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G.R.No.126486

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RepublicofthePhilippines
SUPREMECOURT
Manila
THIRDDIVISION

G.R.No.126486February9,1998
BARONSMARKETINGCORP.,petitioner,
vs.
COURTOFAPPEALSandPHELPSDODGEPHILS.,INC.respondents.

KAPUNAN,J.:
The instant petition raises two issues: (1) whether or not private respondent is guilty of abuse of right and (2)
whetherornotprivaterespondentisentitledtointerestandattorney'sfees.
Thefactsareundisputed:
On August 31, 1973, plaintiff [Phelps Dodge, Philippines, Inc. private respondent herein] appointed
defendant [petitioner Barons Marketing, Corporation] as one of its dealers of electrical wires and cables
effectiveSeptember1,1973(Exh.A).Assuchdealer,defendantwasgivenbyplaintiff60dayscreditforits
purchasesofplaintiff'selectricalproducts.Thiscredittermwastobereckonedfromthedateofdeliveryby
plaintiffofitsproductstodefendant(Exh.1).
During the period covering December 1986 to August 17, 1987, defendant purchased, on credit, from
plaintiffvariouselectricalwiresandcablesinthetotalamountofP4,102,438.30(Exh.BtoK).Thesewires
andcableswereinturnsold,pursuanttopreviousarrangements,bydefendanttoMERALCO,theformer
beingtheaccreditedsupplieroftheelectricalrequirementsofthelatter.Underthesalesinvoicesissuedby
plaintifftodefendantforthesubjectpurchases,itisstipulatedthatinterestat12%ontheamountduefor
attorney'sfeesandcollection(Exh.BB).1OnSeptember7,1987,defendantpaidplaintiffthe

amount of P300,000.00 out of its total purchases as abovestated (Exh. S), thereby
leaving an unpaid account on the aforesaid deliveries of P3,802,478.20. On several
occasions,plaintiffwrotedefendantdemandingpaymentofitsoutstandingobligations
dueplaintiff(Exhs.L,M,N,andP).Inresponse,defendantwroteplaintiffonOctober
5, 1987 requesting the latter if it could pay its outstanding account in monthly
installmentsofP500,000.00plus1%interestpermonthcommencingonOctober15,
1987untilfullpayment(Exh.OandO4).Plaintiff,however,rejecteddefendant'soffer
and accordingly reiterated its demand for the full payment of defendant's account
(Exh.P).2
On 29 October 1987, private respondent Phelps Dodge Phils., Inc. filed a complaint before the Pasig Regional
Trial Court against petitioner Barons Marketing Corporation for the recovery of P3,802,478.20 representing the
value of the wires and cables the former had delivered to the latter, including interest. Phelps Dodge likewise
prayed that it be awarded attorney's fees at the rate of 25% of the amount demanded, exemplary damages
amountingtoatleastP100,000.00,theexpensesoflitigationandthecostsofsuit.
Petitioner, in its answer, admitted purchasing the wires and cables from private respondent but disputed the
amount claimed by the latter. Petitioner likewise interposed a counterclaim against private respondent, alleging
that it suffered injury to its reputation due to Phelps Dodge's acts. Such acts were purportedly calculated to
humiliatepetitionerandconstitutedanabuseofrights.
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Afterhearing,thetrialcourton17June1991rendereditsdecision,thedispositiveportionofwhichreads:
WHEREFORE, from all the foregoing considerations, the Court finds Phelps Dodge Phils., Inc. to have
preponderantly proven its case and hereby orders Barons Marketing, Inc. to pay Phelps Dodge the
following:
1. P3,108,000.00 constituting the unpaid balance of defendant's purchases from plaintiff and interest
thereonat12%perannumcomputedfromtherespectiveexpirationofthe60daycreditterm,visavisthe
varioussalesinvoicesand/ordeliveryreceipts
2.25%oftheprecedingobligationforandasattorney'sfees
3.P10,000.00asexemplarydamages
4.Costsofsuit.3
Bothpartiesappealedtorespondentcourt.Privaterespondentclaimedthatthetrialcourtshouldhaveawardedit
thesumofP3,802,478.20,theamountwhichappearedinthebodyofthecomplaintandprovenduringthetrial
rather than P3,1081000.00 The latter amount appears in petitioner's prayer supposedly as a result of a
typographicalerror.
Ontheotherhand,petitionerreiterateditsclaimsfordamagesasaresultof"creditor'sabuse."Italsoallegedthat
privaterespondentfailedtoproveitscauseofactionagainstit.
On25June1996,theCourtofAppealsrenderedadecisionmodifyingthedecisionofthetrialcourt,thus:
WHEREFORE, from all the foregoing considerations, the Court finds Phelps Dodge Phils., Inc. to have
preponderantly proven its case and hereby orders Barons Marketing, Inc. to pay Phelps Dodge the
following:
1. P3,802,478.20 constituting the unpaid balance of defendant's purchases from plaintiff and interest
thereonat12%perannumcomputedfromtherespectiveexpirationofthe60daycreditterm,visavisthe
varioussalesinvoicesand/ordeliveryreceiptsand
2.5%oftheprecedingobligationforandasattorney'sfees.
Nocosts.4
PetitionerBaronsMarketingisnowbeforethisCourtallegingthatrespondentcourterredwhenitheld(1)private
respondent Phelps Dodge not guilty of "creditor's abuse," and (2) petitioner liable to private respondent for
interestandattorney'sfees.
I
Petitionerdoesnotdenyprivaterespondent'srightstoinstituteanactionforcollectionandtoclaimfullpayment.
5
Indeed, petitioner's right to file an action for collection is beyond cavil. Likewise, private respondent's

right to reject petitioner's offer to pay in installments is guaranteed by Article 1248 of the
CivilCodewhichstates:
Art.1248.Unlessthereisanexpressstipulationtothateffect,thecreditorcannotbecompelledpartiallyto
receivetheprestationsinwhichtheobligationconsists.Neithermaythedebtorberequiredtomakepartial
payments.
However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the
debtormayeffectthepaymentoftheformerwithoutwaitingfortheliquidationofthelatter.
Underthisprovision,theprestation,i.e.,theobjectoftheobligation,mustbeperformedinoneact,notinparts.
Tolentinoconcedesthattherighthasitslimitations:
Partial Prestations. Since the creditor cannot be compelled to accept partial performance, unless
otherwisestipulated,thecreditorwhorefusestoacceptpartialprestationsdoesnotincurindelayormora
accipiendi,exceptwhenthereisabuseofrightorifgoodfaithrequiresacceptance.6

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Indeed, the law, as set forth in Article 19 of the Civil Code, prescribes a "primordial limitation on all rights" by
settingcertainstandardsthatmustbeobservedintheexercisethereof.7Thus:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice,giveeveryonehisdue,andobservehonestyandgoodfaith.
8

oftheCivilCode,claimingthatprivaterespondent
abuseditsrightswhenitrejectedpetitioner'sofferofsettlementandsubsequentlyfiledthe
actionforcollectionconsidering:
PetitionernowinvokesArticle19andArticle21

. . . that the relationship between the parties started in 1973 spanning more than 13 years before the
complaintwasfiled,thatthepetitionerhadbeenagoodandreliabledealerenjoyingagoodcreditstanding
duringtheperiodbeforeitbecamedelinquentin1987,thattherelationshipbetweenthepartieshadbeena
fruitfuloneespeciallyfortheprivaterespondent,thatthepetitionerexerteditsoutmosteffortstosettleits
obligationsandavoidasuit,thatthepetitionerdidnotevadeinthepaymentofitsobligationtotheprivate
respondent, and that the petitioner was just asking a small concession that it be allowed to liquidate its
obligationtoeight(8)monthlyinstallmentsofP500,000.00plus1%interestpermonthonthebalancewhich
proposalwassupportedbypostdatedchecks.9
Expoundingonitstheory,petitionerstates:
Intheordinarycourseofevents,asuitforcollectionofasumofmoneyfiledincourtisdonefortheprimary
purpose of collecting a debt or obligation. If there is an offer by the debtor to pay its debt or obligation
supportedbypostdatedchecksandwithprovisionforinterests,thenormalresponseofacreditorwouldbe
to accept the offer of compromise and not file the suit for collection. It is of common knowledge that
proceedingsinourcourtswouldnormallytakeyearsbeforeanactionisfinallysettled.Itisalwayswiserand
moreprudenttoacceptanofferofpaymentininstallmentratherthanfileanactionincourttocompelthe
debtortosettlehisobligationinfullinasinglepayment.
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...Whythendidprivaterespondentelecttofileasuitforcollectionratherthanacceptpetitioner'sofferof
settlement, supported by postdated checks, by paying monthly installments of P500,000.00 plus 1% per
monthcommencingonOctober15,1987untilfullpayment?Theanswerisobvious.Theactionofprivate
respondent in filling a suit for collection was an abuse of right and exercised for the sole purpose of
prejudicingandinjuringthepetitioner.10
Petitioner prays that the Court order private respondent to pay petitioner moral and exemplary damages,
attorney'sfees,aswellasthecostsofsuit.Itlikewiseasksthatitbeallowedtoliquidateitsobligationtoprivate
respondent,withoutinterests,ineightequalmonthlyinstallments.
Petitioner'stheoryisuntenable.
BothpartiesagreethattoconstituteanabuseofrightsunderArticle19thedefendantmustactwithbadfaithor
intenttoprejudicetheplaintiff.TheycitethefollowingcommentsofTolentinoastheirauthority:
Test of Abuse of Right. Modern jurisprudence does not permit acts which, although not unlawful, are
antisocial.Thereisundoubtedlyanabuseofrightwhenitisexercisedfortheonlypurposeofprejudicing
orinjuringanother.Whentheobjectiveoftheactorisillegitimate,theillicitactcannotbeconcealedunder
theguiseofexercisingaright.Theprincipledoesnotpermitactswhich,withoututilityorlegitimatepurpose
cause damage to another, because they violate the concept of social solidarity which considers law as
rationalandjust.Hence,everyabnormalexerciseofaright,contrarytoitssocioeconomicpurpose,isan
abusethatwillgiverisetoliability.Theexerciseofarightmustbeinaccordancewiththepurposeforwhich
itwasestablished,andmustnotbeexcessiveorundulyharshtheremustbenointentiontoinjureanother.
Ultimately,however,andinpractice,courts,inthesoundexerciseoftheirdiscretion,willhavetodetermine
allthefactsandcircumstanceswhentheexerciseofarightisunjust,orwhentherehasbeenanabuseof
right.11
Thequestion,therefore,iswhetherprivaterespondentintendedtoprejudiceorinjurepetitionerwhenitrejected
petitioner'sofferandfiledtheactionforcollection.
Weholdinthenegative.Itisanelementaryruleinthisjurisdictionthatgoodfaithispresumedandthattheburden
ofprovingbadfaithrestsuponthepartyallegingthesame.12Inthecaseatbar,petitionerhasfailedto
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prove bad faith on the part of private respondent. Petitioner's allegation that private
respondentwasmotivatedbyadesiretoterminateitsagencyrelationshipwithpetitionerso
thatprivaterespondentitselfmaydealdirectlywithMeralcoissimplynotsupportedbythe
evidence.Atmost,suchsuppositionismerelyspeculative.
Moreover,wefindthatprivaterespondentwasdrivenbyverylegitimatereasonsforrejectingpetitioner'sofferand
institutingtheactionforcollectionbeforethetrialcourt.Aspointedoutbyprivaterespondent,thecorporationhad
its own "cash position to protect in order for it to pay its own obligations." This is not such "a lame and poor
rationalization"aspetitionerpurportsittobe.Forifprivaterespondentweretoberequiredtoacceptpetitioner's
offer,therewouldbenoreasonforthelattertorejectsimilaroffersfromitsotherdebtors.Clearly,thiswouldbe
inimicaltotheinterestsofanyenterprise,especiallyaprofitorientedonelikeprivaterespondent.Itisplaintosee
thatwhatwehavehereisamereexerciseofrights,notanabusethereofUnderthesecircumstances,wedonot
deem private respondent to have acted in a manner contrary to morals, good customs or public policy as to
violatetheprovisionsofArticle21oftheCivilCode.
Consequently,petitioner'sprayerformoralandexemplarydamagesmustthusberejected.Petitioner'sclaimfor
moraldamagesisanchoredonArticle2219(10)oftheCivilCodewhichstates:
Art.2219.Moraldamagesmayberecoveredinthefollowingandanalogouscases:
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(10)Actsandactionsreferredtoinarticles21,26,27,28,29,30,32,34,and35.
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Having ruled that private respondent's acts did not transgress the provisions of Article 21, petitioner cannot be
entitledtomoraldamagesor,forthatmatter,exemplarydamages.Whiletheamountofexemplarydamagesneed
notbeproved,petitionermustshowthatheisentitledtomoral,temperateorcompensatorydamagesbeforethe
court may consider the question of whether or not exemplary damages should be awarded.13 As we have

observedabovepetitionerhasfailedtodischargethisburden.
Itmaynotbeamisstostatethatpetitioner'scontractwithprivaterespondenthastheforceoflawbetweenthem.
14

Petitioner is thus bound to fulfill what has been expressly stipulated therein. 15 In the
absence of any abuse of right, private respondent cannot be allowed to perform its
obligationundersuchcontractinparts.Otherwise,privaterespondent'srightunderArticle
1248 will be negated, the sanctity of its contract with petitioner defiled. The principle of
autonomyofcontracts16mustberespected.
II
Undersaidcontract,petitionerisliabletoprivaterespondentfortheunpaidbalanceofitspurchasesfromprivate
respondentplus12%interest.Privaterespondent'ssalesinvoicesexpresslyprovidethat:
. . . Interest at 12% per annum will be charged on all overdue account plus 25% on said amount for
attorney'sfeesandcollection....17
Itmayalsobenotedthattheabovestipulation,insofarasitprovidesforthepaymentof"25%onsaidamountfor
attorney's fees and collection (sic)," constitutes what is known as a penal clause. 18 Petitioner is thus

obligedtopaysuchpenaltyinadditiontothe12%annualinterest,therebeinganexpress
stipulationtothateffect.
PetitionerneverthelessurgesthisCourttoreducetheattorney'sfeesforbeing"grosslyexcessive,""considering
thenatureofthecasewhichisamereactionforcollectionofasumofmoney."Itmaybepointedouthowever
thattheabovepenaltyissupposedtoanswernotonlyforattorney'sfeesbutforcollectionfeesaswell.Moreover:
...theattorneys'feeshereprovidedisnot,strictlyspeaking,theattorneys'feesrecoverableasbetween
attorneyandclientspokenofandregulatedbytheRulesofCourt.Rather,theattorneys'feesherearein
thenatureofliquidateddamagesandthestipulationthereforisaptlycalledapenalclause.Ithasbeensaid
thatsolongassuchstipulationdoesnotcontravenelaw,morals,orpublicorder,itisstrictlybindingupon
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defendant. The attorneys' fees so provided are awarded in favor of the litigant, not his counsel. It is the
litigant,notcounsel,whoisthejudgmentcreditorentitledtoenforcethejudgmentbyexecution.19
Nonetheless,courtsareempoweredtoreducesuchpenaltyifthesameis"iniquitousorunconscionable."Article
1229oftheCivilCodestatesthus:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
been irregularly complied with by the debtor. Even if there has no performance, the penalty may also be
reducedbythecourtsifitisiniquitousorunconscionable.(Emphasissupplied.)
ThesentimentsofthelawareechoedinArticle2227ofthesameCode:
Art.2227.Liquidateddamages,whetherintendedasanindemnityorapenalty,shallbeequitablyreducedif
theyareiniquitousorunconscionable.
Itistruethatwehaveupheldthereasonablenessofpenaltiesintheformofattorney'sfeesconsistingoftwenty
fivepercent(25%)oftheprincipaldebtplusinterest.20Inthecaseatbar,however,theinterestalone

runs to some four and a half million pesos (P4.5M), even exceeding the principal debt
amountingtoalmostfourmillionpesos(P4.0M).Twentyfivepercent(25%)oftheprincipal
and interest amounts to roughly two million pesos (P2M). In real terms, therefore, the
attorney's fees and collection fees are manifestly exorbitant. Accordingly, we reduce the
sametotenpercent(10%)oftheprincipal.
Private respondent, however, argues that petitioner failed to question the award of attorney's fees on appeal
before respondent court and raised the issue only in its motion for reconsideration. Consequently, petitioner
shouldbedeemedtohavewaiveditsrighttoquestionsuchaward.
Privaterespondent'sattemptstodissuadeusfromreducingthepenaltyarefutile.TheCourtisclothedwithample
authority to review matters, even if they are not assigned as errors in their appeal, if it finds that their
considerationisnecessaryinarrivingatajustdecisionofthecase.21
WHEREFORE,thedecisionoftheCourtofAppealsisherebyMODIFIEDinthattheattorney'sandcollectionfees
arereducedtotenpercent(10%)oftheprincipalbutisAFFIRMEDinallotherrespects.
SOORDERED.
Narvasa,C.J.,Romero,FranciscoandPurisima,JJ.,concur.
Footnotes
1Moreaccurately,theinvoicesstate:
...Interestat12%perannumwillbechargedonalloverdueaccountplus25%onsaidamountfor
attorney'sfeesandcollection....
2Rollo,p.51.
3Id.,at54.
4Id.,at43emphasisintheoriginal.
5SeeMelendezv.Lavarias,9SCRA548(1963).
6 IV Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 1990 ed., p.
298emphasissupplied.
7GlobeMackayCableandRadioCorp.v.CourtofAppeals,176SCRA778(1989).
8 Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals,goodscustomsorpublicpolicyshallcompensatethelatterforthedamage.
9Rollo,p.137.
10Id.,at1820.
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11ITolentino,pp.6162emphasissupplied.
12FordPhilippinesv.CourtofAppeals,G.R.No.99039,February3,1997.
13Art.2234,CivilCode.
14Art.1158,CivilCode.
15Art.1315,CivilCode.
16Art.1306,CivilCode.
17Exhibit"BB"emphasissupplied.
18SeeLunetaMotorCo.v.Mora,73Phil.80(1941).
19PolytradeCorporationv.Blanco,30SCRA187(1969).
20SeePolytradev.Blanco,supra,note1.
21KoreanAirlinesCo.,Ltd.v.CourtofAppeals,234SCRA717(1994)seealso:AssetPrivatization
Trustv.CA,214SCRA400(1994).

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