Ramon Magsaysay Memorial Colleges, General Santos City LAW ON OBLIGATION & CONTRACTS

CHAPTER 2. NATURE AND EFFECT OF OBLIGATIONS

1. PRESTATION
2. BREACH OF OBLIGATION
3. REMEDIES OF CREDITORS

4. USURY LAW

4.1. DEFINITION
4.1.1. SIMPLE LOAN OR MUTUUM is a contract whereby one of the parties delivers to another
money or other consumable thing, upon the condition that the same amount of the same
kind and quality shall be paid. It may be gratuitous or with a stipulation to pay interest.
4.1.2. USURY is contracting for or receiving interest in excess of the amount allowed by law for the
loan or use of money, goods, chattels, or credits.

4.2. KINDS OF INTEREST

4.2.1. SIMPLE INTEREST when the rate of interest is stipulated by the parties
4.2.2. COMPOUND INTEREST when the interest earned is upon interest due
4.2.3. LEGAL INTEREST when the rate of interest intended by the parties is presumed by law,
as when the loan mentions interest but does not specify the rate thereof
4.2.4. LAWFUL INTEREST when the rate of interest is within the maximum allowed by (usury)
law
4.2.5. UNLAWFUL INTEREST when the rate of interest is beyond the maximum xed by law.

4.3. LIABILITY FOR LEGAL INTEREST

4.3.1. For loan or forbearance of money, the rate of interest due is that stipulated; otherwise, 12%
per annum computed from judicial or extrajudicial demand until fully paid. In addition,
interest due shall earn legal interest (compound interest) from the time it is judicially
demanded.
4.3.2. For other than loan or forbearance of money, the interest shall be 6% as indemnity at the
discretion of the court. When the amount of the obligation is reasonably established, the
interest shall run from judicial or extra-judicial demand; otherwise, from the time the amount
is nally adjudged.
4.3.3. Where a judgment awarding a sum of money under (4.3.1) or (4.3.2) above, has become nal
and executory, the legal rate of interest shall be 12% from such nality, based on the
adjudged principal and unpaid interest, until full satisfaction.

4.4. PRESUMPTION
4.4.1. KINDS
4.4.1.1. CONCLUSIVE PRESUMPTION one which cannot be contradicted like the
presumption that everyone is conclusively presumed to know the law
4.4.1.2. DISPUTABLE (OR REBUTTABLE) PRESUMPTION one which can be
contradicted or rebutted by presenting proof to the contrary like the presumption
established in Article 1176.
4.4.2. WHEN PRESUMPTIONS IN ARTICLE 1176 DO NOT APPLY
4.4.2.1. With reservation as to interest.
4.4.2.2. Receipt for a part of principal
4.4.2.3. Receipt without indication of particular installment paid.
4.4.2.4. Payment of taxes
4.4.2.5. Non-payment proven.

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