COLLEGE OF LAW EVENTS To assign definite events in its calendar through its Student Council is now a tradition strictly observed by the College of Law. On Saturday evening, July 27, that deliberative body met, with Dean Bocobo presiding as chairman ex-officio, and approved the following permanent events for the present academic year: 1. Open meeting of the Philippine Barristers.. 2. Sophomore Smoker... 3. Constitutional Convention-Junior Philippine Senate.... 4. Joint meeting of the Philippine Barristers and the Junior Philip Aug. 13 Oct. 12 Nov. 9 Nov. 16 Nov. 23 Nov. 28 Nov. 30 Dec. 13 Dec. 15 Dec. 30 Jan. 25 Feb. 22 End of Semester .Once a month. PHILIPPINE LAW JOURNAL Vol. V SEPTEMBER, 1918 No. 2 A CRITICAL STUDY OF THE USURY LAW (ACT 2655) BY MANUEL V. GALLEGO, B.A., LL. B. (Awarded the Lawyers Co-operative Publishing Co. prize of United States Supreme Court Digest, Extra Annotated, 7 volumes, for the best thesis presented for Graduation from the College of Law, University of the Philippines.) (Continued from August Number) SEC. 6. ANY PERSON OR CORPORATION WHO, FOR ANY SUCH LOAN OR FORBEARANCE, SHALL HAVE PAID OR DELIVERED A HIGHER RATE OR GREATER SUM OR VALUE THAN IS HEREINBEFORE ALLOWED TO BE TAKEN OR RECEIVED, MAY RECOVER THE WHOLE INTEREST PAID OR DELIVERED WITH COSTS AND ATTORNEY'S FEES IN SUCH SUM AS MAY BE ALLOWED BY THE COURT IN AN ACTION AGAINST THE PERSON OR CORPORATION WHO TOOK OR RECEIVED IT, IF SUCH ACTION IS BROUGHT WITHIN TWO YEARS AFTER SUCH PAYMENT OR DELIVERY: PROVIDED, HOWEVER, THAT THE CREDITOR SHALL NOT BE OBLIGED TO RETURN THE INTEREST COLLECTED BY HIM IN ADVANCE WHEN THE DEBTOR SHALL HAVE PAID THE OBLIGATION BEFORE IT IS DUE, PROVIDED SUCH INTEREST DOES NOT EXCEED FROM TEN TO TWELVE PER CENTUM PER ANNUM, ACCORDING AS IT FALLS UNDER SECTION TWO OR SECTION THREE OF THIS ACT. The law allows the recovery of the whole interest paid not only for the protection of the payer but also as a punishment of the lender, because the law presumes that such a payment was done through oppression and undue advantage. Beside the recovery of the whole interest paid, the law permits also costs and attorney's fees to be reimbursed the debtor for they are expenses incident to the bringing of the suit which the payer would not otherwise incur. Since the determination of the costs and attorney's fees is left to the sound discretion of courts, the latter are likely to follow the provisions of Chapter XXI of act 190 regarding costs and lawyer's fees. The two years period within which action must be brought, begins to run from the time of actual payment and not from the time of the agreement to pay the usurious interest. (Rushing v. Rhode 6 Ga. 228.) The action is not barred if brought within the statutory period after the last of a series of successive usurious payments. (Steward v. Fowler, Harp (S. C.) 403.) If the action to recover usurious interest paid is brought against the assignee of the original creditor, the period of limitation will be computed from the time the debt is paid to the assignee rather than from the time the loan was made to the assignor. (See Williams v. Wilder 237 Vt. 613) (39 C 1083.) Most cases hold that the payer of usury or his personal representative, is the proper party to sue for its recovery. (Mathews vs. Paine 47 Ark. 54.) Ordinarily, as long as any part of the usurious debt remains unpaid, the usurious payments made or agreed to be made may be set-off against the total sum contracted to be paid; and this too, although the statute may either expressly or impliedly authorize the recovery of usury which has been paid. (Farwell v. Meyer 35 Ill. 40.) The last part of the section provides that interest paid in advance is not usurious and therefore action will not lie if such interest does not exceed from 10% to 12% per annum, according as it falls under section two, regarding debt secured by duly registered title to realty or under section three when loans are secured otherwise. Since the rate of interest in case of advance payment as provided in this section is lower than that allowed and payable at the end of the year, it is obvious that there can be no usury. Most authorities hold that taking the highest rate of interest in advance, so that the borrower receives less than the principal sum he contracts to repay, is unquestionably usurious in principle and was so considered at first; but an early concession was made to the usage among banks and other persons dealing in commercial paper whose customary short term loans made the violation of the law insignificant. In the course of time, however, the usage has widened with the custom of the law merchant, until it became a settled rule now that interest may be recovered in advance at the highest legal rate without rendering the loan usurious, if the loan is for a short term. (Fowler v. Equitable Trust Co. 141 U. S. 384.) It should be clearly understood that the rule permitting interest in advance, must be confined to short term loans, otherwise the borrower might incur an obligation to repay a large sum in consideration of the present receipt of an insignificant amount. Since the cases do not fix and define the exact meaning of the word "short term," the writer is of the opinion that it should be interpreted to mean a period of time less than one year. Thus, it has been generally held that stipulations for the payment of accrued interest at the highest legal rate semi-annually, or quarterly, are not usurious. ((Hawley v. Howell 60 Iowa 79; Mowry v. Shumway 44 Com. 493). No other words can portray better the opinion of a famous authority on usury who condemns the taking of advance interest in the following words: "Why there should be such profligate expenditure of learning, consumption of words, and vexation of mind over a question of which there is but one solution, is difficult to understand. Interest is the compensation for the use of money. If the amount of the interest is deducted in advance, it is plain that the borrower never uses the interest so paid; he does not receive the full amount of his loan; it renders the borrower no service, performs no purpose, pays no debts, buys no property, satisfies no wants, and accomplishes nothing for the borrower. If mathematical accuracy and justice should be aimed at, it seems that interest should be paid at maturity." (Webb on Usury, sec. 113.) The writer agrees with the opinion just quoted to the extent that it should only be applicable to cases where the amount of interest collected in advance together with the interest upon it, is more than would be allowed by law as interest upon the principal. SEC. 7. ALL CONVEYANCES, MORTGAGES, BONDS, BILLS, NOTES, AND OTHER CONTRACTS OR EVIDENCES OF DEBT, AND ALL DEPOSITS OF GOODS OR OTHER THINGS, WHEREUPON OR WHEREBY THERE SHALL BE RESERVED, SECURED, TAKEN, OR RECEIVED, DIRECTLY OR INDIRECTLY, A HIGHER RATE OR GREATER SUM OR VALUE FOR THE LOAN OR FORBEARANCE OF MONEY, GOODS, OR CREDITS THAN IS HEREINBEFORE ALLOWED, SHALL BE VOID: PROVIDED, HOWEVER, THAT NO MERELY CLERICAL ERROR IN THE COMPUTATION OF INTEREST, MADE WITHOUT INTENT TO EVADE ANY OF THE PROVISIONS OF THIS ACT SHALL RENDER A CONTRACT VOID: AND PROVIDED FURTHER, THAT NOTHING HEREIN CONTAINED SHALL BE CONSTRUED TO PREVENT THE PURCHASE BY AN INNOCENT PURCHASER OF NEGOTIABLE MERCANTILE PAPER, USURIOUS OR OTHERWISE, FOR VALUABLE CONSIDERATION BEFORE MATURITY, WHEN THERE HAS BEEN NO INTENT ON THE PART OF SAID PURCHASER TO EVADE THE PROVISIONS OF THIS ACT AND SAID PURCHASE WAS NOT A PART OF THE ORIGINAL USURIOUS TRANSACTION. IN ANY CASE, HOWEVER, THE MAKER OF SAID NOTE SHALL HAVE THE RIGHT TO RECOVER FROM SAID ORIGINAL HOLDER THE WHOLE INTEREST PAID BY HIM THEREON AND, IN CASE OF LITIGATION, ALSO THE COSTS AND SUCH ATTORNEY'S FEES AS MAY BE ALLOWED BY THE COURT. Although the law says that all contracts tainted with usury are void, yet, strictly speaking they are not ab initio, but simply voidable at the instance of the debtor. The debtor may discharge the usury or he may be guilty of such laches as to forfeit his right to set up usury as a defense in an action on the loan. Hence, if the mortgagor of property given as a security of a usurious debt allows his property to be sold under foreclosure proceedings, without attempting to avoid the mortgage, he cannot afterwards allege usury to the prejudice of an innocent purchaser. (Brown v. Nevitt 27 Miss. 801.) The right of the debtor to recover property delivered under a usurious contract cannot be more graphically portrayed than in the following words: "The contract upon which these securities (referring to mortgages) were received by the defendant being usurious, was wholly void and thereby he acquired no right to them; nor was his possession, although by manual delivery from the plaintiff, a rightful possession. On the contrary, it was not only acquired in violation of a positive law, but as respect the plaintiff, was compulsory and oppressive. The law regards, whatever is done to obtain money on usurious terms, not as a voluntary act, but as the direct result of constrain and violence on the part of the usurer. The borrower on such terms, is the slave of the lender; nay, more, a slave in chains, and utterly incapable of resistance. As to the usurer, anything is held to be oppressive and tyrannical to which an unresisting and passive submission, is yielded by his victim. It is on this principle alone that the law gives redress to one who submits to usurious transactions." (5 Denio 236.) It has also been held that a conveyance of property, absolute in form, may be shown to be in fact a mere security for a usurious contract. (Pope v. Heartwell 79 Ga. 482; Louis v. Leonus 53 Ark. 454). Again, where the consideration or an inseparable part of a mortgage is usurious, the whole security is defective to the extent provided by the usury statute. (Marks v. McGehee 35 Ark. 217.) Another important question which presents itself refers to the extent of the amount to which the lender is entitled in case a contract is declared void for violating the usury law. In a few states, usurious contracts are entirely void as to both principal and interest. (Ormund vs. Hobert 36 Minn. 306.) Turning now to the provision of our law, the writer believes that although sec. VII is silent as to what part of a usurious contract is void, yet from the contents of sec. VI, VIII and X which provide for the recovery of the whole interest paid in civil cases and the forfeiture of an equal amount in criminal cases, it can be reasonably inferred that the principal may be recovered by the lender since the forfeiture can extend no further than which the statute specifically provides. This view is sustained by the great weight of authority which upholds that a usurious contract is void only as to all interest, but the principal may be collected. Thus, it has been held that, "The amount to be forfeited is only the interest—the whole of the interest, legal and illegal, but no principal and no part thereof." (Lamier v. Cox 65 Ga. 266; Meddock v. West 16 Ohio 417.) The director of Agriculture, Mr. Hernandez, in a letter addresssed to the members of the Rural Credit Association and published in the local papers, expounded the idea that all usurious contracts falling under section seven, being void, “the effect will be that the victim will not have to pay either the capital or the interest." He goes further and says that the law looks on usurious interest exactly as it does on contraband opium; anyone dealing in it will have his whole stock confiscated and will be punished besides." With the utmost respect to this opinion, the writer cannot help but to differ from it. Lest he be accused of partiality, it must be under |