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.

MIAA v Ala Industries Corp

G.R. No. 147349 February 13, 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:

·          MIAA awarded a contract involving the structural repair and waterproofing of the International Passenger Terminal (IPT) and International Container Terminal (ICT) buildings of the Ninoy Aquino International Airport (NAIA) to ALA, which submitted the second lowest and most advantageous bid.

·          The contract contains escalation clauses and price adjustments.

·          ALA made the necessary repairs and waterproofing. After submission of its progress billings to MIIA, ALA received partial payments. But progress billing No. 6 remained unpaid despite repeated demands by ALA.

·          The petitioner unilaterally rescinded the contract on the ground that respondent failed to complete the project within the agreed completion date.

·          ALA objected to the rescission made by MIAA and reiterated its claims with damages.

·          Both parties executed a compromise agreement with judicial approval.

·          However, MIAA defaulted in payment and attributed its delay to the Christmas season, for them a Fortuitous Event, which prompted the trial court to deny motion for execution against ALA.

·          But the CA reversed the order and issued a writ of execution to enforce ALA’s claim to the extent of MIAA’s remaining balance.

·          The MIAA invoked Article 1229 of the Civil Code to reduce the penalty.   

Issue:

WoN the Article 1229 of the Civil Code is applicable to the petitioner’s case.

Held:

            No, the Court holds that such provision is applicable only to contracts that are the subjects of litigation, not to final and executory judgments.

Basic is the rule that if a party fails or refuses to abide by a compromise agreement, the other may either enforce it or regard it as rescinded and insist upon the original demand. For failure of petitioner to abide by the judicial compromise, respondent chose to enforce it. The latter’s course of action was in accordance with the very stipulations in the Agreement that the lower court could not change.

Respondent is thus entitled to a writ of execution for the total amount contained in the Compromise Agreement. The Court cannot reduce it. The partial payment made by petitioner does not at all contravene Article 1229 of the Civil Code, which is applicable only to contracts that are the subjects of litigation, not to final and executory judgments.

Thus, the petition is DENIED.

Lo v CA

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 P5,000 to P1,000 for each day of delay. Thus, petition is hereby DENIED.

DBP v CA

G.R. No. 137557; October 30, 2000

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

Facts:

·          Petitioner Development Bank of the Philippines is the owner of a parcel of land in Bulacan

·          It sold the land to respondent spouses Nilo and Esperanza De La Peña under a Deed of Conditional Sale for ₱207,000.00, that:

      a.    the down payment shall be ₱41,400.00;

      b.    the balance of P165,600.00 to be paid in six (6) years on the semi-annual        

           amortization plan at 18% interest per annum;

      c.    The first amortization of ₱23,126.14 shall be due and payable six (6) months       

           from the date of execution of the Deed of Conditional Sale; and

      d.    all subsequent amortizations shall be due and payable every six (6) months 

           thereafter

·          After the execution of the contract, the spouses De La Peña constructed a house on the said lot and began living there. They also introduced other improvements therein.

·          The spouses made the total payment of ₱289,600.00, after which they asked DBP for the execution of a Deed of Absolute Sale and for the issuance of the title to the property.

·          However, DBP informed them that there was still a balance of ₱221,86.85, which demanded from them, otherwise, it would rescind the sale.

·          The spouses filed a complaint against petitioner for specific performance and damages with a prayer for the issuance of a temporary restraining order to enjoin the DBP from rescinding the sale and selling the land to interested buyers.

·          The trial court dismissed the complaint as plaintiffs have still to pay the defendant the sum of ₱54,200.00 as interest to be able to sue for specific performance, but declared the writ of preliminary injunction permanent, with attorney’s fee and costs of suit against DBP.  The CA affirmed the RTC ruling but deleted attorney’s fee.

·          On petition, DBP cited that the courts erroneously took into account only the 18% annual interest on the remaining balance of ₱165,000.00, resulting in the difference of P54,200.00, and in disregarding paragraph 8 of the contract on additional interests and penalty charges of 8% per annum so that the respondent spouses still owed DBP the amount of ₱225,855.86

Issue:

            WoN the court can reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor.

Held:

Yes, the Court agrees with the CA that the payment of the penalty charge can be reduced for being excessive and unwarranted under the circumstances.

Article 1229 of the Civil Code states that "Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable."

In the instant case, private respondents made regular payments to petitioner DBP in compliance with their principal obligation. They failed only to pay on the dates stipulated in the contract. This indicates the absence of bad faith on the part of private respondents and their willingness to comply with the terms of the contract. Moreover, of their principal obligation in the amount of ₱207,000.00, private respondents have already paid ₱289,600.00 in favor of petitioner.

These circumstances convince the Court of the necessity to equitably reduce the interest due to petitioner and does so by reducing to 10% the additional interest of 18% per annum computed on total amortizations past due. The penalty charge of 8% per annum is sufficient to cover whatever else damages petitioner may have incurred due to respondents’ delay in paying the amortizations, such as attorney’s fees and litigation expenses.

Thus, the CA decision is affirmed with modification.