non-existent. Interest can now be charged as lender and borrower may agree upon.

5. With regards to allegation of usury, Rules of Court considered repealed with retroactive effect
The Rules of Court in regards to allegations of usury, procedural in nature, should be considered repealed with retroactive effect.

[6. Procedural laws retroactive; People vs. Sumilang]
“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. “

[7. Arbitration Law as retroactively applied; De Lopez, et al. vs. Vda. de Fajardo, et al.]
: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."

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