GR L 13660; (November, 1918) (Digest)
G.R. No. L-13660; November 13, 1918
E. M. BACHRACH, plaintiff-appellee, vs. VICENTE GOLINGCO, defendant-appellant.
FACTS:
The plaintiff, E. M. Bachrach, filed a suit to recover a balance due on a promissory note executed by the defendant, Vicente Golingco, for the purchase price of an automobile truck. As security, a chattel mortgage was constituted on the truck. After the note matured, the plaintiff foreclosed the chattel mortgage. At the foreclosure sale, the plaintiff purchased the truck for P539, which was credited to the debt. The defendant appealed the trial court’s judgment, which awarded the plaintiff the principal sum of P8,461 with interest and an additional P2,115.25 as a stipulated attorney’s fee. The defense raised two main issues: (1) irregularities in the foreclosure of the chattel mortgage, as the truck was improperly removed from Albay (the mortgagor’s residence) and sold in Manila without the mortgagor’s consent or proper notice, and (2) the validity of the stipulation for a 25% attorney’s fee, which the defendant argued was usurious and excessive.
ISSUE:
1. Whether the irregularities in the foreclosure of the chattel mortgage caused damage to the defendant.
2. Whether the stipulated attorney’s fee of 25% of the principal obligation is valid and enforceable.
RULING:
1. On the foreclosure irregularities: The Court found that the foreclosure sale was irregular under Section 14 of the Chattel Mortgage Law (Act No. 1508), as the truck was sold in Manila instead of Albay (the mortgagor’s residence or where the property was situated) without the mortgagor’s consent or proper notice. This irregularity made the plaintiff liable for the truck’s full value at the time of removal. However, the defendant failed to prove any damage, as the evidence showed the truck was in a “criminal condition” (stripped of parts) and was sold for P539, which the Court deemed its fair value. Thus, no offsetting damages were awarded.
2. On the attorney’s fee stipulation: The Court held that stipulations for attorney’s fees in promissory notes are lawful under the Negotiable Instruments Law and are not usurious per se, even when added to the maximum permissible interest. Their purpose is to allow the creditor to recover the full debt without bearing collection costs due to the debtor’s delinquency. However, such stipulations must be reasonable and not oppressive. Citing the Code of Civil Procedure, the Court emphasized that attorney’s fees, even if contractually stipulated, are subject to judicial review and reduction if found unreasonable. The stipulated 25% fee (P2,115.25) was deemed excessive and unconscionable. Using its discretion, the Court reduced it to P800, a reasonable compensation for the legal services rendered.
DISPOSITIVE PORTION:
The plaintiff was awarded the principal sum of P8,461 with 8% annual interest from July 10, 1916, plus P800 as attorney’s fees and statutory costs (excluding the statutory allowance for attorney’s fees). The decision was affirmed with modification.