and loan society. The difference is explained by the peculiar nature of the latter; loan in case of mutual building and loan associations, is not essentially a loan, but a form of advancement, by way of discount, of the share the member would otherwise be entitled at the expiration of the society, coupled with the idea that it is a dealing with what is virtually a co-partnership fund. It is therefore this peculiar business which they carry on and the mutual participation in the profits arising from it which make this class of lenders distinct from others as to warrant a special grant of power to charge higher rate. In many states they are even exempted from the operation of the usury law.

According to the doctrine rightly laid down by the great weight of authority, if the so called payment of dues on stock or the exaction of a premium is a mere device to cover a payment for the use of money which is greater than what the law recognizes as legal interest, the contract is an usurious one. (Mobile Bldg. Ass'n. v. Robertson, 65 Ala. 382.)

Where the statute does not authorize building associations to collect a premium for priority in receiving loans, the association cannot exact such a premium of a borrower; and all charges in addition to the lawful interest are usurious. Mut. Loan Ass'n. v. Heider, 55 Iowa 424.)

(Burlington

Whether or not a loan made by a loan society is usurious, depends upon the amount agreed upon in good faith to be paid as interest on the sum loaned or advanced on the stock. (Howe Mut. Bldg. Ass'n. v. Thursby, 58 Md. 284.)

American and Spanish authorities are agreed that stipulation to the effect that if the debt be not paid at maturity it shall draw interest thereafter at a rate greater than the statutory one, is valid and cannot be considered as tainted with usury; for the excess rate is regarded as a penalty to induce prompt payment and the debtor can easily avoid same by discharging the debt when due. The test of usury in such cases is whether the debtor has the absolute and unconditional right to discharge his obligation by the prescribed and lawful interest: Whenever the debtor, by the terms of his contract, can avoid the payment of the excess rate of interest, by paying his debt at an earlier date, the contract is not usurious, but the difference between the sums is a penalty. (Cullen v. Howe, 8 Mass. 257.) But if the circumstances show that the transaction, although apparently an agreement for the payment. of a penalty, was in fact a device for obtaining more than the lawful interest, it will be held usurious (Davis v. Rider, 53 Ill. 416); an example of this is where a note payable one day after date, bears interest at the rate of 20% after maturity. (Osborn v. McCowen, 25 Ill. 201.)

Another kind of contract which under ordinary circumstance cannot be considered as usurious, is where the payment of the principal sum depends upon the happening of any contingent event or is put at hazard in any manner, or in cases where the capital is placed in jeopardy. (Waite v. Windham, 37 Vt. 608.) Bottomry bonds and respondentia loans are very good examples of this kind of contracts

which are usually exempted from the operation of the usury law because of the perils of maritime navigations. But, again, to bring the case beyond the reach of usury statute or law, the contingency or hazard must be bona fide and not a mere color of a risk or such possibilities of unexpected loss as might occur in ordinary borrowing and lending of money.

With due respect to the author of the law, the writer believes that this section is not free from criticism; the first line speaks of "person or corporation" which means natural person or corporation, thus excluding by implication partnership, both commercial and civil, which are a juridical person distinct and different and not included under either "person or corporation." If the lawmaker intends to include both natural and juridical persons under the word "person," then, it follows that the use of the word "corporation" is a surplusage. In either case therefore, the wording of the law is either defective or not comprehensive enough so as to include partnership. It might be contended that a reasonable interpretation should include partnership, for it cannot be the legislative intent to endow favors, but to this contention the writer simply answers that the law gives room for doubt and hence, it should be made clearer.

SEC. 3. NO PERSON OR CORPORATION SHALL DIRECTLY OR INDIRECTLY TAKE OR RECEIVE IN MONEY OR OTHER PROPERTY, REAL OR PERSONAL, A HIGHER RATE OR GREATER SUM OR VALUE FOR THE LOAN OR FORBEARANCE OF MONEY, GOODS, OR CREDITS, WHERE SUCH LOAN OR FORBEARANCE IS NOT SECURED AS PROVIDED IN SECTION TWO HEREOF, THAN FOURTEEN PER CENTUM PER ANNUM.

This section allows a higher rate of interest in case a loan is not secured with duly registered title to real estate for the simple reason that a loan with no security or with a security other than real estate duly registered, runs a greater risk of being lost. The writer believes, that under this section comes loans secured by real estates other than that mentioned in Section 2, and those secured by personalty other than those that come under the following section regarding pawnshop. A very common example of a contract secured by personalty is that in vogue in the provinces in which the document of large cattle, usually that of a carabao, is pledged as security. It is to be noted that a contract of this nature commonly denominated as pledge or chattle mortgage is neither of the two, for in order to have a valid mortgage or pledge there must be either the delivery of the thing pledged to the pledgor or to a third person agreed upon by the parties or the registry of the lien in the proper registry of deeds. Strictly and legally speaking therefore, the mere delivery of the document of cattle to the lender gives the latter no security at all and the contract is equivalent to a pure loan and nothing more; hence, a loan of this kind subjects the capital to a risk which is disproportionate to the rate allowed by law, or rather 14%, if we are to follow strictly the law. The writer therefore is of the opinion that this article should

be interpreted so as to include only those loans validly secured by some kind of property, real or personal. In other words, those loans which are not secured at all, or secured by a chattel, or real estate mortgage which are invalid and therefore nonexisting before the eye of the law, should be allowed a higher rate than 14%, the risk to which the capital is subjected being greater than other loans with security. Consequently, a rate of 16% is deemed reasonable by the writer in case of loans without security.

A discussion of some of the articles of the Civil Code in this connection will serve as a supplement to the proper interpretation of the law. Art. 1755 of the Civil Code provides that interest shall only be paid when they have been expressly stipulated. By the words "expressly” “stipulated" as used here is meant that it need not be written; it is sufficient if the borrower consents to the payment of interest, either orally or in writing, for it is only the express consent which is needed. (11 Manresa, 635.) American authorities are in accord with the above opinion of Manresa. It has been held that where the obligation does not show any interest agreed upon, a creditor cannot lawfully apply sums received by him as rent from a property owned by the debtor, to the payment of interest nor to any other purpose except to pay the indebtedness for Art. 1755 of the Civil Code provides that interest shall only be payable when it has been expressly stipulated, that is, when the debtor has expressly consented thereto, without prejudice to 1108 Civil Code, relating to legal interest in case of delay. (Guzman v. Balarag, 11 Phil. 503.) Our Supreme Court held also that when there is stipulation for the payment of interest until the expiration of the contract, other sums subsequently received by the debtor, independent of the loan, do not bear such rate of interest, but simply the legal rate, in the absence of express covenant or agreement, inasmuch as, however general the terms of a contract, it is unlawful to include therein, terms and conditions not intended by the contracting parties. (Nolan v. Majinay, 12 Phil. 559.) On the other hand, when there is express stipulation for the payment of interest, it must be paid from the day fixed in the contract, and the obligation to pay is not interrupted by any suit between the parties, for until the capital or principal shall have been paid, the obligation to pay interest subsists whatever be the amount to which the debt may have been reduced by payments made on account of the principal; the said continuous obligation must be complied with until the total reimbursement of the principal sum. (Banal ». Safont, 19 Phil. 372.)

Another important provision of the Civil Code which will serve an important purpose in the proper interpretation of the usury law is Art. 1756 which provides that a borrower who has paid interests without it being stipulated, cannot impute them for the payment of the capital. Different authors give different reasons for this article; Manresa believes that this is an exception to the universal rule of "payment of what is not due," in quasi-contract. The law presumes the existence of an implied agreement to pay interest, but such implication becomes an express stipula

tion by virtue of the act of the contracting parties where one gives, while the other accepts. Other authors interpret the act to mean that the borrower in order not to owe favor to the lender pays the interest. Belgian authors, however, contend that the payment of interest by the borrower is a kind of donation given in return for the good will of the lender; his feeling of gratitude being the motive power of his act, and it is a principle in case of donation that once the thing donated is accepted by the donee, it becomes irrevocable. (11 Manresa, 635-638.) The writer believes in the soundness of all the foregoing reasons, but he is more inclined to agree with the view of Belgian authors as being more consistent with law and sound reasoning.

As to the question, whether or not partial payments made in case of an interest bearing debt will be applied to the payment of the principal, our Supreme Court held in applying Art. 1173 of the Civil Code that once an interest bearing obligation payable in installments is admitted, it is presumed that partial payments made are to be applied first to the payment of interest and then for the reduction of the principal. (San Jose et al., v. Ortega, 11 Phil. 442.)

SEC. 4. NO PAWNBROKER OR PAWNBROKER'S AGENT SHALL DIRECTLY OR INDIRECTLY TAKE OR RECEIVE ANY HIGHER OR GREATER SUM OR VALUE FOR ANY LOAN OR FORBEARANCE THAN THREE PER CENTUM PER MONTH WHEN THE SUM LENT IS LESS THAN ONE HUNDRED PESOS; TWO PER CENTUM PER MONTH WHEN THE SUM LENT IS ONE HUNDRED PESOS OR MORE, BUT NOT EXCEEDING FIVE HUNDRED PESOS, AND FOURTEEN PER CENTUM PER ANNUM WHEN IT IS MORE THAN THE AMOUNT LAST MENTIONED A PAWNBROKER OR PAWNBROKER'S AGENT SHALL BE CONSIDERED SUCH, FOR THE BENEFITS OF THIS ACT ONLY IF HE BE DULY LICENSED AND HAS FURTHER AN ESTABLISHMENT OPEN TO THE PUBLIC.

Laws in all countries accord a special privilege to pawnshops allowing them always to charge a higher rate of interest than ordinary lenders. There are special reasons which justify this privilege enjoyed by pawnshops and among them are the following:

(1) Usually pawnshops are engaged in short time loans, so that there is great danger of not being able to lend again their capital immediately after its return by first borrowers.

(2) They are usually paying higher license than an ordinary lender.

(3) They are directly in contact with those that urgently need money

and hence they render greater service to the public.

(4) They pay more for employees for the nature of their business involve greater trouble.

(5) They are sometimes the victim of deceit and fraud due to misrepresentation as to the real nature and ownership of the property pledged to them.

But it should be understood that only those who comply with the provision of this section can claim the privilege granted by it, for to allow those which are not

duly licensed to charge the rates allowed by law, would be, not only to tolerate and encourage unlawful acts but also to sanction inequality before the law.

The 3% rate of monthly interest to which pawnshops are entitled in cases of loans not in excess of 100.00 are a result of the compromise between the petition of the pawnbrokers and the desire of the legislators as is shown by the following quotation taken from an official record: "On occasion of the public hearing held, several of the pawnbrokers and pawnbroker's agents confessed that they could reduce the rate of interest to 4%. We, however, believed that it could be reduced still further to 3%. The schedule which we propose is in accordance with that hearing and is a compromise statements of pawnbrokers and what we believe can be done in the interest of the customers of the pawnshops." The decrease in the rate of interest as the amount loaned increases, is in accord with reason and with the other provisions of the law.

A pawnshop is strictly limited to charge only the interest fixed by law for a pawner who agrees to pay interest in excess of the legal rate is entitled to the possession of the pledges, if he tenders the principal and the lawful interest (Jackson v. Shawl, 29 Cal. 267.)

In another case it was held that a pawnbroker cannot acquire the right to charge interest in excess of the maximum rate charged by statute by treating a loan for a longer period as a monthly contract. (Reg. v. Goodburn, 2 Jur. 857.)

Te render a pawnbroker amenable to the penalty provided by law for taking or receiving directly or indirectly, usurious interest, the excessive interest must have been actually received by him. (Hallenbeck ». Getz, 63 Conn. 385.) It should be understood that this case is applicable only to a criminal and not to a civil action ̧

SEC. 5. IN COMPUTING THE INTEREST ON ANY OBLIGATION, PROMISSORY NOTE OR OTHER INSTRUMENT OR CONTRACT, COMPOUND INTEREST SHALL NOT BE RECKONED, EXCEPT BY AGREEMENT, OR, IN DEFAULT THEREOF, WHENEVER THE DEBT IS JUDICIALLY CLAIMED, IN WHICH LAST CASÉ IT SHALL DRAW SIX PER CENTUM PER ANNUM INTEREST.

The provision of this section is an embodiment of the existing legislation on the subject; the contents of Art. 317 of the Code of Commerce which provides that interest due shall not earn interest unless there is an agreement to that effect, that of Art. 1109 of the Civil Code which allows compound interest from the date of the judicial demand and last of all that of Sec. 510 of the Code of Civil Procedure which says, "When the Supreme Court will affirm a judgment below for the recovery of money, or shall reverse a judgment below, and award a sum of money as debt or damages, it shall direct that interest be added to the original judgment or sum determined to be due, from the date of the former judgment to the date of the final judgment, at the rate of 6% per annum." The reason for this unanimous opinion of the