1.
Suatengco’s approached Reyes to borrow 1,336,313 to pay off their debt to surcharge on the principal loan for every month of default is valid. This
PhilPhos. Suatengcos executed a promissory note binding themselves jointly
and severally to pay defendant in 31 monthly installments. However only
15,000 was made; the promissory note stipulated that the unequivocally
waived the necessity of demand as well as notice of dishonor and acceleration
clause. The RTC ruled in favor of Reyes ordering Suatengco to pay the
outstanding balance of P1,321,313.00 plus 12% interest per annum, and
attorney's fees equivalent to 20% of the total outstanding balance inclusive of
interest.
WON the lower courts erred in awarding respondents with attorney’s fee
amounting to 20% of total sum collected rather than 5% as agreed upon in the
promissory note?
The fifth paragraph of the Promissory Note executed by petitioners in favor of
respondent undeniably carried a stipulation for attorney's fees and interest in
case of the latter's default in the payment of any installment due. Since there
is a contractual stipulation in the Promissory Note that in case of petitioners'
default on the terms and conditions of the said Promissory Note by failing to
pay any installment due, the total obligation of petitioners amounted to
P1,321,313.00 (P1,336,313.00 less P15,000.00) plus the 12% interest per
annum of the said balance, as well as attorney's fees equivalent to 5% of the
total outstanding indebtedness. The Promissory Note was signed by both
parties voluntarily, thus the stipulation therein has the force of law between
the parties and should be complied with by them in good faith. *oral evidence
cannot prevail over the written agreements of the parties thus courts need to
rely on the faces of the contract to determine their true intention*
2.Titan Construction purchased on credit construction supplies and materials
from Uni-field Enterprise. Titan Construction purchases amounted to
P7,620,433.12 but was only able to pay P6,215,795.70, leaving a balance of
P1,404,637.42. On 19 October 1994, Uni-field sent a demand letter to Titan
Construction. Despite repeated demands, the balance remained unpaid,
compelling herein Uni-field to file a complaint for collection of sum of money
with damages against Titan Construction. RTC ruled in favor of UF, ordering TC
to pay: (1) unpaid balance; (2) 24% compound interest on accrued charges and
(3) 25% liquidated damages on outstanding total obligation (3) attorney’s fees
equivalent to 25% based on the total claim (unpaid balance + interest charges
+ liquidated damages)
WON the CA erred in affirming RTC’s ruling, holding petitioner liable for
interest, liquidated damages and attorney’s fees?
The CA correctly awarded the damages and other charges as it stipulated in
the invoices and delivery receipts, which formed part of the contract between
parties. It is true that these documents are in the nature of contracts of
adhesion, but as consistently held by the court, contracts of adhesion are
binding as ordinary contracts. Since, petitioner voluntarily adhered to such
stipulations, he cannot evade compliance therewith, including payment of
interest, liquidated damages and attorney’s fees in case of breach. However,
the Court will reduce the amount of ATTORNEY'S FEES awarded by the trial
court and the Court of Appeals. While the law provides that parties can
stipulate liquidated damages in case of breach, the law also grants the courts
to reduce the penalty if it is iniquitous or unconscionable. The court finds the
award of attorney’s fees exorbitant and iniquitous since there was already an
award of liquidated damages, 25% of attorney’s fees based on this amount
would be superfluous. Moreover, the liquidated damages and attorney’s fees
serve the same purpose, that is penalty for breach of contract. Therefore, SC
reduce the award of attorney's fees to 25% of the principal obligation (unpaid
balance).
3. Ruiz obtained a several loans from Torres under 1 promissory note for
750,000; Ruiz executed a real estate mortgage to secure the Promissory Note;
Ruiz obtained 3 more loans under 3 more separate Promissory Notes
amounting to 300,000 secured by jewelry worth 571,000. Ruiz paid the
stipulated 3% monthly interest of the consolidated loan for 270,000 after
which he was unable to make interest payments. Torres demanded payment
not only of the P750,000.00 loan, but also of the P300,000.00 loans. When Ruiz
failed to pay, Torres sought the extra-judicial foreclosure of the
aforementioned real estate mortgage.
WON the rates of interests and surcharges on the obligation of petitioner to
private respondent are valid thus allowing the foreclosure to proceed?
The legal rate of interest of 12% per annum shall apply after the maturity dates
of the notes until full payment of the entire amount due. The only permissible
rate of surcharge is 1% per month, without compounding. The court also
reduced the 3% per month or 36% per annum interest present in all four (4)
promissory notes to 1% per month or 12% per annum interest. The 1%
surcharge or penalty stipulated in a loan agreement in case of default partakes
of the nature of liquidated damages under Art. 2227 of the New Civil Code,
and is separate and distinct from interest payment. Also referred to as a
penalty clause, it is expressly recognized by law. It is an accessory undertaking
to assume greater liability on the part of an obligor in case of breach of an
obligation. The obligor would then be bound to pay the stipulated amount of
indemnity without the necessity of proof on the existence and on the measure
of damages caused by the breach. Hence, since the mortgage is valid and the
loan it secures remains unpaid, the foreclosure proceedings may now proceed.
4. Moonwalk a loan for P30M from SSS. From the P30M approved loan, about
P9M+ was released to Moonwalk. Moonwalk delivered a promissory note to
SSS. Moonwalk made a total payment of about P23M to SSS for the said
principal amount of P12M+. SSS sought to foreclose the real estate mortgages
because of the failure to pay on time, but did not push through upon
Moonwalk’s request and promises to pay in full, which they were able to
comply with. The last payment in the amount of P15M+ were paid after SSS
delivered to Moonwalk, a Statement of Account, prompt payment was made
by Moonwalk. A Release of Mortgage in favor of Moonwalk was then issued
by SSS after accounts have been settled. (Basically, everything has already
been paid. The assumption is that there would be no more obligation on the
part of Moonwalk) Yet SSS alleged that they committed an honest mistake in
releasing Moonwalk from their mortgage obligation. This was countered by
Moonwalk by saying that they already paid all of its obligation. SSS filed a case
against Moonwalk, alleging that SSS committed an honest mistake in failing to
compute the 12% penalty on delayed payments of amortization done by
Moonwalk. Such resulted to a chain of errors in the application of payments
made by Moonwalk. Supposedly, Moonwalk still has an unpaid balance of
about P7M+. (Note: This P7M+ is allegedly the amount Moonwalk must pay as
a penalty for incurring delay in the payment of mortgage fee installments)
WON Moonwalk is still liable for the said unpaid penalties or is their obligation
already extinguished?
A penal clause is an accessory obligation attached to the principal (loan) for
the purpose of insuring performance on the part of the debtor. It is basic that
the accessory obligation (penal clause) cannot exist without the principal
(loan). Since there was already a Release issued by SSS, it so follows that there
is no more principal with which the accessory obligation could attach. There is
nothing to demand. Since SSS sought to enforce the penalty clause because of
Moonwalk’s alleged delay (considered a breach already), the question to be
asked now is whether or not Moonwalk really incurred default? The answer is
in the NEGATIVE. Legal delay/default can only ensue when there is a demand.
In this case, yes, Moonwalk was always late in paying the said amortizations,
but there was no showing that SSS made demands for such failure to pay on
time. Moonwalk was thus, never in default because SSS never compelled
performance. Since there was no default on the part of Moonwalk, the said
penalty clause did not become due and demandable—not at the time it made
the Statement of Account, and CERTAINLY not at the time when the principal
was already extinguished.
6. Malonjaos executed a real estate mortgage over their real property.
Lomuyon Timber Industries, Inc. sold to petitioner various receivables
consisting of checks amounting to P2,558,073.75. State Investment House, Inc.
(SIHI) presented the checks for payment to the banks, but were dishonored
due to insufficient funds. SIHI made repeated written demands to defendants
in order to make good the checks they indorsed, and to pay the penalty
charges imposed by SIHI. Defendants failed to pay the value of the checks.
Petitioner decided to undertake foreclosure of the real estate mortgage, and
then went ahead to file a complaint in court.
SIHI alleged that after deducting the price of the mortgaged properties from
defendants' outstanding obligation, there remains a deficiency of
P2,601,147.62 as of February 14, 1983. It further increased to P2,876,929.27
inclusive of interest and charges on May 31, 1983. As an alternative cause of
action, SIHI alleged that it is entitled to recover the total value of the checks
amounting to P2,239,237.10. they further prayed that it be awarded
exemplary damages, attorney's fees and litigation expenses. Petitioner argued
that while it recognizes the authority of the court to reduce the penalty if it is
iniquitous or unconscionable, the court, however, does not have the authority
to delete the payment of the penalty charges altogether for this is in clear
contravention of Article 1229 and the law of contracts between the parties.
Malonjaos admitted having incurred the obligation brought about by the
dishonor of the checks. However, they claimed that the value of the
mortgaged properties sold at public auction is more than sufficient to cover
the obligation of the defendants. Also, the interest and charges made by
petitioner is usurious and unconscionable. Defendant (CA) disallowed the
claim for deficiency. CA found out that the penalty charges imposed by
petitioner on the principal obligation were highly iniquitous and
unconscionable. It further articulated that the proceeds of the auction sale
were sufficient to cover the principal obligation of the private respondent
including interest, penalty and other charges.
WON the court has the authority to delete the payment of the penalty
charges?
The respondent court acted in accordance to Article 1229 when it declared
that petitioner was no longer entitled to the payment of the deficiency
amount. The disallowance of the payment of deficiency was in effect merely a
reduction of the penalty charges and not as a deletion of the penalties as
contended by the petitioner. SC noted that the principal obligation of about
P2,558,073.75 by private respondent would not have ballooned to such
horrendous amounts (almost three times more than the original investment)
if not for the penalty charge of 3% per month or 36% per annum. While the
Court recognizes the right of the parties to enter into contracts and are
expected to comply with the terms and obligations, this rule is not absolute.
The Court is allowed to temper interest rates when necessary. Article 1229
provides: The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the courts
if it is iniquitous or unconscionable. Article 2227 also provides: Liquidated
damages, whether intended as an indemnity or penalty, shall be equitably
reduced if they are iniquitous and unconscionable. The penalty charges are
highly and grossly unconscionable.
7. In 1986, the Sps. Solangon executed a deed of real estate mortgage in which
they mortgaged a parcel of land, in favor of Jose Salazar, to secure payment of
a loan of P60, 000.00 payable within 4 months, with interest of 6% per month.
In 1987, the petitioners executed a deed of real estate mortgage in which they
mortgaged the same parcel of land to respondent, to secure payment of a loan
of P136, 512.00, payable within 1 year, with interest. In 1990, the petitioners
executed a deed of real estate mortgage in which they mortgaged the same
parcel of land in favor of respondent, to secure payment of a loan in the
amount of P230, 000.00 payable within 4 months, with interest thereon at the
legal rate. This action was initiated by the petitioners to prevent the
foreclosure of the mortgaged property. Petitioners alleged that they obtained
only one loan from the respondent (the 1st one). The subsequent mortgages
were merely continuations of the first one, which is null and void because it
provided for unconscionable rate of interest. The respondent claimed that the
above-described mortgages were executed to secure three separate loans,
and that the first two loans were paid, but the last one was not. Respondent
denied having represented that he would not foreclose the mortgage as long
as the plaintiffs-appellants pay interest.
WON the 6% monthly interest is unconscionable?
YES, it is unconscionable. Therefore, SC reduced the interest of 72% per
annum to 12% per annum. While the Usury Law ceiling on interest rates was
lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte
blanche authority to raise interest rates to levels, which will either enslave
their borrowers or lead to a hemorrhaging of their assets. In the case at bench,
petitioners stand on a worse situation. They are required to pay the stipulated
interest rate of 6% per month or 72% per annum, which is definitely
outrageous and inordinate. It is more consonant with justice that the said
interest rate be reduced equitably. An interest of 12% per annum is deemed
fair and reasonable.
8. Baron Marketing Corp. purchased on credit from Phelps Dodge Phils, Inc.
electrical wires and cables in the amount of PHP 4M. BMC paid PDP the
amount of PHP 300k only, PDP wrote to BMC demanding payment of its
outstanding obligations. BMC asked if it could pay its outstanding account in
monthly installments of PHP 500k plus 1% interest per month but PDP said no
and demanded FULL payment of petitioner’s account. Respondent filed
complaint before RTC for recovery of PHP 3.8M. Respondent also prayed that
it be awarded attorney’s fees at the rate of 25% of the amount demanded,
exemplary damages amounting to at least PHP 100k, the expenses of litigation
and costs of suit. The same was granted by the appellate court. Petitioner
claims that private respondent abused its rights when it rejected petitioner’s
offer of settlement and filed the action for collection
WON private respondent is entitled to interest and attorney’s fees?
Yes, but MODIFIED. The penal clause requires the petitioner to pay for the 25%
of the amount demanded in addition to the 12% annual interest as there is an
express stipulation to that effect. However, the interest alone, amounting to
PHP 4.5M would result to the 25% of the amount demanded being equal to
roughly PHP 2M, which exceeds the principal debt. This is manifestly
exorbitant. It is reduced to 10% of the principal. Petitioner to pay the unpaid
balance + interest, attorney’s fees and collection fees 10%, and costs.
9. Campos entered into a contract with Manila Jockey Club to purchase some
parcel of land. For 1,200,000 to be paid on installments and Should the
purchaser fail to pay the amount corresponding to each installment in due
time, vendor may rescind the contract and keep the amounts paid for itself.
Campos may also form corporation called the Manila Racing Club to whom he
may transfer all his rights and obligations under the contract. By Oct. 22, 1936,
the Manila Racing club was established and transferred his rights. Manila
Racing Club defaulted on the 3rd installment but was granted extension to pay
however they still failed to pay. His 100k (down payment + 1st installment)
was forfeited pursuant to the contract. Petitioner now filed to recover the
100k from the Manila Jockey Club + 50k for damages
WON the clause of the contract, referring to the forfeiture of amounts partially
paid if the purchaser (Camos) fails to pay in due time, is valid?
Valid. Manila Jockey Club wins. It is in the nature of a penal clause which may
be legally established by the parties pursuant to Art. 1152 and 1255 of the Civil
Code. It has a double purpose of (1) insuring the compliance of the contract
and (2) measuring beforehand the damages which may result from the non-
compliance. Not contrary to law, morals or public order because it was
voluntarily and knowingly agreed upon by the parties. The amount forfeited
constitutes only 8% of the stipulated price, which is not excessive if considered
as the profit which would have been obtained had the contract been complied
with. With regard to Manila Jockey Club’s promise to subscribe to ½ of the
petitioner’s shares, there is no sufficient evidence, since according to
petitioner Campos, it was merely verbal.
10. Ligutan and Llana obtained a loan from Security Bank in the amount of
P120,000. Petitioners executed a promissory note binding themselves
solidarily to pay with an interest of 15.189%, to pay a penalty of 5% per month
in case of default, and to pay 10% of the total amount due by way of attorney’s
fees if the matter were indorsed to a lawyer. The obligation matured and the
Bank granted extension. Despite several demands from the Bank, petitioners
failed to settle the debt. The bank sent a final demand letter but petitioners
still defaulted on their obligation. The Bank then filed a complaint for recovery
of the due amount. The CA Reduced the penalty charge of 5% to 3%.
Whether or not the 15.189% interest and the penalty of 3% per month (36%
per annum) is exorbitant, iniquitous, and unconscionable?
The CA is correct in reducing the penalty charge from 5% to 3%. Penalty clause
is an accessory undertaking to assume greater liability on the part of the
obligor in case of breach. Although parties are free to stipulate in their contract
the terms, courts may reduce interest if it is unconscionable. The court sees
no cogent ground to modify the ruling of the CA in view of the fact of the
constant breach by the petitioner. Petitioner questions the 15% interest. The
court said that it is not excessive to warrant reduction. The essence or
rationale for the payment of interest is not exactly the same as that of
surcharge or penalty. What may justify a court in not allowing the creditor to
impose full surcharges and penalties, despite an express stipulation there for
in a valid agreement may not equally justify the non-payment or reduction of
interest.