more ancient and learned nations. To some extent, the exact laws which have been long experimented on and tested in England found a place in the statute of some of the states. The first enactment made all usurious contracts wholly void, as in England; but the repeated assaults made upon these early enactments by additional statutes and by the decisions of courts gave rise to the present tendency of mitigating the punishment inflicted upon the usurer. The usury laws of the United States at present are much more liberal than those of England. In most of the American states, the statute only allows the forfeiture of the interest, either wholly or as to the illegal excess.

In the Philippines. The history of the usury law in the Philippines does not, strictly speaking, go back very far into the past. Before the arrival of the Spaniards, Filipino customs and traditions, as recorded in our history, are silent about usury. Neither the conquest of the Philippines by Spain nor the subsequent introduction of Spanish laws into our country had led to the introduction into our legal system of any principles of usury as they are now generally accepted. This fact is easily explained; as Spain herself paid very little attention to this matter, she could not be expected to introduce into the Philippines what she hardly had. It is true that the Spanish Code of Commerce and the Civil Code now in force here touch incidentally upon the subject of interest; but it should be understood that "interest" and "usury', are by no means synonimous as will be explained later. In truth and in fact, therefore, the history of the usury law in this country dates back only from the passage of the usury act for the Department of Mindanao and Sulu, Mountain Province' and the provinces of Agusan and Nueva Vizcaya which took place on August 19, 1907. It was followed by Act 2655 entitled “An Act Fixing Rates of Interest Upon Loans and Declaring the effect of receiving usurious rates, and for other purposes." This act which has been in force from May 1st, 1916, is the central theme of this treatise. The drafters of the Philippine usury law are unanimous in their opinion that usury is a social cancer, the prejudicial effect of which are felt in our industrial, commercial and agricultural life.

After reading the legislative records the writer has arrived at the conclusion that our usury law is one of the most complete and most elaborate of all the laws of its kind; it is American in essence and in spirit but changed in such a way as to suit Philippine local conditions. As it was originally drafted by the Philippine Commission the first bill contained fewer sections than the present usury law and hence embraced a much more limited field. The fact is shown by the explanatory statement to the law found in the legislative records which runs as follows: "considering the brevity of the original bill, many cases which should be covered would have escaped, and for this reason we submit the substitute bill (referring to Act 2655 as it is) intended to cover all." The modifications which the first bill has suffered will be mentioned in connection with the discussion of each section of the law.

CHAPTER II

ECONOMIC BASIS OF THE LAW

The history of the usury law has given birth to two antagonistic views regarding its workings:-one maintaining that usury laws are arbitrary and unwise, the other advocating the justice and the necessity of the law.

Those who maintain that usury laws are arbitrary and unwise allege the following grounds in support of their contention:

(1) It is a natural law that all abundant things in this world are cheap and all rare things, dear. Since capital is subject to the economic law of supply and demand as all other commodities are, it is therefore apparent that interest must necessarily vary from time to time, thereby making it impossible for human laws to suit themselves to changing conditions.

(2) To limit the rate of interest, one should be acquainted first with the normal rate, but the normal rate depends upon the uniformity of the economic conditions in a country, which conditions are very hard if not impossible to determine; hence, it follows that any fixed law regulating interest, is arbitrary.

(3) One borrows money for two reasons: (a) to pay for the use of money borrowed, (b) to get profit for himself. Consequently, the fact that the debtor agrees to pay a high rate of interest simply shows that the services rendered him by the capital are not dear as compared with the benefits received.

(4) It may be true that abuses incident to the loan of money are inevitable, but the use of money is very common while abuses are rare.

(5) Since the element of risk is present in all kinds of transactions, hence, the taking of high rate of interest is justified.

(6) The existence of a law fixing the rate of interest which may be paid by borrowers induce the lenders to charge a higher rate in order to compensate the penalty which may be imposed upon them.

(7) The last result is the enhancement of the difficulty of obtaining loans from capitalists who would not be willing to lend their money at low rates. On the other hand, those who advocate and maintain the justice of the laws allege the following grounds in support of their argument:

(1) Although the rate of interest depends upon the amount of capital available and although the latter in turn is dependent upon the law of supply and demand, yet, it cannot be doubted that lawmakers are usually possessed of enough foresight and wisdom to fix such a rate of interest as is best suited to the existing conditions in a country at a given time-rates which may be altered from time to time as circumstances vary.

(2) The agreement on the part of the borrower to pay a high rate of interest does not necessarily show that the debtor is benefitted, for an urgent need may compel the needy to borrow money at the highest rate of interest; hence, it is in cases of this nature that the law must step in to protect the oppressed.

(3) Even admitting that abuses in connection with the loan of money are rare, yet it cannot be denied that a law regulating interest will surely diminish, if not totally exterminate the existing abuses.

(4) It cannot be questioned that the element of risk is present in all kinds of transaction. It is likewise true that risks differ in different transactions; hence, the necessity for the law fixing the compensation for the use of money in proportion to the degree of risk or danger to which it is subjected. (5) The idea that the existence of a usury law induces lenders to charge greater interest because of fear of the law is true to a certain extent only; these violators of the law will sooner or later be discovered and punished accordingly.

(6) It is further contended that usury law makes it more difficult to obtain loans; because the capitalists will not always be willing to loan money at no lucrative interest. This argument can be answered by saying that it is a poor economic policy to keep surplus capital stagnant rather than to make it earn something.

To tell definitely which of the two antagonistic views as above set forth, is correct, is difficult; but the weight of authority seems to be inclined towards the idea that justice and equity demand a law regulating interest charges.

The writer is of the opinion that however urgent the economic reasons necessitating the non-regulation of the rate of interest may be, they must yield to public necessity. The interests of the people demand laws which will safeguard the rights of the poor and put a stop to certain abuses to which the needy are constantly subjected.

CHAPTER III
DEFINITIONS

After consulting the various treatises defining each and every one of the following terms, the writer has come to the conclusion that those which are hereinbelow given are the best for the purposes of this thesis. Hence, whenever the terms given below appear in the subsequent pages they should be accorded the meaning herein given them:

"Usury or unlawful interest is the reserving and taking, or contracting to reserve and take, either directly or by indirection, a greater sum for the use of money than the lawful interest." (Rosenstein v. Fox, 150 N. Y. 354.) "Interest is the compensation allowed by law, or fixed by the parties, for the use or forbearance of money, or as damages for its detention." v. Hiatt, 15 Wall. 177.)

(Brown

"Conventional interest is interest at the rate agreed upon and fixed by the parties themselves, as distinguished from that which the law would prescribe in the absence of an explicit agreement." (Fowler v. Smith, 2 Cal. 568.)

"Legal interest is that rate of interest prescribed by the laws of the particular state or country as the highest which may be lawfully contracted for or exacted, and which must be paid in all cases where the law allows interest without the assent of the debtor." (Fowslec v. Durkce, 12 Wis. 485.)

"Lawful interest." The term "lawful interest" as distinguished from "legal interest" means any rate of interest charges up to that fixed by

law as the maximum rate at which interest can be contracted for. Where, however, there is no stipulation as to a named rate, the term "lawful interest" is synonimous with "legal interest." (Daniel v. Gibson, 72 Ga. 267.)

"Moratory interest" or interest by way of damages is interest allowed in actions for breach of contract or tort as damages for the unlawful detention of money found to be due. (Close v. Riddle, 40 Ore. 592.)

"Simple interest" is that which is paid for the principal or sum lent, at a certain rate or allowance, made by law or agreement of parties. (Black's Law Dictionary, p. 647.)

"Compound interest" is interest upon interest, where accrued interest is added to the principal sum, and the whole treated as a new principal, for the calculation of the interest for the next period. (Black's Law Dictionary, p. 647.)

CHAPTER IV

ESSENTIAL ELEMENTS OF USURY

All authorities are agreed that certain indispensable elements must be present in order that a contract or transaction may be considered as one tainted with usury. These elements are the following:

(1) A loan or forbearance of money, either express or implied, is needed. If there be a loan, however disguised, the contract will be usurious, if it be so in other respects. Loan and forbearance are correlative terms. Loan or debt is indispensable in order to prove usury, for a usurious transaction cannot be established unless a loan of money or its equivalent was contemplated by the parties. (Goodrich v. Rogers, 101 Ill. 523.) To forbear is to allow one to retain a loan of money after it has become due and payable; that is, to give an extention of time for the return of money after the date in which it became due is over. (Kendigg v. Linn, 47 Iowa 62.)

(2) There must be an agreement that the principal shall be or may be returned and this agreement must be absolute; for if the return of the principal with interest, or of the principal only, depend upon a contingency, there can be no usury. The payment of interest may not be certain and this fact will not affect the contract unless the rate of interest contracted for is unlawful. In the latter case, the contract will be considered usurious. (Dowdall v. Lenox, 2 Edw. Ch. 266.) But if a loan is made for an indefinite period, the mere fact that the compensation agreed to be paid for the use of money exceeded the lawful rate of interest, does not make the contract usurious. (City of Phil. v. Kelly, 166 Pa. St. 207.) The lender is not at liberty to stipulate even for a contingent benefit beyond the lawful rate of interest, if according to the terms of the agreement he is entitled to the return of the principal with the lawful interest, at all events. (Buttrick v. Harris, 1 Bus. 442.)

(3) Agreement to pay more than lawful interest is necessary. Generally, an agreement to pay excessive interest or reservation of same are essential to constitute usury; and this agreement must be so far completed as to become obligatory upon the parties. In civil cases, no actual payment of usurious interest is needed in order to avoid a contract. "In determining whether usury exists in a particular case, the proper inquiry is not necessary whether the borrower is to pay for the use or forbearance, but what is the lender to receive for the loan or forbearance of his money." (Webb on Usury, r 30.)

The test of usury in a contract is whether it would, if performed, result in obtaining a higher rate of interest on the subject matter than is sanctioned by law. (Smith v. Parsons, 55 Minn. 520.) But the payment of a premium, less in amount than the lawful interest, in consideration of a loan is not usurious. (Oyster v. Longnecker, 16 Pa. St. 269.)

(4) The intent to violate the law must be apparent; such evil intent may be implied if all the other elements are expressed on the face of the contract. Another way of determining unlawful intent, is by examining the surrounding circumstances and the subsequent acts of the parties; such as the situation and object of the parties at the time when the loan took place, the nature of the funds, the use to which such funds are to be devoted, and the place and manner of repaying same. "To constitute usury within the prohibition of the law, there must be an intention knowingly to contract for or take usurious interest, for if neither party intend it, but act bona fide and innocently, the law will not infer a corrupt agreement. Where, indeed, the contract is, upon its very face, imports usury, as by an express reservation of more than legal interest, there is no room for presumption, for the intent is apparent, res ipsa loquitur. But where the contract on its face is for legal interest only, then it must be proved, that there was some corrupt agreement, or device, or shift to cover usury; and that it was in full contemplation of the parties." (U. S. Bank v. Waggener, 9 Pet. 378.)

Mistakes of law. The weight of authority seems to be that once the existence of the agreement to pay usurious interest is proven, it is unnecessary to prove further an actual intention to violate the law. "The nature and terms of the contract determine its character and purpose; and if usurious in itself, it must be understood to have been so intended by the parties, and they cannot be heard to the contrary." (Burwell v. Burzwyn, 100 N. C. 389.)

Mistakes of fact. An actual receipt of an amount more than that allowed by law as interest, is not necessary to brand a contract with usury. "The true test depends upon whether there was a purpose in the mind of the lender to take more than the lawful interest; and whether, by the terms of the transaction, and the means used to effect the loan, he may, by its enforcement, be able to get more than the lawful rates. If so, the transaction is usurious." (Miller v. Life Ins. Co., 118 N. C. 612.)

(5) It is to be noted that all the essential elements enumerated above are only applicable to civil cases. In order to sustain a criminal prosecution for the crime of usury, one more essential element must be present, that is, the actual receipt of the unlawful interest.

PART II
ACT 2655

AN ACT FIXING RATES OF INTEREST UPON LOANS AND DECLARING THE EFFECT OF RECEIVING OR TAKING USURIOUS RATES, AND FOR OTHER PURPOSES.

SEC. I. THE RATE OF INTEREST FOR THE LOAN OR FORBEARANCE OF ANY MONEY, GOODS, OR CREDITS AND THE RATE ALLOWED IN JUDGMENTS, IN THE ABSENCE OF EXPRESS CONTRACT AS TO SUCH RATE OF INTEREST, SHALL BE SIX PER CENTUM PER ANNUM

Rate of interest as to loan or forbearance in the absence of express contract. If at the time of an agreement for a loan nothing is said as to the rate of interest, the law assumes it to be that fixed by the statute. (Guggenheiner v. Geiszler, 31 N. Y. 293.)