G.R. No. 32945, December 29, 1930
THE BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellant, vs. WALTER A. SMITH AND CO., INC., defendant-appellant. HOA HIN AND CO., INC., ET AL., defendants-appellees.

FACTS

The Bank of the Philippine Islands (BPI) filed an action to foreclose a mortgage on machinery and personal property, including the launch Mohawk, executed by Walter A. Smith & Co., Inc. (Smith & Co.). BPI also sought to annul a prior judicial sale of the Mohawk to Uy Godinez, which sale was conducted to satisfy repair claims by Hoa Hin & Co., Inc. Smith & Co. cross-claimed, alleging the mortgage debt had been overpaid and sought to recover nearly P50,000 from BPI. The trial court upheld the mortgage’s validity, found a balance of P50,579.45 due to BPI as of October 16, 1928, plus P2,949.88 for insurance premiums paid by BPI, and ordered foreclosure of all mortgaged property except the Mohawk. It absolved other defendants and dismissed Smith & Co.’s cross-complaint. Both BPI and Smith & Co. appealed.

ISSUE

1. Whether the mortgage contract was valid and enforceable.
2. Whether the judicial sale of the Mohawk to satisfy repair claims prevailed over BPI’s mortgage lien.
3. Whether BPI was entitled to:
a. Interest on the mortgage debt from November 25, 1924, to October 16, 1928.
b. Attorney’s fees as stipulated in the mortgage contract.

RULING

1. Validity of the Mortgage: The Supreme Court affirmed the trial court’s ruling that the mortgage was valid, made in good faith, for sufficient consideration, and not induced by fraud. Smith & Co.’s argumentthat BPI should have sold the property for only P11,000 (the price at which BPI acquired it in a prior foreclosure) instead of the agreed mortgage debt of over P80,000was rejected. The Court found Smith & Co. entered the contract with full knowledge of the acquisition price, and any alleged promise by BPI to raise its bid was immaterial to the mortgage’s validity.

2. Priority of Repair Claims over Mortgage Lien: The Court upheld the trial court’s decision regarding the Mohawk. Where a mortgagor remains in possession of a mortgaged chattel, repairers who perform reasonably necessary repairs have a superior lien over the mortgagee for compensation. The repairs by Hoa Hin & Co., Inc. were deemed necessary, and the judicial sale to Uy Godinez was valid, citing Article 1600 of the Civil Code and Bachrach Motor Co. vs. Mendoza.

3. Interest and Attorney’s Fees:
a. Interest: The Court modified the trial court’s decision, holding that BPI was entitled to interest at the contractual rate of 9% per annum on the principal of P50,579.45 from November 25, 1924, to October 16, 1928.
b. Attorney’s Fees: The Court awarded BPI attorney’s fees as stipulated in the contract but reduced the amount to P5,000 in the exercise of judicial discretion.

DISPOSITIVE:
The judgment was affirmed with modifications: BPI was granted interest on the principal at 9% per annum from November 25, 1924, to October 16, 1928, and attorney’s fees of P5,000. The case was remanded for further proceedings. No costs were awarded.