University

of the Philippines College of Law

NBB

Topic USURY Law

Case No. G.R. No. L-23559, Oct. 4, 1971
Case Name Aurelio Briones v. Primitivo Cammayo, et. al.
Ponente Dizon, j.

RELEVANT FACTS

The Plaintiff, Aurelio Briones, filed a collection suit against the Defendants Primitivo, Nicasio, Pedro,
Hilario, and Artemio Cammayo in the Manila Municipal Court to recover from them the amount of 1,500, plus
damages, attorneys fees, and the costs of suit.
The case arose from a loan agreement between the parties wherein it was stipulated that the
Cammayos are to pay Briones the amount of Php 1,500.00. The loan was secured by a Real Estate Mortgage
executed by the Defendants. The Cammayos claimed that the Real Estate Mortgage was executed to cover the
loan amount of 1,500 for a period of one year, without interest. However, the Defendants claimed that only
1,200.00 was actually released to them and the remaining Php 300.00 was withheld by the Plaintiff for it was
intended as payment of the advance interest for one year. The Cammayos claimed that they tried to pay Briones
the amount of Php 330.00 but the latter refused to acknowledge it as a partial payment of the total obligation
and, instead, considered it merely as an advance payment of the interest, thereby extending the loan for
another year. Finally, the Cammayos claimed that the Loan Agreement is a Usurious Contract in violation of the
Usury Law. (P300 interest for a P1,200 principal loan; 25% interest per annum). The Defendant filed a
compulsory counterclaim contending that the Plaintiff is in violation of Act 2655 or the Usury Law. Plaintiff
denied the allegations of the counterclaim.

Municipal Court:
Granted the Motion for Summary Judgment of the Defendants. It ordered the Defendants to pay the
Plaintiff Php 1,500.00 with legal interest from February 22, 1962 plus Php 150.00 as attorney’s fees.

Court of First Instance:
Granted the Motion for Summary Judgment of the Defendants. It modified the judgment of the
Municpal Court. It ordered the Defendants to pay the Plaintiff Php 1,080.00 with legal interest (from Oct 16,
1962 until fully paid). The order deducted the usurious interest of Php 120.00 and the attorney’s fees amounting
to Php 200.00.

ISSUE AND RATIO DECIDENDI

Issue Ratio

1. W/N the Plaintiff is YES
entitled to recover the
amount of the principal loan 1. The Usury Law penalizes any person or corporation who, for any loan or
even though the loan renewal thereof or forbearance, shall collect or receive a higher rate or
agreement was in violation of greater sum or value that is allowed by law, and provides further that, in such
the Usury Law. case, the debtor may recover the whole interest, commissions, premiums,
penalties and surcharges paid or delivered, with costs and attorney’s fees…

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(Sec 6, Act 2655), however, by its letter and spirit, the Usury Law does not
deprive the lender of his right to recover from the borrower the money
actually loaned and enjoyed by the latter (Javelona vs El Hogar Filipino). The
Usury Law considers a usurious contract void and the creditor had no right of
action to recover the interest therein in excess of the lawful rate. However,
the borrower is still obligated to return the principal amount of the obligation
as withholding it is tantamount to unjust enrichment.

The Court also downplayed the claim of the defendants in one case (Angel
Jose vs. Chelda Enterprises) wherein they raised Art. 1411 of the New Civil
Code as a valid ground for not paying the principal obligation. Art 1411
pertains to the situation wherein both parties are in pari delicto when the
contract entered into is a nullity proceeding from the illegality of the cause or
object of the contract. The defendants in that case maintained that since both
parties are in the wrong, neither party could bring action against each other.
However, the Court Art 1411 is merely lifted from Art 1305 of the Old Civil
Code and the right interpretation should be that a loan with usurious interest
is not totally void only as to the interest.

According to the Court, a loan with a usurious interest consists of principal
and accessory stipulations that are divisible in that former can still stand
without the latter:
a. Principal stipulation – to pay the debt
b. Accessory stipulation – to pay the interest

The illegal terms as to payment of interest does not render a nullity the
legal terms as to the payment of the principal debt.

Art. 1420 of the New Civil Code provides that in case of a divisible contract, if
the illegal terms can be separated from the illegal ones, the latter may be
enforced. In this case, which is a simple loan with usurious interest, the
prestation of the debtor (to pay the debt), which is the cause of the contract,
is not illegal. What is illegal lies in the payment of the usurious interest -
thereby void. Therefore, the latter can be separated from the former.

The Court maintained that there is already a provision under the Usury Law
for adequate punishment for the usurer – criminal punishment – without
resorting to the forfeiture of the principal of the usurious loan.

The illegal terms as to payment of interest renders the stipulation as to
interest void since payment of said interest is illegal.

The Court harmonized Sec. 6 of the Usury Law with Art. 1413 of the New Civil
Code. Under the Usury Law, any debtor who, for a loan, pays a higher rate or
greater sum or value than allowed by law may recover the whole interest
paid. Art. 1413, on the other hand states that the debtor may recover the

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interest paid in excess of the interest allowed by the usury laws, with interest
thereon from the date of payment. The Court clarified that the clause
“interest paid in excess of the interest allowed by the usury laws” pertains to
the whole usurious interest. Since the Usury Law has already provided that
the whole interest may be recovered by the debtor, what Art. 1413 only adds
is that the same can be recovered “with interest thereon from the date of
payment.” This interpretation is reached to discourage stipulations on
usurious interest, thereby making the loan agreement an agreement without
stipulations as to payment of interest.

2. W/N the Defendants are YES
still liable to pay legal
interest. 2. The loan agreement in this case shall be considered without stipulations as
to payment of interest. However, a principal debt remaining without
stipulation for payment of interest can be recovered by judicial action. When
the debtor incurs in delay, the debt earns interest from the date of the
demand (from filing of the complaint in this case). The interest stems not
from the stipulations in the agreement itself but it is due to the general
provision of law that in obligations to pay money and the debtor incurs in
delay, he has to pay interest by way of damages (Art. 2209, NCC). The CFI
then is correct in ordering the defendants to pay the principal debt with
interest at the legal rate from the date of filing of the complaint.

RULING

IN VIEW OF THE FOREGOING, the decision appealed from is modified in the sense that appellee may recover
from appellant the principal of the loan (Php 1,180.00) only, with interest thereon at the legal rate of 6% per
annum from the date of the filing of the complaint. With costs.