FIRST DIVISION

[G.R. No. 199257. April 18, 2018.]

BIO-RESEARCH, INC., petitioner, vs. UNIVILLE DEVELOPMENT

CORPORATION, respondent.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution
dated April 18, 2018 which reads as follows:
"G.R. No. 199257 (Bio-Research, Inc. v. Univille Development
Corporation). — This is a petition for review on certiorari 1 assailing the
Court of Appeals' (CA) Decision 2 dated November 8, 2011 in CA-G.R. CV No.
94688, which dismissed petitioner's appeal and affirmed the judgment of
Branch 146, Regional Trial Court of Makati City (RTC) in Civil Case No. 05-
980. The RTC found petitioner liable to pay respondent the amount of
P1,884,966.44 in unpaid rentals, plus 5% interest per month, 5% per month
penalty charge and 10% of the amount due to respondent as attorney's fees.
3

On December 3, 1999, Univille Development Corporation (respondent)

entered into a lease contract 4 with Bio-Research, Inc. (petitioner) whereby
the latter would rent respondent's parcel of land and improvements thereon
located along Quezon Avenue, Barangay Tatalon, Quezon City for a term of
five years. Given the stipulated term, the contract would expire on
November 30, 2004. The monthly rental was stipulated at P500,000.00,
exclusive of the value-added tax (VAT). For each succeeding year, the
contract's escalation clause provided for an increase of 10% of the previous
year's rental. 5
Prior to the expiration of the contract, respondent informed petitioner
of its intention not to renew the lease. 6 Nonetheless, negotiations transpired
for the renewal of the contract. Petitioner continued to occupy the premises
pending negotiations and even after the expiration of the contract on
November 30, 2004. 7
Petitioner then decided to cease business operations. In a letter dated
January 7, 2005, 8 it requested to be given a period of 30 days from January
8, 2005 to vacate the leased premises and turn over its possession to
respondent. It also advised that rental for December 2004 is being prepared.
9 Respondent replied with a letter dated January 10, 2005, 10 informing
petitioner that its rental arrearages including late payment interests and
rentals for December 2004 and January 2005 already amounted to
P4,310,760.53. It consequently made a final demand for petitioner to make
full payment within 10 days from receipt of the letter. Respondent also
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 agreed on the 30 days extension requested by petitioner, provided rental is
duly paid and full possession of the premises is turned over and surrendered
to it by February 15, 2005. 11 Petitioner subsequently turned over the
premises to respondent on February 4, 2005. 12
On November 8, 2005, respondent filed a complaint 13 for sum of
money against petitioner before the RTC to collect P1,884,966.44 in rental
arrearages, 5% penalty per month on the amount due computed from the
time of delay until payment is made, P500,000.00 as moral damages,
P200,000.00 as exemplary damages and 25% of all amounts due to it as
attorney's fees. 14 The complaint alleged that the lease contract contained
an escalation clause whereby the monthly rental would increase by 10%
each succeeding year starting from the second year of the contract's term
and that the payment scheme of the monthly rentals would be as follows: TIADCc

MONTHLY LESS: 5%
NET MONTHLY
PERIOD RENTAL plus WITHHOLDING
RENTAL
10% VAT TAX
Dec. 1999 to PhP500,000.00 PhP25,000.00 PhP525,000.00
Nov. 2000 +
PhP50,000.00
Dec. 2000 to PhP550,000.00 PhP27,500.00 PhP577,500.00
Nov. 2001 +
PhP55,000.00
Dec. 2001 to PhP605,000.00 PhP30,250.00 PhP635,250.00
Nov. 2002 +
PhP60,500.00
Dec. 2002 to PhP665,500.00 PhP33,275.00 PhP698,775.00
Nov. 2003 +
PhP66,550.00
Dec. 2003 to PhP732,050.00 PhP36,602.50 PhP768,652.50
Nov. 2004 + 15
PhP73,205.00

The complaint also alleged that in a letter dated January 10, 2005,
respondent demanded from petitioner payment of its outstanding obligation
amounting to P4,310,760.53. When the leased premises were turned over on
February 4, 2005, petitioner delivered to respondent a Banco de Oro Check
No. 0069407 dated December 9, 2004 bearing the amount of P477,272.73.
This payment was deducted from petitioner's outstanding obligation
consisting of rental arrearages and late payment interests in the updated
amount of P4,558,389.17, thereby leaving a balance of P4,081,116.44. 16
From this amount, respondent further deducted petitioner's guarantee
deposit amounting to P2,196,150.00, thereby reducing the latter's
outstanding obligation to P1,884,966.44, broken down as follows:

Rental Arrearages:
September 2004 768,652.50
October 2004 768,652.50
November 2004 768,652.50
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 November 2004 768,652.50
December 2004 768,652.50
January 2005 768,652.50
February 2005 102,487.02
–––––––––––
3,945,749.52

Less: payment made on 02-04-05 477,272.73

–––––––––––
3,468,476.79

Add: Late payment interest (5%) 612,639.65

–––––––––––
4,081,116.44

Less: Total guarantee deposit 2,196,150.00

–––––––––––

OUTSTANDING OBLIGATION 1,884,966.44

17

The complaint alleged that despite demand for payment, petitioner

refused to settle its unpaid obligation. 18
Petitioner, for its part, countered in its answer 19 that the stipulation in
the lease contract which fixed the late payment interest at 5% per month
was void for being extremely unconscionable, hence contrary to law and
public policy; that negotiations were made for the renewal of the lease
contract but the same failed due to its economic situation; that it ceased
operations on December 1, 2004 and proceeded to clear out the premises
and remove its assets; that the use of the leased premises after the
expiration of the contract on November 30, 2004 was merely incidental and
that all rentals due to respondent had already been settled. 20 Petitioner
prayed for the dismissal of the complaint, and by way of counterclaim,
payment of P300,000.00 as attorney's fees and P400,000.00 as exemplary
damages. 21
After the issues had been joined, the RTC set the case for pre-trial and
mediation. The parties, however, failed to reach an amicable settlement.
Thus, pre-trial and trial on the merits ensued. 22 AIDSTE

On October 21, 2009, the RTC rendered its Decision, 23 the dispositive
portion of which reads:
PREMISES CONSIDERED, judgment is rendered ordering
defendant Bioresearch to pay plaintiff its outstanding obligation in the
amount of P1,884,966.44, plus interest of five (5%) percent per
month and five (5%) percent per month as penalty computed from
March 2005 until payment is made by defendant.
For having been forced to litigate in order to protect its
pecuniary rights, a reduced award of ten (10%) percent as attorney's
fees is found justified instead of twenty five (25%) percent of the
amount due to plaintiff.
SO ORDERED. 24
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 Feeling aggrieved, petitioner filed an appeal with the CA. On November
8, 2011, the CA rendered the assailed Decision 25 dismissing the appeal and
affirming the RTC Decision. It held that given that the existence of the
obligation was fully established by the evidence on record, the burden of
proving that it has been extinguished by payment rests on petitioner which
offered such defense. Petitioner referred to a check voucher dated
November 30, 2004 to support its assertion that the rents due from
September to November 2004 have already been paid. However, the CA held
that this voucher is not a receipt. It is not also necessarily an evidence of
payment, but a way or method of recording or keeping track of payments
made. Unless supported by actual payment, a voucher remains a piece of
paper having no evidentiary weight. 26 As regards the claim of petitioner
that there was no basis for the RTC to order payment of interest at 5% per
month and penalty at 5% per month, the CA ruled that it is estopped from
impugning the validity of default interest and penalty stipulated in the
contract. 27 Also, it found that it was well within the RTC's discretion to grant
attorney's fees at the reduced rate of 10% instead of the 25% stipulated in
the contract given that respondent had established that it was compelled to
utilize the services of legal counsel and resort to legal action due to
petitioner's refusal to settle its obligation. 28
Hence, this petition.
Petitioner alleges that respondent is not entitled to the award of 5%
interest and 5% penalty charge since it is not entitled to the principal claim
of P1,884,966.44 in the first place. The computation of such amount is self-
serving, dishonest and erroneous, having been made by respondent's
"scheming accountant" who made it appear that there was delay in the
payment of rentals, when in fact there was none. 29 Petitioner claims that
rental payments from September to December 2004, as well as from January
to February 4, 2005, have all been paid. Furthermore, the award of 5%
interest per month and 5% penalty charge per month are unconscionable. 30
Too, there is no legal and factual basis for the award of attorney's fees as
petitioner had already settled its obligations. On the other hand, it is
petitioner that should be awarded attorney's fees after it was compelled to
incur legal expenses to protect its interests from respondent's unjustifiable
claims. 31 Petitioner therefore prayed for the Court to reverse the CA
Decision and award it P300,00.00 as attorney's fees and P400,000.00 as
exemplary damages. 32
The Court is thus called upon to decide whether or not the CA erred in:
(1) awarding respondent the amount of P1,884,966.44; (2) ordering
petitioner to pay interest of 5% per month; (3) ordering it to further pay 5%
per month in penalty charges computed from March 2005 until payment is
made; (4) awarding attorney's fees to respondent in the amount of 10% of
the monetary award due to it; and (5) not awarding exemplary damages and
attorney's fees in favor of petitioner. 33
There is no dispute that the relevant period subject of this case is
September 2004 to February 4, 2005, in which petitioner was alleged to
have been remiss in the payment of its rental obligations. Petitioner insists
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 that it has fully paid its obligations to respondent. To prove alleged payment
of rent from September to November 2004, it presented a check voucher,
marked as Exhibit "B" to the petition, which shows the following
computation: AaCTcI

Rental payment at Volvo Branch for the month of September to

November, 2004.

Rent — 09/04 to 11/04 (P732,050.00 [x 3 P2,196,150.00

mos.])
Add: VAT (P73,205.00 [x 3 mos.]) 219,615.00
––––––––––––
P2,415,765.00
Less: Withholding Tax (P36,602.50 [x 3 109,807.50
mos.])
––––––––––––
P2,305,957.50
Less: Security Deposit 34 2,196,150.00
––––––––––––
P109,807.50 35
===========

Petitioner claims that since the lease contract expired on November

30, 2004, respondent should have already applied its guarantee deposit as
payment for the rentals due for the months of September, October and
November 2004. 36 After the guarantee deposit is applied and its payment of
P109,807.50 to respondent on November 30, 2004 considered, it has fully
satisfied its rental obligations and thus cannot be held in default. 37
Petitioner moreover asserts that it has paid respondent P477,272.73,
representing rental fees for December 2004, based on a verbal agreement
to renew the lease contract at P500,000.00 per month, less withholding tax
of P22,727.73. 38 Petitioner asserts that its delivery to respondent of three
Metrobank checks totalling P500,000.00 representing payment of the
guarantee deposit for the new month-to-month oral lease contract perfected
and consummated the said oral lease contract, so that respondent is not
justified in charging it P768,652.50 monthly rental for December 2004, as
indicated in its Statement of Account. 39
Finally, petitioner argues that respondent is not entitled to rental
payments from January to February 2005 since this period was requested by
petitioner solely for the purpose of vacating and moving out all of its
equipment and fixtures out of the leased premises. Thus, its possession of
the leased premises for such period was merely incidental to the cessation
of its business operations and removal of these equipment and fixtures. For
respondent to charge it rentals for this period is tantamount to injustice and
unjust enrichment. 40
Petitioner's position is utterly unmeritorious.
First, it was erroneous for petitioner to apply the guarantee deposit to
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 rental fees due from September to November 2004 since the lease contract
proscribes it. The pertinent provision of the lease contract states: EcTCAD

SECTION V — GUARANTEE DEPOSIT

Upon signing of this Contract, the LESSEE shall pay to the LESSOR on
or before October 25, 1999, as and by way of guarantee deposit, an
amount equivalent to three (3) months' rental x x x. This sum,
which shall be non-interest bearing, cannot be applied by the
LESSEE to unpaid rent nor to the last month's rental, and
shall be kept intact throughout the life of this Contract.
In case of the LESSEE's failure to make the deposit herein provided
upon signing of this Contract, the LESSOR reserves the right to cancel
this Contract and said Contract shall thereupon become null and void
and shall cease to have any force and effect. Except as hereinafter
provided, this deposit shall be returned to the LESSEE without
interest within seven (7) days from the expiration of this
lease, or turnover of the LEASED PREMISES, whichever is
later, minus whatever amounts may be necessary to cover/answer
for damages to the LEASED PREMISES occasioned by the LESSEE's
fault or negligence, unpaid bills for water, electricity, telephone,
association dues and garbage fees, should there be any outstanding
at the time of the termination/cancellation of the contract, as well as
for any and all other repairs necessary to restore the LEASED
PREMISES to its original condition. The payment of this deposit
shall not relieve the LESSEE in any way from paying the
agreed upon monthly rentals on their due dates, and all other
fees and additional charges as provided for under this Contract, and
its failure to do so shall constitute a default or breach of this contract.
x x x 41 (Emphasis supplied.)
Clearly, the guarantee deposit was not intended to satisfy any rental
fee due from petitioner at any given time. It was rather intended to answer
for any damage to the leased premises occasioned by petitioner's fault,
unpaid obligations of petitioner at the time of the termination of the
contract, and any repairs necessary to restore the leased premises to its
original condition.
Equally important, the above provision categorically provides that it is
returnable to the lessee without interest within seven days from the
expiration of the lease or the turnover of the leased premises, whichever is
later. On the basis of the foregoing, petitioner is not justified in applying the
guarantee deposit to rentals due from September to November 2004. Even if
the lease contract automatically expired on November 30, 2004, petitioner
did not turn over the leased premises to respondent on that date. And then
again, the lease contract gives respondent a period of seven days to
determine whether damages or unpaid bills or fees may be deducted from
the guarantee deposit.
Petitioner argues that in September 2004, it informed respondent that
the security deposit amounting to P2,196,150.00 will be applied as rental
payments for the last three months of the contract. 42 However, there is no
proof of respondent's acquiescence to this proposal. The fact that
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 respondent did not treat the guarantee deposit as rental payments but
instead adhered to the text of the lease contract proves that there was no
parol agreement as regards the guarantee deposit. Accordingly, since
petitioner inappropriately applied the guarantee deposit as rental payments,
it is deemed to have been in default in the payment of rent from September
to November 2004.
As regards rental payment for December 2004, petitioner's argument
that it paid respondent P477,272.73 43 on the basis of an oral agreement for
the extension of the lease at a rental rate of P500,000.00 per month, lacks
basis. While respondent admits agreeing to the proposal of a reduced
monthly rental of P500,000.00, 44 there is nothing on record that indicates a
meeting of the minds between the parties with regard to the extension of the
lease contract. Petitioner's letter to respondent dated January 7, 2005 45 is,
however, telling. It shows that the extension of lease was a mere possibility
that petitioner eventually decided to forego in view of its decision to close its
business. Petitioner thus informed respondent that the three postdated
checks it issued, supposedly to serve as security deposit for the lease
extension, shall be cancelled. In lieu of the lease extension, petitioner
requested for a period of 30 days to vacate the leased premises. The letter
pertinently states: HSAcaE

We certainly discern your observation that we have already

forwarded to you three (3) postdated checks in the total amount of
[P1,500,000.00]. However, our understanding of the same was to
represent our security deposit for the occupancy of the leased
premises, should we be able to continue leasing the subject premises.
Relatively, we issued those checks upon your deadline of one (1) day
then imposed on us. In good faith, and thinking that maintaining the
premises was still viable, we then issued said checks just in case we
finally renewed our Contract of Lease.
At any rate, after broaching rigidly and prudently among us the
performance of the Branch/store during the last three (3) years of
operations there, particularly the sales thereof, which turn out to be
negative, brought about mainly by the current economic crisis the
country is into, we find it impossible now to still continue operating
the store on the premises. That even the amount of [P400,000.00]
monthly rental, which we sue for in our December 28, 2004 letter-
correspondence, turns out to be difficult to sustain with (sic ). Thus,
we have no recourse but to terminate our operations on the subject
premises at No. 108 Quezon Avenue, Quezon City.
May we respectfully request that we be given at least thirty
(30) days from tomorrow, January 8, 2005, to fully vacate the Leased
Premises at No. 108 Quezon Avenue, Quezon City, and the
possession thereof turn over to your good company.
Consequently, pleased (sic ) be advised that our unpaid rental
for December 2004, is now under preparation: the same shall be
delivered to you on or before the end of the thirty (30) days period.
Anent the three (3) postdated checks we issued suppose (sic ) to be
representing our security deposit shall be cancelled accordingly. 46
(Emphasis supplied.)
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 The foregoing circumstances clearly show that there was no meeting
of the minds between the parties as regards the extension of a contract of
lease, much less, a new monthly rental rate of P500,000.00. Hence, there is
no basis at all for petitioner to assert that the rental rate for December 2004
was satisfied by its payment to respondent of the amount of P477,272.73.
Finally, it is absurd for petitioner to assert that it is not liable to pay
rent for its continued occupation of the leased premises from the months of
January to February 4, 2005, since it requested that period solely to be able
to remove its equipment and fixtures from the premises. In the first place,
the contract of lease clearly provides that "[the lessee] shall return and
surrender the [leased premises] without need of further notice at the
expiration or valid termination of [the] lease x x x, except when an extension
is granted." 47 This indicates that at the time of the expiration of the lease
contract, the leased premises should have already been cleared and ready
to be turned over to respondent. The lease contract does not provide for a
rent-free extension for petitioner to be able to wrap up its business and
vacate the premises. Significantly, respondent made it clear in its letter to
petitioner dated January 10, 2005 that it agrees to allow the latter to vacate
the leased premises provided rental is paid. 48 In view of this factual setting,
petitioner cannot evade liability for payment of rent for the months of
January to February 4, 2005, the date it finally vacated the leased premises.
The lease contract provides that monthly rentals are due on or before
the 16th day of each month. 49 Further:
In case of the LESSEE's default in the payment of any of the rentals as
above stipulated, the LESSEE shall pay to the LESSOR interest at the
rate of five percent [5%] per month or fraction thereof on any
monthly rental not paid on time to be computed from the date of
delinquency, plus a penalty of five percent (5%) for every month of
delay. Any interest/penalty due and unpaid shall form part of the
principal and earn interest/penalty at the stipulated rate.
xxx xxx xxx 50
Since petitioner failed to pay the appropriate monthly rental for the
months of September to December 2004, January 2005 and February 4,
2005 at the time they were due, it is deemed to have been in default,
thereby giving rise to its obligation to pay interest and penalty charges.
Coming now to the issues of whether the 5% monthly interest and 5%
penalty charge stipulated in the contract are unconscionable as petitioner
asserts, we rule in the affirmative. HESIcT

Article 1306 of the Civil Code provides:

Art. 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.
We have affirmed in so many cases that the stipulated interest rates of
3% per month and higher are excessive, iniquitous, unconscionable and
exorbitant. 51 Such stipulations are contrary to morals and therefore void ab
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 initio under Article 1306 of the Civil Code. 52 In Castro v. Tan , we held that
the freedom of contract is not absolute, but is understood to be subject to
reasonable legislative regulation aimed at the promotion of public health,
morals, safety and welfare. One such legislative regulation is found in Article
1306 of the Civil Code. 53 We thus declared in that case the stipulation of 5%
interest per month iniquitous and unconscionable and, in its stead, imposed
the legal interest of 12% per annum. 54 In doing so, we held that there is no
unilateral alteration of the terms and conditions of the contract entered into
by the parties, since it is more consonant with justice that the subject
interest rate be equitably reduced and the legal interest of 12% per annum
is deemed fair and reasonable. 55
I n Menchavez v. Bermudez, 56 we likewise struck down the stipulated
interest rate of 5% per month for being iniquitous and unconscionable. We
held that since the stipulation on the interest rate is void, it is as if there was
no express contract on said interest rate. Hence, courts may reduce the
interest rate as reason and equity demands. 57
In Albos v. Embisan, 58 we similarly held that a 5% monthly rate, be it
simple or compounded, written or verbal, is void for being too exorbitant,
thus running afoul of Article 1306 of the New Civil Code. 59 We also declared
that the imposition of an unconscionable rate of interest on a money debt,
even if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of
property, repulsive to the common sense of man. It has no support in law, in
principles of justice, or in the human conscience nor is there any reason
whatsoever which may justify such imposition as righteous and as one that
may be sustained within the sphere of public or private morals. 60
As jurisprudence on the nullity of excessive interest rates is both clear
and consistent, we do not find any cogent reason to deviate therefrom.
Following the judicial pronouncement in the above-cited cases, the 5% per
month interest rate imposed in this case is nullified for being
unconscionable. In lieu thereof, a simple interest of 12% per annum is
imposed.
We note at this point the outrageous computation of interest by
respondent in the amount of P722,447.15. In its comment, respondent gave
a breakdown of this amount, which was calculated beginning November 15
to December 15, 2003, and ending on February 1 to 4, 2005. 61 This
computation is inappropriate considering that respondent presented
evidence of petitioner's default only beginning September 2004. Petitioner
thus cannot be made to pay interest rates prior to that time.
We likewise hold the 5% monthly compounded penalty charge imposed
by the lease contract in case of petitioner's default similarly unconscionable,
and accordingly must be reduced. caITAC

I n Ligutan v. Court of Appeals, 62 we held that a penalty clause,

expressly recognized by law, is an accessory undertaking to assume greater
liability on the part of an obligor in case of breach of an obligation. It
functions to strengthen the coercive force of the obligation and to provide, in
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 effect, for what could be the liquidated damages resulting from such a
breach. The obligor would then be bound to pay the stipulated indemnity
without the necessity of proof on the existence and on the measure of
damages caused by the breach. Although a court is not at liberty to ignore
the freedom of the parties to agree on such terms and conditions as they see
fit that contravene neither law nor morals, good customs, public order or
public policy, a stipulated penalty, nevertheless, may be equitably reduced
by the courts if it is iniquitous or unconscionable or if the principal obligation
has been partly or irregularly complied with. 63
Pertinently, Article 1229 of the Civil Code states:
Art. 1229. 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.
In exercising this power to determine what is iniquitous and
unconscionable, courts must consider the circumstances of each case since
what may be iniquitous and unconscionable in one may be totally just and
equitable in another. 64
The question of whether a penalty is reasonable or iniquitous can be
partly subjective and partly objective. Its resolution would depend on such
factors as, but not necessarily confined to, the type, extent and purpose of
the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the
parties, and the like, the application of which, by and large, is addressed to
the sound discretion of the court. The stipulated penalty might likewise be
reduced when a partial or irregular performance is made by the debtor. 65
We rule that the penalty charge of 5% per month is unconscionable. 66
We note that there is no indication of petitioner's default in any of the years
that the lease contract was effective, apart from the current one. Further,
petitioner's default appears to have been the product of a misapprehension
of the provisions of the lease contract, rather than a result of bad faith. We
also consider that petitioner was unable to pay due to the unconscionable
interest and penalty charges imposed by the lease contract at the time when
petitioner was about to go out of business. Just the same, however, it made
partial payments to respondents in a good faith belief that its account is
updated. In view of these circumstances, we reduce the penalty charge to a
straight 6% per annum.
Similarly, we reduce the attorney's fees to 5% of the principal amount
due. Attorney's fees are in the nature of liquidated damages, which pursuant
to Article 2227 of the Civil Code, shall be equitably reduced if they are
iniquitous or unconscionable.
We emphasize at this point that the parties' rights and obligations are
first and foremost determined by the contract of lease, which is the law
between them. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.
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 67 As long as the terms of the contract are not contrary to law, morals, good
customs, public order or public policy, they shall be respected by courts. The
judiciary is not authorized to make or modify contracts; neither may it rescue
parties from disadvantageous stipulations. Courts, however, are empowered
to reduce iniquitous or unconscionable, liquidated damages, indemnities,
penalties, 68 and interest rates agreed upon by the parties.
Moreover, the expiration of the lease contract on November 30, 2004
does not render the contract ineffectual insofar as the rights and obligations
of the parties are concerned. Under Article 1670 of the Civil Code, if
petitioner continued to occupy the leased premises for 15 days with the
acquiescence of respondent, it is understood that there is an implied new
lease for the duration that respondent has given and that the other terms of
the original contract shall be revived. 69
Finally, petitioner is not entitled to an award of exemplary damages. It
is a requisite for an award of exemplary damages that respondent's acts
must be accompanied by bad faith or done in wanton, fraudulent or
malevolent manner. 70 These circumstances are absent in this case.
Likewise, petitioner is not entitled to attorney's fees as this is an award that
the court may grant to respondent as a successful party in this case, as an
indemnity for damages sustained by it in prosecuting, through counsel, its
cause in court. 71 ICHDca

In sum, the Court rules that petitioner is liable to respondent for the
following principal amount:
Rentals Due:
September 2004 - P768,652.50
October 2004 - 768,652.50
November 2004 - 768,652.50
December 2004 - 768,652.50
January 2005 - 768,652.50
February 2005 - 102,487.02
––––––––––––––
Total: P3,945,749.52 72
Less: Partial payments (P109,807.50) 73
(477,272.73) 74
Guarantee deposit (2,196,150.00) 75
––––––––––––––
Total Payable Amount - P1,162,519.29

Petitioner is also liable to pay interests and penalty charges on the

principal amount beginning April 13, 2005, the date of extrajudicial demand
made by respondent's counsel to petitioner, 76 and attorney's fees, as herein
provided.
WHEREFORE, the petition is PARTIALLY GRANTED . Judgment is
hereby rendered ordering petitioner Bio-Research, Inc. to pay respondent
Univille Development Corporation:
1. The principal sum of P1,162,519.29;
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 2. Interest on the principal amount at 12% per annum from April 13,
2005 until June 30, 2013, and 6% per annum from July 1, 2013
until the finality of this Resolution. The amount due shall further
earn interest at 6% per annum from the finality of this Resolution
until full payment;
3. Penalty charge at the rate of 6% per annum from April 13, 2005
until the finality of this Resolution, which amount shall also
further earn interest at 6% per annum from the finality of this
Resolution until full payment; and
4. Attorney's fees pegged at 5% of the principal amount, or the
amount of P58,125.96.
SO ORDERED." (Sereno, C.J., on leave; De Castro, J., designated as
Acting Chairperson of the First Division per Special Order No. 2540 dated
February 28, 2018.) TCAScE

Very truly yours,

(SGD.) LIBRADA C. BUENA

Deputy Division Clerk of Court

Footnotes
1. Rollo , pp. 7-26.

2. Id. at 28-39, penned by Associate Justice Apolinario D. Bruselas, Jr., with

Associate Justices Mario L. Guariña III and Manuel M. Barrios, concurring.
3. CA rollo, p. 13.

4. Rollo , pp. 29, 64-78. The CA Decision stated that the parties entered into a lease
contract on December 1, 1999. However, the lease contract in the records is
dated December 3, 1999.
5. Id. at 29.

6. Id. at 79.

7. Id. at 30; Records, p. 2.

8. Rollo , p. 80.

9. Id. at 29, 80.

10. Id. at 81.

11. Id.

12. Rollo , p. 29.

13. Records, pp. 1-5.

14. Id. at 3.
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 15. Id. at 2.
16. Id.

17. Records, pp. 2-3. Emphasis in the original.

18. Id. at 3.

19. Id. at 35-39.

20. Id. at 36.

21. Id. at 38-39.

22. Rollo , p. 31.

23. CA rollo, pp. 9-13.

24. Id. at 13.

25. Supra note 2.

26. Rollo , p. 35.

27. Id. at 37.

28. Id. at 38.

29. Id. at 13.

30. Id. at 13-14.

31. Id. at 16.

32. Id. at 24.

33. Id. at 10-11.

34. Id. at 66. Denominated as "Guarantee Deposit" in the lease contract.

35. Id. at 40.

36. Id. at 16.

37. Id. at 13.

38. Id. at 21.

39. Id. at 22.

40. Id. at 23.

41. Id. at 66.

42. Id. at 19-20.

43. Id. at 21. Computed as follows:

Rental for December - P454,545.45

2004
Input tax - 45,454.55
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 ––––––––––
P500,000.00
Less: withholding tax - 22,727.27
––––––––––
Net pay - P477,272.73

44. Id. at 45.

45. Supra note 8.

46. Id.

47. Rollo , p. 75.

48. Id. at 81.

49. Id. at 66.

50. Id.
51. Chua v. Timan, G.R. No. 170452, August 13, 2008, 562 SCRA 146, 149-150.

52. Castro v. Tan , G.R. No. 168940, November 24, 2009, 605 SCRA 231, 238.

53. Id. at 239.

54. Id. at 240.

55. Id. at 241.

56. G.R. No. 185368, October 11, 2012, 684 SCRA 168.

57. Id. at 179.

58. G.R. No. 210831, November 26, 2014, 743 SCRA 283.
59. Id. at 294.

60. Id. at 295. Citation omitted.

61. Rollo , pp. 48-49.

62. G.R. No. 138677, February 12, 2002, 376 SCRA 560.

63. Id. at 567-568. Citations omitted.

64. Imperial v. Jaucian , G.R. No. 149004, April 14, 2004, 427 SCRA 517, 526.

65. Ligutan v. Court of Appeals, supra note 62 at 568. Citations omitted.

66. In MCMP Construction Corp. v. Monark Equipment Corp., G.R. No. 201001,
November 10, 2014, 739 SCRA 432, 443, we held that the penalty charge of
2% per month is unconscionable. Similarly, in Pentacapital Investment
Corporation v. Mahinay, G.R. No. 171736, July 5, 2010, 623 SCRA 284, 305-
306, we held that the penalty charge of 3% per month is unconscionable and
reduced it accordingly.
67. Morla v. Belmonte, G.R. No. 171146, December 7, 2011, 661 SCRA 717, 730-
731. Citations omitted.
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 68. Pryce Corporation v. Philippine Amusement and Gaming Corporation, G.R. No.
157480, May 6, 2005, 458 SCRA 164, 167.

69. CIVIL CODE, Art. 1670. If at the end of the contract the lessee should continue
enjoying the thing leased for fifteen days with the acquiescence of the lessor,
and unless a notice to the contrary by either party has previously been given,
it is understood that there is an implied new lease, not for the period of the
original contract, but for the time established in Articles 1682 and 1687. The
other terms of the original contract shall be revived.

70. "J" Marketing Corp. v. Sia, Jr., G.R. No. 127823, January 29, 1998, 285 SCRA
580, 583-584.
71. Aquino v. Casabar , G.R. No. 191470, January 26, 2015, 748 SCRA 181, 189-
190. Citation omitted.

72. Rollo , pp. 47-48.

73. Id. at 13, 47.

74. Id.

75. Rollo , p. 13.

76. Id. at 84.

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