Andreas v. Green
REITERATIONFacts
The Antecedents: The plaintiff-appellee, H. R. Andreas, administrator with the will annexed of the estate of Harry Bridge, sued the defendant-appellant, B. A. Green, based on a promissory note. Procedural History: The trial court rendered a judgment in favor of the plaintiff, ordering the defendant to pay the principal sum, interest, and a penal clause for expenses of collection and attorney's fees. The defendant appealed. The Petition: The defendant-appellant questioned the validity of the clause in the promissory note which stipulated "a further sum equal to 10 per cent of the total amount due as and for expenses of collection for attorney's fees whether actually incurred or not," contending that it contravened the Usury Law.
Issue(s)
Whether the stipulation for attorney's fees and expenses of collection in a promissory note, even if stated as payable "whether actually incurred or not," contravenes the Usury Law. Whether the trial court's judgment ordering payment of the principal, interest, and a penal clause for collection expenses and attorney's fees is valid.
Ruling
The Supreme Court affirmed the judgment of the trial court in all its parts. The defendant was ordered to pay the plaintiff the sum of fifteen thousand pesos (P15,000), with interest at 12 per cent per annum from May 19, 1923, until complete payment, together with 10 per cent of fifteen thousand pesos (P15,000) as a penal clause for expenses of collection and attorney's fees. The sale of the mortgaged land was provided for in case of nonpayment within three months from the finality of the judgment.
Ratio Decidendi
On the issue of attorney's fees and expenses of collection contravening the Usury Law: The Court held that stipulations in negotiable instruments for the payment of collection and attorney's fees are not forbidden by law in the Philippines. The lender may, without violating the Usury Law, provide in a note for an attorney's fee to cover the cost of collection. This principle has been consistently upheld in numerous cases both in the Philippines and elsewhere. The purpose of such a stipulation is not to allow the lender to receive more than the legal interest but to safeguard the lender against potential future losses or damages incurred in retaining counsel to collect a debt through judicial proceedings. The additional phrase "whether actually incurred or not" was deemed merely descriptive and surplusage, reflecting the parties' intent to provide a penalty to cover collection expenses. The Court noted that whether the creditor could enforce the penalty where expenses were not actually incurred might be questionable, but this did not affect the outcome of the present case. On the validity of the trial court's judgment: The Court affirmed the judgment of the trial court, finding no error in its order for the defendant to pay the principal sum, the stipulated interest, and the 10% penal clause for attorney's fees and expenses of collection. The judgment was affirmed in all its parts, including the provision for the sale of the mortgaged property in case of default, with the understanding that the three-month period for payment would commence from the date the judgment became final. The costs of the instance were assessed against the appellant.
Main Doctrine
Stipulations in negotiable instruments for the payment of collection and attorney's fees are not forbidden by law in the Philippines, and the lender may provide for an attorney's fee to cover the cost of collection without violating the Usury Law. The clause 'whether actually incurred or not' in such stipulations is merely descriptive and does not invalidate the provision.