CO BUN CHUN, PLAINTIFF-APPELLANT, VS. THE OVERSEAS BANK OF MANILA, DEFENDANT-APPELLEE.

This case is about the liability of a time depo­sitor for the
extrajudicial expenses incurred by the bank in collecting the overdraft
accounts of other persons which were secured by his time deposit.

Co Bun Chun on January 30, 1964 placed with the Overseas Bank of Manila a
time deposit of P66,000 for a period of one year with interest at 4-1/2
interest per annum (Exh. A).

Four days later, or on February 4, he assigned to the bank the said time
deposit as security for the six-month overdraft accounts of P75,000
each, or a total of P300,000, of Henry Shoe Supply, Northwest Auto
Supply, Mercantile Investment Co., Inc. and Pacific Shoe Supply. The
overdraft accounts were all signed by Henry Co (Exh. 1 to 5-A).

It was a condition of the assignment that the time deposit could not be withdrawn unless the over­draft line, the interest due thereon and “the expenses incurred” had been fully paid (Exh. 1).

The overdraft accounts, due on July 17 and August 10, 1964, were fully
liquidated only on May 21, 1965. The debtors paid P228,881.37. The
bank had to refer the default to its lawyer who undertook the
extrajudicial collection of the amounts due and who charged 5%, or
P11,444.06, as collection expenses (p. 10, Appellant’s brief; p. 8,
Appellee’s brief).

Out of the time deposit of P66,000, the bank returned to Co Bun Shun
P54,555.94. It deducted the said sum of P11,444.06 (Exh. 6 and 6-A).
Co Bun Chun filed the instant action in 1965 to recover that sum of
P11,444.06. Judge Edilberto Soriano dismissed the action. Co Bun Chun
appealed to the Court of Appeals which, through Justice Gatmaitan,
certified the appeal to this Court on the ground that only a question of
law, arising from un­disputed facts, is involved.

Co Bun Chun contends that the bank had no right to charge attorney’s
fees and expenses in the extra­judicial collection of the overdraft
accounts and to deduct the same from the time deposit given as security.
The bank under the overdraft agreements (as distinguished from the
deed of assignment of the time deposit, Exh. 1) was entitled to charge
10% of the amount due as attorney’s fees and costs of collection in case of court action.

He further contends that to make him liable for the costs of
extrajudicial collection and attorney’s fees would make his obligation
as guarantor more onerous than the principal debtor and that, as the
obligation consists in the payment of a sum of money, the only indemnity
due is interest (Arts. 2054 and 2209, Civil Code).

On the other hand, the bank contends that Co Bun Chun must shoulder the
out-of-court attorney’s fees and collection expenses incurred in
collecting the long overdue overdraft accounts.

We hold that Co Bun Chun is bound by the terms of the deed assigning his
time deposit to the bank. He was not a mere guarantor of the overdraft
accounts. The assignment specifically bound him to pay the “expenses
incurred” for the extrajudicial collection of the overdraft accounts of
what the bank terms “his companies”.

The 5% charge was different from the interest on the overdraft accounts.
It was a consequence of the default of Co Bun Chun’s companies. He
could have sought reimbursement from them for what he had to pay the
bank.

WHEREFORE, the judgment of the lower court is affirmed. No costs in both instances.
SO ORDERED.

Guerrero, Abad Santos, Escolin, and Gutierrez, Jr., JJ., concur.

Makasiar, J., (Chairman), no part.

Concepcion, Jr., J., on leave.