G.R. No. 39427; February 24, 1934
TIRSO GARCIA, in his capacity as receiver of the Mercantile Bank of China, plaintiff-appellee, vs. LIM CHU SING, defendant-appellant.
FACTS
Defendant Lim Chu Sing executed a promissory note in favor of the Mercantile Bank of China for P19,605.17, with stipulations for installment payments, acceleration upon default, and payment of a 10% sum for costs and attorney’s fees in case of judicial collection. After partial payments, an unpaid balance of P9,105.17 remained. The defendant admitted the debt but claimed it was originally the obligation of Lim Cuan Sy, for whom he acted as surety. He also owned shares of stock in the bank worth P10,000. The bank was under liquidation, with a receiver appointed. The defendant sought to have the principal debtor included as a party and to compensate (set off) his debt with the value of his bank shares.
ISSUE
1. Whether the trial court erred in denying the motion to include the principal debtor as a party defendant.
2. Whether the defendant’s debt can be compensated (set off) with the value of his shares of stock in the bank.
3. Whether the award of attorney’s fees and interest in the judgment was proper.
RULING
1. No. The defendant failed to except (object) to the trial court’s order denying his motion for inclusion of a party. Under procedural rules, the failure to interpose an exception deprives the appellant of the right to raise the question on appeal.
2. No. A share of stock does not constitute an indebtedness of the corporation to the stockholder; the stockholder is not a creditor of the corporation for the value of the shares. The capital stock of a corporation is considered a trust fund for the security of creditors. Therefore, no compensation (set-off) under the Civil Code is possible, as there is no mutual creditor-debtor relationship between the shareholder and the corporation regarding the shares.
3. Yes, but with modification. The stipulated 10% for “costs and attorney’s fees” is a valid indemnity for damages due to judicial collection and is not combined with the interest to constitute usury. However, this stipulated sum already includes judicial costs; therefore, the defendant should not be ordered to pay costs again. The appealed judgment was affirmed with the modification eliminating the separate award of costs.
AI Generated by Armztrong.
