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SECOND DIVISION

G.R. No. L-27342 May 24, 1984

CO BUN CHUN, Plaintiff-Appellant, v. THE OVERSEAS BANK OF MANILA, Defendant-Appellee.

AQUINO, J.:

This case is about the liability of a time depositor for the extrajudicial expenses incurred by the bank in collecting the overdraft accounts of other persons which were secured by his time deposit.chanroblesvirtualawlibrarychanrobles virtual law library

Co Bun Chun on January 30,1964 placed with the Overseas Bank of Manila a time deposit of P66,000 for a period of one year with interest at 4-� interest per annum (Exh. A).chanroblesvirtualawlibrarychanrobles virtual law library

Four days later, or on February 4, he assigned to the bank the said time deposit as security for the six-month overdraft accounts of P75,000 each, or a total of P300,000, of Henry Shoe Supply, Northwest Auto Supply, Mercantile Investment Co., Inc. and Pacific Shoe Supply. The overdraft accounts were an signed by Henry Co (Exh. 1 to 5-A).chanroblesvirtualawlibrarychanrobles virtual law library

It was a condition of the assignment that the time deposit could not be withdrawn unless the overdraft line, the interest due thereon and "the expenses incurred" had been fully paid (Exh. 1).chanroblesvirtualawlibrarychanrobles virtual law library

The overdraft accounts, due on July 17 and August 10, 1964, were fully liquidated only on May 21, 1965. The debtors paid P228,881.37. The bank had to refer the default to its lawyer who undertook the extrajudicial collection of the amounts due and who charge 5%, or P11,444.06, as collection expenses (p. 10, Appellant's brief; p. 8, Appellee's brief).chanroblesvirtualawlibrary chanrobles virtual law library

Out of the time deposit of P66,000, the bank returned to Co Bun Shun P54,555.94. It deducted the said sum of P11,444.06 (Exh. 6 and 6-A). Co Bun Chun filed the instant action in 1965 to recover that sum of P11,444.06. Judge Edilberto Soriano dismissed the action. Co Bun Chun appealed to the Court of Appeals which, through Justice Gatmaitan, certified the appeal to this Court on the ground that only a question of law, arising from undisputed facts, is involved.chanroblesvirtualawlibrarychanrobles virtual law library

Co Bun Chun contends that the bank had no right to charge attorney's fees and expenses in the extrajudicial collection of the overdraft accounts and to deduct the same from the time deposit given as security. The bank under the overdraft agreements (as distinguished from the deed of assignment of the time deposit, Exh. 1) was entitled to charge 10% of the amount due as attomey's fees and costs of collection in case of court action.

He further contends that to make him liable for the costs of extrajudicial collection and attomey's fees would make his obligation as guarantor more onerous than the principal debtor and that, as the obligation consists in the payment of a sum of money, the only indemnity due is interest (Arts. 2054 and 2209, Civil Code).chanroblesvirtualawlibrary chanrobles virtual law library

On the other hand, the bank contends that Co Bun Chun must shoulder the out-of-court attomey's fees and collection expenses incurred in collecting the long overdue overdraft accounts.chanroblesvirtualawlibrary chanrobles virtual law library

We hold that Co Bun Chun is bound by the terms of the deed assigning his time deposit to the bank. He was not a mere guarantor of the overdraft accounts. The assignment specifically bound him to pay the "expenses incurred" for the extrajudicial collection of the overdraft accounts of what the bank terms "his companies".chanroblesvirtualawlibrary chanrobles virtual law library

The 5% charge was different from the interest on the overdraft accounts. It was a consequence of the default of Co Bun Chun's companies. He could have sought reimbursement from them for what he had to pay the bank.chanroblesvirtualawlibrary chanrobles virtual law library

WHEREFORE, the judgment of the lower court is affirmed. No costs in both instances.chanroblesvirtualawlibrary chanrobles virtual law library

SO ORDERED.

Guerrero, Abad Santos, Escolin and Gutierrez, Jr., * JJ., concur.chanroblesvirtualawlibrary chanrobles virtual law library

Makasiar (Chairman), De Castro, JJ., took no part.chanroblesvirtualawlibrary chanrobles virtual law library

Concepcion, Jr., J., is on leave.

Endnotes:

* Justice Gutierrez, Jr. was designated to sit in the Second Division.