Case Summary (G.R. No. 141205)
Factual Background
The plaintiff sold an automobile truck to the defendant and took a promissory note for the purchase price, secured by a chattel mortgage on the truck. The note matured, the mortgage was foreclosed, and at the sheriff's sale the plaintiff purchased the truck for P539, which sum was credited upon the indebtedness. The plaintiff transported the truck from Albay, the mortgagor's residence, to the city of Manila and caused the sheriff in Manila to sell it; there was no evidence that the mortgagor consented to the removal or to a sale in Manila, and no notice of sale was posted in Albay as required by statute.
Trial Court Proceedings
The trial court rendered judgment for the plaintiff for P8,461 as principal, with interest at 8 per cent per annum from July 10, 1916, and for an additional sum of P2,115.25 as a stipulated attorney's fee. The defendant appealed from that judgment.
Issues Presented
The Court identified two principal questions: whether irregularities in the foreclosure and sale of the chattel mortgage invalidated the sale or gave rise to damages; and whether the stipulation providing for an attorney's fee of twenty-five percent in the promissory note was lawful and, if lawful, whether the amount was reasonable.
The Parties' Contentions
The defendant contended that the foreclosure sale was irregular because the truck was removed from Albay and sold in Manila without the mortgagor's consent and without the statutory notices in Albay, and that the twenty-five percent attorney's fee provision was usurious and grossly excessive. The plaintiff maintained the sale and credit for the purchase price at the sheriff's sale, and relied upon the contractual stipulation for attorney's fees as collectible.
Court's Finding on Foreclosure Irregularity
The Court found that the requirements of section 14 of Act No. 1508 were not observed. The mortgage was sold in Manila after the plaintiff had carried the truck from Albay. The Court construed the statute to require sale in the municipality where the mortgagor resides or where the property is situated for use by the mortgagor, not any place to which the mortgagee may remove the chattel. Because notice was not posted in Albay, the sale was improperly accomplished.
Effect of the Irregularity and Burden of Proof
The Court held that the effect of the irregular sale was to make the plaintiff liable to the defendant for the full value of the truck at the time it was taken away for sale. The Court further held that the burden was on the defendant to prove the amount of damage sustained by reason of the irregularity.
Evidence and Valuation of the Truck
The Court examined the plaintiff's testimony concerning the truck's condition at the time of the sale. The plaintiff stated that removable parts such as tires, generator, lamps, and dynamo were absent and that the chassis and motor were not in place at the time he purchased it at the sheriff's sale, that protest from Golingco had demanded the body, and that the plaintiff instructed the sheriff to deliver the body to Golingco and send the truck. The Court found no contradictory evidence and credited the plaintiff's testimony. In the absence of proof to the contrary, the Court accepted the price the plaintiff paid at the sheriff's sale, P539, as the value of the truck both at the sale and at the time it was removed from Albay. Consequently, the defendant failed to prove any damage from the irregular sale.
Lawfulness of the Attorney's Fee Stipulation
The Court held that a stipulation obliging the debtor, upon delinquency, to pay a reasonable attorney's fee for collection in addition to principal and interest is lawful. The Court noted that such stipulations are expressly recognized when annexed to negotiable instruments by the Negotiable Instruments Law (Act No. 2031, sec. 2, par. E). The Court further explained that such stipulations are not per se usurious, although they may be used to conceal usury, which is a matter of proof in each case. The Court cited an analogous decision of the supreme court of Georgia, National Bank of Athens v. Danforth, 80 Ga. 55, for the principle that the contract to pay attorney's fees in addition to principal and interest is not, on its face, usurious.
Reasonableness, Court's Power to Limit, and Applicable Procedural Rule
The Court emphasized that the lawful purpose of an attorney's fee stipulation is to permit the creditor to receive the full amount due without deduction for collection expenses and not to provide a source of speculative profit. The Court invoked section 29 of the Code of Civil Procedure, which permits the court to limit recovery to reasonable compensation even when there is an express contract for attorney's fees. The Court contra
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Parties and Posture
- E. M. BACHRACH was the plaintiff and appellee who sold an automobile truck and took a promissory note secured by a chattel mortgage.
- VICENTE GOLINGCO was the defendant and appellant who executed the promissory note and was the mortgagor of the truck.
- The trial court entered judgment for the plaintiff for P8,461 as principal, interest at eight percent per annum from July tenth, 1916, and P2,115.25 as a stipulated attorney's fee.
- The defendant appealed from the judgment of the trial court.
Facts
- The promissory note represented the purchase price of an automobile truck sold by the plaintiff to the defendant.
- The plaintiff took a chattel mortgage on the truck as security for the note.
- After maturity the chattel mortgage was foreclosed and the plaintiff himself became purchaser at the sheriff's sale for P539, which was credited upon the indebtedness.
- The plaintiff caused the truck to be carried from Albay, the mortgagor's residence, to Manila where the sale was conducted by the sheriff.
- There was no evidence that the mortgagor consented to the removal or to a sale in Manila.
- No notice of sale was posted anywhere in the municipality of Albay as required by law.
- The plaintiff testified that at the time of sale all removable parts of the truck had been taken off and that the chassis and motor were not present.
- The plaintiff further produced a telegram from the sheriff of Tabaco stating that a protest by Golingco demanded delivery of the body and that the sheriff was instructed to deliver the body to Golingco and send the truck.
Procedural History
- The trial court awarded the plaintiff the principal sum, interest, and a stipulated attorney's fee in the amount of P2,115.25.
- The defendant assigned as error irregularities in the foreclosure sale and the validity and amount of the stipulated attorney's fee.
- The case was reviewed on appeal with opinion delivered by Street, J.
Issues
- Whether the foreclosure sale complied with section 14 of Act No. 1508 (the Chattel Mortgage Law) and whether removal of the chattel and sale in Manila rendered the sale improper.
- Whether the stipulated provision in the note for twenty-five percent as attorney's fees was lawful and whether the amount awarded was excessive or usurious.
Statutory Framework
- Section 14 of Act No. 1508 (Chattel Mortgage Law) required that a mortgaged chattel be sold in the municipality where the mortgagor resided or where the property was situated.
- Act No. 2031 (Negotiable Instruments Law), sec. 2, par. E was cited as expressly recognizing the validity of a stipulation for attorney's fees annexed to a negotiable instrument.
- Section 29 of the Code of Civil Procedure authorized the court to limit recovery to reasonable compensation for attorney'