Case Summary (G.R. No. L-22973)
Facts: Disbursements and Defaults
PNB disbursed ₱27,500 on August 2, 1956 and ₱15,500 on October 19, 1956. Mambulao Lumber Company defaulted on annual amortizations due July 31, 1957 to July 31, 1961. Inspections revealed cessation of operations in late 1957 or early 1958.
Real Estate Mortgage Foreclosure Proceedings
On September 27, 1961 PNB requested the Provincial Sheriff to foreclose the land mortgage extra-judicially under Act 3135. Notice was issued for a November 21, 1961 sale in Daet, Camarines Norte. No redemption occurred within the one-year statutory period.
Chattel Mortgage Foreclosure Proceedings
Simultaneously, on November 6, 1961, PNB requested foreclosure of the chattel mortgage. Deputy Sheriff Heraldo took possession November 8, 1961, issued notice, and scheduled public auction for November 21, 1961 at the mortgagor’s compound in Jose Panganiban.
Appellant’s Protests and Partial Suspension
Mambulao Lumber Company protested on November 19, 1961, contending that:
- Court order was required for foreclosure.
- Venue was contractually Manila, not provincial office.
- It could fully satisfy the debt within 90 days.
PNB deferred the chattel sale to December 21, 1961 but proceeded with the real estate sale.
Payment and Demand Letters
On December 14, 1961, the mortgagor remitted ₱738.59, asserting full settlement after applying ₱56,908 from real estate proceeds. PNB replied December 16, 1961 that the balance remained ₱9,161.76 plus interest and guarding fees.
Sale of Chattels and Removal from Premises
The chattels were auctioned December 21, 1961 at ₱4,200. PNB then offered Mambulao Lumber Company redemption priority but did not redeem. In May 1962 PNB’s agents and local police forcibly removed equipment for delivery to a third-party buyer.
Trial Court Decision
The Court of First Instance of Manila dismissed Mambulao Lumber Company’s complaint, held its indebtedness at ₱58,213.51, awarded PNB ₱3,582.52 (balance plus 6% interest from December 22, 1961) and expenses of suit. Appeal to the Supreme Court followed.
Issue: Computation of Indebtedness and Prohibition Against Compounding Interest
PNB compounded principal and 6% interest after each annual default, creating interest on interest contrary to Act 2655 and Civil Code Articles 1959, 2212. Absent express stipulation or judicial demand, compound interest is prohibited. The correct indebtedness as of November 21, 1961 is ₱56,485.87 plus simple interest. Trial court erred in awarding interest on accrued interest.
Issue: Expenses of Sale and Attorney’s Fees on Real Estate Foreclosure
PNB sought ₱298.54 as sheriff’s fees under old Rules of Court (Rule 130); however, Act 3135 governs extra-judicial foreclosure, entitling the officer to ₱5 per day plus actual expenses. No proof of actual expenses was offered. Reasonable allowance is ₱10 for two days’ work.
The real estate mortgage contract expressly stipulates 10% attorney’s fees on total unpaid indebtedness in “all cases” of foreclosure. Although PNB’s in-house attorney incurred minimal work, the stipulated fee is unconscionable. Under judicial control of counsel fees, a reasonable fee for extra-judicial foreclosure is fixed at ₱1,000.
Issue: Sufficiency of Real Estate Proceeds to Settle Debt
Recomputed obligation on November 21, 1961, including simple interest to that date, sheriff’s fees and ₱1,000 counsel fee, totals ₱57,495.86. Payment by real estate sale (₱56,908) plus remittance (₱738.59) equals ₱57,646.59, producing an excess payment of ₱150.73. Hence, there was no legal basis to foreclose chattels.
Issue: Venue Stipulation and Validity of Chattel Sale
Chattel mortgage contract contains a clear agreement that both judicial and extra-judicial foreclosure proceedings be filed with the Court or Sheriff of Manila. By waiving statutory venue options and stipulating Manila, the parties imposed a binding contractual venue. Foreclosure sale held in Jose Panganiban violated that stipulation.
Moreover, Act 1508 requires sale of chattels article by article, with itemized return; sale in gross of diverse equipment (over twenty items) was in breach of statutory procedure and cont
Case Syllabus (G.R. No. L-22973)
Factual Background
- On May 5, 1956, Mambulao Lumber Company applied for an industrial loan of ₱155,000 with PNB’s Naga Branch; approved for ₱100,000 only.
- As collateral, plaintiff mortgaged a parcel of land (Transfer Certificate of Title No. 381) in Jose Panganiban, Camarines Norte, plus various sawmill machinery, rolling units, and other fixed assets.
- August 2, 1956: PNB released ₱27,500; plaintiff executed Promissory Note due in five yearly installments of ₱6,528.40 starting July 31, 1957.
- October 19, 1956: PNB released additional ₱15,500; plaintiff signed Promissory Note due in five yearly installments of ₱3,679.64 starting July 31, 1957.
- Plaintiff defaulted on payments; by early 1958, its sawmill operations had ceased.
Extrajudicial Foreclosure of Real Estate
- September 27, 1961: PNB requested Provincial Sheriff to foreclose real estate mortgage extrajudicially for principal plus interest (₱57,646.59 as of September 22, 1961).
- Notice published; sale set for November 21, 1961, at the Court House in Daet, Camarines Norte.
- November 21, 1961: Real property sold to PNB for ₱56,908.00; plaintiff’s one-year redemption right reserved.
Subsequent Foreclosure of Chattels
- November 6 & 9, 1961: PNB and Sheriff issued notice to foreclose on chattels for the same debt plus attorney’s fees (10%) and costs; sale set for November 21, 1961, in Mambulao (Jose Panganiban).
- Plaintiff protested on November 19, 1961, claiming full payment via real estate sale proceeds and remittance, and venue violation (Manila required).
- Plaintiff remitted ₱738.59 on December 14, 1961; again protested on December 16, 1961.
- December 21, 1961: Sheriff awarded chattels to PNB for ₱4,200; bill of sale executed.
Procedural History
- Plaintiff sued PNB and Sheriff in CFI Manila (Civil Case No. 52089), alleging unlawful chattel foreclosure, excessive fees, conversion, and damages.
- April 2, 1964: Trial court dismissed complaint, ordered plaintiff to pay PNB ₱3,582.52 plus 6% interest from December 22, 1961, and costs.
- Plaintiff appealed to the Supreme Court (G.R. No. L-22973), raising five main propositions re indebtedness, fees