G.R. No. 29660, January 23, 1929
F. M. YAP TICO & CO., LTD., plaintiff-appellee, vs. SEVERO ALEJANO, defendant-appellant.

FACTS

F. M. Yap Tico & Co., Ltd. (plaintiff-appellee), a commercial corporation, and Severo Alejano (defendant-appellant), a sugar planter, entered into a contract in March 1922. Under this contract, the plaintiff made monetary advances to the defendant on a current account in exchange for the defendant’s sugar crop. On December 9, 1926, the plaintiff filed an action to recover the balance of the current account, attorney’s fees, and other amounts. The defendant, in his answer, raised four special defenses, including claims that: (1) compound interest was illegally charged; (2) the plaintiff failed to credit him with the true market price of sugar; (3) three promissory notes for P10,000 each, executed in favor of Enrique Echauz, were without consideration; and (4) a 1.5% commission on sugar sold by the defendant to the plaintiff itself was improperly charged. The trial court ruled in favor of the plaintiff, ordering the defendant to pay the principal sum with interest, attorney’s fees, and half of an accountant’s fee. The defendant appealed, contesting only the rulings on the promissory notes, the commission, and the attorney’s fees.

ISSUES:
1. Whether the three promissory notes executed in favor of Enrique Echauz were valid and supported by consideration.
2. Whether the plaintiff was entitled to charge a 1.5% commission on sugar purchased outright from the defendant.
3. Whether the award of attorney’s fees was proper.

RULING

The Supreme Court AFFIRMED the trial court’s judgment.

1. On the Promissory Notes: The Court held that the promissory notes were valid and supported by consideration. The transaction involving Enrique Echauz, which led to the transfer of P300,000 of the plaintiff’s credits to the Philippine National Bank, substantially benefited the defendant by alleviating his and the plaintiff’s financial difficulties. The fact that the defendant’s attorney-in-fact, a lawyer, executed the notes indicates an acknowledgment of this benefit. Therefore, the notes were not without consideration, and the plaintiff, as an endorsee for value, was a holder in due course entitled to collect.

2. On the Commission: The Court ruled that the charge was proper. Although the contract was poorly drafted, its terms indicated that the so-called “commission” was not a traditional sales commission but a charge intended to cover potential losses from factors like deterioration or loss in polarization. This charge was applicable regardless of whether the sugar was sold directly to the plaintiff or to others.

3. On the Attorney’s Fees: The Court upheld the award of attorney’s fees, which the trial court had reduced from the contractual rate of 20% to 5% of the debt. The Court found this reduced amount to be fair and reasonable. It reiterated the doctrine that contractual stipulations for attorney’s fees are valid and enforceable if not unconscionable, especially when, as in this case, the defendant’s failure to meet his obligations necessitated judicial action.