business org ii cases

8/6/2019 Business Org II Cases

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Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

JOSE C. TUPAZ IV and G.R. No. 145578PETRONILA C. TUPAZ,

Petitioners,Present:

Davide, Jr., C.J.,Chairman,

- versus - ' Quisumbing,Ynares-Santiago,

Carpio, andAzcuna,JJ.

THE COURT OF APPEALS andBANK OF THE PHILIPPINE 'Promulgated:ISLANDS,

Respondents.November 18, 2005

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

CARPIO, J.:

The Case

This is a petition for review[1] of the Decision[2] of the Court of Appeals dated 7

September 2000 and its Resolution dated 18 October 2000. The 7 September 2000

Decision affirmed the ruling of the Regional Trial Court, Makati, Branch 144 in a

case for estafa under Section 13, Presidential Decree No. 115. The Court of

Appeals' Resolution of 18 October 2000 denied petitioners' motion for

reconsideration.

The Facts
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Petitioners Jose C. Tupaz IV and Petronila C. Tupaz (petitioners') were Vice-

President for Operations and Vice-President/Treasurer, respectively, of El Oro

Engraver Corporation (El Oro Corporation'). El Oro Corporation had a contract with

the Philippine Army to supply the latter with 'survival bolos.

To finance the purchase of the raw materials for the survival bolos, petitioners, on

behalf of El Oro Corporation, applied with respondent Bank of the Philippine Islands

(respondent bank') for two commercial letters of credit. The letters of credit were in

favor of El Oro Corporation's suppliers, Tanchaoco Manufacturing

Incorporated[3] (Tanchaoco Incorporated') and Maresco Rubber and Retreading

Corporation[4] (Maresco Corporation'). Respondent bank granted petitioners'

application and issued Letter of Credit No. 2-00896-3 for P564,871.05 to Tanchaoco

Incorporated and Letter of Credit No. 2-00914-5 for P294,000 to Maresco

Corporation.

Simultaneous with the issuance of the letters of credit, petitioners signed trust

receipts in favor of respondent bank. On 30 September 1981, petitioner Jose C.

Tupaz IV (petitioner Jose Tupaz') signed, in his personal capacity, a trust receiptcorresponding to Letter of Credit No. 2-00896-3 (for P564,871.05). Petitioner Jose

Tupaz bound himself to sell the goods covered by the letter of credit and to remit

the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or

before 29 December 1981.

On 9 October 1981, petitioners signed, in their capacities as officers of El Oro

Corporation, a trust receipt corresponding to Letter of Credit No. 2-00914-5

(for P294,000). Petitioners bound themselves to sell the goods covered by that

letter of credit and to remit the proceeds to respondent bank, if sold, or to return

the goods, if not sold, on or before 8 December 1981.


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After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials

to El Oro Corporation, respondent bank paid the former P564,871.05 and P294,000,

respectively.

Petitioners did not comply with their undertaking under the trust receipts.

Respondent bank made several demands for payments but El Oro Corporation

made partial payments only. On 27 June 1983 and 28 June 1983, respondent

bank's counsel[5] and its representative[6] respectively sent final demand letters to

El Oro Corporation. El Oro Corporation replied that it could not fully pay its debt

because the Armed Forces of the Philippines had delayed paying for the survival

bolos.

Respondent bank charged petitioners with estafa under Section 13, Presidential

Decree No. 115 (Section 13')[7] or Trust Receipts Law (PD 115'). After preliminary

investigation, the then Makati Fiscal's Office found probable cause to indict

petitioners. The Makati Fiscal's Office filed the corresponding Informations

(docketed as Criminal Case Nos. 8848 and 8849) with the Regional Trial Court,

Makati, on 17 January 1984 and the cases were raffled to Branch 144 (trial court')on 20 January 1984. Petitioners pleaded not guilty to the charges and trial ensued.

During the trial, respondent bank presented evidence on the civil aspect of the

cases.

The Ruling of the Trial Court

On 16 July 1992, the trial court rendered judgment acquitting petitioners of estafa

on reasonable doubt. However, the trial court found petitioners solidarily liable with

El Oro Corporation for the balance of El Oro Corporation's principal debt under the

trust receipts. The dispositive portion of the trial court's Decision provides:

WHEREFORE, judgment is hereby rendered ACQUITTING both accusedJose C. Tupaz, IV and Petronila Tupaz based upon reasonable doubt.
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However, El Oro Engraver Corporation, Jose C. Tupaz, IV and PetronilaTupaz, are hereby ordered, jointly and solidarily, to pay the Bank of

the Philippine Islands the outstanding principal obligationofP624,129.19 (as of January 23, 1992) with the stipulated interest atthe rate of 18% per annum; plus 10% of the total amount due asattorney's fees; P5,000.00 as expenses of litigation; and costs of the

suit.[8]

In holding petitioners civilly liable with El Oro Corporation, the trial court held:

[S]ince the civil action for the recovery of the civil liability is deemedimpliedly instituted with the criminal action, as in fact the prosecutionthereof was actively handled by the private prosecutor, the Court

believes that the El Oro Engraver Corporation and both accused Jose

C. Tupaz and Petronila Tupaz, jointly and solidarily should be heldcivilly liable to the Bank of the Philippine Islands. The mere fact thatthey were unable to collect in full from the AFP and/or the Department

of National Defense the proceeds of the sale of the delivered survivalbolos manufactured from the raw materials covered by the trustreceipt agreements is no valid defense to the civil claim of the saidcomplainant and surely could not wipe out their civil obligation. After

all, they are free to institute an action to collect the same.[9]

Petitioners appealed to the Court of Appeals. Petitioners contended that: (1) theiracquittal 'operates to extinguish [their] civil liability and (2) at any rate, they are

not personally liable for El Oro Corporation's debts.

The Ruling of the Court of Appeals

In its Decision of 7 September 2000, the Court of Appeals affirmed the trial court's

ruling. The appellate court held:

It is clear from [Section 13, PD 115] that civil liability arising from theviolation of the trust receipt agreement is distinct from the criminal

liability imposed therein. In the case ofVintola vs. Insular Bank of Asiaand America,our Supreme Court held that acquittal in the estafa case(P.D. 115) is no bar to the institution of a civil action for collection.This is because in such cases, the civil liability of the accused does not


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arise ex delicto but rather based ex contractuand as such is distinctand independent from any criminal proceedings and may proceed

regardless of the result of the latter. Thus, an independent civil actionto enforce the civil liability may be filed against the corporation asidefrom the criminal action against the responsible officers or employees.

xxx

[W]e hereby hold that the acquittal of the accused-appellants from thecriminal charge of estafa did not operate to extinguish their civil

liability under the letter of credit-trust receipt arrangement withplaintiff-appellee, with which they dealt both in their personal capacityand as officers of El Oro Engraver Corporation, the letter of creditapplicant and principal debtor.

Appellants argued that they cannot be held solidarily liable with theircorporation, El Oro Engraver Corporation, alleging that they executed

the subject documents including the trust receipt agreements only in

their capacity as such corporate officers. They said that theseinstruments are merepro-formaand that they executed theseinstruments on the strength of a board resolution of said corporation

authorizing them to apply for the opening of a letter of credit in favorof their suppliers as well as to execute the other documents necessaryto accomplish the same.

Such contention, however, is contradicted by the evidence on record.The trust receipt agreement indicated in clear and unmistakable terms

that the accused signed the same as suretyfor the corporation andthat they bound themselves directly and immediately liable in theevent of default with respect to the obligation under the letters ofcredit which were made part of the said agreement, without need of

demand. Even in the application for the letter of credit, it is likewiseclear that the undertaking of the accused is that of a surety as

indicated [in] the following words: 'In consideration of yourestablishing the commercial letter of credit herein applied for

substantially in accordance with the foregoing, the undersignedApplicant and Surety hereby agree, jointly and severally, to each andall stipulations, provisions and conditions on the reverse side hereof.

xxx

Having contractually agreed to hold themselves solidarily liable with ElOro Engraver Corporation under the subject trust receipt agreements

with appellee Bank of the Philippine Islands, herein accused-appellantsmay not, therefore, invoke the separate legal personality of the saidcorporation to evade their civil liability under the letter of credit-trustreceipt arrangement with said appellee, notwithstanding their acquittal


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in the criminal cases filed against them. The trial court thus did not errin holding the appellants solidarily liable with El Oro Engraver

Corporation for the outstanding principal obligation ofP624,129.19 (asof January 23, 1992) with the stipulated interest at the rate of 18%per annum, plus 10% of the total amount due as attorney'sfees, P5,000.00 as expenses of litigation and costs of suit.[10]

Hence, this petition. Petitioners contend that:

1. A JUDGMENT OF ACQUITTAL OPERATE[S] TO EXTINGUISH THECIVIL LIABILITY OF PETITIONERS[;]

2. GRANTING WITHOUT ADMITTING THAT THE QUESTIONED

OBLIGATION WAS INCURRED BY THE CORPORATION, THE SAME

IS NOT YET DUE AND PAYABLE;3. GRANTING THAT THE QUESTIONED OBLIGATION WAS

ALREADY DUE AND PAYABLE, xxx PETITIONERS ARE NOTPERSONALLY LIABLE TO xxx RESPONDENT BANK, SINCE THEYSIGNED THE LETTER[S] OF CREDIT AS 'SURETY AS OFFICERS OFEL ORO, AND THEREFORE, AN EXCLUSIVE LIABILITY OF EL ORO;

[AND]

4. IN THE ALTERNATIVE, THE QUESTIONED TRANSACTIONS ARE

SIMULATED AND VOID.[11]

The Issues

The petition raises these issues:

(1) Whether petitioners bound themselves personally liable for El Oro

Corporation's debts under the trust receipts;

(2) If so '

(a) whether petitioners' liability is solidary with El Oro Corporation;

and


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(b) whether petitioners' acquittal of estafa under Section 13, PD 115

extinguished their civil liability.

The Ruling of the Court

The petition is partly meritorious. We affirm the Court of Appeals' ruling with the

modification that petitioner Jose Tupaz is liable as guarantor of El Oro Corporation's

debt under the trust receipt dated 30 September 1981.

On Petitioners' Undertaking Under

the Trust Receipts

A corporation, being a juridical entity, may act only through its directors, officers,

and employees. Debts incurred by these individuals, acting as such corporate

agents, are not theirs but the direct liability of the corporation they represent.

[12] As an exception, directors or officers are personally liable for the corporation's

debts only if they so contractually agree or stipulate.[13]

Here, the dorsal side of the trust receipts contains the following stipulation:

To the Bank of the Philippine Islands

In consideration of your releasing to under the terms of this Trust

Receipt the goods described herein, I/We, jointly and severally, agreeand promise to pay to you, on demand, whatever sum or sums ofmoney which you may call upon me/us to pay to you, arising out of,

pertaining to, and/or in any way connected with, this Trust Receipt, inthe event of default and/or non-fulfillment in any respect of thisundertaking on the part of the said . I/we further agree that my/our

liability in this guarantee shall be DIRECT AND IMMEDIATE, withoutany need whatsoever on your part to take any steps or exhaust any

legal remedies that you may have against the said . before makingdemand upon me/us.[14](Capitalization in the original)
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In the trust receipt dated 9 October 1981, petitioners signed below this clause as

officers of El Oro Corporation. Thus, under petitioner Petronila Tupaz's signature are

the words Vice-PresTreasurer and under petitioner Jose Tupaz's signature are the

words Vice-PresOperations. By so signing that trust receipt, petitioners did not bind

themselves personally liable for El Oro Corporation's obligation. In Ong v. Court of

Appeals,[15] a corporate representative signed a solidary guarantee clause in two

trust receipts in his capacity as corporate representative. There, the Court held that

the corporate representative did not undertake to guarantee personally the

payment of the corporation's debts, thus:

[P]etitioner did not sign in his personal capacity the solidary guaranteeclause found on the dorsal portion of the trust receipts. Petitioner

placed his signature after the typewritten words 'ARMCO INDUSTRIALCORPORATION found at the end of the solidary guarantee clause.Evidently, petitioner did not undertake to guaranty personally thepayment of the principal and interest of ARMAGRI's debt under the two

trust receipts.

Hence, for the trust receipt dated 9 October 1981, we sustain petitioners' claim that

they are not personally liable for El Oro Corporation's obligation.

For the trust receipt dated 30 September 1981, the dorsal portion of which

petitioner Jose Tupaz signed alone, we find that he did so in his personal capacity.

Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporation's

Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself

personally liable for El Oro Corporation's debts. Not being a party to the trust

receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under

such trust receipt.

The Nature of Petitioner Jose Tupaz's Liability

Under the Trust Receipt Dated 30 September 1981
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As stated, the dorsal side of the trust receipt dated 30 September 1981 provides:

To the Bank of the Philippine IslandsIn consideration of your releasing to under the terms of this Trust

Receipt the goods described herein, I/We, jointly and severally, agreeand promise to pay to you, on demand, whatever sum or sums of

money which you may call upon me/us to pay to you, arising out of,pertaining to, and/or in any way connected with, this Trust Receipt, in

the event of default and/or non-fulfillment in any respect of thisundertaking on the part of the said . I/we further agree that my/our

liability in this guarantee shall be DIRECT AND IMMEDIATE, withoutany need whatsoever on your part to take any steps or exhaust anylegal remedies that you may have against the said '. Before makingdemand upon me/us. (Underlining supplied; capitalization in the

original)

The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself

solidarily liable with El Oro Corporation for the latter's debt under that trust receipt.

This is error.

In Prudential Bank v. Intermediate Appellate Court,[16] the Court interpreted

a substantially identical clause[17] in a trust receipt signed by a corporate officer

who bound himself personally liable for the corporation's obligation. The petitioner

in that case contended that the stipulation 'we jointly and severally agree and

undertake rendered the corporate officer solidarily liable with the corporation. We

dismissed this claim and held the corporate officer liable as guarantor only. The

Court further ruled that had there been more than one signatories to the trust

receipt, the solidary liability would exist between the guarantors. We held:

Petitioner [Prudential Bank] insists that by virtue of the clear wording

of the xxx clause 'x x x we jointly and severally agree and undertake xx x, and the concluding sentence on exhaustion, [respondent] Chi's

liability therein is solidary.

xxx

Our xxx reading of the questioned solidary guaranty clause yields noother conclusion than that the obligation of Chi is only that of


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a guarantor. This is further bolstered by the last sentence whichspeaks of waiver of exhaustion, which, nevertheless, is ineffective in

this case because the space therein for the party whose property maynot be exhausted was not filled up. Under Article 2058 of the CivilCode, the defense of exhaustion (excussion) may be raised by aguarantor before he may be held liable for the obligation. Petitioner

likewise admits that the questioned provision is a solidaryguarantyclause, thereby clearly distinguishing it from a contract of

surety. It, however, described the guaranty as solidary between theguarantors; this would have been correct if two (2) guarantors had

signed it. The clause 'we jointly and severally agree and undertakerefers to the undertaking of the two (2) parties who are to sign it or tothe liability existing between themselves. It does not refer to theundertaking between either one or both of them on the one hand and

the petitioner on the other with respect to the liability described underthe trust receipt. xxx

Furthermore, any doubt as to the import or true intent of the solidaryguaranty clause should be resolved against the petitioner. The trustreceipt, together with the questioned solidary guaranty clause, is on a

form drafted and prepared solely by the petitioner; Chi's participationtherein is limited to the affixing of his signature thereon. It is,therefore, a contract of adhesion; as such, it must be strictlyconstrued against the party responsible for its preparation.

[18] (Underlining supplied; italicization in the original)

However, respondent bank's suit against petitioner Jose Tupaz stands despite the

Court's finding that he is liable as guarantor only. First, excussion is not a pre-

requisite to secure judgment against a guarantor. The guarantor can still demand

deferment of the execution of the judgment against him until after the assets of the

principal debtor shall have been exhausted.[19] Second, the benefit of excussion

may be waived.[20] Under the trust receipt dated 30 September 1981, petitioner

Jose Tupaz waived excussion when he agreed that his 'liability in [the] guaranty

shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part

[of respondent bank] to take any steps or exhaust any legal remedies xxx. The

clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of

excussion under his guarantee.
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As guarantor, petitioner Jose Tupaz is liable for El Oro Corporation's principal debt

and other accessory liabilities (as stipulated in the trust receipt and as provided by

law) under the trust receipt dated 30 September 1981. That trust receipt (and the

trust receipt dated 9 October 1981) provided for payment of attorney's fees

equivalent to 10% of the total amount due and an 'interest at the rate of 7% per

annum, or at such other rate as the bankmay fix, from the date due until paid xxx.

[21] In the applications for the letters of credit, the parties stipulated that drafts

drawn under the letters of credit are subject to interest at the rate of 18%per

annum.[22]

The lower courts correctly applied the 18% interest rateper annum considering that

the face value of each of the trust receipts is based on the drafts drawn under the

letters of credit. Based on the guidelines laid down in

Eastern Shipping Lines, Inc. v. Court of Appeals,[23]the accrued stipulated

interest earns 12% interest per annumfrom the time of the filing of the

Informations in the Makati Regional Trial Court on 17 January 1984. Further, the

total amount due as of the date of the finality of this Decision will earn interest at

18%per annum until fully paid since this was the stipulated rate in the applications

for the letters of credit.[24]

The accounting of El Oro Corporation's debts as of 23 January 1992, which the trial

court used, is no longer useful as it does not specify the amounts owing under each

of the trust receipts. Hence, in the execution of this Decision, the trial court shall

compute El Oro Corporation's total liability under each of the trust receipts dated 30

September 1981 and 9 October 1981 based on the following formula:[25]TOTAL AMOUNT DUE = [principal + interest + interest on interest] '

partial payments made[26]Interest = principal x 18 % per annum x no. of years from due

date[27] until finality of judgment
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Interest on interest = interest computed as of the filing of thecomplaint (17 January 1984) x 12% x no. of years until finality of

judgmentAttorney's fees is 10% of the total amount computed as of finality of

judgment

Total amount due as of the date of finality of judgment will earn an

interest of 18% per annum until fully paid.

In so delegating this task, we reiterate what we said in Rizal Commercial

Banking Corporation v. Alfa RTW Manufacturing Corporation[28] where we

also ordered the trial court to compute the amount of obligation due based on a

formula substantially similar to that indicated above:

The total amount due xxx [under] the xxx contract[] xxx may beeasily determined by the trial court through a simple mathematicalcomputation based on the formula specified above. Mathematics is anexact science, the application of which needs no further proof from the

parties.

Petitioner Jose Tupaz's Acquittal did notExtinguish his Civil Liability

The rule is that where the civil action is impliedly instituted with the criminal action,

the civil liability is not extinguished by acquittal '

[w]here the acquittal is based on reasonable doubt xxx as only

preponderance of evidence is required in civil cases; where the courtexpressly declares that the liability of the accused is not criminal butonly civil in nature xxx as, for instance, in the felonies of estafa, theft,and malicious mischief committed by certain relatives who thereby

incur only civil liability (See Art. 332, Revised Penal Code); and, wherethe civil liability does not arise from or is not based upon the criminal

act of which the accused was acquittedxxx.[29] (Emphasis supplied)


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Here, respondent bank chose not to file a separate civil action[30] to recover

payment under the trust receipts. Instead, respondent bank sought to recover

payment in Criminal Case Nos. 8848 and 8849. Although the trial court acquitted

petitioner Jose Tupaz, his acquittal did not extinguish his civil liability. As the Court

of Appeals correctly held, his liability arose not from the criminal act of which he

was acquitted (ex delito) but from the trust receipt contract (ex contractu) of 30

September 1981. Petitioner Jose Tupaz signed the trust receipt of 30 September

1981 in his personal capacity.

On the other Matters Petitioners Raise

Petitioners raise for the first time in this appeal the contention that El Oro

Corporation's debts under the trust receipts are not yet due and demandable.

Alternatively, petitioners assail the trust receipts as simulated. These assertions

have no merit. Under the terms of the trust receipts dated 30 September 1981 and

9 October 1981, El Oro Corporation's debts fell due on 29 December 1981 and 8

December 1981, respectively.

Neither is there merit to petitioners' claim that the trust receipts were simulated.

During the trial, petitioners did not deny applying for the letters of credit and

subsequently executing the trust receipts to secure payment of the drafts drawn

under the letters of credit.

WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision of the

Court of Appeals dated 7 September 2000 and its Resolution dated 18 October

2000 with the following MODIFICATIONS:

1) El Oro Engraver Corporation is principally liable for the total amount due

under the trust receipts dated 30 September 1981 and 9 October 1981,
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as computed by the Regional Trial Court, Makati, Branch 144, upon

finality of this Decision, based on the formula provided above;

2) Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporation's

total debt under the trust receipt dated 30 September 1981 as thus

computed by the Regional Trial Court, Makati, Branch 144; and

3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under

the trust receipt dated 9 October 1981.

SO ORDERED.


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2.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-22973 January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant,vs.PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff ofCamarines Norte,defendants-appellees.

Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant.Tomas Besa and Jose B. Galang for defendants-appellees.

ANGELES, J.:

An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in CivilCase No. 52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine National Bankand Anacleto Heraldo, defendants", dismissing the complaint against both defendants andsentencing the plaintiff to pay to defendant Philippine National Bank (PNB for short) the sum ofP3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 until fully paid,and the costs of suit.

In seeking the reversal of the decision, the plaintiff advances several propositions in its briefwhich may be restated as follows:

1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87and not P58,213.51 as concluded by the court a quo; hence, the proceeds of the foreclosuresale of its real property alone in the amount of P56,908.00 on that date, added to the sum ofP738.59 it remitted to the PNB thereafter was more than sufficient to liquidate its obligation,thereby rendering the subsequent foreclosure sale of its chattels unlawful;

2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and theadditional sum of P298.54 as expenses of the foreclosure sale;

3. That the subsequent foreclosure sale of its chattels is null and void, not only because ithad already settled its indebtedness to the PNB at the time the sale was effected, but alsofor the reason that the said sale was not conducted in accordance with the provisions of the

Chattel Mortgage Law and the venue agreed upon by the parties in the mortgage contract;

4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and

5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregardof plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale thruforce, intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNBis liable to plaintiff for damages and attorney's fees.


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The antecedent facts of the case, as found by the trial court, are as follows:

On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the NagaBranch of defendant PNB and the former offered real estate, machinery, logging andtransportation equipments as collaterals. The application, however, was approved for a loanof P100,000 only. To secure the payment of the loan, the plaintiff mortgaged to defendant

PNB a parcel of land, together with the buildings and improvements existing thereon,situated in the poblacion of Jose Panganiban (formerly Mambulao), province of CamarinesNorte, and covered by Transfer Certificate of Title No. 381 of the land records of saidprovince, as well as various sawmill equipment, rolling unit and other fixed assets of theplaintiff, all situated in its compound in the aforementioned municipality.

On August 2, 1956, the PNB released from the approved loan the sum of P27,500, forwhich the plaintiff signed a promissory note wherein it promised to pay to the PNB the saidsum in five equal yearly installments at the rate of P6,528.40 beginning July 31, 1957, andevery year thereafter, the last of which would be on July 31, 1961.

On October 19, 1956, the PNB made another release of P15,500 as part of the

approved loan granted to the plaintiff and so on the said date, the latter executed anotherpromissory note wherein it agreed to pay to the former the said sum in five equal yearlyinstallments at the rate of P3,679.64 beginning July 31, 1957, and ending on July 31, 1961.

The plaintiff failed to pay the amortization on the amounts released to and received byit. Repeated demands were made upon the plaintiff to pay its obligation but it failed orotherwise refused to do so. Upon inspection and verification made by employees of the PNB,it was found that the plaintiff had already stopped operation about the end of 1957 or earlypart of 1958.

On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of CamarinesNorte requesting him to take possession of the parcel of land, together with theimprovements existing thereon, covered by Transfer Certificate of Title No. 381 of the landrecords of Camarines Norte, and to sell it at public auction in accordance with the provisionsof Act No. 3135, as amended, for the satisfaction of the unpaid obligation of the plaintiff,which as of September 22, 1961, amounted to P57,646.59, excluding attorney's fees. Incompliance with the request, on October 16, 1961, the Provincial Sheriff of Camarines Norteissued the corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff.According to the notice, the mortgaged property would be sold at public auction at 10:00a.m. on November 21, 1961, at the ground floor of the Court House in Daet, CamarinesNorte.

On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of CamarinesNorte requesting him to take possession of the chattels mortgaged to it by the plaintiff andsell them at public auction also on November 21, 1961, for the satisfaction of the sum of

P57,646.59, plus 6% annual interest therefore from September 23, 1961, attorney's feesequivalent to 10% of the amount due and the costs and expenses of the sale. On the sameday, the PNB sent notice to the plaintiff that the former was foreclosing extrajudicially thechattels mortgaged by the latter and that the auction sale thereof would be held onNovember 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, wherethe mortgaged chattels were situated.

On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession ofthe chattels mortgaged by the plaintiff and made an inventory thereof in the presence of a


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PC Sergeant and a policeman of the municipality of Jose Panganiban. On November 9,1961, the said Deputy Sheriff issued the corresponding notice of public auction sale of themortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff'scompound situated in the municipality of Jose Panganiban, Province of Camarines Norte.

On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail

matter, one to the Naga Branch of the PNB and another to the Provincial Sheriff ofCamarines Norte, protesting against the foreclosure of the real estate and chattel mortgageson the grounds that they could not be effected unless a Court's order was issued against it(plaintiff) for said purpose and that the foreclosure proceedings, according to the terms of themortgage contracts, should be made in Manila. In said letter to the Naga Branch of the PNB,it was intimated that if the public auction sale would be suspended and the plaintiff would begiven an extension of ninety (90) days, its obligation would be settled satisfactorily becausean important negotiation was then going on for the sale of its "whole interest" for an amountmore than sufficient to liquidate said obligation.

The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter asa request for extension of the foreclosure sale of the mortgaged chattels and so it advised

the Sheriff of Camarines Norte to defer it to December 21, 1961, at the same time and place.A copy of said advice was sent to the plaintiff for its information and guidance.

The foreclosure sale of the parcel of land, together with the buildings andimprovements thereon, covered by Transfer Certificate of Title No. 381, was, however, heldon November 21, 1961, and the said property was sold to the PNB for the sum ofP56,908.00, subject to the right of the plaintiff to redeem the same within a period of oneyear. On the same date, Deputy Provincial Sheriff Heraldo executed a certificate of sale infavor of the PNB and a copy thereof was sent to the plaintiff.

In a letter dated December 14, 1961 (but apparently posted several days later), theplaintiff sent a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in fullsettlement of the balance of the obligation of the plaintiff after the application thereto of the

sum of P56,908.00 representing the proceeds of the foreclosure sale of parcel of landdescribed in Transfer Certificate of Title No. 381. In the said letter, the plaintiff reiterated itsrequest that the foreclosure sale of the mortgaged chattels be discontinued on the groundsthat the mortgaged indebtedness had been fully paid and that it could not be legally effectedat a place other than the City of Manila.

In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff ofCamarines Norte that it had fully paid its obligation to the PNB, and enclosed therewith acopy of its letter to the latter dated December 14, 1961.

On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to theplaintiff acknowledging the remittance of P738.59 with the advice, however, that as of that

date the balance of the account of the plaintiff was P9,161.76, to which should be added theexpenses of guarding the mortgaged chattels at the rate of P4.00 a day beginning December19, 1961. It was further explained in said letter that the sum of P57,646.59, which was statedin the request for the foreclosure of the real estate mortgage, did not include the 10%attorney's fees and expenses of the sale. Accordingly, the plaintiff was advised that theforeclosure sale scheduled on the 21st of said month would be stopped if a remittance ofP9,161.76, plus interest thereon and guarding fees, would be made.


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On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at10:00 a.m. and they were awarded to the PNB for the sum of P4,200 and the correspondingbill of sale was issued in its favor by Deputy Provincial Sheriff Heraldo.

In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNBadvised the plaintiff giving it priority to repurchase the chattels acquired by the former at

public auction. This offer was reiterated in a letter dated January 3, 1962, of the Attorney ofthe Naga Branch of the PNB to the plaintiff, with the suggestion that it exercise its right ofredemption and that it apply for the condonation of the attorney's fees. The plaintiff did notfollow the advice but on the contrary it made known of its intention to file appropriate actionor actions for the protection of its interests.

On May 24, 1962, several employees of the PNB arrived in the compound of theplaintiff in Jose Panganiban, Camarines Norte, and they informed Luis Salgado, ChiefSecurity Guard of the premises, that the properties therein had been auctioned and boughtby the PNB, which in turn sold them to Mariano Bundok. Upon being advised that thepurchaser would take delivery of the things he bought, Salgado was at first reluctant to allowany piece of property to be taken out of the compound of the plaintiff. The employees of the

PNB explained that should Salgado refuse, he would be exposing himself to a litigationwherein he could be held liable to pay big sum of money by way of damages. Apprehensiveof the risk that he would take, Salgado immediately sent a wire to the President of theplaintiff in Manila, asking advice as to what he should do. In the meantime, Mariano Bundokwas able to take out from the plaintiff's compound two truckloads of equipment.

In the afternoon of the same day, Salgado received a telegram from plaintiff'sPresident directing him not to deliver the "chattels" without court order, with the informationthat the company was then filing an action for damages against the PNB. On the followingday, May 25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did notpermit them to take out any equipment from inside the compound of the plaintiff. Thru theintervention, however, of the local police and PC soldiers, the trucks of Mariano Bundok wereable finally to haul the properties originally mortgaged by the plaintiff to the PNB, which were

bought by it at the foreclosure sale and subsequently sold to Mariano Bundok.

Upon the foregoing facts, the trial court rendered the decision appealed from which, as statedin the first paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to thedefendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum fromDecember 22, 1961 (day following the date of the questioned foreclosure of plaintiff's chattels) untilfully paid, and the costs. Mambulao Lumber Company interposed the instant appeal.

We shall discuss the various points raised in appellant's brief in seriatim.

The first question Mambulao Lumber Company poses is that which relates to the amount of itsindebtedness to the PNB arising out of the principal loans and the accrued interest thereon. It is

contended that its obligation under the terms of the two promissory notes it had executed in favor ofthe PNB amounts only to P56,485.87 as of November 21, 1961, when the sale of real property waseffected, and not P58,213.51 as found by the trial court.

There is merit to this claim. Examining the terms of the promissory note executed by theappellant in favor of the PNB, we find that the agreed interest on the loan of P43,000.00 P27,500.00 released on August 2, 1956 as per promissory note of even date (Exhibit C-3), andP15,500.00 released on October 19, 1956, as per promissory note of the same date (Exhibit C-4) was six per cent (6%) per annum from the respective date of said notes "until paid". In the statement


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of account of the appellant as of September 22, 1961, submitted by the PNB, it appears that inarriving at the total indebtedness of P57,646.59 as of that date, the PNB had compounded theprincipal of the loan and the accrued 6% interest thereon each time the yearly amortizations becamedue, and on the basis of these compounded amounts charged additional delinquency interest onthem up to September 22, 1961; and to this erroneously computed total of P57,646.59, the trial courtadded 6% interest per annum from September 23, 1961 to November 21 of the same year. In effect,

the PNB has claimed, and the trial court has adjudicated to it, interest on accrued interests from thetime the various amortizations of the loan became due until the real estate mortgage executed tosecure the loan was extra-judicially foreclosed on November 21, 1961. This is an error. Section 5 ofAct No. 2655 expressly provides that in computing the interest on any obligation, promissory note orother instrument or contract, compound interest shall not be reckoned, except by agreement, or indefault thereof, whenever the debt is judicially claimed. This is also the clear mandate of Article 2212of the new Civil Code which provides that interest due shall earn legal interest only from the time it is

judicially demanded, and of Article 1959 of the same code which ordains that interest due andunpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the interest dueand unpaid, which as added principal shall earn new interest; but such stipulation is nowhere to befound in the terms of the promissory notes involved in this case. Clearly therefore, the trial court fellinto error when it awarded interest on accrued interests, without any agreement to that effect andbefore they had been judicially demanded.

Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale infavor of the PNB. With respect to the amount of P298.54 allowed as expenses of the extra-judicialsale of the real property, appellant maintains that the same has no basis, factual or legal, and shouldnot have been awarded. It likewise decries the award of attorney's fees which, according to theappellant, should not be deducted from the proceeds of the sale of the real property, not onlybecause there is no express agreement in the real estate mortgage contract to pay attorney's fees incase the same is extra-judicially foreclosed, but also for the reason that the PNB neither spent norincurred any obligation to pay attorney's fees in connection with the said extra-judicial foreclosureunder consideration.

There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In

this respect, the trial court said:

The parcel of land, together with the buildings and improvements existing thereoncovered by Transfer Certificate of Title No. 381, was sold for P56,908. There was, however,no evidence how much was the expenses of the foreclosure sale although from the pertinentprovisions of the Rules of Court, the Sheriff's fees would be P1 for advertising the sale (par.k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his commission for the sale (par. n,Sec. 7, Rule 130 of the Old Rules) or a total of P298.54.

There is really no evidence of record to support the conclusion that the PNB is entitled to theamount awarded as expenses of the extra-judicial foreclosure sale. The court below committed errorin applying the provisions of the Rules of Court for purposes of arriving at the amount awarded. It is

to be borne in mind that the fees enumerated under paragraphs k and n, Section 7, of Rule 130 (nowRule 141) are demandable, only by a sheriff serving processes of the court in connection withjudicial foreclosure of mortgages under Rule 68 of the new Rules, and not in cases of extra-judicialforeclosure of mortgages under Act 3135. The law applicable is Section 4 of Act 3135 whichprovides that the officer conducting the sale is entitled to collect a fee of P5.00 for each day of actualwork performed in addition to his expenses in connection with the foreclosure sale. Admittedly, thePNB failed to prove during the trial of the case, that it actually spent any amount in connection withthe said foreclosure sale. Neither may expenses for publication of the notice be legally allowed in theabsence of evidence on record to support it. 1 It is true, as pointed out by the appellee bank, that


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courts should take judicial notice of the fees provided for by law which need not be proved; but in theabsence of evidence to show at least the number of working days the sheriff concerned actuallyspent in connection with the extra-judicial foreclosure sale, the most that he may be entitled to,would be the amount of P10.00 as a reasonable allowance for two day's work one for thepreparation of the necessary notices of sale, and the other for conducting the auction sale andissuance of the corresponding certificate of sale in favor of the buyer. Obviously, therefore, the

award of P298.54 as expenses of the sale should be set aside.

But the claim of the appellant that the real estate mortgage does not provide for attorney'sfees in case the same is extra-judicially foreclosed, cannot be favorably considered, as would readilybe revealed by an examination of the pertinent provision of the mortgage contract. The parties to themortgage appear to have stipulated under paragraph (c) thereof, inter alia:

. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints theMortgagee his attorney-in-fact to sell the property mortgaged under Act 3135, as amended,to sign all documents and to perform all acts requisite and necessary to accomplish saidpurpose and to appoint its substitute as such attorney-in-fact with the same powers as abovespecified. In case of judicial foreclosure, the Mortgagor hereby consents to the appointment

of the Mortgagee or any of its employees as receiver, without any bond, to take charge of themortgaged property at once, and to hold possession of the same and the rents, benefits andprofits derived from the mortgaged property before the sale, less the costs and expenses ofthe receivership; the Mortgagor hereby agrees further that in all cases, attorney's feeshereby fixed at Ten Per cent (10%) of the total indebtedness then unpaid which in no caseshall be less than P100.00 exclusive of all fees allowed by law, and the expenses ofcollection shall be the obligation of the Mortgagor and shall with priority, be paid to theMortgagee out of any sums realized as rents and profits derived from the mortgagedproperty or from the proceeds realized from the sale of the said property and this mortgageshall likewise stand as security therefor. . . .

We find the above stipulation to pay attorney's fees clear enough to cover both cases offoreclosure sale mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all

cases" appears to be part of the second sentence, a reading of the whole context of the stipulationwould readily show that it logically refers to extra-judicial foreclosure found in the first sentence andto judicial foreclosure mentioned in the next sentence. And the ambiguity in the stipulation suggestedand pointed out by the appellant by reason of the faulty sentence construction should not be made todefeat the otherwise clear intention of the parties in the agreement.

It is suggested by the appellant, however, that even if the above stipulation to pay attorney'sfees were applicable to the extra-judicial foreclosure sale of its real properties, still, the award ofP5,821.35 for attorney's fees has no legal justification, considering the circumstance that the PNBdid not actually spend anything by way of attorney's fees in connection with the sale. In support ofthis proposition, appellant cites authorities to the effect: (1) that when the mortgagee has neitherpaid nor incurred any obligation to pay an attorney in connection with the foreclosure sale, the claim

for such fees should be denied;

2

and (2) that attorney's fees will not be allowed when the attorneyconducting the foreclosure proceedings is an officer of the corporation (mortgagee) who receives asalary for all the legal services performed by him for the corporation. 3 These authorities are indeedenlightening; but they should not be applied in this case. The very same authority first cited suggeststhat said principle is not absolute, for there is authority to the contrary. As to the fact that theforeclosure proceeding's were handled by an attorney of the legal staff of the PNB, we are reluctantto exonerate herein appellant from the payment of the stipulated attorney's fees on this groundalone, considering the express agreement between the parties in the mortgage contract under whichappellant became liable to pay the same. At any rate, we find merit in the contention of the appellant


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that the award of P5,821.35 in favor of the PNB as attorney's fees is unconscionable andunreasonable, considering that all that the branch attorney of the said bank did in connection withthe foreclosure sale of the real property was to file a petition with the provincial sheriff of CamarinesNorte requesting the latter to sell the same in accordance with the provisions of Act 3135.

The principle that courts should reduce stipulated attorney's fees whenever it is found under

the circumstances of the case that the same is unreasonable, is now deeply rooted in this jurisdictionto entertain any serious objection to it. Thus, this Court has explained:

But the principle that it may be lawfully stipulated that the legal expenses involved inthe collection of a debt shall be defrayed by the debtor does not imply that such stipulationsmust be enforced in accordance with the terms, no matter how injurious or oppressive theymay be. The lawful purpose to be accomplished by such a stipulation is to permit the creditorto receive the amount due him under his contract without a deduction of the expensescaused by the delinquency of the debtor. It should not be permitted for him to convert such astipulation into a source of speculative profit at the expense of the debtor.

Contracts for attorney's services in this jurisdiction stands upon an entirely different

footing from contracts for the payment of compensation for any other services. By expressprovision of section 29 of the Code of Civil Procedure, an attorney is not entitled in theabsence of express contract to recover more than a reasonable compensation for hisservices; and even when an express contract is made the court can ignore it and limit therecovery to reasonable compensation if the amount of the stipulated fee is found by the courtto be unreasonable. This is a very different rule from that announced in section 1091 of theCivil Code with reference to the obligation of contracts in general, where it is said that suchobligation has the force of law between the contracting parties. Had the plaintiff herein madean express contract to pay his attorney an uncontingent fee of P2,115.25 for the services tobe rendered in reducing the note here in suit to judgment, it would not have been enforcedagainst him had he seen fit to oppose it, as such a fee is obviously far greater than isnecessary to remunerate the attorney for the work involved and is therefore unreasonable. Inorder to enable the court to ignore an express contract for an attorney's fees, it is not

necessary to show, as in other contracts, that it is contrary to morality or public policy (Art.1255, Civil Code). It is enough that it is unreasonable or unconscionable. 4

Since then this Court has invariably fixed counsel fees on a quantum meruitbasis wheneverthe fees stipulated appear excessive, unconscionable, or unreasonable, because a lawyer isprimarily a court officer charged with the duty of assisting the court in administering impartial justicebetween the parties, and hence, the fees should be subject to judicial control. Nor should it beignored that sound public policy demands that courts disregard stipulations for counsel fees,whenever they appear to be a source of speculative profit at the expense of the debtor ormortgagor. 5 And it is not material that the present action is between the debtor and the creditor, andnot between attorney and client. As court have power to fix the fee as between attorney and client, itmust necessarily have the right to say whether a stipulation like this, inserted in a mortgage contract,

is valid.

6

In determining the compensation of an attorney, the following circumstances should beconsidered: the amount and character of the services rendered; the responsibility imposed; theamount of money or the value of the property affected by the controversy, or involved in theemployment; the skill and experience called for in the performance of the service; the professionalstanding of the attorney; the results secured; and whether or not the fee is contingent or absolute, itbeing a recognized rule that an attorney may properly charge a much larger fee when it is to becontingent than when it is not. 7 From the stipulation in the mortgage contract earlier quoted, it


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appears that the agreed fee is 10% of the total indebtedness, irrespective of the manner theforeclosure of the mortgage is to be effected. The agreement is perhaps fair enough in case theforeclosure proceedings is prosecuted judicially but, surely, it is unreasonable when, as in this case,the mortgage was foreclosed extra-judicially, and all that the attorney did was to file a petition forforeclosure with the sheriff concerned. It is to be assumed though, that the said branch attorney ofthe PNB made a study of the case before deciding to file the petition for foreclosure; but even with

this in mind, we believe the amount of P5,821.35 is far too excessive a fee for such services.Considering the above circumstances mentioned, it is our considered opinion that the amount ofP1,000.00 would be more than sufficient to compensate the work aforementioned.

The next issue raised deals with the claim that the proceeds of the sale of the real propertiesalone together with the amount it remitted to the PNB later was more than sufficient to liquidate itstotal obligation to herein appellee bank. Again, we find merit in this claim. From the foregoingdiscussion of the first two errors assigned, and for purposes of determining the total obligation ofherein appellant to the PNB as of November 21, 1961 when the real estate mortgage wasforeclosed, we have the following illustration in support of this conclusion: 1wph1.t

A. -

I. Principal Loan

(a) Promissory note dated August 2, 1956 P27,500.00

(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961 8,751.78

(b) Promissory note dated October 19, 1956 P15,500.00

(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 4,734.08

II. Sheriff's fees [for two (2) day's work] 10.00

III. Attorney's fee 1,000.00

Total obligation as of Nov. 21, 1961 P57,495.86

B. -

I. Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961 P56,908.00

II. Additional amount remitted to the PNB on Dec. 18, 1961 738.59

Total amount of Payment made to PNB as of Dec. 18, 1961P57,646.59

Deduct: Total obligation to the PNBP57,495.86

Excess Payment to the PNBP 150.73

========

From the foregoing illustration or computation, it is clear that there was no further necessity toforeclose the mortgage of herein appellant's chattels on December 21, 1961; and on this groundalone, we may declare the sale of appellant's chattels on the said date, illegal and void. But we takeinto consideration the fact that the PNB must have been led to believe that the stipulated 10% of theunpaid loan for attorney's fees in the real estate mortgage was legally maintainable, and inaccordance with such belief, herein appellee bank insisted that the proceeds of the sale of


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appellant's real property was deficient to liquidate the latter's total indebtedness. Be that as it may,however, we still find the subsequent sale of herein appellant's chattels illegal and objectionable onother grounds.

That appellant vigorously objected to the foreclosure of its chattel mortgage after theforeclosure of its real estate mortgage on November 21, 1961, can not be doubted, as shown not

only by its letter to the PNB on November 19, 1961, but also in its letter to the provincial sheriff ofCamarines Norte on the same date. These letters were followed by another letter to the appelleebank on December 14, 1961, wherein herein appellant, in no uncertain terms, reiterated its objectionto the scheduled sale of its chattels on December 21, 1961 at Jose Panganiban, Camarines Nortefor the reasons therein stated that: (1) it had settled in full its total obligation to the PNB by the saleof the real estate and its subsequent remittance of the amount of P738.59; and (2) that thecontemplated sale at Jose Panganiban would violate their agreement embodied under paragraph (i)in the Chattel Mortgage which provides as follows:

(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended,the parties hereto agree that the corresponding complaint for foreclosure orthe petition forsale should be filed with the courts or the sheriff of the City of Manila, as the case may be;

and that the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of thetotal indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of allcosts and fees allowed by law and of other expenses incurred in connection with the saidforeclosure. [Emphasis supplied]

Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utterdisregard of the objection of herein appellant to the sale of its chattels at Jose Panganiban,Camarines Norte and not in the City of Manila as agreed upon, the PNB proceeded with theforeclosure sale of said chattels. The trial court, however, justified said action of the PNB in thedecision appealed from in the following rationale:

While it is true that it was stipulated in the chattel mortgage contract that a petition forthe extra-judicial foreclosure thereof should be filed with the Sheriff of the City of Manila,

nevertheless, the effect thereof was merely to provide another place where the mortgagechattel could be sold in addition to those specified in the Chattel Mortgage Law. Indeed, astipulation in a contract cannot abrogate much less impliedly repeal a specific provision ofthe statute. Considering that Section 14 of Act No. 1508 vests in the mortgagee the choicewhere the foreclosure sale should be held, hence, in the case under consideration, the PNBhad three places from which to select, namely: (1) the place of residence of the mortgagor;(2) the place of the mortgaged chattels were situated; and (3) the place stipulated in thecontract. The PNB selected the second and, accordingly, the foreclosure sale held in JosePanganiban, Camarines Norte, was legal and valid.

To the foregoing conclusion, We disagree. While the law grants power and authority to themortgagee to sell the mortgaged property at a public place in the municipality where the mortgagor

resides or where the property is situated,8

this Court has held that the sale of a mortgaged chattelmay be made in a place other than that where it is found, provided that the owner thereof consentsthereto; or that there is an agreement to this effect between the mortgagor and the mortgagee. 9 Butwhen, as in this case, the parties agreed to have the sale of the mortgaged chattels in the City ofManila, which, any way, is the residence of the mortgagor, it cannot be rightly said that mortgageestill retained the power and authority to select from among the places provided for in the law and theplace designated in their agreement over the objection of the mortgagor. In providing that themortgaged chattel may be sold at the place of residence of the mortgagor or the place where it issituated, at the option of the mortgagee, the law clearly contemplated benefits not only to the


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mortgagor but to the mortgagee as well. Their right arising thereunder, however, are personal tothem; they do not affect either public policy or the rights of third persons. They may validly bewaived. So, when herein mortgagor and mortgagee agreed in the mortgage contract that in cases ofboth judicial and extra-judicial foreclosure under Act 1508, as amended, the correspondingcomplaint for foreclosure or the petition for sale should be filed with the courts or the Sheriff ofManila, as the case may be, they waived their corresponding rights under the law. The correlative

obligation arising from that agreement have the force of law between them and should be compliedwith in good faith. 10

By said agreement the parties waived the legal venue, and such waiver is valid andlegally effective, because it, was merely a personal privilege they waived, which is notcontrary, to public policy or to the prejudice of third persons. It is a general principle that aperson may renounce any right which the law gives unless such renunciation is expresslyprohibited or the right conferred is of such nature that its renunciation would be againstpublic policy. 11

On the other hand, if a place of sale is specified in the mortgage and statutoryrequirements in regard thereto are complied with, a sale is properly conducted in that place.

Indeed, in the absence of a statute to the contrary, a sale conducted at a place other thanthat stipulated for in the mortgage is invalid, unless the mortgagor consents to such sale. 12

Moreover, Section 14 of Act 1508, as amended, provides that the officer making the saleshould make a return of his doings which shall particularly describe the articles sold and the amountreceived from each article. From this, it is clear that the law requires that sale be made article byarticle, otherwise, it would be impossible for him to state the amount received for each item. Thisrequirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he sold thechattels in question in bulk, notwithstanding the fact that the said chattels consisted of no less thantwenty different items as shown in the bill of sale. 13 This makes the sale of the chattels manifestlyobjectionable. And in the absence of any evidence to show that the mortgagor had agreed orconsented to such sale in gross, the same should be set aside.

It is said that the mortgagee is guilty of conversion when he sells under the mortgage but notin accordance with its terms, or where the proceedings as to the sale of foreclosure do not complywith the statute. 14 This rule applies squarely to the facts of this case where, as earlier shown, hereinappellee bank insisted, and the appellee deputy sheriff of Camarines Norte proceeded with the saleof the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the validobjection of the mortgagor thereto for the reason that it is not the place of sale agreed upon in themortgage contract; and the said deputy sheriff sold all the chattels (among which were a skagit withcaterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and Sawmill equipment consisting ofa 150 HP Murphy Engine, plainer, large circular saws etc.) as a single lot in violation of therequirement of the law to sell the same article by article. The PNB has resold the chattels to anotherbuyer with whom it appears to have actively cooperated in subsequently taking possession of andremoving the chattels from appellant compound by force, as shown by the circumstance that they

had to take along PC soldiers and municipal policemen of Jose Panganiban who placed the chiefsecurity officer of the premises in jail to deprive herein appellant of its possession thereof. Toexonerate itself of any liability for the breach of peace thus committed, the PNB would want us tobelieve that it was the subsequent buyer alone, who is not a party to this case, that was responsiblefor the forcible taking of the property; but assuming this to be so, still the PNB cannot escape liabilityfor the conversion of the mortgaged chattels by parting with its interest in the property. Neither wouldits claim that it afterwards gave a chance to herein appellant to repurchase or redeem the chattels,improve its position, for the mortgagor is not under obligation to take affirmative steps to repossessthe chattels that were converted by the mortgagee. 15 As a consequence of the said wrongful acts of


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the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that hereinappellant is entitled to collect from them, jointly and severally, the full value of the chattels inquestion at the time they were illegally sold by them. To this effect was the holding of this Court in asimilar situation. 16

The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant

for the full value of the truck at the time the plaintiff thus carried it off to be sold; and ofcourse, the burden is on the defendant to prove the damage to which he was thus subjected.. . .

This brings us to the problem of determining the value of the mortgaged chattels at the time oftheir sale in 1961. The trial court did not make any finding on the value of the chattels in the decisionappealed from and denied altogether the right of the appellant to recover the same. We find enoughevidence of record, however, which may be used as a guide to ascertain their value. The recordshows that at the time herein appellant applied for its loan with the PNB in 1956, for which thechattels in question were mortgaged as part of the security therefore, herein appellant submitted alist of the chattels together with its application for the loan with a stated value of P107,115.85. Anofficial of the PNB made an inspection of the chattels in the same year giving it an appraised value

of P42,850.00 and a market value of P85,700.00.

17

The same chattels with some additionalequipment acquired by herein appellant with part of the proceeds of the loan were reappraised in are-inspection conducted by the same official in 1958, in the report of which he gave all the chattelsan appraised value of P26,850.00 and a market value of P48,200.00. 18 Another re-inspection reportin 1959 gave the appraised value as P19,400.00 and the market value at P25,600.00. 19 The saidofficial of the PNB who made the foregoing reports of inspection and re-inspections testified in courtthat in giving the values appearing in the reports, he used a conservative method of appraisal which,of course, is to be expected of an official of the appellee bank. And it appears that the values wereconsiderably reduced in all the re-inspection reports for the reason that when he went to hereinappellant's premises at the time, he found the chattels no longer in use with some of the heavierequipments dismantled with parts thereof kept in the bodega; and finding it difficult to ascertain thevalue of the dismantled chattels in such condition, he did not give them anymore any value in hisreports. Noteworthy is the fact, however, that in the last re-inspection report he made of the chattels

in 1961, just a few months before the foreclosure sale, the same inspector of the PNB reported thatthe heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free fromrains" 20 showing that although they were no longer in use at the time, they were kept in a properplace and not exposed to the elements. The President of the appellant company, on the other hand,testified that its caterpillar (tractor) alone is worth P35,000.00 in the market, and that the value of itstwo trucks acquired by it with part of the proceeds of the loan and included as additional items in themortgaged chattels were worth no less than P14,000.00. He likewise appraised the worth of itsMurphy engine at P16,000.00 which, according to him, when taken together with the heavyequipments he mentioned, the sawmill itself and all other equipment forming part of the chattelsunder consideration, and bearing in mind the current cost of equipments these days which healleged to have increased by about five (5) times, could safely be estimated at P120,000.00. Thistestimony, except for the appraised and market values appearing in the inspection and re-inspectionreports of the PNB official earlier mentioned, stand uncontroverted in the record; but We are not

inclined to accept such testimony at its par value, knowing that the equipments of herein appellanthad been idle and unused since it stopped operating its sawmill in 1958 up to the time of the sale ofthe chattels in 1961. We have no doubt that the value of chattels was depreciated after all thoseyears of inoperation, although from the evidence aforementioned, We may also safely conclude thatthe amount of P4,200.00 for which the chattels were sold in the foreclosure sale in question wasgrossly unfair to the mortgagor. Considering, however, the facts that the appraised value ofP42,850.00 and the market value of P85,700.00 originally given by the PNB official were admittedlyconservative; that two 6 x 6 trucks subsequently bought by the appellant company had thereafterbeen added to the chattels; and that the real value thereof, although depreciated after several years


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of inoperation, was in a way maintained because the depreciation is off-set by the marked increasein the cost of heavy equipment in the market, it is our opinion that the market value of the chattels atthe time of the sale should be fixed at the original appraised value of P42,850.00.

Herein appellant's claim for moral damages, however, seems to have no legal or factual basis.Obviously, an artificial person like herein appellant corporation cannot experience physical

sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or socialhumiliation which are basis of moral damages. 21 A corporation may have a good reputation which, ifbesmirched, may also be a ground for the award of moral damages. The same cannot beconsidered under the facts of this case, however, not only because it is admitted that hereinappellant had already ceased in its business operation at the time of the foreclosure sale of thechattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattelscould have upon its reputation or business standing would undoubtedly be the same whether thesale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreedupon by the parties in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte inproceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as

provided for in the mortgage contract, to which their attentions were timely called by hereinappellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, hereinappellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances ofthe case also warrant the award of P3,000.00 as attorney's fees for herein appellant.

WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed fromshould be, as hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of theprovince of Camarines Norte are ordered to pay, jointly and severally, to Mambulao LumberCompany the total amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to thePNB, P42,850.00 the value of the chattels at the time of the sale with interest at the rate of 6% perannum from December 21, 1961, until fully paid, P10,000.00 in exemplary damages, and P3,000.00as attorney's fees. Costs against both appellees.

4.


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Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 128690 January 21, 1999

ABS-CBN BROADCASTING CORPORATION, petitioner,vs.HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION,INC., and VICENTE DEL ROSARIO, respondents.

DAVIDE, JR., CJ.:

In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN)seeks to reverse and set aside the decision 1 of 31 October 1996 and the resolution 2 of 10 March1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification thedecision 3 of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in CivilCase No. Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996.

The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:

In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A")whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films.Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said

agreement stating that .

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Vivafilms for TV telecast under such terms as may be agreed upon by the parties hereto,provided, however, that such right shall be exercised by ABS-CBN from the actualoffer in writing.

Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-presidentCharo Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBNmay exercise its right of first refusal under the afore-said agreement (Exhs. "1" par,2, "2," "2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick offonly ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore

did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs.Concio are not the subject of the case at bar except the film ''Maging Sino Ka Man."

For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" -Viva) is hereby quoted:

6 January 1992

Dear Vic,


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This is not a very formal business letter I am writing to you as I would like to expressmy difficulty in recommending the purchase of the three film packages you areoffering ABS-CBN.

From among the three packages I can only tick off 10 titles we can purchase. Pleasesee attached. I hope you will understand my position. Most of the action pictures in

the list do not have big action stars in the cast. They are not for primetime. In linewith this I wish to mention that I have not scheduled for telecast several actionpictures in out very first contract because of the cheap production value of thesemovies as well as the lack of big action stars. As a film producer, I am sure youunderstand what I am trying to say as Viva produces only big action pictures.

In fact, I would like to request two (2) additional runs for these movies as I can onlyschedule them in our non-primetime slots. We have to cover the amount that waspaid for these movies because as you very well know that non-primetime advertisingrates are very low. These are the unaired titles in the first contract.

1. Kontra Persa [sic].

2. Raider Platoon.

3. Underground guerillas

4. Tiger Command

5. Boy de Sabog

6. Lady Commando

7. Batang Matadero

8. Rebelyon

I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have been rejectedbecause of the ruling of MTRCB to have them aired at 9:00 p.m. due to their veryadult themes.

As for the 10 titles I have choosen [sic] from the 3 packages please considerincluding all the other Viva movies produced last year. I have quite an attractive offerto make.

Thanking you and with my warmest regards.

(Signed)

CharoSantos


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-Concio

On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio,with a list consisting of 52 original movie titles (i.e. not yet aired on television)including the 14 titles subject of the present case, as well as 104 re-runs (previously

aired on television) from which ABS-CBN may choose another 52 titles, as a total of156 titles, proposing to sell to ABS-CBN airing rights over this package of 52originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cashand P30,000,000.00 worth of television spots (Exh. "4" to "4-C" Viva; "9" -Viva).

On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, EugenioLopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss thepackage proposal of Viva. What transpired in that lunch meeting is the subject ofconflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreedthat ABS-CRN was granted exclusive film rights to fourteen (14) films for a totalconsideration of P36 million; that he allegedly put this agreement as to the price andnumber of films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D;

TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario denied havingmade any agreement with Lopez regarding the 14 Viva films; denied the existence ofa napkin in which Lopez wrote something; and insisted that what he and Lopezdiscussed at the lunch meeting was Viva's film package offer of 104 films (52originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]tomake a counter proposal which came in the form of a proposal contract Annex "C" ofthe complaint (Exh. "1"- Viva; Exh. "C" - ABS-CBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions of Viva's offer to sell the104 films, after the rejection of the same package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his secretary, a

handwritten note from Ms. Concio, (Exh. "5" - Viva), which reads: "Here's the draft ofthe contract. I hope you find everything in order," to which was attached a draftexhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposalcovering 53 films, 52 of which came from the list sent by defendant Del Rosario andone film was added by Ms. Concio, for a consideration of P35 million. Exhibit "C"provides that ABS-CBN is granted films right to 53 films and contains a right of firstrefusal to "1992 Viva Films." The said counter proposal was however rejected byViva's Board of Directors [in the] evening of the same day, April 7, 1992, as Vivawould not sell anything less than the package of 104 films for P60 million pesos (Exh."9" - Viva), and such rejection was relayed to Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and

meetings defendant Del Rosario and Viva's President Teresita Cruz, in consideration ofP60 million, signed a letter of agreement dated April 24, 1992. granting RBS theexclusive right to air 104 Viva-produced and/or acquired films (Exh. "7-A" - RBS; Exh. "4"- RBS) including the fourteen (14) films subject of the present case. 4

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayerfor a writ of preliminary injunction and/or temporary restraining order against private respondentsRepublic Broadcasting Corporation 5(hereafter RBS ), Viva Production (hereafter VIVA), and VicenteDel Rosario. The complaint was docketed as Civil Case No. Q-92-12309.


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On 27 May 1992, RTC issued a temporary restraining order6 enjoining private respondents fromproceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of thecontroversy, starting with the filmMaging Sino Ka Man, which was scheduled to be shown on privaterespondents RBS' channel 7 at seven o'clock in the evening of said date.

On 17 June 1992, after appropriate proceedings, the RTC issued an

order7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35million bond. ABS-CBN moved for the reduction of the bond, 8 while private respondents moved forreconsideration of the order and offered to put up a counterbound. 9

In the meantime, private respondents filed separate answers with counterclaim. 10 RBS also set up across-claim against VIVA..

On 3 August 1992, the RTC issued an order11 dissolving the writ of preliminary injunction upon theposting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN mightsuffer by virtue of such dissolution. However, it reduced petitioner's injunction bond to P15 million asa condition precedent for the reinstatement of the writ of preliminary injunction should privaterespondents be unable to post a counterbond.

At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore thepossibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonabletime within which to put up a P30 million counterbond in the event that no settlement would bereached.

As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 acounterbond, which the RTC approved in its Order of 15 October 1992. 13

On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 August and 15 October1992 Orders, which RBS opposed. 15

On 29 October 1992, the RTC conducted a pre-trial.16

Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals apetition 17challenging the RTC's Orders of 3 August and 15 October 1992 and praying for theissuance of a writ of preliminary injunction to enjoin the RTC from enforcing said orders. The casewas docketed as CA-G.R. SP No. 29300.

On 3 November 1992, the Court of Appeals issued a temporary restraining order18to enjoin theairing, broadcasting, and televising of any or all of the films involved in the controversy.

On 18 December 1992, the Court of Appeals promulgated a decision 19dismissing the petition in CA-G.R. No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review

filed with this Court on 19 January 1993, which was docketed as G.R. No. 108363.

In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209.Thereafter, on 28 April 1993, it rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows:

WHEREFORE, under cool reflection and prescinding from the foregoing, judgmentsis rendered in favor of defendants and against the plaintiff.


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(1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:

a) P107,727.00, the amount of premium paid by RBSto the sur

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