Case No.: 37109 Usury

Case No.: 37109

Date: November 8, 2000 E.C.

Legal Rule:

• Usury: Requiring a borrower to pay double the principal amount of a loan constitutes usury (“arata”) and is illegal.
• Interest Rates: Interest rates are governed by law (e.g., Civil Code Article 2479).
• Penalty Clauses: While penalty clauses for late payment are permissible (e.g., Civil Code Article 1889), they cannot be used as a guise for usurious interest.

Summary of Facts:

The Respondent sued the Appellant for defaulting on loan agreements. The agreements stipulated double the borrowed amount was due upon late payment. The lower courts ruled in favor of the Respondent.

Decision of the Supreme Court:

The Supreme Court reversed the lower courts’ decisions in part. The Court held that requiring double the principal constituted illegal usury. The Court rejected the Respondent’s argument that the double payment was a permissible penalty. The Appellant was ordered to repay the original principal amounts plus legal interest. The case regarding one of the loans, where the Appellant was denied the right to defend, was remanded to the High Court for retrial.

Simplified Summary: The Appellant borrowed money from the Respondent and agreed to pay double if they were late. The Supreme Court said that requiring double payment is illegal (it’s “arata,” or usury). They ordered the Appellant to repay the original loan amounts plus legal interest. They also said the Appellant should be allowed to defend themselves in court regarding one of the loans.