CASE DIGEST: Bachrach vs. Golingco

 

E. M. BACHRACH, plaintiff and appellee, vs. VICENTE GOLINGCO, defendant and appellant

G.R. No. 13660. November 13, 1918.

FACTS:

This is a suit for the recovery of a sum of money claimed as a balance due to the plaintiff on a promissory note.

The note in question represents the purchase price of an automobile truck which the plaintiff sold to the defendant at the time the note was executed. As security for the payment of said indebtedness, the plaintiff took a chattel mortgage on the truck; and after the note had matured this chattel mortgage was foreclosed. At the foreclosure sale the plaintiff himself became the purchaser for the sum of P539, which amount was credited upon the indebtedness.

It is provided in the note given by the defendant for the purchase price of the truck that, in the event of it becoming necessary to employ counsel to enforce its collection, the maker is to pay an additional twenty-five per cent "as fees for the attorney collecting the same." The trial court gave judgment for the full amount due on the note and for an additional sum of P2,115.25, for attorney's fees. The appellant assigns this as error and argues that the agreement to pay an attorney's fee, in addition to the principal and stipulated interest, is void as usurious and as being grossly excessive.

ISSUE:

Whether or not the 25 percent stipulation on attorney’s fee for collection valid

RULING:

It may lawfully be stipulated in favor of the creditor, whether the obligation be evidenced by promissory note or otherwise, that in the event that it becomes necessary, by reason of the delinquency of the debtor, to employ counsel to enforce payment of the obligation, a reasonable attorney's fee shall be paid by the debtor, in addition to the amount due for principal and interest. The legality of such a stipulation, when annexed to a negotiable instrument is expressly recognized by the Negotiable Instruments Law.

Inasmuch as the statutory allowance for attorney's fees, as costs, is notoriously less than the amount which attorneys are entitled to receive from their clients, unless such a stipulation is made and enforced, it follows that a creditor may be compelled to pay, out of the money due him, a considerable sum as the necessary cost of enforcing payment by the delinquent debtor.

Such a stipulation is not void as usurious, even when added to a contract for the payment of the highest rate of interest permissible. The purpose of such a stipulation is not to increase in any respect the benefits ultimately to accrue to the creditor. It is true that such a stipulation may be made for the purpose of concealing usury; but that is a matter of proof to be determined in each case upon the evidence.