Philippine Trust Co. v. Echaus Tan Siua
REITERATIONFacts
The Antecedents: The Philippine Trust Co. (bank) filed an action to foreclose a mortgage on five parcels of real property owned by Lucio Echaus Tan Siua (appellant). The mortgage was given as security for a debt owed to the bank by the Visayan General Supply Co., Inc. (debtor). Procedural History: The Court of First Instance of Occidental Negros rendered a judgment against the appellant, ordering him to pay P53,741.82 with 10% interest capitalized monthly, plus P4,000 for attorney's fees. The judgment stipulated that failure to deposit the sums within three months would lead to the sale of the mortgaged property, and execution for any deficiency. The appellant appealed this judgment. The Appeal: The appellant contended that the interest should only be capitalized quarterly, as stated in the mortgage deed, not monthly as ordered by the trial court. He also questioned the P4,000 attorney's fee and the provision for execution for any deficiency. The appellee argued that the word "quarterly" in the mortgage was a manifest error and should have been "monthly," consistent with the principal credit agreement.
Issue(s)
Whether the word "quarterly" in the mortgage deed, regarding interest capitalization, constitutes a manifest error that can be corrected by referring to the principal contract. Whether the stipulated attorney's fee of P4,000 is reasonable and properly included in the judgment. Whether the defendant can be held personally liable for any deficiency remaining after the sale of the mortgaged property.
Ruling
The Supreme Court affirmed the judgment with modification. It ruled that the word "quarterly" in the mortgage was a manifest error and corrected it to "monthly" based on the principal credit agreement. The attorney's fee was deemed reasonable. However, the provision for personal liability for any deficiency was eliminated, as the defendant had only mortgaged his property as security and had not assumed personal liability for the debt.
Ratio Decidendi
On Issue 1: The Court found that the use of the word "quarterly" in the mortgage deed was a manifest error. This conclusion was reached due to several factors: (a) the mortgage was given to secure the indebtedness under the principal contract; (b) the mortgage explicitly referred to the terms and conditions of the original agreement; (c) the original agreement, incorporated by reference, stipulated monthly capitalization of interest; and (d) the defeasance clause of the mortgage also referred to the original contract without specifying quarterly interest payments. Therefore, to give effect to the evident intention of the parties, the mortgage was interpreted in conjunction with the principal contract, requiring monthly capitalization of interest. On Issue 2: The Court found the stipulated attorney's fee of P4,000 to be reasonable. This was based on the fact that the fee was less than 7.5% of the total amount found due by the court. Consequently, the stipulation for attorney's fees was deemed valid and properly incorporated into the judgment. On Issue 3: The Court agreed with the appellant that the trial court erred in ordering personal execution against the defendant for any deficiency. The defendant had only mortgaged his property as security for the debt of the Visayan General Supply Co., Inc. He had not personally assumed liability for the debt itself. Therefore, his liability was limited to the extent of the mortgaged property, and he could not be held personally responsible for any balance remaining after the foreclosure sale.
Main Doctrine
The Supreme Court held that a manifest error in the mortgage deed, specifically the use of the word "quarterly" instead of "monthly" for interest capitalization, could be corrected by referring to the principal contract (credit in current account agreement) which was incorporated by reference. The Court affirmed the trial court's judgment regarding the principal and interest amounts, the attorney's fees, but modified the judgment to eliminate the personal liability for any deficiency, as the defendant had only mortgaged his property and had not assumed personal liability for the debt.