MAMBULAO LUMBER COMPANY, PLAINTIFF-APPELLANT, VS. PHILIPPINE NATIONAL BANK AND ANACLETO HERALDO, DEPUTY PROVINCIAL SHERIFF OF CAMARINES NORTE, DEFENDANTS-APPELLEES.

An appeal from a decision, dated April 2, 1964, of the Court of
First Instance of Manila in Civil Case No. 52089, entitled “Mambulao Lumber Company, plaintiff, versus Philippine
National Bank and Anacleto Heraldo,
defendants”, dismissing the complaint against both defendants and
sentencing the plaintiff to pay to defendant Philippine National Bank (PNB for
short) the sum of P3,582.52 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 brief which may be restated as follows:

1.  That its total
indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51
as concluded by the court a quo; hence, the proceeds of the
foreclosure sale of its real pro­perty alone in the amount of P56,908.00 on
that date, added to the sum of P738.59 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 the additional 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 it had
already settled its indebtedness to the PNB at the time the sale was effected,
but also for 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 disregard of plaintiff’s vigorous opposition
thereto, and in taking possession thereof after the sale thru force,
intimidation, coercion, and by detaining its “man-­in-charge” of said
properties, the PNB is liable to plaintiff for damages and attorney’s fees.

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 Naga
Branch of defendant PNB and the former offered real estate, machinery, logging
and transportation equipments as collaterals. 
The application, however, was approved for a loan of 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 Camarines
Norte, and covered by Transfer Certificate of Title No. 381 of the land records of said
province, as well as various sawmill equipment, rolling unit and other fixed
assets of the plaintiff, 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, for which the plaintiff signed a promissory note wherein it
promised to pay to the PNB the said sum in five equal yearly installments at
the rate of P6,528.40 beginning July 31, 1957, and every 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 a­nother promissory note wherein it agreed to pay to the
former the said sum in five equal yearly in­stallments at the rate of P3,679.64
beginning July 31, 1957, and ending on July 31, 1961.

“The plaintiff failed to pay the amortizations on the amounts
released to and received by it.  Repeated
demands were made upon the plaintiff to pay its obligation but it failed or
otherwise 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 early part of 1958.

“On
September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the
parcel of land, together with the improvements existing thereon, covered by
Transfer Cer­tificate of Title No. 381 of the land records of Camarines Norte, and to sell it at public auction in
accordance with the provisions of 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.  In compliance with the request, on October 16, 1961, the Provincial
Sheriff of Camarines Norte issued the corresponding
no­tice of extra-judicial foreclosure sale and sent a copy thereof to the
plaintiff.  According to the notice, the
mortgaged property would be sold at public auction at 10:00 a.m. on November
21, 1961, at the ground floor of the Court House in Daet, Camarines
Norte.

“On November 6, 1961, the PNB sent a letter to the Provincial
Sheriff of Camarines Norte request­ing him to take
possession of the chattels mortgaged to it by the plaintiff and sell them as public auction also on November 21, 1961, for
the satisfaction of the sum of P57,646.59, plus 6% annual interest
thereon from September 23, 1961, attorney’s fees equivalent to 10% of the
amount due and the costs and expenses of the sale.  On the same day, the PNB sent notice to the
plaintiff that the former was foreclosing extrajudicially
the chattels mortgaged by the latter and that the auction sale thereof would be
held on November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where
the mortgaged chattels were situa­ted.

“On November 8, 1961, Deputy Provincial
Sheriff Anacleto Heraldo
took possession of the chattels mortgaged by the plaintiff and made an
inventory thereof in the presence of a 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 the mortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff’s compound 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 of Camarines Norte,
protesting against the foreclosure of the real estate and chattel
mortgages on 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 the mortgage 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 be given
an extension of ninety (90) days, its obligation
would be settled satis­factorily because an important ne­gotiation was then going on for the sale of its “whole
interest” for an amount more than
sufficient to liquidate said obligation.

“The letter of the plaintiff to the Naga
Branch of the PNB was construed by the latter as a 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 and improvements thereon,
covered by Transfer Certificate of Title No. 381, was, however, held on
November 21, 1961, and the said property was sold to the PNB for the sum of
P56,908.00, subject to the right of the plaintiff to redeem the same within a
period of one year.  On the same date,
Deputy Provincial Sheriff Heraldo executed a
certificate of sale in favor 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), the plaintiff sent a bank draft for P738.59 to the Naga Branch of
the PNB, allegedly in full settlement
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 land described in Transfer Certifi­cate of Title No. 381.  In the said letter, the plaintiff reiterated its request that the foreclosure sale of the mortgaged chattels be discon­tinued on
the grounds that the mortgaged indebtedness had been fully paid and that it
could not be legally effected at a place other than the City of Manila.

“In a letter dated December
16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte that it had fully paid its obligation to
the PNB, and enclosed therewith a copy 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 the plaintiff
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 the expenses of guard­ing the mortgaged chattels at the rate of
P4.00 a day beginning December 19, 1961. 
It was further explained in said
letter that the sum of P57,646.59, which was stated in 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 the foreclosure sale
scheduled on the 21st of said month would be stopped if a remittance of
P9,161.76, plus interest thereon and guarding fees, would be made.

“On December
21, 1961, the foreclosure
sale of the mortgaged chattels was held at 10:00
a.m. and they were awarded to the PNB for the sum of P4,200 and the
corresponding bill 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 PNB advised 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 of the Naga Branch of the PNB
to the plain­tiff, with the suggestion that it exercise its right of redemption
and that it apply for the condona­tion of the
attorney’s fees.  The plaintiff did not
follow the advice but on the contrary it made known of its intention to file
appropriate action or actions for the protection of its interests.

“On May 24, 1962,
several employees
of the PNB arrived in the compound of the plaintiff in Jose Panga­niban, Camarines Norte, and
they informed Luis Salgado, Chief Security Guard of the premises, that the
properties therein had been auctioned and bought by the PNB, which in turn sold
them to Mariano Bundok.  Upon being advised that the purchaser would
take delivery of the things he bought, Salgado was at first reluctant to allow
any 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 litigation wherein he
could be held liable to pay big sum of money by way of damages.  Apprehensive of the risk that he would take,
Salgado immediately sent a wire to the President of the plaintiff in Manila,
asking advice as to what he should do. 
In the meantime, Mariano Bundok was able to
take out from the plaintiff’s compound two truck loads of equipment.

“In the afternoon of the same day, Salgado received a telegram
from plaintiff’s President directing him not to deliver the ‘chattels’ without
court order, with the information that the company was then filing an action for damages
against the PNB.  On the following day, May 25, 1962, two trucks and
men of Mariano Bundok arrived but Salgado did not
permit them to take out any equipment from inside the compound of the
plaintiff.  Thru the intervention,
however, of the local police and PC soldiers, the trucks of Mariano Bundok were able 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 stated in the first
paragraph of this opinion, sentenced the Mambulao
Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at
the rate
of 6% per annum from
December 22, 1961 (day following the date of the questioned foreclosure of
plaintiff’s chattels) until fully 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 its in­debtedness 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 of the PNB amounts only to
P56,485.87 as of November 21, 1961, when the sale of
real property was effected, 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 the appellant 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), and
P15,500.00 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 of account of the appellant as of September 22,
1961, submitted by the PNB, it appears that in arriving at the total
indebtedness P57,646.59 as of that date, the PNB had compounded the
principal of the loan and the accrued 6% interest thereon each time the yearly
amortizations became due, and on the basis of these compounded amounts charged
additional delinquency interest on them up to September 22, 1961; and to this
erroneously computed total of P57,646.59, the trial court added 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
the time the various amortizations of the loan became due until the real estate
mortgage executed to secure the loan was extra-judicially foreclosed on November 21, 1961.  This is an error.  Section 5 of Act No. 2655 expressly provides
that in computing the interest on any obligation, promissory note or other instrument or
contract, compound interest shall not be reckoned, except by agree­ment,
or in default thereof, whenever the debt is judicially claimed.  This is also the clear mandate of Article 2212 of 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 and unpaid shall not earn
interest.  Of course, the parties may, by
stipulation, capitalize the interest due and unpaid, which as added principal shall earn new in­terest;
but such stipulation is nowhere to be found in the terms of the promissory
notes involved in this case.  Clearly therefore, the trial
court fell into error when it awarded interest on accrued interests, without
any agreement to that effect and before they had been judicially
demanded.

Appellant next assails the award of attorney’s fees and the
expenses of the foreclosure sale in favor of the PNB.  With respect to the amount of P298.54 allowed
a expenses of the
extra-judicial sale of the real property, appellant maintains that the same has
no basis,
factual or legal, and should not have been awarded.  It likewise decries the award of attorney’s
fees which, according to the appellant, should not be deducted from the
proceeds of the sale of the real property, not only because there is no express agree­ment in the real
estate mortgage contract to pay attorney’s fees in case the same is extra-judicially foreclosed, but
also for the reason that the PNB nei­ther spent nor incurred any obligation to
pay attor­ney’s fees in connection with the said extra-judicial foreclosure
under 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 thereon covered 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 pertinent provisions 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 the amount a­warded as expenses of the extra-judicial foreclosure
sale.  The court below committed error in
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 (now Rule 141) are
demandable only by a sheriff serving processes of he court in connection with
judicial foreclosure of mortgages under Rule 68 of the new Rules, and not in cases of extra-judicial
foreclosure of mortgages under Act 3135. 
The law applicable is Section 4 of Act 3135 which pro­vides that the
officer conducting the sale is entitled to collect a fee of P5.00 for each day
of actual work performed in addition to his expenses in connection with the
foreclosure sale.  Admittedly, the PNB
failed to prove during the trial of the case, that it act­ually spent any amount in connection with the said
foreclosure sale.  Neither may expenses
for publication of the notice be
legally allowed in the absence of evidence on record to support it.^[1] It is true, as pointed out by the appellee bank,
that courts should take judicial notice of the fees provided for by law which
need not be proved; but in the absence
of evidence to show at least the number of
working days the sheriff concerned actually spent 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 the preparation of the necessary notices of sale, and the other for
conducting the auction sale and issuance 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’s fees in case the same is extra-judicially foreclosed, cannot be
favorably considered, as would readily be re­vealed by an examination of the
pertinent provision of the mortgage contract. 
The parties to the mortgage appear to have stipulated under paragraph
(c) thereof, inter alia:

“x x x For
the purpose of extra-judicial foreclosure, the Mort­gagor hereby appoints the
Mortgagee 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 said purpose and to appoint its substitute as such attorney-in-fact
with the same powers as above specified.  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 the mortgaged property at once, and to hold possession of the same and the rents,
benefits and profits derived from the mortgaged property before the sale, less
the costs and expen­ses of the receivership; the Mortga­gor hereby agrees
further that in all cases, attorney’s fees hereby fixed at Ten Per Cent (10%)
of the total indebtedness then unpaid, which is no case shall be less than
P100.00 exclusive of all fees allowed by law, and the expenses of collection
shall be the obligation of the Mortgagor and shall with priority, be paid to
the Mortgagee out of any sums realized as rents and pro derived from the
mortgaged property or from the proceeds realized from the sale of the said
property and this mortgage shall likewise stand as security therefor.  x x x.”

We
find the above stipulation to pay attorney’s fees clear enough to cover both
cases of foreclosure 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 stipulation would readily show that it logically refers to extra-judicial
foreclosure found in the first sentence and to judicial foreclosure mentioned
in the next sentence.  And the ambiguity
in the stipulation suggested and pointed out by the appeal by reason of the
faulty sentence construction should not be made to defeat 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’s fees were applicable to the extra-judicial foreclosure sale of
its real properties, still, the award of P5,821.35 for attorney’s fees has no
legal justification, consi­dering the circumstance that the PNB did not
actually spend anything by way of attorney’s fees in connection with the
sale.  In support of this proposition,
appellant cites authorities to
the effect:  (1) that when the mortgagee
has neither paid 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 attorney conducting the foreclosure pro­ceedings is an officer
of the corporation (mortgagee) who receives a salary for all the legal services
performed by him for the corporation.^[3] These authorities are indeed enlightening;
but they should not be applied in this case. 
The very same authority first cited suggests that said principle is not
absolute, for there is authority to the contrary.  As to the fact that the foreclosure
proceedings were handled by an attorney of the legal staff of the PNB, we are
re­luctant to exonerate herein appellant from the payment of the stipulated
attorney’s fees on this ground a­lone, considering the express agreement
between the parties in the mortgage contract under which appel­lant became liable to
pay the same.  At any rate, we find merit
in the contention of the appellant that the award of P5,821.35 in favor of the
PNB as attorney’s fees is unconscionable and unreasonable, considering that all
that the branch attorney of the said bank did in connection with the
foreclosure sale of the real property was to file a petition with the
provincial sheriff of Camarines Norte re­questing the
latter to sell the some 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 jurisdic­tion to 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 in the collection of a debt shall be defrayed by the debtor does not imply that such
stipulations must be enforced in accordance with the terms, no matter how
injurious or oppressive they may be.  The
lawful purpose to be accomplished by such a stipulation is to permit the
creditor to receive the amount due him under his contract without a deduction
of the expenses caused by the delinquency of the debtor.  It should not be permitted for him to convert
such a stipulation 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 express
provision of section 29 of the Code of Civil Procedure, an attorney is not
entitled in absence of express contract to recover more than a reasonable
compensation for his services; and even when an express contract is made the
court can ignore it and limit the recovery to reasonable compen­sation if the
amount of the stipulated fee is found by the court to be unreasonable.  This is a very different rule from that
announced in section 1091 of the Civil Code with reference to the obligation of
contracts in general, where it is said that such obligation has the force of
law between the contracting parties.  Had
the plaintiff herein made an express contract to pay his attorney an uncontingent fee of P2,115.25 for the services to be
rendered in reducing the note here in suit to judgment, it would not have bees
enforced against him had he seen fit to oppose it, as such a fee is ob­viously
far greater than is necessary to remunerate the attorney for the work involved
and is therefore unreasonable.  In order
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 meruit basis whenever the
fees stipulated appear excessive, unconscionable, or un­reasonable, because a
lawyer is primarily a court officer charged with the duty of assisting the
court in administering impartial justice between the parties, and hence, the
fees should be subject to judicial control.  Nor should it be ignored 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
or mortgagor.^[5]
And it is not material that the present action is between the debtor and the
creditor, and not between attorney and client. 
As court have power to fix the fee as between attor­ney and client, it
must 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 be considered:  the
amount and character of the services rendered; the responsibility imposed; the
amount of mo­ney or the value of the property affected by the controversy, or involved
in the employment; the skill and experience called for in the performance of
the service; the professional standing of the attorney; the results secured;
and whether or not the fee is contingent or absolute, it being a recognized rule
that an attorney may properly charge a much larger fee when it is to be
contingent than when it is not.^[7]
From the stipulation in the mortgage contract earlier quoted, it appears that
the agreed fee is 10% of the total indebtedness, irrespective of the manner the
foreclosure of the mortgage is to be effected. 
The agreement is perhaps fair enough in case the foreclosure 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 for foreclosure with the
sheriff concerned.  It is to be assumed
though, that the said branch attorney of the 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 of P1,000.00 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 properties alone
together with the amount it
remitted to the PNB later was
more than sufficient to liquidate its total obligation to herein appellee bank. 
Again, we find merit in this claim. 
From the foregoing
discussion of the first two errors assigned, and for purposes of determining
the total obligation of herein appellant to the PNB as of November 21, 1961 when the real estate mortgage
was foreclosed, we have the following illustration in support of this
conclusion:

A. –

B. –

From
the foregoing illustration or computation, it is clear that there was no
further necessity to foreclose the mortgage of herein appellant’s chattels on December 21, 1961; and on this
ground alone, we may declare the sale of appellant’s chattels on the said date,
illegal and void.  But we take into
considera­tion the fact that the PNB must have been led to be­lieve that the
stipulated 10% of the unpaid loan four attorney’s fees in the real estate
mortgage was legally maintainable, and in accordance with such belief, herein appellee bank insisted that the proceeds of the sale of
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 on other grounds.

That
appellant vigorously objected to the foreclosure of its chattel mortgage after
the foreclosure of its real estate mortgage on November 21, 1961, cannot 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 of Camarines
Norte on the same date.  These letters
were followed by another letter to the appellee bank
on December 14, 1961, wherein herein appellant, in no uncertain terms,
reiterated its objection to the scheduled sale of its chattels on December 21,
1961 at Jose Panganiban, Camarines
Norte for the reasons therein stated that: 
(1) it had settled in full its total obligation to the PNB by the sale
of the real estate and its subsequent remit­tance of the amount of P738.59; and
(2) that the con­templated 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 of the
petition for sale 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 the total indebtedness then unpaid but in no case shall it be
less than P100.00, exclusive of all costs and fees al­lowed by law and of other
expenses incurred in connection
with the
said foreclosure.” [Underscoring supplied]

Notwithstanding
the above-quoted agreement in the chattel mortgage contract, and in utter disre­gard
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 the foreclosure sale of said chattels.  The trial court, however, justified said
action of the PNB in the decision appealed from in the following rationale:

“While it is true that it was stipulated in the chattel
mortgage contract that a petition for the 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 mortgage chattel
could be sold, in addition to those
specified in the Chattel Mortgage Law.  Indeed,
a stipulation in a contract cannot abrogate much less impliedly repeal a specific provision of the statute.  Considering that Section 14 of Act No. 1508
vests in the morgagee the choice where the fore­closure
sale should be held, hence, in the case under consideration, the PNB has 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 the contract.  The PNB selected the
second and, accord­ingly, the foreclosure sale held in Jose Panganiban,
Camarines Norte, was legal and valid.”

To
the foregoing conclusion, We disagree. 
While the law grants power and authority to the mortgagee 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
said that the sale of a mortgaged chattel may be made in a place other than
that where it is found, provided that the owner thereof consents thereto; or
that there is an agreement to this effect between the mortgagor and the
mortgagee.^[9] But when, as in
this case, the parties agreed to have the sale of the mortgaged chattels in the
City of Manila, which, any way, is the residence of the mortgagor, it cannot be
rightly said that the mortgagee still retained the power and authority to
select from among the places provided for in the law and the place designated
in their agreement, over the objection of the mortgagor.  In providing that the mortgaged chattel may
be sold at the place of residences of the mortgagor or the place where it is
situated, at the option of the mortgagee, the law clearly contem­plated
benefits not only to the
mortgagor but to the mortgagee as well. 
Their rights arising thereunder, however, are
personal to them; they do not affect either public policy or the rights of
third persons.  They may validly be
waived.  So, when herein mortga­gor and
mortgagee agreed in the mortgage contract that in cases of both judicial and extra-judicial foreclosure under
Act 1508, as amended, the corresponding complaint for foreclosure or the petition
for sale should be filed with the courts or the Sheriff of Manila, 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 complied with in
good faith.^[10]

“By said agreement the
parties waived the legal venue, and such waiver is valid and legally
effective, because it was merely a personal privilege they waived, which is not contrary to public policy
or to the prejudice of third
persons.  It is a general principle that a person may renounce any right which the law gives unless such
renunciation is expressly prohibited or the right conferred is of such nature
that its renunciation would be
against public policy.”^[11]

“On the other hand, if a place of sale is specified in the
mortgage and statutory requirements 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 than that 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 sale should make a return of his doings
which shall particularly describe the articles sold and the amount received from each article.  From this, it is clear that the law requires
that sale be made article by article, otherwise, it would be impossible for him
to state the mount received for each item. 
This require­ment was totally disregarded by the Deputy Sheriff of Camarines Norte when he sold the chattels in question in
bulk, notwithstanding the fact that the said chat­tels consisted of no less
than twenty different items as shown in the bill of sale.^[13] This makes the
sale of the chattels manifestly objectionable. 
And in the absence of any evidence to show that the mort­gagor had
agreed or consented 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 not in accordance with its terms, or where the proceedings as to
the sale of foreclosure do not comply with the statute.^[14] This rule applies
squarely to the facts of this case where, as earlier shown, herein appellee
bank insisted, and the appellee deputy sheriff of Camarines
Norte proceeded with the sale of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid objection
of the mortgagor thereto for the reason that it is not the place of sale agreed
upon in the mortgage contract; and the said de­puty sheriff sold all the
chattels (among which were a skagit with caterpillar
engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and Sawmill equipments
consisting of a 150 HP Murphy Engine, plainer, large circular saws, etc.) as a single lot in violation of the
requirement of the law to sell the same article by article.  The PNB has resold the chattels to another
buyer with whom it appears to have actively cooperated in subsequently taking
possession and removing the chattels from appellant’s 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
chief security officer of the premises in jail to deprive herein appellant of
its possession thereof.  To exone­rate
itself of any liability for the breach of peace thus committed, the PNB would
want us to believe that it was the subsequent buyer alone, who is not a party
to this case, that was responsible for the forcible taking of the property; but
assuming this to be so, still the PNB can­not escape liability for the
conversion of the mortgaged chattels by parting with its interest in the
property.  Neither would its 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 repossess the chat­tels that were converted by the
mortgagee.^[15] As a con­sequence of the said wrongful acts
of the PNB and the De­puty Sheriff of Camarines
Norte, therefore, We have to declare that herein appellant is entitled to
collect from them, jointly and severally, the full value of the chattels in
question at the time they were illegally sold by them.  To this effect was the holding of this Court
in a similar
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 of course, the burden
is on the defendant to prove the damage to which he was thus subjected.  x x x.”

This brings us to the
problem of determining the value of the mortgaged chattels at the time of their
sale in 1961.  The trial court did not
make any finding on the value of the chattels in the decision appealed from and
denied altogether the right of the appellant to recover the same.  We find enough evi­dence of record, however,
which may be used as a guide to ascertain their value.  The record shows that at the time herein
appellant applied for its loan with the PNB in 1956, for which the chattels in
question were mortgaged as part of the security therefor,
herein appellant submitted a list of the chattels to­gether with its
application for the loan with a stated value of P107,115.85.  An official 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 addition­al
equipment acquired by herein appellant with part of the proceeds of the loan
were reappraised in a reinspection conducted by the same official in 1958, in
the report of which he gave all the chattels an appraised value of P26,850.00 and a
market value of P48,200.00.^[18] Another reinspection
report in 1959 gave the appraised value of P19,400.00 and the market value of
P25,600.00.^[19] The said official of the PNB who made the
foregoing reports of inspection and reinspections
testified in court that 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 were
considerably reduced in all the reinspection reports
for the reason that when he went to herein appellant’s premises at the time, he
found the chattels no longer in use with some of the heavier equipments
dismantled with parts thereof kept in the bodega; and finding it difficult to
ascertain the value of the dismantled chattels in such condi­tion, he did not
give them anymore any value in his reports. 
Noteworthy is the fact, however, that in the last reinspection
report he made of the chattels in 1961, just a few months before the
foreclosure sale, the same inspector of the PNB reported that the heavy
equipments of herein appellant were “lying idle and rusty”, but were
“with a shed, free from rains”,^[20] showing that although they were no longer in
use at the time, they were kept in a proper place 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 its two trucks acquired
by it with part of the proceeds of the loan and included as additional items in
the mortgaged chattels were worth no less than P14,000.00.  He likewise appraised the worth of its Murphy
engine at P16,000.00 which, according to him, when taken toge­ther with the
heavy equipments he mentioned, the sawmill itself and all other equipments
forming part of the chattels under consideration, and bearing in mind the
current cost of equipments these days which he alleged to have increased by
about five (5) times, could safely be estimated at P120,000.00.  This testi­mony, except for the appraised and
market values ap­pearing in the inspection and reinspection
reports 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 appellant had been idle and unused
since it stopped operating its sawmill in 1958 up to the time of the sale of
the chattels in 1961.  We have no doubt
that the value of the chat­tels was depreciated after all those years of inope­ration, although from the evidence aforementioned, We
may also safely conclude that the amount of P4,200.00 for which the chattels
were sold in the foreclosure sale in question was grossly unfair
to the mortgagor.  Considering, however,
the facts that the appraised value of P42,850.00 and the market value of P85,700.00
originally given by the PNB official were admittedly conservative; that two 6 x
6 trucks subsequently bought by the appellant company had thereafter been added
to the chattels; and that the real value thereof, although depreciated after seve­ral years of inoperation,
was in a way maintained be­cause the depreciation is off-set by the marked increase
in the cost of heavy equipment in the market, it is our opinion that the market value of the chat­tels at the
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 social humiliation which are the basis of moral damages.^[21] A corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral damages.  The same cannot be considered under the facts
of this case, however, not only because it is admitted that herein appellant had
already ceased in its business opera­tion at the time of the foreclosure sale of the chat­tels,
but also for the reason that whatever adverse effect the foreclosure sale of the chattels
could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at
Jose Panganiban, Camarines
Norte, or in Manila which is the place agreed upon by the parties in the mortgage
contract.

But
for the wrongful acts of herein appellee bank and the
deputy sheriff of Camarines Norte in proceeding 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 herein
appellant, and in disposing of the chattels in gross for the mis­erable amount
of P4,200.00, herein appellant should be awarded exemplary damages in the sum
of P10,000.00.  The circumstances of the
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 from should be, as hereby, it is set aside.  The Philippine
National Bank and the Deputy Sheriff of the province of Camarines
Norte are ordered to pay,
jointly and severally, to Mambulao Lumber Company the
total amount of P56,000.73, broken as follows: 
P150.73 overpaid by the latter to the PNB, P42,850.00 the value of the
chattels at the time of the sale with interest at the rate of 6% per annum from December 21, 1961, until fully paid,
P10,000.00 in exemplary damages, and P3,000.00 as attorney’s fees.  Costs against both appellees.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Ruiz Castro, and Fernando, JJ., concur.

Bengzon, J.P.,
J., Pursuant to Rule 137 Sec. 1, took no part.

^[1]
See, Gorospe et al. v. Gochangco,
L-12735, October 30, 1959.

^[2]
59 C.J.S. 1547.

^[3]
59 C.J.S. 1549.

^[4]
Bachrach v. Golingco,
39 Phil. 138.

^[5]
See, Gorospe, et al. v. Gochangco, supra.

^[6]
Bachrach v. Golingco,
supra.

^[7]
Delgado v. De la Rama, 43 Phil. 419.

^[8]
Section 14, Act. No. 1508.

^[9]
Riosa v. Stilianopulos,
Inc., 67 Phil. 422.

^[10]
Art. 1159, new Civil Code.

^[11]
General Azucarera de Tarlac
v. De Leon,
56 Phil. 169; See also, Bautista v. De Borja,
et al., L-20600, October 28, 1966.

^[12]
14 C.J.S. 1030.

^[13]
Exhibit Q.

^[14]
C.J.S.
817-818.

^[15]
14 C.J.S. 819.

^[16]
Bachrach v. Golingco,
supra.

^[17]
Exhibit 5.

^[18]
Exhibit 6.

^[19]
Exhibit 6-b.

^[20]
Exhibit 6-c.

^[21]
See Art. 2217, Civil Code.