G.R. No.
141434. September 23, 2003
Art. 1229 – The judge shall equitably reduce the
penalty when the principal obligation has been partly or irregularly complied
with by the debtor
Facts:
·
At the core of
the controversy were two parcels of land with an office building constructed
thereon located at Bo. Potrero, Malabon, Metro Manila.
·
Petitioner
acquired the subject parcels of land in an auction sale from the Land Bank of
the Philippines.
·
Private
respondent National Onion Growers Cooperative Marketing Association, Inc., an
agricultural cooperative, was the occupant of the disputed parcels of land
under a subsisting contract of lease with Land Bank.
·
Upon the
expiration of the lease contract, petitioner demanded that private respondent
vacate the leased premises and surrender its possession to him.
·
Private
respondent refused on the ground that it was, at the time, contesting
petitioner’s acquisition of the parcels of land in question in an action for
annulment of sale, redemption and damages.
·
Petitioner
filed an action for ejectment asking for the imposition of the contractually stipulated penalty of P5,000
per day of delay in surrendering the possession of the property to him.
·
MTC Malabon
decided the case in favor of petitioner, was affirmed in toto by RTC Malabon
and CA with modifications, reducing the penalty by reason of delay from P 5,000
to P 1000 per day.
·
The petitioner
filed the instant petition for review, raising the sole issue of the alleged lack of authority of the CA to reduce the penalty awarded by
the trial court, the same having been stipulated by the parties in their
Contract of Lease.
Issue:
WoN
the CA lacks of authority to reduce the penalty
awarded by the trial court.
Held:
No, the Court holds that CA may equitably reduce a stipulated penalty in the contract if it is
iniquitous or unconscionable, or if the principal obligation has been partly or
irregularly complied with.
This power of
the court is explicitly sanctioned by Article 1229 of the Civil Code.
In this case,
the stipulated penalty was reduced by the appellate court for being
unconscionable and iniquitous. As provided in the Contract of Lease,
private respondent was obligated to pay a monthly rent of P30,000. But
the stipulated penalty was pegged at P5,000 for each day of delay
or P150,000 per month, an amount five times the monthly rent. This
penalty was not only exorbitant but also unconscionable, taking into account
that private respondents delay in surrendering the leased premises was because
of a well-founded belief that its right of preemption to purchase the subject
premises had been violated. Considering further that private respondent
was an agricultural cooperative, collectively owned by farmers with limited
resources, ordering it to pay a penalty of P150,000 per month on
top of the monthly rent of P30,000 would seriously deplete its
income and drive it to bankruptcy.
Accordingly, the Court rules that CA did not commit
any reversible error in the exercise of its discretion when it reduced the
award of penalty damages from 
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