THE BANK OF THE PHILIPPINE ISLANDS, PLAINTIFF AND APPELLANT, VS. WALTER A. SMITH & CO., INC., DEFENDANT AND APPELLANT. HOA HIN & CO., INC., ET AL., DEFENDANTS AND APPELLEES.

This action was instituted in the Court of First Instance of the Province of
Iloilo by the Bank of the Philippine Islands against Walter A. Smith & Co.,
Inc., and others, for the purpose of foreclosing a mortgage on certain machinery
and personal property and to annul a sale that had been made of the launch
Mohawk in favor of the defendant Uy Godinez, and for other purposes. The
defendant Walter A. Smith & Co., Inc., hereafter referred to as Smith &
Co., answered with a general denial and cross-complaint in which it asserted
that the mortgage debt had been more than paid and, in turn, sought to recover a
balance of nearly P50,000 from the plaintiff with interest. The defendant Hoa
Hin & Co., Inc., and others, who are concerned only with the claim to the
launch, answered with a general denial and special defense, alleging that said
launch had been sold in a judicial proceeding to satisfy certain repairs made
thereon by Hoa Hin & Co., Inc., and that at said sale the defendant Uy
Godinez had become the purchaser. Upon hearing the cause the trial court held
that the mortgage for the foreclosure of which the action was filed was valid
and that the balance due thereon to the plaintiff as of October 16, 1928, was
the sum of P50,579.45, upon which the plaintiff was entitled to interest from
said date at the rate of 9 per centum per annum. The court further held that
Smith & Co. was indebted to the plaintiff in the amount of P2,949.88 for
cost of certain insurance policies on the mortgaged property paid by the
plaintiff. It was accordingly ordered that, if all the aforesaid indebtedness
should not be paid within ninety days from the date of the finality of the
sentence, the mortgaged property should be sold, with the exception of the
launch Mohawk. All the other defendants were absolved from the complaint, and
the plaintiff was similarly absolved from the cross-complaint of the defendant
Smith & Co. From this judgment the plaintiff appealed with respect to the
denial of its claim to the launch Mohawk, as also with respect to the denial of
certain interest under the contract arid the attorney’s fee stipulated for
therein, while Smith & Co. appealed from so much of the sentence as is
adverse to it.

To begin with the assignments of error of the defendant as appellant, we are
of the opinion that the trial court committed no error in holding that the
mortgage upon which this action is based is valid, that the contract was made in
good faith, upon a sufficient consideration, and that it was signed by the
mortgagor, Smith & Co., without having been induced thereto by fraud or
false representation on the part of the plaintiff,. So far as concerns this
feature of the case, the controversy arises out of paragraph 2 of a letter
written by W. T. Nolting, as president of the Bank of the Philippine Islands,
under date of July 13, 1922, in which it was promised that the bank would sell
these mortgaged properties to the Smith Company for the amount of the
indebtedness shown upon its books then owing to it by the Olutanga Lumber
Company, against which a foreclosure proceeding under an earlier mortgage was
then pending. In this letter the bank said that it ¦would bid in the properties
at the mortgage sale for the amount due thereon and that if it were successful
it would sell the property to the defendant. It subsequently happened that the
bank got the property at the foreclosure sale for the much smaller amount of
P11,000. But it nevertheless sold the property to Smith & Co. for the amount
of its indebtedness, which was something over P80,000. The defense on the part
of Smith & Co, proceeds on the idea that, inasmuch as the property was
.bought in for P11,000, the bank ought to have sold it to Smith & Co. for
the amount for which the property was purchased. This contention is clearly
untenable, as when the mortgage with which we are here concerned was executed,
Smith knew that it had been bid in for the sum of P11,000 and yet he made the
contract for the full amount of the indebtedness for which the prior mortgage
had been foreclosed against the Olutanga Lumber Company. Smith asserts that he
signed the contract with the understanding that the bank would raise its bid to
the amount of its indebtedness, which was never done. If any such promise was
made, it was not material to this contract, and we are of the opinion that the
trial court committed no error in sustaining its validity. The assignments of
error interposed by the defendant-appellant are without merit and are therefore
overruled.

The assignments of error of the plaintiff raise a question as to the
disposition made by the trial court with respect to the launch Mohawk. In this
connection it appears that after this vessel had been mortgaged to the plaintiff
bank, with the other properties mentioned in the mortgage, repairs were made
thereon, at the instance of the mortgagor, by Hoa Hin & Co., Inc., and for
the non-payment of this claim the launch was sold in a judicial proceeding and
purchased by Uy Godinez. In that proceeding the plaintiff intervened as a third
party and claimed the launch, but the sale was proceeded with, with the result
already stated.

It is our opinion that, where a mortgagor is left in the possession of a
mortgaged chattel, for his use, a person who makes repairs thereon which are
reasonably necessary to the proper use of the chattel has a claim for
compensation superior to the right of the mortgagee. That the repairs made in
this case upon the Mohawk were of the character mentioned appears reasonably
evident from the proof, and the judgment of the trial court in sustaining the
right of Uy Godinez must be affirmed. (Art. 1600, Civil Code; Bachrach Motor Co.
vs. Mendoza, 43 Phil., 410.)

In one of the assignments of error of the plaintiff exception is taken to the
action of the trial court in failing to award interest to the plaintiff upon the
capital of the mortgage debt at the rate of 9 per centum per annum from November
25,1924, until October 16, 1928, the date of the filing of the complaint. This
exception is well taken. The mortgage (Exhibit A) clearly stipulates for
interest on the capital at the rate of 9 per centum per annum, and the court
having found that the mortgage was valid, the right to interest at the rate
stated and for the period mentioned is undeniable.

The plaintiff also assigns error to the action of the trial court in refusing
to allow an attorney’s fee in the amount of 10 per centum of the capital of the
debt, under one of the clauses of the contract. The fee in question is
stipulated for, and the right of the plaintiff thereto is undeniable. In the
exercise of our judgment we fix this fee in the amount of P5,000.

The
judgment will therefore be in the main affirmed, but it must be modified so as
to allow interest on the capital of P50,579.45, at the rate of 9 per centum per
annum, from November 25. 1924, to October 16, 1928, and an attorney’s fee of
P5,000. As thus modified, the judgment will be affirmed, and the cause remanded
for further proceedings in conformity with this opinion, without pronouncement
as to costs. So ordered.

Avanceña, C. J., Johnson, Malcolm, Ostrand, Johns and Villa-Real,
JJ., concur.