Imperial v Jaucian

G.R. No. 149004 April 14, 2004

Art. 1229 – The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor

Facts:

·          Alex A. Jaucian filed a case for collection of money against Restituta Imperial.

·          The complaint alleges, inter alia, that Imperial obtained from him 6 separate loans as evidence in 6 separate promissory notes and several checks issued as guarantee for payment.

·          When the said loans became overdue and unpaid, especially when the defendant’s checks were dishonored, Jaucian made repeated oral and written demands for payment.

·          In her defense, Imperial alleged that she has fully paid her obligations, and that charging of interest of 28% per centum per annum is illegal, and of the penalty and attorney’s fee as iniquitous and unconscionable.

Issue:

WoN the rate, penalty and attorney’s fee must be equitably reduced for being iniquitous, unconscionable and exorbitant.

Held:

            Yes, the Court finds the stipulated interest rate even more iniquitous and unconscionable, as it amounts to 192% per annum, as well as the penalty and attorney’s fee. Thus, they can be equitably reduced.

            The provisions of Article 1229 of the Civil Code empowers the judge to reduce the civil penalty equitably, when the principal obligation has been partly or irregularly complied with, and when it is iniquitous and unconscionable.

            In the present case, iniquitous and unconscionable was the parties’ stipulated penalty charge of 5% per month or 60% per annum, in addition to regular interests and attorney’s fees. Also, there was partial performance by petitioner when she remitted ₱116,540 as partial payment of her principal obligation of ₱320,000. Under the circumstances, the trial court was justified in reducing the stipulated penalty charge to the more equitable rate of 14% per annum.

Upon this premise, the Court also upholds that the RTC’s reduction of attorney’s fees -- from 25% to 10% of the total amount due and payable -- is reasonable.

Thus, the petition is DENIED.