E.

USURY LAW
E. 1 Important provisions/features & present
status of the law (Act No. 2655)
E.1.a. USURY- Definition
-

contracting for or receiving something in

excess of the amount allowed by law for the
loan or forbearance of money, goods or
chattels
subject of usury entirely one of statutory
regulation and prohibition
in the absence of statue, any rate of interest
may be charged
determined by statutory provisions applicable
to the transaction
the statute is the source of power of the court
in dealing with the evil

E.1.b Elements of USURY

1. a loan or forbearance;
2. an understanding between the parties that
the loan shall or may be returned;
3. an unlawful intent to take more than the legal
rate for the use of money or its equivalent;
4. the taking or agreeing to take for the use of
loan of something in excess of what is allowed
by law.

to determine whether all these requisites are

present, the court will disregard the form which
the transaction may take and look only to its
substance

Loan mutuum

not commodatum because it is essentially

gratuitous

Forbearance the contractual obligation of the creditor

to forbear during a given period to require the debtor,
payment of an existing debt due and payable
-

it is in substance, a loan
when there is no loan or forbearance, there
can be no usury

Examples:
1. A provision for a discount with respect to rentals
paid in advance would not contravene the Usury
Law as the discount is in effect, a reduction of
the rentals.
2. a contract to pay compensation for the use of
past money, although amounting to more than
the lawful rate of interest for the period of the
loan is not usury which relates to compensation
for the use of future money.

E.1.c Purpose and Construction of the Law

PURPOSE
-

THEORY

enacted for the protection of borrowers from

the imposition of unscrupulous lenders who
take undue advantage of the necessities of
others.
It is against public policy to charge the
excessive interest for the use of money

a usurious loan is attributable to such

inequality in the relation of the lender and
borrower that the borrowers necessities
deprive him of freedom in contracting and
place him at the mercy of the lender
the borrower is put by the law in the same
category with persons under legal disability to
contract, such as unemancipated minors and
insane persons
to attain this purpose: the law has imposed
penalties as punishment on those who violate
its provisions and fixed rules prescribing the
rates of interest for the loan or forbearance of
money

NATURE
-

remedial
penal
remedial or penal

CONSTRUCTION
1. In general
- it is the duty of the court to ascertain the
intent and purpose of the legislature
- general intent must be kept in view when
determining the scope and meaning of any
part of the law and it must be held in mind
that it was enacted for the protection of the
borrower
2. Liberal or strict construction
-

Laws enacted to guard against unreasonable

rates of interest are favorable regarded and

are liberally construed to accomplish their

purpose
Usury provisions which are penal in nature are
to be strictly construed
Should be construed in all cases of doubt and
uncertainty in favor of the accused
Any uncertainties are resolved in favor of him
who is sought to be penalized

3. Prospective or retrospective operation

GENERAL RULE : Unless there is a clear
legislative intent to the contrary, usury statues
will be construed to be prospective only and not
retrospective.
a. Contracts previously non-usurious a contract
legal at its inception, cannot be rendered
illegal by any subsequent legislation for this
would be tantamount to the impairment of the
obligation of the contract.
b. Contracts previously usurious Usury statutes
which do not impair the obligation of contracts
by making contracts legal which were illegal
at their inception
-

the effect of such legislation is not to change

the contract of the parties but only to remove
a bar to its enforcement and where the
legislature so intends, it will operate
retrospectively.
General Rule : the legislature has the power to
validate any or all parts of pre-existing
usurious contracts.

E.2 Central Bank Circular No. 905