TIRSO GARCIA, IN HIS CAPACITY AS RECEIVER OF THE MERCANTILE BANK OF CHINA, PLAINTIFF AND APPELLEE, VS. LIM CHU SING, DEFENDANT AND APPELLANT.

This is an appeal taken by the defendant
Lim Chu Sing from the judgment rendered by the Court of First Instance
of Manila, the dispositive part of which reads as follows:

“Wherefore, judgment is rendered sentencing the
defendant to pay the sum of P9,105.17 with interest thereon at the rate
of six per cent per annum from September 1, 1932, until fully paid,
plus the sum of P910.51, as attorney’s fees, with the costs of this
suit.

“In conformity with the stipulation, this judgment shall be subject to execution after ninety (90) days. So ordered.”

In support of his appeal, the appellant assigns the following alleged errors as committed by the court a quo in its decision, to wit:

“1. In denying the motion dated December 27,1932,
praying for the inclusion of Lim Cuan Sy, being the principal debtor,
as party to this suit.

“2. In holding as improper the
compensation of the defendant’s debt of P9,106.17, claimed in the
complaint, with his credit amounting to P10,000 with the Mercantile
Bank of China.

“3. In not ordering that after the
compensation the plaintiff-appellee, as receiver of the Mercantile Bank
of China, should liquidate the dividends of the defendant-appellant’s
shares.

“4. In sentencing the defendant-appellant to pay to
the plaintiff-appellee the sum of P910.51 as attorney’s fees, plus
interest at 6 per cent per annum on the sum of P9,105.17, with costs.

“5. In denying the motion for a new trial.”

When the case was called for hearing, the parties submitted the
following stipulation of facts for the consideration of the trial
court, to wit:

“Come now both parties and to this Honorable Court respectfully submit the following stipulation:

“1. The defendant admits the facts alleged in the complaint.

“2. The plaintiff admits the allegations in the answer, particularly
with reference to the fact that the defendant is the owner of two
hundred shares at a par value of fifty pesos (P50) each, that is
(P10,000).

“3. The court may render judgment in accordance
with this stipulation, but the same shall be subject to execution after
ninety (90) days.

“Wherefore, they respectfully submit this stipulation and pray that judgment be rendered in accordance therewith.”

The facts alleged in the complaint and admitted by both parties under the above quoted stipulation of facts are as follows:

On June 20, 1930, the defendant-appellant Lim Chu Sing executed and
delivered to the Mercantile Bank of China a promissory note for the sum
of P19,605.17 with interest thereon at 6 per cent per annum, payable
monthly as follows: Pl,000 on July 1, 1930; P500 on August 1, 1930; and
P500 on the first of every month thereafter until the amount of the
promissory note together with the interest thereon is fully paid
(Exhibit A). One of the conditions stipulated in said promissory note
is that in case of defendant’s default in the payment of any of the
monthly installments, as they become due, the entire amount or the
unpaid balance thereof together with interest thereon at 6 per cent per
annum, shall become due and payable on demand. The defendant had been,
making several partial payments thereon, leaving an unpaid balance of
P,105.17. However, he defaulted in the payment of several installments
by reason of which the unpaid balance of P9,105.17 on the promissory
note has ipso facto become due and demandable.

The facts alleged in the answer and admitted by both parties under the same stipulation of facts are as follows:

The debt which is the subject matter of the complaint was not
really an indebtedness of the defendant but of Lim Cuan Sy, who had an
account with the plaintiff bank in the form of “trust receipts”
guaranteed by the defendant as surety and with chattel mortgage
securities. The plaintiff bank, without the knowledge and consent of
the defendant, foreclosed the chattel mortgage and privately sold the
property covered thereby. Inasmuch as Lim Cuan Sy failed to comply with
his obligations, the plaintiff required the defendant, as surety, to
sign a promissory note for the sum of P19,105.17 payable in the manner
hereinbefore stated (Exhibit A). The defendant had been paying the
corresponding installments until the debt was reduced to the sum of
P9,105.17 claimed in the complaint. The defendant is the owner of
shares of stock of the plaintiff Mercantile Bank of China amounting to
P10,000. The plaintiff bank is now under liquidation.

On December 27, 1932, the defendant-appellant Lim Chu Sing filed a
motion praying for the inclusion of the principal debtor Lim Cuan Sy as
party defendant so that he could avail himself of the benefit of the
exhaustion of the property of said Lim Cuan Sy. Said motion was denied
in open court by the presiding judge without the defendant-appellant
having excepted to such order of denial.

The proceeds of the sale of the mortgaged chattels together with
other payments made were applied to the amount of the promissory note
in question, leaving the balance which the plaintiff now seeks to
collect.

The first question to be decided in this appeal is whether or not the court a quo erred in denying the motion for inclusion of a party as defendant, filed by the defendant-appellant.

According to the provisions of section 141 of the Code of Civil
Procedure, “* * * Rulings of the court upon minor matters, such as
adjournments, postponements of trials, the extension of time for filing
pleadings or motions, and other matters addressed to the discretion of
the court in the performance of its duty, shall not be subject to
exception. But exception may be taken to any other ruling, order, or
judgment of the court made during the pendency of the action in the
Court of First Instance.” “An ‘exception1 has been defined as an
objection taken to the decision of the trial court upon a matter of
law, and is a notice that the party taking it preserves for the
consideration of the appellate court a ruling deemed erroneous. (8 Am.
Enc. P. and P., 157.)” Garcia de Lara vs. Gonzalez de Lara, 2
Phil., 294, 295.) ” ‘Errors in a judgment or decree will not be noticed
on appeal in the absence of objections and exceptions taken below, and
they should be sufficiently specific to direct the attention of the
court to the alleged defects.’ (8 Enc. PI and Pr., 289.)” (Garcia de
Lara vs. Gonzalez de Lara, 2 Phil., 297.) Inasmuch as an
exception is an objection taken to the decision of the trial court upon
a matter of law and is a notice that the party taking it will submit
for the consideration of the appellate court the ruling deemed
erroneous, failure to interpose it deprived the appellant of the right
to raise the question whether or not the court a quo
committed the alleged error attributed to it in its ruling which had
not been excepted to by the said appellant. The inclusion in, or
exclusion from an action of a certain party is a question of law. The
herein defendant-appellant, not having excepted to the order of the
Court of First Instance of Manila denying his motion for the inclusion
of Lim Cuan Sy as party defendant, is estopped from raising such
question upon appeal (Roman Catholic Bishop of Lipa vs. Municipality of San Jose, 27 Phil., 571; Vergara vs. Laciapag, 28 Phil., 439; Andrews vs. Morente Rosario, 9 Phil., 634).

The second question to be decided is whether or not it is proper to
compensate the defendant-appellant’s indebtedness of P9,105.17, which
is claimed in the complaint, with the sum of P10,000 representing the
value of his shares of stock with the plaintiff entity, the Mercantile
Bank of China.

According to the weight of authority, a share of stock or the
certificate thereof is not an indebtedness to the owner nor evidence of
indebtedness and, therefore, it is not a credit (14 Corpus Juris, p.
388, sec. 511). Stockholders, as such, are not creditors of the
corporation (14 Corpus Juris, p. 848, sec. 1289). It is the prevailing
doctrine of the American courts, repeatedly asserted in the broadest
terms, that the capital stock of a corporation is a trust fund to be
used more particularly for the security of creditors of the
corporation, who presumably deal with it on the credit of its capital
stock (14 Corpus Juris, p. 383, sec. 505). Therefore, the
defendant-appellant Lim Chu Sing not being a creditor of the Mercantile
Bank of China, although the latter is a creditor of the former, there
is no sufficient ground to justify a compensation (art. 1195, Civil
Code; Acuna Co Chongco vs. Dievas, 12 Phil., 250).

The third question to be decided in this appeal is whether or not the court a quo
erred in sentencing the said defendant-appellant to pay the sum of
P910.51 as attorney’s fees in addition to interest at 6 per cent per
annum on the amount sought in the complaint.

The pertinent clause of the promissory note Exhibit A reads as
follows: “In case of default of any of the above installments, the
total amount of the balance still unpaid of this note will become due
and payable on demand plus interest thereon at the rate of 6 per cent
per annum from date of this note until payment is made. And I further
agree to pay an additional sum equivalent to 10 per cent of the said
note to cover cost and attorney’s fees for collection.”

The stipulation relative to the payment of interest at the rate of
6 per cent per annum on the unpaid balance of the promissory note
Exhibit A refers to the capital and the 10 per cent stipulated for
costs and attorney’s fees cannot be considered as interest but an
indemnity for damages occasioned by the collection of the indebtedness
through judicial process. Therefore the two rates in question cannot be
combined and considered usurious interest.

With reference to the costs, the 10 per cent stipulated in the
promissory note is for costs and attorney’s fees which may be incurred
in the collection of the indebtedness through judicial process.
Therefore, the defendant-appellant should not again be made to pay for
them (Bank of the Philippine Islands vs. Yulo, 31 Phil., 476).

In view of the foregoing, this court is of the opinion and so
holds: (1) That failure to file an exception to a ruling rendered in
open court denying a motion for the inclusion of a party as defendant
deprives the petitioner, upon appeal, of the right to raise the
question whether such denial was proper or improper; (2) that the
shares of a banking corporation do not constitute an indebtedness of
the corporation to the stockholder and, therefore, the latter is not a
creditor of the former for such shares; (3) that the indebtedness of a
shareholder to a banking corporation cannot be compensated with the
amount of his shares therein, there being no relation of creditor and
debtor with respect to such shares; and (4) that the percentage
stipulated in a contract, for costs and attorney’s fees for the
collection of an indebtedness, includes judicial costs.

Wherefore, with the sole modification that the costs be eliminated
from the appealed judgment, the same is hereby affirmed, without
special pronouncement as to costs of this instance. So ordered.

Malcolm, Hull, Imperial, and Goddard, JJ., concur.