G.R. No. 22995. February 28, 1925
MANILA TRADING & SUPPLY COMPANY, PLAINTIFF AND APPELLEE, VS. TAMARAW PLANTATION COMPANY, DEFENDANT AND APPELLANT.
VILLAMOR, J.:
“FIRST CAUSE OF ACTION
“1.
On August 23, 1920, the plaintiff sold to the defendant the goods
mentioned in Exhibit A of the defendant for P5,300, if paid in cash,
but as it was not so paid, there was added to said amount the sum of
P265, which is 5 per cent thereon, making a total of P5,565.“2.
This total sum of P5,565 was to be paid in the manner specified in
Exhibit A, and to secure said payment, the defendant signed Exhibit A,
which was duly registered in the office of the register of deeds.“3.
The defendant paid the first six monthly instalments provided in
Exhibit A, plus P213.89 on account of the seventh instalment, that is,
a total of P2,996.39, and failed to pay the rest, namely, P2,568.61;
wherefore said goods were on August 15, 1922, sold by the sheriff of
Mindoro at public auction, as provided in Act No. 1508, the proceeds of
the sale having amounted to P2,000, which were paid to the plaintiff.“4. The sum of P1,989.84 sought to be recovered in the first cause of
action includes the stipulated penalty of 33 1/3 per cent which
amounted to P856.20, and also the interest at 12 per cent per annum
from the date of the execution of the document, August 23, 1920, up to
the date of the sale of the goods by the sheriff, namely, August 15,
1922, Manila Trading & Supply Co. vs. Tamaraw Plantation
Co. on P2,568.61, which is the balance remaining unpaid on said date of
August 15, 1922, of the amount secured by Exhibit A; so that the
principal sought to be recovered is P517.08, the interest P616.56, and
the penalty P856.20 making a total of P1,989.84.“SECOND CAUSE OF ACTION
“1.
On December 24, 1920, the plaintiff sold to the defendant the goods
mentioned in Exhibit B for P2,550, if paid in cash. To said amount
there was added the sum of P127.50, which is 5 per cent thereon, making
a total of P1,877.50.“2. This total sum of P2,677.50 was
to be paid in the manner specified in Exhibit B, and to secure the
payment thereof, the defendant executed Exhibit B, which was registered
in the office of the register of deeds.“3. The defendant
paid P800 upon the delivery of the goods, but did not pay anything more
afterwards; wherefore said goods were sold at public auction by the
sheriff of Mindoro on August 15, 1922, for P1,000, as provided in Act
No. 1508, said sum of P1,000 having been paid to the plaintiff.“4.
The sum of P1,853.80 sought to be recovered in the second cause of
action includes the stipulated penalty of 33 1/3 per cent, which
amounts to P625.83, and also the interest at 12 per cent per annum from
the date of the execution of the document, December 24, 1920, up to the
date of the sale of the goods by the sheriff, namely, August 15, 1922,
on P1,877.50, which is the balance remaining unpaid on said date of
August 15, 1922, of the amount secured by Exhibit B; so that the
principal sought to be recovered is P858.23, the interest P369.74, and
the penalty P625.83, making a total of P1,853.83.“THIRD CAUSE OF ACTION
“The facts are admitted by the defendant.”
The trial court, in view of said stipulation of facts, rendered
judgment, sentencing the defendant to pay to the plaintiff company,
upon the first cause of action, the sum of P1,989.84, with interest at
12 per cent per annum from August 16, 1922, on the P517.08; upon the
second cause of action, the sum of P1,853.83, with interest at 12 per
cent per annum from said date of August 16, 1922, on the P858,23; and
upon the third cause of action, the sum of P474.74, with legal interest
from January 26, 1924, and the costs of the suit.
The
questions of law raised by the appellant in its assignment of errors
are: (1) Whether or not a creditor holding a chattel mortgage may bring
an action for the recovery of any part of his credit remaining unpaid
after the sale at public auction of the chattels mortgaged; (2) whether
or not the increase of the price of an article sold on credit upon its
cash sale value constitutes interest within the meaning of the Usury
Law; (3) whether or not a contract is legal in which a penalty is
stipulated, consisting in the payment of interest at the rate of 33 1/3
per cent on the amount due; and (4) whether or not judgment for costs
may be rendered, besides the amount stipulated as penalty.
In support of its contention, the appellant invokes the doctrines laid down in the case of Meyers vs. Thein (15 Phil., 303), and in Bachrach vs. Mantel (25 Phil., 410). In the former, this court said:
“It
becomes necessary to pass upon the nature of the contract of mortgage
or pledge of personal property, in accordance with the provisions of
section 3 of the said Act No. 1508 which prescribes that ‘a chattel
mortgage is a conditional sale of personal property as
security for the payment of a debt, or the performance of some other
obligation specified therein, the condition being that the sale shall
be void upon the seller paying to the purchaser a sum of money or doing
some other act named. If the condition is performed according to its
terms the mortgage and sale immediately become void, and the mortgagee
is thereby divested of his title.’“From the language of
the law it now appears: (1) That by the operation of Act No. 1508 the
actual contract of pledge of the Civil Code degenerates into one of
sale by mutual consent; (2) that, under Act No. 1508, a chattel
mortgage is a sale with pacto de retro, almost equivalent to that under the same name in the Civil Code; (3) that as in a contract of sale with pacto de retro
where the juridical dominion and possession of the thing sold pass to
the purchaser as soon as the sale is consummated, so also in a chattel
mortgage the dominion and possession of the mortgaged personal property
pass to the creditor-pledgee, because, as the law provides, it is
nothing more than a conditional sale; (4) that, in the same manner that
a contract of sale is consummated by the delivery, either actual or
symbolic, of the thing sold, which symbol of the delivery may be the
inscription of the instrument in the registry, so also a chattel
mortgage is consummated by a similar delivery, actual or symbolic, by
means of an analogous inscription in the registry.“Therefore,
so long as the mortgage exists, the dominion, with respect to the
mortgaged personal property, rests with the creditor-pledgee from the
time of the inscription of the mortgage in the registry, and the
furniture ceases to be the property of the debtor for the reason that
it has become the property of the creditor, in like manner as the
dominion of a thing sold is transferred to the purchaser and ceases to
belong to the vendor from the moment of the delivery thereof, as a
result of the sale. * * * “
And in the latter case, that is to say, in Bachrach vs. Mantel, this court held:
“Much stress is laid by the plaintiff upon the case of Meyers vs.
Thein (15 Phil., 303). That case dealt with a chattel mortgage from the
viewpoint of the Civil Code respecting preference of creditors,
treating the mortgagee as a creditor with a pledge. Chattel mortgages
have another aspect, however, and one from which their real nature more
clearly appears. Under the Chattel Mortgage Law the mortgagee becomes
the owner of the property in the sense that he has the legal title, the
mortgagor having the right to retain possession, to have the beneficial
use, and to defeat the title of the mortgagee by compliance with the
terms of the mortgage. In a sense, the mortgagee is the legal, the
mortgagor the equitable owner. * * *”
Under these two cases, the appellant argues:
“It is, therefore, beyond doubt that a chattel mortgage executed in accordance with Act No. 1508 is a conditional sale, or sale of the chattels with right of repurchase.
“A
chattel mortgage under Act No. 1508 is a sale with right of repurchase,
almost identical to that with similar name of the Civil Code; it was so
held by this Honorable Court in Meyers vs. Thein (15 Phil., 303), and incidentally it was said in Rosales vs. Reyes and Ordoveza (25 Phil., 495) that ‘ * * * a chattel mortgage, is in many respects similar to a sale under pacto de retro.
* * * ‘ It is, therefore, clear that a chattel mortgage partakes of the
character of the sale with right of repurchase of the Civil Code, and
that it is not a mortgage within the meaning of said Code. What then is
a contract of sale with right of repurchase? According to this
Honorable Court, interpreting articles 1507 and 1518 of the Civil Code
Conventional redemption is the right which the vendor reserves to
himself to recover the thing sold, with the obligation to reimburse to
the vendee the price of the sale, the expenses of the contract, and any
other legitimate payment made by reason of the sale, and the useful and
necessary expenses incurred for account of the thing sold.’ (Lichauco vs. Berenguer, 20 Phil., 12.)“What
would be the effect of a contract of sale with right of repurchase, if
the vendor does not comply with the condition subsequent? Article 1509
of the Civil Code says that ‘the vendee shall acquire irrevocably the
ownership of the thing sold and no more. There is no law whatever
providing that, if the value of the thing sold is not sufficient to
cover the debt owing from the vendor to the purchaser, that is to say,
the purchase price, the purchaser shall have an action against the
vendor to recover the difference. Nor is there any such provision in
Act No. 1508, the Chattel Mortgage Law. All said Act No. 1508 provides
on this point is what appears in section 14 thereof.“A
reading of said section 14 of Act No. 1508 will show that there does
not exist any such right to maintain an action for the difference
between the price obtained in a sale at public auction and that which
must really be paid.”
In answer to this argument, it must be noted in the first place that in Meyers vs. Thein, supra,
it is not said that a chattel mortgage is in effect the same as a
contract of sale with right of repurchase, but is a sale with right of
repurchase almost identical to that of the Civil Code having said
denomination. And in Bachrach vs. Mantel, supra, the
court holds that the mortgagee in a chattel mortgage is the legal, and
the mortgagor the equitable, owner. Secondly, what is held in those two
cases is that a chattel mortgage is a conditional sale as security for
the payment of the debt, according to section 3 of Act No. 1508. If the
thing pledged is sold, it is for the purpose of securing the payment of
the debt; so that if the price of the sale is insufficient to cover the
debt, the debtor is not thereby relieved from the payment of the
balance, just as the creditor cannot retain the surplus in case the
price of the sale should exceed the debt secured. In the case of
Bachrach Motor Co. vs. Summers (42 Phil., 3), we said that:
“The definition of the chattel mortgage found in section 3 of the
Chattel Mortgage Law (Act No. 1508) is a description of the form in
which the contract used to be commonly drafted in common-law countries
rather than a statement of its legal effects; and while it is true that
the contract has been customarily written in the form of an out and out
sale, conditioned to be void upon performance of some condition
subsequent, as for instance, the payment of the secured debt,
nevertheless the equitable conception of the mortgage, now generally
dominant, treats the mortgage merely as a security. There is no real
analogy between the chattel mortgage contract and a conditional sale as
understood in the civil law.”
Section 14 of Act No. 1508
provides, with regard to the application of the proceeds of the sale of
the chattels mortgaged, as follows:
” * * *
The proceeds of such sale shall be applied to the payment, first, of
the costs and expenses of keeping and sale, and then to the payment of
the demand or obligation secured by such mortgage, and the residue
shall be paid to persons holding subsequent mortgages in their order,
and the balance, after paying the mortgages, shall be paid to the
mortgagor or person holding under him on demand.”
Which simply shows that the contention of the appellant is untenable.
But where the same question now raised by the appellant was directly solved is in Bank of the Philippine Islands vs. Olutanga Lumber Company, R. G. No. 22656, decided December 17, 1924.[1]
In that case there was raised the question whether or not a creditor,
holding a chattel mortgage as security for the payment of the debt, may
maintain an action for the recovery of the balance remaining unpaid
after the foreclosure of the mortgage. This court decided this question
in the affirmative. In the body of the decision the court said:
“The theory of the court a quo
evidently is, that a chattel mortgage is a conditional sale of the
property, and, in case of a failure of the condition, to wit: to pay
the debt, the sale becomes absolute and the creditor is obliged to
resort to the mortgaged property for a payment of this debt, and the
foreclosure of the mortgage is his sole recourse.“While it
is true that section 3 of Act No. 1508 provides that ‘a chattel
mortgage is a conditional sale it further provides that it ‘is a
conditional sale of personal property as security for the
payment of a debt, or for the performance of some other obligation
specified therein.’ The lower court overlooked the fact that the
chattels included in the chattel mortgage are only given as a security
and not as a payment of the debt, in case of a failure of payment * * *.“The
theory of the lower court would lead to the absurd conclusion that if
the chattels mentioned in the mortgage, given as security, should sell
for more than the amount of the indebtedness secured, that the creditor
would be entitled to the full amount for which it might be sold, even
though that amount was greatly in, excess of the indebtedness. Such a
result certainly was not contemplated by the legislature when it
adopted Act No. 1508. There seems to be no reason supporting that
theory under the provision of the law. The value of chattels changes
greatly from time to time, and sometimes very rapidly. If, for example,
the chattels should greatly increase in value and a sale under that
condition should result in largely overpaying the indebtedness, and if
the creditor is not permitted to retain the excess, then the same token
would require the debtor to pay the deficiency in case of a reduction
in the price of the chattels between the date of the contract and a
breach of the condition.“Mr. Justice Kent, in the 12th
Edition of his Commentaries, as well as other authors on the question
of chattel mortgages, have said, that ‘in case of a sale under a
foreclosure of a chattel mortgage, there is no question that the
mortgagee or creditor may maintain an action for the deficiency, if any
should occur.’ And the fact that Act No. 1508 permits a private sale,
such sale is not, in fact, a satisfaction of the debt, to any greater
extent than the value of the property at the time of the sale. The
amount received at the time of the sale, of course, always requiring
good faith and honesty in the sale, is only a payment, pro tanto, and an action may be maintained for a deficiency in the debt.”
The appellant assigns error to the action of the trial court in not
having held usurious the contracts of sale and mortgage of agricultural
implements evidenced by Exhibits A and B.
The parties have
agreed that the price of the goods sold and mortgaged in the document
Exhibit A was P5,300, if paid in cash, but as said goods were purchased
on credit, the cash price was increased 5 per cent. The parties have
also agreed that to the cash price of the goods sold and mortgaged in
the document Exhibit B there was added 5 per cent of said amount
because the goods were purchased on credit. Now appellant argues that
the price of the sale on credit, which is 5 per cent more than the cash
price, added to the 12 per cent interest stipulated by the parties,
makes the contracts of sale and mortgage in question usurious. This
contention of the appellant is untenable.
The instant case
is of a chattel mortgage given to secure payment for the agricultural
implements sold by the plaintiff to the defendant. The transaction was
carried out between the parties in good faith, and there is no proof
that the contract of sale of agricultural effects, secured by a
mortgage on the same goods, was executed as a loan of money. This being
so, the parties may freely agree upon the price of the goods sold, and
it cannot be said that the credit, greater than the cash, price,
constitutes interest within the meaning of the Usury Law. The increase
of the price, when the sale is on credit, serves not only to cover the
expenses generally entailed by such transactions on credit, but also to
encourage cash sales, so useful to commerce. It is up to the purchaser
to decide which price he prefers in making the purchase. If he prefers
to purchase for cash, he obtains a 5 per cent reduction of the price;
if, on the contrary, he prefers to buy on credit, he cannot complain of
the increase of the price demanded by the vendor.
In 27 R.
C. L., p. 214, it is said: “On principle and authority, the owner of
property, whether real or personal, has a perfect right to name the
price on which he is willing to sell, and to refuse to accede to any
other. He may offer to sell at a designated price for cash or at a much
higher price on credit, and a credit sale will not constitute usury
however great the difference between the two prices, unless the buying and selling was a mere pretense.”
And in 39 Cyc., p. 927, it is also established that: “A vendor may well
fix upon his property one price for cash and another for credit, and
the mere fact that the credit price exceeds the cost price by a greater
percentage than is permitted by the usury laws is a matter of concern
to the parties but not to the courts, barring evidence of bad faith. If
the parties have acted in good faith such a transaction is not a loan,
and not usurious.”
The appellant also assigns as error the
fact that the trial court awarded the penalty, as set forth in the
judgment, together with payment of the costs.
In the case of Bachrach vs. Golingco (39 Phil., 138), this court held:
“The
courts have the same power to limit the amount recoverable under a
special provision in a promissory note whereby the debtor obligates
himself to pay a specified amount, or a certain per centum of the
principal debt, in satisfaction of the attorney’s fee for which the
creditor would become liable in suing upon the note.”
And in Bachrach Garage and Taxicab Co. vs. Golingco (39 Phil., 912), it was held:
“The
stipulation that in case of noncompliance the debtor shall pay a fixed
amount for the fees of the attorney who may be employed by the creditor
for the purpose of enforcing compliance with the obligation is not
deemed to be an interest within the purview of Act No. 2655, and
neither is the computation fixed by said Act applicable thereto. It is
not an indemnity for gain which cannot be realized, but an amount which
the creditors spends and which constitutes a loss really suffered by
reason of the non-compliance with the obligation. However, when the
amount stipulated for the attorney’s fees is so exorbitant that it
exceeds that which should justly be paid for that purpose, the excess
shall be considered as indirect or simulated interest, according to the
spirit of the law, and should therefore be subject to the computation.
In the case at bar, the 12½ per cent to which the trial court reduced
the 25 per cent stipulated represent, in our opinion, the amount which
the plaintiff was justly obliged to pay for his attorney’s fees, and
should not be considered as interest in the computation of the latter.”
While the parties may agree as to the penalty that the debtor must pay
in addition to the interest in case of nonfulfillment of the
obligation, yet as this includes attorney’s fees and costs, this court
has jurisdiction to determine the reasonableness of the sum stipulated
as penalty. Therefore, considering the penalty of 33 1/3 per cent of
the debt claimed upon the first and second causes of action to be in
effect a stipulation for attorney’s fees, we are of the opinion, and so
hold, that the 33 1/3 per cent of the amount due as penalty is
excessive and must be reduced to 12 per cent.
The appellee
agrees that the judgment appealed from must be modified as regards the
computation of the penalty. As to the payment of the costs, we agree
with the appellant that the penalty stipulated includes the payment of
the costs in the first two causes of action; but we see no reason
whatever why judgment for costs shall not be given upon the third cause
of action, wherein no stipulation was made as to the payment of any
additional amount by way of penalty.
For the foregoing, the judgment appealed from is affirmed with the modification that the defendant stands sentenced: (a)
Upon the first cause of action to pay the plaintiff the sum of P517.08,
as principal, plus the sum of P616.56, as interest at the rate of 12
per cent per annum from August 23, 1920, the date of the execution of
the mortgage Exhibit A, to August 15, 1922, the date of the foreclosure
of the mortgage and sale of the chattels mortgaged, upon the balance of
the mortgage debt remaining unpaid on said date of the foreclosure of
the mortgage, to wit, P2,568.61, plus the sum of P308.23 as liquidated
damages, which is 12 per cent of said sum of P2,568.61, that is, a
total of P1,541.77; (b) upon the second cause of action, to
pay the plaintiff the sum of P858.23, as principal, plus the sum of
P369.74, as interest at the rate of 12 per cent per annum from December
24, 1920, the date. of the execution of the mortgage Exhibit B, to
August 15, 1922, the date of the foreclosure of the mortgage and sale
of the chattels mortgaged, upon the balance of the mortgage debt
remaining unpaid on said date of the foreclosure of the mortgage, to
wit, P1,877.50, plus the sum of P225.30, as liquidated damages, which
is 12 per cent of said sum of P1,877.50, that is, a total of P1,453.27;
(c) upon the third cause of action, to pay the plaintiff the
sum of P474.74 which the defendant company admits in the stipulation of
facts, with legal interest thereon from January 25, 1924, the date of
the filing of the plaintiff’s complaint, and the costs of the suit in
the trial court. Without special pronouncement as to the costs of this
instance, it is so ordered.
Johnson, Malcolm, Ostrand, Johns, and Romualdez, JJ., concur.
[1] Page 20, ante.